No, not Crimea-Ukraine. This is a non-political blog.

Comes now Judge James S. (“Big Jim”) Halpern to continue the tangled trail of James (“Little Jim”) Haber, the star of my blogposts “Ironbridge Over Troubled Waters”, 6/5/12, “Getting Shifty”, 9/20/13, and “Immunology”, 3/18/14. This time it’s a New York state of mind, but not the 1976 Billy Joel crowd-pleaser.

The story can be found in AD Investment 2000 Fund LLC, Community Media, Inc., a Partner Other Than the Tax Matters Partner, 142 T. C. 13, filed 4/16/14, and it’s an unlucky 13 for Little Jim and his partners.

The issue is whether AD and its various partners can duck the substantial understatement, gross overvaluation, and negligence chops that IRS is hurling at them, arising out of a Son-of-BOSS mix-and-match, a phony partnership intended to marry a big paper loss with a real big monetary gain.

Of course, the issue is the reasonable belief of the partnership (and this is a TEFRA partnership-level jump-ball) that they stood a better than 50-50 shot at a win if IRS blew up their little fandango.

AD and chums claim they reasonably believed, without stating they relied on anybody to help them believe. They went with Reg. 1-6662-4(g)(4)(i)(A), which says that if AD and chums did their own digging, they could rely on what they turned up themselves, unlike Reg. 1-6662-4(g)(4)(i)(B), which is the “we relied on experts” and believed.

So AD and chums claim good faith self-determination. And therefore the six opinion letters they got from the law firm of Brown & Wood are privileged, not discoverable, and anyway are irrelevant.

No, says Big Jim. Once you place your state of mind in controversy, whatever induced you to come to that state of mind is fair game, and there’s an implied waiver of client-attorney privilege.

Personal injury lawyers know well that when someone claims they’re sick, sore, lame or lazy, patient-physician privilege is out the window and all the medical records and conversations with the doctors go into evidence. And that’s true even if the plaintiff (or other party) feels, and is in fact, sick, sore, lame, etc.

The aim is to prevent the shield that protects client-attorney confidences from becoming a sword to stick your adversary.

“Respondent [IRS] concedes that petitioners’ averments raise only the first method (self-determination), and not the second method (reliance on professional advice), to show that the partnerships satisfy the belief requirement. Nevertheless, respondent argues, petitioners have placed the opinions into controversy by relying on a reasonable cause, good-faith defense and by putting the partnerships’ beliefs into issue. Respondent states: ‘Under the first method, * * * those tax opinions remain relevant to the subjective inquiries into reasonableness and good faith.’ He adds: ‘Putting reasonable belief in issue places the Partnership[‘s], and specifically James Haber’s, state of mind at issue.” He explains: ‘Mr. Haber [“de facto manager of the partnership vehicle[s]”] received the subject tax opinions before taking the questioned positions and presumably before making his alleged self-determination of authorities.’ The opinions are relevant, respondent argues, because, if they contradict Mr. Haber’s claimed self-determination, they may show that his self-determination was not reasonable, and, if consistent with his self-determination, they may show that he made no self-determination.” 142 T. C. 13, at pp. 6-7.

Nice, huh? A definite Taishoff “good hit” to IRS’ counsel.

But there’s a Golsen face-off here, because AD and chums, being New Yorkers, claim Second Circuit needs explicit reliance on the attorneys’ advice to waive the privilege, while IRS claims that the DC Circuit evidentiary rules apply. But in any case, Second Circuit has held that where one places one’s state of mind at issue, the implied waiver has to apply, in fairness, where facts and circumstances so dictate.

And good faith means you thought you were doing the right thing (or at least 50% of the right thing). And how you got there is everything to the point.

So even though Little Jim may not take the stand (and Judge Big Jim agreed that it would be a bad idea if he did; see my blogpost “Getting Shifty”, op. cit., as my expensive colleagues would say), Judge Big Jim wants to see all six of the Brown & Wood billets doux, with a hearing on whether to impose sanctions on AD and chums for non-production.

Maybe better not to get opinion letters sometimes. Mighty unhandy things.

This is a sequel to my blogposat “Practicing in Tax Court Can Be Hazardous”, 1/28/14, the saga of Alvan L. Bobrow and Elisa S. Bobrow.

The Bobrows come bobbing back to Tax Court, assisted by The American College of Tax Counsel, to which august body I do not belong. And although Judge Nega seems not disposed to grant Alvan’s sought-after Rule 161 reconsideration, there is a happy ending for Alvan and the collegiates in Alvan L. Bobrow & Elisa S. Bobrow, Docket No. 7022-11, filed 4/15/14.

Alvan and the collegiates were arguing that Pub 590 says you can do one rollover annually for each of your IRAs, although Judge Nega said in 2014 T. C. Memo. 21 that Section 408(d)(3)(b) lets you roll only one annually, however many you have.

The collegiates “…also noted that section 1.408-4(b)(4)(ii), Proposed Income Tax Regs., 46 Fed. Reg. 36206 (July 14, 1981) (the proposed regulation), served as the basis for the relevant portion of Publication 590. The College’s amicus brief argued that the Court should reconsider our holding to conform with Publication 590. Additionally, the College argued that section 1.6662-4(d)(3)(iii), Income Tax Regs., allows proposed regulations to serve as sources of substantial authority that would mitigate or negate a section 6662 accuracy-related penalty.” Order, at pp. 2-3.

But Judge Nega will have none of it. “Neither petitioners nor respondent raised Publication 590 or the proposed regulation in their opening briefs, reply briefs, or sur-reply briefs. Petitioners first discussed Publication 590 in their motion for reconsideration but did not discuss the proposed regulation. Petitioners assert in their motion for reconsideration that Publication 590 should inform our interpretation of section 408(d)(3)(B) and that, at a minimum, Publication 590 provides petitioners with reasonable cause for their position, sufficient to negate the section 6662 penalty.

“Respondent first discussed Publication 590 and the proposed regulation in the Notice of Objection. Respondent acknowledged that Publication 590 and the proposed regulation should have been addressed in respondent’s briefs.” Order, at p. 3.

And to drive home the point, Judge Nega turns waspish: “The Court was aware of the position taken in Publication 590 prior to the issuance of the opinion in this case. Since neither party discussed Publication 590 in their briefs, the Court did not address it in its holding. Regardless, respondent’s published guidance is not binding precedent.” Order, at p. 3.

However, IRS is swayed by the collegiates’ and Alvan’s collective tale of woe.

“On March 20, 2014, the IRS released Announcement 2014-15, Application of One-Per-Year Limit on IRA Rollovers. Announcement 2014-15 announced that the IRS will follow the Court’s decision in this case but will not enforce the section 408(d)(3)(B) limitation as applying to all of a taxpayer’s IRAs until January 1, 2015. Respondent’s Notice of Objection agrees to extend the approach set forth in Announcement 2014-15 to petitioners, thus reducing petitioners’ tax liability and the associated 6662 penalty.” Order, at p. 3.

So IRS and Alvan are going to settle. That means the motion for reconsideration is denied as moot, and everybody can roll all their IRAs for the next seven-and-a-half months with a light heart.

Laissez les IRAs roulez!!

Cautionary Tales for Lawyers

I would have posted this yesterday, 4/14/14, but I arrived home late last night from a family celebration (and I again thank my brother and sister-in-law for their overwhelming hospitality), so I deferred until now.

Every lawyer has received The Phone Call. It comes, for the most part, long after the case or matter is concluded, the file closed, and client forgotten (or nearly so). It comes, again for the most part, when one is finally packing up to go home after an exhausting day, and one dares to turn one’s mind to something cold, and clear, and containing an olive.

Then it comes. “I just got [whatever], and it’s all your fault”. The voice on the telephone is loud and grating, rather like the ice against the plates on the side of the Titanic at that moment, one hundred two years ago today.

First up, Allen H. Johnson, 2014 T. C. Memo. 67, filed 4/14/14. Allen was a man of good faith, who played, as he thought, according to the rules. He made his spousal maintenance payments in accordance with the terms, conditions and provisions of the divorce decree from the Family Court of the State of Minnesota, as the same were thereafter modified and amended.

Said divorce decree provided, in pertinent part: “A divorce decree…required Mr. Johnson to pay spousal maintenance of $6,068 per month. In addition to the spousal maintenance payments, the divorce decree also required Mr. Johnson to pay 40% of his gross bonus to his ex-wife. Both the periodic spousal maintenance payments and the additional payment terminate upon the occurrence of any one of the following events: (a) the graduation from high school of the youngest child; (b) the remarriage of Mr. Johnson’s ex-wife, or (c) the death of either Mr. Johnson or his ex-wife. The divorce decree states that the spousal maintenance should be deductible to Mr. Johnson under section 215 and includible in his ex-wife’s gross income under section 71.” 2014 T. C. Memo. 67, at pp. 2-3.

And there was a separate child support provision. And Mr. Johnson took the deduction, and ex-Mrs. Johnson took in the payments as gross income.

Sounds OK? Nope.

It does satisfy the Big Four of Section 71(b): part of a divorce decree, doesn’t state that it is not includible or allowable, spouses aren’t living in same household when payments made, and dies with payee spouse.

But it misses Section 71(c)(2). It is tied in to a “contingency involving a child”. And that derails the deduction. The legislative intent is obvious: to keep people from playing games by making child support payments (not deductible except as limited by Section 152) deductible without limit by labeling the payments as alimony and not child support.

OK, nothing novel here. See my blogpost “End of the Trail”, 9/5/12.

Allen’s divorce lawyer (or whoever provided the tax advice) blew it. Having the payments end with the graduation of the youngest child, or anything to do with any child, is the critical error.

As shown in my blogpost aforesaid, dear divorce lawyers, tie the end of payments to a date certain. If that date certain happens to coincide with someone’s eighteenth birthday, well, that’s a coincidence. Who knows when, whether or if anyone will attain to the age of eighteen years, graduate from high school, marry or join the circus?

Allen’s CPA followed the divorce decree when preparing Allen’s return, so Allen acted in good faith, thus no 20% substantial understatement chop. But he still owes tax and interest, and I doubt he’s a happy camper. His divorce lawyer (or whoever provided the tax advice) may already have received The Phone Call.

Next up, Estate of Wallace R. Woodbury, Deceased, Wallace Richards Woodbury, Jr., Executor, 2014 T. C. Memo. 66, filed 4/14/14. The Late Wally owned a lot of closely-held family businesses, said Wally Junior, so he needed more time to file the 706. He wanted the Section 6166(a) closely-held small business 10-year installment plan. So first he sought an extension of the nine-month basic filing period, filing Form 4768, and checking the Section 6166 installment box and the Section 6161 extension of time to pay box.

IRS gave him the maximum six months’ extension, but Wally Junior needed more, so he asked for more. Unfortunately, whoever was advising Wally Junior never looked at Section 6081(a); the maximum extension for anyone in-country to file anything is six months. So IRS told Wally Junior he couldn’t have any more time.

And whoever was advising Wally Junior didn’t list the small businesses and show they were 35% or more in value of the gross estate in the cover letter they sent with the Form 4768. And it took Wally Junior nearly three years to file the 706.

You can guess the rest: no extension, no installment plan (Section 6166 election must accompany timely-filed return, per regulations) and no extension of time to pay.

Wally Junior wants a declaratory judgment (that’s a DJ to us professionals) per Section 7479. That provision lets Tax Court rule on a Section 6166 installment election, but not Section 6161 pay election. “(…our jurisdiction in the instant case arises under sec. 7479, which confers jurisdiction on the Court to make a declaratory judgment regarding whether an election may be made under sec. 6166 or whether the extension of time for payment of tax provided in sec. 6166(a) has ceased to apply with respect to an estate. Accordingly, we do not consider sec. 6161.” 2014 T. C. Memo. 66, at p. 4, footnote 4.

He gets his DJ, though. And it isn’t great. You’re too late, baby. You didn’t make your election with a timely-filed return. Your substantial compliance argument is out, as you didn’t substantially comply. You didn’t timely tell IRS what your closely-helds were and how they amounted to 35% or more of the gross estate, which are among the essential elements of complying with Section 6166(a). And while you made payments as if you had made a proper Section 6166(a) election, that doesn’t help you.

Tax Court has no equitable jurisdiction, so they can’t let you pay the balance and interest over what would have been the remaining term of an installment agreement.

Statutes of limitations are harsh, but there has to be an end, even where it could hurt.

Now why is this a cautionary tale for lawyers? See 2014 T. C. Memo. 66, at p. 7, footnote 6. Conceding the Section 6081(a) outside limit for extensions to file, Wally Junior states in his petition: ““Petitioner, relying upon legal counsel’s erroneous advice that a second extension of time could be obtained to file the 706 return, sought to obtain a second extension of time, which was subsequently denied and which therefore resulted in Petitioner making an untimely filing of the Decedent’s 706 return”.

Leaving aside the fact that Wally Junior knew or should have known that, when IRS bounced his second extension request, he had to bestir himself vigorously, or at least go to the bullpen for other counsel, lawyers should be aware that, in tax law, here there be dragons.

And the first one hears that there are dragons may be The Phone Call.

You really should make and enter your Rule 155 computation, even if you want to appeal from the decision which will follow and claim you owe nothing. And even if IRS is late with the 90 day requirement under Rule 155, Tax Court will give them a bye

So what have you got to lose? In the case of John Carter, Docket No. 30786-09, filed 4/14/14, the $71K reduction in what you owe, from that Obliging Jurist, Judge David Gustafson.

Remember John Carter? No? He was the first recipient of Judge Gustafson’s obliging nature to feature in a Taishoff blogpost, viz., as my high-priced colleagues would say, “We’ll Come To You”, 9/18/12.

In December of that year, Judge Gustafson did hold the trial at the Stony Lonesome wherein John then resided. A cursory review of Judge Gustafson’s 36-page off-the-bencher (available on the Tax Court website) shows John to be an inventive fellow.

After extensive backing and filling and swinging the lead (John was an erstwhile trustee of the Independence Maritime Museum), IRS finally puts in its computations of the wages of sin that wound up in John’s hands.

John files nothing, except a motion to default IRS for missing the 90 day deadline of Rule 155 and claiming that, since he’s going to appeal any decision, it doesn’t matter what the numbers are.

“Respondent complied with the rule after a lapse. Petitioner has complied with it not at all. The party that has arguably defaulted here is petitioner, by wholesale noncompliance with Rule 155.

“Petitioner was wrong in stating that ‘[h]is failure to agree with the 11/18/13 Order does not permit him to submit a computation’. His disagreement with the Court’s opinion, and his intention to appeal the eventual decision, did not prevent him from submitting a computation. On the contrary, he was required to do so. If the Court were to strike or disregard respondent’s computation, petitioner’s failure to submit a computation would theoretically leave the Court in a position to enter decision simply upholding the original (excessive) deficiencies for the six years, in the absence of demonstrated alternative deficiency amounts, which it was ultimately petitioner’s burden to show. It was therefore in a sense to petitioner’s benefit that we allowed respondent’s late filing. Without it, the only numbers in our record would be the uncorrected original numbers.” Order, at p.2.

So John was going to saw off the limb he was sitting on. But that Obliging Jurist still gave John his $71K break.

Takeaway- If you lost and got a Rule 155, remember my blogpost of 4/4/14: “If You Want Something, Say Something”. And say the right thing.

The IRS Whistleblower Office has made its annual report to Congress for FY2013, and you can find it here: http://www.irs.gov/pub/whistleblower/Whistleblower_Annual_report_FY_13_3_7_14_52549.pdf

The WBO is concerned about the privacy rights of both blowors and blowees, especially since blowees aren’t party to the whistleblowing process or judicial review thereof. Remember Judge Foley got into the act; see my blogpost “Your Name Is Not Your Fame”, 11/2/12.

But now to the statistics I found most interesting: actual payouts to whistleblowers who survived the labyrinth during the FYs 2009 to and including 2013 never amounted to as much as 22% of collections.

And the famous sequester cut the awards in 2013 by almost $500K.

So remember George Bernard Shaw’s 1909 quip about “demonstrations that the administrative departments were consuming miles of red tape in the correctest forms of activity, and that everything was for the best in the best of all possible worlds.”

The quip is more than a hundred years old, but some things never change.

It’s tough to mail your Tax Court petition when you’re a guest of Uncle Samuel, even in a “low-security satellite prison adjacent to the Federal Correction Institution: Jesup (‘FCI Jesup’) in Jesup, Georgia.” That’s the venue for Harsh Sharma, Docket No. 5163-11 L, filed 4/11/14, from the Tax Court connoisseur of Stony Lonesomes, both State and Federal, Judge David Gustafson. See my blogpost “We’ll Come To You”, 9/18/12.

Among Harsh’s other problems, he has about five years’ worth of unpaid taxes, for which IRS hits him with a jeopardy assessment and levy, and a NFTL a few days later. Harsh gets off a couple of Forms 12153 timely, but Appeals issues a NOD rejecting Harsh’s claims.

The NOD correctly states that Harsh has thirty days to petition Tax Court. But Harsh asks for more time, and IRS rejects that in a letter that states, incorrectly, that Harsh has thirty days from the date of that letter to petition. Wrong; the thirty days run from the NOD, not any subsequent billets doux from IRS or anyone else.

We all know, and if we don’t Judge Gustafson is nothing loath to remind us, that erroneous advice from IRS cannot estop IRS. The statute and the regs rule.

And that’s all Judge Gustafson can consider. However, once again his obliging nature shines through.

“An error of this sort is most unfortunate. An agency charged with broad nation-wide responsibility and necessarily staffed by fallible humans can never avoid such errors entirely; but the discovery of such an error should incline the IRS to take action within its discretion to compensate for the error and to provide reasonable remedies for a taxpayer who has been disadvantaged by the agency error.” Order, at p. 5.

In addition, Harsh claims he sent his petition within the thirty days of the NOD by handing it to the Jesup turnkeys. Obviously, if you’re locked up, you can’t just stroll to the Post Office or FedEx. The envelope is marked by the Jesup personnel on a date well after the thirty days has expired. And there’s no other earlier postmark.

Now there is a “prison mailbox” rule. And I bet you were as unaware of it as I am, unless you either practice criminal law or have done time yourself.

The “prison mailbox” rule is codified in the Federal Rules of Appellate Procedure, namely, Rule 4(c)(1) and Rule 25(a)(2)(C). Handing the envelope to the guard, if you can prove you did it, is enough.

But this is poor l’il ole Tax Court, which has no such rule. Unhappily, the Eleventh Circuit, which defers to the decisions of the Fifth Circuit, does not recognize the “prison mailbox” rule in Tax Court cases. And appeal from Judge Gustafson’s opinion must go to Eleventh Circuit. Oh Golsen, what sins are committed in thy name!

And even if Eleventh Circuit did have a “prison mailbox” rule, Harsh has only his unsupported testimony. No affidavits from guards, fellow prisoners or anyone else; and the burden is on Harsh to show he did everything that a prisoner can do to get the petition in on time.

Now the Fifth Circuit decision, which binds the Eleventh Circuit, is more than 50 years old, and has never been examined since rendered. But that doesn’t mean it’s not valid, and anyway Tax Court has no jurisdiction to carve another path for Harsh or anyone else.

So although Judge Gustafson admits the result is inequitable and harsh, the statute bars Harsh’s petition.

Harsh, it might be worth a trip to Eleventh Circuit to see if they’ll have a change of heart. After all, what have you got to lose?

Edited to add, 9/14/21: Harsh did appeal (whether on my advice or not deponent knoweth not), but never perfected.

That’s STJ Dean’s word to Derek W. Somogyi, 2014 T. C. Sum Op. 43, filed 4/10/14, the only opinion out of Tax Court today. But Derek isn’t the physician in question; no, this doctor is the one to whom Derek’s “friends” (STJ Dean’s quotation marks) sent him. It’s The Tax Doctor Corporation, and the doctor is in; it’s Lawrence Murray.

Here’s Third Circuit’s take on the doctor.

“Murray advised high-income taxpayers how to fraudulently structure personal and business finances to maximize tax deductions and minimize tax burdens. Among other services, TDC would form shell corporations for its clients, and Murray would advise clients in deducting personal living expenses as business expenses of these corporations and in moving money between shell corporations in order to fabricate ‘expenses’ for ‘contracted services’ or ‘management fees.’ Murray also advised clients in the creation of false corporate board minutes for the shell corporations. Murray’s goal for his clients was to reduce their taxable income to zero by using these strategies, and he charged his clients between 20 and 35 percent of the tax savings they could expect to realize in the first year. He used the same techniques to reduce his own tax burden.” United States of America v. Murray, No. 11-1245, filed March 8, 2012, at p. 3. There’s more, but that will do for now.

Derek loves the doctor’s advice, notwithstanding his own CPA says the doc is way too aggressive for her. That caution doesn’t sway Derek, who jumps aboard the doc’s medicine wagon, even though he testifies on the trial that he has no idea what the doc was doing when he paid the doc based on his projected tax savings, and when he paid the doc to prepare his own (and his dummy corporations’) tax returns.

Derek stumps up the unpaid tax, but seeks to get out of the Section 6662(a) understatement penalties, claiming he was “tricked” by the doc into a defective strategy. You can guess how far Derek is going to get with that one.

First, a word from an old friend: ““Courts have repeatedly held that it is unreasonable for a taxpayer to rely on a tax adviser actively involved in planning the transaction and tainted by an inherent conflict of interest.” Canal Corp. v. Commissioner, 135 T.C. 199, 218 (2010).” 2014 T. C. Sum. Op. 43, at p. 11.

And now Derek’s loss of innocence. “The Court concludes that petitioner, a college graduate with some business experience, relied on the tax return advice of an adviser who had a financial interest in the return positions he recommended to zero out substantial income without a clear understanding of how that could be legally accomplished and ignored the cautionary advice of his C.P.A. in the process. Petitioner’s reliance on the Tax Doctor’s advice was not reasonable and in good faith….” 2014 T. C. Sum. Op. 43, at p. 13.

PS- The doc was convicted on all 19 counts, and conviction was affirmed.

But his name isn’t Paul Revere, unlike the horse in Frank Loesser’s 1950 musical. No, this horse is named Choosing Choice, and he was in the money nine times (six firsts and three seconds) out of 16 races, winning a grand total of $77K.

And no, I didn’t have a penny on him.

But Stefan A. Tolin sure did, and Judge Gale tells the whole horse tale in 2014 T. C. Memo. 65, filed 4/9/14.

Stef was a single-shingle lawyer in Minneapolis, MN, and like Peter J. (“Rip”) Van Wickler was interested in horses (but Stef was seriously involved); unlike fellow-lawyer Robin S. Trupp, Stef had his horsey losses allowed as active. For Rip’s sad story, see my blogpost “Horsing Around?”, 8/15/11, and for Robin’s unhorsing see my blogpost “Horsing Around Isn’t Enough”, 4/13/12.

A client introduced Stef to the joys of owning ponies, and he fell, big-time, although he was fascinated by horse racing from boyhood’s earliest hour. He bred Choosing Choice from a mare he had bought, and CC won the Houston Juvenile Stakes as a two-year old, and finished second in the Grade II $100K Rebel Stakes as a three-year old, but suffered a slab fracture in his right leg. And another leg injury ended CC’s racing career.

Stef had CC nicked (that is, had his pedigree checked, and it came up A++), but Stef couldn’t find a good stud farm until he got to Louisiana. Then Stef jumped in with both feet.

He got Tom Early, officer of the Louisiana Thoroughbred Breeders’ Association, on board as guide, philosopher and friend (and even got him to testify on the Tax Court trial). After canvassing the eligible stud farms in Sportsman’s Paradise, Stef settled (literally) on Butch Sebastien, and spent hours on the phone with Butch and Tom, and bloodstock agent Bud Thibodaux, when not jetting down from the Ten Thousand Lakes to the bayous aforesaid.

Stef reserved to himself the right to promote CC, and manifested his usual enthusiasm, cold-calling owners of eligible mares, donating a one-shot of CC’s DNA at a charity event, and making videos, pictures, descriptions and accounts of CC’s prowess.

Judge Gale canters through Stef’s unending quest through the years at issue, and finds his phone records, reconstructed logbooks, and credible testimony sufficient to show the magic 500 Section 469 hours of material participation in each such year.

Now before reciting the endless litany about post-event ballpark guesstimates (as IRS does), note Judge Gale’s comment: “Respondent’s disallowance is based solely on section 469. Accordingly, we deem respondent to have conceded that petitioner operated the thoroughbred activity with a profit motive, see sec. 183, that the expenses for which he claimed deductions were ordinary and necessary, see sec. 162, and that he maintained records adequate to substantiate the deductions.” 2014 T. C. Memo. 65, at p. 25. Heavy-duty concessions, these, so Stef had serious speed in this race.

Judge Gale: “At trial petitioner introduced a narrative summary in which he describes the work he performed in connection with the thoroughbred activity and estimates the time he spent performing such work for each of the years at issue. He prepared the summary with the assistance of his attorney in preparation for trial, using telephone records, credit card invoices, and other contemporaneous materials. For each year petitioner claims time for the following work done in connection with the thoroughbred activity: preparing and distributing promotional materials; telephone conversations with his associates, advisors, and potential customers; business trips to Louisiana; registering his horses for State and national awards; reviewing and placing mortality insurance on Choosing Choice; reviewing and paying bills; recordkeeping; and continuing education.” 2014 T. C. Memo. 65, at pp. 28-29.

Now, as Judge Holmes would say, pay attention, because here’s the kicker: “While the narrative summary is a postevent review of petitioner’s claimed participation in the thoroughbred activity, the parties stipulated his performance of many of the activities described therein, and a significant amount of credible third-party witness testimony and objective evidence indicates that it is an accurate depiction of his thoroughbred activity during the years at issue.” 2014 T. C. Memo. 65, at p. 29.

The phone records especially tip the balance in Stef’s favor, because Stef was in daily touch with his Louisiana chums and potential customers. Stef claims his telephone tales beat anything in the cases. And apparently he’s right.

IRS says Stef should have called his customers, actual and potential, as witnesses, but Judge Gale says that’s not necessary, and although Stef often flew down to Louisiana, it clearly was business and he was not there long enough for vacation.

And Stef wasn’t a passive investor; he was deeply involved in the day-to-day management and control of CC’s activities.

Most importantly, “(T)he nature and extent of the activities described in petitioner’s narrative summary are corroborated by phone records, third-party witness testimony, the parties’ comprehensive stipulations of fact, and other contemporaneous materials.” 2014 T. C. Memo. 65, at p. 48.

Looks like the IRS disregarded my advice. They stipulated and thereby capitulated.

IRS says that maybe one or more of the minor children of Douglas G. Carroll & Deirdre M. Smith might throw out their parental units’ conservation easement, so IRS wants summary judgment tossing Mom and Dad’s charitable deduction, in Docket No. 5445-13, filed 4/8/14.

Not so fast, says Judge Lauber.

Background: :”… petitioner Carroll deeded a parcel of land in Maryland to himself, his wife, and to himself as custodian, under the Maryland Uniform Transfers to Minors Act, for each of their three minor children. … petitioners and petitioner Carroll, as custodian for the minor children, conveyed a conservation easement on this property to the Maryland land trusts organized under I.R.C. § 501(c)(3). Petitioners claimed a charitable contribution deduction for this non-cash contribution on their Federal income tax return… and claimed carryover contributions….” Order, at p. 1.

Our old friend “in perpetuity” shows up. See my blogpost “A Joy Forever”, 4/4/11, and “‘A Joy Forever’? – Maybe Not”, 7/20/12.

IRS says the kids, or any one of them, as co-owners, can revoke the conservation easement within a reasonable time of reaching the age of majority. And Judge Lauber assumes that Maryland law would permit this.

But the savings clause “so remote as to be negligible” gives Doug and Deirdre a shot at saving their deductions.

Judge Lauber: “This Court has construed the phrase ‘so remote as to be negligible’ to refer to a possibility that ‘persons generally would disregard as so highly improbable that it might be ignored with reasonable safety in undertaking a serious business transaction,’ 885 Inv. Co. v. Commissioner, 95 T.C. 156, 161 (1990) (quoting United States v. Dean, 224 F.2d 26, 29 (1st Cir. 1955)), or ‘a chance which every dictate of reason would justify an intelligent person in disregarding as so highly improbable and remote as to be lacking in reason and substance,’ Graev v. Commissioner, 140 T.C. -,-, (slip op. at 27-28) (June 24, 2013) (quoting Briggs v. Commissioner, 72 T.C. 646, 657 (1979), aff’d without published opinion, 665 F.2d 1051 (9th Cir. 1981)). ‘[A] conservation easement fails to be “in Perpetuity” * * * if, on the date of the donation, the possibility that the charity may be divested of its interest in the easement is not so remote as to be negligible.’ Graev v. Commissioner (slip op. at 27); see Wachter v. Commissioner, 142 T.C. –,-(slip op. at 15-16) (March 11, 2014).” Order, at p. 2.

Of course I blogged the Graev case, above cited, in my blogpost “Money Back Guarantee”, 6/24/13, and the Wachter case, ditto, in my blogpost “They Alway Must Be With Us”, 3/11/14.

OK, so does IRS get judgment (that is, an opinion) as a matter of law that the kids’ right to void the easement is not so remote as to be negligible?

Doug and Deirdre claim it is, that the kids will do the right thing.

Remember, in summary judgment motions, the non-moving (opposing) party gets the benefit of the doubt.

Judge Lauber: “Viewing the facts and drawing inferences therefrom in the light most favorable to petitioners as the nonmoving parties, we conclude that there are genuine disputes of material fact as to whether the probability that the petitioners’ children will void their contribution is ‘so remote as to be negligible.’ Order, at p. 3.

So let’s find out at the trial what the chances are that the kids will revoke the easement when they put away childish things.

Because the hard-working crew at 400 Rue Deuxième, Nord-Ouest, in the City that L’Enfant de la Patrie designed, doesn’t post the day’s opinions or designated orders before 3:30 p.m., ET, I spend my idle luncheon hours leafing through the day’s orders, which are posted as they happen.

The supermajority of these are pure routine, soul-numbing exercises in correcting misspelled names, adding and subtracting petitioners, kicking out nonsigners and nonpayers, and nannying motion practice and trial preparation. It is only by the merest chance, and my overwhelming sense of obligation to my now-more-numerous readers (thanks, guys!), that I wade through the daily mud-wallow to unearth the odd gem.

But today’s trudge brought back fifteen year old memories as I read through Leone Pizzini & Sons, Inc. Profit Sharing Plan. Docket No. 2144-14R, filed 4/8/14.

Now I don’t know Leone Pizzini, and to my knowledge I never met his sons, either jointly or severally. And whatever tax issues they want sorted out I know not. But the name of their attorney jumped off the page: Jeff Schnepper, Esq.

Long ago, in a galaxy far away, there was a bulletin board run by Microsoft called MSN Money. A subgroup thereof was called “Your Money”, at the time run by author Ginger Applegarth. I was a frequent contributor, under a nom de guerre suggested by a close relative (now a Director at a Big Four accounting firm).

Another subgroup was called “Your Taxes”, run by Mr Schnepper. He encouraged me to go for the EA qualification, for which I thank him, belatedly.

Unfortunately, Ch J Michael S. (“Iron Mike”) Thornton uses Mr. Schnepper as an object lesson to attorneys that Tax Court practice isn’t State Court (or even Federal Court) practice.

Ch J Iron Mike: “The petition filed to commence this case… does not bear a legible original signature. Thus, no attorney was recognized as petitioner’s counsel at that time. Accordingly…the Court directed petitioner to file a ratification of petition, bearing an original signature. Mr. Jeff A. Schnepper entered his appearance for petitioner….[Subsequently}a Ratification of Petition was lodged. This ratification of petition is signed by Mr. Schnepper.

“A corporation may be represented in Tax Court proceedings by an authorized officer of the corporation. Rule 24(b), Tax Court Rules of Practice and Procedure. Although Mr. Schnepper has entered his appearance for petitioner, because it was subsequent to the filing of the petition, he may not ratify the petition unless he is indeed an authorized officer of the corporation.” Order, at p. 1.

So either Leone or one of his sons should say that my old pal Jeff is an officer of the petitioner, or else sign a ratification of the petition themselves (in blue ink, of course) and paper-file it.

Ch J Iron Mike: “Petitioner should not [sic] that the ratification of petition may not be electronically filed.” Order, at p. 2.

Now in State Court and the usual Federal courts, corporations usually appear by their attorneys. But not in the sacred Second Street North West precincts.

Mr Schnepper, glad to hear about you again after all these years.