No, I’m not rehearsing the replacements for the original Florodora sextette, rather echoing Judge Dawson’s instructions to Thomas J. Hickman, in 2014 T.C. Memo. 131, filed 6/30/14.

Tom claims he told IRS he received a $137K ESOP distribution, but it was six years ago. So the SOL has run…but has it?

Tom rolled his ESOP money into his personal IRA, but never picked up the money on his 1040. And when IRS disqualified the ESOP retroactively to Day One, thereby blowing up his rollover to his IRA, the question was whether Tom satisfied the Sec. 6501(e)(1)(A)(ii) tell-me provision.

Surely you remember the Sec. 6501(e)(1)(A)(ii) tell-me provision. No? Well, Judge Dawson has it down pat.

“Section 6501(e)(1)(A) extends the three-year period of limitations to six years where the taxpayer ‘omits from gross income an amount properly includible therein which is in excess of 25 percent of the amount of gross income stated in the return’. In computing the amount of gross income omitted, any amounts ‘disclosed in the return, or in a statement attached to the return, in a manner adequate to apprise the Secretary of the nature and amount of such item’ are not taken into account. Sec. 6501(e)(1)(A)(ii).” 2014 T. C. Memo. 131, at p. 10. (Footnote omitted, but read it; Congress moved the provision later).

The taxpayer has to provide a clue to IRS to cut the SOL to three years, but it has to be sufficiently detailed to let IRS to decide to audit the return.

Tom fails the test. The statement has to be made on a return, or attached to a return, and Tom didn’t, exactly.

Tom claims a K-1, a Form SS-4, and Form 5498 (listing Tom as owner of a nominee account) are “adjuncts” to the return. But none of this was attached to Tom’s return, and it doesn’t prove more than Tom and his IRA were partners in a LLC.

No go.

Thus spake Captain Frederick Marryat, R. N., in his 1834 novel Jacob Faithful,  and no, I haven’t read it either. But IRS boss John Koskinen took the words out of Fred’s book, because he now proclaims a new volunteer tax prep course for the unregistered, now that D. C. Circuit disarmed his predecessor’s pressgang.

Here’s the scoop for you soon-to-be volunteers.

“About 60 percent of paid tax return preparers in the U.S. operate without regulation or oversight. Although many of them do a good job, we have found that others are poorly equipped to assist taxpayers in preparing returns.

“For that reason, the IRS had started a mandatory program of education and testing for unregulated tax return preparers who did not have professional credentials. But we had to suspend that program because the courts ruled that we didn’t have the legal authority to require education and testing. So we’re launching a voluntary program as a temporary substitute. It’s called the Annual Filing Season Program.

“I say ‘temporary’ because we have been urging Congress to enact a proposal in the President’s Fiscal Year 2015 Budget that would give us the authority for mandatory oversight of return preparers. This voluntary program is not the ideal solution. But until legislation is enacted, we still have a responsibility to taxpayers and to our tax system to keep moving forward with our efforts to improve service to taxpayers.”

The ganze geschichte, as my beloved Grandma would have said, can be found at:

http://www.irs.gov/uac/Newsroom/Commissioner-Koskinen-on-the-Voluntary-Return-Preparer-Education-Program

So come on, me bould volunteers!

I don’t get a lot of snail mail. Other than junk, I mean, or pleas from the charities to which I donate modestly. I get the usual political e-mail bombardment. I participate on professional listservs, and co-manage a tax group on LinkedIn, so there’s e-stuff flying about. But not a great deal of paper.

I must mention the odd check, of course; thanks, guys, much appreciated.

Lo and behold, as a late colleague was wont to remark, I got a phonecall a few days ago from a former blogee. And today the postie dropped off two copies of what purports to be a petition for a writ of certiorari directed to the Supremes, apparently to review a Seventh Circuit decision of which I had been unaware, but which I have turned up just now. Here it is: Docket Nos. 12-2574 and 12-2575, decided 7/25/13.

I won’t opine on the blogee’s chances. Her story is fact-specific, and I’ll let  the Supremes deal with it for now. If, as and when that Honorable Court issues an opinion or decision or order, and same is brought to my attention (I have enough to do without scouting round the Circuits, much less the Supremes; the trade press and blogosphere do that well enough), I’ll post a blog on it, if any of the foregoing is materially instructive.

The petitioner-blogee? Carol Diane Gray, whose stories I told in my blogposts “Too Late But Still Timely”, 3/28/12, and “Too Late and Not Timely”, 4/25/13.

I have to give IRS’ counsel a Taishoff “good try”, first, because I am evenhanded, and second, because it’s a nice move, given petitioners’ gameplaying with document production. Counsel must have been awake at some of those “win your case at discovery” CLE’s.

But Judge Gale will have none of it, in William P. Terhune & Jennifer S. Terhune, Docket No. 11768-13, filed 6/26/14.

Will and Jenn ducked IRS’ interrogatories and the document production requests, so IRS made a Rule 104 motion with sanctions attached. This awakened Will and Jenn, and they did reply to the interrogatories, at least enough to mollify the Constitution Avenue crowd. But the documents produced fell short, and IRS wanted to preclude any documents, or testimony, related to any of the documents IRS had requested, saving only documents related to Jenn’s Section 6015 innocent spousery claim.

Judge Gale won’t go that far. Yes, sanctions are appropriate, as Will and Jenn are less than cleanhanded. However:

“We believe that respondent’s modified request sweeps too broadly, given that it would likely exclude documents or materials that were not sought in the Request for Production of Documents, as well as any relevant testimony. This would potentially put respondent in a better position in this litigation than if petitioners had promptly and fully complied with the document production request. Instead, we conclude that a narrower sanction is appropriate: petitioners should be precluded from introducing into evidence any documents or materials that would have been responsive to respondent’s Request for Production of Documents, except in the case of items related to petitioner Jennifer S. Terhune’s request for spousal relief.” Order, at p. 4. (Footnote omitted, but read it; there’s the Standard PreTrial Order, which gives everyone either a chance to come clean or get whacked).

So I’m giving IRS a Taishoff “good try”, even though they canceled the IRS Tax Forum webcast on Retirement Plans after Windsor v. United States today at the last minute, without notice and with a footling scheduling excuse.

I’ve taken the 1963 Brian Wilson/Roger Christian iconic evocation of California cardom for my title, and its first line for an introduction: “Well I’m not braggin’, babe/So don’t put me down”.

No, I claim no Olympian or Sinaiatical omniscience, as too often writers in the tax blogosphere seem to do. Not only don’t I claim to know everything, but every day and every blogpost bring a chance to learn.

And if my blogposts do not equip the in-the-trenches practitioners with all they need to know, at least I hope I haven’t led any too far wrong.

That said, let’s look again at a topic I don’t really understand, or didn’t, until Judge Goeke laid it out today in Frank Sawyer Trust of May 1992, Transferee, Carol S. Parks, Trustee, 2014 T. C. Memo. 128, filed 6/25/14.

This is a Rule 161 rewrite of 2014 T. C. 59, filed 4/3/14, and no, I didn’t blog that case, because it involved that topic I didn’t understand, equitable recoupment.

Oh, I knew in general terms that equitable recoupment involved someone who overpaid a tax, refund of which is barred by SOL, and is now hit with another tax somehow cabalistically related to the acts or transactions or something wherefrom arose Tax No. 1, and is permitted to offset the aforesaid overpayment against Tax No. 2, with interest and penalties only on any overage post-ER.

But how the taxes were related, and what qualifies for ER and what doesn’t, was a mystery.

Judge Goeke finally lifts the fog: “To apply equitable recoupment, the taxpayer must prove the following elements: (1) the overpayment or deficiency for which recoupment is sought by way of offset is barred by an expired period of limitation, (2) the time-barred overpayment or deficiency arose out of the same transaction, item, or taxable event as the overpayment or deficiency before the Court, (3) the transaction, item, or taxable event has been inconsistently subjected to two taxes, and (4) if the transaction, item, or taxable event involves two or more taxpayers, there is sufficient identity of interest between the taxpayers subject to the two taxes that the taxpayers should be treated as one.” 2014 T. C. Memo. 128, at pp. 6-7.

This was another MidCoast fiasco, where the trust sold off the stock of four C Corps with monumental assets and almost zero basis, to a MidCoast stooge, who pulled the usually phony shelter, looted the C Corps and skipped.

There’s transferee liability, of course, but IRS couldn’t establish fraudulent conveyance, so the fight is now over whether the trust beneficiary can offset any overpaid estate tax by the trust against income tax transferee liability.

Here, IRS folds on items (1) and (4), fighting about (2) and (3).

As to item (2), this involves the sale of the C Corp stock on both ends: the estate tax was based on an incorrect valuation of the stock, which it’s now too late to correct, and the income tax is based on the same stock.

As to item (3), IRS treated the stock price as if the C Corps had no income tax liability, but now is trying to collect income tax as if they had. That’s inconsistent enough for Judge Goeke.

“The equitable recoupment doctrine seeks to prevent an inequitable windfall to the taxpayer or the Government for inconsistent tax treatment. The estate valued the corporations’ shares of stock at their sale prices, and it calculated its estate tax using those values. For purposes of demonstrating petitioner’s transferee liability, respondent has proved that the sale prices exceeded the fair market values of the corporations’ shares of stock. However, respondent seeks to retain the estate tax petitioner paid, even though it was calculated on the basis of the sale prices. Denying petitioner a credit for the estate’s overpayment of estate tax would give respondent an inequitable windfall. To prevent this result, we will modify our opinion in Frank Sawyer IV to further reduce petitioner’s liability by the amount of the estate’s estate tax overpayment resulting from its misvaluation of the taxi corporations’ stock.” 2014 T. C. Memo. 128, at p. 10.

And, again because IRS couldn’t establish that the deal with the MidCoast stooge was a fraudulent conveyance, no accuracy penalty.

A Taishoff “good job, guys” to David R. Andelman, Esq., and Juliette M. Galicia, Esq., of Lourie & Cutler, counsel for taxpayer.

But Only If You Ask Us

Judge James S. (“Big Jim”) Halpern, not quite so obliging as his colleague Judge David Gustafson, is apparently willing to visit Tax Court petitioners in whatsoever Stony Lonesome they are doing a guest appearance. Maybe.

But Judge Big Jim doesn’t go charging in, as Judge David Gustafson did; see my blogpost “We’ll Come To You”, 9/18/12.

No, Big Jim waits to be asked, in Robert Ray Sanders, et al., Docket No. 8386-11, filed 6/25/14.

The visitation issue apparently isn’t with Robert Ray, but rather with the “al.”, namely and to wit, Robert Ray’s wife, Rachal Shannamarie Sanders. Seems like Rachal Shannamarie is a-servin’ of her time, at least until the end of calendar 2014.

So Judge Big Jim decides to see what’s going to be with Rachal Shannamarie and her return to civilian life.

“The Court has received reports from all parties. We agree with respondent’s statement that, barring stipulation between the parties, these cases will probably require a trial. No stipulation of settlement has been presented and no dispositive motion, such as a motion for summary judgment, has been made. Nor has any party asked that we conduct a trial at petitioner-wife Rachal Shannamarie Sanders’ place of detention. We have contacted a caseworker at her place of detention, who stated that, perhaps by the end of the year, information will be available concerning her release date.” Order, at p. 1.

So Judge Big Jim releases the case to the general trial docket, and orders status reports by December 1, unless information sooner arrives as to Rachal Shannamarie’s return to liberty.

Judge Big Jim holds off going to jail. Unless someone asks him.

You-Know-What

Y’all will doubtless recollect my response to Rob’t W. Wood, Esq., and his article “Jackson Estate Says, ‘Beat It, IRS’.”

No? Well, see my blogpost “Letter to the Editor”, 11/19/13.

Now, however, notwithstanding their erstwhile belligerence, or so much thereof as was alleged by Rob’t W. Wood, Esq., above-cited, Messrs. John G. Branca and John McClain, the co-executors of the Estate of the late great King of Pop, seem to be taking the path of less resistance in the face of Com’r. Koskinen’s somewhat shop-soiled myrmidons.

I’ll defer to The Great Dissenter, a/k/a The Judge Who Writes Like a Human Being, s/a/k/a The Foe of the Partitive Genitive, Judge Mark V. Holmes, in Estate of Michael J. Jackson, Deceased, John G. Branca, Co- Executor and John Mcclain, Co-Executor,  Docket No. 17152-13, filed 6/24/14.

“This case is on the Court’s November 17, 2014 trial calendar for Los Angeles, California. Although a very large deficiency is at stake, the Court learned in a call with the parties on June 20, 2014 that it raises mostly valuation questions. The parties are cooperating in informal discovery and want to try to settle as many issues as possible at IRS Appeals. The Court agrees with their suggestion that the case be put on a status-report track….” Order, at p. 1.

Amazing how we bystanders, bloggers, kibitzers and curbstone critics are so wise and so combative, while and so long as we’re not pushing our diñero all-in, eh, Mr. Wood?

No, neither leaving the premises nor indulging in a certain herbaceous substance legal in 23 States and the District of Columbia (for medicinal purposes only in most of them), but rather the plight of Donald Thomas Salzer, 2014 T. C. Sum. Op. 59, filed 6/24/14.

Don’s problems arise when Mrs. Don, his wife of almost thirty years, gets into some kind of dispute with former President Bush the Second. The nature of the dispute is not stated by STJ Armen (it’s really irrelevant), but howbeit, she refuses to sign the joint returns they’ve been tendering annually through all their marital years theretofore.

So Don doesn’t file for two tax years, since he can’t get Mrs. Don’s autograph.

IRS, heedless of the niceties of Mrs. Don’s disagreement, gives Don SFRs for both years, and a deficiency for each of the two, “irregardless”, as the grammatically-challenged might say.

Don says “if I am married and filed joint returns, I’d owe nothing, as I was adequately withheld.”

STJ Armen, although The Judge with a Heart, is still bound by the law.

“Joint return rates apply only if a married individual files a return jointly with his or her spouse under section 6013. Sec. 1(a)(1). With exceptions not applicable herein, section 6013(a) provides that a husband and wife may file a return jointly even though one of the spouses has neither gross income nor deductions. See sec. 1.6013-1(a), Income Tax Regs. To file jointly, however, both spouses must intend to do so.” 2014 T. C. Sum. Op. 59, at p. 5.

But neither filed. So Don is on his own, and his status is MFS, not MFJ, which is a major tax hit. Mrs. Don is a woman of principle, but as she had no taxable income and thus no liability or obligation to file, Don might point out that her principles cost them both plenty.

Don is persistent, though: “Petitioner contends that he would have filed joint returns for the years in issue had it not been for his wife’s refusal to do so. Petitioner also contends that it would be ‘illogical’ to pay tax as a married person filing separately given his history of filing joint returns from 1985 through 2007. However, as the U.S. Supreme Court instructs, we give effect to what actually happened and not what might have happened.” 2014 T. C. Sum. Op. 59, at pp. 5-6 (Citations omitted, but our old friend Nat’l Alfalfa is in on the tackle.)

And of course, in dealing with taxes, we might paraphrase Tina Turner’s 1984 classic: what’s logic got to do with it?

STJ Armen: “However much one might sympathize with petitioner, who faces much higher tax liabilities than those that would otherwise be required, the fact remains that joint filing status cannot be imputed. Taxpayers can secure such status only by filing a joint return.” 2014 T. C. Sum. Op. 59, at p. 6.

Moreover, when confronted with nonfiling and nonpayment chops, Don is on his own again. “…petitioner’s wife’s refusal to file joint returns does not constitute reasonable cause for his failure to timely file or his failure to timely pay or otherwise excuse him from liability.” 2014 T. C. Sum. Op. 59, at p.7. (Footnote omitted).

My diligent readers may ask why I haven’t blogposted 142 T. C. 24, filed this date, featuring our old acquaintance Eric Onyango. You’ll remember Eric from my blogpost “You Have To Fulfill The Requirements”, 8/20/13. Well, this is another of those full-dress T. C.’s that make me wonder why an ordinary T. C. Memo. wouldn’t do. See my blogpost “This Old House”, 1/30/12.

Eric never bothered picking up his certified mail, like the letter with the SNOD in it, so he gets no shot at fighting his underlying tax liabilities at the CDP.

Don’t know why Tax Court issued a full-dress on that proposition.

No, not Paul Simon’s 1970 opus that appeared on his final album with Art Garfunkel, but rather the story of Tarri M. Harrold-Jones, spouse of Darryl L. Jones, leading man in the eponymous 2014 T. C. Memo. 125, filed 6/23/14, as narrated by Judge Goeke.

Darryl is an Alaskan lawyer with a nonchalant approach to depositing clients’ checks (he only deposits them when he needs money; how delightful that must be, but I have never had that luxury. When I get a check, it never sees sunset in my hands.). This befuddles IRS when they do the bank account reconstruction, so some of Darryl’s unreported income slips by. But then Darryl’s claimed NOL goes down unsubstantiated.

And there’s the usual argy-bargy about business deductions, both by Darryl and by Tarri.

But Darryl and Tarri, who file MFS, escape the 20% chop because they told their CPA Darlene Dotzler, whose 10 years of CPA-hood convinces Judge Goeke, the whole story, and Darlene so testifies.

Tarri claimed to be an IC, but IRS said she was an EE, did a reclassification as against Darryl, which Darryl didn’t petition.

But when a deficiency arises out of a reclassification, those affected can raise the reclassification in their petition on the deficiency.

Now the link to Paul Simon’s ditty. I’ll let Judge Goeke furnish it.

“Mr. Jones regularly hires extra workers to help him manage his caseload, and … he enlisted Mrs. Harrold-Jones to work on two of his largest cases. Petitioners were concerned that working together might damage their marital relationship, so they carefully arranged their business relationship to give Mrs. Harrold-Jones as much freedom as possible. Mrs. Harrold-Jones did not work at the law office; she worked from petitioners’ home, which was about 45 miles away. Mr. Jones told Mrs. Harrold-Jones what he needed her to do, but he allowed her to accomplish her tasks in her own time and in her own way. Petitioners agreed that Mr. Jones could discharge Mrs. Harrold-Jones if the arrangement became unproductive.

“One of the cases on which Mrs. Harrold-Jones worked involved a protracted criminal investigation against Mr. Jones’ client. The client had an eccentric personality but got along well with Mrs. Harrold-Jones, so Mr. Jones appointed her to review documents with the client and keep her calm and focused. Mrs. Harrold-Jones also performed basic legal research for the law office. She did not receive regular wages; her cases settled…, and she received a percentage of the fees Mr. Jones collected.” 2014 T. C. Memo. 125, at pp. 5-6.

So, says Judge Goeke, weighing the usual IC-EE factors: “Mr. Jones did not control the details of Mrs. Harrold-Jones’ work. He told her what he needed done, and she was free to decide how to accomplish it. Mrs. Harrold-Jones’ most important responsibility was keeping an important client calm in the face of a lengthy criminal investigation. The client was eccentric but got along well with Mrs. Harrold-Jones, so Mr. Jones trusted her to interact with the client and review documents with her. Mr. Jones cared only about the client’s satisfaction and did not control how Mrs. Harrold-Jones achieved it. These facts suggest that Mrs. Harrold-Jones was an independent contractor.” 2104 T. C. Memo. 125, at pp. 14-15.

Just tryin’ to keep the customer satisfied really helped. Also it helps that Tarri worked from home and got paid a piece of the collected fees, rather than fixed wage (although fee-splitting with a nonlawyer might be a separate issue, Judge Goeke doesn’t need to go there).

So Tarri wins the IC-EE face-off.

Treasury and the IRS, I mean. Why am I not surprised?

I’m talking about the now-adopted amendments to Circular 230. Here’s the whole ball of wax:

http://www.irs.gov/pub/irs-utl/TD_9668_6-9-14_Cir%20230_6-9-14_Final_Reg.pdf

See my blogpost “Comments to Circular 230 Revisions”, 11/12/12, so I won’t have to rehash here what I said there.

I still think I am right, but that hardly matters. Read and heed the new slippery-slope rules. I will continue to use a warning legend in my marketed opinions, and the new regulations do not prohibit that, at least.

They’re dead wrong about §10.82, and its distinction between annual and more-often-than-annual filings. It’s unfair to lump the two, and all the talk about “showing disregard” ignores the fact that sixteen months is a lot less than thirtysix months. Again, see my blogpost.

There’s too much emphasis in the preamble on saving money, with assumptions drawn from the thinnest of air and calculations worthy of a façade easement appraisal, and not enough on practical in-the-field experience.

OK, I’m annoyed, and that’s a poor frame of mind in which to be writing a blogpost, especially at 3 a.m. local time.

So I’ll close with Abraham Lincoln’s words. “I do the very best I know how – the very best I can; and I mean to keep doing so until the end. If the end brings me out all right, what’s said against me won’t amount to anything. If the end brings me out wrong, ten angels swearing I was right would make no difference.”