Archive for July, 2014|Monthly archive page


In Uncategorized on 07/23/2014 at 16:40

Old-time followers of this my blog might just possibly recall the story of VECO Corporation and Subsidiaries, as more fully set forth in my blog post entitled “Ya Gotta Do it To Accrue It”, 11/20/13.

Well, it’s the same story for Giant Eagle, Inc., 2014 T. C. Memo. 146, filed 7/23/14, with Judge Haines taking up where Judge Marvel left off.

No, this isn’t about prohibited bird parts in Rauschenberg collages, as in my blogpost “The Eagle Sleeps Tonight – Part Deux”, 5/21/13. This is about a grocery and gas chain that gave frequent eater points to its customers, that allowed them, if they ate enough, to gas up (their vehicles) at reduced rates.

The Eagle gang wanted to accrue the expense of the earned eater points as earned, because their customers could redeem them. They argued the Section 461 accrual test, and the Reg. Sec. 1.451-4 future redemption cost offset to current revenue.

IRS concedes one prong of the three-prong accrual test; that the amounts earned can be computed with reasonable accuracy, but “all events” necessary to fix liability hadn’t happened in the year that the expense is accrued.

Before the frequent eater points could be redeemed, the frequent eater had to gas up at the Eagle gang’s pumps. Even with enough points, a frequent eater might not be a frequent gasser, and the points could expire 90 days after being earned.

And for that reason the Reg. Sec. 1.451-4 gambit fails. The frequent eater has to do more than just turn in the points to get the “merchandise, cash, or other property” which are the hooks to get the taxpayer anchored within Reg. Sec. 1.451-4(a)(1) safe harbor. The frequent eater has to buy the gas, or the frequent eater gets nothing.

“Allowing a present deduction with respect to redemptions conditioned on an additional purchase can result in a mismatching of expenses and revenues, contrary to the regulation’s primary purpose.” 2014 T. C. Memo. 146, at p. 12.

And even though a sufficiently gluttonous frequent eater could accumulate enough points to get a tank of gas for nothing, that still depends upon the price of gas at the time the frequent eater becomes a frequent gasser. So the benefit is not fixed until the additional purchase (even for zero) is made.



In Uncategorized on 07/23/2014 at 16:10

That’s the message from Ch J Michael B. (“Iron Mike”) Thornton to poor old Renald Eichler. Ren is the lead-off hitter for 143 T. C. 2, filed 7/23/14, and he claims to be both poor and old, after his non-profit educational corporation cratered, leaving Ren in the hole for about $200K in TFRPs.

Ren submitted a proposed short-pay installment agreement, but what with coding mishaps at IRS and a lengthy mail delay, IRS sent Ren an NIL while his proposed installment agreement was under review.

Ren claims that’s a no-no under Section 6331(k)(2).

But Ch J Iron Mike isn’t having it. All Section 6331(k)(2) does is bar the levy, not the Notice of Intent to Levy (NIL). And though IRS tries arguing the installment agreement wasn’t “pending” when the NIL was sent, Ch J Iron Mike doesn’t have to go there. Pending or not pending, the bar is on the levy, not the notice.

Ch J Iron Mike brushes aside a contrary case in a footnote. “We are mindful that in Tucker v. Commissioner, T.C. Memo. 2011-67 (upholding Appeals’ rejection of an OIC), aff’d, 676 F.3d 1129 (D.C. Cir. 2012), in the ‘Background’ section of the opinion, a footnote indicated that the IRS had withdrawn a notice of intent to levy that it had issued after the taxpayer had submitted an OIC. By way of explanation, the footnote stated: ‘Section 6331(k)(1) provides for a restraint on levy while an OIC is pending, and the issuance of the notice of levy violated that restriction.’ Id., slip op. at 8 n.6. This dictum, however, did not represent a holding or a predicate to any holding in Tucker, as made explicit in the same footnote: ‘The issuance of that first levy notice (and its subsequent withdrawal) was not part of the CDP hearing or determination and is not part of the CDP appeal at issue here.’ Id. Accordingly, the dictum in Tucker concerning sec. 6331(k)(1) does not control this case.” 143 T. C. 2, at pp. 154-15 footnote 6.

Ren claims the IRM is inconsistent and that he should get the benefit of the more favorable of the two Manual provisions. Poor old Ren can’t get a break.

Ch J Iron Mike: “IRM pt. appears in the part of the IRM that provides information and guidance to revenue officers in the collection process. It directs the IRS Collection Division to rescind notices of intent to levy in certain circumstances, one of which is when a notice of intent to levy is issued while levy action is prohibited and the taxpayer timely requests an Appeals hearing. By contrast, IRM pt. (Dec. 14, 2010) states that Appeals should not rescind a notice of intent to levy that was issued during the pendency of an installment agreement, even where levy is prohibited. Petitioner argues that these two provisions are inconsistent and that we should treat IRM pt. as controlling. We disagree. The IRM is not necessarily inconsistent in directing the Collection Division and Appeals to take different actions.”.143 T. C. 2, at p. 15. The SO who sustained the NIL was in Appeals, not Collections, so she followed the book as far as Appeals was concerned.

Besides, “…provisions of the IRM do not carry the force and effect of law or confer rights on taxpayers.” 143 T. C. 2, at pp. 14-15.(Citation omitted).

But the SO didn’t consider that Ren and Mrs Ren were old and ill, and that whatever they had in the bank was borrowed from Mrs Ren’s sister, Mrs Ren not being a party to this proceeding. So no summary judgment, and Ch J Iron Mike sends Ren back to Appeals to discuss the whole installment bit.


In Uncategorized on 07/23/2014 at 13:49

I said in my blogpost “Not Always A Phone Call”, 7/14/14, that the riposte would be interesting. And it is.

Remember Vandy, counsel for Brent T. Wiedbusch & Christina Wiedbusch, Docket No. 15257-13? No? Then see my aforecited blogpost hereinabove referred to, as my high-priced and paid-by-the-word colleagues would put it.

Vandy got a chance to respond to Brent and Christina, who aspersed Vandy’s conduct of their case. Here’s the story: Brent T. Wiedbusch & Christina Wiedbusch, Docket No. 15257-13, filed 7/23/14.

And here’s Judge Gale, who wanted to know the whole story: “After reviewing [Vandy’s] July 17 Response, we are satisfied that, for purposes of resolving his Motion for Leave to Withdraw, petitioners had knowledge of, and had consented to, the contents of the Petition. We are also satisfied that petitioners’ other allegations concerning [Vandy’s] representation of them provide no grounds for denying his motion.” Order, at p. 1.

But for you advocates who seek to bail, here’s some hints from a footnote: “In petitioners’ Response to First Supplement to Motion for Leave to Withdraw, they admitted signing an engagement agreement with … [Vandy’s] employer, which provided that [Vandy] withdraw from representing petitioners if they failed to reach a settlement with respondent’s Office of Appeals and decided to proceed to trial. Such agreements are not binding on this Court, and in appropriate circumstances the Court may decline to permit withdrawal where such an arrangement would unduly burden the taxpayer, the Commissioner, or the Court. Nonetheless, in this case respondent did not object to a continuance and the Court granted it.” Order, at p. 2, footnote 1.

So bail early, bail often, but don’t hang up your soon-to-be-ex client, IRS, or Judge Gale and his colleagues.


In Uncategorized on 07/22/2014 at 16:49

That’s STJ Daniel A. (“Yuda”) Guy. And the people who have him disinterested are Samer Mikhail & Mariana Mikhail, Docket No. 20199-12S, filed 7/22/14, a designated hitter on a very dull day in Tax Court.

The Mikhails were told to put in their numbers on a Rule 155 beancount, after they lost a Section 7463(b) small-claimer back in April. I didn’t blog it at the time, as it was the usual Section 183 no-profit case.

IRS put in its numbers, the Mikhails didn’t, but asked Judge Guy to abate interest on the deficiency. But until numbers are computed and a decision is entered, no deficiency.

Judge Yuda: “Although the Court has the authority under section 7481(c) to redetermine the correct amount of interest due on a tax deficiency assessed pursuant to section 6215, the deficiency in this case has not been assessed, petitioners have not paid the deficiency or the interest related thereto, and their motion otherwise fails to satisfy the requirements of Rule 261.” Order, at p. 1.

So no deficiency, no jurisdiction, no abatement–and no interest.




In Uncategorized on 07/21/2014 at 16:49

No, not the National Public Radio current-events quiz show. That’s Appeals’ answer to Edmond Harris, Esq., tax matterer for Valteau, Harris, Koenig and Mayer, which law firm’s nonpayment of withholding taxes is the subject of 2014 T. C. Memo. 144, filed 7/21/14, Judge Goeke providing some continuing education to Mr Harris and his firm.

Ed claims he became tax matterer after the firm canned its CPA, although Ed claims he “…was not qualified to handle petitioner’s tax liabilities even though he was designated as petitioner’s tax matters partner.” 2014 T. C. Memo. 144, at p. 6.

Howbeit, Ed also claims that all past due FICA, FUTA and income tax withholdings were eventually paid, but that IRS miscomputed one year’s worth (but Ed had no evidence of what the right numbers were, so that’s a non-starter) and IRS misapplied some payments, which, if properly applied, would have reduced the liabilities, interest and penalties.

For starters, Judge Goeke needs to consider standard of review, de novo or abuse-of-discretion. “There is some uncertainty in our precedents as to whether a de novo standard of review applies where (as here) the controversy concerns the proper application, to the tax liability at issue in the CDP hearing, of a credit, an overpayment, or a remittance. Petitioner contends that respondent’s refusal to honor its designation was inconsistent with a published IRS administrative position. If that is so, respondent’s proposed collection action would be impermissible under either standard. We accordingly do not need to decide whether petitioner’s challenge involves a dispute concerning its underlying tax liability as to which a de novo standard of review would apply.” 2104 T. C. Memo. 144, at p. 8. (Footnote omitted).

In any case, Ed is out of luck. If the deposit rules apply, Section 6656(e), which controls, doesn’t permit depositor to direct how deposit is to be applied until depositor has gotten a failure to deposit penalty notice, and Ed never did. And if payment rules apply, Ed put his directions on paper “…Forms 8109-B, Federal Tax Deposit Coupon (FTD coupon or coupon), and submitted them with the remittances to banks authorized to accept tax deposits. The FTD coupons indicated the period to which the remittances were to apply as did the memo line of each check. Petitioner designated many of the remittances to satisfy past due liabilities. Because the coupons and payments were submitted to banks rather than to respondent, respondent did not always receive petitioner’s designation instructions.” 2014 T. C. Memo. 144, at p. 4.

Since Ed never gave IRS directions how to apply the firm’s payments, but only gave them to the depository bank, IRS could do as it liked.

This was of course in the pre-electronic filing days. Nowadays the rules would be different. So beware of pouring new wine into old wineskins, as somebody remarked in a much more solemn context.

Finally, the real point: “Although it failed to timely pay its employment and unemployment taxes during the periods at issue, petitioner continued to operate as usual.  Petitioner never missed a payroll and continued to make bonus payments to its employees. Petitioner also organized yearend parties for its employees and took only minimal steps to reduce its expenses.” 2104 T. C. Memo. 144, at pp. 4-5.

Judge Goeke is not amused by such spendthrifty behavior. “Petitioner did not demonstrate a willingness to decrease its expenses, reduce salaries, or lay off personnel in an attempt to meet its tax obligations. Mr. Harris testified that petitioner did not have excess expenses to cut, because it paid only for necessities. However, during the periods at issue petitioner continued to pay for Christmas parties, provide yearend bonuses to its employees, and pay the partners all of their guaranteed payments. Petitioner’s preference for these expenses over its tax obligations does not demonstrate ordinary business care and prudence in providing for payment of tax liabilities. It is this type of spendthrift behavior section 301.6651-1(c)(1), Proced. & Admin. Regs., warns against.”2014 T. C. Memo. 144, at pp. 19-20. (Footnotes omitted).

Takeaway–Read the Code and Regs when deciding when and how to direct application of payments or deposits. And don’t party-on when you’re behind with your withholdings.



In Uncategorized on 07/21/2014 at 16:12

It must have been in my second year under the Peace Tower atop The Hill, that a visiting professor, an Irish-American of formidable erudition and even more formidable capacity for good Bourbon (an Old Forester kind of guy), told us the story of the last Serjeant-at-Law in England (and the story has been told of many other persons, localities and dates). The Serjeant, an Irishman from the South, when asked by the Judge if he was familiar with the doctrine “qui fecit per alium fecit per se”, replied,  ”Why, Your Honour, in Ballyjamesduff we speak of little else.”

Well, that line might not come amiss when considering Section 6751(b), of which I had never spoken at all before my blogpost “Penalty Kick”, 7/16/14.

And that discussion might have faded into obscurity had not my esteemed colleague, Joel  E. Miller, Esq., sent me a copy of the decision in US of A v. Jacob Rozbruch et al., 11 Civ 6965, decided by Magistrate Judge Gabriel Gorenstein, USDCSDNY, 7/9/14.

While there is an interesting New York City cooperative apartment priority-of-lien issue in the case, the parties duck that issue in the best approved manner by not asking MJ Gorenstein to decide it, Decision, at p. 6. And he doesn’t.

But IRS is seeking TFRPs against Jacob and Mrs Jacob, as responsible persons of Jacob’s professional corporation known as “Ortho”.

Jacob’s counsel interpose the Section 6751(b) defense. Agreeing that Jacob and Mrs Jacob owed but didn’t pay, they say IRS hasn’t shown that the requisite intermediate supervisor signed off on the imposition of the Section 6672 100% chop, which is called a penalty throughout the Code and Regs.

MJ Gorenstein has a dozen cases that say that just because something is called a penalty doesn’t make it so. Besides, Section 6671(a), not cited by IRS counsel but picked up by the keen eyes of MJ Gorenstein (or his clerk), says TFRPs are to be assessed and collected as taxes. Decision, at p. 11-12.

Remember our eminent Chief Justice’s skating and sand-dancing in National Federation of Independent Business V. Sebelius, 132 S. Ct. 2566 (2012), where a tax might be a penalty or maybe a penalty might be a tax?

Anyway, MJ Gorenstein doesn’t need 193 pages to deal with the issue. You don’t need no Section 6751(b) sign-off for TFRPs, because Section 6671(a) says you don’t, and besides, the 6672 “penalty” isn’t, it’s a device to collect from defaulting trustees what is due to the beneficiaries, namely the Federal fisc as to income tax and the FICA and FUTA accounts of the employees from whose wages the trust funds were withheld.

Looks like we’re going to see more Section 6751(b) arguments. Just not for TFRPs.


In Uncategorized on 07/18/2014 at 17:03

Welcome the Texas Technophobes

I don’t know that Terri M. Morgeson, Esq., would necessarily make that claim about the Texas Tech University School of Law Low-Income Tax Clinic. But she must be technophobic, because she’s seeking exemption from e-filing in the case of David Morales Guerrero, Docket No. 25670-13S, filed 7/18/14.

Judge Nega isn’t unduly technophobe-friendly, however. He says that Terri claims: “(1) she is the Director of the Texas Tech University School of Law; and (2) she is not registered with the Court’s electronic case management system.” Order, at p. 1.

Not quite, Judge. The Texas Tech University School of Law website lists Terri as staff, with a phone number and no picture; her name is missing from amongst the nine (count ‘em, nine) deans shown thereon. She may direct the low-income tax clinic, but that is a fact not in evidence.

In any event, no one proofreads these orders, do they? Or does what we called “cite and substance checking” in my young law school days fifty years ago. If I were ever to retire, I might apply for that position, if such exists. There is certainly a want thereof.

Howbeit, while low-income pro ses, who are assisted (my emphasis) by such pro bonos as Ms. Morgeson either directs or in which she serves, are exempt (per Tax Court Rule 26(b)(2)), the clinics and the clinicians are not, absent good cause shown.

Terri doesn’t. So now she gets a chance to do so.

Come on, Terri, win one for the Texas Technophobes.


In Uncategorized on 07/18/2014 at 15:50

We’ve a wee bit more than three weeks to go before the twelfth of August, the traditional start of the UK grouse-hunting season for would-be successors to the Pallisers, Lord Peter Wimsey, and other Masterpiece Theatre wannabes. But the IRS-hunting season is in full swing, with the hunters out on the tax moors and loaded up.

Two days ago it was Circular 230 §10.27(b) in the crosshairs, with Judge Cooper of USDCDC bringing it down. See my blogpost “It’s Contingent? Great!”, 7/17/14.

Now there just flopped into my e-inbox some hour-and-a-half ago a missive from something called “The Progressive Accountant”, claiming that AICPA has filed, or will file, suit against Big John Koskinen and his minions, seeking to blast the voluntary preparers’ program from the skies over Taxland.

Apparently the gravamen (that’s two-yacht lawyer talk for “gist” or “essence”) of the suit is that Big John’s “voluntary” program for preparers is an end-run around the sacred preserve of Loving, which leaves forever free from the toils and trammels of Circular 230 everything and everyone taxic short of an actual audit or lawsuit.

See my blogpost “That’s Right, Tom; A Volunteer’s Worth Two Pressed Men”, 6/27/14. Apparently the high command at AICPA is afraid Big John’s vultures are a-skulking round the tax preparers’ nests, waiting their chance to swoop down.

Stay tuned; this should yield a good bag of grouse and grousing.


In Uncategorized on 07/17/2014 at 21:47

That is, it’s great if you’re in DC Circuit, the land of the Loving. The assault on IRS’ long-arm approach to roping in tax practitioners from the breaking of dawn to the fall of eventide goes on apace, the latest being the partial collapse of the §10.27 barrier to contingent fees.

You’ll recall the rule: “(b) Contingent fees — (1) Except as provided in paragraphs (b)(2), (3), and (4) of this section, a practitioner may not charge a contingent fee for services rendered in connection with any matter before the Internal Revenue Service.

(2) A practitioner may charge a contingent fee for services rendered in connection with the Service’s examination of, or challenge to —

(i) An original tax return; or

(ii) An amended return or claim for refund or credit where the amended return or claim for refund or credit was filed within 120 days of the taxpayer receiving a written notice of the examination of, or a written challenge to the original tax return.

(3) A practitioner may charge a contingent fee for services rendered in connection with a claim for credit or refund filed solely in connection with the determination of statutory interest or penalties assessed by the Internal Revenue Service.

(4) A practitioner may charge a contingent fee for services rendered in connection with any judicial proceeding arising under the Internal Revenue Code.” 31 CFR 10.27(b).

Well, Gerald Lee Ridgely, Jr., CPA, charged a contingent fee in connection with filing an “Ordinary Refund Claim”, and Jake Lew and the 1111 Constitution Avenue gang landed on Gerry Lee with both feet.

But Judge Cooper of USDCDC, home of Loving, wasn’t buying it.

Read all about it in Gerald Lee Ridgely, Jr., v. Jacob Lew, et al., Civil Action No. 1:12-cv-00565 (CRC), filed 7/16/14. And thanks to Christopher S. Rizek, Esq., for bringing this to my attention.

Judge Cooper is a man of few words. “ORDERED that Defendants lack statutory authority to promulgate or enforce the restrictions on contingent fee arrangements, as delineated in 31 C.F.R. § 10.27, with respect to the preparation and filing of Ordinary Refund Claims, where ‘preparation and filing’ precedes the inception of any examination or adjudication of the refund claim by the IRS and any formal legal representation on the part of the practitioner….” Order, p. 1.

Summary judgment to Gerry Lee.

Bottom line- until there is something adversarial or controverted, no one is representing anyone before the IRS by just filing a form, and so Circular 230 and its numerous strictures are off the table.


In Uncategorized on 07/17/2014 at 16:32

What is a “government”? Usually we’d answer that it’s an organized group, based in a specific geographical area, with command-and-control powers over all therein. But how about a multinational group, encompassing geography ostensibly governed by existing governments that have been there for years?

That’s the €20 million question, leading off Vol. 143 T. C., in Guardian Industries Corp., 143 T. C. 1, filed 7/17/14, with Judge Lauber writing for a unanimous Court.

Guardian admits it was a “little black sheep that has gone astray”, as Rudy Kipling would have it, entering into a price-fixing deal as regards its sales of “…float glass, fabricated-glass products, fiberglass insulation, and other building materials to customers in Europe and elsewhere.” 143 T. C. 1, at p. 11.

The Commission of the European Community, the executive arm of the European Union, has first whack at suspected price-fixers by treaty and executive order (or equivalent), and local regimes are supposed to defer to the Lord High Executioner, a/k/a the Commission.

But is the Commission a “government”, as that term is defined in Section 162(f), which bars deducting the USD$30 million or so that Guardian claimed was the dollar value of the price-fixing claim they paid, namely, the aforesaid €20 million.

“Respondent agrees that the Commission is neither ‘[t]he government of a foreign country’ nor ‘[a] political subdivision’ thereof. Accordingly, the question for decision is whether the Commission is an ‘entity serving as an agency or instrumentality’ of ‘[t]he government of a foreign country’ within the meaning of this regulation. The parties have not brought to our attention, and we have not discovered, any prior authority that addresses this question directly.” 143 T. C. 1, at p. 14. (Footnotes omitted, but Judge Lauber tells IRS to butt out; he can figure the answer without looking at IRS’ view of its regulations).

Like the New York/New Jersey Port Authority, lately in the news as a lane-closer-fixer on the George Washington Bridge, and which is an instrumentality of two governments, the Commission is not out as an instrumentality merely because it serves more than one government. So Judge Lauber uses Second Circuit learning, because, even though Guardian is a Michigan corporation, Sixth Circuit apparently hasn’t dealt with this yet.

Guardian didn’t concede that the payment was a “fine or penalty”, but wasn’t going to fight it out in Tax Court.

Judge Lauber diligently parses the terms “agency” or “instrumentality” (Guardian claims it means “subordinate”, but Judge Lauber finds five varieties of ambiguity in those terms). And the Commission need not exercise every governmental function to be recognized as an agency or instrumentality; it is enough that it exercises an essential function, and enforcing anti-monopolies laws certainly fit the bill.

“When sovereign states enter into a treaty to accomplish shared goals, it is rare that any signatory nation exercises unilateral control over the entities thus created. Typically, signatories voluntarily restrict their authority to act unilaterally, as the EC member states have done, in favor of a collective regulatory scheme that they believe will serve their long-term interests. The fact that the Commission is not subordinate to, or subject to the control of, any individual member state thus has little relevance in deciding whether it is an ‘agency or instrumentality’ of the member states collectively.” 143 T. C. 1, at p. 36.

And if the usual five-point test for governmental agency is applied, the Commission gets three out of five easily. The five are : (1) whether the foreign state created the entity for a national purpose; (2) whether the foreign state actively supervises the entity; (3) whether the foreign state requires the hiring of public employees and pays their salaries; (4) whether the entity holds exclusive rights to some right in the [foreign country]; and (5) how the entity is treated under foreign state law. See 143 T. C. 1, at p. 42.

Sorry, Guardian, you’re out of commission.