Yes, I know the World Cup is over. And so, I presume, does that Obliging Judge David Gustafson. But Judge Gustafson has a penalty kick anyway, and he gives it in favor of one who made a guest appearance on this blog, Lawrence G. Graev & Lorna Graev, Docket No. 30638-08, filed 7/16/14.

And yes, this is another order that should have been a designated hitter, but wasn’t. This is what keeps me up at night, digging this stuff out.

On background, check out my blogpost “Money Back Guarantee”, 6/24/13. Briefly, Larry and Lorna had a high-priced Manhattan MacMansion, whereupon they placed a façade easement, which blew up to the extent of a 40% overvaluation chop.

It’s who does the chopping that causes Judge Gustafson to kick.

“Petitioners assert that respondent [IRS] failed to comply with the requirement of section 6751(b)(1) that ‘the initial determination of such [penalty] assessment [must be] * * * personally approved (in writing) by the immediate supervisor of the individual making such determination’.” Order, at p. 1.

Responses and counter-responses flew back and forth, but Judge Gustafson still isn’t satisfied.

“The statutory notice of deficiency (“SNOD”) that underlies this case … was signed by a ‘Territory Manager’ in the IRS’s “Small Business and Self-Employed” (‘SBSE’) division. In that SNOD respondent determined gross valuation misstatement penalties pursuant to section 6662(h) and asserted, in the alternative, that petitioners are liable for section 6662(a) accuracy-related penalties. It appears that respondent’s position is that, for purposes of section 6751(b)(1), ‘the individual’ who made ‘the initial determination’ of the alternative section 6662(a) accuracy-related penalties is attorney X, of the Office of Chief Counsel–and not the Revenue Agent originally assigned to this case, Mr. Y (or any another individual in Exam or the Technical Services Unit)–and that X’s immediate supervisor approved his determination in compliance with section 6751(b). We understand respondent’s contention to be not that X simply advised or recommended the penalty to IRS examination personnel who then made the determination (since advising and recommending are evidently not subject to section 6751(b)), but rather that X was ‘the individual’ who made ‘the initial determination’. However, the document asserting that penalty determination is not a pleading filed in this suit by Chief Counsel (e.g., an answer or amended answer that newly pleads an alternative penalty), but is instead the original SNOD issued by SBSE.” Order, at pp. 1-2. (Names omitted).

Now Delegation Order 4-8 (Internal Revenue Manual pt. 1.2.43.9 (Sept. 4, 2012) lets SBSE Territory Managers sign SNODs, but Office of Chief Counsel is not among the blessed communion, fellowship divine, so empowered.

So Judge Gustafson wonders “If, in fact, it was X who made ‘the initial determination of such [sec. 6662(a) penalty] assessment’, then it would seem that there must be some delegation of authority to Chief Counsel to make such a determination. The undersigned judge is unaware of any other delegation to Chief Counsel of the authority to determine a penalty liability in an [sic] SNOD; and respondent has not yet identified a relevant delegation of authority that would enable a Chief Counsel attorney to be ‘the individual’ who makes such a determination.” Order, at p. 2. (Name omitted).

So Judge Gustafson wants IRS to find the delegation.

Note this is not the old tax protester dodge that the SNOD wasn’t signed by the Secretary or his delegate. The SNOD isn’t at issue here, it’s who determined, rather than advised or recommended, to assert the penalty set forth in the SNOD. And there’s a specific statutory provision on that point.

A Taishoff “good job” to petitioners’ counsel.

No, not the USC fight song, which many of us have heard booming from the television surround-sound, amidst popcorn, peanuts, nachos et hoc genus omne, as the football went sailing through the uprights.

No, this is the apparently unending story of James (“Little Jim”) Haber, Tax Court perennial and master immunologist, this time in a continuation of Humboldt-Shelby Holding Corporation and Subsidiaries, Docket No. 25936-07, filed 7/16/17.

Little Jim wants a Rule 161 reconsideration, and Rule 162 vacation, claiming Judge Goeke didn’t properly Golsenize his previous opinion. What previous opinion, you ask? Well, check out my blogpost “Immunology”, 3/18/14, and enlightenment will be yours, at no extra cost.

Little Jim claims that if his deal could have made money (and everyone agrees it could have yielded a pittance, provided one disregards the fees Little Jim paid to acquire this bargain), game over, and economic substance, sham and all that nastiness are off the table.

Unhappily, the case Little Jim relies on is a broken reed.

First, the obligatory bow to Golsen v. Com’r, 54 T. C. 742, at p. 757 (1970). Tax Court must follow controlling Circuit Court of Appeals precedent.

Here, it’s our own Second Circuit, up the street from me at Foley Square. And Second Circuit has two prongs, rather than unitary, when dissecting the economics of a deal. First, could it make a profit? Judge Goeke agrees it could, if he left out the acquisition fees aforesaid, but whether he counts the fees or not, mox nix (as we say).

“However, the effect of that finding [that Little Jim might have made maybe a few bucks] was tempered by the significant tax savings the transaction was sure to generate. Our analysis was consistent with the Second Circuit’s economic substance approach. Although the Second Circuit has not before compared a transaction’s tax benefits to its profit potential, it has indicated that all facts and circumstances are relevant in determining whether a transaction has economic substance. The disparity between the guaranteed tax savings and the potential profit in this case was a relevant fact and convinced us that petitioner engaged in the transaction solely for tax reasons.” Order, at pp. 2-3. (Citations omitted).

Little Jim does have one last down, and he throws the usual “Hail Mary”.

Little Jim has a 1991 Second Circuit case called Gilman where the Court only analyzed whether the deal could make a profit, however minimal.

OK, says Judge Goeke, but “(T)he Second Circuit held that the transaction in Gilman presented no reasonable opportunity for profit. Therefore, the court did not have to consider whether, if it did, the profit was sufficient to give the transaction economic substance. The Gilman court’s analysis did not foreclose our consideration of additional facts once we determined petitioner’s transaction had profit potential. The Second Circuit has not decided an economic substance case under such circumstances, so the Golsen rule did not prevent us from looking to cases in other jurisdictions for guidance. Respondent’s notices of objection to these motions further expound on this matter, and we agree in whole with their analysis.” Order, at p. 3.

Wanna bet that Second Circuit will get the chance to decide “an economic substance case under such circumstances”, Judge, if Little Jim has a shot at getting there?

Little Jim may or may not have gone to USC, but he’s sure singing their fight song.

Now I’ve got as bone to pick with Judge Goeke, and it’s a tale I’ve told before. Specifically, I’ve told it in my blogpost “And Waste Its Sweetness On The Desert Air”, 5/8/14. To quote me quoting Tommy Grey, “But too many Judges are wont to issue orders to fortune and to fame unknown. And I’ve blogged these.” Op. cit., as my high-priced colleagues would say.

Have I ever. This Order has some important learning in it. But Judge Goeke hasn’t designated it. It’s sitting, in the words of Bartolomeo Vanzetti, “unknown, unmarked, a failure,” amidst six pages of soul-destroying banalities.

Today, 7/16/14, we have three small-claimers with unsupplied 433-As or missing documentation, and three designated hitters with absolutely nothing new in any of them. And we have this gem from Judge Goeke, that alone is worthy of my time, effort, and wordprocessor.

I know the judicial mill has little grist to spare for us bloggers. But gee, Judge Goeke, cut me a wee bit slack, huh? If it’s worth three pages, it should be worth a DH.

UPDATE

I got so wound-up with Judge Goeke’s modesty that I plumb forgot the partitive genitive. Should be “But gee, Judge Goeke, cut me a wee bit of slack, huh?”

My beloved Aunt Augusta presented me, some sixty years ago, with one of the myriad editions of Ebenezer Cobham Brewer’s classic Brewer’s Dictionary of Phrase and Fable. I have it still, and the 14th edition as well. They’ve been standbys and go-tos again and again, and this time old E. Cobham (as he was known to his friends) has a lesson for an AO at Appeals.

E. Cobham defined the English folk song “The Song The Old Cow Died On” as “Advice instead of relief; remonstrance instead of help.”

And Judge Haines sings the refrain (“consider, good cow, consider”) to Appeals in Synergy Environmental, Inc,.2014 T. C. Memo. 140, filed 7/15/14.

Synergy was a corporation whose philosophy was, apparently, “go for broke”, and they did. Synergy had about four years’ worth of unpaid tax, for which they offered $600 as an OIC, claiming they were stone cold dead.

IRS kicked the OIC, Synergy did nothing, but about a year later IRS laid a NFTL on Synergy. Synergy appealed the kicked OIC (then a year old), but Appeals said “no, and here’s a NOD”. Synergy petitions.

The NOD said “[b]ecause the Offer in Compromise was filed … a year earlier than the Request for a Collection Due Process Hearing for the filed federal tax lien any decision on the Offer in Compromise is covered under an earlier, separate work unit.” 2014 T. C. Memo. 140, at pp. 5-6.

Maybe so, but Judge Haines politely inquires “so what?”

“This statement does not find or decide anything with respect to the appropriateness of the …OIC. Hence, the determination does not contain all the statements required by section 301.6330-1(e)(3), Q&A-E8, Proced. & Admin. Regs.

“Additionally, the statement indicates that AO X did not consider petitioner’s … OIC as a collection alternative in making his determination pursuant to section 6320. That the … OIC was concurrently being considered in a separate appeal did not obviate the need to consider the … OIC in the section 6320 hearing. See secs. 6320(c), 6330(c)(2), (3), and (4). We think it is necessary to remand this case to Appeals for a supplemental hearing.” 2014 T. C. Memo. 140, at p. 6. (Name and footnotes omitted).

One of the omitted footnotes distinguishes Synergy from an earlier case, where an OIC had been the subject of a decided appeal. Here the OIC had never been previously disposed of by Appeals.

So Synergy gets an interesting second swing at the baseball.

And Appeals should heed the old song: “Consider, good cow, consider”.

No, not another “thing of beauty”, unlike my blogpost “A Thing of Beauty – Accept No Substitutes”, 1/28/13. This time it’s an accountant trying to use a Form 1045 refund request in place of a petition, and it doesn’t work.

STJ Daniel A. (“Yuda”) Guy has the bad news for James William Harrison, 2014 T. C. Sum. Op. 69, filed 7/14/14.

J.W. claims his restaurant, A Little Asia, yielded not-so-little losses that would have resulted in no tax due, and not the $4200 that the SNOD says he owes.

But he never petitioned the SNOD. Instead, his accountant sent in the Form 1045 and asked TAS to expedite it. So J.W. petitioned the NOD he got from Appeals.

He gave the Account Appeals Resolution Specialist some info, so she put him into CNC (currently not collectible) status.

But J.W.’s claim that IRS should have dealt with his Form 1045 before Appeals goes nowhere.

Judge Yuda: “Petitioner asserts that the IRS should not be permitted to proceed with collection without first processing the Form 1045 or the amended tax return that he submitted for 2009. Petitioner’s argument amounts to a back door challenge to the existence or amount of his underlying tax liability for 2009 within the meaning of section 6330(c)(2)(B). However, as discussed above, petitioner admits that he received the notice of deficiency for 2009 but decided not to file a petition for redetermination with the Court. Consistent with section 6330(c)(2)(B), the Appeals Office correctly determined that petitioner is not permitted to challenge the existence or amount of his underlying tax liability for 2009 in this action. See Sego v. Commissioner, 114 T.C. at 611.

“Even assuming for the sake of argument that we could consider petitioner’s complaint that the IRS failed to process his Form 1045 and related amended returns, we would not overturn the Appeals Office determination in this case. In short, petitioner’s submission of Form 1045 to the IRS claiming a tentative refund for 2009 did not preclude respondent from issuing a notice of deficiency to him for that year. See Zarnow v. Commissioner, 48 T.C. 213, 215 (1967) (failure to act on a Form 1045 within the 90-day period prescribed in section 6411(b) does not prevent the Commissioner from determining a deficiency for that year).” 2014 T. C. Sum. Op. 69, at pp. 8-9.

And the AARS took J.W.’s story at face value, and put him in CNC. No abuse of discretion here.

Takeaway- Nothing substitutes for a petition, even if it’s just a letter, or even a check (see my blogpost “Show Me The Money”, 11/13/13).

See my blogpost “The Phone Call”, 4/15/14. The unhappy incident there discussed can manifest itself in ways other than a Phone Call.

Case in point: Brent T. Wiedbusch & Christina Wiedbusch, Docket No. 15257-13, filed 7/14/14.

Brent’s and Chris’ counsel, whom I’ll call Vandy, wants to bail. He claimed last month that Brent and Chris told him they wanted to go it alone. However, Judge Gale wanted to be sure, so he had Vandy file a supplement to his Motion to Withdraw, and, receiving same, invited Brent and Chris to dish thereupon.

And they do: “…they dispute some assertions in [Vandy’s] Supplement and contend that they were not adequately informed concerning various aspects of their representation in this case.” Order, at p. 1.

Judge Gale, wanting to make absolutely sure he misses nothing, “…has concluded that [Vandy] should be afforded an opportunity to respond to the assertions concerning petitioners’ representation in the Response, including their assertion that the Petition in this case was filed without their knowledge of, or consent to, its contents.” Order, at p. 1.

So Vandy will get his chance at a riposte. Should be interesting.

Takeaway for counsel- Document everything. Repeat, document everything.

See my blogpost “Leftovers”, 3/19/14. I thought that blogpost had faded into obscurity, when the following e-mail arrived today, 7/14/14.

I replied to the sender that I would post the text of the e-mail in its entirety. I omit only the sender’s e-mail address.

Here it is:

“Name: Teresa Sanak Comment: I would like you to remove the post about me dated in March of this year. Your fact’s are not correct and can cause personal harm to me. This is the post regarding The Bogart’s. These are the incorrect facts. 1)The judge added and additional $10,000.00 to the judgment for their time and trouble, judgment amount incorrect. 2) I repaid over $7,000.00 to the Bogart’s prior to going the prison. 3) I have made my monthly, court ordered restriction payment to them since I was released.”

You Know the Rest

Repeating a comment from my blogpost “No Benefits, No Burdens, No Deduction”, 12/9/13, I quote Oscar Wilde: “No good deed goes unpunished.”

In my abovecited blogpost, Lourdes Puente got the message. This time, Judge Chiechi has the message for Ronald R. Dickenson and Shirley F. Dickenson, 2014 T. C. Memo. 136, filed 7/10/14. Shirley F. is a non-participant, but she gets the hit along with Ron.

Ron is a big-hearted consultant who routinely makes loans to his employees, he says, but he never bothers with notes, repayment schedules, interest or events of default. He claims he hired back a former employee, ol’ Terry, and fronted ol’ Terry $33K to tide him over while he moved back to Ron’s bailiwick.

Ron sent ol’ Terry a billet doux which stated, in pertinent part as my high-billing colleagues like to say: “Terry… I want to tell you once again, I am quite excited to get you over here and get our operation started together. * * *From my initial marketing efforts, you can fulfill the areas I cannot achieve by myself * * *. Anyway, I want to reiterate again my commitment to you financially, and what I would expect from you in paying me back. I am not going to prepare a note, or any form of contract, because I trust you to be honest about this matter, just like all of the other people I have loaned money.

“Anyway, I agree to loan you money to get settled in over here, and help you out financially as long as I see our new company is working, and you are going to work as hard as you did for me the last time we worked together.” 2014 T. C. Memo. 136, at p. 4.

You can guess the rest. Ol’ Terry rips off Ron (he claims), and absquatulates. Ron claims a business bad debt, but sued ol’ Terry and the case wasn’t concluded (Ron lost, of course) for two years after the year at issue, when he claimed the deduction.

There’s no unconditional obligation to repay, none of the usual indicia of a loan (note, interest, collateral, fixed repayment schedule), and the ability of the “borrower” to repay is dubious in this case. Ron himself testified that ol’ Terry was up against it when Ron sent him the $33K.

Ron was pro se, of course, and the trial record shows nothing that would indicate either a business, or even a non-business, bad debt.

The story is in a footnote, as Tax Court Judges tend to be ex-law review types, of whom a bona fide occupational qualification is the worship of footnotes.

Here it is: “Assuming arguendo that Mr. Dickinson had satisfied his burden of establishing that the … funds in question constituted loans by him to [ol’ Terry] and thus bona fide debts for purposes of sec. 166, on the basis of the record before us, we would find that he has failed to carry his burden of establishing that those alleged bad debts constitute bad debts that are not nonbusiness bad debts. See sec. 166(d); sec. 1.166-5(b), Income Tax Regs. In this connection, Mr. Dickinson has failed to show that the alleged bad debts were created or acquired in connection with a trade or business of his or that the losses from the worthlessness of the alleged bad debts were incurred in a trade or business of his. See sec. 166(d); sec. 1.166-5(b), Income Tax Regs.

“In addition, assuming arguendo that Mr. Dickinson had satisfied his burden of establishing that the … funds in question constituted loans by him to [ol’ Terry] and thus bona fide debts that are not nonbusiness bad debts, on the basis of the record before us, we would find that he has failed to carry his burden of establishing that those alleged nonbusiness bad debts became either wholly or partially worthless in taxable year 2007, the year for which petitioners claimed the deduction for those alleged business bad debts. In this connection, Mr. Dickinson has failed to show any identifiable events that could have formed the basis for his having reasonable grounds as of the end of 2007 for his abandoning any hope of recovering the …  funds in question. In fact, the record establishes that Mr. Dickinson continued … to prosecute the Dickinson lawsuit in order to recover those funds until the Marion Circuit Court dismissed that lawsuit….” 2014 Tc. Memo. 136, at p. 15, footnote 7. (Citation omitted).

One wonders if Ron had an attorney for the Marion County lawsuit. He needed one for this case, if for no other reason that to warn him.

It’s a real dull day at Tax Court, 7/9/14: no opinions, no designated hitters, not even an Order with a funny typo. So I was stumped for a blogpost, and felt that my fans, however few may be left, would have to do without a Taishoff disquisition.

All is not lost, pals. A previous poster-person may be going to knock on the doors of the Supremes.

Remember bookish Mike Oros? No? Check out my blogpost “I Could Write a Book”, 1/5/12, wherein I tell how bookish Mike’s attempt to sell his literary endeavors as a trade or business fell short of Judge Vasquez’s approbation.

Not dismayed, bookish Mike went off to Ninth Circuit, stipulating with IRS that both they and bookish Mike would be bound by whatever Ninth Circuit did with bookish Mike’s round-the-world literary extravaganza.

Back in December 2013, in a not-for-nuthin’ memo under Docket No. 12-71071, filed 12/13/13, the Ninth Circuit blew off bookish Mike, finding “(T)ax Court did not clearly err” in blowing off  bookish Mike as aforesaid, and “(W)e reject Oros’s contentions regarding conduct by Internal Revenue Service officials because it is irrelevant to the Tax Court’s determination.” Memo. at p. 2.

Still, apparently the Ninth Circuit held off on the blow-off from December, 2013, until June 5, 2014, stating in its mandate to Tax Court that same would take effect from that date.

So STJ Armen, The Judge With a Heart, gets bookish Mike’s case back from the Circuit.

But IRS, filing a status report, throws this in: “Pursuant to Sup. Ct. R.13, petitioner must file a petition for a writ of certiorari by September 3, 2014.” Order, Docket No. 19223-11S, filed 7/9/14.

Bookish Mike files no report, so STJ Armen presumes Mike agrees.

Think Mike will petition the Supremes? Given the track record of petitions from unanimous Circuit Court affirmances of Tax Court opinions in pro se petitioners’ cases, I suggest taking the snowball.

No, not the 1985 Michael J. Fox  – Christopher Lloyd American Film Institute’s tenth-best sci-fi film, but rather Judge Haines giving retroactive effect to the petition of US Loan Auditors, Inc., Docket No. 27157-13, filed 7/8/14.

There’s retroactivity all over the place in this Order, even without Chris Lloyd’s souped-up DeLorean. Try this: “On August 20, 2003, respondent [IRS] issued a Notice of Deficiency for the tax year that ended on December 31, 2010.” Order, at p. 1. Pretty cool for IRS to know that USLA’s return would be deficient seven years before the end of that tax year, eh? Doesn’t anybody proofread these orders?

It gets more retroactive.

“Petitioner filed the petition in this case on November 18, 2013. On January 10, 2014, respondent filed a Motion to Dismiss for Lack of Jurisdiction.

“Pursuant to petitioner’s motion, the United States Bankruptcy Court for the Eastern District of California issued a Civil Minute Order dated February 28, 2014 modifying the automatic stay ‘effective as of November 18, 2013, to allow United States Tax Court case number 27157-13 to proceed to a judgment or settlement.’ Petitioner and respondent have filed pleadings representing that, as a result of the United States Bankruptcy Court’s Civil Minute Order, the Tax Court has jurisdiction over this case.” Order, at p. 1.

Now of course there’s the automatic toll of the 90-day Section 6213(a) deadline in Section 6213(f), running from discharge or dismissal to Day 60 thereafter. But USLA either couldn’t wait, or didn’t know it had the toll, so it filed while the 11 USC §362 automatic stay was in effect.

So Judge Haines needs to know if he has jurisdiction. Golsen-izing, he finds Ninth Circuit says violations are void, not voidable, but Bankruptcy Courts have the power to lift the stay (and I’ve done it). And they can lift the stay retroactively (in extreme circumstances).

Howbeit, USLA was able to convince BCEDC to lift the stay retroactively. And USLA filed timely, given the retroactive lift-stay order, unlike another case where, although the stay was lifted, the petitioner filed late.

“Petitioner’s Motion to Annul the Automatic Stay filed with the United States Bankruptcy Court did not indicate that the 90 day period for filing a petition with the Tax Court was tolled by section 6213(f). Despite this defect in petitioner’s Motion to Annul the Automatic Stay, the United States Bankruptcy Court for the Eastern District of California has issued a Civil Minute Order retroactively lifting the automatic stay to allow this case to proceed.” Order, at p. 4.

So USLA is in, Tax Court has jurisdiction, and the Bankruptcy Court has gone back to the future.

This gem from Howell’s English Proverbs, 1659, is probably a lot older, for I once heard it ascribed, I expect incorrectly, to Niccolo Machiavelli, who lived more than a century earlier.

But whoever first said it, it remains a good rule, as counsel for Thomas J. Ratke & Bonnie F. Ratke, Docket No. 09641-01L, filed 7/7/14 finds out.

Said counsel, whom I’ll call Jacky, wanted STJ Lewis (“His Name Is His Fame”) Carluzzo to recuse himself from the case, and said so in a conference call.

“According to petitioners’ motion to recuse, the rulings embodied in the order are: (1) not based upon the record in this case; and (2) tainted on account of a ‘personal’ and/or ‘on going social’ relationship between the undersigned and respondent’s counsel. In response to a question from [Jacky] during a January 16, 2014, conference call (referenced in the order and petitioners’ motion to recuse) the parties were advised that the undersigned was familiar with Anne Durning and Ann Welhaf; the former as a student and the latter as a law clerk with the Tax Court. The parties were further advised that no other ‘personal’ or ‘social’ relationship exists between those individuals and the undersigned. During the conference call [Jacky] expressed an intention to make a motion to recuse the undersigned, now filed almost seven months later and following the order that embodies rulings adverse to petitioners.” Order, at p. 3.

And Jacky’s own file notes disclose that IRS’ counsel did not make “fabricated” or “misleading” statements to STJ Lew (“His Name Is His Fame”) Carluzzo.

You can guess the outcome of this one.

Takeaway- If you’re going to ask a Judge to recuse him/herself, (a) don’t wait until s/he rules against you, and (b) better have really good grounds. Really good. And read the headline of this blogpost before you make the motion.