In Uncategorized on 08/13/2014 at 19:33

But nobody went free. That’s Judge Buch’s holding in John C. Bedrosian and Judith D. Bedrosian, 143 T. C. 4, filed 8/13/14. So Justice Cardozo’s famous dictum goes by the boards.

IRS made hash of the audit of John and Judy’s 1040, missing the Son-of-Boss LLC and Sub S hidden in the partnership John and Judy concocted to lay off a humungous capital gain with Bialystoked capital losses. The partnership filed a 1065 with such gems as calling the LLC an “individual”, claiming it wasn’t subject to TEFRA but nevertheless appointing a tax matterer, and listing the Sub S as a partner, clearly taking the partnership out of the small-partnership exemption from TEFRA.

So IRS starts auditing John and Judy’s 1040. Meanwhile, back at the cliché, the SOL runs on the Bialystok partnership year. Waking up, IRS then starts a TEFRA on the loss carryforward year, with a NBAP and a FPAA, that John and Judy claim they never got, but Judge Buch goes off on “last known address.”

There’s much litigation, IRS telling different stories that John and Judy claim are frauds (and majority and dissent joust over how badly IRS besmirched themselves), several orders and opinions, all holding that Tax Court has no jurisdiction because John and Judy elected out of TEFRA too late and anyway IRS couldn’t reasonably decide that the partnership wasn’t subject to TEFRA. Oh yes, John and Judy fork over $4 million to IRS.

They run to Ninth Circuit, who holds that there’s no jurisdiction for two of John and Judy’s claims, and as to the third, there’s no “judgment” (by which I suppose Ninth Circuit means “decision”, that is, determining liability).

Judge Buch and the majority have much to say about “law of the case”, which is what I want to discuss. Judge Buch: “The ‘law of the case” doctrine ‘posits that when a court decides upon a rule of law, that decision should continue to govern the same issues in subsequent stages in the same case.’ It has been recognized and repeatedly applied by this Court and by the Court of Appeals for the Ninth Circuit… and precludes reconsideration of an issue that has been decided in this case…. The issues that a lower court is precluded from reconsidering ‘include those that were decided by the appellate court expressly or by necessary implication.’” 143 T. C. 4, at pp. 49-50. (Citations omitted).

Now Judge Vasquez and the dissenters (JJ Colvin, Foley and Ch J Thornton, not conspicuously pro-taxpayer judges) argue that the points of law supposedly decided by Ninth Circuit are dicta, not necessary to the holding. IRS’ botched handling of this case shouldn’t deprive John and Judy of their day in Court.

And Judge Goeke, concurring in result, says the Ninth Circuit’s ruling was dicta, so stick with the Tax Court rulings and forget about the Ninth Circuit affirmance, and John and Judy still are out.  Judge Paris agrees.

Judge Halpern concurs, saying John and Judy had their chance and they blew it.

Takeaway- Watch those orders and opinions. They can sink you.

Footnote- I wonder why, after having forked over $4 million, John and Judy didn’t sue for a refund. SOL?

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