Archive for August, 2014|Monthly archive page


In Uncategorized on 08/22/2014 at 16:57

Gotta tell ya, Judge David Gustafson is obliging as all get-out. Just two days after I ranted about his not designating his useful and instructive orders, he’s got two (count ‘em, two) designated hitters today, and they are really obliging and instructive.

If anybody cares, my rant, that seems to have inspired Judge Gustafson’s emergence from his wonted modesty, is to be found at the end of my blogpost “I’m From the Government, and I’m Here to Help”, 8/20/14.

But Judge Gustafson came through in fine style today.

First to the plate is (or are) Kimberly Warren & Leslie Warren, Docket No. 21532-13, filed 8/22/14. Kim & Les claim they mailed their petition on Day 90, but the petition and the properly addressed but not postmarked envelope containing same arrived thirteen days later. Kim & Les claim they went to the post office on Day 90 and posted off the envelope with petition securely therein contained.

We all know that Section 7502 says “filed when mailed, but mailed means USPS postmark”. Kim & Les “…argue that section 6213(a) or section 7502 does not require the petition to be filed in this Court within the 90 day statutory period.” Order, at p. 2.

Of course that goes down trailing smoke and flames. So it looks like Kim & Les are finito.

Especially since the SNOD from which Kim & Les petitioned states their address and their petition states the same address, and said address located in the Great State of Tennessee. The Great State of Tennessee is nestled within the bounds of the Sixth Circuit. And Golsen-izing, Judge Gustafson finds that Sixth Circuit says taxpayers who send petitions by anything but certified or registered mail do so at their peril.

But Judge Gustafson, ever obliging, throws the rope: “We point out the following to the Warrens: Rule 162 permits a party to file a motion to vacate a decision within 30 days after the decision has been entered. If the Warrens wish to move the Court to reconsider this order (e.g., by presenting additional legal authorities, or by showing that they resided other than in the Sixth Circuit when they filed their petition), then they may appear at the calendar call in Columbia on September 8, 2014, and make an oral motion for the Court to vacate the decision. In the ordinary course this case would not be called (since it will have been dismissed), so if they intend to make such a motion, then they should arrive early on September 8 and should advise both the IRS counsel and the Court’s trial clerk that they are there and wish to make a motion.” Order, at p. 4.

Now that’s really obliging.

Not to be outdone, Judge Gustafson has the same handy tip for Gerald P. New, Docket No. 29161-12L, filed 8/22/14.Gerry was a wee bit casual in responding to IRS’ requests for information to work out a collection alternative, and never bothered returning Judge Gustafson’s phonecall.

Not a good idea, Gerry. There are Tax Court judges who get mighty peevish when ignored. But Judge Gustafson’s good nature shines through.

Although he tosses Gerry for failure to prosecute, he has the rope ready.

“We point out the following to Mr. New: Rule 162 permits a party to file a motion to vacate a decision within 30 days after the decision has been entered. If by September 22, 2014, Mr. New has obtained information that would show that his tax liability has been paid to an extent greater than the IRS acknowledges, or would show that he is eligible for a collection alternative, or would otherwise show that this decision should be vacated, then he should appear at the calendar call on that date and make an oral motion for the Court to vacate the decision. In the ordinary course this case would not be called (since it will have been dismissed), so if he intends to make such a motion, then he should arrive early on September 22 and should advise both his IRS counsel and the Court’s trial clerk that he is there and wishes to make a motion.” Order, at p. 2.

Now Judge Gustafson has done everything but offer to bring coffee and Krispy Kremes for Kim & Les, and Gerry, to the calendar calls.

And he’s even designated these orders so I didn’t have to spend an extra hour digging them out, on a cloudy Friday afternoon in August.

Way to go, Judge Gustafson.Thank you, Your Honor.


In Uncategorized on 08/21/2014 at 22:20

No, not a parody of the Sherman Brothers’ Oscar-winner from Walt Disney’s 1964 vehicle for Julie Andrews. This is a designated hitter from The Great Dissenter, a/k/a The Judge Who Writes Like a Human Being, s/a/k/a The Implacable Foe of the Partitive Genitive, Judge Mark V. Holmes.

The case is Renka, Inc., Docket No. 15998-11R, filed 8/21/14. It was argued on Tuesday, August 19, and I’d intended to go to the Center Courtroom at 400 Second Street, NW, to hear the argument, but an illness of a family member prevented me. Fortunately, Judge Holmes has dispelled my disappointment and curiosity.

IRS wants summary judgment and doesn’t get it. IRS started by claiming the Renka ESOP terminated in 1998 in their revocation letter, but moves for summary judgment based upon transactions and occurrences in 1999, claiming it doesn’t matter what year the ESOP failed, if it failed once it failed for all years.

The Great Dissenter nails that one: “There are at least two problems here. The first is the Commissioner’s seeming abandonment of his explanation of revocation, which disqualified the ESOP only because of facts as they supposedly existed in 1998. This raises a Chenery question. See SEC v. Chenery Corp., 332 U.S. 194 (1947) (Chenery II); SEC v. Chenery Corp., 318 U.S. 80 (1943) (Chenery I). The Chenery doctrine is an administrative-law principle that says ‘a reviewing court, in dealing with a determination or judgment which an administrative agency alone is authorized to make, must judge the propriety of such action solely by the grounds invoked by the agency.’ Chenery II, 332 U.S. at 196 (describing its holding in Chenery I). The Supreme Court not too long ago announced that ‘we are not inclined to carve out an approach to administrative review good for tax law only’ and noted ‘the importance of maintaining a uniform approach to judicial review of administrative action.’ Mayo Found. for Med. Educ. & Research v. United States, 562 U.S. __, 131 S. Ct. 704, 713 (2011) (citation and internal quotation marks omitted).” Order, at p. 2.

Now although Tax Court hasn’t ruled on whether Chenery I or II applies to an ESOP revocation, “…such proceedings also stem from an IRS determination made after the assembly of an administrative record and that determination is also reviewed for abuse of discretion. This inclines us to think that Chenery might be a reason by itself to deny the Commissioner’s motion.” Order, at p. 3.

But alas and alack! Renka’s legal team didn’t raise Chenery I or II in opposing IRS’ motion. And DC Circuit said last year that it’s a “use it or lose it” defense. I’ll have more to say about this in my takeaway.

For the moment, Judge Holmes deconstructs IRS’ argument by using Section 1563(c)(2)(B) to unravel IRS’ chain that binds Renka to a brother-sister control group. I leave that to the specialists.

No summary judgment for IRS.

And now, the takeaway. Litigators, when opposing motions for summary judgment or demands to admit facts or stipulate, read the administrative determination–carefully. And claim Chenery for “whatsoever is not read therein”.


In Uncategorized on 08/20/2014 at 16:42

Those nine (9) words, which, to the late President of the United States Ronald Wilson Reagan, were “the nine most terrifying words in the English language”, shouldn’t be for Barbara Delon & Welbon Delon, Docket No. 7097-13L, filed 8/20/14, because that Obliging Jurist, Judge David Gustafson, is throwing Barb and Wel a rope they shouldn’t drop, even if they don’t understand why it’s a rope.

Appeals admits they blew the CDP, so IRS wants a do-over and asks for a remand. You’ll remember that remands, like Ira Gershwin’s and Dubose Heyward’s idea of Woman, is a sometime thing. See my blogpost “Demand for Remand?”, 12/3/12, where Judge Swift sorts through a bushelbasketful of cases on Tax Court’s remand powers. But here it’s IRS asking, not Tax Court suggesting, so what’s the problem?

Barb and Wel don’t wanna go back to Appeals. So Judge Gustafson gets them on the blower with IRS and tries to tell them why they want to go back. And here’s what the practitioner, confronted with this situation, might wish to ponder as well.

First, only Appeals can grant a collection alternative. Tax Court can’t order IRS to provide one. So if Barb and Wel want installment, OIC, or CNC, Appeals is the only game in town. As for all the majesty and power of Tax Court, “…our final decision in a CDP case must be simply to sustain or not sustain Appeals’ determination, and the blunt instrument of not sustaining the determination would not give the taxpayer the collection alternative he seeks.” Order, at p. 1.

Next, each CDP considers one, and only one, “collection episode”. “If we decline to sustain Appeals’ determination and decide instead in favor of the taxpayer, our decision does not bar the IRS from subsequent collection attempts. If a proposed levy is not sustained, then the IRS may be able to propose another levy; if a given notice of lien must be withdrawn, then the IRS may be able to file another notice of lien. For some taxpayers, that truism will be a reason to consent to a remand.” Order, at p. 2.

Taxpayers, please copy. No double jeopardy here. Tax Court can bounce IRS, and provided SOL hasn’t run, IRS can lob another NFTL or NITL the next morning.

Worse, and finally, the Section 6320(b)(2) single-shot provision: only one CDP hearing for any tax period. So even if Barb and Wel win the trial and the lien or levy they’re fighting gets tossed, IRS can come back the next morning with a fresh one, and Barb and Wel have no ticket to a CDP or to Tax Court. Even if they won, they lost.

Now no court has so held. But “…for the unpaid liabilities at issue here, the Delons are entitled under this provision to ‘only one hearing’ with respect to the IRS’s filing of a notice of lien and the IRS’s issuance of a notice of levy. If a taxpayer prevails in a CDP case and thus succeeds in having the IRS’s notice of lien withdrawn, and if the IRS then files another notice of lien, the taxpayer may then want to propose a collection alternative. But does the taxpayer again have recourse to review by Appeals and by this Court? Perhaps the statutory limit of ‘only one hearing’ means that the answer is no, as the IRS appears to contend (see Internal Revenue Manual pt. (Nov. 5, 2013); or perhaps instead the taxpayer is entitled to a supplementation of his original CDP hearing as a continuation of that ‘one hearing’, and not as a new, second hearing; but no court has yet answered this question.” Order, at p. 2.

Heartily agreeing, I again quote that sage and savant of New York Civil Practice, Prof. David Siegel, now or formerly of Albany Law School: “Find out the answer in S. E. C.–Someone Else’s Case.”

Or, as Clint Eastwood might have put it: “Feelin’ lucky?”

“A taxpayer resisting remand therefore incurs the risk of forfeiting what may be his last chance for IRS Appeals and the Tax Court to review IRS collection activity. So that the Delons may further reflect on this matter, and so that the parties may have additional time to attempt to settle their dispute, it is ORDERED that the IRS’s motion to remand is taken under advisement ….” Order, at pp. 2-3.

And so the parties can talk among themselves, show up in Winston-Salem in September, guys, and we’ll all talk about it. And defer the trial.

Barb and Wel, listen to fatherly and obliging Judge Gustafson: he may be from the government, but he is here to help.

Footnote- Ya’d think Judge Gustafson would designate this order, as it has great information for the in-the-trenches practitioner and the ordinary taxpayer. But no! Instead I had to blow away a perfectly good hour wading through a fact-bound T. C. Memo., and four (4) designated exegeses on discovery that left me as wise as I was before (like, “what part of ‘answer the question’ don’t you understand?”). Modesty is all very well, Judge, but sometimes a modest blast on one’s own horn does no harm.


In Uncategorized on 08/19/2014 at 16:01

No, not Ado Annie’s line from Rodgers’ & Hammerstein’s “no legs, no jokes, no chance” musical that saved the Theatre Guild. No, this was The Judge Who Writes Like a Human Being, a/k/a The Great Dissenter, s/a/k/a The Implacable Foe of the Partitive Genitive, Judge Mark V. Holmes, telling IRS that they “cain’t say no” to that diehard whistleblower Kenneth William Kasper, Docket No. 22242-11W, filed 8/19/14.

This is yet another variation on the theme “win your case at discovery”. But first, do you remember Kenneth William? No? Then read my blogpost “The IRS Loses a Doubleheader”, 7/12/11, where some sloppy mailing by IRS keeps Kenneth William in the Hunt for the Gold. And Kenneth William isn’t giving up soon.

Kenneth William wants to check out IRS’ files in a bankruptcy case, whereat IRS may have gotten some boodle based on Kenneth William’s pictures, descriptions and accounts of corporate and individual skullduggery.

IRS says no, but Judge Holmes gets the parties on the horn (a great fan of teleconferencing, he), and as they stick to their positions, Judge Holmes, recognizing the law is, in his words, “uncertain”, calls for briefs.

Well, Kenneth William comes out swinging.

“A review of their briefs shows that a major issue in the case is whether the record rule applies in whistleblower cases. It is a strong possibility that this Court will find that it does, and it is also quite possible that the documents that Mr. Kasper seeks will not be in that administrative record. But one of the ways in which a litigant in a case governed by the record rule gets a trial is if he alleges that something is missing from the record that ought to be there – such as whether an agency ‘has considered all relevant factors and explained its decision.’ Tri-Valley CAREs v. U.S. Dept. of Energy, 671 F.3d 1113, 1130 (9th Cir. 2012). This makes discovery – particularly a very pointed and well-described request like Mr. Kasper’s – useful and available.” Order, at p. 1.

For those who tuned in late, the record rule, much beloved by, among others, Ninth Circuit (and trial is set for Phoenix, AZ, Ninth Circuit country), is the contrapositive of the Yellow Pages’ famous slogan: “If it’s not in here, it’s not out there”.

In “record rule” jurisdictions, the courts review agency determinations based upon the record before the agency at the moment of determination. “All thy piety and wit”, as the Persian bard put it, cannot change a line of it, either by addition or subtraction. If the parties are unhappy with the proffered record, they must say so.

So hand it over, IRS, right after Labor Day.

Takeaway for whistleblowers and their representatives: Get the discovery demand that Kenneth William put together and govern yourselves accordingly.


In Uncategorized on 08/18/2014 at 19:13

No, not the 1971 Clint Eastwood thriller; this is the story of Misty S. Doonis, 2014 T. C. Memo. 168, filed 8/18/14, as told by Judge Lauber.

Misty missed two years’ worth of 1040s, so IRS obligingly prepared SFRs for her and gave her SNODs for each at no extra charge. Misty never bothered to petition either SNOD, so IRS assessed tax and gave Misty a Final Notice of Intent to Levy and Notice of Your Right to a Hearing.

This gets Misty’s attention, and she asks for a CDP. “In her request, petitioner asked that her account be placed in currently not collectible (CNC) status or, alternatively, that the IRS consider a collection alternative in the form of an installment agreement or offer- in-compromise.” 2014 T. C. Memo. 168, at p. 3.

The SO asks Misty for a Form 433-A wage earner and SE tell-all, which Misty proffers timely. OK so far.

One minor problem. In addition to the two unfiled years, Misty has five (count ‘em, five) other unfiled years, so before the SO will hear Misty’s plea, she must come up with the returns.

And she does. All but one.

SO says that Misty’s income well exceeds local and national standards, per the returns she did file (each of which show a hefty balance due).

“Petitioner requested an installment agreement or an offer-in-compromise. Both collection alternatives require that the taxpayer be in full compliance with filing required tax returns. Petitioner concedes that she did not file a tax return for 2005.” 2014 T. C. Memo. 168, at p. 7. (Citations omitted).

It doesn’t get better. “Petitioner first argues that the SO should have excused her failure to file this return because ‘she did not have sufficient records to file a tax return for 2005.’ This excuse is unavailing. Taxpayers are required to keep and produce adequate records that enable the Commissioner to determine the correct tax liability. This is an affirmative duty placed on the taxpayer, and an unexplained failure to maintain adequate records is no defense to the duty to file a required return.” 2014 T. C. Memo. 168, at pp. 7-8. (Citations omitted).

Ya gotta give Misty and her lawyers credit for trying.

“Petitioner next contends that she had ‘no reported income for tax year 2005 per the IRS wage and income transcripts.’ Petitioner is a self-employed medical recruiter who earned Schedule C business income averaging in excess of $78,000 for 2006-2012. On her Schedule C for 2006 she did not check the box for designating that she ‘started or acquired this business during 2006.’ This implies that she was engaged in her medical recruiting business during 2005. Petitioner has set forth no specific facts, by affidavit or otherwise, tending to show that she did not work in her business during 2005; that she earned no income in 2005; or that the income she earned in 2005 was below the threshold requiring her to file a tax return. See sec. 6012(a).

“The fact that the IRS transcript of petitioner’s 2005 account shows no third-party reporting of payments to her does not imply that she received no income for 2005. Self-employed individuals are not subject to reporting on Form W-2, Wage and Tax Statement, and they often are not subject to reporting on Form 1099-MISC, Miscellaneous Income, either. Petitioner has set forth no specific facts, by affidavit or otherwise, indicating how many clients she had, how those clients paid her, and whether those clients generally supplied the IRS with Forms 1099-MISC reporting the income that she received.” 2014 T. C. Memo. 168, at pp. 8-9.

Finally, Misty and lawyers claim the IRS Manual says IRS won’t ask for returns more than six years old, and the missing return is one such. Great, says Judge Lauber, but “We have previously found no abuse of discretion when an SO required a taxpayer to file returns going back more than six years. The IRM, which includes Policy Statement 5-133, does not have the force and effect of law but provides only direction and guidance.” 2014 T. C. Memo. 168, at p. 9. (Citations omitted).

Rather like the Pirates of the Caribbean, the IRS Manual and Policy Statements therein set forth are “guidelines…aspirational goals.”

So Misty has to pay up. The SO was right in not putting Misty in CNC or putting her on  the installment plan, because she has money.


In Uncategorized on 08/18/2014 at 14:27

No, not Robin Williams (although I much lament his passing).

Rather, I somewhat belatedly note the passing on June 3, 2014 of Blonde Grayson Hall, Esq., star of my blogpost “When All Else Fails”, 4/4/13. Whatever her subsequent delictions, she was a member of the initial steering committee of the President’s Council of Cornell Women in 1990. Hail, all hail, Cornell!

I was made aware of Ms. Hall’s decease from Judge Ruwe, who filed an Order 8/18/14 in Blonde Grayson Hall & Neal E. Hall, Docket No. 353-12.


In Uncategorized on 08/15/2014 at 18:34

It’s a slow summer Friday in Tax Court, 8/15/14. I was casting about for something to blog, and was so far down the path to deserved obscurity that I was about to edify my readers with IR-2014-80, 8/12/14 (talk about yesterday’s papers), wherein IRS was announcing proudly that “its cornerstone ‘Taxpayers Bill of Rights’ document is now available in six languages.

“Newly-revised versions of Publication 1, Your Rights as a Taxpayer, are now posted on in English, Spanish, Chinese, Korean, Russian and Vietnamese.”

For more, see my blogposts “Righting a Wrong”, 6/14/14, and “Somebody Does Read This Blog – Part Deux”, 6/14/14.

Had somebody told me fortyfive years ago today that IRS would be publishing the “cornerstone Taxpayers Bill of Rights document” in Vietnamese, my reply would have contained many of Mr. Spock’s colorful metaphors. Well, live and learn.

But I have something better. Ch J Michael B. (“Iron Mike”) Thornton always has his eye on the essential, and lets nothing get in the way.

Case in point: Robert E. Zorn, Docket No. 15573-14, filed 8/15/14. Rob starts off in the usual way, with a petition. But he doesn’t bother sending in the sixty buck filing fee or a waiver request.

Ch J Iron Mike gives Rob the usual second chance to pony up or plead poverty. Rob replies to Ch J Iron Mike with “various largely unintelligible or nonsensical communications from petitioner that suggested petitioner would not be coming forward with the filing fee.” Order, at p. 1.

So Ch J Iron Mike, who will let you into Tax Court if you send in a money order, even without a petition (see my blogpost “Show Me The Money”, 11/13/13), tosses Rob.

But Rob, quick off the mark, sends in an Application for Fee Waiver. And Ch J Iron Mike buys it, because it might have crossed in the mail with the tossing Order, and tosses his toss, letting Rob in.

So remember Ch J Iron Mike’s cornerstone rule: Show Me The Money.




In Uncategorized on 08/14/2014 at 20:13

Long-suffering readers of this, my blog, will remember the sad tale of Lisa Laflamme, Florida real estate person, who put her retirement contribution on the wrong line of her return, and was rescued from a Section 6662 chop by Judge Vasquez, as more particularly bounded and described in my blogpost “Whose Line Is It, Anyway?”, 2/8/12.

Today’s sermonette focuses upon another misplaced entry, but here the taxpayer is seeing double. This is the tale of Robert S. McQuate and Linda S. McQuate, 2014 T. C. Memo. 165, filed 8/14/14, as told by Judge Ruwe. Or rather, it’s partly the tale of Rob Mac and Lin Mac, but also the tale of their attorney, whom I shall hereinafter designate as Max.

Rob Mac and Lin Mac had an S Corp that performed consulting services. For the year at issue, the Sub S consulted with A, a partnership in which the Macs were partners, and got paid $59K, which turned up on the S Corp’s 1120S in the right place. But the Macs reported neither gain nor loss from A.

When, two years later, A finally sent the Macs a K-1 for the year at issue, it showed a guaranteed payment and an ordinary loss, which netted out to a $900 loss, and the Macs filed a 1040X with the revised numbers timely, asking for a refund.

Three years later, but still timely, IRS dropped a FPAA on A, and cut the Macs’ ordinary loss by two-thirds. The Macs and the A tax matterer did not petition the FPAA.

IRS hits the Macs with a deficiency of $15K. The Macs claim they picked up the right numbers on their original 1040, and didn’t remember, when they filed the 1040X, that the numbers A’s accountant put on the K-1 were wrong, because the Macs gave at the office, having picked up the right number years before.

Well, the Macs get a SNOD, petition, and with a quick exchange of 1040, 1120-S and 1040X (with the ledger from the Sub S showing the right payment), the deficiency gets erased.

So why am I telling you this? Because Max wants $27K in legal and administrative costs and fees, and the Macs file a Section 7430 petition in support thereof.

Max wants costs for years other than the one at issue, and that’s a nonstarter. “Petitioners ask that we award costs incurred with respect to taxable years that are not before the Court. To do so would exceed our jurisdiction and on this record would be inappropriate.” 2014 T. C. Memo. 165, at p. 4, footnote 2.

You can see this is off to a bad start, and it doesn’t improve. “Petitioners’ counsel did not provide a detailed schedule of the litigation and administrative costs incurred with respect to the [year at issue] Petitioners concede the reasonableness of respondent’s litigation position.” 2014 T. C. Memo. 165, at p. 5 (Footnote omitted, but Judge Ruwe therefore blows off the litigation fees).

So we’re left with administrative costs. And justification. Was the IRS justified, that is, would a reasonable person conclude that, as the moment the SNOD issued, the IRS was right based upon what information it had at the moment? That later information was provided, and that IRS thereupon folded, does not mean that IRS wasn’t justified.

Not until IRS got the ledger and the 1120-S could IRS have figured out that the Macs gave at the office. Max bombarded IRS with correspondence before then, and Judge Ruwe summarizes it. All Max told IRS was about other years and a non-receipt of a refund on the 1040X; Max never mentioned the year at issue until post-petition.

So no go.

Incidentally, “Respondent argues that the attorney’s fees are unreasonable. We need not address this issue since we have determined that respondent’s administrative position was substantially justified.” 2014 T. C. Memo. 165, at p. 11, footnote 5.

Takeaway- The time to win a Section 7430 is at examination. I know that this was a very tough case, because the K-1 came long enough after the year at issue so that memories were obscured, and the FPAA was a distraction. Again, keep good billing records. And litigation and administrative fee cases are very, very tough to win.           


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?


In Uncategorized on 08/12/2014 at 18:29

That is, elegy for a very interesting tax scam, that takes place in a graveyard. And the moral is that even a completely defective petition, if filed out of a FPAA, tolls the statute of limitations for both the partnership-level and partner-level determinations. And even more so if the partner files bankruptcy.

Here’s Judge Nega to tell you all about it, in Michael J. McElroy and Ruth M. McElroy, 2014 T. C. Memo. 163, filed 8/12/14.

Mike Mac succeeds inventive Glenn R. Johnston as tax matterer of several general partnerships, all bearing the title Heritage Memorial Park. Inventive Glenn is taken out of the play by the Federales, copping to “one count of conspiracy to defraud the United States by selling, claiming, and causing others to sell and claim millions of dollars in false and fraudulent tax deductions for charitable contributions and concealing from the IRS income from the sales of the fraudulent deductions.” 2014 T. C. Memo. 163, at p. 8.

Inventive Glenn gets a “get into jail free” card.

I give Inventive Glenn a Taishoff “good try in the first degree”. Inventive Glenn rounds up fewer than 100 highrollers for each of his general partnerships, and buys up cemetery plots for not heavy-duty cash (as those highrollers reckon heavy-duty cash). They then mark up the plots by a lot (we don’t hear about the appraisals from Judge Nega, but they must put the historic façadeniks in the shade), and contribute them to a 501(c)(3) cemetery, taking big charitable deductions.

The key, of course, is that there must be a one-year holding period in the gravesites, so they can be contributed at the marked-up FMV (which is beaucoup more than the highrollers paid for them).

Judge Nega explains: “The amount of the deduction for a charitable contribution of property depends in relevant part on whether the contributed property was held for over one year (in which case the deduction is the property’s fair market value) or for a lesser period (in which case the deduction is the taxpayer’s basis in the property). See sec. 170(a), (e)(1)(A); sec. 1.170A-1(a), (c)(1), Income Tax Regs.; see also sec. 1222(3) (providing that property may qualify for long-term capital gain treatment only if held for over one year).” 2014 T. C. Memo. 163, at p. 3, footnote 3.

Inventive Glenn and friends blow the one-year hold, so Mike Mac and Mrs Mac only get their minimal basis for the deductions.

However, the legal issue (“At last!” say my few readers so far still above-ground) is whether the 3-year SOL has run on Mike Mac and Mrs Mac.

Inventive Glenn as tax matterer agreed to extend the SOL before he was investigated, but not afterward. IRS then served FPAAs, and Glenn petitioned, and agreed to continuances of trial while he was being investigated and pleading guilty.

After Inventive Glenn was in the slammer, IRS moved to toss him as tax matterer, and Mike Mac stepped in, solely for the partnership-level proceeding.

Mike Mac claims his own deficiencies arising out of the scam are barred by SOL, but Judge Nega says TEFRA keeps partners’ issues open while partnership-level items are being hashed out. Mike Mac claims that there was no partnership-level proceeding, because Inventive Glenn had no right to file the petition, as he was being investigated and therefore disqualified as tax matterer.

Doesn’t matter, says Judge Nega. There was a petition. Whether or not effective, the petition was timely filed, and that opens the box.

Anyway, Mike Mac later filed bankruptcy, and that converted his items from partnership-level to partner-level, per Section 6226. And gave IRS an additional one year from discharge to go after Mike Mac and Mrs Mac.

But whatever the theory, Mike Mac loses. The proper place to challenge the petition Inventive Glenn filed was at the partnership-level proceeding. Nobody did, and Judge Nega finds nothing wrong with that. And if Inventive Glenn was right to file the petition, the mere fact he was under criminal investigation doesn’t oust him as tax matterer, and Judge Nega has Second Circuit learning to back up that statement.

Cutting to the chase: “The long and short of this issue is that the… Forms 1065 were timely filed, the FPAAs were timely mailed to the partnerships’ TMP within three years after the returns were filed, and petitions were timely filed in this Court as to the FPAAs. The assessment periods as to the partnership items therefore remained open at the commencement of and throughout the partnership-level proceedings, as stated in section 6229(d). Then, when petitioners filed their bankruptcy petition while the partnership-level proceedings were pending in this Court, petitioner’s partnership items were recharacterized as nonpartnership items by operation of law, and respondent had at least one year thereafter to mail the deficiency notice to petitioners. See secs. 6229(f)(1), 6231(b)(1)(D), (c)(1)(E); sec. 301.6231(c)-7T(a), Temporary Proced. & Admin. Regs., supra. Respondent’s mailing of the deficiency notice to petitioners met that one-year requirement. The deficiency notice was therefore timely, and the applicable limitations periods remain open.” 2014 T. C. Memo. 163, at p.18.

I note in passing that both Gregory Scott Savoy and Janice Marie Cross are on deck today, Greg in a T.C. Memo. and Janice Marie in two designated hitters, all courtesy of that Obliging Judge, Judge David Gustafson. I’ll spare you the details; they are consistent with past history.