The statistics page on my blog tells me I have 104 followers, and ever so many views over the lifetime of this, my current literary effort (“a poor thing, but mine own”). Still, to have an occasional nod from the authors of the opinions and orders at 400 Second Street, NW, is a great pleasure.

Cf. (as my high-priced colleagues say) “Guess Who Reads My Blog?” 4/1/14, as the Second Street guys really put on a show.

And today, my “sardonic” self gets a wee tip of the hat in an order from that Obliging Judge David Gustafson, in Gregory Scott Savoy, Docket No. 12316-12L, filed 8/11/14.

Greg wants his case to proceed as “Anonymous”, even though there are 48 filings so far, all with his name on them. He claims he wants his medical history sealed (done back in February), and Judge Gustafson never mentioned Greg’s medical condition thereafter, but Greg did.

And Greg maintained other, related litigation not under seal, wherein the DCDC named Greg’s medical condition in quoting from the complaint therein.

Of course, Greg cannot remain anonymous.

But what caught my eye and gave rise to this blogpost is the following.

“Petitioner recently learned from an Internet search that, in July and September 2013, he was named in two ‘sardonic blog posts’ on the Internet. Those posts commented on this case and were occasioned by previous orders we have issued in this case. The blog posts did not name petitioner’s medical condition.” Order, at p. 2

Me, sardonic?

I would point out in passing that, in an exchange of e-mails on Friday, March 21, 2014, Mr Savoy mentioned his medical condition in general terms, and objected to my reportage of his case (and I did not then or thereafter mention his medical history). I must conclude that his internet search above-referenced took place some time before March 21, 2014.

I replied then, and reply now: “Mr Savoy, If you’re unhappy with the present laws, contact your Senators and Representative. They can change the laws; I can’t. If you are unhappy with Judge Gustafson’s decision, then appeal. The Circuit Court can overrule him; I can’t. And if you are unhappy with my present reportage, I cannot change that. I call ’em as I see ’em, and as I perceive how the Court calls ’em.”

But, sardonic or not, Judge Gustafson is a true First Amendment champion: “We will also deny the motion to the extent it asks us, in effect, to impose any ‘gag’ order or similar restriction on media discussion of this case. Apart from the impediments of the First Amendment (assuring ‘freedom of speech [and] of the press’–freedoms surely valued by petitioner, given his profession), any attempt by the Court to do so would surely backfire by calling much more attention to this case than it would otherwise receive.” Order, at pp. 3-4.

See my blogpost “Don’t Give a Sham”, 5/22/14, for background. Summarizing, this case involves a $33 million charitable deduction of a remainder in the membership interests in an LLC that is landlord of triple net leased property. IRS claims it’s about $29 million high.

Now, IRS moves for summary judgment in RERI Holdings I, LLC, Harold Levine, Tax Matters Partner, 143 T. C. 3, filed 8/11/14. But Judge James S. (“Big Jim”) Halpern is a firm believer that summary judgment is issue identification, not issue determination; and if the issue is a fact question, no summary judgment.

First is a prolonged joust over the applicability of the Section 7520 tables to valuing the remainder interest here. This I leave to the specialists, except to note that, although a single-member LLC is a disregarded entity for income tax purposes, a willing buyer of those interests cannot ignore the existence of the LLC in negotiating a purchase price for same, even if the single-member LLC has only one sole asset. The member’s interest is in the LLC, not the sole asset.

Of course, the membership interest may have no value apart from the value of the sole asset. And it doesn’t matter whether the membership interest (or the asset) is being valued for gift tax purposes or income tax purposes. The same tests apply.

There’s more jousting over whether the appraisal of the remainder interest is a “qualified appraisal” for Section 170 purposes, but we’ve been over that ground before (and in fact Judge Vasquez goes over it again today in Marco Zarlengo and Linda McMahon-Zarlengo, 2014 T. C. Memo. 161, filed 8/11/14), and in both these cases the appraisal survives the test as to regulatory compliance (although the resulting numbers in both cases encounter major judicial skepticism, Zarlengo’s going over the side altogether).

In fact, the very optimistic (shall we say) appraisal in RERI gets a yellow card from Judge Big Jim: “RERI’s contribution of the SMI [remainder interest] to the University resulted in a claimed deduction far in excess of RERI’s investment therein. That contribution was followed by the University’s sale of the SMI to HRK and HRK’s resale of it, which was followed, ultimately, by the last purchaser’s contribution of the SMI to another charitable organization, again allegedly resulting in a large deduction in excess of either HRK’s or the donor’s investment. That chain of events suggests the presence of a scheme to generate large deductions, through application of the sec. 7520 tables, for multiple charitable contributions of the same asset, in which each of the donors made a small investment. Such a scheme at least suggests tax shelter aspects that the parties may want to address at trial and on brief.” 143 T. C. 3, at p. 49, footnote 20.

The University got the remainder, subject to a hold-sell agreement, whereunder the University had to hold the remainder interest for two years (during which time the present interest was held elsewhere) and had to sell it at the end of the two years. The University got way less than the tax benefit to the donor.

And I note in passing that the donor is well-known New York City real estate entrepreneur Steven Ross, head of The Related Companies, builder of the Time-Warner Center, which “has transformed Columbus Circle into one of New York’s premier destinations”. Mr. Ross is also a major donor to the University of Michigan.

Full disclosure–both my mother and my nephew are alumni of that great institution.

No, not only the start of the grouse-hunting season, but the publication date of the new Whistleblower regulations.

And guess what? Not a lot has changed.

Here, check it out yourselves:

Click to access 2014-18858.pdf

It’s summertime, sure enough, but George and Ira to the contrary non obstante, as my out-in-the-Hamptons colleagues say, the livin’ ain’t easy for Tax Court bloggers on a Friday afternoon.

Opinions don’t show up on Fridays at any time of the year, as the crew at 400 Second Street, NW, seem to treat this day as the Day of Preparation, as that phrase was used in a much more exalted circumstance, long ago and far away.

So, lest my cherished readers, few in number but independent of spirit, jump ship if they find nothing but yesterday’s blogpost on my site today, I am doing the blogger’s equivalent of ducking for apples among the orders, all seven pages’ worth (at 25 orders per page). And a toilsome business it is.

But that Obliging Judge, Judge David Gustafson, lays a designated hitter on us. There are actually two orders, but they’re a coupled entry; metaphors from the racetrack and the diamond follow, to suit the season.

And the King of Cutesy has thirty (count ‘em, thirty) of his inimitably-styled petrofiddles, each laying the same motion on poor Ch J Michael B (“Iron Mike”) Thornton, with motions from IRS blowing off each one. Ch J Iron Mike fouls these back on the screen, telling each petrofiddler to answer IRS, and vice versa, with everything due on Friday, August 22.

Wanna bet ten new pence Ch J Iron Mike isn’t going to be standing at the front door of 400 Second Street, NW, at 5 p.m., in two weeks, eagerly awaiting delivery of the foregoing? Thought not.

But before I get to Obliging Judge Gustafson, let’s look at with what John J. Petito, wholesale tax matterer, has gifted Ch J Iron Mike. It’s a “Motion For Court Order To State That Petitioners Win, As Per Stare Decisis, With Prejudice.”

Haven’t seen the papers, so can’t tell what John J. is up to, but if you remember, John J. reached base on a single in Jimastowlo Oil, LLC, et al., John J. Petito, Tax Matters Partner, 2013 T. C. Memo. 195, filed 8/26/13, when IRS lost the source partner in the sun. See my blogpost “Honor Your Partner”, 8/26/13.

Howbeit, John J. is as cutesy as ever (see my blogpost “Save the Cutesy”, 7/1/14) with such entities as Tochlim Kepabroil Conglomerate LLC , Redwaterpet Oil & Gas Royal Oil Family Delectation, LLC, and Strikeoil, LLC, to name but a few.

Can’t wait for the opinions, all thirty of them.

Now for that Judge Gustafson designated hitter. It’s that up-and-coming bug rounder Janice Marie Cross, Docket No. 1439-13, filed 8/8/14. It’s what we call around the track “POE” (part of entry) as there are two cases, consolidated.

I call Janice Marie a “bug”, not as a derogatory term, but because around the track an apprentice jockey is known as a “bug”, colloquial for the asterisk that appears next his or her name in racing programs and formbooks to designate apprentice status. But Janice Marie is really moving up in class on the rounder circuit.

Janice Marie sends Judge Gustafson a nine-page billet doux (“Open letter”) with a tale of woe about how she can’t pay IRS, and, separately, a “”Petition for Default Judgment and Dismissal***.” Order, at p. 1.

Judge Gustafson, ever obliging, gives Janice Marie the short course in Tax Court law and practice.

“Ms. Cross’s letter will be returned unfiled, since it is not a proper submission. Requests for relief are to be presented by a motion, not by letter. (And Ms. Cross is advised that a motion should not be titled ‘Petition’. In this Court, a ‘petition’ is the document that commences a lawsuit. A subsequent request for relief is put in a ‘motion’.) The letter reflects one of Ms. Cross’s misunderstandings about this suit: Contrary to her apparent impressions, in these cases brought under section 6213(a), the Court will make no decision about the IRS’s collection of her tax liability but will instead determine the amount of that liability. In the current lawsuit, her financial circumstance is therefore irrelevant. After these cases are decided, if Ms. Cross has unpaid liabilities, then the IRS may commence collection by levy (such as garnishment) or by filing a notice of lien, and Ms. Cross may then be able to invoke this Court’s jurisdiction under section 6330(d) to review proposed collection of tax, in which context financial hardship may sometimes be relevant.” Order, at p. 1.

And the “motion to dismiss” would torpedo Janice Marie. She claims there’s some species of “default”, but Judge Gustafson says there’s been a SNOD, timely petition and answer, so there’s jurisdiction. Therefore, Section 7459(d) instructs us that dismissing a Section 6213(a) petition where there’s jurisdiction mandates a decision giving IRS everything they want. “Consequently, if we were to dismiss the cases–even at petitioner’s request–the decisions we enter would by law constitute an adjudication that she owes the deficiencies that the IRS determined.” Order, at p. 2.

So Judge Gustafson obliges Janice Marie and doesn’t dismiss this case.

Now we’ve got that out of the way, be warned, Janice Marie: “Ms. Cross shall take care to put the correct docket number(s) on all her filings. She has frequently transposed numbers and thereby misstated the docket number in case No. 1439-13. Ms. Cross shall also refrain from making further repetitive, frivolous filings. The time she spent composing and typing her ‘Open letter’ and ‘Petition for Default Judgment and Dismissal * **’ was time utterly wasted. These and her similar previous filings flatly contradict her complaints that she lacks adequate time to prepare for trial. If Ms. Cross hereafter files meritless motions, the Court expects to deny them summarily without explanation.” Order, at p. 3. (Emphasis in original).

Bless the rounders, every one. They’re the ones that keep blogging interesting.

That’s the paraphrase from 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 a designated hitter 8/7/14.

And Judge Holmes embellishes this text from a much more exalted source in HTM Fidelity Insurance Company Ltd, Docket No. 18925-13.

These are two companion cases, but IRS and HTM agree to continue Case No. One, so they can go back to Appeals and try to hash out their disputes, and Judge Holmes is down with that.

But IRS tries to wildcard in an economic substance argument in Case No. Two, and HTM says “OK, but IRS has burden of proof, as that’s new matter, not new theory.” HTM will go back to Appeals on Case No. Two as well as Case No. One, but IRS must carry the weight on economic substance.

IRS needs to amend its answer in Case No. Two, and that’s OK with Judge Holmes. He has discretion. The key points are whether there’s an excuse for the delay in amending (there really isn’t, as IRS was fiddling with economic substance at Examination) and whether HTM would “suffer unfair surprise, disadvantage, or prejudice.” Order, at p. 2 (Citation omitted).

Since HTM and IRS are going back to Appeals to haggle, and trial won’t be happening soon, HTM has time to deal with economic substance. It’s not like the parties were on the eve of trial, with witness lists and documents exchanged, pretrial briefs written and exchanged, and all that jazz. So IRS can amend.

But the question remains: who has to prove what? And the answer depends upon whether economic substance is new theory or new matter.

If the facts to be established at trial, and the burden of establishing them, is the same whatever the legal theory, then that burden doesn’t shift from the party that had it to begin with (here it’s HTM). The application of the law can be fought out on papers.

But in this case it isn’t so simple.

“The reason is that the evidence needed to show nondeductibility because a transaction lacks economic substance is different from that needed to show that a deduction is not ordinary and necessary (or not really insurance) – it can stretch to the subjective intent of some entity associated with the transaction and usually includes some notion of profit potential. And the need for different evidence is what distinguishes a new ‘matter’ from a new ‘theory’.” Order, at p. 2.

And Weekend Warrior Trailers, 2011 T. C. Memo. 105, filed 5/19/11, doesn’t help IRS, because there IRS first raised economic substance, and only afterwards threw in Section 162 nondeductibility, so the evidence for economic substance was already out there (and taxpayer won). See my blogpost “Even a Little Substance Matters”, 5/19/11.

Or as Judge Holmes puts it: “But there respondent was trying to add the narrower ground (nondeductibility under section 162) to a case in which he first raised the broader ground. That larger sets contain smaller sets doesn’t mean that the sets are congruent.” Order, at p. 2.

Remember lesser-included-offenses from Criminal Law 101?

So IRS, you must bear your own burden.

The Best in the House?

Readers of this blog come from 111 countries, per statistics from 2/25/12 to present.

In the long-ago days of my youth, when I could get served at some of the better bars in My Fair City before I turned eighteen years of age (I cleaned up pretty good in those days, in a suit and tie), I remember old Canadian Club whiskey billing itself as “The Best in the House in 167 Countries”.

Well, I’m not in that league, but hey, for an old guy I get around.

Larry Michael Welenc needs a reminder of this fact, and Judge Nega is the Judge to give it to him. See Order at Docket No. 21295-11, filed 8/6/14.

Ya can’t keep Larry down. Unlike some technophobic lawyers I’ve blogged heretofore, Larry just loves to e-file.

Here’s a sample, with dates, as they are relevant:

“On July 11, 2014, petitioner filed a Motion for an Order Under Model Rule of Professional Conduct 4.2. The Court denied petitioner’s motion.

“On July 17, 2014, petitioner filed a Statement.

“On July 20, 2014, petitioner filed a First Supplement to Statement.

“On July 23, 2014, the Court advised petitioner that it was inappropriate to communicate in an ex parte fashion with the undersigned or with Court personnel on the merits of his case or the advisability of any motion. The Court also reminded petitioner of the option of contacting pro bono clinics for legal advice in his case.

“On July 23, 2014, petitioner filed a Declaration of Larry M. Welenc in Support of Statement.

“On July 23, 2014, petitioner filed a Request for a Pretrial Conference.

“On July 23, 2014, petitioner filed a Second Supplement to Statement.

“On July 30, 2014, petitioner filed a Pretrial Memorandum. Also, petitioner filed a [sic] Amendment to Pretrial Memorandum on July 30, 2014.

“On August 1, 2014, petitioner filed a Request for Pretrial Conference requesting a pretrial conference with the undersigned judge.

“On August 3, 2014, petitioner filed a Second Supplement to Pretrial Memorandum.

“On August 4, 2014, petitioner filed a Statement. In his statement, petitioner requested that the Court withdraw its July 22, 2014 [sic] Order, and sought clarification from the Judge’s Chambers regarding a Clerk’s office memo.

“On August 5, 2014, petitioner filed a Second Supplement to Statement. “ Order, at pp. 1-2.

You get the idea. Of course, Larry is a pro se, but I’ve seen attorneys pull the same stunts.

And Larry seems to think he has Tax Court’s clerks on retainer, calling up for free advice.

Judge Nega loses patience. Larry is diverting resources from those who need them.

“Petitioner has submitted various documents that contain nothing but frivolous and groundless arguments. Petitioner’s tactics have consumed valuable Government resources. These tactics should not be condoned. They damage the integrity of the Federal tax litigation system because the time and attention the Court and respondent must devote to these frivolous arguments deprives other taxpayers with genuine controversies. We are mindful that petitioner is representing himself and may not be familiar with all the Court’s Rules and procedures. Pro se status, however, is not a license to litter the dockets of the Federal courts with ridiculous allegations concerning the Code.” Order, at p. 2. (Citations omitted).

So look out, Larry.

“Petitioner is advised that I.R.C. section 6673(a) (1) provides that the Tax Court may impose a penalty of up to $25,000 whenever it appears to the Court that proceedings have been instituted or maintained by the taxpayer primarily for delay or that the taxpayer’s position in the proceeding is frivolous or groundless.

“Petitioner is also cautioned that if he continues to submit unsolicited filings that contain mostly immaterial, impertinent, and/or frivolous matters, his e-filing privileges may be revoked by the Court.” Order, at pp. 2-3.

So Larry, cut it out and play nice. Or you may find yourself with a kick in the wallet and a seat in Outer Darkness with Terri Morgeson, Louis Samuel and Old Bill Wise.

Getting nostalgic fifty years on for the days of my misspent youth on that Hill Far Above, I remember the famous line “To the tune of our profs we must always keep time”. And I offer that snippet from “The Song of the Classes” (no, it’s not by Karl Marx) to those wannabe material participants in what would otherwise be passivity in the first degree.

Especially to my brethren and sistern at the Bar, who are bombarded with pitches from vendors of timekeeping and billing software.

Case in point today comes from Judge Buch, obviously a fan of time-billing. This is the story of Scott Wesley Williams and Michaele Anna Williams, 2014 T. C. Memo. 158, filed 8/5/14.

But it’s really Scotty’s story. He’s running his Dad’s old business training telephone reps, and carrying on an active law practice, but he finds time to run an airplane rental business too, that he claims is active.

He tries to tie in his flying with his telephoning, but that doesn’t fly (sorry, guys). So he can’t offset his flying deductions against his telephoning, because all they have in common is him. Check out Judge Buch’s take on the “single activity” rules in Reg. 1.469-4(c) at pp. 17-19.

And Scotty can’t prove the hours test (500 and 100). One sentence says it all: “Although Mr. Williams is a practicing attorney and likely is familiar with the practice of tracking his hours, he did not provide a log of his hours spent on the airplane activity, not even for the amount of time he spent drafting legal documents such as the aircraft marketing agreements.” 2014 T. C. Memo. 158, at p. 10.

Judge Buch must be recalling his time at McKee Nelson LLP and Bingham McCutcheon LLP, at both of which firms, and at the exalted rank of partner, no doubt he billed with the best of them.

So deficiency and the Section 6662(a) negligence chop stand.

Takeaway: Software and obsessive-compulsive behavior are cheap; deficiencies, penalties and interest are expensive.

One interesting question that doesn’t get answered by that highly-credentialed jurist, Judge Albert G. (“Big Al”) Lauber is whether an FBAR penalty is part of the base for a Section 7623 whistleblower award.

The conundrum arises in Whistleblower 22231-12W, 2014 T. C. Memo. 157, filed 8/4/14.

Ol’ 22231 claims s/he blew the whistle on Taxpayer 1, who was consorting with the Swiss to disappear the boodle. The Federales nailed Taxpayer 1, but there’s a dispute whether Ol’ 22231 was in on the tackle.

Would it paralyze you with shock to learn that, after Ol’ 22231 had petitioned, IRS claimed no jurisdiction, and moreover, IRS hadn’t used Ol’ 22231’s info in the slightest little bit?

Judge Lauber: “During July or August 2013 the Office received information from the IRS Criminal Investigation Division and the IRS Large Business and International Division that the Government had not used petitioner’s information as a basis for taking action against Taxpayer 1. The Office thereafter issued to petitioner… a letter that both parties agree constitutes a ‘determination’ that petitioner’s Taxpayer 1 claim has been denied. Petitioner filed a petition from that determination, and the matter is currently pending before the Court. See Whistleblower 22716-13W v. Commissioner, dkt. No. 22716-13W.”2014 T. C. Memo. 157, at p. 7.

Flashback: After an earlier exchange of e-mails between Ol’ 22231’s attorney and a Whistleblower office analyst (the “Whistling Analyst”), Ol’ 2231’s attorney was told that IRS got a pittance by way of income tax from Taxpayer 1, but a multi-million dollar FBAR nonfiling award.

Of course, the Whistling Analyst says IRS takes the position that FBAR penalties aren’t collected proceeds per Section 7623, so it’s irrelevant whether Ol’  22231 tipped off Treasury so they could make the big score. Ol’ 22231 wouldn’t get more than a penny anyway, even if they used his info, which they still hadn’t decided.

An Associate Chief Counsel at IRS’ General Legal Services wrote a memo setting forth “… the legal foundation for the Office’s position that FBAR payments, because they are made pursuant to title 31 rather than title 26 of the U.S. Code, are not ‘collected proceeds’ within the meaning of section 7623(b)(1).” 2014 T. C. Memo. 157, at pp. 5-6. Nice, huh?

So even though the Whistling Analyst kept telling Ol’ 22231’s attorney that IRS decided nothing, Ol’ 22231 and counsel decided they’d had enough and petitioned.

Judge Big Al, relied on “…the … testimony from Stephen Whitlock, Director of the Office. He testified about the Office’s procedures for processing claims generally and about its handling of the particular claim at issue here. We found his testimony instructive and credible in all respects.” 2014 T. C. Memo. 157, at p. 2.

Quite a story, getting the Chief Whistler on the stand. Poor ol’ Joe Insinga couldn’t even get the Whistleblower Program Operations Manager, Retiring Bob Gardner, to say “hello” to him. See my blogpost “A Voyage of Discovery”, 3/30/13.

But now the Chief Whistler is IRS’ witness.

So Ol’ 22231 petitioned again at a time when his counsel and IRS later stipulated that a determination had been made.

But petition no. 2 fails, because deciding whether FBAR penalties apply would be merely advisory, as Ol’ 22231 gets nothing because IRS claims they never used his info anyway, whether or not FBAR penalties are includable in whistleblower recoveries.

I’ll spare you the quote from Little Dorrit, although I’ll wager ten new pence that Charlie Dickens is laughing heartily, wherever he is.

Oh, and see my earlier blogpost, “Mighty Tough Language”, 8/4/14.

And From a US Senator, Yet

As quoted by one Shawna Ohm on the Yahoo.Finance website (and I’ll spare you the “live wire” pun) 8/4/14, Sen. Ron Wyden, Oregon Democrat, calls the Internal Revenue Code a “rotting economic carcass that’s infected with chronic diseases like loopholes and inefficiencies”.

Hey Senator, that’s what keeps us vultures of the tax world and the blogosphere eating.