This is the story of Charles T. Bruce and Mary A. Bruce, 2014 T. C. Memo. 178, filed 9/2/14, by Judge Wherry. Cap’n Charlie is a seafarer, fisherman and tugboat captain. But like his counterpart tugmeister Jac Baker (see my blogpost “Home Is Where The Heart Is”, 7/21/11), he runs aground in Tax Court.

Cap’n Charlie wants to quit the sea and provide for his two daughters, by selling off his tugging operation and the pride of the fleet, the Sarah Jane, namesake of one of his little princesses and worth a cool $5 million as-is, where-is.

But his basis is zero and the gain astronomical. Cap’n Charlie only finished high school before attending that ultimate academy, The Sea, where he earned his degree with high distinction.To help him out he turns to friend and loyal employee, Wade A. Rousse, who got his M.B.A. while working for Cap’n Charlie, and walked ashore to a M.A. and Ph.D. and a job with the Fed, encouraged by Cap’n Charlie.

Seeking to do his old boss a favor, Wade puts Cap’n Charlie into the hands of as slick a crew of crooks as one might find in a crimp’s establishment on the waterfront. See 2014 T. C. Memo. 178, at p. 9, footnote 3, for the relevant rap sheets.

The crimps shanghai Cap’n Charlie for six figures, while putting him into the usual roundy-round of phony basis builders, promissory notes for which no money is advanced or repaid, and trusts whose sole purpose is to disguise the foregoing.

In signing aboard the pirate ship, Cap’n Charlie consults his trusty lawyer, who has an LL.M. in tax from NYU and has represented Cap’n Charlie for years. Trusty lawyer meets with the pirates and is taken in.

Honest Cap’n Charlie sells the Sarah Jane to his old pal Wiley Falgout, who believed Cap’n Charlie was still the owner, notwithstanding the phony transactions aforesaid.

IRS rains deficiency and 40% chop upon Cap’n Charlie. Because of his trusty lawyer, plain-sailing honesty and lack of advanced landlubber education, Cap’n Charlie is spared the chop.

Let’s heave-to for a moment, and consider the title hereof. Cap’n Charlie’s trial counsel don’t raise the 3SOL until opening brief time, and admit this is “problematic”.

IRS claims Cap’n Charlie signed some extensions of the 3SOL, but doesn’t produce them for trial, because Cap’n Charlie’s trial counsel didn’t raise the issue in their petition.

Aye-aye, says Judge Wherry: “Petitioners recognize that judicial jurisprudence holds that the applicability of the limitations period is not properly before the Court where the taxpayer failed to plead that matter in the petition.” 2014 T. C. Memo. 178, at pp. 33.

SOL is an affirmative defense, me hearties, not a jurisdictional defect. As such, it can be waived.

“Our Rules require that a taxpayer specifically allege as an affirmative defense in the petition that the limitations period has run in order to properly raise the applicability of the limitations period as an issue. Petitioners acknowledge that they did not make such an allegation in the petition. We accordingly conclude that petitioners have waived any dispute that they now have as to the applicability of the three-year limitations period by not timely raising the issue.” 2014 T. C. Memo. 178, at pp. 34-35. (Citations and footnote omitted).

And Judge Wherry gives today’s takeaway better than I could, so I’ll step off the quarterdeck and hand him the loudhailer.

“Further, we do not agree with petitioners’ argument that section 7491(a)(1) requires that we decide the issue even though it was not raised in the pleadings. The pleadings serve a vital role in litigation in this Court. While many issues could theoretically be in dispute in a given case, the pleadings specify the issues which are actually in dispute, as well as the parties’ respective positions with respect thereto, and they allow the parties to efficiently and effectively litigate the case accordingly. See Rule 31(a).” 2104 T. C. Memo. 178, at p. 36.

Make waves or make waiver.