Ch J Michael B. (“Iron Mike”) Thornton puts his hand on his head, points to IRS, blows the play dead, and tosses the NODs against David Andrew Lufkin, Sr., Docket No. 28323-13L, filed 9/22/14.

Dave Sr. was an attorney, but he was out of his office when the Form 941 withholdings at issue from his law practice were being fought.

I was out of my office today, for what I suspect is a much happier occasion than Dave Sr., because a receiver had been appointed for his practice.

IRS claimed Dave Sr. was objecting to a NOD out of an equivalent hearing, because he blew the thirty-day cutoff on the original NITL, so he went for an equivalent hearing that doesn’t allow for petition to Tax Court. If you blow a NITL, you can get an equivalent hearing, but if you lose, that’s it, no ticket to Tax Court. Thus, Dave Sr. is auf’d, as they say on the runway.

After much motion practice, Dave Sr. claims he never got the NITL. If he didn’t, the NITL was a nullity, the equivalent hearing was a nullity, the levy goes down, any funds or property levied upon must be returned, and back to Square Uno for IRS.

Ch J Iron Mike explains: “This is because statutes mandate that such notices under section 6320 and 6330, I.R.C., must be given in person, left at the person’s dwelling or usual place of business, or sent by certified or registered mail to the person’s last known address. Secs. 6320(a)(2), 6330(a)(2), 6331(d)(2), I.R.C.; secs. 301.6320-1(a), 301.6330-1(a), 301.6331-2(a)(1), Proced. & Admin. Regs. ‘Last know address’ [sic], in turn, is defined as ‘the address that appears on the taxpayer’s most recently filed and properly processed Federal tax return, unless the Internal Revenue Service (IRS) is given clear and concise notification of a different address.’ Sec. 301.6212-2(a), Proced. & Admin. Regs. In absence of proper mailing to the last known address, the Court will dismiss the case for lack of jurisdiction on the ground that the underlying notice of Federal tax lien filing or the underlying final notice of intent to levy is invalid, a disposition that precludes the Commissioner from going forward with the collection action in dispute.” Order, at p. 3.

It turns out that IRS mailed the NITL to the receiver, notwithstanding that the 941s in question showed Dave Sr.’s old law office as the taxpayer’s address. And IRS couldn’t explain how they got the receiver’s address.

The receiver is an ineligible receiver. The receiver’s address is not the last known address to which Congress mandated the NITL be sent by certified or registered mail.

“Respondent therefore concedes on this issue and asks that the case, insofar as it concerns the 1998 Form 941 liabilities, be dismissed on the ground that the underlying final notice of intent to levy was invalid. Respondent further concedes that all amounts levied pursuant thereto will be refunded and assets [sic; probably “asserts”] that a final notice of intent to levy will be reissued to petitioner at his current (and at present proper last known) address of record.” Order, at p. 4.

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Footnote- The Tax Court Orders page was squirrely in the extreme today, so digging through Orders was a real job.

The Judicial Conference of the United States Tax Court revives the trademark words of the late Joan Rivers, with word of a judicial conference on the campus of Duke University (incidentally home of the Taishoff Aquatic Pavilion, and no, I didn’t build it, nor was it built by those who suggest I should jump in the lake).

The aforesaid judicial parley-voo is to be held between May 20, 2015 and May 22, 2015, both inclusive. To quote from the announcement on the Tax Court homepage, this “judicial conference will provide an opportunity for taxpayer representatives, government representatives, and members of the Court to discuss current topics relevant to Tax Court litigation.”

Space is limited, so get the application and shoot it in. Applications will be accepted through 12/1/14, with acceptances early in 2015. Apparently no charge to attend, but check out the hotels; in college towns they fill up fast at academic year-end.

But it’s a template you really shouldn’t use, for several reasons. First and foremost, it’s protester stuff. Second, it shouldn’t have been put on the Tax Court’s site.

That said, it’s the only order in nine (count ’em, nine) pages today that has any substance.

Unhappily, because the Clerk’s office posted the entire petition, unredacted, I can’t disclose it. Sorry.

You’ll remember the aphorism of the late Andy Warhol of Velvet Underground and soupcan fame: “In the future, everyone will be world-famous for fifteen minutes.”

Well, I’ve been awaiting my shot these last 72 years, and haven’t come close. But as the Bard of Amherst remarked “hope is the thing with feathers”. So my little feathers were all astir when I saw Gregory Scott Savoy, Docket No. 12316-12L, filed 9/18/14, from that obliging jurist Judge David Gustafson.

Greg wants to expand the record on appeal to Fourth Circuit to include “an article dated August 28, 2013 (published on an Internet blog)”. Order, at p. 1.

Only this, and nothing more, as another ornithological poet famously remarked.

I wondered what that article might be. I even wondered if it was one of my poor efforts; see my blogpost “Guess Who Reads My Blog – Part Deux”, 8/11/14.

So I called Judge Gustafson’s chambers, and was courteously but definitely informed that whatever information was publicly available was all that there is.

The order speaks for itself; the article, whatever it is, isn’t going into the record on appeal.

Well, as it happens I published three (count ‘em, three) articles (or rather, blogposts) on 8/28/13. But I could not discern the relevance of any of them, even though one of them had to do with an order of Judge Gustafson’s directing a party seeking a continuance to go to trial, on the ground that delay was unlikely to enable the parties to try the case any better. See my blogpost “Neither Death Nor Disease”, 8/28/13.

Although it was only a fleeting hope, I was hoping to get my humble effort indelibly inscribed on the United States Circuit Court of Appeals for the Fourth Circuit.

Guess not.

Lest I be accused of disrespect for the Tax Court (or, even worse, of being “sardonic”), I omit the balance of Brendan Behan’s celebrated simile.

But when the same canned opinions repeating the same citations rain down endlessly from the glasshouse at 400 Second Street, NW, it’s nice to find something that fits the “angry sweet singer of Ireland”’s description.

“The key fact here is that the Holmeses asked for a CDP hearing to discuss the possibility of an installment agreement to satisfy their unpaid 2011 tax debt. The IRS is usually willing to talk to taxpayers who want to avoid liens or levies on their property, but understandably insists that taxpayers who want to avoid enforced collection submit honest information about their assets and income. The settlement officer handling the Holmeses’ case asked for this information, and there is no dispute that the Holmeses never supplied it.

“That means that the settlement office [sic] did not abuse her discretion when she determined to go ahead with the proposed levy against the Holmeses’s [sic] property. See, e.g., Swanton v. Commissioner, 99 T.C.M. (CCH) 1576, 1580 (2010) (no abuse of discretion when the taxpayer has not submitted financial information).”

Fred Holmes & Maria Holmes, Docket No. 14871-13L, filed 9/18/14, at p. 1.

Forget the sloppy proofreading, and guess who wrote the order. No prize for the correct answer.

I was seriously of two minds about blogging William Cavallaro, Donor, 2014 T. C. Memo. 189, filed 9/17/14.

I’d had a lot to say lately about tax advisers getting it wrong. I didn’t want to appear to be engaging in schadenfreude, or calling penalties from the bleachers. Still less did I want to seem to be encouraging the disappointed taxpayer to sue their advisers when the metaphorical pot of gold turns out to be a pot of something much less desirable. And, worst of all, I do not want to seem to be claiming some kind of Olympian omniscience, when all I am doing is playing Monday morning quarterback.

And I’ll recite the clichés yet again: There but for the grace of you-know-Whom go any of us. Bad pilots don’t crack up jumbo jets; only good pilots do, because bad pilots never get to fly them. And all of us have awakened in the dark night of the soul at 3 a.m. thinking “OMG, did I do (or fail to do) that?”

OK, self-exculpatory patter done with.

The case is fact-specific. It’s a Pop-and-Mom business that starts at the dinner table. Mom and Pop barely made it through high school, but they build a multi-million dollar business. Their three sons are bright kids. The eldest devises a really good machine, and Pop-and-Mom’s corporation develops and manufactures it. But it never gets patented, and Pop-and-Mom took the R&D credits.

The sons’ corporation sells the device to various users, but never formally gets the IP that’s the valuable asset, and when the corporations merge, Pop-and-Mom get way less stock than their share of the assets.

Why? Because a Big Four accounting firm with two names, and a major league Boston law firm also with two names, advising Pop-and-Mom as to estate planning, decide, in the words of one of the attorneys “With regard to the ownership of the ‘technology,’ I am going to be guided by the history which comes out of [the] interviews with the key players. In any history there are a few events which do not fit the picture which the historian sees as ‘what happened.’ History does not formulate itself, the historian has to give it form without being discouraged by having to squeeze a few embarrassing facts into the suitcase by force.” 2104 T. C. Memo. 189, at p. 29.

The accountants objected, simply because the “squeeze” was directly contrary to reality. But the lawyers prevailed. I wonder what they told the clients while this jumpball was going on. In any case, much of the correspondence between lawyers and accountants get into the record (as the clients are trying to avoid substantial understatement and allied penalties, which they do).

Cutting the story short, IRS blows up the deal, hits Pop-and-Mom with having made a gift to their sons of $29.6 million by giving them too much stock, having filed no return and paid no tax. And after various appraisals, which Judge Gustafson mostly tosses, Pop-and-Mom have to cough up the tax and interest.

I’m quoting Judge Gustafson’s comment on all this, because I suspect it’s the prelude to The Phone Call. “The fault in the positions the Cavallaros took was attributable not to them but to the professionals who advised them. (Since those professionals are not parties here and have not had a full opportunity to explain or defend themselves, we refrain from further comment on them.)” 2014 T. C. Memo. 189, at p. 70.

It hurts to blog this, but it might warn some practitioner, advising an unsophisticated client, to have what we call a CTJ (a heart-to-heart discussion) with the client, warn them that the brilliant idea might not work, and let them sleep on the proposition, before leaping into print and winning an argument that will cost the clients plenty.

No, not another façade easement appraisal case. This is predictive coding, and it doesn’t have anything to do with the late Jean Shepherd’s celebrated Little Orphan Annie Ring, either.

No, predictive coding is how one trains a computer to sniff out certain documents from a heterogeneous mass of bits, bytes, gigs and teras, by having a human review a sample, put the magic discriminators in the search engine, see what the electronic friend turns out, and refine, until the result statistically assures a high level of confidence that what is turned out is what is wanted.

This is new to Tax Court, so we get a full-dress 143 T. C. 9, filed 9/17/14, Dynamo Holdings Limited Partnership, Dynamo, GP, Inc., Tax Matters Partner.

The issue is gift v. loan. Did Dynamo’s owners get gifts from an allegedly-related outfit called Beekman Vista, Inc.? IRS wants a huge load of ESI (electronically stored information) from Dynamo.

Dynamo says it will cost $450K to sort the stuff for privileged info, like HIPAA, personal info, etc. IRS says, OK, give us everything and we’ll give you a “clawback agreement” so you can suppress anything confidential later, without waiver issues.

Dynamo says “let’s use predictive coding. We’ll agree on search terms, train the computer, and for a fifth of the cost of an all-human search, we’ll give you the relevant stuff. ” IRS says, no, unproven technology.

Judge Buch, obviously technologically-hip, goes with Dynamo, and Dynamo’s essentially uncontradicted expert.

But first, a word of caution. Tax Court doesn’t play nanny for discovery.

“Our Rules are clear that ‘the Court expects the parties to attempt to attain the objectives of discovery through informal consultation or communication’ before resorting to formal discovery procedures. Rule 70(a)(1). And although it is a proper role of the Court to supervise the discovery process and intervene when it is abused by the parties, the Court is not normally in the business of dictating to parties the process that they should use when responding to discovery. If our focus were on paper discovery, we would not (for example) be dictating to a party the manner in which it should review documents for responsiveness or privilege, such as whether that review should be done by a paralegal, a junior attorney, or a senior attorney. Yet that is, in essence, what the parties are asking the Court to consider–whether document review should be done by humans or with the assistance of computers. Respondent fears an incomplete response to his discovery. If respondent believes that the ultimate discovery response is incomplete and can support that belief, he can file another motion to compel at that time. Nonetheless, because we have not previously addressed the issue of computer-assisted review tools, we will address it here.” 143 T. C. 9, at p. 10.

And address it he does, and lets the predictivists go at it. There’s lots of buzz in the technology press, other courts have allowed it in the past, and IRS’ expert can’t contradict Dynamo’s expert that it can work. Dynamo is right to worry about handing everything over to IRS, clawback or no clawback, and the cost of doing any eyeball search is staggering. Tax Court Rule 1 is to secure a “just, speedy and inexpensive resolution of every case.”

So go ahead, Dynamo and IRS, predictivize away, and, IRS, if you’re unhappy at close of play, come back and make your motion to compel.

No, not Mick Jagger’s and Keith Richards’ 1965 Number One hit for the Stones. This is Judge Ruwe’s word to Greenoak Holdings Limited, Southbrook Properties Limited and Westlyn Properties Limited, in 143 T. C. 8, filed 9/16/14.

The late James Irwin’s personal representative got a NOD from Appeals, affirming NITL on certain nonprobate assets of the late James. The late James’ personal representative didn’t petition the NOD. Green, South and West, apparently owned by a Bahamas outfit called Karamia Settlement, to which the late James had transferred assets (and as to which the late James’ personal rep claimed there weren’t assets in the probate estate sufficient to stump up the $7 Mil in tax due), file their own petition, aided by a substitute personal rep for the late James.

Green, South and West want either to be substituted in for the personal rep as petitioner  (even though it’s too late for the personal rep to petition, the 30 days from NOD having run), or that they themselves be allowed to petition, as they never got notice of the amount of tax due, which is what they want to contest.

Ordinarily, when the taxpayer didn’t have a chance to petition from a SNOD, or otherwise contest the computation of the deficiency at Appeals, Section 6330(c)(2)(b) gives them a shot in Tax Court. And we’ve seen any number of such instances where the petitioner gets a whack at the numbers if they hadn’t either had a chance before, or self-reported the numbers. And Green, South and West certainly didn’t self-report, or have a chance to contest.

Since every Section 6330 before now has been brought by the taxpayer him/her/itself, this is a case of first impression. Green, South and West claim that the late James didn’t own their property (and IRS didn’t claim they did, or specify what nonprobate assets were involved in the levy).

Now Section 6330 uses the word “person” extensively, so Green, South and West want to tag along.

“Petitioners interpret ‘person’ broadly so as to include any third party claiming an ownership right in property that might be subject to levy to collect the unpaid taxes of another person. Thus, they claim all of the rights conferred in section 6330, including the right to appeal a notice of determination to this Court, even if the notice of determination was issued only to the person who owed tax.” 143 T. C. 8, at pp. 12-13.

Once again we slide down the slippery slope of statutory construction and interpretation, and Green, South and West land on the bottom with a thump.

“A comprehensive reading of section 6330 in its context demonstrates that ‘[t]he person’ contemplated within the statutory framework is the person who owes the unpaid tax and that the only property that is subject to levy is the property of the person who owes the tax.” 143 T. C. 8, at p. 13.

The whole idea of the notice and hearing protections is to protect the property of the taxpayer. Green, South and West aren’t taxpayers. So no jurisdiction in Tax Court.

And this attempt to bring in Green, South and West by way of petition is too late. Rule 41 prohibits any amendment to a petition that tries to confer jurisdiction on Tax Court after the statutory clock has run.

That said, Green, South and West can always bring a Section 7426 wrongful levy claim in USDC. For more about Section 7426, see my blogpost “Whose Money Is It, Anyway?”, 1/11,12.

No, not a reprise of The Byrds’ 1965 cover of Pete Seeger’s take on Ecclesiastes 3. This is a further rebuke of an attorney heretofore known as Mac, who wants Judge Halpern to reconsider the blast he laid upon the aforesaid Mac back in April. Moreover, out of time at that.

Remember Mac? No? Then see my blogpost “A Further Cautionary Tale”, 4/28/14, the tale of Leonard L. Best & Evelyn R. Best, Docket No. 26662-10L, filed 9/15/14.

Now, your recollection refreshed, L. L. and Eve are high school graduates whose frivolity got them a $5K Section 6673 chop from Judge Halpern back in April. Furthermore, their attorney, known to my readers as Mac, was ordered to show cause why he shouldn’t get a vexatious chop per Section 6673(a)(2) or maybe a you-signed-it Rule 33(b) chop.

Well, more than the magic 30 days for a Rule 161 reconsideration went by, but Mac wants to ask for reconsideration anyway.

No dice, Mac, says Judge Halpern.

“In support of the motion, petitioners argue: ‘In effort to expedite matters, rather than await the sanctions opinion, and thus await the decision of all issues for which a motion for reconsideration can be timely filed, Mac decided to move to file out of time a motion for reconsideration of the findings and opinion.’ In referring to the sanctions opinion, petitioners refer to the Court’s order dated April 28, 2014, ordering petitioners’ counsel to show cause why the Court should not require him to pay respondent’s excessive costs pursuant to I.R.C. section 6673(a)(2) or sanction him pursuant to Rule 33(b), Tax Court Rules of Practice and Procedure. We agree with respondent that the motion for leave does not state a compelling reason to grant the motion for leave. Like respondent, we have examined the motion for reconsideration and, like respondent, we do not find therein a compelling reason.” Order, at p. 1.

So show cause, Mac, take your lumps, if any, and then ask for reconsideration.

Yet another in my “misunderstanding” series  is the tale of Steven Yari, 143 T. C. 7, filed 9/15/14. And it merits a full-dress T. C. because Judge Wherry addresses for the first time whether the Section 6707A nondisclosure chop applies to the initial (non-disclosing) tax return, or to subsequent amendments thereof.

The issue comes up on a CDP, because the Section 6707A chop couldn’t be included in the deficiency proceeding that Steve and IRS settled. Tax Court had no jurisdiction to review a Section 6707A chop in a deficiency proceeding, but Judge Wherry finds that Tax Court does have jurisdiction in a CDP.

But while Steve was going through the CDP, Congress changed the method of calculating the Section 6707A chop.

Steve’s deliction giving rise to all this was an abusive Roth IRA. It’s the old story of putting stock from a Sub S in a Roth, having an operating entity (here an LLC) pay the Sub S for “management fees”, and funneling the deductible fees into the nontaxable Roth. See Notice 2004-8, 2004-1 C.B. 333, for more about this nefarious scheme.

Steve, an admitted non-discloser, was in the middle of the CDP when the change in method took place, so the CDP was put on hold while IRS (not Appeals) considered whether the old method or the new method should apply. And that depends upon whether the tax shown on original return or last amended return applies.

Judge Wherry: “The parties scarcely mention, much less substantively discuss, this midhearing ‘time-out’ and apparent referral to the IRS examination function. We therefore will not further comment on these events.” 143 T. C. 7, at p. 7, footnote 3. All I can say is, mighty strange.

Anyway, Steve had amended his return for the year at issue twice after the deficiency was settled, and the last amendment (which no one is fighting about), would give Steve a $5K penalty per the new method, while his return pre-amendments would hit him with a $100K chop.

“Petitioner urges us to use the amended returns to determine the decrease in tax, and respondent says we must look to the original return. These disparate positions stem from a fundamental disagreement as to what the phrase ‘decrease in tax shown on the return as a result of the transaction’ means.”” 143 T. C. 7, at p. 12. (Footnote omitted, but it says the Regs just parrot the statute)..

Tough luck, Steve, but Judge Wherry sees no basis in the plain language of 6707A to give you a bye. “We think the statute is clear and unambiguous: The penalty is calculated with reference to the ‘tax shown on the return’. Sec. 6707A(b). When we look to the penalty provision as a whole, it is clear that Congress has penalized the failure to disclose participation in a listed or otherwise reportable transaction on the return or other information statement giving rise to the disclosure obligation. If the taxpayer fails to report the transaction on that return or information statement, then the penalty is based on the tax shown on that return or information statement, not some other, later filed return or some hypothetical tax. Congress did not say that the penalty should be calculated by reference to tax shown on a return; it did not say to calculate the penalty using the tax required to be shown; and it did not say to calculate the penalty using the decrease in tax resulting from participation in the transaction. Congress very clearly linked the penalty to the tax shown on a particular return–the return giving rise to the reporting obligation.” 143 T. C. 7, at pp. 14-15 (emphasis by the Court).

Yes, it’s harsh. And yes, plain language isn’t always so plain, as Judge Wherry goes to some lengths to show.

“We observe that the process of divining the legislative intent underlying a statute’s language and structure, while subject to canons of construction and well-established methodologies, is hardly an exact science. Compare, e.g., Halbig v. Burwell, No. 14-5018, __ F.3d __, 2014 WL 3579745, at *13-*17 (D.C. Cir. July 22, 2014) (having found sec. 36B unambiguous, concluding that weight of legislative history, including overall congressional policy goals, did not override statute’s plain meaning, which was that tax credits were unavailable to participants in health insurance exchanges established by the Federal Government), vacated and rehearing en banc granted, __ F.3d __, 2014 WL __ (D.C. Cir. Sept. 4, 2014), with King v. Burwell, No. 14-1158, __ F.3d __, 2014 WL 3582800, at *9-*10 (4th Cir. July 22, 2014) (having found sec. 36B ambiguous, concluding that legislative history did not support either plausible interpretation, and deferring to agency’s determination that statute permitted tax credits for participants in Federal health insurance exchanges, as consistent with overall congressional policy goals).” 2014 T. C. 7, at p. 15, footnote 5.

Maybe grounds for appeal, Steve.

But for those similarly situated, better ‘fess up early,  or it will not go well with you.

Edited to add: Affirmed, Steven Yari v. Com’r, No. 14-73914, 10/13/16, 9 Cir.