The baseball season may be drawing to a close as I quote these words from E. L. Thayer’s immortal paean to what G. H. Ruth called “the only real game”, but the Tax Season is just beginning, with on-extension corporate returns due Monday.

And John (“Kosi”) Koskinen’s gang are revving up the Annual Filing Season Program, the volunteer replacement for the now-defunct RTRP (pronounced “retrep”, accent on first syllable) program, notwithstanding the lawsuit hereinafter more particularly bounded and described.

Anent the which, see my blogpost “Open Season”, 7/18/14.

Of course, the CPAs who are suing to blast AFSP (pronounced “afsip”, accent again on the first syllable) are nowise behindhand, as they are also suing, I’m told, to block the sixty-buck PTIN fee.

If you’re interested in AFSP, here’s a link: http://www.irs.gov/Tax-Professionals/Annual-Filing-Season-Program

As for the PTIN litigation, I’m as cheap as anybody, so if I can save the sixty bucks I’m all for it.

But if they’re unhappy with IRS reaching into their pockets, they might ask Congress to think about regulating preparers, not just attorneys-at-law, CPAs, EAs, EActs and ERPAs. And imposing a modest user fee.

On background, see my blogpost “The Phone Call”, 4/15/14.

For today’s lesson, we will assume the phone call was received. The recipient had more than one of those cold, clear liquids containing an olive or maybe two, and probably needed every one. She (or he) spent the next morning composing The Letter, the one that we never wish to send, to that august entity, hereinafter known as The Carrier. After receiving the Reservation (and no, it’s not for Caesar’s Palace) from The Carrier, s/he meets a battle-hardened, I’ve-heard-it-all type in a creased striped suit with a rather outré tie (whom s/he will learn to love, eventually), hereinafter known as Claims Counsel. Claims Counsel may be my friend Mark, my other friend Mark, or my friend Marian. Whoever they may be, they’ve heard it all.

After depositions, document exchanges, and that heart-wrenching moment when s/he signs The Stipulation and the General Release, today’s lesson can begin.

And if, Dear Reader, all this is meaningless gibberish to you, thank whatever Higher Power you acknowledge. But be aware–before every storm, there is a calm. They were having drinks on the Titanic before the iceberg.

Judge Chiechi takes up the story of Garey A. Cosentino and Jo-Ann Cosentino, 2014 T. C. Memo. 186, filed 9/11/14, completing today’s hat-trick for me.

Gar and Jo wanted to provide for disabled daughter by hanging onto income-producing real estate. To prevent Uncle Samuel from laying hold of same to daughter’s detriment, Gar and Jo turn to the Section 1031 like-kindness. This they do several times, but each time bootless.

You’ll remember 1031s defer tax, but not if unlike property is involved (known as “boot”). Boot is taxable.

So when their trusted tax adviser suggests a basis-builder to allow Gar and Jo to take out some reduced-tax boot from a booted-up 1031, they jump at the chance.

Until IRS descends, and Gar and Jo discover they participated (unwittingly and unknowingly) in an abusive tax shelter, whereupon tax, interest and penalties fall from Federal and State.

Gar and Jo make The Phone Call. The scenario above set forth is played out, and Gar and Jo have a solatium to the tune of $375K.

Are their problems over? Hardly. IRS claims it’s taxable.

No, says Judge Chiechi. “Where the recovery represents damages for lost profits or other items taxed as ordinary income, it is taxable as ordinary income. Where the recovery represents a replacement of capital destroyed or damaged, it generally does not constitute taxable income to the extent that it does not exceed the basis of the destroyed or damaged property.” 2014 T. C. Memo. 186, at p. 19 (Citations omitted).

IRS argues that recoveries like Gar and Jo got were in cases where the taxpayers overpaid, the SOL ran, and they got back what they overpaid from the unhappy preparer. Gar and Jo underpaid.

“…an amount paid to a taxpayer in order to compensate the taxpayer for a loss that the taxpayer suffered because of the erroneous advice of the taxpayer’s tax consultant generally is a return of capital and is not includible in the taxpayer’s income.” 2014 T. C. Memo. 186, at p. 31. (Citations omitted).

You saw the magic word? “Generally”. Here’s the rest.

“That exception is that, under the so-called tax benefit rule, an amount paid to a taxpayer in order to compensate the taxpayer for a loss that the taxpayer suffered because of the erroneous advice of the taxpayer’s tax consultant is includible in the taxpayer’s income to the extent that it compensates the taxpayer for amounts that the taxpayer had deducted.” 2014 T. C. Memo. 186, at pp. 31-32. (Citation omitted).

And Gar and Jo got some of that $375K because they claimed amounts greater than what they could prove that they lost.  I’m sure The Carrier didn’t care, as long as they got out of the case. But Judge Chiechi cares.

So there will be an extensive Section 155 beancount, with taxable and non-taxable portions of the $375K chopped up pro rata.

STJ Daniel A. (“Yuda”) Guy has bad news for Michael P. Woods, Docket No. 28807-13, filed 9/11/14. Mike may be deficient, but he can’t claim he’s innocent. Not in this case, anyway.

While Mike and his loved-once Annie were hitched, their tax return triggered a SNOD. Now divorced, Mike petitions the SNOD. Annie doesn’t, but files a Form 8857 innocent-spousery. Mike, however, includes in his petition a request that he and loved-once Annie be declared jointly and severally liable for whatever slings and arrows IRS may bestow upon them.

IRS grants loved-once Annie preliminary innocent-spousehood.

IRS moves for partial summary judgment that Judge Yuda is without jurisdiction to decide loved-once Annie innocent-spousehood.

Judge Yuda says IRS is right, but summary judgment isn’t how you get there.

“Section 6015(h)(2) provides that a non-requesting spouse is entitled to notice of, and the opportunity to participate in, administrative proceedings addressing a requesting spouse’s election to claim relief from joint and several liability. The record shows that petitioner was notified of Ms. Woods’ claim for spousal relief and that he submitted information to respondent in respect of that claim. Although petitioner may be dissatisfied with respondent’s preliminary administrative determination to grant Ms. Woods relief, section 6015 does not provide the Court with jurisdiction to review that matter in this case. … the Court’s jurisdiction under section 6015(e) may only be invoked by an individual who elects relief under that section–and petitioner has not asserted that he is entitled to spousal relief.” Order, at p. 2. (Citations omitted).

All Judge Yuda can do for now is redetermine the deficiency.

Assuming Mike properly intervened in loved-once Annie’s innocent-spousery, when IRS renders a NOD in loved-once Annie’s favor, Mike can petition that.

Judge Gale Blows the Whistle

Looks like it’s a case of another good ploy shot down. And maybe, just maybe, somebody in the glasshouse at 400 Second Street, NW, reads this blog. See my blogpost “Delay of the Game”, 7/12/13 for more. As I said a year ago, “And now for a really cool taxpayer tactic. You really wouldn’t notice it if you didn’t read between the lines of a couple of recent Tax Court orders.”

I’ll let whistleblowing Judge Gale call the play dead.

“This case is calendared for trial at the New York, New York trial session….Petitioners filed with their petition a Request for Place of Trial designating New York City as the place of trial. However, the address petitioners listed as their mailing address in the petition and the address given for them in the notice of deficiency is one in Pacific Palisades, California. The record in this case does not appear to contain any indication of a connection between New York City and the issues in petitioners’ case.” Order, at p. 1.

Maybe they just wanted, in the words of the immortal Ol’ Blue Eyes, to “wake up, in the City that Never Sleeps.”

For whatever reason they wanted the Big Apple, Judge Gale tells them to let him know why. Before the end of the month.

I again quote my blogpost from last year, abovecited. “Maybe Tax Court needs a rule that those seeking to lay venue need to show some nexus to the desired place of trial.” Maybe in the Request for Place of Trial, ya think?

Oh yes, the order is Frank Pierri & Neva Pierri, Docket No. 27981-13, filed 9/11/14.

Much to remember. But here’s a link to a story, though off-topic, is worth reading.

http://www.dailykos.com/story/2014/09/10/1328813/-The-Astonishing-Story-of-the-Federal-Reserve-on-9-11?detail=email#

And Show You Dug

That’s Chief Judge Michael B. (“Iron Mike”) Thornton’s word to IRS’ counsel (nameless here forevermore, as a much better writer than I put it), in Maher M. Al-Tahan & Celia Al-Tahan, Docket No. 16651-14, filed 9/10/14, a day when nary an opinion nor a designated order was filed. Perhaps the distinguished judges were joining with me in protesting the FCC’s attempt to sell the Internet; I do hope so.

Even if they didn’t, you can. See my blogpost “An Even Slower Day”, 9/10./14.

Howbeit, IRS’ counsel needs time to find the administrative file; he claims he asked IRS for same, but same was not forthcoming. Apparently he did not described in copious detail his efforts to unearth same, with copies of correspondence, telephone loggings and the kind of substantiation one would expect.

At least, the kind of substantiation Ch J Iron Mike expects.

Ch J Iron Mike allows IRS’ counsel more time, with a caution: “…in prosecuting a motion for extension of time to file an answer the Commissioner normally must show that he acted with due diligence in attempting to file the answer within the applicable 60-day filing period. Although the Court will grant respondent’s motion, the Court is not inclined to grant any further extension of time to file the answer unless respondent’s motion includes a detailed description of the efforts respondent has undertaken to obtain the administrative file.” Order, at p. 1.

So if an IRS lawyer claims s/he can’t find the admin file, ask the Judge to make him/her provide pictures, descriptions and accounts.

The reason you’re reading this is that the Internet is, so far, neutral. Everyone has equal access. But the United States Federal Communications Commission wants to end that. In yet another assault on freedom of speech and freedom of the press, the Commissioners propose to sell the Internet to the highest bidder.

Small blogs like this one will be slowed down to extinction.

This is a non-political blog, and it will remain so. But it will be of no use nor serve any purpose if it cannot be read.

If this blog is of any use to you, either for instruction or amusement, please send a comment today, September 1o, urging that the Internet be kept free and neutral. Here are the addresses:

Chairman Tom Wheeler: Tom.Wheeler@fcc.gov
Commissioner Mignon Clyburn: Mignon.Clyburn@fcc.gov
Commissioner Jessica Rosenworcel: Jessica.Rosenworcel@fcc.gov
Commissioner Ajit Pai: Ajit.Pai@fcc.gov
Commissioner Michael O’Rielly: Mike.O’Rielly@fcc.gov

Thank you.

I had a meeting with the Board of Directors of a client today at 3 p.m., EDT, so Tax Court, obliging as ever, released no opinions today, assuring thereby that I would not have to hasten back to my computer to get y’all the latest.

Judge Holmes (I’ll skip the honorifics) has two designated hitters, but the only point is that being convicted of tax fraud and some amount of underpayment in consequence thereof does not estop the fraudster from fighting over the exact amount he owes Uncle Samuel. To the same effect see my blogpost “Orders in the Court”, 3/9/12, the story of Albert Bront, ex-Revenue Agent.

But Judge Laro, hiding his light under a bushel and sending me on a lengthy boustrephon through a field of uninteresting orders, has one about experts who stray from the straight-and-narrow, making conclusions of law and findings of fact, and advocating rather than enlightening the Court.

The case is James A. Survilla, Transferee, Docket No. 6332-12, filed 9/9/14, but Jim is a bystander. The heavy in this piece is J. T. Atkins, IRS’ witness, whose credentials Judge Laro addresses in a footnote.

“Mr. Atkins graduated from Harvard Law School in 1982, after which he practiced mergers and acquisitions law for 3 years and worked as an investment banker for 29 years.” Order, at p. 1, footnote 1.

I’ll spare you my snarky remarks about those who practice briefly and hie themselves off to other (presumably more lucrative) endeavors. And certainly I’ll avoid the t-shirt: “Harvard- because not everyone can go to Cornell.”

There, now we can get on with it. Judge Laro: “To be admissible, expert testimony must be both relevant and reliable. To be reliable, expert testimony must be based on sufficient facts or data and it must be the product of reliable principles and methods properly applied. To be relevant, expert testimony must ‘assist the trier of fact to understand the evidence or to determine a fact in issue.’ ‘Expert testimony is not relevant if the expert is offering a personal evaluation of* * * the motivations of the parties.’ ‘The proponent of expert testimony must establish its admissibility by a preponderance of the evidence.’” Order, at p. 2. (Citations omitted).

Judge Laro serves as gatekeeper, and J. T. is a gatecrasher.

J. T. has predominantly given only legal conclusions, or at best mixed conclusions of law and fact. He’s telling the Judge what to find, and Judge Laro isn’t buying it.

But J. T.’s opinion isn’t wholly worthless.

Judge Laro: “Nonetheless, Mr. Atkins does provide several opinions which are properly within the purview of an expert, including his opinions that: (1) it is ‘not normal’ for a C corporation without operating assets to be purchased for more than its book value; (2) discussions centered on taxes and the removal of noncash assets and liabilities from a corporation are not ‘typically topics of* * * [primary] focus’; (3) the wire transfer or escrow of an acquired corporation’s cash assets as part of a stock sale is ‘highly unusual’; and (4) indemnity clauses regarding postclosing tax liabilities are ‘highly unusual’.” Order, at p. 6.

So J. T. can get that much in. But the rest goes over the side. And if IRS still wants J. T.’s explications to go in evidence at trial, they must redact his written opinion.

It’s an unending mantra in denying one’s own (or granting one’s opponents’) motions for summary judgment: affidavits from attorneys without personal knowledge of the facts are worthless.

And 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, Mark V. Holmes, is nowise loath to recite the same. But for once, the old mantra doesn’t dispose of the affidavit.

It’s a designated hitter, Edward Anthony Purvis & Maureen Helena Purvis, Docket No. 18817-12, filed 9/8/14.

Ed and Mo want partial summary judgment, granting them the Section 6694 reliance defense to both fraud and accuracy penalties for two of the years at issue.

We all remember the Neonatology three-legged stool: qualified adviser, told all the facts, and relied on in good faith.

Judge Holmes: “This defense is usually fact-intensive, and this case is no exception. While petitioners presented affidavits that asserted all three elements (although on the first element all we have is the title CPA and the apparent recommendation of a friend who’d used the adviser), respondent [IRS] countered with an affidavit from counsel in which she swore that she’d asked for records relating to the preparation of the returns and received in return only a blank CD.

“An affidavit of counsel is usually inadequate to counter a summary judgment motion, because affidavits on such a motion must be ‘made on personal knowledge’ and ‘set forth such facts as would be admissible in evidence,’ Rule 121(d), and litigating lawyers don’t get to be witnesses in a case.” Order, at p. 2.

As for litigating lawyers not getting to be witnesses, take a look at my blogpost “A Non-Christmas Carol”, 12/23/13, wherein I point out that the ABA Model Rule 3.7(3), which by dint of Tax Court Rule 202(a)(3) applies here, excepts from its prohibition cases where disqualifying the litigator-witness would “work substantial hardship on the client”.

However, we need not get there by that route, because Judge Holmes has a simpler way.

“But Rule 121(e) does allow such affidavits to show why a party can’t respond with the usual evidence in opposition to the motion. And this is what happened here with the blank disk. Moreover, the skimpy, and sometimes conclusory allegations in the affidavits in support of the motion trigger application of the principle that all reasonable inferences have to be drawn against the movant. So, for example, while the adviser is sworn to be a CPA we can’t just assume his competence as an adviser.” Order, at p. 2.

Compare and contrast this with STJ Daniel A. (“Yuda”) Guy’s approach, in my blogpost “It Depends”, 10/23/13, where STJ Yuda stresses the point that Marc Anthony Rael can’t reply upon his preparer Charlene M., because she is not a certified public accountant. I left aside, at the time, the question whether the CPA qualification was the sole indicium of expertise in Federal income taxation.

It might be time for The Great Dissenter and STJ Yuda to discuss this divergence of views over a cup coffee and a piece pie in the Judges’ cafeteria at 400 Second Street, NW.

But until then, no summary judgment for Ed and Mo.