Archive for November, 2014|Monthly archive page


In Uncategorized on 11/19/2014 at 21:36

We all know that the record in a case is the key, the linchpin, the cornerstone; you win or lose on the record. An advocate’s whole art can be found in building the record.

No opinions out of Tax Court today, and the one STJ Lew (“He Can Spell”) Carluzzo designated hitter is a Rule 40(b) failure to state a claim by a frivolity merchant.

But here’s an example from The Judge With a Heart, STJ Robert N. Armen, Jr., who shows what happens when an advocate doesn’t build a record.

This is Dardanelle Community Hospital, LLC, Docket No. 303-14L, filed 11/19/14. And to show what a menschadicher dude I am, I won’t name IRS’s attorney.

IRS’s attorney moves for summary judgment. And STJ Armen gives the usual no-trial-is-needed, but nonmovant gets every favorable inference spiel.

But then IRS’ record crumbles. Badly.

STJ Armen: “The record in this case is sparse. In addition, the record lacks both a declaration by the settlement officer who conducted the hearing and certified transcripts of petitioner’s accounts.” Order, at p. 1. (Footnote omitted, but see infra, as my high-priced colleagues say).

Not a strong start. Procedure 101 taught us that summary J motions need to be accompanied by admissible proof, like affidavits, affirmations and declarations from persons with personal knowledge of the facts therein alleged, and copies of relevant documents, whose provenance is duly attested.

And the footnote hereinabove referred to doesn’t make things better. “Remarkably, although respondent did not offer certified (or indeed, any) transcript of account in support of his motion, petitioner attached as exhibits to its Opposition transcripts for two of the three taxable periods at issue in this case; notably, however, those transcripts were non-certified and temporally stale and therefore of little, if any, value. But even if we were to overlook respondent’s failure to offer certified transcripts of recent vintage, the fact remains that the record does not include any transcript for the most recent taxable period at issue.” Order, at p. 1, footnote 1.

When your adversary’s opposition papers include a hint of the essential evidence you left out, it is time to prepare for what someone, in a much more exalted position than anyone in IRS Counsel’s Office, called “the wrath to come.”

STJ Armen finds a couple of minor issues, like whether Dardanelle owed any taxes to begin with, and exactly what the SO verified by way of compliance with applicable law and administrative procedures.

So STJ Armen buries the summary J motion in a footnote. “In his motion, respondent invokes the bar of I.R.C. section 6330(c)(2)(B). In contrast, the settlement officer did not. Rather, the settlement officer ‘reviewed the documents submitted by the rep and the administrative record’ and ‘[b]ased on the evidence submitted by the taxpayer and the Service’s administrative record’ concluded that ‘[t]he taxpayer failed to meet the reasonable cause criteria.’ In so concluding, the settlement officer utilized a ‘four part multi-factor test to determine reasonable cause for non-compliance.’ In applying the test the settlement officer asserted that the taxpayer ‘has a long history with non-compliance dating back to 2010’, that the taxpayer ‘is not a first time depositor’, and that ‘[d]uring the time of the non-compliance the taxpayer paid all other creditors including pay checks to the LLC members.’ These are all factual matters, but there is no predicate to support them them [sic] in the record before us; and the ultimate issue of reasonable cause is, of course, a quintessentially factual matter, which is ordinarily not suitable for adjudication by summary disposition.” Order, at p. 2., footnote 2.

Better luck on the trial. And with your next summary J motion.




In Uncategorized on 11/18/2014 at 16:22

Here’s the latest and greatest information from a Big Four accounting firm.


In Uncategorized on 11/18/2014 at 15:47

In the CDP universe, between the Heaven of “abuse-of-discretion, lien (or levy) rejected” and the Hell of “lien (or levy) sustained”, lies the limbo of “currently not collectible”, a state of suspense, where taxpayers await the Day of Judgment.

You’ll remember Gregory Scott Savoy, who strove mightily against this indeterminate status. No? Then see my blogpost “Sorry, Sorry”, 9/20/13.

Well, Greg has company, and it’s really a company, Alabama Biodiesel Corporation Inc., Docket No. 22426-13L, filed 11/18/14, a designated hitter from one whose name is definitely his fame, STJ Lewis (“The Right Spelling”) Carluzzo.

IRS claims Alabama owes some excise taxes, but didn’t pay. IRS gave Alabama a NITL, but later sent Alabama a notice that the levy was no longer appropriate because they’re putting Alabama in currently-not-collectible status.

Of course, Alabama petitioned before IRS’s change of heart, claiming they had no opportunity to contest the underlying liability.

Oh yes you did, says IRS, but as we’re not now coming after y’all for the tax you owe, your petition should be dismissed as moot. And IRS so moves.

Oh no, says STJ Lew.

“In general, in a section 6330 proceeding a taxpayer may challenge the existence or the amount of an excise tax if the taxpayer ‘did not otherwise have an opportunity to dispute such tax liability’. Sec. 6330(c)(2)(B). According to the notice, the ‘underlying liability could not be considered in the CDP proceeding as the record shows * * * [that petitioner] had a prior opportunity to deal with Appeals on that issue.….’ According to the petition, petitioner ‘is not liable for the excise taxes at issue’, and contrary to the representations made in the notice, it did not have a prior opportunity to dispute that liability. Respondent’s motion, as supplemented, proceeds as though petitioner is not entitled to challenge the existence or the amount of the underlying liability in this case, a point obviously in dispute.” Order, at p.1.

Well, because there’s clearly a fact dispute (did Alabama get a chance to contest at Appeals), IRS’s motion fails.

Alabama may now be in uncollectible Limbo, but their tax fight is still alive.


In Uncategorized on 11/17/2014 at 17:57

The Barzini Boot

This well-worn chivalric saying was drummed into my youthful head when I was still youthful, long, long ago. I believed it, and still do.

Perhaps Ronald L. Kirkpatrick, Sr., believed it too, but that must have been before Judge Cohen delivered 2014 T. C. Memo. 234, filed 11/17/14.

Luigi Barzini, Jr., that mordant critic of Italian life, wrote that chivalry never took hold in Italy. He cited as an example of the chilvalric creed the saying abovecited.

I’m relying on memory here, so give me a little slack, but Barzini asked why should one not kick a man when he’s down? What better time is there? Of course, one should not kick a man when he’s down if he’s old, or a policeman is watching.

Barzini’s work drew a firestorm of criticism when he published it. It’s largely forgotten now, half-a-century on.

But Ron’s story brings it back, and IRS is apparently a disciple of the post-chivalric society, with Judge Cohen’s express approval.

Ron owed about $20K for one year’s personal income tax, that he disclosed on his 1040, so entered into an installment agreement with IRS, which he was paying.

Ron was also chairman of the board of directors of a C Corp which owed about $450K in 941 payments not made.

“In Letter 2850, Approval of Request to Pay Taxes in Installments…the IRS informed [C Corp] that its request to pay its Form 941 tax liabilities through an installment agreement had been approved. The … letter addressed only Accurate and not petitioner.” 2104 T. C. Memo. 234, at p. 3.

So IRS suspended Ron’s personal income tax installment agreement, because he was a responsible person for the TFRPs for the C Corp, even though the C Corp was apparently paying its obligations under its own installment agreement and even though Ron was paying on time on his agreement.

Ron asked for a CDP, and there was some back-and-forth about what he could pay. Maybe Ron was playing games with not disclosing a bank account and some real estate. But that apparently doesn’t enter into Judge Cohen’s opinion, other than as a throwaway “on the basis of the record”.

Ron paid his back personal income tax liability in full and asked for a NOD so as to petition Tax Court. He got it.

Ron claimed he should be covered by the C Corp agreement, but never produced it.

And although the IRM might have given Ron a leg up, it applies to entering into installment agreements with businesses, not dealing with those already in effect.

I won’t speculate why Ron didn’t produce the C Corp’s installment agreement. I will note, however, that there was no allegation that the C Corp wasn’t current on an installment agreement, or might be on the brink of default.

Judge Cohen: “Moreover, the settlement officer acknowledged and considered petitioner’s argument. While petitioner does not appear to have raised specifically IRM pt. and (7) during the section 6330 hearing, the settlement officer nonetheless looked at relevant IRM parts in reviewing petitioner’s case. In view of the record, we cannot conclude that her determination was arbitrary, capricious, or without sound basis in fact or law, which is the test to be applied. Whether or not other resolutions could have been reached by the settlement officer or by the Court is not the applicable test. The settlement officer did not abuse her discretion in sustaining the proposed levy.” 2104 T. C. Memo. 234, at p. 12.

Takeaway– Practitioners, when your client is a responsible person, make sure s/he goes on the installment agreement with the business entity. If not, be prepared for the Barzini Boot.


In Uncategorized on 11/14/2014 at 17:43

Just as the Tax Court website and its riches “go gentle into that good night” for the weekend, leaving me to sulk tomorrow when Cornell gets hammered by Columbia at the northernmost tip of the island whereon I reside, but march noisily down Fifth Avenue as I marched quietly on Tuesday up that same, I found a Judge Gale rebuke to a dilatory litigator wherewith to brighten the aforesaid long day’s journey into cliché.

Here’s the story of CF Headquarters Corporation, Docket No. 22321-12, filed 11/14/14. Again Judge Gale is reticent about designating his orders, leaving this poor blogger once more to scrabble round the website “as the dusk gathers in”, to find fodder for my patient RSS feeders.

Howbeit, CF’s counsel has a real need, in fact a desperate need, for some of IRS’s background papers on Notice 2003-18, 2003-1 C.B. 699, or the legal conclusions therein. So they move to compel.

No biggie, right?

Except CF’s counsel asked for the stuff more than a year ago, and IRS handed in a privilege log covering same forthwith.

“Nonetheless, although petitioner now contends that Notice 2003-18 ‘is central to respondent’s case’ and that petitioner ‘has made a clear showing of need’, petitioner waited approximately 14.5 months after learning respondent’s position before filing its Motion to Compel. Indeed, petitioner’s Motion to Compel was filed on October 24, 2014–the last day such a motion could be filed unless otherwise authorized by the Court. See Rule 70(a)(2), Tax Court Rules of Practice and Procedure. Petitioner also made no mention of any such outstanding discovery dispute in the Joint Status Report it filed on October 3, 2014.” Order, at pp. 1-2.

“Remarkably, petitioner offers no explanation for this delay. In the circumstances, given the volume of documents in dispute, petitioner’s eleventh-hour filing appears at best dilatory and at worst a deliberate attempt to thwart the orderly and expeditious resolution of this case.” Order, at p. 2.

Anyway, some documents IRS erroneously claimed were privileged were handed over.

And just because IRS will rely on statutes and regs cited in the Notice doesn’t mean that IRS is relying on the Notice. And as IRS relies on the Notice for penalties, it’s the published Notice that counts, not what documents underlay the same.

It’s now too late for me to find out the name of CF’s counsel, even if I were going to mention it here. But I won’t. Sufficient unto the day is the cliché.


In Uncategorized on 11/14/2014 at 17:13

Roll over, IRAs. But December 31 is approaching, and the one-roll-per-year-for-each-IRA, the rule that IRS applied pre-Bobrow, is about to be, in the immortal words of Charles Edward Anderson Berry, “gone like a cool breeze”.

Remember the Bobrows and their rolling IRAs? No? Then check out my blogposts “Practicing in Tax Court Can Be Hazardous”, 1/28/14, and “Laissez Les IRAs Roulez”, 4/15/14.

Al the Tax Lawyer tried to snow Judge Nega with the proposition that, as he was a tax lawyer, his interpretation of the law had to be correct.

Al learned this does not work.

Al called in his fellow diplomates of The American College of Tax Counsel, to which august body I do not belong, to bolster his collapsing case. Judge Nega riposted in substance “S’vet gornisht helfen, boychick.” (I need not, of course, translate).

IRS, however, in an airburst of magnanimity, agreed to let the mistaken rule stand, in the immortal words of the late great William James Basie, “one more once”; this year only.

But no good deed goes unclichéd, because rollers were wondering if they did a free-kick rollover in 2014, would they be debarred from rolling again in 2015.

So IRS issued Notice 2014-32, supplementing Notice 2014-15, 2014-16 I.R.B. 973, to unconfuse those transitioning between rolls.

“However, as a transition rule for distributions in 2015, a distribution occurring in 2014 that was rolled over is disregarded for purposes of determining whether a 2015 distribution can be rolled over under § 408(d)(3)(A)(i), provided that the 2015 distribution is from a different IRA that neither made nor received the 2014 distribution. In other words, the Bobrow aggregation rule, which takes into account all distributions and rollovers among an individual’s IRAs, will apply to distributions from different IRAs only if each of the distributions occurs after 2014.” Notice, at p. 1.

Rollovers from Trads to Roths are disregarded, but Roth-to-Roth will fall within the new Bobrow rule. Only one IRA roll of whatever kind (other than Trad-to-Roth) in any year, no many how many IRAs of whatever kind you have.

And rollovers to or from qualified plans are also not covered by the Bobrow rule.

Of course, trustee-to-trustee isn’t a rollover, and Notice 2014-32 urges trustees to tell beneficiaries so. But see my blogposts “Ignorance Is Bliss?” 11/10/11 and “A Long Dry Spell”, 11/22/11. Echoing my advice from the latter blogpost,  if I were counsel to a trustee, I’d tell the client not to give any advice of any kind to beneficiaries, but have them sign an acknowledgment in blood that they relied on independent tax counsel of their sole choice and retention at their sole cost and expense.

If the client’s advice is right they gain nothing, and if wrong they get sued.

So roll your own while you can.


In Uncategorized on 11/13/2014 at 17:53

No, not a tale of the exposition of sacred scriptures. This is The Judge Who Writes Like a Human Being, a/k/a The Great Dissenter, s/a/k/a The Implacable, Indefatigable Foe of the Partitive Genitive, Mark V. Holmes, expounding on the difference between a deficiency (statutory notice of which is the “ticket to Tax Court”) and a liability (which mostly isn’t).

The designated hitter is Charles Williams a.k.a. C. Williams, DDS and Mary Williams, Docket No. 7614-13, filed 11/13/14.

Doc Charlie and Ms Mary have settled with IRS, but they have a problem crafting the decision document.

Doc Charlie claims he gave at the office for part of what he owes, when Social Security docked him for some money.

Judge Holmes strides into the breach, with his usual down-to-earth people-talk, rather than taxbabble.

“The dispute is a good illustration of the tricky distinction between a deficiency and a liability. A deficiency is the difference between the tax owed and the tax shown on a taxpayer’s return, plus any amount previously assessed or collected without assessment as a deficiency, and less any rebates. IRC § 6211(a). A tax liability is the amount a taxpayer actually owes. IRC § 26(b). (Someone whose return is perfect but encloses a bad check has no deficiency but has a liability. Somebody who overwithholds but makes a small mistake on his return may have a deficiency but no liability.)

“The Commissioner’s view is that our jurisdiction is generally limited to determining whether a taxpayer has a deficiency, and in this case he agrees that petitioners do not have a deficiency. See IRC § 6214(a). We generally do not have jurisdiction to restrain or review credits or refunds made by the Commissioner.” Order, at pp. 1-2.

But Doc Charlie is afraid IRS may try to collect twice.

So IRS will check government records to see if Doc Charlie is right.

Howbeit, motions for entry of decision due New Year’s Eve.


In Uncategorized on 11/13/2014 at 17:38

No, I’m not leaving. I’m just telling how Agent Chan of the IRS reconstructed the tax postures of Frank Kenneth Worth, a.k.a. Frank K. Worth, a.k.a. Frank Worth and Helen Laura Worth, a.k.a. Helen L. Worth, a.k.a. Helen Worth, et al., 2014 T. C. Memo. 232, filed 11/13/14, a Judge Lauber opus.

Frank and family followed the lead of the Beach Boys and went surfin’. But instead of hitting the curls they opened a bunch of stores selling boards, both surf and skate.

Trouble was, they were underreporting income, not keeping records, trying the $8K-$9K dodge (cash deposits just below the $10K radar), and telling different stories about just who exactly owned the White Sands chain that sold the boards aforesaid.

Tracked down by Criminal, Frank, Donnie and Marie all pled to various charges. But as we know, that doesn’t established civil fraud penalties, although it weighs heavily against them.

No, enter the dragon, a/k/a Revenue Agent Helen Chan, who reconstructs the tax history of the Worthies by use of the net worth and personal expenditures method.

Cash method doesn’t work, as the Worthies distributed the boodle in many banks and dealt extensively in what certain former clients of mine called “blatter”; no, not album pages, Ludwig, but rather green leaves that don’t grow on trees.

Judge Lauber spends a lot of time on methodology, but Agent Chan went by-the-book, IRM pt. (June 1, 2004).

Now comes the dash. The idea behind net worth and personal expenditures is that one can measure year-to-year accretions to wealth. But to do so means assuming that cash on hand remains relatively stable year-to-year.

Judge Lauber expatiates: “Instead of trying to calculate annual cash balances, Agent Chan assumed that the amounts of cash petitioners kept on hand for use in their business were relatively constant from year to year. In her net worth calculations, she accordingly placed a dash, or zero, in the column labeled ‘cash on hand.’ As a result the annual change in petitioners’ net worths was not affected, positively or negatively, by the undeposited cash they held. Because it is impossible to ascertain, in unreported income situations, precisely how much cash a taxpayer has at any particular time, courts have consistently approved the use of the ‘dash method.’” 2014 T. C. Memo. 232, at p. 35. (Citations omitted).

Now of course the Worthies claim they got a wad of untaxed USD from Donnie’s papa Fred. There’s a wee snag, though. “According to SSA records Fred’s total income during the 40-year period ending in 1977 was $185,430. Fred retired in 1985 and moved into a federally subsidized housing unit for low-income seniors. By 1986 his income consisted solely of Social Security and retirement payments totaling about $1,000 a month. This evidence was clearly sufficient to support the inference that Fred lacked the wherewithal to make a $200,000 cash gift to Donald and Marie.” 2014 T. C. Memo. 232, at pp. 32-33.

Frank claimed Donnie and Marie lent him money that he repaid, but of course he had zero proof, except for his own testimony, which Judge Lauber decided wasn’t Worth much (sorry, guys).

Give the Worth lawyers credit, they tried. They claimed Agent Chan was an expert who hadn’t followed the Rule 143(g) expert testimony rules, or the amended FRE 702 rules. But Agent Chan wasn’t testifying as to any scientific, technical or other arcane matters. Her two-day spiel was strictly what she did and how she did it.

The Worthies’ hopes are dashed. Civil fraud penalties rain down.


In Uncategorized on 11/13/2014 at 17:06

The 400 Second Street Northwest Mounties are on the Tax Court website’s case. They’re performing “major upgrades” (cain’t hardly wait to see ‘em).

In the interim, however, eAccess, Status, Docket, Opinions past and present, and law clerk applications are going down “from  5:00 p.m. Eastern time on Friday, November 14 until 7:00 a.m. Monday, November 17. No documents may be eFiled through Petitioner Access or Practitioner Access during this time. NOTE: Petitions and notices of appeal may NOT be eFiled and this does NOT apply to petitions and notices of appeal. We regret any inconvenience this may cause.”

Get those documents in, guys.


In Uncategorized on 11/12/2014 at 17:13

I’ve pointed out many times that this is not a political blog, so Sarah Kurko’s problems aren’t political. No, Sarah needs mental and emotional help, and that Obliging Jurist, Judge David Gustafson, is just the man for the job, as proven by Sarah Kurko, Docket No. 24040-13L, filed 11/12/14, a designated hitter.

Sarah was in an accident, unable to work, became depressed and unemployed, sought SSDI, was denied, reapplied (case pending), and in the interim was behind in her income tax filings.

IRS handed her a SFR for one year, but Sarah filed a belated 1040, showing a credit, and IRS agreed she overpaid. However, when Sarah tried to claim a credit elect per Reg. 301.6402-3(a)(5) for the next year, as to which she was again tardy in filing, IRS claimed she still owed them money, and  claimed she was too late for the credit.

See my blogpost “Lookback In Anger”, 12/12/11, wherein I go over the rules on refunds.

But Sarah has an out. She claims she was “financially disabled”, thus tolling the lookback period for the time she was “too long in that condition”, as they say in the Highlands.

And Appeals didn’t consider that wrinkle at Sarah’s CDP, although Sarah claimed thereat that she needed legal help, psychiatric help, and couldn’t handle paperwork.

I know plenty of people who can’t handle tax paperwork even without the additional ills that plagued Sarah.

Sarah’s claims at the CDP are enough to establish that she did raise liability for tax issues, and the credit elect claim is enough to give Tax Court jurisdiction.

Now Sarah might have been late with her claim, but Judge Gustafson lays out the Section 6511(h) escape hatch. Briefly, any time periods are suspended (tolled) if the taxpayer is”… unable to manage his financial affairs by reason of a medically determinable physical or mental impairment of the individual … which has lasted or can be expected to last for a continuous period of not less than 12 months….” Order, at p. 6.

So if Sarah can proffer a doctor’s note that complies with Rev. Proc. 99-21,  for the 14 months at issue, she might slide under the tag; and her credit elect would therefore be timely and she wouldn’t owe IRS.

In any event, Appeals never considered the financially-disabled status Sarah claimed, and that might be abuse of discretion. So maybe so there should be a remand.

Wherefore, let IRS decide if there should be a remand, or whatever else they want to do, and tell Judge Gustafson and Sarah. Sarah must answer IRS promptly and clue in Judge Gustafson. To that end, since Sarah has no lawyer and is clearly under some kind of disability, maybe she should get a “next friend” on the case.

A Taishoff  “good going” to  Judge Gustafson.