To all those to whom these presents come, GREETINGS!
Happy New Year, one and all.
To all those to whom these presents come, GREETINGS!
Happy New Year, one and all.
What better way to end the 2014 blogging year than with a designated hitter from the word processor of The Great Dissenter, a/k/a The Judge Who Writes Like a Human Being, s/a/k/a The Irrepressible, Illustrious, Indefatigable, Irrefragable and Incomparable Foe of the Partitive Genitive, Judge Mark V. Holmes?
So here, my faithful readers, is Marilyn S. Kwolek, Docket No. 560-11, filed 12/31/14. Better make that Dr. Marilyn S. Kwolek (doctorate unspecified; see Order, at p. 1).
Doc K and IRS are squabbling over whether the notice of deficiency (north of $4 million) was mailed to the Doc’s last known address.
All IRS has is a scanned copy of the SNOD, because the file containing the original has vanished, but that’s OK, because a SNOD need not follow any specific form, as long as it gives the years and the amounts asserted. IRS need not follow its own procedures, either.
But the SNOD must be mailed to Doc K’s last known address. And IRS must prove it by “competent and persuasive” evidence..
Doc K claims her POA was her “fiduciary”, and that the SNOD should have gone to said fiduciary, absent which the SNOD is invalid.
“But did Kwolek have a fiduciary on file? We find she did not. Kwolek maintained a Power of Attorney (POA) throughout the relevant tax years, but this does not mean that her POA was her fiduciary. Her form includes only boilerplate language that authorizes her attorney to ‘receive and inspect confidential tax information and to perform any and all acts that [he] can perform with respect to the tax matters’ – including the authority to sign agreements, consents, or other documents. But this authority goes no farther. For example, her representative did not have the authority to receive the taxpayer’s refund checks or the power to sign ‘certain’ returns.” Order, at p. 2.
See Section 6903 and Section 7701(a)(6). A POA’s address is not the “last known address” unless the Form 2848 specifically says so.
So what was Doc K’s last known address? Although her address changed before the SNOD was sent, the tax return so stating wasn’t filed until long after. And the address to which the SNOD was mailed matched most of the Forms 2848 on file and the address on Doc K’s most recent filed return.
Next comes the question of mailing. Our old pal Form PS3877 steps up. But our old pal is sadly defective.
“Kwolek argues that the Commissioner’s certified-mail list is incomplete and defective in that it fails to include a USPS employee’s initials or signature, does not identify how many pieces of mail were received by the Postal Service, is not written on US Postal Services Form 3877, and leaves blank the section which should include the postmaster’s identification, initials, and the date. See Cataldo v. Commissioner, 60 T.C. 522 (1973), aff’d per curiam 499 F.2d 550 (2d Cir. 1974); Wheat v. Commissioner, 63 T.C.M. (CCH) 2955, 2957 (1992) (failure to have the postal clerk initial and indicate how many pieces of mail were received); Bobbs v. Commissioner, 90 T.C.M. (CCH) 524, 526 (2005) (no indication of the number of items received or a signature by a USPS employee). The proffered form isn’t even the usual USPS Form 3877. This might not be fatal to the IRS’s attempt to get a presumption of official regularity, see Clough, 119 T.C. at 185, n. 3; Bobbs, 90 T.C.M. (CCH) at 526; Stein, 60 T.C.M. (CCH) at 213. But the form in this case has too many things wrong with it. While it indicates the ‘total number of pieces listed by sender’ as ‘1,’ it does not indicate how many pieces were received at the Post Office. It has a stamp that has the date and location of the Post Office – which the Commissioner argues shows the postmaster’s involvment [sic] – but it does not contain that information on the form itself in the specified location. We agree with the taxpayer here: This looks like nothing other than an IRS internal note with a Post Office stamp on it.” Order, at pp. 3-4.
I include these cases for your checklist, practitioner. See Takeaway 2, infra, as my already-pouring-the-Dom-Perignon colleagues would say.
So Doc K wins on the shabby PS3877?
No, bad news, Doc K. IRS has the goal line defense out.
IRS “…argues that … evidence of routine mailing procedures, the captured image of the notice of deficiency, the certified-mail list, and the USPS track-and-confirm notice, together establish that the notice was sent on April 13, 2010. With this we agree. While we find that the form does not comply with Form 3877 requirements, we do fmd that the ‘certified mailing list’ provided by the Commissioner is evidence of the fact and date that the notice was mailed. We also accept the track-and-confirm notice as an official record of the USPS, Boultbee v. Commissioner, 101 T.C.M. (CCH) 1031, 1034 (2011), and as evidence of the matters stated on the document. That track-and-confirm notice states that the notice arrived in Danville, California on April 14, 2010 and was left for delivery on April 15, 2010. It also states that USPS returned the unclaimed notice to the IRS on May 5, 2010.” Order, at p. 4.
And not picking up your mail doesn’t help, as Judge Holmes cites our old pal Eric Onyango’s case. Remember Eric? No? Then see my blogposts “You Have to Fulfill The Requirements”, 8/20/13, and “Blowing the Joint”, 6/24/14.
To celebrate the New Year, gang, here’s a bunch of takeaways, free and gratis.
Takeaway 1- If preparing a Form 2848, make sure you state that you want all notices to go to you, if your client so desires. But beware–make sure you let the client know the minute you get anything from IRS. And terminate all POAs when the client relationship terminates.
Takeaway 2- Make sure you put a demand for a copy of the PS3877 in every Branerton letter, and check the PS3877 against this checklist.
Takeaway 3- Impress upon your client that ignoring correspondence from IRS and not picking up certified mail is a very bad idea. It is like throwing stones at a lion engaged in eating a gazelle–you annoy the lion and do not save the gazelle.
Takeaway 4- From the Boutlbee case, supra: “The U.S. Postal Service Track and Confirm service provides reliable data from a neutral third-party source that is not susceptible to manipulation by the parties. Indeed, the Commissioner has relied upon the U.S. Postal Service Track and Confirm service. See, e.g., Sebastian v. Commissioner, T.C. Memo. 2007-138 (demonstrating that an incorrect ZIP Code did not delay attempted delivery of a notice of determination). In addition, respondent [IRS] has at no time suggested that the U.S. Postal Service Track and Confirm data is less reliable or accurate than a postmark in identifying the point in time that an envelope enters the domestic mail service of the United States.” Opinion, at p. 13. Might be a good idea to use track-and-confirm.
Obliging. That’s Judge David Gustafson, and he shows it again in Sarah Kurko, Docket No. 24040-13L, an off-the-bencher filed 12/30/14.
Judge Gustafson is super-obliging both to Sarah, whose troubles were delineated in my blogpost “Elected, Depressed and Disabled”, 11/12/14, and to the hardworking, humble blogger. Judge Gustafson designates his off-the-benchers and makes my job easy; thank you, Your Honor.
The punchline of my aforementioned blogpost was that IRS should tell Judge Gustafson and Sarah whether or not they’d remand to Appeals to consider Sarah’s Section 6511(h) financial disability.
Showing true holiday spirit, IRS took Sarah to trial. And Judge Gustafson, obliging as always, told IRS to remand.
IRS’s key witness was the SO who heard Sarah’s plea. A great witness.
“She had been an SO for more than 10 years. She estimates that she has handled 450 cases per year (i.e., more than 4,500 cases by the current time) and states that she cannot recall the details of the cases. At trial several of her answers to questions about what was said on a given subject in Ms. Kurko’s case were in the nature of ‘Nothing that I can recall’ or ‘Nothing that I can remember’, and she appeared to indicate that in fact she had no recall of Ms. Kurko’s hearing. For each case the SO prepares a ‘Case Activity Record’ on which she makes dated entries of her contacts with the taxpayer, but it is clear that she does not attempt thereby to give a transcript of her conversations nor even to note every specific subject that is discussed. Consequently, some of what we find Ms. Kurko said over the telephone does not appear in the SO’s case activity record or other documents in the IRS’ record for this case.” Order, at pp. 5-6.
Heaven forfend that anyone prepare a witness. What a pleasant surprise it is when your witness puts a Sidewinder in your afterburner.
IRS of course argued the “record rule”, which we’ve heard many times. OK, says Judge Gustafson, First Circuit, to which this case would be appealable, is a “record rule” jurisdiction. “This position involves two difficulties– first, that it is unclear whether a contention (explained below) that a credit elect overpayment should be applied to the liability is an ‘issue relating to the unpaid tax’ (sec. 6330(c)(2) (A)) that would be subject to the record rule; and second, that it is unclear whether a taxpayer seeking a credit elect is ‘seeking redetermination of tax liability’ for purposes of section 7482(b) (1) (A) or whether instead appeal would be to the D.C. Circuit (sec. 7482(b) (flush language)).” Order, at pp. 10-11.
Whatever, says Judge Gustafson, I’ll buy the record rule argument. Except the record here is so bad that it fails to explain the basis for the administrative action, which triggers an exception to the record rule. So evidence aliunde, as my expensive colleagues would say, may be introduced.
The SO, whether “from overwork or inattention… failed to record Ms. Kurko’s insistence that her disability accounted for her late 2008 return, and in its determination IRS Appeals failed to address that contention….” Order, at p. 11.
Sarah claims entitlement to a credit for a past overpayment, but she was a year late asking for it. See the Section 6511(b) lookback rules. So she gets neither refund nor credit on her next year’s taxes. But she claims she was financially disabled, which, if the disability lasted the fourteen months she claims, would toll the statute of limitations and let Sarah get her credit, which would erase the deficiency.
Now Sarah, pro se of course, didn’t mention Section 6511(h) or use the phrase “financial disability”. So what, says Judge Gustafson, she doesn’t have to; she said she’d been hospitalized, applied for disability insurance, said she’d been unemployed–that was more than just saying “I’m depressed” (and anyone dealing with IRS has ample excuse to say “I’m depressed”, but that alone doesn’t trigger Section 6511(h)).
The SO claimed that, in her 10 years before the mast, she’d never heard of “financial disability”. Maybe not, but even without hearing the magic words, “it was incumbent on Appeals to entertain the contention and request the information that would have substantiated it.” Order, at p. 14.
Appeals, go to it.
Takeaway–Practitioner, build your record. Make sure everything and anything that can help the client gets into the record. Or if not, document what the party preparing the record (IRS employee) leaves out. To paraphrase a remark made in a much more exalted circumstance, “by his own record he standeth or falleth.”
If the title of this post strikes the reader as obscure, let the reader first read Judge Buch’s order in Judith L. Heavens, Docket No. 29155-13, filed 12/30/14; if still befogged, let the reader search the term on Wikipedia (and make a pecuniary contribution to Mr. Jimmy Wales’ useful source). Now all should be clear.
For those who can’t wait, Judith filed a motion to dismiss for want of jurisdiction two weeks ago. She was a wee bit late, as her case had been called for trial three days before (which was the date set for trial in an order issued five months earlier). Judith hadn’t shown, and her petition was tossed for want of prosecution.
So for Judge Buch to consider Judith’s latest, he’d have to vacate his previous order. But this he declines to do.
I cannot do better than to quote Judge Buch’s rationale in extenso, while inviting readers to clap hands rhythmically or tap them on a diningroom table, if so inclined.
“We need not reach the merits of petitioner’s motion. Petitioner’s motion to dismiss is predicated on respondent’s alleged failure to respond to informal discovery. Petitioner never resorted to formal discovery, and had she, the proper motion would have been a motion to compel. See Rules 104(b). The motion being improper, standing alone, would be sufficient grounds upon which to deny the motion. If the motion had been styled properly, the failure to resort to formal discovery, standing alone, would have been sufficient grounds to deny that motion. If petitioner had engaged in formal discovery and filed the proper motion, the motion would have been untimely. Any such motion was due 45 days before the date set for trial. Rule 70(a)(2). The untimeliness of the motion, standing alone, would have been sufficient grounds upon which to deny the motion. If petitioner had engaged in formal discovery, filed the proper motion, and done so in a timely manner, the Court would likely reach the merits of that motion. In doing so, the Court would review the underlying discovery requests and note that it is largely, if not entirely, not the proper subject of discovery. It instead largely calls for legal conclusions and is infused with protestor rhetoric that we have rejected repeatedly. Many of the fallacies underlying the issues raised in the informal discovery were addressed in Waltner v. Commissioner, T.C. Memo 2014-35. If petitioner had engaged in formal discovery, filed the proper motion, and done so in a timely manner, the motion would have been denied on the merits.” Order, at pp. 1-2. (Footnote omitted, but see below).
The omitted footnote: “Petitioner’s motion and its annexed exhibit refer to informal discovery. The informal discovery might alternatively be characterized as stipulations or admissions. Regardless, petitioner never made a formal request for admissions and did not file any admissions with the Court. See Rule 90(b). Thus, whether couched as discovery, stipulations, or admissions, petitioner’s motion fails.” Order, at p. 2, Footnote 1.
For more about Steve Waltner, whose misdoings are hereinabove alluded to, see my blogpost “Cracking Up”, 2/27/14, wherein Judge Buch unloads on Steve the Protestor (protester? protestant?) for 63 pages of “somber reasoning and copious citation of precedent”.
The 1964 Lennon-McCartney trainshaker from “A Hard Day’s Night” might well suit MA. MA (name suppressed), who holds a degree in business administration, management and accounting, is managing director of an eponymous tax prep corporation, and incidentally is corporate secretary of Babak Roshdieh, M.D. Corp., a Sub S in trouble for late filing its Form 1120S in the year at issue.
The whole story is found at Babak Roshdieh, M.D. Corp., 2014 T. C. Sum. Op. 113, filed 12/29/14.
Apparently BabRosh Corp. is a chronic late filer, but whether the blame lies on MA’s desk is only at issue for the one year.
MA claims he mailed a Form 7004 request for extension timely, and filed the 1120S timely, but IRS says (a) they never got the Form 7004, and (b) they did get the 1120S the following January 31, much later than MA claimed he sent it.
MA testifies he requested extensions every year, but IRS has record of extensions for only half the years MA claims, and MA has documentary proof of nothing.
“MA testified further that he rarely, if ever, used certified or registered mail.” 2014 T. C. Sum. Op. 113, at p. 5. (Name omitted).
Now this was a petition from a NOD, and BabRosh never had a chance to contest liability, so this is de novo review.
MA didn’t seem to understand that the penalty is not a passthrough. It’s not a tax incident that passes through to the sole shareholder, but rather it’s the late filing chop. See Section 6699(a), and my blogpost “I Find I Cannot Do Justice”, 5/23/14.
But Appeals informally suggested a 25% discount, which MA didn’t take. Bad move.
MA has no reasonable cause, because BabRosh was late even in the years when MA filed 7004s that IRS actually got.
Finally, MA has an argument he had better have left alone.
Here’s STJ Armen, The Judge With a Heart, only not today: “Finally, petitioner contends that (1) it was not properly informed of the specific Code section, i.e., section 6699, that gave rise to the penalty at issue and that (2) it was therefore not aware of the statutory basis for the liability at issue. However, the record reflects that petitioner was advised (1) that the underlying liability was attributable to a penalty for petitioner’s failure to timely file its 2010 Form 1120S and (2) the manner in which the penalty was calculated. Moreover, petitioner sought abatement of the penalty throughout the administrative hearing. Even if petitioner was not aware of the specific Code section, it was aware of the return involved, the nature of the error charged, and the amount of the assessment. Finally, given MA’s educational background and profession, it strains credulity that he was somehow unable to fathom what was at issue and proceed accordingly. In short, the Court rejects as unfounded the suggestion that petitioner was somehow denied due process or that the SO failed to verify that all requirements of applicable law and administrative procedure were satisfied.” 2014 T. C. Sum. Op. 113, at pp. 11-12 (Citations omitted).
And Not Mine, Either
Ya gotta give credit to Peymon Mottahedeh and April Mottahedeh, 2014 T. C. Memo. 258, filed 12/29/14. They claim IRS was persecuting them.
Judge Morrison doesn’t think so. “The Mottahedehs contend that the IRS audit was unconstitutional because it was motivated by their public criticism of the IRS. The record does not demonstrate that the audit was motivated by criticism of the IRS. Therefore, we reject this contention.” 2014 T. C. Memo. 258, at p. 29.
The Motts never bothered to file returns or pay tax, either estimateds, SE or 1040-type, for a bunch of years. While those delictions usually draw bull’s-eyes on your tax quarters, the Motts encouraged others to “go and do likewise.”
IRS and Judge Morrison find that: “Peymon Mottahedeh operated a business called the ‘Freedom Law School’. April Mottahedeh was heavily involved in the business. Since at least 1999, the Freedom Law School has organized conferences attended by hundreds of people. The Freedom Law School charged fees to the attendees. The Freedom Law School also sold books, tapes, CDs, and DVDs. It also sold packages of services,
“• the ‘Simple Freedom Package’ (for an initial fee of $4,000);
“• the ‘Royal Freedom Package’ (for an initial fee of $6,000).” 2014 T. C. Memo. 258, at p. 5.
And the Motts had a multi-level marketing scheme as well, selling distributorships as well as tax dodger stuff.
And here’s a sample of the Motts’ product: “Why are filers so EASY to RAPE and ABUSE by the IRS? Because these misinformed people, by VOLUNTARILY filling out a 1040 Income Tax Confession form had given the IRS the full laundry list of everything they own, so that the IRS knows WHERE to go to steal their victim’s wealth and assets.” 2104 T. C. Memo. 258, at pp. 6-7, Footnote 8.
Not what I learned at the feet of the late Prof. Harrop A. Freeman on the Hill Far Above, so long ago.
You can see where this is going. But first a nod to the technicians.
The Motts claim IRS didn’t use bank deposits to reconstruct their income, but IRS shows that the Motts insisted on cash from their many adherents and didn’t use banks, so IRS used their living expenses supplemented by BLS statistics. The Motts claim IRS used numbers other than the BLS, but that’s cool, says Judge Morrison (although more formally).
“We conclude that the revenue agent relied partly on average-spending statistics from the Bureau of Labor Statistics and partly on direct estimates of the Mottahedehs’ spending, that this combined approach was a permissible method of estimating the Mottahedehs’ spending under the circumstances, and that estimating the Mottahedehs’ spending was a permissible method of reconstructing their income under the circumstances.” 2014 T. C. Memo. 258, at p. 20 (Footnote omitted, but it’s all about CA community-property, so I leave it to practitioners in jurisdictions afflicted with ComProp to sort it out).
In short, IRS has lots of room to derive income, especially where the taxpayers are open, continuous and notorious dodgers.
And, if you are a dodger and IRS nails you, pay up. Don’t play the clown. See my blogpost “Pay The Man”, 7/31/12.
Don’t know how I missed this one back in January, when Judge Chiechi rendered her opinion, and its subsequent reversal in November by Seventh Circuit, even though my colleague Peter Reilly, “non-veteran CPA”, picked it up in his blog at the time, but here’s the order on remand in Michael Shamrock & Victoria Bigg, Docket No. 28725-11, filed 12/24/14.
Back in November, Seventh Circuit tossed Judge Chiechi’s uncritical acceptance of IRS’s argument that the impostor who “represented” Mike & Vic in entering into a stipulation that sold them down the proverbial was no grounds to set aside a pre-trial Rule 91 stip.
Mike & Vic fell for a phony who claimed to be a lawyer and a CPA, although he hadn’t “been authorized to practice law since 2009 and he is not a CPA.” Shamrock & Bigg v. Com’r, No. 14-1916, 9/22/14 Seventh Circuit, at p. 2.
Though IRS claimed it didn’t matter what the phony did or didn’t do, Seventh Circuit decided that Tax Court, IRS and Mike & Vic were defrauded, that such defraudment (neologism, but so what?) goes to the heart of the system. So what if taxpayers are not entitled to effective representation in Tax Court? Everyone thought the phony was real.
Judge Chiechi abused her discretion.
Fast forward to this afternoon.
Judge Chiechi is still havering (as they say in the Hielands) over what to do. Mike & Vic and IRS can’t agree what she should do, although I have a suggestion. See infra, as my already-on-the-second-Grey-Goose Martini colleagues would say.
“On December 11, 2014, the parties filed a status report in which they set forth their respective and different positions as to what should be done in this Court on remand in order to comply with the order and judgment of the U.S. Court of Appeals for the Seventh Circuit. We agree with respondent that it would be consistent with the order and judgment of the Court of Appeals for this Court to hold an evidentiary hearing regarding whether the stipulation of settled issues that the parties filed with the Court on February 28, 2013, should be set aside.” Order, at p. 1.
Why? What part of “judgment of the Tax Court is vacated as to all three years” and “remanded for further proceedings” requires evidence?
In the words of a much greater writer, I have A Modest Proposal: Toss the stip and either try the case or settle it.
To all those who follow this blog, and even to the lurkers and casual droppers-by, best holiday wishes for health and prosperity.
Unlike Kev Campbell, ex-USCG and star of yesterday’s blogpost “Disabled Veteran”, 12/22/14, Bill Lewis, Sr., at the relevant times respectively 63 and 64 years old, with a VA disability of 60% as to his right arm, and 30% to his feet, resulting from a Marine Corps-sponsored trip to a country in Southeast Asia (which shall remain nameless), gets the real estate pro ribbon from Judge Kerrigan in a small-claimer, Bill Lewis, Sr., and Jocelyn Irene Knowles-Lewis, 2014 T. C. Sum. Op. 112, filed 12/23/14.
No doubt Bill Sr. did all the work on his triplex rental property adjoining his house, raking leaves, sacking trash, recycling, driving to the bank every time a tenant coughed up the rent, making all the computer entries, supervising repairs, making some repairs himself, cleaning up after tenants, handling tenant beefs, tossing the nonpayers, and doing it all as well as he could.
IRS agrees he materially participated (you can see this is another Section 469(c)(7) pro bowl). But IRS claims Bill Sr. didn’t make 750 hours in either of the years at issue, because he took too much time doing whatever he said he was doing.
Note IRS didn’t say Bill Sr. didn’t do all that he said he did; he just took too long.
Judge Kerrigan reminds IRS that Bill Sr. isn’t as spry as some real estate pros who never served a day–but this is beside the point.
“Petitioner husband and petitioner wife testified credibly that because of petitioner husband’s disabilities all of the activities took him significantly longer than might ordinarily be expected.” 2014 T. C. Sum. Op. 112, at p. 11.
Bill Sr. did it all, even though he needed a knee replacement and had difficulty seeing; Jocelyn worked full-time at a credit union.
Bill Sr. wins.
Happy Holidays, Bill, Sr. and Jocelyn.
The nasal snarl of the late Jack Webb is echoed by STJ Lewis (“Great Name, Judge”) Carluzzo in John T. Killebrew, Docket No. 16766-14L, filed 12/23/14. STJ Lew is a little too free with his designated hitters sometimes, but this isn’t one of them.
J.T. claims he should be in CNC, not levied, and responds to IRS’s summary J that his disagreement with Appeals’ NOD is a “genuine issue of a material fact”, which should defeat summary J.
No it isn’t, and no it doesn’t, says STJ Lew.
“As we view the matter, a dispute between the Commissioner and the taxpayer over whether a settlement officer has fulfilled the obligation imposed by section 6330(c)(3)(C) does not give rise to a ‘genuine issue of material fact’ as those words are used in the context of a motion for summary judgment. Rather, to the extent that such a dispute needs to be resolved, it is appropriately resolved as part of our role in reviewing whether the Commissioner’s determination to proceed with a particular collection action is an abuse of discretion, regardless of whether the resolution is by summary adjudication or otherwise.” Order, at p. 2.
But J. T. may have something after all, so maybe IRS doesn’t get a walkoff.
“It appears that there might be a dispute between the parties with respect to petitioner’s income at or around the time the notice was issued. If so, this dispute is a dispute as to a ‘material fact’ because the settlement officer’s rejection of petitioner’s collection alternative seems to be based entirely on information uncovered by the settlement officer with respect to petitioner’s then current income. Although petitioner generally denied earning or receiving any income during the relevant period, he has not, on an item-by-item basis, directly and specifically responded to the settlement officer’s claim, and his generalized denial is not sufficient to raise a ‘genuine issue’ as to the fact of his financial status as of the relevant time. See Rule 121(d).” Order, at pp. 2-3.
So J. T. is out, right?
Not quite, because STJ Lew is possibly feeling some seasonal generosity. He offers J. T. time to file a supplement addressing chapter and verse each item of income Appeals claims he got.
Happy holidays, J. T.