Personally, it was only bad because a signal fire really fouled up the subway system, making the trip to the office, the Bloomberg BNA Tax Advisory Committee meeting and a client’s holiday party a sardine-packed series of jolts and jars and halts, followed by quarterback sneaks through mobs of furious riders.

But it was substantially worse for Larry J. Austin, 2014 T. C. Memo. 249, filed 12/11/14.

Larry wanted legal fees and admins after IRS admitted that all the cash in his various Korean bank accounts, though titled in Larry’s own name, wasn’t unreported income (only some of it was).

Judge Nega briefly chronicles Larry’s career. “Petitioner received his law degree from Harvard Law School in 1980. From the late 1990s through mid-2005 petitioner participated in and/or facilitated various listed transactions subject to disclosure under section 1.6011-4(b)(2), Income Tax Regs., including intermediary transaction tax shelters, tax avoidance using artificially high basis transactions, partnership straddle tax shelters, and distressed asset debt transactions.” 2014 T. C. Memo. 249, at p. 2.

As we used to say, “Harvard–because not everybody can go to Cornell.” NB- I was accepted for admission to Harvard Law School, but they didn’t give me a scholarship, unlike the Gang on The Hill Far Above. Thanks yet again, guys.

Larry joined the Dark Side, as managing director of Chenery Associates, Inc., peddler of dubious (to put it charitably) tax strategies. Larry was a distressed asset/distressed debt specialist. For more about Chenery, see my blogpost “House of CARDS”, 3/8/11.

Larry and IRS settle, with Larry giving up on most of what IRS claims were his delictions. But IRS gives Larry a lot of his Korean stash because IRS gets information from the crew in The Land of the Morning Quiet that they wouldn’t let Larry open up trust or escrow accounts. And Larry did use the money therein to buy Korean junk for his buddies at Chenery.

Larry claims his affidavit showed IRS they were wrong.

No, says Judge Nega, Larry’s word isn’t good enough. For admins, the question is how reasonable IRS was at the time the SNOD went out. For litigation (legals), was IRS reasonable when they answered Larry’s petition.

“Bank deposits are prima facie evidence of income, and the Commissioner does not need to prove a likely source of such income. The use of the bank deposits method has long been sanctioned by the courts. The bank deposits method assumes that all money deposited into a taxpayer’s account during a given period constitutes taxable income. When the bank deposits method is used, ‘the Government must take into account any non-taxable source or deductible expense of which it has knowledge.’ The taxpayer bears the burden of proving that bank deposits come from nontaxable sources.” 2014 T. C. Memo. 249, at p. 10. (Citations omitted).

Much cash went in and out of Larry’s Korean accounts. He reported the interest as income.

That Larry said “trust me and my partner”, and provided no Korean corroboration, doesn’t make IRS’ position unreasonable.

Larry loses.

And it doesn’t get any better for Spencer Hosie and Diane Rice Hosie, 2014 T. C. Memo. 246, filed 12/11/14, and Judge Lauber isn’t especially sympathetic to Spence’s and Di’s claim that IRS should have allowed their installment agreement.

“The SO rejected petitioners’ proposed installment agreement after determining that their tax liabilities could be fully or partially satisfied by liquidating or borrowing against their assets ($9.3 million of equity in their residence and vacation home). See Internal Revenue Manual (IRM) pt. 5.14.1.4 (5) and (6) (June 1, 2010) (‘Taxpayers do not qualify for installment agreements if balance due accounts can be fully or partially satisfied by liquidating assets[.]’); Boulware v. Commissioner, T.C. Memo. 2014-80 (finding that settlement officer’s reliance on this IRM provision was not an abuse of discretion). Petitioners made no showing of ill health, economic hardship, or other circumstance warranting an exception from this general rule. See Eichler v. Commissioner, 143 T.C. __, __ (slip op. at 16-17) (July 23, 2014); IRM pt. 5.19.1.6.3(2) (Apr. 1, 2011); id. pt. 5.14.1.4(5) and (6). Between 2009 and 2013 petitioners had defaulted on four previous installment agreements, one of which involved lower monthly payments than the $15,000 they now promised to make. The SO did not abuse his discretion in rejecting this offer.” 2014 T. C. Memo. 246, at p. 9.

There’s some jousting about a SNOD sent post-petition, and how Tax Court deals with that, but this blogpost is long enough.

Spence and Di are both lawyers, with a long history of noncompliance with tax laws.

For more about the Eichler case abovecited, see my blogpost “It’s Only A Notice”, 7/23/14.

Finally, and in these cases it really isn’t the lawyer’s fault, there’s the sad tale of Jeanne D. Bonney, who stopped practicing when she was disabled back in 2010. Her employer told her that they’d get another attorney in the firm to take over her cases, except they didn’t.

What they did do is go bankrupt back in March 2014.

And they left some eighty-six (count ‘em, 86) cases hanging fire, with trial dates coming up.

Nice book of business, if you can service it.

Jeanne fires off letters to Tax Court, asking to be let off. And various Judges issue orders to show cause to IRS and the taxpayers, asking them to show cause why Jeanne should not be turned loose, and suggesting the taxpayers find new counsel or try the cases themselves.

This is scandalous. I don’t know how disabled Jeanne was, so I can’t say she should have contacted the clients. And maybe she was unaware that her firm filed bankruptcy in March. I can well understand that she relied on what her firm told her. I would have done. Certainly, the clients can’t be faulted; they may not have been named as creditors in the bankruptcy. And I don’t know what the firm told them, if anything.

But what the clients should do now (some of these cases have 2008 docket numbers) needs something more than a “sort it out yourselves” from Tax Court.

Some heads should roll.