But Not Disabled Enough

This is a case of the misalignment between the armed services and the Veterans’ Administration, brought to you by the United States Congress. As this is, and I hope always shall be, a non-political blog, I will say no more.

But here is a small-claimer in point, Kevin M. Campbell and Pamela J. Campbell, 2014 T. C. Sum. Op. 109, filed 12/22/14.

It’s really Kev’s story. Kev entered the United States Coast Guard, but three years out, he was diagnosed with diabetes mellitus, and discharged on medical grounds.

The USCG’s medics gave Kev a 60% disability rating, but a later trip to the VA resulted in a lower number. Kev doesn’t remember what the number was, and has no proof.

I note Kev was represented by counsel. What does it take to subpoena VA records for trial?

I ask, because the VA number is the key.

Here’s STJ Daniel A. (“Yuda”) Guy: “Section 104(a)(4) provides the general rule that amounts received as a pension, annuity, or similar allowance for personal injuries or sickness resulting from active service in the armed forces of any country are not included in gross income. Section 104(b)(1) and (2), however, limits the exclusion prescribed in subsection (a)(4), as relevant here, to an individual who ‘on application therefor* * * would be entitled to receive disability compensation from the Veterans Administration.’ Section 104(b)(4) further provides that if an individual is described in subsection (b)(2), the amount excludable from gross income under subsection (a)(4) for any period ‘shall not be less than the maximum amount which such individual, on application therefor, would be entitled to receive as disability compensation from the Veterans’ Administration.’” (2014 T. C. Sum. Op. 109, at pp. 9-10. (Footnotes omitted).

Congress put in this limitation because the armed services were giving about-to-retire servicepeople big disability ratings to shield retirement pay from taxes. Those servicepeople then went on to earn decent money in “retirement”, notwithstanding their “disabilities”.

And we all know how the VA treats veterans. But I must remember that this is a non-political blog.

I’m not saying Kev didn’t have diabetes, but he did work as a deputy in the Cuyahoga County Sheriff’s Office with no apparent ill effects.

Anyway, Kev and his trusty CPA jousted with the USCG, who kept sending Kev 1099-Rs, while Kev and CPA claimed the payments should be excluded. And IRS issued Kev a bunch of “no change” letters.

Finally, IRS hits Kev with a SNOD. Kev’s Section 104 argument fails.

STJ Yuda: “We are unable to determine, on this record, that Mr. Campbell would be entitled to receive disability compensation from the VA. Although the Coast Guard and the VA apply the same rating standards–the VASRD– the Coast Guard and the VA approach the question of disability ratings from different perspectives. Whereas the Coast Guard focuses on whether a service member is able to perform his or her miliary [sic] duties at a given time, the VA rates disabilities by weighing the impact of an injury or illness on a veteran’s earning capacity in a civil occupation over his or her lifetime.” 2014 T. C. Sum. Op. 109, at p. 16.

As for past “no change” letters, each year stands on its own; with Federal taxation, the past is not even prologue, The Bard of Avon (Tempest, Act II, Scene 1) to the contrary notwithstanding.

Without the VA number, Kev is hard aground. But it might be well for him to get the VA number, even if it’s lower than the USCG’s. There may be other years where it would help.

Takeaway–Practitioners dealing with taxpayer-veterans, watch it. Here be dragons.

No, not the 1984 Boston boy band, and these certainly aren’t kids, but the latest additions to the Tax Court bench.

Please join with me to welcome Cary Douglas Pugh and Tamara W. Ashford, both bringing impressive resumes, to 400 Second Street, NW. Judge Ashford’s doesn’t show up on the Tax Court site yet, although Judge Pugh’s is there. I wonder why; but then again, President Obama’s announcement of Judge Ashford’s appointment, replete with Judge Ashford’s cursus honorum, is fully webified.

Now they can start wading through protester jive, Section 152 relativity, professional and amateur dodgers, nonfilers, late filers and rounders that we lonely bloggers confront every day, although our credentials are much less impressive.

Here’s a sample, courtesy of Judge Cohen, Hamlet C. Bennett, 2014 T. C. Memo. 256, filed 12/22/14.

And it’s just a sample, but it will give Cary and Tam a taste of their future.

“We reject any inference that petitioner’s persistence in his frivolous theories demonstrates sincerity or good faith or is otherwise a defense to the charge of fraud. Petitioner filed tax returns for decades before 1995, stopping only after he faced large tax liabilities for 1993 and 1994. He ‘discovered’ his various frivolous arguments in alleged reliance on a carpet cleaner turned tax adviser, while disregarding the cautionary advice of his certified public accountant. He adopted various means of concealing income by diverting income to nominees or to entity accounts. He rejects the judgments of the courts, including a jury verdict, a District Court judgment, and an appellate court opinion that he was criminally responsible for his conduct. A person with his education and skills could be expected to abandon unsuccessful arguments if acting in good faith. We conclude that petitioner’s failure to file for each year in issue was due to fraud.” 2014 T. C. Memo. 256, at p. 12.

Friday, December 19, 2014 was a slow day in Tax Court. No opinions, of course, and the only designated hitter involved a summary J defeated by a question of fact (did taxpayer have opportunity to dispute underlying liability?); these clearly are not the droids I’m looking for.

But there was a trio of orders in US Loan Auditors, Inc., Docket No. 27157-13, filed 12/19/14, that really bemused and befuddled me to such an extent that I had to sleep on them before I could blog.

Judge Haines says he ducks the question whether a retroactive 11USC§362 lift-stay makes an invalid petition valid. You remember 11USC§362(a)(8) puts any Tax Court proceeding in the deepfreeze.

But take a look at my blogpost “Back to the Future – Part Deux,” 7/8/14. On identical facts in the identical case with the identical docket number, Judge Haines apparently did decide that the retro lift-stay works.

Now for the strange part–I did a docket inquiry for Docket No. 27157-13 today, 12/20/14. The website docket search shows no sign of the 7/8/14 order. Neither does the online orders search for 7/8/14. And the link in my above-referred-to blogpost doesn’t open the 7/8/14 order either.

Nor does the 12/19/14 order make any reference to the disappeared order.

George Orwell, thou should’st be living at this hour.

Sounds like the “forced disappearance” outlawed by the International Convention for the Protection of All Persons from Enforced Disappearance of 2006.

But US Loan Auditors, Inc., has not been disappeared. They can continue their case under a different docket number, and their opposition to IRS’s motion to dismiss is treated as an imperfect but timely petition, which they can amend.

Judge Haines keeps US Loan Auditors, Inc.’s, case alive, by some adroit juggling of dates and a disappearing act.

No, not the once-controversial 1960 NBA-winner (that’s National Book Award; nothing to do with hoops) by Philip Roth.

This is the story of Valeria A. Gregorio, Docket No. 24871-14S, filed 12/18/14. And it’s more about IRS counsel’s trouble with the calendar than Val’s trouble (or not) with her taxes.

IRS claims the last day for Val to petition the SNOD they laid upon her was October 13, 2014. And IRS further claims “which date was not a Saturday, a Sunday, or a legal holiday in the District of Columbia.” Order, at p. 1.

However, IRS admits that “The copy of the petition served upon Respondent bears a notation that the date of the U.S. Postmark stamped on the cover in which the petition was mailed to the Tax Court is October 14, 2014, which is 91 days after the mailing of the notice of deficiency.” This even though the Tax Court flailing datestampers have put October 20, 2014 on Ch Judge Michael B. (“Iron Mike”) Thornton’s counterpart. October 20, 2014 is 97 days after the SNOD.

We all know the rule is ninety (count ‘em, ninety) days. Not “all thy piety nor wit” can make a bit of difference, as Omar put it.

IRS’s counsel knows it too. But it’s as well to have the DC calendar handy when expatiating on the subject of legal holidays in The City L’Enfant Built.

Ch J Iron Mike: “Contrary to respondent’s above argument, however, it appears that October 13, 2014, was Columbus Day which is a holiday in the District of Columbia. See D.C. Stat. sec. 28-2701; sec. 301.7503-1(b), Proced. & Admin. Regs.” Order, at p. 1.

So Ch J Iron Mike gives IRS’s counsel a wee bit of homework. File a First Supplement to your Motion to Dismiss. “In that Supplement respondent shall set forth and discuss fully respondent’s position as to whether the petition in this case was timely filed, including whether October 13, 2014, was a holiday in the District of Columbia.” Order, at pp. 1-2.

Hint to IRS’s counsel: Yes, Columbus Day is a legal holiday in the District for which it is named.

I’m talking about The Great Dissenter, a/k/a The Judge Who Writes Like a Human Being, s/a/k/a The Imperturbable, Implacable, Indefatigable, Illustrious, Irrefragable Foe of the Partitive Genitive, Judge Mark V. Holmes, and his ongoing love affair with the Chenery doctrine.

What is the Chenery doctrine, you may ask if you’re coming late to the scene at taishofflaw.com?

See my blogpost “Chen-Chenery”, 8/21/14, wherein Judge Holmes explicated at length the Supremes’ 1943 and 1947 holdings in the Chenery case: “‘…a reviewing court, in dealing with a determination or judgment which an administrative agency alone is authorized to make, must judge the propriety of such action solely by the grounds invoked by the agency.’” In short, the administrative agency (here IRS) is stuck with the record they had and what they did with it–not what they might have had and could have done with it. In short, coulda shoulda woulda doesn’t fly.

And here’s a designated hitter to the same effect, Fredric A. Gardner, 14877-13L, filed 12/17/14.

Fred is far from a model citizen. IRS hauled Fred and Mrs Fred into USDCDA (AZ) and enjoined them from continuing their tax shelter flogging. “That court found that they had organized or set up more than 300 corporations sole and 10 LLCs, and that the Gardners had charged $1200 per corporation sole, $800 for a trust, and $500 for an LLC. United States v. Gardner, No. CV05-3073-PCT-EHC, 2008 WL 906696, at *4 (D. Ariz. Mar. 21, 2008), affd, 457 F. App’x 611 (9th Cir. 2011).” Order, at pp. 1-2.

All these were shams, and Fred and Mrs Fred were found to have violated Section 6700, the bogus shelter flogger law.

IRS hit Fred with a $47K penalty, and when Fred sought CDP, claiming he never had a chance to contest the penalty, Appeals claimed his affirmed District Court loss put him out of court.

But when Judge Holmes asks IRS’s counsel how IRS came up with the $47K and where in the DC judgment were the findings that established it, Fred gets an unexpected bye.

“Counsel was unable, however, to point out anywhere in the district-court order or transcript anywhere that the District Judge had found a $47,000 penalty to be appropriate, and admitted that it was a revenue agent who had made the decision to assess that amount. (We should note that penalties under §6700 are immediately assessable – there’s no need for a notice of deficiency before recording the debt in the records of the IRS. See IRC §§ 6671 and 6703.) And it likewise proved impossible for respondent’s counsel to pinpoint any district-court findings supporting that amount. This made it impossible for us to sustain the Commissioner’s argument that the amount, even if not the liability for some amount, was essential to the District Court’s decision or necessarily decided in the injunction action – both essential elements on a claim of collateral estoppel.” Order, at p. 2.

For the benefit of a certain New Jersey tax attorney, I now point out that this was not the finest hour either of IRS or its counsel.

IRS’s counsel does some scrambling in the backfield, but Judge Holmes puts him in the sack, with a big loss.

“Respondent’s counsel even suggested that the $47,000 figure ‘was actually the revenue agent conflating section 6700 with aiding and abetting penalties in section 6701. . . . [T]hat appears to be why he referenced an underpayment . . .’

“The Court agrees – though with the important quibble that it would find ‘confusing’ rather than ‘conflating’ to be the right word-i.e., we think the revenue agent just made a mistake. But, more importantly here, Mr. Gardner never had the opportunity to challenge this mistake before or during his CDP hearing.” Order, at p. 3. (Footnote omitted, but read it–Section 6700 flogging penalties and Section 6701 aiding-and-abetting are different, and while IRS tries to stack them, Section 6701(f)(3) prohibits IRS from doubling up in a doc-prep case).

Even when down, IRS’s counsel (give the dude credit) tries to dump off the football.

“When we discussed this problem, respondent’s counsel argued instead that the penalty under § 6700 might have been set at $1000 per violation, and with the District Court’s finding that the Gardners had 300 clients, the $47,000 amount set by the revenue agent might be a bargain. This might be true, but under the Chenery doctrine we cannot sustain a notice of determination on grounds other than what the settlement officer relied on.” Order, at p. 3.

And Judge Holmes can’t tell what the revenue officer relied on. All the SO at Appeals did is say “well, there’s an injunction in USDCDA and affirmed by Ninth Circuit, so game over.” That’s not good enough.

Judge Holmes cites to Salahuddin, wherein Judge Gustafson joined the Chenery fan club. See my blogpost “Enough is Enough”, 5/17/12.

“Salahuddin, 103 T.C.M. (CCH) at 1768 (stating that ‘our role under section 6330(d) is to review actions that the IRS took, not the actions that it could have taken’). Those grounds must be clearly set forth so that we do not have to guess about why the IRS decided what it did. See Chenery II, 332 U.S. at 195. We cannot uphold a determination simply because findings might have been made and considerations might be disclosed which might justify a conclusion.” Order, at p. 4.

Summary judgment for IRS denied. Go try the case.

I wouldn’t spend much time on Raymond Price, III and Lynn M. Price, 2014 T. C. Memo. 253, filed 12/16/14. It’s another one of those heavy-hitter looking to have the taxpayers pay for his/her horse hobby, fact-intensive cases. But RP3’s inventive counsel sets up Judge Nega for an entry in the Tax Court Line of the Year competition.

RP3 is a horse-loving son of a US Olympian (equine variety) who makes a fortune in the family car business. He builds himself a country retreat with much horsing (breeding, riding, buying and selling), but IRS establishes that his twenty-year string of losses and eve-of-trial paperwork demolish any profit motive. And cars and horses don’t mix; at least, not enough to be treated as one enterprise.

But RP3’s counsel come up with what has to be the Taishoff “Good Try” Third Class of the year. “Petitioners contend that there are some aspects of each activity that are conducted at the same locations. For example, petitioners cite the receipt of cooled stallion semen at the Honda dealership as evidence that a horse activity is conducted at that dealership.” 2014 T. C. Memo. 253, at p. 34.

Judge Nega is not impressed. “These arguments are unconvincing. Just as mailing a personal letter from one’s place of business does not transmute the nature of the letter, the receipt of cooled stallion semen at the Honda dealership does not make the automobile dealership a location where horse sales are conducted.” 2014 T. C. Memo. 253, at p. 34.

Ya can’t make this stuff up.

Another sporting term indicating a feint or ruse employed by a team or a player to confuse, mislead or dupe the opponent, giving advantage to the faker.

Well, IRS has such a feint or ruse on tap for Oola Mar & Marlin D. Johnson, Docket No. 19805-14, filed 12/16/14, a designated hitter off the bat of STJ Lewis (“Love That Spelling”) Carluzzo.

Oola Mar & Marlin petition in response to Letter 4314C, which I never heard of before either, but apparently is on the top shelf in IRS’ cubby of happy tricks, feints and ruses.

IRS answers “no SNOD.” Oola Mar & Marlin say “but your Letter 4314C says there was a SNOD you sent ‘earlier’, and we thought we hadn’t received it for some reason.”

Moreover, say Oola Mar & Marlin, your billet doux states we should “’…petition the United States Tax Court for a re-determination of the amount of the tax you owe’ if they did not agree with that amount. The letter, a copy of which is attached to the petition, apparently prompted petitioners to commence this proceeding.” Order, at p.1.

Well, I don’t know about y’all, but it would have prompted me to spring for the sixty bucks and fire off a petition. And remember, there is no specific form for a SNOD.

See my blogposts “Got Your Ticket?”, 12/13/12, and “Oh No It Isn’t! Oh Yes It Is!”, 6/3/14.

IRS says, oh well, it isn’t a SNOD, and there wasn’t a SNOD. “Respondent [IRS] identifies the letter as a ‘Letter 4314C’ and explains that from time to time, a Letter 4314C is issued to a taxpayer even though a notice of deficiency had not ‘earlier’ been issued to the taxpayer for the year referenced in the Letter 4314C. According to respondent, that describes the situation before us. Otherwise, respondent’s reply confirms the position taken in his motion, that is, that a notice of deficiency has not been issued to petitioners….” Order, at p. 1.

Just IRS’ little joke, apparently. Because STJ Lew doesn’t explain how he reaches this conclusion. “We see little point in challenging respondent’s view in this case, as it is clear that respondent’s view presumes that the letter does not provide the basis for the assessment of the ‘amount of tax’ the letter claims petitioners ‘owe’.” Order, at p. 2.

Fortunately Oola Mar & Marlin were pro se, else they would have incurred legal fees. But they’re still out the sixty bucks.

How any non-professional is supposed to guess that Letter 4314C is sometimes issued when there is no SNOD, despite the letter’s explicit statement to the contrary, is a question I leave for the Court.

At least it would seem so for Leroy Muncy, 2014 T. C. Memo. 251, filed 12/15/14.

Leroy’s troubles start when he plays protester dodges, with fake contractor status while in truth and in fact an employee. The forces of righteousness catch up, and Leroy cops to one count of Section 7201 knowingly and willfully et cetera. As part of his criminal plea in aid of avoiding the slammer, Leroy agrees to heavy-duty restitution, which the record does not show he paid.

The plea agreement says it binds only Leroy and the US Attorney for the Eastern District of AR, and Leroy’s a free fire zone for everyone else. The plea agreement calls the restitution “criminal monetary penalties”, but later an order calls it restitution.

IRS hits Leroy with a SNOD, deducting the restitution amounts from the deficiency, but changes its mind and amends its answer to Leroy’s petition to add back in the restitution numbers.

Amidst a flurry of protester stalling, Leroy calls “foul”, raising the plea agreement as a bar to increasing the deficiency set forth in the SNOD.

“Although the District Court ordered specific restitution amounts for each of the tax years … petitioner’s tax liabilities for each of these years were not an essential element of the Government’s case and were not actually litigated.” 2014 T. C. Memo. 251, at p.9 (Citations omitted).

So while an essential element of Section 7201 criminality is an underpayment, a finding of the exact amount is not.

Judge Nega goes into parallel statutes and the legislative history of Section 6201(a)(4) to show that restitution can be collected without using the deficiency procedure. So the restitution order neither determined Leroy’s tax liability nor offset the deficiency shown.

Leroy’s double jeopardy argument also fails. “Petitioner also contends in his petition that the Double Jeopardy Clause of the Fifth Amendment of the U.S. Constitution bars the Commissioner from imposing civil fraud penalties and additions to tax in the notice of deficiency. We note that the double jeopardy clause ‘protects only against the imposition of multiple criminal punishments for the same offense.’ Hudson v. United States, 522 U.S. 93, 99 (1997) (emphasis added). Furthermore, the civil tax penalty for fraud is not a punishment for purposes of the Double Jeopardy Clause of the Fifth Amendment. Helvering v. Mitchell, 303 U.S. at 398; Morse v. Commissioner, T.C. Memo. 2003-332, aff’d, 419 F.3d 829 (8th Cir. 2005); Roberts v. Commissioner, T.C. Memo. 1997-216.” 2014 T. C. Memo. 251, at p. 18, footnote 9.

IRS wants nonpayment of estimated tax (Leroy filed nothing, of course), but Year One of the sequence is rejected because IRS didn’t show Leroy owed any money for the year preceding Year One, so the 90%-100% tests don’t work for Year One, but they do for every succeeding year.

And pleading guilty to Section 7201 delictions is a pretty big badge of fraud.

Leroy does catch one break: the Section 6673 penalty does not fall upon him.

But watch it: “In this case the Court will not grant sanctions. This is not because the facts and law do not support the sanctions. Rather, the Court chooses to give petitioner a warning before imposing sanctions. While the record supports such sanctions, the Court is circumspect about imposing them without a proper warning to parties. Now that such a warning has been issued, the Court expects that petitioner will not continue to make frivolous arguments in this or other Tax Court proceedings or relitigate a settled case.” 2014 T. C. Memo. 251, at p. 25.

Stand by for the petition when IRS liens and levies.

Two Federal holidays mean four days off for the flailing datestampers and hard-laboring purveyors of “somber reasoning and copious citation of precedent” who toil at and from 400 Second Street, NW, in the City on the Potomac.

Here’s the gen.

“The United States Tax Court will be closed on Friday, December 26, 2014, and Friday, January 2, 2015.

“For purposes of computation of time under Rule 25, Tax Court Rules of Practice and Procedure, December 26, 2014, and January 2, 2015, shall each be treated in the same manner as a legal holiday. See Rule 25(a)(2) and (b), Tax Court Rules of Practice and Procedure.”

Today Judge Lauber instructs us how to call a penalty in Gale Gargiulo, Petitioner and Louis Gargiulo, Intervenor, Docket No. 2893-14, filed 12/12/14.

Judge Lauber denies both Gale’s motion for partial summary J and her Rule 91(f) fact establishment motion. Judge Lauber raises one forearm vertically held in front of the body with an open fist facing away from the referee’s chest (closed fist for a HS referee); the other hand grasping the first arm’s wrist. Illegal use of the hands and arms, Gale.

Gale claims Section 6015 innocence. She divorced Louis while Louis was stuck at Fort Dix.

Now I was once stuck at Fort Dix, but that was just overnight, the night being October 14, 1969. I won’t forget it, having come into McGuire AFB on an evening flight from Southeast Asia via Yakota and Seatac. But I could leave the next day, and did I ever!

Louis is not so lucky. Louis was staying at FCI Fort Dix Camp, a Federal prison, when Gale dumped him, and only got out to home release last month. Louis is not free to wander until some time next February, assuming he plays nice.

Judge Lauber is not thrilled with Gale’s tactics. “As a consequence of the divorce, petitioner was awarded an office building in which many of intervenor’s personal and business records were stored. Despite several requests, petitioner has not permitted intervenor or his brother (acting on his behalf) to obtain access to any of the documents or records (including electronic records) stored in this office building. Intervenor has filed with the Superior Court of New Jersey a motion to recover these records, but his hearing on that motion will not occur until January 2015.” Order, at pp. 1-2.

Apparently the lanes on the George Washington Bridge are not the only thing that runs slow in New Jersey.

But Gale is nowise slow. She doesn’t let Louis or Bro see any paper, but moves ahead to bail on whatever taxes are owing from their nuptial days.

Remember Branerton. Voluntary discovery is “the bedrock of Tax Court practice.” Play nice; motions don’t get granted until someone stops playing nice.

“Without copies of his personal and business records, intervenor cannot honestly and fully respond to any proposed stipulations or motions for summary judgment. He was released from prison a month ago and is currently serving a period of home confinement. It is unreasonable for petitioner to expect him to stipulate to facts and respond to motions for summary judgment, while simultaneously denying him access to the records he needs in order to respond intelligently. The Court expects petitioner to cooperate with respondent and intervenor by engaging in informal discovery, which requires that petitioner allow intervenor access to his personal and business records that are under her control. Only upon a showing that informal discovery efforts have failed will we entertain motions by petitioner to compel stipulation, deem facts established, or otherwise impose sanctions.” Order, at p. 2.

Anyway, as to summary J, burden is on Gale to show no material fact issue exists, non-movant (Louis) gets benefit of doubt, and without discovery there’s no way of knowing whether such an issue exists or not.

Louis moves for continuance of trial, which Judge Lauber grants.

Now Gale and Louis can send in status reports every 60 days, and Judge Lauber will see when he can try this case.

I note that Gale is represented by a firm of attorneys with long-time Tax Court experience. This was not their finest hour.