Archive for February, 2015|Monthly archive page


In Uncategorized on 02/27/2015 at 15:33

That’s Gregory Raifman & Susan Raifman, Docket No. 3897-14, filed 2/27/15. Greg & Sue can spot a crook a mile away–and hand him millions.

You’ll remember Greg & Sue from my blogpost “We Wuz Robbed”, 8/7/12. What, you don’t remember? Then check out my blogpost aforementioned, as Judge Wells allowed that Greg & Sue were well and truly robbed by the improbably-named-but-larcenously-inclined Yuri Debevc Derivium.

Would you believe that Greg & Sue handed over $2,475,000 to ClassicStar? And if you don’t remember ClassicStar, dig my blogpost “Horsing Around?”, 8/15/11.

Well, today Greg & Sue want summary J allowing the $2,475,000 loss to the ClassicStar swindlers as a carryback from 2009 (a year not at issue) to 2008. IRS balks, but Judge Wells, by now almost an old friend of Greg’s & Sue’s, lets them carry back.

“Generally, this Court has jurisdiction to consider later years not before the Court as may be necessary to correctly redetermine the deficiency for years currently before the Court. I.R.C. sec. 6214(b); Vincentini v. Commissioner, T.C. Memo. 2008-271. Accordingly, this Court may consider petitioners’ 2009 tax year in order to redetermine the correct amount of the theft loss carryback for 2008.” Order, at p. 1.

So Greg & Sue are leading in the backstretch.

But I regret that they, like me, have torn up tickets on horses leading in the backstretch that never quite led at the finish line.

Greg & Sue want to claim they were victims of a Rev. Proc. 2009-20, 2009-14 IRB 735 “specified fraudulent arrangement”. This would get them a theft-loss ordinary deduction, rather than a capital loss.

IRS concedes Greg & Sue were robbed (again), but claims no summary J on “specified fraudulent arrangement.”

Greg & Sue rely on a USDCWDKY trial of the ClassicStar gang.

The KY trial doesn’t establish that ClassicStar promised income to the swindled, nor that they reported to them or paid to them any purported “income”. The “specified fraudulent arrangement” gambit is strictly for Madoff-Ponzi deals, and the KY trial, on which Greg & Sue hang their harness, doesn’t establish anything other than fraudulent representations, but no rob-Peter-to-pay-Paul of the Madoff-Ponzi kind.

So Greg & Sue were robbed (again). But not through a “specified fraudulent arrangement.”



In Uncategorized on 02/27/2015 at 14:30

The “rarefied heights” were there, sure enough, in Judge Morrison’s opinion in Estate of Natale B. Giustina, Laraway Michael Giustina, Ex’r (as to which see my blogpost “Such Rarefied Heights of Pure Mathematics”, 6/25/11), but Ninth Circuit found that mathematics wasn’t enough.

As I said back in 2011, “Judge Morrison finds a sale would yield more present value dollars than continuing lumbering operations, finding the probability of the sale sufficiently high to justify a valuation taking that probability into account.”

Ninth Circuit was less than overwhelmed by Judge Morrison’s oddsmaking.

“The Tax Court concluded that there was a 25% likelihood of liquidation of the partnership. It therefore gave a 25% weight to an asset-based valuation and a 75% weight to the valuation of the partnership as a going concern. Although the Tax Court recognized that the owner of the limited interest could not unilaterally force liquidation, it concluded that the owner of that interest could form a two-thirds voting bloc with other limited partners to do so, and assigned a 25% probability to this occurrence. This conclusion is contrary to the evidence in the record. In order for liquidation to occur, we must assume that (1) a hypothetical buyer would somehow obtain admission as a limited partner from the general partners, who have repeatedly emphasized the importance that they place upon continued operation of the partnership; (2) the buyer would then turn around and seek dissolution of the partnership or removal of the general partners who just approved his admission to the partnership; and (3) the buyer would manage to convince at least two (or possibly more) other limited partners to go along, despite the fact that ‘no limited partner ever asked or ever discussed the sale of an interest.’ Alternatively, we must assume that the existing limited partners, or their heirs or assigns, owning two-thirds of the partnership, would seek dissolution. We conclude that it was clear error to assign a 25% likelihood to these hypothetical events. As in Estate of Simplot v. Commissioner, 249 F.3d 1191, 1195 (9th Cir. 2001), the Tax Court engaged in ‘imaginary scenarios as to who a purchaser might be, how long the purchaser would be willing to wait without any return on his investment, and what combinations the purchaser might be able to effect’ with the existing partners.” Estate of Giustina v. Com’r, No. 12-71747, 9th Cir., decided 12/5/14, at pp.2-3.

So Judge Morrison’s scenario is tossed, and back to Tax Court and Judge Morrison goes Laraway for a replay.

But Judge Morrison is looking for a punt on the rarefied pure mathematics.

“Because the remand by the Ninth Circuit contemplates further explanation from the Tax Court of an aspect of its prior opinion, the Court will issue a supplemental opinion. In the meantime, the parties are free-as always-to negotiate a settlement. The parties are to advise the Tax Court of any settlement by filing status reports on or before 60 days after the issuance of the mandate.” Estate Of Natale B. Giustina, Deceased, Laraway Michael Giustina, Executor, Docket No. 10983-09, filed 2/27/15, at p. 2.


In Uncategorized on 02/27/2015 at 13:38


As one of his multitude of fans, I very much regret the death of Leonard Nimoy. Now he is free to roam among the stars, with Bones and Scotty.


In Uncategorized on 02/26/2015 at 17:18

No, not that cookware cleanser that sitteth on my right hand when I’m washing up after my cooking forays. It’s Judge Kathleen Kerrigan helping out hardworking but undertipped barkeeper Alan Sabolic, 2015 T. C. Memo. 32, filed 2/26/15, concluding my trifecta for this date.

Al was helping drown the sorrows of the slotmachinists who sat on the six stools in front of his bar at the MGM Grand in Sin City. They could buy or get comped, but mostly comped, the goodies which Al dispsensed. (For you who have never visited, “comped” is short for “complimentary”, and refers to freebies extended to those who keep Sin City going).

Al worked with no waitstaff, and only split tips with barbacks (those who carry the good news to the barkeeper) and the cashiers who convert Al’s loose change to green.

Al dropped out of the GITCA (Gaming Industry Tip Compliance Agreement), which was sort of an Advance Something-Or-Other between the Las Vegas infantry and the Federales, whereunder a set dollar amount was attributed to tips received by the barkeeper for each hour worked (and hours were clocked by automated system).

Al claimed that, in the post-subprime-meltdown, the GITCA was too rich. The college kids and the foreigners didn’t tip, and the attributed stiff rate was too low.

Al needed really good records, so he kept his timeslips, his point-of-sale printouts showing credit card tips, and put whatever change he got into a glass jar, which, at the end of his shift, he emptied and got the cashiers to convert to green, giving the cashier whatever odd change remained. He kept slips and a daily tip diary.

He did “tip out” the barbacks between 10% and 20% of the tips he got. IRS said the number should be 10%.

And of course IRS quibbled with Al’s recordkeeping.

But if a cruel fate should land you behind a six-stool Las Vegas bar jammed with sullen slotmachinists who guzzle and don’t tip, or, even worse, give you, the in-the-trenches tax preparer, a platoon of clients so situated, read Judge Kerrigan’s tip to Al, who gets the deficiency bounced based upon his well-kept records and truthful testimony.


In Uncategorized on 02/26/2015 at 16:53

A busy day at 400 Second Street, NW, notwithstanding a two-hour late start and teletubbying, yields a sequel to my blogpost “Two Old Rounders”, 7/31/14.

It’s Alvin Sheldon Kanofsky, 2015 T. C. Memo. 34, filed 2/26/15.

I ended my blogpost above-cited with a question, and Judge Lauber answers as I thought he would.

“Will Al get twenty? Stay tuned.”

Well, Al does.

“Petitioner is no stranger to this Court. He has been warned in prior proceedings that his conduct would subject him to penalty if he continued to repeat the same litany about fraud, corruption, and whistleblowing that he recites in this case and has recited almost verbatim previously. During the trial of his 2006 and 2007 tax liabilities, the collection of which is at issue here, the Court explicitly warned petitioner that his assertion of frivolous positions risked the imposition of a significant penalty. The Court of Appeals for the Third Circuit has previously warned petitioner that his ‘arguments based on obstruction of justice, corruption and fraud committed by public figures in Pennsylvania and New Jersey,’ as well as his alleged ‘extensive whisteblower activity,’ are ‘not relevant * * * and do not advance his cause.’ Kanofsky v. Commissioner, 424 Fed. Appx. 189, 191-192 (3d Cir. 2011) (per curiam), aff’g T.C. Memo. 2010-46. 2015 T. C. Memo. 34, at p. 8.

On July 31, 2014, Al was slapped with the $10K Section 6673 chop, and warned that further frivolity would cost him. I was prepared to wager that would not deter the redoutable Al from further frivol.

It didn’t, of course.

But Judge Lauber is a man of his word. “We find once again that petitioner’s arguments are frivolous and that he has instituted this case for the sole purpose of delaying the collection of his Federal tax liabilities. True to our word, we will accordingly require that he pay to the United States a penalty under section 6673(a), this time in the amount of $20,000.” 2015 T. C. Memo. 34, at pp.9-10.

Will Al go for the top banana? The suspense is killing me.


In Uncategorized on 02/26/2015 at 16:16

At Least in Texas

Successor liability? Not unless the successor expressly assumes the liability in the Lone Star State. So TFT Galveston Portfolio, Ltd., escapes liability for FICA, FUTA and ITW for its multifarious predecessors in 144 T. C. 7, filed 2/26/15.

The facts are a straightforward IC-EE jumpball, with the EE factors so overwhelming that I wonder why Judge Goeke discomposed so many electrons getting to that conclusion.

But what makes the case a full-dress T.C. is the question of how successor liability is determined: State law or Federal common law?

It matters here because tort-reforming Texas virtually slammed the door on any form of successor liability for anything absent actual fraud. So TFT Galveston, notwithstanding it has the same principal, manager and head honcho as its six (count ‘em, six) predecessors, and is running the same real estate in the identical way, bears none of the sins of its forebearers.

IRS wants to assert the Federal rule: who walks in the moccasins of the forebearer carries the sins thereof. And those sins encompass years of FICA, FUTA, ITW, and the penalties and interest in respect of all the foregoing, as my expensive colleagues would say.

But the Supremes aren’t happy with Federal law grabs. And neither is Tax Court.

“The application of Federal common law in a novel context requires ‘“a significant conflict between some federal policy or interest and the use of state law”’. The Supreme Court cautioned against the creation of Federal common law, noting that ‘“cases in which judicial creation of a special federal rule would be justified * * * are * * * “few and restricted’.’” The Court further directed that ‘“[w]hether latent federal power should be exercised to displace state law is primarily a decision for Congress,”’ not the Federal courts.” 144 T. C. 7, at p. 24. (Citations omitted).

Need for uniformity in tax collections doesn’t get it. And IRS’s whimper that this Texas reliance will encourage other states to sabotage FICA-FUTA-ITW with phony transfers gets even shorter shrift, because no one claims TFT Galveston is a phony or had a tax dodge as a principal purpose.

Finally, IRS gives the game away.

“On brief respondent concedes that he could have potentially applied transferee liability against petitioner under section 6901 by issuing Notices of Determination Concerning Worker Classification to the other six partnerships, assessing the resulting liabilities, and then issuing a Notice of Transferee Liability to TFT Galveston Portfolio. Additionally, respondent could have potentially attempted to collect directly from [Mr. Honcho] as a ‘responsible person’ under section 6672. Thus, our decision against applying Federal common law successor rules and holding that TFT Galveston Portfolio is not a successor in interest to the six partnerships listed on the notices does not by itself thwart respondent’s crucial function of collecting Federal employment taxes. Accordingly, we do not accept respondent’s suggestion that we adopt a Federal common law to override Texas law.” 144 T. C. 7, at pp. 26-27. (Name omitted).

So TFT Galveston gets nailed for a quarter, and the six walk away unscathed from years’ worth.

If IRS wanted a case to go for Federal supersession in successor liability cases, they sure picked a weak example.



In Uncategorized on 02/25/2015 at 16:20

I wanted to subtitle this blogpost “Until What Freezes Over?” for reasons that shall appear hereinafter. But first, the moving part.

Judge Morrison follows the trail of Jeffrey B. Palmer, in 2015 T. C. Memo. 30, filed 2/25/15, but Jeff fetches up fewer than fifty (50) miles from his old home base in search of employment.

Jeff wants to deduct expenses for moving his new wife (referred to in the opinion as “Palmer’s wife”, 2015 T. C. Memo. 30, at p. 4), plus her two children and her mother from South Carolina to Minnesota.

The nameless wife reminds me of a children’s book I used to read to a now-managing director in a Big Four accounting firm and a now-store manager for Starbuck’s. It featured Stephen of Blois, a Twelfth-Century King of England, also with a nameless wife. We had a lot of laughs about Stephen.

Anyway, Section 217 only refers to the employed, and mandates the over-fifty-mile limit. While Jeff does amble around the Great North Woods, from start to finish he’s fewer than fifty miles farther from work than he was at his old home. “No deduction is allowed under section 217 unless the taxpayer’s new principal place of work is at least 50 miles farther from the taxpayer’s old residence than was the taxpayer’s old principal place of work. Sec. 217(c)(1)(A).” 2015 T. C. Memo. 30, at p. 8.

Moreover, moving spouses count only when spouses shared old home; Jeff and Palmer’s wife (sorry, Ma’am) never lived together in South Carolina.

Simple enough case, with a textbook application of Section 217, but there is a delightful twist. And that sets up my subtitle “Until What Freezes Over?”. It’s the freeze that gives Jeff an entry in the maiden-claimer division of the Taishoff “no-prize good excuses” sweepstakes.

Jeff never bothered to file returns for the years at issue, although he did get extensions for both of them. Here’s his entry.

“Palmer alleges that he could not access his 2007 tax records and that these records were necessary for him to file his 2008 return. Palmer alleges that his 2007 records were in outside storage units and that the doors to these units were frozen over until the spring of 2009. However, because of an extension, Palmer’s 2008 return was not due until October 15, 2009. Any ice would have melted before October 15, 2009. Thus, the ice is not a reasonable cause for Palmer’s failure to file a tax return on or before October 15, 2009. See Stevens Bros. Found. v. Commissioner, 39 T.C. 93, 130 (1962) (‘[A]n acceptable reason for failure to file a return will excuse such failure only so long as the reason remains valid.’), aff’d in part, rev’d in part on another issue, 324 F.2d 633 (8th Cir. 1963).

Hey Judge, given the weather for the last couple weeks (hi, Judge Holmes), it isn’t a bad try.


In Uncategorized on 02/24/2015 at 15:58

The staple of many a CLE program has certainly made a mark on IRS’s counsel. Notwithstanding earlier ups and downs in pursuit of that goal (see, e.g., my blogpost “Win Your Case At Discovery”, 7/3/14) , the 1111 Constitution Ave NW guys are back at it in Eaton Corporation and Subsidiaries, Docket No. 5576-12, filed 2/24/15.

On a day with no designated hitters and only one unsubstantiated small-claimer, I have to write about something. But this is actually interesting. We have two orders with the same docket number, so, as Judge Holmes would say, now pay attention; follow the links: they’re leading in different directions.

In a three-day period earlier this month, IRS “… filed (1) a motion to compel production of documents (Index #0223), and (2) a motion to compel production of documents (Index #0224)” and a couple of days later … “(1) a motion to depose pursuant to Rule 74 (Index #0225), (2) a motion to depose pursuant to Rule 74 (Index #0226), (3) a motion to compel responses to interrogatories (Index #0227), (4) a motion to compel production of documents (Index #0234), and (5) a motion to compel production of documents (Index #0235).” Order, at p. 1.

The technical name for this is “flood the zone.” Not bad; keeps the adversary digging. Of course, Judge Kerrigan tells Eaton’s legal eagles to respond to all the foregoing, and get ‘er done by March 18.

Meanwhile Eaton’s legal eagles aforesaid haven’t been dozing on their eyries.

In a separate order, Judge Kerrigan notes that, at the same time IRS sprung their trap, Eaton “… filed (1) a motion to compel the taking of deposition (Index #0230), and (2) a motion to compel production of documents (Index #0232)” and also a day or two later …”filed a motion to compel production of documents (Index #0237).” Order, at p. 1

IRS must respond by March 18.

Looks like they all took the same CLE course. But what happens when both sides try the same tactic?


In Uncategorized on 02/23/2015 at 16:20

Sort of a coda to 44 USC§3501 et seq. today from STJ Lewis (“Champion Speller”) Carluzzo in a small-claimer, Gustavo E. Morles, 2015 T. C. Sum. Op. 13, filed 2/23/15.

Gus is younger than 59-1/2 years old, out of work and about to be evicted when he draws down his 401(k), his employee stock purchase plan, and Trad IRA (which he had funded with a non-deductible contribution) to preserve hearth and home. Of course, he loses when he claims drawdowns aren’t taxable, and he’s in line for the 10% chop as well.

“Although we sympathize with petitioner, we agree with respondent that the entire plan distribution is includable in petitioner’s 2010 income under section 72(a) and (e). Accordingly, respondent’s adjustment to that end is sustained.” 2014 T. C. Sum. Op. 13, at p. 5.

Now as to the Trad IRA, Gus’ investment in the contract is taken into account when reckoning what gain, if any, Gus got on the distribution. Investment in the contract is Section 72(c) language for basis. And nondeductible contributions to Trad IRAs are investment in the contract (or basis).

Now those of us with bases in Trad IRAs are now, or will soon be, struggling with this year’s Form 8606, after digging out Forms 8606 going back many years, and going through the convoluted hopscotch of said form, to extrapolate the miniscule allowable basis for the current year. And paid preparers will be asking for those forms from new clients.

But is this all necessary?

STJ Lew isn’t so sure: “Nondeductible contributions made to an individual retirement account must be reported annually on Form 8606, Nondeductible IRAs. See sec. 408(o)(4). The Form 8606 instructions state that a taxpayer must keep copies of records, including completed Forms 8606 for previous years, in order for the taxpayer to verify the nontaxable portion of the individual retirement account withdrawal or distribution. Although nothing in the record suggests that petitioner has complied with these reporting requirements, nothing in the statutory scheme suggests that a taxpayer who fails to satisfy these reporting requirements cannot include nondeductible individual retirement account contributions in the taxpayer’s investment in the contract. Taking into account the evidence that sufficiently shows the relevant transactional history of the IRA, we find that petitioner’s initial contribution to the IRA is taken into account in the computation of his investment in the contract for purposes of section 72.” 2015 T. C. Sum. Op. 13, at pp. 6-7.

Now Gus claims that, as he put in $1K nondeductible and nothing else,  and took out less than that, the whole distribution is nontaxable; IRS claims it all is. STJ Lew says there has to be an allocation, cites Section 72(e) and tells the parties to work it out in the Rule 155.

Now curb your enthusiasm, guys, before you start shredding those old Forms 8606, or leaving them off your current 1040. This is a small-claimer, can’t be cited as authority (Section 7463(b) says so), and STJ Lew cites no authority but his own peek at Section 408(o) and the Form 8606 instructions.

So if you go ahead and shred, don’t cite or Gustavo Morles when IRS comes to shred you.


In Uncategorized on 02/23/2015 at 09:32

I had commented some time ago about internet reportage of litigated matters. And so had Judge David Gustafson. See, e.g., my blogpost “Guess Who Reads My Blog? – Part Deux”, 8/11/14.

Well, now the New York Times has awakened to the e-filing barrage. And the consequences of unlimited access.

Here’s the link: