Archive for February, 2015|Monthly archive page


In Uncategorized on 02/10/2015 at 16:03

Not even The Judge With a Heart, STJ Armen, can relieve a petitioner of interest on a deficiency, especially when the amount of the deficiency is stipulated. This is the bad news to Rodney James Samuel, Jr., Docket No. 8817-13S, filed 2/10/15.

Rod’s pro bono counsel from a local tax clinic worked out a deal for Rod. IRS wants to enter decision including interest, but Rod objects, claiming the clinician told him no interest would be due because the deficiency was in dispute.

IRS’s counsel says he told Rod that he would owe the interest on whatever the settlement number might be.

STJ Armen asks the clinician to weigh in. She does, and says she sure did tell Rod he’d owe interest.

“Generally, matters involving interest do not fall within the scope of this Court’s jurisdiction in an action for redetermination of a deficiency in tax….Although there are certain very narrowly-defined exceptions to this general rule, none of those exceptions apply in the instant case.

“It is unfortunate if petitioner misunderstood the law that in a case such as his a taxpayer is liable for interest on any deficiency in tax and that the Court has no authority in such a case to relieve the taxpayer of any part of such interest even if the parties were to agree to such matter. Therefore, no purpose would be served in delaying entry of decision in this case given the fact that the parties have resolved all of the substantive issues. Petitioner should understand that delay will lead to that much more interest.” Order, at pp. 2-3. (Emphasis by the Court).(Citations omitted).



In Uncategorized on 02/09/2015 at 22:28

If you read my blogpost “No Second Chances”, 8/12/13, you might well conclude that if you miss the magic dates (90 days or 150 days from a SNOD, 30 days for a NIFL or NFTL), you lost you chance to fight the liability, lien or levy.

Well, not quite. Case in point: Tiffany Wei Ding, 2015 T. C. Memo. 20, filed 2/9/15, Judge Lauber.

Tiff was back in China helping some relatives when her late-filed returns for the years at issue were being audited, and her CPA and POA were up against it. IRS banged Tiff hard. Tiff was still somewhere across the sea when the SNOD went to her home address (last known), but she wasn’t there and neither CPA nor POA got a copy.

No petition, so IRS sent a NFTL to the PO Box maintained by POA, who calls CPA, who seeks CDP, and gets it.

At the CDP, CPA and POA claim that they can show material reduction in tax, which they couldn’t show before because they hadn’t Tiff’s papers. SO can’t find the SNOD in the file, only a Letter 950 giving Tiff the right to appeal from the audit adjustments. When asked why no appeal from audit adjustments, POA said never got the Letter 950.

So the SO handed off to an AO, who reduced the whack that Tiff got by 46% but stood firm on the late-filing and late-paying penalties.

There followed a joust over collection alternatives. Tiff wanted installment, but Appeals said she had real estate and should sell, and issued NOD.

Tiff petitions, wanting to fight over capital gains, self-employment and the penalties.

IRS finds the SNOD and the PS3877 showing due mailing to Tiff’s last known address, and therefore seeks summary J.

No, this is not another Chenery go-round, although it could be. Judge Lauber has the Section 6330(c)(2)(b) out. To contest liability at a CDP, taxpayer must have received the SNOD. Mailing is not sufficient, unlike starting the clock for petitioning a SNOD.

Besides,  Reg. Sec. 301.6320-1(e)(3), Q-E11 provides that an AO can, if they want, consider liability even if the taxpayer got the SNOD and didn’t petition. But if the AO makes any change in liability, that isn’t part of the NOD and can’t be petitioned.

And by considering liability, the AO waives nothing. The consideration doesn’t open the door to a fresh view of liability in Tax Court.

But the issue whether or not Tiff got the SNOD is still open. So maybe everything is open. So no summary J.




In Uncategorized on 02/06/2015 at 17:18

I have to tell y’all, Fridays are tough. Not only are the bars hereabouts jammed with the TGIFers, but Tax Court issues no opinions, and more often than not, there are no designated hitters. So the poor blogger is thrown back on 125 or more orders of the “you did manually assign the petition, so you needn’t ratify” and “sorry, you filed late” varieties.

Why Tax Court doesn’t join the Twenty-First century and permit e-filing of petitions and amendments eludes me.

Howbeit, every once in a way there comes a minute gem.

And today Judge Paris answers my old question with a resounding “yes.”

What question, you may ask. Well, see my blogpost “Tax Court as Copy Editor?”, 10/22/14, wherein STJ Lewis (“Great Spelling”) Carluzzo answered “no.”

But here’s Judge Paris: “ORDERED that the Court’s Memorandum Findings of Fact and Opinion (T.C. Memo. 2015-9), filed February 4, 2015, is hereby amended as follows:

“On page 30, line 4, delete ‘an’.” Order, at p. 1.

Here’s the line (unedited): “shows that the sales of these real properties were an integral components in their”. Plural must agree with plural. And I, even I, missed that one. But Judge Paris was right on top of it.

The order is SI Boo, LLC, Boo Noz Corporation, Tax Matters Partner, et al., Docket No. 174-11, filed 2/6/15.


In Uncategorized on 02/05/2015 at 17:41

That’s the Section 6015(c)(3) question for Kateryna Brodskiy, Petitioner, and Ross Brodskiy, Intervenor, 2015 T. C. Sum. Op. 8, filed 2/5/15, and Judge Chiechi finds that, for Kateryna, the answer is “nothing.”

So Kateryna’s (and Appeals’) answer to Michel (or Miguel) Eyquem de Montaigne’s Renaissance skepticism nets Kateryna innocent spousehood.

All Ross has to show is a “…a copy of an email that intervenor sent to petitioner regarding the … return and petitioner’s response to intervenor’s email. In … intervenor’s email to petitioner states: ‘2010 taxes, final, filling [sic] at 2:30 pm’. Petitioner’s response by email to intervenor’s email states: ‘It looks ok. Pls scan certified mail slip so I’ll track it.’” 2015 T. C. Sum. Op. 8, at p. 11.

Kateryna, a CPA, wants innocent spousehood because she and Ross are separated, and the greatest part of the deficiencies relate to Ross’ software business. Ross prepared the return, and Kateryna claims she knows zilch about Ross’ softwaring.

Not a good day for Ross. “We reject intervenor’s position that, because petitioner should have known of the items giving rise to the deficiency … that are not allocable to her under sec. 6015(d), sec. 6015(c)(3)(C) precludes her entitlement to relief under sec. 6015(c). Indeed, we need not even determine on the record before us whether petitioner should have known about those items. That is because sec. 6015(c)(3)(C) does not apply unless the requesting spouse, here petitioner, has ‘actual knowledge’ of the items that gave rise to the deficiency in question and that are not allocable to the requesting spouse under sec. 6015(d).” 2015 T. C. Sum. Op. 8, at p. 8, footnote 3.

And as for the e-mail exchange, “(O)n the record before us, we reject intervenor’s contention that [the copy] establishes the actual knowledge that section 6015(c)(3)(C) requires in order to preclude petitioner’s entitlement to relief under section 6015(c). The deficiency … is almost entirely due to respondent’s disallowance… of deductions claimed …for certain expenses relating to intervenor’s software consulting business. Petitioner, whose testimony we found to be credible, testified that intervenor prepared the …return using a computer program for preparing returns and that she did not (1) participate in the preparation of that return or (2) give intervenor any advice regarding his preparation of that return. Petitioner also testified that (1) she had ‘nothing to do with his [intervenor’s] business’; (2) she had ‘no knowledge of miles he drove in his car, why he claimed it’; and (3) ‘this * * * expense [intervenor’s … claimed car and truck expenses and intervenor’s … claimed unreimbursed employee expenses] has nothing to do with me”. 2015 T. C. Sum. Op. 8, at pp. 10-11. (Footnote omitted).

What did she know? Nothing.


In Uncategorized on 02/04/2015 at 19:08

If you, like me, are a fan of premier grand cru Holmes, today’s designated hitter is a rare treat. It brings Broadway to Appeals, confusion to IRS and its counsel, and tramples the partitive genitive once again.

Hear now the tale of James D. Hurley & Ruth N. Hurley, Docket No. 30681-13L, filed 2/4/15, by Hisself, The Great Dissenter, a/k/a The Judge Who Writes Like a Human Being, s/a/k/a The Implacable, Irrefragable, Indefatigable, Irresistible, Illustrious (but never Incomprehensible or Insensitive) Foe of the Partitive Genitive, His Honor (drumroll and fanfare) Mark V. Holmes.

The Hurleys were timely, they claim, with their 1040 for the year at issue. No they were not, says IRS, check the postmark and Section 7502. Your website did an Obamacare twice when we tried to file, riposte the Hurleys, so we went to the snail mail.

That might be an interesting moot-court question, but the actual facts of this case led everyone in a different direction. The Hurleys’ return was received by the Commissioner and he assessed the tax shown, plus a penalty for late filing. The Hurleys didn’t pay after the Commissioner sent them the usual notices, and then he began to threaten them with collection by levy. He sent one of these threats to them in April 2013. It wasn’t a final notice of levy, but the Hurleys filled out and sent in the IRS form requesting a CDP hearing in early May 2013.” Order, at p. 2.

IRS later sent the right one (NITL), and the Hurleys filed a second CDP request, claiming they only were contesting the late-filing penalty from the website crash and weren’t offering a collection alternative.

The Hurleys also claimed IRS ignored the first CDP request, which should stay collection activity, but as that came before a NITL, it doesn’t count and doesn’t stop anything.

Appeals denied the Hurleys’ request because they didn’t supply financial info for a collection alternative–but they never asked for one.

The IRS’ counsel said they’d abate the late-filing penalty, but as the Hurleys never disputed they owe the tax shown on the late-filed-but-now-unpenalized-1040, and the first CDP request didn’t come after a NITL, the Hurleys’ second CDP should be rejected. IRS wants summary J.

Judge Holmes doesn’t cut this baby in half; he throws the baby away.

“The Court doesn’t think any of the parties are right, and will deny the motion.” Order, at p. 2.

And then, as I would do were I in so exalted a position as Judge Holmes, he goes Broadway (in a footnote, yet): “Cf Fiddler on the Roof (United Artists 1971) (Tevye: ‘He’s right.’ Avram: ‘He’s right, and he’s right. They can’t both be right.’ Tevye: ‘You know, you are also right.’).” Order, at p. 2, footnote 1.

Now the SO rejected the Hurleys’ CDP request because they didn’t provide the SO with financial information for a collection alternative the Hurleys never asked for.

“We have often held that the IRS can refuse to consider collection alternatives if a taxpayer doesn’t show that he is current in his tax reporting or doesn’t submit financial information. But we’ve never held — and the Commissioner doesn’t argue — that taxpayers have to prove both these things just to get the arguments that they do raise heard and decided by the settlement officer who is running their CDP hearing.” Order, at pp. 4-5.

OK, but since IRS is dropping the penalty, thus giving the Hurleys what they asked for, and since the Hurley’s first CDP request is a nullity because it wasn’t preceded by a NITL, and therefore collection isn’t stayed thereby, why not summary J for IRS?

Now Judge Holmes shows why his loyal fans cheer even his grammatical solecisms. And here it is, citations included.

“But there is a problem. And, it is a problem that should be increasingly familiar: The Commissioner is making an argument in our Court that is not what the settlement officer made in the notice of determination after the CDP hearing. See SEC v. Chenery Corp., 332 U.S. 194 ( 1947) (Chenery II); SEC v. Chenery Corp., 318 U.S. 80 (1943) (Chenery 1). Chenery summarizes the administrative law principle that says ‘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.’ Chenery II, 332 U.S. at 196 (describing its holding in Chenery 1). The Supreme Court not too long ago announced that ‘we are not inclined to carve out an approach to administrative review good for tax law only’ and noted ‘the importance of maintaining a uniform approach to judicial review of administrative action.’ Mayo Found.for Med. Educ. & Research v. United States, 562 U.S. 44,__, 131 S. Ct. 704, 713 (2011) (citation and internal quotation marks omitted). This dictates that we follow the Chenery doctrine in CDP cases. See Jones v. Commissioner, 104 T.C.M. (CCH) 364, 369 (2012); Salahuddin v. Commissioner, 103 T.C.M. (CCH) 1764, 1768 (2012). And it means that we cannot sustain a notice of determination on grounds other than those upon which the settlement officer relied, at least when a taxpayer says that he wants to rely on Chenery.” Order, at p. 5.

Great, so Chenery bails out Hurley. Or does it?

“There is a practical problem here: The Hurleys haven’t said that they want to rely on Chenery. And even though our Court hasn’t ruled on the issue, Chenery might be waived if it’s not raised, Catholic Health Initiatives Iowa Corp. v. Sebelius, 718 F.3d 914, 922 n. 6 (D.C. Cir. 2013), as one can predict it won’t be by all but a tiny fraction of litigants who, like the Hurleys, are pro se. It may turn out that ‘Chenery ‘, like an incantation, must be uttered by taxpayers to be effective. Or maybe not: In Hoyle v. Commissioner, 131 T.C. 197 (2008), supplemented by 136 T.C. 463 (2011), we held that the Commissioner is obliged by section 6330(c)(1) to verify ‘that the requirements of any applicable law or administrative procedure have been met.’ Perhaps this background principle of administrative law is one of those ‘applicable requirements.’ See Tax Court Rule 121. But until this small puzzle is solved, we cannot conclude that the Commissioner is entitled to judgment ‘as a matter of law.’” Order, at pp. 5-6.

Now you see why I forgive Judge Holmes even such as “They made a couple points”, Order, at p. 2, and “A couple months later”, Order, at p. 3.

OK, I know Judge Holmes, as a graduate of Harvard College and of the University of Chicago Law School (“where joy goes to die”), knows better. I suspect he writes thus for the same reason as C. Lutwidge Dodgson’s little boy sneezes: “He only does it to annoy, Because he knows it teases”.

Getting back to business, Judge Holmes denies IRS’s summary J, and tells the parties: “The Court expects to discuss further motions, including one to remand, with the parties at calendar call if they do not settle the case before then.” Order, at p. 6.

Walk-off home run, as the fans go wild.





In Uncategorized on 02/04/2015 at 17:19

The Story of a Dealer

No, this blogpost does not concern consumption of, or transactions in, certain vegetation, which aspirants to the office of President of the United States either inhaled or did not inhale.

Rather, at issue here are the FPAAs issued to SI Boo, LLC, Boo Noz Corporation, Tax Matters Partner, et al., 2015 T. C. Memo. 19, filed 2/4/15. Judge Paris upholds IRS’s determination that Boo is a dealer–in real estate.

Boo is a stripminer of tax defaulted properties. Boo’s affiliates buy up certificates issued by municipalities for delinquent taxes, when the municipalities auction them off.

There’s a lengthy how-to explanation in 2015 T. C. Memo. 19, at pp. 4-12. If you want to make money from other people’s misery, and want to do so in Illinois, you can read it.

Boo’s affiliates unload the certificates to Boo, who mostly takes tax deeds after redemption periods end. Boo claims their main business is making money on the interest vig built into their winning bids.

But the vast part of Boo’s income, and the et al’s, comes from sales of properties they thus acquired. After pages of mind-numbing arithmetic, Judge Paris gives us the bottom line–literally the bottom line, as it’s in a footnote.

“Specifically, petitioners made no objection to respondent’s proposed findings of fact that with respect to the entities’ own accounting records of sales by quitclaim deed: in 2007 and 2008 S. I. Securities sold 58% and 50% of its properties within one year of acquisition, respectively; in 2008 Sabre sold 85% of its properties within one year of acquisition; and in 2007 and 2008 SI Boo sold 67% and 90% of its properties within one year of acquisition, respectively.” 2105 T. C. Memo. 19, at p. 27 (Footnote 23).

Boo wanted capital gains and installment sale (Section 453) treatment. No way.

Capital gains are strictly construed. Property held for sale to customers in the ordinary course of a trade or business is not a capital asset and disposition thereof neither results in capital gains treatment nor permits installment sale reporting. And anyone who buys is a customer: no need for repeat business or a regular customer list.

Regular, frequent and substantial selling means you’re in business. Being in business means no installment sale reporting for the goods you sell.

Boo gets smoked.


In Uncategorized on 02/03/2015 at 18:24

Not for Judge Nega, although it’s just a small-claimer, Leticia Saenz, 2015 T. C. Sum. Op. 6, filed 2/3/15. Leticia wants to take the dependency exemption, the EITC and the additional child credit for her daughter (a minor in the year at issue) and her granddaughter.

Daughter and granddaughter lived with Leticia and were supported by her for seven- months-and-change for the year at issue. Leticia filed HOH. All the foregoing is copasetic, so why the case?

Well, daughter is prone to wander, so after seven-months-and-change under Mama’s roof, daughter takes off with child and boyfriend, and the following year daughter and boyfriend file return for year at issue as MFJ.

Ordinarily, if the year at issue is barred by SOL and daughter and boyfriend got the exemption and deduction (no credit as only one child), Leticia is out of luck. IRS can’t go back against daughter and boyfriend. Except they claimed they were married when they weren’t during year at issue. They only married the next year.

At trial, boyfriend testifies “…he is currently married to [daughter] and that he agreed to marry her when they ‘signed their tax return’ and ‘decided to file jointly’.” 2015 T. C. Memo. 6, at p. 4. Daughter doesn’t testify.

So maybe no asymmetry. Now were daughter and boyfriend common-law spouses during year at issue? As residents of the Lone Star State, they could be married at common-law if “…(1) the couple agreed to be married; (2) after the agreement, they lived together as husband and wife; and (3) they represented to others that they are married. All three elements must coexist to establish a valid common law marriage.” 2015 T. C. Sum. Op. 6, at p. 6. (Citations omitted).

But they weren’t. Daughter’s brother testifies that he thought now-husband was then-boyfriend. Insouciant boyfriend testifies that when he and daughter filed MFJ tax return the following April 15, “…if we filed jointly there, according to the law or something, we would be common-law married.” 2015 T. C. Sum. Op. 6, at p. 6.

Therefore, daughter did not file joint return with spouse for year at issue, as boyfriend wasn’t spouse, so daughter is qualifying child of Leticia.

What happens next to daughter and now-husband is unclear, but I expect they’ll get an audit for the year at issue.


In Uncategorized on 02/03/2015 at 17:39

I mean STJ Daniel A. (“Yuda”) Guy, who’s giving a slight judicial nod in the direction of us EAs, in James E. Kaminski, 2015 T. C. Sum. Op. 7, filed 2/3/15, a day when only small-claimers are being run.

James E.’s problems are the usual unsubstantiated deductions and dodgy travelogs, that stumble at the Section 274 fence. He does get some of the cellphone largesse handed out by the Small Business Jobs Act of 2009, even though some of the calls were to his insurance client who later became his wife; James E. is an insurance salesman, and he must sure throw a good sales pitch.

Eventually, Judge Yuda does a mix-and-match, but James E. is still in five-and-ten penalty trouble when the numbers sift out.

James E. relied on his trusty accountant, JRB. JRB is not a CPA. Now that is usually “game over” for any preparer whose efforts come before Judge Yuda; remember poor Charlene M., an H & R Blocker who was not a CPA, and received short shrift from Judge Yuda? No? Then see my blogpost “It Depends”, 10/22/13.

But JRB was an EA, having “…passed the Internal Revenue Service (IRS) examination for enrolled agents in 1992 and has been in the business of preparing tax returns for nearly 40 years.” 2014 T. C. Sum. Op. 7, at p. 7.

Well, leaving out the quibble that the Special Enrollment Examination (the EA exam) is administered by Prometric, a subsidiary of Educational Testing Service (which administered what was known in my young day as the college boards), Judge Yuda does admit “(S)tatus as an enrolled agent may tend to show competence as a tax professional. An enrolled agent is an individual who has displayed ‘special competence in tax matters’. 31 C.F.R. sec. 10.4(a) (2007).” 2015 T. C. Sum. Op. 7, at p. 17. (Citation omitted).

Thanks, Judge.

But I’m not through. Judge Yuda suggests that JRB was a wee bit casual in examining James E.’s dodgy logbooks. Well, again citing 31 C.F.R., this time 31CFR§10.34(d):

“A practitioner advising a client to take a position on a tax return, document, affidavit or other paper submitted to the Internal Revenue Service, or preparing or signing a tax return as a preparer, generally may rely in good faith without verification upon information furnished by the client. The practitioner may not, however, ignore the implications of information furnished to, or actually known by, the practitioner, and must make reasonable inquiries if the information as furnished appears to be incorrect, inconsistent with an important fact or another factual assumption, or incomplete.”

Perhaps JRB should have studied James E.’s logbooks more closely. But did he ignore implications? That’s a big step. EAs work for taxpayers, not IRS. We are not RAs, ROs or their managers.

EAs are on the front line. It’s a long way from there to 400 Second Street, NW.


In Uncategorized on 02/02/2015 at 23:06

No, not another post-mortem of SuperBowl XLIX (or whatever the number of this latest iteration).

Rather, this is the story of Estate of Rodrigo F. Fenta, Deceased, Carlos Fenta, Trustee of The Rodrigo Fenta Trust, 2015 T. C. Sum. Op. 4, filed 2/2/15, as told by The Judge With a Heart, STJ Armen.

The late RodFen ran a bar and restaurant, but most of the gross came from the sale of alcoholic beverages, paid for “in green”, as we say. The sales tax crew from the Golden State descended upon the late RodFen, but the late RodFen never produced the “Z tape”, only a handwritten summary thereof.

No, the “Z tape” is not what cooked President Nixon. It is the duplicate tape created by the cash register (and required of all retail establishments) for each transaction. And the late RodFen had neither books nor records to hand.

So when the CA Board of Equalization finished equalizing the late RodFen, the IRS came aboard and smacked the late RodFen with a deficiency.

And IRS followed the CABOE by using the percentage-markup method. Both took the late RodFen’s inventory and invoices from suppliers of the good news he served up, and took a percentage over for income, deducted cost of goods sold, and nailed the late RodFen for the overage.

After the SNOD, petition and answer, the “Z Tape” is produced. After some backing-and-filling, the parties resolve income, deductions and loss from theft and spillage for a figure much lower than the SNOD.

CarlFen, trustee of the RodFen trust, seeks Section 7430 legals and admins. CarlFen prevailed, right enough, but IRS was justified.

IRM (Aug. 9, 2011) specifically blesses the use of the percentage-markup method where taxpayer produces no records. And that applies whether or not fraud is in play.

The “Z tape” didn’t show up until after SNOD, petition and answer. IRS was justified at the magic moment.

Nothing novel here besides the “Z tape” and percentage-markup discussion.

But I really liked CarlFen’s claim for $26K in legals: “This amount includes a request for ‘student attorney fees’ of $17,025 for the services of a student at the Santa Clara University School of Law Low Income Taxpayer Clinic and a request for counsel fees of $9,595 for the services of the clinic director.” 2015 T. C. Sum. Op. 45, at p. 2, footnote 3.

I think I might go back to law school if I could bill $17K, especially when I had a clinic director to do all the work.


In Uncategorized on 02/02/2015 at 21:36

Yvonne K. Young had twenty years in as a tax preparer and accountant. Being inventive (and possibly bored with e-filing 1040s), Yvonne invented a fine swindle.

Yvonne claimed she received interest from four (count ‘em, four) banks in large sums, but that OID (original issue discount) was withheld, giving her a massive refund (especially after she failed to report other income).

Yvonne generated phony 1099-OIDs, which she claimed came from the banks aforesaid, except they didn’t.

IRS’s computer spat checks in Yvonne’s direction.

So pleased was Yvonne with her fiddle, that she generated 100 phony 1099-OIDs for herself and select clients of her tax prep business.

When the forces of righteousness descended, Yvonne petitioned the deficiencies, additions and penalties. IRS moved for summary J, Yvonne asked for more time to answer (and got it), but never answered.

Rule 37(c) means all of IRS’s assertions of Yvonne’s delictions are deemed admitted.

The fraud axe falls on Yvonne.

As General Galieni remarked about the taxis of the Marne, “Eh bien, voilà au moins qui n’est pas banal!”

You can read all about it at Yvonne K. Young, 2015 T. C. Memo. 18, filed 2/2/15.