Although it’s a drafter’s commonplace that “the singular includes the plural, and each gender the others, as the context may require,” I thought it necessary to alter the title of the 1929 festschrift in honor of James Joyce’s Finnegan’s Wake, to make clear of whom STJ Daniel A. (“Yuda”) Guy was speaking in his designated hitter, Debbie A. Hartnett-Perry, Docket No. 20742-14, filed 4/30/15.

Deb claims she’s out of the famous Section 72(t) 10% youth chop (under 59-1/2 years of age when took the IRA distribution in question). Deb also claims she gave the IRS all necessary documentation, so she wants summary J.

STJ Yuda: “According to respondent’s response, petitioner’s position is that the 10% additional tax does not apply because she made a qualified charitable distribution to Mutual Church Barter Contracting Association, Inc., allegedly an organization that qualifies under I.R.C. section 501 (c)(3).” Order, at p. 1.

OK, we used to have a paper Publication 78 to guide us, but that’s gone. Now there’s a link on the IRS website. I make no representation, guaranty or warranty as to the accuracy or adequacy thereof. I couldn’t find the Mutual Church Barter Contracting Association, Inc., using that link.

And of course the actual name of the organization might be close enough. Deb could maybe take a leaf from Tawana L. Bradley and the Yellow Jacket cheerleaders. Remember Tawana L.? No? Well, then, see my blogpost “I Got Plenty of Nuttin’”, 10/14/11. Reminds me of the old commonlaw doctrine of idem sonans.

Howbeit, IRS plays the heavy as usual.

“Respondent disputes the organization actually exists.” Order, at p. 1. Whatever it’s called.

IRS claims the existence of Mutual Church Barter Contracting Association, Inc., is a material fact, and moreover a material fact that is in dispute.

No summary J, Deb.

We need an exagmination round her factification, and that is definitely a Work In Progress.

Apparently Judge Kerrigan believes more in trials than in pre-trial discovery ping-pong. See my blogpost “The Forty Million”, 4/29/15, if it isn’t still fresh in your memory; I rather thought it was one of my better efforts.

Well now, I don’t know if Judge Kerrigan read my not-so-tongue-in-cheek remarks, but she sure told IRS to get on the stick with interrogatories, if not with document production.

“Once more unto the breach, good friends,” as a much better writer put it.

Here’s today’s installment of Eaton Corporation and Subsidiaries, Docket No. 5576-12, filed 4/30/15, wherein Judge Kerrigan kicks to the cliché IRS’s interrogatory quibbling.

IRS didn’t like Eaton’s responses to IRS’s interrogatories. As we well know, if a question was answered, it doesn’t matter if the questioner doesn’t like the answer.

Judge Kerrigan: “Respondent contends that petitioner’s answers were incomplete. Petitioner contends, and we find, that is [sic: should be “it”] has fully and satisfactorily responded to respondent’s interrogatories.” Order, at p. 1.

I know we’ve all sat through (the lawyers among us, I mean) the endless CLE sessions about “win your case at discovery.”

But some day you might actually have to go to trial.

Footnote, off-topic–My colleague Joel E. Miller, Esq., and I were talking briefly about Judge Lynch’s affirmance of the 40% overvaluation chop in the Kaufman (Lorna and Gordo) façade case. He asked if I was going to blog the 4/24/15 First Circuit opinion. I was undecided, but upon re-reading Judge Lynch’s lengthy disquisition, I decided not to. The unanimous First Circuit panel found Tax Court, like a certain tax collector of yore, “went down justified.” I really have nothing to add.

One hundred ten years ago, roughly, William Sidney Porter (a/k/a O. Henry) produced a collection of 25 short stories under the title “The Four Million.” It appeared in paper format, cloth bound, as was then the means of diffusing both fact and fiction.

Time has erased Mr Porter’s rights therein, so gutenberg.org, the online publisher, has made the work available for free, to all, in hypertext machine language (HTML). The entire opus takes up some 322 KB.

Modern technology and the ever-accelerating use thereof have left poor old O. Henry and his publishers, Doubleday, Page & Co., in the dust of past ages.

Comes now Eaton Corporation and Subsidiaries, Docket No. 5576-12, filed 4/29/15, an upwelling fount of blogfodder, to show how far progress has taken us.

Patient Judge Kerrigan, who has been refereeing this bunfight, is brought to a halt.

“On February 11, 2015, respondent filed a motion to compel production of documents (index # 0223) which pertains to respondent’s first formal request for production. This request seeks documents related to the order management database (the VISTA system) used by Eaton’s electrical business.” Order, at p. 1.

Note the date of the filed motion: February 11, 2015.

Now skip down a few lines in the Order.

“Petitioner produced 64 gigabytes of data (the equivalent of over 40 million pages of documents) in response to respondent’s request on February 13, 2015”. Order, at p. 1.

Note that 64 gigabytes amounts to some 67,108,864 kilobytes.

Forty million pages! Think of that. More than Homer, Shakespeare, Goethe, Molière, Cervantes, Plato, Aristotle, Jefferson, Lincoln, Newton, Freud and Einstein have written, combined, to say nothing of the sacred texts that have ruled the human mind for millennia.

And in two days yet. Talk about reciting all the Law and the Prophets whilst standing upon one foot!

Did any of those forty million documents even vaguely approach the quality of the works of the authors abovecited (to say nothing of the authors of the sacred scriptures), the ultimate human salvation must be upon us.

And IRS’s response?

“Respondent contends that the request has not been completed.” Order, at p. 1.

Is Judge Kerrigan stunned? Not hardly. “It is the Court’s understanding that the parties are still discussing the VISTA data discovery.” Order, at p. 1.

With 40 million pages to discuss, and only two months or so into the process, I should think they would be.

So let the parties file a status report in two weeks’ time, and Judge Kerrigan will hold IRS’s February 11 motion in abeyance.

No, not an invitation to a birthday party, nor yet a lament for vanished youth, but a reminder from the newest star in the Tax Court firmament, Judge Tamara W. Ashford, to a candidate for all-star roundership, Chenery Management, Inc., Docket 23888-13L, filed 4/28/15.

I was awaiting a coruscation from Judge Ashford. As I said in my blogpost “Who Loves Chenery?”, 1/27/15, “…I look forward to posting many more scintillating opinions from Judge Ashford.

“Maybe she’ll even love Chenery.”

Well, not quite. Chenery has unloaded almost 900 electronic pages upon Judge Ashford, in support and in supplementation of a motion for summary judgment.

That’s OK, all in the course of big-ticket litigation.

But though singing the body electric in true Walt Whitman fashion, Chenery skipped a step.

Judge Ashford: “However, petitioner has not complied with the Tax Court’s instruction as set forth in its Electronic Case Access and Filing Guide with respect to the submission of a hard copy of an eFiled document in excess of 50 pages. The Guide, which is located on the Tax Court’s website under the eAccess tab, states that a party who files electronically ‘must send a paper courtesy copy of any eFiled document longer than 50 pages to the assigned Judge and all other parties in the case.” The courtesy copies should be mailed “within 3 business days of filing.” The undersigned has not yet received a courtesy copy of petitioner’s Motion for Summary Judgment, as supplemented, from petitioner.” Order, at p. 1.

And lest IRS should feel itself forgotten, “… petitioner, as well as respondent, is directed to follow the guideline set forth herein with respect to current and future eFiled documents that are more than 50 pages, supplements or attachments included.” Order, at p. 1.

So, chaps, chop down those trees, burn that carbon, weigh down the hapless posties or Fed Exes, and get that stuff over to Judge Ashford prontito.

Echoing the immortal words of Elizabeth (Akers) Allen, that’s the plaintive cry of Harvey Gregory Ottovich, Docket No. 29083-14L, filed 4/28/15, to Ch J Michael B. (“Iron Mike”) Thornton, but the Ch J will have none of it.

Harvey Gregory’s petition from the NOD he’s attacking is postmarked three days late. Grasping for rescue, Harvey Gregory cites Tax Court Rule 25(a)(2)(C).

Harvey Gregory’s story: “…pursuant to T.C. Rule 25, ‘if any act is required to be taken or completed no later than (or at least) a specified number of days before a date certain, then the earliest day of the period so specified shall not be included if it is a Saturday, Sunday, or a legal holiday … and the earliest such day shall be the next preceding day, which is not a Saturday, Sunday or such legal holiday.’ So the applicable  30-day clock via I.R.C. §6330(d), instead of starting Saturday… (the day after the earliest possible date of mailing) actually started the 30 day clock to run on Monday….” Order, at p. 2.

Most of us lawyers would agree generally (don’t you just love that word?), but that isn’t the rule under Section 6330(d).

Ch J Iron Mike: “…it is readily apparent that Rule 25(a)(2)(C) constitutes a look-back provision that is applicable only when an act or event must be completed a certain number of days before a date certain. Accordingly, Rule 25(a)(2)(C) does not apply to the present case because the statutory period for filing a petition begins with an Appeals Office determination and extends forward in time, not back in time.” Order, at p. 2. (Emphasis in the original).

So the rule is thirty days for petitioning a NOD from the date of the NOD, not from the mailing date of the NOD.

Practitioners, beware!

No, not a misspelled reprise of the 1934 James F. Hanley classic immortalized by Judy Garland; rather, this is a “zing” delivered most gently by that Obliging jurist, Judge David Gustafson, both to petitioners and to IRS, in Xing F. Wang & Kathleen P. Lee, Docket No. 1269-14, filed 4/27/15.

Trial is set for fewer than seven weeks from now, but IRS’s counsel gets in an uproar about the 89 requests for admissions that they served last October, to which Xing and Kathy promptly responded last November. Xing gave IRS the right-about-face as to items 12 through and including 89.

Now Judge Gustafson is the embodiment of patience, but Xing needs a few words of encouragement, which Judge Gustafson delivered in a phone conference with the parties, but upon which he here elaborates.

“The undersigned judge discussed briefly with the parties the motion to review, as well as respondent’s motions to compel, as to which petitioners’ responses are due to be filed and served May 4, 2015. The judge stated that, without prejudging the motions, he believes petitioners should reconsider carefully their objections to respondent’s document requests and interrogatories and should serve by May 4 any documents or responses to which respondent is fairly entitled. The judge pointed out that petitioners will have the burden of proof at trial and that a lack of information in that context may harm the petitioners. The judge instructed petitioners to be responsive to communications from their opponent and to cooperate in pretrial preparation, especially the preparation of the parties’ joint stipulation of facts.” Order, at p. 1.

OK, so Xing has to reconsider. But how about IRS’s counsel?

“…respondent’s motion to review filed April 21, 2015, is denied, in view of the relative lateness of its filing, petitioners’ unqualified denial of most of the requests for admission, and the availability of the stipulation process to achieve admission of the agreed facts.” Order, at p.2.

IRS, if you don’t like Xing’s answers, see my blogpost “Asked And Answered”, 12/24/13, where Judge Holmes (I’ll spare you the honorifics) show much less gentility.

No, this is not a retelling of the tale of one who wastes his substance in riotous living. This son wastes his substance on his siblings, because his lawyer’s paralegal was a trifle imprecise in the advice the son was given.

Having, I trust, whetted your appetite, I give you Elroy Earl Morris and Darlene Morris, 2015 T. C. Memo. 82, filed 4/27/15, hot from the rollers of Judge Lauber’s word processor.

Elroy was a good son. When Papa George went to a better place, Elroy got Papa George’s IRA, as Elroy was the sole beneficiary thereof. And as we all know, the named beneficiary of an IRA trumps wills, intestacy, deathbed declarations and you-name-it.

Settling Papa George’s estate, Elroy interfaced with his lawyer’s para, who told him that no tax was due. What the para meant was that no Federal estate tax or State inheritance tax was due, and that was true enough.

But since Elroy took a lump-sum distribution so he could split Papa George’s cash with his siblings, as he thought Papa George would have wanted, rather than a five-year payout or a retitling of the account,  there was income tax. Plenty of income tax. And Elroy gets nailed.

Elroy claims he relied on the para, and IRS drops the 20% chop post-trial. But the $27K in tax is there.

“Petitioner at trial did not seriously dispute that the IRA distributions he received were subject to Federal income tax. Nor did he assert that he was required to transmit the IRA distributions to someone else as a trustee or a mere conduit. But he contends that it would be inequitable to hold him solely liable for this tax because he voluntarily shared the proceeds with his siblings, from whom he is unlikely to recover anything. He further contends that he was disadvantaged by what he believes to have been erroneous advice from the law firm that assisted him in settling his father’s estate.” 2015 T. C. Memo. 82, at p. 5.

OK, so post-trial IRS caved, and the erroneous advice saved Elroy from the penalty as aforesaid.

Judge Lauber is less overtly sympathetic than Judge Goeke (as to whom see my blogpost “Good Luck, And Sorry ‘Bout That”, 4/24/15), but he does feel for poor Elroy, the prodigal son.

“Although petitioner acted honorably in executing what he believed to be his father’s wishes, his good conduct has no bearing on whether the IRA distributions were includible in his gross income under the Internal Revenue Code. And whereas the advice he thought he received from the law firm might have affected his liability for the accuracy-related penalty, it is irrelevant in determining the taxable status of the distributions themselves. “ 2015 T. C. Memo. 82, at p. 6.

If you’re getting an IRA and taking a lump-sum, as far as IRS and Tax Court are concerned, you might as well go for the riotous living. Because if you split with your relatives, you know what will happen.

This was the consummation I devoutly wished in my young day. I wanted to sit behind a ten-acre desk in the corner office overlooking Central Park, with my spit-shined Ballys perched upon a corner of said desk, throwing disdainful glances and imprecations at juniors and other lesser mortals, two-Martini lunching at the toniest spots in town, and refusing to attend the annual bloodbath (I mean compensation meeting) because I had already taken 75% of the net profits, leaving the rest for the lackeys to scuffle for.

Fortunately, I never was. And the desire waned rapidly, when I beheld the fates of those who got there.

But David H. Methvin claims he’s both non-working and not even a partner in the eponymous 2015 T. C. Memo. 81, filed 4/27/15.

Judge Kerrigan is busy today handing out T. C. Memos., but not too busy to disabuse Dave of the notion.

Dave has a minuscule working interest in some oil and gas deals (2% to 3%, not more). For more about working interests, see my blogpost “Honor Your Partner”, 8/26/13.

Dave’s operating agreements all said that they weren’t going the subchapter K (partnership) route and that no partnership rules would be followed. And Dave got 1099-MISCs for his income, and a statement of allocable expenses, made a modest profit and paid income tax.

So what’s the skirmish with IRS?

Dave never paid SE, a big $690 for the year at issue. IRS says he’s a partner, so owes SE. Dave says he never participated, couldn’t vote or do anything else. So how is he a partner?

Judge Kerrigan will tell him for a mere sixty bucks.

“‘Net earnings from self-employment’ is generally defined as the gross income derived by an individual from any trade or business carried on by the individual, less allowed deductions attributable to such trade or business, plus his distributable share of income or loss from any trade or business carried on by the partnership of which he is a member. Sec. 1402(a).” 2015 T. C. Memo. 81, at  p. 4.

OK, says Dave, but I wasn’t a partner.

Wrong, says Judge Kerrigan.

“A partnership is broadly defined in the Code as ‘a syndicate, group, pool, joint venture, or other unincorporated organization, through or by means of which any business, financial operation, or venture is carried on, and which is not, within the meaning of this title, a trust or estate or a corporation; and the term “partner” includes a member in such a syndicate, group, pool, joint venture, or organization.’ Sec. 7701(a)(2); see sec 1.1402(a)-2(f), Income Tax Regs. Thus, for Federal tax purposes, the term ‘partnership’ is not limited to the common law meaning of partnership but is broader in scope and includes groups not commonly called partnerships. Sec. 301.7701-1(a)(1) and (2), Proced. & Admin. Regs.” 2015 T. C. Memo. 81, at pp. 4-5.

So mox nix that Dave’s oil and gas buddies didn’t file a 1065 or give him a K-1, or make any of those good Subchapter K elections. And mox nix that Dave wasn’t rousting about or roughnecking or whatever else they do on oil rigs; those who were, were his agents, and what cash he got was his distributive share of the earnings of what they did.

And even if Dave’s piece of the action was minuscule, and even if he couldn’t so much as look at an oil rig, he still had a piece of the action.

Finally, that Dave got by in previous years doesn’t matter; each year stands on its own. Dave is in a joint venture or pool, and that’s enough.

That’s Walter D. Ligman’s story in 2015 T. C. Memo. 79, filed 4/27/15, but now Walt is retired and living on his Railroad Retirement Board benefits. Walt claims he’s disabled and distressed. And his RRB benefits are exempt from IRS levy.

Walt wants a CDP after getting a NITL for the self-reported tax he didn’t pay. But Walt also filed the return for the year in question four years late, and although his representative claims the return was wrong and that Walt doesn’t owe the money it says he owes, the rep never files a 1040X although he had three months to do so, or gave the SO any information in that score.

Judge Kerrigan intones the litany: “A taxpayer may challenge the underlying tax liability during a CDP hearing if he or she did not receive a statutory notice of deficiency for the liability or did not otherwise have the opportunity to dispute the liability. The Court considers an underlying tax liability on review only if the taxpayer properly raised the issue during the CDP hearing. A taxpayer did not properly raise an underlying tax liability if the taxpayer failed to present the settlement officer with any evidence regarding the liability after being given a reasonable time.” 2015 T. C. Memo. 79, at pp. 6-7. (Citations omitted).

So the joust is now over whether the SO should have included Walt’s RRBs in his RCP.

The SO did so, and bounced Walt’s proposed installment agreement. True, Section 6334(a)(6) exempts the RRBs from levy, but Section 6331(h) lets IRS grab 15% thereof.

As my old colleague, a different Walter, says, “The large print giveth, and the small print taketh away.”

But did the SO abuse discretion thereby? No, says Judge Kerrigan. “IRM pt. 5.15.1 (Oct. 2, 2012) instructs IRS collection personnel on how to analyze a taxpayer’s financial condition. It states that “[g]enerally all household income will be used to determine the taxpayer’s ability to pay.” Id. pt. 5.15.1.11.  The IRM does not carve out any exceptions for levy-proof benefits. For example, it instructs that income consists of pensions, including Social Security benefits.  Id. pt. 5.15.1.11(2)(e). Certain Social Security payments, like Railroad benefits, are subject to a maximum 15% levy under the Federal Payment Levy Program. See sec. 6331(h)(2)(B); see also IRM pt. 5.11.7.2.1.1(2)(e), (j) (Aug. 28, 2012).

“Although the IRM does not specifically state that Railroad benefits are included in income, it does not specifically exempt them. The IRM specifically includes other analogous partial or fully levy-proof benefits in the income calculation, such as Social Security benefits. We find that the settlement officer did not act arbitrarily, capriciously, or without sound basis in fact or law by including petitioner’s Railroad benefits to analyze petitioner’s financial condition and calculate his monthly disposable income.” 2015 T. C. Memo. 79, at pp. 9-10.

Takeaway– Don’t let your choo-choo clients get railroaded when you’re preparing a 433-A.

With a Side Trip to China

There’s being obliging, and Judge David Gustafson is that certainly, but there’s also being sympathetic, and here Judge Joseph Robert Goeke shows at the head of the field.

Two Friday off-the-benchers, a day where nary an opinion can be expected from the Olympian (to say nothing of Sinaiatical) Heights of 400 Second Street, NW, from Judge Goeke, offered in contrast to a throw-down from The Great Dissenter, a/k/a The Judge Who Writes Like A Human Being (especially when peeved), s/a/k/a The Old China Hand (explanation to follow) and The Implacable, Irrefragable, Ineluctable, Incomparable, Indefatigable, Incontrovertible Foe of the Partitive Genitive, His Honor Judge Mark V. Holmes.

First batspersons, Little Heritage Enrichment Center, Inc., Docket No. 18355-14SL, filed 4/24/15. The Little Heritors were a wee bit late with their 990 and 944 for the period at issue. Note to motor racing fans: a 944 is not a vintage Porsche, but rather an Employer’s Annual Federal Tax Return.

The Little Heritors claim they’re a 501(c) whatever, and exempt. No, says Judge Goeke, and y’all wisely dropped that claim on brief, because 501(c) whatever exempts you from Subtitle A Income Tax, but not Subtitle B Employment Tax, and never the twain shall cliché. Order, at p. 8.

The Little Heritors didn’t dispute their underlying liabilities or offer any collection alternatives before the SO at the CDP, so they’re nailed. But there was more cliché over the one that was lost and found than over the other ninety-and-nine, as a much more exalted personage remarked.

Judge Goeke: “At the hearing Petitioner’s representative submitted information demonstrating that Petitioner had submitted an offer in compromise to Respondent after the case was docketed, and this offer in compromise was entered into the record at the hearing. We certainly wish Petitioner good fortune with Respondent and we hope the case is resolved via the offer in compromise. However, this offer in compromise is not a defense to the assertions in Respondent’s motion for summary judgment, as it was not submitted for review by Respondent’s settlement officer, and based upon established precedent of this Court, we will not consider information which was not made available to the settlement officer.” Order, at p. 9 (Citation omitted).

Nice touch, Judge.

Next up is Bettye Jean Draper, Docket No. 25951-13, filed 4/24/15, a sad but often-told tale. Bettye Jean, a grandma (and we all love grandmas), gets nailed for claiming a full-time student tax credit for herself and a child dependency on account of grandchild, to neither of which was she entitled, and she admits as much. However, Bettye Jean claims she was deceived by a return preparer who wrote down these fictions and vanished she knoweth not whither.

Alas and alack, says Judge Goeke.

“We’re sympathetic to the Petitioner’s position because we believe that she did not realize that her return preparer had put this information on her return. However, this misinformation on the part of the Petitioner does not relieve her of her obligation to file an accurate federal income tax return, and does not relieve her of her obligation to pay the deficiency, which results from improperly claimed education credits.” Order, at p. 6.

And Judge Goeke’s cup of kindness overfloweth.

“We are not without sympathy to the Petitioner’s plight in relying upon an irresponsible return preparer whom apparently Petitioner is not able to locate at this time. However, the law is clear, the Petitioner is liable for the taxes as determined in the notice of deficiency.” Order, at p. 6.

Now maybe the Registered Tax Return Preparer scheme that Dave Williams and Doug Shulman floated, but DC Circuit wiped out, mightn’t have helped Bettye Jean, because the lowlifes will always dodge, and fly under the radar, but something has to be done.

And only Congress can do it. No further comment.

Finally, the Old China Hand, Judge Holmes. Here he encounters Robert A. Morgan, Docket No. 21778-14, filed 4/24/15. And it’s a designated hitter, because Judge Holmes is obviously peeved.

IRS’s counsel hit Robert A. with a Rule 91(f) “we hold these truths to be self-evident” motion; agree or tell us why you don’t, point by point. Robert A. jumps into the fray, perhaps seeking rounderhood.

Judge Holmes is not amused, and loses it. “Mr. Morgan instead responded with 61 pages of tax-protester blather about public rights, not being a citizen under the Fourteenth Amendment, and even the old U.S. Court for China.” Order, at p. 1 (Footnote omitted, but I’m coming to that). So the facts are stipulated even without Robert A.’s panegyric to whatever. And, at no extra charge, Judge Holmes, clearly fed up, shows Robert A. the Section 6673 yellow card.

Now for the “Old China Hand” sobriquet I add to Judge Holmes’ long line of attributes. Judge Holmes tells us all about the U. S. China Court.

“This was a district court with extraterritorial jurisdiction over Americans living in China. Created in 1906, see Act of June 30, 1906, ch. 3934, 34 Stat. 814 (Creating a United States court of China and prescribing the jurisdiction thereof), Congress abolished it during World War II, see Treaty for the Relinquishment of Extraterritorial Rights in China and the Regulation of Related Matters, U.S.-China, art. I, Jan. 11, 1943, 57 Stat. 767. It has no discernible relevance to this case.” Order, at p. 1, Footnote 1).

Judge Holmes won’t let Robert A. hock him a China (as my grandma would have said).