No, not another reality cops-and-robbers; this is a lengthy circumnavigation of the CA police on-the-job injury compensation and its relationship with Section 104.

No doubt Detective Clarence William Speer was on the disabled list due to job-related sickness or injury. And no doubt CW didn’t get his compensation therefor until he cashed out his accumulated vacation pay and sick pay when he retired, many years later.

CW claimed the cashout, or a substantial portion thereof, was what he accumulated while on the disabled list. He couldn’t come up with numbers despite plenty of time, so Judge Halpern didn’t give him a fourth try (although one continuance was for the birth of a grandchild, with which I am in total sympathy. Let me tell you about my grandchildren…if you have lots of time.).

But CW’s claim that the cashout was nontaxable founders on the fact that the accruals he received were not truly compensation for the time he could not work due to sickness or injury. He cashed out fringes accumulated while disabled. But since the fringes that he cashed out were suspended until after his disability ended, they weren’t support payments to carry him while he was on the DL.

Judge Halpern: “During each of his disability leaves of absence, Mr. Speer received periodic payments of his base salary and he accrued fringe benefits, such as vacation time and sick leave, that would translate into additional payments to him only after his disability leave of absence ended. Indeed, if a covered employee were to forgo the vacation time and the sick leave accrued during a disability leave of absence (as Mr. Speer claims he did), decades might pass until the employee retired and cashed out the forgone benefits. Mr. Speer’s accrual of vacation time and sick leave while on temporary disability leave did not provide him with an immediate benefit that he could use to support himself while on such leave. The fringe benefit represented by the accrual was, thus, fundamentally different from the normal temporary disability allowance payable under the Workers’ Compensation Act and for which the continuation of his base salary under LAAC sec. 4.177 substituted.” 144 T. C. 14, at pp. 12-13.

To be Workers’ Comp, they must compensated the worker while disabled, not years later, or after he ceased to be disabled.

Oh yes, the full citation: Clarence William Speer and Susan M. Speer, 144 T. C. 14, filed 4/16/15.

A new take on an old issue–the delayed request for refund. See my blogpost “Lookback in Anger”, 12/12/11, for background, and then fast-forward to Tax Day, 4/15/15, and Judge Wherry’s hypothetical measurements in Dan E. Butts and Patricia J. Butts, 2015 T. C. Memo. 74, filed 4/15/15.

IRS stipulates that Dan and Pat overpaid for the two years at issue, once Dan and Pat cough up their returns four years after the fact.

But since Dan and Pat never filed returns for those years until the audit, they get the two-year, and not the three-year treatment. In simplest terms, 6512(b)(3)(b) requires the application in the instant case of the two-year lookback period in I.R.C. sec. 6511(b)(2)(B).

Nonfilers get the two-year lookback automatically, because they can’t be on a footing equal to or better than those who did timely file.

You can read Judge Wherry’s deconstruction of the timelines involved (there were separate deficiencies here, one set for Dan and Pat pre-petition, and one for Pat alone, which she separately petitioned, mailed at different times) if you like, but your facts as well as your mileage may vary.

Howbeit, the two-year clock ran before Dan and Pat and Pat alone claimed a refund, and the SFRs that triggered the audit don’t count as timely filed returns. So Dan and Pat are out a refund.

This case has an interesting point aside from timing of refunds.

Dan and Pat, and IRS, stipulated that “the sole issue to be resolved” in this proceeding was entitlement to a refund. IRS reiterated that position in a status report. 2015 T. C. Memo. 74, at pp. 4-5, footnote 3.

So, if Dan and Pat were overwithheld, and IRS agreed they were, no additions for failure to pay tax or failure to pay estimated taxes, right? Right.

But what about failure to file timely? Everyone agrees Dan and Pat didn’t cough up until after the audit had begun, and that was four years late. Sounds like IRS met its burden of production going away.

Yes, but. “If petitioners’ entitlement to a refund is the sole issue left for the Court to resolve, then the sec. 6651(a)(1) addition to tax must have already been resolved between the parties. The SOSI [Stipulation Of Settled Issues] and the parties’ other stipulations leave the nature of that resolution ambiguous: Did petitioners concede the addition to tax, or did respondent? Because respondent drafted the SOSI and petitioners are  unrepresented, we will construe this ambiguity against respondent. See Rink v. Commissioner, 100 T.C. 319, 325 (1993) (construing closing agreement in accordance with contract law principles), aff’d, 47 F.3d 168 (6th Cir. 1995); Stamos v. Commissioner, 87 T.C. 1451, 1455 (1986) (construing stipulation in accordance with contract law principles); Cung v. Commissioner, T.C. Memo. 2013-81, at *6 (construing stipulation of settled issues in accordance with contract law principles); 5 Corbin on Contracts, sec. 24.27 (Rev. ed. 1998) (written contract may be construed against the drafting party for the purpose of resolving ambiguities). Accordingly, we conclude that respondent conceded all additions to tax determined in the notices of deficiency that gave rise to these cases.” 2015 T. C. Memo. 74, at p. 5 (Footnote 3 carried over from p, 4; Judge Wherry must have been on law review, because he loves long footnotes).

I’ve said more than once that one should stipulate but not capitulate. That goes for you, my dear readers, but also for IRS.

Now beware! Very often a contract, or stipulation, will contain language to this effect: “The terms, conditions, and provisions in this [contract][stipulation] set forth are the product of extensive negotiation between the parties hereto. For that reason, no rule, presumption, inference or canon shall arise or control the interpretation of this [contract][stipulation] on account of the identity of the drafter hereof, or the party who procured the drafting hereof.”

Watch it; this may knock out the construe-against-the-drafter rule.

This is a follow-up to my blogpost “The Principle of Dogmatic Assertion”, 1/7/15. When confronted with an argument based on the principle aforementioned, the party thus confronted has a counterstroke: “Where is it written?”

In other words, upon what authority other than your ipse dixit?

Though he may not understand what I am writing, Luis A. Quintero, Docket No. 6539-15, filed 4/14/15, may have that comeback to Ch J Michael B. (“Iron Mike”) Thornton.

Here’s Luis’s story.

“On March 9, 2015, petitioner submitted to the Court a notice of deficiency, which notice was filed as an imperfect petition to commence the instant case. By Order dated March 20, 2015, the Court directed petitioner to file an amended petition. On April 1, 2015, the Court received an amended petition, but it was written entirely in Spanish.” Order, at p. 1.

On no other basis than “premises considered”, Ch J Iron Mike orders that “…, petitioner shall file a proper Amended Petition, written in English only.” Order, at p. 1.

And tells the Clerk to send Luis a blank form, with the caption filled in.

OK, Ch J Iron Mike, what Tax Court Rule, or what Rule in the FRCP, requires all papers to be in the English language? And if there is such an one, why not cite it for the instruction of Luis and others similarly named?

And if English is the required language for income tax dealings, why are IRS forms promulgated in the Spanish language?

There’s been a proposed Constitutional amendment to make English the official language of The Land of the Free floating around for years, going nowhere fast.

So where is it written?

Ellen P. O’Neill echoes the words first sung by Irma Thomas in 1963, but immortalized in an expanded version by the Rolling Stones in 1964. Judge Gerber provides an obbligato in Richard S. Leyh and Ellen P. O’Neill, 2015 T. C. Sum. Op. 27, filed 4/13/15.

Ellen claims real estate pro status, and, having once been audited by IRS, has her logbooks at the ready. IRS checks them out and concedes Ellen materially participates in managing and operating the dozen houses she own, but claims she’s light on hours, as her logbooks don’t show her travel times between her ranch in Dripping Springs, TX (wherever that is), whereat she resides, and the several properties whereat she participates, between 26 and 30 miles away in and around Austin City Limits. Depending upon what route she takes and the state of Texas traffic (to which I can testify from my own knowledge ranges from the brutal to the unspeakable), it might take her between 42 to 55 minutes.

Ellen is not only a real estate pro, she is a top-fuel leadfoot.

Her logbooks convince IRS she would be a pro, but her travel time is not included, so she’s 117.5 hours shy of the magic 750. And when Ellen tries to fill in the missing time, IRS says “no, post-event ballpark guesstimates don’t cut it.”

Ellen’s revisions were as follows: “Petitioner’s methodology in revising the log was to determine whether the activity for any day reflected in the log took place in Austin or near her residence in Dripping Springs. For each occasion where the activity occurred in Austin, she computed a 45-minute trip or 1-1/2 hours round trip for that day. For example, on a particular day that reflected only 1-1/2 hours involved in the activity in Austin, petitioner added 1-1/2 hours for the travel to Austin from her home in Dripping Springs, for a total of three hours engaged in the activity for that day.” 2015 T. C. Sum. Op. 25, at p. 5.

Ellen even made the treat-‘em-all-as-one election for the dozen rentals.

OK, let’s look at Reg. 1.469-5T(f)(4), the substantiation rock upon which many wannabe real estate pros founder. The magic words are “The extent of an individual’s participation in an activity may be established by any reasonable means. Contemporaneous daily time reports, logs, or similar documents are not required if the extent of such participation may be established by other reasonable means. Reasonable means for purposes of this paragraph may include but are not limited to the identification of services performed over a period of time and the approximate number of hours spent performing such services during such period, based on appointment books, calendars, or narrative summaries.” 2015 T. C. Sum. Op. 25, at p. 8.

And the greatest of these is “any reasonable means.”

Ellen gets on the stand, and her testimony is reminiscent of certain fluids one might find in the little town of Shiner, TX.

“Petitioner testified and had clear and crisp recall of the activity reflected on the log and was easily able to identify those occasions when the activity occurred in Austin. Respondent’s counsel crossexamined petitioner but was able to show only a few minor discrepancies that petitioner admitted were in error. Altogether, petitioner has shown that she spent more than 750 hours engaged in the rental real estate activity during 2010.” 2015 T. C. Sum. Op. 25, at p. 9.

IRS’s counsel trots out all the unsubstantiated hours T. C. Memos. they can find, and there are a bushelbasketful.

But none of the shot-down petitioners came close to “clear and crisp” Ellen.

“Those cases did not involve a detailed contemporaneous log such as the one petitioner maintained. Petitioner provided day-by-day explanations of the specific rental real estate activity in her log. Further, from the log it was easy to identify days when the activity took place in Austin. Finally, petitioner has shown that the travel time was not included in the original log. Petitioner’s log and her revised log showing the travel time are well within the guidelines of section 1.469- 5T(f)(4), Temporary Income Tax Regs., supra.” 2015 T. C. Sum. Op. 25, at p. 9.

Ellen wins. I’m sure she can celebrate with something clear and crisp.

And you, gentle reader, make sure your wannabe real estate pros diary mileage and travel time.

As I conclude my holiday visit to my nearest and dearest here in The Lone Star State, I hum the June Hershey-Don Swander ballade that spent five weeks atop The Hit Parade in my natal year. And Judge Laro has composed a coda thereto, on this rainy Friday when there are neither opinions nor designated hitters bursting from the glassy gates at 400 Second Street, NW.

And it’s more about Richard H. Cullifer, Transferee, Docket No. 20177-11, filed 4/10/15.

You’ll doubtless remember Cullifer’s Travails. What, no? Well, refresh your recollection with my blogpost so entitled.

Poor ol’ Cullifer got et, as they say here in East Texas. So now he’s in a Rule 155 beancount with IRS, and the parties seem to have gotten their numbers together, save on one point.

Judge Laro: “In his… Computation for Entry of Decision, petitioner asserts that respondent is not entitled to collect prejudgment interest from petitioner under Texas state law. Respondent does not address this issue in his calculations.” Order, at p. 1.

“Prejudge not, lest ye be prejudged,” as a much more exalted personage remarked never. Or so Cullifer would have Judge Laro rule.

Of course, the questions immediately coming to mind are (1) what, if anything, has Texas State law to do with transferee prejudgment interest on Federal income tax? and (2) If Texas State law is controlling on this point, what exactly is tort-reforming Texas State law?

Judge Laro isn’t going to do anybody’s homework for them, so “…the parties shall each file with this Court a Memorandum in Support of Computation of no more than 10 pages, briefing the Court on the issue of whether respondent is entitled to prejudgment interest from petitioner in this case. To the extent that the prejudgment interest issue is a matter to be decided in equity, the parties shall brief the Court, within the pages allotted, on whether respondent is entitled to collect prejudgment interest from petitioner in equity.” Order, at p. 1.

And they each have two weeks to do it.

This is not about interest on income tax directly owed by Cullifer. Cullifer only owes because he was allegedly bamboozled by our old chums Mid-Coast Financial. But Section 6901(a) seems to put transferees into the ankle-strappys of transferors, so it’s interest from the date the liability was incurred, regardless if by transferor or transferee, no?

Cain’t hardly wait for Judge Laro’s answer.

No, not the one masterpiece of the relatively unsung French documentary filmmaker Pierre-Dominique Gaisseau. We’re far from New Guinea; we’re in Missouri, Michigan, Virginia, Illinois, and Oregon (or rather, only in Michigan) with Matthew L. Cutler and Shannon W. Cutler, 2015 T. C. Memo. 73, filed 4/9/15, and with Ch J Michael B. (“Iron Mike”) Thornton.

And Matt’s firm’s cross-bordering law practice, though incurring withholding for non-resident State income taxes, aren’t Schedule C above-the-line business deductions (the sky above), but rather below-the-line Schedule A types (the mud below).

And below is definitely mud, as one’s AGI rises, triggering any number of phase-outs, increases in SE and AMIT, and other outcomes best unenumerated. I don’t want to cause anyone discomfort.

Matt’s story is simple. His law firm (“HDP”), of which he is a principal, operates in each of the States above-stated, although he ventures not in any professional or business capacity outside the Wolverine State. The various taxing authorities, however, nail Mike for non-resident income tax, based upon the taxation of his firm’s (a Michigan professional limited liability company taxed as a partnership) activities within each such State.

Mike deducted his share of the non-resident taxes (here we’re concerned with Virginia’s) as business expenses on his Schedule C. “Right church, wrong pew”, says IRS, it’s Schedule A; and by the way, your AMIT and SE just went up.

Mike claims the withholding regime enacted by VA for the latter two years at issue make the taxes deductible on Schedule C, as imposed upon the partnership, and thus connected to his business. The partnership must withhold Mike’s tax or pay the tax itself, a course that would hardly endear Mike to his partners.

“Petitioners argue that Virginia expressly imposes a withholding tax on HDP that is separate from the income tax that Virginia imposes on HDP’s nonresident principals. The Virginia withholding tax statute provides that a partnership must pay a withholding tax for the privilege of doing business in Virginia. See id. sec. 58.1-486.2(A). Petitioners contend that a separate Virginia statute regarding the taxation of partnerships makes clear that the withholding tax is imposed on the partnership itself. See id. sec. 58.1-390.2. Reading these statutes together, petitioners argue, makes clear that the 2008 and 2009 Virginia taxes are entity-level taxes imposed directly on HDP. We are not convinced.” 2015 T. C. Memo. 73, at pp. 8-9.

VA is no different from Section 3402 withholding on wages. There is one tax, but more than one person from whom to collect it, namely, viz., and to wit, the employer and the employee.

If collected from the employer, that doesn’t make the taxes into business deductions as opposed to personal deductions for the employee.

Mike argues that, like the celebrated dog in the night-time, he did nothing in VA business-wise; never practiced there, saw a client there, or worked on a matter for any client there. Whatever HDP did there, he himself had no nexus with VA, and taxing him personally would be unconstitutional.

Ch J Iron Mike doesn’t mention International Shoe v. State of Washington, 326 U.S. 310 (1945), but I’ll bet Matt (or his counsel) did.

That doesn’t help Mike any more than a VA Circuit Court (Richmond City) decision. Ch J Iron Mike sneers “We are not bound by this unpublished lower court State decision. In any event, we find it inapposite.” 2015 T. C. Memo. 73, at p. 11. (Citation omitted).

I give Matt’s counsel a Taishoff “good try”, first class, for rooting out the case, and standing up for the old Commonwealth.

But the VA case concerned a partner with no management or control over the VA activities of the partnership. Matt never introduced the operating agreement of his outfit, and the MI default in their LLC law is any partner can do it all anywhere. Matt has nexus with VA.

Might want to consider an appeal on that point, ya think? Does what he could do bind him when he didn’t do it?

Matt claims the VA tax is imposed on the gross VA income, not the net, but Ch J Iron Mike reads the statute, and that isn’t what it says.

So Matt falls from the sky above, into the mud below.

Fifth Circuit reverses Tax Court, holding that Section 965 related-party indebtedness must exist before it can torpedo a Rev. Proc. 99-32 accounts receivable deal. And in this case, it didn’t. BMC Software Inc. v. Com’r., No. 13–60684, 3/15/15.

And thanks to a certain Director at a Big Four accounting firm for bringing this case to my attention; and even more thanks for the Laphroaig.

Confused? See my blogpost “Stipulate, Don’t Capitulate – Redivivus”, 9/19/13, the story of BMC Software Inc.

BMC settled a Section 482 transfer pricing jumpball with IRS, and agreed to a return of monies from its overseas tax-dodging subsidiary. But to square the books with the cash, BMC, relying on Rev. Proc. 99-32, treated the cash return to the Land of the Free as an account receivable from the sub, with interest payable, rather than as a capital contribution to the sub.

Came Section 965, whereby a beneficent Congress allowed repatriation free of charge to parkers of cash in tax havens.

BMC hauled back a large amount of offshore diñero, but IRS claimed the accounts receivable created per Rev. Proc. 99-32 was related-party indebtedness, and thus taboo.

The related-party indebtedness bar was enacted to prevent “round-tripping”, where the US parent lent the offshore sub the money to send back, effectively keeping the cash offshore.

BMC claimed they had no such intent, but IRS said that didn’t matter. Fifth Circuit doesn’t rule on this.

Fifth Circuit said that the indebtedness was entered into before the test period for round-tripping began, thus didn’t exist when the test was on.

Fifth Circuit: “In sum, the plain language of § 965(b)(3) does not ask, ‘To be or not to be?’ It instead asks, ‘To have been or not to have been?’ And the answer to this question is clear: ‘as of’ March 31, 2006, the accounts receivable did not exist. Therefore, § 965(b)(3), by its plain language, cannot sustain the judgment of the tax court.”

Likewise, the agreement between BMC and IRS dealt extensively with tax consequences, and all IRS has is the boilerplate in all its agreements “for federal income tax purposes”. On basic contract interpretation, Fifth Circuit makes short work of IRS’s argument. IRS’s boilerplate would render much of the agreement surplusage, and stating the specific trumps the general.

BMC wins.

Yet another T. C. Memo. today from that inveterate rounder, Alvin Sheldon Yanofsky, but I’m not wasting time on his latest $20K frivolity chop.

No, I’m remembering the winning sentence from the brief of my former law partner Woody: “It takes more than a New York State of mind” to establish New York primary residency.

And that comment furnishes my headline for today’s blogpost, Barry P. Cooper, Petitioner, and The Government Of The United States Virgin Islands, Intervenor, 2015 T. C. Memo. 72, filed 4/8/15, with Barry’s wife Sandra G. joining in the fun. This is another of the employee-leasing games played in the early years of this millennium. I’ve blogged a number of these and His Honor Big Julie, a/k/a Judge Julian I. Jacobs, hereinafter referred to as HHBJJJIJ, cites them all.

Barry and Sandy are targets of IRS’s claim that their VI residency is a hoax and that they’ve transgressed the strictures of Notice 2004-45, Meritless Position Based on Sections 932(c)(4) and 934(b), by pretending to reside in our Insolvent but Beautiful Islands in the Sun.

The status of the islands aforesaid is adumbrated by HHBJJJIJ as follows: “The Virgin Islands, although a part of the United States, are a separate and distinct taxing jurisdiction. The territory is classified as an unincorporated territory by 48 U.S.C. sec. 1541(a) (2006), is not part of one of the 50 States or the District of Columbia, and generally is not a part of the United States for tax purposes. See sec. 7701(a)(9).” 2105 T. C. Memo. 72, at p. 11.

To harmonize the taxation of said island paradise with the rest of us, Congress enacted statutes and IRS made deals, so we’re stuck with Section 932 et seq. and the regulations promulgated thereunder, and whatever agreements Treasury made with the Islanders.

Barry and Sandy claim they believed in good faith that they were Virgins (Islanders), and therefore filed with VIBIR (Virgin Islands Bureau of Internal Revenue) as good Virgins (Islanders) must do, long before IRS descended upon them, and therefore SOL has run. No one claims fraud, only nonfiling with IRS.

The VI Government, ever mindful of its privileged tax status and eager to grab whatever isn’t grappled to the USA with hoops of steel, avers thus: “Here, no specific facts demonstrate petitioners’ residency status in the Virgin Islands for 2002 and 2003. Rather, petitioners assert that we must accept as a matter of law that they were bona fide residents of the Virgin Islands during 2002 and 2003 because of their purported good faith belief. Intervenor expands on petitioners’ assertion, maintaining that section 932(c) requires every individual with Virgin Islands source income to make an initial determination as to whether he/she is a U.S. or Virgin Islands resident. Intervenor posits that if the individual determines that he/she is a Virgin Islands resident and in good faith files with the VIBIR, the IRS must either accept that determination or challenge it within the three-year period of limitations. Intervenor concludes that in these cases the IRS’ failure to challenge petitioners’ filing with the VIBIR within three years of the filing of the income tax returns time bars the IRS’ issuance of a notice of deficiency.” 2105 T. C. Memo. 72, at pp. 21-22.

“Not unexpectedly, the IRS disagrees.” 2105 T. C. Memo 72, at p. 22.

You can see where this is going, namely, viz., and to wit, to trial. The VI guvmit claims that to require Barry and Sandy to prove they’re bona fide Virgins (Islanders) means they have to win their case on trial, vitiating the SOL argument.

HHBJJJIJ says no, SOL is an affirmative defense that needs to be both pled and proven. If proven, nothing else to try. But if Barry and Sandy can’t satisfy the criteria set forth in la famille Vento, Appleton and the late Sanders, all of whose safaris through Tax Court and the CCA I have recounted, then no SOL.

So Barry and Sandy must defend their Virginities. And a Virgin (Islands) state of mind is insufficient.

I hesitated to blog Saad Al-Soufi and Samia Schreitah, 2015 T. C. Memo. 68, filed 4/7/15. It’s a totally unsubstantiated mortgage interest deduction. The excuse, though, is timely. And the grounds for Judge Lauber’s incredulity provides a warning to all who “seken straunge strondes, To ferne halwes couth in sondry londes”, as Geoff Chaucer put it in April, 1387.

Jumping ahead to 2009, Saad Al-Soufi (hereinafter sometimes referred to as “SAS”), an MBA who has lived thirty years in the USA but who has dual citizenship, buys (or maybe his kinfolk buy) a property overlooking the port of Latakia, Syria, SAS’s homeland.

I’ve never been to Latakia, but it holds memories. It is (or was) the home of the famous smoky black tobacco that gave a real kick to Balkan Sobranie pipe tobacco in my misspent youth. I can feel my lungs contract at the very mention of the place, and a hacking cough follow. Such is the power of memory.

Anyway, SAS supposedly acquires his kingdom-by-the-sea, and mortgages it with a local outfit, now out of business, to whom he allegedly pays $79K in deductible interest for the year at issue.

SAS visits the place a couple of times but can’t prove the 14-day cutoff of Section 280A, or what the mortgage terms were, or even show a deed. He never copied the papers while he was there; his sister kept them, and then came the ongoing civil war, of which we’ve read so much.

The papers, says SAS, was amongst the casualties.

You can guess the rest. SAS produces a letter, prepared after audit and before trial, by a purported officer of the out-of-business lender, that states the amount of interest paid in US dollars, not Syrian pounds. And nothing else.

This goes over like a lead cliché.

Judge Lauber notes in passing that Sharia law, presumably applicable in Syria, bars taking or paying of interest.

“Because the mortgage interest deduction was properly disallowed for lack of substantiation, we need not address questions that might arise concerning the general prohibition against the payment of interest under Sharia law, the extent to which this prohibition is operative in Syria (petitioner’s testimony was opaque on this point), or the relevance of these considerations to the proper Federal tax treatment. See In re Terrorist Attacks on September 11, 2001, 689 F. Supp. 2d 552, 557 (S.D.N.Y. 2010) (‘[T]he body of Islamic law known as Sharia * * * prohibits the payment or earning of interest[.]’).” 2015 T. C. Memo. 68, at p. 10, footnote 2.

I won’t speculate whether a form of evasive action, known to New York practitioners as a stare iska or heter iska, might have developed across an international and interreligious border or two.

The sting comes with the penalty.

“Petitioners had no credible evidence to support their claimed mortgage interest deduction. Petitioner has an M.B.A. in financial management and testified that he understood his tax filing requirements. But he failed to maintain in the United States any of the documents necessary to substantiate his claim to a deduction in excess of $70,000. He traveled to Syria twice but failed to make copies of the documents before they were allegedly destroyed. Even if the documents existed and were admitted into evidence, it is by no means clear that petitioners would be entitled to the deduction they claimed.” 2015 T. C. Memo. 68, at p. 11.

But still, it might have been better if SAS had them, or copies.

So remember, overseas homeowners, don’t leave home without them.

That’s Judge Swift’s take on a favorite tactic of mine, summary judgment; see my blogpost “Summary Judgment – a Causerie”, 3/13/14. Though I’m a fan, I agree that, where there’s a real issue of fact, summary J is not a substitute for a trial.

And Judge Swift has one in Barry Knudsen, 2015 T. C. Memo. 69, filed 4/7/15.

Barry, a longtime nonfiler, claimed he never got the SNODs for his two SFR years. IRS claims they went by certified mail, and at Appeals the SO found a USPS Track-and-Confirm for one, but the other is off the USPS system because of age. And the Track and Confirm the SO got only shows delivery in the town and zipcode, which is all Track and Confirm ever shows, but Judge Swift seems to think that is insufficient. He might want to discuss my blogpost “On The Right Track”, 12/31/14, with Judge Holmes.

The SO, an enterprising type, found PS3877s for both, but they suffer from the same problems endemic to that form. One didn’t have the USPS employee’s manual signature (only a stamp) and didn’t list the number of pieces actually received, only the number tendered. The other wasn’t stamped or signed by a USPS employee, and didn’t state they were SNODs or for what year.

Appeals gave Barry a hearing on underlying liability when he petitioned the NITL he got, conceding Barry didn’t have a prior chance. Barry did nothing, NOD issues, Barry petitions saying he never got the SNODs, so levy invalid.

Judge Swift says: “On remand respondent clearly gave petitioner an opportunity to challenge the amounts of his underlying tax liabilities as respondent had determined them. Petitioner repeatedly chose not to provide respondent with any income or expense information and not to submit to respondent tax returns …. If that were the question before us now, we would not hesitate to grant summary judgment in respondent’s favor.” 2105 T. C. Memo. 69, at pp. 12-13.

But it isn’t.

“However, the key issue before us at this stage, which has been repeatedly raised by petitioner, is whether respondent ever mailed to petitioner the notices of deficiency on which respondent’s tax assessments and proposed levy are based. This is a question that involves not the amounts of petitioner’s underlying tax liabilities but rather the legality of the assessments made against him. As explained, this issue has been repeatedly raised by petitioner and is inherent in the verification requirement of section 6330(c)(1); i.e., it is an issue raised by statute in every CDP case.” 2015 T. C. Memo. 69, at p. 13. (Citation omitted).

And defective PS3877s don’t cut it. There’s much caselaw to that effect, and I’ve gone over it elsewhere. If, however, you want material for a memo of law, here’s Judge Swift.

“The U.S. Court of Appeals for the Second Circuit has held that a failure to indicate the number of pieces of mail received by the U.S. Postal Service and the absence of a signature by the receiving U.S. Postal Service post office employee, both of which defects are present in this case, render a PS Form 3877 improperly completed. See O’Rourke v. United States, 587 F.3d 537, 541 (2d Cir. 2009). This holding is consistent with this Court’s holdings in similar instances. See, e.g., Coleman v. Commissioner, 94 T.C. at 92; Massie v. Commissioner, T.C. Memo. 1995-173, aff’d without published opinion, 82 F.3d 423 (9th Cir. 1996); Wheat v. Commissioner, T.C. Memo. 1992-268.” 2015 T. C. Memo. 69, at p. 16.

So is Barry off the hook, owing nothing for those years, as he claims?

Negatory, good buddy.

“Petitioner has raised a factual issue concerning respondent’s mailing to him of the notices of deficiency, and respondent has failed adequately to address this issue. Summary judgment is not a substitute for a trial and is not to be used to resolve disputes over factual issues. Viewing the alleged facts in the light most favorable to petitioner, we conclude respondent has not sufficiently established that summary judgment is warranted. A trial will be necessary concerning respondent’s alleged mailing of the notices of deficiency to petitioner.” 2015 T. C. Memo. 69, at pp. 16-17.

However, neither should IRS rend their garments in mourning.

“…at trial the defects in the PS Forms 3877 do not necessarily preclude a decision in favor of respondent with respect to the proper mailing of the notices of deficiency. Our ultimate decision on this issue will depend on the credibility and persuasiveness of what petitioner and respondent offer into evidence at trial.” 2015 T. C. Memo. 69, at p. 17. (Citation omitted).

Takeaway–I never trust PS3877s; most of them are worthless. Spend the extra, and mail certified with track-and-confirm, despite Judge Swift’s reservations.