Archive for May, 2015|Monthly archive page


In Uncategorized on 05/22/2015 at 13:26

No, not the Deborah Kerr-Cary Grant 1957 extravaganza, rather the US Tax Court Judicial Conference, coming to a close on a beautiful afternoon in The Old North State. See my blogpost “Can We Talk?”, 9/22/14, for further particulars.

So, although the Tax Court website is bereft of scintillating opinions and orders (because so many of the judges are here, diffusing wisdom to us hard-laboring peasants), it’s a great day as the conference closes. I really wish for a repeat performance sooner than seven years from now.

So to round out this somewhat dry blogpost, here’s The Taishoff Aquatic Center.DA SIGN

And no, I didn’t pay for it.


In Uncategorized on 05/21/2015 at 18:29

I had hoped for unparalleled blogfodder from the US Tax Court Judicial Conference, the first such reiteration of Camelot in seven years.

There’s so much, but it’s all off-the-record.

I’m overjoyed but frustrated.

Tax Court counsel’s tale of her explication of one of my blogposts to a Judge befogged by same is priceless, but my lips (and two-fingered typing) are forever sealed.

And all I can recount here is that I laughed with Judge Holmes, but the substance of our conversation must remain buried even deeper than Deep Background.

STJ Lewis (“That Magnificent Name”) Carluzzo and I both got the spelling of our shared name for the same reason, but the story must remain untold.

And Judge Wherry was very unwhimsical, although he appreciated my appreciation of a certain opinion of his; but his remarks I cannot repeat here.

Sorry, everybody, I know this is self-indulgent; I am no fan of name-droppers who allege they hobnob with the famous or prominent, but say nothing about their hobnobbery. And such of them who do tell tales I like even less.

Now off to dinner and the speech by Justice Scalia.

I promise, blogposts like this will only happen once every seven years.


In Uncategorized on 05/21/2015 at 15:02

Sitting in Room 3041 at the Duke University Escuela de la Ley, I am receiving wisdom from Judge Ruwe and STJ Lewis (“His Name Says It All, Spelled Correctly”) Carluzzo on the point of privileged communications.

How appropriate is Judge Lauber’s (not present today, but present in spirit)  order in Pacific Management Group, BSC Leasing, Inc., Tax Matters Partner, et al., filed 5/21/15, with forty (count ‘em, forty) docket numbers, so try 21965-13 for a starter.

The facts are simple enough.

“Petitioners include four companies that provide engineering services. In 1999 petitioners’ common shareholders met with Ernest Ryder, an attorney, who described an arrangement designed to minimize their Federal income taxes. Petitioners eventually hired Mr. Ryder to implement this structure. Respondent contends (among other things) that this structure lacked economic substance.” Order, at p. 2.

The CA Franchise Tax Board grabbed Mr. Ryder’s ESI, Ryder claimed some of it was privileged, and these were reviewed by a CA Special Master, and some were privileged and sealed, but some weren’t. And the one that wasn’t is at issue now, because now Ryder’s firm wakes up to the material they didn’t protect.

Meanwhile, IRS was after Ryder, claiming he was promoting tax shelters. So IRS subpoenaed the material CFTB seized from Ryder. Petitioners claim IRS is making an end-run around Tax Court discovery rules, but that doesn’t fly. “Generally, where litigation in this Court has commenced, and the IRS later obtains relevant information by issuing an administrative summons with respect to a different taxpayer or a different tax period, we do not regard the IRS as having obtained that information in defiance of our discovery rules, and we do not exclude it from evidence.” Order, at p. 3, footnote 1.

Some of the unclaimed documents turned up in depositions, and although petitioners’ attorneys made reference to privilege, Judge Lauber finds privilege never got fully asserted. “…neither Mr. Ryder’s attorney, nor petitioners, nor Mr. Ryder have made any effort to ‘claw back’ the allegedly-privileged documents. Neither Mr. Ryder nor petitioners have gone to the District Court …, or to seek, in any forum, return of any materials that the District Court ordered to be turned over to the IRS.” Order, at p. 6.

Of course, petitioners claim good-faith reliance to avoid penalties, and that’s a killer. See my blogpost “Everything Has An End,” 10/10/12.

Read the order, and you’ll have a start on what we are hearing this afternoon. You’ll have missed a good talk, but saved some money.


In Uncategorized on 05/20/2015 at 22:41

The Second

Victor Dulay Cabradilla, Docket No. 10154-14S, filed 5/20/15, has a problem. He’s supporting his three little ones, but they’re at home among the islands formerly known as and by the name Ladrones, but now the Republic of the Philippines.

He and ex-spouse Imelda own the house wherein the children reside, but ex-spouse’s sister cares for them, as Vic and Imelda can’t.

Vic claims HOH, dependency credit, and EITC (the Big Three), as to two of the three children (the “girls”). Imelda testifies Vic paid her more than half the children’s support and she remitted the whole amount to sister, she never took the dependency credit or EITC, and, since Vic paid, he should get it all.

IRS says “no” to all, and slugs Vic with a 6662(a) accuracy chop.

Judge Goeke gives Vic a one-third slice in this off-the-bencher: “We believe, because the girls did not reside with the Petitioner in 2010, they would not qualify as qualifying children under section 152(c). So we now turn to whether the girls would be eligible as dependents to the Petitioner pursuant to the qualifying relative requirements in section 152(d). Clearly, the girls meet the requirements of section 152(d)(1)(A) regarding their relationship to the taxpayer. And there’s no dispute that the girls did not have gross income such that they would be ineligible as dependents, pursuant to section 152(d)(1) (B).

“We previously found as fact that the Petitioner provided over one half of their support, which means that they qualify pursuant to section 152(d)(1)(C). They were not claimed as dependent by anyone else such that there’s no other impediment in section 152(d)(1) to them being qualifying relatives of the Petitioner. And as previously stated, they meet the relationship requirement.” Order, at p. 6.

HOH is out because the girls did not reside with Vic. And EITC for the girls is out, because, per Section 32, they did not live more than half the year in the US of A. And so is the Section 6662(a) chop, because Vic acted in good faith.

But Vic might get the EITC for his own self, so Judge Goeke sends him off to a Rule 155 beancount to reckon that up.

Takeaway– Your clients’ at home abroad relatives might get them a dependency credit. But, as Davy Crockett remarked, “Make sure you’re right, then go ahead.”

Off-topic–Sorry for the lateness of this blogpost. The US Tax Court Judicial Conference reception this evening was something I will always remember. And it was all off the record.


In Uncategorized on 05/20/2015 at 17:10

Yes, I know it’s way too early in the baseball season, so this is a different all-star break. The US Tax Court Judicial Conference opens tomorrow, and a star-studded cast of judicial talent is onboard to edify us groundlings, and lead us into the right pathways.

One of the lead-off batters tomorrow morning is CSTJ Peter Panuthos, who today unhorses Whistleblower Bohdan Senyszyn, Docket 14706-13W, filed 5/20/15, a designated vorspeise.

Bo is peeved his whistleblowing got the usual “we didn’t use your info and didn’t collect a dime” from the Ogden Sunseteers. Bo claims his erstwhile partner (hereinafter known as “5”) took bogus deductions, didn’t report income or pay over withholding trust funds.

IRS said they sent their sleuths, and 5 got a “no change.”

OK, no biggie.

But beware, oh wannabe whistleblower; make sure that the one you seek to torpedo can’t depthcharge you.

While checking out 5’s alleged delictions, “(T)he Agent learned that the taxpayer was working with CID agents and assisted in the incarceration of the whistleblower.” Order, at p. 2.

Y’all can see where this is going.

IRS’s SME (subject matter expert) memorializes his debriefing of Bo delicately but firmly. “…‘Subject has a substantial Net Operating Loss [NOL] Carry Forward to offset any proposed additional tax liability ….’ Regarding petitioner’s motives in pursuing his whistleblower claim, the SME wrote, ‘It appears that the WB [whistleblower) is trying to get the IRS involved in a personal matter that is best resolved by the court system. It also appears to the SME that the WB (a former IRS G/M in LB&I) is attempting to use his knowledge of the ‘system’ to have the resources of the ‘Service’ set upon his partner for his (WB) pleading guilty and serving time in prison. Therefore, as set forth in the above paragraphs, the SME recommends that no further actions be taken by the SB/SE Examination.” Order, at p. 2.

Note- G/M means “Group Manager” and LB&I is Large Business and International.

Oh, and the Revenue Agent on the audit concluded that 5 wasn’t savvy enough to concoct a good tax fiddle without Bo’s insider knowledge.

After Bo has offered himself up on toast, CSTJ Panuthos deconstructs all of Bo’s contentions thus: “As discussed above, collection of proceeds upon which an award can be based is a prerequisite for a whistleblower award. Respondent did not collect any proceeds, and petitioner’s disagreements do not dispute that fact.” Order, at p. 5.

Summary J for IRS.

Sorry Bo, I can’t give ya a Taishoff “good try;” you didn’t clear your flanks before you attacked. Bad strategy.


In Uncategorized on 05/19/2015 at 16:28

No, this is not a religious tract. No politicking or preaching on this blog. Today we discuss what it takes to convert one’s formerly personal residence to property held for production of income.

Or rather Judge Buch does, and he’s talking to Robert I. Redisch and Pamela A. Redisch, in 2015 T. C. Memo. 95, filed 5/19/15,

Rob and Pam had a FL on-the-beach condo they used in the summer, but vacated when their daughter died.

They did leave some furniture and stuff, so that the place would show decently, and hired some local brokers to rent the place before they sold it.

But no serious renters showed, and the brokers didn’t exactly slaughter themselves with their efforts to rent the place.

Finally, Rob and Pam took some business-type deductions and then sold at a loss (which they claimed was ordinary). IRS hit Rob and Pam with a SNOD.

Judge Buch takes it from there. “After concessions by both parties, the only issues remaining are whether the … property was converted to a property held for the production of income such that Schedule E deductions are allowable, whether the Redisches are entitled to an ordinary loss deduction on the sale of the … property, and whether the Redisches are liable for accuracy-related penalties under section 6662(a).” 2015 T. C. Memo. 95, at p. 7.

So let’s go down the checklist. “In the case of a converted residence, the Court often looks to five factors to determine the taxpayer’s intent: ‘(1) the length of time the house was occupied by the individual as his residence before placing it on the market for sale; (2) whether the individual permanently abandoned all further personal use of the house; (3) the character of the property (recreational or otherwise); (4) offers to rent; and (5) offers to sell.’ No one factor is determinative, and we consider all of the facts and circumstances.” 2015 T. C. Memo. 95, at pp. 9-10. (Footnotes omitted).

Rob and Pam don’t convert, on third down or otherwise.

Rob and Pam used the condo for personal use for four years before the claimed conversion. “Although Mr. Redisch testified that he signed a one-year agreement with a realty company to rent the … property, he did not provide any other evidence of such an agreement. Even if the Redisches had produced the contract, Mr. Redisch stated that the efforts of the realty company to rent out the … property were limited to featuring it in a portfolio kept in the [management] company’s office and telling prospective buyers that it was available when showing it as a model. It is unsurprising that this minimal effort yielded only minimal interest. Mr. Redisch did not testify regarding any other tactics that he attempted to employ to rent out the … property other than getting a new real estate agent. Mr. Redisch also did not provide any evidence, beyond a copy of a multiple listing service listing of the … property, of the actions taken by the second agent to rent out the home. Accordingly, we find that the Redisches did not make a bona fide attempt to rent out the … property and therefore did not convert it to one held for the production of income. Consequently, the Redisches are not entitled to deductions under section 212 or a loss deduction under section 165 relating to the … property. “ 2015 T. C. Memo. 95, at p. 11.

Rob and Pam claimed they used a paid preparer to do the returns in question, but what they told the preparer and the preparer’s credentials never make it into the record.

Looks like a substantial understatement chop is on the way.


In Uncategorized on 05/19/2015 at 16:04

And of whom else might I be speaking but The Great Dissenter, a/k/a The Judge Who Writes Like a Human Being, s/a/k/a The Illustrious, Irrepressible, Indefatigable, Industrious, Impressive and Invincible Foe of the Partitive Genitive, and Old China Hand, Judge Mark V. Holmes?

Here’s an example.

Billy Joe Shurden, Docket No. 28097-13, filed 5/19/15, presents a case that raises interesting legal issues for Judge Holmes.

“The Court has received a pretrial memorandum from the IRS, but it does not discuss the issues of the scope of review (this means what the Court should look at) or the standard of review (this means how the Court should look at what the IRS did).

“In collection due process cases, these issues have been the subject of debate.

“The Court will expect the IRS’s lawyer (and certainly invites Mr. Shurden) to discuss these issues at calendar call. It specifically asks him to be prepared to present the IRS’s position (i.e., he should consider seeking National Office advice) on the questions of whether the Court should examine the IRS’s determination in an interest-abatement case for abuse of discretion or de novo, and of whether the Court’s review should be limited to the adminstrative [sic] record or should be a trial de novo. If this case actually presents these issues, the Court will consider any suggestions for motion practice at calendar call.” Order, at pp. 1-2. (Citations omitted).

So, IRS, put the administrative record together, let Billy Joe check it out, and, if y’all agree that what should be there is there, then stip it in.

Does anyone seriously think self-represented Billy Joe understood Word One of the foregoing?

Now Judge Holmes shines forth.

“The Court suspects that Mr. Shurden is not a lawyer, and that this order may not be comprehensible to a nonlawyer. It promises to explain these unforeseen parts of the case to Mr. Shurden at calendar call in plain English. It encourages him to call the Court to arrange a phone call to discuss them even before calendar call if he wishes to do so.” Order, at p. 2.

I’d love to listen in on that phonecall.

And I’m sorry Judge Holmes won’t be at the Tax Court Judicial Conference tomorrow. He sounds like a great guy to have a drink with.

Follow-up: Judge Holmes was there, and while we didn’t have that drink, we had a great conversation–all off the record.


In Uncategorized on 05/18/2015 at 15:10

This political lament has been oftentimes moaned abroad, but today we see two examples of judicial activism that get the attorneys focused.

First up, Judge Laro, for the June 1 Calendar Call on that Outlying Island off the Coast of North America, whereon I reside and at which I will eagerly attend.

And Judge Laro wants to concentrate the minds of counsel wonderfully in Guidant LLC f. k. a. Guidant Corporation, and Subsidiaries, et al., filed 5/18/15, with a bushelbasketful of Docket Nos., but you can use 5989-11 for short.

Guidant claims IRS’s eight (count ‘em, eight) notices of deficiency are arbitrary, capricious and unreasonable.

Judge Laro encapsulates the various contentious contentions thus: “Petitioners assert that the applicable regulations require that respondent make specific adjustments to the income of each affected member of the controlled groups at hand and that the adjustments be made in accordance with each type of transaction. Respondent essentially asserts that the regulations require that he use the most reliable method under the facts of these cases and that a method, to be reliable, need not always be applied separately to each member or to each type of transaction.” Order, at p. 1.

In short, did IRS misapply Section 482 and the regulations in nailing Guidant, its family and friends for the deficiencies at issue?

Starting right after lunch, Guidant and IRS each have an hour to duke it out (45 minutes straight and 15 rebuttal).

And to help keep them focused, Judge Laro has given them seventeen (count ‘em, seventeen) paragraphs of questions, comments, citations to cases and regulations, and food for thought.

Here’s just a sample: “5. Petitioners are essentially asking the Court to construe the regulations as setting forth procedures that respondent must follow in every audit of a consolidated group. Respondent essentially argues that he must follow a reasonable approach in making adjustments to the group and that the reasonableness of respondent’s adjustments rest on the unique facts of each case. Should the Court be setting universal rules that respondent must follow in every audit, even an audit where the setting does not allow respondent to follow the rules with any certainty? Assuming that respondent’s argument is correct, is the question of reasonableness a question of fact which is inappropriate for summary judgment? Is it unreasonable for respondent to adjust the income of a parent corporation to account for intercompany transactions for which respondent knows that the subsidiaries were parties thereto but does not know to what extent they were parties? Is it unreasonable to determine adjustments in the aggregate where information to make more specific adjustments is not available?” Order, at p. 3.

Even better is this: “17. The parties have estimated their trial time to be about 9 weeks. If the Court were to grant petitioner’s motion, what impact will that ruling have on estimated trial time?” Order, at p. 5.

Sounds like a real fun afternoon, guys.

Next is Judge Cohen, a stickler for following the rules, in Cindy Lee, Petitioner and Jim Lee, Intervenor, Docket No. 10136-14, filed 5/18/15. Jim has his own case also, Docket No. 10177-14, but it gets the same treatment as Cindy’s, so no biggie. Apparently Cindy’s (and maybe Jim’s attorney too) is a scoche bit casual in Tax Court practice.

Judge Cohen is not amused.

A month and a day before trial date (which was set so all Jim’s and Cindy’s cases could be tried together), said attorney moves for continuance (that’s adjournment in State court lingo). Argue that before the trial on the trial date, says Judge Cohen.

And so counsel stays on message: “…at the hearing counsel for petitioner shall explain: (1) the misstatements in paragraphs 8 and 11 of the affidavit that cases are pending before another Division of the Court when in fact all of the cases are under the jurisdiction of the Division to which the June 15, 2015 calendar is assigned; (2) the inconsistency between the title of the affidavit and the signatory and whether any change of name has been submitted to the Admissions section of the Court; (3) whether petitioners Jim Lee and Cindy Lee have been advised of the conflict of interest when the same counsel represents a party claiming relief under Internal Revenue Code section 6015 and the party not claiming relief; and (4) any reason why the related cases should not be consolidated immediately if they are continued.” Order, at pp. 1-2.

Oh yes, guys, and file a stip of settled issues.

Oh, those activist judges!


In Uncategorized on 05/15/2015 at 16:51

No, this is not about a voyage back down the river of time, when Gael Greene’s Sex and the College Girl was hot stuff, around 1964.  Ah, the days of my wasted youth–but let’s get back to taxes.

And who else should be telling the college dating story (as it applies to income taxation) but STJ Lewis (“A Name That Will Live In My Heart Forever”) Carluzzo, in yet another of his inimitable designated off-the-benchers, Stanley V. McClain & Sonia N. McClain, Docket No. 4732-14S, filed 5/15/15.

I’m sorry that, early in this blog’s career, I slighted the small-claimers. Like the children in a much more exalted setting, of theirs is the kingdom.

Stan was a student at ITT Technical institute, and a beneficiary of the Section 25A education credit largesse by virtue of his studentry. Like so many now groaning under the burden of undischargeable student loan debt but receiving certain political solicitude, Stan borrowed the bucks for that first year of ITT tutelage.

But though his tuition was charged in Year One, the lender didn’t come across until Year Two.

Stan takes his 25A credit for Year One, but IRS claims “wrong year. The magic date is when the institution of higher whatever gets and books the diñero, not when y’all were charged for it.”

Trial techniques aren’t of the best, so STJ Lew makes do. “Petitioners’ … return has not been admitted into evidence but the parties proceeded at trial as though petitioners claimed an educational credit totaling $2,500 on that return, as we do likewise. According to the notice, a copy of which is attached to respondent’s answer, petitioners are not entitled to the credit because ITT ‘did not verify’ the education credit claimed on petitioners’ return.” Order, at pp. 4-5.

Although there is the usual bar protecting this particular tax giveaway, everyone agrees Stan jumped it cleanly. But for the Treas. Reg. 1.25A-5(e)(3) hurdle, he’d be good to go.

For those of us unfamiliar with this wrinkle, here it is. “An education tax credit may be claimed for qualified tuition and related expenses paid with the proceeds of a loan only in the taxable year in which the expenses are paid, and may not be claimed in the year the load is repaid. Loan proceeds disbursed directly to an eligible education institution will be treated as paid on the date the institution credits the proceeds to the student’s account.” Order, at pp. 5-6. (Should read “loan is repaid.”)

Stan’s loan certainly fits that box, so STJ Lew says “This portion of the regulation certainly supports the position that respondent has taken in this matter.” Order, at p. 6.

So it looks like Stan is SOL (and I don’t mean Statute of Limitations).

But don’t underestimate STJ Lew.

“The last sentence of the regulation, however, goes on to state, ‘If the taxpayer does not know the date the institution credits the student’s account, the taxpayer must treat the qualified tuition and related expense as paid on the last day for payment prescribed by the institution’. The use of the word ‘must’ in the last sentence of the regulation suggests that under the circumstances there described, the rule is mandatory and supercedes [sic] the disbursement rules stated earlier in the regulation. We think it reasonable to fix the time of the taxpayer’s ‘knowledge’, or lack thereof, as of the date the taxpayer’s return is filed.” Order, at pp. 6-7.

It gets better.

“The trial exhibits showing the date petitioner’s student loans were credited to his account is dated Apiol [sic] 30, 2015, which was the date this matter was tried. Apparently the document was faxed to respondent’s counsel by ITT shortly before the trial started. There is no showing that petitioner was previously aware of the date the loan proceeds were credited to his account, and from his presentation we are satisfied that he was not. In the words of the regulation we are satisfied that petitioner did not know the date that his student loan proceeds were credited to his account as of the date his return was filed. Petitioner credibly testified that the policy of ITT was that a student could not begin classes until the student’s tuition was paid.” Order, at p. 7.

Stan started classes in the year for which he took the credit. Stan wins.

So remember, preparers, college dating is important when your taxpayers want the Section 25A credit.


In Uncategorized on 05/15/2015 at 16:03

The ongoing discovery tug-of-war between IRS and Eaton Corporation and Subsidiaries, Docket No. 5576-12, filed palindromically on 5/15/15, goes on apace, and Judge Kerrigan is in the midst of it all.

Readers of this blog, if not long since bored with this ongoing bunfight, will recall my blogpost “The Forty Million,” 4/24/15, wherein Eaton’s counsel unloaded forty million (count ‘em, forty million) pages of documents via an e-dump of some 67,108,864 kilobytes.

Well, when you unencumber yourself in that fashion, some stuff slips through.

“Respondent’s [IRS’s] motion seeks a determination whether a two-page document that has been provided to respondent in the informal consultation process is protected by the attorney-client privilege. Upon review of the document, respondent notified petitioner of the potential disclosure of privileged information. In response, petitioner requested that respondent destroy the document. Petitioner inadvertently sent the document without making redactions. Respondent contends that the document does not contain privileged information and even if the document included privileged information, petitioner waived its privileges by making the reasonable cause, good faith, and reasonable reliance allegations in its petition.” Order, at p. 1.

For more about reasonable cause, good faith and all that Section 6664(c) jazz, see my blogpost “Everything Has An End,” 10/10/12.

Eaton claims that the two-pager has information about filing deadlines, and the author and recipient have the benefit of the Section 7525 umbrella that shades “any authorized federal tax practitioner” with client-attorney privilege.

Judge Kerrigan decides that somber reasoning and copious citation of precedent are unnecessary.

“The communication at issue is between two employees of petitioner’s accounting firm. Petitioner has not shown why this document should be treated as a document subject to the attorney-client privilege.” Order, at p. 2.

My readers, I am sure, as well as I, eagerly await the 8/5/15 commencement of trial. We can then put all this behind us.