Archive for June, 2015|Monthly archive page


In Uncategorized on 06/23/2015 at 13:44

No, not a reprise of the 1992 Disney musical about the 1899 newsboys’ strike, rather I announce the arrival of the revised and expanded second edition of “The United States Tax Court – An Historical Analysis.”

Any book whose title contains “An Historical” anything obviously possesses the gravitas appropriate to a fanfare and drumroll.

So all you Tax Court groupies log on to, and revel in Hal’s and Brant’s pageturner.

Great beach reading.


In Uncategorized on 06/22/2015 at 17:54

Misquoting Scotland’s greatest, Judge Cohen decides that good faith, like love, has nothing to do with Sandra Shockley’s Section 6901 transference, in Sandra K. Shockley, Transferee, et al., 2015 T.C. Memo. 113, filed 6/22/15,  a “remand from the U.S. Court of Appeals for the Eleventh Circuit in Shockley v. Commissioner, 686 F.3d 1228 (11th Cir. 2012) (Shockley II), rev’g and remanding T.C. Memo. 2011-96 (Shockley I). The Court of Appeals in Shockley II reversed our decisions entered in accordance with Shockley I, in which we decided the period of limitations issue in favor of petitioners.” 2015 T. C. Memo. 113, at p. 2.

So Sandy and et als decide to go with the trial record from the original trial. Although Sandy lived in FL (which is how 11th Circuit got into the act), her company Shockley Holdings, was a WI LLC, so the Badger State’s version of the Uniform Fraudulent Transfer Act (WIUFTA) takes center stage, despite IRS’s attempt to deal with the definition of “transferee” first.

IRS is still looking to end-run State law, and failing. See my blogpost “The Rappers’ Tale,” 5/29/14.

Well, Judge Cohen finds that WI, though a trifle light on analysis, still comes up with the answer that good faith on the part of the transferee is nothing to the point.

WI wants to protect creditors from debtor razzmatazz, gives-and-goes, and sundry skullduggery.

“…any transfer must be viewed exclusively from the perspective of the creditor–the degree of knowledge or beliefs or good faith of the putative transferees regarding the nature of the transfer are not relevant to analysis. See Badger State Bank, 688 N.W.2d at 449 (“The transferee’s subjective state of mind does not play a role in resolving the present case under Wis. Stat. § 242.05(1).”). Thus, section 242.05(1) of the Wisconsin Statutes serves as a constructive fraud provision focusing on an objective result, meaning that there is no requirement that transferees be guilty of any fraud. Badger State Bank, 688 N.W.2d at 447.” 2015 T. C. Memo. 113, at p. 29.

But there has to be a transfer. Was there?

Well, this was one of the so-called Midco deals. These were the result of corporations with assets worth millions but with a basis of bupkis, whose stockholders want to unload but don’t want to pay tax (no capital gains at the corporate level). Enter the intermediary (like MidCoast; remember them?), who buys the stock in a shell-shill with a phony bank loan and sells the assets, pays off the loan, keeps a cut, and heads for the hills.

In this case, notwithstanding a plethora of shell-shills from every point of the compass and the Isle of Man, the whole romp through the Code goes down in three hours, under a barrage of lawyer-paper with no economic impact except tax savings.

In short, the corporation sold the assets and handed the cash to the stockholders via a series of handoffs worthy of John LeCarré.

Judge Cohen finds no economic substance and no business purpose (even though the latter might introduce concepts of good faith, Judge Cohen isn’t buying).

“Petitioners assert a few nontax business purposes for their having participated in the transaction, such as maximizing the return on their investment in [corporation] before retiring, avoiding the emotional difficulty involved in breaking up the company over time instead of all at once, and allegedly lacking any choice in the matter because the [corporation’s] board decided to pursue the stock sale. Again, petitioners’ purposes are immaterial because we are looking to the business purposes of the taxpayer. As the taxpayer is [corporation], the business purposes of the [corporation’s] board are determinative.” 2015 T. C. Memo. 113, at p. 45.

The issue is what happened to the corporation whose assets were stripped, and what economic benefits it might have obtained from the stripping. The transferees play no part in that.

And Judge Cohen leans over backwards to try to find a non-tax-driven business purpose, but comes up empty.

“Petitioners ascribe only one potential business purpose to the [corporation’s] board’s decision to enter into the transaction: its wanting to pursue a stock sale because of the greater return on investment to shareholders than that from an asset sale. The reason for the greater net after-tax proceeds from a stock sale, however, was essentially the avoided tax on the built-in gains of [corporation’s] appreciated assets. Thus, this business purpose is directly related to the tax-avoidance objective.

“Though not attributed to the [corporation’s] board, a possible business purpose could have been the effect on employee morale from the piecemeal selling of [corporation] to several different buyers over time. Petitioners describe a legitimate business concern of the impact on employee retention and possible decrease in productivity under these circumstances.

“If the [corporation’s] board was concerned about the ‘breaking up’ of [corporation], however, it nevertheless submitted to the overall transaction with the knowledge that this exact result would occur.” 2015 T. C. Memo. 113, at pp. 45-46.

Judge Cohen does concede that “While a business purpose may still be valid even if its desired result does not come to pass, in this instance the [corporation’s] board was not shown to have held this proposed purpose or to have made any attempt to achieve it.” 2015 T. C. Memo. 113, at p.46.

Anyway, consummation of this roundy-rounder required the corporation to be merged out of existence, so no “going concern” issues.

While there’s some jousting about when IRS’ claim accrued and therefore whether WIUFTA applies, Judge Cohen finds WIUFTA is broad enough to cover. The corporation owed tax the day it sold, not when it had to file its return.

And in exchange for its assets in the hundred-million range, it got Sandra’s and the et als’ worthless stock, and a seven-figure tax liability, plus additions, interest and penalties..

The Badger State loves creditors. The deal is a phony.

Sandra and the et als are transferees, gave nothing and got millions, and the Badger State doesn’t requires creditors to chase nonexistent or shell-shill transferors before nailing deep-pocket transferees.

My colleague Joel E. Miller, Esq., has an article soon to be published on the subject of Midco deals. It features “somber reasoning and copious citation of precedent.”

I, who am no scholar (and I can hear my readers saying, “and you can say that again, and a third time in Welsh”), have a simple takeaway.

Stockholder in corporation with assets in eight figures and basis of zippo, don’t be greedy. Remember the advice of that old Texas lawyer, Robert Thomas, Esq.: “pigs git fat, and hogs git et.” See my blogpost “Cullifer’s Travails,” 10/8/14.


In Uncategorized on 06/19/2015 at 17:46

Yet again I say that this is a non-political blog. While I indeed hold strong personal, partisan views, I try most earnestly not to let these obtrude here.

As practitioners we must be neutral, objective, analytical, unemotional.

But at intervals politicians of opposite parties, and nearly diametrically opposing views, speak with a certain resonance in my old heart, positively jagged with sophistication as it is.

Sen. Ron Wyden (D-OR), 2/10/14: “…a dysfunctional, rotting mess of a carcass that we call the tax code.” See my blogpost “Mighty Tough Language,” 8/4/14.

Sen. Rand Paul (R-KY), 6/17/15: “…the tax code has grown so corrupt, complicated, intrusive and antigrowth that I’ve concluded the system isn’t fixable.”

Now my readers, few but hardy, and I, all earn our cornpone from this dysfunctional, rotting, corrupt, complicated and intrusive, to say nothing of antigrowth, tax code. So guys, tread with caution, not with sound-bites.

But Judge Morrison, certainly no partisan, has a few words for IRS on the subject.

And we all, politicians and practitioners, might do well to read and heed.

IRS wants to dismiss the petition in Matthew Vincent Duckworth, Docket No. 24585-13, filed 6/17/15. IRS wants to say that there is neither tax due from Ducks, nor an overpayment by him, and proffers a decision document to that effect.

But Judge Morrison has some questions for IRS before signing off on the desired decision.

“I. Is the proposed decision document intended to reflect that the amount of the overpayment is $0?

“II. How did respondent calculate that the amount of the overpayment?

“III. (a) Did the respondent calculate the amount of the overpayment by reference to section 6401(b)(1)? (b) If so, what was ‘the amount allowable as credits under subpart C of part IV of subchapter A of chapter 1 (relating to refundable credits)’? (c) And what was ‘the tax imposed by subtitle A (reduced by the credits allowable under subparts A, B, D, G, H, I, and J of such part IV)’?

“IV. (a) Did the respondent calculate the amount of the overpayment by reference to the definition of overpayment in United States v. Dalm, 494 U.S. 596, 604 n. 6 (the overpayment amount is the amount by which taxpayer has overpaid tax) or a similar definition? (b) If so, what was the amount of tax and (c) what was the amount of payments?

“V. Should the Court require further written submissions from either party?” Order, at pp. 1-2.

Judge Morrison gives IRS a month to come up with the answers. Openbook, maybe so.

And the intent of this month-long march through the swamp is to get us to zero?

I suggest that both Sens. Wyden and Paul rest and cross-move for judgment.


In Uncategorized on 06/19/2015 at 16:43

Or, The Helping Hand Rejected

No, not a misspelled version of the 1967 Bobbie Gentry classic (#412 on the Rolling Stone’s top 500); rather, this is the end of the story begun in my blogpost “I Told Ya He’s a Human Being,” 5/19/15.

Upon re-reading the aforementioned blogpost, y’all will recollect that The Great Dissenter, a/k/a The Judge Who Writes Like a Human Being, s/a/k/a The Indomitable, Irrefragable, Indefatigable, Illustrious, Industrious and Insightful (but never Impetuous nor Irresponsible) Foe of the Partitive Genitive, and Old China Hand, His Honor Judge Mark V. Holmes, offered to share his immense knowledge of Tax Court procedure and the scope and standard of Tax Court review, with Billy Joe Shurden, who, Judge Holmes thought, might not be a lawyer.

This CLE course was on offer at calendar call, prior to Billy Joe’s trial on interest abatement, in Birmingham, AL.

Well, Billy Joe rejected the proffered helping hand. Unlike the storied Wabash Cannonball, Billy Joe did not come down to Birmingham just the other day.

Billy Joe is a no-show. He’s dismissed for lack of prosecution.

Billy Joe Shurden, Docket No. 28097-13, filed 6/19/15.


In Uncategorized on 06/18/2015 at 16:31

Rudy Kipling’s advice isn’t good advice only for those “marching on relief over Injia’s sunny plains, a little front o’ Christmas time and just be’ind the rains.”

Always put your best foot first. Facts, if you have them.

Dr. Ibeanyi Obiakor has suffered enough, and I’m sure his counsel have, or will, so I’ll follow the other old Army advice “no names, no pack drill.” Anyway, the case is 2015 T. C. Memo. 212, filed 6/18/15.

For reasons STJ Armen (The Judge With a Heart) found “inexplicable,” the properly-addressed and properly mailed Letter 1153, hitting up Ibe for the TFRPs his struggling state-of-the-art medical facility owed, was returned “undeliverable.”

Ibe got the NITL and timely petitioned, but the SO said he’d had his chance to contest the amount, but he blew it.

We all know that “A taxpayer may also challenge the existence or amount of the underlying tax liability but only if the taxpayer did not receive a statutory notice of deficiency with respect to the underlying tax liability or did not otherwise have an opportunity to dispute that liability. Sec. 6330(c)(2)(B).” 2015 T. C. Memo. 212, at p. 12.

Now mailing is sufficient to sustain the assessment of TFRPs; the assessment is good even if the responsible person didn’t receive the Letter 1153.

But right to contest depends upon receipt. “On the other hand, a Letter 1153 that was not received, but was not deliberately refused, by a taxpayer does not constitute an opportunity to dispute the taxpayer’s liability.” 2015 T. C. Memo. 212, at p. 16. (Citation omitted).

And no one claims Ibe ducked the Letter 1153 or refused to pick up his mail.

OK, but though Ibe raises the issue of computation, he never gives his side of the numbers. And he doesn’t give the SO numbers on his economic hardship, until he hands over some that show he can afford to pay a lot more than he first claimed he could.

So even though STJ Armen assumes the SO’s error of law (mailing is sufficient to bar dispute of the amount of TFRPs) prejudiced Ibe, and although Ibe claims there are substantial questions about the numbers, he never puts in any argument or evidence, and goes on a Rule 122 stipulated set of facts.

And loses.

Now lest you think that this is the typical unrepresented innocent playing the pearl fisher “going all naked to the hungry shark,” STJ Armen is at pains to note that “The Form 12153 was signed and submitted by petitioner’s authorized representative, an attorney, who continued to represent petitioner throughout the administrative phase of this case (and who, coincidentally, is also admitted to practice before this Court). A second attorney, but from the same law firm as the first, later subscribed the petition that commenced the judicial phase of this case, and that second attorney continues to represent petitioner. In short, petitioner has been represented by counsel at all relevant times.” 2015 T. C. Memo. 212, at p. 5, footnote 2.

Takeaway—If you have facts, use them. Anyway, put your best foot first.


In Uncategorized on 06/17/2015 at 15:43

In the words of the late great William James Basie, here’s Ch J Michael B. (“Iron Mike”) Thornton taking on the obliging role hitherto assigned to Judge David Gustafson, the prisoners’ friend, in Andrew F. Capoccia, Docket No. 2669-07, filed 6/17/15.

That’s no typo; this is a case from 2007.

Andy hasn’t been dismissed for want of prosecution because he has a good excuse. “…petitioner is incarcerated in a Federal prison camp in Pennsylvania.” Order, at p. 1.

As I remarked in my blogpost “We’ll Come To You,” 9/18/12, “Tough to try a case when you’re in the Stony Lonesome.”

Moreover, Andy has a logistical problem akin to that of a certain candidate for public office. “Respondent [IRS] is now in possession of ‘almost 80 boxes of materials’, which presumably include the business records that had previously been in possession of the United States Attorney in Burlington, Vermont, the office which prosecuted petitioner’s criminal case.” Order, at p. 1.

Andy might need some of the stuff in those “almost 80 boxes” to prove a case. Ch J Iron Mike tells IRS to identify “…a procedure by which respondent proposes to provide petitioner access to or copies of his records and thus move this case forward toward resolution, by settlement or otherwise.” Order, at p. 1.

So get on your bike, IRS, and bring those boxes round.


In Uncategorized on 06/16/2015 at 16:35

STJ Lewis (“His Name is His Fame”) Carluzzo has four iterations of the latest lore on the Section 6707A nondisclosure chop. For brevity’s sake, I’ll reference just one, Christopher A. Iames, Docket No. 10306-14L, filed 6/16/15.

And likewise, as a refresher, because Chris’ and his fellow-sufferers’ cases pivot thereon, check out my blogpost “The $100,000 Misunderstanding,” 9/15/14.

Now that you remember the case of Steven Yari, we can look at Chris and the others.

Chris petitions a NOD about a Section 6707A nondisclosure-of-listed-transaction chop, but only disputes underlying liability and offers no collection alternative, either at Appeals or in his petition.

Here’s the beef and counter-beef. Chris claims “…the underlying liability should be abated because, ‘the assessment is based upon, including but not limited to, an unexplained determination that the related transaction is a listed transaction and a provision of the Internal Revenue Code that is unconstitutional as a deprivation of due process.’ According to respondent’s motion, petitioner is precluded from challenging the existence or the amount of the underlying liability in this proceeding because he had a prior opportunity to do so. See sec. 6330(c)(2)(B).” Order, at p. 2.

Constitutional arguments in Tax Court are nonstarters: no jurisdiction. Pay and fight it out in USDC.

“The underlying liability was assessed… following a conference with respondent’s Appeals Office (Appeals). Relying upon section 6330(c)(2)(B), section 301.6320-1(e)(3), Q&A-E2, Proced. & Admin. Regs., and Lewis v. Commissioner, 128 T.C. 48 (2007), which upheld the validity of that regulation, respondent argues that because Appeals had considered the underlying liability prior to petitioner’s request for section 6330 review, petitioner may not in this proceeding challenge the existence or the amount of that liability.” Order, at p. 2.

Anyway, Chris tries the Yari gambit. He argues “…Lewis is not controlling because: (1) the case was superseded, if not overturned, by Yari v. Commissioner, 143 T.C. __ (Sept. 15, 2014); and (2) the version of section 301.6320-1(e)(3), Q&A-E2, Proced. & Admin. Regs. considered in Lewis has since been amended, and the version in effect here is invalid. For the following reasons, we disagree with petitioner on both points.” Order, at p. 2.

Yari went off on the proper method for computing the chop, not challenging it. Congress amended Section 6707A while Yari was percolating through Tax Court, so Tax Court had to consider a recalculation based on change in law. And because of the audible at the line of scrimmage, Appeals never got the chance to deal with the revised computation.

STJ Lew: “Here, there was no intervening change to the statute giving rise to the underlying liability. That liability was considered by Appeals prior to the section 6330 proceedings, and therefore, consistent with section 301.6320-1(e)(3), Q&AE2, Proced. & Admin. Regs., as construed in Lewis, petitioner has had a prior opportunity to challenge the existence or the amount of the underlying liability and he may not do so here.” Order, at p. 2.

Still, I think a Taishoff “good try, second class” should go to Chris’ attorney, Allen James White, Esq.


In Uncategorized on 06/15/2015 at 16:20

See my blogpost “We Don’t Need No Stinkin’ Factors,” 5/15/12. Today, Judge Haines follows Judge Goeke’s earlier deconstruction of a debt-vs-equity deal with a similar nonchalant waltz through eleven (count ‘em, eleven) supposed factors, and finds that MBA Real Estate, Inc., 2015 T. C. Memo. 111, filed 6/15/15, didn’t buy a bunch of contracts for brokerage commissions from J. Michael Bell and Sandra L. Bell.

No, J. Mike and Sandy 351’d the contracts to MBA in exchange for all the stock of MBA. For the purists among us, Section 351 is the tax-free incorporation freebie. If you give property (tangible or intangible) to a corporation in exchange for at least 80 percent of the total combined voting power of all classes of stock entitled to vote and at least 80 percent of the total number of shares of all other classes of stock of the corporation, no tax to corporation or to shareholder-contributor. And carryover basis in all transferred property.

J. Mike and Sandy were servicers and sellers for distressed bank-owned real estate in the last California real estate meltdown (2008, for those with short memories).

J. Mike and Sandy ran their business under an assumed name, but decided to sell 40 contracts they had to MBA, a corporation they formed. Their purchase agreement with MBA did have interest payments and fixed date of final payment, and they claimed they wanted an income stream to shield them from the vicissitudes of the California crapshoot (I mean real estate market).

J. Mike and Sandy are Golsenized to Ninth Circuit. “That Court of Appeals applies an 11-factor test to determine whether a shareholder’s transfer to a corporation is a sale or a capital contribution. No single factor is controlling, and the facts and circumstances of each case must be taken into consideration. The primary purpose of the factors is to help the Court determine the parties’ intent ‘through their objective and subjective expressions.’” 2015 T. C. Memo. 111, at p. 10 (Citations omitted).

In other words, pick the result you want and you’ll find the factors you need. Or better still, which factors to ignore.

Well, although it sure looks like J. Mike and Sandy wanted to sell the contracts to MBA, MBA had no assets except $500 in cash that J. Mike and Sandy threw in after the fact (2015 T. C. Memo. 111, at p. 15). So whatever cash J. Mike and Sandy were to get had to come from MBA’s E&P, and MBA had a bushelbasketful.

No third-party lender would lend MBA the quarter-million it needed to pay off J. Mike and Sandy until the loot from the contracts came in, if ever.

So however well J. Mike and Sandy papered the deal, they’re out of luck.

Here’s the result Judge Haines finds: “In substance, in order to incorporate Mr. Bell’s existing business, the Bells transferred $500 in cash and all of the sole proprietorship’s assets to MBA solely in exchange for MBA’s stock. The Bells were in control of MBA immediately after the transfer of cash because they became MBA’s sole shareholders. Thus, section 351 governs the tax consequences of this transaction.” 2015 T. C. Memo. 111, at p. 18.

Are you convulsed with shock? I’m not.

Of course, if no sale, then no capital gain on transfer of the contracts, everything paid to J. Mike and Sandy are dividends and taxable at ordinary, and, by the way, IRS beat the SOL on the SNODs.

Oh, and MBA has no basis in the transferred contracts or in J. Mike’s and Sandy’s goodwill in their old business, so no depreciation deduction for MBA.

Who needs factors?


In Uncategorized on 06/15/2015 at 12:25

No, not what you need for your next memo of law.

I’ll let Judge Mark V. Holmes mansplain. “…petitioners filed a request for an answer to the question of their Virgin Island residency with the so-called ‘competent authority’ – an office within the IRS whose agents can meet with their counterparts in the VI BIR to try to settle this issue.” Order, at p. 1.

So the competent authority is a person, not a hornbook or a string-cite of cases. Sort of the maven di tutti mavonnim, when it comes to offshore tax conundra.

And who else should be worried about their Virginity (in the Section 932 sense, of course), but Renee Vento and Gail Vento, with a string of Docket numbers, but we’ll use 23527-08, filed 6/15/15, for now.

In these cases, competent authority is thinking about it, so Gail and Renee can stay on report-status track for now.

If you’re interested, I’ve blogged the Vento saga beginning with “The Non-Virgin Islanders”, 3/13/11, to “Catching Up,” 9/30/13.


In Uncategorized on 06/12/2015 at 17:52

Again I echo the words of the late great Jimmy Doohan to William Shatner, as the Starship Enterprise once more is becalmed in The Silence That’s Eternal. They’ll always be On Patrol, in my heart and in those of their numberless fans.

But now it’s not Tax Court losing power (see my blogpost “Captain, We’re Losing Power, 5/12/15), but rather the taxpayer representatives of various sorts and degrees who have lost, or will lose, power.

Here’s IRS’s list of how the chosen become powerless. Read and heed, m’lads and lasses.

(POA) Rejection

Form 2848

  • Missing Representative and/or Taxpayer signatures or signature dates.  (Page 5 of Form 2848 Instructions gives requirement for the signature and date.)
  • Line 3. Acts authorized – Non-specific identification of tax periods (tax matters), i.e. generalizations. Example: All Years, All future periods
    Page 3 of the instructions outlines several acceptable entries for the Acts authorized, description of tax matters field.
    Example: 2012 through 2014 or 2012 – 2014 or 2012, 2013, 2014
  • If the Box on Line 6, Retention/Revocation of Prior Power(s) of Attorney, is checked and no copy of the power of attorney is attached to identify the representative that is being retained.
  • Missing designation and/or jurisdiction state
  • Missing bar license, certification, registration or enrollment number when applicable
  • Title of business taxpayer signing the POA not indicated.

Form 8821

  • Missing taxpayer signature and/or date. (Page 5 of Form 8821 Instructions provides the requirement for the signature and date.)
  • Non- specific identification of tax periods (tax matters), generalizations.
    Example: All Years, All future periods
  • Incorrect EIN/SSN for taxpayer.

Form 706

  • No representative signature and/or date.