Yet another contribution to the Nth volume of the late Dr. Eric Berne’s 1964 five-million-seller classic comes today from that Obliging Jurist, Judge David Gustafson.

And it answers a query, under yesterday’s date, from a devoted follower of this, mine own humble effort, viz and to wit, “I’m surprised that the judge didn’t discipline the IRS attorneys who tried this.

“Is there no mechanism for doing this, or was the action not deserving of more than a strong rebuke?”

See the comments to my blogpost “The Slide,” 6/4/15.

Here’s John J. Hynes, Jr. & Eileen J. Hynes, Docket No. 19841-13, filed 6/5/15.

John and Eileen wanted a pretrial conference (I love those; a Taishoff “good move” goes to T. Burke, Esq., of Braintree, MA, counsel for petitioners), so the Obliging Jurist gave them one on the phone.

But IRS decides to try it on yet again.

“…the Court will hear no further argument on respondent’s motion for leave to file an amendment to his answer, and (2) that the motion is denied, since it was filed May 29, 2015–i.e., 10 calendar days before the calendar call–to the apparent prejudice of petitioners. (During the conference call, the Court proposed that it might grant the motion for leave if respondent consented to the continuance of the case, but respondent stated an objection to any continuance.)”

Calling audibles at the line of scrimmage might work on the Astroturf, but it doesn’t go in the courtroom.

And the judges need to blow the whistle more often.

No, this is not a misspelling of the 1979 Tom Wolfe docudrama about rocket flight. It may, however, be a mispronunciation of the surnames of Michael H. Stough and Barbara M. Stough, the stars of my blogpost “Another Good Dodge Gone Wrong,” 6/2/15. If so, I do apologize.

But Judge Ruwe’s arithmetic so befuddled me that I must shed my cloak of omniscience, albeit reluctantly, and call for help.

I tried speaking to the Stoughs’ counsel, Stanley L. Ruby, Esq., the highly-credentialed partner at Schwartz Manes Ruby & Slovin, of Cincinnati, OH who represented Mike and Barb, but he didn’t return my phonecall.

So I must send out the word into the blogosphere, begging for assistance.

What does this mean, in simple English?

“The lease entered into between T and [Owner] does not provide for prepaid rent. First, it is necessary to determine ‘the cumulative amount of rent payable as of the close of * * * [the] calendar year’. In 2008 T paid rent to [Owner] totaling $1,151,493.18 ($151,493.18 of monthly rent for the plasma collection center and a $1 million lump-sum payment pursuant to section 4.1(a)(v) of the lease). Therefore, the cumulative amount of rent payable by T as of the close of the 2008 calendar year is $1,151,493.18. Second, it is necessary to ascertain ‘the cumulative amount of rent allocated as of the close of the succeeding calendar year’ (i.e., 2009). As previously held, the lease at issue does not specifically allocate fixed rent to any rental period within the meaning of section 1.467-1(c)(2)(ii)(A), Income Tax Regs. In the absence of a specific allocation, the amount allocated to each year is the amount payable for each rental period. Sec. 1.467-1(c)(2)(ii)(B), Income Tax Regs. Although the record before us does not include the exact amount of rent payable by T for the 2009 calendar year, T did have rent payable during 2009 based on the mathematical formula contained in the lease. It follows logically that the cumulative amount of rent payable as of the close of 2008 ($1,151,493.18) will not exceed the cumulative amount of rent allocated as of the close of 2009 ($1,151,493.18 plus rent payable during 2009). Accordingly, the section 467 rental agreement does not have prepaid rent pursuant to section 1.467-1(c)(3)(ii), Income Tax Regs.” 144 T. C. 16, at pp. 23-24.

No prize for the correct answer.

IRS wants to slide some documents into the record post-trial, after Judge Cohen caught them submitting proposed findings of fact based on the sliders, which of course weren’t in the record to begin with.

The petitioner leaps into the fray, filing an objection to IRS’s motion to reopen the record to do the sliding.

Judge Cohen is definitely not amused by the shenanigans of both sides. She gets a wee bit waspish.

While this is technical, it can spare the USTCPs and lawyers among you a judicial smack, so read Transupport, Incorporated, Docket No. 12152-13, filed 6/4/15.

As to the petitioner’s unrequested leap, “Petitioner was not asked or entitled to file an unsolicited response to respondent’s motion”. Order, at p. 1.

Remember, Tax Court plays the Simon Says gambit, “Mother, may I?” variation.

As for IRS’s would-be sliding, they are rebuked by Judge Cohen.

“The remedy proposed by respondent’s motion is not the preferred remedy. Admitting hearsay documents would require further testimony. The Court always compares proposed findings with the record and evidence admitted in the case to confirm the accuracy and fairness of the proposed findings. The appropriate remedy is an objection to the proposed findings and/or a motion to strike them from the offending brief if calling attention to a violation of Rule 151(e)(3), Tax Court Rules of Practice and Procedure, is warranted.” Order, at p. 1.

So petitioner’s leap is stricken from the record.

And IRS’s would-be sliding in the documents avails them not. Any proposed findings based upon the unslidden is, sua sponte, stricken from the record.

A novel concept this, judges who actually read the papers.

That Obliging Jurist, Judge David Gustafson, invited Curtis Leyshon to come back with some reason why Judge Gustafson shouldn’t take judicial notice of the 2012 Tax Court proceedings. See my blogpost “Rounders’ Day,” 1/16/15.

I warned Curt at the time “Hint: Curt, don’t play the protester game.”

But “my words like silent raindrops fall,” as a much better writer put it.

So here’s Judge Gustafson reiterating his half-dozen warnings to Curt to eschew frivolity, and finally nailing Curt with a Section 6673 $2K chop. Curtis E. Leyshon, 2015 T. C. Memo. 104, filed 6/3/15.

I won’t go over Curt’s argument conflating tax on self-employment income (Title A) with Title B employment taxes, and his other protester jive. Judge Gustafson blows them all away.

Curt claims that, by taking judicial notice of his wife’s trial (whereat he assisted and participated and whereat she was nailed), Judge Gustafson is trying the case for the IRS.

No, Curt.

“The Commissioner did not move for a penalty or ask us to take notice of the prior case; and the gist of Mr. Leyshon’s contention seems to be that, by taking notice, the Court has in effect abandoned judicial independence and has taken sides with and done the job of one of the parties.

“In fact, the Court has explicit authority to ‘take judicial notice on its own’. Fed. R. Evid. 201(c)(1) (emphasis added). We do so in this case not to promote the Commissioner’s interests as a litigant but rather to pursue the Court’s own interest in managing its own business. The Tax Court exists to provide a forum for litigation of taxpayers’ bona fide disputes with the IRS. The Court’s ability to perform that function is impeded when a taxpayer files a petition for some other reason, such as to defy the law or to delay the inevitable. Therefore, quite apart from the Commissioner’s interest in the section 6673 penalty, the Court has its own legitimate interest in imposing the penalty, where appropriate. The statute does not by any means make the IRS the gatekeeper of this issue but rather authorizes the penalty ‘[w]henever it appears to the Tax Court that’ the litigation is frivolous or dilatory. Sec. 6673(a)(1) (emphasis added).” 2015 T. C. Memo. 104, at p. 15.

But then Judge Gustafson goes through a twelve-step checklist for imposing Section 6673 chops, with “somber reasoning and copious citation of precedents.”

But since Curt’s deficiency is small, he gets a $2K chop.

However, if he tries it again, he can go for the next level.

We used to play with front-loaded and back-loaded rent to get the tax result we wanted, skirting the Section 467 ratable-allocation-of-rent rules.

But Judge Ruwe is less than kind in Michael H. Stough and Barbara M. Stough, 144 T. C. 16, filed 6/2/15.

Mike and Barb built a commercial building and leased it for 10 years. Fixed minimum rent was based on cost of land acquisition and construction costs (presumably hard and soft). Tenant had a one-time option to pay down $1 million lump-sum, with a concomitant reduction in rent going forward. Mike and Barb claimed the $1 million was a “contribution to construct” expense, and deducted it on Schedule E.

Mike and Barb had a disregarded LLC holding the land and building, of course.

IRS blew off the deduction, and allowed Barb and Mike additional depreciation. But the $1 million was income in the year received, said IRS, not spread over the lease term. Mike and Barb claim the tenant was paying them back for leasehold improvements, but Reg. 1.61-8(c) eliminates the need to delve into owner’s and tenant’s subjective intents. What lessee paying lessor is rent, absent some real evidence otherwise.

“There may be situations where an improvement made by a lessee is not intended to compensate a lessor. Indeed, an improvement by a lessee might be worthless or even provide a detriment to the lessor. For example, the useful life of such an ‘improvement’ by the lessee may not extend beyond the term of the lease, in which case it has no value to the lessor and, in fact, may impose a financial detriment if the lessor is responsible for its removal upon termination of the lease. Here the lessee made no leasehold improvements. Rather, the lessee exercised its option to pay $1 million to petitioners in order to reduce the amount of ‘project costs’ for purposes of calculating annual rent.” 144 T. C. 16, at pp.13-14.

OK, it’s rent. Hardly surprising, but how is it to be taxed, ratably over the life of the lease or as a lump-sum payment in year received?

This is a case of first impression, so best pay attention.

“Congress enacted section 467 to prevent lessors and lessees from mismatching the reporting of rental income and expenses. Section 467 provides accrual methods for allocating rents pursuant to a ‘section 467 rental agreement’. In order to qualify as a section 467 rental agreement, an agreement must have: (1) increasing/decreasing rents or deferred/prepaid rents and (2) aggregate rental payments exceeding $250,000. Both parties agree that the lease in this case qualifies as a section 467 rental agreement.” 144 T. C. 16, at pp. 15-16. (Citations and footnote omitted).

The rule in a Section 467 rental agreement is to allocate rent per the agreement. But is there a specific allocation here?

No, says Judge Ruwe. All the lease says is that the lessee can make the $1 million lump-sum payment, but doesn’t allocate the payment to a specific portion of the lease term.

And the constant rental accrual method in Section 467(b)(2) only applies to long-term leases and sale-leaseback deals, and where IRS determines there is an abusive transaction, none of which apply here. And the $1 million is not “prepaid rent” because the formula goes on, and the rent at year end for the year in which the $1 million was paid does not exceed the rent payable for the next year.

I find Judge Ruwe’s arithmetic puzzling. Let’s see what Sixth Circuit does with this.

Anyway, Mike and Barb claimed they relied on their trusty CPA, but Mike only skimmed the return and didn’t check out the Schedule E legerdemain.

“Claiming reliance on [trusty CPA] and choosing to not adequately review the contents of a tax return is not reasonable reliance in good faith, and we will not permit petitioners to avoid an accuracy-related penalty for substantially understating their income tax liability. Accordingly, we hold that petitioners are liable for the accuracy-related penalty under section 6662(a).” 144 T.C. 16, at p. 29.

The IRS Whistleblower Office, hereinafter referred to as the  Ogden Sunseteers, are not the sole repository of whistleblowers’ unbosomings, and if a whistleblower tells his/her tale to others of the Federales’ anointed, that doesn’t keep the whistleblower from partaking in the Section 7623 largesse.

Here’s Whistleblower 21276-13W, and pendant Whistleblower 21277-13W, filed 6/2/15, as 144 T. C. 15, from His Honor Big Julie, Judge Julian I. Jacobs, hereinafter HHBJJJIJ.

Our blower was part of a pirate CD gang, whose members stayed offshore to avoid the forces of righteousness. After the G-Men nailed the blower, he spilled that the gang hid offshore, but he could hand the Feds the gang member with the goods (hereinafter “the dude”), which the blower did not himself have.

So blower and spouse (hereinafter “Mrs Blower”) conned the dude onto the shores of our happy land, whereupon the forces aforesaid collared the dude. Facing durance vile, the dude unbosomed in extenso, whereupon the forces of righteousness scooped up a cool $74 million. Then the blower and Mrs Blower sent in Forms 211, requesting the split.

Oh no, said the Sunseteers, you filed the forms after the IRS grabbed the gold.

“The IRS asserts that the Tax Relief and Health Care Act of 2006, Pub. L. 109-432, div. A, sec. 406(b), 120 Stat. at 2959 (TRHCA sec. 406(b)), provides the Whistleblower Office with exclusive discretion to either investigate the taxpayer or refer the information provided by the whistleblower to an IRS operating division. The IRS further asserts that under TRHCA sec. 406(b) a whistleblower is ineligible for an I.R.C. sec. 7623(b) award if he/she provides the information to an operating division of the IRS before submitting the information, via a Form 211, to the Whistleblower Office.” 144 T. C. 15, at p. 2.

Before you say, “What a crock!”, let’s listen to the more genteel HHBJJJIJ.

“Oh no,” says HHBJJJIJ.

“The documents in petitioners’ administrative files were insufficient for the Court to conduct an effective review of this matter. The only documents in each petitioner’s administrative file were (1) the Form 211, (2) an acknowledgment of the receipt of the Form 211 assigning a claim number to the respective petitioner, (3) a letter informing the respective petitioner that his/her claim was still under consideration, (4) a Form 211 Classification Checksheet, and (5) a denial letter stating that the information provided did not result in the collection of proceeds.” 144 T. C. 15, at p. 4

So there was a trial, whereat it was established that the blower and Mrs Blower enticed the dude into the Land of the Free, playing upon his greed, and assisting the FBI, ICE and IRS, and even Scotland Yard, in nabbing the dude and extracting from him the tools wherewith to harvest the ill-gotten gains of the gang.

At the end of the James-Bond-type undercover derring-do, the AUSA on the case told blower and Mrs Blower “The assistance and support of * * * [petitioners] in supporting the investigation was exceptionally helpful * * * In short, but for the work, information, and effort of * * * [petitioners] in assisting the federal government, the government’s successful action against * * * [the Targeted Business], as it was carried out, would not have been possible. * * * The information provided by the whistleblower [sic] was essential and substantially contributed to the government’s actions against * * * [the Targeted Business] that led to the collection of $74,131,694.42.: 144 T. C,. 15, at p. 14.

Ya get the feeling that the sun is setting over Ogden, UT, real fast.

And before the purists amongst us denounce blower and Mrs Blower as co-felons with the dude and his friends, nota bene that when skullduggers are doing the nasty, they do not invite Archbishop Welby of Canterbury and Pope Francis to observe and rebuke them for their evil deeds.

All Ogden did was send the usual “we got no money” form. There was no 11369 Confidential Evaluation in the file, just a note from the “classifier” saying “closed – no pay” and a sign-off from the team manager, who reviewed little or nothing of the file.

The Tax Relief and Health Care Act did not make Ogden the gatekeeper of whistleblowing. The old system, pre-Ogden, worked fine as far as uncovering the nasty; implementation was lacking. It took too long for the worthy blowers to get their piece of the boodle.

“It is clear from the statute that the Whistleblower Office is charged with being the central office for investigating the legitimacy of a whistleblower’s award claim, not necessarily the underlying tax issue. To interpret TRHCA sec. 406(b)(1)(B) as respondent does would mean the Whistleblower Office is authorized to open an examination relating to a taxpayer. But the Whistleblower Office has neither sufficient staff nor institutional expertise to investigate taxpayers. See Internal Revenue Manual pt. 1.1.26.1 and 1.1.26.2 (June 8, 2010) (discussing the roles and mission of the Whistleblower Office). And were the Whistleblower Office to expand its staff and expertise sufficiently to conduct examinations relating to taxpayers brought to its attention by whistleblowers, such expansion would duplicate the resources already available in IRS operating divisions.” 144 T. C. 15, at pp. 23-24.

And if the Sunseteers started an investigation, they could blow the blowers’ cover, in direct violation of law and leading to an absurd result. Anyway, on the trial, an IRS auditor said he wouldn’t slow down the investigation to let blower and Mrs Blower file Forms 211.

“Despite respondent’s assertions, we are mindful that the Forms 211 which petitioners filed anticipate that a whistleblower may approach an operating division of the IRS before notifying the Whistleblower Office. See Form 211, Line 8, which instructs the whistleblower to provide the ‘Name & Title of IRS employee to whom violation was reported’, and line 9 which asks for the ‘Date violation reported’.

“Form 211 was revised in March 2014. It was not, and never has been, altered to discourage whistleblowers from approaching an operating division of the IRS. To the contrary, revised Form 211 expands the detail about a whistleblower’s directly contacting investigating agencies before contacting the Whistleblower Office, including providing space for the whistleblower to report any information submitted to other Federal agencies as well as State authorities. See Form 211, Line 5, which instructs the whistleblower to provide the ‘[n]ame and title and contact information of IRS employee to whom violation was first reported, if known’. See also line 6, which instructs the whistleblower to provide ‘[d]ate violation reported (in number 5), if applicable’;. And line 7 asks: ‘Did you submit this information to other Federal or State Agencies’? And Line 8, which states: ‘If yes in number 7, list the Agency Name and date submitted’. If respondent’s position were correct, these lines would be superfluous; in fact, they would be misleading to an unwary whistleblower.” 144 T. C. 15, at pp. 24-25.

I quote in extenso, for the benefit of TIGTA.

HHBJJJIJ did not rule on standard of review, because the parties did not go into the matter on the trial.

“Because it rejected petitioners’ claims as untimely, the Whistleblower Office did not conduct a review, investigation, or evaluation of the merits of petitioners’ claims for award. We believe the parties should have an opportunity to resolve these cases on the basis of our holding herein. We will require them to file a status report in accordance with an order to be issued.” 144 T. C. 15, at p. 28.

Or Maybe Not

 Joseph W. (“Fighting Joe”) Dieck, Jr., paid the tax, but has a beef about the interest mulct which IRS is seeking. So Ch J Michael B. (“Iron Mike”) Thornton has to sort out the varieties of interest abatement available to Fighting Joe in Joseph W. Dieck, Jr., Docket No. 3145-15 L, filed 6/2/15.

IRS, ever eager to spare Tax Court judges the labor of deciding cases, moves to toss Fighting Joe.

IRS claims “…(1) no notice of final determination concerning abatement of interest under Internal Revenue Code (I.R.C.) section 6404(e) as required by section 6404(h) has been sent to petitioner with respect to tax year …, and (2) petitioner has not paid the interest owed as required by I.R.C. section 7481(c) to form the basis for the Court’s jurisdiction over the determination of interest under the Tax Court Rules of Practice and Procedure, Rule 281(b).” Order, at p.1.

If Fighting Joe wants Appeals to abate, “In a case seeking review of the failure to abate interest, the Court’s jurisdiction depends, in part, upon the issuance of a valid notice of final determination not to abate interest pursuant to section 6404(e). Sec. 6404(h)(1); Rule 280(b)(1), Tax Court Rules of Practice and Procedure; Banat v. Commissioner, 109 T.C. 92, 95 (1997). Likewise, in a case seeking review of a determination under section 6320 or 6330, the Court’s jurisdiction to review certain collection activity of the IRS depends on the issuance of a valid notice of determination under section 6320 or 6330 and the timely filing by the taxpayer of a petition within 30 days of that IRS determination.” Order, at p. 2.

Of course, Fighting Joe can pay first, and then file under Section 7481.

“In addition, the Court’s jurisdiction to reopen a case to determine whether the taxpayer has made an overpayment of interest depends, in part, on the taxpayer paying the entire amount of the deficiency plus interest claimed by the Secretary and filing a motion in this Court for a redetermination of the amount of interest involved within one year after the date the decision of the Court becomes final. Sec. 7481(c)(1), (2)(ii); Rule 261.” Order, at p. 2.

But Fighting Joe has neither a Section 6404(e) notice that IRS won’t abate, nor a NOD per Section 6320 or Section 6330, and while Fighting Joe paid the tax, he hasn’t paid the interest.

So Fighting Joe is out all around.

So Ch J Iron Mike doesn’t have to deal with this one, thanks to the solicitous IRS.

When it comes to the confluence of Section 6320(b)(2)’s “one CDP per tax year” rule, IRS’s adherence to the letter of the reg, and remand-vs-opinion-as-blunt instrument, Judge David Gustafson is in his element.

See my blogpost “I’m From the Government, And I’m Here to Help”, 8/20/14.

Well, Judge Gustafson dusts off his exegesis from the Barbara Delon & Welbon Delon order, cited in my above-referred-to blogpost, and gives it a new twist in Barbara A. Kupersmit, Docket No. 13428-14L, filed 6/2/15.

IRS’s counsel admits Appeals utterly blew Barb’s CDP. “Respondent’s administrative file does not contain any of the documentation that would have been produced in support of respondent’s determination and assessment of petitioner with the frivolous return penalty for the taxable year …. Notably, respondent’s administrative file is missing a copy of petitioner’s … return that respondent determined was frivolous. Nor does the administrative file contain any correspondence, records, or other documents that respondent’s Settlement Officer should have reviewed as part of the Collection Due Process (CDP) hearing. Respondent’s administrative file also reveals that respondent’s Settlement Officer erroneously determined that petitioner was precluded from challenging the underlying liability at issue in this case during the CDP hearing.” Order, at pp. 1-2.

Looks like a slam-dunk for Barb. IRS moves for remand, so Appeals can get it right. But the case is on the calendar call for 6/15/15, so IRS wants a continuance as well.

Judge Gustafson says he’ll hear argument on those motions at calendar call, but in the meantime he catechizes Barb on her options.

She can go with the remand, fight about her underlying Section 6702 frivolous return liability, and propose collection alternatives.

She can say “no, toss the NITL,” and hope the SOL has run before IRS lobs another NITL at her. But if the SOL hasn’t run, and IRS does lob, the Section 6320(2)(b) one-shot-is-all-you-get rule, which IRS embraces, may prevent Barb from going back to Appeals and to Tax Court.

Of course, Barb could demand CDP 2, claiming same is a supplementary hearing to CDP 1, but no court has held such a thing is permissible. I do not doubt IRS will fight that one.

And Barb may want to fight the Section 6702 chop in Tax Court on the trial date.

Looks like “one the one hand this, on the other hand that” requires Barb to have more hands than an octopus.

But wait, there’s more!

“On the other hand, the asserted liability at issue here–a penalty under section 6702 for filing a frivolous return–is subject to ‘reduction … if the Secretary determines that such a reduction would promote compliance with the administration of the Federal tax laws.’ Sec. 6702(d). The statute thus appears to commit such a reduction to the Secretary’s discretion, and it is not clear whether or how such a reduction could be made subject to trial by the Court in the first instance, without any prior exercise of discretion by the Secretary (presumably acting, in this circumstance, through the Office of Appeals). It may be that the Court could review the initial determination that a frivolous return had been filed but would have to remand if the petitioner intended to seek a ‘reduction’ of that penalty. We are not aware of prior case law addressing this distinction.” Order, at pp. 3-4.

Poor little Tax Court! So many questions, and so few answers.

And if Barb’s head is not doing a 180 by this point, she’s quite a lady.

But Barb is in there pitching. With less than a month to go before trial, she moves to join hubby Harold’s deficiency for a different year (which the Court severed last September) with this case, and sent in “…a subpoena form that is not completely filled out and is missing both the name of the person subject to the subpoena and the ‘return of service’ portion at the bottom of the form.” Order, at p. 4.

Judge Gustafson bounces the form, and tells Barb to check the Tax Court website for the user’s manual for subpoenas.

And of course joinder is a nonstarter–no common questions of law or fact.

So, Barb and IRS, go argue IRS’s motions. But if Judge Gustafson denies them, go to trial.

It was a pleasure to meet Judge Marvel at the Judicial Confab in sunny North Carolina. Putting a face and a voice with a name makes a blogger’s life a treat.

Here’s a small-claimer from Her Honor that really has nothing new (the usual unsubstantiated T&E), but it gives Judge Marvel a chance to drop a first-class one-liner that really brightened my rainy New York Monday.

Meet Eric A. Amegankpoe and Nasmath A. Amegankpoe, 2015 T. C. Sum. Op. 36, filed 6/1/15.

Eric and Nas are Amway distributors and have lots of business expenses and big losses therefrom (against lots of W-2 income from their day jobs).

But proof of their business expenses is lacking.

Eric explains: “Mr. Amegankpoe testified that he had contemporaneously recorded the Amway-related travel expenses and mileage in a notebook and later transferred the information from the notebook to a spreadsheet that he maintained on a laptop computer at his home. Mr. Amegankpoe further testified that he had (1) lost the 2010 notebook during a move and (2) lost all of the data on the laptop computer in another incident in or around 2012.” 2015 T. C. Sum. Op. 36, at p. 9. (Footnote omitted).

Judge Marvel definitely isn’t buying that one.

“We decline to accept Mr. Amegankpoe’s incredible testimony regarding petitioners’ recordkeeping practices, which we find to be as believable as a student’s assertion that his dog twice ate his homework.” 2015 T. C. Sum. Op. 36, at p. 9.

No, not the texting version of the 1963 Beach Boys “Surfer Girl” hit (ma foi, is it really 52 years?). This is the story of a MIA SFR for attorney and counselor at law Jaynelle K. Bell, 2015 T. C. Memo. 101, filed 6/1/15, and it’s the kind of thing that makes me cringe to recount.

Jaynelle didn’t file for a couple years (hi, Judge Holmes), although she sent IRS a hefty check and a letter of explanation.

It seems two of her law partners were ripping off their firm and filing false income tax returns to cover their misdoings. May it not happen to any of us!

Jaynelle, fearful of filing false returns, filed no returns, but sent IRS money.

Finally, for the year at issue, after some back-and-forth crediting of payments, Jaynelle claims she filed timely (but not certified mail).

IRS claims they got nothing, and further claims they gave Jaynelle a SFR, but no SFR makes it into the record.

Jaynelle filed a 1040X years later when she got wind that IRS was claiming they never got her return.

The issues here are the Section 6651(a)(1) and (2) chops for failure to timely file and failure to pay. IRS has burden of proof on penalties, but wins on both.

Jaynelle didn’t timely file, and she didn’t credit a previous year’s overpayment to the year at issue, getting a refund instead, so IRS wins on the failure to timely file.

But what is the sum upon which the chop for failure to timely pay is computed, the SFR that never got into the record or the 1040X that Jaynelle filed years later?

Judge Buch: “The addition to tax for failure to timely pay differs from the addition to tax for failure to timely file in that the addition for failure to timely pay is calculated on the ‘amount shown as tax on such return’, instead of the ‘amount required to be shown as tax on such return’. The notice of deficiency is based on the … return Ms. Bell filed [late]…. That return shows an amount due of $1,633. However, the addition to tax for failure to timely pay appears to have been calculated by factoring in respondent’s adjustments in the notice of deficiency. This is not appropriate according to the statute. Under section 6651(g), a return prepared by the Secretary under section 6020(b), commonly known as a substitute for return, may be treated as the return filed by the taxpayer when determining the addition to tax for failure to timely pay. Respondent did not introduce a substitute for return into the record. Therefore, respondent has met his burden for the addition to tax for failure to timely pay only to the extent of the net amount due as shown on Ms. Bell’s [late-filed] return….” 2015 T. C. Memo. 101, at pp. 10-11. (Footnotes and citations omitted).

Rule 155 recount to follow.

Takeaway– “Amount shown” and “amount required to be shown” aren’t the same. Scrutinize those chops.