Archive for July, 2015|Monthly archive page


In Uncategorized on 07/22/2015 at 13:54

CSTJ Peter Panuthos is befogged by IRS’s counsel’s riding off in two directions at once, and I must say I’m equally befogged. Hence this headline.

I don’t know how James B. Cannon & Jeanmarie Cannon, Docket No. 30077-14SL, filed 7/22/15, feel about this, but if they’re as confused as CSTJ Peter and I, I wouldn’t be surprised.

Ya see, IRS moved to dismiss Jim’s & Jean’s petition off a NOD because Jim & Jean didn’t timely request a CDP. OK, no biggie, so let’s look at the mailing dates.

But IRS then “…filed a motion for summary judgement. In his motion respondent [IRS] asserts that the underlying liability is not in issue and further, that as a matter of law respondent did not abuse his discretion in that petitioners have not requested a collection alternative.” Order, at p. 1. (Emphasis by the Court).

By now my readers, those few, those happy few, know to respond to such an anomalous move with “Mein! Was ist das?”

CSTJ Peter is more demure. “The Court is perplexed by respondent’s position in this case. The filing of respondent’s Motion for Summary Judgment presumes jurisdiction in this case and would appear to be entirely inconsistent with the position taken in the motion to dismiss for lack of jurisdiction.” Order, at p. 1.

So, IRS, are you dropping the “no jurisdiction, so dismiss” motion? Or are you saying the two are consistent?

If the latter, please explain how a court can grant a motion when it has no jurisdiction.

Or more simply: is you is, or is you ain’t?


In Uncategorized on 07/22/2015 at 01:18

That’s a consolidated reporting  NOL, per Judge Ruwe, and you can read all about it in Marvel Entertainment, LLC, 145 T. C. 2, filed 7/21/15.

Marvie’s predecessor consolidati filed Chapter 11, and blew off some debt, giving it COD. Taking a short year, some members didn’t recognize the COD, but reduced their NOLs pro rata, per Seciton 108(b)(2)(A).

IRS says no, you can’t split up the Consolidated Net Operating Loss (CNOL), it’s all-in.

Judge Ruwe crystallizes: “Whether the NOL to be reduced under section 108(b)(2)(A) is the entire CNOL or an allocable portion of the CNOL is the sole issue for resolution in this case..” 145 T. C. 2, at p. 14.

IRS says the Supremes decided this years ago, in United Dominion Industries, 532 US 822 (2001).

Marvie says no, got nothing to do with that.

Judge Ruwe: “The Court explained portions of the consolidated return regulations pertaining to consolidated taxable income and CNOL as follows: ‘Under Treas. Regs. §§1.1502-11(a) and 1.1502-21(f), an affiliated group’s “consolidated taxable income” (CTI), or, alternatively, its “consolidated net operating loss” (CNOL), is determined by “taking into account” several items. The first is the “separate taxable income” (STI) of each group member. A member’s STI (whether positive or negative) is computed as though the member were a separate corporation (i.e., by netting income and expenses), but subject to several important “modifications.” Treas. Reg. § 1.1502- 12. These modifications require a group member calculating its STI to disregard, among other items, its capital gains and losses, charitable-contribution deductions, and dividends-received deductions. Ibid. These excluded items are accounted for on a consolidated basis, that is, they are combined at the level of the group filing the single return, where deductions otherwise attributable to one member (say, for a charitable contribution) can offset income received by another (from a capital gain, for example). Treas. Regs. §§ 1.1502-11(a)(3) to (8); 1.1502-21(f)(2) to (6). A consolidated group’s CTI or CNOL, therefore, is the sum of each member’s STI, plus or minus a handful of items considered on a consolidated basis.” United Dominion, 532 U.S. at 826.

I am reminded of Thomas Hobbes’ famous remark in Chapter VIII of Leviathan (1651): “When men write whole volumes of such stuffe, are they not Mad, or intend to make others so?”

I’ll try plain English. There’s only consolidated NOL for consolidati, nothing else. Ya can’t mix-and-match.

But if this sort of thing is really what does it for you (in which case I can but shrug my shoulders), you can read all 36 pages of Judge Ruwe’s exposition of the foregoing.


In Uncategorized on 07/20/2015 at 16:07

.com – Part Deux

Here’s a reprise of an oldie but goodie, my blogpost “Stamp Out,” 10/23/14, brought once again into my ken by the author of the order in my aforementioned blogpost, The Judge With a Heart, STJ Armen.

You’ll remember that poor old Joe Sanchez relied on a friend with a computer and, which produced a mark dated the last day of the magic 90, but the USPS overrode that with a legible mark one day later, relegating Joe to Outer Darkness, with weeping, wailing and gnashing of clichés.

Well, today comes Robert H. Tilden, Docket No. 11089-15, filed 7/20/15, playing the gambit, and he survives to fight another day—maybe.

Bob claims “a ‘postmark’ is ‘evidence of a timely filed petition pursuant to Reg. §301.7502-1.’ Order, at p. 1.

The magic last day of the 90 was April 21. STJ Armen takes it from there.

“The ‘Petition For Redetermination Of Deficiency (Regular Tax Court Case)’ was received by the Court in the late morning of Wednesday, April 29… and filed shortly before noon on that day. The petition was sent via the U.S. Postal Service (USPS) by first-class mail. The envelope containing the petition bears a mailing label with a ‘postmark’ by ‘’ of April 21…. The envelope also bears a ‘certified mail’ sticker with a 20-digit tracking number (the tracking number).

“Because of the aforementioned tracking number, the USPS website provides tracking information regarding the flow of the petition through the USPS mail system from arrival through delivery. Thus, the first entry reflects an arrival date and time of April 23… at 2:48 p.m. at USPS facility in Salt Lake City, UT 84199, and the last entry reflects a delivery date and time of April 29… at 11:02 a.m. at Washington, D.C. 20217. (The latter ZIP Code, 20217, is the Court’s dedicated ZIP Code.). Order, at p. 2.

IRS moves to toss Bob’s petition, citing the USPS Tracking Number as showing real mailing April 23, two days late.

Bob parries with “…the envelope containing the petition ‘bears a postmark date within the time for filing’, citing section 301.7502-1(c)(1)(iii)(B), Proced. & Admin. Regs., regarding ‘Postmark[s] Made By Other Than U.S. Postal Service’ for the proposition that a postmark ‘which, although not made by the U.S. Postal Service still complies with the timely mailing/timely filing rules of I.R.C. §7502.’ Order, at pp. 2-3.

STJ Armen wants a reply from IRS on the subject. I can imagine what it will be. And where Bob’s petition is going.

But Bob gets a Taishoff “good try, first class” nevertheless.


In Uncategorized on 07/18/2015 at 19:22

This is, as I have said many times, a non-political (by which I mean nonpartisan) blog. If anyone desires to wallow in the toxic filth that passes for partisan politics, let him or her go elsewhere, with my deepest sympathies.

I must say, however, that as a war veteran who was not, by the grace of God, a prisoner of war, I really do not care whether or not Donald (“five deferments”) Trump likes me or not.

I was about to use rather tougher language, but remembered that this blog is meant for family reading.


In Uncategorized on 07/17/2015 at 16:58

I didn’t blog David C. Costello and Barbara A. Costello, 2015 T. C. Memo. 87, filed 5/6/15, when it first appeared, because it seemed to be the usual defectively-appraised charitable easement. I was getting bored with the tax dodges wrapped in sylvan wilderness, or plastered on historic façades.

But Judge Lauber, that scholar of classics at Cambridge, has an interesting riposte to Dave and Barb when they seek Rule 161 reconsideration in David C. Costello and Barbara A. Costello, Docket No. 24995-12, filed 7/17/15.

The Quick gambit is played to open. “’Reconsideration is not the appropriate forum for rehashing previously rejected legal arguments or tendering new legal theories to reach the end result desired by the moving party.’ Estate of Quick, 110 T.C. at 442.” Order, at p. 1.

Dave and Barb were trying to duck the 40% substantial overvaluation chop, alleging Section 6664 cover.

But the appraisal submitted with their return wasn’t qualified, and IRS and Tax Court can only consider appraisals that were in hand when the return claiming the charitable write-off was due.

“In their motion for reconsideration, petitioners challenge our findings only insofar as they relate to the penalties, and they advance three arguments to this end. First, they contend that their CPA incorrectly advised them that they had to claim the charitable contribution deduction for the easement on their original … return…. But for this advice, petitioners say, they would have filed their original return without claiming that deduction and would instead have claimed the deduction on an amended return…. By that time, petitioners say, they would have received their appraiser’s corrected appraisal, which allegedly would have been a ‘qualified appraisal.’ Since the appraisal that petitioners received ‘before the due date of the return on which [the] deduction [was] first claimed’ would then have been a qualified appraisal, sec. 1.170A-13(c)(3)(iv)(B), Income Tax Regs., petitioners conclude that they would be eligible for the reasonable cause defense but for their CPA’s erroneous advice.” Order, at p. 2.

This “does not warrant reconsideration of our holding.” It assumes facts, is purely hypothetical, and wasn’t raised in brief or on trial.

Dave and Barb next claim Judge Lauber was wrong when he said they hadn’t told their appraiser all relevant facts.

Judge Lauber is all over that one: “The thrust of petitioners’ argument is that they adequately disclosed facts to their CPA. But they cite no facts showing that the Court erred in finding that they failed to disclose all relevant facts to their appraiser, which caused him (among other things) to appraise the wrong property. Petitioners do not allege any ‘substantial error’ or ‘newly discovered evidence’ on these points. See Estate of Quick, 110 T.C. at 441. Petitioners are simply disagreeing with certain ultimate facts as found by the Court; this does not form a proper basis for a motion for reconsideration. In any event, our findings of fact on this point were relevant only to the accuracy-related penalty…. Even if we were to reconsider those findings, it would not enable petitioners to avoid the substantial valuation misstatement penalty…, T.C. Memo. 2015-87, at *38 n.13, because they lacked a ‘qualified appraisal.’” Order, at p. 3.

Finally, I can give Taishoff “good try, third class” to Dave’s and Barb’s counsel. He tries to argue that Section 6664(c)(3)(a) just requires that the taxpayer have reasonable cause for not having a qualified appraisal, not actually having gotten one in hand timely.

Well, Judge Lauber is tired of rehash, so he makes some hash.

“Given the statutory text, this argument has little to recommend it. In any event, it is a new legal argument that petitioners did not advance at trial or in their post-trial briefs. Petitioners concede that the argument they now seek to advance ‘was not well-articulated previously.’ Petitioners’ Motion at 15 n.6. That is an understatement.” Order, at p. 3.

No, this is not an exercise in schadenfreude; this could happen to any of us. I offer this order to show the limitations of Rule 161, and the draconian impact of the 40% chop.


In Uncategorized on 07/16/2015 at 16:04

Or, Trial by Ambush

The “small court” (see my blogpost “A Rant,” 3/7/13) does differ from the Big Courts (those enshrined in Article III of the Constitution) in many and diverse ways.

I’ll bet you didn’t know that IRS can issue stealth subpoenas to nonparty witnesses in Tax Court litigation, without giving the petitioners the FRCP 45(a)(4) view halloo required in the Big Courts.

I didn’t know that either, until the same was unpacked and ventilated by The Great Dissenter, a/k/a The Judge Who Writes Like a Human Being, s/a/k/a The Illustrious, Imperturbable, Irrefragable, Indefatigable, and Incomparable Foe of the Partitive Genitive, and Old China Hand, Judge Mark V. Holmes, in a designated hitter, Anthony M. Kissling & Suzanne R. Kissling, Docket No. 19857-10, filed 7/16/15.

You’ll remember that Judge Holmes was following the Kisslings’ case with interest last week. See my blogpost “Back From The Graev – Part Deux,” 7/9/15, wherein Judge Holmes probed the Section 6751(b) Boss-Hoss gambit, as the Kisslings were fighting the 40% chop on a conservation easement case.

The Kisslings found out that IRS was subpoenaing a nonparty, asking for pictures, descriptions and accounts.

“They understandably wanted to know if there were others and what, if anything, the Commissioner got in response. The Commissioner argues that if there’s no Tax Court rule that requires him to notify taxpayers about whom he is subpoenaing, he’d just as soon keep his pretrial preparation to himself.” Order, at p. 1.

So all that good jive we’ve been hearing at CPEs and CLEs about “no trial by ambush” as recently as this morning is “inoperative”?

Maybe not.

The Kisslings claim Tax Court Rule 21(a) turnover applies, but that’s only for filings with the Court, which subpoenas aren’t.

Trust Judge Holmes. Tax Court meant Rule 147 to do what FRCP 45(a)(4) does, it just diverged as the FRCP was amended, but Tax Court didn’t get around to following suit. “We do have to disagree with the Commissioner, however, that this absence of a rule creates an implication that secret subpoenas are favored. We promulgated our Court’s Rule 147, which governs subpoena practice, back in 1973. See 60 T.C. 1137 (1973). At that time, we said that our goal was a rule substantially similar to FRCP 45. Id. Back then, FRCP 45 didn’t require notice for subpoenas. Fed. R. Civ. Proc. 45 (1970). The notice requirement was added in 1991 to give parties the same opportunity to challenge nonparty subpoenas for documents that they had to challenge subpoenas for depositions (since FRCP 30 and 31 already provided notice protection in these circumstances). See Fed. R. Civ. Proc. 45 advisory committee’s note (1991). We have never publicly stated that we intended to deviate from Article III practice — it’s just an example of the two sets of rules drifting apart over time.” Order, at p.3.

So is the IRS headed for the Sin Bin? No, says Judge Holmes.

“The Court will therefore not find that the Commissioner has violated our rules. But we also think that the current federal rule is a good one; and the Kisslings’ motion seeks undoubtedly discoverable information. Their case is, moreover, a conservation-easement case, a category that is currently quite productive of hard-fought litigation. Development of one case often affects others in the pipeline. The Court will therefore adopt the notification requirement of Federal Rule 45 as a modification to the pretrial order that governs this case.” Order, at p. 3.

Hard-fought or not, practitioner, if IRS is going after nonparties, invoke FRCP 45(a)(4), and tell ‘em The Great Dissenter sent ya.

And remember, both sides have to hand over whatever FRCP 45(a)(4) requires.


In Uncategorized on 07/16/2015 at 14:57

David Michael Geoghegan, Docket No. 18055-14 L, filed 7/16/15, self-reported an $84K liability. David Michael couldn’t pay, he says, IRS has hit him with a NFTL, so he wants an IA (that’s an installment agreement for you civilians).

But David Michael is a Man in a Hurry; he wants a “Fresh Start” high-speed IA. My astute readers will reply, “But Michael David, you owe more than $50K. Re-read IR-2012-31, March 7, 2012. Ye’re a wee bit ower t’score, as they say in Aberdeen.” That’s Scotland, not South Dakota.

David Michael offers to scrounge up $34K and hand it over, if IRS will then let him board the Streamline Express.

No, says Appeals, you were talking about dropping the NFTL, and we can only do that if you owe $25K, not $50K.

But IRS reckoned without that Obliging Jurist, Judge David Gustafson.

“On the Form 12153 Mr. Geoghegan indicated that he wanted an installment agreement (‘IA’). Notably, on the Form 12153 Mr. Geoghegan did not request withdrawal of the lien, however, he did write ‘Fresh Start Program’ in the “Other” category. The Appeals Settlement Officer (‘SO’) scheduled the collection due process (‘CDP’) hearing…. At the … CDP hearing, Mr. Geoghegan stated that he wanted to enter into a payment plan under the IRS’s Fresh Start Program, but he understood that to qualify for the Fresh Start Program he had to reduce his unpaid tax liabilities from approximately $84,000 to under $50,000. He stated that at that time he did not have 34,000 to reduce his liabilities but that he intended to do so and that his ultimate goal was for the IRS to withdraw the NFTL” Order, at p.2.

So the SO bounced David Michael with a NOD after checking out the Fresh Start rules, thinking David Michael wanted the lien released for $50K, but the rules say only $25K gets you a release.

“On the Form 12153 Mr. Geoghegan did not check the box indicating that he wished to have the lien withdrawn.” Order, at p. 3 (emphasis by the Court).

So Judge Gustafson is confused whether David Michael really was trying for a lien release off a $50K streamliner, which is a no-no.

“On its face, the motion for summary judgment reflects a genuine issue of material fact as to whether the IRS abused its discretion in failing to provide Mr. Geoghegan an opportunity to submit a collection alternative without lien withdrawal under the Fresh Start Program or to consider his informally requested IA for $50,000 under the Fresh Start Program.” Order, at p. 4.

So IRS, seeking summary judgment, now claims that, no matter what, IRM knocks David Michael out of the box, but since neither the NOD nor the SO’s declaration in support of summary J mention that, Chenery sinks that one.

Hint to IRS counsel: don’t try wild-carding in new reasons in a CDP NOD case when the administrative record is bereft of support; it only annoys Tax Court judges.

Summary J denied without prejudice, but as the tax was reported on a MFJ return and the NOD was issued both to David Michael and Mrs. David Michael, if Mrs. David Michael wants in on the fun, let her ratify the petition.


In Uncategorized on 07/15/2015 at 17:17

Colleagues have denounced the trend toward more continuing education (whether legal or professional) as a “racket,” or as “the Bar Associations’ Sustentation Act.” I’m of two minds about the subject.

Some programs are overpriced and of minimal usefulness. Many of the freebies are puff pieces and nearly worthless (I mean, how many lectures on the same timeworn topics can one ingest? And they don’t even serve drinks).

But there was an IRS webinar today on the Section 263 and Section 263A safe harbors for capitalists (I mean those who must capitalize their expenses) that was basic, but enlightening. And tomorrow there’s a law firm’s program on Tax Court practice that should be well worth attending.

At least I’ve been spared another “win your case at discovery,” at which IRS counsel appear to be the most faithful attendees.

And today STJ Daniel A. (“Yuda”) Guy has yet another installment of the perpetual discovery joust between Eaton Corporation and Subsidiaries, Docket No. 5576-12, filed 7/15/15, and the IRS.

Once again IRS claims (a) the stuff’s not privileged and (b) if it is they waived it. Of course this is the Section 7525 preparer cloak, and STJ Yuda got an in camera look-see bucked to him by Judge Kerrigan back in June.

Well, the Eatonians win this one, mostly.

STJ Yuda: “The … documents comprise internal emails, memos, and data compilations exchanged between petitioner’s employees and petitioner’s legal counsel …, and tax practitioners at [X] and [Y]. The documents generally were prepared or generated between 2009 and early 2012 in support of petitioner’s efforts to identify and correct errors in its advance pricing agreement annual reports submitted to the Internal Revenue Service (IRS) for a number of taxable years. Petitioner’s privilege claims are sustained. The Court’s review of the … documents shows that they qualify for protection under the attorney-client or tax practitioner privilege and/or the work product doctrine.” Order, at p. 2 (Names omitted, but the shoes are of the whitest).

For the benefit of those who tuned in late, see my blogpost “Advance and Retreat,” 6/26/13, for the backstory.

But there’s always more.

“During 2009 and 2010, in the course of an examination of petitioner’s tax returns, IRS personnel interviewed a substantial number of petitioner’s employees in the United States, Puerto Rico, and the Dominican Republic, as well as representatives and owners of electrical supply companies that distributed petitioner’s products. IRS attorneys also met with petitioner’s outside attorneys and tax practitioners. The [X] Notes, which were drafted by tax practitioners employed at [X] who attended the interviews and meetings, are best described as transcriptions or summaries of the interviews and meetings. Although the notes do not appear to include the mental impressions, conclusions, opinions or legal theories of any attorney or tax practitioner, the notes nevertheless constitute protected work product. Under the circumstances, the Court may order disclosure of the documents if respondent can show a ‘substantial need’ for the material and an inability to procure equivalent information ‘without undue hardship.’ Fed. R. Civ. P. 26(b)(3). Respondent has failed to make either showing.” Order, at pp. 2-3.

Why do any work (like asking your own people what happened) when you can demand other peoples’ notes?

Once again IRS claims waiver. I don’t fault them for that, it’s as well to use all the ammo you have.

Now there’s at least a soupçon of a hint that the Eatonians will claim the Section 6694 cover of reasonable reliance, and therefore what info they told their mayvonnim may well be the subject of IRS scrutiny.

But STJ Yuda, wise to the wiles of counsel, leaves that for Judge Kerrigan on the trial. As Robbie Frost remarked “Before I built a wall I’d ask to know/ What I was walling in or walling out.”

IRS seems also to be a disciple of The Poet Laureate of Vermont. “Something there is that doesn’t love a wall,/ That wants it down.”

So Judge Kerrigan can decide whether good fences make good neighbors.


In Uncategorized on 07/14/2015 at 16:10

Until the Golden-Cheeked Warbler Sings

Unhappily, this delightful little creature’s warble can’t save the Section 170 conservation easement deduction for Bosque Canyon Ranch, L.P., BC Ranch, Inc., Tax Matters Partner, 2015 T. C. Memo. 130, filed 7/14/15, as Judge Foley finds the Bosquers story is for the birds.

As a point of interest, “…the golden-cheeked warbler, [is] an endangered species of bird endemic to, and nesting only in, Texas.” 2015 T. C. Memo. 130, at p. 4.

The lands now or formerly of the Bosquers included the habitat of the golden-cheeked warbler, but the deed of conservation easement also provided for the Bosquers and the North American Land Trust (NALT), the Section 501(c)(3) guardian of the conserved, to make internal shifts of the servient tenement (no, not the crash pad for extras from “Fifty Shades of Grey,” rather the encumbered premises).

Besides that, the Bosquers also “…retained various rights relating to the property, including rights to raise livestock; hunt; fish; trap; cut down trees; and construct buildings, recreational facilities, skeet shooting stations, deer hunting stands, wildlife viewing towers, fences, ponds, roads, trails, and wells.” 2015 T. C. Memo. 130, at p. 5. Hardly “forever wild,” even by Texas standards.

Finally, the Bosquers sold partnership interests in the deal (for which they claimed an $8.4 million charitable deduction on account of Warblerville) to various unrelated types, who incidentally got homesites in land adjoining Warblerville.

So we have non-partnership with a disguised sale. Disguised sale applies even where a partnership isn’t a partnership; “See sec. 1.707-3(a)(3), Income Tax Regs. (‘If a person purports to transfer property to a partnership in a capacity as a partner, the rules of this section apply * * * even if it is * * * [subsequently] determined * * * that such person is not a partner.’).” 2015 T. C. Memo. 130, at p. 15, footnote 5.

Now all the disguised sale business comes up post-TEFRA, but that’s OK, as IRS has burden of proof and sustains it.

Finally, when it comes to the conservation easement, we have The Case of the Incoherent Conservator.

“The reference to the Site Survey Report in the 2005 baseline documentation’s table of contents indicates that the table of contents was not prepared until March 2007, at the earliest. In addition, the Site Survey Report included in the 2007 baseline documentation was based on a 2004 … visit. Thus, it failed to provide a timely and accurate description of the property subject to the 2007 easement. Petitioners also could not explain why the 2007 baseline documentation included photographs taken in November 2008. In rambling, incoherent testimony, A, president of the NALT, failed to clarify these glaring inconsistencies. He appeared to be unfamiliar with the baseline documentation; did not know when it had been prepared or who had prepared various portions; and admitted he ‘never felt that we had to stop preparing a baseline at some artificial date’ and that portions of the documentation (e.g., a map purporting to reflect the habitat of the golden-cheeked warbler) were ‘fairly imprecise’. 2015 T. C. Memo. 130, at p. 14. (Name omitted.)

Now there was a decent appraisal in there somewhere, so the Bosquers wanted the good faith bailout from the 40% overvaluation chop (the conservation easement was worth zero after the Bosquer reservations were done with it).

But Judge Foley isn’t having any. “Notwithstanding its actions relating to the qualified appraisal of the 2005 easement, [Bosquers] did not act reasonably or in good faith with respect to the documentation requirements of section 1.170A-14(g)(5)(i), Income Tax Regs. The 2005 baseline documentation was insufficient, unreliable, and incomplete, and [Bosquer]’s submission of this documentation to the NALT did not constitute a reasonable attempt to comply with section 170 and the related regulations. R failed to effectively supervise or review the NALT’s slipshod preparation of the baseline documentation and [Bosquers] thereby failed to satisfy its responsibility relating to the preparation of the documentation. Any reliance on the NALT by [Bosquers] was accordingly unreasonable.” 2105 T. C. Memo. 130, at p. 21.

The golden-cheeked warbler sang.


In Uncategorized on 07/14/2015 at 05:38

The employee benefits professionals have been waiting for the axe to fall on the split-dollar deals. We’ve already seen the end of the beginning as far back as August, 2012; see my blogpost “The Split,” 8/29/12.

Judge Laro needed 114 (count ‘em, 114) pages to dispose of the six test cases that decide the fate of the Sterling Benefit Plan. They’re grouped under the caption Our Country Home Enterprises, Inc., et al., 145 T. C. 1, filed 7/13/15.

Starting with Marbury v. Madison, 1 Cranch (5 US) 137 (1803), and waltzing through the obligatory Chevron-Mayo pas de deux, Judge Laro upholds Reg. 1.61-22(b)(2)(ii) and its siblings.

The Sterling maneuver promised tax deductions for premium payments on corporate employees’ life insurance policies, with beneficiaries getting the benefit if the employees died, or, as more likely, the employees got the cash value of the policies if they didn’t. And the scheme was used even for non-life insurance benefits, but that doesn’t change the result.

So these are compensation to the employees and non-deductible by the employer.

A key feature in the implosion is the individual underwriting done by the carrier on the insured employees, defeating the argument that these were Section 79 group term policies. Group term policies aren’t individually underwritten.

And none of the taxpayers disclosed the listed transactions, earning them the 30% chop.

I’m sorry that this post is delayed, but it’s been a busy day.