No, not the Mel Gibson-Sigourney Weaver 1982 epic. Rather this is a caution to those who petition Tax Court and Bankruptcy Court for the same year.

And who better to expose this trap for the unwary but The Great Dissenter, a/k/a The Judge Who Writes Like a Human Being, s/a/k/a as the Inveterate, Indefatigable, Illustrious, Implacable, Imperturbable Foe of the Partitive Genitive, and Old China Hand, Judge Mark V. Holmes?

He designates this one, Robert Roseberry & Della Roseberry, Docket No. 261-14S, filed 8/31/15. And thanks, Judge Holmes, for sparing me from wading through eight (count ‘em, eight) pages of orders while I’m vacationing at Fort Ticonderoga in The Empire State.

Rob & Del petition Tax Court for two years and file chapter. They were heading to trial in Birmingham, AL, when IRS’s counsel woke up and invoked the automatic stay in 11 USC§362. Rob & Del didn’t object, so Judge Holmes dismissed for want of jurisdiction.

But consciousness, once awakened, is a difficult thing to restore to somnolence. One of the years that Rob & Del petitioned to Tax Court was the very year in which they filed chapter.

IRS’s counsel, wide awake now, moves to restore the case for the year in which Rob & Del filed chapter.

“One of the deficiencies that the Roseberrys challenged was for the 2011 tax year. For them, that tax year ended at the end of 2011, but they filed their bankruptcy case in February 2011. Ever since 2005, the Bankruptcy Code has not extended the protection of the automatic stay to tax years that haven’t ended before a bankruptcy petition is filed. See People Place Auto Hand Carwash, LLC v. Commissioner, 126 T.C. 359, 362 n.6 (2006). Neither party nor the Court noticed this before dismissing the Roseberrys’ entire case, but it’s not too late to fix the mistake.” Order, at p. 1.

Judge Holmes always finds something new to learn. See my blogpost “Always Something to Learn,” 10/24/14.

Note that Ch J Michael B. (“Iron Mike”) Thornton, who wrote the People Place opinion, stated in that footnote 6 that the 2005 Bankruptcy Code amendment didn’t apply in People Place, because the People Place petitioners filed chapter prior to the effective date of the amendment to the Bankruptcy Code. So maybe it’s dicta, but so what?

The amendment does apply to Rob & Del, so Judge Holmes vacates his earlier dismissal, and reinstates it only as to the 2010 tax year, the year prior to the chapter filing.

So it’s “game on” as to the 2011 tax year.

Takeaway– Watch those petitions, pratitioner.

No, not the undoing of a multi-party advance pricing agreement with deficiencies in the billions. This is a sad story buried in 120 orders on a dull August Friday afternoon in Tax Court.

Hear now the tale of Angela Lynn Goodwin & Little John Goodwin, Docket No. 17516-15, filed 8/28/15, that doesn’t even make it to designated hitterdom. The story reminds us that the turbid ebb and flow of human misery washes even to the Glasshouse at 400- Second Street, NW.

Ch J Michael B. (“Iron Mike”) Thornton has much to say about the mentally disabled and their next friends, when court-appointed conservators or guardians can’t be found, but you’ve heard all that before now, and I’ve blogged it too, more than once.

But Little John’s sad story puts a human face on a technical discussion.

The petition from the SNOD at issue was signed by Angela Lynn only. Ch J Iron Mike ordered Little John to hop aboard. In the meantime, IRS answered the petition.

“On August 26, 2015, Mrs. Goodwin filed a Letter. Among other things, in her Letter Mrs. Goodwin states that: (1) Mr. Goodwin is not well; (2) since April 16, 2015, he has been missing from the home and his whereabouts are unknown; and (3) on the last occasion Mrs. Goodwin spoke with him, Mr. Goodwin sounded delusional.” Order, at p. 1.

Ch J Iron Mike wants IRS and Angela Lynn to decide about friending Little John, or otherwise dealing with his role.

Sounds like Little John needs more than a next friend in a Tax Court litigation.

When a taxpayer sends IRS money, it can be intended for one of two things: either to pay a liability, or to serve as a deposit (which can stop the accrual of interest). If a deposit, the taxpayer wants to fight the asserted liability, and can do so. But if a payment, then to the extent the money is applied to the liability (and the taxpayer so intended), then there’s nothing more to fight about.

But payment of an asserted deficiency strips Tax Court of jurisdiction, while a deposit does not.

So The Judge With a Heart, STJ Armen, wants to know which it is, in Hilbert Edward Schoeninger & Janis H. Schoeninger, Docket No. 16875-14S, filed 8/27/15.

It’s been a long day, starting with vacation in the Berkshires, a meeting in Albany, and a trip to the Green Mountain State, so I’ll be brief.

IRS hit Hil & Jan with a CP2000, Hil & Jan sent IRS a check, IRS sent a SNOD, Hil & Jan petitioned the SNOD, and IRS moved to dismiss, claiming no jurisdiction as Hil & Jan paid in full. But Hil & Jan’s petition was directed to liability for the deficiency.

So STJ Armen wants to know whether Hil & Jan paid or deposited.

Tax Court jurisdiction depends upon a valid SNOD. If the asserted deficiency has been paid before issuance of the SNOD, no jurisdiction. But if the petitioner deposited the money to stop accrual of interest and still wants to fight the deficiency, then jurisdiction.

“Rev. Proc. 2005-18, 2005-1 C.B. 798, gives guidance in determining whether a remittance is considered a payment or a deposit. According to Rev. Proc. 2005-18, sec. 4.01(1), 2005-1 C.B. at 799, the taxpayer may make a deposit by remitting to the IRS a check or money order, accompanied by a written statement designating the remittance as a deposit. However, if the remittance is undesignated, i.e., is not designated as a deposit, other facts and circumstances help determine whether it is a payment or a deposit. Rev.Proc. 2005-18, secs. 4.01(2), 4.03, 4.04, 2005-1 C.B. at 799-800.

“If an undesignated remittance is made in the full amount of a proposed liability, such as an amount proposed in a revenue agent’s or examiner’s report, the undesignated remittance will be treated as a payment of tax. Rev. Proc. 2005-18, sec. 4.03, 2005-1 C.B. at 799. However, any undesignated remittance that is made while the taxpayer is under examination, but before a liability is proposed in writing (e.g., before the issuance of a revenue agent’s or examiner’s report), will be treated by the Service as a deposit if the taxpayer has no outstanding liabilities. Rev. Proc. 2005-18, sec. 4.04(1), 2005-1 C.B. at 800.” Order, at p. 3.

But since neither IRS nor Hil & Jan address what the remittance was for, they should do so now.

Takeaway– Make it clear, practitioner: payment or deposit?

No, not Graham Greene’s 1951 novel nor the 1955 film version with Van Johnson and Deborah Kerr, rather this is the end of a love affair with the Chenery doctrine that began with The Great Dissenter, a/k/a The Judge Who Writes Like a Human Being, s/a/k/a The Imperturbable, Implacable, Indefatigable, Illustrious, Irrefragable Foe of the Partitive Genitive, and Old China Hand, Judge Mark V. Holmes.

Judge Holmes kicked off the fray and kicked out IRS’ summary J motion in my blogpost “He Loves Chenery,” 12/17/14.

So it looks like Fredric A. Gardner and co-petitioner Elizabeth A. Gardner, corp-sole dodge-floggers got a bye, right?

Well, guess not, because, having been given a chance to contest their Section 6700 phony-flogger chop ($47K worth), they encounter His Honor Big Julie, Judge Julian I Jacobs (hereinafter referred to as HHBJJJIJ), who finds that Fred and Elizabeth had their chance and they blew it.

And it’s a full-dress T.C., Fredric A. Gardner, 145 T. C. 6, filed 8/26/15. And not a word of dissent.

If you want to learn how to promote and flog a phony tax dodge, read pages 7 through 11 of the opinion. Then don’t do it.

While it may pay to advertise, in the Gardners’ case it brought down the IRS, who grabbed their bank records and found they’d flogged 300 of the phony deals. So the Gardners’ advertising paid the IRS.

Floggers of phony pseudo-religious dodges, read 2 Samuel 1:20.

Anyway, IRS concedes that, notwithstanding the decision of USDC for District of Arizona that “(1) the Gardners’ customers were harmed by their reliance on the structure of the corporation sole plan, (2) the United States was harmed as a result of the Gardners’ clients’ failing to pay correct amounts of tax to the Treasury, and (3) the public was harmed because the IRS was forced to devote resources to identify and recover lost revenue…. “, and enjoining the Gardners from further flogging, 145 T. C. 6, at p. 13, the Gardners never got the chance to contest the penalty, so Tax Court can look at matters de novo.

Great tactical move, IRS. De novo review takes administrative record out of the picture, and Chenery is benched for the rest of the game.

And Ninth Circuit affirmed DCDA, 145 T. C. 6, at p. 28.

Tax Court had previously affirmed the Gardners’ own tax liabilities. The Section 6700 chop came later.

The Gardners went to Appeals, which claimed they’d had a previous shot at litigating the chop, and bounced their appeals. Gardners petitioned. And, per my blogpost abovecited, went to trial.

“The section 6700 penalty is governed by the procedural rules of section 6703, which, in general, removes section 6700 penalty assessments from the deficiency jurisdiction of this Court. However, section 6330(d)(1) provides this Court with jurisdiction to review an appeal from the Commissioner’s determination to proceed with collection activity regardless of the type of underlying tax involved. And we have held that our jurisdiction includes reviewing the Commissioner’s lien and levy activities regarding penalties governed by the procedural rules of section 6703, including section 6700. Thus, we have jurisdiction to review the notices of determination issued to petitioners.” 145 T. C. 6, at p. 21. (Footnote omitted).

OK, that’s out of the way. Now what?

Section 6700 doesn’t require that any of the flogees actually bought the stuff or used it, or that if they did buy and use, it cost the fisc one centavo.

“…the legislative history of the section states that the actions of the plan participants are not relevant to the application of the section. ‘There need not be reliance by purchasing taxpayer or actual under-reporting of tax. These elements have not been included because they would substantially impair the effectiveness of this penalty. Thus, a penalty can be imposed based upon the offering materials of the arrangement without an audit of any purchaser of interests.’ S. Rept. No. 97-494 (Vol. 1), at 267 (1982), 1982 U.S.C.C.A.N. 781, 1015.” 145 T. C. 6, at p. 25.

Now IRS can trot in collateral estoppel, and they do. And it works.

“Petitioners reply that collateral estoppel is inapplicable in these cases. ‘It is clear there are no abusive transactions to give rise to the penalty. Respondent did not prove the abusive transaction. What the respondent is passing off as proof is the District Court said that the Gardners engaged in conduct that violates IRC § 6700.’ Petitioners then argue that the corporation sole plan was not an abusive tax shelter. However, petitioners’ position is precisely what the doctrine of collateral estoppel was intended to avoid: relitigating closed questions. Petitioners repeated in this Court the same argument that they made in the District Court as well as the same false statements made to their customers that led the District Court to enjoin them. We thus hold that the doctrine of collateral estoppel applies in the instant situation and that the District Court’s determination is conclusive. Consequently, respondent has met his burden of establishing that the Gardners are liable for the section 6700 penalties.” 145 T. C. 6, at p. 29. (Footnote omitted).

On the trial, IRS Senior Program Analyst Kurt (“Kuxie”) Kuxhausen buried the Gardners with his detailed discussion of his audits of flogees (some four or so of whom were actual bona fide religious, and one of whom even got a legitimate refund, and they testified for the Gardners on the trial), but he established the Gardners sold the 47 phonies alleged.

And the notice the Gardners got was sufficient, even if the tax year was wrong. They were aware what IRS demanded, and could contest, and did. And the Gardners stipulated they sold 67 schemes in the year stated in the notice, even though IRS nailed them for only 47. 145 T. C. 6, at p. 36.

By the way, even looking at the administrative record, the Gardners are out.

Sorry, Judge Holmes. The end of the affair.

Abroad at Home

That Obliging Jurist, Judge David Gustafson, gets to pull into the Chevron station, and doesn’t hold the Mayo. And he needn’t invoke the canon expressio unius exclusio Altera. No, Congress clearly gave IRS the authority to make regulations about the Foreign Earned Income Exclusion (FEIE), and Nancy McDonald falls foul thereof in 2015 T. C. Memo. 169, filed 8/25/15.

I’m a wee bit late with my post tonight, getting used to the fresh air of the Berkshires, so I’ll get to the point.

Nancy failed to file for the year at issue, so IRS gave her a SFR and a SNOD gratis and for free. Nancy ripostes after the SOL has run on that year with a 1040 claiming the FEIE, and paying the balance due giving effect thereto. IRS closes the SNOD.

But Nancy isn’t home free, because IRS audits her and disallows the FEIE, claiming Nancy blew the Reg. Section 1.911-7(a)(2) requirement for electing to exclude. Nancy petitions, claiming the Reg is invalid as contradicting Section 911.

The basic test for the FEIE, like ancient Gaul, is divided into three parts: “(1) the taxpayer must be a U.S. citizen who is a bona fide resident of a foreign country for an entire taxable year or physically present in a foreign country during at least 330 days out of a 12-month period, (2) the taxpayer must have earned income from personal services rendered in a foreign country; and (3) the taxpayer’s tax home for the period must be outside of the United States.” 2015 T. C. Memo. 169, at p. 6. (Citations omitted).

IRS claims Nancy flunks the tests, but Judge Gustafson doesn’t have to go there.

The issue is whether Congress gave Treasury general or specific authority to regulate. The statute says the taxpayer must elect to take the FEIE. The statute gives Treasury authority. And Section 7805 gives authority to make regulartions concerning timeliness.

There is no specific deadline for election in the statute, but the Reg states election must be made on a timely filed return before IRS audits them.

And that’s reasonable. So Mayo and Altera are satisfied.

Nancy is too late. And the Reg stands.

Happy Felix Guralnik might just get his one-day late petition accepted as timely, if Tax Court goes with The Judge With a Heart, STJ Armen, with an assist from the winter wind aforementioned.

It’s Felix Guralnick, Docket No. 4358-15L, filed 8/24/15, a Rule 183 Recommended Findings of Fact and Conclusions of Law.

I didn’t know what that was either, until I looked. Rule 183 lets the small judges of the small court make suggestions to the Big Judges of the small court, to which the parties can object or which the Big Judges can grant or disallow.

STJ Armen suggests that, as Tax Court was closed on the last day for Happy Felix to get his petition to 400 Second Street, NW (which he did next day when the Court was open, by a then-impermissible but later blessed iteration of FedEx) and since Tax Court had no “drop-box,” nor permitted e-filing of petitions, Happy Felix is OK, despite IRS’s objections.

Happy Felix wasn’t happy when Appeals hit him with a NOD off a NFTL. But Happy Felix used FedEx First Overnight, which wasn’t blessed until after he sent in his petition; he should have used Priority Overnight, which was blessed by IRS under the provisions of Section 7502 when Happy Felix sent in his petition.

Practitioners, get the blessed list and tack it up on every wall you can find. And check for updates.

Happy Felix is out, right?

No, the last day was a Sunday, the Monday in this case was a holiday in the District of Columbia, but IRS claims Happy Felix stumbles at the last fence, because Tax Court was closed on the Tuesday because of Winter Storm Octavia. STJ Armen says no.

There is no Tax Court rule about what happens when Tax Court is closed. FRCP 6(a)(3)(A) says when clerks’ offices are closed, for whatever reason, service is complete the next open day not a Saturday, Sunday or legal holiday.

And Section 7503 comes to the rescue, although STJ Armen has to stretch a little to get there, going back to 1926 for Sunday closing language, and 1934 for Saturday closing language, in the reports of the respective revenue acts of those long-ago years.

So Winter Storm Octavia mutates into a legal holiday, and if the Big Judge assigned to this jumpball has a heart, Happy Felix is indeed happy.

Neither Is Hearing, When It Comes to TEFRA

So Judge Laro instructs us in Green Gas Delaware Statutory Trust, Methane Bio, LLC, Tax Matters Partner, 2015 T. C. Memo. 168, filed 8/24/15.

The Green Gassers claimed a ton of Non-Conventional Source Fuel Credits, IRS issued an NBAP and ten days later issued a FPAA, which kicked out most of the credits.

The Green Gassers yell “foul!”, claiming IRS didn’t wait the 120 days Section 6223(d) requires before issuing the FPAA, and never let the Green Gassers put in any information before slugging them with the FPAA, from which they now petition, claiming no jurisdiction.

Well, says Judge Laro, the 120 days isn’t a jurisdictional predicate.

“Section 6223(d) provides that the Commissioner shall mail the FPAA at least 120 days after the NBAP is issued. Both parties in this case agree that the NBAP was not issued 120 days before the FPAA. Petitioner argues that because the NBAP was untimely, the resultant FPAA was fatally defective. The NBAP was indeed untimely, but the issuance of an FPAA shortly after an untimely NBAP does not invalidate the FPAA. Wind Energy Tech. Assocs. III v. Commissioner, 94 T.C. 787, 791-794 (1990); see also Bedrosian v. Commissioner, 143 T.C. 83, 95 (2014) (stating that the Commissioner’s failure to adhere to the 120-day timeframe means that the NBAP is untimely but does not invalidate either notice); sec. 301.6223(e)-2(a), Proced. & Admin. Regs. (failure to issue either notice within the 120-day timeframe does not invalidate either notice).” 2015 T. C. Memo. 168, at pp. 8-9.

So neither wind nor gas will prevail against a premature FPAA.

Next is the Green Gassers’ claim they were shut out of participation or interaction with IRS before the FPAA boom was dropped on them.

Your remedy, says Judge Laro, is the Section 6223(e) opt-out, whereby the nonparticipants can elect to treat partnership items as nonpartnership (that is, individual) items, and duke it out with IRS their own selves.

And if the Green Gassers don’t like that, let them take their woes to Congress. Tax Court isn’t rewriting the Code.

“If Congress wanted the Commissioner to conduct a meeting between or among the parties, it would have included such a requirement in the legislation. Instead, petitioner requests this Court to create a new prerequisite that the Commissioner must adhere to before issuing an FPAA. It is Congress’ prerogative to establish such requirements. Congress has not done so.” 2015 t. c. Memo. 168, at p. 10.

IRS issued a proper FPAA here. They looked at the Green Gassers’ return and amended return, and allowed the Green Gassers some of the credit they claimed. It’s not a completely made-up deficiency.

And the Green Gassers’ SOL argument is also out. It’s an affirmative defense, not a jurisdictional bar.

So time is not of the essence.

As a breachee, IRS shows some compassion to those suffering from breaches of data bases other than IRS’ own.

So we now have guidance that IRS won’t assert tax liability for credit monitoring and anti-fraud services furnished to those caught with their breaches down.

Read all about it in Notice 2015-22.

“Questions have been raised concerning the taxability of identity protection services provided at no cost to customers, employees, or other individuals whose personal information may have been compromised in a data breach. Existing guidance does not specifically address these questions.

“The IRS will not assert that an individual whose personal information may have been compromised in a data breach must include in gross income the value of the identity protection services provided by the organization that experienced the data breach. Additionally, the IRS will not assert that an employer providing identity protection services to employees whose personal information may have been compromised in a data breach of the employer’s (or employer’s agent or service provider’s) recordkeeping system must include the value of the identity protection services in the employees’ gross income and wages. The IRS will also not assert that these amounts must be reported on an information return (such as Form W-2 or Form 1099-MISC) filed with respect to such individuals.” Notice, at p. 2.

But before the breached get too elated, let them note well the following.

“This announcement does not apply to cash received in lieu of identity protection services, or to identity protection services received for reasons other than as a result of a data breach, such as identity protection services received in connection with an employee’s compensation benefit package. This announcement also does not apply to proceeds received under an identity theft insurance policy; the treatment of insurance recoveries is governed by existing law.” Notice, at p. 2.

And organizations providing identity protection otherwise than after a breach have until October 13 to dish on the subject at notice.comments@irscounsel.treas.gov.

We all know the old saw about a SNOD (statutory notice of deficiency or 90-day letter) being the ticket to the Tax Court. But Jose Diaz and Frances Diaz, Docket No. 22620-13L, filed 8/21/15, remind us, with some help from Judge Gale, that it’s also the ticket to a refund.

Jose and Frances petition from a NOD. That’s nothing special, except that Appeals refused to sustain the NFTL against Jose and Frances. So Jose and Frances won. So why the beef?

Jose and Frances want a refund. IRS says they’ll concede no NFTL based on SOL considerations, but they want the assessments upheld and that Jose and Frances get no refund.

Judge Gale agrees.

Jose and Frances never got SNODs for any of the years at issue, because though they self-reported their liabilities, they just didn’t pay them. Thus no SNOD, because no variation between taxes reported on returns and tax actually owed.

And Jose and Frances signed off on Form 4549, admitting what they owed, and IRS showed they assessed tax within the three-year timeframe.

Judge Gale instructs us as follows. “While the Secretary must generally issue a notice of deficiency before assessing an income tax that is greater than that shown as due by the taxpayer on his return, see secs. 6212(a) and 6213(a), no such notice is necessary for the assessment of amounts reported as due on the return, sec. 6201(a). Similarly, no deficiency notice is required for income taxes covered by Forms 4549, which authorize the Commissioner to assess and collect the taxes reflected thereon…..Respondent is therefore entitled to a decision as a matter of law, and we so hold, that the assessments at issue in this case were timely and validly made. Petitioners having suggested no other infirmity in the assessment process or other failure by the Appeals officer to verify that the requirements of any applicable law or administrative procedure were satisfied, respondent is likewise entitled to a decision as a matter of law, and we so hold, that the Appeals officer satisfied the verification requirement of section 6330(c)(1).” Order, at pp. 5-6. (Footnotes and citations omitted).

No refund without a SNOD.

Except, Of Course, Taxes

Among other things. No, I won’t discuss Ashley Madison and others similarly situated; we should be seeing a bushelbasketful of 6015s, 215s and 71s as that unhappy tale unwinds.

But on a day without opinions or designated orders, after a lengthy CPE/CLE that brought me fresh insights into tactics and which require much somber reasoning, and a mad rush to get out an amended offering statement, I thought something on the lighter side might serve to toll the knell of parting day.

So here’s a short round from that long-suffering correcter of misspellings, mischaracterizations and the generality of Tax Court mishaps, Ch J Michael B. (“Iron Mike”) Thornton.

Dianalee Waterman, Docket No. 19708-15, filed 8/20/15,* provides today’s grist for the blogmill.

Dianalee hit the 400 Second Street, NW, gang with an imperfect petition. Ch J Iron Mike, cast again in the role of snapper-up of unconsidered trifles, told Dianalee to get it right.

Dianalee unloaded the following: “petitioner filed a document entitled ‘Request for Motion Terminating IRC Chapter 24 Withholding Per 26 USC 6013(G)(4)(A)’. That document opened with the following: “For the record, Petitioner’s REQUEST is provided as a ‘position statement’. In no manner, form, or intent does Petitioner’s REQUEST grant the United States Tax Court (USTC) jurisdiction over the Petitioner who is domiciled ‘without the geo/legislative (^) United States jurisdiction”. The document went on to emphasize, inter alia, that Clark County, Nevada, is not in the statutory ‘United States’, and that petitioner ‘is now permanently free from participation in the federal income tax scheme’.” Order, at p. 1.

Well, Dianalee, what happens in Vegas (or Clark County generally) may stay in Vegas (or Clark County generally), but I wouldn’t wager large bucks that Federal income tax stops at the county line.

Ch J Iron Mike, clearly not in the mood for somber reasoning and copious citation of precedent, cuts to the chase: “…it appearing that petitioner does not intend to file an amended petition and pay the filing fee as directed in the Court’s Order…on the Court’s own motion, this case is dismissed for lack of jurisdiction.” Order, at p. 1.

*Dianalee Waterman 19708-15 8 20 15