Archive for September, 2015|Monthly archive page


In Uncategorized on 09/22/2015 at 03:15

Not the Heavy Dragoon, as compounded by Sir W. S. Gilbert’s Patience, rather this is another of IRS’ failed attempts at dealing with insurance. This insurer (and Judge Lauber says it is an insurer) deals with residual value insurance.

And that’s its name, R.V.I. Guaranty Co., Ltd. & Subsidiaries, 145 T. C. 9, filed 9/21/15.

The question: is residual value insurance truly insurance? Or is it a hedge against an investment risk?

Judge Lauber: “A simple example may illustrate the mechanics of a typical RVI policy. Assume that an automobile with an initial purchase price of $20,000 is leased for three years and that its expected residual value upon lease termination is $10,000. RVIA [the US sub] might insure that automobile for 90% of the expected residual value, yielding an insured value of $9,000. If, at lease termination, the automobile had an actual residual value of $8,500, the RVI policy would indemnify the lessor for $500, assuming the lessor satisfied all terms and conditions of coverage. The lessor would bear the $1,000 initial layer of loss.” 145 T. C. 9, at p. 6.

In short, if the lessor guesses wrong about the residual value, the sum of rental payments plus residual value won’t cover its acquisition, administrative and financing costs. So it will lose.

R.V.I., domiciled in (where else?) Bermuda, insures lessors and lenders against bad guesses of the value of the property at lease expiry. But one of its subs is a US on-shore, and they report consolidated.

IRS claims R.V.I. covers an investment risk, not an insurance risk, so R.V.I. can’t use the Section 832 accounting rules that real insurers use.

The difference? $55 million deficiency.

R.V.I.’s policies read like real insurance. States regulated R.V. I. like an insurer, and R.V.I. reported to the regulators like an insurer. And Fitch, Moody’s and S&P rated R.V.I. like an insurer.

IRS didn’t care, and said R.V.I. had to use Sections 451 and 461 to compute income, not Section 832, because R.V.I. flunks the Section 832(c) test. And IRS buttressed its position with T.A.M. 201149021 (Aug. 30, 2011).

R.V.I. proffers expert testimony that it insures against “low frequency/high severity” risks, like earthquakes or floods. That there may be systemic risk does not negate pooling of risk. Mortgage guaranty insurers got killed in the subprime meltdown, but that didn’t mean they weren’t writing insurance.

IRS’ expert says the policies weren’t policies, because risk was illusory. In the year at issue, R.V.I. lost little or nothing.

But many of the insured leases had years to run at that point. Judge Lauber let in evidence of what happened later, over IRS’ objections.

“Respondent objected to 2013 as post-dating the tax year in issue and ‘irrelevant for that reason.’ The Court overruled this objection. A loss under an RVI policy is payable only at the end of a lease, and many of the insured assets were subject to very long leases. By definition, therefore, many RVI policies in existence in 2006 could not have come to a payout resolution, and could not possibly have had a loss, as of year end 2006. Yet many of these policies could (and did) experience significant losses upon lease termination. In order to display accurately RVIA’s loss experience under the policies it held during 2006, it is necessary to consider the complete terms of these contracts.” 145 T. C. 9, at p. 12, footnote 6.

IRS’ expert says there is no timing risk, because the loss occurs, not at random like an earthquake or flood, but on a fixed date, the lease expiry date. But this is like mortgage guaranty insurance, covering a lender where the borrower hasn’t sufficient cash in the deal, so that the lender has to lend more than its usual loan-to-value ratio would warrant.

True, ripostes R.V.I., the risk of borrower default is random, but the underlying issue is diminution of the value of the collateral security.

An IRS expert claims that, since the insured can make a profit if R.V.I. pays off, it isn’t risk insurance but a speculative hedge. But Judge Lauber isn’t convinced, since holders of institutional investment portfolios and municipal bonds can buy insurance against loss.

The magic formulas are risk-shifting and risk-distribution, the classic standard going back to seventeenth-century England; “the losse falleth lightlie upon the many, rather than heavilie upon the fewe”. All the R.V.I. insureds shift some of the risk to the insurer, and the risk of any great loss is covered by the premiums paid by all.

First, R.V.I. covers a real risk of loss, and the State regulators so determined.

Second, the fact that a loss is unlikely to occur doesn’t mean that there is no risk. Earthquakes are (thankfully) uncommon, but they do occur.

Third, taking only the year at issue as the sole test whether there was real risk is itself unrealistic. Loss only occurs at lease expiry, and some insured leases had 25-year terms, a classic case of “it ain’t over till the fat lady sings”.

Fourth, R.V.I. insured a lot of stuff for a lot of different persons. That’s risk distribution.

But IRS shows that never-say-die quality. “Undeterred, respondent contends that the RVI policies do not sufficiently distribute risk because some systemic risks, like major recessions, could cause insured assets to decline in value simultaneously. Like most insurers, RVIA did face certain systemic risks, but many of the risks against which it insured were uncorrelated. Examples of risks that affected different insured assets differently include regional economic downturns, rising fuel prices, over-supply of particular assets, technological improvements, vehicle recalls, regional industrial migration, acts of terrorism, high interest rates, decreased availability of financing, and regulatory changes like restrictive building codes. Indeed, even systemic risks like major recessions were mitigated by the temporal distribution of RVIA’s risks over lease terms as long as 28 years.” 145 T. C. 9, at pp. 34-35.

There need not be complete independence of risk, only meaningful distribution of risk.

IRS claimed that R.V.I. deferred some premium payments, but that doesn’t negate coverage, as the undeferred premiums were paid, and the deferred premiums were a tiny part of R.V.I.’s book.

State regulation is a key. The Federal courts have historically deferred to the States when it comes to insurance, and R.V.I. has been treated as an insurer in every State where it does business.

IRS’ hair-splitting over “speculative risk” versus “pure risk” is metaphysics.

“The insureds purchase insurance from RVIA to protect against the risk that unexpected events will wreak havoc with these lease-pricing formulas and generate an ordinary business loss instead of a profit. This is not an investment risk; it is a risk at the very heart of the lessor’s business model. In comparison with typical stock investors, therefore, the insureds under the RVI policies are at the opposite end of the bell curve.” 145 T. C. 9, at p. 58.

Ultimately, it’s the duck test. If it swims, waddles and quacks, it ain’t a kangaroo. And here the policies look like insurance. And R.V.I. will be taxed accordingly.



In Uncategorized on 09/21/2015 at 14:36

No, no burning of ballots, but as Pope Francis is coming to Our Nation’s Capital, Tax Court thought it appropriate to shut down.

After all, as a leading tribunal for the rendering to Caesar of what is Caesar’s, it’s a nice gesture.

Here’s the skinny:

“Operating Status–Washington, DC:

“Due to traffic and transportation difficulties anticipated to accompany the Papal visit to the United States Capitol and nearby locations, the United States Tax Court will be closed on Thursday, September 24, 2015.

“eFiling and eAccess will be available September 24. Taxpayers may comply with statutory deadlines for filing petitions or notices of appeal (both of which types of documents must be filed in paper) by timely mailing a petition or notice of appeal to the Court. Timeliness of mailing of the petition or notice of appeal is determined by the United States Postal Service’s postmark or the delivery certificate of a designated private delivery service.”

 As for the appropriate private deliverers, see my blogpost “Bless ‘Em All – Part Deux, 5/8/15. But check the IRS website before you send anything.


In Uncategorized on 09/18/2015 at 21:10

The Judge With a Heart, STJ Armen, takes up the tune from Sara Bareilles’ and Jack Antonoff’s 2013 digital hit “Brave,” and finds Heather Hope Jupena-Elmer, Docket No. 18172-14SL, filed 9/18/15, did just that, even though the Form 1098 for the home mortgage interest she claims she paid, and which she deducted, only names her ex-husband.

Heather Hope also claims she never got the SNOD. IRS claims they sent it, but shortly afterward Heather Hope filed her 1040, which was currently due, and it showed a different address.

IRS hit Heather Hope with a NITL. Heather Hope came back with Form 12153, asking for CNC because she was broke and was trying to get info concerning the mortgage interest from her exes: her ex-husband and ex-CPA.

The AO claims Heather Hope had prior opportunity to contest, notwithstanding Heather Hope’s protestations. “Even though petitioner’s name did not appear on the Form 1098, in her letter she stated the residence was her ‘joint home’ and she is ‘the second person on the loan, although [her] name does not show.’” Order, at p. 2.

To no avail.

“…petitioner participated in an administrative hearing with respondent’s Appeals Office. Therein, the Appeals officer asked petitioner her address on… the date the notice of deficiency was issued, and petitioner could not recall if she was using a Post Office Box or lived at the same address at which she resided as of the date of the hearing, but petitioner did state that she did not receive the notice of deficiency and that as of the date of the administrative hearing had not lived at the old address ‘for over a year plus’. Petitioner continued to dispute the underlying liability.’ Order, at p. 2.

Would it surprise you that “(T)he Appeals officer determined that the underlying liability was not properly in issue because of the previous notice of deficiency and failure to challenge the liability at that time.”? Order, at p. 2. It shouldn’t.

IRS moves for summary J. Heather Hope objects. IRS has a problem.

“There is nothing in the record establishing petitioner’s last known address as of the date that the notice of deficiency was issued…. Further, there is nothing in the record to contradict petitioner’s assertion that she did not receive the notice of deficiency. Finally in this regard, there is nothing in the record to demonstrate that petitioner may have refused to accept delivery of, or neglected to claim, the notice of deficiency.” Order, at p. 3.

But IRS isn’t through.

“Respondent argues that even if petitioner is entitled to dispute the underlying liability, she failed to do so.” Order, at p. 4.

“To dispute a liability, a taxpayer must properly raise the merits of the liability during the administrative hearing. If the taxpayer raises the underlying liability but does not provide the Appeals officer with any evidence after being given an opportunity to do so, the underlying liability is not ‘properly raised.’ Respondent argues that petitioner did not provide sufficient evidence to properly raise the underlying liability.” Order, at p. 4. (Citations omitted).

But IRS is out.

“Petitioner raised the underlying liability in her Form 12153. Later, petitioner provided the Appeals officer with a copy of a Form 1098…, which form reflected that mortgage interest had in fact been paid on the residence giving rise to the deduction for the year in issue. Concurrently with the Form 1098, petitioner stated that she was a joint owner of the home and she was listed on the loan. Throughout the administrative hearing process, petitioner continued to argue her entitlement to the mortgage interest deduction.” Order, at p. 4.

In summary J, nonmovant gets all the breaks, and Heather Hope has plenty. There are several fact questions: what was Heather Hope’s last known address when IRS mailed the SNOD; and did Heather Hope refuse or neglect to pick up the SNOD.

Takeaway– Say it. Keep saying it.


In Uncategorized on 09/18/2015 at 20:22

From IRS: “Maintenance on the Modernized e-File (MeF) system originally scheduled for Saturday Sept. 19 is postponed until Saturday Sept. 26. IRS will be conducting system maintenance from 7:00 a.m. until 8:00 p.m. Eastern Time on that day. Please refrain from accessing the MeF Production and ATS Systems to transmit submissions, get acknowledgements, retrieve state submissions, send state acknowledgements or submit any other service requests.”

From Tax Court: “The Court will be undergoing system maintenance upgrades on Saturday, September 19, from 9 am to 5 pm Eastern time. During that time, there may be a brief interruption in service as systems are restarted. We apologize for any inconvenience.”




In Uncategorized on 09/17/2015 at 17:38

The three-hour deadline appears to be the new flavor du jour in governmental operations. Back on August 24, our State’s Attorney General’s office give me a three-hour deadline, by e-mail, to file a non-substantive document where there was no particular urgency that I file it, and threatened to reject a major registration statement I’d been working on for months if I didn’t.

I did, of course, but when I remonstrated with the Chief of the Division, I got this reply: “I know this is tough, but we had to do something about the large number of incomplete submissions made to the office, and [the individual involved] is simply following office procedure.  Technically, [the individual] is not even supposed to give you an opportunity to cure.”

Why precisely this technical requirement is so exigent is a mystery to me, as the State agency charged with maintaining the record of these documents has until the fifteenth of the next month following each quarter to report the filing thereof, by law. In my case, they had more than thirty (30) days to go.

I wish I could have gone before Judge Gustafson with this one.

Philip Baumgarten & Esther Gomez Baumgarten, Docket No. 17205-14L, filed 9/17/15, had the benefit of that Obliging Jurist’s magnanimity in a like situation in this designated hitter.

Judge Gustafson allowed a bushelbasketful of deemed admissions from Phil & Esther, but found the NOD lacking in critical respects: it didn’t address the additions to tax (misnamed “penalties”), and the three-hour deadline Appeals gave Esther to file her Form 8857 by fax seems a bit rough (although maybe not per se arbitrary and capricious).

Judge Gustafson: “A taxpayer who, like the Baumgartens, does not check the ‘innocent spouse’ box on Form 12153, is nonetheless entitled to raise that issue at the CDP hearing (and respondent does not contend otherwise). The Baumgartens did raise this issue at their CDP hearing and were told, in a telephone conference that began at 2:00 p.m., that they must download Form 8857 from the Internet, fill it out, and submit it ‘today’. It therefore seems that they were given three hours to make this submission. (Other than the mention on Form 12153, our record does not show any prior reference to Form 8857 nor any request for it; and contrary to respondent’s motion at 6, para. 28, our record does not show any prior mention by Appeals of ‘spousal defenses.)” Order, at p. 6.

But it seems IRS thought that Phil was a sophisticate, and that excused their peremptory behavior.

“We have previously held that imposing a 2-week deadline may be a reasonable exercise of discretion by Appeals, see Shanley v. Commissioner, T.C. Memo. 2009-17; but a 3-hour deadline is very surprising. Perhaps anticipating this reaction, respondent argues (at 24, para. 84, 86):

‘Further, Petitioner Philip Baumgarten is a C.P.A. and tax attorney, specializing in tax for over 30 years. He is a sophisticated taxpayer who could have asked for more time to complete the necessary paperwork…. Petitioners did not request more time ….’

“Perhaps respondent is arguing that, if in a CDP hearing Appeals imposes an unreasonable 3-hour deadline, then the unreasonableness is cured (at least in the case of a sophisticated taxpayer) by Appeals’s supposed willingness to entertain the taxpayer’s request for more time. But respondent does not suggest that Appeals invited such a request; and on this record, we have to assume the apparent fact that, by imposing a 3-hour deadline, Appeals communicated to the taxpayer that the deadline was firm. We think an imminent deadline of this sort is normally used to communicate utter seriousness and to put fear in the heart of the hearer. One cannot make such a dramatic demand and then expect the hearer to suppose that the same stern authority who imposed that deadline will become a benign and flexible person. One settlement officer cannot serve both as Appeals’s bad cop and as its good cop.” Order, at pp. 6-7.

But IRS’ counsel sticks to whatever guns they have left.

“Respondent also argues that ‘Petitioners gave no indication that they intended to proceed with the innocent spouse claim.’ However, given the settlement officer’s treatment of the issue, one cannot read much into the fact that the Baumgartens did not then repeat ‘that they intended to proceed with the innocent spouse claim’. That claim had been batted down pretty flatly. The SO’s case record states, ‘I explained that I will issue the determination letter which gives him the right to petition the Court.’ On this record, we have to assume that the Baumgartens took the SO at her word and concluded that their only recourse was to bring this up with the Court (as they have done).” Order, at p. 7.

So batting down Esther’s claim with a three-hour deadline might just could be an abuse of discretion. Or at least it raises enough doubt to torpedo any summary judgment or deeming anything admitted on that account.

“For purposes of Rule 121 [the “pick the facts” rule], construing the facts in the Baumgartens’ favor, we hold that a genuine dispute of material fact exists on the question whether imposing a 3-hour deadline constituted an abuse of discretion. We do not hold that it necessarily was, but it seems highly possible that it was.” Order, at p. 7.

And while IRS’ account of Esther’s claim doesn’t make it look too hot, Esther gets trial de novo with the burden of proof.

And if anybody has a problem with that, let them move pre-trial and argue about it.


In Uncategorized on 09/17/2015 at 00:17

That’s what Susan, Bonnie, Carol and Lois did when they undertook the pay their Ma’s gift tax, and the estate tax if the gifts Ma was giving them was clawed back into Ma’s estate if Ma died within the three-year clawback rule.

If this sounds familiar, it is. See my blogpost “Don’t Assume?” 9/30/13. And the unanswered question at the end of said blogpost, namely, what was the worth of the assumed estate tax liability, is answered at last in Jean Steinberg, Donor, 145 T. C. 7, filed 9/16/15, Judge Kerrigan still with this case.

So we have a “net, net gift” as both gift tax and estate tax fell upon the four ladies aforesaid (hereinafter “The Four”).

Two years ago, Judge Kerrigan said a trial would be necessary to see what the value to the late Jean’s estate of the assumption by The Four in dollars and cents.

So we’re back to our old chums the hypothetical willing seller and willing buyer, neither of whom exists. “The ‘willing buyer/willing seller’ test is the bedrock of transfer tax valuation. It requires us to determine what property rights are being transferred and on what price a hypothetical willing buyer and willing seller would agree for those property rights.” 145 T. C. 7, at p. 15.

Judge Kerrigan analogizes the assumption of tax liabilities here to the buyer of a corporation whose big assets are subject to built-in gain. Clearly there would be a heavy-duty two-way tax on liquidation or sale, so the buyer would pay the seller less, since the buyer would have to deal with both tax consequences.

But the issue here is benefit to the donor’s estate. This means what is the cost of replenishing the estate with the amount of tax dollars (estate and gift) if The Four hadn’t agreed to pick up the taxes.

IRS’ argument that the deal between Jean and The Four merely duplicates New York law (our Estates, Powers and Trust Law Section 2.1-8, which provides for apportionment of tax on beneficiaries where testator so directs) founders on two points: Jean was alive when the assumption took place, so could change either or both of her will and her domicile. Once she made the deal with The Four, State law is off the table.

So the assumption is an asset that benefits Jean’s estate.

“Conceivably, the value of this new asset might not be precisely equal to the actuarial value of the contingent estate tax liability that the daughters assumed. But the record contains no expert testimony that would support a value lower than that. Nor does respondent contend that uncertainties surrounding the application of the New York apportionment statute render the value of the daughters’ contractual assumption ‘too speculative’ to be considered for Federal gift tax purposes. Quite the contrary: Respondent concedes that whether ‘the section 2035(b) estate tax liability is too speculative * * * is not an issue in this case.’” 145 T. C. 7, at p. 24.

IRS tries to rehash their losing intrafamily gift arguments from the September 2013 case they lost, but Judge Kerrigan blew that off then, and blows it off now. Even though not made in the ordinary course of business, the deal was negotiated extensively, the parties all had independent counsel, and no one claims the deal wasn’t bona fide or arms’-length.

Best of all, The Four have an expert, and IRS has only the Michael Corleone gambit.

The expert used the IRS’ Section 7520 mortality and interest rate tables.

“Respondent contends that Mr. [Ace Appraiser] should have also considered petitioner’s health and general medical prognosis. The Commissioner’s mortality tables necessarily take some account of a person’s health and general medical prognosis when arriving at a probability of death. Respondent has not pointed to any specific facts or circumstances that would justify special consideration of petitioner’s health or general medical prognosis beyond use of the mortality tables, and the evidence does not suggest that the tables produce an unreasonable result.” 145 T. C. 7, at p. 30. (Name omitted).

The IRS’ final card cannot trump The Four’s ace appraiser.

“…respondent contends that the section 7520 rates are not applicable here because they apply only to annuities, life interests, terms of years, remainders, and reversionary interests.

“Mr. [Ace Appraiser] calculated the present value (the value on the day that the parties signed the net gift agreement) of the daughters’ potential liability to make a payment to petitioner’s estate in one of the subsequent three years. The fact that the payment is contingent rather than certain does not preclude use of the section 7520 rates. It simply requires adjusting the value of the payment to take into account the likelihood of the contingency. Mr. [Ace Appraiser] did account for the contingency by using the Commissioner’s actuarial tables. Respondent has not persuaded us that there was a more appropriate method that should have been used. We conclude that the valuation was proper.” 145 T. C. 7, at p. 31. (Name omitted).

The Four have turned the tables on IRS.


In Uncategorized on 09/16/2015 at 23:16

Every record has two sides, says Judge Halpern, so Whistleblower One 10683-13W, Whistleblower Two 10683-13W, and Whistleblower Three 10683-13W, starring in 145 T. C. 8, filed 9/16/15, get to find out what should be in the record.

The Whistleblowers 1-2-3 want answers to interrogatories and production of documents.

“Respondent [IRS] has filed virtually identical responses (responses) to each motion, his sole objection being that the information requested is not contained within his Whistleblower Office’s case file (a purported ‘administrative record’) and, therefore, is beyond the scope of discovery.” 145 T. C. 8, at p. 2.

IRS agrees that the info supplied by Whistleblowers 1-2-3 led to recovery of tax money. Looks like IRS agrees that Whistleblowers 1-2-3 are in the money.

“Rule 70 governs discovery, and paragraph (b) thereof provides that the scope of discovery is ‘any matter not privileged and which is relevant to the subject matter involved in the pending case.’ The paragraph further provides: ‘It is not ground for objection that the information or response sought will be inadmissible at the trial, if that information or response appears reasonably calculated to lead to discovery of admissible evidence’. The standard of relevancy in a discovery action is liberal. The information and responses petitioners seek are clearly relevant to petitioners’ theory of their case: They are looking for evidence that will prove that one or more collections of proceeds from the target were attributable to the information petitioners provided.” 145 T.C. 8, at p. 5. (Citation omitted).

Nor does IRS claim the stuff sought by Whistleblowers 1-2-3 is irrelevant to whether IRS got money, and whether they got it as the result of the info that Whistleblowers 1-2-3 provided.

“Rather, his relevance objection is based solely on a generalized view that our scope of review should be limited to the ‘administrative record’ and the information petitioners seek is outside that record. Respondent’s argument is not a sufficient basis to deny petitioners’ discovery requests. Even were we to agree with respondent as to the scope of review, he cannot unilaterally decide what constitutes an administrative record. How could evidence related to whether there was a collection of proceeds and whether that collection was attributable to the whistleblower’s information not be part of any purported administrative record? Any such evidence goes to the very basic factual inquiries required by section 7623(b). Respondent’s lack of direct response to petitioners’ motions appears to indicate that the current ‘administrative record’ is incomplete.” 145 T.C. 8, at pp. 5-6. (Citations and footnote omitted).

The footnote is instructive, however, so here it is.

“Sec. 301.7623-3, Proced. & Admin. Regs., is entitled ‘Whistleblower administrative proceedings and appeals of award determinations.’ Para. (e) thereof is headed ‘Administrative record’ and states in pertinent part: ‘The administrative record comprises all information contained in the administrative claim file’. Para. (e)(2) thereof describes the content of the administrative claim file. Para. (f) thereof states that the ‘rule’ (section) is effective on August 12, 2014. Neither party mentions the section, and we assume that it is not in effect with respect to petitioners’ claim. In any event, we do not purport to interpret the term ‘administrative record’ as used in sec. 301.7623-3, Proced. & Admin. Regs.” 145 T. C. 8, at p. 6, footnote 2.

The Court can’t accept IRS’ “trust me, trust me” as to the scope of review. If Whistleblowers 1-2-3 claim that stuff is missing, let IRS show that everything relevant put before IRS has been included in the administrative record.

“We do not have before us a situation where petitioners want information or want us to review information that was not before the agency at the time it made its decision. Nor are we considering a situation where relevant evidence may still need to be developed by the agency. We believe that: (1) the information already exists, (2) is in the IRS’ hands, and (3) should be included in an administrative record compiled for purposes of making a determination of petitioners’ claim.” 145 T. C. 8, at p. 7. Citations omitted).

And Judge Halpern throws up the usual confidentiality barrage to protect both innocent and guilty.

So, IRS, hand it over.


In Uncategorized on 09/16/2015 at 13:53

That’s the question that perplexed Ch J. Michael B. (“Iron Mike”) Thornton is putting to IRS and Carolyn F. Biddix, Docket No. 15573-15, filed 9/16/15. I post these conundra for the information and possible edification of my readers, to illustrate the pitfalls and missteps one can encounter in the minefield.

Carolyn petitioned a SNOD in June, claiming she paid in March, and IRS’ answer agreed with Carolyn—she paid.

So SNOD no longer valid, right?

Except. “Thereafter, and unexpectedly given the state of the record, the parties on August 27, 2015, submitted a stipulated decision resolving the case and reflecting an income tax due from petition consistent with that stated in the notice of deficiency. The document further stipulated that the deficiency was calculated without consideration of the payment by petitioner on March 24, 2015.” Order, at p. 1.

Ch J Iron Mike is too polite to say “Huh?!” So he falls back on a truism from Tax Court Practice 101.

“…if the amount of an alleged deficiency has been paid prior to issuance of a statutory notice pertaining thereto, the determined amount fails to qualify as a deficiency within the meaning of the governing provisions of the Internal Revenue Code.” Order, at p. 1.

No deficiency means no valid SNOD.

So let Carolyn and IRS show cause in writing why their case should be dismissed for want of jurisdiction.

Takeaway—Jurisdiction before all.


In Uncategorized on 09/15/2015 at 19:14

For the backstory, see my blogpost “The Song the Old Cow Died On,” 7/15/14. Now Judge Gerber sings Appeals the same song with which Judge Haines serenaded them in the abovementioned blogpost.

This is the story of Lucrezia Iona Canaday, 2015 T. C. Sum. Op. 57, filed 9/15/15.

Lucrezia Iona wanted the celebrated First-Time Homebuyer Credit – Part Deux, but decided discretion was the better part of cliché, and dropped a Form 1040X wherein she omitted the FTHBC2 she had previously claimed.

IRS demanded additional tax because the credit was no longer in play. Lucrezia Iona asked for audit reconsideration, but IRS said no, and hit her with a NITL for the shortfall. Lucrezia Iona asked for a CDP, got one, but only tried to contest liability, not collection alternatives.

The AO claimed Lucrezia Iona had had a chance to contest at audit reconsideration, so gave her a NOD. Lucrezia Iona timely petitioned.

IRS moves for summary J, and loses.

Not because the facts are in dispute, because they aren’t, but because audit reconsideration didn’t give Lucrezia Iona the statutory chance to contest liability. Only Appeals can do that.

As Judge Holmes would say, now pay attention.

“Although petitioner did contest the merits of the underlying liability before the collection hearing, she was not allowed a prior opportunity to contest the liability before Appeals. In Lewis v. Commissioner, 128 T.C. 48, 61 n.9 (2007), this Court considered section 6330(c)(2)(B) and noted that we read section 6330(c)(2)(B) to allow ‘a taxpayer who has had neither a conference with Appeals nor an opportunity for a conference with Appeals to raise the underlying liability in a collection review proceeding before Appeals and this Court.’” 2015 T. C. Sum. Op. 57, at p. 7. (Emphasis in original).

So IRS’ summary J motion fails, and Lucrezia Iona gets to go back to Appeals and talk about liability.


In Uncategorized on 09/15/2015 at 14:06

No, not the opening track of Imagine Dragons’ 2012  debut studio album Night Visions; rather this is the tale of Tax Court’s guardians irradiating incoming mail and nuking the petitioners’ signatures in Isaiah Paden Exline & Corey Exline, Docket No. 20438-15S, filed 9/15/15.

Ch. J Michael B. (“Iron Mike”) Thornton has this hot potato, which he first wanted to bounce for want of original signatures. But, as usual, he has the Clerk at the Glasshouse on Second Street, NW, send Isaiah a ratification form.

Now the SNOD here was sent both to Isaiah and Corey. And Isaiah and Corey sign up and send back timely.

But their ratification is apparently radioactive.

Here’s Ch. J Iron Mike: “On September 9, 2015, the Court received a document filed as a letter from petitioner. The document attached a Ratification of Petition and contained a request from petitioner that his wife be added to the case. Although the signatures on the ratification are barely visible because they were apparently obliterated in the irradiation process, careful inspection discerns signatures by both Isaiah Paden Exline and Corey Exline, dated August 28, 2015.” Order, at p. 1.

So both Isaiah and Corey are in at Tax Court, radioactive or not.

Practice tip—Make sure your signatures are in blue ink, and dig hard into the paper.