Archive for October, 2015|Monthly archive page


In Uncategorized on 10/30/2015 at 18:23

Or Maybe Not

This is the answer to the Car Werks conundra, for which see my blogpost “Is An LLC a Person?”, 9/11/15.

Well, STJ Armen, The Judge With a Heart, doesn’t have to go there, as IRS unscrambles the omelet it created in Car Werks, LLC, David M. Palmer Sole Member, Docket No. 12067-15L, filed 10/30/15, IRS filed a lien naming both the LLC and Dave. Dave claims he was wrongfully liened, as he never got a NFTL, but after the doings reported in my aforementioned blogpost, IRS pulled the recorded lien and filed anew only against the LLC, not Dave. And the only NOD issued is against Car Werks, LLC, not Dave.

IRS wants TFRPs from Dave, but ever since 9/14/09, TFRPs in respect of LLCs are assessed and collected as if the LLCs were corporations, notwithstanding the check-the-box regulations. But so far Dave got neither a SNOD nor a NOD for those.

So STJ Armen, after wading through the papers both sides laid on him after his earlier order, straightens everyone out.

First, a NOD is the ticket to Tax Court, and here the only NOD was issued to Car Werks, LLC.

“Further, as discussed at length in the Court’s Order dated September 11, 2015, the instant case resembles more a case commenced and prosecuted by David M. Palmer than it does a case commenced and prosecuted by Car Werks LLC. Under the circumstances present here and as discussed, the Court lacks jurisdiction over David M. Palmer. Likewise, and as the parties were advised in the September 11, 2015 Order, the Court’s jurisdiction does not extend to awarding damages for ‘malicious lien filing’ and that any remedy for damages that may exist for ‘malicious lien filing’ lies in another court. See, e.g., I.R.C. secs. 7432, 7433.” Order, at p. 2.

Car Werks, LLC, can, if it wishes, get into the act by ratifying Dave’s petition (manually signed by Dave on behalf of the LLC, and not by his attorney), but dropping the malicious lien stuff.

If Car Werks LLC does, then “…this Court would most likely, by subsequent Order, require (1) counsel seeking to represent Car Werks LLC to file an entry of appearance for Car Werks LLC if counsel wished to represent Car Werks LLC in the instant action; (2) Car Werks LLC (acting on its own behalf or through counsel if the requisite entry of appearance were to be filed) to file an amended petition that is responsive to the April 16, 2015 Notice Of Determination that was issued to Car Werks LLC (but not to assert any claim for damages for “malicious lien filing”); and (3) Car Werks LLC to comply with the Court’s May 15, 2015 Order For Ownership Disclosure Statement.” Order, at p. 4.

STJ Armen did such a good job clearing up IRS’ initial blunder that it seems an unfair quibble to suggest that, whether or not counsel wishes to represent Car Werks LLC, the wishes of Car Werks LLC through its member-manager are paramount.

On another topic, Peter Reilly, CPA, Forbes’ formidable blogger, asked if I had any comment on Estate of Edward S. Redstone, Deceased, Madeline M. Redstone, Executrix, 145 T. C. 11, filed 10/26/15.

I replied I did not, as the case is fact-specific and, to the extent Sumner Redstone, the Viacom King, was involved in this transaction, I have blogged that in my blogposts “The Flavor Du Jour,” 12/9/13, and “Bonanza,” 1/3/14.

Reflecting, it might just be that Edward’s favorable result bails out Sumner as well, as IRS’s case depends upon various stock transfers being gifts, and Edward beat that one. But I’d need to see more facts before coming to that conclusion. And that’s why I’m reserving comment at this time.



In Uncategorized on 10/30/2015 at 17:18

We Have a Special Discount

IRS repeats the words of Frank Puglia, who played the Moroccan rug merchant in that unforgettable scene from Casablanca. PTIN holders, your renewal will now cost $50.00, down from $64.25.

There’s also some change to non-credentialed preparers.

Read all about it.


In Uncategorized on 10/29/2015 at 20:40

After a month spent navigating the public transport systems of seven cities in four countries, I can sympathize heartily with Candis L. von Lossow, 17050-15, filed 10/29/15. Candis wants a transfer, but Ch J Michael B. (“Iron Mike”) Thornton says no.

Candis asked Tax Court to reverse a disallowed refund claim, and sent in all the billets doux she exchanged with IRS.

That, of course, doesn’t fly.

“Thus, the record at this juncture suggests that petitioner sought the assistance of the Court after having become frustrated with attempts to work administratively with the IRS but that the petition here was not based upon or instigated by a specific IRS notice expressly providing petitioner with the right to contest a particular IRS determination in this Court. Suffice it to say that none of IRS communications supplied by petitioner to date constitute, or can substitute for, a notice of deficiency or a notice of determination issued pursuant to sections 6320 and/or 6330, I.R.C…, or any other of the narrow class of specified determinations by the IRS that can open the door to the Tax Court.” Order, at p. 3.

OK, says Candis, so ship this case to the USDC or USCFC.

No transfers here, says Ch J Iron Mike.

“The United States Tax Court is neither a United States District Court nor the United States Court of Federal Claims. … the Tax Court also has not been granted the ability to ‘transfer’ cases or venue to other Federal Courts, and taxpayers need to file a separate petition or complaint directly with those courts.” Order, at p. 3. (Citation omitted).


In Uncategorized on 10/28/2015 at 20:22

If you remember my blogpost “An Unsettling Settlement,” 10/3/11, you’ll remember judges look to see what the parties really settled, not what they claimed the settled, when deciding if settlement proceeds are taxable, and, if they are, how they are characterized.

So it clearly behooves practitioners to make sure they buttress any deductibility or characterization claim in a settlement agreement.

In New York, too often cases get settled with nothing more than a stipulation of discontinuance with prejudice, and an exchange of form general releases.

I like settlement agreements. They need not be filed (in fact I won’t file unless a court orders filing, and I’ve never seen that). But they can be mighty handy.

This is the lesson Judge Laro teaches Ronald Lawson and Karen Bey, 2015 T. C. Memo. 211, filed 10/28/15.

Ron sued Bank of America twice, alleging a total of $68K was abstracted from his accounts due to BOA’s negligence and breach of fiduciary duty.

Karen has enough troubles of her own, which take up most of the opinion, but they’re the non-substantiation type and fact-driven, so I’m sticking to Ron’s story.

Ron settles both lawsuits for a $40K payout. Ron only gets $31K, because his lawyer and court costs get paid. But the only documents are a stip of discontinuance and a form general release; no agreement stating what was settled.

Ron claims he only got back the money that was wrongfully taken from him, thus no accretion to wealth. IRS claims that you can’t tell what was settled from the documents, the burden is on Ron, and he can’t carry it with the paper he has.

I note in passing that Judge Laro is an accomplished tax practitioner, but it would seem he hasn’t done much general litigation. My offer of proof for the foregoing: “The general release and the stipulations are silent as to whether the payment was supposed to restore funds taken from Mr. Lawson’s account or was just to get rid of a nuisance lawsuit.” 2015 T. C. Memo. 211, at pp. 29-30.

Judge, no one settles a “nuisance lawsuit” where the claim is $68K for $40K. At best, if the lawsuit really has nuisance value, the offer might be $5K. A settlement at nearly two-thirds of the demand means plaintiff had a case.

Howbeit, here’s the warning for New York lawyers (and others): “Under the origin of the claim doctrine, courts look into the nature of the underlying claim to determine whether a settlement payment or judicial award is excludible from gross income and to determine the proper tax treatment of the proceeds. Courts look to the terms of a settlement agreement to determine whether a settlement is taxable. Where the agreement is silent as to the basis of the settlement or where the agreement does not specify that the payment was for a reason that a court finds to be nontaxable, this Court has held the settlement payment to be taxable.” 2015 T. C. Memo. 211, at pp. 28-29. (Citations omitted).

Of course Ron was pro se, and the opinion doesn’t disclose if he asked his attorney to testify.

Granted, negotiating the settlement agreement might be just as much work as negotiating the deal that gave rise to the settlement. But, if done right, it might save the client a lot of tax.


In Uncategorized on 10/27/2015 at 21:54

Offers in compromise are a big hit on the midnight TV circuit. And the results are often less than what the pitchmen promise. “The average taxpayer is inundated daily with television and radio ads placed by national taxpayer assistance companies that brag of their ability to obtain ‘pennies on the dollar’ tax relief from the IRS. The IRS can reduce the negative impact that these companies have on both the taxpayer and the IRS by posting simple and easily available information on its website to educate the taxpayer in readily available collection options.” IRSAC Small Business/Self-Employed Subgroup Report, 3/16/15, Issue Four.

Yes, make it simple. But let the offeror know that with the rose comes a thorn. Even The Judge With a Heart, STJ Armen, must bring this truism home to Millicent Stewart, Docket No. 28216-14L, filed 10/27/15.

Millicent’s OIC gets accepted after she raises the ante. But IRS’ acceptance letter says they’ll file a NFTL until Millicent pays in full. And IRS does.

Millicent fires off a Form 12153, and files in bankruptcy.

Millicent’s underlying tax liabilities are nondischargeable, and she never raised liability when she had the chance. STJ Armen also notes Millicent’s spouse got innocency for one of the years at issue.

Millicent says she didn’t understand about the lien. She thought IRS would lien if she didn’t pay, and she did pay.

STJ Armen: “Petitioner argues that respondent did not explain what the offer entailed and that she understood the terms to mean that a lien would only be filed if she defaulted on the offer-in-compromise. Although it is regrettable that petitioner misunderstood the Form 656, she has not shown that the settlement officer abused his discretion or otherwise contravened the express terms of the offer-in- compromise that petitioner signed. Moreover, the terms on the Form 656 were necessary for petitioner’s offer to be accepted; indeed, if her offer had not included the terms, then the offer would not have been a valid [sic]. See Schropp v. Commissioner, T.C. Memo. 2010-71, aff’d per curiam, 405 Fed. Appx. 800 (4th Cir.2010),wherein this Court stated (at*9) that if the taxpayer’s offer-in- compromise ‘had not included the prescribed terms [regarding the Commissioner’s right to file a notice of Federal tax lien in order to protect the Government’s interest on a deferred payment offer], then it would not have been a valid OIC’ and that ‘a notice of lien may properly be filed while an OIC is under consideration or after it is accepted.’ See Baltic v. Commissioner, 129 T.C. 178, 180 n.4 (2007); Taggart v. Commissioner, T.C. Memo. 2013-113, at *6; see also Green v. Commissioner, T.C. Memo. 2014-180.” Order, at p. 6.

Takeaway– How many of these TV gurus tell their customers the whole story? Practitioner, make sure that you do.


In Uncategorized on 10/26/2015 at 16:41

Unlike The Judge With a Heart, STJ Armen, Judge Lauber won’t give a do-over to Anonymous, 145 T. C. 10, filed 10/26/15.

You’ll no doubt recall STJ Armen’s largesse to Pete Disimone, more particularly bounded and described in my blogpost “A Do-Over,” 1/11/13.

Well, Judge Lauber says he can’t do that, confined as Tax Court is by the strictures of Section 6110(a).

This case is so anonymous that even counsel’s names (both sides) are sealed.

Anyway, Anonymous got its Section 501(c)(3) qualification revoked retro to Date One, IRS claiming inurement among other delicitons. Anonymous sued, and IRS settled, withdrawing Revocation One and substituting Revocation Two.

Oh yes, Anonymous stumped up an agreed amount to cover tax liabilities.

Now Anonymous wants Tax Court to order IRS to delete Revocation One from public view. Both sides admit that the statutory redactions were made to Revocation One, and have agreed to the statutory redactions for Revocation Two.

“Congress mandated in section 6110(a) that ‘the text of any written determination and any background file document relating to such written determination shall be open to public inspection’ except as otherwise provided in section 6110.” 145 T. C. 10, at p. 9.

It’s true that IRS has to give 60 days’ notice of its intent to make the written determination public, and the aggrieved party can petition Tax Court. But Section 6110(f)(3)(A) only lets the aggrieved party get “…a determination with respect to that portion of such written determination or background file document which is to be open to public inspection.” 145 T. C. 10, at p. 11.

Hence Judge Lauber’s handcuffs. “By limiting our role to the making of a determination ‘with respect to that portion of such written determination,’ that shall be disclosed, the statute restricts our jurisdiction to deciding the propriety of the Commissioner’s proposed deletions. This limitation on our jurisdiction is confirmed by section 6110(m), which provides that the Commissioner ‘shall not be required by any Court * * * to refrain from disclosure’ of any written determination whose disclosure is mandated by section 6110(a).” 145 T. C. 10, at p. 11.

You can see it’s not looking good for Anonymous.

Revocation One was clearly a written determination, with all the right redactions. And it was “issued,” because mailed to Anonymous.

Anonymous’ claim that Revocation One was erroneous, citing IRM pt. (Aug. 11, 2004), cuts no ice. Even if IRM had the force of law or regulation (it doesn’t of course), there’s no obvious error or omission. IRS settled to avoid hazards of litigation (and judges love settlements), and so did Anonymous.

“Neither the statute nor the regulations provide any support for petitioner’s submission that a written determination that has been properly ‘issued’ can be ‘un-issued.’ Indeed, the regulations create a strong inference to the contrary. They provide that ‘background file documents,’ which normally are disclosable under section 6110(a), do not include ‘a request for a ruling or determination letter that is withdrawn prior to issuance thereof.’ Sec. 301.6110-2(g)(2)(v), Proced. & Admin. Regs. This regulation shows that the Department of the Treasury knew how to exclude a ‘withdrawn’ document from disclosure when it so intended, and it made this exclusion available only when the document is withdrawn ‘prior to issuance’ of the ruling or determination letter. The regulations contain no provision that would exclude from disclosure a ruling or determination letter, or background document relating thereto, that is withdrawn after the written determination has been issued. 145 T. C. 10, at pp. 18-19.

We come to the real point–Anonymous wants the inurement part out, lest their donors should feel they were swindled and sue.

“…respondent [IRS] has admitted that, at some point during the ensuing negotiations, it ‘withdrew the inurement grounds for revocation.’ In light of this admission, petitioner urges that respondent be restrained from disclosing the section of the examination report discussing private inurement in order to prevent ‘public confusion.’” 145 T. C. 10, at p. 20.

Tough. “There is no legal basis for this argument. Section 6110(c) specifies seven categories of information that must be deleted from documents made available for public inspection under subsection (a). The parties have stipulated to the deletions that section 6110(c) requires, including the deletions that are required to the ‘private inurement’ section of the examination report. The statute authorizes no further deletions…. And to the extent petitioner is arguing for an equitable exception based on the supposed risk of public confusion, ‘[s]ection 6110(f)(3)(A) is a precise grant of jurisdiction and does not allow for additional general remedies.’” 145 T. C. 10, at p. 21. (Citation omitted).

I will not cite to the several cases I have heretofore blogged, which convey the warning that a stipulation “is not by any to be entered into unadvisedly or lightly; but reverently, discreetly, advisedly, soberly,” to use words suitable for a much more solemn occasion than this blogpost.

You have been warned.


In Uncategorized on 10/26/2015 at 15:25

I am given to understand from commentators to this blog that the Ogden Sunseteers, more formally known as the Whistleblower Office, get every break when they come to Tax Court, and the whistleblowers get none.

The evidence to date is anecdotal, thus possibly not probative, but every so often a case arises that raises questions.

Here’s Whistleblower 8130-14W, filed 10/26/15, from Judge Kerrigan.

Blower wants info not in the admin file, namely and to wit, what happened in the two years between last exam of The Blown and the NOD from Ogden. Blower claims IRS continued investigating, notwithstanding claiming “case closed, no dough”, and dug up some cash from the Blown.

After the Branerton play-nice ends in stalemate, Blower seeks formal discovery.

IRS plays the Grecian Urn gambit: abuse of discretion, therefore admin file is “all ye know on earth and all ye need to know.”

But Judge Kerrigan isn’t so sure.

Judge Kerrigan: “Respondent’s response does include specific grounds for objection in relation to the information sought. Rather, he contends that the Court’s scope of review should be limited to the administrative record and the information that petitioner seeks is outside that record. Evidence related to whether there was a collection of proceeds and whether that collection was attributable to the whistleblower’s information should be part of the administrative record because it addresses the factual inquires section 7623(b) requires. See Whistleblower One 10683-13W v. Commissioner, 145 T.C. __, __ (slip op. at 6) (September 16, 2015).” Order, at pp. 1-2.

Judge, are you sure “Respondent’s response does include specific grounds for objection in relation to the information sought.”? Because if you read your next sentence, it seems that IRS’ response does not include specific grounds. If the response did include specific grounds, why didn’t you consider them?

All y’all must be familiar with Whistleblower One 10683-13W, natürlich? (Sorry, I’m writing this looking out my hotel room window at Cologne Cathedral.)

If not, check out my blogpost “The Flip Side,” 9/16/15, wherein Judge Halpern, writing for the Court, wrote thus: “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).” 145 T. C. 8, at p. 5-6.

Anyway, if the evidence Blower seeks should be part of the admin record, why not direct IRS to turn it over, or at least give it to the Judge for an in camera look-see? With all the good confidentiality protections Judge Halpern wrote back in September.

But all Blower gets is more play-nice. Judge Kerrigan orders (if that’s not too strong a word) “…that the parties shall convene to discuss the pending motions to compel in light of Whistleblower One 10683-13W v. Commissioner, 145 T.C. __ (September 16, 2015).” Order, at p. 2.

Oh yes, and file a joint status report in two weeks.


In Uncategorized on 10/23/2015 at 19:57

And Not Only On Your Tax Return

That’s the takeaway from David R. Stewart & Mary F. Stewart, Docket No. 29963-14L, filed 10/23/15, a designated hitter off the bat of STJ Daniel A. (“Yuda”) Guy.

Dave’s trusty attorney, whom I’ll call Davy, sent IRS a Form 12153 for the TFRPs arising from Dave’s business, and claims he also included a Form 12153 for Dave’s personal taxes as well. The RO contact swears he only got the Form 12153 for the TFRPs.

STJ Yuda: “On March 7, 2014, [Davy] sent a packge by certified mail addressed to RO X. There is no dispute that the package included [Davy’s] cover letter, dated March 7, 2014, which included a reference line stating “re: Stewart Environmental Consultants LLC”. The package was received by an IRS employee on March 10, 2014. The parties disagree as to the remaining contents of the package. [Davy] contends that the package included a Form 12153 requesting an administrative hearing under section 6330 in respect of the income tax notice issued to the Stewarts. RO X stated in a sworn declaration… that [Davy’s] March 7, 2014, letter was accompanied by a copy of an employment tax notice sent to SEC on March 5, 2014, and a Form 12153, signed by [Davy] requesting an administrative hearing for SEC in respect of employment tax due for the taxable period “1303”. Order, at p. 2. (Footnote and names omitted).

When IRS finally, as they claim, got Dave’s and Mary’s income tax petition, it was too late. Dave and Mary get an equivalency hearing, but the NOD from that they can’t petition. Dave and Mary claim they were timely as to their income tax.

STJ Yuda: “There is no dispute that [Davy] sent a package to RO X by certified mail on March 7, 2014, the IRS received the package on March 10, 2014, and the package included a cover letter from [Davy] that referred to ‘Stewart Environmental Consultants, LLC’. Beyond that, there is considerable uncertainty as to the remaining contents of the package. Whereas [Davy] asserts that he placed a Form 12153 related to the income tax notice in the package, RO X states that his records show that the package contained a Form 12153 making reference to the tax period ‘1203’ and a copy of the employment tax notice issued to SEC on March 5, 2014.

“The Court has reviewed the record in considerable detail and finds that petitioners have not produced persuasive evidence that the package in question contained a request for an administrative hearing in respect of the income tax notice. Without more, we are compelled to find–as RO X maintains and as indicated in [Davy’s] cover letter–that the package contained items related to proposed levy actions against SEC. We conclude that petitioners did not timely request an administrative hearing in respect of the income tax notice.” Order, at pp. 4-5. (Names omitted).

Better practice would have been to itemize in the body of the transmittal letter each item enclosed. Not only would it provide evidence, it would also serve as a checklist for attorney and staff of what should go into the package with the letter. And make STJ Yuda’s job, and my job, easier.


In Uncategorized on 10/22/2015 at 19:09

I mean Judge Haines, who is unswayed by the protestations, religious and secular, of Bryan and Lanette Davies.

Parents of six children and faced with economic adversity and high-priced tuition, Bry and Lan turned to their faith. “After much prayer, Mr. Davies was convinced that God wanted him to open a medical marijuana dispensary to solve his family’s financial woes.” 2015 T. C. Memo. 206, at p. 3.

Well, after nearly forty-nine (count ‘em, forty-nine) years during which I’ve practiced law in a highly-urban environment, I thought I’d heard it all, but Tax Court is an endless “medley of extemporanea.”

So today, my dears, we have the story of Canna Care, Inc., A California Not-For-Profit Corporation, 2015 T. C. Memo. 206, filed 10/22/15.

Bry and Lan did the work they were given to do with a will, hoping for the same happy result set forth in Genesis 15:6.

They rented 2,250 square feet of office space, were open to the public, and all one needed was a prescription (which their receptionist checked) and the requisite cash. Producing both thereof, the lucky contestant walked away with the vegetal good news.

Whereupon Bry’s and Lan’s economic problems were solved by their large salaries from their enterprise Canna Care.

Unfortunately, Section 280E prohibits deductions related to trafficking in controlled substances, which marijuana, medical or not, certainly is.

“Petitioner advances numerous arguments as to why marijuana should no longer be considered a schedule I controlled substance. We reject these arguments. Marijuana was a schedule I controlled substance during the years at issue. As recently stated by the Court of Appeals for the Ninth Circuit, to which an appeal in this case would lie: ‘[T]he only question Congress allows us to ask is whether marijuana is a controlled substance ‘prohibited by Federal law.’ * * * If Congress now thinks that the policy embodied in § 280E is unwise as applied to medical marijuana sold in conformance with state law, it can change the statute. We may not.’ Olive v. Commissioner, 792 F.3d 1146, 1150 (9th Cir. 2015), aff’g 139 T.C. 19 (2012).” 2015 T. C. Memo. 206, at p. 8.

You remember Martin Olive, dispenser of the needful, of course. No? Then see my blogpost “Everybody Must Get Stoned,” 8/3/12.

And Bry and Lan claim they weren’t trafficking in the good stuff. “Trafficking” is the magic word from Section 280E.

Trafficking is illegal dealing, and their dealing is legal, at least in Lala Land.

Judge Haines: “We have previously held the sale of medical marijuana pursuant to California law constitutes trafficking within the meaning of section 280E. Olive v. Commissioner, 139 T.C. at 38 (“[A] California medical marijuana dispensary’s dispensing of medical marijuana pursuant to the * * * [CUA] was ‘trafficking’ within the meaning of section 280E.”)…. DOJ memoranda and FinCEN guidance released after the years at issue that represent exercises of prosecutorial discretion do not change the result in this case. Petitioner regularly bought and sold marijuana. This activity constitutes trafficking within the meaning of section 280E even when permitted by State law.” 2015 T. C. Memo. 206, at p. 9.

While Bry and Lan may have sold t-shirts and other items, and held some self-help groups, neither Bry nor Lan, nor any of their employees, was a healthcare pro. The “other business” they claim is a sideshow. Bry and Lan weren’t running two businesses, so they could deduct the expenses of the legal one at least. They were running a marijuana business.

The fact that their business was supposedly non-profit is also nothing to the point for Federal income tax law.

“California law prohibits the distribution of marijuana for profit, and it was emphasized at trial and on brief that petitioner was not operated for profit. See Cal. Health & Safety Code sec. 11362.765. Whether petitioner was operated in accordance with California law’s restrictions on profiting from the distribution of marijuana is not an issue before us, and it does not affect our finding that petitioner was engaged in the business of distributing marijuana for purposes of section 280E. There is no doubt that Mr. Davies incorporated petitioner to produce income. In fact, it was clear from Mr. Davies’ testimony that he entered into the medical marijuana business in order to cure his family’s financial difficulties. Mr. Davies and the other shareholders received wages well in excess of those paid to petitioner’s other employees, and the payment of such wages would not have been possible if petitioner had not had income.” 2015 T. C. Memo. 206, at pp. 12-13.

No deductions.


In Uncategorized on 10/21/2015 at 16:22

If So, Admit It – Or Maybe Not

No opinions or orders today, so all I have is gas.

And that’s to what Judge Laro is reduced, when IRS wants to withdraw its admission concerning gas in Green Gas Delaware Statutory Trust, Methane Bio, LLC, Tax Matters Partner, et al., Docket No. 26965-09, filed 10/21/15.

The Green Gassers wanted IRS to admit that “Landfill gas produced from biomass, also known as methane gas, is a ‘qualified fuel’ for purposes of I.R.C. Sec. 45K.” Order, at p. 2.

And IRS did, but now repents, and wants to modify its admission thus: “…the methane from landfill gas is qualified fuel after the landfill gas has been treated to remove non-methane components and the remaining methane has been made suitable for use as fuel. Denies that landfill gas is the same thing as, or is also known as, methane gas. Denies that landfill gas, in its raw state, is qualified fuel.” Order, at p. 3.

Clearly, precisely what this landfill gas stuff is, or is known as, is one of, if not the only, “sweet spot” in this case.

But once you admit you have gas, how do you get out of the admission?

Judge Laro will tell you, and then, like the late Duke of Windsor, “I am able to say a few words of my own.”

First, Judge Laro: “Rule 90(f) provides that the Court may permit withdrawal or modification of the admission when the presentation of the merits of the case will be subserved thereby, and the party who obtained the admission fails to satisfy the court that the withdrawal or modification will prejudice such party in prosecuting such party’s case or defense on the merits.” Order, at p. 1.

As to presenting the merits on the trial, “(B)ecause the issue of what constitutes qualified fuel for purposes of Section 45K is novel and important to the resolution of the case on the merits, granting respondent’s motion would satisfy the first prong of Rule 90(f) and will subserve the presentation of the merits of the case.” Order, at p. 2.

Now for the prejudice. “The party relying on an admission has the burden of proving that such admission will cause prejudice. Petitioners’ response alleges that petitioners will be prejudiced if the Court grants respondent’s motion because respondent kept changing the theories of what constitutes ‘qualified fuel’ for the purposes of Section 45K in different filings made in the case and because petitioners would have to incur additional expenses in litigating this issue. Pursuant to the order of the Court…the parties are bound by the theories and positions they advance in their respective memoranda of issues. Both parties filed their memoranda of issues…. Under the circumstances, there is no danger that respondent will further change his litigation position or advance new theories. As to the issue of additional expense in litigating the issue, petitioners in their memorandum of issues raise the question of whether methane produced from landfill gas is a ‘qualified fuel’ for purposes of Section 45K. Thus, granting respondent’s motion to modify the admission will not result in additional effort or expense to petitioners and satisfies the second prong of Rule 90(f).” Order, at p. 2. (Citation omitted).

Though I haven’t read the memoranda of issues (they’re not online), I think Judge Laro and IRS pulled a fast one. Of course petitioner mentioned the issue; if it’s the “sweet spot” of the case, and it seems that it is, they had to mention it. But if IRS admitted the issue before the memoranda, then mentioning it and saying IRS agreed takes the issue off the table.

To put it back on the table does prejudice the petitioner.

I’d move to reconsider, if I hadn’t given the game away in my memo.

Anyway, IRS gets to withdraw its admission and put in the aforecited language.

I’m a great fan of the Notice to Admit. While admissions of ultimate facts are rare birds indeed, you might just catch an adversary napping. Quoting myself, “We all learned on Day One of practice, when you serve the answer, simultaneously serve the notice to admit, the notice to produce, the notice to inspect, the demand for a bill of particulars, and deposition notices of all and sundry.” From my blogpost “Don’t Suppose You Can Depose,” 12/2/13.

Takeaway–Don’t be discouraged by the Green Gassers’ loss here; keep the Notice to Admit form handy.