That if gambling is what you do, you’re not tax-exempt. This is the lesson that Judge Pugh has for GameHearts, A Montana Nonprofit Corporation, 2015 T. C. Memo. 218, filed 11/16/15.

GH’s application for Section 501(c)(3) exemption gets tossed by IRS, and petitions.

GH’s story: “GameHearts is a public benefit nonprofit organization committed to providing alternative forms of entertainment to adult members of the Kalispell area for the purpose of promoting adult sobriety. The program achieves its directive by providing free and low cost tabletop gaming activities in a supervised[,] non-alcoholic, sober environment, along with access to gaming accessories that are provided without cost to the participants. In fact, beginning players can learn and obtain free gaming materials solely for playing.” 2015 T. C. Memo. 218, at p. 3.

Keeps them out of the bars, says GH.

But “Without an initial investment to begin playing, our participants have little obstacles in playing and interacting with other players. Since GameHearts is primarily an [sic] nonprofit, the bulk of participants eventually find they need to purchase materials we simply do not have, since we are not interested in maintaining a full service retail business. As such, GameHearts also helps boost the overall market shares of the industry by introducing new and motivated players into the environment.” 2015 T. CV. Memo. 218, at pp. 3-4.

Of course, record rule governs, so GH must show that record contains enough evidence to counter IRS’s determination. The test, of course, is “primary purpose.” Purpose and not the nature of the activity is what governs. And the purpose must fall into one of the hoppers of Section 501(a).

Here’s where GH fails to meet the test.

“We do not conclude that recreational therapy would not be an appropriate means of achieving a charitable purpose. We likewise do not conclude that the type of recreation–here gaming–should affect our analysis of GameHearts’ status. We also accept GameHearts’ argument that its offerings are less attractive to those gaming participants who could afford to pay to play.

“Nonetheless, we are unable to conclude on the administrative record that GameHearts is “operated exclusively” for one or more exempt purposes. Gaming in an alcohol-free environment may provide a therapeutic outlet to recovering addicts, and community-minded sobriety may benefit the community as a whole, but the question of tax exemption turns on whether there is a single substantial nonexempt purpose, notwithstanding the importance of the exempt purpose. While it may be laudable, in the light of the administrative record in this case promotion of sober recreation is insufficient justification here for tax-exempt status under a statute that must be construed strictly. The decisive factor here is that the form of recreation offered as therapy also is offered by for-profit entities, and GameHearts even emphasized, in its application for tax exemption, that it would introduce new participants to that for-profit recreational market and ‘boost the overall market shares of the industry’. We also note that GameHearts received contributions of surplus materials from the industry. While GameHearts itself does not profit from the recreation it offers and could not offer recreational gaming experiences that would compete in the for-profit recreational gaming markets, we conclude nonetheless… that recreation is a significant purpose, in addition to the therapy provided, because of the inherently commercial nature of the recreation and the ties to the for-profit recreational gaming industry recreation is a significant purpose, in addition to the therapy provided, because of the inherently commercial nature of the recreation and the ties to the for-profit recreational gaming industry.” 2015 T. C. Memo. 218, at pp. 15-16. (Citations omitted).

No exemption, GH. Game over.

On 11/20/15, I received the following e-mail: “You got your position grossly wrong – gambling is neither what GameHearts does, nor is this the decision of the tax court. It was decided that GH was not tax exempt because the games we use are also used by for profits, and that somehow this equates to a support of a non-exempt purpose. It would help if you did not libel our organization in this way, especially as we move for reconsideration.”

The entire opinion of the Tax Court is available by using the link in my blogpost, or separately by using Tax Court’s website.

Both IRS and Bohdan Senyszyn so request STJ Panuthos although not exactly in haec verba from Act IV, Scene 1 of The Merchant of Venice. But unlike the Duke in Shakespeare’s controversial masterpiece, STJ Panuthos doesn’t.

The story is in Bohdan Senyszyn, Docket No. 14372-11, filed 11/13/15.

You remember Bo. No? Then check out my blogpost “The All-Star Break,” 5/20/15, wherein I recounted Bo’s unsuccessful whistleblowing.

IRS bounced Bo’s initial effort with a “no dough, no go” letter, from which he petitioned. Then IRS sent him another letter, saying they were reopening Bo’s claim. This they followed with another bounce, so Bo petitioned again.

He and IRS agreed that the outcome from Petition No. 1 would govern Petition No. 2.

So now it’s all final, and Bo is getting nada.

So let’s end the misery, right?

Not so fast, says CSTJ Panuthos.

“The Court also notes that despite the parties’ agreement that this docket may be dismissed for lack of jurisdiction, the parties may not expand or contract the Court’s jurisdiction. Ringo v. Commissioner, 143 T.C. 297, 299 (2014). We are satisfied that we have jurisdiction in this docket since there was a determination and timely petition filed. Id. Accordingly, the Court will order the parties to show cause as to why this case should not be disposed of on the same basis and consistent with the Order and Decision entered in the case at Docket No. 14703-13W.” Order, at p. 3.

Typo, Judge? Don’t you mean 14706-13W? Docket No. 14703-13 isn’t a Section 7623 whistleblower.

The Ringo case involved a similar request, when both IRS and Ringo agreed that they would work out their salvation out of Court, but Judge Colvin stood on the dignity of the Court. See my blogpost “Let’s You and Him Fight,” 10/9/14.

Islander

Our beautiful but insolvent Islands in the Sun once again seize the spotlight, as that Obliging Jurist, Judge David Gustafson, grapples with the anfractuosities of Section 932(c)(4), but has to reprise the theme song from the 1962 shockumentary Mondo Cane: More.

Christopher Isa Muhammad, Docket No. 995-15, filed 11/12/15, has VI-sourced SE, but doesn’t bother responding to IRS’ motion for summary J. IRS wants SE tax plus interest plus nonfiling and nonpaying chops. IRS gave Chris an SFR. Chris reported his VI-sourced income to VIBIR, and everyone concedes that Chris is a Virgin Islander for the whole tax year. But he never paid SE tax.

When IRS first hits Chris up for the SE plus-plus-plus, he answers with some frivolities, which Judge Gustafson blows off. And the SNOD, which followed the SFR, never mentions interest or the chops, just the SE. But Chris’ petition does raise a question: is SE tax an income tax, and if so, is Chris exempt per Section 932 (c)(4) from telling IRS, if he told VIBIR?

Now Virgin Islanders and their mainland abettors well remember Artie Appleton, Jnr. What, you do not? Then scope out my blogpost “Farewell to the Virgin,” 5/22/13, and the blogposts therein cited.

If you’re a human-being Virgin (Islander), you file with VIBIR.

IRS says no.

Judge Gustafson: “The language of Appleton… tends against respondent’s position, but that case did not distinctly concern self-employment tax, so we now must address that specific issue.” Order, at p. 7.

And Judge Gustafson doesn’t warm to IRS’ view as he examines its underpinnings.

“Respondent’s motion stresses that the intended effect of section 932 is to govern income tax liability, not self-employment tax. However, since we observe that the self-employment tax is in fact a component of the income tax, this argument so far has little persuasive effect.

“Respondent describes the IRS’s forms, instructions, and manual, all of which, respondent says, show that a USVI resident like Mr. Muhammad owes U.S. self-employment tax even if he is exempt from Chapter 1 U.S. income tax. But respondent does not explain what level of deference should be given to these administrative materials, and by what authority. (Respondent also cites VIBIR practice but does not cite authority for deferring to that practice.)” Order, at pp. 7-8.

We report SE income on the same form as the rest of our income, and Section 932(c)(4) excludes bona fide VI residents’ gross income from US tax.

But, true to form, Judge Gustafson claims no omniscience. See my blogpost “Judge Gustafson’s Conundrums – Part Deux,” 11/10/15.

“The foregoing analysis is tentative only. We will benefit from further argument by the parties, including citations to regulations or case law addressing the application of self-employment tax to USVI residents.” Order, at p. 8.

Moreover, in a stunning example of judicial humility unparalleled in my experience, Judge Gustafson invites IRS and Chris to “address, criticize, and correct the foregoing tentative ‘Discussion’. Order, at p. 8.

Ya think Chris and IRS will take Judge Gustafson at his word, and pile on the criticism? If they do, the next order or opinion may be better than a Presidential debate.

With An Addition

The following is reprinted from my blogpost “Veterans’ Day,” 11/11/14.

Tax Court is closed, of course. So here are a few personal reflections. If you want some of my tax thoughts, skip to my next blogpost.

To my brothers and sisters on active duty, good luck, Godspeed and may you all arrive home safe, and all’s well.

To my brothers and sisters, fellow veterans, thank you again. It was an honor to be among you today.

It was great to see the turnout on Fifth Avenue and hear the cheers and thanks. I wish those not present could have heard them.

It’s all too easy for me to quote Kipling or Yeats and be cynical; it’s even easier to quote Shakespeare. Ol’ Will wrote a great speech that proves to me that he was a soldier, and not an officer.

It is the most condescending, patronizing effusion I can think of. And it’s just what one would expect from a higher-up who is sending other people to be maimed (in body, mind or spirit) or killed in a war that shouldn’t have been fought.

I’ll spare you what little erudition I have.

God bless America.

My granddaughter was with me today, so we rode on the American Legion float. She’s only three years old, so I can’t tell what she thought of it all. I hope happy thoughts.

See my blogpost “Judge Gustafson’s Conundrums,” 6/2/15.

We know that Judge David Gustafson is obliging as can be. He instructs, will make housecalls to jails, and generally helps the stumbling pro se wherever he can. But his isn’t omniscient, and is the first to tell us so.

Here he is in Bradford G. Brown, Docket No. 28708-14L, filed 11/10/15.

Brad has lots of trouble. He’s bankrupt, and wanted to contest his tax liability, but was in the slammer at the time. In the meantime, the Ch 7 Trustee made a deal with the IRS that cut Brad’s liabilities, but Brad thought he could do better.

IRS wants summary J on Brad’s liabilities, claiming the bankruptcy deal between the 7 Trustee and IRS precludes Brad.

Brad claims “…the settlement letter indicated that he would have a final opportunity to submit documentation to reduce his tax liability at the hearing on the chapter 7 trustee’s motion to compromise controversy. He contends that he was not afforded that final opportunity because he was incarcerated at the time of the hearing on the motion to compromise controversy and that respondent has not located the bankruptcy court hearing transcripts that would show what the bankruptcy court decided or that he was given a final opportunity to present his documentation.” Order, at pp. 1-2.

Judge Gustafson wisely steps to the side. “This case involves bankruptcy issues as to which the undersigned judge is not expert, and we will order the parties to address several questions about that motion.” Order, at p. 1.

When Judge Gustafson gets a chance to ask questions, stand back, counselor. You’re in for an old-time South Carolina hayride (Judge Gustafson hails from Palmettoland).

So here goes.

“(1) What is the authority for the proposition that the bankruptcy settlement between the chapter 7 trustee and the IRS is binding on Mr. Brown?

(2) If the bankruptcy settlement is binding on Mr. Brown and the IRS, why has the IRS not abated that portion of Mr. Brown’s liability that exceeds the agreed-upon settlement amount?

(3) Does section 6330(c)(2)(B) preclude a liability challenge in this CDP proceeding if the Court finds that Mr. Brown’s incarceration prevented him from appearing at the hearing?

(4) Why has the IRS not credited the amounts that have already been paid by Mr. Brown’s bankruptcy estate against his liability as reflected on his account transcripts?

(5) Is the portion of Mr. Brown’s liability that was not satisfied through the bankruptcy proceeding (i.e., the unpaid general unsecured claim of $1,133,780.18) subject to a bankruptcy discharge by operation of 11 U.S.C. section 727?

(6) If the unpaid portion of Mr. Brown’s liability was not subject to a bankruptcy discharge, under what theory was it excepted from discharge under 11 U.S.C. section 523?” Order, at pp. 3-4.

Let’s see how IRS’ counsel navigates this one.

I had inquired, in a number of previous blogposts (links to which I’ll spare you), whether anyone reads this blog. My WordPress.com dashboard lists visits and views, but these seem chimerical; why anyone in Iraq or Afghanistan, not to mention residents of places even more distant, would care about US Tax Court and its doings, I have no idea.

But once in a great while I get an inkling that one of my screeds has struck home, even in the seats of the mighty.

One such came across my monitor today, as Ch J Michael B (“Iron Mike”) Thornton seems to have his recollection refreshed by my post yesterday, “See What You Get When You Stir The Silt,” 11/9/15.

He’d assigned the remand of Petaluma FX Partners, LLC, Ronald Scott Vanderbeek, A Partner Other Than The Tax Matters Partner, Docket No. 24717-05, to Judge Mark V Holmes. Read my post, and see why it might spark some recollection and second thoughts.

So today, we have this: “ORDERED that this case is no longer assigned to Judge Mark V. Holmes. It is further

ORDERED that this case is assigned to Judge Joseph R. Goeke for purposes of conducting any further proceedings pursuant to the mandate of the United States Court of Appeals for the District of Columbia Circuit, issued August 20, 2015.” Order, at p. 1.

Some coincidence, no?

You’ll remember The Judge Who Writes Like a Human Being, a/k/a The Great Dissenter, s/a/k/a the Implacable, Irrefutable, Irrepressible, Inflexible, Indefatigable and Illustrious Foe of the Partitive Genitive, and Old China Hand, Judge Mark V. Holmes.

Well, his silt-stirring, to say nothing of his claim that Tax Court overruled Petaluma (see my blogposts “The Great Dissenter,” 12/28/11, and “Judge, He Didn’t Mean It,” 5/17/12) may come home to roost, as Ch J Michael B. (“Iron Mike”) Thornton has a surprise package for Judge Holmes.

Here’s the story, Petaluma FX Partners, LLC, Ronald Scott Vanderbeek, A Partner Other Than The Tax Matters Partner, Docket No. 24717-05, filed 11/9/15.

The Petaluma crowd are back from an unsuccessful trip to DC Circuit from which they were tossed back in August, DC Circuit deciding that a permanent reg trumped a temporary one and rendered the Petalumas quibbles insufficient to knock out the penalties which IRS laid on their Son-of-Boss sham basis-builder. Here’s the August decision from DC Circuit.

So back to Tax Court to fix the penalties.

And who gets the prize package from Ch J Iron Mike?

“…this case is assigned to Judge Mark V. Holmes for purposes of conducting any further proceedings pursuant to the just-referenced appellate mandate.” Order, at p. 1.

Stir that silt, Judge.

But even if they do, it’s no excuse for not filing timely. And stone walls do indeed a prison make for Robert Glenn McDougall, 2015 T. C. Sum. Op. 65, filed 11/9/15, who is incarcerated (and his motorhome and van seized, along with his records) during the year at issue.

Robert Glenn is also hit with some unreported income per W-2s he got from people he admitted working for, but claims he doesn’t remember them paying him. The items having come up on a third-party report, Section 6201(d) gives Robert Glenn a chance to dispute, with IRS having burden of proof.

But “don’t remember” don’t get it. CSTJ Panuthos: “We also note that section 6201(d) provides that in any court proceeding, where a taxpayer asserts a reasonable dispute with respect to any item of income reported on an information return and the taxpayer has fully cooperated with the Secretary, the Secretary has the burden of producing reasonable and probative information concerning the deficiency in addition to the information on the return. The key term in the foregoing sentence is ‘a reasonable dispute.’ This Court has concluded that a taxpayer does not raise a reasonable dispute for purposes of section 6201(d) merely by testifying that he is uncertain, cannot remember, or does not know.” 2015 T. C. Sum. Op. 65, at pp 5-6. (Citations omitted).

And it doesn’t get better for Robert Glenn. He seeks to duck late filing chop because he was in jail.

” Petitioner contends that he was unable to timely file his return and pay his tax because he was incarcerated and his business records were confiscated. This Court has previously concluded that incarceration at the time the return was due does not constitute reasonable cause for failure to timely file.” 2015 T. C. Sum. Op. 65, at pp. 8-9. (Citations omitted, but there’s a bushelbasketful of them).

So even if jail has fogged your memory, you still have to file and pay.

IRS is on the receiving end of this injunction from Judge Haines, in Steven T. Waltner & Sarah V. Waltner, Docket No. 12722-13L, filed 11/9/15. Steve & Sarah are old rounders, and I’ve blogged their various delictions, as more particularly bounded and described by Judge Buch, Judge Marvel and Judge Haines before now.

Today’s episode arises out of the facts and circumstances set forth in my blogpost “A Tale of Three Lawyers,” 7/3/14. Judge Haines was looking for grounds, if any, to impose a mulct on Steve’s & Sarah’s lawyer (whom I’ll call Donny). Judge Haines wanted IRS to tell him what Donny’s time-wasting tactics cost the Federal fisc, but to leave out “…costs incurred before petitioners’ counsel entered an appearance in this case or costs attributable to the issues of (1) whether the statute of limitations on assessment and collection applies in this case; (2) whether petitioners had unreported income from the sale of assets in Mr. Waltner’s Citigroup account; (3) whether petitioners are liable for an accuracy-related penalty under sec. 6662(a); and (4) whether petitioners are liable for an addition to tax under sec. 6651(a)(1).”

Well, IRS’ attorneys (who didn’t do so well before, as described in my abovecited blogpost) fail the test.

“Respondent [IRS] has provided generalized descriptions of the time spent by his attorneys, and it appears that such time may include time spent during the ordinary course of litigation. Respondent must provide a more detailed description of his attorneys’ time so that excess costs can be distinguished from costs ordinarily incurred during the course of litigation. If respondent cannot provide such information, we will be forced to make a reasoned determination as to the difference in the amount of time spent in this case and the amount of time ordinarily spent in litigating a section 6330 Collection Due Process case.” Order, at p. 1.

Subtext- Don’t expect as good a number from the Judge as you can provide for yourselves.

Or as they say when the UK pubs are closing, “Time, gentlemen, please.”

Today’s e-news for tax professionals from the crowd at 1111 Constitution Ave, NW, carries the following tidbit: “The Balanced Budget and Emergency Deficit Control Act of 1985, as amended, requires that whistleblower award payments issued under Internal Revenue Code section 7623 be subject to sequestration. For fiscal year 2016, awards paid to whistleblowers under Section 7623 on or after Oct. 1, 2015, and on or before Sept. 30, 2016, will be reduced by the fiscal year 2016 sequestration rate of 6.8 percent.”

Here is yet another masterful example of How Not To Do It. There is a massive tax gap: everyone knows it. Tax evasion is a national pastime that has long since outstripped night baseball and whatever else (or almost whatever else) people do at night.

Yet Congress, in its wisdom (if that is the right word), has elected to throw every imaginable stumbling block in front of those who would denounce the evaders, and bilk them of their reward.

Even when the whistleblower proceeds at the risk of his or her own life, their reward is a paltry.

As I said in my blogpost “The Whistleblower Blown Up,” 5/20/14: “If you try to help the IRS collect, and your information gets them $30 million they’d have had no way of getting otherwise, and you have to tell your life story in Tax Court (so there’s an opinion for the world to read), you’re risking your life, and your family’s life, for nothing.

“Great public policy, ya think?”

I’ve blogged enough Tax Court rejections to question seriously whether the whole program should not be abolished. Let the Ogden Sunseteers go find honest work.

The farce no longer imposes upon any but the most gullible.

Charlie Dickens (I’m tired of quoting him, I really am) got it right in 1858.

“This glorious establishment had been early in the field, when the one sublime principle involving the difficult art of governing a country, was first distinctly revealed to statesmen. It had been foremost to study that bright revelation and to carry its shining influence through the whole of the official proceedings. Whatever was required to be done, the Circumlocution Office was beforehand with all the public departments in the art of perceiving—HOW NOT TO DO IT.” Little Dorrit, Ch. X.