I need a real theater buff to correct me if I’m wrong, but my title for this blogpost comes from George Kelly’s 1924 play The Show-Off, which I remember vaguely from a Roundabout Theatre Company production many years ago. The lead character keeps using the phrase “sign on the dotted line,” with a rhetorical flourish of voice and a wave of a walking-stick.

Well, Daniel Lee Berglund wanted IRS to produce a signed Form 23C, Summary of Assessment. But in his FOIA request he asked for “…’Form 23C, if it has been entered into the IRS record keeping system as a Substitute for Return’. Berglund did not specifically ask for a signed copy of the Form 23C.” That’s Judge Morrison speaking, in Daniel Lee Berglund, 2015 T. C. Memo. 239, filed 12/14/15 at p. 3.

And thereby hangs the tale.

IRS responded to Dan’l Lee’s FOIA with 29 pages and a cover letter. “The letter stated that the IRS had found 29 pages of documents that were responsive to the request and that all 29 pages were enclosed with the letter. It further stated that both Form 23C and RACS 006 are valid summary records of assessment but that the RACS 006 is the computer-generated replacement for the Form 23C.” 2015 T. C. Memo. 239, at p. 5.

If you’re unfamiliar with RACS, with or without its James-Bond-like numerals, Judge Morrison explains: “The full name of RACS 006 appears to be Revenue Accounting Control System (RACS) Report 006”. Rev. Rul. 2007-21, 2007-1 C.B. 865.” 2015 T. C. 239, at p. 5, footnote 2.

Dan’l Lee claims if no signed summary record of assessment, then no assessment, no liability for tax, and no lien or levy, all of which he’s fighting.

Well, Dan’l Lee may have a point. “Section 301.6203-1, Proced. & Admin. Regs., specifies that an assessment is made ‘by an assessment officer signing the summary record of assessment’, which, ‘through supporting records’, must include the ‘identification of the taxpayer, the character of the liability assessed, the taxable period, if applicable, and the amount of the assessment.’ The date of the assessment is the date the summary record of assessment is signed. Id. Without a signed summary record of assessment, there is no valid assessment. See Brafman v. United States, 384 F.2d 863, 866-867 (5th Cir. 1967).” 2015 T. C. Memo. 239, at pp. 9-10.

Of course, in the CDP the AO used the Form 4340 computer printout, which is OK if the petitioner doesn’t raise irregularity. But Dan’l Lee claims he did, because the Form 23C wasn’t signed.

But Dan’l Lee didn’t ask for the signed Form 23C.

“We disagree that Berglund demonstrated an irregularity in the assessment process. In his FOIA request, Berglund had requested a Form 23C, which is a type of summary record of assessment. But he did not specify that he wanted the signed version of the Form 23C. Furthermore, section 6203, which governs the IRS’s responses to taxpayer requests for copies of records of assessments, did not require the IRS to provide a signed copy of a document in response to Berglund’s request. That he received an unsigned summary record of assessment does not mean that no signed summary record of assessment exists.” 2015 T. C. 239, at pp. 17-18. (Citations and footnotes omitted, but read them).

Maybe Section 6203 doesn’t require IRS to provide a copy of the signed Form 23C, even if Dan’l Lee had asked for it specifically; but if Dan’l Lee had specified the signed Form 23C, and IRS interposed that it wasn’t necessary to produce same, what is the significance of requiring the assessment officer to “sign on the dotted line,” if IRS is not required to produce the document? And was Fifth Circuit wrong in Brafman, supra?

Or, Doesn’t Anybody Read These Orders?

Really, it’s embarrassing. Here’s the latest blooper from the Glasshouse at 400 Second Street, NW, which eluded the eagle eyes of Ch J Michael B (“Iron Mike”) Thornton.

“Only cases conducted under the Court’s small tax case procedures may be tried in Tallahassee, New York.” Forget about small; they’d better be earth-moving.

Valerie Sheree Brooks, Docket No. 30436-15, filed 12/14/15, at p. 1.

Or, Tax Court As Copy Editor

It is my rule not to name attorneys in these posts, when they come under judicial criticism, however mild. There but for the grace of you-know-Whom goes any of us.

But today The Judge With the Wonderful Name, STJ Lewis (“Spell It Right”) Carluzzo, deals so gently with a certain attorney (hereinafter “Marky”) that I must salute STJ Lew’s patience.

The problem is the petition Marky filed in Byron S. Georgiou & Therese Collins-Georgiou, Docket No. 22316-15, filed 12/11/15, and not even the substance, but the form.

And STJ Lew designates this hitter, so that we may all read and heed.

“The allegations of fact and other statements contained in the paragraphs and pages of the petition following paragraph 3(d) are not set forth in ‘lettered statements’ as required in Rule 34(b)(5) and demonstrated in the sample petition depicted in Form 1. At the risk of appearing persnickety, we point out that we could excuse, and often do, the failure to strictly adhere to our pleading formatting Rules if only a few paragraphs in the petition are not properly numbered or lettered. But here, following paragraph 3(d) there are more than ten pages of improperly designated or undesignated separate paragraphs. This presents practical problems not only for respondent in preparing his answer (cumbersome references to specific allegations to which a response relates), but to the Court as well in reviewing the pleadings as necessary after the case is at issue.” Order, at p. 1.

I think what you meant to say, Judge, is “Lest anyone feel that we are persnickety, we point out that we could excuse, and often do, the failure to strictly adhere to our pleading formatting Rules if only a few paragraphs in the petition are not properly numbered or lettered.”

Howbeit, while IRS wants the petition stricken, or at least amended so as to be in a form that both IRS’s counsel and the Court can handle, STJ Lew has a better idea.

IRS’s counsel “…need only respond to the statements and allegations contained in the petition up to and including paragraph 3(d), and (2) may include, as appropriate, affirmative allegations….. [And] all allegations, statements, and/or representations, contained in the paragraphs of the petition following paragraph 3(d) are deemed denied.” Order, at p. 2.

And STJ Lew makes clear his liberality in allowing in this mélange: “Even though we agree to a certain extent with respondent [IRS] that much of that material might not be properly includable in a petition in a deficiency proceeding, none of it constitutes a ‘matter’ that is properly viewed as ‘impertinent, frivolous, or scandalous’. See Rule 52. Otherwise, we are reluctant to strike any portion of a party’s submission unless it is clear that the material stricken can have no possible bearing upon the subject matter of the litigation.” Order, at p. 2. (Citation omitted).

Still, if you really want to get on STJ Lew’s good side, and his colleagues’, write it right.

Judge Pugh takes the words out of poor Mercutio’s mouth and delivers them to Nonparty Witness James A. Robinson, CPA, delimiting the stretch of the Section 7525 confidentiality cloak.

Read all about it in Jerry L. Cypress & Diane T. Cypress, Docket No. 7939-12L, filed 12/11/15.

Jas. A CPA claims that what he told IRS is covered by the privilege, and his client hasn’t waived it, so he refuses to Branerton and clams up at the depo.

Judge Pugh says she’ll deal for now with a few of the questions Jas A CPA ducked, and will tackle the rest if, as and when further rulings are required.

But as for ducking whether he told an AO that his clients got the SNOD, and ducking whether or not he filed the Form 12153 which bears his signature as Agent, that’s not protected by anything.

“The communications between Mr. Robinson and the IRS, the adversary of his client in this proceeding, are not protected by this provision (or any other privilege of which we are aware). Privilege likewise does not attach to any documents or information provided to Mr. Robinson with the expectation that such information would be shared with the IRS as there is no expectation of confidentiality as to that information.” Order, at p. 2. (Citations omitted).

So, Jas A CPA, return to the depo and spill, consistent with this order.

Oh, and Clerk, send a copy of the order to Jas A CPA at the address shown on IRS’ motion papers. Keeping addresses from the prying public eye is a good idea.

I thought they were just run-of-the-mill orders. They came out daily, and mostly read “address changed to 1.14159 Pi R Square, Yennervelt, NY” or something like that.

But now, as a more exalted personage remarked long ago, “upon them hath the light shined.”

Today, for example, we see this in an order. “ORDERED that petitioner Hanna R. Raskin’s address of record is corrected to reflect the address as provided on the petition filed October 14, 2014.” Kenneth Lee Raskin & Hanna R. Raskin, Docket No. 24206-14S, filed 12/10/15.

Used to be easy for a disgruntled spouse to find the other, once the other had filed the change of address mandated by Rule 21(b)(4). Or anyone else trying to find a Tax Court litigant. But apparently Judge Pugh has taken a better approach.

Unfortunately, Judge Nega (or his clerks) haven’t gotten the word yet. Cf. Bethany L. Caudill, 18685-14S, filed 12/10/15.

Terry M. Schank is a perfectionist, he says. So much so, he says, that he does the work of three or four individuals, because he can’t get good help nowadays. Terry’s story, and that of his C Corp, living trust and LLC, conjoined with wife Paula, as told by Judge Laro, may be found in Terry M. Schank and Paula J. Schank, 2015 T. C. Memo. 235, filed 12/9/15.

Terry ran the family roofing company, had a living trust that owned the land where the C Corp provided materials to build a house and barn for Terry and Paula, and the LLC owned the land where the C Corp’s building stood.

It’s indeed an ill wind that blows no one some good. A hailstorm in the year at issue gave Terry and his C Corp a ton of work. And a lot of money.

So Terry wrote off his personal credit card bills against the C Corp and treated the materials that went into his house as cost of goods sold. He also had the C Corp buy him a jazzy sports car, ostensibly to drive to various job sites, although he had zero records of same. And he tried a prepaid rent dodge between C Corp and LLC. And there was sufficient cash on hand by way of E&P to set up the constructive dividend, rather than compensation. Although if Terry can show qualified dividend, he gets the benefit of the lower rate at the Rule 155 hoe-down.

You can see where this is going.

After wiping out Terry’s little games, Judge Laro comes to the chops.

Judge Laro: “Mr. Schank, a self-described perfectionist, entrusted bookkeeping for [C Corp] to a high school graduate with no formal accounting training. The … bookkeeper entered personal expenses as attributable to cost of goods sold with the tacit approval of her direct supervisor and the company CEO, Mr. Schank. These facts show that petitioners did not make a reasonable attempt to comply with the provisions of the Code or to exercise ordinary and reasonable care in the preparation of their tax returns. Accordingly, we conclude that respondent met his burden of production under section 7491(c) and that petitioners were negligent with respect to any underpayment of tax for the periods in issue.” 2015 T. C. Memo. 235, at pp. 31-32.

Terry used a CPA for the C Corp, but his and Paula’s personal return was done by “an enrolled IRS agent and a co-owner of a local H&R Block franchise,” 2015 T. C. Memo. 235, at p. 14.

Neither one agreed to audit Terry’s numbers or look behind what Terry and his bookkeeper told them. They just wrote down whatever Terry and the bookkeeper told them.

Now Judge Laro: come on! “An enrolled IRS agent”? No way! One can be an IRS Agent (Revenue Agent, maybe) or one can be an Enrolled Agent. One cannot be both. The only IRS employees who can qualify for EA status must be former IRS employees.

Re-read 31CFR§10.4. Then apologize to us EAs. We work for our clients, not IRS.

Sumner Redstone, the Viacom King, gets a better deal from Judge Lauber over his gift tax deficiency from 1972 than Geoff Chaucer gave his fourteenth century namesake, in Sumner Redstone, 2015 T. C. Memo. 237, filed 12/9/15.

And here are my comments for Peter Reilly, CPA, which I promised in my blogpost “An Answer You’ve All Been Waiting For,” 10/30/15.

First, Sumner and his late brother Eddie aren’t exactly on the same wavelength. Late brother Eddie handed over his stock in the Redstone family corporation in settlement of a litigation, hotly contested and full of family feuding. Sumner testified that he handed over his voluntarily, and incidentally to please his Dad, the late Mickey.

Judge Lauber extensively airs the family linen in public, and I leave this stuff for those who get off on the foibles of the rich and famous. In such cheap wares I do not deal.

Once again Sumner tries the laches argument (delay of the game), but see my blogpost “The Flavor du Jour,” 9/12/13. Sumner doesn’t make out any better this time than he did then.

Sumner’s claim of repetitive audit per Section 7605(b) fails because IRS didn’t demand his records when they first scoped out his 1972 deal (for which he never filed a gift tax return) in 1975, and he never raised the issue on petition or brief.

And IRS was looking for campaign contributions made under the radar.

I’m not commenting on those here, but oh, am I tempted. I’m doing so elsewhere, extensively, but this is a non-political blog. The RA who was doing the scoping wasn’t sure that Congress had given authority for him to look otherwise than at campaign contributions anyway.

In any case, Section 7605(b) is there to spare taxpayers from relentless audits by overzealous Revenoors. Sumner wants the deficiency scrapped on that ground, and that’s a non-starter.

After some argy-bargy about valuation (was late brother Eddie’s settlement a willing-buyer-willing-seller pas de deux, with an affirmative answer from Judge Lauber and sustentation of IRS’ number), we come to my title for this little tale.

Sumner claims he relied upon his trusty accountants, to whom he unloaded all the skinny from the get-go, and moreover were the acolytes of the famous J. K. Lasser. Upon flying the Lasser nest and opening their own doors, they reaffirmed their position that no gift tax was due by consulting J. K.’s national office.

J. K. Lasser was subsequently swallowed by Touche Ross, which in turn was swallowed by Deloitte, but in my young day the J. K. Lasser annual tax guide was the Holy Writ of preparers. Late each Fall, one expected to see J. K. hisself come down from the mountaintop bearing the sacred scriptures for the next tax year, which resembled the Yellow Pages of a medium-sized city.

And if this makes sense to any of you, my sincerest condolences.

But it’s good enough for Judge Lauber, although he’s probably too young to remember J. K.’s magnum opus. But who knows? He may have imbibed its wisdom at his Mother’s knee.

Howbeit, Sumner gets off the chops.

Nothing new in Tax Court today, no opinions, no designated hitters, and only four (count ‘em, four) pages of orders, each more sleep-inducing than the last.

So, ever in search of blogfodder, I turned back to my blogpost “Discovered Check,” 11/30/15. What has been percolating in my mind is the gap I perceive between how the law treats inadvertent disclosure by attorney (or Section 7525 adjutor) and inadvertent disclosure by a client, and an unsophisticated one, at that.

A concrete example took place this last weekend. A client (not a pro) replied to an e-mail I forwarded from the attorney for the counterparty on the deal. It was early morning, and the client may have missed morning coffee, so hit “reply all.”

Fortunately the client’s reply wasn’t significant, but I can’t help thinking “what if it had been?”

I suggest that the law take cognizance of the “least sophisticated consumer,” to borrow a concept from consumer protection law, not dwell upon steps taken by client to preserve privilege (of which privilege clients are generally only superficially aware), but permit timely clawback and direct non-user by the inadvertent recipient.

Hopefully tomorrow will bring fresh perspectives and insights from Tax Court.

Except There Was No Objection, So It Doesn’t

The self-representeds in Tax Court often remind me of the fish-in-a-barrel cliché. By the time there’s an order from the Court, it’s too late.

Here’s Walls Transportation, Inc., Docket No. 20019-15, filed 12/7/15, Ch J Michael B. (“Iron Mike”) Thornton ejecting Walls from the cab.

Walls filed its petition three (count ‘em, three) days prior to the issuance of the SNOD.

When IRS moved to dismiss (leg before wicket, to those of you who follow cricket), Walls doesn’t answer, even though Ch J Iron Mike told them to do so, before their ninety days had run out.

And remember, Ch J Iron Mike will take anything as a petition, however imperfect, if it restates the petitioner’s sad tale, is manually signed in blue ink, and is mailed before the ninety days runs out. In witness whereof, see my blogpost “The Objection Saves The Day,” 10/19/15.

I know, the people who need to see this won’t see it. But I will again, in keeping with the season, raise my voice, “the voice of him who crieth in the wilderness.”

An Alternative is an OK Initial Determination

The Boss Hoss Rule, embodied in Section 6751(b), states that “No penalty under this title shall be assessed unless the initial determination of such assessment is personally approved (in writing) by the immediate supervisor of the individual making such determination or such higher level official as the Secretary may designate.”

The gambit, as you may remember from my blogpost “Penalty Kick,” 7/17/14, is to object that the initial determination of the assessed penalty, here a 40% substantial overvaluation chop per Section 6662(h), wasn’t properly signed off by the right Boss Hoss.

But Judge Kerrigan decides the undervaluing conservation donors, Brett E. Legg and Cindy L. Legg, 145 T. C. 13, filed 12/7/15, don’t have a leg to stand on. (Sorry guys).

Here’s the back story: “Respondent’s [IRS’s] examiner determined that petitioners were liable for the 20% accuracy-related penalty under section 6662(a) or, alternatively, that petitioners were liable for the 40% accuracy-related penalty for a gross valuation misstatement under section 6662(h). The examination report concludes that petitioners are ‘subject to the Accuracy Related Penalty-Gross Valuation Misstatement pursuant to IRC Section 6662 for the tax year 2007′. The examination report, however, calculated the proposed penalties using the 20% rate.” 145 T. C. 13, at p. 5.

And the letter transmitting the report the report was signed by the examiner’s immediate supervisor, the director of Western Area Examination.

Brett and Cindy rush to Appeals, but get no joy. Appeals “…explained that imposing 40% gross valuation misstatement penalties should be respondent’s primary position because the value of the conservation easement reported on petitioners’ tax returns exceeded more than 200% of the correct value (zero) and the case is unagreed. The report further explained that imposing 20% accuracy-related penalties should be respondent’s alternative position.

“… the Appeals Officer’s immediate supervisor—the Appeals Team Manager–approved the report.” 145 T. C. 13, at p. 6.

Judge Kerrigan cuts to the cliché. “Petitioners believe that section 6751(b) must apply to the first notice that the IRS sends the taxpayer. Thus, petitioners argue that respondent’s examiner was the only person qualified to make an ‘initial determination’ of the appropriate penalties and the examiner determined a penalty of 20% pursuant to section 6662(a). Respondent contends that section 6751(b) applies only before the assessment of penalties, not before the determination of penalties in a notice of deficiency. We find it unnecessary to decide whether section 6751(b) applies only before the assessment of penalties or before the determination of penalties in a notice of deficiency since we conclude that respondent’s examiner made an ‘initial determination’ regarding the section 6662(h) 40% penalties.” 145 T. C. 13, at p. 8.

Now for the alternative. “Respondent’s examination report included the 40% gross valuation misstatement penalties analysis as an alternative position because of uncertainty as to whether such penalties could be imposed where an underpayment was the consequence of an adjustment not based on valuation. Specifically, respondent was uncertain whether he could impose gross valuation misstatement penalties on the theory that petitioners’ donation of the conservation easement did not meet the charitable contribution deduction requirements of section 170, an adjustment not based on valuation. This uncertainty has since been resolved. In the notice of deficiency respondent contended that petitioners failed to meet the legal requirements for a conservation easement charitable contribution deduction. We find that even though the gross valuation misstatement penalties were posed as an alternative position, the report made an ‘initial determination’ that petitioners were liable for the 40% penalties.” 145 T. C. 13, at pp. 10-11.

Congress wanted taxpayers to know the basis for each penalty. The examiner made it clear. The examiner’s boss signed off on it.

Note that Brett and Cindy, and IRS, stipped away a lot of issues. I thank them, and I’m sure my readers will as well, since this blogpost is much shorter therefor.

“After the issuance of the notice of deficiency, petitioner and respondent stipulated and agreed that the value of the conservation easement was $80,000 at the time of petitioners’ donation. The parties agreed that mathematically petitioners’ reported value of $1,418,500 was a gross valuation misstatement per section 6662(h)(2)(A)(i). The parties also agreed that petitioners cannot invoke a reasonable cause defense against the gross valuation misstatement penalties under section 6662(h) but that petitioners have satisfied the reasonable cause defense requirements for substantial valuation
misstatement penalties under section 6662(a) and (b)(3)..” 145 T. C. 13, at pp. 6-7.