Represented

Judge Gustafson, as obliging as always, bounces IRS’s motion for summary J a second time in a designated hitter, Cornelius L. Jones, Docket No. 5166-15L, filed 12/4/15. I didn’t blog the first bounce, which took place back on November 24, as I had other cases to deal with.

Howbeit, IRS’ counsel, apparently overstressed with the weight of work, once again fails to correct an important defect in previously-bounced papers. “…the factual assertions are not in a section distinct from the motion’s legal argument.” Order, at p. 2.

Remember Rule 121(d). Undisputed facts must be separately and clearly stated. Here, IRS’s counsel provides a “Factual Background,” but what is alleged there isn’t sufficient, and the remaining allegedly undisputed facts are sprinkled among the legal arguments.

Judge Gustafson hasn’t forgotten the in-the-trenches perspective he obviously had in his pre-elevation-to-the-bench days.

“We appreciate that respondent’s counsel must accomplish a significant volume of work to prepare for a calendar of cases, and that respondent must seek reasonable economies of scale in the handling of recurring and routine issues. However, a motion for summary judgment is not a routine experience for the typical self-represented petitioner but is instead a unique, first-time event. Experience teaches us that there is a risk that some petitioners may fundamentally misunderstand the nature of a motion for summary judgment (mistaking it for a pretrial memorandum that can be opposed at trial, or even for an order of the Court) and that many petitioners will find the task of responding to the motion to be very challenging. To maximize the chance that our cases will be resolved correctly on their actual merits, the Court must attempt to assure that, as much as possible, motions for summary judgment will be comprehensible to and susceptible of response by a non-expert petitioner of average intelligence.” Order, at pp. 2-3.

Practitioner, what is for you just another day in the office may well be maximum-trauma to the civilian.

So Judge Gustafson joins Judge Holmes in the K.I.S.S. club. See my blogpost “Write Like A Human Being,” 1/9/15.

The Judge With a Heart, STJ Armen, perplexed by IRS’s apparent walkaway from a winning case, won’t allow IRS to give up the win, in Robert H. Tilden, Docket 11089-15, filed 12/3/15.

You doubtless remember Robert H. Tilden. What, no? Well, check out my blogpost “Stamp Out Stamps.com – Part Deux,” 7/20/15.

Now, recollection refreshed, you recall that Bob’s petition got tossed on jurisdictional grounds, because his Stamps.com “postmark” was belied by the USPS track-and-confirm.

STJ Armen gave IRS the win in 2015 T. C. Memo. 188, filed 9/22/15, which I didn’t blog because it was so obvious. Or so I thought.

Now Bob moves for reconsideration per Rule 161. And IRS doesn’t object. What’s this?

STJ Armen traces this curious history in a footnote.

“Respondent’s [IRS’s] position has evolved over the course of this case. Thus, in his Motion To Dismiss For Lack Of Jurisdiction filed June 8, 2015, respondent argued that the petition was not timely filed, and he relied on USPS Tracking data to demonstrate that the petition was not timely mailed. Then, after petitioner objected to the granting of his motion, respondent argued in his Reply filed July 21, 2015, that the petition did not arrive at the Court in the usual mailing time and that petitioner failed to demonstrate when the petition was actually deposited in the mail, that the delay in the receipt of the petition was due to a delay in the transmission of the mail, and the cause of the delay. See 301.7502-1(c)(1)(iii)(B)(2), Proced. & Admin. Regs. Now, in response to petitioner’s motion for reconsideration, respondent reverses course and accepts petitioner’s view that the petition was timely mailed and was therefore timely filed.” Order, at p. 2, footnote 2.

As we all know, “The fact that respondent may now have lost confidence in his own motion is of no moment. After all, it is axiomatic that the Tax Court is a court of limited jurisdiction and that it may exercise jurisdiction only to the extent expressly authorized by statute. It is equally axiomatic that jurisdiction cannot be conferred on this Court by agreement of the parties. Indeed, the Court can — and should — question its jurisdiction when there is reason to do so. These principles are not new.” Order, at p. 3.

Even if IRS folds, if your petition is late, you’re out.

No, not a misspelling of the 1964 James Baldwin drama, rather this is the story of index-card records and all-night driving that gets more business miles deduction than IRS would allow to David L. Charley and Julia A. Charley, 2015 T. C. Memo. 232, filed 12/2/15.

Mister Charley owned an oil-purification business, which separated condensed water, particulates and acid from waste oil, preserving its lubricating qualities, and making it suitable for sale to plastic injection molders who use hydraulic oil.

Mister Charley roamed far and wide. But he never graced any motels with his presence. He would drive all day and all night to return to his home in the Show Me State, because “Mr. Charley testified that petitioners had spent $2,500 to rid their home of bed bugs after one hotel stay. Since then, he does not stay at hotels when he travels.” 2015 T. C. Memo. 232, at p. 4, footnote 6.

But the key to the case is Mister Charley’s index cards, which IRS tried to exclude on foundational grounds. But Judge Paris overrules IRS, lets Mr. Charley play the cards, and thereby hangs this tale.

“Mr. Charley recorded the point-of-contact, telephone number, date he visited the client, and the client’s business address on an index card. Each index card was created at the time of the travel to that client. Although the mileage from Mr. Charley’s home to each client was not included on the index cards, most of his client’s business addresses included the city and State where the client was located. Some of the index cards record visits to multiple clients in the same geographical area.” 2015 T. C. Memo. 232, at p. 4 (footnote omitted.)

There are mistakes and inconsistencies in the cards, but there’s enough stuff to satisfy the Section 274 extra-substantiation trap.

“While Mr. Charley cannot substantiate his business miles with a mere statement about his driving habits, he can substantiate them by ‘his own statement, whether written or oral, containing specific information in detail” about them and by ‘other corroborative evidence sufficient to establish’ them. Sec. 1.274-5T(c)(3)(i), Temporary Income Tax Regs., 50 Fed. Reg. 46020 (Nov. 6, 1985). The Court finds that Mr. Charley substantiated that he had business mileage expenses for 2010 through his index cards and testimony–although not the amount reported on petitioners’ return. See Smith v. Commissioner, 80 T.C. 1165 (1983) (taxpayer substantiated business mileage by producing schedule of his business travel that listed city and State he traveled to and from and dates of travel). While Mr. Charley’s travel schedule may have been extreme, such extremity is not a bar to deducting otherwise properly substantiated expenses. See Scully v. Commissioner, T.C. Memo. 2013-229, at *18.” 2015 T. C. Memo. 232, at p. 11.

Mr Charley gets less than what he claimed, and IRS drops the Section 6662(a) accuracy chop.

IRS allowed Mister Charley his legal fees deduction despite a missing witness. “Mr. Charley’s legal and professional services expenses were for the drafting of multiple business service agreements. The attorney who drafted the agreements passed away before trial.” 2015 T. C. Memo. 232, at p. 2, footnote 4.

Guys, I do not recommend this course of action to get your clients’ legal fees allowed.

If You Can’t Prove It

We have another replay of the fraudulent conveyance-transferee liability-Section 6901 drama in John M. Alterman Trust u/a/d May 9, 2000, Ronald Gordon and Donald Gavid, Trustees, Transferee, et al., 2015 T. C. Memo. 231, filed 12/1/15. IRS here has the burden of proof, and they can’t carry the weight.

This is yet another of MidCoast’s skulldugging. I’ve blogged these by the carload, so no citations. Judge Buch has all the cases in his opinion, anyway.

Here, MidCoast buys up the Alterman family trucking business, claiming they’ll reengineer the company into a bottom-fishing debt collector and lay off the built-in gain in the Alterman’s C Corp with bad debts.

Of course, they do nothing of the kind. Lying even to their own personnel, the MidCoast capos get short-term loans to fund the buyout, offshore the cash they get from the assets of the purchased Alterman C Corp, and do the phony currency option shellgame, buying major and selling minor, recognizing one but not the other. Then they collapse the vehicle they used.

Judge Buch is a-weary of this stuff.

“Courts, including this court, have been plagued by Midco cases. Rarely do these cases present themselves for a determination of the underlying liabilities. Instead, these cases are postured so that the courts are asked to determine whether someone other than the taxpayer should be on the hook for the taxpayer’s liability. They are transferee liability cases, and so are these cases.

“The fact patterns of these cases are similar. Someone sells an interest in a corporation for a good price; the corporation doesn’t pay its taxes; and the Internal Revenue Service (IRS) goes after the former shareholder for the taxes.

“The outcomes of these cases vary. Many taxpayers have prevailed at the trial court, but many of those taxpayers have seen their victories turned to defeat on appeal. The IRS has likewise prevailed at the trial court, and its victories have uniformly survived appeal. Rarest of all is the taxpayer victory that survives appeal.” 2015 T. C. Memo. 231, at pp. 2-3.

But this case is a taxpayer win. The Altermans had good attorneys and CPAs. They sussed out the deal, got reps and warranties in the contract of sale.

Read it, practitioner.

“The final share purchase agreement included the following promises by MidCoast:

– MidCoast would not allow AC to be dissolved or liquidated for at least four years and had no intention of allowing that after four years either.

MidCoast would reengineer AC into an asset recovery business.

– MidCoast would ensure that AC invested at least $1,450,000 into delinquent receivables and would reinvest the proceeds into more delinquent receivables for the next 10 years.

– MidCoast would ensure that AC maintained a net worth of at least $1.5 million for at least four years.

– MidCoast would ‘cause * * * [AC] to pay the Deferred Tax Liability to the extent that the Deferred Tax Liability is due given the Company’s post-closing business activities and shall file all federal and state income tax returns on a timely basis related thereto.’

– MidCoast would indemnify the former shareholders against any and all claims, including any damages, losses, deficiencies, liabilities, costs, and expenses resulting from and relating to any ‘misrepresentation, breach of warranty or nonfulfillment of any agreement or covenant on the part of any Purchaser under this Agreement’.

– MidCoast would represent that the ‘combined net worth of Purchasers exceeds $10,000,000 as of the date hereof and as of the Closing Date.’” 2015 T. C. Memo. 231, at pp. 37-38.

Of course, MidCoast did nothing of the kind.

IRS says there should have been a postclosing audit by the Altermans. Nonsense. No buyer lets the outgoing seller romp through her records. And, in my experience, most sellers never want to see the buyer again.

IRS ransacks the FUFTA (Florida Uniform Fraudulent Transfers Act), but the Altermans and Judge Buch show that MidCoast’s vehicle wasn’t insolvent as the time of transfer, and IRS can’t prove that the offshore to which cash was funneled was out of the control of MidCoast’s vehicle.

It’s a complicated web, as a weary Judge Buch agrees (see p. 86).

But the Altermans are innocent. And I bet this one stands up on appeal.