No, this is not about the time 2nd Lieutenant King, all five foot one of him, fresh from ROTC at some Pennsylvania hick school, heel-stomped the barrackroom floor we’d just spent two hours polishing on our hands and knees. Of course I’m not bitter; it was nearly fifty years ago. That’s not to say I wouldn’t seek out his name on a certain wall not far from 400 Second Street, NW, where are graven the names of too many better men.

No, this is the story of the exploration by The Great Dissenter, a/k/a The Judge Who Writes Like a Human Being, s/a/k/a The Implacable, Indefatigable, Ineluctable, Illustrious, and Imperturbable Foe of the Partitive Genitive, and Old China Hand, Judge Mark V. Holmes, of The Gig Economy.

See Jorge Quintanilla, 2016 T. C. Memo. 5, filed 1/7/16, at p. 14.

There’s no politico-economic discussion in the opinion, and, this being a non-political blog, there won’t be any here.

Jorge works at various arcane technical posts in the movie business, but it’s not The Force Awakens kind of stuff; rather, Jorge works designing, building and dealing with sets and props for TV commercials. And he does well, even though most of his viewers doubtless hit the “mute” button and head for the bathroom as soon as the epic in which Jorge figures hits the small screen.

Jorge is a true freelancer IC, flitting from job to job, turning off the phone when he wants a vacation, hauling two forty-foot toolboxes crammed with four-figure sanders and power tools in his own truck, working from producers’ sketches or just building what he thought would work. And though he joined a union, he got no jobs from the union call board, nor did he get vacation pay or sick pay; and he could cut his own deal for payment. He did get health insurance, and that’s why he joined.

Judge Holmes checks out the facts and factors in the EE-IC scrimmage, and Jorge, pro se, defeats five (count ‘em, five) lawyers for IRS.

“So what?” you’ll say. “My clients aren’t Hollywood set-builders, gaffers, or best boys. This is another fact-driven case. YMMV.”

Yes, but, dear reader, those who operate with gig economy workers also outsource their payroll and HR functions. There were recently a bunch of ads in the dear old NYC subways that I ride every day, claiming to take all that tedious back-office stuff off the entrepreneurs’ cluttered desks. And some of these outsourcerers cut payroll checks on their accounts and issue W-2s to the out-ensourcelled, because the decision between 1099-MISC non-employee compensation and W-2 salary-and-wages is above their pay grades.

IRS thought Jorge was an EE playing the IC game, and nailed him. It looked good until they got to trial.

So the takeaway, patient reader, is that your client who hands you some W-2s but claims he works freelance may be telling the truth. Just check out the websites of the parties who issued those W-2s. The issuers may be issuing for dozens of outfits and issuing one W-2.

OK, But Don’t Give It Away

I’m not citing Hazem Garada and Noha Elghosein, 2016 T. C. Sum. Op. 1, filed 1/7/16 for the the issue of the Dubai bank account that never made it onto their return but for which Haz and No wanted deductions for travel expenses. Neither am I going into Judge Buch’s analysis that real estate taxes paid by a Sub S are passed through to the shareholders thereof as a distribution from the S Corp., whether taxable or not, and are deductible by them on their personal return.

Rather, I’m going straight to the penalty kicks, of one of which IRS gets a “maybe,” and the other two go over the net.

The “maybe” depends upon whether, after the Rule 155 beancount, the deficiency as finally determined for one of the three years at issue jumps the five-and-ten barrier.

Here’s the story on the over-the-net kicks.

For the other two years at issue, “…because the threshold for a substantial understatement of income tax is not met, the Commissioner instead argues that Mr. Garada and Ms. Elghosein were negligent or disregarded rules or regulations. The term ‘negligence’ includes any failure to make a reasonable attempt to comply with the provisions of the Code, and the term ‘disregard’ includes any careless, reckless, or intentional disregard.

“The Commissioner did not provide any evidence that the imposition of the penalty was justified…. The Commissioner did not show that Mr. Garada and Ms. Elghosein failed to keep adequate books and records or failed to properly substantiate the items in question for those years. Instead, the Commissioner argues that because Mr. Garada and Ms. Elghosein conceded and paid their deficiencies…, they are liable for section 6662(a) accuracy-related penalties for negligence or disregard of rules or regulations.” 2016 T. C. Sum. Op. 1, at p.19. (Footnotes omitted).

Now before anyone gets their Calvin Kleins in a Carrick Bend, no one is saying that if you pay to cut off the running of interest, you’ve conceded a 20% chop. Note, Haz and No did concede they owed some tax for both years.

Judge Buch is much kinder than I would be, which is why I’m not a judge. I’m too sardonic, I expect.

“Although we may take concessions into account in determining whether the Commissioner has carried his burden, the Commissioner’s argument here is too broad. Conceding that a position is not allowable is not the same as conceding that it was taken negligently or with disregard of rules or regulations.” 2016 T. C. Sum. Op. 1, at p. 19-20 (Footnote omitted).

Takeaway-  Practitioner, if you tell the client to pay, remember to stipulate you’re conceding nothing.

I thought that, aside from the calendar call program and the LITCs, there was no system for assignment of counsel in Tax Court. See my blogpost “With Friends Like Him,” 2/26/13.

So I’m asking for help in figuring out whence came Olena Ruth, Esq., of the CO Bar, who nobly agrees to intercede pro bono for Linda J. Abramson-Schmeiler in Joachim P. Schmeiler & Linda J. Abramson-Schmeiler, Docket No. 17187-12, filed 1/6/16.

His Honor Judge Big Julie, more formally His Honor Judge Julian I Jacobs, hereinafter HHBJJJIJ, is somewhat elliptical in said order.

“… the undersigned held a conference call with Linda J. Abramson-Schmeiler (Ms. Abramson), and counsel for respondent. It became apparent that Ms. Abramson required the advice of counsel. The conference call was ended, and a member of the Colorado Bar, Olena Ruth, was contacted. Ms. Ruth agreed to review Ms. Abramson’s situation, and possibly assist her, on a pro bono basis. Another conference call was held and with the permission of both Ms. Abramson and respondent’s counsel, Ms. Ruth joined that call. A continuance was jointly requested by Ms. Abramson and respondent’s counsel.” Order, at p. 1.

Who contacted Ms Ruth? Was it IRS or the Court? I cannot think Ms. A had a list of CO pro bono Tax Court admitted attorneys at her fingertips or in her smartphone.

The case was on for trial, and a previous attorney, apparently representing both Schmeilers, bailed the year before last. And the trial had been continued last year.

But HHBJJJIJ continues it yet again, so Ms Ruth can delve into Ms. A’s situation.

But I’m left wondering: is there some sort of attorney referral program in Tax Court other than the two abovementioned?

Readers, please enlighten me.

No doubt Christopher Isa Muhammad is a Virgin (Islander), and self-employed, but he really shouldn’t have ducked Judge David Gustafson’s gracious and obliging suggestion, more particularly bounded and described in my blogpost “The Self-Employed Virgin,” 11/12/15, to which your attention, dear reader, is most respectfully directed.

Judge Gustafson’s plea for enlightenment drew nothing from Chris and a motion to dismiss for want of prosecution from IRS.

What a shame. I was hoping for a series of learned exegeses on the subject of SE as an income tax, and the interplay thereof with the unguided Congressional largesse bestowed upon our Insolvent Islands in the Sun. And in fact IRS did a pretrial brief and a supplementary pretrial brief, neither of which is available for the perusal of the poor blogger without a trip to Our Nation’s Capital, which I decline to undertake unless well-compensated. Nevah hoppen, GI!

Well, though I and my readers are left in ignorance, IRS gets Chris tossed with a decision setting forth the deficiency, without penalty. The order is Christopher Isa Muhammad, filed 1/6/15.

No, not that wonderful recording from the Coles (father and daughter), which has so much meaning for one of my nearest and dearest, but rather a much different tale from the annals of The Glasshouse at 400 Second Street, NW, viz., namely and to wit, James Elbert Aldridge, Jr. & Shirley Lorraine Aldridge, Docket No. 13742-10, filed 1/5/16.

It wasn’t until five (count ‘em, five) years after the answer was served that IRS moves for leave to amend said answer for the first time. Of course, there was much ado in the mean time, but little to the point of moving the case forward.

James Elbert and Shirley Lorraine do not consent.

Why?

IRS wants to add an affirmative defense of collateral estoppel, namely, “According to respondent, petitioners’ convictions under section 7206(1) estop them from denying their liability for the section 6663 penalties here in dispute.” Order, at p. 1 (Footnote omitted, but don’t bother reading it, it’s the usual “Statutory references are to 1986 and all that”).

Now this criminal-convictions-as-preclusive gambit is a slippery slope; sometimes it works and sometimes it doesn’t, and I’ve blogged an instance of each. See my blogposts “Orders in the Court,” 3/9/12, and “Collateral Estoppel Checklist,” 6/9/15.

But STJ Lewis (“It’s That Name Again”) Carluzzo lets IRS play the gambit.

“…(T)he fact of the convictions of the petitioners, alluded to in respondent’s answer, would hardly unfairly surprise, disadvantage, or prejudice them….” Order, at p. 1.

Now for the title of this blogpost.

It’s true that James Elbert went down all the way back in 2007 for one of the phony trust tax dodges, but getting nailed in Federal Court is hardly something you’d easily forget. Especially when you got, as did James Elbert, nine years’ hard time. And Shirley Lorraine got five years and change, also hard.

Edited to add, 2/22/24: For the latest installment in this saga, see James Elbert Aldridge, Jr. and Shirley Lorraine Aldridge, T. C. Memo. 2024-24, filed 2/21/24, wherein Judge Elizabeth Crewson Paris hands James Elbert and Shirley Lorraine a bunch Section 6663 fraud chops (hi, Judge Holmes).

Misquoting the 1968 Lennon opus, I refer my readers to Wayne Rebuck, 2016 T. C. Memo. 3, filed 1/5/16.

Even before his case gets to Judge Ruwe, Wayne’s got problems.

“… a grand jury in the Eastern District of Pennsylvania filed an indictment against petitioner along with 10 codefendants on one count of conspiring to defraud the United States pursuant to 18 U.S.C. sec. 371. The grand jury charged that petitioner and 10 codefendants were involved in an organization that conducted sales seminars throughout the United States and solicited clients for fraudulent offshore and domestic trust packages by falsely representing that taxpayers could lawfully avoid paying Federal income tax by placing income and assets into the organization’s trust packages.” 2016 T. C Memo. 3, at p. 2.

Judge Ruwe is scanty with the details, but Wayne walked out of USDCEDPA with a conviction for conspiring as aforesaid, and a $!6 million joint and several liability with his co-defendants for restitution.

Wayne tries to get clean with some of his own tax liabilities. First he tried an OIC, but that got bounced because Wayne was still paying restitution. Apparently though Wayne gave some, neither he nor his codefendants gave all.

Then a new SO got the case, and offered Wayne an installment agreement, which Wayne claimed he couldn’t pay. But the IA was conditioned on Wayne paying the restitution, which he hadn’t paid in full.

Wayne claims he shouldn’t be required to pay restitution to get a collection alternative.

No dice, says Judge Ruwe.

“When a taxpayer owing restitution submits an OIC to the IRS, IRM pt. 5.1.5.24.5 requires that the offer provide for the full payment of the restitution amount. Petitioner’s OIC did not address his outstanding criminal restitution as required by the IRM. Generally, an Appeals officer does not abuse his or her discretion in rejecting an OIC when following guidelines set forth in the IRM.” 2016 T. C. Memo. 3, at p. 13.

And it doesn’t matter whether the years Wayne sought to compromise included or didn’t include the “nonrestitution” years. Wayne wanted doubt as to collectability, and that never works when restitution is outstanding.

Wayne argues that the SO should have come back with another offer after he rejected the IA, but that’s a loser, as we all know.

“Although petitioner indicated his interest in an installment agreement, he never proposed a specific amount or set forth a payment schedule. … petitioner’s representative requested that SO X propose a PPIA [partial payment installment agreement] based on petitioner’s income and expenses. Although he was not required to do so…SO X proposed a PPIA…. Petitioner, through his representative, rejected this offer. Despite arguing before this Court that SO X did not consider his medical condition and decreasing future earnings, petitioner did not make a counteroffer to the… proposal. Moreover, petitioner did not present any other persuasive evidence or arguments demonstrating that SO X abused his discretion. Accordingly, we find that SO X did not abuse his discretion in sustaining the proposed levy after proposing a PPIA….” 2016 T. C. Memo. 3, at pp. 16-17. (Name omitted).

IRS need not negotiate with itself.

Smooth or not, the course of true love doesn’t bind IRS in Diane Blagaich, 2016 T. C. Memo. 2, filed 1/4/16, with Judge Halpern firing the opening salvo in the 2016 Tax Year bombardment.

Di wants IRS estopped from denying that the $700K she got in the year at issue was partly an outright gift, and partly a rescinded gift to the extent of $400K.

She got the $700K from the late Lew Burns before he became the late Lew Burns. Lew could spell all right but his big heart led him astray. Diane was his live-in source of comfort, and received $700K from Lew during their two-year relationship, part in cash and part in the form of a $79K Corvette Lew bought her because he wanted to end her biker-babe Harley Davidson gig. But their relationship turned sour, Lew ejected her from his home, and, when he claimed she was two-timing him, sued her for the loot.

As a parting gift, Lew hit Di with a Form 1099-MISC for the $700K. Di of course reported nothing.

IRS hit Di with a SNOD for the whole $700K, Di timely petitioned, and IRS got wind of the judicial goings-on. So IRS asked for, and got, copies of pleadings, depositions, documents and decisions from State court. And Di asked for, and got, an unopposed continuance of her Tax Court case while she fought it out with Lew’s estate.

Finally, two years after the year at issue, State court decides Di owes the Late Lew’s estate $400K, and the next year the ex’rs send a revised 1099-MISC showing Di paid the $400K. The $300K remaining, including but  without in any way limiting the generality of the foregoing the ‘Vette aforesaid,  was a gift, said State court.

Di wants summary J that the most she owes is zero, as the $400K was the result of the partial rescission of the $700K, and the rest of the loot was a gift, as State court decided.

No on both counts, says Judge Halpern.

First, Di argues issue preclusion. IRS was fully aware of the State court case from overture to the Fat Lady’s cavatina. Not enough, says Judge Halpern. For summary J, parties’ interest must be aligned, so that the party can virtually represent the nonparty. Alternatively, the nonparty must participate in the litigation, although short of formal intervention, so as to be an active player.

Just sitting in the stands is not enough, however hard you root for one side or the other and look at the game with binoculars. To be bound, you have to be on the bench or on the field. IRS wasn’t.

So IRS can retry what part of the $700K was a gift in Tax Court, regardless of State court’s conclusions.

As for rescission, that has to happen in the same year that the money or money’s worth was transferred. Each year stands on its own. “Petitioner relies on Hope v. Commissioner, 55 T.C. 1020, 1030 (1971), aff’d, 471 F.2d 738 (3d Cir. 1973), which suggests that the rescission doctrine may apply even when repayment of a gain does not formally occur in the year of receipt, but only if, before the end of the year, ‘[the] taxpayer recognizes his liability under an existing and fixed obligation to repay the amount received and makes provisions for repayment.’ Nothing in the facts presented indicates petitioner recognized such a liability, much less made provision for repayment, in…the year she received the $400,000. Indeed, the record shows petitioner maintained… that she was under no obligation whatsoever to return the money paid to her under the agreement. Putting aside petitioner’s questionable analogy regarding ‘a lack of control over the rescission’, the suggestion in Hope is inapplicable to the facts of this case.” 2016 T. C. 2, at p. 14.

And Di’s equitable argument founders on the “we ain’t got no equitable jurisdiction” mantra.

Di, go try the case.

Sir Wm Schwenck Gilbert’s sober lyrics from his most sober opera echo in Steven Merriman, Deceased and Marlea Ashford-Merriman, Docket No. 28282-15S, filed 1/4/16, as Tax Year 2016 opens on an equally somber note.

But Sir A Sullivan’s music and Gilbert’s words suit many a self-represented, who, lacking technical knowledge or experience (or the means to employ one who has those), must deal simultaneously with personal calamity and the labyrinthian maze of Tax Court practice.

Post-petition, Marlea sends in what she calls a motion for “Tax Forgiveness for Marlea Ashford-Merriman, Widowed Spouse of Taxpayer Steven William Merriman.” Order, at p. 1.

Ch J Michael B (“Iron Mike”) Thornton, who has probably heard as many hard-luck stories as anyone not ordained clergy, is brief but cold.

“Petitioner’s document is improper, and the Court will strike it from the record in this case.” Order, at p. 1.

But Ch J Iron Mike has a suggestion for Marlea. “Petitioner might possibly wish to discuss the issues and/or evidence concerning this case with the Internal Revenue Service’s counsel.” Order, at p. 1.

Of course, IRS not yet having answered Marlea’s petition, she can wait until the answer arrives and the identity of counsel is revealed. While Marlea waits, the Tax Court Rules and general information are available for her perusal on the Tax Court website.

However, given the fact that many attorneys come seriously unglued in Tax Court (and I’ve chronicled several such), one might question the value of the foregoing aids to someone (a) not a USTCP, (b) not an attorney admitted to practice in Tax Court with substantial experience, and (c) presumably in some emotional distress.

So why not suggest that Marlea check out a local LITC, if such is available in her locality?

PS for any Savoyards who stumble upon this blogpost: I take no position on Jack Point’s status at the close of Act II. The Internal Revenue Code and the Tax Court Rules of Practice present sufficient complications for me.

No, I’m not counting the days until our next vacation. Here’s a post that didn’t make it in  time.

Ch J Michael B. (“Iron Mike”) Thornton shows us how to figure if a petition in Tax Court is timely, when a bankruptcy petition is filed under one chapter of the Bankruptcy Code, and then is transferred and refiled under another, with a delay in between.

Best to have a calendar in front of you as you tiptoe through Lillian Chinedum Ajayi, Docket No. 19029-15S, filed 12/29/15. Not even a designated hitter, this; come on, Ch J Iron Mike, take some pity on us poor bloggers.

Lil filed Ch 13 in Middle District FL. The BJ there gives Lil a chance to convert to a Ch 7, by tossing her case, but staying the toss fourteen days (count ‘em, 14 days, because Ch J Iron Mike does).

Lil flies north, and fetches up in NJ, filing the Ch 7 on the magic fourteenth day she got from the MDFL. She gets discharged.

After the usual “we got limited jurisdiction but you get 60 days after a Bankruptcy discharge,” Ch J Iron Mike adds the fourteen days Lil got from MDFL.

But IRS says, what about 11 USC 362(c)(3)(A)? After all, “Under 11 U.S.C. section 362(c)(3)(A), If a bankruptcy case is filed by an individual debtor under Chapter 7, 11, or 13, and if a bankruptcy case of the debtor was pending within the preceding one-year period, but was dismissed, the automatic stay with respect to any action taken with respect to a debt or property securing such debt shall terminate with respect to the debtor on the 30th day after the filing of the later case. See Klein v. Commissioner, 135 T.C. 166, 173-175 (2010).” Order, at p. 2.

But IRS overlooks the Section 6213(f)(1) 60-day free kick. Even if the automatic stay terminates, Lil still has her 60 days.

And don’t forget the fourteen days. Lil filed the Ch 7 petition timely, and though the 30-day end to the automatic stay kicked in, so did her 60 days to petition after NJ discharged her.

Lil beat the clock.