Attorney-at-Law

FEE SIMPLE – NOT ABSOLUTE

In Uncategorized on 02/09/2016 at 16:21

Michael Jones is a State-court judge in AZ, specifically in the Superior Court of Maricopa County.

Here’s another judge come to praise him. “Judge Jones was appointed to the Maricopa County Superior Court in 1995. He remained in that position during the tax years at issue; and even though he retired in January 2012, the county’s chief judge still recalls him to active duty to hear cases a couple days each month. He is highly regarded. Not only did he never lose a retention election, but he has remained throughout his career one of the highest scored judges in the largest county in Arizona.” Michael Jones and M. Chastain Jones, 146 T. C. 3, filed 2/9/16.

Guess who the judge praising Judge Jones might be? Naw, too easy. “A couple days” gives the game away. It’s The Great Dissenter, a/k/a The Judge Who Writes Like a Human Being, s/a/k/a The Indomitable, Implacable, illustrious, Impeccable, Indefatigable, Incontrovertible and Irrefragable Foe of the Partitive Genitive, and Old China Hand, Judge Mark V. Holmes.

But Judge Holmes qualifies the encomia in a footnote. “He did have one blemish on his record–he admitted that he never volunteered for tax cases because he ‘never had an interest.’” 146 T. C. 3, at p. 3, footnote 2.

Judge Jones’ court, as well as AZ’s courts generally, collects fees, usually filing fees and license fees, through the clerk’s office. Judge Jones could collect fees for performing weddings himself, but he says he did weddings for free. My kind of judge.

Judge Jones’ scuffle with the 1111 Constitution Ave brigade has to do with unreimbursed business expenses. Judge Jones was paid a salary, first by the State and then by the county, got W-2s, and participated in the elected officials’ retirement plan. Once upon a time he had discretionary funds, wherewith to decorate his chambers, get new computers, and the like.

But the AZ austerity escuadrón suppressed that, so Judge Jones bought his own supplies (sort of like school teachers, but this is a non-political blog), and his employees’ water (because the austerrorists turned off the court’s water fountains; Flint, MI, anyone? Sorry, non-political) and claimed Line 24, Form 1040 deductions therefor.

Now the beef isn’t about the stuff Judge Jones claims he bought, nor whether any of it was properly trade or business (employee-type). The only question is scheduling. Are these miscellaneous itemized Sched As, or Line 24, 1040 special cases?

Judge Jones claims both his accountants (the living and the dead) said OK to use Line 24 on Form 1040, which provides unreimbursed business expense deductions to military reservists, performing artists and fee-basis government officials, relying upon Section 62(a)(2)(C), and I bet you didn’t know that one either.

It says that unreimbursed employee business expenses can be deducted elsewhere than on Sched A, and thus can reduce AGI (which Sched A’s can’t, of course), if one’s expenses are “paid or incurred with respect to services performed by an official as an employee of a State or political subdivision thereof in a position compensated in whole or in part on a fee basis.”

Well, Judge Jones’ retirement plan is funded in part from court fees, and he got an annual statement of how much fee money was collected. But he only began collecting retirement money after the years at issue.

Judge Holmes, finding that IRC nowhere defines “compensation,” starts with Thoreau, goes on to Ralph Waldo Emerson, after hitting Hank Black and Webster’s Third, nods to “plain meaning,” and finishes up with “something of value given in exchange for.” 146 T. C. 3, at p. 11.

The Regs are no help. But Rev. Rul. 74-608, 1974-2 C. B. 275 construes the fee-based compensated for Section 1402(c)(1) purposes; that’s SE.

“Revenue Ruling 74 608, 1974-2 C.B. 275, construes compensation by fees the same way the Commissioner wants us to in this case. It says that a public official is compensated by ‘fees’ if he receives them directly from members of the public, but not if he is paid from a government fund. Id. If the “public official receives his remuneration or salary from a government fund and no portion of the monies collected by him belongs to or can be retained by him as compensation, the remuneration is not ‘fees’ under section 1402(c)(1).” Id., 1974-2 C.B. at 276. Note that, although section 1402(c) refers to officials compensated solely on a fee basis and section 62 refers to officials compensated in whole or in part on a fee basis, the difference has no effect on the meaning of the more general phrase ‘compensated soley [sic] on a fee basis.’”146 T. C. 3, at pp. 12-13 (Footnote omitted; but it gives Skidmore deference to the Rev. Rul.)(Emphasis by the Court.)

And we all know the notary public exemption from SE on fees received for notarial services.

Finally, the rule of reason.

“An enormous number of government agencies, courts, departments, and boards receive fee income. See, e.g., Tax Court Rules of Practice and Procedure App. II (U.S. Tax Court filing fee). If Judge Jones’s construction of section 62(a)(2)(C) were correct, all the positions in all these government bodies would be ‘position[s] compensated in whole or in part on a fee basis.’ This would create a caste of employees–those employed as government ‘officials’–who would be exempt from the rule Congress chose to enact that limits the deductibility of unreimbursed employee expenses. Maybe Congress could do that, but it didn’t do so plainly. Business expenses are also usually thought deductible because they are an ordinary and necessary requirement for producing income. But Judge Jones’s reading of section 62 would uncouple the deductibility of an expense from the income it produces–once a position was funded in part by fees, any employee holding that position would be entitled to unlimited deduction of his unreimbursed business expenses regardless of whether those expenses had anything to do with those fees.” 146 T. C. 3, at pp. 14-15.

As for fees received directly for weddings, Judge Jones didn’t get any. And Judge Holmes isn’t willing to extrapolate to find that judges who do take such fees could get deductions for expenses on Line 24, Form 1040. “Maybe the right way to read section 62(a)(2)(C) is that it allows a segregation of expenses for public officials compensated in part on a fee basis–allowing them to deduct above the line those expenses incurred to produce fee income, but treating them like all other employees when it comes to any other employee business expenses.

“This might be a reasonable reading. It might even be the most reasonable reading of that section. But it’s not one we have to make today in light of Judge Jones’s honest admission that he married people for free during the years at issue here. We think that the possibility that one of his colleagues was more mercenary than he at weddings can’t convert his own position into one ‘compensated in whole or in part on a fee basis’ any more than the collection of even one filing fee by the clerk of his court would.” 146 T. C. 3, at pp. 18-19.

Of course, Judge Jones clearly acted in good faith. His CPAs (the living one, anyway) testified he told the whole story. There was no learning squarely in point before now. So no chops for accuracy, negligence or anything else.

 

 

Advertisements

Leave a Reply

Please log in using one of these methods to post your comment:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

w

Connecting to %s

%d bloggers like this: