In Uncategorized on 02/22/2016 at 16:34


Not for the Ninth Circuit, Anyway

Long-time readers may remember the story of Barbara Jane Knudsen and her intervening ex, Kurt, as adumbrated by my blogpost “Concession Equals Settlement,” 4/1/13. Then, said Ch J Michael B (“Iron Mike”) Thornton, IRS’ litigating reversal, granting Barbara Jane innocent spousery, wasn’t a concession, it was a settlement, so no loot for Barbara Jane and her redoubtable barrister, Jan Pierce, Esq.

Poor ol’ Jan only got a Taishoff “good try.” But s/he who laughs last is the one who prevails, and Ninth Circuit blew off Ch J Iron Mike’s ratiocinations and rationales, and Barbara Jane (and, hopefully, Jan Pierce, Esq.) departed with loaded moneybelts.

You can read all about it in Knudsen v. Commissioner (Knudsen II), 793 F.3d 1030 (9th Cir. 2015), rev’g and remanding T.C. Memo. 2013-87 (Knudsen I).

So here’s Bonnie J. Angle, 2016 T. C. Memo. 27, filed 2/22/16, on a Rule 161 in front of Judge Laro. Judge Laro tossed Bonnie on Knudsen I grounds in 2015 T. C. Memo. 92, filed 5/11/15, which I didn’t blog because it was Knudsen I revisited.

OK, so Bonnie now wants a Rule 161 re-think. There were two cases at once, an innocent spousery and a CDP.  The only qualified offer that would trigger Section 7430 (c)(4)(E) and (g) is the innocent spousery, and not the CDP.

But the previous toss is clearly overruled and Golsenized by Knudsen II.

The good news about the qualified offer gambit is that it jumps the two biggest hurdles in the prevailing party steeplechase.

“Under the qualified offer rule of section 7430(c)(4)(E) and (g), a taxpayer may be deemed to be a prevailing party regardless of whether the taxpayer substantially prevailed in the proceeding or of whether the Commissioner’s position in the proceeding was substantially justified.” 2016 T. C. Memo. 27, at p. 12.

But does a concession by IRS mean the petitioner prevailed?

IRS claims no, but the test is timing. Were there negotiations? Did the parties ever evince a meeting of the minds? When did IRS fold? IRS claims Bonnie swapped information with them, but that’s part of the whole litigation process, and Judge Laro isn’t willing to state that the discovery process is a settlement negotiation. And whether IRS was substantially justified or not is irrelevant. The only test is whether the ultimate resolution was equal to or less than the qualified offer, which was less than IRS demanded. Bonnie rejected a proposed stipulated decision from IRS. And IRS folded less than a month before trial.

So is Bonnie getting a check?

No. There’s one more hurdle. Bonnie has some notes for loans she made to a couple of Canadian corporations, that she never bothered to include in her net worth calculations to get under the $2 million net worth bar.

Bonnie claimed they were worthless, but never took a bad debt deduction or tried to collect. Also, Bonnie’s FBAR showed a couple accounts (hi, Judge Holmes) in the Bank of Montreal with six-figure balances, which she also didn’t mention.

Judge Laro: “We note, however, that this evidence casts serious doubt on the veracity of the information petitioner provided to prove she met the net worth requirements.’ 2016 T. C. Memo. 27, at p. 23.

Bonnie is out, but don’t forget Knudsen II. Maybe your clients can make it under the bar.

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