The use of sales of assets to trusts as an estate planning gambit is getting a lot of space in the tax blogosphere.

And today we have a word on the subject, although early in the game, from The Great Dissenter, a/k/a The Judge Who Writes Like a Human Being, s/a/k/a The Indomitable, Irrefragable, Illustrious, Implacable, Indefatigable, Ineluctable and Incontrovertible Foe of the Partitive Genitive, and Old China Hand, Judge Mark V. Holmes.

There are three (count ‘em, three) companion designated hitters, but for today’s sermonette I’ll take Estate of Jack C. Trent, Deceased, Jimmy Lee Trent & Jacqueline Carol Walters, Co-Executors, et al., Docket No. 9496-11, filed 2/11/16.

IRS is claiming incomplete gift, and Jimmy Lee and Jackie of course are claiming sale. Now the late Jack was allegedly incompetent at the time the sales (gifts) were made, so Jimmy Lee and Jacky used PoAs to offload membership interests (presumably in LLCs, although not explicitly stated) into trusts, of which said Jimmy Lee and Jacky were trustees.

Jimmy Lee and Jacky first want to exclude one of the contested years because SOL says IRS can’t contest valuation.

Judge Holmes: “That is what IRC § 2001(f) says. The problem for petitioners is that this isn’t a jurisdictional provision. Our jurisdiction in Trent’s estate-tax case depends only on the issuance of a notice of deficiency in estate tax and a timely petition. Branson v. Commissioner, 113 T.C. 6, 31 (1999). A general principle in tax law is that ‘the basis for tax liability in a prior barred period may be recomputed for the purpose of calculating the tax liability for an open period.’ Estate of Robinson v. Commissioner, 101 T.C. 499, 517 (1993). And, as the Commissioner argues, precluding a challenge to the value of what Trent gave…isn’t the same as precluding the inclusion of that value in the taxable estate because the gift was incomplete.” Order, at p. 2.

Remember, high-priced colleagues, SOL here is an affirmative defense, not a jurisdictional condition precedent. And anyway, IRS will buy your valuation; they’ll just add it back into the late Jack’s estate and tax it accordingly.

Next, the real issue. Jimmy Lee and Jacky want to bar IRS from arguing that their PoAs are invalid, and so move.

But IRS hasn’t moved to amend its answer to add that. All they’ve said so far is that the gifts were “revocable” or “incomplete,” and the only words about the PoAs was an offhand oral remark by IRS counsel to Jimmy Lee’s and Jacky’s counsel about why the gifts were revocable or incomplete, because of the supposedly defective PoAs.

“We think this motion is at best premature. We normally presume notices of deficiency are correct, Welch v. Helvering, 290 U.S. 111, 115 (1933); Shea v. Commissioner, 112 T.C. 183, 196 (1999), and here those notices all state some variation of a statement that the gifts weren’t truly gifts because they were ‘incomplete’ or ‘revocable’ or such. This puts the burden on petitioners to show that the gifts weren’t revocable transfers under IRC § 2038. Looking at the exhibits that they attached to their motion, they intend to do this by showing the gifts were made by the children acting as trustees of their father’s trust. Neither party has explained what the children’s powers of attorney have to do with this, but as of now, the burden is on petitioners to show that these gifts don’t fit within the inclusion rules of section 2038. How they try to do that is up to them.” Order, at p. 3.

Go to it, guys.

Unlike our national pastime, in Tax Court there’s no called strike unless the ball is nowhere near the plate. That’s Judge Marvel’s call to Silicon Valleygirl Analog Devices, Inc. & Subsidiaries, Docket No. 17380-12, filed 2/11/16.

Judge Marvel is dealing with a closing agreement pursuant to Rev. Proc. 99-32, sec. 4, 1999-2 C.B. at 299. Exceptionally compulsive readers of this my blog (a poor thing, but mine own) will remember my blogpost “Stipulate, Don’t Capitulate – Redivivus,” 9/19/13 (q.v., as my expensive colleagues would say), wherein I canvassed the issue.

Howbeit, Analog wants to strike two statements from IRS’ supplemental brief, invoking Rule 52, claiming the two statements “exceed reasonable advocacy and should be stricken.” Order, at p. 2.

And Analog offers to show proof that, notwithstanding absence from the record, it did make noise about Section 965(b)(3) at a protest in 2008.

The judge can strike from a brief any “insufficient claim or defense or any redundant, immaterial, impertinent, frivolous, or scandalous matter.” Rule 52.

But that’s neither of the two statements at issue.

“The two statements at issue relate to the evidence in the record and respondent’s position with respect to the evidence. Petitioner has not established that the matters it seeks to strike can have no possible bearing on the issues in this case. Moreover, the parties submitted this case fully stipulated under Rule 122, a motion to strike is not an appropriate vehicle to reopen the record, and petitioner has not proven that it will be prejudiced if the statements are not stricken. Respondent’s statements are therefore best left for a determination on the merits.” Order, at p. 2.

Once again, stipulate, don’t capitulate. If you do stipulate, it’s too late for a strikeout.

And A Conversation-Stopper

Two scraps from Tax Court orders today. For some inexplicable reason, these two little tidbits caught my eye, and I must share.

First, David Iliff, Docket No. 361-16, filed 2/1016. Dave doesn’t want to pay the sixty buck admission fee.

OK, why not? Ch J Michael B. (“Iron Mike”) Thornton tells us. “Among other things… petitioner states that: (1) petitioner is not requesting a court date in his Tax Court case, and does not feel he should be charged the filing fee; and (2) petitioner thus wants the Court to waive the filing fee.

“The filing fee is a cost charged for beginning this case, and covers the cost of processing petitioner’s Tax Court case. See I.R.C. sec. 7451.”

Dave, spring for the sixty bucks. Whether or not you want a date.

“That’s a conversation-stopper.” That’s from The Girl of My Dreams’ catalog of pet phrases.

Well, Judge Marvel seems to have a legal explanation for the phrase. And you can find it in Ten Twenty Six Investors, Douglas Oliver, Tax Matters Partner, Docket No. 29483-14, filed 2/10/16.

“We have previously held, pursuant to N.Y. Envtl. Conserv. Law sec. 49-0305(4), that a conversation [sic] easement is not valid in New York until the instrument creating the easement is recorded.” Order, at pp. 2-3.

I don’t know that The Empire State cares about the topic of conversation, but the powers-that-be want it recorded.

I guess a conversation easement lets you talk over the other party. A real conversation-stopper.

But Only If You Do What He Tells You

Is it possible that that Obliging Jurist, Judge David Gustafson, has finally had it with Tax Court petitioners who don’t do what he tells them?

Hear now the story of Thomas Liu, Docket No. 2003-15, filed 2/10/16, a designated hitter, no less.

Tom is on a roll, as IRS drops the case against him upon reading Tom’s golden prose. So Tom goes on offense, seeking admins.

Judge Gustafson pointed Tom in the right direction. “…the Court initiated a telephone conference with the parties, during which the Court explained various procedural matters to Mr. Liu, and… the Court issued an order that repeated some of those explanations as follows: The Court explained to Mr. Liu that if he wants to seek an award of ‘costs’ (pursuant to 26 U.S.C. sec. 7430), then he should file a motion for an award of costs. The contents of such a motion are prescribed in Tax Court Rule 231(b) and (d), and if he submits such a motion, Mr. Liu should comply with that Rule.” Order, at p. 1.

But with the way to the goal line clear before him, Tom fumbles.

“Mr. Liu filed a motion for costs that seeks ‘$250 in administrative costs for 2.5 hours of consulting fees paid to a Certified Public Account to review the IRS’ assessment’ and ‘$82.95 in court fees and expenses associated with the filing of the case in question.’ The motion does not include the content required by Rule 231(b) (including a statement as to the net worth requirement and a supporting affidavit) nor the affidavit or declaration required by Rule 231(d).” Order, at pp. 1-2.

Now one would expect Judge Gustafson to give Tom one more chance.

Not hardly. Tom is out of bounds and the play is dead. Tweet!

“… the motion for costs is denied, in view of petitioner’s noncompliance with Rule 231(b) and (d). Both orally in the telephone conference and in writing in the order… Mr. Liu was particularly instructed to comply with the rule. In an instance of attempted but imperfect compliance, the Court would have been inclined to give the petitioner opportunities to perfect the motion; but faced instead with wholesale non-compliance, we deny the motion because it fails to show petitioner’s entitlement to the relief he seeks.” Order, at p. 2.

Read and heed. Judge Gustafson’s patience has its limits.

But It Isn’t Advice

That’s Judge James S. (“Big Jim”) Halpern’s take on Brinks Gilson & Lione A Professional Corporation, Formerly Brinks Hofer Gilson & Lione A Professional Corporation, 2016 T. C. Memo. 20, filed 2/10/16.

Brinks & Co. played the zero-out gambit, more particularly bounded and described in my blogpost “Over-Compensation,” 3/31/11, which case got affirmed by Seventh Circuit, whence Brinks & Co would be appealed.

Of course, the gambit loses. Brinks & Co are fighting the ten-and-ten chop, as they’re a C Corp and the magic numbers are 10% of understatement or $10 million, which Brinks & Co hits. They’re a heavy-hitting Chicago IP firm.

I won’t trek through the 38 (count ‘em, 38) pages of Judge Big Jim’s prose that show that the “substantial authority” Brinks & Co want to interpose between IRS and their wallets isn’t.

Here’s the gist of the Brinks & Co argument. “If petitioner is correct that it had substantial authority for its position, the disallowance of a portion of its claimed officer compensation deduction for each year would not increase its ‘understatement’ within the meaning of section 6662(d)(2)(A). In that case, the substantial understatement penalty would not apply to the portion of the underpayment for each year attributable to the disallowance of part of those deductions, regardless of whether petitioner had reasonable cause and acted in good faith. Moreover, a determination that petitioner had substantial authority for its position would prevent imposition of the negligence penalty as well. Taking a position that has a ‘reasonable basis’ is not negligent, sec. 1.6662-3(b)(1), Income Tax Regs., and substantial authority is a more stringent standard than reasonable basis, sec. 1.6662-4(d)(2), Income Tax Regs.” 2016 T. C. Memo. 20, at p. 11.

Clear? Thought not.

Howbeit, Judge Big Jim finds no substantial authority that it’s OK to zero-out each year’s earnings by divvying the loot amongst the shareholder-partners as compensation, not dividends. It’s the old outside-investor test; would an outside equity investor, not an employee, be satisfied with a dividend of zero, in a non-public company, year after year?

And the argument that law firms have no capital is beside the point. The shareholders bought in based on book value, and that was in the millions. And though they had to sell for book if they left the firm, picking up accumulated growth when they sell compensates for paying for accumulated growth when they bought in.

So what else is new?

Well, Brinks & Co used M, a well-known Big Five accounting firm, which passed on its books and tax returns for all those years. And M never said Word One about compensation-vs-dividends.

Not enough for good-faith reliance, says Judge Big Jim.

“Petitioner argues that M’s failure to apprise it of any issue concerning the deductibility of the yearend bonuses constituted ‘advice’ on which it reasonably relied. The regulations define advice as ‘any communication * * * setting forth the analysis or conclusion of a person, other than the taxpayer, provided to (or for the benefit of) the taxpayer and on which the taxpayer relies * * * with respect to the imposition of the section 6662 accuracy-related penalty.’ The parties have stipulated that, before filing its return for each of the years in issue, petitioner did not specifically ask M whether the full amount of the yearend bonuses it paid to shareholder attorneys was deductible as compensation for services and M did not comment on the deductibility of the bonuses. In effect, petitioner argues that silence can be a ‘communication’. In that regard, petitioner observes that the regulations do not require advice to take ‘any particular form.’” 2016 T. C. Memo. 20, at p. 31 (Name and citation omitted).

Maybe not form, but content is specific, when you’re talking advice. You have to tell the adviser all the facts, tell the adviser why you’re doing what you’re doing, and the adviser can’t make unreasonable assumptions. Likewise the 31 C.F.R. 10.34(d) (2008) regs don’t require the adviser (if a Circular 230 type, as M surely is) to sweat the client. So, says Judge Big Jim, “Silence cannot qualify as advice because there is no way to know whether an adviser, in failing to raise an issue, considered all of the relevant facts and circumstances, including the taxpayer’s subjective motivation. Indeed, an adviser’s failure to raise an issue does not prove that the adviser even considered the issue, much less engaged in any analysis, or reached a conclusion.” 2016 T. C. Memo. 20, at p. 32.

Talk may be not be cheap when dealing with lawyers and CPAs. But silence can be even more expensive.

Judge Halpern isn’t sure whether Oscar Wilde’s words apply to IRS’ correction of Jim’s and Sarah’s miscue, so as to give Jim and Sarah a substantial underpayment chop, so he wants briefs in James M. Galloway & Sarah M. Galloway, Docket No. 8170-14, filed 2/9/16.

Jim and Sarah forgot to carry a number from Form 8863, line 23, to their Form 1040, line 49, but did carry their Form 8863, line 14 number to their Form 1040, line 66. Now before you slap your forehead and say “How obvious!” Judge Halpern would have you know the following.

“Their failure to carry the nonrefundable portion to line 49 resulted in the total tax shown on Form 1040, line 61, $6,984, to be $4,500 greater than it would have been had they carried that amount to line 49. They showed their total tax total payments to be $11,287, comprised of Federal tax withheld of $8,287 and the line 66 amount of $3,000. They subtracted that amount from the $6,984 they had reported on line 61, which resulted in a $4,303 claimed overpayment of tax, which is less than the $8,803 refund that we believe that respondent made to them….” Order, at pp. 1-2.

So IRS changed Jim’s and Sarah’s numbers to correct their blooper with another blooper. And refunded more than they should have gotten.

Great, huh?

Guess what? Jim and Sarah got the benefit of the nonrefundable part of the American Opportunity Credit when IRS blew the adjustment, so now they have a deficiency greater than the five-and-ten ($5K or 10% of tax due), and are facing the 20% chop.

Hold it, you’ll say, what about Rand? See my blogpost “The Rebate Debate – Part Deux,”11/18/13.

Well, Congress fixed that wagon in the famous Protecting Americans from Tax Hikes Act last November. According to the Joint Committee on Taxation’s Technical Explanation, “The provision amends the definition of underpayment applicable to the determination of accuracy-related and fraud penalties by incorporating in the definition the rule that in determining the tax imposed and the amount of tax shown on the return, the excess of the refundable credits over the tax is taken into account as negative amount of tax. Thus, if a taxpayer files an income tax return erroneously claiming refundable credits in excess of tax, there is an underpayment on which a penalty may be imposed.” Order, at p. 3.

OK, so if Jim and Sarah got more than they should have., whether off tax they owed or as a refundable credit, they have to pay it back. No biggie, right?

But Judge Halpern can’t leave that sleeping critter lie.

“Respondent perfected petitioners’ return by giving them the benefit of the nonrefundable portion of the American Opportunity Credit that they had not carried over to their Form 1040. Had he not done so, the deficiency in tax would have been $4,500 less ($3,000 rather than $7,500) and the $3,000 refundable credit that petitioners did claim would not have resulted in a negative tax. Having given them that credit, however, and having now determined that petitioners are not entitled to that credit, it seems appropriate that, to reverse the benefit of the undeserved credit, respondent should include the nonrefundable credit in his determination of a deficiency. It is not clear to us, however, that, for purposes of applying the section 6662 accuracy-related penalty, respondent’s apparently gratuitous adjustment should be taken into account in determining whether petitioners substantially understated their income tax or underpaid that tax. We require the parties to address that issue.” Order, at p. 3.

Moreover, the revised statute didn’t pick up the cross-references from what Congress previously did. So the Section 6664(a) chop is up in the air.

Here’s the skinny for you tax techies.

“Our own examination of section 209 [of PATH] exposes what may be a problem in the application of the amendment to section 6664(a) that a rule similar to the rule of section 6211(b)(4) shall apply for purposes of section 6664(a). In pertinent part (and paraphrasing), section 6211(b)(4) states that, in determining a deficiency, the amount of the deficiency may include any negative tax caused by the section 25A(i)(6) refundable credit. The problem is that, section 25A(i)(6) does not any longer refer to the refundable portion of the American Opportunity Credit. The refundable portion of that credit is now addressed in section 25A(i)(5). The change was made by the American Taxpayer Relief Act of 2012, Pub. L. No. 112240, sec. 104(c)(2)(D)(i), 126 Stat. 2313, 2322 (2013). No change was made in the cross reference found in section 6211(b)(4).” Order, at p. 4.

In any case, IRS wants to chop John and Sarah for something IRS did. If they left John’s and Sarah’s mistake alone, there would have been no substantial understatement of tax; there would have been no understatement at all.

Now, remember Tax Court has no equitable jurisdiction. And John and Sarah didn’t brief this issue. I doubt too many of my readers would have briefed it either. I would have had a problem with it, I freely confess, except to make a losing equitable argument.

But Judge Halpern isn’t called Big Jim for nothing.

Let IRS show us they can do the right thing.

“In Rand v. Commissioner, 141 T.C. 393, we discussed the rule of lenity. We quoted the Supreme Court in Commissioner v. Acker, 361 U.S. 87 (1959), to the effect that, when concerned with tax acts imposing a penalty: ‘The law is settled that “penal statutes are to be construed strictly,” and that one “is not to be subjected to a penalty unless the words of the statute plainly impose it”.’ Id. at 91 (quoting FCC v. Am. Broadcasting Co., 347 U.S. 284, 296, 74 S. Ct. 593, 98 L.Ed. 699 (1954), and Keppel v. Tiffin Sav. Bank, 197 U.S. 356, 362, 25 S. Ct. 443, 49 L.Ed. 790 (1905)). We require the parties to discuss the rule of lenity and any other rule or doctrine addressing the problem presented by the apparent incorrect cross reference in section 6211(b)(4).

“The parties shall also discuss whether, assuming that the amendment to section 6664(a) is to apply, a similar rule is to be inferred with respect to the calculation of the understatement for purposes of section 6662(d)(2)(A).

“Finally, the parties shall address the implications of the rule of lenity with respect to imposition of the section 6662(a) accuracy-related penalty to any understatement of income tax or underpayment of income tax with respect to the nonrefundable portion of the credit, as discussed above.” Order, at pp. 4-5.

Take the hint, guys. Take the tax plus interest, let Jim and Sarah off the chop, and don’t do any more such good deeds.

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.

In my early, youthful days On The Hill Far Above, I found myself in the bewildering forest of hornbooks and cans. A hornbook was a simplified treatise on a branch of law, with basic principles set forth in bold-faced type (“black-letter law”). Probably the original was a primitive form of schoolbook, made from a scrap of paper affixed to a backing of cowhorn, whereon the schoolboy (those were the bad old days, ladies) read or scrawled his first letters.

A can was a digest of principal cases, again simplified and with the principles expounded in simple terms. The term, I suppose, derived from canned food or drink, preserved and ready to eat or drink with little or no preparation.

Nowadays the word-processor is our cannery. And a well-stocked one is well worth the effort of assembling.

Today Judge Vasquez gives us a few lines to add to those on our shelves, a discussion on avoiding the 20% negligence chop via a good-faith mistake. It’s the old EE vs IC scrum, and the case is Alfred S. Co, 2106 T. C. Memo. 19, filed 2/8/16. And the reason I’m burning the midnight oil is that I was closing a deal this afternoon; I have to earn a living, y’know.

Alf was a mechanical engineer in the employ of the US State Dep’t, Office of Overseas Building Operations. Judge Vasquez expatiates: “OBO is responsible for constructing buildings abroad and maintaining the security of U.S. facilities abroad. “ 2016 T. C. Memo 19, at p. 2, footnote 3. And Alf apparently was nowhere near Benghazi; this is a non-political blog. Anyway, Alf’s attempt to claim foreign earned income exclusion founders on the usual employed-by-the-US-government shoal. It’s all facts and circumstances, and you can read that part yourself. Nothing novel there.

But Alf avoids the 20% chop, courtesy of a very well-known law firm sometimes referred to as The Jersey Boys. And I offer Judge Vasquez’s discussion, with citations, so you can drag and drop into your next memorandum of law, when IC faces off with EE and you need the judge to cut you some slack.

“Although we ultimately disagree with petitioner, we find that it was reasonable under the circumstances for him to believe in good faith that he was not an employee of OBO. Petitioner does not have an accounting, finance, or tax background. Given the high level of difficulty in applying the common law employee test, it is reasonable for someone of petitioner’s level of education and experience to operate under the belief that he was not an employee of OBO. See, e.g., Levine v. Commissioner, T.C. Memo. 2005-86 (recognizing that application of the common law employee test often results in close cases where courts analyzing similar working arrangements can reach different conclusions). The worker classification analysis is generally fact intensive and often poses a close question of fact. For instance, there are cases involving personal service contractors where this Court determined that the taxpayers were employees, see, e.g., Eren v. Commissioner, T.C. Memo. 1995-555, aff’d, 180 F.3d 594 (4th Cir. 1999); Marckwardt v. Commissioner, T.C. Memo. 1991-347; Juliard v. Commissioner, T.C. Memo. 1991-230; Matt v. Commissioner, T.C. Memo. 1990- 209, and others where the Court determined that personal service contractors were independent contractors, see, e.g., Chin v. United States, 57 F.3d 722 (9th Cir. 1995); Levine v. Commissioner, T.C. Memo. 2005-86; DeTorres v. Commissioner, T.C. Memo. 1993-161. Each case, like this one, involved the same analysis–the common law employment test was applied to the facts and circumstances, and the outcome in each case involved the specific facts and circumstances related to the taxpayer’s relationship with the Government agency.” 2016 T. C. Memo. 19, at pp. 18-19.

Thanks, guys.

I spoke by telephone to Olena Ruth, Esq., who appeared in my blogpost “Assigned Counsel?”, 1/6/16. Ms. Ruth assures me that the CO event described in said blogpost is purely voluntary, pro bono, and ad hoc. There is no formal system, and certainly no assignment of counsel in Tax Court.

As for Ch J Michael B. (“Iron Mike”) Thornton’s delegation to IRS counsel, I have no more to say than I have already said (see my blogpost “Assigned Counsel? – Part Deux,” 1/28/16).

My ongoing perplexity on the assigned counsel issue in Tax Court continues apace. I’m trying to get an answer I can share with my readers, without, I hope, unduly wearing their patience.

The poor, bewildered pro se really needs something better than the calendar call volunteers, all honor to them. They provide pro bono cover, but at the point they do, on the morning of trial with discovery finished and facts stipulated or deemed admitted, the game is already won, nine times out of ten, by the better-prepared (although not always the more meritorious) party.

The LITCs, technophobic or not (see my blogpost ”Best Little Low-Income Tax Clinic In Texas,” 7/18/14), really do a good job, if the hapless pro se can find one before the IRS avalanche sweeps him or her away.

The average civil litigation is simplicity itself compared with even the smallest Tax Court case. Again and again I’ve shown attorneys, even well-credentialed long-time practitioners, sunk without trace between the Scylla of Tax Court rules and the Charybdis of IRC obscuranta.

Unless Judge Julian I Jacobs can work some kind of magic, of the kind described in my blogpost “Assigned Counsel?” 1/6/16, the unrepresented is relegated to the treatment Judge Colvin gives.

“…petitioner requests that the Court appoint the ‘University of the District of Columbia to represent defendant’. The Court does not have the authority to require a low income taxpayer clinic to represent a petitioner.” Order, at p. 1.

It is obvious that petitioner hasn’t a clue. Petitioner isn’t the “defendant,” for a start. Apparently what petitioner wants is the assistance of the Low-Income Tax Clinic of the David A. Clarke School of Law of the University of the District of Columbia. That organization describes itself as follows: “The UDC-DCSL Low Income Taxpayer Clinic (LITC) provides students with hands-on experience representing taxpayers who have active tax controversies pending with the IRS and in U.S. Tax Court. Students represent low-income residents referred to the clinic by the IRS and various local non-profit and advocacy organizations. LITC clients have no right to court-appointed attorneys and the vast majority cannot afford to hire private counsel.”

So the petitioner’s motion for “Leave to File a Motion to Appoint Counsel” is worthless.

A sad story.

Oh yes, the case is Dreck Spurlock Wilson, Docket No. 3752-15S, filed 2/5/16. That says it all.