Well, Hardly Ever

That’s the takeaway from Estate of Anthony La Sala, Deceased, Kenneth La Sala, Executor, 2016 T. C. Memo. 42, filed 4/8/16.

Ken settled a gift tax – estate tax fracas with IRS. There’s much ado about whether the amount of gift tax in question was merely “notational” (whatever that means; I think they meant “notional,” a made-up number upon which to base a calculation, like interest-swap derivatives), or real.

At all events, the late Anthony did one of those sell-the-goodies-for-an-annuity game, and IRS agreed that the annuity was good, but Ken agreed they undervalued what the late Anthony kept in his wallet. Hence the deficiency.

For more on the annuity gambit, see my blogpost “No’ Deid Yet,” 2/7/13.

Ken does get de novo review, as he never got a chance to fight over the interest, which is all that is at issue.

It’s all about the stip of settlement.

“The estate’s explicit concession that Anthony made a taxable gift in 2003 established a gift tax liability for that year. That concession was binding even though no gift tax liability was determined in the notice of deficiency commencing the estate tax case. The estate owes interest on this gift tax liability, just as it would owe interest on any other tax liability not paid at the prescribed time.” 2016 T. C. Memo. 42, at p. 13 (Citations omitted).

But when you get lawyers for both sides in the stand, it gets worse.

“Mr. B [IRS counsel] at trial credibly testified to his belief that he lacked authority to waive interest and that he could never have gotten approval for a settlement that purported to waive interest. See Internal Revenue Manual pt. 35.8.2.5.1 (Aug. 11, 2004) (‘The Service does not settle Tax Court cases by waiving statutory interest.’). Mr. A, an experienced attorney on the other side of the negotiations, testified that he was unaware of any other instance in which the IRS had waived statutory interest as part of a settlement. Under these circumstances, we cannot construe the stipulation of settlement to include as an implied term a waiver of interest on the 2003 gift tax liability.” 2016 T. C. Memo. 42, at p. 14.

Do I need to say it again? Watch those stipulations; they’ll burn ya.

STJ Daniel A. (“Yuda”) Guy tosses Whistleblower 17331-15W, filed 3/7/16, because the Ogden Sunseteers never gave W17331 a written NOD.

W17331 started the ball rolling when he petitioned, claiming the Sunset crew so long delayed issuing anything, that his Form 211 was to be deemed denied.

The Sunseteers riposted that they hadn’t decided anything, so what else is new?

While the foregoing was percolating, mirabile dictu, W17331 gets a check from the Sunset brigade, which he deposits and moves to dismiss his petition as moot.

STJ Guy seems to think that a written NOD is required, so tosses W17331 on jurisdiction, not mootness.

“The Court’s jurisdiction over whistleblower cases is provided by I.R.C. section 7623(b)(4) which provides ‘Any determination regarding an award under paragraph (1), (2), or (3) may, within 30 days of such determination, be appealed to the Tax Court (and the Tax Court shall have jurisdiction with respect to such matter).’

“Petitioner does not dispute that respondent has not issued a written determination in respect of his whistleblower claim that would mark the beginning of the 30-day filing period prescribed in I.R.C. section 7623(b)(4). Consequently, the Court will grant respondent’s motion to dismiss for lack of jurisdiction.” Order, at pp. 1-2.

Wait a minute, STJ Yuda. Where in Section 7623(b)(4) does it say determinations have to be written? And the Regs don’t say it either. The IRM isn’t law.

So what about the argument that lengthy delay by the Ogden Sunseteers isn’t a determination?

The path of frivolity leads to the chopping block, and surrendering your Tax Court admission certificate on the way doesn’t help.

That’s the lesson for an attorney I’ll call Donny. I’ll spare you a catalog of his lengthy delictions, including, without in any way limiting the generality of the foregoing, an $8K chop from USCADC for filing frivolous appeal. Judge Haines has ‘em all.

Donny earns a $12K for his lengthy and utterly frivolous representation of those well-known rounders Steven T. Waltner & Sarah V. Waltner, Docket No. 12722-13L, filed 3/4/16. Steve has featured in my blogpost “Cracking Up,” 2/27/14, and Donny in “The Crack-Up — Step By Step,” 8/7/15.

Donny claims turning in his Tax Court certificate means Tax Court can’t sanction him now. But he was admitted when he frivoled, and he frivoled in Tax Court, not somewhere else.

Judge Haines isn’t sure whether venue lies with USCADC or Ninth Circuit. In any case, both would apply the bad faith test to proceedings frivolously maintained despite warning from the Court. Donny exceeds reckless, and gets the bad faith seal of disapproval.

As always, Judge Haines cuts counsels’ timesheets. Some of the time they spent was moving the case along that would have happened had Donny never begun, or forsaken, his frivolous ways. So Judge Haines cuts IRS’ counsels’ time 75%, claiming only 25% was necessitated by Donny’s shenanigans.

Still, it’s $12K to Donny. Frivolity isn’t cheap.

Nor is a non-explanation from your IRA trustee, or non-mailing of a 1099-R. And that’s even when IRS doesn’t understand you can’t hit someone with the Section 72(t) 10% early-out chop when you grab their IRA to pay Court-ordered restitution.

I wish I could feel sympathy for Syed Navaid, 2016 T. C. Memo. 37, filed 3/3/16. But he used a VA pharmacy to provide inventory for his own, went down, and did time. Stealing from veterans doesn’t endear anyone to me, Sy. But I’m sure you’ll survive without my sympathy. And I won’t waste my contempt.

Sy got hit with a restitution order. After he got out, IRS went after his assets, found his IRA and grabbed it.

His IRA trustee, one of the banks in the whirlwind of mergers, didn’t mention the turnover order out of USDCNDIL. While they sent IRS what they claimed was a 1099-R for Sy, they never sent Sy one.

Sy didn’t tell his CPA about the turnover order or his Federal rap. He says he was ashamed; no comment. And he had no 1099-R for the IRS’ grab to give the CPA.

Sy concedes owing tax, but wants to fight the 20% chop.

IRS claims the plain language of the USDCNDIL turnover order, which Sy did get (although he claims it gave him no knowledge of tax implications), tells all.

No, says Judge Paris, it’s ambiguous.

“On its face, the sentence ‘[t]his court-ordered distribution shall not be subject to any additional tax or penalty’ is ambiguous. A precise application of Murillo v. Commissioner, T.C. Memo. 1998-13, 1998 WL 6462, at *1, aff’d without published opinion, 166 F.3d 1201 (2d Cir. 1998), would state that when a defendant forfeits funds in his retirement plan account as part of the terms of a criminal plea, the distribution shall not be subject to the 10% additional tax under section 72(t). See United States v. Novak, 476 F.3d 1041, 1063 n.25 (9th Cir. 2007). Accordingly, the Court finds that petitioner’s interpretation of the ‘Turnover Order’ was not unreasonable or negligence per se.

“Furthermore, it should be noted that the IRS itself made a mistake in regard to the tax treatment of the ‘Turnover Order’. Initially the IRS determined that petitioner was liable for a section 72(t) 10% additional tax on his court-ordered IRA distribution, and only later conceded that petitioner should not have been liable for the section 72(t) additional tax as the Government had seized his IRA. The IRS’ actions show that neither the ‘Turnover Order’ nor an accurate application of Murillo was overwhelmingly obvious. The Court finds that petitioner reasonably believed that the ‘Turnover Order’ was not a tax document.” 2016 T. C. Memo. 37, at pp. 13-14.

Is Sy off the hook?

No, Judge Paris says. The mere fact that his IRA disappeared while he and his fellow-thieves still owed restitution should have made him check further.

“… petitioner should have disclosed the IRA liquidation even if he did not understand the tax ramifications. Even though petitioner did not receive a Form 1099-R, his nonreceipt of any Form 1099 did not convert a taxable item to a nontaxable item. See Vaughn v. Commissioner, T.C. Memo. 1992-317, aff’d without published opinion, 15 F.3d 1095 (9th Cir. 1993). The liquidated IRA itself was enough to put petitioner on notice that he had a duty to report the information on his tax return. Additionally, petitioner did not act with reasonable cause and in good faith when he failed to inform his paid preparer about his dividend income and his interest income for 2010. Therefore, the Court finds that on the basis of these facts, although petitioner did not act negligently per se, he did not act with reasonable cause and good faith when he did not adequately disclose in the return the relevant facts affecting the item’s tax treatment.” 2016 T. C. Memo. 37, at pp. 15-16.

Sy gets the chop.

If the above makes any sense to you, my heartfelt condolences. But it lets Hampton Software Development, LLC, 2016 T. C. Memo. 38, filed 3/3/16, dodge summary J.

Hampton had a maintenance dude for its real estate they claimed was an IC, and dealt with as such, but IRS claims was an EE. IRS hit Hamp with a Letter 950-D thirty-day letter, stating Hamp can have a preassessment rendezvous with Appeals to sort this out.

Hamp takes the preassessment appeal, tries to square away the beef, but can’t. Appeals sends Letter 3523, NDWC (Notice of Determination of Worker Appeal), but apparently same is returned to sender, unclaimed. Of course Hamp never petitions the NDWC.

The case comes up on a CDP where Hamp wants to fight the NDWC, but IRS says “no, you had your chance and you blew it.”

The exceptionally canny among my readers (of whom I am sure are many) can see IRS has a wee problem.

First, was the preassessment thingy a prior opportunity to dispute? Not if the NDWC is subject to deficiency procedure, and Judge Paris says it is.

“Pursuant to section 7436(d)(1), the principles of subsections (a), (b), (c), (d), and (f) of section 6213, section 6214(a), and section 6215, among other provisions, apply in the same manner as if an NDWC were a notice of deficiency. Sections 6213, 6214, and 6215 are all part of subtitle F, chapter 63, subchapter B of the Code. Subtitle F, chapter 63, subchapter B of the Code includes ‘Deficiency Procedures in the Case of Income, Estate, Gift, and Certain Excise Taxes’. Thus, under section 7436(d)(1), an NDWC is generally subject to deficiency procedures.” 2016 T. C. Memo. 38, at pp. 13-14. (Footnote omitted; emphasis by the Court).

That means the equivalent of a SNOD. A NDWC is a SNOD, but for CDP purposes we know that the petitioner has to receive the NDWC, not merely that IRS mailed to last known address. Unless, of course, petitioner willfully failed to pick up its mail.

But IRS can’t claim that. All they can show is they mailed the NDWC and it got returned as aforesaid.

No actual receipt, no summary J. Now a trial to prove whether Hamp deliberately ducked the NDWC.

No, this is not about Justice Thomas’ imitation of Zechariah (see Luke 1:20); that’s been blogged to death elsewhere. And this is a non-political blog.

No, I want to clear myself of any imputation that I beat up on the PI practitioners. I really don’t; I have friends who are PI practitioners. I’ve even worked with some.

Same goes for civil rights and employment law types. I may fish in a different part of the ocean, but we dip our ensigns nevertheless and observe the courtesies.

Unhappily,  Jose M. Dulanto and Ana M. Dulanto, 206 T. C. Memo. 34, filed 3/2/16 tells an old tale.

Ana settled as part of a FLSA class action (no overtime, meal time, rest periods, adequate compensation reports), but nothing was mentioned about physical injury.

Judge Cohen breezes through bodily injury (none claimed nor shown), and all the FLSA stuff that did settle, in hitting Ana for the deficiency for the settlement she got but didn’t report.

Jose apparently settled for some injuries also, but those aren’t on the table. Apparently two checks were issued for the aggregate settlement proceeds, and this case involves the smaller, issued to Ana.

Jose and Ana claim they used a CPA to prepare the return at issue, but produce no evidence of the CPA’s competence, that they told the CPA the whole story, and that they actually relied on whatever advice they got.

I wonder what information, if any, class action counsel sent to the lucky winners. I am sure there was the usual holding-in-escrow of broad-spectrum general releases and checks, and exchange thereof.

I hope counsel told their clients to get really good tax advice.

And I don’t fault counsel for the defendant in the class-action. Once the check is written, the aim is never to see or hear from plaintiffs or any of them ever again. If plaintiffs’ counsel wants to do separate checks to try to claim different parties settled different parts of the lawsuit, fine, but I wouldn’t characterize anything. I’d want the most bulletproof, broadest, ironclad release there is.

The lawyers did good. The clients, not so good.

And Cause a Mess of New Problems

The late James V. Costello, solicitous of his offspring, created a living trust, wherein to pour his assets, and from which these would flow to the offspring aforesaid on his departure from this vale of tears. Estate planning 101.

Now we all know that getting the assets into the hands of the trustee is the first task. The late James V.’s big assets were his IRAs, and these apparently got trapped in one of the endemic financial services mergers, sales, re-sales and general tearing around.

Howbeit, the late James V. became the late James V., the trust got distributions from the IRAs and paid these out to the aforesaid offspring.

The tale is told in Sally M. Costello, 2016 T. C. Memo. 33, filed 3/1/16, by Judge Cohen.

The offspring paid tax, the trust got audited, the trust’s deductions got whacked but the offspring’s income taxes on their distributions got reversed.

But within the magic three years, the trust filed an amended 1041, and claimed a refund, which was granted.

IRS came back to the offspring and demanded they pay back their refunds.

The offspring claim SOL, but IRS claims mitigation.

“The mitigation provisions allow for the correction of an error made in a closed tax year by extending the limitations period up to one year from the date a final determination is made. Secs. 1311, 1314(b); see Beaudry Motor Co. v. United States, 98 F.3d 1167, 1168 (9th Cir. 1996). Their intent is to take ‘the profit out of inconsistency, whether exhibited by taxpayers or revenue officials, and whether fortuitous or the result of design’, and their purpose is to prevent the Government or a taxpayer from obtaining ‘an unfair benefit * * * by assuming an inconsistent position and then taking shelter behind the protective barrier of the* * * [period] of limitations.” S. Rept. No. 75-1567, at 49 (1938), 1939-1 C.B. (Part 2) 779, 815.” 2016 T. C. Memo. 33, at pp. 7-8.

I discussed this in my blogpost “Mitigation and Inventory,” 4/20/11.

The offspring have to stump up.

The End of the Road

 Good blogfodder on Leap Year Day, so I can’t call a truce then to my labors, until I blog Leonard L. Best and Evelyn R. Best, 2016 T. C. Memo. 32, filed 2/29/16. And though Len and Eve are the headliners, this is the story of their cunctatory attorney, whom I called Mac, back in 2014. See my blogpost “A Further Cautionary Tale,” 4/28/14, for the backstory.

Mac entered a stipulated decision, Len and Eve failed to pay, IRS went with the NITL, and Mac played the losing 23C gambit. No, this is not the Section 6751(b) Boss Hoss gambit; that can win. 23C is a nonstarter.

At the CDP, “(H)e reiterated his earlier request that Ms. Hernandez ‘provide a “summary record of assessment”, Form 23C and a Form 4340, plus a copy of the actual document signed by the officer delegated authority to assess in this case, his name, and the delegation order showing his authorization to assess in this case.” 2016 T. C. Memo. 32, at p. 4.

The AO told him to fuggedaboutit. No required form for assessing.

IRS’ counsel spoke to Mac before trial, and gave him the notices and caselaw. IRS told Mac if he kept going, he’d get the Section 6673 chop.

He did and he did.

Finally, Judge Halpern issued the opinion discussed in the blogpost abovecited, and told IRS to gin up the number Mac’s shenanigans cost us taxpayers.

They do. But how do we determine the degree of culpability necessary to trigger the chop?

It’s unclear, and Judge Halpern has a canter through the conflicting learning. Ultimately, though, Mac knew the 23C was a dead loser, and that’s bad faith.

Costs accrue from the start of litigation (you can’t prolong what doesn’t exist).

Mac also violated Tax Court Rule 33, and Rule 3.1 of the ABA Model Rules of Professional Conduct.

IRS’ counsel puts in their extra time and modest hourly rates.

And his clients never read any of the papers or asked for any explanations. Sophisticated or not, they can’t turn a blind eye to Mac’s shady doings. Len and Eve have the $5K chop reaffirmed.

And Mac will be out $19K.