Archive for April, 2016|Monthly archive page


In Uncategorized on 04/13/2016 at 09:10

I have some little vanity about this blog. True, popularity is hardly likely to come this way. Blogs of the rich and famous (or their ghostwriters) get more views from more places in ten seconds than I have gotten in five years.

However, I still keep track of how many countries, colonies, territories and semi-autonomies have viewed my efforts.

The latest count is 135. While Canadian Club is still ahead by 32 (is anybody old enough to remember “the best in the house in 167 countries”?), I’m impressed.

But in the South American continent, no one from Bolivia has yet viewed this site. Now one would think few countries there would care about US Tax Court; they have their own taxes with which to deal, and I don’t see many of their nationals on the LinkedIn tax discussion board I co-moderate.

However, I have had at least one view from each country in South America save Bolivia. Of course, I have had none from French Guyana, but I expect that. The local nationals, the French Foreign Legion and the rocket scientists they protect, pardonably have other concerns than US taxes.

But Bolivia? What’s up with that?




In Uncategorized on 04/12/2016 at 15:43

As there is no opinion out of Tax Court today, and as the one designated hitter ships a case back to Appeals to tidy up an incomplete file (but how incomplete STJ Daniel A. (“Yuda”) Guy doesn’t tell us), I am relegated to the run-of-the-mill.

So I take my text from Benny Goodman’s chart-topper from my natal year, and pick up two bounced documents.

First is a repeat guest, Annabelle Limited Partnership, 915 Broadway Realty Associates, Tax Matters Partner, Docket No. 17523-13, filed 4/12/16. Annabelle and its lead tax matterer Earle Altman featured in my blogpost “Those Old, Familiar Faces – Redivivus,” 3/24/16, when Judge Kerrigan echoed the words of George Kelly’s loudmouth character Aubrey Piper: “Sign on the dotted line.” Earle was supposed to do so, preferably in blue ink; but he didn’t.

Judge Kerrigan: “In cases where a ratification of petition is required, counsel’s signature does not ratify an imperfect petition to correct any defects in execution of the original document.” Order, at p. 1.

Though distinguished counsel signed the ratification, it gets bounced back to 915 Broadway and Earle.

Next is an even more irritating flub, and Judge Laro turns a wee bit peevish thereat. It’s CR-MERC, LLC, Daniel Benson, Tax Matters Partner, Docket No. 3921-13, filed 4./12/16.

The takeaway here is simple: if you want a Judge to do something, make it very, very easy for the Judge to do it.

Judge Laro: “…, the parties submitted to the Court an improper Decision document that did not contain a signature block for the Court.” Order, at p. 1.

So Judge Laro continues (adjourns, for you State courtiers) the trial, and tells counsel to resubmit with a signature block on page 1.

As is my practice, I will not name the attorneys involved. There but for the grace of you-know-Whom goes any of us.


In Uncategorized on 04/11/2016 at 16:52

It is a tax truism that a partner must report his/her distributive share of partnership taxable income, whether or not the partner got anything, whether cash, money’s worth, or even a K-1. That’s why any properly drafted partnership agreement or organic documents of any entity taxable as a partnership will always contain a provision that the partnership must distribute to all partners enough cash to pay taxes.

If it doesn’t, things can get dirty.

And that’s the story of Nik Lamas-Richie and Shayne Lamas-Richie, 2016 T. C. Memo. 63, filed 4/11/16.

Nik was a blogger, but his blog, unlike mine, was fantastically successful. He posted local gossip and then branched out nationally. As his gossip blog took off, Nik finally went into partnership with Investor Jim, and formed an entity taxable as a partnership and fetchingly named Dirty World, LLC. If there was a written agreement, it never got into the record.

Judge Lauber dishes: “To reflect the venture’s intended breadth of scope, the URL for the Web site was changed to ‘’ Petitioner operated the Web site much as he had before, essentially functioning as an editor.  People would upload gossip to the site for posting, and petitioner would filter out material he deemed salacious or otherwise unfit for publication.  He would often append amusing notations to the gossip he published.  Not infrequently, Dirty World was sued by the people who were the subject of this gossip, and petitioner spent a fair amount of time dealing with these lawsuits.” 2016 T. C. Memo. 63, at p. 3.

Nik finally entered into an employment agreement with another of Investor Jim’s pocket LLCs, and used a competent tax preparer to report his salary and wages. He missed $300 of unemployment, $9 of wages he forgot, and $13 of interest, and he concedes that, but wants to fight over the $25K that was his share of the Dirty World dirty money.

True, Investor Jim was a wee bit casual when it came time to file a Form 1065 and send out K-1s. But that avails not Nik.

Nik owes the tax, but he does escape the 20% five-and-ten chop on the dirty $25K.

Nik”… credibly testified that he viewed himself as an employee of Dirty World, and he properly reported the wages…that he received…for his editorial and related services.  He had not received a Schedule K-1 from Dirty World at the time petitioners filed their…return, and he credibly testified that Dirty World had not previously earned income that he would have been required to report.  Petitioners supplied their return preparer with all tax-related documents relevant to this issue, and we find that they reasonably relied on his assurance that the return in that respect was correct as filed.” 2016 T. C. Memo. 63, at p. 11.

I console myself with the thought that, once again, virtue is its own reward.

However, I cannot in good conscience entitle this blog “Dirty Taxes.”


In Uncategorized on 04/11/2016 at 16:29

No, not Wm. S. Porter’s 1903 classic that stormed the New York stage in 1910 as Alias Jimmy Valentine. Rather, this is the story of IRS retrieving what petitioner claims is a grievously deficient Statutory Notice of Deficiency, with that Obliging Jurist, Judge David Gustafson, obliging IRS for a change with a full-dress T.C.

It’s the story of Peter L. Ax and Beverly B. Ax, 146 T. C. 10, filed 4/11/16, and their best little insurance company in captivity.

Pete was an on-line legend drug peddler, according to his pleadings. I think he meant “legacy drugs,” that is, good stuff off-patent or where the expiring patent could be bought up cheap. But flogging on-line with a new business model meant regulatory risk, political risk, terrorism risk, and computer mishaps. No regular insurer would touch Pete’s alleged timebomb, so he formed a captive subsidiary, onto which he unloaded buckets of deductible cash against the evil days to come.

IRS hit Pete with a SNOD, but all they said was this wasn’t an insurance expense and therefore not deductible.

Pete says “oh yes, It is,” and timely petitions the SNOD.

“The answer generally denied the allegations in the petition, but it did not make any affirmative allegations as to the disallowed insurance expense deductions.  Petitioners’ counsel provided respondent’s counsel with substantial information about the case….” 146 T. C. 10, at p. 6.

As the aroma of coffee wafts into IRS’ counsel’s nostrils, counsel moves “…pursuant to Tax Court Rule 41(a), for leave to file an Amendment to Answer to affirmatively allege facts in support of new issues. Specifically, in the Amendment to Answer, lodged with the Court at the same time as the filing of this motion, respondent raises the issue of whether petitioners’ use of the micro-captive insurance arrangement lacked economic substance. Additionally, out of an abundance of caution, respondent affirmatively alleges that premiums that funded the micro-captive arrangement were neither ordinary nor necessary expenses, even though this issue is implicit in the notice of deficiency.” 146 T. C. 10, at p. 7.

IRS agrees it has burden of proof, as this is new matter, but Pete ripostes that IRS is dodging dear old Chenery, the blogger’s delight, by introducing new grounds for the SNOD, that weren’t relied upon by IRS to begin with. Now I’ve blogged Chenery extensively, so I won’t cite to all of them. Just read my blogpost “He Loves Chenery,” 12/17/14, and you’ll be up to speed.

Looks like Pete has some good ammo.

But Judge Gustafson says Pete has taken Chenery one step too far.

“…where Congress has committed an action solely to agency discretion, a reviewing court can only review the decision that the agency made; a court cannot perform a pseudo-review of a hypothetical decision that was not made by the agency but that the court might have made if it were the agency.  Chenery I says nothing about circumstances in which Congress has authorized a court to make its own determinations–which is precisely the circumstance of the Tax Court’s jurisdiction over deficiency cases, as we now show.” 146 T. C. 10, at p. 11. (Footnote omitted).

Section 6212 says Tax Court redetermines the deficiency; Tax Court can find a greater amount than the SNOD stated (see Section 6214(a)) or determine petitioner is due a refund (Section 6215).

Section 7522 doesn’t help Pete either. An inadequate description of the basis for the SNOD doesn’t invalidate the SNOD.

“The Internal Revenue Code thus reflects Congress’s intention that the Tax Court will decide deficiency cases not by reviewing the agency’s determinations for abuses of discretion but by deciding issues according to the evidence.” 146 T. C. 10, at p. 13.

And the Administrative Procedures Act doesn’t help either. Going back to 1939, Judge Gustafson finds that Tax Court is the place established by Congress for redetermination, and trial de novo is available to Pete, thus satisfying 5USC§703. Besides, Fourth Circuit held Tax Court isn’t subject to APA.

Pete has plenty of time to prepare for trial, so no prejudice here.

And the argument that the language of the SNOD only requires proof of payment to a self-styled insurance company doesn’t answer whether the arrangement is insurance, that is, a shifting of risk. That’s not “new matter.”

IRS can amend.


In Uncategorized on 04/08/2016 at 15:55

It was Opening Day  yesterday in Our Nation’s Capital, and the Nationals lost. Time alone will tell whether this is a foretaste of things to come, but Tax Court seems to be taking it heavily today.

No opinions, no designated hitters (National League, y’know), and only one order worth mentioning.

Jefferey Geesey & Shirley A. Geesey, Docket No. 31786-15, filed 4/8/16, are caught up in the Tax Court procedural trawl, and I can’t help but feel for them.

Jefferey & Shirl attached to their timely, if imperfect, petition  “…IRS Form 5564, Notice of Deficiency – Waiver, signed and dated by petitioner and Shirley A. Geesey…, reflecting that Mr. and Mrs. Geesey consent to the immediate assessment of the proposed increase in tax asserted against them in the deficiency notice….” Order, at p. 1.

Urged to amend, Jefferey & Shirl poured out their story to Ch J Michael B (“Iron Mike”) Thornton thus: “I took the Letter that I got from IRS and my tax return back to H&R Block who done my tax return and they explained the letter from IRS that shows that I do owe the money to IRS. So I am making payment to pay the money. Thank you. I will not need to file Appeal.” Order, at p. 1.

IRS moves to dismiss for failure to state a claim. Maybe should move to treat the Letter as a motion for entry of decision.

Ch J Iron Mike feels the same way.

“An examination of the record discloses that petitioner and his wife apparently do not dispute their… tax liability. Accordingly, the Court will deny respondent’s motion, and direct the parties to confer as to whether they possibly might agree to submit proposed decision documents to the Court.” Order, at p. 1.

So Ch J Iron Mike wants IRS’ counsel and Jefferey & Shirl to talk it over, and either submit a stipulated decision or a status report.

Why the agony should be prolonged I cannot tell. But then again, the Nationals lost on Opening Day.



In Uncategorized on 04/07/2016 at 15:39

We all know how obliging Judge David Gustafson can be. Offer of proof is set forth in my blogpost “I’ll Help You Try Your Case,” 12/15/15.

Now we also know Ch J Michael B. (“Iron Mike”) Thornton is a short-timer, as we used to say when our wardrobe featured green. And short-timers sometimes get a wee bit testy. That even seemed to affect Ch J Iron Mike, as I pointed out recently.

But Ch J Iron Mike shows an obliging side to counsel in Larry S. Freedman & Sheri L. Freedman, Docket No. 23411-143, filed 4/7/16.

This is a TEFRA outside basis jumpball, of which we have seen many, although US v. Wood, 571 US 310 (2014) seems to have taken the sting out of the Petaluma-Tiger-Eye scramble of yesteryear.

IRS moves to toss Larry for lack of jurisdiction, because Larry’s squawk about his deficiency arises out of his outside basis, which IRS claims is a partnership-level item, not a partner-level (affected) item. And apparently the FPAA for the partnership is still in process.

Larry says IRS admitted that his outside basis is an affected item (partner-level) in the individual SNOD they gave him and from which he’s petitioning.

Ch J Iron Mike wants IRS to clarify its position. So IRS’ counsel should “…set forth and discuss fully respondent’s position as to whether the Court here in the instant case has jurisdiction to review the outside basis adjustments made in the deficiency notice…issued to petitioners.” Order, at p. 2.

And just in case IRS’ counsel needs some pointers, Ch J Iron Mike obliges.

“Outside basis may be an affected item required to be properly determined in a partner level deficiency proceeding. Thompson v. Commissioner, 729 F.3d 869, 873 (8th Cir. 2013); Jade Trading, LLC ex rel. Ervin v. United States, 598 F.3d 1372, 1380 (Fed. Cir. 2010); Petaluma FX Partners, LLC v. Commissioner, 591 F.3d 649, 655 (D.C. Cir. 2010); Greenwald v. Commissioner, 142 T.C. 308, 314-317 (2014); see I.R.C. secs. 6213(a), 6230(a)(2) (A)(i). Cf. United States v. Wood, 571 U.S. , 134 S.Ct. 557 (2013).” Order, at p. 2.

Just drag and drop to your reply papers, guys. If you need more help, I’ve blogged Thompson, Greenwald, and some iterations of Petaluma.

And aren’t you glad TEFRA sunsets at year’s end?

Sheri wants innocent spousery, so  her beef isn’t in play. Sheri stays in no matter what.



In Uncategorized on 04/06/2016 at 23:43

Long ago I learned a mantra that served me in good stead: “Salute whatever moves, paint whatever doesn’t, and never volunteer.”

Well, there are exceptions. And today I make another exception to that time-honored rule abovequoted.

As Ch J Michael B (“Iron Mike”) Thornton marks off the days on his short-timer’s calendar, Tax Court will need to start grooming someone to proofread the orders issuing therefrom.

I cannot think Judge Marvel looks forward with relish to that particular detail.

But something must be done when a sentence in an order from Judge Kerrigan reads thus: “It is not ground for objection that information sought will not be inadmissible at trial if the information appears reasonably calculated to lead to the discovery of admissible evidence.” VHC, Inc., and Subsidiaries, Docket No. 4756-15, filed 4/6/16, at p.1.

Judge, didn’t you mean “It is not ground for objection that information sought will be inadmissible at trial if the information appears reasonably calculated to lead to the discovery of admissible evidence.”?

I will not here repeat the story of the “conversation easement,” more particularly bounded and described in my blogpost “The Proofreader’s Reward,” 2/16/16.

As it seems I am proofreading unofficially, I volunteer to do so officially. And I will do so solely for the honor; no expense to the government.


In Uncategorized on 04/06/2016 at 23:14

It’s called Hubris and Nemesis, and they’ve been in business for millennia. But they don’t pay taxes. And many of their clients and followers don’t, either…until.

I don’t comment on what the trade press and the greater tax blogosphere is saying. This is a small, hyperspecialized blog for specialists.

But a reader telephoned me late this evening to ask why I hadn’t blogged the indictment of retired Tax Court Judge Kroupa for tax evasion and obstruction. And conspiracy, “the darling of the prosecutor’s nursery,” as the late W. D. Curtiss, Esq., put it on The Hill Far Above, so long ago.

I admit I hadn’t known. But even if I had, piling on after the whistle draws its own penalty.

I remember the comment on the Tax Court website when she retired, back on June 18, 2014, which I blogged that day: “The Court is deeply grateful for the excellent judicial service that Judge Kroupa has rendered in her eleven years on the Court.”

And if the US Attorney for the District of Minnesota has it right, she threw that away for “vacations to such destinations as the Bahamas, Greece and Thailand; jewelry and clothing; spa and massage fees; pilates classes; wine club fees; rent and utilities for a home they leased in Maryland; and similar costs for their principal residence in Minnesota.”

And she wrote that stuff off as business expense. That’s the kind of muck that the rounders pull.

Well, now she knows the fullness of her gain.


In Uncategorized on 04/06/2016 at 14:33

Actually, the title should be “Madness in Her Method,” as the issue in Walter J. Antonyshyn & Georgiana L. Antonyshyn, Docket No. 21526-14L, filed 4/6/16, is whether Georgi is a Section 469(c) real estate professional, and whether that is a change in accounting method.

I twisted the Bard’s famous line because Georgi is claiming that, even though she had two previous chances to establish her professionalism for two previously-disputed tax years [A and B], she gets another swing for two currently-disputed tax years [X and Y], because if she can prove her Section 469(c) pro-hood, Section 481 lets her revise the two barred years based on a change in accounting method.

I give Georgi’s attorney a Taishoff “Good Try, Second Class.”

Much less generously, Judge Morrison blows up that one.

“The Antonyshyns’ theory that Georgiana is a real estate professional in [X and Y] is on its face a challenge to the amount of their tax liabilities by (sic) [A and B] because, in their words, the theory ‘would reduce the liability to $0.’ The Antonyshyns’ theory is barred by section 6330(c)(2)(B). Even if section 481 could override section 6330(c)(2)(B) in this respect, we fail to see how the resolution of the deficiency case for [X and Y] would trigger a section-481 adjustment with regard to [A and B]. Section 481(a) requires an adjustment to the taxpayer’s taxable income for a taxable year if the taxable income in that taxable year is computed under a method of accounting different from that employed in the prior year. The Anthonyshyns seem to be contending that it would be a change in the method of accounting if Georgiana were treated as a real estate professional in [X and Y]. Even if contention is true, the resulting section-481(a) adjustment should be made in the year of the change [X], not in the prior years [A and B]. Furthermore, treating Georgiana as a real estate professional is not a change in a method of accounting. A change in the underlying facts is not a change in the method of accounting. See Treas. Reg. § 1.446-1(e)(2)(ii)(b) (‘A change in the method of accounting also does not include a change in treatment resulting from a change in underlying facts.’). The question of whether Georgiana is a real-estate professional is a factual issue that is determined on a year-by-year basis. If she is a real-estate professional for [X and Y], that would not affect the question of whether she is a real-estate professional for [A and B].” Order, at pp. 3-4.

I love this stuff, I really do.



In Uncategorized on 04/06/2016 at 14:05

Ch J Michael B (“Iron Mike”) Thornton has some advice for petitioners and practitioners along those lines in Stanley Weiss & Leah R. Weiss, Docket No. 7399-16, filed 4/6/16.

Stan and Le made the non-uncommon mistake of petitioning from a Form 4549 Income Tax Examination Changes, the thing you get when the Examination person bounces your alibis, insubstantiations, and all that jazz.

See my blogpost “Fake Out – Part Deux,” 6/23/15.

We all remember that there is no standard form of SNOD.  Year(s), amount(s), location and phone number of IRS office and options for paying or fighting are all that is required. The CP3219N isn’t necessarily the only way to skin the cliché.

So Stan and Le are offside, and IRS moves to dismiss.

But IRS jumped too soon as well. After getting the defective petition, IRS hits Stan and Le with a SNOD. And that saves Stan and Le.

After the usual canned paragraph about how the SNOD is the ticket to Tax Court, and “we have limited jurisdiction”, Ch J Iron Mike throws the rope to Stan and Le.

“Because the notice of deficiency for petitioners’ tax years [X and Y] was issued after the petition in this case was filed, the Court does not have jurisdiction over petitioners’ [X and Y] tax years under the petition was filed (sic). I.R.C. sec. 6213(a). However, inasmuch as petitioners’ Opposition to Motion To Dismiss for Lack of Jurisdiction was received within 90 days of… the date the notice of deficiency for tax years [X and Y] was sent to petitioners, a copy of the Opposition shall be filed as a petition….” Order, at p. 2.

So Stan and Le, having paid the sixty bucks, are in under a new docket number (the one set forth above), and only need to file an amended petition restating what they already said, plus embellishments, if any.

Takeaway—If you think you’re offside, it might be worth filing. IRS might just bail you out.