In Uncategorized on 05/18/2016 at 20:18

But It Doesn’t Go All That Well

Marlene D. Morten, Docket No. 2451-13, filed 5/18/16, finally gets the trial that Judge Gustafson has been after her to give her, and it doesn’t go terribly well for Marlene.

This is Marlene’s third appearance on, but Judge Gustafson gives the lie to the old phrase “third time lucky.”

For those who tuned in late, Marlene featured in “Good Nature, Poor Spelling,” 2/1/16, and “A Wee Bit Obliging,” 2/19/16.

But the latest is a designated hitter off-the-bencher from the King of the 7459s, that obliging jurist Judge David Gustafson.

Marlene’s business and legal lives were a trifle tangled. She was fighting the Feds on the contract termination of her father’s not-for-profit (part of which is still going on) and also winding up the trucking business wherein her husband and she were involved.

Oh, and she had a real estate operation as well. And didn’t file a return for the one year still on the table.

Marlene was running six (count ‘em, six) checking accounts, and monies from her various enterprises were scattered among them with no rationale discernible to IRS or Judge Gustafson.

“The most confusing feature of her finances was to use cashier’s checks to deposit, re-deposit, and transfer amounts between accounts. She testified that one purpose of this procedure was to leave a clear paper trail for the use of the money, but it had the opposite effect. She had [Dad’s NFP] procure a $110,000 check payable to herself and deposited it into her personal account. The same day she used those funds to purchase a cashier’s check for $105,000 payable to herself (evidently pocketing the $5,000 difference) and deposited it several days later it into the same account. Soon thereafter she used those funds to purchase a cashier’s check for $100,000 payable to herself (again evidently pocketing the $5,000 difference) and deposited it several days later it into the same account. We cannot tell why.” Transcript, at pp. 6-7.

Marlene finally wound up with a $225,000 bank check from the settlement of Dad’s NFP lawsuit. She told Judge Gustafson that “…one purpose of this arrangement was to enable her, during her extended stays in Zimbabwe to help her ailing father, to have access to funds in a form that foreign banks would honor; and for all we know the $225,000 ended up in a foreign bank.” Transcript, at p. 8.

Marlene did have some deductible expenses, and Judge Gustafson gives her those, but at close of play Marlene had $560K in her own bank accounts, under her complete control.

But Marlene gets off on one year, as her late-filed return for the year sat with IRS for four years before they issued a SNOD for that year. Since fraud is not on the table, nor apparently is substantial understatement for 6SOL, that year is out, as Tax Court has no jurisdiction.

Turning to the “in” year, Marlene’s records are insufficient, so IRS iuses the tried-and-true bank deposits method.

But Marlene wants to take a different tack.

“Ms. Morten in effect urges another method–i.e., that income be attributed to her only when her bank records show an affirmative personal expenditure on her behalf. Her theory seems to be that the money all belonged to [Dad’s NFP[ when received and deposited in whatever account and became compensation to Ms. Morten when [Dad’s NFP] (acting through her) determined to make an expenditure for the benefit of Ms. Morten. Her theory is at odds with the actual rule. But even if it were theoretically possible, it would be unworkable in this case, where she deems unexplained cash expenditures not to be income to herself, and where a $225,000 cashier’s check disappeared (into Zimbabwe?) but is supposedly not income unless and until the IRS can show an expenditure. We reject this method and look instead to the bank deposit analysis.” Transcript, at p. 15.

Marlene winds up with nonfiling and nonpaying chops, but not failure to pay estimateds because IRS doesn’t show her previous year’s liability.

As for “reasonable cause,” Marlene’s Dad may have been sick in Zimbabwe, “However, her financial records show that in that general time period she was handling other business for herself and [Dad’s NFP] –i.e., that she decided to handle other business but not taxes.” Transcript, at p. 21.

Not a good day for Marlene.


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