Archive for May, 2016|Monthly archive page


In Uncategorized on 05/20/2016 at 17:19

It’s that time again, Memorial Day at MeF.

“IRS will conduct its annual Memorial Day Systems Shutdown beginning Saturday, May 28 at 11:59 a.m. ET and ending Tuesday, May 31 at 6:00 a.m. ET. The Modernized e-File Systems (both Production and ATS) will not be operational during this timeframe. Please refrain from accessing the MeF Systems to transmit business, individual or state tax returns, retrieve acknowledgements or submit any other service requests.”


In Uncategorized on 05/20/2016 at 16:55

On a Friday we get a designated hitter from the blogger’s friend and obliging jurist, Judge David Gustafson. And again he parses for us the Section 6511 look back limitations, when overpayments are at issue.

Bradley Ronald Thompson & Beth Michelle Thompson, Docket No. 13012-15SL, filed 5/20/16, came up with the 1040 for the year at issue four years late. They claimed they had a refund coming, so paid nothing on the liability stated in said return. IRS obliged with a NITL; Brad and Beth riposted with a CDP request.

“During the CDP hearing the Appeals officer stated (see Ex. M): “Regarding the refund you were expecting for the 2008 tax year; you have 3 years from the return due date to file a claim for refund. Tax year 2008 was due on April 15, 2009; you had until April 15, 2012 to claim your refund. My research shows the IRS received your return on June 26, 2013. Therefore, you are not entitled to the refund.” Order, at p. 2.

Brad and Beth entered into an IA, so no levy, but Appeals denied the refund as above-stated. So Brad and Beth petition the denial, and IRS, admitting everything that Brad and Beth say, moves for summary J.

Judge Gustafson: “The amount of a credit or refund for an overpayment of income taxes for a taxable year is thus limited by two periods. The first is a period of limitation on filing the claim of refund and the second limitation is a ‘look-back’ period limiting the amount of tax that can be refunded if the claim is timely under the first rule.

“The first limitation requires that a claim for credit or refund of an overpayment of any tax shall be filed by the taxpayer either (1) within 3 years from the time the return was filed, or (2) within 2 years from the time the tax was paid, whichever of those periods expires later. Sec. 6511(a). Under the 3-year lookback period, if the claim was filed within 3 years of filing the return, then the taxpayer is entitled to a refund of taxes paid within 3 years immediately preceding the filing of the claim, plus the period of any extension of time for filing the return. Sec. 6511(b)(2)(A).” Order, at p. 4. (Citation omitted.)

So, when Brad and Beth filed their return, they were essentially claiming the refund to offset their admitted liability. And as they weren’t then subject to audit, they get the three-year lookback from filing, not due date. Appeals got it wrong, “strictly speaking.” Order, at p. 4.

But Brad and Beth can only get back whatever they paid in the three-year period before they actually filed the return.

IRS claimed the only payment Brad and Beth made was made a year before the farthest-back year of the lookback, so Brad and Beth are out of luck.

But IRS is once again playing the Michael Corleone gambit, with the usual results.

“However, in its motion the IRS failed to substantiate that assertion about the payments made on the Thompsons’ 2008 account. The IRS did not submit any transcript of the Thompsons’ 2008 income tax account or any other evidence. Statements of counsel in a brief do not properly support a factual assertion in a motion for summary judgment.” Order, at p. 5.

No summary J. So, Brad and Beth, come to trial with a check…a canceled check. Or equivalent.




In Uncategorized on 05/19/2016 at 15:16

But Make Sure It’s The Right Money

Harkening back to my blogpost “Show Me The Money – Part Deux,” 8/15/14, Ch J Michael B (“Iron Mike”) Thornton, in the waning days of his Chieftainship, has not forgotten what I called in the above-referred-to blogpost “Ch J Iron Mike’s cornerstone rule: Show Me The Money.”

But in trying to follow the rule, Joseph Anthony Steinbroner & Linette Leta Steinbroner, Docket No. 3467-16S, filed 5/19/16, come up with the wrong money.

It’s the usual no-jurisdiction face-off.

Linette and Joe agree that Linette is out on no-SNOD-or-NOD, and Joe is out as to one year, but Joe insists he’s in on the other.

His petition is received three weeks past the magic ninety days, and IRS, relying on USPS data, says the letter with the petition would have been received at the Glasshouse at 400 Second Street, NW, ten days before Joe’s got there.

There’s no legible postmark on the envelope, so we go to extrinsic evidence. And here’s where Joe gets creative.

“In support of their contention that the petition was timely mailed, petitioners attached to their objection to the motion to dismiss a copy of a receipt for a money order, bearing a date [within the 90-day limit], that was purchased from the U.S. Postal Service. Petitioners state that the money order was obtained to pay the filing fee for this case and was purchased at the same time the petition was mailed to the Court. However, this argument is contradicted by the Letter 555 (with an attached Form 886-A and Form 4549, explaining changes the IRS made in Mr. Steinbroner’s proposed tax increase), dated [outside the 90-day limit], that the IRS sent to Mr. Steinbroner and that petitioners attached to the petition filed in this case.” Order, at pp. 1-2.

So Joe can deal administratively with IRS, and good luck to him.

Takeaway – Make sure it’s the right money. And have a canceled check (see my blogpost “The Check’s The Thing,” 6/1/11). But whatever you do, make sure it’s the right money.


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.


In Uncategorized on 05/17/2016 at 16:47

Funny, I was taught to regard it as a profession. But I’m old-fashioned that way.

Anyway, Emmanuel A. Santos, 2016 T. C. Memo. 100, filed 5/17/16, finds out from Judge Morrison that his law school tuition and fees aren’t deductible, because being a lawyer is a new trade or business.

EA was an EA, having started as an accountant, passed the SEE and then got a MST. Deciding to go for the full boat, he entered law school and ran up a $20K tuition and fees bill. His write-off thereof falls foul of Reg. Section 1.162-5(b)(3)(ii) Example 1:

“A, a self-employed individual practicing a profession other than law, for example, engineering, accounting, etc., attends law school at night and after completing his law school studies receives a bachelor of laws degree. The expenditures made by A in attending law school are nondeductible because this course of study qualifies him for a new trade or business.”

Well, EA went to law school, so what do you learn? When a Tax Reg is against you, play the Chevron-Mayo gambit, Altera variation.

Judge Morrison isn’t buying.

EA argues Treasury didn’t listen to the public comments when they published the Reg.

The Reg was published in 1967, and EA hasn’t got anything to show that Treasury didn’t listen to the comments. Besides, EA didn’t raise the commentary issue until his post-trial brief.

“As a result, neither the trial record nor the court papers in this case contain any information regarding the public’s comments to the regulation in question.  Without knowing what the public comments were, it seems difficult, if not impossible, for the Court to evaluate the adequacy of the Treasury Department’s response to the public comments when it promulgated section 1.162-5, Income Tax Regs.” 2016 T. C. Memo. 100, at p. 9.

Moreover, the Reg was sustained in Tax Court forty-five years ago, and Ninth Circuit just said it approved Tax Court’s decision, without going into the public comments. And EA is in CA, so he’s Golsenized.

As for Mayo and Altera, true, they came later, and also true, “(W)e recognize that the tests for determining whether a regulation is valid today are different….  And we recognize that precedent may lose its force when the underlying law upon which the precedent was based has changed. However, we see no such change that would justify deviating from…precedent.” 2016 T. C. Memo. 100, at p. 7. (Citations omitted.)

The Reg comported with the statute then and now. And Altera dealt with IRS wild-carding in a new test independent of statute, regulation or precedent. See my blogpost “Sixteen Lawyers – Part Deux,” 7/27/15.

I’ll give EA a Taishoff “good try, third class.”


In Uncategorized on 05/17/2016 at 13:26

Note this is not legal advice; see the link to The Fine Print on this site.

But Ch J Michael B (“Iron Mike”) Thornton, winding down his tenure as Ch J, shows us a very useful defense to IRS’ often-played SNOD-after-petition gambit in Clem Fleck Masonry, Inc., Docket No. 20506-14, filed 5/17/16.

Usual story: Clem petitions three tax years from a purported SNOD on Day 59; IRS answers at Day 112, saying that not only are those three years in play, but tacks on the next year also. But Clem didn’t attach a SNOD for any year, because IRS never issued one.

Remember, there is no required form for a SNOD. See my blogposts “Fake Out,” 12/16/14, and “Fake Out – Part Deux,” 6/23/15.

IRS plays the SNOD-after-petition gambit, and moves to dismiss after it dropped a SNOD the month before, well after the petition had been filed.

Ch J Iron Mike plays the sorry-but-no-jurisdiction variation, but saves the day.

“Under the circumstances, however, the Court will direct that a copy of petitioner’s Ownership Disclosure Statement filed at docket No. 20506-14…, be filed as of that date as the petition commencing a new case at docket No. 11435-16 for petitioner. All future communications relating to the notice of deficiency… issued to petitioner should be directed to docket No. 11435-16.” Order, at p. 2.

So? When in doubt whether a particular billet doux from IRS is, or can be deemed or construed to be, a SNOD, send in a petition and a check. If IRS moves to dismiss a couple months (hi, Judge Holmes) later, after dropping a real SNOD, send in a letter attaching the SNOD immediately, asking it be deemed an imperfect petition, and amend. It’s risky, but might work.

Edited to add, 10/1/21: Note that the operative word in the foregoing sentence is “amend.” It’s not enough to send in the letter and SNOD; get Form 2, style it an amended petition, and lay it on ’em.


In Uncategorized on 05/16/2016 at 15:45

Judge Ashford echoes the immortal words of Sir Paul McCartney (ably assisted by the late great John Lennon) in the 1966 hit of that name, as she examines the overreach of Article 6, Paragraph 3 of the Convention between the Government of the United States of America and the Government of Israel with Respect to Taxes on Income, U.S.-Israel, Nov. 20, 1975.

Elazar M. Cole, 2016 T. C. Sum. Op. 22, filed 5/16/16, resides in Israel but is a US citizen when he unloads some US stock for a big capital gain. Elazar claims he owes no tax based upon Article 15, Paragraph 1, which exempts from US income tax an Israeli resident’s capital gain on sale, exchange or disposition.

But Article 6, Paragraph 3 (the “savings clause”) says that notwithstanding anything but a couple enumerated items (hi, Judge Holmes) like grants, Social Security, governmental function income, diplomatic and consular officers, teachers, students and trainees, and nondiscrimination, the US can tax its citizens and residents as if the Convention never existed.

Judge Ashford goes over the France, Canada and Finland Conventions (as for Finland, see my blogpost “The Price of Residency,” 6/9/14), and they all say the same. Elazar’s capital gain is not safe from US taxation.

So the US can tax its citizens here, there and everywhere.


In Uncategorized on 05/16/2016 at 15:09

Y’know, after a couple decades (hi, Judge Holmes) of practicing law, we think we know everything. As the old cowboy cliché goes, “we has seed th’ elephant and heerd th’ owl.”

Except, of course, we haven’t. Not by a long chalk.

Here’s one for the books, a reprise from a guest on this site, Joseph A. (“Fighting Joe”) Insinga, Docket No. 9011-13W, filed 5/16/16.

Y’all will remember Fighting Joe from my blogposts “Did Nothing,” 3/13/13, “Perpetual Discovery,” 3/21/13,  “A Voyage of Discovery,” 3/30/13, and “Youth Wants to Know,” 4/24/13.

That obliging jurist, Judge David Gustafson, gets this little gem. Fighting Joe “…filed an application to take his own deposition to perpetuate testimony pursuant to Rule 81.” Order, at p. 1.

Equally terse, Judge Gustafson orders IRS’ counsel to reply.

I will not waste my readers’ (those few, those happy few) time with somber reflections, such as “why not an affidavit? They’re free; a deposition means you have to pay for the reporter, and they’re not cheap” or “depositions are for unavailable witnesses; are you intending to skip your own trial?” or even “at a deposition the other side can cross-examine; why do you want to pay for them to beat you up?”

Cain’t hardly wait.

Next up, we have STJ Lewis (“My Kind of Name”) Carluzzo dealing with another frequent blogfodderer. And STJ Lew sounds resigned, like he’s talking to himself, in Curtis Edwin Leyshon, 24310-15, filed 5/16/16.

Curt, like Fighting Joe, has made a couple guest appearances (hi again, Judge Holmes) here. See my blogposts “Rounders’ Day,” 1/16/15, and “Another Rounders’ Day,” 6/30/15.

Curt is back with the same protester jive Judge Gustafson warned him against last year.

STJ Lew: “The circumstances in this case are similar to the circumstances in petitioner’s previous case. In rejecting petitioner’s positions here we could repeat the reasoning contained in the opinion filed in his previous case, but we could not make it clearer. Instead, we simply note that the petition filed in this case gives rise to no justiciable issue, and we find here, as we have done previously, that petitioner’s positions are frivolous.” Order, at p. 2.

Oh, and Curt, here’s a $2500 Section 6673 frivolity chop.


In Uncategorized on 05/13/2016 at 15:57

But Judge Gustafson Is Still Obliging

It’s Friday the Thirteenth, and, as usual, there is nary a T. C., a Memo., or even a Sum. Op.

But Judge David Gustafson, that Obliging Jurist, ever mindful of the struggling blogger (unlike those favored by the munificence of Google AdSense, e.g., hardworking Kevin A. Clarke, Jr.), has a couple designated off-the-benchers (hi, Judge Homes).

First up, Frederick Dabankah, Docket No. 7911-15, filed 5/13/16.

Debankah “…has a bachelor’s degree and a master’s degree in social sciences.” Transcript, at p. 4.

Dabankah claims he drove 83,800 miles, at a cost of $46,509, in the year at issue, in the course of his newspaper delivery business. But it is uncertain whether Debankah reported the income from the newspaper delivery business, because he also claims he worked as a massage therapist. Whether the massaging gave rise to the wages he received from the University Club as reported on the W-2 they gave him, or the 1099 he received from an individual, is unclear.

On the trial, Judge Gustafson cannot oblige Debankah. “Mr. Dabankah has not substantiated any amount of the car and truck expense as an ordinary and necessary business expense. His return claimed mileage expense for 83,800 miles. When this case was called from the calendar, he estimated that the miles might actually be only 28,000. When the case was recalled, he revised his estimate to 18,000, then to 15,000 to 18,000, then to 8,000.” Transcript, at p. 7.

What is clear is that Debankah has no mileage log to introduce. He asked for a continuance to find his tax preparer to obtain the log, but that wouldn’t have helped him.

Judge Gustafson: “We do not believe his testimony about the log.” Transcript, at p. 7.

Debankah wants to blame his accountant to avoid penalties, but has no evidence what he told his accountant or how his accountant erred.

Judge Gustafson has a better result for Marcus Andre McKnight, Docket No. 11083-15, filed 5/13/16. McK’s children are neither his qualifying children nor his qualifying relatives for the Section 152 largesse. His arithmetic doesn’t work for the “more than half of the year” test, and therefore the children are someone else’s qualifying children, which puts paid to qualifying relative.

McK omits half his income from his return. His excuse is he earned about the same amount from two different companies, so he thought the W-2s were duplicates.

Judge Gustafson doesn’t care for that one.

“The return that Mr. McKnight filed reported less than half of his earnings. Overlooking a few dollars might not be negligent; but overlooking half of one’s income is not consistent with a ‘reasonable attempt to comply with the provisions of the internal revenue laws’ and does not reflect an “exercise [of] ordinary and reasonable care in the preparation of a tax return’. Transcript, at p. 9.

So McK is up for the negligence chop.


“…given the complexity of section 152, we are persuaded that Mr. Knight’s mistaken claim of tax benefits for his three sons was attributable to ‘reasonable cause’ and ‘good faith’ under section 6664(d) (1), so that he is not liable for penalty on the portion of his underpayment that is attributable to those child-related issues.” Transcript, at p. 10.

Judge Gustafson is more than obliging…he’s decent.


In Uncategorized on 05/12/2016 at 17:05

Some guys have all the luck. Of course, they work a lot harder than I do.

That seems to be the case for Kevin A. Clark, Jr., Docket No. 4131-15, filed 5/12/16. But Kev’s hard work only gets him an SE SNOD. And even that Obliging Jurist, Judge David Gustafson, can’t help Kev in this off-the-bench designated hitter.

In the year at issue, Kev “…worked six to eight hours a day, seven days a week, as a full-time video blogger.(Stip. 5) He maintained an Internet site on which he posted videos. (Stip. 4-5.) He entered into an agreement with Google, pursuant to which he allowed advertisements to appear on his blog site. In return, he was paid a total of $20,206.57 for the running of the ads by Google AdSense. The parties have stipulated that Mr. Clark ‘was paid for his videos through advertising revenue’. (Stip. 6.)” Transcript, at pp. 3-4.

Google gave Kev a 1099-MISC, which Kev reported as “other income.” Kev didn’t file a 1040-SE or a Schedule C for the blogging gig.

I ain’t made a dime out of this blog, but then again I don’t have any videos.

You know the rest. Kev was running a trade or business, and he was self-employed. Continuity, regularity and profitability are all there. Kev’s claim that what he got was “royalties or commisions (sic)” doesn’t matter either, because whatever you got from your trade or business is subject to FICA-FUTA.

Me, I’m in it for love.