IRS, generous as always, prepared SFRs for two years when, they allege, Robert W. Schlegel, 2016 T. C. Memo. 90, filed 5/4/16, didn’t bother to file returns, much less pay tax asserted to be due. IRS also claims that, again at no extra charge, they mailed SNODs to RW’s last known address, which RW doesn’t dispute was his last known address, but says he never got the SNODs and wants to contest liability in a face-to-face CDP.

Which he could do, says Judge Pugh, if indeed he never had a chance to dispute before. And IRS’s proofs of mailing have some holes.

Though IRS has a PS3877 proof of mailing form, RW claims it doesn’t reach the standard for presumption of regularity. It doesn’t state the number of items tendered by IRS to USPS, nor is it signed or initialed by the IRS employees who issued the SNODs.

RW got it right. The PS3877 doesn’t raise the presumption. But IRS has more.

“While not sufficient to create a presumption of official regularity, the incomplete certified mailing list serves as evidence that the notices of deficiency were mailed to petitioner. The certified mailing list bears a U.S. Postal Service date stamp and signature. Also, both entries show petitioner’s name, his address, and the certified mail article number of the corresponding notice of deficiency. Petitioner has not argued that the address on the certified mailing list was not his last known address, and the address on the certified mailing list is the same address that petitioner reported on his administrative hearing request and on his petition filed with this Court.

“Furthermore, Appeals did not rely solely on the certified mailing list to verify that the notices of deficiency had been mailed to petitioner. Appeals also reviewed the copies of the notices of deficiency for the years at issue, and each notice of deficiency bears the same mailing date, mailing address, and certified mail article number as the corresponding entry on the certified mailing list. In addition, SO X reviewed the tracking information for each piece of mail corresponding to the certified mail article numbers on the notices of deficiency and verified that those articles of mail were reported as being delivered.” 2016 T. C. Memo. 90, at pp. 11-12. (Citations and name omitted).

Besides, RW had a chance to submit his own 1040s to rebut the statements on the SFRs. SO X sent RW a letter, which he did receive, asking for the usual Form 433-A, and asking RW to send in the 1040s for what he claims he owes.

RW never did, so IRS was right to decline the face-to-face CDP, as RW had no other argument and declined the 1040 gambit.

Takeaway– Before declining the 1040 gambit, think twice.

And Off to Court I Go

Thus I butcher Frank Churchill’s and Larry Morey’s 1937 classic. But Gary I. Terry, 2016 T. C. 88, filed 5/3/16, gets no joy either from Appeals or from Tax Court. Gary’s problem is he owes GSA (the United States General Services Administration), not IRS.

GSA claims Gary overcharged the fisc. “The GSA’s claim for restitution arose out of petitioner’s involvement with SCAT, Inc., his wholly owned corporation. Petitioner’s involvement with this entity has been well documented, and he has pursued numerous lawsuits seeking redress against (among others) the GSA, the Small Business Administration, various Department of Justice attorneys, various bankruptcy trustees, and at least one Federal judge. See, e.g., Terry v. SBA, 699 F. Supp. 2d 49, 50-52 (D.D.C. 2010) (noting petitioner’s various unsuccessful attempts to relitigate his GSA debt); Terry v. Sparrow, 328 B.R. 450, 453-454 (Bankr. M.D.N.C. 2005) (describing factual background of petitioner’s debt).” 2016 T. C. Memo. 88, at p. 2, footnote 2.

Gary got nowhere with the foregoing, so now, when IRS grabs his income tax refund and goes after some more income tax he reports, he tries Appeals and then Tax Court.

Gary tries to relitigate yet again his strife with GSA. Appeals offers him an installment agreement. He never replies. Instead, he petitions.

“Section 6402(d)(1)(A) provides that, ‘[u]pon receiving notice from any Federal agency that a named person owes a past-due legally enforceable debt * * * the Secretary shall * * * reduce the amount of any overpayment payable to such person by the amount of such debt.’ The duty imposed upon the Commissioner by this statute is mandatory and overrides any request by the taxpayer that the over-payment be credited or refunded. Because the Secretary ‘is legally required’ to make this offset, he cannot review the validity of an agency debt of which he has been properly notified. Section 6402(g) further provides that ‘[n]o court of the United States shall have jurisdiction * * * to restrain or review a reduction authorized’ by section 6402(d). To the extent petitioner has any claim for recovery, therefore, he must make that claim to the GSA.” 2016 T. C. Memo. 88, at pp. 7-8. (Citations omitted).

Judge, maybe the last-quoted sentence should read “To the extent petitioner has any claim for recovery therefor, he must make that claim to the GSA.”

Of course Gary can sue GSA in USCFC or USDC, but it seems he did that, again with no joy.

It’s a rare event, truly, but sometimes the caption of a case says it all. Here’s Judge Cohen dealing with Alderwood Pest Control, LLC, Docket No. 31150-14L, filed 5/3/16.

IRS wants a remand to Appeals, and Judge Cohen likes the idea, as that might settle a lot of what Alderwood wants, because Judge Cohen hasn’t the jurisdiction to do it. But Alderwood opposes remand and has filed a “Motion to Order Refund.”

That’s a complete nonstarter.

But wait, as the late-night telehucksters say, there’s more.

Judge Cohen: “Petitioner persists in sending to the Court correspondence and motions asking for relief beyond the jurisdiction of the Court in this case.” Order, at p. 1.

Of course, Judge Cohen must rule on the “Motion to Order Refund,” as well as IRS’s motion to remand.

So let the parties show up, and give Judge Cohen an earful.

But.

“…the Court does not expect to resolve any matters at that time other than whether the notice of determination on which this case is based is erroneous and whether any error can be cured during a remand. Meanwhile, petitioner is advised to seek competent representation by a person admitted to practice before this Court and to cease and desist from inundating the Court with inappropriate communications.” Order, at p. 1.

Yup.

Judge Gale extends the mantle of equity to Joseph Patrick Boyle, 2016 T. C. Memo. 87, filed 5/2/16. And JP has a sad tale to tell.

All he wants is to be excused nonfiling and nonpaying for one year, and some abatement of interest on the tax he admittedly owes.

JP was a cartridge seller and a cartridge refiller, the kind that you print with, not the kind you shoot with.

He left the bookkeeping, bill paying and checkwriting to spouse Patricia J. Patricia J. may have had a gambling problem; for the year at issue, she had their MFJ return prepared and had PJ sign, as was their custom for many years. All the income was PJ’s.

Except.

Patricia J. never filed the return or sent in a check to pay the tax due shown thereon. PJ discovered this fact years later, sent in the return, but didn’t pay the tax.

IRS only notified PJ about this omission after he sent in the return.

PJ admits he owes. But between the time the return was due and the time PJ discovered it hadn’t been filed, Patricia J., to whom he entrusted his financial affairs, had died “as a result of breast, spine, and liver cancer.” 2016 T. C. Memo. 87, at p. 4.

PJ only wanted penalties and interest removed, and an installment agreement to pay his back taxes.

IRS just gave PJ innocent spousery on account of Patricia J.’s gambling activities, claiming that Section 6015(f) equitable innocent spousery is available only for underpayments, not taxes or interest. And the income is all JP’s, not Patricia J.’s.

Judge Gale blows that off: “We have rejected respondent’s position and held that we have jurisdiction under section 6015(e)(1) to review the Commissioner’s denial of equitable relief under section 6015(f) from additions to tax and interest.  See Kollar v. Commissioner, 131 T.C. 191, 196-197 (2008); see also Cheshire v. Commissioner, 115 T.C. 183 (2000), aff’d, 282 F.3d 326 (5th Cir. 2002); Knorr v. Commissioner, T.C. Memo. 2004-212; Demirjian v. Commissioner, T.C. Memo. 2004-22; Rowe v. Commissioner, T.C. Memo. 2001-325. We therefore consider petitioner’s claim that he is entitled to relief under section 6015(f) from the interest and additions to tax….” 2016 T. C. Memo. 87, at pp. 8-9.

The cases are here for your next memo of law.

“However, petitioner is not seeking relief from the underpayment; he is seeking relief from the additions to tax and interest triggered by Mrs. Boyle’s failure to timely file and pay after deceiving petitioner in that regard.  In these circumstances, treating the attribution condition as an absolute bar to relief runs counter to our mandate under section 6015(e)(1)(A) ‘to determine the appropriate relief available’ to petitioner.” 2016 T. C. Memo. 87, at p. 10.

So Judge Gale considers. True, all the income is JP’s, but the attribution of income bar is not inflexible. Patricia J. deceived JP, and he had no reason to question her assertion. By Judge Gale, that’s analogous to fraud.

Most factors are neutral, but the fraud and the relatively small amount of the penalties and interest JP is seeking to remove don’t give him a big bonus.

And as for future compliance after the year at issue, PJ faced a cascade of unpaid taxes shortly after Patricia J. died and he had to struggle with cleaning up the mess. He tried in good faith, says Judge Gale.

“All of the Rev. Proc. 2013-34, sec. 4.03 equitable factors are neutral here except petitioner’s lack of a significant benefit and knowledge or reason to know of the understatement.  And the latter factor weighs very heavily in petitioner’s favor.  Petitioner is not seeking relief from the income tax itself, which is attributable entirely to his income.  He seeks relief from the failure to file and pay additions to tax.  Petitioner did not know and had no reason to know the facts that gave rise to those liabilities; to the contrary, he was misled by his spouse’s actions and therefore reasonably believed that his return had been filed and his tax paid.  We accordingly conclude that it would be inequitable to hold him liable for the unpaid section 6651(a)(1) and (2) additions to tax….” 2016 T. C. Memo. 87, at p. 21.

As for interest, Judge Gale lets PJ off for the time between when the return was due and when he found out it hadn’t been filed. But after that, PJ owes interest.

Pardon my French, but this is the last act of the Alterman saga, which tale has already enlivened one meeting of the Bloomberg BNA Tax Advisory Committee and will doubtless spawn much comment in the trade press and blogosphere.

And it’s a full-dress T. C., Bryan S. Alterman Trust U/A/D May 9, 2000, Bryan S. Alterman, Trustee, Transferee, 146 T. C. 14, filed 5/2/16.

Both the Altermen and I are embarrassed by the riches in this case, them for money and me for blogfodder, virtue being its own reward.

The Altermen are trying for legals and admins, after their big win over IRS. See my blogpost “It’s Not Fraud,” 12/1/15.

But the Altermen have one last obstacle: the $2 million tanktrap. You only get legals and admins if your net worth is less than $2 million.

Though IRS argues “substantially prevailed,” as usual (echoing the remarks of a much more exalted author about an earlier tax collector who, notwithstanding unspecified but obviously substantial sins, “went down justified”), and “the costs are too dam’ high,” another boilerplate defense, Judge Buch and the rest of the bench don’t need to go into either.

The key is when the Alterman trust hit the magic $2 million figure.

The Altermen argue “…without support that its net worth should be determined as of one of three possible dates:  (1) the date the petition was filed…; (2) the administrative proceeding date when the Commissioner issued the notice of liability…; or (3) the last day of the taxable year when the Commissioner issued petitioner the notice of liability…..” 146 T. C. 14, at pp. 5-6.

But their premise is faulty. The Altermen claim no tax year was involved, and therefore the special rule in Section 7430(c)(4)(D)(i)(II) doesn’t apply.

Judge Buch says there was such a year.

“The statute is clear, and it requires the net worth of the trust ‘shall be determined as of the last day of the taxable year involved in the proceeding’.  Sec. 7430(c)(4)(D)(i)(II).  The notice of liability and its accompanying documents all identify December 31, 2003, as the end of the taxable year involved in the proceeding.  The notice of liability is explicit that the liability is ‘for the taxable year ended December 31, 2003’.  The accompanying waiver of restrictions on assessment identifies the ‘Tax year ended’ as December 31, 2003.  The notice of liability statement states that it is for the ‘Tax Liability for the taxable year ended December 31, 2003’.  The statute requires that we look to the net worth of the trust as of the last day of the taxable year involved in the proceeding.  And there is no support for the argument that there is no taxable year involved in the proceeding.” 141 T. C. 14, at pp. 6-7.

The Altermen concede that, as at 12/31/03, the trust had $2 million-plus. No need to check justification or reasonableness of claimed costs. Game over.

But why pick that year?

“One can easily posit a rationale for this rule.  Oftentimes, a trust’s assets can easily be depleted, thus enabling a trust to manipulate whether it meets the net worth requirements by the time a notice is issued at the end of a protracted proceeding.  By looking retrospectively to the taxable year involved in the proceeding, the statute limits or eliminates gamesmanship that might be used to fit within the net worth requirements.” 141 T. C. 14, at pp. 6-7. Footnote 3.

In fairness to the Altermen, Judge Buch admits “There is no evidence of any such gamesmanship in this case.” Id.

The Altermen were good guys who did their homework but were thoroughly swindled by some bad dudes.