Archive for June, 2016|Monthly archive page


In Uncategorized on 06/22/2016 at 10:35

I’m indebted to Roth & Co. CPAs, who are readers of this my blog, for a case from 6/21/16 that I unaccountably missed. Thanks, guys.

Barton Slavin and Amy Weinstock Slavin, 2016 T. C. Sum. Op. 26, filed 6/21/16, incidentally gets the 1111 Constitution Ave NW gang back in the black, as they went three-for-five yesterday with this win. That said, Judge Gale has to do some fancy footwork to nail Bart and Amy with a Section 6662 chop, because their admittedly-qualified CPA-Tax Court admittee-attorney-preparer did get Reg. Section 1.1001-3 wrong. And the arithmetic is what does it.

The point of the story is that, after a mortgage modification with capitalized interest and a reduced interest rate, cash-basis Bart and Amy tried to take capitalized interest as ordinary deduction. Now we know from Smoker that you can’t do that; if in doubt, read my blogpost “Nice Try,” 2/21/13.

But I’ll let Judge Gale tell the real story.

“Moreover, petitioners’ reliance on Mr. K’s theory of the deductibility of the interest was not reasonable. Even if petitioners did not understand that section 1.1001-3, Income Tax Regs., was not applicable to their situation, petitioner husband understood that Mr. K’s advice was at least partially based on the interest rate reduction from 6% to 3%. However, on each of their 2008-09 Forms 1040, petitioners deducted mortgage interest expenses of $54,000. This is the same amount of interest that petitioners had deducted for 2007, when the interest rate was 6%. Especially given petitioner husband’s education level, petitioners should have realized that an interest rate reduction would have translated into a smaller mortgage interest expense deduction for the year.” 2016 T. C. Sum. Op. 26, at pp. 12-13 . (Name and footnote omitted).

BTW, “Section 1.1001-3, Income Tax Regs., addresses when a modification of the terms of a debt instrument results in recognition of gain or loss under section 1001. It does not concern the deductibility of interest payments.” 2016 T. C. Sum. Op. 26, at p. 8.

Let me quote from my blogpost “Lawyers Can’t Add,” 1/17/13: “It’s an old jibe that lawyers are miserable businesspeople. Lawyers are too busy dealing with everyone else’s problems to take care of their own. And bookkeeping is such a tedious business, when dealing with clients, adversaries and fine theoretical points of law is so much more fun.”


In Uncategorized on 06/21/2016 at 16:27

IRS’ Counsel Flunks

Not a great day for the 1111 Constitution Ave NW squadron this fine day, as they’re only two-for-four in the Opinion stakes. E. U. Amadi does crash on doctored receipts, and Dave Buffano gets tracked-and-confirmed in a CDP sub nomine David P. Buffano; but Dave beats IRS when they can’t prove mailed-to-last-known-address under the name and style of David Buffano tout court, despite a previous remand from Judge Gale. Finally, Charles C. L. Wang escapes a Section 6662 chop because his underpayment is below the five-and-ten limbo stick, and IRS unaccountably fails to assert negligence in brief and at trial.

I’ll take Charles’ story as the text for today’s homily because it’s an object lesson to counsel, both taxpayer and gov’t. It’s all about the details.

Charles C. L. Wang, 2016 T. C. Memo. 123, filed 6/21/16, worked as a real estate flogger for a national chain. He made one deal in the year at issue, got a commission check, filed Schedule C with his 1040, but didn’t file a 1040-SE.

Charles C. L. claims IRS sent him notices that never mentioned SE, and sundry other failings.

Judge Pugh: “Petitioner’s sole objection to the notice of deficiency was that the Internal Revenue Service (IRS) had sent other notices before the final notice of deficiency that did not indicate that he owed self-employment tax.  He also testified that if the first notice had required him to pay the self-employment tax he would have done so.  His protestations regarding the IRS notices and his difficulty in resolving his case before the notice of deficiency was issued are not relevant to our redetermination of his tax liability.  We generally do not look behind the statutory notice of deficiency to examine the Commissioner’s motives or conduct.  Rather, we conduct a de novo review of the record and apply the law to the facts in the record before us.”2016 T. C. Memo. 123, at pp. 3-4 (Citations omitted).

Charles C. L., you owe the SE…every penny of the $1,578.00. But although the SNOD states both negligence and five-and-ten understatement, IRS’ counsel blows it.

“In his pretrial memorandum and at trial, however, counsel for respondent [IRS] argued only that petitioner was liable for a section 6662(a) penalty because of a substantial understatement of income tax and did not advance any arguments in support of the determination that petitioner was liable because of negligence.  We therefore consider respondent to have abandoned his argument as to negligence.  The understatement of income tax, $1,578, does not exceed the greater of 10% of the tax required to be shown on the return or $5,000.  Therefore, respondent has not met his burden of producing evidence that petitioner’s underpayment was attributable to a substantial understatement of income tax.  Consequently, petitioner is not liable for a penalty under section 6662(a).” 2016 T. C. Memo. 123, at p. 6.

I’ve said it before: lawyers can’t add. Or do decimals.



In Uncategorized on 06/21/2016 at 15:37

Even though TEFRA sunsets next year, and tax matterers become tax representaters, there’s still the old silt stirring as the old TEFRA FPAAs wind their way to oblivion.

And Ch J L. Paige (“Iron Fist”) Marvel has one of these clenched in her iron fist in Hubert Oxford, III & Cynthia Oxford, Docket No. 16916-15, filed 6/21/16.

Hube & Cyn want to enjoin collection of a deficiency and a bunch of Section 6662 chops (or get a refund of whatever thereof has been grabbed by IRS), resulting from the partnership-level blowup of AD Investments, another phony partnership tax dodge starring that famous immunologist Jim (“Little Jim”) Haber, claiming they need a partner-level go-round.

I’ve blogged extensively that one cannot have outside basis greater than zero in a sham partnership. But the Supremes in Woods, 134 S. Ct. 557 (2013) said that, while Tax Court could blow up the phony partnership in a partnership-level proceeding, the partners’ own liability had to be considered in a partner level proceeding. Of course, if outside basis is zero, the partner-level bit should be computational and nonassessable, that is, no SNOD needed, straight to CDP. Right?


“As to whether partner-level adjustment of outside basis incident to a deficiency determination should also be merely computational, Woods provides no direct answer. In dicta, however, the Court addresses the amici’s suggestion that its decision will permit the Internal Revenue Service to directly assess a penalty on a tax underpayment that cannot itself be assessed without deficiency procedures.  Noting that ‘an underpayment attributable to an affected item [such as outside basis] is exempt’ from deficiency procedures where partner-level determinations are unnecessary, the Court observes that ‘it is not readily apparent why additional partner-level determinations would be required before adjusting outside basis in a sham partnership.’

“In the sham partnership at issue here, the Court of Appeals [8th Cir., in the Thompson case, which I’ve extensively blogged] concluded that such additional determinations were required, and we proceed in accordance with that mandate.” Order, at p. 4. (Citations and footnote omitted).

So, Hube & Cyn, and IRS, pray tell “…their/his position as to: (1) whether additional partner-level determinations of outside basis are required in this case; (2) if so, what specifically are those additional partner-level determinations of outside basis; and (3) to what extent, if any, this Court has jurisdiction in this partner-level proceeding over petitioners’ income tax deficiency and related accuracy penalty….” Order, at p. 4.

I have a feeling that these face-offs will be going on long after TEFRA is an unpleasant memory, when we’ll be grousing about PATH partnership audits.


In Uncategorized on 06/20/2016 at 18:02

George Tzivleris, 2016 T. C. Sum. Op. 26, filed 6/20/16, didn’t bother to report $117K of canceled debt when his FL rental condo went down the drain in the 2009 real estate bath. His recordkeeping wasn’t much, either, although The Judge With a Heart, STJ Armen, does allow George a few bucks more of nontaxable income via George’s line of credit with a local credit union than the IRS bank-deposits crew. And since the condo was rented, STJ Armen allows George a Section 1231 write-off for the fixtures and improvements George put into the place.

IRS wants accuracy chops, but doesn’t get them.

STJ Armen: “…it is clear from the record that petitioner is neither ‘educated school-wise’ nor at all experienced in tax matters.  It is equally clear from the record that petitioner relied reasonably and in good faith on his accountant and commercial return preparer (whose competency was worthy of petitioner’s reliance, see Neonatology Assocs., P.A. v. Commissioner, 115 T.C. 43, 99 (2000), aff’d, 299 F.3d 221 (3d Cir. 2002)) to determine and report his tax liability for each of the years in issue and that, in so doing, he provided information and documents as requested by them.  Admittedly, for 2009 it is troubling that petitioner’s return did not reflect income from cancellation of indebtedness by Bank of America nor otherwise report all of his income.  However, petitioner’s tax professional took the position that the insolvency exception negated the inclusion of the canceled debt in gross income, a factual matter which, although ultimately unproven at trial, was not unreasonable. Further, the canceled debt was virtually offset by the section 1231 loss deduction, which went unclaimed on the return.  Finally, the unreported income for 2009, as well as for 2010 and 2011, was determined by an indirect method of income reconstruction, was modest in amount, and might have been de minimis (or eliminated in its entirety) if petitioner had been more successful in adducing evidence at trial regarding nontaxable deposits.  Thus, under these circumstances we do not think that imposition of the accuracy-related penalty is warranted, and we therefore do not sustain respondent’s determination of the penalty for the years remaining in issue.” 2016 T. C. Sum. Op., 20, at pp.15-16.

I have had a client or two not “educated school-wise” who did pretty well.

But when your attorneys and your Big Four CPA firm tell you that your tax dodge is a landmine, and decorate your 1040 with Form 8886, Reportable Transaction Disclosure Statement, and those of your nearest and dearest with Form 8271, Investor Reporting of Tax Shelter Registration Number, as your trusty accountants registered your little fiddle as a shelter, it might be well to pay the tax.

Not so Estate of Richard L. Marshall, Deceased, Patsy L. Marshall, Personal Representative, and Patsy L. Marshall, Transferees, et al, 2016 T. C. Memo. 119, filed 6/20/16.

Now when we see “transferee” in a caption, what do we think? No prize if you yelled “Midco” or “MidCoast.” Because that’s exactly what this case is about.

It’s the usual. Founder’s C Corp has basis of bupkis in assets worth telephone numbers, creating huge tax bill on disposition, and when the competent advisers tell the heirs the tax bite, the heirs run to the first promising crooks they can find.

Next up is the usual roundy-round with day loan from Rabobank, 100% collateralized with cash and twenty-four hour payback. And the usual squad of shell-shills with the mix-and-match T-bill game. And the busted shell-shill, followed by Section 6901 and the Oregon Fraudulent Transfer Act.

As the chess guru from Adelaide says “we can stop here.”


In Uncategorized on 06/20/2016 at 13:11

Once again it’s the petitioner who gets the advice abovequoted from George Kelly’s 1924 play The Show-Off. The order is Jeffrey B. Tanner & Lauralea J. Tanner, Docket No. 9360-16S, filed 6/20/16, but Jeff & Lauralea are featured players; the lead is played by their attorney, whom I shall hereinafter designate as NDR.

NDR scrawled his name at the foot of the petition, but didn’t print his name or provide his info as provided on Form 2. Note- Ch J L. Paige (“Iron Fist”) Marvel doesn’t specify whether NDR used Form 2 or a custom form.

Whatever it was, Jeff & Lauralea didn’t sign it, so the petition was docketed as deficient. Back in April, then-Ch J Michael B (“Iron Mike”) Thornton ordered Jeff & Lauralea to ratify the petition.

They don’t, but NDR jumps into the fray with an Entry of Appearance.

Now constant readers of this my blog (a poor thing, but mine own) know that an Entry of Appearance filed after a pro se or defective petition doesn’t cure the petition. See my blogpost “First Things First,” 2/18/16.

I won’t weary my readers, that small but astute band, by reciting again what Ch J Iron Mike said, and I blogged, back in February. Ch J Iron Fist says the same thing.

Jeff & Lauralea need to ratify their own selves. And Ch J Iron Fist attaches a ratification form, all filled in, for Jeff & Lauralea to sign. Then NDR can go to work.

Now the rest of this blogpost is guesswork, so maybe NDR might see this and tell the actual story, if it isn’t privileged. But my guess is that Jeff & Lauralea came racing, breathless, into NDR’s office at 4:45 p.m. on Day 90, SNOD in hand. NDR grabbed his keyboard, dummied a caption, filled in Jeff’s & Lauralea’s names, SSANs and address, wrote “object to everything,” printed it out and scrawled his name (in blue ink). He grabbed an envelope, stuffing in a copy of the SNOD, and ran to the post office downstairs, scrawling in 400 Second St NW, 20217 as he ran. He just got the postmark on the envelope as the clerk was shutting the window.

And he hoped he had beaten the clock.

Suggestion (or rather, practice hint): Have a form of Tax Court petition, with your contact info, name, rank and serial number filled in, on your desktop (and in your smartphone, if you use one of those contraptions). Have a couple preaddressed envelopes (hi, Judge Holmes) handy. Then when the fleet-footed clients come charging in as curfew strikes, you’ll be ready for them.


In Uncategorized on 06/17/2016 at 16:02

IRS, replete with the never-say-die spirit that made America great, once again claims that the computer-generated postage mark can satisfy Section 7502 (mailed-is-filed). This time it’s Matthew Eric Baham & Jennifer Michelle Baham, Docket No. 25666-14S, filed 6/17/16, but Judge Wherry isn’t having any.

IRS wants to lay Tilden’s ghost. Remember Tilden? Thought not, so check out my blogpost “Yes, We Have No Jurisdiction – Part Deux,” 12/3/15. Tilden went with, and IRS agreed Tilden beat the tag. But The Judge With a Heart, STJ Armen, checked out the USPS website and found the posties got their paws on Tilden’s petition a day late and much more than a dollar short.

Judge Wherry orders briefs, Matt & Jen stand mute, but IRS flings their brief into the fray.

“The brief states that respondent disagrees with this Court’s analysis and holding in Tilden v. Commissioner, T.C. Memo 2015-188 and Boutlbee v. Commissioner, T.C. Memo 2011-11.” Order, at p. 1.

Well, Judge Wherry, an internet whiz, takes judicial notice in a two-page prolegomena to a future exegesis anent as a counter to the gambit. looks like on steroids.

“After reviewing respondent’s brief, the Court tentatively disagrees that there is no indication that the petition was not timely deposited. The petition was sent via the U.S. Postal Service (USPS) by first-class mail. The envelope containing the petition bears a mailing label with a ‘postmark’ by ‘’ of October 22, 2014. The envelope also bears a ‘certified mail’ sticker with the following 22-digittracking number: 9407110200881362698267. We take judicial notice of the USPS tracking information and Frequently Asked Questions on the USPS website. The tracking information obtained from the USPS indicated that “preshipment information” was sent to the USPS on October 23, 2014, but no time is listed. The USPS Frequently Asked Questions page titled “ Tracking Updates” indicates that pre-shipment displays when information about the package has been provided to USPS, but the package has not yet been processed through the USPS network. Tracking Updates, U.S. Postal Serv., (last visited June 17, 2016). The petition’s tracking information further indicates that the petition was ‘accepted’ by USPS at 8:03 AM on October 23, 2014. USPS provides a status of accepted “when an item has been physically tendered to the Postal Service.” Id. (emphasis added).” Order, at pp. 2-4. (Footnotes omitted, but one is a two-page law review note on judicial notice, and the other debates whether the USPS time stamp is local time or one uniform time for all its timestamps. It’s Friday afternoon, and it’s all too long to quote here even if it weren’t Friday afternoon.)

Whatever, the parties can’t confer jurisdiction on Tax Court by agreement, or by not raising the issue. Only Congress can do that, and Congress…sorry, this is a non-political blog.

So, Matt & Jen, dish. What did you do and when did you do it?

And IRS, discuss whatever you know about USPS tracking,’s methodology, and all that jazz.

Takeaway- Consider whether you want to use certified mail if you’re using non-USPS postage at the eleventh hour.


In Uncategorized on 06/17/2016 at 15:08

A meagre gleaning from the hundred or so orders thus far appearing on the Tax Court’s website is a reminder that, although the solstice is still some days away, it’s already summertime in The Glasshouse at 400 Second Street, NW.

So I’m thrown back to remembering a Disney summer catchpenny from 1989 to entitle the story of Chastity Kirven, Docket No. 30393-15W, filed 6/17/16.

Chastity is opposing summary J, but her Certificate of Service leaves off the address of IRS’s counsel (presumably that person listed on the Tax Court docket search, located at 1111 Constitution Avenue, NW), drawing an admonition from Ch J L. Paige (“Iron Fist”) Marvel.

This sort of thing I’d ordinarily let slide, but for something quite unusual.

I’ll let Ch J Iron Fist tell you all about it.

“…petitioner failed to explain the large discrepancy between the number of pages in the unredacted opposition (315) and the redacted opposition (122). Rule 27(e) provides that a person filing a redacted document may also file an unredacted copy under seal. A 315 page unredacted opposition is not a ‘copy’ of a 122 page redacted opposition.” Order, at p. 1. (Emphasis by the Court).

So, Chastity, file an unredacted 122 page opposition; if you can. See the title of the blogpost above.


In Uncategorized on 06/17/2016 at 08:28

Don’t Do It

 Incommunicado yesterday, but still got 132 views on my blog; go figure. To make up for missing my Palindrome Day blogpost, here’s Judge Wells discussing how a preparer can commit massive fraud. Don’t do it. The dude got the jail.

The fall-out nails John Finnegan and Joan Finnegan, 2016 T. C. Memo. 118, filed 6/16/16. John and Joan weren’t themselves fraudsters, but their preparer Howell was. He’d had his CPA license lifted for fraud years before, so he invented a platoon of phony preparer entities to sign his returns. Reminds me of ol’ ex-PFC Wintergreen.

IRS wants to nail the Finnegans for a bunch of years, open and closed, based on Howell’s delicitions. They can do this only by proving the Finnegans’ returns were fraudulent.

Our old pal “clear and convincing” is the standard, and IRS wants to use testimony from the IRS thiefcatchers to show the pattern of Howell’s thievery made manifest in the returns he filed for the Finnegans (and which they never read).

Howell used phony partnerships with phony Schedule Es, and moved them about the country, sending the 1065s to processing centers other than that to which his individual customers’ returns were sent, so as to fox IRS. Howell used the same numbers for every phony partnership’s non-deductions.

“These figures are described on the returns with vague terms such as “miscellaneous”, “other expenses”, “other income”, “cash contributions”, “supplies”, “purchases”, and more. The figure $4,896 appears in every partnership return…as “office supplies or expenses”. Finally, for every Form 1040, petitioners showed net income of $2 on Schedule C, Profit or Loss From Business.” 2016 T. C. Memo. 118, at p. 10.

And Howell used the same numbers again and again for the same phony expenses and income. Saves time when you’re cranking out upwards of 750 phony returns per year. A nice book of business.

Much argy-bargy about the FRE and the pre-PATH (Revenue Act of 2015) Tax Court Rules of Evidence, which I leave to the law review writers desperately seeking soporific copy. Bottom line- FRE 406 lets in evidence of routine practice. IRS made reasonable efforts to get Howell to testify (which he doesn’t), so in his absence the trial transcripts of himself and an associate who also goes down get in under FRE 804(b)(3).

Judge Wells makes much of the Eriksen case. See my blogpost “Too Much Truth,” 7/12/12, for the lowdown thereon.

“Petitioners contend that Eriksen stands for the proposition that, to establish fraud, the Commissioner must prove a ‘direct link’ between the commission of fraud and a taxpayer’s return. Petitioners strongly imply that the only way to establish such a direct link is through the preparer’s testimony. In Eriksen, the Commissioner established the existence of fraud by matching the incorrect information on the taxpayer’s return to the preparer’s modus operandi. In other words, even taking petitioners’ contention into account, there are ways of providing an evidentiary link that do not involve a preparer’s specific testimony as to a particular taxpayer.” 2016 T. C. Memo. 118, at p. 26.

Besides, in Eriksen, Jim and Curt, the rogues, testified that not every return they prepared was bogus, even though IRS trotted out 150 examples of Jim’s and Curt’s bogusity. Here, Howell had testified he never did any return that wasn’t “dirty.”

I might mention that, in Eriksen, five of the six taxpayers under the gun (read my blogpost to get this elaborate pun) survived a less-than-stellar IRS cross examination. The sixth stuck her head in the noose by admitting the phony deductions. Contrary to the old saw that “liars need good memories,” they don’t; they need bad memories. “I don’t remember” often works wonders. Here, the Finnegans admit they never heard of these partnerships Howell invented for them.

Of course, what nails the Finnegans for negligence chops (IRS didn’t seek fraud chops against them) is that they never read the returns, and the resulting major tax benefits they got were too good to be true. They hooked up with Howell when their old accountant retired and Howell got them much better results.

I had the contrary experience some years ago when, engaged to prepare a return for the first time, I discovered that the client’s retired accountant invented a massive unsubstantiated deduction in a prior year. When I pointed this out to the client, I got fired. What happened thereafter I know not.

Takeaway- Remember Howell. Don’t do it.






In Uncategorized on 06/15/2016 at 17:59

1600 blogposts, 198 followers, 135 countries. More to come, if time permits.


In Uncategorized on 06/15/2016 at 17:47

Conjoining those two sages Ralph Waldo Emerson and William James Basie, Judge Kerrigan deals with the old game of depositing December’s checks in January in Robert J. Squeri, et al.,  2016 T. C. Memo. 116, filed 6/15/16.

Rob and the et als are shareholders in a cash-basis S Corp that really cleaned up (they were in the full-service janitorial business).

For the open years, they held off the December checks to January. IRS hits them and makes them recognize the income when they got the checks each year, regardless of when they deposited them. And Rob and the et als lose that one.

However, IRS wants to hit them for a closed year, by making them pick up the January open-year deposits in the closed year, even though throwing them backward in the still-open years.

“The parties do not dispute that [Sub S] incorrectly computed its gross receipts by using bank account deposits.  Respondent contends that under the duty of consistency, petitioners should be required to include on their [open-year] returns amounts of [closed-year] income, as they originally reported.  Petitioners contend that gross receipts of $1,634,720 should be excluded from their [open-year] income because they were actually received in [closed-year] and that respondent does not have authority to make adjustments for petitioners’ [closed] tax year.  Petitioners further contend, and respondent does not dispute, that the Tax Court does not have jurisdiction to make adjustments for their [closed] tax year and that the period of limitations… is closed.  See secs. 6214(b), 6501(a).” 2016 T. C. Memo. 116, at p. 7.

So will Rob and the et als walk away with $1.6 million that will stay behind the closed-year door?

Not with Judge Kerrigan on the case.

“The duty of consistency, or quasi-estoppel, is an equitable doctrine which prevents a taxpayer from benefiting in a later year from an error or omission in an earlier year which cannot be corrected because the limitations period for the earlier year has expired.” 2016 T. C. Memo. 116, at p. 8.

Dig that quasi-estoppel (sorry, guys).

The following triggers the duty of consistency: “…(i) a representation or report by the taxpayer, (ii) reliance by the Commissioner, and (iii) an attempt by the taxpayer after the statute of limitations has run to change the previous representation or to recharacterize the situation in such a way as to harm the Commissioner. If all those elements are present, the Commissioner may act as if the previous representation, on which he relied, continues to be true, even if it is not.  The taxpayer is estopped to assert the contrary.” 2016 T. C. Memo. 116, at pp. 9-10. (Citations omitted).

In short, taxpayer, you broke it, you own it.

Report? The tax returns for all the years, open and closed.

Reliance? Although Rob and the et als claimed IRS knew their reporting was bogus because he nailed them for the open years, IRS never objected to the closed year. There is no necessity that IRS audit every return and give it a “no change” to show reliance.

Recharacterize? Here’s the whole point: “Petitioners admit that reporting the [closed-year] payments for [closed-year] rather than for [open-year] would be inconsistent with their previous reporting.  The period of limitations has expired on the [closed] tax year, and allowing petitioners to recharacterize their income as belonging in [closed-year] would harm the Commissioner; it would allow petitioners to avoid tax on $1,634,720.” 2016 T. C. Memo. 116, at p. 13.

It would also harm everyone who paid their taxes honestly.

Rob and the et als claim they made a mistake of law and not of fact. Whatever they made, it was a representation made and relied upon.

Takeaway- The SOL is not a plenary indulgence.