Archive for July, 2016|Monthly archive page


In Uncategorized on 07/22/2016 at 16:39

A reader pointed out that the T.C. I blogged yesterday, CGG Americas, Inc., 147 T. C. 2, filed 7/21/16, apparently took four (count ‘em, four) years to write. I hadn’t done a docket search, but when I looked just now, the Tax Court docket showed the last entry as 10/17/12, and the case was filed 11/12/10. So the opinion took roughly four years from when the last papers were filed, and six years from when the case was filed.

I asked the reader “how if the taxpayer owed the deficiencies, with interest running?” Rhetorical, of course, in this case, as taxpayer won.

But it brought back memories of poor Beverly Bernice Bang. See my blogpost “Bang – A Warning to Tax Matters Partners (and their advisors).” 1/5/11.

And just today Big Julie, His Honor Judge Julian I Jacobs (hereinafter “HHBJJJIJ”), has another example.

It’s a one page designated hitter, BC/Falcon Coconut Creek, LLC, BC Coconut Creek, LLC, Tax Matters Partner, Docket No. 19037-12, filed 7/22/16.

“Respondent’s counsel requested that the Court set a trial date for this case. Petitioners counsel did not object but requested that the case not be set for trial for at least a year.” Order, at p. 1.

OK, says HHBJJJIJ, try it in November 2017.

And if the interest is running, someone is in for a shock if they lose.



In Uncategorized on 07/22/2016 at 16:12

STJ Daniel A. (“Yuda”) Guy figures maybe the Ogden Sunseteers get one right occasionally in Peter Alexander Goodwin, Docket No. 23146-15W, filed 7/22/16.

Senior Tax Analyst C “was assigned to evaluate petitioner’s application for a whistleblower award. In carrying out his responsibilities, he collected and reviewed all documents that were required to be included in the administrative claim file, and he interviewed audit team personnel to obtain relevant information.” Order, at pp. 1-2. (Name omitted).

The upshot of STA C’s efforts are found in his unsworn but subscribed under penalty of perjury declaration, cited in extenso by STJ Yuda. STA C attaches every document, especially the LB&I “stand-down” determining that the capitalization-vs-expensing audits should be discontinued, and anyway the mismatches that Peter Alexander raises would be shortly wiped out due to MACRIS.

So IRS did nothing, like a certain world-famous nocturnal canine.

“Petitioner maintains that the Commissioner’s failure to conduct an examination of the taxpayer in respect of the items that he identified in his Form 211 and related documents violates the IRS’s mission statement and is contrary to the public policy underlying section 7623(b). He further asserts that the information he provided related to some assets that were not the subject of the stand-down directive and, in any event, the Commissioner should have initiated an examination upon termination of the stand-down directive.” Order, at p. 4.

Maybe so, but Section 7623 doesn’t let Tax Court second-guess IRS.

“The record reflects (and petitioner does not dispute) that the Commissioner did not initiate an administrative or judicial action against the taxpayer as a result of the information that petitioner provided, nor were any proceeds collected from the taxpayer that would support a whistleblower award under section 7623(b). As discussed above, it is well settled that the Court is not authorized to direct the Commissioner to commence an administrative or judicial action.” Order, at pp. 4-5.

The problem is the statute, not Tax Court. Whistleblowing should be in USDC, with a broader mandate from Congress.


In Uncategorized on 07/21/2016 at 17:55

“Darling, It’s Better, Down Where It’s Wetter, Take It From Me”

Judge Morrison is belting out the Alan Menken and Howard Ashman 1989 Academy Award winner, as he drowns the IRS in CGG Americas, Inc, 147 T. C. 2, filed 7/21/16.

CGG is a submarine seismic reflector. Here’s how the parties stipulated it works.

“Boats would tow submerged arrays of pneumatic chambers that had been pressurized with compressed air. At regular intervals, the chambers were triggered to produce pulses of sound energy. The sound waves generated by this process traveled through the solids, liquids, and gases that made up the geological formations in the substructure of the ocean floor, were reflected back to the water surface, and were captured by groups of special microphones (called hydrophones) that converted the captured sound energy into electrical impulses.

“The data initially generated by the surveys was raw acoustic data. CGGA processed (and reprocessed) the raw acoustic data to create usable information such as visual representations (including maps) of geological formations in the earth’s subsurface.” 147 T. C. 2, at pp. 4-5.

What effects this has on Sebastian the Crab and his aquatic fellows I cannot tell. As this is a nonpolitical blog, I will refrain from comments on climate change, ocean acidification, marine life and similar matters; my views are available elsewhere.

By way of disclosure, I am a charter member of the Cousteau Society.

Howbeit, as the info that CGG thus obtained was flogged to would-be lessors, lessees, drillers and purchasers of pieces of the continental shelf in the Gulf of Mexico to hunt for petroleum, did CGG get the Section 167(h)(1) quick-kick 24-month write-off of their considerable costs in so doing?

That provision accords quick-kick to expenses for geological and geophysical exploration with a view to extracting oil, and CGG is clearly in that hunt.

But CGG owns nothing, leases nothing, and drills for nothing. And their data was useful for nothing other than finding oil. Their customers weren’t doing their own versions of the work CGG was doing.

So IRS says they have to capitalize their expenses.

No, says Judge Morrison. In all the cases and Rev. Rul.s IRS cites, nowhere does it say that geological and geophysical exploration expenses can only be deductible if incurred by the drillbabies.

IRS says the statute is unambiguous, so legislative intent not needed. Judge Morrison sends that argument out to sea. But after exhaustively (and exhaustingly) traversing decades of bills that went nowhere, with tons of testimony before Congress thrown in, here’s where Judge Morrison surfaces.

“Accepting that Congress intended section 167(h) to apply to owners of mineral interests, this does not dispose of the question of whether nonowners are governed by section 167(h). Congress’s principal concern when it enacted section 167(h) may have been owners. But that does not mean that section 167(h) covers owners and no other types of taxpayers. A law can achieve effects different than those that Congress principally intended to achieve in enacting the law. As the Supreme Court held in Oncale v. Sundowner Offshore Servs., Inc., 523 U.S. 75 (1998), ‘[i]t is ultimately the provisions of our laws rather than the principal concerns of our legislators by which we are governed.’ Id. at 79.” 147 T.C. 2, at p. 40.

Ultimately, nowhere has Congress stated unequivocally that only drillbabies get the quick-kick.

IRS has a last-gasp argument that the exploration is carried out by the drillbabies and not CGG. But the CGG info is essential; if CGG didn’t do it, the drillbabies would have to. You can’t spend money drilling at random and hope to hit oil. Clark Gable and Spencer Tracy are dead, and “Boom Town” was so 1940. And forget Jett Rink (if you can; the GMOD never can).

The IRS is sunk.


In Uncategorized on 07/20/2016 at 16:25

You Sure, Judge Holmes?

See my blogpost “Without Prejudice = Extreme Prejudice,” 7/6/16.

Apparently, even though I have heretofore and oftentimes designated and styled him as The Great Dissenter, a/k/a The Judge Who Writes Like a Human Being, s/a/k/a The Implacable, Irrefragable, Ineluctable, Ineffable, Indefatigable, Illustrious and Incontrovertible Foe of the Partitive Genitive, and Old China Hand, Judge Mark V. Holmes does not read my blog.

Of course, he shouldn’t feel like The Lone Ranger. Some billions of people don’t read it either.

However, in the case of Hassel Family Chiropractic, DC, PC, Docket No. 21065-10L, filed 7/20/16, a day with neither opinion or designated hitter, Judge Holmes has left me perplexed.

Back on 6/3/16, Judge Holmes dismissed the Hassel Family’s case without prejudice, relying on our old pal Wagner.

I need not remind my readers that, unlike a case arising from a petition from a SNOD, a case arising from a petition from a NOD can be dismissed without entry of decision in favor of IRS for their entire demand.

It’s the “without prejudice” part that causes trouble.

The case was on for trial in Des Moines IA back in 2011. If in fact there was jurisdiction based on a timely petition at that time, and if the one-hearing-per-tax-year rules of Section 6330(c)(4)(A) apply, then any new petition from the Hassel Family must be time-barred, no?

Unless the Hassel Family can invoke the supplemental-hearing rule. But there’s no remand back to Appeals here that I can find, much less a supplementary NOD.

More puzzling is this language from the order: “On June 3, 2016 the Court granted the petitioner’s motion to dismiss the case, however that did not close the case.”

Why not? Isn’t a Wagner dismissal “game over”?

And if that dismissal didn’t close the case, how was it still alive?

And if it is, does the “motion to withdraw the petition” (presumably six years after it was filed) now “close the case”?

And even if it does, the NOD must now be at least six years old, and the time to petition a NOD is thirty (count ‘em, thirty) days after issuance. So how can the case be closed “without prejudice”?

Maybe the Hassel Family can pay, file for refund and sue in USDC or USCFC. But the order isn’t that explicit.

I’m confused.


In Uncategorized on 07/19/2016 at 23:22

That’s Jack R. Durland, Jr., 2016 T. C. Memo. 133, filed 7/19/16. Jack Jr., having looted the family trust and gotten disbarred in OK, turned to what my daughter the international tax expert calls “th’ awl bidniz.”

But the path to large payouts is strewn with obstacles like Federal income tax.  Jack Jr. reminisced to then-Mrs. Jack Jr. “about a case he handled where they never paid back the loans and the IRS never caught it.” 2016 T. C. Memo. 133, at p. 30. So Jack Jr. tries it on.

I’m sorry to reduce 102 (count ‘em, 102) pages of Ch J L. Paige (“Iron Fist”) Marvel’s lengthy exposition of Jack Jr.’s and partner’s phony loans to a few words, but it’s been a long day.

Jack Jr. took out a bunch of checks from various business by which he was employed, or in which he had equity, characterized these as “loans”, without contemporaneous promissory notes and on which no payments were ever made. And cashed the checks with a friendly check-cashing operation.

Jack Jr. goes down on Section 7201 filing false returns, via a plea bargain, with the usual “this doesn’t mean we can’t soak you civilly” language.

So he does get soaked. SOL doesn’t help with fraud. And Jack Jr. forgets the rule the abovequoted Texan has often cited: “Pigs git fed, hogs git et.”

Mrs. Jack Jr. wants innocent spousery, but her claims of abuse are unsubstantiated, and she was in on the skullduggery.




In Uncategorized on 07/18/2016 at 16:38

If it’s more, it’s the Feds; if it’s less, it’s the State’s. That’s how you figure out pre-notice interest in a Section 6901 transferee liability case, and at close of play Michael A. Tricarichi, Transferee, 2016 T. C. Memo. 132, filed 7/18/16, who was maybe a hundred grand over the $35 mil IRS claims he owes with pre-notice interest thrown in per Title 26 USC, not per OH (and OH would’ve been zero, he claims), so Mike really gets clobbered.

Judge Lauber goes through the precedents, which don’t make a lot of sense to me, so I won’t try to explain them. If all Section 6901 does is let IRS fast-track a State voidable-transfer claim, why bifurcate pre-notice interest based on whether the transferee got enough assets to pay IRS in full? If the transferee got less, then take it all and have done. Or file a NFTL for the shortfall. State law should hardly be relevant. The aim is to make the creditor whole, right?

It seems there was some contrary First Circuit learning years ago, but Judge Lauber blows it off.

If this is your kind of case, read it. Me, I’ve got a closing tomorrow.


In Uncategorized on 07/18/2016 at 15:53

Those of my readers who follow the political news will remember The Guardian (UK) newspaper, publisher of the Snowden story and target of the wrath of arch-Leaker Julian Assange. As this is a non-political blog, I’ll eschew any comments arising from or related to the foregoing.

But the Guardian wants in on the Amazon.Com, Inc. & Subsidiaries fistfight, and Judge Lauber holds off on letting them in until IRS and Jeff Bezos’ squadristi duke it out on what exhibits and trial testimony to seal from public view.

Read all about it in Amazon.Com, Inc. & Subsidiaries, 2016 T. C. Memo. 131, filed 7/18/16.

The Guardian wants to see everything, and IRS is just as glad to let them see it. Amazon and the Subs are yelling it’s trade secrets and will irremediably damage Amazon and its numerous shareholders.

Well, a lot of the stuff is public already. Half of what Amazon wants Judge Lauber to give them isn’t marked with the Scarlet “C” for “Confidential”, so they can mosey on down to 400 Second Street, NW, and ask the kindly clerks to let them check it out.

In fact, Judge Lauber claims a lot is out there already.

“The parties filed comprehensive pre-trial memoranda.  With minor redactions, those memoranda have been placed on the docket for public inspection. Trial testimony that did not elicit Confidential Information was heard in open court; transcripts of that testimony have been placed on the docket for public inspection.  Trial testimony that elicited Confidential Information was heard in closed court; the parties are working toward finalizing redacted versions of those transcripts to be submitted to the Court for approval.  If and when they are approved, these redacted transcripts will be placed on the docket for public inspection.

“Trial exhibits that Amazon did not designate as containing Confidential Information are currently available for public inspection upon request.  These exhibits include redacted versions of all expert witness reports (56 in toto).  Trial exhibits that Amazon designated as containing Confidential Information were given exhibit numbers with the prefix ‘C.’  Respondent [IRS] retains the right under the protective order to challenge petitioner’s classification of exhibits as containing Confidential Information.” Order, at p. 6.

Judge Lauber gets to the point: “The issue at hand is whether Guardian should be permitted to intervene in this case.  With limited exceptions inapplicable here, our Rules make no provision for third-party intervention.  In the absence of an express Rule, the Court ‘may prescribe the procedure, giving particular weight to the Federal Rules of Civil Procedure to the extent that they are suitably adaptable to govern the matter at hand.”  Rule 1(b); see Guralnik v. Commissioner, 146 T.C. __, __ (slip op. at 28-31) (June 2, 2016);, Inc. & Subs. v. Commissioner, T.C. Memo. 2014-245; Estate of Proctor v. Commissioner, T.C. Memo. 1994-208, 67 T.C.M. (CCH) 2943.” I blogged the earlier Amazon and Guralnik opinions; Tax Court can roll its own, but Judge Lauber isn’t quite ready yet.

The Guardian is of course wrapping itself in the First Amendment. But journalists have no greater rights than anybody else.

“The public interest that Guardian seeks to advance has been, and continues to be, powerfully represented by respondent.  Respondent has objected to the issuance of a protective order at every stage of this litigation.  When the Court indicated its intention to issue a protective order of some kind, respondent worked assiduously to narrow the scope of protection and to ensure himself the ability to challenge petitioner’s designation of information as ‘confidential.’” Order, at p. 12.

Still and all, the Guardian’s intervention is more than a wee bit off the beaten track.

“Guardian has not cited, and our own research has not discovered, any instance in which this Court, or any other court, has been asked to decide whether a media organization should be allowed to intervene in a pending Federal tax controversy. Guardian’s motion presents novel questions, both as to the proper standards for intervention in the absence of any Rule governing the subject, and as to whether the IRS, as an agency of the United States, adequately represents Guardian’s interest in public disclosure.  Cf. Prete v. Bradbury, 438 F.3d 949, 956-957 (9th Cir. 2006) (“[There is] an assumption of adequacy when the government is acting on behalf of a constituency that it represents.  In the absence of a very compelling showing to the contrary, it will be presumed that a state adequately represents its citizens when the [intervention] applicant shares the same interest.” (quoting Arakaki v. Cayetano, 324 F.3d 1078, 1086 (9th Cir. 2003))).” Order, at p. 13.

Guardian might have something to say about that assumption, but I leave it to their counsel to say whatever.

Howbeit, Judge Lauber doesn’t want to go there. “We are hesitant to address these questions until it is necessary to do so.” Order, at p. 13.

IRS and Amazon and the subs are busy redacting, and Judge Lauber will have the final word on what is walled in and what is walled out.

Until they finish, Guardian can scope out the bushelbasketsful of non ”C” memos, experts’ reports, trial testimony, orders and even this my humble blog.

If at the end of the foregoing, Guardian still wants more, then let them come back.


In Uncategorized on 07/18/2016 at 15:19

Ch J L. Paige (“Iron Fist”) Marvel takes her text from Genesis 6:4, especially the last clause “the same became mighty men, which were of old.” You’ll find it all in her eulogy of the late Senior Judge Howard A. Dawson, Jr.

Click to access 071816.pdf


In Uncategorized on 07/15/2016 at 16:22

Dr Heisenberg, thou shouldst be living at this hour. IRS hath need of thee, as a much finer writer than I put it.

Judge Wherry, nowise whimsical today, takes up the call in a designated hitter for a July Friday afternoon, Percy Squire Co., LLC, Docket No. 4812-16L, filed 7/15/16.

PSC is allegedly on the hook for four (count ‘em, four) years’ worth of FICA-FUTA nonfilings and nonpayments, with a Section 6673 frivolity chop for lagniappe.

In the NOD from which PSC petitions, IRS claims they sent NITLs, but the NITLs aren’t in the file. The mailing dates for PSC’s two CDP requests differ from the signature dates.

While we all know that a NOD from a CDP is the key to the Tax Court door, a Section 6330(f) disqualified jeopardy employment tax levy doesn’t need a NITL, and IRS did show up with Notices CP 297A, which are the disqualified jeopardy employment tax levy notices, and the dates on those tie in to the dates in the NOD, but not to the dates when PSC sent in their petition.

Clear? Thought not, and neither does Judge Wherry.

“The Court is uncertain whether: (i) the Commissioner determined to sustain, in the notice of determination, a proposed levy or a disqualified jeopardy employment tax levy; (ii) if the Commissioner determined to sustain a proposed levy, whether he properly mailed petitioner the pre-levy notice required under section 6330(a)(1) necessary for this Court to have jurisdiction under subsection (d)(1); and (iii) whether petitioner’s collection due process request with respect to its 2010 Form 940 liability was timely. Moreover, we remind respondent that we uphold the Appeals Office’s determination only on grounds upon which the Appeals Office actually relied in the notice of determination. See SEC v. Chenery Corp., 332 U.S. 194, 196 (1947); LG Kendrick, LLC v. Commissioner, 146 T.C. ___, (slip op. at 31) (Jan. 21, 2016).” Order, at p. 4.

I’ve blogged Chenery more than twice. For Kendrick, see my blogpost “Be Careful What You Ask For – Part Deux,” 1/21/16.

So, IRS, before you head for that Grey Goose Gibson up, file a supplement to your summary J motion in this case, with a lot of ‘splainin’. Produce all the paper as well. Finally, tell Judge Wherry what means “…the entries in petitioner’s Federal income tax transcripts that read ‘Module in Federal Payment Levy Program’ and ‘Module Reversed Out of Federal Payment Levy Program’.” Order, at pp. 4-5.

Gotta watch those modules.



In Uncategorized on 07/14/2016 at 16:20

I allude once more to Rob’t Allen Zimmerman’s 1966 extravaganza, but in the singular, to tell the conclusion (for now) of the tale of Christina A. Alphonso, 2016 T. C. Memo. 130, filed 7/14/16.

You do remember Christina A., do you not?  No? The see my blogpost “A New York Cooperative Conundrum,” 3/18/11, and “A New York Cooperative Conundrum – Part Deux,” 2/6/13.

There now.

Well, Second Circuit kept Christina A. in the hunt for the gold by cobbling together a rationale that shares in a New York cooperative housing C Corp, coupled with a New York cooperative apartment proprietary lease, gave the shareholder-tenant a claim for a casualty loss of the C Corp’s property. Except the claim falls because Section 216 only allows a deduction for real estate taxes and mortgage interest, and the deduction can’t be stretched to cover a casualty loss.

Except there isn’t even a casualty loss here.

Judge Chiechi tells us why, after fifty pages of engineering reportage.

“The initial dispute between the parties is over whether the collapse of the retaining wall in question is a casualty within the meaning of section 165(c)(3).  As pertinent here, section 165(a) and (c)(3) allows an individual taxpayer to deduct ‘losses of property not connected with a trade or business or a transaction entered into for profit, if such losses arise from fire, storm, shipwreck, or other casualty’.   A loss is treated as sustained during the taxable year in which the loss occurs, as evidenced by closed and completed transactions and as fixed by identifiable events occurring in such taxable year.  Sec. 1.165-1(d)(1), Income Tax Regs.

“The term ‘other casualty’ in section 165(c)(3) refers to an event that shares characteristics with a fire, storm, or shipwreck.  A casualty is an event which is due to a sudden, unexpected, or unusual cause.  The progressive deterioration of property though a steadily operating cause is not a casualty.” 2016 T. C. Memo. 130, at pp. 51-52. (Citations omitted).

Even a sudden catastrophic collapse is not a casualty if caused by progressive deterioration. And even if wind and rain accelerate the collapse, that isn’t a casualty if the structure at issue was progressively deteriorated over time.

Christina A. claims it was the heavy rainstorm that caused the collapse, hence casualty. But her expert gets shredded, and IRS’s expert gets the judicial nod.

If watching someone’s case go down the drain gives you your jollies, read pp. 57-61. I will refrain from extracting any portion thereof. We’ve all of us been there, and it isn’t fun.

The rain didn’t help, but the C Corp’s Board of Directors knew for twenty years that the retaining wall was a-moulderin’ in the ground. And had bushelbasketsful of reports from reputable engineers and architects that said so. I’ve dealt with a number of those named in the opinion, and they’re players, not amateurs.

I myself well remember the Christmas night collapse of a plaza built over the same highway as Christina A.’s ill-fated retaining wall. And I represented the sponsor of the cooperative offering. But there, if my aging memory serves, the insurance carrier paid the whole freight.