Archive for September, 2016|Monthly archive page


In Uncategorized on 09/22/2016 at 16:44

STJ Lewis (“A Name That a Shame Never Has Been Connected With”) Carluzzo has a mutated employee expense account to deal with in Andrew Christopher Sanek, 2016 T. C. Sum. Op. 60, filed 9/22/16, a Special Day in this blogger’s household.

AC was a construction road warrior, managing construction jobs and spending a year living transiently in the Sunshine State. IRS concedes AC’s rent for his bed-sitter, but jousts about AC’s mileage log and tolls.

And I can tell you from personal experience those FL tolls are substantial, but you must use the toll roads to get anywhere within lives in being plus twenty-one years. Unhappily, all AC has is toll records for the wrong year, so he loses that one to Section 274 strict substantiation.

Just when you’d think AC was going down on mileage (he did concede about two-thirds of the miles he claimed on his Form 2106), STJ Lew finds AC’s employer really didn’t reimburse AC for his work mileage, notwithstanding the company’s manual says they do.

“[Employer’s] written mileage reimbursement policy notwithstanding, we find from petitioner’s credible testimony on the point that in practice the company reimbursed his employment-related mileage only to the extent of $350 per month, and that amount is included in the income shown on his 2010 return.  We further find that [Employer’s] practice, rather than its written policy, controls.  Under the circumstances, the applicable regulations provide that the vehicle and toll expenses, if properly substantiated, are allowable as miscellaneous itemized deductions.  See sec. 1.62-2(c)(5), Income Tax Regs.” 2016 T. C. Sum. Op. 60, at p. 10.

So AC’s employer, though they claimed they had an accountable plan (employee must produce receipts and get reimbursed for allowable expenditures dollar-for-dollar), really had a non-accountable plan (flat payment for expenses regardless of actual amounts spent).

AC’s cellphone expenses are out, since the year at issue was before the decoupling of cellphones from Section 274.

And AC’s workshirts are out because he can’t prove he couldn’t wear them as ordinary clothing.

But he does get his steel-toe workboots. See my blogpost “He Gave Her the Boot,” 11/11/14.

Finally, AC  avoids the negligence chop.

STJ Lew: “Petitioner, who is relatively unsophisticated as to tax matters, made a reasonable attempt to comply with the provisions of the Code and to exercise ordinary and reasonable care in the preparation of his 2010 return.  We are satisfied that petitioner had reasonable cause and acted in good faith with respect to the underpayment of tax that will remain.  See sec. 6664(c).  He is not liable for the section 6662(a) accuracy-related penalty.” 2016 T. C. Sum. Op.60, at p.13.



In Uncategorized on 09/21/2016 at 18:03

A welcome back to Ory Eshel and Linda Coryell Eshel, Docket No. 8055-12, filed 9/21/16, from Ch J L. Paige (“Iron Fist”) Marvel, as USCADC bounced Judge Lauber’s dictionary-driven analysis of the French social security system. For the bounced opinion, see my blogpost “Va T’En, Enfants de la Patrie,”4/2/14.

You remember that Ory’s and Linda’s bœuf with IRS concerned the French la contribution sociale généralisée (general social contribution or CSG) and la contribution pour le remboursement de la dette sociale (contribution for the repayment of social debt or CRDS). Ory and Linda wanted the foreign tax credit, but IRS said no, check the Totalization Agreement (the “tote”) between France and the USA. Properly, the tote is the Agreement on Social Security Between the United States of America and the French Republic, March 2, 1987, 2260 U.N.T.S. 145, available at https://

There’s no foreign tax credit for social security payments or foreign equivalents. The CSG and the CRDS were adopted after the French and we inked the tote, so the question was whether either or both was legislation that amends or supplements the previous French social security regime.

Judge Lauber went to the dictionary, and Judge Millett throws the book at him.

“The tax court’s conclusion that CSG and CRDS ‘amend[] or supplement[]’ the designated French laws was the product of asking the wrong legal question.  Rather than looking to the text of the Totalization Agreement or the signatory countries’ shared understanding, the tax court asked only what ‘amends or supplements’ means in domestic dictionaries, as it might do if construing a purely domestic statute.

“But the Totalization Agreement is not a domestic statute.  It is an executive agreement with a foreign country:  initiated by the State Department, negotiated by the Social Security Administration, signed by the President and a foreign government, and effective only after submission to Congress.” Eshel v. Com’r, 14-1215, decided August 5, 2016, at pp. 10-11.

There’s a specified set of French laws in the tote that comprised the French social security system for purposes of the tote. Judge Lauber looked at the general system, but that isn’t what the tote says.

“The central problem in this case is that the tax court’s resort to American dictionary definitions pretermitted the critical inquiry into the Agreement’s text and the signatory countries’ shared understanding of the Agreement.  The text strongly suggests that the question whether CSG and CRDS amend or supplement the designated French laws—which is fundamentally an inquiry into the content and meaning of the textually enumerated French laws—should have involved reference to  French law.  Instead of heeding this instruction, the tax court consulted outside sources that were not reliable expressions of either textual construction or the signatories’ intent.” 14-1215, at pp. 18-19.

Judge Lauber refused to listen to Ory and Linda’s French law expert, and that’s OK. Tax Court Rule 146 says foreign law is a question of law, not fact.  But IRS’s take is pure ipse dixit, and Ory and Linda’s documents from the French went in without context.

So, Tax Court, do a full-dress takeout on what the French and Americans thought they were doing.


In Uncategorized on 09/21/2016 at 16:09

It’s an adverb, showing that whatever agent is doing whatever the verb says, the agent is always doing it, right?

Well, The Great Dissenter, a/k/a The Judge Who Writes Like a Human Being, s/a/k/a The Implacable, Ineffable, Ineluctable, Indefatigable, Incontrovertible, Invigilant and Illustrious Foe of the Partitive Genitive, and Old China Hand, Judge Mark V. Holmes, thinks there may be more to it than that.

So much more, that he denies summary J, and designates the order so doing, in Michael V. Shannon & Hope W. Shannon, Docket No. 16441-12, filed 9/21/16.

Speaking of consistency, I wonder why Judge Homes designates this order, but not the off-the-bencher I just blogged, “The Dope on COGS,” 9/21/16. Some Judges designate everything, and some nothing. Really annoying to the blogger fighting a deadline.

Anyway, the ongoing saga of Mike & Hope goes on.

Mike & Hope claim aggregating their real estate activities makes them pros. And they claim they so elected, although IRS says their election wasn’t attached to their original return for the year at issue, as required by Reg. 1.469-9(g)(3).

Mike & Hope, apparently hip to the problem, try a Rev. Proc. 2011-34 retrofit.

“In this election, the Shannons sought to use the procedure that the IRS has created to retroactively treat all of a taxpayer’s rental real-estate interests as one activity. The Shannons wanted this election to be effective for all tax years from 2003 forward. Under that revenue procedure, the effectiveness of the election depends among other things on the taxpayers’ having filed consistently on any return that would have been affected. In this case that would be all returns from 2003 onward. These returns were not attached to the Shannons’ motion so they have not proven that part of the ‘consistency requirement.’

“The Court acknowledges a lurking issue here–namely, what does “consistently” mean? Does it mean that a taxpayer in the real-estate business can simply choose to aggregate all his properties even if there are changes in his portfolio from year to year? If so, what happens if his return omits a property (e.g. one that produced no income or deductions during that return year)–does it render the election invalid for all properties or simply throw the excluded property back into the passive-activity rules?

“This more interesting question is not one that has an obvious answer from the brief time in research the Court has had or in the Shannons’ motion papers. Without a clear answer the Court is loath to hold that they have shown entitlement to judgment as a matter of law on this key issue.” Order, at p. 2.

I submit the consistency requirement can’t mean that a real estate pro can’t buy or sell for every year for which a Rev Proc 2011-34 retrofit applies. If that’s what the retrofit means, it’s totally worthless. Every operator has to respond to market conditions: cut losses and seek profit, not embalm defeats and forego victories. Between 2003 and now there have been at least two boom-and-bust cycles; requiring a real estate pro to do nothing, in order to aggregate activities, is ridiculous.

The only questions are whether, when all real estate activities are combined, there’s sufficient engagement by the pros to prove that the pros are pros, and whether they have a good excuse for using the retrofit.


In Uncategorized on 09/21/2016 at 15:23

Y’all remember the ingenious move by Judge Kroupa (of tattered memory), when she loaded Marty Olive’s boo-pushing expenses into cost of goods sold (COGS), hence an adjustment and not a deduction to avoid Section 280E traffic.

If not, see my blogpost “Everybody Must Get Stoned,” 8/3/12. And if this is more about marijuana than you wanted to know, I got an e-mail the other day from a reader who is doing extensive research; so I’m trying to keep my readers satisfied.

Well, the capitalization rules latterly adopted in Section 263A and the regs thereto were claimed to hurt business by requiring capitalization of that which was formerly expensed, thus boosting inventory and raising COGS.

But the Imp of Unintended Consequences might help out the bigger boo-pushers, who are non-deductible under Section 280E. They want COGS, since their deductions are useless.

This is only theoretical, of course. In the case of Golden State Cooperative, Inc., Docket No. 2502-15, filed 9/21/16, they’re below the three-year-average $10 million annual gross receipts cutoff for the capitalizing COGS-enhancer.

However, and notwithstanding anything to the contrary or at variance with the foregoing (as my high-priced colleagues would say), the Golden Staters have a friend in The Great Dissenter, a/k/a The Judge Who Writes Like a Human Being, s/a/k/a The Invariable, Incontrovertible, Indefatigable, Ineluctable, Ineffable, Imperturbable, and Illustrious Foe of the Partitive Genitive, and Old China Hand, Judge Mark V. Holmes. And he even finds “a couple issues” not dealt with by the parties in this off-the-bencher.

The Golden Staters understated income for the year at issue by 0.55%, because they counted in credit card payments (and how they got a bank to let them accept credit cards must be an interesting story, what with PATRIOT acts and money-laundering laws) on the swipe and not when the cash hit a few days later. At the end of the tax year, this is a problem. Golden State concedes, so Judge Holmes gives IRS a win on the tax, but wait for the penalty phase.

Golden State was a consignee, meaning it sold what growers gave it and paid the growers. So Golden State never owned the stuff. Still, since the total of payments would be the same whether Golden State bought the stuff (presumably on credit), took title, and resold, or just hawked the stuff without owning, there’s no difference as regards using COGS. Golden State gets no greater tax benefit one way or the other.

“So the first issue that was actually argued by the parties was the potential allocation of indirect costs to this inventory under Section 263A. This section is relatively new — it’s certainly newer than Section 280E — and was actually designed to increase the cost-of-goods-sold adjustment for many businesses. This was actually harmful to most businesses because it is a form of capitalization rather than immediate expensing. But in the marijuana trade, the incentive to argue that indirect costs are included in COGS is much greater because COGS are an adjustment that medical marijuana dispensaries can take; deductions they cannot.” Order, at pp. 9-10.

But even relegating Golden State to Section 471 standard inventory methods, Judge Holmes finds a few bucks of COGS for Golden State, after giving them a big scare.

Golden State is a cooperative; it never owns the boo it’s flogging. “This means that the marijuana involved is not technically, or at least is arguably not technically, part of the inventory of the seller, and thus the seller might not be entitled to a cost-of-goods-sold adjustment for goods sold on consignment. Instead, as we said in cases decided before, 280E, such a consignee might have to take account of the cost of purchasing or rather reimbursing the gardeners or suppliers of the marijuana not as a cost-of-goods-sold adjustment but as another ordinary business expense, which means, in the end, that it might be the case that a cooperative that is working on the consignment model will have even the costs of its inventory swept up under Section 280E.” Order, at p. 12.

Just before Golden State’s hardworking counsel has a seizure, Judge Holmes drops that one.

“However, that was not argued in this case, and I will not decide this case on that basis. I note that, by doing this as a bench opinion, I raise the subject but this bench opinion has no precedential value.” Order, at pp. 12-13.

Judge Holmes gives the Golden Staters the price of a latte or two for the bags, the cost of which they can substantiate, wherein they packed the good stuff. And he gives them the grow supplies, as they are called in the industry (I hasten to add that I am paraphrasing the decision here, and know nothing of this of my own knowledge), the plant food, water and such that the Golden Staters used to mature young plants handed over by the growers. And the cones, which Judge Holmes tells us is another form of container for marijuana, nets them a few bucks (I will not make the obvious pun about a Saturday Night Live sketch from decades ago).

The Golden Staters had great records, and Judge Holmes lauds them, but has to follow Ninth Circuit and the Martin Olive case, above referred to. Golden State’s lawyer, recovered from the shock, says he wants to preserve the issue of deductions for appeal, and Judge Holmes is down with that.

Golden State wants the multiple-businesses dodge, but that doesn’t work, as the amenities they offer aren’t separately charged for. All the Golden Staters are doing is pushing the good stuff.

If their deductions are knocked out by Section 280E, then the Golden Staters are clearly in the five-and-ten penalty zone.

But the year at issue is pre-Olive in Tax Court, and definitely pre-Olive in Ninth Circuit. So the big item, the disallowed deductions, are a good faith mistake. Judge Holmes gave the Golden Staters a few pennies on COGS, so no penalty there. And the tiny understatement was a timing error, not an attempt to fiddle.

Good stuff.



In Uncategorized on 09/21/2016 at 01:47

Ernie Ryder, Esq., is in IRS’ sights as a dodge-flogger, selling variations on employer-sponsored insurance deals, which IRS claims are non-deductible deferred compensation, taxable to the employee.

I’ve blogged the ongoing saga elsewhere.

In this episode, IRS confronts the redoubtable Marnie W. Barnhorst, Esq., widow of the late Howard, in Estate of Howard J. Barnhorst, II, Deceased, Marnie W. Barnhorst, Successor in Interest and Marnie W. Barnhorst, 2016 T. C. Memo. 177, filed 9/20/16.

Ernie sold the late Howard’s law firm an insurance policy from Ernie’s client, a Turks and Caicos based insurance company never licensed in the US of A. The policy is a supposed health-and-accident, alleged to be compliant with Section 105.

Marnie strives mightily to prove that it is, but Ernie’s deft draftsmanship thwarts her,

The problems are that the policy’s payout has nothing to do with actual medicals, and that a 97% payout is guaranteed, no matter what happens. The remaining 3% just happens to be Ernie’s fee.

And here’s The Great Dissenter, a/k/a The Judge Who Writes Like a Human Being, s/a/k/a The Implacable, Indomitable, Illustrious and Incontrovertible Foe of the Partitive Genitive, and Old China Hand, Judge Mark V. Holmes, to undo Ernie’s handiwork.

The late Howard had cancer, and suffered much, so no doubt he met the triggering event for payment under the policy. But the guaranteed payout is where the deal unravels.

“He would, for example, be entitled to the same amount if he lost hearing in one ear or the use of both his kidneys. Medical expenses for these two conditions would quite likely be different, but payout under the policy would be the same.

“That’s a crucial distinction. The cases tell us to ask whether a plan pays for actual medical expenses, not whether its payee suffers from some triggering condition.” 2016 T. C. Memo. 177, at p. 12.

And Judge Holmes pounds the essential point. “Most important, Howard (or his beneficiaries in the event of death) was guaranteed to get the 98% cash value no matter what happened.” 2016 T. C. Memo. 177, at p. 16. (Emphasis by the Court).

Even if he was never ill, Howard could convert the policy to a life insurance policy with the same 98% cash value. And the payout wasn’t determined by the nature of the injury.

So although the late Howard’s cancer and surgery would qualify his payout to be excluded from taxable income, permanency of injury is not the deciding factor; the amount of the payout must vary with the injury. If he got paid no matter what happened, it’s deferred compensation.

IRS drops the Section 6662(i) economic substance chop, but Marnie gets hit with substantial understatement.

Ernie’s handiwork is an example of really clever dodging. Don’t do it.


In Uncategorized on 09/21/2016 at 01:01

And Substantial Compliance

 Although the appraisal their tandem appraisers put in didn’t match the literal terms of the regulations, it was close enough for The Great Dissenter, a/k/a The Judge Who Writes Like a Human Being, s/a/k/a The Irrefragable, Irrefutable, Ineluctable, Ineffable, Incomparable, Indefatigable, Incontrovertible and Illustrious Foe of the Partitive Genitive, Judge Mark V. Holmes.

You can see for yourselves in Cave Buttes, L.L.C., Michael Wolfe, Tax Matters Partner, 147 T. C. 10, filed 9/20/16.

The local flood controllers tried to bluff the Cave Butte gang into selling their property overlooking the city of Phoenix, AZ, so the Cave Butte gang did, but claimed the difference between what they got from the flood controllers and the true worth of the property was a charitable contribution.

Enter the Section 170 regulations.

The Cave Butte gang’s duo of appraisers were a wee bit casual, and IRS very carefully flyspecks their appraisal, picking every nit in sight.

Judge Holmes turns all objections aside. While piously disclaiming any intention to rewrite the regulations that Congress especially reserved to Treasury, Judge Holmes opens the hosepipe of substantial compliance on the smoky fire of IRS’s objections.

For the trial, the Cave Butte gang outsources the appraising, and the third appraiser brings them the win.

This is a must-read for all who deal with appraisals and appraisers.


In Uncategorized on 09/19/2016 at 23:57

No, not the 1939 Agatha Christie classic best-seller of all time. Rather, this is another of the multi-employer Section 419A(f)(6) scams, popular in the last decade.

And the only one standing as this one unravels is Jay D. Schechter, 2016 T.C. Memo. 174, filed 9/19/16, Judge Morrison completing my trifecta for today.

Jay D.’s “pension guy” suggests Jay D. sign up with an outfit called Nova Benefit Plans, LLC. So Jay D. signs a 21-page agreement that Nova never signs, hands Nova $450K via his Sub S, which takes a big deduction therefor and passes it through to Jay D. Jay D. supposedly is insured against most of the ills that flesh is heir to. He is the only employee of his Sub S.

“It is Schechter’s position that [Sub S’s] $450,000 payment was a contribution by an employer to a welfare-benefit fund that is part of a 10-or-more- employer plan which does not maintain experience-rating arrangements with respect to individual employers. Therefore, Schechter takes the position that under section 419A(f)(6) [Sub S’s] deduction for the payment is not limited by section 419(b). Schechter concedes on brief that if [Sub S’s] deduction were limited by section 419(b), then the fund’s qualified cost for the year would be zero. Therefore, if the deduction is limited by section 419(b) to the fund’s qualified cost, Schechter concedes that [Sub S] would not be entitled to any deduction.” 2016 T. C. Memo. 174, at p. 6. [Name omitted).

So if there are ten (count ‘em, ten) or more employers in the Nova deal, Jay D. gets his $450K write-off. If not, his deduction is toast.

IRS says there aren’t ten employers, and even if there are, this is a Section 404 deferred comp deal and carries a zero deductibility. Anyway, this isn’t a business expense under Section 162.

Judge Morrison doesn’t have to deal with all IRS’s argy-bargy.

Although the written plan looks good, the problem is the recordkeeping. The plan required Nova to maintain records for inspection by IRS and any employer in the deal, showing there were at least ten employers in the deal.

Jay D. says that since Nova was required to do the recordkeeping, that’s sufficient.

Judge Morrison: “The mere fact that a party was required to do something does not mean that the party did it. The question is not whether Nova Benefit Plans, LLC, was obligated to make sure there were 10 employers or more contributing to the plan but whether there actually were 10 employers or more contributing to the plan. The natural source of evidence as to the number of employers in the plan is the records of Nova Benefit Plans, LLC, the plan administrator. Schechter introduced none of these records. He admitted that he knew of no other employers enrolled in the plan. It appears that Schechter’s dealings with Nova Benefit Plans, LLC, were handled by [Pension Guy]. [Pension Guy] did not testify. Schechter did not explain [Pension Guy’s] failure to testify, other than to make the following stipulation: ‘On April 12, 2011, [Pension Guy] was permanently enjoined by order of the United States District Court for the Central District of California from, among other things, “[m]arketing, preparing, selling, organizing or administering any welfare-benefit plan” and from “[p]roviding any advice or assistance regarding the tax treatment of pension plans or welfare-benefit plans.’” 2016 T. C. Memo. 174, at p. 10. (Name omitted).

Judge Morrison is pardonably unimpressed with that one.

“Under these circumstances we cannot find that there were 10 or more employers contributing to the plan merely because the plan document said that Nova Benefits Plans, LLC, was obligated to keep 10 employers in the plan.” 2016 T. C. Memo. 174, at p. 10.

Besides, since the plan limits the amount of death benefit payout to the extent of any disability payout, that’s experience-rating, and that also torpedoes the deduction.

Jay D. has a letter from a lawyer, to whom I’ll refer as JR, that says the plan is not experience-rated, but the letter is contradicted by the literal terms of the plan.

So Judge Morrison goes to town on this blunder, in a footnote, yet.

“Either JR did not read the 21-page document when he wrote the letter, or his letter is a form letter that discusses some other plan or plans. JR’s letter is also potentially significant because it seems to contain information about the number of employers involved in [Sub S’s] plan. The letter states that the plan sponsor, Nova Benefit Plans, LLC, ‘represents that the Plan has over 60 participating as of the date of this letter.’ This alone does not persuade us that there were 60 employers in [Sub S’s] plan. We wonder how many plans Nova Benefits Plans, LLC, administered. Perhaps Nova Benefit Plans, LLC, aggregated the employers in several plans in calculating that the number of employers was 60. We also have questions about the role of JR.Who was his client? Was it Schechter? Was it Nova Benefit Plans, LLC? Why did JR choose to rely on the representations of Nova Benefit Plans, LLC, instead of reviewing its records? These and other questions about the letter were left unanswered at the end of trial. Schechter did not call JR to testify. Nor did he call anyone from Nova Benefit Plans, LLC, to testify. Schechter did not introduce any records kept by either JR or by Nova Benefits Plans, LLC. Under these circumstances we find that JR’s letter lacks credibility, and we accord it little weight. The letter does not alter our view that it is more likely than not that [Sub S] was the only employer in the relevant plan and that the relevant plan maintained experience-rating arrangements.” 2016 T. C. Memo. 174, at p. 13, footnote 3.

IRS didn’t object to the introduction of this letter, for obvious reasons.

Makes me wonder why anyone would introduce a document that (a) is hearsay, and (b) only makes your case look worse. But then again, remember Mory Bahar? No? Then see my blogpost “A Joy Forever? – Not Hardly,” 3/31/14.


In Uncategorized on 09/19/2016 at 16:41

No, not an arithmetic error in the 1930 Sellar and Yeatman classic. This is the unravelling of an unlike like-kind exchange, of the genus SILO (sale-in/lease-out), with a nine-figure deficiency plus fifteen years’ worth of interest. The case is Exelon Corporation, As Successor by Merger to Unicom Corporation and Subsidiaries, 147 T. C. 9, filed 9/19/16, Judge Laro for the Court and fourteen lawyers (seven each) for IRS and Exelon.

For some background, see my blogpost “Woodshedding Your Expert – Redivivus,” 8/6/13, the story of John Hancock Life, a case much-quoted in this opinion.

Exelon was the ultimate successor to Commonwealth Edison of Illinois. In response to deregulation, Exelon unloaded its fossil fuel plants for $4.8 billion. Exelon had a problem…a $1.6 billion taxable gain, with but a short time to bury it. As Grandma would have said “We should all have such problems!”

So Exelon QI’d the cash, picked out some tax-exempt utilities around and about in the safe-harbor timeframe, bought their fossils, and leased them back for a term beyond their remaining useful lives (thus a sale, on paper), and bought separately cancellation options. The only economic sense the deal made was to cancel before expiry.

Exelon hired a squadron of legal, engineering and accounting white-shoes to make sure the deal was papered and worked properly. And the rents and cancellation fees were escrowed up front.

One of the local utilities described the deal to its government owner as the sale of tax benefits. And one of Exelon’s ace accounting firms registered this stuff with IRS as a corporate tax shelter per Section 6111(d).

You can see where this is going.

SNODs descend when Exelon starts canceling.

IRS claims the leases are loans, OID applies, depreciation doesn’t, and Exelon owes the tax.

The result is a fact-driven benefit-and-burdens test. Because all the cash was escrowed, barring an upfront payment to the tax-exempts that came out of Exelon’s tax-deferred sales proceeds, and because the “buyers” were tax-exempt, this was a loan on which interest was paid from the public fisc via tax deferrals benefitting Exelon.

Exelon had no real economic risk.

And as for the white-shoes and extensive due diligence, “In most prior SILO/LILO cases taxpayers also engaged in extensive due diligence before to entering into the transactions, including hiring prominent law firms to draft documents, accounting firms to structure transactions and provide appraisals, and engineering firms to evaluate the properties.  That nonetheless did not prevent the courts in those cases from holding that the substance of such transactions was inconsistent with their form and that the taxpayers did not obtain genuine attributes of ownership.” 147 T. C. 9, at pp. 121-122. (Citations omitted).

Now how about good-faith Section 6664 reliance on experts? Exelon hired a squadron of them.

But the appraisal done by the Big Four accounting firm was flawed, and Exelon’s in-house team should have known that the assumptions upon which it was based were faulty. And the white-shoe lawyers told the accountants what to say.

“We cannot condone the procuring of a tax opinion as an insurance policy against penalties where the taxpayer knew or should have known that the opinion was flawed.  A wink-and-a-smile is no replacement for independence when it comes to professional tax opinions.” 147 T. C. 9, at p. 173-174.

Practitioners, please copy.


In Uncategorized on 09/19/2016 at 14:51

That’s the rule for the Cactus Flower Café, Inc., Docket No. 4501-16, filed 9/19/16, as Ch J L. Paige (“Iron Fist”) Marvel breaks up the joint amended petition of Cactus Flower, Alesia Kafeety and Joni DeRome.

Alesia is petitioning a SNOD and so is Joni, but they’re different SNODs (one for each, IRS also being into the separate-checks gig).

Alesia’s and Joni’s SNODs, though for the same year for each of them, are for a different year than Cactus Flower’s. Notwithstanding anything to the contrary in the foregoing set forth (as my high-priced colleagues put it), all three (count ‘em, three) SNODs are dated the same day.

Apparently the petition as filed was a dud round, so the amended version is filed by an attorney apparently admitted to Tax Court. But I suspect he doesn’t read my blog (and of course he shouldn’t feel like the Lone Ranger in that regard, as billions of his fellow human beings don’t read it either).

The amended petition also doesn’t get it.

First, though he signed the amended petition, he didn’t bother to enter his appearance, so Alesia and Joni are still pro sese.

Second, it’s not a great idea to join three parties together in a single petition, when they don’t have identical issues. Tax Court Rule 34(a)(1): “Ordinarily, a separate petition shall be filed with respect to each notice of deficiency or each notice of liability. However, a single petition may be filed seeking a redetermination with respect to all notices of deficiency or liability directed to one person alone or to such person and one or more other persons or to a husband and a wife individually, except that the Court may require a severance and a separate case to be maintained with respect to one or more of such notices.”

Third, corporations appear in Tax Court by authorized officer, and not by attorneys (unlike many State court and other Federal court regimes). See my blogpost “All Those Old Familiar Faces, Redivivus,” 4/8/14.

Since Cactus Flower was an automatic out for a different tax year, it makes sense to send each petitioner off on her own, especially since Tax Court can pick up two more filing fees. Hey, those sixty-buck-tickets can sure add up.

So Ch J Iron Fist requires Alesia and Joni to ratify separate petitions (each of which is just a copy of the original amended petition), pay the sixty bucks (separate checks), and file hard copy (not electronic). Ditto for Cactus Flower, bar the sixty bucks, signed by an authorized officer. Their attorney cannot sign any thereof.

He can always move for consolidation. Check out Rule 140.


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

And IRS Watch Your S’s

Ch J L. Paige (“Iron Fist”) Marvel is befuddled by the curious case of Lynette L. Lawrie, Docket No. 16198-15, filed 9/16/16.

First, Lynette sends in what appears to be a petition from a NOD after a CDP. My sharp-eyed readers doubtless noted that the letter “L” does not appear in the caption. There’s no NOD attached either, just “…a letter from Internal Revenue Service (IRS)…, which appeared to have been sent to petitioner in response to a request for 2014 wage and income forms and/or information.” Order, at p. 1.

Now IRS gets into the act.

“Subsequently…, respondent filed an answer to the petition. However, respondent failed to attach thereto any notice of deficiency or determination. Instead respondent merely denied that any notice conferring jurisdiction on the Court was issued…, without otherwise suggesting that any motion or other steps would follow to address the jurisdictional status of this case. Inexplicably, answer also closed with a prayer that ‘respondent’s determination, as set forth in the notice of deficiency, be in all respects approved’.” Order, at p. 1.

So poor Judge Iron Fist is asked to confirm a SNOD, when Lynette asked for review of a NOD, but there’s neither in the record. Because maybe there’s neither in existence.

Not to be outdone, Lynette wants to add an “S” to the caption, ignoring whether an “L” should be added as well.

OK, but Ch J Iron Fist has no idea whether she’s got a SNOD or a NOD, or maybe nothing, to deal with, and, if she has either, whether $50K is involved.

Would IRS please tell her.

And just in case Ch J Iron Fist, an honors graduate of the University of Maryland Law School, partner or shareholder in numerous white-shoe law firms, and member of numerous blue-ribbon panels, hasn’t enough clerical work to do, here’s Jallad Corporation, Docket No. 14097-16S, filed 9/16/16.

The Jallads amended their petition to add the missing “S”, as they want small-claimer treatment. IRS answered, but were a wee bit casual in their response.

Ch J Iron Fist: “…respondent filed an Answer To Amended Petition, in which the caption is incorrect in that the ‘S’ is not included in the docket number for this case. Accordingly, we will strike that document from the record.” Order, at p. 1.

Ch J Iron Fist orders IRS to file an amended answer to the amended petition with the right caption, including without limitation the correct docket number with the capital “S.”

That’ll show ‘em, Judge.