But Doesn’t Avoid a Bawling-Out

That Obliging Jurist, Judge David Gustafson, enters his decision (that’s a judgment for you State-courtiers) in Jeffrey A. Wolf, Docket No. 13980-13L, today, but I want to discuss the opinion he filed yesterday.

It was an off-the-bencher, same docket number. Jeff had run up a bunch of unpaid and unfiled years, plus additions for nonfiling and nonpayment in respect thereof. He filed, IRS assessed, Jeff wanted an IA and IRS sent him a NITL.

“Mr. Wolf’s father died in March 2006. Mr. Wolf contends, and the IRS concedes, that the resulting emotional devastation impeded his ability to timely file his returns and pay his taxes for 2006 and 2007; but that sorrowful event does not explain the earlier and later years.” Order, at p. 4.

Jeff also went down in Our Fair State for tax evasion for some of those years, but Judge Gustafson didn’t go there.

“The Commissioner evoked testimony at trial about this conviction, apparently to explain the decisions and conduct of IRS collection personal before the CDP request and hearing; but since we review only the action of the Office of Appeals in the CDP process, and since Appeals’ determination that we review here makes no mention of the State tax issues, we need not discuss this criminal issue in more detail.” Order, at p. 5.

The SO told Jeff to realize the equity he had in a lot of real estate to get the IA he wanted. And the IRM says so. Jeff still wants the IA, claiming he can’t sell his real estate so fast.

Judge Gustafson administers the bawling-out: “Mr. Wolf’s development of his substantial portfolio was improperly enhanced or facilitated by his non-payment of millions of dollars of Federal income tax liability over seven years. The IRS may well reckon that a taxpayer should not be permitted to default on his tax obligations, tie up in investments the money that should have paid his taxes, and then be entitled to forbearance in collection because the investments are not liquid. We sustain Appeals’ determination to deny the IA.” Order, at p. 18.

Now the IRS transcript here shows an assessment correcting a math error. Did the SO properly consult only the transcript to verify that all the right steps were taken in confirming the NITL? Should the SO maybe have done the numbers herself?

Judge Gustafson has a practice tip: “An argument not advanced by Mr. Wolf is the question of verification under section 6330(c) (3) (A), which in the CDP hearing is an obligation of IRS Appeals without regard to the taxpayer’s raising it. Perhaps in the right case one could contend that Appeals’ consultation of transcripts, without more, constitutes a failure to obtain adequate verification that the requirements of any applicable law and administrative procedure were met, for purposes of section 6330(c) (3) (A), in the case of an assessment arising from the correction of a math error. However, ‘the taxpayer must adequately raise the verification issue in his petition in order for this Court to consider it.’” Order, at pp. 19-20. (Citations omitted).

While I’ve said before that lawyers can’t add, it might be well to get out that dust-covered adding machine that prints out a tape when you scope out the assessment.

For Mary L. Hatcher, it was both. Though the $430K she parted with might have been for love, it wasn’t for business, and it didn’t go south in the right year, so Judge Lauber  dumps her bad debt deduction and NOL carryback in Mary L. Hatcher and Bradley J. Hatcher, 2016 T. C. Memo. 188, filed 10/6/16.

There was a note from her ex-boyfriend, but the parties hardly treated it in a businesslike way. Though they amended the note a couple times (hi, Judge Holmes), the ex never paid more than a tiny fraction of the interest (which Mary never reported), and finally threw in the cliché when he sent Mary an e-mail saying “I have no money.” 2016 T. C. Memo. 188, at p. 6.

Eventually Mary threw the note into her LLC (of which she was sole member and manager, and which she had formed the day before she threw in the note). The LLC did no business, and Judge Lauber concluded it was just window-dressing to try to give a business cover to her business bad debt claim.

Mary wasn’t in the loan business, she hadn’t checked out ex’s ability to pay, creditworthiness, or anything else. And Mary had an MBA in corporate finance (from which school not stated).

Anyway, she sued her ex on the note the year after she claimed it had become worthless, got a judgment the next year and tried post-judgment discovery (what we used to call a supp pro) and negotiations with ex into the year after that. Nobody wastes time and money chasing a worthless debtor, says Judge Lauber.

Judge, I’m going to suggest that it might could be that the heart has its reasons, even when the wallet does not. But that’s not enough to unworthify a note. For tax reasons, anyway.

Brad claimed to be a real estate pro, and he had originated mortgage loans in the past (but not in the year at issue), and his own testimony shows only 450 hours, short of the magic 750.

Mary claims a big NOL based on the worthless note and tries a carryback thereof. This gets her a 20% substantial understatement chop.

“In the case of an NOL carryback, the penalty for negligence applies to any portion of an underpayment for the carryback year that is attributable to negligence in the year in which the NOL arose (loss year).  Sec. 1.6662-3(d)(1), Income Tax Regs.  Similarly, the substantial understatement penalty applies to any portion of an underpayment in the carryback year that is attributable to a ‘tainted item’ in the loss year.  Sec. 1.6662-4(c)(1), Income Tax Regs.  The determination of whether an understatement is ‘substantial’ for a carryback year is made with respect to the return for that year.  Ibid.  A ‘tainted item’ is any item for which there is neither substantial authority nor adequate disclosure with respect to the loss year.  Id. subpara. (3)(i).” 2016 T. C. Memo. 188, at p. 22.

MBA Mary flunks the five-and-ten test (greater of $5K or 10% of tax due) for her NOL because her claimed bad debt is clearly tainted; she prepared her own returns, and the IRS pub she relies on tells her to look at another pub, that she didn’t rely on.

But Brad escapes in part on his real estate; he lost his Sched E $25K substantial participation deduction and got penalized on the SE arising therefrom only because of Mary’s bad debt shenanigans. So Brad’s deduction gets saved from the 20% understatement chop.

Following up on my earlier blogpost, I find this news clipping.

http://www.msn.com/en-us/money/companies/fake-call-centers-in-india-scam-americans-of-millions/ar-BBx4xsM?li=BBnb7Kz&ocid=mailsignout

It was going on for at least a year. Doubtless there are others, and soon will be more.

Like the heroine of the 2005 Bowling for Soup classic, Lane Alan Montz, Docket No. 23537-15S, filed 10/5/15, went to make a deposit. But he was in Ohio already, and wanted trial in Cleveland.

Even though “there’s nothing wrong with Ohio,” IRS wants to toss Lane Alan, because prior to the SNOD from which he petitions, he sent IRS a remittance, together with a letter saying he’s paying  “[i]n order to stop interest, ameliorate any penalties and show good faith…. This does not mean I am agreeing or will agree to any deficiency assessment but rather is to stop interest, etc. while we sort this out.” Order, at p. 1.

IRS says SNOD invalid because Lane Alan paid the deficiency. And it’s a payment not a deposit, because Lane Alan didn’t follow Rev. Proc. 2005-18, 2005-1 C.B. 798, and didn’t properly designate the remittance as a deposit.

The Judge With a Heart, STJ Armen, is once again too douce to give IRS a Taishoff “Oh, Please!”

Instead, he gets all legalistic. “Rev. Proc. 2005-18, 2005-1 C.B. 798, provides guidance in determining whether a remittance is considered a payment or a deposit. According to Rev. Proc. 2005-18, sec. 4.01(1), 2005-1 C.B. at 799, the taxpayer may make a deposit by remitting to the IRS a check or money order, accompanied by a written statement designating the remittance as a deposit. However, if the remittance is undesignated, i.e., is not designated as a deposit, other facts and circumstances help determine whether it is a payment or a deposit. Rev. Proc. 2005-18, secs. 4.01(2), 4.03, 4.04, 2005-1 C.B. at 799-800.” Order, at p. 3.

Well, Lane Alan’s billet doux certainly fits the “written statement designating the remittance as a deposit.”

So I’ll give IRS a Taishoff “Oh, Please, First Class.”

Y’all remember Diebold and Salus Mundi, the two leading trans-fat cats of the Section 6901 herd. I blogged the remand from Second and Ninth Circuits in passing (see my blogpost ‘Twice Burned,” 8/15/16), as I expected the trade press and blogosphere to be all over Judge Goeke’s August memo following the reverse-and-remand.

Maybe I missed the chatter, but this eight-year-old case isn’t over yet.

Instead of the Rule 155 beancount Judge Goeke ordered, Salus Mundi moves to dismiss for want of jurisdiction.

Huh?

Eight (count ‘em, eight) years ago next Sunday, SM filed its petition. While the SOL was on the table in both the reversed-and-remanded opinion and in this August’s follow-up, that’s an affirmative defense, right? It’s not a jurisdictional issue.

Unhappily, today’s order, Docket No. 24741-08, filed 10/5/16, only tells IRS to respond. I’d really like to know to what.

If there’s no jurisdiction, how is it that Tax Court (twice), Second Circuit and Ninth Circuit didn’t notice? And how come SM didn’t notice for eight years?

No, this is not about yellow buses and bulging backpacks. Judge Wells has a lesson for The American College of Tax Counsel (to which august body I do not belong), as they try to file amicus in John Finnegan & Joan Finnegan, Docket No. 8637-13, filed 10/4/16.

You remember John & Joan, of course. No? Then check out my blogposts “SOL On SOL? – Part Deux,” 7/24/16, and “The Fraudster’s Toolbox,” 6/17/16. Now that you’re off the “on” ramp and accelerating, John & Joan want Rule 161 reconsideration, and the American Collegiates are trying to get in to help.

But it’s a nonstarter.

John & Joan, and I presume the Collegiates, claim that BASR P’ship was a change in law that triggered a different result. Except IRS raised it first on post-trial brief and distinguished it, and John & Joan never appealed the decision. Moreover, John & Joan could have argued that the law was wrong, and made a good faith argument based on the USCFC case, which CCAFC affirmed. Except they didn’t.

And CCAFC wasn’t unanimous in its holding, with a concurrence and one affirmance, and a dissent, in a three-judge panel.  Besides, John & Joan aren’t Golsenized to CCAFC, so that decision doesn’t bind Tax Court anyhow, as the appeal was taken from USCFC.

In short, if the preparer committed fraud, the taxpayer is stuck.

Takeaway—Taxpayer, choose your preparer and trial counsel carefully.

Footnote- For more hints from the fraudster’s toolbox, see 2016 T. C. Memo. 185, filed 10/4/16, as Dr. Ramon Reynoso shows how to do it. But don’t try this at home (or anywhere else).

I’ve upended trillions of electrons on the history of Guidant LLC f.k.a. Guidant Corporation, and Subsidiaries, et al., Docket No. 5989-11, filed 10/3/16.

But I think I have to echo the words of Ian Tyson’s all-time greatest Canadian song: “But our good times are all gone/And I’m bound for movin’ on.”

After the drubbing Guidant’s hearty competitor Medtronic gave the IRS back in June, IRS and Guidant join in taking the case off the trial calendar.

For the drubbing, see my blogpost “This Is a Memo?” 6/10/16.

For the take-off, see the order above-cited.

This one settles, guys. IRS isn’t going to lose another big one. Publicly, that is.

Joining me in this thought is a certain principal in a major accounting firm, who took time from her very busy day to say “hi” to this old blogger, for which he is enormously grateful.

Flying out of the starting gate like a six-furlong stakes race, the IRS scammers jumped aboard John (“Kosy“) Koskinen’s recently-announced recruitment of publicans and sinners, as a much more exalted author than I put it.

See my blog post “Tax Collectors,” 9/30/16.

Incredibly, I, even I, got a robocall this morning from some dude calling himself “Kevin Mason,” whose accent one could cut with a blunt butterknife, threatening me with fire and slaughter from “US Treasury” if I ignored his call.

Not every one of “Kevin Mason’s” marks is an attorney and EA.

So John, as I said in my abovecited blogpost, y’all have a lot of ‘splainin’ to do.

Krishnaiah Janumpalli, Docket No. 31879-15SL, filed 10/3/16, wants to try to use some past losses to offset his unpaid, self-assessed tax. The Judge With a Heart, STJ Armen, can’t help him, and IRS gets summary J.

Kris got a NITL, fires off a 12153, saying he can’t pay and wants an OIC. The SO tells him to provide 433-A and 656 with $186 and first payment. He doesn’t, but sends in a 1040X, claiming his past losses offset current tax.

IRS sends him a SNOD. Kris petitions but doesn’t pay the sixty bucks (or ask for a waiver). So he gets tossed.

Kris appoints Jon as his POA. Judge Armen, as do many of his judicial colleagues, conflates a piece of paper with a human being (a human being is known as a “representative” per Form 2848, or as an “agent” under our State’s General Obligations Law, but you could also call Jon an “attorney in fact” and that would do as well; what he isn’t is a “power of attorney”). Once again, a power of attorney is a piece of paper.

If someone has a “power of appointment” in an estate tax case, do you call that person a “power of appointment”?

Well, that never stopped a judge yet.

“…, respondent’s SO contacted petitioner’s POA stating that the assessment…had posted and offered the option of an installment agreement.

“… petitioner’s POA faxed a Form 433-D, Installment Agreement, to respondent’s SO. Petitioner subsequently contacted respondent’s SO informing her that: (1) his POA was mistaken and that he did not want to enter into an installment agreement; and (2) he disputed the underlying liability.

“…petitioner’s POA left a message for respondent’s SO informing her that petitioner decided to file for audit reconsideration.” Order, at p. 3.

The SO confirms the NITL, and Kris petitions.

Kris wants to fight about his underlying liability, but he blew that when he didn’t pay the sixty bucks (or seek a waiver). And he didn’t give the SO the 433-A or the 656 or the $186 or the first payment.

“Here petitioner failed to provide a completed Form 433-A or Form 656. Furthermore, petitioner explicitly told respondent’s SO that he did not want to enter into an installment agreement. Under these circumstances it would not be an abuse of discretion to deny petitioner a collection alternative.” Order, at p. 4.

And audit reconsideration is as administrative matter within IRS, as to which Tax Court has no jurisdiction.

BTW, Kris, “Also, merely as an observation, the Court notes that in the case of an individual sec. 1211(b) generally limits the allowance of a capital loss to $3,000 per year.” Order, at p. 4, footnote 2.

Net operating losses are another story, Kris, but this is a nonpolitical blog. Therefore this will be the only tax blog not commenting upon the tax posture of a certain candidate for public office.