Archive for December, 2016|Monthly archive page


In Uncategorized on 12/23/2016 at 14:29

I’m going to need a lot of runway to deal with the density altitude here, so the following is all subject to connection with Tax Court.

When the subprime mortgage debacle ceased to be “contained,” as a well-known financial expert put it, the cascading home mortgage foreclosure clouds opened, and pleadings rained from the skies.

Many of these mortgages were allegedly held by an electronic nominee, to avoid recording chains of mortgage assignments (and paying fees to local governments). It also kept the true holders well-shielded, as the mortgages were combined into syndicated portfolios, of which pieces were dumped on the fixed-income market.

Needless to say, accurate document preparation was the first casualty.

We then saw the flurry of “robosigners,” junior clerks given titles above their pay grades who signed affidavits and pleadings at the rate of ten a minute, with flailing notaries at their elbows stamping their nights away. None had any idea what they were signing or to what they were swearing.

When the defendants’ bar and the pro bono wolfpack descended and did the first depositions, the game was blown sky-high.

OK, here’s the connection. It’s that obliging jurist Judge David Gustafson, and he’s dealing with the Boss Hoss Section 6751 kerfuffle in Dean Matthew Vigon, Docket No. 28788-14L, filed 12/23/16, a designated hitter that’s a real holiday gift to a blogger.

IRS claims Dean is a frivolity merchant, and whacks him with nine (count ’em, nine) $5K Section 6702 frivolous return chops.

IRS has problems producing returns in question for their motion for summary J.  First they claim no returns were amended returns, although three were checked as amended returns. Next, they have only photocopies of parts of returns, some unsigned ones, and one faxed version.

But that’s not all.

Back in April, when he first got wind that IRS would go for summary J, Judge Gustafson told IRS to verify that it had gotten the Section 6751 Boss Hoss signoff before whacking Dean as aforesaid. IRS asked for a remand and Judge Gustafson, obliging as always, said OK. Counsel told Appeals to make sure that the supplemental NOD named both decider and Boss Hoss.

“In apparent response to this instruction, the Appeals settlement officer noted in her case activity report (Ex. X, p. 112) that the two Forms 8278 showing approval for 2007 were ‘signed’, but one with an ‘illegible signature’. For all of the 2008 and 2009 Forms 8278, the settlement officer noted: ‘Automated signed by auto signature’. The purported signatures that appear on the Forms 8278 do appear to be facsimile signatures.

“The Commissioner’s motion for summary judgment asserts that ‘before each of the I.R.C. section 6702 penalties was assessed, an immediate supervisor of the individual making the determination to assess the penalty approved that determination in writing’. The Forms 8278 do name an ‘Originator’ on line 10a and a ‘Reviewer’ on line 16. However, not in keeping with the remand memorandum, neither the motion nor any of its attachments (as far as we can tell) identify the person approving the penalty determination as being in fact the immediate supervisor of the individual making the initial determination of the penalty. (Rather, in an email to counsel (Ex. V), the settlement officer observed, ‘[T]he form 8278 shows a “Reviewer” signature which everyone seems to constitute as a manager signature but it would be better presented in a court situation if the form was changed to notate Manager or Supervisor as the actual person signing the form.’)” Order, at pp. 2-3. (Emphasis in original).

But Section 6751 calls for “immediate supervisor.” And exactly who this “Reviewer” might be is nowhere stated.

Nor whether there’s a difference for Section 6702 purposes if a return is original or amended. IRS counsel seems to think there is.

IRS’ summary J motion tanks. Trial in February.

Jersey Boys, this is my Christmas present to you. Please copy and enjoy.

Thanks, Judge, Merry Christmas to you and the whole corps de ballet at 400 Second Street, NW.

And best holiday wishes to all my readers.



In Uncategorized on 12/22/2016 at 18:13

What happens when Congress tells Treasury to make regulations, and Treasury doesn’t? What happens when Congress suggests Treasury make regulations, but Treasury doesn’t?

And specifically, what does Tax Court do when confronted with one or the other?

Well, here’s 15 West 17th Street LLC, Isaac Mishan, Tax Matters Partner, 147 T. C. 19, filed 12/22/16. And Judge Lauber is eager to tell us.

The Jersey Boys are at it again, fighting for 17th Street Band. And they’ve started a real Tax Court slugfest, with Judge Lauber dukeing it out with Judge Foley in one dissent and the obliging jurist Judge David Gustafson in another.

The Great Dissenter concurs, and, as is his wont, stirs the silt by threatening to bring the fight up again if ever it comes before him.

The Gordian knot is Section 170(f)(8)(D), where maybe so the donee of a charitable gift can provide substantiation of the gift otherwise than by the three part contemporaneous written acknowledgment we all know and loathe, “if the donee organization files a return, on such form and in accordance with such regulations as the Secretary may prescribe.”

Well, the 17th Street Band bought an old building and was going to demolish, when the Landmarkers came storming in and put paid to that. Enter our old chum the Trust for Architectural Easements, ex-National Architectural Trust.

You can guess the rest. But candor compels me to tell you.

The 17th Street Band gave an easement to the Trust.

“…the Trust sent the LLC a letter acknowledging receipt of the easement.  This letter did not state whether the Trust had provided any goods or services to the LLC, or whether the Trust had otherwise given the LLC anything of value, in exchange for the easement.

“The LLC secured an appraisal concluding that…the property had a fair market value of $69,230,000 before placement of the easement. The appraisal thus opined that the property–acquired for $10 million in September, 2005–had risen in value by almost 600% in 2-1/2 years.  Opining that the property was worth only $4,740,000 after the donation, the appraisal concluded that the easement had reduced the property’s value by $64,490,000.” 147 T. C. 19, at p. 6.

Take that, Landmarkers!

When the Trust filed its next Form 990 (the 501(c)(3) tell-all), it never mentioned the gift. But IRS did, and handed the 17th Street Band a FPAA.

Only three years after that, and seven years after the return for the year at issue, the Trust amends its 990 for the year at issue to show said gift, and the 17th Street Band claims that cures the contemporaneous written acknowledgment problem.

That earns them a Taishoff “Good Try, First Class.”

Unfortunately, Judge Lauber, ably assisted by Judges Gale, Thornton, Goeke, Holmes, Kerrigan, Buch, Nega, and Ashford, with Ch J Iron Fist and Pugh concurring in result only, gives the Band “yer out!”

While Treasury can’t nullify an act of Congress by doing nothing, the Courts must tread warily. The Courts can’t write regs when the executive agency charged with doing so didn’t; neither can the Court rewrite the enacted statute to suit themselves.

So there grew out of agency inaction (willful or distracted) two classes of statutes: self-executing and not.

When the statutes were deemed taxpayer-friendly, or where Congress said “may” but not “shall”, the Judges stretched the point for the taxpayer. But where Congress needed to plug gaps, and agency input was the method, the Courts would not tread.

The whole idea started with having the charitables collect info (name, rank and serial number) from the donors and report this to IRS, like son-of-1099. The small charitables screamed this would kill their contributions, and the donors screamed that this would open the door to identity theft, as many small charitables are ill-equipped to handle data security.

Judge Lauber writes a law review article on the history of the reporting scheme, which Judge Foley blows off as follows: “In a valiant attempt to legitimize a holding not supported by the statute, the majority is compelled to rely on regulatory history relating to regulations that were never promulgated and legislative history (i.e., pledges from Treasury officials who served in a previous Administration, a hearing statement from a congressman who retired before section 170(f)(8)(D) was enacted, etc.) relating to a bill vetoed during a previous Congress.” 147 T. C. 19, at  p. 60.

Judge Foley says the statute’s clear enough. File the form and you’re done. Or even amend the form seven years later and you’re done.

Judge Gustafson says the statute is crystalline. There is a form and there are regulations…the 990 and 1.6033-2, which covers the waterfront by requiring the charitable to give names and addresses (but not SSANs, TINs or ITINs) of everyone who gives more than $5K.

Besides, the contemporaneous written acknowledgement need not be signed, and need not even identify an authorized acknowledger. But failure to comply with any of the three (3) requirements torpedoes an otherwise valid gift. Letting the charitable remedy the defect with an amended 990 saves the day.

And the contemporaneous written acknowledgment is not rendered surplusage by this approach.

“This alternative substantiation must be made on the Form 990 return (not a mere receipt) and thus is potentially subject to civil penalties under section 6701 and, since the return is signed ‘[u]nder penalties of perjury’, the criminal penalties of section 7206(1) as well.  In addition, an organization that decided not to issue receipts would surely disappoint and confuse its donors–not a good thing for an organization that depends on donations.  It would therefore seem unlikely that an organization would elect not to issue receipts but instead to report its contributions on its return.” 147 T. C. 19, at p. 66, footnote 4.

I’ll bet this is going up on appeal to Second Circuit, but the tough part is the seven-year gap between 990 1 and 990 2.

If this weren’t one of those overblown façade farragoes, The Jersey Boys would stand a better chance.


In Uncategorized on 12/22/2016 at 16:40

Judge Posner of USCA 7 is a tough critic of Tax Court. All y’all (I’m going to Houston next week, so I’m warming up) will remember the drubbing he gave poor Judge Wherry for wisecracking.

If not, see my blogpost “There Goes the Neighborhood,” 9/3/13.

But Judge Ruwe is a diligent student of Judge Posner’s prose, and quotes him in Cecilia M. Hylton, 2016 T. C. Memo. 234, filed 12/22/16.

Cecilia is another horse fancier, and Judge Ruwe has 38 pages of her horsey lore. And Cecilia even outdoes the inventive counsel for Raymond Price, III. Counsel asserted “… the receipt of cooled stallion semen at the Honda dealership as evidence that a horse activity is conducted at that dealership.” See my blogpost “More Horseplay,” 12/16/14.

On her way to losing $17 million on her horse operation while earning $89 million from her father’s real estate business, Cecilia shows her dedication to her deceased world champion stallion Flashy Zipper by having  “…a veterinarian remove his testicles and ship them to Colorado State University to harvest and freeze his semen.” 2016 T. C. Memo. 234, at pp. 12-13.

By now you’ve sussed out that this is another Section 183 hobbyhorse.

Judge Ruwe goes through the nine-part checklist, which Judge Posner calls “a goofy regulation,” namely, Reg. 1.183-2.

Finally,  Judge Ruwe breaks down and quotes Judge Posner.

“…the Tax Court would be better off if rather than wading through the nine factors it said simply that a business that is in an industry known to attract hobbyists (and horse racing is that business par excellence), and that loses large sums of money year after year that the owner of the business deducts from a very large income that he derives from other (and genuine) businesses or from trusts or other conventional sources of income, is presumptively a hobby, though before deciding for sure the court must listen to the owner’s protestations of business motive.” 2016 T. C. Memo. 234, at p. 31, footnote 11.

This tired-out old-time single-shingle lawyer-blogger couldn’t agree more, Judge Posner!

And the case Judge Ruwe refers to is Roberts v. Com’r, 820 F. 3d 247, at p. 254, reversing Judge Paris in part.

Tax Court just can’t catch a break when Judge Posner is on the case.


In Uncategorized on 12/21/2016 at 15:30

Once again, this is a non-political blog, so the title hereof has nothing to do with a certain Cabinet Secretary-designate. Rather, it concerns some documents disclosed in an ongoing discovery melee that petitioner claims were privileged when revealed by IRS, but privilege was later waived, and IRS claims their experts didn’t rely on the documents in their reports, and anyway petitioners’ main objection was relevance, and that’s admissibility, not confidentiality.

Judge Buch has the Beekman Vista – Dynamo Holdings dynamic duo, in Dynamo Holdings Limited Partnership, Dynamo, GP, Inc., Tax Matters Partner, et al., Docket No. 8393-12, filed 12/21/16.

The duo want IRS’s experts precluded. No, says Judge Buch, in a designated hitter.

Eleven documents from the “Quick Peek” and predictive coding muddle slipped through the cracks and IRS’ experts got a look.

The duo want preclusion of reports and experts. IRS says the punishment is excessive.

Judge Buch engages in the usual “somber reasoning and copious citation of precedent.”

And in the end, the sanction must be proportionate to the offense.

“Striking or excluding respondent’s experts is not warranted. Petitioners strain to identify any harm they suffered. The only harm they claim to have suffered is an effect on their ability to cross-examine the experts, but even that description is vague and unconvincing. This is particularly true when privilege claims as to most of the documents were withdrawn; the claimed reason for the clawback of most of the documents was a lack of relevance. It is unclear how the production of irrelevant documents to respondent’s experts could adversely affect the cross-examination of those experts. Any exploration of the extent to which the experts might have considered the improperly produced documents can be (or could have been) explored during the depositions of the experts. And, if necessary, the Court can give latitude to petitioners when cross-examining experts during trial. In short, it is not clear that any harm has been suffered by petitioners, and to the extent they may have been harmed, the remedy sought is grossly out of proportion to the hypothetical harm they might have suffered.” Order, at p. 7. (Footnote omitted, but read it; IRS’ counsel promptly gave notice to the duo and destroyed the documents).

But the duo claim that if the Court doesn’t slam such conduct, who will comply with discovery orders? And that goes to the integrity of the whole process.

True, says Judge Buch. It’s not only the duo, but the system that needs protection.


“When a party fails to comply with the Court’s orders, the integrity of the judicial system is implicated even when the opposing party is not prejudiced by the conduct. The Court expects parties and their counsel to abide by its orders. When a party fails to abide by the Court’s orders, several questions arise. Did the party violate the order intentionally or mistakenly? If mistakenly, was the party careless or reckless? And is there a pattern of noncompliance beyond the specific case in which the current violation occurred? These types of questions relate to how serious the party is about complying with the Court’s orders. And they relate to the professional responsibility of the lawyers involved, either in their own actions or in their supervision of staff working for them. Troubling answers to these questions might justify the Court imposing a sanction on a party or on a specific counsel appearing on behalf of a party.” Order, at pp. 7-8.

But IRS played fair, and there’s no showing a pattern of noncompliance.

So no sanctions.


In Uncategorized on 12/20/2016 at 16:59

No, not the Kenny Rodgers – Don Schlitz cult classic. Neither is this a tale of taxes.

Rather, this is a tip of the battered Stetson to a well-known law firm that does more than litigate tax cases, herein and elsewhere referred to as The Jersey Boys.

A well-known professional gambler sought to break the bank, rather like “Bond…James Bond” in the 1963 spy classic, at a major casino.

He didn’t break the bank, but he broke the rules, and The Jersey Boys nailed him for $10 million-plus.

Here’s their story:

“On December 15, 2016, Agostino & Associates was successful in obtaining a judgment in favor of Borgata Hotel Casino & Spa against professional gambler Phil Ivey for $10.1 million. The case involved the use of marked cards at the game of Baccarat in a unique scheme known as “edge  sorting.” Because of the parties involved, the case garnered much national attention from its inception. Jeremy Klausner handled the case for the firm in the United States District Court for the District of New Jersey.”

If you check the details as more particularly bounded and described in the media, “edge sorting” involves memorizing the backs of cards. There was a short story from the 1920s involving a similar situation, called “Fallen Angels” as the backs of the cards in question showed pictures of angels (artfully marked).

Nothing new under the sun.


In Uncategorized on 12/20/2016 at 16:05

And move to reconsider if you blew it.

Judge David Gustafson outdoes even himself today in a designated off-the-bencher. Renee Sunyoung Lim, Docket No. 15130-15, filed 12/20/16.

Doc Renee is a dentist with unreported income from her Sub S (conceded), and a dubious capital loss on her rental condominium.  The sales price exceeds the purchase price, but Doc Renee claims a lot of improvements, which maybe she paid for when she mortgaged out a couple times (hi, Judge Holmes), but she isn’t sure on the stand and produces no paper.

Worse, her long-time preparer filed late for her and other clients of his during the year before the year at issue, claiming he got divorced.

However, he had some excuses (please do not try these on your clients).

“He mitigated his fault to Dr. Lim and minimized the value of filing returns on time, explaining to her that if you file your return late, the IRS is less likely to audit you–a rumor she said she had also heard from some of her acquaintances.” Order, at p. 5.

Apparently the other clients canned the dude, but Doc Renee stuck with him.

She handed over her financial info and told preparer to do his thing.

“He told her he would file it electronically. Mr. A did not file a [year at issue] return for Dr. Lim, and Dr. Lim then began to get letters from the IRS inquiring about her [year at issue] return. Dr. Lim  testified that she asked Mr. A what was going on. We accept that she did contact Mr. A, but her testimony as to the details of their conversation–i.e., that he assured her that the return had been filed, that he told her that the IRS often loses returns, and that when she asked him for a copy of her return, he said he could not give it to her because it had been filed electronically–are not credible to us, and we are unable to find the precise facts of that conversation.” Order, at p. 6. (Name omitted).

Definitely don’t try these excuses on your clients.

However, 25 months late, what purports to be a return, filed on paper and not electronically, bearing the paid preparer signature of a colleague of Mr A’s, and maybe the signature of Doc Renee (or maybe not), gets to IRS.

Doc Renee is fighting the disallowance of the Schedule E loss shown on that return. Doc Renee did a stip with IRS, and never contended the return wasn’t hers.

Doc Renee stalls around, but finally Judge Gustafson has had enough and Doc Renee’s testimony is insufficient.

But she might have papers. She relegated the entire pre-trial prep to Mr. A, claiming she only found him unreliable after months of ignoring IRS’ counsel’s communications and passing them on to Mr A unread.

OK, says Judge Gustafson, here’s a hint.

“It is also true that we denied petitioner’s counsel’s motion during closing argument to reopen the record to admit additional evidence. However, the additional evidence was not in the courtroom but was anticipated testimony of Mr. A. This motion was in effect simply another request for a continuance. We denied that motion. (However, we did so without prejudice to a timely motion (see Rule 161) to reconsider this opinion, reopen the record, and allow into evidence actual documents proffered with the motion. We do not say we would grant such a motion; instead, we would consider its merits at the time; but if Dr. Lim’s position is that with a little more time she could have carried her burden of proof, then she has one last chance to demonstrate that with a presentation of the actual proof.)” Order, at pp. 12-13.

Y’wanna draft the motion papers for them, Judge?

But as the dawn patrolling telepitchers say, “Wait! There’s more.”

If there’s a Rule 161 motion to reconsider, IRS gets a bonus.

“Here the parties seem to agree that petitioner acquired her condo for about $368,000 and that she sold it for $490,000. Without more, those figures yield not a loss of $205,053 (as Dr. Lim’s return reported) but a gain of at least $122,000. Of course, that result could be affected by proving that one could add, to the cost of initially acquiring the condo, subsequent capital costs for improvements. But Dr. Lim failed to so prove. Respondent did not plead the greater deficiency that would result from determining gain on the sale, but rather simply defended the NOD’s disallowance of the loss. We sustain that disallowance.” Order, at p. 13. (Emphasis by the Court.)

If there’s reconsideration, shouldn’t IRS get to put in the greater deficiency (with burden of proof)?

Finally, there’s the dubious tax return. Doc Renee has none of the Section 6664 ducks for the chops. But Judge Gustafson has one…definitely maybe.

“During closing argument after trial, we raised with respondent the question whether, if Dr. Lim did not sign the return, then perhaps it might not have been her return; and section 6664(b) provides that the accuracy-related penalty applies ‘only in cases where a return of tax is filed’. However, neither Dr. Lim nor her counsel initiated argument on that issue nor took it up after the Court raised it. Moreover, while it is true that a return not signed by the taxpayer is not valid, see Mohamed v. Commissioner, T.C. Memo. 2013-255, it is also true that in some circumstances (such as a joint return) a taxpayer may file a return by ‘tacit consent’, see Reifler v. Commissioner, T.C. Memo. 2015-199, part II.C, or may ratify an unsigned return, see Harris v. Commissioner, T.C. Memo. 2009-26, n.3; and it is also true that a taxpayer like Dr. Lim might be equitably estopped from making a contention, see Reifler v. Commissioner, T.C. Memo. 2013-258, that contradicted her prior behavior and the positions she took.“ Order, at p. 16.

Fascinating, but it avails Doc Renee not.

“In any event, respondent was genuinely surprised by the Court’s raising this issue; and if after trial petitioner had moved for leave to amend her petition to state as a defense to penalty that she had not signed the return, then the motion would have been denied as unfairly prejudicial to respondent. We therefore do not consider that issue now.”  Order, at pp. 16-17.

Surprised? I wouldn’t have been surprised if counsel said “Whiskey Tango Foxtrot! She was fighting a disallowed loss on the return. If it wasn’t her return, why was she fighting the disallowance?”

And Judge, please oblige me by calling a Statutory Notice of Deficiency a “SNOD,” and a Notice of Determination (whether CDP, 501(c)(3), SS-8, or whistleblower) a “NOD.” Makes it clearer. Thanks.


In Uncategorized on 12/20/2016 at 14:21

Or, “Tell The Judge I’m Busy – Twice”

Apparently partner other than tax matters partner Bruce Eileff doesn’t read my blog, but I don’t feel like the Lone Ranger, because he apparently doesn’t read Judge Chiechi’s orders, either.

For the backstory on Bruce and his counsel, see my blogpost “Tell The Judge I’m Busy,”11/15/16.

Well, did Bruce and counsel bestir themselves, do the numbers, and hand in the result of their lucubrations at their Rule 155 beancount?

Negatory, good buddy.

Here’s Judge Chiechi, patient as Job, although her patience is wearing a wee bit thin. The case is still Taishan Investments, LLC, Bruce Elieff, Partner Other Than The Tax Matters Partner, Docket No. 8404-13, filed 12/20/16.

The parties report their status, in part, thus:

“5. Petitioner Elieff informed his counsel today that he has been tied up with three arbitrations in the past month and will start reviewing the proposed closing agreement this week.

“6. Petitioner’s counsel contacted Petitioner Elieff’s CPA on December 16, and December 19, 2016. The CPA estimates that he will probably finish reviewing the closing agreement by this week, and he will be on vacation next week.

“7. The CPA expects to work with Respondent when he returns to work to review the numbers in the closing agreement.

“8. Petitioner’s counsel expects that the review of the closing agreement can be finished sometime in late January, 2017, absent any disagreements on the terms.” Order, at p. 1.

“It appears to the Court that neither petitioner or petitioner’s counsel places a priority on finalizing the closing agreement. As far as the Court is concerned, petitioner should have spent his time reviewing the closing agreement sent to him, instead of spending his time on three arbitrations. Moreover, the Court does not understand why it will take almost a month for the CPA, petitioner, and respondent’s counsel to verify the computations relating to the closing agreement.” Order, at pp. 1-2..

Now as for the CPA going on vacation, I don’t fault him/her, as shortly I will be going on an extended vacation. I’ve thoroughly cleared my desk in anticipation thereof, and propose to be incommunicado for a couple weeks (hi, Judge Holmes, I’m going to miss your colloquialisms).

But as for Bruce and counsel, it would behoove them to put the pedal to the cliché.

Judge Chiechi wants a status report a week from today in her hands, and the latest excuses don’t cut it.

“…petitioner’s counsel shall explain in detail why the closing agreement will not be finalized before the end of January 2017. In this connection, the Court will not accept as good cause the reasons set forth in the joint status report that the parties filed….” Order, at p. 2.


In Uncategorized on 12/20/2016 at 13:49

Lest anyone mistake my view, I firmly believe in continuing professional education. I want to learn something of use, both professionally and personally, every day; I hope that in some cases my readers will take the will for the deed.

Howbeit, as this year draws to its cliché, I am bombarded by pitches from alleged CPE providers, intimating dire consequences if I don’t cough up.

I sent off an e-mail to Office of Enrollment to request clarification, after trying their phone number, which is useless.

I would make a political remark about IRS funding, but this is a non-political blog; there are enough toxic waste sites, and I am sure there will be a lot more without any additions from me.

How much of the stuff the CPE-floggers put out is of use? A few are valuable; without naming names, education tax credits and tax issues in divorce have helped. But the tenth course in “choosing an entity for the small business” is neither instructive nor amusing.

But obviously there’s money in it. Hence the title of this rant.


In Uncategorized on 12/19/2016 at 18:27

Getting it wrong is bad enough, when you can correct it. But when you can’t, things get much worse.

Suzanne D. Oster Ozimkoski, 2016 T. C. Memo. 228, filed 12/19/16, lets Judge Paris show us how bad it can get.

Suzanne’s husband dies, leaving an IRA with $235K in it. Suzanne is ex’r and beneficiary named in simple will done by a “small, local ‘full service law firm.’” (2016 T. C. Memo. 228, at p. 3, footnote 4).

I’m sure my ultra-sophisticated readers have just asked “and who was the beneficiary of the IRA?” We all know that wills can’t change IRA beneficiaries.

Well, Suzanne isn’t. So when a fracas arises between Suzanne and Junior (son of deceased spouse), trustee freezes the IRA, until the litigation is settled. Then trustee rolls IRA over to Suzanne, who draws down to pay Junior the settlement (cash plus a Harley), and draws again for herself.

Judge Paris finds under FL law that, where there is no beneficiary, or where the estate is the beneficiary, the IRA goes to the estate. Trustee had no basis for freezing the IRA, which should have gone to the ex’r. Especially since trustee couldn’t find the beneficiary designation.

The trustee (Wells Fargo’s predecessor Wachovia) had other problems, but we’ll skip those.

Since apparently spouse died before distributions were required to be taken, IRA must be distributed within five years to estate, as there is no beneficiary. As surviving spouse Suzanne wasn’t named beneficiary, distributions are taxable.

And the 10% thingy is on the table as well, Suzanne being under 59-1/2 years of age at the time.

“Under Florida law Wachovia should have distributed the IRA assets to Mr. Ozimkoski, Sr.’s estate because either it was named as the beneficiary or there was no named beneficiary and because the settlement agreement makes no direction as to the disposition of the IRA.  Although the Court finds that Wachovia incorrectly rolled over Mr. Ozimkoski, Sr.’s IRA to petitioner’s IRA, the Court has no jurisdiction to unwind that transaction and must decide petitioner’s tax liability on the basis of Wachovia’s erroneous transfer of Mr. Ozimkoski, Sr.’s IRA assets to her IRA and the subsequent distributions from her IRA.” 2016 T. C. Memo. 228, at pp. 11-12.

It’s real bad for Suzanne, but for the “small, local full service law firm,” supra, it gets worse. The attorney knew there would be taxes to pay. “Wachovia’s employee journal notes state that petitioner’s probate attorney understood that someone would have to pay income tax on the $110,000 allocated to Mr. Ozimkoski, Jr., under the terms of the settlement agreement. “ 2016 T. C. Memo. 228, at p. 12 (Footnote omitted, but Judge Paris says it’s unclear if the attorney included the estate as being liable.)

“It is unclear from the record before the Court how petitioner’s probate attorney counseled her to comply with the payment obligation under the settlement agreement–as the personal representative of Mr. Ozimkoski, Sr.’s estate, as an IRA beneficiary, or as a surviving spouse.  What is clear from the record before the Court is that petitioner’s probate attorney failed to counsel her on the full tax ramifications of paying Mr. Ozimkoski, Jr., $110,000 from her own IRA.  While the Court is sympathetic to petitioner’s argument, the distributions she received were from her own IRA and therefore are considered taxable income to her….” 228 T. C. Memo. 228, at pp. 13-14. (Footnote omitted, but all Suzanne was arguing about was the $110K to Junior, so she waived the draws she took for herself.)

Maybe she wouldn’t have been better off if the estate paid the $110K and the tax, but for the passage of time.

Suzanne beats the 20% accuracy penalty on the tax on the $110K because she had limited education and relied on Wachovia and her lawyer. Her own draws are her problem.

But the takeaway is essential: make sure there’s a named beneficiary for every IRA and update it. And watch rollovers and distributions. Really carefully.


In Uncategorized on 12/19/2016 at 17:10


This is a sad story. A partnership made money and this partner had a distributive share. But rather than take it and pay tax, he chose to let the partnership use the money to pay expenses. He claimed NY partnership law required him as a fiduciary to advance the interests of his fellow partners and not abandon them.

His tax advisers told him that, although unfair, he owed the tax. He said he was prepared to face the consequences.

Judge Gustafson can’t oblige as to letting him off the tax, but can oblige by letting him face the consequences.

He owes the tax and the five-and-ten chop. The capital contribution to the partnership adds to his basis, but isn’t deductible.

His attempt to shield his spouse is not on the table, as it’s for her to file innocent spousery.

Curious why, if the partnership was in such dire straits, he didn’t get his share of offsetting deductions. But there’s a Section 155 beancount to follow, so maybe there’s a silver lining.

And maybe if the partnership goes under he has a capital loss.

The case is Walter S. Mack, Jr. and Consuelo C. Mack, 2016 T. C. Memo. 229, filed 12/19/16.