Archive for January, 2017|Monthly archive page


In Uncategorized on 01/10/2017 at 19:07

You Know the Rest

New Millennium Trading, LLC, AJF-1, LLC, Tax Matters Partner, 2017 T. C. Memo. 9, filed 1/10/17, is another blown-up Bialystok, Son-of-Boss variation.

We have BDO Seidman’s Tax Solutions dodgefloggers, a cameo appearance by Jenkens & Gilchrest, and an inventive CPA-turned-hedge fund manager whom I’ll call Bergie.

It’s the old Section 752 unrecognized liability (gain) meets recognized loss. Bergie is the guiding light of the enterprise, with total hands-on control over the deal.

If you’re interested in the details of a blown-up Bialystok that’s been on IRS’ Ten Worst for many years, read Judge Goeke’s surgical dissection.

New Millennium Trading was a sham.

I’m going to focus on the 40% substantial undervaluation chop.

But first, “When a partnership is disregarded for tax purposes, the rules of subchapter K of chapter 1 of the Code no longer apply, and the partnership’s activities will be deemed to have been engaged by one or more of its purported partners. A disregarded partnership has no identity separate from its owners, and we treat is as an agent or nominee. Pursuant to section 6233(a) and (b), TEFRA procedures still apply to the entity, its items, and persons holding an interest in the entity as long as the purported partnership filed a return, which NMT did for tax year 1999. See sec. 6233(b); sec. 301.6233- 1T(a), (c)(1), Temporary Proced. & Admin. Regs., 52 Fed. Reg. 6795 (Mar. 5, 1987). Thus, we have jurisdiction to determine any items that would have been ‘partnership items’, as defined in section 6231(a)(3), and section 301.6231(a)(3)- 1, Proced. & Admin. Regs., had NMT been a valid partnership for tax purposes.” 2017 T. C. Memo. 9, at pp. 34-35. Citations omitted).

So Judge Goeke has jurisdiction to deal with the chops, even though partner-level items are involved. But when the partners go under the chopper, what Tax Court did here may be provisional.

Since the taxpayer, whom I’ll call Fili (founder of a $5 billion software outfit he unloaded for Social Security numbers, basis of bortscht) reported an inflated basis in the “partnership” when he should have reported zero, a fortiori Fili is up for the 40% chop.

Fili can’t yell he was an injured innocent who relied upon an oceanful of sharks; at least not in Tax Court. As the Supremes pointed out in Woods, Fili can fight in USDC or USCFC after he has paid up in full.

The real issue is the good faith reliance of the “managing partner” of the non-partnership, which brings us back to Bergie.

Bergie “…was the only individual with the authority to act on behalf of NMT, and it is his conduct that is relevant for determining whether we should sustain the accuracy-related penalty.” 2017 T. C. Memo. 9, at p. 35.

Of course, Bergie, a sophisticated CPA, should have known this deal was too good to be true.





In Uncategorized on 01/10/2017 at 00:14


The monuments of unaging intellect who operate, the soapbox wherefrom I orate at a modest annual charge of USD twenty-six, have eliminated the stat page showing, on a cumulative basis from inception, which countries, commonwealths, semi-autonomous regions and other political thingies have viewed this my blog.


Was it too complicated? If so, why had it run for more than five (count ‘em, five) years?

Too expensive? But there’s a daily list. What’s so hard about a cumulative list?

Were various sovereignties checking up on the viewing habits of their citizens? They could do that without the help of These sovereignties can, and most likely do, prevent anything from entering their sacred servers.

I liked to see whether I was giving Canadian Club (“The best in the house in 167 countries”) a run for its loonies.

A blog site should provide its customers with the most bang for the buck, especially when the incremental cost thereof is bupkis, to use a technical term.

C’mon,, a satisfied customer is your best advertisement.


In Uncategorized on 01/09/2017 at 23:39

Please excuse the late posting. I got back late last night from the Magnolia City, a/k/a the Bayou City, after a tumultuous weekend with nearest and dearest, a snowed-out return trip, and the LaGuardia Airport Horror. They are rebuilding the place; the project may take longer than the construction of the Panama Canal, which I shall visit later this month.

Howbeit, nothing today from the Glasshouse at 400 Second Street, NW, but an arithmetic T. C. Memo. about unreported income and restatement of deductions. And no designated hitters.

So I excavated two orders, where IRS counsel came up with a novel motion.

As the texts of the pertinent paragraph of both orders, from Judge Nega’s wordprocessor, are virtually idem verba, let’s use Laulass, Inc., Docket No. 31172-14, filed 1/9/17.

“…respondent filed a status report indicating that respondent intends to file a Motion to Compel Responses to Discovery… As of this date, no motion has been filed by respondent.” Order, at p. 1.

What “discovery”? Does counsel mean requests for admissions, or document production, or interrogatories, or depositions? One of the above? More than one of the above? Or all of the above?

If a single motion is contemplated for more than one of the above, what happened to Rule 54(b)?

“(b) Joinder of Motions: Unless otherwise permitted by the Court, motions shall be separately stated and not joined together, except that motions may be joined in the following instances: (1) Motions under Rules 51 and 52 directed to the same pleading or other paper; and (2) motions under Rule 56 for the review of a jeopardy assessment and for the review of a jeopardy levy, but only if the assessment and the levy are the subject of the same written statement required by Code section 7429(a)(1).”

And what is meant by “responses to discovery”? Is “responses to discovery demand(s)” what is wanted? Or something else?

The best response to discovery I know of is that of Archimedes, who jumped stark naked out of his Athenian bathtub and ran thus through the streets yelling “Eureka!”

But the parties can keep their shirts on. Judge Nega just wants a status report on discovery issues.



In Uncategorized on 01/06/2017 at 23:10

It Won’t Play in Peoria

John E. Rogers, Docket No. 27208-15L, filed 1/6/17, has provided me lots of blogfodder. In this designated hitter from The Judge With a Heart, STJ Armen, Mr Rogers is battling IRS about a NFTL for chops galore arising out of his DADS deals.

For Mr Rogers’s history, see Order, at pp. 1-2, footnote 2. For a schedule of chops, see Order, at pp. 5-6.

IRS concedes Mr Rogers can’t pay the chops themselves, so he gets CNC.

But he wants the liens lifted. And he went to Appeals in Peoria, IL, from which he was tossed. So he petitions.

There’s also a stack of penalties pending in Chicago, Il. Mr Rogers fought those, tooth and nail.

In the meantime, the Peoria liens stand.

Mr Rogers tries to re-fight the chops in his petition, but he had a full chance to fight at Appeals in Chicago.

His Eighth Amendment arguments fail, as the precedents show that the chops are fractions of the tax owed, and are not excessive.

“In the instant case, petitioner essentially relies on section 6323(j)(1)(C), which provides that the Secretary may withdraw a NFTL if the Secretary determines that withdrawal will facilitate the collection of the tax liability. In that regard, petitioner argues that ‘[t]he lien precludes petitioner from engaging funding necessary to finance his businesses going forward and earning the money necessary to satisfy the lien, earn a living in his profession, and provide for his retirement and medical care.’ But this argument is not meaningfully different from those rejected by the Court…, nor does the argument acknowledge that withdrawal of the NFTL would compromise the lien priority interests of the United States vis-a-vis petitioner’s other creditors, both present and future. Further, petitioner’s argument ignores the fact that a lien, which is a security device that assures the United States of its priority over other possible creditors, does not deprive a taxpayer of property, unlike a levy.” Order, at p. 21. (Citations omitted).

But this Order and Decision affects only Peoria. As to Chicago Appeals, Mr Rogers can carry out his stated intention that “…he will proceed all the way to the U.S. Supreme Court if necessary.” Order, at p. 11.

I confidently expect more blogfodder.









In Uncategorized on 01/05/2017 at 20:14

While cases for years prior to those beginning last Sunday will continue with FPAAs, tax matterers, partner-level and partnership-level adjustments, computationals and deficiency reviewables, I hope that the new partnership regime will simplify the current silt-stirrings swirling around the Glasshouse at 400 Second Street, NW.

Here’s Hubert Oxford, III & Cynthia Oxford, Docket No. 16916-15, filed 1/5/17, from Judge Goeke.

You remember HO3 and Cynthia, of course. What, no? Well, check out my blogpost “Inside, Outside – Part Deux,” 6/21/16.

HO3 and Cynthia want to enjoin and restrain IRS from assessing and collecting, or make IRS disgorge if they did, and IRS wants to dismiss the petition and strike the penalty.

The partnership here involved had a FPAA, litigated at partnership level, and the adjustments and chops IRS laid upon HO3 & Cynthia all arise therefrom.

HO3 & Cynthia say it’s premature to hit them with a deficiency; IRS doesn’t fight the adjustment issues, but claims Tax Court has no jurisdiction over the chop.

Judge Goeke: “The following quotation from Thompson v. Commissioner, T.C. Memo. 2014-154, at *3, aptly describes the law as it applies to this case:

“‘Our final decision in the partnership-level proceeding applied the gross valuation misstatement penalty. The penalty may be directly assessed as a computational adjustment, notwithstanding any need for [*9] partner-level determinations. Petitioners may raise partner-level defenses, if any, only in a postpayment refund suit. See sec.6230(c)(1)(C); sec.301.6221-1(c), Proced. & Admin. Regs.

“‘Any question as to the validity of this analysis has been settled by United States v. Woods, 571 U.S.__,134 S.Ct. 557(2013).’” Order, at pp. 1-2.

So no restraining the chop, although the adjustment impact on HO3 & Cynthia are put off for another day.

But as I said in my blogpost above referred to, “I have a feeling that these face-offs will be going on long after TEFRA is an unpleasant memory, when we’ll be grousing about PATH partnership audits.”



In Uncategorized on 01/05/2017 at 19:31

We all know the Section 6651(a)(2) addition to tax for failure to pay tax shown on return, 0.5% per month to a maximum of 25%.

Well, IRS apparently never issued a SFR, or didn’t get it into the trial notebook, in Brian E. Harriss, 2016 T. C. Memo. 5, filed 1/5/17.

Brian filed a return for the year at issue here, but all it showed was zero. Brian had salary and wages and an IRA distribution, but all his petition showed was the usual protester stuff, ending in zero.

IRS wants the aforesaid addition to tax, but Judge Vasquez finds IRS has a problem.

“The section 6651(a)(2) addition to tax applies only when an amount of tax is shown on a return filed by the taxpayer or prepared by the Secretary. Sec. 6651(a)(2), (g)(2); Cabirac v. Commissioner, 120 T.C. 163, 170 (2003), aff’d without published opinion, 94 A.F.T.R. 2d (RIA) 2004-5490 (3d Cir. 2004). Pursuant to section 7491(c), respondent has the burden of production with respect to this addition to tax. See Higbee v. Commissioner, 116 T.C. at 446.

“Respondent has not carried his burden here. Petitioner’s…return, which respondent received and processed, shows a tax of zero. There is nothing in the record to indicate that a substitute for return (SFR) meeting the requirements of section 6020(b) was ever prepared…. We therefore hold that petitioner is not liable for the section 6651(a)(2) addition to tax.” 2016 T. C. Memo. 5, at pp. 11-12. (Footnote omitted, but read it; IRS introduced a “literal transcript” over Brian’s objection, but it neither showed an SFR or any compliance with Section 6020(b)(1)).

Takeaway– If Section 6651(a)(2) is in play, get a copy of the return and any SFR and keep it handy. That goes both for petitioners and IRS.



In Uncategorized on 01/05/2017 at 19:06

Judge Chiechi wants Mr. Elieff, the petitioner in Taishan Investments, LLC, Bruce Elieff, Partner Other Than The Tax Matters Partner, Docket No. 8404-13, filed 1/5/17, to pick up the words from the 1959 Sid Wayne and Sherman Edwards standard, and report to her as follows.

“…petitioner shall file a status report in which he (1) shall inform the Court how many hours and minutes as of the date of the status report ordered herein he has spent reviewing the proposed closing agreement since it was sent to him a second time on December 2, 2016, and (2) shall explain in detail what his review entailed.” Order, at p. 1.

Bruce has a week. The date of the ordered status report was 12/27/16. I hope he saved his timeslips.


In Uncategorized on 01/05/2017 at 01:25

Eighth Circuit Will Join Together

See my blogpost “Whom the Preparer Puts Asunder,” 1/13/14.

Well, Eighth Circuit did buy the much-contemned Glaze decision, and reversed Judge Nega.

See Isaak Abdi Ibrahim v. Com’r, No. 14-2070, 6/10/15.

So in Eighth Circuit country filing HOH is not filing a “separate return” for Section 6013(b)(1) purposes.

Looks like my correspondent Kathryn Sedo, Esq., gets a belated Taishoff “Well Done.”

But I will reiterate my statement from my two-year-old blogpost: “Of course, a single Court of Tax Appeals, having national jurisdiction over a national tax, would eliminate these mental gyrations.”


In Uncategorized on 01/05/2017 at 00:46

In my youth, the bargains were found in January, when the bedclothing sales began. I remember hearing about these minutes after the cries of “Happy New Year!”

Well, apparently Judge Morrison continues the tradition in Amnesty National, Docket No. 13961-15L, filed 1/4/17.

Amnesty National was fighting a SNOD for one year, and a NOD for that year and another.

“Through an affidavit and attached documents, the IRS demonstrated that the notice of deficiency had been sent to Amnesty National. The IRS alleged that Amnesty National did not deny receiving the notice of deficiency. In Amnesty National’s response to the motion for summary judgment, Amnesty National did not claim to have received the notice of deficiency. We conclude that Amnesty National received the notice of deficiency. See Rule121(d). It is therefore barred from contesting the amount of its income tax liability for 2008. Sec.6330(c)(2)(B); Treas. Reg. sec. 301.6330-1(e)(3) Q&A-E2.” Order, at p. 4.

I thought that if the SNOD was sent to last known address, receipt by addressee was irrelevant. So whatever Amnesty National claimed about receipt was irrelevant, right, Judge?

Amnesty National got an equivalent hearing as to NFTLs, so those are off the Tax Court radar.

But the CDP for the NITLs are on, except Amnesty National had no collection alternatives. One NITL involved worker classification, Amnesty National got a chance to contest liability, and put in no relevant evidence.

Amnesty National did engage in this litigation, and thereby hangs the cliché.

Of course IRS wants summary J.

“Amnesty National’s response to the motion for summary judgment consists of meritless claims. For example, it asserts that the actions of the IRS are void because IRS employees are not licensed by the State of New Jersey. Amnesty National also claims that the IRS’s motion for summary judgment should be denied because the IRS did not respond to a court paper Amnesty National filed in this case entitled ‘Notice of Motion’. But the Court did not order the IRS to respond to the ‘Notice of Motion’, which consists of legalistic gibberish. Summary judgment in favor of the IRS is merited.” Order, at p. 4.

IRS also wanted a Section 6673 frivolity chop.

Judge Morrison finds Amnesty National both interposed frivolous arguments and prolonged the proceedings to delay payment of taxes, but makes no mention of any previous delictions of that kind. The usual treatment in such case is the yellow card warning that other or further frivolities will lead to the Section 6673 sin bin.

Although Judge Morrison didn’t mention it, Amnesty National had been in Tax Court twelve (count ‘em, twelve) years ago about a dubious refund claim that generated 2004 T. C. Memo. 221, filed 9/29/04, where Judge Chiechi likewise found irrelevant and incomprehensible arguments.

Maybe that was why he didn’t show the yellow card, but handed out a chop.

$200. A bargain.


In Uncategorized on 01/04/2017 at 00:52

I’ve often blogged the famous Chenery rule. The administrative record controls; what the agency did, not what the agency might have done, controls.

And Judge Holmes loves Chenery.

But in Richard Conant Giller, Docket No. 16755-14L, filed 1/3/17,  he delves more deeply into the record rule.

IRS wants summary J. But there’s a problem here. There’s a dispute whether a return was filed for the year at issue.

“For his part, respondent did not explain in the notice of determination either that Mr. Giller made this argument or why he was rejecting it. The Chenery rule– that a reviewing court reviews an agency’s action only on the ground the agency itself offers…would ordinarily require that we not uphold the notice of determination for this reason alone. The administrative record, however, makes the Commissioner’s reasoning clear — the settlement officer who conducted the hearing checked IRS records and learned that according to them there was no evidence that Mr. Giller had ever filed a…tax return. If a reviewing court can discern the agency’s reasoning even if it is not completely clear in the agency’s decision, that is good enough to allow that reasoning to be the basis for review.” Order, at p. 1 (Citations omitted).

So IRS claims there’s no evidence RCG filed a return for the year at issue. But RCG claims he did, and proffers evidence never produced at his CDP.

“This proof doesn’t include an actual copy of that return but features instead only a certified-mail receipt that shows he mailed something to the IRS at the time the return was due (although, as he admits, to the wrong IRS address); and a copy of a ‘certificate of electronic filing’ from Intuit tax-preparation software (although without any proof of acceptance of the return by the IRS which, as the Intuit form states, would be proof that the IRS had accepted the return).” Order, at pp. 1-2.

If this case was tried de novo, no summary J.

But it isn’t. This is abuse of discretion. IRS didn’t have this evidence before it when Appeals issued the NOD. Contrary to RCG’s argument, the record was closed.

Anyway, “In the notes from the CDP hearing, the settlement officer noted her disbelief in Mr. Giller’s story — why would someone both e-file and mail something too? And why was there no indication in the IRS’s records of any challenge by Mr. Giller to the substitute for return that the IRS prepared under IRC § 6020(b).” Order, at p. 2.

Takeaway– Put in everything you’ve got at the very beginning.