In Uncategorized on 03/22/2017 at 13:05

A Taishoff “Great Job!” goes to that well-known and often-cited law firm, sometimes herein referred to as “The Jersey Boys,” who bail out Jason Chai (see my blogposts “The Silt We Stir,” 2/13/15, “The Front,” 3/12/15 and “Tell Me More,” 4/17/15) from his 20% chop, and incidentally vindicate that Obliging Jurist Judge David Gustafson by closing up the Graev (see my blogpost “A Non-Christmas Story,” 12/26/16, and my blogposts therein cited).

You remember accommodating Jason Chai, architect turned middleman, who signed away $3.2 billion of taxable gains for his shelter-flogging cousin-in-law A. Beer. Well, IRS tagged him for SE, but when A. Beer’s phony partnerships went flat, IRS hit Jason for a further $2 million of income. And hit him with a 20% chop.

Jason appealed to 2 Cir.

After a trek through the undergrowth of TEFRA, which I’ll spare you as it’s now obsolete for anything commenced this year, there comes the Section 6751(b) Boss Hoss question.

Tax Court refused to consider it for Jason, and ruled in Graev that the Boss Hoss could sign off at any time, even after trial. Ex-Ch J Michael B (“Iron Mike”) Thornton tore “de stuffin’ out’n de dictionary,” in O. Henry’s words, to get there.

Judge David Gustafson said that tore the usefulness out of the statute, and tore up Congress’ intent in passing it to begin with.

I, even I, said “If ever an opinion needed reargument, it’s 147 T. C. 16.” See my Non-Christmas Story abovecited.

Well, better than reargument, Jeremy Klausner, Esq., and colleagues get 2 Cir. to blow off the Graev majority.

“The report from the Senate Finance Committee on § 6751(b) states clearly the purpose of the provision and thus Congress’s intent: ‘The Committee believes that penalties should only be imposed where appropriate and not as a bargaining chip.’ S. Rep. No. 105-174, at 65 (1998). The statute was meant to prevent IRS agents from threatening unjustified penalties to encourage taxpayers to settle. IRS Restructuring: Hearings on H.R. 2676 Before the S. Comm. on Finance, 105th Cong. 92 (1998) (statement of Stefan F. Tucker, Chair-Elect, Section of Taxation, American Bar Association) (‘[T]he IRS will often say, if you don’t settle, we are going to assert the penalties.’). That history strongly rebuts the Graev majority’s view that written approval may be accomplished at any time prior to, even if just before, assessment. Allowing, as would the Graev majority, an unapproved initial determination of the penalty to proceed through administrative proceedings, settlement negotiations, and potential Tax Court proceedings, only to be approved sometime prior to assessment would do nothing to stem the abuses § 6751(b)(1) was meant to prevent. The Graev dissent put it succinctly:

“‘Th[e majority’s] construction is implausible in the extreme—especially in an instance in which a penalty assertion becomes the subject of Tax Court litigation. Once Chief Counsel had argued and the Tax Court had held that the taxpayer is liable for an assessment, the supervisor’s Johnny-come-lately approval of the ‘initial determination’ would add nothing to the process. And where the Tax Court had held the taxpayer not liable for the penalty, the supervisor’s consideration of the matter would then be completely moot.’” Chai v. Com’r., 15-1653, filed 3/20/17, at pp. 60-61.

IRS had burden of production to show the Boss Hoss signoff on the penalty and didn’t. Penalty tossed. And Graev overruled sub not-so-silentio.

On top of the latest, Tax Court got the word. Here’s Judge Cohen citing Chai and Graev in Chad Henderson and Sharon Henderson, Docket No. 14187-16L, filed 3/22/17.

“Although alleging compliance with requirements of law and administrative procedures in general terms, respondent does not specifically address all requirements that may appropriately be considered. See, e.g., Graev v. Commissioner, 147 T.C. No. 16 (Nov. 30, 2016); see also Chai v. Commissioner, F.3d _, 2017 WL 1046108 (2d Cir. Ct. App. Mar. 20, 2017), aff’a in part, rev’a in part T.C. Memo. 2015-42.” Order, at p. 1.

Judge Gustafson, take a bow.


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