Today, that Obliging Jurist Judge David Gustafson has two designated off-the-benchers. The first is the usual small-claimer unsubstantiated deductions, charitable type. I only mention it because the court reporter got principals-principles wrong in both, but Judge Gustafson corrected the error in the second.
Here’s Dean Rodney Fulton, Docket No. 6840-16, filed 4/13/17. “Employing the principals of section 170(f), discussed below, we are unable to find that Mr. Fulton made any cash contributions to charitable organizations in 2011 or 2012.” Transcript, at p. 4.
A “principal” in this context is a person who takes a leading role. A “principle” is a generally-accepted rule.
BTW, Dean Rodney didn’t bother filing two years’ worth of returns until he found out what would happen with two other years in dispute. This was ”…a tactical misjudgment that, he admitted at trial, did not excuse his non-filing.” Transcript, at p. 14. Experiment may yield principles, but it is not recommended when taxes are concerned.
Next we have an error by a bank when a depositor tried an IRA rollover. The depositor asked for an IRA account, was told she had one, but the bank’s employees made a mistake and opened a non-roller. The depositor thought she’d gotten a roller. What she got was a 1099-R, which she didn’t report, whereupon she got a SNOD with the 10% under 59-1/2 chop included at no extra charge. This woke her up, she went to the bank (never having touched the money), got an apology and the money moved to an IRA.
Judge Gustafson: “Section 408 and the regulations thereunder prescribe the rules generally applicable to IRAs, including how taxpayers may roll over amounts in their IRAs without the inclusion of those amounts in their taxable income. However, we have concluded in a prior rollover case that “a bookkeeping error does not alter the rights and responsibilities between the parties to a transaction”, and that there is not ‘any indication in the statute, legislative history, or case law that Congress intended to deny rollover benefits to taxpayers on the basis that a financial institution or other qualified IRA trustee made a mistake in recording a transaction.’ Wood v. Commissioner, 93 T.C. 114, 121-122 (1989).” Lifang Wang & Ke Zhong, Docket No. 8763-16, filed 4/13/17, at transcript, pp. 9-10.
While Section 408(d)(3)(I) allows a waiver, only the Secretary can waive. Rev. Proc. 2016-47 tells us how, and even includes trustee error as grounds for waiver. Although Li & Ke ask politely and in writing, Judge Gustafson regretfully can’t oblige them.
“Since we decide the case on other grounds, we do not need to resolve this issue. However, for petitioners’ information we note that it is the Secretary of the Treasury (acting through the IRS), and not this Court, to whom the statute gives discretion to determine whether to grant such a waiver. Assuming that the Tax Court has authority to review the Secretary’s exercise of that discretion, it seems we could do so only after the Secretary had considered and denied a taxpayer’s request for a waiver. The statute does not seem to grant us the authority to entertain in the first instance in litigation a request for a waiver.” Transcript, at p. 11.
Judge, I doubt IRS would agree you could review denial of a 408(d)(3)(I) waiver for abuse of discretion. Judge Halpern is still wrestling with the question whether non-exercise of discretion under any circumstances is an abuse of discretion in the collection-alternative context, where there is clear statutory jurisdiction to review denial of collection alternative. See my blogpost “Big Jim, Poor Jim,” 3/31/17.
But good catch at page 8 of the transcript.