Archive for April, 2017|Monthly archive page


In Uncategorized on 04/24/2017 at 12:51

Although I called this one back in October, I am not taking credit (well, not much anyway) for the call; it was truly obvious.

The order to which I refer is Guidant LLC f.k.a. Guidant Corporation, and Subsidiaries, et al., Docket No. 5989-11, filed 4/24/17.

If you want the backstory, see my blogpost “This One Settles,” 10/3/16.

Today’s order speaks for itself.



In Uncategorized on 04/21/2017 at 16:52

No, not a comment about our National Anthem. As a member of the American Legion, it matters much to me that appropriate respect be given. But my views on that point will be, and have been, expressed elsewhere.

The IRS has now released some sample questions for the benefit of those studying for the SEE, the Special Enrollment Examination, whereby aspirants can attain a place at the Exam and Appeals tables, even if they did not prepare the return at issue.

So try these out, guys, and best of luck.


In Uncategorized on 04/21/2017 at 15:44

I posted a Very Much Off-Topic musical rant today, thinking Tax Court would be dull. But Judge Goeke, although unaware of my perceived plight, has an off-the-bencher that reminds me of a recent exchange between two of my nearest and dearest.

“K: I’m not going to ask you the question, because I know what you’re going to say.

“Me: Really? What am I going to say?

“K: No.”

No, “Me” is not I.  I suggested asking the question anyway, and when the expected answer was received, negotiate. I was rebuked.

Well, here’s the story of Mark Glenn Hexum, Docket No. 13994-16, filed 4/21/17. Mark Glenn didn’t ask his trusty preparer, and it cost him.

Mark Glenn was tussling with the IRS over some amortization he paid on the mortgage encumbering the marital residence, after divorce decree but before said residence was sold and the proceeds split between Mark Glenn and his loved-once. Mark Glenn claimed he should get credit therefor, dollar for dollar, but that didn’t play in Peoria, and the Circuit Court for Peoria County, IL just split the proceeds.

Mark took the amortization as an alimony payment. IRS said “No,” and Judge Goeke agrees. It’s the old Section 71(b)(1)(D) liability to make any such payment for any period after the death of the payee spouse issue, and Mark Glenn agrees that if loved-once had left this vale of tears before the sale closed, he’s still on the hook for the net proceeds split.

So game over on the deficiency.

But how about the 20% chop?

“In the present case the Petitioner did not ask his return preparer whether, in fact, the [amortization] should be treated as deductible. We believe a tax professional would have instructed him that he should make an inquiry whether the payment in question would have been a continuing obligation even upon the death of his spouse, in which case it would not have been deductible as alimony expense. The fact that Petitioner did not make this inquiry we believe makes a reasonable cause defense inapplicable to him under section 6662(a) and section 6664(c)(1). Therefore, we believe that the statutory additions to tax is applicable and we sustain the Government’s determine of the addition to tax.” Order, transcript, a pp. 10-11.

Note to my nearest and dearest: Ask.


In Uncategorized on 04/21/2017 at 11:06

Full disclosure: not only is this blogpost not about law or tax, but I have not written musical criticism for publication in more than fifty years. That occasion came during a newspaper strike in Our Fair City, where my review of Rudolph Firkusny’s New York recital in our college’s newspaper was read with interest by the performer himself, or so I was told. It was the only review published.

So I return.

Last night at Carnegie Hall I was very disappointed. The Orchestra of St Luke, a well-respected local group, promised all-Mozart. What I got was all-Norrington, the knighted (or rather, benighted) Sir Roger.

After informing us from the stage that to grow old was a license to stop behaving properly, he put this dictum to the test. Remarking that classical music in the eighteenth-century was entertainment and not “kulchah,” he noted that audiences applauded between movements, a thing since contemned.

It was rightly contemned, but even if it was not, turning to the audience after every movement and waving his hands to invite applause went beyond self-indulgence.

The music? Well, I sprang for a ticket to hear Mozart’s thirty-third symphony, his most underrated. Tradition says all we know about Mozart is that he was very exacting in point of expression, and could not get his musicians to play his allegros fast enough to please him.

Sir Roger went for speed. The most expressive forte in the first movement, for me the high point of the symphony, was tossed thoughtlessly away. The four basses were given a wholly undeserved prominence, so that growling was substituted for substance.

Not until well into the minuet, nearly at the trio, was there anything that might pass for expression.

I felt cheated even before Benjamin Grosvenor, touted as “the boy lord of the piano,” displayed massive technique and no understanding in the twentieth piano concerto. He certainly can play swiftly enough, and with a better conductor could do better. Surely in the second movement he showed himself capable of expression, albeit with a hesitancy that should only be found in one less skillful.  But I suggest he eschew nineteenth-century Romantic interpolations as cadenzas. These may impress audiences invited to applaud; they distracted me.

I will say the performance of the Linz symphony was best of the lot. There was more expression, and the speed was suited to the work. The finale was well-played, although repentance came too late to save the evening.

In playing Mozart, performers, whether old or young, are best advised not to “do first, ask forgiveness afterward.”

Sir Roger promised us a treat at the end, if we pleased him and remained.

I left.


In Uncategorized on 04/20/2017 at 18:01

Not the William Gibson 1958 two-person drama, but rather two Tax Court Judges who saw things from different directions before, and seem to be seeing them again.

Here’s ex-Ch J Michael B (“Iron Mike”) Thornton and that Obliging Jurist Judge David Gustafson, on different sides again, only not in the same case.

You’ll recall their joust, more particularly bounded and described in my blogpost “Money-Back Guarantee Meets The Boss Hoss,” 11/30/16.

Well, today they’re at it again. First, see my blogpost “Principles,” 4/13/17. Though he ultimately didn’t have to go there, Judge David Gustafson had a problem reviewing IRS discretion in granting or denying a hardship late-rollover waiver to poor polyglotaly-challenged Lifang Wang.

And I agreed, thinking that jurisdiction was an issue.

Well, ex-Ch J Iron Mike saw no problem at all today in granting the same hardship waiver to John C. Trimmer, even though IRS had blown off poor depressed John C.

See my blogpost “The Guys From the Hood,” 4/20/17.

Strangely, the Trimmer case, discussed in the immediately-preceding blogpost, is a full-dress T. C. with no dissent. Did ex-Ch J Iron Mike convince Obliging Judge David Gustafson that Tax Court does have jurisdiction and can grant the hardship waiver?

Cain’t hardly wait to see who is right. Stay tuned.


In Uncategorized on 04/20/2017 at 17:21

It’s getting to be near that time. I see Judge Lauber is serving up The Rounder’s Cocktail. And Sean M. Murray, 2017 T. C. Memo. 67. Filed 4/20/17, has concocted one for the books…or at least for the blog.

Sean doesn’t bother with returns, but gets a trio of 1099-dashes, sufficient for IRS to give him a SNOD for $15K plus chops. Judge Lauber gives Sean another $1500 in 6673 frivolity at no extra charge.

Sean petitions. He claims he’s executor for his own estate, although alive and well. The caption of his case gets amended accordingly, and then amended back. Sean claims IRS violated Federal criminal statutes. Sean asks for trial in SF CA, although apparently resident in NY, while later claiming residence in Costa Rica. Then he asks for Albany, NY, but that’s for small-claimers only (which he didn’t request). Then back to NYC. Hey, ABA Tax Section, I wasn’t kidding when I said the Request for Place of Trial, Form 5, should be amended to state nexus for place of trial. Does he read my blog, I wonder? Or does he get the materials put out by the ABA Tax Section? See my blogpost “Same Time, Next Year,” 3/3/17.

Nice move, Sean, claiming Costa Rican domicile; I really liked the little I saw of Costa Rica, although climbing through the mountains at my age is a trifle rough.

But it’s the “gibberish commonly appearing on tax protestor websites” (2017 T. C. Memo. 67, at p. 4) that really does Sean in.

“Petitioner has repeatedly advanced numerous frivolous positions in this Court.  These include assertions that he has no obligation to file Federal income tax returns, that he is the executor of the estate of an artificial person, and that respondent’s counsel has violated criminal provisions of the United States Code. He has also engaged in tactics patently designed to delay the final determination of his Federal income tax liability, including filing documents with misleading captions, making multiple unjustified requests to change the place of trial, and submitting documents containing obvious falsehoods and laced with tax-protester gibberish.  He has repeatedly wasted the resources of respondent’s counsel and this Court.  We will accordingly require that he pay to the United States under section 6673(a) a penalty of $1,500.  This opinion will serve as a warning to petitioner that he risks a much larger penalty if he engages in similar tactics in any future appearance before this Court.” 2017 T. C. Memo. 67, at p. 15.

Shake, strain and serve.


In Uncategorized on 04/20/2017 at 16:50

The hood in this blogpost being Lincoln Center on the Upper West Side of the Minor US Outlying Island off the Coast of North America, whereon I reside. The guys are student members the Federal Tax Clinic at the Fordham Law School, under the able guidance of Prof. Elizabeth (“Prof Liz”) Maresca.

And I’m giving the guys and Prof. Liz a shout-out, and a Taishoff “Good Job,” for John C. Trimmer and Susan Trimmer, 2017 T. C. 14, filed 4/20/17. The guys manage to cop a win from ex-Ch J. Michael B. (“Iron Mike”) Thornton, no small feat even for battle-hardened TC vets.

John C. was a NYC police officer who retired to take a job on Wall Street. No, not as a hedge-fund manager or dodge-flogger; John C. was going to be a security guard. But the job fell through and John C. fell into serious depression.

There’s beaucoup evidence of John C.’s disorientation and sad condition, which I won’t rehash here. The guys built a good record, notwithstanding IRS’ beat-down on their expert, of which more hereinafter.

John C. got a couple draws (hi, Judge Holmes) from his pension, let the checks sit on his dresser for a month, deposited them in his checking account, and was late getting the family’s 1040 together. This was usually his job, and Susan thought he was doing it.

When the family’s trusty preparer saw the 1099-Rs with Box 1 (early, no known exception) checked, he told John C. to get the cash into an IRA. John C. did, but IRS hits him with deficiency and 10% Section 72(t) chop.

John C. sent a pathetic letter describing his former and current troubles. Three days after getting the letter, IRS Exam bounced John’s plea, without considering hardship waivers.

IRS, being all heart, argues Exam hasn’t authority to grant hardship waivers, and anyway Tax Court hasn’t jurisdiction to review denials of hardship waivers.

“Respondent [IRS] contends that the hardship waiver provision of section 402(c)(3)(B) is ‘inapplicable’ because Mr. Trimmer failed to apply for relief pursuant to the terms of Rev. Proc. 2003-16, 2003-1 C.B. 359.  Respondent also contends that there has been no final administrative determination denying petitioners relief, and that even if there had been, it would not be subject to judicial review. Furthermore, respondent contends, there was no abuse of discretion in denying petitioners the requested waiver, because petitioners have failed to establish that Mr. Trimmer was unable to complete the rollovers within 60 days of the two distributions.” 148 T. C. 14, at p. 12, footnote omitted, but you gotta read this.

“Both before and after trial the Court encouraged the parties to explore further administrative consideration of petitioners’ claim for a hardship waiver, but respondent declined.” 148 T. C. 14, at p. 12, footnote 4.

Word to IRS counsel: When ex-Ch J Iron Mike, not conspicuously friendly to petitioners, tells you to play nice, don’t play the clown. Prof Liz and her guys may just be going for Section 7430 legals, even if they don’t get them. More about that later.

We all know that  Rev. Proc. 2003-4, 2003-1 C.B. 123 provides the means for obtaining the waiver, and Rev Proc 2003-8, 2003-1 C.B. 236 sets out the user fee for getting one (if you can find it; the thing is nearly incomprehensible. How a depressed retired patrolman is supposed to find this out is nowhere stated).

Well, John C. didn’t, so IRS says he’s out.

Moreover, IRS says Rev Proc 2016-47, 2016-37 I.R.B., which allows hardship consideration during Exam wasn’t in effect when John C. was under examination, so it doesn’t apply.

Ex-Ch J Iron Mike blows IRS away.

“We are not persuaded.  Nothing in Rev. Proc. 2003-16, supra, purports to limit or constrain an IRS examiner’s ability to consider a hardship waiver during the course of an examination.  Certainly no such constraint is found in section 402(c)(3)(B).  Moreover, respondent’s position appears to be at odds with Internal Revenue Manual (IRM) pt. (Jan. 1, 2006), which states:  ‘Examiners are given the authority to recommend the proper disposition of all identified issues, as well as any issues raised by the taxpayer.’

“Consequently, the purpose and effect of the 2016 modification of Rev. Proc.  2003-16, supra, we believe, was not to create some new authority that had not previously existed for IRS examiners to consider hardship waivers during examinations, but rather to make clear the existence of that authority.  This conclusion is reinforced by careful consideration of the substantive coordination between the two revenue procedures.” 148 T. C. 14, at pp. 14-15. (Emphasis by the Court.)(Footnote omitted, but ex-Ch J Iron Mike asked the parties to brief the impact of Rev Proc 2016-47).

The two Rev Procs are coordinated very carefully, the old self-certification procedure being modified, while the examiner’s (auditor’s) ability to consider any request remains the same.

“Furthermore, the examining agent’s authority to consider a hardship waiver during the examination strongly implies, we believe, that the taxpayer may request the waiver.  It would be anomalous if the examining agent could consider the relief only if the taxpayer had not requested it.” 148 T. C. 14, at p. 16.

Only three (count ‘em, three) days after John C.’s pitiable plea, Exam responded with an incomplete legal analysis.

IRS has some cases where failure to apply for hardship waiver for IRA rollovers sank the taxpayer (John C.’s miscue arose from a pension plan, not an IRA). I blogged more than one such; by way of illustration of the foregoing, as my Grey Goose Gibson-gulping high-priced colleagues say, see my blogpost “The Case of the Reluctant Trustee,” 6/6/14. But in none thereof did the petitioner seek the waiver at Exam, by PLR per the Rev Proc, or anywhere else. John C did.

IRS finally claims that the three-day rejection letter said John C could write and tell them if he disagreed, and he didn’t so either there was no final determination or he waived objection.

Ex-Ch J Iron Mike treats that argument with more consideration than it deserves.

“Considering that Mr. Trimmer’s letter had resulted in the IRS’ summarily denying his request on legal grounds that seemed to admit of no possibility of administrative relief, without even acknowledging the specific facts and circumstances spelled out in Mr. Trimmer’s letter, the invitation for petitioners to respond yet again if they disagreed strikes us as an empty gesture or mere boilerplate.” 148 T. C. 14, at p. 19.

As for arguing Tax Court has no jurisdiction to consider the hardship waiver, ex-Ch J Iron Mike blows them off with a laundry list of cases where a SNOD and petition put everything in play.

IRS challenges the guys’ expert witness on credentials and local law. Ex-Ch J Iron Mike, truly in his element, tears up both statutes, regs and dictionary to flatten that attack. True, the expert’s report was eight days beyond the thirty-day deadline, but IRS’ counsel gave the expert a good going-over on cross, so no prejudice.

And it would be against “equity and good conscience” to deny John C the waiver.

Now what may be the saver, when Prof Liz and the guys go for legals. John C failed to disclose $40 in dividends on stock he claimed he bought for his son’s education, but can’t show any proof. So maybe so IRS was partly justified.


In Uncategorized on 04/19/2017 at 16:14

No, not a ten-foot tall basketball player. These are carefully-structured Variable Prepaid Forward Contracts (VPFC), whereby a stockholder with a basis of zippo cashes out $200 million worth of stock for no current gain.

Estate of Andrew J. McKelvey, Deceased, Bradford G. Peters, Executor, 148 T. C. 13, filed 4/19/17, tells the story.

The late Andy was the founder of Monster Worldwide, Inc., owner/operator of, internet flesh peddler extraordinary. I, even I, once had my resume out there.

The late Andy wanted cash in the years shortly before he became the late Andy. So he made deals with BoA and Morgan Stanley, using as his template Rev. Rul. 2003-7, 2003-1 C.B. 363.

The late Andy pledged a boatload of Monster stock and got $200 million in cash, with which he could do whatever he liked. In exchange, a year later, Andy had to give BoA or MS a certain number either of the pledged shares, or other shares, or pay off in cash.  And he could substitute collateral for the pledged shares, if BoA or MS agreed. The exact number of shares, or amount of cash, was determined by formulas based on Monster stock price over certain dates.

At delivery date, the late Andy’s gain or loss would be known. He might owe more cash than he got. The stock he gave to BoA or MS had a certain basis in his hands, and had a determinable worth when he handed them over.

So far, so good.

But before the year was up, Andy paid for a one-year extension of the delivery date. IRS claimed that was an exchange of a property right in that year, and therefore a constructive sale of the Monster stock.

No, says Judge Ruwe.

“In Rev. Rul. 2003-7, 2003-1 C.B. 363, the IRS recognized that VPFCs are open transactions when executed and do not result in the recognition of gain or loss until future delivery.  The rationale of Rev. Rul. 2003-7, supra, is straightforward:  A taxpayer entering into a VPFC does not know the identity or amount of property that will be delivered until the future settlement date arrives and delivery is made.  In the instant case, the treatment of the original VPFCs is not in dispute.  Both parties agree that when decedent entered into the original VPFCs in 2007, the contracts satisfied the requirements of Rev. Rul. 2003-7, supra, and decedent recognized no current gain or loss.” 148 T. C.  13, at pp. 13-14.

All the late Andy had was an obligation to deliver stock or cash. The extension only put off the date when had to deliver. He had no unlimited right to substitute collateral, and he got no more money when he got the extension. He still didn’t know what his basis might be if he delivered stock (he might deliver the pledged stock or other stock, or mix-and-match), or how much cash he’d have to pay BoA or MS, as the price of Monster stock would fluctuate.

In short, the transaction was still open. Keeping it open was valuable, but the late Andy paid for that. He still had the same obligation. And given the fluctuations in Monster stock, he might be worse off with the extension.

And the late Andy’s right to choose stock, or which specific shares of stock, or cash, or to substitute collateral, weren’t property rights he could sell or hock.

Editorial comment: I ain’t so sure. If I were going to short Monster, I might want to buy into the formula and assume the obligation, figuring I could buy enough stock in the open market to deliver to BoA or MS without the problem of actually borrowing stock to sell short up front, and getting an extended delivery date at the same time. But that’s pure speculation, and who would want to buy that deal (and prove to the late Andy that s/he could deliver) is another story.

Finally, Section 1259 constructive sale doesn’t apply, because the worth of the obligation to deliver or pay is variable, not fixed. And Rev. Rul. 2003-7 went off on that rationale.

Nicely structured.


In Uncategorized on 04/19/2017 at 15:06

The old rounder’s delegation gambit (SNOD not signed by one authorized by Treas Sec’y’s order) falls flat for rounder Bonny Goselin, Docket No. 6293-14L, filed 4/19/17.

Y’all will remember Bonny from my blogpost “The Envelope, Please,” 3/10/17. But Bonny doesn’t quit so easily.

She’s back as above-stated, taking a leaf from the playbook of Leroy Muncy. I blogged Leroy’s adventures in my blogpost “Delegati Non Potest Delegare,” 5/9/16.

After being undone by Judge Pugh back in March, Bonny wants a vacation. That is, Judge Pugh should vacate the March order and decision based upon Leroy’s victory in 8th Cir.

Doesn’t fly.

“Petitioner argues for the first time in her motion to vacate that the individual signing the notices of deficiency underlying the proposed collection actions at issue in this case lacked the requisite authority based on Muncy. Unlike the taxpayer in Muncy, petitioner failed to raise the delegation of authority issue prior to her motion to vacate, even though Muncy was decided on March 2, 2016, and petitioner’s motion for summary judgment (which we also considered to be her response to respondent’s motion), was filed on December 20, 2016. Although petitioner is unrepresented, her filings in this case illustrate that she is well versed in possible challenges to collection actions. Her motion for summary judgment stated the general legal requirement of verification but only challenged whether the Settlement Officer properly verified that the notices of deficiency were properly mailed. See Rule 331(b)(4), Tax Court Rules of Practice and Procedure (‘Any issue not raised in the assignments of error shall be deemed to be conceded.’). We, therefore, will deny her motion to vacate.” Order, at p. 1.

Bonny obviously doesn’t read this my blog.

Back on 3/22/17, I blogged 2nd Cir.’s blow-up of Graev in Chai. Had Bonny read my blog for that date, she’d have had a much better chance playing the Boss Hoss Section 6751(b) gambit. Rather the stale delegation order ploy, newer is better.

I know Chai only works for chops, not deficiencies or additions. But it might just could get the rounder something. And a possible 20% of something is a lot better than a certain 100% of nothing.


In Uncategorized on 04/18/2017 at 21:13

Once again I strike up Prof. Tom Lehrer’s 1945 classic, as the Harvard Federal Tax clinicians fight fiercely to overturn Reg. 1.6015-4, which bans refunds to innocent spouses in Section 6015(c) apportioned-guilt cases. They’re in as amicus curiae.

Of course, they’re in Tax Court, and challenges of this kind are non-starters, but they do get a footnote at the bottom of the last page of Judge Vasquez’s opinion.

The case is Brenda Taft, 2017 T. C. 66, filed 4/18/17.

The scrimmage here is about $1570 that was held back from Brenda’s refund. IRS gave Brenda Section 6015(c) innocent spousery, based on the thoroughpaced skullduggery of her nogoodnik ex-husband, who wasted his retirement money on his girlfriend. Brenda got wind of this and ditched him.

He’d e-filed a phony return to disguise the plunder, but didn’t disclose some dividends, for which IRS hit him with a deficiency. The phony return with a forged e-signature for Brenda was a MFJ, so IRS hit Brenda.

Brenda got Section 6015(c), but the aforesaid regulation bars refunds.

Judge Vasquez Judge ‘splains: “Section 6015 provides three avenues for relief from that liability (often referred to as innocent spouse relief) to a taxpayer who has filed a joint return: (1) section 6015(b) allows relief for understatements of tax attributable to certain erroneous items on a return; (2) section 6015(c) provides relief for a portion of an understatement of tax to taxpayers who are separated or divorced; and (3) section 6015(f) more broadly confers on the Commissioner discretion to grant equitable relief to taxpayers who otherwise do not qualify under section 6015(b) or (c). See also sec. 6015(e).” 2017 T. C. Memo. 66, at p. 4.

Brenda wants the refund she can get under 6015(b), not the 6015(c) sorry-‘bout-that no refund.

IRS says Brenda had reason to know of the understatement of tax on the forged return and it wouldn’t be inequitable to hold her for her share, so Section 6015(b) doesn’t get it.

Judge Vasquez cruises through the 6015(b) factors. Brenda was a nurse, had no tax background, and kept a separate checkbook from her spouse (who told her nothing). He certainly didn’t lavish anything on Brenda (he gave it all to his girlfriend), claimed “he took care of their taxes,” and the divorce court found that her ex was a total swine.

So Brenda had no reason to know that her ex plundered his retirement money, and it would not be inequitable to give her back the $1570.

Now as to the Harvard Clinicians: “Petitioner and amicus alternatively argue that she is entitled to relief under sec. 6015(f) and that the Court should invalidate sec. 1.6015-4(b), Income Tax Regs., which bars refunds under certain circumstances. Because we determine that petitioner is entitled to relief under sec. 6015(b), we need not address this alternative argument.” 2017 T. C. 66, at p. 10, Footnote 4.

Apparently Judge Vasquez was going to consider invalidating Reg. 1.6015-4, but thought better of it. He might have a slight jurisdictional problem if he did.