In Uncategorized on 05/11/2017 at 16:20

These might get you into Tax Court, but once you’re there, you’d better have paper as well.

Who better to prove the truth of the foregoing than Barry Leonard Bulakites, 2017 T. C. Memo. 79, filed 5/11/17?

You must remember Barry. How could you not remember the man who outfoxed IRS’ crafty but sleazy maneuver in seeking dismissal of Barry’s timely served petition and substituting in its place and stead that which was delivered by an unblessed PDS, and thus ripe for dismissal?

Well, if you insist, see my blogpost “Another Taishoff ‘Oh Please’,” 9/24/14.

So Barry got in the door, but the result hardly justifies the effort. Here’s The Great Dissenter, a/k/a The Judge Who Writes Like a Human being, s/a/k/a The Foe of the Partitive Genitive, Old China Hand and Ace Silt Stirrer, Judge Mark V. Holmes, to tell the story.

Barry was an expert in life insurance and annuities, but got slugged for $500K when the outfit he worked for blew a 401(k) and the beneficiaries thereof sued. Barry borrowed against his home, hoping to sell and pay off within the year, but came the meltdown of 2008 and torpedoed that. Then he got divorced, and was going to pay his loved-once out of the same proceeds. That having tanked, he paid an override on the alimony that was less than the required post-sale amount, but more than the decree required.

Problem in both instances: No paper.

As for the loan, Judge Holmes: “The evidence does show Bulakites made payments to his lender, but the amounts do not match those that he claimed on his tax returns, and he did not explain this discrepancy at trial.  Bulakites also did not provide us with any business records regarding the loan, any loan statements, or any loan-repayment schedules.  Without this type of documentation we are unable to tell whether these payments were made on the original 2007 loan.  Remember that the note for that loan says it should have been paid in full by October 2008.  We understand that it might have been his plan to pay the note with proceeds from the sale of his home, and that that sale didn’t happen.  The problem is that we can’t figure out what happened to the note–was it refinanced?  Was it extended?  Without any paperwork (in a situation where there should have been lots of paperwork) we are left only with his testimony about the total amounts of the payments and the allocation of those payments between principal and interest.  We do not find his testimony credible on this issue, and so sustain the Commissioner’s determination.” 2017 T. C. Memo. 79, at pp. 6-7.

Should’a been a ton of paper. Most home mortgages seem to be graded on the weight (in kilograms) of the paper generated.

Now as for the increased alimony. Barry didn’t read my blog, or maybe he missed my blogpost “The Magic Paper Saves the Deduction,” 4/7/11, when Tim Micek saved his deduction in a small-claimer by producing a spousal support affidavit sufficient to satisfy Section 71(b)(2). All that’s needed is a written separation agreement, and, like a SNOD, there’s no standard or required form therefor.

So, alas and alack, even though Barry did the right thing, he doesn’t get the deduction.

“Bulakites’ oral modification of his written separation agreement doesn’t work–it’s well settled that an oral modification of a written instrument does not meet section 71’s requirements.  Sec. 71(b)(2); Gordon v. Commissioner, 70 T.C. 525, 529-30 (1978); Larievy v. Commissioner, T.C. Memo. 2012-247; Ellis v. Commissioner, T.C. Memo. 1990-456; sec. 1.71-1(c), Income Tax Regs. We do find his motivation sincere, and he did prove that he paid his ex well over the $2,000 a month required by his separation agreement, but we have to hold that the law does not allow him to deduct those excess amounts as alimony.  We therefore find for the Commissioner on this issue.” 2017 T. C. Memo. 79, at pp. 5-6.

Barry claims a big NOL, but loses, again because of want of substantiation. See Section 172(a), and Section 172(b)(2).

“A taxpayer substantiates his claim to such a deduction by filing with his return ‘a concise statement setting forth the amount of the net operating loss deduction claimed and all material and pertinent facts relative thereto, including a detailed schedule showing the computation of the net operating loss deduction.’  Sec. 1.172-1(c), Income Tax Regs.  Bulakites filed no such documentation.  During trial he did turn in a tax return for a previous year (though not the one that generated the net operating loss), but even with his testimony, that is not enough to substantiate his entitlement to a loss carryforward.” 2017 T. C. Memo. 79, at p. 8. (Citations and footnote omitted, but the footnote says though IRS consumed an idle hour trying to figure out how Barry got the NOL, Judge Holmes need not go there).

Barry gets the understatement chop, because his trial testimony gave the game away, which often disadvantages the honest litigant.



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