I said once before that The Great Dissenter, a/k/a The Judge Who Writes Like a Human Being, s/a/k/a The Implacable, Illustrious, Indefatigable, Irrefragable, Ineluctable, Imperturbable, Incontrovertible and Insuperable Foe of the Partitive Genitive, Old China Hand and Master Silt Stirrer, Judge Mark V. Holmes, knows his way around the Health Insurance Portability and Accountability Act of 1996, 42 USC §1301 et seq. In support thereof, see my blogpost “Hip To HIPAA,” 12/6/16.

Confidentially speaking, of course.

Well, today Judge Holmes reprises his expertise in another permutation of Continuing Life Communities Thousand Oaks LLC, Spieker CLC, LLC, Tax Matters Partner, Docket No. 4806-15, filed 6/9/17. And he even designates this one, making it easy for the hard-laboring blogger who still has to get out a contract of sale tonight.

OK, so IRS will issue a subpoena duces tecum (that means deliver documents and stuff, as well as testify; we had a ribald name for the testify-only version in my law school days) to Kenneth J. Cummins, the trustee of the University Village Thousand Oaks Master Trust. “Mr. Cummins contends that the information respondent seeks may be protected from disclosure under state and federal law, including the Health Insurance Portability and Accountability Act (HIPAA).” Order, at p. 1.

OK, says Judge Holmes, now I got a Rule 103 protective order motion. But first, a wee hint to the drafters. “The parties are gently reminded that their protected-health-information related citations should be to Title 45, not Titles 42 or 46, of the Code of Federal Regulations and to Title 42, not Title 24, of the United States Code.” Order, at p. 7.

Sandwiched between Mr Cummins’ plea for secrecy and Judge Holmes’ copyediting, is a lengthy form of order and governing terms thereof.

I recommend these to the careful review of practitioners who have to deal with HIPAA-protected materials. Put the terms of the order in the wordproccesor next to the order from last December, cited in my above-captioned blogpost. Tailor carefully to suit.

It’s an old truism, but petitioners are usually unaware: the petitioner has the burden of proof, paper is everything because petitioner’s word is rarely enough.

This is true even of lawyers. Today’s story features attorney Catherine Ann Riggins, 2017 T. C. Memo. 106, filed 6/8/17.

While maybe Catherine Ann was the victim of identity theft, she didn’t argue that. Though Judge Pugh found it “a curious detail” that the notice of tax due, which followed the SFR IRS issued Catherine Ann when she didn’t file her return, was sent to the wrong address, that doesn’t change the result.

“Respondent’s records indicate that petitioner may have been the subject of identity theft, resulting in an incorrect address being used on a notice to her of taxes owed pursuant to the substitute for return.  The actual substitute for return was not sent to petitioner, and she appears to have been unaware of the possible identity theft.  Sec. 6020 and sec. 301.6020-1, Proced. & Admin. Regs., do not require respondent to provide the substitute for return, and we find that the fact that respondent used the wrong address for the earlier notice does not affect our jurisdiction or the outcome of this case although it is a curious detail.  The notice of deficiency upon which the case is based was correctly addressed to petitioner, and she does not argue that she did not receive that notice.” 2017 T. C. Memo. 106, at p. 3, footnote 2.

Catherine Ann sent in a Form 1040 post-SNOD, which IRS processed, and applied the overpayment she claimed to a nontax debt (nature unstated).

Catherine Ann timely petitioned the SNOD. She tried to bar IRS from contesting the information she claimed on her late-filed return, but put in no evidence herself at trial in support of said information.

“Section 6512(a) provides that ‘[i]f the Secretary has mailed to the taxpayer a notice of deficiency * * * and if the taxpayer files a petition with the Tax Court within the time prescribed * * *, no credit or refund of income tax for the same taxable year * * * shall be allowed or made’ other than (as relevant here) as determined in a final decision of the Tax Court or as collected in excess of the amount in our decision, or to the extent determined as part of our overpayment jurisdiction.” 2017 T. C. Memo. 106, at p. 6.

Once you petition, Tax Court takes over. Even concessions are subject to Court review.

“Petitioner has not established that respondent’s processing of her return and offset of her nontax debt was anything other than an error.  Petitioner has not presented, nor are we aware of, any cases holding that postpetition processing of a tax return and issuance of a refund or offset constitutes a binding settlement of the liability at issue in the petition. Nor does she so argue.” 2017 T. C. Memo. 106, at pp. 9-10 (Footnote omitted, but read it; it sets out the law regarding enforcement of settlements in Tax Court, and what happened here isn’t one).

There’s more, but it doesn’t help.

“Even if a taxpayer files a return after the Commissioner issues a notice of deficiency, the taxpayer still must come forward with evidence as to any deductions claimed on the return. The return itself is not considered evidence.” 2017 T. C. Memo. 106, at pp. 11-12. (Citations omitted).

Signing a return under penalty of perjury is insufficient; it’s just the taxpayer’s litigating position, and establishes nothing.

Moreover, Catherine Ann should know better.

“Petitioner took the position that she was not required to file a return until advised by respondent.  Petitioner’s legal position is expressly contradicted by section 6012(a)(1)(A), which requires that individuals file returns if their income exceeds the exemption amount plus the standard deduction. Courts long have held that ignorance of the law is no excuse, and we will not make an exception here.  United States v. Int’l Minerals & Chem. Corp., 402 U.S. 558, 563 (1971) (‘The principle that ignorance of the law is no defense applies whether the law be a statute or a duly promulgated and published regulation.’); Carlebach v. Commissioner, 139 T.C. 1, 17 (2012).  And we find petitioner’s claimed ignorance of the law particularly unappealing because she is a lawyer.  In addition, petitioner did not make any other argument to justify her failure timely to pay.  As to petitioner’s failure timely to pay, she maintained at trial and in posttrial briefing that she did not have an obligation to file a return until advised by respondent because she was due a refund, which as we note above does not establish reasonable cause for her failure to comply with the law.  She now must accept the consequences of resting her entire case on this one argument.” 2017 T. C. Memo. 106, at pp. 15-16.

And though IRS was able to recover the payment of Catherine Ann’s nontax debt, Judge Pugh finds that irrelevant.

Takeaway- Though Tax Court may be a “small court,” try your case like it was a very big court.

No. not the 1924 Stallings-Anderson Broadway hit. In place of Sergeant Quint and Captain Flagg battling one another and Kaiser Bill, we have Ian D. Smith, 148 T. C. 21, filed 6/7/17, battling the Ogden Sunseteers.

ID turned up and handed over the skinny on a barter dodge that, when blown, netted the fisc $20 million. Collected. In hand paid.

All heart, the OS claim that less than $2 million of the swag came from info directly provided by ID, and the rest from the Bould Revenoors who swooped down on the barterers and emerged with the boodle. So ID is in the 10% class, less sequester.

The magic language for Judge Gerber to unpack is “amount in dispute.” Is that only what turned up when IRS’s sleuths followed only ID’s lead, or what they eventually unearthed after ID turned them on to the villains?

Section 7623(b)(5) provides the $2 million threshold for applying the 15% to 30% bonus. Below that, the blower only can get 10%. In either case, of course, the 7.3% sequester taketh away whatever the blower gets.

All ID’s direct stuff got was $198K, based upon $1.77 million of employment tax chicanery. The remaining $19 million of income tax money IRS got by themselves.

Need I point out that if ID didn’t turn IRS’s sleuths on to the perps, IRS would have gotten, you should pardon the expression, bortscht?

Well, Judge Gerber, with a case of first impression, comes down for ID.

“We are unable to accept respondent’s contention that the subsection (b)(1) determination of the size or percentage of an award applies only to those portions that were directly or indirectly attributable to the whistleblower’s information or that respondent’s definition of ‘amounts in dispute’ should be employed to determine whether the $2 million threshold of subsection (b)(5)(B) has been met.  The application of respondent’s position in this case would lead to anomalous results.  Petitioner’s whistleblower claim caused the initiation of an examination that resulted in the collection of almost $20 million of tax and penalties, almost $2 million of which was directly or indirectly attributable to petitioner’s information. In spite of those results, under respondent’s position the provisions of section 7623(b) would not be applicable in this case.” 148 T. C. 21, at pp. 15-16.

If this subject intrigues you (and it did intrigue me), see my blogpost “The $200,000 Misunderstanding,” 11/20/14, the Rob Lippolis story. And today Rob is back, with IRS again failing the summary J highjump, in Robert Lippolis, 2017 T. C. Memo. 104, filed 6/7/17. When I said in my aforementioned blogpost that IRS will have to plead and prove what was “in dispute,” I got it right.

ID does even better than Rob.

“Accordingly, it does not follow that the limiting standards of section 7623(b)(1) and (2) providing for a percentage to be applied to the portion of  ‘collected proceeds’ to which the whistleblower’s information ‘substantially contributed’ would also apply in determining whether the initial $2 million threshold has been met.  Conceptually, section 7623(b)(5) is a threshold to ensure that the less discretionary mandate of subsection (b)(1) is applied to taxpayers with a certain minimum amount of annual income or with a significant amount of tax liability.  In effect, respondent has backed into the subsection (b)(1) and (2) limitations to interpret the subsection (b)(5) threshold.” 148 T. C. 21, at pp. 22-23.

The threshold is reached. All that remains is to determine how much ID’s info helped. But he’s in the 15%-30% zone.

One of the longer-running shows at The Glasshouse at 400 Second Street, NW is Diebold Foundation, Transferee, Docket No. 24702-08, filed 6/6/17. It seemed to be winding down after trial, a trip to 2nd Cir, and a collapse of the ring-a-ring-rosie that tried to marry a made-up loss to a heavy gain, the ancestor of any number of Section 6901 give-and-goes.

But now the agile attorneys for Diebold turn to the existence of collapsed Double-D Ranch, the corporate intermediary for whom Diebold was transferee.

They claim the original SNOD is invalid, because it listed the wrong year. Double-D ran a short year because it consolidated with Diebold, but as the transaction had been collapsed, the short year collapsed as well, and the correct tax year wasn’t the short year but the full year. It only took them four (count ’em, four) years to come up with this.

“Double-D Ranch filed a short year return on the basis that it entered into a consolidated group upon the sale of the stock on July 2, 1999. A corporation’s tax year ends when the corporation becomes a member of a consolidated group. Sec. 1.1502-76(b)(1)(ii)(A)(1), Income Tax Regs. Petitioner argues that as the Court has held no stock sale occurred in substance, Double-D Ranch did not become a member of a consolidated group on July 2, 1999, and accordingly, it was improper for Double-D Ranch to file a short year return. Petitioner’s argument follows that because it was improper to file a short year return, the notices of deficiency and transferee liability based on the short year are invalid and the Court lacks jurisdiction. Petitioner argues that Double-D Ranch’s proper taxable year is July 1, 1999 through June 30, 2000. According to petitioner, the Commissioner should have issued the notice of deficiency and the notice of transferee liability for Double-D Ranch’s taxable year ended June 30, 2000. See IRC sec. 7701(a)(23); sec. 7701(a)(24).” Order, at p. 2.

I give the Diebold attorneys, from a well-known firm that originated in Chicago, a Taishoff  “good try, third class.”

Judge Goeke doesn’t even give them an “Oh Please!”

“Double-D Ranch in substance liquidated and terminated its existence for Federal tax purposes on July 2, 1999. It was proper for respondent to issue notices on the basis of the short year ending July 2, 1999. The notices of deficiency and transferee liability were valid, and the Court has jurisdiction in this case.

“Furthermore, even if we were to find that respondent issued the notices with respect to an incorrect taxable period, we would hold that the error did not invalidate the notices because the error did not mislead petitioner.” Order, at pp. 4-5.

You picked it, Double-D, you own it.

Judge Goeke, you spent six (count ’em, six) pages, and much “somber reasoning and copious citation of precedent,”on this order. Why not designate it? I have work to do, so make it easy for the poor blogger. Please.

There’s a witness who really wants to testify, but he has a wee problem getting to the courtroom. Mr Keys, the witness, doesn’t have the keys to the Federal slammer wherein he sits, and apparently isn’t going to get them any time soon.

And that’s a problem for the parties who want Mr Keys’ testimony. Once again appearing on this my blog are Gregory Raifman & Susan Raifman, Docket No. 3897-14, filed 6/5/17.

Greg & Sue haven’t the best of batting averages in the Glasshouse. See my blogposts “We Wuz Robbed,” 8/7/12 and “An Unerring Nose for Fraud,” 2/27/15.

But they catch a break from Judge Nega, because he lets in the written declaration of Mr Keys in lieu of his actual testimony.

However, the exhibits to his written declaration run aground and are tossed.

So if a key witness (sorry, guys) is tied up when it’s time for trial, try the written declaration route.

IRS needs to do some updating of its forms and letters. Both Judge Ashford and that Obliging Jurist Judge David Gustafson agree.

But Judge Ashford goes first, as she has a full-dress T. C., David T. Myers, 148 T. C. 20, filed 6/5/17. Dave is reprising the Incomparable Comparinis, as to whose epistolary interlocutions see my blogpost “Contra Proferentem,” 10/2/14, wherein I suggested what verbiage the Ogden Sunseteers should insert in their shoot-down billets doux to start the petitioning clock on the wannabe blowers.

Of course they didn’t. So Dave and the OS volleyed missives back and forth over five (count ‘em, five) years. At the fourth year in the chain, OS sent Dave the “we got no money” brush-off. This they claim was the final determination.

Dave kept volleying through year four until, disgusted with OS, he e-mailed other governmental officials into year five, admitting he had a letter from OS saying “no repeat no” at year four. And he got no other letters.

It took Dave 290 days to file a petition. Well, this is a thirty-day rule situation.

Judge Ashford borrows from deficiency learning. While Dave could petition from any of the OS letters, cf. Comparini, he had notice and a reasonable time to file after the last one in year four.

Although OS didn’t send any letters by certified mail, in contravention of the then-IRM provision, the IRM gives Dave no rights, and anyway he got the letters in time to petition.

As for the updating, “…the Whistleblower Office typically does not include in such letters any information regarding a claimant’s right to appeal to this Court or the timeframe in which he must do so.” 148 T. C. 20, at p. 11 (Footnote omitted, but see infra, as my expensive colleagues say).

But the OS apparently got the hint. Here’s the footnote.

“Indeed, the consistent lack of this information in such letters not only is inconsistent with respondent’s practice in many other areas where our jurisdiction is implicated (in particular, deficiency cases, cases involving relief from joint and several liability, and lien/levy cases), but also, we believe, can be prejudicial to claimants–especially because there are only 30 days to appeal–and the cause of much unnecessary confusion and consternation in our adjudication of such cases. Respondent apparently agrees, as the IRM was modified, effective August 7, 2015, to direct that the Whistleblower Office include such information in the final determination letters that it issues to claimants.  See IRM pt. 25.2.2.9(9) (Aug. 7, 2015).” 148 T. C. 20, at p. 11, footnote 6.

Of course, putting it in the IRM doesn’t help the blowers if the OS don’t bother updating their letters.

And now for that Obliging Jurist Judge David Gustafson, who will join me in suggesting appropriate revisions to another IRS missive, the one-size-fits-both CDP NOD.

Here’s Douglas Stauffer Bell & Nancy Clark Bell, Docket No. 1973-10L, filed 6/5/17. Doug & Nancy are befuddled. They petition a NOD as to levies, but don’t petition one as to liens. So even Obliging Judge Gustafson can’t review the liens. No petition in thirty days, no review.

But it’s not like pro sese Doug & Nancy were negligent.

“We have sympathy for the petitioners’ probable confusion about whether they needed to file another petition (or amend their existing petition) to obtain judicial review of the notice of determination concerning the liens. Where a taxpayer is receiving multiple forms of communication from the IRS about both liens and levies, concerning multiple liabilities for multiple periods, the opportunities for confusion over oversight are obvious. The IRS’s all-purpose form for giving notice of determination for both liens and levies (‘Notice of Determination Concerning Collection Action(s) Under Section(s) 6320 and/or 6330’) is not helpful in such a situation. Sometimes the form denotes a lien determination, sometimes a levy determination, and sometimes both. The front page gives no indication; one must read and understand the summary on the second page or the attachment, in order to know whether it is for lien or levy or both. If a taxpayer has been dealing with IRS Appeals about both liens and levies, the taxpayer may assume wrongly that the notice addresses all of his pending issues and that a timely petition will bring all those issues before the Tax Court. We assume it is not our place in a CDP case to stand in judgment of the IRS’s forms, but we believe that the this [sic] form could be improved.” Order, at pp. 1-2.

Judge Gustafson, it may not be the Court’s place, but we bloggers stand (or sit) and type in judgment about all kinds of delictions, misadventures and misdirections, whether on the part of government, litigants, advocates, clerks or whomever. And we are nowise loath to sound the trumpet, summon the elders, and proclaim a solemn assembly, to paraphrase a much more exalted commentator.

See my blogpost “Fake Out,” 12/16/14. And let’s have another Judicial Conference, as Congress ordered two years ago. Maybe we can talk all this over.

PS- IRS and Doug & Nancy will agree to a remand to Appeals, so Doug & Nancy get a supplemental CDP, from which they can petition, but only as to what the supplemental CDP covers.

I remember with fondness the old Schedule H (I think it was), which, again allowing for an old man’s faulty memory, allowed for a five-year averaging of income to permit lower taxation of windfall amounts, such as we got in the boom times years ago, when the seven fat kine were stomping their seven lean compatriots. But the 1986 Tax Reform Act put paid to that particular goody.

Though dead, it is apparently not forgotten, as another attorney tries it on in a NOD case.

Here’s Stephen C. Moore, Docket No. 4290-16L, filed 6/2/17, today’s designated hitter from Judge Morrison on an otherwise rather somnolent Friday at The Glasshouse. Really, Judge, this should have been an opinion.

Stephen is a plaintiffs’ PI lawyer (that’s Personal Injury). That work generally yields big payouts after years of getting by, and practitioners therein hope to glean enough in the out years to keep them eating until the next Big Bird drops off the goodies at the landing strip.

Well, Stephen is a trifle behind on five (count ‘em, five) years’ worth of tax. He’s not contesting liability, so it’s abuse-of-discretion after his installment deal gets bounced at the CDP. And Stephen has a table showing seven (count ‘em, seven) years of income previous to the CDP, which he averages out (after dropping out a $1.5 million referral fee he picked up along the way, claiming that was an outlier; we should all have such outliers).

Stephen claims Appeals looked at only the most recent year, but he didn’t earn that much every year.

Appeals wasn’t buying, and neither was Judge Morrison. First, Appeals looked at Stephen’s income for the three most recent years.

“…the Appeals Office considered the three most recent years. To consider more years of income might increase the reliability of an estimate of income in some circumstances. Yet income in recent years might offer a better prediction of future income than income in older years. We hold that the Appeals Office’s decision to focus on the three most recent years was a matter of judgment rather than an abuse of discretion.” Order, at p. 5.

And omitting the $1.5 million from the mix fares no better.

“Moore urged the Appeals Office to exclude the $1.5 million referral fee in calculating his…income. If the Appeals Office had excluded this fee, his [income for that year] would have been $114,425. Under the Appeals Office’s approach of estimating projected income from the lowest income of the three years …the lowest income would have been [that year’s] income–$114,425. This is low compared to other alternative predictions. For example, it is less than a third the annual future income that Moore projected–$394,954. We think the Appeals Office was within its discretion in refusing to exclude the $1.5 million referral fee from its calculations of the income for [that year]. Order, at p. 5.

An average is an average; it takes in big scores and droughts and evens them out.

So Appeals wasn’t wrong in kicking Stephen’s number.

Takeaway- Just because Stephen lost is no reason not to try income averaging where the client is in a boom-and-bust situation. Just use recent numbers (unless you can show a major error in so doing), and don’t cherrypick.

I’ve often blogged The Phone Call. For the ur-text, see my blogpost thus entitled, 4/15/14, the 102nd anniversary of the sinking of RMS Titanic.

I therein described The Phone Call thus: “Every lawyer has received The Phone Call. It comes, for the most part, long after the case or matter is concluded, the file closed, and client forgotten (or nearly so). It comes, again for the most part, when one is finally packing up to go home after an exhausting day, and one dares to turn one’s mind to something cold, and clear, and containing an olive.”

The client’s voice is grating, loud. I omit the expletives and colorful metaphors in deference to the delicate constitutions of my readers. “You XYZ, you never told me about Pi R Square when you did (or didn’t) do ABC!”

Well, today I am pleased to report on Barry M. Smith & Rochelle Smith, Docket No. 14900-15, filed 6/2/17. In keeping with the point of this blogpost, it’s really to do with their counsel.

In a phone-a-thon with the parties after IRS counsel raised issues of conflict of interest between Barry & Rochelle, Judge Lauber suggested conflict waivers might solve the problem. Maybe Judge Lauber concluded the conflict was waivable, per ABA Model Rule 1.7(b).

Of course, there must be informed consent, expressed in writing. And what that means can be found in Rule 1.0(e). To save you from looking it up, the lawyer has to give the client “adequate information and explanation about the material risks of and reasonably available alternatives to the proposed course of conduct.”

Tax Court Rule 24(g) provides for conflict waivers in slightly different terms, but there’s no apparent conflict between Tax Court and ABA here.

Well, Judge Lauber suggested in the phone-a-thon that when Barry’s & Rochelle’s conflicted counsel got the waivers, they share same with IRS counsel.

Barry & Rochelle’s counsel says no.

“…petitioners filed a Motion for Reconsideration of Order, which the Court believes should properly be characterized as a status report. In that status report counsel for petitioners represent that the waiver agreements executed by petitioners include confidential information concerning legal advice and potential risks regarding the representation that is protected by attorney-client privilege. Counsel for petitioners accordingly submit that it would be inappropriate to disclose these documents to counsel for respondent.” Order, at p. 1.

In order for consent to be “informed consent,” every reasonably foreseeable possibility must be dealt with. And a duplicate original should be locked away very carefully. A fortiori, as my high-priced colleagues would say, any such consent would be replete with client confidences, potential trial strategies, evaluations of potential witnesses and evidence, in short, whatever could fend off The Phone Call.

Judge Lauber: “We accept the representations of petitioners’ counsel that they have secured the necessary consents and have thus complied with the requirements of Rule 24(g). Given the manner in which these waiver agreements have apparently been drafted, we do not believe it necessary that copies be supplied to respondent’s counsel.” Order, at pp. 1-2.

I submit that there is no other way to draft such waivers adequately and in compliance with the governing Rules. And avoid The Phone Call.

No, not the 1940s radio quiz show that was the first prerecorded show (to permit it to be aired on the West Coast in prime time simultaneously with East Coast prime time).

This is the factual issue raised by Kenneth A. McRae, Docket No. 21799-016, filed 6/1/17, a designated hitter off the bat of Chief Special Trial Judge In Waiting Lewis (“Wotta Name!”) Carluzzo.

Ken may be “impertinent, if not frivolous” (Order, at p. 2), but CSTJIW Lew finds that Ken has a valid point.

Ken didn’t bother to file, so the SNOD from which he’s petitioning is based on SFRs, which in turn are based on Information Return Documents.  The exact nature of these InfoReDs aren’t specified, but might be W-2s or 1099s from third parties.

Ken claims “on information and belief” these were “based on inaccurate and unreliable records.” Order, at p. 1.

Now IRS claims Ken only raised legal questions, and these were at best dubious. But CSTJIW Lew isn’t handing IRS summary J just yet.

“The details of the information reported on the ‘Information Return Documents’, however, are not set forth in the copy of the notice attached to respondent’s motion, which is the only copy of the notice currently in the record. That being so, and giving petitioner the benefit of every doubt as we are required to do in our consideration of respondent’s motion, see Bell Atlantic Corp. v. Twombly, 550 U.S. 544 (2007), the above-referenced allegation gives rise to a justiciable issue, that is, whether the information return reports relied upon by respondent are accurate and reliable. Consequently, resolving this case in summary fashion, as respondent’s motion would have us do, is inappropriate at this stage of the proceedings.” Order, at pp. 1-2.

But lest Ken be too elated, CSTJIW Lew prunes the impertinent and/or maybe frivolous material from his petition.

Takeaway- When you’re fighting SFRs and InfoReDs, make sure IRS has properly noticed and pled them, and sweat the client for whatever s/he may have gotten. Review same, and if any are dubious, you know what to do.