In Uncategorized on 07/26/2017 at 15:49

All y’all (as my Texas dear ones would say) remember John Rogers, the architect of the great DADS debacle, where he matched Brazilian bad debts with big-ticket US capital gains, and got blasted. No? See my blogpost “There Goes the Neighborhood,” 9/3/13, which has links to certain of the accounts of Mr. Rogers’ delictions.

Today we’re back with another of Mr. Rogers’ little dodges, Derringer Trading, LLC, Jetstream Business Limited, Tax Matters Partner, et al, Docket No. 20872-07, filed 7/26/17. That’s right, this doozy is ten years old. The interest must be more than any eventual deficiency.

Judge Wherry, he who was slapped by Judge Posner for lame humor four years ago as in my hereinabove-cited blogpost set forth (as my wealthier colleagues on the beach in the Hamptons would say), forswears witticisms today, sustaining the FPAAs against the pistol-packing Momma from Massachusetts, who opposes same. The deals are the same; it’s the same Brazilians, the same phony partnership, the same tax game.

But this case blips my transponder because of the chops: IRS wants either 40% overvaluation or 20% accuracy.

So what? Should be a slam dunk, no? As my canty readers have already cottoned on, there’s a Graev in Mr. Rogers’ neighborhood.

Here’s Judge Wherry to tell you all about it.

“As noted above, the FPAAs also determine accuracy-related penalties under section 6662, which include the 40% gross valuation misstatement penalty under section 6662(h). If we were to find that Warwick [another Rogers phony] and Derringer acted with reasonable cause and in good faith, we would not sustain an accuracy-related penalty. Sec. 6664(c)(1). We make this determination at the partnership level, taking into account the state of mind of the general partner. Therefore, Mr. Roger’s subjective intent is the focus here, since he was the sole ultimate owner and the only director of Jetstream, which was the managing member of both Warwick and Derringer.” Order, at p. 8. (Citations omitted).

Well, Tax Court decided long ago that Mr. Rogers was a prankster of low degree, with state of mind to match, so chop away, IRS.


“But since we decided Superior Trading, the Court has issued its opinion in Graev v. Commissioner, 147 T.C. __, _ (slip op. at 12) (Nov. 30, 2016), interpreting section 6751(b)(1), which requires, as a prerequisite for sustaining the assessment of an accuracy-related penalty, the personal written approval of the immediate supervisor of the individual who had made ‘the initial determination of assessment.’ Graev is appealable to the Court of Appeals for the Second Circuit, which has held that the Graev dissent rather than the majority ‘got it right.’ Chai v. Commissioner, 851 F.3d 190, 216 (2d Cir. 2017), aff’g in part, rev’g in part T.C. Memo. 2015-42. The Graev dissent, which the Second Circuit endorsed, would require in this case that written supervisory approval of the penalties determined in the FPAAs should have been obtained “prior to the initiation of Tax Court proceedings.” Chai v. Commissioner, 851 F.3d at 216; see also Graev v. Commissioner, 147 T.C. at slip op. at 29.” Order, at p. 8.

Note that Judge Wherry was out to lunch when the Graev Boss Hoss kerfuffle went down in Tax Court last November. Back then I praised Judge Gustafson’s dissent and said that if ever a full-dress T. C. needed to be appealed, that one should have been. It was, and Judge Gustafson and I were right.

Now maybe the summary J IRS wants here should be limited to the FPAAs; the Section 6751(b) Boss Hoss signoffs aren’t in the record, and anyway the chops haven’t been assessed (but do they need to be? Aren’t they computational, and don’t need partner-level proceedings?). Likewise, Derringer isn’t Golsenized to 2 Cir., so maybe Judge Posner and the 7 Cir. gang might want a whack at this one. So what’s the rush? Hey, it’s only been ten years; some of the Kersting cases are over 30 years old, and still undecided.

Judge Wherry wants to move this one.

“Regardless, to afford respondent an opportunity to establish that he can in fact satisfy the Graev dissent’s requirement for sustaining the penalties determined in the FPAAs, we will deny respondent’s motion for summary judgment with respect to those penalties. We encourage the parties to stipulate to the authenticity of whatever documents respondent may be able to produce in this regard, and submit the penalties issue to the Court under Rule 122.” Order, at p. 9.

Summary J on the FPAA, chops in abeyance.


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