Marjorie E. Davis, Petitioner and Lee A. Davis, Intervenor, Docket No. 3719-16, filed 11/30/17, starts with Marjorie standing alone. She wants Section 6015(e)(1) detachment, apparently from Lee, who doesn’t object, for her tax liabilities for nine (count ‘em, nine) different tax years.

IRS held Marjorie in notwithstanding, and gave her a NOD. So Marjorie headed for Winston-Salem, NC, to plead her case before Judge Ashford. She’s due to go to trial next week, but IRS has moved to dismiss Marjorie’s petition.

Why? Valid NOD, timely petition. Except.

“…an Order discharging the debts of petitioner, including the income tax liabilities for the years at issue, was entered by the United States Bankruptcy Court for the Western District of North Carolina pursuant to 11 U.S.C. section 727. Furthermore, according to respondent, respondent has adjusted petitioner’s IRS account so that she has zero tax, interest, and penalties due for the years at issue. Accordingly, respondent asserts, there is no outstanding liability owed by petitioner for each of the years at issue; there is neither an underpayment nor a deficiency remaining for which this Court may provide relief under I.R.C. section 6015.” Order, at p. 1.

So why isn’t Marjorie walking out with head held high?

Marjorie wants any Tax Court decision to overturn the denial of her stand-aloneness.

No can do, says Judge Ashford.

“It is undisputed that petitioner received a discharge of her income tax liabilities for the years at issue by the Bankruptcy Court and that her IRS account reflects that she has no outstanding tax liabilities for those years. Petitioner thus has been ‘relieved’ of liability for the years at issue and as a result, there is no remaining case or controversy to sustain this Court’s jurisdiction over her case. Indeed, petitioner’s situation is no different than the situation in a lien and levy action under I.R.C. sections 6230(c) and 6330(d) where, after commencing such an action in this Court, the underlying liability is paid in full and the IRS has released the applicable lien and no longer needs, nor intends, to pursue collection by levy; there is no further relief that we are able to grant under I.R.C. sections 6320 and 6330 and the case must be dismissed as moot.” Order, at p. 2.

Can’t be relieved when discharged.

Never were the words of The Man From Mumbai truer spoken than yesterday, 11/29/17.

I gave myself a day off, called a truce to my labors, and headed for the Big A, on a delightful sunny afternoon. I should’a stood in bed. I didn’t cash a single winning ticket; I was as vexed as mild-mannered horse-talker Andy Serlin with the number of scratches. Why send a horse to a meet if you don’t mean to run her/him? OK, a vet scratch can’t be helped; but half-a-dozen scratches, not counting also-eligibles?

Howbeit, when I return,  materially poorer, from my non-holiday, Judge Lauber is stamping around with Lincoln C. Pearson and Victoria K. Pearson, 149 T. C. 20, filed 11/29/17.

It’s only tangentially Linc’s and Vic’s story. The players are an administrative assistant in the law office of Linc’s and Vic’s trusty attorneys, and Rob’t. H. Tilden. You remember Rob’t H. Tilden, whose stamp act caused almost as much of a tax kerfuffle as King George III’s? No? Then see my blogposts “Stamp Out Stamps.com – Part Deux,” 7/20/15, and “Just As I Was Settling Down,” 1/13/17. There, now.

Well, Judge Lauber and a majority of the USTC bench come out with their hands up, and Judge Easterbrook’s 7 Cir exegesis carries the day.

When it comes to USPS postmarks or the lack thereof, Reg. 301.7502-1(c)(1)(iii)(B)(3) rules.

Although Judge Lauber says a lengthy exposition is not needed in light of 7 Cir’s reversal in Tilden, he gives it the full monty.

“That provision applies ‘[i]f the envelope has a postmark made by the U.S. Postal Service in addition to a postmark not so made.’ In that event, ‘the postmark that was not made by the U.S. Postal Service is disregarded.’ Ibid.

“The envelope in Tilden, like the envelope here, did not actually have a USPS postmark, but only a Stamps.com postage label showing the date on which the label had been generated. But the record in Tilden, like the record here, included USPS tracking information showing that ‘the envelope entered the U.S. mail system [a day late].’ T.C. Memo. 2015-188, 110 T.C.M. (CCH) 314, 316. This Court concluded that this tracking datum could ‘serve as the functional equivalent of, or be tantamount to, a USPS postmark.’ Id. at 316 (citing Boultbee v. Commissioner, T.C. Memo. 2011-11, 101 T.C.M. (CCH) 1031, 1033-1034). Invoking subdivision (iii)(B)(3) of the regulation, this Court disregarded the Stamps.com postmark and concluded that the petition, deemed to have been postmarked on [a day late], was not ‘timely mailed.’” 149 T. C. 20, at pp. 11-12.

Well, 7 Cir blew that one off when IRS stiped that the petition was timely, based on a USPS statement from the relevant post office that, notwithstanding the track-and-confirm, the petition hit the mailbox in time.

Judge Buch concurs, with a lengthy discussion of technology since the old-fashioned postage meter.

But Judge David Gustafson is pressing Judge Holmes hard in the stretch of The Great Dissenter stakes. IRS isn’t “interpreting” its regs, it’s jumping several steps to buy into Judge Easterbrook’s view of Stamps.com and IRS’ acquiescence therein.

The bottom line is that anything other than the cancellation by the clerk behind the post office window can be jiggered to suit. While the USPS Manual says they’ll over-cancel anything wrongly dated, with the volume of mail as it is, things can slip. And while Stamps.com Q&A says you must deposit the article in the USPS mailbox the day, nobody is standing there to make sure you do it. Of course, Tax Court can’t conduct its own online investigation into these matters, per FRE 201.

“It appears to us that, if a date printed on a postage meter label or on a Stamps.com label could count as a postmark, it would have to be because the sender is obliged to mail the item on the date appearing on the label–an obligation as to which the opinion of the Court is silent. Otherwise, the date simply gives information about when the postage was purchased, not when the item was mailed. A mere receipt for the purchase of postage is not a ‘postmark’.” 149 T. C. 20, at p. 37.

Clearly Judge David Gustafson doesn’t oblige USCCAs like he does litigants.

Judge Morrison is with him on this.

I  point out that the same trusty attorney represented Rob’t. H. Tilden as represents Linc and Vic. His clients apparently make a habit of dashing in, SNOD in hand, at the last red-hot minute. Or maybe he likes photo-finishes.

Me, I couldn’t win yesterday if there was one.

After my lamentation yesterday about professional liability and nonpaying clients (cf. my blogpost “England, Texas, Who Cares?” 11/27/17), it did my jagged old heart good today to see the lawyers did get paid in William M. Barry and Trudi G. Swain, 2017 T. C. Memo. 237, filed 11/28/17.

But Bill wasn’t best pleased, as his claimed deduction for legal fees gets scuppered.

Bill claimed he paid $34K, but ex-Ch J Michael B (“Iron Mike”) Thornton, DFC (Dictionarian First Class) finds that Bill could only prove $25K thereof, which Bill forked over in his time-barred fight to recoup $241K in alimony he claimed he overpaid his loved-once.

Apparently Bill’s lawyers got it right, and the $241K was deductible as alimony. Had Bill gotten it back, the tax benefit rule says the whole enchilada gets recaptured in year of receipt and is therefore taxable. So the legal fees paid in recouping same would be expenses for the production of income, no? Hence deductible, no?

Negatory, says Ex-Ch J Iron Mike, DFC, and he needs no stroll through the dictionary to get there.

“In United States v. Gilmore, 372 U.S. 39, 51 (1963), the Supreme Court held that legal fees incurred by a taxpayer in resisting his wife’s property claims in a divorce proceeding were not deductible because the wife’s claims that gave rise to the fees stemmed from the taxpayer’s marital relationship rather than from any profit-seeking activity.  The Court stated that ‘the origin and character of the claim with respect to which an expense was incurred, rather than its potential consequences upon the fortunes of the taxpayer, is the controlling basic test of whether the expense was ‘business’ or ‘personal’ and hence whether it is deductible or not under * * * [section] 23(a)(2)’ of the 1939 Code, as amended, (the predecessor of section 212(1) and (2) of the 1954 Code).” 2017 T. C. 237, at pp. 4-5. And on the same day as Gilmore, the Supremes sang the same song in Patrick v. US, 372 US 53 (1963), interpreting Section 212(2).

It’s not the end, it’s the beginning that determines deductibility: did the claim arise out of business (like spouse fighting ex who was trying to sabotage spouse’s business)? And there’s the Reg. Sec. 1.262-1(b)(7) allowing the deduction for the spouse’s legal fees when fighting for alimony that would be directly includable in spouse’s income. But none of that helps Bill. He stipulated that, but for the marital relationship between himself and ex, there would have been no lawsuit and no legal fees. The claim arose from the marital relationship, and that makes the expenses in connection therewith nondeductible.

A timely point is the obsolete “husband-wife” language in statute and regs, but ex-Ch J Iron Mike, DFC, brushes that off. Tax Court reads all this spousal stuff gender-neutrally.

So Bill gets neither the alimony back nor his deduction. But I hope the lawyers got paid.

Given the pummeling, condemnation, calls for repeal, replacement, shrieking,  tweaking and political scrimmaging to which the Affordable Care Act has been subjected these last seven years, I feel like I’m piling on long after the whistle. But Judge Buch’s off-the-bench designated hitter Juanita P. Morgan, Docket No. 14362-16, filed 11/28/17, points up yet again the unintended consequences that attend this complicated statutory ziggurat.

Juanita’s old insurance lacked the essential bells and whistles that ACA engrafted onto her coverage. To bring her insurance up to snuff, Juanita joined the exchange and got $7K of premium assistance. Juanita was then under the 400% of Federal poverty cutoff.

But Juanita’s generous heart betrays her.

Judge Buch takes up the tale: “After the eligibility determination, but still in [year at issue], one or more of Ms. Morgan’s family members needed financial assistance. Ms. Morgan had funds that she could withdraw from a retirement account without penalty and graciously decided to help her family. She was not aware that she might run afoul of the ACA income limits. Ms. Morgan took gross distributions from her individual retirement accounts in the amount of $36,408.

“Ms. Morgan timely filed her tax return and reported an adjusted gross income of $49,282. Due to the withdrawal from her retirement accounts, Ms. Morgan’s income was greater than the premium assistance credit eligibility threshold.” Order, Transcript, at p. 4.

Well, Juanita’s 1099-R and 1040 set off the usual sounding gongs and clanging cymbals at the IRS Service Center, and Juanita gets hit for the $7K.

Judge Buch can do nothing to help.

“Ms. Morgan’s withdrawal of retirement funds to help her family put her income over 400 percent of the Federal poverty line. Although we are sympathetic to Ms. Morgan’s situation, the statute is clear; because her income was over that threshold, she was no longer entitled to the credits she had received. And excess advance premium tax credits are treated as an increase in the tax imposed. Sec. 36(B)(f)(2) (A). She is liable for the $6,930 deficiency.” Order, Transcript, at p. 7.

So Juanita had adequate insurance, for which she paid more than she wanted only because she helped her kinfolk.

I will not point out the obvious solution, as this is a nonpolitical blog.

Yo, tax pro, read and heed the e-mails that you’ll be getting from RPO. An ounce of prevention is worth a pound of cliché.

This heads-up hit my inbox by dawn’s early light.

“In recent years there has been much talk about data security. You may ask ‘Why is data security important?’ Tax professionals are becoming the number one target for identity thieves. Consider the treasure trove of information you possess. You have sensitive, personal and financial information about your clients, in your files and on your networks. When cybercriminals breach your systems they gain access to the data of hundreds, if not thousands, of taxpayers. They use this stolen information to file fraudulent tax returns, commit financial crimes, and create financial havoc for your clients. Remember, as a tax preparer you are subject to federal laws that require safeguarding of client records and information.

“This is National Tax Security Awareness Week, hosted by the IRS, state tax agencies, and the tax industry. You can read more about the campaign on IRS.gov, keyword: IR-2017-190.

“Please watch for three additional emails from us about data security in the weeks ahead, leading up to the start of the 2018 filing season.

“Carol A. Campbell
Director, IRS Return Preparer Office”

Cynics may ask why the cybergangsters need to hack you or me, when 147 million Equifax dossiers have been stolen, each containing “all ye know on Earth and all ye need to know,” as a much finer writer than I put it, with apparent impunity both to thief and theftee.

Still and all, your clients can sue you. Most of us never put mandatory arbitration clauses in our engagement letters. In fact, for some of us, it may be unethical to do so.

If the divorce decree doesn’t state the payment(s) cease(s) with death of payee spouse, and local law doesn’t either, it isn’t alimony.

I’ve blogged Section 71(b)(1)(D) to death (sorry, guys). But some family law types are going to get hammered in a professional liability suit. And I’m a member of the New York State Bar Association Committee on Association-Sponsored Insurance Programs. Although nothing I say should be deemed or construed in any way to state an official position, I don’t like it when lawyers get sued, and premiums go up. Been there, done that, and won. But why go through the agita?

OK, here’s jolly old England with Gary A. Wolens, 2017 T. C. Memo. 236, filed 11/27/17. Y’all remember Gary from his discovery joust with IRS over his loved-once’s tax returns. If not, check out my blogpost “Nolens, Wolens,” 4/4/16.

Gary married loved-once in Our Fair State, but promptly took off for Blighty and there he shed loved-once, the English Court issuing an Order for Financial Provision. That’s not a divorce decree, says Judge Pugh, but she and we will pretend that it is. Gary claims NY domicile, and NY law should govern whether his lump-sum payment to loved-once is or isn’t alimony. And NY is the marital domicile.

Nope, says Judge Pugh, domicile isn’t the issue.

“Although the parties dispute domicile, neither party is challenging the validity of the divorce.  We, therefore, conclude that the law of the marital domicile is not the law that we must interpret.  Section 71 requires us to interpret the divorce order. The divorce order was issued under English law, as petitioner acknowledged.  We, therefore, will apply English law to determine the rights and obligations created by the English court’s order.” 2017 T. C. Memo. 236, at pp. 6-7. (Citations omitted).

Yeah, says Gary, but England isn’t a “State,” and the cases say apply State law.

So what, asks Judge Pugh. “We also reject petitioner’s contention that the ‘State law’ referred to in our analysis of section 71(b)(1)(D) means the law of one of the fifty States.  We previously applied the law of a foreign country in determining the taxability of rights created by a divorce decree granted under the laws of that country.“ 2017 T. C. Memo. 236, at p. 8 (Citations omitted, but Tax Court has applied Latvian law and German law in the family law context.)

Gary loses.

Now, deep in the heart of Texas, Courtland L. Logue, Jr., 2017 T. C. Memo. 234, filed 11/27/17, saves me from the angst of reporting how a lawyer blew Section 71(b)(1)(D), by having his trusty nonlawyer business manager, whom I’ll call Chip, draft the marital settlement agreement. Courtland had had a prenup, but drafter not stated. Maybe Courtland didn’t like paying lawyers’ fees, and perhaps Chip was cheap. So the marital settlement agreement, minus you-know-what, gets incorporated in the divorce decree from the Two Hundred and Sixty First Judicial District (Travis County).

Judge Nega has this one, and Texas law governs both prenup, marital settlement agreement and divorce decree.

There’s some argy-bargy about whether the Texas Family Code or general contractual provisions of law govern, but Judge Nega  has a Texas case that says that contract governs, and even if the Two Hundred and Sixty First Judge incorporates the marital settlement agreement into the decree, and has jurisdiction to enforce, that doesn’t make the payments court-ordered support payments that the Court can modify. Texas lawyers, see footnote 8 at p. 11. Here be dragons.

What’s more, it doesn’t matter when the payment is made, even at the moment the Judge signs the decree. “The complete termination upon the death of the payee spouse of all payments made as alimony is an indispensable part of Congress’ scheme for deducting a payment as alimony for tax purposes.  See H.R. Rept. No. 98-432 (Part II) at 1496 (1984), 1984 U.S.C.C.A.N. 697, 1138.  The fact that payments were in fact made simultaneously with the execution of the agreement is irrelevant.” 2017 T. C. Memo. 234, at p. 8, footnote 12. (Citations omitted).

For whatever reason, neither Chip nor Courtland’s lawyer raised good faith reliance to abate the five-and-ten chop.

Be warned, family lawyer.

No, not a variant on the Knebel-Bailey novel or the 1964 Frankenthaler thriller. This is the story of Benjamin Jeffery Ashmore, 2017 T. C. Memo. 233, filed 11/27/17, and how his bankruptcy discharge failed to wipe out the overstated withholding and underreported income with which IRS dinged Benj.

It’s a tangled tale. Benj claimed a refund, IRS gave it him, but hauled it back when the overstated withholding caught up with the return. The return was due April 15, 2010. Remember that date.

But overstated withholding is directly assessable, so no need for a SNOD. See Section 6201(a)(3) and 6213(b)(1). It’s a clerical or mathematical error. But of course Benj could challenge that in a CDP, as he had no prior opportunity, except he didn’t challenge, but relied on the bankruptcy discharge he’d gotten..

Meanwhile, Benj did get a SNOD for $20K of unreported income, petitioned that, but while that one was wending its way through Tax Court, Benj filed bankruptcy on April 8, 2013. Remember that date. Benj got a discharge in November, 2013, but IRS never filed proof of claim, and the tax liabilities were never adjudicated.

Benj gets dinged for the unreported and the overstated withholding post-discharge, but Bankruptcy Court reopens his case in 2016 for the limited purpose of dealing with a whistleblower (nontax) case, where Benj might get some cash.

Benj claims automatic stay. Nope, says STJ Panuthos.

When a case is closed in Bankruptcy Court, reopening doesn‘t impose the automatic stay unless the Bankruptcy Court so orders, and they didn’t.

And Benj’s discharge doesn’t cover the tax liabilities, all of which involve tax year 2009, when he underreported income and overstated withholding.

“A debtor’s discharge under 11 U.S.C. sec. 727 does not include debts for taxes of the kind and for the periods specified in 11 U.S.C. sec. 507(a)(8)(A).  See id. sec. 523(a)(1)(A).  The taxes that are not dischargeable under that provision include (1) income tax which became due within three years before the date that the bankruptcy was filed, (2) income tax assessed within 240 days of the date the bankruptcy was filed, and (3) income tax not assessed before the bankruptcy was filed but still assessable thereafter.  See id. sec. 507(a)(8)(A).  In other words, taxes which fall within any of the three exceptions listed in 11 U.S.C. sec. 507(a)(8)(A) are not dischargeable and can be collected by the IRS.  See Turner v. United States (In re Turner), 182 B.R. 317, 321 (N.D. Ala. 1995).” 2017 T. C. Memo. 233, at p. 20.

Remember those dates?

STJ Panuthos does.

“Petitioner’s 2009 Form 1040 was due April 15, 2010, which is less than three years before April 8, 2013, the date of the filing of his bankruptcy petition. Thus, petitioner’s 2009 liability was not dischargeable and can be collected by the IRS.  See 11 U.S.C. sec. 507(a)(8)(A)(i); Turner, 182 B.R. at 321.  We are satisfied that there is no material dispute of fact and that as a matter of law the Appeals Office correctly concluded that petitioner’s tax debt for taxable year 2009 was not discharged in his bankruptcy proceeding.  Therefore, we conclude that the decision to sustain the levy was not an abuse of discretion.” 2017 T. C. Memo. 233, at p. 20.

Read the Turner case, abovecited. If Benj had waited another week before dropping the bankruptcy petition, he’d be home free.

No, animal-loving readers, I’m not taking up fox hunting, although a quick chorus of “D’ye Ken John Peel” will always find me gathered with the singers.

It was hard to find a title for this present, without being at risk of Judge Posner’s ire for “loquacity and lame attempts at humor,” like poor Judge Wherry. Cf. my blogpost “There Goes the Neighborhood,” 9/3/13.

So, reaching afar, I have a new entry in my desultory, on-and-off, no-prize, Taishoff best excuse sweepstakes, as the Glasshouse Gang is back from the turkey and Black Friday hiatus.

Here’s Fanta Cisse to lay it on that Obliging Jurist, Judge David Gustafson, in Aboubacar Camara & Fanta Cisse, Docket No. 15728-15, filed 11/27/17.

Ab was on for trial last month in The Glasshouse, but phoned into Judge David Gustafson with the following.

“…he was was [sic] out of the country, that he could not timely reenter because he had lost his travel documents, and that he would contact respondent when he returned, in order to prepare this case for trial.” Order, at p. 1.

Judge David Gustafson, obliging as always, asks for a status report this month.

At the time appointed, Fan, co-petitioner with Ab, comes up with this, as told to IRS’ counsel.

IRS’ counsel “…reported that he learned by telephone from petitioner Fanta Cisse that Mr. Camara has not returned to the United States, and that Ms. Cisse is unaware of when he intends to return or whether he has resolved the problem with his travel papers.” Order, at p. 1.

Judge Gustafson tosses this one back into the general docket, telling Ab he “…should not expect any further continuance of this case but should instead promptly communicate with respondent to prepare the case for trial, should attend carefully to future orders of the Court, and should make plans to appear at the Court on the date next appointed for the trial of this case.” Order, at pp. 1-2.

Not bad, Ab. My morning line has you at 5 to 2.

Not Me It Doesn’t

When I started this blog gig, I got a comment from a reader that advertisements were showing up on my blogsite, which bore no relationship to tax or anything I was discussing.

I replied that, unlike Kevin A. Clark, Jr., who appeared on this my blog in my blogpost “Blogging for Dollars,” 5/12/16, I can neither solicit advertisements for, nor censor any that appear on, this my blog.

All advertising anywhere around here is the sole, entire and complete responsibility of WordPress.com. They get whatever revenue these advertisements produce. They, and they alone, decide what ads show up anywhere around here. Therefore, no canon, presumption, rule or inference shall arise on account of the identity of any advertiser, any goods, services, or political views advertised or expressed by any advertiser, or the form or content of any advertisement, that appears on this my blog. I neither endorse nor sanction any advertiser or what they’re advertising.

My personal views are expressed elsewhere.

Off-Topic

It is near enough four years since I posted the following on 1/16/14. The battle continues.

“This is not a post about tax. It’s about something more important. A Federal Appeals Court has struck down FCC’s rule on net neutrality. Net neutrality means every ISP has to send along traffic at the same rate: it can’t speed up its friends and slow down whomever it doesn’t like.

“Now I’ve said before this is not a political blog. But this post is off-topic for a reason: the Internet is the poor peoples’ press. This is how one person can take on the corporate Goliaths and the malefactors of great wealth.

“If Verizon (of which I am a subscriber and through which this blogpost will go), can effectively shut me down by slowing my transmissions, should I have the temerity to say anything that offends some unretired vice-president or his/her political bedfellows, or even the government of the United States of America, then I am through.

“And so is the freedom of the press and freedom of speech.

“The late Frederick W. Friendly, an exemplar of broadcast journalistic integrity, once asked what would happen were there only three great printing presses in the country: would free speech and a free press survive?

“His answer was to promote independent television networks, and the product was the Public Broadcasting Corporation, which survives despite the efforts to stifle it.

“Now we have the internet, the greatest tool for free speech and a free press since the invention of writing.

“No corporation, no individual, no one, repeat no one, has the right to suppress it.”

The foregoing notwithstanding, the current Federal Communications Commissions is about to vote to suppress neutrality and sell the internet to the highest bidder.

I urge my readers, and anyone whom they can influence, to resist this. Those who do not defend their rights and liberties lose them. Default is not an option.