More than once on this my blog I’ve announced that I’ll never be a Tax Court judge. I wasn’t on law review. I wasn’t a member of the Order of the Coif. I never clerked for any judge. I never worked for a white-shoe law firm or Big Four CPA, much less made partner. I never worked in the Office of IRS Chief Counsel, or anyplace in Treasury.

I’m just an old-time, beaten-up, beaten-down, single shingle “general practitioner with very limited experience and mediocre qualifications,” as “the best and wisest man” John H. Watson ever knew put it.

So I must accept my lot in life, with a sly grin that I am not reduced, as Ch J L Paige (“Iron Fist”) Marvel, who has all the qualifications and experience needed for Tax Court Boss, and then some, to the following.

Daniel Ray Hippensteel, Docket No. 18584-17S, filed 11/7/17.

“In that petition, petitioner elected to have this case conducted under the Court’s procedures for small tax cases, pursuant to Internal Revenue Code section 7463. …respondent filed his Answer to the petition. …petitioner filed a Reply To Answer. Generally, a reply to an answer is not to be filed in a small tax case, unless otherwise directed by the Court. See Rule 173(c), Tax Court Rules of Practice and Procedure. Accordingly, we will recharacterize petitioner’s reply.” Order, at p. 1.

Well, if it’s not to be filed, does it get tossed? Or something else?

Daniel Ray’s Reply To Answer (hold your breath) “…is recharacterized as a Letter.” Order, at p. 1.

I’m sure I couldn’t possibly manage that.

Don’t run your family business this way. As a cautionary lesson,, take a gander at VHC, Inc., 2017 T. C. Memo. 220, filed 11/7/17.

Favorite son Ron was running a number of his own companies, some of them in direct competition with the family business. He had built the family company from a local into a national, but then his companies went sour and his promissory notes (some signed, some rubberstamped, some none thereof) went even sourer.

The family C Corp kept advancing money to Ron, even when their own capital was eroded and their lenders walked away. Then they couldn’t get performance and completion bonds to bid some projects.

It takes Judge Kerrigan fifty (count ‘em, fifty) pages to go through the non-loans to Ron and Ron’s wheeling and dealing, but the bottom line is, no bad debt write-off. No arms’-length lender would lend on the terms that VHC did to the favorite son.

And the advances weren’t ordinary and necessary business expenses. A business might advance money to another to shore up goodwill or seek a profit therefrom, but there has to be some hope of an economic return. Ron was under water, and what put the finishing touches on it was this gem.

“By 1999 [Ron’s company] and its affiliates were operationally in trouble.  Advances made by VHC did not remedy Ronald H.’s problems, as [Ron’s company] continued to struggle and in 2001 could not pay its bills.  [Bro] Timothy testified that if VHC had not guaranteed Ronald H.’s and his related companies’ debts in 2002, the companies would have gone into bankruptcy.  VHC continued to make advances to Ronald H. and his related companies throughout the years at issue knowing that they would not be repaid.” 2017 T. C. Memo. 220, at pp. 62-63.

Thanks, Bro, good job. Your eight (count ‘em, eight) male lawyers must have smiled their sweetest smiles as your case went down the drain, while the three (count ‘em, three) women lawyers from IRS must have exchanged behind-the-back fist-bumps.

Equitable recoupment doesn’t help with the interest VHC accrued on Ron’s notes that weren’t paid. Equitable recoupment applies only when two taxes have been applied to the same item inconsistently, and refund of one of the two taxes is barred by SOL.

“Our determination regarding whether VHC’s advances represented bona fide debt does not automatically establish that taxes it paid for closed tax years were erroneously applied.  Application of the equitable recoupment doctrine would require the Court to make further determinations regarding the amount and character of VHC’s purported accrued interest payments from 1997 through 2003.  It is outside the scope of the equitable recoupment doctrine for this Court to make such determinations for taxes collected 20 years ago.” 2017 T. C. Memo. 220, at p. 77.

If you’re confused, so am I. I think what Judge Kerrigan is really saying is, you made your bed, now pleasant dreams.

But VHC does get some giveback on a litigation with a subcontractor that settles years later, requiring a payment by VHC and relinquishment of a claim for which VHC had accrued income years before.

The rest is gone.

Once you get a reputation for being obliging, you can’t get away from it. That Obliging Jurist, Judge David Gustafson, is a victim of his own success. People want him to babysit their cases, even when he’s not going to be at the trial venue.

Here’s his designated hitter, Hailey Property Holdings, LLC, Hailey Land Manager, Tax Matters Partner, Docket No. 24486-16, filed 11/6/17.

Both Hailey and IRS want a continuance of their Atlanta face-off, and they spell out good grounds for that, so Judge Gustafson gives it them.

But they can’t bear to be separated from that Obliging Jurist. IRS and Hailey ask “…that the undersigned judge retain jurisdiction and require the filing of status reports every 90 days.” Order, at p. 1.

Judge Gustafson doesn’t say he’s flattered, but I expect he is.

Nevertheless, relinquishing jurisdiction, he blows off IRS and Hailey. “However, the undersigned judge is not scheduled for a subsequent Atlanta session and does not know whether or when he is likely to be so scheduled. The parties do not suggest that this case might require a special trial session (rather than being included on a future Atlanta calendar) and do not explain any special needs that might exist in this case requiring in the meantime the superintendence of a judge (rather than having the case pending in the general docket).” Order, at p. 1.

Judge, love doesn’t need reasons.

A look at the PRC – USA Tax Treaty completes today’s foursome on the T. C. Memo. parade, as we have Zhongxia Ye, 2017 T. C. Memo. 216, filed 11/6/17. And that’s Dr. Ye, as Temple University gave her a Ph.D. in business administration.

Well, for the two years at issue, Dr. Ye was teaching at Kenesaw State University, and only went back to her native China once for a month, and to Canada for three days for a conference. She was tenure-track at Kenesaw, and got good evaluations toward that end.

Dr Ye didn’t bother paying China income tax or US Income tax either, claiming the Treaty Art. 19 teaching-lecturing-researching out. But the magic words there are “temporarily present.” That means a J or Q visa, not the H1B Dr. Ye had. And Dr. Ye clearly intended to stay, even though her five (count ‘em, five) lawyers claim that various contingencies could have caused her to return.

Too remote, says IRS, and Judge Nega agrees. She was tenure track at Kenesaw, got consistently good evaluations, and was clearly not going anywhere.

Too bad for Dr. Ye and her lawyers, among whom I find a gentleman I believe I met at the last USTC Judicial Conference, Juan F. Vasquez, Jr., Esq. It’s always tough to lose.

Happily this is not the story of those on eternal patrol or on the site of a disaster that claimed many brave lives. This is Judge Vasquez bringing the right kind of relief to FloEtta Bullock, 2017 T. C. Memo. 219, filed 11/6/17.

IRS wanted to hit FloEtta with the wrong kind of relief, Section 61(a)(12) relief of indebtedness.

FloEtta claims she signed on the wrong line when her son borrowed money from the local credit union to buy a new dually for his business. Judge Vasquez takes pains to explain: “A dually truck is a truck with dual wheels on the rear axle for a total of four tires on the rear axle.” 2017 T. C. Memo. 219, at p. 2, footnote 1. It’s pronounced “dooly” by those who drive them.

Well, the tires, axles and everything else got stolen from out in front of FloEtta’s abode, the insurance didn’t cover the note, and the credit union waited five years to hit FloEtta with a 1099-C for the $8k underwater loan. Son and daughter-in-law stopped paying when the insurance settled.

Judge Vasquez: “However, the ultimate question regarding the existence of a bona fide debt is: ‘Was there a genuine intention to create a debt with a reasonable expectation of repayment, and did that intention comport with the economic reality of creating a debtor-creditor relationship?’” 2017 T. C. Memo. 219, at p. 6. (Citations omitted).

FloEtta was a guarantor. She didn’t get the loan proceeds or any benefit therefrom. To be relieved of indebtedness, there must be a bona fide debt. The theory is that relief from the debt frees up the debtor’s other assets, resulting in an accretion to wealth. But the credit union never pursued FloEtta, sued FloEtta, or did anything but send the belated Form 1099-C.

“When petitioner went to the car dealership, she did not intend to be the primary obligor on the loan.  In fact, she did not realize until trial that she had signed paperwork stating otherwise.  She did not intend to personally repay the loan, and she made no payments on the loan.  See Monon R.R. v. Commissioner, 55 T.C. 345, 357 (1970) (‘The intent of the parties, in turn, may be reflected by their subsequent acts[.]’).  The credit union also understood that petitioner intended only to be a cosigner; it was aware that petitioner’s son and daughter-in-law were responsible for the loan payments, and it never looked to petitioner for repayment.  See id.  Without an intention for petitioner to repay the debt, there was no bona fide primary obligation between petitioner and the credit union.” 2017 T. C. Memo. 219, at p. 7.

So FloEtta is relieved from being relieved.

Bob was TX Inventor of the Year one year, invented a fix for the Space Shuttle post-Challenger, had 400 patents issued or applied for, and was the go-to guy at National Couplings, producer of pneumatic and hydraulic subsea couplers.

Although he never graduated from college, Bob “…was the company’s vice president and the manager at its manufacturing facility. He was in charge of manufacturing, engineering, intellectual property work, and trademarks> 2017 T. C. Memo. 218, at p. 3.

Angela was his wife of fifty years, and a homemaker.

National Couplings got sold, Bob retired into the Golden Years, with plenty of gold.

Alas, Bob found himself with a UT grad lawyer who rigged up a Sub S collapsed into a FLP, with a big discount for the cash and stock Bob and Angela accumulated from years of toil and uncoupling from National Couplings.

Bob and Angela swim into the ken of Judge Goeke, unraveller of mix-and-match dodges. Here’s Robert E. Smith, III and Angela K. Smith, 2017 T. C. Memo. 218, filed 11/6/17.

The story was that Bob had a patent (or maybe it still belonged to National Couplings) for a lawn sprinkler that dispersed water, fertilizer and insecticide, and he was awaiting the patent so he could start selling it. So he created the Sub S to go into business.

But the Sub S collapsed into the FLP in the same year, while patents take months, if not years, to get registered.

Judge Goeke finds the sprinkler story too thin to support Bob’s very hefty discounts for the assets that went from the Sub S to the FLP, that Bob had control of the assets throughout, and the whole thing was a dodge to create a loss to offset the bodacious gains on Bob’s cash-out from National Couplings.

Unfortunately, Angela kept good notes of all the tax shenanigans. Those got in on the trial, undercut reliance on the UT grad expert, and set up the chops.

The late Billy Hawk and the Hawklings have furnished me with blogfodder for more than five (count ‘em, five) years.

So it is with a heavy heart that I bid farewell to Billy F. Hawk, Jr., GST Non-Exempt Marital Trust, Trustee, Transferee, Nancy Sue Hawk and Regions Bank, Co-Trustees, et al., 2017 T. C. Memo. 217, filed 11/6/17, as Judge Goeke finds the TN Uniform Fraudulent Transfers Act (TUFTA) blows away the Hawks’ Midco deal with MidCoast, of infamous memory.

The late Billy Hawk, you remember, was a bowling alley operator while he lived, but Nancy Sue wanted no part of the operation. The Hawklings were squabbling, so at the behest of bowling alley broker Hansell (I said five years ago ya couldn’t make this up), who got a commission from MidCoast for finding these guys, the Hawklings did the roundy-round with a MidCoast sub.

The basis for the case can be found in my blogpost “Game Ends in No Score,” 5/30/12. Did MidCoast get a real loan to buy the stock in the Hawk Corp, or did they really just use the Hawk Corp’s cash from the sale of the bowling alleys to pay the Hawklings and skim some vigorish for themselves?

Well, Judge Goeke finds the “loan” from an offshore was an in-and-out (funded and paid out same day), the Hawk Corp cash wasn’t really segregated, the MidCoast DKK/USD digital option mix-and-match didn’t really generate an offsetting lost and Hawk Corp did no business after the asset sale.

Judge Goeke romps through TN law on economic substance (no law, but no substance either), collapsing transactions, and TUFTA. And the Hawklings get the worst of it on all fronts.

Nancy Sue gets spared prenotice interest under TN law, as she’s an innocent, but Judge Goeke has to hit her with postnotice.

And Nancy Sue is admittedly not a tax expert, but her advisers fell well short of the diligence of the Alterman crew (as to whom see my blogpost “It’s Not Fraud,” 12/1/15). So she gets the chops.

A niece of mine is a graduate of an illustrious New England college whose motto, I believe, is “vox clamantis in deserto.” I need not, of course, translate, but I know just how the Hanover gang must feel. Even though I count 281 followers of this my blog, it sometimes seems like Tommy Gray was speaking my language. I mean the bit about blooming to blush unseen and all that.

But today Ch J L Paige (“Iron Fist”) Marvel puts on the velvet glove in Scott A. Spicer & Diane E. Spicer, Docket No. 19185-17S, filed 11/3/17.

For background, see my blogpost “Where the ‘L’ is My ‘S’?” filed 11/2/17.

Here’s the whole shebang, which brightens a gloomy November evening.

“…the Court issued an Order in the above-docketed case, which inadvertently states that this case will be processed to trial or other disposition pursuant to the lien and levy procedures of the Court. For cause, it is

ORDERED that the Court’s Order dated November 2, 2017, is amended in that the reference in the second ordered paragraph to the lien and levy procedures is deemed to be to the regular deficiency procedures of the Court.” Order, at p. 1.

So Scott and Diane get their “S” back. And their “L” goes…away.

No, not the 2017 Tony-nominee for best musical. No theatrical criticism on this blog. But today Tax Court has two (count ‘em, two) orders dealing with those far away…or far apart.

2590 Associates, LLC, 5615 Associates, LLC, as successor in interest to 5615 Associates, LP, Tax Matters Partner, Docket No. 12924-16, filed 11/3/17, looks like a simple joust over a continuance (that’s called an “adjournment” by us State courtiers).

IRS is asking for the time out, and the numbers guys are objecting. But curiously, it’s IRS who has the problem.

“Respondent states that petitioner objects to respondent’s motion. Respondent maintains that certain witnesses may be unavailable for trial.” Order, at p. 1.

Well, the numbers guys have the burden of proof, so maybe this is one of those façades or phony partnerships where valuation is critical. So maybe IRS needs the absentee heavy artillerists.

Judge Goeke has ways to deal with this.

“If respondent has subpoenaed witnesses and they are unavailable, we can discuss alternative means to take their testimony at trial but that is not a basis for a continuance.” Order, at p. 1.

Facetime conquers all?

IRS claims Siemer Milling Company, Docket No. 21655-15, filed 11/3/17, is putting them through the mill, but Siemer claims IRS is dodging the “play nice and stip it out” rules.

Judge Buch rushes to the defense of the “bedrock of all Tax Court practice,” the cure-all for litigation and settlement.

Siemer put in 343 (count ‘em, 343) separately numbered matters to be stiped out. IRS bought nine, edited nine more, and rejected 325 (count ‘em, 325) and didn’t say why.

Was Siemer playing the clown, making frivolous, burdensome, scandalous requests?

“Siemer Milling Co. filed a motion for order to show cause why proposed facts and evidence should not be accepted as established pursuant to Rule 91(f). That motion did not ‘set forth the sources, reasons, and basis for claiming, with respect to each such matter, that it should be stipulated’. See Rule 91(f)(1)(B). However, the motion recited that the documents underlying the proposed stipulations had been in the Commissioner’s possession for over three years. See Rule 91(f)(1)(D). The Court granted that motion and ordered the Commissioner to show cause why the facts and evidence set forth in the proposed stipulations should not be deemed admitted.” Order, at p. 1.

Well, IRS didn’t state what they disagreed with, only that Siemer didn’t attach the papers they relied upon.

Judge Buch brings together the two parties who are far apart.

“While it appears that the Commissioner has been uncooperative as to this series of proposed stipulations, it cannot be said that Siemer Milling is without fault. While it is unclear whether there is sufficient time for the parties to have a ‘do-over’, we will permit Siemer Milling to resubmit its proposed stipulations with an accelerated timeline.” Order, at p. 2.

And Judge Buch tells them how to do it.

“Siemer Milling, if it chooses, may resubmit its proposed stipulations to the Commissioner. If it resubmits its proposed stipulations, each proposed stipulation shall refer to the source of the underlying information (at a minimum, directing the Commissioner to the specific page). If Siemer Milling serves a new set of proposed stipulations on the Commissioner, the Commissioner shall respond separately as to each proposed stipulation. For any proposed stipulation that the Commissioner does not accept without alteration, the Commissioner must set forth a specific basis for not accepting the proposed stipulation. While evidentiary objections may be noted, they will not be considered a sufficient basis for a failure to stipulate.” Order, at p. 3.

And make it snappy.

This is a good one to have handy when confronted by brush-offs or stonewalls.

It’s truly a puzzlement. I mean correcting the “inadvertent clerical error” (I often wonder if a clerical error can be advertent; can you intend to make a mistake?) in Scott A. Spicer & Diane E. Spicer, Docket No. 19185-17SL, filed 11/2/17.

Ch J L Paige (“Iron Fist”) Marvel begins correcting Scott’s & Diane’s case by ordering the Clerk to delete the letter “L” from the docket sheet and other records in the Clerk’s office. OK, that happens when a non-lien-or-levy is mistakenly tagged.

But then Ch J Iron Fist goes on to befuddle me (and possibly the Clerk as well).

She orders the Clerk to “…process this case to trial or other disposition pursuant to the of [sic] the Petition for Lien and Levy Action Under Code Section 6320 (c) or 6330 (d) procedures of the Court.” Order, at p. 1.

Well, doesn’t the letter “L” designate a case proceeding as a lien or levy action, whether large case or small-claimer? Isn’t leaving the petitioners’ “S” hanging out there confusing?

Or have we got the stealth lien-or-levy in addition to the stealth subpoena? As to the stealth subpoena, see my blogpost “The Stealth Subpoena is Alive and Well,” 12/2/16.

You see to what I am reduced, when I missed the NYSBA Coop/Condo Committee meeting to prepare for a closing, on a stuffy November day?