Archive for January, 2018|Monthly archive page


In Uncategorized on 01/19/2018 at 16:59

The unpleasant memory lingers on, as we have two undesignated TEFRA orders that should have been designated.

I’m back in the office post-flu, but I don’t need to hunt through 150 orders for the good stuff.

First up, Ellen L. Palm-Leis, Docket No. 166-17, filed 1/19/18, an important date for pre-TEFRA reasons.

Ellen wants to assert SOL on her Section 6662(a) accuracy chops for affected items, but that’s an affirmative defense that should have been raised at the FPAA. Ch J L Paige (“Iron Fist”) Marvel also finds IRS mailed the NBAP and FPAA notices to the right address by the right means, even though Ellen claims her mail was stolen.

So no Tax Court jurisdiction, and Ellen is out.

Next is Fourth Ship, LLC, Francis A. Martin, III, Tax Matters Partner, et al., Docket No. 20418-15, filed 1/19/18. Judge Nega has this one, and it’s a blown-up Son-of-Boss sham options-trading partnership. The issue is jurisdiction, and the leading case is the miller-and-the-tugboat, American Milling. For the scoop, see my blogpost “Jumping Through the Mill,” 9/28/15,

The Fourth Shippers, heirs to the SF Chronicle fortune, want to shut down the mill, but Judge Nega says “Nega-tory.” (Sorry, guys.)

“We consider American Milling, LP Unlimited v. Commissioner, T.C. Memo. 2015-192, to be instructive to our analysis. There, the tax matters partners argued that the adjustments in the FPAA of an upper-tier partnership (American Milling) were computational adjustments that did not require a partner-level determination. Respondent argued that the adjustments were both partnership items of the upper-tier partnership and affected items flowing from the FPAA of the lower-tier partnership (American Boat). The Court agreed with respondent that the Court had jurisdiction over the case, noting the section 6231(a)(6) definition of the term ‘computational adjustments’ and finding that the FPAA for the upper-tier partnership determined adjustments to the upper-tier partnership’s partnership items. The Court noted that the court in the lower-tier partnership proceeding did not determine the upper-tier partnership’s basis in the lower-tier partnership. The Court further noted that determining the bases of the distributed assets and the resulting depreciation deductions and capital losses claimed by the upper-tier partnership required the Court to make specific factual findings at the upper-tier partnership’s level relating to the correct basis in the assets. Here, in the district court proceeding, the district court determined, among other things, that First Ship’s basis was artificially inflated by the short option premiums and must be reduced by that amount. The district court did not specifically determine the amount of First Ship’s basis, the bases of the assets the proceeds of which were distributed by 2000-A to the subject partnerships, or the amount of the subject partnerships’ claimed capital losses on the termination of [pseudo-partnership] 2000-A.” Order, at pp. 8-9 (Footnote omitted).

Despite various gyrations, the Fourth Shippers are stuck with American Milling, and Judge Nega gives IRS summary J at no extra charge.

Can’t hardly wait to see how the new post-TEFRA partnership regime works out.



In Uncategorized on 01/19/2018 at 15:28

The Beach Boys’ 1963 classic is all the rage on the Tax Court website, as the Glasshouse Gang solemnly affirms that they will hang out, trying cases, issuing orders, opinions and decisions as long as their cash holds out, notwithstanding the shutdown threatened for midnight. Note that deadlines for filing, etc., aren’t mentioned, so assume no extensions. File those petitions, guys.

Here’s the skinny:

“In the event of a Federal Government shutdown at midnight January 19, 2018, the United States Tax Court will remain open for business as usual on Monday, January 22, 2018, and will continue normal operations for as long as funding permits.

“Trial sessions scheduled for the week of January 22 will proceed as scheduled at the locations listed in the notices of trial sent to all litigants. The Court expects that all trial locations will be accessible for use during the week of January 22.

“Please check this website often for updates on Tax Court operating status and trial information. If you have questions about a scheduled trial session during any Government shutdown, please call 202-521-0700 during normal business hours (8 a.m. to 4:30 p.m. Eastern time).”





In Uncategorized on 01/18/2018 at 18:14

State Farm Isn’t There

That’s Motor Vehicle Mfrs. Ass’n of the U.S. v. State Farm Mut. Auto Ins. Co., 463 U.S. 29 (1983). And while that case holds administrative agencies’ feet to the cliché when it comes to finding a rational basis, and statutory authority, for its regulation, especially when the regulation is “legislative,” that is, has the force of law, it doesn’t help SIH Partners LLLP, Explorer Partner Corporation, Tax Matters Partner, 150 T. C. 3, filed 1/18/18.

SIH is a gaggle of offshore LLC cash-stashes, hanging out in Luxembourg, the Emerald Isle, and the Caymans. The high-rolling quartet who own this stuff use the LLCs to guarantee loans made by Merrill Lynch in aid of their stock-trading and cash-stashing. The LLCs are never called upon to pay up, of course, despite cross-default and contribution clauses in their amended, restated, and recombobulated promissory notes and aggregated, sublimated and bloviated guarantees.

Judge Cohen sustains IRS’ Section 956(d) $2 million income inclusion to the onshore partakers in the goodies. The SIH quartet claims arbitrary, capricious and in violation of law.

The statute is clear: if your CFC guarantees, you’re deemed to get their E&P. And if the regulations (1.956-2(c)(1) and 1.956-1(e)(2)) might lead to onshore owners of multiple offshore LLCs getting charged in the aggregate more than is owed, it’s not the Court’s place to rewrite the regs, and anyway, that’s not the case here.

“Put simply, the statute at issue and the rules adopted did not require Treasury to engage in the level of detailed empirical analysis that the Court in State Farm found was integral to the rulemaking. Petitioner’s focus on the ‘reasoned decisionmaking and reasoned explanation requirements’ as it understands those requirements to be taken from State Farm is misplaced.

“Treasury’s rulemaking complied with the requirements of notice and comment under APA sec. 553(b). APA sec. 706(2)(A) imposes in addition a ‘general “procedural” requirement of sorts by mandating that an agency take whatever steps it needs to provide an explanation that will enable the court to evaluate the agency’s rationale at the time of decision.’ Pension Benefit Guar. Corp. v. LTV Corp., 496 U.S. 633, 654 (1990). We conclude that Treasury’s procedures in this case satisfied this general requirement and were not arbitrary or capricious. The agency’s path ‘may reasonably be discerned’. 150 T. C. 3, at pp. 29-30 (Citation omitted).

Judge Cohen shucks SIH’s argument about the guarantee. “Neither section 956(d) nor the regulations inquire into the relative importance that a creditor attaches to a guaranty. Crestek, Inc. v. Commissioner, 149 T.C. at __ (slip op. at 25-26). A guarantor’s precise financial condition or the likelihood that it would be able to make good on its guaranty are irrelevant in determining under the regulations whether the guaranty gives rise to an investment in United States property. Id. at __ (slip op. at 28). The regulations applicable in this case provide categorically that any obligation of a United States person with respect to which the CFC is a guarantor shall be considered United States property held by the CFC in the amount equal to the unpaid principal. They make no provision for reducing the section 956 inclusion by reference to the guarantor’s financial strength or its relative creditworthiness. Id. at __ & n.8 (slip op. at 29-30).” 150 T. C. 3, at pp. 44-45.

For more about Crestek, see my blogpost “At Home Abroad – Redivivus,” 7/27/17.

The SIH quartet, with their nuanced arguments, go the way of most nuanced arguments.

I’m grateful to the litigants and Judge Cohen for getting me back into my game with this meaty full-dress T.C. After three days fighting the flu from a hospital room, and being cooped up at home, it’s great to come back.


In Uncategorized on 01/17/2018 at 16:41

I’m sure Judge Lauber agrees with the exalted author of that statement. Today, however, he wants to make sure that not only did the laborer receive compensation, but that the Forms W-2 got filed for the laborers at Pantano Baptist Church, 2018 T. C. Sum. Op. 3, filed 1/17/18.

And so, fresh from ex-Chief Whistler and now head of OPR Stephen A. Whitlock’s CPE jaunt through Circ 230, I turn to the Section 6721(e). Apparently the Pantanos didn’t bother to file W-2s; reason not stated, but said to be willful.

Although the chops are assessable (no SNOD necessary) and the Pantanos got a CP215, the Pantanos stood mute. So IRS hand-delivered Letter 1058 (NITL). Again no Pantano reply. So IRS unloaded a Letter 3172 (NFTL).

This caught the Patanos’ attention, wherefore they invoked the crew at the Taxpayer Advocate Service.

The Pantanos want to contest, but they blew it by not going to Appeals from the NITL. They were also behind with their latest filing and never submitted Form 433-B.

“The regulations specifically provide, in the case of a section 6320 challenge to an NFTL filing: ‘If the taxpayer previously received a CDP Notice under section 6330 with respect to the same tax and tax period and did not request a CDP hearing with respect to that earlier CDP Notice, the taxpayer had a prior opportunity to dispute the existence or amount of the underlying tax liability.’ Sec. 301.6320-1(e)(3), Q&A E-7, Proced. and Admin. Regs. The taxpayer therefore cannot challenge its underlying liability when it receives the second CDP notice. The same rule applies in reverse, i.e., where the taxpayer receives a lien notice, to which it does not respond, and later receives a levy notice.” 2018 T. C. Sum. Op. 3, at pp. 8-9 (Citations omitted).

The Pantanos got a Form 9297 Statement of Taxpayer Contact when the RO swung by to drop off the NITL, which they claim was all they got, except the IRS has a signed receipt for the NITL too.





In Uncategorized on 01/16/2018 at 17:42

The Procrastinator’s Toolbox

STJ Diana J. (“The Taxpayer’s Friend”) Leyden has a designated hitter today, John Lucian, Docket No. 16456-17L, filed 1/16/18. But it really isn’t John’s story.

John is represented by a senior local attorney, whom I’ll designate “SLA.”

John hadn’t filed for three (count ‘em, three) years, got SFRs, never petitioned and got a CP90, threatening fire and slaughter. SLA files a Letter 12153, saying John is sick and can’t pay.

The SO asks for the usual Form 433-A. SLA shows at the CDP without one, and is given a week to get it. He doesn’t, and on the day the clock runs out asks for more time.

The SO says “time’s up, and you can call collections when you have the Form 433-A.”And issues a NOD sustaining.

STJ Di affirms the NOD. IRS doesn’t need to wait an indefinite time to get a Form 433-A.

Here’s the point: “[SLA] did not ask for more than seven days when the first extension was approved. [SLA], as an attomey, understands the importance of filing due dates and has a professional responsibility to exercise due diligence. Instead, on the last day of the extended period he called the SO and requested an additional extension. The SO explained that she had already allowed more time and denied his request for an additional extension.” Order, at p. 6.

The old State Court gambit of “adjourn it again” doesn’t always work in State Court, either. It’s a nonstarter with STJ Di.

Leave it out of your toolbox.



In Uncategorized on 01/16/2018 at 16:31

Contrary to the old marching cadence of my youth, there may be a discharge on your tax liability, even if not on the ground. Once again the much-contemned Affordable Care Act with its disappearing credits plays the villain when coupled with a short-pay. In another case, it’s a credit card come-on that leads the unwary astray.

But in both cases the result is the same: discharge of debt equals tough tax result. See Section 61(a)(12).

First is John Anthony Glennon, 2018 T. C. 4, filed 1/16/18, Judge Gerber back from his weekend to ruin John Anthony’s week.

“While traveling, petitioner was approached in an airport by someone with an offer for petitioner to purchase a Southwest Airlines ticket good for any round-trip destination in the United States for $59. Petitioner thought it was a good deal, and he filled out what he believed was an application for the $59 ticket. Several weeks later, petitioner received a Southwest Airlines credit card (card) that was issued by Chase Bank. At the time the card arrived, petitioner was experiencing financial difficulties, and he used the card to pay living and related expenses.” 2018 T. C. Memo. 4, at p. 2.

John Anthony got in well over his cliché, and Jamie Dimon & Co. wrote off $9K of principal and interest (mostly interest). Then Jamie & Co. gave John Anthony a 1099-C at no extra charge.

John Anthony claimed he had settled with Jamie and owed nothing. Maybe not to Jamie, but the fisc isn’t part of the deal.

“Although petitioner believes that he was a victim and we agree that his circumstances are sympathetic, as a matter of law the cancellation of debt is taxable to him.” 2018 T. C/ Memo. 4, at p. 4.

Michelle Keel, 2018 T. C. Memo. 5, filed 1/16/18, is undone by COD, but she knew to include the $16K Bank of America excused her on her 1040 for the year at issue. The problem was that the BOA give-up threw Michelle over the 400% of Federal poverty limit, and meant she had to give back her premium credit.

Michelle left off the Form 8962, which she needed to reconcile her credit with her income.

Judge Buch: “The Commissioner determined that Ms. Keel was not entitled to the advance premium assistance tax credit payments made on her behalf for [year at issue]. Ms. Keel does not dispute that these payments were made on her behalf or that her income was above 400% of the Federal poverty line. Instead, she argues that her cancellation of indebtedness income should not be included when calculating her income for purposes of determining whether she is eligible to receive the premium assistance tax credit.

“The premium assistance tax credit is intended to offset the cost of health insurance. A recipient of the premium assistance tax credit can choose to receive the benefits of these payments in advance. These credits are paid directly to the insurer in the form of monthly payments based on advance eligibility determinations. The insurers who receive the payments are required to reduce the premium charged to the insured by the amount of the advance premium assistance tax credit received.” 2018 T. C. Memo. 5, at pp. 5-6. (Footnotes omitted, but our old pal McGuire plays its role again; see my blogpost “Refurbished, Reupholstered and Re-engineered,” 8/28/17).

The problem for Michelle is that her income changed midyear with the BOA give-up, and none of the excluded categories can offset the added income.

She owes back the premium credits.

It’s enough to make you sick.


In Uncategorized on 01/13/2018 at 17:01

See my blogpost “Obliging, Toujours Obliging,” 1/3/18.

Judge David Gustafson’s deferential suggestion for a phoneathon and a chat concerning Section 6501(c)(10) worked its beneficent results.

Here’s Laidlaw’s Harley Davidson Sales, Inc., Docket No. 14616-14L, filed 1/12/18.

“Respondent’s counsel advised that respondent’s position on the statute of limitations issue has been clarified and will result in partial agreement in this case. The parties expect that they will be able to file a partial stipulation of settled issues, leaving a narrower dispute for the Court to resolve.” Order, at p. 1.

So come back in six weeks with a stip and a plan going forward guys.

Good job, Judge Gustafson.


In Uncategorized on 01/13/2018 at 15:21

The words of a much greater writer than I give me a title to my blogpost about Michael Sean Greenewald, Docket No. 25719-17, filed 1/12/18. I’m a day late, being away from home but with Sir Andrew brought to me by a principal in a Big Four Tax firm.

Michael Sean petitions a batch of SNODs and NODs for taxable years from 2004 to 2017. He states simply “I have never received a notice of deficiency or a notice of determination for the years 2004 thru (sic) 2017.” Order, at p. 1.

IRS responds with a Rule 51 motion for a more definite statement. Much more usual is the motion to dismiss for failure to state a claim on which relief can be granted. So I blog this one.

Ch J L Paige (“Iron Fist”) Marvel finds Michael Sean’s statement definite enough to send IRS off to search its records to see if it sent anything, and to make appropriate motions thereafter.

This is the good-mannered response to IRS’ motion. It is much better than “What part of ‘he never got nothing’ don’t you understand?”



In Uncategorized on 01/11/2018 at 18:21

Only one item in it, to continue my “toolbox” series, Vincent M. Lorusso, 2018 T. C. Memo. 3, filed 1/11/18. That’s Vincent M. Lorusso, Esq., PA criminal lawyer, but he’s here over a CDP in which he did not participate.

Nevertheless, LoRusso timely petitioned the NOD. IRS riposted with a Section 6673(a)(1) delay of the game proposed chop.

If this seems a wee bit extreme (usually the Judge warns the petitioner who plays the clown), note the following.

Lorusso moves to dismiss.

Judge Vasquez: “Since 2015 petitioner has initiated four distinct cases with similar factual backgrounds. Two of these cases were decided in favor of respondent on his motions for summary judgment. The other two cases include the instant case and another pending case not presently before us; in both of these cases, respondent filed motions for summary judgment and petitioner filed motions to dismiss.” 2018 T. C. Memo. 3, at p. 4.

Sounds like a good move. Wagner is there to make dismissal of a petition from a NOD a no-hurt option. IRS will levy anyway, Just don’t play this card more than twice.

“Petitioner’s history of litigation with the Court may merit the imposition of a penalty under section 6673. However, respondent has not moved for such penalties against petitioner in the past, nor has the Court issued petitioner a warning regarding these penalties. Therefore, we decline to impose a section 6673 penalty against him at this time.” 2018 T. C. Memo. 3, at p. 4.

OK, Lorusso squeaks away, with the usual admonition to straighten up and fly right..

But is his petition dismissed? Why do I ask? Wagner is a sure-fire out, no?

Not quite.

When it comes to dismissals generally, the question is whether the nonmovant will be prejudiced. In a classic Wagner, no, IRS lost time, nothing more. But Tax Court has imported, via Rule 1(b), FRCP 41(a)(2), and asks.

Here, IRS would be prejudiced if its Section 6673 chop was still in play, but it isn’t. So Lorusso, you’re dismissed; go and sin no more.

Warning to others trying to play this gambit: YMMV: in your case IRS may be prejudiced.


In Uncategorized on 01/10/2018 at 22:56

Was it the Celtic Druids who believed in vast centers of energy radiating to the earth from some distant point in space? Did aliens build the pyramids? Did Thor Hyerdahl’s great-great-to-the –nth-grandfather erect the stone heads of Easter Island?

Or is this part of our planet in the center of a great cloud of entropy, brainlessness, infantilism, toddling like some ill-bred threenager toward utter collapse? And is Our Nation’s Capital at the very center, ground zero, of this cloud?

I don’t mean Congress, or the Executive. This remains steadfastly a nonpolitical blog.

But His Honor Big Julie Judge Julian I Jacobs (hereinafter ”HHBJJJIJ”) has designated something that makes me tremble.

Here’s part of a coupled entry, Herbert Hirsch & Bonita Hirsch, et al. Docket No. 28898-10, filed 1/10/18. I can’t paraphrase, so here’s the entire thing.

“…petitioner filed a Motion for Partial Summary Judgment, and an accompanying Motion for Leave to File Conventionally Fix Exhibits to Motion for Summary Judgment. In the Motion for Leave to File Conventionally File Exhibits to the Partial Motion for Summary Judgment petitioner states that the pending motion for partial summary judgment has 31 exhibits and a declaration attached thereto. The exhibits consists of 492 pages, well over the 200 page limit for electronically filing. The Court does not have a page limit for electronically filing.” Order, at p.1.

Leaving aside the questions of what it is, or how to, “fix” exhibits conventionally, does the Court have, or has it not, a page limit for filing exhibits, whether electronically, “conventionally” (whatever that means; I presume in paper format), or otherwise?

HHBJJJIJ seems to think there is, because he denies the motion. So petitioner must file electronically, even if Court rules forbid it.

Yes, Washington, D. C. does seem to be the center.

Thanks for designating this one, Judge. I’m so zonked out with the flu, and last night in the ER getting my face stitched back together after a ridiculous but nasty fall, that I might have missed this gem.