If you attended high school with a gaggle of slide-rule-toting bright-eyed types who always wore pocket protectors containing multiple colored pencils, the title hereof should not be new to you. It is a line from a song by a Harvard mathematics professor. And it is music to the ears of Evgeny Kiselev, 2018 T.C. Sum. Op. 2, filed 1/10/18.

I do not know if Evgeny, like the narrator of the aforementioned song, has a friend in Minsk who has a friend in Pinsk, but Evgeny had a wife with a J-1 visa, somewhat like the types you’ll find in my blogpost “At Home Abroad – Part Deux,” 3/16/17.

So Evgeny was in the running for a J-2 visa, which he got and got converted to F-1 (foreign student) a couple years (hi, Judge Holmes) later. Meantime, he got a work permit and worked as a lab tech at Perdue University, where his wife was doing her part to keep her visa.

Evgeny got accepted into Perdue’s Ph.D. program as a cancer researcher, and did the usual graduate research assistant dogsbodying for his mentor. Evgeny was a go-getter, and although his mentor signed off on the grant applications, Evgeny did his own thing and even got articles published in peer-reviewed journals.

Meantime, Evgeny got paid a stipend from Perdue that didn’t vary whether or not he got a grant from Perdue or anyplace else. The Boilermakers’ high command withheld income tax and gave Evgeny a W-2. Evgeny gave the IRS a Form 1040-NR-EZ, claiming nonresident with no dependents (he was his wife’s dependent) and got a refund per Art. 18 of the Convention for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion With Respect to Taxes on Income and Capital, Russia-U.S., June 17, 1992, as amended by the Protocol signed on June 17, 1992, 6 Tax Treaties (CCH) para. 8003 (Treaty).

IRS gave Evgeny a refund, and then, at no extra charge, gave him a SNOD, asserting his grants for the entire year at issue (about 70% of his total income from Perdue; the thirty percent everyone concedes he owes) are taxable.

IRS’ threshold argument is that Evgeny got a scholarship, and that the Art. 18 exception for “grant, allowance, or other similar payments” doesn’t apply.

Judge Colvin: “Under article 3(2), an undefined term in the Treaty is given the meaning it has under U.S. tax law. The phrase ‘grant, allowance, or other similar payments’ is not defined by the treaty. Thus, under article 3(2), the phrase ‘grant, allowance, or other similar payments’ is given the meaning it has under U.S. tax law. However, neither that phrase nor a remnant thereof (‘grant, allowance’) appears in title 26 or the regulations thereunder. Because the Treaty phrase does not appear in U.S. tax law, we are unable to discern, or apply, the meaning of that phrase under U.S. tax law in construing article 18.” 2018 T. C. Sum. Op. 2, at pp. 9-10.

Code Section 117 used the word “grant” in defining what is a “qualified scholarship” thereunder, but not the broader version in Art. 18. Moreover, caselaw pre-Section 117 said a scholarship had “no strings,” but Evgeny had to do the research, so the IRC is out of play.

To get Art. 18 benevolence, the primary purpose of one’s stay must be research, hence the title of this blogpost. But Evgeny wasn’t admitted to the Perdue program when he came here as his wife’s dependent; he didn’t get admitted until the next year, and he didn’t get his F-1 foreign student visa for another two years.

Too restrictive, says Judge Colvin. Look at all the facts and circumstances. Evgeny, like my Texan daughters, wasn’t born there but got there as fast as he could.

And of course it was a ”grant.” He was given money for a specific purpose (a mild dictionary nibble accompanies this).

IRS claims all Evgeny got was a salary. His mentor signed the applications, got the checks, got the award letters, and benefitted from having a lackey like Evgeny. Evgeny couldn’t make grant applications.

“We disagree with respondent’s contention that petitioner did not receive the PRFR and SIR grants. Whatever role Professor [Mentor] had in obtaining the grants and whatever benefits he received from supervising a research assistant, the grants were paid to petitioner to fund his work on his research proposals. Article 18 provides no support for respondent’s contention that a grant may not be paid as a salary or that a grantee may not be an employee. We conclude that petitioner was the ‘recipient’ of the PRFR and SIR grants for purposes of article 18.” 2018 T. C. Sum. Op. 2, at pp. 14-15.

IRS, eager for the kill, claims Evgeny was not a resident of the Russian Federation immediately before becoming a student, but was his wife’s dependent living in the USA before that.

Horsefeathers, says Judge Colvin, but much more politely.

He was here doing research. He was here temporarily until he got his green card after the year at issue.

Evgeny got it right. Evgeny wins.

What happens when you get it wrong? See Andrey Andreyevich Dovzhenok, 2017 T. C. Sum. Op. 86, filed 11/30/17.

I return from a visit to nearest and dearest in the Magnolia City, once again, as five years ago, with blogpost delayed because of dealings with doctors. Don’t ask.

Leading off, an old friend, Kenneth William Kasper, 150 T. C. 2, filed 1/9/18.

Kenneth William led the Ogden Sunseteers a merry chase. See my blogposts “IRS Loses a Double –Header,” 7/12/11, and “Cain’t Say No,” 8/19/14. I’ve also cited Kenneth William’s case in other contexts, and so has Tax Court.

Well, now the road ends. It turns out the famous bankruptcy file only showed that IRS filed its usual perfunctory Proof of Claim in the ten-day timeframe provided by the IRM.

“The bankruptcy courts provide the IRS with notice of all chapter 11 bankruptcy cases regardless of whether the IRS is listed as a creditor. IRM pt. 5.9.8.3 (May 13, 2008). The case is then assigned to an IRS insolvency specialist who must take “primary case actions” within 10 days of being assigned to the case. Id. pt. 5.9.8.4. This may include filing an estimated proof of claim before the bar date to protect the government’s interest and provide more time to determine the exact liability. IRM pt. 5.9.13.18.1 (May 20, 2008). This ‘unassessed’ claim is then followed as soon as possible by an amended or supplemental proof of claim with the correct tax liability. Id.; see also IRM pt. 5.9.13.8 (Mar. 1, 2007). “ 150 T. C. 2, at p. 31.

Yeah, but IRS originally claimed unpaid FICA/FUTA, exactly what Kenneth William claimed he told IRS (twice). And the insolvency specialist (here a “classifier” in LB&I, in charge of separating big sheep from international clichés) did ask what to do with the alleged malfeasant’s tax return. That’s also SOP, as once classified and the quick-and-dirty Proof of Claim filed to beat the bankruptcy bar date, all returns go into a suspense file until the IRS insolvency department decides what to do.

My thanks to The Great Dissenter, a/k/a The Judge Who Writes Like a Human Being (this time for the unanimous Court), friend of Chenery (the doctrine, not the dodgeflogger), and Foe of the Partitive Genitive (but apparently in recovery), Judge Mark V. Holmes, both for a quick tour of the IRM’s bankruptcy paper-pushing, and an exhaustive (not to say exhausting) examination of the record rule.

But his essay on the limits of Tax Court jurisdiction overtaxes the space I’m allowed. In short, if neither you (person, partnership or corporation) nor your present (or ex) spouse is fighting over liability for tax, all you get is the Administrative Procedures Act’s default scope of review.

“Since section 7623(b) gives no guidance and we have no caselaw on point, we will again look to the default rules. The APA tells a reviewing court to reverse agency action that it finds ‘arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law,’ or that it finds ‘unwarranted by the facts to the extent that the facts are subject to trial de novo by the reviewing court.’ 5 U.S.C. sec. 706(2)(A), (F). We have already held that the scope of review in whistleblower cases should not be de novo, so APA section 706(2)(F) doesn’t apply either. We are left with APA section 706(2)(A) and its abuse-of-discretion standard of review.” 150 T. C. 2, at p. 22. (Footnote omitted).

Kenneth William gets the bankruptcy stuff included in the administrative record the Court reviews, but still loses.

Remember Kenneth William blew the whistle on unpaid overtime pay that the target (small “t”) stiffed its employees, and on which he claims it owes FICA/FUTA and penalties.

“The employment-tax claims in the proof of claim are also the result of standard IRS procedure. The target filed for bankruptcy, the IRS was notified, an original proof of claim was filed by the insolvency department including ‘unassessed’ claims for FICA, FUTA, and excise taxes, and an amended proof of claim was later filed that corrected these claims to zero. None of the information provided by Kasper in his Form 3949-A [Information Report] would have changed this. The IRS could not have asserted a claim for employment taxes on the allegedly unpaid wages because unpaid wages aren’t taxed. Even though we think it was an error for the WBO not to consider this evidence, we think the error was harmless because the rest of the record shows that the IRS did not proceed with any action resulting in the collection of proceeds using Kasper’s information.” 150 T. C. 2, at pp. 31-32.

I cut short Judge Holmes’ exegesis on the extremely limited jurisdiction of poor l’il ol’ stepchild-of-Congress Tax Court to wheeze to the end of the road for another old blogfodder merchant, Joan Farr f.k.a. Joan Heffington, 2018 T.C. Memo. 2, filed 1/9/18, this time with Judge Chiechi on the bench.

All y’all will recollect my outrage when I found that Joan hadn’t asked me to join the Association for Honest Attorneys, a 501(c)(3) of which she was director, CEO and signatory on checking account and credit card. No? See my blogpost “Why Didn’t She Ask Me?” 4/20/15. Well, it still smarts… or rather did, until I read this case.

Joan gets the private foundation double whammy. AHA gets its 501(c)(3) status revoked retroactively; Joan only filed the ePostcard 990-N for AHA, and never filed 990-PFs or 4720 (excise taxes for private foundations) during years at issue, nor did she correct her alleged miscues by filing same once picked up on audit.

So she gets both the Tier One 25% excess benefits excise tax, and the second-year 200% excise benefit excise tax for each of the three years at issue.

If you’re aching to find out what’s going down with AHA, a quick docket search shows the 501(c)(3) takedown was tried at the end of last year. Decision eagerly awaited, but it don’t look so good for Joan.

I’ll skip Judge Chiechi’s trudge through three (count ‘em, three) years’ worth of AHA’s credit card and bank statements. This blogpost is long enough, without a recitation of payments to “…certain stores, such as Slumberland, Westar Energy, Lowes, T&S Tree Service, Gene’s Stump Grinding Service, Dutch’s, Echostar Dish, Allstate, Roberts Overdoors Inc., Lusco Brick & Stone, MY Construction, and Star Lumber & Supply.” 2018 T. C. Memo. 2, at p. 5.

I really hoped for better.

I was visiting my nearest and dearest down where the chilly winds blow a lot less than back in the Apple, so I missed blogging the press release that announced the retirement of Judge Wherry. I for one will miss that Whimsical Jurist.

Even when he was the target of 7 Cir disdain for “lame attempts at humor,” Judge Wherry never lost his good humor. See my blogpost “There Goes the Neighborhood,” 9/3/13.

And Ch J L Paige (“Iron Fist”) Marvel has some kind words for the way Judge Wherry ran his Division and contributed to the luster of US Tax Court.

Here’s the story.

Judge Wherry’s unfinished cases will be reassigned. Enjoy your retirement, Judge.

I’ll bet none of my readers have expended any time, or used any brainpower, on the question that has Judge Holmes designating today’s order, Oakbrook Land Holdings, LLC, William Duane Horton, Tax Matters Partner, Docket No. 5444-13, filed 1/5/18.

It’s the latest silt-stir on the Section 6751(b) Boss Hoss signoff. While Section 7491(c) places the burden of production for the imposition of chops on IRS, that provision only relates to “individuals.” But if chops are on the table, what if the chopee isn’t an individual?

Here the chop is the 40% undervaluation chop in one of those conservation easement deals. After trial IRS tergiversated extensively when the TMP raised Section 6751(b), and when, after post-trial briefing, IRS tried to wild-card in evidence about compliance therewith, Judge Holmes shut them down.

I blogged one IRS wild-card attempt in this case in my blogpost “Win Your Case By Exclusion,” 9/23/16, but missed the shutdown. Here it is.

Now, however, with Graev rising ghoul-like from the earth, and with this case presumptively bound for 6 Cir (and I guess there’s enough money on the table to make shutting down a 40% chop worth going there), Judge Holmes has some second thoughts.

“The parties may wish to brief the issue of how the Court’s ruling in Graev III that §6751(b) compliance is part of the Commissioner’s burden of production affects TEFRA cases. (The petitioner in a TEFRA case is the partner who files the petition, Chef’s Choice Produce, Ltd. v. Commissioner, 95 T.C. 388, 395 (1990), who is an individual here.) They should note that the Court has applied § 7491(c) in at least one TEFRA case, though that case showed that the caselaw might be of less than crystalline clarity. See Seismic Support Servs., LLC v. Commissioner, 107 T.C.M. 1405, 1407, n.11 (2014) (explaining that § 7491(c) refers only to individual liability for penalties but our Court sometimes applies it to taxpayers who aren’t individuals). And, of course, in a TEFRA case the only penalty issue is the applicability of the penalty, not the liability for the penalty. See United States v. Woods, 571 U.S. __, __ , 134 S. Ct. 557, 564 (2013).” Order, at p. 2.

And Judge Holmes, as he sends the parties off for the optional additional post-trial briefing, is a wee bit coy with IRS, who hasn’t so far covered itself with glory.

“The Court suspects that the consequences of Graev III may require some coordination on respondent’s part with other sections of the IRS….” Order, at p. 2. Although he means “other sections of the IRC.”

And IRS still can’t wildcard in any evidence of Section 6751(b) Boss Hossery.

If I’m spending a lot of time at the Graev-site, it’s the hot new Tax Court story, as the effects of the Internal Revenue Code of 2017 won’t be felt for years.

Although a great blizzard has hit The City That L’Enfant Built, I doubt Judge Holmes has reflected thereon as did James Joyce’s Gabe Conroy. “His soul swooned slowly as he heard the snow falling faintly through the universe and faintly falling, like the descent of their last end, upon all the living and the dead.”

But the dead are front-and-center, as they confront the Graev in Estate of Michael J. Jackson, Deceased, John G. Branca, Co-Executor and John McClain, Co-Executor, Docket No. 17152-13, filed 1/4/18.

You remember the Great Silt Stir, when ex-Ch J Michael B (“Iron Mike”) Thornton sustained Larry and Lorna Graev’s chops, while opening the floodgates for everyone else? No? It was just last year. See my blogpost “Stir, Baby, Stir – That Silt,” 12/20/17.”

So the deluge foreseen by Judge Holmes followed forthwith, with Judge Holmes nowise loth to flood the zone with the rest of the Glasshouse Gang.

Now apparently chops rained on the ex’rs in their fiduciary capacity, but did the right Boss Hoss put his/her imprimatur thereon? And does it matter when the chopee isn’t a living person? Section 7491(c) places the burden of production on IRS as regards chops for an individual, even though Section 7701(a)(1) makes an estate a person.

“The parties may wish to brief the issue of whether the Court’s ruling in Graev III that § 6751(b) compliance is part of the Commissioner’s burden of production extends to cases where the petitioner is a taxpayer but is not an individual. They should note that the Court traditionally applies § 7491(c) in estate tax cases, see, e.g., Estate of Richmond v. Commissioner, 107 T.C.M. 1135, 1145- 46 (2014) (Commissioner bears burden of production on § 6662 penalty); Estate of Giovacchini v. Commissioner, 105 T.C.M. 1179, 1186 (2013) (Commissioner has burden of production on penalties), though we’ve never said why, see, e.g., Estate of Rector v. Commissioner, 94 T.C.M. 567, 574 n.11 (2007) (not deciding if § 7491(c) applies to estate because record sufficient to meet any burden of production); Estate of Hartsell v. Commissioner, 88 T.C.M. 267, 269 n.6 (2004) (only assuming § 7491(c) applies because Commissioner met any burden of production).” Order, at p. 2.

So since the trial is over but their briefs not yet due, IRS and the ex’rs should tell all therein.

Stay tuned.

Judge Cohen is dealing with Section 6015(c) apportioned liability, and needs to find out what actual knowledge Colin C. Bishop had of the withdrawal from his ex’s inherited IRA.

Did Colin need what the great French doubtmeister denominated a “clara quaedam & distincta perceptio ejus quòd affirmo?” I need not, of course, translate.

Not quite, but close. See Colin C. Bishop, Petitioner, and Lisa Bishop, Intervenor, 2018 T. C. Sum. Op. 1, filed 1/4/18.

The parties were temporarily separated during the year at issue, permanently the next, and divorced the year after that. Lisa had inherited her late Dad’s IRA, and Colin and Lisa had reported her drawdowns on their joint returns in previous years. The cash went into their joint checking account, from which it was drawn to pay their daughter’s expenses.

Colin claimed Lisa never told him about the draw for the year at issue, and IRS bought his story. Lisa intervened, claiming Colin knew. But did he “actually know” or only “constructively know?”

“Section 6015(c) differs from the relief provisions of subsections (b) and (f), under which relief may be denied if the party requesting relief had constructive knowledge of the item giving rise to the deficiency.” 2018 T.C. Sum. Op. 1, at p. 5.

OK, but where is burden of proof when three parties are scuffling? Why, preponderance, of course.

Colin claimed Lisa deceived him by not telling him about the IRA drawdown; he can’t show she affirmatively lied. He admits he should have checked out the bank statements for the joint account, which would have showed the hefty number Lisa drew and deposited. And he drew checks and cash from the account after the drawdown hit.

But they both admit they forgot about the drawdown when, seven months thereafter, they handed their trusty preparer the dope on the year’s taxable activity. No 1099-R? Well, not that got to the preparer.

“The history of withdrawals from the retirement account used by the parties over a period of years and the transactions by petitioner with reference to the joint bank account support a conclusion that petitioner should have known about the distribution. The amount was very large in relation to the average balances and other transactions in the account. There is no evidence, however, that petitioner saw the bank records before the joint return for [year at issue] was filed. His denials are not incredible, implausible or contradicted by direct evidence. See Culver v. Commissioner, 116 T.C. 189; Richard v. Commissioner, T.C. Memo. 2011-144. Regardless of the strong indications of constructive knowledge, the evidence falls short of establishing actual knowledge of any specific amount of the distribution in [year at issue].” 2018 T. C. Sum. Op. 1, at p. 7.

Judge Cohen gives Colin the Cartesian win.

Judge David Gustafson opens his 2018 campaign in his typical style. He’s confronting the 3SOL for Section 6707A chopping for some four (count ‘em, four) tax years.

Here’s Laidlaw’s Harley Davidson Sales, Inc., Docket No. 14616-14L, filed 1/3/18.  According to Notice 2007-83, IRB 2007-45, 11/5/07, Laidlaw should have filed Form 8886 four (count ‘em, four) times, for some cash value life insurance dodges, which I’ve blogged elsewhere.

But Laidlaw didn’t file until two years after the last return was due. IRS did beat the SOL for the last of the four years. But IRS’ chop aggregates the four years’ worth of chops in the penalty assessment.

“However, 26 C.F.R. § 1.6011-4(e)(1) requires a disclosure for each year; and section 6707A(a) seems to impose a penalty as to ‘any return or statement’ that fails to make the required disclosure; and section 6707A(b)(1) requires that the penalty be measured as a percentage of  ‘the decrease of tax shown on the [singular] return’. A simple reading of this text would suggest that the section 6707A penalty must be imposed year by year, by reference to the tax benefit claimed on the return for each year. If that is correct, then the IRS’s …assessment in this case would seem to disregard the statute of limitations for [the three back years] (which barred assessment) and to wrongly impose for [fourth year] the penalty attributable in fact to those earlier years.” Order, at p. 2.

Well, Laidlaw should be all over this, right?

“Petitioner addresses the general three-year limitation of section 6501(a) but seems not to explicitly address section 6501(c)(10)–the special SOL provision as to this penalty, which is apparently effective for the three earliest years at issue.” Order, at p. 2.

IRS wants summary J. But IRS won’t get it; at least, not yet.

As for the need for separate assessments for each year, made within the 3SOL, Judge Gustafson is, as usual, unwilling to impose his point of view on the parties.

“The foregoing is not a holding but is a tentative hypothesis as to which we invite correction by counsel for the parties.” Order, at p. 2.

So let’s have a phoneathon, and “…Petitioner should be prepared to show that its analysis takes section 6501(c)(10) into account.” Order, at p. 2.

And Judge Gustafson obligingly designates this order. Happy New Year, Judge.

Once again the immortal words of Elizabeth Akers Atkins are sung at 400 Second Street, NW, but IRS’ plaintive rendition doesn’t help, as Mehrdad Rafizadeh, 150 T. C. 1, filed 1/2/18, avoids a chop from Section 6038(D) for years prior to the effective date of that amendment.

And no, I didn’t know what that was either. But Judge Pugh enlightens us. The 2010 Hiring Incentives to Restore Employment (the HIRE Act, another cutesy acronym covering many things not encompassed in the statute said acronym allegedly covered) amended Section 6038 to require reporting of certain offshore financial assets. And amended Section 6501 to extend the 6SOL to that nonreporting, but only if reporting was required. Which Mehrd argues it wasn’t.

Mehrd had four (count ‘em, four) years of nonreporting returns, only one of which would have been swept up by the ordinary reading of the amendment. Except that year’s assets were under the $5K threshold for reporting.

IRS hit him with a John Doe subpoena at the critical moment, extending the SOL for six months. IRS says this lets in the 6SOL for the three remaining years, as the 3SOL had already run.

Except the language of the statute imports the effective date of the statute into the reporting requirement.

“The notice of deficiency before us is timely only if the six-year period of limitations in section 6501(e)(1)(A)(ii) applies. Petitioner argues that the effective date of section 6038D precludes application of that six-year period of limitations. Specifically petitioner argues that the defining phrase in section 6501(e)(1)(A)(ii) (‘assets with respect to which information is required to be reported under section 6038D’) also limits application of the six-year limitations statute to assets for which there was a reporting requirement under section 6038D (or there would be a requirement but for specified exceptions) at the time the income was omitted.” 150 T. C. 1, at p. 7.

Congress said it. Tax Court must apply each and every word in its ordinary meaning unless an absurd result would follow.

“We must give effect to all of the words in the key phrase before us—‘assets with respect to which information is required to be reported under section 6038D’.” 150 T. C. 1, at p. 7.

Congress could have imported the definition of the reportable assets directly, with no need to speak of those assets being required to be reported. Congress did that with other reportable transactions, but in those the requirement to report predated the extension of the 6SOL.

Here it didn’t. Mehrd gets a bye.

So it seemed this morning as the clock struck or the ball descended. The income and estate tax landscape had undergone a seismic displacement. Everything transformed.

Well, so the vendors of software and continuing ed would have it. But the changes that will affect most ordinary taxpayers are of limited duration. We learned when the estate tax underwent its 12-month repeal (which the sages and savants assured us would never happen) that sunsets do happen (even far from Ogden, UT).

The rest is a massive tweak. But massive tweaks have been de-tweaked before now.

So while, in the words of the “Beautiful” lyricist, I feel the earth move under my feet, it moves rather slightly, and the sky isn’t “tumblin’ down.”

Sorry, poets. This theme isn’t worthy of your efforts.

Happily, the rest, residue and remainder of the cases and controversies engendered under the old law will slowly beat their firm, impassioned stress through the wilderness of examination and Appeals, to appear each working day on the website at 400 Second Street, NW.

And I’ll be there to report it as long as my luck holds out.

Happy New Year.