Archive for February, 2018|Monthly archive page


In Uncategorized on 02/16/2018 at 16:15

Judge David Gustafson is sometimes a trifle idiosyncratic in retaining jurisdiction over cases in long-term reporting mode. See my blogpost “He Loves Me Not, He Loves Me,” 12/8/17.

But when he has locked onto jurisdiction in a case, he grapples it with hoops of steel, as a much finer writer than I put it.

So here’s a designated hitter to close out the work-week before the born-again Presidents give us a three-day break, Robert Rose, Docket No. 2060-17, filed 2/16/18.

Back in November last year, Judge Gustafson put Rob and IRS on the 90-day reporting list, and explicitly retained jurisdiction.

But when IRS reported yesterday for the first time on the new regime, IRS’ counsel asked “Respondent requests that Judge Gustafson retains jurisdiction of this case and orders another status report due in May or August 2018.” Order, at p. 1.

It must have been a very long day for that Obliging Jurist, because Judge David Gustafson waxes a wee bit testy, giving IRS a wake-up call.

First, you make motions. Putting requests for judicial intervention in status reports runs the risk of your request being overlooked. Moreover, the Judge can’t stamp the document “Granted” or “Denied” without engaging in busywork.

But ever willing to go the twain, or even the thrain, when a litigant, be the litigant a humble pro se or even the Com’r hisself, asks him to go the mile, Judge Gustafson does it.

“Moreover, in this instance, the request was unnecessary, and no motion was needed. By the Court’s order of November 27, 2017, the undersigned judge had already retained jurisdiction and had already required the filing of periodic status reports (“… and every 90 days thereafter”). However, respondent’s inclusion of the request in his status report makes us suppose that he may have overlooked the requirement of periodic status reports in our prior order and might fail to comply with that requirement unless we issue yet another order.” Order, at p. 2.

Shortening somewhat C. L. Dodgson’s immortal line, Judge Gustafson says “What I tell you two times is true,” and confirms that his above-referred-to order remains in full force and effect.



In Uncategorized on 02/16/2018 at 13:39

We attorneys very often need to send our jackets to the cleaners; organic dry cleaners are good at removing the tire tracks left by the buses under which our clients have thrown us.

Here’s Timothy L. Blixseth, Docket No. 1422-14, filed 2/16/18. Tim’s counsel got IRS to drop Tim’s deficiency from $6 million to $1.3 million, and stipped to entry of decision in that amount.

Tim is unhappy with that. So unhappy is Tim, that he has his counsel move to have Tim relieved of the stip. Counsel claims that the magnitude of his error regarding an NOL Tim claims he had is so great as to shock the conscience.

Well, I don’t know about y’all, but as for me, it doesn’t even rate a Claude Rains Casablanca comment. And it certainly doesn’t for Judge Cohen.

Here’s Tim’s counsel’s story. “As the trial date grew near, most of my attention was focused in preparation for the expected trial in Timothy L. Blixseth v. Commissioner, docket number 24653-12. I did not give the Stipulation of Settled Issues the scrutiny it appropriately required. I glanced at paragraph 10 and believed that the amount that was being disallowed was the amount that was being allowed in that stipulation and that amount disallowed was the amount being allowed in the stipulation as the pass through loss.

“This was a unilateral error on my part. KB of District Counsel’s Office made no representation concerning the numbers and at no time tried to mislead me.” Order, at p. 2.

I will not, of course, name Tim’s counsel here. He’s suffered enough. I can’t think his carrier is particularly happy with his story, either.

But Judge Cohen, despite IRS’ “somber reasoning and copious citation of precedent” regarding not vitiating stips for unilateral mistake, told Tim and counsel last month that they could offer proof and try to show that could do better on a trial than they did by stipping out.

Of course they did, and can’t.

“Petitioner provides no reason to believe that he is likely to achieve a better result than the compromise reflected in the Stipulation, and a better result seems unlikely because of the unavailability of complete contemporaneous records, the necessity of estimates rather than reliable evidence of losses claimed, and the passage of time since 2008. His offer of proof shows no more than that witnesses would testify as to the preparation of returns in order to assert that the amounts claimed were correct.” Order, at p. 3.

Besides, going to trial would have a negative knock-on for another case, where Tim is tax matterer, that has been floating around for five (count ‘em, five) years.

“The record reflects substantial prejudice to the Court and to respondent if the settlement previously reached is vacated and trial preparations must begin anew. The record does not show an unconscionable result if the Stipulation is enforced. Neither legal precedents nor considerations of justice favor petitioner’s motion.” Order, at p. 3. (Citation omitted).

If I may draw an inference from Judge Cohen’s remarks, enough already.

If you want out of a stip, you’d better have a real good story. Especially if you just saved $5 million plus chops.


In Uncategorized on 02/16/2018 at 13:09

The seemingly never-ending benevolence of Judge David Gustafson again manifests itself as that Obliging Jurist gives some well-meant advice to Christine Robinson, Docket No. 16653-17, filed 2/16/18.

Chris doesn’t want to stip to facts. IRS wants an OSC per Rule 91 to require Chris to tell Judge Gustafson (and IRS) why she doesn’t agree with IRS’ version of the facts.

Judge Gustafson explains.

“Under this Court’s rules, the parties have a duty to cooperate in preparing a joint stipulation (i.e., a written statement signed by both parties) setting out the agreed facts in the case. For Ms. Robinson’s information, we stress that the stipulation process is often a substantial help to the petitioner, especially a petitioner who does not have a lawyer. The stipulation usually includes documents that the petitioner would otherwise have to offer into evidence during the trial of the case–a process that the self-represented petitioner finds somewhat difficult. But when instead petitioner’s intended evidence is included in the stipulation (as the IRS seems to appropriately propose here), then that evidence comes in at the beginning of the trial without further effort by the petitioner. And in case Ms. Robinson is concerned that her cooperating in preparation of the stipulation might somehow bar her from producing at trial additional evidence not included in the stipulation, we assure her that it does not. She can offer additional evidence not included in the stipulation.” Order, at p. 1. (Emphases by the Court).

Judge, I can understand why you don’t want to watch a pro se fumble with trying to lay a foundation, struggle with hearsay and all its variants, and chew up time and transcript paper in the process of getting a bank statement or a credit card slip into evidence. Neither you nor IRS’ counsel is on the clock. And if I were on the case and on the clock, I’d have compunction about billing a client for that time.

Moreover, without prejudging, Judge Gustafson doesn’t think IRS is trying to wildcard in any off-the-wall, non-verifiable stuff.

But he’ll let Chris tell her side of the story.

I note that Chris’ case in set for trial in Columbia, SC. Well do I remember that city and the adjacent Federal premises from the days of my youth. But it’s Judge David Gustafson’s home territory, so perhaps his benevolence extends even wider around there.

Next up will be the story of one who stipulated not wisely nor well, but is stuck.


In Uncategorized on 02/15/2018 at 16:46

Judge Buch has a busy day with designated off-the-benchers. Here, he paints the picture of an artist of many talents, Collin S. Pulsipher, in Collin S. Pulsipher & Marcella P. Pulsipher, Docket No. 5409-17S, filed 2/15/18.

“Mr. Pulsipher considers himself to be a professional artist. What he means by that is that he is a man of many talents and interests, all of which broadly fall into the arts. He has worked in fashion. He has worked as a musician. He has worked on set design. As relevant to…the year in issue, he was employed on production sets. He was also winding down his involvement in a band. And he was taking. the initial steps toward pitching a reality TV show.” Order, transcript, at p. 4.

Collin’s idea for the reality TV show brings to mind a 2004 film that won an Oscar for best song, sung on Oscar night by a former client of a firm with which I was then associated. Collin was going to do a motorcycle excursion with a camera attached. Judge Buch isn’t certain whether this was business or pleasure, but it doesn’t matter since the concept never went anywhere. And IRS disallowed all of Collin’s business-type deductions.

“The bulk of Mr. Pulsipher’s expenses are related to the preliminary steps he took to develop a reality show. Generally, expenses under section 162 are deductible to the extent that they relate to a functioning business at the time the expenses were incurred. A functioning business is one that is performing the activities for which it ïs organized. The bulk of Mr. Pulsipher’s expenses are related to the preliminary steps he took in developing a reality show, and not his income as a musician. Because those expenses are not related to a functioning business, they cannot properly be offset against his income as a musician.” Order, transcript, at p. 7. (Citations omitted).

And as start-up expenses, these items, though documented to some extent, are a nonstarter.

“To the extent his expenses relate to a new business, section 195 disallows business expenses for start-up expenditures. A start-up expenditure is any amount paid or incurred in connection with: (1) investigating the creation or acquisition of an active trade or business (2) creating an active trade or business, or (3) any activity engaged in for profit and for the production of income before the day on which the active trade or business begins in anticipation of such activity becoming an active trade or business. In all instances, the amount in question must be allowable as a deduction in the case of an existing active trade or business. Because the reality show was a new venture and not an active business, Mr. Pulsipher’s expenses are not deductible under section 195.” Order, transcript at pp. 7-8. (Citations omitted).

But all is not lost. Judge Buch lets Collin have his drumsticks, lyric books and studio rental deductions. Section 274 strictures don’t apply, and Collin did make a few bucks as a musician.

And Collin & Marcella avoid one of the chops. IRS asserted the five-and-ten (understatement of tax of $5000 or 10% of tax, whichever greater); but that must await the Rule 155 beancount.

In the alternative, IRS wants negligence. However, the issue here wasn’t recordkeeping or substantiation.

“…the expenses that have been disallowed were not disallowed for lack of substantiation. The expenses were disallowed because start-up expenses for a reality show were improperly aggregated with the income from being a musician. Mr. Pulsipher credibly testified that he discussed these expenses with his return preparer. We understand from Mr. Pulsipher’s testimony that it was the return preparer who aggregated those expenses. On this record, we cannot say that Mr. Pulsipher was negligent. We need not reach the issue of the quality of his substantiation.” Order, transcript, at pp. 9-10.

Bang the drum and blame the preparer. It works, sometimes.


In Uncategorized on 02/15/2018 at 15:27

The statistical wizards at The Glasshouse have posted the pass-fail numbers and percentages for the Tax Court admission exam for non-attorneys (no lawyers need apply) for the last eight biennial cycles (that’s sixteen, count ‘em, sixteen, years).

Here’s my take on those numbers. And please remember, like a lot of lawyers, math is not my long suit.

92 on average took the test, and 12 on average passed. The best year was 2014, with an 18.25% pass rate, the worst was 2004, with a 5.56% pass rate.

Casualty rates like that make you weep.


In Uncategorized on 02/15/2018 at 15:03

And That’s Not Rocket Science

No kidding, Peter Changching Lai is a rocket scientist. To continue working in his chosen profession, he moves from southern CA to Northern CA and back again, claiming travel expenses both ways in separate years. Unhappily, PCL gets hit coming and going.

So here’s a split decision in an off-the-bencher from Judge Buch, Peter Changching Lai & Kaiting Su, Docket No. 5699-17S, filed 2/15/18.

PCL got laid off his SoCal job, and took a gig up north to pay the bills while he sought to return to the southland. He claims it was temporary, and took a deduction for the move up north. But the gig lasted three (count ‘em, three) years.

“Section 162(a) provides that ‘the taxpayer shall not be treated as being temporarily away from home during any period of employment if such period exceeds 1 year.’ Employment is considered temporary if the engagement is expected to last for only a short period. Temporary employment may become indefinite, however, if it is expected to 1ast for a substantial, indefinite, or indeterminate duration or due to changed circumstances or the passage of time.” Order, transcript, at p. 8. (Citations omitted).

And of course, it all goes off on facts and circumstances, with burden of proof on PCL.

PCL claims his stay up north wasn’t permanent, but that’s not the point. It was indefinite, and it lasted beyond one year.

As for the move back south, PCL loses that one because he hints that maybe so his employer would’ve picked up the tab, even if he never got paid for any of it.

A man of many talents, he also claims the cost of materials for a self-created artwork he donated to a church. Judge Buch finds enough substantiation in PCL’s records to give him a grand more than IRS allowed on that, and cuts him some slack on his other charitables.


In Uncategorized on 02/14/2018 at 23:47

I occasionally hear, through a very tangled grapevine, that my blog is read even in the sacred precincts of the courts. Without revealing my sources (which as an ethical journalist I may not do), I have heard that Judge Buch has read this blog once or twice.

I believe it. Four years ago Judge Buch gave me what I asked for in 63 (count ‘em, sixty-three) erudite pages. Offer of proof: see my blogpost “Cracking Up,” 2/27/14.

And Judge Buch is at it again, in today’s designated hitter James Milton Meintz, Docket No. 25321-16, filed 2/14/18.

As I said four years ago, “Judge Buch has a plenitude of somber reasoning and copious citations; you betcha!”

James Milton has the usual protester stuff, and even when Judge Buch cautions him from the bench during trial, James Milton presses on.

Here’s Judge Buch showing James Milton the yellow card, to no apparent effect.

“[T]he Commissioner has characterized the arguments you’re making as frivolous, which is why I’m referring you to Kernan and Wnuck and Waltner, because I’d like you to take a look at those and see what you think coming out of those. I’m not ruling today on the Commissioner’s motion to impose sanctions. We’ll leave that to see what you have to say in your brief.” Order, at pp. 2-3. And Judge Buch gives James Milton the cites to all three.

Waltner, of course, was the subject of my above-referred-to blogpost. James Milton ignored Judge Buch’s warning, and went on protesting.

So Judge Buch cites seventeen (count’em, seventeen) cases (some more than once), a slew of regulations, and unloads a bushelbasketful of somber reasoning.

At the end of which, IRS gets summary J for James Milton’s $53K deficiency, with the $21K of add-ons. And Judge Buch throws in a $1K Section 6673 frivolity chop.





In Uncategorized on 02/14/2018 at 08:40

That Obliging Jurist Judge David Gustafson finds himself enwrapt in the Laocoön-like grip of the mathematical toils of IRS’ expert Mr. Bello and the counterarguments of those too-creative attorneys (who are actually capable of arithmetic, unlike many of their fellow-craft) who represent William Cavallaro, Donor, et al., Docket No. 3300-11, filed 2/14/18.

And whether they get their chocolates or ashes handed to them today, my thanks to those hard-laboring intake clerks and flailing datestampers who toil in the Glasshouse at 400 Second Street, NW, for getting me this gem by dawn’s early light.

Y’all will recall that 1 Cir handed Bill back to Judge David Gustafson when the Obliging Jurist misapplied the elements of the burden of proof; Bill had to prove IRS was wrong, but not prove the right number his own self. See my blogpost “Do Not Annoy the Judge – Part Deux,” 3/15/17, for the ganze myseh, as my beloved Grandma would have put it.

So here we get the fruits of the too-creative attorneys, who ransack IRS’ expert Mr Bello’s figures and come up with a few blips, glitches and hitches.

“Among other criticisms, petitioners pointed to a math error in Bello’s statement that he arrived at the 7.5% profit margin figure used in the profit allocation adjustment for Camelot by adding a 4.1% industry average to a 3.65% premium–which would total not 7.5% but 7.75%. (ECF 109 at 43, n.29).” Order, at p. 1.

IRS claims the 3.65% was a typo, he meant 3.4%, but howbeit, Mr Bello wanted to put Bill & Co in the “90th percentile of wholsesaler category peers in terms of profitability.” Order, at p. 2.

Whatever that means.

Except, of course, that he didn’t. The too-creative but mathematically-adroit attorneys grab their calculators (or slide rules, or abaci, or take off their Mephistos and Docker’s Cushion Sports) and establish that Mr Bello only got Bill & Co to percentile 88.3%.

If you are not now thoroughly bewitched, bothered, befogged and farblungeit, sit back in your Herman Miller and watch these numerical gyrations.

Bill’s math whizzes deduce “…that the actual profit margin at the 90th percentile would have been 9.66% (not 7.5%), and that replacing the 7.5% value with 9.66%, while leaving all other calculations and inputs unchanged, would result in a reduction of the disguised gift’s value from approximately $29.6 million to $22.8 million, a difference of about $6.8 million. (ECF 113 at 23, n.16; and ECF 113 at Appendix II).” Order, at p. 2.

Not so shabby.

IRS’ counsel, after removing her Birkenstocks, ripostes as follows. “The Commissioner thereafter conceded, ‘Petitioners correctly note that Mr. Bello’s profit reallocation put Camelot in the 88.3rd, not the 90th, percentile among its peer companies surveyed by RMA.’ (ECF 119 at 7.) The Commissioner explained that Mr. Bello had believed that the underlying data for RMA was unavailable and had attempted to extrapolate the 90th percentile using a known data point. (ECF 119 at 7-8). The Commissioner nonetheless defends the essential validity of the 7.5% profit margin and of the Commissioner’s position at trial. (Thus, he does not agree that a profit margin of 9.66% should be used.)

“While the Commissioner concedes petitioners’ assertion that ‘Bello’s profit reallocation put Camelot in the 88.3rd, [and] not the 90th’ percentile (ECF 119 at 7), he has not stated whether he agrees with petitioners about the net arithmetic effect of that difference. Specifically, the Commissioner does not indicate whether replacing the 7.5% profit margin value used in the Bello report with the 9.66% profit margin that corresponded to the 90th percentile would reduce the value of the disguised gift from $29.6 million to $22.8 million.” Order, at p. 2.

I shall spare those of my readers whose eyes have not thoroughly glazed over the ancient wheeze that “figures don’t lie but….”

So IRS, how about responding by cutting the $6.8 million from the deficiency and letting us all go home? If not, lay some more number-crunching on poor Judge David Gustafson with a calculation showing Bill’s math hotshots got it wrong.

Of course, if IRS has a comeback other than “I surrender,” Bill’s math team can reply.

Were I the Judge, I’d send this to 1 Cir with a Valentine’s Day card that reads “fardray dein eigene kup!” In memory of Grandma.


In Uncategorized on 02/13/2018 at 15:28

I’m standing Lord Byron on his head for this one. Here’s Errict Rhett Foundation, Docket No. 16044-16X, filed 2/13/18, x-rated because it’s a Section 7428 revocation of a Section 501 freebie.

IRS moved for Rule 122 on-the-papers. IRS stated in the motion that Errict Rhett didn’t object. Nevertheless, CSTJ Lewis (“Properly Spelled”) Carluzzo, modestly signing himself as simple STJ, asked Errict Rhett back last November to object.

Again, Errict Rhett stood mute.

CSTJ Lew is still leery about letting this go on IRS’ papers alone.

“…we are reluctant to proceed as though respondent’s motion should be considered jointly made. Consequently, submission of the case pursuant to Rule 122 is not appropriate. In the absence of cooperation between the parties, the case can be submitted as contemplated in Rule 212 or 217(b).” Order, at p. 1.

I don’t fault IRS’ counsel for taking Errict Rhett’s consent and silence as consent.



In Uncategorized on 02/13/2018 at 14:58

Or, Win Your Case But Instruct Your Adversary

It used to be a truism so often repeated: “No one ever wins a DADs.” That’s the distressed asset – distressed debt dodge, where a portfolio of waste paper is married to a boatload of cash (the tax on which is sought to be dodged) by means of a tiered-LLC spiderweb. When the web is split, the loss is recognized but the gain isn’t, until the FPAA descends, and the sham meets its righteous doom.

The downside is that, by winning, you give your adversary a blueprint for a different result on a new day. Especially when your adversary is a top-class dodgeflogger like Chenery Associates.

So today it’s a different story.

Judge James S. (“Big Jim”) Halpern isn’t convinced IRS has established that Peking Investment Fund LLC, Peking Investment Holdings LLC, Tax Matters Partner, Docket No. 12772-09, filed 2/13/18 is a sham like Mr. Rogers’ celebrated Superior-Jetstream deals I’ve blogged so often. At least, IRS hasn’t convinced Judge Big Jim enough to grant summary J.

“Because the validity of each of respondent’s two arguments in support of justifying the FPAA’s disallowance of the loss in issue turns on disputed questions of material fact, we will deny respondent’s motion.” Order, at p. 2.

First, IRS hasn’t established that the Chenery-promoted partnership wasn’t truly a partnership. There was some collection activity, enough to get above the “feeble” range. The operating partner did bring in some yuan.

“Even if the generation of tax losses is the primary purpose for a partnership’s formation, the partnership may also have as a secondary purpose the conduct of a business enterprise. To prevail in disregarding a DAD partnership as a sham…, the Commissioner must establish that carrying out a business of collecting [non-performing loans] was so minimal a factor in the decision to form the partnership that it can be dismissed. In prior cases in which this Court and others have disregarded DAD partnerships as shams, the evidence showed that the partners ultimately had no real interest in collecting the NPLs.” Order, at p. 6.

Besides, in this deal the “investor” could swap out of one portfolio of bum paper for another if unhappy with the result. IRS hasn’t proved that if they did swap, they’d be protected against loss. All IRS has is Chenery correspondence from other deals promising no economic loss. Noscitur a sociis doesn’t get it.

That a pivot-man partner only had a 1% in the LLC doesn’t mean it was insubstantial. There is no such rule. And there was an independent valuation of the worth of the loan portfolio (hurried because it was year-end), so there was concern about making money.

Of course, on the trial the Peking ducks will have the burden of proof. But on summary J, they get the benefit of every inference (and Judge Big Jim can infer with the best of them).

There’s the interesting question of a Section 482 mix-and-match between two offshore tax-indifferents. Two District Courts have split on this; one of them was affirmed on other grounds by 5 Cir, but Judge Big Jim doesn’t have to go there, because IRS hasn’t shown the two were under common control.

You really have to read the whole order. It’s a blueprint for sliding your DAD dodge in under the tag.

It does prove that you can get tired of winning (in a non-political sense, of course); so tired, in fact, that you think you can cut corners in your summary J motion and get a win anyway.

A Taishoff “good job” to J. E. Williams, Esq., for petitioner.