Archive for March, 2018|Monthly archive page


In Uncategorized on 03/22/2018 at 15:46

It’s a guarantee that one is a genuine fogey when one begins a sentence with “In my young day.” So be it.

In my young day, we had motions to require one’s adversary to “separately state and number” allegations in pleadings, so one could respond without exhuming and copying the allegations one wished to controvert.

Nowadays, anything goes.

But not in Tax Court, when we have such stalwarts as CSTJ Lew (“Nom d’un nom!”) Carluzzo (see my blogpost “Legal Writing As She Is Writ,” 12//11/15), and today, that Obliging Jurist, Judge David Gustafson.

Judge David Gustafson is a true friend of the hapless pro se, seeking justice in the sixty-buck arena but with no legal assistance. Here’s Gwendolyn L. Kestin, 18254-17L, filed 3/22/18, confronted with nine or so pages of unnumbered (emphasis by the Court) paragraphs, to which IRS claims Gwen stipulated, and a motion for summary J.

True, Rule 121 doesn’t say that movants for summary J have to separately state and number. They needn’t even have separate paragraphs. But Judge Gustafson isn’t down with that.

“The Tax Court Rule 121 does not require that a movant’s statement of undisputed facts be set out in numbered paragraphs; however, Rule 121(d) does require the non-movant who opposes such a motion to “set forth specific facts showing that there is a genuine dispute for trial”. Our experience is that—particularly where (as here) the non-movant is self-represented–it is expedient for the proposed undisputed facts to be stated in numbered paragraphs, so that the non-movant can be directed to specify by number any fact that is in dispute (and to oppose the asserted fact with appropriate evidence). We will therefore order respondent to supplement his motion with a statement of facts in numbered paragraphs.” Order, at p. 1.

Then Gwen can paint-by-the-numbers, challenging the facts she disputes.


In Uncategorized on 03/21/2018 at 15:56

No closing announcement on the Tax Court website, just the usual “nothing happens before 3:30 p.m. Eastern” on the opinions and designated orders pages, and no orders today, 3/21/18.

The flailing datestampers and hard-laboring intake clerks are conspicuous by their absences.

I guess the Snowman has put the Glasshouse Gang on teletubby again.

But take heart, O ye procrastinators and deadline-beaters, frozen like statues on the Glasshouse steps, with un-efileable paper in your chillblained hands. Remember Felix Guralnik and Octavia.

What, you don’t? I know it was two years ago, but still and all…Check out my blogpost “Neither Equity Nor Designation,” 6/2/16, for what to do when “the weather outside is frightful, but the fire’s so delightful,” as Sammy Cahn and Jule Styne put it.

Me, I’m taking the day off.


In Uncategorized on 03/20/2018 at 17:47

Whistleblower 23711-15W, filed 3/20/18, should have known better. This is the third time I’ve blogged the sad tale of One-Fifteen Whiskey (check out my blogpost “The Second Time Around – Part Deux,” 8/1/17 for the previous two).

Of course IRS collected nothing, so One-Fifteen Whiskey is another casualty in the frontal assault on The Castle at the Ogden Sunset. But why they never used One-Fifteen Whiskey’s data dump comes out, finally.

IRS claimed the info was “tainted,” but never said why.

Turns out that Supervisory Special Agent S called up Criminal Tax Counsel Naamloze (names changed), who said “the stuff is protected by client-attorney privilege.”

There’s a lot of argy-bargy about the state of the administrative record and IRS’ attempts to backfill the same. And One-Fifteen Whiskey attempts to rule out the IRS’ Integrated Data Retrieval System on hearsay grounds, but they’re business records enough for Judge Lauber to let a subsequent Sunseteer rely on the notes of her predecessor preserved therein.

So poor One-Fifteen Whiskey is relegated to could’a-would’a-should’a arguments that couldn’t cut a warm frozen Margarita.

I’ve heard a lot. I mean, a lot. But I can’t tell anybody without the client’s consent. And I’m sure Judge Lauber is similarly situated.



In Uncategorized on 03/20/2018 at 17:24


Y’all will remember Judge Hardiman in 3 Cir confirming the insular virginity of Richard Vento back in 2013. Virgin islander, that is, recipient of the now-extinguished unguided largesse to those who settled in our Insolvent Islands in the Sun by tax-year’s end long ago. If not, see my blogpost “Catching Up,” 9/30/13.

So Richard’s 1040 directed to VIBIR (Virgin islands Bureau of Internal Revenue) for the year he sold a bushelbasket of appreciated stock, with a sideways hand-off to a Cayman Islands insurance peddler’s sub to bury a few millions in taxable gain, kicked off the 3SOL, and IRS can’t prove the 25% substantial understatement to pin the 6SOL appropriately on Richard.

The assignment of interest in the LLC Richard set up (the DTDV, LLC in the case) wasn’t a sham, and if it was an assignment of income, it wasn’t 25%. Richard gets there with some help from his trusty tax counsel and Judge James S. (“Big Jim”) Halpern, in DTDV, LLC, Richard G. Vento, Tax Matters Partner, 2018 T. C. Memo. 32, filed 3/20/18.

As Richard’s C Corp was about to be acquired, he set up the LLC, assigned a piece of his interest to an outfit fetchingly called Square Leg for a price pre-announcement in exchange for an annuity give-and-go with Square Leg, upon which Square Leg defaulted within six months.

BTW, “square leg” is a mid-fielder’s position at cricket. Oh to be in England in June, watching a match on Hampstead Heath!

Anyway, State law says that Square Leg got a capital interest even if strict formalities weren’t observed in the assignment process. The short life of the annuity doesn’t mean it was a sham; Richard went to arbitration and was awarded money damages (how much he collected is unstated). And estate planning isn’t necessarily a non-business purpose, although that may not be as clear as Richard claims.

Basis-building via Section 754, with an assist from Section 743, is a big help to Square Leg. As Square Leg isn’t a sham, and isn’t part of a step transaction (not preconcerted from the getgo, says Judge Big Jim; or at least not proven by IRS, who has the burden to get 6SOL), it’s a partner and can build basis thus by buying into a partnership with appreciated assets (the stock that was worth thirteen bucks on Friday and seventeen bucks the following Tuesday, after the buy-out was announced).

IRS should have gone after Richard directly, and not the LLC on an FPAA. The LLC was real enough, and its numbers hold up. Now it’s too late to go after Richard.

IRS was too slow off the mark and is out to Square Leg. I’ll have some tea with milk and sugar, and scones…with strawberry jam, please.


In Uncategorized on 03/20/2018 at 00:14

But the Pay-Out Was Low

Y’all will surely remember Stefan A. Tolin, the horse-breeding lawyer, who beat the IRS in a photo finish? No? Check out my blogpost “I’ve Got the Horse Right Here,” 4/9/14.

Well, Stef was first past the post, and now his trusty attorney wants $260K in legals per Section 7430, claiming he made a qualified offer that IRS turned down.

Here’s Stefan A. Tolin, 2018 T. C. Memo. 29, filed 3/19/18.

For the qualified offer gambit, see my blogpost “Concession Equals Settlement,” 4/1/13.

Judge Gale decides that even though Stef’s trusty attorney agreed to some adjustments to do with Stef’s law practice, he still could contest them. I’m not sure how Judge Gale gets there, as trusty attorney stipulated to the adjustments. But if trusty attorney could still confute the stipulated-to adjustments, his qualified offer was too low.

Notwithstanding the foregoing,  trusty attorney does get some cash. His hourly rate of $400 (by coincidence that’s mine, too, when I can collect it) gets cut to $180 (less than a first-year in a white shoe firm). He’s only entitled to time spent after IRS ceased to be justified (and Judge Gale takes that to the day IRS concedes).

And even that time gets cut, because trusty attorney spent too much time on sorting out Stef’s telephone bills and preparing for trial.

So trusty attorney gets his hours cut from 453 to 276, and his billing rate cut as aforesaid.

Judge Gale wouldn’t have been a big hit as a billing reviewing partner in any firm I was ever in.



In Uncategorized on 03/19/2018 at 23:42

Or, A Message From Garcia

Gregory S. Larson, 2018 T. C. Memo. 30, filed 3/19/18, is the recipient of the message that formed the plot of the famous short story by “The Sage of East Aurora,” Elbert Hubbard, from which I get my sub-head.

Gregory was a lawyer and he hired a bookkeeping firm to do his taxes. A certain CPA, Mr Garcia, worked on the return. Gregory “did not provide receipts to the bookkeeper, ‘just [his] checking account and descriptions of whatever the check was for’.” 2018 T. C. Memo. 30, at p. 2.

But the point of this blogpost (and, dear readers, note how quickly I got there) is that “(A)lthough the C.P.A. was designated on the returns as a person with whom the returns could be discussed, the C.P.A. refused to assist petitioner when the returns were audited.” 2018 T. C. Memo. 30, at p. 3.

Although Gregory obtained other representation, the case did not end well. To avoid penalties, Gregory claims he relied upon CPA Garcia.

Judge Cohen: “He acknowledges that he identified the purposes for which checks were written and did not provide receipts to his bookkeeper. He could not state definitively whether he had provided to the preparer backup receipts for the totals claimed as travel expenses on his returns. He testified that he gave the preparer the items and amounts claimed for the casualty loss. Petitioner testified: ‘Mr. Garcia didn’t ask me any questions. I relied a hundred percent on him after I handed him those materials. He didn’t ask me any questions’. Petitioner did not describe any specific advice that Garcia gave him before the audit. He testified that after the audit began Garcia said: ‘[Y]ou’re on your own’.” 2018 T. C. Memo. 30, at p. 4.

I don’t know the ethical rules for CPAs, so I won’t comment. Perhaps Mr. Garcia’s version might vary from Gregory’s.

But I suggest that if the CPA who prepared your return tells you when you get the audit notice that “you’re on your own,” be afraid. Be very afraid.


In Uncategorized on 03/16/2018 at 13:46

The silt is really stirring at the Glasshouse at 400 Second Street, NW,  since 2 Cir gave the Glasshouse Gang the right-about-face, and the Boss Hoss Section 6751(b) sign-off for penalties became the 2018 flavor of the year.

STJ Diana L (“The Taxpayer’s Friend”) Leyden doesn’t even wait for post-trial motions, but sua sponte tells IRS to put up or the alternative.

Here’s Corey V. Triggs, Docket No. 14824-16S, filed 3/16/18. Only the trial happened last year, and, according to the Docket Inquiry link on the Tax Court website, no briefs are due. And IRS hasn’t moved for a reopener.

Notwithstanding anything otherwise, contrary to, or at variance with, the immediately preceding sentence, STJ Di tells IRS it “…(1) may move to reopen the record to provide evidence of compliance with I.R.C. section 6751(b), including filing the written supervisory approval form contemplated in I.R.C. 6571(b) or submitting an explanation as to why respondent is unable to do so, or(2) will advise the Court of respondent’s position with respect to the accuracy related penalty under I.R.C. section 6662(a) referenced in respondent’s pretrial memorandum….” Order, at pp. 1-2.

Of course, Corey is pro se in this small-claimer. And I doubt he reads this my blog.

STJ Di, does Corey get to review and respond to any proffered evidence of compliance, including without in any way abridging or limiting the generality of the foregoing (as my two-dirty-olive-martini lunching colleagues would say), cross-examining the signers of any written evidence of any thereof?

I must again cite to my blogpost “Robosigner?” 12/23/16.


In Uncategorized on 03/15/2018 at 16:25

While I rejoiced at the well-deserved triumph of my daughters’ friend since their childhood days, I will refrain from further praise of that gifted actor-director-screenwriter and all-around great human being in this blog other than saying once again “JORDAN!!!”

I only use the title of his film to illustrate to fellow practitioners how to get out of representing a client in Tax Court, or, more politely, withdrawal as attorney.

Two examples.

First, petitioners and intervenors are represented in Tax Court by individual attorneys. Form 7 (Entry of Appearance) is a trifle ambiguous, but see my blogpost “Separate Checks,” 9/1/15. So here’s Whistleblower 18370-16W, Docket No. 18370-16W, filed 3/15/18, where a well-respected NYC law firm specializing in tax representation (and with whom I’ve worked in the past) tries to get out, and fails.

Judge Morrison: “…counsel for petitioner moved the Court to issue an order withdrawing X & Y LLP as counsel for petitioner in this case. This motion is improper as it moves the Court to withdraw as counsel the law firm rather than moving the Court to withdraw as counsel the individual attorneys who have entered appearances in this case….” Order, at p. 1 (names omitted).

The second example is what happens when there are too many cooks in the kitchen, and one tries to tell the other to “get out!”

Here’s Mildred Barrett, Donor, Docket No. 22051-17, filed 3/15/18. But Mildred isn’t involved, although she should have been.

Attorney A signs petition and duly files same. A month later, Attorney B files Entry of Appearance. So as far as Ch J L Paige (“Iron Fist”) Marvel is concerned, there are two attorneys representing Mildred.

No biggie; any number can play.

But five months later, Attorney B tries to oust Attorney A, and that doesn’t fly.

Attorney B “…filed a paper Motion To Withdraw Counsel seeking to withdraw [Attorney A]’s appearance as counsel for petitioner in this case (Index No. 0010). An examination of that motion reflects that it (Index No. 0010) is signed only by [Attorney B], and not by petitioner herself. In pertinent part, Tax Court Rule 24(c) provides that any party desiring to withdraw the appearance of counsel of record for such party, must file a motion to withdraw counsel with the Court. Although [Attorney B] represents that he is acting on petitioner’s behalf, Rule 24(c) does not allow [Attorney B] alone to file a motion to withdraw [Attorney A]’s appearance as counsel for petitioner in this case, and that motion to withdraw counsel must also be signed by petitioner herself.” Order, at p. 1.

Ch J Iron Fist bounces Attorney B’s paper filing (and shouldn’t that have been electronically filed? M116 motions aren’t barred from electronic filing; see p. 93 of the Guide).

Having done so, she turns to Attorney A with some free advice.

“[Attorney A] is advised that if he wishes to withdraw as counsel for petitioner in this case, [Attorney A] must file an appropriate motion to withdraw as counsel under Tax Court Rule 24(c). Such motion to withdraw as counsel must be electronically filed by [Attorney A], and may not be filed in paper form. Petitioner and [Attorney B] are advised that if petitioner wishes to withdraw [Attorney A]’s appearance as counsel for petitioner in this case, petitioner must file an appropriate motion to withdraw counsel under Rule 24(c) that bears petitioner’s signature.” Order, at p. 2.

And this is the second try at getting either Attorney A or Attorney B out of the case. See my blogpost “Accept No Substitutes – Redivivus,” 12/8/17.

Keep trying, guys. Only read the Rules first.


In Uncategorized on 03/14/2018 at 17:22

I’m not blogging today’s T. C. Memo., R. J. Channels, Inc. It’s the story of an EA gone wrong, and those who want can read it. But Judge David Gustafson’s unlimited largesse is once again in evidence in a designated hitter, Daniel E. Larkin & Christine L. Larkin, Docket No. 6345-14, filed 3/14/18. And once again, it’s about what is in evidence.

Dan’s & Chris’ trial was twice postponed at their request, and was finally tried a year-and-a-half ago. Then followed motions to put additional exhibits into the trial record, stipulation of fact and supplemental stip, and on the post-trial brief yet another motion to put in fresh stuff.

Now IRS wants to put in the Section 6751(b) Boss Hoss sign-off that never made the trial record. The Glasshouse at 400 Second Street, NW has become the Land of the Free and the Home of the Graev.

Judge Gustafson: “The Court held a telephone conference with counsel for the parties…during which petitioners objected to respondent’s motion to reopen the record on the grounds that (1) the motion comes too late, (2) granting the motion would deprive petitioners of the chance to cross-examine the witnesses on whom respondent would rely for this issue, and (3) granting the motion would deprive petitioners of the opportunity to include this issue in their (already concluded) briefing of the case.” Order, at p. 3.

OK, the failure of IRS to put in the Boss Hoss on the trial is their misstep, not induced by Dan & Chris, let alone that Obliging Jurist Judge David Gustafson. So maybe IRS shouldn’t be allowed to wild card the Boss Hoss in so long after trial ended and briefing was finished.

But not in Judge David Gustafson’s courtroom.

“However, this is a case in which great latitude as to supplementing the trial record has been granted to petitioners. They have been twice allowed to supplement the trial record with additional evidence–and that, after having requested and having received two continuances of trial. In such a case, it seems inappropriate now to discover a new rigor that will be enforced only against respondent. Rather, in this circumstance we think that an even-handed approach is best obtained by allowing respondent to submit additional evidence.

“However, we acknowledge petitioners’ desire to be allowed to cross examine respondent’s witness(es). For example, section 6751(b)(1) requires approval by the determining individual’s ‘immediate supervisor’, whereas the ‘Civil Penalty Approval Form’ that respondent proffers bears a signature by a ‘Group Manager’, who might or (for all we can tell) might not be the immediate supervisor of the examiner who made the initial determination. Therefore, we will hold a supplemental trial session, at which petitioners will be able to explore this issue (unless it is resolved to their satisfaction before that session). We also acknowledge petitioners’ reasonable request to brief this issue; and at the conclusion of the session, we will set a schedule for doing so.” Order, at p.4.

In the meantime guys, play nice, stip it all out and save Judge David Gustafson from holding a post-trial trial.

But I can’t say Dan & Chris are wrong in wanting to scope out the Boss Hoss thoroughly. See my blogpost “Robosigner?” 12/23/16.



In Uncategorized on 03/14/2018 at 16:44

The stock market version may yield cash and a gain, but the real estate version never does, only a gain with no cash. This is the story of Karl F. Simonsen and Christina M. Simonsen, 150 T. C. 8, filed 3/14/18, and it’s a tale told many times.

For those recently arrived from other planets, Judge Holmes explains in one of his footnotes.

“In a short sale of real property, ‘the borrower sells the home to a third party for an amount that falls short of the outstanding loan balance; the lender agrees to release its lien on the property to facilitate the sale; and the borrower agrees to give all the proceeds to the lender.’” 150 T. C. 8, at p. 2 footnote 1 (Citation omitted).

Karl and Chris bought their house just before the meltdown. They converted to business use (rental), but the rent couldn’t cover the debt service. They finally unloaded for a six-figure loss, and the lender gave them a 1099-C at no extra charge.

Karl and Chris claimed the loss, plus COI wiped out by now-expired Section 108(a)(1)(E). IRS says it’s all one deal, and COI is additional gain on the sale.

The caselaw and Judge Holmes agree with IRS.

“We think the key point here is the complete dependence of Wells Fargo’s willingness to cancel the debt on the Simonsens’ willingness to turn over the proceeds from the sale of their home.  The Commissioner’s view is consistent with the obvious realities of the transaction–that Wells Fargo had to reconvey the deed of trust for the sale to close, and that it would’ve been able to dictate the terms of the sale as long as it retained the deed of trust.  Because Wells Fargo couldn’t collect on the debt once it reconveyed the deed of trust–it was nonrecourse debt after all–the debt forgiveness occurred when the sale closed.  There was but one transaction.” 150 T. C. 8, at pp. 17-18.

Now if Karl and Chris were still liable to Wells Fargo after the short sale, then there was no cancellation of debt. But under CA law, Wells Fargo couldn’t go after Karl and Chris once they handed over all the proceeds of sale.

So Karl and Chris got discharged from the Wells Fargo debt, and that was the consideration from the short sale.

“Because the Simonsens’ home loan was nonrecourse debt, the amount realized on its sale includes the discharged debt.  They received no consideration in addition to Wells Fargo’s forgiveness cancelling that loan balance….” 150 T. C. 8, at pp. 21-22.

OK, that’s amount realized. But in a sale we need to figure basis. That’s cost plus improvements. Judge Holmes credits Karl and Chris with some, but not enough to upset his analysis. For numbers, note that Karl and Chris paid $695,000 for the house, but stiped with IRS that at conversion from residential to commercial FMV was $495,000.

As Judge Holmes would say, now pay attention. This is why we love this stuff.

“The Simonsens realized $555,960 [the balance of the Wells Fargo loan], which falls between the basis we would use to calculate a loss ($495,000) [per Reg. 1.165-9(b)(2)] and the basis we would use to calculate a gain ($695,000)[same: difference between existing basis at conversion to commercial use or FMV at that date].  In other words, the regulations tell us to use a basis in calculating a loss that would result in a gain (because $555,960 is greater than $495,000); but they also tell us to use a basis in calculating a gain that would result in a loss (because $555,960 is less than $695,000).

“This is the kind of conundrum only tax lawyers love.  And it is not one we’ve been able to find anywhere in any case that involves a short sale of a house or any other asset for that matter.  The closest analogy we can find is to what happens to bases in property that one person gives to another.  The Code tells us that the person receiving a gift generally takes the donor’s basis in the gift as his own.  Sec. 1015(a).  But what if such a gift has a value lower than that basis when it is given?  The answer that the Code and regulations give us for gifts is that the donee uses the lower fair market value to compute a loss but the donor’s basis to compute a gain.  Id.; sec. 1.1015-1(a)(1), Income Tax Regs.  So far, so similar to the Simonsens’ situation.  But what to do when a donee sells the gift at a price between these two possible bases?  The regulations on gifts tell us:  Section 1.1015-1(a)(2), Income Tax Regs., provides that there’s no gain or loss.  ‘The no gain or loss answer derives from a conceptual vacuum when the asset is sold for an amount less than its gain basis and more than its loss basis.’  1 Arthur B. Willis et al., Partnership Taxation 4-73, para. 4.03[2][c] (8th ed. 2017) (discussing the same odd result that must occur under section 1.165-9(b)(2), Income Tax Regs.).” 150 T. C. 8, at pp. 23-24.

Talk about Reverse Judicial Backflips! This is a Double Judicio-Legislative Back Jacknife.

But it all ends up where IRS wanted it. In another footnote.

“Our holding that the Simonsens realized neither a gain nor a loss on the short sale differs from the Commissioner’s argument on brief–that the Simonsens should’ve reported a gain.  But the notice of deficiency itself disallowed the purported loss from the short sale that the Simonsens reported on their return. Because we agree that the Simonsens didn’t realize a deductible loss on the short sale, the amount of the tax understatement in the notice of deficiency stands.” 150 T. C. 8, at p. 26.

Unable to resist yet another silt-stir, Judge Holmes finds IRS blew the Boss Hoss Section 6751(b) sign-off. But there was substantial understatement.

Now for good faith. Karl and Chris got both the 1099-C from Wells Fargo for the cancelled mortgage debt, and a 1099-S (Proceeds From Real Estate Transaction) from the CA escrowee. Together they summed up the short sale. But the 1099-C made reference to the Section 121 exclusion, which Judge Holmes bypasses by means of the no-gain-or-loss gift sale mambo. The various forms and publications from IRS are still more confusing. And “Christina is not trained in tax law–she is a lawyer but had the misfortune of not taking even Intro Tax in law school.” 150 T. C. 8, at p. 5.

“We therefore find that the Simonsens’ …reporting errors were the result of an honest misunderstanding of the law that was reasonable considering their lack of tax knowledge, the complexity of the issues, and the information returns that they received.  And we are convinced, based in large part on Christina’s honest and believable testimony, that the Simonsens acted in good faith.  Even if the Commissioner had met his burden of production, we would find that the Simonsens had met their burden of proof in refuting the penalty.” 150 T.C. 8, at pp. 29-30.

Finally, “We will not penalize taxpayers for mistakes of law in a complicated subject area that lacks clear guidance, see Everson v. United States, 108 F.3d 234, 238 (9th Cir. 1997); Van Wyk v. Commissioner, 113 T.C. 440, 449 (1999), especially when their bank dangled a red herring of a Form 1099-C in front of them.” 150 T. C. 8, at p. 29.

Judge, I’m no fan of Wells Fargo (for reasons I won’t discuss here), but Wells was obligated to issue a 1099-C, and the form is IRS’, not theirs.

OK, I’m not saying that I would have gotten the right answer…assuming that Karl and Chris don’t appeal and 9 Cir doesn’t make hash of your analysis. Possibly not even my learned colleague Peter Reilly, CPA, would reach this conclusion.

But I find it incomprehensible that a person can be admitted to the practice of law in the U. S. of A. in the Third Millennium without having taken a basic course in Federal income taxation. This is the single area of the law that impacts every citizen, every resident (legal or not), and even every sojourner in this country.  In my young day on The Hill Far Above, basic income taxation was a required course.