Archive for May, 2018|Monthly archive page


In Uncategorized on 05/24/2018 at 16:09

Y’all will remember the excise tax on tanning parlors that featured in the much-contemned-but-still-unrepealed Affordable Care Act. The tannery operators collected same from the tanned, and were required to remit to the Federales posthaste. Failing the which, the tannery’s responsibles got their hides tanned with TFRPs.

Well, what is a penalty of any kind without a Boss Hoss Section 6751(b) sign-off?

I’ll tell you: it’s an occasion for a silt-stir by none other than that Master Silt Stirrer, Great Dissenter/Concurrer, and Old China Hand, Judge Mark V Holmes.

Judge Holmes is back at the Graev in a designated hitter, Daniel James Humiston, 25787-16L, filed 5/24/18.

DJ’s tannery went mechulah (please pardon arcane technical term from the old Mesopotamian) and the bankruptcy liquidation hadn’t yet occurred, when IRS slugged DJ with the TFRPs. DJ claims he told the SO at Appeals that the cash on hand in the now defunct tannery would pay off some of the excise taxes, so he never handed over personal info.

The SO checked out the Forms 4340 for the relevant period.

In support of its motion for summary J IRS handed up the “…Forms 4340, Certificates of Assessments, Payments, and Other Specified Matters, for each tax period. This would ordinarily be enough for us to move past the verification requirement of § 6330(c)(1) and (3)(A). See, e.g., Dinino v. Commissioner, 98 T.C.M. 559, 564 (2009) (‘The appeals officer would have seen th[e] entries [on the Forms 4340] when he consulted [IRS] records before the notice of determination was issued’). But the parts of the administrative record that accompany the Commissioner’s motion say nothing about the SO verifying that the Commissioner complied with § 6751(b)(1) when he assessed the TFRPs against Humiston — the SO doesn’t say anything about the requirement in the notice of determination, and there are no Forms 4183 attached to his declaration. Cf Blackburn v. Commissioner, 150 T.C. __, __ (slip op. at 9) (Apr. 5, 2018). And the Forms 4340 themselves don’t give any information about the Commissioner’s compliance (or lack thereof) with § 6751(b)(1).” Order, at p. 3.

Remember Scott Blackburn? No? Then dig my blogpost “Robosigner? – Part Deux,” 4/5/18. Scott was involved in FICA-FUTA-ITW TFRPs, but what’s the diff?

With pardonable understatement, Judge Holmes’ll tell ya.

“Our Court’s spent a lot of time lately thinking about I.R.C. § 6751(b)(1), which says that “[n]o penalty under [the Code] shall be assessed unless the initial determination of such assessment is personally approved (in writing) by the immediate supervisor of the individual making such determination.” Indeed, the Second Circuit — to which this case is presumably appealable — told us last year that ‘the written-approval requirement of§ 6751(b)(1) is appropriately viewed as an element of a penalty claim.’ Chai v. Commissioner, 851 F.3d 190, 222 (2d Cir. 2017), aff’g inpart, rev’g inpart 109 T.C.M. 1206 (2015). We’re dealing here with a liability that consists only of penalties — TFRPs under § 6672(a) — so we don’t immediately see why § 6751(b)(1)’s penalty-approval requirement wouldn’t apply, and the Commissioner hasn’t argued that it doesn’t.” Order, at p.3 (Footnote omitted, but read it; Judge Holmes is at it again, jousting with the “automatically calculated by electronic means” gambit.)

It’s true DJ didn’t raise the Boss Hoss sign-off opposing summary J, but he’s pro se (of course), and can raise the issue on the trial (nudge nudge, wink wink).



In Uncategorized on 05/24/2018 at 15:41

The second is counting someone else’s money for them. The third, at least for us attorneys, is second-guessing another attorney’s litigating strategy.

It’s so much fun that I did so today, in another online venue, and in a non-tax matter that has received considerable attention in political circles. It’s like eating peanuts; only the strongest can stop at one.

So I bow to my weakness and hereby second-guess the distinguished practitioners who represent Celia Mazzei, et al., Docket No. 16702-09, filed 5/24/18.

All y’all (just booked our tickets for the semi-annual flight to The Magnolia City to see our nearest and dearest) must remember Celia and the et als, no?

What, no? Well, see my blogposts “Foolish Consistency – Redivivus,” 4/1/14, “Caligula in Tax Court?” 3/5/18, and “Substance vs Smell,” 4/19/18.

So my second guess has to do with the reconsideration or vacation motions, both of which are rejected by ex-Ch J Michael B (“Iron Mike”) Thornton.

Ex-Ch J Iron Mike patiently wades through a new legal theory (raised for the first time in this Rules 161 and 162 motion), and petitioner’s strongest point (Congress intended that foreign sales corporation money should be directly-guided largesse to its shareholders, who should face no tax consequence whatever), and the 1 Cir and 6 Cir glosses, and 2 Cir (but concludes that since this case is Golzenized to 9 Cir, who cares?).

And of course denies the motion. You can read it for yourselves.

Now for the second guess. Unless the client is trying to save money and says “go for it!”, notwithstanding that most reconsiderations and vacations are losers, I say it is  better to take an appeal directly. CCAs don’t worry about Golsen. Tax Court has put the slug on Roth-stuffing by DISCs and FSCs consistently; the CCAs seem to be more sympathetic.


In Uncategorized on 05/23/2018 at 16:16

It seems like yesterday when now-ex-Ch J Michael B (“Iron Mike”) Thornton took the salute from Ch J L Paige (“Iron Fist”) Marvel, and marched off at the change-of-command ceremony at the Glasshouse at 400 Second St, NW almost two (count ’em, two) years ago. It’s a shame Tax Court hasn’t a parade ground for such things.

With scarcely more than a week to go before we see command change again and Judge Maurice B (“Mighty Mo”) Foley receive the salute; with a holiday weekend looming and today’s only designated hitter the dreary tale of a non-filing, nonpaying protester, Ch J Iron Fist provides a checklist for the late petitioner.

And since it is literally the late petitioner, Walter Gorsica, Index No. 1764-18, filed 5/23/18, Ch J Iron Fist’s good advice is addressed to the unnamed administrator of the late Walter’s estate.

“… although this case may not be prosecuted in the Tax Court, the administrator of petitioner’s estate may continue to pursue administrative resolution of the … tax liability directly with the IRS. Another remedy potentially available is for the administrator to pay the determined amounts, then file a claim for refund with the IRS. If the claim is denied or not acted on for six months, petitioner may file a suit for refund in the appropriate Federal district court or the U.S. Court of Federal Claims. The administrator also may contact the Taxpayer Advocate Service (TAS), an independent organization within the IRS that assists taxpayers. The contact information for TAS is available at” Order, at p. 1.

Save the list for your clients who show up on or after day 91 or 31 (or 151, as the case may be).


In Uncategorized on 05/22/2018 at 15:50

Even when Appeals gets it wrong and gives an equivalent hearing when they should have given a full-dress CDP, so long as Appeals follows the Regs and the IRM, and the equivalent is truly equivalent, then the decision Appeals issues is a determination. And the taxpayer can petition.

Here’s the magic language from Sanford Solny, 2018 T. C. Memo. 71,filed 5/22/18 at p. 9, Footnote 6. “See sec. 301.6320-1(i)(1), Proced. & Admin. Regs.; Internal Revenue Manual pt. (Mar. 29, 2012) (instructing SOs to conduct equivalent hearings by ‘follow[ing] the same procedures and consider[ing] the same issues as a CDP hearing’).”

Sandy had an unreported income beef, but didn’t petition the SNOD, so that’s not in play. He wants a CA, but doesn’t respond with numbers to the SO, and anyway isn’t current with his filings.

Appeals goofed on the date when Sandy filed his Letter 12153, claimed he wasn’t entitled to a CDP, only to an equivalent hearing, the consolation (unpetitionable) prize.

Mox nix, says Judge Albert G (“Scholar Al”) Lauber, citing the above-set-forth language. Sandy got a legally-sufficient hearing.

Scholar Al gives IRS summary J, but holds out some hope to Sandy.

“We note that petitioner is free to submit to the IRS at any time, for its consideration and possible acceptance, a collection alternative in the form of an OIC or IA, supported by the necessary financial information.” 2018 T. C. Memo. 71, at p. 11.

And maybe coming current with all returns and payments.


In Uncategorized on 05/22/2018 at 15:12

That question, placarded on the subway car hoarding by Our Fair State’s Metropolitan Transportation Authority, seeking minority or women owned businesses as prime contractors, drew from me the response “No, I’m just tired of working.”

Well, Jim Flores, Docket No. 7106-18, filed 5/22/18, is tired of being claimed as a subcontractor, when he is really an employee.

Jim claims Dwain K, in whose Autotech shop Jim toiled, treated him as a subcontractor when he was really an employee, to play games with withholding.

But there’s neither SNOD nor NOD for the years Jim claims Dwain did the nasty, so Ch Judge L Paige (“Iron Fist”) Marvel tosses Jim’s petition, notwithstanding Jim’s anguished cry that “The question of jurisdiction is every tax payer’s right to be heard under public law.” Order, at p. 3.

Maybe Jim should try dropping an SS-8 on Dwain. Or wait for a SNOD and petition again.


In Uncategorized on 05/21/2018 at 16:44

The answer to that question, which I paraphrase from a much more exalted source than my blog, the United States Tax Court, or even 2 Cir, seems to be in Judge Holmes’ prose, unbroken even by a disrespected partitive genitive.

And Judge Holmes waxes eloquent in a T. C. Memo., and a trio of designated hitters, which you’ll find on the Tax Court website, sub. nom. Joseph C. Becker and Mercy Grace Castro, et al., 2018 T. C. Memo. 69, filed 5/21/18.

Joe C was a man of many entities, like C Corps, S Corps, partnerships and LLCs. Mostly they served as hidey holes for Joe C to stash cash from his tax preparation business. Joe C had his CPA licensed yanked a couple times (hi, Judge Holmes), and was denied EA status on that ground, even though he passed the four-part SEE.

Joe C avoided the RAs sent to examine his tax posture, and his trial testimony varied from whatever papers he had. Moreover, his papers were fine examples of creative writing.

Forty-nine (count ‘em, forty-nine) pages into the saga of Joe C’s delicitons in the US of A and the Philippines, Judge Homes comes to the inescapable conclusion.

“Mr. Becker’s trade was tax preparation, but he failed to properly report his own tax.  And for many of his entities he filed no tax returns at all. It’s unlikely that a tax professional such as he would accidently [sic] or even negligently report (or not report) his taxes in this manner.  We find instead by clear and convincing evidence that Mr. Becker attempted to use his vast tax-preparation experience to help him evade his own legal obligations.” 2018 T. C. Memo. 69, at p. 49. (Citation omitted).

IRS concedes Section 6662 accuracy-negligence chops, and goes “all in” on the Section 6663 fraud chop.

But the Master Silt Stirrer turns Graevdigger.

“All of this would normally lead to a holding that sustains the Commissioner’s civil fraud penalty determinations…. But we held in Graev III, 149 T.C. at       (slip op. at 13-14), that compliance with section 6751(b)(1)–which requires written supervisory approval of an initial penalty determination–is part of the Commissioner’s burden of production on penalties under section 7491(c).  The Commissioner never even mentioned section 6751 before or at trial even though Mr. Becker and Ms. Castro put the penalties at issue in their pleadings and hotly contested them on their merits.  Today we denied the Commissioner’s motion to reopen the record.

“This makes these cases among those that have to consider what consequences such failures to anticipate Graev III have.  Section 6751 has been in the Code for nearly 20 years.  Graev III didn’t create new law; it interpreted a section of the Code that was in existence at the time of the trial in these cases, and we didn’t say that our interpretation had only prospective effect.  See, e.g., Harper v. Va. Dept. of Taxation, 509 U.S. 86, 97 (1993) (when the Court applies a rule of federal law in a case, that rule ‘must be given full retroactive effect in all cases still open on direct review and as to all events, regardless of whether such events predate or postdate * * * announcement of the rule”); Hajro v. U.S. Citizenship & Immigration Servs., 811 F.3d 1086, 1099 (9th Cir. 2015) (“Silence on the issue [of prospectivity] indicates that the decision is to be given retroactive effect”).

“These precedents mean that we have to treat our construction of section 6751(b)(1) in Graev III as being the correct construction of that section as of the date of this trial as well.  But Mr. Becker and Ms. Castro didn’t mention section 6751 either.  Might this mean that the Commissioner could still win on the penalty because it was not placed in issue?” 2018 T. C. Memo. 69, at pp. 49-50.


“Because section 7491(c) places the burden of production for any penalty or addition to tax on the Commissioner, we held that the Commissioner must lose when there is no evidence in the record that he met these prerequisites.” 2018 T. C. Memo. 69, at p. 51.

And there’s no reopener because, even though to reopen might change the outcome, IRS had no Section 6751(b) Boss Hoss sign-off to put in.

So because Graev wins the victory, Joe C walks on the fraud chop.


In Uncategorized on 05/21/2018 at 15:53

No, this isn’t about a remonstrance or rebuke from a disappointed reader, or worse, a disappointed client. Rather, it is an expression of sorrow that CSTJ Lewis (“Spelling Conquers All”) Carluzzo has deserted the cause of grammatical rectitude, and joined Judges Homes and Goeke in Tax Court’s War on the Partitive Genitive.

See my blogpost “Tax Court’s War on the Partitive Genitive,” 1/3/14.

Here’s Robin Elaine Fuller, Docket No. 14627-17S, filed 5/21/18, an off-the-bench designated hitter, but it isn’t really about Robin’s deductions, disallowed though they are.

Here’s the story, at Transcript, at p. 4: “…petitioner was entitled to, and did, work from home a couple days a week.”

Oh, CSTJ Lew, how could you?


In Uncategorized on 05/18/2018 at 16:13

No, not the inspirational Gayle Sayers autobiography; rather, this is His Honor Big Julie, more properly styled His Honor Judge Julian I Jacobs, and hereinafter referred to as HHBJJJIJ, calling attention in a designated hitter to page 42 of the Practitioners’ Guide to Electronic Case Access and Filing.

And HHBJJJIJ directs his call to an attorney whom I’ll hereinafter designate as TJ. He it is who is third.

TJ wants in to Chad Loube & Dana M. Loube, Docket No. 5092-17, filed 5/18/18. Specifically, TJ wants in to represent an outfit called Second Chance, Inc., as amicus curiae.

Not sure what issue impels the Second Chancers to get TJ on the case, but HHBJJJIJ doesn’t like the way TJ comes in.

“…counsel for Second Chance, Inc. electronically filed Counsel’s Notice of Election to Participate—Brief of Amicus Curiae Second Chance, Inc. in Support of Petitioner’s Opposition to Respondent’s Motion for Summary Judgment. The document is procedurally improper and will be stricken from the record. Third party filings are to be made via paper filing.” Order, at p. 1.

So TJ’s electronic entrance is tossed. But I wouldn’t be hard on TJ, because the Practitioners’ Guide aforesaid is far from being user-friendly to third parties.

eFiling directions to third parties are more than a trifle off-handed. “Documents filed by those who are not parties to a case must be filed in paper form because those persons do not have eAccess to the case.  For example, if a party serves a subpoena on a witness, the witness may file a motion to quash, but must do so in paper form.” Practitioners’ Guide, at p. 42.

TJ, as a Tax Court admittee (automatic grade), obviously has eFiling access, so I don’t blame him for the miscue. And eFiling of notices of election is specifically permitted; see Practitioners’ Guide at p. 63. See also Page 84: “A document may be eFiled unless it is listed below as ineligible for eFiling.”

Maybe the Practitioners’ Guide needs a wee brush-up on third party practice.


In Uncategorized on 05/18/2018 at 15:24

That’s English poet Richard Lovelace (1617 – 1657), best known for his “Stone walls do not a prison make, Nor iron bars a cage.” And today Judge Nega recalls the spirit, if not the letter, of Lovelace’s poesy, in Estate of Roger D. Murphey, Jr., Deceased, Roger D. Murphey, Sr., Administrator, Docket No. 15231-14S, filed 5/18/18.

Sr. has a melancholy task, and it isn’t lightened by the fact that he is behind the stone walls and iron bars aforesaid.

Judge Nega is sympathetic, but the docket must move on.

“While the Court understands that the incarceration of Mr. Murphey imposes some limitations on the parties, we encourage Mr. Murphey to work cooperatively with respondent’s counsel to narrow or resolve the issues in this case under the Court’s rules and procedures.” Order, at p. 1.

Takeaway- Practitioner, remember Lovelace’s classic if your client is thus situated.


In Uncategorized on 05/17/2018 at 16:16

It falls to Judge Goeke to echo the words of an even more distinguished personage in Full-Circle Staffing, LLC, Watchman Investment Trust, Financial & Tax Services, Inc., Trustee, Tax Matters Partner, et al., 2018 T. C. Memo. 66, filed 5/17/18.

The Watchman Trust is a sham. Designed by a subsequently unlicensed CPA and formed by the attorney he recommended, the Trust, with its Sub S, partnerships and sub-trust, left the freight forwarding business in the hands of the previous owner-operator, who didn’t pay the freight. Instead, he claimed distributions to a non-exempt charitable trust that he never made.

IRS has an SOL problem, and concedes the fraud toll. But 6SOL rescues them, as the ultimate owners are over the 25% unreported income bar.

It’s true the SNODs aren’t models of clarity and precision, but they did tell all the parties enough to satisfy Section 7522.

“Section 7522(a) provides that a notice of deficiency ‘shall describe the basis for, and identify the amounts (if any) of, the tax due, interest, additional amounts, additions to the tax, and assessable penalties included in such notice.’  It further provides that ‘[a]n inadequate description under the preceding sentence shall not invalidate such notice.  Id.  The … notice identifies the amounts of the tax deficiencies, the tax years at issue, and reasons for the adjustments.  We hold that the notice satisfies the requirements of section 7522.” 2018 T. C. Memo. 66, at p. 24.

Besides, this is a trial de novo, past is prologue, and if IRS wild-cards new matter (different proof required), IRS has burden of proof.

Using the 5 Cir. tests (Watchman is TX based), Watchman is a sham. The same man who ran the freight forwarding business ran Watchman, the Sub S, the partnerships and the sub-trust, and the ostensible trust protector and “independent” trustee hadn’t the ability to run anything. And he alone could decide where the money went.

But the same man had been through a tough audit years before with no change, relied on professionals other than the unlicensed CPA and his attorney pal, and, although a successful businessman, wasn’t a tax guru. He told the pros everything, And IRS, having the burden of proof on the accuracy chops (because they hadn’t raised them in the SNOD, only Section 6663 fraud, which they dropped, and raised the Section 6662 chops only in their answer) couldn’t prove otherwise.

“We cannot say that the Ps failed to do what reasonable and prudent persons would do under similar circumstances.  After his prior experience with a prolonged IRS audit that resulted in no adjustments, Mr. P wanted to make his business ‘audit-proof’, which to him meant that ‘nothing was hidden’ and there was no concealed income or excessive expense deductions.  He wanted tax reporting where ‘everything is above board and laid on the table.’  We believe that Mr. P was sincere in his testimony except to the extent he denied knowledge with respect to Watchman.  While Mr. P knew that he was not paying income tax on his business income, he believed that he was being honest in his income tax reporting as the untaxed money was being given to charity and reinvested in his business.” 2018 T. C. Memo. 66, at p. 46. (Names omitted).

The books showed the right numbers, only put them to the wrong places. IRS didn’t challenge the income, only the nonpayment of tax. No accuracy chops.