“We Have Never Found A Son-Of-BOSS Deal That Works.”

And The Great Dissenter/Concurrer, a/k/a The Judge Who Writes Like a Human Being, Master Silt-Stirrer and Old China Hand, Judge Mark V. Holmes, isn’t finding one now, in David B. Greenberg, et al., 2018 T. C. Memo. 74, filed 5/31/18, wherein are consolidated fifteen (count ‘em, 15) cases, going back thirteen (count ‘em, 13) years.

And Judge Holmes is just the judge for the task of slogging through 64 pages to unravel the tale of GG Capital and AD Global, dodges worthy of the Ivy League wiseguys who concocted them to the extent of $400 million or so of dodged taxes.

The argy-bargy concerning whether IRS should have unloaded FPAAs rather than going straight after Dave ends because Will, Dave’s sidekick, didn’t check the right boxes on the 1065s. And anyway, there was a pass-through “partner” in the deal, although at the end of the day, the whole thing was a sham to manufacture losses.

It’s the usual digital options game, with a “sweet spot” that can never happen, as the counterparty to the option can easily cause the “sweet spot” to miss.

I’m not going to try to digest 64 pages of same-old, same-old, except to note that the civil case was delayed on the criminal side. Dave was indicted for setting up phony tax deals for a Big Four back in ’07 but acquitted, and Will, who had skipped to Portugal, was never indicted. It was a waste of time. No jury in the galaxy can possibly understand this stuff, so after the fourth Excedrin, they’ll acquit.

But just as the 40% gross-valuation-misstatement chop was about to descend, IRS lost the Section 6751(b) Boss Hoss in the sun.

Judge Holmes: “Were it not for section 6751, we would find them liable for the 40% gross-valuation-misstatement penalty.” 2018 T. C. Memo. 74, at p. 64.

Ah, Judge Holmes, the silt we stir….

Lose on the Numbers

Slawomir J. Fiedziuszko and Alicia M. Fiedziuszko, 2018 T. C. Memo. 75, filed 5/31/18, find themselves in a frustrating situation.

It’s Slawo’s story. He’s a consulting aerospace engineer, semi-retired from his old firm but gigging along, working from home, getting work from former employer via an employment agency and trying to hook up with other firms in the same line. His W-2s from the employment agency show “statutory employee” for the year immediately preceding year at issue, but not the year at issue.

Judge Pugh: “[Agency] processed Mr. Fiedziuszko’s pay for his work for [previous employer] and withheld Federal income tax as well as Social Security and Medicare taxes.  [Agency] did not offer medical or dental insurance, paid vacation leave, or reimbursement of Mr. Fiedziuszko’s expenses, but it did offer a deferred compensation plan.” 2018 T. C. Memo. 75, at p. 3.

The issue is Slawo’s Schedule C.  He took unreimbursed employee expenses without the 2% AGI limit and without the 3% – 80% phaseouts. This is OK if you’re a statutory employee, but not commonlaw Schedule A type.

Judge Pugh cruises through the factors, and Slawo wins.

“We find on the record before us that Mr. Fiedziuszko was not a common law employee of [former employer] and that he is instead a statutory employee.  While his Form W-2 for [year at issue] did not indicate that he was a statutory employee, we believe this to be a mistake.  Mr. Fiedziuszko’s Form W-2 for [immediately previous year] indicated that he was a statutory employee.  Nothing changed between [immediately previous year] and [year at issue]:  Mr. Fiedziuszko was providing services under the same consulting contract with [previous employer] in [year at issue] as he was in [immediately previous year].  Further, Mr. Fiedziuszko worked primarily from his home office rather than [previous employer’s] offices and produced reports and patents according to his assignments from [previous employer].  We therefore find that Mr. Fiedziuszko’s employment status did not change….

“We also conclude that both Mr. Fiedziuszko and [previous employer] intended to form an independent consulting relationship rather than a common law employee-employer relationship.  Mr. Fiedziuszko advertised his services to several satellite companies and was hired by [previous employer] through the temporary employment agency…with which [previous employer] works.  Their relationship was a temporary assignment that terminated in [year at issue].” 2018 T. C. Memo. 75, at pp. 12-13.

And the payment record for Slawo’s services also shows statutory employee earmarks.

Footnote- Note that the Tax Cuts and Jobs Act of 2017 eliminates unreimbursed employee business expenses deduction deducted as miscellaneous deductions subject to the 2% limitation. So what about those of statutory employees, not subject to the 2% AGI limitation and not reported on Schedule A?

But Slawo’s recordkeeping is, to put it charitably, sketchy. So his charitables mostly go by the board. Alicia’s weight-loss program, though Section 213 qualified, likewise founders for want of substantiation. His travel expenses hit the Section 274 landmine. And his pension withdrawal results in unreported income, as Slawo claims it was partially non-taxable, but can’t explain on what basis he reaches that conclusion.

IRS wins the reopener on the chops, sending in the Section 6751(b) Boss Hoss, so if the Rule 155 beancount shows Slawo was over the five-and-ten, Slawo will get hit.

The good-faith out avails him not. Slawo is a rocket scientist (aerospace engineer).

“Petitioners have not shown reasonable cause for the underpayment of tax…. They offered no explanation for their understatement and we conclude that petitioners’ attempt at substantiation, which came far after the return was filed, fell short of what was required.  Mr. Fiedziuszko’s level of sophistication would indicate a better understanding of the requirements than petitioners displayed. Further, some of Mr. Fiedziuszko’s testimony–particularly his testimony regarding his pension income–was not credible.” 2018 T. C. Memo. 75, at p. 28.

We all know that IRS can’t start collecting a deficiency from the mailing of the SNOD until the 90-day (or 150-day) clock to petition the SNOD has run, or, if a timely petition was filed, until decision on the SNOD becomes final.

Well, what happens when there’s a SNOD based on SFRs, but the taxpayer files delinquent returns that shows different numbers, and some overpayments, pre–petition? And then petitions after IRS processes the delinquent returns?

STJ Peter Panuthos tells us in a designated hitter, Steven W. Webert and Catherine S. Webert, Docket No. 15981-17, filed 5/30/18.

Steve wants to enjoin collection of whatever he owes after IRS massaged his numbers, but Catherine doesn’t agree.

STJ Panuthos: “…as explained in Meyer v. Commissioner, 97 T.C. 555, 559 (1991), the Commissioner is authorized to immediately ‘assess and collect the amount of taxes that are computed and shown due on a taxpayer’s individual income tax return, as well as the amount of any additional computed and shown due on a subsequently filed amended income tax return.’ See also sec. 6201(a)(1); sec. 301.6211-1(a), Proced. & Admin. Regs. The IRS is also authorized to ‘immediately assess and collect’ the additions to tax under sections 6651(a)(1) 6651(a)(2), and 6654, if such additions are determined by the amount of tax shown on the taxpayer’s return if a return is filed. Meyer v. Commissioner, 97 T.C. at 559-560; see also sec. 6665(b). Such summary assessments are not subject to normal deficiency procedures and are beyond the scope of this Court’s jurisdiction, and no action or proceeding may be commenced to enjoin the IRS’ actions. Sec. 7421(a); Meyer v. Commissioner, 97 T.C. at 560. Additionally, section 6213(a) specifies that the Court ‘shall have no jurisdiction to enjoin any action or proceeding or order any refund under this subsection unless a timely petition for a redetermination of the deficiency has been filed and then only in respect of the deficiency that is the subject of such petition.” [Emphasis added.].” Order, at p. 6.

“Here, petitioners submitted original delinquent returns prior to the filing of the petition and did not indicate that they disputed the amounts or that the returns related to the notice of deficiency determination. As indicated, the Court gave petitioners an additional opportunity to make reference to the delinquent returns and Mr. Webert did not respond. Mrs. Webert did not join the motion and agrees that respondent may assess the amounts reported on the delinquent returns.” Order, at p. 7.

So IRS can go grab whatever Steve and Catherine said they owe, right?

Not so fast.

“The Court notes that section 6402(a) allows respondent to credit a taxpayer’s overpayment against that taxpayer’s outstanding liabilities from prior years. See also sec. 301.6402-3(a)(5), (6), Proced. & Admin. Regs. The Commissioner’s crediting of a refund for one year against tax liability of another year does not prevent the Commissioner from later determining a deficiency for the year from which the refund arose. Savage v. Commissioner, 112 T.C. 46, 4849 (1999). If the taxpayer then files a timely petition with this Court, we ‘have jurisdiction to redetermine the correct amount of the deficiency’. Sec. 6214(a). If we find ‘that there is no deficiency and * * * that the taxpayer has made an overpayment of income tax’ for the year before us, we ‘have jurisdiction to determine the amount of such overpayment’ and order that amount ‘be credited or refunded to the taxpayer.’ Sec. 6512(b)(1). Thus, we have jurisdiction to determine whether the income tax liabilities for the years in issue are correct and whether petitioners are entitled to overpayments for any of the years in issue.” Order, at pp. 7-8.

Steve’s motion to restrain is denied. If IRS takes too much, presumably Steve gets a refund.

Clear? Thought not.

Today’s designated hitter from Judge James S (“Big Jim”) Halpern brings to mind the immortal words of the late great William James Basie, as we’re again dealing with who’s inside and who’s outside.

It’s a question of who is inside (or outside) the forbidding walls of the Stony Lonesome, as posed by the Ogden Sunseteers, in Gregory Charles Krug, Docket No. 13502-17W, filed 5/29/18.

Gregory Charles claims some employer failed to withhold “employment taxes” from its workers. IRS, as usual, wants summary J. Gregory Charles says nothing, but Judge Big Jim isn’t so reticent.

IRS puts in the Form 11369 evaluation, which contains this interesting tidbit.

“Social Security and Medicare wages are excluded from inmate services under the provision of Section 218(c)(6) of the Social Security Act. The Federal income tax withholding is dependent on the amount of wages paid which is less than the minimum wage. FIT on these wages would be dependent on other income (investment) earned by the inmates, and whether or not they file a joint return. Because of these unknown factors, this claim will be declined.” Order, at p. 2.

You’ll remember the wages paid to guests of the State of KS were at issue for EITC. If not, and I don’t blame you if you don’t, see my blogpost “Oversoon,” 4/25/17.

Sounds like Gregory Charles may be on a similar trip, but the facts are few, and Judge Big Jim wants more.

“While 42 U.S.C. sec. 418(c)(6) does address services by inmates, we do not understand the relevance of the provision to petitioner’s claim. We also do not understand the relevance of the statement concerning whether inmates owe FIT (we assume “Federal income tax). Petitioner’s claim is with respect to withholding for employment taxes. Since we assume that Whistleblower Office Tax Analyst DD relied on the Form 11369 in recommending to Whistleblower Office Director Lee Martin that he deny an award to petitioner, we require a better understanding of the reasons relied on by Mr. Martin to deny petitioner an award.” Order, at p. 2 (Name omitted).

I take it Judge Big Jim means 42 USC §418(c)(6)(B) “service performed in a hospital, home, or other institution by a patient or inmate thereof,” which is excluded from any deal with a municipality to socially securitize their workers.

But the FIT (do the Sunseteers mean ITW, or Income Tax Withholding?) is another story. Maybe.

I’m sorry Mr. Lee Martin, a delightful luncheon companion, is bothered with this stuff.

Anyway, let IRS show up Monday next in L.A. and do some ‘splainin’.

CSTJ Lewis (“That Glorious Name”) Carluzzo shows himself to be neck-and-neck with that Obliging Jurist, Judge David Gustafson, obliging to the last degree, in an off-the-bench designated hitter, as his colleagues head for beach or barbecue or ballgame or all thereof.

Here’s Matthias Rykert, Docket No. 10427-17, filed 5/25/18, and Matt is not off to a great start.

Fighting about unreported income and a SNOD without a wet signature, Matt goes astray. Matt moves to dismiss for want of jurisdiction, claiming the SNOD is a dud.

CSTJ Lew: “Comments made by petitioner during the hearing suggest that the position he has taken with respect to the validity of the notice might be misguided based upon advice he was receiving from an organization whose status to practice law is questionable. Rather than treat his comments as a concession to jurisdiction, under the circumstances we think it better to address the concerns raised in the motion regarding the Court’s jurisdiction in this matter.” Order, Transcript, at p. 5.

And CSTJ Lew does, ya betcha! Matt relies on pre-1998 IRS Reorganization law and regs, and a SNOD is valid even without wet ink or no ink. However, Matt is entitled to some ‘splainin’ from IRS about the SNOD’s genuineness, but that he got, according to IRS’ evidence.

So march out Matt?

Not with CSTJ Lew on the case.

Matt also wants a continuance. After his showing thus far, Matt seems to be backing a nonstarter.

But just as Matt is down for the Rule 155 beancount, CSTJ Lew saves the day once again.

“In support of his oral motion for a continuance of trial, petitioner requested that he be given time to obtain legal representation in connection with the substantive issues that might arise from the adjustments made in the notice, although in the petition, petitioner ass1gns no error to any of those adjustments. At the hearing respondent noted his objection to petitioner’s oral motion, and we note that petitioner has already had ample time to obtain counsel. Be that as it may, if petitioner does secure representation, as he claims he intends to do, we expect that the insertion of competent counsel on petitioner’s behalf might very well allow for the disposition of this case without the need for trial. That being so, we will grant petitioner’s oral motion for continuance, retain jurisdiction over the matter, and to the extent that a trial is necessary to resolve any remaining disputes between the parties, set the case for trial.…” Order, Transcript, at pp. 6-7.

I don’t want to chill the rejoicing, but the deficiency plus chop is $16K. I do hope competent counsel is available for a case that size.

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).

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.

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 www.irs.gov/taxpayer-advocate.” 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).

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. 8.22.4.3(1) (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 an IA, 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.

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.