Archive for May, 2018|Monthly archive page


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 delictions in the US of A and the Philippines, Judge Holmes 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.


52 – 47

In Uncategorized on 05/16/2018 at 17:46

This is a fight we must win.


In Uncategorized on 05/16/2018 at 15:00

IRS has a new gambit to avoid the Graev, that is, coming up with the Section 6751(b) Boss Hoss sign-off for chops.

It’s the Section 6751(b)(2)(B) “automatically calculated through electronic means” outtake. Any penalty thus calculated needs no Boss Hoss benediction.

Here’s Corey V. Triggs, Docket No. 14824-16S, filed 5/16/18.  And here we get IRS’ riposte to STJ Diana L. (“Sidewalks of New York”) Leyden’s suggestion for a reopener.

Remember STJ Di’s request? No? Then see my blogpost “The Graevdigger,” 3/16/18.

IRS says “We don’t need no stinkin’ reopener.”

“In the motion to reopen the record respondent asserts that the accuracy related penalty imposed in this case was automatically calculated and therefore, under I.R.C. section 6751(b)(2)(B), managerial approval was not required. Respondent states that petitioner objects to his motion.

“As directed by the Court in its order…respondent filed a First Supplement To Motion To Reopen The Record and submitted a Declaration Of RED In Support Of First Supplement To Motion To Reopen The Record. Respondent contends that the accuracy-related penalty in this case was automatically calculated because it was imposed after petitioner did not respond to a 30-day letter that proposed certain changes under a correspondence examination (audit).” Order, at p. 1. (Name omitted).

So every time IRS wants to chop a taxpayer they can use a computer program rather than pencil-and-paper to do the arithmetic, and thereby dodge the second look Congress mandated in Section 6751(b)?

That’s way better than ex-Ch J Michael B (“Iron Mike”) Thornton’s dictionary banquet in the original Graev. It stifles both Judge David Gustafson’s famous dissent and Judge Mark V Holmes’ silt-stirring. For more, see my blogpost “Money-Back Guarantee Meets the Boss Hoss,” 11/30/16.

Especially with a pro se in a small-claimer.

I award IRS’ counsel a Taishoff “Oh Please! First Class with Oak Leaves.”

STJ Di suggests Corey might want to respond, and throws in “…a copy of the stuffer notice from the low-income taxpayer clinics to provide him with contact information for these clinics.” Order, at p. 2.

C’mon, you Texas Technophobes, Golden Gophers, tax clinicians all. Get tore in!


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

Again and again I have praised the obliging nature and helpful attitude of Judge David Gustafson. He’ll do everything but draft your papers for you, bring coffee and Krispy Kremes to the calendar call, and feed the meter while you’re waiting for your case to be called.

And he does his good deed once again by advising Monica Miller, Docket No. 9844-17, filed 5/15/18, how to set aside the toss he’s about to give her. In a designated hitter, yet.

Monica got notice back in December that the curtain was going up next week in the single-barrel city with the double-barrel name, Winston-Salem, NC, and to square away the requisite trial exhibits and pretrial memoranda with IRS.

Monica did neither thereof.

IRS moved to toss Monica and get decision for the whole SNOD, telling how Monica did not respond to precatory mail or telephone calls. Judge Gustafson ordered Monica at the end of last month to respond to IRS’ tale of nonresponse.

Monica didn’t.

Judge Gustafson: “We will therefore grant the motion to dismiss and enter decision.

“Ms. Miller is advised that, under Rule 162, the deadline for filing a motion to vacate this decision would be 30 days after entry of the decision. By so advising her, we do not imply that such a motion would be granted. If she wishes to make such a motion, Ms. Miller should come to the trial session in Winston-Salem at 10:00 a.m. on May 21, 2018, and orally make her motion at that time.” Order, at p. 2.

Even if he tosses you, he’ll help you get back in.


In Uncategorized on 05/14/2018 at 16:36

Stephanie Elizabeth Gentry, Docket No. 15580-17S, filed 5/14/18, gets plenty of sympathy from that Obliging Jurist, Judge David Gustafson, but IRS gets the deficiency it claims in this designated hitter off-the-bencher.

Steph merged her art consultancy expenses with her expenses for the boat-chartering business she thought she co-owned with her boyfriend, except she didn’t.

All her records didn’t go back to her parents’ house when she moved onto the boat she was renovating for the business. Instead, they remained on the boat, and were either lost in a “sailboat accident” (Transcript, at p. 11) or when, in the year after the year at issue, “…Ms. Gentry suffered serious burns from a mishap in the boat involving boiling water. She testified — and we assume — that in order to evade liability for her injuries, her boyfriend made false accusations against her, had her evicted from the marina, and obtained a protective order barring her from the boat on which she had been living. At that time she realized that her boyfriend had tricked her into paying expenses for and working in the business and that she did not really own any stake in it.” Transcript, at p. 6.

Howbeit, Judge David Gustafson has a legitimate concern about Steph’s recordkeeping. “…her account is not impossible, but we think it unusual that, when she moved from her studio apartment, she took her records with her onto a boat, not the most stable and secure storage situation — and a boat that she did not even own — rather than including those records with the personal effects that she stored at her parents’ house.” Transcript, at p. 11.

And while Steph tries to reconstruct expenses from her business bank account, expenditures therefrom seem to be personal as well as business. “The deductions include expenses for clothing. Ms. Gentry testified that there was no uniform required for her job, but explained that the employees were required to dress very well. However, the clothes that she bought were evidently not specialized but were suitable for use outside of her work environment – illustrated by the fact that she wore to her trial a pair of shoes for which she had deducted the expense for 2014.” Transcript, at p. 13.

She may have a theft loss claim for the money she paid to her (doubtless by now ex) boyfriend, but that probably only became worthless in a succeeding year to that at issue.


In Uncategorized on 05/14/2018 at 16:07

I had thought Judge Mark V. Holmes was cured of disrespecting the partitive genitive. Unhappily, I found this in RB-1 Investment Partners, Eric Reinhart, Tax Matters Partner, 2018 T. C. Memo. 64, filed 5/14/18: “Doug had already left the Navy a couple years earlier….” 2018 T. C. Memo. 64, at p. 3.

As for the substance of the case, it was a Jenkens & Gilchrist son-of-BOSS, without a Section 6751(b) Boss Hoss sign-off but with a 40% substantial undervaluation chop. Plus the usual Section 6662(a) accuracy chop.

The accuracy chop was all that was left to argue about.

Judge Holmes tells a story in a footnote.

“The Commissioner didn’t produce any evidence of his compliance with section 6751(b)(1), see Graev v. Commissioner, 149 T.C.      ,       (slip op. at 1315) (Dec. 20, 2017), supplementing 147 T.C. 460 (2016), which would normally result in a holding that the Commissioner failed to meet his burden of production on the penalty, see, e.g., Ford v. Commissioner, T.C. Memo. 2018-8, at *6.  We recently held, however, that the Commissioner does not bear the burden of production on penalties in TEFRA partnership-level proceedings.  Dynamo Holdings Ltd. P’ship v. Commissioner, 150 T.C.      ,       (slip op. at 21) (May 7, 2018).  That means that the burden of production on this issue fell on Eric, who could have raised lack of compliance with section 6751(b)(1) as a defense to penalties, see id. at  ____    (slip op. at 21-22), but who failed to do that at any stage. The defense is therefore waived.  Id. (citing Petzoldt v. Commissioner, 92 T.C. 661, 683 (1989), and Rule 151).” 2018 T. C. Memo. 64, at p. 19, footnote 15.

For Dynamo and its impact on Graev, see my blogpost “Howdy Partner – Part Deux,” 5/7/18.

The latest statistics I can find show I average about 400 words per blogpost. This means I get whatever info I have into as few words as possible, so the harried practitioner can decide if s/he needs to read any opinion or order before reaching for the hard-earned Grey Goose and Noilly Prat (olive, twist or onion at your discretion).

But if Judge Holmes reopens the war on the partitive genitive, I may have to put back the honorifics.

And that would hurt my average.