It’s been five years to the day, near enough, that I first entitled a blogpost with this tagline from Harry Golden, journalist and raconteur. So at the risk of prolixity, but given the lapse of time, I’ll retell this thrice-told tale.

An immigrant finally attained citizenship. After the swearing-in, he stoutly refused to understand, much less speak, his native tongue. He spoke only broken, heavily-accented English. When his wife of many years addressed him in the language they had shared throughout their lives, he turned to his US-born and educated children and asked them “Vot did she set?” Whereupon his wife called down upon his head maledictions unknown even to scholars of their childhood language, but which connoisseurs hastened to extol as masterpieces of invective.

Well, on this torrid Friday, with the usual want of opinions, I turn to that Obliging Jurist, Judge David Gustafson, who has provided yet another opportunity to repeat Harry Golden’s anecdote.

Judge Gustafson has many a time and oft helped the hapless and feckless petitioners who flounder and founder in the toils of US Tax Court. Now he turns his benevolent attention to Appeals, and one little word from a Supplemental NOD that befuddles him.

Here’s James Houk and Marsha Houk, Deceased, Docket No. 22140-15L, filed 6/29/18. This is not the first time Judge Gustafson has to serve as drafter in this case; see my blogpost “Obliging? He’ll Rewrite Your Papers For You,” 2/28/18.

Well, we all know the fastest way to get something done is to give it to someone who is very busy.

Jim went back to Appeals to fight over his self-reported liability, and handed in an amended return. Appeals issued a supplemental NOD. So maybe Appeals bought the revised version. Maybe not.

“However, we cannot tell the exact meaning of the supplemental notice and the determination that it states. The supplemental notice states that Appeals ‘made the determination to adjust your account to the amended return filed to correct the amount of taxes you now owe. The Appeals Officer submitted the Form 3870, Request for Adjustment for an abatement of prior tax assessment in the amount of $7,369.00.’ This might mean that the total original assessment was $7,369 and it has all been abated, but the supplemental notice elsewhere states that the ‘Settlement Officer informed [Mr. Houk] that if there’s still a balance due we would have to discuss a collection resolution.’ That ‘if’ leaves us uncertain. Since the supplemental notice states that it ‘supplements the Notice of Determination…,’ that might mean that it leaves standing the prior determination in the … notice that ‘the proposed levy action is the appropriate action in this case’, or perhaps silence about the levy might mean that the levy will not be necessary and is not sustained.

“As far as we can tell, the record in this case so far does not include either the Houks’ original return or their amended return, and the record does not show what the amount of their originally assessed liability was, nor what the adjusted liability is, nor how much of that adjusted liability remains unpaid.” Order, at p. 2.

Charging boldly, IRS moves for entry of decision per the supplemental NOD. And Jim agrees that he’s made a deal with IRS.

 “However, it [IRS’ motion] proposes no explicit decision embodying the resolution of his liability challenge, and it does not state explicitly whether there is an unpaid balance that would warrant the sustaining of the levy.” Order, at pp. 2-3.

“In the supplemental notice issued here, Appeals determined that the Houks’ … tax liability should be reduced by $7,369, but it does not state what that adjusted liability is nor whether it has been paid in full. Moreover, the supplemental notice purports to sustain the proposed levy, but we cannot tell whether there is any unpaid portion of the … liability to make the levy appropriate.

“We will therefore order that the motion for entry of decision be supplemented and be accompanied by a revised proposed decision document that sufficiently resolves the issues in this case.” Order, at p. 3.

To enter decision in a deficiency, there has to be a number. To enter decision sustaining a levy, there has to be a sum certain that would satisfy the levy.

And Judge Gustafson even obliges me, poor as I am, by taking up a pet peeve of mine.

“Sometimes a CDP hearing addresses a lien notice (see section 6320), sometimes a levy notice (see section 6330), and sometimes both. Presumably for that reason, IRS Appeals has developed “and/or” letters and forms that are intended to serve in all three of those circumstances. That approach sometimes causes confusion.” Order, at p. 4.

Judge, roger that. MFA, as we used to say. That stands for “Most Affirmative,” the “F” being for emphasis.

“Indication whether the notice addresses a lien or a levy or both does not appear on the first page. Lawyers and judges know to look on subsequent pages to find references to “lien” (or “NFTL” or “6320”) or “levy” (or “NOIL” or “6330”) or both, but we think that people of ordinary intelligence who do not have tax training and who have previously received both a lien notice and a levy notice and have requested CDP hearings for both (apparently not Mr. Houk’s circumstance) must find this confusing.” Order, at p. 4.

Worse, both the NOD and the supplemental NOD both contained this sentence : “There was a balance due when the Notice of intent to Levy was issued or when the NFTL filing was requested. [Emphasis added.]” Order, at p. 4. (Emphasis in original).

This is obvious boilerplate, because here only a NITL (Judge Gustafson prefers “NOIL,” and I won’t quibble) is involved. That said, “…when one sees this unedited sentence, one knows that it was not composed to address the actual circumstances of the case then before Appeals. One assumes that someone at Appeals actually did address the question whether there was a balance due when the notice was issued, but one dislikes assuming. (And in this case, in its current posture, the question whether there remains a balance due is a very good question, for which an answer in the supplemental notice would have been helpful.). “Order, at p. 4. (Emphasis by the Court).

Now you may say I’m trying to curry favor. I protest I am not, but when a judge writes a sentence like this, ya gotta love it.

“It appears this case is headed for settlement, in which event all is well. But we cannot endorse the ‘and/or’ approach reflected in IRS Appeals’ notices.” Order, at p. 5.

The silt stir that Judge Mark V Holmes foresaw has again buried IRS, as two Class A, top-fuel phonies escape the chops, notwithstanding that the deficiencies rain on like a river, and IRS’ claim for chops like a never-failing stream.

Here’s Endeavor Partners Fund, LLC, Delta Currency Trading, LLC, Tax Matters Partner, et al., 2018 T. C. Memo. 96, filed 6/28/18, with Judge Albert G (“Scholar Al”) Lauber trouncing a colleague (now or formerly a member of that Bar Association taxation subcommittee a/k/a Charlie’s Pizza Party).

The currency options trades rigged by Deutsche Bank and Andy Beer (with Jason Chai as soloist) are an old story, and one I’ve blogged for years. I’ll spare you the cross-references.

Suffice it to say that there’s no economic substance or business purpose except tax-dodging in any of the seven (count ‘em, seven) cases consolidated here. By rigging the exchange rates in advance, any exchange-rate risk is off the radar, and the deals Bialystok on schedule, yielding large recognized offsetting losses with non-recognition gains. Essentially, Deutsche Bank got interest on a one-week loan, and Andy & Co. picked up some vigorish. The customers paid no tax.

But IRS confesses they have no Section 6751(b) Boss Hoss sign-offs for the heavy-duty chops they wish to affix to Andy & Co with fetters of bronze. So Andy & Co. walk on the chops, despite a rather desperate goal-line stand by IRS, that earns them a Taishoff “Oh Please!”

“Respondent contends that he satisfied the requirements of section 6751(b) by amending his answers to reassert the accuracy-related penalties and by securing supervisory approval for those amendments.  We are unable to accept this argument.  Section 6751(b) requires written supervisory approval for the ‘initial determination’ of a penalty assessment.  In the instant cases the ‘initial determination’ of the accuracy-related penalties was made before the date on which those penalties were included in the FPAAs.  Because the requisite supervisory approval was not secured at that time, the IRS did not comply with the statutory requirement.

“Allowing respondent to cure an admitted violation of section 6751(b) by reasserting penalties in an amended pleading would frustrate Congress’ purpose in enacting this statute.  See S. Rept. No. 105-174, at 65 (1998), 1998-3 C.B. 537 (expressing Congress’ belief ‘that penalties should only be imposed where appropriate and not as a bargaining chip’); Chai, 851 F.3d at 219 (noting that Congress intended to ‘prevent IRS agents from threatening unjustified penalties to encourage taxpayers to settle’).  The accuracy-related penalties determined by the IRS therefore are not sustained.” 2018 T. C. 96, at pp. 65-66.

Well, OK, one cross-reference; see my blogpost “Chai, Chai, V’Kayom,” 4/18/17, wherein I blogged the Chai case with a trilingual pun.

Next is L. Donald Guess, 2018 T. C. Memo. 97, filed 6/28/18. And His Honor Big Julie, a/k/a His Honor Big Julie Judge Julian I Jacobs, hereinafter sometimes referred to as HHBJJJIJ, finds Graev difficulty when IRS tries to chop L. Donald for a phony charitable contribution to his private charitable foundation, notwithstanding that L. Donald took a double fall in USDCCDCA for two years’ worth of Section 7206(1) fraudulent returns. And 9 Cir affirmed same.

If no fraud, then SOL lets L. Donald walk on the SNOD, but collateral estoppel or res judicata keeps him in.

Notwithstanding the foregoing, IRS is again chopfallen (sorry guys).

HHBJJJIJ: “Even though we have made a finding of fraud for purposes of determining whether the period of limitations on assessment and collection remains open, that does not necessarily mean that it is appropriate to impose the section 6663 fraud penalty.  Respondent still has the burden of production with respect to the section 6663 fraud penalty.  See Sec. 7491(c).  Respondent’s burden of production under section 7491(c) includes establishing compliance with the supervisory approval requirements of section 6751(b). To meet his burden of production with respect to the section 6663 fraud penalty, respondent must show there was written supervisory approval of the initial penalty determination.  Respondent has failed to make this showing.  Consequently, respondent has not met his burden of production.” 2018 T. C. Memo. at pp. 24-25. (Citations omitted, but Graev is right in there.)

Judge Holmes got it right. Stir that silt.

That Obliging Jurist, Judge David Gustafson, is at it again, instructing taxpayers and their counsel, and admonishing IRS and its counsel, in a sermonette about prejudice (but the Pride of Steventon, who inspired my title, has nothing on Judge Gustafson when it comes to discussing prejudice).

Here’s Murfam Enterprises LLC, Wendell Murphy, Jr., Tax Matters Partner, et al., Docket No. 8039-16, filed 6/27/18. If this sounds familiar, doubtless it’s because I blogged another iteration thereof only the day before yesterday. See my blogpost Mise En Place, 6/25/18. Then, Judge Gustafson was a trifle testy concerning the parties’ epistolary jousting on the eve of trial.

Today the Murfams are trying to get in one (count it, only one) “Amendment to Petitions,” which recites what the Murfams want to change in their three (count ‘em, three) consolidated cases. And they don’t lodge the three amendments, which would presumably incorporate what the aforesaid document recites.

Ordinarily, seeking amendment without lodging text thereof draws a rebuke, but Judge Gustafson, aware that trial is coming apace, lets it go.

“Murfam’s motion explains why it believes the Commissioner would not be prejudiced by the proposed amendments. The explanation is credible, and we see no obvious prejudice. However, the motion advises that ‘Respondent objects to the granting of this Motion.’ We will therefore order the Commissioner to file a response to the motion for leave. If that response is indeed an objection, then it should explain why and how the Commissioner would be prejudiced by the amendments. Of course, ‘prejudice’ for this purpose does not mean mere disadvantage but rather an unfair disadvantage arising from the delayed filing. A party alleging prejudice must be able to explain what it would have done differently heretofore if the amendment had been made earlier (or if the newly proposed contentions had been included in the original petition). Of course, consenting to the filing of an amended pleading is not a concession of the merits of that pleading.

“(If we do grant the motion for leave, then we will not order the filing of the lodged ‘Amendment to Petitions’ but will instead strike that document and order Murfam to file, in each of the three cases, a conformed amended petition for that case that reflects the amendments that Murfam requests leave to make.)” Order, at pp. 1-2. (Emphasis by the Court). And presumably IRS gets a chance to amend its answers.

In short, IRS, this is a chance for could’a would’a should’a.

But trial looms, so IRS gets until Monday to object, and if IRS does, let them say how to cure the prejudicial effect. The Murfams also get a tight timetable to get in the amended petitions, if allowed, and IRS gets same to answer.

Prejudice means real prejudice.

Val Lanes Recreation Center Corporation, 2018 T. C. Memo. 92, filed 6/26/18, concerns Sub S corporate earnings passing through to an employee stock ownership trust {ESOT]. Because this is fact-bound, I’m skipping that part of Judge Paris’ prose.

IRS yanked their approval of Val’s ESOT because of the passthrough Sub S income being deemed a contribution from the owner-beneficiary and exceeding applicable limits, failure to amend timely (except it did, finds Judge Paris, not being bound by the record rule and holding a hearing, which establishes the amendment was timely made), and that Mr T, Val’s trusty CPA, wasn’t a qualified appraiser to value the Sub S stock when contributed, and therefore flunked Section 401(a)(28)(C), which in turn incorporates Section 170(a)(1) regs.

I focus today on the last point.

Mr T had been up to Tax Court before on a different ESOT, and been shot down. But in that previous case: “…the Court first found that the administrative record contained insufficient evidence as to Mr. T’s background, education, and experience in valuing the type of business at issue in the case even before stating that Mr. T was not independent. The Court…therefore, did not analyze section 1.170A-13(c)(iv), Income Tax Regs., excluding certain persons as ‘qualified appraisers’, nor did it ultimately rely on its statement regarding Mr. T’s involvement in the plan and trust.” 2018 T. C. Memo. 92, at p. 22 (Name omitted).

This time, with the benefit of experience, Mr T lays out his qualifications in extenso.

“In the…protest to respondent’s proposed revocation of the FDL [Favorable Determination Letter, IRS’ approval of Val’s ESOT], petitioner explained Mr. T’s background and education. Petitioner also specified that Mr. T taught courses on the appraisal of closely held corporations and performed ‘literally thousands of appraisals of all sorts.’ During the hearing petitioner introduced evidence that Mr. T annually performed approximately 40 appraisals of ESOT-owned closely held business stock. The Court finds that Mr. T did have the appropriate background, education, and experience to value petitioner’s stock….” 2018 T. C. Memo.92, at pp. 21-22.

And although Mr T didn’t advertise, his firm’s Yellow Pages listing (what an old case this is!) did say they did estate and business appraisals. That’s enough “holding out” for Judge Paris.

Mr T did do all the returns, set up corporations and for a time was their registered agent with the State. So is he “independent”?

He is for Judge Paris.

“Here, the Court reviews the additional exhibits and testimony petitioner introduced in this case and finds that Mr. T was qualified to value petitioner’s stock…. Therefore, the Court must consider whether section 1.170A-13(c)(iv), Income Tax Regs., excludes persons beyond those specifically listed and finds that it does not. Section 401(a)(28)(C) provides that the term ‘independent appraiser’ is similar to the requirements of the regulations for section 170(a)(1), which in turn define ‘qualified appraiser’. Section 1.170A-13(c)(iv), Income Tax Regs., excludes certain persons from being appraisers because of their inherent lack of independence. Petitioner has established that Mr. T was not disqualified under any of the exclusions.” 2018 T. C. Memo. 92, at p. 23.

Takeaway- Get those credentials into evidence, and get them into the administrative record.

Fans of the late and much lamented Anthony Bourdain are fully familiar with the abbreviated version of the title to this blogpost, meeze. For those who aren’t, it means everything the line chef needs, laid out and set up so the line chef can prepare whatever meal is wanted with the fewest possible motions.

Today we have two for the Tax Court practitioner, one from that Obliging Jurist Judge David Gustafson (Murfam Enterprises LLC,  Wendell Murphy, Jr., Tax Matters Partner, et al., Docket No. 8039-16, filed 6/25/18),  and the other from ex-Ch J Michael B (“Iron Mike”) Thornton (Estate of Virginia M. Lococo, Deceased, Ellen Rene Jarros and Mary Jean Forsyth, Co-Trustees, Docket No. 20996-17, filed 6/25/18).

Judge Gustafson has the battle of the stips. IRS wants a Rule 91(a)(1) basic, just returns, forms, documents, SNODs and dramatis personæ; Murfam ripostes that this is incomplete, and Rule 91(a) mandates a stip covering all matters not privileged that bear on the case, whether fact, opinion or application of law to fact. So Murfam wants to prepare its own all-embracing stip and give that to IRS.

Judge Gustafson, normally obliging to a fault, detects a wee bit of stalling here.

“…we warn the parties that we and they have limited time between now and trial, that we have limited curiosity about the details of their correspondence, and that neither the Court nor the parties should allow themselves to be distracted from the actual merits of this case by fruitless argument about and adjudication of the parties’ correspondence.” Order, at p. 2.

In a complex case (and apparently Murfam is one such) there are sometimes multiple stips, as the parties horsetrade (Judge Gustafson’s word) and work things out. Sometimes there is gameplaying, with each side sending the other a draft stip replete with minefields to provoke endless haggling.

This being Judge Gustafson, Murfam can explain. “However, no such explanation could have as good an effect as the prompt filing of a stipulation of the basic facts of this case.” Order, at p. 3.

Ex-Ch J Iron Mike has a four-point plan that should be in every Tax Court practitioner’s checklist file.

First, lay out your take on the facts and the law, both with any subsidiary points, and sufficiently detailed so the judge can decide the entire case on those bases.

Second, “A clear, complete, and concise exposition of each party’s position and the theory underlying that position with respect to each of the issues.” Order, at p. 1. Also state in narrative form what you expect to prove on the trial.

Third, will expert testimony be involved? If so, state the nature of such testimony and what questions will be put to the expert.

Fourth, status of preparation of stip of facts and status of trial preparation.

Ex-Ch J Iron Mike will require memos from both sides on these points. They will control admissibility of evidence and what positions parties may take at trial. These memos are the contrapositive of the advertising slogan of Yellow Pages of old: “If it’s not in here, it’s not out there.”

Most of this is commonsense, but like common sense, it’s very uncommon.

It’s Friday afternoon, I’m ready to go home to recover from the overwhelming hospitality, love and affection of my nearest and dearest, and no opinions. Just one designated hitter, STJ Panuthos tossing a hard-luck petitioner who did nothing when he had a chance; maybe the 14-day quick-kick rule needs revision.

So a hasty browse through today’s orders brought back to mind the Berlin adventures of Jonathan Zuhovitzky & Esther Zuhovitzky, Docket No. 3489-16, filed 6/22/18.

You remember Jon and Esther, who wanted to do reality TV from the old Prussian capital. No? Then check out my blogpost “Come From Away – Part Deux,” 11/17/17.

Jon’s back has gotten no better, his and Esther’s case is still on for trial, and the Hague Evidence Convention is still the elephant in the corner, although Judge Vasquez was looking favorably at Jon’s & Esther’s TV testimony.

So it’s time for the DOJ to enter the fray, and whom does DOJ send but a further sequel to Mark Twain’s classic and two (count ‘em, two) sequels from the master’s hand?

Judge Vasquez’ll tell you. And ya can’t make this stuff up.

“…Thomas J. Sawyer of the U.S. Department of Justice (Justice Department) filed a Motion For Admission of Counsel Pro Hac Vice, a Motion For Leave to File in Paper Form, and a Statement of Interest With Respect to the Court’s Order of November 15, 2017, Permitting Contemporaneous Trial Testimony From Berlin, Germany. Mr. Sawyer states that the parties in this action do not object to his motions for admission of counsel pro hac vice and for leave to file in paper form. [Note- I think you meant pro haec vice, Judge.]

“Writing on behalf of the Justice Department in the Statement of Interest, Mr. Sawyer asks the Court to reconsider our November 15, 2017, Order in which we granted petitioners’ Motion to Permit Witness Testimony of Jonathan Zuhovitzky and Esther Zuhovitzky by Contemporaneous Transmission from a Different Location.” Order, at p. 1.

Tom Sawyer Abroad…and Tax Attorney. Sam Clemens, thou should’st be living at this hour.

IRS mishandled the additions to tax for James R. Brown and Opal Freeman, 2018 T. C. Memo. 91, filed 6/21/18, but tries to amend its answer one month before trial.

Jim & Opal didn’t file for two years, got audited and filed during audit. Their returns got accepted, but they didn’t pay. So the only issues are the additions: failure to pay, failure to timely file, and failure to make estimated tax payments.

After negotiation between Jim’s & Opal’s lawyer and IRS counsel, Appeals issued Form 5278 Statement – Income Tax Changes, supposedly summing up the deal to which Jim’s & Opal’s attorney and IRS’ counsel supposedly agreed.

Except they didn’t, and it didn’t, so Jim’s & Opal’s lawyer moved for entry of decision; IRS moved for leave to amend and unscramble the additions.

Judge Ashford: “An agreement to settle a case before this Court is a contract; accordingly, we apply general principles of contract law when called on to resolve whether the litigants have reached a settlement. In a case pending before this Court, a settlement agreement may be reached by correspondence, in the absence of a formal document such as a closing agreement under section 7121. A prerequisite to the formation of an agreement is that there be a ‘meeting of the minds’, i.e., an objective manifestation of mutual assent to its essential terms. This principle applies even where an essential term is one over which the Court lacks jurisdiction. The determination of whether there was a meeting of the minds sufficient to constitute a contract is one of fact.

“On the basis of the evidence before us, we find that the parties did not reach a settlement because there was never a meeting of the minds as to several of its essential terms–the additions to tax attributable to petitioners’ reported underpayments of tax…under sections 6651(a)(1) and (2) and 6654. Indeed, petitioners acknowledge this disagreement in their motion, asking us on the one hand to enter a decision adjudicating exclusively those matters on which the parties agree (i.e., the…deficiencies and the additions to tax under sections 6651(a)(1) and 6654 attributable to those deficiencies) and asserting on the other hand that the matters on which they disagree are outside the scope of our jurisdiction. The parties, however, must agree on both the issues to be settled and the resolution of those issues; we will not enter a decision on some issues for which resolutions are agreed if the parties do not agree that those are all of the issues that they seek to resolve. Accordingly, we find that the parties did not reach a settlement agreement, and we will deny petitioners’ motion.” 2018 T. C. Memo. 91, at pp. 11-12 (Citations and footnote omitted).

Well, how about treating their parties’ arguments and papers as a motion for partial summary J upon what they do agree? Unless, of course, Judge Ashford wants to keep the pressure on the parties to reach a universal settlement.

Anyway, Tax Court has jurisdiction over additions to tax independent of a determined deficiency. The 1986 amendment to Section 6214(a) vests jurisdiction in Tax Court. So Jim & Opal are out on jurisdiction.

So Tax Court can rule on Section 6651(a)(2) failure to pay where there is jurisdiction to redetermine a deficiency even when Tax Court doesn’t redetermine anything.

As for surprise and prejudice, “There is nothing in the record that would support a finding that petitioners will suffer unfair surprise, disadvantage, or prejudice as a result of our granting respondent’s motion. Indeed, petitioners have been aware of the section 6651(a)(2) additions to tax asserted against them… since well before respondent’s filing of his motion.” 2018 T. C. Memo. 91, at p. 20.

And the back-and-forth between Jim’s & Opal’s counsel and the AO showed Jim & Opal knew this would be an issue. IRS was only “…seeking to amend his answer ‘as a formality and in order to clarify the record’. 2018 T. C. Memo. 91, at p. 21.

And the case hasn’t yet been tried, so Jim’s & Opal’s attorney can marshal whatever evidence they need to prove reasonable cause to dodge the reformulated additions.

I’ve often said lawyers can’t add, so watch those additions.

That’s Judge Cohen; she doesn’t like cognomens, and doesn’t like petitioners who fiddle with OIC forms and expect the SO assigned to their CDP to edit their Forms 656 (with no financial information attached).

And this is the third time around for Craig K. Potts & Kristen H. Potts, Docket No. 9307-17L, filed 6/20/18.

The backstory is found in 2017 T. C. Memo. 228, filed 11/20/17, which I didn’t blog at the time. It was a Form 870-AD waiver for one year, and a chance to contest deficiency for the others that ended with another T. C. Memo. That Craig & Kristen has six (count ‘em, six) OICs hanging about in 2017 didn’t impress the SO, or Judge Albert G (“Scholar Al”) Lauber either.

OK, so tax due is off the table.

Craig & Kristen has an OIC pending when they had their latest CDP. The SO said he couldn’t deal with the OIC, but checked out everything else, and affirmed.

“Essentially petitioners argue that it was an abuse of discretion for the SO not to delay action while petitioners’ missteps–whether intentional and strategic or inadvertent–were straightened out. Those missteps were altering the prescribed form for submitting an offer-in-compromise, submitting various altered forms to different offices of the IRS, attempting to recharacterize the form from ETA to one based on DATC, and continuously raising new arguments not properly raised with the Appeals office during the years that administrative proceedings were pending. Petitioners’ inconsistencies and strategies of altering forms and resubmitting them to different IRS offices apparently were intended to avoid submitting financial information and to support their claim that the payment made with the offer was refundable.” Order, at p. 3.

Any confusion was engendered by Craig & Kristen. NOD affirmed.

All y’all (I’m in Texas with my nearest and dearest, sweeter than Blue Bell Homemade Vanilla) will recall The (now-retired) 7 Cir Divebomber, Judge Richard Allen Posner, who blew off Reg. Section 1.183-2(b) as a ”goofy” regulation.

If not, see my blogpost “Amen, Judge Posner,” 12/22/16.

Well, today Judge Cohen, who eschews cognomens, trudges the weary nine (count ‘em, nine) factors in the hobby-vs.-profit checklist, and finds that Shane V. Robison and Robin S. Robison, 2018 T. C. Memo. 88, filed 6/19/18, were actually all-cattle, whatever the state of their hats.

And were out for a profit, notwithstanding five years of seven-figure Silicon Valley income and thirteen (count ‘em, thirteen) years of continuous six-figure cattle losses.

They bought the ranch, tried and bailed out of paint horsing and quarter horsing, got into a high-altitude cattle raising operation, and retained “…a local expert regarding brisket disease. At high elevations cattle are at risk of brisket disease, which causes fluid accumulation in a cow’s lung that can then cause it to suffocate. A cow with a low pulmonary artery pressure score (PAP score) indicates an animal with a greatly reduced risk of brisket disease.” 2018 T. C. Memo. 88, at p. 8. As a moist brisket barbecue lover, I entirely appreciate this…with a rich sauce and a cold Shiner.

And they had bushelbaskets full of records, some contemporaneous, some ex post facto. And the essential separate bank account and CPA.

They also hired a ranch manager, even though he hadn’t managed a registered ranch before.

“A profit motive may also be indicated if a taxpayer ‘employs competent and qualified persons to carry on such activity.’ Petitioners hired professionals to manage Robison Ranch, employing a full-time ranch manager and a ranch hand during the years in issue, both of whom lived on site.” 2018 T. C. Memo. 88, at p. 19.

Judge Cohen finds Shane and Robin are in it for the money.

But did they materially participate?

All their well-kept records don’t show hours. And their testimony shows they spent time, but most of it was investor-type oversight, looking at books and chatting up experts. Shane and Robin didn’t spend too much time “ridin’, rockin’, ropin’, poundin’ leather all day long,” as Fred Howard and Nat Vincent put it.

And finally, that “competent and qualified” ranch manager hands Shane and Robin the Section 469 passive loss rules kibosh.

“Petitioners’ activities in operating through the ranch manager suggest characterization of the activity as passive—that of an investor. That was the observation of the Court at the conclusion of the trial, and our impression has not been altered.” 2018 T. C. Memo. 88, at p. 24.

Well, Shane and Robin can always take those suspended multi-million-dollar losses against the profit (if any) when they sell.

Takeaway- That “goofy” regulation can be a trap.

Another Jimmy Webb classic sung by Glen Campbell gives me the headline for today’s blogfodder, Hampton Software Development, LLC, 2018 T. C. Memo. 87, filed 6/19/18, with Judge Chiechi decomposing almost as many electrons as did Judge Goeke did three years ago.

See my blogpost “Nothing Succeeds,” 2/26/15, the story of TFT Galveston Portfolio, Ltd, 144 T. C. 7, which Judge Chiechi quotes in extenso.

IRS won a Phyrric victory back in ’15 in Galveston, getting one quarter of FICA/FUTA plus chops, when they were trying for numerous years’ worth.

But yesterday’s scratch win is today’s complete win, as the property manager gets nailed as an EE, not IC, for all periods at issue.

The interesting thing about this fact-bound reprise is that petitioner gets whanged for not seeking discovery concerning the Section 6751 Boss Hoss, just protesting that it’s too burdensome to get IRS’ documents.

“The parties agree in their respective filings that sec. 7491(c) applies only ‘with respect to the liability of any individual’ for, inter alia, any penalty and that therefore respondent does not have the burden of production under sec. 7491(c) for the penalties under sec. 6656(a) that respondent determined. The parties also agree in their respective filings that petitioner has the burden of proof and the burden of production with respect to the penalties under sec. 6656(a). Petitioner nonetheless argues that ‘[r]espondent would be the only party with access to these records [any records regarding the approval that sec. 6751(b)(1) requires] and, therefore, it would place an undue burden on * * * Petitioner to be required to produce internal documents of the Internal Revenue Service to prove a penalty assessed against them [sic] was proper.’ We agree with petitioner that ‘[r]espondent would be the only party with access to these records [any records regarding the approval that sec. 6751(b)(1) requires]’. We disagree with petitioner that ‘it would place an undue burden on * * * Petitioner to be required to produce internal documents of the Internal Revenue Service to prove a penalty assessed against them [sic] was proper.’ That is because petitioner did not ask us to allow it (1) to conduct discovery in order to ascertain whether respondent has any records regarding the approval that sec. 6751(b)(1) requires with respect to the penalties under sec. 6656(a) and/or (2) to reopen the record in order to dispute that that approval occurred.” 2018 T. C. Memo. 87, at pp. 42-43, footnote 22.

Takeaway- Demand discovery unless the signed Boss Hoss document is on the table. The burden is not only on the taxpayer-petitioner, but also on the taxpayer-petitioner’s lawyer.