Archive for July, 2018|Monthly archive page


In Uncategorized on 07/16/2018 at 20:39

Or, Never Time to Do It Right

Word-processing software is the boon and bane of our existence. I was talking to a colleague over coffee yesterday, and we were discussing the demise of the legal secretary, now that we all have computers and files of documents from which to cut, paste, extrapolate, interpolate and obfuscate on every topic that may possibly swim into our working-day ken.

So speed beats care, and there’s never time enough to do it right, but always time to do it over. Except even then we are the prisoners of our electrons.

Today Judge Cohen shows no patience with an IRS attorney who grinds out the pretrial memo and opening brief, and then changes his story on reply brief, in Darrell Archer, 2018 T. C. Memo. 111, filed 7/16/18.

I can sympathize with the IRS attorney. What Darrell lacks in substantiation he doesn’t make up for in testimony, so most of his deductions go the way of all clichés.

Darrell, like so many of the unsubstantiated, owns and operates rental real estate. I expect the IRS attorney thought this was a throwaway, and went for the first boilerplate paragraphs he could find.

It proved an impediment.

“Respondent argues in his pretrial memorandum and in his opening brief that petitioner is not entitled to deduct the rental losses … to the extent they exceed $25,000 because of the passive activity limitations of section 469. See sec. 469(i). Nothing in the record, however, suggests that the loss deductions claimed exceeded $25,000, or that any overall limitation was the reason for disallowance. We see no reason, therefore, to discuss further the complex provisions of section 469. We interpret respondent’s arguments as a concession as to any substantiated expenses totaling less than $25,000.” 2018 T. C. Memo.111, at pp. 12-13.

Might have done better to forego the passive losses and stayed with the non-substantiation. But the attempted goal-line save is even worse.

“In his reply brief respondent argues that petitioner failed to substantiate his rental losses and seeks to impose additional obligations on petitioner not addressed in respondent’s pretrial memorandum, at trial, or on opening brief. We disregard those belated contentions.” 2018 T. C. Memo. 111, at p. 13.

So Judge Cohen hands Darrell $5K in real estate losses, based on Cohan and Darrell’s testimony that otherwise flunks the other tests.

“His testimony and his brief emphasize his subjective belief that ‘every deduction that I made I believed to be an absolute legitimate deduction. A deduction that I deserved and should take’. Such testimony does not carry his burden.” 2018 T. C. Memo. 111, at p. 9.

Boilerplate is indeed a hazardous substance.



In Uncategorized on 07/13/2018 at 16:48

Maybe that hallowed 1974 classic, Greenberg’s Express, 62 T. C. 324, isn’t so dead as maybe some of us thought. When I wrote my blogpost “Play Nice at the Graev“ 7/10/18, I envisioned interrogatories, depositions, document demands, and trials, flowing from ex-Ch J L Paige (“Iron Fist”) Marvel’s expansive order therein recited.

No less an authority than the Lead of The Jersey Boys confided to me the other day that Greenberg’s Express has been derailed, that Judge Tannenwald’s famous diktat that “(A)s a general rule, this Court will not look behind a deficiency notice to examine the evidence used or the propriety of respondent’s motives or of the administrative policy or procedure involved in making his determinations,” 62 T.C. 324, at p. 327, is dead-letter law.

Formerly, only when the very fabric of the Constitution was involved would Tax Court lift the shroud that envelops the IRS’ internal machinery.

But Graev III, while broaching no new law (the statute is twenty years old this year), opened the floodgates in many cases where the Section 6751(b) Boss Hoss sign-off wasn’t even honored in the breach, much less the observance.

Who better to put Greenberg’s Express back on the tracks and cause that venerable locomotive to make the merest whistlestop at the Graev than The Great Concurrer/Dissenter, Master Silt Stirrer and Old China Hand, Judge Mark V. Holmes?

Here’s a designated hitter to send us off to the weekend despite the Friday the 13th jinx, Scott A. Householder & Debra A. Householder, et al., Docket No. 19150-10, filed 7/13/18.

Scott & Deb had their day in court, and even cross-examined IRS’ declarant who now seeks to wild-card in the Boss Hoss sign-off, but nobody mentioned Boss Hoss on the trial. Scott & Deb yell “too late and prejudice, besides it’s all hearsay.”

Now the Boss Hoss sign-off is riddled with hearsay. But IRS is crafty, and relies on our old friend res gestae. I remember Prof. Grey T., on the Hill Far Above, so long ago, proclaiming “It’s all part of the reece jest-eye.”

For those of my readers who didn’t attend a high-priced law school, the res gestae is an exclamation or document introduced into evidence for the fact that it exists or was said, not for the truth thereof. So, like John Ciardi’s apostrophe to a poem, the statement need not mean but be.

True, the IRS is extremely tardy and slow off the mark.

“But we do think the Commissioner might have had less reason to anticipate the importance of § 6751 in this case than in many other cases. Although Graev III didn’t create new law, it is true that it and Chai are the first cases to clarify that § 6751(b) and § 7491(c) combine to place the burden of production on the Commissioner to show that he complied with § 6751(b) in cases where he wants a penalty. And unlike other cases where Chai ghouls have appeared, § 6751 never came up here in pretrial motions or discovery, and the Ninth Circuit has found that reopening the record may be justified in such a case. There wasn’t a change in law here — in the strictest sense of the phrase -but we also think it is possible that Graev III‘s consequences might have surprised the Commissioner in this case where § 6751 had not been talked about at all.” Order, at p. 6. (Citations omitted).

And Scott & Deb’s beef about prejudice and the need to sweat IRS’ declarant doesn’t get it, because said declarant testified enough on the trial back in 2014 to show the Boss Hoss did sign off.

As has been said before, the mere fact that the document exists is enough. See my blogpost “Robosigner? – Part Deux,” 4/5/18. All my piety and wit, and all my tears cannot wash out a word of it, as a much finer writer than I put it.

Edited to add: I’m told the line about a poem should not mean but be is not by John Ciardi, but by Archibald MacLeish. Sorry, Archie.


In Uncategorized on 07/12/2018 at 18:19

Martin W. Washburn, Jr., 2018 T. C. Memo. 110, filed 7/12/18, owned a C Corp which was majority member of an LLC. Martin was “corporate secretary” of the LLC, although STJ Diana L. (“Sidewalks of New York”) Leyden doesn’t know how the LLC was taxed (2018 T. C. Memo. 110, at p. 3, footnote 3).

Howbeit, Martin “…and four other individuals (hereinafter sometimes collectively referred to as codefendants) participated in a scheme to defraud the Overseas Private Investment Corporation (OPIC) to obtain a loan of about $9.4 million for [LLC].” 2018 T. C. Memo. 110, at p. 3. OPIC was a US government agency whose aim was to encourage foreign investment by US small business companies.

Martin made the application as sec’y of the LLC, claiming his C Corp was the “sponsor” that is, the US investor, and was putting up a big chunk of cash, with OPIC throwing in the rest of our money (that is, our tax dollars at work).

Martin and the co’s worked a put-and-take with the cash that the C Corp supposedly ponied up. Their offshore enterprise first built a grain-drying facility in Vahenurme, Estonia, bought a bakery in Valga, Estonia (thus the title of this little tale), and later built a mill in Viljandi, Estonia.

Well, the Estonia deal turned out to be half-baked (sorry, guys).

“…disputes arose over the management and control of the milling and bakery operation.  It was during the course of these disputes that OPIC discovered that GSP had misrepresented certain facts in its loan application.  Contrary to the statements in the loan application, the investment contributions to [LLC] by [C Corp] and one other [LLC] owner [member?] were in substance a disguised loan from one of the codefendants.  Petitioner and his codefendants withheld bank statements from OPIC that showed that the investment contributions by [C Corp] and one other [LLC] owner [member?] were immediately distributed to the codefendant who made the loan.” 2018 T. C. Memo. 110, at p. 4.

In other words, the LLC members cashed out and left us (the US taxpayers) holding the cliché. They also engaged in buying equipment from themselves at inflated prices, and lied to OPIC.

Martin and the cos went down in some unstated-USDC, with $400K in restitution being ordered, as well as jail time.

The fight is about whether Martin gets a tax deduction for the $400K. Martin never got a SNOD, because he first claimed the $400K as withholding, and the CP23 IRS issued Martin taking that away doesn’t rate a SNOD; see Section 6213(b)(1).

Martin changed course, abandoning his claims that the $400K was estimated tax payments or a claim-of-right credit per Section 1341. Now he claims Section 162 business expense or Section 165(c)(2) transaction entered into for profit.

STJ Di looks at the stip the parties entered into. Remember, Tax Court judges love stips; who wants to sit through a lot of blathering witnesses and bombastic lawyers, when the facts are cut and dried?

The sacred Branerton case is exhumed, and veneration paid to it and its kindred.

“The stipulation process is considered ‘the bedrock of Tax Court practice’ and acts ‘as an aid to the more expeditious trial of cases’.  Branerton Corp. v. Commissioner, 61 T.C. 691, 692 (1974).  Stipulations narrow controversies to their essential issues in dispute. Generally, a stipulation is binding on the parties, and the Court is bound to enforce it.  Rule 91(e) provides an exception by permitting relief from the binding effect of a stipulation where justice so requires.  The Court generally enforces stipulations unless ‘manifest injustice’ would result. Absent manifest injustice, the Court ‘will not permit a party to a stipulation to qualify, change, or contradict a stipulation in whole or in part’.  Rule 91(e).” 2018 T. C. Memo. 110, at pp. 13-14. (Citations omitted, but they’re the usual “canned brief” types).

Remember, the Section 162 and the Section 165(c)(2) deductions are above-the-line, that is Schedule C type reductions in gross profit that reduce AGI before the Schedule A below-the-line deductions figure in. They’re not subject to the phase-outs for Schedule A deductions, like miscellaneous.

But Martin stiped to miscellaneous characterization.

“However, petitioner’s arguments on brief that he is entitled to an above-the-line-deduction for the restitution payments under section 162(a) or section 165(c)(1) are contrary to the parties’ stipulations.” 2018 T. C. Memo. 110, at p. 15. And Martin doesn’t yell “foul!” so he’s stuck.

So Martin is relegated to unreimbursed employee expense deduction, the now-extinct reef upon which so many petitioners have foundered. So does Martin. While the C Corp treated him as an employee (W-2 type), and the LLC always called him “corporate secretary,” the record is too scanty to establish him as an employee of the LLC. And the LLC is where the trouble arose, hence the restitution. And the restitution was partial repayment of the fraudulent loan, and repayment of loan proceeds (receipt of which wasn’t taxed) isn’t a deduction.

As for promoting Martin’s business, he hasn’t shown how paying back what he and the cos stole via the LLC helped his C Corp’s business.

Finally, although IRS and Martin’s counsel argued about whether restitution is punitive or compensatory, STJ Di doesn’t go there.

“Before a taxpayer is entitled to deduct a loss under section 165(c)(2), he must demonstrate that he has entered into a transaction the primary purpose of which was to make a profit. The business that an officer conducts for a corporation is not his own business.” 110 T. C. Memo. at p. 23.

If anyone made a profit, it was the LLC. The LLC was faking and baking in Estonia. So Martin is out. No deduction.

Takeaway- Must I say it again? Stipulations are the IEDs of litigation; they look so innocent, until they go off, taking your case with them.



In Uncategorized on 07/12/2018 at 03:43

This blogpost comes to you late, courtesy of The Jersey Boys’ extravagant good nature. They hosted a remarkable four-hour CPE, whereat were gathered experts from IRS, NYSDTF and NYCDOF, explaining the concurrences and deviations in their taxpayer advocacy and enforcement schemas. The program was intended for tax pros whose clients have limited English (language) proficiency.

Mine had unlimited proficiency, but a selective understanding, of the English language, when I or anyone else told them what they didn’t want to hear. I’ve said it before: every taxpayer needs two tax advisers. One to tell them what the law is, and the other to tell them what they wish the law was. They could then elect whose advice to take.

Well, today the silt stir went on apace.

First, Judge Ruwe in Paul O. Martin and Cynthia M. Montes Martin, 2018 T. C. Memo. 109, filed 7/11/18, doesn’t let IRS reopen the record to put in the Boss Hoss sign-offs. After showing conclusively that whatever petitioners introduced as evidence was woefully deficient, and that they were only entitled to a couple bucks (hi, Judge Holmes) over the pittance IRS allowed them in the SNOD, Judge Ruwe slammed the door on IRS’ reopener motion. And he doesn’t tell us why.

“Compliance with section 6751(b)(1) is part of the Commissioner’s burden of production for those penalties to which the section applies. See Graev v. Commissioner, 149 T.C. , (slip op. at 13-14) (Dec. 20, 2017), supplementing and overruling in part 147 T.C. 460 (2016). Section 6751(b)(1) provides, subject to certain exceptions, that ‘no penalty 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 or such higher level official as the Secretary may designate.’

“Respondent concedes that he must demonstrate compliance with section 6751(b)(1) to meet his burden of production. The record does not contain any evidence that respondent complied with section 6751(b)(1). Accordingly, respondent did not meet the burden of production, and petitioners are not liable for the accuracy-related penalty for 2012, 2013, or 2014.” 2018 T. C. Memo. 109, at p. 20. (Citation omitted).

To the contrary, The Great Concurrer and Master Silt Stirrer, Judge Mark V. Holmes, lets in some Boss Hosses and keeps out others in Plentywood Drug Inc., et al., Docket No. 17753-16, filed 7/11/18.

As Plentywood is a Corp (whether C or S not stated, but doesn’t matter), Dynamo teaches us that Section 6751(b) doesn’t apply to corporations. See my blogpost “Howdy, Partner – Part Deux,” 5/7/18.

But the als are human people.

So IRS needs the Boss Hoss sign-offs to chop them. Except there was a question whether the als disputed their chops.

IRS claims the als’ attorney said they weren’t going to fight their chops.

“We reviewed the record in these cases and found that the individual petitioners did in fact dispute the penalties in their petitions, which is important because the Commissioner has the burden of production for showing that he complied with § 6751 in determining penalties against individual petitioners.” Order, at p. 1. (Citation and footnote omitted, but it’s Graev II and Dynamo.)

So, als, asks Judge Holmes, is you is or is you ain’t?

“Petitioners recently filed their response: They say that they already conceded penalties on some issues but that they did not want to concede penalties on others. What petitioners fail to do, however, is object to the Commissioner’s motion or give us a single reason why we shouldn’t grant it.” Order, at p. 2.

So like King Solomon, Judge Holmes cuts the Boss Hosses in twain. No reopener for Plentywood, the Corp, as Boss Hoss not needed for corporate chops; but reopener granted for the als, as the sign-offs are needed and the als haven’t objected.

I was pleased to be able to thank Frank Agostino, Esq., personally for Graev, the blogger’s delight. It’s a gift that just keeps on giving.


In Uncategorized on 07/10/2018 at 17:25

Or, Does Greenberg’s Express Run Here Any More?

On a day when the only opinion is a Sum. Op. non-substantiation scarcely worth my time, to say nothing of the more valuable time of STJ Daniel A (“Yuda”) Guy, I turn back to the monumental silt-stir that is Graev.

Judge Holmes was right; Graev was a night-of-the-living-dead, resurrecting cases awaiting written opinion, and stirring silt like a cement-mixer on steroids.

Today we have Calvin G. Walker & Stacy Walker, Docket No. 30216-13, filed 7/10/18. The only issue is reopening the record for Section 6663 fraud chops and Section 6662(a) accuracy-chops. Ex-Ch J L Paige (“Iron Fist”) Marvel has this one, and reopens.

But the way she does it reminded me of Judge Holmes’ silt-stirring concurrence in Graev II, 149 T. C. 23, filed 12/20/17 (see my blogpost “Stir, Baby, Stir – That Silt,” 12/20/17.

What will happen to Greenberg’s Express?  ‘As a general rule, this Court will not look behind a deficiency notice to examine the evidence used or the propriety of respondent’s motives or of the administrative policy or procedure involved in making his determinations.’  Greenberg’s Express, Inc. v. Commissioner, 62 T.C. 324, 327 (1974) (emphases added) (citing Human Eng’g Inst. v. Commissioner, 61 T.C. 61, 66 (1973)).  Imagine if a taxpayer after reading this Opinion wants to know what really happened behind the scenes for the penalty to have made its way into his notice of deficiency.  How can we deny him discovery about communications between the auditor and the supervisor now that what happens before the Commissioner issues a notice of deficiency is a material fact?  How about communications between auditor and supervisor and any pre-notice advice from counsel?  Will interrogatories be enough or will we create some sort of testimonial privilege or will we just overturn this part of Greenberg’s Express?  Who knows?” Graev II, 149 T. C. 23 at pp. 48-49.

Well, I won’t hold Judge Holmes in suspense any longer, as here’s ex-Ch J Iron Fist’s take.

“ORDERED that respondent’s…motion to reopen the record is granted in that the record is reopened for the purpose of receiving evidence, either in the form of a supplemental stipulation of facts or by way of a supplemental trial regarding the section 6751(b)(1) penalty approval requirement and whether it is met in this case. It is further

“ORDERED that the parties shall have until September 17, 2018, to engage in the informal exchange of information as required by Rule 70, and, if the section 6751(b)(1) issue cannot be developed and resolved informally, to complete formal discovery.” Order, at p. 6.

Stirring times, these.



In Uncategorized on 07/09/2018 at 15:40

‘When I use a word,’ Humpty Dumpty said in rather a scornful tone, ‘it means just what I choose it to mean—neither more nor less.’ C. L. Dodgson, Through the Looking-Glass, 1871.

And when IRS compiles an administrative record in a whistleblower case, it contains exactly what IRS chooses it to contain – neither more nor less.

Except STJ Daniel A. (“Yuda”) Guy doesn’t think so.

Here’s Whistleblower 972-17W, filed 7/9/18, (hereinafter the “Whistler”) who gets to look through the looking-glass via a couple interrogatories (hi, Judge Holmes), and production of the descriptions and accounts of his/her conversations with various ROs and SAs.

Whistler tipped off the Federales about corporate skullduggery involving officer nonreporting of income and nonpayment of FICA. IRS claims they knew that already, and Whistler’s stuff didn’t move the chains.

IRS’ defense against Whistler’s discovery requests is a wee bit lame.

“Respondent maintains that petitioner should not be permitted to conduct discovery because the administrative record as compiled by the Whistleblower Office is the only information that was taken into account in the determination to deny petitioner’s whistleblower claim. Citing Kasper v. Commissioner, 150 T.C. No. 2 (Jan. 9, 2018), respondent asserts that the scope of review in whistleblower cases is limited to the administrative record and that petitioner has failed to establish an exception to the so-called record rule.” Order, at p. 4.

For the Kasper story, see my blogpost “Two Old Cases,” 1/10/18.

Well, this time the administrative record IRS proffers is scanty.

“The Court’s review of the administrative record shows that it contains very little information, other than petitioner’s Form 211, identifying or describing the specific information that petitioner provided to the IRS. While the administrative record indicates that petitioner had multiple meetings and informal contacts with various IRS agents involved in the investigations and examinations of taxpayers 1, 2, and 3, and corporations 1 and 2, described above, there are few records of the dates of petitioner’s meetings and virtually no documents describing the nature and scope of the information that petitioner provided to the IRS agents in question.” Order, at p. 5.

So Whistler gets three (count ‘em, three) interrogatories and two (count ‘em, two) document demands. But in the meantime IRS and Whistler should play nice and swap stuff.

Whistler wanted nonconsensual depositions if IRS didn’t pony up, but that’s premature.


In Uncategorized on 07/08/2018 at 00:07

I ask that question because IRS refused to make deals in mines. A year ago, I quoted Aristophanes’ 424 BC smash hit The Knights, where the lead says “When I get drunk I make deals in mines.”

But in Telos CLO 2007-02, et al., Docket No. 6779-17, filed 7/6/18, Judge Chiechi wants IRS to step into the Agora and explain why it refuses to be bound by the appeal to DC Cir in Grecian Magnesite, Industrial & Shipping Co., SA v. Commissioner of Internal Revenue, 149 T.C. No. 3 (2017), appeal docketed, No. 17-1268 (D.C. Cir. Dec. 18, 2017) (Grecian Magnesite).

Grecian Mag had a lot to do with deals in mines. See my blogpost “It’s Not FIRPTA,” 7/13/17, where I dig up (sorry, guys) the whole story.

Judge Chiechi thinks the outcome in the Grecian Mag appeal might settle this case too, as both Telos and Grecian Mag relate “…to the issue of whether gain or loss of a foreign corporation from the sale or exchange of an interest in a partnership that conducts a trade or business in the U.S. is gain effectively connected with such trade or business or loss allowable to such gain. That is an issue common to the instant cases and Grecian Magnesite. Moreover, the appeal in the instant cases would generally lie to the U.S. Court of Appeals for the District of Columbia Circuit.” Order, at p. 1.

Especially is IRS’ sobriety odd because IRS is the appellant in the Grecian Mag case, and the 2017 tax reform act specifically overrules the holding in Grecian Mag by providing that sale of a US partnership interest by an offshore is an asset sale. Thus, Rev. Rul. 91-32, 1991-1 C. B. 107, which got such a pummeling in Grecian Mag, is back on its feet and punching hard. And Congress gave IRS a trump card to play (sorry again, guys).

If the issue is retroactivity, that’s in play whatever happens with Grecian Mag in DC Cir. Whatever the outcome in IRS’ fight with Telos in Tax Court, they’re off to DC Cir.


In Uncategorized on 07/06/2018 at 21:26

Judge Joel Gerber welcomes back an old friend, Ella Tseytin, Mrs. Secret Agent. Ella tells Judge Gerber that 3 Cir sent her, after they put the hems on her husband Michael, the Secret Agent.

The backstory you can find in my blogpost “The Secret Agent?” 12/29/15. The hems are found in extenso in Michael Tsyetin; EllaTseytin, Docket No. 16-1674, decided 8/18/17, by a unanimous bench.

But notwithstanding 3 Cir’s stitching-up of Michael, Ella is innocent. Nevertheless, she got stitched up as well, so Judge Gerber gets to undo the stitches.

“One final matter remains: Michael Tseytin’s wife, Ella Tseytin, is also an appellant and a party to this appeal. Both the Commissioner and the Appellants agree that she was inadvertently and erroneously held liable in the Tax Court for her husband’s tax deficiencies. We will remand the case to the Tax Court to provide it an opportunity to address the issue.” Decision, Item IV.

Judge Gerber got the gladsome news today. Michael Tseytin & Ella Tseytin, Docket No, 354-12, filed 7/6/18.


In Uncategorized on 07/06/2018 at 21:01

Electronic filers get that way by applying for and obtaining a user name and password. One must be either a practitioner (attorney or USTCP) or a petitioner.

An attorney I’ll refer to as Matty wanted to jump the queue. Perhaps he was in a hurry, or perplexed by the Captcha diagrams.

Well, this doesn’t fly when Matty wants to join (or maybe supersede) the attorney who signed the petition, whom I’ll refer to as Hank.

The case is Grace & Co., Inc., Docket No. 13038-18, filed 7/6/18. The Judge is Ch J Maurice B (“Mighty Mo”) Foley.

“…the petition commencing the above-docketed matter was filed on behalf of petitioner by counsel [Hank]. In so filing and by means of counsel’s signature on the petition, [Hank] thereby entered an appearance in this case. Thereafter, a separate entry of appearance reflecting [Matty] was filed … using [Hank]’s electronic access code. Such entry of appearance was thus reflected on the docket record as an entry of appearance by [Hank], a moot action.” Order, at p. 1.

Maybe duplicative, Ch J, but I’m not sure it was “moot.” Howbeit, Matty gets sent off. His attempted entry of appearance gets stricken.

“[Matty] is advised that if he wishes to enter an appearances as counsel for petitioner in this case, [Matty] must electronically file such entry of appearance not using the electronic access code issued to [Hank] or other such practitioner.” Order, at p. 1.

I note that Matty is quick off the mark, as he files a proper entry of appearance in his own name at once.

But spare yourself the trouble, practitioners. Don’t share access codes.


In Uncategorized on 07/05/2018 at 17:22

That’s IRS’ counter to Robert Manashi and Nahrin Manashi, 2018 T. C. Memo. 106, when Rob and Nah claim IRS should’a could’a seen from their 1120S and 1099s and all that, that Rob and Nah didn’t bother reporting about $2.6 mil in income over four years in their 1040s.

Thus 3SOL.

Nope, says Judge Gale. You ran up 241 days stalling with a motion to quash IRS subpoenas. Plus whatever you put on the 1120S, or whatever was in the 1099s, it didn’t show you were hiding other income.

“Simply put, reporting some amount of gross receipts offers no ‘clue’ that other gross receipts have been omitted.  Nothing on [Rob’s and Nah’s Sub S]’s Form 1120S for each year reasonably alerted respondent that gross receipts had been underreported.  The ‘clue’ must be on the face of the return; respondent is not required to undertake further examination absent a ‘clue’ that would inform a reasonable person.” 2018 T. C. Memo. 106, at pp. 8-9.

Of course, if the 1120S had enough stuff to tip off IRS, then 3SOL.

Rob and Nah got 1099s from their three (count ‘em, three) banks they were running their business income through, and also got 1099s from their customers. Shouldn’t those have tipped off IRS?


“There are no Forms 1099 issued by petitioners’ banks or [Sub S]’s clients in the record and certainly none attached to the returns filed by either petitioners or [Sub S].  Thus, any information from Forms 1099, if they were in fact filed, would not have been ‘disclosed in the return, or in a statement attached to the return’, as required by section 6501(e)(1)(B)(ii).” 2018 T. C. Memo. 106, at p. 9.

Takeaway- Practitioner, the record is your friend. Guard it as you would the dearest friend you are every likely to have. A 1099 or two in the record, even if not attached to the return , would enhance credibility, and maybe set the stage for an appeal.