Islander

Travis (“Surge”) Sanders may be gone from this vail of tears, but his soul goes marching on. At the behest of 11 Cir, Judge Kerrigan takes up the march in Estate of Travis L. Sanders, Deceased, Thomas S. Hogan, Jr., Personal Representative, Petitioner, and the Government of The United States Virgin Islands, Intervenor, 2018 T. C. Memo. 104, filed 7/5/18.

You may not immediately recollect the story of the late Travis, so scope out my blogposts “He Married a Virgin,” 1/29/15, and “Maybe Not So Virgin,” 2/7/17.

So Judge Kerrigan falls in and marches through the four (count ’em, four) categories and 11 (count ‘em, 11) factors of the Sochurek-Vento factorial concatenation.

Though peripatetic when it came to business (the late Travis visited Antigua, Guadalupe, and Mebus [sic], 2018 T. C. Memo. 104, at p. 14; ya sure it was “Mebus,” Judge, and not Nevis? I’ve kicked around the Caribbean a trifle these last forty-five years or so, and been to Antigua, Guadalupe and Nevis, but never to Mebus), the late Travis was firmly ensconced on his two-story, five (count ‘em, five) bedroom yacht in the American Yacht Basin. He had his VI Humane Society membership card, drivers’ license, VI checkbooks, and marriage certificate clenched firmly in his grasp.

Except for one of the three years at issue, when he spent only eight days in Our Insolvent Island in the Sun. That earns his estate a six-figure slam by way of deficiency (SOL off the table, as the late Travis wasn’t a bona fide Virgin Islander that year), plus another quarter-mil in chops.

I note the late Travis’ dreamboat boasted “…two stories and had a full kitchen, a second, smaller kitchen on the second floor, an elevator, five bedrooms including a master suite, and hardwood floors.” 2018 T. C. Memo. 104, at pp. 14-15. And all this was insured for a mere $300K.

Well, as I said in an earlier blogpost “Your Money or Your Life,” 1/10/13, “That must explain my career; I never had a boat.”

Again there comes around the beach-and-barbecue break that personifies our National Holiday.

So to all my readers, in “Each degree of Latitude, Strung about Creation”; to the Tax Court Judges, STJs, law clerks, hard-laboring intake clerks and flailing datestampers, who make The Glasshouse at 400 Second Street, NW, what it is; to my colleagues and adversaries; and not least of all, to my nearest and dearest: Best holiday wishes.

George Bernard Shaw was my age when he wrote the comedy that provides the title for today’s final installment of Gregory Raifman and Susan Raifman, 2018 T. C. Memo. 101, filed 7/3/18.

Greg and Sue have been long-running players on this my blog, so it’s hard to say goodbye. Longtime readers will remember my blogposts “We Wuz Robbed,” 8/7/12; “An Unerring Nose for Fraud,” 2/27/15; “I Wanna Testify – Part Deux,” 6/5/15; and “The Night of the Living Dead – Part Deux,” 1/23/18.

But Judge Nega finally puts an end to this long-running show. CA may have a one-size-fits-all larceny statute, incorporating everything from armed robbery to larceny by trick or device, but specific criminal intent (“the evil-meaning mind and the evil-doing hand”) must be proven to establish the kinds of theft that Greg and Sue need.

Greg and Sue may have been robbed by the improbably-named-but-larcenously-inclined Yuri Debevc Derivium, but they can’t establish in what year all hope of recovery vanished, or prove classic criminal intent. While ClassicStar may have been a total tax-dodge, likewise Greg and Sue can’t prove the requisite criminal intent on the part of the promoters: at worst, they were merely flogging a bogus dodge, intending to rob the fisc but not specifically Greg and Sue. And ClassicStar wasn’t a Ponzi scheme, entitling Greg and Sue to the largesse extended to the victims of Bernie Madoff.

Greg and Sue also got mixed up in a truly shady hard money lending scheme, where they thought they were secured lenders but really weren’t (there was an assignment of collateral, supposedly, but what was assigned was dubious), but again, the criminal intent wasn’t proven.

Finally, Greg and Sue got into a movie deal that cratered, and they had a real loss, but not in the year they claimed, as they got some money back the following year.

IRS wants a reopener to enGraev (sorry, guys) approval of the chops, and they get it. Greg and Sue want to cross-examine the RA and supervisor, but Judge Nega says “no.” IRS has the signed forms, and that does it.

Besides, Greg was a lawyer doing corporate high finance and Sue was a CPA. Too sophisticated not to know that these deals were too good to be true.

Curtain.

Rides the Boss Hoss

I’m sure my readers, those few, those happy few, have been seized with doubt and misgivings, until today’s happy news from Judge Ruwe. The answer is here (at least until 6 Cir weighs in). When frivolity is on the table, the Boss Hoss is not.

Benton Williams, Jr., 151 T. C. 1, filed 7/3/18, has a penchant for frivolity. He never bothered with a return, so IRS gave him a SFR and a deficiency at the same price. Ben riposted as follows.

“In his petition, petitioner raised frivolous arguments.  He then filed several pretrial motions in which he raised the same type of arguments.  …respondent’s counsel sent petitioner a letter informing him that the arguments he raised in a motion for summary judgment were frivolous and that respondent would move for the Court to impose a penalty under section 6673(a)(1) if he persisted. …respondent’s counsel sent petitioner another letter, in which he reminded petitioner of the Tax Court’s authority to impose a penalty under section 6673(a)(1).” 151 T. C. 1, at p. 4.

But on the trial Ben was adamant, frivoling away.

Judge Ruwe: “At trial petitioner neither testified nor presented any witnesses. However, he asserts, using tax-protester type arguments, that the income he received in 2012 is not taxable under the Code.  His arguments are shopworn tax protester arguments that have been universally rejected by this Court. We will not painstakingly address petitioner’s arguments ‘with somber reasoning and copious citation of precedent; to do so might suggest that these arguments have some colorable merit.’” 151 T. C. 1, at p. 5 (Citations omitted, but they’re all the usual suspects I’ve blogged, from Wnuck forward).

So Ben gets hit with nonfiling and nonpaying chops because Section 6751(b)(2). As we used to yell playing tag, grasping a fellow player’s hand while touching the base, “Electricity!”

But is the Section 6673 frivolity chop a Graev matter?

“The penalty at issue in Graev III was a section 6662(a) penalty, which is a penalty determined by the Commissioner in a notice of deficiency or by Chief Counsel for the Internal Revenue Service (IRS) in the answer or amended answer filed on behalf of the Commissioner in this Court.  What Graev III made clear is that an initial determination by the IRS to assert a penalty requires written approval by an IRS supervisor and that an initial determination by a Chief Counsel attorney to affirmatively plead such a penalty on behalf of the IRS requires written supervisory approval by the attorney’s supervisor. However, Graev III left many questions unanswered.” 151 T. C. 1, at p. 10. (Citations omitted).

Of course, Judge Ruwe is referring to The Great Concurrer, Judge Mark V Holmes’ concurrence in Graev III, so check out my blogpost “Stir, Baby, Stir – That Silt,”12/20/17. Now you’re up to speed.

But did Section 6751 overrule Section 6673 by implication?

Negatory, good buddy, says Judge Ruwe and the entire Tax Court bench.

‘Sections 6673(a)(1) and 6751(b)(1) are not in irreconcilable conflict, section 6751(b)(1) is not a substitute for section 6673(a)(1), and Congress did not express a manifest intent to repeal section 6673(a)(1) or to modify the longstanding procedural rules that govern the processing of cases in the Tax Court.

“An irreconcilable conflict exists when ‘there is a positive repugnancy between * * * [the statutes] or * * * they cannot mutually coexist.’  If the two statutes can coexist, it is the duty of the courts to give effect to both.”

“Here the purposes of sections 6751(b)(1) and 6673(a)(1) can both be served while giving effect to both provisions.” 151 T.C. 1, at p. 12. (Citations omitted).

The legislative histories of the two statutes make it clear. The 1998 addition of Section 6751 was made to keep IRS grunts from using chops to bludgeon taxpayers into adverse settlements. The 1989 addition of Section 6673 was to permit Tax Court Judges to whang the pates of the rounders and frivolers who dissipate scarce judicial resources and divert same from meritorious petitioners.

And the “Big Courts,” those enshrined by Art III of the Constitution, have the same powers.

“Title 26, section 7482(c)(4) is similar to section 6673(a)(1).  It grants the Supreme Court of the United States and the U.S. Circuit Courts of Appeals the power to impose penalties in cases where the decision of the Tax Court is affirmed and the court decides ‘that the appeal was instituted or maintained primarily for delay or that the taxpayer’s position in the appeal is frivolous or groundless. ‘Section 6673(b)(1) authorizes the District Courts to impose a penalty not in excess of $10,000 if a taxpayer maintains a ‘frivolous or groundless’ position in a section 7433 proceeding.  Section 6751(b)(1) was not intended as a broad restraint mechanism on the Federal judiciary.  It was not intended to cover the imposition of penalties that Congress intended could be imposed by courts because of misbehavior by a litigant during the course of a judicial proceeding.  Accordingly, we hold that section 6751(b)(1) does not apply to the Tax Court when it imposes penalties under section 6673(a)(1).” 151 T. C. 1, at p. 16.

Ben was warned…twice. He frivoled. He earns a $2K Section 6673 chop, and enduring fame, as his case will doubtless be picked up by the trade press and the blogosphere.

Or, No Love for Chenery

It’s the end of the Custom Adjustable Rate Debt Structure (CARDS), which I’ve blogged extensively over the years. Judge Nega cites all the cases I’ve blogged and more.

See my blogposts “House of CARDS,” 3/8/11, “Not in the CARDS,” 12/6/16; and “CARDS? It’s For the Birds,” 8/2/17.

At the end of the day, there’s neither economic substance nor a non-tax business purpose to this marriage of offshore debt to onshore gain. But neither was there in any of the other CARDS cases.

The only reason I blog this case is that the protagonists are the founders of the CARDS deal, and the original principals of Chenery Associates, Inc., Roy E. Hahn and Linda G. Montgomery, 2018 T. C. Memo. 100, filed 7/2/18.

You can read for yourselves the wheeling and dealing, but it’s of a piece with those I’ve heretofore dissected. I’ll only close the books with Judge Nega’s envoi: “On the record before us, we find that petitioners’ CARDS transaction did not have any practical economic effects beyond the creation of tax benefits and therefore lacks economic substance.  On that record, we further find that the loss deductions arising from the CARDS transaction are disallowed.” 2018 T. C. Memo. 100, at p. 24.

IRS seems to have a problem with Estate Of Michael J. Jackson,  Deceased, John G. Branca, Co- Executor and John McClain, Co-Executor, Docket No. 17152-13, filed 7/2/18. Or rather, with the attorneys for the co-ex’rs.

So there comes before the Great Dissenter/Concurrer, a/k/a The Judge Who Writes Like a Human Being, s/a/k/a The Master Silt-Stirrer and Old China Hand, Judge Mark V. Holmes, IRS’ motion to “… strike part of petitioner’s opening brief.”

That’s the post-trial opening brief, after thirty-six (count ‘em, thirty-six) volumes of trial testimony, enough stips to stock a fair-sized bookstore (if any such exist post-Amazon), and a reopened record (obviously for Boss Hoss sign-offs for chops).

Now we all know Rule 52 provides, in pertinent part (as my two-Grey Goose-Gibson lunching colleagues state) “…upon motion made by a party…or upon the Court’s own initiative at any time, the Court may order stricken from any pleading any insufficient claim or defense or any redundant, immaterial, impertinent, frivolous, or scandalous matter. In like manner and procedure, the Court may order stricken any such objectionable matter from briefs, documents, or any other papers or responses filed with the Court.”

You’ll doubtless remember IRS’ lying witness who featured in my blogpost “I’m Shocked…Shocked,” 4/28/17. But Judge Holmes hardly gave that a shrug of the shoulders. So how can any remarks on that score overtop the bar for a strike?

Now whatever else might the ex’rs’ high-priced, Beverly Hills 90212 attorneys put in an opening brief that could possibly be “insufficient, redundant, immaterial, impertinent, frivolous, or scandalous”?

I’d dearly love to know.

That might well be a lot more interesting than another valuation joust between squadrons of dueling appraisers, generating hundreds of pages of regurgitation of their cogitations and coruscations, followed by a mix-and-match exagmination round their factifications.

With the world in the throes of the Kickball Championship of the Galaxy, the aficionados thereof doubtless glued to the screens and discoursing at length and with vehemence about the offside rule (did not the Lower Oölitic striker outpace (or not) the Silurian fullback? And the ref allowed the goal? Sound the alarum, blow wind, come wrack!), that Obliging Jurist Judge David Gustafson has a lecture on the Tax Court appellate offside rule in Duncan Bass, Docket No. 12871-17, filed 7/2/18.

Dunc lost a Section 274 and Section 170 substantiation off-the-bencher last month that I didn’t blog, and got sent off to do a Rule 155 beancount. Nothing daunted, Dunc, a Tar Heel, headed for 4 Cir sans beancount, protesting Judge Gustafson’s order. Judge Gustafson wants the beancount to go forward so he can issue a decision. This is a deficiency case, and a deficiency can’t be decided without a number.

Courtesy is Judge Gustafson’s middle name.

“Of course we do not speak for Court of Appeals, nor do we rule on appeals of our own orders, but we are responsible to determine whether to continue our proceedings when a party has filed a notice of appeal.” Order, at p. 2.

Bowing to Golsen (the law of the Circuit where the taxpayer is located at time of trial rules), Judge Gustafson finds 4 Cir decides appeals from decisions and appealable interlocutory or collateral orders.

“These non-final, interlocutory orders that may be appealed are, pursuant to 26 U.S.C. sec. 7482(a)(2)(A) (which is the Tax Court analog to 28 U.S.C. sec. 1292), orders that include a ‘statement that a controlling question of law is involved with respect to which there is a substantial ground for difference of opinion and that an immediate appeal from that order may materially advance the ultimate termination of the litigation’. Our order did not include such a statement (and neither party requested that we amend the order to include such a statement). Thus, our order from which Mr. Bass purported to appeal does not meet the exception in section 7482(a)(2)(A).” Order, at p. 2.

“Tax Court Rule 193(c) provides that ‘proceedings in the Tax Court shall not be stayed by virtue of any interlocutory order that is or may be the subject of an appeal.” Thus, Mr. Bass’s premature appeal does not stay our Rule 155 proceedings.” Order, at p 2.

So Dunc, do the numbers. And don’t panic. When the numbers are done, Judge Gustafson has promised to give you a final, appealable order