That Obliging Jurist, Judge David Gustafson, does not state whether or not he has done military service, but had he served, he might have encountered this phrase, acquired during the occupation of Germany. It means “no matter.”

And Judge Gustafson properly applies the term at the end of the road (maybe) for Fighting Joe Insinga. Long-time readers of this my blog will surely recollect the long career of Fighting Joe, from his 2013 debut up to his most recent appearance in “He Loves Conundrums,” 7/25/18.

Fighting Joe wanted to dismiss his own petition, but demands same be “without prejudice.” Problem arising, of course, is that Fighting Joe timely petitioned 2016 blow-off of his Form 211. Since more than thirty days have elapsed since then (by a factor of around 25), he can’t possibly petition that blow-off.

He can of course drop a new Form 211, get blown off again, and petition that, da capo al fin, if ever.

So Judge Gustafson asked Fighting Joe and IRS what they want.

Here’s the answer in a designated hitter, Joseph A. Insinga, Docket No. 16575-16W, filed 8/31/18.

IRS agrees Fighting Joe can “rise and fight again.” And Fighting Joe admits he can’t fight anew over the 2016 blow-off.

Judge Gustafson says Fighting Joe admits as follows: “since (1), any appeal must be filed with this court within 30 days following the date of the claim’s formal denial, i.e., July 18, 2016, and (2), there is no savings statute permitting the withdrawal and refiling of the petition after the 30 day appeal period has lapsed, then there is no prejudice to respondent in any event, and the case should be dismissed. Petitioner agrees that the foregoing result would obtain, as the court observes, even if the court were to characterize the dismissal as ‘without prejudice.’ [Doc. 26 at l.].” Order, at p. 1.

So Judge Gustafson concludes: “Thus, neither party has pointed to any actual consequence that would result from specifying whether dismissal of this case is with or without prejudice.” Order, at p. 2.

This is of course true in any case where the SOL has run on a refiling, and no statute mandates entry of anything but dismissal. Of course, tossing a petition from a SNOD for anything but jurisdiction means automatic entry of decision for IRS for the full deficiency.

I’m hoping Fighting Joe comes back, with fresh blogfodder. I’d hate to lose a good source.

No, Judge James S (“Big Jim”) Halpern is not suggesting that George E. Joseph, 27759-15, filed 8/30/18, depart from the strictest level of propriety.

It’s just that George’s seriatim opening brief (seriatim is one after the other, as opposed to simultaneous) has some hyperlinks to exhibits, and IRS objects. Some exhibits aren’t in the record (and you can’t wild-card stuff in via a brief), and some of those hyperlinked have notations on them not on those that were in evidence.

So to cool this hyper situation down, Judge Halpern runs a phoneathon, and sends George (and us) a designated hitter. George shall give IRS and Judge Halpern the thumb.

“The Court and the parties agreed that petitioner submitting a thumb drive with a copy of his brief hyperlinked to copies of the exhibits in evidence would be helpful to all. The Court will give petitioner leave (1) to file an amended brief, unaccompanied by exhibits, and (2) to provide the Court and respondent with a thumb drive containing an electronic copy of the amended brief with hyperlinks to electronic copies of the exhibits received into evidence, also contained on the thumb drive. The Court will strike from the record the five files containing exhibits….” Order, at p. 1.

And everyone gets more briefing time.

Of all the obsolete media floating around, the thumb drive is my least favorite, although I use it for backing up. They’re so easy to misplace or lose. Surely a PDF of the documents can be furnished via Dropbox or similar cloud formations.

No, not another essay about a point of law that’s past being argued about. This is about what a settlement consisting of two valid section 7121 closing agreements, both completed on Form 870-LT, Settlement Agreement for Partnership Items and Partnership Level Determinations as to Penalties, Additions to Tax, and Additional Amounts and Agreement for Affected Items, did to Michael McAvey and Kathleen McAvey 2018 T. C. Memo. 142, filed 8/20/18.

Since each of the closing agreements provided Mike and Kath had no quarrel with the numbers set forth therein, Mike and Kath petition the NITL on an OIC doubt-as-to collectability claim.

But Mike and Kath can’t exclude sales proceeds on some land because they spent some of the proceeds on unsubstantiated living expenses (although IRS did allow some of the unsubstantiateds), and they have to waive their heavy-duty NOLs arising from the torpedoed partnerships.

Ex-Ch J Michael B (“Iron Mike”) Thornton: “It is generally the Commissioner’s policy that collateral agreements waiving losses are appropriate to consider in situations where the taxpayer’s RCP is less than the amount of liability.  See IRM pt. 5.8.6.2 (Oct. 29, 2010).  As petitioners were claiming that their RCP was less than the amount of their debt, there was no abuse of discretion in the AO’s request for a collateral agreement. Moreover, it would appear that the collateral agreement was essentially offered in exchange for excluding petitioners’ partnership interests and income from calculation of their RCP.  The documents petitioners provided to the AO in support of their claims do not answer why, if the partnerships were worthless, the partners were choosing to report large amounts of interest income rather than wind up the partnerships.  There may be a perfectly reasonable answer, but petitioners did not provide it.  Consequently, it was not unreasonable for the AO to propose an alternative solution which avoided the issue, namely, the collateral agreement.” 2018 T. C. Memo. 142, at pp. 14-15.

And the settlement agreements foreclosed any arguments about Section 6751(b) Boss Hossery.

“Petitioners have not alleged or supported any fraud, malfeasance, or misrepresentation of material fact with respect to these closing agreements, and we deem petitioners to have waived or conceded any such argument.  Consequently, respondent may not reopen those aspects of petitioners’ case addressed in the closing agreements, and the closing agreements that petitioners signed may not be annulled, modified, set aside, or disregarded in this proceeding.  The closing agreements at issue specifically provide that petitioners consent to assessment of the penalties in question.  In signing these agreements, petitioners therefore agreed to waive the procedural requirement of section 6751(b)(1).

“Consequently it is clear that if there was any error in the AO’s failure to obtain verification of compliance with section 6751(b)(1), it was harmless error because neither respondent nor this Court may set aside petitioners’ valid closing agreements or petitioners’ consent to assessment contained therein.” 2018 T. C. Memo. 142, at pp. 22-23.

Takeaway- Be careful what you settle. Best to be well-settled.

Harry Dixon Loes’ 1920 evergreen gives me my text for today. My subtext comes from my blogpost “I’m Beginning to See the Light,” 4/9/18. And the case in point is Ted John Nelson, Jr. a.k.a. Theodore John Nelson, Jr., Docket No. 11098-18, filed 8/29/18.

My abovecited blogpost detailed the exposure by ex-Ch J L Paige (“Iron Fist”) Marvel of the petitioning of a plethora of years, whether or not SNODs or NODs actually were issued. The idea was to try to cut off nonassessables, which of course doesn’t work.

I remarked back in April “But dodgers, beware. Someone trying this risks the Section 6673 $25K yellow card.”

Looks like TJ is up for the yellow card.

“The motion sought dismissal on the ground that no notice of deficiency, as authorized by section 6212 and required by section 6213(a) of the Internal Revenue Code (I.R.C.) to form the basis for a petition to this Court, had been sent to petitioner with respect to taxable years 2000 through 2017, nor had respondent made any other determination with respect to petitioner’s tax years 2000 through 2017, including any determination pursuant to section 6320 and/or 6330, I.R.C., that would confer jurisdiction on the Court, as of the date the petition herein was filed. The motion further requested that the Court impose a penalty under section 6673, I.R.C. That section authorizes the Court to require a taxpayer to pay to the United States a penalty not in excess of $25,000 whenever it appears that proceedings have been instituted or maintained by the taxpayer(s) primarily for delay or that the position of the taxpayer(s) in such proceeding is frivolous or groundless.” Order, at p. 1. (Emphasis by the Court).

TJ wisely ducks.

“…petitioner did not deny the jurisdictional allegations set forth in respondent’s motion regarding lack of a pertinent notice or determination, nor did it suggest the existence of any relevant notice or determination. To the contrary, the response contained the statement: ‘I consent to dismissal’.” Order, at p. 1.

No Section 6673 frivolity chop for TJ, but TJ is admonished by Ch J Maurice B (“Mighty Mo”) Foley “…that the Court will consider imposing such a penalty in future cases commenced by petitioner seeking similar relief under similar circumstances.” Order, at p. 2.

The  three T. C. Memos cases today, 8/29/18, are a trio of no-substantiations. Judge Judy and others of her ilk have much to answer for; people think they can go to court with no paper, no witnesses, and a sob story. Well, they can, but if they have burden of proof they’re sunk.

So I’ll return to a theme from yesteryear. See my blogpost “Take the Hint,” 11/25/15. Do you take a remand to Appeals or don’t you?

Back in 2015, I said “But when a Judge suggests you might think about a remand, do think, and think twice. You might reject the suggestion if you don’t want to give Appeals a second chance to sink your client. But you might take the hint if you think you have enough good stuff to win at Appeals.”

But there are other choices, especially if you’re IRS’ counsel.

Here’s STJ Robert N Armen, “The Judge With a Heart,” dropping the hint to IRS in Michael Edward Kelly, Docket No. 26941-17SL, filed 8/29/18.

Mike is fighting a NFTL. When Mike got the NFTL, he went to Appeals. He claimed he couldn’t pay, which STJ Armen takes to be a request for currently-not-collectible, or CNC, status. Appeals proffers the Case Activity Record of the now-retired SO who bounced Mike’s CDP, which “…states that documents requested by him were never received and that petitioner never responded to the settlement officer’s letters other than in a single voice-mail message saying that he had unintentionally missed the administrative hearing and would like the settlement officer to call him back.” Order, at p. 2.

Mike “passionately” ripostes to IRS’ motion for summary J based on the foregoing with “…a very different scenario, alleging repeated efforts to contact IRS personnel and the furnishing of pertinent documentation.” Order, at p. 2.

No summary J, obviously. Whether Mike replied to the now-retired SO, or tried, and how often and with what, and what the now-retired SO did or didn’t do, are material facts. And the case is on for trial next month.

But does IRS really want a trial?

STJ Armen: “Rather than let this case proceed to trial at that time and place, the parties might care to consider whether it would be mutually advantageous if this case were to be remanded by the Court to respondent’s Appeals Office for a supplemental administrative hearing to be conducted by a settlement officer in an office proximate to petitioner’s residence…in order to consider petitioner’s request for a collection alternative. After all, if this case were to be tried, and if the Court were to conclude that petitioner strove, but to no avail, to communicate with the settlement officer during the administrative process and to provide requested documentation, then the remedy might very well be a remand for a supplemental administrative hearing. Given that the original settlement officer is now retired and may therefore not be readily available to respondent as a witness at a trial, and further given the fact that the present case involves a lien and not a levy, thereby assuring the Government of its priority over other possible creditors, the filing of a motion to remand, coupled with a motion for continuance of trial…would appear to present little (if any) downside to respondent and might very well lead to the disposition of this case on a basis that is mutually agreeable to the parties.” Order, at p. 3. (Emphasis by the Court.)

Something to think about.

Ol’ Noah W., the dictionary dude, says it means “dejected, depressed, cast down in spirit.” And after finally having run down Ernie Ryder and his traveling show, IRS sees their Section 6662 accuracy, and Section 6663 fraud, chops go “slip slidin’ away,” as a much finer writer than I put it.

The problem is Graev and Chai. If you don’t know those cases, you haven’t been reading this my blog. Ernie’s little show has been running for more than eight years, and IRS was a wee bit casual with documenting Boss Hossery back then, so when they throw in a couple “redacted Examination Case Processing Sheet (Form 3198)” they need to have some declarations from IRS personnel to backstop their claim that the 3198s somehow are Section 6751(b) sign-offs.

Well, what about res gestæ? The Form 3198 is offered for the fgact that it exists, not that it’s true.

Maybe, but that doesn’t solve the problem. Certainly not for Judge Holmes, the Mixmaster of Silt Stirring.

“In some earlier orders, we found that penalty-approval forms were admissible under the business-records exception to hearsay, see Fed. R. Evid. 803(6); more recently, we’ve found that the forms were verbal acts, admissible to show that the supervisor approved the penalty, not that the penalty was justified or even what the supervisor was thinking when he approved it, see Fed. R. Evid. 801(c) advisory committee’s note (‘[i]f the significance of an offered statement lies solely in the fact that it was made, no issue is raised as to the truth of anything asserted, and the statement is not hearsay”). We can’t say that the verbal-act analysis applies here. While the Examination Case Processing Sheet does appear to be signed by Ms. P’s manager and does have penalty amounts listed on it, the document itself doesn’t give any indication on its face that it has anything to do with a supervisor approving Ms. P’s initial determination of penalties. Indeed, if it wasn’t for Ms. P’s declaration, it would be entirely unclear to us why the Commissioner wants the Examination Case Processing Sheet in the record.” Ernest S. Ryder & Associates, Inc., APLC, et al., 14619-10, filed 8/24/18, at p. 6. (Footnote and name omitted).

For both sets of chops, IRS has the same problem. As Mama said, “Don’t know anybody who needs to be explained.” The declarations explaining the Forms 3198 aren’t contemporaneous (they’re made years later), and the forms mean nothing without the declarations. The declarations aren’t records kept in the ordinary course of business by one required to do so, so they’re hearsay and inadmissible.

Once again, IRS is Graevly chopfallen. Sorry, guys.

If You Want a Section 170 Façade Deduction

Wm. Wordsworth’s words echo today for Harbor Lofts Associates, Crowninshield Corporation, Tax Matters Partner, 151 T. C. 3, filed 8/27/18.

Harbor Lofts had a 61-year triple-net-lease of the historical Daly Drug Building and the Vamp Building in Lynn, Massachusetts. The lessor was Economic Development & Industrial Corporation of Lynn (EDIC), a Massachusetts public corporation. Harbor Lofts had benefits-and-burdens.

Harbor Lofts and EDIC gave a joint historic façade easement to a real Section 170(h)(3), Essex National Heritage Commission, Inc., to protect, preserve, defend, etc.

Harbor Lofts claims a $4 million charitable. Negatory, says IRS, you’re not fee owner. You can’t guarantee perpetuity, because at year 61 you’re outta there. But you can have a 40% overvaluation chop at no extra charge.

EDIC’s grant is valid, of course. EDIC owns the fee, so can tie it up the façade. But MA law says leases are chattels real, not real property. And State law controls characterization, while Federal law controls how taxed.

Harbor Lofts claims it’s a tenant-in-common with EDIC.

Except Judge Buch says they aren’t.

“Harbor Lofts is not a fee owner, tenant in common, or joint tenant and has not been granted a life estate or remainder interest.  Rather, Harbor Lofts leased property from the Economic Development Corp., and ‘a commercial lease is a contract rather than a conveyance of property.’” 151 T. C. 3, at p. 13 (Citation omitted).

“Harbor Lofts is correct that the Code does not specifically require a donor to hold a fee interest, but only the owner of real property or holder of a fee interest is able to grant a perpetual conservation restriction.

“Harbor Lofts has given up something of value:  the rights to make improvements, alterations, and additions to the buildings.  But those rights, initially created under the contract by which Harbor Lofts leases the property, were ceded to the Economic Development Corp.  Harbor Lofts gave up contractual rights under the lease agreement, which are personal property rights.  And a charitable contribution of a personal property right is not a qualified real property interest under section 170(h)(2)(C). “ 151 T. C. 3, at p. 14.

Finally, “Harbor Lofts also argues that its interest under the lease has made them equitable owners of the property for tax purposes.  But it supports its argument only with cases involving sale leaseback transactions and rulings applying economic substance and disguised-sale doctrines.  These cases are not relevant here.  Although Harbor Lofts took on many of the rights and obligations often associated with property ownership, its possession of these rights and obligations is of a finite duration ending on the lease’s expiration.  Section 170(h)(2)(C) specifically sets forth a perpetuity requirement for a facade easement.  Even if we were to find that Harbor Lofts holds equitable ownership in the buildings, it is equitable ownership for only a finite period and cannot satisfy the perpetuity requirements of section 170(h)(2)(C).” 151 T. C. 3, at p. 15. (Citation omitted).

Connoisseurs of the Boss Hoss Section 6751(b) sign-off for chops have had plenty to sate their appetites, as the Graev tsunami rolls on.

And that Obliging Jurist, Judge David Gustafson, is nowise loath to open other and further floodgates and add to the deluge.

Here’s Abdul M. Muhammad, Docket No. 23891-15, filed 8/24/18 (although dated 8/23/18), the follow-on to my blogpost “The Reopeners’ Checklist,” 2/7/18.

IRS has a CPAF, signed by one who claims Boss Hossery, and a declaration from one who claims to be the “immediate supervisor” of the recommender. Not the Group Manager, though.

No problem, says Judge Gustafson.

“As we have noted, the phrase ‘immediate supervisor’ does not appear on the Civil Penalty Approval Form; and instead the approving official is identified by the title ‘Group Manager’. While it is possible that a ‘Group Manager’ might not be the “immediate supervisor” of the ‘Examiner’, both the text of section 6751(b)(1) and the IRS’s instructions to its personnel in the Internal Revenue Manual (cited above) are clear and repetitive that ‘managerial’ approval must come from the ‘immediate supervisor’. It appears possible that the Commissioner could argue for a presumption that the ‘Group Manager’ is the ‘immediate supervisor’ and that the form by itself therefore suffices to meet the Commissioner’s burden of production, by invoking the ‘presumption of regularity’. See Walker v. Commissioner, T.C. Memo. 2018-22, at *19 n.6, citing United States v. Ahrens, 530 F.2d 781, 785 (8th Cir. 1976) (“’The presumption of regularity supports the official acts of public officers and, in the absence of clear evidence to the contrary, courts presume that they have properly discharged their official duties.’ United States v. Chem. Found., Inc., 272 U.S. 1, 14-15, * * * (1926)”).

“Since the Commissioner has not invoked the presumption of regularity (and Mr. Muhammad has not had an occasion to attempt to rebut it), and since for other reasons (i.e., Mr. Muhammad’s non-objections) we sustain the Commissioner’s position as to the admissibility and sufficiency of the form, we need not rely on the presumption of regularity in order to conclude that the Commissioner has met his burden of production as to penalty.” Order, at p. 9.

Except.

For one year, the CPAF says only five-and-ten understatement, and specifically says negligence not on the table. But the SNOD goes for negligence. In that year, the understatement doesn’t reach the five-and-ten threshold, so no penalty. For the other, Abdul is over the top, so he gets the 20% chop for that year.

It looked like a simple off-the-bencher. The unsubstantiated charitables got blown off. Thereafter, the usual Rule 155 led to a computation from IRS, and petitioner didn’t furnish another.

Except.

There were two (count ‘em, two) Sched As with charitables. The first, attached to the 1040 that IRS processed, showed $7K, and so did the SNOD. The second, furnished with a 1040X that IRS didn’t process, showed $4K. The evidence IRS put in on the trial was the wrong Sched A, from the unprocessed 1040X.

Judge Gustafson’s off-the-bencher cut the $7K SNOD amount down to the wrong Sched A ($4K) amount. As usual, Judge Gustafson was trying to help out the taxpayer. See my blogpost “The Reopeners’ Checklist, 2/7/18.”

Judge Gustafson sorts out the Boss Hoss Section 6751(b) problem from that blogpost in a companion case, which I’ll get to when I’ve finished with Abdul M. Muhammad, Docket 23891-15, filed 8/24/18.

Judge Gustafson, pardonably, couldn’t sort out the evidentiary miscue from the Rule 155 beancount.

“Expecting to enter decision without the benefit of Mr. Muhammad’s views, we reviewed the computation and discovered that it seems to reflect no reduction–by $3,366 [the difference between the SNOD and the wrong Sched A] or any other amount—of the charitable contribution disallowance….That  is, the computation does not comply with our bench opinion; but that non-compliance is not easy to discern.

“The Commissioner’s Rule 155 submission, like most such submissions, is a document with very little narrative. It consists of a cover page, a case caption and short preamble, a signature page, a proposed ‘Decision’ document, and a 23-page “Computation Statement” consisting of terms and numbers. The Commissioner’s Rule 155 submission does not state that it corrects an error in the Court’s opinion, nor does it mention explicitly that it is not reducing the disallowance. Rather, one can infer this fact only by comparing the relevant entries in the Rule 155 computation to the entries on the equivalent documents in the SNOD and seeing that the disallowance for ‘Itemized deductions’ is unchanged.” Order, at p. 3.

Playing detective, Judge Gustafson finds the mistake.

“The Rule 155 submission may–as it did here–conceal a correction rather than revealing it. We confidently assume that concealment for partisan advantage was not the aim of the Commissioner’s counsel here, since the Rule 155 submission also reflects the Commissioner’s (unannounced) concession of penalty… (as we explain in our order dated August 23, 2018), which concession naturally benefitted petitioner. But even in the instance of a concession benefitting the other party, best practice would certainly be to make the concession explicit and clear, so that neither the Court nor one’s opponent will need to take the time (as we did) to try to figure out whether a concession was really being made and, if so, why. And where the Rule 155 computation embodies, without notice and explanation, a party’s intended correction in his own favor of the Court’s supposed error, it is a most serious violation of Rule 155.”

Rule 155 is no substitution for Rule 161 (no new matter, no “time yet for a hundred indecisions, And for a hundred visions and revisions,” as a much better writer than I put it).

What IRS wants is reconsideration.

Except.

There’s the 30-day “quick kick” to move for reconsideration. And IRS is well over the mark.

“It is possible that we misunderstand the Commissioner counsel’s intention and submission. It is possible that his non-reduction of the disallowance was a mere oversight and that our apparent error involving Exhibit 8-P [the wrong Sched A], recently discovered by us, had nothing to do with his computation. If so, he can explain the situation in his response to this order. But if he did use the Rule 155 computation in a misguided attempt to fix an error in our decision, then we must disallow that attempt. Counsel appearing before this Court should understand that we rely on them to perform their Rule 155 computations without making any corrections to our holdings, whatever might be the motivation and justification for such corrections. Requests for reconsideration must be filed as such.” Order, at p. 6.

And obliging as he is, Judge Gustafson refuses to exercise whatever discretion he might have to unscramble IRS’ frittata sua sponte “…on the procedural facts of this case.” Order, at p. 6. Maybe he’s afraid IRS’ will take this beneficence as an excuse to mess up their trial evidence and trial prep, hoping Tax Court judges will bail them out.

So let IRS show cause “…why we should not order him to file a supplement to his computation, in which supplement he would recompute Mr. Muhammad’s 2013 liability by reducing to $4,377 (rather than $7,743) the disallowance of charitable contributions.” Order, at p. 6.

Abdul can reply to IRS’ response, of course.

Judge, with respect, I’ll show cause on behalf of the American taxpayer, of whom I am one (oh, yes, am I one!), why Abdul shouldn’t get a free ride. Yes, ding IRS’ counsel for the foul-up, but why give Abdul a pass at the expense of us innocent bystanders just because IRS’ counsel messed up? The SNOD was correct, and Abdul had only the Michael Corleone gambit on the trial. Let IRS’ counsel come up with the tax on the differential, pour encourager les autres. Or let IRS Acting Com’r Kautter, or Sec’y Mnuchin come up with the pocket change. Rest and move for decision, Your Honor.

Louis S. Shuman and Sandra Shuman, 2018 T. C. Memo. 136, filed 8/23/18, are arguing about credit elects (overpayments from prior years to be applied to current year), but their loss on the sale of one residence is not deductible, nor is the unasserted claim against their previous tax advisers.

The case is interesting only because of the Graev implications (sorry, guys) that arise when IRS wants yet again to open the record to wild-card in the Boss Hoss sign-off for the chops.

IRS trots in a declaration and a CPAF (Civil Penalty Approval Form). The declaration says that this is the form, the signature is that of the Boss Hoss, and that the Boss Hoss signed “on or about” a certain date.

But pro se Louis (sorry about the spelling, guy), although a dentist, shows real lawyerly acumen. Though the usual hearsay objection fails to surmount the FRE res gestæ existence rule, those rules don’t authenticate the contents.

The Boss Hoss signed the CPAF, right enough, but the date is blank. And the declaration is hearsay on that score.

Judge Gale: “Respondent has not identified an exception to the hearsay rule that would permit us to admit the declaration for the purpose of establishing the date that written supervisory approval was obtained in these cases. Moreover, despite petitioners’ having raised the issue of the missing date some months ago, respondent has not requested further trial proceedings or proposed any other means of bolstering the penalty approval form, which is defective on its face.  Under these circumstances, we decline to exercise our discretion by ordering, sua sponte, further trial proceedings.” 2018 T. C. Memo. 135, at p. 28 (Citation omitted).

Whoops! Practitioner, check out every piece of paper.