Attorney-at-Law

“LONG, LONG TRAIL A’WINDIN’” – PART DEUX

In Uncategorized on 08/17/2018 at 00:19

Two venerable veterans furnish materials for designated hitters today, and since they churned up good blogfodder I’m sorry to see them go.

First up, Judge David Gustafson goes beyond vacating his own decisions. While denying vacation to Douglas Stauffer Bell & Nancy Clark Bell, Docket No. 1973-10L, filed 8/15/18, he does give Nancy Bell a hint about when to appeal.

This, even though Doug & Nancy Bell never cooperated with IRS to prepare for trial, despite Judge David Gustafson’s almost-paternal directions on numerous occasions. After Judge Gustafson entered decision in June, after Doug & Nancy Bell ignored Judge Gustafson’s OSC, on the date set for the non-trial, Nancy Bell walks into court with some papers.

“On the morning of August 6, 2018, the date that the Bells’ now-closed case had been calendared for trial, and a month after the Court had entered its Order and Decision, Ms. Bell appeared in the courtroom in Winston-Salem, where another trial was ongoing. The Commissioner’s attorney assigned to this case was absent from the courtroom (appropriately, since decision had been entered in the case), was at her work station 30 miles away in Greensboro, North Carolina, and immediately drove to Winston-Salem to appear in this case. During a break in the proceedings in the other case, the Court called the Bells’ case and heard from Ms. Bell. She stated that she wanted to have her trial and that she had documents with her–documents, however, that she had not previously identified or exchanged with her opponent. Ms. Bell made comments that we construe as petitioners’ oral motion for reconsideration and their oral motion to vacate the Court’s Order and Decision entered on July 5, 2018.” Order, at p. 3.

Turns out August 6 was the last day a Rule 162 vacation motion could be made. So Judge Gustafson asked Nancy Bell why she sat out the last eight (count ‘em, eight) years. But she only wanted to go to trial with these unexchanged documents.

Nancy Bell gets tossed, of course. But Judge Gustafson takes his text from a much more exalted authority who said something about forgiving seventy times seven times.

“At the August 6 hearing, Ms. Bell asked questions about appealing this Court’s decision. It is not our place to advise her. However, we note the following truisms: The period for filing an appeal in this case is ‘90 days after the decision of the Tax Court is entered.’ I.R.C. section 7483; see also Tax Court Rule 190(a). Decision was entered July 5, 2018 (see Doc. 72), and the 90-day period would expire October 3, 2018. However, Rule 13(a)(1)(B) of the Federal Rules of Appellate Procedure provides: ‘If, under Tax Court rules, a party makes a timely motion to vacate or revise the Tax Court’s decision, the time to file a notice of appeal runs from the entry of the order disposing of the motion”–i.e., from the date of this order. By so stating, we do not imply that such an appeal would have any merit.” Order, at p. 4.

And not a single Section 6673 chop in sight. IRS’ counsel is almost as obliging as Judge David Gustafson.

In the nightcap of this doubleheader, there comes to the mound Judge Mark V Holmes. And he throws smoke at IRS in Renka, Inc., Docket No. 15998-11R, filed 8/15/18. And the smoke is labeled Chenery.

I missed the argument of a previous IRS try at summary J. And the Renka team never raised Chenery back then. See my blogpost “Chen-Chenery,” 8/21/14.

For those who tuned in late, the Chenery doctrine states that when an administrative agency’s actions are under review, the actions stand or fall based on what evidence the agency had and what explanation they gave for their decision, not what they might have decided or what they came up with later. In other words, no could’a would’a should’a.

But does the Chenery doctrine apply in ESOP cases? You betcha, because the parties agree and so does Judge Holmes. This is a new day, and the old question raised back in 2014 about applying Chenery to ESOPs is answered with a thwacking great affirmatory, good buddy.

So IRS is thoroughly trounced. They relied on the 1998 status of the Renka ESOP to disqualify the plan, but the 1998 facts showed the plan was qualified. That it might have been disqualified later is nothing to the point. IRS relied on 1998; IRS is stuck with 1998.

Beside, correctly disqualified plans can’t subsequently migrate to qualified status; so a correctly qualified plan doesn’t migrate to disqualification.

Maybe IRS can try again, but there’s a bunch of closed years in between.

“Next the Commissioner suggests we should ignore the letter’s details and consider instead its ‘independent gravamen’ (emphasis in original). Unsurprisingly, he doesn’t cite any authority that says we can decide whether a final agency determination was an abuse of discretion by considering only the determination’s gravamen. It’s true that we can ‘uphold * * * [an administrative agency’s] decision of less than ideal clarity if the agency’s path may reasonably be discerned,’ Bowman Transp., Inc. v. Arkansas-Best Freight Sys., Inc., 419 U.S. 281, 286 (1974), but the reasoning in the Commissioner’s letter here isn’t ambiguous — it’s just wrong.” Order, at p. 2.

There’s much discussion about “management” in an affiliated service group; see Section 414, if you suffer from terminal insomnia. But Renka didn’t manage, they did the job; they weren’t even a player-coach, they were players. And IRS’ only argument is a proposed regulation they later withdrew. Proposed regulations are just argument. And an argument based on an argument is nothing.

Renka wins.

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