Archive for September, 2018|Monthly archive page


In Uncategorized on 09/20/2018 at 09:24

Today, there joins my blogpost the Caribbean Netherlands, known as BES, for Bonaire, Sint Eustatius (a/k/a Statia, where the US flag was first recognized by a foreign nation) and Saba. I actually sailed past Statia and Saba a couple years ago (hi, Judge Holmes).

Welcome, ye inhabitants of the isles.

Now Bolivia, where are you?


In Uncategorized on 09/19/2018 at 17:38

“Don’t Ask” Variation

Mario Puzo’s classic has given rise to a by-word that has served me well in numerous blogposts. Today Mr Puzo’s literary gift keeps on giving, as we have the “Don’t Ask” variation. All y’all will doubtless remember Michael’s injunction to Kay, which Michael received from his father’s hand: “Don’t ask me about my business.”

Well, today Annette Faye Neitzer, disabled and ill, fighting the $21K IRS levied from her separate checking account to pay the tax debt arising from her husband’s two businesses, which had separate checking accounts and of which Annette knows nothing, wants Section 6015(f) equity, and Judge Paris is sympathetic.

Here’s Annette Faye Neitzer, Petitioner, and Richard J. Arnoldussen Intervenor, 2018 T. C. Memo. 156, filed 9/19/18.

Annette “… has undergone numerous spine and hip surgeries.  She expects her condition to deteriorate over time and expects to require further medical treatment in the future.  Her condition has limited her ability to work.” 2018 T. C. Memo. 156, at p. 3. (Footnote omitted).

While Annette was divorcing Richard (which included the year at issue), “(I)ntervenor owned interests in two businesses, which were the primary sources of his income.  During the pendency of the divorce petitioner maintained her own finances and paid her own expenses.  Her income consisted of payments from Social Security disability, veteran’s disability, long-term disability, and temporary spousal maintenance payments from intervenor.  Petitioner did not have access to the couple’s joint checking account at Johnson Bank (Johnson Bank account) during the pendency of the divorce.  Instead, she maintained her own account at Associated Bank (Associated Bank account) from which she paid her expenses.” 2108 T. C. Memo. 156, at p. 3. (Footnote omitted, but it says Annette’s bank account had proceeds from sale of the marital residence and a PI settlement Annette got).

Annette had to travel two hours to get to Richard’s accountant (who handled all of Richard’s business) to sign the 1040 for the year at issue.

And Richard played the Michael Corleone Gambit, “Don’t Ask” variation.

“Petitioner signed an authorization permitting the accountant to file the [year at issue] return but did not review or ask for additional time to review the … return.  Petitioner did not request or receive a copy of the … return at the time she signed the authorization.  Even if petitioner had requested a copy, it is not certain that she would have been given one because intervenor instructed his business accountant not to disclose to petitioner any information about his businesses or personal finances.” 2018 T. C. Memo. 156, at p. 5-6.

Richard sent IRS a bum check when Annette asked about a letter she got from IRS asking where the tax due payment was. To forestall further meddling, “…intervenor changed the mailing address on file with respondent so that future correspondence would be mailed to his business address.  Intervenor also instructed his office staff to mark ‘return to sender’ on any notices or other correspondence that was addressed to petitioner at his business address.  …respondent issued petitioner Letter 1058, Final Notice of Intent to Levy and Notice of Your Right to a Hearing.  The letter was addressed to petitioner but mailed to intervenor’s business address.  … the letter was returned to respondent as refused or unclaimed.” 2018 T. C. Memo. 156, at p. 6.

Only after IRS grabbed the $21K from Annette’s separate bank account to pay what Richard hadn’t, did Annette change her address.

Annette satisfied the three thresholds, but flunks the seven streamliners, so it’s facts-and-circumstances for equitable relief.

Richard’s withholding of information scores big, and so does Annette’s undoubted disability.

Annette gets a Section 6015(f) bye, and IRS has to hand her back the $21K, even though IRS claimed it was a windfall. Judge Paris specifically doesn’t find that the money would be a windfall, just that Annette didn’t have an economic hardship, as her divorce settlement from Richard was six figures. But that only figures as “neutral” in the mix-and-match.

If you want your intervenor client to beat a Section 6015(f), maybe the Michael Corleone gambit, “Don’t Ask” variation, isn’t a winner.


In Uncategorized on 09/19/2018 at 16:54

Ask the Judge With a Heart

Defeat rankles me. Even more so when I get pilloried by the illustrious American Bar Association Tax Section while I’m at it.

If the foregoing befuddles you, constant reader, dig my blogpost “Maybe the ABA Tax Section Was Right,” 12/15/17.

But the tactic of picking a remote location for trial to stall proceedings is alive and well, and today The Judge with a Heart, STJ Robert N Armen, will have no truck with such a maneuver.

Here’s Olga Marie Dultz, Docket No. 11846-17S, filed 9/19/18, who wants to try her small-claimer in Peoria. Except Olga lives in “That Toddlin’ Town” Fred Fisher apostrophized in 1922.

Olga picked Peoria, and it is a small-claimer venue, but she wants a continuance from the trial that is scheduled to start there next week. IRS wants to schedule the trial for The Windy City.

“However, petitioner objected to a change of place of trial from Peoria to Chicago ‘due to the congested court system in a much larger City of Chicago’, but suggested that place of trial may not be too important because she is relying on a ‘summary judgement [sic] request’.” Order, at p. 1.

STJ Armen is unimpressed.

“Petitioner is a resident of the City of Chicago, and this case has no apparent connection to the City of Peoria. Moreover, the Tax Court’s docket in Chicago is not ‘congested’. Further, the Court conducts many more trial sessions in Chicago than in Peoria, where there is generally no more than one trial session per year. Finally, petitioner is advised that there is no motion for summary judgment pending in this case and that, for such reason, the case is on track for disposition by trial, unless sooner settled by the parties on a mutually agreeable basis.” Order, at p. 2.

Take that, ABA Tax Section.


In Uncategorized on 09/19/2018 at 15:45

No, this is not about a certain examination known to those of us of a certain age. This is the story of a Personal Services Agreement between the US Dep’t of State and Sidney O’Kagu, 151 T. C. 6, filed 9/29/18.

Sid O was in Germany, had a German work permit, kept a bank account there in an onshore local bank into which our tax dollars (first being converted into Euros) were directly deposited to pay Sid O for his labors as a security equipment tech in the Frankfurt consulate. And he didn’t get a lot of US employee benefits.

Sid O claims Section 911(a)(1) foreign earned income exclusion.

Nope, says ex-Ch J Michael B (“Iron Mike”) Thornton, and his colleagues respond: “so say we all.”

Sid O says 22 USC §2269 means he’s not an employee of the US gov’t, because he’s got a positive PSA.

Ex-Ch J Iron Mike ripostes with the last clause of said statute: “…for purposes of any law administered by the Office of Personnel Management.” 151 T. C. 6, at p. 6.

Well, dear ol’ Title 26 of the USC is not administered by DOS OPM. And Ex-Ch J Iron Mike has caselaw to prove it.

But more elegantly: “Petitioner has cited, and we are aware of, no other clause of the Basic Authorities Act or any other provision of law that would suggest any other construction or effect of the Basic Authorities Act as applied to this case.

“Clearly, section 911 is not a ‘law administered by’ the Office of Personnel Management.  Rather, it is part of the Internal Revenue Code, which (with exceptions not relevant here) is administered ‘by or under the supervision of the Secretary of the Treasury.’  Sec. 7801(a).  Accordingly, pursuant to 22 U.S.C. sec. 2669(c) petitioner is considered an employee of the U.S. Government for income tax purposes, notwithstanding his assertions about the nature of his employment perquisites and conditions.  Consequently, the wages that he received from the U.S. Department of State do not constitute foreign earned income within the meaning of section 911(b)(1).  He is therefore not entitled to the foreign earned income exclusion for the years in issue.” 151 T. C. 6, at p. 7-8.

Partial summary J for IRS.

Partial? What’s missing from this picture?

My sophisticated readers will rise as one and yell “The 20% accuracy chops!”

Ex Ch-J Iron Mike is on the case: “Respondent has not sought summary judgment with respect to the sec. 6662(a) accuracy-related penalties.  We leave that issue for further proceedings.” 151 T. C. 6, at p. 8, footnote 3.

No Section 6751(b) Boss Hoss sign-off? Stay tuned.


In Uncategorized on 09/18/2018 at 16:58

Judge Albert G (“Scholar Al”) Lauber gets to leap from Hong Kong to Cyprus without leaving the Glasshouse at 400 Second Street, NW, today, as IRS gets summary J in Hong Kong, but Cyprus is a question of fact.

Barry M. Smith and Rochelle Smith, 151 T. C.5, filed 9/18/19, had a couple wannabe CFCs (hi Judge Holmes) under their umbrella of grantor trusts and a Sub S. They were winding down the Hong Kong one, and hoped the big payout that the Hong Kong sub collected would be taxed at the preferential rate.

Judge Lauber takes upon the story: “Petitioners hoped that the contemplated distribution could be treated as ‘qualified dividend income’ (QDI) under section 1(h)(11)(B), which would allow the dividend to be taxed at a rate of 15% or lower. See sec. 1(h)(1), (11)(B). This would be possible only if [HK] were a ‘qualified foreign corporation’.” 151 T. C. 5, at p. 6.

Sorry, Barry and Rochelle. To be a CFC and get the Section 1(h)(11)(B) (author’s note: if the 11B means nothing to you, consider yourself lucky), the corp must either be incorporated in the US or in a country with a tax treaty with country of incorporation permitting same.

Problem: although China and the US have such a treaty, Hong Kong is expressly excluded from the terms thereof.

So Barry and Rochelle go shopping for a friendly country. And Cyprus is just the place. So they incorporate a Cypriot sub (hereinafter sometimes referred to as Cs), all of whose shares are owned by the US Sub S, transfer all their shares in HK to Cs, and do a Section 368(a)(1)(F) tax-free reorg.

Cs filed with IRS as a wholly-owned sub of a US Sub S.

Earlier, however, Barry and Rochelle took advantage of Section 951 on assets held by HK and paid tax. But Section 962 required inclusion of the net-after-tax amount of the remainder, and that Barry and Rochelle never did. Clear? Thought not.

Meanwhile, Cs held a big receivable owing from US Sub S, that Cs wrote off.

Barry and Rochelle get $57 million from Cs as a dividend, and claim qualified dividend (15% style) from Cs as a CFC.

“Petitioners alleged in their petition that [Cs] had ‘obtained a tax residency certificate from the Cyprus tax authorities confirming its Cyprus tax residence’ during 2009.
Petitioners subsequently amended their petition to allege that [Cs] had ‘obtained a confirmation letter of Amicorp (Cyprus) Ltd., administrators of [Cs], confirming that [Cs] was a tax resident of Cyprus during all relevant times.” 151 T. C. 5, at p. 11.

IRS, ever the spoiler, invokes the Competent Authority, the spokesperson at the highest level of International taxation. The Cypriot CA dished in extenso, and this made it into the record.

First, the light lifting. Whatever Barry and Rochelle got from HK before the Cyprus shift is ordinary; HK wasn’t incorporated in the US, and there wasn’t and isn’t a tax treaty with Hong Kong.

As for Barry’s and Rochelle’s claim that Section 962 “moved up” HK to a “notional US C Corp,” via the Section 962 taxed-as-if-US-C-Corp,  “(W)e discern no support for this theory in the statute, the legislative history, the regulations, or judicial precedent.” 151 T. C. 5, at p. 20.

The language of Section 962 is in the subjunctive mood, says Judge “Scholar Al” Lauber, and therefore counterfactual. Remember Hans Vaihinger and the “philosophy of ‘as if’.” If not, see my blogpost “Als Ob,” 11/22/16.

HK is not a CFC, and the HK money is taxed at ordinary rates.

But Cs is another story.

Cs was Cyprus registered, but didn’t bother filing four (count ‘em, four) years’ worth of tax returns, got struck off the Cyprus corporation roster, but got quickly restored on an unsigned certificate of a director of Cs, who claims everything is just fine. But the key is actual management and control being vested in Cyprus, and there’s only the director’s filled-in form for that.

Barry and Rochelle claim restoring Cs to corporate status by Cyprus is an act of state, not to be interfered with by US Courts, lest they damage our foreign relations. But where there’s a treaty, it’s different. Here there is one, and the Cyprus CA says effective management and control onshore is the key.

“For several reasons we find that petitioners have not satisfied their burden to show that the act of state doctrine applies. To begin with, we question whether the issuance of the residency certificates rises to the level of an ‘act of state.’ The certificates were issued five days after the application was filed. The application consisted of unsubstantiated representations by a [Cs} director, who checked ‘yes’ boxes on the application form. Apart from confirming the filing of tax returns—[Cs]’s returns for [missing years] were submitted the day before the application, they were at least four years late, and two of them were unsigned– there is no evidence that the Ministry verified any of the applicant’s factual representations.” 151 T. C. 5, at p. 37.

This is more a clerical act than a sovereign act. So question of fact if Cs was really commanded and controlled from Cyprus.

The written-off receivable? Taxed as ordinary income. That there were tax payments in prior years don’t limit IRS.



In Uncategorized on 09/17/2018 at 20:37

I understand that James E. Lawson and Christiane D. Lawson, 2018 T. C. Sum. Op. 44, filed 9/17/18 were self-represented. I understand that the deficiency, with chops, was less than $20K.

Of course, an attorney was out of the question.

But somebody called their preparer (status not stated, so maybe not cloaked by Section 7525 privilege) as a witness.

This is not the testimony you want to hear.

“Although their returns were prepared by a paid income tax return preparer, the return preparer used income and expense amounts petitioners provided. Apparently, no source documents underlying the deductions were provided to the return preparer; according to the return preparer, petitioners had “horrible books and records”. 2018 T. C. Sum. Op. 44, at p. 16.

Further comment is superfluous.


In Uncategorized on 09/17/2018 at 17:16

Judge Paris is singing that Toby Keith 1993 hit for Jeff M. Potter and Marsha R. Potter, 2018 T. C. Memo. 153, filed 9/17/18.

It’s Jeff’s story. He was working as the employee of his wholly-owned C Corp as an IC salesman for his baby bro’s business of “bagging and potting and top soils, manures, peat, mulches, and rocks.” 2018 T. C. Memo. 153, at p. 4, footnote 3.

Baby bro and Jeff get bought out. Jeff wants to claim goodwill on account of his customer base, but that belonged to baby bro’s business. That business had the name and repute, unlike the King of Insurance in Harvey, ND, Harold Schmeets, star of my blogpost “His Name Is His Fame,” 10/15/12. Jeff signed onto the buy-out, when a competitor bought them out, but Jeff threw in the office furniture, equipment and vehicles and he got no separate money for that.

His salary as salesman is subject to SE, of course, and his buy-out from his deal with baby bro’s business is ordinary income because it was based on Jeff’s C Corp’s previous year’s commissions (quantity and quality of work), and Jeff had no goodwill to sell.

Now to the reason for today’s title. After Jeff sold out to baby bro’s business, Judge Paris puts it best.

“Want to be a Cowboy?” 2018 T. C. Memo. 153, at p. 6.

“With a bit of free time on his hands, a history of working long hours, and the desire to continue working, Mr. Potter began looking for something to fill his days.  Several years before the [potting earth] sale he had been introduced to the activity, which is a timed event where an individual rides a horse through a designated course while shooting a firearm at targets.  The activity is governed by two organizations–the Cowboy Mounted Shooting Association (CMSA), formed in the mid-1990s, and the Mounted Shooters of America (MSA), formed in 2000.” 2018 T. C. Memo. 153, at pp. 6-7. (Footnote omitted, but ya can’t make this stuff up.).

“The rider’s firearm is loaded with primer and black powder that will shoot approximately 20 feet and make contact with the targets, i.e., balloons.  The embers of the powder burst the balloons.” 2018 T. C. Memo. 153, at p. 7, footnote 8.
Only in America.

Jeff and his trusty old paint Dakota, campaigning under Jeff’s C Corp, which paid the entry fees, collected the prizes, and took all the expense deductions (which everyone agreed were correct), were championship grade. “By 2014 Mr. Potter was a successful competitor and had won several national titles in the activity, including the MSA nonpro world title and the amateur American Paint Horse Association world title, and finished second in the CMSA world competition.” 2018 T. C. Memo. 153, at p. 8, footnote 9.

The C Corp move was the idea of Jeff’s trusty CPA, who for 35 years did the Potters’ taxes.

Why the C Corp? Well, remember dear old Section 183, home of the “goofy regulation?” See my blogpost “Amen, Judge Posner,” 12/22/16.

“Respondent disallowed all of the claimed deductions associated with the activity and included the prize money won for each year as income to the Potters.  The parties then stipulated that all of the deductions had been properly substantiated and that if the Court found that the activity was for profit then Potter Sales properly claimed the deductions.  Through their stipulation the parties have recrafted the question to be who performed the activity–Mr. Potter in his individual capacity or Potter Sales as a corporation-because section 183 does not apply to C corporations.  See sec. 183(a) (“In the case of an activity engaged in by an individual or an S corporation, if such activity is not engaged in for profit, no deduction attributable to such activity shall be allowed under this chapter except as provided in this section.” (Emphasis added.)); sec. 1.183-1(a), Income Tax Regs. (stating that no inference may be drawn from section 183 and its regulations as to whether a C corporation is engaged in an activity for profit)….” 2018 T. C. Memo. 153, at pp. 17-18. (Citations omitted).

‘No evidence was entered into the record questioning [C Corp]’s corporate validity.  Indeed, respondent has conceded that the deductions related to the activity belong to [C Corp].  There is nothing to preclude [C Corp] from operating multiple trades or businesses or changing from one trade or business to another.  That is exactly what happened here; [C Corp] stopped selling potting soil and began operating the activity as its trade or business.  The fact that Mr. Potter was the named rider in the competitions does not preclude the activity from being that of [C Corp].  The Court finds that Mr. Potter received any prize winnings as [C Corp]’s nominee.  [C Corp] performed the activity as a trade or business; section 183 does not apply.” 2018 T. C. Memo. 18.

IRS wants a Graev reopener, but that fails because Jeff leveled with their trusty CPA, their trusty CPA was indubitably qualified with 35 years-plus, got all the info from Jeff and Jeff reasonably relied.

Jeff’s CPA is not named, but s/he gets a Taishoff “Good Job! First Class.”



In Uncategorized on 09/17/2018 at 15:38

Mies van der Rohe might wince if he knew how his famous dictum is being used and misused. Today that Obliging Jurist, Judge David Gustafson, shows when there’s more, there’s truly little enough, so no summary J for IRS.

Northside Carting, Inc., Docket No. 1117-18L, filed 9/17/18, wanted an OIC, or maybe an IA, but in any event the SO said he hadn’t sufficient information from Northside and its “power of attorney.”

Once again I point out that a power of attorney is either a piece of paper or a concatenation of electrons, which appoints and empowers a “Representative” or “Agent” to act for the grantor of said power of attorney.

The SO closed out the file, and ordered the NFTL sustained.

Now this would be enough, generally (ah, generally, my favorite tax word).

Except over the next six weeks or so Northside’s representative sent in two more batches of information, and the SO requested more. Finally, the SO gave the representative a week to respond to the last request, but the rest was silence.

And maybe Northside wasn’t current with its filings. The NOD says so, but not the summary J motion.

So Judge David Gustafson can’t really oblige IRS with summary J.

“Thus, Northside provided more information to Appeals on August 7 and August 17, 2017. Of course, ‘more information’ might not have been enough information to warrant a collection alternative. But we cannot tell. It seems that neither Appeals’ Notice of Determination nor the Commissioner’s motion for summary judgment itemizes what information was requested but never provided. We are unable to review Appeals’ judgment that Northside failed to provide relevant information.

“The SO’s ‘Case Activity Record Print’ that the Commissioner filed as Exhibit B does provide somewhat more detail about the SO’s correspondence with Mr. [Representative]. But when we study that document to learn more, we think we see an intention to sustain the collection action because Northside was ‘Not Current with filing or paying requirements’ (Ex. B at 12/11/2017)—a point also made in the Notice of Determination–but the motion for summary judgment is silent on that point.” Order, at p. 3. (Emphasis by the Court; mame omitted).

Of course, this is a “record rule” case, as Northside is Golsenized to 1 Cir., and the record rules there.

But Judge Gustafson isn’t through.

“We therefore follow that rule in this case, and under that rule the parties might proceed simply by offering into evidence the agency-level administrative record. It may be that the administrative record viewed in its entirety (or considered with attention to details to which the Commissioner’s motion did not point us) will enable us to review Appeals’ judgment that Northside failed to provide relevant information. But if instead ‘the existing administrative record [is] inadequate to permit effective judicial review,’ then we might conclude that a remand for a supplemental hearing would be appropriate, or might conclude simply that the Notice of Determination cannot be sustained.” Order, at p. 3. (Citation omitted).

But Northside shouldn’t skip the review session. “Northside is warned that if it fails to appear on November 5, 2018, it should expect that its case may be dismissed for failure to properly prosecute, under Rule 123(b).” Order, at p. 4.


In Uncategorized on 09/14/2018 at 16:35

A Tax Court Judge, be she or he a Judge, Senior Judge, or STJ, must be many things to many people (the post of being all things to all people having been taken by an even more exalted personage). Like Shakespeare’s man on the stage of life, the Tax Court Judge must play many parts.

She or he must be learned in law generally; an unrivalled untangler of the IRC, the Regs, caselaw and legislative intent; a quick study of complex businesses (e. g., used airplane parts dealer, tugboat operator, flour miller, real estate developer, Mississippi riverboat pilot, airline pilot, fine artist, professional golfer, popular entertainer, medical practice operator, brand ambassador and Global Icon); social worker; past-master analyst of human behavior (“the daily grist that comes to the judicial mill,” as Judge Vasquez puts it), able to distinguish and deal with the true deer-in-the-headlights petitioner, good of faith but ignorant of law and procedure, and distinguish same from the gamester, the rounder, the wag, wit and wiseguy, and the endlessly inventive counsel of all the foregoing; master lexicographer and linguistician (a word I just invented, meaning one combining the science of Chomsky and Hayakawa with the nuanced approach of a poet); and  a skilled arithmetician withal.

I must acknowledge both the high standard and how well the Tax Court bench rises to the occasion, despite the cavilings of bloggers like me, to say nothing of disappointed litigants and litigators.

But there must come a time, even to such as The Judge with a Heart, STJ Robert N Armen, when even the ability to perform all the foregoing is insufficient to take a marlinspike to the Gordian knot in which taxpayers and IRS can enwrap themselves.

Case in point: Mary A. Zegeer & M. Scott Zegeer, Docket No. 25533-17SL, filed 9/14/18. IRS wants summary J (vuss noch? as Grandma would have said), but STJ Armen will none of it.

Mary and M Scott can’t pay, but they claim IRS messed up the results of a seven-year-old decision, misapplied a refund back five (or maybe six) years ago, and ignored that they paid the old years off years ago, but STJ Armen finds IRS might have gotten some other offsets right.

“It is unclear from the record exactly how much Ms. Zegeer might owe for 2001 and 2002 if the adjustments called for by the Court’s August 31, 2011 Decision were properly reflected in her transcripts for those years. For that reason it is also unclear from the record whether any portion of the 2015 or 2016 overpayments would remain as offsets for petitioners’ 2010 and/or 2011 joint Federal income tax liabilities.” Order, at pp. 4-5.

There’s more. The record doesn’t show whether Mary separately paid the liabilities for which IRS grabbed their joint refund (M Scott claims injured spouse, as he and Mary weren’t married back in 2001 and 2002). IRS, of course, maybe got that one wrong also.

“As previously stated, petitioners also contend that Mr. Zegeer is not responsible for Ms. Zegeer’s 2001 and 2002 separate Federal income tax liabilities and that, for such reason, Mr. Zegeer is entitled to an allocable portion of petitioners’ 2015 (and 2016) overpayments. Although the Attachment to the notice of determination states that ‘[t]he [SO] investigated the issue of the overpayment/refund offset from 2015 applied to the 2002 balance’, the record does not include what analysis, if any, the SO performed in evaluating Mr. Zegeer’s injured spouse allocation claim. The record includes Mr. Zegeer’s 2015 Form 8379, Injured Spouse Allocation, but the record suggests that the SO may not have considered it or did not otherwise take any action. Finally, although the record does not include a Form 8379 for 2016 for Mr. Zegeer, the record suggests that a claim for an injured spouse allocation was also made for that year.” Order, at p. 5.

Again to quote Grandma, “From this you want summary judgment?” The problem, of course, is that the cold print on the page cannot evoke the impassioned inflection of the word “this,” worthy of Sutherland at her peak, with which the foregoing was delivered.

So STJ Armen, with pardonable patience, takes two pages to school IRS’ counsel how to supplement her motion papers, including “plain-English and current transcripts of account (Forms 4340).” Order, at p. 6. And Mary & M Scott shall trot out and lay bare all “…documentation such as cancelled checks, invoices, acknowledgments, statements of account, etc., demonstrating the payment, as alleged by them, of all or any part of Ms. Zegeer’s 2001 and 2002 separate Federal income tax liabilities.” Id., as my high-priced colleagues would say.

STJ Armen even warns Mary & M Scott against being a wee bit casual in producing same. “Petitioners are advised that without such documentation, any allegation regarding full payment of Ms. Zegeer’s 2001 and 2002 separate liabilities carries little, if any, weight.” Id.

Finally, and it should be enough for a humid Friday afternoon, to justify the headline of this little opusculum, STJ Armen tells Mary & M Scott, and IRS’ counsel, to “…each, separately and on or before October 12, 2018, show cause in writing why the Court should not, on its own motion, remand this case to respondent’s Appeals Office for the purpose of addressing the proper application of petitioners’ subsequent-year overpayments, the adjustment of Ms. Zegeer’s 2001 and 2002 separate account balances, and Mr. Zegeer’s injured spouse claims, as well as further consideration of petitioners’ interest in a collection alternative in the form of an installment agreement.” Order, at p. 6.

Job has nothing on STJ Armen.


In Uncategorized on 09/13/2018 at 16:12

Once again the ghouls, ghosts and hobgoblins stirred up by the celebrated Graev Boss Hossery battle return to bedevil Tax Court. Judge Buch has this one, Tribune Media Company f.k.a. Tribune Company & Affiliates, et al., Docket No. 20940-16, filed 9/13/18.

We’ve got a Section 6662(h) 40% overvaluation chop and the usual accuracy chops here.The issue is which Boss Hoss was whose Boss Hoss, who approved what and how did they do it, with another whistlestop by Greenberg’s Express.

If you’re new to this evergreen kerfuffle, read Judge Buch’s order, and all will be made somewhat less obscure.

The Tribuners want a bushelbasket of documents, claiming IRS’ privilege log is a blanket, not a veil.

Judge Buch dissects some of what IRS gave the Tribuners, allows some of their demands but squelches others. Since he doesn’t tell us which documents are which in all cases, the parties may be enlightened, but I’m not.

Howbeit, here’s the main takeaways.

“The documents and information sought by Tribune in its third Branerton request are not reasonably calculated to lead to the discovery of admissible evidence, and the request is not proper under Greenberg’s Express, Inc. v. Commissioner, 62 T.C. 324 (1974). We have previously stated that ‘it would be imprudent for this Court to now begin examining the propriety of the Commissioner’s administrative policy or procedure underlying his penalty determinations.’ It has long been settled law that we do not look behind the Commissioner’s determinations. When Congress enacted section 6751(b) it ‘understood the longstanding rule of Greenberg’s Express * * * and at that time did not deem it necessary to expand our jurisdiction or overturn our precedent’. Written supervisory approval under section 6751(b)(1) ‘requires just that: written supervisory approval’; we do not review or second-guess the approval itself. We make our own de novo determination of the applicability of any penalty; we do not conduct a review of the Commissioner’s policies or procedures in determining penalties other than to confirm that written supervisory approval occurred.” Order, at pp. 6-7. (Footnotes omitted, but they all cite to Raifman; see my blogpost “Too True to Be Good,” 7/3/18 for the end of the Raifman saga.)

As for logging, IRS needs to provide a supplementary log, knocking out what Judge Buch allows today.

“We have held that many of the items requested by Tribune are irrelevant. Our ruling may well render many (or all) of the items on the privilege log as outside the scope of discovery. Rather that waste the Court’s resources evaluating privilege claims that have been rendered moot, we will order the Commissioner to produce an updated privilege log containing only those privileged items that remain responsive to the requests addressed in this order.

“In producing that privilege log, we remind the Commissioner that the burden of proving that a privilege applies to a communication is on the party asserting the privilege. We have held that ‘[b]lanket claims of privilege * * * are insufficient to sustain a claim of attorney-client privilege.’ The Tax Court Rules of Practice and Procedure are silent on the issue of proving a privilege applies; therefore, we look to the Federal Rules of Civil Procedure. The Federal Rules of Civil Procedure provide that the party asserting privilege must ‘describe the nature of the withheld documents, communications, or tangible things in a manner that, without revealing information itself privileged or protected, will enable the parties to assess the claim.”

“An adequate privilege log is a method by which a party may meet its burden of proof.  A privilege log must set forth adequate facts to establish each element of the claimed privilege. The privilege log must contain enough detail to enable the requesting party and this Court to determine whether the privilege is properly asserted. This would typically include information regarding who a communication is from and to, the date of the communication, and its subject matter. A privilege log that does not state the subject of the communications at issue or indicate the contents of a document is insufficient.” Order, at pp. 8-9. (Footnotes omitted, but you can see my blogpost “Privileged Characters – Part Deux,” 5/26/15, for the Pacific Management story.).