Once again it’s the late great Kalin Twins 1959 hit, as Judge James S (“Big Jim”) Halpern wrestles with “when,” in James L. McCarthy, Docket 21940-15L, filed 10/31/18, and issues a designated hitter.

Jim had his PPIA and his OIC bounced by Appeals, as IRS Area Counsel claims Jim left out of his 433-A the land held by the Stavros M. Ganias Irrevocable Trust, which IRS claims Jim controlled when he incurred the tax liability at issue.

Jim’s wife had a corporation that IRS claims Jim really controlled, which leased the SMG Trust property. But the corporation was out of possession five (count ‘em, five) years ago, and there’s no evidence what happened with the property before or since.

IRS says “mox nix.” Judge Big Jim more delicately puts the proposition: “That would be so, respondent apparently claims, regardless of whether a change in circumstance caused the Trust no longer to hold the … property as petitioner’s nominee when Appeals made its decision to reject petitioner’s proposed collection alternatives.” Order, at p. 2.

I’m surmising here, and that of course is a judicial prerogative, but maybe IRS is claiming dissipation of assets, that by walking on the lease Jim got rid of a valuable right in property he could have sold and given the proceeds to IRS.

I’d give IRS a Taishoff “Good try, third class,” if that’s what they’re trying, but it’s useful to have some evidence.

Judge Big Jim isn’t convinced, and doesn’t feel like surmising.

“The temporal question, however, is not the only legal issue raised by respondent’s treatment of the…property. Even if we were to accept that the …property can be treated as an asset available to satisfy petitioner’s liability as long as the SMG Trust held the property as his nominee when that liability arose, it does not follow that the use of the property at that time supports respondent’s nominee analysis. As far as we know, petitioner himself did not use the … property at any time. It is thus not clear to us why [wife’s Corp]’s leasing of the … property means that the possession and enjoyment nominee factor weighs in favor of treating the SMG Trust as petitioner’s nominee in regard to that property during the term of that lease.” Order, at p. 2.

So both sides get two weeks to brief the matter.

Even though I’m not asking for any, I want to observe the annual candy binge, so here’s James Alvis McClananhan, Docket No. 21627-17S, filed 10/31/18.

James Alvis McClananhan, a Texan, was on for trial in the City of Angels the day before yesterday. He didn’t show, but eleven days prior thereto, he laid the following before STJ Diana L (“Sidewalks of New York”) Leyden.

“…petitioner filed a document which the Court characterized as petitioner’s Motion to Dismiss for Lack of Jurisdiction (motion). In this document petitioner includes the language of section 6065 and states “IF A NOTICE OF DEFICIENCY IS RECEIVED IT MUST BE VERIFIED BY A SIGNATURE UNDER PENILITES [sic] OF PURGERY [sic] OR IT IS VOID.” Taking into account petitioner’s status as an unrepresented litigant, the Court will accept for purposes of petitioner’s motion that he is challenging the validity of the notice of deficiency by asserting that it was not verified by a signature under penalties of perjury in accordance with section 6065.” Order, at p. 1 (Footnote omitted).

I give James Alvis McClananhan a Taishoff “Good try, second class.”

Unhappily, STJ Di does not.

“Section 6065 generally provides that documents or statements required to be made under the internal revenue laws must be subscribed under penalties of perjury. Petitioner’s section 6065 argument, however, is without merit. The requirements of section 6065 are directed at documents originating with the taxpayer, not the Commissioner. Davis v. Commissioner, 115 T.C. 35, 42 (2000). Thus, the notice of deficiency for 2014 is valid even though it was not signed under penalties of perjury. Milam v. Commissioner, T.C. Memo. 2004-94, at *3.” Order, at p. 2.

Happy Halloween.

No, they haven’t opened the locks at the Old Grand-Dad warehouse, wherein is stored 100 proof good news, and invited us in to sample, alas.

But today, when neither opinion nor designated order swims into my ken, a voice from the past lets Ch J Maurice B (“Mighty Mo”) Foley tell us what happens when one bonds a losing decision in order to appeal.

All y’all will remember Qinetiq U.S. Holdings, Inc. & Subsidiaries, Docket No. 14122-13, filed 10/30/18. You don’t? Well see my blogpost “Truth or Forfeits,” 7/2/15.

And note my prophetic statement in the first sentence of the penultimate paragraph of said blogpost. Turns out I was right, hence today’s order and this blogpost.

Ch J Mighty Mo: “…petitioner filed with the Court a bond (with Liberty Mutual Insurance Co. as surety) after they filed a Notice of Appeal to the United States Court of Appeal for the Fourth Circuit. On May 10, 2017, this Court filed a certified copy of the mandate of the Court of Appeals affirming the decision of this Court. On October 19, 2018, respondent filed a Status Report, in which respondent advises the Court that respondent has received payment from petitioner and that the bond may be released.” Order, at p. 1.

You can always appeal a Tax Court loss in a deficiency case, but you have to bond the amount appealed from (or IRS will lien and levy before your appeal is decided), and Tax Court can require double the amount of the deficiency. See Section 7485(a). And here the deficiency was $13 million.

As they say on Antiques Roadshow, it’s good when Liberty stands with you. But 4 Cir. didn’t.

So when Qinetiq ponied up the $13 million plus, their attorney got back the bond.

No, I’m not pushing fitness gear or programs. The Tax Court website just put me wise to the September 28 award of a task order under the General Services Administration Information Technology Schedule 70 (whatever that is) to Flexion, Inc. for software development services for an electronic filing – case management system. The task order amount is for up to $2 million for fiscal year 2019.

Great! Hopefully this will include, but in no way be limited to, putting all public filings on the internet for all to see. Sorta like PACER, maybe so.

Maybe it can even include updated forms and directions to prevent immediate tosses for failure to pay filing fees.

Now I know “up to $2 million” doesn’t buy much when lawyers meet techies, but hope springs eternal.

I’ve commented recently about the quick toss Ch J Maurice B (“Mighty Mo”) Foley has accorded impecunious petitioners who fail to kick in the sixty bucks with their petitions. Today there’s another, John Daniel Martin III, Docket No. 20709-18, filed 10/29/18.

John Daniel filed 10/22/18, and gets tossed today for nonpayment.

Ch J Mighty Mo cites Section 7451.

And ever since the 1954 Code, that Section and its successors have said “(T)he Tax Court is authorized to impose a fee in an amount not in excess of $60 to be fixed by the Tax Court for the filing of any petition.”

The problem is what the pro se petitioner sees is not Section 7451.

On the Tax Court website, the instructions for the Simplified Petition (Form 2) state: “To help ensure that your case is properly processed, please enclose the following items when you mail your petition to the Tax Court:

“4. The $60 filing fee, payable by check, money order, or other draft, to the “Clerk, United States Tax Court”; or, if applicable, the fee waiver form.”

That’s it. The last thing on the list is the fee payment or waiver application.

But if a letter, or any paper at all, has routinely been treated as a defective petition, or even a money order without anything else has been deemed sufficient to commence a case (see my blogpost “Show Me The Money,” 11/13/13), why isn’t the filing fee or waiver app in first place on the list, in CAPITAL LETTERS, with a warning that, however meritorious the claim and however well-pleaded the petition, it’ll get tossed if you don’t put in one or the other from the getgo?

But wait, there’s more.

The Form Application for Waiver of Filing Fee can be filed separately from the petition. It need not be simultaneously filed. So how if a petitioner files, but has to gather information for a meritorious and complete waiver application? There’s no place in the form of petition to make such a request.

Before anyone throws Rule 20(d) at me, which mandates payment of filing fee simultaneously with the filing of the petition, the second sentence thereof says the Court may waive the fee “if the petitioner establishes to the satisfaction of the Court by an affidavit or a declaration containing specific financial information the inability to make such payment.”

Well, when does the petitioner get to seek a waiver, if the petition gets tossed a week after it’s filed?

This is not an attack on Ch Judge Mighty Mo, but rather an example of how the system gets out of synch with reality.

The forms need revising: if the rules are “pay up, waive or go home,” fine, I’ve no argument. Just let’s have the forms warn the pro se (or even counsel) what the rules are.

If, once warned, the petitioners fail to read and heed, they’ve only themselves to bemoan. And the lackadaisical or recalcitrant can be freely tossed.

The old DeBeers slogan certainly applies to TEFRA. Though supposedly put out of its misery by Congress three years ago, the 1983 dinosaur lumbers on.

First up, Trust u/w/o BH and MW Namm f/b/o Andrew I. Namm, Andrew I. Namm and James Doran, Trustees, Transferee, et al., 2018 T. C. Memo. 182, filed 10/29/18. You’ll remember Andy & Co. from my blogpost “No Fishing,” 7/18/18, but now Andy is going after bigger fish than IRS’ files on his white-slippered advisers. Andy wants SOL tossing the Section 6901(c) transferee liabilities levied on his nine (count ‘em, nine) consolidated co-petitioners.

It’s the Section 6229(a) TEFRA SOL extender vs the Section 6501 standard 3SOL. I’ll spare you 33 (count ‘em, 33) pages of Judge Albert G (“Scholar Al) Lauber’s “somber reasoning and copious citation of precedent,” as he holds that the longer period obtains, and Andy and the als must go to trial (or maybe settle).

Next is that classic TEFRA DADs case, Sugarloaf Fund, LLC, Jetstream Business Limited, Tax Matters Partner, et al, 2018 T. C. Memo. 181, filed 10/30/18, from the neighborhood that lives forever, Mr. John E. Rogers’ neighborhood. Judge Goeke will grow old on this one, along with the rest of us.

But it’s been great blogfodder.

For the three (count ’em, three) years at issue, Judge Goeke has to decide “…whether Sugarloaf should be recognized for tax purposes, who Sugarloaf’s partners are and who is taxed on its income, whether Sugarloaf revenue should be subject to self employment tax, whether various FPAA adjustments reducing expenses should be sustained, and whether the penalty under section 6662(a)3 should apply.” 2018 T. C. Memo. 181, at p. 2.

Well, Mr Rogers “rolledup” various investors in his other schemes, without consulting them or getting their consents, into Sugarloaf, which he totally controlled. He also controlled Jetstream, which owned Sugarloaf, and took in and dropped out other Sugarloaf partners as his whimsy led him.

Needless to say, there never was a partnership between Mr. Rogers and the Brazilian tapped-out creditors who sold him their junk. So Mr Rogers gets Sugarloaf income, with tax and SE thrown in. He does get some deductions he paid to various counsel, but none for fostering and exploiting his nefarious schemes.

IRS gets two years’ worth of Section 6662(a) chops, but blows the Section 6751(b) Boss Hoss on the third. Though IRS tries to wild-card in approval post-initial assessment, that meets with Graev difficulties.

No, not a misspelling of the 1961 Lee Dorsey, Clarence Lewis, Morgan Robinson and (maybe) Morris Levy hit with the peculiar lyrics. This is the sad story of Kaamilya F. Abdelhadi, 2018 T. C. Memo. 183, filed 10/29/18.

But in the year at issue someone filed MFJ with grocer “Mr. Abdelhadi,” who apparently has no given name, but who had fathered two of Kaam’s children, under the name “Yahya Abdelhadi” . The thing was, Kaam and Mr. Ab weren’t married that year. She did marry Mr. Ab seven years after the year at issue.

Mr. Ab was apparently a tax dodger as well as a grocer, because Kaam got innocent spousery for the year she married him and two succeeding years.

The issue here is the “stand alone” Section 6015(e)(1) that Kaam filed for the year at issue. That year the MFJ 1040 was filed in the names of Mr. Ab and “Yahya Abdelhadi,” IRS audited, and Kaam signed a Form 870 waiver and Form 4549 consent to changes, hitting Kaam with $30K in deficiency and chops.

Judge Pugh: “Before her marriage petitioner considered herself single and used her maiden name of Sebree on documents.  Nonetheless, a joint Form 1040, U.S. Individual Income Tax Return, was filed for petitioner and Mr. Abdelhadi for [year at issue].  Petitioner did not see, review, or sign that return; she has not seen it since; and it is not part of the record.  A refund check was issued to Mr. Abdelhadi and petitioner (under her maiden name).  Petitioner was unaware of the refund check at the time it was issued and did not endorse it.  The signature that does appear on the check does not match petitioner’s signature on other documents in the record.   The address on the check was that of Mr. Abdelhadi’s grocery store, not petitioner’s home address.  Petitioner knew of the grocery store in [year at issue] but worked only limited hours there (without pay) because she had to care for a special needs child.  She did not work otherwise in [year at issue] and did not file a tax return for [year at issue].  She did file returns for [preceding year] and [subsequent year], and for both years she listed her filing status as single.” 2018 T. C. Memo. 183, at pp. 2-3.

IRS applied her innocent spousery refunds for the three (count ‘em, three) years for which she was entitled to innocent spousery to her liability for the year at issue. Even though there clearly was hanky-panky with that return and refund.

My eagle-eyed and incredibly hip readers have already spotted the problem.

“Respondent does not dispute the facts but counters that because petitioner filed a petition seeking review of respondent’s denial of her claim for relief from joint and several liability under section 6015(e) (known as a “stand-alone” petition), not a petition for redetermination of a deficiency, our jurisdiction is limited to a determination of whether petitioner is entitled to relief under section 6015, not whether petitioner is liable for the tax.” 2018 T. C. Memo. 183, at p. 5.

Of course, Section 6015 is available only to those who filed a joint return. Kaam a/k/a Yahya did not, and no one questions that whatever Mr. Ab filed, or caused to be filed, it wasn’t a joint return.

“In a stand-alone case, such as petitioner’s, section 6015(e) gives us jurisdiction to determine whether relief is available under section 6015 only. But we can grant relief under section 6015 only if a joint return has been filed. We also have held that the filing of a joint return is a condition for relief under section 6015 but not for our review of the denial of a claim for relief. Because petitioner did not file a joint return, there is no relief we can grant under section 6015.  And we do not have jurisdiction to order respondent to refund any amounts although she may be entitled to file a claim for refund on the basis that she was not liable for the tax paid toward Mr. Abdelhadi’s [year at issue] tax liability with her retained refunds….  And we do not have equitable powers to expand our statutorily prescribed jurisdiction no matter how unfair the circumstances may seem.  Finally, we cannot amend pleadings as petitioner requests to give us jurisdiction to order a refund of an overpayment even though it appears that she was not jointly and severally liable for the tax owed by Mr. Abdelhadi for [year at issue].  See secs. 6213(a), 6512(b) (generally restricting the Court’s jurisdiction to order refunds to cases in which a petition for redetermination of a deficiency has been filed); Rule 41(a) (barring amendments after expiration of time for filing a petition if the amendment would confer jurisdiction over a matter that was not already within the Court’s jurisdiction under the petition).” 2018 T. C. Memo. 183, at pp. 6-7. (Citations and footnote omitted).

The footnote says maybe the SOL has run on a refund claim for the three years’ worth of innocent spousery giveback IRS grabbed from  Kaam a/k/a Yahya.

Takeaway 1- Counsel, when you’re on a “stand-alone,” raise refund, lack of opportunity to contest, and fraud, to the extent you’ve got any rational basis for so claiming.

Takeaway 2- See my blogpost “I’m From The Government, And I’m Here To Help” – Part Deux,” 3/19/15.

I never cease to be confounded by Ch J Maurice B (“Mighty Mo”) Foley’s quick kicks of petitions when faced by nonpaying petitioners. At first, I thought he was hearkening back to his days in private practice, when he learned, along with the rest of us, to toss nonpaying clients speedily. Except his bio on the Tax Court website doesn’t say he was ever in private practice.

Still, as far as I can tell he set the all-time record today. According to today’s order, David Lynwood Toppin, Docket No. 20829-18, filed 10/26/18, filed his petition on Monday, October 22, 2018.

But Toppin never sent in a check. So Ch J Mighty Mo tosses his petition today.

Now Toppin has another case pending from February (Docket No. 3998-18), and didn’t send in the sixty bucks then either. So just last week Ch J Mighty Mo gave Toppin until Guy Fawkes’ Day to ante.

If the October petition was a duplicate of February, or if petitioner is manifestly a wiseacre, sure, toss it whether or not the sixty bucks came with it.

But if a petitioner in February gets nine (count ‘em, nine) months to come up with the sixty bucks, why does the same petitioner not even get four days in October?

No opinions today, but Judge Holmes has an order that should be a designated hitter if it isn’t already, Rui-Kang Zhang & Jau-Fei Chen, Docket No. 10488-10, filed 10/25/18. No, that’s not a typo; this case is older than most Bourbon.

R-K & J-F were in the infamous National Benefit Plan, which tried to disguise individual employer insurance purchases as multiemployer plans via Sections 419 and 419A. When IRS blew this dodge up, R-K & J-F folded their plan and took in their policies, paying tax on the $160K FMV of policies plus some cash they got, for a total around $200K.

But IRS is hunting bigger game, and socks R-K & J-F for $550K, claiming that the policies were “vested” as well as “distributed,” thus triggering both Section 402(b)(1) and 402(b)(2). If that’s so, then the policies must be valued without regard to any provision triggering a lapse of the policy.

A policy that can never lapse is clearly worth more than one which can. So IRS wants to avoid dealing with surrender charges (which take place during the early years of a policy but which phase out the longer the policy is in effect; this is to compensate for the insurance company’s sales costs, which typically run for some years after a policy is issued), which Section 402(b)(1) does, using Section 83(a) not-subject-to-forfeiture rules.

R-K & J-F want to focus on Section 402(b)(2), which limits a distribution to the FMV of what the distributee actually got.

“Even the Commissioner’s textual argument specific to this case doesn’t cohere once one looks at it. He argues that according to the Plan’s terms, once petitioners’ corporation notified the Plan of its withdrawal, petitioners became ‘beneficial owners’ of the policies. The reason is that the notification triggered the Plan’s obligation to identify petitioners and fix their claim to the Plan’s assets, creating ‘a separate [vesting] event’ at ‘a slightly different moment in time’ than distribution. But this Plan had an unusual feature — the notification didn’t take effect immediately, but only started a 23-month waiting period during which petitioners could forfeit their benefits by dying or leaving the corporation’s employ.

“The Commissioner admits that this meant there wasn’t really vesting right away. But, he says, petitioners in this case agreed to an amendment to the Trust to waive the 23-month waiting period. This means that there really wasn’t a risk of forfeiture, and so the vesting rules of section 402(b)(1) apply.” Order, at p. 4.

The waiver of the 23-month hold was in a standard form given to every withdrawing employer as part of the exit package. Thus, says IRS, vesting becomes part of withdrawal and distribution.

Judge Holmes isn’t buying.

This is like saying when the Plan administrator cuts a check and puts it in a stamped envelope, the money is “vested,” and when the taxpayer gets the envelope and opens it, there’s a “distribution.”

Nope, the caselaw says the two subsections of Section 402(b) are disjunctive. Section 402(b)(1) deals with transfers of policies from one trustee to another, whereby they are no longer subject to surrender charges or the like, and vest per Section 83(a). In that case the employee never gets the policy or cash or anything else in hand. But when the lucky employee gets money in hand, it’s a distribution, and the FMV of cash is cash.

IRS loses. But I will give IRS’ inventive counsel a Taishoff “good try, third class.”

Judge Holmes asks, somewhat plaintively, if the parties are going to settle, or will he have to try this case the next time he goes to Buffalo. C’mon, guys, spare Senior Judge Holmes the Buffalo Waterfront in the winter.

The late Frank D. Streightoff, before becoming the late Frank D. Streightoff, put a bushelbasketful of marketable securities and cash into a family limited partnership, the greatest part of whose limited partnership interests he kept for himself. His daughter, subsequently his executor, set up an LLC as general partner, which she ran. The assets were managed by a professional manager.

The limited partnership never held meetings or votes. The late Frank D.’s children were minuscule limited partners, with no power to combine to do anything.

The late Frank D attempted to assign an assignee’s interest in his limited partnership interest to his self-settled revocable trust, of which said daughter was trustee, rather than the whole enchilada. But he gave away too much, so when he became the late Frank D it turns out the trust had the partnership interest itself, and not an assignee’s interest.

This meant there’s no lack-of-control discount available to the late Frank D’s estate, and the discount for lack-of-marketability must be computed based upon a shorter lock-out period, due to the trust’s greater control over the limited partnership interest and thus the limited partnership.

At least Judge Kerrigan so holds in Estate of Frank D. Streightoff, Deceased, Elizabeth Doan Streightoff, Executor, 2018 T. C. Memo. 178, filed 10/24/18.

The issue, of course, is exactly what the assignment from Frank D to Frank D’s trustee (Elizabeth) assigned: the limited partnership interest itself or an interest in the limited partnership interest less than the whole interest.

“The agreement provided that decedent made an ‘assignment’ of all of his limited partnership interest in [the LP].  It provided that decedent transferred ‘[his] interest in the above described premises, together with all and singular the rights and appurtenances thereto in anywise belonging, unto the said Assignee, its beneficiaries and assigns forever’ and that he bound himself and ‘[his] heirs, executors, and administrators to * * * provide any further documentation or  execute any additional legal instruments necessary to provide the assignee all the rights the Assignor may have had in the property.’  The agreement provided that the revocable trust “by signing this Assignment of Interest, hereby agrees to abide by all the terms and provisions in that certain Limited Partnership Agreement….” 2018 T. C. Memo. 178, at pp. 8-9.

Oh, that boilerplate!

While State law defines interests in property, “(T)he doctrine that the substance of a transaction will prevail over its form has been applied in Federal estate and gift tax cases. In particular, we have indicated a willingness to look beyond the formalities of intrafamily partnership transfers to determine what, in substance, was transferred.” 2018 T. C. Memo. 178, at p. 16. (Citations omitted).

And Judge Kerrigan is willing, ya betcha!

“The agreement provided that decedent made a transfer to the revocable trust of ‘[a]ll of * * * [his 88.99%] limited partnership interest’ in [limited partnership].  It further stated that decedent transferred with the interest “all and singular the rights and appurtenances thereto in anywise belonging”. Although the transfer was labeled an ‘[a]ssignment’, the agreement states that the revocable trust is entitled to all rights associated with the ownership of decedent’s 88.99% limited partnership interest, not those of an assignee.  All ‘rights and appurtenances’ belonging to decedent’s interest include the right to vote as a limited partner and exercise certain powers as provided in the partnership agreement.

“The agreement provided that decedent was bound to provide any documentation or execute any legal instruments necessary ‘to provide * * * [the revocable trust] all the rights * * * [decedent] may have had’ in the limited partnership interest.  Decedent’s rights in the limited partnership interest were those of a limited partner in the partnership.  The agreement satisfied all the conditions for the transfer of decedent’s limited partnership interest and the admission of the revocable trust as a substituted limited partner.” 2018 T. C. Memo. 178, at pp. 17-18.

Finally, “Ms. Streightoff signed the agreement as manager of [limited partnership]’s general partner and gave consent to its terms, which provided for the transfer of all of decedent’s rights in the limited partnership interest to the revocable trust.  The parties have stipulated that the transfer was a permitted transfer.  Lastly, the agreement provided that the revocable trust agreed to abide by all terms and provisions of the partnership agreement, and Ms. Streightoff executed the agreement on behalf of the revocable trust.” 2018 T. C. Memo. 178, at p. 19.

Whatever was transferred, there was no difference: Elizabeth as trustee had all the information of a limited partner, and absence of voting rights here is not significant.

Takeaway: Before reaching for the formbook or opening the form file, ask what it is that you’re trying to accomplish.