Archive for November, 2018|Monthly archive page


In Uncategorized on 11/21/2018 at 07:07

When it comes to the Section 72(t) 10% add-on (is it a tax? an addition? a penalty?), exceptions are few and jealously guarded by IRS. And Judge Buch has bad news for Kathryn J. Gillette and Raif Szczepanski, 2018 T. C. Memo. 195, filed 11/20/18.

Kathryn’s prescription-drug-induced compulsive gambling isn’t a “disability” sufficient to get Kathryn off the hook for the 10% whatever.

Her insurer wanted her to go generic with a prescription medicine, so she did. But the dosages had to be increased, and that triggered the compulsive behavior. Finally, having nearly ruined her life, she stopped taking the stuff.

I don’t know if any of my readers have witnessed the nastier prescription drug side effects in anyone they know; I have. It’s no joke. Some of that stuff can be deadly.

But for tax purposes, no one so suffering is disabled for Section 72(t)(2) relief.

“Ms. Gillette argues that her gambling addiction falls under two examples enumerated in section 1.72-17A(f)(2), Income Tax Regs. The first is ‘[d]amage to the brain or brain abnormality which has resulted in severe loss of judgment, intellect, orientation, or memory”. The second is ‘[m]ental diseases (e.g. psychosis or severe psychoneurosis) requiring continued institutionalization or constant supervision of the individual’. Notwithstanding these two examples ‘[a]n impairment which is remediable does not constitute a disability within the meaning of section 72(m)(7).” An impairment is remediable if the taxpayer can treat the impairment ‘with reasonable effort and safety to himself’, and where the taxpayer ‘will not be prevented by the impairment from engaging in his customary or any comparable substantial gainful activity.’” 2018 T. C. Memo. 195, at pp. 16-17. (Footnotes omitted, but they’re just cites to the IRC and regs.)

Kathryn’s doctors took her off the medication, so the condition was “remediable.”

How the taxpayer is supposed to know this while the mental firestorm is going on is nowhere stated.

And Kathryn’s bid for an OIC based on ETA fails. The SO didn’t send her case to the ETA unit, but didn’t have to. Kathryn wasn’t sufficiently disabled, says Judge Buch.

Takeaway- For Section 72(t)(2) relief, one has to be seriously, irremediably, disabled.


In Uncategorized on 11/20/2018 at 16:17

Not another inadvertent “reply all” that breaches client-attorney privilege; rather, this is the case of assets clawed-back into a decedent’s gross estate by Section 2036 (the blown hand-off). And back again is Estate of Clyde W. Turner, Sr., Deceased, W. Barclay Rushton, Executor, 151 T. C. 10, filed 11/20/18. If you don’t immediately recall the late Clyde Sr., and W. Barc, ex’r, you have only to see my blogposts “To Have and Have Not,” 8/31/11, and “To Have and Have Not – Part Deux,” 3/29/12.

So now you know that the FLP the late Clyde Sr set up cratered, and his estate got hit with additional tax. Ex-Ch J L Paige (“Iron Fist”) Marvel sent W. Barc and IRS off to a Rule 155 beancount, but their numbers don’t jibe.

The issue is the additional estate taxes (Federal and State) resulting from the clawed-back assets. Do these taxes reduce the marital deduction, as all that remains in the ex’r’s hands to pay those additional taxes (and interest) is marital deduction property?

IRS says “yup.” W. Barc, ex’r, says Section 2207B requires those who got the assets have to stump up their shares of the extra taxes (and interest).

The last Clyde Sr.’s will said he wanted Miss Jewell, his everlovin’, to get the full marital deduction property, and set up a credit bypass trust in case she couldn’t get it all. But not only does she get it all, there’s additional tax (and interest) with no deduction to cover.

OK, says IRS, but the taxes (and interest) are due now, and W. Barc, ex’r’s recovery rights, whether under State law (GA) or Section 2207B, come into play only after the taxes are paid. So if Miss Jewell must pay now and sue later, the marital estate is reduced and so is the deduction.

Ex-Ch J Iron Fist: “In an estate that includes the value of section 2036 assets, an executor must find a way to pay the tax liabilities created by the section 2036 assets while dealing with the reality created by section 2036: The actual section 2036 assets are not in the possession or control of the executor and cannot be used by the executor to pay the tax liabilities they create.

“Section 2207B gives an executor a mechanism to replenish estate assets that the executor uses to pay the Federal estate and State death tax liabilities attributable to the values of the phantom section 2036 assets included in the estate.  Because the value of the section 2036 assets is already included in the calculation of the gross estate, any recovery under section 2207B should not increase the gross estate but will enable the executor to distribute to the surviving spouse the net value of the estate, undiminished by the tax liabilities attributable to the section 2036 inclusion.” 151 T. C. 10, at pp. 16-17.

Ah, says IRS, but what about Reg. Section 20.2056(b)-4(c)?

Ex-Ch J Iron Fist: “Section 20.2056(b)-4(c), Estate Tax Regs., does not require a different result when the Federal estate and State death taxes have no effect upon the net value distributable to the surviving spouse.  See, e.g., Estate of Gill v. Commissioner, T.C. Memo. 2012-7 (marital deduction not reduced where marital deduction property does not bear the economic burden of the tax).  Accordingly, we hold that the estate need not reduce the marital deduction by the amount of Federal estate and State death taxes it must pay because the tax liabilities are attributable to the section 2036 assets, the estate has the right to recover the amount paid under section 2207B, and the estate must exercise that right to recover to give effect to Clyde Sr.’s intention that Jewell receive her share of the estate undiminished by the estate’s tax obligations.” 151 T. C. 10, at p. 20.

And interest follows principal per Section 2207B(c), so W. Barc, ex’r, can claw that back as well without diminishing Miss Jewell’s jewels.

W. Barc, ex’r, wants to increase Miss Jewell’s marital deduction by the earnings on estate assets postdeath, on which ordinary income tax was paid by the estate.

No, because no estate tax was paid on those earnings as they weren’t part of the estate. While the regs permit considering postdeath income for calculating administrative expenses, they can’t increase the marital deduction.


In Uncategorized on 11/19/2018 at 16:26

Napoleon V. Irabagon & Zosima Irabagon, Docket No. 1594-16L, filed 11/19/18, got an installment agreement for each of the two years here discussed. Note I didn’t say “at issue,” because Judge Ashford holds that by signing the installment agreements, there’s no issue at all.

Nap & Zo got SNODs for those years, whereupon they timely petitioned. Only they never anted up the sixty bucks of table stakes to play, despite an order from the Court to do so.

So when Nap & Zo got the NITL, they petitioned and paid. Now they want to fight over the underlying liabilities.

No, twice. First, petition from SNODs was their chance, but when they failed to pay the filing fee, that went overboard. Second, by signing the Direct Deposit Installment Agreements, they agreed to everything.

More nicely put by Judge Ashford: “Petitioners’ complaint throughout the CDP hearing process was directed only towards their underlying liabilities for [years]. And now before this Court, they continue to do the same. However, the law is clear: if a taxpayer received a notice of deficiency with respect to the underlying liability, he may not contest the liability in a CDP hearing (or thereafter in this Court). See sec. 6330(c)(2)(B); sec. 301.6330-1(e)(3) Q&A-E2, Proced. & Admin. Regs. The undisputed facts confirm that petitioners received a notice of deficiency for [both years]. They then timely petitioned this Court but never paid the required filing fee. The resulting case was dismissed for lack of jurisdiction because they failed to comply with the Court’s order to pay the filing fee. Thus, their underlying liabilities…are not at issue and we will review Appeals’ determination for abuse of discretion only.

“On the basis of our review of the record, we find that SO X considered all of the requisite factors under section 6330(c)(3) when making her determination. Indeed, petitioners do not contend otherwise and that thus the determination was arbitrary, capricious, or without a sound basis in fact or law. In this regard, we note that SO X determined that the proposed levy should not be sustained because petitioners agreed to an installment agreement.” Order, at p. 6. (Citations and name omitted).

Summary J for IRS.

Takeaway- Even if your petition is the subject of Ch J Maurice B (“Mighty Mo”) Foley’s quick nonpayment toss, send in the sixty bucks or a petition for waiver. With your petition. Savings the sixty bucks at the beginning saves nothing.


In Uncategorized on 11/16/2018 at 19:01

There are moments. When you talk yourself off the winning horse, and your spouse tipped the winner; when the remark that would have been brilliant at the dinner party comes to mind as you open your front door; and today, when the winged messenger of the Olympians brings the perfect title for a blogpost after you’ve posted.

Today’s title was “Hold ‘Em.”

Hold ‘em was an attorney who, he claimed, had never been cautioned or sanctioned in 36 (count ‘em, thirty-six) years of practice. But Judge Mary Ann (“She Who Eschews Cognomens”) Cohen yellow-carded him today for littering the Mobile, AL trial calendar with 42 (count ‘em, 42) cases over the last twelvemonth, all of which he moved to withdraw.

They were all petitions from CDPs, so dismissal on the eve of trial penalized no one but IRS, who Section 6330(e) estopped from collection activities, and the hard-laboring clerks and flailing datestampers at 400 Second Street, NW, who had more electrons to corral.

Remember, Wagner v. Com’r, 118 T. C. 330 (2002), said that withdrawing a petition from a CDP, unlike one from a SNOD, incurs no penalty.

So Hold ‘em did this 42 times, stymieing IRS for months.

I really should have taken a hint from George Bernard Shaw’s 1898 retelling of Der Ring des Nibelungen.

Hold ‘em is indeed The Perfect Wagnerite.


In Uncategorized on 11/16/2018 at 14:25

No, not the World Series of Poker; there are no rivers here, but a great number of flops. This is the story of an attorney in Shreveport, LA, the author of the flops, whom I’ll hereinafter call “Hold ‘em.”

There are a couple orders today (hi, Judge Holmes) involving Hold ‘em who states proudly “in 36 years of practice he has never been sanctioned, warned or admonished.”

Well, his streak is broken today, and The Judge Who Eschews Cognomens, Judge Mary Ann Cohen, is the Judge to do it.

The case is D & K Care Service, Inc., Docket No. 20661-17L, filed 11/16/18.

Petition filed, trial set for Mobile, AL, and petitioner moves to dismiss. Of course Wagner makes this a free kick, no sanction, no decision for IRS.


“Filing the petition resulted in a suspension of collection activities under Internal Revenue Code section 6330(e). The Court observed a pattern in nine cases on the February 13, 2019, calendar, 25 cases on the January 31, 2018, calendar, and eight cases on the April 26, 2017, calendar in Mobile, all filed by the same counsel. Thus the Court ordered petitioner to supplement their motion [to dismiss] and respondent to report with respect to the perceived pattern, raising the consideration of section 6673 and a penalty for cases instituted primarily for delay.” Order, at p. 1.

The problem with a great gimmick is overuse. Dodgefloggers with real great shucks-and-jives advertise their wares and IRS steps in. Cute moves and cutesy names are all very well, until they disclose themselves. I’ve blogged the foregoing in extenso. So let it be with Hold ‘em.

“Respondent’s response to the Court’s order was filed on November 7, 2018, and confirmed the pattern observed by the Court. Petitioner’s response was filed November 9, 2018. Petitioner’s counsel argues that his conduct is not as bad as other situations where penalties have been imposed and that the motion to dismiss avoided further activity in this case.” Order, at p. 1.

Yes, but.

“His arguments do not overcome the inference that this case was instituted primarily for delay. Counsel argues that in 36 years of practice he has never been sanctioned, warned or admonished. He has now been warned and admonished that if this perceived pattern continues, he and/or his client may face sanctions.” Order, at p. 1.

To repeat another old Texas traditionalism, “pigs git fed, hogs git et.”


In Uncategorized on 11/16/2018 at 14:06

Fans of this my blog must have been standing a-tiptoe, waiting for that Obliging Jurist, Judge David Gustafson, to locate the missing TMPs of long ago in Capitol BC Restaurants, LLC, Banyan Equity Investors, Inc., Banyan Equity Investors II, Inc.,  Banyan Mezzanine Fund, LP, Banyan Mezzanine Fund II, LP, et al, Docket 9281-17, filed 11/16/18.

Apparently Judge Gustafson sicced IRS’ top bloodhounds on the two missing matterers, so the Clerk is posting off to them the order referred to in my blogpost “Un Regno di Giorno?” 10/5/18.

You can run but you can’t hide when Judge Gustafson is on the case.


In Uncategorized on 11/16/2018 at 00:24

The late James P. Keeter is back in Tax Court, although, as he is the late James P., it’s his ex’rs and spouse Julie, sub. nom. (as my expensive colleagues would say) Estate of James P. Keeter, Deceased, Garry L. Holton, Jr., and Thomas W. Schaefer, Co-Executors, and Julie Keeter, 2018 T. C. Memo.191, filed 11/14/18.

Now how many of my long-time readers remember the late James P. and his bogus partnership? Well, if you don’t, see my blogposts “Inside, Outside – Redivivus,” 4/3/17, and “Best of Luck,” 5/5/17.

Now it turns out that the late James P. wins his motion to restrain collection. But Julie and the ex’rs can put the Salon le Mesnil back in the cooler, because Judge Goeke finds their motion to get back the $19.2 million IRS got out of them is premature.

And Tax Court does have jurisdiction, because the SNODs IRS issued and the late James’ ex’rs and Julie petitioned, do have non-computational affected items, namely, viz. and to wit, the basis and gain (if any) on the securities and foreign currency distributed to the late James P. (before he became the late James P.) and Julie.

Now the ex’rs and Julie claim the partnership was a sham, so no partnership-level TEFRA tohubohu is needed, and there was a case in USDCNDCA four years ago that said so. IRS says maybe didn’t decide the sham part, just no economic substance.

Judge Goeke: “We do not address the parties’ position that the partnership-level case effectively determined that the partnership was a sham. We do not need to determine for purposes of petitioners’ motion whether the case so held as we hold that even if the partnership was a sham, a partner-level determination is required relating to the assets that [phony] formally distributed to the Keeters.” 2018 T. C. Memo. 191, at p. 11, footnote 4.

If the partnership is disregarded for whatever reason, it’s as if the partners were doing it all individually their own selves. Thus the late James P. and Julie acquired said securities and foreign currency directly, and sold same ditto. So we go to Section 1012(a), cost basis.

The SNODs challenged the late James P.’s and Julie’s basis therein and the gain or loss on the sale thereof. They petitioned.

Section 6213(a) lets Tax Court enjoin assessment and collection while the proceeding is pending. So Judge Goeke can do that.

But until the basis question is resolved, there’s no refund to order. And if I may editorialize, there may not be any when the question is resolved.

So go try the basis and gain-or-loss issues.



In Uncategorized on 11/14/2018 at 19:54

No, this is not a candidate for one of those aviation videos on youtube. This is Judge Kerrigan delivering an off-the bencher, wherein a pilot’s logbook, derived from his GPS readings, avoids the Section 6662(a) substantial understatement chop.

Here’s David McCallum & Annie M. McCallum, Docket No. 16833-17, filed 11/14/18. It’s Dave’s story. He’s an aircraft mechanic who works out of Napa County Airport, the “Skyport to the Wine Country.” Sometimes a gig last only six minutes. Dave works for several different outfits, and flies between jobs in his own airplane.

Dave deducts his aircraft flying as unreimbursed employee business expenses. And they are unreimbursed, because the outfits wouldn’t pay Dave to fly. But they would provide car services to take him from KAPC (that’s the airport code for Napa County) to wherever the airplane needing Dave’s ministrations might be.

Dave’s deductions spin out.

“Except for taxpayers on temporary work assignments, costs of traveling to and from a place of business are considered personal expenses and are not deductible. Commissioner v. Flowers, 326 U.S. 465, 473-474 (1946). Petitioner husband was not on a temporary work assignment. He chose to fly his plane instead of taking transportation provided by [employers]. His unreimbursed travel expenses are considered personal expenses and are not deductible as ordinary and necessary business expenses or as unreimbursed employee expenses.” Order, transcript, at pp. 7-8.

IRS’s counsel flourishes a Civil Penalty Approval Form, and has shown a substantial understatement.

But Dave the pilot keeps pilot’s records.

“Petitioner husband kept records of his flights through his plane’s GPS system. The GPS system recorded the flights in real time. Later, petitioner husband compiled the data from his plane’s GPS system. He separated his business flights from his nonbusiness flights in his records.” Order, transcript at p. 5.

That’s good enough for Judge Kerrigan.

“Petitioner husband kept records pertaining to all of his flights for his travel to and from jobs. He provided credible testimony on how he calculated the miles he traveled and the amount of reimbursement he received. We find that petitioner husband acted in good faith. Petitioners are not liable for the section 6662(a) penalty.” Order, transcript, at p. 8.

Takeaway- GPS is ubiquitous. Most people have some version thereof on their smartphones. Surely some bright fourteen-year-old has an app that permits tracking one’s whereabouts “in real time.” What a help this would be in a Section 274 set-to! Or real estate pro-ship. I can just imagine a petitioner asking that Siri be sworn to testify as to his/her peregrinations and hours on the jobsites.


In Uncategorized on 11/13/2018 at 16:17

If anyone needed more proof that Judge Holmes got it right last year, when The Great Concurrer predicted cataclysmic silt-stirring after Tax Court put the Section 6751(b) Boss Hoss sign-off front-and-center whenever and wherever a chop is invoked (see my blogpost “Stir, Baby, Stir – That Silt,” 12/20/17) , here’s Roy E. Hahn & Linda G. Montgomery, Docket No. 1910-14. Filed 11/13/18.

All y’all must, without the slightest doubt, remember Roy Hahn. If y’all do not, by whatever mischance, check out my blogposts “House of CARDS,” 3/8/11 and “CARDS – A Busted Flush,” 7/2/18.

Roy was one of the top guns at Chenery, dodgefloggers extraordinary.

In the year-and-a-half-plus since Judge Nega closed the record at Roy’s & Linda’s trial, IRS has been rooting around for the Boss Hoss truffles wherewith to inflict chops on Roy & Linda. Judge Nega burns up two-and-a-half pages of order chronicling how he refereed the prolonged back-and-forth between IRS and Roy’s and Linda’s counsel.

One may doubt the parties have moved any closer to a resolution.

“To eliminate any possible prejudice to any of the parties, we will direct the parties to cooperate in developing all facts relevant and necessary to aid this Court in rendering a determination with respect to the application of the section 6751(b)(1) requirement. The parties shall file a report proposing a schedule for further proceedings in this case.” Order, at p. 3.

Now to do this, “…the parties shall each file a status report advising the Court if the relevant facts with respect to the section 6751(b)(1) requirement can be resolved by way of: (1) additional discovery, or (2) a supplemental stipulation of facts, or (3) a stipulation of settled issues, and/or (4) whether there is a need for further trial solely as to the issue of the Commissioner’s compliance with the section 6751(b)(1) requirement. If there is a need for a further trial then the parties shall also include an estimate of the expected length of trial, and a list of anticipated witnesses and exhibits that they intend to rely on. The Court would appreciate specific references to the issues discussed so the Court can ensure that progress is being made to move this case to either further trial or other resolution.” Order, at p. 4.

And if the parties really want another trial, Judge Nega can oblige them next March in The City by the Bay.


In Uncategorized on 11/09/2018 at 19:39

Sir Winston Churchill ascribed this pejorative term to a near neighbor, and it was not at all well-received. But what am I to say about Bolivia’s eleven million fifty thousand inhabitants (I won’t ask you to count ‘em; I rely on the World Bank’s 2017 figure), not one of whom has ventured to read this my blog?

I can well understand that no citizen of Cuba, Niger, Chad, Senegal or Mongolia (Inner or Outer) has evinced the slightest interest either in myself or the United States Tax Court. Neither I nor the Court has any impact, however remote, on their nation or themselves.

Guiana, French to the core, likewise holds aloof.

But Bolivia? It’s the only independent nation on the continent that ignores me.