To the best of my admittedly-imperfect memory, the flailing datestampers and hard-laboring clerks at The Glasshouse in Shutdown City have today set a record they’ll be hard-pressed to equal, much less excel.

They’ve managed to put up 260 (count ‘em, 260) orders today, and three (count ‘em, three) are designated hitters off-the-bench from STJ Lewis (“Ya Can’t Shut That Name Down”) Carluzzo.

Apparently they pushed long and hard to clear the clichés before “the long winter’s nap” that faces The Land of the Free.

STJ Lew’s cases are two duplicates of the old “delegation of authority to sign a SNOD” variety, and the last is an OIC that gets bounced (and there are no “preliminary” bounces).

But STJ Lew has some useful advice for the few going to court despite the shutdown.

Here’s Khadidiatou Donatelli Neumann, Docket No. 979-18S, filed 12/28/18. Khadid is bound for LA in a couple weeks (hi, Judge Holmes, enjoy the break), and STJ Lew hands out a handy hint.

“To avoid potential complications caused by the partial government shutdown, it is ORDERED that a paper copy of any document submitted to the Court for filing, either electronically or in paper, between the date of this Order and the date of the above-referenced trial session, shall be made available at the trial session by the party who submitted the document.” Order, at p. 1.

Even the electrons may be shut down.

In any case, I wish all my readers a very happy new calendar year. I’ll see all y’all when The Glasshouse is back in action.

Two Mondays in January are still scheduled for trials and motion practice. January 7 still goes forward in Birmingham, LA and Santone, while a week later LA, The Apple and Phoenix host the Great Roadshow from the Glasshouse.

In the meantime, at one minute to midnight this very evening, The Glasshouse Gang turns out the lights, puts up the shutters, and locks the doors.

And here’s the skinny for the rest of y’all: eFiling and eAccess will be available. Taxpayers may comply with statutory deadlines for filing petitions or notices of appeal by timely mailing a petition or notice of appeal to the Court. Timeliness of mailing of the petition or notice of appeal is determined by the United States Postal Service’s postmark or the delivery certificate of a designated private delivery service.

Remember to get the list of acceptable subsets of the PDSs in Notice 2016-30.

No, this is not a Helvetian patriot’s hymn to the Alpine cantonments. Rather, we have a 116-page (count ‘em, 116 pages) battle of the heavyweights between Judge Albert G (“Scholar Al”) Lauber and Judge  Morrison, over whether one can move the holes in a slice of Emmenthaler by cutting new holes and filling the old ones, thus encumbering said slice in perpetuity. We also review Belk and Bosque, diss 5 Cir’s take on Bosque and end up with one $4 million deduction (out of three tries) for Pine Mountain Preserve, LLLP f.k.a. Chelsea Preserve, LLLP, Eddleman Properties, LLC, Tax Matters Partner, 151 T. C. 14, filed 12/27/18.

The Pine Mountaineers lose Easement One because they could build too much and move around where they could build. And Judge Scholar Al (and the majority) like how Judge Dennis of 5 Cir, dissenting in Bosque, put it.

“Our thinking about this issue is well captured by the ‘Swiss cheese’ metaphor that Judge Dennis employed.  See BC Ranch II, L.P., 867 F.3d at 562 (Dennis, J., dissenting).  For this purpose one must imagine the entire easement related area as a large slice of Emmenthaler cheese.  The cheese represents the real property initially restricted by the conservation easement.  The holes represent the zones reserved for commercial or residential development.  Section 170(h)(2)(C) requires that the land restricted by the conservation easement be protected from development in perpetuity.  The statute thus bars the developer from putting any new holes in the cheese.

“As relevant here, the developer could consider two techniques for putting new holes in the cheese.  First, he could put new holes in the cheese and make up for it by adding an equal amount of previously unprotected land to the conservation area.  That was the pattern in Belk.  Alternatively, he could put new holes in the cheese and make up for it by plugging the same number of holes elsewhere in the conservation area.  That was the pattern in Bosque Canyon and in the instant case.  In each instance the acreage subject to the easement remains exactly the same.  But in both instances the developer has achieved the impermissible objective of putting new holes in the cheese, i.e., subjecting to commercial or residential development land that was supposed to be protected in perpetuity from such development.

“Like Judge Dennis, we are unable to discern any meaningful legal distinction between these two paths to the same bottom line.  In both scenarios, the developer has retained the right to develop a portion of the conservation area by substituting other property.  The only difference among Belk, Bosque Canyon, and this case is whether the other property lies inside or adjacent to the conservation area.  We do not see why it matters where the other property lies.  What matters is whether there is a perpetual use restriction on ‘the real property’ covered by the easement at the time the easement is granted.  Sec. 170(h)(2)(C).” 151 T. C. 14, at pp. 43-44.

The majority are JJ. Foley, Gale, Thornton, Marvel, Gustafson, Kerrigan, Buch, Nega, Pugh, and Ashford.

But Judge Morrison, dissenting, says yes it does. The easement area is protected in Easement Two, which the majority dumped. While some building can go on, the entire parcel is guarded by the easement. He does dump Easement Two on other grounds, viz., said easement allows inconsistent uses sufficient to knock out preservation for conservation. If the most exhaustive (and exhausting) analysis of put-and-take scenic easementing to date floats your boat, this is the real deal.

Everyone agrees that Easement Three, which permits a water tower and piping and nothing else, is OK. And Judge Morrison does a King Solomon in evaluating the worth of that easement in Pine Mountain Preserve, LLLP f.k.a. Chelsea Preserve, LLLP, Eddleman Properties, LLC, Tax Matters Partner, 2018 T. C. Memo. 214, filed 12/27/18, taking 50% of petitioner and 50% of IRS, as the errors made by each side’s expert cancel out those of the other’s.

“Using an equally weighted average, we conclude that the value of the…easement is $4,779,500, equal to 50% of [Pine Mountaineers’] $9,110,000 value plus 50% of [IRS’] $449,000 value.” 2018 T. C. Memo. 214, at p. 36.

Shutdown or no shutdown, Tax Court is in there pitching.

While Judge David Gustafson, obliging as ever, lets IRS’ legal crew stand down from trial prep without pay, (see my blogpost “The Big Sleep” of even date herewith, as my expensive colleagues say), Judge Robert (“TNP”) Goeke (I’ll explain the cognomen later) is cracking the whip down in AL.

Here’s Christopher Struzik, Docket No. 18384-17, filed 12/27/18.

As they say down Birmingham way, it don’t make no nevermind that the eagle has closed down a vital function.

“Despite the fact that the Federal Government may continue to be partially shut down, this case will be called for trial at 10:00 a.m. on January 7, 2019, in Birmingham, Alabama.” Order, at p. 1.

Be there or beware, both sides.

Oh, the “TNP” at the head hereof? “Take No Prisoners.”

No, not the Raymond Chandler 1939 hard-boiler that featured the debut of Philip Marlowe. Rather, this is that Obliging Jurist David Gustafson relieving IRS’ trial counsel, now unpaid due to matters the particulars of which are now readily available to my readers in the public press. I therefore will make no further reference to such matters, much less comment thereon in this avowedly-non-political blog.

My personal views are stated in extenso elsewhere.

All y’all must be following with anticipation the scheduled trial in Palmolive Building Investors, LLC, DK Palmolive Building Investors Participants, LLC, Tax Matters Partner, Docket No. 232444-14, filed 12/27/18. Barely four (count ‘em, barely four) weeks before the opening gun in this knock-down, drag-out Section 170 donnybrook over a famous Cleveland façade, Judge Gustafson calls a major-league timeout.

“…as the parties are aware, there has been a lapse in the funding of the portion of the Government that includes the Tax Court and the Department of the Treasury (including the Internal Revenue Service). The Anti-Deficiency Act, 31 U.S.C. sec. 1341, imposes limits on Government operations in the absence of Congressional appropriations. Of course, petitioner’s counsel’s operations are unaffected by this circumstance; but the personnel in the IRS Office of Chief Counsel are currently unable to prepare for that trial. We have no way of knowing when there will be an appropriation, and even if Congress were to act by January 22, we cannot be confident that Congress will act in time for Chief Counsel to have a reasonable opportunity to prepare for trial.” Order, at p. 1.

So all bets is off, game called, and telephone to chambers when the eagle does its thing again, to prepare and get back on track.

As aforesaid, I eschew oral or written comment on “we cannot be confident that Congress will act.” I am, however, thinking very loudly.

I found this gem on a site called webdoctx.com.

“taishofflaw.com has registered on 1915-02-15 and has updated on 2018-12-27 and will expire on 2018-12-27. This domain is 103 years old.
taishofflaw.com opened on 15.02.1915 and this domain is 103 years, 10 months old. We see that taishofflaw.com is using Google Adsense to monetize and , 701987 Alexa Rank and Country rank shows us how good and useful this site is.”

Ye don’t say so.

Despite his vociferous assertions that Merrill Lynch stole his book (of business: that’s what we call client lists, client info, client goodwill), all His Honor Big Julie, Judge Julian I Jacobs (sometimes hereinafter referred to as “HHBJJJIJ”) can find is that when FINRA (an organization that rejected my application to join the ranks of their arbitrators after my brief pre-merger stint with MSRB) told Merrill Lynch they couldn’t make Robert A. Connell, of Robert A. Connell and Ann P. Connell, 2018 T. C. Memo. 213, filed 12/26/18 fame, pay back his unamortized signing bonus ($3,242,248), it was ordinary income.

Rob claims ML wooed him with promises of big bucks, then, four days before the end of his first year, made him walk the plank and hit him with a U-5. That’s not the sequel to the 1981 Wolfgang Petersen wet-and-wild saga about a World War II German submarine. Rather, that’s the termination statement for any registered rep type in the securities industry. And as a far finer writer than I put it, “After your death you were better have a bad epitaph than their ill report while you live.” I’ve fought those, and lost.

Well, Rob got their ill report while he lived, which guaranteed no reputable firm would pick him up. Plus, ML grabbed his book and had his former subordinates strip-mine his clients.

Rob ran to FINRA with his top-class attorney Thomas B. Lewis, Esq. And got a “very unusual” win, according to Mr. Lewis. He got to keep the $3 million, got back his computerized client templates (with the data wiped), got some compensatories (a little less than $500K) and even got $288K for Mr Lewis.

Rob claims it’s the price for the book of business ML stole from him, and the U-5 torpedo that sinks him. IRS says it’s ordinary income, like compensation.

The problem is having a top-notch lawyer get complimented by the Judge: that’s a sure sign you lost. The compliment, I suppose, is there to keep the client from stiffing the complimented one, as compliments pay no rent.

HHBJJJIJ: “Admittedly, the filings heavily emphasize Mr. Connell’s argument that Merrill Lynch lured Mr. Connell to Merrill Lynch in order to acquire his book of business and that thereafter it set out to ruin his professional reputation so as to keep him from working at a competing financial services firm. But this argument was not the only one Mr. Connell presented to the FINRA Panel.  Mr. Connell’s attorney, Mr. Lewis, an experienced and successful litigator, made certain of that.  Mr. Connell’s filings forcefully argue that the FINRA Panel should reject Merrill Lynch’s position and conclude that Mr. Connell need not pay the balance of the upfront forgivable loan.  Indeed, Mr. Connell’s filings emphasized that Merrill Lynch breached the terms of the employment contract, not Mr. Connell, causing Mr. Connell to suffer damages. This argument, by itself, would relieve Mr. Connell of his obligation to pay the outstanding balance of the promissory note to Merrill Lynch.” 2018 T. C. Memo. 213, at pp. 33-34.

The answer lies in what FINRA decided, but there’s no opinion, decision or judgment. Just an order giving Rob most (but not all; the bad U-5 remains) of what he wanted.

So what did FINRA really decide? Like the 5-7-4 doubleplay, for explication of which see my blogpost “FIIK,” 4/19/18, one has to try to parse out what went through the arbitration panel’s minds.

“The record herein does not reveal the specific argument the FINRA Panel found most persuasive when it extinguished the balance of the upfront forgivable loan.  Petitioners bear the burden of answering the question ‘in lieu of what were the damages awarded?’  On the basis of our examination of the record, we conclude that petitioners have not met their burden to establish that the amount at issue was solely for the acquisition of Mr. Connell’s book of business.  Consequently, we sustain respondent’s determination that the extinguishment of Mr. Connell’s debt to Merrill Lynch constitutes cancellation of debt income and that the amount of the extinguishment is taxable as ordinary income.” 2018 T. C. Memo. 213, at p. 34.

Richard C. Mathews, 2018 T. C. Memo. 212, filed 12/26/18, lacked “the necessary education, experience, or acumen,” and “bookkeeping, accounting, or taxation experience,” 2018 T. C. Memo. 212, at p. 5 and p. 6, respectively.

Nevertheless, RC, an Army-trained computer whiz, managed to run a multi-level marketing operation (the sort of scam I shut down as an apprentice thief-catcher at the NY Attorney General’s office so long ago) through his Belize trust, although he had never been to Belize, had no office there, and had no idea how a Belize trust would affect his US tax liability.

So although the deficiencies for the two years at issue aggregate less than $25K, IRS wants to mulct RC for $16K in Section 6663(a) fraud chops. And they do have a strong platform from which to seek such chops. RC did not start well at Examination; he lied fore-and-aft. Then his website quoted Al Capone. When CID executed a search warrant of his home, RC had trouble owning up to the two safes containing an aggregate of $13K in what certain of my clients called blätter.

And the CID Sherlocks found about a quarter-million in unreported income over a four-year stretch (but only two of them are involved here. Spoiler alert: RC dodges the fraud chops, so SOL torpedoes the whole shebang).

Although CID and the AUSA started with tax evasion, they superseded that indictment with Section 7206(1) signoff on a false return and 7212 obstructing tax admin. RC goes down on all counts in USDCEDAR, and gets 27 months. 8 Cir affirms in a published opinion, thrashing RC good.

Now we all know that signing a false return doesn’t preclude claiming no tax evasion; you can sign a blatantly false return if you don’t owe any tax, and go down under Section 7206(1). Signing the false return doesn’t prove intent to evade, even though H. D. Thoreau’s milky trout might indicate otherwise.

We have the Eleven Factors; see 2018 T. C. Memo. 212 at p. 23, a for a non-exclusive, non-exhaustive list thereof. And “clear and convincing” is the evidentiary test. Although IRS has met that burden on unreported income, they fall down on fraudulent intent, even though RC concedes the nonreporting.

Maybe Judge Vasquez has the Christmas spirit. Or maybe RC’s stretch as a guest of Our Great Nation brought him “out of error into truth, out of sin into righteousness,” as a much more exalted source puts it.

Howbeit, “Petitioner lied on numerous occasions to RA C and SA W during respondent’s civil examination and criminal investigation.  However, we do not believe he did so in this proceeding.  Before trial, petitioner had served a substantial prison sentence stemming in large part from his behavior during the audit and criminal investigation.  We believe this experience impressed upon petitioner the importance of telling the truth.  At trial petitioner admitted to making mistakes; he was respectful towards respondent and respondent’s witnesses; and he was cooperative with the Court.  His testimony was convincing and withstood cross-examination.  We will therefore credit, as specified below, portions of petitioner’s testimony.

“RA C and SA W also testified at trial.  We found each of them to be honest, forthright, and credible.  However, we disagree with their conclusions about petitioner’s fraudulent intent.

“Petitioner is not a sophisticated taxpayer or financially astute.  He dropped out of high school after the 10th grade and has no training or experience in bookkeeping, taxation, or accounting.  At trial he appeared confused about the nature of his tax liabilities and, at one point, credibly testified: ‘[I]t’s over my head.’” 2018 T. C. Memo. 212, at pp. 24-25. (Names omitted).

But Judge Vasquez is no pushover. “To be sure, this is a close case.” 2018 T. C. Memo. 212, at p. 28. 8 Cir was convinced that RC was a bad ‘un; he did lie throughout his dealings with Exam and CID.

But Judge Vasquez lets RC out of four (count ‘em, four) paragraphs of stips wherein RC gives away the cliché, in the interests of justice.

IRS comes up short on the proof side.

RC walks.

*

Second trials are a rarity in Tax Court, even when a Federal shutdown does not loom. See my blogpost “Big Daddy’s Disciple,” 3/18/14.

But today Joseph J. Zajac, III, Docket No.1886-15, filed 12/26/18, gets one, thanks to the now-fully-retired Judge Carolyn P. Chiechi.

Now-fully-retired Judge Chiechi tried Joe J.’s case, and had the same fully submitted back in February. No opinion, so in October Ch J Maurice B (”Mighty Mo”) Foley proposed handing Joe J.’s case off to another “judicial officer.” Order, at p. 1.

Of course, both IRS and Joe J. get to weigh in. IRS confidently agrees to the hand-off, for the purposes of writing the opinion (based on the trial record) and entering decision.

For us State courtiers, that’s writing the decision and entering judgment.

Joe J. waves off the hand-off, and wants a new trial.

And gets it.

Judge Gale will retry the case.

Joe J. is self-represented, according to the Tax Court docket search. And he seems to be doing OK, so far. Going for a new trial makes sense, if credibility of witnesses is an issue. Everybody’s testimony looks the same as anybody else’s on paper; nobody’s testimony looks the same as anybody else’s on the stand.

I recall once more the Beach Boys’ 1963 hit, as Tax Court will be closed on December 24, 2018. I recommend that my readers follow the Tax Court website for further details in the following days.

In the meantime, here is what the website says as at 12/23/18: ”In the event of a Federal Government shutdown at midnight December 21, 2018, the United States Tax Court will remain open for business on Wednesday, December 26, 2018. Please check this website often for updates on Tax Court operating status and trial information.

“If you have questions about a scheduled trial session during any Government shutdown, please call 202-521-0700 during normal business hours (8 a.m. to 4:30 p.m. Eastern time).”

So long as decisions, opinions, orders and press releases are being issued from The Glasshouse, your reporter will be on the job.

Merry Christmas.