Archive for February, 2019|Monthly archive page


In Uncategorized on 02/15/2019 at 15:02

The old Engineers’ motto furnishes me a title for Tax Court subpoenas, in Jeremiah Francis Manning, Docket No. 22609-17, filed 2/15/19. This is another discovery geeks’ delight, as Jeremiah wants to depose a CPA and EA, to whom I’ll hereinafter refer to as Jason.

Jeremiah has laid five (count ‘em, five) documents on ex-Ch J Michael B (“Iron Mike”) Thornton, alleging why he has to depose Jason. Jeremiah was on for trial but got continued. Jeremiah wanted to try this case in Our Fair City, but Jason apparently hangs out in San Jose, CA. Wherefore Jeremiah fears a Tax Court subpoena won’t avail him at trial, as Jason won’t show in The Apple. And ex-Ch J Iron Mike can’t make him, he says.


“Petitioner’s request is based on the false premise that [Jason] is beyond the subpoena power of this Court because he does not live or work within 100 miles of the place of trial in New York, New York. Section 7456(a)(1) provides for the subpoena of witnesses and necessary documents and other evidence by the Tax Court ‘from any place in the United States’ to appear or to be produced at any designated place of hearing. Thus, [Jason] may, in fact, be subpoenaed to attend the place of trial in New York, New York. Moreover, petitioner has not alleged, much less demonstrated, that there is a substantial risk that the proposed deponent will not be available at the trial of this case.” Order, at p. 4.

For you died-in-the-wool discovery geeks, ex-Ch J Iron Mike unpacks all of Jeremiah’s discovery requests, with “somber reasoning and copious citation of precedent,” at great length. And tosses them all.

It would really be better for pro ses to concentrate on assembling evidence, rather than chewing up hours on futile paperwork.



In Uncategorized on 02/14/2019 at 16:47

Not Free, But Deductible

Jeffrey Siegel and Sandra Siegel, 2019 T. C. Memo. 11, filed 2/14/19, have a Valentine’s Day story in reverse, as Jeff’s payment to loved-once and daughter’s 529 plan both avoid the slammer for Jeff and give Jeff and Sandra a $242K tax deduction.

IRS claims it’s a money judgment, not back alimony, that Jeff paid loved-once Belinda .

Jeff’s business went broke, and so did he. He owed beaucoup alimony to Belinda, and she and her attorneys were nowise loath to pursue Jeff, getting a money judgment in Nassau County Supreme.

Jeff didn’t pay, so five (count ‘em, five) years later Belinda finally cornered Jeff in Supreme Nassau. The judge offered Jeff the option of writing the aforesaid couple checks (hi, Judge Holmes), or being adjudged in contempt of that august tribunal and doing 150 (count ‘em, 150) days in the Nassau County Correctional Facility.

Jeff takes the expected option, and coughs up. And cash-basis Jeff takes the deduction for the whole $247K he paid that year (the $225K back alimony plus another $17K in current alimony he paid that year). Of course, Jeff’s divorce decree is pre-12/31/18, so the 2017 TCJA cold-storage treatment of alimony deductions plays no part here.

IRS first raises the deficiency ante, and then says it’s a money judgment, and therefore not alimony. Burden of proof not an issue, as no facts in dispute.

Lump-sum alimony payments generally retain their character as alimony. The earlier money judgment Belinda got specifically granted her judgment for a sum certain, bringing in our old friend Section 71(b)(1)(D) liability-after-death-of-payee-spouse.

But this one was to enforce the decree of the Court.

And Judge Colvin lays out NY law to show how this works. NY lawyers, pay attention.

“Respondent contends that the [contempt] order was (or should be treated as) a money judgment because FCA [NY Family Court Act], sec. 454(2)(a) (McKinney 2018) provides that the judge, upon a finding of failure by a party to comply with a lawful support order, ‘shall’ enter a money judgment under FCA sec. 460.” 2019 T. C. Memo. 11, at pp. 9-10.

But NY law goes further. It gives our judges the power to order either or both fines or imprisonment for those who fail to do what they’re told when it comes to alimony and child support.

The judgment was a chop for contempt of court, not for recompense to Belinda. But she gets the money, and Jeff gets the deduction.

For family lawyers with decrees post-12/31/18, put this one in the cold storage file, and examine 12/31/25.

Edited to add, 2/15/19: Judge Colvin has given family lawyers a tax-planning move that really deserves to be remembered. Note that Belinda (the loved-once) had gotten a money judgment against Jeff five (count ’em, five) years prior to the contempt order at issue in this case. If Jeff had paid up at any time post-judgment during those five years, and tried to take a Section 215 alimony deduction, he’d have foundered on Section 71(b)(1)(D), as if Belinda dies, the judgment is not extinguished by her death, but belongs to her personal representative. And this is the case even if Belinda is alive and well when Jeff pays.

But if Jeff waits until he’s haled before the judge, who orders him incarcerated for contempt unless he pays up, and asks for his checkbook and a Mont Blanc as the Corrections officers are robing him in orange, he gets the deduction.

Do we really want a tax system that rewards the deadbeat dads with a deduction if they stall long enough, where the law-abiding ones get Section 6662 chops if they pay up?





In Uncategorized on 02/14/2019 at 14:54

A Section 7430 Legal & Admins Checklist

This blog is directed at the work-a-day, in-the-trenches practitioner. I keep each post as short as possible, but not shorter. Each post should either instruct or amuse, preferably both, but instruction is foremost.

Here’s Judge Gale doing a document correction (a task which befalls Tax Court Judges more than any other judges), and giving a how-to to Yasuko Ogawa, Docket No. 3020-14, filed 2/14/19, and trusty attorney, while incidentally giving a Valentine’s Day present to all of us.

Yas stiped to a decision last year, but left off the Section 7430 legals & admins, so she and trusty attorney move a month later for same. A wee bit late, says Judge Gale, but no worry.

“Claims for litigation and administrative costs are governed by section 7430 and Rules 230 through 233. Under Rule 232(f), ‘[t]he Court’s disposition of a motion for reasonable litigation or administrative costs shall be included in the decision entered in the case.’ See also Note accompanying amendment to Rule 232(f), 93 T.C. 1021 (noting that the requirement ‘is designed to simplify appeal procedures by incorporating into a single document the Court’s disposition of both the substantive issues in the case and the motion for reasonable litigation or administrative costs’). In sum, the Court’s Rules governing awards of litigation costs contemplate only a single decision being entered in a case.” Order, at p. 2.

Now Yas and trusty attorney should have moved for a vacation of the stiped decision, and thrown in their legals & admins evidence. They didn’t, so Judge Gale, emulating that Obliging Jurist Judge David Gustafson, treats their motion as a motion to vacate and grants it.

He also treats the stiped decision as a stip of settled issues, at no extra charge, curing Yas’ Rule 231(c) miscue.

And he also gives Yas and trusty attorney a checklist of the evidence they need to make a prima facie case for legals & admins.

“…we find that the Declaration of [trusty attorney] fails to satisfy Rule 231(d), which provides:

‘A motion for an award of reasonable litigation or administrative costs shall be accompanied by a detailed affidavit or declaration by the moving party or counsel for the moving party which sets forth distinctly the nature and amount of each item of costs for which an award is claimed.’

“The Declaration provides: “The total time spent by counsel relative to representation of both Husband and Wife Petitioners [cases were consolidated. ed] is 231.15 hours to and through trial preparation twice, to research treaties, and taxation of foreign sourced income and ultimately settlement.’ The Declaration also provides that out-of-pocket costs of$1,661.94 were expended for ‘Online computer research’. However, the Declaration does not describe the specific nature of the work [trusty attorney] performed, the number of hours he worked on each matter for each petitioner, or the date such work was performed. We therefore find it lacks the specificity required by Rule 231(d) and will direct petitioner to file a supplemental declaration addressing the aforementioned deficiencies.” Order, at p. 3. (Citation and footnote omitted, but the footnote is important.)

Here’s the footnote: “Additionally, we note that ‘[i]n determining the amount of an attorney fee award, courts customarily require the applicant to produce contemporaneous billing records or other sufficient documentation so that the district court can fulfill its duty to examine the application for noncompensable hours.” Order, at p. 3, footnote 3.

Oh, and notwithstanding Rule 232(b), IRS gets a chance to respond.





In Uncategorized on 02/13/2019 at 17:54

I wonder if Judge Nega is a fan of Paul Simon’s 1972 reggae hit.

Take a look at William French Anderson & Kathryn D. Anderson, Docket No. 23789-16, filed 2/13/19.

Wm seeks to deduct his legal fees for appealing from his criminal conviction, claiming he was wrongfully accused and convicted in an effort to deprive him of his intellectual property, the nature of which is not specified.

IRS wants summary J that said expenses are personal and not ordinary and necessary business expenses.

“Based on the record before the Court, there appears to be a genuine dispute as to an issue of material fact regarding Mr. Anderson’s actual innocence. In other words, the parties fundamentally dispute whether or not Mr. Anderson factually engaged in the physical act elemental to the crime for which he was convicted. We observe that, to this extent, respondent’s motion appears to rely exclusively on Mr. Anderson’s criminal conviction, but avoids substantively addressing the question of material fact essential to the dispute in that criminal case and now the dispute before this Court. Instead, respondent’s motion appears to conflate a context for the claim with the origin of the claim. We find this approach unavailing due to the factually intensive nature of the origin-of-the-claim inquiry before this Court, and because petitioners’ argument in that respect appears to fundamentally rely on a factual finding that Mr. Anderson did not engage in the acts for which he was convicted.” Order, at p. 3 (Footnote omitted).

Maybe Wm gets to retry his criminal case. IRS’ motion for summary J is a loser.

Howbeit, while jousting over Wm’s conviction, the names of the mother and father of a minor child, as well as of said child, nonparties to this case, were mentioned at the hearing on IRS’ summary J motion. Judge Nega ordered the parties to agree on redactions to the hearing transcript, per Rule 27a. But they can’t; IRS wants all three names redacted, but Wm & Kathryn agree only to redact the name of the minor child.

“Tax Court Rule 27(a) generally provides that in an electronic or paper filing with the Court, a party or nonparty making the filing should refrain from including or should take appropriate steps to redact certain specified information, including (1) taxpayer identification numbers, (2) dates of birth, (3) names of minor children, and (4) financial account numbers. The Rules further provide procedures for redaction and protective orders under Rule 103(a) when good cause is shown. See Rule 27(d).” Order, at pp. 3-4.

Mothers aren’t on the list, and Judge Nega is a staunch believer in the public’s right to know.

“Respondent seeks to redact the names of the mother and father which such names are not covered under Tax Court Rule 27(a). Although the Court understands respondent’s concerns, we find that redacting the names of the mother and father are not appropriate at this time. Therefore the Court expects that the parties’ positions will be further developed as they prepare for trial and may at a later time, file a motion under Rule 103(a) or take such action as it deems appropriate.” Order, at p. 4.

So although Judge Nega does not give IRS a false hope, the mother and child reunion may only be a motion away.


In Uncategorized on 02/12/2019 at 15:49

That phrase used to appear many years ago in advertisements in the financial sections of various periodicals. The advertisements, known as “tombstones” for their severe format and dark black type, announced the placement of securities by an underwriter, but was not themselves an offering of those securities. The advertisement drew attention to the latest coup.

Too many times I’ve blogged scams, dodges and traps for the unwary. As I wrote them, I was sure that those who read them didn’t need them, and those who needed them would never see them. So once again, I write “as a matter of record.”

Clemmie Lee Pennington, Docket No. 19115-17SL, filed 2/12/19, paid $3K to an outfit that promised him a TGTBT OIC, a $100 lump-sum walkaway. Eventually Clemmie Lee wound up with a $250/mo. IA, and a NFTL at no extra charge.

Oh yes, TGTBT means Too Good To Be True. It was, of course; IRS kicked the $100 deal to the cliché in a New York minute.

We’ve all seen these late-night telehucksters and internet spamspreaders, hawking bogus OICs. They have imposing names and some claim credentials like EA. Shame on them! The shady OIC-floggers need a few chops of the Section 6673 variety, or maybe a pate-whanging from some State AG.

The taxpayer could do just as well their own selves, or get the Taxpayer Advocate on the case, or a law school LITC (e.g., those Texas Technophobes, Golden Gophers, Harvard Fierce Fighters, the Dave Clark DC Livewires, or Dandy Sandy Freund and the Jersey Kids).

Clemmie Lee gets some sympathy even from Judge Joseph Robert (“Take No Prisoners”) Goeke in this off-the-bencher.

“We also note that petitioner’s arguments relative to the original offer in compromise are misplaced in that he subsequently agreed to the payment of $250 a month, which subverts the reasonableness of his original offer and compromise for a lump sum payment of only $100. It’s unfortunate in this situation that the petitioner was taken in by irresponsible representatives and paid $3,000 or agreed to pay $3,000 to seek a resolution of his tax case, which was too good to be true in all likelihood.

“But in any event, he has not established any basis on which we can accept his argument that the notice of Federal tax lien should be withdrawn. And the position of the Internal Revenue Service as filed in the notice of Federal tax lien, to protect the revenue, was valid and properly balanced the IRS’ need to collect the tax liability with petitioner’s personal situation.” Transcript, at pp. 6-7.

OK, NFTL sustained.

But there’s a puzzlement in the middle of the transcript.

“The taxpayer entered into an installment agreement under section 6159. Withdrawal of the Federal tax lien would facilitate collection of the tax liability, and the National Taxpayer Advocate consents to the withdrawal of the Federal tax lien because it is in the best interest of the taxpayer and the United States.” Transcript, at p. 6. Is the NFTL sustained or not?

This gets a Taishoff “Mein! Was ist das?” First Class.


In Uncategorized on 02/11/2019 at 17:53

I take my text for the story of Traci Newburn, s/a/k/a Traci Breinholt, Docket No. 24737-17L, filed 2/11/19, an off-the-bencher from Judge Buch, from the works of Wm Sidney Porter. But unlike the widow in O. Henry’s “A Departmental Case,” it was IRS and not Traci who “came out particularly strong on Insurance.”

Traci’s late husband (referred to throughout by the punctilious Judge Buch as “Mr. Breinholt”) ran a couple businesses (hi, Judge Holmes) in a somewhat lackadaisical fashion. “He did not maintain files well. Invoices were often stacked or scattered with no discernable pattern to how they were kept. The bank account for [Mr.’s Sub S] was used to pay both personal and business expenses ranging from DVD rentals to airline tickets.

“Household finances were not handled much better. Household expenses were often paid from [Mr.’s Sub S] account. Mr. and Ms. Breinholt maintained separate bank accounts, neither of which had a significant balance during [years at issue]. Mr. Breinholt occasionally wrote checks to Ms. Breinholt on the [Mr.’s Sub S] account. She would deposit those checks into her personal account and use the funds for family expenses. Ms. Breinholt, at the direction of her husband, also wrote checks on the [Mr.’s Sub S] account.” Transcript, at pp. 4-5.

The Breinholts were also nonfilers, Traci only coming up with three years’ worth of returns a couple weeks (hello, Judge Holmes) before trial. Traci thought maybe Mr. Breinholt paid their taxes, except they lost their home on a short sale and lived a modest lifestyle (although they took vacations). Although on one of the returns they did file, Traci was listed as co-owner of Mr.’s Sub S, there’s no other paperwork on the subject, and as Traci and the late Mr. Breinholt were residents of AZ (a community property state), co-ownership via State law doesn’t count.

Confronted with a NITL, Traci sought a CDP, but never proposed a collection alternative nor provided a Form 433-A. She did seek equitable innocent spousery, but conceded the rest.

Judge Buch trudges through the multifarious factors, but one factor stands out.

“Ms. Breinholt was also the beneficiary of a $1 million life insurance policy. Ms. Breinholt has invested the life insurance proceeds, but the record does not establish the current balance of her investment account.” Transcript, at p. 7.

Innocent spousery denied.


In Uncategorized on 02/11/2019 at 16:52

Some Ambiguity Won’t Help You

I’ve had occasion before now to refer to Wm. Empson’s 1930 literary criticism classic, but today the ambiguities tilt the scale against the ambiguitists in Ronald Laudner, Jr. & Kathy Douglass, et al., Docket No. 30578-14, filed 2/11/19, a designated hitter from CSTJ Lewis (“Nom d’un Nom”) Carluzzo.

IRS his Ron & Kathy with a bunch of interrogs, but found “…several responses to interrogatories requesting background information with respect to various disallowed deductions are incomplete and/or vague. According to respondent, those responses need to be supplemented so that respondent can properly prepare for trial.” Order at p. 1.

Sounds reasonable enough. But CSTJ Lew goes beneath the surface.

“As we view the matter, the objectionable responses present more of a problem for petitioners than for respondent. As we have noted in opinions too numerous to count, deductions are matters of legislative grace…, and must properly be substantiated. See I.R.C. §6001. The responses that respondent describes as incomplete or vague strongly suggest that petitioners cannot substantiate the deductions to which the responses relate, and petitioners are bound by those responses.” Order, at p. 1. (Citation omitted, but it’s Colonial Ice, entering its 85th year and still going strong).

IRS suggests that maybe so Ron & Kathy engaged in spoliation of evidence. CSTJ Lew won’t go that far. And I concur; you don’t destroy evidence that would help your case.

But if IRS has proof of spoliation, they can raise that at trial before the trial judge.

Speaking of which, CSTJ Lew tells the parties to avoid further delays.


In Uncategorized on 02/11/2019 at 16:09

My patient readers may remember Peter Hendrickson, the author of the Protesters’ Bible. If not, see my blogpost “Cracking Up,” 2/27/14, wherein I chronicled Judge Buch’s deconstruction of Steven T. Waltner’s frivolity.

Pete furnished the ur-text for Steve’s frivolous Tax Court sonata .

Now Pete himself, along with spouse Doreen, are before Judge Buch, in Peter E. Hendrickson and Doreen M. Hendrickson, 2019 T. C. Memo. 10, filed 2/11/19.

Pete is up to his old tricks. I’ll spare you the recitation of Pete’s frivolities. You’ll not be surprised that, although Judge Buch repeats Pete’s history, Judge Buch avoids “somber reasoning and copious citation of precedent.” He merely ignores Pete’s well-worn rhetoric.

Of interest to my readers is that Judge Buch exonerates Pete from the Section 6663(a) 75% fraud chops.

But Pete isn’t home-free, because Section 6651(f).

“As relevant here, imposition of a section 6663(a) penalty requires that the taxpayer file a valid return, and a section 6651(f) addition to tax is applicable ‘only if * * * [the taxpayer] fails to file a timely return, and then only if the delinquency is fraudulent.’  Although the Hendricksons, and Mr. Hendrickson separately, submitted documents purporting to be returns for 2002, 2003, and 2004, we must determine whether the returns are valid for the purpose of imposing a section 6663(a) penalty or a section 6651(f) addition to tax.” 2019 T. C. Memo. 10, at p. 22 (Footnote omitted).

I expect you won’t be overly surprised to discover that neither nor both the Hendricksons filed valid returns. They did put in one valid item of income, so their returns weren’t the usual all-zeros nonsense. This avails Pete not.

“It is generally accepted that a taxpayer’s return reporting zeros for all income lines is not a valid return.  Additionally, even if the taxpayer provides some income information, the return is not valid as ‘there must also be an honest and reasonable intent to supply the information required by the tax code . . . .  In our self-reporting tax system the government should not be forced to accept as a return a document which plainly is not intended to give the required information.’ Finally the Commissioner’s processing of an invalid return does not make it valid.  As the Court has similarly held regarding the open limitations period with which to assess liabilities under section 6501(c), the Commissioner’s processing of a fraudulent return does not in and of itself start the limitations period.” 2019 T. C. Memo. 10, at pp. 22-23. (Footnotes containing “copious citation of precedent” omitted).

Pete has been reading Tax Court opinions, if not my blog, so he’s up on Section 6751(b) Boss Hossery. IRS got the trial record reopened to put in Form 11661, Fraud Development Recommendation – Examination, and a civil fraud lead sheet.  “Form 11661 lists Mr. Hendrickson’s name, includes the revenue agent’s notes asserting fraud penalties for [years at issue], is dated …and is signed by the revenue agent’s immediate supervisor.  The civil fraud lead sheet lists both Mr. and Mrs. Hendrickson, asserts fraud penalties for [years at issue], is undated, and includes a detailed description of the Hendricksons’ frivolous filing techniques.” 2019 T.C. Memo. 10, at pp. 12-13.

Pete claims this falls short of the Congressionally-mandated second look. Judge Buch says Section 6651(f) doesn’t even get one look, as Section 6751(b)(2)(A) leaves the whole of Section 6651 out of the Boss Hoss equation.

Maybe Congress should take a second look at the Section 6651(f) fraudulent non-filing carve-out, even if IRS need not. I’m not suggesting Pete is an injured innocent, but someone else might be.



In Uncategorized on 02/08/2019 at 11:56

The above inquiry, derived from the Old Mesopotamian, results from a cryptic order by Judge Elizabeth A Copeland (no cognomen yet, but watch this space) in Dana McCullick & Donny McCullick, Docket No. 6192-18S, filed 2/8/19.

IRS wants a continuance of the trial, and asks more than thirty (count ‘em, thirty) days before the trial date. IRS’ counsel alleges the shutdown shut down his chance to get to D&D to find out if they’re down with the requested timeout.

Then he files a status report. I regret I cannot go to 400 Second Street, NW, today, to peruse that report and answer my oft-asked question, “vot did she set?”

Whatever IRS’ counsel said, Judge Copeland dispatches the trusty Chambers Administrator to search diligently and inquire of D&D. And whatever D&D told the CA, it’s enough for Judge Copeland to deny IRS’ motion.

Again we have a case that is less than a year old and has never been continued. See my blogpost “Do Sweat the Small Stuff,” 2/6/19. IRS wants a continuance there, for the same reason as here (can’t talk to petitioner because shutdown). No status report there. However, but for the TEFRA wrinkle, STJ Armen was going to grant IRS’ motion.

So what did the status report say (or not), and what did D&D tell the CA, to the extent either is not privileged?

It really matters, Judge, because a lot of IRS attorneys will move for shutdown-induced continuances. And a lot of pro ses and practitioners will need to know what differentiates one case from another.


In Uncategorized on 02/07/2019 at 15:35

Among other obscurities in the much-contemned Affordable Care Act is the tanning salon excise tax. The tax is imposed on, and collected from, the tanee, but is a trust fund in the hands of the tanor, and a penalty for nonpayment awaits the tanor’s responsible persons, just like FICA/FUTA/ITW. Nonpayment to the fisc calls down the same penalty.

Daniel James Humiston, 2019 T. C. Memo. 9, filed 2/7/19, is fighting a NOD based on an alleged failure of Section 6751(b) Boss Hossery. DJ was here before on this very issue; see my blogpost “Tannery Row,” 5/24/18.

Well, heeding Judge Holmes’ designated hitter from last May, IRS goes to trial, puts the RA who handled case on the stand, and proffers Form 4183. That suits Judge Buch just fine. He finds no abuse of discretion, though, so he needn’t decide whether the tanning salon mulct needs a 6751(b) benediction from on high.

DJ’s tannery was undergoing Ch 11 resuscitation, and he claimed he’d have enough to pay off the $200K when that was done, but he neither provided Appeals a list of the tannery’s assets nor a Form 433-A for himself. Nor was the tannery paying off the taxes.

That’s enough for Judge Buch. We must possess our souls in patience while we await resolution of the Boss Hoss – TFRP conundrum.