The last time I looked at the corporate division of a Federally-chartered Indian tribe, I punted. That Obliging Jurist, Judge David Gustafson, unloaded 68 pages in Uniband, Inc., 140 T. C. 13, filed 5/22/13, which I mentioned as a one-off in my blogpost “Indians Not Taxed,” 5/22/13.

Today Judge Joseph Robert (“Take No Prisoners”) Goeke counts coup on IRS in Blue Lake Rancheria Economic Development Corporation, 152 T. C. 5, filed 3/6/19, in only 52 pages. Blue Lake Rancheria is a Federally-recognized Indian tribe; I’ll refer to their Economic Development Corporation as Blue Lake.

Blue Lake was an IRA Sec. 17, that is, a corporation chartered by the Federal government under Section 17 of the Indian Reorganization Act of 1934.

Judge Goeke provides a quick overview. “To establish an IRA sec. 17 corporation, an Indian Tribe must submit to the Secretary of DOI a resolution adopted by its tribal council requesting the issuance of a charter.  The Secretary has delegated his power to issue corporate charters to the Bureau of Indian Affairs (BIA) regional offices.  As part of the approval process, each IRA sec. 17 charter must be reviewed by BIA for consistency with Federal law and subsequently approved by the BIA Regional Director and by the Assistant Secretary–Indian Affairs.  Following approval by DOI, the tribal council must pass another resolution ratifying the charter.  Upon passage of the ratifying resolution, the corporation is officially created.  Once issued, an IRA sec. 17 charter cannot be revoked or surrendered except by an act of Congress.” 152 T. C. 5, at pp. 17-18.

Blue Lake adopted a resolution incorporating Mainstay, a corporate division, which handled employee leasing and staffing, and ran up a carload of unpaid FICA/FUTA, which IRS attempts to collect from Blue Lake, claiming Mainstay is a subsidiary and Blue Lakes owes the taxes.

Remember the Courts cut the Indians much slack. IRA Sec. 17 is extremely broad, and Judge Goeke will make it as broad as can be. State law must give way to Congress’ Constitutional mandate to deal with the Indians.

The tribal division is different from any other subsidiary. It is truly a legal stand-alone. When Mainstay needed to take title to an office building wherein to operate, the lending bank wanted title placed in Blue Lake d/b/a Mainstay, because their counsel had no desire to tread in the area of Indian law. I don’t blame counsel; here be dragons. And Judge Goeke gives that the go-by when IRS claims this shows Mainstay was alter ego of Blue Lake.

Mainstay had its own EIN, its own bank accounts, ran the building, paid operating costs and debt service itself, and had benefits and burdens. “[Mainstay] had its own customers, including certain departments of the State of California, and used written contracts and client service agreements with those customers.  [Mainstay] was paid by its customers; {Blue Lake] did not receive payments from [Mainstay] customers.  [Mainstay] leased equipment and automobiles in its own name and made lease payments on the same.  [Mainstay] had commercial general liability insurance, workers compensation insurance, and property and casual [sic; I think you meant “casualty”, Judge] insurance all in its own name.  The premiums for these policies were all paid out of [Mainstay’s] operating account.” 152 T. C. 5, at pp. 12-13.

And when Mainstay factored its receivables, everything was done in Mainstay’s name; although Blue Lake waived sovereign immunity to keep the deal going, the waiver extended to Mainstay only, and anyway, Blue Lake had authority to waive sovereign immunity in its charter.

There’s the usual dictionary-chaw over the word “incidental,” relating to corporate powers under State law, and the distinction between State law powers and Indian powers. But it all comes down to the broad Federal enactment and the Constitutional supremacy thereof.

Blue Lake created a separate division, whose liabilities don’t flow back to Blue Lake.

So when divided, Indians are not taxed.

Judge Mark V Holmes wields a mean hose. Confronted with conflicting statutes, regs both current and presumptively overruled by said statutes, and caselaw perhaps resolving part of same, he relegates cleaning up this “exceptionally mucky corner in the stable of tax procedure” to “…any tax proceduralists whose interest in the field is strong enough to impel them to read our nonprecedential orders. But we need do only a quick hosedown.”

The foregoing is excerpted from Henry J. Metz & Christie M. Metz, et al., Docket No. 10346-10, filed 3/5/19. Stables are an appropriate venue, because the Metzes were horsey folk. The backstory is found in my blogpost “Stock or Land,” 4/29/16.

At issue for Section 7430 admins & legals are two of the years for which the Metzes made a qualified offer, coming in above what IRS could establish on the trial, which IRS is stuck with, and whether IRS was justified for the rest. But common to all of the six (count ‘em, six) years’ legals & admins at issue is the net worth of the Metzes. Do they limbo under the $2 million cutoff?

Henry J seems to establish that he individually beats the bar. But Chris claims the net worth of her Sub S is under $7 million, the corporate cut-off. No dice; the words “or any” in the Equal Access to Justice Act (EAJA) sever corporations from their owners.

But can Henry J and Chris each take $2 million, or is the limit $2 million for joint filers? Those “tax proceduralists,” whosoever and wheresoever they be, can plow through Judge Holmes’ four-page exegesis. But it ends up that old Tax Court opinions say each half of a MFJ return gets his or her own $2 million cap. “We follow division opinions as binding precedent, see Sec. State Bank v. Commissioner, 111 T.C. 210, 213 (1998), aff’d, 214 F.3d 1254 (10th Cir. 2000)…. This all means that a possibly contrary statement in subsequent legislative history doesn’t overturn it.” Order, at p. 9 (misnumbered “4” in original; citations omitted). A division opinion means a one-judge T. C. Memo., rather than a full-dress all-hands review (full-dress T.C.). Each Tax Court Judge has his or her own division.

And those say each joint filer gets his or her own $2 million. So Congress and Treasury can say otherwise, if they will.

Next comes unpiecing the net worth of the Metzes when factoring in the net worth of Chris’ Sub S. I leave this to the CPAs. Judge Holmes remarks on the anomaly of acquisition-less-depreciation (as required by EAJA) for computation, as opposed to FMV at time of bringing the cases.

“We are left with the settled impression that if we used fair market values nearer the time the Metzes began these cases…these calculations of net worth would be considerably lower, and quite probably below the $2 million threshold. One might ponder whether it makes sense for the law to benefit those with low bases and giant unrecognized gains compared to those, like the Metzes, whose misfortunes led them to very large unrecognized losses — losses that in all likelihood triggered the audit and litigation whose costs they seek to recover, and which they had to incur to fend off a disastrously high tax bill.

“There’s an old proof in statistics called the Condorcet Jury Theorem which posits that if the members of a group are all better than random at selecting the correct answer to a question, the likelihood that the group will select the correct answer approaches certainty as the size of the group increases. This theorem may give support to a view of stare decisis as reflecting the wisdom of crowds, and should soothe any individual decisionmaker that his decision in accord with precedent is one that is wiser than if he were plowing a virgin field. See Aaron Andrew P. Bruhl, Following Lower-Court Precedent, 81 U. Chi. L. Rev. 851, 863 (2014). There is also an old saw uncertainly attributed to Ambrose Bierce that defines stare decisis as ‘a legal doctrine according to which a mistake once committed must be repeated until the end of time.’” Order, at p. 15 (misnumbered as “11” in original).

Using the EAJA’s acquisition-less-depreciation calculations, both Henry J and Chris are over the line. No admins or legals.

This is a subject that provokes one-liners. But I’m being serious today.

A few days ago, I’d watched a film clip of a nonlawyer doing as good a deposition as many a top-class colleague could do, and much better than I could do. And the nonlawyer had only five (count ‘em, five) minutes wherein to do it.

The nonlawyer stuck to ascertaining the names of the people, not what the deponent (a lawyer at the time) said to those people or otherwise interacted with any.

And here is one order from three (count ‘em, three) conjoined cases that would delight any discovery geek, from Judge Gale. Let’s take Adrian D. Smith & Nancy W. Smith, et al., Docket No. 13382-17, filed 3/4/19.

It’s a battle over interrogatories and document production. I’ll spare you most of the nineteen (count ’em, nineteen) pages of Judge Gale’s prose, as without having the texts of the discovery requests before us, the resolutions of the disputes are uninstructive.

But Adrian’s & Nancy’s attorney raises an attorney work product objection, and thereby hangs the cliché.

“The U.S. Supreme Court has defined the scope of an attorney’s ‘work product’ to include materials prepared in anticipation of litigation as ‘reflected, of course, in interviews, statements, memoranda, correspondence, briefs, mental impressions, personal beliefs, and countless other tangible and intangible ways’. Hickman v. Taylor, 329 U.S. 495, 511 (1947); see also Branerton v. Commissioner, 64 T.C. 191, 198 (1975).

“In applying the work product doctrine to discovery disputes, courts have drawn a distinction between requests for the identities of persons who may have knowledge of relevant facts–a ‘legitimate concern’ and therefore proper–and requests for the identities of persons whom the opposing counsel has interviewed in preparing the case, deeming the latter as improperly affording the counsel seeking discovery ‘the potential for significant insights into the * * * [opposing counsel’s] preparation of their case (and thus their mental processes).’

“Here, respondent requests the identities of ‘all persons who were interviewed or consulted in preparing the responses.’ Respondent’s interrogatory seeks more than the identities of persons who may have knowledge of relevant facts; it seeks insights into the mental processes and trial preparation of petitioners’ counsel. That is not a proper subject for discovery.”  Order, at pp. 3-4. (Citations omitted, but get them for your memo of law form file).

Note the nonlawyer did not ask the witness about any contacts, conversations, correspondence or anything else between the witness and the named persons “who may have knowledge of relevant facts.” Just the names.

As this is a resolutely nonpolitical blog, I will give no Taishoff accolade to the nonlawyer.

Marc L. Mancini, 2019 T. C. Memo. 16, filed 3/4/19, may have taken a drug that lessened his Parkinson’s disease symptoms, but almost bankrupted him with the compulsive gambling it caused. The cause was Pramipexole, s/a/k/a Mirapex, a dopamine agonist. This prescription medicament supposedly stimulates the part of the brain Parkinson’s suppresses, but also causes impulse control disorders, so some people taking it can’t stop doing crazy stuff.

If I sounds like I know what I’m talking about, don’t be fooled; I cribbed all this from Judge Mark V Holmes’ trudge through the medical literature and Mark’s witness’ expert testimony. Judge Holmes finds the latter slides under Daubert (evidence geeks know what that means, but for human beings it means the minimum necessary to get experts into evidence) for “framework” evidence (what experts in the field generally agree on). But Marc’s expert flunks on “diagnostic,” as the expert didn’t himself treat Marc, so all the expert knows about Marc specifically is hearsay.

I’ve explored the compulsive drug-induced gambling from the Section 72(t) standpoint in my blogpost “Heal Thyself,” 11/21/18. And as I said then, “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.” Fortunately the victim survived and is doing very well.

Unfortunately, the drug-induced gambling spree casualty deduction doesn’t work for Marc. Marc wants a casualty loss for the millions he claimed he gambled away. But Judge Holmes says the caselaw requires casualty losses involve damage to property. Marc’s money wasn’t damaged, and anyway, Publication 547’s statement about losses from bank insolvencies doesn’t bind IRS.

I want to give Marc’s attorney a Taishoff “Good Try, Second Class” even though Judge Holmes isn’t buying.

“Sixty-odd years of caselaw notwithstanding, Mancini argues that physical damage can’t be a prerequisite of a casualty-loss deduction because, in general, the Code doesn’t limit the definition of “property” to just physical assets.  Mancini doesn’t cite any cases that support this argument, and, as we’ve seen, the caselaw on casualty losses says the exact opposite.  But he does cite something interesting: an IRS Publication that says a taxpayer can deduct as a casualty the ‘loss on deposits [that occurs] when a bank, credit union, or other financial institution becomes insolvent or bankrupt.’  IRS Pub. 547, Casualties, Disasters, and Thefts, at 4 (2017).  This would suggest that physical damage to the taxpayer’s property might not be required for a casualty loss.

“Fortunately for the Commissioner, his own publications aren’t the law.” 2019 T. C. Memo. 16, at p. 24 (Citations omitted).

Marc’s numbers don’t add up, even though Judge Holmes prepares his usual tables and compares what documents Marc has with his testimony.

It looks like Marc is up for chops, but IRS forgot the Section 6751(b) Boss Hoss sign-off, so no penalties.

We all (or almost all) have them, some documents in now-obsolete formats from wordprocessing programs gone long since, and some up-to-the-nanosecond, which we use every working day. When racing the clock, we haul the nearest appropriate one out, do a quick edit, and fire it off, barely beating the deadline.

Most of the time it works. Most of us have neither time nor inclination for wheel-reinvention. But when it doesn’t work, things get messy.

Here’s Quoc H. Nguyen & Tham T. Tran, Docket No. 23110-18SL, filed 3/1/18, but it isn’t Quoc’s story nor is it Tham’s. I won’t name IRS’ counsel, because there but for the grace of you-know-Whom goes any one of us.

Quoc & Tham petitioned a NOD. Ch J Maurice B (“Mighty Mo”) Foley spots a flaw in the accompanying documents.

“No copy of any notice of deficiency or determination was attached to the petition. Rather, the petition incorporated a Notice CP504, Notice of intent to seize (levy) your property or rights to property, issued to petitioner Tham T. Tran for [year at issue] and an amended [year at issue] tax return for petitioners.” Order, at p. 1.

IRS’ counsel answers 56 days after the petition is served (note Rule 36(a) says 60 days to answer), during the Shutdown. So counsel may be furloughed, but clearly under the gun.

Ch J Mighty Mo: “..respondent failed to attach thereto any notice of deficiency or determination that would support jurisdiction or the filing of an answer. Instead respondent merely noted that no notice of determination concerning collection action had been attached to the petition and that the notice of intent to levy had been included. Respondent did not otherwise explicitly address the jurisdictional status of this case or suggest that any motion or other steps would follow. Inexplicably, answer also closed with a prayer that ‘respondent’s determination, as set forth in the notice of deficiency and/or notice of determination, be in all respects approved’.” Order, at p. 1.

But of course there are only 45 (count ‘em, 45) days to move with respect to a petition, per Rule 36(a), and IRS’ counsel had blown past that.

Still, a second look at the answer, and a quick edit job, before hitting “send” might have saved the day.

Edited to add, 3/2/19: But how can respondent “suggest that any motion” would follow? Rule 36(a) provides, in pertinent part (as my on-the-slopes-at-Vail colleagues would say)  “(a) Time To Answer or Move: The Commissioner shall have 60 days from the date of service of the petition within which to file an answer, or 45 days from that date within which to move with respect to the petition.” That time is gone, Ch  Mighty Mo. So I guess it’s sua sponte time at The Glasshouse.