Archive for April, 2019|Monthly archive page


In Uncategorized on 04/25/2019 at 16:20

STJ Lewis (“A World-Class Name”) Carluzzo is a man of many talents, a true latter-day Solomon. Today he shows us his skill at rarefied mathematics in Bara v. Commissioner, Docket No. 17107-17SL, filed 4/25/19, a designated hitter that is truly worthy of designation.

It’s the 15% qualified dividends calculation.

If STJ Lew worked all this out with a stub of a pencil on the back of today’s take-out menu in the Judges’ cafeteria at The Glasshouse on Second Street, NW, I wouldn’t be a bit surprised. I gave up after Section 1(h)(1)(F).

I leave to my readers the head-swimming task of reading through the two-and-one-half (count ‘em, two-and-one-half) pages of STJ Lew’s mathematical masterpiece.

STJ Lew well-deserves Sir A. C. Doyle’s encomium: It “ascends to such rarefied heights of pure mathematics that it is said that there was no man in the scientific press capable of criticizing it.”



In Uncategorized on 04/25/2019 at 13:42

All y’all will recall Judge Mark V (“The Great Dissenter”) Holmes’ warning of Graev consequences, more particularly bounded and described in my blogpost “Stir, Baby, Stir – That Silt,” 12/20/17.

It’s the gift that just keeps on giving.

Now we have the Indians and the White Sox.  Maybe it’s a game, but it’s not a baseball game. See Tribune Media Company f.k.a. Tribune Company & Affiliates, et al., Docket No. 20940-16, filed 4/25/19. The Tribunes are now, or formerly were, owners of the Chicago White Sox, and are facing some chops, so Section 6751(b) Boss Hossery is on the menu.

Now where better to stir silt? Especially if the issue is when the  “determination” to go for the chops was first made.

Now enter the Indians, specifically not the Clevelanders but rather the Miccosukee Tribe of Florida. The Miccosukees lost the unreported income but won the chops. See my blogpost “Indians Not Taxed – NOT!” 4/24/19.

And bright and early today Tax Court judges were jumping all over the Revenue Agent’s Report and the 30-day letter resulting therefrom as the fount of all chopping.

Judge Buch wants IRS and the Tribunes to address “…the effect of Clay on the section 6751(b) issues presented in their respective motions for summary judgment. The parties’ responses shall identify whether any notice conferring the opportunity for administrative appeal was issued to either petitioner and direct the Court’s attention to any such notice.” Order, at p. 1.

They probably met in the Judges’ cafeteria at the Glasshouse this morning, and over a piece pie and a cup coffee (hi, Judge Holmes) decided to stir up a whirlpool.

Judge James S (“Big Jim”) Halpern must have been in on the breakfast discussion, because he’s tipping off Hisham N. Ashkouri & Ann C. Draper, Docket No. 17514-15, filed 4/25/19. Hish & Ann petitioned from NY, wherefore I doubt they’re members of the Miccosukee tribe, and maybe their trusty attorney doesn’t read this my blog, so Judge Big Jim needs to put them wise.

IRS wants a reopener, obviously to wild-card in the Section 6751(b) Boss Hoss sign-off. Hish & Ann sent in an affidavit as a reply to the motion, which doesn’t cut it. Judge Big Jim told them so in a phoneathon. So here’s the gen, Hish & Ann and trusty attorney.

“We wish petitioners to file a supplemental response to the motion. In doing so, petitioners should consult our recent report, Clay & Osceola v. Commissioner, 152 T.C. No. 13 (April 24, 2019) with respect to its discussion of when respondent must obtain written supervisory approval in order to meet his burden of production for penalties under I.R.C. section 7491(c).” Order, at p. 1.

Here comes the silt.


In Uncategorized on 04/24/2019 at 16:25

But Not Chopped

All of my readers (few in number but strong in willpower) will recall Judge Pugh sending off IRS and the Miccosukee Tribe of Indians of Florida to try their case, concerning what part, if any of the distributions from said tribe were taxable to James Clay and Audrey Osceola, 152 T. C. 13, filed 4/24/19.

If my readers may have been distracted, they can see my blogpost “Indians Not Taxed – Redivivus,” 11/28/16.

Well, they had their trial. But the money that the tribe handed out is taxable, because not derived from their land. The next-door casino bought land adjacent to the tribe’s, and placed it in trust for the tribe. The distributions came from casino income, denominated as a tax. The tax wasn’t rent for tribal land, and gambling isn’t a land-based activity, like farming or wood-cutting.

If taxation of Indians is what you do, this is required reading, especially as Judge Pugh relies heavily on an 11 Cir. case (United States v. Jim, 891 F.3d 1242 (11th Cir. 2018)) that deals with all these issues.

I’ll spare those of my readers who don’t practice in this specialized field a trudge through details.

But the takeaway is the 30-day letter, the statement of proposed changes to the returns for the years at issue. I talked about the 30-day letter in my blogpost of even date herewith (as my high-priced colleagues say), “Exhaustion.”

Now it’s not about exhaustion, but rather it’s about Section 6751(b) Boss Hossery.

Reliance on the tribe’s Chairman, who was also the Bureau of Indian Affairs’ superintendent, is not justifiable for chops purposes. No evidence was offered as to any delegation from the Bureau as to tax, and even if there was, the Chairman’s conclusion that the distributions were tax-free is manifestly contrary to law.

IRS tries to wild-card in Civil Penalty Approval forms for the years at issue. But those were preceded by 30-day letters based on the Revenue Agent Reports (RAR) proposing the changes set forth in the 30-day letter.

“The determinations made in a notice of deficiency typically are based on the adjustments proposed in an RAR.  (‘[R]espondent sent to petitioner by registered mail a notice of deficiency determining deficiencies in income tax for the taxable years….  * * * Said determination by respondent was based on the adjustments contained in the revenue agent’s report[.]’); (‘[I]t is obvious that petitioner * * * is relying upon the revenue agent’s report of examination upon which respondent based his determination of deficiency.”). And when those proposed adjustments are communicated to the taxpayer formally as part of a communication that advises the taxpayer that penalties will be proposed and giving the taxpayer the right to appeal them with Appeals (via a 30 day letter), the issue of penalties is officially on the table.  Therefore, we conclude that the initial determination for purposes of section 6751(b) was made no later than…when respondent issued the RAR to petitioners proposing adjustments including penalties and gave them the right to protest those proposed adjustments.” 152 T. C. 13, at p. 44. (Citations omitted, but get them for your trial briefs).

The Civil Penalty Approval forms were issued two months after the 30-day letters. Too late. No chops.



In Uncategorized on 04/24/2019 at 15:32

The title of this blogpost more aptly describes the feelings of Judge Morrison, after grappling with Pamela E. Veal-Hill, Docket No. 1517-17, filed 4/24/19.

But the impediment to Pam E.’s quest for Section 7430 admins & legals is Section 7430(b)(1). Did Pam E. exhaust her administrative remedies before filing her timely petition?

No doubt Pam E. substantially prevailed. She got two years’ worth of tax and chops down from $84K aggregate to less than $600. Judge Morrison doesn’t address whether or not IRS was substantially justified.

Pam E.’s problem is that, although the 30-day letters with the proposed changes to tax due said she could go to Appeals if she disagreed, she waited for the SNODs and then petitioned.

Judge Morrison asked Pam E. to clarify. She filed a reply, attaching a letter she sent to IRS asking for an Appeals conference, after she had stiped out her Tax Court case.

“The IRS argued that Veal-Hill’s failure to file a written protest with the IRS in response to the…30-day letters meant that Veal-Hill had failed to exhaust her administrative remedies. Veal-Hill’s…court paper does not address argument directly. Instead it suggests that Veal-Hill’s…”Protest and Request for Appeals Conference” is an attempt to seek her administrative remedies for the adjustments proposed in the 30-day letter. Such a suggestion is wrong. There are no longer any administrative remedies available to Veal-Hill. Her case before this Court involved the issues of the correct amount of deficiencies and penalties for [years at issue]. These issues have been resolved by the…stipulation of settled issues. There is nothing further for the administrative agency to remedy. We therefore hold that Veal-Hill did not exhaust the administrative remedies available to her within the IRS. This precludes her from any recovery of litigation costs. See sec. 7430(b)(1). Therefore, we will deny Veal-Hill’s…motion, which seeks litigation costs under section 7430(a)(2).” Order, at p. 4.

Pam E. also wanted $896K in damages for intentional infliction of emotional harm. No jurisdiction in Tax Court.

Takeaway- Exhaust your remedies or exhaust your wallet.


In Uncategorized on 04/23/2019 at 15:56

STJ Lewis (“Oh What a Name!”) Carluzzo started something in Tax Court last week, when he split the liability 50-50; see my blogpost “STJ Lew as King Solomon,” 4/18/19.

Nowise loath to pick up on the latest gambit, Judge Vasquez does the Solomonic split in Rick B. Ferguson and Deanna Ferguson, 2019 T. C. Memo. 40, filed 4/23/19. It’s Rick’s homebuilding business that’s the cause of the problem. Rick has a medley of C Corp, S Corp and he himself, but they all were targets of the first stone when some custom stonework that Rick’s S Corp produced, supplied and installed in a MacMansion, which the C Corp built as general contractor, was alleged to crack and threaten to collapse.

The vendee sued all and sundry. They settled, of course. Rick claims he lent his S Corp enough to pay the cash part of the settlement, and himself conveyed three parcels of land.

The land gets capital loss treatment, as Rick can’t prove inventory.

Rick wanted to deduct the settlement his own self, claiming damage to reputation. He did have a separate remodeling business that could have been hurt by an adverse verdict, but the C Corp and the S Corp were the real actors. Rick was only sued because he was the “face” of both Corps, and he did nothing that an officer or director of a Corp wouldn’t do. Source of claim knocks out Rick himself.

Rick’s loan gets treated as a capital contribution to the S Corp, because Rick flunks the usual tests, especially no note, no terms of payment, no interest or principal paid. And even though the C Corp was the general contractor, the S Corp was in it with the C Corp, so IRS’ attempt at sticking the whole contribution on the C Corp doesn’t fly.

So what part of the capital contribution belongs to the S Corp?

“This Court has examined lawsuit allegations to determine who, among associated businesses and individuals, may deduct legal fees incurred as joint defendants in a lawsuit.  See Hauge v. Commissioner, T.C. Memo. 2005-276, slip op. at 13, 16-18; Graphic Bus. Sys., Inc. v. Commissioner, T.C. Memo. 1982-167, 1982 Tax Ct. Memo LEXIS 583, at *14-*17.  We have also allocated deductible and nondeductible litigation expenses where appropriate.  See, e.g., Bledsoe v. Commissioner, T.C. Memo. 1995-521, slip op. at 12 (allocating business and personal expenses).

“We believe an allocation of the deduction for the settlement payment is appropriate in this case.  It is clear from the record that the lawsuit that gave rise to the settlement was partially attributable to [C Corp] and partially attributable to [S Corp].  Furthermore, the settlement was paid by Mr. Ferguson, the controlling shareholder of both corporations.  Accordingly, after a thorough review of the record, including the lawsuit pleadings and the settlement agreement, we allocate 50% of the settlement payment to [C Corp] and 50% to [S Corp].” 2019 T. C. Memo. 40, at pp. 22-23. (Footnote omitted).

So S Corp gets to deduct 50% of the settlement. What about C Corp?

“Because the remaining 50% was an expense of [C Corp], we would normally hold that this portion of the payment is not a deductible expense to petitioners but rather a capital contribution to the C corporation.  See Rink v. Commissioner, 51 T.C. at 751-752; Koree v. Commissioner, 40 T.C. at 966.  However, respondent has conceded that petitioners can deduct amounts paid on behalf of [C Corp] as unreimbursed employee business expenses.  On the basis of this concession, petitioners may deduct the remaining 50% of the settlement payment as an unreimbursed employee business expense.” 2019 T. C. Memo. 40, at p. 24.



In Uncategorized on 04/22/2019 at 13:55

I intentionally number this blogpost, as it is the first of what will doubtless be a series. Discovery jousting has been the flavor du millennium, and shows no sign of losing that appellation.

Here’s Judge Gale playing supervising magistrate in Adrian D. Smith & Nancy W. Smith, et al., Docket No. 13382-17, filed 4/22/19.

First, responses to interrogatories.

IRS claims A&N failed to state what they paid someone for something. But they did state the date and Bates stamp number of the documents they’d already given IRS. That’s enough for Rule 71(c).

A&N claim they don’t know what their preparer charged to prepare their Form 2065 (sic; of course they meant Form 1065, Partnership Return), as all the preparer invoiced for was “tax return preparation.” Judge Gale is not amused. “We believe a reasonable interpretation of a request for the costs of preparing a Form 1065 would treat the subsidiary forms required to be attached thereto as included. A good-faith response could easily have said: ‘Petitioners do not have a break-out of the amount paid for the Form 1065 standing alone, but the amount paid to [preparer] for the preparation of the Form 1065 and the additional Federal income tax forms required to be attached thereto was $__.’ In any event, the point isn’t worth arguing. Petitioners will be directed to respond with a statement concerning the amount paid for the preparation of…Form 1065, plus the forms and exhibits attached thereto….” Order, at p. 3.

Second, document production. IRS claims they got a “document dump,” a couple USB flash drives (hi, Judge Holmes) with 29.2 gigs, requiring poor IRS to “…sort through a proverbial ‘document dump’ to extract the responsive documents.” Order, at p. 3.

Except this isn’t the case where irrelevant materials are interspersed with the real stuff, in the hope that one’s opponent will miss the trees for the cliché.

A&N claim this is how they keep their records in the ordinary course of business.

Judge Gale points to Rule 73(b)(3)(A), son of FRCP 34(b). Ordinary course of business works fine, and IRS’ sole bœuf is that they got a lot of documents.

“Respondent has not alleged that petitioners have deliberately mingled responsive documents with nonresponsive documents or simply produced a mass of responsive documents with no internal logic reflecting business use. Rather, respondent alleges only that petitioners have produced a lot of documents and that those documents are not organized or labeled in the manner he prefers.

“We believe the screenshot provided by petitioners adequately supports their contention that the documents were produced as they were kept in the usual course of business. The folders are organized in a manner that suggests an internal logic reflecting business use. ‘When a party produces documents “as they are kept in the usual course of business,” it has no duty to organize and label the documents to correspond to each request.’” Order, at p. 4 (Citations omitted)(Emphasis by the Court.).

Discovery geeks, please copy.


In Uncategorized on 04/19/2019 at 16:18

Again this is one of those stories where those who read it don’t need it, and those who need it won’t read it. But having a few minutes on a busy day, here’s the story of Esteban Baeza, Docket No. 3402-18L, filed 4/19/19.

Estaban had three (count ’em, three) years at issue after IRS dropped one year because Estaban proved he was entitled to a refund. He entered into an IA for the remainder, and IRS dropped the levy with which they were trying to collect.

But the lien remained, and Estaban wanted to fight that.

That Obliging Jurist, Judge David Gustafson, gives us a designated hitter to explain to Estaban and others similarly situated.

“Mr. Baeza’s only contention in this case is that Appeals should not have sustained the lien notice since he had entered into an installment agreement with the IRS pursuant to which he had agreed to pay over time the liabilities that were the subject of the lien notice. He has not alleged any other defect in Appeals handling of his CDP hearing. He has not challenged his liability for the taxes whose collection is at issue. He has not contended that Appeals erred by denying him any collection alternative (nor that he proposed any).” Order, at pp. 3-4.

Ordinarily, this would be “game over,” but Judge Gustafson obligingly explains.

“If a delinquent taxpayer enters into an installment agreement with the IRS, then it would stand to reason that the IRS might forebear active collection of the unpaid liabilities–and that is what the IRS did in Mr. Baeza’s case by determining that ‘levy action is no longer warranted’. However, since the IRS has thus agreed to wait for the taxpayer to pay those liabilities over time, it seems reasonable that the IRS might file a notice of lien in order to protect its ability to collect in the event that the taxpayer fails to fulfill the terms of the installment agreement. Mr. Baeza has explained no reason why this is not so in his case.” Order, at p. 4. (Emphasis by the Court.)

“Trust me, trust me” is no answer.





In Uncategorized on 04/18/2019 at 17:04

Judge Holmes again adverts to the magnificent closing passage of Jimmy Joyce’s greatest short story. It seems he finds the “snow faintly falling” as an insufficient precondition to shutting down the Glass House on Second Street and sending off all hands to teletubby chez eux.

Here’s Estate of Arthur S. Andersen, Deceased, Tena Haroldson, Eric Stoval and Harold Albright,  Personal Co-Representative, Docket No. 14067-14, filed 4/18/19.

Tena, Eric and Harold are working on a Rule 155 beancount after a T. C. Memo. I didn’t blog, but “an actual late-winter blizzard” (Order, at p. 1) prevented counsel from meeting with the trio and finishing up.

Judge Holmes will give them some time.

“The Court understands, since it seems to shut down when there a warning of a wisp of snow. See (President Obama unsuccessfully calling for “flinty Chicago toughness” on snow days in DC).” Order at p. 1.


In Uncategorized on 04/18/2019 at 16:50

Seems like we’re heading toward this result, even in US Tax Court, despite homage to Branerton and Rule 71(c)(1)(B). But that Obliging Jurist, Judge David Gustafson, stands like Horatius at the “Play Nice” bridge, in Cross Refined Coal, LLC, USA Refined Coal LLC, Tax Matters Partner, Docket No. 19502-17, filed 4/18/19.

Cross Refined is anything but, with four (count ‘em, four) discovery motions. Two are for document production, one to review responses to requests for admissions, and the last to take a deposition. Judge Gustafson gives IRS a couple weeks (hi, Judge Holmes) to answer the lot.

But Judge Gustafson won’t play magistrate and supervise discovery. These trial court tactics don’t polish the windows at The Glass House on Second Street, NW.

He orders both sides to “…continue to confer with a view toward resolving these discovery disputes themselves, to the maximum extent possible. To this end, petitioner’s counsel shall initiate an in-person or telephone conference with respondent’s counsel at a mutually convenient time no later than Wednesday, April 24, 2019. As to the fourth of the motions, we observe that, under Rule 74(c)(1)(B), ‘The taking of a deposition of a party … is an extraordinary method of discovery.’ It seems likely to be even moreso [sic] when the party whose facts are the subject of the lawsuit proposes to depose the party with no personal knowledge of the facts and who first had access to the relevant information only after the fact and indirectly. On the other hand, the relative unavailability of depositions under the Tax Court’s rules may, in some circumstances, be a reason that the parties should be required to be especially forthcoming in response to other forms of discovery. The parties might consider this in their further negotiations.” Order, at pp. 1-2.

In short, cut the games and get with the program.


In Uncategorized on 04/18/2019 at 16:37

Innocent spousery falls to the lot of STJ Lewis (“Honor That Name”) Carluzzo, as he enwraps himself in the mantle of a judge of even greater renown, in Elaine S. Thomas, Petitioner and Robert Roy Thomas, Intervenor, Docket No. 5680-18S, filed 4/18/19.

This off-the-bench designated hitter is about something less than $5K. STJ Lew questions the stipulated attribution of all to Rob Roy, but apparently is convinced by the record.

STJ Lew loves IRS counsel’s pretrial memo, which “…accurately and thoroughly (1) sets forth the background of this case; (2) describes the procedures respondent follows in such matters; and (3) lists the factors considered by respondent in responding to a taxpayer’s request for section 6015 relief. The pretrial memorandum also correctly notes that the Court, in general, considers the same set of factors respondent considers, although we are not limited to those factors or bound by respondent’s conclusions with respect to each factor.” Transcript, at p. 5.

It’s so good STJ Lew doesn’t bother to quote it. What a shame we all can’t read it, unless we surry on down to the stone soul picnic at 400 Second Street, NW; wouldn’t it be loverly if we could peruse each page at our leisure and at a dime a throw on PACER or equivalent?

STJ Lew cavils with only a couple points (hi, Judge Holmes, best holiday wishes to you and the whole crowd at The Glass House).

Elaine testifies credibly she didn’t know that Rob Roy was going to stiff the Federales, despite IRS and Rob Roy claiming she did know. Rob Roy was paying timely on a IA covering other years at that point, so she reasonably thought he’d throw this one in as well.

“We are more persuaded by the specific conduct pointed out by petitioner than we are by the general description of her and intervenor’s financial condition at the relevant time. We consider this factor neutral, rather than weighing against relief, as respondent scored it.

“On the other hand, because in the marital separation agreement, petitioner agreed to pay half of the…liability, we weigh the legal obligation factor against granting relief, even though respondent scored the factor as neutral.” Transcript, at pp. 6-7.

You can see STJ Lew reaching for that mantle, and the scourge of whips attributed by his successor to the famous Judge above-cited.

“We are particularly influenced by petitioner’s agreement to pay half of the [year at issue] liability. We are also influenced by the decision made by petitioner and intervenor to pay certain expenses rather than their [year at issue] income tax liability. Although the record shows their financial situation was less than comfortable, the record also shows that they had the resources to pay the liability but chose to save or allocate funds for other Purposes [sic]. Lastly, we are influenced by the fact that the unpaid [year at issue] liability is mostly, if not entirely attributable to intervenor. Giving effect to the martial settlement agreement, we see no reason why petitioner should continue to be liable for his share, nor do we see any reason why, or consider it inequitable to continue to hold her liable for hers.” Transcript, at pp. 7-8.