Attorney-at-Law

Archive for May, 2019|Monthly archive page

“RELIEF IS NOT A SWALLOW AWAY” – PART DEUX

In Uncategorized on 05/21/2019 at 17:08

Only a sip away for Mary Bui, 2019 T. C. Memo. 54, filed 5/21/19. IRS claims Mary omitted $355K of canceled debt from her return for the year at issue. Mary gets about $48K from Judge Goeke, but gets hit for the rest.

We remember the Qualified Principal Residence Indebtedness largesse, now off the books but active for Mary’s year. The problem is that Mary can only show $12K of one of the mortgage loans out from under which she walked was used to expand and repair the driveway in principal residence. The $10K of custom drapery doesn’t count. The magic words are “…used to acquire, construct, or substantially improve the taxpayer’s primary residence, and that residence must secure the loan.” 2109 T. C. Memo. 54, at p. 10. If the debt wasn’t so secured and so used, no dice.

And anyway, Section 108(h)(4) limits Mary’s QPRI exclusion to about $5K, the difference between what debt was canceled and what wasn’t QPRI.

Mary claims she was insolvent when debt canceled, and IRS agrees. So Section 108(a)(1)(B). But Mary was only underwater around $42K, and you can’t cancel more debt than gets you to zero.

Mary tries for a goal-line save, but has forgotten, or never heard, Taishoff’s Law:  “Stipulate, Don’t Capitulate.”

“Petitioner suggests that respondent did not accurately account for her assets and liabilities when calculating her insolvency.  However, petitioner stipulated respondent’s insolvency calculations and has offered no coherent argument as to why the calculations are in error.” 2019 T. C. Memo. 54, at p. 12.

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ASSESSMENT FIRST, DETERMINATION AFTERWARD

In Uncategorized on 05/21/2019 at 16:42

When it comes to TFRP liens and levies, 11 Cir. says it doesn’t fly, even though Tax Court thought it did. I didn’t blog Romano-Murphy v. Commissioner, T.C. Memo. 2012-330, nor the vacation and remand thereof in 816 F.3d 707 (11 Cir., 2016), for which omissions I now apologize and remedy.

Judge Morrison has the remand in Linda J. Romano-Murphy, 152 T. C. 16, filed 5/21/19. 11 Cir told Tax Court figure out what to do about IRS’ violation of Section 6722(b)(3)(B); IRS assessed first and determined afterward. That, says 11 Cir, is a no-no.

Here’s the short answer.

“…we hold that the assessment is invalid and that the Office of Appeals abused its discretion in upholding the proposed levy and the filing of the notice of lien to collect the assessment.  We do not sustain the determination of the Office of Appeals.” 152 T. C. 16, at p. 6.

Every IRS argument to the contrary is met by “but that’s not what 11 Cir said.” Wherefore I’ll spare you IRS’ multifarious attempts to rescue their $346K lien, which take up about 70 pages of Judge Morrison’s prose.

For a refresher on the entire IRS collections process, read this opinion.

IRS claims harmless error. Even if Linda didn’t get a determination before assessment, she got the same kind of hearing she would have gotten. No good, says Judge Morrison. Because 11 Cir.

“…the timing of assessment affects the ‘procedure used’ for collecting a tax liability.  Here we cannot be sure when the assessment of the trust-fund-recovery penalty would have taken place had the IRS made a final administrative determination before the assessment.  Therefore, its error potentially had a bearing on the ‘procedure used’ for collecting Romano-Murphy’s penalty. Furthermore, Romano-Murphy had a right, under the Eleventh Circuit opinion, to a pre-assessment administrative determination of her liability.  A pre-assessment determination is fundamentally different from a post-assessment determination.  A person seeking a post-assessment determination may be simultaneously dealing with collection actions, such as proposed levies and notices of liens.  The harmless-error rule therefore does not apply.” 155 T. C. 16, at pp. 58-59 (Citation and footnote omitted, but the footnote matters. It says IRS claims it can just redetermine and reassess, as SOL hasn’t run. So what, says Judge Morrison. The old assessment is no good, and that you could do a new one doesn’t validate the defective old one.)

Finally, Linda wants an injunction, but since IRS (which improperly took the “litigation hold” off her file and restarted collection) has reinstated the “litigation hold,” and anyway, the underlying assessment is invalid, there’s no basis for collection.

Linda was pro se throughout. She gets a Taishoff “Good job, first class.”

SACKED!

In Uncategorized on 05/20/2019 at 15:27

It’s not enough for the AO at the CDP to check the IRS’ Integrated Data Retrieval System (IDRS) to see that the SNOD was properly mailed, when IRS hasn’t got either the Form PS3877 or the certified mailing list, and the taxpayer raises an irregularity at the CDP, even if he raises it “inartfully.” 2019 T. C. Memo. 53, filed 5/20/19, at p. 12.

Now generally (love that word! Here comes the exception) “Respondent is correct that IRS guidance does advise Appeals officers that they may ‘rely’ on IDRS to verify the validity of an assessment from a notice of deficiency.  See IRM pt. 8.22.5.4.2.1.1(2) (Nov. 8, 2013).  But that is the ‘general[]’ rule.  Id.  Where a taxpayer alleges that the notice of deficiency was not properly mailed to him, he has ‘alleged an irregularity’, id. pt. 8.22.5.4.2.1.1(5), thereby requiring Appeals officers, according to further IRS guidance, to do more than ‘rely solely’ on IDRS; they must review:  (1) a copy of the notice of deficiency and (2) the USPS Form 3877 or equivalent IRS certified mail list bearing a USPS date stamp or the initials of a postal employee, id. pt. 8.22.5.4.2.1.1(6).” 2019 T. C. Memo. 53, at p. 14.

So the AO didn’t follow procedures, was arbitrary and capricious, and gets sacked.

And sacked by a real expert, “The Freak,” Jevon Kearse, of  Florida Gators, Tennessee Titans and Philadelphia Eagles fame.

Judge Ashford whistles the play.

 

“TELL ME NOT IN MOURNFUL NUMBERS”

In Uncategorized on 05/17/2019 at 16:35

Thomas L. Kitts & Amanda M. Kitts, Docket No. 5629-17, filed 5/17/19, echo the words of Hank Longfellow, but Judge Buch can‘t get them out of the stip they signed, apparently on the eve of trial last December, after they’d bounced an earlier one IRS proposed.

When IRS tries to enter decision, Thom & Amanda balk, because the numbers on the Form 4549B embodying the changes were not what they thought. Judge Buch was induced to hold a phoneathon, whereat IRS agreed to drop a number or two. IRS then moved to enter decision incorporating the agreed changes, whereupon Tom & Amanda moved to be relieved from the stip, claiming IRS misrepresented something. Clearly, Tom & Amanda didn’t like the numbers their stip yielded.

Nope, says Judge Buch.

“The Kitts did not provide any basis to support their claim of misrepresentation. The Kitts may have misunderstood the tax effect of their stipulation, but that unilateral mistake (assuming there was one) is not grounds to set aside the stipulation.

“A stipulation of settled issues is a compromise, and we are unlikely to grant relief from a stipulation entered into through considerable negotiation. The Kitts had the Form 4549B from the Commissioner’s initial settlement offer since at least April 2018. The Kitts were represented by their accountant who also had the Form 4549B before they entered into the stipulation. The parties freely and fairly signed the stipulation long after both parties were aware of what was at issue.” Order, at p. 3 (Footnotes omitted, but get the cases cited and be prepared for bombardment therewith if you ever need to avoid a stip).

The various IRS Manuals give taxpayers no rights. And if Tom & Amanda wanted a trial, that train has left.

And having your accountant represent you in Tax Court raises other and further questions, which I have elucidated more than once.

Remember my advice: Stipulate, don’t capitulate.

“AS COLD AS THE CLAY”

In Uncategorized on 05/17/2019 at 15:55

It looked like Hisham N. Ashkouri & Ann C. Draper, Docket No. 17514-15, filed 5/17/19, might have caught a break when Clay & Osceola walked back the initial chop determination date to the 30-day letter.

Confused? See my blogposts “Indians Not Taxed – NOT!” 4/24/19, and “Here Comes the Silt,” 4/25/19.

Now Judge James S (“Big Jim”) Halpern finds IRS’ tell-all establishes the Section 6751(b) Boss Hossery, so he allows a reopener so IRS can dish.

Hish & Ann claim that after the RA and Acting Group Manager (his boss) confabbed as alleged, they went to Appeals and got their alleged deficiency cut by 50%.

No go, says Judge Big Jim.

“Petitioners base their opposition to respondent’s motion on the transfer of their case to Appeals after [AGM]’s involvement in it. Although petitioners do not explicitly address the standards we employ in considering a party’s request to reopen the record, they suggest that receipt of the evidence respondent seeks to admit would not affect the outcome of their case because it does not establish compliance with section 6751(b)(1). Petitioners allege that Appeals ‘amended’ their tax liability by reducing their deficiencies ‘by 50% of what was stated by [AGM].’ ‘This change in tax liability and amount of deficiency,’ they contend, ‘amounts to a fundamental change to * * * [what was] proposed by [AGM].’ They thus view Appeals’ offer of compromise as having ‘supersede[d]’ the 30-day letter.

“Contrary to petitioners’ argument, the evidence respondent seeks to admit would establish compliance with section 6751(b)(1). The plain terms of that section require the approval of ‘the initial determination’ to assess penalties. Clay & Osceola establishes that the initial determination to assess penalties occurs no later than the issuance of a 30-day letter to the taxpayer. Because a 30-day letter advises a taxpayer of his right to appeal proposed adjustments or penalties, the rule established in Clay & Osceola presupposes the possibility that a taxpayer’s case may go ‘beyond’ the examining agent and his immediate supervisor. Neither the statute nor our opinion in Clay & Osceola gives any indication that a determination to assess penalties must receive subsequent approval during consideration of the taxpayer’s case by Appeals. (Indeed, as noted above, such a requirement would be contrary to section 6751(b)(1)’s plain language.) Moreover, the compromise offered to petitioners by Appeals did not amount to a ‘fundamental’ redetermination of their tax liabilities for the years in issue. The offer–which the notice of deficiency demonstrates was never implemented—simply reduced each proposed adjustment by approximately half.” Order, at p. 3.

So this evidence is a game-changer, is material, and is neither cumulative nor impeaching.

Hish & Ann are “wrapped in white linen as cold as the Clay.”

206

In Uncategorized on 05/17/2019 at 01:17

On May 16, 2019, United States Tax Court issued 206 (count ‘em, 206, and I did) orders. Not one was designated.

Not one deserved to be designated.

On May 16, 2019, United States Tax Court issued no opinions.

On May 16, 2019, I posted nothing. Nothing was worth posting.

On May 16, 2019, my blog got 108 (count ‘em, 108) views. So far, in this month of May, 2019, my blog averages 35 views per day, and I posted every weekday so far.

Go figure.

A NEW DISCOVERY TOOL

In Uncategorized on 05/15/2019 at 23:19

Remand

Whistleblower 972-17W, filed 5/15/19, got to send the Ogden Sunseteers some interrogatories last July, because the proffered administrative record was lacking. IRS’ responses raised more questions than they answered.

972-17W wants more discovery. A former Governor of Our Fair State once remarked that “The only cure for the ills of democracy is more democracy.” Maybe 972-17W feels the same way about discovery.

And STJ Daniel A. (“Yuda”) Guy, making a welcome reappearance in this my blog (although I wish he’d designate these orders), agrees that the Ogden Sunseteers are being parsimonious in revealing the stuff they considered when bouncing 972-17W’s Form 211.

But our former Governor didn’t get it right. Now that Judge Vasquez’s doubts have been laid to rest, STJ Yuda has a new discovery tool.

“We recently held in Whistleblower 769-16W v. Commissioner, 152 T.C. __ (Apr. 11, 2019), that this Court may remand a whistleblower case in appropriate circumstances. As noted above, there is little in the administrative record that identifies or describes the specific information that petitioner provided to the IRS regarding tax-avoidance activities of taxpayers1, 2, and 3. The Court agrees with petitioner that respondent’s responses to the limited discovery permitted by the Court have generated more questions than answers and reveal gaps in the administrative record.” Order, at p. 7.

For the skinny on 769-16W, see my blogpost “Anyone Can Whistle – And Get Remanded,” 4/11/19.

But remand is not a free-fire zone.

“Under the circumstances, rather than permit further discovery, the Court will direct the parties to show cause why this case should not be remanded to the WBO for further investigation and development of the administrative record. The parties shall include in their responses a comprehensive list of the matters that the WBO should be required to address as part of the remand process and a proposed time line for the completion of those proceedings.” Order, at p. 8.

And do it before the July 4 weekend.

I had high hopes that the incumbent Chief Whistler, Lee D. Martin, would bring a greater degree of professionalism to Ogden. He still has a ways to go. But he was a delightful luncheon companion at the last Tax Court Judicial Conference.

 

TECHNOLOGICALLY CHALLENGED – PART DEUX

In Uncategorized on 05/15/2019 at 22:41

But In Recovery

Judge Mark V Holmes evinces a never-give-up attitude when confronted by the electronic age and its marvels. Here, he exhibits his mastery of the CTRL-F function in Oakbrook Land Holdings, LLC, William Duane Horton, Tax Matters Partner, Docket No.5444-13, filed 5/15/19.

I can’t imagine you don’t recall Billy D and the 2500-page docudump anent Reg. 1.170A-14(g)(6)(ii). But if you were beguiled by Game of Thrones or its ilk, see my blogpost “Be Careful What You Ask For,” 3/15/19, and the earlier blogposts therein cited.

IRS ponied up the public comments. Billy D and intrepid counsel responded with the fifteen (count ‘em, fifteen) pages of brief Judge Holmes allowed. But they added, at no extra charge, 200-plus pages of appendix.

IRS yells “foul!” Judge Holmes doesn’t see it that way.

“Unlike some efforts to evade page limits, petitioner’s appendix was not argument, but only an abridgment of the 2,500 or so pages respondent produced in response to our call for the administrative record of the disputed regulation — the disputed regulation was a small part of a larger project. Petitioner’s abridged version in its appendix was a mildly useful check on this Division’s own skills using CTRL+F on the helpfully searchable full record respondent already produced.” Order, at p. 1.

Judge Holmes said “keep it short and stick to the law.”

Billy D and intrepid lawyer didn’t argue anything in the appendix, just showed what part of the administrative record dealt with the issue.

So I reiterate my request from my above-referred-to blogpost: “And maybe Treasury can put this megillah online, now they’ve gone to the trouble of producing it.”

 

THE GOLDEN GOPHERS VS. SCHOLAR JOHN – PART DEUX

In Uncategorized on 05/15/2019 at 19:43

Judge Goeke referees a true battle of the heavyweights in Mary K. Feigh and Edward M. Feigh, 152 T. C. 15, filed 5/15/19, as Cal Smith and the Golden Gophers LITC take on IRS’ “Scholar John” Schmittdiel, this time in a Section 32 dust-up.

Y’all will remember Scholar John, who survived Judge James S (“Big Jim”) Halpern’s withering bombardment on intervention, doubtlless. No? Then see my blogposts “Go To the Head of the Class,” 3/26/14, and “The Golden Gophers vs. Scholar John,” 12/14/17.

Does the Medicaid waiver payment pursuant to a State Medicaid waiver program for the care of the Feighs’ disabled adult children count as “earned income” for the EITC and the Additional Child Tax Credit, per Section 32(c)(2(A)?

The Feighs have disabled adult children, and no one doubts their eligibility for the Medicaid waiver payment, which “…is a payment received by an individual care provider as part of a State’s Medicaid Home and Community-Based Services Waiver Program under sec. 1915(c) of the Social Security Act, 42 U.S.C. sec. 1396n(c) (2012).” 152 T. C. 15, at p. 3, footnote 2.

The Feighs and IRS stiped that the Medicaid waiver payment isn’t included in gross income per Notice 2014-7, 2014-4 I.R.B. 445, but Judge Goeke isn’t bound by stips of law.

Said Notice provides that the Medicaid waiver payments are difficulty of care payments excludable under Section 131

So what, says Cal and the GGs. “…there is no statutory, regulatory, or judicial authority that classifies Medicaid waiver payments as not includible in gross income under section 131; rather, the sole authority for this classification is Notice 2014-7, supra. Petitioners’ argument is that the IRS cannot, through a subregulatory notice, reclassify their otherwise ‘earned income’ as unearned for purposes of determining tax credit eligibility.” 152 T. C. 15, at p. 6.

Before Notice 2014-7, payments for care of one’s biological child, rather than a foster child, weren’t excluded from gross income; Notice 2014-7 tries to level the playing field for caregivers, but as usual, no good deed goes unpunished.

Section 131 speaks of persons placed in foster care; the Feighs’ children stayed home; they weren’t “placed” anywhere. They were cared for by their biological parents, not foster caregivers of any variety.

And what is a full-dress T.C. en bancquet (sorry, guys) without a dictionary chaw?

“Central to this dispute is what is meant in section 32 by the phrase ‘includible in gross income’. This Court has previously opined on the meaning of “includible” versus “included,” and we have held that these words are not functionally the same. …’includible’ refers to ‘the date that the income should have been reported’ while ‘included’ means ‘the date that the recipient reported the income’). While ‘included’ refers to the actual treatment of income, ‘includible’ refers to a required treatment of income, whether or not the income was actually so treated. (‘The “ed” ending refers to something done in fact * * *. The ‘ible’ (or “able”) ending refers to something legally required[.]’); (‘[T]he suffix “able” means ‘”capable of.”’). Thus, an item of income is ‘includible’ in gross income if it is required to be included as income irrespective of whether the item was actually included in the taxpayer’s gross income. Because petitioners’ Medicaid waiver payment is ‘includible’ in their gross income but for Notice 2014-7, supra, the question for us becomes whether a notice can effectively usurp Congress’ authority in granting tax credits by denying petitioners a credit they would have been entitled to in the absence of the notice.” 152 T. C. 15, at pp.11-12. (Citations omitted, but get them for your brief file).

So it’s our old chum Skidmore deference. I’ve heretofore defined Skidmore deference as “the equivalent of ‘yeah, ok’, ranking just above “meh’,” in my blogpost “The Junk Mailer Gets Trashed,”10/24/13.

And again, ol’ Skidmore leaves nothing but skid marks.

“To determine what deference, if any, is owed to an IRS notice we must look at ‘the thoroughness evident in its consideration, the validity of its reasoning, its consistency with earlier and later pronouncements, and all those factors which give it power to persuade, if lacking power to control.’ Skidmore, 323 U.S. at 140. We have already discounted the thoroughness and persuasiveness of the reasoning in Notice 2014-7, supra, and concluded that petitioners’ Medicaid waiver payment does not fit the plain statutory definition of a qualified foster care payment in section 131. Additionally, the notice acknowledges it is a reversal of the IRS’ historical practice of challenging the excludability of these payments and thus does not represent ‘the agency’s longstanding treatment’ of Medicaid waiver payments. In the light of these factors, we determine that the notice is entitled little, if any, deference.” 152 T. C. 15, at p. 13.

IRS says the Feighs are getting a double dip. No tax on the Medicaid waver payment, and the EITC and ACTC refundables.

Well, IRS, says Judge Goeke, you brought that on yourselves. True, your hearts were in the right place, but that’s no excuse. Section 32(c)(2)(B)(vi) lets nontaxable combat pay be used for EITC and ACTC, but Congress did that. Congress could’ve done likewise with the Medicaid waiver payment, but they didn’t.

IRS can’t.

Note: Judge Goeke makes it clear the inclusion here is only for EITC and ACTC purposes. Tax Court isn’t making all these payments taxable.

“Our holdings clarify that, where income does not fall within the plain text of a statutory exclusion from gross income, the IRS cannot reclassify that income through a notice so that it no longer qualifies as ‘earned income’ for the purpose of determining tax credits. We do not reach the question of whether, in the light of our holdings, petitioners should have included their Medicaid waiver payment in gross income. Respondent did not raise this issue in his notice of deficiency or plead it in this case.” 152 T. C. 15, at p. 16. IRS could have raised it, but didn’t.

SEARCHIN’, SEARCHIN’ – FOR A NEW NTA

In Uncategorized on 05/15/2019 at 09:15

As at July 31, Nina E. (“The Big O”) Olsen, National Taxpayer Advocate, retires after 18 years of unending toil in behalf of the downtrodden.

Now Chuck Rettig is seeking the next Daniel (not gender-specific) to stride boldly into the den.

If you’re “anxious for to shine” in aid of us fuellers of the fisc, send in a letter of interest and resume by May 24, 2019 to OfficeofExecutiveServices@irs.gov.

And may the Force be with you.