Back in April, I lamented that, when Maria Ivon Moya invoked the Taxpayer Bill of Rights (TBOR) and got short shrift, “… this case was hardly well-litigated, and I’m sorry we didn’t get a better fact pattern and record in a precedent-setting case.” See my blogpost “The Taxpayer Bill of Goods,” 4/17/19.

Well, today Judge Goeke has gotten something better than one pro se against four (count ‘em, four) IRS lawyers. The Jersey Boys are here, facing off against one IRS counsel, and I hoped for better.

But in Atlantic Pacific Management Group, LLC, 152 T. C. 17, filed 6/20/19, the facts are no better than Maria Ivon’s case. The NFTL for the late-filed partnership returns and information return was delivered to AP’s last known address, and while AP tried to raise delivery as an issue (the TMP was out of the country when the NFTL arrived at the last known address), the USPS’ records show delivery.

“In Buffano v. Commissioner, 2007 WL 424705, at *1, the record included information showing the address appearing on the taxpayer’s most recently filed Federal income tax return. This is the starting point for establishing a taxpayer’s last known address. In addition, the taxpayer did not even become aware of the Commissioner’s levy filing until the Internal Revenue Service (IRS) served a notice of levy on his employer. Buffano v. Commissioner, 2007 WL 424705, at *2. By contrast, petitioner has not shown that its last known address was one other than the New York address used by respondent. In fact, petitioner admits that it received the notice of NFTL filing at its New York address, and petitioner filed a request, albeit untimely, for a CDP hearing based on the notice of NFTL filing. Further, petitioner listed its New York address as its current address on Form 12153, and petitioner’s attorneys listed the New York address as the taxpayer’s address on Form 2848. Accordingly, we find this case distinguishable from Buffano.” 152 T. C. 17, at pp. 8-9 (Citations and footnotes omitted).

But the Jersey Boys are resourceful, and try the epistolary ping-pong move often seen in whistleblower cases. They claim the later letter Appeals sent denying a CDP for lateness constitutes a “determination.” And since there is no mandated form of NOD, the letter was it.

No dice, says Judge Goeke: “While we have said ‘that the absence of a document bearing a particular title or format does not mean that no determination has been made’, SECC Corp. v. Commissioner, 142 T.C. 225, 231 (2014), we have never held such a letter to be a determination that can establish our jurisdiction. Regardless, respondent mailed the letter on August 28, 2017, but petitioner did not file its petition with this Court until May 2, 2018. Assuming without deciding that the August 28, 2017, letter could constitute a determination under sec. 6330, the petition was filed well outside the 30-day window for filing under sec. 6330(d)(1).” 152 T. C. 17, at p. 10, footnote 7. For the SECC story, see my blogpost “Classified,” 4/3/14.

But all this is background. The Jersey Boys invoke Section 7803(a)(3), the TBOR. They claim their client’s right to a hearing in an impartial forum has been denied.

The Jersey Boys never practiced “no-fault” law. Be the ice thin and the sun hot, they will go for it. Unhappily, this is not the case that favors the approach.

“…section 7803(a)(3) itself does not confer any new rights on taxpayers; it merely lists ‘taxpayer rights as afforded by other provisions of’ the Code. Further, section 7803(a)(3) imposes an obligation on the Commissioner to ‘ensure that employees of the Internal Revenue Service are familiar with and act in accord with’ such rights. It does not independently establish a basis for jurisdiction in this Court.” 152 T. C. 17, at pp. 10-11.

The Jersey Boys can’t connect the dots to show how they get jurisdiction. And it gets worse.

“Petitioner cites section 6320(b)(1) as giving it a right to a hearing but conspicuously omits any reference to section 6320(a)(3)(B) mandating a 30-day timeframe in which to request such a hearing. Petitioner’s failure to cite this provision evidences either an unfamiliarity with the statute or a deliberate attempt to mislead the Court. We have already held that petitioner’s failure to timely request a CDP hearing leaves us without jurisdiction to consider this matter. Attempting to confuse our jurisdiction in this case with citations of section 7803(a)(3) does not aid petitioner’s point. Petitioner appears eager to raise arguments it could have raised at a CDP hearing; however, its failure to timely request a hearing has left it without a right to raise those points before respondent or this Court.” 152 T. C. 17, at p. 12.

But all is not lost for AP. “It would appear, however, that petitioner is not without remedy and remains free to challenge respondent’s determinations through a refund action.” 152 T. C. 17, at p. 12.

Looks like I was right back in April: The Taxpayer Bill of Rights is The Taxpayer Bill of Goods.

No, not the 1956 Comden-Styne-Green musical (and later film). This is yet another in The Phone Call series. I’ll spare the petitioner’s counsel in FC-Canal Operating LLC, Docket No. 2488-19, filed 6/19/19.

Ch J Maurice B. (“Mighty Mo”) Foley sets the scene.

“…the parties… submitted a stipulated decision resolving the case and reflecting no deficiency or penalty due from petitioner for [year at issue]. Nonetheless, review of the record continued to suggest a fundamental jurisdictional defect that would prevent entry of the just-referenced decision. In particular, the date of the notice of deficiency underlying this proceeding indicated a statutory deadline for filing a petition pursuant to section 6213(a) of the Internal Revenue Code (I.R.C.) that expired on January 28, 2019. Conversely, the envelope in which the petition was received bore a private postal meter mark dated January 29, 2019. Moreover, inspection of the envelope and related tracking information seemed to reflect that the item was initially returned to petitioner’s counsel by the U.S. Postal Service on January 28, 2019, for insufficient postage before being re-sent to the Court.” Order, at p. 1.

Fortunately, as neither tax nor chops were on the table, this wasn’t as bad as might have been. Still and all, it doesn’t look good; see infra, as my expensive colleagues would say.

IRS showed certified mailing to last known address with proper 90-day notice. Ch J Mighty Mo ordered the Canals to show cause why they shouldn’t be tossed.

Counsel replied thus: “…a mailroom clerk at counsel’s law firm never placed postage on the certified mail envelope when it was mailed to the Tax Court on January 23, 2019. The envelope was then returned to the firm on January 28, 2019, and the clerk unilaterally applied proper postage on January 29, 2019, with a private postal meter and re-mailed the envelope, without knowledge of anyone at the firm. Counsel apologized and advised that there was no objection to dismissal.” Order, at p. 2.

No need for a takeaway.

I said it back in December when Joseph J. Zajac, III, Docket No. 1885-15, filed 6/18/19, went for a Mulligan when Judge Carolyn Chiechi bailed after trying JJZIII’s case without writing a “dission.” “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.” See my blogpost “Second Time Lucky?” 12/26/18.

But that’s all Judge Gale is giving JJZIII the second time around.

In the pretrial phoneathon, Judge Gale laid it out. “…the Court advised the parties that, while a new trial will be conducted, the various pretrial rulings and decisions of Judge Chiechi and the other judicial officers of the Court in this proceeding constitute the law of the case. The Court explained that under the law of the case doctrine a successor judge generally should not, in the absence of exceptional circumstances, overrule a ruling or decision of the initial judge. The Court advised the parties that, based on a comprehensive review of the record in this case, the undersigned is satisfied that: (1) all pretrial rulings and decisions were well-reasoned and sound; and (2) there are no exceptional circumstances presented in this case that would warrant his overruling any of the aforementioned rulings or decisions. Thus, the Court advised, those rulings and decisions will remain intact. In response to an inquiry by petitioner, the Court confirmed that prior evidentiary rulings will stand, with the result that the stipulations of facts, together with the exhibits referenced therein and attached thereto, that were received into evidence and made apart of the record at the initial trial, will remain a part of the record in this case.” Order, at pp. 2-3 (Footnotes omitted, but they are longer than the opinion).

So it’s strictly testimonial credibility.

As to whether the Boss Hoss was or was not justified in signing off on the (conceded) Section 6751(b) approval, that’s not on the table, as JJZIII fought the Constitutional fight in USDCMDFL, and lost.

So JJZIII, it all depends on your performance on the stand.

This was a designated hitter, so from today’s T. C. Memos comes yet more horsing around, Sheldon Sapoznik and Melissa McCrosse, 2019 T. C. Memo. 77, filed 6/18/19. It’s another push through the Section 183 “goofy regulation,” featuring a 100K loss over four (count ‘em, four) years, with more fun than bookkeeping. I leave this to my colleague Peter Reilly, CPA.

When Chapter 7 bankruptcy results in a discharge, personal liabilities included in the proceeding are discharged…except some. And the some that aren’t include taxes, additions and interest.

The Judge with a Heart, STJ Robert N. Armen explains it all to Scott Daniel Wilson & Sarah Margaret Wilson, Docket No. 25218-18SL, filed 6/17/19.

SD & SM wanted two past years’ overpayments credited against the liability for the year at issue, but the Form 4530 Cert shows that the overpayments had been so applied, and SD & SM were still short.

Then too, their bankruptcy petition was filed sooner than three (count ‘em, three) years after the liability in question arose, thus triggering 11 USC §523 and §507. “As applicable to the present case, section 523(a)(1)(A) of the Bankruptcy Act, through its cross-reference to section 507(a)(8) of the Bankruptcy Act, excepts from discharge any tax ‘for which a return * * * is last due, including extensions, after three years before the date of the filing of the [bankruptcy] petition’.” Order, at p. 5.

Bankruptcy practitioners, beware! Here be dragons! Note these dates, and catechize clients accordingly. And put IRS on your creditors’ list.

“In the present case, petitioners filed their bankruptcy petition on September 12,2017. Three years before that date was September 12, 2014. Petitioners’ income tax return for 2014 was due on October 15, 2015, pursuant to an extension of time to file. The return filing date was after September 12, 2014. Therefore, petitioners’ income tax liability for 2014 was not discharged in bankruptcy because it was a tax ‘for which a return * * * is last due, including extensions, after three years before the date of the filing of the [bankruptcy] petition’.” Order, at p. 5. Maybe so should’a waited a while before filing, if possible.

As for additions to tax, late payment has the same three-year cutoff. See 11 USC § 523(a)(7).

And STJ Armen wraps it all up.

“Finally, regarding statutory interest on an underpayment of tax, this Court has previously held that debtors remain personally liable after a discharge for both (1) any pre(bankruptcy)petition interest that was not satisfied out of the bankruptcy estate in respect of a nondischargeable tax debt and (2) post(bankruptcy)petition interest in respect of such debt. Leathley v. Commissioner, T .C. 2010-194, at*2. See In re Moore,2017WL934641 (Bankr., N.D. Okl. 2017), at n.7, citing with approval Leathley v. Commissioner, T.C. Memo. 2010-194. Accordingly, statutory interest on petitioners’ liability for income tax for 2014 is not excepted from discharge.” Order, at p. 6 (Footnote omitted, but it says IRS never recovered anything in the bankruptcy proceeding).

Whoever did the bankruptcy proceeding (assuming petitioners weren’t pro sese) is probably in line for The Phone Call.

It’s Friday, and. as usual, the Glasshouse Gang has neither opinion nor designated hitter to send the blogger off to the Magnolia City for a Father’s Day visit. I wish Judge Nega had designated this off-the-bencher, Paul M. Harris & Rosemary Harris, Docket No. 4519-18L, filed 6/14/19.

Paul & Rosemary need an installment agreement, because they have neither paid estimated nor the balance due for the year at issue. Paul & Rosemary claim they didn’t have the cash to pay, but that cuts no ice either with Appeals when they try to get the additions for late payment and failure to pay estimateds scrubbed, nor with Judge Nega when they petition Appeals’ denial of the IA.

“With respect to the year at issue, petitioners dealt with a number of significant personal expenses and inconsistent cash flow. The record in this respect, however, does not support a determination that timely payment of their tax bill stood to impose an undue financial hardship upon petitioners. Further, the record does not suggest that petitioners exercised ordinary business care and prudence in providing for payment of their tax liability. Petitioners did not make estimated tax payments, or otherwise set aside and account for their tax bill for the year at issue. Rather, the record suggests that petitioners made a decision to administer their personal finances in a manner which came at the expense of their taxes for the year at issue. On that record, we conclude that petitioners did not have reasonable cause for their failure to timely pay, and that petitioners are liable for the addition to tax under section 6651(a)(2) for the year at issue.” Order, transcript, at p. 11.

Paul & Rosemary do no better with the estimateds. “As relevant here, to the extent reasonable cause might except a taxpayer from this addition to tax, a taxpayer also must have, either: (1) become disabled, or (2) retired after having attained the age of 62 during that, or the preceding taxable year. As discussed above, the record does not support petitioners’ argument that their failures were grounded in reasonable cause. Further, the record lacks any evidence suggesting that petitioners otherwise meet the age and retirement, or disability requirements to qualify for exception under this section. On that record, we conclude that petitioners are liable for the addition to tax under section 6654 for the year at issue.” Order, transcript, at p. 12.

Finally, Paul & Rosemary balk at paying the $225 fee for the IA.

“Through 31 U.S.C. 9701, Congress authorized the Secretary to prescribe regulations imposing fees for services rendered by the Commissioner, in order to defray the costs incurred by the Government in providing those services. Pursuant to that grant of authority, the Secretary promulgated regulations that impose a user fee on taxpayers that, as relevant here, enter into installment agreements. Secs. 300.0(b)(1) and 300.1(c), User Fee Regs. These fees and the amounts charged therefor are mandatory unless a taxpayer meets certain poverty-based criteria not at issue here. See sec. 300.103)(3), User Fee Regs.; see also sec. 6159(f) (2).” Order, transcript, at p. 14.

Even though the hard-laboring SO at Appeals spent months working with Paul & Rosemary on an IA, Paul & Rosemary refused to pony up, so the SO closed the file.

Apparently Paul & Rosemary were frustrated. That is not unusual in such cases, but it really doesn’t help.

“While petitioners’ frustration is palpable, their argument does little to change our view of the character of the SO’s actions. Regulations require taxpayers to pay a user fee when they enter into an installment agreement. Accordingly, the SO’s actions — inclusion of this fee in the terms of the agreement, and refusal to accept an installment agreement lacking that fee — were actions rooted in applicable law. For that reason, we hold that the SO did not abuse her discretion.” Order, transcript, at p. 15.

So IRS will now levy.

Aldo V. Fonticiella, 2019 T. C. Memo. 74, filed 6/13/19, has four (count ‘em, four) lawyers to IRS’ two, for an historical sashay through the Officer ranks of the United States and the US Tax Court, and echoes the immortal words of the Fab Four. Appeals is within the IRS, so Aldo is out.

For Tax Court antiquarians, Judge Joel (“The History Guy”) Gerber has a special treat.

And you Tax Court groupies will find this the best thing since Dubroff’s & Hellwig’s “The United States Tax Court – An Historical Analysis,” as to which see my blogpost “Extra, Extra – Real All About It,” 6/23/15.

Aldo (that’s Doc Aldo to you) is an AR cardiologist, who claims Appeals violates separation of powers. So the CDP he got is bogus.

“Petitioner moves this Court to declare that Appeals is an unconstitutional de facto independent agency, which violates the separation of powers doctrine, and separately seeks to have the Court remand his case to Appeals on the basis that the Appeals settlement officer who reviewed his case was an ‘Officer of the United States’ and was not constitutionally appointed in a manner consistent with the Appointments Clause.  The facts and analysis presented in petitioner’s motions are substantially similar to those considered by this Court in Tucker v. Commissioner, 135 T.C. 114.” 2019 T. C. 74, at p. 4.

Tax Court decomposed much brain tissue and 36 pages of text in Tucker to upend that interesting but exaggerated argument, as told by that Obliging Jurist Judge David Gustafson. And D.C. Cir. unanimously affirmed. Doc Aldo and his Fab Four do no better.

“Petitioner’s argument that Appeals is an independent agency because of references to the term ‘independent’ in connection with the function of Appeals exaggerates the meaning of independence in the context of Appeals’ function.  Although Appeals has an independent function within the IRS, it does not mean that Appeals is inherently an independent agency.  We hold that Appeals is not a de facto independent agency in accordance with the Court’s reasoning in Tucker.” 2019 T. C. Memo. 74, at p. 5.

The magic language in the 1998 Reorganization Act that gave us the Appeals we know and love today is “’an independent appeals function within the Internal Revenue Service.’  RRA sec. 1001(a)(4), 112 Stat. at 689 (emphasis added).” 2019 T. C. 74, at p. 7.

“Although Congress established an independent function within the IRS and prescribed procedures for Appeals, the use of the term ‘independent’ to describe Appeals’ function does not automatically make Appeals an independent agency.” 2019 T. C. Memo. 74, at p. 7. (Footnote omitted).

L’il Ole Appeals isn’t the SEC, the EEOC, the CFPB, and anyway, Section 7803(a) lets the President control the Com’r, and Section 7804 lets the Com’r keep Appeals strong and free.

And its AOs don’t need the Senate to bless them.

No Taishoff “Good Try”s here.

Philip N. Rose and Leanna Rose, 2019 T. C. 73, filed 6/13/19, didn’t have such a little tin box as was so melodically apostrophized in 1959 by Sheldon Harnick and Jerry Bock. Rather, they had a safe with around $56K in it.

“Petitioners kept approximately $56,000 in cash from two large tax refunds in a home safe to conceal it from creditors.  Petitioners did not keep specific records of how much money they kept in their safe, but the tax refunds and Christmas gift checks accounted for most of the cash they had.  Petitioners had several bank accounts during the years in issue and transferred funds among those accounts at various times.  The record does not include bank deposit records for any year before…the first year before the Court.” 2019 T. C. Memo. 73, at p. 10.

Their problems are the not uncommon ones – unreported income and dubious real estate records. Phil and Leanna make out slightly better with Judge Pugh than with IRS’ examiners, but they fall down on the records.

“While we generally accept petitioners’ explanation that they were moving money around between their accounts and their safe, especially where they memorialized the transfers by writing checks, they did not convince us that these transfers took place in these amounts.  We question their ability to recall so many transactions so many years ago without contemporaneous documentation; and we question whether their default explanation of money transfers between their accounts and their safe can explain all of the deposits at issue.  Petitioners’ credibility is diminished by their reflexive tendency to claim that all of the deposits lacking another explanation were transfers either from another of their accounts or from their home safe.  Their credibility is further reduced by their occasional inability to choose which explanation applied to a particular deposit, as we explain below.  Without better records, and with the passage of time, their testimony is not enough.” 2019 T. C. Memo. 73, at p. 19.

Of course there were logs for the magic 750 hours, but these left something to be desired.

“The logs themselves are not reliable and therefore are not reasonable means of establishing real estate service hours. Nor are we persuaded by petitioners’ repeated concessions on brief to eliminate defects identified by respondent.  This is not a negotiation but rather an examination of the record to determine whether petitioners’ logs and other evidence are reliable.  Rather than improving their reliability, these repeated concessions highlight the logs’ inherent unreliability.” 2019 T. C. Memo. 73, at p. 29.

Takeaway: Negotiate before, not during, trial.

Off-Topic

I have occasion today to reflect upon Billy Yeats (who didn’t make it this far, regrettably). He bestowed upon us “a terrible beauty.”

Today, especially today, Bill really got this one right.

“An aged man is but a paltry thing/ a tattered coat upon a stick unless/ soul clap its hands and sing and louder sing/ for every tatter in its mortal dress.”

I am blogging James P. Donoghue and Elaine S. Donoghue, 2019 T. C. Memo. 71, filed 6/11/19, not for any novel legal propositions, nor for any off-beat factual circumstances, therein set forth, but rather for the delectation of my colleague Peter Reilly, CPA.

Mr. Reilly has made a substantial collation of hobby horse and similar Section 183 “goofy regulation” cases. This one poses no new concepts, and the facts are straightforward enough.

Mrs D loves horseracing ever since her beloved grandfather introduced her to same. She went in for virtual horsefarming (her “farm” was various use-by-the-day premises, brought together on the internet) and breeding, but rarely raced her horses, and lost $974K over 35 years. She claimed to be a “continuous start-up.”

Judge Ashford wasn’t amused. And wasn’t buying.

Take it away, Mr Reilly.

Gregory L. Murphy and Monica J. Murphy, 2019 T. C. Memo. 72, filed 6/11/19, are petitioning a decision letter from an equivalent hearing off a NITL.

Before you holler “no jurisdiction! Equivalent hearings confer no jurisdiction on Tax Court,” consider. The Murphys’ Form 12153 was timely postmarked, although the flailing datestampers at Appeals didn’t get around to tagging it until much later. So IRS concedes the equivalent hearing was really a CDP, and the Murphys’ petition therefrom is timely.

But the Murphys’ claim that they should’a had a credit from four (count ‘em four) years before the year at issue to offset their liability for the year at issue,  founders. There must be an actual credit available, not a might-be, could-be.

Judge Albert G (“Scholar Al”) Lauber allows as how there’s caselaw allowing Tax Court to consider a prior year, which impacts a current year. But that has to be more than a “maybe so.”

“Our jurisdiction in CDP cases generally does not permit us to consider matters involved for nondetermination years, that is, for tax years that are not a subject of the collection action before us.  But we may consider facts and issues from other years to the extent they ‘are relevant in evaluating a claim that an unpaid tax has been paid.’  Freije v. Commissioner, 125 T.C. 14, 27 (2005).  An available credit from another year is a fact that may affect the taxpayer’s correct liability for the year that is the subject of the collection action.  Weber v. Commissioner, 138 T.C. 348, 371-372 (2012).  But a credit must actually exist in order to constitute an ‘available credit.’  A mere claim for a credit ‘is not an “available credit,’” and such a claim ‘need not be resolved before the IRS can proceed with collection of the liability at issue.”  Id. at 372; see Del-Co W. v. Commissioner, T.C. Memo. 2015-142, 110 T.C.M. (CCH) 119, 120-121.” 2019 T. C. Memo. 72, at pp. 9-10.

For the Del-Co story, see my blogpost “A Claim Is Not a Credit,” 8/5/15.

The Murphys had claimed the credit before, and IRS denied it. But the Murphys never headed for USDC or USCFC for a rematch, per Section 7422.