As If He Needed More

I’ve often referred here to my late grandmother’s salty, ironic view of the world. It might just be hereditary.

Today I belatedly lament the passing of David F. Burbach, Docket No. 12021-12, filed 7/3/19. Judge Holmes tells me (and anyone else on the Tax Court website) that Dave died last month.

You’ll remember Dave’s entanglement with GTE, the dodge-monger alleged EA, who landed Dave in heavy-duty troubles with IRS. If not, see my blogpost “A Bad Influence,” 3/7/19.

Dave’s troubles continue even after he departs this vale of tears.

Judge Holmes notes probate proceedings may be necessary, unless Dave’s team have their Rule 155 beans ready to hand in. And even then maybe so parties need to be substituted and the caption amended.

A sorrowful story.

As it was in the beginning, this shall remain a non-political blog. But Shapat Nabaya, Docket No. 7207-19, filed 7/2/19, seeking to remove from public view his SSAN, which he thriftlessly strewed all over his petition from an alleged NOD, has gifted Ch J Maurice B (“Mighty Mo”) Foley with a motion thus entitled.

Ch J Mighty Mo, wasting no time, doesn’t bother recharacterising Shap’s motion, but tells him to send in an amended petition in idem verba (as my already-on-their-second Grey-Goose-V&T colleagues would say), erasing only TINs.

Of course, there remains the question whether there was in fact a NOD from a CDP, from which Shap timely petitioned.

So let IRS and Shap send in copies of every document upon which each relies to establish (or disestablish) jurisdiction.

Though pleadings may be liberal, jurisdiction is another story.

End the Stealth Subpoena

And spare Judge Holmes the need to remind litigants to play nice. Here’ s EZ Lube, LLC, EZL-1 Investments, Inc., A Partner Other Than the Tax Matters Partner, Docket No. 18021-13.

Judge Mark V Holmes sent the parties off to work out whatever salvation they could back in April. For that, see my blogpost “No EZ Telephone ‘Determinations,’” 4/21/19.

Now IRS, the incomers, and the outgoers, all think they can do a Rule 122 on-the-papers, if only they can get some third-party testimony. But they’ll need a judicial subpoena to do it.

Judge Holmes, in his usual expansive style, lets them go to it.

“Our Rules generally make subpoenas returnable only at trial sessions, which can be inconvenient when the division handling the case isn’t scheduled for a trial session in the city involved. The parties have suggested that this case be set for a hearing at the October 7, 2019 trial session to enable a subpoena to be served and returned by that date. The trial judge involved is amenable to this solution.” Order, at p. 1.

Apparently ex-Ch J Michael B (“Iron Mike”) Thornton will be on the bench at that session.

But Judge Holmes wants to make sure there’s no stealthy dealings.

He orders “…that the both parties comply with Federal Rule of Civil Procedure 45(a)(4).” Order, at p. 2.

See my blogpost “The Stealth Subpoena,” 7/16/15. It’s really time that Rule 147 was brought into line with FRCP 45(a)(4)

May or may not be half-done, as the old saw has it, but Steven Austin Smith, 2019 T. C. Sum. Op. 12, filed 7/1/19 (that’s Prof. Steve to you, as he’s tenure-track at the U of Southern Connecticut) had certainly begun his vegan food exporting business. At least well enough to convince Judge Vasquez that Prof. Steve could write off his start-up expenses per Section 195, thereby thwarting IRS’ attempt to wild-card in the Section 195 argument post-SNOD.

Prof. Steve was hawking various non-animal alimentary products as a private label reseller around Jamaica, the Dominican Republic, Brazil, Argentina and Colombia. Although there was some interest, retailers were unwilling to give shelf space to specialized exotica.

Prof. Steve showed his travels to attend food fairs and his use of the associates he met while working for Procter & Gamble and Pepsico to market his stuff, but in the year at issue he ran up expenses and lost big.

Judge Vasquez: “In the matter before us, respondent’s notice of deficiency makes no mention of section 195, the text of section 195, or the principles upon which section 195 rests.  The record does not establish that respondent raised section 195 during the examination of petitioner’s income tax return or otherwise notified petitioner that section 195 was relevant to his determination.  In fact, respondent’s allowance of petitioner’s Schedule C deductions for advertising, legal and professional services, office expenses, supplies, and utilities in the notice of deficiency contradicts respondent’s section 195 argument.  Accordingly, respondent’s section 195 argument is a new matter, and respondent bears the burden of proof with respect to that argument.” 2019 T. C. Sum. Op. 12, at p. 8.

IRS fails to show Prof. Steve wasn’t actively running a business.

“The record in this case establishes that petitioner, through Worldwide, was actively engaged in the trade or business of selling vegan products in Colombia, Brazil, Jamaica, and the Dominican Republic during [year at issue].  In [previous year] petitioner completed his business plan for [his corp.], according to which he would purchase vegan products from domestic manufacturers and sell them for a profit in certain foreign countries.  During [year at issue] petitioner had an agreement with B, which permitted [his corp.] to sell and market B’s Soy Curls product in foreign countries.  [His corp.] also received an exclusive license from T to sell Seitan products in Brazil, Argentina, Colombia, Jamaica, and the Dominican Republic in the beginning of [year at issue].

“Having secured products to sell, petitioner actively marketed those products in several foreign countries through his own efforts and those of business associates.  Petitioner credibly testified that he attended food shows and other meetings in Colombia, Brazil, Jamaica, and the Dominican Republic, where he provided samples of [his corp.]’s products to local distributors and retailers.  Petitioner also credibly testified that he used a network of foreign business associates to market [his corp.]’s products and find potential customers.  The record in this case includes emails that corroborate petitioner’s extensive efforts to sell [his corp.]’s products.” 2019 T. C. Sum. Op. 12, at pp. 12-13. (Names and footnote omitted).

IRS couldn’t prove Prof. Steve wasn’t able to sell the veggies overseas.

So Prof. Steve wins, right?

Wrong.

Because substantiation. Judge Vasquez can only come up with a couple bucks (hi Judge Holmes) deductions beyond whatever IRS allowed. Prof. Steve might have been a good business operator, but a wretched bookkeeper.

And no evidence that Prof. Steve utilized a competent tax adviser, plus the five-and-ten chops at issue here were calculated untouched by human hands, thus neither Graev nor Clay.

Speaking of Graev and Clay, Judge James S (“Big Jim”) Halpern has a couple designated hitters, wherein he pelts IRS with Clay, as IRS maybe breathed chops before the Boss Hoss Section 6751(b) sign-off. See Nathaniel A. Carter & Stella C. Carter, et al., Docket No. 23621-15, filed 7/1/19.