Archive for September, 2019|Monthly archive page


In Uncategorized on 09/20/2019 at 18:28

Coming off some heavy-duty Tax Court wins on phony captive insurance companies, which I’ve blogged, IRS offers terms of surrender to maybe some 200 captors.

Here’s the skinny:



In Uncategorized on 09/20/2019 at 18:20

That’s not Judge James S (“Big Jim”) Halpern’s answer to Giorgio P. Martinelli, Docket No. 4122-18, filed 9/20/18, despite the 1982 Pavarotti musical.

Giovanni wants summary J that he doesn’t owe Section 6038D(d) hits for the Italian bank account brother Maurizio opened under a POA from Giorgio. And to keep IRS from grabbing the hits. Of course, the Section 6038D hits don’t involve either a deficiency (difference between amount stated on return and tax due) or any NOD.

Section 6214(a) avails Giorgio not. IRS can be enjoined only for Subtitle A and Subtitle B stuff, but Section 6038D is Subtitle F.

Giorgio claims he’s a mere nominee for Maurizio, and Maurizio has two (count ‘em, two) affidavits in almost idem verba that say so. Thus, says Giorgio, the interest and dividends earned on the accounts aren’t Giorgio’s, and therefore there’s no deficiency.

“We do not find petitioner’s or Maurizio’s declarations specific enough to negate the inference that, as the account’s owner, petitioner had the ability (whether or not exercised) to withdraw funds from the account without Maurizio’s approval. Neither petitioner nor his brother describes any terms or conditions on the account that would deny petitioner the usual rights of an account holder and prevent the Italian bank from honoring withdrawal requests from petitioner.” Order, at p. 6.

Giorgio claims he didn’t know about the account until after the year at issue. IRS says he did, but can’t introduce any facts to rebut Giorgio’s tale.

IRS should’a interpolated Rule 121(e), which says that if the only way of contravening affidavits is cross-examination, no summary J. But IRS didn’t.

Judge Halpern to the rescue. “Respondent did not invoke Rule 121(e) in his opposition to petitioner’s motion or accompanying memorandum of law. But he does claim repeatedly that he ‘should not be forced to take information contained in declarations at face value without the right of cross-examination of witnesses under oath.’ Those claims implicitly invoke Rule 121(e).

“We agree with respondent that he should be allowed to cross-examine petitioner about when he learned of the Italian bank account (as well as other matters in regard to which petitioner’s statements provide the only evidence). If petitioner did learn of the account’s existence before [year after year at issue], evidence of that fact may not exist and in any event would not be readily available to respondent. Denial of petitioner’s motion thus should not turn on respondent’s ability to produce evidence to that effect. Petitioner’s testimony about when he first learned of the Italian account may be the only available evidence of that potentially critical fact. Therefore, we will not accept petitioner’s testimony until respondent has had the opportunity to challenge it through cross-examination (and we have the opportunity to observe petitioner’s demeanor and judge his credibility).” Order, at p. 7.

Time for a trial.




In Uncategorized on 09/19/2019 at 16:26

The Boyg’s advice to Peer Gynt doesn’t serve William Elias Rosenberg, 2019 T. C. Memo. 124, filed 9/19/19, well, as Judge Pugh nails Wm E with a deficiency plus the 10% early withdrawal whatever-it-is.

Wm E is short of the 55-1/2 year safe harbor.

“…a Judgment and Property Order Attachment to Judgment (Property Order) was entered that dissolved petitioner’s marriage to his former spouse. It provided that his former spouse must pay him the sum of $10,000 to be ‘[p]aid from the proceeds of * * * [his former spouse’s] retirement account as reimbursement to petitioner for his payment to * * * [her] of liquidated retirement proceeds during marriage.’” 2019 T. C. Memo. 124, at p. 2.

The next year “…petitioner’s former spouse transferred retirement funds to him. Instead of withdrawing the funds from her retirement account at Merrill Lynch and making a cash payment to him, she arranged for those funds to be transferred from her retirement account to an IRA that petitioner opened at Merrill Lynch. Within seven days of this transfer he withdrew the funds and closed the account.” Order, at p. 2.

Wm E never reported the $10K (actually it was $9875, because Merrill hit Wm E with a $125 withdrawal fee).

Now all my learned readers know about QDROs (pronounced “quaddros” by the cognoscenti), and how these dodge the cliché via Section 72(t)(2)(C).

But Judge Pugh isn’t creative.

“Petitioner does not argue that the Merrill Lynch withdrawal is not income or that any statutory exception in section 72(t)(2) applies; he argues rather that the Court should (1) disregard entirely the Merrill Lynch account and the intermediate steps of the transfers from his former spouse’s retirement account to his IRA and his immediate withdrawal from that account and (2) treat the transaction instead in substance as a payment of cash from his former spouse to him as prescribed by the Property Order. He reasons that his former spouse interposed the intermediate steps over his objection, and he did not think the temporary account would convert his property settlement into a retirement distribution includable in his gross income or subject to the 10% additional tax under section 72(t)(1). Petitioner credibly testified regarding the intent of the Property Order, but his understanding that his former spouse would withdraw the funds from her retirement account and transfer them directly to him cannot overcome the fact that the funds were transferred from her retirement account to his and he then withdrew them. We will not use common law doctrines to fashion an equitable exception to the statutory scheme in section 72.” 2019 T. C. Memo. 124, at p. 5. (Citation omitted).

Tax Court does not craft equitable exceptions to what Congress decided. Wm E might have been better advised to try a pay-and-file-for-a-refund gambit. Maybe USDC might have been able to do some crafting.



In Uncategorized on 09/19/2019 at 13:54

Under The Big Top

Mahaffey Tent & Awning Co., Inc., et al., Docket No. 5061-17, filed 9/19/19, is in a document production discovery joust with IRS that they cannot resolve between them.

Mahaffey won’t hand over contracts with its customers. Mahaffey is worried “…because of concerns about respondent contacting its customers and information in its contracts becoming public.” Order, at p. 2.

Judge Kerrigan has this one.

“This case is not calendared for trial. Closer to trial, the Court would not be opposed to a narrow motion for protective order that redacts portions of contracts that are provided to an expert witness or offered as evidence if petitioner can show that it would ’suffer great competitive disadvantage and irreparable harm’. Willie Nelson Music Co. v. Commissioner, 85 T.C. 913, 921 (1985).” Order, at p. 2.

So Judge Kerrigan, invoking Rule 104(c)(2) prevents Mahaffey from introducing any unproduced documents.

And “…respondent shall not contact customers of petitioner that have been identified on produced contracts without further Order by this Court.” Order, at p. 2.

All my readers know you can’t cite orders as precedent (Rule 50(f)): “Orders shall not be treated as precedent, except as may be relevant for purposes of establishing the law of the case, res judicata, collateral estoppel, or other similar doctrine.”

But Judge Kerrigan’s solution just might be something for you to think about.


In Uncategorized on 09/18/2019 at 19:18

Discovery Gateway Spectrum, LLC, Valencia Project, LLC, Tax Matters Partner, Docket No. 20827-16, filed 9/18/19, tried to dismiss a FPAA, while IRS sought summary J. The question is three (count ‘em, three) 1065s, the first slightly late for the year at issue, and the other two while that year was under examination, four years later.

DGS wanted to claim that the partnership had terminated by change of ownership during year at issue, but they’d already filed, slightly late, for that year, on a calendar year basis. So they needed to file a return for the pretermination short period. They tried this four (count ‘em, four) years later, after the calendar year return was under examination. Then they filed the last to correct the misdesignation of the TMP in the previous return.

The IRS rejected the second return. There’s a question whether IRS accepted the last-named return, but since neither it nor its predecessor amended the old calendar-year return, the fact question doesn’t defeat summary J.

If you’re slightly confused by now, so is Judge Ruwe. He gets his dates backward. “There is a factual dispute over whether respondent accepted the January 10, 2014, return. The record establishes that the January 10, 2014, return (if accepted) was to amend the August 7, 2014 (rejected) return.” Order, at p. 2. Judge, I think you meant “(T)he record establishes that the January 10, 2014, return (if accepted) was to amend the August 7, 2013 (rejected) return.”

So IRS issued two FPAAs, one for the pretermination period, and one for the rest of that year. Since each covered different matters, the one-FPAA-per-year rule doesn’t apply. See my blogpost “Jumping Through the Mill,” 9/28/15.

Howbeit, did the last two returns serve to restart SOL? DGS claims it wasn’t a partnership after its termination, therefore the FPAA couldn’t apply post-termination. No, says Judge Ruwe, if you file as a partnership for a year, you’re subject to TEFRA, even if you’re not a partnership.

Whatever the shortcomings of the original filed 1065, it was enough to start the SOL. But there were five (count ‘em, five) extensions, signed by Mr W.

“Mr. W signed each extension with the signature line, “Hyannis Port Capital, Inc. [HPC], TMP by W, President”. For purposes of respondent’s motion, we construe the disputed facts in the light most favorable to petitioner: HPC is not DGS’s TMP or a member of DGS for the [pretermination] period, and The Valencia Project, LLC (TVP) was designated [in the third] return as the TMP for the [pretermination] period and respondent knew this fact.” Order, at p. 4. (Name omitted).

However, Mr. W was a versatile fellow.

“Mr. W was also the manager of TVP. Accordingly, he was the proper person to sign the extensions for both HPC and TVP. Respondent reasonably believed that Mr. W had authority to sign the extensions for the [pretermination] period. We find that the signature line identifying Mr. Wilson as HPC’s president is immaterial. We hold Mr. Wilson had apparent authority to extend the limitations period for DGS’s [pretermination] June30 period.” Order, at p. 4.

It’s the person, not the title.


In Uncategorized on 09/17/2019 at 15:51

Of a Tax Court Judge

It’s a day with neither opinion nor designated order, so the talents of the most highly-qualified bench in the entire Federal judiciary turns its talents to such as this.

“ORDERED that memorandum petitioners’ memorandum pursuant to order dated July 2, 2019 is recharacterized as petitioners’ memorandum pursuant to order dated July 2, 2019.” Alexandru J. Bittner & Sherry Bittner, Docket No. 19894-17, filed 9/17/19, at p. 1.

Judge Kerrigan.


In Uncategorized on 09/16/2019 at 22:49

Ruby Chico isn’t stacked, despite the unreported income in the deficiency, and fraud chops visited upon her husband Raymond, and ex-Ch J Michael B (“Iron Mike”) Thornton will tell you why in Raymond Chico and Ruby Chico, 2019 T. C. Memo. 123, filed 9/16/19.

Ray was a tax preparer who went to pot, selling marijuana cigarette holders of his own design (fetchingly called “doobtubes”) and running a pottery. The problem was he wasn’t declaring income from these operations, and wasn’t keeping good records.

Ray gets the Section 6663 fraud chops.

“Respondent has not asserted fraud penalties against Ms. Chico but alleges that she is liable for the section 6662(a) accuracy-related penalty for each year at issue.

“The accuracy-related penalty cannot be imposed on one spouse where the other spouse is liable for the fraud penalty, as this would lead to impermissible stacking of penalties. See sec. 6662(b); Said v. Commissioner, T.C. Memo. 2003-148. Because Mr. Chico is liable for the fraud penalty for each underpayment, Ms. Chico is not liable for the accuracy-related penalties.” 2019 T. C. Memo. 123, at p. 49.




In Uncategorized on 09/16/2019 at 21:43

My colleague Peter Reilly, CPA, has strongly urged that Section 183 cases can be won. I was skeptical, but there are exceptions.

Here’s one, WP Realty, LP, Olympia Realty, Inc., Tax Matters Partner, 2019 T. C. Memo. 120, filed 9/16/19. It’s the story of Corbin Robertson, Texas high-roller, who decided to provide golfing for inner-city kids via a 501(c)(3), and wound up with a world-class golf course, with seven figure losses to offset his nine-figure income.

He skates through the “goofy regulation,” because Corb had good recordkeeping, got his golf course designed by a “brand name” (Judge Kerrigan’s words, at p. 40) designer, turned his out-of-the-way golf course into a destination, hosted high-profile golf tournaments, kept the kids’ golf charity well-shielded from the business, at least well enough to beast IRS’ “only a hobby” argument, and did make a profit once.

The bottom line? Have enough money to hire a strong staff, use “brand name” contractors, keep the children away, and keep those records current.




In Uncategorized on 09/16/2019 at 21:19

Michael D. Brown, 2019 T. C. Memo. 121, filed 9/16/19, was formerly a high-flying insurance salesman, peddling SDLIAs and engaging in various tax dodges. See my blogpost “Not Ready for Prime Time,” 12/3/13, and “Inventive,” 4/28/16.

Now Mike wants an OIC, because he can’t pay not only the levy on his house, but all the rest of his open years. He offers $400K for the whole shootin’ match, with an $80K Tax Increase Prevention and Reconciliation Act (TIPRA) payment he sends in with his Form 656.\

Well, Mike is still in some partnerships that have open TEFRA FPAA cases, as well as an Abusive Tax Avoidance Transaction (ATAT) investigation.

Judge Kerrigan spends 18 (count ‘em, 18) pages approving COIC’s kicking of Mike’s OIC.

But Mike wants his $80K back.

“Section 7122(c)(1)(A)(i) requires that the submission of any lump-sum OIC be accompanied by a payment of 20% of the offer amount. Any OIC paid in five or fewer payments is considered a lump-sum OIC. Sec. 7122(c)(1)(A)(ii). The legislative history of section 7122(c) refers to the 20% payment as a “partial payment” or “down payment” of the taxpayer’s liability. H.R. Conf. Rept. No. 109-455, at 234 (2006), 2006 U.S.C.C.A.N. 234, 420-421. The 20% payment of the offer amount is treated as a payment of tax rather than a refundable deposit under section 7809(b) or section 301.7122-1(h), Proced. & Admin. Regs. See Notice 2006-68, sec. 1.02, 2006-2 C.B. 105, 105.

“Under section 7122(c)(2)(A) the taxpayer may specify how he or she wants their TIPRA payment applied by making the request in writing when he or she submits the OIC. Notice 2006-68, sec. 1.04, 2006-2 C.B. at 105. If no such specification is made, the IRS will apply the TIPRA payment in the best interest of the Government. Id.” 2019 T. C. Memo. 122, at pp. 18-19.

Mike didn’t specify.

Read the bottom of Form 656: it says that the TIPRA payment is nonrefundable.

Mike then claims Section 7122(f) deemed-acceptance. But IRS met the 24-month cutoff by bouncing Mike’s OIC in less than seven months.

Mike gets shot down.



In Uncategorized on 09/16/2019 at 18:41

More SOL – But Not for Dummies

Turns out that even when Seaview Trading, LLC, AGK Investments, LLC, Tax Matters Partner, 2019 T. C. Memo. 122, filed 9/16/19, sorted out its tax matterer issue (see my blogpost “Tax Smatterer,” 3/12/15), they never managed to get their Form 1065 for the year at issue filed when due, and two (count ’em, two) attempts to get the return to IRS, so as to trigger SOL, failed.

First, after the FPAA was issued, Seaview’s accountant “…faxed to Agent J a purported copy of Seaview’s [year at issue] Form 1065 and a certified mail receipt purporting to show that the return was initially sent to the Commissioner….” 2019 T. C. Memo. 122, at p. 4. (Name omitted).

Then, two years later, Seaview’s attorney sent IRS’ counsel a copy of said Form 1065.

Seaview argues Dingman. Remember Marty Dingman? No? Then see my blogpost “The Check’s the Thing,” 6/1/11.

The issue, of course, is SOL. If the return was filed (IRS claims it wasn’t), then the FPAA, which came more than three years after both the accountant’s fax and the attorney’s letter, is barred.

Well, neither faxing to a RA nor mailing a letter to IRS’ attorney is filing in the proper place.

“Section 1.6031(a)-1(e)(1), Income Tax Regs., designates the proper place to file a Federal partnership income tax return. The designated place for filing is the ‘service center prescribed in the relevant IRS revenue procedure, publication, form, or instructions to the form.’ The instructions for Form 1065 for [year at issue] state that the proper service center for filing was the Ogden, Utah, service center. Thus, Seaview did not submit a return to the proper place for filing when it faxed a copy to Agent J… or when it sent a copy to respondent’s counsel…. Neither of the purported returns was forwarded to the Ogden service center. Additionally, there is a plethora of caselaw holding that a revenue agent is not a designated filing place.” 2019 T. C. Memo. 122, at p. 8 (name, citations, and footnote omitted, but the footnote says Seaview could have filed by magnetic media).

But Marty Dingman’s attorney gave the returns and the check to the CID, right? Yes, but.

Judge Ruwe: “Dingman is inapplicable to the present case. In Dingman, we held, in a unique factual situation, that a taxpayer filed his returns when his counsel provided delinquent returns to the IRS Criminal Investigation Division (CID). In sum, we held that in the precise situation in Dingman, the CID was an appropriate place to hand-deliver a return. Dingman is applicable only to hand-delivery of returns arising under the facts present in that case. In Dingman the taxpayer clearly intended that the returns submitted to the CID be delinquent returns with payments, and the IRS processed them as such and assessed the taxpayer’s payments. Those facts are not present in the instant case. Indeed, petitioner continues to maintain that Seaview timely filed its [year at issue] return. Dingman did not create a blanket rule that a taxpayer can file a return by whatever method he chooses; nor did it create an additional place for taxpayers to file returns beyond the places specifically designated in the Code or the regulations.” 2019, T. C. Memo. 122, at p. 9. (Citations omitted).

And Seaview never said they were filing a return. Seaview never said this was a new filing, only that they had already filed.

Dubious, Judge, dubious. IRS has what purported to be the returns. If they were slow on the uptake, that’s not Seaview’s problem. Of course, IRS cashed Marty Dingman’s check.

I’d like to see what 9 Cir. does with this.