Archive for September, 2019|Monthly archive page


In Uncategorized on 09/24/2019 at 23:04

Once again we hear the story of Neil L. Whitesell and Tracy L. Whitesell, 2019 T. C. Memo. 126, filed 9/24/19. The story started (as far as this blog is concerned) with my blogpost “The Law of Return,” 5/18/17.

You’ll remember (or you will after you read my above-cited blogpost) that Neil and Tracy’s SOL started with the deficiency they got, not that which went to their wholly-owned Sub S.

Neil and Tracy took a big deduction when they lost a trade secrets case. But they appealed, and three years after they took the big deduction, the appellate court reversed and remanded. Neil and Tracy claim this means that trial court could reinstate the verdict appealed from, but Judge Morrison says that until the trial court does, the verdict is reversed.

So Neil and Tracy want to amend their already amended petition to claim the SOL ran on the periods for which IRS sought a deficiency. They claim they were pro sese and overwhelmed by Tax Court technicalities.

Except they had a CPA advising them, with a law firm writing memos of law in the wings.

“Because the Whitesells received assistance from W [CPA] and the TC law firm, we are not persuaded that the Whitesells’ pro se (i.e., unrepresented) status excuses their delay in raising the argument they now seek to make in their proposed amendment to amended petition.” 2019 T. C. Memo. 126, at p. 25. (Names omitted).

Also IRS is ambushed big-time, if Judge Morrison lets Neil and Tracy amend now. Neil and Tracy want to claim that giving them back the deduction for the reversed verdict should be in a year that everyone agrees is barred by SOL. But they argued for another year all along.

“In determining the potential for unfair prejudice, the question is whether allowing a party to add a new issue by a later amendment, rather than inclusion in the initial pleading, works an unfair disadvantage to the other party. The issue the Whitesells wish to raise is the argument that [new year] was the only year for which there should be an income inclusion. Had they made this argument in their amended petition, which was filed in December 2015, the IRS could have made an assessment for the [new year] tax year. But if the Whitesells are allowed to file their amendment to raise the issue now, the IRS would be prejudiced because the three-year period for assessing the tax for [new year] has ended.” 2019 T. C. Memo. 126, at pp. 27-28. (Footnote omitted, but it says that requiring IRS to prove 6SOL at this point is an ambush, and Neil and Tracy didn’t raise Section 1311 mitigation, so that’s off the table).

So be careful in pleading years, lest you pass the point of no return.








In Uncategorized on 09/24/2019 at 05:23

Maybe Wm Shakespeare (or Francis Bacon, or the Earl of Southampton, or Mr. W. H., or whoever else is on the shortlist for writer’s credits for Hamlet, The Scottish Play, King Lear, etc.), has furnished the title for this telling of the sad tale of Massoud Fanaieyan and Ziba Fanaieyan, 2019 T. C. Memo. 124, filed 9/19/19.

It’s Masso’s story. Though retired, he runs a rental real estate operation while Ziba toils as a hairstylist. The family gets the ACA premium credit, the undoing of many, and fail to do the Form 8962 reconciler. Had they done so, they would have discovered that they blew the 400%-of-poverty-line, and had to pay back the $15K of PTC they got.

IRS hit them with a SNOD. Masso petitions. And he gets creative.

“After this case was continued from a previous trial calendar, petitioners provided to respondent a Form 1040X, Amended U.S. Individual Income Tax Return, for [year at issue]. An attached Schedule C, Profit or Loss From Business, reported that Mr. Fanaieyan operated a publishing business that used the cash receipts and disbursements method of accounting, realized income of $731, and incurred expenses of $6,157 for a net loss of $5,426. That loss reduced petitioners’ adjusted gross income reported on the Form 1040X to $95,341.” 2019 T. C. Memo. 124, at p. 3.

The cutoff for the PTC in Masso’s case was $97K, while his AGI pre-1040X was $100K.

Masso claimed he was in the publishing business.

“The publishing business consisted of Mr. Fanaieyan’s efforts beginning no later than 2012 to publish and promote a book written by his sister. She wrote the book–a fictional account of challenges faced by a Baha’i student in Iran–to publicize the plight of a persecuted religious minority in Iran but was not able to publish it there. Mr. Fanaieyan wanted to support his sister’s efforts to bring attention to the issue and hoped that the book would generate enough revenue to cover publishing expenses and provide some income for his sister in Iran. His efforts to promote his sister’s book were spread over several years but did not take up most of his time and had ceased by [year at issue]. 2019 T. C. Memo. 124, at pp. 3-4.

Problem One for Masso is that the expenses he claims were made years before the year at issue. Even if, as Masso claims, they were capital expenditures, and even if he could substantiate them (and Judge Pugh avoids that issue), he claims he was running a business, reporting the publishing activity on Sched C.

Problem Two is Peter Reilly’s Delight, Section 183, home of the “goofy regulation.”

Pursuant thereto, where the activity incorporates both personal pleasure and the pursuit of pecuniary profit, the trier of fact must find the principal motive, based upon objective criteria.

And, like many a pro se before him, Masso on the stand at trial was less than a stellar witness for anyone but IRS.

“He had no history or particular expertise in publishing, and his testimony at trial convinced us that he did not devote most of his time to it. When we characterized the activity as a ‘labor of love’ at trial, he agreed and added that he wanted the book to generate income for his sister. His motives are commendable, but they are not enough to entitle petitioners to deduct any of their reported business expenses.” 2019 T. C. Memo. 124, at p. 10.

The Bard of Avon (or whoever) got it right. Love’s Labour’s Lost.





In Uncategorized on 09/23/2019 at 16:01


Not even the “Frensh of Paris,” , whether “unknowe” or not, will do for Judge Colvin (Geoff Chaucer to the contrary notwithstanding), so Pascal Nsame and Lamiaa Msalka, 2019 T. C. Sum. Op. 26, filed 9/23/19, can’t put in their untranslated substantiation for their basis in their Canadian property.

“Documents written in a language other than English are generally not admissible unless the offering party provides an English translation. Petitioner husband testified that the French language documents, Exhibit 16-P, established the cost basis but later said that they provided information about the refinancing of the Canadian property…. The French language documents include no translation and thus are not admissible.” 2019 T. C. Sum. Op. 26, at pp. 6-7. (Citations and footnote omitted).

Here’s the omitted footnote. “Petitioners submitted one translated document with their answering brief. We generally do not consider documents submitted by one party after trial because the other party has not had an opportunity to seek additional testimony relating to the document. In addition, according to the translation, the document is a credit application and does not show the amount of petitioners’ cost basis in the Canadian property. Thus, we do not consider that document in deciding this case.” 2019 T. C. Sum. Op. 26, at p. 7, footnote 5.

Pas and Lam have other problems.

They claim a foreign currency loss for the debt service payments they made on the Canadian property while they rented it out.

“A foreign currency transaction loss can occur when there are changes in the exchange rate between the taxpayer’s primary currency and the currency in which the debt was denominated. Sec. 988(b)(2), (c)(2) and (3). Petitioners did not provide testimony or admissible documents to substantiate the amounts of payments they made on the mortgage during the rental period. Thus, petitioners have not shown they may deduct a foreign currency transaction loss.” 2019 T. C. Sum. Op. 26, at p. 11. (Footnote omitted, but it says the only documents Pas and Lam had were in French, untranslated.)

Pas and Lam aren’t through.

“Petitioners seek monetary damages from respondent on the grounds that respondent knowingly misrepresented the facts, made intentional false statements, and concealed the truth. There is no credible evidence in the record supporting petitioners’ claims on these points.” 2019 T. C. Sum. Op. 23, at p. 14.



In Uncategorized on 09/23/2019 at 14:48

That Obliging Jurist, Judge David Gustafson, has much advice for Alan David Cooper, Docket No. 4123-19, filed 9/23/19. And I do not presume to substitute my prose for His Honor’s.

That said, AD might have been spared Judge Gustafson’s exegesis, had he, before he petitioned the SNOD that gave rise thereto, perused my blogposts “Cracking Up,” 2/27/14, and “Another Rounder’s Day,” 6/3/15.

AD was another follower of Peter Hendrickson, whose literary efforts Judge Buch eviscerated, as more particularly bounded and described in the first of my above-cited blogposts.

But Judge Gustafson holds out hope.

“We take no pleasure in imposing penalties; the principal purpose of the penalties is to deter future abuse; and if Mr. Cooper plausibly undertakes to refrain from future abuse, then the need to impose a penalty might be reduced.

“On the other hand, if Mr. Cooper were instead to renew his frivolous arguments in response to this order, then it would appear that mere admonition cannot affect his behavior but rather that penalties might be necessary. We hope that will not be the case.” Order, at p. 3.




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.

Giorgio 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 59-1/2 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.