For those who reside or work in the City That L’Enfant Built, it is a public holiday; for some throughout this land, it is a religious holiday; while not a “major” Federal holiday, Post Offices and the Federal Reserve System are closed, though stock exchanges are open.

But US Tax Court is shut. Whether Judges, STJs, law clerks, flailing date-stampers or hard-laboring clerks deem it Columbus Day, Indigenous Peoples’ Day, or a religious holiday, they ain’t around.

So neither is this my blog.

I guess Tribune Media Company f.k.a. Tribune Company & Affiliates, et al., Docket No. 20940-16, filed 10/10/19, must have logged in and gotten their credit reports from S&P and Moody’s, from sites other than the captioned one we ordinary types use, because the Tribunes want them in and IRS wants them out.

I’ll let Judge Buch explain: “This case is about whether a transaction engaged in by Tribune … was a nontaxable contribution of capital to the newly formed partnership … or a disguised sale of assets. Debt was incurred as part of the transaction, and Tribune guaranteed that debt. Whether those guarantees were real is an issue in this case.” Order, at p. 1.

IRS claims the proffered reports deal with years after the year wherein the transaction occurred, thus irrelevant; but even if relevant, they’re either hearsay or experts’ reports not complying with Rule 143(g).

I give IRS counsel JDS a Taishoff “Good try.” But he loses, all the way.

The Tribunes claim a lot of Tax Court cases use subsequent years info to see if year-at-issue position was real. Judge Buch buys it, subject to weighing it. “Although how those guarantees were perceived in years after the transaction may be less probative than how they were perceived at the time of the transaction, that distinction goes to the weight we give the evidence when we consider it. It does not mean we should not consider the evidence at all.” Order, at p. 2.

As for hearsay, a FRE 902(11) cert plus FRE 803(6) report-kept-in-regular-course-of-business holds the reports in, for now. But lest the crew representing the Tribunes put the ’00 Krug on ice, dig this. “Petitioners did not provide any authentication of the Moody’s credit reports or establish any other hearsay exception. We will not exclude these reports now, but will decide their admissibility at trial.” Order, at pp. 2-3.

Best get the Moody’s employees familiar with credit reporting acts and practices lined up and waiting.

Finally, “(T)he credit reports at issue are not an expert’s opinion based on the facts of this case. They are experts’ conclusions drawn from facts gathered for the purpose of rating Tribune’s credit worthiness at the time they were created. They are not documents or reports created for this litigation. These reports are factual evidence and not expert witness reports.” Order, at p. 3.

JDS’ motions in limine all crash, for now at least.

I might most humbly suggest to Judge Buch that when he gets out the scale to weigh S&P’s and Moody’s opinions on anybody’s creditworthiness, he recall that these were the guys who AAA-rated the subprime junk pools that set off the Black ’08.

And many thanks, Judge, for this designated hitter on a Friday before a three day weekend (“A klug zu Columbus’n,” y’all), when there are as usual no opinions, and 150 orders for me to plow through. Have a great weekend.

It wasn’t his fire. The fire destroyed the home of his CPA. Brent Katusha, 2019 T. C. Sum. Op. 31, filed 10/10/19, thereby lost the records to substantiate his Sched C deductions. The fire apparently didn’t keep Brent from failing to report $10K of nonemployee compensation, but he wants $7K of deductions that IRS disallowed.

This brings into play, and before STJ Panuthos, Reg. 1.274-5(T)(c)(3), the longest-running off-Broadway temporary reg.

“’Where the taxpayer establishes that the failure to produce adequate records is due to the loss of such records through circumstances beyond the taxpayer’s control, such as destruction by fire, flood, earthquake, or other casualty, the taxpayer shall have a right to substantiate a deduction by reasonable reconstruction of his expenditures or use.”  Id. subpara. (5), 50 Fed. Reg. 46022. The burden is on the taxpayer to show that the documentation was actually lost or destroyed because of circumstances beyond his control.  See McClellan v. Commissioner, T.C. Memo. 2014-257, at *13.” 2019 T. C. Sum. Op. 31, at p. 8. I missed Oliver McClellan, for whatever reason.

Well, it turns out that Brent can establish his CPA was burned out (Oliver couldn’t prove which hurricane wiped out what), and at least some of Brent’s records went up with the house. But Brent can’t prove how he usually kept his records and specifically what was destroyed.

“Petitioner presented 49 pages of checking account statements with notations providing partial but inadequate details on the business purpose of each expense deduction claimed.  Petitioner’s testimony was vague and unspecific as to the business expenses for meals, events, gifts, and purchases for his mechanic’s shop. Petitioner’s attempts to specifically identify persons and business purposes related to the purported expenses were not sufficient.  While petitioner identified individuals with whom he dined and attended social events, he later indicated that his attempts at identification were speculative and acknowledged that his reconstruction of expenses did not specifically identify the business conducted on these occasions.  Likewise, petitioner’s recall of purchases from music stores, book stores, and other vendors was only general, and it was not clear whether the expenditures were incurred primarily for business rather than personal reasons. Petitioner acknowledged the difficulty in associating any expense paid in [year at issue] with a specific business purpose.  On numerous occasions at trial petitioner indicated that his notations could be inaccurate because he was attempting to piece together his purchases years after charges were incurred.” 2019 T. C. Sum. Op. 31, at pp. 9-10.

And some of the checking account statements contradicts his testimony.

IRS wins.

But again, the self-represented, unless OCD to the max, rarely has decent records to begin with, even before the wind, earthquake, or fire. And there’s rarely a still small voice to help out. Reconstructing while trying to make a living hardly favors reconstructing. Finally, testifying by oneself in court, even if one has been there before, does not make the Top Ten faves among indoor sports.

Don’t panic, reader, this blog has not gone political. If you want philippics and polemics, there’s no shortage elsewhere, and I’ve contributed my share. But not here. Not in this blog.

The Constitutional issue raised by Todd Ross & Millie Vilaplana, Docket No. 19705-18S, filed 10/9/19, concerns that persnickety Affordable Care Act of 2010, specifically Todd’s & Mollie’s Premium Tax Credit.

Todd & Millie want their trial stayed, because maybe 5 Cir will confirm USDCNDTX and declare the whole shootin’ match unConstitutional.

Todd & Millie refer to a “…decision by the United States District Court for the Northern District of Texas, currently on appeal to the Court of Appeals for the Fifth Circuit, and asserted that the court had held, ‘[t]he entire ACA * * * to be unconstitutional, including * * * [advance payments of the PTC]’. See Texas v. United States, 340 F. Supp. 3d 579 (N.D. Tex. 2018), appeal filed (5th Cir. Jan. 3, 2019). Petitioners appear to assert that the appellate court may agree that the ACA is unconstitutional and therefore the tax treatment of the PTC cannot be determined until the appeal has been heard.” Order, at p. 1.

As usual, IRS is no fun. But STJ Diana L (“The Taxpayer’s Friend”) Leyden doesn’t mind spoiling the fun, either.

“Respondent states that 16 days after the United States District Court issued its decision, it ordered the decision stayed during the pendency of the appeal to the Court of Appeals for the Fifth Circuit, Texas v. United States, 352 F. Supp. 3d 665 (N.D. Tex. 2018), and, therefore, the decision is not binding on anyone. Further, respondent states that the United States District Court only considered whether amendments to the ACA that reduced the shared responsibility payment under Internal Revenue Code section 5000A(c) to zero dollars effective for months beginning after December 31, 2018, Tax Cuts and Jobs Act of2017 (TCJA), Pub. L. No. 115-79, sec. 11081(a) and (b), 131 Stat. at 2092, made the ACA unconstitutional. Respondent contends that the analysis of the decision would not affect the PTC for years before 2019.” Order, at pp. 1-2.

And with a petition date of 2018 for a 2016 deficiency, Todd & Millie are still in.

“The appeal of the United States District Court’s stayed decision does not prevent the Court from proceeding with petitioners’ case insofar as the advance payments of the PTC in issue are for 2016, a period prior to the effective date of the amendments to the ACA.” Order, at p. 2.

I give Todd & Millie a Taishoff “Good try, second class.”

But Was He Doin’ Her Wrong?

I can’t tell how long ago Frankie’s and Johnny’s ill-fated love was first balladized into immortality. Even such experts as Leonard Feather, Carl Sandburg, John Jacob Niles and James J. Fuld differ. Nonetheless, the old story, “he was her man, but he was doin’ her wrong” echoes even from the august foyers of 400 Second Street, N. W., to the Loop of Chicago, as Judge Goeke will have to decide, in John E. Rogers & Frances L. Rogers, et al., Docket No. 1052-12 (no missprint, this one has been going on for seven years), filed 10/9/19.

Judge Goeke will hear argument two weeks from this Friday whether Frances L. (“Frankie”) Rogers can remove spouse John E. (“Johnny”) Rogers as her attorney. Two fresh attorneys have apparently filed Entry of Appearance for Frankie, but somebody objected, whether IRS or Johnny is nowhere stated. Oh, and Frankie wants a new trial.

Yes, it’s the Jetstream guys, an endless source of blogposts.  Cain’t hardly wait for the outcome of this one.

We are all used to the demands for responses to interrogatories and document production. From our salad days in Civil Procedure 101, through our apprenticeships as the very trash of the legal profession, to our present eminences (be they never so small), it has been dinned into our consciousness that the first thing a defendant does (and IRS is a perennial defendant in Tax Court) is to herniate the plaintiff with discovery demands, simultaneously with our answer.

IRS is nowise loath to do so. It’s a “win your case before discovery” gambit that enthralls the Continuing Ed crowd, and brings to mind the ancient Tammany Hall war-cry today.

IRS is at it again in Jesse Alvarado & Maria De Lourdes Velasquez, Docket No. 15059-18, filed 10/8/19.

Judge Elizabeth A. (“Tex”) Copeland has sussed out the fact that Jess & Maria are not battle-hardened pro se litigators or frequent rounders.

“The interrogatories (e.g. questions to be answered by the Taxpayers) begin after the six page motion and include questions numbered one (1) through (8) for which the government requests a written response. The request for production of documents begins after a seven page motion and has twelve (12) separate requests for documents. Under this Order, the Taxpayers, also known as ‘petitioners’ in this case, must respond to the IRS’ questions in writing and must produce the documents the IRS has requested.” Order, at p.1.

A seven-page motion, filled with enough legalese to glaze the eyes of even the hardiest, followed by twelve (count ’em, twelve) separate requests (doubtless with division, subdivision, paragraph and sub-paragraph). And a couple self-representeds (hi, Judge Holmes) are supposed to decode, demystify, deconstruct, and respond to same in thirty days or less.

Although I myself never heard it, IRS counsel must chant the Old Tammany Hall war cry every day. “Big chief sit in teepee, cheering braves to victory, swamp ‘em, swamp ‘em, get the wampum, Tammaneeee!”

No, this is not an essay on the overbearing micromanaging forebear of some innocent infant. Today we have the story of the helicopter pilot whose younger son is a keen tennisplayer, so off to GA he and family go from ME. But the pilot is flying off-again, on-again Medevacs on contract in Saudi Arabia (hereinafter “The Kingdom”), and wants Section 911 treatment.

You see where this one is going in Joseph S. Bellwood and Jacqueline E. Bellwood, 2019 T. C. Memo. 135, filed 10/7/19. Joe never had the 330 days in The Kingdom, so the enhanced scrutiny of “tax home” in The Kingdom is then applied.

Judge David Gustafson tries to be obliging, but Joe has too much density altitude to get his case off the ground. Joe’s “abode” was back in the U.S.A.

“One’s ‘abode’ is where he ‘abides’.  Acone v. Commissioner, T.C. Memo. 2017-162, at *12.  However, an individual’s abode cannot be determined by simply identifying the location where he spent the greatest number of days during  a given period, especially if a location where he spent fewer days was his family home where he spent those days with his wife and youngest son.  This Court and at least one Court of Appeals have recognized a domestic-vs.-vocational distinction for determining one’s ‘abode’ under section 911….” 2019 T. C. Memo. 133, at p 17. (Citations omitted).

They key test, though trite, is simple: Home is where the heart is.

“Consequently, when one of the locations with which an individual is connected is in the United States (e.g., when during the relevant periods the taxpayer owns a home in the United States and spends numerous days at that home, and when the taxpayer’s spouse and youngest child live at that home during the relevant periods), we consider the domestic or vocational nature of the time spent in each location in addition to counting the number of days. Accordingly, we compare the domestic and vocational qualities of Mr. Bellwood’s respective dwellings, and the time he spent at each, to help determine whether his ‘abode’ remained in the United States.” 2019 T. C. Memo. 133, at p. 18.

Of course, the fact of home ownership in The Land of the Free, and the presence of one’s nearest and dearest there (as opposed to exiling them to “stronds afar remote”), do not negate Foreign Earned Income Credit.

Except.

“During the time Mr. Bellwood spent in Saudi Arabia, his regular activities were primarily vocational.  Mr. Bellwood testified that his non-work-related activities in Saudi Arabia were limited because of the demanding nature of his work–he went to the barber or grocery store as needed and visited the occasional restaurant, but most of his time in Saudi Arabia was spent either working or resting and preparing for his next shift.  That is true, but only because when Mr. Bellwood had spare time, he did not wish to spend it in Saudi Arabia.  Rather, during his days off duty, Mr. Bellwood returned to his home in the United States where he spent time with his family, pursued his hobbies, and managed the day-to-day affairs of his personal life.  In Georgia he maintained his registration to vote, received his mail, updated his driver’s license, and registered his vehicle.  Thus, the nature of Mr. Bellwood’s respective dwellings and the manner in which he spent his time at each indicate that his ‘abode’ was in the United States, and that he traveled to Saudi Arabia for work only.” 2019 T. C. Memo. 133, at p. 20.

Besides, his employment contract said that when his tour was over, he would be repatriated.

Unreimbursed employee expenses go by the boards. as does reliance on Turbotax. One again, “(A)lthough this Court has not held that TurboTax or other tax preparation software would qualify or fail to) qualify as advice of a ‘competent professional’, we have held that ‘[t]ax preparation software such as TurboTax is only as good as the information the taxpayer puts into it.  The misuse of tax preparation software, even if unintentional or accidental, is no defense to accuracy-related penalties under section 6662.’  Langley v. Commissioner, T.C. Memo. 2013-22, at *9-*10 (citations omitted).” 2019 T. C. Memo. 133, at p. 33.

And Joe’s inputs were replete with what Judge Gustafson characterizes as “foot faults.”

I reiterate a firm offer I made to US Tax Court right after Tax Day on April 16 this year. See my blogpost “Admitted but not Recognized.”

“There exist such things as law firms, with principals and associates all of whom are admitted to Tax Court. So there really needs to be a new form of Entry of Appearance, recognizing that law firms do exist, that various attorneys employed therein share files among themselves, and might occasionally ask a colleague to cover a routine matter while on trial or on vacation. Maybe we don’t need the covering attorney to file an Entry of Appearance for essentially a one-time appearance. Perhaps a one-size-fits-all law firm Entry of Appearance, listing all admittees in one place, might save time and paper (or electrons).”

But no.

Here’s Estate of James Dieffenwierth, Deceased, Vicki Dieffenwierth, Executrix, Docket No. 17268-19, filed 10/4/19. Same old, same old. Ms. Dowd, in the same firm as Mr. Brown (according to their website), used Mr. Brown’s e-access because the firm has none. And gets the old right-about-face.

Would it be beyond the technical capabilities of the Tax Court Techies to create a firm Entry of Appearance, which the managing clerk of the firm can update as personnel changes, with appropriate e-signatures for each attorney in the firm admitted to USTC?

If they can manage it, we wouldn’t have to play put-and-take every time the lead attorney wants to take a vacation, gets sick, goes on family leave, has a family crisis, or is actually engaged elsewhere on the date a motion is to be argued.

Other courts have managed to recognize the existence of law firms.

Seriously Off-Topic

At very rare intervals I stray from the august precincts of 400 Second Street, NW. My readers, few in number but strong in stomach, want Tax Court and nothing but. Notwithstanding the risk that anything else might cause even one of them to bail on me, today I once again play music critic.

In my own defense, it has been more than two (count ‘em, two) years since I inflicted this sort of thing on the internet.

Last night the Opening Night Gala Lead Sponsor of Carnegie Hall, a Big Four with which I am acquainted, presented the Cleveland Orchestra. I wish they had given us a heftier program, but the musicianship was first-class.

Anne-Sophie Mutter gave us as beautiful a Beethoven Violin Romance as I ever heard. It’s the usual thing to say that LvB was warming up for the Violin Concerto, but there’s no contemporary evidence he was doing anything more than trying to scare up a few groschen from the music-lovers of Vienna. He certainly did not want to write anything beyond the compass of a good nonprofessional and a wealthy patron’s house band. For a world-class violinist, this is a chance for expression. For a world-class orchestra, it’s a walk in the park. But a beautiful park.

Same for the Triple Concerto. Really a shame that Yefim Bronfman had so little to do, but what he did do, he did superlatively well. There must have been a cello-playing patron to inspire Beethoven to write this, because Lynn Harrell had the most to do, and the best material. Again Anne-Sophie Mutter’s expression and delicate feeling was much appreciated, for all that her technique was unnecessary. The elegiac second movement brought a smile even to my ravaged visage, and the third movement is a joy. It’s interesting that the printed score was dedicated to Prince Lobkovitz. When we visited his Prague premises, we saw the original Beethoven scores in the family’s collection, and reflected that the family had the unhappy circumstances to be plundered twice: once by the Nazis and again by the Communists.

Franz Welser-Möst and the Cleveland are Franz Welser-Möst and the Cleveland. They are up to their usual standard, which says it all.

But what possessed FW-M to discard the Rosenkavalier suite that has survived 75 years in favor of the abomination that Mandell foisted 25 years ago upon a world that did him no apparent harm? And to give it its Carnegie Hall debut? It should have been given its quietus, with or without a bodkin.

A more revolting parody of Richard Strauss’ happiest creation it would be hard to imagine. This thing substitutes noise for nuance. Baron Ochs’ elephantine but charming waltz is passed over for endless reiterations of the farewell, seemingly on the principle that if one is delighted by two minutes of melody, five must be better. It was like the drunken guest that ruins the party.

There was an encore, but I had left by that time.

Elena Lea Morgan Weschenfelder and Frederick Burkhart Weschenfelder, 2019 T. C.  Memo. 133, filed 10/3/19, were analyzing intelligence in Iraq and Germany. But some three (count ‘em, three) years’ worth of their US tax returns never got to IRS.

Almost as obliging as Judge David Gustafson, IRS gave El and Fred SFRs, and non-filing and non-paying additions, all at no extra charge. When El and Fred sent in their returns eight (count ‘em, eight) years after the SFRs, IRS abated the taxes shown on the SFRs, and gave El and Fred SNODs for what they reported. El and Fred claim Section 911 abroad status.

Judge Mary Ann (“S.E.C. = “She Eschews Cognomens”) Cohen has this one. IRS drops the weight-of-the-attachments test, to focus on the late election, as permitted by Reg. 1.911-7(a)(2)(i). And that reg has survived previous validity challenges.

El and Fred claim they sent the returns, but couldn’t get proof of mailing from Iraq. But they were back home in the Lone Star State in time to file from there as to two of the years at issue.

But only Reg. 1.911-(7)(a)(i)(2)(D) will avail El and Fred.

“…it applies provided:

“(1) The taxpayer owes no federal income tax after taking into account the exclusion and files Form 1040 with Form 2555 or a comparable form attached either before or after the Internal Revenue Service discovers that the taxpayer failed to elect the exclusion; or

“(2) The taxpayer owes federal income tax after taking into account the exclusion and files Form 1040 with Form 2555 or a comparable form attached before the Internal Revenue Service discovers that the taxpayer failed to elect the exclusion.

“(3) A taxpayer filing an income tax return pursuant to paragraph (a)(2)(i)(D)(1) or (2) of this section must type or legibly print the following statement at the top of the first page of the Form 1040:  ‘Filed Pursuant to Section 1.911-7(a)(2)(i)(D).’” 2019 T. C. Memo. 133, at p. 9.

There’s a provision in  Reg. 301.9100-3 for a PLR even if tax is owed after IRS discovers failure to elect, but El and Fred didn’t ask for one. Likewise, Judge Cohen doesn’t decide if conceded unreported income would count for putting El and Fred over the owing-tax line.

“Petitioners argue that application of credits from [other subsequent years] eliminated the tax owed for [first two years at issue].  Subsequent credits to a taxpayer’s account do not change the amount owed on a return; they merely reflect amounts deemed paid.  Petitioners are not entitled to bootstrap their argument that tax was not owed by asserting that tax reported as owed was subsequently paid. The reported liabilities for [first two years at issue] disqualify their elections of the foreign earned income exclusion for those years because their belated filings do not qualify under subdivision (i)(D)(1).” 2019 T. C. Memo. 133, at p. 11.

IRS concedes the last of the years at issue, assuming the Section 911 exclusion applies. But El and Fred never typed the magic language of Reg. 1.911-7(a)(2)(i)(D)(3), “filed pursuant to 1.911-7(a)(2)(i)(D).”

They claim substantial compliance, but Judge Cohen says no.

“We have also considered whether petitioners’ late returns substantially complied with the regulations.  Respondent argues that the doctrine does not apply because the applicable standards are established in section 1.911-7(a)(4), Income Tax Regs.  In any event respondent argues that the doctrine of substantial compliance does not apply where the failure to comply fully relates to the substance or essence of a statute and the statute or regulation provides the manner in which an election is made with detailed specificity.

“The regulations in this case are detailed and specific and are not lacking in clarity.  Cf. Estate of McAlpine v. Commissioner, 968 F.2d 459, 462 (5th Cir. 1992) (holding that a taxpayer who exercises due diligence and good faith in complying with an unclear regulation may be held to have substantially complied), aff’g 96 T.C. 134 (1991).  They include unambiguous provisions, one of which was not complied with by petitioners.” 2019 T. C. Memo. 133, at p. 13.

This is not filling out a complicated form. It is a material statement, especially when the returns come in eight years late. Moreover, El and Fred stated throughout their home was in Texas.

IRS had the Boss Hossery for the additions, and El and Fred had no good excuses.

Takeaway- If filing late, the magic language can save the day. Also, if abroad, say so.