And United States Tax Court Was Still Closed

Hence again nothing from me.

US Tax Court is closed today, November 28, 2019, for the Thanksgiving Day holiday in the District of Columbia.

The Glasshouse Gang is heading for their unpardoned turkeys today, so there is neither opinion nor designated hitter to send us off to our Thanksgiving Day.

But what would a Glasshouse send-off be without a silt stir, to keep your hardworking blogger up to snuff?

For those coming late to this my blog, the silt-stirring metaphor for a case that requires re-examination of a bushelbasketful of cases past, present and to come, first appeared here in my blogpost “The Great Dissenter,” 12/28/11. And it was there that Judge Mark V Holmes first said it: “The silt we stir today will cloud the cases we plunge into tomorrow.”

All y’all will remember the massive silt-stir precipitated by Graev. What, you don’t? Then see my blogpost “Stir, Baby, Stir – That Silt,” 12/20/17, especially the aforesaid Judge Mark V Holmes evoking brigades of imaginary horribles as the retro effect of Graev went marching on.

This pre-holiday stirring features Rich Lacey II, whose joust with the Ogden Sunseteers, with its concomitant jump-ball with the Glasshouse Gang was the subject of my blogpost “The Whistleblower Office – Blown,” 11/25/19.

Well, today we have Judge Emin (“Eminent”) Toro suggesting IRS bukh about the effects (or otherwise) of Lacey in Robert Reese Hutchinson, 696-19W, filed 11/27/19. IRS is looking for summary J tossing Rob Reese. While Judge Toro doesn’t tell us the grounds alleged therefor, I wouldn’t be surprised if “no action, no money” was what the Dec in Support says, and not much else.

Even though he dissented in Lacey, Ch J Maurice B (“Mighty Mo”) Foley evinces more than a passing interest in the case, as he scrutinized IRS’ failure-to-state-a-claim move on Bryant Dwayne Crawford, Docket No. 18178-19W, filed 11/27/19. Ch J Mighty Mo likewise orders IRS to dish about Lacey.

But while Judge Toro lets Rob Reese reply to whatever IRS has to say about Lacey, Ch J Mighty Mo only wants to hear from IRS. BDwayne can only stand and wait.

I entitle this blogpost with the 1942 Bette Davis – Hans Conreid classic because of timing only. Debra L. Zalk Spitulnik & Charles Alan Spitulnik, Docket No. 21687-18L, filed 11/26/19, object to Appeals’ verification that all bases were touched in bouncing their requested IA.

The issue is whether Deb & Charles were tax-compliant for 2017. That obliging jurist Judge David Gustafson can’t oblige Deb & Charles, who claim that an overpayment credit from 2018 would wipe out their 2017 underpayment.

“(1) It was on October 3, 2018, that IRS Appeals issued the notice of determination that we review here, whereas the overpayment credit from 2018 to the 2017 liability was made effective April 15, 2019 (the date on which the 2018 return was due) and could not have been made before the 2018 return was filed. Section 6330(c)(1) required IRS Appeals to verify the current facts, not to wait six months to see what might happen in the next year. We cannot fault IRS Appeals’ verification for not foreseeing future events. (2) Even after the application of the reported 2018 overpayment, the Spitulniks’ 2017 liability had not been fully paid; rather, as late as July 31, 2019, the unpaid balance still exceeded $10,000. By any measure, Appeals correctly verified that the Spitulniks were not in compliance as to 2017.” Order, at p. 6.

Deb & Charles also claim the AO didn’t verify what they owed. But the tax liabilities were those shown on the returns Deb & Charles themselves filed. “…the Spitulniks complain that ‘the IRS has not independently verified that the amounts stated by Petitioners were correct or, if it has conducted such independent verification it has not provided Petitioners with that information.’ As we noted above, section 6330(c)(2)(B) provides that a taxpayer may, in some circumstances, ‘raise … challenges to the … amount of the underlying tax liability’; but the statute states that it is the taxpayer who must ‘raise’ this issue. IRS Appeals had no duty to disprove the liabilities that the Spitulniks themselves had reported on their returns, and the Spitulniks did not raise any liability challenge before Appeals or in their petition.” Order, at p. 6.

Btw, Charles is a lawyer.

But Judge David Gustafson goes the extra. “In the Spitulniks’ case they were not in compliance for their current tax obligations, and thus an in-person hearing was denied and the IA was denied. This does not mean the Spitulniks are precluded from achieving compliance with their current tax obligations and proposing another IA for 2008, 2009, and 2012 (or from proposing an IA for 2008, 2009, 2012, and 2017); however, the denial of the IA in this case was not an abuse of discretion.” Order, at pp. 7-8.

And Judge David Gustafson made it easy for this blogger by designating this order.

The Ogden Sunseteers have outdone themselves. It’s true the original Form 211 from Richard E. Lacey II, 153 T. C. 8, filed 11/25/19, was so scanty that the OS didn’t even send it to an operating division of IRS for a look-see, and Rich doesn’t dispute that.

“Mr. Lacey does not contend that his first submission was adequate but rather explains that he expected to supplement his information after the IRS began considering his claim.  In effect, he acknowledges that his first submission was, taken alone, properly rejected, so we need not evaluate any further the …rejection per se.”  153 T. C. 8, at p. 39.

And that Obliging Jurist Judge David Gustafson obliges me by beating up on a pet peeve of mine: “and/or.” IRS’ first bounce letter used that spurious locution.

“However, we note an imprecision in the letter, resulting from its use of ‘and/or’–i.e., it held that the claim ‘was speculative and/or did not provide specific or credible information’.  (Emphasis added.)  Admittedly, these two alternatives overlap, but the use of ‘and/or’ allows the writer to avoid specifying. Was there one reason the claim was rejected?  If so, which one?  Or were there two reasons?  If we look at the staff recommendations that preceded the decision, but see Chenery II, 332 U.S. at 196, they give no help, since one says ‘and/or’ and the other says ‘or’.  It is unclear how we should review the WBO’s multiple-choice letter… but we are relieved of that task by subsequent events–Mr. Lacey’s concession that his first submission was properly rejected and the second submission and the operative rejection….” 153 T. C. 8, at pp. 39-40.

But then Rich hired a lawyer, who asked for a clarification. He got a form letter that said they’d considered the “additional information” (except there wasn’t any), and bounced it. Whereupon said lawyer (who doesn’t appear for Rich in this litigation) sends in a 21 (count ‘em, 21) page “brief,” detailing the delictions of BP, where Rich was formerly employed, in the Deepwater Horizon oil-spill and cover-up.

The Ogden Sunseteers bounced that as well. True, it contained public info, but the 2018 amendment to the IRM says “Claims submitted with publicly available information must still be considered, regardless of the whistleblower’s firsthand knowledge of the situation.” IRM pt. 25.2.1.3.3(3) (Jan. 11, 2018). I said it a long time ago: the info may be public, but if the blower doesn’t connect the dots, then IRS will never be the wiser.

However, pore l’il ole Tax Court can’t review IRS’ determination to examine or pursue, nor order IRS to do anything. All Tax Court can do is review the OS’ determination (or denial, or rejection: they use these words interchangeably, to Judge Gustafson’s dismay) that the submission lacks merit to such an extent that they won’t send it to an operating branch to evaluate.

“Mr. Lacey does not challenge a decision by IRS examination personnel declining to audit BP’s returns on the basis of his information (since no such decision was ever made), nor does he challenge a decision by IRS collection personnel declining to attempt to collect from BP tax liability arising from his information (since no such decision was ever made).  He does not ask us to review any act by those examination and collection personnel or to give any direction to those examination and collection personnel.  Rather, Mr. Lacey challenges action by the WBO–i.e., its declining to refer his claim for substantive consideration but instead ‘rejecting’ it on the grounds that it failed to meet minimum standards for consideration.” 153 T. C. 8, at p. 33.

And Tax Court has jurisdiction to review that rejection for abuse of discretion. Well, no proceeds were collected, right? But if the Ogden Sunseteers bounced every application, without sending it to an operating branch, on the grounds that no proceeds were collected (since those charged with collecting never saw the info), then they would be immune from judicial review.

“Hypothetically, if the WBO were to reject reflexively by return mail all whistleblower claims–a clear abuse of its discretion–it could thereafter defend every case with the irrefutable contentions that no administrative or judicial action had been commenced or continued and that no proceeds had been collected on the basis of the whistleblower’s information.  Of necessity, those contentions would always be factually true, but such reflexive rejection by the WBO would be arbitrary–and, if arbitrary, then an abuse of discretion that we must reverse.” 153 T. C. 8, at p.36.

But the administrative record never got to Judge David Gustafson, so he doesn’t know what memos the Ogden Sunseteers wrote, or anything else. Their letters are as scanty as Rich’s original Form 211.

Rich wants remand, but it’s too soon for that. IRS wants summary J, but that’s a non-starter. Let’s see the administrative record, and let the parties tell us how to proceed.

Judges Gale, Lauber, Ashford, Urda, Copeland, and Jones agree. Judge Paris sits this one out.

Ex-Ch J Michael B (“Iron Mike”) Thornton concurs: “Whether the Whistleblower Office actually abused its discretion in rejecting the claim is a question that remains open for another day, once the complete administrative record is before the Court.  On that understanding, I concur with the opinion of the Court.” 153 T. C. 8, at p. 46; Judges Gale, Marvel, Morrison, Kerrigan, Lauber, Urda, and Copeland are down with that.

Judge Patrick J. (“Scholar Pat”) Urda concurs, lecturing Judge Buch and the dissenters that Tax Court has jurisdiction over more than the mere amount of an award. “The dissent notes that a whistleblower cannot qualify for an award unless the IRS institutes an administrative or judicial action and collects proceeds.  The dissent then concludes that we have no choice but to grant summary judgment to respondent here because there was no action and there were no proceeds…. With due respect, the dissent is incorrectly conflating the requirements for a whistleblower to obtain an award under section 7623(b)(1) with our review under subsection (b)(4).” 153 T. C. 8, at pp. 47-48. Judges Gale, Gustafson, Lauber, Ashford, and Copeland agree with all of Scholar Pat’s dissertation; Judge Jones only likes Part I.

But Judge Buch isn’t buying. And Ch J Maurice B (Mighty Mo”) Foley, Judges Nega, and Pugh agree. No proceeds, no award, nothing to review.

Taishoff says the dissenters are wrong. Yes, if the Ogden Sunseteers find the whole submission is so vague or off-the-wall as to be a waste of time, they can and should bounce it out of hand. But if there’s any reasonable chance there’s something there, even if in plain sight, they should buck it on to an operating division for a look-see. If operating (examination, CID, collection, whichever) says “no go,“ game over. But the Ogden Sunseteers have no freewheeling mandate to decide there’s nothing for an operating branch to look at. It’s the operating branch personnel who do the examining, investigating, collecting, and it’s they who decide whether or not to try to collect. In this case the Ogden Sunseteers may have short-circuited the process. So let’s have a show-and-tell with the administrative record.

Now Rich may or may not have anything. But there maybe might could be just enough for Examination or some operating branch to take a quick peek.

But Still Profit-Motivated

Lowell G. Den Besten, 2019 T. C. Memo. 154, filed 11/25/19, leads Judge Paris through the nine (count ‘em, nine) factors of Reg. 1.183-2(b), the “goofy regulation” for his cutting horse activity, and beats IRS.

Word to a colleague: Mr. Reilly, here’s another one for ya.

Lowell was in the seed business, but loved cutting horses from boyhood’s earliest hour. He sold the seed business on the installment plan to his son, but the son defaulted on the notes. While son was letting the business go to seed (sorry, guys), Lowell was winning championships at cutting horse events, breeding, advertising,  hiring help, giving all his records to trusty CPA of thirty years’ standing, downsizing the horse stuff while trying to rebuild seed business after son nearly cratered it, and showing how horses could increase in value by winning contests or breeding or both. Judge Paris has it all: Lowell gets six factors, IRS gets two, and one is neutral.

Lowell rescued the seed business and used the cutting horse losses to offset his seedy profits, but he didn’t have huge income to offset. Lowell can’t prove his NOL either, but his agricultural records pass muster for his deductible expenses.

“In the agricultural business it is not unusual to see no maintenance of records other than canceled checks and deposit slips.  See Edge v. Commissioner, T.C. Memo. 1973-274, 1973 Tax Ct. Memo LEXIS 13, at *21 (declining to weigh against a farmer for his minimal recordkeeping system when it was no less stringent than what other farmers in the area used and worked for his particular operation).  The records petitioner maintained were consistent with his business profit objective and enabled him to make educated business decisions about his cutting horse activity.  This factor favors petitioner’s having a profit objective.” 2019 T. C. Memo. 154, at p. 23.

As usual, it’s all about the facts, but Lowell did a great job, pro se.

I asked for it, but didn’t get it. Ch J Maurice B (“Mighty Mo”) Foley gave me a bunch of Tax Court Rules changes (see my blogpost “Stealth Shot Down,” 11/21/19) today, but updating Rule 147 wasn’t one of them.

So the Stealth Subpoena is alive and well, surviving from the eighth decade of the last century of the last millennium unto the second decade of first century of the present millennium. Should be vested in the pension plan by now.

But the good news is that you can come up with the sixty Georges to file your petition via PAY.gov.

The bad news is that the application fee for admission is now $50.00, and the fee to take the test for non-attorneys is now $150.00.

Check the whole thing out here.

Edited to add, 11/27/19: I failed to note that the PAY.gov feature had been added back on 11/30/18.

Reference is made to my blogpost “Another Taishoff ‘Oh Please,’” 2/24/14. But this time IRS gets it right, and tips off Ch J Maurice B (“Mighty Mo”) Foley to his miscue.

Dmitriy Tsibulskiy, Docket No. 15660-19, filed 11/22/19, has a resuscitated docket no., because Ch J Mighty Mo sua spontedly closed his present one (15660-19) as duplicative of the earlier one (2456-19).

IRS, filing a response as directed in the earlier one (2456-19), pointed out there was no NOD for any of the four (count ‘em, four) years that Dmitriy petitioned, and he was too late for the SNOD they had issued back in 2010. By about nine (count ‘em, nine) years.

But the latest SNOD (one for one of the four years Dmitriy petitioned) was issued before Dmitriy’s petition.

Dmitiry is timely for that year, if the heretofore-duplicative docket no. returns to life.

So Ch J Mighty Mo vacates his earlier order, closes the earlier docket, and resuscitates the later one.

And IRS can file “an appropriate jurisdictional motion” (Order, at p. 2) in the current case.

Ch J Mighty Mo is quick off the mark, but maybe this time too quick.

And Elisa M. Gonzalez, Esq., of OCC, gets a Taishoff “Good Going, First Class.”

No, this is not a war story. At least, not that kind of war story. But today that Obliging Jurist Judge David Gustafson has joined Judge Mark V Holmes and your reporter in shooting down the Stealth Subpoena, thereby bringing Tax Court into the last decade of the Twentieth Century.

With luck, we might make it to the second decade of the Twenty First.

Here’s Reflectxion Resources, Inc., Docket No. 12017-16, filed 11/21/19.

All y’all (going to Texas next month, so have to warm up to make sure my nearest and dearest will understand me) will remember the Reflectxologists. They were here just a couple weeks (hi, Judge Holmes) ago.

See my blogpost “Stealth Countermeasures,” 11/6/19, wherein I expressed this pious hope: “But maybe, just maybe, when IRS answers as Judge David Gustafson obliges them to do, they will stop the games and announce that, now and forever, they will notify parties when they subpoena non-party witnesses, just like the FRCP 45(a)(4) says, despite the lethargy at 400 Second Street, NW, on that score.”

Nevah hoppen, GI.

Judge Gustafson goes surface-to-air to shoot down the Stealth Subpoena “(F)or the reasons stated in petitioner’s motion, and over the objection of the Commissioner (Doc. 72)….” Order, at p. 1.

I’d love to see how IRS articulates its deep-seated opposition to complying with a Federal Rule of Civil Procedure of more than twenty five (count ‘em, twenty five) years’ standing, that every litigant, be it individual, corporate, pro se, represented, or entity, and every attorney, be they white-shoe,  single shingle, or small firm, and every government, NGO, quasi-governmental, and anyone I left out, save IRS in Tax Court only, have complied with without demur.

But Doc. 72 is stored in The Glasshouse Equivalent of Area 51, where PACER cannot tread, so one must trek to 400 Second Street, NW and beg for a peek at same.

Howbeit, Judge Gustafson orders an all-round show-and-tell.

“ORDERED that, when a party serves a subpoena on a non-party commanding the production of documents, electronically stored information, or tangible things or the inspection of premises before trial, then the party serving that subpoena shall serve a copy of that subpoena on the opposing party before the subpoena is served on the person to whom it is directed.” Order, at p. 1.

And just in case IRS used the interval between the original discovery schedule and today to send in a few Stealth Subpoenas, “…if, before the issuance of this order, either party has already served on a non-party a subpoena commanding the production of documents, electronically stored information, or tangible things or the inspection of premises before trial, then the party who served that subpoena shall serve a copy of that subpoena on the opposing party no later than December 2, 2019.” Order, at p. 2.

And just to keep the stealth stealthy, Judge Gustafson didn’t designate this order.

Note to Ch J Maurice B (“Mighty Mo”) Foley: Ex-Ch J Michael B (“Iron Mike”) Thornton sent out some proposed Rule changes in November a couple years ago (hi again, Judge Holmes). Why not make our Thanksgiving truly thankful this year by bringing Rule 147 into the last decade of the last millennium?

IRS goes two for three today before CSTJ Lewis (“That Name Should be in Lights”) Carluzzo, who designates George Luniw, 17789-16SL, filed 11/20/19.

All y’all will recollect George, whose trifecta of 1040s (or maybe they weren’t all 1040s, but copies) so befuddled STJ Diana L (“Sidewalks of New York”) Leyden a year ago last March. If you don’t so recollect, see my blogpost “Three in One or One in Three?” 3/8/18.

George is clearly a fellow-rounder with Gwen Kestin, whose seven (count ‘em, seven) 1040s, including without limitation original and copies, gave me my blogpost “From the Serious to the Frivolous,” 8/29/19. Gwen got hit only for the original, not the salvo of copies.

But George doesn’t do as well as Gwen, who got seven frivolities for the price of one Section 6702 chop.

IRS goes two for three, as above-stated, but George still gets three for the price of two.

Number One is so clearly frivolous that STJ Lew only cites Crain without the “somber reasoning and copious citation of precedent” lingo. George is an all-zeroes type.

Number Two is next. “A second…Form 1040 (second Form 1040) was received by respondent…. The second Form 1040 was submitted by petitioner apparently in response to a letter… advising petitioner that respondent made changes to the first Form 1040. See sec. 6213(b)(1). Along with the second Form 1040, petitioner  submitted an affidavit of mailing in which the second Form 1040 is characterized as a ‘corrected return’. The second Form 1040 was printed from a digital image of a Form 1040 created by petitioner and apparently stored on an electronic device owned by petitioner, or to which petitioner has access. Both the first Form 1040 and the second Form 1040 show identical entries and both bear Petitioner’s original signature. The second Form 1040 also satisfies the definition of a frivolous return for the same reasons that the first Form 1040 does and again, we need say nothing more on the point.” Order, transcript, at p. 5.

Number Three is a knuckleball.  “A third…Form 1040 (third Form 1040) was received by respondent… apparently in response to a letter… advising petitioner that respondent considered the first Form 1040 to be a frivolous income tax return, subject to a section 6702(a) penalty. Like the second Form 1040, the third Form 1040 was printed from a digital image of the Form 1040 created by petitioner and apparently stored on an electronic device owned by petitioner, or to which petitioner has access. The entries on the third Form 1040 are identical to the entries on the first and second Forms 1040, except it is unclear whether the third Form 1040 bears petitioner’s original signature. In an affidavit of mailing included with the third Form 1040 petitioner characterizes the first Form 1040 as his ‘original’ 1040 (actually he refers to the form as a ‘2040’ but that reference is an obvious error), and he again characterizes the second Form 1040 as a ‘corrected 1040’, but he describes the third Form 1040 ‘enclosed’ with the affidavit as a ‘copy’.” Order, Transcript, at p. 6.

IRS whiffs on the knuckleball.

“Keeping in mind that the burden of proof with respect to the imposition of a section 6702(a) penalty rests with respondent, see section 6703(a), petitioner’s characterization of the third Form 1040 as a ‘copy’ constrains us to find that the third Form 1040 did not constitute the filing of ‘what purports to be a return of a tax’ within the meaning of section 6702 (a) (1) .” Order, Transcript, at pp. 6-7. Quoting Kestin, of course. So George goes down on Numbers One and Two, but gets Number Three at no extra charge.

I said it a few days ago: “Tax Court orders are where it’s at. It took me some time, but when I stated early on in this bloging life I lead that I would ignore small claimers and orders, I was utterly wrong.

“If anyone wants to see the gears meshing (or grinding), the wheels turning (or screeching to a halt), and which way the smoke is blowing, the orders are essential. The Stealth Subpoena is just one example; all the discovery moves, all the variances between Tax Court Rules and FRCP, all the gambits, are in the orders.” 26 USC § 2461, 11/13/19.

But this also brings to mind the raspy, cigar-roughened voice of my old law partner Sid (may he rest in peace), whenever I waxed rhapsodic about summary J. “Whether or not you win the motion, you educate your adversary.”

Now every rounder can bombard the service centers (and Gwen Kestin hit four (count ‘em, four) with endless copies (prominently labeled “COPY- SEE 153 T. C. 2) of frivolities, and get away with it.

No, I am not suggesting this.