The title is neither misspelling nor misprint. The Coalholders are back, but they’re out on parol. Here’s Coal Property Holdings, LLC, Coal Land Manager, LLC, Tax Matters Partner, Docket No. 27778-16, filed 12/6/19.

All y’all will recall that Judge Albert G (“Scholar Al”) Lauber stitched up the Coalholders back in October, but if y’all do not, please to see my blogpost “Diamonds Are Forever,” 10/28/19.

Now the Coalholders want to be reconsidered. They want to call “…two witnesses to testify concerning the purpose or proper interpretation of the alternative allocation clause.” Order, at p. 2. This “alternate allocation clause” was the reset if the conservation easement was judicially extinguished. It also had the famous “any prior claims” clause.

Judge Scholar Al ain’t buying.

“First, neither in its response to the motion for summary judgment nor in its sur-reply did petitioner express a desire to call these two witnesses to testify concerning the purpose or proper interpretation of the alternative allocation clause. Nor did petitioner contend that there existed a genuine dispute of material fact to which the testimony of these witnesses would be relevant. Rather, petitioner contended that the alternative allocation clause was not a condition subsequent saving clause at all, but instead constituted a permissible ‘interpretative provision.’” Order, at p. 2.

There is nothing to interpret. The “alternative allocation clause” was the same kind of savings clause that countermanded the earlier provision giving the 501(c)(3) all the boodle. That’s what torpedoed the Palmolives, among others. For the Palmolives’ story, see my blogpost “No Joy Forever – Because Golsen,” 10/11/17.

Anyway, TN law (the property is in TN) says if no ambiguity, use plain language. “The Supreme Court of Tennessee has ruled that, “[i]f the contractual language is initially deemed unambiguous, its ‘plain meaning’ should be used, without recourse to matters extraneous to the text of the agreement.’ Individual Healthcare Specialist, Inc. v. BlueCross BlueShield of Tennessee, Inc., 566 S.W. 3d 671, 691 (Tenn. 2018). Petitioner contends that its proposed testimony would be ‘strictly a function of why the language was drafted as it was.’ To the extent such testimony would be offered to contradict the plain language of the easement deed, it would be prohibited by the parol evidence rule. See id. at 696-697. To the extent the testimony would be offered for another purpose, it is unclear what relevance it would have or why it should cause us to reconsider our Opinion.” Order, at p. 3.

Oral testimony cannot be used to vary a written instrument, unless clearly ambiguous or fraudulent. This document is neither. If you’re now unhappy with what you wrote, you should have read it more closely.

But the Coalholders have another argument.

“…petitioner contends that, as a matter of public policy, the alternative allocation clause should be given force because it would maximize the amount of proceeds received by the charitable donee in the event of a future judicial extinguishment of the use restriction. But this would likely be the situation with many saving clauses in charitable contribution cases, as was true in Palmolive Bldg. Iny’rs, LLC v. Commissioner, 149 T.C. 380 (2017). There, the easement deed specified an allocation of proceeds that the Court found impermissible under the governing regulations. Id. at 398. The easement deed contained a saving clause stating that if any provision conflicted with the regulations, there would be a deemed amendment of the deed to make it compliant with the regulations. Id. at 404. The Court declined to enforce the saving clause, even though doing so would have yielded an interpretation theoretically benefitting the charitable donee. We take the same approach here.” Order, at p. 3.

Put more forcefully, you Coalholders aren’t getting a $155.5 million rip-off of the American taxpayers (of whom I am one) for strip-mined, garbage property the promoters of this scam bought for bortscht (pardon the abstruse technical term) and got a $32.5 million paycheck for selling to the putative ripper-off, by claiming a 501(c)(3) might get ten cents more if a court ever blows this thing off maybe if ever.

Got me?

Again, Seriously Off-Topic

Fans of USTC, read no further. I am in my music critic mode. Please return later.

I wanted to hear Yefim Bronfman again, after the very tiny morsel I got last October (see my blogpost “Music and Moujik,” 10/4/19). He was served in a hearty helping today with Jaap van Sweden and the New York Philharmonic at Geffen, which is far less appetizing than Welser-Möst and the Cleveland at Carnegie.

I haven’t heard enough of van Sweden’s work to see if he has conquered the NY Philharmonic’s limitless helping of self-satisfaction. I think Mitropoulos started this conceit, which has survived even Bernstein and Mazur, and which Boulez nourished. Howbeit, if today was a fair example, he has a ways to go.

He finally caught something of Beethoven’s manner after a finicking, precious treatment of the start of the first movement of Beethoven’s Second Symphony. The first movement ended well, and the second movement almost sang as it should. Unfortunately for me, and showing my age, I remember the second movement for the famous Prohibition-era lament “How Dry I Am,” which cropped up in an Irving Berlin musical, although Berlin never wrote it. Van Sweden managed to get the third and fourth movements well-defined, despite the usual deficiencies in woodwinds and brass. Give ’em a SNOD, says I.

This concert was a matinee for the card-carrying set (I mean the Medicare card-carrying set, of whom I am one). Wherefore it was perhaps appropriate that Steven Reich, now well into his eighties, was shuffled onstage to receive applause for the New York premiere of his Music for Ensemble and Orchestra. Of that piece I cannot say much in a blogpost meant for family reading. It was co-commissioned by six (count ‘em, six) orchestras on three continents; it should be promptly decommissioned. Minimalist music is truly minimalist for me; a very little goes a very long way.

But Yefim Bronfman was his usual self in the Beethoven Fourth Piano Concerto, although that kind of usual is very unusual. Finally, unlike two months ago at Carnegie, I got to hear him in-person with enough to do.

Great expression: he made the second movement truly tragic, as it is the cry of a suffering soul against the pitiless hammerblows of fate. Beethoven says as much in that five minutes as he did in the famous first movement of the Fifth Symphony. The second movement of the Fourth Piano Concerto is truly the final exam for any world-class pianist.

Any of my readers with elephantine memories may recall my criticism of “the boy lord of the piano,” Benjamin Grosvenor. The boy lord thought, some years back, that thump substitutes for skill. If you’re not already tired of this, see my blogpost “Very Much Off-Topic: A Musical Rant,” 4/21/17.

Bronfman showed today that he could out-thump the boy lord when that was called for (and there’s plenty of good stuff to thump in the Fourth Piano Concerto). But when it comes to expression, the boy lord has a lot of growing up to do.

Beethoven wrote great music for the piano. Franz Liszt wrote great piano music. Shaw said there is all the difference in the world between the two. Bronfman knows this, and can do it.

Judge David Gustafson, ordinarily a patient man, is draining his tank with Alan David Cooper, Docket No. 4123-19, filed 12/5/19, a designated hitter. Judge Gustafson Crained Alan for 25 of the 26 years he petitioned; the one survival is the year at issue. Alan is apparently a fan of Peter Hendrickson, author of the Protesters’ Bible; for the skinny on Pete, see my blogpost “Cracking Up,” 2/27/14, when Judge Buch devoted 63 (count ‘em, 63) pages of opinion to skewering Pete’s masterpiece.

So now IRS wants summary J for the $2400 in tax and $239 in chops that Alan owes, plus a Section 6673 frivolity chop to cool Alan’s ardor for Pete and his work. Judge Gustafson told Alan to come forward with non-frivolity on the tax and chops, to rebut IRS’ assertions.

Of course Alan didn’t. That would be too easy.

Instead, Alan “…asked the Court to issue ‘an order to dismiss this case without prejudice in this matter to either side.’ We believed it was possible that this might be Mr. Cooper’s attempt to concede the case, which would have rendered moot the Commissioner’s motion on the merits. However, Mr. Cooper’s inclusion of the phrase ‘without prejudice’ seemed (depending on what he meant by it) problematic under section 7459(d) (discussed below).” Order, at p. 3.

Trust Judge Gustafson to seek, with almost the fervor of Diogenes, for meaning. He told IRS to respond, and Alan can riposte with an explanation of what he means by “without prejudice.” It seems Alan was confused about IRS’ response, because he claimed IRS ignored his response, except that he didn’t respond the second time.

Howbeit, now Alan wants “…to use another forum (a CDP hearing that he believes he can obtain) to maintain his challenge against the IRS’s determination of his [year at issue] liability. We cannot see, from what he states, that a CDP hearing could be actually available to him or that, if it were, he would be able to challenge his [year at issue] liability in such a hearing, since he received an SNOD for [year at issue] (see sec. 6330(c)(2)(B)).” Order, at p. 5.

This move will not help Alan.

“But whether or not a CDP hearing for [year at issue] could be available to Mr. Cooper, and whether or not section 6330(c)(2)(B) would bar a liability challenge in such a hearing, we must deny his motion to dismiss this case ‘without prejudice’, by which he evidently means that the dismissal of this case would leave him without any loss of the right to litigate elsewhere his [year at issue] income tax liability.” Order, at p. 5.

Of course my readers know that, if Alan timely petitioned a valid SNOD, the only legally permissible dismissal of his case would be a decision in favor of IRS for the entire deficiency, per Section 7459(d). And Alan would have given away his only chance to contest liability. The quid pro quo, of course, is to get the automatic stay of collection while a deficiency proceeding is pending, you have to win or go home. There are no free temporary restraining orders in Tax Court. You can’t get the stay, drop the case, and try again.

But Alan isn’t done yet.

Alan also separately moved “…’to dismiss and/or vacate this case with prejudice in this matter against Respondent’ (emphasis added). If this means we should dismiss the case without redetermining the deficiency, then the second motion must be denied for the same reason as the first motion–i.e., section 7459(d). If the motion asks us to sustain the SNOD and to redetermine the deficiency as zero because of respondent’s supposed misbehavior, then we must also deny the motion on that ground. In the first place, the status report does not reflect the wrong-doing that Mr. Cooper supposes; but even if it did, he does not cite any authority for the proposition that, as a sanction for respondent’s supposed misbehavior in the litigation, we could determine a zero deficiency in the petitioner’s income tax. We will not do so.” Order, at p. 6.

As aforesaid, IRS wants a Section 6673 frivolity chop. And Judge Gustafson warned Alan he was pushing hard, especially with this transparent attempt at a strategic retreat to buy time via a CDP.

Judge Gustafson could nail Alan, but this is the first time Alan is in USTC, so he gets the yellow card.

No, I’m not ordering two shots of a joint venture between The Lairds of Kilmarnock and Lem Motlow’s outfit; although that would be a fascinating whiskey.

This is the story of Earl A. Skarky, Docket No. 1727-18*, filed 12/5/19, an off-the-bencher from ex-Ch J Michael B (“Iron Mike”) Thornton. It’s yet another horse tale, albeit not a hobby horse. Still and all, to my good friend and colleague Peter Reilly, CPA, gib a’ kook, as Grandma would say.

Earl was a mandatorily-retired heavy-hitter in an OK law firm. Earl moved to Lexington, KY, and bought the farm. Not in that sense, of course. He bought a 55-acre farm and started acquiring and disposing of various horses, claiming he wanted to start a horse-breeding venture.

Alas, “…petitioner had acquired 13 horses from the Humane Society. He did not intend to sell these horses, and [immediately before year at issue] he had disposed of all but one of these horses and had acquired two Tennessee  Walkers. At that time he also had five horses that had been retired from his wife’s therapy business in Washington State. Of these five horses only one was a potential breeder but because of health issues it had to be gelded.” Transcript, at pp. 4-5.

Tennessee Walker is apparently some breed of horse that never winds up in the daily double, so I can’t tell you any more about them. Earl did buy two mares in foal and started training their offspring, but they hadn’t done anything in the year at issue except get bridle-trained by a trainer Earl hired. Earl did buy a stallion (type unspecified) that year. In subsequent years, Earl bought some retired police horses (all gelded) and two Clydesdales.

Earl did claim a $1.4 million farm loss for the year at issue, based on $3250 of income from boarding a couple horses (hi, Judge Holmes), and a bunch of depreciation, Section 179 quick write-offs, and his commuting expenses from Lexington to OK to do some work at his old firm.

Earl had a residence in OK, showed up once a month for a week there to service his old client, and earned his real money there. Hence his tax home is OK, not KY, so no deduction for travel.

Earl’s trial testimony obviates the need for ex-Ch J Iron Mike to trudge through the “goofy regulation,” 1.183-2(b).

“As of [year at issue] petitioner had not yet sold any horses from his breeding activity. In fact, as of [year at issue] petitioner was still uncertain what type of horses would be best to breed and was still investigating different possibilities. As of the time of trial, petitioner has not entered into any breeding agreements and has not received any fees for breeding horses. Petitioner testified that he hoped his horse-breeding activity would become operational by 2020.” Transcript, at p. 5.

Clearly Earl is neither a trial lawyer nor a tax lawyer, or he might have deduced that that testimony sank him without trace. Note that the trial took place five (count ‘em, five) years after the year at issue.

Ex-Ch J Iron Mike don’t need no factors. This isn’t a hobby loss, this is a start-up.

“Until the activity is functioning as a going concern and performing the activities for which it was organized, expenses related to that activity, including depreciation expenses, are not ‘ordinary and necessary’ expenses’ currently deductible under section 162 (nor are they deductible under section 212) but rather are ‘start-up’ or ‘pre-opening’ expenses. See Hardy v. Commissioner, 93 T.C. 684, 687-688 (1989); Piggly Wiggly Southern, Inc. v. Commissioner, 84 T.C. 739, 745-746 (1985) (citing Richmond Television Corp. v. United States, 345 F.2d 901 (4th Cir. 1965), aff’d, 803 F.2d 1572 (11th Cir. 1986)). ‘Start-up expenditures’–i.e., expenses incurred ‘before the day on which the active trade or business begins,’ sec. 195(c) (1) (A) (iii)–may be deducted only over time under section 195. The costs of starting up a new trade or business or a new income-producing activity are inherently capital because they are expenses of creating or acquiring a capital asset. See Johnsen v. Commissioner, 794 F.2d 1157, 1162 (6th Cir. 1986), rev’g, 83 T.C. 103 (1984).” Transcript, at pp. 10-11.

Whatever their success at breeding, training, buying or selling, these horsey types provide great blogfodder.

*Earl Skarky 1727-18 12 5 19

I’ve repeated more than once the remark made by an old-time stick-and-string racing yachtsman, who survived a hurricane off Bermuda, and wrote about how he survived it. “Six months after, someone sitting in your warm, dry and safe livingroom, with the second glass of your whiskey in his hand, will tell you what you should have done.”

Well, I won’t place Judge Goeke in an analogous position, but in Charles V. Fortin, Docket No. 22406-18W, filed 12/4/19, Judge Goeke tells the Ogden Sunseteers, who didn’t exactly cover themselves in glory in Richard E. Lacey II, what they should have done.

For the Lacey contretemps, see my blogpost “The Whistleblower Office – Blown,” 11/25/19.

“Petitioner filed a whistleblower claim with the Internal Revenue Service’s Whistleblower Office (WO)… alleging that taxpayer A failed to properly report petitioner’s receipts on Form 1099-K, Payment Card and Third Party Network Transactions, and petitioner’s Form reported income that belonged to taxpayer A and should have been reported on taxpayer A’s Form 1099-K. The WO referred petitioner’s claim to an employment tax specialist who determined that petitioner’s claim did not present any tax issues and taxpayer A correctly reported gross receipts on Forms 1099-K.” Order, at p. 1.

Whereupon the Ogden Sunseteers bounced Charles’ Form 211, and Judge Goeke gives IRS summary J bouncing Charles’ petition.

Lest I be misunderstood, I’m not saying the Ogden Sunseteers should just be an open shower, pouring every off-the-wall story and every serial blower’s cut-and-paste from the public record onto the heads of the operating types. That would be just as arbitrary as sending nothing to operations, claiming nothing collected, and bouncing every blower, meritorious or not.

But here was at least a germ of a claim, so on it went. And the employment tax subject matter expert had the chance to vet it and decide to pursue or forebear.

Charles went a little too far.

“In his petition, petitioner asks the Court to issue a directive to taxpayer A to correctly report gross receipts on the information returns and to restore his whistleblower claim.” Order, at p. 2.

“Petitioner seeks to litigate whether taxpayer A properly reported receipts on information returns and restore his whistleblower claim. However, in whistleblower cases, we have jurisdiction only with respect to the award determinations. See sec. 7623(b). We do not have jurisdiction to determine whether taxpayer A violated tax law or to review taxpayer A’s reporting obligations. Nor do we have authority to direct the IRS to commence an examination or action against taxpayer A on the basis of petitioner’s whistleblower information.” Order, at p. 2. (Somber reasoning and copious citation of precedent omitted).

If someone hits you with income you don’t want, blowing the whistle on the hitter is a novel approach, but don’t try this at home (or anywhere else). I can just see the protester-defier crowd dropping Forms 211 on those who send the 1099s that get them hauled.

Judge Goeke closes with a statement that the Ogden Sunseteers did the right thing.

Once again, Judge David Gustafson cannot be obliging. Today it’s James Michael Matarozzo &  Heather Renee Beach, Docket No. 19228-14, filed 12/3/19. Jim & Heather stiped out two years with IRS. Jim & Heather claim IRS agreed not to audit them for the next two years thereafter, because Year Two was a no-change. Except the stip and the decision for the two years doesn’t say anything about no audit.

Jim & Heather want Judge Gustafson to rewrite the decision (except it became final four years ago) to put in the two-year free-fire zone, and keep IRS from collecting (except they never petitioned the NODs they got, so the Anti-Injunction Act, Section 7421, puts paid to that).

Jim & Heather cite Pub. 334, at p. 46. But all that says is “If we examined your return for the same items in either of the 2 previous years and proposed no change to your tax liability, please contact us as soon as possible so we can see if we should discontinue the examination.” Order, at p. 2.

“Apparently the IRS will sometimes forego a subsequent examination in the case of ‘an individual tax return without a Schedule C or Schedule F’ if there has been ‘an audit in the preceding two years’, Internal Revenue Manual part 4.10.2.13.(1) (02-11-2016); but (1) the notice of deficiency attached to petitioners’ petition indicates that their return did include a Schedule C, and (2) this agency practice, even where it is applicable, does not create a legal right or immunity.” Order, at p. 6.

But as to the celebrated Taxpayer Bill of Rights, which term appears prominently in Pub. 334 at p. 45 of the latest version, Judge David Gustafson says “no go.”

“The Taxpayer Bill of Rights (‘TBOR’) consists of ‘10 provisions’ and contains ‘core concepts about which taxpayers should be aware’ but does not create any rights additional to the existing rights of taxpayers ‘scattered throughout the [tax] code.’ I.R.S. News Release IR-2014-72 (June 10, 2014); see also Moya v. Commissioner, 152 T.C. __, __ (slip op. at 24-25) (‘in adopting TBOR in 2014, the Commissioner had no more in mind than consolidating and articulating 10 easily understood expressions [of] rights enjoyed by taxpayers and found in the Internal Revenue Code and in other IRS guidance . . . . [T]he Commissioner had no power to legislate any new rights’). This TBOR appears in the IRS’s Publication 1 and also in the place where petitioners found it–the IRS’s ‘Tax Guide for Small Business’, I.R.S. Publication 334 (Dec. 28, 2018). Congress later enacted the TBOR in section 7803(a)(3), stating the requirement that ‘the Commissioner shall ensure that employees of the Internal Revenue Service are familiar with and act in accord with taxpayer rights as afforded by other provisions of this title,’ followed by the 10 provisions. But neither the IRS’s TBOR nor section 7803(a)(3) as enacted by Congress creates any taxpayer rights; rather, they both allude to provisions elsewhere in the Internal Revenue Code.” Order, at p. 5.

No vacation, no rewrite, no injunction.

Michael C. Worsham, 2019 T. C. Memo. 155, filed 12/3/19, does not read this my blog. This is unfortunate, because had he read my blog and taken a hint therefrom (nota bene, I don’t offer legal advice here), paid the man the $7K in 2012, and thereafter hewn to the straight and cliché, he would not be getting the $3K frivolity chop from Judge Colvin today.

See my blogpost “Pay The Man,” 7/31/12, the case therein reported being cited today as Worsham I. But Mike is a chemist, a civil engineer, and a lawyer, so of course he knows better.

Mike decided to go the protester route. He even goes one better, and becomes a full-bore wit, wag, and wiseacre.

Judge Colvin: “Petitioner filed his petition in this case in 2016 and continued to raise the ‘basis in labor’ argument, even though the Court of Appeals had warned him that the argument is frivolous.  In letters dated February 12, March 30, and April 2, 2018, respondent warned petitioner that raising the basis in labor argument could result in the imposition of a penalty under section 6673.  Petitioner failed to heed these warnings from the courts and respondent.” 2019 T. C. 155, at p. 6.

Mike seems to have taken his text from the great William Blake: “A fool who persists in his folly will become wise.” He keeps arguing “basis in labor,” despite losing at every turn. He gets Crained.

“As we have previously told petitioner: ‘We perceive no need to refute * * * [frivolous] arguments with somber reasoning and copious citation of precedent.’  Worsham I, 2012 WL 3101491, at *4 (quoting Craig [sic: should be Crain) v. Commissioner, 737 F.2d 1417, 1417 (5th Cir. 1984)).  Because petitioner continues to make frivolous arguments despite numerous warnings, we will require him to pay to the United States a penalty of $3,000 under section 6673.” 2019 T. C. Memo. 155, at pp. 6-7.

All y’all (warming up for visit to nearest and dearest in The Bayou City later this month) will remember 5 Cir’s interest in discounts in the run-up to MoneyGram International, Inc. and Subsidiaries, 153 T.C. 9, filed 12/3/19. What, no? I’m aghast. So check out my blogpost “Maybe You Can Bank On It,” 2/15/17.

When Tax Court zapped MoneyGram for taking $82 million in worthless securities losses by claiming to be a bank, 5 Cir said they were a wee bit casual about whether or not MoneyGram made discounts. Don’t confuse “made discounts” with “gave discounts.” Banks make discounts, they don’t give discounts.

The classic definition I learned in the negotiable instruments class from the late lamented Norm Penny, Esq., on The Hill Far Above, was that banks took in third-party promissory notes payable to the bank’s customer at a discount from face value and collected face, the difference between what bank gave the customer and the face amount collected being the “discount,” or interest on a loan.

Looks like I got Prof. Penny’s concept.

“If a bank customer needing immediate cash held a ‘bill’ or promissory note from a third party (perhaps due in 180 days), he might ask his bank to ‘discount’ the bill by giving him (say) 90 cents on the dollar in exchange for the bill.  As the Supreme Court explained in 1823, ‘a discount by a bank means, ex vi termini, a deduction or draw-back made upon its advances or loans of money, upon negotiable paper, or other evidences of debt, payable at a future day, which are transferred to the bank.” Fleckner v. Bank of U.S., 21 U.S. (8 Wheat) 338, 350-351 (1823).  In effect, a ‘bank discount’ is the ‘interest that a bank deducts in advance of the maturation of a note.’  Black’s Law Dictionary (11th ed. 2019).  The bank’s customer receives proceeds reduced by the unstated interest, and the bank receives the unstated interest when the note is repaid at maturity.” 153 T. C. 9, at pp. 68-69.

MoneyGram provides payment services, that is, collects money and a fee from a customer, and transmits it to a third party, whether at home or abroad. Everyone agrees that doesn’t make MoneyGram a bank. Treasury regulates those separately from banks.

But MoneyGram sells money orders, either in its name or co-branded. These are essentially checks, drawn on MoneyGram’s own deposits, which, according to a survey, the purchasers can use “’to pay personal bills’ (65%), ‘to pay for goods or services’ (43%), ‘to help a friend’ (21%), to make ‘a gift’ (15%), and ‘to invest in a business’ (4%).  Customers in the survey indicated that they preferred money orders over other payment methods, such as cash or bank checks, because of the ‘security of * * * [the] transaction’ (41%), because the ‘transaction can be tracked’ (40%), because money orders are ‘required by biller’ (32%), and because cash ‘is not accepted everywhere’ (23%).” 153 T. C. 9, at p. 8.

Banks hold money for safekeeping. None of the foregoing is “safekeeping.”

MoneyGram has agents who are empowered to issue MoneyGram’s money orders, pursuant to a Master Trust Agreement (MTA). And thereby hangs the cliché.

“MoneyGram historically has taken the position that an MTA creates an express trust that gives it a preferred position over its agent’s other creditors in the event of its agent’s bankruptcy.  In at least 27 bankruptcy proceedings filed by its agents, MoneyGram has contended that it is not an ordinary creditor because the MTA gives rise to a fiduciary relationship between MoneyGram and its agent.  For that reason MoneyGram has asserted that its agent’s failure to pay over Trust Funds constituted ‘defalcation while acting in a fiduciary capacity,’ 11 U.S.C. sec. 523(a)(4) (2006), so that the agent’s debts to MoneyGram were not dischargeable.” 153 T. C. 9, at p. 10 (Footnote omitted).

Thus MoneyGram doesn’t lend money to its money-order agents or to the people who buy the money orders. They sell a product.

The basis for the $82 million hit MoneyGram wants to write off is that MoneyGram invested in debt instruments (commercial paper, or CP) that it purchased below par (thus generating OID, or Original Issue Discount), but OID wasn’t a loan to a customer. They were investments required by State regulators.

“In making these investments MoneyGram did not lend money to a customer by discounting a note.  Any lending was done by the underwriters who initially purchased CP from the issuer.  By acquiring CP in the aftermarket, MoneyGram was not lending to the corporation that issued the CP but was simply acquiring an asset from another investor.  The fact that MoneyGram—like all other investors in the $1.78 trillion CP market–would receive OID as part of its investment return does not mean that it was “making discounts” within the meaning of section 581.  Money market funds held massive investments in CP during 2007 and 2008, but they could not plausibly contend that they ‘made discounts’ for purposes of this statute.

“Assuming arguendo that MoneyGram’s purchases of CP directly from issuers involved ‘making discounts,’ we find that petitioner has not shown that investing in such CP was a “substantial part” of its business, either in a quantitative or in a qualitative sense.  Over the course of 2007 MoneyGram invested more than $66 billion in CP, about 8.5% of which it purchased directly from the issuer. Of the $5.7 billion purchased directly from issuers, MoneyGram’s exposure was typically only one day and never more than seven days.  From this $5.7 billion investment MoneyGram earned OID of $1.2 million during 2007.  Relative to MoneyGram’s revenues generally, this amount is insubstantial.” 153 T. C. 9, at pp. 73-74.

Judge Albert G (“Scholar Al”) Lauber does this drill-down to show 5 Cir that Tax Court seriously considered the remand. MoneyGram’s seven (count ‘em, seven) lawyers, including but not limited to two of them with “III” after their names, have the long walk back. I’ve done that, and it ain’t fun.

The motto of the old Cuban League Cienfuego Elefantes “El paso de elefante es lento pero esplantante” (I need not of course translate) might well apply to the progress of Eaton Corporation and Subsidiaries, 280140-14, filed 12/3/19.

I’ve oftimes blogged Eaton, but Judge Kerrigan seems to be running out of patience. “This case has been pending for over five years and is not currently calendared for trial.” Order, at p. 1. Right now they’re holding short, pending decision (or opinion) on a Rule 161 reconsideration of Judge Kerrigan’s last decision, for which see my blogpost “Twelve Pages, Twenty-Two Lawyers,” filed 10/28/19.

Well, before the opinion above-referred-to, IRS wanted to amend their answer for the second time. “The second amendment to answer raises a new issue in this case that proposes an adjustment to income of $192,617,171, and an increase to the deficiency of $26,116,392 for taxable year 2010. These amounts were determined pursuant to section 951(a)(1) and section 1.951-1(h), Income Tax Regs.” Order, at p. 1.

IRS issued regs to Section 951 this past July, changing the whole story retroactive to May 14, 2010. This is the famous Global Intangible Low-Taxed Income fix. Eaton’s tax year ended 12/31/10. Except two years before the present proposed amendment, IRS and Eaton stiped to the pre-reg arrangement, which IRS now wants to torpedo.

Judge Kerrigan is definitely unhappy with these shenanigans.

“Rule 91(e) provides that ‘[a] stipulation shall be treated, to the extent of its terms, as a conclusive admission by the parties to the stipulation, unless otherwise permitted by the Court or agreed upon by those parties.’ The Rule further states: ‘The Court will not permit a party to a stipulation to qualify, change, or contradict a stipulation in whole or part, except that it may do so where justice requires.’ In Stanley v. Commissioner, T.C. Memo. 1991-20, we concluded that the parties should be bound by their stipulation even though petitioner contended the stipulation was inconsistent with a recent decision of the Fifth Circuit. In BankAmerica Corp. v. Commissioner, 109 T.C. 1, 12 (1997), the taxpayer was relieved from the effects of a stipulation for the narrow purpose of redetermining interest in a stipulated computation.

“The interest of justice does not require us to allow respondent to take a position inconsistent with the parties’ stipulations and responses to the Court and petitioner. The Court relied upon the stipulation in question when drafting its Opinion addressing the cross-motions for partial summary judgment. Respondent should have foreseen the proposed regulations, but instead pursued a different legal theory.” Order, at p. 4.

No second amendment for IRS.

Once again, a case for the old Taishoff slogan “Stipulate, Don’t Capitulate.”

My respect for that obliging jurist, Judge David Gustafson, has been heretofore set forth too many times to number, in this my blog. His famous dissents resulted in massive silt-stirs. His obliging nature leads him to offer to try your case in the slammer wherein you reside, draft your papers for you, and do all but bring coffee and Krispy Cremes to court on the morning of trial and feed the parking meter while you wait.

But today, Judge David Gustafson disses one of my all-time, all-star favorite moves. Here’s Arthur M. Bialer, Docket No. 6983-19W, filed 12/2/19.

Art’s bœuf with the Ogden Sunseteers is old, even though his petition is new (May 1, 2019, virtually brand-new). Art claims the OS crew treated him to a “…twelve-year campaign of delay, obfuscation, and destruction and/or suppression of evidence….” Order, at p. 2.

But Art is on for trial in January in The City L’Enfant Built. IRS wants a continuance (that’s an adjournment for us State courtiers) because the trial is set barely nine months after petition and only 28 (count ‘em, 28) days after issue was joined. Now my mentors, long ago in a galaxy far away, used to say that if you weren’t ready to try your case the day you filed your first pleading, you were a flop. Well, fast forward a millennium to the age of electronic discovery with 40 million (count ‘em, forty million) documents (see my blogpost “The Forty Million,” 4/29/15), and maybe not.

IRS wants to move for summary J. Obviously they’re going to play the Kasper gambit, Lacey variation: no proceedings, no collection, no award, no case. Art vociferously objects, saying he wants the trial when scheduled.

Judge Gustafson thinks both IRS and Art got it wrong.

As for Art, the issue is abuse of discretion by the OS, not trial de novo of whatever Art claims. And the review is limited to the administrative record, that is, what Art gave the OS, and what they did (or didn’t do) when they got it. And if what Art gave them either was useless, or if it did get to the operations branch (examination, collection, CID) and they did nothing, or did everything but collected nothing, game over. Tax Court can’t order operations branches to do anything.

As for IRS, “….neither party has filed a proposed administrative record; and it is evident that the parties have neither agreed on the contents of that record nor yet identified any particular disputes. We therefore cannot tell when this case will be ready for decision on the merits nor even when it might be ripe for an evidentiary hearing on the contents of the administrative record, if needed.” Order, at p. 2. And Art and IRS’ counsel are still fighting over a Rule 103 protective order.

But here’s the real hitch, and the cause of my concern.

“The Commissioner anticipates that, once the contents of the administrative record have been identified, he will be in a position to request a merits decision without trial on the basis of a motion, which he characterizes as a ‘motion for summary judgment’ (i.e., under Rule 121). When addressing a motion for ‘summary judgment’, however, we look for a dispute of material fact and then we deny the motion in the presence of such a dispute. It would seem that, if we followed the procedures of Rule 121 in this whistleblower case, then if there were a dispute of fact as to whether the WBO had abused its discretion, we would not resolve that dispute but instead would deny the motion. Such a denial would then be followed by a trial at which the dispute would be tried and decided–but, as we have observed, whistleblower cases are decided not after trial but on the basis of the administrative record. Under the principles set out in Kasper, it would seem that, once we have the administrative record before us, we decide ‘genuine disputes of material fact’ (contrary to the procedures of Rule 121) about whether or not the WBO abused its discretion. If this reasoning is correct, then a party seeking a decision in his favor in a whistleblower case should move not for ‘summary judgment’ but perhaps for entry of decision, more resembling a motion under Rule 122.” Order, at pp. 2-3.(Emphasis by the Court).

Judge, if you find a credible variance between blower and OS on an issue of material fact set forth in the administrative record proffered by IRS, but to which Art objects, even after remand, how do you “decide” without some kind of evidentiary hearing, just like a trial after summary J is denied? If there is no such variance, then summary J is exactly what should be given. Invoking Rule 122 instead of Rule 121 is, I most respectfully submit, a distinction without a difference.

But Judge Gustafson keeps the trial date, to cause the parties to focus on sorting out the administrative record and their differences.