Judge Pugh goes public with a form of Rule 103 protective order for computer software and proprietary business info in Facebook Inc. & Subsidiaries, Docket No. 21959-16, filed 1/31/20.
There’s thirteen (count ‘em, thirteen) pages of order, with form of Acknowledgement and Agreement to be Bound by same.
Copy, drag and drop to your form file as a template for what a major player and IRS can agree.
I don’t boost other peoples’ blogs. I have been known to recognize a colleague who feeds me good copy (hi, Mr Reilly), but the attribution is there every time. But today I break with precedent, because the topic is important and close to home.
One of my nearest and dearest is on leave from a Big Four and in a tough fight. Depression and mental health are topics we avoid, lest anyone should doubt our omniscience and have-it-all image. After all, we are the tax gurus, right? We are the ones who deal with The Phone Call, the three a.m. OMG did I (do)(not do) thats, the clients facing disaster (losing their heads and blaming it on you), and all that jazz.
Except.
As I said in my blogpost “NOL A Nullity,” 2/27/12, “I can understand anyone being acutely anxious about taxes, even a CPA like J.” (Name omitted). Especially.
I can’t think anyone reading this my blog is reading it for fun. It’s not written to amuse or divert. I am writing for the in-the-trenches practitioner who needs to know what is going on, the grunt about to deploy from the chopper into what may be a firefight and needs some idea about what is going down at the Glasshouse on Second Street, N.W.
Fast.
And s/he can’t show indecision, fear, or the slightest doubt that, whatever the problem, s/he’ll fix it fast and cheap.
I submit, with all due deference and respect, that ain’t the way it is. The great French actress Sarah Bernhardt put it best: When a young actress joined the Comédie Francaise and boasted that she didn’t know what stage fright was, Bernhardt shot back “Wait until you get to be good, my girl, then you’ll know.”
I further submit that the best way to deal with the killer stress we all face is to talk about. Honestly.
My baby is trying. Follow her blog “Seriously, Jerkbrain?” on WordPress.
While it looked like out-of-hand tosses by the Ogden Sunseteers would hit the Lacey wall, the Obliging Jurist Judge David Gustafson, obliges the OS crew when the Form 211 is clearly off-the-wall. Case in point: Christian Bernd Alber, 2020 T. C. Memo. 20, filed 1/30/20.
This furnishes a counterpoint to Lacey, for which see my blogpost “The Whistleblower Office – Blown,” 11/25/19.
Chris’ bœuf reminds me of my youthful days in Our State’s Attorney General’s Office, where such complaints as his were routine. “His Form 211 alleges violations of the income tax laws of Germany, as well as ‘identity theft, tax theft, suppression and destruction of * * * [his] life through fake statements’ and generally alludes to rights under the United States and German Constitutions that afford ‘right[s] for * * * [his] property.’ In the attachments to his Form 211, Mr. Alber identified 17 discrete persons or entities as the perpetrators of his alleged grievances, but he asserted no facts that would connect any of these alleged bad actors to a specific violation of an internal revenue law of the United States.” 2020 T. C. Memo. 20, at p. 3.
Chris also has problems with his divorce, child custody, a hotel in Thuringia, and “a ‘highly criminal “psychological assessment” by a German doctor “even though * * * [he is] totally healthy’….” 2020 T. C. Memo. 20, at p. 3.
True, the OS’ toss letter used the contemned “and/or” conjunction, but that’s no obstacle.
“The Commissioner’s form letter contained the same ‘and/or’ conjunction that led to unclarity in Lacey v. Commissioner, 153 T.C. __, __ (slip op. at 39-40) (Nov. 25, 2019). But on the record of this case, with the benefit of the detail in the ARM [award recommendation memorandum, the toss note prepared by the tax analyst at Ogden], all of the listed reasons for the rejection are warranted, so we need not pick and choose. However, we continue to be concerned that, in a closer case, this form text may create confusion when we review a summary rejection of a whistleblower claim.” 2020 T. C. Memo. 20, at pp. 8-9, footnote 5.
No credible evidence of an IRC violation, and nothing that might lead to recovery of money. So the issue isn’t no action and no proceeds, but rather no action could go anywhere based on what was submitted.
In short, when there’s no allegation of an IRC violation, we don’t need Lacey.
The traditional “mailbox rule” states that, absent direct evidence of receipt, proof of mailing presumes official regularity and delivery.
But proof of mailing is not so easy, when jurisdiction requires a timely-mailed Form 12153 as foundation for a CDP and petition therefrom.
Just ask Hubert W. Chang, 2020 T. C. Memo. 19, filed 1/29/20. Or better, don’t ask him, as he lost; ask Judge Gerber.
“Petitioner contends that he did mail two letters within 30 days of a lien notice and a levy notice, requesting CDP hearings. Respondent counters that both of petitioner’s letters were received after the 30-day period allowed and that neither of the envelopes containing petitioner’s letters was postmarked. The sole question presented for our consideration is whether petitioner’s letters were mailed within the 30-day period.” 2020 T. C. Memo. 19, at p. 2.
Hubert has a problem with some of the years he’s petitioning, as he’d petitioned a bunch of them twelve (count ‘em, twelve) years ago. And he doesn’t do much better with the ones he’s now disputing.
The envelopes were properly addressed and postpaid. Judge Gerber finds they were mailed a day late and a lot more than a dollar short.
Hubert’s trial testimony wasn’t the best. At first he testified he mailed the envelopes a day late, then backtracked and claimed mailing on the last day at the local mailbox. The local mailbox is found on that lovely island Oahu, and the local USPS manager and postal expert, Mr. Ikaika Bright, deciphering the barcode printed on the envelopes by USPS machinery, testifies they were most likely mailed one day late.
Hubert did get an equivalent hearing, at which he raised all his objections to the proposed collection activities, to no avail. And of course you can’t petition an equivalent hearing.
Hubert goes down swinging.
“On brief petitioner argued that it is possible that his requests were mailed on [Day 30], and that there could have been delays. He suggests that the USPS could have misplaced the requests or that they were delayed in the process of pickup from his local post office to the main processing facility in Honolulu. There have been instances where delay or other infirmities in the mail service have been shown, but in this instance it is purely speculation on petitioner’s part. To his detriment petitioner testified that he mailed the requests on [Day 30 + 1], one day late. Petitioner laments that it was only one day late and that the Court should take the initiative to provide him with a hearing. Sadly, we are unable to grant petitioner’s wish under these circumstances.” 2020 T. C. Memo. 19, at p. 8.
Now for Taishoff’s Mailbox Rule: Don’t use a mailbox. Get the envelope(s) hand-canceled by the clerk at the window.
That’s the story with Tax Court’s electronic filing system this summer. Judge Albert G (“Scholar Al”) Lauber has the bad news in Solar Eclipse Investment Fund III, The Sherwin-Williams Co., Tax Matters Partner, Docket No. 12449-17, filed 1/29/20.
Judge Scholar Al wanted a status report by June 22. Alas and alack, he “…received notice that the Court’s electronic filing service will be shut down from June 20, 2020 until July 6, 2020.” Order, at p. 1.
Judge Scholar Al reschedules the painters, but practitioners, mark your calendars.
And remember: you saw it here first.
I’ve mentioned before now staggering bleary-eyed into my high school class after hearing Prez eulogize the man he called ”Mr President of the DJ Committee.” Yes, I and my fellows were “gonna be up all night gettin’ with it.” Gone, alas, like my youth, too soon.
But today Judge Colvin, unlike the immortal Lester Young, decides he does think he’s “listenin’ to Lacey.” Only this Lacey isn’t easy-listening DJ Jack, it’s Richard E. Lacey, II, whose contribution to whistleblower lore is found in my blogpost “The Whistleblower Office – Blown,” 11/25/19.
And whom else to bring the Lacey gambit front-and-center but Thomas M. Comparini & Vicki Comparini, Docket No. 6674-13W, filed 1/28/20? I’ve blogged the Comparinis and their epistolary jamboree for upwards of six (count ‘em, six) years; you could look it up.
Today IRS is once again trying the played-out summary J “We started nothin’ and got nothin’” gambit, notwithstanding the Comparinis gave them 500 pages to start, and when the Ogden Sunseteers kicked their Form 211, gave them 300 pages more.
Turns out that while the OS sent the first 500 to examination, who sent it back as unsubstantiated, they never sent examination (or anyone else) the second 300. And IRS’ summary J motion doesn’t include the administrative record.
“The parties dispute whether petitioners substantiated their application and supplemental application. The parties have not provided the administrative record to the Court, and we are unable on this record to review the reasonableness of respondent’s determination set forth in the letter issued to petitioners after they submitted their supplemental application.
“Respondent does not explain why materials provided by petitioners do not constitute substantiation of their application. Considering our obligation to resolve doubt in favor of the non-moving party, on our record we are unable to find that it is not in dispute whether petitioners substantiated their application.
Respondent contends that petitioners are not entitled to receive a whistleblower award because no proceeds were collected and no action was taken based on petitioners’ claim. With respect to petitioners’ supplemental application, no action was taken by the WBO (except to repeat the denial of the original application) and there were no proceeds. In Lacey v. Commissioner, 153 T.C. __,__ (slip op. at 38) (November 25, 2019), we said ‘[t]he Tax Court’s review of a WBO determination to “reject” a claim is not preempted by the absence of “action” and “proceeds”.’ The absence of ‘action” and ‘proceeds’, without more, does not provide sufficient grounds to justify granting respondent’s motion for summary judgment.” Order, at pp. 2-3.
Gotta do better, Sunseteers. Looks like you too are “gonna be up all night gettin’ with it.” And listenin’ to Lacey.
IRS hasn’t had an easy time with Anthony I. Provitola & Kathleen A. Provitola, et al., Docket No. 16187-17, filed 1/27/20. Anthony is an attorney who is more inventive than most. See my blogposts “I Love My Cigar,” 2/6/19, and “A Canard,” 12/11/19. In fact, Anthony invented, and got seven (count ‘em, seven) patents for, some kind of device to improve television viewing. And, as the aforementioned blogposts more particularly set forth, he has led both IRS and Tax Court a merry chase.
Judge Buch has the finisher, in an off-the-bench designated hitter, wherein Anthony’s roundy-round with money between APPA (his Professional Association, a/k/a his law practice) and Kathleen’s Sub S (the marketing arm of his invention) runs aground. Kathleen’s Sub S has no deduction for what she paid APPA, because those are Section 195 start-up costs, not Section 162 ordinary-and-necessaries, because the TV stuff isn’t up and running.
IRS’ arguments are far from crystalline. IRS first claims substance-over-form, but the transfers were real.
Form-over-substance craters. “However, we will respect [Sub S] ‘s form because it is engaged in activities with a business purpose. Mr. Provitola is currently working on inventing and bringing to market his television viewing product through [Sub S]. He has developed the product and obtained several patents in the process. Although it is unclear at this time whether the product will be commercially viable, approximately 1,000 units of the product have been manufactured with the hope of eventual sale. A website has been created for that purpose, although that website is not yet public. The Provitolas treated [Sub S] as a discrete entity; for example, [Sub S] maintains a separate bank account. [Sub S] is not a ‘sham or unreal’ nor is it ‘a bald and mischievous fiction.’ [Sub S] exists to develop an bring to market Mr. Provitola’s invention, and we will respect its existence.” Transcript, at pp. 11-12.
Judge Buch notes the SNOD only questioned the deductions by the Sub S, not the income to APPA. So this isn’t a true roundy-round, because therefore the income to APPA is real. But Anthony isn’t home free.
“Distinct from the substance over form argument, the Commissioner argues: ‘[Sub S] was not actually engaged in business during the [years at issue]. At best, the transfers from [Sub S] to the law practice could be considered start-up expenses, which are not deductible for the years they were made.’ We will characterize this as a start-up expenditures argument.” Transcript, at p. 9.
“[Sub S] has not yet commenced an active trade or business. …[Sub S] has taken significant steps to prepare for the business of selling Mr. Provitola’s invention. [Sub S] has not yet attempted to market or sell a product. It has not made any sales, made its website public, or attempted to market a product.” Transcript, at p. 15.
So Sub S can amortize the start-up expenses, if, as and when it starts operating.
True, the start-up argument is new matter, but Judge Buch says IRS easily bore the burden of proof on that. And Anthony did his own taxes, he’s a Tax Court admittee, and he put in no evidence about substantial authority. IRS only has the Section 6751(b) Boss Hoss for substantial understatement, so if the numbers work for the five-and-ten, Anthony and Kathleen get chopped therefor.
Most Tax Court petitioners are self-represented. But even when a petitioner has an attorney, it may turn out that she doesn’t.
An earlier order directed that a properly executed petition be filed, but didn’t state why the petition theretofore filed was defective. Today Ch J Maurice B (“Mighty Mo”) Foley enlightens us, Lenda and Lenda’s counsel.
“…the petition had been submitted by counsel C but had reflected only his photocopied signature. Counsel therefore was not treated as having entered an appearance in this matter, and the petition was considered to be pro se. Therefore, in order for this Court to acquire jurisdiction to consider this case, it is necessary to obtain a Ratification of Petition bearing petitioner’s original signature and ratifying the petition previously filed.” Order, at p. 1. (Name omitted).
Neither Lenda nor C replied to the earlier order, and I can understand why.
So counsel, when your client comes tearing in at ten to five on Day Thirty with NOD in hand and panic on face, get out your quill pen and wet ink your signature on the blank form petition you print out from your desktop, stuff it in the preprinted and postpaid envelope, and hotfoot it to the post office.
And tell ‘em Lenda sent you.
Judge James S (“Big Jim”) Halpern reminds us that Section 6229(a) is not a separate SOL, but only a one-year extender for Section 6501 three-year SOL, after a FPAA has run its course, and the fallout has to be distributed to the partners.
Judge Big Jim has all the cites in Ramat Associates, Wil-Coser Associates, A Partner Other Than The Tax Matters Partner, et al., Docket No. 22295-16, filed 1/23/20.
Ramat wants all the SNODs tossed because 3SOL. No, says Judge Big. Jim.
“Petitioner has a fundamental misunderstanding of the statutory limits on the period during which tax resulting from the adjustment of partnership items may be assessed against a partner. Section 6229(a) does not provide a separate period of limitations on that assessment. It serves only to extend, in some cases, the period of limitations under section 6501(a) on assessing tax against a partner.” Order, at p. 3.
“Section 6501(a) provides that the amount of any tax shall be assessed within 3 years from the date a taxpayer’s return is filed. The term ‘return’ for purposes of section 6501(a) does not include a return of any person from whom the taxpayer has received an item of income, gain, loss, deduction, or credit, e.g., a partnership return. Sec. 6501(a). Section 6501 provides the general period of limitations for assessing any tax imposed by the Code.
“Section 6229 establishes the minimum period for the assessment of any tax attributable to partnership items (or affected items) notwithstanding the period provided for in section 6501. Section 6229 is not a stand-alone statute of limitations but can extend the section 6501 period of limitations with respect to the tax attributable to partnership items or affected items.” Order, at pp. 3-4.
And IRS can assess even if 3SOL has run, provided there’s an open year into which any of the fallout from the FPAA has fallen, even though the transactions on which the fallout is based is a closed year.
But that’s a question of fact, so no summary J.
Mr Charles here is not a symbol, as in the James Baldwin 1964 drama. Mr Charles is the proponent of a software program that Floyd X. Proctor, Docket No. 13072-18, filed 1/23/20, tried valiantly to use to complete his overdue tax returns.
Floyd admits his fault in delaying. But Floyd failed to input some 1099-MISCs he got for snowplowing. Floyd had a dump truck and an LLC. The truckin’ life he led was incidental to his main job.
Who better to let Floyd off the Section 6662 chops than that Obliging Jurist, Judge David Gustafson, in this designated hitter off-the-bencher?
“Mr. Proctor has a high school education. After he graduated in 1985, he worked at a Safeway grocery store. Since about 1987 he has worked as an explosive operator for the Department of Defense (‘DOD’) as a civilian employee.” Transcript, at p. 4.
Here’s the story. “Mr. Proctor was uncertain how to report hi trucking activity on his return. A friend referred him to a supposedly knowledgeable man named Mr. Charles, who (Mr. Proctor believed) owned a truck and used it in an income- producing activity similar to Mr. Proctor’s. Mr. Proctor obtained tax preparation software called “Tax Act”, and when he prepared his … returns, Mr. Charles came over to Mr. Proctor’s house and stood over his shoulder, helping him respond to the software prompts and fill in the information that was reported on Schedule C.
“When Mr. Proctor prepared his tax returns in this manner, he showed Mr. Charles the Forms 1099 that he had received and that he had issued to workers, as well as cancelled checks, invoices, and receipts for his trucking expenses. Mr. Proctor used the Forms 1099 that he had received from customers to tally and report income from his trucking activity. However, he did not realize that he had not received Forms 1099 from all of his trucking activity income (probably missing Forms 1099 for income from snow-plowing jobs in both years), so he under-reported his income on his returns. He reported trucking activity expenses on the returns that, he eventually agreed by stipulation, should be reduced; but we conclude the deductions he claimed were not deliberately faked.” Transcript, at p. 5.
Floyd testified forthrightly. Given his education and his good-faith efforts to do the right thing, even belatedly, Judge Gustafson lets Floyd off the penalties, but not the late-filing additions.
Taishoff Law 
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