There has to be a trial for Vincent Fumo, Docket No. 17603-13, filed 2/28/20, says Judge Albert G. (“Scholar Al”) Lauber.

Vince was a guest on this my blog back in 2016, as recipient of the serpent’s tooth from his offspring. See my blogpost “Good Job, Judge Lauber,” 10/14/16.

Y’all will recall that Vince took a major fall in USDCEDPA a dozen years ago, going down on 137 of 139 counts “including mail fraud, wire fraud, conspiracy to commit mail and wire fraud, conspiracy to defraud the United States, obstruction of justice, conspiracy to obstruct justice, and violation of I.R.C. § 7206(2).” Order, at p. 1.

But USDCEDPA didn’t decide how much Vince actually got from his multitudinous skullduggeries, and he did split at least some of it with a codefendant.

So the issue is how much of the loot was income to Vince. IRS wanted forfeiture, but fell down on proving what went into Vince’s coffers from his delictions. Then 3 Cir was appealed to, and bounced the case back and forth a while, in the end coming up with some numbers, which IRS massaged into a SNOD.

IRS wants summary J that Vince is “…collaterally estopped from relitigating whether petitioner received proceeds, income, or benefits as a result of the crimes for which he was convicted.” Order, at p. 3. Not to be outdone, Vince wants summary J that, because USDCEDPA awarded no restitution, IRS is likewise collaterally estopped from relitigating whether Vince did get anything, and btw, SOL.

Judge Scholar Al agrees that Vince can’t “fight old battles o’er” about the 137 counts for which he went down. But because they are many and heavy, Judge Scholar Al doesn’t schedule them here. That said, this case is about unreported income.

“The facts established in the criminal case did not determine the amount of gross income that petitioner received for Federal income tax purposes. The District Court found that petitioner reaped improper benefits and that the [State] Senate and Citizens Alliance were the victims of misappropriation. But it did not find that petitioner derived taxable benefits in a one-to-one ratio with his victims’ losses.” Order, at p. 4.

An embezzler may get dollar-for-dollar taxable income from his/her theft. Embezzlement is efficient thievery, but Vince’s operations may not have been so efficient. “And whereas an embezzler may be held to have received gross income in the dollar amount of funds embezzled, the result may be less obvious for certain of the benefits that petitioner received. For example, there may be disputes of material fact as to whether petitioner derived a dollar-for-dollar benefit from additional salary received by employees for whom he secured promotions to higher positions.” Order, at p. 5.

It’s the same old story. IRS must show some minimal evidentiary connection to income-producing activity, or that Vince actually got something. And while USDCEDPA and 3 Cir decomposed a lot of brain tissue toting up what the PA State Senate and the allied citizens lost via Vince and codefendant, they didn’t find what Vince himself actually got in hand.

So on the trial IRS can connect Vince to income-producing activity or show that Vince actually got something. Then Vince can prove IRS’ numbers are wrong.

But Vince doesn’t get summary J either.

“The District Court declined to enter a verdict of forfeiture because of its finding that the Government had not proven that petitioner derived ‘proceeds traceable to the mail or wire fraud counts on which he was convicted.’ The term ‘proceeds,’ for purposes of 18 U.S.C. § 981, is not equivalent to ‘income’ within the meaning of I.R.C.§61. ‘Proceeds’ is defined to mean property obtained ‘as the result of the commission of the offense giving rise to forfeiture, and any property traceable thereto.’ 18 U.S.C. §981(a)(2)(A). ‘Proceeds’ are forfeitable only if obtained as a result of violating certain enumerated statutes. See id. para.(1). ‘Income’ under the Internal Revenue Code is not subject to such limitations. See I.R.C. § 61(a) (‘[G]ross income means all income from whatever source derived.’); (‘Congress applied no limitation as to the source of taxable receipts, nor restrictive labels as to their nature.’).” Order, at pp. 6-7. (Citation omitted).

Vince claims proceeds equal income, but has no caselaw for that proposition, and Judge Scholar Al isn’t buying.

As for SOL, Vince went down for all kinds of fraud, including filing false tax returns. So no summary J for Vince on that one. Maybe IRS can prove a clear and convincing case of tax fraud.

It is hardly a secret that I like to spend an occasional evening having a drink or two with colleagues. We brain-pick, theorize, and swap anecdotes. As I re-read today’s Sum. Op. from STJ Daniel A. (“Yuda”) Guy, I recollected a remark from a colleague about his former client X. “The judge told me that X was ‘a thoroughpaced scoundrel.’ I replied, ‘Your Honor, that might be; but he is still entitled to due process of law.’”

For that reason, I am glad that STJ Yuda took the trouble to defuse the two arguments of Friday O. James, 2020 T. C. Sum. Op. 11, filed 2/27/20.

STJ Yuda simply could have defaulted Friday, as he didn’t show up for trial on August 9, 2019. Friday certainly didn’t show, nor did he give proper notice of change of address. But Friday had been deported to his native Liberia in July, 2018, after doing 36 months in the Federal slammer for Section 7206 aiding and abetting.

Friday ran a tax prep operation that churned out around 2K returns for the two years at issue. IRS found 150 of them were, to put it politely, counterfactual. “…IRS opened a criminal investigation and interviewed several of petitioner’s clients.  Some of those clients informed the IRS that petitioner had ignored or altered tax information that they had provided to him and improperly claimed the FTH credit and various deductions.” 2020 T. C. Sum. Op. 11, at p. 3. “FTH” is first-time homebuyer credit/deduction/loan, a now-extinct species of unguided largesse that afforded Friday a golden opportunity for fictionalizing.

OK, clearly Friday is not without sin.

However, the Section 6701 chops he’s fighting are assessables, so Friday gets no SNOD, but can fight the penalties in a CDP.

First, he got the chops while he was appealing his criminal conviction. But that’s OK, because the civil chops are independent of the criminal penalties. Y’all will remember Martin Kapp, the scourge of the seas, who went down to the tune of $3 million Section 6701s, no? No? Then see my blogpost “The Rogues’ March – Part Deux,” 7/9/19. Martin also hit into a double play.

Second, Friday claims that there’s only a single $1000 Section 6701 per year. No, Friday, it’s one per return per year, but only one per client.

Of course, Appeals did all the right stuff. The RA put in an 8278 and got it Boss Hossed.

Perhaps Friday left some cash and other goodies behind, and that’s what IRS is chasing.

But His Spouse Walks

Dung T. Le ran a couple nail salons (hi, Judge Holmes) in Lincoln, NE. Dung T. was properly nailed for the 75% fraud chop. Handing the RA auditing his returns doctored copies of checks, and getting a Suspicious Activities Report from his bank for his string of under-radar cash deposits, is enough for Judge Paris. And Dung T. also went down for Section 7201 tax evasion in USDCDNE.

There’s more, but spouse Nghia T. Tran, though a woman of many names, “also known by or referred to as Nancy T. Tran, Nghia Hui Thitran, and Nancy Nghia Tran”, 2020 T. C. Memo. 27, filed 2/26/20, at p. 3, walks away chopless.

The whole story is to be found in Dung T. Le and Nghia T. Tran, 2020 T. C. Memo. 27.

Dung T. is toast long before Nghia appears on the scene. It’s the usual criminal conviction plus restitution doesn’t determine tax liability, so no collateral estoppel as to a post-conviction SNOD. Judges have wide discretion to fix restitution. Anyway, “…it is well settled that a sentencing court’s ordering of (or decision not to order) restitution has no effect on the IRS’ authority to determine the taxpayer’s correct civil tax liability and to assess and collect that liability.” 2020 T. C. Memo. 27, at p. 22 (Citations omitted).

But when it comes to the 20% accuracy chops, Dung T. is out because of the fraud chop.

“The accuracy-related penalty cannot be imposed on one spouse where the other spouse is liable for the fraud penalty, as this would lead to impermissible stacking of penalties.  Respondent has not asserted fraud penalties against petitioner Tran but alleges that she is liable for the section 6662(a) accuracy-related penalty for each year in issue.

“Petitioner Le bears principal responsibility for the false statements made to, and the lack of cooperation with, the IRS revenue agent.  Unlike her husband, petitioner Tran did not present testimony lacking credibility at trial.  Also unlike her husband, she did not actively participate in the deposits and manipulation of the business accounts or interaction with the preparation of the tax returns. Because petitioner Le is liable for the section 6663 fraud penalty for each year in issue, petitioner Tran is not liable for the accuracy-related penalties.” 2020 T. C. Memo. 27, at pp. 38-39. (Citations omitted).

Section 6663 is a path to Section 6015 innocent spousery. If you’re an innocent spouse.

While the election returns have not been posted, an unsigned press release brings us the news that Ch J Maurice B (“Mighty Mo”) Foley has been re-elected as Ch J.  His term will extend to 2022.

Congratulations to Ch J Mighty Mo.

And just to show that the election hasn’t at all slowed down the Ch J, or dimmed for a moment his eagle eye, here’s Kellie Marie Yared, Docket No. 158912-19S, filed 2/25/20.

It looked like Kelly Marie and IRS had conclusively chilled Kelly Marie’s bœuf, and a joint stip decision embodying the same was awaiting the ceremonial stamp.

Little did the parties anticipate Ch J Mighty Mo’s eagle eye and well-documented predilection to toss.

“Among other things, that Stipulated Decision determines there is a deficiency in income tax of $11,430 due from petitioner…. The…deficiency notice issued to petitioner…upon which this case is based, however, asserts against petitioner a proposed deficiency of $11,429, not $11,430.” Order, at p. 1.

I don’t know about you, dear reader, but if I could get out of a case by paying an extra buck, I’d be out like a shot.

But don’t do it in USTC while Ch J Mighty Mo is on the watch.

If your exhibits are as voluminous as those in BATS Global Markets Holdings, Inc. and Subsidiaries, Docket No. 1068-17, filed 2/24/20, you may have to give the judge a courtesy copy in advance of trial.

Judge Kerrigan tells us how she wants them delivered.

“Electronic exhibit files must be submitted to the Court on USB media (e.g., thumb drive). All files must be provided on a single storage device. Please note: If a party needs to submit the electronic exhibits on a different media type, the party should submit a request to the Judge.” Order, at p.1.

And provide a spreadsheet listing any unstipulated exhibits. Number petitioner’s and respondent’s exhibits sequentially per Judge Kerrigan’s formatting directions.

“The USB media (e.g., thumb drive) submitted must be labeled with the following information: Docket Number, Case Name, and Party submitting the device (Respondent, Petitioner, or Joint).” Order, at p.1.

And describe any non-documentary exhibits, like videos.

There’s more, but be prepared for orders from other judges and STJs requiring courtesy copies of exhibits. And remember: thumbs up.

It’s rare that one of these swims into my ken. I suppose it’s just as rare at Appeals. But today Andrea Michelle Jackson, Docket No. 13268-19S, filed 2/21/20 has one, and gets jurisdiction from Ch J Maurice B (“Mighty Mo”) Foley.

Andrea asked for interest abatement along with her stand-alone. IRS opposed abatement from the first, and ultimately wins that one. But IRS admitted they didn’t have the NOD from Appeals on the innocent spousery; they were, however, searching for same. All Andrea attached to her petition was an incomplete and unsigned NOD.

Then IRS supplemented their motion to toss the interest abatement with a motion to toss on the ground that no NOD had issued on the stand-alone.

Ch J Mighty Mo is a patient man.

“Nonetheless, despite the foregoing efforts, respondent’s motion, even as supplemented, remained inadequate to address the jurisdictional status of this case as to any section 6015, I.R.C., claim. Specifically, respondent had at no time addressed the parameters of  jurisdiction under section 6015(e)(1)(A)(i)(II), I.R.C., in particular whether petitioner submitted to the IRS a claim for relief from joint and several liability…and, if so, when.” Order, at p. 2.

Apparently the penny dropped, and IRS got the point. If someone claims innocent spousery timely, and six (count ‘em, six) months go by without IRS picking up on it, Tax Court has jurisdiction if petitioned within ninety (count ‘em, ninety) days thereafter. Andrea did.

“A second supplement to the motion addressing the just-described point followed…. Therein, although inartfully drafted, respondent conceded that petitioner had sent a request for innocent spouse relief to the Internal Revenue Service (IRS)…, that no notice of determination had been sent to petitioner under section 6015, I.R.C., and that, consequently, the Court had jurisdiction over the spousal claim in this case under section 6015(e)(1)(A)(i)(II), I.R.C.” Order, at p 2.

Practitioner, add this one to your toolkit.

Rock Bordelon and Torie Bordelon, 2020 T. C. Memo. 26, filed 2/20/20, are engaged in risky business, enough to convince Judge David Gustafson to allow Rock to take passthrough losses from his wholly-owned LLC, and carry over a disallowed loss for want of basis to a year when his risky business gave him basis in his Sub S.

It’s all about personal guarantees. Rock borrowed from the Dep’t of Agriculture and from a bank to fund his business. In both cases, Rock gave personal guarantees. Though Judge Gustafson doesn’t quote the exact language, both guarantees provide that the lenders may proceed against Rock directly for payment, without the need to attempt to collect from any other person. Rock had no right to contribution from anyone, except his wholly-owned entities, and Judge Gustafson says that means Rock has the economic burden in reality.

Section 465, the at-risk rules, goes off on facts and circumstances (surprise, surprise). You can’t take losses or grow basis unless you have skin in the game. The main question is whether the guarantor of a debt is ultimately liable, with no right to recover by way of contribution, stop-loss or side agreement, from anyone else if s/he has to pay up. The test is the so-called “worst case scenario,” where obligor defaults and has nothing, and the obligee goes hunting for dollars.

But that’s different from the “realistic probability” test, that there is a realistic probability that the guarantor would suffer economic loss. Rock would win in either case.

But in a more complex case, it would get hairy.

“Among the U.S. Courts of Appeals there has been a perceived split on the appropriate framework for analyzing section 465(b)(4)–i.e., whether analyzing ‘realistic possibility’, see, e.g., Waters v. Commissioner, 978 F.2d 1310, 1316 (2d Cir. 1992), aff’g T.C. Memo. 1991-462; Young v. Commissioner, 926 F.2d 1083, 1089 (11th Cir. 1991), aff’g T.C. Memo. 1988-440 and T.C. Memo. 1988-525; Moser v. Commissioner, 914 F.2d 1040, 1048-1049 (8th Cir. 1990), aff’g T.C. Memo. 1989-142; Am. Principals Leasing Corp. v. United States, 904 F.2d 477, 483 (9th Cir. 1990), or else analyzing ‘obligor of last resort’ under a ‘worst-case scenario’, see, e.g., Emershaw v. Commissioner, 949 F.2d 841, 845 (6th Cir. 1991), aff’g T.C. Memo. 1990-246.  These cases would presumably be appealable to the Court of Appeals for the Fifth Circuit (absent a stipulation to the contrary, see sec. 7482(b)(1)(A), (2)), and we know of no opinion of that court addressing this issue.  However, the split may not really be implicated in a situation like the one in these cases.  Although we acknowledge that in factually complex cases, such as those involving multi-party sale-leaseback transactions or stop-loss agreements, choosing between the tests might lead to different results, see, e.g., Thornock v. Commissioner, 94 T.C. 439, 450 (1990), we found little distinction between the two frameworks in Wag-A-Bag, Inc. v. Commissioner, T.C. Memo. 1992-581, 64 T.C.M. (CCH) 948, 952 (1992), and held that either would lead to the same result in that case.  In these cases we follow Wag-A-Bag and find that in the circumstances before us, both approaches would lead to the same result.” 2020 T. C. Memo. 26, at pp. 23-24, footnote 10.

Taishoff says that the question is, can one devise a reasonably probable scenario wherein the guarantor would have to pony up, with no one to turn to for help? Now with enough players on the field, one might slip in a stop-loss or indemnity agreement from a minor player to bail out the guarantor. But the wise institutional lender will have none of it (not wanting the multi-bankruptcy game), and the wise guarantor will not prefer a lawsuit for contribution or indemnification from a minor player to the $1.4 million write off Rock gets from Judge David Gustafson.

A thought from John O’Hara (1960): “What, really, can any of us know about any of us, and why must we make such a thing of loneliness when it is the final condition of us all? And where would love be without it?”

It’s not cheese this time, rather it’s the Helvetian Confederation itself, ponying up all the bank records they promised for “accounts of interest” per the 2009 deal between DOJ and the descendants of William Tell.

Judge Albert G (“Scholar Al”) gives us the quick peek, via George S. Harrington, Docket No. 13531-18, filed 2/19/20, a designated hitter.

“Pursuant to this agreement the Internal Revenue Service (IRS) submitted to the Swiss Government, under the bilateral income tax treaty between the two nations, a request for information concerning specific accounts believed to be beneficially owned by U.S. taxpayers. The Swiss Government directed UBS to initiate procedures that would lead to turning over to the IRS information in UBS files concerning bank-only accounts, custody accounts in which securities or other investment assets were held, and offshore nominee accounts beneficially owned indirectly by U.S. persons. See U.S. Department of Justice, Press Release, U.S. Discloses Terms of Agreement with Swiss Government Regarding UBS (Aug. 19, 2009), at http://www.usdoj.gov/opa/pr/2009/August/09-tax-818.html. The parties acknowledged that the Swiss Federal Office of Justice would oversee UBS’ compliance with its commitments.” Order, at p. 1.

844 (count ‘em, 844) pages of George’s account statements, correspondence, und so weiter wind up in the paws of DOJ and on to IRS. IRS wants to offer these in evidence, via a motion in limine.

George says they’re hearsay, and UBS’ legal counsel is incompetent to certify to the admissibility thereof.

Judge Scholar Al: “Respondent has submitted with the UBS documents a ‘Certification of Business Records’ executed by Britta Delmas, legal counsel for UBS. Ms. Delmas attached to her certification an index listing 844 Bates-numbered pages as UBS records associated with petitioner. Ms. Delmas avers that these records are original records or true copies of records that: (1) were made at or near the time of the occurrence of the matters set forth therein by persons with knowledge of those matters; (2) were kept in the course of UBS’ regularly conducted business activity; and (3) were ‘made by the said business activity as a regular practice.’ At the bottom of her certification Ms. Delmas ‘declares under penalty of perjury under the laws of Switzerland that the foregoing is true and correct.’

“Having considered the origin and nature of the UBS records along with the certification of Ms. Delmas, we are satisfied that the records are authentic business records of UBS and that they were used and kept in the course of UBS’ regularly conducted business activities. Respondent provided fair notice to petitioner of his intent to introduce them as such. See Fed. R. Evid. 901(11). And Ms. Delmas signed the records ‘in a manner that, if falsely made, would subject [her] to a criminal penalty in the country where the certification is signed.’ Fed. R. Evid. 902(12). Accordingly, we will admit the documents into evidence as self-authenticating foreign business records. See Fed. R. Evid. 801(d)(2), 803(6), 902(11), (12).” Order, at p.2. (Footnote omitted, but read it; Judge Scholar Al says Tax Court likes foreign documents).

Britta may not be the custodian of the records, but all that’s needed is that she’s familiar with the processes; as lead counsel for E-discovery at UBS, that’s enough, says Judge Scholar Al. And of course bank records are more than just account statements. Banks provide all kinds of services, like setting up corporations, trusts, and managing clients’ investments.

George objects to the e-mails going in, but everyone uses e-mails these days. Even maybe when they shouldn’t (but this is a non-political blog).

George says some stuff wasn’t included, but he can proffer whatever he has. For now, the Swiss stuff is the real cheese.

Grandma’s salty phrase translated as “don’t be a knocker.” But “knocker” here does not mean “one who disparages or denigrates.” Rather it means, “a wit, wag or wiseacre.” In my misspent youth I often heard this rebuke.

Today, Judge Colvin doesn’t use the phrase, but if Grandma were on the bench she would have so addressed Alvin E. Keels, Sr., 2020 T.C. Memo. 25, filed 2/19/20.

“Petitioner’s testimony was sometimes argumentative and was sprinkled with bluster and sarcasm.  For example, when asked how he knows that his OfficeMax expenses were for items used at his State Farm office he stated: ‘The title of OfficeMax is enough to know that it’s something for an office, more than likely.’  Petitioner provided a check made payable to Cape School, but the check does not show the purpose.  When asked if the purpose was for business petitioner stated (addressing respondent’s counsel): ‘If you want to do some research, you can look up Cape School, and they’ll tell you what they do.’  Petitioner stated that he did not bring all of his credit card statements to avoid having a pile of papers at the trial.  When respondent asked why petitioner relied on a bank statement to show he had paid electric bills instead of the electrical bills themselves, petitioner said if requested he can provide the bills.  However, petitioner was unresponsive when respondent requested the underlying bills on August 25, 2017, and again when respondent file a motion on December 29, 2017, seeking the documents.” 2020 T. C. Memo. 25, at pp. 16-17.

Dale Carnegie would face-palm.

But some of Alvin’s testimony does stand up. He gets his payments for what amounts to contract labor.

Judge Colvin has some cogent remarks about parties’ testimony. “Witness testimony could almost always be said to be ‘self-serving’, but that factor alone is not a reason to automatically reject the evidence as unreliable.  We decide whether a witness’ testimony is credible by relying on objective facts, the reasonableness of the testimony, the consistency of the witness’ statements, and the witness’ demeanor.  We may discount testimony which we find to be unworthy of belief, but we may not arbitrarily disregard testimony that is competent, relevant, and uncontradicted….” 2020 T. C. Memo. 25, at pp. 15-16 (Citations omitted, but get them for your trial briefs).

But IRS also stumbles into knockerdom, trying to drag in Section 409A deferred compensation for Alvin’s post-separation payout from State Farm, the insurer for whom he independently contracted, post-SNOD and post-answer. No 1099s from The Good Neighbor, and no copy of the deferred comp agreement, so Alvin is saved from the massive deficiencies with which IRS wanted to slug him (and for which he got no cash).

Here’s the Section 409A skinny.

“To prevail under section 409A, a taxpayer must show all three of the following:  first, that distributions from the plan may not occur before the taxpayer’s separation from service, disability, death, an unforeseen emergency, or a change in ownership of the corporation, sec. 409A(a)(2)(A)(i)-(vi); second, that the plan does not permit acceleration of benefits except to the extent provided by regulations, sec. 409A(a)(3); and third, that the election to deferred compensation must be timely made, sec. 409A(a)(4)(B)(i).  These requirements do not apply if the benefits are subject to substantial risk of forfeiture or were previously taxable. Sec. 409A(a)(1)(A)(i).

“For respondent to meet the burden of proof respondent must show that the plan fails to include any one of the three requirements above, that petitioner does not have a substantial risk of forfeiture, and that petitioner was not previously taxed on the deferred compensation.  The record does not show whether petitioner’s plan with State Farm meets the requirements of section 409A.  The plan document probably provides these details, but it is not in the record; neither is any Form 1099-MISC sent to petitioner by State Farm.  The State Farm letter does not include those details.  Thus, respondent has not shown that the plan fails to meet at least one of the requirements of section 409A or whether there is a substantial risk of forfeiture.  Therefore, respondent did not meet the burden of proving that section 409A applies, and on this record petitioner is not taxable on the yearend balances of his termination and extended termination accounts for the years at issue.” 2020 T. C. Memo. 25, at pp. 21-22.

And for wildcarding in the Section 409A issue, IRS has burden of proof.

Takeaway- Maybe IRS is going after 409As. Read and heed Judge Colvin’s checklist. But more important yet, don’t be a knocker: especially, on the stand.