Archive for February, 2020|Monthly archive page


In Uncategorized on 02/18/2020 at 15:41

James H. Dunlap and Eileen M. Dunlap, 2020 T. C. Sum. Op. 10, filed 2/18/20 have a problem with self-employment tax from Eileen’s deferred compensation.

Eileen was well up the pyramid at Mary Kay, a multi-level cosmetics distributorship. She retired from independent contractorship into the Family Security Program, a non-qualified Section 409A non-account balance deferred compensation plan.

Eileen wants to claim she sold her goodwill to Mary Kay.

Judge Gerber: “There was no agreement between Mary Kay and Ms. Dunlap with respect to any sale of a business or goodwill.  Other than the reference to goodwill in the preamble to some documents, there is no evidence in the record that would support a sale of a business interest.  The payments under the FSP are calculated on the basis of sales and commissions and are being paid at a rate of 60% of a high average tiered sales activity.  Lastly, Ms. Dunlap had no rights or legal relationship with the consultants and sales directors in her tiered Mary Kay activity.  Accordingly, her goodwill argument does not change the outcome of this case.” 2020 T. C. Sum. Op. 10, at p. 16.

That’s the point. If you’re paid after the fact based on the quantity and quality of the work you did as an IC, and didn’t pay income or SE tax before, you’re stuck.


In Uncategorized on 02/17/2020 at 10:01

As Presidents Washington and Lincoln are now born again, twinned, and celebrated today by Act of Congress, and as said Congress has decreed US Tax Court shall neither work nor labor on any day which is a public holiday in The City of Taxation Without Representation, I take the both title and substance of today’s non-entry from the 1861 poem by Ethel Lynn Beers.


In Uncategorized on 02/14/2020 at 16:28

Frivolites are inventive but never successful. That is, successful at anything but providing Friday afternoon designated hitters for Tax Court judges, and blogfodder for me.

Ronnie Theodis Demmons, Docket No. 18387-18L, filed 2/14/20, gets no Valentine’s Day gift from Judge Gale, but does get a $500 Section 6673 frivolity chop.

Ronnie is confronting IRS’ motion for summary J, but Ronnie’s inventive approach started with his petition, wherein “…petitioner disputed Appeals’ determination on the ground that it violated “positive law”, citing generally the Tax Reform Act of 1976, Pub. L. No. 94-455, 90 Stat. 1520, as well as section 6065. Despite having been warned of the possibility of a section 6673 penalty, petitioner again raised section 6065 (and no other arguments) in his response to respondent’s Motion, claiming that the Motion should fail because respondent has not presented petitioner with any ‘claims’ satisfying the requirements of section 6065. It is settled law that while section 6065 requires taxpayers to sign returns and certain other documents filed with respondent under penalty of perjury, it does not require respondent to do the same with respect to documents, such as notices of deficiency, issued to taxpayers.” Order, at p. 2. (Citations omitted)

Judge Gale notes that the caselaw allows him broad discretion, and Ronnie had been offered a list of LITCs, and shown the yellow card, back in December last year.

Takeaway- Don’t try this, at home or anywhere else. But if you do, bring your wallet.


In Uncategorized on 02/13/2020 at 16:12

Oh Yes, You Do

Judge Albert G (“Scholar Al”) drives his Chevron tanker through Oakhill Woods, LLC, Effingham Managers, LLC, Tax Matters Partner, 2020 T. C. Memo. 24, filed 2/13/20, yet another syndicated conservation dodge in the GA boondocks.

With all these cases, I’m on a roll just now.

The Oakies left off the basis number on the 8283, claiming Forever Forests, enabler, told them and their CPA they didn’t have to. The Oakies claim this lets them off the hook on Section 170(f)(11)(A)(ii)(II) grounds.

Judge Scholar Al: “That subparagraph excuses failure to satisfy the reporting requirements discussed above if ‘it is shown that the failure to meet such requirements is due to reasonable cause and not to willful neglect.’  This statutory ‘reasonable cause’ defense is broader than the regulatory ‘reasonable cause’ defense promulgated previously.  As noted supra p. 12-13, the latter defense is limited to situations where the taxpayer has reasonable cause ‘for being unable to provide the information required.’  Sec. 1.170A-13(c)(4)(iv)(C)(1), Income Tax Regs.” 2020 T. C. Memo. 24, at pp. 27-28.

But these are motions for summary J, and “reasonable cause” raises fact questions. “These questions include whether Forever Forests was a ‘tax professional’; whether Forever Forests was ‘a competent and independent advisor unburdened with a conflict of interest,’; whether Oakhill could reasonably rely on legal advice relayed to it indirectly; whether petitioner’s CPA was a competent tax professional who provided tax advice independent of the advice supplied by Forever Forests; and whether Oakhill actually relied in good faith on whatever advice it received.” 2020 T. C. Memo. 24, at p. 30. (Citation omitted). No summary J for IRS on failure to provide reasonable cause.

But Judge Scholar Al has no such questions about the validity of Reg. Section  1.170A-13(c)(4)(ii)(D) and (E), the reporting requirement, whether or not the Oakies had reasonable cause not to.

But DEFRA84 (the Deficit Reduction Act of 1984) told Treasury, as they say in the South, to Go Set a Watchman for dodgers trying to glide beneath the radar. And a good way is to compare what was paid for the property to what is claimed for the easement.

The Oakies claim that DEFRA84 says put it on the return, not the summary appraisal. No, says Judge Scholar Al, a return is more than the 1040, 1041, 1065, or 1120, it’s everything attached, like the 8283 and summary appraisal. IRS gets millions of returns and can’t rummage around finding buried ordnance. And even if “return” and “Summary appraisal” are somehow mutually exclusive, nothing prevents IRS from requiring inclusion on both.

“DEFRA section 155(a)(3), which petitioner fails to cite, wholly undermines its argument.  That paragraph, captioned ‘Appraisal summary,’ provides that, ‘[f]or purposes of this subsection, the appraisal summary shall be in such form and include such information as the Secretary prescribes by regulations.” (Emphasis added.)  Congress thus left the Secretary with discretion to require inclusion on Form 8283 of whatever information the Secretary reasonably deemed relevant…. The Code provision governing appraisals makes the depth of the Secretary’s discretion plain.  See sec. 170(f)(11)(C) (requiring that taxpayers obtain a qualified appraisal and ‘attach[] to the return* * * such information regarding such property and such appraisal as the Secretary may require’).  For these reasons we reject petitioner’s contention that the regulation violates Chevron step one on the theory that it contravenes ‘the unambiguous language of the statute.’” 2020 T. C. Memo. 24, at p. 25-26. (Citation omitted)

And of course the Reg. satisfies Chevron as a permissible reading of the statute, as a comparison of basis to claimed worth of easement shows up an inflated appraisal like luminol shows blood.

Reg. sustained. Dodgers, look out.



In Uncategorized on 02/13/2020 at 12:35

See my blogposts “This Is A Memo?” 6/10/16, and “Cut Uncut,” 8/17/18. One issue Medtronic and its various appendages had was litigation risk.

It sure is real.



In Uncategorized on 02/12/2020 at 16:15

Ex-Ch J L Paige (“Iron Fist”) Marvel might have thought that the unreported distributions that Richard Essner, 2020 T.C. Memo. 23, filed 2/12/20, took from the IRAs he inherited from his late father via his late mother presented “a straightforward case”, when AUP (Automated Underreporting Program) electronically handed Richard a SNOD (2020 T. C. Memo. 23, at p. 4).


While Richard’s petition was pending from the AUP SNOD, Compliance Officer J (name omitted) started an audit of the same year (among others), but Richard petitioned only the one AUP year for Section 7605(b) duplicative audit violation. Initially, Officer J only looked at legals, travel and meals, and eventually gave Richard a SNOD only for one of the two years wherein Richard took said IRS draws, never mentioning the IRA draw for either year. Richard subsequently petitioned that year too.

Clear? Thought not.

Ex-Ch J Iron Fist: “At the outset, we note that petitioner’s interactions with the IRS–both through the AUR program and his correspondence with Officer J–would be confusing to an ordinary taxpayer. Various offices of the IRS contacted petitioner without coordination, without clarity as to what the other parts were doing, and without providing petitioner a clear explanation as to why the IRS was speaking out of many mouths. A taxpayer ought not to have been subjected to such a byzantine examination. However, we are not empowered to police what ought to have occurred in an examination; we are limited to considering whether section 7605(b), as written, was violated. See Greenberg’s Express, Inc. v. Commissioner, 62 T.C. 324, 327 (1974).” 2020 T. C. Memo. 23, at pp. 10-11.

But the AUP isn’t an examination of taxpayer’s “books and records,” because it only looks at the taxpayer’s return and the third-party reporting. Besides, Richard conceded all or part of what Officer J proposed as adjustments on audit, so Officer J’s examination wasn’t unnecessary.

Richard argued that there was unrecaptured basis (original investment in the account) in his late father’s IRAs. “At trial petitioner stated that he had contacted the financial institutions that had held the IRA–TD Ameritrade and Fidelity– seeking documentation to determine the portion that represented his late father’s original investment. Unfortunately, neither institution had the records he sought. At trial he conceded that he could not substantiate that any portion of the distributions represented a return of his late father’s original investment.

“We find credible petitioner’s statement at trial that he attempted to find records that could substantiate his position, and we sympathize with him for the dilemma in which he found himself when he inherited his late father’s IRA. But petitioner bears the burden of proving respondent’s determinations to be incorrect, and he has not. Therefore, we must sustain respondent’s determinations.” 2020 T. C. Memo. 23, at p. 7. (Footnote omitted, but it says if Richard could have proved original investment of after-tax dollars, he could have done better).

But Richard stiped in the Boss Hoss sign-off, and never told his paid preparer about the IRA draws. Sympathetic or not, Richard gets the Section 6662(b) five-and-ten; he’s a cancer surgeon who only checked the IRS website when he took a bundle of cash from late father’s IRA. “Given petitioner’s background and the substantial size of the distribution, this is not reasonable. We therefore conclude that petitioner did not have reasonable cause for his underpayment and that he is liable for the accuracy-related penalty under section 6662(a) and (b)(2)….” 2020 T. C. Memo. 23, at p. 14.




In Uncategorized on 02/12/2020 at 10:03

And since it seems today we’re dealing with hysteron proteron (as Judges Scholar Al and Scholar Pat would say), let me first give a Taishoff “good try” to Matthew T. Journy, Esq., attorney for Guardian Community Trust, Inc., Docket, No. 23668-16X, filed 2/12/20.

Matt wants CSTJ Lewis (“Can’t Get Enough of That Name”) Carluzzo to stick IRS with the burden of proof and simultaneously strip them of the presumption of correctness, in bouncing his client’s 501(c)(3). And CSTJ Lew, again modestly eschewing his Chieftainship and signing simply as “STJ,” denies Matt’s motions, but without prejudice.

“The parties have already submitted the administrative record, or at least a substantial portion of it…. At the hearing both parties recognized the possibility that the administrative record could be supplemented as the case proceeded. Neither party was in a position to predict whether the case could be submitted entirely on the basis of the administrative record, or for that matter, whether they would be in agreement as to what materials should be included in the administrative record. Petitioner had not yet decided whether to request trial in order to resolve any factual disputes that might arise.” Order, at p. 1.

Matt says he was worried that, if Guardian had BOP, access to IRS’ records that Guardian needed would be impaired. Also, if IRS had BOP, that would “…allow for a better informed decision on how to proceed.” Order, at p. 2.

CSTJ Lew doesn’t dismiss Matt’s concerns out of hand. “We appreciate and have seriously considered petitioner’s approach….” Order, at p. 2.


“At various points during the hearing the Court expressed its inclination that the relief sought in petitioner’s motion was premature, and that the judicial officer ultimately assigned to resolve the substantive issues might be better positioned to consider the relief petitioner now seeks after the parties have had the opportunity to further prepare the case for trial or summary disposition.” Order, at p. 2.

Like maybe Branerton? Interrogs? Document production? Even a final version of the administrative record, or if not agreed upon, at least with each side’s list of additions and strike-outs.

CSTJ Lew gracefully exits.





In Uncategorized on 02/11/2020 at 15:51

Chutzpah often makes me shake my head in admiration. Today CSTJ Lewis (“That Magnificent Name”) Carluzzo has a truly fine example in a designated hitter (thanks, Judge), Sneeds Farm, Docket No. 24671-18L, filed 2/11/20.

Sneeds doesn’t contest they owe tax, or additions for failure to pay estimateds or late payment, or interest.

Sneeds offers an IA that ya gotta love.

“…petitioner requested an installment agreement of $5,000 per month to pay the underlying liability totaling $111,039.94…. Taking into account the financial information that petitioner provided, the settlement officer concluded that petitioner did not qualify for an installment agreement because it had sufficient equity to fully pay the underlying liability, and should either sell assets or take out a loan. Specifically, petitioner had total assets of $5,562,524 and total liabilities of $593,736, reflecting a net equity in assets of almost $5 million. Petitioner does not dispute these facts.” Order, at p. 2.

CSTJ Lew (modestly signing himself only as STJ Lew) spends another page citing caselaw, that when you have enough to pay in full, you should pay in full.



In Uncategorized on 02/11/2020 at 15:27

There’s no new conservation (scenic) easement case today, but the recent freshet from The Glasshouse at 400 Second Street, NW, with its concomitant attack on extinguishment clauses, makes one think. At least, it makes me think.

I’d rather glibly dismissed the chances of extinguishment based upon eminent domain. Most conservation easement cases arise in boondock localities, where the local taxpayers make Howard Jarvis look profligate. The chances of a municipality raising taxes to buy an abandoned strip-mine for a public park that maybe five people will ever visit are, as Reg. 1.642(c)-(2)(d) says “so remote as to be negligible.’”

But maybe bankruptcy is not so remote. Judge Morrison ducked the direct issue (see my blogpost “Thanks a Lot, Judge,” 10/11/16). He decided Rose Hill on the short-changed 501(c)(3) clause and the non-public availability of most of the servient tenement, although nodding in the direction of the powers of Bankruptcy Court to avoid the easement.

And his treatment of the 20% chop is interesting. Rose Hill’s preparer gets his clients off that chop, because he wasn’t wrong in treating as a real possibility the powers of Bankruptcy Court or the bankruptcy trustee to avoid the easement .

All that said, even if there’s a bankruptcy down the road, and even if the Bankruptcy Court (or the bankruptcy trustee) successfully avoids the easement, what will be left for the owners of the property after administration expenses and creditors’ claims?  Or for the 501(c)(3) for that matter?

Time to forget about hypotheticals and draft easements that track the current Code and Regs. And, as has been suggested by some commentators smarter than I, not take boilerplate deeds of easement proffered by the 501(c)(3)s, without giving them a hard look and tailoring them to suit. The 501(c)(3) isn’t going to have the deduction disallowed; your client is.


In Uncategorized on 02/11/2020 at 14:46

While it’s outside my experience, I must presume that when one wears shoes of the whitest, and has paying clients well up in the foodchain, one studies the rules of the court in which one appears (or details the appropriate first-year for that purpose). And acts in strict accord therewith.

Well, today Judge Albert G (“Scholar Al”) Lauber, who has served a term as partner in a white-shoe, gently reproves a trio of fellow-exalteds in Banco Bradesco, SA, Docket No. 13217-18, filed 2/11/20.

The trio “…e-filed the Expert Report of G H at docket entry #22.” Order, at p. 1. (Name omitted).

Of course, my well-schooled readers will immediately whistle the play dead and, holding arms before chest and rotating same, signal “illegal procedure, offense, e-filing, five-yard penalty, repeat the down. Tweet!”

Judge Scholar Al elucidates: “Under Tax Court Rule 143, expert witness reports are to be exchanged with the opposing party and submitted in paper form to the trial Judge. An expert witness report does not become part of the record until it is admitted into evidence at trial pursuant to Rule 143(g)(2).” Order, at p. 1.

Bur Scholar Al, in an indulgent mood (but don’t count on it continuing, chaps), doesn’t toss G H’s magnum opus in the recycle bin.

Although striking docket entry #22 from the record, “(T)he Court has made and will retain a copy of the report. Petitioner is not required to provide another copy of the report at this time.” Order, at p. 1.

Takeaway- High-priced partner, read the Rules yourself. Twice.