According to Judge Gale, Woody Guthrie had the right idea back in 1941. In any event, all those eager petitioners clutching their sixty-buck-tickets-to-Tax-Court, who got bounced from the Omaha NE trial session back on 3/18/20, and assigned to Judge Gale’s division for case management by order of the Ch J, are now to be run by electricity.

Solely by way of illustration, here’s Connice D. Kelly & Richard Kelly, Docket No. 3935-19, filed 4/30/20, to give you the Talking Omaha song.

“As noted, mail delivery to the Tax Court has been suspended while the Tax Court’s eAccess system, including eService and eFiling, remains fully operational. In these circumstances, it is imperative that petitioners (or intervenors) who are currently filing documents with, and receiving documents from, the Court by paper mail instead register for eAccess in order to continue litigating their case. Accordingly, the Court will direct any petitioner (or any intervenor) in this case who currently receives paper service and/or files in paper form to register for eAccess within 30 days or show cause why such registration is not possible. The Court will also direct any such person to consent to eService and use eFiling in his or her case. Additionally, the Court will direct the parties to file a joint status report as set forth below.” Order, at p. 2. (Footnote omitted).

eAccess is free; IRS already uses it, so this is for petitioners.

And for the technophobes or the internetedly-unconnected, there’s this: “…on or before June 1, 2020, any petitioner (or intervenor) in this case who currently files in paper form and/or receives paper service from the Court by mail shall register for eAccess, by calling (202) 521-xxxx or emailing Admissions@ustaxcourt.gov. Any such person shall also consent to eService and use eFiling in his or her case. If any such person is unable to register for eAccess, consent to eService, and/or use eFiling, he or she shall, on or before June 1, 2020, either telephone the undersigned’s chambers administrator at (202) 521-xxxx and leave a voicemail, or send an email to X@ustaxcourt.gov, providing: (1) his or her name and docket number, (2) his or her telephone number, and (3) the reason(s) he or she is unable to register for eAccess, consent to eService, and/or use eFiling. Petitioners (and intervenors) are advised, however, that no documents can be filed with the Court at the foregoing email address or any other Court email address.” Order, at pp. 2-3 (Names and numbers omitted).

Well, now for the ancient lawyers’ question: what happens if someone doesn’t?

“The failure of a petitioner (or intervenor) to comply with this Order may result in the Court dismissing this case for lack of prosecution and entering a decision in favor of respondent.” Order, at p. 3.

And to wile away your enforced idle hours, guys, all y’all can Zoom (or phone, or smoke signal) to IRS’ counsel and whip up “…a joint report regarding the then-present status of this case, which shall: (1) identify the issues in the case; (2) describe the information the parties have exchanged; and (3) state the progress the parties have made in resolving each of the identified issues.” Order, at p. 3.

And get same on Judge Gale’s screen on or before 6/30/20.

Judge Elizabeth A (“Tex”) Copeland warns Aaron G. Filler, Docket No. 23581-17, filed 4/29/20*, that he can’t relitigate his NOL for the year at issue, but both he and IRS can put in papers post-trial and post-briefing to show when IRS first breathed the “P” word.

That’s “P” as in penalties. Aaron contested these on trial and on brief, but that was before Clay and Frost. For those who tuned in late, for Clay, see my blogpost “Indians Not Taxed – Not!” 4/24/19. For Frost, see my blogpost “Burdens Heavy to Bear” – Part Deux,” 1/7/20.

So it’s time to set the record straight, which means maybe a reopener to establish “…whether petitioner received, prior to the…supervisory approval date, a 30-day letter or similar communication of an intent to assert a penalty as to [year at issue] and a right to appeal that penalty.” Order, at p. 2.

Now the rule for Boss Hossery is taxpayer challenges the chops from the getgo, whereupon IRS gets either burden of production (per statute) or burden of proof (per judicial interpretation) (and if you can see this practically otherwise than as a distinction without as difference you’re a better lawyer than I am). Once IRS shows dates of first communication of chops to taxpayer and Boss Hoss sign-off, petitioner can refute them, if they can.

But lest Aaron become elated, Judge Copeland has a warning: “We caution petitioner that this is not an opportunity to readdress IRS approval of his … net operating loss, and that section 6751(b) does not require the IRS to notify taxpayers of the intention to impose a penalty before taxpayers waive their appeal rights. In fact, if petitioner was unaware that the IRS intended to impose a penalty at such time, then that supports respondent’s position as to the section 6751(b) issue.” Order, at p. 3.

So, folks, out with your papers.

And thanks, Judge, for designating this order. I’d thought of blogging it, but the Anderson order absorbed a lot of oxygen. Now I see the significance.

*Aaron G Filler 23581-17 4 29 20

Not Gonna Happen

Pace Paul Simon’s 1972 hit (is it really 48 years? Oh, little darlin’ of mine, I can’t for the life of me, remember a sadder day…), the mother and child reunion will not take place. STJ Panuthos says no in William French Anderson & Kathryn D. Anderson, Docket No. 23789-16, filed 4/29/20.

STJ Panuthos is following Judge Nega’s toss of IRS’ partial summary J motion by tossing IRS’ issue preclusion try. IRS wants to prevent Wm French from claiming that a business associate, desirous of stealing the business from Wm French, got him sent up for sexually abusing a minor child. Now Wm French went all the way to the Supremes, and all he got was the same 14 (count ‘em, 14) years hard time the CA Superior Court gave him to begin with.

For the backstory, see my blogpost “Mother and Child Reunion,” 2/13/19. STJ Panuthos rules on IRS’ renewed try for a protective order redacting the names of the mother and father (and twin sister) of the abused person (now an adult). “The Court will not repeat the discussion and conclusions described in the February 13, 2019 Order. No different or new circumstances have arisen that would cause the Court to alter the prior conclusion. The Court will deny respondent’s motion for a protective order.” Order, at p. 4.

But Wm French still wants to prove he didn’t do it. He wants to deduct his legals in defending the criminal case, per Section 162 ordinary-and-necessary.

No, Wm French isn’t claiming he’s in the child-molesting business. He says he “…was the ‘Father of Gene Therapy’, that he was the former Director and founder of the Gene Therapy Laboratory at the University of Southern California and the owner of many biomedical companies around the world.” Order, at p. 2. It would seem he claims his partner(s) set him up, therefore his legals were to protect his businesses.

“We conclude that respondent has not satisfied the second condition for collateral estoppel, that the issues presented are in substance the same as those resolved in the earlier litigation. There is no doubt about petitioner’s conviction of a crime. The conviction was upheld on appeal. Petitioners have advised that they are prepared to stipulate to that conviction. They do not seek to deny that petitioner was convicted of the crimes for which he was charged. Petitioners seek to link the legal expenses incurred in defense of the criminal charges with Dr. Anderson’s business activity. Petitioners have the burden of proof on this issue. To be entitled to the claimed legal expense deduction they must establish that the expenditures were ordinary and necessary expenses paid or incurred in a trade or business. Section 162; Commissioner v. Tellier, 383 U.S. at 690-695. While petitioners’ burden is substantial in this case, it does not mean that they should be denied an opportunity to prove their case. The issue in this tax case is not the same as the issue in the criminal case. The Court strongly urges the parties to communicate and stipulate facts pursuant to the Court’s rules.” Order, at p. 3.

I can see Jeff Epstein’s estate trying this one. But it didn’t do so good for Big Jim Cavanaugh. See my blogpost “Well-Settled No Deduction – Part Deux,” 1/27/12.

And Maybe Their Helpers Can’t Either

Judge Buch has a designated hitter off-the-bencher, Orlando F. Cabanday & Teresa H. Cabanday, Docket No. 5068-18, filed 4/28/20, in further proof (as if any were required) of the title of this sermonette.

Orlando parted acrimoniously from his firm and hung out his shingle. I left my last firm after the boss and I exchanged assurances of the greatest personal esteem and affection, and did likewise. I sympathize with Orlando. No support staff, and no revenue to support one.

Orlando’s trouble, of course, is that he can’t substantiate expenses. I once told a RA that if I had wanted to be a bookkeeper, I would have been one. Orlando was in a like fix.

Judge Buch, whose cursus honorum has been far from the short and simple annals of the poor like Orlando and me, has a certain fellow feeling, and allows Orlando some deductions above what IRS was willing to give.

“The Cabandays’ testimony about specific vendors noted above and their nexus to the law practice was credible. Because the credit card statements and cancelled checks verify those specific payments, the Cabandays met their burden of proof as to those expenses. As to the remaining expenses, they did not, and therefore the Commissioner’s disallowance is sustained.” Transcript, at pp. 10-11.

But Orlando, perhaps recognizing his own shortcomings (notwithstanding he had passed three parts of the CPA exam, Transcript, at p. 4), hired one Mr T to reconstruct his expenses. And that gentleman produced some extraordinary results.

“In reconstructing Mr. Cabanday’s expenses, Mr. T had imperfect records to work with. For example, the law firm wrote a check to IPS in the amount of $25,000, but on the portion of the check where the amount is written in words, the check merely said twenty-five. That check cleared for $25. When Mr T tabulated that check, he took the numeral amount of $25,000, resulting in an overstatement of $24,975. Also, a check to Mr. C for $8,050 was dated January 5, 2014, and Mr. T tabulated it in 2014. On closer examination, however, the check sequence and the date the check cleared the bank show that the check was written in early 2015.

“Mr. T also made mistakes of his own. When Mr. T tabulated checks payable to ODG, he mischaracterized a $200 check as $42,212. And in the Court’s own tabulation of expenses… the Court found a $332 payment to NLS and a $2,000 payment to AMK omitted from Mr. T’s summary.

“The Commissioner suggests something nefarious in these errors. The $25,000 error relating to IP is understandable giving the manner in which the check was written. The $42,212 error relating to ODG is more difficult to plausibly explain, but the evidence is insufficient to conclude that there was an affirmative intent to mislead. Regardless of these errors, Mr. T’s summary was not admitted for the truth of the matters set forth therein.” Transcript, at pp. 7-8. (Names omitted).

Fortunately for Orlando and the equally hapless Mr. T, Judge Buch thoroughly disproves the canard that titles this blogpost.

“The Court calculated the expenses … directly from the bank and credit card records; they were not taken from any summaries or demonstrative exhibits.” Transcript, at p. 8.

There’s one lawyer here who can add, and he’s on the bench.

We’ve all been there: we’ve made a deal, the best available in the circumstances, the client signs off (literally), and then backs out.

Well, this happened to a CA attorney, whom I’ll call Bogie, and Judge Albert G (“Scholar Al”) Lauber is not amused.

But there’s a twist; there must be, or else I wouldn’t be blogging this.

Vishal Mishra & Ritu Mishra, Docket No. 16492-18, filed 4/28/20, brought Bogie in from the bullpen when IRS got Judge Scholar Al to toss their first attorney. It seems first attorney had his license lifted by the Bear Republic when he flunked the ethics test. Or so a docket search and a quick Google revealed.

Enter Bogie, under the gun, who crafts a settlement that Vishal & Ritu seem to have maybe so agreed to, but part of the deal was they had to agree to an accuracy chop.

Judge Scholar Al: “Respondent’s counsel represented that he had obtained tax computations consistent with the parties’ settlement, had prepared a decision document reflecting those computations, and had presented the proposed stipulated decision to petitioners’ counsel for signature. Petitioner’s counsel then informed respondent that petitioners no longer wish to concede liability for the accuracy-related penalties.” Order, at p.1.

Maybe Vishal & Ritu were disillusioned with lawyers generally. Or maybe, like clients of every race, color, creed, affectional preference, national origin or ancestry, occupation, and favorite indoor sport, they have a selective understanding of whatever language they most commonly speak. And all the other languages as well.

Howbeit, Judge Scholar Al lays it out.

“In the Tax Court, concessions, compromises, and settlements can be memorialized in various ways, including (as here) by the parties’ execution of a stipulation of settled issues.’[A] settlement stipulation is in all essential characteristics a mutual contract by which each party grants to the other a concession of some rights as a consideration for those secured and the settlement stipulation is entitled to all of the sanctity of any other contract.’ The agreement manifested by a stipulation of settled issues will not be set aside except as necessary to prevent ‘manifest injustice,’ e.g., in the case of fraud or material misrepresentation of fact.” Order, at pp. 1-2. (Citations omitted).

So dish, Vishal & Ritu. And it had better be good.

If I had a nickel for every time I saw such a move being pulled in the last 53 (count ‘em, 53) years, I’d be on lockdown in my 175 foot custom motorsailer off the Florida Keys, trailing long lines for Blue Marlin or tuna or something. Judge Ruwe may or not be a fisherman, but he has, I suspect, a like sentiment.

Here’s Dewayne Bridges, 2020 T. C. Memo. 51, filed 4/27/20. Dewayne and his LLC-co-owner-partner Steve got SNODs, but Dewayne claims TEFRA should apply, because really it was his self-settled trust and Steve’s that truly owned the beneficial interests in their MO LLC while he and Steve lived in the USVI.

The LLC’s 1065s for the years at issue were, Dewayne admits, “inconsistent and irreconcilable”. 2020 T. C. Memo. 51, at p. 3. IRS treated the LLC as a small partnership, because the boxes on Sched B for pass-through ownership were checked “no”. Wherefore no TEFRA, no FPAA. But Dwayne claims Box 20Y on the K-1s incorrectly stated that a couple other pass-throughs were involved (hi, Judge Holmes), so IRS couldn’t reasonably believe that Dewayne and Steve were truly the owners.

So why do we care what IRS believed, reasonably or not, when it hit Dewayne with this SNOD? Because Section 6231(g)(2), that’s why.

Section 6231(g)(2) says if IRS reasonably believes that TEFRA doesn’t apply when it unloads the SNODs on the individual, then it doesn’t matter what happens later. Dwayne argues that the give-and-take at examination put IRS wise. And the RA at exam had a chart she annotated which looks like she got the word about the trusts, 2020 T.C. Memo. 51, at p. 14, but she says no.

Anyway, Judge Ruwe isn’t buying.

“This Court has noted in the past that TEFRA procedures are ‘distressingly complex and confusing’ and that it ‘can even be complex and confusing to determine whether a partnership is subject to TEFRA.’ We have also noted that the difficulties in determining whether TEFRA partnership procedures apply are generally caused by the difficulties in determining whether the partnership in question was an exempt ‘small partnership’, which is precisely the issue before us.” 2020 T. C. Memo. 51, at pp. 18-19. (Citations omitted).

Because TEFRA is chaos codified, Congress took pity on IRS.

“The Commissioner may rely on section 6231(g)(2) if three elements are met: (1) the Commissioner determined on the basis of the partnership return that the TEFRA procedures did not apply to the partnership for that year, (2) the determination was reasonable, and (3) the determination turned out to be erroneous. Bedrosian v. Commissioner, 143 T.C. at 106. Both parties agree for purposes of this motion that respondent’s determination that TEFRA did not apply was erroneous. Accordingly, we analyze the first two elements below.” 2020 T. C. Memo. 51, at p. 20.

The argy-bargy from the exam doesn’t defeat IRS’ reliance on the return. “Based on the record we agree with respondent that he made his determination on the basis of the partnership returns. Further, we agree with respondent that conflicting information provided during the give-and-take of the examination that remained in dispute did not prevent him from relying on the returns to make a TEFRA determination.” 2020 T. C. Memo. 51, at p. 22.

If we let wild-carding at exams defeat returns, we’d gut Section 6231(g)(2).

OK, IRS relied on the return. Was that reasonable? Of course, Congress never defined “reasonable” in this context. So Judge Ruwe eschews an extensive dictionary chaw, and uses the standard from Reg. 1.6662- 4(d)(3)(iii) (taking into account the relevance and persuasiveness of the authorities, and subsequent developments),

IRS followed Sched B. Dewayne says, but what about Lines 20C and 20Y on the K-1s? Judge Ruwe says even that’s wrong, and minor anyway.

“Respondent’s determination did not need to be right, it just needed to be reasonable. His determination that TEFRA did not apply, based on the conclusion that the partners in… LLC, were petitioner and [Steve], was eminently reasonable and well grounded in the information shown on the face of the returns.” 2020 T. C. Memo. 51, at p. 26.

A minor inconsistency does not defeat the substance of the return.

“We think respondent can disregard minor, inaccurate inconsistencies contradicted by the totality of the returns here as well. Petitioner cannot litter his returns with misleading and inaccurate information, selectively rely upon the information, and then expect to bamboozle his way to a procedural victory.” 2020 T. C. Memo. 51, at p. 28.

Motion to dismiss denied. Go try the case.

Taishoff says this is son-of-Cohan. This was Dewayne’s and Steve’s LLC’s return. If there was any inconsistency, they created it. Someone signed it under penalty of perjury. If an error is made, it bears ”heavily upon the taxpayer whose inexactitude is of his own making.” Cohan v. Com’r, 39 F. 2d 540, at p. 544 (2 Cir, 1930).

Ch J Maurice B (“Mighty Mo”) Foley has issued a series of amendments to Rule 24, Appearances and Representation. These amendments clean up grammar and simplify the entangled processes we have heretofore encountered.

As you’ll see from the Press Release announcing these, comments are to be smail-mailed to the Chief Clerk, notwithstanding that order after order from Judge and STJ has pounded into our heads that Tax Court receives no snail-mail, and shall receive none, until the virus is defeated or tamed. Nevertheless and notwithstanding, I am sending my comments by snail-mail.

But to expedite matters, here they are. If I have any readers in the office of the Clerk, please forward.

“Generally, the proposed amendments are salutary, and will certainly simplify Tax Court practice. Anything that brings Tax Court practice closer to practice in the District Courts is welcome.

“I am sorry the Chief Judge has not seen fit to incorporate my often-repeated suggestions regarding entries of appearance by law firms. I cannot make out what objection there might be. If there is concern that members or associates of firms who are not admitted to Tax Court might attempt to appear, firms can register only their admitted attorneys, with monetary penalties for noncompliance. And as attorneys join or leave firms, updated entries of appearance for the firm can easily be filed; these are hardly different from change of address forms.

“As I said in my blogpost ’The System Won’t Allow It,’ 4/3/20: ‘There are law firms. There have been law firms for centuries. These have multiple lawyers, either as partners, shareholders, counsel, associates, or hangers-on however denominated. While one of these may be assigned to a case and remain with it from intake to file-close, it happens more often than not that one lawyer needs another to cover a court appearance, a deposition, a settlement negotiation, or any of the hundred-and-one day to days in the life of a lawyer. Surprisingly, lawyers are human: some need parental leave; some fall ill. Some even take vacations.’

“Might not the Chief Judge consider the realities of Twenty-First Century law practice?”

I repeat the immortal words of Roger Christian and Brian Wilson, and ask, as they did, that you “don’t put me down.”

No, I don’t have “the coolest set of wheels in this town.” But I maintain I have the coolest US Tax Court blog in this, or any other, town.

Check out the designated hitters on today’s Tax Court website.

And note that, hours before any were designated, the substance of all appeared on this my blog.

Remember, you read it here first.

If the devil finds work for idle hands (and few hands are idler than mine), then DC Cir is not far behind. And though STJ Lewis (“I Can’t Get Over That Name”) R. Carluzzo is never idle, DC Cir has certainly found work for his hands, and also a couple IRS attorneys (hi, Judge Holmes) as well.

Y’all will readily recall David T. Myers, who, with the not-inconsiderable aid of DC Cir, kicked IRS’ jurisdictional tosses via Section 7623(b)(4) into the affirmative defense end zone, bringing about a lot of touchbacks. No? It was barely two weeks ago. So see my blogpost “For Whom the Equitable Tolls,” 4/10/20.

There’s a couple of these silt-stirs today, but I offer only a repeat performer on this my blog, the lady with the hunches, Suzanne Jean McCrory, Docket No. 3443-18W, filed 4/24/20. Suzanne’s hunch-directed Forms 211 were first described in my blogpost “Remand? You Can Whistle For It,” 1/31/18. And that kicked off another silt-stir, which we’ll put aside just now.

IRS filed the usual motion to toss, because Suzanne blew the thirty-day cutoff.

One can almost hear STJ Lew sigh, as his heaping plate is yet fuller filled.

“Respondent’s motion is based upon the ground that the petition was not filed within the period prescribed by I.R.C. §7623(b)(4). Petitioner’s objections to respondent’s motion are embodied in her opposition….” Order, at p.1.

Suzanne wins, of course, because Golsen, as blower cases are appealable to DC Cir. So, IRS, file and serve your answer within sixty days.

I’m sure every other jurisdictionally-tossed blower will be back.

Now that he’s been relegated to the Senior Class, Judge Mark V Holmes’ opinions and orders are becoming collectors’ items. And if this my blog ever gets on Antiques Roadshow, I expect one of my fave appraisers to get goggle-eyed over today’s entry, Continuing Life Communities Thousand Oaks LLC, Spieker CLC, LLC, Tax Matters Partner, Docket No.4806-15, filed 4/24/20.

Y’all will remember Warren Speiker, a man of infinite variety. No? Then see my blogpost “Titular Signatory,” 8/3/16. Warren is still at it. He wants Judge Holmes to take judicial notice of what an IRS attorney said in a brief in a different case.

So Judge Holmes takes notice of judicial notice.

Now the issue is the same in both cases: “when can the IRS disallow a taxpayer’s accounting method when that method is based on generally accepted accounting principles.” Order, at p. 1.

We start with the general concept.

“Tax Court follows the Federal Rules of Evidence. FRE201 tells us that a court ‘may take judicial notice of adjudicative facts not subject to reasonable dispute which are either generally known within the jurisdiction of the Court or capable of accurate and ready determination by resort to sources whose accuracy cannot reasonably be questioned.’ We’ve taken judicial notice of what day of the week a particular date fell on, and even in a lighthearted spirit that some allowance for snow-removal expenses by a landlord in Buffalo was to be expected.” Order, at p. 1. (Citation omitted).

The magic words are “adjudicative facts.” That means the facts of the specific case at bar necessary to decide a material element of that case. In short, only the facts, ma’am.

“…a motion to take judicial notice of what another of [IRS’] lawyers argued in another case is not such a fact, but rather a suggestion that the persuasiveness of a particular argument should be reduced because it’s insincerely held or more likely to be wrong because of inconsistency.” Order, at p. 2.

But even that much doesn’t help Warren.

“We don’t take judicial notice of prior assertions for the truth of those assertions. We also gently observe that the Commissioner seems to be involved in a very large percentage of cases tried in our Court, employs a very large number of lawyers, and cannot reasonably be expected to express the nuances of his positions in each case in ways that are entirely consistent across all litigation.” Order, at p. 2. (Citation omitted).

I’ve often said that orders and T. C  Sum.Op.s can’t be cited. But you can sure cut-and-paste the reasoning and citations without attribution into your papers.