In Uncategorized on 04/03/2020 at 16:57

That “quirky” jurist (see the Wall Street Journal, 6/1/18), Judge Mark V. Holmes, may be debarred from going to Buffalo just now, but he’s willing to hold a phoneathon with IRS and The Cannon Corporation and Subsidiaries, Docket No. 12466-16, filed 4/3/20.

I’m sure you remember the Cannoneers and their rather expansive reading of Section 179D. What, no? Then review my blogpost “No Method, No Madness,” 6/5/18. Now you recall that you read it here first.

OK, IRS got partial summary J on the deficiency. But now IRS wants chops, and the Cannoneers claim they acted reasonably and in good faith, so no chops. And that’s a question of fact. But we have a couple steps (this is Judge Holmes, remember) before we get there.

To begin with, corporations are not people for Section 7491(c) BoP. “At trial, this would mean that the burden of production would remain on Cannon, which is a corporation. But when the Commissioner moves for summary judgment, he must show that ‘there is no genuine dispute as to any material fact and that a decision may be rendered as a matter of law.’” Order, at p. 2 (Citations and footnote omitted, but (spoiler alert) the footnote says the Cannoneers’ counsel doubtless will preserve this issue for the trial that will follow when the lights go on again all over the world.)

Judge Holmes, reveling in the massive silt-stir (more like a landslide) stirred up by Chai, Graev and Clay, notes that there is no required form which the Section 6751(b) Boss Hoss must take, nor even that the Boss Hoss need lay hoof to paper. The Boss Hoss sign-off must be in writing and from the Boss Hoss. But Clay says that has to come before Word One of penalty is breathed to the hapless taxpayer.

“There is no genuine dispute that MG was the revenue agent assigned to examine Cannon’s [year at issue] return. There is no genuine dispute that MG’s immediate supervisor was LH. There is also no genuine dispute that MG prepared a Form 5701 — titled Notice of Proposed Adjustment — and a Form 886-A — titled Explanation of Items — that proposed to disallow Cannon’s claim for taking an I.R.C. § 179D deduction it had earned in previous years on its [year at issue] return and to assert that Cannon owed a penalty under I.R.C. §6662(a).” Order, at p. 4. (Names omitted).

But what did LH do with MG’s productions?

IRS claims LH made some changes to MG’s draft (Oh H.G. Wells, thou should’st be living at this hour!), and e-mailed them back to him to revise accordingly and forward on. And this was before the Cannoneers first heard the P word.

OK, so what did the changes look like?

Ah no, says IRS, deliberative-process privilege. I.R.M. § says that is “a qualified privilege that protects from disclosure certain statements of advice, deliberation, and recommendation of governmental officials. In order to successfully claim the privilege, the respondent must show that a document is predecisional, i.e., ‘antecedent to the adoption of an agency policy,’ and deliberative, i.e., ‘a direct part of the deliberative process in that it makes recommendations or expresses opinions on legal and policy matters.’” OK, people in government need to speak freely without worrying that what they say will be used against the agency in litigation.

“This assertion of the deliberative-process privilege may or may not be justified (Cannon hasn’t moved for in camera review or disclaimed any intent to object to its introduction at trial).

“But the Commissioner’s assertion of the privilege does prevent us from verifying that the changes LH recommended or the language that she possibly approved without change would qualify as supervisory approval.” Order, at p. 5.

“Without being able to see the Form 886-A draft, Cannon makes the reasonable point that this email might just cover editorial changes to MG’s draft without actually approving the penalty. It also makes the very good point that the Commissioner’s assertion of a predecisional privilege means that the drafts were just drafts, and not a final anything, much less the required decision or approval made by a supervisor. It may well be that LH made no actual decision to approve MG’s determination to assert the I.R.C. § 6662 penalty.” Order, at p. 5. (Emphasis in original.)

No summary J on chops.

Judge Holmes calls this situation a Chaighoul, an unforeseen consequence of Graev extending Chai nationwide. And cannot help quoting himself.

“This roused a Chaighoul hitherto unseen and, indeed, whose existence had not even been predicted by theory. See Graev, 149 T.C. at 512-16 (Holmes, J., concurring).” Order, at p. 4. See my blogpost “Stir, Baby, Stir – That Silt,” 12/20/17.

Wouldn’t I just love to be in Jake’s Saloon on 23rd Street with Peter Reilly, CPA, Judge Holmes, Frantic Frankie Agostino, and a couple pitchers of Jake’s Ale, kicking this one around? At this point I’m so locked-down stir-crazy I’d even buy.







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