Judge Albert G (“Scholar Al”) Lauber seems to be inviting this response from Coal Property Holdings, LLC, Coal Land Manager, LLC, Tax Matters Partner, Docket No. 27778-16, filed 6/15/20.

You’ll doubtless recall that the Coalholders got left in the Extinguishment Stakes when they tried to cash out their improvements ahead of the 501(c)(3). What, no? Then see my blogpost “Diamonds Are Forever,” 10/28/19.

We all know Judge Holmes’ love for appraisals, manifested in his celebrated Oakbrook dissent, for which see my blogpost “They Always Must Be With Us,” 5/12/20. I’m sure he was disappointed that the Coalholders’ 3,713 strip-mined TN acres, which they claim went from $32.5 million to $155.5 million in three (count ‘em, three) days, didn’t get a full-dress mix-and-match with dueling experts, willing buyers and willing sellers, and the whole corps de ballet.

But Judge Scholar Al is ready to give Judge Mark V Holmes his heart’s desire in this designated hitter.

“The remaining issue in this case appears to be whether petitioner is liable for a 40% accuracy-related penalty for a ‘gross valuation misstatement’ (or a 20% accuracy-related penalty in the alternative). See I.R.C.§6662(a), (b)(3), (e)(1), (h)(2). … respondent filed a second motion for summary judgment contending that there are no genuine disputes of material fact with respect to that issue. We will direct petitioner to respond to that motion.” Order, at p. 1.

IRS claims that the Coalholders’ before-and-after valuations ($160.5 before, $5 after) are bogus, because the highest-and-best use is as a coal mine both before and after. The easement prohibits surface mining, but reserves subsurface mining rights.

“Urging that the easement thus imposes no meaningful restriction on use of the Property, respondent contends that the value of the easement is zero. If that is true, petitioner would obviously be liable for the ‘gross valuation misstatement’ penalty.” Order, at p. 2.

So to avoid the 40% chop (valuing the easement for taxes at 200% of its proven value), the Coalholders have to prove that what they bought for $32.5 million was worth at least $77.75 million three (count ‘em, three) days later. Unless what they bought wasn’t bought at arms’-length.

So let the Coalholders show facts to prove that what they bought wasn’t at arms’-length; or if it was, how the FMV wasn’t $32.5 million; and show facts to prove how the value went up north of $77 million in three days.

Time for the Coalholders to echo the title of this blogpost.

The golfing term, when one player’s ball lies directly in the way of another’s, has migrated into any situation where a person’s performance is thwarted, whether or not another person has any part in thwarting.

I’ve commented extensively about how the COVID-19 lockdown at the Glasshouse has thwarted paper filers. True, the internet remains for filings other than petitions and amendments thereto. But not everyone has internet connectivity to hand; even if the public libraries and cybercafes were open and providing low-cost or no-cost internet service, I’d worry about putting Section 6103 info into a public router of dubious security, even using VPN software. And I’d never use a public computer; who knows what spyware got emplaced thereon?

Hence I’m puzzled by ex-Ch J Michael B (“Iron Mike”) Thornton’s order to IRS to move for summary J in Dardanius Anderson, Docket No. 231-19L, filed 6/15/20.

True, Dardanius lost partial summary J for a bunch of years before the lockdown. Here’s that order, which I didn’t blog. But IRS had problems with the Section 6330(c)(1) checklist for compliance with law and procedure for the most recent four (count ‘em, four) years at issue. So Dardanius is down five for nine. Ex-Ch J Iron Mike ordered IRS to supplement their answer with a SNOD or showing why a SNOD was unnecessary for those years, plus any Boss Hossery for the chops.

IRS filed something in March, and ex-Ch J Iron Mike then ordered Dardanius to respond by April, but by that time the Glasshouse doors were locked up tight. And all ex-Ch J Iron Mike has to say about the internet is the boilerplate encouragement to register for eAccess.

So neither ex-Ch J Iron Mike nor I know whether Dardanius snail-mailed a response, and if he did, what happened to it.

Nevertheless, ex-Ch J Iron Mike tells IRS they “…file a motion for summary judgment or any other appropriate dispositive motion.” Order, at p. 1.

Maybe if Dardanius snail-mailed his response to IRS as well as to ex-Ch J Iron Mike, IRS can attach same to such motion, if they got it.

I know judges want to move their dockets along, and that they’re just as frustrated and stymied as the rest of us who are locked down. But if IRS moves, gets summary J, and Dardanius in fact snail-mailed a response timely, then there’ll be a vacation motion, and the work to do all over again.

I didn’t want to waste much time on Judge Elizabeth A (“Tex”) Copeland’s designated hitter today.  I have a minor jollification on the program this evening, and blogging another busted Rule 155 rehash is way down the list.

Mark Alan Staples, Docket No. 6560-18, filed 6/12/20, wants a new trial. He didn’t do so well on the first one; see my blogpost “You Can’t Lose,” 3/11/20. Judge Tex Copeland retitles this as a motion to reconsider per Rule 161. Mark Alan is 29 days late, and could get bounced for that, but Judge Tex Copeland plows through Mark Alan’s objections anyway.

“Mr. Staples sets forth a litany of dubious grievances. In brief, Mr. Staples main allegations are that the Court made errors of fact relating to realized and unrealized income; violated its jurisdiction regarding employee benefit entitlement issues; violated his 1st, 5th, and 14th Amendment rights; and is prejudiced against him as a pro se petitioner.” Order, at p. 2.

“As to his curt references to Constitutional free speech and due process violations, they are belied by the protections set forth in our Rules 155 and 161, allowing Mr. Staples an avenue for contesting our findings of facts and opinion and allowing him to present his computations of the proper tax deficiency to this Court. The remainder of Mr. Staple’s [sic] motion discusses a mathematical formula for calculating the previously disallowed loss and rehashes previously rejected legal arguments. As such, we will not revisit this.” Order, at p. 3.

Mark Alan also wants to wild-card in three (count ‘em, three) years not before the Court.

Mark Alan’s Rule 155 numbers repeat the losing argument. But IRS’ numbers sum the whole thing up.

“Respondent’s computations have as their starting point the concessions by petitioner that he received $10 in taxable interest and $4,648 from an IRA distribution. The remaining computations are mathematical, based on the increased taxable income conceded. Respondent’s computations calculate a deficiency of $1,635; they highlight underreported withholding of $929 and an advance payment of $742 (treated as a deposit), which amounts will offset the deficiency amount and any interest due on the deficiency. According to respondent, the offsets leave Mr. Staples owing 28 cents after application of interest. We find respondent’s [year at issue] deficiency computations to be consistent with our Memorandum Findings of Fact and Opinion.” Order, at p. 5.

Twenty-eight cents? Don’t spend it all in one place.

Though attributed to Ben Franklin, the hundred-dollar man, the famous quotation is said to be older by at least 70 (count ‘em, 70) years. But the short version leaves out the most important part: “Our new Constitution is now established, and has an appearance that promises permanency; but in this world nothing can be said to be certain, except death and taxes.” Letter to J-B Leroy, 1789.

That obliging jurist, Judge David Gustafson, grappled with the famous dictum yesterday.

I missed blogging it because, septuagenarian that I am, I was untimely ripp’d from my beloved, deceased flip-phone, and thrust into the current century. One of my nearest and dearest, taking pity on an old man. bestowed upon me her old iPhone 8+.

The complications, anfractuosities, labyrinthine and Byzantine turning and turning in the widening gyres of the mind of Steve Jobs embodied in this rosegold colored device has made the simple act of dialing the telephone rather more complicated than the first Lunar landing and the rescue of Apollo 13 combined. And I know this Pandora’s Box has more computing power than every computer in America combined had in 1962, when I first studied computers.

Howbeit, at long last, here is the sad story of Alan Rainwater and Susan Rainwater, Deceased, Docket No. 4277-19, filed 6/11/19.

I’ll let Judge Gustafson tell it in his own plain way.

“The Court has received the parties joint status report…which describes the progress in the case. The Court appreciates the parties’ work so far in developing the case. The Court acknowledges the importance of the wrongful-death suit that petitioner Alan Rainwater is undertaking, but asks that Mr. Rainwater not let that undertaking halt the progress of this case.” Order, at p. 1.

Although Judge Gustafson appreciates your efforts so far, report every 60 days how you’re doing.

For even the most obliging jurist at the Glasshouse, though both are certain, don’t forget the taxes.

We all know the 24-second rule and the 5-second rule, but as we had no March Madness of the kind we know and love this year, but only a March Madness of a much worse kind than we could have imagined, perhaps we forgot.

Judge Albert G (“Scholar Al”) Lauber has today’s take on the 24-hour rule in Alexander Strashny and Laura Strashny, 2020 T. C. Memo. 82, filed 6/11/20. Alex and Laura are up on a CDP, claiming they should have been given an IA because they could pay in six (count ‘em, six) years.

Sure they could.

“They reported annual wages exceeding $200,000 and were withdrawing an additional $19,000 per month (or $228,000 annually) from their cryptocurrency account. They supplied no evidence that they were unable to withdraw from that account sufficient additional sums to pay their tax liability in full.” 2020 T. C. Memo. 82, at p. 8.

The monthly $19K goodies came from the Strashny stash of $7 (count ‘em, $7) million in cryptocurrency, 2020 T. C. Memo. 82, at p. 3. And they owed about $1.1 million in uncontested liabilities.

Gotta hand it to their trusty attorneys, Jeremy and Michael, to whom I award a Taishoff “good try, third class.”

Note the dates.

“In their motion for summary judgment petitioners urge that the IRS erred in issuing the notice of intent to levy while their Form 9465 request for an IA was pending. In so contending they rely on section 6331(k)(2), which provides that no levy shall be made while a taxpayer’s request for an IA ‘is pending with the Secretary’ or (if such request is rejected) ‘during the 30 days thereafter.’ See also IRM pt. 5.14.1.5 (Mar. 4, 2011). But while section 6331(k)(2) ‘bars the IRS * * * from making a levy’ during this period, ‘it does not bar the IRS from issuing notices of intent to levy.’ Eichler v. Commissioner, 143 T.C. 30, 37 (2014). Unlike a levy itself, a ‘notice of intent to levy * * * is merely preliminary to a collection action, rather than a collection action barred by section 6331(k)(2).’ Id. at 38.” 2020 T. C. 82, at pp. 8-9.

For the backstory on Eichler, see my blogpost “It’s Only a Notice,” 7/23/14.

But the kicker is the 24-hour rule above-cited.

“Finally, petitioners contend that the IRS failed to comply with an IRM provision stating that a taxpayer’s request for an IA should be recorded within 24 hours of receipt. See IRM pt. 5.14.1.3(3) (July 16, 2018). This provision is apparently designed to prevent inadvertent violations of section 6331(k)(2) by ensuring prompt posting of IA requests.” 2020 T. C. Memo. 82, at p. 9.

But the Form 9465 IA request was mailed July 24, and reached the IRS Service Center on July 27, a Friday that year. The flailing datestampers thereat logged it in on the following Monday.

But mox nix, says Judge Scholar Al.

“Any error by the IRS in this respect was harmless in any event: No levy in violation of section 6331(k)(2) occurred, and petitioners received full consideration of their IA proposal during the CDP hearing.” 2020 T. C. Memo. 82, at pp. 9-10.

Anyway, the IRM creates no rights in taxpayers. The IRM contains “guidelines, aspirational goals,:” as certain other pirates have remarked.

I can’t remember the negotiating tactics guru who laid out the reasons why one should never offer to split the difference, but should always accept when the other side offered. Whatever the reasons, if everyone followed his advice, no one would ever offer to split the difference, so no one but Tax Court judges would ever split the difference.

Even in the hotly-contested scenic or conservation valuation wars, differences have been split at The Glasshouse. Splitting has crumbled only at the façades.

Today Judge Pugh does a couple splits (hi, Judge Holmes), worthy of the legendary Nicholas Brothers. Here’s Mary P. Nelson, 2020 T. C. 81, filed 6/10/20, conjoined with spouse James C.

Mary gifted and sold to the family trust her partnership interest in Longspar in two tranches. Longspar held stock in the family holding C Corp. Both partnership and C Corp being closely-helds, there needed to be valuations. The valuations were done post-transfer.

This results in the interests being a percentage rather than a flat dollar amount. Since exactly how what percentage of her interest was being transferred can only be reckoned once the value of the whole is determined. See 2020 T. C. Memo. 81, at pp. 19-21. There are drafting pointers here for the trusts & estates practitioner that well repay reading.

Next are the discounts for control. No one will pay the same to be a passenger as they would pay to be captain.

Come now the dueling experts, culminating with a 5% difference after all the mix-and-match Judge Pugh can manage.

She splits the difference.

I’ve just completed a two-hour CLE on Federal litigation, so Judge Ashford’s opinion in Edward S. Flume and Martha S. Flume, 2020 T. C. Memo. 80, filed 6/9/20, seems like a continuation.

Briefly, Ed and Martha lost back in 2017 (2017 T. C. Memo. 21, filed 1/30/17, which I did not blog, as I was doing my bucket-list cruise through the Panama Canal). They were held to be 50% owners of their Belize international business company, despite having backdated the articles of association to claim otherwise, so as to avoid Subpart F CFC taxation. That case involved the Section 6038 chop for non-filing foreign assets.

Of course, now we have self-serving testimony that gets discarded.

“Issue preclusion focuses on whether (1) the issue in the second suit is identical in all respects with the one actually litigated, decided, and essential to the judgment in the first suit, (2) a court of competent jurisdiction rendered a final judgment in the first suit, (3) the controlling facts and applicable legal principles in the second suit have changed significantly since the judgment in the first suit, and (4) there are special circumstances, such as fairness concerns, that warrant an exception to preclusion in the second suit.” 2020 T. C. Memo. 80, at p. 24. (Citations omitted).

Ed and Martha are stuck.

“The controlling facts and applicable legal principles here have remained unchanged since the Court’s decision in Flume I; indeed, the trial transcript from Flume I is a stipulated exhibit in this case. There are also no special circumstances (such as fairness concerns) that would warrant an exception to preclusion in this case. Accordingly, we hold that the conditions for issue preclusion are satisfied; [the Belize company] was a CFC during the years at issue.” 2020 T. C. Memo. 80, at p. 26.

IRS unraveled Ed‘s and Martha’s unreported income, using the specific item method.

“The specific item method is a Court-approved ‘method of income reconstruction that consists of evidence of specific amounts of income received by a taxpayer and not reported on the taxpayer’s return.’” 2020 T. C. Memo. 80, at p. 19. (Citations omitted).

But IRS included in the specific items stuff that Ed and Martha had reported as income, so they get credit for that.

And for one of the three years at issue, the Belize company had no earnings and profits, so Ed and Martha got no Subpart F dividend income.

IRS has to wild-card in the Boss Hossery, as the trial was pre-Graev. Oh, the silt we stir!

Judge Mark V Holmes’ title is vindicated again.

Read Judge Pugh’s careful analysis of battling valuers in Theron E. Johnson, 2020 T. C. Memo. 79, filed 6/8/20, and see if you don’t agree with the following tête de cuvée Holmes dissent in Oakbrook.

“Conservation-easement cases might have been more reasonably resolved case-by-case in contests of valuation. The syndicated conservation-easement deals with wildly inflated deductions on land bought at much lower prices would seem perfectly fine fodder for feeding into a valuation grinder. Valuation law is reasonably well known, and valuation cases are exceptionally capable of settlement.

“Congress, however, enacted these sections of the Code and presumably wanted reasonably valued conservation easements to be allowed.” 154 T. C. 10, at pp.126-127

Theron, an ink-pan magnate, bought the ranch and did a cut-out conservation easement. There was a couple endangered leopard frogs around (hi, Judge Holmes), his farming was just haymaking, and he left room for a large hacienda on his Delta County CO spread.

Everyone agrees on highest-and-best use, farming and residence. Judge Pugh likes the quantitative approach of Theron’s expert. He took comparables, first adjusted by time between those sale and when Theron put on his easement. Then took location (nearness to towns) and size (over or under). Then he factored in irrigation, topography and improvements. That gave him before-easement. After is tougher; too few comparables.

IRS’ valuer took the qualitative approach. “He compared several characteristics for each comparable, including market conditions at the time of sale, location/access, size, aesthetic appeal, zoning, and available utilities, to evaluate the relative superiority, inferiority, or similarity of each comparable to the ranch. He then evaluated the overall comparability of each property to the ranch.” 2020 T. C. Memo.79, at p. 27.

Judge Pugh doesn’t like that so well. IRS’ valuer ignored quantitative factors, and just juggled Theron’s expert’s numbers.

She does tweak Theron’s expert’s numbers at p. 32, to account for some valid hits IRS’ experts scored.

To get the after-the-easement number requires some fancy sand-dancing.

“Both experts’ postencumbrance direct comparable sales analyses suffer from a lack of suitable comparables. Specifically, all of Mr. [IRS’] comparables and all but one of [Theron’s expert’s] encumbered comparables were in different markets throughout Colorado far from the ranch. All of the comparables for each expert, including [Theronls expert]’s local comparable in Delta County, required significant adjustments. Where the comparables are relatively few in number, we look for a greater similarity between comparables and the subject property. We do not find any of these to be suitable comparables for the ranch. We therefore reject both experts’ postencumbrance direct comparable sales analyses.” 2020 T. C. Memo. 79, at p. 38 (Footnotes and citations omitted).

But Judge Pugh is resourceful.

“The experts’ diminution in value analyses were similar in that each expert used four comparables that included a significant outlier.” 2020 T. C. Memo. 79, at p. 39. So toss the outlier from each, and they’re only 2% apart.

Like her much more exalted juridical predecessor when called to decide a maternity case, she cuts the baby in half.

Judge Pugh splits the 2% difference and applies the result to the before-the-easement number she tweaked, and lo and behold, she has the worth of the easement.

Valuation law is reasonably well-known, and it works.

Judge Kerrigan has a rare one for us today, a taxpayer telling Appeals that the loan he told Exam he took wasn’t a loan, despite a promissory note, stated interest, an Excel spreadsheet showing loan amounts, and a loan roll-forward schedule loan.

The RA generated Form 886-A man-‘splainer as follows. Taxpayer (name to follow) borrows from his controlled C Corp to invest in various healthcare outfits via an LLC that his family trust owned; he also takes draws from the C Corp, which were converted to loans at year’s end; and provides a spreadsheet showing loan balances at end of year at issue.

But he’d also given the C Corp a 20% membership interest in the LLC. Hence Van Wyk, 113 T. C. 29, filed 12/21/99, which says that if one borrows from an entity wherein one has a prohibited interest, one is not at-risk as to the loan amounts. His controlled C Corp, from which he borrowed, has a 20% piece of the action. Das ist verboten per Section 465(b)(3)(A)(ii) and (B), hence no deduction for losses from LLC. So $8 million deficiency plus chops go to Frederick Howe and Bonita A. Macvaugh-Howe, 2020 T. C. Memo. 78, filed 6/8/20.

Are they downhearted? No!

Fred gets new counsel, Boni-Mac keeps her old counsel, and they go to Appeals. Boni-Mac claims (and gets) Section 6015(f) innocent spousery.

Fred’s new counsel claims the loans weren’t from another shareholder in the C Corp. They were straight to Fred from the C Corp. Somehow the note never gets into the Appeals’ discussion. So Appeals and Fred and Boni-Mac sign off on a Form 870-AD, cutting the deficiency to $1.5 million and dropping the chops.

The Form 870-AD repeats Fred’s new counsel’s claim that the loans never were loans, whatever the C Corp’s books and spreadsheets say. Given litigation risks, Appeals caved on the at-risk argument.

“Form 870-AD stated that the case would not be reopened by the Commissioner unless there were specific occurrences including ‘fraud, malfeasance, concealment, or misrepresentation of a material fact’.” 2020 T. C. Memo. 78, at p. 8.

Happy ending, no? No!

When the Appeals folderoo hits the Exam team, there’s a huddle with Appeals, the team “records his Minute of Dissent,” as The Man From Mumbai put it, Exam reopens audit, claiming Fred’s counsel misstated a material fact and the Appeals Director signs off.

New SNOD. Petition.

Fred claims equitable estoppel. Contract argument is a loser. “Sections 7121 and 7122 and their accompanying regulations establish procedures for closing agreements and compromises of tax liabilities, respectively. These procedures are exclusive and must be satisfied for there to be a compromise or settlement that is binding on both the taxpayer and the Government. Form 870-AD is not a binding settlement agreement under section 7121.” 2020 T. C. Memo, 78, at p. 13 (Citations omitted).

The usual equitable estoppel requirements are that party to be estopped must know the facts, the other side must not, the party to be estopped must intend the other side to act as if they believed what the party said or did, and the other side must be injured thereby.

But wait, there’s more, as the telehucksters say.

“In addition to the traditional elements, the party seeking equitable estoppel against the Government must show that: ‘(1) the government engaged in affirmative misconduct going beyond mere negligence; (2) the government’s wrongful acts will cause a serious injustice; and (3) the public’s interest will not suffer undue damage by imposition of estoppel.’ These three requirements need to be met before any determination of whether the traditional elements of equitable estoppel are present.” 2020 T. C. Memo.78, at p. 15. That means the government must deliberately lie or make a series of false promises.

That the note wasn’t raised by IRS at Appeals is nothing to the point; IRS didn’t lie. And counsel should know that a Form 870-AD isn’t a contract.

Besides, Fred knew there was a note. And that Fred paid $17K of interest on the lower deficiency isn’t detrimental reliance. Paying interest on a debt you owe, partially or fully, isn’t detrimental reliance.

No estoppel.

“The Last Extension”

Judge Albert G (“Scholar Al”) Lauber is always good for blogfodder, for which I’m grateful during this lockdown. Although Our Fair City is up today for the Phase I Law of Return, I am still homeworking and teletubbying until I get the “All Clear.”

Judge Scholar Al’s order in Yong S. Park & Yu J. Park, Docket No. 18282-18, filed 6/8/20, reminds me of the days of my youth, when I was sent to cover calendar calls.

The State court trial calendars were lengthy, and calendar calls brought out brigades of attorneys, horse-trading, posturing, seeking out one another “across a crowded room,” as the song has it. The battle-weary jurist assigned as catherd-of-the-day would enter (all standing), and the clerk, a hardcase child of the Depression, would call the calendar, carefully mispronouncing parties’ names.

The judge would clear the calendar like an experienced goalie.

The prolific pleas for adjournments (that’s “continuances,” to you high-priced Federalists) were kaleidoscopic in their inventiveness. Many were adjourned, but not a few were “marked final,” that is, no more adjournments. Except there usually were.

Judge Scholar Al gives Yong’s & Yu’s CPA, whom I’ll call Mr. K, one last chance, after Mr. K thrice failed to hand over documents substantiating Yong’s Sched C. Yong claims Mr. K tried on 4/29, but IRS counsel’s office was shut. That was after a couple orders (hi, Judge Holmes) starting last December, to unload.

“In light of these extraordinary circumstances, we permitted petitioners one more extension of time, to June 1, 2020, within which to produce documents, cautioning them that no further extensions would be given.

“On June 1, 2020, petitioners filed petitioner Young [sic] S. Park’s Motion for Extension of Time, seeking two more weeks to produce documents to respondent’s counsel. In their motion petitioners cite the health of their CPA as the reason for the delay in producing documents and request that the due date be extended to June 14, 2020. On June 2, 2020, respondent filed a status report in which he objected to petitioners’ motion for extension of time.

“Given the history of this proceeding, respondent’s objection to granting petitioners additional time is not unreasonable. However, in light of current circumstances, we will give petitioners the additional time they have requested, subject to the proviso that this really will be the last extension.” Order, at p. 2.

So let Yong & Yu call up IRS’ counsel, doublecheck the mailing address, and send the documents forthwith. If IRS’ counsel doesn’t get them by 6/14, they can’t be used at any trial.

Really.