Blood Sweat and Tears lead vocalist David Clayton-Thomas wrote the title hereof. And the group’s name is not a bad description of what Sean L. Daichman and Linda E. Daichman, 2020 T. C. Memo. 126, filed 8/31/20, are left with after Judge Paris demolishes the structure created by their dodger attorney, who cooked up a day-trading Sub S that was collapsed a few days after it started, with its holdings of cash and marketable securities showered on an LLC and family trust, and a claimed $2.1 million short-term capital loss to Sean and Linda.

Sean has much income from his power-plant refurbishing.

So his attorney sets up the Sub S, allegedly to day-trade, but Sean testifies he has neither time nor knowledge, and the trades are minuscule. But the Sub S gets Sean’s power-planting interests plus cash. The Sub S dissolves shortly after birth, with the goodies split between LLC and family trust. Since distributed goodies are claimed to be much discounted (marketability and control), Sean claims the big loss aforesaid.

Judge Paris: “… the transactions petitioners executed to generate the claimed loss deduction failed to alter their economic position in any way that affected objective economic reality. The transfers of assets were effectively a circular flow of funds among related entities used to generate an artificial tax loss to offset petitioners’ [year at issue] income. Petitioners transferred substantial assets to…their wholly owned S corporation, which then transferred those assets to Investment LP. … S Corp owned a 98% limited partnership interest in Investment LP, while petitioners, as cotrustees of the … Trust, owned the remaining 2% as general partners. Within days of the transfers to Investment LP, Trading S Corp dissolved, distributing its 98% interest in Investment LP (including the assets petitioners had contributed to …S Corp) to petitioners. Petitioners claimed a loss deduction on their [year at issue] tax return by calculating the values of the distributed partnership interests based on substantial discounts. Petitioners had constant control over the assets and entities at all relevant times, however, and neither the contribution to … S Corp nor its dissolution affected petitioners’ position or caused ‘real dollars to meaningfully change hands’. The form of petitioners’ ownership of the assets may have changed, but the substance did not. There was no realistic risk or possibility that the funds or assets would change hands at any point.” 2020 T. C. Memo, 126, at pp. 20-21.

Moreover, the S Corp. was collapsed almost from the get-go, and its activity was subminimal. Clearly, setting up a tax loss was its only reason for existence.

And Sean’s attorney was promoting such deals. “The Court is left with the conclusion that Mr. S offered petitioners a prepackaged tax strategy, one that he offered to numerous clients in [year at issue], designed to create an artificial loss through a circular flow of assets, the application of substantial discounts, and the misreporting of the resulting loss as an ordinary loss, rather than a short-term capital loss. When the initial loss calculation failed to eliminate fully petitioners’ income, petitioners had a second return prepared for … S Corp, increasing the discounts and thereby the loss, and offsetting all of petitioners’ income.” 2020 T. C. Memo. 126, at p. 24. (Name omitted).  I dare say Mr S has gotten The Phone Call.

IRS comes up short on the chops, as only the five-and-ten substantial understatement of tax gets properly Boss Hossed.

There are two varieties of settlement today. First is a full-dress T. C., wherein Judge Travis A. (“Tag”) Greaves discusses whether an interim Boss Hoss is the real deal when a RA offers Douglas M. Thompson and Lisa Mae Thompson, 155 T. C. 5, filed 8/31/20 a settlement of Doug’s and Lisa Mae’s distressed asset trust abusive shelter chops at the Announcement 2005-80 10% discount. Watch that 10% discount; it’ll show up again.

The RA sends a letter offering the 2005-80 settlement, but the letter does not “…identify a tax period or tax form to which it related, provide an underpayment amount, or request petitioners’ consent to assessment and collection.” 155. T. C. 5, at p. 5. A SNOD does all that.

Doug and Lisa Mae refuse, so the RA sends another letter two (count ’em, two) years later, offering a 15% chop, but if not, the RA will develop the case and lay the full boat (whatever that may be) on Doug and Lisa Mae. Doug and Lisa Mae decline. Again, this letter doesn’t identify period, form, amount of tax due, or request consent to assessment and collection. But the SNOD that follows this rejection does all the above. With full boat chops.

Doug and Lisa Mae petition, saying no Boss Hoss for either letter, and the sign-off for the SNOD came from the RA’s acting immediate supervisor, not a proper Boss Hoss.

Judge Tag says no Boss Hoss necessary for either letter, because nothing had been determined.

“Rather than determining that petitioners are liable for penalties of specific dollar amounts, subject to review by Appeals or the Tax Court, each letter offers to settle penalties arising from the DAT transaction on certain terms, including substatutory penalty rates, which are based not on an audit but on Announcement 2005-80. When petitioners failed to accept the offers, RA D still had work to do–the [second] letter explicitly says the IRS had not completed its examination or fully developed the facts of petitioners’ case. Furthermore, the [second] letter warns that declining the settlement offer would result in ‘applicable penalties,’ without stating which penalties, if any, might end up being ‘applicable to petitioners’ facts. An offer letter like the ones at issue does not require supervisory approval because it is not a ‘determination’ at all, but a preliminary proposal of the revenue agent within an ongoing examination.” 155 T. C. 5, at p. 10. (Name omitted; emphasis by the Court).

Taishoff says the whole aim of Section 6751(b) is to prevent Exam from bludgeoning taxpayers into settlements with threats of penalties. And what is more threatening than unnamed penalties for an unknown amount? When the bludgeoning takes place is nothing to the point. If IRS could bludgeon before even sending a 30-day letter, why bother? “Bludgeon early, bludgeon often” is what the statute is supposed to prevent.

As for Judge Tag’s dismissing legislative intent, (“As in Belair Woods, we will not let petitioner’s legislative history argument animate our decision,” 155 T. C. 5, at p. 11), CCAs can go there, even if Tax Court can’t. Remember Chai and Graev.

The acting Boss Hoss is good enough. She was RA D’s immediate supervisor when the SNOD went out. No Regno di Giorno problems.

The rule of lenity doesn’t help, because Section 6751 isn’t so vague that the Court can do no more than make a mere guess what Congress meant.

Next, I must once again acknowledge my debt to my colleague and delightful luncheon companion Peter Reilly, CPA. He kindly put me wise to IR-2020-196, 8/31/20, wherein the Coalholders become the Coalfolders, grabbing the settlement IRS offers, allowing them to deduct the $32.5 million they paid for this metziah (please pardon the arcane technical terminology) and getting only a 10% chop. The promoters, of course, go down big. Conservationists, read and heed.

Oh, if you missed the Coalholders’ tale, see my blogpost “Watch This, Guys  – Hold My Coal,” 6/15/20.”

It was the late Robert S. Pasley, Esq., on The Hill Far Above, in that long-ago autumn, who brought forth the ancient rule: a dog must be shown to have vicious propensities before its owner can be called to juridical account. Or, as a classmate put it, “every dog is entitled to one bite.”

It seems Tax Court has adopted this rule. We have a string of twenty-year petitioners, seeking to establish that IRS dealt them no SNOD or NOD for twenty, or maybe thirty, years. Our story begins with my blogpost “Only a Grand?” 8/26/20, when CSTJ Lewis (“Say That Name Again With Feeling”) Carluzzo lays a Section 6673 grand chop on a rounder who’s back for the second time.

CSTJ Lew was not hospitable to such stuff.  And Judge Buch gave his petitioner strike three in my blogpost “Paper Tiger?” 8/3/20; the dude was coming around for the third time, and the price was two grand.

Ex-Ch J L Paige (“Iron Fist”) Marvel let what appeared to be a first-timer walk in my blogpost “Lighting ‘Em Up,” 7/28/20, but she did have this to say: “This type of case forces the Commissioner to spend a considerable amount of time trying to verify the taxpayer’s allegations that the Commissioner has not issued either a notice of deficiency or a notice of determination for each of the years identified in the petition. The search foisted on the Commissioner, which takes a great deal of time and effort, often leads to the filing of a motion to dismiss for lack of jurisdiction, and may lead to the taxpayer pressing for the entry of an order that specifically states the taxpayer did not receive any notice for any of the years listed in the petition.”

But today Ch J Maurice B (“Mighty Mo”) Foley puts the work on IRS in Jeffrey Alan Kock, Docket No. 5046-20, filed 8/28/20.

Jeff wants IRS to go back to 1989 and root out any NOD or SNOD bearing his monicker, or else dismiss the case. And according to Ch J Mighty Mo, he includes 2020, a year for which individual returns won’t be due for seven months, unless we get another July shift.

IRS, locked-down and weary, says  “…he lacks sufficient knowledge or information to admit or deny whether petitioner was issued any deficiency notices or notices of determination for 1989 through 2002 [sic], but (2) states further he is conducting a search of respondent’s records to determine whether any such deficiency notices or notices of determination were issued to petitioner that would confer jurisdiction upon the Court in this case.” Order, at p. 1.

Maybe there’s a typo in there, but whether Ch J Mighty Mo or IRS I cannot tell.

Ch J Mighty Mo seems to think IRS is stalling, or something.

“… on or before September 17, 2020, respondent shall file a Response, if any, to petitioner’s above-referenced motion to dismiss. Failure to comply with this Order may result in the granting of that motion to dismiss.” Order, at p. 1.

Judge, that’s thirty-one (count ’em, thirty-one) years, if 2020 is on the table and thirteen years if 2002 is up. A not-so-quick docket search (that new website isn’t the best) shows Jeff is a first-timer, but, still and all, Jeff had thirty-one years to do something, and you just gave IRS less than three weeks.

If the rule is as the late Prof. Pasley enunciated it, let’s have a sliding scale. I propose one free kick, then a grand for each succeeding kick, cumulative. With an automatic press after four (Nassau, as the golfers say: bet doubles on the back nine).

Judge Elizabeth A. (“Tex”) Copeland has the bad news for David Casimer Brzyski, 2020 T. C. Sum. Op. 25, filed 8/27/20. It’s another upended dependency, HOH, child credit, and EITC. Dave claims these on account of minor offspring of Daniela, although they are neither his biologically nor by adoption.

Dave says he paid some money for the care of said minors, but they did not live with him for the whole year at issue (no qualifying relative per Section 152(d)(2)(H)).

Ordinarily, I’d hardly blog a case so commonplace, but Dave is inventive.

Dave and Daniela went to MO to visit his Mom in year at issue. “Mr. Brzyski claims that over the Thanksgiving holiday he and Daniela established a common law marriage by driving across the Missouri border to Kansas and declaring their marriage over dinner.” 2020 T. C. Sum. Op. 25, at p. 8, footnote 11.

Kansas then recognized (and for aught I know still does) commonlaw marriage. But just hitting the Dairy Queen across the line doesn’t get it for Judge Tex Copeland.

“The three factors that constitute a common law marriage in Kansas are: (1) the two individuals must have the requisite capacity to marry, (2) the individuals must have a present marriage agreement between themselves, and (3) the individuals must hold themselves out to the public as husband and wife. In determining the existence of a common law marriage, Kansas law requires that Mr. Brzyski, through ‘substantial’ evidence, prove that he and Daniela entered into a common law marriage. Kansas law further defines substantial evidence as that ‘such legal and relevant evidence as a reasonable person might accept as being sufficient to support a conclusion.'” 2020 T. C. Sum. Op. 25, at p. 9 (Citations omitted).

Dave didn’t make it.

Oh yes, Daniela’s dad took the minors as dependents on his return for the year at issue. 2020 T. C. Sum. Op. 25, at p. 5, footnote 9.

No, I have not abandoned my law practice to flog dubious vegetal extracts. Rather today’s full-dress T. C. shows the high bar blowers must clear to supplement the administrative record, and how easily their blowings will crater even if they do.

Here’s Michael van Bemmelen, 155 T. C. 4, filed 8/27/20. Even though he’s self-represented in IRS’ motion for summary J sustaining Mike’s toss, he was represented before the Ogden Sunseteers by his trusty attorney, whom I’ll call Casey.

Mike whistled a bunch of Virgin Islanders who supposedly bilked the fisc of billions. Mike first sent in a bunch stuff (hi, Judge Holmes) in 2012, and sent in more thereafter. Casey sent in a Form 211, but had no Form 2848, so the OS told Mike to speak to them directly. Casey later submitted a Form 2848.

The OS initial claims evaluater couldn’t find whatever Mike sent over the years, so bucked Casey’s stuff to an LB&I classifier, who found Mike’s original stuff, reviewed Casey’s, and decided Mike’s and Casey’s stuff was “…speculative and/or did not provide specific or credible information regarding tax underpayments or violations of internal revenue laws.” 155 T. C. 4, at p. 10.

All y’all know that “and/or” is not a favored locution at Tax Court in whistleblower cases, but ex-Ch J Michael B (“Iron Mike”) Thornton disses that in a footnote.

“The record is clear, however, that in classifying petitioner’s claim Ms. G [LB&I classifier] explicitly premised her recommended rejection of the claim on conclusions both that his allegations were ‘purely speculative’ and that ‘the claim does not have enough information to support the alleged violations.’ The ARM [Award Recommendation Memorandum] adopted these recommendations. Accordingly we review whether the WBO abused its discretion in rejecting petitioner’s claim under these rationales.” 155 T. C. 4, at p. 30, footnote 10. (Name Omitted).

Mike wants to supplement the administrative record with the 2012 material he sent and a 2019 account of stuff Mike gave to CID.

2019 is out. Mike hasn’t provided “clear” evidence to show “(1) if the agency ‘deliberately or negligently excluded documents that may have been adverse to its decision,’ (2) if background information was needed ‘to determine whether the agency considered all the relevant factors,’ or (3) if the ‘agency failed to explain administrative action so as to frustrate judicial review….” 155 T. C. 4, at p. 22 (Citations omitted).

2012 does get in. You need clear evidence for that, and Mike has it.

“Both the Form 211 that petitioner submitted in March 2018 and [Casey’s] cover letter referenced petitioner’s 2012 submission. Indeed, in response to the directive ‘Name and title and contact information of IRS employees to whom violation was first reported, if known’ petitioner’s Form 211 states: ‘Written claims submitted to IRS WBO, October 2012.’ Moreover, Ms. G’s classification checklist memorandum, as incorporated in the ARM, states:

‘The information obtained in this claim is referenced to the claimant’s original claim (2012-003653). The original claim was determined to lack substance. The supplemental information provided in this claim does not have enough information to support the alleged violations.’

“These statements, coupled with the contents of petitioner’s Form 211, constitute a substantial showing made with clear evidence that the 2012 submission is properly part of the administrative record. Accordingly, we will grant petitioner’s motion to supplement the record, as supplemented, insofar as it seeks to complete the record with the 2012 submission.” 155 T. C. 4, at p. 20.

Doesn’t help, though.

“The administrative record shows that the WBO received and reviewed petitioner’s claim before forwarding it to Ms. G, a classifier in LB&I, for further review. Ms. G reviewed petitioner’s claim and noted that it referenced an earlier 2012 submission which had been ‘determined to lack substance. The supplemental information provided in this claim does not have enough information to support the alleged violations.’ Ms. G recommended that petitioner’s claim be rejected on the basis that the ‘[a]llegations are not specific, credible, or are speculative–[a]llegations are purely speculative in nature.’ The WBO accepted Ms. G’s recommendation and issued its determination rejecting petitioner’s claim because “the information provided was speculative and/or did not provide specific or credible information regarding tax underpayments or violations of internal revenue laws.’ We conclude that the WBO did not abuse its discretion in rejecting petitioner’s claim on this rationale.” 155 T. C. 4, at pp. 29-30.  (Footnote omitted, but I quoted most of it hereinabove).

Mike talked of money laundering, but it wasn’t clear what tax laws were violated, or whether it was target or some third party who did the violating. And all the 2012 stuff said is that Mike would provide more information later. And the 2018 Form 211 did no better.

His motion to supplement seems to seek some kind of discovery and evidentiary hearing that the Ogden Sunseteers intentionally subverted the whistleblowing process. The last collapses for want of evidence, sort of son-of-Greenberg’s Express. You need strong evidence, and Mike hasn’t got that.

Mike’s claim the OS should have done more investigation founders on Pub. L. No. 109-432, sec. 406(b)(1)(C), which lets the OS talk to the claimant and counsel if it wishes, “in its sole discretion.” 155 T. C. 4, at p. 33. (Emphasis by the Court). There’s no standard for judicial review here.

Summary J for IRS.

While Judge Gale is sympathetic to a 78-year old petitioner who received a brain injury from a fall (and having survived such when some years younger, I can tell you as the car advertisements do, do not attempt), he sees a hint of the Hidden Spouse trick in James A Malone, Docket No. 13892-19, filed 8/27/20.

The status reports so far state that Appeals, tired of waiting for some information from Mr M, sent the file back to IRS counsel; Mr M’s counsel states that “family members” are helping Mr M find the stuff, and they hope to settle. But the status reports aren’t consistent, some numbers differ, and some issues from the SNOD aren’t addressed.

Mr M’s brain injury troubles Judge Gale. Might could be time to go to the bullpen for a next friend, especially as the trial prep seems to be stalled.

And Mr M filed MFS for the year at issue.

“…the Court is also concerned by petitioner’s counsel’s related assertion that unidentified members of petitioner’s family are “assist[ing] him in retrieving and organizing documents needed for this matter”, insofar as it raises the question of whether such family members may have a potential conflict of interest in this case. The notice of deficiency indicates that the filing status on the substitute return filed for petitioner for [year at issue] is married filing separate. In the event petitioner were to challenge respondent’s determination of his filing status by submitting a joint return with his spouse for [year at issue], petitioner’s spouse may have a conflict of interest in this case, unless he or she disavows section 6015 relief.” Order, at pp. 3-4. (Footnote omitted, but read it; it’s the playbook for the Hidden Spouse trick).

OK, I know you won’t go look at the order just to read the footnote, so here it is.

“See Millsap v. Commissioner, 91 T.C. 926 (1988) (holding that a taxpayer is entitled to challenge the Commissioner’s determination of filing status in a deficiency proceeding and that substitute returns filed by the Commissioner do not constitute ‘separate’ returns for purposes of sec. 6013(b)); see also Saltzman & Book, IRS Practice and Procedure, para. 4.02[1][b] (Rev. 2d ed. 2002 & Supp. 2020-1) (‘Similarly, for purposes of making an election to file a joint return, the Section 6020(b) return is not the taxpayer’s return when the taxpayer makes an election on a subsequently filed return. As a result, when the Service prepares a Section 6020(b) return for each of two spouses as married filing separately, and sends them a notice of deficiency, the husband and wife may petition the Tax Court, file a joint return, and challenge the Service’s determination of their fling status in the same manner as they contest the amount of the deficiency.”) (citing Millsap v. Commissioner).” Order, at pp. 3-4, footnote 10.

So Judge Gale orders the parties to dish on next friendliness, spousal situation, conflicts of interest, and what gives with every determination in the SNOD, including but not limited to chops.

For more about the Hidden Spouse trick, see my blogpost “Hidden Spouse,” 4/3/18.

Judge Emin (“Eminent”) Toro engages in what Judge David Gustafson calls ” the interesting and difficult theoretical question whether we have the power to ‘enforce’ our decisions.” 155 T. C. 2, at p. 27.

Though Judge Gustafson, concurring in result, says nobody questions that proposition, so why go there as nobody has briefed or argued the point, Judge Eminent has Ch. J. Foley, and JJ. Gale, Thornton, Morrison, Buch, Nega, Pugh, Ashford, Urda, Copeland, and Greaves on board. Judge Jones is down with the holding on the merits.

Here again are Whistleblower 21276-13W and 21277-13W. And they’re claiming they shouldn’t be sequestered on the back piece of their monumental whistleblowing award, when the James Bond number they did on some offshore CD pirates handed IRS a home run.

Backstory in my blogposts “Sunset in Ogden,” 6/2/15, and “Dares or Forfeits,” 8/3/16.

The 212s claim that when Tax Court entered decision after the second of the TCs aforementioned, the Court entered the full 24% stipulated between the parties, but didn’t reduce same by the sequester mandated by 2 U.S.C. §§ 900-907 (2018). So the 212s want the full amount, and Tax Court should order IRS to pay it.

Before deciding what they can order IRS to do, Judge Eminent inquires if Tax Court has jurisdiction to order anybody to do anything. But nobody questions jurisdiction to decide the matter at hand.

And remand would be futile, because the sole question is one the answer to which the parties have already stipulated.

Howbeit, “…Congress made clear that the Court ‘shall have such assistance in the carrying out of its lawful writ, process, order, rule, decree, or command as is available to a court of the United States,’ sec. 7456(c). In adopting section 7456(c), Congress confirmed the Court’s power to enforce its own orders.” 155 T. C. 2, at p. 15. (Footnote omitted, but read it; and then ask yourself “what price Section 6673(b)(2)?”).

And the finality provisions of Section 7481 play no part here, as all that is at issue is enforcement of the decision already entered and final. Judge Eminent opens no doors to any attempt to relitigate a final decision.

But there’s a hitch.

IRS and the 212s stipulated what would happen if the 212s won on the back piece. But they never bothered to tell Tax Court exactly to what they stipulated.

“As an initial matter, we note that the parties explicitly addressed the sequestration issue in their partial settlement agreement. There, the parties agreed that $20,000,001 paid to the Government as restitution constituted collected proceeds and that the whistleblowers were entitled to an award of 24%, less a sequester reduction. The parties left for judicial resolution the treatment of the remaining $54,131,693.42 collected by the Government, but they expressly noted that “[a]ny such further payment will be reduced by the sequester reduction percentage in effect at the time of payment.” (Emphasis added.) Although the parties did not inform the Court of the precise terms of their settlement, they did explain that a settlement had been reached. And the settlement provided the backdrop for our subsequent proceedings.” 155 T. C. 2, at pp. 21-22. (Emphasis by the Court).

Judge Eminent isn’t going to let these games go on.

“The whistleblowers now seek to back out of their deal, contending that our entry of the January 2017 Decisions in specific amounts foreclosed their agreement to reduce any further award payments by the applicable sequester reduction percentage when the award payments were made. We disagree. Nothing in the January 2017 Decisions set aside this express agreement of the parties.

“The January 2017 Decisions do not purport to specify a particular amount that the Commissioner must pay to each whistleblower in all events. Rather, the January 2017 Decisions set out the gross amounts ‘calculated’ as part of the Court’s Opinion, based on the underlying ‘collected proceeds’ and the ‘award percentage’ the parties had stipulated in connection with that Opinion.” 155 T. C. 2, at p. 22.

Finally, and most importantly, Judge Eminent has a takeaway for all practitioners.

“These cases should, however, serve as a cautionary tale to parties that reach partial settlements. Filing with the Court complete copies of the agreements that reflect any settlements reached by the parties gives the Court a fuller picture of the disputes that remain at issue and permits the Court to render decisions that appropriately take into account the parties’ agreements. That, in turn, may spare the parties the inconvenience and expense of postdecision litigation avoidable through greater transparency.” 155 T. C. 2, at pp. 25-26.

And I give counsel for both parties a Taishoff “bad move.”

Former Section 199 was a casualty of the 2017 Act, but Judge Paris must deal with the fallout from years gone by in TGS-NOPEC Geophysical Company and Subsidiaries, 155 T. C. 3, filed 8/26/20.

TGS is the onshore sub of a Norwegian corp. TGS acquires, processes and licenses marine seismic data for the oil and gas industry. TGS wants a $1.9 million DPAD. For year at issue, TGS employed over 500 people onshore, contracted for vessels to go to sea, depth-bomb and hoover up raw data, which the employees would process (and maybe reprocess, as the algorithms got more precise) and TGS would lease, on off-the-shelf mag media TGS did not manufacture, to the drillers. TGS’ processing headquarters were in The Bayou City.

TGS claims either the processed data is qualifying production property (Section 199(c)(4)(A(i)(I), or engineering services (Section 199(c)(4)(A)(iii)).

There’s the usual experts’ jumpball, but Judge Paris finds that data is not tangible personal property. The fact that said data dwells on off-the-shelf mag media is irrelevant. Maybe if TGS manufactured the mag media, the package might be tangible, and therefore qualifying. Burt computer programs aren’t…generally. 155 T. C. 3, at p. 21.

“The item licensed by petitioner in this case is the processed seismic data. Data, as such, is inherently intangible. It lacks corporeal form. The intangible nature of this data is not changed by petitioner’s loading the information onto a CD or other tangible medium. Such a medium serves only as the vehicle of transfer for the data; it does not become an embodiment of the data itself. In contrast to the printing of a book, where the physical medium becomes the item itself, the data and the delivery medium remain separate and separable items. Petitioner’s clients are able to transfer the processed data from the tangible medium, copy the information, and share it within their organization.” 155 T. C. 3, at p. 21.

Sorry, Prof. McLuhan, the medium isn’t the message. If the original medium on which the processed data had been licensed to the end-users, or if the data could only be found on the original mag media, like original film negatives that had never been copied, and if destroyed would be gone forever, it might have qualified. But TGS kept the original data, had multiple copies made, and the copies were what was licensed.

And what TGS licensed weren’t sound recordings. Reg. Section 1.199- 3(j)(4)(ii) “…excludes from the definition of sound recordings ‘copyrighted material in a form other than a sound recording, such as lyrics or music composition.’ In other words, representations of sound in a manner other than in an audible format are not themselves ‘sound recordings’.” 155 T. C.3, at p. 28. Besides, TGS asserts no copyright in the raw data.

But the engineers carry the day…partially.

TGS certainly uses scientific principles in its work, high-powered computers and sophisticated software. That fits squarely within Section 199(c)(4)(a)(iii). And they’re in a NAICS 5413 classification, fitting in with Reg. Section 1.199-3(n)(1).

Since oil wells and drilling rigs satisfy the “with respect to construction of real property” condition, TGS is in.

Judge Paris blows off IRS’ arguments, which you can read for yourself.

But as to how much is deductible, there will need to be a Rule 155 beancount.

Where TGS processed its own data for its own clients, that counts. Likewise when TGS subcontracted certain processing services for its own clients, but retained oversight and licensing, that counts. Where it just reprocessed its Norwegian parent’s data for the parent’s clients, that’s too remote, and doesn’t count. And TGS’ overriding royalty interests are out, as there’s no statutory basis for that.

CSTJ Lewis (“Gotta Luv That Name”) Carluzzo is generous when he hands out a mere $1,000.00 Section 6673 frivolite to Gary L. Pansier & Joan Renee Pansier, Docket No. 2866-18, filed 8/26/20.

“According to the petition, petitioners never received certain notices issued by respondent for any of the years referenced in that document. This allegation is patently false and frivolous. A notice of determination concerning collection action for the years 1999 through 2006, inclusive, is attached to the petition they submitted to the Court in docket number 3143-13L.” Order, at p. 1.

There’s a lot more, which I didn’t blog back in 2014. Check out Gary L. Pansier & Joan Renee Pansier, 2014 T. C. Memo. 255, filed 12/22/14. Real rounder stuff.

Inasmuch as “…the petition contains allegations that are patently false and frivolous….” CSTJ Lew orders a $1,000 Section 6673 chop, and tosses Gary’s & Joan’s petition and “motion to reconvene,” whatever that is.

The silt-stir engendered by Clay merrily rolls along, and easing its path (like a first-class sweep in a curling match) is The Taxpayer’s Friend, STJ Diana L. Leyden.

Again we have IRS claiming that the Correspondence Examination Automated Support (CEAS) program obviates the need for any Section 6751(b) Boss Hoss sign-off, as the electronic chopper slices, dices, and chops untouched by human hands.

But in the case of Sandra D. Hallmon, Docket No. 19008-19S, filed 8/26/20, STJ Di isn’t so sure about absence of human involvement. Once again, CEAS turned out a 30-day letter; and, like others in similar circumstances whom I have blogged, Sandra stood mute.

“Contrary to respondent’s assertion that no Service employee was involved in the assertion of the penalty, the Case Summary includes the name “SHEA PATRICIA” under Examiner Name. Based on the record in this case, the Court would find it helpful to receive an additional response from respondent explaining why the Case Summary includes a name of an examiner and how he has concluded that the penalty was automatically calculated if there was an examiner assigned to this case.” Order, at p. 2.

Possibly the CEAS assigns an examiner as a control or placeholder when it sends out the 30-day letter, in case there is a response from the taxpayer. If so, it might be a good idea for IRS counsel to make that part of the boilerplate answer in such cases.

In any event, IRS has some ‘splainin’ to do.