In Uncategorized on 08/17/2020 at 18:46

I know I stole this line from a CA practitioner, to whom I must apologize both for lifting his bon mot and forgetting his name, but it’s really so good that any attempt at paraphrasing would dilute it: “Every taxpayer needs two advisers – one to tell them what the law is, and the other to tell them what they wish the law was. Then they can choose whose advice to follow.”

Well, Nirav B. Babu, 2020 T. C. Memo. 121, filed 8/17/20, only needs one adviser, because “(D)uring law school he took courses in tax law, participated in a tax clinic that assisted low-income taxpayers, and finished ‘with a pretty good understanding of tax.’” 2020 T. C. Memo. 121, at p. 3. And Nirav also ran a franchised tax prep service that he built up after his mentor’s service was enjoined from tax prep by DOJ in USDCSDOH for “engaging in and facilitating extensive and pervasive tax fraud.” 2020 T. C. Memo. 121, at p. 4. He also subcontracted work for the mentor’s successor.

Nirav was a real success story. Except he didn’t bother to disclose about $2.9 million of income from his mentor’s successor’s firm, from which he had unlimited cash drawing rights.

Nirav fesses up after IRS nails him for unreported income. In fact, after confessions and concessions, all Judge Albert G (“Scholar Al”) Lauber has left to decide is whether Nirav is up for a five-and-ten substantial underpayment chop.

Nirav has five (count ’em, five) lawyers against IRS’ three in Tax Court, but when it came to preparing his individual return, he relied on only one, and on the stand she doesn’t do so good.

“Ms. Rebeck obtained a law degree…and had been practicing law full time for less than a year…. Petitioner hired Ms. Rebeck to represent him in a dispute with the IRS involving the assessment of penalties for alleged violation of section 6695(g), which requires return preparers to exercise due diligence regarding claims for the earned income credit. …she filed a Form 2848, Power of Attorney and Declaration of Representative, to represent him before the IRS in that matter.” 2020 T. C. Memo. 121, at p. 8.

Nirav’s adviser, Ms. Rebeck, told him he didn’t have to report the $2.9 million. Judge Scholar Al is less than convinced this was good advice.

“Petitioner’s testimony was self-serving, and Ms. Rebeck did not strike the Court as an objective or candid witness.

“Petitioner and Ms. Rebeck had mutual business interests, insufficiently explained, that involved large sums of money. Ms. Rebeck acquired former [mentor’s] franchises that appeared to have used [Nirav’s]’s software to process returns. … she and petitioner started a law firm whose bank account balances exceeded $3.8 million [in less than a year]. In early 2018 petitioner transferred $500,000 to Ms. Rebeck for unexplained reasons. At some point she transferred to petitioner a 99.9% interest in an LLC for no consideration. Petitioner and Ms. Rebeck were codefendants in a lawsuit filed in 2019 involving alleged misappropriation of funds. For these and other reasons, we found that Ms. Rebeck’s testimony was likely to be biased in petitioner’s favor.” 2020 T. C. Memo. 121, at p. 9.

Ms. Rebeck posited the $2.9 million was repayment of loans, but had no documentation. Likewise the claim that there were offsetting bad debts.

“The theories she enunciated at trial struck the Court as post hoc rationalizations for petitioner’s erroneous reporting.” 2020 T. C. Memo. 121, at p. 14.

As for Nirav, his heavy-duty experience makes it incredible that he didn’t know that diverting an entity’s income to his personal benefit generated taxable income.





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