In Nineteenth Century England, it was the time when Parliament recessed, and what they called society headed for the grouse moors of Scotland for the Glorious Twelfth of August. So the newspapers, with nothing they thought worthy to print, fell back on ephemera and frivolity.

US Tax Court is a great place for upholding tradition. There’s one T. C. Memo., Alka Sham, 2020 T. C. Memo. 119, filed 8/12/20. I’ll spare you; the usual indocumentado, leavened with the unorthodox compensation arrangement between Alka and Dr. Kukreja. If your day was even duller than mine, you can read eighty-one (count ’em, eighty-one) of Judge David Gustafson’s deconstruction of Alka’s non-substantiation (plus twelve pages of appendix).

No designated hitters, of course. A bunch of “go try the case” orders, for petitioners slow to respond to court orders, and one where two attorneys try to bow out with one signature. See Jason M. Thompson, Docket No. 10258-19, filed 8/12/20. Judge Elizabeth A. (“Tex”) Copeland isn’t playing; both of you guys sign the motion.

If the IRS classifier (the Subject Matter Expert), who comes from an operating arm of IRS and not from the Ogden Sunseteers, eyeballs the tax returns of the target and finds them facially OK, are those returns part of the administrative record?

Not only I, but Judge James S (“Big Jim”) Halpern, would like to know. So would Eva Mitich, Docket No. 4489-19W, filed 8/11/20.

Eva whistled her landlord for unreported income and unpaid taxes. The ICEwoman (Initial Claims Evaluator) eyeballed Eva’s assertions, and shipped them to SME in SB/SE, whom scoped the returns of target, and found them facially OK. Sched E was there, showing property alleged and income therefrom.

So the ARM (Award Recommendation Memorandum) said the usual: speculative, no specific underpayments or violations. Eva is bounced and petitions.

The tale becomes cloudy when Eva seeks the relevant portions of target’s returns in discovery. IRS’ counsel answers that, per Reg. Section 301.7623-3(e), Eva already got the entire administrative record.

Except.

When counsel try to overlawyer, they often blow it. Counsel stated “Here, the administrative record demonstrates that the Commissioner did not proceed with any administrative or judicial action against the subject of your claim under section 7623. The administrative record further demonstrates that the Commissioner’s whistleblower office, in making its determination to reject your claim under section 7623, did not consider any of the contents of said taxpayer’s tax return. Accordingly, the contents of said taxpayer’s return are irrelevant in this case. [Emphasis added.].” Order, at p. 3.

Judge Big Jim suggested a phoneathon, and when he asked IRS’ counsel why the return Sched E wasn’t there when the SME said she’d scoped them out, counsel replied “those returns were not reviewed by Ms. B, who is employed in the WBO, but had been reviewed by Ms. P, who was an SBSE classifier, and SBSE is a unit in an operating division of the IRS and not a part of the WBO.” Order, at p. 4 (Names and footnote omitted, but the footnote says, citing IRM pt. 1.1.26.1.3.5 (January 1, 2018), that SB/SE has operational responsibility for ICE.).

I award IRS’ counsel a Taishoff “Oh, Please,” first class, and entry in the no-prize lame excuse stakes, at no extra charge.

So Judge Big Jim expatiates on the necessity for a full record whereupon to decide if discretion was abused. He cites the Supremes, various CCAs, a couple USDCs (hi, Judge Holmes) and Tax Court cases, ending up Humpty-Dumptywise with “all documents and materials that the agency directly or indirectly considered, no more and no less.” Order, at p. 5.

So let Eva and IRS’s counsel “…file with the Court a legal memorandum addressing whether the record rule allows respondent to exclude from the record properly to be considered by the Court in this case the taxpayer’s return information reviewed by Ms. P.” Order, at p. 6.

I make the morning line 4 to 5 Eva gets the return info.

And to IRS’ counsel, I repeat an abbreviation I ofttimes used when I supervised other attorneys: RTFF. That means “Read The File.” The “F” is for emphasis.

They say automation is sweeping the nation, but even IRS’ Automated Underreporting System, known to the cognoscenti as AUR, needs to throw in a good, old-fashioned SNOD to nail the underreporter. But IRS, and especially SO K (name omitted), come up short when challenged, albeit obliquely, by Mark C. Mirken & Sheryl L. Mirken, Docket No. 18972-17L, filed 8/11/20.

True, Mark & Sheryl did move around a lot, but SO K seemed to throw to the wrong base, and couldn’t come up with what she threw, when it came to the necessary SNOD off the AUR.

Judge Elizabeth A. (“Tex”) Copeland has this one. There are three (count ’em, three) assessments here for the same year. First was self-assessed tax and underpaid ES, but that Mark & Sheryl paid. Second was late filing and late payment add-ons, but Mark & Sheryl have an OIC on the table for those. Third was the one Judge Tex Copeland  finds problematic, the AUR.

IRS hits Mark & Sheryl with the CP90 NITL pay-up letter, which Mark & Sheryl petition, but inartfully. “Here, Petitioners simply pleaded that the ‘I.R.S. settlement agent abused her discretion in prematurely terminating CDP rights.’ However, we take note of Petitioners [sic; I think you meant “Petitioners’,” Judge] self-represented status and construe their pleading broadly. We note that in their opposition to the Motion for Summary Judgment, Petitioners assert that the IRS ‘has not followed its own procedures as outlined in the Internal Revenue Manual.’ and ‘[A]lthough requested, the Petitioners have not received statutory collection due process in this matter.'” Order, at p. 5.

Judge Tex Copeland, interested in justice per Rule 41(a), treats all this as an amendment to the petition, and, as this is a motion for summary J, she runs the checklist.

“Relevant here is whether SO K verified that the requirements of applicable law or administrative procedure have been met. Sec.6330(c)(1), (c)(3)(A). In determining whether the verification requirement is met, the SO must determine if the tax liability was properly assessed before the IRS commenced its collection procedures. Sec.6303(a) (assessment before notice and demand); sec. 6331(a) (notice and demand before levy); sec. 6330 (notice and opportunity for administrative review in form of CDP hearing before levy). This includes verifying that any statutory notice of deficiency (SNOD) was properly issued or that an exception to the restrictions on assessments apply, even if the additional tax assessed was determined by the IRS’ AUR program. See secs. 6212, 6213, 6214, and 6215; see also Internal Revenue Manual (IRM) pt. 4.19.3.l(11) (September 4, 2015); IRM pt. 4.19.3.1.1.1 (September 30, 2014). A SNOD must be sent by certified or registered mail to the taxpayers’ last known address. Sec.6212(a),(b). If a SNOD is so mailed, before assessment, taxpayers may petition the Court within 90 days (150 days for taxpayers living outside the United States) for redetermination of the deficiency or penalties. Secs.6212; 6213. If the time for filing a petition with respect to the SNOD expires, then the IRS may assess the additional tax and penalties. Sec.6213. Again, in a CDP case, it is the SO’s responsibility under section 6330(c)(3) to verify that this all occurred; and Petitioners’ responsibility to timely petition this Court if not. See sec. 6330(d)(1).” Order, at pp. 4-5.

The NOD stated Section 6201 was the basis for the AUR assessment and the add-ons, but it should have been Section 6213 for the AUR; and the add-ons should have been based on Section 6665.

“In particular, as to Assessment 3, the record is unclear as to how SO K verified that a SNOD was properly mailed to the Petitioners or if an exception applied. In support of the Motion for Summary Judgment, Respondent did not provide documentation, such as a properly issued SNOD nor a showing that such notice was mailed to the taxpayers last known address. In fact, SO K did not appear to know the appropriate address for verification purposes. Petitioners’ address changed several times…. Although Petitioners’ CDP request… included their current address, SO K sent her letter setting up their CDP hearing to an old, possibly invalid, address. She also cited to the wrong Internal Revenue Code section (6201 rather than 6213) in the Notice of Determination. Given these questionable facts, the Court finds that the SO did not adequately explain how, for Assessment 3, she verified that the deficiency procedures were followed prior to the assessment…. The deficiency procedures require, among other things, that SO Krueger know Petitioners’ last known address…to verify that the SNOD was properly sent; whether she did so is unclear from her notes and the Notice of Determination.

“Furthermore, if a SNOD was not so required, Respondent did not adequately explain the relevant exception to the deficiency procedures.” Order, at p. 6.

Summary J denied without prejudice.

Takeaway- Guys, this is the real deal. Run this checklist for any AUR SNOD or NOD. And tell ’em Judge Tex sent ya.

I have lamented the want of an Office for the Self Represented at the United States Tax Court. Often. As recently as four (count ’em, four) hours ago. On this very blog.

Even more often have I praised summary judgment. I denote this tool for discovery of disputed facts (and smoking out friend, foe, and judge) with the term summary J. I did not invent the phrase. I stole it from a classmate, a very fine man and brilliant lawyer, now deceased. The story he told was that, having won summary J in a big-ticket case as a junior partner in the firm where he spent more than forty years, he bought himself a fancy car and got a license plate that read “SUMMARYJ.”

I wonder what happened to the license plate.

But into the breach steps that Obliging Jurist, Judge David Gustafson. And conforming to current judicial fashions, he’s obliging even to corporations, treating them like people.

James G. Garcia, Inc., Docket No. 14222-19L, filed 8/10/20, is facing a summary J motion off a CDP.

Now maybe James G. Garcia, Inc., has counsel in the wings, waiting to file Entry of Appearance and send in a devastating cross-motion. Or maybe not. Anyway, James G. Garcia, Inc., managed to file an Ownership Disclosure, which has daunted many another self represented.

But Judge Gustafson is taking no chances. He gives James G. Garcia, Inc., the full treatment.

“The Commissioner’s motion asserts that no trial is necessary in this case, because (the Commissioner says) no relevant facts are in dispute. The motion contends that, on the basis of the undisputed facts, the case can be decided in the Commissioner’s favor. The Court will order petitioner James G. Garcia, Inc., to file a response to the Commissioner’s motion.

“If petitioner disagrees with the facts set out in paragraphs 1-23 of the ‘Facts’ section of Commissioner’s motion for summary judgment, then his response should point out the specific facts in dispute. Petitioner’s response should state, by number, any assertion with which he disagrees, should explain the reason for his disagreement, and should cite whatever evidence supports his position. If petitioner disagrees with the Commissioner’s argument as to the law (in paragraphs 24-36 of the Commissioner’s motion), then his response should also set out its position on the disputed legal issues. Q&As that the Court has prepared on the subject ‘What is a motion for summary judgment? How should I respond to one?’ are available at the Court’s website and are printed on the page attached to this order.” Order, at p. 1.

Standard, right? Language more or less like this is found in many an order. As is the follow-up, the usual caution that if James G. Garcia, Inc., does not respond, it will lose.

But Judge Gustafson goes the extra couple furlongs (hi, Judge Holmes).

“If petitioner is unsure how to proceed, he [sic] should promptly initiate a telephone conference with the Court and the Commissioner by placing a call to the Chambers Administrator of the undersigned judge (at 202-521-0850).” Order, at p. 1.

Pro ses, take down that number.

Obliging as he is, Judge David Gustafson won’t do your research for you, but he will edit your letter before including it in an order, so as not to embarrass you with your spelling mistakes. He performs this service at no extra charge (look at all you get for sixty bucks) for Tony Patrinicola & Barbara Patrinicola, Docket No. 498-19, filed 8/10/20.

Actually, it’s Tony’s letter. He wants to add another year to his petition, based on a CP90. That form somewhat confuses even Judge Gustafson, so he treats Tony’s letter as a motion for leave to amend.

“…the notice evidently does double duty both as a notice of right to a CDP hearing and as a demand for payment. (Cf. Webber v. Commissioner, No. 14307-18L (order of June 7, 2019).) On the front page of the notice, underneath its title, is the phrase ‘Amount due immediately: $8,236.89″. The bottom third of page 1 of the Notice CP90 is an address slip that the taxpayer can use to make a payment of the stated liabilities. It gives an IRS address in Cincinnati, Ohio, and as an ‘Amount due immediately’ it repeats the amount of $8,236.89.” Order, at pp. 1-2.

Judge Gustafson cites his order in Webber, supra, but he doesn’t cite my blogpost “Judge on a Tear,” 6/7/19, which is much more entertaining.

Howbeit, if Judge Gustafson is slightly befuddled, Tony is utterly confused. His letter is addressed thus: “United States Tax Court Attn: Commissioner of Internal Revenue Maurice B. Foley (Chief Judge) Washington, D.C. 20217.”

Refer to my blogpost “The Plight of the Pro Se,” 7/27/20. The USDCs have offices for the self represented; Tax Court has none. While I have no statistical evidence to back up this assertion, Tax Court has more self representeds as a percentage of nongovernmental litigants than any USDC. Yet they are without guidance except from the never-sufficiently-praised pro bonos and LITCs. And most pro ses have no idea these resources exist.

So Judge Gustafson wants IRS to tell him if Tony’s letter is a timely request for a CDP, or whether IRS received any other timely request from Tony for a CDP.

I most humbly suggest that IRS’ counsel read the Webber order (and maybe even my blogpost thereon above-cited) before responding.

This is what greeted me as I drove my MacBook Pro onto the new, marginally-improved, jazzy Tax Court website.

“On Tuesday, August 11, 2020, the Court will be performing a circuit upgrade from 4:00 PM to 5:00 PM EDT. There may be a brief disruption to eAccess and this website.”

Why during the time when opinions and designated orders (few enough of those) are released?

Why when practitioners are getting the last-minute filings out the door?

Why not after 8 p.m.?

Though politics is in the air, and philippics and polemics proliferate, this blog remains immune to politics. But today we have elections again, albeit this one is a very basic election.

Craig Douglas Hoglund & Christine Joan Hoglund, Docket No. 18571-19, filed 8/7/20, are petitioning a SNOD for Year A issued solely to Chris. Craig wants in, and claims he and Chris always filed MFJ. Not only that, but Craig & Chris want to throw in tax years B through G, both inclusive.

IRS moves to toss, claiming Craig & Chris tried this move before, but Tax Court kept in only the years specifically addressed by the SNOD.

“The Hoglunds filed a response to the Commissioner’s motion. Their response makes to [sic; I think you meant “two,” Judge] principal arguments. They note that they have filed their returns ‘married filing jointly’ throughout their marriage, implying that this requires the Commissioner to issue a notice of deficiency addressed to them jointly. Citing authorities relating to collection cases, they also argue that ‘years not under consideration for a particular tax year’s hearing are considered in making a ‘Determination.'” Order, at p. 2.

Well, ya gotta check the box for MFJ. See my blogpost “Blowing the Joint,” 6/24/14. Judge Buch does a reprise.

“Under section 6013(a), married taxpayers ‘may make a single return jointly of income taxes,’ which is done by checking a box on an income tax return labeled ‘Married filing jointly.’ Choosing to make a joint return is an election. The statute permitting joint returns refers to it as an election. See sec. 6013(b). As do the underlying regulations. Treas. Reg. § 1.6013-1(a)(1). At the time the Commissioner issued his notice with respect to [Year A], the Hoglunds had not filed a joint return. As a consequence, they had not made an election to file a joint return for that year. As a result of there being no election to file jointly, it was proper for the Commissioner to issue his notice only to Mrs. Hoglund.” Order, at p. 2.

Now as to the out years, Tax Court is bound by Section 6214(b), and the immortal words of the Lieber-Stoller Coasters classic Poison Ivy: “You can look but you better not touch.”

“As this provision make clear, we can only redetermine the deficiency in the year before us, [Year A] in this case. We may look at facts from other years for the purpose of redetermining the [Year A] deficiency, but we cannot determine whether the Hoglunds have overpaid or underpaid their taxes in any year other than [Year A].” Order, at p. 3.

So Craig & Chris lose the election, and Year A is out there on its own.

Practice hint: Note the magic day for election here is the date of the SNOD, because Craig & Chris hadn’t yet filed their return. When you get a nonfiler case pre-SNOD, with spousery implications (innocent or otherwise), you might want to consider sending in a belated MFJ return. And tell ’em Craig & Chris sent ya.

With so much going on, both online and in the real word, I hadn’t blogged a bunch orders (hi, Judge Holmes) wherein Ch J Maurice B (“Mighty Mo”) Foley bounced joint stipulated decisions and the like because the IRS’ counsels’ signatures were digital and not wet-ink.

I see today on the new, only-marginally-improved, jazzy Tax Court website that Ch J Mighty Mo, bowing to the unavoidable constraints of the COVID-19 new reality, will allow e-signatures on joint stipulated decisions, sidestepping 15USC§7003(b)(1).

There’s more, so look here: https://ustaxcourt.gov/resources/press/08062020.pdf

Now all we need is for Ch J Mighty Mo to energize Rule 34(a), and allow e-signed petitions and amendments thereto. Too bad he didn’t do so yesterday.

I’m sure IRS won’t mourn the passing of TEFRA, either.

Case in point. Even though the partnerships that generated ginormous NOLs for Ritchie N. Stevens and Julie A. Keen Stevens, 2020 T. C. Memo. 118, filed 8/6/20, may be small partnerships for TEFRA purposes, there still have to be partner level determinations. IRS hasn’t done them. The returns Ritch and Julie filed are not oversheltered per Section 6234, except for one year at issue out of the seven (count ’em, seven) years at issue.

Ritch and Julie have BoP that their partnerships are not small, and therefore need FPAAs, and fail to carry the burden. But IRS still has to consider partnership items, even without the FPAA prelude.

IRS’ lumping of all their securities transactions into aggregated sales and aggregated basis is a gift to Ritch and Julie; if IRS did not, they could have hit Ritch and Julie with the entire sales prices as gain, and let Ritch and Julie try to prove basis.

But IRS has problems. Without taking the partnership items into account, their failure to disallow partnership items, coupled with their computations of nonpartnership items, create no deficiencies. IRS can try to scuttle the partnership items and seek to collect the taxes that result from wiping out the losses and NOLs arising therefrom, but SOL may prevent that.

If you want the nitty-gritty from Judge Halpern, and have a craving for 87 (count ’em, 87) pages of his prose, read on.

But I’ve gleaned one point worth stressing from his elaborate deconstruction.

“In Dees v. Commissioner, 148 T.C. at 5, we distilled our prior caselaw into a ‘two-prong approach to the question of the validity of * * * [a] notice of deficiency.’ In the first step of the Dees approach, ‘we look to see whether the notice objectively put a reasonable taxpayer on notice that the Commissioner determined a deficiency in tax for a particular year and amount.’ Id. at 6. A notice that meets that test is valid, without the need for further inquiry. If instead the notice is ‘ambiguous’, we wrote, ‘the party seeking to establish jurisdiction * * * [must] establish that the Commissioner made a determination and that the taxpayer was not misled by the ambiguous notice.” Id.” 2020 T. C. Memo. 118, at pp. 44-45.

OK, so what price all these notices that say “we send you a SNOD” when IRS didn’t, and all the various letters, notices, forms and billets doux IRS unloads that claim a difference between what the return shows and what IRS claims is owing? And when IRS claims no jurisdiction because the document wasn’t a SNOD? I’ve blogged plenty of cases where a document says there’s a difference between return amount and tax due. And a reasonable taxpayer, not an EA, CPA, RRP, or attorney would certainly think they were on notice.

True, I didn’t blog Dees. But I’ll cite it.

Not From Your Ex

Judge Albert G (“Scholar Al”) Lauber’s infinite variety is again at center-stage, as he shuts down Steven R. Matzin and Sarah Schroeder, 2020 T. C. Memo. 117, filed 8/.5/20. It’s Steve’s story, because it involves Steve’s property split with Sarah’s predecessor, Georgeann.

Steve’s Sub S owned 70% of a cash-cow LLC that provided dental support around this broad land. This was the couple’s largest asset, and Steve ran up $160K in legal fees in negotiating the property deal and the divorce.

After whacking up cash on hand, life insurance, real estate, and a to-be-decided-later split of furniture and art, Steve works out a payout to Georgeann for the worth of the Sub S stock which owns 70% of the cash-cow LLC. Steve pays Georgeann’s share of some debts, and pays her some interest on the promissory note he gave her for the paydown on the Sub S stock. Steve didn’t want to split the Sub S stock with Georgeann; he didn’t want to be in business with her, and the other members of the cash-cow LLC would have to consent to let her in. She knew nothing about dentistry, leaving it to the lawyers to pull as many of Steve’s teeth as they could.

Eventually the cash-cow LLC is sold. Steve gets a sweet $85.7 million capital gain, of which he owes Georgeann 50% , but IRS claims Steve’s gain is greater by $5 million, although they settle out at no more than $3 million extra. We should all have such troubles.

But Steve needs more basis, so he claims what he paid Georgeann and his attorney increased his basis in the Sub S stock. No question what he paid Georgeann wasn’t deductible alimony, or rehabilitative alimony under then-applicable local (FL) law. Obligation to pay survived her death, and was neither income to her nor deductible to Steve.

Judge Lauber lets in parol evidence, finding the divorce agreement between Steve and Georgeann ambiguous. Any lawyer who can’t find an ambiguity in any document should find another way to make a living.

“The negotiating history makes absolutely clear that the parties desired to effect an equitable distribution of marital assets, including… Steven’s indirect interest in [cash-cow]. The payments specified in the agreement are consistent with the parties’ understanding, as shown in the negotiating history, that $10.5 million of value would be placed on Georgeann’s side of the ledger on account of Steven’s indirect interest in [cash-cow]. Because it was impractical for Georgeann to receive a $10.5 million partnership interest in [cash-cow], the parties agreed that she would be paid that value in the form of cash, a promissory note, and Steven’s discharge of her share of certain liabilities.” 2020 T. C. Memo. 117, at p. 10. And though there was a payout over time, it was still a lump-sum property split.

Yes, it’s property settlement. So what?

So Section 705(a)(1) doesn’t work to increase or decrease Steve’s basis in the Sub S (taxed as a partnership), because whatever Steve paid Georgeann didn’t change his distributions from the Sub S. And Steve neither gave the Sub S money or property, nor paid off any of the Sub S’s liabilities. So Sections 722 and 752(a) are off the table. Finally, neither Steve nor Georgeann acquired any greater interest in the Sub S than the 70% Steve had to begin with, squelching Section 742.

If the marital split involved shares of publicly-traded stock, Steve’s handing over half to Georgeann wouldn’t increase Steve’s basis in the remainder.

As for the legal fees, whatever claims Georgeann had to Steve’s interests in the Sub S had nothing to do with the cash-cow LLC. What Steve paid to Georgeann and his attorneys didn’t defend or perfect title to real or personal property, so whether or not to capitalize those costs per Reg. Section 1.263(a)- 2T(e)(1) is beside the point. Anyway, the Sub S paid nothing to defend or protect its title to the 70% interest in the cash-cow; it was all Steve.

Georgeann had, under then-applicable local law, only a claim to a piece of the value of all Steve’s assets, not any specific asset, and local law made it clear that designating property as marital property was for evidentiary purposes and not to vest title. If she wanted a piece of the cash-cow action, she’d be like any other creditor. She’d have to get a court to give her a charging order, directing the Sub S to fork over some or all of Steve’s share of the Sub S’s distributions. A creditor of a partner gets no lien on partnership assets, as I once had to teach a senior associate half-an-hour before our firm got sued.

Judge Scholar Al puts the cap on this bottle. “In effect, petitioners argue that any debtor who honors his obligations is entitled to capitalize those payments on the theory that he is removing a cloud on his title to assets that might be subject to collection action if he defaulted. That is plainly not the law; if it were, every payment by a partner on a personal debt would increase his basis in the partnership.” 2020 T. C. Memo. 117, at p. 18. (Footnote omitted, but it says that, though local law says even a spurious request for a charging order gives rise to a cloud on title, the case cited relates to a real claim, not a hypothetical.)

I really wanted to give Steve’s trusty attorneys a Taishoff “Good Try, third class,” but they blew it with this one.

“Finally, petitioners complain that, if we do not allow a basis increase, they will have no way of recovering the costs of Steven’s divorce against his taxable income. That is correct and unsurprising. Steven agreed to a property settlement through which Georgeann received an equitable share of the marital assets.  Spousal payments made pursuant to a property settlement are not tax-deductible. Had Steven made payments that qualified as ‘alimony’ for Federal income tax purposes, those payments would have been deductible. See sec. 215. But the agreement explicitly stated the parties’ understanding that, for income tax purposes, the payments would be neither taxable to Georgeann nor deductible by him.” 2020 T. C. Memo. 117, at pp. 20-21.

Sorry, chaps, we taxpayers aren’t paying for your divorce.