Archive for September, 2020|Monthly archive page


In Uncategorized on 09/30/2020 at 16:51

Judge Mark V Holmes may have been relegated to senior status, but his famous remark about today’s silt-stirring muddying tomorrow’s water remains. And the current silt-stir was stirred up by DC Cir in Myers; if you don’t remember Myers, see my blogpost “For Whom the Equitable Tolls,” 4/10/20.

George Jerome Stevenson, 2020 T. C. Memo. 137, filed 9/30/20, hasn’t got much of a case. George J is complaining that “… a target taxpayer, an individual, had failed to give him and ask that he fill out a Form W-9, Request for Taxpayer Identification Number and Certification. Petitioner did not explain why this was problematic and did not allege that the target had underpaid tax or had violated any internal revenue law. Petitioner attached to his Form 211 a one-page description of a publicly traded international bond fund. He did not allege any underpayment of tax or tax violation by the fund or its principals.” 2020 T. C. Memo. 137, at p. 2.

The Ogden Sunseteers, perhaps chastened by Lacey, sent George J’s bœuf to a SB/SE classifier, who checked out target, and found all returns filed and all taxes paid. Wherefore he suggested tossing George J.

The OS duly tossed, and George J petitioned.

So why does this rate a T. C. Memo., and why am I writing about it? Judge Albert G (“Scholar Al”) will tell you.

“He signed and dated the petition May 2, 2019, but the envelope in which it was delivered to the Court does not bear a postmark. The Court received and filed the petition on May 13, 2019.” 2020 T. C. Memo. 137, at p. 4. Note that the toss was dated April 10, and the magic SOL for Section 7623s is 30 days.

IRS moves for summary J, despite some very confusing language in Van Bemmelen that summary J is not appropriate where the administrative record tells the whole story, but maybe it is. See 2020 T. C. Memo. 137, at pp. 5-6, and re-read Van Bemmelen; I ducked this when I blogged the case (see my blogpost “Administering Supplements,” 8/27/20), because I didn’t understand it, and IRS got summary J in that case anyway. And (spoiler alert) they get summary J here, too.

Judge Scholar Al invokes equitable tolling sua sponte. IRS never mentioned SOL. George J never responded to IRS’ summary J motion, and so would lose off the bat, but for Judge Scholar Al’s well-developed sense of fair play. If George J was a couple days (hi, Judge Holmes) late posting the petition, he gets equitably tolled.

But of course George J. craters anyway.

“The administrative record shows that the Office properly rejected petitioner’s claim because he did not provide any credible information regarding a Federal tax violation. The Office based its decision on a recommendation from Mr. M., a classifier in SB/SE. He investigated petitioner’s claim by retrieving and analyzing the target taxpayer’s tax filings and IRS account transcripts. He determined that petitioner’s allegations lacked credibility because petitioner did not identify a particular tax year, did not identify a discernible Federal tax issue, and did not supply any source documents.” 137 T. C. Memo. 137, at p. 8. (Name omitted).

Summary J for IRS.





In Uncategorized on 09/30/2020 at 16:00

Years ago I proposed that Tax Court adopt the old NY State Court practice known as “settle order on notice.” For the backstory, see my blogpost so entitled. I note that blogpost is the most-read of all my blogposts.

Judge Albert G (“Scholar Al”) has picked up on the idea in six (count ’em, six) designated hitters, all of like tenor. I’ll choose Edward J. Tangel & Beatrice C. Tangel, et al., Docket No. 27268-13, filed 9/30/20.

The fight is over a Rule 103 protective order in a Section 41 research and experimentation fight over $872K in credits.

“Petitioners supplied thousands of documents to respondent during discovery, and they seek an order that would protect a large subset of these documents from public disclosure at trial. Were we to grant such an order, the protected documents would be included in one or more stipulations of fact that would be sealed and made non-viewable by the public. Trial testimony addressing the sealed exhibits would be taken in a closed courtroom, and the transcript of such testimony would be contained in separate volumes of the transcript that would also be sealed.

“Petitioners appear to seek protection for 2,472 trial exhibits. Of these, 2,417 seem to relate to a single project, ‘Terminal High Altitude Area Defense’ (THAAD), which petitioners describe as a ‘national defense system.’ The other 55 documents relate to a project described as ‘Capstone.’ About 75% of the THAAD-related exhibits appear to have stamped upon them a warning stating that the items contain technical data or software whose export is restricted by Federal law.” Order, at pp. 1-2.

Ed & Bea and the als also claim disclosing this stuff would reveal proprietary information, breach non-disclosures, and jeopardize national security. But Ed & Bea and the als don’t claim that non-exportation language equals non-disclosure.

“Rather, petitioners make the generalized assertion that all of the documents in question contain ‘information which is proprietary and subject to trade secret protection.’ But this is simply an assertion by petitioners’ counsel. The motion for protective order is only two pages long, and it is supported by no affidavits from Enercon officers or technicians having first-hand knowledge of the relevant facts. Respondent notes that some of the exhibits appear to relate to such everyday items as gaskets, steel plates, a fire extinguisher, a fan, a thermostat panel, and various forms of correspondence. Petitioners have supplied no detail from which the Court could conclude that all 2,472 documents (or any of them) contain protectable trade secret (or other confidential) information. Order, at pp. 2-3.

And don’t forget dear old Section 7461; in Tax Court, ya gotta go tell it on the mountain, over the hills and everywhere.

Ya gotta be more specific than that naked two-pager. Even though Ed & Bea have a bunch of high-priced lawyers, they didn’t do much of a job. If they expected Judge Scholar Al to unbake their Alaska and put the ice cream back in the cow, their expectations are thwarted.

Judge Scholar Al notes the years at issue are not less than ten years ago. A lot of secrets become public in ten years. See Order at p. 3, where he goes into Rule 103 orders in cases I’ve blogged, where protection is limited to new stuff.

Finally, we reach the point of this blogpost (and my readers will say, “There is one? How novel.”).

“The Court is inclined to believe that some form of protective order may be needed to govern the trial and post-trial proceedings in this case. But petitioners have not made a persuasive case–at least not yet–for protecting all 2,472 of these documents. We will direct the parties to work together to produce a protective order, modeled on those previously issued by the undersigned, that is targeted to protect genuine trade secrets and national security (or other confidential) information. If the parties cannot agree on a jointly-proposed protective order, we will direct each party to submit its own proposed protective order, and the Court will select one or the other.” Order, at p. 3.

Settle (protective) order on notice.







In Uncategorized on 09/30/2020 at 10:14

Today’s torch song from my electronic songbook comes courtesy of Gregory R. Carson, Docket No. 10801-20, filed 9/30/20, but it’s not Gregory’s story. Rather, the lyrics are furnished by Gregory’s trusty attorney, whom I’ll call Mr. W.

Gregory petitioned on paper.

On the same day as the petition hit the Glasshouse, “…petitioner, through his counsel [Mr. W.], filed a Motion To Allow Electronic Filing of Petition which the Court will recharacterize as petitioner’s Letter.” Order, at p. 1.

Thus spake Ch J Maurice B (“Mighty Mo”) Foley.

So it’s a Letter. And it’s filed. But is it moot, because there was a paper filing? If Gregory and Mr. W. want to amend the petition, does the Letter serve as a motion to allow electronic filing of amended petition(s)?

And what about the long-awaited revisions to Rules to permit electronic filing of petitions (and presumably amendments thereto) that were announced in November 2018? See my blogpost “I Sing the Petition Electronic,” 11/30/18.

Has Mr. W. cut the Gordian Knot? Do petitioners and counsel send Letters pre-petition? Will the Court treat such a Letter as an attempt to petition, sufficient to satisfy the 30-day or 90-day cutoff for petitioning NODs or SNODs?

I’m sure I am not the only observer-practitioner who would like to know the answers.


In Uncategorized on 09/29/2020 at 16:05

Ronald J. Lucero and Mary L. Lucero, 2020 T. C. Memo. 136, filed 9/29/20, is another Section 469 passive-loss-against-passive-income real estate joust, with the exception that short-term rentals (fewer than seven days average customer use) is active, not passive. See Reg. 1.469-1T(e)(3)(ii)(A). And Ron’s and Mary’s beachfront property met the test.

IRS tried to wild-card in Section 280A personal use on the trial. IRS has BoP on such new matter, if same would require different evidence from petitioner than what IRS’ pleadings alleged.

Despite Ron’s mediocre performance on the stand, “…on this point we accept his broader claim that most of his trips to the property were for upkeep. If we accept his testimony that every trip petitioners made to the Sea Ranch property, other than at Christmas, was for repairs or maintenance, then the time they spent at the Sea Ranch property for personal purposes totaled fewer than 14 days in each year. Respondent did not dispute that petitioners rented the Sea Ranch property to tenants for 146 days in [Year One] and 152 days in [Year Two] or allege that petitioners charged any of their tenants below-market rent. As respondent did not present any evidence of petitioners’ expenses that were attributable to their personal use of the property, see sec. 280A(e), we conclude that section 280A does not limit any of the real estate loss deductions petitioners can claim with respect to the Sea Ranch property for the years in issue.” 2020 T. C. Memo. 136, at pp. 7-8.

But Ron and Mary flunk the 100-hours-and-nobody-else test. Ron and Mary had a professional managing agent running the place.

“Mr. Lucero’s time spent paying bills, coordinating with Sea Ranch Escapes, and preparing petitioners’ tax returns constitute investor activities that do not count toward the 100-hour requirement.

“We also exclude the time Mr. Lucero spent driving between the Sea Ranch property and his Sacramento home. We recognize that petitioners drove several hours each way, but they ‘bear the expense of commuting (driving time) because it is a personal expense unless an allocation for additional expenses can be made between personal and business expenses’.” 2020 T. C. Memo. 136, at p. 12. (Citations omitted).

Ron’s and Mary’s logbook (made up after audit had begun, so you can see where this is going) is suspect, unless you accept a common stereotype, which I’m sure Judge Pugh rejects.

“Additionally, Mr. Lucero’s log reported hours for tasks that appear excessive in relation to the task described, such as spending two hours shopping for coffee filters at Bed Bath & Beyond, and included time shopping both for the Sea Ranch property and for personal items, such as one hour shopping at Gualala Supermarket for 2 items for the Sea Ranch property (garbage bags and facial tissue) and more than 20 personal grocery items. We have found the credibility of a taxpayer’s records to be diminished when the number of hours reported appears excessive in relation to the task described.” 2020 T. C. Memo.136, at pp. 12-13. (Citations omitted.)

Obviously Judge Pugh’s career has happily been free of persons who can shop till they drop. For such as they, two hours in Bed Bath & Beyond barely constitutes a warm-up, even if they buy only one item; actually buying two business items and 20 (count ’em, 20) personal items in one hour in a supermarket wouldn’t make the team’s red-shirt freshman squad.


In Uncategorized on 09/29/2020 at 15:23

No, neither J. D. Salinger nor Sappho; it’s Judge Joseph Robert (“JR”) Goeke, bringing whistleblower discovery into the Van Bemmelen orbit in Whistleblower 10084-16W, filed 9/29/20.  Whistleblower 10084-16W will be hereinafter referred to as “Blower 84.”

You’ll indubitably recollect that Van Bemmelen allowed but three (count ’em, three) blower record reopeners, which Judge JR summarizes as bad faith or incomplete record (so that judicial review is unavailable). Order, at p. 5. The beam for any blower discoverer to clear is set very high.

Blower 84 wants confirmation that a tax matter reflected in an SEC filing was not the result of the information Blower 84 provided. But the Form 4549, the Form 886, and the tax transcripts show that no money was collected. And for IRS to have used Blower 84’s information, they would have needed to audit, assess, and collect between June and the following February. This is not a jeopardy assessment, so the timing is way too fast.

“Petitioner has not provided any analysis explaining how each of the discovery requests it now seeks to compel satisfy the ‘directly related’ standard of the ‘item’ test contained in I.R.C. sec. 6103(h)(4)(B) or any other provision authorizing disclosure. Instead, petitioner has found a reference in an SEC filing to a settlement with ‘a taxing authority’, made an assumption that a payment was made to the IRS in tax year X, and now seeks to scour the target’s historical return information to find evidence of such payment. The Tax Court discovery process should not be used as a mechanism to provide whistleblowers with intel on the meaning of a target’s SEC filings.” Order, at pp. 2-3. (Year omitted).

An SEC filing? Is this our old chum A. Nonymous, Serial Blower? If you read the material submitted on this discovery motion (Order, at pp. 3-4), it brings back memories of my blogpost “A. Nonymous, Serial Blower,” 6/28/17.

Blower 84 loses.




In Uncategorized on 09/29/2020 at 14:18

Even though they were late with their return one year, and delinquent for two other years, Judge Goeke and IRS find a happy ending for Interventional Center for Pain Management, P.C., 4966-18L, filed 9/29/20. The interventionists were back for the two-year checkup on their PPIA (Partial Payment Installment Agreement), when IRS filed a NFTL.

Judge Goeke ran a bench trial back on 11/28/18, which I didn’t blog but here it is anyway. And now Judge Goeke takes up the tale.

“After a trial, the Court issued a bench opinion determining that the best course was for the parties to attempt to negotiate a full payment installment agreement (FP IA), the Court ordered a remand of the case to IRS’ Appeals Office. In the bench opinion, the Court recognized that neither party had been focused on the fundamental issue in attempting to reach a settlement that provided for the full payment of the tax liability while also not having a tax lien on file which impeded the operation of petitioner’s business. We said as follows in the bench opinion: ‘We believe that a lien  filing was premature, but we believe that it would have been appropriate for the settlement or appeals officer to negotiate with the petitioner on the basis that petitioner should agree to a full pay agreement or that the lien filing was necessary based upon a two year review to ensure that respondent was protected in the event that the tax liability was not fully paid. Given the fact that there was never any discussion of this point, which is fundamental to both parties’ positions, we believe this case should be remanded to the appeals division with very specific instructions.’

“In the bench opinion we recognized respondent’s legitimate need to have a lien on file if a full payment installment agreement (FP IA) was not achieved.” Order, at p. 2.

Judge Goeke is almost as obliging as Judge David Gustafson. He’ll teach you how to argue your CDP and try your case.

But the two-year checkup revealed that the interventionists had better than $250K in a money market, and the SO wanted the interventionists to ante up; the interventionists answered they needed the cash for payroll and vendors. And the interventionists’ line of credit would soon be paid off, so they could throw in another $3K per month. The interventionists said “no,” but made no counteroffer.

“After a remand order by this Court, petitioner ultimately succeeded in getting the NFTL withdrawn, but only after agreeing to an FP IA of $13,103.07, 135% greater than its prior PP IA. Respondent maintains this amount is more than the revenue officer would have accepted before this matter first went to appeals. Such assertion is disputed but it is clear petitioner never offered such a monthly payment to the revenue officer.” Order, at p. 4.

Now the interventionists want Section 7430 legals and admins. My kind’a guys; go for it on fourth and 35 (football is back!).

Judge Goeke isn’t giving them that.

“… petitioner’s argument for attorney’s fees is based upon an unstated premise that respondent bore the burden of initiating an offer to resolve this matter short of litigation. If petitioner sought a resolution prior to trial in good faith, we would have expected petitioner to be definite in its offer of payment. Petitioner was not until specifically instructed as to how to proceed upon remand in the Court’s bench opinion. Given the lack of a definite offer of full payment by petitioner prior to the case coming to trial, we cannot say the Appeals Officer lacked substantial justification in allowing the lien to remain as filed.” Order, at p. 4. The 7430 motion craters.

But here’s the happy ending.

“The resolution of this motion allows us to enter a decision in this case, because the parties have reached a resolution which allows a withdrawal of the Federal tax lien as reflected in the Supplemental Notice of Determination Concerning Collection Action….” Order, at pp. 4-5.


In Uncategorized on 09/28/2020 at 16:55

I’ve said it often: whistleblowers are there to connect the dots. However, they need all the help they can get. My colleague Peter Reilly CPA was posting today on LinkedIn concerning the complexities of tax law and how journalists and others looking for a story get it all or partially wrong. Here’s a perfect example of how IRS gets it wrong, and how a pro se whistleblower can’t put it right.

David Shaun Neal, 2020 T. C. Memo. 135, filed 9/28/20, says he blew the whistle on a DADs deal. He was working for the target, and was feeding the information to the RA that he asked for, but it wasn’t on point. IRS says there was an earlier blow on the same target, and they got zip. Dave says that’s because the RA wasn’t looking in the right place; he says he told the RA where to look (outside the hearing of his bosses), but the RA ignored him.

Then Dave filed his Form 211, but he didn’t fill in all the blanks, and omitted important items. The Ogden Sunseteer who got Dave’s 211 saw no need to send it to evaluators because IRS had already identified the issue, and bounced it. But the bounce letter said it “does not contain a determination regarding an award under section 7623(b)”. 2020 T. C. Memo. 135, at p. 7.

Five (count ’em, five) months later, IRS hit target again and collected $13 million. Two months after that, the Ogden Sunseteer sent Dave another bounce, which he petitions.

Administrative record, right? Dave says the RA is lying when RA says Dave told him nothing and only participated in one phoneathon, where Dave said nothing.

Judge David Gustafson holds an evidentiary hearing. Was evidence withheld from the administrative record, as Dave claims?

Well, Judge Gustafson saw the witnesses, and heard Dave’s cross-examination (remember, Dave was pro se). I just read some of it, and I winced. Look at 2020 T. C. Memo. 135, at p. 13.

Judge Gustafson believes the RA.

“First, Agent B credibly denied this allegation. He had no recollection of any meeting with Mr. Neal and, assisted by contemporaneous notes, was able to say only that Mr. Neal participated in one telephone conference call that Agent B had with the target’s officers. Agent B did not recall Mr. Neal’s speaking in that call, and the subject of that call was not relevant to the tax abuse that Mr. Neal alleges. When the opportunity came to cross-examine Agent B on this important point, Mr. Neal’s contention wilted, and the agent’s account went unchallenged. We do not know whether  Mr. Neal’s allegations were a knowing fabrication or were a badly distorted memory, but we believe Agent B. He received no information from Mr. Neal.

“Second, even if we were to credit Mr. Neal’s account, what he actually testified is that Agent B never understood what Mr. Neal was trying to explain. ‘[H]e kind of ignored me, basically. Didn’t take any of my information.’ This is evidence not of information received by the agent but rather of information ignored by him.” 2020- T. C. Memo. 135, at pp. 19-20. (Name omitted).

I make no secret of my respect for Judge Gustafson, but he got it wrong, unless Dave is the world’s worst witness as well as the world’s worst cross-examiner. Does IRS have carte blanche to blow off a whistleblower without listening to him, especially an employee of the target? Or did IRS magically discern from another source what Dave was telling them?

I already admitted I didn’t see the hearing, so I can’t evaluate body language, tone of voice, or facial expressions (and even if I did see and could evaluate, I’m not the judge). Dave’s fold on the cross-examination was probably enough for Judge Gustafson, and maybe would have been enough for me. When a witness “can’t remember,” that’s the time to go all in.

But I’m shaking my head. Any whistleblower who files a Form 211 without counsel, much less goes into an evidentiary hearing, even if they scale the Van Bemmelen obstacle course, is asking to lose.


In Uncategorized on 09/28/2020 at 13:23

For U S Tax Court

“Scarce judicial resources” is a cliché, but like all clichés there is a substratum of truth. And for this cliché, the substratum is substantial. Expense and delay are multiplied when there aren’t enough courtrooms, facilities or judges to deal with all the justiciable problems. And no law affects so many as the Internal Revenue Code. Even permissible nonpayers only become so by virtue of those laws (and no, this is not a prelude to a political diatribe, or even a sober analysis, of a certain taxpayer’s return; my colleague Peter Reilly, CPA, has already commented on that).

So Judge David Gustafson proves the truth of the foregoing today in a $296 misunderstanding, more particularly bounded and described in Doris Ann Whitaker, Docket No. 4899-18, filed 9/28/20.

Doris Ann is questioning the credits applied to a couple twenty-five (count  ’em, twenty-five) year old tax liabilities (hi, Judge Holmes), for which Doris Ann can seek refunds in USDC or USCFC if SOL hasn’t run, and one fifteen year old liability for which Doris Ann got Section 6015 innocent spousery. After a phoneathon and many filings, the upshot of the credit hopscotching is that Doris Ann is entitled to $296.

Applying the credits (or getting them refunded) relates to the years to which the credits were applied, not to the year from which an overpayment was credited. Thus, a refund from a credit from 2005, which was applied to 1994 and 1995, can only be refunded in proceedings for 1994 and 1995, not 2005.

“It may be counterintuitive, but under the law a taxpayer whose 2005 overpayment has been credited against other liabilities for 1994 and 1995 has thereby received that 2005 overpayment, not in the form of a refund check but in the form of a crediting against the other liabilities. To receive refunds for those other years, she would need to file timely refund claims for those years and, if they were denied, file a refund suit not in the Tax Court (which except in limited circumstances does not have jurisdiction over refund claims) but instead in Federal district court or in the U.S. Court of Federal Claims.” Order, at p. 4.

But in the meantime Doris Ann got innocent spousery in 2016, so she’s entitled to a refund of $296 from her 2005 overpayment that pertained to spouse’s income.

But how does she get it? IRS proposes that Judge Gustafson order “…that after application of I.R.C. § 6015(b) for the taxable year 2005, there is no overpayment in income tax and no addition to tax due to petitioner, and there is an offset from the taxable year 2016 in the amount of $296.00 that will be released to petitioner” Order, at pp. 4-5. (Emphasis by the Court).

Judge Gustafson is perplexed.

“We do not understand why we should decide that there is no overpayment and that an ‘offset’ of $296 should be ‘released’, rather than simply deciding that there is an overpayment of $296.” Order, at p. 5. (Emphasis by the Court).

So let IRS do some ‘splainin’.

Doris Ann gets the same attention for $296 that a multinational would get if the $296 was followed by six zeros. For her innocent spousery story, see my blogpost “De Novo? Record Rule?” 5/15/20.


In Uncategorized on 09/25/2020 at 17:45

Well, maybe trial was unnecessary, but expedite litigation? Sixteen (count ’em, sixteen) years after the year the return was filed; eleven (count ’em, eleven) years after the SNOD and petition; ten (count ’em, ten) years after IRS moved for summary J; eight (count ’em, eight) years after petitioners responded and cross-moved; today (drumroll and cymbal crash) Judge Gale decides for IRS in James W. Loomis & Janice K. Usher, Docket No. 8739-09 (yes, that’s not a misprint), filed 9/25/20.

I’m a fan of summary J motions. It gets all the cards on the table, and is way cheaper than the usual discovery gameplaying. Like the old Yellow Pages, when summary J is the game, if it’s out there, it’s in here (your papers); if not, you may be barred from using it.

But it shouldn’t take eight years to decide.

Jim’s & Jan’s unhappy tale gives me another look at that improbably-named but larcenously-inclined Yuri Debevc Derivium. Y’all will remember YDD, of course? Well, if any amongst you are having a senior moment, see my blogpost “We Wuz Robbed,” 8/7/12.

It’s the usual. Jim is trying to Section 1042 rollover his way out of a $4.26 million gain on his eponymous corporate stock (basis zilch) by laying same off on an ESOP, and buying Qualified Replacement Property (QRP), which everyone agrees qualifies for deferral.


Jim immediately hands same to YDD’s shell-shill, which sells at once, and “lends” Jim & Jan 90% of proceeds for 29 years, non-recourse. The loan documents give the shell-shill absolute rights; there’s no need for events of default, notice, consent: YDD can do what it wants with the QRP.

Jim & Jan did pay interest on the “loan” for a couple years (hi, Judge Holmes). And no one claims Jim & Jan acted in bad faith. But chops aren’t on the table (this is all way before Boss Hossery blipped the radar).

And economic substance is the key, however Judge Gale describes it.

“At the outset, we note that regardless of what a borrower might subjectively wish to accomplish by engaging in a transaction like the one at issue here, a loan providing a borrower with 90% of the value of the pledged collateral in cash would produce two tax benefits compared to simply selling the collateral for 100% of its value. First, whereas any gain realized upon selling property generally must be immediately recognized for Federal income tax purposes, see sec. 1001(a), (c), loan proceeds are not treated as income and a borrower can therefore make use of the proceeds tax free throughout the loan term…. Second, a borrower with a low basis in the collateral (here, respondent determined that Mr. Loomis’s basis in the [QRP] was zero, and petitioners have not challenged that determination) would expect to retain only about 80% of the value of the collateral after selling it and paying tax on the capital gain; a 90% loan would therefore allow the borrower to make use of an additional 10% of the collateral value during the loan term. See sec. 1(h) (setting maximum capital gains tax rates); Calloway v. Commissioner, 135 T.C. 26, 30 (2010) (noting that the taxpayer in that case testified that he engaged in a 90% loan transaction with Derivium because it made more economic sense than selling the collateral and paying 20% in tax).” Order, at p. 6, footnote 7.

Non-recourse means Jim & Jan have no risk. If at maturity the QRP is worth more than the loan balance, pay off the loan balance and get back the QRP, or make Derivium buy it in the market, and he loses money. If worth less, let Derivium keep the QRP and walk with the proceeds.

True, Jim & Jan paid interest. But the QRP was floating rate notes from United Parcel Service, which hasn’t defaulted yet, and the interest from UPS was an offset to the interest Jim & Jan owed Derivium on the “loan.”

The QRP was never collateral; as per Derivium’s SOP, he dumped the QRP on Day One. And the short-sale loan of stock to a broker analogy fails, because the broker in the leading case was only able to lend the stock to its customers for short-selling when the owner approved. Moreover, Congress subsequently enacted Section 1058; no gain to lending stockholder, provided they keep benefits and burdens; they must get back the identical shares. If they go up or down, the lending stockholder gets the gain or takes the loss. Here, Derivium could do anything he wanted, no consent necessary, and Jim & Jan got a loss-free ride. If the QRP went up at maturity, they got the gain, but if it went down they could walk at no cost.

Jim & Jan argue that the SNOD names the year after the transfer took place, and that’s the wrong year. “The relevant provisions of section 1042 establish that, in order to defer recognition of gain from selling stock to an ESOP during a given taxable year (Year 1), a taxpayer must do two things: (1) acquire QRP within a 15 month period that begins 3 months before the date of the sale and ends 12 months thereafter, and (2) file an election no later than the due date of his or her tax return for Year 1. See sec. 1042(a), (c)(3), (6). The end of the period for acquiring QRP and the deadline for filing the section 1042 election therefore both will always fall during the next taxable year (Year 2). Thus, if a taxpayer waits until Year 2 to purchase QRP, properly files a section 1042 election during Year 2 along with his or her Year 1 tax return, and also–for whatever reason–sells the QRP during Year 2, section 1042(e)(1) ends the deferral and the taxpayer will have to recognize the deferred gain on his or her Year 2 tax return. In such a scenario — which is precisely the scenario at issue in this case–the taxpayer has still successfully deferred recognition of the gain realized in Year 1 (and thus payment of any tax due on that gain) for a full taxable year. This remains true no matter how close in time the taxpayer’s purchase and sale of the QRP might be. Petitioners have pointed to no authority that persuades us that we should decline to hold them to the election that they made and from which they benefitted.” Order, at p. 16.

Don’t get me wrong. I’m grateful to Judge Gale for his exposition of Section 1042 rollovers. I’m grateful once again to encounter Yuri Debevc Derivium; they don’t make ’em like that any more.

But why make me flip through 249 (count ’em, 249, and I did) orders to find this gem? Judge Kerrigan designated a simple 6320 CA shootdown where the petitioner wasn’t current with taxes.

I know you want to keep me busy during the lockdown, Judge, but please, give me a break and designate these, before your Genius Baristas take designated orders away altogether.









In Uncategorized on 09/25/2020 at 10:35

BOGO today. Ch J Maurice B (“Mighty Mo”) Foley has issued a checklist of jurisdictional bases for Tax Court proceedings in Denise J. Goltz, Docket No. 22847-19S, filed 9/25/20.

The reason for my rant will be apparent from the following.

“To the extent that this case stems from a notice of deficiency issued for tax year 2016, the record reflects and petitioner does not dispute that the notice of deficiency for petitioner’s 2016 tax year was issued after the petition in this case was filed. As to any other basis for an action herein for tax year 2016, the record is bereft of any evidence or suggestion that respondent has at any time issued any notice of determination for tax year 2016 that would confer jurisdiction on this Court. Therefore, the Court does not have jurisdiction over petitioner’s 2016 tax year under the petition filed in this case.” Order, at p. 3.

IRS has played this game for years. See my blogposts “Fake Out,” 12/16/14, and “Fake Out – Part Deux” 6/23/15. IRS drops a SNOD after the petitioner has either petitioned a non-SNOD or late-petitioned a SNOD. By the time the hapless petitioner finds out “the record is bereft of any evidence or suggestion that respondent has at any time issued any notice of determination for [year(s) at issue] that would confer jurisdiction on this Court” it’s too late to petition the real SNOD.

This is dirty pool. If a petitioner late-petitions a SNOD or petitions a non-SNOD, and if thereafter IRS issues a real SNOD, Tax Court should have jurisdiction without the need for another petition (and a sixty-buck fee, and maybe more legal fees), even if it takes an act of Congress to get it. Hey, Congress, get with the program.

Now for the checklist. In addition to SNOD (Section 6212) and CDP NOD (Sections 6230 and 6330), here’s Ch J Mighty Mo’s list.

“Other types of IRS notices which may form the basis for a petition to the Tax Court, likewise under statutory prescribed parameters, include a Notice of Final Determination Concerning Your Request for Relief From Joint and Several Liability, a Notice of Final Determination Not To Abate Interest, a Notice of Determination of Worker Classification, a Notice of Certification of Your Seriously Delinquent Federal Tax Debt to the State Department, and a Notice of Final Determination Concerning Whistleblower Action.” Order, at p. 2.

I’d add Declaratory Judgments Relating to Status and Classification of Organizations under Section 501(c)(3), etc. (Section 7428).