In Uncategorized on 09/11/2020 at 16:21

Now that he is relegated to senior moments, I’ve come to miss Judge Mark V. Holmes’ quirky locutions and colloquialisms. Rather than a silt-stir today, Judge Holmes climbs down from the “bedrock of Tax Court practice” in Scott A. Householder & Debra A. Householder, Docket No. 6541-12, filed 9/11/20.

Scott & Debra have been here before, horsing around (see my blogpost “Gilded Offering, Gelded Horse,” 8/23/18) and getting hit with a res gestae Boss Hoss (see my blogpost “Greenberg’s Express – Not the Last Stop,” 7/13/18).

And Scott & Debra have returns that are “unusually complex,” Order, at p. 2.

But now everything has been tried to conclusion or stiped out. Still, Scott & Debra, and IRS, can’t reach agreement on the Rule 155 beancount. In default of the which, Judge Holmes goes back to the tried-and-true “Settle decision on notice,” hearkening back to my young day as a State courtier (see my blogpost “Settle Order on Notice,” 6/23/17).

The disagreement concerns two (count ’em, two) numbers. Scott & Debra showed a $145K gain, but the SNOD handed them a $317K loss. Of course, Scott & Debra take that thankfully. But where Scott & Debra claim $320K of flow-through income from their Sub S and various partnerships, IRS claims they really got $739K.

“The important thing to note here is that the Commissioner seemed to have made a mistake–it’s as if the revenue agent wasn’t looking at the filed return when he wrote about the adjustments he was making and compared it to what they had filed. The Householders had claimed a gain of $145,000 on their Form 4797, not a loss of $317,029; and they had claimed income of $294,502 from [Sub S and partnerships], not $320,059. And note as well that there is no mention of any adjustment to that ‘basis carryover’ number on Attachment 17 to the Schedule E.

“If this was a mistake, the Commissioner’s agents and lawyers didn’t notice it at the time.” Order, at p. 3. The basis carryover was Sub S loss that exceeded their then basis, but could be used when Scott and Debra bought more basis.

Judge, I’ve lost count of the times I’ve told all and sundry that lawyers can’t add.

Still, Scott & Debra and IRS stiped to $445K on Sched E and the $317K loss on the Form 4797 sale of business property.

You’ll recall from my glided-and-gelded blogpost aforementioned that Scott & Debra lost on the trial of the horsetheft.

“The Householders’ computations…took the numbers on the filed returns, then substituted different numbers from the stipulations in this case and the related TEFRA cases, and hit whatever button in Excel actually does the math. The result turns out to be zero deficiency for the Householders for [year at issue].

“At this point, the Commissioner suspected something was wrong somewhere. His explanation is coherent. He suggests that the agent who drafted the notice of deficiency for [year at issue] compared his determination for the allowable Form 4797 loss not to their original return but to an unsigned Form 1040 that they submitted as part of settlement negotiations toward the end of the audit. That would make sense of the weird language in the verbal explanation part of the notice of deficiency.” Order, at p. 4.

I give IRS’ counsel a free membership in the Taishoff “Order of Michael Corleone,” third class.

Judge Holmes is less generous.

“The Householders’ rejoinder is that stipulations are a deal. Their computations reflect that deal accurately. And, by the way, the exhibits that the Commissioner attached to his motion for reconsideration are not part of the trial record, and thus have no place in our posttrial, postopinion computations.

“The Householders are right.” Order, at p. 4.

Judge Holmes man’splains.

“Numbers on a filed return are conceded by the Commissioner if not redetermined in a notice of deficiency or subsequent pleading before this court…; numbers in a notice of deficiency are conceded by a taxpayer who doesn’t challenge them in his petition…. Pleadings define what’s at issue in a case.” Order, at pp. 4-5. (Citations omitted, but get them for your briefs).

And now Judge Holmes waxes nongeological.

“Stipulations are the bedrock of Tax Court litigation or, if one wants to wax nongeologically, are a contract between the parties that further narrows the issues from those that were pled to those left to be tried.” Order, at p. 5.

Now of course a stip can be set aside if it is clearly mistaken, as shown by the record. But the only proof IRS has is a posttrial document submitted as part of a Rule 162 reconsideration. That’s not part of the record.

Result: zero deficiency, zero overstatement. A Taishoff “Good job, first class,” to Scott’s & Debra’s trusty attorneys, Kacie N. C. Dillon, Esq., and Tim A. Tarter, Esq.

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