If you want to buy something for your IRA (or your SEP-IRA), ask the trustee to do it. Only if the trustee says no are you free to DIY. We had that lesson four (count ’em, four) years ago. See my blogpost “FBO,” 2/25/16.

But Brett John Ball, 2020 T. C. Memo. 152, filed 11/10/20, decides, after “…he ‘strived to remain compliant with his qualified plan, expending a significant amount of time and resources’ to do so….” 2020 T. C. Memo. 152, at p. 13, that he can do it himself.

Judge James S. (“Big Jim”) Halpern is not impressed.

BJ never told the trustee of his SEP-IRA, JP Morgan Chase, to do anything but fund a business checking account with the same name as BJ’s SEP-IRA but not itself an IRA of any kind. BJ ran the account, funded a couple investments (hi, Judge Holmes), and repaid his SEP-IRA.

Taishoff notes that there’s no mention of what happened with the investments; did they make money above the purchase prices funded by BJ’s SEP-IRA? If so, where did the profits go? Who held record title to the investments?

BJ claims he was just a conduit for his SEP-IRA.

“This Court has previously found in certain circumstances that an otherwise taxable IRA distribution was not includible in a taxpayer’s gross income when the taxpayer was acting as an agent or conduit on behalf of the IRA’s custodian to carry out an investment. But we have also found that, when a distributee had unfettered control over an IRA distribution, he could not claim that he was acting as a mere conduit or an agent for the IRA custodian with respect to the distributed funds.

“Our difficulty with petitioner’s argument is that we cannot conclude that Ball LLC was acting as an agent or conduit on behalf of Chase (as custodian of the SEP-IRA) when Ball LLC received and made use of the distributions. Chase had no knowledge of the disposition of the $209,600 that it deposited into the Ball LLC account other than that it made the deposits at petitioner’s direction. Petitioner controlled Ball LLC, and nothing in the record convinces us that he did not have unfettered control over the $209,600 Ball LLC received from Chase. Yes, petitioner caused Ball LLC to lend the distributions nominally for the benefit of ‘The Ball SEP Account’, but he could just as well have made the loans in Ball LLC’s name or in his own name.”  2020 T. C. Memo. 152, at pp. 8-9. (Citations omitted).

There’s some argy-bargy about whether BJ was a Section 408(d)(1) distributee or payee, since the money went into Ball LLC.  Except caselaw says that the nominal payee isn’t always the real payee; see my blogpost “Common Sense?” 12/30/13.

Since, on his 1040, BJ claimed the money wasn’t taxable, he got an AUR-issued CP2000 mismatch form from IRS, because Chase said it was taxable. Since he did not respond thereto, he got an electronic SNOD, so no Section 6751 Boss Hoss needed. And BJ’s protestations that he really tried to comply don’t cut off the five-and ten chop. He should have filed a Form 8275 Disclosure Form, a/k/a Please Audit Me.

I’m not going to try to summarize Norman Douglas Diamond, Petitioner and Zaida Golena Del Rosario, Intervenor, Docket No. 14095-18, filed 11/9/20.  Judge Elizabeth A (“Tex”) Copeland has designated this farrago, and it surely qualifies Norm (and maybe Zaida Golena, for whom Norm claims he prepared phony tax returns so she could claim Fifth Amendment privilege because she didn’t have a SSAN. Order, at p. 7) for the title hereof.

Norm has sued three (count ’em, three) times in Tax Court, twice in USCFC, and three (count ’em, three) times in USDCCDCA. And lost every time. Order, at pp. 4-6.

 Judge Tex Copeland is far more patient than I.

“For over a decade, petitioner filed more than a dozen ill-conceived lawsuits in attempt to obtain a refund for the years at issue in this case. He has consistently advanced losing arguments upon a belief that the IRS “confiscated” refunds he was owed, and many courts repeated attempts to explain that his positions have no basis in law.12Before us in this case, petitioner acknowledged he “sued the IRS many times” to no avail. Yet, he still filed this case under the preposterous theory that he is entitled to innocent spouse relief because he is ‘innocent’–he altered his tax returns because of his ‘wife’s situation’–and he is also a spouse–he is married to intervenor. Herein, we have attempted to explain once again that he is not entitled to the refund sought but warn petitioner to tread carefully before bringing another suit in this Court.” Order, at pp. 12-13.

But Norm is industrious.

“Like his positions in other cases, petitioner’s numerous filings, some of which exceeding one-hundred (100) pages, in opposition to respondent’s summary judgment motion make baseless allegations of misconduct and fraud against respondent. He attempted to characterize those allegations as raising ‘genuine material issues of facts ‘requiring our denial of respondent’s motion. Petitioner also accused this Court of willfully ‘evading its statutory responsibilities’ in our previous decisions and repeatedly sought to relitigate closed cases, and all his requests were denied. See Doc. No. 62; see also supra p.4 (discussing Cases 1 and 3). Petitioner’s legal arguments in support of the alleged misconduct cite unrelated case law and are frivolous and wholly lacking in merit.” Order, at p. 13.

Judge Tex Copeland gives Norm one last chance. No Section 6673 chop.

Taishoff regrets he cannot award a prize for Rounder of the Year. Norm is definitely in the running.

And a Goofy Regulation

Section 7430 legals and admins is a classic example of How Not to Do It in the best Charles Dickens tradition. Today we see the finale to Tung Dang and Hieu Pham Dang, 2020 T. C. Memo. 150, filed 11/9/20. Tung and Hieu wanted IRS to levy from their IRA, which would have paid their bill in full and spared them the 10% early-out bite.

If this sounds familiar to you, great; if not, see my blogposts “The Fruit of the Tree,” 11/1/18, and “The Tree of Bertoldo,” 6/4/18.

Ex-Ch J L Paige Marvel says you can’t get admins for a CDP.

“Reasonable administrative costs are limited to those costs incurred by the taxpayer on or after the earliest of: (1) the date of the receipt by the taxpayer of the notice of determination, (2) the date of the notice of deficiency, or (3) the date of the first letter of proposed deficiency that allows the taxpayer to appeal a decision to the IRS Appeals Office. Sec. 7430(c)(2); see also sec. 301.7430-4(a), Proced. & Admin. Regs. (providing that reasonable administrative costs include only those costs incurred on or after the “administrative proceeding date”); sec. 301.7430-3(c)(1)(i), Proced. & Admin. Regs. (providing that the “administrative proceeding date” is the date of the receipt of a notice of decision by the Appeals Office). Because a section 6330/6320 proceeding ordinarily occurs only after an assessment is recorded, the date of the notice of determination is the only applicable date under the statute for a claim of administrative costs in section 6330/6320 cases to begin accruing. Sec. 7430(c)(2); see also Worthan v. Commissioner, T.C. Memo. 2012-263, at *18. And, because the notice of determination in section 6330/6320 cases also concludes the administrative proceeding, a taxpayer cannot recover an award for administrative costs arising in a section 6330/6320 proceeding. Sec. 7430(c)(2); see Worthan v. Commissioner, at *18; see also sec. 301.7430-3(a) and (b), Proced. & Admin. Regs. (clarifying that hearings under sections 6320 and 6330 are collection actions and accordingly not administrative proceedings within the meaning of section 7430).” 2020 T. C. Memo. 150, at pp. 7-8.

For the Terry Worthan saga, see my blogpost “Lien on Me,” 9/12/12.

OK, so Legal Aid of SD CA are bowling for legals only. But IRS folded in its answer, and remanded to Appeals, which gave Tung and Hieu everything they wanted. And 9 Cir said that if IRS folds in its answer, it is substantially justified.

I guess I’m slow; so if Appeals is dead wrong on the law, and yoicks a taxpayer around, causing them great expense, the taxpayer gets nothing. And after the taxpayer hires counsel and petitions, when IRS folds it is deemed to be justified, notwithstanding any and every shenanigan theretofore pulled. And the taxpayer gets nothing.

Great statute.

Despite the noise outside my window, I have no comment here. This is, and always has been, a non-political blog.

My political views I have expressed elsewhere.

Judge Morrison seems to anticipate the sinking of the designated hitter in Dawson’s Creek, because he failed to designate Neil L. Whitesell & Tracy L. Whitesell, Docket No. 26230-15, filed 11/5/20. And while components of apartment buildings aren’t on the menu, the components of the Section 6662 panoply of chops are.

Judge Morrison unpacks the Section 6662 chops.

” Section 6662(a) imposes a 20% penalty on the portion of an underpayment that is attributable to any of the following seven causes: (1) negligence or disregard of rules or regulations, (2) substantial understatement of income tax, (3) substantial valuation misstatement under chapter 1, (4) substantial overstatement of pension liabilities, (5) substantial estate or gift tax valuation understatement, (6) disallowance of tax benefits by reason of a transaction lacking economic substance, or  (7) any undisclosed foreign financial asset understatement. Sec. 6662(b). A substantial valuation misstatement generally exists if the value of property reported on a return is 150% or more than the actual value. Sec. 6662(e)(1)(A). A substantial overstatement of pension liabilities exists if certain pension liabilities reported on the return are 200% or more than the correct amount of the liabilities. Sec. 6662(f)(1). A substantial estate or gift tax valuation understatement exists if the value of any property reported on a return is 65% or less than the amount determined to be the correct amount of such value. Sec. 6662(g)(1). Section 6662(h)(1) provides that there will be a 40% penalty on any portion of an underpayment attributable to a gross valuation misstatement. A gross valuation misstatement is defined as a substantial valuation misstatement (substituting 200% for 150% in the definition of a substantial valuation misstatement), a substantial overstatement of pension liabilities (substituting 400% for 200% in the definition of a substantial overstatement of pension liabilities), or a substantial estate or gift tax valuation understatement (substituting 40% for 65% in the definition of a substantial estate or gift tax valuation understatement). Sec. 6662(h). Section 6662(i)(1) provides that there will be a 40% penalty on any portion of an underpayment attributable to disallowance of tax benefits by reason of a transaction lacking economic substance that is not disclosed on the return.” Order, at pp. 2-3.

The Whitesells were here before (twice, in fact; see my blogposts “The Law of Return,” 5/18/17, and “Point of No Return,” 8/24/18). Today, the Whitesells want a vacation of the stip they signed back two years ago yesterday, and also want partial summary J.

The Whitesells assert that Palmolive, Ronning, and Campbell changed the Section 6751(b) Boss Hoss landscape, so that the requisite sign-off has to specify which subsection of Section 6662 relates to which chop. The stip did agree that IRS met BProd on Section 6662(h) gross valuation misstatement, Section 6662(c) negligence, Section 6662(d) substantial understatement of income tax, and Section 6662(e) substantial valuation misstatement.

Well, the specific language of the stip does speak of each separate penalty having gotten the Boss Hoss signoff, although Judge Morrison doesn’t give us the precise verbiage. And Ronning, which I didn’t blog (see, I’m not omniscient), allows negligence but not substantial understatement, so the Whitesells could have anticipated separation.

Palmolive, which I’ve blogged in extenso (but see my blogpost “Chop Early, Chop Often,” 2/28/19 for the scoop on chops), involved a couple different Boss Hoss sign-offs, but the right one got Boss Hossed before the taxpayer saw any mention of penalty.

Finally, Campbell (see my blogpost “I Can Get It For You Wholesale,” 4/7/20) went off on a CPAF that was so vague that it couldn’t be tied to any specific penalty.

So Palmolive changed nothing, as far as the stip is concerned, as the stip separately numbered and stated each chop.

And the IRS would be prejudiced in case there has to be a trial on who signed what when if the stip is set aside. The IRS attorney who prepared the first amendment to the answer is also the trial attorney, and could be disqualified per ABA Model Rule 3.7(a). Of course, Judge Morrison ignores subsection (a)(3): “disqualification of the lawyer would work substantial hardship on the client.” Besides, there’s no jury here to be misled, and Tax Court Judges have heard it all.

The Whitesells claim IRS hasn’t met BProd, but they’ve stiped that away. As for burden of persuasion, the cases the Whitesells cite don’t persuade Judge Morrison. Howbeit, there still remains the Boss Hoss issue. But that may not be a question of fact (nudge nudge, wink wink).

“Therefore, the parties should discuss a stipulation of facts regarding the supervisory-approval issue. They should also discuss an agreement not to present further evidence at trial regarding supervisory approval. If the parties can make such a stipulation and execute such an agreement, then it will not be necessary to have a trial on the supervisory-approval issue.” Order, at p. 8.

Judge Morrison may indeed reincarnate Sir W. S. Gilbert’s Lord Chancellor, but today he approves the embodiment of a proposed amended petition in the motion to amend, flatly contradicting Rule 41(a), in Debra Hall, Docket No. 15954-19, filed 11/5/20.

Don’t get me wrong. I think that requiring a proposed amendment to a pleading to be lodged, while the motion to amend those pleadings is filed separately, is nonsensical.

Suppose I want to oppose the motion. Under Rule 41(a), in my opposition papers, I have to flip-flop page and paragraph references between motion and proposed amendment, when quoting specific allegations that I claim prejudice me, or otherwise undermine the motion. And the movant, if permitted to reply, and the Judge or STJ deciding the motion, must do likewise.

In State Court here in Excelsior-land, we embody the amendment in the motion, and have done, AFAIK for the past fifty-three years, with no ill effects. And I can find no requirement of like tenor with Rule 41(a) in the FRCP.

Of course, I’m always glad to learn. If someone can tell me a rational reason why embodying the proposed amended pleading in the motion for leave to amend works a hardship on court or litigant, I will be pleased to withdraw any objection of mine.

Stanley Michel & Mireille D. Michel, Docket No. 22959-18, filed 11/5/20, took out a reverse mortgage. This is a deal where a senior citizen puts up their appreciated dwelling, but instead of getting a lump sum on the appraised value of the mortgagor’s equity, gets an income stream based thereon, interest accruing, both principal and interest being non-recourse. If mortgagor dies, moves, or sells, principal and accrued interest is due.

Stan & Mireille deduct the interest that accrued in year of issue. Stan & Mireille say “they could deduct the interest that accrued on the reverse mortgage because the promissory note did not say otherwise.” Order, Transcript, at p. 5.

Well, doesn’t Section 163 say “paid or accrued”?

Yes, but.

Section 461 says individuals like Stan & Mireille are cash-basis. Judge Albert G (“Scholar Al”) Lauber man-‘splains: “When a cash basis taxpayer owes interest on a loan and gives the creditor a note to cover the interest, the taxpayer has not paid interest for Federal income tax purposes. That is what petitioners did here, by having the accrued interest on their reverse mortgage added to the principal of the promissory note. Because petitioners are cash basis taxpayers, they may deduct only the mortgage interest they actually paid during [year at issue]…. They cannot deduct the… interest that accrued on their reverse mortgage, because a deduction is allowed only when the interest is actually paid in cash or a cash equivalent.: Order, Transcript, at p. 6.

But Stan & Mireille claim that short-changes them. Since their note runs until 2096, they are concerned that they can never deduct the interest in their lifetimes.

But Reg Section 1.691(b)-1(a) puts that right, although, as with the shotgun guard on the Dover Mail in Mr. Dickens’ two-cities tale, it may not be in their lifetimes.

“That regulation provides that, if a taxpayer dies before a deduction is allowable, either the taxpayer’s estate or the taxpayer’s heirs will be allowed the deduction when the amount is paid. Thus, an interest deduction will be allowed at some point. It is true that this deduction will be deferred, but that is what petitioners opted for when they executed a reverse mortgage rather than a conventional mortgage.” Order, Transcript, at p. 7.

So the mortgage is a reverse, but so is the deduction for the year at issue.

It’s just another indocumentado and unreported income small-claimer, of the type I’d bypass and let Judge Travis A (“Tag”) Greaves dispatch in ten pages or less, but Yohannes Teka Lakew and Seble Bete, 2020 T. C. Sum. Op. 27, filed 11/4/20, has a novel evidentiary twist.

It’s Yohannes’ idea, to explain why his gross receipts from his driving school shrunk so drastically, while his Sched C showed only $7K gross receipts, no returns or allowances, and a net loss of $4K. The 1099-K from Yohannes’ scheduling and payment contractor showed Yohannes got gross receipts of $29K. 2020 T. C. Sum. Op. 27, at pp. 3-4.

“Petitioners do not dispute that Mr. Lakew received the money reported on the Form 1099-K but contend that the driving school’s gross receipts should be reduced by unreported cash refunds that Mr. Lakew paid to customers.” 2020 T. C. Sum. Op. 27, at p. 4.

Yohannes’ recordkeeping is a wee bit casual. Our old pal Ben Trovato is in on the play.

“Although Mr. Lakew issued cash refunds in connection with his driving school business, petitioners provided us with very little, if anything, in the way of credible evidence upon which to make a rational finding or estimate of the amounts of those refunds. Mr. Lakew could not produce any receipts, bank account statements, or other financial records of any kind relating to the business to support his claimed refunds, even though he remained under a clear obligation to do so. The only record of the refunds that Mr. Lakew introduced into evidence was a single document entitled Istar Driving School: Annual Summary Income Tracking Sheet (tracking sheet). This vague and uncorroborated tracking sheet, together with Mr. Lakew’s testimony, are not, however, ‘sufficient records’. The tracking sheet does not indicate what year it relates to, and petitioners did not testify as to when it was prepared. Mr. Lakew testified that he found the tracking sheet only a few days before trial. None of the figures provided in the tracking sheet can be tied to either petitioners’ return or the Form 1099-K. The tracking sheet cannot be credibly cross-checked against any other document or information with respect to even a single transaction in the [year at issue] relating to Mr. Lakew’s business, including such pertinent information as payor, payee, date, and amount for any of the claimed refunds.” 2020 T. C. Sum. Op. 27, at pp. 6-7.

But Yohannes has that darling of the Internet, Yelp, an online review of everything and anything.

“Mr. Lakew also introduced Yelp reviews, including one from a customer dated December 17, [year at issue], which stated that Mr. Lakew ‘said that he was going to refund the money and we are still waiting for this’. The Yelp reviews offer little support that Mr. Lakew actually issued all of the claimed refunds. We therefore conclude that petitioners failed to satisfy their burden, and we sustain respondent’s redetermination.” 2020 T. C. Sum. Op. 27, at p. 7.

And IRS don’t need no Boss Hoss, because the computer that sent out the CP2000 that Yohannes and Sebele ignored also issued the SNOD, so it was all electronic. Thus, Yohannes and Sebele get the five-and-ten chop.

Yelp doesn’t help.

It’s almost six (count ’em, six) years since I saw a Tax Court case that actually parsed a streamlined innocent spouser per Rev Proc 2013-34, 2013-43 RB 397, through to conclusion. See my blogpost “Streamliner,” 12/4/2014, for the debut.

Today, Colleen Michelle Leith makes the cut, as Judge Vasquez gives us Colleen Michelle Leith and Oraine J. Leith, 2020 T. C. Memo. 149, filed 11/4/20. IRS concedes Colleen Michelle’s Section 6015(f) plea; of course she flunks Section 6015(b) and (c) to get there.

Fact specific, of course, so you’ll need to parse Judge Vasquez’s grind through “the daily grist of judicial life,” 2020 T. C. Memo. 149, at p. 25. Anyway, Colleen Michelle’s account of Oraine’s abusive behavior carries the day with Judge Vasquez, even though Tax Examiner B (name omitted) paid little attention to Colleen Michelle’s tale of woe. Maybe TE B’s skepticism had some colorable foundation, because Colleen Michelle first filed her Form 8857 with “No” checked for spousal abuse, but filed a fresh Form 8857 a month later with the box checked “Yes.” 2020 T. C. Memo. 149, at p. 10.

Both Colleen Michelle and Oraine tried to wild-card some documents after trial. Judge Vasquez slaps them both down, even though this case was filed pre-Section 6015(e)(7) strict-record amendment, 2020 T. C. Memo. 149, at p. 3, footnote 2. Now, post-amendment, if you’re going streamliner in your case, build and guard that administrative record; make sure everything goes in at CCISO, and keep good lists of whatever IRS or CCISO tries to leave out.

I’ll just reiterate the streamliner rules as Judge Vasquez did.

“For the portions of the liabilities for which petitioner is eligible for relief under section 6015(f), Rev. Proc. 2013-34, sec. 4.02, sets forth circumstances under which the Commissioner will make a streamlined determination granting equitable relief to the requesting spouse. The requesting spouse is eligible for a streamlined determination by the Commissioner only in cases in which the requesting spouse establishes that she (1) is no longer married to the nonrequesting spouse (marital status requirement), (2) would suffer economic hardship if not granted relief (economic hardship requirement), and (3) did not know or have reason to know that the nonrequesting spouse would not or could not pay the underpayment of tax reported on the joint income tax return, or did not know or have reason to know that there was an understatement or deficiency on the joint income tax return (lack of knowledge requirement). Id. The requesting spouse must establish that she satisfies each of the three elements to receive a streamlined determination granting relief. Id.” 2020 T. C. Memo.149, at pp. 21-22.

Note that economic hardship (item 2 hereinabove in the immediately preceding paragraph set forth, as my paid-by-the-word colleagues would say) means either income of requesting spouse is below 250% of Federal poverty limit or monthly income of requesting spouse exceeds basic living expenses by less than $300. Colleen Michelle met the second of those.

As always, YMMV, prior results do not predict future performance, and, in the immortal words of the RAF Milverton base commander, then-Group Captain, later Air Chief Marshal, Sir Francis J. Fogarty, in Harry Watts’ immortal 1941 film, “Go in and flatten it…and good luck to you.”

When one ignores them. Counsel for David Terrazas, Docket No. 2498-19, filed 11/3/20, was scheduled for trial back in April, along with a companion case, but COVID-19 put paid to that.

I’ll defer to Judge Elizabeth A (“Tex”) Copeland to tell the story of said counsel’s delictions.

“During February 2020, respondent’s counsel attempted to contact petitioners’ counsel, TB, about the cases but did not receive a response. On May 19, 2020, the Court ordered status reports to be issued on July 6, 2020 and every 60 days thereafter. Mr. B did not provide any status reports. After respondent timely filed his July 6, 2020 status report and Mr. B failed to provide a status report, the Court made several attempts to contact Mr. B for a telephone conference with the parties. The Court made attempts on or around July 10, 2020 through July13, 2020 and left voicemail messages each time. When a representative of this Division of the Court finally spoke with Mr. B, on or around July 14, 2020, he misinformed the Court that the cases had been resolved and that the parties would be settling. Respondent had not agreed that the cases had been resolved; in fact, respondent had not heard from Mr. B since October 2019.

“Respondent filed Respondent’s Status Report on September 4, 2020. Again, the Court attempted to contact Mr. B on September 4, 2020 and September 5, 2020, leaving messages for a conference call with the parties to the cases.

“The Court then ordered a conference call for October 19, 2020. Mr. B did not show for the ordered conference call.” Order, at pp. 1-2. (Name omitted).

Judge Tex Copeland orders Mr B to get with it or get tossed. And his clients are getting a copy of this order. Note Judge Tex Copeland’s forbearance in not showing Mr B the Section 6673 yellow card.