Attorney-at-Law

Archive for January, 2021|Monthly archive page

A TURN-DOWN DAY – PART DEUX

In Uncategorized on 01/18/2021 at 07:10

I can only repeat the words of my blogpost “A Turn-Down Day,” 1/16/17.

WELL, SIR – YOUR CREDENTIALS? – REDIVIVUS

In Uncategorized on 01/15/2021 at 17:36

It’s been a wee while since I echoed the words of Voltaire on his deathbed, when he asked that question of the abbé who approached him and said he came from God. But Judge Emin (“Eminent) Toro got an answer from a CPA that spelled trouble for Business By Experts, LLC, Docket No. 21302-19L, filed 1/15/21.

Said CPA, whom I’ll call MD, is head honcho of BBGE, LLC, and “an experienced Certified Public Accountant (‘C. P. A.’) who is familiar with the IRS collection process.” Order, Transcript, at p. 4.

There are several years at issue: there are a late filed 1065 “penalty” and TFRPs for one year, for which there’s both a NITL and a NFTL. MD sends in separate Forms 12153, and both get to the same SO. Then there’s another NFTL for other years from an RO, but apparently MD already included those years in one of the Forms 12153 he’d already sent in.

Clear? Thought not.

MD wanted an IA or an OIC, but never ponied up documentation in support of either. The SO offered MD several chances to do so. The SO did the balancing act, and got it right.

MD claims that the SO never called his cellphone (the “best contact number”) when the SO said he did, and proffers printouts from his provider; but there’s attached a Q&A saying that missed calls aren’t listed, only calls answered and outbound calls. And there was another number the SO used, but for which MD didn’t provide logs.

MD also claims he stood up the SO for one meeting, because he thought he could solve his problems with the RO. But MD, “an experienced Certified Public Accountant (‘C. P. A.’) who is familiar with the IRS collection process,” should know the difference between an SO and an RO, and that when Form 12153 is the flavor du jour, you talk to the SO.

MD loses this off-the-bencher.

The reader will doubtless note I haven’t cited to specific language for the substance of Judge Eminent’s opinion. The Genius Baristas of Dawson’s Creek have again created new problems without solving any old ones. I can’t cut and paste language from the website text today, although I could do so yesterday. To do so today, I’d have to input the language separately. Why this should be I have no idea. As a journalist on deadline, I have not the luxury of time to copy Judge Eminent’s wisdom, well worth the labor though it is.

Perhaps the Geniuses are afraid someone might make these matters public, despite Section 7461’s mandate that they should be publicly available.

I had promised I would forswear ranting about the Genius Baristas’ shambolic schemozzle. I take my pledged word seriously. But the Genius Baristas have provided density altitude that shortens the runway, so I may have a very bad fit of plain speaking if they don’t sort this out.

WE DON’T NEED NO AUTHORITY

In Uncategorized on 01/14/2021 at 17:56

Wiley Ramey, 155 T. C. 1, filed 1/14/21, claims whoever signed for the certified letter, containing the NITL for which Wiley filed Form 12153 too late, had no authority.

Here’s Wiley’s story.

“In this collection due process (‘CDP’) case, we are asked to consider what appears to be a question of first impression for our Court: whether a notice of intent to levy that is sent to a taxpayer’s actual (and last known) address by United States Postal Service (‘USPS’) certified mail, return receipt requested, starts the running of the 30-day period for requesting a hearing under section 6330, even though the taxpayer does not personally receive the notice because the taxpayer’s address is shared by multiple businesses and the USPS Form carrier leaves the notice at that address with someone who neither works for the taxpayer nor is authorized to receive mail on the taxpayer’s behalf.” 156 T. C. 1, at p. 4.

I can’t answer that question. IRS says yes, Wiley says no, but Judge Emin (“Eminent”) Toro gets to decide.

Turns out Wiley is a lawyer. Although nowhere stated, it sounds like the NITL went to an office shared by a bunch of unrelated lawyers, with a sprinkling of other small operations, a not-uncommon practice, with a harried receptionist (probably a temp) getting all the mail for all the co-tenants, while dealing with myriad phonecalls and dozens of people marching through the office, each with a story that would give Chekhov (the playwright, not the Ensign) enough material for three good acts.

But nevertheless the street address was right, and Wiley got the NITL before the thirty days to send in Form 12153 had run. Wiley sent in the Form 12153, but was a couple days late (hi, Judge Holmes). So IRS says Wiley gets only an equivalent (unappealable) hearing, not a CDP. Wiley petitions.

Wiley’s tale is that whoever signed for the certified Form wasn’t his employee and wasn’t authorized to accept his mail.

Judge Eminent isn’t buying.

“The statutory text refutes Mr. Ramey’s argument, and this conclusion is confirmed by the regulations. Section 6330(a)(2) provides three separate ways in which the IRS may provide a taxpayer with notice of its intent to levy and the taxpayer’s right to a hearing: (1) the notice may be given in person; (2) it may be left at the taxpayer’s dwelling or usual place of business; or (3) it may be “sent by certified or registered mail, return receipt requested,” to the taxpayer’s last known address. The third method of providing notice focuses on the sending of the notice, not the taxpayer’s receipt of it. It describes the type of USPS service the IRS must select–certified or registered mail, return receipt requested. See supra note 4. The primary responsibility of the IRS under this method of service is to place the notice in the hands of the USPS. So long as the IRS properly addresses the notice to the taxpayer’s last known address and selects the correct type of service from the USPS–either certified or registered mail, with return receipt requested–the IRS complies with the terms of the statute. And while some courts have held that the IRS must do more in certain analogous cases–for example, if the correct address is in doubt or if there are clear indications that the notice was not delivered–none of those circumstances is present here.” 156 T. C. 1, at pp. 21-22. (Footnotes containing “(S)ober reasoning and copious citations of precedent” omitted).

Unlike Antonio Lepore, Wiley makes no claim that the NITL was improperly intercepted; see my blogpost “You Didn’t Get It – Part Deux,” 5/31/13.

“Mr. Ramey is free to organize his business affairs as he sees appropriate, including by choosing to share a business address with other businesses. But, having made that choice, and having provided to the IRS an address shared by multiple businesses, he cannot properly complain when the IRS uses that very address to reach him. In short, the IRS correctly followed one of the methods of service provided by the statute, thereby starting the 30-day period for seeking a hearing under section 6330(a)(3)(B). The fact that Mr. Ramey’s address was used by multiple businesses and that (as we assume for purposes of this Opinion) the USPS left the notice with a person at that address who neither worked for Mr. Ramey nor was authorized to receive mail on his behalf does not change this conclusion.” 156 T. C. 1, at pp. 23-24.

Of course, Wiley can always pay the $247K IRS claims he owes, and sue for a refund. Or, if he’s broke, he can try for an administrative resolution. And put a room or suite number on his tax returns.

THE WIFE’S TALE

In Uncategorized on 01/13/2021 at 23:35

Except she isn’t. And that’s a sad tale, as her refund check is grabbed to pay her ex’s erroneous refund. Here’s Meredith Yvette James, 2021 T. C. Memo. 4, filed 1/13/21, who wants innocent spousery.

Here’s Judge Patrick J (“Scholar Pat”) Urda to give Meredith the bad news.

“The parties in this case stipulated that Ms. James and Mr. Bailey were not married in 2010, attaching as an exhibit the former spouses’ 2006 divorce decree. The purportedly joint tax return thus was not valid, as it was not filed by a husband and a wife, and Ms. James is thereby not eligible for section 6015 relief.

“Given the narrow scope of our section 6015 jurisdiction, this conclusion ends the case.” 2021 T. C. Memo. 4, at p. 7.

It’s truly a sad tale.

“Ms. James was married to Mr. Bailey from 2003 until their divorce in 2006. Mr. Bailey nonetheless lived with Ms. James in 2010, helping to care for both her and her children while Ms. James battled a serious illness. During this time Mr. Bailey was primarily responsible for the household’s finances.

“Although Mr. Bailey and Ms. James had been divorced for several years, Mr. Bailey worked with his accountant to file a joint Federal income tax return for himself and Ms. James for 2010. Trusting in her ex-husband, Ms. James did not review this return before signing it. The IRS issued a refund of $11,015, which was deposited into Mr. Bailey’s bank account.

“The IRS subsequently examined the 2010 joint tax return, determining that it had failed to report Ms. James’ unemployment compensation, $17,680, Mr. Bailey’s nonemployee compensation, $14,002, and interest income, $100. The IRS accordingly assessed additional tax of $10,990, an accuracy-related penalty under section 6662(a) of $2,198, and statutory interest of $390.” 2021 T. C. Memo. 4, at pp. 2-3.

Great job, accountant.

And you can’t blame Yvette, obviously self-represented. If she was really sick when this happened, and her ex was the only support she and the kids had, what was she to do? If she said a word and he walked out, where was she? As for what games he was playing, it’s easy to criticize from a distance.

And Judge Scholar Pat? ” As we have previously observed, ‘we do not have equitable powers to expand our statutorily prescribed jurisdiction no matter how unfair the circumstances may seem.’ Nor can we amend pleadings ‘to give us jurisdiction to order a refund of an overpayment even though it appears that she omitted).as not jointly and severally liable for the tax owed.'” 2021 T. C. Memo. 4, at pp. 7-8. (Citations omitted).

WHY BOTHER WITH AGREEMENTS?

In Uncategorized on 01/13/2021 at 19:41

I mean written ones. Among businesspeople. They never follow them. They never even read them, until it’s time to sue or be sued. Or maybe be audited. Just ask Michael Hohl and Jennifer Parker Hohl, 2021 T. C. Memo. 5, filed 1/13/21. Or you could also ask Braden B. Blake and Kristen S. Blake, conjoined as partners with Mike and Jen.

You could ask Ed Rodriguez, who bankrolled Mike and Brad in their text message advertising business that went bust. But Ed never showed for the trial.

The business suffered because Mike and Brad and another partner, also a no-show at trial, got guaranteed payments. I’ll let Judge Buch man-‘splain.

“A guaranteed payment is a ‘payment[] to a partner for services’ that is ‘determined without regard to the income of the partnership.’  Guaranteed payments from a partnership to a partner are comparable to a salary paid by an employer to an employee. Unlike a payment representing a return of capital, the payments are not tied to the financial success of the partnership. Like a salary, guaranteed payments are ordinary income to the partners and deductible to the partnership under section 162 or 263, as appropriate.” 2021 T. C. Memo. 5, at p. 21.

OK, so the partners had that income. But did they have any other? Well, what were the cash infusions from Ed Rodriguez, capital contributions or loans? The 1065s treated them as loans; the operating agreement (partnership agreement or box-checked LLC) said that capital contributions required formal overcall notices and other stuff, none of which the partners followed. Mike and Brad claimed they were capital contributions from Ed Rodriguez. I won’t keep you in suspense; spoiler alert: IRS said they were loans, and when the partnership cratered and Ed Rodriguez didn’t collect, Mike and Brad had passthrough cancellation of indebtedness income.

Judge Buch: “We focus on the substance of the transaction, not the form. Among the factors we consider are: ‘(1) The presence of a written agreement; (2) the intent of the parties; and (3) the likelihood of obtaining similar loans from disinterested investors.’” 2021 T.C. Memo. 5, at pp. 10-11. (Citation omitted).

But Judge Buch don’t need no factors.

“We do not find credible petitioners’ argument that Mr. Rodriguez made capital contributions. While the absence of a written loan document might support petitioners as to the first factor, the partners clearly intended to treat, and did treat, the amounts received from Mr. Rodriguez as loans.” 2021 T. C. Memo. 5, at p. 11.

In proof of my assertions at the head hereof, see the following.

“[Partnership’s] partners’ actions suggest that they considered Mr. Rodriguez’ cash infusions to be loans. [Partnership] reported the amounts as liabilities each year it operated. The Schedules K-1 [Partnership] sent to its partners reported the amounts as liabilities every year and allocated a share of those liabilities to each partner…. Mr. Hohl and Mr. Blake each filed individual returns accepting and benefiting from their characterization of these amounts as debt. If Mr. Rodriguez had made a capital contribution of $265,000 in [Year X}, paragraph 4.4 of the operating agreement would have required Mr. Rodriguez to include that contribution in his initial capital account balance. He did not do so. And according to the agreement, if the partnership needed additional capital contributions, [Partnership] had to notify all partners in writing and give them an equal opportunity to contribute. We have no evidence of any such notices. The record also does not include any explanation as to why Mr. Rodriguez’ ownership percentage did not change as a result of his supposed additional capital contributions. Mr. Rodriguez did not testify.” 2021 T. C. Memo. 5, at pp. 11-12.

Judge Buch does throw in a make-weight: “As for the third factor, the record includes no evidence that [Partnership] could not have obtained loans from third parties.” 2021 T. C. 5, at p. 12. Judge, after reading your description I make so bold as to doubt that third parties would lend.

The identifiable event that marks the end of the enterprise was the year at issue, when the last of Ed Rodriguez’s loans was made. And while Mike claims the Section 108(a)(1)(B) insolvency out, his numbers showed he was under water by $351; and his liabilities were inadequately established.

GIVE AND GO

In Uncategorized on 01/13/2021 at 18:36

This old-time basketball play doesn’t help Aaron G. Filler, 2021 T. C. Memo. 6, filed 1/13/21, who tries for a ginormous capital gain based upon the alleged diminution in value of his 75% stockholding (unrealized) in the corporation to which he transferred his patent.

Aaron (that’s Doc Aaron, Esq., to you; doctor, lawyer, entrepreneur, author, inventor, with a CV to wow the judges, except Judge Elizabeth A (“Tex”) Copeland is unimpressed) claims Section 1235 gives him capital gains on the transfer of the patent even with less than a one-year hold, because Congress wanted to play the mother of invention.

Except transfer to a 25% controlled entity means inventors must come up with some other statutory authority, and Doc Aaron doesn’t.

Heavy-duty NOL for carryback-and-forth has to come from realized loss. Doc Aaron is in a trade or business, and his claimed loss would allow NOL carryons, if he realized loss. But all he has is his own calculations of unrealized diminutions.

His trusty CPA, who might get Doc Aaron off the Section 6662 five-and-ten chops, doesn’t testify.

Judge Tex Copeland devotes twenty-plus pages detailing Doc Aaron’s corporate give-and-gos, interspersed with the numerous lawsuits Doc Aaron brought to defend his patent. And he loses them all, just like…but this is a non-political blog.

Among others, he sues UCLA. That’s the Los Angeles branch of California’s State university system, not the University on the Corner of Lexington Avenue, the alma mater of a very wealthy former client.

“…despite the numerous lawsuits involving the … patent, no court has found infringement. Dr. Filler insists that we must decide whether UCLA infringed upon the … patent. But the law is clear–the United States Tax Court is not the proper forum to litigate a patent infringement claim. 35 U.S.C. sec. 281 (2006) (‘A patentee shall have remedy by civil action for infringement of his patent.’); 28 U.S.C. sec. 1338(a) (2006) (“The district courts shall have original jurisdiction of any civil action arising under any Act of Congress relating to patents[.]”).” 2021 T. C. Memo. 6, at p. 47. (Citations omitted).(Emphasis by the Court).

I can’t end this blogpost without giving Doc Aaron a Taishoff “Good try, with wildcard ribbon.”

HEISENBERG

In Uncategorized on 01/13/2021 at 16:05

Has No Place in Tax Court

Theoretical physicist Werner Heisenberg (1901 – 1976) is known for his uncertainty principle, the proof of which “ascends to such rarefied heights of pure mathematics that it is said that there was no man in the scientific press capable of criticizing it, ” as a much better writer than I put it. But Judge David Gustafson has no need of Heisenberg’s groundbreaking quantum mechanical aptitude; Brian Heberling, Docket No. 2846-17, filed 1/13/21 (link to text unavailable; direct your complaints to the Genius Baristas), though uncertain of his offsetting loss to his phantom income, cannot escape a Section 6651(a)(1) add-on for late filing.

Brian was a real estater who got auction-hammered in the Black ’08. He and IRS stiped out two (count ’em, two) years, but left only the late filing add-on for one year for Judge Gustafson to decide in this off-the-bencher.

“Mr. Heberling argues that he delayed filing his tax return because of the uncertainty of his financial situation and his lack of accurate information.  At trial he stated that he knew he had an obligation to file a return for [year at issue]. He acknowledged that in [year at issue] he actually received more than $33,000 in rental income–an amount well above the ‘exemption amount * * * plus the basic standard deduction’–and that he agreed to a [year at issue] allocation of $540,000 from a partnership in which he was a member.  However, he stated that he wanted to wait until the ‘dust settled’ in order to file his returns with more accurate information.  But uncertainty about the precise amounts to be reported does not excuse late filing.”  Order, Transcript, at pp. 10-11. (Citations omitted).

The rule is file with whatever you had, and amend as soon as you have better. When Brian finally filed, he says he still didn’t have final numbers. Judge Gustafson says if you’d done that to begin with, there wouldn’t be any add-ons. And reliance on his accountant doesn’t help. He knew he had income above exemption plus standard deduction. Brian claims he had to spend $30K when IRS committed “malpractice” by slugging him for one year when he was insolvent.

That year isn’t the year at issue, nor does what happened at Appeals excuse late-filing in a different year. Brian can still seek Section 7430 legals within thirty (count ’em, thirty) days of getting this transcript. Hop to it, Brian.

But don’t hold your breath; in the words of an Authority much more exalted even than Tax Court Judges, speaking of another tax collector, “I tell you this man went down justified.”

TIMEO DANAOS

In Uncategorized on 01/12/2021 at 17:08

This Latin tag from the Greek original is surely well-known to Judge Patrick J. (“Scholar Pat”) Urda. It may even be well-known to the trusty attorneys for Michael J. Boettcher and Katherine H. Boettcher, 2021 T. C. Memo. 4, filed 1/12/21. Can’t link to the text; DAWSON doesn’t allow it. Get with it, Genius Baristas.

The Boettchers had their IA bounced, and the bounce affirmed by Appeals, but the SO on the case was less than punctilious with the paperwork.

“Multiple unanswered questions cast doubt on the settlement officer’s analysis, however. First, we note that in calculating the Boettchers’ income and expenses, the settlement officer rejected the Form 433-A out of hand because of perceived omissions with respect to “bank info and investments” on the second page and business income and distributions on the fourth page. But the Form 433-A in the record before us plainly contains bank and investment information. The settlement officer herself noted that the Boettchers had no income besides wages in [year at issue], suggesting that there would be no business income or distributions to be reported. We are left perplexed as to the reasons for rejecting the Form 433-A.

“The settlement officer’s analysis of the Boettchers’ income likewise raises questions.” 2021 T. C. Memo. 4, at p. 12. And Judge Scholar Pat has more to say about that than I have space for.

Judge Scholar Pat weighs heavily against the SO for not asking the Boettchers for more information to clarify, although we’ve seen cases where SOs get a bye. Maybe here it’s quantity; too many unanswered questions, plus the usual nod to Chenery.

“In his briefs respondent defends the rejection of the installment agreement on the ground that the Boettchers failed to supply the financial information requested by the settlement officer in her scheduling letter. This purported failure, however, was not cited in the notice of determination as a reason for rejection. To the contrary, the notice suggests that the Boettchers’ financial information sufficed, stating that ‘[w]e asked you to provide the requested information to us …. We received your correspondence’ and later, ‘we considered your financial information, unfortunately, we were unable to accept your proposal based on our review of your income and expenses you have the ability to make larger monthly payments.’ We cannot uphold a notice of determination on grounds other than those actually relied upon by the settlement officer.” 2021 T. C. Memo. 4, at p. 15. (Citations omitted, but Chenery leads the peloton).

Now the case comes up on a Rule 121 agreed statement. But Judge Scholar Pat, apparently deciding sua sponte that the record is so flawed he can’t decide for IRS or for the Boettchers, remands the case back to Appeals.

I’ve said before that, if offered a remand, or perhaps seeking remand, the practitioner should think twice. See my blogpost “Take the Hint,” 11/25/15. Remand may be a goal-line save for IRS, who can rehabilitate a dicey record the better wherewith to scuttle your client, especially if the Judge gives them a blueprint for the rehab.

But when the Judge decides to do it, unsought by the parties, practitioner beware. See my headline hereinabove set forth at the head hereof (as my already-on-their-second-18-year-old-Macallan colleagues would say).

CURB YOUR ENTHUSIASM

In Uncategorized on 01/12/2021 at 09:09

Before getting dewy-eyed over the new, improved (?), jim-dandy US Tax Court website, note that I said yesterday only that it “cleans up halfway fair.” See my blogpost “Orders in the Court – Part Deux,” 1/11/21.

The Genius Baristas still have a way to go. My links to the texts of yesterday’s orders and opinions don’t work. The case search feature doesn’t update daily, so you won’t find texts that way. There is no cumulative list of orders or opinions, so every day’s budget does a Cinderella number at midnight, never to be seen again (until maybe the case search feature updates, if ever).

In short, there’s plenty work to do.

And maybe so it just might could be that these cybersages and technowiseacres should talk to a few of us who actually use the website every working day and night. Better late than never.

CONSTITUTIONALLY SPEAKING

In Uncategorized on 01/11/2021 at 16:07

No, this is nothing to do with elections or politics. Patrick C. Kelley, 2021 T. C. Memo. 2, filed 1/11/21, is complaining that his equal protection rights were violated when Congress enacted Section 86(c)(1)(C) and Section 86(c)(2)(C).

Pat is married to Mrs. Pat for the entire year at issue. They did file a LA Separate Property Matrimonial Regime, apparently a Code Napoleonic pre-nup, which gave rise to their MFS returns. Pat wanted the $25K base for his Social Security benefits, but only got zero.

Judge Elizabeth A (“Tex”) Copeland has this.

Originally Social Security was non-taxable, but to harmonize it with other retirement income like pensions, and to preserve non-taxability for the truly poor, but to prevent geriatric high-rollers from getting a windfall, Congress enacted the tax-free ceilings.

But gameplayers could file MFS, doubling up on the tax-free ceiling.

Now generally (love that word!) pore l’il ole Tax Court has zero jurisdiction when That Document is invoked. But Congress has left a minuscule lacuna wherein Tax Court may step a cautious toe, and that is where, inter alia (as my expensive colleagues say) the taxable portion of Social Security benefits is involved.

Unhappily for Pat and the rest of us Socially Securitized, Tax Court has ruled before now that Congress has a rational basis for the class distinction that torpedoes us. You’ll find the cases at 2021 T. C. Memo. 2, at p. 8.

And Congress decided to jump to the defense of marriage, Constitutionally. “… Congress reasoned that married couples should be treated as a unit to prevent windfalls to couples that might otherwise file separate returns. This reasoning demonstrates that Congress had a valid and rational basis for establishing a separate classification for a taxpayer who lived with a spouse for any part of the taxable year and filed a separate return.” 2021 T. C. Memo. 2, at p. 9.

And Tax Court must follow the law, however harsh it may be for Pat.