To my readers old and new, regular and casual drop-ins, my very best thanks for making January, 2021, the month with the most views ever in a single calendar month, and providing the two-hundred-thousandth view since I began back in 2011.

Looking forward with hope to a great year ahead.

I generally (love that word!) omit the names of non-counsel IRS personnel from my blogposts, but Judge James S (“Big Jim”) Halpern is convinced that SO McGee (even if not named Bobby) got it right. So I’ll name SO McGee, as I remember the 1971 Kristofferson-Foster blockbuster hit, and tell the story of Joseph A. Sciarretta, and Carolyn C.  Sciarretta, Deceased, Docket No. 12324-19L, filed 1/29/21.

Taxpayer claims overpayment for a year nine (count ’em, nine) years prior to the NITL for the four (count ’em, four) later years at issue, thus deficiency is wrong. Except taxpayers filed six years late for the overpaid year, and overpayments are deemed made as of due date of return for that year, without regard to extensions.

See Section 6511(a), the famous 3-and 2 count (must claim refund 3 years from when tax due, or 2 from when tax paid; if not timely claimed, you’re called out on strikes). See my blogpost “Lookback in Anger,” 12/12/11.

And taxpayer never sent in the info SO McGee needed for a collection alternative.

“The record shows that SO McGee verified that the requirements of any applicable law or administrative procedure were met. He addressed the issues petitioners raised during the hearing and determined that there were no overpayments to apply against petitioners’ unpaid liabilities. Petitioners did not properly raise any other issues. SO McGee determined that the filing of the levy notice appropriately balanced the need for the efficient collection of taxes with petitioners’ concern that the collection action be no more intrusive than necessary.” Order, at p. 5.

Good enough for Judge Big Jim.

If you just finished reading my blogpost “Go Down, Moses,” of even date herewith (as my high-priced colleagues would say), you’re doubtless hanging breathless on the fate of Stephen Whatley and Lucile M. Whatley, 2021 T. C. Memo. 11, filed 1/28/21, part of Kevin Sells’ als, who starred in the aforementioned, and was tried with them, but this part was briefed separately, as it involves different issues.

It’s Steve’s story. Steve said he was a cattle farmer, although he owned no cattle until the last of the five (count ’em, five) years at issue. Steve’s day job was as a supersuccessful banker. He was chairman, president, CEO and largest stockholder of the bank which he founded, although he was the scion of eleven (count ’em, eleven) generations of farmers in Lee County, AL. He did pick cotton as a boy, and ran a timber business for two years in his youth, some 35 years ago. He was always a worker, and in his seventies was putting in 70 hour weeks running from branch to branch, and taking care of business.

He did put in 750 hours a year at the farm.

By this time, I’m sure my colleague Peter Reilly, CPA, is marking down Steve for his “you can win a Section 183” handbook, to show his readers how not to do it. And Judge Holmes does the homework, with a bow to that most-cited jurist, Judge Richard Posner, now retired from 7 Cir.

“The Seventh Circuit has called this open-ended test of objective factors of subjective intent “goofy” and has chosen not to ‘wad[e] through the nine factors,’ but instead to take a more holistic approach. Roberts v. Commissioner, 820 F.3d 247, 250, 254 (7th Cir. 2016), rev’g T.C. Memo. 2014-74. This case, though, is appealable to the Eleventh Circuit. So we’ll trudge along the well-blazed trail and address each specific factor, as well as any other additional facts we find important to determine if Whatley was engaged in farming for profit.” 2021 T. C. Memo. 11, at p. 15.

Though a banker, Steve’s bookkeeping was such that he would have fired any of his bank’s employees who did likewise.

He was in the Conservation Reserve Program, whereby the guvmint paid him to do nothing with the land during the years at issue.

He did some timbering research, as the land had trees, but the extent and particulars thereof never made it into the record in sufficient detail to give Steve a winning factor. His 35-year-old timbering operation experience didn’t help, either.

Steve put a first-class dwelling on the farm. Judge Holmes does such a beautiful job describing it, that if ever he retires from Tax Court, he’ll be a great success as a real estate salesman. But Steve so thoroughly intertwangles his home mortgage deduction with his disallowed farm mortgage deduction that Section 163 doesn’t help him.

But claiming he’s a cattle farmer really caps it off.

“As to the farm’s cattle operation, Whatley explained that he’d wanted to introduce cattle ‘from day one.’ Whatley testified that he consulted two cattle experts for advice, but those men managed much larger herds–600 and 1,500 head respectively–than what Whatley could reasonably expect to put on his property. Whatley, however, could not recall when this consultation took place or what advice he received. In any event, he didn’t actually have cattle on his property until at least 2008, right after he learned that the IRS was going to audit him. And he explained that many of the activities that he reported as related to cattle were really activities that he undertook in preparation for cattle that would arrive sometime in the future.” 2021 T. C. Memo. 11, at p. 8.

There’s twenty-six (count ’em, twenty-six) pages more, but I guess we can stop here.

Except.

IRS does the Michael Corleone number when it comes to Section 6751(b) Boss Hossery, so no chops.

The Good Book (Exodus) plays a large role in Judge Holmes’ prose, but Kevin A. Sells, et al., 2021 T. C. Memo. 12, filed 1/28/21, fares less well than the hero of that history. Kev and the als have their conservation easement burned up on the improvements-out-split-at-extinguishment clause we’ve seen so often (and enshrined in Oakbrook, despite Judge Holmes’ dissent; see my blogpost “They Always Must Be With Us,” 5/12/20).

Now what would a conservation easement case be, without a passing stone thrown at Reg. Section 1.170A-14(g)(6)(ii)? Here, Kev and the als claim the last sentence thereof nullifies the improvements-out-split-at-extinguishment clause if State law does. And AL law does say easements are contract rights, not real property rights, when land thus encumbered is taken for a public purpose, like eminent domain. But this applies to easements appurtenant, that is, between adjacent landowners, not easements in gross, where the donee of the easement owns no land. This sort of law is to prevent adjacent landowners, who are not having their land taken, from gumming up condemnation proceedings and extorting the municipalities. CA is different (what else is new?), because they’re concerned that if the 501(c)(3)s were frozen out in condemnation, municipalities would try to glom the servient tenements at scrap prices, based on after tax valuations, and cut out the 501(c)(3)s.

OK, the conservation deed miscue (if easement extinguished, 501(c)(3) doesn’t get any benefit of improvements) takes out the land. But on the land there stands some trees, which Kev and the als also claim were part of the grant to the 501(c)(3).

“According to the appraisal, [Kev’s and the als’ LLC] acquired the land on which it placed the easement on the very same date that it reported it had acquired the timber–August 6, 2002. And [LLC] contributed both the easement and the timber to the same donee, [501(c)(3)]. Because of this, we find it more likely than not that the timber donated by [LLC] is the same standing timber on which it had placed a conservation easement.

“That is a problem. The value that [LLC] placed on the standing timber is its value as timber products. One can see this on the Form 8283–which describes the donation of “Pulp, Chip N Saw, Saw Timber”–products that result from timber’s harvest. And the attached appraisal–which described eight products–would require the timber’s harvest.” 2021 T. C. Memo. 12, at p. 23.

But by AL State law, since unsevered timber belongs to the landowner, either that was a partial gift of a present interest (barred by Section 170 since lumbering isn’t a conservation purpose), or a gift of a future interest (and that’s not deductible at present, if at all).

But looking at chops, since the fatal split-at-extinguishment clause showed up often throughout the Southeastern United States, where these dodges flourished, and their 501(c)(3) easement protector wasn’t a promoter, Ken and the als have a reasonable cause to think their deal was legit, even if they had not a reasonable basis so to assume. See 2021 T. C. Memo. 12, at p. 38, footnote 21. Hence Section 6664 spares them almost all the chops.

And anyway, IRS’ Boss Hoss looks like a camel; a camel is a horse designed by a committee. If you want a good chuckle (and in these times, who doesn’t?), check out 2021 T. C. Memo. 12, at p. 34, where we have a vintage Holmes table encapsulating IRS’ miscues and pratfalls, as shots on goal and saves, in trying to hand chops to Kev and the als. And read the account commencing at p. 27, aptly entitled “The Chaighoul Problem.” The Jersey Boys should love this.

Judge Holmes, no fan of Boss Hossery, certainly loves it. See my blogpost “Stir, Baby, Stir – That Silt,” 12/20/17.

One of the als, Steve Whatley, is an outlier, so he gets a separate case all to himself.

Read this opinion. Despite the handling the Joint ABA/NYSBA Tax Committee gave the order in Liao (see my blogpost “A Couple Trusts, A Couple Iowa Tax cases – Knock It Off,” 11/17/20), I’m a fan of Judge Holmes.

But I shouldn’t omit a Taishoff “Good Try,” to Gregory P. (“Dusty”) Rhodes, Esq., and his team from Sirote & Permutt, PC.

I thought it a good idea to put my suggestions for DAWSON in one document and share it with the Genius Baristas, while they deal with getting the litigants onstream. So here is the text of my e-mail to DAWSON.support, dated 1/28/21, timed at 10:48 a.m.

When you’re done making DAWSON easier for litigants (which I’ve admitted on my blog is your first priority), how about making it easier for us journalists? First, have the Dockets show appearances. For self-representeds, so state. Where individual attorneys appear for petitioners, state address for solos, and state firm affiliation (and firm address) where applicable. I’ll renew my request to the Chief Judge to amend the Rules to allow for firm appearances, as that’s outside your jurisdiction.

Second, list all orders and opinions by date. Make them word-searchable. Now one needs a docket number or a name to find them, and we may not have either. The old system worked perfectly. When you rolled out DAWSON, you destroyed ten years’ worth of my links in my blogposts. Why?

Third, bring back designated orders. Judges can designate or not as they see fit, and I’d never have the temerity to suggest that that should change. But the present count-the-pages system is a joke, when you post 400+ orders per day for us to wade through while on deadline. Besides, count-the-pages is ridiculous; the worst novel by Edward Bulwer-Lytton (he of the worst opening sentence competition) has more pages than the Four Gospels. Which is more important? (No prize for the correct answer).

Fourth, why are opinions not posted until 3 p.m. Eastern Time? If judges, or their proofreaders (if any), need more time to re-read and correct their opinions, hold them over until the next morning, and post them at noon, ET. My deadline is effectively 6 p.m. ET; my blog has been read in more than 150 countries, commonwealths, and semi-autonomous regions. I’m writing for the busy practitioner, who hasn’t time to read lengthy law review articles, and whose first language may well not be English, or even Indo-European-based. Hence, my blogposts average fewer than 500 words each, and I must write simply. I may need several hours to unpack, digest, and put in readable form multiple opinions and orders. Some important opinions are more than a hundred pages long, where every detail may be significant to a reader.  Even if I can get it all done in the three hours you’ve given me, at 6 p.m. ET, it’s already midnight in Europe. And in the Far East, it’s already the next morning. So after 6 p.m. ET, I’ve lost that day.

Fifth, the texts of orders and opinions must be drag-and-dropable. This serves the journalist on deadline, who hasn’t time to retype and proofread, or run through some deskewing software and proofread,  whole paragraphs of text, and also the solo or small-firm practitioner, who hasn’t the personnel to retype or deskew, and proofread, the language s/he needs for a memo of law or opinion letter. I’ve done briefs on appeal in under an hour, when I could drag-and-drop the language I needed, without wasting time to type, cite-and-substance-check. Every lawyer has memo of law files, arranged by subject, with the language of the leading cases in wordprocessing format, ready to insert when wanted; and the up-to-date practitioner keeps adding to the files. That saves the practitioner time, and the client money. And makes pro bono work more affordable to the practitioner, and thus more available to the needy.

Best regards.

Lewis C. Taishoff, Esq.

Judge Travis A. (“Tag”) Greaves tags SO D (name omitted) for overlooking some non-cash income that Isaac Moore, Docket No. 8759-19L, filed 1/27/21, claims prevents him from coming up with the moola SO D claims he has to pay off his $386K tax liability.

Isaac had a couple years’ returns (hi, Judge Holmes) showing seven-figure income. So SO D says Isaac’s submissions at the CDP were less than transparent. Moreover, SO D reckoned Isaac might have been dissipating assets.

Isaac says The Phantom of the Opera is the Opera.

He sings thus: “… his unusually high AGI in 2016 and 2017 resulted from transactions that did not produce substantial cash he could use to pay his 2016 liability. Petitioner explains that his 2016 AGI of $1,497,552 includes a $1,642,927 gain from the sale of his medical office building in which he had no equity, and that he received only about $13,000 in cash from the sale. Of the $1,293,878 AGI reported on the 2017 return, petitioner claims $1,137,843 reflects his default on prior year borrowing from the principal of his annuities. He says this was cancellation of indebtedness income from which he received no cash in 2017.” Order, at p. 3.

Plausible, at least enough to be worth investigating, says Judge Tag Greaves, and SO D didn’t.

Phantom income isn’t cash. Taishoff says maybe Isaac paid too much for his office building, or it went in a forced sale. As for his previous loans, they weren’t income until he couldn’t or wouldn’t pay it back. And what he did with the loan proceeds is also a question for the dissipation analysis.

Howbeit, SO D didn’t consider phantom income might explain some or all of Isaac’s predicament.

No summary J for IRS.

Judge Travis A. (“Tag”) Greaves once again appears in relief of Judge Ruwe (retired). And he faces another example of the human comedy, as played out in the United States Tax Court, the prepay playpen of our judicial system.

I’ll wager Judge Tag Graves never expected the testimony he saw from Akeem Adebayo Soboyede, 2021 T. C. Sum. Op. 3, filed 1/26/21.

That’s Akeem Adebayo Soboyede, Esq., admitted in DC and MN. Most of Judge Travis A. (“Tag”) Greaves’ work is to do with Akeem’s tax home, which is DC and not MN, so his DC living expense deduction goes by the boards.

The rest of his deductions don’t fare a lot better.

“Petitioner admitted in his testimony that he did not keep the necessary documentation because he ‘did not know * * * [he] was going to get audited.’” 2021 T. C. Sum. Op. 3, at p. 10.

Akeem, none of us does. But be prepared; it could happen again.

There’s yet another contestant in the Taishoff no-prize, sporadic “Good Excuse” sweepstakes, Terry T. Brown, Sr., 2021 T. C. Sum. Op. 4, filed 1/26/21. TT’s tale is told by Judge Travis A. (“Tag”) Greaves, coming on in relief of Judge Ruwe (retired).

It’s a fairly familiar indocumentado. Employed by a “non-profit,” TT pays some unreimbursed expenses for said “non-profit,” but has some problems, even aside from the fact that said “non-profit” is never identified as a Section 501(c)(3) type.

“In support of his position, petitioner submitted a letter from a former [non-profit] board member. The letter stated that petitioner paid out-of-pocket expenses on [non-profit]’s behalf for which he was never reimbursed and that those unreimbursed expenses should be considered contributions to a nonprofit. The letter is dated… nearly a year after the close of the [year at issue] –and does not provide an amount, date, location, or description of any cash or property actually donated. Neither this letter nor any other evidence set forth in the record meets the requirements of the section 170 regulations. Accordingly, petitioner failed to sufficiently show that he incurred such expenses and may not claim a deduction for the disallowed charitable contributions on his [year at issue] Form 1040.” 2021 T.C. Sum. Op. 4, at pp. 13-14.

Now that’s not enough for a sweepstakes entry.  But this is.

“At some point… respondent audited petitioner’s returns for the years at issue. When asked to provide records necessary to substantiate the expenses and losses reported on his Schedules A, C, and E, petitioner claimed that he maintained the supporting documentation exclusively on his [non-profit] work computer, which he no longer had access to following his termination from [non-profit]. Petitioner claimed that he made several attempts to retrieve the files but that [non-profit] informed him that they had been destroyed.” 2021 T. C. Sum. Op. 4, at p. 5.

And we can stop here.

Dana Ray Reynolds, 2021 T. C. Memo. 10, filed 1/26/21, went down for two years on two subscriptions in USDCCDCA. Dana Ray was a phony corp merchant, who used the corps to siphon income for himself, and sold his phony maneuver. So he wound up owing restitution via some Restitution-Based Assessments (RBAs). But DOJ got into the act via the DOJFLU (Department of Justice Financial Litigation Unit), resulting in Dana Ray’s request for an IA and CNC getting bounced around, ending up in a CDP, where the question of an ARI (Appeals Referral Investigation) by IRSCD (Internal Revenue Service Collection Division) was bruited. And that leaves out the marital agreement between Dana Ray and spouse, which left Dana Ray with no income or living expenses. So did IRS coordinate with DOJ? And should Dana Ray get an IA or be CNC?

If this leaves your head spinning, think of ex-Ch J Michael B (“Iron Mike”) Thornton, confronted with the task of unbaking this strawberry shortcake and putting the whipped cream back in the cow.

Well, ex-Ch J Iron Mike does it, without even a dictionary to chew upon for consolation.

First, there’s no Tax Court challenge to court-ordered restitution in a criminal case. And IRS has independent authority to collect same. Section 6201(a)(4) says so, and ex-Ch J Iron Mike is not revisiting that one.

As for DOJ billing and Dana Ray paying a few bucks monthly, that isn’t an IA and Section 6331(k)(2)(C) is no bar to the NFTL or the NITL (which ex-Ch J Iron Mike calls a FNTL) with which Appeals hit Dana Ray, because no IA per Section 6159.

Now for the headline hereof. Coordination. “Petitioner argues that SO T failed the verification requirement of section 6330(c)(1) by failing to ensure that the IRS coordinated with the DOJ, as he contends the Internal Revenue Manual (IRM) requires. Petitioner cites, and we have found, no case in which an SO flunked the verification requirement with respect to an IRM provision.” 2021 T. C. Memo. 10, at pp. 25-26. (Name and citations omitted). And there’s much about how IRS is supposed to coordinate with DOJ, and how IRS did. Well worth reading if you have clients about to take heavy-duty falls, with restitution on the menu.

Dana Ray’s bid for CNC fails, because a NFTL can be filed to protect the government’s interest howsoever broke the taxpayer may be today. And Dana Ray’s marital agreement shenanigans (like laying off a bunch of his corps on Mrs. Dana Ray) and his claims that he has no income or living expenses make an ARI unnecessary to bounce his CNC.

Dana Ray claims to be sick, but has no medical expenses.

“The attachment to the notice of determination indicated that in the absence of any claimed living expenses, petitioner had failed to demonstrate economic hardship justifying CNC status, stating that ‘[i]f, as you claim, you have no expenses, then making payments wouldn’t cause an economic hardship.’ As this statement suggests, if it were true, as petitioner claimed, that he had no assets, then there was no levy source at the time of the determination; if, however, a levy source were subsequently to become available, by petitioner’s own admission he had no living expenses that would cause a levy to give rise to economic hardship. Consequently, even accepting at face value the financial information petitioner submitted, respondent did not abuse his discretion in determining, on the basis of the information that petitioner provided, that he did not qualify for CNC status.” 2021 T. C. Memo. 10, at p. 38. (Footnote omitted, but it says there’s no need for a source of funds when a NITL is issued.)

I give Dana Ray’s counsel a Taishoff “Captain James Lawrence” Award. James Lawrence, USN, law student turned naval officer, was the dying captain of the USS Chesapeake in the War of 1812, who uttered the immortal words “Don’t give up the ship!” just as the British boarded the Chesapeake.

My colleague Peter Reilly, CPA, has a blogpost interfacing grumpy old men with DAWSON, to which your attention is respectfully directed. I will own the appellation “grumpy old man”; if the shoe fits, I wear it, however dusky it may be.

I have been very hard on DAWSON (I can hear readers saying “No! If you hadn’t’a told me, I’d never have known!”). But Mr Reilly and Mr Milgrom have a very valid point, and it stopped me on a dime.

Yes, DAWSON falls short of reasonable transparency from the journalist’s point of view, and compliance with Section 7461 is at Pirates of the Caribbean standards: “guidelines. Aspirational goals.”

But DAWSON was not designed solely for the convenience of the trade press or the blogosphere.

DAWSON was designed for the self-represented and the practitioner, the people in the trenches. DAWSON did give them the online filing of petition and amendment thereto, finally bringing Rule 34(a) as amended in 2018 into the Twentieth Century, if not the Twenty-first. It gives them every standing scheduling order as they are issued each day, so they needn’t wait for the snail-mail version. It lets them find the docket of their case, the only case that matters, quicker than the old way.

Those of us in the ivory tower behind the lines, who observe the struggle from afar, may object that we haven’t been given a larger window or better binoculars. And our gripes are meritorious. I write every blogpost in compliance with FRCP 11 and our New York Rule 130; no frivolity.

But I must admit in fairness: The petitioner is first, the active litigating practitioner is second.

I am third.