I echo today the old phrase “Let the shoemaker stick to his last,” meaning that someone in one line of business should not meddle in another, unless qualified to do so.

I long ago decided to stick to covering US Tax Court. For a while I tried covering FATCA, but I was so often discouraged, when scooped by the trade press and the blogosphere, that I forswore that line.

So when a highly-reliable source asked why I didn’t mention IRS’ increased crackdown on syndicated conservation easements, I replied that the trade press and blogosphere has thoroughly publicized this, and any of my readers who has an interest has plenty of other readily-available sources. Tax Court is another story; most of the blogosphere coverage is weeks behind, as is the trade press.

Instead of running a race I can’t win, I dig out such purely Tax Court waltzes as Estate of Joe E. Sharp, Deceased, Zan Sharp Prince, Sole Remaining Independent Executor, Docket No. 7671-19, filed 2/26/21.

“…petitioner filed a Motion for Leave To File Sur-Reply to Sur-Reply to Sur-Reply to Response to Partial Motion for Summary Judgment. …petitioner further lodged its proposed Sur-Reply to Sur-Reply to Sur-Reply to Response to Partial Motion for Summary Judgment. In its motion for leave petitioner indicates that respondent does not object to the granting of the motion.” Order, at p. 1.

So Ch J Maurice B (“Mighty Mo”) Foley lets the band play on. Let the sur-replies to sur-replies roll down like a river.

Turning to an interesting judicial entrechat, we have Judge Mark V Holmes weaving two records together to make an appealing mélange, in Andrew J. Redleaf & Lynne S. Redleaf, Docket No. 10526-16, filed 2/26/21. I’d cross-reference Andy’s ex Elizabeth’s case, Docket No. 13901-17, except it’s sealed under the new DAWSON rule, apparently invented by the Genius Baristas, that if one document is sealed, the whole case is sealed. We don’t need no Rule 27.

Anyway, here’s Judge Holmes.

“A related case brought by Ms. Redleaf’s former wife Elizabeth, docket number 13901-17, was then assigned to this division of the Court. The key issue in both cases was whether payments that Mr. Redleaf made to Elizabeth were deductible alimony to him and taxable income to her, or nondeductible and nontaxable property distributions.

“Elizabeth then moved for summary judgment on this issue in her case. Because we had consolidated the cases, the issue was fully briefed by the parties in both cases after discovery and on a record that was comprehensive. Today we entered decision in Elizabeth’s case. We also spoke with the parties in this case. All agreed that the issues, evidence, and arguments would be the same if a summary-judgment motion were to be formally made in this case. All also agreed that for the decisions to be consistent, we would need to enter decision for respondent in this case. All agreed, and the Court specifically notes, that the agreement to incorporate by reference the briefing and record in Elizabeth’s case to enable an efficient entry of decision in no way affects petitioners’ right to appeal the decision in this case.” Order, at p. 1.

We don’t need no motion.

All y’all will of course remember that the celebrated Taxpayer First Act of 2019 engrafted subsection (e)(7) onto Section 6015 innocent spousery. That legislative gift kept on giving to the tune of five (count ’em, five) blogposts.

And now Judge Mark V. Holmes gives me another on an opinionless afternoon, so you won’t get another rant from me about DAWSON. But watch this space: I’m working on one.

Instead, here’s Jodell Sample, Docket No. 4394-20, filed 2/25/21. Jodell opposes IRS wild-carding into evidence some post-NOD stuff. But Jodell and IRS do agree that Section 6015(e)(7) is the standard and scope of review under the new régime.

“They agreed that the new provisions of § 6015(e)(7), in which Congress explicitly provided a standard and scope of review in these cases, applied. They explained that they had nearly agreed on what the contents of ‘the administrative record established at the time of the determination’ were, but that respondent also wanted to introduce documents that the IRS created after it issued that determination. Petitioner objects because those documents are not part of the administrative record. It may also be the case that those documents, if they concern the IRS’s procedure in formulating its determination, would be immaterial to the Court under a de novo standard of review.” Order, at p. 1.

I don’t see why much was made about the applicability of the Taxpayer First Act’s rewrite of the Section 6015(e) standard of review.  A quick docket research shows Jodell petitioned 3/4/20, the Congressional Research Service website shows Taxpayer First became effective 7/1/19, and section 1203 of the Act applies to any proceeding filed thereafter. So why do you need to agree that the law is the law?

But more to the point is IRS’ wild-card.

Under the Taxpayer First Act, innocent spouse review de novo is limited to administrative record and newly-discovered evidence; so no new trial with witnesses, unless they’re the newly-discovered or previously-unavailable evidence.

“Petitioner helpfully pointed out that these may turn out to be questions of first impression. Respondent reasonably wants to seek the views of the National Office. All agreed that these questions could be set up in a motion in limine. Once we decide that motion, they would likely be able to agree on a stipulation to submit the case for decision on the merits under Rule 122 or on crossmotions for summary judgment on the basis of a stipulated record. Given the possible importance of this motion to this corner of tax law, the Court will be generous in its briefing schedule.” Order, at p. 1.

Leaving aside the quibble that there are no “crossmotions” in Tax Court (see Rule 54(b); you can’t respond to a motion and move for your own in the same filing), Judge Holmes gives the parties three months to move, respond and reply. And the parties can stip between themselves for more time.

We’re not told what this “additional newly discovered or previously unavailable evidence” might be, or why IRS didn’t have it before now. I wonder why IRS didn’t move to remand back to Appeals, so as to patch up the administrative record. And I wonder why petitioner didn’t move in limine off the bat to toss this stuff, rather than being “helpful.” Giving the IRS an easy escape-hatch?

Plenty of good blogfodder from Taxpayer First.

Edited to add, 4/1/21: Looks like Jodell and IRS agreed to go with a Rule 122 stiped facts. Maybe so IRS folded the wild cards.

Ex-Ch J Michael B (“Iron Mike”) Thornton plays Sherlock in today’s mystery story.

George Farley, Docket No. 115-17, filed 2/24/21, is fighting about a NOL which IRS claims was legit but which George exhausted years before the years at issue. George, a retired CPA with a never-give-up attitude, reprises said NOL in various amounts and guises (claiming a capital loss carry over (CLCO) resurrects a used NOL), but, contrary to the typecast CPA, has no calculations or computations.

One would expect mathematical and arithmetical arabesques. Especially since George got a continuance of his trial back in 2019 to consult with counsel. Lo and behold (as a late and much-lamented colleague used to say), George gets no fewer than four (count ’em, four) attorneys on board, including without limitation the Boss of The Jersey Boys. All four bail in less than two months.

You can see George is confronting “a bumping pitch and a blinding light/An hour to play and the last man in.”

George, alas, goes down swinging.

“It is unclear whether petitioner means in this proceeding to press the argument suggested by the attachment to his 2009 return, i.e., that his claimed 2011 NOL carryover results in some ill-defined manner from a freeing up of previously utilized pre-2009 NOLs as the result of a previously unreported CLCO. The record shows, however, that petitioner never reported any capital loss carryover on any of his returns for taxable years 1997 through 2008, although he did report and exhaust all available NOL carryovers for those earlier years. Consequently, insofar as petitioner’s claimed 2011 NOL carryover is based on the hypothetical application of CLCOs to unspecified years before 2009 and the resulting alleged restoration of previously exhausted NOL carryovers, his reporting positions are riddled with inconsistencies. Moreover, insofar as petitioner means to suggest that NOL carryovers and CLCOs can be used interchangeably such that a later-claimed CLCO can free up previously utilized NOL carryovers under section 172, his argument lacks legal basis. Net capital losses are not interchangeable with NOLs under section 172 but instead are governed by a separate carryover regime under section 1212.

“Petitioner has set forth no facts and submitted no documentary evidence to show that he is entitled to any NOL carryover for 2011. In fact, he has repeatedly represented to the Court that he has no additional documentation.” Order, at pp. 8-9. (Footnotes omitted).

George also gets an uncontested Section 6651(a)(1) add-on.

We all know well that the administrative record is the darling of all discretionary drill-downs in Tax Court. Notwithstanding, today Judge Patrick J. (“Scholar Pat”) Urda deals with Robinette v. Commissioner, 123 T.C. 85, 95 (2004), rev’d, 439 F.3d 455 (8th Cir.2006), which permits expansion of the administrative record in reviewing a Section 6330(d) levy CDP.

I’m skipping the stereotypical fight over a couple OICs (hi, Judge Holmes) in Craig L. Galloway, 2021 T. C. Memo. 24, filed 2/24/21. It’s the usual determination-sustentation where the petitioner participated previously before Appeals, lost, and “never breathed a word about his loss,” as a much finer writer than I put it. And the beancount over disposable income to satisfy the liability.

IRS is trying to get rid of Robinette, and go back to administrative record rules the universe.

Judge Scholar Pat isn’t buying, especially as nobody’s fighting about the evidence aliunde.

And this is a summary J cross-motion; not the sort of case where long-standing precedent should be casually tossed.

“Mr. Galloway seeks to rely upon three documents that are not part of the administrative record. Respondent objects, urging us to overrule our decision in Robinette v. Commissioner, 123 T.C. 85, 95 (2004), rev’d, 439 F.3d 455 (8th Cir.2006), in which we held that, ‘when reviewing for abuse of discretion undersection 6330(d), * * * our review is not limited to the administrative record.’ The documents relate to dispositive undisputed facts. We decline to reconsider our precedent in a case where it would have no practical effect, and thus permit Mr. Galloway and respondent to refer to the exhibits as they see fit.” 2021 T. C. Memo. 24, at p. 3, footnote 3.

I understand trying any move that isn’t downright frivolous (as the hockey players say, shoot the puck, it might go in). But here IRS’ counsel is going it a wee bit strong.

The old speaking objection at depositions arises today in an e-mail exchange between myself and the Public Affairs Counsel at Tax Court, which I set forth in its entirety, unaltered,  hereinbelow.

Monday, February 22, 2021 6:08 AM

Subject: DAWSON: Searches and Links

Ms Siegel, Has any progress been made towards restoring the “Opinions Search” and “Orders Search” functions on the Tax Court website? If so, when is it anticipated these functions will be restored? If not, why not?

Has any progress been made towards restoring the ability to link to opinions and orders, so that when I cite an opinion or order on my blog, the reader can access the text via hyperlink or similar? If so, when is it anticipated this function will be restored? If not, why not?

Both the above capabilities existed under the old Tax Court website protocols. Is there any reason why either or both should not be restored?

If so, what is the reason?

I have simultaneously sent the text of the e-mailto DAWSON.support.

Lewis C. Taishoff, Esq.

Tue, Feb 23, 2021 12:26 pm

Hi, Mr. Taishoff–

Thank you for your inquiry. The Court does not publicly comment on our feature roadmap, including what additional features will be added or when.  The Court continues to develop and regularly deploy new features.

Jennifer

Jennifer E. Siegel

Public Affairs Counsel

U.S. Tax Court

FWIW.

Konstantin Anikeev and Nadezhda Anikeev, 2021 T. C. Memo. 23, filed 2/23/21, get a Taishoff “Good Job, Third Class,” for their inventive roundy-round with American Express Rewards, befuddling IRS in the process and avoiding the stumble that brought down Parimal Shankar when Citibank said “thank you.”

For Parimal’s story, see my blogpost “Thanks but No Thanks,” 8/26/14. Parimal got Thank Yous from Citibank for keeping his account, and Citibank gave him a 1099-MISC at no extra charge. That was interest.

Today, Konni, not a ramblin’ wreck but from Moscow Tech and MIT, ran cool $6 million through his Amex card over a couple years (hi, Judge Holmes), using same to buy VISA gift cards and reloadable debit cards, using that plastic to buy money orders wherewith to stock his bank account. He always paid down his Amex as he went, and got the Rewards as credits to his Amex account, so he could buy more VISA gift cards and reloadables, and more money orders, da capo al fin.

At days’ end, Konni pocketed a cool $302K in cash, none of which did he or Nadezhda report in either year at issue. Nor did Amex hit him in either year with a 1099-anything.

IRS’ long-standing policy is that rewards for plastic utilization is a rebate of purchase price, not income. If the goods list for ten bucks, but the dealer only charges me nine, I just spent less, I didn’t make more. But my basis in the goods is nine dollars, not ten. Likewise with a credit card rebate. Watch those business card reward purchases for depreciables, inventory or COGS components. Your basis may vary.

Judge Goeke decides IRS is hoist by its own policy, which fouls the Section 61 “grab-it-all.”

“This case rests squarely in the legal chasm between the basic principle to broadly define income and respondent’s own policy. Petitioners’ aggressive efforts to generate Reward Dollars have created a dilemma for respondent which is largely the result of the vagueness of IRS credit card reward policy. Petitioners clearly acquired economic benefits by cleverly and relentlessly manipulating the Rewards Program. Their actions never offended American Express and had Mr. Anikeev not been so successful in his efforts he likely would have been ignored by the IRS. However, the scale of his success in acquiring rewards makes this case an extreme test of the longstanding nontaxability of credit card reward programs. To avoid offending his own longstanding policy respondent seeks to apply the cash equivalence concept. As we will explain herein we do not find it is a good fit.” 2021 T. C. Memo. 23, at pp. 13-14.

Amex won’t Reward purchases of cash equivalents. But the VISA gift cards and reloadables aren’t cash equivalents. They can’t be redeemed for cash. So the Rewards for buying them with the Amex plastic aren’t taxable.

What is taxable is the direct purchase of money orders and the reloads of the reloadable cards with depreciated plastic.

“Reward Dollars petitioners received were not notes, but they were commitments by American Express to allow petitioners credits against their card balances. Respondent’s analysis leaps to the cash equivalence position without an analysis of the origin of the Reward Dollars. Respondent’s position holds weight only if the Reward Dollars were not an effect of the purchase price of goods and services. Otherwise, all Reward Dollars would be taxable as cash equivalent income. American Express offered the Rewards Program as an inducement for card holders to use their American Express cards. For his own reasons respondent has made a conscious choice to avoid the application of a rebate analysis to the taxability of the cash rewards as a reduction of basis. In conclusion, we hold that the Reward Dollars associated with the Visa gift card purchases were not properly included in income.

“However, petitioners’ direct purchases of money orders and reloads of cash into the debit cards using the American Express cards presents a different question from the purchase of Visa gift cards. The Visa gift cards have product characteristics. They provide a consumer service embodied in a simple plastic card for convenience. The Visa gift cards are not redeemable for cash, but the money orders purchased with the American Express cards and the infusion of cash into the reloadable debit cards are difficult to reconcile with the IRS credit card reward policy. No product or service is obtained in these uses of the American Express cards other than cash transfers. The money orders are not properly treated as a product subject to a price adjustment because they were eligible for deposit into petitioners’ bank account from acquisition. Similarly, the cash infusions to the reloadable debit cards were not product purchases. The reloadable debit cards were used for Moneygram transfers, which are arguably a service. However, the Reward Dollars in dispute were issued for the cash infusions, not the transfer fees. Therefore, we uphold respondent’s inclusion in income of the related Reward Dollars for the direct purchases of money orders and the cash infusions to the reloadable debit cards.

“We note that the above holdings are not based upon the application of the cash equivalence doctrine but rather the incompatibility of the direct money order purchases and the debit card reloads with the IRS policy excluding credit card rewards for product and service purchases from income. These holdings are based on the unique circumstances of this case. We hope that respondent polices the IRS policy in the future in regulations or public pronouncements rather than relying on piecemeal litigation.” 2021 T. C.Memo. 23, at pp. 21-22.

Rule 155 beancount for Konni and IRS.

Or They’ll Do It Their Way

Friendship Creative Printers Inc., 2021 T. C. Memo. 19, filed 2/22/21, made the requisite 941 filings and paid more than IRS claimed was due for year at issue, but were late on both filing and paying. So the Section 6651(a)(2) late-files and Section 6656 late-pays followed, plus an NITL at no extra charge.

While the payments were made, the Friendships didn’t tell IRS what to apply where, so IRS applied first to the add-ons, and only then to the taxes.

So here’s Judge Nega.

“With respect to the [year at issue] quarters, petitioner failed to expressly challenge its liability for the section 6651(a) additions to tax and the section 6656 penalties. But because petitioner believes that it fully paid its employment tax liabilities for those quarters, its failure to mention the section 6651(a) additions to tax and the section 6656 penalties can be construed as an implied challenge to its underlying liability. See Patrick’s Payroll Servs., Inc. v. Commissioner, T.C. Memo. 2020-47, at *10-*11 (citing Katz v. Commissioner, 115 T.C. 329, 339 (2000)) (reiterating that the term “underlying tax liability” comprises “the tax deficiency, any penalties and additions to tax, and statutory interest”). Consequently, we review the underlying liability as it relates to [year at issue].” 2021 T. C. Memo. 19, at p. 10.

But the Friendships never showed any reason for the late filing and late paying, so the add-ons stay in.

True, the Friendships did late-pay what the late-filed returns showed. But no add-ons.

“A review of the record indicates further that respondent applied petitioner’s partial payments and deposits against not only the assessed employment taxes but also the assessed section 6651(a) additions to tax, section 6656 penalties, and interest, resulting in petitioner’s having an outstanding balance for each of the 2013 quarters. See Rev. Proc. 2002-26, sec. 3.02, 2002-1 C.B. 746, 746 (authorizing the IRS, in the absence of a specific written directive, to apply partial payments of a liability against additional taxes, penalties, and interest that have been assessed against a taxpayer).

“Moreover, while petitioner noted…that certain payments and deposits were to be applied for particular quarters, the record shows respondent applied those payments and deposits for different quarters. See id. (explaining that, where a taxpayer has tendered only partial payment, without providing ‘specific written directions as to the application of [the] payment,’ and has been assessed additional taxes, penalties, and interest, the IRS can apply the payment in the manner that ‘serve[s] its best interest’).” 2021 T. C. Memo. 19, at p. 16.

At the CDP, the Friendships didn’t establish currency with subsequent filings-and-payments due, and sent in unsigned returns for other periods.

Takeaway- If you’re filing and paying anything but immediately current items with nothing past due, tell ’em. Tell ’em specifically. Or it’s open season.

One can almost hear the weariness in Judge Mark V. Holmes’ voice as he dictates the opinion in Desert Organic Solutions, 2021 T. C. Memo. 22, filed 2/22/21.

The Desert Organists are potters seeking Section 162 ordinary-and-necessaries for their CA-legal pottery.

You can almost hear Judge Holmes’ pleading falling upon IRS’ deaf ears. “In Patients Mutual Assistance Collective Corp. v. Commissioner, 151 T.C. 176 (2018), appeal filed, No. 19-73078 (9th Cir. Dec. 3, 2019), we extensively analyzed the taxation of this still relatively new industry. Patients Mutual is currently on appeal to the Ninth Circuit. We’d suggested to the parties that it might be sensible to wait to see what happens to that appeal before taking this case to decision, but the Commissioner disagreed.” 2021 T. C. Memo. 22, at p. 2.

Of course I’d blogged Patients Mutual. See my blogpost “The War on Drugs,” 11/29/18.

So the Desert Organists ask for everything, they and IRS stip to a different everything, and Judge Holmes decides some kind of everything.

Wherefore, we have a three-page T. C. Memo., contending for the shortest of the year.

While Dodging the Tax

I didn’t blog William A. Llanos, Docket No. 9890-18, filed 10/15/19, when it was decided; it was the usual off-the-bench tax-dodger.

Fortunately for Wm A, though, he filed his petition in William Allen Llanos, 2021 T. C. Memo. 21, filed 2/22/21, before Judge Kerrigan unloaded the aforementioned off-the-bencher, and IRS wasn’t then looking for Section 6673 chops, so no yellow card to Wm A. Wherefore, Wm A dodges the Section 6673 chop this time.

It’s the usual wages-aren’t-taxable frivol, just like the last time. I won’t quote William Blake again; as C. S. Lewis said of the great artist-poet, “I am not at all sure I know what he meant.” But I am entirely sure that persisting in frivolity is not wise.

Here’s Judge Kerrigan’s take.

“Although petitioner did advance frivolous arguments during trial, he agreed to stipulations of facts and raised an argument addressing whether the penalty approval requirement of section 6751(b) was met. This case is not the first time petitioner has raised frivolous arguments before this Court. In Llanos v. Commissioner, T.C. Dkt. No. 9890-18 (Sept. 11, 2019) (bench opinion), read into the record on September 11, 2019, this Court made it clear that petitioner did not make any valid arguments, and the same is true of this case. Since the petition in this case was filed before the trial of petitioner’s previous case, we will warn petitioner, rather than impose sanctions. If petitioner does not abandon his misguided positions, it is very likely that a sanction will be imposed in any future cases before this Court.” 2021 T. C. Memo. 21, at p. 9.

Wm A gets Section 6702 chops, dodges the Section 6673.

Today Ch J Maurice B (“Mighty Mo”) Foley rebukes Jordan S. Musen, Esq., for signing the same Entry of Appearance as Joanne H. Kim, Esq. The rule, y’all remember, is separate checks when checking in to Tax Court. See my blogpost “The System Won’t Allow It,” 4/3/20.

And that’s so, even post-DAWSON, when the system was apparently beClouded, supposedly to make it more user-friendly (yeah, most F affirmative; the F is for emphasis).

Y’all can get the ganze geschichte, as my beloved grandma would have put it, in Maria I. Amaya a.k.a. Maria Ilda Ramos Amaya, Docket No. 3082-20, filed 2/19/21.

But Joanne and Jordan must have got it right before now, or maybe the system loosened up a little, because only last month they appeared together as IRS’ counsel in 156 T. C. 1; see the reference to the text in my blogpost “We Don’t Need No Authority,” 1/14/21. DAWSON won’t let me link to the Tax Court text of the opinion. Edited to add, 7/10/21: except I did figure it out, no thanks to the Genius Baristas or the 18F, whoever they might be.

And a quick docket search in that case shows neither Entry of Appearance nor bounce of any.

Besides, since when does IRS counsel have to file Entry of Appearance? Not that that’s a bad idea.

Maybe we should finally get a law firm – gov’t agency attorney master E of A filing system that does allow it. Think the Genius Baristas are capable of that?