I miss my very occasional visits to the track. It’s not the thought of making money; horseplayers die broke is a truism. I like trying to dope out a race, and complaining to myself in sulphurous terms when I get it wrong, as I almost always do. Watching the paddock parade on television isn’t the same.

Howbeit, I was so taken up by the tale of Leon Max that I didn’t pick up two other opinions today. So here’s the late double.

First, a win for Frantic Frank Agostino and The Jersey Boys, John K. Crandall and Nives M. Crandall, 2021 T. C. Memo. 39, filed 3/29/21. It’s Nives’ story, as she’s a US-Italian dual citizen with some Italian-sourced income that never made it onto the 1040.

Nives saw the light, and availed herself of OVDP; that’s the come-clean for offshoreniks. There’s much back-and-forth, but at close of play Nives and IRS sign off on Form 906. I’ll let Judge Vasquez describe that.

“All closing agreements must be executed on forms prescribed by the Commissioner. Section 601.202(b), Statement of Procedural Rules, provides that the Commissioner will use one of two forms for closing agreements: (1) Form 866, Agreement as to Final Determination of Tax Liability, generally used to determine conclusively a taxpayer’s total tax liability for a taxable period; and (2) Form 906, which is the type at issue here, generally used if the agreement relates to one or more separate items affecting the tax liability of a taxpayer.” 2021 T. C. Memo. 39, at p. 17 (Citations omitted).

Of course, these settlement deals are strictly construed, and general contract law applies. The fight here is about a $6K minimum tax credit that the RA mistakenly allowed Nives and John, but which John and Nives never claimed. Now IRS wants it back, plus chop.

The form says it covers a bunch years (hi, Judge Holmes) for which John and Nives are allowed FTC (Foreign Tax Credit), but doesn’t state a sum certain for the year at issue. So IRS says that’s a free-fire zone.

No, says Judge Vasquez. The form says IRS can adjust everything but the offshore stuff. The FTC that Nives and John claimed for year at issue was never adjusted. Though IRS says that means no agreement, Judge Vasquez says the claimed FTC stands.

A Taishoff “Good Job” goes to The Jersey Boys.

Next entry, Purple Heart Patient Center, Inc., 2021 T. C. Memo. 38, filed 3/29/21. PHPC is a CA nonprofit pottery taxed as a C Corp. Keith Stephenson, sole director, shredded all proofs of COGS, fearing that same would be used to sustain Draconian mandatory minimum trafficking jail time. So he has not a shred of evidence (sorry, guys) of the cost of his COGS.

Keith tries the expert witness manœuvre, whereby the witness testifies as to industry standards. We saw that in the PMAC case; see my blogpost “Bei Mir Bist Du Schane,” 6/3/16. It didn’t work there, and it doesn’t work here.

But Keith himself takes the stand.

“Neither Mr. Stephenson’s nor Mr. [expert]’s testimony was precise enough to substantiate the amounts of COGS Purple Heart claimed on its tax returns. But Mr. Stephenson’s testimony may have been credible enough for us to estimate part of Purple Heart’s claimed COGS under Cohan. He testified that Purple Heart marked up the cannabis it sold by 100% and determined the price of its noncannabis products by doubling the wholesale price; both practices would suggest COGS of approximately 50% of its gross receipts. Mr. Stephenson also reviewed the general ledger each week to ensure that all of Purple Heart’s purchases and sales were properly recorded; and Mr. [expert] testified that, before preparing its tax returns each year, he checked the records Purple Heart provided to him to determine whether any of the sales or purchases appeared to be inaccurate. However, Mr. [expert] did not review any of the source documents for Purple Heart’s sales and purchases; and Mr. Stephenson testified that it was ‘almost impossible * * * [for Mr. Stephenson]to know everything” happening with Purple Heart’s sales and purchases because he “dealt with operations at a higher level’.” 2021 T. C. Memo. 38, at pp. 29-30.

One year’s COGS go by the board because end prior year’s inventory and opening year at issue inventory don’t match. So no basis for determining COGS. But next year’s opening inventory did match previous year’s closing inventory, so Keith’s 50% COGS number works.

There’s unreported income that Keith can’t rebut, arising out of claimed purchases of boo for cash.

Keith claims reasonable basis for escaping chops, because he filed Form 8275, the “please audit me” form. But that would help only if the issue were misallocation, not substantiation. And Keith knew that shredding his records wouldn’t help him avoid the slammer, because he had been quoted in national publications, and taught at the first pot university in America. Judge Pugh won’t even consider if Keith’s fear of prosecution is reasonable, much less a reasonable excuse for avoiding chops.

Pot university? Well, I’ll be dipped.