Spreadsheets are popular. Spreadsheets are useful. Universally available software makes compiling and producing spreadsheets easy.

Spreadsheets are useless for substantiating tax deductions. The sad fact is, you still need back-ups.

Ask Abrahan Pichardo and Carolina Pichardo, 2021 T. C. Sum. Op. 7, filed 3/8/21. They gave spreadsheets to their trusty preparer (qualifications not stated, but as IRS conceded the accuracy chop, it doesn’t matter), showing Abrahan’s Section 2106s for his loss prevention work.

But the reimbursements from Abrahan’s employer, and any Section 274 documentation, never make it into the trial.

The reimbursement issue sinks Abrahan’s deductions, but I want to note what STJ Peter Panuthos says about spreadsheets. As is often the case, there’s good stuff in footnotes.

“Although we find for respondent on a separate ground, we note that Mr. Pichardo’s records were generally insufficient to substantiate his reported business expenses. Mr. Pichardo submitted into evidence a spreadsheet entitled ‘2016 Expense Report Totals’ listing, among other expenses, amounts purportedly spent on gas, hotels, airfares, rental cars, and overnight meals. Each of these categories is subject to the strict substantiation rules of sec. 274(d), and thus the amounts cannot be estimated. Apart from a single airline invoice and a document entitled ‘Summary of Tolls per Transponder / Vehicle’ (toll invoice), Mr. Pichardo did not provide the Court with additional substantiating receipts, invoices, or other documentary evidence.” 2021 T. C. Sum. Op. 7, at p. 10, footnote 4.

The toll story is also a wee bit dodgy, says STJ Panuthos. “Mr. Pichardo did submit documentary evidence that $544 in tolls and $110 in fees associated with eight different toll transponders were prepaid by some party in 2016. However, the toll invoice did not list Mr. Pichardo as the payor. Nor did Mr. Pichardo provide additional evidence connecting him to the account number listed on the document. Additionally, his testimony was unclear as to why he would have used eight different transponders in a single year and whether any of the transponders listed on the toll invoice were associated with his vehicle.” Ibid., at p 11.

Eight (count ’em, eight) transponders would work if Abrahan constantly rented cars for work-related trips. Different cars from same rental company would generate same payor but different transponder codes. No evidence of that. Maybe trusty preparer should have looked closer and asked.

Abrahan has problems with his American Opportunity Tax Credit. Yes, he took relevant courses at a well-respected university, but couldn’t show he was a half-time student.

My colleague Peter Reilly, CPA, is pursuing a case on which I took a pass a week ago, involving substantial compliance in a charitable deduction case (non-conservation type). It didn’t interest me sufficiently, as the appraisal was way off the mark as to specificity, however qualified the appraiser.

But I keep searching for a good story.

This morning there’s a novel frivolite, who managed to bring a grin even to my battered visage, as I await, a wee bit apprehensively, my first COVID shot this afternoon.

Here’s Dmitry Tsibulskiy, Docket No. 15660-19, filed 3/8/21 (an important date in our family for reasons other than inoculations).

IRS was wrong-footed when the numbers in the tax return and SNOD didn’t match those in the business records proffered in support, but between calendar call and recall, IRS stumped up a supplement harmonizing all.

So Judge Elizabeth A. (“Tex”) Copeland told IRS to certify the numbers, and report. But if Dmitry continued to stall with trial prep, IRS could refile its motion to dismiss for want of prosecution. So, surprise, surprise, IRS tries again to toss Dmitry.

Ya gotta admit, Dmitry’s status report is a doozy.

“The status of the petitioner is one of an ‘Internationally Protected Person’ by the proper surredner [sic] to the Occupying military forces. See attached the ‘Notice of Surrender to the Commander-nChief.’ All claims have been properly filed as required by the occuping [sic] forces. The tax Court being a military court shall address all actions to the President of the United States as the holder in due course of the PERSON named: DMITRIY TSIBULSKIY.” Order, at p. 2.

Judge Tex Copeland notes, with a straight face, “(N)o attachment was included.” Order, at p. 2.

I somehow doubt that, even if there were an attachment, Dmitry would have survived this triumph.

He’s tossed, to the tune of a hundred grand plus interest.

We know there is no mandated form for a Statutory Notice Of Deficiency (SNOD; see Section 6212). A SNOD need state only type of tax, tax year, amount of deficiency (difference between tax imposed by law and tax stated on return), and “shall include a notice to the taxpayer of the taxpayer’s right to contact a local office of the taxpayer advocate and the location and phone number of the appropriate office.”

We also know that the statutorily-mandated period wherein a SNOD may be petitioned to Tax Court is 90 (count ’em, 90) days “after the notice of deficiency authorized in section 6212 is mailed (not counting Saturday, Sunday, or a legal holiday in the District of Columbia as the last day).” And it’s 150 days for offshoreniks.

So must the SNOD state the date whereon it was prepared or issued?

Sharif M. Giurgius, Docket No. 11263-20S, filed 3/5/21, thinks so. IRS claims Sharif was late with his petition and moves to toss, attaching to its motion papers an undated SNOD, and certified mail list showing date of mailing. Sharif objects, “emphasizing the undated state of the notice.” Order, at p. 1.

Ch J Maurice B (“Mighty Mo”) Foley wants to hear from IRS.

Taishoff says, whatever the result here, the date of issue should appear on every SNOD, even though date of mailing governs (and maybe the SNOD should so state).

I thought it was settled law that, where the statute did not mandate entry of decision in favor of IRS in a sum certain specified (deficiency cases), petitioner could successfully move to dismiss. That was settled with CDP cases, with whistleblowers, and innocent spouses, all of which I’ve blogged. So when petitioners seek abatement of interest per Section 6404(h), and fold when IRS limps in, why not?

The old Tax Court website (pardon a nostalgic sigh) had this definition of a full-dress T. C. opinion: “Generally, a Tax Court Opinion is issued in a regular case when the Tax Court believes it involves a sufficiently important legal issue or principle.” A couple times (hi, Judge Holmes), I disagreed over the years with the classification of a case into the T. C. or T. C. Memo. (settled law) category.

Today, I’m perplexed.

Judge Kerrigan must have had an idle moment because she gives us a full-dress five-page T.C. in reply to my question, Mainstay Business Solutions, 156 T. C. 7, filed 3/4/21.

“In 1996 Congress granted the Tax Court jurisdiction through what is now designated section 6404(h) to determine whether the Secretary’s failure to abate interest under section 6404 was an abuse of discretion. Taxpayer Bill of Rights 2, Pub. L. No. 104-168, sec. 302(a), 110 Stat. at 1457 (1996).

“For the review of collection actions, determination of innocent spouse relief, and whistleblower award determinations, we have concluded that a petitioner is able to withdraw a petition. As we did in Wagner, Davidson, and Jacobson, we look to the Federal Rules of Civil Procedure (FRCP) for guidance because there is no Tax Court Rule that controls. See Rule 1(b), (d). FRCP 41 allows a plaintiff to dismiss a civil action voluntarily without a court order if the plaintiff files a notice of dismissal before the opposing party serves either an answer or a motion for summary judgment or if the plaintiff files a stipulation of dismissal signed by all parties who have appeared. See Fed. R. Civ. P. 41(a)(1)(A). In all other circumstances a plaintiff is allowed to dismiss a civil action voluntarily only through a court order. See id. subpara. (2). A court has discretion to dismiss a case pursuant to FRCP 41(a)(2). Consistent with our holdings in Wagner, Davidson, and Jacobson, which allowed the withdrawal of nondeficiency petitions, we have the authority to allow a petition to be withdrawn voluntarily in a case for review of the Secretary’s failure to abate interest.” 156 T. C. 7, at pp. 3-4. (Citations omitted).

And Judge Kerrigan lets the Mainstays slack the stays and heave-to, as IRS doesn’t object.

Of course, if the respondent (IRS) is prejudiced and objects, la partie continue.

But for this we needed a full-dress T. C.? With six (count ’em, six) lawyers?

I understand and agree that the documents in Tax Court cases are special, and deserve special handling. Pleadings, motions, evidence, all may contain Section 6103 taxpayer info, trade secrets, privileged matter. Without staff to redact such matter when petitioners and third-parties fail to do so, the hardlaboring Glasshouse clerks have to hide it all, and let FOIA sort it out. See my blogpost “Snow(den) Job?” 7/18/16.

We’re being promised that searchable orders and opinions issued from and after 5/1/86 will arise from Dawson’s Creek “soon.” Well, it’s been since December 28 last year, and crickets. I searched today for a stipulated decision in a case I blogged back in 2016. The docket entry was there, but the decision itself could not be viewed. Why? The opinion wasn’t sealed.

My blogging colleague Mr. Paul Streckfus and I were talking back in January about the failure to restore the old system, which provided infinitely better search capabilities.

I cut the Genius Baristas slack two months ago, recognizing the need to make the system immediately accessible to self-representeds and counsel to move cases forward. See my blogpost “I Am Third – Part Deux,” 1/26/21. So if I am a grumpy old man, as my colleague Peter Reilly, CPA, would put it, at least I am not claiming that Tax Court is senior hour at Trader Joe’s, and trying to jump the line.

But the time has come. It’s time to make orders and opinions on-line and available. That means listing all of them, not requiring the public to search individually. That means providing links that work to the texts of opinions and orders, so we journos and bloggers can link to the texts in our blogposts, and readers can see for themselves whether we got the story right, then and there, without having to go searching somewhere else.

That means making Section 7461 publicity, and the Taxpayer Bill of Rights Rule One, the right to be informed, realities, and not Pirates of the Caribbean “guidelines…aspirational goals,” on the one hand, and the Taxpayer Bill of Goods on the other.

And maybe we also need to see how DAWSON was conceived, designed, rolled out, who sat at the table during the process, and what it cost us taxpayers. I’ll come back to that.

IRS claims Judge David Gustafson threw shade on the beloved “bright line” test that laser-erased conservation easements, both great and small, by not applying the split-of-extinguishment-proceeds test in St. Andrews Plantation, LLC, Joseph N. McDonough, Tax Matters Partner, Docket No. 20849-17, filed 3/4/21.

All y’all will doubtless recollect that IRS went one for three against the St. Andys just before Dawson’s Creek wiped out Tax Court (and I’ll have a lot more to say about the wipe-out, so watch this space). The omitted basis was the win, but did the St. Andys have reasonable cause therefor? Fact question, so no summary J for IRS. And IRS lost summary J on the extinguishment split-up. Fact question: Were the “improvements” worth anything? See my blogpost “Ya Can’t Improve on That,” 11/16/20.

IRS counsel, paid at least bi-weekly (win, lose, or draw) can ignore the wise advice of Frantic Frank Agostino, Head Honcho of the Jersey Boys, as expressed in yesterday’s free CLE from Rutgers Law School (thanks, Frank; poor zoom, great show). “Do you really think a Judge, having spent months crafting an order or opinion, is gonna overturn it just because you lost?” True for us practitioners, with clients to serve, mindful of interest running on a deficiency and concerned about billing legal fees at least arguably unnecessary because futile.

We have a New York Rule 137 for fee dispute arbitration. Better not to go there.

Judge Gustafson isn’t gonna overturn his own order and opinion.

“To the extent the Commissioner argues that our prior opinions established a ‘bright-line rule’ compelling the conclusion that a deed allocating proceeds in the event of an extinguishment that contains the language ‘minus any increase in value after the date of this Conservation Easement attributable to improvements’ will always, despite any other language in the deed, and despite the context of the agreement as a whole, violate the requirements of section 170(h)(5), we disagree.” Order, at p. 3.

All the blow-up cases involved rights for grantor to make substantial improvements to the servient tenement; I’ve blogged Belair, Cottonwood and Red Oak, on which IRS relies.

IRS seems to think that an order denying summary J differs somehow from all other orders. That doesn’t fly.

“To the extent the Commissioner argues that the Deed as a whole violates the requirements of section 170(h)(5), the Commissioner has done nothing more than re-argue his motion for summary judgment, which is not a proper basis for reconsideration. We held in our order that genuine disputes of fact precluded summary adjudication on this issue; we find no reason sufficient to revisit this conclusion. We are unaware of any authority that directs us to apply a different standard to a motion for reconsideration made after the denial of a motion for summary judgment (and the Commissioner cites none). To the contrary, we have previously applied the ‘unusual circumstances or substantial error’ standard…to a motion for reconsideration made after a denial of summary judgment.” Order, at p. 4. (Citations omitted).

Just a farm hand from the Dakotas, that’s Duane (“Doc”) Pankratz, 2021 T. C. Memo. 26, filed 3/3/21. The “Doc” is for his DVM from Iowa State University. The “lowly” is from Judge Mark V Holmes’ depiction of Doc Duane’s presentation on the stand.

Except.

The lowly farmhand is fighting about a couple million in charitables, plus a couple chops in connection therewith (this is Judge Holmes, after all; he never met a partitive genitive he liked). And Doc Duane created a cattle vaccine, in consequence of which he founded a lab, and sold it for $85 million. And ran a bunch of businesses in the Mount Rushmore area (chart on page 5 of 2021 T. C. Memo. 26).

Doc Duane had some high-priced tax counsel even before his top-class tax trial counsel. Disclosure: many years ago the tax counsel’s predecessor firm did tax work for me and the firm in which I was then a partner. But Doc Duane never talked to them. He was always “never around”, so he had one of his trusty bookkeepers, who had a BA in accounting but was never a CPA, Retrep or EA, talk to counsel. And then had a local CPA do the tax returns for the years at issue.

Judge Holmes pops the main question: “Can the failure to attach appraisals be due to reasonable cause when a taxpayer admits that he did not review his tax returns before filing?” 2021 T. C. Memo. 26, at pp. 1-2.

Doc Duane talked to a local appraiser about one charitable, but the appraiser said it was so unique that he couldn’t appraise it. So Doc Duane sent in his returns without an appraisal. He claims reliance. True, his tax counsel was competent, and Doc Duane gave him everything. But Duane never spoke to him, nor he to Doc Duane. And the trusty bookkeeper aforesaid, though trusty, wasn’t competent. Or, apparently, communicative.

Judge Holmes treads warily. Doc Duane was acting in good faith before he had his return prepared. Apparently, he’d once before had a large, non-cash charitable accepted by IRS without an appraisal. (Judge Holmes’ emphasis). “But we want to be careful about limiting this finding of reasonableness–we find only that it was reasonable for Pankratz to not know about this requirement when he first submitted information to the [tax counsel].” 2021 T. C. Memo. 26, at p. 25.

As for good faith reliance, Doc Duane never spoke to tax counsel. Tax counsel testifies that trusty accountant spoke to him, and he told trusty accountant that appraisal was required. But as trusty accountant never told Doc Duane, that’s out.

True, Doc Duane says he never examined the return before signing. But that’s not invariably disqualifying chopwise. “A taxpayer’s failure to review a return, though troubling, is not by itself fatal–there can be cases where even diligent taxpayers wouldn’t be able to see a subtle problem in their tax returns.” 2021 T. C. Memo. 26, at p. 26 (Citation omitted).

The trouble for Doc Duane is that Form 8283 says “appraisal” in four (count ’em, four) different places. Judge Holmes even prints a copy of the form (for the year at issue; since amended) at p. 14. And Doc Duane is a savvy, well-educated businessman, who built a multifaceted business from a start in a waterless farmhouse, doing hard chores.

Doc Duane boosted his depreciation deductions with sum-of-the-parts cost-segregation studies performed by tax counsel. Tax counsel got to see everything. Doc Duane took his deductions based on the draft report, but as the final didn’t vary materially, IRS loses any chops on any extra tax generated by failings thereof.

Finally, Doc Duane’s Section 162 ordinary-and-necessary deductions got hit, but as the issue there is bookkeeping mistakes, whether Doc Duane had a good system in place can vitiate the chops. In a multiplex business operation, the high command cannot oversee every ledger entry. It’s not a question of reliance on experts, but whether there were enough checks-and-balances to keep the rank-and-file on the straight-and-narrow. Mostly.

As to some of his businesses, his trusty CPA preparer did all the right things; if Doc Duane hadn’t settled out on the Section 162 write-offs, maybe her work would have gotten a better result. As to some other businesses, the trusty accountant, though no tax whiz nor great communicator, had been on the job for years and had done a good job.

There was a third bookkeeper. “All we know about N is that Pankratz believed her to be a ‘great bookkeeper.’ But we don’t know anything about her experience, her education, or her bookkeeping methods. We have nothing aside from Pankratz’s word (and we do mean one word–‘great’) with which to determine whether N was a qualified, competent bookkeeper. And there is nothing in the record to show that N’s work was reviewed by any more obviously qualified tax professional…. Penalties therefore apply to any erroneous deductions taken for businesses where N did the bookkeeping.” 2021 T. C. Memo. 26, at p. 40. (Name omitted).

Doc Duane had three (count ’em, three) attorneys on the case, from a high-powered tax firm with lots of combat time. I’m surprised they put in nothing about N’s experience and qualifications, especially since all the deficiencies were stiped out. When chops are all that is left, every little bit helps. Unless maybe N was less than “great,” and the less said, the better.

Joe Gallegos is a 5-header. If you don’t know what a 5-header is (and I admit I didn’t until now), check out Joseph A. Gallegos and Joy K. Gallegos, 2021 T. C. Memo. 25, filed 3/2/21. Judge Mark V Holmes will tell you a lot more about heading and heeling than you wanted to know.

Spoiler alert – Joe is an earl-of-insurance (Medicare Advantage division) turned team roper. Joe is a mid-level half of a team roping duo, who claims he’s trying to make money, while IRS claims he’s in it for fun.

Judge Holmes has all the usual puns, but Joe is appealable to 5 Cir, so Judge Richard Posner’s “lame attempts at humor” 7 Cir jibe is off the menu.

It’s the usual trudge through the 1.183-2(a) “goofy regulation.” My colleague Peter Reilly CPA is an aficionado of the hobby loss rodeo, and will doubtless find Joe’s tale a worthy addition to his five-foot shelf. Of course, the Section 183(d) horse break is a nonstarter, as no gross income in excess of deductions for any two out of seven years, 2021 T. C. Memo. 25, at p. 11, footnote 7.

Joe is short on bookkeeping for his horsing around, but big on losses, better than $50K per year for each of the three (count ’em, three) years at issue. And his bookkeeping for his insurance gig shows he knows how to ride herd on that activity. He neither reports the team roping job nor the insurance gig separately, but does a one-size-fits-all Sched C, a definite no-no. And he has no separate bank account for the team roping.

But ya gotta love his trial testimony.

“We’re convinced here that Gallegos devoted a significant amount of time to team roping. He traveled to three roping competitions a month and practiced several hours a day, twice a day at times, even when he just wanted to ‘sit * * * and watch “The Big Bang Theory” and eat some potato chips.’” 2021 T. C. Memo. 25, at p. 17. Sounds like the Girl of My Dreams, a big TBBT fan, bar the potato chips.

“‘The presence of personal motives in carrying on of an activity may indicate that the activity is not engaged in for profit, especially where there are recreational or personal elements involved.’ Sec. 1.183-2(b)(9), Income Tax Regs. Mr. Gallegos admits that he enjoys team roping, but says Mrs. Gallegos does not. He also says that the horses ‘are not ridden for pleasure,’ but rather are ‘business assets’ that are for sale. He says that team roping ‘is extremely hard work, time consuming, physically demanding and often times flat out gross.’ But many hobbies can take a lot of time and energy while still being mostly a source of personal recreation. We also aren’t convinced that someone who grew up around horses would find the work ‘gross’.” 2021 T. C. Memo. 25, at pp. 24-25 (Citation omitted).

Joe had been team roping for almost 20 years before the years at issue, and never made a dime. He’d changed his insurance business from life and health to Medicare Advantage, and a made a bundle. Just let me tell you about the premiums I pay for my Medicare Advantage policy. But Joe stuck with the horses.

Judge Holmes sticks Joe for the deficiencies.

There was some argy-bargy, apparently based on IRM§25.26.1.2, that, whatever Judge Albert G (“Scholar Al”) Lauber decided in Klein, IRS was going to go after interest on RBAs (Restitution-Based Assessments), while deciding whether or not to appeal Klein, or maybe just ignore it, back in 2017. The thought was that “as if tax” in Section 6201 meant “identical to tax.”

Well, fast forward to 2019, and IRS folded. For the backstory see my blogposts “IRS Gets Zip,” 10/3/17, and “Restitution? Not Interested,”12/22/17.

So Pablo Lucas, Docket No. 25957-17L, filed 3/2/21, was out from under the interest burden on the $1.083 million RBA with which he got socked at USDCEDNY, before ever he got to Tax Court.

Unhappily for Pablo, getting there was not half the fun. Pablo claims the NFTLs wreck his credit and keep him from getting jobs where he could make enough to pay off the RBAs.

Ex-Ch J Michael B (“Iron Mike”) Thornton sustains the NFTLs, because Appeals found Pablo had more assets and disposable income than he claimed.

But just in case Pablo paid down more of the RBA than the record (somewhat murky) shows, and even though Pablo may have abandoned that argument, IRS shouldn’t try to grab more than Pablo actually owes. Order, at p. 8, footnote 4.

Years before Judge Travis A. (“Tag”) Greaves ascended to the Tax Court Bench, the Section 6751 (b) Boss Hoss sign-off was a hot topic. Today, Judge Tag Greaves has a full-dress T. C.

IRS once more is out, leg before wicket, in Brian D. Beland and Denae A. Beland, 156 T. C. 5, filed 3/1/21.

I’ll just quote the syllabus (that’s the case heading summary statement of facts and conclusions of law, for you civilians).

“R commenced an examination of a joint return filed by Ps. A revenue agent (RA) sent Ps a summons requiring their attendance at an in-person closing conference before the end of a soon-expiring limitations period on assessment. During the closing conference the RA provided Ps a completed, signed Form 4549, Income Tax Examination Changes, reflecting an I.R.C. sec. 6663(a) civil fraud penalty. Ps declined to consent to the assessment of the civil fraud penalty reflected in Form 4549 or sign Form 872, Consent to Extend the Time to Assess Tax, to extend the limitations period. Thereafter, the RA obtained written approval from her immediate supervisor for the civil fraud penalty and sent Ps a notice of deficiency determining the same.” 156 T. C. 5, at p. 1.

One can see the original error, before even getting the Boss Hoss out of the stable. If fraud is seriously on the table, why is there any SOL limitation? See Section 6501(c). And if it isn’t, why mention it before getting Section 6751(b) Boss Hoss sign-off?

True, this audit took place a couple years (hi, Judge Holmes) before Graev was decided, but Section 6751(b) had been enacted more than fifteen (count ’em, fifteen) years before.

It’s a quick summary J for Brian & Danae. Judge Tag Greaves does the usual drive-by past Clay, Belair Woods, and Oropeza, all of which I’ve blogged. IRS’ arguments that the SNOD, which issued after the meeting where both the 4549 was brandished and the 872 extender was proffered, was the real first intimation of the fraud penalty, because the 4549 was somehow incomplete, or not final, or could be appealed, or was not mailed (but rather personally delivered), get the treatment they deserve.

And Brian & Danae (and trusty CPA) were summoned to the meeting. Which IRS refused to adjourn even though Danae had just given birth to her second child.

“Petitioners sent a letter to RA R… requesting a postponement of the summons interview because petitioner wife had just given birth to petitioners’ second child. In response, respondent’s counsel sent a letter to petitioners… to compel their appearance before RA R…. The letter stated that ‘[l]egal proceedings may be brought against you in the United States District Court for not complying with [the] summons’…. Petitioners acquiesced and appeared with CPA B before RA R, GM P, and IRS Group Manager Y at the… meeting.” 156 T. C.5, at pp. 3-4. (Names omitted, although maybe I shouldn’t omit them. Howbeit, you could look it up.)

I most respectfully submit that this is exactly the sort of bullying and bludgeoning that Section 6751(b) was supposed to prevent.

Time for admins and legals?