Successors to the late Ron H. Bell’s interest in Bell Capital Management, Inc., 2021 T. C. Memo. 74, filed 6/14/21, the corporation the late Bell founded and 100% of whose shares he owned, find the corp facing unpaid FICA/FUTA plus fraud chops, as a result of the late Bell’s offshore employee leasing games.

These dodges involved an onshore highroller with a one-man-band operation causing his wholly-owned to rent him from an offshore dummy. The wholly-owned supposedly avoids payroll taxes, which the offshore dummy surreptitiously funnels back to the highroller.

The late Bell came unglued before my blogging days back in 2009 in Foxworthy, Inc., 2009 T. C. Memo. 203, and affirmed by 11 Cir. in 2012. IRS claims collateral estoppel (issue preclusion). Judge Wells unwraps the factors and finds for IRS.

The corp’s claim that the late Bell’s guilty knowledge cannot be imputed to it because there was another corporate officer besides the last Bell collapses, as it came out in Foxworthy that the other officer would sign whatever the late Bell put in front of him.

“We find that for each period in issue, petitioner’s withholding form and Forms 941 and 940 were false or fraudulent returns because its officers intentionally omitted payments made for Mr. Bell’s benefit with the specific purpose to evade tax believed to be owing. Petitioner properly reported Mr. Bell’s wages before 1996. For the periods in issue, petitioner’s officers entered into leasing contracts which were part of an overall scheme of offshore transactions. Mr. Bell’s already established fraud as to those offshore transactions is evidence we can consider in finding petitioner’s fraudulent intent. Mr. Bell acted in his capacity as petitioner’s officer when he designed and implemented the OEL transaction with Mr. R. Mr. C, another individual acting in his capacity as an officer, assisted by signing petitioner’s lease agreements. We find that as a result of the scheme to understate Mr. Bell’s Federal income, petitioner evaded its employment tax obligations. Whether this was by design or implementation is irrelevant. Any employment tax fraud was part and parcel of an overall intent to defraud the Government. Petitioner had to avoid the employment taxes due respondent for either it or Mr. Bell to evade responsibility. The reporting of one would almost certainly have led respondent to challenge the omission of the other.” 2021 T. C. 74, at pp. 15-16. (Names and citations omitted).

As for challenging IRS’ proof, the successors are playing the Michael Corleone gambit.

And Judge Wells isn’t buying the Eighth Amendment excessive fines argument about the Section 6663 fraud chop. Gotta protect the fisc, y’know.

Today in the Virtual Windy City, Judge Kathleen Kerrigan, chastened by 8 Cir (see my blogpost “CUT Uncut,” 8/17/18), is trying what’s left of Medtronic, Inc., and Consolidated Subsidiaries, Docket No. 17488-08.

The brigade of experts is being paraded again, ostensibly to fine-tune Judge Kerrigan’s analysis of the IP licensing agreement between Medtronic US and Medtronic Puerto Rico, but actually to fight to the death. Comparable Uncontrolled Transaction takes the stage.

As I listen to counsels’ opening statements (fortunately not being able to see the slides the parties produce), I really pity poor Judge Kerrigan. Once again, she will produce dozens of pages of well-wrought analysis, only to face another second-guess from 8 Cir.

The famous remark of the Boston Theosophist to William James echoes today in Montgomery-Alabama River, LLC, Parkway South, LLC, Tax Matters Partner, Docket No. 9254-19, filed 6/11/21. I’d adverted to that case in my most recent blogpost.

The turkeys in this case are the National Wild Turkey Federation Research Foundation, a 501(c)(3) specializing in the wild turkeys that fly, as opposed to the variety that swim on the rocks with the Cinzano Rosso and a couple Luxardos (hi, Judge Holmes). Howbeit, the story has a twist on the usual conservation easements, because a week after the Monty-Als grant the conservation easement to the Turkeys-at-issue, they convey the fee (with the usual cutouts for improvements) to a wholly-Turkey-owned LLC pass-through.

Both sides want partial summary J.

The Monty-Als claim perpetuity is off the table, because if extinguishment is on the table, the Turkeys get it all anyway.

IRS claims the intervening week puts perpetuity back on the table, because “perpetuity” means “forever from the getgo.”

Judge Albert G (“Scholar Al”) Lauber, apparently Tax Court’s conservation honcho, isn’t ready to give anybody summary J.

“Respondent urges that the fee simple donation is irrelevant because it was not made simultaneously with the donation of the easement, but a week later. He asserts that the value of the donor’s and donee’s interests must be analyzed ‘at the time of the gift.’ Sec. 1.170A-14(g)(6)(ii), Income Tax Regs…. Petitioner counters that both donations were made pursuant to a ‘unified plan’ and should be considered to have been made simultaneously. Respondent alternatively contends that the fee simple donation caused violation of the Code’s perpetuity requirement ‘by terminating the easement through the state law merger of estates,’ reserving the right to present evidence at trial on this point.

“We conclude that genuine disputes of material fact dictate that we deny both motions for partial summary judgment. The question whether Montgomery made both donations as part of a ‘unified plan’ presents factual questions that are ill-suited to summary disposition. And we do not believe that respondent should be foreclosed from showing at trial that the subsequent fee simple donation terminated the easement through a ‘merger of estates.’” Order, at p. 6. (Citation omitted, but it’s our old pal PBBM-Rose Hill; see my blogpost “Stirring Times  – Enter the Supremes?” 5/15/20).

Anyway, if the easement disappears, whether because non-perpetual or merged, there are two (count ’em, two) grants forming one conveyance of certain property, for which the Monty-Als paid $3.4 million, but claimed an aggregate tax break of $16.9 million ($12.675 million for the easement and $4.225 for the fee).

IRS claims the whole turkey-shoot is worth $543K.

Ah, Judge Holmes, looks as if Judge Scholar Al, like you, prefers a valuation trial to highly contestable readings of documents concerning events so remote as to be negligible.

I just got done with an online CLE concerning the new form of New York State Statutory Short Form Power of Attorney. Don’t worry, I’m not posting about that. I write for an international readership, the greatest part of whom could have no interest in that topic.

But the CLE put me in mind of the well-worn CLE panoply of presentations about winning one’s case anywhere but in the courtroom. Scrolling through today’s Tax Court orders (there being, as usual, no opinions on Friday), I came upon Judge Patrick J. (“Scholar Pat”) Urda’s disposition of the motions in limine that set up my blogpost “Win Your Case Anywhere,” 4/1/21.

You can read all about it in Bernand T. Swift, Jr. & Kathy L. Swift, Docket No. 13705-16, filed 6/11/21.

Judge Scholar Pat lets the parties try to put in, or rule out, whatever evidence might be at issue, and lets it all in, after cross-examination. Much of the fighting went to the weight to be accorded the evidence, rather than admissibility. Evidence may be admissible without being probative or conclusive. Remember the old Tokarski rule: “…we are not required to accept the self-serving testimony of petitioner or that of his mother as gospel.” 87 T. C. 74, at p. 77. Maybe not “gospel,” but they did get to testify.

A source tells me that KJ, who featured in my blogpost “No Comment – Redivivus, ” 2/2/21 took my comments in good part. I’m glad. The place to try, and maybe even win, your case, is in the courtroom.

No, not the pride of the St. James Gate Brewery, Dublin, best had at The Galway Hooker public house in Heuston Street Railway Station (eleven minute walk from the brewery; the nearest pub, freshest draft. Trust me.). The statistical empire the brew inspired forms the predicate for today’s episode of Gregory J. Podlucky & Karla S. Podlucky, Docket No. 435-17, filed 6/10/21.

Greg’s been here before, of course; I get ’em all, every wit, wag, wiseacre, wiseguy, and rounder swims into my ken, eventually. See my blogpost “Work Ethic,” 6/26/19.

You’ll note that it’s been a while since Greg was here. Judge Albert G (“Scholar Al”) Lauber explains. “In 2009 petitioner husband was indicted in the U.S. District Court for the Western District of Pennsylvania for mail fraud, conspiracy to commit money laundering, and attempting to evade or defeat tax for 2003-2006, in violation of I.R.C. § 7201. In 2011 petitioner husband pleaded guilty to these charges. He was sentenced to a lengthy term of imprisonment.” Order, at p. 1. So Greg’s Tax Court trial has been continued (that means “adjourned,” to  us State courtiers) a couple times (hi, Judge Holmes), because of Greg’s incarceration.

But Greg has nowise been idle. Like other residents of slammerdom, Greg just churns out frivolities; apparently he has little else to do. “Largely because of these gratuitous filings, the docket in this case already has more than 180 entries.” Order, at p. 2. Why not? If the maximum Section 6673 frivolity chop is $25K, your total deficiencies plus fraud chops are north of $8 million, and you’ve got plenty of time on your hands, you might as well seek an entry in Guinness World Records for whatever year you get out of the clink.

You can read Greg’s further productions for yourself. Greg has apparently cruised every protester-defier site, mastered drag-and-drop, and keeps on rolling along.

Meantime, Judge Scholar Al bounces Greg’s latest production (number 181), with a warning that maybe should have been given before now. “I.R.C. § 6673(a)(1) authorizes this Court to require a taxpayer to pay to the United States a penalty of up to $25,000 if it appears to the Court that the taxpayer has instituted or maintained proceedings “primarily for delay” or has taken a posi-tion that “is frivolous or groundless.” Petitioner husband’s submissions to this Court to date have included numerous frivolous statements and positions. We warn petitioner husband that he risks a significant penalty if he continues on this path. See, e.g., Briggs v. Commissioner, T.C. Memo. 2016-86 (imposing penalty of $3,000); Balice v. Commissioner, T.C. Memo. 2015-46 (imposing penalty of $25,000).” Order, at p. 2.

I don’t know why I didn’t blog Briggs, but I can’t find the T. C. Memo. on Google, and the DAWSONized Tax Court website is, as usual, utterly worthless; there is no way to search for opinions. For the story of Mike Balice, see my blogpost “The Jolly Rounder,” 3 /16/15.

What price a $25K chop when Guinness immortality is in view?

Edited to add, 7/21/21: Stephen H. Briggs and Patricia S. Briggs, 2016 T. C. Memo. 86, filed 5/2/86, is online at last. Turns out Steve and Pat were in Tax Court back in 2014, protesting, and got chopped with $500 “as a warning.”

That is not what you want your client to say when he’s seeking abatement of interest on a liability for which he requested credit from an overpayment, but received a refund check instead. Especially when your client has taken a Section 7201 fall for tax evasion. And even more so when your client is on the PDT list; see IRM 25.4.1.1.1 (Oct. 31, 2018).

Spoiler alert- PDT means “potential danger to IRS employees.”

Michael J. Hogan, Docket No. 11229-15, filed 6/9/21, has been around Tax Court before in the days before I launched this my blog. This time he wants Section 6404 abatement. He claims IRS says it made no mistakes.

Judge Buch agrees with MJ that IRS did make mistakes, but none has risen to the level of unreasonable delay. And MJ stiped that the refund check he got, rather than the credit against liability he requested, was OK by him.

Putting MJ on the PDT list isn’t enough. “He did not establish that there was an error in designating him as a PDT. Even if that were erroneous, he did not establish that the designation caused any error, delay, or additional interest. And given his repeated efforts to avoid payment, he clearly did not establish that he would have paid his tax earlier.” Transcript, at p. 16.

If you get a refund check when you wanted a credit, send back the check with a clear and concise statement of what liability you want credited. Testifying at trial “I sat on it,” Transcript, at p. 18, does not help your client’s cause.

But need I add MJ was pro se?

You really could have seen this coming after Judge Goeke denied his discovery request last September. So, no surprise, there’s no whistleblower award for 10084-16W, 2021 T. C. Memo. 73, filed 6/9/21. For the discovery joust, see my blogpost “Raise High the Beam,” 9/29/20.

OK, so the SEC filing is a broken reed. LBI’s SME says Blower84’s info didn’t lead to the big grab IRS got from target (not the department store, the alleged bad dudes). Judge Goeke walks us through the giant slalom that Blower84’s info traveled, but at the end, all Blower84 had was the SEC 10-K that said target paid $170 million to “taxing authorities.”

Judge Goeke: ” As we stated in our order denying petitioner’s motion to compel, petitioner’s allegations relating to the 2010 settlement are speculative and based on a highly improbable timeline under which respondent would have needed to use the information received in June 2010 to audit the target, make a determination, and assess tax which the target paid before November 2010. This theory is so implausible that it does not justify the supplementation of the administrative record.” 2021 T. C. Memo. 73, at p. 12.

But IRS, like me, loves summary J, although Tax Court frowns thereon. Whistleblower cases are decided on the administrative record; there’s no trial.  If the record is incomplete, IRS can supplement, and the blower can demand other matter, which IRS saw but left out of the record, be inserted. But it doesn’t matter here.

I can’t remember the last time a blower won in Tax Court.

Michael B. McCullough, Docket No. 10636-19, filed 6/9/21, shoots the rapids of the “goofy regulation,” carrying with him enough receipts and credible testimony both to sustain the bulk of his COGS and deductions, and to avoid any accuracy chops.

Mike had forty (count ’em, forty) years in as an interior designer. For the years at issue he had his own business, and worked only for customers for whom he’d worked for years.

Judge Kathleen Kerrigan gives us an off-the-bencher, in which she skates through the factors, as Mike was a CA resident when he petitioned, and 9 Cir. maybe doesn’t follow Judge Posner.

“Petitioner had four decades of experience in interior design. His business stemmed from his past experiences and prior relationships. He worked at his interior design business full time. Even though he testified that he did not have a written business plan, he had one in his mind which he executed. His plan was to do projects for prior clients and obtain new work based on client recommendations. From his past experiences, he knew that he could have enough business without advertising.” Transcript, at p. 8.

For a dozen years pre-pandemic, that was how I operated. And I’ll wager a couple ales at Jake’s Saloon that I was not the only one.

“Because we mostly decide for petitioner, we conclude that petitioner is not liable for the section 6662(a) penalty for [years at issue].” Transcript, at p. 9.

I note Mike did discovery and tried the first half of this case his own self, but brought in counsel for the rest. Good move, Mike. Good Job, counsel.

David Andrew Lufkin, Sr., 2021 T. C. Memo. 71, filed 6/8/21, finally got the CDP for which IRS was whistled when they sent the NITL to the ineligible receiver. See my blogpost “Ineligible Receiver,” 9/22/14. IRS said they’d reissue the NITLs and send them to the right place, and they did.

David Andrew claims SOL, but there was enough tolling between his multiple Ch. 7s, and his various trips to Tax Court, so that Judge Travis A. (“Tag”) Greaves can opine “… even under a conservative calculation, more than 10 years had not elapsed on the applicable periods of limitations for the Form 941 liabilities when respondent issued the CDP notice in 2014.” 2021 T. C. Memo. 71, at pp. 10-11. And laches (delay of the game) cannot succeed against the gov’t without more evidence than David Andrew adduces.

David Andrew’s claim that someone else took over the business (practice?) can’t shield him from pre-transfer liabilities. Sounds like the ineligible receiver is still ineligible.

“Petitioner produced no substantive evidence establishing how another entity or person was either liable for the Form 941 liabilities or submitted payments to the IRS for the liabilities. He alleged that in 2000 respondent seized the documentation necessary to prove his claim, but that respondent either lost or destroyed this documentation following the purported seizure. In effect, petitioner asks us to relieve him of his burden of proof and overlook his failure to offer any evidence as to this issue. We decline to do so. See Am. Police & Fire Found., Inc. v. Commissioner, 81 T.C. 699, 706-707 (1983) (finding that the taxpayer’s burden of going forward with the evidence did not shift merely because the Commissioner unintentionally lost the taxpayer’s records); Malinowski v. Commissioner, 71 T. C. 1120, 1125 (1979) (same).” 2021 T. C. Memo. 71, at pp. 7-8.

David Andrew reprises this argument when fighting over the SO’s verification that all necessary steps were taken per Section 6330(c)(1).

“… petitioner repeatedly alleged that respondent’s supposed destruction of all records pertinent to the Form 941liabilities amounted to a violation of procedural due process under the Thirteenth Amendment to the Constitution. Petitioner failed to establish any nexus between his CDP case and the Thirteenth Amendment, which deals exclusively with the abolishment of slavery and involuntary servitude.” 2021 T. C . Memo. 71, at p. 11.

Still ineligible after all these years.

We’ve all seen the standard general releases when a case settles. When attorney malpractice is on the menu, broadform is the plât du jour. Anything and everything, from the beginning of the world to the instant of signing.

We saw how that torpedoes Section 104 physical injury claims. See my blogpost “Would’a,” 2/18/21.

Today Judge Pugh fires a Tax Court longlance into Carol E. Holliday, 2021 T. C. Memo. 69, filed 6/7/21. Carol’s suit involved the common property with her loved-once. Carol claimed her divorce lawyer bulldozed her into a mediated settlement which left her $75K shortstacked. When he moved for a new trial and lost, he promised he’d appeal, but didn’t. So Carol’s next lawyer sued for negligence, gross negligence, deceptive trade practices, treble damages and attorneys’ fees.

Divorce lawyer’s insurer ponies up $175K in full settlement, which malpractice lawyer gets, cuts Carol a check for $101,500, and takes the rest as his fee.

Of course, (a) divorce lawyer sends Carol a $101,500 1099-MISC , (b) Carol reports nothing, (c) IRS hits Carol with a SNOD for the tax on the $101,500, d) Carol claims she got only the property she should have gotten in the marital split, thus no accession to wealth, and (e) IRS ups the deficiency to cover the $73,500 the attorney got, while allowing Carol the miscellaneous itemized deduction therefor and dropping the chops.

True, return of capital is not taxable. But reading the settlement agreement, it’s not clear what Carol got. Her malpractice claim got settled; there’s no admission or assignment of guilt or fault.

“Petitioner argues that the settlement proceeds are only for those claims that involve the marital estate and that they represent compensation for lost value or capital because they ‘are based on her recovery of the property interest that * * * [she] rightfully should have received from her divorce as her share of the marital estate.’ But the settlement agreement says that the settlement proceeds are for the release of  ‘all claims * * * of whatever kind or character, known or unknown * * * which * * * [petitioner] may have against * * * [malpractice defendants] arising out of or related to the * * * [malpractice lawsuit].’ Petitioner thus asks us to look through the settlement agreement and consider only her claims related to recovery of marital property. We decline to look beyond the plain terms of the settlement agreement, and we conclude that the settlement proceeds were to compensate her for her attorney’s malpractice and therefore are taxable.” 2021 T. C. Memo. 69, at pp. 11-12.

Judge Pugh obviously has never been involved in a malpractice litigation. I have been, and I’ve witnessed others. No settling defendant or their insurer will ever itemize, under any circumstances, anything. Every settlement agreement will be in the broadest form human imagination or artificial intelligence can devise. The best petitioner’s counsel can do is put in all the litigation papers, and try to get in expert testimony that no malpractice settlement agreement ever states what was really settled.

And even then, it’s a forlorn hope.