I’m sure all y’all will recall the inventive Glenn R.  Johnston, flogger of cemetery dodges. Well, if you don’t, see my blogpost “Elegy in a Graveyard,” 8/12/14. Among those whose heavy-duty charitable deductions went the way of all cliché, we have today Kannarkat P. Verghese, Deceased, Annie P. Verghese, Personal Representative, and Annie P. Verghese, Petitioners, 2021 T. C. Memo. 70, filed 6/7/21.

Annie was here before, fighting about interest abatement. See my blogpost “Net Worthiness – Part Deux, ” 2/16/21.

The FPAAs (herein consolidated) that followed Glenn’s undoing were put on hold while the Federales put Glenn in the stony lonesome. Now Annie, as pers rep and personally, wants interest abated on the partner-level deficiency thrown off by Glenn’s skullduggery, of which Annie claims she was completely unaware.

Unhappily, Section 6040(b) precludes abatement of income tax interest. So IRS can’t abuse its discretion where it has none.

But that Obliging Jurist, Judge David Gustafson, cuts Annie a wee bit slack on five months’ worth thereof, allowing her some discovery as to whether IRS unreasonably delayed for five (count ’em, five) months. For the rest, the criminal proceedings put the TEFRA litigation and settlement on hold. And most of the continuances were stiped by both sides.

Annie says IRS never told her she could make a deposit of the tax due and stop the running of interest. But lack of a personal invitation isn’t delay, even if Judge Gustafson agrees Annie would’ve paid if invited.

“We first address petitioners’ argument that the Commissioner’s failure to inform them of the opportunity to suspend the running of interest by making a ‘deposit’ constituted an act of ‘delay’ within the meaning of section 6404(e). SO E found no evidence that such a “failure” occurred, and moreover concluded that ‘the statute doesn’t provide for interest abatement when the IRS doesn’t advise the Taxpayer to post a bond.’ Although (as we have assumed) the Commissioner did not specifically advise petitioners of the opportunity to post a cash bond, the IRS has since 1984–long before the years at issue–published guidance advising all taxpayers of the opportunity to remit to the IRS a deposit in the nature of a cash bond and (relevant here) has also advised how to do so before the assessment of the tax upon which interest may be assessed. The accrual of such interest could be reduced or eliminated by following those procedures. See Rev. Proc. 84-58…, and other published guidance…. Because this information was available to the public, petitioners’ failure to make a deposit to halt interest accrual cannot be attributed to delay or failure of the IRS to advise them personally of this information. The supposed absence of a personal invitation to make a deposit did not give rise to an abuse of discretion when SO E determined that section 6404(e) does not provide for interest abatement under such circumstances.” 2021 T. C. Memo. 70, at pp. 44-45. (Name, citations, and footnote omitted). Note Rev. Proc. 84-58 was superseded by Rev. Proc. 2015-18.

I suspect whoever was Annie’s counsel at the time will be getting The Phone Call. I suggest to my readers that they give a copy of the cited Rev. Proc. to their clients at retention; it will save one part of The Phone Call.

As for the holdup during the criminal proceedings, that wasn’t ministerial or managerial but discretionary, and anyway, litigation delay of itself isn’t grounds for abatement.

But once the criminal and the TEFRA litigations were done, IRS did move for entry of decision, withdrew that, and refiled, hence the five-month delay. SO E apparently didn’t check that out, so maybe discovery will sort that out.

Finally, some three months were consumed with the Rule 248(b) sitout for nonparticipants. See my blogpost “Settle Order on Notice – to the Nonparticipant,” 10/26/17.

So Annie loses most of the interest (which by now is more than the deficiency).

As is not uncommon, a footnote shows interesting sidelight. We all know that Golsen mandates Tax Court to follow CCA precedent where taxpayer resided at petition in a jurisdiction subject to that Circuit. But that’s not a jurisdictional bar. “see also Lardas v. Commissioner, 99 T.C. 490, 495 (1992) (explaining Golsen v. Commissioner, 54 T.C. 742 (1970), aff’d, 445 F.2d 985 (10th Cir. 1971), and stating ‘[i]t should be emphasized that the logic behind the Golsen doctrine is not that we lack the authority to render a decision inconsistent with any Court of Appeals (including the one to which an appeal would lie), but that it would be futile and wasteful to do so where we would surely be reversed’).” 2021 T. C. Memo. 70, at p. 18, footnote 6. (Underlining by the Court). But nothing stops counsel from taking an appeal and arguing in good faith that precedent is wrong.

Islanders

CSTJ Lewis (“Delightful Name”) Carluzzo has to protect the Section 6105(a) confidential tax convention information that gave rise to the Memorandum of Understanding (MOU) between IRS and the Virgin Islands Bureau of Internal Revenue (VIBIR). This document has featured again and again this my blog; from the late Appleton to the peripatetic Ventos to the Coffey break, it’s been the gift that keeps on giving. This blogger has been an unintended beneficiary of the now-extinct Congressional largesse to Our Insolvent Islands in the Sun.

And who is on the receiving end of CSTJ Lew’s gag order today, but counsel for that well-known bamboozler Dewayne Bridges, et al., Docket No. 26519-16, filed 6/7/21? For Dewayne’s backstory, see my blogpost “The Reconsidered Bamboozle,” 11/12/20.

Only counsel and those expressly permitted by IRS can cast an eye on the magic documents. Dewayne and his buddy Steve can’t look.

The Rawat Gambit

A year ago I queried IRS counsels’ use of “attachments in the nature of evidence”, which I’ll call the Nature gambit, whereby IRS counsel tries to wild-card into evidence that which may or may not pass FRE muster, specifically to ask why petitioners are not afforded like treatment. See my blogpost “Discussion, Deliberation,” 6/24/20.

Well, today Kiran Rawat plays what I shall call the Rawat variation on the Nature gambit, in Kiran Rawat, Petitioner and Raghvendra Singh, Intervenor, Docket No. 11350-18, filed 6/4/21.

And Judge Gale doesn’t toss the Rawat variation on the Nature gambit with a curt “Save it for the trial,” as so many other petitioners receive. Zoomietrial is on for next week.

“…the Court received a mailing from petitioner postmarked May 28, 2021, that includes the following: (1) a three-page document labeled ‘Response to Pre-Trial Memorandum For Respondent’;1 and (2) a four-page document labeled ‘Plaintiff Exhibit A’. Our review of ‘Plaintiff Exhibit A’ reveals that it consists of what appear to be copies of four pay stubs (two of which appear to be identical) issued to petitioner by her employer for certain two-weekpay periods….” Order, at p. 1.

IRS counsel of course yells that Kiran blew the discovery deadline Judge Gale set back in February; all documents to be exchanged by May 21.

Judge Gale has nothing to say about why a seven (count ’em, seven) day delay might prejudice IRS.

But Kiran’s gambit doesn’t get her home free neither.

Judge Gale does order “…the Clerk of the Court shall file pages one through four of ‘Plaintiff Exhibit A’, together with a copy of the ‘Declaration of Service’ and the envelope in which the foregoing documents were mailed, as petitioner’s Proposed Trial Exhibits,” Order, at p. 2.

But Kiran should be warned. IRS is still in the game.

“…petitioner is advised that…the pay stubs have not yet been received into evidence. Whether they are received into evidence at trial will depend upon the extent to which respondent was prejudiced by petitioner’s failure to provide them to respondent on a timely basis.” Order, at p. 2.

Taishoff says:

(1) Maybe also hearsay. And anything else IRS counsel can come up with.

2) Is this gambit worth trying? It depends. What’s your case (innocent spousery with a sympathetic petitioner is better than a SNOD with a rounder-protester)? By how much did you blow the discovery deadlines? Have you maybe some kind of excuse? What’s the evidence (true gamechanger or just cumulative)? Is IRS counsel truly ambushed, or can you argue they aren’t? And if you do try it, please let me know how you make out.

The dandiest dodgers’ delight has been around some thirty years, the multi-tiered LLC check-boxed to partnership taxation, with a bunch classes membership interests (hi, Judge Holmes), with each class scattered far and wee, causing FPAAs to shatter on Section 6226(f).

Judge Christian N. (“Speedy”) Weiler will tell you all about it (with pictures, yet) in ES NPA Holding, LLC, Joseph NPA Investment, LLC, Tax Matters Partner, 2021 T. C. Memo. 68, filed 6/3/21. IRS dinged ES NPA in a FPAA with $16 million unreported income, plus chops to the partners thereof at no extra charge.

“In general, section 6226(f) gives this Court jurisdiction to determine all partnership items of the partnership for the partnership’s taxable year to which the FPAA relates. However, this Court’s jurisdiction does not extend to determining the partnership items of lower tier partnerships. That means that we may determine only the partnership items of the partnership to which the FPAA relates. If the partnership items of a lower tier partnership are included in the FPAA of the partnership before us, we are without jurisdiction to determine those lower tier partnership items.” 2021 T. C. Memo. 68, at pp. 11-12. (Citation omitted).

And of course ES NPA claims a lower-tier box-checked LLC (IDS) got the boodle, wherefore summary J tossing FPAA. Check out the picture at p. 8. Enough triangles to stock Bermuda, Bahamas, Antigua and Jamaica.

The bottom line is that ES NPA got a membership interest in the down-tier LLC IDS. There was no passthrough of partnership income and expense. Judge Speedy stresses that all he finds is that ES NPA got a partnership interest, not whether IRS correctly characterized it in the FPAA. See 2021 T. C. Memo. 68,at p. 17, footnote 11.

The membership interests were supposedly payment for services. Property for partnership interest is not taxable, but partnership interest for services might be. Howbeit, there remains the fact question whether what ES NPA got was an income interest or a capital interest. And in any case, whether what ES NPA paid IDS is deductible as compensation is also a fact question.

The roundy-round with tiered LLCs is clearly a growth industry.

One can be intelligent, and yet have no idea how limited is the jurisdiction of the United States Tax Court. Compared to the broad powers of the Art IIIs, pore l’il ole USTC, an Art I stepchild, is a mere “bruised reed, and a dimly-burning wick,” in the words of a much more exalted authority even than Judge Joseph W. Nega.

Here’s Intelligent Transportation & Monitoring Wireless LLC, Warren C. Havens, Tax Matters Partner, Docket No. 19514-17, filed 6/2/21.

Looks like TMP Warren is tapped out, and the Intelligent piggybank has been wrested from his hands. Nevertheless, gotta pay the lawyers.

So TMP Warren files a “Motion for Leave to File Petitioner TMP’s Motion for an Order to the Taxpayer-LLC’s Receiver, Susan Uecker, to Release Taxpayer-LLC Funds to Enable the Tax Matters Partner to Conduct this Case.” Order, at p. 1.

Judge Nega just denies the motion without explanation.

But because I’m an obliging sort, and a general busybody, here it is.

TMP Warren, Tax Court has no jurisdiction over Taxpayer-LLC’s receiver. Receivers are governed by the law under which they were appointed and are subject to the orders of the judge who appointed them. Tax Court has no jurisdiction to appoint a receiver. Tax Court has no jurisdiction to order a receiver to do anything.

The American infatuation with our judicial system, combined with a total misunderstanding of what that system can do, leads to smh, as the texters say.

New Capital Fire, Inc., 2021 T. C. Memo. 67, filed 6/2/21, is back, trying to undo the win it got four years back. You doubtless remember how the Newbies ditched the SNOD with which IRS wanted to hit them for heavy-duty built-in capital gains on the stock portfolio they cashed out in one of James (“Little Jim”) Haber’s phony digital options non-partnerships.

What, no? Then see my blogpost “The Long and the Short – Part Deux,” 9/11/17. And see 2021 T. C. Memo. 67, at pp. 43-44 for more of Little Jim’s maneuvers. OK, welcome aboard.

The Newbies, having won, thereupon filed an amended petition. Judge Goeke explains.

“In the amended petition, petitioner alleged that respondent erred in determining that petitioner had realized the capital gains of approximately $7.8 million that petitioner had reported on its 2002 return. In a stipulation of settled issues…petitioner conceded that respondent did not adjust petitioner’s reported capital gains in the notice of deficiency. The notice of deficiency reflected an adjustment to income of $7.8 million on the basis of respondent’s determination to disallow the capital loss deductions from the [digital] options.” 2021 T. C. Memo. 67, at p. 22.

IRS says the Newbies can’t go back there.

“Respondent argues that petitioner is estopped under the duty of consistency or the doctrine of equitable estoppel from changing its reporting of the capital gains after the period of limitations expired for Old Capital’s 2002 tax year. He argues that we should not permit petitioner to treat the merger of petitioner and Old Capital as a taxable event. Had petitioner treated the merger as taxable, it would have reported the bases in the Old Capital securities equal to their fair market values on the merger date, at or near their sale prices, and would have had minimal or no capital gains on the sales. Therefore, respondent argues that we should not allow petitioner to argue that Old Capital should have recognized capital gains on the deemed sale of the securities on the merger date and that petitioner had bases in the securities equal to their fair market values on the merger date.” 2021 T. C. Memo. 67, at p. 22. (Footnote omitted, but read it. The Newbies claim unfair surprise, but this is a Rule 122 fully-stiped. No new evidence or discovery needed).

There’s much argy-bargy about 2 Cir’s refusal to accept the doctrine of consistency (the Newbies are Golsenized to 2 Cir), but that applies only to innocent mistakes, and the return for the year at issue was carefully crafted to mislead IRS.

Moreover, the Newbies stonewalled IRS on the audit. Bad idea.

So the Newbies can’t change their story. They had capital gains, and their phony digital options losses can’t shelter them.

The English Lord Chief Justice Campbell wrote in 1850: “There is nothing so dangerous as for one not of the craft to tamper with our freemasonry.”  He meant playing lawyer at the amateur level.

Troy E. Marshall, Docket No. 10184-20, filed 6/1/21*, shows us why the ol’ LCJ got it right.

IRS moved to toss Troy’s petition for want of jurisdiction: no SNOD or NOD for year at issue. Troy came roaring back.

“Petitioner did not file an Objection to the motion to dismiss. Instead, petitioner filed these documents: (1) a Statement Notice of Default…, (2) a Statement Notice of Default Three Day Opportunity of Cure…, (3) Statement Motion Notice of Default…, (4) Motion for Default and Dismissal…, and (5) Motion for Default and Dismissal…. Petitioner did not provide a copy of a notice of deficiency or notice of determination that would confer jurisdiction on this Court, or deny the jurisdictional allegations set forth in respondent’s motion. Instead, petitioner contends that because respondent filed ‘no answer or defense’ to his petition, ‘a Default was entered’ by the Court….” Order, at p. 1.

Ch J Maurice B (“Mighty Mo”) Foley, now starting his second two-year stint as CJ, must have breathed at least a small sigh when he read Troy’s screeds.

No doubt taking a deep breath, Ch J Mighty Mo dictated the following: “We disagree. The fact that petitioner filed a Statement Motion Notice of Default… does not mean that the Court entered a Default in this case on that date nor on any date subsequent thereto. The record establishes that no notice of deficiency or notice of determination which confers jurisdiction on this Court has been sent to petitioner…. Accordingly, the Court is obliged to grant respondent’s motion and dismiss the case for lack of jurisdiction.” Order, at p. 1.

I wonder if a precursor of Troy inspired LCJ Campbell’s above-referenced dictum.

*Troy E Marshal 10184-20 6 1 21

Once or twice in the past I have been asked by those whose stories I’ve blogged, and casual readers of this my blog, why I have my blogsite headed with the phrase that first appears hereinabove at the head hereof (as my paid-by-the-word colleagues would say).

Simply put, I cannot secure my IT infrastructure against hackers. Any personal information I receive other than face-to-face, word-of-mouth, and in an electronically-secured location, or on paper in a sealed envelope via USPS or an IRS-approved PDS, is a fortiori insecure.

As we know, the US gov’t has been repeatedly hacked; the largest gas pipeline company has been hacked. The largest meatpacker has been hacked.

Exactly how IRS, the EU (whose members have all of them been hacked, whether they admit it or not), or anyone else, expects a single-shingle “general practitioner of limited experience and mediocre qualifications” to do what governments with unlimited resources, and megabusinesses with resources at least equal to those of many governments, cannot do, eludes me.