A year ago Alex B. Kabor & Kathy E. Kabor, Docket No. 10410-19, filed 7/30/21, gave me the basis for a lament about the paucity of interesting Tax Court materials on Fridays. See my blogpost “Friday, Friday,” 7/10/20.

I must thank Judge David Gustafson for his contributions, then and now, to eliminating the lament today, by tossing Alex’s and Kathy’s counsel, incidentally giving me as good a headline as I ever unleashed on the world. And hopefully a chuckle to everyone who struggled through Latin.

Read the order. It’s a cautionary tale for lawyers, and a warning to clients.

I never had one in my young day on The Hill Far Above. Perhaps one kindred spirit would have got me a higher place in our graduating class.

Well, if a reader is prepping for the SEE or similar, and wants a study buddy for FICA/FUTA TFRPs, look no further than that Obliging Jurist, Judge David Gustafson. Even though Donald Edward Nunn, Jr., 6617-20L, filed 7/30/21, doesn’t bother to reply to IRS’ summary J motion, Judge Gustafson lays upon him the whole nine yards.

Read all eight (count ’em, eight) pages of this order. But I want to draw your attention to the “low-hanging fruit” option for the challenge to computation and responsible personhood. While the Appeals hearing offered in the Letter 1153 is your only hearing, because Congress wanted to prevent double-dipping, there is a Plan B.

“(If this outcome seems harsh, it must be evaluated in this light: As we have previously noted, ‘the section 6672 penalty is divisible, so that a taxpayer may litigate the penalty after having paid an amount corresponding to the tax withheld from a single employee’. See Weber v. Commissioner, 138 T.C. 348, 363 n.12 (2012) (citing Davis v. United States, 961 F.2d 867, 870 n.2 (9th Cir. 1992), and Bland v. Commissioner, T.C. Memo. 2012-84, slip op. at 22 n.13). Thus, the taxpayer whose liability is upheld in the Letter 1153 proceeding before IRS Appeals can make a small “token” payment towards the section 6672 penalty, file a refund claim with the IRS, and, if the refund claim is denied, file a refund suit in a Federal District Court or the Court of Federal Claims.)” Order, at p. 7.

In Davis, supra, as my expensive colleagues would say, the plaintiff only had to stump up $100 out of a $70K bill, and IRS counterclaimed for the rest.

So if you have a case and you lose at Appeals, you might want to consider paying the lowest amount IRS claims, making sure your cover letter says to what employee and what amount and period it applies, file for a refund, and if refund denied, sue.

I’m sure readers have awaited as eagerly as I some Tax Court learning about unreimbursed employee business deductions in the Age of Teletubby, those employees working remotely, especially from home. And while the Tax Cuts and Jobs Act of 2017 put paid to the 2% Misc from and including 1/1/2018, there remain back years in the pipeline. Besides, who knows? Congress might actually deal with this some day (don’t bet large bucks).

In this Age of COVID, I saw some performing artists do split-screen Hollywood Squares type television performances from home. The adjustment remains for them and for certain disabled persons and fee-based-compensated gov’t workers locked out of their offices. So unreimbursed employee expenses isn’t entirely a dead letter.

So CSTJ Lewis (“Now Where Have I Heard That Name Before?”) Carluzzo has some small-claimer don’t-quote-me sidelights for Leila Saedian,  2021 T.C. Sum. Op. 23, filed 7/29/21.

Leila was an account exec with Coca Cola in CA. She had no office, and her terms of employment required her and her fellow Coke teletubbies to have “a remote office location where they can work safely without interruption, distraction, or undo (sic) risk of injury to self or third parties, and with reliable phone and internet access.” 2021 T. C. Sum. Op. 23, at p. 3, footnote 4.

Leila had to travel to customers, but Coke had a reimbursement policy that covered most expenses, so Leila’s car, food, and office supplies deductions are disallowed.

Leila does get home office, as she turned one of the two bedrooms in her 1288 sq. ft. flat into an office. But how she got her numbers baffles CSTJ Lew.

“According to petitioner, 33% of her apartment was used as her office. We are at a loss with respect to how petitioner arrived at that percentage. She was unsure of the dimensions of the bedroom used as her office but roughly estimated it to be 300 square feet. Simple math reduces the percentage to 23%, and from the photographs submitted into evidence, we suspect that the office/bedroom might have been smaller than that.

“All things considered, we estimate and find that petitioner used 20% of the apartment for her home office.” 2021 T. C. Sum. Op. 23, at p. 9 (footnote omitted).

CSTJ Lew allows Leila the 20% of rent, but notes she didn’t claim anything for renters’ insurance.  Does renters’ insurance cover a commercial use like a home office? Mine doesn’t, except for minor, occasional.

Coke required Leila to maintain her own internet and cellphone at her own expense, so she does get her cellphone and internet, although CSTJ Lew revives a 1913 comic monologue to do a Cohan on the telephone (sorry, guys).

“Petitioner’s records substantiate that the internet and cell phone expenses have been paid. Petitioner testified that her internet was used 85-90% for business purposes, but she did not distinguish between business and personal use with respect to her cell phone. We consider it reasonable that 75% of petitioner’s internet and cell phone use was related to her employment with Coca-Cola, and therefore she is entitled to a $1,728.75 deduction for internet and cell phone expenses.” 2021 T. C. Sum. Op. 23, at pp. 10-11. (Citations omitted).

Leila loses her medicals (less than 10% AGI) and charitables (no receipts). IRS does concede the chops.

I note that, although only $7K is at issue, Leila managed to secure the assistance of a “prestigious law firm” in the Brentwood Wilshire area. Well played, Mr. C.

I have those vox clamantis in deserto moments, when I try in a blogpost to tell a litigant to try an argument, and they “walk on by” as Hal and Burt put it. But today I get the hopeful, if perhaps mistaken, feeling, that they did.

Here again is 901 South Broadway Limited Partnership, Standard Development LLC, Tax Matters Partner, Docket No. 14179-17, filed 7/28/21. Today the 901s are asking Judge James S (“Big Jim”) Halpern for more time to respond to his OSC, which response is due Friday. See my blogpost “The Rule Against Perpetuities,” 7/23/21 for the backstory.

Judge Big Jim is unimpressed with the 901s’ claim that his six-page OSC was too complicated for them to deskew and riposte. “Petitioner has not demonstrated sufficient cause for us to extend the deadline for its response to the show cause order. Five of the pages of the show cause order (which actually consists of six pages) simply state the relevant law, some of the facts of the case, and the case’s procedural history. None of that should have been new to petitioner. All that might have been new was our observation that, because of the possibly dispositive nature of an issue that had already been extensively briefed by the parties, ‘the time and potential expense of trial may be unnecessary to our disposition of the case.’ That observation, as well, need not have come as a surprise to petitioner in light of our April 27 order. Petitioner should be no more eager than the Court or respondent to conduct a potentially unnecessary trial focused on a factual issue (the value of the easement) that would be moot if the donor partnership is not entitled to any deduction at all for its contribution of the easement because of its failure to satisfy one of the applicable legal requirements.” Order, at p. 2.

Except that’s the point. The “failure to satisfy a legal requirement” raises the question “what is the legal requirement?” Is it “a highly contestable reading of what it means to be perpetual”?

But Judge Big Jim doesn’t quite slam the door on the 901s.

“While holding petitioner to the original deadline of July 30, 2021, for its response to the show cause order, we observe that, should petitioner, after submitting its response to that order, identify additional arguments that it believes the Court should consider in disposing of the show cause order, it would be free to move for leave to supplement its response to that order. The show cause order gives respondent until August 6, 2021, to supplement, as he sees fit, his arguments in regard to the mortgage subordination issue. Therefore, as a practical matter, we will not be in a position to dispose of the show cause order before August 9, 2021, the extended deadline petitioner requests for its response to that order. For the reasons explained above, we do not expect it likely that petitioner will find itself in a position of identifying, only after July 30, 2021, arguments that it has already had plenty of opportunity to make. We will address that eventuality only if and when it arises. In the meantime, we will require petitioner to adhere to the deadline established in the show cause order for its response to that order.”  Order, at p.3.

Chaps, whether or not you had the chance to make the argument before, make it. And tell Judge Big Jim that Taishoff sent ya.

I’m not referring only to Ronald Jamison; Mr J claims $12K in gambling losses for year at issue, saying he spent $40 per day, almost every day, rain or shine, on lottery tickets. But Mr J never signs a stip of facts or of issues; he doesn’t show for trial. And the lottery log proffered on the trial was prepared after exam commenced, and shows no winnings.

There is a W-2G showing $15K from something, although CSTJ Lewis (“That Sweet Name”) Carluzzo doesn’t say from what.

So Dr Tondelaya Gamble must carry the burden of Mr J’s proof of his losses in Tondelaya Gamble and Ronald Jamison, 2021 T. C. Sum. Op. 22, filed 7/28/21.

Dr Gamble has her own tax issues. While the deductions she claims from the Sub S she started fifteen (count ’em, fifteen) years before year at issue do consist of some legitimate business expenses, these are unreimbursed employee expenses from Dr Gamble’s hospital employment. The rest are personal nondeductibles.

Dr Gamble testifies that “(O)ther of petitioner’s family and professional obligations prevented her from operating [Sub S] in the manner originally intended. At trial she explained that during [years at issue] she was herself still being educated and trained in subspecialties that she intended to promote through [Sub S].” 2021 T. C. Sum. Op.22, at p. 3. No going concern, no deductions.

Remember Dr. Elizabeth A. Vitarbo, who had a similar problem? No? See my blogpost “Never Walked Alone,” 2/6/14. CSTJ Lew seems to get the doctors with Sub S issues.

But Mr J’s problem is the log.

“There are no winnings reported at all on the log, and given the extent of lottery ticket purchases shown on the log, we consider it highly unlikely that the only winnings enjoyed by petitioners were reported on the Form W-2G. The record does not reveal what, if any, substantiation petitioners provided to respondent during the examination to allow for at least a portion of the deduction.” 2021 T. C. Memo. 22, at p. 10. So Mr J only gets whatever IRS allowed.

Judge, I may be wrong, but I surmise you’re no gambler. Every gambler knows the State-run lotteries are a tax on stupidity. The odds are a joke. These lotteries are revenue-raisers for the States, and their takeout makes the tracks look like charities and the Indigenous Peoples’ casinos look like Santa Claus. If Mr J hit so much as $600 on one State lottery ticket, he’d certain sure get a W-2G so the State could nick him for income tax.

If he did even as well as the W-2G he got says, and was ahead for that year in the lottery, he should consider himself very lucky.

No real gambler buys lottery tickets.

See my blogpost “Affable,” 2/19/21.

I find today, as Ch J Maurice B. (“Mighty Mo”) Foley is kicking dozens of nonpaying petitioners, he is offering a chosen few an even more user-friendly road to redemption.

For example, take Edward M. Meadows, Docket No. 905-20, filed 7/28/21. Ed neither paid nor sought waiver, so is kicked.

But there’s a kicker (sorry, guys).

“Petitioner is advised that the Court, on its own motion, will consider reinstating the case if the filing fee is paid within 30 days from the date of service of this Order. Instructions on how to pay the filing fee can be found in the ‘Guidance for Petitioners’ tab of the Court’s website atwww.ustaxcourt.gov.” Order, at p. 1.

As I said back in February, you can’t say fairer than that.

In this context, a reader pointed out that a docket search of Todd A. Kurvers, Docket No. 6701-21, whose tale I told yesterday (see my blogpost “Good Call – Part Deux,” 7/27/21), seems to show Todd had neither paid up nor sought waiver, despite being ordered to do so on or before 6/25/21. Without more facts, I can’t say whether the tsunami-swamped hardlaboring intake clerks missed Todd’s payment or waiver, or whether Todd’s noncompliance slipped past Ch J Mighty Mo’s eagle eye.  

Whichever it is, I’m sure Ch J Mighty Mo will deal appropriately with Todd.

It was then-Ch J L Paige (“Iron Fist”) Marvel who inspired the text of today’s sermonette four (count ’em, four) years ago almost to the day. See my blogpost “Good Call,” 7/14/17. And I still praise that call; the right thing doesn’t depreciate with the passage of time.

Today Ch J Maurice B (“Mighty Mo’) Foley does the Ephesians 6:14 number in Todd A. Kurvers, Docket No. 6701-21, filed 7/27/21*.

Todd timely petitioned a SNOD from the AUR (which Ch J. Mighty Mo calls the “IRS Under-reported unit”), but Ch J Mighty Mo told him to amend. Todd instead moved for entry of decision.

Todd says he filed an amended return, but was waiting the Underoos’ response thereto. He says he wants to settle with IRS, so just drop the Tax Court case.

Ch J Mighty Mo rightly says no.

“In a deficiency case where this Court has jurisdiction, the Court is generally required to enter a decision specifying the amount of the deficiency, if any, for the taxable year in issue. See I.R.C. sec. 7459(d); Estate of Ming v. Commissioner, 62 T.C. 519 (1974). Moreover, upon further review of the original petition filed in this case, the Court concludes that petition suffices and that petitioner need not file an amended petition.” Order, at p. 1.

Dropping the case would give IRS a win it might could be IRS doesn’t deserve.

What to do?

Ch J Mighty Mo directs the parties to confer. Good start, except a quick docket search doesn’t show any IRS attorney yet assigned to the case, and Todd is pro se. Maybe a hint to the Underoos might shake things loose.

Anyway, the case is on report track.

Good call.

*Todd AS Kurvers 6701-21S 7 27 21

Not a great batting average, and it only saves George S. Harrington, 2021 T. C. Memo. 95, filed 7/26/21, $4500 in deficiency and chop, because IRS couldn’t prove fraud for that year and admitted it. But George really shouldn’t have gotten involved with UBS and their tax-dodging ways.

George was a lumber finder for a Canadian exporter. He met their counsel, Mr. G., “who seemed ‘on the ball.’ Petitioner described Mr. G and his associates as ‘the most honorable people I have ever dealt with.’ Mr. G was later imprisoned for embezzlement.” 2021 T. C. Memo, 95, at p. 4. (Name omitted).

It may well be that Mr G and his associates were in fact the most honorable people George ever dealt with, because after that he hung out with a band of tax-dodging crooks. The UBS crew put George and Mrs George into offshore trusts, hidden bank accounts, and phony life insurance policies, running from the Cayman Islands to Switzerland to Liechtenstein. George claims he didn’t know what was going on and had no control over the million bucks or so he stashed.

Except.

The Swiss rolled on him after they signed the famous deferred prosecution agreement with Treasury, and handed over the accounts, e-mails, and phonecalls.

I’ll spare you the lengthy account. Judge Albert G (“Scholar Al”) Lauber finds enough badges of fraud to make George a Vulture Scout. Barring the one year, George is in for quite a Rule 155 beancount.

Back in October last year I told the story of Chidozie Ononuju, formerly M.D., and his revoked 501(c)(3). In that story (see my blogpost “Nigeria Calling?” 10/5/20) I noted that “Mrs Ononuju, who also had signatory power on the bank account, is in for her own excise tax separately.”

Well, today Mrs O, mother of eight (count ’em, eight) children, has her innings in Gloria Ononuju, 2021 T. C. Memo. 94, filed 7/26/21. And she doesn’t do so well, as she got plenty of money out of the 501(c)(3) for doing nothing in particular, although she was a signatory on the bank account and got certified checks from the bank payable to herself. Her story that she cashed them and gave the money to poor people in MI at her husband’s direction is a nonstarter. And her sad tales about her financial condition are unsupported.

So Mrs O is on the hook for the $130K Section 4958 excess benefits to a disqualified person. And as disqualification extends even to great-grandchildren of controlling persons, Mrs O is hit with the tier one $32,500 excise tax; and tier two $260K (twice what she took) is on the menu if she doesn’t correct, that is, pay up to the extent possible, and put the 501(c)(3) in the position it would have been in had the disqualified not taken the money.

But there’s good news for Mrs. O. Because of Section 4961, “… the ‘correction period’ will remain open at least until this Court’s decision has become final following any appeal. See secs. 6213(a), 7481(a). Section 4961(b) grants us jurisdiction ‘to conduct any necessary supplemental proceeding to determine whether the taxable event was corrected during the correction period.’ Any such proceeding must begin within 90 days ‘after the last day of the correction period.’ Sec. 4961(b). Petitioner thus retains the opportunity to avoid assessment and collection of the second-tier tax.” 2021 T. C. Memo. 94, at p. 24. (Footnote omitted, biut it says Mrs O can even duck the tier one tax if she can show reasonable cause (ignorance is not on the table, though), and corrects in the same time frame.)

IRS also wants the five-to-twentyfive Section 6651 add-on because Mrs O never filed Form 4720 to report the excess benefit. But can Judge Albert G. (“Scholar Al”) Lauber do it?

“We have not previously addressed, at least not squarely, whether additions to tax apply when a disqualified person fails to file timely a Form 4720 reporting excess benefit transactions. In analogous contexts we have ruled that additions to tax may apply when individuals affiliated with tax-exempt entities failed to file other IRS forms reporting excise taxes under other Code provisions. In those cases we reasoned that section 6651(a)(1) generally applies to the non filing of ‘any return required under authority of subchapter A of chapter 61,’ and that the filing requirement in question was imposed by regulations issued under section 6011, which is included within subchapter A of chapter 61.

“Section 6011(a) provides that, ‘[w]hen required by regulations prescribed by the Secretary any person made liable for any tax imposed by this title * * * shall make a return or statement according to the forms and regulations prescribed by the Secretary.’ The Secretary has prescribed regulations under section 6011 mandating that ‘[e]very person liable for tax imposed by section[] * * * 4958(a) * * * shall file an annual return on Form 4720.’ Sec. 53.6011-1(b), Foundation Excise Tax Regs. Because this filing requirement was promulgated under the authority of section 6011(a), petitioner’s failure to file Form 4720 may subject her to liability for an addition to tax.” 2021 T. C. Memo. 94, at pp. 25-27. (Citations omitted).

Mrs O can try the reasonable cause excuse, but she filed no brief and produced no evidence. She claims she didn’t know.

“The Form 4720 is admittedly an exotic species: The obligation to file this return–unlike the obligation to file (say) Form 1040–is far from common knowledge, especially for someone not actually involved in a charity’s operations. Petitioner had received monthly checks from [the 501(c)(3)] for prior years, and we do not believe that she understood that such transactions needed to be reported on an excise tax return. ‘[I]gnorance of the law, however, does not amount to reasonable able cause.’” 2021 T. C. Memo. 94, at pp. 28-29. (Citation and footnote omitted, but read the footnote. It says Mrs O had counsel at exam, but Judge Scholar Al won’t say what would have happened had Mrs O proffered a Form 4720 before the RA gave her an SFR version.)

Judge, I doubt most counsel would know what Form 4720 was, much less when to file it.

Judge Alina I. (“AIM”) Marshall has a missing tax matterer in Colorado Land and Holdings LLC, John Sfondrini, Tax Matters Partner, Docket No. 11875-20, filed 7/26/21.

When the case was called for trial last month, IRS counsel claimed the case was settled, but couldn’t find Mr. S., tax matterer. Earlier this month, petitioner’s counsel moves to scuttle Mr. S. (who supposedly resigned at the end of 2019, before the petition was filed), and sub in an LLC, whose managing member is Mr. G.

“The petition in this case was filed on September 28, 2020, a date after which Mr. Sfondrini tendered his resignation. The petition was signed by counsel, but it is unclear who the counsel represented. The petition states that ‘[t]he Tax Matters Partner [Mr. Sfondrini] resigned on or around January 1, 2020’ and that ‘[o]n or around the same date, Gerald Greenspoon, in his capacity as manager of GM Investments III, LLC, was named as TMP for all taxable years following 2015.’ The year at issue in this case is 2017, so the statement in the petition suggests that GM Investments III, LLC may be the proper tax matters partner for this case.” Order, at p. 1.

OK, so do we settle or not? Judge AIM can’t tell who the players are.

“The Court has the authority to appoint a tax matters partner only when the partnership fails to do so. If the partnership has properly designated GM Investments III, LLC as the tax matters partner, we have no need to do so on its behalf and we lack the authority to do so on the basis of petitioner’s motion. Instead, the proper procedural posture may be better addressed by a motion to substitute parties and change caption.” Order, at p. 1. (Citation omitted).

OK, simple enough, no? Not while Judge AIM has the case, and petitioners’ trusty attorney is less than lucid about whom he represents. So let said trusty attorney tell Judge AIM whether he is counsel to (a) Colorado Land and Holdings, LLC, (b) Mr. Sfondrini, (c) GM Investments III, LLC, (d) Mr. Greenspoon, or (e) all or some of the above.

I refrain from raising conflicts of interest if the answer is “too many”, because trusty attorney has enough to do.

Let him dish whether the tax matters partner appointed at the end of 2019 to replace Mr. S is GM Investments III, LLC (represented by Mr. G as managing member) and whether the tax matters partner’s appointment complied with the requirements of section 301.6231(a)(7)–1(d), Proced. & Admin. Regs.

Now both sides can get into the act, and tell Judge AIM, separately or together, whether GM Investments III, LLC must ratify the petition in this case, and whether the appropriate filing in this case is a motion to substitute parties and change caption, rather than a motion to remove tax matters partner.

Nudge nudge, wink wink, say no more.