See Infra

Judge Nega has bad news for Michael F. Kissell and Maddelena P. Kissel, Docket No. 20103-18, filed 7/23/21, straight off the bench. It’s Mike’s story. Mike won a dustup with PA Dep’t of Corrections over discrimination, and got a back-pay award. PA paid the whole amount without withholding. Then PA woke up and gave Mike a bill for FICA/FUTA/union dues/retirement of $159K.

Mike had a choice of payment plans, but asked for forgiveness of the debt. PA said no, and took it out of Mike’s pension payments for the two years at issue. PA gave Mike 1099-Rs at no extra charge, showing the gross. Mike reported only the net.

On the trial, Mike claimed he didn’t owe PA for the alleged withholding. Judge Nega isn’t buying. “As an initial matter, we note that the validity of petitioner husband’s outstanding debt to the Commonwealth is an issue between petitioners and the Commonwealth, and is not an issue properly before this Court. The only issue before this Court is whether petitioners had … unreported pension income in [taxable years at issue] with respect to petitioner husband’s pension distributions.” Transcript, at pp.14-15.

Of course, income is anything not exempt, and the fact that it gets intercepted to pay a debt of the taxpayer doesn’t matter. And individuals are cash-basis, so we owe when we get, actually or constructively.

“An employer’s payment of an obligation of the taxpayer is equivalent to the taxpayer’s receipt of income in the amount paid. Lack of control over the earnings does not justify exclusion of earnings from the employee’s gross income used to pay an obligation of the employee. Similarly, where the transfer of funds at least partially discharges a legal obligation of the taxpayer, the transfer is equivalent to receipt by the taxpayer. The fact that the transfer is involuntary, such as by garnishment, has no significance.” Transcript, at p. 14. (Citations omitted, but you probably saw most of them in your Income Tax 101 class).

Mike being a PA resident, he’s Golsenized to 3 Cir. 3 Cir learning says IRS must provide a minimal foundation for unearned income claims, linking taxpayer to income-producing activity. If. not, presumption of correctness of SNODs doesn’t apply. IRS has PA’s retirement records concerning Mike’s withholding deductions from his pension, and that’s enough.

Nothing about chops, so no discussion of good faith reliance; perhaps Mike didn’t consult his trusty attorney who won the employment discrimination case, or maybe said trusty attorney steered clear of the issue.

But before I close this blogpost, I must thank the  Tax Court webmeisters for getting this designated hitter up before start of the business day. And that goes double for a Friday; there’s almost never an opinion on a Friday, and I have to scrape and scrounge through hundreds of soul-killing orders to find blogfodder. Not today, though. Thanks.

Now if only y’all could get opinions up before NYC breakfast time every working morning, in the immortal words of The Chords, life could be a dream.