No, this is not another of my walks down Memory Lane, to revisit long-extinct SF psychedelic bands, even the one that catapulted to heights of immortality the most tragic of rock heroines. Rather more mundane is the story of David Evan Ushio and Judith S. Ushio, 2021 T. C. Sum. Op. 27, filed 8/16/21, and it sends me off in search of something clear and cold to end a busy blogging day. Especially when the Genius Baristas sealed the whole docket for no discernible reason, so I can’t link to the text of the Sum. Op., even though it is emblazoned all over the Tax Court website for one day only. No wonder I need a drink.

Briefly, Dave and Judy sunk $50K into the stock of something called PCHG, which never earned a sou, but for which stock Dave and Judy claimed Section 1244 small busineshood and an ordinary loss when PCHG cratered.

PCHG was supposed to invest in some kind of three-way deal to produce alternative energy. You figure it out, because it produced nada.

STJ Diana L (“Sidewalks of New York”) Leyden cuts to the cliché.

“Congress intended section 1244 to encourage taxpayers to invest new funds in small businesses, rather than provide favorable tax treatment for losses suffered by investment and holding companies.” 2021 T. C. Sum Op. 27, at p. 8. (Citations omitted).

Section 1244 corporations are supposed to be operating companies, making money from operations, not investing. PCHG never operated anything. Dave and Judy couldn’t prove PCHG got less than $1 million capital.

Moreover, Dave and Judy couldn’t prove “… more than 50% of PCHG’s aggregate gross receipts were not from sources other than royalties, rents, dividends, interests, annuities, and sales or exchanges of stocks or securities. In fact PCHG could not meet this requirement because it did not have any gross receipts during its existence and failed to operate largely as an operating company.” 2021 T. C. Sum. Op . 27, at p. 10.

So Dave and Judy can write off $3K for each of the following seventeen (count ’em, seventeen) years, as capital losses.

I must express sympathy to Dave’s and Judy’s counsel, Sandra M. Robb, EA, USTCP. You were dealt a tough hand to play.

Dependent child and child tax credit cases are tough; without an 8332, you’re out. Even with one, it isn’t easy. So a Taishoff “Good Job” goes to William K. Schmidt, Esq., of KCMO Legal Aid, who pulls a winner in Carol Denise Griffin, 2021 T. C. Sum. Op. 26, filed 8/16/21.

Carol Denise took care of Mom at her home via a contractor with Kansas Senior Services. Carol Denise also cared for her minor niece and nephews, the children of her disabled single-parent brother. Carol Denise took the dependency, child tax and EIC. She had income from the contractor. She also had an 8332 signed by her brother, but never attached it to her 1040.

IRS disallowed it all, and Carol Denise timely petitioned the SNOD.

So Judge Vasquez once again observes “…that the process of distilling truth from the testimony of witnesses, whose demeanor we observe and whose credibility we evaluate, ‘is the daily grist of judicial life’.” 2021 T. C. Sum. Op. 26, at p. 8.

IRS folds the age test, the relationship test, and the support test. IRS says the kids didn’t spend the requisite number of nights at Carol Denise’ home.

“Petitioner has demonstrated that all three children satisfied this requirement. Petitioner credibly testified that: (1) she took care of the children to help her disabled brother; (2) the children stayed overnight with her all summer and on weekends, school closures, and holidays during the school year; and (3) the children also stayed with her when they had to leave school early or when the school could not reach their father. Petitioner corroborated her testimony with a school calendar for the [year after year at issue] academic year, which confirmed that the children had at least two days off per month during the school year. After observing petitioner’s credible testimony and reviewing the school calendar, we find it more likely than not that the children resided with petitioner for more than one-half of [year at issue]. 2021 T. C. Sum. Op.  26, at p. 6-7 . (Footnote omitted, but it says that the school years are probably pretty much alike, so the next year’s calendar doesn’t vary much from the last.)

IRS’ counsel claim the school records Carol Denise submitted in evidence are inconsistent and have handwritten notes. Carol Denise explains the inconsistencies, and says the notes are the school secretary’s.

The 8332 from her brother says Carol Denise is the “non-custodial parent,” but that’s impossible. But Judge Vasquez pushes that aside. Neither party called the brother as a witness, and IRS didn’t raise missing witness to rebut.

Carol Denise wins.

In baseball, when a team doesn’t show up, the umpire enters the score of 9 to 0 in favor of the non-defaulter, and everyone leaves the field. Not so in US Tax Court. IRS and Judge Albert G (“Scholar Al”) Lauber have to run around the bases for each and every one of the five (count ’em, five) years, in each of which IRS wants to tag Irvin Hannis Catlett, Jr., Deceased, 2021 T. C. Memo. 102, filed 8/16/21, for deficiencies, add-ons and chops.

Irv was not yet deceased when he petitioned, though he was in the slammer doing seventeen years six months for “…violation of 18 U.S.C. sec. 371, aiding and assisting in the preparation of false tax documents in violation of section 7206(2), and attempting to obstruct and impede the administration of the internal revenue laws in violation of section 7212(a).” 2021 T. C. Memo. 102, at p. 3.

Irv was a preparer, who concocted phony entities generating phony losses to offset real gains for his customers, with the assistance of a bent penny in the IRS. While enjoying (if that is the correct word) board and lodging at our expense, Irv failed to cooperate (surprise, surprise) with the audit of his personal taxes, thrice unsuccessfully sued to quash subpoenas to his various banks, and petitioned the SNODs IRS gave him. Before trial, Irv went before a much higher Judge than can be found at Second Street, NW.

Irv’s next of kin repeatedly state they have no interest in participating in any trial, and no will, nor ex’r or adm’r can be found.

So why a T. C. Memo.? Well, although dismissal for want of prosecution is a no-brainer, IRS wants to enter decision for whatever reason. Maybe Irv had a stash somewhere they can grab. So IRS needs to satisfy BoP and BProd to get a default. What we State courtiers would call an “inquest for a default judgment.”

So Judge Scholar Al must run the bases, 25 (count ’em, 25) pages’ worth, giving IRS their heart’s desire (assuming they have a heart, a fact not in evidence), save only one minuscule break for Irv’s non-estate.

“Section 6651(f) provides that, ‘[i]f any failure to file any return is fraudulent,’ the addition to tax imposed by section 6651(a)(1) shall accrue at a rate of 15% per month, not to exceed 75% in the aggregate. Respondent has the burden of proving fraud, and he must prove it by clear and convincing evidence. See sec. 7454(a); Rule 142(b). Where dismissal for lack of prosecution is appropriate, the Commissioner can satisfy his burden by presenting, ‘either in the pleadings or at trial, * * * sufficient facts to sustain a finding of fraud.'” 2021 T. C. Memo. 102, at p. 23. (Citations omitted).

But IRS needs clear and convincing proof of fraudulent intent, and they haven’t got it.

“The IRS determined an addition to tax under this provision for 2009. Petitioner’s return for 2009 was due on April 15, 2010, roughly one month after he was indicted for tax crimes. Under these circumstances, petitioner’s failure to file a 2009 return may have been attributable to various causes, e.g., distraction occasioned by the criminal prosecution, advice of counsel, or reluctance to take a position inconsistent with the positions taken on his prior returns. Considering the record as a whole (including the facts contained in respondent’s pleadings), we conclude that respondent has not carried his burden of proving that petitioner’s failure to file for 2009 was fraudulent. We will therefore not sustain the section 6651(f) addition to tax for 2009.” 2021 T. C. Memo. 102, at p. 24.

But before you rend your garments in mourning for IRS, Judge Scholar Al notes all is not lost.”However, the notice of deficiency stated that, ‘if the fraudulent failure to file penalty is determined not to apply, the failure to file penalty [sic] under * * * [section] 6651(a)(1) does apply.’” 2021 T. C. Memo. 102, at p. 24. And IRS Boss Hossed this case to a fare-thee-well. So the lesser add-on sticks.

Game forfeited, Rule 155 beancount to follow. It will be a trifle one-sided.

Edited to add, 10/12/21: Yup, a trifle one-sided. But the numbers here lead me to believe that the stash of cash is more than a mere possibility. Irvin Hannis Catlett Jr 13058-14 10 12 21

The much-denounced Affordable Care Act of 2010 (whose survival against all odds is a story that could only happen in America…but this is a nonpolitical blog) has an as-yet-unrepealed provision, the net investment income tax imposed by section 1411, s/a/k/a  the Obamacare Override. And neither our tax treaty with the French Republic, nor that with the Republic of Italy, can override the Override.

I must here give full marks to the trusty tax counsel for Catherine S. Toulouse, 157 T. C. 4, filed 8/16/21. When it came to full disclosure, they laid it out, laid it on, and laid it on thick. She “timely filed Form 1040… under extension, with a filing status of married filing separately….She attached to her return Form 1116, Foreign Tax Credit, that reported that she had paid… tax to Italy and France…. She also reported that she had a carryover of foreign tax credits of approximately $340,000 and used a portion of the carryover to offset her tax. Line 60 of her Form 1040, where taxpayers are to report net investment income tax, is blank. Line 60 is in the section of Form 1040 labeled “Other Taxes”. On line 61, petitioner reported “total tax” of zero. Petitioner attached Form 8960, Net Investment Income Tax–Individuals, Estates, and Trusts, to her return, reporting net investment income tax…. She reported this amount as required by the Form’s instructions on line 17, which is labeled ‘Net investment income tax for individuals.’ Line 17 also instructs taxpayers on how to compute the tax and transfer the amount of the tax reported there to Form 1040, line 60. She modified Form 8960 by adding two lines under line 17. She labeled the first added line ‘Less: Foreign Tax Credit” and entered [what she claimed]. This amount is in addition to the… foreign tax credit that she claimed on line 47. She labeled the second added line ‘Net Investment Income Tax Due’ and entered an amount of zero. She did not transfer the… net investment income tax shown on Form 8960, line 17, to Form 1040, line 60, in accordance with the instructions on the Forms.

“Petitioner also attached to her return two Forms 8833, Treaty-Based Return Position Disclosure Under Section 6114 or 7701(b), disclosing her position that she used the foreign tax credit carryover to offset the net investment income tax…. She also attached Form 8275, Disclosure Statement, providing a detailed explanation of her position that article 24(2)(a) of the U.S. income tax treaty with France, the Convention for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion With Respect to Taxes on Income and Capital, Fr.-U.S., Aug. 31, 1994, 1963 U.N.T.S. 67, as supplemented by Protocols dated Dec. 8, 2004 and Jan. 13, 2009 (U.S.-France Treaty), and article 23(2)(a) of U.S. income tax treaty with Italy, the Convention for the Avoidance of Double Taxation With Respect to Taxes on Income and the Prevention of Fraud or Fiscal Evasion, Aug. 25, 1999, It.-U.S., Aug. 25, 1999, T.I.A.S. No. 09-1216, as supplemented by Protocol dated Aug. 25, 1999 (U.S.-Italy Treaty), permit a foreign tax credit against the net investment income tax.” 157 T. C. 4, at pp. 4-5.

All that was missing was a little handwritten notecard saying “Please audit me.”

IRS didn’t bother; they claimed arithmetic error and assessed. So Catherine went to Appeals on a refund claim when IRS disallowed her credit claim. Catherine petitions that, and the Section 6651(a)(2) failiure-to-pay add-on.

Judge Goeke has this one.

Congress sneakily included the Obamacare Override in Title A, Chapter 2A. The treaties only cover whatever Section 901 covers, the Title A, Chapter 1 taxes.

“Section 1411 is in chapter 2A, subtitle A, Income Taxes. Thus, the foreign tax credit under section 27–which applies to ‘the tax imposed by this chapter [1]’–does not by its terms apply to offset net investment income tax. Section 1.1411-1(a), Income Tax Regs., provides that ‘[e]xcept as otherwise provided, all Internal Revenue Code (Code) provisions that apply for chapter 1 purposes in determining taxable income (as defined in section 63(a)) of a taxpayer also apply in determining the tax imposed by section 1411.’ But tax credits (including the foreign tax credit under section 27) are not taken into account in determining taxable income under section 63(a). See sec. 63(a) (defining ‘taxable income’ to mean gross income minus the deductions allowed by chapter 1 other than the standard deduction). Section 1.1411-1(a), Income Tax Regs., therefore does not provide for a foreign tax credit against the net investment income tax.” 157 T. C. 4, at pp.11-12 (Footnote omitted; it deals with waived procedural argy-bargy.)

OK, the IRC doesn’t allow the credit. But that’s why we have treaties, no? They have the force of law.

Yes and yes, but no.

The Obamacare Override was enacted after the treaties. But a court won’t find an intention to override a treaty unless Congress says so. And the treaties say they’re subject to US law.

And Chapter 2A is a standalone. It only has one (count it, one) provision, the Obamacare Override. So Catherine’s clerical misstep argument fails.

“It is immaterial that the Code does not affirmatively state that a foreign tax credit against the net investment income tax is disallowed. Section 1411(c)(1)(B) expressly provides for deductions allowed by subtitle A in the computation of net investment income. There is no provision for any credits against the section 1411 tax. The enactment of a 3.8% net investment income tax as part of chapter 2A is a clear expression of congressional intent that credits against section 1 not apply against the section 1411 tax.” 157 T. C. 4, at pp. 18-19.

Anyway, both treaties recognize that laws may change. The aim is to reduce, not eliminate, double taxation. The credit is preserved, not embalmed. Besides, Catherine only relied on one provision in each treaty. There may be others elsewhere that aren’t removable by subsequent legislation.

As for the Section 6651(a)(2) failure-to-pay add-on, IRS didn’t seek summary J on that, although they get it on the tax being due. So maybe good-faith reliance is in play, and that’s a fact question.

Taishoff notes that despite the fact the entire repeal of the ACA failed by one (count it, one) vote in the Senate in July of the year Congress enacted the TCJA, the Obamacare Override survived. Although the net investment tax plus add-on at issue here is less than $20K, I anticipate an appeal. Maybe the wannabe repeal forces, if any are left, will file amici here.

Ch J Maurice B (“Mighty Mo”) Foley is always ready to seek out new members for the Tax Court Bar. If ever my dream of a US Tax Court Bar Association comes true (see my blogpost “I Dreamed a Dream,” 11/25/20), I would nominate a Membership Committee Chair, if I could find one with the zeal of Ch J Mighty Mo.

Perhaps His Honor would chair the Judicial Liaison Committee.

Today, Ch J Mighty Mo invites “Ms. Laura M. Gallo” [sic; I think you meant Laura M. Gallo, Esq., Judge] to “come along and sing the song and join the jamboree!” as another perhaps more prominent aggregation would say.

The Order is Carolina Vasquez, Docket No. 17804-21, filed 8/16/21.

“The petition filed to commence this case…did not bear the original signature on the petition of petitioner, however, bore a signature of an individual who purportedly is petitioner’s counsel who is not admitted to practice before the Court, as required by the Tax Court Rules of Practice and Procedure.” Order, at p. 1.

“At this juncture, Laura M. Gallo will not be associated with this case until she is able to practice before this Court.” Order, at p. 1.

So Ms. Gallo, pony up the fifty Georges and a current certificate of good standing (not older than 90 days) from any of the Supreme Court of the United States, or of the highest or appropriate court of any State or of the District of Columbia, or any commonwealth, territory, or possession of the United States. And e-file the online forms of admissions application and Entry of Appearance.

Meantime, get your client to wet-ink sign and snail-mail the ratification.

And welcome aboard.

Subchapter K furnishes enough materials for abstruse reasoning to satisfy the most over-caffeinated quibbler. So today I invoke the famous hamburger ad (“have it your way”), as does Judge Morrison in Bethany MD Holdings Group, LLC, Core Realty Holdings, LLC, Tax Matters Partner, Docket No. 19802-18, filed 8/13/21.

I most sincerely doubt too many of my readers have lost much shut-eye over the issue of which Judge Morrison disposes so handily.

I’ll step aside and let Judge Morrison tell the story.

“…petitioner filed a motion for partial summary judgment in which petitioner took the position that a distribution triggering a section 734(b) basis adjustment under section 734(b)(1)(A) does not require the basis adjustment to match the amount of gain reported on the distributee partners’ tax returns.” Order, at p. 1.

Well, IRS doesn’t object, so Judge Morrison grants Bethany MD partial summary J.

And sends the parties off to work out their remaining issues in fear and trembling.

But I wish Judge Morrison had clarified his Order with a reference to Reg. Section 1.734-2(b)(1) and the example therein. That makes it clear that the partnership’s basis is computed per the statute, whatever the transferee recognizes or doesn’t recognize.

I wish to thank ex-Ch J L Paige (“Iron Fist”) Marvel for adding another specimen to my collection of taxation stealthy bits and pieces. Today it’s a six-month extension of time to do something at Appeals that doesn’t seem to have been transmitted to the petitioners or their representatives.

The story is told in Hyrum McKay Bates and Katherine Call Bates, 2021 T. C. Sum. Op. 25, filed 8/12/21. Hy and Katherine filed four (count ’em, four) years, leaving balances due for each. Notices followed, and then a NITL. Hy and Katherine petitioned. At the phoneathon CDP, the reps and the SO seemed to strike a deal for an IA, and the SO faxed a Form 433-D embodying same the same day, giving Hy and Katherine a week to sign.

They didn’t. Here’s the time line; it’s material.

“During the hearing, which took place on July 9, 2019, petitioners’ representatives and the SO discussed and tentatively agreed to a monthly installment amount. Petitioners’ representatives asked the SO to prepare and to fax a completed Form 433-D, Installment Agreement, reflecting the monthly installment agreement. The SO prepared and faxed the Form 433-D on July 9, 2019, and gave petitioners until July 16, 2019, to execute and return it. Neither petitioners nor petitioners’ representatives returned a signed Form 433-D to the SO, and on January 16, 2020, the SO closed the case. On January 30, 2020, the Internal Revenue Service (IRS) issued a notice of determination sustaining the proposed levy.” 2021 T. C. Sum. Op. 25, at p. 4. (Footnote omitted, but it says Hy and Katherine meanwhile filed another year and didn’t pay, the SO checked that out as she was bouncing the CDP, and noted any IA would have to be modified accordingly).

Leaving aside that the Independent Appeals Office, not IRS, conducts CDPs and issues NODs, and leaving aside that Appeals can bounce a CDP if the taxpayer doesn’t agree to a  collection alternative after being given an opportunity to do so (although a week is short, it isn’t short enough to torpedo a NOD, especially when neither the taxpayer nor the reps contacted the SO during that week to reject or seek a modification), what raises my age-whitened eyebrows is the six (count ’em, six) months between July and January.

What happened? Did anybody talk to anybody? Did the SO ask the reps what happened to the IA? Did the reps do anything? Did Hy and Katherine? Assuming the SO didn’t have to do anything or talk to anyone, why wait six months? Of course if the reps did nothing and Hy and Katherine did nothing, Hy and Katherine have nothing to complain about with Appeals, although the reps may get The Phone Call when Hy and Katherine see Judge Iron Fist’s opinion and decision.

Even more puzzling, and what gives rise to the headline or caption first set forth at the head hereof (as my already-coming-about on-the-port-tack colleagues would say), is Judge Iron Fist’s stated grounds for affirming the NOD.

“Our review of the record establishes that the SO verified that the requirements of applicable law or administrative procedure had been met and discussed with petitioners’ representatives the terms for an installment agreement. The SO and petitioners’ representatives tentatively agreed to those terms, and on July 9, 2019, the SO prepared and faxed to petitioners’ representatives a Form 433-D, which reflected those terms. The SO afforded petitioners six months to sign and return the Form 433-D, but petitioners did not do so. The amount of time the SO allowed before closing petitioners’ case was reasonable and adequate for them to submit a signed Form 433-D. When petitioners did not respond, the SO closed their case after considering the issues they properly raised and performing the analysis required by section 6330(c); and the IRS issued a notice of determination sustaining the proposed levy.” 2021 T. C. Sum. Op. 25, at pp. 6-7.

The SO gave the reps (and presumably their principals, Hy and Katherine) one week, namely, viz., and to wit, until July 16, 2019, to sign and return the IA.

If there were later communications, extensions, negotiations, billets doux, or whatever, on or before January 16, 2020, that memorialized any extension of the July 16, 2019, deadline, either these never made it into the record or never made it into this Sum. Op.

Which leaves me with the Stealth Extension.

At the end of June I pitched the concept of a sliding scale for Section 6673 frivolity chops. Specifically, my concern that unbridled judicial discretion, such as is set forth in the flush language of Section 6673(a)(1) “whenever it appears to the Court” that a petitioner or attorney or USTCP was playing prohibited games, could give rise to abuse-of-discretion or excessive-fines-or-penalties argument on appeal from the chop.

See my blogpost “The Shorn Lamb,” 6/29/21.

Lawrence James Saccato, Docket No. 831-19, filed 8/12/21, gets even better treatment than Jamillah Kammillah Muhammad got in my above-cited blogpost. Larry skipped filing three (count ’em, three) years, but IRS gave him SFRs based on third-party reports, and SNODs at no extra charge.

Judge Albert G (“Scholar Al”) Lauber catalogues Larry’s delictions.

“In his petition he asserted that he was not required to file Federal income tax returns because he is a ‘State Citizen of Oregon,’ not a ‘[F]ederal Citizen and NOT a resident alien.’” Order, at p. 1.

Larry was consistent, at least.

“…he filed a motion to dismiss, arguing that the IRS ‘lacks personam jurisdiction’ over
him because he is a ‘Citizen of Oregon,’ not a ‘[F]ederal citizen.’ And he asserted that the deficiency notices were invalid because the IRS issued them only to ‘damage and harass him.’ By Order…we denied petitioner’s motion to dismiss….he moved to vacate our Order, again asserting that the deficiency notices were invalid and that the Court must take ‘Mandatory Judicial Notice’ of the Internal Revenue Code. We denied that motion….In a motion for continuance of trial… he again asserted that he is neither a ‘[F]ederal citizen nor a resident alien.’ Order, at pp. 1-2.

You get the idea.

Back in February, Judge Scholar Al showed Larry the Section 6673 yellow card.

Larry now files a motion entitled “Motion to Strike Rule 52 and Motion to Dismiss,” reiterating the same protester jive, but maybe he’s picked up something.

“Most of petitioner’s contentions are frivolous on their face. To the extent they are not frivolous–i.e., to the extent he is asserting that the SFRs did not comply with I.R.C. § 6020(b) or that he did not receive the income alleged in the SFRs–these issues present questions of fact that are not a proper basis for a motion to dismiss. As we have explained to petitioner previously, he bears the burden of proving that the IRS’ determinations are erroneous. Whether he can meet his burden involves factual matters that must be resolved in the course of further proceedings.” Order, at p. 2. (Citations omitted).

Judge, I applaud your efforts to mollify the judicial wind not only to the shorn lamb, but even to the Frenched lamb just out of the roasting oven and furnishing forth the marriage table. I agree that no one with the merest scintilla of a charitably-colorable claim for which relief can be granted by the furthest-most stretch of judicial imagination and invention can be precluded from their chance to prove it. Evelyn Beatrice Hall’s 1906 words, erroneously attributed to Voltaire, should be inscribed in letters of purest gold on face of The Glasshouse on Second Street: “I disapprove of everything you say, but will defend to the death your right to say it.”

But.

Larry said it. Larry said it four (count ’em, four) times. Wherefore you and the hardlaboring intake clerks, flailing datestampers, 18F docket-blockers, Genius Baristas, et hoc genus omne were obliged to invest work, labor and materials, none of which is costless, in Larry’s jive, and in payment whereof Larry’s sixty bucks isn’t even a waiter’s tip.

Yeah, Larry has a claim. I wouldn’t bet the aforesaid waiter’s tip on his case. But if he fails, he should pay.

There needs to be guidelines for Section 6673 chops. Dodgers, wits, wags, and wiseacres should not be permitted to chew up resources needed to help honest taxpayers, whose good-faith claims, even if erroneous, deserve to be heard. Add a couple zeros (hi, Judge Holmes) to their claims, Judge; their few dollars are just as important to them as the nine-figure deficiency is to the multinational Fortune 50.

There’s no provision for regulations in the statute, nor should there be. Judges have to judge the case before them, not the one the executive branch or the legislative branch doesn’t have. It’s not for Congress or Treasury to fix.

But Tax Court can, without unduly restricting the individual Judge or STJ. Flexibility there must be, but frivolites should not have a free-fire zone. And appellate courts should have something to which to look if the frivolites try to appeal a Section 6673 chop on the basis of abuse of discretion.

How ’bout it, general counsel?

Some of us growl at “the electric leash”; others couldn’t live without it. Whichever camp in which we sit, the smartphone is unavoidable.

Dion E. Monroe and Kim M. Monroe, 2021 T. C. Sum. Op. 24, filed 8/11/21, would be just another run-of-the-mill indocumentado, were it not for Dion’s smartphone app that actually seems to satisfy Section 274 and its substantiation stonewall against which so many trade-or-business automobilists crash.

Dion is a car salesman, but instead of hitting the bricks, he mimics his namesake’s 1961 hit and “goes around around around around around.”

Judge Elizabeth A. (“Tex”) Copeland tells us all about it.

“In order to facilitate his overall car sales, Mr. Monroe engaged in certain marketing activities. Those activities involved offering incentives to: (1) potential customers who test drove a…vehicle for which Mr. Monroe was the designated salesman, (2) customers who purchased a … vehicle for which Mr. Monroe was the salesman, and (3) persons who referred customers to Mr. Monroe. The various incentives included a free round of golf for two people, lunch, dinner, a $100 gift card, or tickets to a Kansas City Chiefs football game. Mr. Monroe would market these incentives by taking a day every other week to drive a circuit along which he would deliver to and post flyers at certain targeted insurance agencies, golf courses, golf stores, and junk yards.” 2021 T. C. Sum. Op. 24, at p. 4.

OK, mileage deduction. There’s the usual Schedule C vs Schedule A (with the 2% AGI cutoff) argy-bargy, but save that; we’ll come back to it.

In the meantime, Dion is running up miles and potential deductions, but Section 274 is blocking the way.

“On days when he drove the circuit, Mr. Monroe used a phone application (app) to track his mileage. The app allowed him to manually enter the starting odometer reading; then it would use the phone’s Global Positioning System receiver to track mileage driven and, at the end, add the mileage driven to the initial odometer reading to calculate a final odometer reading. The app also allowed Mr. Monroe to generate a mileage log. His mileage logs included: (1) the date; (2) the time travel was initiated (but no other times); (3) a description, which is either “[d]eliver flyers” or  “[d]eliver flyers/[s]etup tourn”; (4) a purpose, which is always “[b]usiness”; (5) which is always “Golf Stores”, “Golf Courses”, “Junk Yards”, or “Insurance Agents”; (7) a beginning odometer reading; (8) an ending odometer reading; and (9) a mileage calculation.” 2021 T. C. Sum. Op. 24, at pp. 4-5.

Good enough? Yes, says Judge Tex Copeland.

“In addition to credible testimony, the Monroes provided contemporaneous mileage logs, which they were able to relate back to Mr. Monroe’s customer lists. For 2014 Mr. Monroe’s mileage log states that he drove 19,907 miles for business purposes. Similarly, Mr. Monroe’s 2015 mileage log states that he drove 15,610 miles for business purposes. We will accept the mileage shown in the contemporaneous mileage log for each year. Thus, we hold that the Monroes are entitled to deduct car and truck expenses of $11,148 (19,907 × .56) for 2014 and $8,976 for 2015 (15,610 × .575).” 2021 T. C. Sum. Op. 24, at p. 18.

Most of the rest of Dion’s deductions bite the dust, but when deficiencies of around $12K are on the line, and IRS is Boss Hossing 20% five-and-ten chops at no extra cost, those smartphone deductions could save a lot.

As for the Schedule C vs Schedule A, Dion claimed the incentive payments he got from the auto manufacturer whose tin he was pushing was a separate trade or business, hence Schedule C. That one craters, but when it comes to those five-and-ten chops (lesser of 10% or $5K understatement of tax earns a 20% chop), maybe Dion and Kim have a point.

“All of the adjustments relate to the Monroes’ failure to report some of their income or to the disallowed Schedule C deductions. The record reflects that some of the expenses were deductible on Schedule A. While the 2% floor may have limited some of the deductions we allowed, the Monroes were not unreasonable in claiming those amounts as Schedule C deductions in that the judiciary has never spoken on the proper characterization of those items in the setting herein. As to the unreported income and as to the expense deductions that we specifically disallowed for reasons other than the 2% limitation, the Monroes did not establish that they are entitled to a reasonable cause defense. Consequently we hold that the Monroes are liable for the section 6662(a) and (b)(2) accuracy-related penalties to the extent the Rule 155 computations show there are underpayments attributable to substantial understatements of income tax, except not as to the portions of the understatements that relate to a limitation resulting from the 2% floor.” 2021 T. C. Sum. Op. 24, at p. 28.

Gonna be quite a Rule 155 beancount.

Takeaway for Wanderers: Get that smartphone app. Use it well. And no, I don’t get any compensation for mentioning it here.

I’ve blogged the lookback rules any number of times. Amr M. Mohsen, 2021 T. C. Memo. 99, filed 8/11/21, took fourteen (count ’em, fourteen) years to file his delinquent return. In the meantime, IRS gave Amr a SFR. AMR had timely asked for an extension to file for that year, and sent in $43K. IRS applied the payment to the tax Amr owed for that year, and sent the rest to excess collection.

Then Amr filed eleven (count ’em, eleven) years late in the same year, and wanted the $43K applied to the second late year, and the net amount refunded, as he didn’t owe for the first late year. He claims the check was a deposit in the nature of a cash bond.

Clear? Thought not.

Amr never noted on the check what he wanted.

Judge Kerrigan begins with the truism that Tax Court can apply a credit, if at all, if the credit “indubitably” exists. 2021 T. C. Memo. 99, at p. 9.

There isn’t. All Amr had was a claim for a credit. “At the time of petitioner’s CDP hearing…respondent had already denied his refund claim on several occasions. Petitioner has a mere claim of an overpayment for [first late year]. Accordingly, we lack jurisdiction to decide his claim for refund for a year that is not before us.” 2021 T. C. Memo. 99, at p. 10.

It gets worse.

“Even if we had jurisdiction, petitioner would not be entitled to a refund because he has failed to meet the threshold requirements for claiming a refund. Petitioner contends that his remittance of $43,000 in 2002 was a deposit in the nature of a cash bond. While section 6511 sets a period of limitation on claims for credit or refund of overpayments of tax, this period of limitation does not apply to a deposit in the nature of a cash bond. Rev. Proc. 84-58, 1984-2 C.B. 501, which has been superseded but was in effect for the year when petitioner mailed the check, states that a taxpayer may request the return of all or part of a deposit at any time before the Service is entitled to assess the tax. According to petitioner’s argument his refund claim was thus timely, and his remittance of $43,000 would be an available credit to apply towards his 2004 tax liability.

“Petitioner submitted the $43,000 check attached to a Form 4868. His remittance was a payment of tax and not a deposit in the nature of a cash bond. Accordingly, the period of limitation under section 6511 applies.” 2021 T. C. Memo. 99, at pp. 10-11. (Citation omitted).

And that’s the three-year lookback. But the three years began when Amr filed his return; the SFR isn’t a return for lookback purposes. And Amr paid thirteen years before he filed his late return.

Takeaway- Check out the current deposit rules before you make any payment. Or else, if you miss the lookback, look out!

Note I can’t link to the text of this opinion, because the Genius Baristas or the 18Fs or whoever is running this shambolic schemozzle called DAWSON has blocked the entire docket, notwithstanding this opinion was just published.