Again

I lament the passing of the designated hitter, the order singled out by the Judge or STJ as worthy of the Bar’s and the blogosphere’s attention, to say nothing of humble journos like myself. Now we have to check the number of pages, as if the Genius Baristas have taken their text from Dickens’ Mr. Weller: “Vidth and visdom, Sammy, alvays grows together.”

Vell (sorry) Well, today Judge David Gustafson expatiates on why, since a Tax Court decision is strictly numbers, he can accept IRS’ folderoo on the captive insurance issues in Paul Puglisi and Ann Marie Puglisi, et al., Docket No. 4796-20, filed 10/29/21*. Paul wants an opinion that his captivity is legit, because it isn’t chickenfeed. Paul has a 1.2 million chicken operation, providing eggs throughout the mid-Atlantic States; a bad outbreak of avian flu would slaughter Paul as well as the chickens, and no third-party insurer will cover poultry diseases.

IRS yoicked Paul around for four (count ’em, four) years, demanding forests’ worth of paper and playing enough “win your case at discovery” gambits to provide a lifetime’s CLE. Paul says he needs an opinion to protect him and the other eggers-on from IRS’ chicken…you know the rest.

Judge Gustafson has discretion, and he uses it. An opinion here is advisory. IRS is willing to stip not only to the numbers upon which everyone agrees, but to stip out the next two years, allowing the deductions Paul took.

Judge Gustafson does a huge deep-dive into the scope of Tax Court’s jurisdiction to determine a deficiency (that’s a number, not its component parts; Judges need go granular only when a question of law is involved, to give guidance), and its discretion to accept a concession, sort of like a Ch 11 or Ch 13 plan in Bankruptcy Court, or a class-action settlement or a criminal plea bargain in an Article III Court. I’ll leave it to readers who need to know to read it all; I won’t try to abstract or paraphrase, lest I get it wrong.

But I note Judge Gustafson just glances at Cigna Corp. I summed that case up as Judge Gustafson sums this one up: “You Won, Go Home,” 9/13/12.

Note that Judge Gustafson is thoroughly hip to litigation strategy and tactics, as he pointed out in my blogpost “Crafty – Akin to the Weasel,” 7/24/17. And he cites to Matthew Dean Vigon, Order, at pp. 12-13. Paul and Matty are both entitled to a decision on their liabilities. But Paul wants a legal opinion why he wins, and that he won’t get.

Why not? Well, strategy.

“If it were true that the Commissioner’s concessions in these cases are merely tactical and simply reflect that ‘Petitioners’ cases are not the litigation vehicles that he wants to use to present his theories to this Court’ (Doc. 21 at 4), then our exercising discretion to accept the concessions in these cases is, of course, without prejudice to our exercising discretion in the management of future [insurance] ‘Series A’ cases. However, if petitioners are among ‘hundreds of other companies * * * [that] purchased insurance from Series A of Oxford Insurance Company LLC’ (Doc. 21 at 2; Doc. 24 at 4-5 & n.4), then we could not criticize petitioners, the ‘other companies’, or Series A if they had coordinated their efforts and pursued the instant petitions because they were more promising than others as ‘litigation vehicles’ for the taxpayers’ position; nor can we criticize the Commissioner for conceding cases in which his position is weaker in order to devote his resources to litigating cases that are more promising for his position.” Order, at pp. 16-17.

OK, Judge, I’ll always agree that you pick your fights to win wherever you can. But to yoick your adversary around for years pre-SNOD, and then fold when he calls, after he’s spent a ton on CPAs and attorneys, is beyond tactics. And of course, with the folderoo IRS ducks Section 7430 admins and legals, although Paul admits he and Ann Marie are “over the technical limitations” that scupper the same. Order, at p. 5.

Pop goes the weasel, again.

*Paul and Ann Marie Puglisi 4796-20 10 29 21

Judge David Gustafson echoes Ike Watts, as he counsels Jack Donald Supinger, Docket No. 10957-20, filed 10/29/21* on the wages of frivolity and the need for repentance in this off-the-bencher. Judge Gustafson really holds out the lamp to burn, although JD is a frivolite, zero-return variety.

True, JD “…was polite in his conduct of the trial. He timely submitted his pretrial memorandum and cooperated with the logistics of the remote trial by electronically filing his exhibits. Furthermore, as far as we know Mr. Supinger has not made frivolous contentions in court nor been penalized for doing so.” Transcript, at pp. 15-16.

Also true, his employer sent two W-2s for the same amount, so the SNOD was wrong, and IRS conceded the excess in its pretrial memo. That’s also in JD’s favor: “…we note that the amount of the deficiency was not nearly $25,000 as determined in the SNOD but rather only about $9,000. Consequently his filing of his petition did result (no thanks to his frivolous position) in a redetermination in his favor.” Transcript, at p. 15.

But JD fooled around at the trial (however politely), despite Judge Gustafson having warned him before and during trial that Section 6673 means what it says. Notwithstanding the yellow cards, he “dodged, evaded and obfuscated. He put the Commissioner to the expense and trouble of producing witnesses to prove facts for which Mr. Supinger had no rebuttal.” Transcript, at p. 16.

IRS called personnel from both JD’s employers for the year at issue to testify about JD’s employment, the numbers shown on the W-2s and the SNOD, and authenticate business records. Transcript, at p.10. I cannot think causing IRS to subpoena staff for a frivolous tax trial endears one to one’s employers.

Anyway, JD gets the five-and-ten chop (tax understated greater than lesser of ten percent or $5K).

And Judge Gustafson hits JD with a $5K Section 6673 frivolity chop.

Except.

“We point out to Mr. Supinger (as we stated at the end of the trial) that the deadline to file a motion for reconsideration is 30 days after the Court serves the transcript of this opinion, see Rule 161. If Mr. Supinger perceives any mathematical error in the computation of the $9,008 deficiency attached to the Commissioner’s pretrial memorandum (Doc. 7, Ex. A) then he could offer a correction in such a motion.

“Moreover, in a motion for reconsideration, Mr. Supinger could address the penalty issue by offering the Court his assurance that he will not hereafter repeat his frivolous arguments in future litigation, but will acknowledge that, under the law as the courts unanimously construe it, he owes Federal income tax on the compensation he receives for his work. An unequivocal commitment to that effect by Mr. Supinger could prompt a reduction in the amount of the penalty.” Transcript, at pp. 17-18.

However obliging Judge David Gustafson might be to the penitent, he warns JD that if he tries a recon to frivol again, the chop might be even heavier.

Taishoff says JD, see that lamp? There’s your chance; don’t blow it.

*Jack Donald Supinger 10957-20 10 29 21

I’d missed the civil fraud aspects of Buckelew Farm, LLC f.k.a. Big K Farms LLC, Big K LLC, Tax Matters Partner, Docket No. 14273-17, filed 10/28/21*. Apparently the 75% chop is on the table, but today’s order just has to do with an attorney’s attempt to bow out, to which both IRS and The Big K object, reasons unstated.

It’s another of the Georgia conservation easements, a growth industry. Judge Christian N. (“Speedy”) Weiler just wants IRS and The Big K to tell him why they want the attorney kept in. The case isn’t set for trial.

It seems a couple prior attorneys (hi, Judge Holmes) have heretofore bailed without objection.

Now the bailor seems to be second on the roster of a well-known Atlanta tax firm, and has been on board in this case upwards of two years.

I wonder what’s going on. When I see attorneys rotating in and out of a case, there’s usually copy in the ins and outs. Of course, privilege may apply. Nevertheless, I have reached out for comment; if I get any for publication, I will publish same.

*Buckelew Farms Docket No 14273-17 10 28 21

I post today with real regret Joseph A. Insinga, 157 T. C. 8, filed 10/27/21*, wherein Judge David Gustafson announces the death of Fighting Joe Insinga, who starred or featured in a round dozen of my blogposts.

But Fighting Joe died fighting, as a true whistleblower would wish to do. And his passing deserves a full-dress T. C., not a measly memo. There are five (count ’em, five) attorneys named in 157 T. C. 8 for the late Fighting Joe. That’s one better than young Fortinbras allocated to Hamlet.

Judge Gustafson takes up the role of young Fortinbras. After an abstract and brief chronicle of Fighting Joe’s battles with the Ogden Sunseteers, elaboration of which is to be found in my blogposts, Fighting Joe “…filed an amended petition in September 2017, asserting only the two remaining claims. Since then the parties have filed and briefed cross-motions for summary judgment and have filed supplemental briefs on the impact on this case of Kasper v. Commissioner, 150 T.C. 8 (2018), and Van Bemmelen v. Commissioner, 155 T.C. 64 (2020).” 157 T. C. 89, at p. 3.

Fighting Joe died March 22 this year, with decision pending. The Palmetto State has duly appointed a persrep for the late fighting Joe, and she stands ready, willing, and able to take up Joe’s quarrel with the foe, and to hold high the torch she got from Joe’s failing hands.

Joe’s persrep, Ms. G, moves to step in, and IRS generously doesn’t object. Only question is, can she do it.

Judge David Gustafson, a fellow South Carolinian, obliging in the best tradition, says “sure enough.”

Like deficiency cases, here there’s a determination and a timely petition. Like the non-tax Federal False Claims Act cases, Section 7623 is intended to benefit the claimant by remedying any harm he may incur in bringing the claim. And caselaw says the non-tax Federal False Claims Act claimant’s claim survives his/her death.

But there’s more.

“Of course, one obvious intended purpose of section 7623 (analogous to the purpose of the FCA) is to promote the tax collection function (and thus to benefit the Government) by bringing information about noncompliance to the attention of the IRS. However, the means by which section 7623 does so, provided in subsection (b) (entitled ‘Awards to whistleblowers’), is to incentivize whistleblowers to risk the harms of providing such information and to compensate them for the harms they may suffer in doing so. A whistleblower’s anonymity in Tax Court proceedings is not guaranteed, see, e.g., Whistleblower 14377-16W v Commissioner, T. C. Memo 2021-113, supplementing 148 T. C. 510 (2017); and tax whistleblowers are especially vulnerable to harms such as professional stigma, retaliation, and economic duress, including current employment and future employability, especially given the absence of antiretaliatory provisions in section 7623, see Whistleblower 14106-10W v. Commissioner, 137 T.C. 183, 203 (2011).” 157 T. C. 8, at pp. 12-13, footnote 11.

Reg. 301.7623-4(d)(4) provides for survival after death, but that was enacted after Fighting Joe filed, and Judge Gustafson notes that it only  “lends some persuasive support” to letting Ms. G in. 157 T. C. 8, at p. 14.

But Rule 63(a) lets in ex’rs, adm’rs, and persreps in every tax Court case. No one doubts Ms. G is the proper successor, or that Tax Court had jurisdiction when Fighting Joe passed away.

So another case of first impression is decided; whistleblowing survives. Rest in peace, Fighting Joe.

*Joseph A. Insinga 157 T C 8 10 27 21

Further to the immediately preceding blogpost, here’s the follow-up on Tribune Company & Affiliates, 2021 T. C. Memo. 122, filed 10/26/21*.

The Newspaper of Chicagoland owned the Cubs, but wanted out. The Tribune went bankrupt because overleveraged from a buyout while negotiating the sale, but as their then-CFO said “there’s a big difference between filing for bankruptcy and being bankrupt.” 2021 T. C. Memo. 122, at p. 12.  As this is a nonpolitical blog, I’ll say no more.

Meantime, the Ricketts family wanted the Cubs. Since the Ricketts family owned a piece of TD Ameritrade, they could afford a MLB legacy team. Reminds me of J P Morgan’s remark when shown the stockbrokers’ yachts: “Where are the customers’ yachts?”

There was wheeling and dealing and then some, but the Rickettsians won. The deal shook out with a multi-member partnership, the Tribunals kicking in the baseball stuff, and the Rickettsians put in USD150 million. Immediately after, the Tribunals got a $704 million special distribution, as required by the formation agreement. Capital was 95% to the Riockettsians, 5% to the Tribunals; apparently MLB went along with the deal because the Tribunals were in for the stated 5%.

I told you there was wheeling and dealing. “Despite the interest percentages amounting to 95% for [Rickettsians] and 5% for Tribune, common capital shows a different ownership scheme. Of the total common capital, $150 million is attributable to [Rickettsians] and $20,986,843 is attributable to Tribune. This translates to Rickettsians]’s owning 87.726% of common capital and Tribune’s owning 12.274%. At trial, Thomas Ricketts did not know why, and he appeared surprised to learn that the common capital percentages did not match the ownership interest percentages.” 2021 T. C.Memo. 122, at p. 15. Tom should’a done deals with some of my former clients.

To satisfy MLB, the Rickettsian family trusts had to provide financial backstop to the Cubs, to safeguard players’ salaries and operating expenses if the new owning partnership cratered.

Needless to say, the $704 million required distribution came from borrowed money. This was a dealbreaker for the Tribunals, as they needed the tax deferral generated by a debt-financed distribution. The money came from the newly-created partnership-LLC, which borrowed $425 million from unrelated third parties, and enough to pay the balance of the distribution to the Tribunals from a Rickettsian. Everybody agrees the $425 million is bona fide debt, but disagrees whether it is nonrecourse to the Tribunals. The other debt ($248 million) came from Ma Ricketts, who funneled the cash through a family LLC, which got a promissory note from the partnership. Question is whether this is debt or equity.

Thoroughly confused yet? Wait a while, it gets better. The $248 million debt is subordinated to the $425 million debt by an agreement, which prevents Ma and the LLC from sneezing until the senior debt is paid in full. The agreement also provides for a cash waterfall, which directs how all the baseball revenue gets spent; needless to say Ma and the Rickettsian LLC get nada until the $425 million crew are paid in full, and can’t sue if the partnership doesn’t pay them.

But Ma and the LLC did get “…17 specified privileges…. These privileges include the right to use Wrigley Field for private functions, clubhouse access, complimentary premium seating, season ticket options, hospitality benefits, premier parking, and the right to participate in postseason award ceremonies.” 2021 T. C. Memo. 122, at p. 23. The privileges are not transferable to any person who was not Ma or the LLC. Judge Buch thinks this is a sign of equity.

And the $248 million debt has no fixed maturity, since the $425 million crew can extend or modify the terms of their debt how they want, without asking Ma or the LLC, and Ma and the LLC don’t get paid until the $425 million crew get paid in full.

The partnership’s debt-to-equity ratio was 4 to 1. Ma and the LLC tried to sell some of their interest in the note, but their private placement memo in support thereof sounded more like an equity investment than an interest-rate deal. And nobody bought it, anyway.

The Tribunals guaranteed both debts, but as they were then in bankruptcy their credit was a trifle impaired. And they only guaranteed collection, not payment. That means the creditor has to sue, win, and when the sheriff comes back with nothing, only then must the guarantor cough up.

The Rickettsians could buy out the Tribunals, and they did.

The question is whether the Tribunals are really on the hook for the $700 million in aggregate debt. A partner getting an immediate distribution after contributing property to the partnership has sold the property to the partnership. If the partnership borrowed the money to distribute to the partner, and the distributee-partner remains on the hook for the borrowed money, the sale is not taxable to the distributee-partner. But if the distributee-partner has shifted the obligation to repay to someone else, or has no obligation to repay, then the disguised sale is taxable.

So we come to the usual factors for debt vs. equity.

Yes, the $248 million note is called a note, but that matters little. The lack of a fixed maturity date hurts, because of the $425 million crew’s ability to shift repayment of their note, thus extending Ma’s and the LLC’s maturity date. But repayment of principal is not conditioned upon the revenue stream from baseball; the waterfall only talks about interest, so more like debt. True, not all subordinated debt is equity, but here the subordination is so extensive that it ties Ma’s and the LLC’s hands to such an extent that Judge Buch finds it’s equity. Participation in management is neutral. Judge Buch is as confused as I am when it comes to preference over trade creditors, so leaves that as neutral. As for intent of the parties, that private placement memo sinks the Rickettsians; too much discussion of investment risk. But I can’t fault Ma’s lawyers; the deal is sufficiently dodgy to warrant top-class disclaimers. And the Tribunals insisted upon the debt, but when you fold the $248 million “debt” back into capital, the mismatch that surprised Tom Ricketts is no mismatch at all; both capital and percentage interests line up. Moreover, the buyout of the Tribunals was based on capital of 5%; if the Tribunals’ capital had truly been the 12%, why did they take less for their interest?

Because the Rickettsians own the partnership (the Tribunals had only 5%), and Ma and the LLC are family also, this is equity. That doesn’t mean that family members cannot have debt among themselves, and enforce the debt; but this is too close. The note wasn’t sold and no institutional lender would purchase the note. The proceeds were used to acquire capital, not to pay operating expenses. The $248 million is equity, not debt.

OK, so the $425 million is debt, so that part of the $700 million the Tribunals got counts toward a debt-financed distribution. But was it really the Tribunals debt? Are the Tribunals truly on the hook?

First, the Section 752 constructive liquidation test, which presumes that the obligor will pay. And the obligor is assumed to pay in the worst-case scenario: the partnership is bust, its assets are worthless (cash included), the creditors have sued all and sundry to no effect, and guarantor is last man standing.  And that the Tribunals are the last man standing doesn’t make their obligation contingent; if it did, no collection guarantee would survive Section 752, and they do.

The Rickettsians were not the real guarantors under the constructive liquidation test of Section 752. They weren’t partners, their LLC was. The cash reserve required by MLB couldn’t be used to pay the $425 million crew. And IRS’ unlikelihood arguments are irrelevant under the worst-case scenario, which is Murphy’s Law codified: if it can go wrong, it will.

The only analogy is our old friend Canal Corp., 135 T. C. 9. The supposed obligor there was undercapitalized, and couldn’t pay, so the true obligor had to pick up the tab. And in Canal, the undercapitalized “obligor” got a piece of the deal if it paid, whereas the Tribunals get nothing.

The anti-abuse regs (Section 701) do not require that each element thereof have a substantial business purpose, only that the whole deal does.

“The Cubs transaction was a disguised sale in both form and substance. The economic reality of this transaction lies squarely within the intent of the disguised sale statute. The parties to the transaction formed a bona fide partnership that operates the Cubs franchise with assets contributed by Tribune. And the partnership in fact distributed cash to Tribune. This transaction also substantively fits into the debt-financed distribution exception for a disguised sale, receiving the distribution tax free up to the amount of the senior debt guaranteed by Tribune. [Partnership] borrowed the senior debt, and Tribune guaranteed the senior debt. When such a transaction is explicitly provided for by Congress and followed by a taxpayer in both substance and form, we will not recharacterize it. The doctrine of substance over form is applied to prevent taxpayers from mislabeling transactions to achieve a desired tax consequence. Petitioners did not mislabel the transaction here; the economic substance of the Cubs transaction is a disguised sale with a debt-financed distribution, a structure contemplated by both the statute and the regulations.” 2021 T. C. Memo. 122, at pp. 118-119. (Footnotes omitted).

The Tribunals tried to deduct the break-up fee they paid to a proposed successor suitor when it looked like the Rickettsians might bail. The Tribunals claimed this as an abandonment fee, but the deal wasn’t abandoned, it closed.  Had the Tribunals closed with the successor suitor, they would have had to capitalize those expenses.

And just as I was about to close out my file on the Tribunals, who were good for five (count ’em, five) previous blogposts, where I conflated the Cubs with the White Sox, Judge Buch tells us, after 127 pages of text and 214 (count ’em, 214) footnotes, that he still has the chops to work on.

I guess I’ve got another all-nighter coming up.

*Chicago Tribune Media 2021 T C Memo 122 10 26 21

Are both frustrated by Judge Buch’s magisterial wrapping-up of Tribune Media Company f.k.a. Tribune Company & Affilliates, 2021 T.C. Memo. 122, filed 10/25/21*.

Judge Buch could  put me out of business as a tax blogger, with his sweeping intro, beginning with Pres. Reagan as the Gipper, later a radio announcer of the Chicago Cubs games from afar, with the President’s brilliant improvisation when the wire went down, and concluding “(C)oincidentally, it was President Reagan who signed into law the amendments to section 707 that give us the disguised sale rule found in section 707(a)(2)(B) that applies to these cases. Deficit Reduction Act of 1984, Pub. L. No.98-369, sec. 73, 98 Stat. at 591-592.” 2021 T. C. Memo. 122, at p. 6, footnote 14.

Judge Buch must have been on law review to get that many footnotes into six (count ’em, six) pages.

The case is disguised sale meets debt-financed distribution, with some remarks from the stand worth savoring. This one has all the earmarks of a classic T. C. Memo.

I’d love to give you the whole nine yards, and I will, but much later.

Tonight is the first performance  this season of the Met Opera’s Die Meistersinger. And I have Balcony Box 1, seat 1. With COVID check-in, I have to leave soon. So the baseball fan must give way to the opera fan, for now.

But I’ll be back as soon as Hans Sachs knocks it out of the park.

*Chicago Tribune Media 2021 T C Memo 122 10 26 21

CSTJ Lewis (“He Casts a Spell”) Carluzzo has some comfort for Jason Wakefield & Chere Wakefield, Docket No. 12186-20SL, filed 10/26/21*. Jason needs it; late filing, late paying, and no 1040-ES add-ons rain down on Jason, just as he’s suffering from physical ailments that keep him out of attics and crawlspaces. This keeps him from working, even though his sole-prop business was doing well. Besides, he had to pay Chere when their marriage broke up, although the record doesn’t show when he paid or how much.

Liabilities are self-reported, thus no SNOD, thus right to contest liability.

Jason was self-represented, and Chere stiped but didn’t show. CSTJ Lew is kind, but the law is the law.

“We are sympathetic to petitioner’s medical condition and the hardship due to his divorce during the relevant time. Serious illness of the taxpayer or a member of the taxpayer’s family can constitute reasonable cause for failure to file a timely return but only if the illness caused total or near total incapacity to act. On the other hand, if a taxpayer does not timely file but is able to continue to conduct his or her business affairs despite the illness or incapacity, the Court has rejected the taxpayer’s reasonable cause position. See, e.g., Ruggeri v. Commissioner, T.C. Memo. 2008-300, slip op. at 7-8 (and cases cited there at [sic; should be “thereat”]).

“Again, we are sympathetic to petitioner’s difficulties, but we are not persuaded that the challenges he faced satisfy the reasonable cause requirement of section 6651(a)(1). Despite those challenges, petitioner was able to engage in his business during the relevant period, even if only on a limited basis, and although hospitalized from time to time, it was never for an extended period. Consequently, petitioners are liable for the addition to tax imposed by section 6651(a)(1).” Transcript, at pp. 11-12.

That’s late filing. But Jason is no better off with late-paying. He says the big payout to Chere sinks him.

“However, the record is unclear with respect to the circumstances surrounding the payment or at least the timing of the payment, and petitioner did not argue any set of facts or circumstances that would lead the Court to find that he was unable to pay the tax or would have suffered undue hardship if he had paid the tax in full on its actual due date. Moreover, adverse economic conditions do not necessarily constitute reasonable cause.” Order, at p. 12.

CSTJ Lew says it’s a Tax Court truism that late pay is caused by financial difficulties. And no 1040-ES is almost inexcusable.

What Jason needed was the Gonzaga Bulldogs, or the Golden Gophers, or the Harvard Foggers, or the Texas Tech Technophobes, or the Fordham Rams, or Sandy Freund, Esq.’s Rutgers  Tax Knights, or any of the LITC law school bombers. He handed IRS a win on toast.

But CSTJ Lew has taken up the mantle of The Judge With a Heart, his now-retired  predecessor STJ Robert N. Armen, Jr.

“In closing we think it appropriate to mention an observation made by the U.S. Supreme Court, ‘[b]ad things happen if you fail to pay federal income taxes when due.’ Hinck v. United States, 550 U.S. 501, 502 (2007). From petitioner’s presentation at trial, we are certain that he shares that sentiment, especially when he learns of this bench opinion. Nevertheless, petitioners should keep in mind that the focus of this case is narrow; we address and resolve only the issue before us. The resolution of this case says nothing about petitioners’ entitlement to pursue any collection alternatives that might otherwise be available to them.” Transcript, at pp. 14-15.

So no issue preclusion on illness or economic hardship? LITCs, get tore in!  

*Jason & Chere Wakefield 12186-20SL 10 26 21

It’s thirty-five years since I heard the gravelly rasp of my law partner Sid directed to a client who wanted to pretend his troubles (it was usually “his”) would go away if he did nothing. Well, his rasp echoes today, as Judge Goeke admonishes James R. Morris and Lori A. Egbers-Morris, 2021 T. C. Memo. 120, filed 10/25/21*.

Jim and Lori are victims of their own success. They turned Jim’s packaging business into a conversion business (and no, I don’t know what that is, either), and made a lot. But they didn’t file for a couple years (hi, Judge Holmes) because they made a few accounting moves that their trusty CPA, who’d theretofore been doing their taxes, thought might land them in the calabozo if they fessed up for those years. So they didn’t, and the moves didn’t, but they finally stiped out with IRS to $600K for one year and $1.7 for the other.

And now all they’re fighting about is the add-ons, non-filing, non-paying, and non-estimating.

Of course Jim and Lori claim reasonable cause, based on trusty accountant’s advice.

“Reliance on such advice ‘do[es] not sanction an abdication of responsibility for the timely filing of a return admittedly due. United States v. Kroll, 547 F.2d 393, 397 (7th Cir. 1977); see also Fleming v. United States, 648 F.2d 1122, 1125-1126 (7th Cir. 1981). The Code provides an unambiguous deadline, and ‘no special training or effort [is required] to ascertain * * * that it is met.’ Boyle, 469 U.S. at 252.”Petitioners were not advised that they were not required to file a return. The alleged advice was to delay filing while audits for prior years were completed. Allowing such a basis for reasonable cause would make timely filing optional for any taxpayer under audit. Petitioners were aware that they had a duty to file a return timely and consciously failed to file. It is well settled that taxpayers must file timely returns using the best information available to them and may file amended returns if necessary.” 2021 T. C. Memo. 120, at pp. 7-8. (Footnote omitted).

The rest of the add-ons follow on similar lines. Trusty accountant never testifies, and correspondence from said trusty accountant never makes it into the record. I make the morning line 8 to 5 the trusty accountant already got The Phone Call. For those tuning in late, see my blogpost thus entitled.

*James Morris &; Lori Morris 2021 T C Memo 120 10 25 21

No, not basketball; Albert G. Hill, III, 2021 T. C. Memo. 121, filed 10/25/21*, wants to mate Section 7481(c) with Rule 261 and have Tax Court give him an extra three-point “bump” (as Judge Albert G. (“Scholar Al”) Lauber calls it) on the interest he’s getting for his $3 million gift tax deposit.

Al III was involved in the Hunt Family split-up, which required Al III to fund some trust funds for his kids. This triggered a ginormous gift tax, so Al III had his lawyers deposit $10 million with IRS against the ultimate gift tax liability when, as and if it got sorted out in USDCNDTX. Al III hadn’t filed a return at that point, but the case stiped out at $6 million gift tax due, and Al III got interest of $218K on the excess of deposit above tax due, at AFR short (Applicable Federal Rate, Short-Term).

Al III wants the rate at AFR Short plus 3 points, claiming Section 6603(d)(4).

He doesn’t get it. Judge Scholar Al says the $10 million was a deposit to stop interest, not a payment of tax. Going back through more than fifty (count’ em, fifty) years of Rev. Proc.s and statutory amendments, Judge Scholar Al concludes that Al III’s trusty attorney can’t convert a deposit into a payment, and that Tax Court never determined Al III made an overpayment.

Al III and IRS stiped to the numbers for tax and amount to be credited from the deposit against the tax thus agreed upon. This was a “below the line” agreement, below the Judge’s signature on the decision, and therefore not a determination by the Court.

“First, a below-the-line stipulation evidences only an agreement between the parties. It is called a ‘below-the-line’ stipulation because it appears ‘below the Judge’s signature.’ See Smith v. Commissioner, T.C. Memo. 2009-33, 97 T.C.M. (CCH) 1134, 1136 (distinguishing a below-the-line stipulation from the decision line, which ‘determin[es] deficiencies, additions to tax, and penalties’). Such a stipulation does not constitute a finding by the Court. See sec. 7481(c)(2)(B) (permitting reopening if ‘the Tax Court finds * * * that the taxpayer has made an overpayment’ (emphasis added)). Second, the parties themselves, in their below-the-line stipulations, do not refer to any ‘overpayment.’ Rather, they ‘stipulate[] that the deficiency for [year at issue] is computed without considering the prepayment credit of $10,263,750.’ (Emphasis added.).” 2021 T. C. Memo. 121, at p. 18.

OK, so the Court never found a deficiency, because the parties negotiated and stiped out the numbers. So no jurisdiction to recompute interest.

Note that the difference here is the difference between $218K, which IRS concedes, and the $1.267 million Al III claims. Stipulate, don’t capitulate? Quite a give-up, $900K.

Taishoff asks, but is that a give-up? If Al III doesn’t stip, he goes to trial in USDCNDTX on an arcane point of Federal tax law. How likely a USDCJ is able to deal with a complex set of time value of money issues, date when gift actually made, and discounted present values, with numbers and assumptions flying around, is a not insubstantial risk. Al III might be materially the worse at close of play if he rolls the dice, risking at least $4 million to pick up $900K if his trusty attorneys hit a home run. I say “at least” $4 million, because the USDCJ might find IRS bore BoP for a greater deficiency than IRS first alleged. And Al III has legal fees for the trial and possible appeal.

Al III loses, but his trusty attorneys get a Taishoff “Good try, second class.”

*Albert G. Hill III 2021 T. C Memo 121 10 25 21

Rule 155 beancounts are exactly that. It’s all about numbers, to the exclusion of all else. It’s not about rehashing arguments or coming up with fresh ones; it’s not a substitute for recon or vacation. Rules 161 and 162 deal with those, and the CCAs are there if an appeal is sought.

It’s just another tax prep session. What does the revised return look like, and, most importantly, what is the bottom line per the opinion?

An example of a proper objection to  IRS’ numbers at a Rule 155 is to be found today in Savino Cruz, Docket No. 16268-16, filed 10/22/21*. And even though Judge Nega overrules Savino’s objection, he makes sure that the Child Tax Credit Savino wants is folded into the bottom line.

Savino filed his objection within the ninety-day widow for filing computations, agreed or unagreed. Then Savino moved to amend his objection, and Judge Nega lets it in. IRS filed and responded accordingly.

“Petitioner argues that respondent’s computation failed to include a $1,000 Child Tax Credit for his son therefore, is inconsistent with the Court’s opinion in this case. Accordingly, petitioner requests that this Court correct the inconsistency and adjust the balance due from petitioner… from $8,308 to $7,308. Respondent counters that the proposed computation does, in fact, provide petitioner a $1,000 Child Tax Credit in accordance with the Court’s Opinion. Respondent explained that the Form 4549, Income Tax Examination Changes, attached to the notice of deficiency included a $1,000 Child Tax Credit on line 8a, however, respondent failed to subtract that credit on line 13a to reflect his belief that petitioner was not entitled to the credit. As a result, respondent asserts that the Form 4549 essentially provided petitioner a $1,000 Child Tax Credit that respondent did not believe petitioner was previously entitled to at the time. However, since the Court later determined that petitioner was entitled to the credit, respondent explained that his computation left the Child Tax Credit the way it had been reported on the Form 4549.

“Upon review of the record, the Court is satisfied that respondent’s computation included a $1,000 Child Tax Credit that petitioner was entitled to for the 2014 taxable year therefore, is consistent with our opinion.” Order, at p. 2.

A Taishoff “Good Job” to Savino’s trusty attorney, Andy.

*Savino Cruz 16268-16 10 22 21