I have often heard the motto of the Great Chieftain of The Jersey Boys: “Not to punish, but to bring into compliance.” The voluntary assessment system requires voluntary compliance. Hence Appeals’ rejection of an OIC or a PPIA, either of which would yield all that IRS might reasonably hope to collect, is not arbitrary or capricious, if acceptance would not be “in the best interest of the Government. See IRM pt. 5.8.7.7.1(1) (Dec. 20, 2018); cf. IRM pt. 5.8.7.7.2(1)(May 10, 2011).” James R. O’Donnell, 2021 T. C. Memo. 134*, filed 11/30/21, at p. 12.

Seems that Jim had run up a tax tab north of $2 million, with add-ons, chops, and interest. And hadn’t bothered filing for nigh on twenty (count ’em, twenty) years. Of course, with his insurance and financial business licenses revoked, Jim claims the $280K he put in his OIC is the best he can do, and the $2K per month PPIA the SO offered him didn’t take all his expenses into account.

As to the latter, Judge Albert G (“Scholar Al”) Lauber says that number was based on Jim’s numbers, and if Jim was unhappy he had a chance to say so. But remember, Appeals doesn’t have to negotiate; as the bridge players say, lead with your longest and strongest.

As to Jim’s OIC, “'[O]ffers may be rejected on the basis of public policy if acceptance might in any way be detrimental to the interests of fair tax administration, even though it is shown conclusively that the amount offered is greater than could be collected by any other means.” See IRM pt. 5.8.7.7.2(1). Because reports of accepted OICs are publicly available, see sec. 6103(k)(1), the IRS may reject an OIC if it determines that the ‘public reaction to the acceptance of the offer could be so negative as to diminish future voluntary compliance,’ see IRM pt. 5.8.7.7.2(2).

“For two decades (if not longer) petitioner failed to file returns and failed to pay the tax shown on SFRs that the IRS prepared for him. During this period he was evidently a successful practitioner in the insurance and finance business. As of 2016 his outstanding liabilities exceeded $2 million, and he offered to pay only a small fraction of these liabilities. Because of his lengthy history of ignoring his tax obligations, the Appeals Office determined that acceptance of his offer could be viewed as condoning his ‘blatant disregard for voluntary compliance’ and that negative public reaction to acceptance of his offer could lead to ‘diminish[ed] future voluntary compliance’ by other taxpayers.” 2021 T. C. Memo. 134, at pp. 12-13.

As The Great Chieftain has said.

*James R O’Donnell 2021 T C Memo 134 11 30 21

No Chop

I’m sure my readers remember Plateau Holdings, LLC, Waterfall Development Manager, LLC, Tax Matters Partner, 2021 T. C. Memo. 133*, filed 11/30/21. The Plateaus $25.4 million conservation easement was vaporized a year ago last June in 2020 T. C. Memo. 93. See my blogpost “Extinguished and Overvalued,” 6/23/20. But you’ll also remember that the figure of $2.6 million would have been the right number, had not the “highly contestable reading of what it means to be perpetual” (hi, Judge Holmes) been invoked. Judge Albert G (“Scholar Al”) Lauber, nowise loath to lay the 40% overvaluation chop on the $22.7 million highball, still wondered about the 20% overstatement chop on the $2.6 million.

Well, the Plateaus slide under the tag. “Gude faith, he maunna’ fa’ that,” as Scotland’s Greatest put it.

I can’t do better than to quote Judge Scholar Al.

“The easement deeds were prepared by Mark J, an attorney for the donee, Foothills Land Conservancy (Conservancy). Both Mr. J and the Conservancy had considerable experience in drafting easement deeds, and the deeds in this case were modeled after others shared through an alliance of land trusts. Although Mr. J was not Plateau’s lawyer, Plateau could reasonably have believed that he drafted the easements in a manner that was intended to comply with the regulations and to protect the Conservancy’s interests.

“When Plateau filed its 2012 return, the validity of such judicial extinguishment clauses had not been tested in litigation. All of the judicial opinions that have found such clauses wanting were issued well after Plateau executed the deeds (in December 2012) and filed its return (in April 2013).” 2021 T. C. Memo. 133, at pp. 5-6. (Name omitted).

All the improvements-out-on-extinguishment cases came down thereafter.

“The information available to Mr. J and Plateau in December 2012 arguably supported the acceptability of judicial extinguishment clauses resembling those here. In 2008 the IRS had issued a private letter ruling (PLR) suggesting that a clause of this sort would not necessarily prevent the allowance of a charitable contribution deduction. See Priv. Ltr. Rul. 200836014 (Sept. 5, 2008) (discussing an easement deed that reduced the donee’s proceeds by the value of the donor’s permissible improvements). The record in this case does not show that anyone associated with Plateau subjectively relied on this PLR when executing the easement deeds or preparing its 2012 partnership return. But the PLR does provide some objective support for the reasonableness of Plateau’s position. See Sells v. Commissioner, T.C. Memo. 2021-12, at *37-*40; Oakbrook Land Holdings, 119 T.C.M. (CCH) at 1361; sec. 1.6662-4(d)(3)(iii), Income Tax Regs. (stating that PLRs may constitute ‘authority’ in determining whether the taxpayer has ‘substantial authority’ for its return position).” 2021 T. C. Memo.  133, at pp. 6-7.

No 20% chop for the lower tranche.

OK, so as was known before now, these deeds were not all concocted by dodgefloggers. There were and are honest conservators of the environment, and Congress intended to encourage such as they. True, the gameplayers, dodgers, wits, wags, and wiseacres descended vulture-wise, combining dirt-cheap dirt with poosh-’em-up appraisals, to try to loot the fisc.

But as Judge Holmes and I have said, the hang-’em-all approach hangs the innocent as well as the guilty, using “highly-contestable readings of what it means to be perpetual.”

I hope I hardly need aver that I am no fan of dodgers and gameplayers. The façadefakers were brought down by their phony appraisals, when the local landmarks laws did not show the easements to be illusory. Same here.

*Plateau Holdings LLC 2021 T C Memo 133 11 30 21

Judge Elizabeth A (“Tex”) Copeland needs all her extensive tax expertise to unravel the tax dodge set up in FAB Holdings, LLC, 2021 T. C. Memo. 135, filed 11/30/21*. Both IRS and the FAB attorneys go astray at one point or another. FAB, though an LLC, is taxed as a C Corp, and another LLC is box-checked as a partnership, both of which were named by Frank Berritto, whose initials adorn Holdings and who named the partnership LLC. Apparently, that and funding the partnership LLC was enough. “… while Mr. A advised Mr. Berritto on the [tax plan], Mr. Berritto also participated in planning the structure.” 2021 T. C. Memo. 135, at p. 20. (Footnote omitted, but read it; it says Mr Berritto decided to call the C Corp after himself.)(Name omitted).

Mr Berritto hired Mr A. to devise the plan, but only paid him for his services; no evidence that Mr A was a dodgeflogger, hawking his sordid wares to the public. When Mr Berritto tries to disqualify Mr A as representative who extended the SOL via a bunch Forms 872 (hi, Judge Holmes) for conflict of interest, Judge Tex Copeland isn’t buying.

“Under petitioners’ proposed conflict of interest standard, taxpayers who paid a tax preparer or an attorney as their representative could not have the preparer or attorney represent them before the IRS (or in a judicial proceeding) arising out of the transaction for which the preparer or attorney was paid. However, taxpayers often select the firm or person who planned the transaction to be their representative before the IRS in a subsequent inquiry. Petitioners sought Mr. A’s expertise for tax planning and preparation. Mr. A provided tax planning services to the Berrittos but also prepared yearly returns for them, FAB, and Enterprises. Petitioners paid Mr. A around $20,000 for these services. … these cases reveal no evidence that Mr. A was under criminal investigation with a propensity to cooperate with the IRS. The act of charging for services is not a criminal activity. Nothing in the record indicates that Mr. A’s extending the assessment limitations periods involved an inherent conflict of interest. Furthermore, … while Mr. A signed all of the Forms 872 for the Berrittos’ individual returns and most of FAB’s Forms 872, Mr. Berritto personally signed the first Form 872 for FAB.” 2021 T. C. Memo. 135, at pp. 22-23.

Mr Berritto’s trusty attorneys argue Circular 230 Sec. 10.29(a)(2) define Mr. A’s conflict of interest. But that would disqualify any paid preparer, representative, EA, CPA, or attorney from representing a taxpayer if they had anything to do with the matter at issue. “Such a standard would invalidate the representation of taxpayers by numerous attorneys, accountants, and power of attorney holders because those individuals often perform tax planning and tax preparation and subsequently represent their clients before the IRS. There will always be an underlying monetary tug between clients and their paid representatives. Circular 230 is a mechanism to allow sanctions for violating the regulations governing practice before the IRS; it is not a mechanism to determine whether a power of attorney is valid and confers authority to sign Forms 872. 31 C.F.R. sec. 10.0(a).” 2021 T. C. Memo. 135, at pp. 23-24.

The late Mrs. Berritto was in this deal before she became the late Mrs. Berritto. However, IRS folds all the deficiencies and chops against the late Mrs Berritto for the years for which Mr A signed Forms 872 after her death. Though she and Mr Berritto filed MFJ, she and he are separate taxpayers, and only she or her ex’r could bind her. POAs are not testamentary substitutes; they die with the principal.

As for Mr. A’s contraption, it was the usual income-assignment roundy-round.

You can tell Judge Tex Copeland served in the trenches before ascending the bench. “There will always be an underlying monetary tug between clients and their paid representatives.” Judge, you definitely got that right.

*FAB Holdings LLC 2021 T C Memo 135 11 30 21

The Genius Baristas Are On It

Ch J Maurice B (“Mighty Mo”) Foley has an arduous and often-unrewarded task, cat-herding self-representeds and wayward counsel through the narrow gate into the precincts of 400 Second Street, NW, in the City Non-State. He is often unaided even by the hardlaboring clerks and flailing datestampers within the aforesaid precincts.

But I’m pleased to being him good news: help is at hand. The Genius Baristas and the 18Fs (whoever they are) will save him from the labor occasioned by such as Felicia Nicole Jones, Docket No. 31603-21W, filed 11/30/21*.

I post Felicia, before her order is swept forever from the internet at midnight. Felicia neither provided a copy of a NOD from her denied or rejected blowing, nor ponied up the sixty George small blind. But these are mere details.

Ch J Mighty Mo must school Felicia on Tax Court etiquette.

“The parties are reminded that, under Rule 345(b), Tax Court Rules of Practice and Procedure, when making an unsealed filing with the Court in a whistleblower action, the party making the filing ‘shall refrain from including, or shall take appropriate steps to redact, the name, address, and other identifying information of the taxpayer to whom the claim relates.’ Rule 345(b) further provides that the party ‘filing a document that contains redacted information shall file under seal a reference list that identifies each item of redacted information and specifies an appropriate identifier that uniquely corresponds to each item listed.’” Order, at p. 1.

And Ch J Mighty Mo goes on for a further five (count ’em, five) paragraphs to detail, with exacting particularity, the precise methods whereby Rule 345 is to be honored in th’ observance.

Ch J, even if Felicia complies with your order au pied de la lettre; even if her case reaches the height of a full-dress T. C., with multiple dissents and concurrences and rearguments galore; even if her case is heard en banc by 5 Cir, and reaches the lofty preëminence of the Marble Palace of the Supremes; even if law review authors discompose electrons beyond count, exalting or excoriating her with impenetrable legal gibberish; nevertheless, and notwithstanding anything at variance with or to the contrary of any or all of the foregoing (as my expensive colleagues would say), if even one document among the tens of thousands submitted in this litigation be sealed, the Genius Baristas will erase all traces of Felicia from the Tax Court website.

So be at ease, Your Honor; the Genius Baristas are on the job.

*Felicia Nicole Jones 31603-21 11 30 21

My four-thousandth (count ’em, four-thousandth) blogpost since I began this enterprise in December, 2010, features a prediction come to pass.

See my blogpost “26822-21,” 10/15/21.

A colleague e-mailed me the following this afternoon: “Lew, I know you were watching for a 32000 docket number in 2021.  I just received 32052-21 this afternoon!”

Many thanks, Lyle! And good luck with the case!

Roll on the next four thousand posts!

I remember Ralph Richardson as the General in Jean Anouilh’s play; would you believe I still have the Playbill from the old Coronet Theatre almost 65 years ago? Well, today STJ Peter (“HB”) Panuthos, head-banger (see my blogpost “Old-Time Head-Banging – Part Deux,” 9/4/20), apparently frustrated by the wily balletomania of Peter Brancovich Turek, Docket No. 15447-19*, filed 11/29/21, has put out a schedule for play-nice discovery.

Since last June, the parties were thus engaged, and last month each filed a separate status report, “…indicating that the informal discovery process was ongoing and that the case was not yet ready for trial.” Order, at p. 1.

Y’all will recollect that Peter Brancovich is a psychologist/psychiatrist, who succumbed to STJ HB’s head-banging as to the original SNOD; but when IRS upped the ante by way of amended answer, thereby surmounting the $50K small-claimer cutoff, Peter Bancovich wanted to go to trial on the whole shebang.

So to begin with, STJ HB orders the parties to continue to play nice, and only make discovery motions when all else fails. And schedules everything else, with a view to trying this case “When Spring comes back with rustling shade/And apple-blossoms fill the air.”

I blog it here as a checklist for those engaged in Branerton in three-quarter time.

*Peter Brancovich Turek 15447-19 11 29 21

It’s a thrilling moment in baseball when the baserunner goes for an extra base. The acrobatic fielder firing the ball from an impossible position; the runner’s feet, legs, and lungs pumping like mad; the fielder’s waiting teammate urging the ball to the glove while trying to avoid an interference call from the hovering umpire; and the third base coach urging the runner on in a frantic ballet. What a scene.

And then the cloud of dust, as the runner slides and the tag is (or is not) applied.

Well, today this thrilling spectacle is being played at The Glasshouse on Second Street, NW. There is neither opinion nor order, not even a press release, notwithstanding that, as my source tells me, today is not a public holiday in The City of Much Taxation but no Representation.

It seems that Judges (both Senior and regular), STJs, flailing datestampers, and hardlaboring intake clerks, have all taken an extra base after the Thanksgiving  Day holiday.

Hence the cloud of dust and nothing else on this my blog.

United States Tax Court is closed today, “a day of national humiliation, fasting, and prayer,” as Lincoln put it.

Enjoy the turkey, cranberry sauce, bourbon maple sweet potato puree, hot biscuits, and get ready to rush the discounts at midnight.

I’ll be back blogging tomorrow.

It’s never happened that I horse I backed was elevated on account of a DQ, nor had any horse I backed been itself DQ’d. But I’ve seen it happen, and the objurgations, imprecations, expostulations, ejaculations, and anathemizations of those whose horse was thus cast out by the stewards were worthy of utterance by my old outfit in Vietnam.

It’s a shame that the examination for admission to the Bar of the United States Tax Court took place last week, because today Judge Alina I (“AIM”) Marshal has a survey of grounds for disqualifying counsel for conflict of interest that would be a good review for candidates for the Biennial Slaughter of the Innocents.

Here’s Pecan Ranch Family Trust, et al., Docket No. 21716-18, filed 11/24/21*. It’s another Section 6901 transferee liability case, with a twist. No MidCos or shell-shills to buy gain-laden C Corps; a now-deceased accountant cooked up a bunch phony Sub Ss (hi, Judge Holmes) to shelter income from a couple doctors and pay the Docs’ personal expenses.

The Pecans got the Sub S stock for a $100K purchase price. IRS claims either the S Corps are a sham and assignees of income, or the Pecans are transferees of the tax liabilities of the now-deceased accountant who should have paid tax on the pass-through doctors’ income he sheltered. The Pecans are represented by two attorneys from a firm, and IRS claims they’re promoters, and thus flunk Rule 24(g)(1).

The Pecans provide a written waiver of the conflict that passes muster.

“Respondent has not shown that Mr. Y was involved in planning a transaction that is connected to any issue in these consolidated cases. Conversely, respondent has shown Mr. H to have been involved in: (1) the formation of the Trust; (2) the sale of the S Corporations to the Trust; and (3) the money transfers of $625,000. Messrs. Y and H obtained from petitioners a broad written consent, which includes statements that petitioners read documentation from respondent asserting conflicts of interest under Rule 24(g)(1). Further, respondent has not established any other concurrent conflict of interest under Rule 1.7 or Rule 1.10, ABA Model Rules. On the basis of the arguments and documents before us, we conclude that petitioners’ written consent is sufficient to obviate the conflicts of interest with respect to Mr. H and Mr. Y under Rule 24(g)(1).” Order, at pp. 4-5. (Names omitted).

But will Mr. H have to testify on the trial? Judges take a real close look at that, because it’s a good tactic to knock out counsel by claiming you’ll call her/him as a witness.

Mr Y is clearly in; he hadn’t anything to do with the S Corp stock sale to the Pecans. But Mr H is another story.

“Respondent has shown that Mr. H advised petitioners on various transactions related to the S Corporations and the Trust. The advice that [the doctors] received when the Trust purchased the S Corporations is relevant and material to the application of section 6901 and determination of a fraudulent or constructively fraudulent transfer under TUFTA. See Cullifer v. Commissioner, T.C. Memo. 2014-208, at *18-*19. Petitioners argue that Mr. H is not a necessary witness because the relevant and material evidence is obtainable from other sources. This argument, however, is undercut by the following considerations: (1) Mr. [deceased accountant] passed away on November 21, 2014; (2) Dr. B and his colleague… have indicated a lack of knowledge or understanding of the various transactions related to the S Corporations and the Trust; and (3) Mr. H was a principal tax advisor to petitioners and their related entities when the transactions related to the S Corporations and the Trust occurred. Accordingly, Mr. H’s testimony is uniquely valuable in these consolidated cases and is unattainable elsewhere.” Order, at p. 6. I think you meant “unobtainable,” Judge.

For the backstory on Cullifer, see my blogpost “Cullifer’s Travails,” 10/8/14.

But remember the “bedrock of Tax Court practice.” The stip. And Judge AIM brings it to the front in the stretch. Only before you cash those tickets, remember Taishoff’s Rule: Stipulate, Don’t Capitulate.

“We are unable to determine at this time, however, whether Mr. H is likely to be a necessary witness. It is also unclear at this time whether the parties can agree to facts that would render Mr. H’s testimony duplicative or related to an uncontested issue (i.e., for purposes of Rule 24(g)(2)(A)(i)). The determination of whether Mr. H is likely to be a necessary witness will be made following submission to the Court of an executed stipulation of facts and the parties’ pretrial memoranda. Because we cannot yet determine whether Mr. H is likely to be a necessary witness, we need not consider at this time whether Mr. H’s testimony would be protected by attorney-client privilege.” Order, at pp. 6-7.

*Pecan Ranch Family Trust 21716-18 11 24 21

No, not birthday wishes; this is the story of Dragan Razmilovic & Jadranka Razmilovic, Docket No. 3513-20, filed 11/24/21*. Drag & Jad filed three (count ’em, three) tax returns for the same year, each one different from the previous.

Drag was a dental tech who worked both as an employee and as an IC in the year at issue. He first reported salary and wages of $40K, with employee unreimbursed expenses of $42K. Judge Mark V. Holmes is stunned, because although such returns are “audit bait,” (Transcript, at p. 4), IRS didn’t challenge the unreimburseds. On the contrary, IRS hit Drag with $11K reported on a 1099-MISC by a dentist for whom Drag freelanced, and $24K of taxable Social Security. 

Judge Holmes and IRS are stuck with the unreimburseds.  But Drag & Jad admitted the $11K and the $24K omitted income on the trial, so they’re stuck with that.

But Drag & Jad filed two (count ’em, two) subsequent returns, each with different numbers, and each after the petition. The second amended return claimed the same Sched A deductions, but added a Sched C with $39K of expenses but no new income, apparently to take care of the 1099-MISC and Social Security. The last had no Sched A, cut the Sched C expenses to $36K, and cut the Sched A back to $13K. IRS recalculated the Sched A and came up with the same $13K. “But this was just the Commissioner’s good-faith estimation of a Schedule A expense that was not actually on a Schedule A on the second amended return.” Transcript, at p. 5. 

The third amended return had no Sched C, but boosted the Sched A expenses to $30K. and didn’t mention the 109o9-MISC from the dentist.

Perhaps by now you can join Judge Homes and me. “This leads me to conclude that I have no idea what the Razmilovics’ position is.” Transcript, at p. 6.

But Judge Homes doesn’t need to know. Drag conceded the $11K and the $24K income at trial. IRS never challenged the original Sched A numbers at audit or on the trial, so Judge Holmes won’t go there.

Drag offered some scraps of paper (no receipts) to offset the $11K at the trial, but between that and Drag’s off-the-wall numbers, Judge Holmes concludes Drag hasn’t proven it more likely than not that he did make the payments claimed.

Even George M. Cohan never rose to such a rarefied level of inexactitude.

*Dragan Razmilovic C+Docket 3513-20 11 24 21