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