Judge Christian N. (“Speedy”) Weiler shows some fancy footwork in an improvements-out conservation easement. Jonathan M. Gallant & Sarah D. Gallant, Docket 14875-20, filed 3/31/22, has IRS trying to “…bring our decision in Coal Property Holdings to an illogical conclusion; namely, that no right of use or ownership in future improvements may be retained by the donor. However, we have never held that retaining rights to improvements in the donated property, ipso facto, violates the ‘granted in perpetuity’ requirement.” Order, at p. 5.

Besides, the property had zero improvements when the easement was granted, and the improvements Jonathan and his partner wanted to make were “… to construct trails and footpaths on the property, install signs and other marks,  construct low impact amenities, maintain and manage the property to prevent erosion, and install picnic tables and benches.” Order, at p. 5.

So maybe the easements had minimal value, which could be ignored in case of judicial extinguishment.

But that’s a question of fact. And that needs a trial. Wherefore IRS’ motion for summary J goes south (and of course the property is more GA scrub).

So Hewitt and Oakbrook and Reg. Section 1.170A-14(g)(6)(ii), the latest “goofy” regulation, go by the boards. And Jonathan’s and partner’s amendment to the deed nunc pro tunc to try to comply with the goofy regulation is off the menu. Judge Speedy Weiler catalogs all the cases that he needn’t consider.

IRS does get summary J they satisfied the Section 6751(b) Boss Hossery, because Jonathan and partner didn’t contest that.

I guess I was right when I cognomened Judge Weiler; he sure is speedy.

That’s what BATS Global Markets Holdings, Inc. and Subsidiaries, 158 T. C.5, filed 3/31/22, did with its stock-trading software, that it developed and used to propel itself to the world’s third largest stock exchange. What got it to Tax Court was its claimed deductions from Domestic Production Gross Receipts (Section 199) arising out of said software.

But Ch J I W (Chief Judge In Waiting) Kathleen (“TBS = The Big Shillelagh”) Kerrigan will none of it.

If you’re interested in creating an online stock exchange but haven’t age-appropriate offspring or descendants handy to teen-‘splain IP/TCP ports, order matching software, “physical” and “logical” connectivity, and latency, read Judge Kerrigan’s treatise at pp. 2-18. Then go out and make billions, and you won’t have to read blogs about Tax Court.

The BATS did and didn’t.

To participate in the BATS exchange, one had to be a broker-dealer as defined in the securities laws. One also had to pay the laundry list of Fees charged by BATS to play in their schoolyard. BATS claimed the Fees were DPGR. IRS says no.

Key to BATS’ claim is Reg. Section “199 -3(i)(6)(iii)(B): first, that they [receipts] were derived from providing customers access to computer software for the customers’ direct use while connected to the internet or any other public or private communications network, id. subdiv. (iii); and second, that a third party derived gross receipts from the lease, rental, license, sale, exchange, or other disposition of substantially identical software, id. subdiv. (iii)(B).” 158 T. C. 5, at p. 20.

But the property (and that includes computer software) has to be disposed of, that is, leased, licensed, sold, exchanged, not used to provide services for a fee. And the software has to be distributed by download or tangible medium (CD or flashdrive) as well as online only. And the download or tangible has to be substantially the same as the online. This is the so-called “self-comparable” exception, but BATS doesn’t claim that.

BATS does claim Reg. Section 1.199-3(i)(6)(iii)(B) third-party comparable status, that is, that other unrelated parties are disposing of like software.

The idea is that merely offering your software for online use, without letting the customer buy or lease or download it for their own use, isn’t domestic production. It’s selling a service, and only architects and engineers doing that onshore qualify.

The Logical Port Fees aren’t DPGR; they only allowed the customer to log into BATS’ exchanges, no different from any e-mail service.

The Routing Fees were paid to send the customers’ orders to specified exchanges. This is again a service, not a disposition of software.

Transaction Fees varied widely. Some transactions never happened, so no fee was charged. Some fees depended upon how much liquidity the customer was providing or taking from the exchange. In short, another fee-for-service.

“Petitioner is an operator of securities exchanges. The fact that the Exchanges use software to operate does not convert petitioner’s trade execution services into the provision of software for customers’ direct use.” 158 T. C. 5, at p. 28.

The BATS claim they’re like TurboTax, providing software to customers. But you can buy TurboTax software, or download it. The BATS stuff you can’t.

And while customers can submit orders to BATS, they cannot themselves execute the orders. Only BATS can do that, and their user agreement says it’s a service.

BATS claims the safe harbor afforded computer games, where all computer games are deemed to satisfy third-party comparability. But BATS is not providing games, and their proposed reading eviscerates the statute and regs.

Other stock market software can be used to operate a market; BATS’ cannot.

Reminder: Post-1/1/2018, the domestic production break is off the table. Repealed by Tax Cuts and Jobs Act of 2017, Pub. L. 115–97, title I, § 13305(a).

I am late blogging tonight, because I had a tooth extracted this afternoon. The prothodontist instructed me to engage in no activity for 24 hours that would raise my blood pressure. So I will merely wonder how IRS counsel maintains normal blood pressure when being given five (count ’em, five) trial dates over a five-year period, for each of which, presumably, they must prepare.

The petitioner, of course, does not prepare. Quite the contrary; he showed up for a deposition “engaging in aggressive behavior, shouting, and abruptly leaving respondent’s office before the deposition could begin.” Michael Zorn, Docket No. 25974-17, filed 3/30/22, at p. 2.

IRS’ counsel moved for sanctions. Motion denied, without prejudice. Idem, as my expensive colleagues would say.

To begin with, for the first trial date in 2019, a mere eighteen months after the petition, IRS’ counsel moved for a date and time certain; granted. But petitioner moved for a continuance at the trial, which the Court granted.

Second trial date, same story. OSC to set trial, no opposition, motion at trial for continuance, granted over IRS’ counsel’s opposition.

Third trial date scheduled, three weeks before trial petitioner files bankruptcy.

After bankruptcy court discharge (apparently not discharging the tax debts), trial again scheduled (number four), but two (count ’em, two) days after the scheduling order, the Court sua sponte continued the case.

Trial date number five. A hybrid. A remote session last November, with an in-person at a date and time to be determined. “The Court’s Order stated that ‘the in-person portion of the trial will consist of petitioner’s testimony and that of any other witnesses the Court designates for in-person testimony.’” Order, at p. 3.

And the remote trial actually takes place on time.

But the in-person is stricken on COVID concerns, and when rescheduled, petitioner claims he has symptoms: two days before trial. Petitioner likewise claims he was seeing a doctor that day.

Judge Courtney D (“CD”) Jones asks petitioner to show documentation of his medical appointment. Order, at p. 4.

“In light of the significant delay that resolution of this case has already experienced, the Court is concerned about a further delay. The Court recognizes that one delay was caused by the Court’s Order… and another by the Court’s Order….

“However, the Court notes that resolution of the case has also been delayed due to petitioner’s two Motions for Continuance, refusal to sit for a properly-noticed deposition, and filing of a petition in U.S. Bankruptcy Court. Though the Court will reschedule the in-person further trial on report of petitioner’s symptoms, the Court , and will consider sanctions, including dismissal, if petitioner initiates an additional delay.” Order, at pp. 3-4.

I note that Ch J Maurice B (“Mighty Mo”) Foley has given a stylistic tweak to Rule 133 in the proposed revisions to the Rules, but no substantive change was made. Taishoff says what’s the point of the thirty-day rule?

Yesterday I asked if “nothing can be done to short-circuit the frivolites who prevent honest people… from ‘settling their case in short order”’ by clogging the dockets with protester jive?” See my blogpost “Run To Stop It Running,” 3/28/22.

Well, today Judge Albert G (“Scholar Al”) Lauber hands a Section 6673 frivolity chop to a three-time loser, Jason D. Golditch, T. C. Memo. 2022-26, filed 3/29/22. This is Golditch’s third CDP petition go-around, where he did nothing at Appeals, frivoled in Tax Court, and lost.

Judge Scholar Al finds Golditch never bothered filing a return for at least ten (count ’em, ten) years, and ran up a tax tab north of $200K in the process.

No Judge Scholar Al  CDP opinion is complete without an in-depth dissertation on CDP.

Maybe handing out a few more Section 6673 chops will cool off  some of the frivolites.

Interest, That Is

The abate debate goes on. Jeremy Edwin Porter, T. C. Memo. 2022-25, filed 3/28/22, says IRS held the ball in the backcourt, but Judge Travis A. (“Tag”) Greaves says Jeremy and his rep were also slow-playing the hand.

“The IRS did not abuse its discretion by denying petitioner’s interest abatement claim. Petitioners delayed the examination by failing to provide the records the examiner requested and did not provide any such records in the letter petitioner claimed to have sent the IRS…. During litigation, petitioner himself requested the first continuance the Court granted and did not object to the second. See Adams v. Commissioner, T.C. Memo. 2019-99, at *13 n.7 (explaining that section 6404(e)(1) prohibits abatement where the purported delay was attributable to the taxpayer’s reasonable requests for continuances), aff’d per curiam, 811 F. App’x 276 (5th Cir. 2020). The Tax Court did not rule on petitioner’s discovery Motions until February 2019, after which petitioner concedes that Ms. V resolved his case in short order. See Lee, 113 T.C. at 150 (explaining that the ‘mere passage of time in the litigation phase of a tax dispute does not establish error or delay’ under section 6404(e)). Such delays are not grounds for interest abatement because either they are not attributable to an IRS officer or employee, or a significant aspect of the delay can be attributed to the taxpayer.” T. C. Memo. 2022-25, at pp. 5-6. (Name omitted).

For Adams, see my blogpost “Abatement of Interest,” 8/12/19.

So is the answer to oppose any IRS request for continuance? Never ask for a continuance yourself? Badger the hardlaboring Glasshouse Gang when your motion languishes, while the Judge is dealing with such as Jonah B. Addis, T. C. Memo. 2022-24, filed 3/28/22, who frivol endlessly while your case is stuck in the slow lane?

Of course not.

Sure, always provide every scrap of paper (or electrons) you have that helps your case to IRS.

But even with that, the real problem is the clogged Glasshouse docket.

Are we absolutely positively certain, beyond mayhap or peradventure, that nothing can be done to short-circuit the frivolites who prevent honest people like Jeremy and Ms. V. from “settling their case in short order” by clogging the dockets with protester jive?

There follow some comments on the proposed Rules. Other and further comments may follow. Ms. Servoss, please copy.

Rule 3(h) is too wordy. Should read “A Special Trial Judge as used in these
Rules refers is to a judicial officer appointed pursuant to Code section 7443A(a). See Rule 180.”

Rule 10(d) should read “The Clerk’s office of the Clerk at in Washington, D.C., is open from 8 a.m. to 4:30 p.m. on all days, except Saturdays, Sundays, Fed legal holidays, and public holidays in the District of Columbia, for the purpose of receiving petitions, pleadings, motions, and other any papers.” Was it intended to keep the Tax Court open on Emancipation Day? If so, why? The explanation to the Rule changes says no substantive change was intended.

Rule 20(c) omits reference to publicly-traded partnerships. Why? Otherwise, this is a welcome amendment. Of course, the new Form 6 must state that it cannot be left blank; one box or the other MUST BE checked.

Rule 21(b)(4) is very welcome, as it may be the beginning of the law firm entry of appearance, rather than the current piecemeal system. Designating a single attorney among those representing a party (whether it be petitioner, respondent or intervenor) to receive all papers in a case prevents confusion, needless duplication, and places the onus for following a case on a specific attorney. Why serve more than one attorney if more than one have appeared, even if serving electronically? Now all we need is an amendment to Rule 24 and a new Form 7A, Entry of Appearance (Law Firm), permitting every attorney in a law firm who is admitted to US Tax Court to appear, with one designated lead attorney to receive all papers. It is time Tax Court recognizes that there are law firms (especially as the majority of Tax Court Judges and STJs practiced for some part of their careers in such law firms). Lawyers take family leave, medical leave, vacations, have family emergencies (some are even single parents), and even may be actually engaged on trial on another case when ordered to appear in the case at bar. Has no Tax Court Judge or STJ never, prior to elevation to the Tax Court Bench while practicing in a law firm, when  required to appear on a date and time certain, had a medical emergency, an accidental injury, a family emergency, or been out of the country on a vacation planned and commenced before so required? And has no Judge or STJ ever been called upon, when so practicing, to “cover an appearance” for a fellow-attorney in the firm in such a predicament? If so, thrice happy that Judge or STJ. But it does happen. Tomorrow will be the fifty-fifth anniversary of my admission to the Bar; you may take my word that all the above happens.

To be Continued.

Edited to add, 3/26/22: Rule 10(d) and 25(a)(5): definition of “legal holiday” should be moved to Rule 3. The proposed Rules are confusing.

Today we have a reprise of my blogpost “The Master Mechanician,” 3/21/22, and it’s what we used to call a “carbon copy” of the fact pattern therein described. Today’s case is Point Of The River, LLC, Parkway South, LLC, Tax Matters Partner, Docket No. 12049-19, filed 3/25/22.

It’s the same kind of phoneathon with the same RA and the guys from OCC on the horn with the Pointers’ rep, saying there’ll be chops but not specifying which. And of course it’s months until the FPAA issues with the chops, by which point the Boss Hoss has hoofprinted the penalty lead sheet and everything but the menu for lunch.

Now I’m a fan of Judge Albert G (“Scholar Al”) Lauber; no schoolmate of my nephew JVTB (he’s not a minor, but I’ll use initials) and my colleague Peter Reilly, CPA, is a bad guy. So I am not ragging him.

But these formalistic constraints on the curative requirement of Section 6751(b), minimal as it is, rob the statute of the very protections Congress manifestly intended to provide.

Don Vito Corleone and his colleagues did not need to place a horse’s head in the bed of everyone whom they wished to coerce. All they had to intimate is that they were making an offer “you can’t refuse.”

And IRS’ riposte, that wily taxpayers and their Machiavellian counsel and representatives would draw trusting RAs offside by artfully asking in the naïvest way “what about penalties” can be easily met with “let’s stick to the tax due and statutory additions.” Unless, of course, the RA does up the lead sheet and gets it Boss Hooved before the phoneathon.

Today, for the first time, a single intrepid internet voyager has found his/her way to this my blog from the archipelagic Republic of the Maldives, which lies astride the Equator in the Indian Ocean, and whose total land mass is a trifle more than double that of the Minor Outlying Island off the Coast of North America whereon I reside.

My source tells me that the Republic encompasses some 35,000 sq. mi. of ocean, but only some 115 sq. mi. of land, no natural part of which is more than 5.1 metres above Mean Sea Level. The Republic’s population is some 560,000 persons.

Now the same source tells me that The Plurinational State of Bolivia, to which nation-state this my blog is terra incognita, has no sea at all, but does comprise 424,161 sq. mi. of territory, all to the south of the Equator. Its highest natural point is at 6,462 metres above MSL.

So how is it that none of the eleven-and-one-half millions (count ’em, eleven-and-one-half millions) of the inhabitants of The Plurinational State has yet paid this my blog even a single visit?

Get with it, Bolivia.

Except in an OIC

Despite filing an OIC which “…did not correctly identify the taxpayer, failed to provide correct information about tax liabilities, failed to indicate the reason for the offer, and erroneously reported financial information on Form 433-B,” Order, at p. 4, the long-suffering SO offered Shipra Bhansali d.b.a. Scrum Technologies, Docket No. 17120-19SL, filed 3/24/22, a six-year streamliner IA.  

Despite getting a six-week extension to respond, Shipra said nothing.

My readers will at once intone with one voice “Those who need it won’t read it, and those who read it don’t need it.”

The readers aforesaid know that the minute a collection alternative is offered in a CDP, they’re working on their counterproposal, marshaling facts and figures to support the same. And preparing to seek a further extension, more effectually to do so.

Yes, this is a small-claimer. And yes, a docket search shows the $60 filing fee was waived. So doubt as to collectability has to be front and center. If Shipra hasn’t got the sixty Georges and can establish she hasn’t, even a facially-reasonable IA offer of $180 per month made two (count ’em, two) years ago and based on erroneous information may no longer comport with economic reality.

But ya gotta say so. And have your counteroffer ready. And maybe back it up with a changed-circumstances remand; see my blogpost “Back to the Future,” 8/1/11.

Ch J Maurice B (“Mighty Mo”) Foley, nearing the close of his illustrious and industrious tenure as Capo di tutti, has set forth amended Rules for comment. I’ll reserve my detailed comments for another day; but do note that the deadline for getting your bouquets and buckets to the Ch. Clk. Ms. Servoss at The Glasshouse in the City of the Stateless, is 5/25/22, not later than 4:30 p.m., and that means “…standard time in the location mentioned except when advanced time is substituted therefor by law.” Proposed Rule 3(i).

The Great Chieftain of the Jersey Boys will have to adapt his mantra that Tax Court’s purpose is “to secure the just, speedy, and inexpensive determination of every case.” Now Rule 1 no longer says Tax Court “shall” do so, but that it “should” do so. Of course, Ch J Mighty Mo is quick to assert that the change is merely to conform to FRCP 1, and no substantive change is intended. Indeed it does so conform, but wasn’t the imperative rather than precatory language better?

I respectfully request Frantic Frank to favor us all with his comments; if he is agreeable, I’ll print them in extenso, unedited and without any comment from me.

But I do want to cough the “modest cough of the minor poet,” as a much more celebrated writer than I put it.

See Proposed Amendment to Rule 20, at pp. 5-6, and pp. 113-114. Finally, we have a Form 6 that almost does the job. We have a check-the-box form that answers all my many objections. Only one (count it, one) quibble: instead of “(please mark the appropriate option)”, the instruction should read “(YOU MUST CHECK ONE).”

Still, I thank Ch J Mighty Mo for his efforts.

And I’m going to have a wee Vodka Gibson this evening to celebrate: I feel like we’ve knocked a chip off the Rock of Svithjod.