Self-reporteds are summarily assessed, per Section 6201(a)(1) and Reg. Section 301.6211-1(a). You said it.

And Ch J Maurice B (“Mighty Mo”) Foley reminds Paul Jaworski and Anne Jaworski, Docket No. 14945-21, filed 3/22/22, that “(T)he IRS is also authorized to ‘immediately assess and collect’ the additions to tax under sections 6651(a)(1), 6651(a)(2), and 6654, if such additions are determined by the amount of tax shown on the taxpayer’s return if a return is filed. Such summary assessments are not subject to normal deficiency procedures and are beyond the scope of this Court’s jurisdiction, and no action or proceeding may be commenced to enjoin the IRS’ actions. Additionally, I.R.C. section 6213(a) specifies that the Court “shall have no jurisdiction to enjoin any action or proceeding or order any refund under this subsection unless a timely petition for a redetermination of the deficiency has been filed and then only in respect of the deficiency that is the subject of such petition.” Order, at pp. 3-4. [Emphasis added.]

This one involves three (count ’em, three) years. Year One involved a SNOD, which Paul and Anne admittedly timely petitioned, and that year has its own docket number. Paul and Anne filed the petition in this case for Year Two, and that’s also timely, but no one has sought consolidation.

Next, Paul and Anne amended this petition to object to a CP22E changing their tax obligation for Year One. IRS replied that all of Year One is on the table in the first petition.

Now Paul and Anne move to restrain collection and get a refund for their Year Three overpayment, part of which IRS applied to Year One and the rest to Year Two. IRS agrees to abate the premature assessment for Year One, as that’s sub judice; but the Year Two number is  the number in the return Paul and Anne filed, and IRS hasn’t assessed anything else. Finally, Section 6402(a) allows IRS to hold their refund, and Tax Court has no jurisdiction over that.

Ch J Mighty Mo unscrambles this frittata.

This petition is too late for Year One, so Year One is off the table. Happily, the earlier petition is timely for Year One, so all Year One matters get hashed out there.

Likewise, no SNOD for Year Three. So in this case, Tax Court has no jurisdiction over either Year One or Year Three.

Year Two is a self-reported, for which no SNOD needed. Likewise, IRS has authority to apply any overpayment from Year Three to Year Two.

Paul and Anne want legal fees, but they’re too early. They haven’t prevailed in all contested issues yet.

Clear? Thought not.

No argument from me that Judge Albert G (“Scholar Al”) is a master of the intricacies of IRS’ determinations to assess chops. Today he has an essay on the official Tax Court view of Section 6751(b) Boss Hossery in Oxbow Bend, LLC, Parkway South, LLC, Tax Matters Partner, T. C. Memo. 2022-23, filed 3/21/22.

And Judge Scholar Al cites and explicates each and every opinion, all of which state that a “determination” means a written statement. I’ve blogged therm all.

The Oxbows claim that when the RA examining their AL scrub conservation easement mentioned penalties in a phoneathon with IRS Counsel and their representative, that was when Boss Hossery came into play, not later when she sent out the FPAA.

“Petitioner thus contends that RA S was obligated to secure her supervisor’s approval for the penalties before convening the telephone call.

“We disagree. The word ‘determination’ has ‘an established meaning in the tax context and denotes a communication with a high degree of concreteness and formality.’ Belair Woods, LLC v. Commissioner, 154 T.C. 1, 15 (2020). An ‘initial determination’ signifies a ‘consequential moment’ of IRS action. Ibid. (quoting Chai v. Commissioner, 851 F.3d 190, 221 (2d Cir. 2017), aff’g in part, rev’g in part T.C. Memo. 2015-42). A ‘mere suggestion, proposal, or initial informal mention’ of penalties does not reflect an examining agent’s ‘initial determination.’ Tribune Media Co. v. Commissioner, T.C. Memo. 2020-2, 119 T.C.M. (CCH) 1006, 1010. Rather, ‘the ‘initial determination’ of a penalty assessment will be embodied in a formal written communication” that notifies the taxpayer of the decision to assert penalties. Belair Woods, 154 T.C. at 10; see Oropeza v. Commissioner, 155 T.C. 132, 138 (2020) (‘[A] taxpayer may receive this notification in a notice of deficiency, or he may receive the notification in a document that the IRS sent him at an earlier date.’).” T. C. Memo. 2022-23, at p. 5. (Name omitted).

The Oxbows lose.

Taishoff says, don’t get me wrong, I’m not saying the Oxbows are injured innocents; read the facts as stated in the order and decide for yourself.

But I do say, once again, what Congress thought they were doing didn’t happen. Congress wanted to prevent low-level IRS employees from bludgeoning taxpayers by threatening chops to extract settlements. But most of that bludgeoning takes place, if at all, long before FPAAs or SNODs. And while Judge Scholar Al waxes eloquent about problems of proof and taxpayer gameplaying if oral communications were considered as “determinations,” T. C. Memo. 2022-23, at p. 8, when does he think the bludgeoning takes place, if at all? If Boss Hossery needn’t happen before an IRS employee issues a formal, written statement, then the employee will bludgeon away. I’m sure Don Vito Corleone never issued a “formal, written statement” in his life.

Discovery geeks and ethics wags have a goody from Judge Albert G (“Scholar Al”) Lauber. Can IRS ask members of a petitioner LLC if they’d like to talk? The answer Judge Scholar Al gives is there’s no harm in asking, provided (1) if any member is represented by counsel, IRS terminates the conversation and addresses the member’s counsel only, and (2) if any privileged matter is revealed, IRS agrees to a FRE 502(b) notice and nonwaiver.

IRS did this in Oconee Landing Property, LLC, Oconee Landing Investors, LLC,  Tax Matters Partner, Docket No. 11814-19, filed 3/18/22. But the Oconees want a Rule 103 protective order, claiming ABA Model Rule 4.2, comment 7 says that members are “constituents” of Oconee, therefore are shielded from IRS’ come-hithers.

Cf. my blogpost “The Stealth Sequester,” 2/16/22, where Judge Christian N. (“Speedy”) Weiler goes over the same issues with ABA Model Rule 4.2.

Judge Scholar Al: “At first blush, Model Rule 4.2 would seem to have no application here. As petitioner’s counsel has repeatedly asserted, none of the individual investors is ‘represented by [petitioner’s counsel] in th[is] matter.’ Some of these investors may be represented by their own counsel. But petitioner does not challenge respondent’s representation that, as soon as he learns that an investor is ‘represented by another lawyer in the matter,’ …, he will immediately cease communication with that person and direct any future communication to that person’s lawyer.” Order, at pp. 4-5.

But are the investors “constituents” of the Oconees, hence within the penumbra of ABA Model Rule 4.2? Nope; “Petitioner has failed to establish–indeed, it has not attempted to show–that the individual investors ‘supervise, direct, or regularly consult with’ petitioner’s counsel regarding this case. Petitioner has not alleged, for example, that any of the investors regularly reviews draft stipulations, motions, or Court orders, or that they discuss or influence litigation strategies. There is no indication that they have the authority to fire petitioner’s lawyers and hire new ones.” Order, at p. 5.

A constituent is on the sidelines kibitzing with the coaching staff, wearing the team jacket and baseball cap, not sitting in a luxury box watching the game.

No protective order, despite the Oconees presenting Judge Scholar Al with an unsworn screed from an ethics professor reiterating the Oconees’ argument. IRS moves to strike, but it’s really not necessary.

“Respondent has moved to strike this declaration for noncompliance with Rule 143(g), which requires (among other things) that expert witness testimony take the form of a report, exchanged in advance with the opposing party, and that the expert be available for cross-examination. We need not decide that question because we agree with respondent that the declaration should be disregarded as impermissible advocacy in contravention of Federal Rule of Evidence 702. The declaration offers no help to the Court in understanding any evidence, grasping the inner workings of any industry, or determining any fact in issue. It simply expresses the declarant’s personal opinion–aligning precisely with petitioner’s argument–about how the legal question currently before the Court should be decided. That is the province of the Court, not of an expert.” Order, at p. 7.

Practice tip: If you want to get a Judge mad at you, suggest he doesn’t understand the law. Remember Alex Pope: “Men must be taught as if you taught them not;/And things unknown proposed as things forgot.”

Btw, Judge Scholar Al notes the promoters of this raid on the Treasury are playing D in a class action in USDCNDGA, Order, at p. 2.

Maybe Tax Court is tired of refereeing the unending perpetuity pingpong matches. Judge Albert G (“Scholar Al”) Lauber seems to be getting a lot of them, so today he sends IRS and Pickens Decorative Stone, LLC, Eco Terra 2016 Fund, LLC, Tax Matters Partner, T. C. Memo. 2022-22, filed 3/17/22, off to find out what the 501(c)(3) guardian does with its rights to protest, protect, and defend, when confronted with infringements on the Conservation Purposes set forth in the deed. The deed covers 46 acres of GA scrub which the Decorated Stoners claim is worth the $24.7 million deduction they sold to the usual highrollers with big gains to bury.

The deed has the old “object in 30 days or you’re out” if the Decorated Stoners want to vary from the stated Conservation Purposes. IRS wants summary J that this provision thwarts perpetuity, but the Decorated Stoners say the 501(c)(3) could always sue to enjoin. We’ve seen the “deemed consent” clauses get rough treatment (cf. my blogpost “The Forty-Five,” 3/14/18), but maybe so it might could be this time for once the Decorated Stoners have dodged the cliché.

“On the basis of the record that currently exists, petitioner seems to have the stronger argument regarding the proper construction of the deed. However, in a case such as this, we do not think the ‘deemed consent’ issue can be decided as a matter of law. [501(c)(3)] may be deemed to have consented to the exercise of certain rights, but only if it has failed to respond to notices from Pickens over a period of time. [501(c)(3)]’s internal procedures and past practice may shed light on whether this is likely to happen. In any event, the question whether the exercise of a right to which consent is deemed given would impair any conservation purpose presents factual questions ill-suited to summary adjudication. For these reasons we conclude that the better course of action is to deny respondent’s Motion on this point.” T. C. Memo. 2022-22, at p. 5.

Judge, if perpetuity must be established at inception, how is “likely to occur” a factor? I’ve argued for years that condemnation, the greatest probable cause for extinguishment, is “so remote as to be negligible,” but nobody has listened. Are you now wild-carding it in?

But the Decorated Stoners want to fight the chops, and here they lose. Their argument, though, gets a Taishoff “Good Try, Third Class.” Here the dates matter.

Notice 2017-10, 2017-4 I.R.B. 544, 546, back in January, 2017, painted a bull’s-eye on syndicated conservation easements. Wherefore, say the Decorated Stoners, Boss Hossery was necessary for every syndication easement from that moment, as the Notice was “formal notification of an unequivocal intent” to chop all syndicated conservation easements.

Judge Scholar Al replies, I dare say wearily.

“An IRS announcement directed to the public at large cannot constitute ‘the first formal communication to the taxpayer of penalties.’ Moreover, because the IRS did not select Pickens’s return for examination until July 2019, it could not possibly have ‘determined’ any penalties against Pickens in 2017. The ‘initial determination’ of a penalty occurs when the IRS makes ‘an unequivocal decision to assert penalties.’ The IRS could not have made an unequivocal decision to assert penalties against Pickens before reviewing its return to determine if there existed an ‘understatement.’” T. C. Memo. 2022-22, at p. 7 (Citations omitted).

Post-Hewitt-Oakbrook, maybe Judge Courtney D (“CD”) Jones is as confused as the rest of us. Reg. Section 1.170A-14(g)(6), the famous Extinguishment clause, caused Valley Park Ranch, LLC,  Reed Oppenheimer, Tax Matters Partner, Docket No. 12384-230, filed 3/17/22, to file a DJ in OK State Court to declare their 2016 conservation easement deed ambiguous and that their 2020 amended deed satisfied Federal and State law.

The Rogers County jurists found the amendment did the trick. Of course, as I’ve said many times, any lawyer who can’t find an ambiguity should find another way to make a living.

My readers will note IRS wasn’t a party to the OK DJ; so did IRS, and claims it isn’t bound. Due process 101 says you’re not bound by a judicial or administrative proceeding where you weren’t a party.

Judge CD Jones likes Judge Emin (“Eminent”) Toro’s well-reasoned Oakbrook concurrence as much as Judge Guy did in his concurrence in Oakbrook. That’s not Tax Court’s STJ Daniel (“Yuda”) Guy, btw, that’s 6 Cir’s Senior Judge Ralph B. (“Him Too”) Guy.

This deed had the prior-claims-out language, as well as proceeds-split-on-extinguishment-per-appraisal provision, not fixed-ratio-at-inception. It does not have in either iteration the much-contemned improvements-out language.

Howbeit, Judge CD Jones wonders if what was conveyed was an interest in real property (Section 170(h)(2)) and whether the deed satisfied the statutory (not regulatory) requirement of Section 170(h)(5) perpetuity.

Because of the Circuitry split, Judge Guy’s 6 Cir concurrence, Judge Toro’s Tax Court concurrence, and the fact that this case is appealable to 10 Cir,  Judge DC Jones says let’s forget the goofy regulation and brief the statute.

“After careful consideration of the parties’ motion papers, and in light of the uncertainty of the validity of Treas. Reg. §1.170A-14(g)(6)(ii), the Court finds that additional briefing is necessary, to address the deed’s satisfaction of the statutory requirements without regard to the regulation.” Order, at p. 9. (Emphasis by the Court).

Judge CD Jones should have ordered the parties each to buy an ale for Judge Holmes at Jake’s Saloon: “highly contestable readings of what it means to be perpetual”?  He got that right.

Judge Courtney (“CD”) Jones doesn’t express it quite that way, but the meaning is clear for IRS’ counsel. You blew it once; trying again won’t help.

My readers may not all of them recall Julian Wolpert and Estate of Eileen Wolpert, Deceased, Julian Wolpert, Executor, Docket No. 3182-20, filed 3/16/22, and their law school counsel. If you’re one such, check out my blogpost “Another Taishoff ‘Oh Please’,” 4/22/21.

Post-trial, IRS’ counsel try to insert the “goofy regulation” hobby-loss argument (Reg. Section 1.183-2(b)), and want to try to resuscitate the Boss Hossery they didn’t think they had last year by arguing electronics.

“With respect to the first category of disputed content concerning whether petitioners engaged in the Schedule C activity with a profit motive, we conclude that such material is improperly raised in respondent’s seriatim answering brief. Respondent previously attempted to raise this issue when he moved for leave to amend his answer at the eleventh hour prior to trial. The Court denied that motion in an order issued on April 22, 2021, because permitting amendment would have denied petitioners fair notice and an opportunity to prepare. Consequently, the profit motive issue addressed in respondent’s seriatim answering brief has already been foreclosed, and we will not entertain respondent’s attempt to undermine our previous order.” Order, at p. 2.

As the late Bankruptcy Judge Adlai Stevenson Hardin wearily counseled my co-counsel before sinking our case without a trace, “Counsel, I gave an order, not a suggestion.”

Electronics to avoid Boss Hossery fares no better.

“Although there is some language to weakly support respondent’s contention (in his seriatim answering brief) that the section 6751(b)(2)(B) issue was raised in his pretrial memorandum (concerning taxable year 2017), respondent also stated therein that he would concede the section 6662(a) penalty for taxable year 2017 if he could not ascertain whether SB was the immediate supervisor for purposes of section 6751(b)(1). Such a statement leads us to conclude that respondent  (1) did not contemplate the applicability of section 6751(b)(2)(B), and (2) intended to sustain the penalty determination at trial solely by proving that written supervisory approval was timely obtained pursuant to section 6751(b)(1). We further note that the language respondent points to purportedly raising the issue in his pretrial memorandum has no basis in the statutory text of section 6751(b)(2)(B) (i.e., whether the penalty was ‘asserted computationally’ versus ‘automatically calculated through electronic means).” Order, at p. 2 (Footnote and name omitted).

As for Rule 41(b) tried-by-consent, as to the goofy part, trial took place five (count ’em, five) days after Judge CD Jones had taken Reg. Section 1.183-2(b) off the table. The law students rightly relied on Judge CD Jones’ order, so where was the consent? Not in this record.

Rule 41(b)(2) allows the Judge to let in evidence, even if objected to, in the interests of justice. I cannot very well characterize IRS counsel’s argument on that point in language proper for a blogpost meant to be read in the family circle. So I defer to Judge CD Jones.

“Respondent argues that ‘[g]ranting [r]espondent’s motion will serve the interests of justice by conforming [r]espondent’s answer to the evidence adduced at trial.’ To the extent respondent intended for this language to communicate why justice requires our grant of leave under Rule 41(b)(2), we disagree. To hold such reasoning sufficient would render superfluous Rule 41(b)(2)’s justice requirement.  Moreover, as previously elaborated upon, granting leave would unduly disadvantage and prejudice petitioners’ case given their reliance at trial on our April 22, 2021 order.  Consequently, we hold that justice does not require our grant of leave for respondent to amend his answer; we will not grant respondent leave to amend his answer under Rule 41(b)(2).” Order, at p. 4.

“Oh please” is too mild an expression.

Remember Emerson’s denunciation of “foolish consistency” as “the hobgoblin of small minds”? Well, today Judge Nega finds the consistency rule of Temp. Reg. Section 1.861-12T supplements but does not override Temp. Reg. Sec. 1.861-9T. So he’s all for consistency, as is the rest of the Tax Court bench in Aptargroup, Inc., 158 T. C. 4, filed 3/16/22.

Agroup owns a Luxembourg CFC that owns or controls, directly or indirectly, 32 (count ’em, 32) CFCs. They all pay a lot interest and foreign taxes (hi, Judge Holmes), for which taxes the Agroup wants Foreign Tax Credit. But Section 904(a) limits the credit to “…’the same proportion of the tax against which such credit is taken which the taxpayer’s taxable income from sources without the United States . . . bears to his entire taxable income for the same taxable year,’ and the FTC limitation is computed by multiplying total U.S. tax on worldwide income by a fraction with a numerator of foreign source taxable income and a denominator of worldwide taxable income. Generally, in the case of an affiliated group of corporations, the foreign tax credit is determined on a consolidated basis. Treas. Reg. § 1.1502-4(c).” 158 T. C. 4, at p. 4.

Matching categories of deductible items to income is easy, but interest expense is special.

“Special rules exist for allocation and apportionment of interest expense in Temporary Treasury Regulation § 1.861-9T (section -9T). In general, interest expense is treated as related to all income-producing activities and assets regardless of the specific purpose for the borrowing, on the general principle that money is fungible, borrowing frees up other funds for other purposes, and management has flexibility as to the source and use of funds. Id. para. (a). Thus, interest expense must be ratably allocated to all gross income. Allocation is not at issue. Petitioner must allocate its interest expense to all its income-producing assets and activities. The parties disagree over the apportionment of the interest expense.” 158 T. C. 4, at p. 5. (Footnote omitted, but it says the Regs were of limited duration, and those cited affect the year at issue here. YMMV).

Agroup wants a mismatch between how its consolidated CFCs apportion interest expense (modified gross income) and how its onshore owner apportions same (assets). The difference is $3 million foreign tax credit. Agroup says the right to elect the modified gross income option is an exception to the consistency rule.

No go, says Judge Nega. “…the consistency requirement is a condition of the election. The modified gross income method is an exception to the general rule of the asset method and is the reason for the consistency requirement. The consistency requirement is imposed because an election is provided.” 158 T. C. 4, at p. 8.

If you go with modified gross income offshore, you have to go with it onshore. Same with assets.

I will say again that this is a non-political blog. If you want vitriol and self-righteousness, you’re on the wrong page. But we see today what happens when Congress gets it wrong: when Congress starves the IRS, it isn’t the IRS that is hurt, it is the honest taxpayers.

Here’s Thomas Rhea Hamilton and Edith Marie Palmer Hamilton, T. C. Memo. 2022-21, filed 3/15/22. Judge Patrick J (“Scholar Pat”) Urda has to deal with a SO who just wants to get rid of a burdensome file.

Tom was a lawyer and Edith Marie a chaplain with a ne’er-do-well bookkeeper who didn’t keep books or records, or file stuff. Thus Tom and Edith Marie were in the hole $70K for the year at issue, inclusive of add-ons and interest. They filed late, didn’t pay, IRS assessed self-reporteds and gave Tom and Edith Marie a NFTL. Tom and Edith Marie asked for a CDP.

The SO asked for bushelbasketsful of paper. Tom and Edith Marie brought in Patricia Tokar Canton, CPA, who did a praiseworthy rescue job, faxing documents at a furious rate. The SO did not “…do any work on the case between October 1, 2018, when she spent an hour and a half reviewing the file and drafting the initial letters, and November 15, 2018, when she spent an hour preparing for the hearing scheduled for that day.” T. C. Memo. 2022-21, at p. 4.

You know the rest. The SO claims she never got what she got, and closes the case with a NOD confirming. Scholar Pat unpacks this. IRS wants a motion in limine to rule out Tom’s and Edith Marie’s testimony; record rule, y’know. But Judge Scholar Pat denies that. And the admin record only has a fax transmittal from Patricia Tokar Canton, CPA, sending eleven (count ’em, eleven) pages, but none of them are in the admin record, T. C. Memo. 2022-21, at p. 8.

IRS should have folded.

Tom and Edith Marie played fair and tried. Patricia Tokar Canton, CPA, was throwing paper with the best. This wasn’t the run-of-the-rejection-mill case where the nontaxpayer sends in nothing and waltzes around.

Remanded.

OK, the SO abused her discretion. And Judge Scholar Pat has made it clear that Tom and Edith Marie should get a proper review, rather than a breeze-through-the-file the night before.

But Tom and Edith Marie spent money, and time, and effort. Patricia Tokar Canton, CPA, may offer all the “friendly, professional service” her Facebook page says and then some (earning thereby a Taishoff “Good Job, First Class”), but I doubt she did it for free. Yes, maybe Tom and Edith Marie’ll finally get the fair shake they should have gotten three (count ’em, three) years ago.

I don’t know if that SO is still around. In any event, she won’t be getting the remand. So she won’t have to go through all those papers; in the end, she got them off her desk without having to look at them.

And before my readers cry out with one voice “But what makes you think more money for IRS would cure a lazy person?” I can only say that Patricia Tokar Canton, CPA, is willing to work hard for proper compensation. Maybe for the right price IRS might find someone like her. If they had the right price.

Nothing personal here, strictly business. To bring Tax Court into line with FRAP as currently amended, Form 17, Notice of Appeal to Court of Appeals, f/k/a Notice of Appeal in its now-superseded iteration, is available on the Tax Court website. Instructions included; assembly required. Not suitable for small children.

My colleague Peter Reilly, CPA, dropped a bomb on me this evening. 6 Cir affirmed Tax Court in Oakbrook, and upheld Reg. Section 1.170A-14(g)(6)(ii), despite Hewitt. 6 Cir was unanimous in result, although Judge Guy upheld based on the statute; he didn’t like the Reg.

Here’s Oakbrook Land Holdings, LLC, William Duane Horton, Tax Matters Partner v CIR, 20-2117, 3/14/22.

Judge Karen Nelson Moore sends off 11 Cir.

“The petitioners also direct us to a recent decision by the Eleventh Circuit that held the proceeds regulation to be procedurally invalid under the APA. See Hewitt v. Comm’r, 21 F.4th.1336, 1339 (11th Cir. 2021). Unlike the concurrence, we find that decision’s reasoning to be unpersuasive. In concluding that the New York Landmarks Conservancy’s comment raised significant concerns about possible deterrent effects that the proceeds regulation could have on donations, the Eleventh Circuit stressed that one of I.R.C. § 170’s aims is ‘to allow deductions for the donation of conservation easements to encourage donation for such easements.’ Id. at 1352. Although encouraging the donation of conservation easements is undeniably a goal of the statute, highlighting this point overlooks a crucial condition that Congress demanded be met by donors seeking deductions: an easement’s conservation purpose must be ‘protected in perpetuity.’ I.R.C. § 170(h)(5)(A).” Opinion, at p. 19. (Footnote omitted).

So “highly contestable readings of what it means to be perpetual” are still in play, in 6 Cir. anyway.

The comments of the New York Landmarks Conservancy, now directed by my friend Peg Breen, get a heavy airing.

Man, I’ll be double dipped. The bookies must have slaughtered us punters on this one. See my blogpost “Taking the Bookies’ Money,” 1/3/22, for which I hereby heartily and humbly apologize.

But maybe so it might could be this is going to the Supremes.