No arguing, Gina C. Lewis, 158 T. C. 3, filed 3/3/22, is an innocent spouse. When IRS hit her with the deficiencies, Gina sent them a letter designated as a Section 7430(g) qualified offer, conceding said deficiencies in full, but reserving the right to claim innocent spousery. IRS ignored the offer and hit Gina with a SNOD. Gina petitioned the SNOD and claimed innocent spousery in her petition, but never gave IRS Form 8857. When IRS and her loved-once Tim the intervenor stiped out the deficiencies thereafter, IRS conceded that Gina was an innocent, and moved for entry of decision, which Gina rejects as an end-run around her claim for admins and legals.

IRS concedes Gina meets the net worth cutoff, and she substantially prevailed as to amount and most significant issue.

Even though Gina loses, I give her trusty attorney a Taishoff “Good Try, First Class.” See 158 T. C. 3, at pp. 3-4 for the qualified offer letter. Nice piece of drafting.

Now Gina never submitted Form 8857 or anything else while the deficiency case was pending, either at exam or to CCISO, when IRS referred her case there. This may have been a justified gamble; “The qualified offer provision may not apply, however, where the ‘judgment [is] issued pursuant to a settlement.’ § 7430(c)(4)(E)(ii)(I).” 158 T. C. 3, at p. 6 (footnote omitted, but it says Gina rejected the offer of entry of decision to avoid the “judgment pursuant to settlement” counter-gambit.)

Judge Pugh disqualifies the offer, because it does not specify the amount offered. As Gina reserves the right to raise innocent spousery on a CDP. “… her offer flunks the requirement in section 7430(g)(1)(B) that the qualified offer ‘specif[y] the offered amount of the taxpayer’s liability.’ An offer that reserves the right to claim relief under section 6015 does not ‘specif[y] the offered amount of the taxpayer’s liability’ because the amount of liability offered depends on potential—and reserved—application of section 6015 and cannot be determined until availability of section 6015 relief is considered (or reservation of the right to claim it is withdrawn).

“Applying the regulations to petitioner’s offer illustrates the problem. Petitioner offered to concede ‘100% of the tax and 100% of the penalties’ for [years at issue], subject to a reserved right to claim relief from joint and several liability under section 6015. Respondent’s acceptance of that offer would not ‘fully resolve the taxpayer’s liability, and only that liability . . . for the type or types of tax and the taxable year or years at issue in the proceeding’—that is, petitioner’s federal income tax liabilities for [years at issue]—because her tax liabilities might be (and were) reduced to zero after consideration of her reserved right to claim relief from joint and several liability under section 6015(c). See Treas. Reg. § 301.7430-7(c)(3).” 158 T. C. 3, at pp. 9-10.

Now before my ultra-hip readers cry out as one “What about Regulation § 301.7430-7(e) (example 4), which discusses whether a taxpayer may reduce the amount the taxpayer will pay pursuant to a qualified offer after the offer is accepted by the Commissioner by applying net operating loss carryovers?”

Well, in the NOL case, the liability amount is fixed. Adjustments not at issue in the case at Bar may serve to offset payment. But Gina reserves the right to unfix the liability amount in advance, and that’s a bridge too far.

Taishoff says the bottom line is that judges love settlements. Settlements clear dockets and of course conserve scarce judicial resources (translation: “save judges work”). Anything that encourages settlements is good. Making IRS pay for settlements discourages settlements. That is bad.

Unhappily for trusty attorney, those who sail too close to the wind often end with wet underoos.

Clary Hood, founder of his eponymous grading and excavation company, is an American success story. Starting out of high school as a Cat skinner (that’s driving a Caterpillar excavating rig) in his father’s business, he went out on his own with “…only two employees and a hodgepodge of used equipment valued at no more than $60,000 before growing into a 150-person company with nearly $70 million in revenue by the end of [the second of the two years at issue]. ” Clary Hood, Inc., T. C. Memo. 2022-15, filed 3/2/22, at p. 4.

And it was no sleighride; Clary rode out two (count ’em, two) recessions, cutting his own pay to zero and his employees’ to as low as he could, walking away from Walmart when they tried to squeeze him, selling excess equipment, personally guaranteeing loans and completion bonds, and working 80-hour weeks.

And unlike some hard-driving entrepreneurs, he hired a first class team of executives who worked as hard as he did.

So when they had two (count ’em, two) great years back-to-back, and Clary was beginning to think of ““a changing of the guard”,” T. C. Memo. 2022-15, at p. 47, his executives thought Clary had been undercompensated for all the years he had kept the company going, and had their CPAs do a heavy-duty calculation for Year One (but not Year Two). And the Board of Directors (Clary and Mrs. Clary) voted Clary a very healthy bonus in each year. And Clary and Mrs. Clary never declared a dividend.

IRS claims excessive compensation, and whangs Clary with hefty deficiencies and five-and-ten understatement chops.

Judge Travis A (“Tag”) Greaves clearly appreciates Clary, the kind of man who made this country great. But rendering nondeductible disguised dividends deductible as salary and wages is a no go.

Now reasonable compensation is often in the eye of the beholder, beheld through multifactored lenses. While Clary’s attorneys try independent investor as the sole test, only one CCA bought that, and 4 Cir, whence Clary is Golsenized, never bought it.

Now for the reason for the headline first written at the head hereof, as my already-on-their-second-Grey-Goose-Gibson colleagues would say. Read from page 34 to page 39; those are Clary’s experts. Then read from page 39 to 42; that’s IRS’ expert, who allowed Clary more than IRS did in the SNOD. In a big-ticket case like this, where technical issues abound, one can’t just take an expert’s report and put it in evidence. One needs to do a thorough cross-examination in advance. While it’s easy to play Monday-morning quarterback, it sure looks like somebody missed a block or two here.

I won’t mention letting Clary testify about income tax considerations and the changing of the guard.

While I’m no pitchman for CLE programs, I suggest someone should run one on “Win Your Case by Woodshedding Your Experts.”

Worse, while his trusty CPAs did a great job providing good faith cover for Clary for the chops on the Year One deficiency, no evidence was proffered as to Year Two. However thin the rationale might be for Year Two, ya gotta try it.

As an old Army engineer, I agree the Cat skinners do a better job than the paperers.

Although his Bachelor of Science degree is in accounting, not engineering, Judge Christian N. (“Speedy”) Weiler is a great fan of “the greatest engine yet devised for the discovery of truth,” as Dean Wigmore put it.

Cross-examination, done properly, can unearth, unhorse, undo, and unravel, if anything can.

I’ve said it before, but it deserves repeating: everybody’s testimony looks the same on paper; nobody’s testimony looks the same on the stand.

So Judge Speedy Weiler denies summary J to Green Valley Investors, LLC, Bobby A. Branch, Tax Matters Partner, et. al, Docket No. 17379-19, filed 3/2/22. The Greeners want partial summary J that their appraisers are Section 170 qualified, and that their appraisals clear the Reg.  §1.170A-13(c)(3) bar.

IRS says no, because they want to depose said appraisers. My readers will doubtless recall said activist appraisers tried to intervene to prevent any such deposition, and got sent off. If you don’t, see my blogpost “No Likely End,” 2/11/22. In the same order, Judge Speedy Weiler sent IRS off,  when they sought to depose, because the Greeners’ good faith reliance on whatever the appraisers produced is a question for Bobby Branch, TMP, not the appraisers.

Except maybe Judge Speedy Weiler is starting to backtrack. Cross-examination needn’t happen only at trial.

“When considering the elements of a qualified appraisal and appraisers, it appears that petitioners may have satisfied these legal requirements. However, viewing the facts and inferences in a light most favorable to respondent, we cannot conclude such as a matter of law, since there remains material facts in dispute between the parties. Respondent sought to compel the depositions of Mr. V, Mr. W, and Mr. M—which petitioners objected to—and this Court denied, without prejudice, by order served on February 11, 2022. This Court acknowledges that it would likely benefit from this cross examination testimony from these witnesses prior to ruling on the issues before the Court. Accordingly, we are compelled to deny petitioners’ motions for partial summary judgment at this time.” Order, at p. 3. (Names omitted).

So does IRS move again to depose? Has IRS cleared the Rule 74(c)(1)(B) “extraordinary” bar? If IRS moves again and wins, is this going to be a mini-trial?

To quote the youtube Tennessee (ex-Niagara Falls) gearjammer, “Rev up yer engines!”

Edited to add, 3/2/22: I couldn’t agree with Judge Speedy Weiler more: any trier of fact would definitely benefit from cross-examination of every witness, fact or expert, before ruling on the issues before that trier. But where is this cross-examination to take place? In a deposition? Triers of fact don’t attend depositions. And again, everybody’s testimony looks the same on paper. Unless there’s a trial, that paper is all a trier of fact will see. So all the deposition does is give the adversary impeachment material. I fail to see how that helps the trier of fact where the expert witness must proffer his/her/their report, which is their direct testimony per Rule 143, well in advance of trial. The adversary has plenty of time to develop their cross-examination. And nobody’s testimony is the same on the stand, which is why Rule 74(c)(1)(B) there. To make sure the trier of fact can see and hear the witness on the stand.

ChJE (Chief Judge Elect) Kathleen (watch this space) Kerrigan denies both ACRIS depreciation (Section 168(a)) and bonus depreciation (Section 168(k)) to John D. Lord and Belinda Lord, T. C. Memo. 2022-14, filed 3/1/22. Congress remains obdurate: marijuana is a controlled substance, wherefore “(I)n the absence of new legislation from Congress, the legislative intent of section 280E remains unchanged; shifts in public sentiment and legalization of marijuana do not change the purpose or applicability of section 280E.” T. C. Memo. 2022-14, at p. 8.

John was a member of an LLC and shareholder in a Sub S, both of which were CO med potters. Both took ACRIS and bonus for year at issue. Neither LLC nor Sub S kept books per GAAP. Though not required to keep books per GAAP, even under the Section 471 “clearly reflect income” standard, John has no evidence to show that the method used conforms to the best practices in the medicinal herbage trade or business.

And Section 263A(2)(a) bars deducting any cost related to a 280E prohibited trade or business.

Of course, John’s Constitutional arguments are nonstarters.

So John is stuck with basic Section 471, as refined by IRS. But IRS has given him a thwacking great deficiency and chops at no extra charge.

My sources tell me that medical pot is legal in 38 (count ’em, 38) States and Our Nation’s Capital. If the Senators and Representatives of all those States wished to change the present law, they could. But this is a nonpolitical blog.