Stalwart to the end of his chieftainship, Ch J Maurice B (“Mighty Mo”) Foley strives to keep errant petitioners on the straight-and-narrow. But in the case of Ferlencia Aispuro, Docket No. 33825-21, filed 4/21/22, I fear an even greater effort will be needed than today’s order manifests.

IRS has moved to strike Ferlenica’s petition (apparently from a SNOD) for failure to state a claim. Not having seen the petition, I cannot comment, but I am certain neither of the two (count ’em, two) attorneys to whom the case was assigned would incur the Court’s wrath with a frivolous motion. And apparently one of those counsel moved to withdraw after the motion was made, also certain that the motion would be granted, and his/her presence would no longer be required.

So Ch J Mighty Mo orders Ferlencia to respond to the motion.

And, while she’s about it, “…petitioner may file with the Court a proper amended petition (see attached form) that sets forth clear and concise assignments of each and every error that petitioner alleges to have been committed by the Commissioner in the determination of the deficiencies, additions to tax, and/or penalties in dispute in this case, and/or the determination regarding any collection action in dispute in this case, and clear and concise lettered statements of the facts on which petitioner bases the assignments of error. See Rules 34(b), 331(b), Tax Court Rules of Practice and Procedure; Jarvis v. Commissioner, 78 T.C. 646, 658 (1982).” Order, at p. 1.

Now for the above-referred-to bet.

I am prepared to wager a couple ales and maybe even a plate French fries at Jake’s Saloon on 23rd and Seventh on this Minor Outlying Island off the North American Coast (hi, Judge Holmes, want in on the bet?) that Ferlencia can better unpack Andy Wiles’ proof of a special case of the modularity theorem for elliptic curves, a/k/a Fermat’s Last Theorem, than Your Honor’s order above-quoted.

I suggest something like “Tell me what specific facts IRS got wrong, and tell me specifically what they got wrong about the law. And keep it as simple as possible, but not more simple.”

I recently opined that “when Congress starves the IRS, it isn’t the IRS that is hurt, it is the honest taxpayers.” See my blogpost “Starvation Hurts,” 3/15/22. But apparently some nutriment got through, because IRS was vigorously recruiting litigation counsel. See my blogpost “The Teddy Roosevelt Gambit,” 1/21/22.

OK, great, now we can cheer the IRS’ new-fledged myrmidons in Wystan Hugh Auden’s immortal words “Agents of the Fisc pursue/Absconding tax-defaulters through/The sewers of provincial towns.”

But do we really need three such agents to try the case of Christian Sezonov and Francine M. Sezonov, T. C. Memo. 2022-40, filed 4/20/22? OCC put three  (count ’em, three) of “these few, these happy few” on a Section 469(c)(7)(B) real estate pro case that was dead long before arrival.

Check out Chris’ and Francine’s summaries of their post-event, ballpark guesstimates of the hours they spent professionally real estating, T. C. Memo. 2022-40, at p. 3.

What’s wrong with this picture?

Ex-Ch J L Paige (“Iron Fist”) Marvel will tell us, if we hadn’t already found out.

“Both Mr. and Mrs. Sezonov’s estimated hours fall well short of the 750 hours that are required to qualify them as real estate professionals in each of the years at issue.”  T. C. Memo. 2022-40, at p. 6.

Now I don’t know what other issues there were to hash out, so maybe three IRS attorneys were necessary to get to this point. But when this case went to trial there was only the Section 469(c)(7)(B) issue left standing. So why didn’t two of the three go do something else? Or maybe just move for summary J; assuming that Chris’ and Francine’s numbers were spot on, they still lose.

Starvation sure hurts, but worse than starvation is failure to deploy effectively and economically the resources you do have.

Just ask Vlad. But this is a nonpolitical blog.

In addition to showing David Isaac Bindel, T. C. Memo. 2022-39, filed 4/20/22, the Section 6673 frivolity yellow card lest he repeat the “mine-run of tax-defier arguments” he trundled out, T. C. Memo. 2022-39, at p. 4, footnote 4, Judge Patrick J. (“Scholar Pat”) Urda should have directed Davy to the above-set-forth advice from an authority even higher than the United States Tax Court.

In addition to the time-worn Subtitle C payroll tax gambit to defeat salary and wages, Davy claims he didn’t get the $20 shown on a W-2 from a software outfit for whom he developed something.

But Davy seriously overplayed his hand.

“Although Mr. Bindel testified at trial that [outfit] did not pay him $20 in [year at issue], we find this testimony not credible. The record before us contains a [year at issue] Form W-2, Wage and Tax Statement, from [outfit] that reflects a $20 payment and Social Security and Medicare tax withholdings totaling $1.53. Mr. Bindel reported no wages  (or other income aside from $118 in interest income) on his [year at issue] income tax return, consistent with his position that his earnings are not taxable under the Internal Revenue Code. On Form 4852, Substitute for Form W-2, Wage and Tax Statement, or Form 1099-R, Distributions From Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc., which he attached to his [year at issue] return, Mr. Bindel reported $1.53 in Social Security and Medicare tax withholdings by [outfit]. Mr. Bindel’s affirmative decision to report the exact amount of withholdings associated with a $20 payment (as part of his broader effort to seek a refund) belies his testimony and supports the existence of the $20 payment reflected on the [year at issue] [outfit] Form W-2.” T. C. Memo. 2022-39, at p. 2, footnote 3.

Today Dock D. Treece gives us a doubleheader, Treece Financial Services Group, 158 T. C. 6, filed 4/19/22, and Treece Investment Advisory Corp., T.C. Memo. 2022-38, same date.

Spoiler alert: Dock is principal of both, and stips he’s an employee and ineligble for SSA §530 treatment. He’s also recipient (through these entities) of Letter 3523, Notice of Employment Tax Determination Under IRC 7436, for an aggregate FICA/FUTA/ITW hit north of $66K, plus add-ons and chops (but IRS concedes those).

Dock wants the benefit of the Voluntary Classification Settlement Program (VCSP), more particularly bounded and described in I.R.S. Announcement 2012-45, 2012-51 I.R.B. 724. This is a play nice, come clean, and we’ll give ya a discount deal.

Two issues in both cases: Has Tax Court jurisdiction to decide whether Dock’s outfits made the VCSP cut? And Dock wants summary J that it has made the cut.

ChJiW (Ch J in waiting) Kathleen (“TBS = The Big Shillelagh”) Kerrigan: “Generally, we have jurisdiction under section 7436(a) to determine: (1) whether an individual providing services to a person is that person’s employee for purposes of subtitle C;  (2) whether the person, if an employer, is entitled to relief under section 530 of the Revenue Act of 1978; and (3) the proper amounts of employment taxes which relate to the Commissioner’s determination concerning worker classification.” 158 T. C. 6, at p. 4.

The 2000 amendment to Section 7436 says Tax Court can do more than merely decide if an individual is an EE or IC. There’s also a strong presumption in favor of jurisdiction.

“Because the denial of a taxpayer’s eligibility for VCSP directly affects the amounts of tax, the procedures that Congress has established for judicial review of the Commissioner’s determinations logically contemplate review of such a denial as one element of the determination.” 158 T. C. 6, at p. 5.

So yes, Tax Court can decide if Dock’s outfits made the VCSP cut.

But Dock isn’t home-and-dry yet.

The VCSP says if you’re under employment audit, you can’t opt into VCSP. It’s not a free ride for those already collared. And IRS says the Letters 3523 show Dock had already been audited.

Not quite. “We conclude that whether there was an employment tax audit is a dispute of material fact, and therefore we will deny petitioner’s Motion for Summary Judgment.” 158 T. C. 6, at p. 6.

Well, we know the date of the Letter 3523 (10/10/19); we know the date of filing of the petition (11/25/19). We don’t know the date when Dock filed the Form 8952, Application for Voluntary Classification Settlement Program (VCSP). And we don’t know the date of the commencement of whatever led to the Letter 3523, be that audit or something else (whistleblower?). And is “commencement” measured like Boss Hossery, from the first instant?

Should be an interesting trial.

No, this is not another paean to Rule 121; Judge Courtney D (“CD”) Jones disfavors a summary of transactions proffered by Todd Kohout and Lisa M. Kohout, T. C. Memo. 2022-37, filed 4/18/22. The half-battalion of my combat-hardened veteran readers are fully conversant with FRE 1006. Where stuff is voluminous, so that it can’t be conveniently examined in court, the proponent of the stuff (that’s the side that wants it in evidence) can introduce charts, calculations, and summaries, provided same fairly summarize the stuff.

Todd did his own records, and maybe his return and that of his Sub S, but some records he changed after he prepared the returns, and some got lost when his computer crashed. So he hired a trusty CPA with Big Four experience to reconstruct records and summarize same. But the summaries characterized items, and the CPA “took ‘[Mr. Kohout’s] word for it’ when he would inform him of the nature of certain transactions.” T. C. Memo. 2022-37, at p. 9.

And some of the characterizations are belied by the record.

Judge CD Jones exercises her judgment, and summarily bounces the summaries.

Todd also amended his petition after he entered into two (count ’em, two) stips of settled issues, to claim he overstated receipts by more than the deficiency, and that he had enough basis in the Sub S to take better than $100K of losses. Needless to say, the record supports none thereof.

Takeaway- Courts love summaries…if they are summaries.

It’s that form again, Form 8082, Notice of Inconsistent Treatment or Administrative Adjustment Request, which Urban Dynamic, LLC, Resurgam Equity Investments, LLC, Tax Matters Partner, Docket No. 15755-19, filed 4/15/22, didn’t file with any of the multiple returns they filed for the two (count ’em, two) years at issue. The Form 8082 they did file came after the upper-tier partnership (of which UD was a partner) had gotten a “no change” for the years at issue, and UD had gotten a FPAA. The Forms 8275 Disclosure that UD filed with earlier returns disclosed basis enhancements in UD’s piece of the upper-tier that UD claims the upper-tier partnership got wrong, but that’s not enough for ChJIW (Chief Judge in Waiting) Kathleen (“TBS = The Big Shillelagh”) Kerrigan.

The upper-tier partnership makes the basis calls, and if the lower-tier partnership dissents, then they should file Form 8082. And get involved when the upper-tier partnership gets Letter 1787-F. Better yet, when the lower-tier partner contributes property to the upper-tier, spell out the basis.

“Partnership items include items relating to contributions to a partnership, to the extent that a determination of such items can be made from determinations that the partnership is required to make with respect to an amount, the character of an amount, or the percentage interest of a partner in the partnership, for purposes of the partnership books and records or for purposes of furnishing information to a partner. The determinations a partnership is required to make include the basis to the partnership of the contributed property, including necessary preliminary determinations, such as the partner’s basis in the contributed property. Treas. Reg. § 301.6231(a)(3)-1(c)(2)(iv). Failure by the partnership to make such determinations—for example, because it does not maintain proper books and records—does not prevent an item from being a partnership item.” Order, at p. 5. (Citations omitted).

And that means that the basis adjustments had to be hashed out in a FPAA for the upper-tier partnership, or else Tax Court has no jurisdiction. The items are partnership-level items, not partner-level items. And IRS never said they would treat these items as partner-level items for UD.

Now before my ultra-hip readers refer me to the Bipartisan Budget Act of 2015 and the regulations thereunder, note that the one of the years at issue was before the effective date of the BBA, and UD didn’t elect to use the BBA for the second year.

I can’t wait to see how a case like this would play out under the new régime.

Long-time readers of this my blog will remember that trusts can be real estate professionals; those who come late can see my blogpost “Trust Me, Trust Me,” 9/27/14. Now Ch J Maurice B (“Mighty Mo”) Foley says a trust can be better than a next friend in Estate of JoAnn Molero, Deceased, Docket No. 31299-21, filed 4/14/22.

Seems the late JoAnn’s daughter Leslie moves to be recognized as next friend, because the petition was filed after the late JoAnn became the late JoAnn.

“The motion states that no probate proceeding was commenced with respect to decedent’s estate because JoAnn Molero and her husband Charles C. Molero, who predeceased decedent, had established a revocable living trust, of which Leslie … is now the successor trustee. The motion was signed by decedent’s other children, Frank Molero and Bryan Molero, indicating that they do not object to the granting of the motion. On April 8, 2022, a status report was filed on behalf of decedent. Attached to the status report is a copy of decedent’s trust document, which sets forth information concerning the trust’s successor trustee and the trustee’s powers.” Order, at p. 1.

Looks like the late JoAnn and the even later Charles C. took Norm Dacey’s 1967 advice to heart, and avoided probate.

But Rule 60(d) next friendship only applies to infants and incompetents, and neither the late JoAnn nor the even later Charles C. qualifies.

But have no fear, Ch J Mighty Mo is on the case.

“However, the Court is satisfied that Leslie…, in her capacity of successor trustee of decedent’s living trust, is legally qualified to represent decedent in this litigation.” Order, at p. 1.

So Ch J Mighty Mo unfriends Leslie, but subs in the trust, with Leslie as trustee.

Practice tip: Draw your inter vivos trusts to let successor trustees commence, defend, compromise, settle, intervene in, take appeals from, or sub into, any judicial or administrative proceeding. And attach a copy of the trust instrument (and any amendments) to your motion papers when you’re subbing in.

And a Taishoff “Good Job” to Leslie’s trusty attorneys at Neilson-Spaulding.

IRS says no to the adult children of Douglas Mihalik and Wendi J. Mihalik, T. C. Memo. 2022-36, filed 4/13/22. Doug is a retired airline pilot; part of his package is free stand-by passes for himself, family and “friends.” His former employer tracks those passes, and labels each recipient as family or friend. The former employer assigns a cash value to each pass issued to one other than spouse or dependent child of former employee, and gives the former employee a 1099-MISC for the aggregate at no extra charge.

Doug and Wendi report nada. So IRS hands them a SNOD, which they petition.

Doug and Wendi are less than clear about the application of Section 132 de minimis fringes. These are low-cost (too small to consider) or no-additional-cost-to-employer (past or present).

IRS moves for summary J. Doug and Wendi don’t prepare for trial, allege some protester jive, and claim they moved for discovery, but the motion didn’t make it into the record. Anyway, what they claimed they asked for had no bearing on the case.

Judge David Gustafson sorts it out.

“Section 132(a)(1) excludes from gross income the value of any fringe benefit that qualifies as a ‘no-additional-cost service’. As defined in section 132(b), a ‘no-additional-cost service’ is any service that is  (1) provided by an employer to an employee, (2) at no substantial additional cost to the employer (including forgone revenue), (3) for use by the employee, and (4) offered for sale to customers in the ordinary course of business of the employer. See also Treas. Reg. § 1.132-2(a)(1).  Excess capacity services, such as stand-by flights provided by commercial airlines to their employees, are generally considered no-additional-cost services and are non-taxable to the recipients.” T. C. Memo. 2022-36, at p. 7. (Footnote omitted, but it says fringe stand-bys only go if no revenue passenger shows, so the airline loses nothing as the plane was going anyway).

So Doug and Wendi and daughter are OK, as Section 132(h) limits the no-additional-cost fringes to employee, spouse and dependent (per Section 152) children. But  the two free-fliers, though having same surname as Doug and Wendi, are nowhere proven to be among the Chosen Few.

They’re not shown as dependents on Doug’s and Wendi’s tax return for year at issue, and IRS says their ages make them too old for dependent child status.

As for de minimis cash benefits, these are almost never tax-free.

“Examples of excludable de minimis fringe benefits include coffee, doughnuts, and soft drinks, local telephone calls, and occasional personal use of an employer’s copy machine.  Examples of benefits that are not excludable de minimis fringes are: season tickets to sporting or theatrical events, the commuting use of an employer-provided automobile or other vehicle more than one day a month, and use of employer-owned or leased facilities (such as an apartment, hunting lodge, boat, etc.) for a weekend.” T. C. Memo. 2022-36, at p. 8. (Citations omitted).

And the fringes aren’t so small that it would be burdensome to track; Doug’s former employer does a grand job of tracking.

This is the famous ABA Model Rule 3.7 story: a lawyer cannot be a witness in a case where he is the advocate, lest he have to argue his own credibility, and confuse and mislead the jury between his/her (unsworn) argument and sworn testimony, and otherwise wear two irreconcilable hats. But today Judge David Gustafson allows a lawyer’s own statements to furnish basis for Appeals’ conclusion that George Gilmore, Docket No. 192-21L, filed 4/12/22, is not eligible for CNC.

George owes $1 million in self-reported taxes over a four (count ’em, four) year stretch. He got a NITL therefor at no extra charge, goes to Appeals claiming he can’t pay, but has assets he’s trying to sell. George never asks for an IA or OIC. But nine (count ’em, nine) months later, nothing has moved, despite contracts with past-due closing dates. Appeals NODs the levy.

George claims abuse of direction because Appeals “…(1) failing to analyze the liquidity of his assets; (2) failing to set forth factual findings in support of the determination that he did not make reasonable efforts to liquidate his assets; and (3) failing to give him a reasonable time to submit a proposal for liquidating his assets.” Order, at p. 6.

First, George told Appeals what the assets he was trying to sell should bring. No reason not to take him at his word. Taishoff says it’s an old rule that the owner of property can testify as to what that property is worth.

Second, as for George’s efforts to sell, the calendar tells the tale. “Mr. Gilmore first made assurances that he was liquidating his assets to pay his tax liabilities in March 2020. He made these same assurances seven months later in October 2020 when he provided copies of contracts in support of his expectation that he would be able to liquidate his assets. However, these reassurances were hardly reassuring, since they showed that the passage of six months had not yielded actual sales. The contracts listed closing dates and release dates that had come and gone. When another two months went by with no sales, we cannot criticize IRS Appeals’ conclusion in December 2020 that Mr. Gilmore had been given ‘an appropriate amount of time’.” Order, at p. 7. (Reference to record omitted).

As for a reasonable time to sell, “…he did not offer any interim payment schedule or propose any other collection alternative. He simply asked the IRS to agree that it should leave him alone for an unstated amount of time without requiring him to make any payment. We see no abuse of discretion in SO V’s determination that, based upon Mr. Gilmore’s own representations and documents, Mr. Gilmore should have been able to make some payment towards his tax liabilities,  and that he was therefore not eligible for a ‘currently not collectible’ collection alternative based on a complete inability to pay. Because in his CDP hearing Mr. Gilmore raised only his supposed inability to pay, the question whether Mr. Gilmore had an ability to make any payment was the only issue that SO V was required to consider in the CDP hearing.” Order, at p. 7 (Name omitted).

The SO could rely on what Mr. Gilmore told him.

“Mr. Gilmore owed more than $1 million. The information that he had provided to IRS Appeals indicated that Mr. Gilmore owned assets, that asset sales were imminent, and that the proceeds could be used to satisfy Mr. Gilmore’s tax liabilities.  However, in the 9 months from the proposal of asset liquidation to the issuance of the notice of determination there were no payments to the IRS, and SO V did not abuse his discretion in sustaining the proposed levies under these facts and circumstances.” Order, at p. 8. (Name omitted).

I wonder if this is the same George Gilmore, now or formerly of Ocean County, NJ. If it is not, I apologize. If it is, a Google search will provide some interesting background.

Judge Travis A. (“Tag”) Greaves has another SSA 530 IC vs EE reclassification, but since it’s a piscine barrelshoot for IRS I won’t bother with the whole story of Pediatric Impressions Home Health, Inc., T. C. Memo. 2022-35, filed 4/12/22.

The Impressionists get slugged with FICA/FUTA for 99 (count ’em, 99) home healthcare providers, who provide care for special-needs children. Of course, the command-and-control by the Impressionists is complete.

I note only that the Impressionists changed from classifying the providers as employees to treating them as ICs, without any change in the operation, even for the same employees.

“Petitioner’s administrator, president, and sole shareholder, Ms. Agbo, testified that she decided to change the classification of its workers on the advice of petitioner’s certified public accountant, but she failed to offer any evidence to support this claim.” T. C. Memo. 2022-35, at p. 13.

No worry, Ms. Agbo. I’m sure IRS will be auditing your CPA’s clients to ascertain exactly what advice s/he was giving them. And it might get a wee bit expensive for them, too.

Richard M. Abraham was the head honcho of The REDI Foundation, Inc., T. C. Memo. 2022-34, filed 4/11/22, a 501(c)(3) flogger of online real estate development courses. It’s not REDI that’s at issue, it’s the FICA and ITW for Richard’s draws from REDI (FUTA is apparently off the table for unstated reasons).

Richard incorporated REDI back in 1980 and was a corporate director and officer throughout. Richard says his corporate officership was merely incidental, that he really was an IC, and wanted a sashay through the multitudinous factors of employeeship.

Judge Nega isn’t having any. Section 3121(d)(1) defines “any officer” as an employee of the corporation. As a statutory employee, the only outs are the statutory exemptions. Commonlaw distinctions are preempted.

“The text of the regulations thus recognizes a longstanding exception from employee status for officers who (1) perform ‘only minor services’ and (2) do not receive and are not entitled to receive remuneration for those services.” T. C. Memo. 2022-34, at p. 5. And an officer can perform minor services for no compensation and also be an employee, provided the lines between the two are clearly drawn and maintained.

“The record establishes that Mr. Abraham provided services for petitioner that constituted its entire source of income and received remuneration for those services; as respondent suggests, it is a ‘fair inference’ that Mr. Abraham did so as an officer and statutory employee.” T. C. Memo. 2022-34, at p. 5.

Richard’s argument that he was paid royalties for his coursework is a loser. Simply paying yourself what you call “royalties” from your controlled corporation doesn’t make it so.

Richard’s 1099-MISC to himself from REDI is self-serving, and Richard has no written contract with REDI describing his duties.

“Mr. Abraham was the sole person in charge of overseeing and executing the online course (petitioner’s only business activity); he necessarily provided a wide variety of services to petitioner, including managerial decisions about the content, marketing, and enrollment of the online course.” T. C. Memo. 2022-34, at p. 7.

His services weren’t minor. And Richard’s command-and-control argument is for commonlaw EE situations, not statutory. And the SSA Section 530 longstanding-practices argument is also for commonlaw employees, not statutory ones.

Richard’s evidence for good-faith reliance to avoid the add-ons is missing, both for failure to file 941s and failure to pay. But so is the Section 6751(b) Boss Hoss sign-off, so IRS folds the chops.