It seems that, at long last, mirabile dictù, there is an accessible database of the Tax Court’s orders, such that a practitioner may actually now find that which I was posting back in 2013 via the old discredited Blackstone system. See my blogpost “Protection,” 11/21/13. Took the Genius Baristas less than ten (count ’em, ten) years to make it happen.

Judge Mark V.  Holmes man-‘splains in CFM Insurance Inc., et al., Docket No. 10703-19, filed 5/20/22.

“One of petitioners’ expert witnesses…submitted a report in which he relied in part on proprietary data. * * * This attracted a motion to strike from respondent, because Rule 143(g)(1)(B) requires data on which an expert relies to be shared with the opposing party. Petitioners object on the ground that the data is entitled to protection as proprietary. The obvious solution — a negotiated protective order limiting the use of any proprietary information — is a problem because respondent’s counsel doesn’t have delegated authority to sign one on behalf of the Commissioner. (The IRS takes the position that any such information should instead be protected under Code section 6103.).” Order, at p. 1.

OK, but trial is coming on in a month.

So Judge Holmes does one of his celebrated phoneathons. At the close of the session, a solution emerges.

“The solution was for petitioners’ counsel to move for a protective order with suggested language. She has now combed through our court’s own newly-accessible database of orders to do so. Although respondent’s counsel had to object, he has at least been consulted on the proposed language.” Order, at p. 1.

Given the swingeing penalties visited upon IRS personnel for Section 6103 leakage (which surpass even those for Supreme Court equivalents…but this is a nonpolitical blog), I am sure IRS counsel must continue to object.

But his protests go unheeded.

“Because the requested motion and suggested language balance the need of respondent to be able to understand and rebut petitioner’s expert-witness report and the legitimate request of petitioners’ expert to keep his proprietary database confidential the Court will grant petitioners’ motion.” Order, at p. 1.

And you can find the text of Judge Holmes’ order at p. 2.

Nothing interesting in Tax Court today, so I strongly suggest that any of my readers who can get to this Minor Outlying Island off the Coast of North America betake themselves to the Metropolitan Museum of Art before 9/5/22, and see “In America – An Anthology of Fashion.”

The best exhibition I’ve seen in seventy (count ’em, seventy) years.

You can skip the companion show “In America – A Lexicon of Fashion.” Claustrophobic, soporific.

For those who can’t make it, there’s talk of an illustrated catalogue of the “Anthology” exhibition to be issued this Fall. There’s already one for the “Lexicon” exhibition, which you can give to your worst enemy as a birthday present.

Once again, the Sage of Concord, Ralph Waldo Emerson: “A foolish consistency is the hobgoblin of little minds, adored by little statesmen and philosophers and divines.” And Judge Morrison has a helping of Emerson’s wisdom for Kirk Stevens & Shannon Stevens, Docket No. 2824-20, filed 5/18/22.

Kirk & Shannon’s Sub S signed up with two unrelated entities, MVP and Hedge Red. MVP owned Hedge Red. Kirk & Shannon’s Sub S  signed aboard an “Amended and Restated Bermuda Call Option Agreement” with the aforesaid MVP and Hedge Red.

If this sounds to you like another of those offshore indifferent dodges, it did to IRS, who claimed no economic substance. But Kirk & Shannon claim IRS said it did have economic substance for MVP, and wants documents from IRS’ audit of MVP to show it. IRS says “Section 6013 taxpayer info, therefore cannot be disclosed.”

Kirk & Shannon riposte that Sections 6103(h)(4)(B) and (h)(4)(C) provide exceptions. Judge Morrison isn’t buying.

“The party asserting that an exception allows disclosure of third-party tax returns and tax return information under section 6103 bears the burden to show the information can be disclosed. Mescalero Apache Tribe v. Commissioner, 148 T.C. 291, 299-300 (2017). But respondent’s tax treatment of one taxpayer (here, MVP) is not relevant to the appropriate tax treatment of other taxpayers (here, the petitioners). And respondent is entitled to take inconsistent positions to ensure that it is not “whipsawed” by taxpayers who themselves take inconsistent positions. We therefore conclude that the petitioners have not shown that tax treatment of the option agreement reflected on MVP’s returns directly relates to whether the option agreement has economic substance (see §6103(h)(4)(B)) or that MVP’s return and return information directly relates to whether the agreement has economic substance (see §6103(h)(4)(C).” Order, at p. 2 (Citation omitted, but you’ll find the Mescaleros’ story in my blogpost ‘Indians Not Taxed, Maybe,’ 4/5/17).

Once again, Emerson prevails.

Judge David Gustafson confronts the old “seal one document, seal ’em all” problem which bedevilled the original new, improved, jim-handy (yeah, most affirmative, roger that) DAWSON electronic docket system. Now it seems that the Genius Baristas have so far pulled their thumbs out, that only individual documents can now be sealed, while the rest of the electronic docket may be available to the public, as intended by Section 7461.

Of course, that which was previously enveloped in the all-encompassing sealing must be individually released, rather like prisoners at the end of Act I of Fidelio.

Lawrence W. Doyle & John F. Moynihan, Docket No. 4865-19W, filed 5/17/22, are engaged with IRS in an unseal-athon. This started with one document, but 25 (count ’em, 25) others got involved.

Of course, the sealing started a year ago. See my blogpost “Stealth and Unstealth,” 4/28/21.

But IRS suggests this may all be for naught, as DC Cir put paid to Cooper and Lacey back in January, in Li v Com’r, 20-1245, filed 1/11/21. Mandy Mobley Li, pro se (natch), exhausted DC Cir’s patience, and they held that no award equals no jurisdiction, per Section 7623(b)(4). So whatever the Ogden Sunseteers did or didn’t do, neither Tax Court nor anyone else can say Word One.

For Mandy Mobley’s story, see my blogpost “Ran the Checklist,” 4/6/20.

Taishoff says DC Cir has made mincemeat of the whole tax whistleblower system. All the Ogden Sunseteers have to do is do nothing; no award, no Tax Court jurisdiction (and Tax Court’s jurisdiction is expressly “exclusive,” so no one else can look either).

So thanks to DC Cir, the brand-new Chief Whistler Mr. John W. (“Hoppin’ John”) Hinman has the easiest job in the world; he can run the 100% sequester.

Judge Gustafson does order the uncontested documents unsealed, although to what purpose remains doubtful. It’s doubtful if he has jurisdiction to do even that much.

So many expert witness jousts involve mixed questions of fact and law. And expert knowledge is essential in sorting out facts so as to make them intelligible to the trier of fact. But the judge decides when the expert has stepped out of bounds, to expound the law, or worse, to advocate. Here Judge Mark V. Holmes, summarizing in CFM Insurance Inc., et al, Docket No 10703-19, filed 5/16/22.

Judge Holmes has some thoughts that bring a grin to my battered visage.

“We began by agreeing with petitioner that it is correct that there is a fairly hard rule that expert testimony about domestic law is generally not admissible. This rule is usually accompanied by the line that ‘testimony about the law does not assist the court.’ Judges may pretend this is so, but in their hearts they know that many of the lawyers and sometimes even the witnesses who appear before them know much more about the law than they do.

“The rule would be a weak one if it was helpfulness in reaching the correct result that we focused on. But the rule would be a strong one if we focused on the difference between findings of fact and conclusions of law. Courts mostly serve as human lie detectors in evaluating testimony — they ask if the witness broke down on cross, engaged in self-contradiction, or told an incoherent story. Judges are not supposed to conduct private investigations outside the record into the facts of a case. But in reaching a legal conclusion, a judge is less constrained. He is able to consult his own resources and expertise, and looks to the advocates who appear before him for help in where to look. We expect lawyers to zealously advocate for their clients; we’re suspicious of witnesses who do so.” Order, at p. 1-2.

IRS was looking to eviscerate the petitioner’s expert’s report. Judge Holmes only cuts off a couple sentences. And this is as good a statement of the principles as I’ve seen.

Judge Christian N (“Speedy”) Weiler has a Section 215 small-claimer, Jihad Y Ibrahim, T. C. Sum. Op 2022-7, filed 5/16/22. Y’all will recollect that the Tax Cuts and Jobs Act of 2017 blew these away, but Jihad (that’s Doctor Jihad) slid in under the tag, as he paid ex-Mrs. Jihad prior to 12/31/17.

Fortunately, MO law takes “terminates at death of payee” off the board, as survival must be stated expressly in separation agreement or divorce decree, and here it doesn’t.

What does sink Doctor Jihad is the “clear, explicit and direct” statement in the separation agreement, an amendment thereto, and the divorce decree that neither Doctor Jihad nor ex-Mrs. Jihad will seek maintenance from the other. “Maintenance” is MO-speak for alimony.

Doctor Jihad’s claim that ex-Mrs. Jihad couldn’t support herself, so the MO courts could award maintenance notwithstanding the documents, founders when it’s shown that she kept her nursing job, rented a home during the pre-divorce separation, and then bought one.

And IRS has properly Boss Hossed the Section 6662(a) chops, for the imposition of which Doctor Jihad has no good-faith reliance argument.

Interesting that here IRS didn’t concede the chops.

Peak Potentials Training International, Docket No. 23373-18, filed 5/16/22, is back, but the IRS attorney who generated my blogpost “Play Nice or Go Home,” 3/20/20 is off the case. So now both IRS and PPTI are both playing nice.

But they need to go international. And for those of us who haven’t yet memorized Rule 81, that Obliging Jurist Judge David Gustafson shows us how it’s done, with a Request For International Judicial Assistance Letter Rogatory addressed to the Supreme Court of British Columbia, Canada.

PPTI is the US-sub of a Canadian corp. The US-sub transferred advance deposit accounts, where customers prepaid for motivational lectures, some of which might not be delivered for two years, to a US LLC. The US-sub claims a deduction for the elimination of the debt it owed its Canadian parent (who supplied the lectures), because the US LLC assumed the obligations to supply the lectures to the depositors. IRS of course says no, so we’re off to another method-madness accounting jumpball.

PPTI needs testimony and documents from the Canadian Chartered Professional Accountants, who served as advisors and accountants in setting up the deal.

So Judge Gustafson goes to his form file, and checks out the Canada Evidence Act and the British Columbia Evidence Act, and generates for document that appears at pp. 3-8.

Really playing nice.

When FBAR’s in Play

That’s Judge Nega’s advice to Alberto Aroeste & Estela Aroeste, Docket No. 13024-20, filed 5/13/22. Al & Estela filed separate but equal petitions contesting three (count ’em, three) years’ worth of deficiencies, and those stay in. But Al attached to his petition “… (1) a letter dated…in which the Commissioner notified him of the imposition of penalties under section 6038(b) for failure to file Forms 5471, Information Return of U.S. Persons with Respect to Certain Foreign Corporations, for [non-deficiency years]; and (2) a letter… in which the Commissioner notified him of the imposition of penalties under section 6677 for failure to file Forms 3520, Annual Return to Report Transactions with Foreign Trusts and Receipt of Certain Foreign Gifts, and Forms 3520-A, Annual Information Return of Foreign Trust with a U.S. Owner, for [two non-deficiency years and three deficiency years].” Order, at pp. 1-2.

IRS ripostes with no deficiency jurisdiction for FBARs, no chops assessed, and no NODs for NITLs or NFTLs for any thereof.

Estela’s separate petition claims IRS gave her non-willful FBAR chops, which she protested and her protest is still pending. IRS moves to toss the FBAR stuff for want of jurisdiction.

Al’s and Estela’s trusty attorneys claim Estela’s FBAR references are merely background, and she isn’t seeking relief therefor in Tax Court. Though IRS wants to toss the referenced per Rule 52, Judge Nega won’t go that far, yet.

But Al’s deficiencies apparently arise from the same facts as the FBAR chops.

Judge Nega says pore l’il ol’ Tax Court has no Subtitle F jurisdiction, only Subtitles A and B, and not even all of Subtitles A and B.

“Mr. Aroeste nevertheless asks this Court to issue a decision with respect to all items included in the notice of deficiency, which he argues includes whether he should be liable for the penalties under sections 6038(b) and 6677, because based on the doctrine of collateral estoppel, both the income tax deficiency and the penalties are dependent upon the very same legal issues. Mr. Aroeste further argues that, based on the doctrine of collateral estoppel, the Court’s determination as to the applicability of the penalties under sections 6038(b) and 6677 is required to prevent redundant litigation, to achieve economy of judicial time, and to fulfill the need for certainty in legal relations. We disagree. Collateral estoppel precludes parties (and their privies) from relitigating issues actually and necessarily litigated and decided in a final prior judgment by a court of competent jurisdiction. Because there has been no final prior judgment by a court of competent jurisdiction rendered with respect to the issues in this case, the doctrine of collateral estoppel is inapplicable.” Order, at p. 4 (Citations omitted).

So at close of play, Al’s FBAR stuff is tossed, but Estela’s are in, for now, for whatever they’re worth.

And Al’s and Estela’s trusty attorneys at Procopio get a Taishoff “Good Try, Second Class.”

Judge Elizabeth A. (“Tex”) Copeland lets Anadarko Petroleum Corporation, et al., Docket No. 23018-18, filed 5/13/22, stay as privileged as USBCSDNY ordered. The Anadarkos were defendants in an Adversary Proceeding brought by a DiP in a Ch 11. There, BJ Gropper ordered that a bunch documents (hi, Judge Holmes) that the Anadarkos turned over were themselves unprotected by client-attorney (FRE 502) privilege, but that the turnover was not a waiver of subject matter privilege.

In other words, the documents could be used in litigation, but nothing else could be.

The magic word is “intentional”, when it comes to subject-matter waiver. The Anadarkos agreed that the documents themselves were unprivileged and unprotected. But handing over documents is one thing; opening the door to whatever else those documents discuss is something else.

Judge Tex Copeland: “Pursuant to Federal Rule of Evidence 502(a), Respondent [IRS] must show Petitioners intentionally waived attorney-client or work-product privilege when they submitted evidence in the Adversary Proceeding without sealing privileged documents and information. This Court considers fairness when deciding the scope of attorney-client or work-product privilege waiver, and here Respondent cannot show that Petitioners intentionally waived privilege given the broad scope of Federal Rule 502(a) and Petitioners reliance on the … Order issued in the Adversary Proceeding. Because Petitioners believed that they had preserved waiver of attorney-client and work-product privileges in the Adversary Proceeding, Petitioners’ disclosure of the Disputed Documents was an unintentional waiver of the subject matter covered by those documents. This Court, therefore, holds that Petitioners did not waive subject matter privilege as to the Disputed Documents.” Order, at p. 4.

Check out the cases Judge Tex Copeland cites in her order. Good stuff there for subject matter waiver memos.

Michael J. Rogerson, T. C. Memo. 2022-49, filed 5/12/22 (a date of much more significance to me than this case), is the sort of client I’d love to have. Mike is a total micromanager of the multi-million-dollar aerospace conglomerate he built from a summer job.

Judge Emin (“Eminent”) Toro tells Mike’s story. “Mr. Rogerson was a hands-on CEO during the years at issue. No major decisions could be made without his input, and no detail was too small for his attention. For example, Mr. Rogerson weighed in on accounting and financial reporting minutiae, interacted directly with company employees, and line-edited company documents, such as offer letters and press releases. Top… executives reached out to him for permission to undertake routine actions, such as responding to customer inquiries or providing small bonuses or raises to company employees.  On one occasion, [Mike’s Sub S]’s president sought approval from Mr. Rogerson to offer an employee a raise of $0.50 per hour. On other occasions,  executives confirmed that Mr. Rogerson’s direct involvement, whether in the form of ‘ongoing and specific directives,’ ‘edict[s],’ or other directions, would be required to get things done.

“Mr. Rogerson’s involvement in sales and customer relations further belies any assertion that he was not substantially involved in [Sub S]’s operations. Mr. Rogerson traveled to meet with [Sub S’]  customers, including on one occasion to Indonesia. He also met with [Sub S] customers at [Sub S]’s offices. Indeed, the record reflects more than one instance in which Mr. Rogerson told … executives that he would resolve a problem by meeting personally with the customer involved. Customers sometimes reached out to Mr. Rogerson directly to discuss issues, and Mr. Rogerson was involved in multiround negotiations with customers on pricing and other matters. He also approved any bid provided to a customer with an aggregate value over $100,000; in one month in [one year at issue], that approval was requested at least a dozen times.”

“In the face of a record demonstrating that he spoke and emailed with executives regularly on [Sub S] matters, Mr. Rogerson asserts that most of these interactions took only minutes of his time. Even assuming that to be the case, however, Mr. Rogerson’s ability to respond to detailed inquiries so quickly shows his detailed knowledge of every aspect of the business. Indeed, many of Mr. Rogerson’s communications reflect first-hand experience with [Sub S]’s employees, customers, and products that extends far beyond what could have been acquired by a passive investor.” T. C. Memo. 2022-49, at p. 26.

And in spite of Mike’s APA attack on Reg. Section 1.469-5T, issued without notice and comment, and still not permanent, Section 469(h) itself says that to be active, participation must be “regular, continuous, and substantial.” Mike’s sure is.

Mike’s would-be writeoff of his two (count ’em, two) megayachts fails for want of any rental activity. But they sure sound like beauties.

Mike’s reliance on his trusty preparer saves the chops.

Going back to my opener, years ago I had a client who took me to look at one of his buildings. I wore my three-piece, he wore torn bluejeans and a dirty teeshirt. As we walked into the building, he greeted every tenant by name. He crawled under a 550-gallon oil tank to look for leaks because the oil bill was too high. Then he decided the problem was in the heating controls, so he took a screwdriver from the superintendent and rewired and recalibrated them while the system was still “hot.” Then we drove off in his ten-year-old econobox.

Did  mention he dropped out of Columbia Law School after his first year because “Why should I waste my time on that nonsense when I can hire you?”

He and Mike would have gotten on a treat.