No, not the 1906 Frank Wedekind shocker directed by Max Reinhardt, nor yet the Broadway musical centenary thereof; this  is the Genius Baristas’ response to the wake-up call I gave them back on 5/4/22 (see my blogpost “The Stealth Off-The-Bencher,” 5/4/22). Today we have the opinion we’ve all been waiting for, but of course it’s been posted in a format wherefrom I cannot drag-and-drop quotes.

Lewis Arnold Rice, Docket No. 6385-21, filed 5/11/22 is another disabled veteran’s tale. A graduate of West Point (and thus a superior speller), Lewis Arnold (that’s Colonel Lewis Arnold) was recommended for a finding he was disabled for worldwide deployment back in 1989 by the Army Medical Evaluation Board. The MEB bucked Lewis Arnold’s file on to the Army Physical Evaluation Board, but before the PEB  could’ve approved the MEB’s finding (which they never did), Lewis Arnold retired from the Army with twenty-six (count ’em, twenty-six) years’ service. Whereupon Lewis Arnold claimed disability with the VA, which awarded him $1400 per month disability payment.

That payment is not taxable and not an issue.

Lewis Arnold claims his $48K per year service pension isn’t taxable. That is taxable, and that is the issue. Lewis Arnold’s trusty attorney cites three cases where length-of-service pension payments were treated as disability (thus excluded by Section 104), but in each case there was a final determination of physical disability.

Judge Nega: “Here, the MEB report was the only evidence petitioner produced to establish that he would have been entitled to a disability discharge at retirement. However, a MEB proceeding is the initial stage of the Army’s multi-tier evaluation of a service member’s eligibility for a disability discharge. If a MEB concludes that a service member is physically unfit, then the next stage of review occurs in higher-level PEB proceedings. While the MEB report did recommend that petitioner was no longer fit for worldwide deployment, such a recommendation was preliminary and did not entitle petitioner to a disability discharge.” Transcript, at pp. 9-10.

Taishoff has a two syllable word for this procedure (that may well cover much else one encounters in the Army). The first syllable is “chicken.”

Lewis Arnold was on the eve of getting out when he got the MEB report. I suggest that for him, sitting around waiting for a PEB, while pushing paper somewhere, was not a high priority item. The day I got out of the Army, I was sitting next to a man with a Combat Medic Badge and two (count ’em, two) Purple Hearts, urging him to apply for a VA disability rating. He didn’t want to deal with paperwork, he just wanted to go home and go to church again. I know how he felt; I bet the Colonel felt the same way. We were all in Vietnam at the same time.

Oh Yes You Can

Hallmark Research Collective, Docket No. 21284-21, filed 5/10/22, wants a vacation, so Ch J Maurice B (“Mighty Mo”) Foley sends ’em off to Judge David Gustafson, with instructions to oblige the Hallmarks with an order disposing of their Rule 162 motion. While Ch J Mighty Mo wrote the order from which the Hallmarks seek relief, he may well not wish to reconsider it.

The Hallmarks were a day late and a lot more than a dollar short with their petition from a SNOD, when Ch J Mighty Mo gave them the right-about-face back on 4/1/22. The Hallmarks wanted equitable tolling.

Of course, Boechler was still at 8 Cir, which held the 90-150 day cutoff was jurisdictional, when Ch J  Mighty Mo tossed the Hallmarks. So I didn’t blog the 4/1/22 order then, as there was nothing new.

Enter the Supremes, kicking off a massive silt-stir. See my blogpost “Ya Can’t Make This Stuff Up – Part Deux,” 4/29/22.

My prediction from a couple weeks ago (hi, Judge Holmes) is coming true. I claim no great prescience. This sort of thing had to follow as night follows day. And of course this is but the start.

I forbear to comment on the current Supreme Court bench and its apparently endless talent for creating chaos in the realm of tax collection. This is a non-political blog, of course. But I have commented extensively elsewhere on the Court’s ability to create chaos everywhere else.

Having exhaustively defined it, Judge Alina I (“AIM”) Marshall finds that Christian Renee Evert, T. C. Memo. 2022-48, filed 5/89/22, couldn’t prove she was under it. The AO, also a Navy vet (O-6), SSA hearing officer, practicing lawyer, FBI Agent, and finally made it to Independent Appeals, only gave her Publication 1035. Judge AIM extensively quotes same.

Chris, a “licensed nurse in New York,” claims the AO coerced her into signing the Form 872, extending the SOL.

“The parties agree that petitioner timely filed her return for [year at issue] and that the three-year limitations period provided for under section 6501(a), without extension, would have expired before the date on which respondent mailed the notice of deficiency for [year at issue]. Thus, petitioner has made the requisite prima facie showing. Respondent has introduced a Form 872 signed by petitioner…valid on its face, which extended the period of limitations…. Therefore, respondent has discharged his burden of going forward.” T. C. Memo. 2022-46, at p. 6.

But Chris claims duress.

“We have also held that ‘actions that deprive another of her freedom of will are distinguishable from legally authorized actions that merely limit another to choose between options that are not desirable.’ Hall v. Commissioner, T.C. Memo. 2013-93, at *12. Hence, it is not duress when the Commissioner makes statements informing a taxpayer that lawful means to assess and collect the tax will be used. Accordingly, we have held that a taxpayer did not sign a consent under duress when the Commissioner told the taxpayer that an opportunity for an IRS Appeals conference would not be allowed if the taxpayer failed to sign a consent. (reasoning that it was not duress for the revenue agent to inform the taxpayer that a notice of deficiency would be issued without an opportunity for administrative appeal because such statements were nothing more than notice that the Commissioner intended to use lawful means at his disposal to assess the tax); (explaining that the Commissioner’s refusal to conduct an IRS Appeals conference without the taxpayers’ execution of Form 872 was a necessary step in the Commissioner’s pursuit of the lawful means provided for income tax assessment because holding an IRS Appeals conference without extending the period of limitations would have caused the Commissioner to issue an untimely notice of deficiency).” T. C. Memo. 2022-46, at p. 7 (Citations omitted; for the story of the late Blonde Grayson Hall, see my blogpost “When All Else Fails,” 4/4/13.)

Judge AIM buys the AO’s testimony, not Chris’.

I note Chris was represented by the Syracuse University LITC, and thank the University for their commitment.

It is possible for a check to serve as a determination. See my blogpost “Unappealing,” 5/27/17. So Timothy J. Lewis, T. C. Memo.2022-47, filed 5/9/22, having lost part of his Section 7623 whistleblower award to sequestration (that’s Congress-speak for “short-changing”) two years back (see my blogpost “The 6.9% Solution,” 4/8/20), tries again.

As my above-referred-to blogpost says, Tim petitioned the determination letter the Ogden Sunseteers gave him, and lost. The award amount was correct; that Congress scooped 6.9% had nothing to do with the Ogden Sunseteers, who just followed OMB’s direction.

Now Tim claims that when IRS issued him the check reflecting the sequestration, that was a separate determination, so he gets another shot. Tim doesn’t get the shot, but his trusty attorney gets a Taishoff “Good Try, Third Class.”

Judge Travis A. (“Tag”) Greaves: “…a whistleblower’s award check constituted an appealable determination within the meaning of section 7623(b)(4) where the WBO did not issue a final determination letter confirming the amount of the whistleblower’s award. The only ‘final decision’ the whistleblower received in that case concerning his award amount was the award check itself. Under those conditions, we found that the award check embodied the equivalent of a final determination letter notifying the whistleblower of its ‘final administrative decision’ regarding his award, i.e., an appealable determination under section 7623(b)(4).” T. C. Memo. 2022-47, at p. 4 (Citations omitted).

But in this case Tim did get the final determination letter, timely petitioned, and lost.

And yes, there can be more than one determination, as when a determination gets remanded and a supplemental determination is issued. But that didn’t happen here.

GWA, LLC, George A. Weiss, Tax Matters Partner, Docket No. 6981-19, filed 5/6/22, and IRS are fighting over experts’ reports. GWA has been here before, of course. See my blogpost “When – Redivivus,” 11/4/21.

The issue today is the alleged leverage (what our UK cousins call “gearing”) that the option basket tactic GWA used generated greater ROI cash-on-cash than would have been the case had they outright owned and traded the securities in the option basket. IRS claims the “option” was a sham; GWA really owned the securities. Of course, the deal was set up by an offshore tax-indifferent bank, well-known in the dodgeflogging community.

IRS wants to toss one of GWA’s experts, claiming he’s opining on GWA’s state of mind or motive, and that’s verboten. Judge Albert G. (“Scholar Al”) Lauber doesn’t reads the expert’s report thataway. Besides, “(R)espondent urges that these opinions ‘are straightforward and do not require the expertise of an economist.’ We know of no authority for the proposition that the Federal Rules of Evidence preclude an expert from testifying on the ground that the opinions he intends to offer are ‘straightforward.’” Order, at p. 2.

A straightforward expert? Put him in the Smithsonian; he’s a rare species.

But another of GWA’s brain trust does opine on motive, so ten (count ’em, ten) pages of his carefully-wrought prose bite the cliché.

IRS has two professors and a twenty-five-year veteran of “financial engineering.” GWA wants them out.

“While not asserting that any of these individuals lacks expertise in general, petitioner contends that none has sufficient expertise to render an opinion relating to ‘leverage’ and that Prof. T lacks sufficient expertise to testify on matters of accounting. We reject these arguments. Financial leverage and accounting are subjects with which all three experts, given their professions, necessarily have some level of familiarity. If there are material gaps in their knowledge or holes in their testimony, petitioner is free to explore them through cross-examination.” Order, at pp. 1-2. (Name omitted).

Oh, the “win your case anywhere but in the courtroom” games abound.

Our New York State Appellate Division, Fourth Department, has a few words why we need written opinions (what we State courtiers call “decisions”).

And though the Pelicans (that’s our homeboy name for the learned Justices of the App Divs) are giving a Rochester trial court jurist the Psalm 141:5 treatment, y’all might read and heed, Genius Baristas, the next time you try a Stealth Transcript move.

“Although the court granted plaintiffs’ motion insofar as it sought summary judgment, it failed to address the burdens of proof or any specific cause of action. In addition, the court awarded costs and attorneys’ fees without providing the basis therefor. As noted, this case involved a motion for summary judgment and for costs, attorneys’ fees, and sanctions, and the court chose not to write. This is an unacceptable practice. To maximize effective appellate review, we must remind our colleagues in the trial courts to provide their reasoning instead of simply issuing orders.” Wilsey v. 7203 Rawson Road, LLC, et al, 2022 Slip Op 02905, 4/29/22. (Citations omitted).

Since our learned Tax Court Judges and STJs never fail to give us “somber reasoning and copious citation of precedent” even in a nickel-and-dime off-the-bencher, it behooves y’all to accord them the Matthew 5:15 show.

Karla Podlucky co-stars in T. C. Memo. 2022-45, filed 4/5/22, as Judge Albert G. (“Scholar Al”) Lauber tells the tale of spouse Greg’s sluggery, thuggery, and skullduggery, whereby he fleeced a couple hedgefundies and a bunch lenders (hi, Judge Holmes) of around $600 million.

Besides their dream house and his model trains (see my blogpost thus entitled), Grteg festooned Karla with custom-made baubles and pretties from Van Cleef & Arpels, the outfit that gets Peter Shemonsky and Kevin Zavian dewy-eyed on Antiques Roadshow.

Greg spent better than $1.2 million on model trains, but alas, he was a Lionel fancier. I’m an American Flyer and Märklin man, but can only dream of having that much to spend.

After detailing Greg’s looting of LNI, the outfit he created and whose shares he sold and whose credit he used to borrow, Judge Scholar Al comes to Karla.

“Although Greg directed the scheme, causing LNI to make constructive distributions of property, Karla played a crucial role. Karla had signature authority over the bank accounts of 2MC, a shell company that Greg deployed to carry out his fraud. One step in the arrangement involved Greg’s wiring money from LNI to 2MC. Karla would then draw money from 2MC’s accounts to purchase jewelry and to pay for services related to the [MacMansion].

“During 2003–2006 Karla signed at least 100 checks on behalf of 2MC. The amounts ranged from $60 to $500,000, and the checks were made out to her, Greg, Traditional Jewelers, Blackstone Fine Jewelers, Fine Gems International, and VCA, as well as architects and contractors involved in the [MacMansion] construction. Karla signed at least $6,628,139 in checks during these years. These payments far exceeded the total income that petitioners reported on their joint returns for 2003–2006, which was between between $350,000 and $600,000 annually.” T. C. Memo. 2022-45, at pp. 23-24.

There’s more.

“While Karla may not have acted with fraudulent intent, the evidence shows that the ill-gotten gains were attributable to her, at least in part. She signed more than 100 checks on behalf of 2MC. These checks, made out to jewelry vendors, architects, and contractors, totaled more than $6 million and benefited her personally. We conclude that Karla has failed to establish that any portion of the understatements is not attributable to her.” T. C. Memo. 2022-45, at p. 24.

No innocent spousery for Karla.

When innocent spousery is first raised as an affirmative defense in a deficiency case petition, OCC need not follow the Cincinnati (that’s CCISO, not George Washington’s Officers’ Club).

Here’s Judge Holmes. “Michelle DelPonte separated from her ex-husband, William Goddard, in 2000. She is still, more than twenty years later, trying to untangle his affairs from her own. What concerns us is her effort to be relieved of her liability on the joint tax returns she filed with Goddard while they were married. The part of the IRS bureaucracy that usually handles these sorts of requests thinks she’s entitled to relief. The IRS’s lawyer disagrees. We must decide who speaks for the IRS.” 158 T. C. 7, at p. 2.

Goddard had stalled IRS while litigating deficiencies from his dodgeflogging operations with assertions of innocent spousery for Michelle, without telling her. Michelle got wind of this, got her own attorney, and alleged innocent spousery to defend against deficiencies as against her. OCC asked CCISO to determine Michelle’s claim. CCISO found for Michelle, but OCC wasn’t happy and wanted more discovery.

Michelle moves for entry of decision that she is an innocent spouse.

Judge Holmes goes exhaustively (and exhaustingly) through the history of innocent spousery. While innocent spousery in a CDP or a stand-alone is well-trodden territory, as a defense to a deficiency it’s not so clear.

While the IRM and CCMs all say that OCC attorneys must refer to CCISO, they still are charged with determining IRS’ litigating position. Thus, even when CCISO determines innocent spousery favorably, OCC counsel isn’t bound while litigating a deficiency.

And pore l’il ol’ Tax Court can’t make IRS play fair.

“Congress gave us exclusive jurisdiction to redetermine the correct amount of a taxpayer’s deficiency for a given tax year once the taxpayer receives a valid notice of deficiency and timely files a petition with us. Congress also gave the Chief Counsel the authority to litigate cases before us. § 7803(b)(2)(D). We cannot undo this statutory scheme by depriving either ourselves or the Chief Counsel of the powers it has given to us in the name of fairness.” 158 T. C. 7, at pp. 17-18. (Citation omitted).

Taishoff says this is definitely unfair. Unless OCC has a smoking gun that CCISO could never have discovered with reasonable diligence, and can make Tax Court smell the smoke, enough is enough. Let Michelle off the hook after twenty (count ’em, twenty) years.

Edited to add, 5/6/22: The more I think about this decision, the less I like it. Michelle is caught, after twenty years, in an interdepartmental turf war between CCISO and OCC. Her trusty attorneys rightly moved for entry of decision. Denial is grounds for appeal to 9 Cir, even on an interlocutory basis, as entry of decision would conclude the case. Judge Holmes rightly recognized that the motion is equivalent to a motion for partial summary J (158 T. C. 7, at p. 5). Her trusty attorneys should appeal.

OCC’s “we need more discovery” is no response to a motion for summary J; either there are facts, or there aren’t. Michelle’s trusty attorneys and OCC have done the epistolary joust for years, 158 T. C. 7, at p. 4-5, and gone nowhere. If there’s newly-discovered evidence, then remand to CCISO to review. Or is OCC deciding that it is the new CCISO, and the Cincinnati can have a farewell dinner at Fraunces’ Tavern down the block from my office, disband, and go home?

No Summary J

Jeffrey D. Hoyal & Lori D. Hoyal, et al., Docket No. 6791-20, filed 5/4/22, claim their periodical sales business is on the up-and-up, hence 3SOL, so summary J. IRS claims fraud and wants a trial.

You can’t presume fraud, you can only prove it with “clear and convincing evidence.” Judge Ronald L. (“Ingenuity”) Buch tells the story.

“The burden of proof is on the Commissioner to establish fraud with the intent to evade tax by clear and convincing evidence. The presence of fraud is a factual question to be determined by examining the entire record. The Commissioner must show that the taxpayer acted with specific intent to evade taxes known to be owing through conduct intended to conceal, mislead, or otherwise prevent collection. Because direct evidence of a taxpayer’s subjective intent is rare, we may infer fraudulent intent from circumstantial evidence, and we consider the taxpayer’s entire course of conduct.” Order, at p. 3. (Citations omitted, but get them for your memo of law file).

Save your time for trial prep; when fraud is on the menu, summary J is off.

It seems the Genius Baristas and the 18Fs are at it again. Judge Nega issued an off-the-bencher today in Lewis Arnold Rice, Docket No. 6385-21, but, despite Lewis Arnold’s masterful spelling, all that’s posted is Judge Nega’s order to send the transcript, not the transcript itself.

Of course, the Genius Baristas and 18Fs did post Judge Nega’s entry of decision, hitting up Lewis Arnold for $13K. But the why and wherefore are shrouded in mystery.

See my blogposts “The Stealth Opinion,” 4/5/21, and “The Stealth Transcript,” 4/22/21.

Most especially, see my blogpost “Cracking Up,” 2/27/14.

I can do no better than to quote Judge Ronald L. (“Ingenuity”) Buch.

“Judicial opinions are the ‘heart of the common law system’ and serve as ‘a critical component of what we understand to be the ‘law.’ Statutes and regulations provide simply an outline; judicial opinions fill in the details by providing the rule of law the court applied, the court’s rationale in applying that law, and the underlying facts.

“Judicial opinions serve many purposes: they assist attorneys in advising clients and preparing cases; they provide the lower court’s rationale when the appellate court must evaluate its decision; they inform the public of the court’s analysis; and they establish clear and articulate rules for the future.” 2014 T. C. Memo. 35, at pp. 24-25. (Footnote omitted).

So c’mon, Genius Baristas. Lewis Arnold’s case isn’t sealed. Let’s have some show-and-tell.