Back on 2/7/20, I said Tax Court had no Office For the Self-Represented, and wasn’t likely to have one. Well, I wasn’t exactly right. Ch J Kathleen (“TBS = The Big Shillelagh”) Kerrigan assumes that role today for Brenda Martinez, Docket No. 34587-21, filed 7/22/22.

“…petitioner filed with the Court a copy of a notice of deficiency regarding a deficiency in her 2019 federal income taxes and attached copies of tax forms for the same year. The Court characterized the filing of these documents as a Petition. Petitioner did not file either Form 4, Taxpayer Identification Number,  or Form 5, Request for Place of Trial. Petitioner did not pay any filing fee nor did she file an Application for Waiver of Filing Fee.” Order, at p. 1.

Not surprising; the old statistic was 70% of petitioners were self-represented, and of those the vast majority were first-timers in Tax Court. And the greatest part of those crashed before they ever got to the calendar call commandos.

So IRS moves to toss for failure to state a claim.

Ch J TBS to the rescue. She holds the motion in abeyance.

“To help petitioner in this process the Court is providing petitioner with the following attached forms which petitioner should complete and file with the Court as ordered below: (1) Amended Petition, to which petitioner should attach the notice of deficiency she received from the IRS for the year or years in dispute; (2) Form 4, Statement of Taxpayer Identification Number; and (3) Request for Place of Trial. Further, petitioner must pay the filing fee or file an Application for Waiver of Filing Fee, a copy of which is also attached to this order.” Order, at p. 1.

Far be it from me to cast any shade on this laudable attempt to rescue an out-of-depth petitioner. How well Ms Martinez can cope with these papers remains to be seen. Perhaps a suggestion she contact a LITC might be seasonable.

Better still, Tax Court, of all courts, needs an Office For the Self-Represented. It gets more of them than any other Federal Court, I daresay, and the Ch J has enough to do without adding that function to her many burdens.

John Keats fans will remember the headline of this blogpost, but I’ll have to circle round to get him into the traffic pattern here.

My colleague Peter Reilly, CPA, asked me a couple days ago (hi, Judge Holmes) if I meant to report on Aegis For Dreams, Docket No. 29876-21X, filed 7/19/21. My reply was, I fear, a trifle brusque, but Mr Reilly, always a gentleman, took no offense. I replied “No. There was never a dispositive order, much less an opinion. The 7/19/22 Stip just says IRS and Aegis for Dreams agreed that Aegis for Dreams is a 501(c)(3). No facts, no background, no story.” Mr Reilly said he would follow, as Section 501 is always under-the-radar.

In fact, reviewing the stipulated settlement leads me to some interesting speculation, in return for a trifling investment of fact.

Ch J Kathleen (“TBS = The Big Shillelagh”) Kerrigan finds fault with the caption of the stipulated decision proffered by the parties, recharacterizes it as a stip of settlement, and enters the agreed result accordingly. Might not Ch J TBS be saying “Guys, it’s your deal. I’m not reviewing it, commenting on it, or blessing it. Have a nice day.”?

I suppose the indefatigable Mr. Paul Streckfus, much traveled in the realms of non-gold that comprise not-for-profit entities, is again perturbed that the backstory for this deal remains hidden. Did IRS’ counsel give away the ranch? Were the Dreamers injured innocents mired in the swamp of the TE/GE? Or had TE/GE nailed the villains, who went free because the constable blundered?

All valid questions.

I wish I could offer Messrs. Reilly and Streckfus better consolation. Again, I fear I have bad news. Neither OCC nor any trusty attorney for any 501(c)(3) claimant is going to give away their negotiating strategy or their battle plans. Unlike Keats’ pearl fisher, they will not “go naked to the hungry shark.” I am sure the petition is artfully drafted to assign the barest minimum of error, and state the barest minimum of fact, to get to court. And the rest is silence, until the real deal emerges, shrouded in the mist from which it came.

In the immortal words of The Man From Mumbai, “As it was in the beginning, Is today official sinning, and shall be forevermore.”

No, Judge Ronald L (“Ingenuity”) Buch is not relitigating this contentious matter. He’s just using the opinion as an example of a ” challenged action… so short in duration that it cannot be fully litigated.” Order, at p. 6. And a Section 7345 passport grab is not one such, as the grab can go on indefinitely or at least until the delinquent tax, chops, add-ons and interest have been paid.

Katherine McDonald, Docket No. 21077-21P, filed 7/21/22, claims the grab of her passport is unconstitutional, but since IRS folds the grab, that’s moot.

This is a rerun of Ruesch, for which see my blogpost “Ruesch to Judgment,” 6/25/20. IRS pulled Kath’s IA wrongfully, the phone, fax, and mail address for appeals were all wrong or nonworking, and a simple “oops” became a maelstrom of mistakes. No wonder Kath was peeved. Her trusty attorneys got IRS to fold, but no one likes to pay money to straighten out someone else’s mistakes. Hence the constitutionality fracas.

Judge Ingenuity Buch says if IRS tries it again, it’s new facts and can be litigated afresh. And Kath’s tax nodules were blocked; I’m not sure what those are, but Judge Ingenuity Buch thinks it works to prevent a subsequent grab on these facts. See Order at p. 5, footnote 5.

So the grab is out, and Kath is out. But read the facts here: would you go for admins and legals?

Even though his trusty attorneys posit that fact, it does not avail Donald W. Thompson, T. C. Memo. 2022-80, filed 7/20/22. Don (hereinafter “Golfer Don,” for reasons appearing infra, as my expensive colleagues say) claims that the 40% overvaluation chop bestowed on him is invalid because neither the RA who prepared the CPAP nor his supervisor were qualified realty appraisers. Golfer Don wants cross-examination as to their expertise.

Judge Albert G (“Scholar Al”) Lauber isn’t buying.

“Petitioner misapprehends the requirements of section 6751(b). That provision is captioned ‘Approval of Assessment,’ not “Explanation of Assessment.” See Pickens Decorative Stone, LLC v. Commissioner,  T.C. Memo. 2022-22, at *7. As we have said before: “The written supervisory approval requirement . . . requires just that: written supervisory approval.” Ibid. (quoting Raifman, 116 T.C.M. (CCH) at 28).

“We have repeatedly rejected any suggestion that a penalty approval form or other document must ‘demonstrate the depth or comprehensiveness of the supervisor’s review.’ Belair Woods, 154 T.C. at 17. Indeed, because petitioner’s claimed deductions presupposed that the Property had appreciated by 890% in just over a year, the IRS did not need a formal appraisal to support its determination that a valuation misstatement likely existed. In any event we have held that a supervising attorney’s signature on an answer, without more, is sufficient to satisfy the statutory requirements for penalties first asserted in the answer. See Roth v. Commissioner, T.C. Memo. 2017-248, 114 T.C.M. (CCH) 649, 652 (finding an associate area counsel’s signature on an answer sufficient), aff’d, 922 F.3d 1126 (10th Cir. 2019).” T. C. Memo. 2022-80, at p. 9. (Footnote omitted, but it says Golfer Don’s discovery is irrelevant because it wouldn’t change the outcome.) I’ve blogged all these cases, of course.

My ultra-hip readers have already sussed out this is more marked-up boondockery. Don paid a-million-two, and sixteen (count ’em, sixteen) months later gave a conservation easement to the striving, thriving City of North Augusta, SC, just over the river from the Home of the Masters (and Fort Gordon, home of the Signal School, the MP School, and one-time duty station of your reporter).

Golfer Don valued the easement at ten-million-nine-plus; he threw in the dilithium crystals, but left out the golf course, concession stands, rest stations, and other usual golf course amenities. And he could hold tournaments there.

Of course, easements out at extinguishment. IRS trashes the deduction, trusty attorneys play the Hewitt gambit, and Scholar Al, Golsenized to 11 Cir, denies IRS summary J on the deduction, without prejudice to renewal should things change, but gives it to them on the Boss Hossery.

“Without prejudice to renewal” is Judgespeak for “if IRS goes to the Supremes on the Hewitt-Oakbrook Circuit split and wins.”

Cedar Land, LLC, Big Escambia Ventures, LLC, Tax Matters Partner, Docket No. 7284-19, filed 7/19/22, wants to be delisted. That’s not the A-List at the latest high-priced club; that’s the listed-transactions bad-boy list per Notice 2017-10. And of course they’re playing the Hewitt, ya-dint-follow-the-APA, gambit.

Judge Albert G (“Scholar Al”) Lauber has the stagesetting.

“…petitioner contends that Notice 2017-10 is invalid because it was improperly promulgated under the Administrative Procedure Act (APA). Specifically, petitioner contends that the designation of transactions as ‘listed transactions’ constitutes an agency ‘rule’ that must be promulgated pursuant to notice-and-comment rulemaking. The IRS concedes that Notice 2017-10 is a ‘rule’ for APA purposes but contends that this rule was exempt from notice-and-comment procedures. Petitioner seeks partial summary judgment on this question.” Order, at p. 2.

Needless to say, we have more syndicated marked-up boondockery here. The Big Scambies want document production of what IRS told Congress and the Comptroller General per the Congressional Review Act, 5 U.S.C. § 801(a)(1)(A). The CRA is twin sibling to the APA.

IRS folds on Notice 2017-10 being a “rule” within the meaning of the APA. The Big Scambies were claiming IRS said Notice 2017-10 wasn’t a “rule,” but told Congress and the CG it was. So they want Notice 2017-10 and Notice 2017-29 (2017-10 housekeeping stuff) material. But see supra, as my high-priced, A-list colleagues say. IRS agrees it’s a “rule,” but is exempt from notice-and-comment.

Judge Scholar Al: “While believing that none of the documents petitioner seeks is relevant, respondent has voluntarily produced the CRA reports covering Notice 2017-10 and represents that he will include them in the administrative record. Acknowledging this representation, we agree with respondent that petitioner is entitled to none of the other documents it seeks. Notice 2017-29 is not at issue in this case; CRA reports and related correspondence addressing that Notice are thus irrelevant. And because the Commissioner acknowledges that he submitted CRA reports to Congress because he regards Notice 2017-10 as a ‘rule,’ petitioner needs no ‘internal communications, memoranda, reports or other documents that may tend to show how or why any [CRA] reports were submitted to Congress.’” Order, at pp. 2-3.

No document production. But I’d like to see what Judge Scholar Al does with summary J on APA.

I give the Big Scambies’ counsel a Taishoff “Good Job, First Class” for playing a strong Hewitt gambit thus inducing the “rule” fold. I wouldn’t bet the ranch on the exemption ploy in 11 Cir. Check out 5 USC §§551(4) and 553.

But I give IRS’ lone counsel a Taishoff “Good Job, Third Class” for a wise fold.

I’ve reached out again to a colleague, one of the attorneys for petitioner, for a comment, but I expect I’ll get the same answer I got back last November. See my blogpost “Straining Out a Knat,”11/15/21. I remember a Tax Court Judge years ago refusing a petitioner a gag order on account of my blog comments, stating the public’s right to know. But given the (admittedly correct) reticence of attorneys, there are already de facto gag orders in place all over.

Edited to add, 7/19/22: My colleague responded. As expected, no comment, except that he joins me in looking forward to the opinion on the exemption of Notice 2017-10 from the APA.

Y’all may want this for your curio cabinet; Maribel Gonzalez, T. C. Sum. Op. 2022-13, filed 7/18/22, gets 14K of car, truck and travel expenses through the Section 274 high-test substantiation giant slalom, STJ Peter Panuthos waving her through.

“Petitioner submitted a mileage log detailing the dates traveled, distances traveled, and the purpose of each trip. She also submitted vehicle service receipts corroborating the miles driven. Petitioner testified credibly to the business nature of her trips. As previously indicated, respondent did not disallow claimed deductions for rent or lease of business property as well as advertising and utilities. Given respondent’s allowance of petitioner’s other business expenses, we are satisfied that the reported vehicle expenses satisfy section 162 as ordinary and necessary business expenses. Further, we find that petitioner has met the strict substantiation requirement under section 274(d).” T. C. Sum. Op. 2022-13, at p. 6.

It gets better.

“Petitioner submitted a log estimating her claimed meals and incidental expenses using the federal standard per diem rate for Los Angeles. The record demonstrates that petitioner established the time,  place, and business purpose of her travel. She is not required to strictly substantiate expenses under section 274(d) for expenses computed using the federal standard per diem rate. While self-employed individuals may not use the federal standard per diem rate to substantiate lodging expenses, petitioner testified she did not incur nor include any lodging expenses. See Rev. Proc. 2011-47, § 1.” T. C. Sum. Op. 2022-13, at p. 6. Maribel claims she stayed with friends and family in Los Angeles, not in hotels.

Note that Maribel’s part-hustle was clothing design, but her day job was at Stanford University as a “…a grants manager overseeing contracts for clinical trials. She described her work as involving finance and operations.” T. C. Sum. Op. 2022-13, at p. 2.

She got the Palo Alto job so her daughter could attend high school there.

She does lose $6K of other business expenses for want of substantiation.

But she does get a Taishoff “Good Job, First Class.”

Despite some artful shucking-and-jiving by their trusty attorneys, aided and abetted by Los Angeles Superior Court, ex-Ch J Michael B (“Iron Mike”) Thornton echoes the immortal song-of-the-century words from the immortal Lady Day in Alejandro J. Rojas and Elena G. Rojas, T. C. Memo. 2022-77, filed 7/18/22.

Al took a $68K Section 215 alimony deduction when same was still legal for payment to loved-once Cristina. The Angelino Sup Ct decree of dissolution said no spousal support, no child support, but family support. Of course, family support ends when their two kids emancipate, but decreases if Cristina remarries before. Section 71(c)(2), anyone?

“Petitioners argue that because the divorce instrument contains both a child-related contingency (‘until both minor children emancipate’) and a spouse-related contingency (until Cristina remarries), section 71(c)(2)(A) is inapplicable to this ‘mixed contingency.’ Petitioners’ argument is unavailing.” T. C. Memo. 2022-77, at p. 4.

This opinion coming from Ex-Ch J Iron Mike, there follows much “somber reasoning and copious citation of precedent.”

Trusty attorneys try again. “Petitioners argue that because the L.A. Superior Court stated in its… order that ‘there is no current child support order,’ the Full Faith and Credit Act, 28 U.S.C. § 1738, precludes this Court from characterizing the family support payments as nondeductible child support. Petitioners’ reliance on the L.A. Superior Court’s order and the Full Faith and Credit Act is misplaced. In the first place, the L.A. Superior Court’s order merely reflects that under the express terms of the divorce instrument the payments in question were labeled neither as ‘child support’ nor as ‘spousal support’ but rather as ‘family support,’ which under California law represents combined, but unallocated, child support and spousal support. More fundamentally, federal law rather than state law governs the federal income tax treatment of such payments.” T. C. Memo. 2022-77, at p. 5.

Finally, trusty attorneys try an equitable argument, but ex-Ch J Iron Mike is the last judge with whom I’d try that move. His reply echoes some recent Supremacies: “Go tell it to Congress.” Pore l’il ol’ Tax Court has no equitable jurisdiction.

So the child has got its own, and whatever Mama may have, and Papa may have, they have no deduction.

Jennifer A. Soler, T. C. Memo. 2022-78, filed 7/18/22, is a fashionista and the family breadwinner, while spouse Carlos ran some money-losing real estate. Carlos’ real estate losses triggered a couple audits (hi, Judge Holmes), unpetitioned deficiencies followed, and Jennifer found her pay being garnished by Collections. So she seeks innocent spousery.

Jennifer was still married to, and lived with, Carlos, so Section 6015(c) proportionate relief is off the table. Appeals says Jennifer has knowledge or reason to know that Carlos has income, even though she claims he was unemployed throughout and got money as gifts from his mother; except she has no proof. No statement that either Carlos or Mom testified on the trial.

Here’s ex-Ch J L Paige (“Iron Fist”) Marvel.

“Mrs. Soler contends that she did not have reason to know of the understatements on the dates she signed the returns. In her view she was an unsophisticated taxpayer who entrusted the family finances to Mr. Soler and did not participate in the Schedule C businesses. She further argues that Mr. Soler hid the existence of the bank accounts that he used for his Schedule C ventures and she, therefore, was not aware of enough facts to be put on notice that the understatements might exist.  Accordingly, she contends that a reasonable person in her position would not have inquired any further into the returns than she did.

“Mrs. Soler has not carried her burden of proving that she lacked reason to know of the understatements. Mrs. Soler is college educated, was the primary income earner for her household during the years at issue, and had some regular involvement in the household finances. On the dates she signed the returns for [the first three years], Mrs. Soler believed that Mr. Soler did not work and had no income. As a result, the mere attachment of Schedules C to the [first three years] returns would raise questions about the validity of the returns in the mind of a reasonably prudent person in Mrs. Soler’s position. This is particularly true in view of the fact that Mrs. Soler knew that her income alone was not sufficient to pay all of her family’s routine expenses. Additionally,  the Schedules C that Mr. Soler completed showed net losses for tax years [Two and Three]. The Solers were experiencing financial stress during the years at issue and were in the middle of a chapter 13 bankruptcy proceeding. Under those circumstances, a reasonably prudent person would certainly inquire about the loss-generating activity. Indeed, Mrs. Soler testified that, had she looked at the returns and noticed the  reported losses, she would have asked her husband about them. However, even if Mrs. Soler did not actually review the returns, she is nonetheless charged with constructive knowledge of their contents because she signed them. Because Mrs. Soler did not fulfill her duty of inquiry, we conclude that she had reason to know of the understatements on the [first three years’] tax returns.” T. C. Memo. 2022-78, at pp. 89. (Footnote omitted, but it’s the bit about Mom’s gifts).

Lack of knowledge protects the innocent, not the “intentionally ignorant.”

But wait, there’s more, as the midnight telehucksters say.

Jennifer and Carlos each took IRA draws in Year Four, never reported, never petitioned, assessed and chopped.

“Mrs. Soler claims that she did not review the [Year Four] return before signing it and was not aware that it contained an understatement. However, at the time Mrs. Soler signed the [Year Four] tax return, the IRS was examining the returns for [Years One, Two, and Three] and had issued proposed adjustments for those years. Although Mrs. Soler chose not to participate in the audit, she admittedly knew that it was happening and even briefly spoke to the examining RA in May [Year Four]. It is difficult to conceive of a more conspicuous notice that an understatement may exist or that some inquiry into the validity of a tax return is warranted than an audit of and proposed adjustment to the immediately preceding three years of tax returns. Because Mrs. Soler unreasonably and inexplicably failed to review the [Year Four] return, we conclude that she had reason to know of the understatement contained therein.” T. C. Memo. 2022-78, at p. 9.

Ex-Ch J Iron Fist trudges through the factors for equitable relief, but “reason to know” is enough to bar Jennifer.

Back in the early childhood development of this my blog, I discussed the sad case of Beverly Bernice Bang; see my blogpost “Bang – A Warning to Tax Matter Partners and Their Advisors,’ 1/5/11. Today Judge Ronald L. (“Ingenuity”) Buch needs small ingenuity to dispose of Trevor R. Pettennude, T. C. Memo. 2022-79, filed 7/18/22. Trev was a less-than-one-percenter in a coal shelter, which means Section 6223(b)(1) denudes him of notice or a chance to participate in contesting an FPAA at exam, Appeals, or Tax Court.

As this is all pre-2015 Bipartisan Budget Act, Trev’s guardian is the Tax Matters Partner, who is his agent for all the foregoing. If the TMP fails to tell Trev and his fellow fractionals, or fails to fight to the death for their interests, too bad. Trev’s bœuf is with the TMP…if he can find him (it’s usually him).

Alas, as Judge Ingenuity Buch quotes from an earlier case, “…the taxpayers were ‘not victims’ of the Commissioner or the Code but of ‘unscrupulous purveyors of tax shelters who, having sold [them] scam investments . . . , failed to follow procedures and disappeared with the funds.’” T. C. Memo. 2022-79, at p. 6.

Trev’s trusty attorney keeps arguing underlying liability, but that’s a non-starter. The TMP signed off on everything, hence game over.

Would an action against the TMP (assuming see above) in State Court or USDC survive SOL? If it could, could it succeed on the merits? And if it could do both, are there any getatable assets? Trev and trusty attorney may wish to ponder.

Meantime, all you highrollers in those GA boondock conservation easement syndicates, keep a close watch on your TMPs. If they look like heading for the airport and the flight to Lisbon with Letters of Transit in their hands, you know what to do. And tell ’em Bogie sent ya.

I’ve been on about the need for a form of Entry of Appearance for law firms in Tax Court for what seems like decades. There have been law firms in these United States since at least 1792; maybe even earlier. The complexities of modern practice virtually mandate a team approach. The computer has complicated rather than simplified; the “paperless office” may have arrived, but the forty million page document file came with it.

Enough. Another eminently sensible suggestion remains unheeded.

Here’s Ch J Kathleen (“TBS = The Big Shillelagh”) Kerrigan lecturing an associate in a well-known and often-cited law firm, which maintains a constant presence in Tax. Court.

“…the petition to commence this case was electronically filed. When a petition is electronically filed with the Court, the combination of the username and password of the individual eFiling the petition serves as the signature of the individual filing the petition. If the petition is being filed by multiple practitioners, the Petition should be signed by the additional practitioners. However, review shows that the petition bears a stylized signature of counsel JD. The Tax Court’s procedures require at a minimum a digital image of an actual signature or use of an authentication program. See DAWSON User Guides on the Court’s website, http://www.ustaxcourt.gov. If petitioners’ counsel wishes to be recognized as counsel of record in this case, it will be necessary at this juncture to electronically file an entries of appearance on behalf of petitioners in accordance with Rule 24 Tax Court Rules of Practice and Procedure. Petitioners’ counsel may obtain an Entry of Appearance form under “Case Related Forms” on the Tax Court’s website at http://www.ustaxcourt.gov/case_related_forms.html.” Orsder, at p. 1. (Name omitted).

This ridiculous cybernetic hopscotch is not to be found in any other court of which I am aware.

If JD is admitted to US Tax Court, and if JD is an associate attorney in the well-known law firm sometimes hereinbefore known as and by the title and style of The Jersey Boys, “would it spoil  some vast eternal plan” to have a simple law firm notice of appearance, with a lead attorney designated for all communication and an easy form for adding or removing attorneys who join or leave the firm?

Btw, the order is Edward Khalily Charitable Remainder UniTrust, Edward Khalily, Trustee, Docket No. 15402-22, filed 7/15/22.