Attorney-at-Law

Archive for September, 2022|Monthly archive page

THE RULE IN SHELLEY’S CASE

In Uncategorized on 09/23/2022 at 16:54

Although the famous law school maxim, which baffled me in my salad days On The Hill Far Above, was a primordial estate tax dodge, today I pick up on a frivolite, Shelley Tempelman, Docket No. 32737-21L, filed 9/23/22.

Shelley tries the Form 4852 renege on her W-2s via an amended return. This earns her a warning of an impending Section 6702 $5K chop, to which she replies with a photocopy of the amended return, earning a second Section 6702. IRS drops the second after the CDP hearing, per Kestin; see my blogpost “From the Serious to the Frivolous,” 8/29/19.

Judge Courtney D (“CD”) Jones spends a lot of time on the lead-in to Shelley’s CDP, but finds that IRS satisfied the Section 6751(b) Boss Hossery before telling Shelley she was under the gun for the Section 6702 chops. There’s discussion of the short-circuitry by and among 2 Cir, 9 Cir, and 11 Cir.

“We recognize that there is a split between the circuits as to whether written supervisory approval must be obtained before the IRS issues a formal communication of the penalty such as a notice of deficiency, Chai v. Commissioner, 851 F. 3d 190, 221 (2nd Cir. 2017), or merely before the assessment, Laidlaw’s Harley Davidson Sales, Inc. v. Commissioner, 29 F.4th 1066, 1071 (9th Cir.  2022); Kroner v. Commissioner, No. 20-13902, 2020 WL 414034, at *12-13 (11th Cir. Sep. 13, 2022),  rev’g and remanding T.C. Memo. 2020-73. The Third Circuit does not appear to have taken a position on the issue. See United States v. Komlo, 802. Fed. Appx. 676 (3d. Cir. Jan. 29, 2020); But Cf. United States v. Weiner, No. 18CV16034, 2020 WL 4596926 (D. N.J. Aug. 11, 2020). Accordingly, we follow this Court’s approach in the instant case. See, e.g., Graev v. Commissioner, 149 T.C. 485 (2017), supplementing 147 T.C. 460 (2016).” Order, at p. 9, footnote 13.

Taishoff says 2 Cir got it right, and 9 Cir and 11 Cir misunderstand what “assessment” means in this context.

Judge CD Jones sorts out Shelley’s conflation of item 44 in Notice 2020-33 with item 44 in IRS’ electronic TXMODA system. “Mrs. Tempelman argues at length that Form 8278 and her TXMODA data shows that the frivolous return penalty was assessed against her using civil penalty argument 44, as listed in Notice 2010-33. Supra, p. 3. However, the internal Form 8278 and the internal electronic data (e.g., TXMODA data) used by the IRS do not reference public Notice 2010-33, rather they reference Internal Revenue Manual (IRM) Exhibit 25.25.10-1, which is the IRS’ own internal listing of the same designated frivolous positions found in Notice 2010-33. IRM argument code 44 applies when a taxpayer files “zero wages on a substitute form.” Mrs. Tempelman attached substitute Form 4852 to her amended return, and the form shows $0 of wages. IRM argument code 44 provides for the same substantive basis as listed frivolous position 1(e) in Notice 2010-33, and how the IRS chooses to internally refer to the designation is of no consequence.” Order, at p. 8 (Footnotes and citation omitted).

But at close of play, Judge CD Jones has the rule in this Shelley’s case. Play games, get chopped.

“…we have considerable latitude in determining when, and in what amount, to impose a penalty under section 6673 because these penalties serve to punish and deter the abuse of judicial resources. “The purpose of section 6673 is to compel taxpayers to think and to conform their conduct to settled principles before they file returns and litigate.’ Takaba v. Commissioner, 119 T.C. 285, 295 (2002).

“Though we will not impose a penalty under section 6673 upon Mrs. Tempelman in the instant case, we take this opportunity to sternly warn her that penalties, up to a maximum of $25,000, are very likely to be imposed upon her in any future cases before this Court if she advances similarly frivolous arguments again.” Order, at p. 10. (Citation omitted.)

NO IMMUNIZATIONS

In Uncategorized on 09/22/2022 at 15:39

No, not a new variant of COVID. Today Judge Albert G (“Scholar Al”) Lauber demonstrates yet again the fetters of brass which bind Tax Court in Oconee Landing Property, LLC, Oconee Landing Investors, LLC, Tax Matters Partner, filed 9/22/22.

In our last episode, IRS wanted to depose two non-parties; see my blogpost “Why He Canceled Tuesday,” 10/12/21. There followed the abortive waddle through the Fifth Amendment, more particularly bounded and described in my blogpost “45 and the Fifth Amendment,” 8/16/22, wherein the two recalcitrants were handed 45 (count ’em, 45) written interrogatories in lieu of another sit-down.

But their ever-inventive counsel, the Great Chieftain of the Jersey Boys, tries yet again to snatch transactional immunity from the brazen fetters aforesaid. Frantic Frank Agostino, Esq., first asked IRS’ counsel to dish whether the twain were subjects or targets, whether IRS would seek to have them immunized, or stip to immunity. Remember, when Judge Scholar Al went with the 45 questions, he directed that if Mr. Agostino raised any Fifth Amendment objections, he “…would need to supply a detailed explanation laying out the ground for the claim, cognizant that the Fifth Amendment only protects against real dangers, and not remote or speculative possibilities. ” Order, at p. 2.

IRS gave Frank the right-about-face and served the interrogatories. So Frank moves for Judge Scholar Al to do the honors.

I give Frank every credit. His never-say-die approach, his inexhaustible fount of improvisation, his willingness to do the Don Quixote, his endless pro bono efforts, earn him an honored place among practitioners.

But Judge Scholar Al is implacable.

“It is well established that this Court lacks jurisdiction to grant criminal immunity to a witness who may be called to testify before the Tax Court. This power resides solely with the U.S. District Courts and only upon the request of the U.S.  Attorney for the applicable district. 18 U.S.C. §§6001-6003; see, e.g., Coulter v. Commissioner, 82 T.C. 580, 583 (1984) (finding that ‘the Tax Court is not authorized to grant immunity’ to a taxpayer); Hartman v. Commissioner, 65 T.C. 542, 547 (1975) (denying a taxpayer’s request for immunity ‘since jurisdiction to take such action is vested exclusively in the United States District Courts, and then only upon application of a United States Attorney’); Reynolds v. Commissioner, T.C. Memo. 1981-364, 42 T.C.M. (CCH) 395, 397 (holding that a taxpayer’s request that we grant him immunity ‘is spurious since jurisdiction to take such action is vested exclusively in the U.S. District Courts, and then only upon application of a U.S. Attorney’). It is equally well established that this Court lacks jurisdiction to compel the IRS to seek an order of immunity for a witness. See Hartman, 65 T.C. at 547–48; Hershberger v. Commissioner, T.C. Memo. 1979-522 (finding that a taxpayer’s request that the Tax Court order the IRS to grant him transactional immunity was baseless). This Court has no  ‘inherent authority’ to confer immunity on a witness. Such discretionary power is statutorily reserved to the Executive Branch and is available to neither the Tax Court nor U.S. district courts (absent an application from a U.S. Attorney). See 18 U.S.C. §§ 6001-6005.” Order, at p. 2.

In the alternative, Frank asks that the duo be held to be “qualified appraisers” who prepared “qualified appraisals,” but those are fact questions for trial.

I don’t know if Frank is a New Jersey Devils fan, but he sure is a follower of the hockey players’ mantra: “Shoot the puck, it might go in.”

YOUR S IS ON ITS OWN

In Uncategorized on 09/21/2022 at 16:15

That’s the lesson Judge Travis A (“Tag”) Greaves has for the eight (count ’em, eight) family-farmer petitioners in John E. Vorreyer and Melissa D. Vorreyer, et al., T. C. Memo. 2022-97, filed 9/21/22. They ran the farm in a bunch entities (hi, Judge Holmes), but we’re concerned here with a Sub S Corp and a general partnership, in which all petitioners had various interests.

But Chris & John were the only shareholders in the SD Corp who ponied up $108K in property taxes on said farm, and $20K for the back utilities bill in Year One. They claim these were contributions to capital, wherefore passed through as deductions to Chris & John on their personal 1040s.

No, says Judge Tag Greaves.

“A taxpayer cannot deduct expenses paid on behalf of another taxpayer. This long-established principle extends to corporations as a corporation’s business is distinct from its shareholders. Thus, a shareholder may not deduct as personal expenses those expenses that further the business of the corporation.” T. C. Memo. 2022-97, at p. 4 (Citations omitted).

Chris & John don’t claim the “further the corporate business” exception, but Taishoff says it’s worth a try. If the county forecloses for back taxes, there goes the farm.

Judge Tag Greaves says a Sub S Corp is no different than a C Corp when it comes to shareholders paying corporate expenses. The S Corp is on its own.

“Although an S corporation’s income or loss eventually flows through to the shareholders, a corporation ‘remains a separate taxable entity [from its shareholders] regardless of whether it is a subchapter S corporation or a subchapter C corporation.’ Russell v. Commissioner, T.C. Memo. 1989-207, 1989 Tax Ct. Memo LEXIS 207, at *10. This means that the business expenses of an S corporation cannot be disregarded at the corporate level for section 162 purposes. See id.  Consequently, the income reaped by an S corporation must be matched at the corporate level against the S corporation’s expenses that were incurred to produce that income before the net income or loss amount can flow through to the shareholders. See § 1366(a)(2) (generally defining the income or loss that flows through to an S corporation shareholder as the S corporation’s ‘gross income minus the deductions allowed to the [S] corporation’ (emphasis added)). This matching is accomplished by reporting such items on an S corporation’s corporate return: Form 1120S.” T. C. Memo. 2022-97, at p. 5.

In Year Two, the partnership bought two “semi-trucks” for $70K. I take that means the motive power component of an 18-wheeler. They wrote off the expense on their Sched F (farming) as repairs and maintenance, but everybody agrees it wasn’t. The two vehicles would have qualified for a Section 179 deduction as business property. But the partnership never amended to take the deduction, and the time to amend has run out.

Judge Tag Graves can’t help.

“Petitioners… request that this Court make the election retroactively on [partnership]’s behalf on the basis of principles of equity. We decline to do so as [partnership]’s circumstances are of its own making.” T. C. Memo. 2022-97, at p. 7.

Remember, pore l’il ol’ Tax Court has no equitable powers.

But check out footnote 10 at page 7. Judge, didn’t you mean that “Respondent does not dispute that the truck expenses are qualifying property, e.g., that the semi-trucks constitute qualifying property whose costs are otherwise eligible for deduction” ?

“I COULD WRITE A BOOK” – PART DEUX

In Uncategorized on 09/20/2022 at 09:51

Again the Rodgers and Hart classic comes to mind as I peruse Judge Albert G (“Scholar Al”) Lauber’s order in  Oconee Landing Property, LLC, Oconee Landing Investors, LLC,  Tax Matters Partner, Docket No. 11814-19, filed 9/20/22.

Judge Scholar Al reviews two (count ’em, two) branches of the hearsay objection, therein, the business record custodian declaration, and the opposing party statement exceptions (what we used to call “admissions against interest”; but I’m showing my age).

Indeed, I (and doubtless all practitioners) could write a book about hearsay and its hydra-like branches. Judge Scholar Al’s book, if he wrote one, would be a classic.

In any case, I direct the attention of candidates for the next Tax Court Admissions Examination to Judge Scholar Al’s order today.

First, the custodian’s declaration.

“Respondent attached to his Motion in Limine the declaration of Christopher T. Graham, Records Custodian of PCLG. Mr. Graham certifies, under penalties of perjury, that: (1) the four documents were prepared at or near the time of the occurrence of the matters set forth therein; (2) the records were kept in the course of PCLG’s regularly conducted business activity; and (3) the records were made by PCLG as part of its regular business practice.

“Mr. Graham’s declaration meets the requirements of FRE 803(6)(A)-(C). As a ‘certification of the custodian,’ Mr. Graham’s declaration complies with FRE 902(11). See FRE 803(6)(D). And petitioner has offered no specific reasons why the source of the documents or their method or circumstances of preparation are untrustworthy. See FRE 803(6)(E). Because the four letters meet the relevant criteria, they qualify for the business records exception. See FRE 803(6).” Order, at p. 2.

Second, statements offered against an opposing party if the statement was made by the party in their individual capacity. As the Oconees are a TEFRA leftover, Judge Scholar Al has to do a deepdive into the identity of each individual to ascertain that each is a party because a partner, or one whose individual tax picture changes because of gain or loss from the partnership. See Order, footnote 2 at p. 3, detailing how TEFRA roped in indirect partners.

An engagement letter goes in as a contract, an independent act with legal consequences.

Relevance gets a mention, but FRE 401 casts so wide a net that Judge Scholar Al finds it easy to let stuff in.

THE CDP IS THE TRIAL

In Uncategorized on 09/19/2022 at 18:07

William Goddard, T. C. Memo. 2022-96, filed 9/19/22, and the law firm which he founded, didn’t realize that the CDP is the trial; that every argument you have has to be raised; and that the administrative record has to be built and probed for adequacy.

You can read for yourself Judge Elizabeth A. (“Tex”) Copeland’s deconstruction of Goddard’s and the law firm’s attempts to fight the liability issue in Tax Court. But when it’s all been sifted, Goddard and the law firm participated in the process. And when an AO noted that cases like theirs settled for 50% because of fading memories, and that necessary information was missing from the Exam file in their cases, they did nothing. T. C. Memo. 2022-96, at pp. 11-12.

The issue in this case was the old Section 6707 chops for nonregistration of potentially abusive tax shelters, subsequently repealed (or maybe amended out of existence). See T. C. Memo. 2022-96, at pp. 31-32.

SOL founders on nonfiling of the now-obsolete Form 8264. No filing, no SOL. The 28 USC § 2462 catch-all five-year SOL doesn’t apply when there’s no filing.

There will be more, though. ” We will hold additional proceedings to consider Mr. Goddard’s and [law firm]’s remaining issues raised in their Petitions, namely additional verification issues, the laches defense, the rejection of LGD’s offer-in-compromise, and whether the SOs balanced the need for collection actions with the legitimate concern that those actions be no more intrusive than necessary.” T. C. Memo. 2022-96, at p. 32.

Judge Tex Copeland split this case in two, as if Goddard and the law firm won on any of the issues they raised in this half, that would have ended the case. They didn’t, so it didn’t.

TAKING A POT SHOT

In Uncategorized on 09/16/2022 at 17:54

Judge Elizabeth A. (“Tex”) Copeland rejects the inventive pleadings of the trusty attorney for Jo Ann Sharp & Randall W. Sharp, Docket No. 7196-19, filed 9/16/22.  I’ll give said trusty attorney a Taishoff “Good Try,” despite Judge Tex Copeland’s short shrift.

“…Petitioners assert that the ‘federal government’s current regulation of intrastate production and sales of cannabis is no longer necessary and proper under the Commerce Clause.’ Although Petitioners recognize that the Supreme Court ruled to the contrary in Gonzales v. Raich, 545 U.S. 1 (2005), they contend that the reasoning in Raich has been hollowed out by factual and legal developments, including the proliferation of state-sanctioned marijuana businesses (introducing new federalism questions), subsequent Commerce Clause jurisprudence, and the statement of Justice Thomas in Standing Akimbo, LLC v. United States, 141 S. Ct. 2236 (2021), where the Supreme Court declined to review the Court of Appeals for the Tenth Circuit’s decision in the case below.” Order, at p. 1.

But the Supremes have said that, when inferior courts seem to have questioned the rationale upon which a Supreme Court decision rests, a court now presented with the issue where the precedent controls should follow that precedent, leaving it to the Supremes to overrule their former decisions.

As we know, the Supremes are nowise loath to overrule even long-standing precedents. As a betting man, however, I doubt they’ll overrule Raich.

So Judge Tex Copeland denies petitioners’ motion for judgment on the pleadings, and calls for a phoneathon.

But let not said trusty attorney be discouraged; he’s probably got his brief on appeal ready.

THE SHORTEST WAY WITH DISSENTERS

In Uncategorized on 09/15/2022 at 15:54

I don’t know if Tax Court Judges or STJs wish they could do a Defoe when confronted with an IRS summary J motion from a protester CDP. STJ Diana L (“The Taxpayer’s Friend”) Leyden expends seven (count ’em, seven) pages of “somber reasoning and copious citation of precedent” to see off John Evangelista Trapasso, Docket No. 7739-20SL, filed 9/15/22. While a number of paragraphs must have been cut-and-pastes, there’s enough hand-tailoring to show STJ Di read the file. I would expect nothing less.

But I must again lament the waste of scarce judicial resources on a Form 4852 attempted rewrite of a W-2. Filing a baseless Form 4852 rewrite should be good for an automatic $5K chop, although it isn’t.

STJ Di does show John Evangelista a Section 6673 yellow card.

SWISS HISTORY

In Uncategorized on 09/14/2022 at 16:06

Today Judge Ronald L. (“Ingenuity”) Buch gives us a history of the Swiss investment (bank) account, the Section 1296 Passive Foreign Investment Company maneuver, in Estate of Brett L. Clemons, Sr., Deceased, Brett Lee Clemons, Jr., Personal Representative, T.C. Memo. 2022-95, filed 9/14/22.

Brett Sr. decided to stash cash away from about-to-be-ex Mrs. Brett Sr., by parking same with UBS, who0 ran same through an investment account, which the Swiss managed to Brett Sr.’s complete satisfaction, which he acknowledged in writing to the Swiss, but never to IRS. When the Federales finally blew the doors off the Swiss stashery, Brett Sr tried the Swiss branch of a German bank, until finally an IRS subpoena pries from Brett Sr’s attorney enough info to nail Brett Sr for Section 6663 fraud chops on his deficiencies, plus add-ons for late filing.

Of course, under the current FBAR offshore show-and-tell regime, with massive chops for nondisclosure of foreign accounts, this sort of dodging has lost a lot of adherents.

As the old stock exchange ads used to say, this notice appears as a matter of record.

STAMPING AWAY

In Uncategorized on 09/13/2022 at 16:29

Ch J Kathleen (“TBS = The Big Shillelagh”) Kerrigan has been wielding a big “DENIED” stamp lately as the boondockery conservation easements seek the Hewitt refuge. But Judge Albert G (“Scholar Al”) Lauber is nowise loath to join in.

Today, the target is Long Leaf Property Holdings, LLC, Long Leaf Manager, LLC, Tax Matters Partner, Docket No. 11982-16, filed 9/13/22.

The Longleafs are aiming at the two-week-old order I blogged on 8/31/22, in my blogpost “Line Up And Wait.

The Longleafs get the “DENIED” stamp.

Reminds me of the flailing datestampers at the Glasshouse.

A correspondent asks when will we get to the real issue: valuation.

I can only quote Judge Holmes’ dissent in Oakbrook: “Today we uphold a regulation that will invalidate who knows how many other conservation-easement deductions, and will almost certainly lead to appeals in multiple circuits. If the Commissioner continues to seek gross-misvaluation penalties, we will also have to figure out in a great many cases how to determine which portion of an underpayment is attributable to a valuation misstatement and which is due to a failure of the conservation easement altogether, when it might justly be said to be attributable to both. See PBBM-Rose Hill, 900 F.3d at 214.

“I fear that our efforts to clear cut and brush hog our way out of the volume of conservation-easement cases we have to deal with has left us a field far stumpier than when we began.”

GRAND JURY TESTIMONY

In Uncategorized on 09/13/2022 at 16:06

We’ve been hearing a lot about grand jury subpoenas and testimony lately, so in case some of the testimony may spill over into the realm of taxes, I’ll extract from Judge James S (“Big Jim”) Halpern’s discussion of what happens when the grand jury meets Tax Court, in Alan Brian Fabian, T. C. Memo. 2022-94, filed 9/13/22.

Al’s grand jury tour begins with his phony sale-and-leaseback operation and its unraveling in Bankruptcy Court. While Al’s C Corp was in Bankruptcy Court, the FBI got involved and called in IRS. IRS Special Agent F (name omitted) investigated, and suggested nailing Alan for money laundering and a Section 7206(1) filing false returns for a couple years (hi, Judge Holmes).

Alan cops to mail fraud and filing false returns in USDCDMD. Alan’s plea bargain, to which IRS is explicitly not a party, says IRS can pursue whatever remedies it may have. IRS does, and SA F’s pictures, descriptions, and accounts are front-and-center. Alan asserts that this is grand jury testimony, and cannot be revealed.

“…the district court issued its order granting the United States’ motion to disclose grand jury material to the IRS. The court made its order pursuant to Rule 6(e)(3)(E)(i) of the Federal Rules of Criminal Procedure (District Court’s Rule 6(e) order), finding that there was a particularized need to grant limited disclosure of grand jury material in connection with another judicial proceeding, viz, this case,  i.e., Fabian v. Commissioner, dkt. No. 25589-14. In pertinent part, the district court ordered that grand jury material in petitioner’s criminal case ‘shall be disclosed’ to the Tax Court, limited, however, to the disclosure of ‘information and records related to the resolution of the alleged tax deficiencies and penalties for the tax years 2002, 2003, and 2004.’” T. C. Memo. 2022-94, at pp. 17-18.

Alan’s argument that SA F wasn’t expressly authorized to disclose is a nonstarter.

“The consequence of the District Court’s Rule 6(e) order was to authorize a disclosure of a grand jury matter. The order did not specify a particular actor authorized to make the disclosure but simply ordered that the referenced grand jury material in petitioner’s case ‘shall be disclosed.’ Implicit in that order is that someone otherwise prohibited from disclosing the material may, with impunity,  disclose it to one of the permitted recipients, i.e., to the Tax Court. SA F may well have been a member of the class of persons otherwise prohibited from disclosing the material, but the order freed her, as it did everyone in that class, to disclose the material within the parameters set by the order. To the extent SA F’s testimony touched on grand jury material in petitioner’s criminal case, we see no violation of the grand jury secrecy rule established by Rule 6(e)(2)(A)  and (B) of the Federal Rules of Criminal Procedure.” T. C. Memo. 2022-94, at pp. 24-25.

Hint to the criminal defense bar: Don’t forget IRS when you settle your case.