Attorney-at-Law

Archive for November, 2022|Monthly archive page

BILLY OCCAM, THOU SHOULD’ST BE LIVING AT THIS HOUR

In Uncategorized on 11/29/2022 at 18:06

Entia non sunt multiplicanda sine necessitate” or “keep it simple, stupid” is a good rule to follow, especially when creating business entities. Today’s Tax Court release features two (count ’em, two) such.

First up, Heather P. Dunn and Edison Dunn, T. C. Memo. 2022-112, filed 11/29/22. Heather and Edison each separately run one real estate operation, and also formed an LLC, which they owned together, to acquire and manage another. But they both have full-time non-real estate jobs, and dodgy time logs for their material participation in the real estate. The LLC had first an on-site agent (Heather and Ed lived 150 miles away) and then a managing agency. What they didn’t have was a Section 469(c)(7)(A) coverall, grouping all their real estate into one activity. This might have saved their real estate pro status. Heather tried to write off her individually owned automobile on the LLC’s return; “Petitioners failed to explain why [LLC] should be entitled to deductions for property it did not own.” T. C. Memo. 2022-112, at p.4.

It doesn’t get better.

Next, Intan N. Ismail & Mohd Razi Abd Rahim, T. C. Memo. 2022-113, filed 11/29/22, claim passthrough deductions from Daddy’s RNR Sendirian Berhad, which is Malaysian for LLC. Except they never showed they owned any interest in said LLC, until in response to an IRS challenge, they produced a “share-swap” agreement that said that In & Mohd would acquire the shares some time after the years at issue. And they backed that up with more paper.

Judge Paris: “During the course of the litigation, Dr. Rahim provided a revised directors’ report for fiscal [Year One] that listed him as owning half the shares of RNR and a directors’ report for the previous fiscal year purporting to reflect his purchase of 250,000 shares of RNR. Given Dr. Rahim’s easy access to the directors’ reports, and ability to influence the contents thereof, and without other evidence to support his purported ownership of RNR, we do not find the revised directors’ report to be credible.

“Neither have petitioners provided any evidence that Dr. Rahim and Mr. Nordin exercised the share swap agreement before the relinquishment date set forth by the express terms of the contract.” T. C. Memo. 2022-113, at p. 8.

And RNR never filed Form 8832, Entity Classification Election, the famous “check-the-box”, electing passthrough status, or Form 8858, Information Return of U.S. Persons With Respect to Foreign Disregarded Entities (FDEs) and Foreign Branches (FBs). In and Mohd listed RNR’s address as Overland Park, KS, and not Malaysia, on the Schedule Cs they filed whereon they reported the losses from RNR.

Watch those entia.

Advertisement

GUSTAFSON THE MAGNIFICENT

In Uncategorized on 11/29/2022 at 17:21

“Bringing Some Discipline”

Boechler, P.C., 142 S. Ct. 1493 (2022), you’ll remember, grafted equitable tolling onto CDP petitions. Now Hallmark Research Collective, 159 T. C. 6, filed 11/29/22, whose motion to vacate the one-day-late based toss of their petition from a SNOD then-Ch J Maurice B (“Mighty Mo”) Foley bucked over to Judge David Gustafson, get their 57 (count ’em, 57) page response.

And it’s a beauty.

The Supremes said equitable tolling was non-jurisdictional in Section 6330 cases, as there was no long line of settled law on CDP petitions. Quite right, says Judge Gustafson; Congress first added CDP petitions to Tax Court jurisprudence in 1998; only 24 (count ’em, 24) years ago. By Tax Court standards, that’s last week.

But the petitioning a SNOD goes back to 1924. For a blow-by-blow enumeration, see 159 T. C. 6, at pp.43-57. Judges Gustafson catalogues every amendment and enactment of Section 6213 and its ancestors. Nowhere was it ever suggested that the 90-day cutoff was anything but jurisdictional.

Section 7459(d) gets a play. Barring Tax Court from entering decision in the amount sought by IRS when a petition is tossed for want of jurisdiction prevents both an IRS walkover for one day late petition, and a petitioner from withdrawing a timely petition, thus preventing Tax Court from entering decision in the amount sought.

The Hallmarks try claiming that Section 6214, and not Section 6213 confers jurisdiction. Judge Gustafson says no,. all Section 6214 does is prevent a multiplicity of proceedings, by letting IRS assert a greater deficiency than stated in the SNOD, rather than serving a second SNOD.

You have to read this opinion. If you want someone to dam the silt, buck the case over to Judge David Gustafson.

MR. REILLY’S CONUNDRUM

In Uncategorized on 11/28/2022 at 16:39

As there is neither opinion nor order from United States Tax Court worthy of comment today, I withdraw my pass from a request from my colleague Peter Reilly, CPA. Mr. Reilly, as always manifests “the cool clear eyes of a seeker of wisdom and truth,” as Mr. Frank Loesser put it. During this Thanksgiving weekend, Mr. Reilly suggested that it would “(B)e great if you give the Taishoff treatment to that opinion.  It has a lot of interesting elements to it.”

“That opinion” is, of course, the hallowed Cohan v. Com’r, 11 B.T.A. 743 (1928), re’d in part 39 F. 2d 540 (2 Cir, 1930).. George M., theatrical legend whose graven image overlooks the cut-rate ticket outlet at 48th & Broadway on this Minor Outlying Island off the Coast of North America, starred in this epic. Judge Learned Hand’s famous suggestion, which later grew into a mandate less variable than the laws of the Medes and the Persians, in Cohan v. Com’r, 39 F. 2d 540 (2 Cir, 1930), at pp. 543-544 is, my sources tell me, one of the ten most-cited decisions.

“Absolute certainty in such matters is usually impossible and is not necessary; the Board should make as close an approximation as it can, bearing heavily if it chooses upon the taxpayer whose inexactitude is of his own making.”

OK, Mr. Reilly, my unhallowed hands shall now disturb the sacred Sinaiatical pronouncement; the country’s probably done for anyway.

Judge Arundell at the Board (of Tax Appeals, Tax Court’s forebear) found some seven (count ’em, seven) issues upon which to rule. T&E, advertising, and excise taxes, which George M.’s inexactitude gave rise to the famous formula hereinabove set forth, is only one.

There was the famous family partnership between George and Mom, which both Judges Arundell and Hand blew off as an assignment of income. George’s attempt to characterize a gift of the cash generated from certain royalties as an assignment of the right to receive the royalties failed at least as to a one-third share.

George dropped some annuities, and the losses he took survived. George’s short year manoeuver worked. A loan to George M’s former business partner was just that, and not deductible.

But what about the remand? What did the Board allow George M. on the T&E, advertising and excise taxes? Mr. Reilly would like to know. But Google is silent.

The answer lies, I suspect, in the archives of the old B.T.A. But how to access them? Can the Tax Court Copycats work their three-buck magic?

Suggestions welcome.

THE HIGH BAR

In Uncategorized on 11/23/2022 at 15:49

I’ve probably discomposed as many electrons on the differences between discovery in United States Tax Court and discovery in the Article III courts with which most of my readers are familiar than on any other topic. And nowhere is the difference so great as in nonconsensual depositions. Rule 74(c) sets a very high bar for one seeking same.

Today, in Lakepont Land II, LLC, Lakepoint Land Group, LLC,  Tax Matters Partner, Docket No. 13925-17, filed 11/23/22, Judge Christian N. (“Speedy”) Weiler provides another vestpocket guide to the perplexed. Lakepoint wants to depose a couple IRS employees (hi, Judge Holmes) about whether they were offside on the Section 6751(b) Boss Hoss signoff. IRS wants summary J, Lakepoint wants obviously to stir up some questions of fact.

“Nonconsensual depositions are an extraordinary method of discovery that can only be taken pursuant to an order from our Court. These depositions are available only where a party or nonparty witness can give testimony that is discoverable within the meaning of Rule 70(b) and where such testimony practicably cannot be obtained through informal consultation or communication under Rule 70(a)(1), interrogatories under Rule 71, requests for production of documents under Rule 72, or consensual depositions under Rule 74(b). The decision to require an individual to submit to a nonconsensual discovery deposition is a matter that is solely within the discretion of the presiding judge. In addition to the essential criteria that the moving party must show under Rule 74(c), the Court weighs various factors to determine whether a particular case warrants an extraordinary discovery method. Order at pp. 2-3. (Citation omitted).

The factors are whether the movant has established a specific and compelling basis for the deposition; whether the movant intends the deposition to serve as more than a substitute for cross-examination at trial; and whether the movant has had prior opportunities to obtain the desired information or could obtain it through other means or from another source.

Judge Speedy Weiler seems to think that Lakepoint hasn’t tried every other door; Taishoff thinks that maybe IRS has been stonewalling a wee bit.

Judge Speedy Weiler says this is an attempt to substitute the depositions for cross-examination on the trial. Taishoff says if IRS gets summary J on the chops, what’s to try?

Depositions, consensual or not, are SOP in most courts. Yes, I know Our Fair State’s Civil Practice Law & Rules Section 408; a former associate in a firm in which I was a partner got gigged for hitting this speedbump in a special proceeding. But that’s strictly a one-off.

I know the rationale for Rule 74(c): depositions are expensive, the overwhelming number of Tax Court petitioners are self-represented, and most of their cases are indocumentados. And the defier-protesters would use depositions only to harass IRS personnel.

But the one-size-fits-all approach doesn’t fit all. Big ticket cases with heavy-duty counsel for both sides should follow FRCP 30.

BONUS DAY

In Uncategorized on 11/23/2022 at 10:17

This from the United States Tax Court website: “In addition to observing the Thanksgiving holiday on Thursday, November 24, 2022, the Court will be closed on Friday, November 25, 2022. DAWSON will remain available for electronic access and electronic filing.”

No rest for the electrons and microchips, as the Glasshouse Gang chows down and then heads off to the Black Friday sales.

I will, of course, stand mute throughout.

Best holiday wishes to all.

“I’VE BEEN WORKIN’ ON THE RAILROAD” – PART DEUX

In Uncategorized on 11/22/2022 at 13:22

Yesterday was a busy day, so busy I missed blogging two (count ’em, two) Tax Court opinions. Here they are.

First, Elijah Servance and Corliss Servance, T. C. Sum. Op. 2022-23, filed 11/21/22. Elijah was workin’ on the railroad, our local commuterhauler MetroNorth. But Elijah fell ill and retired, after 33 years of faithful service. He was eligible for and received tier 1 railroad retirement benefits, which MetroNorth reported but Elijah didn’t.

It’s the old Reg. Section 1.104-1(b) physical injury. Yes, no doubt Elijah was disabled by illness; but the illness wasn’t job-related. The tier 1s weren’t in the nature of workers’ comp.

I note Judge Elizabeth A. (“Tex”) Copeland occasionally uses the correct formula “workers’ compensation,” rather than the obsolete “workmens’ compensation” as in the Reg. Time for Treasury to move their nomenclature into the Twentieth Century, if not the Twenty-First.

Elijah loses, but IRS also loses. The SNOD claims Elijah got $4K in “wages” from Hartford Insurance. Elijah and Corliss swear they didn’t. They did get some disability insurance payments from the Hartford in year at issue, but paid it back same year and introduces an e-mail chain to prove it. IRS objects as hearsay, but this case is a small-claimer, so it goes in.

And all IRS has for the “wages” is the Michael Corleone gambit.

“The notice of deficiency issued to the Servances purports that Hartford submitted a Form W–2 to the IRS reporting a payment of $4,406 to Mr. Servance in [year at issue]. However, respondent provided to this Court neither a copy of that Form W–2 nor any account transcripts or other evidence to that effect. And even if respondent had provided a copy of the Form W–2, that alone would not have satisfied respondent’s threshold burden regarding unreported income. Generally, when a third-party document simply contradicts (without any supporting evidence) a taxpayer’s assertion that he did not receive income, that document does not suffice for us to rely on the presumption of correctness normally afforded to a notice of deficiency.” T. C. Sum. Op. 2022-23, at p. 5. (Citation omitted).

And IRS folds the accuracy chops.

Bryant D. Tillman-Kelly and Melanie Tillman-Kelly, T. C. Memo. 2022-111, filed 11/21/22, is another Section 104, but the physical injury element is so attenuated that Judge Patrick J. (“Scholar Pat”) Urda need hardly detain us with “somber reasoning and copious citation of precedent.”

“In short, we return to the plain text of the settlement agreement that the payment was made for ‘alleged non-wage injuries, as non-economic emotional distress damages.’ This text is clear on its face, but even if there were some doubt, the nature of the state court litigation supports the conclusion that the dominant reason for the payment was to compensate for emotional distress and was altogether unrelated to physical injury.” T. C. Memo. 2022-111, at p. 7.

Bryant was a whistleblower who blew on his immediate superior to US Department of Education and his college’s ethics office. These worthies did nothing. His immediate superior, who, far from falling on his knees in abject repentance, made sure Bryant got the reward due the righteous: summary discharge. This resulted in a lawsuit and a $230K settlement of the abovementioned injuries.

Word to blowers: Before you blow, go over with your attorney exactly how to draft the complaint, tracking Section 104. And what to put in the settlement agreement and general release. Ditto.

And word to blowers’ counsel: Get the medical backup. Get all the documents right. Or you will get The Phone Call.

GUIDELINES – REDIVIVUS

In Uncategorized on 11/21/2022 at 15:54

A year ago I pitched the idea of a sliding scale for Section 6673 frivolity chops. See my blogposts “Guidelines,” 8/12/21, and “Guidelines – Part Deux,” 12/22/21. As I pointed out in the latter, “(I)’m slightly surprised that no wit, wag, or wiseacre, mulcted in four figures for frivolity, doesn’t use the newly-enabled Orders search feature on the DAWSON site to accumulate a bunch orders (hi, Judge Holmes), chopping various petitioners in widely varying amounts for the same, or nearly the same, offenses, and thereby claim abuse of discretion, or excessive fines and penalties, when the chop descends upon them.”

I ordinarily wouldn’t waste time on a case like Peter Michael Budde & Kathryn Marie Budde, Docket No. 22954-21, filed 11/21/22. Especially so, because the new, improved, jim-handy (most affirmativo, ya betcha) DAWSON cybernetic schemozzle has it posted in a format whereby I cannot cut-and-paste Judge Nega’s prose from this off-the-bencher.

So read it for yourself, but it’s the old non-Federal income jive that has been exploded more times than I can count. Judge Nega warned Pete & Kat in a pretrial phoneathon that they were frivoling.

Notwithstanding the same, they frivoled on the trial.

So Judge Nega piles on $5K in Section 6673 chops over and above the Section 6651s that the electros chopped them, and the tax on the $142K Kat says isn’t taxable income, but Judge Nega says is.

Are frivolity chops somehow tied into the amount of unreported income? Or income reported but frivolously claimed to be exempt or excludable? Does a warning personally given (say in a phoneathon) but ignored draw a higher penalty than one given in an order in the current or a previous proceeding?

In short, there should be guidelines, lest one of the above-described wits, wags, or wiseacres file a FOIL and collate all the Tax Court opinions and orders to purport to show that the mulct with which he or she was hit was arbitrary and capricious.

I’ll say it again, should any have tuned in late. I’m not proposing legislation. Sentencing guidelines have been both praised and derided, and I’m not weighing in on that argument. Neither do I propose so to handcuff the Tax Court bench as to eliminate their often-commendable attempts to temper the wind to the shorn lamb, or even the Frenched rack of lamb just pulled from the oven.

But the protesters and dodgers are not lacking in imagination.

Ch J Kathleen (“TBS = The Big Shillelagh”) Kerrigan, please note.

THE NEW OWNERSHIP DISCLOSURE FORM?

In Uncategorized on 11/18/2022 at 17:38

No opinions and no orders worth my time or yours today. There is one, Colleen Madison & Brandon Madison, Docket No. 20183-22, filed 11/18/22. Colleen & Brandon want to go remote. Ch J Kathleen (“TBS = The Big Shillelagh”) Kerrigan denies their motion without prejudice, because Colleen & Brandon left blank paragraph 2 of the form of Motion to Proceed Remotely.

Since that paragraph states the reason or reasons why remote proceedings should be granted, it might be a good idea to add to it the words “You Cannot Leave This Space Blank.”

Otherwise, maybe the Motion to Proceed Remotely Form might become the new Ownership Disclosure Statement.

PLUS QUE ÇA CHANGE

In Uncategorized on 11/17/2022 at 16:21

This “representative” retooling that the Bipartisan Budget Act wrought with respect to partnership reporting and taxation has yet to be tested. But as the old TEFRA cases wind their way through the halls at 400 Second Street, NW, I wonder how they would fare under the new régime.

Will that old French cliché first written hereinabove at the head hereof (as my high-priced colleagues would say) hold true yet again? The more change, the more it stays the same.

Here’s the Buckalews yet again, on trial before Judge Christian N. (“Speedy”) Weiler. In today’s episode, we have some evidentiary rulings, Buckelew Farm, LLC f.k.a. Big K Farms LLC, Big K LLC, Tax Matters Partner, Docket No. 14273-17, filed 11/17/22.

The Buckalews object to the 1040 and the Form 8886 Reportable Transaction Disclosure Form, popularly known as the please-audit-me, filed by one of the alleged partners in the Buckalew wagon-circle.

Judge Speedy Weiler lets it in.

“Section 6103(h)(4) permits disclosure of tax returns or return information during a Federal or State judicial or administrative proceeding pertaining to tax administration only if the taxpayer is a party to such proceeding. IRC § 6103(h)(4)(A). In the context of a partnership, Rule 247 provides that a tax matters partner and any partner who satisfies the requirements of Code sections 6226(c) and (d) or 6228(a)(4)  shall be treated as parties in a case before the Tax Court.

“Section 6226(c)(1) provides that when a tax matters partner or partner files a readjustment to the Tax Court, each person who was a partner in such partnership at any time during such year shall be treated as a party to such action. This subsection shall not apply if such a partner does not have an interest in the outcome of the litigation. I.R.C. § 6226(d); see I.R.C. § 6228(a)(4).” Order, at p. 3.

Well, this alleged partner took a $740K charitable deduction on his 1040, which came off the K-1 he got from the Buckalews, and if that goes south, so does alleged partner’s wallet. That’s enough for Judge Speedy Weiler.

But the other three (count ’em, three) alleged partners are partnerships themselves. Though they each filed Forms 8886 for the same year that the one partner did, their filings also covered other years

“What remains unclear is how The Partnerships would be considered parties under 6103(h). The information sought to be disclosed are Forms 8886 from The Partnerships. Presumably, respondent seeks to introduce these Forms 8886 under the theory that section 6103(h)(4) permits the disclosure of any tax returns or return information that pertains to Mr. [alleged partner] as a partner to these partnerships and a party to the matter. However, it is unclear whether these Forms 8886 were included with (or part of) Mr. Adam’s Form 1040, or whether respondent received these forms from The Partnerships. The Court also notes how these Forms 8886 relate to tax years [year at issue and [out years].” Order, at pp. 5-6. (Footnote omitted).

Remember, any person in a reportable transaction has to file their own Form 8886.

In addition, it isn’t clear that The Partnerships are partners in the Buckalews. It might be that the filings by The Partnerships were made “in connection with” determining the tax fallout of the Buckalews’ litigation, thus satisfying the Section 6103(h)(4)(A) test. “In connection with” gets read very broadly.

But the record is too scanty to say, so Judge Speedy Weiler will await the further course of the trial.

As for IRS’ reiteration of the Buckalews’ failing to turn over papers to IRS, that might go to badges of fraud, so that can stay in.

I don’t think the new régime would bring a different result here. But I’m always willing to listen to an argument.

“PLANNING, COMMUNICATION, AND FLEXIBILITY”

In Uncategorized on 11/16/2022 at 14:43

Those were the keywords from today’s Tax Court webinar, the first of perhaps a quarterly series of judges, LITC clinicians, OCC attorneys, and private sector pro bonos discussing matters of interest. Today it was Zoom.

Send your topic suggestions for future webinars to publicaffairs@ustaxcourt.gov, and tell ’em Taishoff sent ya.

The conquest of the Zoomosphere being accomplished, some of its benefits were catalogued. Remote calendar calls let LITCs and calendar call commandos aid taxpayers afar remote from their accustomed venues. Witnesses debarred from travel could appear at trial. Electronic document exchanges obviate the need for 18-wheelers to pull up to the courthouse door with forklifts to unload bales of paper.

The Zooming of Tax Court also gave rise to the circumvention of Rule 147 and the Stealth Subpoena by the subpoena hearing. Looks like the 8/6/20 press release has materially aided the discovery and stipulation processes, and will continue even post-pandemic.

Ch J Kathleen (“TBS = The Big Shillelagh”) Kerrigan noted that now 35% of petitions are e-filed; more e-filing is encouraged. It was not so very long ago that then Ch J Maurice B (“Mighty Mo”) Foley was tossing e-filed petitions even as the pandemic raged and Tax Court itself was closed. I’m glad the someone’s continuous advocacy for e-filing has now paid off.

On the downside, trial tactics needed rethinks. the “Hollywood Squares” format Zoom imposes put some practitioners off: too many places to look, ordinary body movement in a courtroom, unnoticed in the open, are magnified on the small screen. The nervous witness looks evasive; how can counsel correct the impression? Flipping from screened documents to looking at witness and judge takes some learning.

For many self-representeds, the informality of television impairs their cause. They don’t realize that this is a real court. Trying your case while driving around town does not add weight to your arguments.

But, all in all, it’s working.

Edited to add: A Taishoff shout-out to the Villanova LITC boss for pointing out how Tax Court staff worked to calm and encourage camera-shy pro ses, and did a great job keeping the Court going. Well done, staff.