I’m not feeling particularly Auld Lang Syney today, as the Tax Court website is letting 2022 fade away in a flurry of routine orders. But this year was momentous.

The scholarly articles are starting to blossom as the blogosphere and the trade press slice, dice, and digest the Supremes’ effort to bring “discipline” to Tax Court jurisdiction via Boechler, P.C. My sources tell me that I, even I, am mentioned in one dispatch in an academic law review, a sacred grove hitherto unpolluted by my nonwhite shoes. Even though only a footnote, it’s something.

My specific comments need no further airing. I expect the silt stirred by Washington Nine will provide me with blogfodder throughout my declining years, even more prolific than the Great Graev tsunami kicked off by The Jersey Boys.

The supernal intermeddling by jurists afar remote from the actual practice of law and the operational difficulties of the trench warriors who must take what Congress has given them, no matter how far inadequate, and “stoop and build ’em up with wornout tools” is a wonderful aid to the blogger.

While the year just past brought me sorrow at a personal level, it has certainly provided journalistic joy.

Happy New Year to all!

The Incompetence Epidemic

We have just seen a world-class shambolic schemozzle at Southwest Airlines that put the DAWSON debacle in the shade.

I myself, though not a passenger on SWA, have seen a similar. For more than forty years, I have dealt with National Life of Vermont, formerly one of the best-run, old-line, mutual insurance companies, whose ancestry goes back to 1848.

I initiated a transaction on December 1, 2022, which had to be completed by close of business tomorrow.  It will not be completed. The crew at National Life Group (its current iteration, which bears no resemblance to its ancestor) is incapable of issuing a check and getting it to me in New York. I had three times emphasized the importance of the transaction, each time was assured to would be dealt with. I was told National Life Group only mailed checks; they were incapable of sending one by PDS, even after I offered to give them my account to which to bill.

They were twice incapable of issuing a check and mailing it.

My relationship with them will terminate. I strongly suggest anyone who reads this to consider carefully whether they wish to commence or maintain a relationship with an organization that makes the Genius Baristas and 18F look like Einstein meets Hawking.

For once, a whistleblower did get an award, but the Ogden Sunseteers gave with the left hand (information IRS unlikely to find on their own, and provided enough substantiation to nail the targets),so 15% sequestered rewards, but took with the right (held off telling IRS until his fellow fraudsters fired him from the business and shortchanged him with the spoils, so the bad guys got away with some skullduggery).

Felix Luu, 2022 T. C. Memo. 2022-126, filed 12/28/22, was engaged with family in poultry farming and running a supermarket. They were also skimming cash receipts. Felix first filed a Form 211 with Ogden, and later sued in State court when he discovered he was being shortchanged, whereupon the family came clean with IRS, except they were a wee bit parsimonious with the truth. IRS agrees that Felix’s blow netted better than $2 million, and gave him 15% (less sequester).

Felix wants more.

Judge Christian N (“Speedy”) Weiler has this one, and he goes through the entire Whistleblower story, statute and regs. Of course, Van Bemmelen gets heavy play: though both sides move for summary J, there’s no fact-finding as these cases go off on administrative record – abuse of discretion. And Judge Speedy Weiler can’t find any.

First, the good news. ” The record reflects the WBO’s process in determining that two positive factors existed, with the first positive factor being how the information petitioner furnished was previously unknown to the IRS, and second, that the information petitioner furnished identified behavior that the IRS was unlikely to identify or was difficult to detect by reasonable diligence. See Treas. Reg. § 301.7623-4(b)(1)(ii) and (iii).” T. C. Memo. 2022-126, at p. 20.

And though IRS is parsimonious with detail how they gave Felix another 7% for this, Felix didn’t ask for more, and Judge Speedy Weiler can’t find that arbitrary or capricious.

Next, the bad news. Felix delayed blowing for a couple years (hi, Judge Holmes) until the family fired him, and Felix also took some OTB (off the books) cash his own self. So Felix is knocked back down to the base 15%, and Judge Speedy Weiler doesn’t find that arbitrary or capricious either.

Now we all remember the Swiss banker who blew on his old bosses while in the slammer, netting around $46,000 per day while he was in durance vile, on a 26% award.

Maybe what poor ol’ Felix gave IRS was chickenfeed.

Susan P. Kechijian, T. C. Memo. 2022-127, filed 12/28/22, watched from the gallery as both the trial of her late husband’s and her deficiency case was tried and then affirmed on appeal to 4 Cir. But she was represented by the same trusty attorney who represented her late husband in life and thereafter his estate (of which she was co-ex’r). And that’s enough for Judge David Gustafson to find claim preclusion (res judicata) barring Section 6015(g)(2) innocent spousery.

For the backstory, see my blogpost “Unvested Stock, Vested,” 4/24/17.

Susan never raised innocent spousery during the previous litigation. Representation by counsel does show participation, but that’s not enough. There are cases when the non-requesting spouse ran the show and shut out the requesting spouse, despite requesting spouse having the same attorney.

“…here Mr. Kechijian had died a year and a half before the trial in this case. He was not able thereafter to restrict Ms. Kechijian’s pursuit of her interests and, in particular, her pursuit of a claim under section 6015. She was no longer under the shadow of Mr. Kechijian but rather was in a position to control the litigation however she wished—both as a petitioner in her own right and as the co-executor of Mr. Kechijian’s estate.

“As to her co-executor, Mr. H, we assume it is true, as Ms. Kechijian alleges, that only he and not she gave instructions to counsel for the handling of the deficiency case after Mr. Kechijian’s death. However, that was by Ms. Kechijian’s choice.” T. C. Memo. 2022-127, at p. 14. (Name omitted).

Judge Gustafson says this may have been a wise tactical move, but Ms. Kechijian never claimed conflict of interest on her attorney’s part, nor that she was left out of the loop. Besides, says Judge Gustafson, once the late Mr Kechijian was the late Mr Kechijian, her attorney’s loyalty was to her; but Taishoff says, what about the estate? Were there heirs, legatees, or beneficaries whose interests might have been adverse to Ms. Kechijian’s?

Howbeit, Ms. Kechijian could have taken the helm, and chose not to.

No innocent spousery for her.

Takeaway- Attorneys, watch out for conflicts. Interspousals can be dangerous to your professional health.

I take my text from a Christmastide classic: Jeanne S. Leyvraz was dead, to begin with. There is no doubt whatever about that. The docket entries are clear and in due form, attested to by the Ch Clk, Ms Servoss, and the Ch J, the Hon. Kathleen (“TBS = The Big Shillelagh”) Kerrigan. The case is officially stricken from the trial session and officially restored to the general docket.

So it must be understood that Jeanne S. Leyvraz was dead, or there would be nothing remarkable about the case captioned “Estate of Estate of Jeanne S. Leyvraz, Deceased, Patricia Perlman, Executor” Docket No. 32009-21, filed 12/28/22.

It is a law school trusts and estates 101 maxim that a living person has neither estate nor heirs. To have two (count ’em, two) estates is double proof.

Charlie Dickens would definitely approve.

Judge Patrick J. (“Scholar Pat”) Urda needs little of his formidable intellect to deal with this discovery jumpball in Rock Bottom BBS, LLC, Barnett Properties, Tax Matters Partner,  Docket No. 9145-21, filed 12/27/22. The schema intended to accelerate the dispute resolution process by avoiding ambushes and bringing to light essential facts in advance of trial has turned into a prolonged and expensive quarrel. Rarely does it advance a case to trial and resolution. It does weaken and exhaust one’s adversary, assuming, that is, that it doesn’t do the same to one’s client.

It’s yet another GA boondockery, with a $12 million deduction on the line. So the Rock Bottoms send in five (count ’em, five) high-priced attorneys from a well-known tax litigation shop, who moved to compel IRS to respond to the following interrogs.

“…identify the provisions of I.R.C. § 170 and the accompanying regulations that Rock Bottom purportedly failed to satisfy, as well as the legal and factual basis underlying his position.” Order, at p. 2. IRS says that’s a BoP shift, but Judge Scholar Pat says it isn’t, and there’s precedent that says it’s OK, so answer, IRS. “We see no indication that these interrogatories are an impermissible attempt to shift the burden of proof (which, of course, would require a motion and this Court’s agreement that the requirements of Rule 142 or I.R.C. § 7491 have been met). To the contrary, they appear to be run-of-the-mill discovery requests to understand the Commissioner’s current factual and legal positions and, as such, should be answered in the normal course.” Order, at p. 2.

Next, the Rock Bottoms want to know why IRS denies they’re a partnership in the answer. IRS says they lack knowledge, but they’ll consider it as the case goes along, and that’s good enough for Scholar Pat.

“Rock Bottom finally seeks information about the witnesses that the Commissioner plans to call at trial, including the substance of their expected testimony and, for fact witnesses, their knowledge relating to the matters at issue. The Commissioner responds that the request is premature and that he ‘will identify potential witnesses in accordance with the Court’s Rules and Orders in this case.’” Order, at p. 3.

There’s a pre-trial scheduling order in place with deadlines for exchanging these particulars, so this is a nonstarter.

Taishoff says all this stuff should have been dealt with in a Branerton play-nice, rather than wasting time and running the meter. Rule 70(a) says it all: “…the Court expects the parties to attempt to attain the objectives of discovery through informal consultation or communication before utilizing the discovery procedures provided in these Rules.”

Today is a public holiday in the District of Columbia.

No Tax Court opinions or orders.

Generally (love that word!), anonymous petitioners filed redacted versions of their petitions and ancillary documents for public viewing. Rare indeed is the petitioner who is exempted from this requirement. Today, however, Whistleblower 35912-21W, filed 12/23/22, seeks and is granted exemption. Not even a single line will be seen except upon an explicit order of the Court.

Why? As usual, Ch J. Kathleen (“TBS = The Big Shillelagh”) ordered 35912-21W to file the redacted documents at the outset.

“… petitioner filed a Letter Regarding Redacted Documents, in which he indicates that because the unredacted Petition and Motion to Proceed Anonymously were handwritten, even redacted versions of those documents would be a means to identify petitioner.” Order, at p. 1.

Ch J TBS Kerrigan treats the letter as a motion, IRS doesn’t object, so 35912-21W stays hidden.

Once again, whistleblowing can be hazardous to your health. See my blogpost “The Whistleblower Blown Up,” 5/20/14.

Any lawyer who cannot find an ambiguity in any document or situation should find another way to make a living. Judge David Gustafson should not worry he chose the wrong profession: he has found plentiful ambiguities in Form 656 (OIC), when a single-member disregarded LLC and its member try to compromise the obligations of both member and  LLC.

One-size-fits-all doesn’t work very well for Appeals or for All Is Well Homecare Services, LLC, Docket No. 21210-19L, filed 12/22/22, or for sole member Dinah Opoku-Manu. AIW and DOM try to compromise both the $360K FICA/FUTA that AIW owes, plus DOM’s TFRPs and personal income tax debts, covering some nine (count ’em, nine) separate tax years.

DOM’s rep filled out both Sections 1 and 2 of the 656, although the instructions say not to.

At the same time DOM’s rep requested a CDP for the NITL IRS gave DOM and AIW. The NFTL/NITL issue I covered in my blogpost “Judge Gustafson’s Punt,” 12/15/22.

The one-size-fits-all Form 656 causes Appeals any amount of confusion. They treat the OIC as being for DOM only, not AIW, and it goes downhill from there. COIC gets into the act, and the result is a communications tangle that ends with Appeals claiming that the 656 was unprocessable and sustaining the NITL. AIW and DOM petition.

“The Commissioner is certainly correct in asserting that ‘the Court is unable to order the IRS to process and accept an otherwise deficient OIC.’ (Doc. 25 at 5.) We do not contemplate ordering IRS Appeals to accept an OIC. But we do have authority to evaluate IRS Appeals’ process and to determine whether IRS Appeals has abused its discretion not by declining to accept an OIC but by failing even to process an OIC,  which is the issue now before us.” Order, at p. 9.

Note that IRS wants summary J, so all DOM and AIW have to do is raise a question for trial, not prove their case.

Now complexity invites ambiguity, and imperfections in a form designed to cover the multiplex problems of individuals and disregardeds perforce must have ambiguities. But Form 656 is the lawyer’s delight.

“The instructions on Form 656 use ‘should’ and ‘must’ in a manner that may be misleading. When an individual (with a Social Security number (‘SSN’)) who owns an LLC (with an employer identification number (‘EIN’)) proposes to compromise her individual income tax issues and trust fund recovery penalties associated with her SSN and the employment tax liabilities associated with the EIN, she sees the apparently non-mandatory instructions in Section 1 telling her that she ‘should‘ fill out Section 1 (which does include lines for employment tax liabilities); but she also sees the apparently mandatory instruction in Section 2 telling her, ‘If your business is a[n] . . . LLC, . . . and you want to compromise those debts, you must complete this section.’ (Emphasis added.) When Ms. Opoku-Manu did what the instructions in Section 2 of the form said she “must” do (i.e., complete that Section 2 for the LLC), IRS Appeals deemed the form unprocessable.

“The Commissioner maintains that the instructions above Section 1 should govern (‘but not both’), but even that might be unclear: First, those instructions, too, are apparently non-mandatory (saying, ‘You should fill out either Section 1 or Section 2, but not both’). Second, the “but not both” instruction may appear to be contingent, since it says ‘but not both, depending on the tax debt you are offering to compromise’. A reader might construe the form to mean that the ‘not both’ instruction ‘depend[s]’ on whether one is offering to compromise just business liabilities or individual liabilities (in which case, fill out only the relevant section) or instead is offering (like petitioner here) to compromise both business and individual (in which case, do fill out both?). Third, the Section 2 instructions for a business remind the taxpayer to include ‘a separate $186 application fee’, perhaps suggesting an application fee ‘separate’ from the application submitted for the individual named in Section 1.” Order, at p. 12.

Actually, COIC deemed the 656 unprocessable, but I don’t blame Judge Gustafson for being confused at this point.

If Appeals or COIC had a flexible attitude, the ambiguities might be resolved, at least to the extent of letting the form be processed. But Appeals claimed the form was unprocessable, bounced it, demanded a second set of fees for a resubmission, and offered no defense for this double whammy.

That’s enough for Judge Gustafson to deny summary J without prejudice, and send the parties off to decide whether to remand or try the case.

What a wonderful blueprint for wits, wags, and wiseacres this order provides, to bombard Appeals and COIC with internally contradictory Forms 656, and tell ’em Judge Gustafson sent them.

Billy Gilbert’s invocation of the Chief of the London Fire Brigade doesn’t help Erik Schwartz, T. C. Memo. 2022-125, filed 12/21/22. Erik is back from remand, when the admin record from his CDP was too scanty to evidence a prior chance to contest four years ago.

Erik sought a credit elect for an overpayment made pursuant to his divorce decree, but didn’t file for that year (hereinafter “Year of Divorce”) because he thought an interlocutory decree of State court prevented him from filing. On remand, the AO said the epistolary volleying between Erik and IRS didn’t constitute an informal request to apply the remaining balances of the overpayment from Year of Divorce to the five (count ’em, five) subsequent nonconsecutive years Erik claims.

First issue, this is a real credit. Erik did pay, IRS credited Year of Divorce but put the rest in an excess collections account, and never issued a Section 6532(a)(1) notice of disallowance.

Second, the credit Erik wants to apply is a credit against income tax, the tax for which the overpayment was made, not some unrelated liability. The problem is whether Erik’s letter-writing and telephonic campaign constituted an informal request to apply the overpayment from Year of Divorce to the subsequent years within the Section 6511 lookback.

Judge Vasquez: “It has long been recognized that a writing which does not qualify as a formal refund claim nevertheless may toll the period of limitations applicable for refunds if (1) the writing is delivered to the Commissioner before the expiration of the applicable period of limitations, (2) the writing in conjunction with its surrounding circumstances adequately notifies the Commissioner that the taxpayer is claiming a refund and the basis therefor, and (3) either the Commissioner waives the defect by considering the refund claim on its merits or the taxpayer subsequently perfects the informal refund claim by filing a formal refund claim before the Commissioner rejects the informal refund claim.” T. C. Memo. 2022-125, at p. 14. And there’s “copious citation of precedent,” so get it for your memos of law.

IRS said they were too busy to reply, but they wrote Erik that he didn’t need to do anything else. And IRS’ logs showed Erik’s phonecalls. IRS waived formal notice.

But all Erik establishes is a credit elect for Years Two and Three. Years Four, Five, and Six took place after a two-year gap. The gap puts paid to Erik’s cascade.

“The record does not establish a chain of cascading credit elects linking petitioner’s [Year of Divorce] overpayment to his [Years Four, Five , and Six] liabilities. To be sure, the [Year of Divorce] overpayment resulted in credit elects for [Years  Two and Three], and petitioner elected to apply his [Year Two] overpayment against his [Year Three] estimated tax. However, tax returns for [Years Two and Three] are not in evidence. Although respondent’s transcripts show no tax liabilities for those years, it is unclear whether petitioner elected to apply his [Year Three] overpayment for [Year Four] and his [Year Four] overpayment for [Year Five]. Moreover, the return information for petitioner’s [Year Five] tax year does not reference a credit elect from [Year Four] and does not include an election to apply an overpayment against his estimated tax for [Year Six]. Because there is no evidence of cascading credit elects from [Years Three, Four, and Five], we cannot link the [Year of Divorce] overpayment to any years beyond [Year Two].

“Accordingly, we are without jurisdiction to direct the application of credit elects against petitioner’s [Four, Five, and Six] liabilities unless petitioner has an ‘available credit’ from an unrelated nondetermination year. The record does not include any transcripts or other evidence showing such a credit. We therefore sustain respondent’s determinations not to apply the [Year of Divorce] overpayment against petitioner’s [Years Four, Five, and Six] liabilities nondetermination year. The record does not include any transcripts or other evidence showing such a credit. We therefore sustain respondent’s determinations not to apply the [Year of Divorce] overpayment against petitioner’s [Years Four, Five, and Six] liabilities.” T. C. Memo. 2022-125, at p. 12.

To avoid the fate of Captain Shaw in the Gilbert opus, each level of the cascade must be proven. Don’t count on IRS’ transcripts. There’s no substitute for copies of the returns themselves.