No, not the one who takes back your car; this is Robert Lewis Starer and Merle Ann Starer, T. C. Memo. 2022-124, filed 12/20/22. Robert Lewis transferred parcels of land owned by his Sub S corp. to various business associates subject to repurchase agreements, whereby the purchaser could compel the Sub S to repurchase the property at the original price. Robert Lewis claims these were loans, to allow the associates to mortgage the properties for cash, but IRS changes the deals to sales per Section 481.

Judge Wells isn’t buying the loan story.  And the IRS change affects timing, not ultimate receipt, so it involves a material item, not an overall change to the Sub S’s accounting method. While Robert Lewis and Merle Ann transferred much of their shareholdings in the Sub S into a couple grantor trusts (hi, Judge Holmes), they never elected electing small business trust treatment per Section 1361(c)(2)(A)(v), so there’s no showing that any tax incidents flow to the trusts.

The Sub S owned the house where Robert Lewis and Merle Ann lived rent-free, so constructive dividend. Likewise the transfer of one plot of land to son-in-law, the claim of joint venture failing for want of Luna principles. And a transfer for no consideration to a long-term business associate, who promptly mortgaged it and used the proceeds for other ventures (although transfer tax was paid on a marked-up value) fails as a loan for want of documentation, so is a gift of appreciated property taxable to Robert Lewis and Merle Ann, per Section 1386(b).

And a bad debt claim from an advance to a controlled entity fails for want of documentation, and some wonderful trial testimony. “According to petitioners, [related] never formally requested a loan from [Sub S]. Instead, Mr. Starer described how [controlled] would request a loan from {Sub S] by testifying that ‘Bob Starer, CEO of [controlled], would say to Bob Starer as CEO of [Sub S], “let me have some money.” Petitioners cannot create a deduction simply by deciding to record an intercompany debt without formalities and then canceling it.” T. C. Memo. 2022-124, at pp. 26-27.

But IRS matches Robert Lewis and Merle Ann, by playing the Michael Corleone gambit, main line Boss Hoss variation.

“In the instant case, respondent did not file a motion to supplement the record addressing the effect of section 6751(b) on this case. Neither did he direct the Court on brief or otherwise to any evidence of section 6751(b) supervisory approval in the record.  Consequently, respondent has failed to satisfy his burden of production to establish compliance with section 6751(b); therefore, petitioners are not liable for accuracy-related penalties under section 6662.” T. C. Memo. 2022-124, at p. 28.

And Take Suzanne Jean With You

I am sure Judge Nega is too well-bred to frame his order in Suzanne Jean McCrory, Docket No. 3443-18W, filed 12/20/22, in such terms.

But the effect of said order is exactly that, as Judge Nega chronicles the end of the road for Mandy Mobley Li, the highly-credentialed blower who blew any hope for judicial review of an Ogden Sunseteer no-cash shootdown, however arbitrary or capricious John W. (“Hoppin’ John”) Hinman’s myrmidons might have been.

Suzanne Jean, ex-GAO auditor, is a serial blower whose activities have provided much blogfodder. She had been tossed on Li grounds back in July, but played the certiorari gambit, and got reinstated per Section 7481. Incidentally, Suzanne Jean played the same gambit in another blow back in October before Judge Elizabeth A. (“Tex”) Copeland; see my blogpost “‘No’ Deid Yet’ – Part Deux,” 10/1/22.

Well, Judge Nega delivers the coup de grace.

“By order issued October 31, 2022, the Supreme Court denied the whistleblower’s petition for a writ of certiorari in Li. A review of the Supreme Court docket in Li reflects that a petition for rehearing of the order denying the writ of certiorari has not been docketed, as of the date of this Order. See U.S. Sup. Ct. Rule 44(2) (providing that such a petition must be filed ‘within 25 days after the date of the order of denial’). Order, at p. 2.

Judge Tex Copeland, please copy.

So march out, Mandy Mobley, and take Suzanne Jean with you.

Except.

Hey Supremes, you’ve furnished us all with some wild and crazy decisions this year. How ’bout finishing up with a wee bit equitable tolling?

Judge Albert G (“Scholar Al”) Lauber is, I have often noted, a man of many attainments. Although an East-Coaster in his youth, he is familiar enough with Los Angeles traffic at rush hour to remark that staying in a hotel in Santa Monica to avoid a 60-mile commute to Irvine “might well have been a rational choice” T. C. Memo. 2022-123, at p. 7.

In fact, it’s enough to spare Section 6662 five-and-ten chops for the hotel bills that IRS disallowed amidst the massed indocumentado deductions of Kambiz Aryia, T. C. 2022-123, filed 12/19/22.

Kam was a long-time car salesman, managing a Honda dealership in Santa Monica, CA. He claimed to be a “consultant” and filed Sched C, but was really an employee, so at best he would have gotten unreimbursed employee business expenses for the last year those were deductible, if he could prove them.

He did prove the hotel bills, but those were for his convenience. His tax home was where he worked. But he did have a good faith belief he could deduct those. And had a winning personality on the trial; no surprise, few grumpy car salespeople last very long.

“Petitioner had comprehensive and accurate documentation for these expenditures. His trial testimony convinced us of his belief that he could not successfully discharge his duties as manager of the Honda dealership if he spent three to four hours every day commuting from Irvine. He understood that he could not deduct commuting expenses. But we think he genuinely believed that his lodging expenses were different and had a logical business nexus, enabling him to work the 60 hours per week required to hold on to his managerial job. We accordingly conclude that petitioner is not subject to penalty on the portion of the underpayment attributable to disallowance of his $40,174 lodging expense deduction.” T. C. Memo. 2022-123, at p. 12.

Ex-Ch J L. Paige (“Iron Fist”) Marvel says that’s all a Boss Hoss immediate supervisor needs to do. It doesn’t matter the document whereon the signature appears: here, it’s a thirty-day letter, Letter 950, and even though the chop numbers were wrong, and a CPAF issued three (count ’em, three) months later corrected the errors and added a new penalty, it’s enough to show compliance with Section 6751(b).

Rudy Kipling got it right. Once the Boss Hoss signs, “The door is shut/We may not look behind.”

 There’s “somber reasoning and copious citation of precedent” in support thereof, in Luis A. Castro and Judi A. Chavez-Castro, T. C. Memo.  2022-120, filed 12/19/22, but most of the cases are the usual suspects.

Not the corporate type, rather the drafting boilerplate we all learned in Law School Year One: “This Agreement [Mortgage][Deed][Contract] sets forth the entire agreement of the parties hereto. This [ditto] may not be modified, amended, or canceled, nor may any provision hereof be waived, otherwise than in writing and signed by the party against whom said modification, amendment, cancellation, or waiver is asserted.”

Except somebody blew it in Kenneth M. Brooks and Anita Wolke Brooks, T. C. Memo. 2022-122, filed 12/19/22. And Judge Wells is all over it. This is another GA boondockery.

Yes, a deed can serve as a contemporaneous written acknowledgement that a transfer is gift if it states no consideration or merely nominal consideration. But while that’s necessary, it isn’t sufficient. “…silence in a deed serves as the CWA that the donee provided no goods or services as consideration, in whole or in part, only if the deed also qualifies that the terms of the deed are the entire agreement.” T. C. Memo. 20223-122, at p. 11.

Note that the ten dollars and other good and valuable consideration is mere boilerplate, and ignored.  Somebody let poor Randy Schrimsher know. See my blogpost “Valuable Consideration?” 10/3/12.

Ken’s and Anita’s appraisal is a wee bit dodgy, both as to description of the property and its development potential if rezoned. And the Form 8283 states a cost basis for property other than the donated parcel in addition to that of the donated parcel.

IRS gets to wildcard in a CPAF seven (count ’em, seven) days before trial, despite the 14-day rule to stip to documents per the SPTO. Judge Wells says “no hurt no foul.”

“Petitioners did not raise compliance with section 6751(b)(1) before or, substantively, during trial and nevertheless received the form before the record was closed. It is therefore even more appropriate to accept the form into evidence..” T. C. Memo. 2022-122, at p. 18.

Taishoff says the burden is on IRS. Congress placed it there. Letting in wildcards is sharp practice and shouldn’t be allowed.  But Judge Wells is the judge, so Ken and Anita get the 40% gross valuation misstatement chop.

Ken and Anita lived in VA when they petitioned, so this one goes to 4 Cir, not 11 Cir. Should be an interesting appeal, if they take one. Don’t undertake to follow it, though.

I’d thought epistolary jousting was gone when IRS finally took my (and others’) advice and issued whistleblower shootdowns that said “game over, we’re done, petition.” But IRS seems to have revived the sport when it comes to denying appeals from Section 6699(a) S Corp late-filing chops.

CSTJ Lewis (“Great is the Name and Great is the Fame”) Carluzzo, manifesting his magnanimous  character, shuffles through the IRS’ paper barrage, with intermittent counterbattery fire from Brighton Construction Enterprise, Docket No. 35599-21SL, filed 12/19/22. Brighton was late for two (count ’em, two) consecutive years. Appeals claims Brighton had a prior opportunity to dispute when they try to raise reasonable cause at the CDP on the NITL.

I won’t try to summarize the volleying. There are letters without dates, with strange references, and with omitted enclosures. There is a back-and-forth between IRS offices in KY and PA, but nowhere is it clear in the record that the liability issue had been considered anywhere.

So CSTJ Lew has three (count ’em, three) choices: review the record de novo and decide that Brighton had reasonable cause; reject the NITL without reviewing whether Brighton had reasonable cause; or remand for Appeals to consider reasonable cause.

“Fairness to petitioner suggests that we do not go with the first option. For various reasons we can understand why the parties did not focus on the point, but the record is not complete enough to make a finding on reasonable cause. Fairness to respondent suggests that the second option might preclude respondent from collecting a tax that might rightfully be due.

“Perhaps influenced by a children’s fairy tale, it occurs to us that the third option is just right.” Order, at p. 12.

Back to Appeals.

Here’s CSTJ Lew’s roadmap: ” (1) If upon further review and investigation respondent’s settlement officer establishes that petitioner had a meaningful prior opportunity to challenge the penalty assessments by participating in an Appeals conference that considered its claims for abatement, then respondent may supplement the record with that information, and petitioner would, as respondent argues here, be precluded from raising the issue in this proceeding. Because we have already found that in all other respects respondent’s settlement officer has proceeded as required by section 6330, that would result in decision being entered for respondent; (2) if upon further investigation or review, respondent’s settlement officer is unable to establish that petitioner had a meaningful prior opportunity to challenge the penalty assessments at an Appeals conference, then respondent’s settlement officer should conduct a further administrative hearing that addresses petitioner’s claim to reasonable cause in support of petitioner’s requests for abatements. After further consideration, if the parties agree, a stipulated decision could be submitted to the Court [edited by me: nudge nudge, wink wink]; or  (3) if after further administrative review, the parties are unable to resolve petitioner’s abatement claim, then the Court will allow either party to supplement the record with additional evidence directed to petitioner’s claim of reasonable cause and proceed accordingly.” Order, at pp. 13-14.

Just finished an enlightening CLE on Our Fair State’s Freedom Of Information Law (Public Officers Law §§84-90), especially the provision for legal fees (§89(4)(c)(i) and (ii)). In any case “…against such agency involved, reasonable attorney’s fees and other  litigation  costs reasonably incurred  by such person in any case under the provisions of  this section in which such person has substantially prevailed, and when  the agency failed to respond to a request or appeal within the statutory  time;  and  (ii)  shall assess, against such agency involved, reasonable  attorney’s fees and other litigation costs reasonably incurred by such  person  in  any  case under the provisions of this section in which such  person has substantially prevailed and the court finds that the agency  had no reasonable basis for denying access.”

And our Courts have held that if the agency folds when they’re sued, the person who brings the case has still “substantially prevailed.”

I’ll bet Bryan Edward Menge, Docket No. 12155-21L, filed 12/16/22, would like to have a similar provision in Sections 6702 and 6320, as IRS concedes the Section 6702 false return chop, and the SNOD, and released the NFTL they gave him at no extra charge. There was also a NITL, but that’s off the menu here.

So all Judge David Gustafson can do is dismiss Bryan’ Edward’s petition as moot, since there’s neither SNOD nor NOD to consider, and IRS has agreed not to reimpose the Section 6702 chop, unlike Matty Vigon, whose tale I told in my blogpost “Crafty – Akin to the Weasel,” 7/24/17.

Sidetrack: The laughing little girl I described in the foregoing blogpost just paid us a visit, which gladdened my heart. She’s back home in TX now.

Judge David Gustafson rings the changes.

“…we see no aspect of this case that is not moot. Collection itself is moot, because the liabilities have been abated and the NFTL has been released. There is thus no liability to collect, and the assessment that would be the predicate for collection is missing entirely. Assuming that “underlying liability” issues, see sec.  6330(c)(2)(B), are not precluded from this lien case by virtue of Mr. Menge having had a prior ‘opportunity’ to litigate them in the levy case, No. 17117-18L (an assumption that seems improbable), those liability issues are also moot here because re-assessment of the liabilities could not occur. Re-assessment of the [Year Two] tax liability would, because of the passage of time, be barred by the statute of limitations, sec. 6501(a); and although the section 6702 penalty is understood to have no statute of limitations, re-assessment of that penalty is foreclosed by the Commissioner’s motion. This is not an instance like Vigon, in which ‘[t]he defect [in the Commissioner’s showing of mootness was] not simply that he fails to persuade us that in fact he will not really reassess; rather, he does not even assert that he will not reassess. He asserts instead that “it is not clear whether respondent will reassess”.’ 149 T.C. at 111. In this case, by contrast, the Commissioner states unequivocally: ‘Respondent affirms that he will not reassess the [Year One] frivolous return penalty against petitioner with respect to frivolous submissions already received by respondent with respect to [Year One]’. (Doc. 17, para. 8.).” Order, at p. 3.

OK, so march out Bryan Edward, you won.

Except Bryan Edward says he didn’t.

“Petitioner timely filed his petition in T.C. docket No. 12155-21L therefore petitioner asserts he has a due process right to be heard in the T.C on the over 1600 hours of his time spent defending himself against unlawful policies and procedures implemented against BM [i.e., petitioner Bryan Menge] and BEM [Bryan E. Menge Construction] by federal contractors, state actors, the RI Superior Court, HUD, the DOL,  the IRS since 2011, the Federal District Court for the District of RI and the T.C. [Doc. 23 at 16.].” Order, at p. 3.

And Bryan Edward has been here before with the same story. See my blogpost “SMH,” 12/15/21.

No luck this time either.

“No such claims by Mr. Menge or his company against any of these entities could fall within our jurisdiction in this case—except his claims against the IRS regarding the liens for his 2013 and 2014 liabilities, but those, as we have shown, are moot.” Order, at pp. 3-4.

It’s a rainy day here on this Minor Outlying Island off the Coast of North America, so I’m feeling awash with wet silt.  Wherefore, I chronicle Judge Gustafson, the master crafter of the lockout of the Hallmark Researchers’ equitable SNOD toll, who now has to deal with what ex-Ch J Maurice B (“Mighty Mo”) Foley started back in April, with Ha Tran (as to whom see my blogpost “Ya Can’t Make This Stuff Up – Part Deux,” 4/29/22).

All is not well with All Is Well Homecare Services, Inc., Docket No. 21210, 19L, filed 12/15/22. AIW got hit with a doubleheader, a NFTL and a NITL, for the same $131K in payroll taxes. AIW petitions both; everyone agrees the petition for the NITL is timely. The argy-bargy is about the timeliness of the NFTL petition.

AIW claims that the OIC they put in stays the 30-day SOL. Nope, says Judge Gustafson. “We are unaware of any authority to support the proposition that the submission of an OIC would affect the due date of a CDP request, and we cannot think of any arguable reason that it would.” Order, at p. 3, footnote 5.

AIW next claims that three (count ’em, three) days should be added to the 5 business days plus thirty days of Section 6320(a)(3)(B), to account for the time it takes the recording officer to docket and file the NFTL. That also is a nonstarter. “We do not know of any support for this 3 business days addition to the deadline.” Order, at p. 4.

IRS doesn’t move to toss; IRS moves for summary J, stating in their papers that AIW is late. AIW raises the shot-down arguments heretofore stated. Judge Gustafson parses the timeline, coming up with the conclusion that if the date IRS says was the filing date, AIW is two days late.

Except.

Judge Gustafson is under the impression that IRS prepares both NFTL and CDP notice at the same time. If that’s so, then the date of filing cannot be known then; what the IRS puts in the CDP notice is a guess.

Hence Boechler.

“…the 30-day deadline of section 6330(d)(1) is a non-jurisdictional rule subject to equitable tolling, Boechler, P.C. v. Commissioner, 142 S. Ct. 1493 (2022). A remaining question is whether Boechler should affect the application of the rule of that one has the right to request a CDP hearing during the 30-day period of section 6320(a)(3)(B). That is,  it could be argued that a taxpayer whose CDP hearing request for an NFTL is otherwise untimely might nonetheless be entitled to a CDP hearing if equitable considerations would result in the tolling of the deadline. If so, then standards or criteria should be stated by which IRS Appeals should make a decision about the appropriateness of such tolling in a given instance. There would then arise a question about the standard by which the Tax Court would review IRS Appeals’ decision whether to apply equitable tolling.” Order, at p. 5.

In English, Boechler had to do with a late petition; AIW has to do with a late Letter 12153 (CDP request). If Boechler applies to CDP requests (nudge nudge, wink wink), then how does Appeals do the sheep-and-goats number on the latecomers? And how does Tax Court review Appeals’ decision?

Is Judge Gustafson going to sort this out his own self? Nah; he has a Christmas present for IRS and AIW. Let IRS’ counsel file a supplemental memo by 1/10/23.

“…the Commissioner shall file a supplemental memorandum in support of his motion for summary judgment (and, if it would better reflect his position, a motion to dismiss) that shall discuss the matters raised in this order and shall confirm or correct the statements we have made here. In particular, that memorandum shall include a statement of the Commissioner’s position as to (1) the proper means for calculating a deadline under section 6320(a)(3)(B), (2) the date on which the NFTL was actually filed as a matter of fact, and the information supporting that fact, (3) whether the deadline of section 6320(a)(3)(B) is subject to equitable tolling, and if so, (4) the standards IRS Appeals should use in determining whether tolling applies in a given case and the standard by which the Tax Court should review such a determination by IRS Appeals.” Order, at p. 5.

And AIW gets until 2/17/23 to reply with their own version.

What a punt!

My sermonette today begins with the words of a master craftsman of law and prose. The sermonette itself brings into high relief how the blunder impacts Section 6673 frivolity.

Jeffrey A. Hartman, Docket No. 7914-22, filed 12/14/22, filed a zero wages return for the year at issue. Jeff claimed a $14K refund, which IRS reduced by withheld FICA/FUTA to $9K. But IRS cut off the claimed refund and hit Jeff with a SNOD for $7600.

Jeff petitions, but it’s the usual protester jive, which STJ Diana L. (“Sidewalks of New York”) Leyden blows off with the usual Crain language, plus the copious citation of precedent that usually follows.

Jeff also challenges the delegation order to the signer of the SNOD, but that’s also a nonstarter.

So far IRS was looking good, but when they roll out the Section 6673 chop, something is missing, hence the title first set forth at the head hereof, as my high-priced colleagues say.

“As to respondent’s request that the Court impose a penalty under I.R.C. §6673, the Court notes that respondent in his motion refers to exhibits to the Declaration of DDD that were not filed with the Court. Therefore, the Court declines to impose a penalty at this time.” Order, at p. 3. (Name omitted).

Jeff does get the yellow card.

“…the Court takes this opportunity to inform petitioner that this Court may impose a penalty of up to $25,000 if a taxpayer institutes or maintains a frivolous or groundless petition or institutes or maintains a proceeding primarily for delay. I.R.C. § 6673(a)(1). Although the Court will not impose such a penalty at this time, petitioner is warned that the Court may not be so forgiving if he continues to advance frivolous and groundless arguments.” Order, at p. 3.

Until the hardlaboring Tax Court clericus unloads an opinion or order with a novel approach, I’m thrown back on the latest silt-stir: equitable tolling. As set forth in my blogpost “For Whom the Equitable Tolls,” 4/10/20, “‘It is hornbook law that limitations periods are subject to equitable tolling.’”

Except in Tax Court they aren’t, despite Supreme Court learning from this past April, and ex-Ch J Maurice B (“Mighty Mo”) Foley’s efforts along those lines. Ch J Kathleen (“TBS = The Big Shillelagh”) Kerrigan holds the line resolutely.

Sharif M. Giurgius, Docket No. 11263-20S, filed 12/13/22, is eight days late, taking in the suspension of the SOL caused by COVID; see my blogpost “Le Quinzième Juillet,” 4/10/20, wherein I explicated Treasury’s attempt to sidestep the supposedly iron gates of Section 6213. Interesting that the Supremes never mentioned that suspension in Boechler. How Treasury had the power to suspend a supposedly explicit act of Congress, upon which they were relying in Boechler, is nowhere explained.

Howbeit, “…in narrowly defined circumstances, scenarios involving disasters, related conditions, and concomitant closures can extend the deadline. As relevant here, the COVID-19 pandemic led to an extension of time for tax-related deadlines, including those for petitions to the Court. Specifically, Guralnik v. Commissioner, 146 T.C. 320 (2016), and IRS Notice 2020-23, 2020-18 I.R.B. 742 (April 27, 2020), in combination, extended the deadline for filing petitions due between March 19, 2020,  and July 15, 2020, to July 15, 2020.” Order, at pp. 1-2.

So Section 6213’s 90-150 day cut-offs aren’t ironclad. Maybe they can be tolled.

But Ch J TBS Kerrigan is adamant, notwithstanding Sharif’s claim that IRS is jerking him around.

“Hence, while the Court is sympathetic to petitioner’s situation and understands the unintentional character of the inadvertence here, as well as the challenges of the circumstances faced and the good faith efforts made, the fundamental nature of the filing deadline precludes the case from going forward. As a Court of limited jurisdiction, the Court is unable to offer any remedy or assistance when a petition is filed late. Rather, the Court is barred from considering in any way petitioner’s case or the correctness of petitioner’s claims. Unfortunately, governing law recognizes no reasonable cause or other applicable exception to the statutory deadline, and the allegation that the petition was sent eight days late remains unrebutted.” Order, at pp. 4-5.

Taishoff says “fundamental nature of the filing deadline”? The Supremes didn’t think so; DC Cir didn’t think so; and Treasury didn’t think so in April 2020, although they’ve changed their tune since.

I’m waiting for the LITCs, the pro bonos, or the calendar call commandos to take one of these quick-kick tosses up on appeal.

Lest I be misunderstood, I am not advocating for a completely fluid cut-off for petitions. I pointed out in my blogpost “Ya Can’t Make This Stuff Up – Part Deux,” 4/29/22, that an open-ended cut-off would result in chaos. But equity considers the rights of both parties, and can shut down gameplayers, wits, wags, and wiseacres. Honest petitioners with legitimate grievances should be protected when they make finger-fehler that do not prejudice proper collection of the revenue.

And Treasury has shown us we don’t need Congress to set this right.