On this last day of January, when I’m driven to poring over 576 (count ’em, 576, and I have) orders to extract whatever poor blogfodder may be in their barren electrons, I find two familiar faces from long ago and far away.

Thornell Johnson, Docket No. 17082-22SL, filed 1/31/23, wants simultaneously to dismiss and to obtain summary J, so Ch J Kathleen (“TBS = The Big Shillelagh”) Kerrigan gives IRS three weeks to responds to both motions. Thornell gets the same three weeks to respond to IRS’ motion to file a late answer. Thornell was here last in 2013; see my blogpost “A Rant – Part Deux,” 4/3/13. Kicked up quite a ruckus; let’s see what happens this time.

Arthur M. Bialer, Docket No. 6983-19W, filed 1/31/23, was also here, but more recently; see my blogpost “The Whistle Blown On Summary J?” 12/2/19. Art seems to have been a precursor of Van Bemmelen. This time there’s a procedural joust about whether a Rule 161 is available to review an interlocutory order as well as a final, dispositive order. Judge David Gustafson says yes it is, despite Rule 161 residing in Title XVI of the Rules, dealing with post-trial matters.

Doesn’t help Art, though; Judge Gustafson says he reviewed all Art’s objections before. But the reason I mention this is that Judge Gustafson wants to see the outcome of Michael R. Lissack’s appeal to DC Cir. You’ll remember, maybe, Mike’s appearance here in my blogpost “A Piece of the Action – Part Deux,” 8/17/21.

While I’ve stated before that I don’t undertake to cover appellate courts, and my readers should do their own Shepardizing, I might just make an exception this one time. Mike was a client years ago in an unrelated matter. And it might be interesting to see if DC Cir goes again to the bullpen for outside counsel to explain the anfractuosities of Section 7623 and its erroneous cross-reference, as they did for Mandy Mobley Li. One hopes the appellate court charged with exclusive jurisdiction over whistleblower claims is up to the task its own self.

Three weeks ago, a reader asked why IRS hadn’t considered a passive activity attack on Paul and Pat Wondries, whose highly-skilled manager ran their cattle ranch with hardly a word from his bosses; see my blogpost “Good Help Hard to Find,” 1/9/23. Professional management was the key to sustaining Paul’s and Pat’s business deductions.

IRS fails to raise the Section 183 hobby loss defense effectively in Mathew Daniel Craddock and Chasta Crenshaw Craddock, T. C. Sum. Op. 2023-4, filed 1/30/23.

STJ Adam B. (“Sport”) Landy tells the tale in a footnote.

“In his Pretrial Memorandum… respondent asserted that petitioners were not engaged in a trade or business with the intent to generate a profit during the year in issue, and therefore the deductions claimed relating to Mr. Craddock’s consulting activities should be limited to the amount of gross receipts reported on the return under section 183. Although this issue was raised during the examination, it was not incorporated into the notice of deficiency mailed to petitioners, and respondent failed to raise this issue in his Answer. … respondent filed a Status Report apprising the Court that he is unable to determine why the issue was not included in the notice of deficiency, and he, therefore, conceded the issue. At trial, respondent confirmed his concession.” T. C. Sum. Op. 2023-4, at p. 2, footnote 2.

IRS had four (count ’em, four) attorneys on this small-claimer, with a $4K deficiency after Mat’s $31K in business deductions go down for want of documentation. Mat’s log for his Ford F-150 does account for every mile, but doesn’t distinguish between business and personal; it shows him simultaneously in two States on the same day; and his bank statements, supposedly corroborative, confirm Mat was buying fuel in one State while simultaneously present in another. T. C. Sum. Op. 2023-4, at pp. 6-8. The remaining $14K of deductions fare no better.

So in this case, IRS’ omission of hobby loss was no loss.

Takeaway- The SNOD is IRS’ case. What it leaves out is as important as what is put in.

Ever since the early days of this my blog, I’ve awarded Taishoff “Good Tries” for attempts, gambits, ploys, hail-marys, however denominated, which in my sole, complete, unfettered, and freely-abused discretion merit a gradation of same.

Today, Webster Williams, Docket No. 20603-19, filed 1/27/23, having gotten IRS to wave off the SNOD it issued him for taxable year 2017, goes for the gold.

IRS moves for entry of decision that Webster is in the clear for taxable year 2017. And Ch J Kathleen (“TBS = The Big Shillelagh”) Kerrigan does so, while rejecting Webster’s counter. And it’s a beaut.

“The IRS concedes that there is ‘no deficiency in tax and no additions to tax due from the Petitioner, nor are there any overpayments due to Petitioner, for the 2017 taxable year’. In the interest of allaying any possibility of ambiguity, because the Petitioner’s circumstances are unlikely to change until February, 2035, the Petitioner respectfully requests the concession include all years from 2016 through to and including 2034, so that upon his release from prison, he will begin his ‘new life’ with a clean slate. If, for some unforeseen reason, the Petitioner is released from prison earlier, he will begin filing at his earliest filing period occurring after his release, and from that point forward, unless re-incarcerated (due to unforeseen reasons).” Order, at p. 1.

Ch J TBS is almost regretful as she refutes Webster’s award-winning maneuver.

“However, because the Court has jurisdiction only over the notice of deficiency for 2017 upon which this case is based, there is no authority in the context of this proceeding to offer relief for other years and in other forms as sought by petitioner.” Order, at p. 1.

Ya gotta admire Webster: nothing small-minded about him. He gets a Taishoff “Good Try, hors classe.”

JOAN. Thou are a rare noodle, Master. Do what was done last time is thy rule, eh?

G. B. Shaw, Saint Joan, 1920

I’ve been waiting for an order tossing a day-late deficiency petition, to enable me to fire a broadside at Hallmark Research Collective, Inc.,  159 T. C. 6 (corrected), filed 12/5/22. And Letitia D. Morant, Docket No. 37844-21S, filed 1/26/23, provides me the opportunity.

Letitia used UPS Ground and handed the Brown Bombers her petition with time to spare, but alas, the packet hit Tax Court a day late. As UPS Ground is not one of the “blessed communion, fellowship divine” of Private Delivery Services, more particularly bounded and described in Notice 2016-30, 2016-18 I.R.B. 676, effective April 11, 2016, and inculcated by Ch J Kathleen (“TBS= The Big Shillelagh”) at p. 3 of said Order, she tosses Letitia.

Hallmark gets a mere nod at p. 2 of said Order. The Order itself might have been written long before the Supremes tried to bring discipline to the whole Congressional jurisdiction-vs-equitable-tolling conundrum in Boechler, P.C., 596 U. S. _____ (2022).

With deepest respect (because I like Judge David Gustafson as a person and respect him as a jurist), all his magnificent opinion in Hallmark says is “of course it’s jurisdictional, we’ve always done it this way.”

Taishoff says “Rare noodle, the Supremes said that isn’t good enough. Hallmark doesn’t address the core issue, that filing a deficiency petition in Tax Court is like the automatic stay in bankruptcy, 11 USC §362. IRS needs to know when they can start collecting. A late-filed petition resuscitated by equitable tolling, which could take place at any time, creates chaos in the collection process. That’s not the case with equitable tolling in a CDP case, because the NITL or NFTL has already issued; the actual levy may be stayed, but the Supremes ignored that (or maybe it wasn’t argued in Boechler, P.C.). But how does the Boechler reasoning not apply in deficiency cases as well as CDPs?”

I doubt Ms. Morant has the money to challenge Ch J TBS’ toss of her petition. But I hope some day-late deficiency petitioner does.

Though an Authority even greater than STJ Diana L. (“Sidewalks of New York”) Leyden has decreed that the laborer is worthy of his hire, he’s not worthy of ducking the Section 6662 chops when he’s a pharmacist and the 1040 at issue says he’s a “laborer.”

Even the Harvard LITC, under their redoubtable leader Temple Keith (“Phileas”) Fogg, can’t extricate Ashenafi Getachew Mulu, 2023 T. C. Sum. Op. 2, filed 1./25/23, from the toils of the late David Clerie, unregistered preparer and friend of the Ethiopian immigrant community. Ash realized the immigrant’s dream of owning his own home and was fitting up the upper floors to rent. The late Dave, PTIN-less but inventive, let his fancy roam when he did Ash’s return for year at issue.

STJ Di: “Petitioner’s [Year at Issue] federal income tax return prepared by Mr. Clerie claimed deductions and reported expenses related to the purchase of the house and costs incurred with respect to the rental of the second and third floors. With respect to his real estate petitioner claimed passive activity losses on Form 8582, Passive Activity Loss Limitations, and deductions on Schedule E, Supplemental Income and Loss, thatwere related to the purchase of the house. However, petitioner substantiated only $9,500 in repairs and conceded the remainder. Petitioner also claimed deductions for car and truck expenses on Schedule C, Profit or Loss From Business, and reported his principal business or profession as a ‘driver,’ in part because he used his vehicle to drive his parents and others in his community to church and to commute to his jobs. Petitioner concedes he is not entitled to those deductions.

“During the [Year at Issue] petitioner worked as a pharmacist. However, the [Year at Issue] return prepared by Mr. Clerie listed petitioner’s occupation as ‘Laborer.’” 2023 T. C. Sum. Op. 2, at p. 3.

When time to file drew near and Ash hadn’t gotten his return, he hunted down Dave, found one Motoban, who claimed to be Dave’s brother and heir to his tax practice and who e-filed Ash’s return using FreeTax. Ash never reviewed the return.

“If petitioner had reviewed his return, he would have noticed that his occupation was listed as ‘Laborer.’ Petitioner was a pharmacist, and the obvious listing of his occupation as laborer should have prompted him to question the accuracy of the return. Further, given that he was aware that for [Year ast Issue] he was claiming tax deductions with respect to real estate and had not done so in the past, petitioner was put on notice that he should have reviewed the return with respect to such deductions. Therefore, regardless of whether he understood the rules regarding depreciation or deducting real estate expenses, petitioner had a duty to review the return and exercise prudence before filing it. He did not do so.” 2023 T. C. Sum. Op. 2, at p. 7.

Substantial underpayment chops for Ash, and one in the loss column for the Harvards.

A result dear to my heart is unfortunately not dear to Terrence Edward Aragoni, 2023 T. C. Sum. Op. 3, filed 1/25/23, despite artful drafting of the temporary spousal support order when Terry shed his loved-once.

I’ll let STJ Peter (“HB”) Panuthos tell the story.

“A court order (order), dated January 30, 2017, was issued by the Superior Court of California. Petitioner was ordered to pay $9,146 in monthly alimony. Under section 2 of the order, ‘temporary spousal support pursuant to this order shall continue until the death of either party.’ Per section 7 of the order, petitioner was also ordered to pay $15,000 on account of his ex-spouse’s attorney’s fees and costs. Payments were directed to be made to his ex-spouse’s attorney ‘in monthly installments…until paid in full.” 2023 T. C. Sum. Op. 3, at p. 2.

Note the date: this is a pre-TCJA order, so Sections 71 and 215 alimony deduction is still in play. The landmine that blows up most of the old alimony deductions is the Section 71(b)(1)(D) death-of-spouse cut-off.

And despite the artful language in Section 2, Terry’s loved-once’s attorney was no slouch.

Even though there’s plenty of argy-bargy about CA divorce law (and CA practitioners might find STJ Panuthos’ exegesis useful even in post-TCJA deals, because attorneys’ fees for divorce seem to survive death regardless), the document itself sinks Terry’s deduction.

“Even if we were to conclude that California law is unclear in regard to postdeath liability, a reasonable reading of the divorce instrument ‘based on the language of the document’ would support a finding that the liability would continue after the death of petitioner’s ex-spouse. Section 7 of the Order clearly states that payments were to continue until ‘paid in full.’” 2023 T. C. Sum. Op. 3, at p. 5. (Citation omitted).

When Congress shunts the duty to make legislation definite and certain off to administrative agencies charged with enforcing the latest legislation coruscation, the result is usually notices or other forms of off-the-cuff hints and hacks, notwithstanding the legislative invocation of the regulatory function. So it falls to Judge Nega to parse IRS Notice 2008-40, 2008-1 C.B. 72 that tries to paper over the gaps, in Michael Johnson and Cynthia Johnson, et al., 160 T. C. 2, filed 1/25/23. The als each get their own T. C. in idem verba.

IRS claims Mike’s and Cindy’s (and the als’) Sub S fails to get any Section 179D energy efficient commercial building property deduction for the HVAC upgrade of a VA hospital. If you’re claiming any EECBP deductions, read this. Judge Nega blows off each and every IRS quibble about the plain language of Notice 2008-40.

Mike and Cindy and their six (count ’em, six) trusty attorneys are finally brought down with victory in sight, as their claimed $1.073 million deduction shrinks to $304,640, Judge Nega running Mike’s and Cindy’s numbers through the Glasshouse laundromat.

“…VA allocated to [Sub S] the full amount of the section 179D deduction with respect to the EECBP installed in Building 200.  Edwards claimed a section 179D deduction of $1,073,237… which is equal to the product of $1.80 and 596,243, the square footage of Building 200. There is no indication in the record that any section 179D deductions have been taken with respect to Building 200 for any prior taxable years.

“Respondent contends that Edwards overstated the amount of the section 179D deduction because the cost of property does not exceed $304,640, the total amount [Sub S] billed to Hines VA for Building 200.” 160 T. C. 2, at p. 30.

Mike and Cindy and trusty attorneys claim Sub S stands in the shoes of VA and can claim the cost of any qualifying work Sub S did on the VA hospital, whenever done, if no deduction therefor was previously taken; and they did a bunch before year at issue. That qualifies them for a Taishoff “Good Try, Chutzpahdik Class.”

“We need not decide what the term ‘cost’ means generally for purposes of section 179D. Whatever the meaning of that term more broadly, under section 179D(a), the amount of the deduction allowed for a given taxable year is equal to the ‘cost of [EECBP] placed in service during the taxable year.’ Petitioners do not allege, and the record does not indicate, that any of the property installed in Building 200 as part of the original HVAC upgrade work was placed in service during [year at issue].” 160 T. C. 2, at p. 31.

Taishoff says if IRS tries to put out a new Notice raising the bar, might be worth trying the APA gambit; when is a Notice a regulation is disguise, with no public comment?

Post-Reusch, we all thought passport grab challenges barred litigating liability. And we’re still right, sort of. A review of SNODs or self-reporteds is still precluded, despite 2 Cir’s reversal of Reusch as moot (because IRS withdrew the delinquency cert and State restored the passport; see my blogpost “Ruesch to Judgment,” 6/25/20). Judge Emin (“Eminent”) Toro has much to say about the persuasive effect of Ruesch post-reversal in Blake M. Adams, 160 T. C. 1, filed 1/24/23.

Blake ran up $1.2 million in delinquents, that he wants to litigate although the time to do so is long gone. Threshold questions are scope and standard of review, but result would be the same either way, so Van Bemmelen remains a footnote.

Here IRS has the proofs that assessment was made and NFTLs filed for each year, and are still enforceable. Blake never filed for a CDP. I’ll discuss infra, as my expensive colleagues say, what happens when IRS hasn’t got the proofs, whereby hangs the title of today’s sermonette.

So IRS satisfied Section 7345(b)(1)(A) and (B) and (f). And when it comes to Ruesch‘s holding on the limits of Tax Court’s jurisdiction in passport grabs, Judge Eminent employs “somber reasoning and copious citation of precedent” to establish that he should follow the Ruesch reasoning, 160 T. C. 1, at pp. 10-12.

Blake’s Constitutional right to travel argument fails because it’s State, not Treasury or IRS, who lifts Blake’s passport. All pore l’il ol’ Tax Court can do is review IRS’ certification; as the famous underwear ad used to say, “What goes on after that is up to you,” “you” being State.

Looks like passport lifts are slam dunks for IRS, right? Not when their computer glitches don’t show compliance with Section 6323 at to NFTLs, and Section 6330 with respect to actual levies (NITLs aren’t enough per Section 7345 (b)(1)(C)(ii)), and that the delinquencies are enforceable.

IRS computer print-outs for Willard J. Belton and Martha-Alexander Belton,  T. C. Memo. 2023-13, filed 1/24/23, show dubious entries about years where SOL on collections ran (no longer enforceable), possible OICs or maybe IAs pending when a levy issued (a no-no per Section 6331(k)(1) and (2)). You can read Judge Eminent’s exhaustive (and exhausting) canvass of IRS’ TXMODA transcripts and the dilections therein for yourselves, T. C. Memo. 2023-13, at pp. 19-24, but be prepared to do likewise when your clients are under the cliché for grabbed passports.

Bottom-line, IRS is about $4K short for Will, and $6K short for Martha-A, in the serious delinquency stakes, on this record. But they can try again, if they can straighten their records out.

“We note in closing that our holding today does not preclude the Commissioner from filing another motion for summary judgment to demonstrate, through the record currently before the Court or through the introduction of other evidence, that levy was properly made with respect to the taxable year [X]…. But, given the important consequences that may follow from the Commissioner’s certification that an individual has a seriously delinquent tax debt—namely, the potential revocation (or denial) of a passport and the concomitant loss of the ability to travel outside the country—it is important for this Court to ensure that the Commissioner has strictly complied with the conditions Congress established in the statute.” T. C. Memo. 2023-13, at p. 26.

Has Judge Eminent created a backdoor CDP? This beats equitable tolling.

Stand by for silt.

I’ve blogged a lot of cases where spouses were represented by the same counsel at Appeals or in Tax Court, and where the conflict-of-interest toss was routinely applied. But not every joint representation is inherently conflicted, as Judge David Gustafson obligingly informs us in Joanne Gilmore, Docket 189-21L, filed 1/24/23.

Joanne is still married to George, whose story I told in my blogpost “Argue Your Own Credibility,” 4/12/22. Her latest beef is that, at her CDP,  no one from Appeals or her representative mentioned innocent spousery. But her rep did mention Joanne was seeking independent advice, and in fact she did file Form 8857, litigate the shootdown of her plea at Appeals, and stiped out with IRS.

Judge Gustafson: “… it is by no means true that a conflict exists every time one spouse seeks relief under section 6015. Where the two spouses remain married and have a shared financial situation, the grant of relief may have little practical effect on the non-requesting spouse, or might even have an advantageous effect on the household as a whole. In some innocent spouse cases, the non-requesting spouse does not intervene to oppose relief, and sometimes a non-requesting spouse affirmatively concurs in the granting of the relief. Therefore, a conflict cannot be presumed.” Order, at p. 11.

Joanne had an interest in the properties George didn’t sell, so Judge Gustafson isn’t remanding her to Appeals to get the CNC she desired. She still might have assets that would yield cash. And as for reallocating the overpayments of tax she made, which were credited to the earliest of the still-collectible years, IRS always wants to get the most for years where SOL on collection is running out, and anyway, Joanne stiped that away.

Judge Gustafson says remand here would be futile. Partial summary J for IRS.

Taishoff still says “Stipulate, don’t capitulate.”

But It Helps To Get The Paper Right

Michael L. Meyer, now or formerly an attorney, should’a heeded the abovestated. Even though he managed to get Calvin A. Lim and Helen K. Chu, T. C. Memo. 2023-11, filed 1/23/23, tossed when they sued him in Orange County Superior Court for reasons unclearly stated (T. C. Memo. 2023-11, at p. 8), Cal’s and Helen’s $1.6 million charitable deduction in Year One, and the Year Two carryover of $415K, bite the dust, despite Mike’s claim of “The Ultimate Plan: the Ultimate Tax, Estate and Charitable Plan.”

Mike creates an LLC, whose only assets are some promissory notes from Helen, payable to Helen and Cal. The LLC’s sole member is Cal’s and Helen’s Sub S, apparently operating a valid business; Cal and Helen are managers. Cal and Helen donate “units” (apparently membership interests in the LLC) to a 501(c)(3) charitable foundation created and run by Mike. Mike does all the paperwork, appraises the units (or maybe the notes; his paperwork isn’t of the best), issues the 107(f)(8)(A) contemporaneous written acknowledgment.

Except there is no documentation for the transfer of anything. And Mike gets paid a piece of the action (the tax savings).

Of course IRS enjoins Mike and grabs his client list, so Cal and Helen get an invitation to the party via a SNOD.

First, was there a transfer of something to Mike’s charity? Cal and Helen have only Mike’s form unsigned acknowledgment letter. But IRS wants summary J, Cal and Helen get every favorable inference. And Judge Albert G (“Scholar Al”) Lauber is lavish therewith.

“… we conclude that petitioners would face a decidedly uphill task in attempting to prove that [Sub S] actually transferred [LLC] units to [Mike’s charity] during [Year One]. However, viewing all facts in the light most favorable to petitioners, as we must at the summary judgment stage, we conclude that respondent is not entitled to judgment as a matter of law on this ground.” T. C. Memo. 2023-11, at p. 11.

Next, Mike’s “appraisal.” I use the quote marks advisedly.

“The regulations provide that ‘no part of the fee arrangement for a qualified appraisal can be based, in effect, on a percentage (or set of percentages) of the appraised value of the property.’ Treas. Reg. § 1.170A-13(c)(6)(i); see Alli v. Commissioner, T.C. Memo. 2014-15, 107 T.C.M. (CCH) 1082, 1087 n.14. We agree that Mr. Meyer’s fee was a prohibited appraisal fee within the meaning of this regulation.” T. C. Memo. 2023-11, at p. 12.

Cal’s and Helen’s trusty attorney plays the only card left. He argues Mike appraised the notes, not the LLC “units,” so he wasn’t appraising the “property transferred.” He gets a Taishoff “Good Try, Desperation Class.”

But Judge Scholar Al boots that one into touch.

“This argument does not pass the straight-face test. First, Mr. Meyer did not appraise the promissory notes. His appraisal contains no discussion of the factors that would affect the FMV of the notes, e.g., the seven-year term, the specified interest rate, prevailing market interest rates, and petitioners’ creditworthiness. His appraisal is explicitly captioned, ‘Appraisal of the Fair Market Value of the [LLC] Interests….” That he was appraising [LLC] units, not promissory notes, is plain from his methodology (if it can be called that). He reached his valuation conclusion by applying discounts for lack of control and lack of marketability, which he derived from closed-end investment funds. This is not how one would value promissory notes.” T. C. Memo. 2023-11, at p. 13.

And in any case, all the LLC had was the notes. Whatever the LLC was worth depended solely upon the worth of the notes.

Cal and Helen claim reasonable cause, based on advice from a different attorney and a different CPA. That’s all fact questions, and maybe these two can rescue Cal and Helen from the Section 6662 chops on the trial.

But read Judge Scholar Al deconstructing Mike’s paperwork. If you’re trying to pull a fast one, go slow with the paper.