“Until Lawyers Get Involved”

How often did we hear that old jibe thrown at us! And it’s true for Green Cove Rock, LLC, GH Manager, LLC, Tax Matters Partner, Docket No. 30791-21, filed 2/22/23.

The Green Cover Rockers got an FPAA with Section 6663(a) fraud chops thrown in at no extra charge. IRS, using a precision-bombing partial summary J motion, wants Judge Goeke to sign off on the procedures and timetable for the sustaining Section 6751(b) Boss Hossery.

Note the RA at Exam didn’t propose fraud chops when preparing the FPAA, deeming it premature. But OCC gets involved when FPAAs hit the radar, so Judge Goeke goes over the IRM and Tax Court precedent.

That’s when lawyers get involved.

“Senior Counsel AAG, a Chief Counsel attorney, reviewed the proposed FPAA in accordance with IRS procedures set forth in the Internal Revenue Manual (IRM). See I.R.M. pt. 2.7.2.5.1(d) (May 10, 2019) (Chief Counsel is required to review all FPAAs before issuance). Her immediate supervisor was Associate Area Counsel MM. Ms. G concluded that the fraud penalty applied and recommended it be assessed. Mr. M agreed with Ms. G’s recommendation in a signed document. Thereafter, by a signed memorandum to Ms. G… RA K and his immediate supervisor, LM, stated that ‘we accept/concur with Senior Counsel’s recommendation’ to assess the fraud penalty.” Order, at p. 2. (Names omitted).

All this happened before the FPAA was issued, and the Green Cove Rockers got word of fraud chops.

IRS says either the RA at Exam and his Boss Hoss, or Ms. G at OCC and her Boss Hoss, is sufficient Boss Hossery. The Green Cove Rockers say no.

Judge Goeke quotes Graev. “…nothing in the text or legislative history of section 6751(b) suggests that the identification of the person who made the initial determination should turn upon the penalty’s inclusion or non-inclusion in a notice of deficiency.” For the backstory, see my blogpost “Stir, Baby, Stir – That Silt,” 12/20/17.

Anyway, OCC reviews FPAAs, and if by some chance OCC hadn’t authority to impose Section 6663(a) chops, the RA at Exam and his Boss Hoss certainly did, and everybody went by the book and signed off.

Note the sequencing and timing. This is the latest IRS maneuver to nail down fraud chops Boss Hossery pretrial.

James William Avery, T. C. Memo. 2023-18, filed 2/21/23, is a lawyer who started as a car show fan with his 30-yr old collectible Ferrari, but finding that dull, transitioned to racing his rebuilt Dodge Viper. Jim was a wee bit casual about filing and paying his income taxes, and Judge Albert G. (“Scholar Al”) Lauber doesn’t care for that.

Jim does escape two (count ’em, two) years of Section 6651(a)(2) late-pay add-ons, because IRS doesn’t introduce the SFRs, relying on Jim’s late-filed returns instead, but since IRS processed only one year’s return, Jim avoids the add-ons for the other two years. See T. C. Memo.  2023-18, at p. 13.

Jim tried to write off $330K of “advertising” expenses, against his substantial law practice  income; Judge Scholar Al has tables showing what IRS allows and what they don’t. Jim claims he advertised his law practice on his Viper, but he raced in CO (where the Viper sat in a garage) and practiced in IN. There is some caselaw establishing that auto racing is advertising, but Jim doesn’t make the cut. Too much fun, ad space too small, and too little business attributable to the racing. See my blogpost “‘Rev Up Yer Engines!'” 4/7/21.

IRS admits Jim didn’t get the SNODs they sent him, so he is contesting from a denied CDP. IRS agrees to a remand once they sort out what Jim owes after Judge Scholar Al get through, so Jim can put in a CA.

Jim claims reliance on CPAs past and present for late filing, but that doesn’t fly. The duty is on the taxpayer and is non-delegable. Besides, Jim’s income is from his law practice, and he should know what he made.

I know what I made. Believe me, after COVID lockdown, dead and retiring clients, I know what I made.

Tax Court watchers are on the qui vive for Judge Patrick J. (“Scholar Pat”) Urda’s webinar exploring the issues and challenges when expert witnessing is on the agenda. The March 16 special should be mandatory for all Tax Court practitioners and other interested parties. See my blogpost “St. Patrick’s Day Countdown,” 2/10/23, for the skinny.

Today Judge Scholar Pat gives us a preview in J L Minerals, LLC, Beasley Timber Management, LLC, Tax Matters Partner, Docket No. 17076-21, filed 2/21/23.

IRS and JL both want to have experts testify on industry practices in kaolin mining, JL in chief and IRS in chief and rebuttal. Both rely on Rule 143(g)(3).

Judge Scholar Pat man-‘splains.

“This Rule prohibits the testimony of experts without a written report where that testimony ‘is based on . . . detailed, technical information’ but permits the Court discretion to allow such testimony in rebuttal to another expert or when testifying about, inter alia, industry practice. JL Minerals seeks to present expert testimony without a written report on industry practice relating to forestry, rural land practices, and borrow pits. The Commissioner requests permission to present such testimony as part of his case-in-chief or in rebuttal to expert opinion regarding the kaolin and mining industries.” Order, at p. 1.

“…we are unable to determine either the expertise of the witnesses or the relevance of the testimony that the parties seek to present. A decision whether any such testimony constitutes relevant expert testimony, much less whether it satisfies Rule 143(g)(3), thus is premature.” Order, at pp. 1-2.

Judge Scholar Pat denies both of their motions, but they can try again on the trial.

An abbreviated version of Mark Twain’s famous geological putdown gives me the title for this sermonette. IRS counsel are as big fans of summary J as I am. The motion is almost SOP, and stuns most self-representeds into silence. Since Monique E. Franco, Docket No. 33045-21S, filed 2/21/23, never replied to the answer, didn’t contest the Rule 37(c) deemed admissions motion, and didn’t reply to the motion for summary J, it looks like a slam dunk.

Except.

STJ Adam B. (“Sport”) Landy finds IRS’ claim of a Section 6663 fraud chop blocks the shot, as Monique’s petition is sufficient to call for a trial.

“Ms. Franco’s contentions that an amended return was filed without her knowledge, that her signature was forged on this amended return, and that she is entitled to innocent spouse relief are material issues of fact that are in dispute. Consequently, the Commissioner’s motion cannot be granted.” Order, at p. 2.

Where intent is at issue, as it must be in tax fraud cases, a trial is necessary to assess demeanor and credibility. Even a trifling investment of disputed fact is enough.

It’s that day again, the one when George Washington and some or all of his successors-in-office are honored by public holidays, Federal or State as the case may be.

In the Stateless City, it is a public holiday, however denominated, so United States Tax Court sports its oak.

That means nothing for me to report.

Enjoy the day off.

Assessable chops (those that do not require a prerequisite SNOD) entitle the recipient to contest liability in a CDP when IRS attempts to collect the tax underlying the chop. This arises most often in the context of Section 6702 frivolous returns.

Araya AnRa, Docket No. 6805-22SL, filed 2/17/23, gives Judge Nega the opportunity to declare “no contest,” in an off-the-bencher.

Araya gets a bunch Section 6702 chops for three (count ’em, three) years of zero-returns and Section 4852 restatements. At the trial, she claims the usual protester “hodgepodge of unsupported assertions, irrelevant platitudes, and legalistic gibberish.” Transcript, at p. 15.

No contest of liability unless a legitimate issue of fact or law is raised. Araya only raises the employment taxes mishmash about “wages” that has been denounced as frivolous for yeasrs. And Judge Nega spares us most of the somber reasoning and copious citation of precedent.

The Ogden Sunseteers are gifted with a level of immunity and impunity unique within our Federal tax system. The operatives at The City of the Golden Spike, already the beneficiaries of DC Cir’s unguarded largesse via Mandy Mobley Li, 20-1245, decided 1/11/22, receive fresh shelter from Judge Morrison in Whistleblower 26635-15W, filed 2/16/23.

Whistleblower 26635-15W wants the Section 103 order for 2017 lifted a scosh, to allow said Whistleblower to complain to TIGTA, the Treasury Inspector General for Tax Administration, the supposed guardian of the guardians.

Oh most negatory, says Judge Morrison. Sacred Section 6103 info is involved, and may only be used by blowers to challenge the Ogden Sunseteers’ determinations.

“The Court’s protective order is intended to facilitate petitioner’s ability to challenge in our Court the determination of the IRS Whistleblower Office while protecting the interests of the targets in the confidentiality of their returns and return information. It is not intended to facilitate petitioner’s ability to file a complaint with the Treasury Inspector General for Tax Administration.” Order, at p. 2.

As an old brand of blended Scotch used to say “Some things never change.” Here’s some quotes from my blogpost from ten (count ’em, ten) years ago.

“Down at National Harbor yesterday, one of the TIGTA Deputy IG’s, R. David Holmgren, gave us an overview of what TIGTA does. I asked him after the lecture why TIGTA didn’t deal with the unending stonewalling by the Whistleblower Office, which seems to spend its waking hours denying claims when they’re not claiming that they haven’t determined anything. I cannot disclose his reply, here or elsewhere, as I asked informally.

*                      *                      *                      *

“Now lest I be misunderstood, I agree that the Courts’ role in reviewing administrative determinations by the Executive branch should be limited. We still have some vestige of a Constitutional separation of powers. There are places where courts cannot, and should not, go.

“But the administrative agency here has its own check and balances, provided by the Legislative branch. There’s TIGTA, whose mission is “(T)o provide integrated audit, investigative, and inspection and evaluation services that promote economy, efficiency, and integrity in the administration of the internal revenue laws.”

“Might could be y’all should take a look at how the Whistleblower Office is doing.” From my blogpost “Another Whistleblower Gets Blown,” 8/30/13.

Ain’t only the Scotch that doesn’t change.

In my young day, the term “tombstone” was applied to an advertisement in the financial sections of newspapers (remember them?) placed by securities underwriters to inform the public that they had undertaken to sell a public offering of securities. These advertisements were severe, set in heavy type, and resembled grave markers, hence the popular term.

Generally (love that word!), at the foot of the advertisement there appeared the legend “This notice appears as a matter of record.” Remember, offering by prospectus only.

Judge Goeke has five (count ’em, five) off-the-benchers in Dean G. Steele, et al., Docket No. 27409-21, filed 2/15/23. I only note the lead docket, but there are four more, the whole bunch consolidated.

There’s a stip of facts, taxes, add-ons and Boss Hossed chops covering all the years at issue, save one, for which a Rule 155 beancount is necessary as Dean or the als may be getting credit for an overpayment. Judge Goeke doesn’t recite any thereof in the opinion, letting the SNODs and IRS’ pre-trial brief deal with that.

Btw, Judge, it’s “de minimis,” not “de minimus.” Transcript, at p. 4, line 7.

But why an opinion? A motion for entry of decision wouldn’t suffice? Dean tried one last month, which was denied, but Judge Goeke gave no explanation why it was denied. And IRS never moved for entry of decision.

“This opinion is unusual because the parties have agreed on the result and simply wanted the result reflected in a bench opinion of the Court.” Order, at p. 4.

Unusual indeed. I guess this Order appears as a matter of record.

IRS has six (count ’em, six) attorneys trying to defend a beyond-highly-contestable-reading of what it means for an easement to be perpetual. If I were counsel for Cattail Holdings, LLC, Cattail Holdings Investments, LLC, Tax Matters Partner, T. C. Memo. 2023-17, filed 2/14/23, I know I probably wouldn’t substantially prevail with an obviously phony valuation for this conservation easement on VA boondockery (Cattail says $40 mil, IRS’ appraiser says $3 mil), but I’d love to move for Section 7430 legals.

IRS says maybe there’s mining on the property, even though Judge Albert G (“Scholar Al”) Lauber overhauls the deed fore-and-aft and blows this off in a fashion so genteel as to bring a grimace to my battered visage.

“…respondent’s notion that the deed permits surface mining with [501(c(3)]’s approval strikes us as fanciful. Section 170(h)(5)(B) is captioned, ‘No surface mining permitted.’ It makes clear that allowing surface mining would be wholly inconsistent with the easement’s conservation purpose. Paragraph 3 of the deed explicitly prohibits ‘[a]ny activity or use of the Property inconsistent with the purpose of this Easement.’ In assuming ‘a contingent right to engage in surface mining,’ respondent thus posits that [501(c)(3)] might be faithless to its charitable mission by permitting Cattail to engage in activity explicitly barred by the statute. That is not a proposition that can plausibly be advanced in a motion for summary judgment.” T. C. Memo. 2023-17, at p. 7. (Footnote omitted, but my next sentence says it all).

Anyway, if the deed is ambiguous, then VA law says parol evidence can be introduced to show intent, and that’s a fact question. IRS wants summary J, so they’re not getting it.

Speaking of highly-contestable-readings, Cattail’s trusty attorneys are trying the Notice 2017-10 gambit. That was the general shot-across-the-bows warning the floggers of phony syndicated conservation easements that the bell tolls for thee. Section 6751(b) Boss Hossery requires the immediate supervisor of the RA to sign off before chops are breathed at the taxpayer. CCA learning says that must happen while supervisor still has authority, and no specific level of supervisor review is required. General notices not addressed to anyone specifically isn’t a determination of a penalty.

IRS gets summary J on Boss Hossery.

As I said two years ago, “(T)he punchline from a horrific but hilarious example of schadenfreude (the full text of which is manifestly unfit for a blog like mine, intended for family reading), tells the story.” And it unhappily fits the plight of Tony Patrinicola and Barbara Patrinicola, T. C. Memo. 2023-16, filed 2/14/23.

This is Tony’s & Pat’s fourth appearance on this my blog. None of the previous three (count ’em, three) sheds any light on the gravamen of Tony’s bœuf with IRS, so I’ll leave out references to any thereof.

It’s one word, and Judge Goeke, vice Judge David Gustafson, gets right to the point.

“… petitioners argue that the pension distributions are not subject to income tax because monthly pension payments are not taxable under a law that they refer to as the ‘Congressional Annual Notice of Monthly Pension Payments,’ which they understand to provide that ‘[m]onthly pension payments will be subject to Federal income tax withholding if the taxable portion of the sum equals to or exceeds are less than $1,990.00 per month. Your pension is not taxable if it is in the allowable range.’” T. C. Memo. 2023-16, at p. 3.

Judge Goeke says there ain’t no such statute or reg, but Tony focused on the wrong word.

“It appears that Mr. Patrinicola received information about withholding obligations from a payer of one of his pensions that resulted in a misunderstanding of his tax obligations. Federal income tax withholding is not the same thing as the federal income tax that is owed on the pension distributions. Withholding is the amount that the payer deducts from the pension payments and sends to the IRS on the taxpayer’s behalf. In general, pensions are subject to federal income tax withholding, but taxpayers can choose not to have federal income tax withheld. Taxpayers use Form W–4P, Withholding Certificate for Periodic Pension or Annuity Payments, to elect the amount of withholding from periodic pension payments to ensure the correct amount is withheld to satisfy their individual tax obligations. Alternatively, taxpayers may use Form W–4P to choose not to have federal income tax withheld from pension payments at the risk that they will not have paid sufficient estimated tax throughout the year to cover their tax liability on the pension and other income. Pension distributions are included in the taxable income regardless of the taxpayer’s decision regarding withholding.” T. C. Memo. 2023-16, at p. 3.

Taishoff says it’s ridiculous that it took four (count ’em, four) years since Tony & Pat petitioned, and 124 (count ’em, 124) docket entries, to get here. Yes, IRS conceded a whole bunch (hi, Judge Holmes) income items, plus chops. But all this for one word?