This could happen to any one of us (and, if we’re candid, it probably has). But for both sides to miss a critical point is less common (although, again, in a long enough run of play, it probably has). Both IRS’ counsel (both of them) and his trusty attorney missed the Letter 1153 opportunity in David A. Garrett, Docket No. 14206-22L, filed 3/27/23.

Judge Courtney D. (“CD”) Jones denies summary J to IRS in this TFRP for want of verification at Appeals. The NOD says the SO verified that applicable legal and admin requirements were. satisfied, any issues raised by Garrett were considered, and collection no more intrusive than necessary. Trusty attorney apparently didn’t reply to summary J motion; neither did Garrett.

There were interim payments made by the corporation reducing the amount of unpaid trust funds, but that doesn’t affect the Section 6672 chop. The problem arises from a statement in IRS’ moving papers. IRS claims the SO properly verified the assessed TFRP.

Judge C D Jones: ” However, in light of the foregoing assertion that the penalty assessment was properly verified, the Court is perplexed by respondent counsel’s statement that “[p]etitioner did not have a prior opportunity to dispute the underlying liabilities.” (docket entry no. 9, pg. 11). A TFRP assessment is valid if the IRS issues Letter 1153 to the taxpayer’s last known address, assesses the penalty more than 60 days after the mailing of that letter, and the penalty was assessed within the time permitted by law. Generally, receipt of Letter 1153 constitutes the taxpayer’s opportunity to dispute their underlying liability. Thus, respondent’s simultaneous assertions that the penalty assessment was properly verified, which contemplates that Mr. Garrett received a letter 1153 and had a chance to contest his underlying liability,  and that Mr. Garrett has not had a chance to challenge his underlying liability, which contemplates that Mr. Garrett did not receive a letter 1153 and that the penalty was not properly assessed, seem irreconcilable. In light of these contradictory statements,  and given the limited administrative record, the Court is unable to conclude that the verification requirement was properly satisfied, absent some alternative explanation.” Order, at p. 6. (Citations omitted).

I may venture a wild guess that IRS’ counsel used a form declaration, or maybe one from a previous case, and didn’t do enough custom tailoring. Howbeit, no summary J.

Takeaway- When both sides miss it, very often the judge won’t.

Section 6103(h)(4)

Section 6103 guards inviolate taxpayer information, hedging same with contempt sanctions, civil and criminal penalties. But there is a gap, and Judge Travis A. (“Tag”) Greaves will tell you all about, and how he proposes to plug the gap, in Amgen Inc. & Subsidiaries, Docket No. 16017-21, filed 3/24/23.

First, the gap. “In contrast with I.R.C. § 6103(n), persons to whom return information is disclosed pursuant to I.R.C. § 6103(h)(4) are under no obligation to keep the information confidential. Pursuant to I.R.C. § 6103(h)(4)(A), returns and return information may be disclosed in a judicial proceeding pertaining to tax administration if the taxpayer is a party to the proceeding. Thus, pursuant to this provision, returns and return information of petitioner may be disclosed in the instant Tax Court proceeding, including in depositions and interviews. No provision of the Code prohibits a person to whom return information is disclosed pursuant to I.R.C.  § 6103(h)(4) from redisclosing that information, nor does any provision provide for penalties for such redisclosure. Notwithstanding I.R.C. § 6103(h)(4), expert witnesses and other persons under contract pursuant to I.R.C. § 6103(n) are still subject to the disclosure prohibitions of I.R.C. § 6103(a)(3).” Order, at p. 3, par. 3.

Amgen rightly protests that it doesn’t want its confidential stuff made a motley to the view (whatever that means).

Judge Tag Greaves has the solution, in thirty-five (count ’em, thirty-five) pages of protective order. There’s also a dozen pages of technical specs for information sharing.

Discovery geeks, this one’s for you.

Now, as before, I cannot share with my readers the joke of which the title hereof is the punchline. This my blog is strictly G-rated, for reading around the family circle. But IRS’ gimmick du jour, the Boss Hossery summary J motion, brings into sharp focus the inartfully-drafted (to put the best face on it) Section 6751(b). Way back in 2016 I was denouncing the careless language which has caused such confusion. See my blogpost “Money-Back Guarantee Meets the Boss Hoss,” 11/30/16.

For those tuning in late, Section 6751(b) provides “No penalty under this title shall be assessed unless the initial determination of such assessment is personally approved (in writing) by the immediate supervisor of the individual making such determination or such higher level official as the Secretary may designate.”

The word “assessed” is the serpent in the garden.

Leave it to Judge Albert G (“Scholar Al”) Lauber to get to the heart of the matter.

“In Kroner v. Commissioner, 48 F.4th 1272, 1276 (11th Cir. 2022), rev’g in part T.C. Memo. 2020-73, the U.S. Court of Appeals for the Eleventh Circuit held that ‘the IRS satisfies [s]ection 6751(b) so long as a supervisor approves an initial determination of a penalty assessment before [the IRS] assesses those penalties.’ The court interpreted the phrase “initial determination of [the] assessment” to refer to the ‘ministerial’ process by which the IRS formally records the tax debt. See id. at 1278.” Sunfish Cove, LLC, Marlin Woods Capital LLC, Tax Matters Partner, Docket No.14163-21, filed 3/23/23.

Except that thus defining the word “assessment” makes hash of the statute. The “ministerial process” of assessment is automatically stayed by Section 6213. Consequently, “initial determination” could take place years after the evil Section 6751(b) was enacted to prevent, namely, the bludgeoning of taxpayers with threats of condign penalties at exam, to coerce unjust settlements. The statute is supposed to curb the juniors’ enthusiasm by letting senior, presumably cooler, heads prevail.

IRS wins partial summary J in the syndicated conservation easement case. There’s enough timely Boss Hossery to keep IRS’ amended claim for Section 6663 75% fraud chops in play.

But the wordplay workaround 11 Cir and Judge Scholar Al need to get around this sloppy draftership could easily be solved by substituting the words “imposed” and “imposition” for “assessed” and “assessment.”

Of course, that would take an act of Congress. As this is a nonpolitical blog, I’ll say no more.

Office

Ch J Kathleen (“TBS =The Big Shillelagh”) Kerrigan shows Greatest Common Factor, T. C. Memo. 2023-39, filed 3/23/23  how to substantiate a deduction for a home office. GCF is a C Corp, and claims home office expenses of $13K in each of the two (count ’em, two) years at issue. The Section 280(A) disallowance of home-related deductions doesn’t apply to C Corps.

Ch J TBS: “A C corporation ‘may deduct payments made to lease home office space from an employee (or from its owner) as rent if they are ordinary and necessary expenses [under section 162] directly connected with or pertaining to the corporation’s trade or business.’ Here there is no evidence in the record indicating that there was any such rental agreement. Further, there is no evidence that petitioner expended any of its funds in maintaining the alleged home office. There are therefore no grounds on which petitioner, a C corporation, could deduct the expenses related to Mr. [50% shareholder]’s home office under section 162.

“We also note that even if Mr. [50% shareholder] were the taxpayer, he would not be entitled to home office deductions because the dwelling was not  ‘exclusively used on a regular basis . . . as the principal place of business for any trade or business of the taxpayer.’” § 280A(c)(1)(A).” T. C. Memo. 2023-39, at pp. 3-4 (Citations and name omitted).

But Mr. 50% shareholder has other problems. He worked as a subcontractor on top secret military projects, and the only income GCF showed was what Mr. 50% shareholder got paid from the prime contractor.

“During the years in issue petitioner’s only income was from [prime contractor]. Mr. [50% shareholder]’s work for [prime contractor] was performed at the Los Angeles Airforce Base. Because of the classified nature of his work for [prime contractor], Mr. [50% shareholder] was not allowed to take home any work. Accordingly, we sustain respondent’s disallowance of petitioner’s home office deduction.” T. C. Memo. 2023-39, at p. 4. (Names omitted).

I eschew any political comment.

Back last September, I blogged how STJ Diana L (“The Taxpayer’s Friend”) Leyden dealt with frivolites who persisted in frivoling. See my blogpost “The Shortest Way With Dissenters,” 9/15/22. Took STJ Di seven (count ’em, seven) pages.

Judge Pugh plays a Defoe gambit of her own, and sends off Darcy-Mae Englert, T. C. Memo. 2023-38, filed 3/22/23, in a mere four (count ’em, four) pages, with a sustained deficiency, and a $1K Section 6673 chop at no extra charge. No somber reasoning, but copious citation of precedent.

Judge Pugh has a template for the entire Bench when confronted by the all-zeroes, my-wages-aren’t-taxable jive. I reprint it here as a public service.

“In general, we do not address frivolous arguments with somber reasoning and copious citation of precedent; to do so might suggest that these arguments have some colorable merit. Crain v. Commissioner, 737 F.2d 1417, 1417 (5th Cir. 1984); see, e.g., Cabirac v. Commissioner, 120 T.C. 163 (2003), aff’d per curiam without published opinion, No. 03-3157, 2004 WL 7318960 (3d Cir. Feb. 10, 2004); Rowlee v. Commissioner,  80 T.C. 1111, 1120 (1983) (rejecting the taxpayer’s claim that he is not a person liable for tax); Waltner v. Commissioner, T.C. Memo. 2014-35 (laying out and rejecting a litany of frivolous positions), aff’d, 659 F. App’x 440 (9th Cir. 2016). Petitioner’s assertion that her wages are not income has been identified by the Secretary as a “frivolous position[].” I.R.S. Notice 2010-33, 2010-17 I.R.B. 609, 609. And courts have repeatedly done the same. See, e.g., Walker v. Commissioner, T.C. Memo. 2022-63; Briggs v. Commissioner, T.C. Memo. 2016-86; Lovely v.  Commissioner, T.C. Memo. 2015-135, aff’d, 642 F. App’x 268 (4th Cir.  2016).

“Petitioner is subject to tax under the Internal Revenue Code.  Petitioner repeatedly asked for legal and statutory proof that her wages are taxable. These are but a few of the cases that have rejected arguments that she has raised. Applying the law to the facts of this case, we find that petitioner received taxable wages… and we sustain respondent’s deficiency determination.” T. C. Memo. 20-23-38, at p. 3.

Darcy-Mae frivoled even after being warned at trial to read Notice 2010-33 before sending in her post-trial brief. “Even after reading Notice 2010-33 as we advised, petitioner did not heed its warning: she submitted the same frivolous arguments post trial. We also warned petitioner at trial that we would take into account everything she said at trial and submitted in writing posttrial when we considered whether to impose the section 6673 penalty. Therefore, we will impose a penalty of $1,000 under section 6673(a)(1) on petitioner for continuing to take frivolous positions.” T. C. Memo. 2023-38, at p. 4.

Build a record. Lay out the law. That’s how to chop frivolites.

Judge Albert G (“Scholar Al”) Lauber has mastered many puzzles. Expert witnesses and the wrinkly skin of tax law hold no peril for Judge Scholar Al. But today he outdoes himself. He deconstructs that terror of the self-reporting, the infamous Social Security Benefits Worksheet—Lines 6a and 6b.

Charles Lin and Amy Lin, T. C. Memo. 2023-37, filed 3/21/23, didn’t bother reporting any taxable social security benefits. Along with blowing off their real estate losses (claimed taxes and depreciation on entire building without providing any allocation to rented space), Judge Scholar Al does both a number and the numbers on Charles’ and Amy’s social security, parsing each subsection of Section 86 to provide chapter and verse for each calculation.

Judge Scholar Al nimbly hopscotches through such twice-tangled locutions as “Section 86(a)(1) generally provides that, for any taxpayer described in subsection (b), gross income includes Social Security benefits in an amount equal to the lesser of (A) one-half of the Social Security benefits received or (B) one-half of the excess described in subsection  (b)(1).” T. C. Memo. 2023-37, at p. 7.

Judge Scholar Al’s calculations and explanations are found at pp. 7-9. Every practitioner ought to have this in the toolkit in case the software crashes.

The Amended Tax Court Rules of Practice and Procedure bring Rule 147 into the Twenty-First Century with the amendment to Rule 147(a)(3): “Notice to Other Parties Before Service. If the subpoena commands the production of documents, electronically stored information, or tangible things, then before it is served on the person to whom it is directed, a notice and a copy of the subpoena must be served on each party.”

It’s been almost eight (count ’em, eight) years since Judge Mark V Holmes and I began our campaign against the Stealth Subpoena, which old Rule 147 permitted by omitting the FRCP Rule 45(a)(4) notice to all parties where production of documents or things is sought. See my blogpost “The Stealth Subpoena,” 7/16/15.

Even though then Ch J L Paige Marvel bawled me out at a Tax Court Judicial Conference for mentioning the anomaly, I’m glad Judge Holmes’ and my pertinacity have finally prevailed.

Judge Emin (“Eminent”) Toro is loath to unload a Section 6673 chop on Kimberly Stoltz, Docket No. 5618-21, filed 3/20/23 (Happy Palindrome Day!). Kim was “courteous” on the trial (Transcript, at p. 16), and that caused Judge Eminent to “take no pleasure in imposing this penalty.” (Idem.)

But Kim had been warned pretrial that her wages-aren’t-taxable arguments have been shot down every time, and she went forward with them anyway.

And Kim was looking at non-filing, nonpaying, and non-estimated add-ons besides the deficiency, all of which she got.

Judge Eminent carefully reviews the Leyshon factors (see my blogpost “Another Rounder’s Day, 6/3/15), and can’t cut Kim any slack. $500 Section 6673 chop.

Looks like there may be a crackdown on frivolities at The Glasshouse on Second Street, NW.

Ex-Ch J Maurice B (“Mighty Mo”) Foley’s farewell to chieftainship in the Court he has served so well has finally been accepted by his successor, Hon. Kathleen (“TBS = The Big Shillelagh”) Kerrigan. Here are the Amended Tax Court Rules of Practice and Procedure.

Check it out. Effective as of 3/20/23.

Here’s how the Court responded to the comments received.

Bringing, I hope, a logical, practical answer to the conundrum I’ve spent too much time unscrambling, and incidentally wasting my readers’ time, CSTJ Lewis (“A Name As Brilliant As The Man”) Carluzzo briefly and convincingly slips the Gordian knot binding how and when to administer chops for delay of the game and frivolity.

Andrew Ethan MacTaggart, Docket 7648-22L, filed 3/17/23 is a protester-type rounder. He was in Tax Court a couple years ago (hi, Judge Holmes) with his wages-aren’t-taxable and the-right-guy-didn’t-sign-the-paper arguments, all which earned him a bunch Section 6702 frivolity chops. Transcript, at p. 8, par. 13.

Nowise daunted, Andy E. is back with the same merchandise, and it doesn’t sell this time either. CSTJ Lew: “Petitioner next argues that the compensation he received as an employee …is not subject to federal income tax. Suffice it to state that it is, see section 61(a)(1) and the many cases cited in the respondent’s pretrial memorandum applying that statute, and nothing else need to be said on the point in response to his argument.” Transcript, at p. 6, par. 7.

But the point (yes, there is one; I’m almost getting cogent in my old age) comes after IRS folds certain Section 6702(a), but leaves others on the table. Then IRS makes an oral motion for imposition of Section 6673 frivolity chops on top. Given the record here, that’s not an off-the-wall ask.

But CSTJ Lew sees the true goal of all Tax Court proceedings.

“Petitioner certainly deserves the imposition of a section 6673 penalty in this case, but we are concerned that the imposition of a section 6673(a) penalty in any amount could cause yet a further delay in the collection of justifiable and long overdue federal tax liabilities that petitioner owes. That being so, respondent’s oral motion will be denied.” Transcript, at p. 11.

To be sure, the “just, speedy, and inexpensive determination of every case” is important. But, like freedom, it isn’t free.

So collect the revenue. Yes, the scarce resources of Tax Court cannot be squandered, nor the Court’s orderly procedures disrupted, to satisfy juvenile rounders’ antics. But having their goods grabbed also encourages the recalcitrant to get with the program.

Grab them by their wallets, and their hearts and minds will follow.