Discovery geeks, rejoice! Judge Alina I (“AIM”) Marshall has a potpourri of handy hints, hacks, and hoot ‘n’ hollers for y’all. Here’s Jackson Stone South, LLC, Jackson South Investments, Docket LLC, Tax Matters Partner, Docket No. 12271-20, filed 3/1/23.

The Jackson Stones have the first team defending their $19 million conservation easement write-off on some SC scrub. IRS is using its latest ploy, the salami summary J, whereby IRS seeks partial summary J on a single issue at a time. Here in The Empire State the judges can rein in such gameplaying. Judge AIM Marshall gives IRS summary J only that the FPAAs are valid, as they were served on all hands, both past TMP and present TMP. Query whether Forms 8822-B, Change of Address or Responsible Party—Business, are alone sufficient to override the TMP designation in the last-filed 1065. See Reg. Section 301.6223(a)-1(a)(1). Howbeit, IRS tagged all baserunners, and any extra FPAAs are mere surplusage. See my blogpost “The TMP Is Dead – Long Live?” 2/17/16.

Boss Hossery is in play, especially as overvaluation chops hover vulture-like. But the Jackson Stone’s trusty attorneys demand IRS pony up the Designation to Act or Notification of Personnel Action (SF-50) for MMC to serve as Supervisory Internal Revenue Agent in the Small Business/Self-Employed (SB/SE) division of the IRS for the RA who proposed the chops. IRS demurs, claiming unduly burdensome, but Judge AIM Marshall says pony up, along with other requested documents.

IRS can’t depose the ex-TMP, as they can’t show they couldn’t get the info via interrogatories. Depositions of nonparties are extraordinary.

But the ex-TMP must respond to the document subpoena, either by handing over documents or saying he hasn’t got any. His attorney stated at a hearing that ex-TMP handed everything to successors, but that’s not enough. Either move to quash or ante up.

There’s case-specific argy-bargy about IRS’ responses to interrogatories. Judge AIM Marshall says IRS’ pre-trial memo, experts’ reports,. and rebuttal reports have been filed since the Jackson Stones served their interrogatories, so they have what they need.

Discovery geeks, this is your kind of order.

Word to Ch J Kathleen (“TBS = The Big Shillelagh”) Kerrigan: While you’re scrutinizing ex-Ch J Maurice B (“Mighty Mo”) Foley’s proposed revisions to the Rules from a year ago, you might want to consider our Excelsior approach to summary J. Judges can establish cutoff dates for such motions. Might prevent salami slicing.

STJ Diana L (“Sidewalks of New York”) Leyden reprises her five-year-old adherence to IRS’ computer software in Scott Edward McPherson and Michele Einspar, Docket No. 22322-21S, filed 3/1/23. This is Scott’s story. He’s a patent attorney, and says he’s good with data.

Except.

“Petitioner-Husband testified that as a patent attorney, he is very good with data. Unfortunately, with respect to his business and tax records, Petitioner-Husband completely failed to keep or maintain the data necessary to support the claimed disallowed deductions.  Accordingly, the Court sustains Respondent’s disallowance of the deductions set forth in the Notice of Deficiency….” Transcript, at p. 10. 

OK, another indocumentado.

But there’s the Section 6662(a) accuracy chop on the table, either negligence or the five-and-ten understatement variety, and not a Boss Hoss in sight.

But somehow that’s just fine.

“Based on this record, the Court concludes that the accuracy-related penalty for substantial understatement was automatically calculated through electronic means and did not require a supervisor’s approval.  IRC section 6751(b)(2)(B). Therefore, Respondent has met his burden of production.” Transcript, at p. 10.

“This record” features the following. “Petitioner-Husband is an attorney and has testified he is very adept at maintaining data. Nevertheless, Petitioners did not provide the Court with the necessary substantiation or data. Petitioner-Husband’s testimony was vague and self-serving. Petitioner-Husband conceded he did not keep good records. The record does not convince the Court that Petitioners exercised reasonable care and good faith with respect to the disallowed deduction.” Transcript, at p. 11. 

All that said, once Exam disallowed enough of Scott’s deductions, there had to be a five-and-ten penalty. But Exam’s decision to disallow enough of Scott’s deductions was the trigger, and that’s what needs supervisory approval. Otherwise, Section 6751(b)(2)(B) is easily subverted; just run a computer program to input Scott’s numbers, hit “disallow the deductions”, and press “ENTER.”

As I said five (count ’em, five) years ago, “So every time IRS wants to chop a taxpayer they can use a computer program rather than pencil-and-paper to do the arithmetic, and thereby dodge the second look Congress mandated in Section 6751(b)?” See my blogpost “I Sing the Penalty Electronic,” 5/16/18.