That’s what Ch J Kathleen (“TBS = The Big Shillelagh”) Kerrigan decides is what counts when Section 6702(a) frivolity chops are on the menu in Srbislav B. Stanojevich, 160 T. C. 7, filed 4/10/23.

Srbi ‘s 1041’s for his “grantor-type” trust for each of the four (count ’em, four) years at issue reported interest income, but claimed “…federal income tax withheld in an amount equal to the amount of the interest/total taxable income reported on the return, that [trust]’s ‘[t]otal tax’ for the year was zero, and that [trust] was entitled to receive an overpayment equal to the amount of the withheld tax. The returns included as attachments various Forms 1099 that petitioner had prepared and that reported payments to and from [trust]. Some of the Forms 1099 also reported the amounts of withheld federal income tax that the returns reported were withheld federal income tax.” 160 T. C. 7, at p. 3.

Srbi claims the frivolity chops don’t involve him, because the returns weren’t his, but rather the trust’s. Apparently disregarded entity doesn’t play a role, because the statutory language places the burden on the “person files what purports to be a return of a tax imposed by this title,” Section 6702(a). And Reg. Section 1.6012-3(a)(1) requires the fiduciary of a trust to file Form 1041.

Ch J TBS goes through the indicia of frivolity in 160 T. C. 7, at pp. 6-8, and Srbi tags all the bases.

“We now need to determine whether a taxpayer may be assessed a section 6702(a) penalty for filing a frivolous return that is not his personal return. We read section 6702(a) to answer that question in the affirmative. We read nothing in section 6702 that conditions the applicability of section 6702(a) on a person’s filing of his or her personal income tax return. In fact section 6012(b)(4) points to our contrary reading through its mandate that the return of a trust ‘shall be made by the fiduciary thereof,’ or in other words, by its trustee. See also §7701(a)(6) (defining the term ‘fiduciary’ as a ‘trustee . . . or any person acting in any fiduciary capacity for any person’).” 160 T. C. 7, at p. 9.

Judge David Gustafson also displays the human touch in Keith Barclay Nelson & Christine Alicia Kourtides, Docket No. 231439-21L, filed 4/10/23.

“The CDP process is one of the remedies Congress has created to assure that tax collection is reasonable and humane–but in the end,  the IRS is required to collect the taxes that are due. The liabilities at issue in this case arose and should have been paid beginning as early as April 2017–nearly six years ago. Petitioners have enjoyed six years of the IRS’s forbearance, and at some point the IRS must use the means at its disposal (i.e., levy) to collect those taxes.” Order, at p. 3.

But he does suggest that Keith & Christine can try a Rule 161 reconsideration, or try for an IA with IRS. Truly reasonable and humane.

I learn a lot from clients. Many years ago, a client taught me that one’s credibility and trustworthiness can be established simply by showing up when and where you’re expected to be. Being a couple minutes early (hi, Judge Holmes) can often make a difference, in these days of added security.

That obliging jurist, Judge David Gustafson, is clearly a strong adherent of showing up. Here, he tells a representative how to do it, in IE & J Co, CMD, LLC, Docket No. 16245-22-L, filed 4/7/23.

“The Court will hear argument on the cross-motions for summary judgment at or soon after the calendar call of the Court’s upcoming session…. The parties should arrive before 10:00 a.m. and should go to the front of the courtroom and report their presence to the trial clerk stationed there. Petitioner would be well advised to arrive no later than 9:30 a.m.  in order to consult with the volunteers from the Lower [sic] Income Tax Clinic who will be present to advise and consult with self-represented taxpayers. Petitioner should understand that the Court is scheduling this hearing on the motions in order to make available to petitioner this helpful resource.” Order, at p. 3.

I like the idea of a “Lower Income” tax clinic. The Low Income Tax Clinics are for persons of low income, but most people’s income is lower than someone else’s, and the “Lower Income” clinics sure fill a need. I hope the clinic is able to litigate the case, as it is a rarity, a Section 6721 failure-to-file-information returns. I’ve blogged only three (count ’em, three) in the last twelve years.

George Azeh & Daniele Ambatta, Docket No. 1841-22, filed 4/6/23, claimed three (count ’em, three) personal exemptions, one each for George and Danielle, and one for a minor child from George’s previous marriage. George’s other minor child’s exemption belonged to George’s loved-once, per divorce decree.

George lost his previous job, got a new one that didn’t provide health cover, so joined the WI exchange. You can see where this is going.

George seems to have thought that he had a family of four, but he didn’t. The other minor child’s tax incidents go to loved-once. So the $100K 400% of poverty for year at issue for four families shrinks to $83K for threes.

“When determining family size, the size of the family is equal to the number of individuals the taxpayer is permitted to deduct as personal exemptions. § 36B(d)(1).” Transcript, at p. 7.

George’s and Daniele’s MAGI was $91K. Their APTC was $23K. So being $8K over the limit gets them a $23K deficiency. And $23K in insurance premiums is north of 25% of their MAGI.

IRS magnanimously folds the Section 6662 chops.

Judge Christian N. “Speedy” Weiler: “Finally, while we are sympathetic to the arguments made by Mr. Azeh at trial, we are unable to provide equitable relief from this tax deficiency, as we are obligated to apply the law as written by Congress.” Transcript, at pp. 8-9.

“The law as written by Congress” has been the target of enough condemnation from all points of the political spectrum to require no comment from me on this avowedly nonpolitical blog. So, instead of quoting Ebenezer Scrooge (which might be taken as political), I can only once again invoke Charles Dickens’ immortal words from Chapter 10 of Little Dorrit.

I’m more than a little chary of handing out a Taishoff “Good Job” for anything less than a shootdown. Not merely a victory, but a demonstration of skill and thinking outside-the-cliché, is the standard here.

So I’m more than a little puzzled at Judge Alina I. (“AIM”) Marshall’s send-off to Ruby Tang, Docket No. 6020-21S, filed 4/5/23 and IRS’ counsel. Ruby claimed $96K in medicals and $25K on her 1040 for year at issue, for none of which did she adduce any proofs on the trial. IRS counsel did produce Boss Hossery for the $5K Section 6662(b)(1) substantial understatement chop that IRS included in Ruby’s $25K SNOD at no extra charge.

“At trial, Petitioner presented evidence regarding events in the administrative record that took place prior to the issuance of the notice of deficiency, asserting that the lack of audit on a particular date invalidated the notice.  Petitioner did not present evidence or testimony regarding her medical and dental expenses or her charitable contributions.” Transcript, at p. 2.

Needless to say (but I’ll say it anyway), Greenberg’s Express hauls away the past; SNODs get tried de novo. “Although Petitioner seeks to identify missing signatures and irregularities in Respondent’s documents, we generally do not look behind a notice of deficiency to review what occurred during the course of an examination. See Greenberg’s Express, Inc. v. Commissioner, 62 T.C. 324 327 (1974).” Transcript, at pp. 5-6.

Ruby does have an attempted save in the goalmouth.

“Section 7605(B), however, opens a narrow exception to that rule. Section 7605(B) provides that no taxpayer shall be subjected to unnecessary examination or investigations, and only one inspection of a taxpayer’s books of account shall be made for each taxable year unless the taxpayer requests otherwise, or unless the secretary after investigation notifies the taxpayer inviting [sic; “indicating”?] that additional inspection is necessary.

“Petitioner argues that the Internal Revenue Service account transcript for her [year at issue] tax year shows two audits, but it does not. Petitioner identifies the … date on the Form 4549-A report of income tax examination changes, sent with her notice of deficiency and notes that this date differs from the one on the civil penalty approval form that was also sent with Petitioner’s notice of deficiency. These different dates do not indicate that a second audit occurred.” Transcript, at p. 6.

But the transcript here is somewhat less than clear. “We have held that the Commissioner does not conduct a second examination and he does not obtain any new information. Estate of Sower v. Commissioner, 149 T.C. 279 289 (2017). We have also held that there was no second examination when a taxpayer failed to meet his burden, to show that there was a second examination of his books of account when the Commissioner issued a notice from the returns already in his possession. Id.” Transcript, at pp. 6-7.

Judge, I think you meant “We have held that the Commissioner does not conduct a second examination when (not “and”) he does not obtain any new information.” For the Sower story, see my blogpost “A Lot Less Portable,” 9/11/17.

Ruby filed before the April 17 due date for the year-at-issue return, and claims IRS blew the SOL, but SOL doesn’t start running until due date, so SNOD is timely.

Judge AIM’s send-off to the parties is the strangest I’ve yet encountered.

“Ms. Tang, thank you for your work on this case.  And thank you to Mr. [IRS counsel], who is not here. I hope you have a wonderful weekend.” Transcript, at p. 10.

Yeah, I’ll bet Ruby had a fine weekend, having gotten a $30K gazumph off the bench.

Judge Alina I. (“AIM”) Marshall provides the latest entry in my “Play Nice” series. Winona W. Smitherman & Richard E. Smitherman, Docket No. 8552-21, filed 4/4/23, are frivolites of the wages-aren’t-income species. Judge AIM warns Win & Rich at commencement of trial that their pleadings are without merit, and to come up with real arguments.

Win & Rich use the “trade or business includes public office” Section 7701 (a)(26) argument, but “includes” doesn’t exclude everything else.

Judge AIM brandishes the Section 6673 yellow card. But petitioners “were polite and brief at trial, and this is the first time petitioners have advanced such arguments before the court.” Transcript, at p. 10.

But don’t try it again, guys.

I proffer this off-the-bencher as an example of how warning should be given before the Section 6673 chop (or the Rule 33(b)) variety) is imposed.

I’ve chronicled any number of petitioners who come seriously unglued when Reg. Section 1.274-5T strict substantiation tags out their car and truck expenses, whether as the now-sequestered unreimbursed employee business expense deduction or expenses for production of income. CSTJ Lewis (“The Name Alone Suffices”) Carluzzo says “mox nix, year-at-issue is pre-TCJA, treat both the same” so Noah Schmerling and Susana Schmerling, T. C. Sum. Op. 2023-14, filed 4/4/23, get $12K of travel expenses using the BMW X3 he leased from his boss allowed.

“Petitioners prepared a noncontemporaneous mileage log showing petitioner’s use of his leased BMW X3 during [year at issue]. Petitioners’ mileage log does not show a beginning destination, nor does it state the business purpose of the use of the automobile, as required under Temporary Treasury Regulation § 1.274-5T(b)(6). Nonetheless, petitioners’ mileage log substantially complies with the ‘adequate records’ requirement of the regulations; to the extent their log is deficient, they have provided corroborative evidence sufficient to establish the required elements. See Treas. Reg. § 1.274-5(c)(2)(iii); Temp. Treas. Reg. § 1.274-5T(c)(2).

“We have reviewed the evidence and compared the mileage log with [Boss’] commission list records and petitioners’ credit card and bank statements. Taking into account petitioner’s personal use of the BMW X3 and the extent to which petitioners have properly substantiated expenses for travel, car and truck, and rent or lease of other business property, we find that petitioners are entitled to deduct $12,000 attributable to actual expenses.” T. C. Sum. Op. 2023-14, at p. 9.

Noah is sales manager for a BMW dealership. He gives “tips” to certain fellow employees, and auctioneers at used car auctions, whereat Noah buys vehicles for his boss to offload, and some of those are ordinary and necessary enough to be allowed as deductions. Noah also gets bonuses directly from BMW and commissions for the sale of extended warranties from an entity unrelated to his boss the dealership. No one claims Noah is an employee of either, but the income is inseparable from his work as sales manager at the dealership, so no Schedule C treatment for Noah.

I don’t know if CSTJ Lew would buy a used car from Noah, but he sure bought Noah’s mileage log.

Two Sum. Op.s from the NY Duo of STJs Diana L. (“Sidewalks of New York”) Leyden and STJ Eunkyong (“N’Yawk”) Choi today.

Magdy A. Ghaly and Laila Ryad, T. C. Sum. Op[. 13, filed 4/3/23. Magdy lost his job, drew down  from his “retirement company” (IRA? 401(k)?) and defaulted on a loan therefrom. He started new accounts two years later, to try to replenish what he had taken. Of course, he neither reported nor paid tax on what he had taken out. And was under 59-1/2 when he took it out. IRS drops the chops. Of course, Magdy has to pay the tax and interest.

Robert L. Drocella and Pamela M. Drocella, T. C. Sum. Op. 2023-12, filed 4/3/23. Rob and Pam, both full-time employees, claim real estate pro status on their six real estate rentals. Rob and Pam never establish what hours they worked as employees, but did have logs of time worked on the real estate. IRS stips to the logs, but not the truth or otherwise thereof. The logs show Rob meets the 750 hour test, but Pam does not. Even so, in the absence of proof of what hours each spent in their day jobs, they can’t pass the Section 469(c)(7)(b)(i) test: more than one-half of the personal services performed in trades and businesses by the taxpayer during such taxable year are performed in real property trades or businesses in which the taxpayer materially participates. No proof the hours Rob spent on the day job were less than those he spent on the real estate. Takeaway- The 750 hours aren’t enough. Hours spent on real estate must be greater than half of all the personal services you provide.

No, this is not another casualty loss case, nor yet another Dixieland boondockery. Here, Whistleblower 9252-18W, T. C. Memo. 2023-45, filed 4/3/23, claims Tax Court gets jurisdiction because he filed his 200 (count ’em, 200) Forms 211 after 12/20/2006, when the current sliding scale for remuneration for blowers came into effect.

9252-18W had filed the same stuff before with CID as an informant, and entered into a CIRA (Confidential Informant Reward Agreement) that expressly precluded 9252-18W from making any Whistleblower filing. But Judge Albert G (“Scholar Al”) Lauber doesn’t let that deter him.

CID dropped their investigation, having collected nothing, whereupon 9252-18W sued on the CIRA in USCFC and got tossed after six (count ’em, six) years of litigation. 9252-18W doesn’t let any of that deter him either; he then files his 200 Forms 211 under the current Section 7623, which of course get tossed by the Ogden Sunseteers with the usual “speculative and/or did not provide specific or credible information regarding tax underpayments or violations of internal revenue laws.”

9252-18W claims Tax Court has jurisdiction under the amended Section 7623 because they looked at his pre-12/20/2006 information after that date. “Petitioner contends, in other words, that our jurisdiction depends, not on when he supplied information to the IRS, but on when the IRS used that information, e.g., by commencing an investigation.” T. C. Memo. 45, at p. 5.

As Whistleblower information submitted pre-12/20/2006 was subject to complete IRS discretion as to amount of reward, 9252-18W would be out. But he submitted nothing new. And caselaw prohibits trying to slide old information in to get jurisdiction.

Finally, the classifier (IRS subject-matter reviewer) rejected 9252-18W’s stuff.

No dough, no go.

Judge Scholar Al calls in Mandy Mobley Li, Ogden’s closer. “In any event, assuming arguendo that petitioner supplied a scintilla of new information after the statute’s effective date, we lack jurisdiction because the IRS took no action with respect to his claims. This case, like whistleblower award cases generally, is appealable to the U.S. Court of Appeals for the D.C. Circuit. See § 7482(b)(1) (penultimate sentence); Kasper v. Commissioner, 150 T.C. 8, 11 n.1 (2018). That court held in Li v. Commissioner, 22 F.4th 1014, that we lack jurisdiction to review cases (like this one) where the IRS has issued a threshold rejection of a whistleblower’s claim.” T. C. Memo. 2023-45, at p. 6.

No, Not Non-Assessable

Alon Farhy,  160 T. C. 6, filed 4/3/23 owes the $10K per annum chop for willful nonfiling of Form 5471 Information Return of U.S. Persons With Respect to Certain Foreign Corporations per Section 6038(b)(1), and $50K in continuations per Section 6038(b)(2) for the eight (count ’em, eight) years at issue. And Alon timely went to Appeals when he got the Letter 1153 NITL, and timely petitioned the NOD sustaining the levy. IRS Boss Hossed appropriately.

But ex-Ch J L Paige (“Iron Fist”) Marvel finds a wee problem, namely, viz., and to wit: IRS has no statutory authority to collect. IRS says these chops are assessable penalties, meaning they can enter them on their books per Section 6201 as a prelude to collection without the need for Section 6213 SNOD procedures, and collect as if they were taxes. But the statute doesn’t say that.

“Congress has explicitly authorized assessment with respect to myriad penalty provisions in the Code, but not for section 6038(b) penalties. Section 6671(a) provides that the numerous penalties found in subchapter B of chapter 68 of subtitle F (i.e., in sections 6671–6725) ‘shall be assessed and collected in the same manner as taxes,’ subjecting those penalties to the Secretary’s assessment authority under section 6201. Section 6665(a)(1) contains a similar statement that the additions to tax, additional amounts, and penalties provided in chapter 68 of subtitle F (i.e., in sections 6651–6751) “shall be assessed, collected, and paid in the same manner as taxes.’ Code sections outside of chapter 68 of subtitle F whose violations the Code specifically penalizes commonly  (1) contain their own express provision specifying the treatment of penalties or other amounts as a tax or an assessable penalty for purposes of assessment and collection, see, e.g., §§ 527(j)(1), 856(g)(5)(C),  857(f)(2)(A), 4980H(d)(1), 5000A(g)(1), 5114(c)(3), 5684(b), 5761(e),  9707(f); (2) contain a cross-reference to a provision within chapter 68 of subtitle F providing a penalty for their violation, see, e.g., §§ 1275(c)(4), 6033(o), 6043(d), 6046(f), 6046A(e), 6420(i)(2), 6421(j)(1), 6427(p)(1), 7501(b); or (3) are expressly covered by a penalty provision within chapter 68 of subtitle F, see, e.g., §§ 6652(c), 6674, 6675, 6677, 6679,  6685, 6686, 6688, 6689, 6690, 6692, 6693, 6695, 6698, 6699, 6704, 6705,  6706, 6707, 6707A, 6708, 6709(c), 6710, 6712, 6714, 6717, 6718, 6719, 6720. In contrast, section 6038 contains only a cross-reference to a criminal penalty provision, section 7203. § 6038(f)(1).

“Furthermore, 28 U.S.C. § 2461(a) expressly provides that ‘[w]henever a civil fine, penalty or pecuniary forfeiture is prescribed for the violation of an Act of Congress without specifying the mode of recovery or enforcement thereof, it may be recovered in a civil action.” 160 T. C. 6, at p. 7.

Ex-Ch J Iron Fist is “loath to disturb this well-established statutory framework by inferring the power to administratively assess and collect the section 6038(b) penalties when Congress did not see fit to grant that power to the Secretary of the Treasury expressly as it did for other penalties in the Code.” 160 T. C. 6, at p. 8.

So Janet Yellen will have to get Merrick Garland’s guys to sue, and in the meantime get Congress to amend Section 6038 (best of luck with that one).

A Taishoff “Good Job, First Class,” goes to Alon’s trusty attorney Edward M. Robbins, Jr.