Judge Gale must feel like he’s Mr. Fred Rogers’ successor, as he has to deal with an imaginary attorney and an unnamed witness who claims he saw him, although nobody else has. Benjamin Soleimani and Sharyn Soleimani, T. C. Memo. 2023-60, filed 5/15/23, claim Ben had multi-millions in Tehran real estate that his uncle bought for him as nominee, because Ben was on  the Islamic Republic’s hitlist as a chum of the ex-Shah.

The Republicans grabbed the real estate, so Ben and Sharyn claim a whopping capital loss in the year when the alleged grab took place. IRS says no, so enter Mohammad Ali Soltanpour, Esq.

MoAli was retained by Witness 1, a compatriot of Ben’s. Witness 1 dares not speak his name as he still has contacts with the Republic. Witness 1 claims MoAli produces ” a document from the ‘State Organization for the Registration of Deeds and Real Estates,’ dated September 24, 2008 (Registration), and a  ‘Declaration Sheet’ from the ‘Justice Administration of the Islamic Republic of Iran (Central Branch),’ dated October 16, 2008 (Declaration).” T. C. Memo. 2023-60, at p. 3. These show that Ben supposedly got the properties just before the revolution, and were grabbed in year at issue by the Republicans.

Except.

“Respondent engaged an expert and submitted his report. Respondent’s expert’s report concluded inter alia that Mohammad Ali Soltanpour was a fictitious person. He visited the addresses listed for Mr. Soltanpour in Tehran; no one at those addresses had any knowledge of anyone by that name. He tried the phone numbers listed for Mr. Soltanpour and encountered the same. Finally, he researched Iranian Bar Association listings and found no entry for anyone by that name. Indeed, the bar number given for Mr. Soltanpour on the Declaration had never been issued to anyone, according to Iranian Bar Association records. The Report further concluded that the Registration and the Declaration were forgeries because, inter alia, they were purportedly issued to a nonexistent Iranian attorney with a fictitious bar number, they stated property values in U.S. dollars, and two of the properties referenced in the documents as owned by petitioner before their confiscation by the Iranian government could in fact be traced in Iranian property records, and those records showed that the properties had at no time been owned by petitioner or the Iranian government. (Respondent’s expert was unable to find any records pertaining to the third property.)” T. C . Memo. 2023-60, at p. 6.

Given a chance to rebut, Witness 1 waffled. MoAli was an assumed name, and Witness 1 wasn’t sure now whether he’d met MoAli or some Iranian broker. Finally, even Ben’s and Sharyn’s expert witness agreed that no one could get those documents out of the Republican government with a phony attorney and phony Bar number. And the Republicans wouldn’t state property values in US dollars.

So both Registration and Declaration, translated from the Farsi, are found to be Farsical (sorry guys, the devil made me do it).

IRS has some problems with the CPAF for Boss Hossery, and Judge Gale takes up two (count ’em, two) pages unscrambling the examiner’s frittata, T. C. 2023-60, at pp. 10-11. At the end of the day, he sustains the substantial understatement chop.

Taishoff says Ben and Witness 1 were lucky I wasn’t the judge.

It’s a rough ride for Appeals. Judge Mark V. (“Vittorio Emanuele”) Holmes finds the admin record more than a trifle dicey in Duane Whittaker and Candace Whittaker, T. C. Memo. 2023-59, filed 5/15/23, especially when Caleb B. Smith and the Golden Gophers LITC are on the case.

D and C claim the old homestead is in rough shape, and there’s a HAMP loan with a big balloon, so the local tax assessor’s number is out to lunch, although they can’t show they tried to refinance or otherwise realize upon whatever equity they have. Besides, COVID descended while they were negotiating an OIC with Appeals, and the SO didn’t make much of a record about what happened to D’s and C’s finances in consequence. IRS post-event speculation gets tossed. Most importantly, their retirement account never got into the admin record, and the SO got Duane’s military pension wrong.

Both sides quote the IRM, and Judge Holmes says, while it creates no rights in the taxpayer, “(T)he IRM is important here—it enables the IRS itself to put some bounds on its employees’ exercise of discretion.  But the IRM ‘does not have the force of law and does not confer rights on taxpayers.’ Fargo v. Commissioner, 447 F.3d at 713. Its guidance is usually quite reasonable, however, and we generally uphold a determination to reject an offer if the settlement officer has followed it.” T. C. Memo. 2023-59, at p. 8. And even though the SO’s reasoning wasn’t of the clearest, Judge Holmes could see a path to rejecting the OIC.

Except.

The SO didn’t consider the condition of the house as a special circumstance, which it is.

And the effects of COVID and D’s retirement and C’s two-day-a-week work schedule got such short shrift that all IRS has is speculation (tossed).

Judge Holmes tosses the NOD and remands.

“The Whittakers lost their jobs in the middle of the CDP hearing. Because their current income was important to the RCP calculation, this was a material change of circumstances. On remand the Appeals Office is directed to consider updated financial information that they should provide to document any change in their ability to pay resulting from their loss of income due to the pandemic, as well as other factors in accord with this opinion.” T. C. Memo. 2023-59, at p. 15.

I’ve chronicled in the past SOs at Appeals who gave appellants a quick-kick (to say nothing of ex-Ch Js who did the same to non-payors of the sixty bucks), but today I’d like to thank patient SO2 who went the extra for Aubree Hill, T. C. Memo. 2023-58, filed 5/15/23.

Aubree had a couple unpaid years (hi, Judge Holmes), but petitioned only one NOD. Judge Albert G (“Scholar Al”) Lauber has this one.

Aubree wanted an OIC, but never sent in Form 656 or the deposit; Aubree did send in a Form 433-A, and enough backups for one SO to begin work, but things got stalled by the pandemic. SO2 came in, and did negotiate with Aubree.

Finally, “Although SO2 calculated petitioner’s monthly disposable income as $2,043, he offered to ‘split the difference’ with her. Recognizing that ‘the cost-of-living for the D.C. metro area is higher than [the local and national] standards,’ he allowed an additional $200 of monthly expenses. By letter… he offered petitioner a direct-debit IA with a monthly payment of $1,800, which would fully discharge her… tax liabilities in 24 months.” T. C. Memo. 2023-58, at p. 4.

Aubree claims that, due to local delivery problems, she never got the letter. But Judge Scholar Al points out that she never followed up with SO2, who closed the case eleven (count ’em, eleven) days after the deadline for responding to the letter.

“And even if SO2 were thought to have closed the case prematurely, we find that any error was harmless. In her Petition, petitioner characterizes the $1,800 monthly payment plan as ‘much higher than [she] can afford.’ This strongly suggests that she would have rejected SO2’s $1,800-per-month offer. It is thus hard to see how she was prejudiced by any alleged non- receipt of his letter.” T. C. Memo. 2023-58, at p. 7.

And Judge Scholar Al says Aubree can still try for an IA or OIC.

Takeaway- If you get someone at IRS willing to talk to you, keep talking. Talk early, talk often.

Obliging as always, Judge David Gustafson can’t help IE & J Co. CMD, LLC, Docket No. 16245-22L, filed 5/12/23. IE & J get stung for Section 6721 chops, and no, I didn’t know what those were either, until Judge Gustafson man-‘splained.

“(Section 6721 imposes a penalty for ‘Failure to file correct information returns’.).” Order, at pp. 1-2.

Not your run-of-the-mill knucklerapper; apparently the IE & J guys failed to file a bunch W-2s and W-3 coversheets for a couple years (hi, Judge Holmes). They did get a NFTL and a CDP, whereat they lost, but the lien issue isn’t preserved here.

When IE & J didn’t come across,  IRS gave the guys a NITL at no extra charge. The IE & J guys went to Appeals, wanting to contest liability, and checked both the lien box and the levy box on the Form 12153 CDP request, but that ship sailed with the NFTL CDP they lost. At the NITL CDP, IE & J’s representative claimed an installment agreement (for which no proof was submitted, and IRS had no record either). So Appeals gave them a NOD at no extra charge, which IE & J petition.

Trouble was, the NITL NOD spoke only about liens, not levies.

“… the contention in the petition that ‘[t]he filing of the notice was premature or otherwise not in accordance with the service’s administrative procedures’ tracks closely the language of section 6323(j), which is a provision pertinent to a notice of lien; but if we nonetheless assume that petitioner means to so contend about the notice of levy at issue here, we acknowledge that contention that a notice of levy was ‘premature’ or otherwise not in accordance with proper ‘procedures’ could be a valid contention in a levy-based CDP case if the contention is construed to invoke the general requirement of section 6330(c)(1) that ‘[t]he appeals officer shall at the hearing obtain verification from the Secretary that the requirements of any applicable law or administrative procedure have been met.’” Order, at p. 5

IRS claims Appeals tagged all the bases, both for liens and for levies, and aver accordingly. “Of course, the notice of determination could have been mistaken in its recitation of  ‘verification’, or IRS Appeals could have overlooked (and this Court could overlook) a legal or procedural requirement. But we know of none, and petitioner has not alleged any.” Order, at p. 6.

This is Judge Gustafson, remember, so before giving IE & J the right-about-face-and-march-out, he provides a helpful hint.

“Although we will enter this Order and Decision, will sustain the notice of determination, and will close this case, we point out to petitioner that the closing of its Tax Court case does not end its opportunity to correspond with the IRS. Its further dealings with the IRS about collection of the [years at issue] liabilities by levy will not be subject to Tax Court review, but they might nonetheless result in a satisfactory agreement.” Order, at p. 6.

Taishoff says such chops may be rare because the usual problem is the FICA-FUTA-ITW that W-2s report never reached IRS, and the chops are Section 6722 TFRPs. The $250-a-pop Section 6721s are throwaways in comparison. I’m surprised that if IE & J correctly filed Forms 941 and paid the FICA-FUTA-ITW therewith, either their payroll service or their own in-house software didn’t automatically generate W-2s and W-3s.

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

G. B. Shaw, Saint Joan, 1920

Ch J Kathleen (“TBS = The Big Shillelagh”) Kerrigan is caught between rationality and judicial restraint, with a large helping of Congressional cognitive dissonance thrown in. Having no choice but to play the rare noodle gambit, distasteful though it be, she tosses the motion for judgement on the pleadings, brought by the trusty attorney for the Estate of Ronald E. Van Steyn, Deceased, Holly A. Cook, Personal Representative, Docket No. 30991-21, filed 5/12/23 (a very happy day at our house).

The late Ron was apparently a potter. Thus he was Section 280E’d out of Section 162 deductions for his State-legal but Federally-outlawed potting. Trusty attorney claims Justice Clarence Thomas’ remarks in Standing Akimbo undercut the rationale of Gonzales v. Raich, 545 U. S. 1 (2005), so Tax Court should allow said deductions.

“…petitioner contends that the reasoning in Raich has been hollowed out by factual and legal developments, including the proliferation of state-sanctioned marijuana businesses (introducing new federalism questions), subsequent Commerce Clause jurisprudence, and the statement of Justice Thomas in Standing Akimbo, LLC v. United States, 141 S. Ct. 2236 (2021), where the Supreme Court declined to review the Court of Appeals for the Tenth Circuit’s decision in the case below.” Order, at p. 1.

But Raich is not overruled, and Congress, which could end this mess…well, this is a nonpolitical blog, so the less I say about Congress, the better.

So Ch J TBS is forced to play the rare noodle gambit.

“The Supreme Court has advised the lower courts that ‘[i]f a precedent of [the Supreme Court] has direct application in a case, yet appears to rest on reasons rejected in some other line of decisions, the  [lower courts] should follow the case which directly controls, leaving to [the Supreme Court] the prerogative of overruling its own decisions.’ Raich directly controls the question here, and we accordingly will follow it unless and until the Supreme Court determines its previous decision should be overruled.” Order, at p. 1. (Citations omitted).

Whatever my view of certain decisions of the Supreme Court (which I’ve expressed in extenso elsewhere), I must commend judicial restraint here. There are places where courts should not, indeed cannot, go. Courts do not exist to get legislators off the hook.

I need not state yet again how great a fan I am of summary J. It can resolve a case quickly and less expensively than a trial. It can provide a record of sworn testimony faster, more succinctly, and far cheaper than depositions. It is faster at gathering a party’s essential contentions than interrogatories, and at least comparable in speed and efficiency to notices to admit.

Best of all, it provides discovery of one’s own client, one’s adversary, and discovery of what the judge thinks of one’s case.

But Judge Mark V (“Vittorio Emanuele”) Holmes goes one better. Damian Waje Bautista, Docket No. 13903-21, filed 5/11/23, has run aground, as a companion case, which was supposed to settle out and solve the remaining problems in this one, has likewise hung up.

“The major issue is petitioner’s request for innocent-spouse relief, but the parties had largely settled that. What remained are adjustments to the original deficiency amount triggered by likely adjustments in a related case, docket number 8194-21. We continued this case to try to coordinate the two cases, which do not have the same designated place of trial. We agreed with the parties then that waiting till the other case was resolved is reasonable.

“But that case has not settled, and it then got generally continued, which means its settlement may be farther off than one would think. We spoke with the parties again today to try to figure out how to bring this case to a close.” Order, at p. 1.

So geography and arithmetic combine to frustrate Judge Holmes’ earnest efforts to perfect Damian Waje’s innocent spousery. From whence cometh salvation?

Why, summary J, the all-time, all-purpose, all-sufficient cure-all.

Judge Holmes orders as follows: “…on or before June 8, 2023 the parties shall submit settlement documents or file a stipulated administrative record that can serve as the basis for deciding this case through summary judgment.” Order, at p. 1.

His Honor gets a Taishoff “Good Job, First Class.”

Echoes of the cigar-loving Marxist quipster today, as Judge Patrick J. (“Scholar Pat”) Urda deals with an insurance broker who places insurance his own life and wants to omit the premiums he received for that purchase from his income.

Doesn’t matter whose life is insured. Premiums paid to brokers for placement of life insurance policies are taxable to the broker.

The case is Donald L. Gould, Docket No. 28019-21S, filed 5/10/23, an off-the-bencher.

“At trial, Mr. Gould credibly testified that he summarized and submitted to his tax return preparer the various commissions that he received for [year at issue] by means of a statement written in long hand. He further explained that it was his understanding from long experience in the life insurance field that commissions received by a broker with respect to insurance purchased on that broker’s own life were not taxable. He asserted that the deduction he claimed for “Premiums Received” was essentially meant to exclude the amount of commissions he received for policies purchased on his own life, consistent with that understanding.” Transcript, at pp. 7-8.

It’s unfortunate that what should be a reduction in premium, like getting a discount from a seller of nondeductible goods, is not exempt, as would be a mere reduction in price. But it’s illegal in most states to rebate insurance premiums (I don’t practice in TX, where Mr. Gould worked during year at issue, so I don’t know their laws, but I’d be surprised if that was allowed).

Anyway, Judge Scholar Pat has somber reasoning and copious citation of precedent (that I’ll exclude).

“As to the deduction, Mr. Gould’s understanding of the treatment of commissions with respect to insurance purchased on a broker’s own life is incorrect. Both this Court and the U.S. Court of Appeals for the Fifth Circuit long ago recognized that commissions on such insurance constitute taxable income. An analogous rule applies in other contexts, such as the treatment of the commission a real estate agent receives for a house that he buys for himself or that a stockbroker receives with respect to his personal account activity. As the deduction here was meant to back out the amount of commissions that Mr. Gould received for insurance purchased on his own life, we accordingly will disallow it.” Transcript, at pp. 8-9. (Citations omitted).

You can bet your life,  buy a house, or trade securities, but you have to pay tax.

Judge Elizabeth A. (“Tex”) Copeland does a deep-dive into the Section 41 additional research credit (it its pre-TCJA iteration), with an almost obligatory dictionary-chaw over the word “use,” the Oxford English Dictionary serving as the pièce de resistance, in Jeffrey A. Harper and Katherine M. Harper, T. C. 2023-57, filed 5/10/23, and finds IRS comes up short in the summary J stakes.

This is another custom engineering-architectural-construction operation. Jeff’s and Kate’s outfit runs up all kinds custom buildings (hi, Judge Holmes), and decomposes massive amounts of brain tissue dealing with the arcana that envelops such things as Marine Corps recruit barracks and 200,000 gallon solar-powered water tanks.

IRS stresses processes, techniques, or inventions, which IRS claims are one-offs. But these could be used in other jobs, and could be components of the outfit’s business operations. Record not sufficiently clear.

Likewise, IRS’ limitation of the word “use” to continuous use in business is too narrow, and Judge Tex Copeland isn’t buying.

There’s also0 argy-bargy about who owns the land and structures once the stuff is built, but (a) I fail to see the relevance, otherwise than if “product” only applies to goods held for sale in ordinary course (way too restricted), and (b) even if relevant, a simple title search (which neither side apparently did) would answer the question as to the land, and the contracts for the structures (which likewise never made it into the record) would answer for the buildings. I never heard of a construction company claiming ownership of the buildings it built for anyone but themselves. Any number of research cases involve one-off projects.

In short, this is a case where summary J doesn’t work, because Jeff and Kate get the benefit of every favorable inference. Judge Tex Copeland rides far and wide through caselaw, and favorably infers at every turn.

Maybe the post-TCJA version (see T. C. Memo. 2023-57, at p. 6, footnote 4) gives IRS a better shot. But as this one is pre-TCJA they’ll have to try the case.

I make the morning line 3 to 1 IRS and Jeff and Kate settle.

Whatever the character of the debt from which it arose, interest not explicitly exempt is taxable. Judge Gale teaches this lesson to Susan D. Rodgers,, T. C. Memo. 2023-56, filed 5/9/23. Susan D.’s loved-once got a wee behind-hand with the child support. Support payments prior to the year at issue came to Susan D. via the State of AL, which extracted same from loved-once; being exempt per Section 71(c) Susan D. never got a 1099.

But for year at issue, The Heart of Dixie gave her one with the payment at issue, at no extra charge. Originally, the Mobile County Circuit Court entered judgment against loved-once for $18K, all of which was called child support arrearages. But apparently on reargument, the MCCC entered the judgment as $16K, of which $5K was arrears and $11K interest.

Taishoff says loved-once, who paid up, wanted to insert a poison pill. If all was characterized as child-support arrears, no tax on Susan D. I wonder if Susan D. was pro se in MCCC as she is in USTC. If she was represented, her trusty attorney missed something.

Judge Gale tells us what. “A taxpayer’s gross income generally encompasses all income from whatever source derived, specifically including interest. § 61(a)(4). For divorced or separated taxpayers, alimony or separate maintenance payments were generally also includible in the recipient’s gross income during the year at issue (and were deductible from the payer’s gross nincome). §§ 71(a), 215(a). This general rule is inapplicable, however, for payments in an amount fixed by the terms of a divorce or separation instrument that were made or treated as made to support the payer’s children. § 71(c). Consequently, such child support payments were not includible in the gross income of the recipient (and were not deductible by the payer). See Temp. Treas. Reg. §1.71-1T(c), Q&A-15. Interest paid on a child support arrearage is, however, includible in the recipient’s gross income under section 61(a)(4).” T. C. Memo. 2023-56, at p. 4. (Footnote omitted, but it says TCJA put paid to this stuff, but this case is pre-JCTA).

Interest is payment for loss of use of money; it doesn’t matter where the money came from.

The saga of Whistleblower 972-17, filed 5/8/23, such as it is, continues. Last year, you’ll remember, Judge Emin (“Eminent”) Toro directed IRS to disgorge unredacted documents, blowing off IRS’ Section 6103(h)(4)(A) blocking maneuver. For the backstory, see my blogpost “Whistleblower Confidential,” 7/13/22.

Judge Eminent gave IRS a chance to claim that some or all of the unredacted “would identify a confidential informant or seriously impair a civil or criminal tax investigation,” Section 6103(h)(4). Time ran out eleven (count ’em, eleven) days ago, but IRS’ and 972-17’s trusty attorneys filed a status report with the results (sealed, of course).

So Judge Eminent orders any dispositive motions by 6/5/23, with replies due 30 (count ’em, 30) days later.

Why do I mention this routine order? Because we may finally be seeing if Tax Court (or anyone else) can shake any money out of the Ogden Sunseteers post-Mandy Mobley Li, DC Cir’s gift of perpetual holiday to the OS.

Judge Eminent says his opinion in 139 T. C. 1, the subject of my above-referred-to blogpost, addressed “some, but not all, of the issues in the case. ” Order, at p. 1.

The biggest issue is whether IRS used Whistleblower 972-17’s material. And no motion is going to dispose of that, record rule or no record rule.