The late Donald M. Arndt, before he became the late Donald M. Arndt, blew the whistle on a step transaction that covered a couple years (hi, Judge Holmes). While Don blew for Year One, IRS only got the boodle for Years Two and Three. Don’s trusty attorneys want a bunch documents (ditto) covering those years, but IRS says they aren’t in the admin record, hence off-limits.

Judge Albert G (“Scholar Al”) Lauber isn’t buying, yet.

“Respondent contends that the documents petitioner seeks are not subject to section 6103(h)(4)(B) because they were not found within the administrative record compiled by the WBO. See Kasper v. Commissioner, 150 T.C. 8, 20–21 (limiting scope of review in whistleblower cases to administrative record barring exceptions). But a document may be “directly related to” an issue in a whistleblower proceeding, see § 6103(h)(4)(B), whether or not it is contained in the WBO’s own file. In other words, we do not view our ‘record rule’ for whistleblower cases as limiting what sorts of documents the IRS may disclose pursuant to section 6103(h)(4)(B).” Order, at pp. 2-3. (Footnote omitted, but read it. Maybe Section 6103(h)(4)(A), dealing with production for Federal tax proceedings, might play a part here).

For the Kasper backstory, see my blogpost “Two Old Cases,” 1/10/18.

So Don wins, right?

Not quite.

“Although we agree with petitioner that neither section 6103 nor Rule 70 precludes our granting the Motion to Compel, we believe it would be premature to rule on the Motion at this time. The Court recently provided further guidance on ‘whistleblower discovery requests’ in the context of motions to compel. See Berenblatt v. Commissioner, 160 T.C. No. 14 (May 23, 2023). We would find it helpful for the parties to set forth their views as to how (if at all) Berenblatt affects the proper disposition of petitioner’s second Motion to Compel.” Order, at p. 4.

For the Berenblatt story, see my blogpost “The. Bialystok Blower,” 5/24/23. Spoiler alert: it’s good news for Don’s trusty attorneys

Oh yes, the case is Estate of Donald M. Arndt, Deceased, Kathy R. Arndt, Personal Representative,, 1246-16W, filed 6/27/23.

Frank R. McNamara and Collette M. McNamara, T. C. Sum. Op. 2023-22, filed 6/26/23, find that their MA home secured the mortgage thereon for only five (count ’em, five) months, and not twelve months, during year at issue. Thus Reg. Section 1.163-10T(h) disallows Frank’s and Collette’s deduction, which they based upon a 12-month, and not a 5-month, average balance. The 5-month calculation puts Frank and Collette over the $1 million total indebtedness cutoff.

And the magic number is how long the home secured the mortgage debt.

No mention of chops, but Frank and Collette claim reliance upon examples in IRS Pub 936, Home Mortgage Interest Deduction, “to assert they correctly used a 12-month period to calculate the average monthly mortgage debt for their Massachusetts home.” T. C. Sum. Op. 2023-22, at p. 4.

Well, STJ Eunkyong (“N’Yawk”) Choi says of course that’s not good enough to ward off the tax bite when the statute and the regs clearly say otherwise.

But it seems to have allowed Frank and Collette to avoid the chops.

Taishoff says that if the statute and regs, or either, is so obtuse that IRS’ own pamphleteers get it wrong, maybe Congress and Treasury should pull a Habakkuk 2:2 and do a better job.

I expect it’s the post-Taxpayer First Act Next Big Thing, so we’ll be seeing more maneuvers like Christina A. Eldridge, Petitioner and Todd Eldridge, Intervenor, Docket No. 2200-21, filed 6/23/23, put on to occupy Judge Elizabeth A. (“Tex’) Copeland.

Trusty attorneys for Chris, Todd, and IRS, all join in, moving to supplement the administrative record. Of course, each has his, her,  its or their own proposed supplements, to which at least one of the others objects.

So both Chris and Todd move for a continuance (that’s an “adjournment” for us State courtiers), and IRS doesn’t object to that.

Judge Tex Copeland puts  the dueling motions on hold, while giving the parties some homework.

“… the parties shall each separately file with the Court a brief outlining their legal position as to adequacy of the Administrative Record filed in this case… with such briefs having a due date of July 24, 2023. Such briefs should address both petitioner’s Oral Motion to Complete or Supplement the Administrative Record and intervenor’s Oral Motion to Supplement the Administrative Record. The briefs should identify relevant facts and the case law in support of their positions, giving particular attention to I.R.C. § 6015(e)(7) and our guidance on completing or supplementing an administrative record, as outlined in Van Bemmelen v. Commissioner, 155 T.C. 64 (2020).” Order, at p. 2.

For the Van Bemmelen story, see my blogpost  “Administering Supplements,” 8/27/20.

The post-Li blower who survives the “we din’t get nuttin'” brush-off from the Ogden Sunseteers can find salvation only in what the OS gang looked at and packed into the admin record.  Post-Van Bemmelen, the party that controls the admin record controls the high ground. That’s where the fight must take place.

And Judge Tex Copeland realizes that, for innocent spouses in the world of Section 6015(e)(7), it’s still the same old story. Rarely if ever is there any “newly-discovered, previously unavailable” evidence. The trial de novo is the trial de nuttin‘, so the admin record is where it’s at.

Henry Seggerman,, T. C. Memo. 2023-78, filed 6/22/23, was doing what your credit report says you should be doing, paying as agreed. He was paying off a restitution-based assessment (RBA) on a dubious 706, per a cooperation agreement with DOJ in USDCSDNY.

But IRS hits Henry with a NFTL, which he petitions, claiming it hurts his ability to earn income, although he can provide no proof thereof. He does prove that he can’t pay more than what he’s paying under the cooperation deal. So Appeals put Henry in CNC, but leaves the NFTL in place.

Ch J Kathleen (“TBS = The Big Shillelagh”) Kerrigan keeps the NFTL.

“Petitioner argues that he never fell behind on the district court’s payment schedule and that the NFTL was prematurely filed and therefore should be withdrawn. See § 6323(j)(1)(A) (providing for discretionary NFTL withdrawal if the notice was filed prematurely or not in accordance with administrative procedures). Respondent argues that he is not bound by the district court’s payment schedule because he has independent authority to collect RBAs. Respondent also notes that petitioner and the DOJ stipulated in the cooperation agreement that ‘the existence of a payment plan set by the [c]ourt shall not bar Governmental collection efforts against any of the defendant’s available assets.’

“We agree with respondent. Section 6201(a)(4)(A) provides that ‘[t]he Secretary shall assess and collect the amount of restitution . . . for failure to pay any tax imposed under this title in the same manner as if such amount were such tax.” T. C. Memo. 2023-78, at p. 5.

Liability is off the table, of course; the cooperation deal in USDCSDNY seals that exit. And that Henry is paying as agreed doesn’t preclude a NFTL; we call that a hit-the-lottery NFTL. If Henry hits the lottery big, he might be able to pay in full, and should not be allowed to walk with the boodle in such event, leaving IRS hanging.

If you’re going to try your own case and testify in your own behalf, you would be well-advised to sweat yourself good at trial prep, and take the advice of a judge as wise as Judge Cary Douglas Pugh: when she suggests you take a continuance so as better to prepare, take it. And if she refuses your request for an adjournment while you’re testifying, but offers you a lunch break instead, don’t go to lunch; take opposing counsel into the hallway and settle, quick.

Neel Kamal and Preeti Sharma, T. C. Memo.  2023-80, filed 6/22/23, do not heed the words of wisdom from Judge Pugh. Preeti doesn’t even show for the trial. Neel goes it alone, and his testimony is less than convincing.

“We did not find Mr. Kamal to be a credible witness. His testimony was inconsistent, confusing, and difficult to follow. He was defensive and evasive from the start, and he appeared increasingly uncomfortable and agitated as cross-examination exposed more holes in his story. His testimony about [his consulting outfit] did not match the documents provided by third parties. It did not stand up to logic and was not credible. After a series of questions and repeated admonishments, Mr. Kamal answered questions by stating that he did not remember or refused to answer altogether.

“In addition to his testimony, Mr. Kamal submitted a copy of a service agreement, invoices, and letters…. These documents are poor attempts at fabrication.” T. C. Memo. 2023-80, at p. 19.

And to make clear the title of this blogpost, as set forth first at the head hereof, “Plainly uncomfortable answering these simple, direct questions, Mr. Kamal asked that the Court adjourn trial to next day; the Court gave the parties a lunch break instead.” T. C. Memo. 2023-80, at p. 23.

This is an unreported income and indocumentado expenses case. You can read IRS’ barrel-shoot for yourselves.

I report this case only as an example of how an educated officer of a tech firm (bought out by Cisco) can come utterly unglued trying to play games with taxes. He gets the Section 6663 75% fraud chop at no extra charge.

Takeaway- The Judge can tell you a  lot, even when appearing to say very little. Don’t be caught out to lunch. Read and heed.

No, this is not another of my colleague’s Peter Reilly, CPA, beloved Reg. Section 1.183-2(b) “goofy regulation” cases, with Tennessee Walkers, cutting horses, quarter horses, or nicked-ancestry Graded Stakes winners.

This is yet another case of Taishoff beating a dead (metaphorical) horse, this time a Boss Hoss.

I must repeat yet again, if repetition is indeed necessary, that I am not trying to cram Tax Court Judges and STJs into a Procrustean cliché; judges must control their own courtrooms without looking over their shoulders for enforcement types who never tried a case.

What I have been trying to do is derive a framework sufficiently wide to accommodate the practical needs of judges, and yet with enough structure to avoid the “arbitrary and capricious” claims of the Section 6673 frivolites.

And today I’m stymied by Patricia Hyde, T. C. Memo. 2023-76, filed 6/21/23. Hyde is fighting about her 2006 deficiency, as to which she lost in Tax Court in 2011. Nowise daunted, she tried vacation, and lost. She appealed to 8 Cir, and lost. Of course, she petitioned for cert from the Supremes, and got tossed. Hyde having put up no bond, in 2012 IRS assessed, but waited until 2019 to file a NFTL.

Hyde files for a CDP, and frivols away. Receiving a NOD, she petitions.

Judge Paris, with commendable patience: “Petitioner contends in her Motion to Dismiss for Lack of Jurisdiction that this Court lacks jurisdiction over this case under sections 6320 and 6330 because Appeals abused its discretion and issued an invalid notice of determination. The Court disagrees with petitioner. Not only does petitioner misapprehend the effect that granting her Motion would have on her case; the record establishes that all jurisdictional conditions have been met and that the case is properly before this Court. See §§ 6320(c), 6330(d)(1). Accordingly, the Court will deny petitioner’s Motion to Dismiss for Lack of Jurisdiction.” T. C. Memo. 2023-76, at p. 5.

The best is yet to come. In her 2011 visit to Tax Court, Hyde got handed a $3K Section 6673 chop. Hyde now claims that the chop is invalid, because not Boss Hossed per Section 6751(b). This is after she lost her Rule 161, her appeal to 8 Cir, and toss by the Supremes, more than ten (count ’em, ten) years ago.

Judge Paris finally falls back on Benton Williams.

“Section 6673(a)(1) authorizes this Court to impose a penalty of up to $25,000 on a taxpayer whenever it appears that the taxpayer instituted the proceeding primarily for delay or that the taxpayer’s position is frivolous or groundless. The authority of the Court to impose such a penalty is not subject to the supervisory approval requirement of section 6751(b)(1). Williams v. Commissioner, 151 T.C. 1, 5–10 (2018). This is so because the provision ‘was not intended as a broad restraint mechanism on the Federal judiciary . . . [or] to cover the imposition of penalties that Congress intended could be imposed by courts because of misbehavior by a litigant during the course of a judicial proceeding.” Id. at 10. Accordingly, the Court concludes that petitioner’s assertion that sanctions imposed pursuant to section 6673 must comply with section 6751(b)(1) is wrong and that the section 6673 penalty was assessable contemporaneously with the decision entered in the notice of deficiency case. See §§ 6671(a), 6673(a)(1).” T. C. Memo. 2023-76, at p. 8.

For the Williams story, see my blogpost “Into the Sunset,” 7/3/18.

So why am I telling you this?

Because after all Hyde’s frivolizing, Judge Paris and IRS decide that a computational error in Hyde’s favor was made back in 2011 in reckoning the Section 6654 add-on, and so a Rule 155 beancount must follow, and no Section 6673 for this latest frivolity fest.

CSTJ Lewis (“His Spelling Casts a Spell”) Carluzzo’s docket runs the gamut.

First up, Ariana K. Uchizono, T. C. Sum. Op. 2023-21, filed 6/21/23. Ariana is ambitious and multilingual, so upon graduating college she goes to work for a translating service. CSTJ Lew goes over Ariana’s job description closely. Ariana wants something more, so she goes for a MBA at UCLA, and deducts the costs as an unreimbursed employee business expense, for a year when that was still OK. The translating outfit would only reimburse for language courses, and Ariana didn’t take any.

CSTJ Lew goes over Ariana’s coursework and transcript, and the job description for the internship Ariana got at a major toy company, from which she got a permanent job, and decides the MBA fitted Ariana for a different job. Reg Section 1.162-5(a) denies deductions for training for a different job.

“In this case, the courses petitioner took as part of her M.B.A. program qualified her to perform tasks that were significantly different from the tasks she had performed in her employment with [translators]. A number of those courses related to research and data analysis. No doubt some of the courses might have refined and improved the skills necessary for petitioner’s employment with [translators], insofar as a foundation in accounting, finance, and management could be helpful to anyone involved in the operation of a business. However, petitioner’s M.B.A. studies were more specifically oriented towards the job for which she eventually left [translators].” T. C;. Sum. Op. 2023-21, at p. 5. (Name omitted).

Unhappily, Ariana didn’t help her case on the stand. I feel for her trusty attorney; having a candid, truthful client can be a burden.

“Petitioner acknowledges that she would not have felt comfortable making certain decisions required in her job with [toy co.] had it not been for her M.B.A. courses. Specifically, petitioner’s data and analysis coursework prepared her to perform her essential role with [toy co.], that is, orchestrating qualitative or quantitative online surveys and analyzing the resultant data. Simply put, without the M.B.A. degree petitioner would not have been otherwise qualified for her position with [toy co.].” T. C. Sum. Op. 2023-21, at p. 5. (Name omitted).

Next, futility. Thu L. Tran, Docket No. 16576-22SL, filed 6/21/23, never petitioned the SNOD but did petition the NOD. Thu wants to fight about liability, but that’s a nonstarter. So CSTJ is left with nothing to do.

But being CSTJ Lew, he won’t leave Thu comfortless, even though perforce he must toss him.

“In closing, we think it appropriate to note that the resolution of this matter says nothing about the merits of petitioner’s claim that the underlying liability is overstated. To that end, and independent of this proceeding, petitioner is free to pursue whatever remedies might be available to him in an attempt to give effect to his claim regarding the underlying liability. He is also free to request other administratively available collection alternatives.” Transcript, at p. 6.

Judge Elizabeth Crewson Paris has bad news for my litigator colleagues, but good news for Katrina E. White, T. C. Memo. 2023-77, filed 6/21/23. Katrina was insolvent when the bank wrote off her small business loan, hence no cancellation of debt income to Katrina.

It’s an all-too-common story of the small entrepreneur. Katrina “…owned and operated Professional Body Sugaring, LLC, in Menomonee Falls, WI.” T. C. Memo. 2023-77, at p. 2. She borrowed $15K from a bank, and claims she borrowed a further $8K from family. She made a couple payments (hi, Judge Holmes) on each, but not enough Menomonee Fallers fell for having their bodies sugared. My sources tell me this is having all or part of your personage covered with a paste of sugar, water, and lemon, which, when dried, is untimely ripp’d, taking your body hair with it.

I’m not surprised. Katrina’s operation was a great lemonade.

Sadly, as this happened, her landlord accelerated her rent for nonpayment, claiming she owed $21K. Sounds like WI follows the old commonlaw rule: landlords need not mitigate damages.

Katrina claims Section 108(a)(1)(B) relief, as she was insolvent when relieved of the bank loan debt.

IRS says Katrina wasn’t insolvent, because her landlord didn’t sue, and she didn’t pay, hence the accelerated rent wasn’t a bona fide debt.

Judge Paris sees IRS off.

“The Court disagrees. Petitioner provided a copy of the lease agreement, as well as a letter from [landlord], stating that petitioner breached the lease [in year at issue]…. The terms of the agreement creating the obligation to pay generally determine whether and in what amount the taxpayer will be called upon to pay. Under the terms of the lease, the entire amount remaining on the lease would become immediately due. The lease agreement between petitioner and [landlord] was an arm’s-length transaction for a multiyear lease on commercial real estate, and the obligation to pay was legally enforceable at the time the…small business loan debt was discharged. Nothing in the record suggests otherwise. The fact that [landlord] did not sue petitioner to collect the debt does not in and of itself mean, as respondent suggests, that it was not a bona fide debt. Respondent cites no authority for the requirement that, for the Court to determine insolvency under section 108(a)(1)(B), a creditor must bring legal action or the taxpayer’s liabilities must be brought to judgment, and the Court is aware of none.” T. C. Memo. 2023-77, at p. 6. (Citation omitted).

My “Sign On the Dotted Line” series gets a new entry from Dennis Simpson, as he’s one of the als in Noel M. Parducci and Kenneth L. Parducci, et al., T. C. Memo. 2023-75, filed 6/21/23. Dennis’s story is the strangest one in a long time.

Judge Ronald L. (“Ingenuity”) Buch tells the story.

“Mr. Simpson’s [year at issue] Form 1040 was not signed by him nor accompanied by any document showing that he authorized anyone to sign it on his behalf. An individual return must be signed by the individual required to file the return or by an agent authorized to sign on behalf of the individual. If the return is signed by someone authorized to do so, that authorization must accompany the return. Because Mr. Simpson neither signed his [year at issue] Form 1040 nor included a document showing that he authorized an agent to sign it on his behalf, the return filed as Mr. Simpson’s [year at issue] Form 1040 is not a valid return.” T. C. Memo. 2023-75, at p. 2.

Dennis disavows any knowledge of this spurious document, which was filed the last day for extension for year at issue.

“The return included two signatures: one for [Curt], a certified public accountant who signed as the preparer, and one purporting to be for Mr. Simpson.” T. C. Memo. 2023-75, at p. 2. (Name omitted).

The plot thickens.

“How Mr. Simpson’s purported signature came to be on that return is unclear. [Curt] prepared returns for Mr. Simpson and other petitioners involved in these consolidated cases. Petitioner Noel Parducci, who at the time was an administrative assistant to Mr. Simpson and petitioner Jeffrey Hoyal, obtained the returns from [Curt] and delivered them to Mr. Hoyal in his office. A short time later, Ms. Parducci took envelopes containing tax returns to the Jacksonville, Oregon, post office for mailing. Mr. Simpson’s purported return was mailed from Jacksonville, Oregon, and we infer that one of those envelopes contained that return. Notably, Mr. Simpson was not present at Mr. Hoyal’s office and lived in Southern California at the time.” Idem, as my high-priced colleagues would say.

It wasn’t until trial prep that Dennis (pro se, or he wouldn’t have raised the question; see infra) mentioned the dubious return. IRS requests a special hearing on the authenticity of the purported return.

“This new issue arose long after the Petitions in these cases were filed, and the resolution of this issue would likely affect the discovery and ultimate issues to be tried in these cases. Both Mr. Simpson and the Commissioner provided Exhibits and Prehearing Memoranda. Various witnesses testified, including JG, a forensic document examiner, who opined that the signature on the [year at issue] return was not Mr. Simpson’s signature. Mr. Simpson testified that he neither signed the return nor authorized anyone to sign the return on his behalf.” T. C. Memo. 2023-75, at p. 3. (Name omitted).

Now pay attention, as Judge Holmes would say.

“No one offered any contradictory evidence.” T. C. Memo. 2023-75, at p. 3.

Huh? IRS presumably had conducted an examination of said return. There’s no mention of TEFRA, so no FPAA in play. Did Dennis skip the audit? No Form 2848 is proffered, Dennis is pro se, so what happened at exam?  And now that Dennis woke up, and Judge Ingenuity Buch has no choice but to find on this record that Dennis didn’t file the return IRS says he filed, now what?

“An appropriate order will be issued.” T. C. Memo. 2023-75, at p. 4.

Well, Judge Buch is as good as his word, and here’s his ingenious order.

“…the Commissioner may, without motion or further leave, amend his Answer in Docket No. 17771-21 by July 28, 2023.”

Taishoff says Dennis really outsmarted himself. He never produces a return for year at issue that he says he did file. Obviously, IRS doesn’t have any except the bogus one, and produces no evidence to show Dennis did file anything. So the record shows Dennis never filed for year at issue, and Dennis never claims he did file. Hence SOL is wide open, not merely for whatever transactions are subsumed in the SNOD and pleadings, but the whole enchilada for year at issue.

What does Dennis do if IRS moves to sever Dennis for want of jurisdiction (invalid SNOD, but unlike most invalid SNOD jurisdictional tosses, the year at issue isn’t closed), issues a SFR claiming everything under the sun, and claims interest and penalties from the get go? And Dennis’ erstwhile consolidateds have meanwhile litigated their cases to a finish, leaving Dennis on his lonesome, with no issue or claim preclusion. However bad the SNOD might have been here, I doubt it would be worse than no SNOD at all.

Ch J Kathleen (“TBS = The Big Shillelagh”) Kerrigan lays an oldie-but-goodie on Anthony J.A. Bryan, Jr., a.k.a. Anthony Bryan, Jr., John A. Bryan, or John Bryan, Jr., T. C. Memo. 2023-74, filed 6/20/23. You must have skin in the game.

To take NOLs per Section 172, you must have suffered a real economic loss. That does not mean buying into a couple LLCs (hi, Judge Holmes) doing movie production deals with nonrecourse promissory notes on which you never pay interest or principal. And the membership interests you get in said LLCs include no requirement to make good shortfalls in your capital accounts, pay any LLC obligations, or be obligated for cash calls.

For the promissory note story, see my blogpost “A Sour Note,” 9/3/14.

AJAB ran no risk, so gets no benefits. Ms. AJAB gets innocent spousery.

Y’know, maybe a few interest payments could save the day, and a less-insulating operating agreement might help, too. Remember, dodging highroller: pigs git fed, hogs hit et.