Karim Gobran and Ashley Smith-Gobran, T. C. Sum. Op. 2023-24, filed 7/20/23, told CSTJ Lewis (“A Better Name Would Be Hard to Find”) Carluzzo that the deaths of two close relatives (more than five years after the due date of a late-filed return) caused the late filing and the Section 6651(a)()1) chop.

“We understand how family deaths can disrupt or interfere with routine obligations; but the timing of the events suggests that one had nothing to do with the other.” T. C. Sum. Op. 2023-24, at p. 6.

And Karim apparently was able to carry on with his tennis pro teaching as the due date of that year’s return slipped farther astern.

So Karim’s testimony ” that petitioner was ‘consumed’ with his work and there ‘was always something more important than doing the taxes,” T. C. Sum. Op. 2023-24, at p. 6, was something that Taishoff would not recommend telling any Tax Court Judge or STJ, even one so douce as CSTJ Lew.

“…it might well have been that petitioner had competing demands on his time around the due date of petitioners’ [late] return. We expect that petitioner prioritized those demands in a manner that best suited petitioners’ interests at the time. However, as we noted in Wilkinson v. Commissioner, T.C. Memo. 1997-410, slip op. at 18, ‘a taxpayer’s selective inability to meet his or her tax obligations when he or she can carry on normal activities does not excuse a late filing.’” T. C. Sum. Op. 2023-24, at p. 6.

Tennis pro, when it comes to filing returns, the only court you should care about is Tax Court.

Sorry for the late blogposts, but today’s events at the American Legion Department of New York Convention District One caucus were far more taxing than the events recounted in these my blogposts today.

James H. (“JIm”) Kim, T. C. Memo. 2023-91, filed 7/20/23, claims he shouldn’t be taxed on his long-term capital gains from now-closed pre-COVID years, because he got slaughtered on his cryptocurrency dealings in 2020, which slaughterings he can’t carryback.

Judge Albert G. (“Scholar Al”) Lauber suggests that, even if Jim Kim’s claims that the guv’mint is a den of iniquity, his claims are but the din of inequity, or, as an authority even more exalted than Judge Scholar Al put it, “a resounding gong or a clanging cymbal.”

“Petitioner does not dispute the amount or character of the net capital gains determined in the notice of deficiency for [closed years]. But he contends that the virtual currency assets that gave rise to these gains ‘were completely wiped out’ in 2020, during the early days of the COVID epidemic. He represents that he had taken out a large loan to finance his cryptocurrency transactions; that BTC and other virtual currencies declined precipitously in a single day; that he was unable to meet a margin call; and that his virtual currency positions were liquidated at a very substantial loss. He asserts that the actions (or inaction) of the U.S. Government in response to the COVID epidemic ‘directly caused [that] harm’” and that, “under the Clean Hands doctrine of US law,’ the IRS should be estopped from collecting tax on his [closed years] gains.” T. C. Memo. 2023-91, at p. 4.

Sorry, Jim Kim, “Petitioner’s argument has no legal basis. The doctrine of estoppel can be invoked against the United States only in the rarest of circumstances. In any event, the ‘unclean hands’ principle is designed to withhold equitable relief from one who has acted improperly. Respondent is not seeking equitable relief but is endeavoring to recover taxes determined to be due from petitioner under the Internal Revenue Code. And while petitioner may disagree with the Government’s policy response to the COVID epidemic, he has not shown that any agency of the Government (much less the IRS) acted improperly.

“When relevant, the ‘unclean hands’ defense applies only to conduct immediately related to the cause in controversy. The Government’s actions in response to the COVID epidemic have no relationship whatever to the determination of petitioner’s [closed years] tax liabilities.” T. C. Memo. 2023-91, at p. 5. (Citations omitted).

Besides, every year stands on its own.

“‘A fundamental tenet of the Federal income tax is the “annual accounting principle.”‘ This principle dictates that a taxpayer’s income for a particular year be calculated on the basis of the events occurring during that year. Congress has mitigated this principle to some degree by allowing the carryback and carryforward of certain losses and credits. But while corporations generally may carry capital losses both forward and back, § 1212(a)(1), Congress has been less generous in the case of individual taxpayers. For them, the excess of capital losses over capital gains recognized for any year may be carried only to ‘the succeeding taxable year.’ § 1212(b)(1). Any capital losses petitioner realized in 2020 are thus irrelevant in determining his tax liabilities for [closed years].” T. C. Memo. 2023-91, at p. 5. (Citation omitted).

I most respectfully implore Judge James S. (“Big Jim”) Halpern as first hereinabove set forth; please remember that lawyers can’t add. So when RA KK (name omitted), armed with zeal and Excel, takes on the self-prepared, mostly handwritten returns of Richard John Cardulla, T. C. Memo. 2023-89, filed 7/19/23, numbers fly blizzard-like. RJ is “an attorney. His mailing address was in California when he filed the Petition. He has been involved in real estate activities for many years.” T. C. Memo. 2023-89, at p. 5.

Judge Big Jim spent most of pages 4 and 5 eviscerating RJ’s reply brief.

RJ is scanty with the substantiation, so many deductions founder. Blank lines on returns and arithmetic delictions furnish forth an eye-glazing trudge through RJ’s wheeling and nondealing. He can’t make out that he was in a trade or business for years at issue, but he does score on investment. Unhappily, Section 163(d)(1) investment interest capped at investment income puts paid to that one.

But Judge Big Jim comes into his own when Section 163(e) boards RJ over the bows. RJ buys out a couple partners (hi, Judge Holmes) with a 10-year, 10%, $1.2 million note, no installment payments, and single payment of principal and accrued interest at maturity. The note is bona fide, mostly for want of any contrary evidence.

RJ wants to deduct the accrued but unpaid interest annually.

In piratical tones, Judge Big Jim intones, “OID!”

Taishoff says “OMG!”

There follows from page 22 to and including page 27 a granular analysis of how to compute, characterize, categorize, deconstruct and defenestrate RJ’s note.

I recommend the analysis to those who can add.

William J. (“Old Bill”) Wise, Esq., cannot save Laidlaws Harley Davidson Sales, Inc., T. C. Memo. 2023-90, filed 7/19/23, as the Laidlaws materially participated in challenging the deficiency and entered into a stipulated (agreed) decision (the “2016 decision”, what we State courtiers would call a “judgment”) fixing tax and chops.

Now the bikers want to challenge the enhanced Section 6662A chop for failing to report a listed transaction, per Notice 2007-83, 2007-2 C.B. 960. The bikers claim inadequate Section 6751(b) Boss Hossery, and failure of IRS to consider all comments per APA. When IRS hit them with NITL and NFTL, they asked for a CDP.

“Petitioner represented to the settlement officer that the only ground on which it challenged the collection activities was respondent’s lack of compliance with section 6751(b) related to the 2008 section 6662A penalty. Petitioner requested that the collection due process hearing be rescheduled to allow for the attendance of an additional attorney, who would argue that respondent failed to comply with section 6751(b). The settlement officer rejected this request on the basis that petitioner was precluded from advancing that argument.” T. C. Memo. 2023-90, at p. 3. (Footnote omitted).

Judge Travis A. (“Tag”) Greaves says Old Bill is too late.

“In the prior [deficiency] case petitioner challenged the assessment of the penalty under section 6662A. That penalty was specifically noted in the 2016 decision. Further, petitioner materially participated in the proceedings as it instituted the proceeding, filed numerous motions, and engaged in settlement negotiations resulting in the stipulated decision. Thus, the issue of the section 6662A penalty satisfies the requirements of section 6330(c)(4), and petitioner is precluded from arguing the penalty was improperly determined.” T. C. Memo. 2023-90, at p. 5.

Old Bill fares no better with trying to unscramble the Section 6662A-Notice 2007-83-APA frittata.

“Verifying compliance with the APA is a substantive review. Like verifying the retroactive repeal of a statute, verifying APA compliance would require the settlement officer to comb through the record created at the time of publication and ascertain the applicable requirements of the APA. To require this analysis of every publication relied upon by the IRS would impose a substantive review, which is not a proper inquiry under section 6330(c)(1). Rather, the APA challenge to the validity of Notice 2007-83 is a challenge to the underlying liability. Petitioner cannot challenge the underlying liability in this case, and therefore the settlement officer did not abuse his discretion in not verifying compliance with the APA.” T. C. Memo. 2023-90, at p. 9.

Oh yes, to all my readers who are yelling “Hey dude, read your blogpost ‘Listing Is Legislating,’  11/9/22,” I reply that Judge Tag Greaves cites the Green Valley Invs. case, and says maybe so it might could be peradventure that IRS flunked the APA test on Notice 2007-83, but an SO needn’t check that out in a Section 6330(c)(1) verification.

Laidlaws is 9 Cir bound. With $16,800 on the table, is it worth bonding and appealing?

But again my mantra rings true: Participate, stipulate, but don’t capitulate.

Fernando Ponce and Natalie Ponce, T. C. Sum. Op. 2023-23, filed 7/18/23, show the burden of leadership as well as its reward. Fernando was a lead plaintiff in a wages-and-hours class action. These are a specialty du jour in service industries, where workers work off-the-clock to dodge Fair Labor Standards Act and State law analogs. Fernando got $15K for his trouble, and a 1099-MISC nonemployee compensation at no extra charge. The $15K never made it onto his and Nat’s 1040 MFJ.

Problem is that, though Fernando “traveled, took time off work, and regularly communicated with law firms in pursuing the litigation,” T. C. Sum. Op. 2023-23, at p. 4, he has no substantiation of any expenses to offset the $15K pickup.

STJ Peter (“HB”) Panuthos: “While we recognize that petitioner may have expended time and money to pursue his claim, from the record before us we are unable to conclude that the service award was a reimbursement for expenses incurred in pursuing the lawsuit or that it is excludable from petitioners’ income. Even if we were to find that the service award represented reimbursement for expenses, the record is vague and insufficient as to the nature of expenditures petitioner made in support of the lawsuit.” T. C. Sum. Op. 2023-23, at p. 4.

Fernando’s claim that IRS treated another lead differently founders.

“While we may give the Commissioner’s determinations involving another taxpayer some consideration, we are not bound by them. Even if we were to consider the documents concerning another taxpayer, the record does not support petitioners’ assertion that the service award is nontaxable. The documents concerning another taxpayer simply demonstrate the Commissioner had proposed changes to his tax return…and that a discrepancy had been resolved.” T. C. Sum. Op. 2023-23, at p. 4.

Takeaway- Leaders, keep good records.

I’ve said it often, any lawyer who can’t find an ambiguity should find another way to make a living. Happily, once again, that Obliging Jurist Judge David Gustafson proves beyond mayhap or peradventure that he has found the right way.

See Denise Celess Garris, Docket No. 22405-19L, filed 7/18/23. Of course, Judge Gustafson has a major assist from IRS and Appeals, who seem unable to decide if they gave Denise Celess a NITL or a NFTL or both, and what happened at Appeals; on a remand, Appeals sustained the NFTL but held the NITL “not now sustained.” Order, at p. 3.

Appeals’ one-size-fits-all NITL-NFTL NOD brings to Judge Gustafson’s memory his famous “and/or”. rant about the Ogden Sunseteers’ use of the ambiguous locution, Order, at p. 2, footnote 1.

Denise Celess wants a vacation of an agreed decision from sixteen (count ’em, sixteen) months ago. The agreed decision confirmed a stipulated installment agreement that Denise Celess claims IRS breached.

The record, however, is a wee bit scanty. “If … the IRS did issue (as it alleges) both a notice of lien filing and a notice of proposed levy, and if (as the IRS seems to assume) Ms. Garris requested a CDP hearing as to both lien and levy, then IRS Appeals’ … determination apparently addressed (and sustained) only the notice of lien filing, and did not constitute a determination as to the levy notice. Thus, Ms. Garris was granted a CDP hearing as to the lien; but as to the levy, the CDP process has not yet been completed.

“Therefore, on these assumptions, Ms. Garris did not have the predicate for filing a Tax Court petition as to any proposed levy. Rather, when she filed her petition, we acquired jurisdiction to review only the lien-based determinations in the… notice.” Order, at p. 5.

My readers will cry out with one voice “30-day SOL on vacations!” Yes, but there’s an exception where Tax Court never had jurisdiction to render the order or decision at issue. And here the supplemental NOD appears to deal with a NITL that never was before the Court. Maybe Boechler, P. C. tolls this mess. Or maybe so there is still a pending NITL CDP that neither Denise Celess nor Appeals knows about.

In any case, let IRS bukh about “…what a taxpayer’s remedy is when, after a CDP case sustaining a notice of determination after the taxpayer and IRS Appeals reached an agreement, the IRS fails (more than 30 days after decision is entered) to honor that agreement.” Order, at p. 6.

But this is Judge Gustafson. He’s a master of the “nudge nudge, wink wink.”

“The Tax Court operates under Congressionally mandated strictures that define what we can and cannot address. The parties sometimes have liberty to go beyond those strictures. This might be a case in which the parties can resolve any disputes more efficiently and justly than the courts can. We encourage them to attempt to do so.” Order, at p. 6.

Settle the case, guys. Before Judge Gustafson finds more ambiguities.

As IRS’ “highly contestable readings of what it means to be perpetual,” its dubious readings of odds and ends of TEFRA, and the APA battering at its Regs, goes on apace, IRS is thrown back on the appraisal joust as its point d’appui in the Dixieland Boondockery wars.

And the never-say-die approach of the trusty attorneys for Lake Jordan Holdings, LLC, Lake Jordan Partners, LLC, Tax Matters Partner, Docket No. 16532-21, filed 7/17/23, keeps both Judge Patrick J (“Scholar Pat”) Urda and this hardlaboring blogger hard at it.

IRS, fresh from last week’s no-score scuffle over the Laker’s TEFRA Section 708 termination (see my blogpost “No Storming This Bastille,” 7/14/23), is trying to insert the testimony of Kelli Friday, Chief Appraiser of Elmore County, whereat lies the Lakers’ dilithium-crystal-laden boondocks with its $12.74 million conservation easement deduction.

The Lakers yell “Foul!” claiming Kelli is playing the expert without complying with Rule 143(g).

Kelli will bukh about “1) the price-per-acre value of land in Elmore County as determined by the county’s Revenue Commissioner and (2) the valuation methodology the county used for tax assessments.” Order, at p. 1.

Now we all know the relevance of the tax assessments to the actual value of the land varies widely. See my blogposts “Quanto? Lo Prezzo,” 7/24/12, and “From Coast to Coast,” 5/8/17.

Judge Scholar Pat is willing to listen to Kelli, so he won’t now bar her testimony (as the Lakers want), but if she steps over the line and tries to value the Lakers’ property, she’s out.

“From our current distance, it appears that the established price-per-acre value of land in Elmore County (as determined by the Revenue Commissioner) and a description of the county’s valuation methodology would constitute permissible lay testimony – assuming arguendo that the Commissioner could establish the relevance of this information. If Ms. Friday’s testimony strays into expert opinion as to valuation of the property at issue in this case, we would expect to sustain an objection as improper expert testimony in contravention of Rule 143(g).” Order, at pp. 1-2.

Cash-strapped IRS wants to avoid expensive experts. Watch for similar moves.

Cassandra Tucker and Edward Brodie, T. C. Memo. 2023-87, filed 7/17/23, have plenty of problems, but most arise from Cassandra’s want of records for her fashion lifestyle business, and that’s just more indocumentado.

Judge Tamara Ashford does allow Cassandra the $25K deduction for the extended visit she paid (with goods and models) to a limited access TV channel. Infomercials are advertising. See T. C. Memo. 2023-87, at p. 14.

“Nowadays, advertising through media comes in many different forms, from traditional forms, such as broadcast (i.e., television and radio) and print (i.e., newspapers, magazines, signs, and billboards), to new forms, such as websites, apps, emails, podcasts, blogs, and social networks. We view Ms. Tucker’s appearance promoting [business] on the Hidden Gemz television show as the equivalent of an extended, live television commercial, more along the lines of a traditional form of advertising through media. Furthermore, it is apparent that Ms. Tucker’s primary motive or purpose in appearing on the show was to increase [business]’s visibility and in turn generate sales of [business] products. Thus, on the basis of the record before us, we conclude that the expenses Ms. Tucker incurred by appearing on the show had a reasonably proximate relationship to [business] and Ms. Tucker’s primary motive or purpose for incurring the expenses…; thus, petitioners are entitled to deduct advertising expenses….” (Citations omitted).

Ed ran a rental realty operation with his friend Nassy, and they paid deductible mortgage interest. Problem was, Ed couldn’t prove what he paid. While they were tenants-in-common (presumably fifty-fifty), and while Ed claimed he ran and paid everything, and Nassy was passive, Ed had neither checks nor receipts for what was paid.

“Where a mortgaged property is jointly owned and the co-owners are jointly liable on the mortgage, each owner is entitled to a deduction for the mortgage interest that he or she actually pays out of his own funds.” T. C. Memo. 2023-87, at p. 21. (Citations omitted).

When you’re a partner, be you active or passive, nothing succeeds like paper.

United States Tax Court electronicutes the Biennial Slaughter of the Innocents, s/a/k/a the written examination for applicants other than attorneys at law (nonattorney applicants) for admission to practice before the United States Tax Court. Applications opened today; check out the (amended) press release.

Note the exam is scheduled for November 8, 2023, and is online only, using the ExamSoft platform. The Tax Court exam casualty list proves that this exam is anything but soft.

Dixieland Boondockery is giving partial summary J a real workout, as IRS and the Dixie Boondockers both want partial summary J every chance they get. Today, it’s the turn of Lake Jordan Holdings, LLC, Lake Jordan Partners, LLC, Tax Matters Partner, Docket No. 16532-21, filed 7/14/23. But the mutual storming of the partial summary J Bastille is less successful than the one France celebrates today.

Judge Patrick J. (“Scholar Pat”) Urda succeeds where the French guards failed, and refuses partial summary J to the Lakers and IRS. Y’all will recollect IRS did the Boss Hoss partial summary J slice back in April; if you don’t, see my blogpost “Wagging the Cattail,” 4/28/23. Maybe so it might could be that maneuver tipped off the Lakers; as my late law partner Sid used to say “Win the motion, educate your adversary.”

Now the issue is the tax year in which the Lakers claimed the $12.7 million conservation easement deduction for the land it bought the month before for $583K; oh, those dilithium crystals!

The original owners formed Holdings box-checked as a partnership and contributed the land in November; they unloaded 96% to Partners on December 29, 2017 and the same day recorded the easement in gross to the 501(c)(3).

Now all my jagged sophisticated readers will yell “TEFRA version of Section 708(b)(1)(B) termination! Holdings ceased to exist at transfer, so they couldn’t record anything!”

Except.

“Lake Jordan filed two short-year tax returns. The first covered the period from September 25, 2017 through December 28, 2017 (12/28 tax year). The second spanned the three days from December 29, 2017 through December 31, 2017 (12/31 tax year). Lake Jordan claimed a charitable contribution deduction of $12,740,000 for its donation of the easement on the 12/31 tax year return.” Order, at p. 2. (Citations omitted).  The FPAA covered the 12/31 year.

IRS claims the 12/31 year began 12/30, not 12/29.”He [Com’r] points out that Lake Jordan’s initial 2017 short tax year closes on the date that the partnership underwent the technical termination, i.e., December 29, 2017, and contends that its tax reporting encompasses all events that occur on that date. Drawing on Treas. Reg. §§ 1.708-1(d)(2)(i) and 1.443-1(a)(1), the Commissioner posits that the new post-termination partnership does not open its books for tax reporting purposes until the following day, i.e., December 30, 2017. The Commissioner concludes that the claim of the charitable contribution deduction on Lake Jordan’s 12/31 tax year return thus was claimed in the wrong tax year under section 170(a)(1) and must be disallowed.” Order, at p. 3. (Citations omitted).

The Lakers counter with creation of a new partnership immediately after the technical termination, emphasizing that this new entity donated the conservation easement. Their reporting reflected reality, and nothing in IRC or Regs  prohibits such treatment in the context of technical terminations.

Judge Scholar Pat, living up to his cognomen, is unimpressed by both sides’ reasoning.

“Neither party has provided a convincing explanation of the statutory and regulatory scheme that governs tax reporting in the context of technical terminations. To the contrary, each party has focused on one aspect of technical terminations (for the Commissioner, the close of the terminated partnership’s taxable year on December 29; for Lake Jordan, the existence of the new partnership immediately after the technical termination), while failing to demonstrate that those aspects dictate their preferred answers with respect to proper tax reporting. We will not render a decision on this point absent a more solid understanding of tax reporting in this context, which we trust the parties will provide in their posttrial briefing.” Order, at pp. 3-4. (Footnote omitted).

The omitted footnote abovementioned says that summary J doesn’t prevent the need for a trial, as chops (presumably enhanced overvaluation and understatement) and defenses thereto are still on the table.

Note the dates: The Lakers got in on 12/31/17, the last day of TEFRA (BBA 2015 repealed TEFRA effective years beginning 1/1/18). Did the Lakers get the Job 5:12 treatment?