That’s a SNOD, says Judge Christian N. (“Speedy”) Weiler, to Michael J. Watson & Tracey L.Watson, et al., Docket No. 12220-21, filed 8/31/23, the als being a platoon of insurance companies, which I guess are microcaptive cashstashes.

Mike & Tracey claim all kind of malfeasance and malpractice at Exam, and violations of the Taxpayer Bill of Goods, but de novo is the Tax Court mantra when it comes to SNODs, and the past isn’t even prologue.

“A proceeding before this Court to redetermine a deficiency is a proceeding de novo, and we generally will not look behind a notice of deficiency to examine the Commissioner’s procedures in making the determination. Our decisions are based on the merits of the record before us, and not on the record developed at the administrative level. 

“Accordingly, our review of petitioners’ tax liabilities is not limited to the administrative record, nor will it be based on the RA’s examination. On the facts before us, we decline to look behind the notices of deficiency to consider the actions of the Commissioner and his RA.” Order, at pp. 4-5.

As for the “simple cryptic letter” above cited, which Mike & Tracey claim isn’t a SNOD, “(A)ll that is required is that the notice advise a taxpayer that the Commissioner has in fact determined a deficiency. ‘Thus, all a notice of deficiency need do is identify the taxpayer, show that a deficiency was determined, state the taxable year involved, and set forth the amount of the deficiency.’” Order, at p. 5. (Citations omitted).

Seems like Section 7522(b)(3) is an orphan. Appeals never gets mentioned in these cases; maybe that’s also a throwaway.

It may be elementary, my dear Watsons, but it’s still a SNOD.

I’ve dealt with the Taxpayer Bill of Goods, s/a/k/a the Taxpayer Bill of Rights before, principally in my blogpost “The Taxpayer Bill of Goods,” 4/17/19. Moya, a particularly badly-litigated case, is cited here, as is the Jersey Boys’ attempted stretch (see my blogpost “The Taxpayer Bill of Goods – Part Deux,” 6/20/19, where I said “Be the ice thin and the sun hot, they will go for it.”). 

Nothing new here: no new rights, no separate cause of action.

As for due process, whatever Exam didn’t give them, Judge Speedy Weiler will give Mike & Tracey both barrels and a reload.

Judge Albert G. (“Scholar Al”) Lauber goes past the simple “we got nothing, so you get nothing” beloved of the Ogden Sunseteers in Andrew Bill Katakis, T. C. Memo. 2023-112, filed 8/30/23.

Andy B. says Target (the putative bad guys, not the department store) “engaged in money laundering through real estate transactions. He included a spreadsheet listing hundreds of such transactions, showing for each the buyer, the seller, the sale price, the property address, the transaction date, etc. For some transactions he appended ‘WB Comments,’ e.g., ‘Where did the down payment come from and who is making the loan payments and what is the current loan balance[?]’ He did not allege any specific violation of any Federal tax law.” T. C. Memo. 2023-112, at p. 2.

The OS did send Andy B’s disquisition over to SB/SE for a classifier (that’s a subject matter expert) to unscramble said frittata, but the classifier found no way of determining year(s), or source documents, to show what tax hadn’t been paid, so the OS bounced Andy B. without sending his stuff to Exam.

Andy B. petitions, but of course is denied.

“In Li v. Commissioner, 22 F.4th 1014, the D.C. Circuit delineated this Court’s jurisdiction to review cases (like this one) where the IRS has issued a threshold rejection of a whistleblower’s claim. In Li the WBO rejected a whistleblower’s claim on the ground that the information she submitted was ‘vague and speculative.’ Id. at 1017. The WBO did not forward the claim to an IRS examination team for further review, and no action was taken against the target taxpayer.

“The D.C. Circuit held that the Tax Court lacked jurisdiction in these circumstances because the IRS had made no ‘award determination’ within the meaning of section 7623(b). Li v. Commissioner, 22 F.4th at 1017. As the court explained, ‘an award determination by the IRS [under section 7623(b)] arises only when the IRS ‘proceeds with any administrative or judicial action described in subsection (a) based on information brought to the Secretary’s attention by [the whistleblower].’” T. C. Memo. 2023-112, at p. 3.

So according to DC Cir, whatever happens in Ogden stays in Ogden, unless some money winds up with IRS.

I’ve hammered Mandy Mobley Li enough before now, and DC Cir’s rather unusual (to be charitable) decision equally. That said, I can’t but feel that the entire Tax Court bench is not thrilled to bits with Li. Is Tax Court’s only function to review how the Ogden Sunseteers divvied the swag? Is that really why Congress enacted Section 7623?

If the answer to the two foregoing questions is “yes,” why does Judge Scholar Al discuss what happened before the OS kicked Andy B’s Form 211?

I await further enlightenment.

Judge Christian N. (“Speedy”) Weiler loses no time in finding IRS’ counsel guilty of bad faith in continuing to rely on a backdated lead sheet for chops, while keeping knowledge of same concealed from Tax Court and Lakepoint Land II, LLC, Lakepoint Land Group, LLC, Tax Matters Partner, T. C. Memo. 2023-111, filed 8/29/23.

IRS’ thirteen (count ’em, thirteen) attorneys claim “… his actions—and those of his counsel— fall short, but he contends that these actions do not rise to the level of fraud or bad faith and therefore do not warrant the imposition of any sanctions. Respondent argues that his counsel has complied with ABA Model Rule 3.3(a)(1) and (3) and with Rule 201 requiring candor to the Court.” T. C. Memo. 2023-111, at p. 6.

Judge Speedy Weiler kicks IRS’ protestations to the cliché, vacates the summary J on chops he gave IRS back in March (which I didn’t blog because it looked like the usual), and unloads on IRS’ counsel.

“…we find respondent’s counsel knew or should have known, no later than November 2, 2022, that his representations made to this Court were less than accurate and lacked candor and that RA B’s Declaration was false. Under ABA Model Rule 3.3, respondent’s counsel has an ongoing obligation to correct these misrepresentations of fact but failed to do so. Rather than correcting this material misrepresentation found in respondent’s Motion for Partial Summary Judgment, respondent’s counsel sought to pivot and present additional evidence on an alternative legal theory without withdrawing or conceding the original legal theory for why summary adjudication was appropriate here. Furthermore, no other remedial action was taken with the Court to correct the error until April 10, 2023, which was after this Court had issued its Order granting respondent’s Motion.

“In sum we find respondent’s counsel failed to timely advise the Court of RA B’s erroneous Declaration. Accordingly, we find the actions of respondent’s counsel to be in bad faith and to have multiplied the proceedings in this case unreasonably and vexatiously. See I.R.C. §6673(a)(2). In fact the actions of respondent’s counsel have, among other things, resulted in petitioner’s retaining additional counsel to elicit the truth regarding the section 6751(b) issues in this case and have substantially increased the discovery and motion practice required. However, the actions of these actors should not be attributed to respondent directly.” T. C. Memo. 2023-111, at pp. 11-12. (Name and footnote omitted).

Hey taxpayers, note that these shenanigans “… brings down upon the United States, subjects the United States to, and makes the United States vulnerable to liability for the costs, expenses, and fees attributable to the services of the taxpayer’s attorney’s professional services that are required as an appropriate response to the misconduct. I.R.C. § 6673(a)(2). The United States incurs the attorney’s fees by operation of law under section 6673(a)(2)(B), just as a taxpayer incurs a penalty for his own misconduct under section 6673(a)(2)(A). T. C. Memo. 2023-111, at p. 13.

That means us, troops.

However, my suggestion back last week, about a Rule 104 sanctions order barring any evidence of Boss Hossery, (see my blogpost “La Commedia È Non Finita,” 8/22/23) is a no-fly. The Lakepoints were trying Rule 123(b) “decide against any party any issue as to which such party has the burden of proof.” “Inappropriate,” says Judge Speedy Weiler.

And Judge Speedy Weiler will decide what excess costs, expenses and attorneys’ fees were reasonably incurred after the trial.

I cannot think this is the last we’ll hear of this sort of jiggery-pokery. Here comes the silt.

I don’t know if Judge Courtney D. (“CD”) Jones is a Blake Shelton fan, but she’s telling Appeals that Austin is what matters. And that’s especially true when NEH-ETA is the flavor du jour, as in Randine Bickel, a.k.a Melba Schoolfield, Docket No. 22038-22L, filed 8/29/23.

Randine’s is a sad tale, a nogoodnik ex-husband who cons her into getting them a CO pottery license and grabs the gelt, leaving Randine with an astronomical tax bill because Section 280A anti-pottery. And Randine is depressed, drug-addicted, and otherwise incapable, although she’s got better than half-a-million to cover $306K tax and chops. Her OIC on non-economic hardship-effective tax administration (NEH-ETA) was $1K. Appeals bounces, and IRS moves for summary J sustaining.

Randine has a trio of trusty CO pot-wise attorneys, whose lead I’ll call Nic. Nic has the knack, urging Appeals at the CDP “to reevaluate the OIC on non-economic hardship (NEH) ETA grounds, and specifically regarding public policy and equity considerations. Ms. Bickel also stated that the OIC should have been forwarded to the special group in Austin, Texas that handles NEH-ETA offers (Austin Group).”  Order, at p. 6.

Now I didn’t know that either, so apologies to my ultra-hip readers who memorized IRM 5.8.11.3.2 – Public Policy or Equity Grounds  – in childhood’s earliest hour. But Judge CD Jones apostrophizes the Austin outfit, and bounces IRS’ summary J motion to sustain the NOD.

“The IRM provides that ‘[a] taxpayer who has submitted an offer under NEH-ETA or has requested consideration of any public policy or equity issues during the offer investigation must have those issues reviewed by the NEH-ETA group prior to rejection of the taxpayer’s offer or before a rejection is sustained.’ IRM 5.8.11.5.1(8) (Oct. 4, 2019) (emphasis added). After the Austin Group considers the public policy and equity issues, the group manager of the Austin Group must either explain why the taxpayer’s offer cannot be investigated or request that the matter be transferred to the Austin Group. IRM 5.8.11.5.1(5) (Oct. 4, 2019).” Order, at p. 12. (Emphasis by the Court).

Appeals knew they had to go to Austin, but held up because they didn’t calculate Randine’s life expectancy when they did the numbers, and all open matters have to be decided before sending the file to Austin per IRM 5.8.11.5.1(7) (Oct. 4, 2019). Appeals did a back-and-forth with the AO and his boss, and didn’t send Randine to Austin.

Judge CD Jones gives IRS a chorus of the Hot Country 100 special of 2001.

“… we cannot conclude that AO M did not abuse his discretion. As we have explained above, the record is devoid of an explanation regarding Ms. Bickel’s NEH public policy and equity arguments—including why the matter was not sent back to the Austin Group as required by the IRM and recognized by AO M—which frustrates the Court’s ability to discern Appeals’ reasoning and properly review its determination.” Order, at p. 13. (Citation and name omitted).

Remanded for Appeals to explain. I suggest the supplemental CDP include a trip to Austin.

Because as Nic might say, if this is Austin, I still love you.

My untiring mantra will form an intro to the next Tax Court Webstravganza, coming to a smartphone near you on 9/27/23,  STJ Diana L (“Sidewalks of New York”) Leyden serving as moderator. It’s a paean to the LITCs and calendar call commandos, first responders to the deer-in-the-headlights enmeshed in the anfractuosities of US Tax Court.

I can only hope that those who need it will heed it.

While Lakepoint‘s tale of backdated Boss Hossery is grabbing headlines, lower-profile cases are surfacing wherein IRS has been a wee bit less than candid and meticulous with its SNODs and Boss Hossery.

Ex-Ch J Maurice B (“Mighty Mo”) Foley slugs IRS thus: “[IRS’] conduct falls woefully short of our expectations for practitioners who regularly appear before this Court. Respondent’s counsel knew that the Answer Notice was the byproduct of an undisclosed reconstruction process. Counsel failed, in respondent’s first Status Report, to inform the Court of the reconstruction process. When questioned about the authenticity of the Answer Notice, respondent’s counsel admitted he had knowingly submitted a reconstructed document.

“We have no confidence that the slipshod-cut-and-paste Status Report Notice presented to the Court was the version of the notice of deficiency actually sent to petitioner.” R. J. Channels, Inc., T. C. Memo. 2023-109, filed 8/28/23, at p. 5.

And this case is not a one-off: “…respondent’s ‘common practice’ of reconstructing notices of deficiency is particularly disconcerting. Because respondent’s reconstruction has created doubt as to whether respondent determined the accuracy-related penalty in the notice of deficiency sent to petitioner, striking the revised Proposed Stipulated Decision is warranted. The parties shall file a revised decision document.” T. C. Memo. 2023-109, at p. 5.

IRS claims the COVID lockdown, which separated teletubbies from the paperwork, made them go to the scanned PDFs to do it. Maybe so, but tell the judge what you’re doing.

You can read for yourselves the back-and-forth wherein IRS’ counsel explain their reconstructionism.

I’ve had cases where documents needed to be reconstructed, but insisted that clients explicitly and conspicuously so label them, and document the circumstances which necessitated the same.

IRS wanted Section 6662 chops and a stipulated deficiency. I wonder what they will wind up getting.

Bloomberg, please copy.

Ch J Kathleen (“TBS = The Big Shillelagh”) Kerrigan announces two (count ’em, two) additions to the ranks of the STJs, one arriving next month and the next the month after.

I’m pleased to welcome (as I’m sure my readers will) Jennifer E. (“Publius”) Siegel, ex-Public Affairs honcho, to CSTJ Lewis (“Honor That Name”) Carluzzo’s small but argute band. Ms. Siegel has been a constant correspondent over the years of her tenure at Public Affairs.

Let’s all welcome Zachary S. (“Highrise”) Fried, Esq., coming over to 400 Second Street, N. W., from 1025 Connecticut Avenue, the home of the Apartment and Office Building Association of Metropolitan Washington; as an old-time dirt lawyer, those are my kind of guys.

I look forward to illuminating opinions and great blogfodder.

Scott Allan Webber, Docket No. 14307-18L, filed 8/25/23, tries again to drench his liability in a cascade of alleged credits, seeking reconsideration and vacation, but Judge David Gustafson turns off the cascade.

The backstory is in my blogpost “With Cold Cascade – Part Deux,” 5/22/23.

“…on his tax return for each year in this series of years, Mr. Webber claimed as a payment a large credit elect from the previous year, and did not request a refund of the resulting large overpayment in the current year, but instead requested that the entire claimed credit be applied to the succeeding year (in an amount that he expected would greatly exceed the liability for that succeeding year). Thus, his apparent plan was to leave in the IRS’s hands indefinitely a large overpayment amount rolling forward. In order for the IRS to determine, in such a circumstance, whether in any year Mr. Webber has overpaid (or underpaid) his taxes, this ‘cascade’ makes it necessary to determine his liability for each year in the cascade. An adjustment in any year may affect the liability in any subsequent year. This is a situation—of Mr. Webber’s deliberate making—that is looking for trouble.” Order, at pp. 3-4.

Scott Allan is crafty: he files each return late, but not quite three (count ’em, three) years late, keeping SOL open throughout the cascade. This throws IRS’ recordkeeping off, as does “his unorthodox reporting,” Order, at p. 4. This does not endear Scott Allan to Judge Gustafson.

Nevertheless, and notwithstanding the foregoing, though the Tax Court cascade is now quenched, Scott Allan can try USCFC or USDC.

“As we noted in our opinion (at 30-32), Mr. Weber may have available the remedy of a refund suit, in which suit the issue would be not simply whether the IRS had allowed a credit (the only issue here) but instead whether Mr. Weber overpaid his tax for the years at issue in such a suit. In that case, he would then presumably have the opportunity to put on proof of his initial overpayment and of the unbroken cascade into subsequent years until the amount of the ‘available’ credit were to equal zero. But in this case, we cannot adjudicate that overpayment issue….” Order, at p. 4.

Hence Rule 155

I blogged Tax Court as preparer years ago, but that sort of service faded into distant memory. I also blogged petitioners who tried to turn Rule 155 beancounts into Rule 161 reconsids or Rule 162 vacations, but those met with such short shrift that they fell out of fashion.

Rule 155 remains as a bulwark of Tax Court practice; the parties, not the judges, do the numbers. I can’t see Judge Courtney D. (“CD”) Jones spending her leisure time booting up the TurboTax for the year at issue and sorting out Joseph William Sherman, Docket No. 22276-19, filed 8/24/23.

I didn’t blog Joseph William (that’s Doc Joseph William of the emergency room) when he appeared in T. C. Memo. 2023-63, filed 5/17/23, a mixture of “goofy regulation” and indocumentado, with little “to detain the tourist”, as that tire man says.

Doc Joseph William tried a Motion for Default and Dismissal, wherein he tried to reargue his case; this was too late for Rule 161 (30 days from opinion) and hadn’t any numbers to comply with Rule 155. IRS did the numbers, to which Doc Joseph William replied with an Answer.

“Therein, Dr. Sherman again disagreed with the Court’s Memorandum Opinion and asked the Court to review its findings. Dr. Sherman did not comply with the provisions of Rule 155.” Order, at pp. 1-2.

Enter decision for IRS.

Note to petitioners: When you have the papers, pound the papers. When you have the numbers, pound the numbers. When you have neither papers nor numbers, go pound sand.

Fan that I am of summary J, here is a textbook example of how this tool carves away the nonessential and focuses on the main point. Of course, the trusty attorneys for Bradford Resources LLC, Bradford Investors LLC, Tax Matters Partner, Docket No. 13012-20, filed 8/23/23, are the first team, including but not limited to Vivian D. (“Golden”) Hoard, Esq., whose forensic talents I’ve praised before.

First, clear the decks. The Bradfords want summary J that the 501(c)(3) to which they gave the conservation easement (for which they want a $24 million deduction, of which IRS allows $42K) is indeed a 501(c)(3). They brandish IRS’ own website, and Judge Christian N. (“Speedy”) Weiler agrees.  “The IRS, on its website, maintains a searchable list of tax-exempt organization [sic].” Order, at p. 2, footnote 2. Yes, they could do this at trial or by request for admissions, but there’s a good reason to do it this way. Get the judge involved early.

Next, the Bradfords want summary J that their Contemporaneous Written Acknowledgement, a ripped-from-the-Regs tracker, satisfies Section 170(f)(8). Here it is: “Your contribution to the ACC, a 501(c)3 nonprofit organization, is fully tax deductible. ACC has provided no goods or services for your charitable donation. Donation of a conservation easement on a 150.75-acre parcel located off Tanyard Road/Shelby County Road 449 in Harpersville, Alabama 35078 partially constituting tax parcel #175150000001.003 in Shelby County, Alabama.” Order, at p. 2. Can’t say fairer than that. And Judge Speedy Weiler likewise agrees.

Of course, there’s the landmine in the footpath. The Bradfords want summary J that their appraisal summary satisfies the standards of Section 170(f)(11)(C) and  Reg. Section § 1.170A-13(c)(4). IRS folded the 501(c)(3) status of the donee and the adequacy of the CWA. But IRS wants to play its standard gambit, and  knock out the appraisal rather than try the case on valuation. So IRS’ counsel asserts that the Bradfords failed “to disclose the presence of ‘biosolids and biosolid storage’ on the donated property.” Order, at p. 3. (Footnote omitted).

That, says Judge Speedy Weiler, is a question of fact. Now according to the omitted footnote above referred to, IRS raised the biosolids issue in an informal discovery request (Branerton play-nice), to which the Bradfords responded. So isn’t the issue the adequacy of the response, whether it was evasive or not fairly directed to the question posed? Of course, the Order doesn’t set forth the request nor the response. The real questions of fact are whether or not biosolids and biosolid storage are present on the donated property; what difference it makes to whether a valid conservation easement has been granted, and, if one has been granted, what impact the biosolids have on valuation.

But Ms. Golden Hoard and colleagues have materially advanced their cause. Summary J requires movant and respondent to marshal and lay bare their proofs.  The 501(c)(3) and the CWA are off the table. IRS has tipped its hand as to what it sees as a critical issue, to focus the Bradfords’ experts on a key point in their adversary’s case.

So the Bradfords got discovery from their adversary, they had a chance to show the judge that their claim had merit and that they were candid, and they gave away no major part of their trial strategy.

A Taishoff “Good Job, First Class.”