I open my sermonette today with a line characterised by one critic as “the most self-conscious theatricality since the days of Caesar Augustus,” but it fits Lakepoint Land II, LLC, Lakepoint Land Group, LLC, Tax Matters Partner Docket No. 13925-17, filed 8/22/23. This is the current Boss Hoss blockbuster brouhaha, featuring asserted backdated Boss Hossery and alleged IRS skullduggery.

I’ve been on this case for more than a year, now; see my blogpost “Boss Hoss in the Silt,” 8/18/23.

Judge Christian N. (“Speedy”) Weiler has before him all the discovery argy-bargy, and the Lakepoints are getting a lot of what they want. To what extent this will avail them is another story.

The Lakepoints want “name and title (if applicable), and provide the contact information, including phone number, email, and address, for any party including third party, with whom You {IRS] have communicated since the issuance of the FPAA, either orally or in writing, in connection with this Matter and/or received information or any Document directly or indirectly relating to or involving LakePoint’s Easement Donation or Fee Simple Donation or the determination of any Tax Liability resulting, directly or indirectly, from said donations.” Order, at pp. 2-3.

They get it.”… we agree that respondent’s objections are improper and that his reliance on the work product doctrine is misplaced. The work product doctrine protects documents, interviews, statements, memoranda, correspondence, briefs, mental impressions, and tangible things prepared by an attorney in anticipation of litigation or trial. Contrary to respondent’s assertion that petitioner’s motion is aimed at discovering respondent’s trial preparation activities, we fail to see how petitioner’s request for a ‘list of identities and contact information for witnesses contacted by [r]espondent’ is tantamount to ‘unwarranted inquiries into the files and the mental impressions of [respondent’s counsel].’” Order, at p. 3. (Citations omitted).

And now the Big Kahuna. “Interrogatory No. 8 seeks an explanation for why respondent failed to timely inform the Court or petitioner of the false statements made in the Motion for Partial Summary Judgement (MPSJ) concerning respondent’s compliance with the written supervisory approval requirements of section 6751(b)(1) and the First Brooks Declaration.” Order, at p. 4.

No soap. “We agree with respondent that to answer the question why respondent ‘failed to timely inform the Court or Petitioner of the false statements in the MPSJ and the First Brooks’ Declaration’ would necessarily disclose the discussions between and the strategies of respondent’s trial team members, which amount to mental impressions protected by the work product doctrine. Accordingly, we will not require respondent to supplement his response to Interrogatory No. 8.” Order, at p. 4.

But the Lakepoints get a palpable hit. Judge Speedy Weiler tells IRS to provide “name and title all IRS personnel, including, without limitation, all members of the Office of Chief Counsel, who became aware of any misstatement in the MPSJ or the First Brooks Declaration before Petitioner’s counsel contacted Respondent’s counsel on March 27, 2023 to schedule a meeting and provide the date on which such person became aware of any such misstatement.” Order, at p. 4.

As the Lakepoints are seeking sanctions, “(W)e will therefore direct respondent to make a forthright and comprehensive response… providing petitioner with the specific dates (or close approximation thereof). To the extent respondent asserts that the requested information does not exist or cannot be secured, he must certify that he made a reasonable search and/or request for the information and that, to the best of his knowledge, the response is complete.” Order, at p. 5.

There’s a lot more, and you discovery geeks will want the citations for your toolkits.

But I’m sad to tell the Lakepoints, and their highroller clients who are presumably paying for this, that Judge Speedy Weiler has told them Boss Hossery is a  nonstarter, whatever penalties and sanctions may befall IRS’ minions.

The whole story is in footnote 1 at page 1. “Absent stipulation to the contrary, this case is appealable to the U.S. Court of Appeals for the Eleventh Circuit, and we thus follow its precedent. See Golsen v. Commissioner, 54 T.C. 742, 756–57 (1970), aff’d, 445 F.2d 985 (10th Cir. 1971).”

See my above-cited blogpost.

Edited to add, 8/23/23: To every gambit, there is always a countergambit. A brief exchange with colleague Peter Reilly, CPA, brought to light the motion for sanctions per Rule 104(c), barring IRS from introducing any evidence of compliance at any time and in any manner with Section 6751(b), taking Kroner out of the case.

Confronted by two (count ’em, two) IRS attorneys seeking to exit Desmond McGuire & Cory Lynne Brame, et al., Docket Nos. 25461-16, 22725-17, 11882-18, 15581-18, 5689-23, filed 8/21/23, Judge Ronald L. (” Ingenuity”) Buch rescues them, displaying a certain whimsy I’d never seen before in his usually sober style.

And I’ve listed all five (count ’em, five) docket numbers, because they are material.

“These five cases are consolidated. Counsel for the Commissioner includes Mr. S and Mr. H. As is apparent from the various documents that were filed, Mr. S and Mr. H are withdrawing from these cases. They attempted to removed [sic] themselves by filing seven separate notices of withdrawal as counsel, each of which was filed across all of these consolidated cases. Six of these were filed by or on behalf of Mr. S. Each bore a single docket number. And as a savvy reader did the math may have already realized, docket numbers were duplicated (see index numbers 30 and 33, and indices 31 and 35). In addition, although each of these notices of withdrawal was electronically filed in all of these consolidated cases, none of the notices of withdrawal filed by or on behalf of Mr. S included docket number 2589-23 in its caption. As for Mr. H, his notice of withdrawal of counsel was electronically filed in the lead case and across all of these consolidated cases (which is proper), but the caption only bore the docket number for the lead case.” Order, at p. 1. (Names omitted).

Apparently, Messrs. S and H perpetrated these delictions without reference to the announcement of across-the-board consolidated case filings; see my blogpost “All Together Now, One Two Three” 7/5/23. And see Practitioner Training Guide at pp. 33-37.

One more thing. “As for the substance of these withdrawals of counsel, they all recite that counsel withdraws, but go on to state that ‘[n]otice of the substitution’ as [sic] been given to opposing counsel. But there is no substitution; these are withdrawals.” Order, at p. 1.

Notice of substitution of counsel cannot be filed on an across-the-board basis; see Practitioner Training Guide at p. 34. Separate checks, y’know. See my blogpost thus entitled.

Judge Ingenuity Buch tells the hardlaboring clerks to clean this up by withdrawing the outgoers.

Rather than editing to add to my most recent blogpost “Boss Hoss In The Silt,” 8/18/23, I’ll just provide a brief footnote.

Judge Holmes’ concurrence in Graev,  149 T. C. 23, was certainly justified by Laidlaw and Kroner. Judge Holmes suggested back when 2 Cir overruled Chai, that whatever 2 Cir did should be confined to 2 Cir per Golsen, and the other Circuits left to work out their own salvation. See my blogpost “Stir, Baby, Stir – That Silt,” 12/20/17.

They sure did.

Let’s break precedent and honor the prophet.

My colleague Peter Reilly CPA just sent me a clip from Bloomberg about the alleged Lakepoint backdated Boss Hossery.

For some backstory on the alleged bogus Boss Hossery, see my blogposts “Always A New Gimmick,” 10/17/22, and “The High Bar,” 11/23/22.

Now before I go any further, I want to apologize to ex-Ch J Michael B (“Iron Mike”) Thornton. I waxed far too polemical in joining Judge David Gustafson’s dissenting views in Graev, 147 T. C. 16. Ex-Ch J Iron Mike read the law as written, whatever the result, and set it forth. I thought the result unfair and in no way an expression of Congress’ supposed intent. Two (count ’em, two) Circuit Courts of Appeal have agreed with ex-Ch J Iron Mike’s reading, and I am rebuked. I apologize for my intemperate remarks.

Now on to Lakepoint. Here is what I wrote to Mr. Reilly when he asked my views. We are rather colloquial in our exchanges.

This kerfuffle is about harmless error. Please hold my metaphorical beer.

Is Golsen still good law? Yes, AFAIK. To what Circuit is Lakepoint appealable? 11 Cir, right? No stip to the contrary, right? The issue in Lakepoint at this time is IRS’ Boss Hossery partial summary J, right? Amount of penalty, being a percentage of deficiency, cannot be determined unless deficiency, if any, is determined, right? And deficiency, if any, has not yet been determined, right? So neither deficiency, if any, nor penalty, has been assessed, right? Neither can be assessed unless current Tax Court proceedings have become final per Section 6213(a), and see also Section 7481, right?

So if all the above is true, what price Kroner v. Com’r, 48 F.4th 1272 (11th Cir. 2022), where Judge Brasher wrote:

“We disagree with Kroner and the Tax Court. We conclude that the IRS satisfies Section 6751(b) so long as a supervisor approves an initial determination of a penalty assessment before it assesses those penalties. See Laidlaw’s Harley Davidson Sales, Inc. v. Comm’r, 29 F.4th 1066, 1071 (9th Cir. 2022). Here, a supervisor approved Kroner’s penalties, and they have not yet been assessed. Accordingly, the IRS has not violated Section 6751(b).” Kroner, at p. 8.

To put it in plain English, in 11 Cir it doesn’t matter when first communication took place, or anything else. In 11 Cir, the past isn’t even prologue. The Boss Hoss could sign off today, and it would satisfy 11 Cir’s reading of Section 6751(b).

So whatever IRS did, good, bad, or ugly, may merit sanctions (like legals and admins) and a Section 6673 chop for baseless claims, and of course disciplinary action, both agency and in Bar disciplinary fora, against the individuals involved, but the case goes on, and chops are still on the table, at least until the Supremes deal with Section 6751(b).

Harmless error. Now keep the silt out of my (metaphorical) beer.

Judge Elizabeth A. (“Tex”) Copeland has a family matter in James Mellon, T. C. Memo. 2023-108, filed 8/17/23; Mr Mellon is married to Vivian Ruesch, whose Tax Court journeys I’ve blogged hitherto.

And again The Great Chieftain of The Jersey Boys is swinging for the fences.

Mr Mellon claims he lives in Monaco and renounced his US citizenship forty-five (count ’em, forty-five) years ago. Howbeit, IRS gave Mr Mellon a NFTL (mailed to wrong address), and certified Mr Mellon seriously delinquent. When Mr Mellon petitioned, IRS withdrew the old NFTL, gave him a new one at no extra charge, and withdrew the delinquency certification. Mr Mellon of course filed Letter 12153 on the new NFTL. Now Mr Mellon wants to try the whole shootin’ match in Tax Court.

I’ve expressed before my admiration for the never-say-die approach of The Great Chieftain. Smitten to earth, he pulls a Maya Angelou every time. But mootness wins out. All that Section 7345(e)(2) allows pore l’il ol’ Tax Court to do is order IRS to tell State it withdraws the certification. That is all the relief it can give. In this case IRS did that, so game over.

To consider Mr Mellon’s liabilities, if any, he has the CDP he requested (no SNOD here, so no prior opportunity to contest), and judicial review of a negative NOD. Section 7345, unlike Sections 6320 and 6330, is the ultimately narrow-spectrum remedy. No certification, no case.

The Vigon maneuver, where IRS withdrew a bunch 6702 frivolity chops that Dean Matty Vigon was contesting, but could reassert same at any time, as no SOL on Section 6702s, doesn’t apply here. Neither does the one-CDP-per-tax-year limit apply.

Section 7345 does not afford one a backdoor CDP.

Judge Joseph Nega has taken the conn from Judge John Colvin, and Appeals has negotiated the narrow channel Judge Colvin dredged back in 2019 (for which see my blogpost “John Is His Co-Pilot,” 11/18/19), so here endeth the story of Leciel L. Lowery, Jr. & Charlene A. Lowery 13022-17L, filed 8/17/23.

Leciel, y’all will recollect, was the wore out Chesapeake Bay pilot, about to retire but with north of $600K in unpaid taxes, add-ons and chops. Judge Colvin discovered Appeals had been less than thorough with Leciel’s numbers, and remanded with a chart.

Appeals avoided the shoals of Charlene’s AZ trust, the equity in Leciel’s & Charlene’s homestead, and Leciel’s retirement account. Plus they credited the automatic deductions from Leciel’s pay. See Order, at p. 5.

So the joust is about home repairs (not enough proof that same necessary for health or production of income) and upward adjustment of the local living expense allowances per IRM (again, not proven), and Leciel’s decreased pandemic earnings (his ships didn’t come in during COVID).

But the decrease doesn’t matter.

“…we note that petitioners’ reported monthly income was already based on an average of their prior six years of annual income, extrapolated out to a monthly basis. That averaging, which resulted in a monthly amount of $37,307.32, thus already represented a substantial reduction from petitioners’ actual monthly income in 2019 and the first two months of 2020. Having already afforded petitioners considerable leeway in allowing an average monthly income amount lower than their actual income, we conclude that AO C was within her discretion not to allow a further reduction based only on the much smaller and (potentially nonrepresentative) sample size of March and April 2020. See IRM 5.15.1.15 (Oct. 2, 2012) (‘The income and expense information provided must reflect a sufficient time frame to accurately determine the monthly average that could be expected for the entire year . . . extraordinary events that can lead to excessive increases or decreases in income or expenses at a particular time [must be considered].’).” Order, at p. 7. (Name and footnote omitted).

Anyway, whatever the number, Leciel offered less, so harmless error (did not affect outcome).

Steven Jacobowitz, T. C. Memo. 2023-107, filed 8/16/23, learns the hockey players’ watchword from Judge Tamara Ashford.

Steve had a single-member CT LLC, but he never filed Form 8832 or otherwise followed Reg Sections 301.7701-1 through 301.7701. Steve never checked the box electing corporate tax status for the LLC. Therefore, when Steve defaulted on the line of credit he had taken out for the LLC, the lending bank filed Form 1099-C.

The bank did check the box, the one that says “the reason for the discharge was ‘Statute of limitations or expiration of deficiency period.’” T. C. Memo. 2023-107, at p. 3.

Wherefore, (1) the LLC was disregarded and the COD was income to Steve, and (2) Reg Section 1.6050P-1(b)(2)(i)(C) makes expiry of SOL for collection of a debt an identifiable event making the debt uncollectible and therefore canceled.

Steve’s argument that the debt was the debt of the LLC and not his, as he never guaranteed the debt, may be OK by CT law, but Federal law determines taxation. While some entities are mandated to be corporations, single-member LLCs are disregarded unless the member checks the box.

And that he stopped paying on the line of credit years before, and left some furniture for the bank to grab, avails not, as an identifiable event must happen to end liability for the debt (hence cancellation, even if involuntary). And no proof about the furniture, its worth, or that Steve told the bank to take it, or the bank agreed, so Steve can’t claim capital gain for selling the furniture to the bank in exchange for forgiving the debt.

But I do give Steve’s trusty attorney a Taishoff “Good Try” for that move, and for claiming that part of the canceled debt was accrued interest, which should have been deductible as a business expense.

Judge Ashford brushes that one off: ” Petitioner offered no evidence at trial that the…interest, which accrued after the last principal payment was made with respect to the line of credit, would have been an ordinary and necessary business expense. Statements in a party’s brief, such as petitioner’s assertion regarding the interest, are not part of the evidentiary record. See Rule 143(c) (‘[S]tatements in briefs . . . do not constitute evidence.’)… Indeed, the evidentiary record unmistakably shows that [LLC] stopped doing business in 2008 and that 2009 was the last year that [LLC’s] income (or loss) was reported to the IRS, before the interest started accruing in 2010.” T. C. Memo. 1023-107, at p. 10. (Citation omitted).

Check or be checked.

The Girl of My Dreams remarked yesterday on my use of the word “leisurely” to define United States Tax Court practice, for which see my blogpost “Modest Experience,” 8/15/23. She remembered my tales of State courtiering in the early days, when waiting six months for decision in a motion for a summary J was unheard of, and administrative judges wore out bullwhips from cracking same at the dilatory. “Three years with discovery incomplete?” she said, incredulous.

Today she can look at Daniel E. Larkin and Christine L. Larkin, T. C. Memo. 2023-106, filed 8/16/23, involving Docket Nos. 14886-08, 19940-09. You can pay three figures for Scotch younger than those petitions. But this is a remand from DC Cir, to redo four (count ’em, four) “‘discrete errors acknowledged by the Commissioner’ affecting the correct amounts of the deficiencies, additions to tax, and penalties due from petitioners for the years at issue.” T. C. Memo. 2023-106, at p. 2. I’ve blogged Dan’s & Christine’s earlier trips to USTC.

And that’s all Judge Gale does. The Larkins’ attempts to get IRS to abate previous years’ assessments and re-assess corrected ones, to allow foreign earned income credits that the Larkins failed to substantiate, and their belated attempt to challenge chops based on Boss Hossery, all fail, either because of Section 7486 correctability, or the limitations of remand. DC Cir, after all, affirmed everything but the four errors.

So this case establishes that Judge Gale, unusually, can add.

Judge David Gustafson is too modest. I am sure he has a better grasp of the principles of debt-vs-equity than he allows in Aventis, Inc. and Subsidiaries, Docket No. 11832-20, filed 8/15/23. And in the extremely unlikely case that he really “has modest experience with debt-vs.-equity issues,” Order, at pp.  1-2, he can check out my blogposts “The Scottish Play,” 6/19/12, and “The Baseball Fan Is On The Job,” 10/27/21.

Of course, neither he nor I can have any recent experience with FASIT qualification issues, as Financial Asset Securitization Investment Trusts, a species of subprime-mortgage-meltdowns-on-steroids, cratered in 2004 in the wake of Enron of infamous memory. These, which supposedly bundled short-term debt (credit card, quick-kick car loans), began in 1996; by the time Congress saw what damage these off-balance-sheet gameboys did, the game was long since up.

However, Aventis wants to go to trial after three (count ’em, three) years, with discovery still incomplete. Aventis suggests Judge Gustafson close down discovery on the debt-equity issue, bifurcate, and try that issue.

No, says Judge Gustafson, remarkably unobliging.

“…we perceive that the deliberate pace of the development of the case has been attributable to both parties, and that an abrupt acceleration and a soon cut-off would be unfairly disadvantageous to the Commissioner.

“As for bifurcation, it is true that sometimes bifurcation of a case to allow discovery and dispositive motions related to a single issue may be appropriate–usually where a relatively simple issue may resolve the entire case. But in this instance, the debt-vs.-equity issue that Aventis would press is fact-intensive.” Order, at p. 1.

But Aventis has the Taishoff fallback.

“We do not forbid the filing of a motion for summary judgment on October 30, 2023, as Aventis has forecast, but we do not anticipater [sic] that such a motion would move the case forward.” Order, at p. 1. Given the leisurely pace of such motions, bifurcating would likely lead to denial of summary J, necessitating rejoinder, and trying both issues together. Anyway, “… a single trial on both issues will likely enable the Court to understand and resolve each of the two issues better than if it addresses the issues seriatim.” Order, at p. 2.

So set up a discovery schedule and propose a trial date.

Maybe Anticipater was the father of Antipater, and thus the grandfather of Herod, who ordered the Slaughter of the Innocents. Fits right in with Tax Court.

Thus thought Gary J. Sinopoli, Jr. and Melissa M. Sinopoli, et al., T.C. Memo. 2023-105, filed 8/14/23, when he and the als, franchisees of a fitness gym operation, decided to organize C Corps to place the advertising for their fitness gym operation, marking up the advertising costs to funnel cash from the franchised gym operation into the C Corps, gaining an enhanced advertising Section 162 deduction.

Judge Goeke notes IRS didn’t challenge the Forms 1120 from the C Corps.

But the deductions for the payments Gary and the als made to the C Corps crater. “Petitioners instructed [Gym]’s local advertisers to bill the marketing companies, and [Gym] began to pay fees to the marketing companies (marketing fees). The marketing fees were the marketing companies’ only source of income. The marketing companies did not perform marketing or other services for other businesses. They did not report any wage expenses on their corporate returns.” T. C. Memo. 2023-105, at p. 5. Note that, without the C Corp intermediaries,  the overage would have been profit to Gary and the als, passed through from their Sub S that ran the fitness operation, with FICA/FUTA implications.

Deductions disallowed.

So it pays to advertise…if you do advertise.