Michael B. Shapiro, T. C. Memo. 2023-144, filed 11/30/23, has problems. He’s physially unable to practice medicine, and has heavy divorce costs and payments. But he’s either underpaid or not paid at all for four (count ’em, four) years at issue. Dr. S is fighting about the Section 6651(a)(2) and Section 6654 add-ons. He claims reasonable cause.

Ex-Ch J L. Paige (“Iron Fist”) Marvel has this one. “Resolution of this case does not require us to hold that taxpayers facing a genuine choice between satisfying court-ordered payments in a divorce proceeding or satisfying their income tax obligations timely should prioritize the latter over the former or vice versa.” T. C. Memo. 2023-144, at p. 20.

Dr. S. didn’t use ordinary business care and prudence, despite his tough economic position.

He never asked for an extension to pay, sought an IA, set aside monies to pay estimateds, sought out legitimate lenders to borrow money to pay, sought divorce court leave to liquidate assets to pay taxes, tried to find alternative sources of income besides his joint practice while he could practice, or sought guidance on bankruptcy as a solution.

“These actions or others may have provided only a partial solution, and some of them may have been ineffective under the circumstances at improving his ability to pay. Nonetheless, it is imperative that when a taxpayer unilaterally extends himself a de facto loan from the government on account of his own financial circumstances, he has adequately explored the available alternatives and taken those that are appropriate. The United States Treasury is not a taxpayer’s personal line of credit, or at least one of first resort. Dr. Shapiro has the burden to develop the record adequately to show that he has appropriately used it as such, but he has not done so.” T. C. Memo. 2023-144, at p. 22.

Bottom line, if you’re claiming ordinary business care and prudence, ya gotta try.

No, Take 15

See my blogpost “Take Two,” 11/22/23. The Glasshouse in The Stateless City shut its doors for Thanksgiving Day and, as an administrative bonus, kept it shut the Friday, as they did last year. Hence, although unnoticed by all but the fewest, Section 7451(b) gave an early present to Madiodio Sall, 161 T. C. 13, filed 11/30/23.

Even though Madiodio’s unadmitted representative caved when IRS claimed the 90-day cutoff, Judge Ronald l. (“Ingenuity”) Buch investigated Tax Court’s jurisdiction and finds Madiodio’s petition timely.

“Mr. Sall’s deadline for filing a petition would have fallen on Friday, November 25, 2022. The 90th day after the Commissioner mailed the notice of deficiency was Thanksgiving Day, a legal holiday. Section 7503 operates to automatically extend the due date to the next day that is not a Saturday, Sunday, or legal holiday. In this case the resulting deadline would be Friday, November 25, 2022. But we need not resort to section 7503, because the face of the notice of deficiency listed November 25, 2022, as the last day to petition the Court.” 161 T. C.13, at p. 3.

Madiodio missed the 11/25/22 cutoff. But Tax Court took that day off, and the Clerk’s office at 400 Second St., NW, location is a “filing location” within the meaning of Section 7451(b).

“The Petition was due to be filed on Friday, November 25, 2022. The Tax Court building in Washington, D.C., which houses the office of the clerk of the Court, was closed that day. Thus, a filing location was inaccessible that day; the availability of the Court’s electronic filing system is immaterial. The period of inaccessibility was one day. Adding that one day to the additional 14-day tolling period required by section 7451(b)(1) results in extending Mr. Sall’s petition deadline by 15 days from the original due date of his Petition. This shifts the petition due date to no earlier than December 10, 2022. Because that day was a Saturday, the petition deadline shifted even further, to Monday, December 12, 2022. The Court received Mr. Sall’s Petition on December 1, 2022, i.e., before that filing deadline. Thus, his Petition was timely.” 161 T. C. 13, at p. 4.

Poor Antawn Jamal Sanders, 160 T. C. 16, was tossed, because his e-filing was eleven (count ’em, eleven) seconds late, and DAWSON was then working. Madiodio got fifteen (count ’em, fifteen) days for his snailmailer, and who cares if DAWSON was working?

Hey, Supremes, time for some “discipline”?

There was another press release concerning Tax Court disciplinary proceedings today. I won’t go into details, except to note that, while some State courts’ disciplinary rules permit temporary or conditional suspensions from practice as a sanction, Tax Court Rule 202(f)(2) states that “A practitioner suspended for more than 60 days or disbarred pursuant to this Rule may not resume practice before the Court until reinstated by order of the Court.” This Rule, of course, encompasses discipline by any State or Federal Court.

I do want to mention one case, without naming the disbarred attorney, who has doubtless suffered enough, losing their practice with a prison sentence and supervised release thereafter. The tax and labor-related payments upon which the conviction and sentence were based amounted to $32K. Restitution in the sum of $5K was also ordered by the USDC.

Do I have to say it’s not worth it?

I was no fan of TEFRA, but I wonder how well the post-BBA régime will deal with the (admittedly rare) issue Judge Christian N. (“Speedy”) Weiler dispatches in Harman Road Property, LLC, Capital Conservation Partners II, LLC, Tax Matters Partner, Petitioner, T. C. Memo. 2023-143, filed 11/29/23.

It’s Dixieland Boondockery, of course. In unloading the membership interests whereby the syndicated highrollers were to extract the tax breaks, the promoters unwittingly dissolved the partnership for tax purposes (checking the box turns the LLC into a partnership for tax purposes), per pre-TCJA Section 708(b)(1)(B), by unloading 97% of its membership interests. So when the partnership filed its short-year split-year 1065s, they got the end date and the start date wrong.

Attempting a course-correction, the TMP filed “…Form 1065X, Amended Return or Administrative Adjustment Request (AAR), to amend the ending date of the first short-period Form 1065….petitioner also filed a Form 8082, Notice of Inconsistent Treatment or Administrative Adjustment Request (AAR), to adjust the beginning date on the Original Return…pursuant to section 6227(c), which forms the foundation of the Petition in this case.” T. C. Memo. 2023-143, at p. 3.

IRS, quicker off the mark, got off a NBAP ahead of the TMP’s Form 8082, and gave the partnership a FPAA, which TMP timely petitioned. TMP,  not going quietly, petitions for adjustment of the AAR (Form 8082) items, per Section 6228.

IRS wants to toss that petition, claiming everything can be, and should be, decided in the FPAA case. Tax Court can’t decide a Section 6228 if a NBAP precedes the filing of the Section 6228 petition.

“The TMP may not file a section 6228(a) action after the IRS has mailed an NBAP to the partnership for the taxable year to which the AAR relates. I.R.C. § 6228(a)(2)(B). If the IRS ultimately does not mail an FPAA to the partnership before the expiration of the partnership item period of limitations, however, the partnership is still allowed to file a section 6228(a) action within six months after the expiration of the partnership item period of limitations.

“If the IRS issues an FPAA after an AAR proceeding is commenced for the same taxable year, but before the hearing of such a petition, the petition shall be treated as an action brought under section 6226 (i.e., an FPAA proceeding) with respect to that administrative adjustment. I.R.C. 6228(a)(3)(B). If such is the case, the TMP must amend the petition within 90 days and include any errors committed by the Commissioner related to the FPAA. See Rule 249. There is a clear preference under the Code for an FPAA proceeding to take precedence, since a section 6226 action includes all partnership items for the taxable year, while a section 6228 action is limited to ‘only those partnership items to which the . . . [AAR was] not allowed by the Secretary . . . and those items with respect to which the Secretary asserts adjustments as offsets to the adjustments requested by the [TMP].’ Compare I.R.C. § 6226(f), with § 6228(a)(5).” T. C. Memo. 2023-143, at pp. 4-5.

The TMP claims the FPAA doesn’t state the correct start year for the short year, therefore some adjustments are not included. But there’s only one tax year for a partnership, viz., namely, and to wit, a calendar year. However sliced, the NBAP and FPAA covered everything from January 1 to December 31, and TMP petitioned the entire year in the FPAA case.

Ultimately, IRS agrees that TMP has a chance to contest everything in the FPAA, short, long, or in-between.

Taishoff says, while I am not now, and never have been, a fan of TEFRA, I do not see how the post-BBA and TCJA environment can handle such matters any more economically.

A real estate residential tenancy buyout brings back memories of swapped war stories from an earlier time in my career. Luminita Roman, T. C. Memo. 2023-142, filed 11/28/23, is the usual attempt to turn a litigation settlement into a Section 104(a)(2) physical injury tax exemption. Judge Emin (“Eminent”) Toro puts paid to that one: while Luminita and her ex have all kinds of physical ailments, the settlement agreement speaks of none. And their sparring over the 50/50 allocation of income leaves the result unchanged. It’s the usual fact-based plus read-the-settlement-agreement case.

But none of this is why that title is first written above at the head hereof, as my expensive colleagues would say.

This is a great war story, and the landlord-tenant division has probably seen variants played.

Luminita and ex were in a patient-caregiver relation, with plenty of governmental assistance, living in a privately-owned and operated apartment complex. They initiated lawsuits, State and Federal, administrative proceedings, and however often they lost, they were nowise deterred. The owners decided to sell (no wonder), but the prospective purchasers did their due diligence. They demanded a price cut of $1 million, or Luminita and ex removed from premises with no right of return, or no deal. Several offers to Luminita and ex were turned down.

OK, we’ve all seen this. But the seller’s trusty negotiator (whether attorney or not unstated, but a source tells me he may be a senior executive with a well-known national real estate organization) played a real stormer.

“…[seller] made the Romans an offer to pay $700,000 in exchange for their vacating the Apartments and executing a mutual release of any pending and future legal claims. Marc Renard, who negotiated the settlement with Ms. Roman on behalf of [seller], gave the Romans 15 minutes to accept the offer and told Ms. Roman that for every 15 minutes in which they did not accept (after the initial 15 minutes), the offer would go down by $50,000. Ms. Roman then conveyed the offer to Mr. Roman and told him she would leave him if he did not agree. Within the first 15 minutes set by Mr. Renard, the Romans accepted the offer.” T. C. Memo. 2023-142, at p. 7.

The agreement was signed in less than a week.

Mr. Renard gets a Taishoff “Good Job, First Class, Non-Attorney Division.”

Three (count ’em, three) limited partners in Soroban Capital Partners LP, Soroban Capital Partners GP LLC, Tax Matters Partner, 161 T. C. 12, filed 11/28/23, claim that because they are limited partners, their respective shares of partnership’s ordinary business income are exempt from FICA/FUTA/ITW per Section 1402(a)(13). The magic language is “limited partners, as such.” But, as Judge Ronald L. (“Ingenuity”) Buch explains, Congress thwarted Treasury from defining by regulation what that means, as it would encroach upon State law. And Treasury, as not uncommon, went long and large with its proposed Regs.

However, judges are ingenious. Legislative history says that investment income isn’t subject to FICA/FUTA/ITW, so to the extent that the distributive shares are return on investment. So what did these limited partners do? For an earlier take in the PLLC context, see my blogpost “Limited Company, Unlimited Member,” 4/12/17.

Soroban says the mere fact that the three are limited partners takes whatever they got out of FICA/FUTA/ITW by virtue of Section 1402(a)(13).

Negatory, says Judge Buch.

“A functional analysis test should be applied when determining whether the limited partner exception under section 1402(a)(13) applies to limited partners in state law limited partnerships.” 161 T. C. 12, at p.10.

The words “as such” in the statute means that a limited partner must be limited. No command-and-control; stay in the stands, not on the bench or on the field.

There’s a TEFRA argy-bargy here, because this case arises pre-BBA. But this is an item that needs to be decided at partnership level, as it involves receipt, timing, and characterization of income.

IRS gets partial summary J that the issue has to be decided at partnership level. Soroban loses summary J that the distributed income isn’t subject to FICA/FUTA/ITW, which will have to be decided on the trial.

It’s one thing to receive The Phone Call, whether the icy, hissing version or the profanity-laced scream, in either case from the client whose case you’ve blown, or at least concluded otherwise than to their utterly ecstatic satisfaction. It’s another to have to make the outgoing variety oneself, to broker or insurer or, preferably, to both, requesting a notice of claim form.

If you have never been there, bless whatever gods may be, and pray said gods ever hold you in the palms of whatever limbs they have.

But here is a warning to us all.

Joel A. Dilillo, Docket No. 14110-23, filed 11/27/23, has his petition tossed. It’s the usual Hallmark Rsch. Collective SNOD petition filed too late. Joel is in 1 Cir, so Culp is off the menu.

Here’s Ch J Kathleen (“T.B.S. = The Big Shillelagh”) Kerrigan.

“…petitioner appeared to take the position that the petition should be considered timely based on timely mailing to the Internal Revenue Service (IRS), as follows: ‘The Petition was filed timely on August 4, 2023. As a result of an administrative error, the envelope with the Petition was mailed to the Internal Revenue Service. My files include labels that have the IRS mailing address and also the U.S. Tax Court address. Obviously, I took the wrong label that had the IRS address rather than the U. S. Tax Court label.’ Attached to the objection was a bank statement reflecting a charge paid to the USPS on August 5, 2023, for an amount corresponding to the postage on the envelope addressed to the IRS (a charge of a different amount paid to the USPS on August 4, 2023, was also shown).” Order, at p. 2.

IRS of course forwarded the petition to The Glasshouse on Second Street, N.W., a couple weeks later (hi, Judge Holmes), but after the 90-day cutoff.

Clearly, the petitioner himself never wrote that. What client keeps her/his own files with bunches of IRS and USTC address labels?

Ch J TBS Kerrigan is sympathetic, and so am I.

Judge Travis A. (“Tag”) Greaves left me with a fascinating tidbit to spice up my Thanksgiving Day ruminations, in Amgen Inc. & Subsidiaries, Docket No. 16017-21, filed 11/22/23.

IRS moves for summary J on “HCR Fees Penalties.” Now I didn’t know what those were either, but I see that they arose under the much-contemned Affordable Care Act, more particularly bounded and described in Section 9008 of the ACA and amended by Section 1404 of the Health Care and Education Reconciliation Act of 2010.

Apparently there is some kind of fees imposed upon various drug manufacturers. But as Judge Tag Greaves has sealed all documents pertaining thereto, we are left to wonder, or surf the web and try to separate fact from whatever else is found thereon.

Amgen has been here before, jousting about discovery, but never have penalties been mentioned before now.

Are we about to get Boss Hoss on drugs?

No, not an undiscovered Brubeck classic, nor yet the batting coach’s familiar injunction. Tax Court is taking two (count ’em, two) days off to end the week and give thanks.

Here’s the scoop; “In addition to observing the Thanksgiving holiday on Thursday, November 23, 2023, the Court will be closed on Friday, November 24, 2023. DAWSON will remain available for electronic access and electronic filing.”

The Genius Baristas’ darling child never sleeps.

No, not a reduced-staff soap opera. Kunjlata J. Jadhav and Jalandar Y. Jadhav, T. C. Memo. 2023-140, filed 11/21/23, had a Plan. Actually, it was Jal’s Plan. Jal was a research chemist, employed full-time in what my Texan descendants would call “th’ awl bidniz.” In addition, he had a lucrative side hustle, KJ, which acted as broker between chemical producers and potential customers. A dodgeflogger hooked Jal into an “income tax plan,” the usual corporate give-and-go to siphon off income.

Judge Vasquez will tell you how IRS drained the siphon, but I’m here concerned with the 401(k)s Jal set up for his two sons. All IRS raised to thwart the 401(k) deductions was sons’ employee status in Year One.

“Petitioners viewed K J  as a family business and wished to pass it on to [sons]. Petitioner husband started training his sons when they were in high school. While [sons] were in college, he assigned them research tasks and oversaw their work.” T. C. Memo. 2023-140, at p. 3. [Names omitted.]

It’s the usual command-and-control test for qualification as an “employee” for 401(k) entitlement. For a rundown of factors, see T. C. Memo. 2023-140, at p. 16, footnote 16.

“At trial petitioner husband credibly testified that he viewed K J…as a family business. He also credibly testified that he wished to pass his business on to [sons]. The record establishes that petitioners pursued that goal. Although [sons] were in college in [Year One], petitioner husband credibly recounted assigning them research tasks and overseeing their work while they were in school. Upon {S Corp]’s incorporation, [sons] became employees of the S corporation, which issued them Forms W–2, Wage and Tax Statement, for [Years Two, Three, and Four]. [No. 1 son] was a full-time employee of [S Corp] at the time of trial. These facts support a finding of an employment relationship, as they demonstrate petitioner husband’s control over his sons’ work, his investment in the business, a lengthy employment relationship, and an intention to create an employer-employee relationship.” T. C. Memo. 20-23-140, at pp. 16-17. (Names omitted).

IRS doesn’t contest Years Two, Three, and Four 401(k) deductions, but claims sons weren’t employees in Year One, and as sons didn’t testify on the trial IRS claims the benefit of an adverse inference, to wit, that the sons’ testimony would sink Jal.

Negatory, says Judge Vasquez, blowing IRS off in a footnote.

“…where both parties have equal access to the evidence, we do not apply an adverse inference. Respondent could have subpoenaed [sons]; thus both parties had equal access to the potential witnesses. We therefore decline to draw a negative presumption against petitioners on this issue. Even if we did, we would still find that the weight of the evidence favors petitioners here.” T. C. Memo. 2023-140, at p. 17, footnote 17. (Citations omitted, but get them for your memo of law file).

And Judge Vasquez gets to trot out his trusty warhorse cite. “See Diaz v. Commissioner, 58 T.C. 560, 564 (1972) (observing that the process of distilling truth from the testimony of witnesses, whose demeanor we observe and whose credibility we evaluate, ‘is the daily grist of judicial life’).” Idem, as my expensive colleagues would say.

There’s a BoP skirmish when IRS tries to up the SNOD, claiming clerical error in the SNOD.

“Where the increase in deficiency is based on a clerical or mathematical error in the notice of deficiency, the Commissioner bears only the burden of establishing the clerical or mathematical error….

“In his First and Second Amended Answers, respondent asserts increased deficiencies and accuracy-related penalties for [Years Two, Three, and Four] on the ground that the SNODs contain clerical errors for those years. In his Simultaneous Opening Brief, respondent described those errors and directed the Court to several Exhibits showing how they occurred. Besides disputing respondent’s Motion for Leave, petitioners did not address the clerical errors on brief. They have therefore conceded that the errors in the SNODs are clerical.  Thus, having established clerical errors in the SNODs for [Years Two, Three, and Four] respondent has met his burden as to the increased deficiencies.” T. C. Memo. 2023-140, at p. 14. (Citations omitted, but get them for your memo of law file.)

As for the shot-down deductions generated by the Plan, they might have worked, if the economic reality and the trial evidence matched the Plan.

I give Jal’s trusty attorneys a Taishoff “Good Job, Second Class” on the 401(k)s; they had a good witness and told a good story. I won’t deduct points for not attacking the clerical error argument, not having seen IRS’ story; IRS can tell a good story, too.

But IRS misses the additional Section 6662 chops for the increased deficiency for want of Boss Hossery. Now Jal is in 5 Cir (TX), and only 9 Cir and the Elevenses have so far endorsed ex-Ch J Michael B. (“Iron Mike”) Thornton’s dictionary chaw anent “assessment.”  But if I were IRS, I’d move to reconsider, do the Boss Hossing now (if I could dig up examiner and supe, and supe still had charge over examiner), and argue the 9 Cir and Elevenses case. See my blogpopst “Beating the Dead (Boss) Hoss,” 10/26/23.