The outgoing year has been awash in examples of the Supremes’ laudable efforts to “’to bring some discipline’ to use of the jurisdictional label” in Tax Court petitioning. The effects, however, have been a wee bit short of the mark, as The Law of Unintended Consequences has scrambled the multiplex ways that petitions wend their several ways from aggrieved taxpayers to The Glasshouse in the City of the Taxed Unrepresented. And the race is definitely not to the swift.

Here’s Judge Goeke deciding, in an off-the-bencher, that three (count ’em, three) days late don’t matter in a deficiency case, where petitioner used USPS first class mail with no proof of mailing and told a good story at the motion-to-toss hearing.

Christian Harvey Chaussee, Docket No. 14763-22, filed 12/29/23, says he was in the US Post Office on Day 90, but the postage label he bought from the self-serve kiosk therein bore the wrong address. So he bought plain stamps and mailed his petition that day.

Brilliantly, instead of taking the defective label to the window and seeking a refund, he kept it. So by foregoing a 98 cent refund, Christian Harvey saves his petition.

“This position by the petitioner was corroborated by documents which he submitted, including evidence to show that he was in the Post Office on that date and that he did, in fact, purchase postage of 98 cents, which is consistent with his position that he originally purchased postage and then realized he had addressed the package incorrectly, and then subsequently mailed the correct package.” Transcript, at p. 5.

Even better, while the package reached The Glasshouse 114 (count ’em, 114) days after SNOD was mailed, it’s still OK.

“Respondent has stated in respondent’s motion that based upon their analysis and discussion with U.S. Post Office personnel, as well as other evidence, the estimated time of the package in Washington, DC would have been between June 6th and June 13th, 2022. The fact that this package was three days late and does not overcome the strong evidence that petitioner did, in fact, place it in the mail on May 21st, 2022. We deemed this evidence to be such that we should deem the petition as filed timely and consistent with section 7502.” Transcript, at pp. 5-6.

Judge Goeke stresses that Section 7502 was enacted to smooth out the vagaries of the postal service’s service. Mailed is filed.

So what price Antawn Jamal Sanders, who was eleven (count ’em, eleven) seconds late with his e-filed petition? Antawn got tossed. See my blogpost “In The Midnight Hour,” 6/20/23 for Antawn’s story. But Christian Harvey is in.

Discipline, anyone?

We know Section 7345 Tax Court review is limited to IRS’ certification of a “seriously delinquent tax debt. ” The actual passport grab comes from DOS. Most losing petitions result from IRS dropping the cert and telling DOS; the petition is therefore dismissed because Tax Court can’t grant any other or further relief, despite the creative efforts of counsel to backdoor CDP challenges and contest SNODs of long ago.

But Daniel Olin Nye, T. C. Memo. 2023-154, filed 12/28/23, is off the beaten path because Ch J Kathleen (“TBS = The Big Shillelagh”) Kerrigan actually reaches the merits of the cert and consequent grab.

Daniel claims he’s current with his IA payments on the “seriously delinquent tax debt,” which arose from a bunch deficiencies and TFRPs (hi, Judge Holmes, happy New Year) amounting (with interest) to a hundred grand.

And so he is, but that doesn’t save his passport. His IA “was conditional upon periodic reviews of petitioner’s current financial condition. See Internal Revenue Manual 5.19.1.6.5.4 (July 1, 2021).” T. C. Memo. 2023-154, at p. 3. Daniel was supposed to provide periodic updates, but didn’t.

“… respondent mailed petitioner a Notice of Intent to Levy for each of the years and periods at issue. The Notices of Intent to Levy stated that petitioner did not provide updated financial statements as required under the installment agreement. They notified petitioner that he could provide the updated financial statements or request a Collection Appeals Program hearing, but that failure to do either would result in the termination of his installment agreement. Petitioner neither requested a Collection Appeals Program hearing nor provided the requested information.” T. C. Memo. 2023-154, at p. 3.

After a nod to Van Bemmelen (scope and standard of review in Section 7623 whistleblowing; should it be imported to passport grabs?), Ch J TBS doesn’t need to go there, as either either way Daniel loses.

Daniel’s debts check all the Section 7345 boxes: over the $59K limit, certificates of assessment, NFTLs and NITLs with all review rights gone, and no financial updates.

Daniel claims he sent in the documents IRS wanted, but IRS says he didn’t, and Daniel has no evidence that he did. True, he is paying as agreed on the IA, but that isn’t enough.

So we still must await the revelation of the scope and standard of review in passport grabs.

David Villa and Juana M. Villa, T.C. 2023-155, filed 12/28/23, are fencing with Cohan, both as to Section 162 ordinary-and-necessaries and COGS (Cost of Goods Sold). David built fences in Texas, Cole Porter’s and David Fletcher’s 1934 hit to the contrary notwithstanding. David included only his 1099-MISC subcontracting income in his 1040 MFJ, and left out his direct fence-building checks and cash.

IRS didn’t, and gave him a SNOD.

Dave’s trusty attorneys claim COGS should be used to reduce gross income, not as a deduction. Judge Elizabeth A. (“Tex”) Copeland is down with that.

“Deductions from gross income—such as for ‘ordinary and necessary’ business expenses, see I.R.C. § 162(a)—are a matter of legislative grace and are allowed only to the extent provided by statute. By contrast, the reduction of gross receipts by cost of goods sold is mandatory (i.e., not a matter of legislative grace), as only income is taxable under the Sixteenth Amendment.” T. C. Memo. 2023-=155, at p. 6. (Citations omitted).

Trouble is, David deposited the checks he got for his direct fencing, and took out cash, wherewith to pay business and personal expenses, but couldn’t provide breakdowns. He could provide numbers from one recent job, and Judge Tex Copeland buys the extrapolated ratio of COGS to gross. But David’s inexactitude gives him a major hit, and the “other expenses” on his Sched C, though allowed by IRS, might lead to double-counting. See T. C. Memo. 2023-155, at pp. 6-7, to see how that works out.

And David gets the Section 6662 negligence chop, as his story that he thought he didn’t need to report or pay taxes on whatever he didn’t a 1099-MISC for is “too good to be true.”

The new summary J dodge seems to be redacting the documents presented to the Judge or STJ (seemingly on consent; see my blogpost “It’s All Yours,” 12/27/23), apparently hoping the missing information will avoid judicial scrutiny.

Except it doesn’t.

Here’s CSTJ Lewis (“Wotta Name!”) Carluzzo to tell you why, in CSI 3000, Inc., 32381-21L, filed 12/28/23.  The only remaining issue in this CDP case is the failure-to-pay-timely add-on, for which petitioner claimed reasonable cause, and which petitioner raised at Appeals in an abatement hearing, but was rejected prior to the CDP hearing.

“For purposes of cases such as this one, petitioner’s position is considered a challenge to the existence or the amount of the underlying liability. According to respondent, petitioner is not entitled to challenge the existence or the amount of the underlying liability in this proceeding because petitioner had a prior opportunity to do so. See I.R.C. section 6330(c)(2)(B). The administrative record shows that petitioner’s claim to abatement of the addition to tax on the basis of reasonable cause was considered and rejected by respondent’s Office of Appeals (abatement hearing) prior to the administrative hearing contemplated in I.R.C. section 6330. Much of the report generated from the abatement hearing has been redacted, apparently by agreement between the parties. Other than the outcome of the abatement hearing, the full extent of what occurred during that proceeding is not entirely clear.” Order, at p. 1. (Citation omitted).

IRS wants summary J, but when CSTJ Lew holds a hearing, IRS suggests remand as a fallback.

“We see little point in doing so. It is clear that respondent’s settlement officer considered petitioner’s claim, even if relying only upon the reasoning and outcome of the abatement hearing. If the parties are unable to reach an agreement with respect to petitioner’s underlying liability then the next step is to proceed to trial for a de novo review of petitioner’s challenge to the underlying liability.” Order, at p. 2.

Seems nowadays that only judges and journos take Section 7461 seriously.

Word to litigants on both sides: Tax Court proceedings are public, guys. The more you try to hide, the more you shine the spotlight. Tell the whole story; it’s so much easier.

If all the items giving rise to the deficiencies and underpayment are one spouse’s items, or s/he can’t prove they’re not, then Section 6015 innocent spousery is off the menu.

Fannie Wright, T. C. Memo. 2023-153, filed 12/27/23, is a disabled licensed practical nurse, whose late husband’s withholdings paid most of the taxes they owed. The problem was that for two of the three (count ’em, three) years at issue, Fannie’s SSDI was never reported, nor some “nominal” interest, so the SNOD covered those years. Year Three saw the SSDI reported, but a health care individual responsibility payment didn’t figure in, so late spouse’s withholdings didn’t stretch far enough.

Fannie’s trusty attorneys claim Fannie never consented to the joint returns for those years, having been deceived by late spouse.

Judge Gale: “…petitioner mistakenly conflates the grant of jurisdiction to review innocent spouse relief determinations in section 6015(e) with the conditions that she must satisfy to obtain such relief.” T. C. Memo. 2023-153, at p. 5. There was a claim for innocent spousery, a determination of the claim, and a timely petition here. As for relief, that’s another story: no joint return, no relief. But apparently that claim never gets very far.

Next trusty attorneys claim invalid assessments, but this is not the place to challenge them. In Year One, Fannie and late spouse both signed Form 5564 Notice of Deficiency – Waiver.  Fannie didn’t petition Year Two SNOD, so that’s gone. And Year Three was self-reported tax, but didn’t pay in full, so no SNOD; hence Fannie maybe so could fight that out in a CDP; see T. C. 2023-153, at p. 6, footnote 5 for that.

Getting to the point, all the items are Fannie’s. There’s no question about the SSDI. As to the “nominal” interest, “(T)he parties declined to present facts or arguments concerning to whom the interest income is attributable, and the notice is redacted so that we are unable to make the determination. Petitioner having failed to show the interest income is attributable to Mr. Wright, it follows it is attributable to her. Thus, the [ Years One and Two] deficiencies are entirely attributable to petitioner, consisting of her Social Security benefits and the interest income. She accordingly is ineligible for relief on that basis alone, and we will sustain Appeals’ determination denying relief under section 6015(b).” T. C. Memo. 2023-153, at p. 7. Ditto Section 6015(c).

So Section 6015(b) and Section 6015(c) relief are out. And because no obligation of the late non-requesting spouse remains, no equitable relief.

Edited to add, 12/28/23: Before anyone yells “what about hardship?” note this is a standalone. So far, no NFTL or NITL, so hardship is saved for a CDP.

Next month it’ll be just about thirty-five years since President Reagan left office, but his famous catchphrase has taken on its own life. “The seven most dangerous words in our language” are first set forth at the head hereof. Just ask Syd Ginsberg & Michelle Ginsberg, Docket No. 17920-22S, filed 12/27/23, an off-the-bencher from CSTJ Lewis (“Say It Loud!”) Carluzzo.

Syd & Michelle were part-time gamblers, and like all of their colleagues, they won some and they lost some. At end of year at issue, they were behind, so they netted gains and losses, and took the post-TCJA enhanced standard deduction.

Of course, the W-2Gs hit IRS’ computers, but not with the usual SNOD. IRS, graciously figuring that the allowable losses would have resulted in less tax due, unelected the standard deduction. IRS then recomputed tax as if Sched A had been filed, and gave Syd & Michelle a lower deficiency.

“Respondent’s approach, in this regard, actually benefits petitioners, although we doubt they feel in any way benefited from any action taken by respondent in connection with their [year at issue] federal income tax liability.” Transcript, at p. 5.

Syd & Michelle claim this unguided largesse resulted in a higher marginal tax rate, but CSTJ Lew isn’t going “that far into the weeds to examine whether the marginal tax rate applicable to the taxable income reported on the return is lower than the marginal tax rate applicable to petitioners’ taxable income as show [sic] in the notice, although we doubt that to be true. We have, however, reviewed the notice carefully enough to see that deficiency probably has little to do with any change to petitioners’ marginal tax bracket; instead the deficiency results primarily, if not entirely, from an increase to petitioners’ taxable income. And that increase in taxable income does not result directly from the manner that respondent has treated petitioners’ gambling winnings and losses; the increase results directly from the effective denial of the standard deduction claimed on the return. To the extent this has resulted in a higher marginal tax rate, the result is computational as might be the case with other adjustments to petitioners’ income made in the notice.” Transcript, at pp. 6-7.

You can’t take gambling losses against gambling winnings unless (a) you’re a professional (which Syd & Michelle don’t claim) or (b) you don’t take the standard deduction.

If you had a chat or two with your nonparty witness, a Tax Court-ordered deposition is a nonstarter, even if the nonparty has discoverable information, and the deposition would be more than a substitute for cross-examination on the trial.

Curtis K. Kadau & Lori A. Kadau, Docket No. 286-21, filed 12/26/23, claim they gave 7000 pages of relevant documents to IRS (including a written report from one of the nonparty witnesses), and that nonparty witness had two (count ’em, two) informal chats with IRS. That’s enough for Judge Christian N. (“Speedy”) Weiler; the nonparty need not attend.

“… the Court considers whether (1) the movant has established a specific and compelling basis for the deposition, (2) the movant intends the deposition to serve as more than a substitute for cross-examination at trial, and (3) the movant has had prior opportunities to obtain the desired information or could obtain it through other means or from another source.” Order, at p. 3.

The two informal chats were prior opportunities.

But the other nonparty must sit for the deposition.

This being the morning after the night celebrated in the Gruber and Mohr perennial, and a holiday in The City of the Stateless, I remain silent.

The trusty attorneys (whom I’ll call L&L) for Matthew M. Hutchings and Shari l. Hutchings, Docket No. 13321-20, filed 12/22/23, are on to something. Was the SNOD inartfully drafted, or is IRS trying to submarine the “goofy regulation” (Reg. Section 1.183-2(b), the hobby loss disallowance) into what seems like an ordinary indocumentado?

Judge Ronald L. (“Ingenuity”) Buch wants a hearing in the Mile-High City on L&L’s motions in Limine to Preclude Issues at Trial Not Raised in the Answer, and a Motion to Shift the Burden of Proof.

The Hutchings showed a Sched C net loss from their Happy Eating Nutritional Consulting Wellness Camp. But as the operation showed no income, the disallowance equaled the claimed expenses. Moreover, “(I)n his notice of deficiency, the Commissioner wrote that the amount was disallowed ‘because we did not receive an answer to our request for supporting information.’ In earlier correspondence, the Commissioner requested “copies of the records you maintained to substantiate the expenses you have claims under “other expenses” on your Schedule C.” The Hutchings highlight this chain of correspondence as indicating that the Commissioner’s notice of deficiency disallowed expenses for failure to substantiate.” Order, at p. 1.

Looks like a standard indocumentado to me.  Problem is, L&L are canny. “In November 2022, the Hutchings’ counsel wrote to counsel for the Commissioner, noting that the Commissioner seemed to be claiming that there was no trade or business.” Order, at p. 1.

Hence these motions.

So then present situation seems to reward ambiguous (not to say misleading) draftspersonship, and penalize the self-represented or those with counsel less sophisticated than L&L, who earn a Taishoff “Good Job.” Unhappily, good counsel are expensive (albeit not nearly as expensive as bad counsel), and these motions must have taken a few more than a couple hours (hi, Judge Holmes).

Taishoff says, Ch J Kathleen (“TBS = The Big Shillelagh”) Kerrigan can fix this by expanding Rule 51. It is now limited to permitted responsive pleadings. Rule 70 discovery should be reserved for fact-finding. There should be the equivalent of our State court bill of particulars: what is the substance of the claim? If this results in a shotgun approach from IRS, so be it, but at least petitioners’ counsel can prepare, without wasted motion.

Whistleblowing, tax division, has reached its final version in Whistleblower 972-17W, T. C. Memo. 2023-152, filed 12/21/23. Judge Emin (“Eminent”) Toro sends off 972-17W empty-handed with the headline first above written at the head hereof (as my expensive colleagues would say).

972-17W bombarded the Ogden Sunseteers, and IRS generally, with all sorts of leads. But the skullduggery IRS ultimately unearthed was not that which 972-17W gave them. And even if the info that 972-17W gave IRS caused them to look, it wasn’t specific to the delictions whence came the recovery.

“…even if we accept as true many of the disputed points that petitioner presses—including that (1) the IRS took a greater interest in Targets 1, 2, and 3 because of petitioner’s allegations and even opened examinations or investigations because of petitioner, (2) petitioner met frequently with CID agents who welcomed petitioner’s help, (3) CID Special Agent A once asked petitioner if petitioner would be willing to testify against Target 3, and (4) Target 1 once called petitioner to threaten petitioner and petitioner reported this conversation to CID Special Agent A—it would not be enough for petitioner to prevail. That is because the record before us is devoid of evidence that petitioner provided any specific information that substantially contributed to assessments the IRS actually made. See Lissack v. Commissioner, 68 F.4th at 1324.” T. C. Memo. 2023-152, at p. 22.

Blower, be specific.

Again, full disclosure: Mr. Lissack was once a client of mine in a wholly-unrelated matter many years ago.