Clair R. Couturier, Jr., Docket No. 19714-16, filed 1/22/24, shows Clair’s trusty attorneys arguing that all of the $26 million Clair got was sales proceeds from his ESOP-qualified stock. IRS claims that the ESOP-qualified was worth $650K at best, and the remaining $25 million-plus for was his two unqualified ESOP plans.

No question there was a rollover of $26 million into Clair’s own IRA when he split from his employer, but unqualified stock (or anything else unqualified, like proceeds from disposition of unqualified) raises the 6% Section 4973 excess IRA contribution tax. So Clair could roll, but not income tax-free or excessive IRA contribution tax-free.

But the worth of the qualified stock is a question of fact (apparently not publicly-traded, and even then, blockage might be a fact question).  No summary J for Clair.

Sydney Roads, LLC, Sydney Roads Investments, LLC, Tax Matters Partner, Docket No. 302878-21, filed 1/22/24, shows IRS again hitting the wall with its favorite tactic in the war on Dixieland Boondockery. Relying on Rev. Rul. 99-5, 1999-1 C.B. 427, 434–35, IRS claims Sydney’s holding period was short of one year when its acquisition of membership interests in a disregarded LLC turned the LLC into a partnership, thus summary J for IRS limiting the worth of the conservation easement.

Except.

Judge Pugh finds the documents submitted by Sydney scupper Rev. Rul. 99-5, or at least raise a fact question as to which flip of interests came before the other. Maybe you can follow the three-card monte hand-offs of membership interests; I can’t. If they run something like this at the Superbowl, there’ll be a lot of flying popcorn.

So IRS falls back on form-over-substance: the deal really was a land sale. The LLC stuff was window-dressing.

Except.

“The application of the substance over form doctrine is inherently factual and generally not appropriate for summary judgment.” Order, at p. 5.

I’m a great fan of summary J, but, as with many things in life, law, and football,  “ya win some and ya lose some.”

Saul Bradley, T. C. Memo. 2023-7, filed 1/22/24, has not only had to face divorce and a death in his family, but two (count ’em, two) years’ worth of deficiencies and chops; and he hadn’t fIled for four successive years thereafter.

But IRS has problems, too. Saul claims he never got the SNOD, so IRS proffers a copy (redacted) of the USPS Form 3877 Proof of Mailing that causes Judge Travis A. (“Tag”) Greaves to admonish IRS as first set forth at the head hereof.

“First, as redacted by respondent, we cannot discern whether Form 3877 was signed by the USPS employee who accepted delivery of the notice. A Form 3877 is not properly completed when a USPS employee does not sign the form. Thus, because the Form 3877 does not contain a visible signature of a USPS employee, it is not properly completed. We have previously held that this omission, together with other omissions, renders the presumption of proper mailing inapplicable.

“The other error on Form 3877 relates to the name stamp appearing on the form. This stamp appears to be the name of the IRS employee who issued the notice of deficiency. Form 3877 must be signed or initialed by the IRS agent who issued the notice. We previously held that a stamp signature from a receiving USPS employee was a defect on Form 3877, sufficient when combined with other omissions to prevent application of the presumption of proper mailing. Knudsen v. Commissioner, T.C. Memo. 2015-69, at *6–7, *14–16. Because both the IRS agent and the USPS employee are required by IRS procedure to sign Form 3877, we see no reason why we should treat the stamped signature of the IRS agent in this case differently from the stamped signature of the USPS employee in Knudsen. Therefore, the stamped signature of the IRS agent is a defect on Form 3877. These two errors render the presumption of proper mailing inapplicable.” T. C. Memo. 2023-7, at pp. 6-7. (Citations omitted, but get them for your memo of law file; for the Knudsen story, see my blogpost “Great, But No Substitute,” 4/7/15).

But all is not lost for IRS, although it is for Saul.

“While this evidence is not sufficient to create a presumption of proper mailing, respondent may still satisfy his burden to show proper mailing of the notice of deficiency if the evidence of mailing is otherwise sufficient. An incomplete certified mailing list may serve as evidence that the notice of deficiency was properly mailed to a taxpayer. Here, the possible defects in Form 3877 are minor. Form 3877 bears the USPS stamp, specifies the number of articles received, and lists petitioner’s name and address. Respondent also introduced a copy of the notice of deficiency, which bears the same mailing date and mailing address as the corresponding Form 3877. Petitioner does not contest that the address listed on Form 3877 and the copy of the notice of deficiency was not [sic] his last known address. The preponderance of the evidence supports a finding that respondent mailed the notice of deficiency to petitioner at his last known address.” T. C. Memo. 2023-7, at p. 7 (Citations and footnote omitted). I think you meant “Petitioner does not contest that the address listed on Form 3877 and the copy of the notice of deficiency was his last known address,” Judge.

IRS, better stamp out stamps, lest the next time you may not be so lucky.

Jackson Crossroads LLC, Greencone Investments LLC,Tax Matters Partner, et. al., Docket No. 12235-20, filed 1/19/24 (a very special date in our family), ably represented by trusty (and I’m sure by their clients well-belovèd) attorneys, snipe away carefully at IRS’ wildcard reinforcements. Judge Christian N. (“Speedy”) Weiler is a great one for cutting down post-pleading attempts to wrongfoot adversaries.

In this latest installment, he reminds us of the parties’ previous attempt to tilt the playing field; see my blogpost “Why I Love Summary J – Part Deux,” 12/8/23.

Now the Jacksons claim IRS’ latest wildcards are (a) donative intent, (b) whether the syndicated members of the LLCs are really partners, and (c) whether or not the swath of Dixieland Boondocks at issue is inventory per Section 1221, and thus ineligible for Section 170 Dixieland Boondockery.

First, the obligatory procedural sparring. The Jacksons moved to strike those parts of IRS’ Pre-trial Memo which raised (for the first time) these issues.

“Respondent asserts that petitioner’s Motion to Strike is disguised as a motion in limine, since it is a pre-trial motion that seeks to exclude specific evidence or arguments from being presented during trial and the motion is untimely because it was not filed before the deadline for motions in limine, as set in the … scheduling order. We do find it is appropriate to treat petitioner’s Motion to Strike as a motion in limine. However, we find that the Motion to Strike was filed promptly in response to Respondent’s Pretrial Memorandum which for the first time, raised these two Issues with the Court.” Order, at p. 2. (Footnote omitted, but it says the Jacksons moved to strike within a week after getting IRS’ Pre-trial Memo.). Note “two issues,” because Judge Speedy Weiler says donative intent was disposed of in the above- referenced 12/8/23 order.

As to the remaining issues (Partnership and Inventory), they’re mixed law-and-fact, so arguing they involve a different legal theory alone (which doesn’t require additional or other evidence) won’t save IRS.

“We find the Partnership Issue (Issue 7) and Inventory Issue (Issue 8) to be mixed issues of fact and law. As such, these issues were required to have been pled under our Rules. Because the issues are not contained in any pleadings, and respondent did not seek leave to amend the pleadings prior to trial, permitting respondent to present evidence on these issues at trial will unfairly prejudice petitioner. Therefore, the Court will not consider the Partnership Issue (Issue 7) and Inventory Issue (Issue 8) at trial and on brief.” Order, at pp. 2-3.

At the risk of yet again wearying my readers with a repetition (not to say regurgitation) of Judge Holmes’ observation in Oakbrook, Dixieland Boondockery cases are well-suited to valuation resolution. Thomistical-Talmudical torturing of the language of Section 170 is time-wasting tohubohu. Go try the case.

I had hoped that I should not again have to refer to The Stealth STJ. I am no purveyor of conspiracy theories, neither do I make mysteries where there are none. I had thought that a reader or source would furnish a simple explanation of ex-STJ Eunkyong Choi’s departure after an exceedingly short tenure, giving me the Psalm 141:5 treatment at no extra charge. And perhaps the nonreportage thereof by Public Affairs was a mere oversight.

But it didn’t happen. So I sought for enlightenment both from Second Street, NW, and from such sources as I could find. The results would have done Stonewall Jackson proud.

The trade press carried a story (that I didn’t pick up, as the trade press routinely scoops me with its boundless resources) that ex-STJ Choi had, two (count ’em, two) months prior to her alleged departure date, mistakenly issued a bunch OSCs (hi, Judge Holmes), which Judge Ronald L (“Ingenuity”) Buch had to mop up. But that hardly accounts for a speedy and unheralded departure, otherwise than by post hoc propter hoc fallacious reasoning.

The opacity of Section 7443A is no help. As far as Congress is concerned, STJs serve at the pleasure of the Chief Judge, who seems to be able to do the Matthew 8:9 number whenever, subject only to the Tax Court budget.

So what’s the point? (My readers have asked that more than once).

Tax Court’s expansive reading of Section 7461 has caused petitioners to lay bare everything once they cross the electronic threshold of The Glasshouse in the City of the Unenfranchised. Successful Rule 27 motions seem to require clear and convincing proof of irreparable injury to person or purse despite no such statutory requirement, and Rule 103 protective orders seem limited to trade secrets.

Only whistleblowers, even serial blowers, are broadly protected; see In Re Sealed Case, 931 F.3d 92 (DC Cir, 2019).

But does this door swing one way only? I’ve had more than one complaint in my blogging career from litigants with piteous tales that Tax Court laid bare “(T)heir homely joys, and destiny obscure; Nor Grandeur hear with a disdainful smile The short and simple annals of the poor,” as a much better writer than I put it. And no redress could be had.

Are the judges above all that? So it seems. I need not and will not advert to ethics and the Supremes, as that trenches on the political, into which pit I will not drag this my blog, nor fall myself. At least, not here. But how about pore l’il ol’ Article One Tax Court? No court is less political, as again and again opinions state that the Court must follow the law as Congress promulgated it.

So what about Section 7461?

The leading privacy case is Willie Nelson, Docket No. 1174-85, filed 12/12/85. STJ Cantrel said it clearly: “In these cases, members of the public have an interest in free access to the facts and in understanding disputes that are presented to this forum for resolution. They also have an interest in assuring that courts are fairly run and judges are honest. Nevertheless, the presumptive right to access may be rebutted by a showing that there are countervailing interests sufficient to outweigh the public interest in access.” Order, at p. 919. (Citations omitted)(emphasis added).

OK, I’ll buy that. If there are “countervailing interests sufficient to outweigh the public interest in access,” what are they? Or if even mention thereof would defeat the outweighed countervailings, say so.

But if the petitioner has to let it all hang out, why not Tax Court?

Judge Morrison has one of his off-the-benchers, and it certainly justifies the title first set forth hereinabove at the head hereof, as my expensive colleagues would say.

Jacqueline Garcia-Bravo, Docket No. 26566-22, filed 1/1/7/24, wanted the Section 25A(b)(1) American Opportunity Credit for herself and her son. Except JGB was over the AGI limit for the Lifetime Learning Credit, Section 25A(c)(1). And JGB had already used up her four-year American Opportunity Credit.

So only son is still in the hunt.

“At trial, petitioner contended that her qualified tuition and related expenses for [year at issue] include four expenses for which petitioner introduced receipts into evidence (the expenses for the two computers, the office chair, the laptop messenger bag, and the ink cartridge for a printer). Petitioner also contended that qualified tuition and related expenses include the expenses of books paid by petitioner, through her son, at the college bookstore for her son’s course of study. The books were paid for in cash and petitioner did not introduce receipts for them into evidence. These five types of expenses are the only expenses that petitioner contended at trial are qualified tuition and related expenses.” Transcript, at p. 6.

But all son’s college required were the books.

“Respondent contends that the book expenses are unproven as to the amount paid. However, petitioner and petitioner’s son credibly testified that eight books were purchased at a cost per book of at least $100. Under the Cohan principle, we reasonably estimate that the cost of each book was $100 and that the total cost of the books was $800. To the extent respondent contends that the book expenses were not ‘required’ within the meaning of the Code and the Regulations, we find that the book expenses were required for the enrollment and attendance of petitioner’s son for courses of instruction at the college he attended.

“In conclusion, we hold that the $800 cost of the books are qualified tuition and related expenses within the meaning of section 25A(b)(l).” Transcript, at p. 7.

Thus Judge Albert G (“Scholar Al”) Lauber disposes of Section 7806(b)’s injunction that location of a Code section raises no inference, implication, or presumption of its contents. Clair R. Couturier, Jr., T. C. Memo. 2024-6, filed 1/17/24, says that it doesn’t matter where Congress placed Section 4973, it’s still a chop and thus Boss Hossable.

Clair’s been here before; he sought sealing back in 2019 (denied), tried estoppel against IRS (ditto), and his expert played the Michael Corleone classic gambit last September and lost.

Today, Clair claims the 6% excise tax on his $25 million excess IRA contribution is unBoss Hossed.

“The flush text of section 4973(a) refers to this exaction four times, in each case describing it as a ‘tax.’ The term “penalty” appears nowhere in section 4973(a) or in any of the provision’s other six subsections. The statute’s plain text thus establishes that the exaction imposed by section 4973 is a ‘tax’ under the Code.” T. C. Memo. 2024-6, at p. 4.

Besides, Subtitle D, Chapter 43, has many excise taxes triggered by pension plans and the like. Judge Scholar Al lists them, and notes that many of them direct conduct by the taxed, but that’s nothing new. And as for the 6% being “punitive,” some of the others run to 100% in Section 4975.

Chops are off in Subtitle F, and Boss Hossery has its very own Subchapter C. And additions to tax apply to the Section 4973; if it weren’t a tax, there could be no additions.

Finally, Section 6751(b) was enacted to prevent examiners from coercing settlements by using chops as chips. “Needless to say, a revenue agent could not plausibly assert a section 4973 excise tax at the conclusion of an ordinary income tax audit in an effort to induce settlement. Because section 4973 exactions cannot be used as ‘bargaining chips’ in this way, Congress is unlikely to have envisioned section 6751(b) as applying to them.” T. C. Memo. 2024-6, at p. 8.

Clair wants a functional analysis, but Judge Scholar Al says it’s simple statutory interpretation, and when Congress says “tax” they mean “tax.”

Running rental real estate is a hands-on business; notwithstanding Section 469(c)(2), which shoehorns all rental real estate into passivity, anyone other than a pure investor, who hands all operational control to a manager, is finding tenants, collecting rents, making repairs or contracting for them (and riding herd on contractors), dealing with governmental and quasi-governmental authorities having or asserting jurisdiction, vendors, and utility providers, and getting entangled in the legal system.

Since a lot of rental real estate is Mom-and-Pop, a key to establishing an active deduction from a compulsorily passive business is showing material participation, like doing all of the above for at least 100 hours per tax year, and doing more than anybody else.

Judge Morrison has the story in an off-the-bencher, Krishan K. Gossain & Kavita Gossain, Docket No. 21812-22, filed 1/16/24. Krish claims pro status, but his 9-to-5 gig gives him too many non-real estate hours.

He does hit the 100 hour cutoff for the Section 469(i)(1) $25K special real estate allowance, and doesn’t fall foul of the $100K AGI disallowance barrier.

Best of all, Kav’s hours count too.

“Section 469(h)(5) provides that in determining whether a taxpayer materially participates in an activity, the participation of the spouse of the taxpayer is taken into account. A regulation elaborates that, in the case of any married individual, any participation by such person’s spouse in the activity during the taxable year (even if the spouse does not own an interest in the activity and even if the spouses do not file a joint return) is treated as participation by such person in the activity during the taxable year. Treas. Reg. § l.469-5T(f)(3).” Transcript, at pp. 9-10.

But Krish is on his own for pro status, which he must attain to break the $25K barrier which separates the professionals from the also-rans.

“The hours he worked on the rental properties include only the hour [sic] he personally worked on the rental property, not the hours Mrs. Gossain worked on the rental properties. §469(c)(7)(B) (first flush sentence).” Transcript, at pp. 12-13.

The Sweet Swan of Avon’s masterpiece echoes this morning, as a reliable source informs me that no statement has, or will, issue from the United States Tax Court on the departure of ex-STJ Eunkyong Choi back in August last year.

“The rest is silence.”

Maybe for Horatio; not for me it isn’t.

Our current “Born Again on a Monday” commemorations occasionally fall on the actual birthdate of the figure commemorated.

So it shall be with Dr. Martin Luther King, Jr., this year.

Wherefore USTC is out of business today, per Rule 25(a)(5).

So am I.

Jack Donald Supinger, Docket No. 4810-23, filed 1/12/24, is back, but maybe not so polite as before (see my blogpost “Holding Out the Lamp,” 10/29/21).

Now JD wants a remote trial because “(P)etitioner has a disability which is protected by the Americans with Disabilities Act (‘the ADA’), which causes extreme pain and discomfort when sitting in a vehicle for more than a short duration of time. The time and distance to the court would be more than petitioner could physically bear and would exacerbate petitioner’s medical state and disability. Requiring petitioner to appear in person would be unduly burdensome.” Order, at p. 2.

This case, like the one discussed in my above-referred-to blogpost, is before Judge David Gustafson, who is obliging to a fault. But JD’s past performance weighs against him.

Besides frivoling, dodging, evading, and obfuscating in ’21, JD has another case for a different year pending before Judge Alina I. (“AIM”) Marshall. Judge Gustafson checks out the trial transcript in that one, and finds JD is up to his old moves.

Still obliging, Judge Gustafson would be willing to grant JD a remote trial, could he produce something beside his unsworn request, like “(A) credible and persuasive letter from a doctor, explaining the nature and effects of the disability.” Order, at p. 2. Btw, ADA doesn’t apply to Tax Court.

And for anyone alleging inability to come from away to try your case in Tax Court, here’s some words from Judge Gustafson on vesting of remoteness.

“Our system of justice presumes that the trier of fact, who must judge the credibility of witnesses and their testimony, will have the ability to observe them in person. Therefore, the great majority of Tax Court petitioners who take their cases to trial undertake the logistical burdens associated with appearing in person before the Court. Mr. Supinger’s history before us shows no reason that, while his neighbors duly appear in court for their trials, he should be granted special treatment and be excused from doing so. Where (as here) a witness’s credibility is already in question, the Court’s ability to observe in person has an increased importance. When proceedings are not in person but are remote, this ability is lost, and the fact-finding function is compromised to some extent. Moreover, converting a case from in-person to remote is not as simple as flipping a switch or checking a box. We lack the equipment and technology to conduct this case remotely from Columbia, South Carolina, during the session that we will conduct there beginning April 8, 2024. Rather, to be handled remotely, this case would have to be transferred to a different, remote session (or be scheduled as a stand-alone ‘special session’). In the right circumstances we would happily go to this trouble for a petitioner who seeks in good faith the adjudication of his sincere contentions. So far we are not convinced that Mr. Supinger is such a petitioner.” Order, at pp. 2-3.

Moreover, Judge Gustafson hit JD with a $5K Section 6673 frivolity chop back in ’21, but gave him a chance to avoid the chop by forswearing frivolity. JD didn’t, and appealed to 4 Cir, which affirmed on Judge Gustafson’s opinion.

I make IRS 8 to 5 in the morning line for this one.