Faithful readers of this my blog will not be surprised that Judge Alina I. (“AIM”) Marshall isn’t buying any of the Settlement Stock that Acqis Technology, Inc. and Consolidated Subsidiary, T. C. Memo. 2024-21, filed 2/13/24, foisted on Big Techies who allegedly infringed on Acqis’ patents. The Big Techies supposedly bought stock in Acqis and acquired perpetual no-fee licenses to use the IP to settle the infringement cases.

You can find the backstory in my blogpost “Haven’t A Clue – Part Deux,” 3/26/20. Interestingly, neither Judge AIM nor the parties cite Judge Ruwe’s earlier opinion. They really should read this my blog.

Anyway, the stock, purchase of which is supposedly a capital contribution and therefore tax-free, is worthless. It can’t be sold until fully SEC registered, which Acqis’ management, frugal with legal fees, had no intention of doing. Moreover, the stock was non-voting, last in line at liquidation (after the insiders got theirs), and holders thereof couldn’t force redemption. In fact, two of the settling Biggies promptly gave the stock to charity and didn’t take a deduction, expensing the settlement payout as a business expense. As I said in my blogpost abovequoted, “one could relieve oneself of a shortage of an extremely necessary domestic article” with the stock certificates.

Whatever reservations Judge Ruwe had back in 2020 about the applicability of 6SOL, the trial dispelled them. Acqis’ tax reporting didn’t disclose what really happened. Acqis had neither expert reliance (told CPA nothing) nor good faith. And Acqis flunks the five-and-ten text for substantial understatement.

I remember trying the cash-for-stock move in a sale years ago, when I was seeking a PLR. IRS told me to drop it quick. Glad I did.

Charles Dickens’ 1852-3 Bleak House serial gave us the celebrated Jarndyce case, but, as his preface shows, there were real cases that lasted as long and cost as much. “There is another well-known suit in Chancery, not yet decided, which was commenced before the close of the last century and in which more than double the amount of seventy thousand pounds has been swallowed up in costs.”

I’m a newcomer to Scott A. Blum & Audrey R. Blum, Docket No. 5313-16, filed 2/13/24. I did blog its predecessor 12 years ago. See my blogpost “OPIS Finis,” 1/18/12. But as Judge Goeke points out today, we’re talking about Scott’s & Audrey’s 1999 tax return. That’s before the close of the last millennium. How many pounds have been spent I cannot tell.

And Scott is fighting about whether the NBAP and FPAA were mailed to his last-known address (Scott’s disregarded was a notice partner) a mere twenty-two (count ’em, twenty-two) years ago.

IRS wants summary J, but doesn’t get it. The Certified Mailing List (CML) for the NBAP, which if complete raises a rebuttable presumption of proper mailing, here is a wee bit sketchy. “The USPS employee did not enter the number of pieces that the USPS received for mailing on the CML. Nor does the CML state the number of pieces of mail that is listed on the CML. Because the CML is missing this information, it is incomplete and does not create a presumption of mailing.” Order, at p. 4. (Footnote omitted; it’s argy-bargy about the postmark on the CML being square and not round; mox nix). But IRS can use the CML and try to cobble together enough other evidence to prove mailing.

The CML for Scott’s counterpart of the FPAA looks good, but since Scott claims he hasn’t completed discovery, no summary J for IRS on that score.

As for last-known address, despite Scott having given the RA another address (but not by means prescribed in Reg. Section 301.6223(c)-1(b)), which the RA used for correspondence but from which USPS returned mail as undeliverable, as long as the FPAA went to the address on Scott’s K-1, that’s OK.

Btw, Judge Goeke says there’s an issue of material fact on the mailing of the notice partner FPAA (Order, at p. 8). But the Order, at p. 5,  says the issue is proper mailing of notice partner NBAP.  I don’t fault Judge Goeke for being a bit confused. So was I.

 Taishoff says that though the whole TEFRA schemozzle that gave rise to this farce was repealed a mere eight (count ’em, eight) years ago, this dinosaur lumbers on. The word of Charlie Dickens is again justified: “The little plaintiff or defendant who was promised a new rocking-horse when Jarndyce and Jarndyce should be settled has grown up, possessed himself of a real horse, and trotted away into the other world.”

In the presentt saga, the deficiencies were determined in June, 2012, at Docket No. 2679-06, at $9.5 million in the aggregate. Twelve years later, they haven’t been collected. Don’t ask about the interest.

I’ve said it before: Tax Court needs an administrative judge, as we have in State court, to crack the whip and move these cases. If Tax Court can’t or won’t do it, Congress should, or they should stop prating about deficits and national debts.

Paul Williams’ and Roger Nichols’ 1971 hit for the Carpenters about sums up today, as we await rain and snow on this Minor Outlying Island off the Coast of North America. Judge David Gustafson must again brush off the frivolities of Jack Donald Supinger, Docket No. 4810-23, filed 2/12/24.

Jack Donald claims he’s not a citizen because DHS has no record of him, but the Fourteenth Amendment puts paid to that; his claim he’s not resident is belied by his SC address. And his claim he has no “equitable contract” with the US of A is also off target. Resident aliens are taxed here, nonresident aliens are taxed on US-sourced and effectively-connected income, and Congress has the Sixteenth Amendment, hence they don’t need no contract. So Judge Gustafson gives Jack Donald the Section 6673 frivolity yellow card at no extra charge.

Ch J Kathleen (“TBS = The Big Shillelagh”) Kerrigan has to deal with a Genius Barista-generated non-sealing of a bushelbasketful of documents that should have been sealed, in Cory Lynn Rensmon, Docket No. 8871-21, filed 2/12/24. This is an example to those who want records and dockets sealed that, even when you get an order sealing the stuff, maybe it doesn’t always get sealed or stay sealed. Going to Tax Court may be dangerous to your privacy health.

Phoebe Jonas, Docket No. 575-22S, filed 2/9/24, certainly worked as a performing artist. But Phoebe applied her performing skills, not to Shakespeare, Ibsen, and Sophocles, but to the more remunerative “appearing in commercials and doing voiceover work.” Order, at p. 1.

To get work, Phoebe needed a talent agent, who in turn dealt with a payment agent. The last-named extracted Phoebe’s bucks from the ad agency or commercial production company, passed same to the talent agency, who paid the payroll taxes, took their cut, and paid Phoebe the balance, with a W-2 at no extra charge. Phoebe deducted the talent agent’s fees (she used more than one in year at issue) as an employee business expense, as it certainly was, until.

Until TCJA put Section 67(g) in the cooler.

STJ Jennifer E. (“Publius”) Siegel takes up the story. “Because of this change, petitioner sought to deduct the expenses pursuant to other statutory authority.

“Section 62(a)(2)(B) allows a deduction for ‘expenses paid or incurred by a qualified performing artist in connection with the performances by him of services in the performing arts as an employee.’ Among other things, to be considered a ‘qualified performing artist,’ a taxpayer’s gross income may not exceed $16,000. See § 62(b)(1)(C).” Order, at p. 2.

Phoebe lived in NY when she petitioned, and presumably did so during year at issue. Most commercials and the like are filmed in NYC Metro. $16K doesn’t go far there.

“Petitioner reported adjusted gross income of $135,215 in [year at issue], exceeding the income limit.” Order, at p. 2. That’s bare survival for any free-market renter on this Minor Outlying Island off the Coast of North America, who also wants to eat occasionally.

Phoebe claims the $16K cutoff is unfair, and disproportionately affects certain classes of performers. STJ Publius: “The Tax Court cannot evaluate the law’s fairness, however, and must apply it as it is written.” Order, at pp. 2-3. Pore l’il ol’ Tax Court has no equitable jurisdiction, so it is up to Congress “to address questions of fairness and to make any improvements to the law.” Order, at p. 3.

I cannot comment in a blog intended for reading round the family dinner table on the possibility of any useful action of Congress.

And it doesn’t matter that Phoebe never got her hands on the cash the agent(s) took; that’s not relevant to whether she is a qualified performing artist.

Although CSTJ Lewis (“Quel Nom!”) Carluzzo doesn’t say it in Susan D. Turner, T. C. Memo. 2024-20, filed 2/8/24, when he sends Susan and IRS off for a Rule 155 beancount, I hope Susan doesn’t get tagged with the 20% Section 6662(a) chop.

No mention of chops in this four (count ’em, four) page opinion, but Susan is back to single, not the HOH she claimed, and no EITC.

Yes, her minor grandchild did not provide more than half his/her support during year at issue, and Susan “helped [grandchild] pay for rent, phone bills, clothing, food, transportation, and other personal expenses. ” T. C. Memo. 2024-20, at p. 2.

But (you guessed it) grandchild did not live under Susan’s roof for more than half the year; Susan could only establish 60 days. Even though State court named Susan as grandchild’s guardian for years, including year at issue, that’s a nonstarter in the qualifying child stakes.

Sympathetic CSTJ Lew goes the extra: “From what has been submitted, it does not appear that petitioner is entitled to an earned income credit applicable to an eligible individual without a qualifying child, but we make no finding on the point. If the parties agree that she is, then they can reflect that allowance in their Rule 155 computations.” T. C. Memo. 2024-20, at p. 3, footnote 2.

Tate A. Hohnstein & Alexandra T. Faretra, Docket No. 3547-22S, filed 2/8/24, looks like a straight underpayment, with deficiency and 20% negligence chop thrown in at no extra charge stiped out. So why an off-the-bencher from Judge Goeke?

Alexandra was seeking divorce from Tate during year at issue, but that didn’t become final for more than a year thereafter. So Alex filed MFJ for year at issue, getting Tate’s info from him to prepare same, per deal between their respective counsel. Only for whatever reason Tate didn’t give her a W-2 showing an extra $30K of income, hence the SNOD, which they petition.

Or maybe not, since Alexandra claims she never signed the petition.

Except.

Alexandra fully participates in this case, with her own trusty attorneys, and signs the stip agreeing to the deficiency and chop. So the case is over, right?

No, because said trusty attorneys want, and get, Section 6015(b) apportioned innocent spousery.

Tate says Alexandra got the benefit of the $30K. So what? says Judge Goeke.

“…it would appear that had he submitted this W-2 to Ms. Faretra’s counsel in the divorce proceedings, he may have been subject to paying additional amounts to her in the divorce proceeding, as this amount was far in excess of his normal income in prior years.

“This failure to include the W-2 has been the subject of a stipulation and agreement by the parties and is no longer in dispute.” Transcript at p. 5.

Alexandra says she didn’t know about the $30K or the W-2 disclosing same. Judge Goeke says there’s no evidence she did know, and besides, it was in her interest to let the divorce court know, so she could get more out of Tate, as she had custody of their children.

So Judge Goeke gives Alexandra innocent spousery on the deficiency and chop. And Taishoff gives her trusty attorneys a “Good job.”

I wonder if Alexandra and trusty attorneys are now on their way back to divorce court.

A phrase uttered much more earnestly than in Tax Court litigation sums up the characterization Judge Albert G. (“Scholar Al”) Lauber places on the much-amended and retitled aggregation of documents that sum up the property settlement agreement between Joseph Anthony Martino, Jr., T. C. Memo. 2024-18, filed 2/7/24, and his loved-once Ms. Roberts.

The facts are pre-TCJA, so alimony was still deductible.

Joe wants $600K of deductions for the last two years of this saga. Judge Scholar Al plows through the history of Joe’s defaults both in the property settlement agreement and other obligations, which led to mortgage foreclosure, bankruptcy, garnishees on Joe’s disability insurance proceeds, and continual visits to GA State courts to restart and ultimately unscramble this frittata.

At close of play, what started as “a marital settlement agreement (Settlement Agreement) addressing numerous issues, including the division of marital assets, child support, and ‘taxable periodic alimony’ to be paid by petitioner to Ms. Roberts,’ and which “specified an allocation of assets that was ‘meant to be an equitable division of the marital property, except as specifically provided herein, and said division is non-taxable to either party.,’” T. C. Memo. 2024-18, at p. 2, remained so.

For once, obligation to pay after death of payee is off the table. This time, it’s parsing the divorce or separation agreement per Section 71(b)(1)(B) to make sure its definition of alimony does “not designate such payment as a payment which is not includible in gross income under this section and not allowable as a deduction under section 215.” T. C. Memo. 2024-18, at p. 8.

Judge Scholar Al, a stickler for precise phraseology, winces slightly.

“Section 71(b)(1)(B) is drafted somewhat unartfully, containing as it does a double—indeed a triple—negative. Rephrased in simpler terms, this provision requires us to determine whether the instrument ‘contains a nonalimony designation.’ This inquiry is a practical, not a technical, one. The instrument ‘need not mimic the statutory language,’ e.g., by ‘specifically refer[ring] to sections 71 and 215.’ Rather, ‘the divorce or separation instrument contains a nonalimony designation if the substance of such a designation is reflected in the instrument.’” T. C. Memo. 2024-18, at p. 8 (Citations omitted).

Everything is coming up property, not alimony, until Joe tries arguing that the two (count ’em, two) State Court Income Deduction Orders (IDOs, which I called garnishees) on Joe’s disability insurance payments somehow converted those takeouts into alimony.

Not while Judge Scholar Al is on the case.

“Petitioner appears to equate the IDOs with ‘Domestic Relations Support Orders’ under Georgia law and says that IDOs cannot be used to effect an ‘equitable division of property.’ He offers no plausible support for this: The ‘equitable division of property’ was effected by the Settlement Agreement and the Divorce Decree. The IDOs did not divide any property. Rather, they were essentially orders of garnishment, i.e., a mechanism for ensuring that petitioner made the property settlement payments that the Superior Court had separately ordered him to make.” T. C. Memo. 2024-18, at p. 9, footnote 3.

Sorry, Joe, no go. As it was in the beginning, is now, and evermore shall be. Property without end.

Applying Count Basie’s terminology to repurpose an old favorite, that’s Judge Tamara Ashford’s suggestion to Christopher Crumedy, T. C. Memo. 2024-19, if he wishes to repent of frivolity and escape the Section 6702 $5K frivolity return chop.

Chris frivoled by filing two (count ’em, two) Forms 1040 for year at issue, claiming no salaries, wages, etc. (although he did have same), claiming some withholding, and trying to turn the 1040-V payment voucher into a draft on the withholders.  T. C. Memo. 2024-19, at p. 2. This got Chris the frivolity warning and an imposition of the Section 6702 chop, which Chris petitioned.

There was a remand to consider the underlying liability, as Section 6702 are assessable, no SNOD needed. But Chris only faxed copies of some correspondence with IRS without explanation to the AO.  Chris claims these were his attempts to withdraw his allegedly frivolous returns.

So the confirmation of the NITL stands as to the underlying liability, because Chris did not meaningfully contest it.

“Petitioner seems to question only whether the IRS made a lawful assessment of the section 6702(a) penalties because in his view he was entitled to withdraw the [year at issue] returns that the IRS received… and in fact had attempted to do so. In support of his position, petitioner relies on section 6702(b)(3) and the two exhibits attached to his CDP hearing request, which were copies of the two assessment notices on which he had added a typed statement requesting withdrawal of each return the IRS had received….” T. C. 2024-19, at p. 11. (Footnote omitted, but it says Chris unsuccessfully tried the Section 6751(b) Boss Hoss gambit.)

The attempted withdrawal doesn’t work. Section 6702(b)(3) only allows withdrawal of “‘specified frivolous submissions,’ which are defined in section 6702(b)(2)(B) as CDP hearing requests and applications under section 6159 (relating to written installment payment agreements), section 7122 (relating to compromises), and section 7811 (relating to taxpayer assistance orders); and (2) section 6702(b)(3) provides a circumstance, i.e., allowing a taxpayer to withdraw his ‘specified frivolous submission,’ which results in the section 6702(b) penalty not applying with respect to that submission. The penalties against petitioner were not assessed under section 6702(b) but rather under section 6702(a) for having filed frivolous tax returns for 2017. Petitioner never made a ‘specified frivolous submission’ as that term is defined in section 6702(b)(2)(B).” T. C. Memo. 2024-19, at pp. 11-12.

If you’re going to frivol, be specific.

Justin C. Cloar, T. C. Memo. 2024-17, filed 2/6/24, asserts his RCP is minuscule because he is permanently unemployed (not having worked for the last two years and survived on borrowings “from friends and family and was performing occasional contract work for a national law firm.” T. C.  Memo 2024-17, at p. 8, footnote 5). And true, the SO on the remand probably didn’t get the IRM 5.8.5.20 calculation of future earnings right.

“However,  we find this potential error by SO R to be harmless in this case. Even if Mr. Cloar cannot secure work with the same wages as his previous employment, he could surely be re-employed at some point in the future, considering his education. Therefore, it is not unreasonable to conclude that Mr. Cloar has the potential to pay more than the nominal amount of $25 towards his total unpaid tax liabilities. In sum, we conclude that SO R acted appropriately and within her discretion in determining Mr. Cloar’s RCP.

“Our role is not to redetermine the RCP of the taxpayer and whether it is 100% accurate as determined by the COIC unit.” T. C. Memo. 2024-17, at p. 9. (Name omitted).

A source tells me Justin is a lawyer and a long-distance runner in AR. Judge Christian N. (“Speedy”) Weiler states “Mr. Cloar has unpaid individual income tax liabilities for the years at issue along with penalties and interest, totaling $107,410. Mr. Cloar filed income tax returns for the years at issue but failed to remit full payment of the tax due on the respective returns. Mr. Cloar does not contest the amounts of his underlying tax liabilities.” T. C. Memo. 2024-17, at p. 2.

Justin offers a $25 per month IA or going CNC.  Judge Speedy Weiler accepts neither.

Lonnie Wayne Hubbard, T. C. Memo. 2024-16, filed 2/6/24, certainly caused Judge Alina I. (“AIM”) Marshall to employ a lot of somber reasoning and copious citation of precedent to establish that the IRA grab resulted in constructive receipt of the proceeds to satisfy the criminal forfeiture following Lonnie’s conviction in USDCEDKY for “various crimes related to the distribution of controlled substances and listed chemicals in violation of 21 U.S.C. §§ 841(a)(1), 841(c)(2), 846, 856(a)(1), and 18 U.S.C. §§ 2 1956(h), and 1957.,”. T. C. Memo. 2024-16, at p. 2.

Lonnie was a KY pharmacist; a source tells me Lonnie was selling pseudoephedrine, which can be a cold medicine but also can be used to make methamphetamine. Speed kills. Lonnie also was divorced, his ex-wife got their house and contents and their joint bank accounts, and refused to communicate with him. Wherefore he claims he never got the 1099-R from his IRA custodian when the Feds grabbed his IRA. And he made no money while in jail.

Lonnie’s argument is he never had constructive receipt of the $400K of IRA funds.

“The funds from petitioner’s T. Rowe Price IRA were forfeited to the USA as an involuntary distribution. Though they were not under his control, petitioner constructively received the funds by having received the economic benefit of the funds through satisfaction of his forfeiture liability to the USA. See Old Colony Tr. Co., 279 U.S. at 729; Larotonda, 89 T.C. at 291; Carione, 96 T.C.M. (CCH) at 358. Moreover, the fact that petitioner did not willfully or purposefully cause the distribution is irrelevant. See Rodrigues, T.C. Memo. 2015-178, at *11; Schroeder, 78 T.C.M. (CCH) at 568. Petitioner constructively received and must include in his gross income a taxable distribution of $427,518 from his retirement account with T. Rowe Price.” T. C. Memo. 2024-16, at p. 14.

Judge AIM Marshall does fall for Lonnie’s plight, somewhat. But she sticks Lonnie for late-filing and late-paying add-ons.

“While we are sympathetic to petitioner’s difficulties, we decline to conclude that his failure to timely file and timely pay were justified by reasonable cause. In petitioner’s declaration… petitioner alleged that (i) he never received the Form 1099–R from T. Rowe Price, (ii) he had not earned any income since 2015, (iii) he was unaware of any filing obligation, and (iv) as a result of the criminal forfeiture and his divorce… he was unable to pay the tax due.

“Petitioner knew of a general duty to file his tax return as he stated in his declaration that he had ‘habitually’ done so in previous years. He was also aware of the forfeiture that was part of the judgment in his criminal case. Nonetheless, petitioner asserts that he did not know that he had to file a tax return because he did not receive the Form 1099–R. Nonreceipt of tax information forms, such as a Form 1099, does not excuse a taxpayer from his or her duty to report income.” T. C. Memo. 2024-16, at p. 19.

So Lonnie has a Rule 155 beancount on tap, with $500K of deficiency and add-ons at the end. But it gets worse, as my source tells me Lonnie also got a civil judgment against him and his pharmacy from USDCEDKY of $4,474,000.

So why is Lonnie fighting about $500K in Tax Court (and doing a good research and briefwriting job, at that)?

Well, Judge AIM Marshall says USDCEDKY also gave Lonnie, at no extra charge, a “term of imprisonment for a term of 360 months, three years of supervised release, and a criminal monetary penalty of $7,100.” T. C. Memo. 2024-16, at p. 2. So see the title of this blogpost first written at the head hereof.