Tax Court aficiònados will mourn the death of Judge John O. Colvin (on 3/11/24).  Even though the position of Public Affairs Officer remains vacant with no sign that it will be filled anytime soon, the Press Release announcing the sad news gives a proper heartfelt appreciation, quite unlike the recent anonymous departure of a STJ, which had all the air of the locked room with the pistol on the desk, and a single bullet in the chamber. To the contrary, the salute to Judge Colvin was the true 21-gun variety.

And end to another trail comes today, but with all participants standing. Long-time readers of this my blog may remember Lance C. Standifird, T. C. Memo. 2024-30, filed 3/14/23 (happy π day!).  Those new readers should check out my blogpost “The Fraudulent Partnership,” 11/15/17, for the backstory on Lance C. Standifird, RFC (Rounder First Class).

Judge Travis A. (“Tag”) Greaves finds enough badges of fraud in the 2017 off-the-bencher more particularly bounded and described in my aforesaid blogpost above-cited (as my paid-by-the-word colleagues would say) to make Lance RFC a Vulture Scout, but not enough to invoke collateral estoppel (issue preclusion) as to Lance RFC’s fraudulent failure to file personal returns.

“The issue of petitioner’s fraudulent failure to file his personal returns was not in front of the Court in the partnership-level proceeding. There we found that petitioner’s brother signed the partnership returns with an intent to evade tax. In contrast, this case requires us to determine whether petitioner’s failure to timely file his personal tax returns was fraudulent. Additionally, the Court’s discussion of petitioner’s involvement with the partnership’s fraudulent returns was not essential to the determination regarding the extension of the periods of assessment under section 6229(c). In the partnership-level proceeding respondent asserted that petitioner signing the false returns was a basis for extending the periods of assessment. While we acknowledged this argument as possibly true, we found it sufficient that petitioner’s brother signed the false returns regardless of petitioner’s involvement with the returns. Therefore, the issue regarding petitioner’s fraud was not essential to the partnership-level proceeding. Collateral estoppel does not satisfy respondent’s burden of proof on fraud.” T. C. 2024-30, at p. 16.

But because he was treated as a partner in the off-the-bencher, and because the partnership was adjudicated a sham, Lance RFC can’t escape or retry the facts thereat determined. Lance RFC gets nailed.

IRS is submarining again, though, trying to get Section 6651(a)(2) failure-to-file-timely chops post-hearing, although never raising same in SNOD or answer, and never moving to amend answer. Judge Tag Greaves stifles that. “We have jurisdiction to consider an addition to tax ‘if [the] claim therefor is asserted by the Secretary at or before the hearing or rehearing.’ See §6214(a). We will not consider issues that have not been properly pleaded. Respondent has not asked the Court for leave to amend the answer. Thus, the issue of penalties under section 6651(a)(2) is not properly before the Court.” T. C. Memo. 2024-30, at p. 18 (Citations and footnote omitted).

The footnote says IRS tried to use a catchall phrase “as determined in the Notice of Deficiency” in their answer, but they never mentioned Section 6651(a)(2), only Section 6651(a)(1).

Takeaway- Practitioners, watch for these moves, and have your depth charges ready.