Every so often, the collective bench at 400 Second Street, NW, unloads a bunch opinions (hi, Judge Holmes) featuring the longtime dodgers and protesters. Today, it comes again.

It took four (count ’em, four) days in the jug to convince Joseph Belcik, T. C. Memo. 2024-49, filed 4/22/24 (Happy Kickoff to Palindrome Week!) to unload 3000 (count ’em, 3000) pages of unsorted and unexplained bank statements, but at the end of the day Joe’s multi-year failure to file, pay, and noncooperation with IRS, earn him a $2K Section 6673 delay of the game chop. And some eyepopping deficiencies and add-ons, including without limitation fraudulent failure to file. Spouse Kaylyn gets off with none of the above, as IRS treats their nonfilings as MFS on the SFRs, so Kaylyn’s personal exemption and standard deduction wipe whatever partnership income she had.

PICCIRC, LLC, PIMLICO, LLC, A Partner Other Than the Tax Matters Partner, T. C. Memo. 2024-50, filed 4/22/24, is a throwback to the old Distressed Asset/Distressed Debt dodge of yesteryear. This is the purchase of worthless offshore paper (usually Brazilian), which gets shuffled through a chain of box-checked LLCs, the last of which partners with a an onshore highroller looking to buy a big write-off. Using Section 721, the seller redeems out, leaving the buyer with a big paper loss. Judge Gale doesn’t need step transaction; this is a disguised sale.

“A disguised sale occurs where a partner contributes property to a partnership and receives a related distribution that is, in effect, consideration for the contributed property. See § 707(a)(2)(B); Canal Corp. & Subs. v. Commissioner, 135 T.C. 199, 210–11 (2010); Treas. Reg. 1.707-3. A transaction may be deemed a disguised sale if, on the basis of all the facts and circumstances, (1) the partnership’s transfer of money or other consideration to the partner would not have been made but for the partner’s transfer of property and (2) if the transfers were not made simultaneously, the subsequent transfer was not dependent on the entrepreneurial risks of partnership operations. Treas. Reg. § 1.707-3(b)(1); see also Route 231, LLC v. Commissioner, 810 F.3d 247, 253 (4th Cir. 2016), aff’g T.C. Memo. 2014-30. The regulations provide that transfers between a partnership and a partner within a two-year period are presumed to be a sale of property to the partnership unless the facts and circumstances ‘clearly establish’ otherwise.” T. C. Memo. 2024-50, at p. 6.

There’s no evidence that any of these outfits engaged in any business activity.

Taishoff says how come the high-priced accountants and attorneys who papered this didn’t get chopped?

Brian Dean Swanson, Docket No. 2526-23, filed 4/22/24, has a long record, and Judge David Gustafson goes through all of it. He’s only featured in this my blog twice before now (see my blogposts “Dealer’s Choice,” 7/29/20, and “DFAS To The Rescue,” 4/20/21), but collected three (count ’em, three) $8K frivolity chops in separate 11 Cir cases. Brian Dean does avoid a late-filing chop because what he filed was timely. “(We do not find that the position he reported on the return was valid, nor that he necessarily even thought that it was, but that he thought had filed a valid return.).” Transcript, at p. 22.

Ol’ Brian Dean is a GA high school teacher, so Judge David Gustafson goes easy on him. Brian Dean did file stuff on time and complied with court orders. “He has previously had sanctions imposed on him by the Court of Appeals—i.e., three $8,000 sanctions totaling $24,000. If deterrence were the only consideration for deciding the amount of the penalty, the fact that $24,000 in sanctions has not deterred him yet might call for the maximum of $25,000 to be imposed here. But in light of the considerations we note above in his favor, and out of reluctance to impose against a teacher’s salary the full force of the penalty, we will impose a penalty of $15,000.” Transcript, at p. 26.

The poor ol’ partitive genitive doesn’t stand a chance as that Senior Judge, paragraphed by the Wall Street Journal for his “quirky” writings (see my blogpost “No Method, No Madness,” 6/5/18) has found a “couple quirks” (hi, Judge Holmes) in IRS’ approach to Brendan James Trainor, Docket No. 14996-22, filed 4/19/24, at p. 1.

BJ started with the old Subtitle C – Subtitle A protester jive, conflating employment taxes with income taxes. As Tax Court has no jurisdiction over Subtitle Cs, BJ moved to dismiss his own case.

“Mr. Trainor said when his case was called that he didn’t think ‘there was a one-in-a-million chance’ the Court would grant his motion.

“He is right.

“His motion is denied.” Order, at p. 2.

 Judge Holmes brandishes the Section 6673 yellow card, so BJ and IRS stip the case out. BJ did have salary and wages.

BJ claims the deficiency is what he owes after crediting withholding, but that’s wrong.

“Mr. Trainor evidently misread the notice, in which the IRS determined a deficiency of $9052. As we explained to Mr. Trainor when we called his case, Tax Court redetermines deficiencies which are, roughly speaking, the difference between what a person owes under the Code and what he reports on his return. Because Mr. Trainor had had withholding on his wages, the total amount the IRS says he owes before interest and penalties was $2444. What someone owes is a liability, and is different from a deficiency.” Order, at p. 2. (Emphasis by the Court).

Chops are based on the deficiency, not the liability, so a substantial understatement chop could be a lot more than what actual tax one ultimately owes.

IRS’ problem is Section 6751(b) Boss Hossery for the Section 6662 chop they want to lay on BJ. The SNOD here is a courier without luggage: the CPAF usually attached to any SNOD to show Boss Hossery compliance is missing. And the SNOD uses the buckshot language that the chop is based on negligence or disregard, substantial understatement, overvaluation, or want of economic substance.

“…when the only mention of a penalty under section 6662 is the generic language listing every type of penalty under that section – exactly the language that’s in the notice that the IRS sent to Mr. Trainor – we have to look to any more specific language in the approval form.” Order, at pp. 3-4.

Now IRS could argue electronicution per Section 6751(b)(1)(B); that does apply to the substantial understatement chop. See my blogpost “I Sing The Penalty Electronic – Part Deux,” 2/25/19. Btw, Judge, the case you cite at Order, p. 3, footnote 1 is “Walquist,” not “Wahlquist,” 152 T. C. 3.

But IRS doesn’t argue electronicution in its pleadings or the stip, and has only the Michael Corleone gambit, classical variation, to play.

No chops.

Michael C. Giambrone, T. C. Memo. 2024-47, filed 4/18/24, says he and brother Bill were robbed by Fraudster Farkas, who went down in USDCEDVA for 30 (count ’em, thirty) years on bank and securities fraud. Fraudster Farkas was ordered to pay $3.5 billion-with-a-b in restitution to 20 (count ’em, 20) named victims of his larcenous shennigans.

But neither Mike nor Bill was among the named, or did they appear and claim losses in USDCEDVA. They only took theft losses on their 1040s the next year, for which IRS whangs them, in amounts shown on table at T.C. Memo. 2024-47, pp. 18-19.

Problem is, Mike’s and Bill’s IL bank was on the rocks, with the Federales on the doorstep, when Bill and Mike sold control of their bank holding corporation to Fraudster Farkas.

But corporate control doesn’t exist separate from the shares, and Fraudster Farkas bought newly-issued shares of bank holding corporation. So, says Judge Patrick J. (“Scholar Pat”) Urda, if anyone was defrauded it was the bank holding corporation, not Bill or Mike. Judge Scholar Pat refuses to play grin-without-a-cat with IL law. Corporate control without stock ownership is not the same as theft of services by fraudulently refusing to pay for a hotel stay.

And the bank holding corporation did get cash from Fraudster Farkas for the stock it issued. To prove theft, Mike and Bill had to show deceptive conduct induced the issuance. The bank, which was the bank holding corporation’s sole asset, was floundering, Fraudster Farkas’ offer was a good one, and the Federales were beating down the door. Whatever lies Fraudster Farkas told were “the cherry-on-top”, T. C. Memo. 2024-47, at p. 14, and weren’t the real inducement.

“Although control is certainly valuable, the Giambrones have failed to point us to any Illinois law (and we have not found any) suggesting that a controlling interest in a company can be considered property in a vacuum, divorced from the shares undergirding it. To the contrary, control stems from assembling enough shares to direct a company’s affairs, and the value of a controlling interest, i.e., the control premium, is impounded into the value of shares sufficient to obtain such an interest.” T. C. Memo. 2024-47, at p. 13. (Copious citations and footnote omitted).

But even if Bill and Mike were robbed, they picked the wrong year to claim it. The restitution hearing in USDCEDVA took place the year before the year at issue. At that hearing, both the USDCJ and counsel for Fraudster Farkas agreed that, given Fraudster Farkas’ age, the thirty-year stretch he was serving, and whatever assets could be found, nobody was gettin’ nuthin’. And Bill and Mike didn’t put in any claims.

They do point to some discussions with FDIC in year at issue about recouping losses from some assets of bank and bank holding corporation, arguing possibility-of-recovery in year at issue, but advance no theory how these are tied to what Fraudster Farkas did. Judge Scholar Pat isn’t buying.

“The Giambrones have shown, at best, a nebulous and speculative hope that they could obtain some of the assets of [bank] and [bank holding corporation] in compensation for the theft they believed that they had suffered. This vague and subjective belief falls far short of establishing that they had a reasonable prospect of recovery from the assets of [bank] or [bank holding corporation] at any point.” T. C. Memo. 2024-47, at p.17.

And Mike and Bill fold reasonable reliance, so Section 6662 five-and-ten substantial understatement chops are in.

Judge James S. (“Big Jim”) Halpern has obviously read Judge Cary Douglas Pugh’s nanopinion in Englert, T. C. Memo. 2023-38, filed 3/22/23, because he cites it in Ryan Lance MacCubbin, Docket No. 15352-22, filed 4/18/24, Transcript, at p. 6.

But as I said when Judge Pugh’s four-page opinion was first published, it was a template for the entire Bench when confronted by the all-zeroes, my-wages-aren’t-taxable jive. See my blogpost “The Shortest Way With Dissenters – Part Deux,” 3/22/23.

Why did Judge Halpern need ten (count ’em, ten) pages to send off Ryan for trying the same stunt? As Judge Big Jim remarked, “The parties have stipulated that, during [year at issue], petitioner worked at C and received from C earnings of $51,007. There is little more to consider.” Transcript, at p. 6. (Name omitted).

The anonymous spouse of John A. Hartmann, T. C. Memo. 2024-46, filed 4/17/24, may well, for all I know, be, like John, “a lawyer with decades of experience.” T. C. Memo. 2024-46, at p. 2.

Unlike John, she hadn’t failed to file returns for any of the four (count ’em, four) tax years, for one of which Judge Courtney D. (“CD”) Jones sustains the NITL which John petitioned.

Judge CD Jones doesn’t state whether spouse kept current with any estimated tax payments. Since spouse is not seeking Section 6015 innocent spousery, the usual litany of somber reasoning and copious citation of statute, regs, and precedent is absent here.

As usual, the story is in a footnote.

“AO H also verified that Mr. Hartmann did not file a joint return with his spouse for any year that he had not filed a return…. AO H noted that Mr. Hartmann’s spouse filed her returns for those years as ‘married filing separately.’” T. C. Memo. 2024-46, at p. 7, footnote 6. (Name omitted).

That’s the best defense to joint-and-several I know.

Keith M. Phillips, T. C. Memo. 2024-44, filed 4/16/24, presents Judge Travis A. (“Tag”) Greaves with a postal reverse. The usual mailed-to-last-known-address SNOD scuffle has petitioner claiming they changed address, and IRS claiming they didn’t. Here, Keith claims he never changed (he was in jail at the time), but his now-deceased ex-spouse, or his son, Keith M. Phillips, Jr., might have done.

So Judge Tag Greaves compares the USPS National Change of Address (NCOA) database datadump to IRS, with how IRS followed the Regs to update its Integrated Data Retrieval System (IDRS). And Judge Tag Greaves finds IRS didn’t.

But one might ask, “who cares?”

Keith claims improper mailing, but wants Tax Court to keep jurisdiction. All my sophisticated readers will cry with one voice “Improper mailing, invalid SNOD, no jurisdiction!” And they’re right. IRS claims SNOD properly sent, petition way late, no jurisdiction. And IRS is right.

And, as you’ll see at the foot hereof, it really doesn’t matter.

But Tax Court does have jurisdiction to decide why it doesn’t have jurisdiction, and Judge Tag Greaves is just the man to do it.

First, BoP. Almost always on petitioner, but here IRS has all the info on how it matched IDRS with NCOA, so IRS has to show they did it. Now last-known-address is a safe harbor; if mailed there, whether actually received or not is immaterial. But if sent elsewhere, petitioner has to have gotten it in time to petition. And Keith didn’t.

But USPS’ system for verifying hardcopy change-of-address forms is admittedly porous, T. C. Memo. 2024-44, at p. 7, footnote 8.

IRS does have presumption-of-regularity, and they sustain that. But Keith proves he was in jail, so maybe Junior was the one who sent the change of address; hence a mismatch.

Anyway, the IDRS transcripts don’t show what, if anything, IRS did to match the NCOA to what the IDRS transcripts they proffer show.

“We do not have to reach the question of whether respondent can generally rely on the IDRS to show evidence of compliance with the last known address regulation. The transcripts respondent provided contain no information relating to the process of matching petitioner’s information to the NCOA Notification…, only the result of such process. Even if the IDRS may be used as evidence of compliance with the regulation, the transcripts provided in this case are not competent and persuasive evidence of respondent’s compliance.” T. C. Memo. 2024-44, at p. 14. IRS loses that one.

And to make matters worse, IRS waffles.

“Respondent’s inconsistent explanations for the change of address further diminish the credibility of the transcripts. In his reply, respondent appears to argue that third-party reporting regarding petitioner’s ex-wife supported his decision to update petitioner’s last known address. Reliance on third-party reporting, excluding the USPS, to update petitioner’s last known address would violate the regulation. See Treas. Reg. § 301.6212-2(b)(1). Respondent asserted the new theory that the change of address was the result of an NCOA Notification in his second supplement to his motion. Respondent failed to provide an explanation for this change in position.” T. C. Memo. 2024-44, at p. 14.

Besides, the FINDSD didn’t match the IMFOLE on the address update previous to the one at issue, although all the others did. Hence, IRS loses.

Judge Tag Greaves dismisses sua sponte for invalid SNOD.

But, lest Keith reach too soon for the Veuve Cliquot Rosé, there’s a footnote.

“Nothing in this Opinion should be construed as limiting respondent’s ability to issue petitioner a new notice of deficiency for [year at issue] that is properly mailed to petitioner’s last known address.” T. C. Memo. 2024-44, at p. 15, footnote 10.

It seems Keith never filed a return for year at issue, so SOL wide open.

When it comes to dubious arguments about paperwork, shady stories about motivation, and hard-to-believe, soft-serve testimony, the stuff coming out of the ultra-top-secret Australian outback Pine Ridge stakeout is equal to, or better than, any Dixieland Boondockery. Take a wee decko at Robert Y. Diaz and Brittany L. Diaz, T. C. Memo. 2024-43, filed 4/16/24.

Judge Albert G. (“Scholar Al”) Lauber, whatever his other undeniable accomplishments, admits that “(N)either party called a handwriting expert as a witness, and this Court professes no expertise on the subject.” T. C. Memo. 2024-43, at p. 11. Nevertheless and notwithstanding the foregoing, Judge Scholar Al finds Robert, s/a/k/a “‘Rob,’ ‘Rbt,’ or ‘R.’”, T. C. Memo. 2024-43, at p. 12, did in fact sign the Section 7122 closing agreement with IRS; he would be taxed as a US citizen, not as an Australian. Turns out Australian taxes are higher.

But Rob, Rbt., or R claims his signature was forged, by whom he saith not. So his trial is bifurcated, while we await the outcome of the appeal in Cory Smith, before finishing this case.

Judge Scholar Al, goes through the bushelbasketful of paperwork Rob, Rbt or R denies signing, wondering why Rob, Rbt or R chose higher Australian taxes (which he never paid), and properly filed two (count ’em, two) years’ worth of 1040 MFJs not claiming Foreign Earned Income Exclusion, and then amended to claim FEIE.

Perhaps, as usual, the answer is in a footnote. And maybe so might could be this explains the entire Australian Outbackery.

” A 19-page post-trial brief was submitted on petitioners’ behalf. It is devoted largely to technical questions about tax treaties, Australian law, and other matters irrelevant to the signature authenticity issue. Petitioners admitted at trial that they were ‘working with’ a lawyer named John Castro. Mr. Castro did not enter an appearance in this case; he is not admitted to practice in this Court (or apparently in any other court); and he was recently indicted for tax crimes. See Press Release, U.S. Dep’t of Justice, Mansfield Man Charged in Fraudulent Tax Return Scam (Jan. 10, 2024), https://www.justice.gov/usao-ndtx/pr/mansfield-man-charged-fraudulent-tax-return-scam. The Court believes that petitioners’ post-trial brief was likely ghost-written by Mr. Castro or someone associated with him. That brief devotes less than a page to discussion of the signature authenticity issue. On that page it asserts that “the Closing Agreement contained a witness signature section” and finds it suspicious that Mr. Christensen did not sign the Closing Agreement as a witness to petitioners’ signatures. But the Closing Agreement does not have “a witness signature section”; the Closing Agreement has signature lines only for the taxpayers, their representative (if any), and the Commissioner of Internal Revenue. Witness signature sections were contained in the other three documents Mr. Diaz signed on August 13, 2015—the Declaration, the Employee Purchase Agreement, and the Payroll Deduction Authorization. Mr. Christensen duly signed each of those documents as a witness and/or approving officer for Raytheon.” T. C. Memo. 2024-43, at pp. 12-13, footnote 1.

And note petitioners’ prior counsel (who is apparently admitted to USTC) bailed pre-trial, “…indicating that she had represented them ‘pursuant to a third-party payor agreement that is no longer in existence.’ We granted that Motion and petitioners thereafter proceeded pro sese.” T. C. Memo. 2024-43, at p. 6.

Although the above is one takeaway from this morning’s Tax Court webinar on discovery (the “F” is for emphasis), Judge Travis A. (“Tag”) Greaves gave us a lot more. Tax Court Judges and STJs are pragmatists; if there’s a real takeaway, it’s “keep your eyes on the prize.” What do you need to win, or at least to mitigate damage?

In most cases, the stuff you’re fighting about is peripheral. If this is a run-of-the-mill deficiency case following Exam, IRS probably has all the evidence they need, and so do you. In a CDP, everything should have gone in at Appeals.

Of course, the big-ticket scenic-façade-conservation cases have to be fought at discovery. The phony, jacked-up valuations crash and burn with regularity. I note one panelist remarked in passing that her practice involved defending appraisers; I’m sure that panelist is an expert in discovery.

But for all practitioners, read the Rules, both USTC Rules of Practice and Procedure and the FRE.

And this webinar shoiuld really have been recorded and made available to those who were unable to view it this morning, and for all applicants for admission to USTC.

I said long ago that a lawyer’s list of favorite indoor sports must include second-guessing someone else’s trial strategy. Of course, it’s both cheap, easy, and, like counting everybody else’s money (another favorite), leaves no aftertaste.

That said, I can’t help but think that STJ Diana L. (“Sidewalks of New York”) Leyden is thinking as I’m thinking: why didn’t counsel for Kristine K. Fringer, Docket No. 6856-23L, filed 4/15/24, raise innocent spousery? It’s not that counsel didn’t know about Section 6015.

“Petitioner and [divorced spouse] did not check the box for innocent spouse relief nor did petitioner submit Form 8857, Request for Innocent Spouse Relief, with the Form 12153. At the hearing on respondent’s motion [for summary J], petitioner’s counsel conceded that petitioner did not and would not file a request for innocent spouse relief.” Transcript, at p. 6.

Note that the NFTL at issue results from three (count ’em, three) years’ worth of MFJ self-reporteds and unpaids. Counsel says “(D)ivorce decree mandates that [divorced spouse] is responsible and holds his ex-wife Krinstine (sic) K. Fringer harmless from any and all taxes with regard to filed returns when they were married. [Divorced spouse] has totally turned his business and personal life to the positive, is finally current with his tax filings, and is in the process of filing an offer-in-compromise to settle his outstanding tax liabilities.” Transcript, at p. 6.

Of course, IRS says divorced spouse isn’t current, and the divorce decree is irrelevant as against IRS.

Kristine loses.

Turns out counsel represented both divorced spouse and Kristine, at least when the 12153 was filed requesting the CDP. STJ Di doesn’t stress this, but one has to wonder.

I’ll wager someone is getting The Phone Call.

Christopher S. Pascucci and Silvana B. Pascucci, T.C. Memo. 2024-43, filed 4/15/24 (get those returns to the post office or PDS, if you haven’t e-filed or gotten an extension) were victims of the late Bernie (“The Bandit”) Madoff. Chris and Silv got $200K from the Fund for the Plundered, but their combined $17.2 million loss only yields a $9 million Section 165 theft loss for the cash they directly gave The Bandit’s phony hedgefund.

Chris and Silv had a bunch variable life insurance policies (hi, Judge Holmes) with two (count ’em, two) insurers that were both acquired by Met Life. But the choice of investment vehicles that funded the policies was limited to nonpublic hedgefunds, and how those funds in turn invested the money was totally out of Chris’ and Silv’s control. In order to prevent taxation of the gains from the funds, Chris and Silv could exercise zero command and control over what the funds invested in. And though the fund at issue (Tremont) funneled cash to Rye, which funneled in turn to The Bandit, that wasn’t enough to let Judge Gustafson decide that Chris and Silv were the victims of theft, even though the Fund for the Plundered said they were.

The key is investor control. See my blogpost “Keep Your Hand Upon the Dollar,” 6/30/15. These policies were structured so that Chris & Silv had no command and control, because only if they didn’t have such control could they defer tax on their gains. Both State law (NY and MO) and the policies themselves said the insurance companies owned shares in the the funds in which the premiums were invested.  If a neon was robbed, it was the insurance companies.

True, Chris’ and Silv’s insurance policies were worth a lot less, but they still had them, and the terms thereof hadn’t changed. And to let Chris and Silv avail themselves of favorable tax treatment on gains, while giving them a write-off for losses, doesn’t move Judge Gustafson.

“The Pascuccis cannot have it both ways: They cannot simultaneously enjoy the tax deferral benefit of not owning assets in the separate accounts and also claim a tax deduction that is a benefit available only to someone who did own the assets.” T. C. Memo. 2024-43, at p. 25.