IRS makes two (count ’em, two) motions for summary J in Carl B. Barney, Docket No. 5310-22, filed 4/12/24, winning one and losing the other, incidentally invoking yet another Taishoff rant that Tax Court should clean up the whole summary J process by Rule (rather than the current SPTO), namely, setting a deadline for summary J motions, requiring all applications for summary J to be made in a single motion (and, if desired, seeking alternative relief in each), permitting cross-motions, and limiting out-of-time motions.

But that’s just me. It would seem no one else cares. Except Carl does, as this will cost him $12 million via Section 6662(h) gross valuation misstatement on the for-profit coileges he sold and gifted in a complex series of transactions, the details of which you can find in Order, at pp. 2-3..

Boss Hossery first, as IRS makes the now-standard motion that the Boss Hoss has been thoroughly doped and nobbled. Judge Christian N. (“Speedy”) Weiler brushes aside Carl’s argument concerning inconsistent numbers in the SNOD, the explanation thereof, the Form 4089–B, Notice of Deficiency-Waiver, attached to the Notice of Deficiency, and sundry metadata, thus: “…respondent goes on to cite us to contemporaneous emails between the RA and his immediate supervisor as being the most helpful and specific evidence of respondent’s compliance with section 6751(b). Respondent goes on to note how our decision in Clay v. Commissioner, 152 T.C. 223 (2019) has been reversed in three U.S. Courts of Appeals, including the Ninth, Tenth, and Eleventh Circuit Courts of Appeal, and that we should abandon our prior decision in Clay and apply these circuit decisions going forward as to the interpretation of section 6751(b). Lastly respondent contends how— at a minimum—the ‘factual anchors’ of his motion are not in dispute and therefore summary judgment regarding his compliance with section 6751(b) remains appropriate here.” Order, at p. 5.

Judge Speedy Weiler finds the e-mails and the PDF-watermarked signoff on the CPAF satisfy Boss Hossery.

But the Section 6662(a) chop (from which the Section 6662(h) chop depends) is another story. Carl claims the whole shebang started when he tried to revoke his Section 453 installment treatment of the sale. Carl tried Section 453(d) revocation, believing he could do so with an amended return. Wrong; Section 453(d)(3) says you need Com’r approval; Carl got audited, asked at Exam, but never got the OK to revoke.

Carl claims abuse of discretion.

“The exercise of discretionary authority granted to respondent will not be disturbed unless we find there was an abuse of discretion. However, the determination or question abuse of discretion is factual, with an elevated burden of proof usually defined as rising to the level of arbitrary and capricious.

“We agree with petitioner’s contention that our review for abuse of discretion must consider a full review of respondent’s actions, including the administrative record. At this point we find it to be premature for us to consider respondent’s actions. Furthermore, the question of abuse of discretion is an inherently factual question, and best determined at trial on the merits. ” Order, at p. 7. (Citations omitted, but get them for your memo of law file).

Although Carl’s trusty attorneys deserve a Taishoff “Good Job,” which I’m giving them, note that IRS claims that preventing avoidance of tax is a proper ground for rejecting a revocation (Order, at p. 6), although no citation of authority is provided. Taishoff wonders if there were such authority, why it wasn’t cited, if it were conclusive.

Judge Cary Douglas Pugh punts on this one, because IRS’ position that a new accounting method (a change from the old) is in play without Section 446(e) approval is not an ambush, but inherently factual, so no summary J, either for IRS or for BRC Operating Company LLC, Bluescape Resources Company, LLC, Tax Matters Partner, et al., Docket No. 12922-16, filed 4/11/24.

Y’all may recollect Bluescapers’ previous appearance in this my blog. If not, check out my blogpost “Cost of Goods Not Sold,” 5/12/21. But all that happened there was to rule out COGS, not Section 162 ordinary-and-necessary, which card the Bluescapers now play.

So IRS now ripostes “Bluescape cannot change its method of accounting to deduct the Estimated Drilling Costs under section 162 or capitalize them under section 263(a) without first obtaining approval of the Secretary as required under section 446(e).” Order, at p. 3.

Bluescapers claim this is an ambush; they need new evidence, and the discovery and expert witnesses clocks have run.

But that falls short of what Bluescapers need to preclude IRS from putting in that defense on the trial.

“They do not expressly claim that respondent’s accounting method defense is a ‘new matter’ under Rule 142(a) rather than an alternative legal theory. Nor do they identify what new or additional evidence would be required at trial to respond to the accounting method defense different from the evidence they intend to present in their affirmative case.” Order, at p. 3. (Footnote omitted but see below).

Judge Pugh cites the cases that Bluescapers missed; except they really aren’t squarely on point. One didn’t consider whether the change-in-method (not mentioned in the pleadings) was either new matter or new issue; the other called a Section 481 argument a “new theory” and shifted BoP to IRS per Rule 142(a). Order, at p. 4, footnote 3.

Bluescapers didn’t put in details why the change-in-method argument ambushed them. Anyhow, they should have known from their previous kerfuffle over COGS that IRS was arguing their accounting method didn’t adequately reflect income.

“…both parties ask that we address application of the economic performance prong of the all events test in section 461(h), an inherently factual inquiry not appropriate for summary adjudication on the record before us. And we would not reach petitioners’ argument that the economic performance requirement does not apply to items of gross income governed by section 451 if we conclude that the estimated drilling costs can be deducted under section 162.” Order, at p. 4.

So go try the case, and save your legal arguments for your briefs.

Judge Albert G. (“Scholar Al”) Lauber is far too well-bred to utter a misquotation of Alfonso Bedoya’s famous line from the Bogart classic. But he does give us an exegesis of the celebrated “badges of fraud” in the Dixieland Boondockery context.

“The traditional ‘badges of fraud’ were developed by the courts chiefly in cases involving unreported income. During 2017, the tax year at issue, [petitioner] engaged in little or no business activity and had no income; the dispute between the parties focuses on an allegedly overstated deduction. In a case such as this, several traditional badges of fraud—e.g., understating gross income, concealing income or assets, failing to file tax returns, and dealing extensively in cash—may have little salience because they will be absent almost by definition. Other badges of fraud—e.g., providing testimony that lacks credibility, giving implausible or inconsistent explanations of behavior, and failing to cooperate with tax authorities—are incapable of complete evaluation at the current stage of this litigation, with a trial scheduled six months down the road and discovery still on-going.” North Donald LA Property, LLC, North Donald LA Investors, LLC, Tax Matters Partner, Docket No. 24703-21, filed 4/10/24, at pp. 5-6.

The Donalds want summary J that IRS can’t prove fraud, so drop the 75% chop. The Donalds rely on Mill Road 36 Henry, where the 40% overvaluation chop, but not the 75% fraud chop, was applied, because IRS failed to produce badges, and the Donalds say they told all on their 1065 and attachments, so no concealment or obfuscation.

“Following a one-week trial, the Court sustained (in large part) the disallowance of the charitable contribution deduction and the imposition of a 40% penalty for a ‘gross valuation misstatement.’ But the Court held the fraud penalty inapplicable, finding that ‘[t]he evidence [did] not establish an attempt by [the taxpayer] to conceal or deceive in the Commissioner’s administration of tax collection’.” Order, at p. 4. (Citations omitted).

Judge Scholar Al wants to wait for the trial. He goes into what IRS might prove after discovery, like documents that were backdated, discussions of sensitive topics carried on by telephone and in person rather than e-mail as keeping inadequate records and manifesting intent to conceal.

But all this can wait until discovery is complete.

That’s what Section 104(a)(2) exclusion of damages is all about, and it gets expensive for Estate of Roman J. Finnegan, Deceased, Kevin C. Tankersley, Personal Representative, and Lynnette Finnegan, et al., T. C. Memo. 2024-42, filed 4/10/24.  But it’s even more expensive for the State of IN, whose governmental child protectors were found to have trampled upon the Constitutional rights of the late Roman and Lynnette and their children to the tune of $31.35 million by the jury in USDCNDIN (reduced to $25 million by post-trial stip).

There’s no medical evidence on the trial or thereafter of specific physical injury, only a conclusory doctor’s report that maybe the late Roman and Lynnette and children had PTSD as a result, and a deposition question or two, and one on the trial.

The late Roman’s and Lynnette’s trial attorney did a great job, but the evidence of physical injury, if there was any, never made it into the record.

But if anyone built a record in this case, it’s Judge Nega. He goes over every pleading, every  interrogatory, every deposition, the bill of particulars, pretrial and post-trial motions, the expert report, the request for jury instructions, the jury instructions as given, the opening statements and closing statements, the proposed jury charge, the charge as given, the jury verdict, defendants’ motion for judgment as a matter of law, the judgment as entered, the Settlement Agreement, the general release…everything but the menu in the USDCNDIN judges’ cafeteria…to find any trace of physical injury or the physical effects of PTSD.

And he takes up 28 (count ’em, 28) pages to show it.

Judge Nega finds only “(T)he jury verdict did not mention PTSD specifically or physical injury or physical sickness generally.

“Of the plaintiffs, only Roman had a known diagnosis of PTSD at the time of the district court litigation and subsequent execution of the Settlement Agreement, and, across 14 witnesses’ testimony, Roman’s PTSD was referenced only once.” T. C. Memo. 2024-42, at p. 35.

“With the vast ocean of evidence before us concerning the district court litigation, references to PTSD make barely a drop in the bucket. Rather, the image that overwhelmingly emerges is that the damages were paid not as compensation for PTSD but for violations of plaintiffs’ constitutional rights stemming from defendants’ conduct and the emotional pain caused therefrom.” T. C. Memo. 2024-42, at p. 36. (Footnote omitted, but it says that even if PTSD were a factor, petitioners put in no evidence to show how great a factor).

I offer Judge Nega’s analysis as a template for PI lawyers who want to build a record for Section 104(a)(2) exclusion. Ya gotta get physical.

If you’re going to frivol in Tax Court (and I definitely do not recommend that you do), show up, and you might just maybeso get a lighter chop than if you frivoled from afar. But do not presume too far upon the Court’s indulgence, lest you get an off-the-bench Section 6673 $1K frivolity chop from Judge Courtney D. (“CD”) Jones sua sponte, even though IRS drops the Section 6662(a)s.

Here’s Jeffery Dominic Giraldi, Docket No. 1288-23, filed 4/9/24.

Jeffery served a bunch Requests for Admissions, and motions to revIew sufficiency IRS’ responses thereto, in limne (he wins part of that, as an IRS exhibit is duplicative), and to strike some IRS’ trial exhibits (hi, Judge Holmes). While IRS and Judge CD Jones are dealing with this, IRS’ counsel warned Jeffery (“correctly,” Transcript, at p. 7) about Section 6673, and so moved. Judge CD Jones denies without prejudice, while warning Jeffery it ain’t over until…you know the rest.

But trial comes.

“…at trial, the Court once again warned Mr. Giraldi that he may face a section 6673 penalty if he advanced any frivolous arguments. Nonetheless, when the Court conducted a hearing on the pending motions and advised Mr. Giraldi of its concern that his RFAs suggested frivolous positions, Mr. Giraldi declined to give a responsive answer. Further, although Mr. Giraldi later retracted his initial position that the NOD was issued without authorization, his filings before the Court are strongly associated with typical frivolous and groundless arguments.” Transcript, at pp. 8-9.

Judge CD Jones has had enough.

“The positions taken in the Petition and throughout this litigation—including through the RFAs—are certainly frivolous. Mr. Giraldi’s motion practice before the Court is troubling. For example, in the RFAs, he propounded multiple questions that strongly suggested frivolous positions. When the Court conducted its hearing on respondent’s pending motions, the Court advised Mr. Giraldi of its concern that these questions suggested frivolous positions and inquired about their relevance to the case. Mr. Giraldi declined to give a responsive answer.” Transcript, at p. 11.

Jeffery gave dodgy answers when challenged, and never advanced non-frivolous positions, even though give a chance.

Yes, he did show up for trial, and entered into a stip of facts.

“In his favor, we note that Mr. Giraldi appeared at trial and participated in submitting a Stipulation of Facts. Although he had to be reminded of the Court’s requirement that he not interrupt respondent’s counsel, he ultimately complied. Nonetheless, he continued to advance frivolous and groundless positions during his testimony. His frivolous positions throughout this litigationprevented the IRS from assessing tax that he owed. And he burdened both the Court and the IRS with all the chores necessary for the adjudication of an inevitable tax liability.” Transcript, at p. 12.

So Judge CD Jones goes easy on Jeffery.

But lest he grow elated, there’s a chop coming.  “In determining the amount of the penalty, we take account of all the foregoing facts. We impose today a $1,000 penalty, which is a relatively modest penalty, given that we have the discretion to impose a penalty twenty-five times that high. Mr. Giraldi should be aware, however, that if he should ever repeat his maintenance of frivolous tax litigation, he would stand in peril of a much steeper penalty.” Transcript, at p. 12.

Less than a week ago, I remarked, anent the wiseguys and frivolites who play discovery games, “I fear that some less-than-diligent types will ruin useful tools for the rest of us. Lose your case at discovery, indeed.”

Robert A. Zienkowski, T. C. Memo. 2024-39, filed 4/8/24, says (inter alia, as my already-on-their-second-Grey-Goose-Gibson colleagues would say), that his PA principal residence wasn’t in Montgomery County, with whose prothonotary IRS filed the NFTL which RAZ wants removed; rather, said dwelling was in “the portion of Bryn Mawr situated in Delaware County.” T. C. Memo. 2024-39, at p. 3, wherein IRS filed a NFTL when the RA in Collections noticed the anomaly during review of one of RAZ’s OIC requests.

Judge Albert G. (“Scholar Al”) Lauber can’t find that RAZ requested a CDP on that NFTL, but mox nix.

“Petitioner advanced this argument for the first time in his Response to the Motion for Summary Judgment, urging that the NFTL be withdrawn because it was filed in the wrong county. Not only was this issue raised too late; as previously discussed, filing an NFTL in a county other than that in which the taxpayer resides does not invalidate the NFTL.” T. C. Memo. 2024-39, at pp. 9-10. (Citation omitted).

A NFTL has to state name, tax liability giving rise to the lien, and date of assessment. Filing in the wrong jurisdiction may give IRS problems in foreclosing the lien, and let a bona fide purchaser take free of the lien (as apparently happened when RAZ sold the house), but the lien remains. And the NFTL is valid, despite Section “6323(f)(1)(A)(i), which provides that an NFTL shall be filed ‘in one office within the State (or the county, or other governmental subdivision), as designated by the laws of such State, in which the property subject to the lien is situated.’”.  T. C. Memo. 2024-39, at p. 7.

So, as the Immortal Duo sang it, “it’s the same old story, everywhere I go.”

Burt Kroner is back, to receive the Section 6662(a) negligence chops at the hands of ex-Ch J L. Paige (“Iron Fist”) Marvel that 11 Cir reinstated after ex-Ch J Iron Fist tossed same for want of Boss Hossery. See my blogposts “Imaginary Friend?” 6/1/20, and “‘Positively Farcical,'” 8/2/23.

We get the name of the imaginary friend, David Haring, in Burt Kroner, T. C. Memo. 2024-41, filed 4/8/23, at p. 2. We also get the name of Burt’s trusty attorney, whom I’ll call Bobby Berns, who represented both Dave and Burt, and who told Burt that the $25 million wire transfers Burt got from Dave wasn’t reportable, as it was a gift.

Ex-Ch J Iron Fist never reached reasonable cause four (count ’em , four) years ago, so now she finds that Burt never told Bobby Berns how much he got nor when he got it. Their testimony, with no contemporaneous written confirmation, isn’t enough to stave off the chops.

“While it may not have been necessary for Mr. Kroner to provide [Bobby Berns] with a complete accounting of the size or frequency of the transfers in advance, [Bobby Berns}’s alleged overall lack of understanding of the nature of the transfers undermines the contention that Mr. Kroner provided him with necessary and accurate information before he gave advice. For one, [Bobby Berns] disclaimed any knowledge that the timing of the transfers correlated to liquidity events experienced by Mr. Haring as an investor in [Burt’s deal]. In addition, large transfers between business associates may make a business purpose more likely and a gift purpose less likely, at least under circumstances similar to those here, but [Bobby Berns] claims that he did not know the magnitude of the transfers.” T. C. Memo. 2024-41, at p. 8.

Chops sustained.

The heavy-duty chops amerced upon Raju J. Mukhi, 162 T. C. 8, filed 4/8/24, are not eclipsed by the Eighth Amendment, says Judge Travis A. (“Tag”) Greaves, as said chops are there to protect the public fisc and bring into compliance such as Raju, who stash their cash in “strands afar remote”.

And he gives IRS summary J, sustaining the NOD handed Raju, when his RCP turns out to be a lot more than enough to reject his IA or OICs. And the reference that SO3 made at the CDP to the memo AO prepared at postassessment review isn’t sufficient to contaminate the CDP with prohibited prior involvement, or make the AO the de facto reviewer at the CDP.

Incidentally, Raju copped to ” one count of subscribing to false U.S. individual income tax returns and one count of failure to file an FBAR. The plea agreement expressly stated that it did not limit the rights of the U.S. Government to take any civil or administrative actions against petitioner, except as agreed regarding civil liability for failure to file an FBAR.” 162 T. C. 8, at p. 2.

So Raju is down on chops for his Section 6677 failure to file information returns on his offshoring. And Raju also violated Section 6038(b)(1) foreign corp reporting.

Except.

IRS is without statutory jurisdiction to collect Section 6038(b) chops. See Fahmy, 160 T. C. 6, filed 4/3/23. For the Fahmy story, see my blogpost “Nor Assessable,” of even date therewith. IRS asks Judge Tag Greaves to toss Fahmy, but he won’t. First, though Fahmy is on appeal to DC Cir, he asked the parties to brief the impact thereof, and they didn’t. Second, Raju is a MO resident, and thus is Golsenized to 8 Cir, which has said nothing about the issue, so Tax Court can go with its own precedents.

Summary J, and a Taishoff “Good Job,” for Raju’s trusty attorneys on the 6038(b) chops.

Taishoff says once again, our ridiculous Circuit Court appellate system for the national statute that impacts more citizens than any other exalts Rare Noodledom.

Wherever else same be permitted or required, The Glasshouse in the City of the Disenfranchised is off the list. The Big Shillelagh has shattered the need for health self-certification by those seeking entrance to The Glasshouse that Vic Built. Admin.  Order 2024-1, dated 4/2/24 (Happy Palindrome Day!) repeals its predecessor 2023-1.

Here’s the ganze myseh, if you’ll pardon an arcane technical phrase.

Click to access Administrative_Order_2024-01.pdf

Pauls Farm grows more than what springs from its GA boondock soil; it sure brings in a good crop of blogfodder.

Pauls Farm Properties, LLC, Eco Terra 2016 Fund, LLC, Tax Matters Partner, et al., Docket No. 7519-20, filed 4/5/24, has Judge Patrick J. (“Scholar Pat”) Urda reaching back ten (count ’em, ten) years, to the heyday of Jim (“Little Jim”) Haber, immunologist. Of course, it’s more discovery tohubohu, with the Paulists claiming client-attorney privilege for their communications with their trusty attorneys K&C.

To thwart IRS’ assertions of massive chops, the Paulists claim good-faith reliance. Yes, K&C were retained by the promoter of these deals (the Paulists and the als) to “[r]eview all due diligence material for the underlying transaction, including tax returns, title reports. appraisals, market studies, feasibility studies, biology and/or geology studies where applicable, conservation easement deeds . . . .” Order, at p. 2. But the Paulists claim they didn’t rely on K&C; they say they relied on other professional advisers, and exercised due care their own selves. So the Paulists claim client-attorney privilege for the K&C stuff.

But client-attorney privilege may be waived when a party puts at issue matters that out of fairness the other side must examine and contest.

“Petitioners have affirmatively put at issue whether their reliance on advisors was in good faith. As a matter of fairness, we must evaluate all of the advice that was provided in order to assess whether they acted inc good faith. Petitioners thus have waived any privilege over the [K&C] material.

“Petitioners attempt to avoid this conclusion by asserting that they do not intend to claim reasonable reliance on [K&C}’s advice. This is ‘beside the point.” Ad Investment 2000 Fund, 142 T.C. at 257. “[B]y placing the partnerships’ legal knowledge and understanding into issue in an attempt to establish the partnerships’ reasonable legal beliefs in good faith arrived at (a good-faith and state-of-mind defense), petitioners forfeit the partnerships’ privilege protecting attorney-client communications relevant to the content and the formation of their legal knowledge, understanding, and beliefs.” Id.” Order, at p. 4.

For the Ad Investment story, see my blogpost “Self-Determination,” 4/16/14.

Hand it over, Paulists.