Seems an old-time protester/defier move is making a comeback. Joel S. Bliss & Valerie S. Bliss, Docket No. 10609-24, filed 9/30/24, are a couple weeks (hi, Judge Holmes) late with their petition from a SNOD.

When IRS moves to toss, Joel & Valerie respond with “the notice of deficiency is invalid because it violates I.R.C. section 6065, which states in relevant part: ‘Except as otherwise provided by the Secretary, any return, declaration, statement, or other document required to be made under any provision of the internal revenue laws or regulations shall contain or be verified by a written declaration that it is made under the penalties of perjury.'” Order, at pp. 2-3.

Ch J Kathleen (“TBS = The Big Shillelagh”) Kerrigan rejects.

“Petitioners, however, are mistaken. Section 6065 imposes requirements on documents filed by taxpayers and does not apply to the Commissioner. See Davis v. Commissioner, 115 T.C. 35, 42 (2000)*.” Order, at p. 3.

As the old song says, “for you, not for me.”

* https://casetext.com/case/davis-v-commr-of-internal-revenue-4

It’s Friday, so enough already.  Autumn weather has already come to our Minor Outlying Island. Time for cocoa and a brief listen to Les Feuilles Mortes.

Except.

Judge Ronald L. (“Ingenuity”) Buch, grappling Laocoön-like with twenty (count ’em, twenty) consolidated microcaptives headed up by Skylab Series of Fortress Insurance, LLC, et al., Docket No. 25669-16, filed 9/27/24, gives us a primer on what are appropriate responses to notices to admit and interrogatories. The result is a split decision, but I’m not going into the minutia. Discovery geeks can read that for themselves.

My objection is that a Tax Court judge, one of 15 when there should be 19 (Section 7443(a)), has to spend time on this stuff when the USDCs and State trial courts have shunted these sideshows off to magistrates, special referees, judges’ law secretaries, and law clerks.

I just said it a week ago. See my blogpost “Referee?” 9/20/24.*

If you want to clear a docket, make it clear that gamesmanship is off the menu. Discovery disputes go to the bullpen; stipulate, don’t capitulate; the SPTO (or small-claim version thereof) is “an order, not a suggestion,” as the late Bankruptcy Judge Adlai Stevenson Hardin was wont to say. And courts are where trials take place, so be ready to go.

*https://taishofflaw.com/2024/09/20/referee/

It’s a well-worn (some readers might say worn out) jibe of mine: lawyers can’t add, and Tax Court judges won’t add. But that’s not so for Judge Elizabeth A. (“Tex”) Copeland, who was a CPA before capping off a stellar career by ascending the Tax Court Bench.

When she sends parties off to a Rule 155 beancount, she has already gotten granular with bank deposit reconstructions, depreciation schedules, and drive-by gasoline deductions.

See Ralph M. Ottuso, T. C. Memo. 2024-91, filed 9/26/24. Ralph sells stoves in Caroga, NY, which features “refreshing rippling waters and its rugged rocky terrain.”

Ralph and his neighbor had an arrangement where Ralph could fill his vehicles at the neighbor’s pump and pay as he went, running a balance. But want of specificity and recordkeeping defeat Ralph’s Section 162 deduction. Ralph can’t show the vehicles are QNUVs, per Section 274(d). The 14K GVW hurdle in Reg. Section §1.274-5(k)(2)(ii) is the problem.

Judge Tex Copeland sorts out a loan and the sales proceeds of a personal use truck, neither of which are taxable, which confused the RA who did the bank deposit reconstruction. And she sorts out and Cohanizes some depreciation deductions.

There’s a bunch concessions (hi, Judge Holmes) , so the Rule 155 beancount is necessary, but it shouldn’t take long.

The offloading of cargo from larger to smaller vessels is a necessity in some confined ports, but doesn’t work when limited liability companies or limited partnerships are drawn up alongside well-heeled elders to unload goodies in anticipation of estate taxes.

Such is the case of the well-meaning grandnephew ex’r in Estate of Anne Milner Fields, Deceased, Bryan K. Milner, Executor, T. C. Memo. 2024-90, filed 9/26/24. Who better to expatiate on a classic Texican matriarch than Judge Elizabeth A. (“Tex”) Copeland?

The late Anne was a highschool graduate secretary who married a highroller in what my native-born Texan granddaughters call “th’awl bidniz.” When her spouse died, she showed herself a true Mustang, abandoning the social whirl and going to SMU for accounting and business courses, consulting business partners, and ultimately “(H)er schooling, charisma, drive, and curiosity yielded good business decisions, which over time compounded into considerable personal wealth.” T. C. Memo. 2024-90, at p. 3.

The late Anne’s ex’r was her devoted protege, and he took care of her in her declining years, seeing off dishonest caregivers and calling the cops on scammers. He had POA, but found one of Anne’s banks didn’t like them, so he got his accountant and an attorney to set up a couple intermediaries (hi, Judge Holmes), whereon to offload $15 million of Annie’s goodies, leaving her with about $2.8 million and a hefty estate tax bill. He had to claw back money from the offloaders to pay legacies and tax.

Anne of course retained enough control to get the offloaded goodies back into her gross estate. While there was a transfer to the intermediaries, it wasn’t for reasonably equivalent value.

Judge Tax Copeland, a CPA herself before ascending the bench, sorts it out, shows IRS got their numbers wrong but lets them stand (it helps the petitioner).

No good faith reliance to defeat the chops, as what the advisers did was too good to be true.

Judge Nega only has to take a stroll through MD State law to find that the two (count ’em, two) life insurance policies taken out by the irrevocable trust in Estate of Larry Becker, Deceased, Gary C. Becker, Executor, T. C. Memo. 2024-89, filed 9/24/24, are true insurance policies, as to which the late Larry retained none of the benefits prohibited by Reg. Section § 20.2042-1(c)(2).

Judge Nega finds the drafting of the late Larry’s trusty estate planning attorney is bulletproof.

While the initial beneficiaries of the policies, via the trust, were the late Larry’s nearest and dearest, hence holders of an insurable interest, there followed an extensive series of give-and-goes with various LLCs controlled by the late Larry’s insurance broker, with promissory notes exchanged and paid among an apparent colleague of the late Larry, trusty insurance broker, and an unrelated funding operation, which was going to pay all premiums in exchange for 75% of the death benefit.

IRS claims step transaction; the real beneficiary was the unrelated funder, hence the policy was void (funder had no insurable interest), and the estate has a claim for whatever proceeds the funder got, and that money should be part of taxable estate per Section 2031 or 2042(2).

Judge Nega goes through the three (count ’em, three) step transaction tests. “Binding commitment” fails, because that applies when there’s a long time between steps and the parties have bound themselves to complete them, which isn’t the case here; the loans are one-and-done. “End result” also requires commitment, but that is subjective, and the facts here don’t square; note that IRS, changing theories between SNOD and answer, thus requiring different proof, gets BoP. “Interdependence” fails, as the policies were funded before the funder came on the scene, and the late Larry, still alive, had assets, and among the possibilities for take-out financing, he chose the most advantageous.

Of course, when the late Larry became the late Larry, there was a lawsuit between estate, the funder, trusty estate planning attorney, and trusty insurance broker. Job wouldn’t be surprised. https://biblehub.com/kjv/job/5-12.htm

IRS loses. MD law says that once there is an insurable interest in beneficiaries at inception, the policy can be assigned to anyone.

“However, as there has been no violation of Maryland’s insurable interest doctrine, there can be no chose in action under Md. Code Ann., Ins. § 12-201(d). Consequently, it matters not whether a potential claim under that section should be treated as an ‘incident of ownership’ under section 2042(2) or as ‘property’ under section 2033, such that its value must be included in the value of decedent’s gross estate under section 2031, as no such claim exists. Likewise, without an increase in the gross estate, there can be no offsetting deduction to the taxable estate under section 2053 for the amounts paid to LT Funding pursuant to the settlement agreement as a claim against the estate. See §2053(a)(3).” T.  C. Memo. 2024-89, at p. 20. (Footnotes omitted).

One of their trusty attorneys bills himself as a food and wine connoisseur, so clearly he’s my kind of lawyer. And I’ll give him a Taishoff “Good Try, Second Class,” free of charge for his move in Peak Potentials Training International, Docket No. 23373-18, filed 9/24/24.

Judge Ronald L. (“Ingenuity”) Buch taxes his ingenuity to the full as he finds there is a material question of fact sufficient to defeat IRS’ motion for summary J.

I’ve blogged the Peak’s backstory. See my blogpost “Play Nice and Go International,” 5/16/22 (see below).

“The petitioner has filed multiple documents containing contradictory accounts of the material facts in the case. Summary judgment is only appropriate where there is no genuine dispute as to any material facts and the moving party is entitled to judgment as a matter of law. Because of petitioner’s contradictory account of the material facts of this case, a genuine dispute of material fact remains, and we may not grant summary judgment.” Order, at p. 1.

Remember, inferences are drawn in favor of the non-movant.

Judge Buch judge-‘splains.

“The petitioner’s very own account of the facts contradict themselves. It is unclear to the Court what the relationship is between the petitioner, PPTI, and their customers. Because genuine disputes of material fact remain, we will deny the Commissioner’s Motion.

“Given that the parties have not stipulated to the facts in this case, and that the petitioner has not reached a consensus with itself as to the facts of the case, genuine disputes of material fact remain.” Order, at p. 5.

Perhaps the Peaks can hold a conference with themselves in an undisclosed location and divine what the facts are.

https://taishofflaw.com/2022/05/16/play-nice-and-go-international/

The IRS has a slam dunk in Mark Feathers and Natalie E. Feathers, T. C. Memo. 2024-88, filed 9/23/24. While the financial wheeling-dealing is head-spinning, the bottom line is that the small business lending businesses Mark was running combined unregistered securities with a Ponzi scheme. Mark took a 33-month fall in USDCNDCA (see below).

IRS got into the act with the usual bank deposits and specific-item analyses, which you can read for yourselves. And if you want to learn how to buy an SBA small business lending license, Judge Mark V. (“Vittorio Emanuele”) Holmes will tell you, T.C. Memo. 2024-88, at pp. 5-6.

The only reason I found this case noteworthy is that, despite the amount of money involved, on which IRS virtually entirely prevails, there still has to be a Rule 155 beancount.

“The [Year One] bank-deposits analysis concluded that [Mark’s Sub S] had $1,654,110 in gross receipts, and $82,310 in rental income not includible on Form 8825, Rental Real Estate Income and Expenses of a Partnership or an S Corporation. Adding these two numbers together leaves us with $1,736,420, which is $38,578 less than in the notice of deficiency, requiring a decision under Rule 155.

“Other than that we don’t see any problems with the Commissioner’s numbers for [Year One], and there is no doubt that he has traced that income from the Funds to [Mark’s Sub S] and on to Mr. Feathers.” T. C. Memo. 2024-88, at pp. 12-13.

Despite wading through a plethora numbers (hi, Judge Holmes), and showing how carefully he can add, he won’t add.

https://www.sec.gov/enforcement-litigation/litigation-releases/lr-24128

She played the slots, not cards, but Yelena Tolstov, T. C. Sum. Op. 2024-19, filed 9/23/24, is another story of gambling losses. STJ Peter (“HB”) Panuthos has this one, and it’s another sad tale of compulsion.

Yelena was an immigrant success story, until personal and business problems overwhelmed her. “Petitioner’s personal and business difficulties, compounded by the isolating circumstances of the pandemic, caused her to begin to gamble compulsively.” T. C. Sum. Op. 2024-19, at p. 2.

Yelena’s slotting led to massive losses, but her record keeping was confined to a casino statement showing a “coin-in” (money she placed on the plastic card she used in the casino’s slot machines) and ATM withdrawals. But better documentation eluded her efforts.

“We have previously considered evidence such as casino ATM receipts, bank statements, the taxpayer’s lifestyle, and the taxpayer’s overall financial position.” T. C. Sum. Op. 19, at pp. 4-5. (Citations omitted). Gambling losses can be approximated Cohan-style where the gambler has little income, no great accessions to wealth during the period at issue, and few assets, all of which fits Yelena’s case. And we all know that slot habitués have to lose.

But STJ Panuthos does even better than a Cohan inexactitude.

“The Court is satisfied on this record that petitioner undoubtedly incurred a loss at least equal to her winnings. The Court is also satisfied that petitioner was frustrated in good faith attempts to obtain substantiation from third parties. Petitioner is entitled to deduct $61,929 of gambling losses for the year in issue.” T. C. Sum. Op. 2024-19, at p. 5.

But her efforts and good faith can’t save Yelena from the Section 6662(a) accuracy chop.

David J. Tarantino, Docket No. 13025-19L, filed 9/20/24, asserts that “that petitioner’s financial disability also established reasonable cause for relief from certain “penalties”—i.e., additions to tax—that had been assessed against him. The letter therefore requested abatement of the additions to tax.” Order, at p. 2. It’s a Section 6511(h)(2) defense to the NITL; see my blogpost “The Song the Old Cow Died On – Part Deux,” 8/6/18* for more about this provision.

No one has produced NODs for three of the years David is fighting, so Judge Gale tosses that part of the petition for want of jurisdiction.

As for the rest, Appeals didn’t cover itself with glory.  David wants to challenge all the years on the ground he never received the SNODs for those years. And the SO didn’t properly address any.

“…we reject respondent’s implicit suggestion that petitioner’s alleged failure at the hearing to identify any irregularity in the assessment procedure amounts to a waiver of any challenge to the existence, mailing, or receipt of the notices of deficiency on which respondent relies. Petitioner’s efforts to challenge the underlying liabilities at the hearing, as well as the SO’s treatment of the underlying liability issues for years other than [out years] in the notice of determination, implicitly rest on the premise that petitioner did not receive notices of deficiency that would have precluded his challenges under section 6330(c)(2)(B). The SO’s failure to address the consequences of the notices of deficiency on which respondent now relies suggests that she either failed to recognize their existence or significance, or that she concluded for some reason that they did not have preclusive effect. We are thus left to question whether the SO properly verified that the underlying liabilities were lawfully assessed following the issuance of the notices of deficiency, and even if she did, whether her conclusions are adequately explained in the notice of determination. Order, at pp. 7-8.

IRS previously hit David with an NFTL years before to collect some of those taxes, but they were paid. It is unclear to Judge Gale whether IRS is seeking to collect the same liabilities or enhancements thereof, which latter attempt would trigger a new CDP.

In any event, no summary J.

So remand, for Appeals to resolve “(1) whether a notice of deficiency was properly issued to petitioner for any of the years at issue, (2) the validity of any assessment made for any of the years at issue on the basis of a notice of deficiency, (3) to what extent, and on what grounds, petitioner is precluded from challenging his underlying liability for each of the years at issue, and (4) for each taxable year for which Appeals concludes that petitioner is entitled to challenge any portion of the underlying liability, whether and on what grounds any amount assessed against petitioner should be abated.” Order, at p. 11.

A Taishoff “Good Job” to David’s trusty attorney, whom I’ll call Woody.

https://taishofflaw.com/2016/08/06/the-song-the-old-cow-died-on-part-deux-2/