That’s the invitation from John K. Pak, T. C. Memo. 2024-86, filed 9/11/24. John ran a high-end sushi/hibachi operation in a mall vanilla box that he built out, featuring a 25-foot (count ’em, 25 foot) sushi bar and the above-referred-to aforesaid 16-foot martini bar. My kind of place (if someone else is paying).

Problem is, John filed a couple years (hi, Judge Holmes) of dicey returns, and skipped another couple (for which IRS gave John SFRs at no extra charge). So Judge Gale has six (count ’em, six) years’ worth of claims for depreciation (leasehold improvement type) and contract labor (cash paid to high-priced, highly-skilled sushi slicers and hibachi heroes), John having stiped out everything else.

Yes, says Judge Gale, we can do a Cohan on depreciation. But we need some basic evidentiary basis for determining their depreciable basis. John did file for year he commenced operations (two years before first year at issue). IRS processed that return and never audited, so now it’s closed (nobody claims fraud), and IRS is bound for that year. IRS of course isn’t bound for subsequent years (each year stands on its own). But the first-year return does jibe with John’s trial testimony; IRS concedes John built out a high-end operation in an empty shell and concedes the sushi bar (all 25 feet) and the martini bar.

“The figures on the [first year of operations] return appear reasonable. They did not attract respondent’s attention and trigger an audit, nor do they appear unreasonable for a restaurant with reported gross receipts of $887,994 for [first year of operations].” T. C. Memo. 2024-86, at p. 8. But this is Cohan country and John cooked up his own inexactitude, so he gets half what he claimed.

Likewise John has problems with the cash he slipped his sushi slicers and hibachi heroes. Since almost all his trade was credit cards, he had to cash checks and slip the cash as aforesaid. Needless to say, the slippery slicers and hot-handed heroes got no enhanced W-2s.

Fortunately, John has a top-class CPA, whom I’ll call Ken. Ken has thirty (count ’em, thirty) years of return prep and restaurant savvy. He testifies as to industry standards. IRS claims on post-trial brief that John’s trusty attorney The Man From Mobile is trying to slide Ken in as an expert witness under the tag of Rule 143(g).

“Although respondent did not object at trial to [Ken]’s testimony concerning restaurant industry standards for labor costs, on brief respondent contends that this testimony is expert testimony and [Ken] testified only as a fact witness. Under Rule 143(g)(3), we may consider expert testimony without the witness’ having provided an expert report where the witness ‘testifies only with respect to industry practice.’ In the absence of a party’s timely objection, we have considered expert testimony of this nature even where the witness was not listed as an expert before trial, see Schmidt v. Commissioner, T.C. Memo. 2014-159, at *28–29, and we do so here. [Ken] had 30 years’ experience in accounting and appeared knowledgeable regarding the restaurant industry.” T. C. Memo. 2024-86, at p. 19.