It might be asserted that I am singularly fit to lecture upon this topic, but I shall forbear to do so. Rather, I defer to Patricia Marcello Anderson, T. C. Memo. 2024-95, filed 10/17/24. Having failed to file for five (count ’em, five) years, and having received SFRs for all, Pat and spouse file 1040s MFJ, which IRS doesn’t process but parts of which IRS concedes. I’ll let judge James S. (“Big Jim”) Halpern fill in that one, T. C. Memo. 2024-95, at pp. 3, 7, 11. and 12.
Up for grabs are Scheds C and E, and an NOL. Pat and spouse have a document “218 pages long…, and the pages are labeled: ‘For Tax Purposes Only.’ Petitioners claim on brief: ‘This binder of accounting ledgers . . . is the road maps [sic] for this Court to rely on concerning’ substantiation of the reported expenses. The exhibit is divided into seven sections, one for each of seven entities.” T. C. Memo. 2024-95, at p. 8. Pat and spouse were running a multi-tier LLC chain. Judge Big Jim disregards the whole chain, and slides under TEFRA in a footnote. T. C. Memo. 2024-95, at pp. 5-6, footnote 4.
Spoiler alert: Pat and spouse claim documentation substantiating their disputed deductions are “in ‘so many boxes’ that he ‘wouldn’t be able to bring [them] into th[e] courtroom.'” T. C. Memo. 2024-95, at p. 10. For the same reason, I won’t quote or paraphrase Judge Big Jim’s voluminous footnoted disquisition on TEFRA involvement. Read it, if necrology is where you’re at.
Pat’s and spouse’s ledgers and journals are insufficient to establish their deductions. Although some proffered bank statements might furnish a lead, Judge Big Jim eschews ex post facto tax prep. ” On our own, we discovered some bank statement entries supporting entries in the Register. It is not our duty, however, to undertake the laborious task of combing the various bank statements for information to support entries in the Journals and Registers. To give petitioners a chance to cure their failure to direct us to page references in the bank statements to support Register or Journal entries, we ordered them to file a supplemental brief proposing findings of fact in tabular form identifying those expenses reported on any of the Schedules C or E that are traceable to bank statements in the record and to identify the page in the record of the bank statement entry.” T. C. Memo. 2024-95, at p. 11.
They don’t, of course.
“Later in the trial he [spouse] claimed that petitioners’ bank statements and records that would substantiate the expenditures recorded in the Cash Disbursements Journal were in storage, and he added: ‘I have no access to them . . . . [I]t’s the subject of another pending legal matter.’” T. C. Memo. 2024-95, at p. 10. But spouse provides no further details.
Pat’s and spouse’s attempt to join the Cohanim founders upon Judge Hand’s often-overlooked qualification in Cohan: “As the U.S. Court of Appeals for the Second Circuit observed in Cohan v. Commissioner, 39 F.2d at 543,* not only did the taxpayer in that case fail to keep account of his travel expenses; he ‘probably could not have done so.’ ‘That observation,’ we have said, ‘suggests a limit on Cohan’s scope, under which estimating unsubstantiated expenses would be inappropriate when proper recordkeeping is feasible and can reasonably be expected.’ Joseph v. Commissioner, T.C. Memo. 2020-65, at 40–41.” T. C. Memo. 2024-95, at p. 18.
For the backstory on Doc Joseph, see my blogpost “A Rarity,” 5/19/20.**
Journalism fails when you don’t have the backups.
* https://case-law.vlex.com/vid/cohan-v-commissioner-of-893019323
Taishoff Law 
You must be logged in to post a comment.