Once again, nonreporteurs are balked from The Glasshouse in the City of the Unrepresented Taxed. Ex-Ch J Maurice B (“Mighty Mo”) Foley lays the bad news on Stephen C. Jenner and Judy A. Jenner, 163 T. C. 7, filed 10/22/24. Steve and Judy have their Social Security yanked to cover their nonreportage.

Their trusty attorney is in there pitching, but ex-Ch J Mighty Mo sends him to the clubhouse.

“Petitioners contend that the letter they received from the IRS notifying them that they did not qualify for a CDP hearing provided the requisite determination pursuant to section 6330(d)(1) to invoke this Court’s jurisdiction; ‘nothing in I.R.C. § 6330 limits the CDP procedures to Title 26 liabilities;’ the administrative offsets on their Social Security benefits are ‘levies by the Secretary’ that entitled them to a CDP hearing; and there is no ‘rational distinction’ between levies by the Secretary to collect Title 26 liabilities and levies to collect FBAR penalties. They conclude that ‘the CDP procedures in I.R.C. § 6330 apply to any type of liability . . . to the extent the Secretary files a lien or intends to levy.’

“These contentions are specious.” `163 T. C. 7, at p. 4.

The magic words in Section 6330(a) are “unpaid tax.” FBAR penalties aren’t a tax; they aren’t even found in 26 USC, but in 31 USC.

“In short, Title 31 expressly provides the assessment and collection procedures for FBAR penalties, and there is no statutory, regulatory, or judicial authority providing that these penalties are subject to sections 6320 and 6330.” 163 T. C. 7, at p. 5.

No tax, no CDP.

Aventis, Inc. and Subsidiaries, Docket No. 11832-20, filed 10/22/24, are inventive. Aware that their Section 860L FASIT (Financial Asset Securitization Investment Trust) may be cratering, they added the claim that, if they flunked the FASIT test, they could take interest deductions for payments made by a counterparty. For backstory, see my blogpost “Playing FASTIS and Loose,” 7/5/24.*

Now Aventis wants to claim client-attorney privilege on some documents they exchanged with their high-priced transactional attorneys. This notwithstanding they handed over opinion letters from said attorneys to a would-be outside purchaser and to IRS.

IRS claims subject-matter waiver. Once client hands over otherwise privileged material, whatever else they may have on that subject has lost privilege. Aventis says that’s true only if extreme disadvantage to adversary results from keeping the other stuff under wraps.

Maybe so it might could be that these documents throw shade on the debt-vs-equity arguments Aventis wants to raise on the trial. Howbeit, Judge David Gustafson says put all the cards on the table.

“We do not think that subject-matter waiver requires an extreme disadvantage. It is enough that Aventis has at its disposal all the unvarnished information about the parties’ intent as revealed in their consultations with counsel, but Aventis has selected a portion that is useful to itself and resists disclosure of the rest. We think it is fair to say that Aventis is using the privilege not just as a shield but as a sword, and in that circumstance we will not sustain its claim of privilege.” Order, at pp. 4-5.

* https://taishofflaw.com/2024/07/05/playing-fastis-and-loose/

Krishan K. Gossain and Kavita Gossain, T. C. Memo. 2024-97, filed 10/21/24, wanted IRS’ first-time abate administrative waiver. But they got chopped for misclaiming real estate pro (short the 750 hours and more-than-half test) and omitting some dividend income on a 1040, so the Section 6662(a) chops that Krish and Kav got aren’t on IRS’ waiver list. Besides, Krish and Kav are asking too late. Taishoff says, equitable tolling, anyone?

Yes, I know, the IRS’ website is no substitute for statute and regs, but for the record: https://www.irs.gov/payments/penalty-relief-due-to-first-time-abate-or-other-administrative-waiver

Then Krish and Kav claim Appeals failed to consider their case, so they should win. Judge Morrison says no.

“The remedy for any such failure is petitioners’ right to seek Tax Court redetermination of the deficiencies, a right that petitioners have exercised. The Tax Court is not authorized to resolve issues in favor of petitioners as a remedy for any prior failure by the Appeals Division to resolve their case.” T. C. Memo. 2024-97, at pp. 10-11.

Sharp-eyed readers of this my blog will recollect I blogged an off-the-bencher on this very case. Both sides moved for reconsideration thereafter, which Judge Morrison granted out of time. I commented at the time how unusual this was, and wondered why. See my blogpost “Off-the-Bench, On-the-Bench,” 5/29/24.*

Now I got my answer.

Edited to add, 10/22/24: Note administrative waiver provided in Section 6654(e)(3). But I doubt Krish and Kav qualify.

* https://taishofflaw.com/2024/05/29/off-the-bench-on-the-bench/

Judge Morrison neatly and effectively lays out the statutory gravesite of the 24 (count ’em, 24) State-legal potteries in the Patients Mutual Assistance Collective Corporation, Inc., T. C. Memo. 2024-98, filed 10/21/24.

The Patients want summary J that the traffic-stop in Section 280E is unconstitutional. They don’t get it, of course;  but one has to think, with north of $4 million in deficiency on the table, this is a prelude to an appeal. The Patients argue Eighth Amendment excessive fines and Tenth Amendment States’ rights.

Judge Morrison cites the usual Tax Court precedents, blowing off the Patients in four (count ’em, four) pages.

“Neither of PMACC’s arguments has merit. Section 280E is constitutional under our precedent. N. Cal. Small Bus. Assistants Inc. v. Commissioner, 153 T.C. 65 (2019); see also Today’s Health Care II LLC v. Commissioner, T.C. Memo. 2021-96, at *7. The Controlled Substances Act is constitutional under Supreme Court precedent. Gonzales v. Raich, 545 U.S. 1 (2005). Therefore, we will grant respondent’s Motion for Summary Judgment and deny petitioner’s Motion for Summary Judgment.” T. C. Memo. 2024-98, at p. 3.

An Authority even more exalted than the IRS or even the United States Tax Court used the above-set-forth phrase to describe a choice taken.

A couple months back (hi, Judge Holmes), I mentioned a brief exchange with my colleague Peter Reilly, CPA, concerning IRS’ offer to nonpetitioning Dixieland Boondockers to come out with hands up and buy peace. Each of us had his own take on whether or not the IRS schema was overly sweet, or thorns lurked among the roses. See my blogpost “VRBO? – Not Quite,” 7/15/24.*

I await the exact terms of any effected settlement. Perhaps Mr. Reilly or another member of the trade press or blogosphere will pull a couple Forms 7249 Offer Acceptance Report, so those terms will be made public.

Meantime, petitioned cases are settling out. So, by way of comparison when we get the terms of nonpetitioners’ settlements, here’s Wisawee Partners II, LLC, E. Ronald Martin, Jr., Tax Matters Partner, Docket No. 6015-18, filed 10/18/24.

50% charitable claimed for year at issue $4,332,000. Allowed $0. Other deduction (K-1, line 13d) claimed $300,911. Allowed $1,373,421. So got about 30% at close of play.

Can’t wait to see if a nonpetitioner chose the better part in their deal with Danny Werfel.

And I lose some more blogfodder. The summary J the Wisawees were seeking back in ’22 is mooted out. See my blogpost “Another Silt-Stir,” 1/7/22.**

* https://taishofflaw.com/2024/07/15/vrbo-not-quite/

** https://taishofflaw.com/2022/01/07/another-silt-stir/

I rarely neglect an opportunity to give the Whistleblower Office, s/a/k/a The Ogden Sunseteers, the Psalm 141:5* treatment when I perceive a misstep. But in fairness, I hereby acknowledge they got it right, as did Judge Vasquez, in Bruce Edward Johnson, T. C. Memo. 2024-94, filed 10/17/24.

Now lest I be misunderstood, I think that Bruce Edward blew rightly on the dubious 501(c)(whatever), that was running a hospitality and entertainment venue, thereby raking in the moolah to the tune of a $1.4 million UBIT deficiency. And the RA at Exam thought so, relying on Bruce Edward’s blowing wherewith to chop said 501(c)(whatever).

But said 501(c)(whatever) hied themselves off to Appeals, where the AO found that “the revenue streams from the entertainment and hospitality facilities ‘contribute[] importantly to the achievement of that exempt purpose by improving the services available to patrons visiting the facilities, raising additional revenue, and supplying more jobs for the economy.’” T. C. Memo. 2024-94, at p. 3, and tossed deficiency and chops.

Cynical old me, I can’t help but wonder if local politicos came to the aid of the 501(c)(whatever), extolling its attempts to aid the hard-laboring peasantry (and voters) of their constituency.

Howbeit, the golden shower turned to drought, and the Ogden Sunseteers booted Bruce Edward with the “no dough, you go” blow-off.

Of course, Bruce Edward wants Judge Vasquez to reverse Appeals’ “erroneous view of the law.” T. C. Memo. 2024-94, at pp. 6-7.

Best o’ luck wi’ that one, Squire.

Judge Vasquez’s hands are thoroughly tied. “(W)e do not have authority to ‘review the Commissioner’s determinations of the alleged tax liability to which the claim pertains.’ Nor do we have authority ‘to direct the Secretary to proceed with an administrative or judicial action.’ While petitioner’s concerns about the charitable function of the target may be sincere, we cannot grant him the relief he seeks.” T. C. Memo. 2024-94, at p. 7. (Citations omitted, but they’re the usual).

Taishoff says both the Ogden Sunseteers and Judge Vasquez got it right, despite Bruce Edward’s views (and mine). Of course, he knows the facts and I don’t. So, per contra, if someone from the 501(c)(whatever) or IRS or Appeals wants to give me the Psalm 141:5* treatment with proofs in hand, I won’t “grouse, nor crack on, nor blind,” as the Man from Mumbai said.

* http://bible.oremus.org/?passage=Psalm%20141&version=cw

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

** https://taishofflaw.com/2020/05/19/a-rarity/

Cases like Whistleblower 20442-18W, filed 10/16/24, make we wonder if there’s a bonus pool for the Ogden Sunseteers, John (“Hoppin’ John”) Hinman’s hardlaboring crew. Memories of days long gone, when I sat in partners’ meetings debating how much guided largesse to strew among the Cratchits who billed the hours that made the year a banner year, brought that question to mind.

Perhaps there’s a category in this imaginary pool for “Best Award Recommendation” memorandum weasel-wording. 20442-18W offers this gem: “the exam teams made adjustments to several issues related to the whistleblower allegations.” Order, at p. 5. But none of those allegations were substantial contributions to IRS’ efforts; IRS had identified the issues already.

So no award.

OK, identifying issues is necessary, but it isn’t sufficient. Once identified, what specific items give rise to a deficiency? Example, with imaginary facts unrelated to this case: IRS suspects unreported income, identifies issue. Reviews bank accounts, brokerage accounts, bitcoin, nominee accounts, office petty cash drawer, all yield nothing. Everything there reported. Whistleblower says “bags of cash in corporate secretary’s basement behind the hot water heater.” Adjustments made.

OK, we haven’t the facts in this case. The order deals with a discovery demand that has largely been satisfied last year, says Judge Albert G. (“Scholar Al”) Lauber. The rest is silence.

But still, I wonder if there’s a bonus pool.

Rapidly filling the depleted ranks of the United States Tax Court Bench, Ch J Kathleen (“TBS = The Big Shillelagh”) Kerrigan announces the onboarding of Judge Rose E. (“Cracklin'”) Jenkins, holder of no less than an Executive LL.M. degree from New York University’s highly esteemed School of Law, among many other heavy-duty credentials, academic and real-world.

I anticipate C-Suite level opinions from Judge Rose E. (“Cracklin'”) Jenkins.

Here’s the skinny: https://ustaxcourt.gov/resources/press/10162024.pdf

I have long been an advocate of summary judgment (summary J), Rule 121, as the best tool for discovery. not only of your adversary’s story, but of your client’s story and of the judge’s take on the whole thing. But while booming the benefits, I haven’t mentioned a concomitant burden: you educate your adversary.

IRS learns this in Kathryn L. Anderton & G. Douglas Anderton, Docket No. 17705-23L, filed 10/15/24. On its face, a run of the mine petition from a CDP NOD, a rejected IA (not eligible for streamlining, and no Form 433-A) and a general request for “abatement of penalties,” without specifics. Order, at p. 2.

IRS’ counsel seem to take this as a walk in the park and move for summary J. And STJ Diana L. (“Sidewalks of New York”) Leyden OKs the IA shootdown; no IA without Form 433-A. Kathryn’s & GDoug’s trusty attorneys got that one wrong, and STJ Di has copious citation of precedent to prove it. Order, at p. 5.

But the AO left the barn door unlocked. The Boss Hoss is on the loose.

“However, the record shows that the Appeals Office did not properly verify that the requirements of all applicable laws and administrative procedures were met in the processing of petitioners’ case.

“The IRS cannot assert a penalty under section 6662 unless it is approved by a supervising manager in writing. I.R.C. § 6751(b). Respondent bears the burden of production with respect to the required managerial approval.” Order, at pp. 5-6.

The AO never checked the administrative record to make sure the magic hoofprint was there. Just relying on the general objection by Kathryn’s and GDoug’s trusty attorneys to bounce the CDP isn’t enough; IRS has to establish they touched all the bases.

So STJ Di sends Kathryn &GDoug back to Appeals for a supplemental hearing. Now both sides know what they need (or what the judge told them they need).

Practitioner, beware. Summary J may teach you more than you wanted to know.