Once again, as the three-day weekend has been a national habit for fifty (count ’em, fifty) years and more, the District of Columbia has observed the second Monday in October as a holiday, under the name and style Columbus Day.
Wherefore, per Rules 10(d) and 25(a)(5). United States Tax Court has the day off.
And so do I.
Judge Mark V. (Vittorio Emanuele”) Holmes is a truly human judge. He has sympathy for a couple industry-standards fact witnesses who, he rightly finds, have suffered enough, collateral casualties of the Dixieland Boondockery wars.
“Each has already testified before in more than one conservation-easement trial. Their testimony is always about their own experience in the quarrying industry. Their testimony is remarkably the same from case to case. And they are all fact witnesses – not adequately compensated for the time and expense of repeatedly getting subpoenaed to testify in other peoples’ cases.” Order, at p. 1.
These poor dudes are first-round draft picks in Wilkes Rock North LLC, Wilkes Investments North LLC, Tax Matters Partner, et al., Docket No. 10736-20, filed 10/11/24. The Wilkes Rockstars are one of nine (count ’em, nine) conjoined alleged dodges, all to be found in the vicinity of Gretsch Stone. I haven’t blogged Gretsch because nothing noteworthy has yet happened therein; Gretsch is one of the aforementioned nine.
But, like brave fighters in the past, the fact witnesses are ready to go again. “(t)hey “will assuredly cooperate if subpoenaed.” Order, at p. 1.
The Wilkes Rockstars move in limine to let in transcripts of their testimony from two (count ’em, two) previous trials.
The Wilkes Rockstars obviously want that testimony to prove the truth thereof. The transcripts, of course, are hearsay (declarant not in the courtroom or on the Zoom); can’t cross-examine a piece of paper or a bunch electrons (this is Judge Holmes, after all).
The Wilkes Rockstars want FRE 807(a)(2) to bail them out. Even if neither FRE 803 nor 804 lets the transcripts in, FRE 8078(a)(2) lets into evidence hearsay “more probative on the point for which it is offered than any other evidence that the proponent can obtain through reasonable efforts.” Order, at p. 2. (Emphasis by the Court).
No go, says Judge Holmes.
“As sympathetic as we are with the witnesses, our analysis begins and ends with the italicized parts of the quoted Rule. Transcripts on paper are not more probative than live testimony. And witnesses who can and will appear if subpoenaed yet again are witnesses whose live testimony can be obtained through reasonable efforts.” Order, at p. 2.
Rule 807(a)(2) is far more honored in the breach than in th’ cliché. Most courts reject attempts to slide hearsay unshriven by FRE 803 or 804 under the tag. But Judge Holmes quarries deeper than most.
“We did find one case that did admit prior testimony of a witness under Rule 807. In State v. Hamilton, 308 Ga. 116, 126-128 (2020)*, the Georgia Supreme Court reasoned that the phrase ‘reasonable efforts’ did not require a party to resubpoena nearly 30 fact witnesses who had already testified before the same judge in the same criminal matter about the same facts when more than eight years had passed between a criminal trial and a hearing.
“But though our conservation-easement cases are approaching this odyssey-like journey through the trial system, they are not there yet.” Order, at p. 2.
Taishoff says, they’re gettin’ there. These dodges are going to keep this blogger going into his golden years, ya betcha!
Ninth Circuit and Daniel S. Jacobs, Docket No.7118-19, filed 10/10/24, want Judge Emin (“Eminent”) Toro to “consider the merits of Jacobs’ claim that, in light of the information the CIR had received in the administrative proceedings, the CIR’s litigation position was unreasonable.” Jacobs v. CIR, No. 21-71211, 11/4/22, at p. 5.*
Judge Eminent is happy to respond, giving even Judge David Gustafson a run for his cliché in the Obliging Stakes. He has sixty-four (count ’em, sixty-four) pages, wherein he reviews “Attorney/Professor/Author” Dan’s submissions and IRS’ responses thereto from audit to Appeals to Tax Court to 9 Cir and back again.
No stone, nay, no pebble nor grain of sand, is left unturned. Dan loses. Again.
And note Judge Eminent’s gloss on ABA Model Rule of Professional Conduct 3.7, Attorney as Witness.
“[N]umerous courts and commentators have recognized [that] the only justification for the attorney testimony rule that might be viewed as affecting the rights of the opposing party is that derived from the fear that the jury will either accord such testimony undue weight, or will be unable to distinguish between the attorney’s testimony, offered under oath, and his legal argument, offered in rhetorical support of his client’s case. [T]he majority of these courts have also recognized [that] this justification is inapplicable where, as here, the testimony is made to a judge, not a jury.” Order, at pp. 61-62. (Citations omitted).
For my previous takes on “Attorney/Professor/Author” Dan’s battles with CIR and his minions, see my blogpost “Depositions? Bah!” 11/9/23**, and “Do Be Do Be Do Be Do,” 12/18/23***.
* https://casetext.com/case/jacobs-v-commr-of-internal-revenue-39#p2
** https://taishofflaw.com/2023/11/09/depositions-bah/
*** https://taishofflaw.com/2023/12/18/do-be-do-be-do-be-do/
I’m not picking on Judge Adam B. (“Sport”) Landy for ducking the perennial high-hanging fruit on the BoP tree. The last place to decide a major trial issue is in a small-claimer like Carl David Lucas and Jasmine Lucas, T. C. Sum. Op-. 2024-22, filed 10/9/24.
It’s easier to go with preponderance-of-evidence, and slide around Section 7491, when one spouse and IRS agree on innocent spousery, but the nonrequesting spouse won’t play.
“While a requesting spouse generally bears the burden of proving she is entitled to relief, it is an open question whether the nonrequesting spouse now bears the burden of proof when the Commissioner and the requesting spouse are aligned on the decision to grant relief. See Kraszewska v. Commissioner, T.C. Memo. 2024-26, at *6–7 (citing Stergios v. Commissioner, T.C. Memo. 2009-15, 2009 WL 151485, at *4). We decline to answer this question, and instead, we decide the issue of whether Ms. Lucas is entitled to innocent spouse relief by a preponderance of the evidence. See id.” T. C. Sum. Op. 2024-24, at p. 7.
Judge Sport Landy finds that Jasmine knew all about the unreported income, as she prepared the 1040 and Carl gave her all his info. No innocence for her. So ultimately, does BoP matter in innocent spousery?
Paul M. Daugerdas, Docket No. 7350-20L, filed 10/9/24, is back, still broke and fighting IRS’ NFTL and NITL for the multi-hundred million in criminal restitution USDCSDNY handed him. For the backstory, see my blogpost “Restitution Meets Destitution,” 1/10/22.*
Appeals muddled the supplemental CDP, issuing two (count ’em, two) NODs, one sustaining the levy and the other rejecting it. Judge Goeke is positively kind to Appeals, given that the SO misrepresented facts to OCC. Transcript, at p. 12.
Howbeit, OCC’s response to the SO’s request for guidance contains almost no factual analysis and provides almost no advice of a factual nature. Transcript, at p.13.
Paul wants summary J, and he goes one for three. The NFTL protects the fisc in case Paul strikes it rich, despite his presently alleged indigency.
The levy goes down, because all IRS is seeking is to grab the house Paul deeded to his spouse before he went down in USDCSDNY. Judge Goeke teaches IRS a lesson in nominee liens. If IRS claims that the spouse is a mere nominee because Paul runs the whole show, it’s basically a rerun of the voidable transaction rules: transfer for little or no consideration, possibility of heavy-duty liabilities of transferor, close relationship of transferor-transferee, and unrecorded conveyance (but recordation counts for little, because the parties can easily manipulate that).
OK, suppose Paul and spouse check all the boxes. Judge Goeke says to IRS, serve spouse with NITL; serving Paul with an NITL serves no purpose, as he is not in title. Go duke it out with spouse, who deserves a chance to assert whatever rights she may have.
As for Paul’s desire for an IA that tracks the USDCSDNY restitution payout order, IRS isn’t bound by the USDCSDNY order. Moreover, in this case all Paul has is Social Security, and there’s no evidence in the record of his living expenses, so there’s nothing on which to base an installment payout.
* https://taishofflaw.com/2022/01/10/restitution-meets-destitution/
I was about to skip Monique E. Franco, T.C. Sum. Op. 2024-21, filed 10/8/24, exhausted by Judge Patrick J. (“Scholar Pat”) Urda’s monumental opinion in Beasley this date. But in the interest of completeness, I thought I’d mention Monique’s case as an example of a two-time loser in the innocent spousery stakes becoming a three-time loser.
So I could take a flippant, cheap shot, and close out my blogging day.
In fairness, though, I have to consider another angle, although Monique’s trusty attorney had to play the Michael Corleone gambit, classical variation. Almost no substantiation, and contradictory testimony from Monique on the trial.
If in fact there is a codependent abusive relationship here, Monique may well be unable to act in her own behalf, and is seeking help, not playing games. Unhappily, Tax Court is not the place to solve that problem.
If the title first hereinabove set forth at the head hereof (as my paid-by-the-word colleagues would say) are incomprehensible gibberish to you, just read Judge Patrick J. (“Scholar Pat”) Urda’s disquisition on kaolin mining in J L Minerals, LLC, Beasley Timber Management, LLC, Tax Matters Partner, T. C. Memo. 2024-93, filed 10/8/24.
You will learn much about the mining, processing, buying, leasing, selling, and blunging of that useful clay, the greatest source of which is found in that very same GA Dixieland Boondockery which in turn is the launchpad of “a cover to fleece the public fisc” (T. C. Memo. 2024-93, at p. 69), the Section 170(h) conservation easement.
Judge Scholar Pat notes the parties have rounded up “some of the usual suspects in this Court: (1) whether JL Minerals had donative intent; (2) whether the contribution was made “exclusively for conservation purposes,” see I.R.C. § 170(h)(1)(C), (4), (5)(A);1 and (3) whether JL Minerals obtained a qualified appraisal by a qualified appraiser, see I.R.C. § 170(f)(11)(D) and (E). Although JL Minerals scrapes by each of these requirements, we find that the deduction amount was an outrageous overstatement. Given that the value claimed on JL Minerals’s tax return ($16,745,000) exceeded the correct amount ($93,690) by more than 200%, JL Minerals is also liable for the 40% gross misstatement penalty, see I.R.C. § 6662(a) and (h).” T. C. Memo. 2024-93, at p.3.
Y’all will find Judge Scholar Pat cites all the cases I’ve blogged over the years in extenso, and then some. Out trot our old chums the willing buyer and willing seller, each armed cap-à-pié with all information and free of all compulsion, to establish that none would make a deal on the terms posited by Beasley and their cottage-industry experts.
Finally, industry experts put paid to the whole show, but Scholar Pat has to seal some of their trade secret testimony.
You will definitely learn more about kaolin than you wanted to know from this opinion, including but not in any way in limitation of the generality of the foregoing that “blunging” is the process of liquefying clay into a slurry that can by pumped through a pipeline to a processing plant.
As to farblundgeit, it is an arcane technical term meaning utterly confused, disoriented. As I was when I finished reading.
Candidates for the next Slaughter of the Innocents, s/a/k/a The US Tax Court Admission Examination, should take heed of Judge Christian N. (“Speedy”) Weiler’s exegesis anent FRE 801(d)(2), statements of opposing party. We classically trained types call those “admissions against interest.”
Remember, hearsay is inadmissible. Hearsay is a statement offered for the truth thereof in support of a party’s position, made by someone not present in the courtroom (hence not subject to cross-examination, the “greatest legal engine ever invented for the discovery of truth.”). But FRE 801 has some exceptions. Oh, where would we lawyers be without exceptions?
“Statements made by an opposing party are not hearsay. Fed. R. Evid. 801(d)(2).
“As relevant here, Fed. R. Evid. 801(d)(2)(A) provides that a party’s own statement (made in an individual or representative capacity) is not hearsay if offered against that person by the opposing party.” Order, at pp. 1-2.
The case is Otay Project LP, Oriole Management LLC, Tax Matters Partner, Docket No. 6819-20, filed 10/7/24, and of course it’s a tiered-partnerships TEFRA special.
Are the people at the bottom (or top) of the tiers opposing parties?
Under the now-superseded TEFRA régime, “Section 6231(a)(2) defined ‘partner’ to include direct partners in the partnership and ‘any other person whose income tax liability under subtitle A is determined in whole or in part by taking into account directly or indirectly partnership items of the partnership.’ The term ‘indirect partner’ means a person holding interest in a partnership through one or more passthrough partners. I.R.C. § 6231(a)(10). Therefore, both direct and indirect partners of the partnership are considered ‘parties’ in a TEFRA case.” Order, at p. 2. (Footnote omitted but read it; it’s a quick-take on what is an opposing party’s statement.)
So any partner of a partner is an opposing party when the IRS comes calling. Remember, you can be a partner without knowing you are a partner; see Section 7701(a)(2): if you’re doing business with anyone else, for tax purposes you’re their partner, whatever your local laws may say.
Taishoff says, while Judge Speedy Weiler adverts to local (CA) law to check the authority of partners to represent the partnership (Order, at pp. 2-3), don’t count on State law when you want a box-checked LLC to give you cover when non-managing members shoot their mouths off, even under post-TEFRA learning (of which there isn’t any). Of course, argue the point if your local LLC law restricts authority to bind the LLC to the managers, but even then the individual members are on their own.
Here, the Otays are left to argue relevancy or materiality. While their trusty attorneys have done well so far, they face an uphill here.
As always, loose lips sink ships.
Man the rail and summon the band and sideboys! Let the boatswains sound their calls! Ch J Kathleen (“TBS = The Big Shillelagh”) Kerrigan receives on the Tax Court Bench two (count ’em, two) new Judges, impressively credentialed and sure to strew before us somber reasoning and copious citation of precedent for all occasions.
So let’s welcome Judge Jeffrey S. (“Schwer”) Arbeit and Judge Benjamin A. (“Trey”) Guider III.*
Cold print, especially word-processor-generated print, cannot begin to express the depth of contempt and summary dismissal conveyed by the somewhat-arcane phrase first set forth at the head hereof (as my expensive colleagues would say). It was Grandma’s way of blowing off one who held himself (it was always “himself” in those days) out as an expert, but was in fact a poseur, a mere smatterer, unworthy of the slightest consideration.
Andrew P. Mattson & Lindsey J. Mattson, Docket No, 6501-20, filed 10/4/24, were caught up in the Pine Ridge hush-hush Aussie outback kerfuffle. For the backstory, see my blogpost “Pine Ridge – Case Closed,” 11/20/23*. Among the cases therein cited is that of Cory Smith, who appealed the toss of his case to DC Cir.
That appeal caused Judge Ronald L. (“Ingenuity”) Buch to put Andy’s & Lindsey’s motion for reconsideration on hold, pending outcome of said appeal. But Cory’s former attorney pulled out, and his successor moved to withdraw the appeal.
Judge Ingenuity Buch tells us why, and why the other outback spies-in-the-sky might wish to bail.
“Counsel confirmed that the positions argued in Smith’s briefing, which are also advanced in several cases pending before the Tax Court, were proposed to Smith by John Anthony Castro, a tax preparer recently convicted of 33 counts of federal tax fraud.” Order, at p. 1.
Looks like Mr. Castro “marketed himself to U.S. taxpayers around the world, including by ‘claiming to be an expert on certain tax issues related to Australian ex-pats,’ and advised clients to take nonexistent exclusions based on his interpretation of tax treaties between the United States and Australia).” Order, at p. 2.
Cory Smith disavows the bogus assertions he got from Mr. Castro, and says he only appealed because he promised to pay Mr. Castro half the refund he got from the US fisc if he won. Looks like Mr. Castro didn’t care much for the law or regulations.
Motion for reconsideration denied.
* https://taishofflaw.com/2023/11/20/pine-ridge-case-closed/
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