We’ve all been there, shivering bleary-eyed through the big test after the all-nighter. James Michael Warren, T. C. Sum. Op. 2024-20, filed 10/3/24, must know the feeling. He set up what was to be a group home. I’ll defer to Judge Adam B. (“Sport”) Landy to recount the story.

John, an engineer with Lockheed Martin, set up “an assisted living facility to provide professional caregiver services. To that end, Mr. Warren purchased a single-family home (group home),,, near his residence….” T. C. Sum. Op. 2024-20, at p. 2. John didn’t include the $6K in rent he got, but did take a $41K deduction, claiming to be a Section 469(c)(7) real estate professional.

John didn’t have contemporaneous records.

“In preparation for trial, Mr. Warren created—and presented—two time logs. The first log maintained that Mr. Warren worked 1,421 hours at the group home; it was created one week before trial. The second log maintained that Mr. Warren worked 1,628 hours at the group home; it was created the night before trial. Mr. Warren testified that the second log contained corrected information derived from emails and other records he maintained. Some of the hours listed on Mr. Warren’s logs are supported by reference to emails, work permits, and invoices, but most remained unsupported beyond Mr. Warren’s testimony.”  T. C. Sum Op. 2024-20, at pp. 2-3.

Unfortunately, “Mr. Warren does not qualify as a real estate professional under section 469(c)(7)(B) because he worked fewer hours at the group home than he did at Lockheed. Mr. Warren’s employee status at Lockheed was personal service in a trade or business. Mr. Warren worked 1,913 hours at Lockheed, and his job duties did not involve real property activities. To meet the first requirement of the section 469(c)(7)(B) test, Mr. Warren needed to spend more than 1,900 hours working at the group home. Even if we accepted Mr. Warren’s second log as accurate, the total time spent on the group home totaled only 1,628 hours.” T. C. Sum. Op. 2024-20, at p. 4.

And the $25K active participation deduction phases out south of James’ AGI, per Section 469(i)(3).

Pulling an all-nighter only works if you pass the test.

Going for the record for the shortest full-dress T. C., Judge Goeke expends but five (count ’em, five) pages on John F. Carter, 163 T. C. 6, filed 10/3/24. John blew, got denied by the Ogden Sunseteers (“no dough, you go”), and then filed Chapter. IRS filed a claim for pre=Petition taxes in the bankruptcy proceeding, but John and IRS waited some fourteen (count ’em, fourteen) months to tell Tax Court.

John’s trusty attorney wants to invoke 11 USC §362(a)(8) to stay the review of the Section 7623 shootdown. While ordinarily one would ask what John’s back taxes had to do with his blowing, John blew on the counterparty to a deal he did, claiming the counterparty misreported the deal. So he claims IRS may have setoff of the ultimate reward against John’s taxes.

Judge Goeke says he don’t need no 11 USC 362(a)(8) stay, because 11 USC 362(a)(7) takes care of it.

The 2005 amendment to 11 USC 362(a)(8) expressly limits the automatic stay to matters “concerning the tax liability of a debtor who is an individual for a taxable period ending before the date of the order for relief.” 163 T. C. 6, at p. 3. That both John’s tax liability and his blowing claim arise out of the same deal doesn’t extend the stay, even if the record supported John’s assertions, which in this case it doesn’t. Anyway, pre-amendment Tax Court opinions said the same thing as the amendment.

Of course, Tax Court has no jurisdiction under Section 7623 to determine the blower’s own tax liability.

IRS also tried to stay the blow review pending the outcome of Lissack in DC Cir, but that was denied as moot.

Still and all, I’ll award a Taishoff “Good Try, Second Class” to John’s trusty attorney, Paul Michael Spizzirri, Esq.

STJ Peter J. (“HB”) Panuthos has six decades of top-class experience as attorney and STJ. But when I find STJ Panuthos confronted by such as Tonia L. Hartman, Docket 1713-24, filed 10/2/24, I am reminded of a line from Nobel Laureate R. A. Zimmerman: “Twenty years of schoolin’ and they put you on the day shift.”

It’s another all-zeros Form 1040. I understand the frustrations and anger; the present system is deeply flawed. But the cure is not effected by making a fruitless protest that only worsens your situation by invoking Section 6673, although STJ Panuthos spares the rod this time.

So STJ Panuthos, ostensibly avoiding “somber reasoning and copious citation of precedent” does exactly that. And at close of play, “… here the record demonstrates that, whether focusing on the invalidity of petitioner’s return reflecting zero income… or the computational amount of income omitted, the statute of limitations does not bar assessment of petitioner’s [year at issue] taxes.” Order, at p. 4. (Citations omitted).

Plus five-and-ten chop, of course.

But is a law review article by a distinguished attorney going to convince such as Tonia?

Ruben T. Varela, T. C. Memo. 2024-92, filed 10/1/24, filed an all-zeros return for year at issue, and settled with IRS for no tax due and no refund due. IRS did go for a $5K Section 6702 frivolous return penalty and seeks to levy to collect. Ruben petitions, and IRS seeks a Section 6673 frivolity penalty for that.

Judge Cary Douglas Pugh decides that Ruben filed a frivolous return, even if he didn’t owe anything. He did seek a refund of his FICA withholding, to which he stipulated he wasn’t entitled. He did avoid a Section 6702 chop for another year, which IRS had tacked on.

Judge Pugh holds that even though Ruben owes nothing, his all-zeros return is frivolous. Somber reasoning and copious citation of precedent supports her view. Ruben’s 1040-EZ was all-zeros, accompanied by the usual Forms 4852 purported correcters; it purports to be a return, didn’t contain information sufficient to show how to calculate tax due; and it shows a position identified as frivolous by IRS in Notice 2010-33, 2010-17 I.R.B. at 609, 611.*

So IRS can levy for the $5K.

But the Section 6673 chop doesn’t happen.

“We have seen no other case in which petitioner was warned against pursuing these types of arguments (nor did we warn him in this case before respondent’s Motion was filed). We decline to impose a section 6673 penalty at this time. We caution petitioner that a penalty may be imposed in future cases before this Court should he continue to pursue these misguided positions.” T. C. Memo. 2024-92, at p. 7.

Taishoff says a quick docket search shows that IRS sought a Section 6673 chop against Ruben T. Varela, Docket No. 16694-18L, 7/29/19, which ex-Ch J Michael B. (“Iron Mike”) Thornton denied as moot; the order doesn’t state that Ruben was warned.

* https://www.irs.gov/pub/irs-irbs/irb10-17.pdf

Judge Joseph H. Gale retired effective 9/30/24. An appropriate announcement appeared on the Tax Court website homepage.*

I’m sure we all wish Judge Gale a happy and fruitful retirement.

* https://ustaxcourt.gov/resources/press/10012024.pdf