Islander

As the inmates of 400 Second Street, NW, close the Glasshouse doors on 2024 and put the Pol Roger Cuvée Winston Churchill on ice, I close my account likewise. Here’s another beneficiary of unguided (misguided?) Congressional largesse to our Insolvent Islands in the Sun, Dennis M. Curtin, et al., Docket No. 32212-15, filed 12/31/24.

This is Dennis’ second summary J ty to make my blog. See my blogpost “Activist Judges,” 10/2/23.*

It’s unclear when Dennis first became a permanent Virgin Islander, but that doesn’t matter to Judge Ronald L. (“Ingenuity”) Buch. There’s enough disputable facts in the record to defeat Dennis’ summary J motion.

Dennis filed 1040s with VIBIR, not IRS, but did file Form US 1040-SS, self-employment tax on US-source income, claiming Reg. Section 1.932-1(g)(2)(ii)(C) sources his multiple corporate handouts to the USVI, not the USA, hence no US income tax.

IRS says per Reg. Section “1.932-1(g)(2)(iii)(B) ‘the Virgin Islands does not include the United States geographically for purposes of determining the source of a taxpayer’s income (other than for foreign tax credit purposes).’ The Commissioner further states that there are material facts in dispute as to the portion of Mr. Curtin’s income that is attributable to the sales made by [one of Dennis’ corporations] in the U.S. and the source of that income.” Order, at p. 3.

Dennis claims the 1040-SSs he filed started 3SOL, which has run. No, says Judge Buch, those forms flunk the Beard test; they expressly exclude salary and wages. The 1040s which Dennis filed with VIBIR show a lot more income than the 1040-SSs he filed with IRS. The 1040-SSs aren’t themselves in the record, although IRS concedes they were filed. So Judge Buch can’t tell if they were complete, but even if they were, they don’t provide sufficient information to calculate US Federal income tax, and aren’t fair and reasonable attempts to compute income tax liability.

Dennis claims his compensation from his corporations was fair and reasonable, and proffers various studies in support thereof.

“The reasonableness of compensation is an inherently factual question as evidenced by Mr. Curtin’s reliance on the studies, which are akin to expert reports. Expert reports offered as evidence to establish the reasonableness of compensation cannot be accepted for purposes of summary judgment because there is no opportunity for cross-examination.” Order, at p. 6.

No summary J for Dennis.  But this move by his trusty attorneys did serve its purpose: it focuses their trial strategy.

Happy New Year, everyone.

* https://taishofflaw.com/2023/10/02/activist-judges/

Judge Kashi Way makes his opinionated debut on this my blog today, and Pamuela Reynolds, T. C. Memo. 2024-116, filed 12/30/24, gets the bad news from Judge Way. Her deficiency is affirmed.

Pamuela was formerly employed by the alma mater of no fewer than two (count ’em, two) of my nearest and dearest. While so employed, Pamuela participated in the William Marsh Rice University Defined Contribution Plan (401A) (Defined Contribution Plan) and the William Marsh Rice University Tax Deferred Annuity Plan (Annuity Plan) (collectively, Plans). The custodian for the Plans was TIAA.” T. C. Memo. 2024-116, at p. 2.

Pamuela drew $160K from Plans n year at issue, whereupon Plans gave Pamuela a couple  Forms 1099–R, Distributions From Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc., at no extra charge. Pamuela reported only $56K thereof as taxable.

After Judge-‘splaining the difference between a Roth plan and traditionals like the Plans, that contributions with post-tax dollars earn a bye on distribution (Roths) and those paid for with pretax dollars don’t (“pay me now or pay me later”), Judge Way sends Pamuela empty away.

“Petitioner argues that her contributions were ‘picked up’ or paid for by Rice University and that the distributions from the Plans are therefore excludable from her taxable income. Nothing in the record shows that petitioner paid tax on the contributions at the time they were made or that the Plans were Roth plans eligible for tax-free distributions.

“Petitioner argues that because contributions to the Plans were mandatory and made by her employer on her behalf, they are not subject to tax. However, neither the mandatory nature of the contributions to the Plans, nor the fact that they were made by her employer, serves to exclude from tax distributions from such plans.” T. C. Memo. 2024-116, at pp. 4-5.

IRS did fold the five-and-ten substantial understatement chops.

Judge Ronald L. (“Ingenuity”) Buch notes that the 6SOL which Section 6501(e) bestows on IRS is to give IRS more time to discover whether a taxpayer had unreported income. Whatever return was filed gave IRS insufficient clues. as to the source thereof.

The parties agree that Andrew Mitchell Berry and Sara Berry, Docket, No. 11739-22, filed 12/27/24, were out of the Sub S in which Andy had an interest with his Dad in Year One. Hence no passthrough of tax incidents from that source, but there was $163K of wages that IRS says Andy got, although he says no.

Point is, that $163K is 31% of the income Andy and Sara did report, so 6SOL.

Naturally, that’s a question of fact, so no summary J to Andy, who raised 3SOL for both Years One and Two.

As for Year Two, “(T)he Berrys argue that the issuance of the notice of deficiency prohibited the Commissioner from assessing for 90 days, and by the time those 90 days lapsed, the period of limitations expired. But the issuance of the notice of deficiency also tolled the running of the period for assessment. See I.R.C. 6503(a)(1). Because the Berrys filed a petition with this Court, the period of limitations remained tolled. Id. And it remains tolled for the time the Commissioner is prohibited from assessing plus an additional 60 days. Id. Accordingly, the period for the Commissioner to assess the Berrys’ [Year Two] income tax liability remains open.” Order, at pp. 8-9.

IRS is timely as to both years.

Of whom else might that phrase be spoken than Judge David Gustafson? No one, I fear.

Today’s object of Judge David Gustafson’s guided largesse is Vitaly Nikolaevich Baturin, Docket No. 14796-14, filed 12/26/24. All y’all will recall VitNik’s nuclear tour de force, which led to his encounter with the US-Russian Federation Tax Treaty.

What, no? Then see my blogpost “A Bad Day for the Russians,” 4/8/22*.

Well, the trial 4 Cir wanted still hasn’t happened. IRS wants summary J (what else is new?), but VitNik, despite ten (count ’em, ten) years of litigation experience, still wants Judge David Gustafson to cut him come slack.

This Judge David Gustafson does. VitNik has five (count ’em, five) questions how to deal with an IRS summary J motion. And as befits a nuclear scientist, they are material, direct, and nonfrivolous.

If one approaches Judge David Gustafson thus, he’s obliging to a fault. He gives VitNik the Isaiah 42:3 treatment.

If you’re looking at an IRS summary J motion, check out Judge David Gustafson’s explication, even if you have more than ten years’ litigation experience.

* https://taishofflaw.com/2022/04/08/a-bad-day-for-the-russians/

I am sure the United States Tax Court bench is home to elegant wits, despite Judge Posner’s derogatory remarks about the “lame attempt at humor” of Judge Wherry (see my blogpost “There Goes the Neighborhood, 9/3/13*).

Now Judge Ronald L. (“Ingenuity”) Buch is certain that Tax Court precedent supports the grand horizontals that Cornelia Otis Skinner so elegantly evoked so long ago.

Here’s Desmond McGuire & Cory Lynne Brame, et al., Docket No. 25461-16, filed 12/26/24, leading off a bunch cases (hi, Judge Holmes), jousting about certain chops.

“The applicability of a penalty under section 6662(b)(6) or (i) turns on the application of section 7701(o). That issue is pending, fully briefed, in another case. The parties are aware of that case, and the Court invited amicus briefs in that case. See Order served July 19, 2024 (docket no. 24344-17 et al.). This Court generally applies horizontal stare decisis. See Harold Dubroff & Brant J. Hellwig, The United States Tax Court: An Historical Analysis 753 (2d ed., 2014). Because this Division of the Court will likely be bound by the outcome of another case, to conserve both the Court’s and the parties’ resources, we will postpone trial.” Order, at p. 1.

Section 7701(o) is Congress’ attempt at “Clarification of Economic Substance Doctrine.” I’ll let the opinion, when it finally issues, speak for itself.

Oh, and horizontal stare decisis is described by D&H as follows: “The Tax Court has a strong institutional interest in maintaining integrity in its decision-making process, and the institutional integrity of the court would be undermined if each judge felt free to issue a decision adopting a holding or analysis that could not be reconciled with that of a prior memorandum opinion. Thus, the court’s interest in decisional consistency results in considerable respect being afforded to prior memorandum decisions as a practical matter.” Idem, as my expensive colleagues would say.

In short, don’t contradict your colleagues, judges.

Btw, that above-cited Order of 7/19/24 is more particularly bounded and described in my blogpost “Relevant and Novel,” 7/19/24.**

* https://taishofflaw.com/2013/09/03/there-goes-the-neighborhood/

** https://taishofflaw.com/2024/07/19/relevant-and-novel/

“In addition to observing the Christmas Day holiday on Wednesday, December 25, 2024, the Court will be closed on Tuesday, December 24, 2024. DAWSON will remain available for electronic access and electronic filing.”

This announcement appears as a matter of record.

As one is said to be when the tow truck removes one’s vehicle. That’s the situation of Maureen F. Shoe, T. C. Sum. Op. 2024-25, filed 12/23/24, who’s on the hook for the tow truck income of her daughter’s on-again, off-again boyfriend.

Said boyfriend put Maureen in charge of his tow-truck operation, claiming he “would take care of everything” as regards taxes. T. C. Sum. Op. 2024-25, at p. 10.

Maureen, a retired cafeteria manager, had unfettered control over the tow truck bank account, signed the checks, and paid her personal income tax therefrom. She also took out $21K in cash to buy her daughter’s engagement ring, which daughter kept after relationship cratered. She claims duress and physical threats to herself and daughter, but Judge Albert G. (“Scholar Al”) Lauber finds these took place after year at issue. T. C. Sum. Op[. 2024-25, at p. 7.

Maureen claims nominee status, but Judge Scholar Al blows that off.

“As a general rule, taxpayers are bound by the form of the transactions they have freely chosen, and they cannot escape the consequences of their chosen form by urging theories like ‘substance over form’ or ‘nominee’ status. In any event, the evidence established that petitioner was not a mere nominee. A ‘nominee’ holds bare legal title to property for the benefit of another.  Petitioner exercised complete dominion and control over the funds in the BoA account; she availed herself of the account on multiple occasions to pay her expenses and get cash; and she was the sole person authorized to withdraw $51,709 from the account at year-end 2019.” T. C. Sum. Op. 2024-25, at pp. 7-8.

The money was withdrawn, but Maureen’s testimony that she didn’t know what happened to it flunks Judge Scholar Al’s credibility test. T. C. Sum. Op. 2024-25, at p. 6.

And that boyfriend didn’t testify on the trial didn’t help, not did the testimony of the attorney boyfriend hired to deal with the taxes when he couldn’t produce the expense receipts he claimed he gave the RA at audit.

But Maureen’s background and unfamiliarity with taxes saves the chops.

A Taishoff “Tough Loss” to Maureen’s never-say-die trusty attorneys, the Jersey Boys.

Rosa M. Marcano, T. C. Sum. Op. 2024-26, filed 12/23/24, claims, since she was out of country for 24 of the 90 days she had to petition her SND, she was entitled to the 150-day out of country exception to the Section 6213(a) in-country timeframe.

I give her trusty attorney, whom I’ll call CH, a Taishoff “Good Try, Second Class.”

But Judge Jeffrey S. (“Schwer”) Arbeit isn’t buying.

“The facts petitioner asserts are not enough to entitle her to the 150-day period for filing the petition. Petitioner was in the United States when the notice was mailed, in the United States when the notice was delivered, and in the United States for almost three weeks thereafter. Indeed, petitioner concedes she was in the United States at least 66 days of the 90-day period.

“Petitioner is ineligible for the 150-day period because her absence from the country neither delayed her receipt of the notice nor otherwise adversely affected her ability to file a timely Tax Court petition.” T. C. Sum. Op. 2024-26, at p. 3.

Judge Schwer Arbeit has copious citation of precedent in support, which I needn’t repeat here.

Walt Whitman’s 1855 leaf of grass is a gift that keeps on giving. Today, it’s the song of “quintessential tax protester” Christopher Aubuchon, T. C. Memo. 2024-115, filed 12/23/24, at p. 2. IRS says Chris omitted some income, even after IRS nailed his all-zeros Form 4852 W-2 substitute. IRS amended its answer to Chris’ petition to put in the extra income from bank records reconstruction.

But Judge Christian N. (Speedy”) Weiler has a problem with IRS’ characterization.

While any deposit is presumptively income, and a lot of what IRS reconstructed is unrebutted by Chris’ lack of records, certain electronic transfers can’t be established as taxable income from IRS’ calculations. And as those figures were raised in an amendment to answer, IRS has BoP.

“However, considering the limited evidence presented, we are unable to conclude respondent has met his burden of proof with respect to all deposits found in Mr. Aubuchon’s Stanford Federal Credit Union account. Specifically, there is nothing in the record supporting a conclusion that (i) the electronic deposit of $29,173 made March 25, 2017, resulted from a sale of securities or (ii) the electronic deposits of $3,000 on January 20 and February 7, 2017, $5,000 on March 4, 2017, and $18,000 on July 25, 2017, are funds from an income-producing activity. Rather, we view these ‘electronic deposits’ to be synonymous with ‘electronic transfers’ likely between accounts of Mr. Aubuchon and not gross receipts. Other than Mr. Aubuchon’s employment and business activities with Filld and Exojoule, the record is void as to what other business activities (if any) Mr. Aubuchon conducted to derive income in tax year 2017. Accordingly, aside from those deposits attributable to Filld, E*TRADE, Coinbase.com, and Exojoule, we find the record to be unclear and insufficient to support a conclusion that these remaining electronic deposits are sources of unreported income by Mr. Aubuchon.” T. C. Memo. 2024-115, at p. 6.

So Chris gets a bye on just over half the unreported income IRS claims. But since Chris is a Stanford Ph.D., as evidenced by his loyalty to his school’s credit union, he gets full chops.

The above acronym stands for “Limited In Name Only,” and so holds Ch J. Kathleen (“TBS = The Big Shillelagh”) Kerrigan in Denham Capital Management LP, Denham Capital Management GP LLC, Tax Matters Partner, T.C. Memo. 2024-114, filed 12/23/24.

The partners in the TMP claim to be limited partners per State (MA) law, therefore net earnings from self-employment should exclude the partners’ distributive shares.

Wrong, says Ch J TBS. The TMP partners run the show, provide all decision making functions for the (box-checked) partnership, made no capital contribution (except one partner did), and therefore State law is irrelevant. There’s copious citation of Tax Court precedent, and the TMP’s invitation to ignore same gets rejected.

As usual, it’s a case of “what do you do” rather than “what do you call yourself.”