Back a couple weeks ago (hi, Judge Holmes) I sought help understanding why IRS was trying a third-party subpoena; see my blogpost “Help Me Understand This,” 3/3/25.* Turns out Judge Christian N. (“Speedy”) Weiler furnishes the answer in Rising Rock Partners, LLC, Robert Schill, LLC, Tax Matters Partner, et al., Docket No. 23614-21, filed 3/24/25.

Jerry Fitzgerald, unrelated to the Rising Rockers, tried to buy some property 18 (count ’em, 18) miles away from the property at issue from unrelated parties after the Rising Rockers had bought their property in order to mine granite aggregate. Jerry’s application to the land use authorities of Meriwether County was rejected.

IRS claims the Rising Rockers’ valuation of their SCE was based on getting mining OK, so they try to subpoena Jerry and get his paperwork.

“Recognizing that a nonconsensual deposition is an ‘extraordinary method of discovery’ that should be used in only the rarest of circumstances during a Tax Court proceeding, we do not believe respondent has met this burden. This Court has considered various factors in reaching our conclusion. Mr. Fitzgerald is not a party to these cases and has no connection to them other than the fact his LLC executed a purchase agreement for a different piece of property within the same county. Furthermore, Mr. Fitzgerald’s zoning requests and property negotiations occurred after the Rising Rock Transaction. Finally, Mr. Fitzgerald is not an expert on the subject matter and his testimony cannot be used to circumvent expert witness procedures. Therefore, the need to depose Mr. Fitzgerald does not rise to the level necessary to grant such extraordinary measures. For these reasons, we will deny the motion to compel deposition of Mr. Fitzgerald.” Order, at p. 3. (Citations omitted).

Jerry’s trusty attorney’s omnibus motion is denied without prejudice. There’s no subpoena in the record. IRS allegedly served Jerry an electronic deposition notice, but whether that’s any good is in dispute. Taishoff says even if it is good, Jerry doesn’t have to respond.

* https://taishofflaw.com/2025/03/03/help-me-understand-this/

No, not a newly-discovered Lamour-Hope-Crosby flick nor a new religious biopic. Rather, CSTJ Lewis (“Just Love That Name”) Carluzzo explicates a conversion from personal use to production of cincome (rental on the road to deductible depreciation.

Sherman Derell Smith, T. C. Memo. 2025-24, filed 5/24/25, was a mere five (count ’em, five) years late with his year at issue return. CSTJ Lew says “we suspect that if the return had been timely filed, then this case would not have materialized.” T. C. Memo. 2025-24, at p. 2. Sherman settled out everything with IRS pretrial, except depreciation on his brother’s house, in which Sherman bought a share. Sherman and Bro converted to rental, and Sherman claimed his share of depreciation.

For depreciation one heeds basis. “If, as in this case, property that was not originally held for the production of income is subsequently converted to such use, then the property’s basis for computing depreciation is the lesser of the fair market value or the adjusted basis on the date of such conversion. Treas. Reg. § 1.167(g)-1. Although we agree that petitioner did the best he could under the circumstances to estimate the rental property’s (1) fair market value and (2) adjusted basis at the time of conversion, the evidence he offered to establish those amounts for purposes of that comparison is lacking.” T. C. Memo. 2025-24, a p. 3.

Sherman used filing-year market numbers, not year at issue. Even if he got the FMV for year at issue right, he still can’t establish his basis at date of conversion. He took over Bro’s mortgage when he bought his share of the property, but though he honestly tried, he couldn’t reconstruct the numbers provably.

Had he filed timely, he might have made the cut.

Alder Properties, Inc., Docket No. 14805-23SL, filed 3/21/25, timely tried to e-file their 314 Forms 1099 for year at issue, but when stymied, snail-mailed them inside the due date. IRS hit the Alders with $25K for 250 ($100 each, per Section 6751(a)), and $150 each for the remaining 64. The cutoff for e-filing is over 250 forms.

The Alders went to Appeals, which abated the $25K, but kept in the $9600 ($100 each as aforesaid, and $50 each per Section 6723, the catch-all for reporting violations).

That’s enough for Judge Elizabeth A. (“Tex”) Copeland to deny review of underlying liability on “Inconsequential Errors or Omissions” grounds, or the Alders’ OIC for doubt as to liability. Even if no petition from Appeals pre-NOD, a conference is an opportunity to dispute.

“An opportunity to dispute the underlying liability includes a prior opportunity for a conference with Appeals that was offered either before or after assessment of the liability unless the opportunity was prior to the assessment of a tax subject to deficiency procedures. See Treas. Reg. § 301.6330-1(e)(3), Q&A-E2; see also Lewis v. Commissioner, 128 T.C. 48, 61–62 (2007).” Order, at p. 4.

But the double-dip saves the Alders from summary J.

“… at the hearing, Alder presented evidence that the penalty at issue comprises multiple penalties assessed for each of the 64 returns that should have been electronically filed. If accurate, such assessments would violate the mandates set forth in Treas. Reg. §301.6721-1 (which dictates that ‘[n]o more than one penalty will be imposed…with respect to a single information return even though there may be more than one failure with respect to such return.”). See also, Treas. Reg. § 301.6721-1(b)(5), Example 3, as it existed at the time of Alder’s paper return filing. On the record before the Court, we cannot determine that the assessment was properly made (it appears not to have been) and properly verified. We cannot conclude at this time that AO C verified that the penalty at issue was assessed in accordance applicable law. Thus, there remains a issue of material fact that would preclude summary judgment at this stage.” Order, at pp. 4-5. (Name omitted).

That’s Krishan K. Gossain & Kavita Gossain, Docket No. 21812-22, filed 3/21/25, making their fourth (count ’em, fourth) appearance on this my blog. From an off-the-bencher to a T. C. Memo., Krish & Kav are still in there pitching, despite an unbroken series of losses.

Now Judge Morrison, commendably patient, holds in abeyance Krish’s & Kav’s “Motion and Request for Permission to Answer to Respondent’s Responses to First Supplement to Objection for Case to be Reassigned to a New Judge and a Motion and Request for Permission to Answer to Respondent’s Responses to Objection to Motion to Reconsider Portions of its Memorandum Opinion.” Order, at p. 1.

For the memorandum decision story, see my blogpost “No Abate, No Debate – Part Deux,” 10/21/24.*

One thing about Tax Court self-representeds, they sure provide blogfodder.

* https://taishofflaw.com/2024/10/21/no-abate-no-debate-part-deux/

I’ve spent a lot of time and electrons (probably too much) on the Tax Court Bench’s variegated warnings of Section 6673 frivolity-and-delay chops. Uniformity is as far off as ever, even with maximum allowance for judicial discretion in administering their own courtrooms, personal or digital.

Here’s Todd O. Olson, Docket No. 28000-22L, filed 3/20/25. Todd got seven (count ’em, seven) Section 6702(a) frivolous return chops for five (count ’em, five) years, two of the seven returns being for 1040X amendeds that never made it into the administrative record. No summary J for IRS on those, but they get the rest.

Yes, reader with a long memory, Todd was here last June when Judge Travis A. (“Tag”) Greaves warned him about frivolity (Todd is an “all-zeros” return, wages aren’t income type). See my blogpost “Distant Early Warning,” 6/12/24.*

But Judge Cary Douglas Pugh gives Todd yet another bye. IRS is missing those 1040Xs, so back to Appeals on those, and maybe Todd was right to skip the February hearing on IRS’ summary J motion.

“Because remand is necessary here, we will not impose a section 6673 penalty at this time. We cannot foreclose the possibility that petitioner did not appear at our February 3, 2025, hearing because he had nothing that was not frivolous to add to his supplemented Response to Motion for Summary Judgment. We remind petitioner that we may impose the penalty if he persists in making frivolous arguments in any future filings in this case. And we also warn him that he risks default if he does not comply with this or other Orders we enter.” Order, at p. 6.

* https://taishofflaw.com/2024/06/12/distant-early-warning/

Practitioners routinely rely on Kovel* engagements to provide Section 7525 privilege cover for communications with CPAs and preparers in advising clients. But not all communications are thus protected, as Judge Ronald L. (“Ingenuity”) Buch shows us in Desmond McGuire & Cory Lynne Brame, et al., Docket No. 25461-16, filed 3/20/25.

Third-party disclosure is a waiver.

Tax prep advice, as distinct from tax law advice, is not legal advice, therefore not privileged, so the Kovel blanket doesn’t cover. “Exhibit 140-J is an email chain containing attorney-client privileged legal advice that was forwarded to an accountant by petitioners for the purposes of tax return preparation. Attorney-client privilege is waived if privileged communications are disclosed to a third party. Petitioners received communications from their attorney that was privileged legal advice. However, the disclosure of the advice to a third party, their accountant, for purpose of return preparation, which is not subject to privilege, is a waiver of the attorney-client privilege that previously attached to the communication. Petitioners argue that the disclosure of the legal advice to their accountant does not constitute a waiver of attorney-client privilege because it was pursuant to a Kovel arrangement. See Kovel, 296 F.2d at 922. The disclosure to the accountant was not in furtherance of the legal advice, rather it was disclosed to assist in tax return preparation. Kovel does not apply in this circumstance, and petitioners waived attorney-client privilege with their disclosure of Exhibit 140-J.” Order, at p. 4.

Taishoff says this is an ambush. Clients routinely tell their preparers what their lawyers told them. In my experience over 58 years, no client asks and pays for legal advice to satisfy an unslaked thirst for abstract legal knowledge or to make a gift to my retirement fund, but to solve the client’s real and present problem. This ruling eviscerates any possible use the client can make of their trusty attorney’s advice for which presumably they paid serious money.

Likewise, State tax advice isn’t covered by Section 7525. Id., as my expensive colleagues would say (but what use their clients are to make of said expensive advice I cannot tell.).

Here be dragons.

* https://law.justia.com/cases/federal/appellate-courts/F2/296/918/131265/

Nothing really new, but a T C. Memo from Judge Cary Douglas Pugh shows that hardship isn’t hard enough when it comes to early draws from an IRA, and an order from Ch J Kathleen (“TBS = The Big Shillelagh”) Kerrigan sends another late petitioner to join Antawn Jamal Sanders, for whose story see my blogpost “In the Midnight Hour,” 6/20/23.*

First, Charlie Campana, T. C. Memo. 2025-23, filed 3/19/25. Charlie claims IRS erroneously nixed his refund for an out year, and he thought the IRA trustee withheld all the tax, so he didn’t report his pre-59-1/2 COVID-induced hardship draw. Out years are out if not before the Court via SND or NOD, and economic hardship is not basis for avoiding the 10% add-on. Charlie’s belief in his IRA’s trustee isn’t enough reasonable cause to avoid the Section 6662(a) and (b)(2) five-and-ten chop.

“Petitioner did not testify, nor do we see anything in the record to suggest, that he relied on a tax professional or even considered an information return (e.g., a Form 1099–R, Distributions From Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc., issued by [trustee]) to determine his tax liability. We acknowledge petitioner’s misunderstanding of the applicable law, and we are sympathetic to his frustration regarding the IRS’s denial of his [out year] claim for refund. But neither is a ground for concluding that there was reasonable cause for his failure. We therefore sustain the penalty.” T. C. Memo. 2025-23, at p. 4.

Next, Gregory B. Klock, Docket No. 495-25, filed 3/19/25, petitioned a SND from Laguna Beach, CA, where it was 9:06 p.m. on Day 90. Unhappily, it was already the next day in The City of the Governmentally Efficient, which is situated in the Eastern timezone.

“Although the Court may sit at any place within the United States, its principal office, its mailing address, and its Clerk’s office are in the District of Columbia. I.R.C. § 7445; Rule 10. A document that is electronically filed with the Court is filed when it is received by the Court as determined in reference to where the Court is located.” Order, at p. 2. (Citation omitted).

* https://taishofflaw.com/2023/06/20/in-the-midnight-hour/

This may work for an IA or to get small-claimer treatment, but not for a passport grab, as Ch J-elect Patrick J. (“Scholar Pat”) Urda reminds Drew J. Pfirrman, T. C. Memo. 2025-22, filed 3/18/25.

Drew had run up $143K when IRS certified the debt to State, T. C. Memo. 2025-22, at p. 5. Drew claimed he’d paid the debt down below the then-current $59K cutoff for seriously delinquent.

“In addition to questioning his underlying tax liability, Mr. Pfirrman also suggests that he has made payments that have dropped the liability ‘below the threshold of this Court review.’ Mr. Pfirrman misunderstands the statutory structure. Once a certification of a seriously delinquent tax debt has been made, it may be reversed “if the debt with respect to such certification is fully satisfied.” I.R.C. § 7345(c)(1) (emphasis added). Unless a taxpayer satisfies the section 7345(b)(2)(A) exception, a partial payment does not justify reversal of a certification or otherwise end the matter, even if the partial payment drops the amount of the unpaid, assessed, and legally enforceable liability below the… threshold for certification of a seriously delinquent tax debt.” T. C. Memo. 2025-22, at p. 6.

Of course underlying liability is a nonstarter in a passport grab.

Btw, the Section 7345(b)(2)(A) exception covers timely-paid installment agreements, inapplicable here.

Whether or not Marc Worrall and Sue J. Worrall, Docket Nos. 14793-22, 14734-23, filed 3/18/25, get the Genesis 2:24 treatment outside US Tax Court I leave to a much higher Authority even than Judge Kashi Way.

Even in Tax Court Judge Way is loath to opine whether each of Marc and Sue are entitled to 25 interrogatories inclusive of parts and subparts per Rule 71(a).

“…we address respondent’s objection that Interrogatories 26–33 exceed the allowable limit under Rule 71(a), under which a party may serve upon any other party no more than 25 written interrogatories, including subparts. Rule 71(a). A party may seek leave of the court to serve additional interrogatories. Id. and Rule 70(c)(1).

“Petitioners sought no such leave. Petitioners argue instead that because they comprise two parties, Marc and Sue Worrall, each are permitted 25 interrogatories under our Rules and thus their combined 34 interrogatories are within their limit. Because respondent abandons his objection to the number of interrogatories in his Response and we are denying petitioners’ motion, we need not decide whether the petitioners Marc and Sue Worrall are considered one party for purposes of the limit on interrogatories under Rule 71.” Order, at p. 5.

I don’t know which of Marc’s and Sue’s eight (count ’em, eight) trusty attorneys came up with this move, but she or he is surely entitled to a Taishoff “Good Try, First Class.”

The latest IRS tactic in Malibu Valley Land, LLC, Spectrum Development, Inc., Tax Matters Partner, Docket No. 20442-19, filed 3/17/25 draws a rebuke and a lesson from Judge Travis A. (“Tag”) Greaves. Judge Tag Greaves brushed aside a bunch exclusionary-preclusionary motions on a couple days ago (hi, Judge Holmes); see my blogpost “Doowop,” 3/11/25.*

Now IRS’ attempt to quash a Malibu subpoena ad testificandum as an attempt to get around the discovery scheduling order fails. Judge Tag Graves rebuffed the Malibus when they tried a subpoena duces tecum on the same nonparty, who had furnished documents upon which IRS’ expert relied. But as said nonparty isn’t bringing anything, that’s no barrier.

IRS is trying to quash a subpoena on a nonparty. Moreover, the nonparty doesn’t object to testifying. Tax Court Rules don’t cover whether a party or third-person can move to quash a nonparty subpoena. So Judge Tag Greaves goes to the FRCP, and FRCP 45(d)(3) sets out only two (count ’em, two) bases for such motion, and IRS flunks both.

“Respondent does not represent Mr. C nor is Mr. C a party to this case. Thus, respondent only has standing to quash the subpoena if he can reasonably assert privilege over the information sought by the subpoena or he has a personal right in such information. Respondent did not claim a privilege nor a personal right to the information sought by the subpoena in his motion. Therefore, it appears that respondent lacks standing to quash the subpoena issued to Mr. C.” Order, at p. 2. (Name omitted).

Even if IRS had standing, IRS didn’t raise burden to Mr. C., or relevance of his testimony.

* https://taishofflaw.com/2025/03/11/doowop/