But Don’t Capitulate, Either

Judge Elizabeth A. (“Tex”) Copeland reiterates the advice of Judge David Gustafson to both sides in FBA St. Clair Property C, LLC, Jeffrey L. Smith, Partnership Representative, Docket No. 14406-23, filed 8/29/25. See my blogpost “Stipulate, Don’t Equivocate,” 11/2/23.

At least some of what the C-Clairs want could be stiped, but they’ve interlarded that with legal conclusions which IRS rightly disputes. Judge Tex Copeland won’t do the Matthew 3:12 number for the parties.

“Trial of this case is to begin in September 2025, and we expect comprehensive stipulations of fact continue to be filed before trial commences. The Court is not going to referee dueling proposed stipulations on a line-by-line basis. The Court expects the parties to confer in good faith and stipulate to all matters not reasonably in dispute.” Order, at pp. 2-3.

I’d quote more, but the Genius Baristas have again posted this Order in their impenetrable PDF, which I can’t drag-and-drop, so read for yourself.

Collectors of great vintages assiduously seek these out to savor. Tax Court watchers are no less eager to find exemplars among the outwash of routine housekeepers and protester brush-offs. Judge David Gustafson obliges, as is his nature, with Carl Lawrence Collins, III,  Docket No. 2643-17, filed 8/28/25.

CLC3 wants to depose nine (count ’em, nine) individuals, apparently all IRS employees, who should bring to the depositions  “all the documents that ‘were authored, reviewed or transferred, or all, concerning the Petitioner and all entities associated with the Petitioner from tax years 12/31/1996 to 11/13/18.’” Order, at p. 1.

Judge Gustafson has the short answer: “Under the Federal Rules of Civil Procedure, depositions are ordinary. In the Tax Court, it is not so.” Order, at p. 1. See Rule 74(a) and Branerton.

Besides, there are four (count ’em, four) reasons why CLC3’s motion to compel depositions must fail, so IRS need not answer. There’s no showing of compliance with Rule 74(c) (Judge Gustafson says “Rule 70(c) quoted above,” but that’s a typo); no attempt at Rule 70(a)(1) informality; no showing of relevance of 1996 to 2018, when this case involves a SND for 2010; and this motion “attempts to get documents from a party-opponent by using a subpoena duces tecum served on the party’s personnel rather than by a document request to the party itself under Rule 72.” Order, at pp. 1-2.

“The motion alleges that ‘this case involves complex issues of tax law, which arose, based upon inconsistent practices of implication of the US Tax Code by the Respondent, by and through its employees; and thus, said employees’ testimony as well as items and documents within the possession of the Respondent are relevant and necessary.’ We have looked at the notice of deficiency attached to the petition, and it seems to show unreported income and disallowed deductions–i.e., not ‘complex issues of tax law’ but garden-variety adjustments that petitioner may resist by documenting the positions he reported on his 2010 tax return.” Order, at p. 2.

Now comes a Judge Gustafson classic, a gem for the connoisseur to savor: “A deficiency case is not about the IRS but is about the petitioner. The petitioner cannot win a deficiency case by proving that the IRS did a bad audit, and the IRS cannot win a deficiency case by proving that it did a good audit. The issue in this case is not the IRS’s audit but the petitioner’s income and deductions.” Order, at p. 2.

I have never seen a better explanation of de novo and Greenberg’s Express.

Judge Gustafson shows again his practical approach. He tells IRS to hand over whatever it has that’s relevant to 2010, without waiting for Branerton formalities.

“The disruption that presumably resulted from petitioner’s incarceration may have caused him to lose access to records he otherwise might have had; if so, and if the IRS has copies, then the IRS should provide them. Early voluntary production can sometimes render discovery disputes and motions unnecessary and avoid trouble and expense for both parties.” Order, at p. 2.

“Win your case at discovery” CLEfloggers please copy.

James D. Sullivan, T. C. Memo. 2025-92, filed 8/27/25, tried to file amended returns splitting the lump-sum retirement benefit he took from Defense Finance and Accounting Services over a couple years (hi, Judge Holmes). Since he hadn’t reported the draw on his year-at-issue return and didn’t attempt to file the amended returns until four (count ’em, four) years after his unpetitioned year-at-issue SND had issued and while he was at Appeals on a NITL, this did not fare well.

STJ Jennifer E. (“Publius”) Siegel: “He withdrew the returns under threat of sanctions pursuant to section 6702 (imposing a penalty for frivolous tax submissions), and the amended returns were not processed.” T. C. Memo. 2025-92, at p. 3.

Note, however, “(A)s part of the process of verifying that all administrative and procedural requirements had been met, the SO discovered that the accuracy-related penalty reflected in the Notice of Deficiency had not been properly approved. The SO had the penalty abated.” T. C. Memo.2025-92, at p. 3.

As the penalty was north of $14K, that’s not too bad.

Judge Adam B. (“Sport”) Landy is not put off by a multiplicity of factors. Innocent spousery has as many factors as anything else in the IRC. While neutrality is the general pigeonhole for most of them, most applicants can manage to grind out a couple in their favor.

Lisa Marie Walsh, T. C. Memo. 2025-91, filed 8/26/25, can come up with only one. And this even though her testimony was taken at the Tax Court trial, because Ms. Walsh is post-Section 6015(e)(7), where newly-discovered evidence means sworn testimony not taken at Appeals. See my blogpost “Comfortable Words,” 9/8/20.

But at the end, testimony doesn’t help.

“In summary, the only factor weighing in favor of relief for Ms. Walsh is that she is divorced. Ms. Walsh’s knowledge, the fact that she benefited from her and Mr. Walsh’s nonpayment of the tax liabilities, and her noncompliance with the federal income tax laws for the years following 2016 all weigh against relief. The remaining factors all are neutral. After weighing the above factors and examining the entire record before us, we conclude that Ms. Walsh failed to carry her burden and is not entitled to relief under section 6015(f) for 2014 through 2016.” T. C. Memo. 2025-91, at pp. 23-24.

Ms. Walsh knew her ex was trying to stiff their trusty attorney, who’d got them a good settlement for three (count ’em, three) years, getting $161K in deficiencies settled for $4105. A Taishoff “Good Job” to trusty attorney.

Judge Jeffrey S. (“Schwer”) Arbeit reminds Veleta Williams, T. C. Memo. 2025-90, filed 8/25/25, that an IRS Notice CP71A isn’t a SND or a Section 7436 NOD, even though it shows a $20K balance due. Yes, there were assessments back seven (count  ’em, seven) years ago. But those were RBAs (Restitution-Based Assessments), not deficiencies.

Veleta and brother Charles pled to tax fraud and health care fraud charges in connection with their group home operation. They were charged with nonfiling and nonpayment of FICA/FUTA and not providing employees with W-2s or 1099s.

The operation was a C Corp, so Judge Schwer Arbeit denies Veleta’s claim that Tax Court can review her claims that the amount stated in the CP71A is excessive. Only the employer can challenge that, and Veleta isn’t the employer, the C Corp is.

And the CP71A isn’t a SND, because it speaks of assessment based on restitution. When Veleta and brother Charles pled out, the Court ordered them to pay restitution.

Restitution compensates the fisc for the losses it suffered due to Veleta’s and brother Charles’ delictions. Restitution does not encompass or include whatever taxes are owed.

“The Notice CP71A, an annual reminder to taxpayers of an outstanding liability, is the only notice in the record. It neither indicates any sort of determination by the IRS of additional taxes due from petitioner, nor specifies, computes, or provides information with respect to any such amount. The Notice CP71A is not a Notice of Deficiency. Moreover, respondent has searched his records and states that he has found no record of mailing any Notice of Deficiency to petitioner with respect to any taxable period at issue.” T. C. Memo. 2025-90, at pp. 5-6. (Citations omitted).

Taishoff notes there’s no mention of Section 6672 TFRPs. Were these not imposed upon Valeta?

Please help me understand why it takes six (count ’em, six) attorneys from the underfunded, under stress, underpaid, IRS to defeat the motion to restrain collection and order refund made by pro se Masud M. Arjmand, Docket No. 1221-21, filed 8/22/25. Is it possible none of the six has ever encountered the Anti-Injunction Act, s/a/k/a Section 7421(a), or having encountered it, is incapable of explaining it unaided?

What is so hard about “no suit for the purpose of restraining the assessment or collection of any tax shall be maintained in any court by any person, whether or not such person is the person against whom such tax was assessed.”?  Order, at p. 3.

Masud self-reported year at issue tax due but didn’t pay with the return. IRS immediately assessed tax and add-ons and gave Masud a NITL and a couple months later (hi, Judge Holmes) a NFTL, both at no extra charge. Then IRS audited Masud’s return for year at issue, which resulted in a SND for an extra $800K plus five-and-ten substantial understatement chop. Masud petitioned that.

Meantime, the local taxing authority got a code violation judgment against Masud and tried to collect. Finding the Notice of Tax Lien, the locals “interpleaded” (did you mean “impleaded,” Judge Courtney D. (“CD”) Jones?) IRS, acknowledging that the assessed self-reported tax lien o’ercrows their judgment but that the deficiency comes behind them. IRS was then in the locals’ collection case to the extent of IRS’ claims against Masud. Clear? Thought not.

You bring an interpleader proceeding when you are confronted with conflicting claims and want the court to tell you whom to pay. You implead a newly-discovered party defendant when they may have a claim or defense against you, or may be liable with you or available for contribution if you lose, that you didn’t know about when you commenced the action or proceeding. Or so I recall from my youth on The Hill Far Above.

The exception to the Anti-Injunction Act is automatic stay arising from the petitioned notice of deficiency, per Section 6213(a). Self-reporteds can be assessed and collected summarily. Then the remedy is a CDP.

As we have both here, the only stay is on the SND and Tax Court’s jurisdiction is limited to the new amount set forth in the SND.

“Because the amounts reported on Mr. Arjmand’s return for [year at issue] were summarily assessed in accordance with section 6201(a)(1), they are not a deficiency within the meaning of section 6211(a) and are not subject to the deficiency procedures set forth in the Internal Revenue Code. See §§ 6201(a)(1), 6211(a), 6213(a), 6665(b), 7421(a); Treas Reg. §301.6211-1(a). Accordingly, there is no applicable exception to the tax anti-injunction act. The Court does not have jurisdiction over the summarily assessed amounts that Mr. Arjmand reported on his return for [year at issue], and therefore cannot restrain their collection or provide any other relief that he seeks.” Order, at p. 5.

All 18 (count ’em, eighteen) Tax Court judges rise as one to call, and Jarkesy must fold, as “public rights” and Congress’ failure to submit the sovereign US of A to Constitution Art. VII in Section 6663 takes jury trials out of US Tax Court, wherever they belong in the SEC.

And where else does this tectonic shift occur but in a Dixieland Boondockery, where IRS amended to wildcard in Section 6663 fraud chops?

Silver Moss Properties, LLC, Silas Mine Investments, LLC, Tax Matters Partner, 165 T. C. 3, filed 8/21/25, has Judge Cary Douglas (“C-Doug”) Pugh refusing to install jury boxes in The Glasshouse in the City Under Martial Law.

5 Cir already said there was no jury trial in Tax Court or USCFC, and the Mossbacks are Golsenized to 5 Cir.

“While Congress has exercised a limited waiver of sovereign immunity as to judicial review in TEFRA partnership-level actions, it has not assented to trial by jury in district court, nor has it enabled this Court or the Court of Federal Claims to empanel juries. Petitioner therefore is not entitled to a jury trial as to the section 6663(a) fraud penalty.” 165 T. C. 3, at p. 6.

Judge C-Doug cites the late Justice Antonin Scalia: “It is clear that what we meant by public rights were not rights important to the public, or rights created by the public, but rights of the public—that is, rights pertaining to claims brought by or against the United States. For central to our reasoning was the device of waiver of sovereign immunity, as a means of converting a subject which, though its resolution involved a ‘judicial act,’ could not be brought before the courts, into the stuff of an Article III ‘judicial controversy.’” 165 T. C. 3, at p. 6. (Citation omitted). (Emphasis in original).

Judge C-Doug traces the law back to William and Mary in 1692, brushing aside the Center for Taxpayer Rights’ brief amicus. Gotta collect the revenue.

True, some statutes providing for qui tam style enforcement by private citizens did let in juries, but letting in a couple didn’t open the door for all.  Btw, “qui tam” is short for “the Latin phrase qui tam pro domino rege quam pro se ipso in hac parte sequitur, which translates to ‘who pursues this action on our Lord the King’s behalf as well as his own.’” 165 T. C. 3, at p. 11, footnote 13.

Judge C-Doug also notes the Gaelic derivation of the word “whiskey” and its American spelling. See, Judges Scholar Al and Scholar Pat aren’t the only Tax Court scholars.

The Civil War Revenue Acts likewise made nonfiling and nonpayment chops collectable administratively.

In a contemporary setting, customs collectors could impose penalties and collect same at ports of entry in tariff cases.

Present Section 6663 goes back to 1928 Revenue Act Section 293, although some old statutes referred to fraud chops as add-ons, not chops. “Regardless of the terminology, section 6663(a) contemplates the same conduct as its predecessors: an underpayment with fraudulent intent to evade taxes owed. Our prior cases analyzing section 293(b) (and 6653(b)) apply equally to section 6663(a).” 165 T. C. 3, at p. 14. (Citation omitted). Anyway, Jarkesy never questioned tax chops.

Jarkesy involved securities fraud, the kind of case where any stock purchaser aggrieved could sue.

“A private litigant cannot pursue a statutory civil tax fraud penalty on behalf of the federal government; therefore, imposition and collection of this penalty falls squarely within the public rights exception. Because the Seventh Amendment is limited to suits at common law, not suits against the sovereign, it cannot enlarge the limited waiver of sovereign immunity that Congress authorized for challenges to these penalties.” 165 T. C. 3, at p. 16.

The choir will now sing “Amen.”

When in the Bard’s immortal words you are short-winded and far from home, you can teletubby testify at a Tax Court trial. But the burden is upon you and the proponent of your testimony to make sure that your testimony gets the Psalm 19:4 treatment.

Judge Courtney D. (“CD”) Jones judge-‘splains in Marc Lore and Carolyn Lore, Docket No. 8259-23, filed 8/20/25. A couple witnesses (hi, Judge Holmes) unobjectionably want to testify.

“… the Court does not intend to allocate more than half of a single day to remote testimony. Accordingly, the Court intends to issue an appropriate order with login instructions upon receipt of a date on which both witnesses will appear remotely.

“The Court emphasizes that it remains the responsibility of the parties to ensure that the technology they use to facilitate remote testimony works with the Courtroom’s infrastructure. This includes, but is not limited to, establishing an adequate Internet connection and ensuring that the witnesses are able to hear questions from counsel and the Court. If the parties’ technology proves unreliable, or the arrangement of remote testimony proves too disruptive to the trial, the Court will not proceed with remote testimony.” Order, at p. 2.

In shorty, be there or beware and suit the software to the word.

When IRS wants to toss the SND because it names the disregarded LLC, rather than the trust which owns this microcaptive that allegedly insures the trust’s business operation, Judge Rose E. (“Cracklin'”) Jenkins strikes up the 101-year-old Isham Jones-Gus Kahn classic, a special request from the trusty attorney for Series JU of Oxford Insurance Company LLC, Docket No. 743-24, filed 8/19/25.

The SND names JU, claiming it isn’t an insurance company, so the reinsurance premium roundy-round cash stash is taxable. But JU’s trusty attorney, whom I’ll call Davy, says Reg. Section 301.7701-2(b) makes an insurance company a per se a corporation, however organized, hence not disregarded. OTOH, if it isn’t an insurance company, then IRS’ claim that it improperly applied Section 831 is inapplicable, and Reg. Section 301.7701-3(b) makes it disregarded, hence wrong party named.

So we need to find out if JU was or was not an insurance company to find out if the SND is valid. Clear? Thought not.

Judge Cracklin’ Jenkins says IRS put the cart before the horse. The questions are, did the SND evince determination of a deficiency, and if it did, would a reasonable taxpayer deduce that they were the taxpayer against whom said determination was made? These tests Tax Court propounded in U. S. Auto Sales, which Judge Cracklin’ Jenkins extensively cites and which I blogged sub nomine “Petition Everything,” 10/28/19.

“Contrary to respondent’s assertion, relying on U.S. Auto Sales, the Court’s caselaw addressing the validity of notices of deficiency leads to the conclusion that the notice of deficiency is valid. The notice of deficiency in that case identified one taxpayer in portions and a related but separate entity in other portions. 153 T.C. at 99. The Court concluded that although the notice made clear that a determination of deficiency had been made, it was not possible to determine from the notice which entity would owe the determined deficiencies. Id. Accordingly, the Court went on to consider whether the taxpayer had proven that there was a determination with respect to it. Id. Respondent introduced tax returns indicating that the determinations were with respect to the related entity, and the taxpayer admitted that the notice reflected as much but argued that errors in the notice did not invalidate it. Id. at 101. Because the notice did not reflect that the IRS had made determinations with respect to the taxpayer, the Court held that the notice of deficiency was not valid. See id. at 104.

“By contrast, the Notice of Deficiency reflects determinations only with respect to petitioner, the entity that received and reported the insurance premiums with respect to which the notice made the adjustments, making it internally consistent. Accordingly, a reasonable taxpayer would, and petitioner did, understand that the IRS had determined a deficiency with respect to it.” Order, at pp. 3-4.

No, I’m not ordering a round, and anyway I’m a Cardenal Mendoza man myself. But the story of the Family of Kaiyon, David & William Foundation, Inc., incorporated under Maryland law on July 24, 2018, and recognized by the IRS as a tax-exempt public charity under section 501(c)(3) as of that date, is the real foundation of my interest in the case of  Dax Xavier Johnson, T. C. Memo. 2025-87, filed 8/18/25.

Dax’s story is a simple indocumentado, a pro se trial where Dax didn’t provide IRS with documents but did provide some less-than-stellar testimony, or so Ch J Patrick J. (“Scholar Pat”) Urda finds. Read for yourself; I find Dax’s Foundation, for which he claims he provides services through his cleaning business and to which he makes heavy-duty cash contributions, really interesting.

“The roots of the Foundation lay in family tragedy, the death of Mr. Johnson’s nephew. As Mr. Johnson saw it, the Foundation’s mission was to find the killer of Mr. Johnson’s nephew. The Foundation completed its work and obtained justice for Mr. Johnson’s nephew in 2019.” T. C. Memo. 2025-87, at p. 2. (Footnote omitted).

As usual, the footnote is fascinating.

“We assume that the Foundation disclosed this alleged purpose on its application for exempt status filed with the IRS, that this purpose qualifies under section 501(c)(3), and that expenditures for this purpose do not involve any private benefit or private inurement to Mr. Johnson. Mr. Johnson did not state these contentions in a pretrial memorandum in compliance with our standing pretrial order nor did he otherwise disclose them to opposing counsel before the trial. Since we sustain the denial of the deductions on substantiation grounds, we need not reach these issues.” T. C. Memo. 2025-87, at p. 2, footnote 4.

As for those cash contributions, though Dax had a Section 170 CWA from the Foundation, “Mr. Johnson was himself a board member of the Foundation that produced the letter. We have no information, from Mr. Johnson or any other witness, about the Foundation’s records that underlie the representations in its letter. The letter states that ‘receipts indicate that your [year at issue] monetary donations total $43,258.” But we are unsure of the meaning of ‘receipts’ in this context, given that Mr. Johnson testified that he made his donations in cash, by his own payment for Foundation operations such as securing witness participation. He further testified that he, not the Foundation, retained the ATM receipts that allegedly corresponded to his donations. And the amounts reflected by the purported receipts seem unusual given that Mr. Johnson’s gross income totaled $76,927 in [year at issue].” T. C. Memo. 2025-87, at p. 12.

“(H)e testified that his contributions consisted of cash withdrawn from his bank account via ATM over the course of [year at issue] and then paid on behalf of the Foundation to various informants in return for information. Mr. Johnson explained that ‘if you’re dealing with something . . . as serious as murder . . . cash is usually how people want to be paid.’ Mr. Johnson further represented that he had retained withdrawal receipts, which he did not supply to the IRS or at trial.” T. C. Memo. 2025-87, at p. 5.

Judge Scholar Pat confessed this caused him to “begin with some skepticism.” T. C. 2025-87, at p. 11. I entirely understand.