Ex-Ch J L. Paige (“Iron Fist”) Marvel leads a microcaptive insurer around by the commnly accepted idea of insurance in Terence J. Keating and Janet D. Keating, et al., T. C. Memo. 2023-2, filed 1/4/24. Yes, there’s a real insurable risk (workers’ comp claims), and the microcaptive was organized and operated in accordance with the law of its domicile (Anguilla).

But the backdated documents, sliding-scale and exorbitant premiums, nonexistent or at best slapdash underwriting, roundtripping cash, and loans to principals of the captor seriously unmoor the captive from the Section 831(d) safe harbor. It isn’t insurance as commonly understood. And the microcaptive is a standalone corporation, so the captors can’t claim whatever legitimate cash it holds as a reserve for self-insured claims.

Ex-Ch J Iron Fist collates all the past microcaptive learning, from Rent-A-Center to Avrahami to Caylor Land to Reserve Mech. to Syzygy. I’ve blogged them all (or almost all), but ex-Ch J Iron Fist saved me the trouble of finding my blogposts, and you the trouble of reading them.

This opinion sets forth exactly how not to do it.

Looks like Tax Court is giving the Supremes the Galatians 3:25 treatment again, as an IRS miscue gives Douglas Dodson and Rebecca Dodson, 162 T. C. 1, filed 1/3/24, an extra 57 (count ’em, 57) days to petition the SNOD. IRS’ attempt to revoke the erroneous dating of SNOD 1 with SNOD 2 stumbles over the last sentence of Section 6213(a), which says the date IRS puts as the last day to petition controls. That sentence was added by the 1998 IRS Restructuring and Reform Act, the wonderful enactment that gave us the Boss Hoss. The idea was to help the hapless petitioner who couldn’t figure out when to file by having IRS give a date certain.

There were two purported SNODs, issued one day apart. Both listed the identical years and taxes. The only difference was that SNOD 1, mailed in October, listed last day as December of following year, rather than January of that year. SNOD 2 “bears a stamped date specifying January [following year], as the last day to file a petition. The second notice is accompanied by a cover sheet stating: “PREVIOUS NOTICE SENT WITH INCORRECT DATE. CORRECTED NOTICE WITH CORRECT DATES.” The second notice does not differ from the first notice in any other material respect.” 162 T. C. 1, at p. 3 (Footnote omitted, but it says pages were in different order in SNOD 2; apparently doesn’t matter).

Doug and Rebecca claim they never got SNOD 2, and have USPS printouts for SNOD 2, not showing delivery.

Ex-Ch J L. Paige (“Iron Fist”) Marvel deals with this summarily. SNOD 1 is clearly a SNOD; all boxes checked, and the date is clear. No consent by petitioners to revoke SNOD 1 and sub in SNOD 2, so Section 6212(d) and Rev. Proc. 98-54, 1998-2 C.B. 529, 530 (10/26/98) are off the table, whether or not Form 8626 must be filed.

And that Doug and Rebecca had counsel is nothing to the point.

“Congress could have used narrower means to advance the purposes motivating the enactment of the last sentence of section 6213(a), but it did not. The last sentence of section 6213(a) advances the avowed congressional purpose of enabling taxpayers to rely on the IRS’s computation of the period for filing a petition, which is more than enough legislative history for us to hang our hat on, proverbially speaking. It is not our role to question Congress’s choice of means in this regard…. Likewise, we see no warrant in the statutory text for considering whether petitioners are represented by counsel or prejudiced by the first notice, as respondent would have us do.” 162 T. C. 1, at p. 8. (Citation omitted).

Taishoff says Congress knew lawyers can’t add, either.

Petition timely at Day 147, 57 days late. What price Antawn Jamal Sanders, eleven seconds late? And where’s our disciplinarian?

Well, not enough people did, because he went broke. But his nonexistent bookkeeping and sketchy cooperation with IRS nearly got him a bushelbasket of unreporteds with Section 6663 fraud chops at no extra charge, until to the rescue drove Judge Elizabeth A. (“Tex”) Copeland.

You can read the story of Jesse Alvarado and Estate of Maria de Lourdes Velasquez, Deceased, Jesse Alvarado, Special Administrator, T. C. Memo. 2024-1, filed 1/3/24. The estate of the late Maria de Lourdes is stiped out per Section 6015 innocent spousery. Judge Tex Copeland takes IRS’ bank depositry and Cohanizes like a 2023 Dodge Challenger Hellcat SVT with the 6.2 hemi for only $76K (381 original miles).

When it comes to sorting out auction prices, finance company holdbacks and chargebacks, matching VINs to vans, and bearing heavily while giving Jesse the benefit of doubt due someone who “held a PTIN and prepared returns for some other taxpayers, and … was a commercial lender at Comerica Bank for over two decades.” T. C. 2024-1, at p. 23, Judge Tex Copeland is a grand master.

Judge Tex Copeland acquits Jesse of fraudulent intent. “However, a trained tax professional in Mr. Alvarado’s presumptive position—that is, palpably suffering business losses but  devoid of the records to prove it—reasonably could have believed his business would not have tax liabilities for the years in issue.” T. C. Memo. 2-24-1, at pp. 23-24. Tax pros are some of the worst at keeping their own records; shoemakers’ children never have clichés.

Jesse does owe the recomputed deficiencies, plus negligence chops and the late-filing add-on.

But when you read her opinion, and eyeball the 20 (count ’em, 20, and I have) pages of appendix, I venture to guess that you’ll agree with me that you might just maybe so buy a used car from Judge Tex Copeland.

Judge Morrison has an update for the followers of the 140 (count ’em, 140) pages of Charles G. Berwind Trust for David M. Berwind, David M. Berwind, D. Michael Berwind, Jr.; Gail B. Warden, Linda B. Shappy and Valerie L. Pawson, Trustees, et al., T.C. Memo. 2023-146, filed 12/4/23.

The corrected version, under date of 1/3/24, provides us with ‘the following revision on page 140, third full paragraph, last sentence: ‘Furthermore, under paragraph 182 of the stipulation, the amount reported by the David Berwind Trust for the Investment Income Components ($257,353) should be reduced to zero.'”

For the original version, see my blogpost “The Shortest Way With Dissenters, Redivivus,” 12/4/23.

I’m sure we’re all endlessly enlightened.

Proof of mailing of the SNOD to petitioner’s last known address is so essential to the entire Section 6213 deficiency operation that ex-Ch J L. Paige (“Iron Fist”) Marvel’s exhaustive review in Brent Jason, Docket No. 25576-16L, filed 1/2/24, is required reading. If the SNOD is petitioner’s ticket to Tax Court, proof of mailing thereof to petitioner’s last known address is IRS’ key to the Tax Court door. Here, IRS doesn’t have the key.

“The administrative record contains insufficient proof of mailing for the [years at issue] deficiencies. Respondent has not produced, for example, a United States Postal Service (USPS) Form 3877, Firm Mailing Book for Accountable Mail. Any indication in the administrative record that the IRS actually mailed the [years at issue] notices of deficiency to petitioner is limited to (1) what appears to be a USPS tracking number on the front page of each notice of deficiency and (2) AO G’s statement that an assessment was properly made for each tax and period.

“Under similar circumstances, we have soundly rejected the argument that these two relatively meager indications of mailing are sufficient to prove that the IRS actually mailed a notice of deficiency to a taxpayer.” Order, at p. 8. (Name, footnote and citations omitted, but get ex-Ch J Iron Fist’s somber reasoning and her copious citations of precedent; it’s a drag-and-drop for your memorandum of law in any disputed mailing case.).

I do have to wonder why no one at IRS ran down those USPS tracking numbers. Even if wiped from the USPS online searchable website, there might be some USPS record showing whether any item so denominated ever entered the mailstream, and if so what if anything happened to it. While a USPS printout might not satisfy ex-Ch J Iron Fist, it sure beats what IRS proffered.

IRS’ NFTL for years at issue is tossed; no proper deficiencies.

Additionally, IRS’ attempt to correct its assessment of years-at-issue deficiencies from the SFRs it issued to reflect Brent’s late-filed returns fails. IRS needed to erase the old assessments and make new ones, not try to abate in part the old ones. See Order at pp. 8-9.

Not a great start to 2024 for IRS.

Any reader recently arrived from Mars or farther is hereby advised that today is a public holiday in The Stateless District. Hence, the United States Tax Court is firmly shut, and so am I.

The outgoing year has been awash in examples of the Supremes’ laudable efforts to “’to bring some discipline’ to use of the jurisdictional label” in Tax Court petitioning. The effects, however, have been a wee bit short of the mark, as The Law of Unintended Consequences has scrambled the multiplex ways that petitions wend their several ways from aggrieved taxpayers to The Glasshouse in the City of the Taxed Unrepresented. And the race is definitely not to the swift.

Here’s Judge Goeke deciding, in an off-the-bencher, that three (count ’em, three) days late don’t matter in a deficiency case, where petitioner used USPS first class mail with no proof of mailing and told a good story at the motion-to-toss hearing.

Christian Harvey Chaussee, Docket No. 14763-22, filed 12/29/23, says he was in the US Post Office on Day 90, but the postage label he bought from the self-serve kiosk therein bore the wrong address. So he bought plain stamps and mailed his petition that day.

Brilliantly, instead of taking the defective label to the window and seeking a refund, he kept it. So by foregoing a 98 cent refund, Christian Harvey saves his petition.

“This position by the petitioner was corroborated by documents which he submitted, including evidence to show that he was in the Post Office on that date and that he did, in fact, purchase postage of 98 cents, which is consistent with his position that he originally purchased postage and then realized he had addressed the package incorrectly, and then subsequently mailed the correct package.” Transcript, at p. 5.

Even better, while the package reached The Glasshouse 114 (count ’em, 114) days after SNOD was mailed, it’s still OK.

“Respondent has stated in respondent’s motion that based upon their analysis and discussion with U.S. Post Office personnel, as well as other evidence, the estimated time of the package in Washington, DC would have been between June 6th and June 13th, 2022. The fact that this package was three days late and does not overcome the strong evidence that petitioner did, in fact, place it in the mail on May 21st, 2022. We deemed this evidence to be such that we should deem the petition as filed timely and consistent with section 7502.” Transcript, at pp. 5-6.

Judge Goeke stresses that Section 7502 was enacted to smooth out the vagaries of the postal service’s service. Mailed is filed.

So what price Antawn Jamal Sanders, who was eleven (count ’em, eleven) seconds late with his e-filed petition? Antawn got tossed. See my blogpost “In The Midnight Hour,” 6/20/23 for Antawn’s story. But Christian Harvey is in.

Discipline, anyone?

We know Section 7345 Tax Court review is limited to IRS’ certification of a “seriously delinquent tax debt. ” The actual passport grab comes from DOS. Most losing petitions result from IRS dropping the cert and telling DOS; the petition is therefore dismissed because Tax Court can’t grant any other or further relief, despite the creative efforts of counsel to backdoor CDP challenges and contest SNODs of long ago.

But Daniel Olin Nye, T. C. Memo. 2023-154, filed 12/28/23, is off the beaten path because Ch J Kathleen (“TBS = The Big Shillelagh”) Kerrigan actually reaches the merits of the cert and consequent grab.

Daniel claims he’s current with his IA payments on the “seriously delinquent tax debt,” which arose from a bunch deficiencies and TFRPs (hi, Judge Holmes, happy New Year) amounting (with interest) to a hundred grand.

And so he is, but that doesn’t save his passport. His IA “was conditional upon periodic reviews of petitioner’s current financial condition. See Internal Revenue Manual 5.19.1.6.5.4 (July 1, 2021).” T. C. Memo. 2023-154, at p. 3. Daniel was supposed to provide periodic updates, but didn’t.

“… respondent mailed petitioner a Notice of Intent to Levy for each of the years and periods at issue. The Notices of Intent to Levy stated that petitioner did not provide updated financial statements as required under the installment agreement. They notified petitioner that he could provide the updated financial statements or request a Collection Appeals Program hearing, but that failure to do either would result in the termination of his installment agreement. Petitioner neither requested a Collection Appeals Program hearing nor provided the requested information.” T. C. Memo. 2023-154, at p. 3.

After a nod to Van Bemmelen (scope and standard of review in Section 7623 whistleblowing; should it be imported to passport grabs?), Ch J TBS doesn’t need to go there, as either either way Daniel loses.

Daniel’s debts check all the Section 7345 boxes: over the $59K limit, certificates of assessment, NFTLs and NITLs with all review rights gone, and no financial updates.

Daniel claims he sent in the documents IRS wanted, but IRS says he didn’t, and Daniel has no evidence that he did. True, he is paying as agreed on the IA, but that isn’t enough.

So we still must await the revelation of the scope and standard of review in passport grabs.

David Villa and Juana M. Villa, T.C. 2023-155, filed 12/28/23, are fencing with Cohan, both as to Section 162 ordinary-and-necessaries and COGS (Cost of Goods Sold). David built fences in Texas, Cole Porter’s and David Fletcher’s 1934 hit to the contrary notwithstanding. David included only his 1099-MISC subcontracting income in his 1040 MFJ, and left out his direct fence-building checks and cash.

IRS didn’t, and gave him a SNOD.

Dave’s trusty attorneys claim COGS should be used to reduce gross income, not as a deduction. Judge Elizabeth A. (“Tex”) Copeland is down with that.

“Deductions from gross income—such as for ‘ordinary and necessary’ business expenses, see I.R.C. § 162(a)—are a matter of legislative grace and are allowed only to the extent provided by statute. By contrast, the reduction of gross receipts by cost of goods sold is mandatory (i.e., not a matter of legislative grace), as only income is taxable under the Sixteenth Amendment.” T. C. Memo. 2023-=155, at p. 6. (Citations omitted).

Trouble is, David deposited the checks he got for his direct fencing, and took out cash, wherewith to pay business and personal expenses, but couldn’t provide breakdowns. He could provide numbers from one recent job, and Judge Tex Copeland buys the extrapolated ratio of COGS to gross. But David’s inexactitude gives him a major hit, and the “other expenses” on his Sched C, though allowed by IRS, might lead to double-counting. See T. C. Memo. 2023-155, at pp. 6-7, to see how that works out.

And David gets the Section 6662 negligence chop, as his story that he thought he didn’t need to report or pay taxes on whatever he didn’t a 1099-MISC for is “too good to be true.”

The new summary J dodge seems to be redacting the documents presented to the Judge or STJ (seemingly on consent; see my blogpost “It’s All Yours,” 12/27/23), apparently hoping the missing information will avoid judicial scrutiny.

Except it doesn’t.

Here’s CSTJ Lewis (“Wotta Name!”) Carluzzo to tell you why, in CSI 3000, Inc., 32381-21L, filed 12/28/23.  The only remaining issue in this CDP case is the failure-to-pay-timely add-on, for which petitioner claimed reasonable cause, and which petitioner raised at Appeals in an abatement hearing, but was rejected prior to the CDP hearing.

“For purposes of cases such as this one, petitioner’s position is considered a challenge to the existence or the amount of the underlying liability. According to respondent, petitioner is not entitled to challenge the existence or the amount of the underlying liability in this proceeding because petitioner had a prior opportunity to do so. See I.R.C. section 6330(c)(2)(B). The administrative record shows that petitioner’s claim to abatement of the addition to tax on the basis of reasonable cause was considered and rejected by respondent’s Office of Appeals (abatement hearing) prior to the administrative hearing contemplated in I.R.C. section 6330. Much of the report generated from the abatement hearing has been redacted, apparently by agreement between the parties. Other than the outcome of the abatement hearing, the full extent of what occurred during that proceeding is not entirely clear.” Order, at p. 1. (Citation omitted).

IRS wants summary J, but when CSTJ Lew holds a hearing, IRS suggests remand as a fallback.

“We see little point in doing so. It is clear that respondent’s settlement officer considered petitioner’s claim, even if relying only upon the reasoning and outcome of the abatement hearing. If the parties are unable to reach an agreement with respect to petitioner’s underlying liability then the next step is to proceed to trial for a de novo review of petitioner’s challenge to the underlying liability.” Order, at p. 2.

Seems nowadays that only judges and journos take Section 7461 seriously.

Word to litigants on both sides: Tax Court proceedings are public, guys. The more you try to hide, the more you shine the spotlight. Tell the whole story; it’s so much easier.