If all the items giving rise to the deficiencies and underpayment are one spouse’s items, or s/he can’t prove they’re not, then Section 6015 innocent spousery is off the menu.

Fannie Wright, T. C. Memo. 2023-153, filed 12/27/23, is a disabled licensed practical nurse, whose late husband’s withholdings paid most of the taxes they owed. The problem was that for two of the three (count ’em, three) years at issue, Fannie’s SSDI was never reported, nor some “nominal” interest, so the SNOD covered those years. Year Three saw the SSDI reported, but a health care individual responsibility payment didn’t figure in, so late spouse’s withholdings didn’t stretch far enough.

Fannie’s trusty attorneys claim Fannie never consented to the joint returns for those years, having been deceived by late spouse.

Judge Gale: “…petitioner mistakenly conflates the grant of jurisdiction to review innocent spouse relief determinations in section 6015(e) with the conditions that she must satisfy to obtain such relief.” T. C. Memo. 2023-153, at p. 5. There was a claim for innocent spousery, a determination of the claim, and a timely petition here. As for relief, that’s another story: no joint return, no relief. But apparently that claim never gets very far.

Next trusty attorneys claim invalid assessments, but this is not the place to challenge them. In Year One, Fannie and late spouse both signed Form 5564 Notice of Deficiency – Waiver.  Fannie didn’t petition Year Two SNOD, so that’s gone. And Year Three was self-reported tax, but didn’t pay in full, so no SNOD; hence Fannie maybe so could fight that out in a CDP; see T. C. 2023-153, at p. 6, footnote 5 for that.

Getting to the point, all the items are Fannie’s. There’s no question about the SSDI. As to the “nominal” interest, “(T)he parties declined to present facts or arguments concerning to whom the interest income is attributable, and the notice is redacted so that we are unable to make the determination. Petitioner having failed to show the interest income is attributable to Mr. Wright, it follows it is attributable to her. Thus, the [ Years One and Two] deficiencies are entirely attributable to petitioner, consisting of her Social Security benefits and the interest income. She accordingly is ineligible for relief on that basis alone, and we will sustain Appeals’ determination denying relief under section 6015(b).” T. C. Memo. 2023-153, at p. 7. Ditto Section 6015(c).

So Section 6015(b) and Section 6015(c) relief are out. And because no obligation of the late non-requesting spouse remains, no equitable relief.

Edited to add, 12/28/23: Before anyone yells “what about hardship?” note this is a standalone. So far, no NFTL or NITL, so hardship is saved for a CDP.

Next month it’ll be just about thirty-five years since President Reagan left office, but his famous catchphrase has taken on its own life. “The seven most dangerous words in our language” are first set forth at the head hereof. Just ask Syd Ginsberg & Michelle Ginsberg, Docket No. 17920-22S, filed 12/27/23, an off-the-bencher from CSTJ Lewis (“Say It Loud!”) Carluzzo.

Syd & Michelle were part-time gamblers, and like all of their colleagues, they won some and they lost some. At end of year at issue, they were behind, so they netted gains and losses, and took the post-TCJA enhanced standard deduction.

Of course, the W-2Gs hit IRS’ computers, but not with the usual SNOD. IRS, graciously figuring that the allowable losses would have resulted in less tax due, unelected the standard deduction. IRS then recomputed tax as if Sched A had been filed, and gave Syd & Michelle a lower deficiency.

“Respondent’s approach, in this regard, actually benefits petitioners, although we doubt they feel in any way benefited from any action taken by respondent in connection with their [year at issue] federal income tax liability.” Transcript, at p. 5.

Syd & Michelle claim this unguided largesse resulted in a higher marginal tax rate, but CSTJ Lew isn’t going “that far into the weeds to examine whether the marginal tax rate applicable to the taxable income reported on the return is lower than the marginal tax rate applicable to petitioners’ taxable income as show [sic] in the notice, although we doubt that to be true. We have, however, reviewed the notice carefully enough to see that deficiency probably has little to do with any change to petitioners’ marginal tax bracket; instead the deficiency results primarily, if not entirely, from an increase to petitioners’ taxable income. And that increase in taxable income does not result directly from the manner that respondent has treated petitioners’ gambling winnings and losses; the increase results directly from the effective denial of the standard deduction claimed on the return. To the extent this has resulted in a higher marginal tax rate, the result is computational as might be the case with other adjustments to petitioners’ income made in the notice.” Transcript, at pp. 6-7.

You can’t take gambling losses against gambling winnings unless (a) you’re a professional (which Syd & Michelle don’t claim) or (b) you don’t take the standard deduction.

If you had a chat or two with your nonparty witness, a Tax Court-ordered deposition is a nonstarter, even if the nonparty has discoverable information, and the deposition would be more than a substitute for cross-examination on the trial.

Curtis K. Kadau & Lori A. Kadau, Docket No. 286-21, filed 12/26/23, claim they gave 7000 pages of relevant documents to IRS (including a written report from one of the nonparty witnesses), and that nonparty witness had two (count ’em, two) informal chats with IRS. That’s enough for Judge Christian N. (“Speedy”) Weiler; the nonparty need not attend.

“… the Court considers whether (1) the movant has established a specific and compelling basis for the deposition, (2) the movant intends the deposition to serve as more than a substitute for cross-examination at trial, and (3) the movant has had prior opportunities to obtain the desired information or could obtain it through other means or from another source.” Order, at p. 3.

The two informal chats were prior opportunities.

But the other nonparty must sit for the deposition.

This being the morning after the night celebrated in the Gruber and Mohr perennial, and a holiday in The City of the Stateless, I remain silent.

The trusty attorneys (whom I’ll call L&L) for Matthew M. Hutchings and Shari l. Hutchings, Docket No. 13321-20, filed 12/22/23, are on to something. Was the SNOD inartfully drafted, or is IRS trying to submarine the “goofy regulation” (Reg. Section 1.183-2(b), the hobby loss disallowance) into what seems like an ordinary indocumentado?

Judge Ronald L. (“Ingenuity”) Buch wants a hearing in the Mile-High City on L&L’s motions in Limine to Preclude Issues at Trial Not Raised in the Answer, and a Motion to Shift the Burden of Proof.

The Hutchings showed a Sched C net loss from their Happy Eating Nutritional Consulting Wellness Camp. But as the operation showed no income, the disallowance equaled the claimed expenses. Moreover, “(I)n his notice of deficiency, the Commissioner wrote that the amount was disallowed ‘because we did not receive an answer to our request for supporting information.’ In earlier correspondence, the Commissioner requested “copies of the records you maintained to substantiate the expenses you have claims under “other expenses” on your Schedule C.” The Hutchings highlight this chain of correspondence as indicating that the Commissioner’s notice of deficiency disallowed expenses for failure to substantiate.” Order, at p. 1.

Looks like a standard indocumentado to me.  Problem is, L&L are canny. “In November 2022, the Hutchings’ counsel wrote to counsel for the Commissioner, noting that the Commissioner seemed to be claiming that there was no trade or business.” Order, at p. 1.

Hence these motions.

So then present situation seems to reward ambiguous (not to say misleading) draftspersonship, and penalize the self-represented or those with counsel less sophisticated than L&L, who earn a Taishoff “Good Job.” Unhappily, good counsel are expensive (albeit not nearly as expensive as bad counsel), and these motions must have taken a few more than a couple hours (hi, Judge Holmes).

Taishoff says, Ch J Kathleen (“TBS = The Big Shillelagh”) Kerrigan can fix this by expanding Rule 51. It is now limited to permitted responsive pleadings. Rule 70 discovery should be reserved for fact-finding. There should be the equivalent of our State court bill of particulars: what is the substance of the claim? If this results in a shotgun approach from IRS, so be it, but at least petitioners’ counsel can prepare, without wasted motion.

Whistleblowing, tax division, has reached its final version in Whistleblower 972-17W, T. C. Memo. 2023-152, filed 12/21/23. Judge Emin (“Eminent”) Toro sends off 972-17W empty-handed with the headline first above written at the head hereof (as my expensive colleagues would say).

972-17W bombarded the Ogden Sunseteers, and IRS generally, with all sorts of leads. But the skullduggery IRS ultimately unearthed was not that which 972-17W gave them. And even if the info that 972-17W gave IRS caused them to look, it wasn’t specific to the delictions whence came the recovery.

“…even if we accept as true many of the disputed points that petitioner presses—including that (1) the IRS took a greater interest in Targets 1, 2, and 3 because of petitioner’s allegations and even opened examinations or investigations because of petitioner, (2) petitioner met frequently with CID agents who welcomed petitioner’s help, (3) CID Special Agent A once asked petitioner if petitioner would be willing to testify against Target 3, and (4) Target 1 once called petitioner to threaten petitioner and petitioner reported this conversation to CID Special Agent A—it would not be enough for petitioner to prevail. That is because the record before us is devoid of evidence that petitioner provided any specific information that substantially contributed to assessments the IRS actually made. See Lissack v. Commissioner, 68 F.4th at 1324.” T. C. Memo. 2023-152, at p. 22.

Blower, be specific.

Again, full disclosure: Mr. Lissack was once a client of mine in a wholly-unrelated matter many years ago.

I must again sigh, and shake my head, feeling deep within me sympathy for the practitioner who will be getting The Phone Call from Dzuy Nguyen and Jessica Thai, T. C. Memo. 2023-151, filed 12/20/23.

Dzuy and Jessica got a SNOD for two years’ worth of deficiencies and Section 6663 75% fraud chops (aggregating about $4.5 million). Their petition was handed to FedEx the day before Day 90.

Long-time readers of this my blog will by now have sussed out that Dzuy’s and Jessica’s petition was tossed for want of jurisdiction, as it got to The Glasshouse on the Potomac on Day 91.

Whoever sent it used FedEx Ground, and claims “mailed-is-filed, Section 7502.”.

Judge Albert G. (“Scholar Al”) Lauber delivers the bad news.

“Petitioners did not send their Petition to the Court by U.S. mail, but rather used FedEx, a private delivery service. Section 7502(f), captioned ‘Treatment of Private Delivery Services,’ provides that ‘[a]ny reference in this section to the United States mail shall be treated as including a reference to any designated delivery service.’ Section 7502(f)(2) defines a ‘designated delivery service’ to mean a private delivery service ‘if such service is designated by the Secretary for purposes of this section.’

“The IRS has published a list of all private delivery services that have been designated by the Secretary for purposes of section 7502. See I.R.S. Notice 2016-30, 2016-18 I.R.B. 676. This list includes certain forms of delivery made available by FedEx, but not FedEx Ground, the delivery service petitioners used. Notice 2016-30, 2016-18 I.R.B. at 676, specifically states that ‘FedEx . . . [is] not designated with respect to any type of delivery service not enumerated in this list.” Because petitioners did not use a ‘designated delivery service’ as defined by section 7502, they are unable to avail themselves of the ‘timely mailed, timely filed’ rule.” T. C. Memo. 2023-151, at p. 3.

Dzuy and Jessica claim Ground equals 2 Day (a designated service). But pore l’il ol’ Tax Court has no equitable jurisdiction.

“Unfortunately we must disagree. FedEx Ground may well be substantially similar to the FedEx 2-Day delivery service. But this Court may not rely on general equitable principles to expand the statutorily prescribed time for filing a petition.” T. C. Memo. 2023-151, at p. 4.

I’ve more than once advised the following: “Practitioner, print the list direct from the IRS website (not from my blog; no representation this is accurate), and paste the list over every desk in your office, with a warning that use of any other PDS is punishable by death, or such lesser penalty as the courtmartial may direct.”

I don’t know if Judge Ronald L. (“Ingenuity”) Buch is a fan of old showtunes, or if he remembers hearing the Jerome Kern – Dorothy Fields classic upon which I based my title above set forth. I expect he was too busy pursuing his illustrious academic and professional careers to bother with such trivia (not to say frivolities).

Nevertheless, if Tax Court Judges and STJs need an anthem, I suggest the above aforementioned as a title to the Rule 155 gavotte.

Judge Buch reprises Kristen L. Quevy, T. C. Sum. Op. 2023-34, corrected version filed 12/19/23. While IRS still wins, they can’t get an outright confirmance of the SNOD, because there were a couple concessions (hi, Judge Holmes).

So instead of decision for IRS, we have “decision will be entered under Rule 155.” T. C. Sum Op. 2023-34, at p. 7.

Da capo.

Judge Emin  (“Eminent”) Toro seems to echo Kurt Vonnegut’s famous quip, “‘To be is to do’-Socrates. ‘To do is to be’ — Jean-Paul Sartre.  ‘Do be do be do be do’ — Frank Sinatra.’” Once again, he’s confronted with the discovery maneuvers of the celebrated “Attorney/Professor/Author” and Tactician Daniel S. Jacobs, Docket No. 7118-19, filed 12/18/23.

Again, we’re reminded of 9 Cir’s take on the “substantially justified” rubric. It means justified to a degree that would satisfy a reasonable person. Of course, that’s more than just enough to slide under the Section 6673 frivolity tag. But Rule 33(b)’s “reasonable inquiry” requirement is a different pair of shoes.

“… the [Tax] Court expressed reservations concerning petitioner’s view that Rule 33(b)’s requirement that parties make ‘reasonable inquiry’ when preparing their pleadings affects the analysis with respect to the ‘substantially justified’ standard under section 7430. The former is directed towards the parties’ conduct during the litigation before our Court, and violations of the rule may cause the Court, in its discretion, to apply appropriate sanctions. The latter is a statutory rule that entitles a prevailing party to attorney’s fees as a matter of law if, among other things, the government’s position (as opposed to its conduct) is not substantially justified. Given that petitioner has moved for fees under the latter, the Court fails to see why respondent’s obligations under Rule 33(b) affect the analysis in these proceedings.” Order, at p. 2. (Emphasis by the Court).

Again, the issue is whether what IRS actually learned in the administrative proceedings, or would have learned if considered by a reasonable person (that quintessential legal fiction), would have altered, if at all, IRS’ answer to the petition.

“But our task does not include determining whether the administrative proceedings should have been conducted differently than they were. Nor does our task include deciding what the Commissioner might or might not have learned if the administrative proceeding had been conducted differently. The focus of the remand proceedings, based on the Ninth Circuit’s direction, is on the information Mr. Jacobs had already provided and the Commissioner had already received at the time the Commissioner filed the Answer.” Order, at p. 2.

So Judge Toro goes through interrogatories and document requests, and Dan goes 5 for 17, getting IRS to come up with more.

This is a useful template for seekers after admins and legals.

“I’ll try pottery for $253,741,” says Victor Attisha and Josephine Attisha, T. C. Memo. 2023-150, filed 12/18/23. It’s Vic’s story. Besides his legitimate credit card processing operation and ATM standalones, Vic and his partners were flogging boo and allegedly running the boodle through his Holy Moly Donut Shop (really; ya can’t make this stuff up). Enter the DEA and its Oakland County, MI anti-drug task force, who raid Vic’s operations with search warrants and haul away enough to cause Vic to cop to one count of Conspiracy to Manufacture, Possess with Intent to Distribute, and Distribute Marijuana in USDCEDMI. The Federales also grab $500K in cash from the Donut store and various bank accounts and safe deposits. Vic also gets a Section 6861 jeopardy assessment, which means no SNOD, but a ticket to Tax Court anyway per Section 6213(a).

There’s no records (Vic had some ledger sheets, but not specific), and almost no bank deposits. Vic claims IRS has no basis for the deficiency, but Judge Alina I. (“AIM”) Marshall finds Vic’s plea and the stuff DEA grabbed connects him to the potfloggery.  And the search warrants, plea, and whatever paper IRS was able to get from DEA was enough to support the assessment. Even hearsay or other inadmissible evidence can support a deficiency, lest clever crooks escape taxation.

Finally, Vic’s and his partners’ testimony vary widely. His explanation that he sold his credit card operation to his partners (hence the $500K in cash he got) founders when compared with the sale agreement. Now I’ve seen deals renegotiated at the closing to a point where the contract of sale bears zero relationship to the actual deal; but we’re always careful to document the variances, for ease of the CPAs and to enable our malpractice insurers to sleep soundly. Vic has no paper.

Vic loses.

Need I add that the sovereign State of Michigan legalized possession and use of marijuana (even for recreational purposes) the year after the year at issue?

I will spare my readers the political rant.

Edited to add, 10/3/25: Per Stipulated Decision filed May 5, 2021, it has been stipulated and agreed between IRS and all parties as follows: TO THE EXTENT IT IS DETERMINED THAT THERE IS A DEFICIENCY IN INCOME TAX AS WELL AS ANY PENALTIES DUE FROM PETITIONERS FOR THE 2017 TAXABLE YEAR, THE PARTIES AGREE THAT PETITIONER JOSEPHINE ATTISHA IS ENTITLED TO RELIEF FROM JOINT AND SEVERAL LIABILITY FOR THE 2017 TAXABLE YEAR PURSUANT TO I.R.C. §6015 (C).

This means that only her ex-spouse is liable for anything. AS I SAID IN MY ORIGINAL BLOGPOST, “THIS IS VIC’S STORY,” NOT JOSEPHINE’S.