IRS has six (count ’em, six) attorneys trying to defend a beyond-highly-contestable-reading of what it means for an easement to be perpetual. If I were counsel for Cattail Holdings, LLC, Cattail Holdings Investments, LLC, Tax Matters Partner, T. C. Memo. 2023-17, filed 2/14/23, I know I probably wouldn’t substantially prevail with an obviously phony valuation for this conservation easement on VA boondockery (Cattail says $40 mil, IRS’ appraiser says $3 mil), but I’d love to move for Section 7430 legals.

IRS says maybe there’s mining on the property, even though Judge Albert G (“Scholar Al”) Lauber overhauls the deed fore-and-aft and blows this off in a fashion so genteel as to bring a grimace to my battered visage.

“…respondent’s notion that the deed permits surface mining with [501(c(3)]’s approval strikes us as fanciful. Section 170(h)(5)(B) is captioned, ‘No surface mining permitted.’ It makes clear that allowing surface mining would be wholly inconsistent with the easement’s conservation purpose. Paragraph 3 of the deed explicitly prohibits ‘[a]ny activity or use of the Property inconsistent with the purpose of this Easement.’ In assuming ‘a contingent right to engage in surface mining,’ respondent thus posits that [501(c)(3)] might be faithless to its charitable mission by permitting Cattail to engage in activity explicitly barred by the statute. That is not a proposition that can plausibly be advanced in a motion for summary judgment.” T. C. Memo. 2023-17, at p. 7. (Footnote omitted, but my next sentence says it all).

Anyway, if the deed is ambiguous, then VA law says parol evidence can be introduced to show intent, and that’s a fact question. IRS wants summary J, so they’re not getting it.

Speaking of highly-contestable-readings, Cattail’s trusty attorneys are trying the Notice 2017-10 gambit. That was the general shot-across-the-bows warning the floggers of phony syndicated conservation easements that the bell tolls for thee. Section 6751(b) Boss Hossery requires the immediate supervisor of the RA to sign off before chops are breathed at the taxpayer. CCA learning says that must happen while supervisor still has authority, and no specific level of supervisor review is required. General notices not addressed to anyone specifically isn’t a determination of a penalty.

IRS gets summary J on Boss Hossery.

As I said two years ago, “(T)he punchline from a horrific but hilarious example of schadenfreude (the full text of which is manifestly unfit for a blog like mine, intended for family reading), tells the story.” And it unhappily fits the plight of Tony Patrinicola and Barbara Patrinicola, T. C. Memo. 2023-16, filed 2/14/23.

This is Tony’s & Pat’s fourth appearance on this my blog. None of the previous three (count ’em, three) sheds any light on the gravamen of Tony’s bœuf with IRS, so I’ll leave out references to any thereof.

It’s one word, and Judge Goeke, vice Judge David Gustafson, gets right to the point.

“… petitioners argue that the pension distributions are not subject to income tax because monthly pension payments are not taxable under a law that they refer to as the ‘Congressional Annual Notice of Monthly Pension Payments,’ which they understand to provide that ‘[m]onthly pension payments will be subject to Federal income tax withholding if the taxable portion of the sum equals to or exceeds are less than $1,990.00 per month. Your pension is not taxable if it is in the allowable range.’” T. C. Memo. 2023-16, at p. 3.

Judge Goeke says there ain’t no such statute or reg, but Tony focused on the wrong word.

“It appears that Mr. Patrinicola received information about withholding obligations from a payer of one of his pensions that resulted in a misunderstanding of his tax obligations. Federal income tax withholding is not the same thing as the federal income tax that is owed on the pension distributions. Withholding is the amount that the payer deducts from the pension payments and sends to the IRS on the taxpayer’s behalf. In general, pensions are subject to federal income tax withholding, but taxpayers can choose not to have federal income tax withheld. Taxpayers use Form W–4P, Withholding Certificate for Periodic Pension or Annuity Payments, to elect the amount of withholding from periodic pension payments to ensure the correct amount is withheld to satisfy their individual tax obligations. Alternatively, taxpayers may use Form W–4P to choose not to have federal income tax withheld from pension payments at the risk that they will not have paid sufficient estimated tax throughout the year to cover their tax liability on the pension and other income. Pension distributions are included in the taxable income regardless of the taxpayer’s decision regarding withholding.” T. C. Memo. 2023-16, at p. 3.

Taishoff says it’s ridiculous that it took four (count ’em, four) years since Tony & Pat petitioned, and 124 (count ’em, 124) docket entries, to get here. Yes, IRS conceded a whole bunch (hi, Judge Holmes) income items, plus chops. But all this for one word?

Or, How Much is a Brazilian?

Reg. Section 1.482-1(h)(2) is on the menu, in the crosshairs, and generally tearing up the peapatch at the Glasshouse on Second Street just now. Judge Albert G (“Scholar Al”) Lauber has a helping thereof with his order in Coca-Cola Company & Subsidiaries, Docket No. 31183-15, filed 2/14/23. The things-go-better types claim either the Reg is invalid (Chevron, y’know), or else their Brazilian sub, wherewith they parked their IP, qualifies so they can’t get royalties therefrom. Brazil conveniently blocks royalties.

My astute readers will doubtless exclaim, “Holy Post-It Notes, Batman! Didn’t we just have this with 3M?” Of course, they’re right. See my blogpost “Block That Income,” 2/9/23.

So Judge Scholar Al wants the Cokes and IRS to brief supplementarily the impact of 3M; and what would happen if certain dividends from Brazilian sub were deemed to be royalties despite 6 Cir shooting IRS down before Reg. Section 1.482-1(h)(2) was adopted on a like argument in Proctor & Gamble; and, if Reg. Section 1.482-1(h)(2) were held to be invalid,  how 11 Cir, whence Coca Cola is Golsenized, would play with this. Reply briefs are also OK.

Conundrums, conundrums. Btw, how much is a Brazilian?

Tanisha Trice, T. C. Memo. 2023-15, filed 2/13/23, got some SSDI, and a SSA-1099. The 1099-SSA showed some “deductions.” But whether those “deductions” were included in the (unreported) income IRS claims Tanisha got, and to what extent these “deductions” impacted the Section 25A(a)(2) Lifetime Learning Credit Tanisha claimed, is for Judge David Gustafson to decide.

And Judge Gustafson obliges me yet again, by proving that a lawyer can always find an ambiguity. Any lawyer that can’t, should find another way to make a living.

Tanisha admits to getting $13K of unreported SSDI, of which $11K (85%) is taxable,  but wants the whole $2K of Lifetime Learning Credit she claims. IRS says she got $15K, and the taxable number is $13K, not $11K. But the 1099-SSA says $3298 was “deductions for work or other adjustments.” No other explanation proffered. IRS wants summary J, but Section 6201(d) puts BoP on IRS, as Tanisha claims she only got $13K, and she doesn’t know what those “deductions” are. Third-party forms like 1099s can be disputed by recipients thereof, and if disputed in good faith, which Tanisha does, then BoP shifts.

IRS treats those “deductions” like FICA/FUTA/ITW on a W-2. Yes, the taxpayer didn’t get the money, but they are still included in taxable income. Form 1099-SSA does lend credence to that approach. And withholding $487 for Medicare tax is clearly income, so that adds to what Tanisha got.

Judge Gustafson: “However, neither the Commissioner’s motion nor the Form SSA–1099 shows what the other $2,811 of ‘deductions’ was nor whether the Commissioner’s approach achieves the correct tax treatment. The other ‘deductions’ that SSA supposedly ‘withheld’ here were not income or employment taxes. Rather, the form is explicit that zero taxes were withheld; and the amounts are described as ‘deductions for work or other adjustments’, which is not a sufficient explanation.” T. C. Memo. 2023-15, at pp. 10-11.

Tanisha has correspondence from SSA concerning wages she may have received that reduced the amount SSA paid her, so maybe she shouldn’t be taxed on the $2811. But Judge Gustafson doesn’t so hold. That’s a fact question for trial, as is the exact amount of reduction of Lifetime Learning Credit.

Takeaway- Watch those 1099s. Sometimes they show less than meets the eye.

Edited to add, 5/23/22: Judge Gustafson hands down an off-the-bencher, Docket No. 202398-19, filed 5/22/23, stitching up Tanisha. IRS occupied its idle hours between 2/13 and now by getting Tanisha’s bank statements, which show she got the $13K net. At issue is $1282 of the $2811 above stated. That, it turns out, is overpaid Medicare benefits. Tanisha skipped the trial, but her appearance really wasn’t necessary. The accounts tell the whole story.

Yeah, Roger That

Judge Emin (“Eminent”) Toro lets IRS put in a bunch blogposts (hi, Judge Holmes) as “newly discovered” evidence in Sidney Ann Cheney Thomas, 160 T. C. 4, filed 2/11/23, a post-7/1/19 Taxpayer First innocent spousery. Sidney Ann objects, and her trusty pro bono attorney from a NYC powerhouse firm suggests IRS could have found the stuff with a simple Google, so how come Section 6015(e)(7) “newly discovered” is in play?

Judge Eminent says IRS didn’t know about the blogposts until the de novo trial, and the due diligence standard of FRE 60(b)(2) is for motions to set aside trials and orders, hence too restrictive.

There’s the usual dictionary chaw, but “newly discovered” apparently means something in plain sight that IRS never bothered to look for.

Piling on, the Center for Taxpayer Rights, the Community Tax Law Project, the UC Hastings Low-Income Taxpayer Clinic, and the Villanova Federal Tax Clinic, file amici and say let it in. Most innocent spouses are pro se, know nothing of law and procedure, and can be sandbagged by nonrequestors. The CCISO isn’t a trial, no subpoenas, no document demands, no administrative law judges.

IRS says Appeals isn’t a litigant, but an arbiter; burden on requesting spouse. If requesting spouse hasn’t got the goods, why should Appeals hunt for evidence? IRS can start looking for evidence only when denied requesting spouse petitions, because that’s when we get a trial.

Judge Eminent lets it all in. Ch J Kerrigan, JJ. Foley, Gale, Paris, Morrison, Buch, Nega, Pugh, Ashford, Urda, Copeland, Jones, Greaves, Marshall, and Weiler are all down with this.

So is Judge Buch, but he points out with vivid illustrations how an innocent blogger-spouse can be sandbagged. If she blogs about how the nonrequestor beat her up, but doesn’t put in the blogposts, they can’t be “newly discovered” on the Tax Court trial de novo. On the other hand, an abused spouse, terrified by the abuser, may post all kinds of wonderful stuff that IRS can use to sink him or her. JJ. Ashford and Copeland join in.

Judge Ronald L (“Ingenuity”) Buch puts his finger on the ridiculous 6015(e)(7) mishmash, another example of Congress making a knife that does everything but cut.

“This provision was meant to resolve conflicting decisions amongst courts in innocent spouse cases, with some courts holding that an abuse of discretion standard applied while other courts held that the more taxpayer favorable de novo standard of review applied. Staff of J. Comm. on Tax’n, 116th Cong., General Explanation of Tax Legislation Enacted in the 116th Congress, JCS-1-22, at 11–13 (J. Comm. Print 2022). With the addition of section 6015(e)(7), Congress expressly adopted the more taxpayer favorable de novo standard of review. But it limited the scope of the review to the administrative record, except for newly discovered or previously unavailable evidence. In doing so,  Congress may have greatly reduced the putative innocent spouse’s ability to bolster his or her case as part of that de novo review. See Steve Milgrom, Innocent Spouse Relief and the Administrative Record, Procedurally Taxing (July 9, 2019), https://procedurallytaxing.com/innocent-spouse-relief-and-the-administrative-record/. As a result, Congress may have made it harder for a putative innocent spouse to challenge determinations denying relief. This would seem to run contrary to the stated purpose of the Act, to put taxpayers first.” 160 T. C. 4, at p. 18.

But word to my fellow bloggers: Everything you post will be used as evidence against you. Whenever, wherever, and by whomever, discovered.

All y’all will recall Dean Matty Vigon, and his potential moto perpetuo with IRS over his allegedly phony 1041s and the Section 6702 chops arising therefrom. What, no? How fleeting is fame. Well, cast yer peepers on my blogpost  “Crafty – Akin to the Weasel,” 7/24/17.

Obviously, the trusty attorneys for Revenue Guard Medical Management Claims, L. L.  C., Docket No. 7243-21L, filed 2/10/23, were aware of same, because when IRS tried to withdraw the filed tax lien, and Appeals asked IRS to abate the taxes, add-ons, and chops for the year at issue here, claiming the SOL had run, said trusty attorneys (whom I’ll call the StoneMacs) wanted STJ Diana L. (“Sidewalks of New York”) Leyden to moot the case specifically because the SOL had run, lest IRS try the Dean Matty weasel gambit.

STJ Di says all she can do is review what Appeals did (requested abatement of tax, add-ons, and chops) for abuse of discretion. And since there is no collection activity pending (the lien is withdrawn), Greene-Thapedi, y’all.

The StoneMacs say Appeals never ruled on SOL, only requested abatement, and the Revenue Guards are entitled to determination on liability.

“Petitioner’s argument against granting respondent’s motion is premised on unsupported concerns that the IRS may still try to determine and assess liabilities against petitioner for the tax year in issue. The Court does not have any statutory authority to act on hypothetical concerns. What the IRS did—issuing an invalid notice of deficiency, assessing tax, additions to tax, penalties, and interest, proposing a levy, and filing a federal tax lien—has been reversed. The notice of deficiency that had been issued was determined to be invalid, the tax, additions to tax, penalties, and interest were abated, and the federal tax lien was withdrawn. There is not any current action by the IRS that the AO did not consider or that can be considered by the Court.” Order, at p. 3.

Y’all will recall that IRS told Judge David Gustafson that they were going to play the weasel gambit again in a couple years (hi Judge Holmes). Here, IRS had the wit to keep silent.

Also, in this case there was a SNOD, even though defective (wrongly addressed), unlike the assessable Section 6702 chops in Dean Matty’s case. So no chance to contest liability. And Appeals’ NOD admittedly “… is far from clear and contains some contradictory statements.” Order, at p. 2.

But at close of play, STJ Di leaves the Revenue Guards and the StoneMacs to tickler (to use an obsolete term) this issue to some future date.

Those preparing to honor Ireland’s patron can get a warm-up the day before, namely, viz., and to wit, on Thursday, March 16, 2023, as Tax Court’s own Patrick, Judge Patrick J (“Scholar Pat”) Urda hosts a webinar “panel discussion…. The program will highlight issues and challenges implicated by the use of expert witnesses, and best practices for responding to them.”

Registration link on Tax Court homepage. No charge to attend, and open to all, USTC admittees or not. Alas, no CLE or CE credit, although there should be.

When foreign nations erect barriers to export of money, they’d better make it public. And when multinationals attack the Section 482 regs, they’d better aim at the current version. It takes the argute Tax Court bench 346 (count ’em, and I haven’t, so that’s why I’m asking you, 346) pages to say that, in 3M Company & Subsidiaries, 160 T. C. 3, filed 2/9/23.

3M, the Post-It note guys, weren’t collecting royalties from their Brazilian sub, claiming a couple Brazilian gov’t letters said they couldn’t. Judge Morrison does a factor-trudge through Reg. 1.482-1(h)(2) (2006) starting at page 222, and sinks that one.

Chevron testing gets a workout, with a heavy APA overlay, to knock out the reg. Ever since Oakbrook, the APA has featured on every menu when regulations are the flavor du jour.

Check out Judge Elizabeth A (“Tex”) Copeland’s concurrence, beginning at p. 281.

Of course, there’s a scholarly dissent by Judge Ronald L (“Ingenuity”) Buch, in which join JJ.  Patrick J (“Scholar Pat”) Urda, Courtney D (“CD”) Jones, Travis A (“Tag”) Greaves, and Christian N (“Speedy”) Weiler.

For sure they’ll be an appeal, as there’s enough Reals on the table. If 3M wins, it’ll be on the APA notice-and-comment issue.

Why don’t I say more? Because the trade press and the blogosphere will be all over this one, no need to go granular.

But A Question Remains

I never blogged James Harris, Docket No. 12818-22L, filed 2/9/23, when he visited The Glasshouse in the City of the Unrepresented sub num. 3596-18L, filed 5/23/19. As Judge James S (“Big Jim”) Halpern said at the time “(P)etitioner’s assignments are groundless, as are his objection to the MSJ [IRS motion for summary J]. The pages attached to his response to the MSJ are filled with ludicrous, frivolous arguments. Moreover, we are firmly convinced that petitioner instituted and maintained this proceeding to delay respondent in collecting unpaid Federal income tax that petitioner owes to the United States. Petitioner has wasted the Court’s and respondent’s limited resources and deserves a substantial penalty. We will, therefore, require petitioner to pay a penalty under section 6673(a)(1) of $15,000.” Order 5/23/19, at p. 6.

Ya think he paid? Nah, so IRS gave James a NITL, and Appeals gave him a NOD, both at no extra charge. James petitions, but CSTJ Lewis (“Wotta Name!”) Carluzzo, taking judicial notice of James’ antics in the 3596-28L case as set forth in the record thereof, isn’t buying it.

“Although petitioner did not reference the requirements by statute, it is clear that his position is based upon respondent’s obligations under section 6751(b). That statute requires supervisory approval of a penalty imposed by respondent before the penalty can be assessed. Petitioner’s reliance upon that statute, however, is misplaced. Section 6751(b) applies to penalties imposed by respondent. The penalty here in dispute was imposed by Court order.” Order, 12818-22L, at p. 5.

Boss Hoss, back to the stable. Levy sustained.

But I still question what authorizes an IRS levy to collect this penalty. Section 6673(a)(1) says “the Tax Court, in its decision, may require the taxpayer to pay to the United States a penalty not in excess of $25,000.” That Judge Halpern did. And IRS routinely enforces Tax Court decisions…when it comes to taxes, and add-ons, chops, and interest pertaining to taxes. But Section 6673 relates to tactics that impair the orderly proceedings of Tax Court, which is independent of Treasury and the IRS. Nowhere can I find a statute authorizing IRS to act as a collection agent for Federal Courts, be they Article Ones or Article Threes. Doesn’t the US Marshal Service act as would a State Court marshal or sheriff in levying on property pursuant to court order, decision, or judgment, per 28USC§564?

What am I missing here?

Lest I be misunderstood, I am not turning my blog into a school for protesters, wits, wags, wiseacres, rounders or dodgers. Nor am I playing the clown, at least not intentionally. But I am a lawyer, and have been…it’ll be 56 years next month. A Constitutional government means even the aforesaid, and worse, are entitled to due process of law.

I would be most obliged to be shown by what statute IRS has jurisdiction to collect a Section 6673 penalty.

Though Judge Emin (“Eminent”) Toro concurred in result in Green Valley, 159 T. C. 5, based on his reading of Section 6707A, he still likes the majority opinion enough to grant partial summary J to Seabrook Property, LLC, Seabrook Manager, LLC, Tax Matters Partner, Docket No. 5071-21, filed 2/8/23, knocking out Section 6707A chops because IRS flunked APA 5 USC §§ 551–559, 701–706 notice-and-comment for Notice 2017-10, wherein IRS tagged the Seabrooks’ dodge as a syndicated conservation easement dodge, a Dixieland boondockery, setting up enhanced nondisclosure chops.

For the Green Valley histoire, see my blogpost “Listing Is Legislating,” 11/9/22.

Seabrook and IRS agree that the donation was qualified: it was a real estate interest given to a 501(c)(3) per Section 170(h)(1). So far summary J to Seabrook.

But IRS claims Green Valley was wrongly decided. The kerfuffle here involves IRS’ listing of pre-American Jobs Creation Act of 2004 (AJCA) dodges. Did Green Valley knock out those? If so, what about retroactivity of Section 6501(c)(10) SOL, and 6404(g)(2)(E) excluding suspension of interest that would otherwise apply under section 6404(g)?

Judge Eminent says, negatory, we never said pre-AJCA chops were out. We only held that Notice 2017-10 was legislative and therefore needed notice-and-comment.

“… the Court’s analysis in Green Valley was premised on our determination that Notice 2017-10 was a legislative rule. See Green Valley, 159 T.C. slip op. at 8–15. (Legislative rules, unlike interpretive rules, are subject to the APA’s notice and comment procedures.) This conclusion in turn relied on provisions (like section 6662A) that changed the import of designating a  transaction as reportable or listed, imposing significant consequences based on that designation. See, e.g., id. at 5 (summarizing penalties under section 6662A). Many of these provisions were enacted or modified by the AJCA and did not previously appear in the Code. See id.  at 9–10 n.8; see also id. at 36 (Toro, J., concurring in the result) (“When it adopted the AJCA in 2004, Congress established new penalties . . . .”). As a result, although the Court has not had occasion to decide this point, the notices issued to identify reportable and listed transactions before the AJCA might be viewed as interpretive rules not subject to the APA’s notice and comment procedures.” Order, at pp. 3-4.

Taishoff says I ain’t so sure about that one, Judge. And Judge Eminent eases sheets a wee bit.

“… regardless of whether pre-AJCA notices are considered legislative or interpretive, when Congress enacted section 6707A(c) (the AJCA provision that defines reportable and listed transactions), it specifically referred to determinations made ‘under regulations prescribed under section 6011,’ I.R.C. § 6707A(c)(1), and ‘transaction[s] specifically identified by the Secretary as . . . tax avoidance transaction[s] for purposes of section 6011,’ I.R.C. § 6707A(c)(2). The IRS’s pre-AJCA notices identifying reportable and listed transactions generally were issued pursuant to regulations under section 6011. See, e.g., I.R.S. Notice 2000-60, 2000-49 I.R.B. 569 (citing Temp. Treas. Reg. § 1.6011–4T(b)(2)). And so, while the Court has not had reason to rule on this issue, one could interpret the statutory references and the AJCA provisions as a whole as blessing and incorporating the notices the IRS had already issued before the effective date of the AJCA. This reading of the statute would give full effect to the effective date provisions the Commissioner cites, while still requiring the Commissioner to comply with the APA after the effective date of the AJCA, as the Court concluded in Green Valley.” Order, at p. 4.

Oh, what a jolly silt-stir that would be, to knock out every IRS dodge-tag for the last 23 (count ’em, 23) years. Every dodger and dodgeflogger would be yelling for a refund. A blogger’s dream.

Oh yeah, Seabrook wins.

Nothing like judges trying to “bring some discipline” to the wrinkled skin of tax law.