My readers will doubtless recollect that Judge Mark V Holmes went easy on the daughter of Ernesto P. Patacsil and Marilyn E. Patacsil, T. C. Memo. 2023-8, filed 1/17/23, a year ago December, when she used her Mom’s recordkeeping described at the head hereof. If not, see my blogpost “The Shoebox – RedWeld System,”12/8/21.

Unhappily, Mom and Dad had previously suffered an audit and a Tax Court defeat affirmed by 9 Cir, and another visit for another year, in all of which they came unglued by virtue of the recordkeeping system (or lack thereof) which saved daughter Maryann from the chops.

The Patascils put in none of the envelopes nor their enclosures for any year at issue, and so got no more than whatever IRS gave them.

IRS did get it wrong on a claimed loss from a foreclosure sale of some investment property. CA’s anti-deficiency statute (that’s personal liability of the mortgagor when the foreclosure sale nets less than the indebtedness) makes the debt nonrecourse, so must be added to sales price, which might yield taxable gain. IRS only disallows the claimed loss, and Judge Holmes sticks them with that. Moreover, for another year and another property, the third-party reporting evidence IRS put in utterly failed to substantiate the claimed COI in the SNOD. The Patascils failed to raise the issue at trial but Judge Holmes helps them out with “tried by consent.”

They didn’t give their new accountant all the info to calculate their insolvency defense to the COI income, so whatever IRS substantiated stands. Likewise their claimed NOL fails for want of election not to carryback, but since the Patascils aren’t tax experts they could reasonably rely upon their CPA preparer’s advice to take the carryforward (which under current law they could do, but not for the years at issue).  

Of course, I can’t let Judge Holmes off without a rebuke for “a couple unusual issues.” T. C. Memo. 2023-8, at p. 4. The partitive genitive must be preserved.

My text today comes from the 1967 Brothers Gibb’s classic, as today is a public holiday pursuant to proposed Rule 25(a)(5). Wherefore, neither opinion nor order will issue from The Glasshouse in the City of the Taxed Unrepresented, not even a press release.

So I too am silent.

I find it astonishing that it could take a year to correct a typographical error. Exactly how great the error was to begin with I cannot tell, as the stipulated decision which gave rise to said error is not accessible on DAWSON, the new, improved, jim-handy (don’t get me started) Tax Court portal.

Howbeit, that which was erroneously filed on January 20, 2022, is corrected on January 13, 2023, in Trevor Isaacs & Carmen Isaacs, Docket No. 6642-21. And there the correct numbers are given. Why stipulated decisions are not shown in full on DAWSON eludes me.

Neville Shute’s 1950 classic forms the background for Cory s/a/k/a Corey Smith, T. C. Memo. 2023-6, filed 1/12/23. Corey a/k/a Cory is also a returning customer, as Cory a/k/a Corey starred in my blogpost “Unclosed?” 8/25/22.

Corey a/k/a Cory is offered housing in Alice Springs, Northern Territory, Australia, which he takes. He’s there as a spy-in-the-sky for Raytheon, and claims his housing off-base is for the convenience of employer, and therefore excludable under Section 119.

It’s facts-and-circumstances, but the question is what work did Corey a/k/a Cory do at home. And the key-fob that let him into the Raytheon cyberloop from home to do employee evaluations, timesheets, and mandatory job training isn’t enough; you have to be on-premises by day and by night, and Alice Springs is too far from the jobsite to qualify.

We saw a variant of this play out here in The Empire State recently. A tough bar to clear.

Judge James S. (“Big Jim”) Halpern has a repeat visitor, Joseph DeCrescenzo, T. C. Memo. 2023-7, filed 1/12/23. Joe was here ten (count ’em, ten) years ago; see my blogpost “NOL a Nullity,” 2/27/12. The results of the encounter therein described echo, in giving Joe chops for the underpayments of tax arising from his ignoring that decision, but Joe escapes the remaining accuracy chops that IRS wants to wild-card in.

Joe wants to quibble about the SNOD he got, claiming IRS has no jurisdiction to assess tax against him, fails to make a determination as to him, and contains information about others. These Judge Big Jim kicks to the curb; he does give Joe a going-over on his opening brief. Read T. C. Memo. 2023-7, at p. 3; don’t let this happen to you.

But all that Joe and his trusty attorney are arguing is the validity of the SNOD. And as long as the SNOD has the tax and the year, that’s enough. Judge Big Jim tells the story at pp. 14-16.

Joe gets a $5K Section 6673 frivolity chop, based on his ten-year-old visit to Tax Court. But IRS fails to negate any reasonable cause or good faith argument Joe might have had for his uncontested miscues. As IRS raises all the accuracy penalties in the answer, IRS has BoP. IRS never asked Joe about reasonable cause or good faith on the trial, so did not sustain BoP.

Note to a colleague: Mr. Press, this was one of yours.

A casual observer mightn’t notice, but US Tax Court is a “medley of extemporanea,” variegated, with curious sidelights and unexpected appearances.

As I scroll through the coming attractions (SPTOs), I notice Floyd J. Mayweather, Docket No. 10353-22, filed 1/11/23. It is, of course, possible, that among some hundreds of millions of taxpayers, two or more persons might have the same name as a well-known boxer and fight promoter. They might even both have disputes meriting a visit to Tax Court’s trial session in Las Vegas, NV.

I am sure the Las Vegas bookies will give you odds; Taishoff says don’t take the bet.

I hope this one goes to trial: should be good blogfodder.

I had thought that Mandy Mobley Li, 22 F.4th 1014 (DC Cir, 2022), had put paid to any attempt at Section 7623 whistleblowing; all the Ogden Sunseteers needed to do was say “got no cash,” and the blower was done.

But the hardcore blowers, however battered and belittled by Chief Whistler John W. (“Hoppin’ John”) Hinman’s myrmidons, persist. And a leader of the pack is Suzanne Jean McCrory, Docket No. 12264-21W, filed 1/10/23.

It’s only a Standing Pretrial Order (SPTO), one of the ninety-eight (count ’em, ninety-eight) issued today by Judge Courtney D. (“CD”) Jones. But it’s the only whistleblower case in the bunch. And I’m prepared to wager at least a couple ales (hi, Judge Holmes) in Jake’s Saloon that this one actually goes to trial, unlike the vast majority of the hundreds of SPTOs issued today.

I’m surprised IRS didn’t seek summary J, but I haven’t seen the petition and answer (and can’t, as ex-Ch J Maurice B (“Mighty Mo”) Foley sealed the whole shebang last September). So who knows what the story might be.

Hurray for the hardcore blowers, who give me blogfodder on a day when Tax Court issues 574 (count ’em, 574) orders, no opinions, and only Suzanne Jean giving me anything worth reporting.

Sub S corporations are pass-throughs; tax incidents flow through to the shareholders. But when shareholders pay the expenses of the business, which ostensibly belongs to the S Corp, who gets the deduction? And it matters, because if the deductions belong to the shareholder and not the S Corp, they’re unreimbursed employee business expenses. These were subject to the 2% AGI limit pre-1/1/18, and so it was with Kyle D. Simpson and Christen Simpson, T. C. 2023-4, filed 1/9/23.

Judge Courtney D (“CD”) Jones does a lot of slicing and dicing of expenses over three (count ’em, three) different tax years. Kyle and Chris claim accountable expenses reimbursement plan with their Sub S. Even though such arrangements need not be in writing, Kyle and Chris come up short on proof.

Judge CD Jones: “While a shareholder may identify his interest and business with those of the corporation, they are legally distinct and, ordinarily, if he voluntarily pays or guarantees the corporation’s obligations, his expense may not be deducted on his personal return. Such payments, absent any fixed obligation for repayment, are generally regarded as a contribution to the capital of a corporation and are deductible, if at all, by the corporation. However, a corporate resolution or policy requiring a corporate officer to assume certain expenses indicates that those expenses are his rather than the corporation’s.” T. C. Memo. 2023-4, at p. 10. (Citations omitted).

The question is whether the expenses confer future benefits or are made to acquire or create a capital asset. If for ordinary operations, they are expenses of the corporate employees. Kyle and Chris do get one year’s home office deduction, but only as unreimbursed employee business expense.

This result would definitely be a stinger post-1/1/18, as unreimbursed employee business expense deductions are off the table until 1/1/26.

But Paul C. Wondries and Patricia Wondries, T. C. Memo. 2023-5, filed 1/9/23, managed to find Mr. Palm, ranchero extraordinaire, to manage their multi-millon-dollar cattle ranch. Even though said ranch ended up with neither hat nor cattle, but with a bushelbasketful of operating losses, Paul and Pat shoot the “goofy regulation” slalom, and get their loss deductions from Ch J Kathleen (“TBS = The Big Shillelagh”) Kerrigan.

Paul is a turnaround king in the car business. Starting with one dealership, he bought fourteen (count ’em, fourteen) losing dealerships and turned around a dozen, T. C. Memo. 2023-5, at p. 11. He was making heavy-duty money from his car business, which he needed, as the ranch was hemorrhaging cash. The drought that came after he bought the ranch, and the inability to use the ranch for trophy hunting, didn’t count for post-purchase unforseeables, but rather poor planning, so no help there.

But Mr. Palm the manager saves the day. Mr. Palm had a great track record managing cattle ranches, and Paul kept records and oversight sufficient to show that he meant business. And he didn’t have too much fun, although that was a close-run thing.

My colleague Peter Reilly, CPA, can add this to his list of successful defenses to the hobby-loss attack, the Great Manager countergambit.

While I’ve often intoned the truism that “lawyers can’t add,” because, I suppose, if they could add they’d be CPAs like my colleague Mr Peter Reilly, there are judges who can add. I’ve chronicled those as they’ve picked and nitpicked their way through attorney solecism, error, and sloppiness.

But that’s not to say that even those jurists whose arithmetical skills are professional grade enjoy it.

Judge Elizabeth A. (“Tex”) Copeland, no slouch with a column figures (hi, Judge Holmes), eschews doing the numbers for Harbinder S. Brar & Barbara P. Brar, Docket No. 21908-19, filed 1/6/23.

Harb & Barb have stiped out their officers’ comp numbers with IRS, so their passthrough Sub S profits are reduced, which they claim is a wash. They’d like partial summary J on that point. While that clearly falls well short of “such rarefied heights of pure mathematics that it is said that there was no man [or woman] in the scientific press capable of criticizing it,” Judge Tex Copeland won’t go there, giving Harb & Barb (and us as well) a lecture on why we have Rule 155 beancounts.

“At this point, there are a multitude of additional adjustments at issue that remain to be decided and will affect the tax computations.  While it seems obvious that the increased wage income and the corresponding reduction in pass-through income that resulted will directly offset, it is better left for conclusion of the case when Rule 155 computations are submitted to the Court. It is both premature and wasteful of judicial resources to have hearings over the calculation of the tax impact of each individual adjustment to income, when many times adjustments are interrelated. For the foregoing reasons, we will deny Petitioners’ Motion for Partial Summary Judgment, as supplemented and as modified by the parties settlement of issues. Petitioners will be afforded full opportunity to renew any computational objections at the conclusion of this matter under the parameters set forth in Rule 155.” Order, at p. 2.

In short, “…the Court is tasked with finding facts and making conclusions of law, not with calculating taxes as Petitioners’ Motion desires.” Order, at p. 2.

She doesn’t do numbers and she doesn’t fill out returns.