Judge Albert G (“Scholar Al”) Lauber has mastered many puzzles. Expert witnesses and the wrinkly skin of tax law hold no peril for Judge Scholar Al. But today he outdoes himself. He deconstructs that terror of the self-reporting, the infamous Social Security Benefits Worksheet—Lines 6a and 6b.

Charles Lin and Amy Lin, T. C. Memo. 2023-37, filed 3/21/23, didn’t bother reporting any taxable social security benefits. Along with blowing off their real estate losses (claimed taxes and depreciation on entire building without providing any allocation to rented space), Judge Scholar Al does both a number and the numbers on Charles’ and Amy’s social security, parsing each subsection of Section 86 to provide chapter and verse for each calculation.

Judge Scholar Al nimbly hopscotches through such twice-tangled locutions as “Section 86(a)(1) generally provides that, for any taxpayer described in subsection (b), gross income includes Social Security benefits in an amount equal to the lesser of (A) one-half of the Social Security benefits received or (B) one-half of the excess described in subsection  (b)(1).” T. C. Memo. 2023-37, at p. 7.

Judge Scholar Al’s calculations and explanations are found at pp. 7-9. Every practitioner ought to have this in the toolkit in case the software crashes.

The Amended Tax Court Rules of Practice and Procedure bring Rule 147 into the Twenty-First Century with the amendment to Rule 147(a)(3): “Notice to Other Parties Before Service. If the subpoena commands the production of documents, electronically stored information, or tangible things, then before it is served on the person to whom it is directed, a notice and a copy of the subpoena must be served on each party.”

It’s been almost eight (count ’em, eight) years since Judge Mark V Holmes and I began our campaign against the Stealth Subpoena, which old Rule 147 permitted by omitting the FRCP Rule 45(a)(4) notice to all parties where production of documents or things is sought. See my blogpost “The Stealth Subpoena,” 7/16/15.

Even though then Ch J L Paige Marvel bawled me out at a Tax Court Judicial Conference for mentioning the anomaly, I’m glad Judge Holmes’ and my pertinacity have finally prevailed.

Judge Emin (“Eminent”) Toro is loath to unload a Section 6673 chop on Kimberly Stoltz, Docket No. 5618-21, filed 3/20/23 (Happy Palindrome Day!). Kim was “courteous” on the trial (Transcript, at p. 16), and that caused Judge Eminent to “take no pleasure in imposing this penalty.” (Idem.)

But Kim had been warned pretrial that her wages-aren’t-taxable arguments have been shot down every time, and she went forward with them anyway.

And Kim was looking at non-filing, nonpaying, and non-estimated add-ons besides the deficiency, all of which she got.

Judge Eminent carefully reviews the Leyshon factors (see my blogpost “Another Rounder’s Day, 6/3/15), and can’t cut Kim any slack. $500 Section 6673 chop.

Looks like there may be a crackdown on frivolities at The Glasshouse on Second Street, NW.

Ex-Ch J Maurice B (“Mighty Mo”) Foley’s farewell to chieftainship in the Court he has served so well has finally been accepted by his successor, Hon. Kathleen (“TBS = The Big Shillelagh”) Kerrigan. Here are the Amended Tax Court Rules of Practice and Procedure.

Check it out. Effective as of 3/20/23.

Here’s how the Court responded to the comments received.

Bringing, I hope, a logical, practical answer to the conundrum I’ve spent too much time unscrambling, and incidentally wasting my readers’ time, CSTJ Lewis (“A Name As Brilliant As The Man”) Carluzzo briefly and convincingly slips the Gordian knot binding how and when to administer chops for delay of the game and frivolity.

Andrew Ethan MacTaggart, Docket 7648-22L, filed 3/17/23 is a protester-type rounder. He was in Tax Court a couple years ago (hi, Judge Holmes) with his wages-aren’t-taxable and the-right-guy-didn’t-sign-the-paper arguments, all which earned him a bunch Section 6702 frivolity chops. Transcript, at p. 8, par. 13.

Nowise daunted, Andy E. is back with the same merchandise, and it doesn’t sell this time either. CSTJ Lew: “Petitioner next argues that the compensation he received as an employee …is not subject to federal income tax. Suffice it to state that it is, see section 61(a)(1) and the many cases cited in the respondent’s pretrial memorandum applying that statute, and nothing else need to be said on the point in response to his argument.” Transcript, at p. 6, par. 7.

But the point (yes, there is one; I’m almost getting cogent in my old age) comes after IRS folds certain Section 6702(a), but leaves others on the table. Then IRS makes an oral motion for imposition of Section 6673 frivolity chops on top. Given the record here, that’s not an off-the-wall ask.

But CSTJ Lew sees the true goal of all Tax Court proceedings.

“Petitioner certainly deserves the imposition of a section 6673 penalty in this case, but we are concerned that the imposition of a section 6673(a) penalty in any amount could cause yet a further delay in the collection of justifiable and long overdue federal tax liabilities that petitioner owes. That being so, respondent’s oral motion will be denied.” Transcript, at p. 11.

To be sure, the “just, speedy, and inexpensive determination of every case” is important. But, like freedom, it isn’t free.

So collect the revenue. Yes, the scarce resources of Tax Court cannot be squandered, nor the Court’s orderly procedures disrupted, to satisfy juvenile rounders’ antics. But having their goods grabbed also encourages the recalcitrant to get with the program.

Grab them by their wallets, and their hearts and minds will follow.

An IRS partial summary J motion works in Nassau River Stone, LLC, GH Manager, LLC, Tax Matters Partner, T.C. Memo. 2023-33, filed 3/16/23. FL boondockery this time; Judge Albert G (“Scholar Al”) Lauber finds whoever had to sign when did sign when. How closely they looked at what they signed before they signed doesn’t matter. Boss Hossery OK.

“Petitioner alternatively contends that RA K should not be regarded as having made the ‘initial determination’ because his case activity record ‘shows that he spent only 64 hours on [p]etitioner’s [a]udit.’ But section 6751(b)(1) does not inquire into the depth or comprehensiveness of IRS officers’ review; it simply requires supervisory approval of the penalty recommendation. As we have said before: ‘The written supervisory approval requirement . . . requires just that: written supervisory approval.’ We have repeatedly rejected any suggestion that a penalty approval form or other document must ‘demonstrate the depth or comprehensiveness of the supervisor’s review.’ We do not second-guess the extent of the RA’s or the supervisor’s deliberations about whether penalties should be imposed. We confine our search to seeking evidence of written supervisory approval.” T. C. Memo 2023-33, at p. 8, footnote 3. (Name and citations omitted, but the cites are all cases I’ve blogged).

So before you ask “So what else is new?”, check out how Judge Scholar Al describes the Nassau Riverines’ seven (count ’em, seven) trusty attorneys’ attempts to raise questions of fact in this procedural joust.

“Petitioner struggles mightily, but in vain, to gin up a dispute of material fact.” T. C. Memo 2023-33, at p. 6. “Tilting at windmills, petitioner vainly probes for a dispute of material fact.” T. C. Memo. 2023-33, at p. 9.

“The ‘presumption of regularity’ likewise supports the actions of the IRS officers here. ‘The presumption of regularity supports the official acts of public officers and, in the absence of clear evidence to the contrary, courts presume that they have properly discharged their official duties.’ It remains a well-settled rule that ‘all necessary prerequisites to the validity of official action are presumed to be complied with.’ * * * * Petitioner offers no evidence, much less ‘clear evidence’, to overcome this presumption.” T. C. Memo. 2023-33, at p. 10. (Copious citation of precedent omitted).

The point (and yes, I have one, for a change)? Judge Scholar Al shows the Nassau Riverines no Section 6673 yellow card, no Rule 33(b) OSC, not even a tiny reprimand, for eleven (count ’em, eleven) pages of wasted valuable Tax Court time and electrons.

But there’s a $17 million syndicated conservation easement deduction here. When Alberto and Virginia Delgado were fighting over a $49K employment discrimination settlement, Judge James S (“Big Jim”) Halpern laid an OSC on them and their counsel without any visible notice or warning for a delay-of-the-game chop, for arguments no more windmill-worthy than what was raised here. See my blogpost “Why The Chop?” 3/13/23.

Now lest I be misunderstood, judges have to run their own divisions without constantly looking over their shoulders. Trial judges see and hear the parties and counsel. They have to deal on the spot with the honest but ignorant pro ses, the rounders, wits, wags, and wiseacres, inept counsel, extras from Judge Judy reruns who wandered into the wrong courtroom. I don’t want a set of rigid guidelines for off-the-bench chops.

What I do want is a warning, whether in a previous case, a pretrial phoneathon, an order, or from the bench in a hearing, and a chance, however brief the circumstances require, for the errant litigant or litigator (or both), to repent and cure the transgression. If any remain obdurate, then let judicial wrath descend upon them heavily.

Judge Patrick J (“Scholar Pat”) Urda and Judge Albert G (“Scholar Al”) Lauber were joined by litigators from the private and public sectors (one each) for a causerie on expert witnesses. Practitioners found it interesting.

The SPTO paragraph 4 calls for a motion to file an expert witness’ report. Apparently some practitioners just file the report, others just file a notice of report and file, and some actually comply with the order. Judge Scholar Al said he didn’t mind not having to stamp yet another motion GRANTED, and the matter was left undecided. Taishoff says the SPTO is an Order, not a suggestion, and suggests the motion route. That way the record is clear, and your compliance with the SPTO manifest.

There was lamentation over the asymmetry of access to technical data underlying an expert’s opinion. Especially is this the case where industry standards and practices are at issue. The petitioner, being engaged in the industry for years, may have contacts with access to highly technical data, and employ individuals with decades of experience. IRS has none thereof. While there was a general feeling that the parties should play nice in discovery, I cannot think that the petitioner, with monumental deficiencies and chops on the block, would willingly hand over the goods. Rule 143(g)(3) allows expert testimony as to industry standards without the need for a written report. I guess I can add to my “Stealth” file the Stealth Expert.

Finally, the “hot tub.” This apparently was a thought of the late Judge Laro. The judge would call the experts together out of the presence of the attorneys and attempt to find upon what principles they could agree, to narrow the divide between their respective reporting positions. These concessions could serve to shorten the trial and make it easier to find the correct result. I cannot think too many attorneys would agree to this, and I am sure their clients, who are paying this high-priced talent to win their case and not engage in a philosophical excursus, would not.

But it was an interesting seminar. I look forward to the next, when Judge Ronald L (“Ingenuity”) Buch will take the lead.

Rule 33(b), that’s why. I was puzzled (see my blogpost “Why The Chop?” 3/13/23), and did some research. Though rarely invoked, and my research showed only for grievous infractions, Rule 33(b) permits a sua sponte chop for proceedings that cause “unnecessary delay or needless increase in the cost of litigation.”

The Rule doesn’t require a warning, but was the conduct here so egregious that no warning should have been necessary before the OSC? If the parties or their trusty attorney were recidivists, or ignored a warning, might it not have been well to spell that out in the opinion?

Yet another reason why some sort of guidelines for imposing sanctions are needed.

I’ve seen that tactic used (and used it for clients) to get control of a property; be careful of champerty and maintenance, but that’s not the problem for Mike and Catherine, co-exr’s of Dad’s estate. Their problem is that, by buying the mortgages, they paid off the mortgage debts they bought while Dad was still among us, thus invalidating them as claims against his estate in reduction of estate tax. Worse, another mortgage they bought at a discount landed each of them with $960K in gift tax.

I’ve recently lamented the delay in adopting ex-Ch J Maurice B (“Mighty Mo”) Foley’s amendments to the Rules. But if Ch J Kathleen (“TBS = The Big Shillelagh”) Kerrigan has to spend time unscrambling frittatas like Estate of Bernard J. MacElhenny, Jr., Deceased, Donor, Michael P. MacElhenny and Catherine MacElhenny Dann, Co-Executors, T. C. Memo. 2033-33, filed 3/15/23, I can see why she has no time for rulemaking.

Briefly, the late Bernie Mac was mentally impaired toward the end, and co-ex’rs had POA. Bernie Mac’s affairs were a mess. Mike had real estate experience, and tried to straighten things out. Bernie Mac had a couple mortgages (hi, Judge Holmes) in default. Mike thought he could refinance the mortgaged properties out from under, and buy the mortgages. He haggled the lenders into taking haircuts for ready cash, and got assignments of the mortgages, although the lenders warranted nothing.

After Bernie Mac passed, Mike claimed these were debts of Bernie Mac’s estate.

No, says Ch J TBS.

“There is no evidence to support petitioners’ contention that the assignments were negotiated at arm’s length.Mr. MacElhenny was on both sides of the transactions. He agreed on decedent’s behalf to have the judgments entered against decedent and in his and Ms. Dann’s favor. There is no record of consent by decedent for maintenance of the liabilities after payment. True, Mr. MacElhenny held decedent’s power of attorney and so had the authority to make these decisions on decedent’s behalf. It is also true that Mr. MacElhenny employed multiple attorneys to represent the competing interests involved. But we do not see any evidence that these individuals actually negotiated amongst themselves.

“We note that the consent judgments entered against decedent did not resolve a dispute between decedent and his children. Mr. MacElhenny contends that he did not want to take over his father’s debts. At the time of the assignments for both claims, agreement had been reached regarding settling the debts with the banks.” T. C. Memo. 2033-33, at p. 12.

In fact, the debts were extinguished as against Bernie Mac during his life. There was another property where there was a live claim, but that was extinguished within one month. These were clearly all donative deals, to pass the mortgaged properties to the ex’rs (heirs) at a discount.

It gets worse.

Mike and Catherine acquired the mortgaged property for an alleged $4.75 million while there was a valid claim against Bernie Mac. But they really only paid off two mortgages, and reduced the balance of one of them. So they paid less than the worth of the property, and as it came from Bernie Mac, it’s a bargain sale, hence a gift.

I find it hard to reconcile the arithmetic, but maybe one of my CPA readers can give me a clue.

The late Scott Hoensheid did make a charitable gift to Fidelity Charitable Gift Fund, a donor-directed 501(c)(3). And if a gift is made without expectation of tangible reward, out of disinterested love and affection, then the late Scott’s gift of $3.5 million worth of his family’s closely-held corporate stock was certainly a gift. Scott got absolutely nothing for it, except a major capital gains hit. He got no charitable deduction. He did duck the enhanced Section 6662(a) understatement chop via his trusty tax attorney.

Judge Nega tells why trying to time your gift to the minute before the stock sale becomes subject to a definite agreement doesn’t work. The case is Estate of Scott M. Hoensheid, Deceased, Anne M.  Hoensheid, Personal Representative, and Anne M. Hoensheid, T. C. Memo. 2023-34, filed 5/15/23.

Before he became the late Scott, he was afraid that if he made the gift of stock to Fidelity and the deal to sell the family business cratered, his brothers would have more stock than he. Scott and siblings apparently didn’t make the Psalm 113, verse 1 cut. So Scott said he didn’t want the gift to go final “until we are 99% sure we are closing.” T. C. Memo. 2023-34, at p. 5.

After negotiations for sale of the corporate stock are virtually completed,  massive change-of-control bonuses are paid out, and the corp stripped of whatever cash it had thereafter, Scott’s backdated gift was made and the deal closed.

Judge Nega deconstructs. Scott’s trial testimony is less than stellar. The piece of paper from Fidelity that was later corrected never makes it into evidence, drawing a negative inference that the gift was accepted when it had to be for tax purposes. There’s endless “intercourse” between Scott, his trusty tax attorney, and his financial adviser, which all gets into the record. Oh, those e-mails!

Scott decided to save money by having his financial adviser do the appraisal of the stock, notwithstanding his trusty tax attorney suggested using a major accounting firm with creds, although said adviser’s appraisal qualifications were submarginal.

Taishoff says when there’s big bucks on the line, don’t get silly about fees.

This is an assignment of income case. Fidelity’s standard policy was to sell closely-held stock as soon as it got any, although it wasn’t obligated to do so. So IRS claims what really happened was that Fidelity was Scott’s agent, unloading the stock to the buyer of the business. See my blogpost “Cosi Fan Tutti,” 9/3/20.

Judge Nega trudges through MI law as to what constitutes a gift. There’s a gift here, but it was completed when the sale was a 99% certainty.

So assignment of income. But a fallback is that, if there was a taxable assignment of income but a real gift, shouldn’t there be a charitable deduction? Yes, if the appraisal is good. Here it isn’t, because of the unqualified appraiser; substantial compliance can’t cure a dud appraisal. And Scott’s good faith reliance is lacking, as he ignored the suggestion to get a qualified appraiser.

But Scott’s trusty tax attorney saves him from IRS’ enhanced chop. IRS has burden of proof when its amended answer increases the chop sought.

Takeaway- Maybe it’s better to trust your brothers than to trust to luck.