This argument avails George P. Manzolillo and Lucy P. Manzolillo, T. C. Memo. 2022-107, filed 10/24/22 nought.

George and Lucy got caught in the toils of the newlywed APTC.

I’ve avoided any comment that savors in any way of politics in this my blog. But the temptation that arises when the Affordable Care Act swims into my ken is nearly overwhelming. I’ll resist yet again, making my views known elsewhere.

George and Lucy got married during year at issue. They bought health insurance via the FL marketplace and got the Advance Premium Tax Credit. But when they filed their MFJ, their Form 8962 reconciler misstated the APTC they actually received, and George and Lucy never filled out Part V.

IRS, probably just as confused as George and Lucy (and maybe as confused as you and I), first froze and then unfroze their refund. Thereafter IRS audited their return, and issued a SNOD which ignored the newlywed calculation. George and Lucy petitioned timely, but didn’t mention the newlywed calculation for a year thereafter. When they did so, IRS recalculated the deficiency. And put four (count ’em, four) IRS attorneys on this case.

George and Lucy claim the unfrozen refund bars the SNOD, even in the reduced amount.

Ch J Kathleen (“TBS = The Big Shillelagh”) Kerrigan rejects.

“Petitioners assert that respondent is precluded from increasing their tax liability because they received a refund for [year at issue]. Their position is inconsistent with our caselaw.” T. C. Memo. 2022-107, at p. 4.

“Somber reasoning and copious citation of precedent” follow. You can read all of it at T. C. Memo. 2022-107, at pp. 4-5.

Whatever your views on the wisdom or otherwise of dealing thus with payment for healthcare, so long as it remains it will furnish a fertile field for errors.

Please spare my comments section from philippics one way or the other.

Off-Topic

This post is not about Section 6751(b). I had intended it to be music criticism, but reality left criticism gasping miles behind.

I saw this afternoon the final performance of Luigi Cherubini’s opera “Medea” at the Metropolitan Opera. Live, not HD.

In 45 years of opera-going, I never saw anything like this. It was more than a one-woman show: it was a feat for the ages.

The audience approved. Photo below (taken post-performance).

The Real Boss Hoss is Sondra Radvanovsky.

Ya gotta admire Judge Emin (“Eminent”) Toro’s patience. When a frivolite who has already lost some Section 6702 frivolity chops years ago comes back, claiming gross income twice the US GDP, and alleging a bunch specious jive (hi, Judge Holmes) like non-existent withholdings and gross income he probably never got (but never disavowed at trial despite Judge Eminent’s repeated attempts to bail him out), it takes a patient judge to give him a 36 (count ’em, 36) page off-the-bencher to try to show him the need to mend his ways.

Here’s an example.

“For Mr. Umoren’s 2018 tax year, the Commissioner assessed tax of $363,644,242. This amount is rather striking in the circumstances here, and we would have been receptive to an argument from Mr. Umoren that his actual income in 2018 was insufficient to support such a large assessment.

“But Mr. Umoren refused, after repeated invitations, to make that argument. Notwithstanding efforts by IRS collections, IRS Appeals, the Commissioner’s counsel, and this Court to solicit information regarding his true liability for 2018, Mr.  Umoren stands by his original return. As a reminder, that return reported wages of nearly $7 billion and business income of almost $40 trillion (or about twice as much as the gross domestic product of the United States for 2018). And so, in the face of an assessment derived from adjusted gross income of $982,981,109, Mr. Umoren persists in arguing that his actual adjusted gross income was higher than the amount used by the Commissioner. He eventually testified that he actually received only about $25,000 of that income. But the Commissioner pointed out that an excerpt of a bank statement for 2015 that Mr. Umoren provided at trial showed two debits (that is, increases in
Mr. Umoren’s balance) totaling around $20,000 in one month, casting doubt on the reliability of the $25,000 figure.” Transcript, at pp. 26-27.

There’s more, but it’s painful. Judge Eminent suggests Umoren may be delusional.

“We do not doubt the sincerity with which Mr. Umoren advances his positions. ‘Some people believe with great fervor preposterous things that just happen to coincide with their self-interest.’ Coleman v. Commissioner, 791 F.2d at 69. As the Court said in a similar case, such sincerity is but ‘a manifestation of a sad fact about human nature; [that is,] that we can talk ourselves into things that we know, on some other level of our consciousness, cannot be true. Therefore, whatever sincerity [Mr. Umoren] has will not exempt him completely from liability, though we do take it into account.’ Transcript of Bench Opinion at 10, Wnuck v. Commissioner  (No. 26068-09) (Jan. 12, 2011).” Transcript, at p. 34.

Of course, Scott Wnuck went on to a higher level. See my blogpost “One’ll Get You Five,” 5/31/11.

Decide for yourselves. Isang E. Umoren, Docket No. 10226-21L, filed 10/21/22.

I would have thought that, in the eight (count ’em, eight) years since The Great Chieftain of the Jersey Boys first tossed the Section 6751(b) Boss Hoss spanner in the Tax Court chopsworks (see my blogpost “Penalty Kick,” 7/17/14), IRS’ grunts would have gotten the message to reach for a CPAF at every exam, before they breathed a word of chops or first set finger to keyboard to write up the delictions discovered thereat; and that IRS’ counsel would first seek after said fully-executed CPAF the moment they got the admin record.

Apparently not, so far as STJ Diana L. (“Sidewalks of New York”) Leyden is concerned. Today she has five (count ’em, five) orders of like tenor to Maria Reilly &. James Reilly, Docket No. 29523-21S, filed 10/21/22. I picked Maria & Jim at random. All the orders are also small-claimers, and although I haven’t checked, I’ll wager all the petitioners are pro seses.

After a review of Section 6751(b), STJ Di admonishes IRS’ counsel.

“If respondent wishes to continue to assert the accuracy-related penalty under section 6662(a) in this case, he shall file a status report and attach thereto a Case History Transcript and any other relevant documents to demonstrate compliance with section 6751(b)(1). Alternatively, if respondent concludes that he did not comply with the requirement under section 6751(b)(1) with respect to the accuracy-related penalty under section 6662(a), he should consider conceding that penalty and notify the Court by filing a status report.” Order, at p. 2.

I suspect that if any petitioner is represented by one of the illustrious members of the ABA Tax Section, to which august body I do not belong, or even one of the ultrasophisticated readers of this my blog, such astute counsel would have raised want of Boss Hossery in the petition.

Word to IRS: Next July we celebrate the 25th anniversary of the enactment of The Internal Revenue Service Restructuring and Reform Act of 1998, whose Section 3306(a) first set forth the  Section 6751(b) we all know and love. Might it not be well to move from the last decade of the Twentieth Century into the second decade of the Twenty-First?

STJ Peter (“HB”) Panuthos tells the sad tale of Joshua M. Yaguda and Joeli Yaguda, T. C. Sum. Op. 2022-21, filed 10/20/22. Josh and Jo have 10% of EFI (a Sub S Corp), while daughter (under age 18 in year at issue) has 5%. EFI comes unglued in the Black ’08, and files Ch 11, but the year before Josh goes down for State securities fraud.

EFI gets run by a Court-appointed bankruptcy trustee, who runs the business and liquidates the assets, leaving Josh, Jo, and daughter with a $97K deficiency plus five-and-ten substantial understatement chop. Meantime, the local DA in the securities fraud case gets a receiver appointed to hold the Sub S stock for the benefit of the defrauded, but said receiver does nothing. Josh and Jo get the K-1s showing gains, but don’t report same, although they file timely and report everything else. The bankruptcy trustee told Josh and Jo that the State receiver effectively abandoned the Sub S stock.

Josh and Jo claim the State receiver should get the gain and pay the taxes, as the State court ordered the receiver to get the stock. In the case of a bankrupt S Corp, the S Corp is not a separate estate, and its shareholders still get the pass-through tax incidents even if they get no benefit therefrom; see Sections 1398 and 1399.

“Petitioners submitted the record in the criminal proceedings in support of the receivership’s notice purportedly assuming ownership of the EFI interest. The Lis Pendens notice includes the EFI interest, and the sentencing transcript notes that petitioner’s interest in EFI, subject to the bankruptcy proceedings, is assigned to the District Attorney’s Office…. Nevertheless, the record does not support a finding that the receivership exercised control or ownership of the EFI interest. Rather, the sentencing hearing transcripts reflect the [State] court’s intention to defer to the bankruptcy trustee, requesting information about the proceedings and any distributions. Even if the receivership had authority to claim the EFI interest, in the letter… the bankruptcy trustee informed petitioners that the receivership trustee had abandoned the EFI interest, leaving the shares in the ownership of petitioners.” T. C. Sum. Op. 2022-21, at p. 5.

Alternatively, Josh and Jo claim they abandoned the EFI stock. But the caselaw says abandonment must be manifested by an affirmative act, and there’s none in the record. Intention is insufficient.

Any 468B Qualified Settlement Fund argument fails, as the State receiver never took ownership of the stock.

IRS stuck Josh and Jo with daughter’s EFI phantom gain, which they try to foist onto daughter. But the Kiddie Tax (Section 1(g)) puts paid to that move.

STJ Panuthos tempers the wind to the shorn lamb. Josh and Jo avoid the chop.

“Petitioners made a reasonable, good faith effort to correctly assess their tax liability. Petitioners timely filed their tax return, reported other passive income, and provided documentation in support. Further, they relied on the assistance of a CPA in preparing their return. It was not entirely clear from the proceedings in the [State] Court and the bankruptcy court the tax treatment of the shares in EFI.

“Given the complexity of the interplay between the bankruptcy proceedings and the receivership, and further noting that petitioners did not actually receive any funds as a distribution from EFI, we conclude that petitioners’ failure to include the distributive share of income of EFI in the year in issue does not subject them to the penalty that respondent determined.” T. C. Sum. Op. 2022-21, at p. 9.

No, not a new client, or an especially eccentric one; I don’t mean the book of business. I mean the book that batting coaches and pitching coaches keep. Those cover their own players and all opposing players, noting strengths, weaknesses, “tells,” and any information useful in preparing one’s own players for success, and defeating one’s foes.

I don’t know if judges keep the book on lawyers. But I do know we lawyers keep the book on judges. I made it a practice, whenever possible, when my case was assigned to a judge before whom I had not theretofore appeared, to visit that judge’s courtroom unannounced and observe. Only once was my appearance questioned, and I beat a hasty retreat (P. S. I won the case anyway). Another time I telephoned an upstate classmate to find out the book on a judge from his county who was on TDY here, and before whom I had a very important case. We won; I was very grateful.

So today I offer Gregory Milton, Jr. and Anetria Milton, Docket No. 17858-21S, filed 10/20/22. From the foregoing you need no reminder that this is not about Greg or Anetria.

It’s just an order, but it says something about STJ Eunkyong (“N’Yawk”) Choi, of which those appearing before her should note. The dates tell the story. The case was on for trial 9/26/22 in Atlanta.

“On September 15, 2022, respondent filed a Motion for Continuance. On September 21, 2022, the Court served an order granting the Motion, striking the case from the calendar and giving the parties until October 19, 2022, to file either a signed decision document or file a status report apprising the Court of the then-present status of the case. On October 20, 2022, respondent filed a Status Report. This was filed past the Court’s ordered deadline.” Order, at p. 1.

So let IRS show cause by 11/21/22 why they were a day late. The old eFile by 0600 next day rule, as to which see my blogpost “Technologically Challenged” 3/21/16, is long gone.

Yes, IRS blew the Rule 133 thirty-day continuance cutoff, but must have told a good story. And they’re going to need to tell at least an equal story this time.

Note for the book: Don’t be late by even a New York minute with STJ N’Yawk Choi.

Publius Virgilius Maro never saw a SNOD, but his description of a famous monster fits pretty well. There is no form for a SNOD; all that IRS need communicate is that the Commissioner demonstrates that the IRS has determined that a deficiency exists for a particular year and specifies the amount of the deficiency. See my blogpost “Got Your Ticket?” 12/13/12.

The Com’r’s plaint is that Congressional defunding has caused his myrmidons to resort to form correspondence of the “one size fits all” variety.

Wherefore we are still getting orders of the sort we saw in my blogpost “Fake Out,” 12/16/14.

Here’s Kevin L. Williams, Docket No. 37192-21, filed 10/16/21, part of the Great Petition Tsunami from a year ago. Kevin got a LTR 96C, and petitioned. Ch J Kathleen (“TBS = The Big Shillelagh”) Kerrigan doesn’t enlighten us as to what the document might be, except it isn’t a SNOD.  True enough; a LTR 96C is what we used to call a DF, or Disposition Form, a species of buck slip whereby IRS asks for information, or states that it’s doing nothing, or announces electronically-calculated chops.

How exactly Kevin or anyone not a tax professional is to know this is not explained.

So Kevin is tossed.

I’m not faulting Ch J TBS or any of her colleagues; the law is what it is. Congress erected barriers around The Glasshouse on Second Street; IRS seems wedded to the ambiguity which they could eliminate, as they did by eliminating the whistleblowing epistolary volleying. Tax Court cannot rewrite the law, unlike its more august and exalted Article III types.

Taishoff says it’s time to echo the video mantra, Game Over.

Back in March, when then-Ch J Maurice B (“Mighty Mo”) Foley promulgated his stylistic emendations to the Tax Court Rules of Practice and Procedure, I greeted one of then-Ch J. Mighty Mo’s changes with real enthusiasm.

See my blogpost “A Chip Off the Old Rock,” 3/23/22.

I did expect it would take time for Ch J Kathleen (“TBS = The Big Shillelagh”) Kerrigan to review all the learned commentary, which my colleagues would provide her without stint. And the deluge of petitions from the COVID era, to say nothing of the need to adapt the Court to its Post-COVID architecture, would occupy much of the Ch J’s attention.

But all that said, there is one proposed amendment that needs no debate. That is Proposed Rule 20, and its sibling, the new Form 6, Ownership Disclosure Form.

Happily, the number of orders directing corporatists to file the form, or to fill it out properly and file it, is minuscule. Of the 484 (count ’em, 484) orders issued today, only four were orders relating to Form 6, a matter of 0.826%.

So, while the other Rules may abide our question, may I respectfully suggest that Ch J TBS is free to adopt this one?

Ch J Kathleen (“TBS = The Big Shillelagh”) Kerrigan and The Glasshouse Gang announced today a one-hour Zoominar, which will highlight “changes to Tax Court practice made in response to the COVID-19 pandemic including lessons learned, best practices, and practical implications for ongoing controversy matters and trial calendars.”

This may herald the wave of the future, the nationwide Glasshouse without walls.

Details and registration link on the Tax Court homepage.

As a journalist, I’m always searching for some new gimmick wherewith to snag the reader’s birdwinged attention. When they come, and often they are few, the journalist must snatch them out of the air. Today I’ve got a new one, the Rule 74(c)(3) subpoena to IRS personnel.

I was talking about this a couple days ago (hi, Judge Holmes) in my blogpost “Speak Low,” 10/16/22. You’ll see Judge Albert G (“Scholar Al”) Lauber gave the brushoff to a colleague and his team.

Judge Christian N. (“Speedy”) Weiler has a similar instance in Lakepoint Land II, LLC, Lakepoint Land Group, LLC, Tax Matters Partner, Docket No. 13925-17, filed 10/17/22.  This time, though, the Lakepointers don’t want to use good faith reliance to sidestep chops, they want to unhorse IRS altogether via Section 6751(b).

IRS wants partial summary J that the Section 6751(b) Boss Hoss hoofprint was duly applied before ever a word of chops was breathed to the Lakepointers, and attach to said motion the Declaration of a Group Manager (presumably the Boss Hoss wrangler here).

The Lakepointers’ trusty attorneys move to depose nonconsensually said Group Manager and immediate subordinate. “According to petitioner’s motions, the actions of Ms. [Manager] and Ms. [subordinate] are at the heart of respondent’s Motion for Partial Summary Judgment; and accordingly nonconsensual depositions of Ms. [Manager] and Ms. [subordinate] are warranted in this case.” Order, at p.1. (Names omitted).

“Respondent opposes petitioner’s motions.” Order, at p 1. Surprise, surprise.

Might there be a question of fact as to who did what, if at all, and when, if ever. If so, does Greenberg’s Express apply? Is the past truly prologue? Can the Declaration of the Group Manager foreclose cross-examination?

Yes, the Manager and subordinate are both nonparties; only the Com’r is a party. But does not IRS put the testimony of the Manager at issue by providing the Declaration? Of course, the Lakepointers must show more than just a hunch that the IRS’ people were offside. But we shall have to await the outcome.

Meantime, while I’m a great fan of summary J, is it always wise to open a door better left closed for the trial?