I thought that the above assemblage was worthless four years back, when I wrote my blogpost “Not Endangered, Except the Benderdinker,” 9/10/18. But 11 Cir jumped all over Judge Pugh two years later, deciding the golf course was no impediment to a telephone-numbered-bonanza courtesy of us taxpayers; see my blogpost “A Great Golf Fixed,” 5/15/20.

So now that the conservationist defense has been flattened, Judge Pugh has to referee the battle of the experts in Champions Retreat Golf Founders, LLC, Riverwood Land, LLC, Tax Matters Partner, T. C. Memo. 2022-106, filed 10/17/22.

No wonder IRS hates those valuation trials.

Those amongst ye who get your kicks from valuation scrambles can read Judge Pugh’s 43 (count ’em, 43) pages of slaloms-and-moguls through the dueling appraisers’ blather. IRS’ expert comes off much the worse, as the Champions only need retreat from $10 million in writeoffs to $7.8.

“While we agree with respondent that Mr. C’s valuation of the easement was too high, we reject Mr. P’s conclusion that the value of the easement was de minimis because its grant had no adverse effect on the fair market value of the property. Not only did the easement document prohibit further subdivision of the property, but it also restricted future construction of additional buildings and other structures on the property. Thus, even assuming that in late [year of inception] there was no demand for a 210-lot subdivision, we are hard pressed to imagine that a prospective purchaser would not have considered easement restrictions material in determining the purchase price.

“On the basis of the record before us, giving due consideration to our observation at trial of the fact witnesses and the experts, we conclude that the fair market value of the easement in [year of inception] was $7,834,091.” T. C. Memo. 2022-106, at pp. 40-41. (Table omitted).

A Taishoff “Good Job, First Class” goes to the Champions’ Choice,  Vivian D. (“Golden”) Hoard, Esq.

If You Speak Tax

I’ve given the Bard’s famous line a twist, but so does Judge Albert G (“Scholar Al”) Lauber, as he reviews the Rule 74(c)(3) deposition request of Excelsior Aggregates, LLC, Big Escambia Ventures, LLC, Tax Matters Partner, et al., Docket No. 20608-18, filed 10/14/22. It’s not much ado about nothing, because the Big Scambies want to depose an IRS Special Counsel from OCC, who, they aver, “… is a subject-matter expert on the charitable contribution deduction and that she has spoken on the topic of conservation easements at public programs attended by attorneys, appraisers, and property owners.” Order, at p. 1.

The deposition is in aid of the Big Scambies’ claim of good-faith reliance on experts to avoid chops.

Thanks to one of the trusty attorneys for petitioners for bringing this one to my attention. Friday featured more than 400 orders, three-quarters of which were standing pre-trials, and as Dawson put paid to designated hitters, I took what I could find to try to make deadline.

Anyway, the expert, whom I’ll call Karen, isn’t a party; only the Com’r is a party. That means Karen’s deposition testimony, if allowed, could be used only to impeach or contradict her trial testimony. See Rule 81(i)(1) and (2). And her trial testimony, to the extent she advised the RA who prepared the FPAA at issue here, would be privileged client-attorney.

“Petitioners suggest that testimony from [Karen] is relevant to the issue of whether petitioners had reasonable cause for claiming the charitable deductions at issue in these cases. Under Treas. Reg. §1.6664-4, a taxpayer’s good-faith reliance on the advice of an independent, competent tax professional may establish reasonable cause, but the reasonableness of such reliance presupposes that the taxpayer has supplied the professional with all the necessary information to assess the taxpayer’s particular tax position. [Karen’s] comments about conservation easements at public programs and conferences were entirely general in nature. Because petitioners had supplied her with no information about their transactions in particular, we do not see how her testimony could be relevant to their reasonable cause defense.” Order, at pp. 2-3. (Citation and footnote omitted).

The omitted footnote says the experts upon whom the Big Scambies relied attended some of Karen’s lectures. But Judge Scholar Al says that doesn’t show the qualifications of said attendees. And the Big Scambies can call their experts on the trial to testify about what they gleaned from Karen’s expatiations (of which they have transcripts). Whatever Karen testifies now does not bear upon what she said at the time said experts were relying on same.

Anyway, “(T)he Commissioner ‘speaks’ only through formal statements of policy, such as regulations and revenue rulings. The informal statements of individual IRS employees—even those who occupy senior positions—do not bind the Commissioner. Petitioners are not entitled to treat [Karen’s] statements as those of the respondent in these cases.” Order, at p. 2. (Citations omitted).

So remember, practitioner, when you’re sitting through yet another Intergalactic Zoominar, the IRS hotshots take their text from Shakespeare’s quotation first set forth at the head hereof.

Back on 7/28/20, I said “Never doubt the long reach of Tax Court Judges.” See my blogpost “The Long Arm of Judge Scholar Al,” 7/28/20.

Apparently none of the seven (count ’em, seven) trusty attorneys for North Donald LA Property, LLC, North Donald LA Investors, LLC, Tax Matters Partner, Docket No. 24703-21, filed 10/14/22, is a reader of this my blog. When IRS moves for a remote hearing in aid of issuing a document subpoena, said trusty attorneys object. But like many another high-priced squadron, they find United States Tax Court is more than the village traffic court to which the late Justice Scalia compared it.

Judge Albert G (“Scholar Al”) Lauber reminds the seven of his long arm and strong arm.

“…petitioner contends that this Court lacks the authority to hold hearings regarding subpoenas for the production of documents, asserting that a document subpoena cannot be made returnable at any date prior to the date on which the case is called for trial. Petitioner also contends that a remote hearing is ‘procedurally improper’ because, although respondent has requested a remote hearing, neither party has requested a remote trial.” Order, at p. 1.

Well, the seven should have read Rule 147(b). But Judge Scholar Al needn’t resort to the Rules.

“Petitioner’s arguments are baseless. This Court is statutorily authorized to order the production of documents ‘at any designated place of hearing.’ I.R.C. §7456(a). Petitioner cites no authority to support its position that a party cannot be subpoenaed to produce documents at a pre-trial hearing, and there is none. Petitioner asserts that a remote subpoena hearing is ‘procedurally improper’ because neither party has a requested a remote trial. This argument is illogical: This Court’s authority to conduct a remote hearing (or to convene a conference call) is not affected by whether the trial itself will be conducted in person or remotely. For more than two years the Court has been holding regular document subpoena hearings, conducted remotely via Zoomgov, for the convenience of the parties and the subpoenaed person. Petitioner asserts that ‘the [COVID] pandemic is over, and any procedures that were needed during that time are no longer necessary.'” Order, at p. 1.

The seven should have quit while they were behind. Don’t raise when you’ve drawn dead on the river. Judge Scholar Al goes all-in.

“It is up to the Court, not petitioner, to decide what procedures are necessary or desirable for the efficient conduct of the Court’s mission.” Order, at pp. 1-2.

Hearing scheduled.

The last time I looked at accountants’ compensation it was in the context of the annual bloodbath (sorry, I meant compensation meeting). See my blogpost “Over-compensation,” 3/31/11.

Today Judge David Gustafson discusses dissolution of an accounting partnership, and the divvying up of clients and money, in Clark Raymond & Company PLLC, D. Edson Clark, CPA, PLLC, Tax Matters Partner, T. C. Memo. 2022-105, filed 10/13/22.

Judge Gustafson finds clients have value, and clients who follow departing partners generate unrealized gain to the departed. The departed, who are buying out the retiring rainmaker, did get distributions from the partnership to the extent of the previous calendar year’s net revenue. But because the partnership failed to keep the capital accounts in compliance with Reg. Section 1.704-1(b)(2)(iv), the special allocation to them of the unrealized gain flunks all tests for economic effect.

So a Rule 155 beancount must determine how much income the departed have to be allocated to bring their negative capital accounts to zero.

There’s a lot more, and my accountant friends might want to revisit their partnership agreements in light of Judge Gustafson’s dissertation.

No, I’m not playing war correspondent. Neither is Judge Goeke, although he is allowing an advance by Bloomberg L.P, Bloomberg, Inc., Tax Matters Partner, et al., Docket No. 3755-17, filed 10/13/22.

The Bloombergs and their bunch als (hi, Judge Holmes) want to put in evidence an Advance Pricing Agreement (APA) they made with IRS concerning gross income from UK branches. An APA is sort of a safe harbor deal for certain entities in certain years to avoid a Section 482 income-deduction reallocation jumpball.

IRS moves in limine to preclude same, claiming Sections 10.03 and 10.04 of Rev. Proc. 2006-9, 2006 1 C.B. 278 bar use of the APA by anyone but the named taxpayer, and introduction thereof in any judicial or administrative proceeding for any year outside those covered by the APA.

But the Bloombergs say they are putting in the APA “… to use a transfer pricing method derived from the APA to establish the reasonableness of the allocation of gross receipts between domestic production gross receipts (DPGR) and non-DPGR for purposes of I.R.C. § 199 if the Court holds that part of gross receipts qualifies as DPGR. It asserts that it does not intend to use the APA with respect to the qualification issue.” Order, at p. 1.

Now the APA never discussed Section 199, and neither tax treaty nor sourcing of income issues are involved here.

What wins it for the Bloombergs is Reg. Section 1.199-1(d)(2).

“Treas. Reg. § 1.199-1(d)(2) identifies factors relevant to evaluating the reasonableness of the method allocating gross receipts between DPGR and non-DPGR. These factors include whether the allocation method was used for other Federal or state tax purposes or internal management purposes. Accordingly, an allocation method used for transfer pricing issues is relevant under the regulations. Thus, the APA is relevant. Further, we hold that the APA’s admission is not barred by any part of the revenue procedures cited by respondent.” Order, at p. 1.

So the Bloombergs can produce the APA to advance their case.

A Taishoff “Good Job” goes to Adam R. (“No Phone”) Gahtan, Esq., and his team at Fenwick.

I’ve two (count ’em, two) takeaways from Judge Elizabeth A. (“Tex”) Copeland’s order in Zola Jane Pugh, 17992-19P, filed 10/12/22.

IRS wants summary J that they correctly denominated Zola Jane as a major delinquent in their billet doux to State, wherefore State grabbed Zola Jane’s passport. Zola Jane never responded to the summary J motion.

To be charitable, IRS’ paperwork in support of the motion is appalling.

“In this case, Ms. Pugh did not file an income tax return for tax years [One] and [Two]. Respondent prepared substitute for returns pursuant to section 6020(b) for both tax years. He attached three exhibits in support of his motion: (1) Exhibit A is Ms. Pugh’s Account Transcript for tax year [One]; (2) Exhibit B is Ms. Pugh’s Account Transcript for tax year [Two]; and (3) Exhibit C is a copy of a District Court order for an unrelated taxpayer. We note that none of these documents were accompanied by any form of certification of official records nor declaration regarding same.” Order, at p. 2.

To win a Section 7345 passport grab, IRS must establish a liability north of an inflation-adjusted $50K assessed, legally enforceable, and the subject of a filed NFTL or completed NITL. Section 7345(b)(1), (f).

For SFRs, IRS must proceed the deficiency route, with SNOD to last known address, no timely petition therefrom, CDP notice, NOD, and no timely petition therefrom. Exhibits A and B above establish none thereof. I won’t extract or paraphrase; read for yourself.

So here’s the checklist for IRS. Attach this to your next motion for summary J, because this one is tossed, without prejudice.

“A copy of the notice of deficiency allegedly issued to Ms. Pugh for each
tax year at issue with proof of mailing to Ms. Pugh’s last known address;
and

“A copy of the notice of intent to levy (or, if applicable, any notice federal
tax lien filing) allegedly issued to Ms. Pugh for each tax year at issue;
and

“Forms 4340, Certificate of Assessments, Payments, and Other Specified
Matters, for each tax year at issue, with an accompanying Certificate of
Official Record, if respondent wishes to rely on internal records and
account transcripts.” Order, at p. 3.

Takeaway 1- Practitioner, this is also your checklist for a Section 7345 passport grab. Like the old Yellow Pages, if it’s not in here, it’s not out there.

Takeway 2 – Petitioners, I know the deer in the headlights effect is blinding. But answer motions when prompted; the Judge may be telling you something by offering you the chance to answer. Like maybe IRS’ papers aren’t of the finest.

Judge Travis A. (“Tag”) Greaves authors a full-dress T. C. today, Daniel Cochran and Kelley Cochran, 159 T. C. 4, filed 10/12/22. And it’s definitely short-listed, as it’s only six (count ’em, six) pages long.

Dan and Kelley have a confirmed Ch 11 Plan;  their trusty attorney wants the 11 USC§362 automatic stay lifted, so they can proceed in Tax Court with the SNOD they petitioned before they filed chapter. They claim confirmation discharges any pre-petition debt.

The pre-2005 amendment language of 11 USC §1141(d) led Tax Court to this conclusion in Moody v. Com’r, 95 T. C. 655 (1990).

But Congress played the spoiler.

“In Moody we held that a bankruptcy court’s confirmation of the taxpayer’s chapter 11 bankruptcy plan served to effectively discharge or deny discharge to the taxpayer-debtor for purposes of 11 U.S.C. § 362(c)(2)(C), thereby terminating the automatic stay that was in place with this Court under 11 U.S.C. § 362(a). Moody, 95 T.C. at 664. In reaching this holding, we relied upon 11 U.S.C. § 1141(d)(1), which provides that a bankruptcy court order confirming a debtor’s chapter 11 bankruptcy plan generally acts to discharge the debtor from any debt that arose before the date of the confirmation. See Moody, 95 T.C. at 659–62. The version of 11 U.S.C. § 1141(d) applied in Moody was subsequently amended in 2005 as part of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, Pub. L. No. 109-8, §321(d), 119 Stat. 23, 95–96, and in 2010 as part of the Bankruptcy Technical Corrections Act of 2010, Pub. L. No. 111-327, § 2(a)(36)(A), 124 Stat. 3557, 3561.” 159T. C. 4, at p. 4. (Footnote omitted, but it says that Moody was pre-SNOD and petition, Cochran post-SNOD and petition, but mox nix).

Judge Tag Greaves finds that the amended statute doesn’t discharge anything unless all payments have been made (here they haven’t), or the BJ orders the debt discharged after notice and hearing. So the automatic stay remains. And no need for legislative history, as the statute is unambiguous.

So Dan and Kelley (and trusty attorney, who gets a Taishoff “Good try, third class”) are left singing the Moody blues.

We practitioners must make sure that our contracts are severable; that is, if one part is found unenforceable, the rest can be enforced, unless that leads to an absurd result. Legislators must assure that the statutes they enact are severable in like manner. And we all must so state.

But a SNOD need not. Judge Patrick J. (“Scholar Pat”) Urda provides much “somber reasoning and copious citation of precedent” in support thereof in Craig J. Schieder, T. C. Memo. 2022-104, filed 10/11/22, at p. 6, footnote 7. If IRS concedes any item in the SNOD, the rest survives.

CJ is an IC salesperson, selling RVs and campers. He’s also a protester, the Section 3104 SE variety, conflating income taxable for FICA/FUTA with all income, Section 61 type.

The SNOD failed to include some SE income, which failure wound up in the original answer to CJ’s petition. IRS amended, but fell short at the SE fence.

“…we note that the Commissioner’s post-trial brief assumes that the amount of self-employment income at issue includes the unreported income amounts identified in the notice of deficiency as well as the increased amounts set forth in his answer to the amended petition. The Commissioner’s answer failed, however, to allege that those additional amounts constituted self-employment income, as the notice of deficiency had done with respect to the T payment. We thus will analyze only the self-employment income determined in the notice of deficiency. See Rule 36(b).” T. C. Memo. 2022-104, at p. 6. (Name omitted).

Remember, “…the answer shall contain a clear and concise statement of every ground, together with the facts in support thereof on which the Commissioner relies and has the burden of proof.” Rule 36(b). When IRS amends and thereby acquires BoP, check the amended answer carefully for clear and concise statements of grounds and facts.

Note CJ avoids the Section 6673 frivolity yellow card. IRS allowed him only the standard deduction, whereas the record shows CJ paid more in State income tax, so he gets the benefit of the extra 73 bucks, even though he put in no evidence on the trial.

A finger-fehler by IRS can save a frivolite big bucks.

Today being a public holiday in The District of the Stateless, namely, viz., and to wit, US Indigenous Peoples Day, United States Tax Court has called a truce to its labors. Wherefore I will do likewise.

Includes US Tax Court

Blogging allows me a freewheeling approach: reporter, critic, “grumpy old man” (hi, Mr. Reilly). At risk of being shoehorned into the last-named, I’ll return again to a well-worn peeve: the nonrecognition of law firms in US Tax Court practice.

Here’s Ricardo Cano & Lillian Cano, Docket No. 21204-22, filed 10/7/22. And again it’s nothing to do with Ric or Lilli; it’s their trusty attorneys from a well-regarded and inveterate Tax Court regular firm.

Said trusty attorneys, whom I’ll call James and Dave, got caught in the electronic petition tangle. Apparently the Electronic Signatures in Global and National Commerce Act does not apply at The Glasshouse on Second Street.

Ch J Kathleen (“TBS = The Big Shillelagh”) Kerrigan issues the usual admonition.

“If the petition is being filed by multiple practitioners, the Petition should be signed by the additional practitioners. However,  review shows that the petition bears a stylized signatures of counsels [Dave] and [James]. The Tax Court’s procedures require at a minimum a digital image of an actual signature or use of an authentication program. See DAWSON User Guides on the Court’s website, http://www.ustaxcourt.gov. If petitioners’ counsel wishes to be recognized as counsel of record in this case, it will be necessary at this juncture to electronically file an entry of appearance on behalf of petitioners in accordance with Rule 24 Tax Court Rules of Practice and Procedure. Petitioners’ counsel may obtain an Entry of Appearance form under ‘Case Related Forms’ on the Tax Court’s website at http://www.ustaxcourt.gov/case_related_forms.html  .” Order, at p. 1.

Ch J TBS is aware of the existence of law firms; her bio on the Tax Court website recites that she was employed as associate and later partner in a leading law firm. Why elevation to the Tax Court bench acts like a shot of Lethe I cannot guess.

Time, and past time, for a Firm Entry of Appearance. Law firms have existed in this country for 225 years or more. I much doubt they will cease to exist any time soon.

If ex-Ch J Maurice B (“Mighty Mo”) Foley could craft an updated and much improved Ownership Disclosure Statement, I’m sure a Law Firm Entry of Appearance is no great shakes.

Effective Tax Administration does not end with Collections. The tax judiciary needs to make it easy for taxpayers with meritorious (or at least good-faith) claims to seek redress speedily, economically, and with counsel of their choice.