Followers of the late Norm Dacey will find their formbook living trusts empower the trustee(s) to dispose of assets and pay claims, but absent judicial paperwork, the doors of the Glasshouse on Second Street are shut to them.

As FL was long reputed to have one of the toughest probate grand slaloms, Leda Sander, trustee of her mom’s probate-dodger, never sought nor got letters from the FL circuit court acting in its probate court capacity. So when IRS hit Mom with a couple SNODs (hi, Judge Holmes) post-mortem, Leda filed a petition in Mom’s name and moved to be subbed in as trustee.

The case is Sandra E. Sander, T. C. Memo. 2022-103, filed 10/6/22.

Judge Morrison writes a dissertation on FL probate law, denying Leda’s attempt to sub in and telling her to get letters. The key is Rule 60(c). This punts capacity to sue over to State law.

Obviously Leda’s trusty attorney left no cliché unturned as he hunted for anything to get Leda over the FL bar. If you’re a FL practitioner, read Judge Morrison’s opinion. And estate planners everywhere should be aware that the living trust is not the universal answer.

The good news is Rule 60 doesn’t nonsuit Leda entirely. Judge Morrison takes IRS’ motion to toss the petition is under advisement for six months, until Leda can get letters.

Those of my readers who remember the bifurcated road where trod Heinrich C. Schweizer, T. C. Memo. 2022-102, filed 10/6/22, now get to see the end of said road. Those who don’t remember Heinrich C. can read my blogpost “There’s A Bifurcation in the Road,” 2/18/22, and join the rest.

Turns out the bifurcation resulted in a trial that only knocked out Heinrich’s good faith reliance on his return preparer for a Section 170(f)(11)(A)(ii)(II) save of his $600K deduction. Heinrich’s preparer’s testimony varied from Heinrich’s, and Heinrich’s counsel’s direct examination fell a wee bit short. And the Form 8283 fell a lot shorter than that.

Judge Albert G (“Scholar Al”) Lauber isn’t sympathetic.

“In this case Mr. K was available to testify, and did testify, at trial. But he did not corroborate, in any respect, petitioner’s testimony about the alleged advice. And petitioner’s counsel asked no questions of Mr. K squarely directed to this point. The fact that petitioner did not seek corroborative testimony from the person who might have supplied it weighs against him.” T. C. Memo. 2022-102, at p. 9. (Name omitted).

Ever have a witness tell you not to call him, because his testimony would sink your client? Oh yes.

Judge Scholar Al shows that Heinrich is a fellow scholar, having a German law degree and passing the five-day state Bar exam over there. He was ABD (all-but-dissertation) for a PhD in German law, when he switched to fine arts, and became head of Sotheby’s African fine arts department. He’d done enough value estimating and even donating art himself to ask for a Statement of Value (SOV) from the IRS Art Appraisal Services. Check out Pub. 561 for more. But Heinrich never got the SOV in time to attach to his return.

Hence the willful blindness.

” Even if petitioner had not already been familiar with Form 8283 and its requirements, the defects were there in plain view. The … sculpture was listed (incongruously) in section A of the form, where taxpayers are instructed to report donated property worth less than $5,000 and ‘certain publicly traded securities.’ On the line calling for a ‘[d]escription of donated property,’ the words ‘SEE ATTACHED’ appeared, but there was no attachment. Section B of the form, where the gift should have been reported, was left blank, including two gaping blanks for signatures. Form 8283 explicitly says that ‘[a]n appraisal is generally required for property listed in Section B,’ but there was no appraisal.

“One does not need to be a tax expert to open his eyes and read plain English. If petitioner had reviewed the Form 8283 as he testified, it would have been obvious to him that it was defective in many respects. We find it wholly implausible that a taxpayer as educated as petitioner, having devoted almost a decade to the study of law, would have acquiesced in the notion that he could properly file a tax return obviously lacking these required elements.” T. C. Memo. 2022-102, at p. 11.

Studying law can be hazardous to your tax health.

No chops, as IRS folds the Section 6662s for want of Section 6751 Boss Hossery.

Today we have another entry in my “I Won’t Mourn TEFRA” stakes, Silver Run Holdings, LLC, Silver Run Partners, LLC, A Partner Other Than The Tax Matters Partner, Docket No. 12660-21, filed 10/5/22. Partners filed timely seriatim petitions for the Holdings FPAA, one as TMP and t’other as notice partner. Partners want partial summary J from Judge Patrick J. (“Scholar Pat”) Urda, deciding which petition goes forward, and which gets tossed.

The LLC operating agreement for Holdings designates two co-managers, one of whom is a member and t’other isn’t, but Partners is none of the above. And neither co-manager of Holdings, which got the FPAA, petitioned.

Both the year-at-issue 1065 and correspondence at Exam say Partners is the TMP. Except only a general partner of Holdings can be TMP. And “(O)nly a member-manager of a limited liability company can be a general partner. See Treas. Reg. § 301.6231(a)(7)-2(a).” Order, at p. 2.

Clear? Thought not.

Judge Scholar Pat to the rescue. I leave in the dates, as they are important.

“The record establishes (and the parties agree) that SR Partners was not a member-manager of Silver Run. SR Partners thus was not a general partner of Silver Run and could not act as its tax matters partner. SR Partners thus was a notice partner on June 8, 2021, and the petition it filed in Docket No. 10457-21 constituted a premature petition under section 6226(b)(5) as it was filed within the 90-day tax matters partner petition window. This premature petition is deemed to be filed on the last day of the 60-day notice partner window, i.e., August 23, 2021. See § 6226(b)(5).

“SR Partners properly initiated this case as a notice partner on June 28, 2021, during the 60-day period following the 90-day window for petitions by tax matters partners. See § 6226(b). The petition here was filed before the date on which the petition in Docket No. 10457-21 was deemed to be filed, and we therefore have jurisdiction over this case.” Order, at p. 2.

I’ve chronicled chases after tax matterers, and the concomitant jousts among partners as to who exactly is entitled to petition a FPAA. See my blogpost “Tax Smatterer,” 3/12/15, for one such.

Judge Alina I. (“AIM”) Marshall has the ongoing chase after a missing TMP, in Colorado Land and Holdings, LLC, John Sfondrini, Tax Matters Partner, Docket No. 11875-20, filed 10/5/22. Y’all will recall that the Coloradans wanted to toss John and sub in Gerry. What, no? Then see my blogpost “No Bipartisan Cure,” 9/21/21.

The Coloradans and IRS searched high and low for documents showing the removal of John and installation of Gerry, but can’t find the signed originals. Thus John is in, at least until John gets a chance to be heard. See Rule 250(b).

So Judge AIM orders the parties to dig out what addresses they have for John so Judge AIM can give him a view halloo, and report whether they still want to toss him and sub in Gerry.

Taishoff says I praise Congress for getting rid of this ridiculous rigamarole. And IRS’ Reg. Section 301.6223-1(e) seems a proper and quick solution for the problem of the absent or recalcitrant representative.

But partners, beware, before entrusting your “lives, fortunes and sacred honor” to any non-partner representative. Is a representative a fiduciary? What duty does he/she owe you?

I’ve commented many times on the United States Tax Court Admissions Examination, the biennial slaughter of the innocents. Section 7452 contains the famous Dingell Amendment: “No qualified person shall be denied admission to practice before the Tax Court because of his failure to be a member of any profession or calling.”

This democratizing effort had the usual unintended consequence of erecting the “disputed barricade,” thereby restricting “qualified person” to the tiny group who successfully storm the same.

But there’s a good reason for requiring an in-depth knowledge of the FRE and the Tax Court Rules of Practice and Procedure. Even CPAs, knowledgeable as they are, can fall foul.

Here’s Joseph Amundsen, Docket No. 9996-21, filed 10/4/22. That’s Joseph Amundsen, CPA.

Judge Christian N. (“Speedy”) Weiler takes up the story.

“At trial, Mr. Amundsen offered evidence to the Court, including Exhibit 508-P, labelled ‘General Ledger,’ which outlines the debits and credits in Mr. Amundsen’s bank account…. At trial, Exhibit 508-P was admitted into evidence by the Court. At the conclusion of trial, and at the request of the parties, post-trial briefing was ordered by the Court. …Mr. Amundsen submitted his opening brief to the Court, which included a document entitled ‘Joseph Amundsen, CPA, General Ledger’.” Order, at p. 1.

No problem, right? Can always cite to trial evidence in the opening-trial brief.

Except.

The attachment has two (count ’em, two) more pages than the trial exhibit, has a different date stamp (four months later than the trial exhibit), and doesn’t show a bunch debits (hi, Judge Holmes) that appeared on the trial exhibit.

Joseph Amundsen, CPA, explains that the “…general ledger attached to the opening brief is formatted differently, printed in easier to read rows and columns so that this case may be resolved.” Order, at p. 2.

See also my blogpost “Please, Mother, I’d Rather Do It Myself,” 7/26/18, anent helpful attempts to recast trial evidence.

Judge Speedy Weiler says the reformatting is merely cumulative evidence and wasn’t made part of the trial record. Statements in briefs are not evidence. And the “General Ledger” is not a proposed finding of fact, as it fails to comply with Rule 151(c)(3), which requires a concise statement of proposed findings, not a repetition of trial evidence.

Joseph Amundsen, CPA, is self-represented. We’ve all seen a lot worse from pro ses. But when every day’s budget of orders includes at least a few admonitions to Form 2848 representatives (including CPAs) that they need to pass the exam, I can see the necessity.

The CLE merchants seem to have abated their discovery lectures. I tuned in a Zoom session thereon last week given by an Upstate jurist that was a model of clarity, wherein not a word was breathed anent discommoding one’s adversary with deft disclosure demands or game-changing ripostes to one’s adversary’s wide-cast nets.

But today STJ Adam B. (“Sport”) Landy provides a new entry in my “Discovery channel” miniseries. While STJ Sport Landy may have an advanced degree in sports and entertainment management (hence the sobriquet), he has no patience for those who play games, even at discovery.

Hiram T. Cannon and Doris A. Cannon, Docket No. 15257-20, filed 10/3/22, failed to try informal discovery before moving to compel. This draws the first rebuke from STJ Landy.

“This Court’s jurisprudence requires both parties to cooperate and participatein informal discovery prior to seeking formal discovery. See Branerton Corp. v.  Commissioner, 61 T.C. 691, 692 (1974). The informal discovery process is essential for the voluntary exchange of facts and documents as an aid to a more expeditious trial of cases as well as for settlement purposes. Id. Under Rule 70(a)(1), Tax Court Rules of Practice and Procedure, formal discovery may not be used until a party has attempted ‘to attain the objectives of discovery through informal consultation or communication.’ There is no evidence in the record to reflect that the parties have engaged in informal consultation or communication.” Order, at p. 1.

I note that State court judges have picked up on the play-nice concept of Branerton, intervening in discovery disputes only after the parties have failed to reach good-faith resolutions, and can document their efforts. State courtiers, watch for examples thereof in CLE lectures and in the courtroom.

But STJ Landy is only warming up. IRS claims Hiram and Doris are frivoling.

“Furthermore, the petition and the requests for formal discovery appear to be expressions of protest and contain nothing but frivolous or groundless recitations.  Petitioners’ attention is invited to Internal Revenue Code (I.R.C.) section 6673(a). If it appears to the Court that petitioners’ position in a proceeding before the Court is frivolous or groundless or the proceedings are instituted or maintained ‘primarily for delay’, then the Court can impose a penalty (not to exceed $25,000) on petitioners. Petitioners are advised that it appears to the Court that the position you have taken in this case is frivolous or groundless. No penalty will be imposed at this time. However, future submissions advancing a frivolous or groundless position will result in the imposition of a penalty in an amount up to $25,000.” Order, at p. 1.

Now I haven’t seen Hiram’s and Doris’ moving papers, so I can’t say. But that’s one quick Section 6673 yellow card. STJ Sport Landy is clearly no judge to be played.

When we left Mandy Mobley Li, 22 F.4th 1014 (DC Cir, 2022), she had laid waste to whistleblowers near and far. Among the decimated was that indefatigable hunchmerchant and public info overhauler Suzanne Jean McCrory, Docket No. 9922-19W, filed 9/30/22.

Judge Elizabeth A. (“Tex”) Copeland tossed Suzanne’s petition overboard to Liward (sorry, guys) back on 7/6/22. I never bothered to blog the order, as it was the usual no-cash, no-jurisdiction post-Li story.

Well, Mandy Mobley to the rescue, shouting once again the motto of a famous Highland regiment first set forth at the head hereof, as my high-priced colleagues would say.

Judge Elizabeth A. (“Tex”) Copeland has the story. When Suzanne got tossed, she had moved for partial summary J, and IRS had moved for leave to amend the answer. Judge Tex Copeland then held both motions moot.

“In issuing the July 6, 2022, order, we relied on the opinion of the Court of Appeals for the District of Columbia Circuit in Li v. Commissioner, 22 F.4th 1014 (D.C. Cir. 2022), holding that we lack subject matter jurisdiction over whistleblower cases, like this one, that involve a rejection of a claim for a whistleblower award. We stated that the judgment in Li was final.”On August 30, 2022, the Supreme Court docketed a petition for writ of certiorari as of June 16, 2022. Because a party timely sought a writ of certiorari, Li is not final. We accordingly will vacate our July 6, 2022, order. In so doing, we reopen this case, reverse our decision to deny the two pending filings at the time as moot, and hold those filings in abeyance until the Supreme Court issues a decision in Li.” Order, at p. 1.

See Section 7481 for what happens when “a party” petitions for cert.

And see what odds the bookies are giving for Mandy Mobley. If you’re a longshot bettor, she might be worth a play.

Judge Christian N. (“Speedy”) Weiler is tasked with keeping a witness whose deposition testimony might have been somewhat parsimonious on the straight-and-narrow, while not actually imposing the sanctions IRS wanted.

Once again we’re looking at Buckelew Farm, LLC f.k.a. Big K Farms LLC, Big K LLC, Tax Matters Partner, Docket No. 14273-17, filed 9/30/22. All y’all will recollect that Judge Speedy Weiler ordered a Rule 81 deposition; if not, see my blogpost “Stall Your Case At Discovery,” 4/28/22. The Buckalews sent in Mr. A. (name omitted), the managing director of the manager of Buckalew Farm, LLC, to testify.

IRS says Mr. A. answered 100 (count ’em, 100) times “I don’t recall.” Order, at p. 2. So IRS claims evasion is equivalent to not showing up at all. IRS wants an order imposing sanctions, freezing Mr. A.’s testimony, so any testimony at variance therewith will be stricken.

The Buckalews claim that depositions are not memory exams, that IRS took sound bites from Mr. A.’s testimony, and Mr. A. testified for eight (count ’em, eight) hours. Maybe he couldn’t recall conversations and documents from ten years ago.

Judge Speedy Weiler is inventive.

“After reviewing the deposition, we agree with petitioner that ‘excerpts [r]espondent cites in its [M]otion [to Impose Sanctions] are sound bites or snippets that do not accurately reflect the . . . testimony that Mr. A gave.’ Contrary to respondent’s contention that Mr. A was being evasive, we find that Mr. A attempted to answer respondent’s questions or at least addressed the topics presented. Respondent has not shown to our satisfaction that Mr. A inadequately prepared, acted in bad faith, prejudiced respondent, or disrupted the deposition to warrant sanctions in this case.  However,  we caution petitioner that should Mr. A’s testimony at trial differ substantially from his deposition testimony, petitioner must provide a good faith justification for such deviation. Therefore, we find that respondent has failed to satisfy his burden of proof under Rule 104(c) and that sanctions are not warranted in this case.” Order, at p. 3. (Citation omitted).

When is a sanction not a sanction? When Judge Speedy Weiler is on the case.

Judge Mark V (“Vittorio Emanuele”) Holmes has suggested that stips of agreed issues may be invalid as to pro ses who are unjustly or oppressively overwhelmed thereby; see my blogpost “Couple Questions of Great Significance,” 9/27/22.

I’ve already stated my views; “stipulate, don’t capitulate” is my shibboleth. But there are exceptions.

William T. Ashford, T. C. Memo. 2022-101, filed 9/29/22, is a protester. And he gives away whatever hopes he had (and I don’t see too many), by stipulating to the source and amounts of wages and self-employment he got. And he frivols with “wages aren’t income” and Social Security Administration dropping his SE when IRS prematurely assessed tax. IRS lost his year at issue’s exam file, but  Wm can’t show that anything therein would help him now.

Wm claims SSA dropping his SE is a concession that he doesn’t owe. Judge Vasquez isn’t buying.

“To the contrary, the parties stipulated that petitioner had received $89,977 from [employer] for [year at issue]. They also stipulated the authenticity of a wage and income transcript showing that the $89,977 was reported as nonemployee compensation. Because petitioner’s argument conflicts with stipulated facts, it has no merit.  See Rule 91(e) (‘A stipulation shall be treated, to the extent of its terms, as a conclusive admission by the parties to the stipulation, unless otherwise permitted by the Court or agreed upon by those parties.’). T. C. Memo. 2022-101, at pp. 5-6. (Footnote omitted).

And Wm gets the Section 6673 yellow card from Judge Vasquez at no extra charge.

There are times when you might just as well capitulate.

The question that bedeviled the Minihans in their innocent spouse joust takes a different form in Stephen H. Collins, T. C. Sum Op. 2022-20, filed 9/29/22.

Steve also wants a refund, but not of proceeds levied from a joint account. Rather, the local domestic relations court increased Steve’s support payments to reimburse loved-once for half of the unpaid tax on the State pension draw she took, from which Steve never got any benefit. Loved-once paid the tax to IRS.

Loved-once intervened when Steve sought innocent spousery, but Judge Elizabeth Crewson Paris tossed loved-once for nonprosecution. IRS folded on Steve’s Section 6015(c) apportioned relief claim, denied both 6015(b) all-the-way and 6015(f) equitable, and Steve’s OK with that.

But Steve wants a refund of the one-half of the tax on the State pension draw.

No, says Judge Paris.

“Even assuming arguendo that petitioner is eligible for relief under section 6015(b) or (f),  he would not be entitled to a refund because he did not remit any tax payments to respondent with respect to the understatement. Before any taxpayer may be allowed a refund or credit, there must be a determination that the taxpayer made an overpayment. Minihan v. Commissioner, 138 T.C. 1, 8 (2012); Cutler v. Commissioner, T.C. Memo.  2013-119, at *27. A taxpayer makes an overpayment if he remits funds to the Secretary in excess of the tax for which he is liable. Jones v. Liberty Glass Co., 332 U.S. 524, 531 (1947); Minihan, 138 T.C. at 9. To prove that he has made an overpayment, the requesting spouse must establish that he (and not the nonrequesting spouse) provided the funds for the overpayment, and that the payments were not made with the joint return and were not joint payments or payments that the nonrequesting spouse made. Minihan, 138 T.C. at 9 (and cases cited thereat); Cutler, T.C. Memo. 2013-119, at *28; see also Rev. Proc. 2013-34, § 4.04, 2013-43 I.R.B. 397, 403.” T. C. Sum. Op. 2022-20, at p. 5.

For Minihan, see my blogpost “Whose Money Is It, Anyway?” 1/11/12.

Once again, when family law meets tax law, the result is a muddle. Had Steve paid half directly to IRS, he could claim his refund, as the understatement was entirely loved-once’s doing. But either divorce counsel were unaware, or the Stark County (OH) Domestic Relations Court was not advised, that their reimbursement maneuver cost Steve more than it should have done.

Judge Albert G (“Scholar Al”) Lauber gets ’em all, from GA boondocks to IN cornfields.

Donald Furrer and Rita Furrer, T. C. Memo. 2022-100, filed 9/28/22, are farmers who donated a lot of the soybeans and corn they grew on their IN farmstead to two (count ’em, two) charitable remainder annuity trusts (CRATs, in taxspeak) in two different years. The trustee (their son) immediately sold the crops to the usual buyer, who paid cash. From that, the trustee distributed some small interest earned on the cash (which Don and Rita reported) and a lot of cash (which they didn’t report, claiming return of investment).

IRS allowed some of this at Exam, but bounced the rest, and amended their answer to disallow the whole lot when Don and Rita petitioned the bounce.

The matter comes up on partial summary J to the scholar, Judge Albert G (“Scholar Al”) Lauber. IRS has BoP, as the disallowance is new matter.

First, Don and Rita have zero basis in the crops, as they expensed all the costs of producing same on their Sched Fs. And they admit they have zero basis.

Don and Rita claim charitable contribution for whatever portion of the crops would vest in the 501(c)(3) remaindertypes. But they submitted no Form 8283 or qualified appraisal of the crops, and compliance is a strict requirement per Section 170(f)(11)(a)(i). FMV is irrelevant, because the crops are ordinary income property (goods held for sale in the usual course of business), and Section 170(e)(1)(A) says that grantor thereof only gets a deduction for whatever isn’t taxable at ordinary rates. But all of the proceeds are, because Don and Rita expensed their costs of production. So their contribution for tax purposes is zero.

See also Section 1015. The trusts get the donors’ carryover basis, except where basis is more than FMV at date of donation (in which case trusts’ basis is FMV), plus any gift tax paid. None was paid, and basis is less than FMV here.

So when the trustee sold the crops, all the proceeds were taxable gain.

Except CRATs are tax-exempt.

Except distributions from CRATs are taxable to non-exempt recipients. Trust me, they are: I have a CRAT, and I know.

“A distribution from a CRAT is deemed to consist first of income that is subject to the highest Federal tax rate (ordinary income), and then, upon exhaustion of that class, of income subject to progressively lower tax rates. Only after all taxable income has been distributed is a beneficiary deemed to receive a nontaxable return of corpus.” T. C. Memo. 2022-100, at p. 9.

Don’s and Rita’s trusty attorney gets a ding from Judge Scholar Al.

“Petitioners’ response to the summary judgment motion is not a model of clarity. As best we can tell, they appear to make three arguments. None has merit.” T. C. Memo. 2022-100, at p. 10.

Trusty attorney claims sale to CRATs, except CRATs had nothing wherewith to pay, and any gain on a sale would have been taxable to Don and Rita. The trustee claimed a basis in the donated corn and soybeans when he sold them, but his numbers are “utterly implausible,” T. C. Memo. 2022-100, at p. 11.

Trusty attorney claims distributions should be exempt, as CRAT is exempt.

Section 664(a) exempts the CRAT, but Section 664(b) taxes the distributions.

Finally, trusty attorney tries the Section 72 investment-in-the-contract argument, except Section 72(a)(1) defers to the Section 664 waterfall. And even if Section 72 applied, the basis (investment in the contract) is still zero.