Today Judge Ronald L. (“Ingenuity”) Buch gives us a history of the Swiss investment (bank) account, the Section 1296 Passive Foreign Investment Company maneuver, in Estate of Brett L. Clemons, Sr., Deceased, Brett Lee Clemons, Jr., Personal Representative, T.C. Memo. 2022-95, filed 9/14/22.

Brett Sr. decided to stash cash away from about-to-be-ex Mrs. Brett Sr., by parking same with UBS, who0 ran same through an investment account, which the Swiss managed to Brett Sr.’s complete satisfaction, which he acknowledged in writing to the Swiss, but never to IRS. When the Federales finally blew the doors off the Swiss stashery, Brett Sr tried the Swiss branch of a German bank, until finally an IRS subpoena pries from Brett Sr’s attorney enough info to nail Brett Sr for Section 6663 fraud chops on his deficiencies, plus add-ons for late filing.

Of course, under the current FBAR offshore show-and-tell regime, with massive chops for nondisclosure of foreign accounts, this sort of dodging has lost a lot of adherents.

As the old stock exchange ads used to say, this notice appears as a matter of record.

Ch J Kathleen (“TBS = The Big Shillelagh”) Kerrigan has been wielding a big “DENIED” stamp lately as the boondockery conservation easements seek the Hewitt refuge. But Judge Albert G (“Scholar Al”) Lauber is nowise loath to join in.

Today, the target is Long Leaf Property Holdings, LLC, Long Leaf Manager, LLC, Tax Matters Partner, Docket No. 11982-16, filed 9/13/22.

The Longleafs are aiming at the two-week-old order I blogged on 8/31/22, in my blogpost “Line Up And Wait.”

The Longleafs get the “DENIED” stamp.

Reminds me of the flailing datestampers at the Glasshouse.

A correspondent asks when will we get to the real issue: valuation.

I can only quote Judge Holmes’ dissent in Oakbrook: “Today we uphold a regulation that will invalidate who knows how many other conservation-easement deductions, and will almost certainly lead to appeals in multiple circuits. If the Commissioner continues to seek gross-misvaluation penalties, we will also have to figure out in a great many cases how to determine which portion of an underpayment is attributable to a valuation misstatement and which is due to a failure of the conservation easement altogether, when it might justly be said to be attributable to both. See PBBM-Rose Hill, 900 F.3d at 214.

“I fear that our efforts to clear cut and brush hog our way out of the volume of conservation-easement cases we have to deal with has left us a field far stumpier than when we began.”

We’ve been hearing a lot about grand jury subpoenas and testimony lately, so in case some of the testimony may spill over into the realm of taxes, I’ll extract from Judge James S (“Big Jim”) Halpern’s discussion of what happens when the grand jury meets Tax Court, in Alan Brian Fabian, T. C. Memo. 2022-94, filed 9/13/22.

Al’s grand jury tour begins with his phony sale-and-leaseback operation and its unraveling in Bankruptcy Court. While Al’s C Corp was in Bankruptcy Court, the FBI got involved and called in IRS. IRS Special Agent F (name omitted) investigated, and suggested nailing Alan for money laundering and a Section 7206(1) filing false returns for a couple years (hi, Judge Holmes).

Alan cops to mail fraud and filing false returns in USDCDMD. Alan’s plea bargain, to which IRS is explicitly not a party, says IRS can pursue whatever remedies it may have. IRS does, and SA F’s pictures, descriptions, and accounts are front-and-center. Alan asserts that this is grand jury testimony, and cannot be revealed.

“…the district court issued its order granting the United States’ motion to disclose grand jury material to the IRS. The court made its order pursuant to Rule 6(e)(3)(E)(i) of the Federal Rules of Criminal Procedure (District Court’s Rule 6(e) order), finding that there was a particularized need to grant limited disclosure of grand jury material in connection with another judicial proceeding, viz, this case,  i.e., Fabian v. Commissioner, dkt. No. 25589-14. In pertinent part, the district court ordered that grand jury material in petitioner’s criminal case ‘shall be disclosed’ to the Tax Court, limited, however, to the disclosure of ‘information and records related to the resolution of the alleged tax deficiencies and penalties for the tax years 2002, 2003, and 2004.’” T. C. Memo. 2022-94, at pp. 17-18.

Alan’s argument that SA F wasn’t expressly authorized to disclose is a nonstarter.

“The consequence of the District Court’s Rule 6(e) order was to authorize a disclosure of a grand jury matter. The order did not specify a particular actor authorized to make the disclosure but simply ordered that the referenced grand jury material in petitioner’s case ‘shall be disclosed.’ Implicit in that order is that someone otherwise prohibited from disclosing the material may, with impunity,  disclose it to one of the permitted recipients, i.e., to the Tax Court. SA F may well have been a member of the class of persons otherwise prohibited from disclosing the material, but the order freed her, as it did everyone in that class, to disclose the material within the parameters set by the order. To the extent SA F’s testimony touched on grand jury material in petitioner’s criminal case, we see no violation of the grand jury secrecy rule established by Rule 6(e)(2)(A)  and (B) of the Federal Rules of Criminal Procedure.” T. C. Memo. 2022-94, at pp. 24-25.

Hint to the criminal defense bar: Don’t forget IRS when you settle your case.

Lakeisha Degourville, T. C. Memo. 2022-93, filed 9/12/22 shows the need for good trial preparation. Yes, Lakeisha’s was less than sterling, although the GA authorities had seized her records. But IRS’ wasn’t of the finest, either.

Lakeisha ran her own tax prep business and a hair salon. The tax prep “… was recognized as one of the largest tax return preparation companies in Columbus, GA, had continuous operations from 2009 until 2014, and employed approximately 18 persons on average.” T. C. Memo. 2022-93, at p. 2.

Unhappily, Lakeisha went down for State income tax evasion. IRS hit her for $439K of unreported income, plus a Section 6663 fraud chop. Judge Wells has the story; it’s the usual dealings in cash, claiming false filing status (HOH vs MFS), and lack of recordkeeping. While Lakeisha claims the GA authorities have all her records, she never asks for them before trial nor has kept back-ups. Hint: if your records are subpoenaed, copy them. If seized, demand they be produced if you need them for trial.

What I want to focus on is the Section 32(k)(1)(B)(i) 10-year lockout for EITC. Lakeisha and spouse both claimed EITC and claimed separate residences. IRS claims this was fraudulent, and wants Judge Wells’ “approval” to impose the lockout. But IRS asks for this in an Amendment to Answer, as the “approval” was never mentioned in the SNOD. Hence IRS has Rule 142(a)(1) BoP, as this is new matter requiring different proof.

Using belt-suspender-and-crazy-glue, IRS wants the 2-year Section 32(k)(1)(B)(ii) lockout if somehow Lakeisha avoids the fraud chop, T. C. Memo. 2022-93, at p. 17, footnote 6. But iRS does this in its Simultaneous Opening Brief, again earning BoP.

The result is a schemozzle at the trial.

“Respondent contends in the Amendment to Answer that petitioner improperly claimed the EITC in ‘various preceding tax years’ but neither alleges nor offers proof of a prior determination of fraud. Respondent does not identify nor allege the ‘most recent taxable year’ for which there was a final determination that petitioner’s claim to the EITC was due to fraud. Respondent does not clarify his view of the role played by the state conviction or any unidentified prior determinations by this Court. It follows that respondent has provided insufficient pleadings and supporting facts to permit the Court to determine compliance with section 32(k)(1) under a plain and ordinary reading of the statute.” T. C. Memo. 2022-93, at p. 17.

The 2-year lockout craters for the same reason.

Hint: If you have a bright idea that you never pled before, know what you have to prove and be ready to prove it.

I’ve hewn and shaped the Bard’s famous line from Hamlet, to show another example of how 11 Cir’s evisceration of Reg Section 1.170A-14(g)(6)(ii) upends previously-granted summary J.

I didn’t blog the earlier appearances of Battelle Glover Investments, LLC, Battelle Investment Group, LLC, Tax Matters Partner, Docket No. 6904-19, filed 9/12/22. This case featured another “highly contestable reading of what it means to be perpetual,” same-old.

Now, of course, post-Hewitt, whatever such are still in the Rule 161 30-day reconsideration window are up for grabs. Of course the Battelles move, Judge Courtney D (“CD”) Jones reconsiders, ditches her prior orders, gives the Battelles summary J that Reg Section 1.170A-14(g)(6(ii) is invalid, and  tells IRS to try the fact question of the dueling Forms 8283, for which see Order at pp. 6-7. Was there or was there not a missing statement of cost basis?

When it comes to this South East Conference of marked-up boondockery, it’s Hewitt that’s the destiny that shapes the parties’ fates.

Edited to add, 9/12/22: From a source, “I believe this CE [conservation easement] agreement had the same flaw as TOT and Plateau, that is a FIXED sharing in $$ condemnation etc, which they later corrected by an amended deed. Not a fixed %. That’s twist on facts in Hewitt.” The source went on to express surprise at the dueling 8283s. Indeed, most unusual; should be an interesting trial (or evidentiary hearing).

Tax Court Judges generally (love that word! Exception to follow, see infra) grant motions by issuing orders. These can be as short as a single sentence, or cover at least as many pages as an opinion, even as many as a full-dress T. C. Most of the time the order will summarize the object sought by the motion, the reasons for granting or denying same, and any right to renew the motion (with prejudice or without).

While orders are not precedential, may not be cited, and at best are law of the case, they do provide insight into how the Judge views the relief sought in the context of the case.

However, Tax Court Judges can simply grant or deny the relief sought by stamping the moving papers “GRANTED” or “DENIED,” and say no more.

Judge David Gustafson gave us an example of the stamp method, which I described in my blogpost “Make It Easy,” 8/21/20. There, the rescheduling of a series of deadlines, to which the parties agreed, could have been resolved by simply stamping the moving papers.

Today, Ch J Kathleen (“TBS = The Big Shillelagh”) Kerrigan wields the “DENIED” stamp on a bushelbasketful of motions for assignment of a judge. See, e.g., Orange Stone, LLC, Marlin Woods Capital, LLC, Tax Matters Partner, Docket No. 30286-21, filed 9/9/22.

Generally (love that word!) that motion gets a two-sentence order, naming the lucky recipient and telling the clerks to hand the winner the file.

Not this time. Not today.

Why not?

A source tells me IRS moved for appointment of a judge in some sixty (count ’em, sixty) cases of a type selected by some software sorter. Various petitioners have objected; some cases are at Appeals, and many have not had any discovery.

Looks like this is the latest automation move from the newly-invigorated IRS.

Whether on a laptop or in a looseleaf binder, the trial notebook is essential. It is the master checklist for conduct of the trial. Make sure whatever you need is in there, so that all the necessaries will be to hand when you need them out there in Tax Court.

Today, Judge Albert G (“Scholar Al”) Lauber gives us a table of contents for what goes in after pleadings and dispositive orders, borrowed from the parties’ counsel in CD LIstening Bar, Inc., et al., Docket No. 11369-16, filed 9/8/22.

It needs some tailoring for specific cases, but this order gives a thorough outline of what should be to hand when the time comes.

Once again, the warning I heard so long ago: “Be careful what you ask for…you might just get it” echoes through the Glasshouse halls, as Judge Albert G (“Scholar Al”) Lauber gives  Eric D. Clarkson, T.C Memo. 2022-92, filed 9/7/22, what he asked for. But it helps Eric not at all.

I never met up with Eric before, but apparently Eric is a long-time frivolite; Judge Scholar Al has Eric’s résumé in T. C. Memo. 2022-92, at p. 2. But Eric never yet got the Section 6673 frivolity yellow card, so he gets it now, T. C. Memo. 2022-92, at p. 13.

Anyway, fighting over some fourteen (count ’em, fourteen) years’ worth of tax, Eric sends in a bunch 1040s (hi, Judge Holmes), all-zeroes, claiming the old employment-tax-income-tax mismatch.

Question is, are those 1040s “returns”? IRS hit Eric with the Section 6702 frivolous return chop. Unlike Gwen Kestin’s, his weren’t photocopies nor were they so labeled, T. C. Memo. 2022-92, at p. 9.

Moreover, Eric “… repeatedly characterized his Form 1040 submissions as ‘tax returns.’ Indeed, when FRP [Frivolous Returns Program, IRS’ unfrivoliziers) sent him Letters 3176C warning that it considered his ‘submission’ frivolous and offering him the opportunity to withdraw them, he replied that they were not mere ‘submissions” and demanded that the IRS process them as “returns.” T. C. Memo. 2022-92, at p. 9.

Eric gets what he wanted. His 1040s are returns; but they’re also frivolous, and he gets the chops.

For the backstory of today’s installment, see my blogpost “Whistleblower Confidential,” 7/13/22. Now we have Whistleblower 20442-18W, filed 9/6/22 with the same story as 972-17W, the star of the above-cited blogpost. 20442 says IRS used his stuff to get money out of Target (not the department store); IRS says they had it all along, and 20442’s stuff added nothing, neither what he first proffered nor his supplements. So the Ogden Sunseteers bounced 20442’s Form 211.

20442 and IRS wanted, and got, a Rule 103 protective order for some Section 6103 material IRS would let 20442 quick-peek. They did discovery, but 20442 wasn’t happy, and wanted IRS’ “…complete administrative file, with no redactions, and its complete audit files for Target’s 2007–2015 years.” Order, at p. 2.

IRS claims “…the redactions to the administrative file are justified by the attorney-client privilege, the deliberative process privilege, and/or his obligation to protect confidential taxpayer information under section 6103. Respondent contends that the 2007–2015 audit files for Target are outside the scope of permissible discovery because they were not considered by the WBO and thus are not part of the administrative record. Alternatively, respondent contends that the audit files cannot be disclosed to petitioner because they constitute confidential taxpayer return information protected by section 6013.” Order, at pp. 2-3.

Judge Albert G. (“Scholar Al”) Lauber, showing once more his deft deflection of difficult decisions, notes that 972-17W deflated the Section 6103 defense with Section 6103(h)(4)(A), so maybe the taxpayer return info is in play. But Judge Emin (“Eminent”) Toro, who wrote the opinion in 972-17W, noted that not every piece of paper or electron IRS may have is part of the Ogden Sunseteers’ admin record. And IRS can always use Rule 27(a) and Rule 103(a) to set seals.

972-17W is not a ticket to a free-fire look-see.

But Judge Scholar Al isn’t quite ready to decide this.

“The Court would benefit from additional briefing from the parties in light of this recent Court-reviewed opinion. We request that the parties address the following questions (and any others they believe pertinent): (1) the extent (if any) to which section 6103 justifies redactions to the WBO administrative record to prevent disclosure to petitioner of third-party tax information, (2) the extent (if any) to which the other redactions respondent has proposed to the WBO administrative record—i.e., redactions unrelated to section 6013—are objectionable, and (3) the extent (if any) to which the IRS audit files for Target’s 2007-2015 tax years can be considered part of the administrative record of this case.” Order, at pp. 3-4.

Papers due 10/3.

We are all, I am sure, breathlessly awaiting the adoption, enactment, and publication of the Amended Tax Court Rules of Practice and Procedure proposed back in March by then-Ch J Maurice B (“Mighty Mo”) Foley. See my blogpost “A Chip Off the Old Rock,: 3/23/22.

Perhaps the current waiting time has been the result of numerous cogent comments from selected stakeholders, whoever those worthies may be.

Howbeit, United States Tax Court is closed today, 9/5/22, inasmuch as this day is “the day set aside by statute for observation of … Labor Day….” Proposed Amended Rule 25(a)(5)(A).

So today I don’t labor, either.