Judge Courtney D (“CD”) Jones’ opinion in Estate of William E. DeMuth, Jr., Deceased, Donald L. DeMuth, Executor, T. C. Memo. 2022-71, filed 7/12/22, brought back to my memory the tragic 1981 murder of Prof. (formerly Dean) Norman S. Penney, who taught me negotiable instruments 57 (count ’em, 57) years ago, on The Hill Far Above. Oh, was I clueless, until I finished typing an outline of my course notes at 2:00 a.m. the morning of the final. I got a “B” in a course I should have failed. Bless his memory.

Judge CD Jones must have gotten at least a “B” at Harvard when she took the course, because she knows the difference between a drawee bank and a depositary bank, and that the final payment rule can only be satisfied by the drawee bank, not the depositary bank.

For the civilians among you, when you write a negotiable instrument, like a check, the “drawee” bank is the bank where your money is. You are drawing on your balance at that bank. If the person you named in the check (the “payee”) deposits the check in their account at the same bank, the depositary bank is also the drawee bank. But if that person deposits your check in another bank, that bank is the depositary bank, so that deposit is not “cleared” (“paid”) until the drawee bank pays the depositary bank the amount of the check. Forget about “available” funds; that’s a fiction. And electronics have different rules.

Judge CD Jones calls out both IRS counsel (for giving away $70K of taxable estate by not knowing the difference and thereby conceding checks deposited by the payees in depositary banks, not the drawee bank, were out of the estate), and the ex’r’s counsel for not knowing the difference either.

Ex’r had POA for his late Dad. As Dad’s life was near its end, ex’r wrote a bunch checks (hi, Judge Holmes) to family members as he had done for some years, as the POA entitled him to do. But only one (count it, one) got paid by the drawee bank before Dad died.

Judge CD Jones checks out the PA UCC (Uniform Commercial Code), an enactment that covers bank stuff in a uniform framework. Ex’r could stop the checks any time before final payment by drawee; the issue is could, not would or did. Section 2033 and Reg. Section 25.2511-(2)(b) include in a decedent’s estate all cash on hand and in bank at death. The cash was there in drawee bank until drawee bank paid it out.

And Judge CD Jones knows that the distinction between a gift inter vivos and a gift causa mortis plays no part here, because until the check is finally paid, there is no completed gift. See T.C. Memo. 2022-71, at p. 8, footnote 10. “…the distinction made by the parties between causa mortis and inter vivos gifts is improper and irrelevant.”

I recommend Judge CD Jones’ opinion to anyone struggling with negotiable instruments law. I’m sure Norm Penney would have given her an “A”.

The latest entry in my “ambush” sequence is the most important. Judge James S (“Big Jim”) Halpern has a lot to say about unexplained delay by petitioner seeking to amend their petition six-plus years after telling IRS’ counsel they wouldn’t seek to amend on that issue, in TBL Licensing LLC f.k.a. The Timberland Company, and Subsidiaries (A Consolidated Group), T. C. Memo. 2022-71, filed 7/12/22.

But the bottom line is “(P)etitioner acknowledges that we have ‘denied motions to amend pleadings that were filed after a trial based upon “the established policy of this Court to try all the issues raised in a case in one proceeding.’” The prospect that a posttrial motion for leave can properly be denied does not establish that we have no choice but to grant a motion for leave made in any case in which no trial has yet been held. Although we resolved without trial the section 367(d) issues the parties presented on summary judgment, the case required extensive proceedings up to that point. The parties submitted thousands of pages of stipulated documents in connection with their Motions for Summary Judgment.  The burden on the Court of resolving the section 367(d) issues was not materially different because the parties submitted those documents by stipulation rather than in a trial. In positing that respondent be given ‘as much time as he needs to consider [its] entitlement to tax credits,’ petitioner, in effect, asks that we put on indefinite hold a case we have already decided and require respondent to open, conduct, and complete an examination of a previously unexamined issue. Our caselaw does not establish that parties are, in all events, entitled to one trial.” T. C. Memo. 2022-71, at pp. 14-15.

All y’all will recall that Judge Big Jim handled the Section 367(d) income pickups of Timberland’s inversion on submitted facts, more particularly bounded and described in my blogpost “Into the Woods – Part Deux,” 1/31/22, as corrected 2/8/22.

The Timberlands’ claim that IRS accepted the Section 41 research credits in years prior to year at issue evokes Judge Big Jim’s Einsteinian reply that you don’t do identical research year after year, leaving out that expecting different results is crazy. When one experiment fails, you try another.

And stale facts are a fresh problem, especially when dealing with research credits, which require an item-by-item drilldown.

The Timberlands’ trusty attorneys barely avoid a Taishoff “Oh, Please.”

Lower The River

That’s Congressional engineering for ya, as exemplified by Section 24a, the child tax credit, $1K per kiddo, $3K max. But to the extent the allowable credit exceeds total tax due, the overage is transmuted into the additional child tax credit per Section 24(d), and is “refunded” to the taxpayer.

The quotation marks are used, because I do not see how that which was not paid can be “refunded” to the non-payor, but that’s the people’s duly elected representatives for ya.

Judge Morrison man-‘splains, in Damian Peter Daly & Jeanne Daly, et al., Docket No. 23070-19S, filed 7/11/22.

” For 2016, the Dalys reported that they owed tax of $226. They claimed a $226 child tax credit and an additional child tax credit of $2,774. The adjustments in the notice of deficiency resulted in an increase in the tax liability of the Dalys above $3,000. As a result, the notice of deficiency disallowed the $2,774 additional child tax credit and increased the child tax credit by the same amount, $2,774.

“In summary, the notice of deficiency allowed $3,000 for the total of both the child tax credit and the additional child tax credit, which is the total amount the Dalys claimed for both credits.” Transcript, at p. 6.

It has been said that worshipping the Internal Revenue Code is not idolatry: it is not “like any thing that is in heaven above, or that is in the earth beneath, or that is in the water under the earth.”

We’ve had it “always ding, dinging” in our ears to return phonecalls promptly, even before the NY Chief Judge’s Civility Rules. And far be it from me to condone, much less advocate, doing anything else.

But That Obliging Jurist Judge David Gustafson is willing to extend some leeway to an SO, at least to the extent of not deeming it an abuse of discretion, not to return a phonecall. Here’s the Candace Hellyar and Stephen Hellyar, Docket No. 12791-20L, filed 7/11/22, story.

“The crux of the Hellyars’ opposition to the Commissioner’s motion is that ‘SO R did not respond to Mr. Heller’s voicemail message [left July 14, 2020]. Instead, she closed the case’ without any further communication when she issued the notice of communication [sic; I think you meant “Notice of Determination” Judge} two and a half months later on September 30, 2020. It may be that a ‘best practice’ would always be to return every phone call, but we cannot say that the SO’s failure to do so in this instance constituted an abuse of discretion.  The CDP hearing is an opportunity for the delinquent taxpayer to request forbearance by the IRS in its discharge of its obligation to collect taxes that are due.  The taxpayer does not always fulfill his role in that hearing simply by trying to return a call and then leaving it to IRS Appeals to initiate further communication. IRS Appeals had given due consideration to the Hellyars’ 4% OIC and had, in the absence of any specific proposal by the Hellyars, made its own proposal of an installment agreement to which it would agree. It was then incumbent on the Hellyars to make a substantive response to IRS Appeals’ proposal. Instead, they simply left a voicemail message that (as the Hellyars describe it) ‘request[ed] an opportunity to discuss the appeal’. This may have been a reasonable first step. But when that communication stalled and IRS Appeals did not reply, the Hellyars were not entitled to sit back for weeks on end, leaving it to IRS Appeals to move the matter forward. IRS Appeals had already given its suggestion of the way forward—i.e., the installment agreement it had proposed. The ball was in the Hellyars’ court, not IRS Appeals’s. It was not an abuse of discretion for IRS Appeals to determine after the passage of two more months that the Hellyars would not be accepting the proposal of an installment agreement nor making a counter-proposal.” Order, at p. 6. (Name omitted).

Return phonecalls. Follow up when the other side does not. Document every effort to communicate. And tell ’em the Hellyars sent ya.

Might as well, as DC Cir has rendered that enactment completely illusory. And pension off the Ogden Sunseteers; there’s no reason for them to report for work, either physically or electronically, as all they have to do post-Li is nothing.

Mandy Mobley Li offered herself up on toast. As I said when Mandy Mobley first surfaced, “…perhaps maybe so this is a family law thing gone wrong. Just sayin’, not fur nuthin’.” See my blogpost “Ran The Checklist,” 4/6/20.

And Mandy Mobley was pro se then and thereafter. So when she was well and soundly trounced by Judge Courtney (“CD”) Jones, she appealed to DC Cir, all by her lonesome.

Remarkably, despite the much-proclaimed lenity shown pro ses, especially those as obviously hapless as Mandy Mobley, rather than seeking pro bono assistance for her, DC Cir engaged two attorneys (qualifications unstated and to fame unknown as far as the internet goes) as amici, to teach DC Cir about jurisdiction under Section 7623.

Truly, I can’t make it out.

I thought judges were the ones to decide questions of law. The only time an expert opinion might be required is when foreign law was at issue. Or so I thought.

As it happened, no sooner did the two amici conclude (might I indulge in a wee “nudge nudge, wink wink, say no more”?) that Tax Court had no jurisdiction unless IRS did something besides toss the claimant, than IRS folded. What Mandy Mobley did is unclear, but probably resembled a deer in the headlights.

From IRS counsels’ point of view, this is a gift. This is one entire area in which they have to do no work. Ditto from the Ogden Sunseteers’ point of view. And as Tax Court has exclusive jurisdiction (Section 7623(b)(4)), I can’t think but that a reduction in workload is welcomed by that hard-pressed Bench.

Now all that’s necessary is for Ch J Kathleen (“TBS = The Big Shillelagh”) Kerrigan to issue the stereotyped order in, for example, Ronald R. Kopko, Docket No. 19210-21W, filed 7/8/22. “…the stay of proceedings in this case is lifted. … the parties are no longer required to file status reports on or before September 30, 2022. … on the Court’s own motion, this case is dismissed for lack of jurisdiction.” Order, at p.1.

But how about claimants who have something? And who can’t afford to hire or engage counsel? Are contingency fees permitted in whistleblower cases (cf. Circular 230, 31 CFR §10.27(b))? It’s not clear.

So the tax whistleblower statute, a creaky vehicle at its best, is now completely broken down.

Unless another Rich Lacey, with the wherewithal to pay counsel, arises from without the bounds of DC Cir, gets tossed by the Ogden Sunseteers and Ch J TBS, and appeals to a different Circuit, whose Judges aren’t afraid to decide the law their own selves. And maybe so even make some people work for a living.

For Rich Lacey’s story, see my blogpost “The Whistleblower Office – Blown,” 11/25/19

Note this is a nonpolitical blog; my views of current Federal judicial appointments have no place here.

Judge Courtney D (“CD”) Jones was much moved by the plight of Julian Wolpert and Estate of Eileen Wolpert, Deceased, Julian Wolpert, Executor, T. C. Memo. 2022-70, filed 7/7/22. Y’all will no doubt remember IRS counsels’ attempts to wild-card the “goofy regulation” into an indocumentado Section 162 deductions case, and an equally far-fetched endeavor to claim The Calculation Electronic duck of Boss Hossery.

What, no? Then see my blogpost “If At First You Don’t Succeed, Don’t Make It Worse,” 3/16/22.

Julian urged that trial must proceed speedily, because his trusty attorney’s equally trusty law student clinicians were about to scatter for summer vacation (or maybe white-shoe summer internships).

Well, student aid avails one little, if for substantiation one has only the Michael Corleone gambit. It seems one of Julian’s nearest and dearest, shortly after the decease of the late Eileen, inadvertently tossed the business records that could have saved part of the day.

“Notwithstanding Mr. Wolpert and the estate’s vague representations on brief that Ms. Narli inadvertently threw out business records stored in the Wolperts’ Honesdale residence following Mrs. Wolpert’s death, there is no evidentiary basis in the record (including Ms. Narli’s testimony) supporting such an allegation.” T. C. Memo. 2022-70, at p. 16. (Footnote omitted, but see infra, as my expensive colleagues would say).

“Mr. Wolpert and the estate did not specify when this incident allegedly took place. If the business records were thrown out in mid-2016, such an incident should have had no impact on business records generated after that date (including all of 2017).” T. C. Memo. 2022-70, at p. 16, footnote 32.

A couple times (hi, Judge Holmes) Judge CD Jones notes there isn’t even an attempt to Cohanize whatever isn’t sunk by Section 274 specificity.

In the interests of full disclosure, I note that one of the trusty student aides from Prof. Maresca’s Fordham Law School’s clinic spent a summer interning at a law firm with which I share office space. I was unaware of her involvement in this case until I read the opinion today.

We’ve all been there: the note of triumph, as the decision is a paean of victory, or the grating, jarring grind of defeat as the judge eviscerates all the work one’s done. And then the brisk movement, or painful trudge, to the street, where the world is going about its business regardless.

But whichever it is, counsel, Judge Ronald L. (“Ingenuity”) Buch has a reminder for you. Pick up your trial exhibits. Appeal or no appeal, whatever you’ve given in discovery, attached as exhibits to motion papers, or introduced on the trial, make sure you pick them up, or, at the very least, have copies that you can certify as true copies of the originals.

Unfortunately, fifteen years ago, when John Edward Barrington and Deanna Barrie Barrington, T. C. Memo. 2022-68, filed 7/6/22, were copping heavy-duty pleas to fraud and tax evasion, the high-speed scanner and The Cloud were not to be found in every office. “Documents obtained by the government in pursuit of the Barringtons’ cases consisted of more than 10,000 pages, including records seized by the FBI. Their attorneys gave them copies of discovery documents.” T. C. Memo. 2022-68, at p. 3.

Of course, today every 9-year-old knows that 10,000 pages barely wets the beak of an off-the-shelf 1-terabyte hard drive. Solely by way of illustration of the foregoing, see my blogpost “The Forty Million,” 4/29/15.

But John’s and Deanna’s attempt to overturn IRS’ deficiencies founder for want of the documentation they could have had, but didn’t.

“In the time between the criminal pleas and the Commissioner’s civil examination, the FBI’s records were destroyed in the ordinary course of its operations. The FBI notified the Barringtons that they could reclaim their records and held them for some time. During that time, the Barringtons never attempted to reclaim their records, and the FBI destroyed them in late 2009. When the Commissioner commenced a civil examination in 2012, the examination function could not obtain records from CI because they were grand jury materials.  Bank records were also unavailable because of the amount of time that had elapsed since the years at issue. As a result, the Commissioner used the information and figures from the plea agreements as the basis for his deficiency determinations.” T. C. Memo. 2022-68, at pp. 5-6. (Footnote omitted, but it says the grand jury materials were destroyed by Criminal Investigation in “the normal course of operations.”)

Spoliation worth a try? Intent to preserve is an issue. And we don’t know if John and Deanna were in the slammer when they could have tried to recover the documents.

Anyway, John and Deanna have nothing wherewith to rebut most of IRS’ numbers.

Takeaway- Pick up your trial exhibits (and everything else). Scan and back up.

Clair R. Couturier, Jr., T. C. Memo. 2022-69, filed 7/6/22, is back, but the ten (count ’em, ten) years’ worth of 1040s he failed to hide from the motley viewers at 400 Second Street, NW (for which see my blogpost “The Place Where There Is No Darkness,” 4/1/19) avail him nothing. IRS never examined any of them before they hit Clair with the Section 4973 6% per year chop on the $25 million excess contributions.

So Clair’s estoppel arguments go down. And I was right three years ago: it was an IRA retroactively rejected.

Clair was disqualified as to two pieces of his IRA package, so when he cashed out and rolled, he didn’t have a taxable event until he made good the excess by taking it in as income in whatever year he chose, or until IRS called him on it, but the 6% chop kept right on going.

Now before my ultra-hip readers go all Hellweg on me, remember that IRS had actually examined the 1040 for year at issue in Hellweg, took one position, and then reversed field. See my blogpost “Foolish Consistency,”  5/5/11.

Here’s Judge Albert G (“Scholar Al”) Lauber with the story.

“Petitioner’s reliance on Hellweg is misplaced for the same reason the taxpayers’ reliance was misplaced in Mazzei I. In Hellweg the IRS examined the taxpayers’ income tax returns, issued them ‘no change’ letters, conceded the transaction’s validity for income tax purposes, and sought to take the opposite position when asserting an excise tax deficiency. The IRS in the instant case did not examine petitioner’s … income tax return and took no position regarding the tax liability reported on that return. Petitioner seeks to equate the IRS’s inaction on the income tax front with its explicit concession in Hellweg. But as explained previously, the IRS’s failure to examine a return, or to challenge a particular position taken on a return, does not constitute a concession or admission that the taxpayer’s position is correct. * * * * The IRS did not take ‘inconsistent positions’ here, as we found that it had done in Hellweg. And while the IRS may be ‘legally precluded’ by an explicit concession, it cannot be precluded by inaction, inattention, or silence.” T. C. Memo. 2022-69, at p. 10. (Footnote omitted, but it discusses Ohsman, which I discussed in my “Foolish Consistency” blogpost, above cited).

For Mazzei I, see my blogpost “Foolish Consistency – Redivivus,” 4/1/14.

Y’all may have noticed a lack of Section 7623 whistleblower cases on this my blog, and elsewhere.  No surprise, as Mandy Mobley Li put paid to Tax Court review of anything except where IRS actually proceeds administratively or judicially. The Ogden Sunseteers can rest in certainty that, if they do nothing, they are exempt from judicial review.

See my blogpost “Sealed and Blown,” 5/17/22.

So today Atm Shafiqul Khalid, Docket No. 13967-19W, filed 7/5/22, is tossed as a thresholder reject. Y’all will remember Atm from my blogpost “It’s An Order, Not A Suggestion,” 11/20/20; if you don’t remember, Atm was the man who refused to abide by a Rule 103 protective order from then-Ch J Maurice B (“Mighty Mo”) Foley.

Today, DC Cir has spared Ch J Kathleen (“TBS = The Big Shillelagh”) Kerrigan from any need to deal with Atm or motions pro or contra.

“By opinion issued January 11, 2022, in the case of Li v. Commissioner, 22 F.4th 1014 (D.C. Cir. 2022), the Court of Appeals for the District of Columbia Circuit held that the Tax Court lacks subject matter jurisdiction of whistleblower cases, such as this one, involving threshold rejections of claims for whistleblower award. By Order issued March 4, 2022, proceedings in this case were stayed pending the final outcome of Li v. Commissioner. The court of appeals’ judgment in that case is now final.” Order, at p. 1.

So the stay of proceedings is lifted, in order to toss Atm, moot all pending motions, and relieve the parties from filing any further status reports.

But just for the record, I’ll repeat what I said back in May: “Taishoff says DC Cir has made mincemeat of the whole tax whistleblower system. All the Ogden Sunseteers have to do is do nothing; no award, no Tax Court jurisdiction (and Tax Court’s jurisdiction is expressly “exclusive,” so no one else can look either).

“So thanks to DC Cir, the brand-new Chief Whistler Mr. John W. (“Hoppin’ John”) Hinman has the easiest job in the world; he can run the 100% sequester.”

Though the nomenclature might be a wee bit confusing, last month there was celebrated as a national holiday for the first time National Independence Day, s/a/k/a Juneteenth. Today is celebrated just plain Independence Day.

In each such event, Tax Court is closed, and so am I.