Judge David Gustafson completes the saga of Johannes Lamprecht and Linda Lamprecht, T. C. Memo. 2022-91, filed 8/31/22. For those seeking backstory, I’ve done six (count ’em, six) blogposts featuring the Lamprechts’ duel with IRS, but Judge Gustafson outdoes me with complete list of his orders by reference to the docket, at p. 11, footnote 12.

The Lamprechts were Swiss nationals with US green cards for years at issue, who didn’t disclose their Swiss earnings on their US 1040s. But the famous Section 7609 John Doe subpoena to UBS, which kicked off OVDI, put Johannes and Linda on the IRS radar. Thereupon, Johannes and Linda filed amended returns, and paid up the $621K they owed for Year One, and the $1.8 million they owed for Year Two.

But they never paid the substantial understatement chops, claiming their amended returns were Section 6664 qualifying amended returns so they came clean before they were nailed, the 6SOL had run before the SNOD, and the Boss Hoss Section 6751(b) was defective.

Last one first. The RA used “‘Form 5345–D, “Examination Request-ERCS (Examination Returns Control System) Users’, requesting that the Lamprechts’ return for the [Year Two] be opened for xamination for the purpose of assessing the section 6662 accuracy-related penalty.” T. C. Memo. 2022-91, at p. 9. The RA later used the same form for Year Two. And both were signed off before Johannes and Linda heard Word One about chops. But Johannes and Linda claim RA should’a used a CPAF, per IRM.

Judge Gustafson: “The IRM is a sprawling instruction manual, the various parts of which are amended at different times, and its penalty-related provisions are scattered throughout. The year after these Forms 5345–D were signed, the IRM included an express provision that examiners ‘gain their manager’s approval to open a penalty case’ (the action taken by Form 5345–D) ‘[a]fter [the] examiners determine that a penalty is warranted.’ IRM 20.1.9.2.1(1) (July 8, 2015) (emphasis added).” T. C. Memo. 2022-91, at p. 18, footnote 17.

 The IRM is not law, creates no obligation on IRS, nor creates any rights in petitioners.

The 7609 John Doe is complicated by the facts. UBS got its back up, and the Helvetian Confederation got its back up, so there was reference to the US-Swiss tax treaty after IRS went to USDC to enforce the subpoena. The US, UBS, and the Confederation stiped to dropping the enforcement proceeding, but not the subpoena. Bottom line is that there was compliance, and Johannes and Linda amended only after compliance. But how long was the tolling of 6SOL on account of noncompliance? Johannes’ and Linda’s argument that dropping enforcement ended the toll loses. Their argument that the subpoena was improper as a method of getting what IRS could’a gotten under the tax treaty also loses; using two methods to get discoverable material is OK. And query the standing of a party not subpoenaed or named in the subpoena to question the validity of a subpoena. So longer tolling, and 6SOL didn’t run when the SNOD for the chops issued.

Finally, the qualified amended return issue. Johannes and Linda rely on Reg. Section 1.6664-2(c)(3)(i)(D)(1), which says you’re not qualified if you claimed a tax benefit on the return you’re seeking to amend. They claim they took no benefit, only didn’t report income. Johannes said he didn’t think Swiss income was taxable to a US green cardholder.

Judge Gustafson says that Johannes was trying a defective Foreign Earned Income Exclusion. If allowed, it would make nonreporting and amending later better than reporting upfront and losing. Also, Johannes and Linda itemized their deductions, and the amended returns substantially increased the phaseouts of their Schedule As. So they did claim the benefit of the unphased deductions, which they had to amend away.

IRS gets summary J for the chops. And Johannes’ and Linda’s trusty attorney gets a Taishoff “Good Try.”

Way back, in what seems another lifetime, I made the callow (not to say silly) remark that I wouldn’t cover the Section 7463 small-claimers. Man, did that earn me a lifetime’s supply of roast crow!

Here’s a couple small-claimers (hi, Judge Holmes) that tell interesting stories.

George W. Butterfield and Christina L. Butterfield, T. C. Sum. Op. 2022-16, filed 8/30/22, looks like another indocumentado unreimbursed business expenses case. But there’s a twist. Roadie construction supervisor George maybe so can beat the Reg. Section 1.274-5T(c)(3) tag for some meals and lodging. But George got travel per diem payments from his employer.

CSTJ Lewis (“My Kind Of Name”) Carluzzo needs to get it sorted out.

“Under section 62(a)(2)(A), an employee can deduct certain business expenses incurred in connection with the performance of services for an employer under a reimbursement or other expense allowance arrangement. If these expenses are reimbursed by the employer pursuant to an ‘accountable plan,’ then the reimbursed amount is not reported as wages on the employee’s Form W–2 and is exempt from withholding and payment of employment taxes. Treas.  Reg. § 1.62-2(c)(4). A reimbursement arrangement must satisfy certain regulatory requirements to be considered an accountable plan; if the
arrangement does not satisfy these requirements, amounts paid under the arrangement will be treated as paid under a ‘nonaccountable plan.’ Id. subpara. (3). Amounts treated as paid under a nonaccountable plan are included in the employee’s gross income, are reported as wages on the employee’s Form W–2, and are subject to withholding and payment of employment taxes. Id. subpara. (5). Expenses attributable to these amounts may be deducted, provided the employee can substantiate the full amount of his or her expenses. Id.

“The parties have not addressed whether the per diem payments were made under an accountable or a nonaccountable plan, and otherwise there is conflicting evidence on the point. If the per diem payments were paid under a nonaccountable plan and included in the income shown on petitioners’ return, then petitioners are entitled to deductions for meals and lodging to the extent deemed substantiated as discussed above. See id. To the extent that the per diem payments were paid under an accountable plan (or were otherwise not included in petitioner’s income from [employer]), petitioners are not entitled to a deduction for meals and lodging because they have not established that the expenses for those items exceed the amount of the reimbursement.” T. C. Sum. Op. 2022-16, at p. 6. (Citation omitted).

How to sort this out? Let George and IRS do a Rule 155 beancount, whereat they can “determine easily” which the per diems were. But if they can’t, let them come back for more trial. T. C. Sum. Op. 2022-16, at p. 6, footnote 4.

Ruben H. Domdom, Jr., T. C. Sum. Op. 2022-17, filed 8/30/22, loses his Section 911 Foreign Earned Income Exclusion, but it isn’t because of the US condo he rented, nor the US house he owned where ex-spouse and children lived, or the US bank account where he kept that foreign income. And it isn’t because of the walled enclosure in Iraq where he lived, or his limited sorties therefrom.

No, Ruben filed HOH.

CSTJ Lew puts the inside seam of the baseball on the outside corner of the plate at the knees.

“To qualify as the head of a household the taxpayer must, among other requirements, ‘maintain[] as his home a household which constitutes for more than one-half of such taxable year the principal place of abode . . . [of] a qualifying child.’ §2(b)(1)(A)(i). Section 152(c)(1)(B) provides that a child is a qualifying child of a taxpayer if,  among other requirements, he or she ‘has the same principal place of abode as the taxpayer for more than one-half of such taxable year.'” T. C. Sum. Op. 2022-17, at p. 5.

But the SNOD bouncing Ruben’s Section 911 status never contested, and IRS never pled, Ruben’s filing status. IRS only raised the issue on a post-trial motion to conform pleadings to proof, to which Ruben objected as to timing, not substance. CSTJ Lew agreed and bounced the motion, but Ruben never claimed or conceded his filing status was anything but HOH.

So since Ruben has BoP, and since he cannot have a simultaneous abode in Iraq (for the 911) and in the US (for HOH), his proof is internally inconsistent, and he loses.

But since Ruben used a paid preparer, to whom he told the whole story, he avoids the five-and-ten substantial-understatement-of-tax chop.

Two physical injury exclusion-excuses cases are on tap at 400 Second Street, NW, today. Leading off, Thomas J. Dern and Peggy M. Dern, T. C. Memo. 2022-90, filed 8/30/22. No question Tom was sick: gastrointestinal bleeding and a heart attack caused hospitalization more than once. Tom was a traveling salesman who couldn’t travel, and his employer fired him. Tom sued for disability discrimination, and got a big settlement.

You can guess the rest. The settlement documents never mentioned physical ailment or injury. Tom’s ailments weren’t caused by his work. While his six-figure legal fees and court costs were deductible per Section 62(a)(20), the rest wasn’t. Tom’s trusty PI attorney would have benefitted from the settlement-drafting course given by the New York State Academy of Trial Lawyers a couple months back (hi, Judge Holmes). Best and cheapest CLE around.

Judge Vasquez, often pro-petitioner, can’t help Tom.

“While the settlement agreement provides for a payment ‘to compensaten [Mr. Dern] for alleged personal injuries,’ it does not specify whether those injuries were physical. Instead, it provides for a broad general release by Mr. Dern of  ‘all claims known or unknown.’ This general release does not specifically allocate any part of the settlement agreement to personal physical injuries or physical sickness. The nature of Mr. Dern’s claim cannot be determined from such a release.” T. C. Memo. 2022-90, at pp. 6-7.

Of course, general releases are broadly drawn; defendants pay for peace, and want to make sure they get it. But viewing the complaint to find what the parties think they settled doesn’t help. The complaint specifies violations of CA employment and human rights laws. Now I don’t fault Tom’s trusty PI attorney for the State law discrimination approach. Arguing and trying physical injury when same not caused by employer or worksite conditions is likely to get tossed on motion in State court (and probably Federal Court too). The issue was discrimination based on physical disability, not what caused the disability.

Tough case.

George Anton Remisovsky and Ellen Jones-Remisovsky, T. C. Memo. 2022-89, filed 8/30/22, raises disability as an excuse for Section 6651 late-filing and late-paying add-ons. This one comes up on a CDP concerning the add-ons, as the taxes are self-assesseds.

GA claims depression and other ills as excuses, and rejects the IA Appeals offers because it includes the add-ons. Judge Albert G (“Scholar Al”) Lauber says GA made no counter, so SOs need not negotiate with themselves.

As for disability, GA doesn’t establish that he was incapacitated when the returns were due.

“Assuming arguendo that petitioner husband was too ill to file, petitioners presented no evidence that petitioner wife (who did not testify at trial) was unable to discharge this obligation. Petitioner wife was employed…as a retail manager and had an independent filing obligation. Each taxpayer has a nondelegable duty to file. The incapacity of one’s spouse does not constitute a per se excuse for failure to file a return. Indeed, petitioners at the relevant times appear to have had an established relationship with an accountant, who prepared their [previous year’s] return and hand-delivered it to the IRS…. Petitioners did not explain why one of them could not have telephoned the accountant to set the wheels in motion for the preparation and filing of a [year at issue] return.” T. C. Memo. 2022-89, at p. 6. (Citations omitted).

You may be hurt, but IRS committed no foul.

Section 6751(b) Boss Hossery means approval of chops, not examination of chops. Thus Judge Albert G (“Scholar Al”) Lauber, whose paths take him far from his M. A. alma mater Clare College, Cambridge, and through endless GA boondockery, in Sparta Pink Property LLC, Sparta Pink Manager, LLC, Tax Matters Partner, T. C. Memo. 2022-88, filed 8/29/22.

This is an improvements-out perpetuity squawk, Golsenized Hewitt-ward to 11 Cir, where it’s a dead loser. Judge Scholar Al denies IRS summary J “… without prejudice to his resubmission of the arguments set forth therein should subsequent developments warrant that action.” T. C. Memo. 2022-88, at p. 5.

Translated from Judgespeak, that means when the Supremes put paid to this dodge.

Meantime, the Pinks’ trusty attorney tries the cross-examine RA and supervisor gambit to review the review.

“We have repeatedly rejected any suggestion that a penalty approval form or similar document must ‘demonstrate the depth or comprehensiveness of the supervisor’s review.’ Faced with assertions that IRS officers gave insufficient consideration to the matters before them, we have ruled such lines of inquiry ‘immaterial and wholly irrelevant to ascertaining whether respondent
complied with the written supervisory approval requirement.’” T. C. Memo. 2022-88, at p. 8. (Citations omitted).

As long as sign-off is obtained before the dread communication, Boiss Hoss is a done deal.

That’s what Jaroslaw Sek and Danuta Petrow-Sek, T. C. Memo. 2022-87, filed 8/29/22 feel, after Jaroslaw takes his 18-months of COBRA medical insurance from his ex-boss, and then takes four more from the NY Exchange. The parties don’t seem sure of the proper name for said exchange, but it’s NY’s meet-and-match for ACA beneficiaries.

Jaroslaw claims the COBRA premiums as Health Care Tax Credits, but Judge Gale sinks that.

“The HCTC allowed under section 35 is ‘an amount equal to 72.5 percent of the amount paid by the taxpayer for coverage of the taxpayer and qualifying family members under qualified health insurance for eligible coverage months beginning in the taxable year.’ §35(a). A month is an eligible coverage month only if, among other requirements, the taxpayer  ‘is an eligible individual.’ § 35(b)(1)(A)(i). To be an eligible individual for HCTC purposes, a taxpayer generally must receive certain benefits under the Trade Act of 1974 or from the PBGC. § 35(c). A spouse or other qualified relative of an eligible individual may also be treated as an eligible individual during a 24-month period following the occurrence of certain events, including the death of the eligible individual or the finalization of a divorce from the eligible individual. See § 35(g)(10).

“Petitioners have stipulated that neither of them received any of the types of benefits… that would have made them eligible individuals for HCTC purposes. Petitioners have also stipulated that neither of them was a family member of a deceased eligible individual, and they have not otherwise raised any factual dispute suggesting a possibility that either of them could be treated as an eligible individual for purposes of the HCTC….” T. C. Memo. 2022-87, at p. 5.

But Jaroslaw and Danuta make the 400% of poverty cut (319%), so they’re in the zone for the Premium Tax Credit after they’ve finished with COBRA. The plan they bought from the NY Exchange was a wee bit too rich for full PTC, but Jaroslaw didn’t get any Advance Premium Assistance, so they can get the full $1700 credit that Judge Gale calculates at pp. 9-10.

Jaroslaw claims equitable relief, in that the whole system is incomprehensible, IRS’ guidance is opaque, his COBRA cover costs almost the same as the Exchange’s (did ya expect a bargain in NY, Jaroslaw?), and that a NYS unemployment office type told him to take COBRA first.

Judge Gale is sympathetic but has no equitable jurisdiction, and IRS waives the chops.

Nathan Paul Pierce, Docket No. 21152-21SL, filed 8/26/22, has real problems. His Form 12153 “… noted that he was ‘dealing with family and mental health issues’ over the preceding five years, that he is ‘unemployed and unable to pay’ his tax liability, and that he owes ‘$50,000 in defaulted student loans.’” Order, at p. 2.

Nathan Paul wants an OIC, but submits neither Form 656 nor Form 433-A. He says he can’t pay the streamliner the SO offers him. A streamliner doesn’t require a hearing, if the petitioner agrees. But Nathan Paul goes off-grid thereafter. SO tries to reach him, fails, and finally confirms the NITL.

When Nathan Paul petitions the NOD, he says he didn’t respond to the SO because “…he ‘never received’ the CDP hearing notice and stated that he was ‘bombarded’ by phone and mail scams, rendering him ‘unable to trust’ the mail.” Order, at p. 3.

Judge Nega is unimpressed by the spam and scam bombardment.

“Petitioner’s unsupported allegation that he failed to receive the CDP hearing notice (or otherwise disregarded such notice on the belief that it was not genuine correspondence from respondent) is insufficient to create a material fact issue that would defeat summary judgment. Rule 121(d) generally requires that a party opposing summary judgment ‘set forth specific facts showing that there is a genuine dispute for trial.’ Petitioner has failed to elaborate on his bare allegation in the Petition that he did not receive the CDP hearing notice, nor has he produced an affidavit or declaration supporting the allegation and establishing a genuine dispute with respondent’s supported allegations.” Order, at pp. 5-6.

Besides, the diligent SO tried to contact Nathan Paul even after he failed to show at the CDP.

Believe me, I get more than enough spam and scam. I’m sure you do, too. But it’s easy enough to verify what’s from IRS and what’s from spam-scammers.

Spam is no defense.

Judge David Gustafson allows the kicker (profit on disposition; IRS didn’t challenge the net cashflow kicker) in Alexander Deitch, T. C. Memo. 2022-86, filed 8/25/22. For the backstory on Alex and his partner, see my blogpost “TEFRA Kicks the Kicker,” 8/25/21 (no, that’s no typo; it’s the anniversary).

Judge Gustafson takes a comprehensive look at the financing Alex got for the project, a turnkey  shopping center and outpatient facility for a hospital. Praise be, a GA real estate deal that isn’t a boondockery.

The lender, a life insurance company, wanted an above-marked fixed interest rate, plus the net cashflow and sale kickers as additional interest, and papered the deal accordingly. And of course the loan documentation provided that there was no partnership, co-venture, joint tenancy, or anything else between lender and borrower. And no sharing of losses.

IRS and Alex stiped that the lender had no relationship with or interest in any of petitioners’ entities, there was a real debt (!), and that this was an arms’-length deal.

Again, stipulate, don’t capitulate.

IRS challenges only the sale kicker as nondeductible. Alex had always treated the cashflow kicker as interest every year, but treated the sale kicker as a separate interest item on the Form 8825 for year of sale. IRS agreed post-trial that if the sales kicker was an equity distribution, Alex would not have the capital gain on the sale, the lender would.

TEFRA, which figured in my blogpost above-cited, is off the table, as this is a small partnership. Alex and his partner are individuals. But if, as IRS contends, there’s a partnership between the lender and the LLC, then small partnership doesn’t apply, the existence of a partnership is a partnership item that can’t be decided in a deficiency proceeding, there never was a FPAA, so no jurisdiction.

But Tax Court can always determine its own jurisdiction. So Judge Gustafson looks to see if there was a partnership or a debtor-creditor relationship. If the latter, jurisdiction and Alex wins; if the former, no jurisdiction, pay the tax and sue for a refund.

The parties acted as lender and borrower. The lender only advanced what the loan documents required. Alex ran the property. True, the project was very thinly capitalized; the loan proceeds were entirely expended on buying and fixing up the property. Alex had essentially no cash in the deal. Judge Gustafson brushes that off. “But while it is true that the operation of the Rome property was capitalized almost exclusively with debt, we cannot view this factor in a vacuum. The parties stipulated that the loan from [lender] to [Alex] was genuine indebtedness, and we do not disregard that stipulation to consider whether inadequate capitalization might be a sign of equity rather than debt.” T. C. Memo. 2022-86, at p. 34.

The parties never operated in joint name, Alex kept the books but the lender’s only involvement was making sure it got the cashflow kicker. Each party filed separate tax returns. The loan terms gave lender no more control than any commercial lender would get in like. circumstances.

IRS tries Section 707(c) guaranteed payments by a partnership to cover the sales kicker, but that founders on the stipulation. If the debt is real, game over.

And the sales kicker is interest, and deductible per Section 163(c).

A Taishoff “Good Job” goes to the Chamberlain Hrdlicka team.

Takeaway- It’s not only petitioners who stipulate their case away.

Not in Judge Emin (“Eminent”) Toro’s view. I had recently suggested to Andrew Wickham & Keisha Wickham, and incidentally to Judge Morrison, that a closing agreement might solve their problem; see my blogpost “The Supreme Silt-Stir Can-Kick,” 8/23/22. I mistakenly cited to Section 7122 as affording a way out of the silt-stir created by Boechler; I should have cited to Section 7121, but the principle is the same.

That is, untiI I read Cory H. Smith, 159 T. C. 3, filed 8/25/22. Maybe the Section 7121 closing agreement doesn’t close after all, although it does in Cory’s case. Cory entered into a Section 7121 closer, wherein he waived taking foreign earned income credits for three (count ’em, three) tax years. Then he filed returns claiming the credits he had solemnly forsworn.

Cory claims that the Director, Treaty Administration, at LB&I, had no authority to sign the agreement for IRS. He also claims malfeasance or material misrepresentation by IRS.

Cory worked at Pine Gap, an Australian outback location (not a steakhouse) watching satellites spying on whomever. There was a deal between the US and Australia, whereby Americans who wanted to avoid Australian tax would have to waive Section 911 relief, and Cory did, like everyone else at Pine Gap. Judge Eminent tells us a lot more about the US-Australia back-and-forth. But the key is that the US person needn’t sign the waiver, in which case he would be taxed as an Australian.

It takes a dictionary chaw and invocation of the rule against superfluity, that a statute be construed so that no word or phrase is superfluous, to establish that the DTA at LB&I had authority to sign the Section 7121. And this is a transnational deal; if Cory’s 7121 is invalid, so are all the other ones signed by skyspies at Pine Gap, and Australia has a right to rely on the deal it struck with the US.

Corey claims sending a blank Section 7121 form to his employer violated Section 6103. But there was no agreement at that point. And blank forms aren’t agreements subject to Section 6103(b)(2). And once Corey signed the agreement, he provided his information to IRS; IRS didn’t give his information to anyone else.

As for misrepresentation, that requires fact, and the best that Corey’s trusty attorney can come up with is a stretched version of law. And as for duress, Corey had two unpleasant alternatives, but that isn’t duress.

Read Judge Eminent’s prose. Corey’s trusty attorney tried hard, but when you have an international tax deal, which if set aside would cause chaos for hundreds of taxpayers, the result is obvious.

Takeaway- Breaking a Section 7121 agreement takes a lot of doing.

Visitors to The Glasshouse in the City of the Unrepresented, as and from Monday, 8/29/22, need no longer proffer their vaccination cards nor an up-to-the-minute negative COVID test. They need only self-certify themselves disease-free and non-symptomatic.

The ukase of Ch J Kathleen (“TBS = The Big Shillelagh”) Kerrigan of even date herewith also revokes previous Administrative Orders 2021-2 and 2021-3.

Here’s the story.

So surry on down, and leave your shotcards at home.

I said back in May that the Supreme silt-stir stirred up by Boechler was hardly surprising. Here’s an example: Andrew Wickham & Keisha Wickham, Docket No. 2439-17, filed 8/23/22. After five (count ’em, five) years, including a trip to Bankruptcy Court and a bushelbasketful of status reports, Andy & Keisha have settled with IRS, and just want their case concluded. They move to dismiss.

But their proposed stipulated decision has been on hold since February. IRS can’t tell if the petition was timely filed. Andy & Keisha can’t find the certified mail receipt showing the date they mailed the petition (trusty attorney didn’t come aboard until four months thereafter). The envelope which contained same bears no USPS postmark. So Judge Morrison is reserving decision not only on the stipulated decision, but also on his own motion to toss for want of jurisdiction.

So why not just dismiss?

Well, this case petitions a SNOD, so if there’s jurisdiction, Section 7459(d) says “generally” (love that word!), Tax Court must enter decision for IRS in the amount stated in the SNOD. Except Andy & Keisha, and IRS, agree that Andy & Keisha don’t owe that amount.

So Judge Morrison apparently decides Tax Court has jurisdiction (although he doesn’t say why), at least to the point of saying he won’t toss the petition on jurisdictional grounds.

What to do? Hallmark and Boechler to the rescue!

“Pending before the Court in Hallmark Research Collective v. Commissioner (Docket No. 21284-21) (Hallmark) is a motion asking the Court to vacate its previous order granting dismissal of Hallmark’s deficiency case for lack of jurisdiction. The Hallmark motion to vacate asks the Court to address whether I.R.C. § 6213(a)’s 90-day limit for filing a petition in this Court (after the issuance of a notice of deficiency) is jurisdictional or may be equitably tolled in light of the recent United States Supreme Court decision Boechler, P.C. v. Commissioner, 142 U.S. 1493 (2022).” Order, at p. 2.

 So hold everything (except voluntary dismissal, which Judge Morrison tosses) until Judge David Gustafson unscrambles Hallmark. See my blogpost “Ya Can’t Make This Stuff Up?” 5/10/22.

Taishoff says this is the ultimate can-kick. If Hallmark upholds equitable tolling for SNOD petitions (and I’ve covered that extensively ever since Myers), do we need an evidentiary hearing whether or not Andy & Keisha are entitled to same?

If no equitable tolling, or if there is but Andy & Keisha don’t make the cut, then, as BoP for jurisdiction is on petitioners, and Andy & Keisha can play only the Michael Corleone classical gambit, their petition gets tossed, and the stipulated decision can metamorphose into a Section 7122 settlement agreement.

If there is equitable tolling, and Andy & Keisha make the cut, then I presume the stipulated decision gets entered.

Whatever happens, maybe this ends in another year from now. So why not just toss the petition for want of jurisdiction today?