Once again, this is a nonpolitical blog. Today Judge Patrick J. (“Scholar Pat”) Urda is ruling on when and for what purpose to admit chains of e-mails in Michael C. Giambrone, Docket No. 11109-18, filed 5/3/22.

On the trial, batches of e-mail chains were offered in evidence, but Judge Scholar Pat reserved decision. Mike and family claim they were the victims of a bank robbery, whereby the bank was stolen from him and family by fraud.

The first batch are e-mails sent by testifying witnesses. Judge Scholar Pat lets them in, but not to prove the truth of what they say. “We will first deny in large part the hearsay objection to the email chains that included emails sent by testifying witnesses. Hearsay is generally ‘a statement …offered in evidence to prove the truth of the matter asserted.’ Fed. R. Evid. 801(c). Statements, including emails, providing context for other admissible statements are not hearsay because they are not offered for their truth.” Order, at p. 2. (Citations omitted, but get them for your memo of law file).

Besides, Mike waived objections in the second stip of facts. So whatever came before Mike’s chains can be used to show context of admissible evidence.

But what came after the chains that Judge Scholar Pat lets in is another story. “These emails do not provide context nor does the Commissioner offer another compelling reason to overcome the pending hearsay objection.” Order, at p. 2.

Now the e-mail chains from the alleged bank robbers come in to show state of mind. And although it’s a close call, so do a couple e-mails (hi, Judge Holmes) from the alleged bank robber’s CEO to and from Freddie Mac, which show state of mind and context, but the rest don’t.

But letting the e-mails into evidence doesn’t mean they make the weigh-in.

“To be clear, our holding that these emails satisfy Rule 803(3) neither establishes their credibility nor dictates the weight to be given them. See, e.g., Kroner v. Commissioner, T.C. Memo. 2020-73, at *20–21; accord United States v. Peak, 856 F.2d 825, 834 (7th Cir. 1988) (finding that a district court does not have discretion to exclude testimony based on untrustworthiness); 30B Charles Alan Wright et al., Federal Practice and Procedure § 6834 (2022 ed.) (‘There is, of course, no authority for adding an additional “trustworthiness” requirement to Rule 803(3).’).” Order, at p. 3, footnote 4.

For the Bert Kroner story, see my blogpost “Imaginary Friend?” 6/1/20.

My arm’s too short to give myself a proper pat on the back, but Celia Mazzei, T. C. Memo. 2022-43, filed 5/2/22 has ex-Ch J Michael B (“Iron Mike”) Thornton tossing Celia’s Section 7430 admins-and-legals motion to the tune of $396K.

You’ll no doubt recollect that 9 Cir reversed Tax Court. If you don’t, see my blogpost “I Got It Right,” 9/20/21. There now, you see back then I went Nassau, even though it’s the loser on the front nine who has to double the bet on the back nine.

And I win again.

“Before petitioner filed in this Court her Motion for Litigation Expenses with respect to the trial proceedings, she had already filed in the Ninth Circuit—and the Ninth Circuit had already denied—petitioner’s appellate motion, which ‘protectively’ sought these same trial-level litigation expenses as well as fees associated with the appellate proceedings. These circumstances present a fundamental threshold issue about our authority to consider and decide petitioner’s motion for litigation expenses.” T. C. Memo. 2022-43, at p. 4.

But even pore l’il ol’ Tax Court can decide if it has jurisdiction.

And our old friend law of the case takes the lead. Once a superior court, or even the same court, has decided an issue, that’s it. Reargue, reconsider, or appeal, but if you don’t, you’re stuck.

Celia’s trusty attorneys had asked 9 Cir for the legals and admins, but all they got was a mandate for Tax Court to award Celia costs on appeal, a big $340.10. Don’t spend it all in one place, chaps. So they tried in Tax Court, without telling ex-Ch J Iron Mike in their motion but mentioning it in an attorney’s affirmation. And that this is labeled a “protective” claim to prevent IRS from arguing no jurisdiction is irrelevant;  law of the case governs.

9 Cir didn’t tell Tax Court nuthin’ ’bout no costs except the $340.10.

It’s our old friend In re Sanford Fork & Tool Co., 160 U.S. 247 (1895), at p. 255: “When a case has been once decided by this court on appeal, and remanded to the circuit court, whatever was before this court, and disposed of by its decree, is considered as finally settled. The circuit court is bound by the decree as the law of the case, and must carry it into execution according to the mandate. That court cannot vary it, or examine it for any other purpose than execution; or give any other or further relief; or review it, even for apparent error, upon any matter decided on appeal; or intermeddle with it, further than to settle so much as has been remanded.”

Celia loses.

Bu just to help out 9 Cir, ex-Ch J Iron Mike decides IRS was substantially justified. Only one appellate case had been decided when Celia Mazzei lost in Tax Court, and that doesn’t mean IRS was not justified in pursuing Celia.

I again quote The Great Chieftain of the Jersey Boys: “I have never met a client that thought incurring fees to contest an erroneously determined tax was fair.”

Judge Ronald L. Buch has been a distinguished jurist on the Tax Court Bench these last nine (count ’em, nine) years, but not since I welcomed him on 1/16/13 could I find an appropriate cognomen.

But today I find one I think is suitable, so here’s Judge Ronald L. (“Ingenuity”) Buch, who is never baffled by any conundrum he encounters.

Irmgard A. Klein, Deceased, Docket No. 16373-21, filed 5/2/22, never signed the timely petition, which led to the successful settlement of her case. Her son, and agent under a durable power of attorney, did so. But is the signature valid, and has son and agent Werner the authority to act?

“That durable power of attorney expressly gave Mr. Klein the authority to file legal actions on Ms. Klein’s behalf. If Ms. Klein was incompetent at the time the petition was filed on her behalf, and on the appropriate motion, Mr. Klein could have been appointed as her next friend. See Rule 60(d). No such motion was filed. If she was competent at the time, Ms. Klein could simply ratify the petition. See Rule 60(a)(1). But Ms. Klein passed away the day after the petition was mailed on her behalf, so she cannot ratify it. And death of the principal terminates the durable power of attorney.” Order, at p. 1.

Alas and alack, is the hard-won settlement “to blush unseen, And waste its sweetness on the desert air”?

Not while Judge Ingenuity Buch is on the case.

“We are not without a solution. In addition to having held a durable power of attorney when Ms. Klein was alive, Mr. Klein is also the sole heir after her passing. Accordingly, the Court can appoint him as her representative.” Order, at p. 1.

Who needs wills, probate, affidavits of heirship, letters testamentary, letters of administration (with or without the will annexed)? Norm Dacey has nothing on Judge Ingenuity Buch when it comes to avoiding probate.

With a stroke, Judge Buch appoints Werner as rep, amends the caption accordingly, and enters decision.

My kind of judge.

A “substantially justified” position is the chief bulwark of IRS’ defense to a Section 7430 claim for admins and legals. But when is IRS held to have taken a position, “substantially justified” or not?

STJ Diana L. (“Sidewalks of New York”) Leyden tells us in Nirav Babu, Docket No. 20070-19, filed 5/2/22.

Nirav got chopped for $249K for Section 6695(g) preparer EITC due diligence footfaults. IRS never issued a Section 6212 SNOD, just assessed. Nirav filed for a refund of $5K and abatement of the balance. Exam rejected the refund and abatement, and Nirav went to Appeals.

At Appeals, IRS abated $167K, hit Nirav with $81.5K, and Nirav and his representative signed off on the deal, but Nirav now wants admins and legals, claiming he “substantially prevailed.”

But when did IRS taken the position it now claims was “substantially justified”?

“With respect to the administrative proceeding in issue, the “position of the United States” means the position taken by the United States as of the date petitioner received the notice of the decision of the IRS Appeals Office. I.R.C. §7430(c)(7)(B). The IRS is not considered as having taken any position in an administrative proceeding prior to the issuance of the Appeals Office’s notice of decision. A notice of decision is a ‘final written document’ notifying a taxpayer that the Appeals Office has made a determination of the entire case (typically, adverse to the taxpayer). Treas. Reg. §301.7430-3(c)(2). The date that the Appeals Office issued the notice of decision for this case was when the IRS established its position in this case. The amount in controversy is the amount in issue as of the administrative proceeding date, meaning the date the Appeal Office issued a notice of deficiency, or a notice of decision, as happened in this case. Treas. Reg. § 301.7430-5(e).” Order, at p.4.  (Citation and footnote omitted, but the footnote says since there was no SNOD, Appeals’ notice of decision is the magic date).

And of course the two-thirds-one-third agreed split on the chop means that IRS had “a reasonable basis in fact and in law” for its position.

Nirav wants back the $5K, claiming it was a Section 7430(c)(4)(E)(i) qualified offer. He doesn’t get it.

I am sure my wise-and-wary readers will yell “If you settle a QA, no 7430 legals or admins!” And of course they’re right. The statute says “judgment,” and there are no “judgments” in Tax Court, only decisions, but it doesn’t matter to STJ Di.

“However, by its terms, this provision applies only where a ‘judgment’ is entered in ‘a court proceeding.’ I.R.C. § 7430(c)(4)(E)(i); see Treas. Reg.§ 301.7430-7(a) (‘The provisions of the qualified offer rule do not apply if the taxpayer’s liability * * * is determined exclusively pursuant to a settlement”); see Klopfenstein v. Commissioner, T.C. Memo. 2019-156. In this case, petitioner settled before any court proceeding began, and so his liability was not determined by a ‘judgment’. Thus, petitioner could not have made a qualified offer.” Order, at p. 5 (For Mark Klopfenstein’s story, see my blogpost “No SNOD, No NOD, No Admins,” 12/9/10).

Now I have some fellow-feeling for Nirav’s hardlaboring trusty counsel. They got a real good settlement, but clearly they put in a lot of work to get there. And this isn’t a LITC or calendar call commando kind of case; as my esteemed colleague The Great Chieftain of the Jersey Boys says “I have never met a client that thought incurring fees to contest an erroneously determined tax was fair.” So of course they had to go for Section 7430 admins and legals, however long a shot it was.

Today, May 1, 2022, a day that will live in my history, this my blog got its first view from The Plurinational State of Bolivia.

But The Supremes Can

My readers no doubt have noted that I have not yet mentioned Boechler P. C.. v. Com’r, 20-1472, decided 4/21/22. Of course, I was made aware of it by my colleague, Peter Reilly, CPA, as soon as it came out. But I don’t cover appeals as a rule; the blogosphere and the trade press have resources far beyond my reach, and would easily beat my poor efforts to cover these. Moreover, I make no representation and undertake no obligation that I will cover appeals from the Tax Court cases I report. And I never reported Boechler, in Tax Court, as it had nothing new. Then.

Now for what I think.

If equitable tolling is adopted in CDP cases, then IRS may have started collection, then have collection stayed by Section 6330(e) on the late-filed petition after the original thirty-day jurisdictional cutoff, then unstayed by Tax Court after trial or summary J, and possibly restayed on appeal. This is chaos.

The Supremes’ psycholinguistic canoe-paddle through our insane English grammar is stirring up a ton of silt. In proof thereof, here’s Ha Tran, Docket No. 19335-21L, filed 4/29/22.

Ha sends letters apparently alleging innocent spousery, although Ch J Maurice B (“Mighty Mo”) Foley doesn’t so characterize them. At all events, Ha has blown the thirty-day cutoff. Pre-Boechler, that would be Game Over. IRS wants summary J tossing Ha.

“In her objection and letter in opposition to respondent’s motion to dismiss, as supplemented, petitioner does not address respondent’s jurisdictional allegations. Rather, petitioner focuses on explaining the merits of her claims and asserting that her ex-spouse is responsible for their joint tax liabilities…. ” Order, at p. 2.

But Ch J Mighty Mo bows down to the mighty.

“However, for the reasons set forth in Boechler, P.C. v. Commissioner, discussed above, we will deny so much of respondent’s motion to dismiss, as supplemented, relating to [four of] petitioner’s…tax years.” Order, at p. 2.

There was no SNOD or NOD for two (count ’em, two) of petitioner’s tax years, so IRS gets summary J tossing those two, at least until the Supremes rev up their engines again.

Oh Judge Holmes, your metaphor is truly a gift that keeps on giving. What a silt-stir this will be!

I can just see petitioners who got tossed two, three, or even ten years ago, come running back, claiming they were wrongfully tossed, and demanding return of property seized and sold a decade ago, and demanding trillions in damages.

I can imagine the glee of Chas Weiss and his trusty attorney DP (for whom see my blogpost “Ya Can’t Make This Stuff Up,” 8/17/16). Now they can petition late, play the equivalent hearing game, and when the game is up, ask for equitable tolling. Or even better, file late and then decide which card to play. Judge Albert G (“Scholar Al”) Lauber can expect a bushelbasketful of cases from rounders, defiers, protesters, wits, wags, and wiseacres, all playing the Boechler gambit, with variations.

The Supremes claim “we have endeavored ‘to bring some discipline’ to use of the jurisdictional label.” Boechler, at p. 3 (Citation omitted).

Yeah, most F affirmativo, roger that. Supremos, like an Authority even higher than your august Court, you have not brought peace but a sword.

I cannot very well complete the above-captioned in a blogpost meant for reading around the family dinner table.

Tracy Renee Valentine, T. C. Memo. 2022-42, filed 4/28/22, asserts she can exclude the same proportion of her Army retirement pension as her 90% VA service-connected disability rating. Her Army disability pension is of course excluded per Section 104(a)(4) and Section 104(b)(2)(D).

But Tracy Renee can’t prove she was ever in actual combat, and her attempt to claim part of her retirement pension resulted from a retroactive reclassification of her disability rating fails because the reclassification took place in the same year the original classification took effect, so no retroactivity.

Service pension exclusions based upon combat-related injuries encompass those injuries “…incurred ‘(i) as a direct result of armed conflict, (ii) while engaged in extrahazardous service, or (iii) under conditions simulating war; or (B) which is caused by an instrumentality of war.” T. C. Memo. 2022-42, at p. 8, footnote 2, citing Section 104(b)(3). Tracy Renee can prove none thereof.

Tracy Renee’s business expenses (multi-level marketing of something called Legal Shield) mostly evaporate based upon insubstantiation.

Her excuse for late-filing likewise falters. Here’s Judge David Gustafson.

“Ms. Valentine argued that she was unable to file a return because she could not find an accountant familiar with section 104(a)(4) (as it applied to her disability payments and retirement distributions).

“We find this argument unpersuasive. Ms. Valentine does not present any evidence to support that she searched for an accountant diligently, nor any communication (such as emails, notes regarding conversations, lists of accountants contacted) to show that any accountant she did contact was unfamiliar with section 104(a)(4), or that such a search could reasonably take a year and a half to complete. Since this addition to tax accrues at 5% per month for a maximum of 25%, a delay of as little as five months yields the maximum addition. So even if Ms. Valentine could show ‘reasonable cause’ for not filing until October 2018 (when the return was a year overdue), a return filed five months later in March 2019 would still accrue the maximum addition to tax.

“Additionally, given the errors on Ms. Valentine’s return in the reporting of her taxable retirement distributions, it does not appear that the accountant Ms. Valentine found had particular competence in this specific area—making her prolonged search both unfruitful and unreasonable. We hold that Ms. Valentine is liable for the addition to tax under section 6651(a)(1) for failure to timely file.” T. C. Memo. 2022-42, at p. 28.

This is a question that bedevils everyone whose income varies widely from year to year. One files the Forms 1040-ES or uses EFTPS, and may or may not have applied any previous year’s overpayment, and prays it adds up to the 90%-100%-110% Section 6654(d) withholding target. I’ve always hit it so far, but a number of times it’s been a close-run thing.

So when you’ve got an overpayment, what do you do? Do you take the refund and try to play catch-up with your estimateds if a big score comes through, or roll it over (putting it out of the reach of temptation)?

It gets expensive if you get it wrong.

Judge Christian N. (“Speedy”) Weiler man-‘splains in an off-the-bencher, Joseph C. Honer, Jr., Docket No. 3985-20, filed 4/28/22. Joe got the numbers wrong on his 1040 for year at issue (YAI), so IRS gave him a SNOD at no extra charge. So there was a deficiency (tax shown on return less than tax due), but Joe also overpaid for YAI, even taking into account the deficiency.

That overpayment would have zeroed Joe’s tax bill for YAI, except Joe applied the stated overpayment to YAI-plus-one, and got a refund for YAI-plus-one.

“Petitioner disputes there is a deficiency in tax owed and points the Court to the amount of tax he paid for [YAI]. In other words, petitioner argues there is no tax deficiency since the total tax due – as adjusted to include the deficiency – would still reflect an overpayment after considering the amounts paid.” Transcript, at p. 6.

No, says Judge Speedy. A deficiency is not the same as an underpayment of tax. Based on the YAI return and the facts stipulated, the amount shown on the YAI return as tax due is less than the tax actually due.

But what about the overpayment?

“Based on the original return as filed by petitioner, there was an original overpayment of the tax of $13,096. Petitioner argues that after the increased tax deficiency of $6,491, no balance should remain since the tax deficiency is less than petitioner’s overpayment amount. However, petitioners [sic]  argument fails to consider how he directed the overpayment amount to be carried forward to [YAI-plus-one]. The IRS honored petitioner’s request and applied $13,096 to petitioner’s [YAI-plus-one] tax year. Consequently, we find no overpayment remains for [YAI].” Transcript, at p. 7.

But can’t Tax Court decide if there was an overpayment?

Sure it can, and sure there was, but the petition puts at issue only YAI, not YAI-plus-one. And Joe threw the overpayment into YAI-plus-one, thus ousting Tax Court of jurisdiction thereover. And apparently got the overpayment refunded for YAI-plus-one

Joe wants costs and sanctions, but the costs are COVID-created, says Judge Speedy, and IRS didn’t violate any Court orders or Rules.

So, practitioner, what do you tell the client? Take the refund, only to have to pay it back with the current-year’s estimateds? Roll it over, and risk not having it available to cover a YAI deficiency? And whatever you tell the client, note that s/he will blame anything that goes wrong on you.

Isn’t tax practice fun?

Judge Christian N. (“Speedy”) Weiler walks us through the steps necessary to obtain a nonconsensual deposition in Buckelew Farm, LLC f/k/a Big K Farms LLC; Big K LLC, Tax Matters Partner, Docket No. 14273-17, filed 4/28/22. And if the Buckelews sound like old friends, I’ve blogged this case four (count ’em, four) times so far, and it looks like a gift that keeps on giving.

In today’s episode, IRS, tired of having been stonewalled for documents since 2017, served a deposition notice. The Buckelews claim IRS hasn’t satisfied the Rule 74(c) barriers to this “extraordinary” means of discovery, namely, viz., and to wit “(1) Whether the movant has established a specific and compelling basis for the deposition; (2) Whether the movant intends the deposition to serve as more than a substitute for cross-examination at trial; and  (3) Whether the movant has had prior opportunities to obtain the desired information or could obtain it through other means or from another source.” Order, at p. 2.

Well, Judge Speedy Weiler finds what IRS wants is certainly relevant (and remember, the relevance bar is pretty low).

“Respondent seeks to depose the Partnership on the following: details surrounding the easement creation, donation, and the deduction; details concerning any opinions of value regarding the underlying property to the easement; details surrounding the marketing and selling of the easement deduction to potential investors; details surrounding the creation of the easement; details surrounding the records maintained by the Partnership regarding the transaction; and information reflective of the ‘state of mind’ of the Partnership and defenses relating to asserted penalties.

“The Court finds that respondent has established a specific and compelling need for the deposition of the Partnership. Second, respondent has shown that he intends the deposition to serve as more than a substitute for cross-examination at trial. Lastly, it appears that the Partnership has direct knowledge related to relevant issues in this case and respondent’s efforts to obtain this information through other means have been (in full or in part) unsuccessful.” Order, at pp. 4-5.

And that IRS’ counsel got to eyeball the site changes none of the above.

So hold the deposition before Memorial Day.

Taishoff says we know why depositions are “extraordinary” in Tax Court cases. The sixty-buck-ticket-to-justice never provides a result that would cover the costs of counsel, preparation, stenographic and transcription services, travel, and loss of time, which are the invariable concomitants of a deposition. See my blogpost “Don’t Suppose You Can Depose,” 12/2/13.

The ordinary run-of-the-mill pro se facing a low four-figure deficiency couldn’t afford counsel for even a two-hour deposition. But that same pro se isn’t marketing and selling an eight-figure writeoff either.

In cases like the Buckelews, where there’s a $45 million deduction at issue, with multiplex counsel subbing out and subbing in, it shouldn’t take four (count ’em, four) years to obtain discovery.

And while we’re discussing changes to the Tax Court Rules of Practice and Procedure, maybe so it might could possibly be that the one-size-fits-all deposition rules need a rule-of-scale provision. Maybe in any deficiency with tax due over $100K, depositions should be treated as they are in every other court I know of.

Otherwise the CLE merchants can add to their inventory the title of this blogpost hereinabove set forth.

Just about a year ago I asked the question “For This We Needed a Full-Dress T. C.?” 6/17/21. I was talking about voluntary dismissal of petitions other than in deficiency cases, where Section 7459(d) mandates entry of decision in favor of Respondent in the amount specified in the SNOD.

But Ch J Maurice B (“Mighty Mo”) Foley’s proposed revisions to the Tax Court Rules of Practice and Procedure show no sign that Judge Gale’s proposed Rule regarding voluntary dismissals reached Ch J Mighty Mo.

So today I most respectfully suggest that we do need more than a full-dress T. C. every time a petitioner wants to drop a non-deficiency case. A trudge through the FRCP and analogous case law is wasteful. As there is at present no Rule 59, might it not be well to renumber present Rule 58 Miscellaneous as Rule 59, and insert at Rule 58 the following.

58. Voluntary Dismissal.

(a) Petitioner may move to dismiss the petition by so moving before Respondent serves an answer or a motion for summary judgment. At any time, Petitioner, any Intervenor, and Respondent may file a stipulation of dismissal signed by all parties who have appeared. Absent such stipulation, a case may be voluntarily dismissed only by court order. Any such dismissal should generally be granted unless any Intervenor or Respondent will suffer clear legal prejudice, other than the mere prospect of a subsequent petition, as a result. If an order granting a voluntary dismissal is issued, the dismissal is deemed to be without prejudice and the lawsuit is treated as if it had never been filed.

(b) Any order in a deficiency proceeding made pursuant to the provisions this Rule 58 shall comply with the provisions of IRC 7459(d).

Ch. Clk. Servoss, please copy.