The necessity for posting each working day certainly serves as did Lennon/McCartney’s hole where the rain came in. There were no Tax Court opinions today, and the 266 orders are beyond humdrum.

So maybe it’s time to put posting aside, and set my mind a-wandering, where it will go.

Wonder what will become of ex-Ch J Maurice B (“Mighty Mo”) Foley’s proposed changes to the Rulers of Practice and Procedure. Wonder when we’ll get post-2018 statistics on how many took the non-attorney admission examination (s/a/k/a The Slaughter of the Innocents) and how many passed. Wonder how many of the 35,000+ petitions from 2021 will actually result in trials (this number and the number from the preceding may bear a close correlation). Wonder what will finally replace conservation boondockery as The Next Big Dodge.

Wonder why anyone in Mongolia or Bolivia would care what happens in United States Tax Court.

Since the event in the headline first set forth at the head hereof took place, That Obliging Jurist, Judge David Gustafson, once again obliges. He sets right today IRS’ manifold mathematical miscues in Wendell C. Robinson and May T. Jung-Robinson, Docket No. 6446-19L, filed 6/21/22 (Happy Solstice).

Wendell and May have been making appearances on this my blog for the last five (count ’em, five) years, ever since my blogpost “Wipe Out,” 10/19/17. Today Judge Gustafson finally enters decision, thereby depriving me of another good source of blogfodder.

You can read for yourselves, if you suffer from chronic insomnia, Judge Gustafson’s unraveling and reweaving of the numbers that IRS has managed to scramble, fumble, and obfuscate all these years.

I am sure Judge Gustafson decided not to remand this frittata back to the parties, lest this fandango dance on for another five years.

Like the old Excedrin ad, he’d rather do it himself.

Today being the commemoration of Juneteenth, US Tax Court is closed, and so am I.

Ifeoma Ezekwo, Docket 15454-21P, filed 6/17/22, is back, despite having lost in a T. C. Memo. I didn’t blog (T. C. Memo. 2022-54, filed 5/31/22). You can read that one, but it’s little more than a chronicle of Ifeoma’s unpaid self-reporteds and her blown deadlines for CDPs. I don’t remember seeing it, but it really wasn’t worth blogging if I had.

In any case, I’d said whatever was relevant in my blogpost “Pro Ses Say The Darndest Things,” 5/25/22.

Turns out IRS had gotten some of what Ifeoma owes by way of levy, but enough remains to keep her over the “seriously delinquent” mark for year at issue. Hence the Section 7345 passport grab.

But now that decision is entered, Ifeoma makes three motions objecting to IRS’ successful motions sealing some of Ifeoma’s filings, which “…contained unsupported allegations against a specific IRS employee, that these allegations were likely to cause harm and embarrassment, and these allegations were legally irrelevant to resolution of the issues before the Court in this passport case. Respondent also requested that we place under seal the original unredacted versions of petitioner’s two filings.” Order, at p. 1.

Ifeoma’s current bœuf is that Judge Albert G (“Scholar Al”) Lauber granted the IRS’ motions sealing her rant without giving her a chance to reply.

“This Court is free to decide a motion, without awaiting or asking for a response, as we believe the interests of justice require. Petitioner sought to inject into this case scurrilous material that is irrelevant to the factual and legal issues presented by the case. Nothing in petitioner’s current Motions would have affected the analysis in our [sealing] orders. This case is already closed, and the issues that petitioner seeks to raise are entirely outside the scope of this case.” Order, at p. 2.

I note in passing that Ifeoma lived in NJ when she petitioned the passport grab. A docket search shows no calendar calls, as T. C. Memo. 2022-54 above cited went off on summary J. I can’t help wondering how The Jersey Boys would have dealt with Ifeoma.

CSTJ Lewis (“Spell He Can”) Carluzzo is not setting up a binge-watch of the millennial medical saga. Rather, today he decides if Raul Romana and Maria Corazon Romana, T. C. Sum, Op. 2022-9, filed 6/16/22, can eke out any unreimbursed business expenses above what Exam allowed.

Raul’s tools and both of their cellphone and internet charges are indocumentados. There’s not even enough to Cohan them in.

But Maria’s scrubs and her lab coat make the cut.

First, the basics. “Clothing costs are deductible as ordinary and necessary business expenses under section 162 only if (1) the clothing is of a type specifically required as a condition of employment, (2) it is not adaptable to general use as ordinary clothing, and (3) it is not so worn.” T. C. Sum. Op. 2022-9, at pp. 5-6.

Maria worked as a surgical nurse for Kaiser Permanante, and was required to wear “scrub-like” clothing, when not actually in the operating room. And her employer wasn’t required by the union contract to reimburse nurses therefor.

“Mrs. Romana was required to dress professionally and comfortably for her job as a nurse. To do so, she purchased shirts and pants at department stores. Because the clothing resembled scrubs, we find that the clothing was not adaptable to general use as ordinary clothing outside of her employment. Consequently, the cost of the clothing and the cost to dry clean the clothing are deductible. Mrs.  Romana also purchased a white lab coat with ‘Kaiser Permanente’ and her name embroidered on it. This lab coat was not appropriate for general use.” T. C. Sum. Op. 2022-9, at pp. 6.

CSTJ Lew parses what evidence there is, and Cohans a number.

While unreimbursed employee business expenses are presently extinct, there are cases hanging over that will be around some while yet. So save those charge slips.

Gwen Kestin seems to have started a movement. I’m sure all y’all remember Gwen. What, no? Then see my blogpost “From The Serious to The Frivolous,” 8/29/19. Now you remember Gwen sent off photocopies of her frivolous return to various service centers, each of which got a Section 6702 $5K chop, but Judge David Gustafson let Gwen off the hook, as the copies were clearly copies of a previous submission, not a new frivolity.

Judge Nega does likewise for Chule Rain Walker, T. C. Memo. 2022-63, filed 6/15/22. Chule Rain played the old 4852 Amended W-2 wages aren’t taxable gambit. IRS hit Chule Rain with Letter 3176 straighten up and fly right or Section 6702 chop.

Chule Rain responded that IRS hadn’t stated specifically what was wrong with his return, and attached a photocopy thereof (so labeled) to his letter.

That earned him a Boss Hossed chop number 2 and a NITL. Chule Rain got a CDP and a NOD confirming the NITL, which he petitions.

Chule Rain never had a chance to contest liability until he got to Appeals. IRS claims he didn’t contest there, so no contest at Tax Court. Chule Rain claims he did, and Judge Nega agrees.

“Respondent asserts that petitioner failed to meaningfully challenge his underlying liability, because in the CDP proceeding he presented only frivolous arguments about his zero tax liability for receipt of compensation. Petitioner counters by pointing to his more procedural argument in the CDP proceeding that the frivolous penalties were inappropriate because his tax position had not been identified as frivolous by respondent for purposes of section 6702(c). We disagree with petitioner’s assertion that his tax position was nonfrivolous, see I.R.S. Notice 2010-33, § III(1)(e), 2010-17 I.R.B. 609, 609, but agree that raising such an argument was sufficient to preserve his underlying liability challenge….” T. C. Memo. 2022-63, at p. 6. (Citations omitted, but they canvass the de novo scope of review in Tax Court of a Section 6702 chop).

So at close of play, Chule Rain loses on chop number 1 (his original return), but wins chop number 2, as what he attached to his letter was clearly marked “reference copy.” No new claim.

Copycatting is the new growth industry.

Judge Albert G. (“Scholar Al”) Lauber authors a full-dress T. C. to break the captioned bad news to Angela M. Chavis, 158 T. C. 8, filed 6/15/22. Angela and spouse were secretary and president, respectively, of Oasys, a C Corp operating out of the family dwelling. Oasys had employees, and collected FICA/FUTA/ITW from same.

Only Angela and now-ex-spouse didn’t bother to remit to the Federales. Angela never responded to the Letter 1153 with a Forn 12153 or anything else.  So IRS assessed and gave Angela a NFTL at no extra charge.

Angela now says she’s divorced and broke, and an innocent spouse. Except Appeals says she can pay.

The ability to pay issue is fact-based, so I’ll leave it, but Section 6015 says explicitly that innocent spousery thereunder is only for spouses filing income tax returns MFJ.

“During the CDP hearing petitioner urged that she was entitled to ‘innocent spouse’ relief under section 6015. The SO advised petitioner that she was not eligible for such relief because her TFRP liabilities arose from Oasys’s unpaid payroll taxes, not from a joint Federal income tax return. The SO made this determination after reviewing petitioner’s Form 8857 and the correspondence from CCISO.

“Section 6015 is captioned ‘Relief from joint and several liability on joint return.’ Section 6015(a)(1) provides that ‘an individual who has made a joint return may elect to seek relief under the procedures prescribed under subsection (b),’ which sets forth procedures ‘applicable to all joint filers.’ Section 6015(a)(2) provides that an individual may ‘elect to limit [her] liability for any deficiency with respect to such joint return in the manner prescribed under subsection (c),’ which sets forth procedures applicable for spouses who are legally separated or no longer living together.

“Subsections (b) and (c) both specify rules for obtaining relief from liabilities that are shown on (or should have been shown on) a joint Federal income tax return. See § 6015(b)(1)(A) and (B) (presupposing that ‘a joint return has been made’ and that ‘on such return there is an understatement of tax’); § 6015(c)(1) (providing that a person ‘who has made a joint return’ may be partially relieved of “liability for any deficiency which is assessed with respect to the return’).” 158 T. C. 8, at p. 8. (Footnote omitted, but I’m coming to that.)

The footnote says that Angela can raise spousal defenses  in an innocent spousery CDP even if she never contested liability, but Judge Scholar Al says that doesn’t help, because there was no joint income tax return.

Summary J for IRS. 

Boondockery meets bludgeoning in Morgan Run Partners, LLC, Overflow Marketing, LLC, Tax Matters Partner, T. C. Memo. 2022-61, filed 6/14/22, so whom else but Judge Albert G. (“Scholar Al”) Lauber can tease out from the unconventional easement deed the ambiguous verbiage to defeat IRS’ Reg. Section 1.170A(14)(g)(6) perpetuity gambit? And, mirabile dictù, neither Hewitt nor Oakbrook gets a look-in.

“Respondent contends that the deed at issue violates the ‘judicial extinguishment’ regulation. But this deed, unlike most easement deeds the Court has examined, does not explicitly address the subject of judicial extinguishment. Rather, it expresses the parties’ intention that ‘no change in conditions . . . will at any time or in any event result in the extinguishment’ of the easement. Should circumstances arise that would justify modifying certain restrictions, the deed envisions that Morgan and the Trust would agree to appropriate amendments, with the proviso that the Trust would have no power to agree to any amendment that would violate section 170(h). Given this text, petitioner has a reasonable argument that the deed violates neither the ‘judicial extinguishment’ regulation nor the statutory requirement that the conservation purpose be ‘protected in perpetuity.’ See § 170(h)(5)(A).” T. C. Memo. 2022-61, at p. 6.

And as for eminent domain, the 501(c)(3) gets its “Proportionate Share” of proceeds; no mention of improvements in or out or how “Proportionate Share” is to be computed. Maybe AL law is in play on this point. No summary J for IRS.

But there is a penalty approval form in evidence prior to any written intimation of chops to the Morgan Runners, and that’s enough for Judge Scholar Al.

“Petitioner does not allege that the IRS formally communicated to Morgan [before the penalty approval form sign-off] its decision to assert penalties. Petitioner nonetheless argues that there is a dispute of fact as to whether the IRS issued some sort of penalty communication before that date. Petitioner asserts that the answer to this question is currently ‘unknowable’ and must be determined by trial.

“We disagree. Respondent has supplied documentary evidence confirming that RA A’s immediate supervisor approved the assertion of penalties… well before the IRS formally communicated its penalty determinations to petitioner. As we have repeatedly held, the statute’s timeliness inquiry ‘turns on the timing of the first ‘formal written communication’ to the taxpayer against whom the penalties are being asserted.’ We have regularly decided this question on summary judgment, on the basis of IRS records and declarations from relevant IRS officers.” T. C. Memo. 2022-61, at pp. 7-8. (Citations and name omitted).

Leaving aside the “assessed” blunder in statutory language, the evil Congress intended to avert, namely, using penalties as bludgeons to extort unjust concessions from cowering taxpayers, takes place long before anything is put in writing. Can you imagine Vito Corleone sending a postcard stating “If I am not paid by tomorrow noon, you will be the headless horseman. Love and kisses, Don V C”?

Judge Travis A. (“Tag”) Greaves has to figure out whether and when Gregg Michael Kellett, T. C. Memo. 2022-62, filed 6/14/22 opened his datamining operation, so he could currently deduct some of the expenses he paid in creating the same, and write off the rest per Section 195.

As collateral damage in Judge Tag Greaves’ reconnaissance in force, he demolishes Rev. Proc. 2000-50: “To the extent Rev. Proc. 2000-50 purports to establish the taxpayer’s entitlement to a deduction, therefore, we cannot sustain the rule without a statutory predicate.” T. C. Memo. 2022-62, at p. 16. The Rev. Proc. apparently intended to mitigate the Section 174 research constraint, the “go where no one has gone before” rule. Gregg used off-the-shelf stuff, with which his engineers tinkered to produce the datamining service, which earned no money in year at issue. And while IRS said in Rev. Proc. 2000-50 they “wouldn’t disturb” some startup research expense deductions even if they fell foul of Section 174, IRS is not estopped by a Rev. Proc., and even if IRS was, pore l’il ol’ Tax Court has no equitable jurisdiction.

The big question of course is whether Gregg’s expenses are deductible Section 195 start-ups. The hurdle here is Section 195(b)(1)(A)(ii), which denies any deduction if aggregate start-ups exceed $55,000 pre-opening. Gregg has no proof of what he paid besides what he claimed as Section 162s. But Section 195(b)(1)(B) saves whatever startup costs Gregg paid in opening month, if he can establish when that was.

But all is not lost. Maybe Gregg’s opening day happened during year at issue. Although Sections 195(c)(2)(A) and 7701(a)(11)(11)(B) say IRS will have regs stating when opening day for business takes place, there ain’t no such regs. 4 Cir, whence Gregg is Golsenized, says it’s when it’s a going concern, doing what it was organized to do. Now earning revenue usually begins out of the gate, but Gregg prioritized getting online and running, even giving stuff away free, and Judge Tag Greaves is down with that.

“The parties agree that [datamine] opened to the public in or around September 2015. The burden of establishing the opening date does not shift to respondent under section 7491(a)… because petitioner has not proposed, let alone introduced credible evidence of, an opening date. We therefore err on the side of respondent by postulating that petitioner opened the website at the end of the day on September 30, 2015.” T. C. Memo. 2022-62, at pp. 7-8.

So Cohan throws the first pitch on opening day.

Gregg gets what he paid in opening month, and loses the rest.

I give Gregg’s trusty attorney, a Jersey Boys alum, a Taishoff “Good Job.”

An old family joke resuscitated yet again gives me a headline for Rodney Smith, 12731-19L, filed 6/14/22. Rod petitioned a NOD from a CDP, but no hearing was held due to a miscommunication (type unspecified). Rod got remanded and Appeals confirmed the NITL. At issue were a couple Section 6702 chops (frivolous returns)(hi, Judge Holmes).

Rod then amended his petition (without asking leave, but Judge Ronald L. (“Ingenuity”) Buch lets it go) claiming the supplemental hearing was defective because IRS didn’t give him enough information in its answer.  IRS answered the amended petition, but pled no new facts. Ron moves to toss IRS’ answer per Rule 123. Both sides admit that the only issue is the Section 6702 chops.

Rule 142(a)(1) says BoP is generally on petitioner, unless statute or the Court determines otherwise. But here statute does tilt the playing field. Section 6703(a) says BoP is on Com’r (IRS) for Section 6702 chops. So if IRS’ papers are faulty, do they get tossed?

Judge Ingenuity lives up to his cognomen.

“Rule 36(b) provides more specific rules regarding the form and content of an answer. Generally, an answer is sufficient if it contains “a specific admission or denial of each material allegation in the petition.’ Rule 36(b). A statement that the Commissioner ‘lacks knowledge or information sufficient to form a belief’ as to an allegation’s truth has ‘the effect of a denial.’ Id. Again, the Commissioner’s answers to Mr. Smith’s petition and amendment to petition conform to this standard.” Order, at pp. 2-3.

So IRS is OK, right?

Not quite. Rule 36(b) says where IRS has BoP, the answer must “contain a clear and concise statement of every ground, together with the facts in support thereof on which the Commissioner relies and has the burden of proof.”

So IRS gets tossed, right?

Not while Judge Ingenuity Buch is on the case.

“Rule 123(a) provides that the Court may hold a party in default and enter a decision against that party if he or she has ‘failed to plead or otherwise proceed as provided by these Rules or as required by the Court.’ Kramer v. Commissioner, T.C. Memo. 2021-16, at *8-9. Whether to hold a party in default under Rule 123(a) is a matter of discretion. Default and dismissal are not the proper remedies in this case. Mr. Smith’s motion for default and dismissal is the 88th entry in the docket record of this case and was filed nearly three years after the petition in this case. The Commissioner’s position in this case is no mystery, and Mr. Smith has not been prejudiced or subjected to unfair surprise. Instead, a more appropriate remedy would be to order the Commissioner to amend his answer to add ‘a clear and concise statement of every ground, together with the facts in support thereof’ as to the imposition of penalties under section 6702. See Rule 51(a).” Order, at p. 3. (Citations omitted; for Don Kramer’s story, see my blogpost “Don’t Overtry Your Case,” 2/16/21).

So, IRS counsel, let it all hang out.