I will say again that this is a non-political blog. If you want vitriol and self-righteousness, you’re on the wrong page. But we see today what happens when Congress gets it wrong: when Congress starves the IRS, it isn’t the IRS that is hurt, it is the honest taxpayers.

Here’s Thomas Rhea Hamilton and Edith Marie Palmer Hamilton, T. C. Memo. 2022-21, filed 3/15/22. Judge Patrick J (“Scholar Pat”) Urda has to deal with a SO who just wants to get rid of a burdensome file.

Tom was a lawyer and Edith Marie a chaplain with a ne’er-do-well bookkeeper who didn’t keep books or records, or file stuff. Thus Tom and Edith Marie were in the hole $70K for the year at issue, inclusive of add-ons and interest. They filed late, didn’t pay, IRS assessed self-reporteds and gave Tom and Edith Marie a NFTL. Tom and Edith Marie asked for a CDP.

The SO asked for bushelbasketsful of paper. Tom and Edith Marie brought in Patricia Tokar Canton, CPA, who did a praiseworthy rescue job, faxing documents at a furious rate. The SO did not “…do any work on the case between October 1, 2018, when she spent an hour and a half reviewing the file and drafting the initial letters, and November 15, 2018, when she spent an hour preparing for the hearing scheduled for that day.” T. C. Memo. 2022-21, at p. 4.

You know the rest. The SO claims she never got what she got, and closes the case with a NOD confirming. Scholar Pat unpacks this. IRS wants a motion in limine to rule out Tom’s and Edith Marie’s testimony; record rule, y’know. But Judge Scholar Pat denies that. And the admin record only has a fax transmittal from Patricia Tokar Canton, CPA, sending eleven (count ’em, eleven) pages, but none of them are in the admin record, T. C. Memo. 2022-21, at p. 8.

IRS should have folded.

Tom and Edith Marie played fair and tried. Patricia Tokar Canton, CPA, was throwing paper with the best. This wasn’t the run-of-the-rejection-mill case where the nontaxpayer sends in nothing and waltzes around.

Remanded.

OK, the SO abused her discretion. And Judge Scholar Pat has made it clear that Tom and Edith Marie should get a proper review, rather than a breeze-through-the-file the night before.

But Tom and Edith Marie spent money, and time, and effort. Patricia Tokar Canton, CPA, may offer all the “friendly, professional service” her Facebook page says and then some (earning thereby a Taishoff “Good Job, First Class”), but I doubt she did it for free. Yes, maybe Tom and Edith Marie’ll finally get the fair shake they should have gotten three (count ’em, three) years ago.

I don’t know if that SO is still around. In any event, she won’t be getting the remand. So she won’t have to go through all those papers; in the end, she got them off her desk without having to look at them.

And before my readers cry out with one voice “But what makes you think more money for IRS would cure a lazy person?” I can only say that Patricia Tokar Canton, CPA, is willing to work hard for proper compensation. Maybe for the right price IRS might find someone like her. If they had the right price.

Nothing personal here, strictly business. To bring Tax Court into line with FRAP as currently amended, Form 17, Notice of Appeal to Court of Appeals, f/k/a Notice of Appeal in its now-superseded iteration, is available on the Tax Court website. Instructions included; assembly required. Not suitable for small children.

My colleague Peter Reilly, CPA, dropped a bomb on me this evening. 6 Cir affirmed Tax Court in Oakbrook, and upheld Reg. Section 1.170A-14(g)(6)(ii), despite Hewitt. 6 Cir was unanimous in result, although Judge Guy upheld based on the statute; he didn’t like the Reg.

Here’s Oakbrook Land Holdings, LLC, William Duane Horton, Tax Matters Partner v CIR, 20-2117, 3/14/22.

Judge Karen Nelson Moore sends off 11 Cir.

“The petitioners also direct us to a recent decision by the Eleventh Circuit that held the proceeds regulation to be procedurally invalid under the APA. See Hewitt v. Comm’r, 21 F.4th.1336, 1339 (11th Cir. 2021). Unlike the concurrence, we find that decision’s reasoning to be unpersuasive. In concluding that the New York Landmarks Conservancy’s comment raised significant concerns about possible deterrent effects that the proceeds regulation could have on donations, the Eleventh Circuit stressed that one of I.R.C. § 170’s aims is ‘to allow deductions for the donation of conservation easements to encourage donation for such easements.’ Id. at 1352. Although encouraging the donation of conservation easements is undeniably a goal of the statute, highlighting this point overlooks a crucial condition that Congress demanded be met by donors seeking deductions: an easement’s conservation purpose must be ‘protected in perpetuity.’ I.R.C. § 170(h)(5)(A).” Opinion, at p. 19. (Footnote omitted).

So “highly contestable readings of what it means to be perpetual” are still in play, in 6 Cir. anyway.

The comments of the New York Landmarks Conservancy, now directed by my friend Peg Breen, get a heavy airing.

Man, I’ll be double dipped. The bookies must have slaughtered us punters on this one. See my blogpost “Taking the Bookies’ Money,” 1/3/22, for which I hereby heartily and humbly apologize.

But maybe so it might could be this is going to the Supremes.

And Don’t Disqualify

That’s Judge Patrick J (“Scholar Pat”) Urda’s advice to Jerry J Sun and Sun N. Sun, Docket No. 14749-17L, filed 3/14/22, and IRS. Seems the SO on their CDP overlooked the fact that he had discretion per IRM part 5.14.1.4(5) to let Jerry and Sun keep their multimillion dollar home unencumbered and unliquidated; sure, the SO should consider whether to tell Jerry and Sun to encumber or liquidate their MacMansion to pay off their multimillion dollar deficiencies, add-ons, and chops, but not be more intrusive than necessary.

This case is back to Tax Court on a supplemental CDP, which IRS asked for. The “liquidate or encumber” issue arose out of the supplemental CDP, whereat three (count ’em, three) of Jerry’s and Sun’s “representatives” participated. I use the inverted commas, because only one of the three is shown as attorney for Jerry and Sun in the online docket. Except that the other two “representatives” are name partners in the attorney’s law firm.

OK, fair enough. But now comes one of my pet peeves.

After the trial started on the supplemental CDP, IRS said they might want the attorney for Jerry and Sun to testify. Judge Scholar Pat stopped the trial so the parties could brief the issue. Then IRS moved for summary J.

Judge Scholar Pat denies summary J. It’s a question of fact what the SO thought were the limits of his discretion to order liquidation.

Asking to have trial counsel testify in midtrial is dirty deck tennis, but Judge Scholar Pat is too much of a gentleman (and a scholar) to say so.

“We do not believe that current trial counsel is likely to be a necessary witness.  Three attorneys appeared on the Suns’ behalf at the CDP hearing, two of whom are available to testify and were listed as potential witnesses in the Suns’ pretrial memorandum. Even if we were to conclude that the Suns’ trial counsel was likely to be a necessary witness after the settlement officer’s testimony at trial, we would nonetheless permit continued representation given that disqualification in the middle of trial would work substantial hardship on the Suns (especially since their other representatives have not participated in the trial so that they might be available to testify).” Order, at pp. 3-4. (Footnote omitted, but it says IRS didn’t put the attorneys on their witness list).

I’m glad Judge Scholar Pat reads ABA Model Rule 3.7 and Rule 24(g)(2)(A) beyond just a knee-jerk disqualification when anyone suggests a party’s attorney might have to testify. The idea behind attorney-as-witness disqualification is that the attorney should not argue his or her own credibility; this confounds the disparate roles of attorney and witness.

This confoundment misleads a trier of fact into placing excessive weight upon what a witness-attorney says when not testifying; and the trier of fact who most needs this protection is a jury, composed of nonprofessional triers of fact. In US Tax Court there is no jury to be confounded or misled. As Judge Vasquez said many years ago “(S)ee Diaz v. Commissioner, 58 T.C. 560, 564 (1972) (stating that the process of distilling truth from the testimony of witnesses, whose demeanor we observe and whose credibility we evaluate, is the daily grist of judicial life).” See my blogpost “Practicing Accountancy Can Be Hazardous to Your Health,” 12/26/12.

I’m sure Judge Scholar Pat can distill with the best of them.

IRS does make a last-ditch try by claiming some shady numbers in Jerry’s and Sun’s 433-A would justify the SO telling them to liquidate or encumber, but those who move for summary J give the other side the benefit of the doubt, and Jerry and Sun get it.

I’ve proclaimed far and wide that I’m a great fan of summary J. It rivals the Swiss Army knife as a multipurpose tool. You can win all or part of your case; you can get testimonial and documentary discovery without the scrimmaging of face-to-face or Zoomie Q&As (or the cost of hiring a high-priced stenotypist who’ll get things wrong anyway); and best of all, you can see what the judge thinks of your case.

IRS must think so too, because summary J is one of IRS’ most made motions. Tax Court’s website devotes a bunch Q&As (hi, Judge Holmes) to the subject on its information for petitioners pages.

Today Judge Nega shows how to go around from a missed approach when you blow the sixty-day cutoff in Rule 121(a). Motions for summary J must be made so as not to delay trial, and in no event later than sixty (count ’em, sixty) days before the first day of the trial session wherein your case is calendared, even if you’re not going to trial that day.

In John Joseph Bauche, Docket Number: 12241-20L, filed 3/11/22, IRS moved for summary J last July, but that motion was dismissed without prejudice last August. So IRS tried again a week ago. Problem was, the IRS was a day late, as trial was noticed for the 5/2/22 session; IRS moved 2/4/22, but last day was 2/3/22.

Apparently IRS’ counsel caught the glitch just as they hit the “send” button for the motion, so they immediately followed with a motion for leave to file out of time.

Judge Nega: “In respondent’s motion for leave, respondent states that the filing of his Motion for Summary Judgment was delayed due to clerical error. Respondent further that petitioner will not be prejudiced by the delay given that the motion for summary judgment contains only minor updates to the motion for summary judgment respondent filed in this case [last July], and given that respondent informed petitioner on February 25 and March 3, 2022, that he would be filing a motion for summary judgment with respect to the May 2, 2022, trial session. Respondent represents that petitioner objects to the granting of respondent’s motion for leave. We find that respondent’s short delay in filing his motion for summary judgment has not prejudiced petitioner. Accordingly, in light of our discretion under Rule 25(c), we will grant respondent’s motion for leave.” Order, at pp. 1-2.

So here’s the missed-approach go-around checklist. When you first decide to go for summary J, tell the adversary. Calendar the due date. Remind yourself and adversary. Have a form of motion for leave to file out of time handy in the wordprocessor. Make sure your new motion for summary J, to file which you’re requesting leave, has only minor tweaks to the rejected motion, and so represent to the Court.

Fly runway heading, climb to pattern altitude, and hopefully the Judge will let you reenter the traffic pattern.

It is, of course, extremely unlikely that any jurisdiction would consider me for such an exalted post. Still, I’m glad I don’t have to wade through such stuff as Judge Morrison encounters in the daily grist that comes to his judicial mill. By way of illustration, here’s Brian K. Bunton and Karen A. Bunton, T. C. Memo. 2022-20, filed 3/10/22.

I’ll be brief, as I’m meeting some old friends shortly.

Reviewing the admin record (the Buntons resided in CA when they petitioned, hence 9 Cir record rule), Judge Morrison finds the SO in the Buntons’ CDP got “…undated correspondence from the Buntons. It was filled with frivolous arguments, including that the Buntons were not ‘citizens of the United States Corporation.’ The letter referred to Mr. Bunton as a ‘Trust and a Vessel in Commerce,’ and threatened a ‘lawsuit and a penalty of $2 million against each government officer or agent.’” T. C. Memo. 2022-20, at p. 7.

I was going to comment on the originality of the above-set-forth protester jive, but it’s probably on some protester site.

If, to qualify to deal with this sort of thing, one had to obtain degrees from each of the Universities of Kansas and Chicago, clerk for a CCA Judge, practice in two (count ’em, two) white shoe law firms, and serve as Deputy AAG for appeals and review in DOJ Tax Division, you can see why I’m glad I never did.

My colleague Mr Press notified me Sunday morning about the death of Judge Gerber. I replied that judges don’t seem to survive retirement very long. Perhaps it’s the never-ending parade of humanity in all its forms, and the role of judge as Flaubert, in an ongoing search for the right solution or le mot juste that keeps them (and us) going.

Howbeit, here’s the press release.

Far more straightforward than Proust is the story of Robert Ward, Jr., and Swanette Triem Ward, T. C. Memo. 2022-19, filed 3/9/22. Swanette was a painter, but not of abstracts, landscapes, or portraits; her C Corp did warehouses, multifamilies, and highrises.

The deficiency here is a big $4800, but Swanette’s trusty attorney (whom I’ll call Len) has paper and good witnesses, so gets a good result.

Judge Goeke: “Petitioners have substantiated the amounts of the disputed expenses, and the remaining issue is the business purpose of the expenses. The office equipment expenses relate primarily to the purchase of iPads, iPhones, a speaker, and related expenses for service plans and an accessory. Petitioners assert that Sherwin’s employees use these items in the performance of their jobs. On the basis of the record,  we accept petitioners’ assertion as to the business purpose and find that [C Corp] has substantiated the amount and business purpose of each expense.” T. C. Memo. 2022-19, at p. 3.

IRS gets their feet tangled over whether a $38K payment was a loan to Swanette from C Corp, hence a disguised dividend, and when it looks like they goofed, they doubled down. This is a highly dangerous maneuver. Judge Goeke doesn’t buy it.

“However, [C Corp] records establish that the return reported that the loan was made from Mrs. Ward to [C Corp]. Respondent refuses to concede his error and instead argues on brief that the disallowed business expense deductions should be treated as constructive dividends to Mrs. Ward. We reject this new position. There is no relationship between the disallowed expenses and the amount of the purported constructive dividends determined in the Wards’ notice of deficiency. [C Corp]’s failure to substantiate the business purpose of the disallowed deductions does not render the amount a constructive dividend under the circumstances of these cases. There is no indication that the Wards received an economic benefit from the amount of disallowed expenses. Accordingly, we hold that the Wards did not receive any unreported dividends from [C Corp].” T. C. Memo. 2022-19, at p. 4.

But Len can’t help when Bob and Swanette paid for Lucas to take a coding course at Northwestern U. True, Lucas did do coding work for C Corp, fluffing up the website and doing other coding, but never was paid therefor. And there is no agreement anywhere about what Lucas would give back in exchange for the free ride. Of course, when Lucas started the course he was dating Rob’s and Swanette’s daughter. And he married her after.

“While [Lucas] has provided services to [C Corp] free of charge that would have likely cost Sherwin more than the amount of the tuition, we nevertheless find that petitioners have not established that [C Corp] is entitled to deduct the tuition. [Lucas] was not an employee of [C Corp]. The Wards did not have an agreement with [Lucas] that he would perform any services in exchange for the tuition payment. [C Corp] paid the tuition without any expectation of a return and thus did not have a business purpose for the payment. The tuition was a personal expense, and [C Corp] is not entitled to deduct it.” T. C. Memo. 2022-19, at pp. 3-4.

My wily readers will doubtless have exclaimed that Rob and Swanette were better off with gift treatment than deductible tuition-as-salary-and-wages, because no FICA/FUTA/ITW, or income to son-in-law Lucas. Although maybe the years at issue were closed as to Lucas even assuming substantial understatement 6SOL, still going for the deduction was really a bridge too far.

If You Want My Passport

Judge David Gustafson has a message for IRS via Hendrieka Fitzpatrick, Docket No. 12797-21P, filed 3/8/22. Hendrieka wants to fight about her 2013 tax liability, but that ship sailed five years ago.

IRS says Hendrieka has a serious tax delinquency, which also seems to be correct. So IRS moves to toss Hendrieka’s petition. We all know that a Section 7345 certification to State does not let the petitioner relitigate any tax liability. See my blogpost “Ruesch to Judgment,” 6/25/20. All that’s in play is whether the certification is erroneous.

Except.

Section 7345(b)(1)(C)(ii).

A “seriously delinquent tax debt” is one for which “a levy is made pursuant to Section 6331.”

Now before my battle-hardened readers shriek “What about Section 7345(b)(1)(C)(i)? Wasn’t there an NFTL and all remedies exhausted?” Judge David Gustafson notes IRS doesn’t raise that in its answer. All IRS notes is amounts of taxes, chops, interest, and assessment dates. Nothing about NFTL.

Judge Gustafson man-‘splains.

“A ‘levy’ is a seizure of money or property pursuant to section 6331(a); and section 6330 provides a prerequisite to levy: ‘No levy may be made on any property or right to property of any person unless the Secretary has notified such person in writing of their right to a hearing under this section before such levy is made.’ Sec. 6330(a) (1). That is, first the IRS must give the notice and opportunity for hearing provided by section 6330, and then the IRS may actually make a levy pursuant to section 6331.

“However, as we read the motion, it does not allege that a ‘levy [was] made’ pursuant to section 6331, as section 7345(b)(1)(C)(ii) requires, but seems to rely instead on the IRS’s issuance of a notice of intent to levy under section 6331. Paragraph 14 on page 5 of the motion does refer to a ‘levy pursuant to I.R.C. § 6331’; but it states that that ‘levy … was issued’. Strictly speaking, a levy is not ‘issued’; rather a notice of intent to levy is issued, and then a levy (a seizure) may be made. The motion elaborates  (at 5 n.3) on the levy that was said to be ‘issued’ by explaining more precisely that ‘[a] notice of intent to levy for petitioner’s 2013 liability was issued…, notifying petitioner of her collection due process (CDP) rights under section 6330.’ As we read the motion, it stops short of alleging that a levy was actually ‘made’.” Order, at p. 2.

So must there have been an actual seizure? Or is issuance of a writ or mandate to the U S Marshal to go out and seize sufficient, even if the writ or mandate is returned unsatisfied (that is, the Marshal could find nothing to seize)?

In any event, IRS can either fold this case and rescind the certification, or show that at least they sent out the Marshal to grab. But of course, they can fold, decertify, send the grabber, and try again. See my blogpost “Ruesch to Judgment – Part Deux,” 9/22/20.

I was a little late getting this posted today, but there were 792 (count ’em, 792) orders today on DAWSON.

If you want a noncash charitable contribution deduction for household goods (see Sections 170(f)(16)(A) and 170(f)(16)(D)(i)), make sure they came from a well-kept house.

That’s the advice STJ Daniel A. (“Yuda”) Guy has for Cheri L. Rau, 2022 T. C. Sum. Op. 4, filed 3/7/22.

Cheri owned a house she rented over the years to college students. In the year at issue, she sought a $11K noncash charitable for a bunch stuff (hi, Judge Holmes) she took from the house that included “kitchen items, glassware, furniture, bedding, pictures, appliances, and lawn equipment.” 2022 T. C. Sum. Op. 4, at p. 3. IRS conceded $500.

But in the same return, Cheri wants a $9K deduction for building materials to fix the house; the students apparently weren’t good housekeepers.

“During the year in issue, petitioner hired contractors to make substantial renovations to the… house, including roof repairs, flooring and drywall work, replacement of the garage door,  siding, and gutters, remodeling of the kitchen and bathrooms, and landscaping improvements. Petitioner purchased the materials needed for the renovation work, delivered the materials to the house, and oversaw much of the work.” 2022 T. C. Sum. Op. 4, at p. 3.

“Petitioner failed to present objective and credible evidence that the items she donated were ‘in good used condition or better.’ Any suggestion that the donated items were in good used condition is undermined by petitioner’s testimony regarding the state of considerable disrepair at the … house before the items were removed. Respondent’s determination that petitioner is limited to a deduction of $500 for noncash charitable contributions is sustained.” 2022 T. C. Sum. Op. 4, at pp.  9-10. (Citation omitted).

But STJ Yuda does give Cheri some extra deductions for materials.