Judge Christian N (“Speedy”) Weiler has a Section 215 small-claimer, Jihad Y Ibrahim, T. C. Sum. Op 2022-7, filed 5/16/22. Y’all will recollect that the Tax Cuts and Jobs Act of 2017 blew these away, but Jihad (that’s Doctor Jihad) slid in under the tag, as he paid ex-Mrs. Jihad prior to 12/31/17.

Fortunately, MO law takes “terminates at death of payee” off the board, as survival must be stated expressly in separation agreement or divorce decree, and here it doesn’t.

What does sink Doctor Jihad is the “clear, explicit and direct” statement in the separation agreement, an amendment thereto, and the divorce decree that neither Doctor Jihad nor ex-Mrs. Jihad will seek maintenance from the other. “Maintenance” is MO-speak for alimony.

Doctor Jihad’s claim that ex-Mrs. Jihad couldn’t support herself, so the MO courts could award maintenance notwithstanding the documents, founders when it’s shown that she kept her nursing job, rented a home during the pre-divorce separation, and then bought one.

And IRS has properly Boss Hossed the Section 6662(a) chops, for the imposition of which Doctor Jihad has no good-faith reliance argument.

Interesting that here IRS didn’t concede the chops.

Peak Potentials Training International, Docket No. 23373-18, filed 5/16/22, is back, but the IRS attorney who generated my blogpost “Play Nice or Go Home,” 3/20/20 is off the case. So now both IRS and PPTI are both playing nice.

But they need to go international. And for those of us who haven’t yet memorized Rule 81, that Obliging Jurist Judge David Gustafson shows us how it’s done, with a Request For International Judicial Assistance Letter Rogatory addressed to the Supreme Court of British Columbia, Canada.

PPTI is the US-sub of a Canadian corp. The US-sub transferred advance deposit accounts, where customers prepaid for motivational lectures, some of which might not be delivered for two years, to a US LLC. The US-sub claims a deduction for the elimination of the debt it owed its Canadian parent (who supplied the lectures), because the US LLC assumed the obligations to supply the lectures to the depositors. IRS of course says no, so we’re off to another method-madness accounting jumpball.

PPTI needs testimony and documents from the Canadian Chartered Professional Accountants, who served as advisors and accountants in setting up the deal.

So Judge Gustafson goes to his form file, and checks out the Canada Evidence Act and the British Columbia Evidence Act, and generates for document that appears at pp. 3-8.

Really playing nice.

When FBAR’s in Play

That’s Judge Nega’s advice to Alberto Aroeste & Estela Aroeste, Docket No. 13024-20, filed 5/13/22. Al & Estela filed separate but equal petitions contesting three (count ’em, three) years’ worth of deficiencies, and those stay in. But Al attached to his petition “… (1) a letter dated…in which the Commissioner notified him of the imposition of penalties under section 6038(b) for failure to file Forms 5471, Information Return of U.S. Persons with Respect to Certain Foreign Corporations, for [non-deficiency years]; and (2) a letter… in which the Commissioner notified him of the imposition of penalties under section 6677 for failure to file Forms 3520, Annual Return to Report Transactions with Foreign Trusts and Receipt of Certain Foreign Gifts, and Forms 3520-A, Annual Information Return of Foreign Trust with a U.S. Owner, for [two non-deficiency years and three deficiency years].” Order, at pp. 1-2.

IRS ripostes with no deficiency jurisdiction for FBARs, no chops assessed, and no NODs for NITLs or NFTLs for any thereof.

Estela’s separate petition claims IRS gave her non-willful FBAR chops, which she protested and her protest is still pending. IRS moves to toss the FBAR stuff for want of jurisdiction.

Al’s and Estela’s trusty attorneys claim Estela’s FBAR references are merely background, and she isn’t seeking relief therefor in Tax Court. Though IRS wants to toss the referenced per Rule 52, Judge Nega won’t go that far, yet.

But Al’s deficiencies apparently arise from the same facts as the FBAR chops.

Judge Nega says pore l’il ol’ Tax Court has no Subtitle F jurisdiction, only Subtitles A and B, and not even all of Subtitles A and B.

“Mr. Aroeste nevertheless asks this Court to issue a decision with respect to all items included in the notice of deficiency, which he argues includes whether he should be liable for the penalties under sections 6038(b) and 6677, because based on the doctrine of collateral estoppel, both the income tax deficiency and the penalties are dependent upon the very same legal issues. Mr. Aroeste further argues that, based on the doctrine of collateral estoppel, the Court’s determination as to the applicability of the penalties under sections 6038(b) and 6677 is required to prevent redundant litigation, to achieve economy of judicial time, and to fulfill the need for certainty in legal relations. We disagree. Collateral estoppel precludes parties (and their privies) from relitigating issues actually and necessarily litigated and decided in a final prior judgment by a court of competent jurisdiction. Because there has been no final prior judgment by a court of competent jurisdiction rendered with respect to the issues in this case, the doctrine of collateral estoppel is inapplicable.” Order, at p. 4 (Citations omitted).

So at close of play, Al’s FBAR stuff is tossed, but Estela’s are in, for now, for whatever they’re worth.

And Al’s and Estela’s trusty attorneys at Procopio get a Taishoff “Good Try, Second Class.”

Judge Elizabeth A. (“Tex”) Copeland lets Anadarko Petroleum Corporation, et al., Docket No. 23018-18, filed 5/13/22, stay as privileged as USBCSDNY ordered. The Anadarkos were defendants in an Adversary Proceeding brought by a DiP in a Ch 11. There, BJ Gropper ordered that a bunch documents (hi, Judge Holmes) that the Anadarkos turned over were themselves unprotected by client-attorney (FRE 502) privilege, but that the turnover was not a waiver of subject matter privilege.

In other words, the documents could be used in litigation, but nothing else could be.

The magic word is “intentional”, when it comes to subject-matter waiver. The Anadarkos agreed that the documents themselves were unprivileged and unprotected. But handing over documents is one thing; opening the door to whatever else those documents discuss is something else.

Judge Tex Copeland: “Pursuant to Federal Rule of Evidence 502(a), Respondent [IRS] must show Petitioners intentionally waived attorney-client or work-product privilege when they submitted evidence in the Adversary Proceeding without sealing privileged documents and information. This Court considers fairness when deciding the scope of attorney-client or work-product privilege waiver, and here Respondent cannot show that Petitioners intentionally waived privilege given the broad scope of Federal Rule 502(a) and Petitioners reliance on the … Order issued in the Adversary Proceeding. Because Petitioners believed that they had preserved waiver of attorney-client and work-product privileges in the Adversary Proceeding, Petitioners’ disclosure of the Disputed Documents was an unintentional waiver of the subject matter covered by those documents. This Court, therefore, holds that Petitioners did not waive subject matter privilege as to the Disputed Documents.” Order, at p. 4.

Check out the cases Judge Tex Copeland cites in her order. Good stuff there for subject matter waiver memos.

Michael J. Rogerson, T. C. Memo. 2022-49, filed 5/12/22 (a date of much more significance to me than this case), is the sort of client I’d love to have. Mike is a total micromanager of the multi-million-dollar aerospace conglomerate he built from a summer job.

Judge Emin (“Eminent”) Toro tells Mike’s story. “Mr. Rogerson was a hands-on CEO during the years at issue. No major decisions could be made without his input, and no detail was too small for his attention. For example, Mr. Rogerson weighed in on accounting and financial reporting minutiae, interacted directly with company employees, and line-edited company documents, such as offer letters and press releases. Top… executives reached out to him for permission to undertake routine actions, such as responding to customer inquiries or providing small bonuses or raises to company employees.  On one occasion, [Mike’s Sub S]’s president sought approval from Mr. Rogerson to offer an employee a raise of $0.50 per hour. On other occasions,  executives confirmed that Mr. Rogerson’s direct involvement, whether in the form of ‘ongoing and specific directives,’ ‘edict[s],’ or other directions, would be required to get things done.

“Mr. Rogerson’s involvement in sales and customer relations further belies any assertion that he was not substantially involved in [Sub S]’s operations. Mr. Rogerson traveled to meet with [Sub S’]  customers, including on one occasion to Indonesia. He also met with [Sub S] customers at [Sub S]’s offices. Indeed, the record reflects more than one instance in which Mr. Rogerson told … executives that he would resolve a problem by meeting personally with the customer involved. Customers sometimes reached out to Mr. Rogerson directly to discuss issues, and Mr. Rogerson was involved in multiround negotiations with customers on pricing and other matters. He also approved any bid provided to a customer with an aggregate value over $100,000; in one month in [one year at issue], that approval was requested at least a dozen times.”

“In the face of a record demonstrating that he spoke and emailed with executives regularly on [Sub S] matters, Mr. Rogerson asserts that most of these interactions took only minutes of his time. Even assuming that to be the case, however, Mr. Rogerson’s ability to respond to detailed inquiries so quickly shows his detailed knowledge of every aspect of the business. Indeed, many of Mr. Rogerson’s communications reflect first-hand experience with [Sub S]’s employees, customers, and products that extends far beyond what could have been acquired by a passive investor.” T. C. Memo. 2022-49, at p. 26.

And in spite of Mike’s APA attack on Reg. Section 1.469-5T, issued without notice and comment, and still not permanent, Section 469(h) itself says that to be active, participation must be “regular, continuous, and substantial.” Mike’s sure is.

Mike’s would-be writeoff of his two (count ’em, two) megayachts fails for want of any rental activity. But they sure sound like beauties.

Mike’s reliance on his trusty preparer saves the chops.

Going back to my opener, years ago I had a client who took me to look at one of his buildings. I wore my three-piece, he wore torn bluejeans and a dirty teeshirt. As we walked into the building, he greeted every tenant by name. He crawled under a 550-gallon oil tank to look for leaks because the oil bill was too high. Then he decided the problem was in the heating controls, so he took a screwdriver from the superintendent and rewired and recalibrated them while the system was still “hot.” Then we drove off in his ten-year-old econobox.

Did  mention he dropped out of Columbia Law School after his first year because “Why should I waste my time on that nonsense when I can hire you?”

He and Mike would have gotten on a treat.

No, not the 1906 Frank Wedekind shocker directed by Max Reinhardt, nor yet the Broadway musical centenary thereof; this  is the Genius Baristas’ response to the wake-up call I gave them back on 5/4/22 (see my blogpost “The Stealth Off-The-Bencher,” 5/4/22). Today we have the opinion we’ve all been waiting for, but of course it’s been posted in a format wherefrom I cannot drag-and-drop quotes.

Lewis Arnold Rice, Docket No. 6385-21, filed 5/11/22 is another disabled veteran’s tale. A graduate of West Point (and thus a superior speller), Lewis Arnold (that’s Colonel Lewis Arnold) was recommended for a finding he was disabled for worldwide deployment back in 1989 by the Army Medical Evaluation Board. The MEB bucked Lewis Arnold’s file on to the Army Physical Evaluation Board, but before the PEB  could’ve approved the MEB’s finding (which they never did), Lewis Arnold retired from the Army with twenty-six (count ’em, twenty-six) years’ service. Whereupon Lewis Arnold claimed disability with the VA, which awarded him $1400 per month disability payment.

That payment is not taxable and not an issue.

Lewis Arnold claims his $48K per year service pension isn’t taxable. That is taxable, and that is the issue. Lewis Arnold’s trusty attorney cites three cases where length-of-service pension payments were treated as disability (thus excluded by Section 104), but in each case there was a final determination of physical disability.

Judge Nega: “Here, the MEB report was the only evidence petitioner produced to establish that he would have been entitled to a disability discharge at retirement. However, a MEB proceeding is the initial stage of the Army’s multi-tier evaluation of a service member’s eligibility for a disability discharge. If a MEB concludes that a service member is physically unfit, then the next stage of review occurs in higher-level PEB proceedings. While the MEB report did recommend that petitioner was no longer fit for worldwide deployment, such a recommendation was preliminary and did not entitle petitioner to a disability discharge.” Transcript, at pp. 9-10.

Taishoff has a two syllable word for this procedure (that may well cover much else one encounters in the Army). The first syllable is “chicken.”

Lewis Arnold was on the eve of getting out when he got the MEB report. I suggest that for him, sitting around waiting for a PEB, while pushing paper somewhere, was not a high priority item. The day I got out of the Army, I was sitting next to a man with a Combat Medic Badge and two (count ’em, two) Purple Hearts, urging him to apply for a VA disability rating. He didn’t want to deal with paperwork, he just wanted to go home and go to church again. I know how he felt; I bet the Colonel felt the same way. We were all in Vietnam at the same time.

Oh Yes You Can

Hallmark Research Collective, Docket No. 21284-21, filed 5/10/22, wants a vacation, so Ch J Maurice B (“Mighty Mo”) Foley sends ’em off to Judge David Gustafson, with instructions to oblige the Hallmarks with an order disposing of their Rule 162 motion. While Ch J Mighty Mo wrote the order from which the Hallmarks seek relief, he may well not wish to reconsider it.

The Hallmarks were a day late and a lot more than a dollar short with their petition from a SNOD, when Ch J Mighty Mo gave them the right-about-face back on 4/1/22. The Hallmarks wanted equitable tolling.

Of course, Boechler was still at 8 Cir, which held the 90-150 day cutoff was jurisdictional, when Ch J  Mighty Mo tossed the Hallmarks. So I didn’t blog the 4/1/22 order then, as there was nothing new.

Enter the Supremes, kicking off a massive silt-stir. See my blogpost “Ya Can’t Make This Stuff Up – Part Deux,” 4/29/22.

My prediction from a couple weeks ago (hi, Judge Holmes) is coming true. I claim no great prescience. This sort of thing had to follow as night follows day. And of course this is but the start.

I forbear to comment on the current Supreme Court bench and its apparently endless talent for creating chaos in the realm of tax collection. This is a non-political blog, of course. But I have commented extensively elsewhere on the Court’s ability to create chaos everywhere else.

Having exhaustively defined it, Judge Alina I (“AIM”) Marshall finds that Christian Renee Evert, T. C. Memo. 2022-48, filed 5/89/22, couldn’t prove she was under it. The AO, also a Navy vet (O-6), SSA hearing officer, practicing lawyer, FBI Agent, and finally made it to Independent Appeals, only gave her Publication 1035. Judge AIM extensively quotes same.

Chris, a “licensed nurse in New York,” claims the AO coerced her into signing the Form 872, extending the SOL.

“The parties agree that petitioner timely filed her return for [year at issue] and that the three-year limitations period provided for under section 6501(a), without extension, would have expired before the date on which respondent mailed the notice of deficiency for [year at issue]. Thus, petitioner has made the requisite prima facie showing. Respondent has introduced a Form 872 signed by petitioner…valid on its face, which extended the period of limitations…. Therefore, respondent has discharged his burden of going forward.” T. C. Memo. 2022-46, at p. 6.

But Chris claims duress.

“We have also held that ‘actions that deprive another of her freedom of will are distinguishable from legally authorized actions that merely limit another to choose between options that are not desirable.’ Hall v. Commissioner, T.C. Memo. 2013-93, at *12. Hence, it is not duress when the Commissioner makes statements informing a taxpayer that lawful means to assess and collect the tax will be used. Accordingly, we have held that a taxpayer did not sign a consent under duress when the Commissioner told the taxpayer that an opportunity for an IRS Appeals conference would not be allowed if the taxpayer failed to sign a consent. (reasoning that it was not duress for the revenue agent to inform the taxpayer that a notice of deficiency would be issued without an opportunity for administrative appeal because such statements were nothing more than notice that the Commissioner intended to use lawful means at his disposal to assess the tax); (explaining that the Commissioner’s refusal to conduct an IRS Appeals conference without the taxpayers’ execution of Form 872 was a necessary step in the Commissioner’s pursuit of the lawful means provided for income tax assessment because holding an IRS Appeals conference without extending the period of limitations would have caused the Commissioner to issue an untimely notice of deficiency).” T. C. Memo. 2022-46, at p. 7 (Citations omitted; for the story of the late Blonde Grayson Hall, see my blogpost “When All Else Fails,” 4/4/13.)

Judge AIM buys the AO’s testimony, not Chris’.

I note Chris was represented by the Syracuse University LITC, and thank the University for their commitment.

It is possible for a check to serve as a determination. See my blogpost “Unappealing,” 5/27/17. So Timothy J. Lewis, T. C. Memo.2022-47, filed 5/9/22, having lost part of his Section 7623 whistleblower award to sequestration (that’s Congress-speak for “short-changing”) two years back (see my blogpost “The 6.9% Solution,” 4/8/20), tries again.

As my above-referred-to blogpost says, Tim petitioned the determination letter the Ogden Sunseteers gave him, and lost. The award amount was correct; that Congress scooped 6.9% had nothing to do with the Ogden Sunseteers, who just followed OMB’s direction.

Now Tim claims that when IRS issued him the check reflecting the sequestration, that was a separate determination, so he gets another shot. Tim doesn’t get the shot, but his trusty attorney gets a Taishoff “Good Try, Third Class.”

Judge Travis A. (“Tag”) Greaves: “…a whistleblower’s award check constituted an appealable determination within the meaning of section 7623(b)(4) where the WBO did not issue a final determination letter confirming the amount of the whistleblower’s award. The only ‘final decision’ the whistleblower received in that case concerning his award amount was the award check itself. Under those conditions, we found that the award check embodied the equivalent of a final determination letter notifying the whistleblower of its ‘final administrative decision’ regarding his award, i.e., an appealable determination under section 7623(b)(4).” T. C. Memo. 2022-47, at p. 4 (Citations omitted).

But in this case Tim did get the final determination letter, timely petitioned, and lost.

And yes, there can be more than one determination, as when a determination gets remanded and a supplemental determination is issued. But that didn’t happen here.

GWA, LLC, George A. Weiss, Tax Matters Partner, Docket No. 6981-19, filed 5/6/22, and IRS are fighting over experts’ reports. GWA has been here before, of course. See my blogpost “When – Redivivus,” 11/4/21.

The issue today is the alleged leverage (what our UK cousins call “gearing”) that the option basket tactic GWA used generated greater ROI cash-on-cash than would have been the case had they outright owned and traded the securities in the option basket. IRS claims the “option” was a sham; GWA really owned the securities. Of course, the deal was set up by an offshore tax-indifferent bank, well-known in the dodgeflogging community.

IRS wants to toss one of GWA’s experts, claiming he’s opining on GWA’s state of mind or motive, and that’s verboten. Judge Albert G. (“Scholar Al”) Lauber doesn’t reads the expert’s report thataway. Besides, “(R)espondent urges that these opinions ‘are straightforward and do not require the expertise of an economist.’ We know of no authority for the proposition that the Federal Rules of Evidence preclude an expert from testifying on the ground that the opinions he intends to offer are ‘straightforward.’” Order, at p. 2.

A straightforward expert? Put him in the Smithsonian; he’s a rare species.

But another of GWA’s brain trust does opine on motive, so ten (count ’em, ten) pages of his carefully-wrought prose bite the cliché.

IRS has two professors and a twenty-five-year veteran of “financial engineering.” GWA wants them out.

“While not asserting that any of these individuals lacks expertise in general, petitioner contends that none has sufficient expertise to render an opinion relating to ‘leverage’ and that Prof. T lacks sufficient expertise to testify on matters of accounting. We reject these arguments. Financial leverage and accounting are subjects with which all three experts, given their professions, necessarily have some level of familiarity. If there are material gaps in their knowledge or holes in their testimony, petitioner is free to explore them through cross-examination.” Order, at pp. 1-2. (Name omitted).

Oh, the “win your case anywhere but in the courtroom” games abound.