Our New York State Appellate Division, Fourth Department, has a few words why we need written opinions (what we State courtiers call “decisions”).

And though the Pelicans (that’s our homeboy name for the learned Justices of the App Divs) are giving a Rochester trial court jurist the Psalm 141:5 treatment, y’all might read and heed, Genius Baristas, the next time you try a Stealth Transcript move.

“Although the court granted plaintiffs’ motion insofar as it sought summary judgment, it failed to address the burdens of proof or any specific cause of action. In addition, the court awarded costs and attorneys’ fees without providing the basis therefor. As noted, this case involved a motion for summary judgment and for costs, attorneys’ fees, and sanctions, and the court chose not to write. This is an unacceptable practice. To maximize effective appellate review, we must remind our colleagues in the trial courts to provide their reasoning instead of simply issuing orders.” Wilsey v. 7203 Rawson Road, LLC, et al, 2022 Slip Op 02905, 4/29/22. (Citations omitted).

Since our learned Tax Court Judges and STJs never fail to give us “somber reasoning and copious citation of precedent” even in a nickel-and-dime off-the-bencher, it behooves y’all to accord them the Matthew 5:15 show.

Karla Podlucky co-stars in T. C. Memo. 2022-45, filed 4/5/22, as Judge Albert G. (“Scholar Al”) Lauber tells the tale of spouse Greg’s sluggery, thuggery, and skullduggery, whereby he fleeced a couple hedgefundies and a bunch lenders (hi, Judge Holmes) of around $600 million.

Besides their dream house and his model trains (see my blogpost thus entitled), Greg festooned Karla with custom-made baubles and pretties from Van Cleef & Arpels, the outfit that gets Peter Shemonsky and Kevin Zavian dewy-eyed on Antiques Roadshow.

Greg spent better than $1.2 million on model trains, but alas, he was a Lionel fancier. I’m an American Flyer and Märklin man, but can only dream of having that much to spend.

After detailing Greg’s looting of LNI, the outfit he created and whose shares he sold and whose credit he used to borrow, Judge Scholar Al comes to Karla.

“Although Greg directed the scheme, causing LNI to make constructive distributions of property, Karla played a crucial role. Karla had signature authority over the bank accounts of 2MC, a shell company that Greg deployed to carry out his fraud. One step in the arrangement involved Greg’s wiring money from LNI to 2MC. Karla would then draw money from 2MC’s accounts to purchase jewelry and to pay for services related to the [MacMansion].

“During 2003–2006 Karla signed at least 100 checks on behalf of 2MC. The amounts ranged from $60 to $500,000, and the checks were made out to her, Greg, Traditional Jewelers, Blackstone Fine Jewelers, Fine Gems International, and VCA, as well as architects and contractors involved in the [MacMansion] construction. Karla signed at least $6,628,139 in checks during these years. These payments far exceeded the total income that petitioners reported on their joint returns for 2003–2006, which was between between $350,000 and $600,000 annually.” T. C. Memo. 2022-45, at pp. 23-24.

There’s more.

“While Karla may not have acted with fraudulent intent, the evidence shows that the ill-gotten gains were attributable to her, at least in part. She signed more than 100 checks on behalf of 2MC. These checks, made out to jewelry vendors, architects, and contractors, totaled more than $6 million and benefited her personally. We conclude that Karla has failed to establish that any portion of the understatements is not attributable to her.” T. C. Memo. 2022-45, at p. 24.

No innocent spousery for Karla.

When innocent spousery is first raised as an affirmative defense in a deficiency case petition, OCC need not follow the Cincinnati (that’s CCISO, not George Washington’s Officers’ Club).

Here’s Judge Holmes. “Michelle DelPonte separated from her ex-husband, William Goddard, in 2000. She is still, more than twenty years later, trying to untangle his affairs from her own. What concerns us is her effort to be relieved of her liability on the joint tax returns she filed with Goddard while they were married. The part of the IRS bureaucracy that usually handles these sorts of requests thinks she’s entitled to relief. The IRS’s lawyer disagrees. We must decide who speaks for the IRS.” 158 T. C. 7, at p. 2.

Goddard had stalled IRS while litigating deficiencies from his dodgeflogging operations with assertions of innocent spousery for Michelle, without telling her. Michelle got wind of this, got her own attorney, and alleged innocent spousery to defend against deficiencies as against her. OCC asked CCISO to determine Michelle’s claim. CCISO found for Michelle, but OCC wasn’t happy and wanted more discovery.

Michelle moves for entry of decision that she is an innocent spouse.

Judge Holmes goes exhaustively (and exhaustingly) through the history of innocent spousery. While innocent spousery in a CDP or a stand-alone is well-trodden territory, as a defense to a deficiency it’s not so clear.

While the IRM and CCMs all say that OCC attorneys must refer to CCISO, they still are charged with determining IRS’ litigating position. Thus, even when CCISO determines innocent spousery favorably, OCC counsel isn’t bound while litigating a deficiency.

And pore l’il ol’ Tax Court can’t make IRS play fair.

“Congress gave us exclusive jurisdiction to redetermine the correct amount of a taxpayer’s deficiency for a given tax year once the taxpayer receives a valid notice of deficiency and timely files a petition with us. Congress also gave the Chief Counsel the authority to litigate cases before us. § 7803(b)(2)(D). We cannot undo this statutory scheme by depriving either ourselves or the Chief Counsel of the powers it has given to us in the name of fairness.” 158 T. C. 7, at pp. 17-18. (Citation omitted).

Taishoff says this is definitely unfair. Unless OCC has a smoking gun that CCISO could never have discovered with reasonable diligence, and can make Tax Court smell the smoke, enough is enough. Let Michelle off the hook after twenty (count ’em, twenty) years.

Edited to add, 5/6/22: The more I think about this decision, the less I like it. Michelle is caught, after twenty years, in an interdepartmental turf war between CCISO and OCC. Her trusty attorneys rightly moved for entry of decision. Denial is grounds for appeal to 9 Cir, even on an interlocutory basis, as entry of decision would conclude the case. Judge Holmes rightly recognized that the motion is equivalent to a motion for partial summary J (158 T. C. 7, at p. 5). Her trusty attorneys should appeal.

OCC’s “we need more discovery” is no response to a motion for summary J; either there are facts, or there aren’t. Michelle’s trusty attorneys and OCC have done the epistolary joust for years, 158 T. C. 7, at p. 4-5, and gone nowhere. If there’s newly-discovered evidence, then remand to CCISO to review. Or is OCC deciding that it is the new CCISO, and the Cincinnati can have a farewell dinner at Fraunces’ Tavern down the block from my office, disband, and go home?

No Summary J

Jeffrey D. Hoyal & Lori D. Hoyal, et al., Docket No. 6791-20, filed 5/4/22, claim their periodical sales business is on the up-and-up, hence 3SOL, so summary J. IRS claims fraud and wants a trial.

You can’t presume fraud, you can only prove it with “clear and convincing evidence.” Judge Ronald L. (“Ingenuity”) Buch tells the story.

“The burden of proof is on the Commissioner to establish fraud with the intent to evade tax by clear and convincing evidence. The presence of fraud is a factual question to be determined by examining the entire record. The Commissioner must show that the taxpayer acted with specific intent to evade taxes known to be owing through conduct intended to conceal, mislead, or otherwise prevent collection. Because direct evidence of a taxpayer’s subjective intent is rare, we may infer fraudulent intent from circumstantial evidence, and we consider the taxpayer’s entire course of conduct.” Order, at p. 3. (Citations omitted, but get them for your memo of law file).

Save your time for trial prep; when fraud is on the menu, summary J is off.

It seems the Genius Baristas and the 18Fs are at it again. Judge Nega issued an off-the-bencher today in Lewis Arnold Rice, Docket No. 6385-21, but, despite Lewis Arnold’s masterful spelling, all that’s posted is Judge Nega’s order to send the transcript, not the transcript itself.

Of course, the Genius Baristas and 18Fs did post Judge Nega’s entry of decision, hitting up Lewis Arnold for $13K. But the why and wherefore are shrouded in mystery.

See my blogposts “The Stealth Opinion,” 4/5/21, and “The Stealth Transcript,” 4/22/21.

Most especially, see my blogpost “Cracking Up,” 2/27/14.

I can do no better than to quote Judge Ronald L. (“Ingenuity”) Buch.

“Judicial opinions are the ‘heart of the common law system’ and serve as ‘a critical component of what we understand to be the ‘law.’ Statutes and regulations provide simply an outline; judicial opinions fill in the details by providing the rule of law the court applied, the court’s rationale in applying that law, and the underlying facts.

“Judicial opinions serve many purposes: they assist attorneys in advising clients and preparing cases; they provide the lower court’s rationale when the appellate court must evaluate its decision; they inform the public of the court’s analysis; and they establish clear and articulate rules for the future.” 2014 T. C. Memo. 35, at pp. 24-25. (Footnote omitted).

So c’mon, Genius Baristas. Lewis Arnold’s case isn’t sealed. Let’s have some show-and-tell.

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.