Unrepresenteds don’t win TFRPs; either they don’t go to Appeals, and petition the NFTL or NITL that follows their nonappearance, in which case liability is off the table and the end-run of a doubt-as-to-liability OIC is a nonstarter; or they bury themselves before the AO or SO, wherefore their petition of the NOD is a waste of sixty bucks plus postage.

Especially is this the case in record-rule jurisdictions like CA. If the record at Appeals is the whole story, better show up and tell a good one. If you have a good one.

I’ll make an offer of proof. Here’s Luke J. Middleton, T. C. Memo. 2022-28, filed 4/4/22.

Luke “..opened a checking account for [corp] on December 13, 2012, and a savings account on September 16, 2013. He was the only signer on the bank accounts. On July 15, 2016, petitioner signed a Domestic Stock Corporation Certificate of Dissolution, which was filed with the California secretary of state on August 8, 2016.” T. C. Memo. 2022-28, at p. 2.

Luke then told this tale to the RO who came around asking about who did what at the corp so as to determine who was responsible for the unpaid quarters of FICA/FUTA/ITW.

Luke never sent in a Form 12153 when he got the Letter 1153 chopping him with the FTRPs, but tried OIC doubt-as-to-liability.

CJIW (Chief Judge In Waiting) Kathleen (TBS = “The Big Shillelagh”) Kerrigan: “For the first time at trial, petitioner testified that he did not recall receiving the Letters 1153. Petitioner did not raise this issue during his CDP hearing and is precluded from challenging his underlying liabilities here.  See id.; Treas. Reg. § 301.6330-1(f)(2), Q&A-F3.

“Even if petitioner could challenge his underlying liabilities before this Court, his claims would fail. Petitioner does not dispute that he worked for [corp] and was responsible for its bank accounts. He testified that he was the responsible managing officer during the relevant tax periods. During trial petitioner raised the issue that he was coerced by the revenue officer into admitting that he was the responsible person for [corp] on the Form 4180. Even if his claim of coercion was true, it would not affect his status as the responsible person.” T. C. Memo. 2022-28, at pp. 7-8.

Apparently 9 Cir is a Clint Eastwood fan club, because Judge Bea thinks taxpayers should gamble on whether IRS will follow through on its threat to impose condign chops, when the RA’s supervisor finally gets around to checking on what his/her subordinates are up to.

Of course, by that time the bludgeoning of settlements out of terrified taxpayers will long since have taken place.

Here’s Laidlaw’s Harley Davidson Sales, Inc. v. Commissioner, Docket No. 20-73420, 3/25/22, courtesy of my indefatigable colleague and Forbes blogger Peter Reilly, CPA, in whose debt I once again stand. Mr Reilly notes I’ve blogged this case before, but not on this point. He missed my blogpost “Old Bill Wins Another One,” 1/16/20, where I did.

Howbeit, Judge Bea and the 9 Cir panel decided that they are “textualists,” so they go back to the old “assessment” dictionary chaw. 9 Cir forgets that “the letter killeth but the spirit giveth life,” as a far higher authority than 9 Cir put it.

And there’s this gem: “But, at the time RA C sent the [30-day] letter, it could not have been guaranteed that, as the letter stated, if Taxpayer took no action by the June 27, 2011, deadline, ‘we will assess the penalty and begin collection procedures.’ This is because I.R.C. § 6751(b)(1) provides that certain penalties, including penalties under § 6707A, cannot be assessed without written supervisory approval. And, as it turns out, no supervisor had yet provided written approval of the § 6707A penalty that the letter represented would be assessed against Taxpayer.” (Name omitted). Exactly how the taxpayer was to know this is nowhere stated.

Judge, by the time assessment comes, the whole case could be litigated. Section 6751(b) is a drafter’s disaster, but what Congress wanted is clear: a second look, however minimal a second look, before anyone says “penalty.”

Michael Corleone only had to threaten; no one took him up on the threat.

Here’s what I said back in 2016, when the first dictionary chaw case was decided. See my blogpost “A Non-Christmas Story,”12/26/16.

“The answer isn’t in the dictionary, nor in The Oxford English Grammar.

“Either Congress meant that someone, who has oversight responsibility for the IRS employee who chooses to impose a penalty, exercises, and documents the exercise of,  that responsibility before the taxpayer first gets hit with the chop, or they meant something unintelligible from the plain words (without philological gloss) that appear on the page.

“As best I, a mere old-time, beaten-up, beaten-down, single-shingle dirt lawyer ‘of limited experience and mediocre qualifications’ can discern, Congress proposed that IRS stop using penalties to bully taxpayers.

“And the way to do it, said Congress, is to require a second look before dropping the bomb. And that’s a documented second look by a specific individual senior to the would-be bomber.

“If the second look needn’t be given or documented until after a Tax Court litigation, wherein the taxpayer may have paid or incurred monumental legal fees, costs and disbursements, finally to be justified; or worse, where the taxpayer is unjustly mulcted but cannot afford even the “reasonable rates” of Eric William Johnson, Esq., what exactly is the point of the statute?

“Moreover, if the famous ‘second look’ can be accomplished by a robosigner with an illegible signature many years after said initial determination, the statute becomes positively farcical.

“If ever an opinion needed reargument, it’s 147 T. C. 16.”

If ever an opinion needed reargument, it’s Docket No. 20-73420, 3/25/22.

Ch J Maurice B (“Mighty Mo”) Foley announces the retirement of a Tax Court standby, STJ Daniel A (“Yuda”) Guy.

Seems like only yesterday I was welcoming STJ Yuda to the Tax Court Bench. See my blogpost “Welcome, Judge Guy,” 4/24/12.  I did get those “many interesting opinions from STJ Guy,” for which I, and I am sure my colleagues, thank him.

Best wishes to Da Guy.

The proposed revised, improved Tax Court Rules, the capstone of the Chieftainship of Ch J Maurice B (“Mighty Mo”) Foley, will, when adopted (as I hope and trust they will be) at long last bring Rule 147 from 1973 to 1991, if not to 2022.

See my blogpost “The Stealth Subpoena,” 7/16/15.

The new, improved Tax Court Rule 147 will join with FRCP 45 and flow unvexed together, eliminating the rapids caused by the unlamented Stealth Subpoena.

I am sure Judge Mark V Holmes shares my satisfaction.

But why should it take seven (count ’em, seven) years to get here? And why was there not a single channel whereby to make similar beneficial recommendations? I claim no credit for the role, if any at all, that was played by this my blog; it’s read world-wide, but not deeply. I doubt any substantial portion of Tax Court practitioners (to say nothing of IRS personnel, Tax Court staff, or the Judiciary) is aware of its existence.

But if we had a United States Tax Court Bar Association, maybe so it might could just possibly be better.

That’s STJ Eunkyong (“N’Yawk”) Choi’s seal of approval on Joseph Seminara, 12375-20SL, filed 4/1/22. No April fool’s joke this.

Joe self-reported four (count ’em, four) years, but paid nothing. No SNOD, of course, as IRS assessed what Joe reported. NFTL followed via Automated Collection System, untouched by human hands. Joe Appealed the NFTL, asking for an OIC, which he withdrew at the same time his representative did likewise. Then Joe said he’d file another OIC and amended returns, showing he owed nothing and was entitled to a refund. The SO said fuggedaboutit as to amended returns if Joe wanted an OIC, and NODed the NFTL.

In defense of the SO, even if Joe filed for and got an accepted OIC, an NFTL could still be in effect until final payment. And one can file an OIC at any time.

IRS wants summary J and doesn’t get it.

The SO should have considered the amended returns Joe proffered.

STJ N’Yawk Choi: “Where respondent assessed the tax reported in a taxpayer’s return; the taxpayer’s return was not examined under audit, and respondent did not issue the taxpayer a notice of deficiency, the taxpayer has not had a prior opportunity to dispute the underlying tax liability and may do so during the CDP hearing. See Shaddix v. Commissioner, T.C. Memo. 2022-11, *8. The administrative record, in this case, reveals that respondent assessed the tax petitioner reported in his returns;  petitioner’s accounts entered respondent’s Automated Collections System, absent an examination, when petitioner failed to pay the tax he reported on his returns; and petitioner did not receive deficiency notices for any of the taxable years at issue.  Accordingly, reviewing Appeals’ determination de novo, we find that petitioner was entitled to have his dispute of the underlying tax liabilities considered at his CDP hearing. We further find that [SO]’s refusal to consider petitioner’s amended returns was erroneous, and respondent is not entitled to judgment as a matter of law.” Order, at pp. 3-4. (Name and footnote omitted, but read the footnote, or, to save you the trouble of looking up the order on DAWSON, I’ll print it.)

“During the … hearing on the instant motion, respondent asserted that petitioner did not dispute his liability at his CDP hearing because petitioner did not offer amended returns at the [first] telephone conference with [SO], but instead offered them approximately one year later during [a later] telephone conference with [SO]. Respondent asserted that the [first] telephone conference alone was petitioner’s CDP hearing; that petitioner cannot indefinitely raise new issues for Appeals to consider. We disagree. ‘A CDP hearing may consist of one or more written or oral communications between an Appeals officer and the taxpayer’ and ‘[a]ll communications between the taxpayer and the Appeals officer between the time of the hearing request and the issuance of the determination notice constitute part of the CDP hearing.’ Turner v. Commissioner, T.C. Memo, 2010-44, *2 (internal citations omitted).” Order, at p. 4, footnote 2.

For Shaddix, see my blogpost “A Bad Day for Appeals,” 2/28/22.

Judge Christian N. (“Speedy”) Weiler shows some fancy footwork in an improvements-out conservation easement. Jonathan M. Gallant & Sarah D. Gallant, Docket 14875-20, filed 3/31/22, has IRS trying to “…bring our decision in Coal Property Holdings to an illogical conclusion; namely, that no right of use or ownership in future improvements may be retained by the donor. However, we have never held that retaining rights to improvements in the donated property, ipso facto, violates the ‘granted in perpetuity’ requirement.” Order, at p. 5.

Besides, the property had zero improvements when the easement was granted, and the improvements Jonathan and his partner wanted to make were “… to construct trails and footpaths on the property, install signs and other marks,  construct low impact amenities, maintain and manage the property to prevent erosion, and install picnic tables and benches.” Order, at p. 5.

So maybe the easements had minimal value, which could be ignored in case of judicial extinguishment.

But that’s a question of fact. And that needs a trial. Wherefore IRS’ motion for summary J goes south (and of course the property is more GA scrub).

So Hewitt and Oakbrook and Reg. Section 1.170A-14(g)(6)(ii), the latest “goofy” regulation, go by the boards. And Jonathan’s and partner’s amendment to the deed nunc pro tunc to try to comply with the goofy regulation is off the menu. Judge Speedy Weiler catalogs all the cases that he needn’t consider.

IRS does get summary J they satisfied the Section 6751(b) Boss Hossery, because Jonathan and partner didn’t contest that.

I guess I was right when I cognomened Judge Weiler; he sure is speedy.

That’s what BATS Global Markets Holdings, Inc. and Subsidiaries, 158 T. C.5, filed 3/31/22, did with its stock-trading software, that it developed and used to propel itself to the world’s third largest stock exchange. What got it to Tax Court was its claimed deductions from Domestic Production Gross Receipts (Section 199) arising out of said software.

But Ch J I W (Chief Judge In Waiting) Kathleen (“TBS = The Big Shillelagh”) Kerrigan will none of it.

If you’re interested in creating an online stock exchange but haven’t age-appropriate offspring or descendants handy to teen-‘splain IP/TCP ports, order matching software, “physical” and “logical” connectivity, and latency, read Judge Kerrigan’s treatise at pp. 2-18. Then go out and make billions, and you won’t have to read blogs about Tax Court.

The BATS did and didn’t.

To participate in the BATS exchange, one had to be a broker-dealer as defined in the securities laws. One also had to pay the laundry list of Fees charged by BATS to play in their schoolyard. BATS claimed the Fees were DPGR. IRS says no.

Key to BATS’ claim is Reg. Section “199 -3(i)(6)(iii)(B): first, that they [receipts] were derived from providing customers access to computer software for the customers’ direct use while connected to the internet or any other public or private communications network, id. subdiv. (iii); and second, that a third party derived gross receipts from the lease, rental, license, sale, exchange, or other disposition of substantially identical software, id. subdiv. (iii)(B).” 158 T. C. 5, at p. 20.

But the property (and that includes computer software) has to be disposed of, that is, leased, licensed, sold, exchanged, not used to provide services for a fee. And the software has to be distributed by download or tangible medium (CD or flashdrive) as well as online only. And the download or tangible has to be substantially the same as the online. This is the so-called “self-comparable” exception, but BATS doesn’t claim that.

BATS does claim Reg. Section 1.199-3(i)(6)(iii)(B) third-party comparable status, that is, that other unrelated parties are disposing of like software.

The idea is that merely offering your software for online use, without letting the customer buy or lease or download it for their own use, isn’t domestic production. It’s selling a service, and only architects and engineers doing that onshore qualify.

The Logical Port Fees aren’t DPGR; they only allowed the customer to log into BATS’ exchanges, no different from any e-mail service.

The Routing Fees were paid to send the customers’ orders to specified exchanges. This is again a service, not a disposition of software.

Transaction Fees varied widely. Some transactions never happened, so no fee was charged. Some fees depended upon how much liquidity the customer was providing or taking from the exchange. In short, another fee-for-service.

“Petitioner is an operator of securities exchanges. The fact that the Exchanges use software to operate does not convert petitioner’s trade execution services into the provision of software for customers’ direct use.” 158 T. C. 5, at p. 28.

The BATS claim they’re like TurboTax, providing software to customers. But you can buy TurboTax software, or download it. The BATS stuff you can’t.

And while customers can submit orders to BATS, they cannot themselves execute the orders. Only BATS can do that, and their user agreement says it’s a service.

BATS claims the safe harbor afforded computer games, where all computer games are deemed to satisfy third-party comparability. But BATS is not providing games, and their proposed reading eviscerates the statute and regs.

Other stock market software can be used to operate a market; BATS’ cannot.

Reminder: Post-1/1/2018, the domestic production break is off the table. Repealed by Tax Cuts and Jobs Act of 2017, Pub. L. 115–97, title I, § 13305(a).

I am late blogging tonight, because I had a tooth extracted this afternoon. The prothodontist instructed me to engage in no activity for 24 hours that would raise my blood pressure. So I will merely wonder how IRS counsel maintains normal blood pressure when being given five (count ’em, five) trial dates over a five-year period, for each of which, presumably, they must prepare.

The petitioner, of course, does not prepare. Quite the contrary; he showed up for a deposition “engaging in aggressive behavior, shouting, and abruptly leaving respondent’s office before the deposition could begin.” Michael Zorn, Docket No. 25974-17, filed 3/30/22, at p. 2.

IRS’ counsel moved for sanctions. Motion denied, without prejudice. Idem, as my expensive colleagues would say.

To begin with, for the first trial date in 2019, a mere eighteen months after the petition, IRS’ counsel moved for a date and time certain; granted. But petitioner moved for a continuance at the trial, which the Court granted.

Second trial date, same story. OSC to set trial, no opposition, motion at trial for continuance, granted over IRS’ counsel’s opposition.

Third trial date scheduled, three weeks before trial petitioner files bankruptcy.

After bankruptcy court discharge (apparently not discharging the tax debts), trial again scheduled (number four), but two (count ’em, two) days after the scheduling order, the Court sua sponte continued the case.

Trial date number five. A hybrid. A remote session last November, with an in-person at a date and time to be determined. “The Court’s Order stated that ‘the in-person portion of the trial will consist of petitioner’s testimony and that of any other witnesses the Court designates for in-person testimony.’” Order, at p. 3.

And the remote trial actually takes place on time.

But the in-person is stricken on COVID concerns, and when rescheduled, petitioner claims he has symptoms: two days before trial. Petitioner likewise claims he was seeing a doctor that day.

Judge Courtney D (“CD”) Jones asks petitioner to show documentation of his medical appointment. Order, at p. 4.

“In light of the significant delay that resolution of this case has already experienced, the Court is concerned about a further delay. The Court recognizes that one delay was caused by the Court’s Order… and another by the Court’s Order….

“However, the Court notes that resolution of the case has also been delayed due to petitioner’s two Motions for Continuance, refusal to sit for a properly-noticed deposition, and filing of a petition in U.S. Bankruptcy Court. Though the Court will reschedule the in-person further trial on report of petitioner’s symptoms, the Court , and will consider sanctions, including dismissal, if petitioner initiates an additional delay.” Order, at pp. 3-4.

I note that Ch J Maurice B (“Mighty Mo”) Foley has given a stylistic tweak to Rule 133 in the proposed revisions to the Rules, but no substantive change was made. Taishoff says what’s the point of the thirty-day rule?

Yesterday I asked if “nothing can be done to short-circuit the frivolites who prevent honest people… from ‘settling their case in short order”’ by clogging the dockets with protester jive?” See my blogpost “Run To Stop It Running,” 3/28/22.

Well, today Judge Albert G (“Scholar Al”) Lauber hands a Section 6673 frivolity chop to a three-time loser, Jason D. Golditch, T. C. Memo. 2022-26, filed 3/29/22. This is Golditch’s third CDP petition go-around, where he did nothing at Appeals, frivoled in Tax Court, and lost.

Judge Scholar Al finds Golditch never bothered filing a return for at least ten (count ’em, ten) years, and ran up a tax tab north of $200K in the process.

No Judge Scholar Al  CDP opinion is complete without an in-depth dissertation on CDP.

Maybe handing out a few more Section 6673 chops will cool off  some of the frivolites.

Interest, That Is

The abate debate goes on. Jeremy Edwin Porter, T. C. Memo. 2022-25, filed 3/28/22, says IRS held the ball in the backcourt, but Judge Travis A. (“Tag”) Greaves says Jeremy and his rep were also slow-playing the hand.

“The IRS did not abuse its discretion by denying petitioner’s interest abatement claim. Petitioners delayed the examination by failing to provide the records the examiner requested and did not provide any such records in the letter petitioner claimed to have sent the IRS…. During litigation, petitioner himself requested the first continuance the Court granted and did not object to the second. See Adams v. Commissioner, T.C. Memo. 2019-99, at *13 n.7 (explaining that section 6404(e)(1) prohibits abatement where the purported delay was attributable to the taxpayer’s reasonable requests for continuances), aff’d per curiam, 811 F. App’x 276 (5th Cir. 2020). The Tax Court did not rule on petitioner’s discovery Motions until February 2019, after which petitioner concedes that Ms. V resolved his case in short order. See Lee, 113 T.C. at 150 (explaining that the ‘mere passage of time in the litigation phase of a tax dispute does not establish error or delay’ under section 6404(e)). Such delays are not grounds for interest abatement because either they are not attributable to an IRS officer or employee, or a significant aspect of the delay can be attributed to the taxpayer.” T. C. Memo. 2022-25, at pp. 5-6. (Name omitted).

For Adams, see my blogpost “Abatement of Interest,” 8/12/19.

So is the answer to oppose any IRS request for continuance? Never ask for a continuance yourself? Badger the hardlaboring Glasshouse Gang when your motion languishes, while the Judge is dealing with such as Jonah B. Addis, T. C. Memo. 2022-24, filed 3/28/22, who frivol endlessly while your case is stuck in the slow lane?

Of course not.

Sure, always provide every scrap of paper (or electrons) you have that helps your case to IRS.

But even with that, the real problem is the clogged Glasshouse docket.

Are we absolutely positively certain, beyond mayhap or peradventure, that nothing can be done to short-circuit the frivolites who prevent honest people like Jeremy and Ms. V. from “settling their case in short order” by clogging the dockets with protester jive?