I’ve covered the Hidden Spouse trick before now, but today we’ve got ex-Ch J. Michael B (“Iron Mike”) Thornton applying higher mathematics to valuing the gift made by Louis (“Forgive the Spelling”) P. Smaldino, 2021 T. C. Memo. 127, filed 11/10/21,* to Mrs. Lou.

Turns out the gift of 49% of membership interests in Lou’s family LLC to Mrs. Lou, using Mrs. Lou’s $5.2 million gift tax exclusion to try to dodge gift tax when Mrs. Lou immediately hands a large part of the goodies over to Lou’s kids’ Dynasty Trust, gets blown up via substance-over-form, looking family gift equines in orifices other than oral. Lou handed Mrs. Lou $8 million worth of the outfit that ran his real estate empire, but ex-Ch J Iron Mike knocks that down to $7 million via guaranteed payments to Lou from LLC.

Estate planners should read LLC operating agreements before devising gifting plans; ex-Ch J Iron Mike did read the OA, and found missteps in the execution. But query, would doing it right here have helped Lou’s cause any more than remove a make-weight argument?

Finally, there’s the usual mix-and-match between valuations, with IRS’ guy beating out Lou’s by a couple lengths (hi, Judge Holmes). Such arcana as Section 2701 is in play; I leave this to specialists.

Practice hint- Don’t backdate assignments of interests or memberships to dates prior to the date of the appraisal, which fixed the amounts assigned to the penny four (count ’em, four) months after the alleged assignments. These fill-it-in-later moves rarely if ever work.

*Loiuis P Smaldino 2021 T C Memo 127 11 10 21

Once again, the APTC erects a tollbooth after the much-contemned Affordable Care Act has provided “access to and delivery of health care services.” Caught by the descending bar today are Ronald E. Knox and Joan S. Knox, 2021 T. C. Memo. 126, filed 11/9/21*.

Ron and Joan got some Social Security lumps, the good kind that come by check. They apparently took a Section 86(e) election and left those off their MFJ 1040; and of course never filed the Form 8962 reconciliation. Adding back the out-dollars from Social Security, Ron and Joan are at 461% of applicable poverty, which  makes the $7’K APC taxable.

Judge Courtney D (“CD”) Jones delivers the bad news.

“Mr. and Mrs. Knox seek equitable relief as have many petitioners caught in this unfortunate circumstance. While we are sympathetic to their plight, we cannot ignore the law to achieve an equitable end. Mr. and Mrs. Knox received an advance of credit to which they were not entitled and are liable for the $7,332 deficiency. Accordingly, we sustain respondent’s determination.” 2021 T. C. Memo. 126, at p. 10. (Citations and footnote omitted, but Tax Court turns to IRS counsel to provide access to and delivery of collection alternatives).

“We direct respondent’s counsel to include alternative payment possibilities for this deficiency in any subsequent correspondence with the Knoxes.” 2021 T. C. Memo. 126, at p. 10, footnote 5.

*Ronald E Knox and Joan S Knox 2021 T C Memo 126 11 9 21

But Always Time to Do It Over

STJ Diana L (“The Taxpayers’ Friend”) Leyden bucks a conjoined pair of SO flubs back to Appeals, and tells Appeals to put a single SO on both, in Stephen L. Barkan and Janice Barkan, 16625-19L, filed 11/8/21*, and 18595-19L,* of even title and date therewith. I’ll refer only to 16625-19L herein.

A couple interesting procedural oddities (hi, Judge Holmes) are found early in 16625-19L. IRS moves for summary J. “The record does not indicate why respondent provided a declaration from a respondent’s counsel rather than from the settlement officers who conducted the CDP hearings.” Order, at p. 2, footnote 4.

And there were two (count ’em, two) CDPs, each with a different SO for different years, and each SO apparently unaware of the existence of the other. So the record is sufficiently tangled to make STJ Di unable to ascertain whether Steve and Jan had a chance to challenge underlying liability (the issue here is underpaid and late-filed self-reporteds, so no SNODs).

Even Steve’s and Jan’s trusty attorney was so confused as to which SO was dealing with what, that he never filed a response to the motion for summary J. After reading this tangle, I don’t blame him.

STJ Di: “There is a genuine dispute as to whether petitioners disputed their underlying liabilities for tax years 2011, 2012, 2013,[SO R] and 2016 [SO J] during their two CDP hearings, given that both petitioners’ counsel and the SOs assigned to each CDP hearing were seemingly unaware that the Appeals Office was working multiple CDP levy cases for petitioners with different SOs and tax periods. Due to this confusion, the record is unclear as to whether petitioners disputed their underlying liabilities during their CDP hearings for the tax years in issue, which is a material fact. Therefore, summary adjudication is not appropriate at this time.” Order, at p. 6.

As for the declaration of counsel in place of one by an SO or two in support of a motion for summary J, there might be a reason. The rule we learned in Civil Procedure 101 is that the affidavit or declaration of an attorney with no personal knowledge of the facts therein alleged is worthless. But if there truly are no material facts in dispute, those undisputed facts are readily discernable from documents exchanged and undisputed by the parties, and copies of all thereof are attached to the declaration or affidavit, then counsel’s declaration is only a table of contents or document transmittal sheet.

Here, obviously, that isn’t the case.

*Stephen L. Barkan and Janice Barkan, 16625-19L 11 8 21

*Stephen L. Barkan and Janiuce Barkan 18595-19L 11 8 21

Either Judge David Gustafson or the Genius Baristas has seen fit to republish, under todays’ date, the non-opinion in Paul Puglisi and Ann Marie Puglisi, Docket No. 4796-20*, the subject of my blogpost “Pop Goes the Weasel,” 10/29/21.

I have not compared the two versions, word for word, but the result is substantially the same in both.

You’ll doubtless recollect that Paul and his brothers are the eggmen of the mid-Atlantic States, but deprived of their Magical Mystery Tour by not getting the opinion they wanted.

*Paul and Ann Marie Puglisi Docklet No. 4796-30 11 5 21

I rank “unequivocal” with “unambiguous” in the test for lawyers who cannot find an equivocation or an ambiguity. Those who pass that test need to find another way to make a living. So we see today, in Excelsior Aggregates, LLC, Big Escambia Ventures, LLC, Tax Matters Partner, 2021 T.C. Memo. 125, filed 11/4/21*. It’s the Escambians’ first time here, but they quarterbacked a dozen conservation easements. This one took land they bought for $3 million, Wild Turkeyed (the 501(c)(3), not the whiskey) it, and claimed a deduction of $12.5 million ninety days later.

Their appraiser had his own problems, as IRS hit him for a $12.5K Section 6695A chop, and got the other 11 (count ’em, 11) he did for the Escambians in their gunsight.

But before hitting the appraiser, the RA on the case faxed (how quaint!) the Escambians’ counsel a billet doux, labeled “Agenda” as follows.

“The agenda began with a ‘[d]isclaimer’ that the ‘discussion is based on current findings’ and that ‘the results * * * could change before the examination officially concludes.’ The agenda proposed several topics for discussion, including valuation of the easement, whether the easement had ‘a valid conservation purpose,’ and whether any penalties would be applicable. The letter provided a brief summary of RA S’s tentative position with respect to each topic.

“At the end of the telephone conference RA S offered petitioner’s counsel the opportunity to respond in writing. He did so…. Following the telephone conference RA S continued with her examination, issuing third-party summonses to obtain necessary information.” 2021 T. C. Memo. 125, at p. 5. (Name omitted).

Eventually, RA S gets the Boss Hossery and gets her boss to sign off.

Of course, the Escambians claim leg-before-wicket; there was no Boss Hossery as to the Escambians before RA S sent the billet doux to Escambians’ counsel, or before RA S put the slug on the appraiser.

Judge Albert G (“Scholar Al”) Lauber finds that the disclaimer does the trick for IRS, citing Belair, Palmolive, Frost, Thompson, Tribune, and Beland, all of which I’ve blogged. And the drubbing of the appraiser certainly doesn’t affect the Escambians, as each chop stands on its own.

But Judge Scholar Al’s parting observation brings a grin.

“The timeliness inquiry thus turns on the timing of the IRS communication to the taxpayer against whom the penalties are being asserted. We assume that Excelsior was in regular contact with Mr. [appraiser]; if he mentioned to Excelsior the Form 5701 he received…, Excelsior would likely have taken that as a worrisome sign. But it is undisputed that ‘the first formal communication to the taxpayer of penalties,’ Frost, 154 T.C. at 32, did not occur until two days after RA S’s supervisor approved her recommendation to assert penalties against Excelsior. Her approval was thus timely.” 2021 T. C. Memo. 125, at p. 16. (Names omitted).

Had Mr. Appraiser told the Escambians that IRS was about to blow up all twelve (count ’em, twelve) of their deals, with lawsuits by all their investors and mulcts by the IRS to follow, I have no doubt he’d have enough lawsuits against him to last for many years.

Edited to add, 11/5/21: Sending the agenda that says “I might impose penalties, maybe so, but let’s talk” sounds to me a little like the pre-SNOD bludgeoning tactics Section 6751(b) was supposed to prevent.

*Excelsior Aggregates 2021 T C Memo 125 11:4:21

The Kalin Twins’ 1959 hit is a gift that keeps on giving. Today Judge Albert G. (“Scholar Al”) Lauber tosses a summary J motion in GWA, LLC, George A. Weiss, Tax Matters Partner, Docket 6981-19, filed 11/4/21*.

This is another tax deferral dodge marketed by overseas banks, whereby a US taxpayer buys a basket of publicly-traded stocks and can trade at will, but recognizes nothing until some future date. The deal is styled an “option,” but IRS says it’s abusive.

GWA used a wholly-owned unrecognized LLC, OGI, to deal with this basket. GWA claims OGI can elect mark-to-market recognition per Section 475, claiming Section 1234 option status.

GWA says OGI can elect MTM, even though, as an unrecognized, it is not a taxpayer. IRS says only taxpayers can make the election. But Section 475(f)(1)(A) says the elector must be engaged in the trade or business of a securities trader.

Judge Scholar Al: ” The parties have focused much of their firepower on the statutory requirement that a person electing mark-to-market treatment must be “engaged in a trade or business as a trader in securities.” Sec. 475(f)(1)(A). Respondent contends that GWA was so engaged because it is treated during 1998 as conducting the securities trading activities of OGI. OGI being a disregarded entity, ‘its activities are treated in the same manner as a sole proprietorship, branch, or division of the owner.’ Sec. 301.7701-2(a), Proced. & Admin. Regs. Because OGI is treated ‘as having no existence separate and distinct from’ its owner, Whirlpool Fin. Corp., 154 T.C. at 146, its securities trading business, for Federal tax purposes, was necessarily conducted by GWA.” Order, at p. 8.

For the Whirlpool story, see my blogpost “The Maytag Repairman,” 5/5/20.

GWA claims there are all kinds of complex legal questions in 2 Cir, whence they are Golsenized, about scope of activity as a stock trader. Happily, if GWA provably so traded before, Judge Scholar Al need not go there.

“We conclude that we need not decide–at least not at this stage of the litigation–whether OGI’s securities trading is attributed to GWA under the activities clause. In contending that GWA made the election, respondent needs to rely on the activities clause only if GWA itself engaged in no securities trading of its own during 1998. But respondent contends that the Deutsche Bank barrier transactions, which generated trading activity by GWA in the early 2000s, were not GWA’s first venture into this territory. Respondent alleges that GWA may itself have engaged in trading securities–including basket securities acquired from the Royal Bank of Canada–as early as 1998, before the mark-to-market election was made. Respondent urges that such facts, if established at trial, ‘would affect the Court’s determination of whether, under section 475(f)(1)(A), GWA was “a person * * * engaged in a trade or business as a trader in securities.”‘” Order, at p. 9.

Issue finding, not issue determination…that’s summary J.

*GWA LLC Docket No 6981-19 filed 11 4 21

Those prepping for the Glasshouse Slaughterhouse, s/a/k/a the examination for admission to practice before the United States Tax Court, and those of us who need some ethics hours to comply with our State’s mandatory CLE requirements, must truly and deeply acknowledge our indebtedness to The Great Chieftain of the Jersey Boys for his exhaustive drill-down into the ABA Model Rules as they impact past (and future) iterations of the Slaughterhouse two days ago.

And this morning, Judge Morrison gives us an extensive lesson in disclosing legal authority adverse to one’s position, and the consequences thereof, in James E. Hansen & Helen R. Hansen, 16157-18, filed 11/4/21*.

See Order, at pp. 4-5. Note that a docket search shows place of trial in 9th Cir., thus making the case cited controlling per Golsen. Note the crafty way questions are posed on the Slaughterhouse: is the case controlling in the Circuit wherein petitioner resided when petition filed?

See also how OCC threw IRS’ honorable trial counsel under the cliché, Order, at p. 10.

The wages of virtue?

*James E Hansen & Helen R Hansen 16157-18, filed 11 4 21

Thanks to Old Pliny for the Latin tag that leads this blogpost; it’s a gift that keeps on giving.

Responding to IRS’ motion to dismiss as moot because tax in question has been paid by applying an overpayment from another year to the year at issue, and the NFTL had been withdrawn,  Western Semiconductor Corporation, 11579-20L, filed 11/3/21*, “… filed (1) an objection to motion to dismiss on ground of mootness, (2) a motion for summary judgment, and (3) a motion to rebuke.” Order, at p. 1.

Barely 75 days later, the Westerners “… filed a (1) first amended notice of objection to motion to dismiss on ground of mootness, (2) a second motion for summary judgment, and (3) a motion to compel.” Ibid.

The Westerners followed up nine (count ’em, nine) days later with “…a motion to withdraw motion to rebuke and a motion to withdraw motion to compel.” Ibid. (See, I can write like some of my high-priced colleagues if I try real hard.)

Motion to rebuke? That’s a new one on me.

“Petitioner’s opposition in this case to the notice of determination that was issued to him primarily arises from his disagreement with certain factual statements set forth in that notice of determination.” Order, at p. 1.

Well, once there’s no collection action pending because there’s no tax due, all Ch J Mighty Mo can do is toss the case.

“While petitioner may be understandably concerned about what he views as factual inaccuracies in the notice of determination, it is apparent that there is no longer any tax liability owed for the tax period at issue in this case. Accordingly, because there is no unpaid liability for the tax period [at issue], this case is moot, and the Court shall grant respondent’s motion to dismiss on ground of mootness.” Order, at p. 1.

But I’d still like to see Ch J Mighty Mo apply the Psalm 141:5 treatment to someone.

*Western Semiconductor Corporation 11579-20L 11 3 21

When I was growing up, many many years ago, there were words and there was inflection, and the greater of these was inflection. Depending on tone of voice, or rise or fall of pitch, words could convey a variety and complexity that print cannot match. I much regret that we do not have sound recordings of famous personages long ago actually saying some of the most famous words history ascribes to them; the meanings we now take from these words might differ entirely from what the speakers meant.

Hence the title of today’s post should be read as if one heard a rising inflection; more as a question than a declaration.

I was going to lament how few visitors find their way to this my blog, and those few viewed, on average over the last five-and-one- half years, only 2.7 of my posts. But when I stumbled today upon the website of an outfit called webrate.org (whoever they may be), I was much heartened.

Despite its infamous grammar, webrate.org made my day.

“Ustaxcourt.gov traffic volume is 648 unique daily visitors and their 1,945 pageviews. The web value rate of ustaxcourt.gov is 35,150 USD. Each visitor makes around 3.21 page views on average.

“By Alexa’s traffic estimates ustaxcourt.gov placed at 48,363 position over the world, while the largest amount of its visitors comes from United States, where it takes 92,396 place.”

True, I average a mere 33 visitors, and 89 views, per day. But to lag behind the Mighty DAWSON’s Creek by a minuscule 0.51 page views per visitor per day is quite an accomplishment, for one with no Genius Baristas or 18Fs to aid him.

And also true, my site is unrated as to money, although these anonymous savants at webrate.org claim “(I)n accordance with Google Safe Browsing and Symantec taishofflaw.com is pretty a safe domain.”

I forgive them their syntactical atrocities.

Misbah Idrees, Docket No. 4086-19, filed 11/2/21, meets with a less happy fate than Matthew Thomas Parmeter, the star of my blogpost “A Moving Story,” 12/21/15. Misbah moved from IL to TX on account of her health, then moved back again on account of expense, in the same year at issue. Misbah worked for the same employer in both States.

Misbah claimed moving expenses both ways. Judge Goeke nixes all but what IRS allowed in this off-the-bencher.

Misbah resided in Lewisville, TX (“The City That Spells It Right”) from January through May.

“Section 217(a) allows taxpayers to deduct moving expenses paid or incurred in connection with commencement of work as an employee at a new principal place of work. Section 217(b) generally defines the term ‘moving expenses’ as the reasonable expenses of moving household goods and personal effects and travel expenses and section 217(c) imposes conditions that the taxpayer must satisfy to be eligible to claim a deduction for moving expenses. Relevant here is section 217(c)(2)(A) which requires that during the 12-month period immediately following her arrival in her new principal place of work she must be a fulltime employee there during at least 39 weeks. Section 217(d) provides exceptions for taxpayers who are unable to satisfy the 39-week requirement by reason of death, disability, involuntary separation from employment or a transfer for the benefit of the employer. Section 217(d)(1)(B).” Transcript, at pp. 6-7.

Misbah’s relocation was none of the above. So the TX trip is out.

But there remains the return to the Land of Lincoln from The Metropolis That Spells it Right. But Misbah also has problems there, and the transcript has spelling problems.

“Section 217(b)(1) defines moving expenses as the reasonable expenses of moving household goods and personal effects from the former residence to the new residence and traveling expenses including lodging from the former residence to the new residence. Expense of moving household goods and personal effects are defined as expenses of transporting goods and affects [sic] from the taxpayer’s former residence to her new residence and packing, crating, in transit storage, and insurance. Section 1.217-1(b)(3), Income Tax Regs. Expenses that are not deductible include storage charges – other than in transit storage – the cost of acquiring new property, expenses of connecting or disconnecting utilities, penalties for breaking leases, and losses sustained from the disposal of club memberships, tuition fees, and similar items.” Transcript, at pp. 8-9.

Misbah’s testimony on her effects and affects is less than persuasive.

“At trial petitioner testified she paid cash to an individual she met at her business to move her furniture to and from Texas. We find this testimony to be vague and to lack credibility regarding her move from Texas to Illinois because in other parts of her testimony she indicated she had little, if any, in the nature of furniture or other items that she needed to move from Texas to Illinois.” Transcript, at p. 9.

*Misbah Idress Docket No 4086-19 11 2 21