My colleague Peter Reilly, CPA, is in the thick of the current refund fray. While Tax Court can order a refund in a deficiency case, the Court has no such jurisdiction in a CDP. 4 Cir just affirmed this conclusion in McClane v. Com’r, No. 20-1074, decided 1/25/22.

Brian McClane has been here before, of course. See my blogposts “SOL on SOL – Redux,” 9/11/18, and “Judge Halpern’s Conundrums,” 3/13/18.

Unhappily for Brian, who admittedly overpaid for the long-ago year at issue, the de novo review he got in his CDP (Brian never got the SNOD) never got to the SOL fence, because Tax Court can’t order a refund out of a CDP once it finds that the collection activity complained of is without basis.

I see the Great Chieftain of the Jersey Boys is on brief as amicus, along with the American College of Tax Counsel (to which august body I do not belong), and the Tax Freedom Institute, Inc. Brian’s case was argued by the FL criminal tax expert, who appeared in my blogpost “When Lawyers Get Involved,” 1/20/22.

But the result is the same.

“We cannot read the phrase ‘underlying tax liability’ in isolation, but instead must read it in ‘the specific context in which that language is used.’ Here, the ‘specific context’ is the IRS’s attempt to collect via lien or levy. (‘The relevant term, ‘underlying tax liability”, is clear and unambiguous and is read easily to mean the tax liability underlying the proposed levy.’). The phrase ‘underlying tax liability’ does not provide the Tax Court jurisdiction over independent overpayment claims when the collection action no longer exists. The Commissioner is correct that the ‘taxpayer was permitted to challenge the amount of his underlying liability in the [collection due process] hearing … only in the context of determining whether the collection action could proceed.’ Appellee’s Br. at 15– 16 (emphasis added) (‘Section 6330 provides a set of procedural safeguards for taxpayers facing a potential levy action by the IRS …” (emphasis added)). McLane no longer faces such an action.” Last paragraph of decision; citations and footnote omitted, but the footnote is a drill-down on Greene-Thapedi.

This needs Congressional action. I refrain from any political comment.

I’m sure Judge Patrick J (“Scholar At”) Urda stands by those words, and I’m also sure he strongly believes others should do likewise. And when it comes to extensions of time to file an opening brief after trial, he certainly applies those words in Russell E. Barrios, Docket No. 19089-17, filed 1/26/22.

Russ went to trial back in November, IRS filed its simultaneous opening brief a week ago, but Russ’ trusty attorney, claiming health issues, asked for more time.

Judge Scholar Pat gives him until Valentine’s Day. ” No further extensions will be granted.” Order, at p.1.

So whether or not you pledged your Valentine in those famous old words, when Judge Scholar Pat is on the case after four years percolating through the system, your brief is due “in sickness and in health.”

The voice of COVID being heard in the land, Tax Court is once again trenching on the Rule Against Perpetuities, by going remote for February’s show-ups, except Chicago alone, which is shunted off until June.

I wouldn’t want to go to Chicago in February either.

Here’s the schedule.

My colleague, Peter Reilly, CPA, always on the lookout for blogfodder, asked me yesterday if I had seen Charlie Sheen, Docket No. 25980-21L, filed 1/24/21. I replied I hadn’t, and the link Mr. Reilly sent me to the order was the usual scrambled eggs served up by the Genius Baristas. So I utilized the new, improved, jim-handy Tax Court search function, and found what seemed like a routine remand to Appeals.

Mr. Reilly’s comment was that this seemed a quick turnaround for a petition filed back last November. I checked out some details, and concluded that Mr. Sheen’s counsel, a CPA, had been around the block a couple times (as we say on this Minor US Outlying Island, and hi, Judge Holmes), and knew t’other from which. Said counsel is a USTCP, not an attorney.

As I discovered many years ago, it’s not necessarily that some animals are more equal than others, as George Orwell put it. Sometimes it’s more important to know what to say to your adversary and how to say it. Getting a teletubbying IRS counsel to drop one of the cascading files confronting him/her back to Appeals depends more upon petitioner’s counsel than on petitioner’s IMDb listing.

Just now we’ve seen all kinds of pullbacks from COVID-induced orders, directives, emergency measures, the politics of which I leave to other voices, other rooms. I’ll chew no such cabbage here even once, much less twicet.

Lastisha J. Redman, Docket No. 12758-20, filed 1/25/21, is late with her petition, and Mnuchin’s Treasury Munchkins’ Quinzième Juillet ipse dixit avails her naught. Neither is Guralnik of any use. See my blogpost “Neither Equity Nor Designation,” 6/2/16, for the happy story of Felix Guralnik.

What saves Felix is FCRP 6(a)(3). We all know the Supremes promulgate the FRCP, but Congress has seven (count ’em, seven) months to veto them. I forbear to comment on Congress’ chances of doing so. Of course, Tax Court makes its own rules, giving particular weight to FRCP when their own rules don’t cover.

I’ve advocated for an Octavia rule to cover situations like COVID, where Tax Court is shut down for more than a day. I cannot think COVID will be the last such instance when Our Nation’s Capitol will be under siege, from whatever source.

Of course, we have in Sections 6213 and 6330 explicit Congressional mandates. Again Ch J Maurice B (“Mighty Mo”) Foley intones the unalterable mantra “(I)n order to be timely, a petition generally must be filed within 90 days of the date on which the Commissioner mails a valid notice of deficiency. See I.R.C. § 6213(a); Brown v.  Commissioner, 78 T.C. 215, 220 (1982). We have no authority to extend this 90-day period. See Joannou v. Commissioner, 33 T.C. 868, 869 (1960); see also Organic Cannabis Found., LLC v. Commissioner, 962 F.3d 1082, 1093-1095 (9th Cir. 2020).” Order, at p. 2 (Footnote omitted, but it’s the 150-day stretch for offshoreniks).

Maybe the Congressional solution is the only proper one, rather than a cobbled-together, jury-rigged Execu-Judicial nullification. How about statute providing filing deadlines in stated emergencies extended by Presidential executive order, subject to Congressional veto?

Not recommended, when it comes to Form 6, the Ownership Disclosure Statement. I’ve pointed this out numerous times before now. One sample is my blogpost “Even Good Accountants,” 3/25/19.

The form itself is useful in a tiny fraction of cases. Most of the corporate and partnership grist coming to the judicial mill at 400 Second St, NW, was not harvested in the fields of Fortune 500 or multinational conglomerates. Most are mom-and-pops, and even the big-ticket ones are syndicates of individuals, disregardeds, and passthroughs.

Howbeit, the rules have sanctified the requirement to file, and “my unhallowed hands shall not disturb it.”

But as the vast majority of those who are told to fill out the form haven’t a clue what it requires of them, make it easy. Instead of “if none, so state,” how about “YOU CANNOT LEAVE THIS SPACE BLANK; IF NONE, WRITE “NONE”.

Then we wouldn’t have such timewasters as R. Finn Enterprises, Ltd., Docket No. 29721-21L, filed 1/24/22.

The historically-inclined might remember that Theodore Roosevelt, former NYC Police Commissioner, set up a couple tables (hi, Judge Holmes) in the Menger Hotel Bar in Santone, as the US was going to war with Spain in 1898, and started recruiting the famous US Volunteer Cavalry, a/k/a the Rough Riders.

Well, today times have changed, so Chuck Rettig and OCC have eschewed Pres. Roosevelt’s rough-tough recruiting policies. But if some of my readers relish the role of latter-day descendants and want to charge a hill or two of Southeastern strip-mined scrub, or capture some captive insurers, Chuck and the 1111 Constitution Ave, NW, types want you.

Here’s the gen.

https://www.irs.gov/newsroom/irs-chief-counsel-looking-for-200-experienced-attorneys-to-focus-on-abusive-tax-deals-job-openings-posted

You can get back a deposit you made to IRS just by asking, but a payment only comes back when there’s been an overpayment. IRS and Ram Ratan Sharma & Shakuntala Sharma, Docket No. 19466-17, filed 1/22/21, seem confused about which was the $6K Ram & Shak paid back in August, ’17. So Judge Gale man-‘splains the difference.

Ram & Shak were here before; see my blogpost “Oh MAGI, I Wish I’d Never Seen Your Face” – Part Deux, 10/29/20. Judge Gale refers today to an Order from 10/15/21 about a Notice CP21C that Ram & Shak claim lets them off the hook for any deficiency. Unhappily, I can’t find the Order (the Genius Baristas buried it so I can’t get the text online), but I’ll bet it’s the “no assessment because you petitioned,” which civilians take to mean IRS concedes everything, when in fact all it means is that the automatic stay on assessment and collection is in effect until decision or toss.

The parties are doing the Rule 155 beancount, but Ram & Shak are still claiming they’re off the hook and wanting their $6K back.

Howbeit, here’s Judge Gale’s skinny on deposit vs payment.

” The key differences between a deposit and an advance payment are that (1) deposits generally must be returned to a taxpayer on demand, whereas advance payments are subject to refund procedures, and (2) interest on an excess deposit  (when the conditions for payment of such interest have been satisfied) is paid at a lower rate than interest on any overpayment that results from an advance payment.  See §§ 6603(c), (d)(4), 6611(a), 6621(a)(1); Hill v. Commissioner, T.C. Memo. 2021-121, at *20–21. A remittance generally will not be treated as a deposit unless a taxpayer designates it as such in writing—and in particular, a remittance that is not so designated will be treated as a payment if it is made after the mailing of a notice of deficiency in full or partial satisfaction of the deficiency. See Rev. Proc. 2005-18,  §§ 4.01, 4.05(1), 2005-13 I.R.B. 798, 799–800.” Order, at p. 3.

For the story of Hill, supra, see my blogpost “Three Point Play,” 10/25/21.

Howbeit, Ram & Shak used the term “deposit” colloquially, but IRS’ papers are all over the lot. See Order, at pp. 4-5, and read all the footnotes. By the time you’re through, two Tylenols won’t be enough. Judge Gale will never have to find another way to make a living; he found eight (count ’em, eight) ambiguities in IRS’ beancount submissions, and I doubt he was even breathing hard.

So let IRS clean up its act, and tell Judge Gale if there is an overpayment, and how much, if any.

I do not know the identity of the attorney who settled and stiped out the “… total deficiency, addition to tax, and accuracy-related penalty for 2011 of $14,325, reduced from $58,094.59 as determined in the notice of deficiency. For 2012,  petitioners are liable under the Stipulated Decision for a total deficiency and accuracy-related penalty of $102,055, reduced from $381,702 as determined in the notice of deficiency….” for Hamdi Rafai and Nancy Rafai, Docket No. 10273-15, filed 1/22/21, at p. 2, but knocking out “nearly 75% of the aggregate deficiencies, addition to tax, and penalties [IRS] originally determined in the notice of deficiency,” Order, at p. 7, isn’t exactly shabby. And Judge Gale as a lot more to say about that, infra (as my expensive colleagues would say).

Howbeit, Ham & Nan want a Rule 162 vacation. Of the stipulated decision. Two (count ’em, two) years after the stiped decision was entered.

Yes, before decision becomes final (Sections 7481(a)(3), and 7483) Tax Court has broad discretion to vacate, modify, or whatever. Two years out, however, mere want of authority of attorney and failure to notify client, doesn’t get it. Ham & Nan (with new counsel) claim fraud on the court.

“In that context, the Fourth Circuit has explained that ‘not only must fraud on the court involve an intentional plot to deceive the judiciary, but it must also touch on the public interest in a way that fraud between individual parties generally does not.’ Consequently, fraud on the court is a narrow doctrine, ‘limited to situations such as ‘bribery of a judge or juror, or improper influence exerted on the court by an attorney, in which the integrity of the court and its ability to function impartially is directly impinged.’”” Order, at p. 4. (Citations omitted).

Ham & Nan are Golsenized to 4 Cir , which, though it has never dealt with Tax Court Rule 162 post-final vacations, have set a high bar for fraud-on-the-court. Fraud has to taint the system and defile its integrity.

“In this case, the allegations in petitioners’ Motion to Vacate do not suggest that their former counsel engaged in misconduct that defiled the Court or that impacts the public interest in a manner that could amount to fraud on the court. … petitioners have not alleged that their former counsel was totally unauthorized to represent one or both of them before the Tax Court. To the contrary, their Motion to Vacate concedes that they jointly retained their former counsel to file the Petition that commenced this case. Nor have petitioners alleged that their former counsel caused the Court to ratify the effects of some fraud perpetrated outside the Tax Court proceeding…. Petitioners merely contend that their former counsel acted without authority, and possibly without fully informing them, with respect to the settlement of this case. In that regard, petitioners have not alleged that respondent’s counsel, or the Court for that matter, could or should have known that their former counsel did not have full authority to act on their behalf. Furthermore, far from suggesting that petitioners’ former counsel colluded with respondent or otherwise acted against petitioners’ interests in settling this case, the Stipulated Decision reflects that petitioners’ former counsel obtained concessions from respondent of nearly 75% of the aggregate deficiencies, addition to tax, and penalties he originally determined in the notice of deficiency. The presentation of such a favorable settlement to the Court, by counsel acting with apparent authority on petitioners’ behalf, could not have deceived the Court in such a way as to preclude it from judging this case impartially.” Order, at pp. 6-7.

Btw, Judge Gale suggests “(P)etitioners’ former counsel may be liable to them in a malpractice action or may be at risk of professional discipline as a result of any negligence or ethical failures that may have occurred in the course of representing petitioners in this case, but as a matter of law such shortcomings would not amount to fraud on the court.” Order, at p. 7.

Takeaway- I hope former counsel put a litigation hold on all e-mails, sent confirmatory writings of all phone calls and face-to-faces to client, and saved copies of all correspondence. And copied clients on every communication with IRS. Their carrier will love them if they did.

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I don’t recall if that was one of the Dick Wolf spinoffs on which one of my nearest and dearest worked as a special effects makeup artist years ago. Just now the concept is a hot one, as The Great Chieftain of The Jersey Boys is running an excellent CLE series on criminal tax prosecutions. Well worth the three hours of each segment. And, as Wolf’s opera proclaimed, Frank’s case study is “ripped from the headlines.”

Today Judge Nega deals with criminal intent as related to the Section 6663(a) civil fraud chops IRS wants to lay upon Brian Hollnagel, Docket No. 8271-19, filed 1/22/21 (Happy Palindrome Day!).

Brian’s trusty attorney moves for partial summary J, a very good tactical move, and one I’ve endorsed extensively before now. Trusty attorney wants to establish what facts IRS has to carry the “clear and convincing evidence” burden. And she gets them.

After a lengthy exposition that summary J is unsuited to cases where good faith and intent are on the menu, Judge Nega states “Because respondent has sufficiently alleged facts from which fraudulent intent can be inferred, this is not the extraordinary case in which summary judgment would be appropriate.” (Order, at p. 4)

OK, I doubt trusty attorney expected a clear win. But she gets what she wants at pp. 4-5, three (count ’em, three) paragraphs laying out exactly what IRS’ counsel claims are necessary and sufficient to lay the 75% chops on Brian. And anything else is “irrelevant, moot, or without merit.” Order, at p. 5.

True, Brian is not your model citizen. He went down on a bunch counts (hi, Judge Holmes) of wire fraud, obstruction, and filing a false amended return (Section 7206(1)) in USDCNDIL. (Order, at pp. 2-3)

But Judge Nega is not convinced. And IRS didn’t move for summary J (can’t cross-move in Tax Court, although I don’t understand the reason why not).

So here’s another example of summary J as discovery. And as courts have said for years, it narrows issues, makes the parties marshal and lay bare their proofs, and expedites litigation.

Brian’s trusty attorney gets a Taishoff “Good Move.”