I’ve seen this many times over the last fifty-four (count ’em, fifty-four) years: a developer (usually taxed as a partnership, even if LLC) finds the property, and seeks financing. The lender wants return of capital, return on capital, and something extra, namely, viz., and to wit, a piece of the action, whether during operation or sale or both.

We call this piece of the action an equity kicker, and it’s either embedded in the mortgage, or, more likely, in a side agreement. Of course, we put in a load of jive about not creating a partnership, co-venture, or anything but a debtor-creditor relationship. Yeah, most affirmato, roger that.

Anyhow, that’s the deal with Progressive Life Insurance Company (PLI) that Alexander C. Deitch, et al., Docket  No. 21282-17, filed 8/25/21*, made. But the als were individual members with Alex of an LLC known as WTS. Wherefore, when WTS paid PLI $1 million and called it interest, IRS handed out SNODs to Alex and the als.

Judge David Gustafson man-‘splains: “This payment constituted 50% of the net proceeds of the sale of a commercial property as calculated pursuant to an ‘Additional Interest Agreement’ into which WTS and PLI had entered when PLI agreed to lend to WTS approximately $4.4 million for the purchase of the commercial property.” Order, at p. 1.

Now Alex and one of the als were the sole members of WTS, and, as they were both individuals, WTS was a small partnership for TEFRA purposes, therefore no need for FPAA, therefore straight to the individuals (the other al is the wife of the other member).

And there were facially-valid SNODs to Alex and the als, and timely petitions from both.

Except.

IRS argues in its pretrial brief that PLI and WTS were co-venturers, not borrower-lender, so whatever WTS paid PLI out of operations once the property was up and running were Section 707(c) guaranteed payments, and what PLI got on the sale was a distributive share of the sales proceeds.

So what?

So TEFRA. I’m sure my ultra-hip readers reacted as did Judge Gustafson (although Judge Gustafson gives us elegant language, somber reasoning, and copious citations). “Hey, if WTS and PLI are co-venturers, then they’re partners for tax purposes. While PLI is a C Corp and could qualify for the TEFRA small-partnership duck, WTS is a pass-through and not a disregarded (having two members), so WTS and PLI cannot duck TEFRA. And splitting operating profits and sales proceeds are clearly partnership items. So IRS must use TEFRA, but here no FPAA., so no Tax Court jurisdiction.”

Take a look at Jimastowlo Oil, LLC, more particularly bounded and described in my blogpost “Honor Your Partner,” 8/26/13.

So let IRS’ counsel report (a) whether TEFRA ousts Judge Gustafson of jurisdiction to decide IRS’ claim that the equity kicker payments are the result of a co-venture between WTS and PLI, and (b) if so, what else is there to decide?

And let Alex and the als reply.

Now I’ve said often enough that Judge David Gustafson is an obliging jurist. He’ll bring over his laptop and do your papers for you, bring Krispy Kremes and Mayorga with half-and-half to calendar call, and feed the parking meter while you wait. See my blogpost “Obliging? This Beats All,” 3/6/19. Then I said he won’t do your research for you. But here he’s written the memo for Alex’s trusty attorneys, the Lords Chamberlain.

*Alex Deitch 21282-17 8 25 21

We’ve met them many times in our practices. You know, the loveable rogue. Yeah, straight as a corkscrew, but there’s something about the dude.

Note: very rarely does a woman fall into this category; women eschew persiflage, are too direct. Ms. Elizabeth Holmes is intimidating, not ingratiating.

Anyway, Greg Podlucky is back today, and just two words in Judge Albert G (“Scholar Al”) Lauber’s stitching up of summary J precluding Greg from denying that he “fraudulently underpaid his tax for the 2005 tax year” brought even more than a grimace to my battered visage. I smiled, even got a wee bit teary, remembering times long ago. And the memories of those times brought a fleeting moment of fellow-feeling for Greg.

Then, of course, it dissipated.

The words? “The Government alleged that petitioner fabricated [Greg’s business]’ financial statements to induce lenders and investors to advance funds to the business. Petitioner during 2005 allegedly diverted more than $7 million of his ill-gotten gains to buy jewelry, model trains, and a mansion house.” Order, at p. 2. (Emphasis added).

Model trains, Judge? Have you ever opened the blue cardboard boxes of the first postwar American Flyer red coaches your Dad bought for you the last Christmas he was home? Have you ever set up the Hornby Mallard to run around the Christmas tree with two young and eager assistants? Ever set up the Märklin model of the railcar you rode from Ansbach to Steinach to visit your old Army buddy from boot camp?

If not, please accept my sincerest sympathies.

Model trains, indeed. Magic. A glimpse of Heaven.

Gregory J. Podlucky and Karla S. Podlucky, Docket No. 453-17, filed 8/24/21.*

*Gregory J Podlucky 453-17 8:24:21

Nilda E. Vera, 157 T. C. 6, filed 8/31/21*, shows that determination will get you a determination, hence a ticket to Tax Court, even though you were previously tossed for lateness.

Nilda sought innocent spousery for 2013, got a NOD denying it, and petitioned a day late. Tax Court tossed Nilda. Then Nilda came back a couple months (hi, Judge Holmes) later for 2010, and included 2013 in her claim, and got denied as to both, and petitioned timely.

Judge Buch says the Innocent Spouse Unit determined Nilda ineligible as to both years, so Tax Court has jurisdiction over both.

“In a determination… the Commissioner denied the request for relief that Ms. Vera had filed in November 2016. That denial was styled as a Letter 3288, Final Appeals Determination. The header of that letter specified only 2010 as the tax year. In contrast, the substance of the determination addressed both 2010 and 2013. It read:
“For tax year 2010, the information we have shows that you didn’t\ meet the requirements for relief.

“For tax year 2010, you didn’t have a reasonable expectation that the person you filed the joint return with would or could pay the tax.

“For tax year 2013, you didn’t comply with all income tax laws for the tax years that followed the years that are the subject of your claim.” 157 T. C. 6, at p. 4.

Nilda used the Form 2 petition, and put both years on it.

“Although section 6015(e)(1)(A)(i)(I) refers to a final determination, nothing in that provision prohibits the Commissioner from issuing more than one final determination as to a given tax year. To the extent this provision might be interpreted as allowing for only one final determination, it does not specify whether it is one final determination per request for innocent spouse relief or one final determination per tax year.

“If we look to the applicable regulations to clear up this ambiguity, it is clear that the Commissioner believes that more than one final determination can be issued with respect to a single tax year. As a general matter, the regulations under section 6015 limit claimants to a single qualified request for a given year. Sec. 1.6015-1(a)(2), (h)(5), Income Tax Regs. A qualified request is defined as the ‘first timely claim for relief.’ Id. para. (h)(5). And the ‘requesting spouse is entitled to only one final administrative determination of relief.’ Sec. 1.6015-5(c)(1), Income Tax Regs. But these regulations leave open the possibility for the Commissioner to issue a second final determination. For instance, if a requesting spouse changes marital status, the regulations permit a second claim, resulting in a second final determination. Secs. 1.6015-1(h)(5), 1.6015-5(c)(1), 1.6015-3, Income Tax Regs.” 157 T. C. 5, at pp. 6-7.

And of course the whistleblower epistolary volleying is remembered.

“In the whistleblower context, we have held that successive letters that purport to be a final determination can confer on the recipient successive opportunities to file a petition. 157 T. C. 6, at p. 9. Judge Buch cites the Battling Comparinis. See my blogpost “Arts and the Man,” 10/4/14.

“In his motion to dismiss, the Commissioner characterizes the inclusion of 2013 in his determination as an error. Error or not, the Commissioner’s notice is unambiguous in its denial as to both 2010 and 2013. Although the header of the letter refers only to 2010, the body refers to both years. The description for denial of relief as to 2013 relates solely to the merits of relief. Nowhere in the letter does the Commissioner describe a rejection on the basis of an improper second request. Simply put, nothing in the Commissioner’s letter conflicts with the notion that this is a denial on the merits as to both 2010 and 2013. This leaves the Commissioner to argue that the determination was issued in error. But if we again look to our whistleblower caselaw, we have previously held that we have jurisdiction to review determinations issued in error.” 157 T. C. 6., at p. 10.

Remember Mica Ringo? No? See my blogpost “Oh, Those Letters,” 10/6/14.

There’s more, but IRS is stuck. Nilda’s determination gets her a determination, and a Tax Court review.

But oh, what a splendid silt-stir this will cause!  If late for one year, timely petition another, and load ’em both aboard.

*Nilda E Vera 157 T C 6 8 23 21

No, not what happens when one sits in an endless Zoom meeting that drones on to oblivion. This is about what happens when a Notice of Determination is invalid. And that’s the story of Guadalupe Ruiz & Maria C. Ruiz, Docket No. 21277-18L, filed 8/23/21*.

Guadalupe & Maria C. petitioned a NOD. Appeals issued a supplemental NOD, but somewhere in between Guadalupe died. Judge Courtney D. (“CD”) Jones told IRS to report.

“…in response to the Court’s order, respondent filed a status report representing that the IRS never issued Mrs. Ruiz a Notice CP90, Intent to Seize Your Assets and Notice of Your Right to a Hearing. As such, respondent’s counsel contends that the notice of determination sent to Mrs. Ruiz was not a valid notice of determination. Accordingly, respondent represented that respondent would file a motion to dismiss for lack of jurisdiction as to Mrs. Ruiz.” Order, at p. 2.

And IRS tried to find who might represent the estate of the late Guadalupe.

Well, pore l’il ol’ Tax Court is a court of limited jurisdiction, so no valid NOD, no jurisdiction, right?

Not quite. “Although the Office of Appeals’ determination need not follow a particular format, the determination must be in writing. A notice of determination ‘must specify to which taxable period, liability, and collection action it relates or, at least provide sufficient information so that the taxpayer cannot reasonably be deceived as to these items”. LG Kendrick, LLC v. Commissioner, 146 T.C. 17, 28-29 (2016) (citing Commissioner v. Forest Glen Creamery Co., 98 F.2d 968, 971 (7th Cir.1938), rev’g and remanding 33 B.T.A. 564 (1935); Erickson v.  Commissioner, T.C. Memo.1991–97, 61 T.C.M. (CCH) 2073, 2076–2077 (1991)). For the backstory on LG Kendrick, see my blogpost “Be Careful What You Ask For – Part Deux,” 1/21/16.

So just maybe there might be jurisdiction as to Maria C., because there was a NOD specifying whatever NODs are supposed to specify. That Appeals had no jurisdiction, invalidating the NOD, because Maria C. never got the CP 90, is another story.  So let IRS’ counsel report on that angle.

There is Tax Court caselaw that says it can kick the underlying levy notice if it was improperly served. Take a look at the Order, at pp. 3-4. Although 7 Cir weighs in to state that determining IRS didn’t follow statutory requirements is “a quintessential merits analysis, not a jurisdictional ruling,” 7 Cir tossed the taxpayer in that case, saying if NOD invalid, like the Man From Mumbai said, “The door is shut…we may not look behind.” See Adolphson, 843 F.3D 478 (CA 7, 2016).

Judge CD Jones notes Adolphson is up in the air in Tax Court, as the Atlantic Pacific Management case (for which see my blogpost “The Taxpayer Bill of Goods – Part Deux,” 6/20/19) never dealt with Adolphson.

Taishoff says, anyway, the late Guadalupe & Maria C. were TX residents when they petitioned, and TX is 5 Cir, not 7 Cir.

But Judge CD Jones is the judge here, not me, so let IRS decompose some brain tissue.

Meantime, TX law does let Maria C. take up the torch for the late Guadalupe, and press ahead with her own innocent spousery. Texas Estates Code sec. 453.003.

So let IRS’ counsel discuss TX estate law, Maria C.’s innocent spousery, and maybe whether Tax Court has no jurisdiction at all.

And let the Clerk change the caption to “Guadalupe Ruiz, Deceased, Maria C. Ruiz, Surviving Spouse, & Maria C. Ruiz, Petitioners, v. Commissioner of Internal Revenue, Respondent.” Order, at p. 4.

*Guadalupe Ruiz & Maria C. 8 23 21

That’s what Judge Alina I. (“AIM”) Marshall does to IRS in John W. Jermaine, 7458-19L, filed 8/20/21*. IRS gives John a SNOD, which includes a $94 deficiency, which he pays, but also reverses the $9K withholding credit John claimed and was refunded. John petitions the SNOD, but gets tossed for want of the sixty Georges. Comes then the NITL, which John answers with a 12153, asking for OIC, lien withdrawal, and innocent spousery. He also claims he paid the deficiency.

While the CDP is pending, John sues IRS and some other people in USDCMDTN. The other people get let out of the case, and John gets tossed with prejudice per FRCP 16(f); John didn’t seem to follow Court orders, which gets USDJs peevish.

Anyway, IRS wants summary J tossing John’s petition from the NOD. John wants to go back to USDCMDTN, but that’s out. He petitioned the NOD timely; that’s enough, and he isn’t asking for this case to be dismissed. And John isn’t suing for a refund per 28 USC §1346 anyway, even iof he hadn’t been tossed in USDCMDTN.

John can’t challenge the $94 deficiency, because he petitioned that and got tossed. There’s also no lien to withdraw.

But the $9K withholding refund is another story.

“The attachment to the notice of determination states: ‘[t]he taxpayer challenged the existence and amount of the liability within an attachment to the Form 12153, Request for a Collection Due Process or Equivalent Hearing. The taxpayer was precluded from raising the liability issue during this CDP hearing process due to a prior opportunity and was advised as such by the original Appeals Officer assigned the case.’

“Reading the attachment to the notice of determination in the light most favorable to the taxpayer, it might be that petitioner raised the $9,279 withholding at his IRS Appeals conference but was not permitted to provide evidence. This interpretation of the attachment to the notice of determination would not permit the Court to hold for respondent on summary judgment….

“In respondent’s motion, respondent does not address whether petitioner is entitled to raise the $9,279 withholding tax credit as a challenge to his underlying liability under section 6330(c)(2)(B). Respondent also does not address whether petitioner’s arguments with respect to this amount might be reviewed as a verification issue pursuant to section 6330(c)(1) rather than an underlying liability issue pursuant to section 6330(c)(2)(B). See Dixon v. Commissioner, 141 T.C. 173, 183-184, 184 n.6 (2013). We will not grant summary judgment on this issue….” Order, at p. 9.

For the Dixon story, see my blogpost “The Great Dissenter – Redivivus,” 9/3/13.

Did the SO check all the boxes to make sure all the requirements for sustaining the lien were met? Or did the SO just rely on the flat statement that John had had a chance to contest?

John also questioned whether a $114 levy on his Social Security, while he still had a chance to petition the NOD timely, was proper. IRS has only the excuse that the levy arose from the toss of John’s petition from the SNOD, not the NOD. Judge AIM isn’t buying.

“Based on the record before us and respondent’s failure to offer statutory, regulatory, or caselaw citations addressing the levy, we are unable to conclude as a matter of law that SO K did not abuse her discretion in determining that the requirements of any applicable law and administrative procedure have been met. Because we are unable to determine whether respondent abused his discretion in this regard, we deny respondent’s motion with respect to the issue of whether SO K abused her discretion in making the determination to sustain the proposed levy.” Order, at p. 13. (Name omitted).

So there needs to be a trial on the levy and innocent spousery.

*John W. Jermaine 7458-19L 8 20 21

No, I still forswear politics here, and will not here “fight old battles o’er.” Today Ch J Maurice B (“Mighty Mo’) Foley has a simple order that should serve as a warning in the current Petition Surge.

The blogosphere has erupted since I first raised to public view the record-breaking volume of petitions filed this year. See my blogposts “Premature,” 7/23/21, and “Draining the Swamp,” 8/17/21.

Clearly the hardlaboring intake clerks and flailing datestampers, and their coadjutors, are feeling the strain of the heavy-duty workload. As at today, 8/20/21, at noon EDT, there have been fewer than 19,500 petitions docketed (at least according to DAWSON, which I submit for the fact of that statement being made, and not for the truth thereof). Y’all will recollect that the Tax Court website itself reported receipt of more than 24,000 petitions as at 7/23/21.

So what is likely to happen at The Glasshouse in the Stateless City?

Here’s Ch J Mighty Mo to tell you. Note the dates; they’re material. Read and heed.

“By Order dated May 6, 2021, the Court directed petitioners to pay the Court’s $60.00 filing fee. On June 23, 2021, petitioners paid the Court’s $60.00 filing fee. However, due to inadvertent clerical error, on August 12, 2021, the Court entered an Order of Dismissal for Lack of Jurisdiction on the ground that petitioners failed to pay the Court’s $60.00 filing fee.” Order, at p. 1.

The May 6 order above-referred-to did set a 6/22/21 deadline for receipt, so mailed-isn’t-filed. Petitioners were a day late. But the hardlaboring crew didn’t get around to bouncing the petitioners until 8/12/21.

Wherefore, “(O)n August 12, 2021, petitioners filed a First Amendment to Order of Dismissal for Lack of Jurisdiction. However, further review indicates that petitioners’ filing appears to be more akin to a Motion To Vacate.

“The Court will vacate the Order of Dismissal for Lack of Jurisdiction and thereby allow this case to go forward.” Order, at p.1.

Word to attorneys, USTCPs, and self-representeds: Stay on top of your cases. Monitor them even more closely than during ordinary times. The petition surge will spill over into the pool of clerical goofs and mix-ups, driving it above usual level. And jump on them quickly, to correct your record and help out the overstressed Glasshouse Gang.

Oh yes, the Order is Joseph Raimo and Rebekah Raimo, Docket No. 6277-21S, filed 8/20/21*.

*Raimo 6277-21S 8 20 21

I noted the other day that my colleague Peter Reilly CPA was seeking blogfodder in the tsunami of petitions flooding The Glasshouse in the City-NonState; see my blogpost “Draining The Swamp,” 8/17/21.

He and I spoke by telephone yesterday, and we agreed that Mark Twain was right again. “One gets such wholesale returns of conjecture out of such a trifling investment of fact.”

It could be the shutdown that preceded the roll-out of DAWSON. It could be the early days of DAWSON. It could be the economic effects of the pandemic, as the only relief accorded was some permissible delays in filing, but not in paying. It could be something “between Heaven and earth, not dreamt of in your philosophy,” or mine.

I’m offering no prizes for the most imaginative guess, or even the correct answer.

It’s entirely possible we may never have an answer.

But I do know this much. Once the petitions are all logged in and docket numbers assigned, we will still have petitioners like Anthony Andrews, Docket No. 14029-17*, filed 8/19/21. And deploying what few resources Tax Court may have on such as this.

“Throughout this case, petitioner has failed to directly address his entitlement to the EIC that he claimed for 2015, which in part depends on whether he had qualified dependents during 2015. He has claimed that his constitutional rights have been violated, that the EIC issue was settled, and that respondent’s counsel was guilty of misconduct. His claims have been analyzed and rejected in the Court Order dated May 2, 2018, denying petitioner’s Motion for Summary Judgment filed October 30, 2017, and Court’s Order dated April 10, 2019, denying petitioner’s Motion to Seal Documents filed January 28, 2019. Petitioner refuses to accept the Orders of the Court, instead filing repetitive documents and motions and attempting a premature appeal.” Order, at pp.1-2.

Oh, and are you surprised by this?

“Petitioner has been incarcerated during the pendency of this case and apparently will be for some time. On August 4, 2021, he filed a notice of change of address indicated that he is now in a Federal Correctional facility in Florida. By maintaining only previously rejected positions, he has failed to pursue reasonable means of resolving this case. Unless he indicates an intention to abandon his meritless arguments and address the EIC issue in this case, the Motion to Dismiss for Lack of Prosecution is well taken and may be granted. See Rules 123 and 149(b).” Order, at p. 2

Judge Nega, I agree that everyone is entitled to his or her day in Court. But it’s a “day in court,” not four years.

*Anthony Andrews 8 19 21

I asked the Genius Baristas how I might link to an opinion reported on the day it was issued, but thereafter disappeared when the entire docket was blocked.

Here is the reply: “The docket record is available to the public.

“You appear to be receiving an error message because you are trying to link to a particular document.  DAWSON generally does not create permanent links.   The one exception to this is the docket record.  If you would like to create a permanent link to a Tax Court document, you will need to download the document and create your own permalink.”

Except the docket record is not available to the public when the docket record is sealed, notwithstanding the fact that orders and the opinion have appeared on the day(s) issued in plain sight on the Tax Court website.

And I have no intention of creating a library of Tax Court orders and opinions that should be available to the public for review, and is mandated by statute to be made available to the public (Section 7461).

That is, creating for free. If Tax Court wants to pay me my hourly billing rate to do it, let’s talk.

My colleague Peter Reilly, CPA, must be back from his summer vacation, because he’s looking for blogfodder. He asked me about the 5/29/20 press release announcing the return of the online document photocopy service from the Tax Court Records Department.

He asked what had been done before. I emailed him that one had to visit The Glasshouse in the Stateless City, and petition the clerks for a quick peek at the file, glancing at the same while immured within the Glasshouse walls.

I ought to have referred him to my blogpost “Copycats,” 12/3/20, wherein I stated  “(C)heaper than PACER, given the three-buck cap. Any document you want, for the price of a bottle of Trader Joe’s famous plonk.”

Edited to add, 8/18/21: Y’know, maybe sealing a lot of files and charging for copies of orders and opinions that were made public for just one day is a fundraiser for Tax Court. I wonder.

No, I’ve not become  a foreign correspondent. Rather, this is the account of the tax court trial of Deborah C. Wood, 2021 T. C. Memo. 103, filed 8/18/21*. Deb and seven (count ’em, seven) of her US contractor witnesses testified back in February at the Albuquerque NM trial session, live from Kandahar, 2021 T. C. Memo. 103, at p. 10. I’ve said it before: why have mobile trial sessions, when Zoom covers the world?

Deb is an ex-GI who tried the free world, didn’t like it, and signed up for Afghanistan. Until this week there were plenty of jobs for qualified personnel there. Deb was a logistics specialist right out of high school, a specialty in high demand.

Deb stayed in Afghanistan. She couldn’t leave the base, didn’t learn the local languages because the few locals on base didn’t talk to foreign women, couldn’t open a local bank account or invest locally. She never rented the house she owned in TX; she let her TX car registration lapse but kept her driver license because her job required it.

Judge Albert G (“Scholar Al”) Lauber: “She had a U.S. bank account, but that was necessary to enable her employer to make direct deposit of her paychecks. Opening a local bank account or buying property in Afghanistan would have been impracticable if not impossible, given the requirements of her security clearance and the ban on leaving the base. Petitioner worked 12 hours a day in Afghanistan, with a half-day off every 14 days. Despite the strenuous demands of her work, she managed to have a full social life, including visiting restaurants and shops on the boardwalk, cooking with friends, and pursuing her weightlifting hobby.

“Petitioner had limited family and personal ties to the United States. She was unmarried and had no children; although she visited her parents in Boston occasionally, she spent a significant amount of her vacation time traveling to other foreign countries.” 2021 T. C. Memo. 103, at p. 22.

The “boardwalk” was apparently an on-base area “which consisted of shops and restaurants surrounding a soccer field and encircled by a running track. The boardwalk had a cigar club and a beauty parlor, as well as American chain restaurants, including Popeye’s and TGI Fridays. As petitioner explained, this was a popular place to ‘hang out.’” 2021 T. C. Memo. 103, at p. 6.

I doubt too many grunts hung out there.

But Deb apparently had what we used to call “a good war.” When friends offered her onshore employment, she turned them all down.

“She credibly testified–and we find–that she planned to continue working as an overseas contractor as long as these jobs continue to be available to her.” 2021 T. C. Memo. 103, at p. 9.

Sure, she got paid well over US rates tax free, since Judge Scholar Al gives her almost all her Foreign Earned Income exclusions.

Well, today she can join with the Man from Mumbai: “Kabul town’ll go to hell –Blow the bugle, draw the sword….”

Does somebody at Tax Court actually have a sense of humor?

But this is a nonpolitical blog.

*Deborah C Wood 2021 T. C. Memo 103