I have those vox clamantis in deserto moments, when I try in a blogpost to tell a litigant to try an argument, and they “walk on by” as Hal and Burt put it. But today I get the hopeful, if perhaps mistaken, feeling, that they did.

Here again is 901 South Broadway Limited Partnership, Standard Development LLC, Tax Matters Partner, Docket No. 14179-17, filed 7/28/21. Today the 901s are asking Judge James S (“Big Jim”) Halpern for more time to respond to his OSC, which response is due Friday. See my blogpost “The Rule Against Perpetuities,” 7/23/21 for the backstory.

Judge Big Jim is unimpressed with the 901s’ claim that his six-page OSC was too complicated for them to deskew and riposte. “Petitioner has not demonstrated sufficient cause for us to extend the deadline for its response to the show cause order. Five of the pages of the show cause order (which actually consists of six pages) simply state the relevant law, some of the facts of the case, and the case’s procedural history. None of that should have been new to petitioner. All that might have been new was our observation that, because of the possibly dispositive nature of an issue that had already been extensively briefed by the parties, ‘the time and potential expense of trial may be unnecessary to our disposition of the case.’ That observation, as well, need not have come as a surprise to petitioner in light of our April 27 order. Petitioner should be no more eager than the Court or respondent to conduct a potentially unnecessary trial focused on a factual issue (the value of the easement) that would be moot if the donor partnership is not entitled to any deduction at all for its contribution of the easement because of its failure to satisfy one of the applicable legal requirements.” Order, at p. 2.

Except that’s the point. The “failure to satisfy a legal requirement” raises the question “what is the legal requirement?” Is it “a highly contestable reading of what it means to be perpetual”?

But Judge Big Jim doesn’t quite slam the door on the 901s.

“While holding petitioner to the original deadline of July 30, 2021, for its response to the show cause order, we observe that, should petitioner, after submitting its response to that order, identify additional arguments that it believes the Court should consider in disposing of the show cause order, it would be free to move for leave to supplement its response to that order. The show cause order gives respondent until August 6, 2021, to supplement, as he sees fit, his arguments in regard to the mortgage subordination issue. Therefore, as a practical matter, we will not be in a position to dispose of the show cause order before August 9, 2021, the extended deadline petitioner requests for its response to that order. For the reasons explained above, we do not expect it likely that petitioner will find itself in a position of identifying, only after July 30, 2021, arguments that it has already had plenty of opportunity to make. We will address that eventuality only if and when it arises. In the meantime, we will require petitioner to adhere to the deadline established in the show cause order for its response to that order.”  Order, at p.3.

Chaps, whether or not you had the chance to make the argument before, make it. And tell Judge Big Jim that Taishoff sent ya.

I’m not referring only to Ronald Jamison; Mr J claims $12K in gambling losses for year at issue, saying he spent $40 per day, almost every day, rain or shine, on lottery tickets. But Mr J never signs a stip of facts or of issues; he doesn’t show for trial. And the lottery log proffered on the trial was prepared after exam commenced, and shows no winnings.

There is a W-2G showing $15K from something, although CSTJ Lewis (“That Sweet Name”) Carluzzo doesn’t say from what.

So Dr Tondelaya Gamble must carry the burden of Mr J’s proof of his losses in Tondelaya Gamble and Ronald Jamison, 2021 T. C. Sum. Op. 22, filed 7/28/21.

Dr Gamble has her own tax issues. While the deductions she claims from the Sub S she started fifteen (count ’em, fifteen) years before year at issue do consist of some legitimate business expenses, these are unreimbursed employee expenses from Dr Gamble’s hospital employment. The rest are personal nondeductibles.

Dr Gamble testifies that “(O)ther of petitioner’s family and professional obligations prevented her from operating [Sub S] in the manner originally intended. At trial she explained that during [years at issue] she was herself still being educated and trained in subspecialties that she intended to promote through [Sub S].” 2021 T. C. Sum. Op.22, at p. 3. No going concern, no deductions.

Remember Dr. Elizabeth A. Vitarbo, who had a similar problem? No? See my blogpost “Never Walked Alone,” 2/6/14. CSTJ Lew seems to get the doctors with Sub S issues.

But Mr J’s problem is the log.

“There are no winnings reported at all on the log, and given the extent of lottery ticket purchases shown on the log, we consider it highly unlikely that the only winnings enjoyed by petitioners were reported on the Form W-2G. The record does not reveal what, if any, substantiation petitioners provided to respondent during the examination to allow for at least a portion of the deduction.” 2021 T. C. Memo. 22, at p. 10. So Mr J only gets whatever IRS allowed.

Judge, I may be wrong, but I surmise you’re no gambler. Every gambler knows the State-run lotteries are a tax on stupidity. The odds are a joke. These lotteries are revenue-raisers for the States, and their takeout makes the tracks look like charities and the Indigenous Peoples’ casinos look like Santa Claus. If Mr J hit so much as $600 on one State lottery ticket, he’d certain sure get a W-2G so the State could nick him for income tax.

If he did even as well as the W-2G he got says, and was ahead for that year in the lottery, he should consider himself very lucky.

No real gambler buys lottery tickets.

See my blogpost “Affable,” 2/19/21.

I find today, as Ch J Maurice B. (“Mighty Mo”) Foley is kicking dozens of nonpaying petitioners, he is offering a chosen few an even more user-friendly road to redemption.

For example, take Edward M. Meadows, Docket No. 905-20, filed 7/28/21. Ed neither paid nor sought waiver, so is kicked.

But there’s a kicker (sorry, guys).

“Petitioner is advised that the Court, on its own motion, will consider reinstating the case if the filing fee is paid within 30 days from the date of service of this Order. Instructions on how to pay the filing fee can be found in the ‘Guidance for Petitioners’ tab of the Court’s website atwww.ustaxcourt.gov.” Order, at p. 1.

As I said back in February, you can’t say fairer than that.

In this context, a reader pointed out that a docket search of Todd A. Kurvers, Docket No. 6701-21, whose tale I told yesterday (see my blogpost “Good Call – Part Deux,” 7/27/21), seems to show Todd had neither paid up nor sought waiver, despite being ordered to do so on or before 6/25/21. Without more facts, I can’t say whether the tsunami-swamped hardlaboring intake clerks missed Todd’s payment or waiver, or whether Todd’s noncompliance slipped past Ch J Mighty Mo’s eagle eye.  

Whichever it is, I’m sure Ch J Mighty Mo will deal appropriately with Todd.

It was then-Ch J L Paige (“Iron Fist”) Marvel who inspired the text of today’s sermonette four (count ’em, four) years ago almost to the day. See my blogpost “Good Call,” 7/14/17. And I still praise that call; the right thing doesn’t depreciate with the passage of time.

Today Ch J Maurice B (“Mighty Mo’) Foley does the Ephesians 6:14 number in Todd A. Kurvers, Docket No. 6701-21, filed 7/27/21*.

Todd timely petitioned a SNOD from the AUR (which Ch J. Mighty Mo calls the “IRS Under-reported unit”), but Ch J Mighty Mo told him to amend. Todd instead moved for entry of decision.

Todd says he filed an amended return, but was waiting the Underoos’ response thereto. He says he wants to settle with IRS, so just drop the Tax Court case.

Ch J Mighty Mo rightly says no.

“In a deficiency case where this Court has jurisdiction, the Court is generally required to enter a decision specifying the amount of the deficiency, if any, for the taxable year in issue. See I.R.C. sec. 7459(d); Estate of Ming v. Commissioner, 62 T.C. 519 (1974). Moreover, upon further review of the original petition filed in this case, the Court concludes that petition suffices and that petitioner need not file an amended petition.” Order, at p. 1.

Dropping the case would give IRS a win it might could be IRS doesn’t deserve.

What to do?

Ch J Mighty Mo directs the parties to confer. Good start, except a quick docket search doesn’t show any IRS attorney yet assigned to the case, and Todd is pro se. Maybe a hint to the Underoos might shake things loose.

Anyway, the case is on report track.

Good call.

*Todd AS Kurvers 6701-21S 7 27 21

Not a great batting average, and it only saves George S. Harrington, 2021 T. C. Memo. 95, filed 7/26/21, $4500 in deficiency and chop, because IRS couldn’t prove fraud for that year and admitted it. But George really shouldn’t have gotten involved with UBS and their tax-dodging ways.

George was a lumber finder for a Canadian exporter. He met their counsel, Mr. G., “who seemed ‘on the ball.’ Petitioner described Mr. G and his associates as ‘the most honorable people I have ever dealt with.’ Mr. G was later imprisoned for embezzlement.” 2021 T. C. Memo, 95, at p. 4. (Name omitted).

It may well be that Mr G and his associates were in fact the most honorable people George ever dealt with, because after that he hung out with a band of tax-dodging crooks. The UBS crew put George and Mrs George into offshore trusts, hidden bank accounts, and phony life insurance policies, running from the Cayman Islands to Switzerland to Liechtenstein. George claims he didn’t know what was going on and had no control over the million bucks or so he stashed.

Except.

The Swiss rolled on him after they signed the famous deferred prosecution agreement with Treasury, and handed over the accounts, e-mails, and phonecalls.

I’ll spare you the lengthy account. Judge Albert G (“Scholar Al”) Lauber finds enough badges of fraud to make George a Vulture Scout. Barring the one year, George is in for quite a Rule 155 beancount.

Back in October last year I told the story of Chidozie Ononuju, formerly M.D., and his revoked 501(c)(3). In that story (see my blogpost “Nigeria Calling?” 10/5/20) I noted that “Mrs Ononuju, who also had signatory power on the bank account, is in for her own excise tax separately.”

Well, today Mrs O, mother of eight (count ’em, eight) children, has her innings in Gloria Ononuju, 2021 T. C. Memo. 94, filed 7/26/21. And she doesn’t do so well, as she got plenty of money out of the 501(c)(3) for doing nothing in particular, although she was a signatory on the bank account and got certified checks from the bank payable to herself. Her story that she cashed them and gave the money to poor people in MI at her husband’s direction is a nonstarter. And her sad tales about her financial condition are unsupported.

So Mrs O is on the hook for the $130K Section 4958 excess benefits to a disqualified person. And as disqualification extends even to great-grandchildren of controlling persons, Mrs O is hit with the tier one $32,500 excise tax; and tier two $260K (twice what she took) is on the menu if she doesn’t correct, that is, pay up to the extent possible, and put the 501(c)(3) in the position it would have been in had the disqualified not taken the money.

But there’s good news for Mrs. O. Because of Section 4961, “… the ‘correction period’ will remain open at least until this Court’s decision has become final following any appeal. See secs. 6213(a), 7481(a). Section 4961(b) grants us jurisdiction ‘to conduct any necessary supplemental proceeding to determine whether the taxable event was corrected during the correction period.’ Any such proceeding must begin within 90 days ‘after the last day of the correction period.’ Sec. 4961(b). Petitioner thus retains the opportunity to avoid assessment and collection of the second-tier tax.” 2021 T. C. Memo. 94, at p. 24. (Footnote omitted, biut it says Mrs O can even duck the tier one tax if she can show reasonable cause (ignorance is not on the table, though), and corrects in the same time frame.)

IRS also wants the five-to-twentyfive Section 6651 add-on because Mrs O never filed Form 4720 to report the excess benefit. But can Judge Albert G. (“Scholar Al”) Lauber do it?

“We have not previously addressed, at least not squarely, whether additions to tax apply when a disqualified person fails to file timely a Form 4720 reporting excess benefit transactions. In analogous contexts we have ruled that additions to tax may apply when individuals affiliated with tax-exempt entities failed to file other IRS forms reporting excise taxes under other Code provisions. In those cases we reasoned that section 6651(a)(1) generally applies to the non filing of ‘any return required under authority of subchapter A of chapter 61,’ and that the filing requirement in question was imposed by regulations issued under section 6011, which is included within subchapter A of chapter 61.

“Section 6011(a) provides that, ‘[w]hen required by regulations prescribed by the Secretary any person made liable for any tax imposed by this title * * * shall make a return or statement according to the forms and regulations prescribed by the Secretary.’ The Secretary has prescribed regulations under section 6011 mandating that ‘[e]very person liable for tax imposed by section[] * * * 4958(a) * * * shall file an annual return on Form 4720.’ Sec. 53.6011-1(b), Foundation Excise Tax Regs. Because this filing requirement was promulgated under the authority of section 6011(a), petitioner’s failure to file Form 4720 may subject her to liability for an addition to tax.” 2021 T. C. Memo. 94, at pp. 25-27. (Citations omitted).

Mrs O can try the reasonable cause excuse, but she filed no brief and produced no evidence. She claims she didn’t know.

“The Form 4720 is admittedly an exotic species: The obligation to file this return–unlike the obligation to file (say) Form 1040–is far from common knowledge, especially for someone not actually involved in a charity’s operations. Petitioner had received monthly checks from [the 501(c)(3)] for prior years, and we do not believe that she understood that such transactions needed to be reported on an excise tax return. ‘[I]gnorance of the law, however, does not amount to reasonable able cause.’” 2021 T. C. Memo. 94, at pp. 28-29. (Citation and footnote omitted, but read the footnote. It says Mrs O had counsel at exam, but Judge Scholar Al won’t say what would have happened had Mrs O proffered a Form 4720 before the RA gave her an SFR version.)

Judge, I doubt most counsel would know what Form 4720 was, much less when to file it.

Judge Alina I. (“AIM”) Marshall has a missing tax matterer in Colorado Land and Holdings LLC, John Sfondrini, Tax Matters Partner, Docket No. 11875-20, filed 7/26/21.

When the case was called for trial last month, IRS counsel claimed the case was settled, but couldn’t find Mr. S., tax matterer. Earlier this month, petitioner’s counsel moves to scuttle Mr. S. (who supposedly resigned at the end of 2019, before the petition was filed), and sub in an LLC, whose managing member is Mr. G.

“The petition in this case was filed on September 28, 2020, a date after which Mr. Sfondrini tendered his resignation. The petition was signed by counsel, but it is unclear who the counsel represented. The petition states that ‘[t]he Tax Matters Partner [Mr. Sfondrini] resigned on or around January 1, 2020’ and that ‘[o]n or around the same date, Gerald Greenspoon, in his capacity as manager of GM Investments III, LLC, was named as TMP for all taxable years following 2015.’ The year at issue in this case is 2017, so the statement in the petition suggests that GM Investments III, LLC may be the proper tax matters partner for this case.” Order, at p. 1.

OK, so do we settle or not? Judge AIM can’t tell who the players are.

“The Court has the authority to appoint a tax matters partner only when the partnership fails to do so. If the partnership has properly designated GM Investments III, LLC as the tax matters partner, we have no need to do so on its behalf and we lack the authority to do so on the basis of petitioner’s motion. Instead, the proper procedural posture may be better addressed by a motion to substitute parties and change caption.” Order, at p. 1. (Citation omitted).

OK, simple enough, no? Not while Judge AIM has the case, and petitioners’ trusty attorney is less than lucid about whom he represents. So let said trusty attorney tell Judge AIM whether he is counsel to (a) Colorado Land and Holdings, LLC, (b) Mr. Sfondrini, (c) GM Investments III, LLC, (d) Mr. Greenspoon, or (e) all or some of the above.

I refrain from raising conflicts of interest if the answer is “too many”, because trusty attorney has enough to do.

Let him dish whether the tax matters partner appointed at the end of 2019 to replace Mr. S is GM Investments III, LLC (represented by Mr. G as managing member) and whether the tax matters partner’s appointment complied with the requirements of section 301.6231(a)(7)–1(d), Proced. & Admin. Regs.

Now both sides can get into the act, and tell Judge AIM, separately or together, whether GM Investments III, LLC must ratify the petition in this case, and whether the appropriate filing in this case is a motion to substitute parties and change caption, rather than a motion to remove tax matters partner.

Nudge nudge, wink wink, say no more.

The Section 162 ordinary-and-necessary business expense deduction pays off for Yishi Zuo, 5716-19S, filed 7/26/21, even though Yishi was sometimes entrepreneuring and sometimes not, as he pursued his MIT MBA.

Yishi got his BBA from UC Berkeley, and went at entrepreneuring with a vim after he left a two-year hitch at Goldman Sachs. Internet start-ups flowed from his inventive mind, and while they mostly cratered, Yishi forged gamely on.

STJ Peter Panuthos: “We have held that a taxpayer may deduct the cost of an MBA degree as an unreimbursed employee expense if his studies improve on a preexisting skill such as management skills. A taxpayer is in the same trade or business if he is still in the same general field and still using the same skills; for example, moving from one position to another that also uses management, administrative, and planning skills.” Transcript, at p. 8. (Citations omitted; see also my blogpost “Presently Engaged While Unemployed,” 8/2/16).

After deciding that there is no certification, qualification, or licensure for “entrepreneur,” with the obligatory dictionary chaw over the word, STJ Panuthos greenlights Yoshi. He was honing skills, not entering a new trade or business.

“We are satisfied that petitioner was qualified in the trade or business of being an entrepreneur before enrolling in the MBA program at MIT on the basis of the time and money he had previously spent founding, organizing, and assuming the financial risks of his two entrepreneurial ventures….

“Further, petitioner had likely developed significant business acumen that was useful in pursuing these ventures while obtaining an undergraduate degree in business administration and working as an investment analyst… Petitioner continued to develop his entrepreneurial skillset when he helped found and served as the CEO of DB….” Transcript, at pp. 9-10. (Name omitted).

Finally, although Yishi’s entrepreneuring while at MIT was a wee bit sporadic,he testifies that he continued his entrepreneurial ventures both during his temporary unemployment over the summer, and concurrently with his MBA education. STJ Panuthos says that’s OK.

“A taxpayer may be engaged in a trade or business, although not working, if he was previously involved in and actively sought to continue in that trade or business while pursuing a defined degree program related to his or her line of work. The taxpayer must clearly intend to seek employment in the same trade or business.” Transcript, at p. 10.

Yishi fills the bill.

On a late autumn morning nearly sixty years ago, on The Hill Far Above, I first became acquainted with another of England’s gifts to our legal system, the rule hereinabove first cited at the head hereof, which required something to happen within lives in being plus twenty-one (count ’em, twenty-one) years. I knew what that something was some three-and-a-half years later, when I took the Bar examination.

Today, I’ll be dipped if I know, and my alma mater’s Legal Information Institute provides corroboration: “Because the meaning of this rule is virtually impossible to decipher, many states have modified it, and some have abolished it altogether.”

When it comes to conservation easements, I’m sure Judge Holmes is in favor of enacting the Rule Against Perpetuities. So am I. But Judge James S. (“Big Jim”) Halpern has confounded me.

See my blogpost “Es Ist Ein Ganzes Meer,” 4/27/21; Judge Big Jim refers to the order therein described hereinbelow. Then see 901 South Broadway Limited Partnership, Standard Development, LLC, Tax Matters Partner, Docket No. 14179-17, filed 7/23/21.

Once again we’re back with the “very contestable readings of what it means for an easement to be perpetual.”

While admitting that the valuation issue is not susceptible of summary J (in fact, the 901s want to put in even more expert witnesses than they had specified heretofore; see Order, at p, 5, footnote 5), Judge Big Jim is citing Palmolive, and suggesting that judicial expediency might be best solved with the perpetuity gambit.

“The Court bears a responsibility to the public and to the parties who appear before it to manage its proceedings efficiently. In our exercise of that responsibility, we have determined that the time and potential expense of trial may be unnecessary to our disposition of the case. The April 27 Order suggests the possibility of our deciding the case in respondent’s favor on the ground that the partnership’s contribution of the easement to the Conservancy does not satisfy section 170(h)(5)(A)’s perpetual protection requirement because, as stated in that order, ‘proceeds from the condemnation of the Building attributable to the easement could be used to satisfy indebtedness owed by the partnership’. If the partnership is not entitled to any deduction for its contribution of the easement because of a failure to satisfy the mortgage subordination requirement provided in section 1.170A-14(g)(2), Income Tax Regs., the easement’s value on the date of the contribution — the issue that we understand would be the trial’s principal focus — would be moot. Therefore, with this order, we are directing the parties to proceed in a manner that would allow the resolution of a potentially dispositive legal issue before any trial of the case.” Order, at pp. 5-6.

So let the 901s show cause why they shouldn’t be tossed for nonperpetuity, and let IRS further attempt to eviscerate whatever subordinations the 901s managed to winkle out of the three (count ’em, three) holders of the five (count ’em, five) mortgages on the property.

Word to the 901s: Please try “so remote as to be negligible.” Does Los Angeles County have the money to pay an eminent domain award, even assuming they could do a Kelo and flip the building to a developer? Their police chief says he hasn’t resources to enforce COVID masking orders.

No, this is not about those e-mails, ostensibly from Canadian druggists, that flood spam filters. This is about the hardlaboring intake clerks and flailing datestampers who are the make-it-happeners at The Old Vic, s/a/k/a the Glasshouse Vic Lundy Built on Second Street in The Stateless City.

Clerks and stampers alike are overwhelmed by a tsunami of petitions. While the average calendar year sees somewhere between 23K and 26K petitions, the 2021 season has seen 24K+ already, with no end in sight.

They’re doing the best they can, and of course collection is stayed upon timely filing of petitions from SNODs and CDPs, but it may be a wee while before Tax Court tips off IRS about every “new-fledged, untried” petition. So Mr. Rettig’s myrmidons may “Cry havoc, and let slip the dogs of war” already.

So if your clients are thus embrangled, contact the Public Affairs Office at (202) 521-3355 or email publicaffairs@ustaxcourt.gov.

Here’s the official: https://ustaxcourt.gov/resources/press/07232021.pdf

Edited to add, 7/28/21: Y’all will recall Tax Court was not accepting mail from 3/18/20 to 7/10/20, and electronic filing of petitions was then, and still is, verboten, Rule 34 notwithstanding. Petitioners were told to mail timely, and when their mailed petitions were returned to them, remail same with original envelope, thus evidencing timely mailing. By the time time USPS or PDS returned the undelivered petitions, and the petitioners returned same (there was no time limit set for the return, so long as the original filing was timely), I’m sure at least some of what would have been included had calendar 2020 been an ordinary year got shunted into 2021.