A dear friend, who is an Episcopal priest, has retired three (count ’em, three) times, and continues to serve as an assistant priest in his eightieth year. Is eighty the new sixty-five?

While Section 7447(b)(1) sets 70 as mandatory retirement for Tax Court judges, Sections 7447(b)(4) and 7447(c) allow for retired judges to take on senior status, in a fine example of “the large print taketh away, but the fine print giveth.”

So while Judge David Gustafson is not yet 70, should he at that age elect to retire from the Tax Court bench (which I hope he does not), he can always, if he chooses, find work as a kindergarten teacher.

Here’s an example: Inderpal S. Kanwal & Harpreet K. Kanwal, et al., Docket 23766-18, filed 11/12/21.*

“…the parties filed in each of these consolidated cases a First Stipulation of Facts, consisting of paragraphs numbered 1 through 101. On the same date they filed in each case a joint status report that states they ‘anticipate[d] filing a Second Stipulation of Facts and their respective cross-motions for summary judgment no later than November 17, 2021.'” Order, at p. 1.

As good as their word, the Kanwals filed a Second Stipulation of Facts, consisting of paragraphs numbered 1 through 3. Judge Gustafson expressed his appreciation of the parties’ cooperation and their work in readying their cases for disposition.

Gold Star?

Not quite.

He orders “…the Second Stipulation of Facts (Doc. 28), because the numbering of its paragraphs results in numbers that duplicate those in the First Stipulation of Facts, is deemed stricken, and that the parties shall file a revised Second Stipulation of Facts the paragraph numbers of which are sequential after the First Stipulation of Facts. If the parties hereafter file any additional stipulations, then they shall number the paragraphs therein sequentially after the previously filed stipulations.” Order, at p. 1.

Takeaway- Make it easy for the judge. Make it real easy for the judge.

United States Tax Court is closed today, 11/11/21. I therefore confine myself to marching once again.

Some gave little, some gave much, some gave all.

Remember them.

William Howard Peak, 2021 T. C. Memo. 128, filed 11/10/21*, takes his text from George and Ira Gershwin’s 1937 hit, when he claims the Notice CP12 made a deal between IRS and him, allowing him to duck tax on about $13K in 1099R money.

Judge Tamara Ashford, while sympathetic toward Wm H’s “…alleged financial straits, we have no authority to disregard the express and unambiguous wording of the statutory provisions.” 2021 T. C. Memo. 128, at p.8, footnote 5.

The CP12 corrected a math goof relating to Wm H’s Social Security and tax computation, told him, if he didn’t object to the new math, to expect a $182 refund within four to six weeks “as long as you don’t owe other tax or debts we’re required to collect.” 2021 T. C. Memo. 128, at p. 8.

Wm H says he has a deal with IRS, and the SNOD hitting him for the untaxed 1099R money is invalid.

Judge Ashford: “A Notice CP12 is not, however, a settlement agreement. A settlement agreement ‘is in all essential characteristics a mutual contract by which each party grants to the other a concession of some rights as a consideration for those secured’.

“No concession of rights or consideration was exchanged by the IRS and petitioner through the… Notice CP12. A Notice CP12 is issued as a first notice to inform the taxpayer of a math error on an individual return that changes the refund amount claimed on that return. Internal Revenue Manual (IRM) pt. 21.3.1.5.8(1) (Sept. 12, 2017); see also IRM pt. 3.14.1.6.12 (Jan. 1, 2017). The …Notice CP12 that the IRS sent petitioner did just that…..” 2021 T. C. Memo. 128, at p. 9 (Citations omitted).

Besides, “(P)ursuant to section 6501(a), the IRS is authorized to assess any additional Federal income tax with respect to a filed Federal income tax return within three years after the return is filed. As the IRS sent petitioner the January 6, 2020, notice of deficiency well within that three-year period of limitations, it was not unlawful for the IRS to do so after sending petitioner the… Notice CP12.” 2021 T. C. Memo. 128, at p. 10.

Wm H claims he got erroneous advice from the IRS helpline, but that doesn’t help. IRS can always correct errors of law.  

Settle your case with a CP12? Nice work if you can get it, but as Ira said “And if you get it won’t you tell me how?”

*William Howard Peak 2021 T C Memo 128 11 10 21

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