My publisher tells me I have readers in Brazil, Paraguay, Argentina, Chile, and Peru. My source tells me that Bolivia, a plurinational State, is bordered to the north and east by Brazil, to the southeast by Paraguay, to the south by Argentina, to the southwest by Chile, and to the northwest by Peru.

 I have no readers (don’t count ’em, there aren’t any) in Bolivia. So I make my request as follows: Señores/Señoras/Senhors/Senhoras, please knock on your next-door neighbor’s door, or ring the doorbell, and ask politely that please somebody there look me up. Many thanks.

See Infra

Judge Nega has bad news for Michael F. Kissell and Maddelena P. Kissel, Docket No. 20103-18, filed 7/23/21, straight off the bench. It’s Mike’s story. Mike won a dustup with PA Dep’t of Corrections over discrimination, and got a back-pay award. PA paid the whole amount without withholding. Then PA woke up and gave Mike a bill for FICA/FUTA/union dues/retirement of $159K.

Mike had a choice of payment plans, but asked for forgiveness of the debt. PA said no, and took it out of Mike’s pension payments for the two years at issue. PA gave Mike 1099-Rs at no extra charge, showing the gross. Mike reported only the net.

On the trial, Mike claimed he didn’t owe PA for the alleged withholding. Judge Nega isn’t buying. “As an initial matter, we note that the validity of petitioner husband’s outstanding debt to the Commonwealth is an issue between petitioners and the Commonwealth, and is not an issue properly before this Court. The only issue before this Court is whether petitioners had … unreported pension income in [taxable years at issue] with respect to petitioner husband’s pension distributions.” Transcript, at pp.14-15.

Of course, income is anything not exempt, and the fact that it gets intercepted to pay a debt of the taxpayer doesn’t matter. And individuals are cash-basis, so we owe when we get, actually or constructively.

“An employer’s payment of an obligation of the taxpayer is equivalent to the taxpayer’s receipt of income in the amount paid. Lack of control over the earnings does not justify exclusion of earnings from the employee’s gross income used to pay an obligation of the employee. Similarly, where the transfer of funds at least partially discharges a legal obligation of the taxpayer, the transfer is equivalent to receipt by the taxpayer. The fact that the transfer is involuntary, such as by garnishment, has no significance.” Transcript, at p. 14. (Citations omitted, but you probably saw most of them in your Income Tax 101 class).

Mike being a PA resident, he’s Golsenized to 3 Cir. 3 Cir learning says IRS must provide a minimal foundation for unearned income claims, linking taxpayer to income-producing activity. If. not, presumption of correctness of SNODs doesn’t apply. IRS has PA’s retirement records concerning Mike’s withholding deductions from his pension, and that’s enough.

Nothing about chops, so no discussion of good faith reliance; perhaps Mike didn’t consult his trusty attorney who won the employment discrimination case, or maybe said trusty attorney steered clear of the issue.

But before I close this blogpost, I must thank the  Tax Court webmeisters for getting this designated hitter up before start of the business day. And that goes double for a Friday; there’s almost never an opinion on a Friday, and I have to scrape and scrounge through hundreds of soul-killing orders to find blogfodder. Not today, though. Thanks.

Now if only y’all could get opinions up before NYC breakfast time every working morning, in the immortal words of The Chords, life could be a dream.

I wonder why Ch J. Maurice B (“Mighty Mo”) Foley bothers to lecture Roy J. Meidinger, Docket No. 15365-20W, filed 7/22/21, about filing unredacted documents. Under the admittedly flawed, new, improved (oh yeah?), jim-handy DAWSON system, the whole case will be automatically sealed anyway.

So anybody interested, or considering filing a Section 7623 whistleblower petition, had better read Ch J Mighty Mo’s prose today, because it will be gone tomorrow.

And though Roy was here before, back in ’13 (see my blogpost “Another Whistleblower Gets Blown,” 8/30/13), you won’t find that case on DAWSON, because it’s sealed, even though under the old Blackstone system I was able to quote from that order extensively.

Roy didn’t bother to name the target in his latest petition, probably anticipating the Genius Baristas’ immediate seal.

Judge Kathleen Kerrigan supplements the latest CLE from The Great Chieftain of The Jersey Boys (and thanks again, Frank), to go over some FREs that might could just possibly maybe so show up in November at the USTC Death March (a/k/a examination for admission to practice before the United States Tax Court).

It’s a reprise of yesterday’s blogpost “An Unerring Nose for Fraud – Part Deux,” 7/20/21. Y’all will remember that Frank Vennes lost his theft loss deduction. But there were some evidentiary holdovers that Judge Kerrigan rules on, in Frank E. Vennes, Jr. & Kimberly Vennes, Docket No. 23860-17, filed 7/21/21.

Frank’s counsel moved to strike the direct testimony of Mr. T. J. Petters, master-fraudster, Ponzi division, and loses.

“Pursuant to an agreement between the parties, Mr. Petters testified remotely via telephone from the U.S. Penitentiary in Leavenworth, Kansas. …Mr. Petters only provided direct testimony. The parties agreed that petitioner’s cross-examination would occur at a later date.” Order, at p. 1.

But when Frank’s counsel called Mr. T. J. for cross a couple days (hi, Judge Holmes) later, Mr. T. J. took the Fifth, claiming he might go down for perjury, based upon his testimony in this or other proceedings. So counsel moved to strike.

“Petitioners’ counsel still could have questioned Mr. Petters to determine his credibility. Instead, petitioners made an oral motion to have Mr. Petters’ direct testimony stricken from the record. The purpose of striking a witness’ testimony from the record is to prevent the Fifth Amendment privilege–intended for use as a shield against self-incrimination–from being used as an offensive sword. In this case Mr. Petters was not testifying on his own behalf or on a matter favorable to his cause. Therefore, the testimony of Mr. Petters is not stricken from the record.” Order, at p. 1. (Citation omitted, but get the case and read it.)

Note that Judge Kerrigan says she didn’t rely on Mr. T. J.’s testimony in deciding the case. If this stuff isn’t a question on the exam, it should be.

Next is the famous Baker Tilly-prepared tax files for Frank’s Sub. S. IRS claims hearsay, but the BT maintainer-corroborator runs the FRE 803(6)(A – E) slalom. Read the order at p. 1. It’s a good crib for the business document hearsay exception. I’d be surprised if that weren’t on the exam.

Finally, though I didn’t mention it in my blogpost above-cited, Frank had an expert witness testify as to the flow of funds from Frank’s Sub S into Petters’ scam platform, 2021 T. C. Memo. 93, at p. 43.

IRS objected, of course. Remember, if you have a basis to object, be it anything above frivolous, object.

Here’s Judge Kerrigan letting the expert in, via FRE 702: “The M expert report (exhibit 2147-P) included special knowledge to assist the trier of fact, was based on sufficient facts or data, was the product of reliable principles and methods, and applied those principles and methods to the fact of this case. See Fed. R. Evid. 702. The expert report of M is, therefore, admitted into evidence.” Order, at p. 2. (Name omitted).

Study hard, guys. And remember, a good advocate is always learning.

As I said back in 2017, “No, I’m not showing off my Italian; I know very little. But the title of this blogpost is a pun. The old saying ‘Chi si ferma è perduto’ (he who hesitates is lost) mutated to ‘Chi se firma è perduto’ (he who signs his name is lost) in the upheavals between 1943 and 1945, when Italy was divided by war, and signing one’s name to anything might not end well for the signer.” See my blogpost thus entitled.

Today Indu Rawat, Docket No. 15340-16, filed 7/20/21*, is caught in the same thicket. Indu is a Canadian NRA (no, not a gunslinger, Non Resident Alien) who sold her US partnership interest. IRS wants her to pick up a $6 million share of gain on inventory sold after she left. Section 752 then mandated same, but Indu wants to play like Aristophanes’ hero in his 424 B. C. smash hit The Knights, and traffic in mines (see my blogpost “It’s Not FIRPTA,” 7/13/17).

So Indu wants summary J.

But Indu, and her “representative under a Form 2848, Power of Attorney and Declaration of Representative,” (Order, at p. 2, and thanks, Judge Gustafson, for the right terminology) got a Form 5701 Notice of Proposed Adjustment, and Indu later signed off on Form 870-LT, agreeing to the changes to partnership items, add-ons and chops, and affected items (that’s TEFRA for “individual partner stuff”). Attached was Form 886-A, the man-‘splainer.

IRS can’t produce the signed original, but IRS claims they’re looking, and both Indu and her rep signed it. In summary J, nonmovant gets every favorable inference. Indu claims the Form 886-A doesn’t take care of her individual (affected) items. IRS says it does. Therefore, there must be a trial.

Indu claims Grecian Magnesite (see my blogpost “It’s Not FIRPTA,” above-cited) puts paid to any question of any gain other than sale of the interest itself; partnership assets don’t count. Yes, the statute was amended, but Indu is pre-amendment. And Indu ignores the binding effect of Form 870-LT.

Sorry, Indu. You settled. The law changed later, but Section 7122 governs. You settle, and absent fraud, malfeasance, or misrepresentation of material fact, you’re stuck.

I’d like to quote language from the order, but this is another of the uncopyable PDF documents that occasionally shows up both before and after DAWSON. Read Judge Gustafson’s order before you sign a Form 870-LT.

*Indu Rawat 15340-16 7 20 21

The Great Chieftain of The Jersey Boys gets the tough ones. Today he has a replay of my blogpost “Execute the Executor?” 3/14/16

Once again Section 3713, the Federal Priority Statute, comes in to hook the executor. Judge Travis A. (“Tag”) Greaves administers same to Estate of Kwang Lee, Deceased, Anthony J. Frese, Executor, 2021 T. C. Memo. 92, filed 7/20/21.

There was a lot of litigation over Kwang Lee’s estate. IRS started with a $1 million SNOD, plus $450K in add-ons and chops. Frantic Frankie got it cut in half, but then there was an appeal…; you get the idea.

While all this was going on, AJ, “a licensed attorney and municipal court judge,” 2021 T. C. Memo. 92, at p. 2, was distributing assets. The last distribution, $640K, causes the problem. Only $183K remains in the pot to pay the tax and interest. And that’s way low.

When IRS unloads a NFTL, AJ tries an OIC, but Appeals says the RCP should include the executor who handed out the boodle. AJ says he didn’t know.

“An executor must have had actual or constructive knowledge of the Government’s claim when the estate had sufficient assets to pay it, or notice of such facts as would put a reasonably prudent person on inquiry as to the existence of the Government’s unpaid claim. A notice of deficiency with respect to estate tax liabilities given to an executor before the executor’s distribution of estate assets is sufficient to satisfy this notice requirement.” 2021 T. C. Memo. 92, at p. 11.

AJ got the SNOD before he handed over the $640K. He was party to the litigation. He claims that the estate’s tax adviser told him it was OK, but he put in no evidence as to who said what. Anyway, he’s a lawyer and a judge, which apparently makes him ipso facto unable to rely on anybody’s advice, and must act “at his own peril.” 2021 T. C. Memo. 92, at p. 13.

There’s some argy-bargy about SOL, but Section 2415 is off the point, and Section 6901(c)(3) (fiduciary liability) and Section 6502(a)(1) ten-year SOL for estate tax put paid to that.

“The estate argues that the SO was required to independently investigate the amounts, if any, actually collectible from third parties, including an ‘evaluation of the hazards of litigation’ and an analysis of the current financial status of such persons. The estate cites no rule mandating or suggesting that the SO should have taken such exhaustive action as it related to Mr. Frese’s potential collection amount. Although the estate may disagree with this policy, we do not find it or the SO’s actions in this case arbitrary or capricious under the circumstances, especially where the record shows that the SO acted diligently in considering the estate’s concerns by consulting with respondent’s Collection Division and Office of Chief Counsel in reaching his conclusion.” 2021 T. C. Memo. 92, at pp. 16-17. (Footnote omitted).

Another tough loss.

Frank Vennes had just gotten out of jail, where he’d been serving out a guns, drugs, and money laundering fall. He was running a modest coin business, when he met Mr. T. J. Petters, wealthy highroller. Mr. T. J. said he needed a $300K loan to finance some consumer electronics purchase that he said he would sell on to big boxers. All Frank could score was $100K, but Mr. T. J. took it, and paid Frank back the $100K with $100K vigorish in one month.

Pretty good, huh? Too good to be true. IRS thought so.

Frank claims that between 1995 and 2008, Mr. T. J. took him and his investors for $130 million. IRS nixes Frank’s theft loss when Mr. T. J. finally goes down.

Read all about it in Frank E. Vennes, Jr. and Kimberly Vennes, 2021 T.C. Memo. 93, filed 7/20/21.

Frank once tried to verify Mr. T. J.’s story about sales to Sam’s Club, but when Mr. T. J. told him to stop, he did. He hired an ex-CPA to do due diligence, but the sleuth had dealt with one fraud case in his career. Even Frank’s son told Frank that the due diligence was defective.

Judge Kerrigan: “We find that petitioner either knew or deliberately avoided knowing the fraudulent nature of the Petters Scheme because the evidence establishes that [Frank’s Sub S’] investments in [Petters’ outfit] were unrealistic and too good to be true. Petitioner had multiple opportunities to examine [Petters’ outfit]’s business. He was warned about problems with [Petters’ outfit] on at least three occasions by [son]… concerning overpayment for merchandise, minimal due diligence, and market reports which contradicted Petters’ excuses for late payment. The evidence shows that petitioner did nothing in response to concerns that were raised.

“From the start of petitioner’s business relationship with Petters, there were many indications that the arrangement was too good to be true. The relationship was unusual from its commencement in 1995. When petitioner met Petters, he was ‘trying to rebuild his life’ after being released from prison. He ran a business, which he described as a modest operation, that did not own considerable inventory and that dealt in rare coins and diamonds.

“At this time petitioners lived in a modest home, and petitioner was making efforts to satisfy a judgment imposed because of his past violations of Federal law. Petters, a successful businessman, reached out to petitioner and requested a $300,000 loan. This is unusual and presents the first cause for apprehension: the difference between petitioner’s and Petters’ financial and social status. Petitioner was able to come up with only $100,000 to lend Petters, also rendering dubious Petters’ decision to proceed with the transaction as it was a mere one-third of the amount requested. The initial transaction between Petters and petitioner resembles more of a trial run than a legitimate business transaction.” 2021 T. C. Memo. 93, at pp. 47-48.

Frank also helped Mr. T. J. craft excuses to investors why he was paying late at the same time the big boxers to whom Mr. T.  J. was allegedly selling were raking it in.

Frank can’t prove the value of the notes he got from Mr. T. J.’s outfit immediately before the time he claims they became worthless. He claimed face value, but when he tried selling them, no one would buy them.

But a couple limited partnerships (hi, Judge Holmes) where Frank claims he was a limited partner were innocent investors, and could take the benefits of Rev. Proc. 2009-20, 2009-14 I.R.B. 749. So Frank gets some theft loss passed through, via Judge Kerrigan’s drill-down into DE contract law.

Alas, this story has an even sadder ending than the loss of most of Frank’s Section 165 theft loss.

“…Petters and petitioner had a conversation in which they talked about the … note transactions being ‘terribly wrong’ and another in which petitioner expressed to Petters that he did not want to return to jail.” 2021 T. C. Memo. 93, at p. 8.

“In April 2011 petitioner was charged by indictment with securities fraud and money laundering…. Petitioner pleaded guilty to one count of aiding and abetting securities fraud in violation of 15 U.S.C. secs. 77q(a) and 77x (2006), and one count of engaging in a monetary transaction in property derived from a specified unlawful activity in violation of 18 U.S.C. sec. 1957.

“Petitioner entered into a plea agreement which did not charge him with underlying knowledge of the Ponzi scheme. Rather, he was charged with aiding and abetting misrepresentations and omissions to investors regarding [Petters’ outfit’s] note transactions. Petitioner was sentenced to 180 months in prison and is currently serving this sentence.” 2021 T. C. Memo. 93, at p. 19.

We’ve all seen Archie Willard’s painting thus entitled, the original of which, my source tells me, hangs in the Selectmen’s Chamber in Marblehead, MA.

Well, Rita B. Barrett, Docket No. 11899-20L, filed 7/20/21*, definitely has the 245th anniversary version thereof. Rita petitioned from a levy CDP whereat she did not contest her unpaid self-reporteds for 2016 and 2017; rather, she wants to “fight old battles o’er,” contesting yet again her liabilities for taxes and interest from 1976.

Again, STJ Peter Panuthos gets ’em. And with patience tells the story.

“In contrast to her 2016 and 2017 tax liabilities, petitioner has consistently challenged her liability for 1976, arguing that she is entitled to a refund of both tax and interest paid in respect of the deficiency for that year. However, tax year 1976 is not properly before the Court in the present collection review case. Petitioner’s challenge to respondent’s deficiency determination for 1976 was previously decided by the Court pursuant to an agreed decision at Dkt. No. 3101-84. Further, petitioner twice litigated her claim for abatement of interest in respect of the deficiency for 1976 before the Court at Dkt. Nos. 22940-07 and 26207-15. The decisions in all three of those dockets are final. In short, petitioner’s desire to relitigate these matters is barred by the doctrine of res judicata. As petitioner was previously advised by the Court in Dkt. No. 26207-15, the doctrine of res judicata bars repetitious suits on the same cause of action.” Order, at p. 3. (Citations omitted).

Oh yes, both Rita and her late spouse were represented by counsel when they stiped out back in 1984. “In 1984 petitioner and her late husband Benjamin Barrett commenced a case in this Court at Docket No. 3101-84 challenging a notice of deficiency that had been issued to them for 1976. The notice determined a deficiency in the couple’s income tax attributable to a tax shelter involving coal leases. Petitioner and Mr. Barrett were represented by counsel. In February 1986 the Court entered a stipulated decision in which the parties agreed that petitioners were liable for a deficiency in income tax in the amount of $79,542 for 1976 together with interest as provided by law. No appeal was taken, and the Court’s decision became final in due course. Petitioner and her late husband paid the deficiency in tax and the statutory interest that were assessed pursuant to the stipulated decision.” Order, at p. 1.

So IRS can levy. And since STJ Panuthos, forbearing as always, never mentioned the Section 6673 chop, we can be sure Rita will be back.
*Rita B Barrtett 11899-20L 7 20 21

Sometimes small-claimers are as much fun as the big cases in the “small court.” Here’s Maher Bassily and Nermine Bassily, 2021 T. C. Sum  Op. 20, filed 7/19/21, with a new one on me.

I’ll let STJ Peter Panuthos, a hardened veteran jurist who has seen much, tell the tale.

“Petitioner Maher Bassily jointly owned two brokerage accounts, one with each of his sons, David Bassily and Daniel Bassily. Each of the brokerage accounts generated foreign-source income during [year at issue]. The Canadian Government withheld a total of $3,550 in taxes from the income earned on the brokerage accounts in [year at issue]. Petitioners timely filed a joint Form 1040, U.S. Individual Income Tax Return, for the [year at issue], but they did not report any foreign source income on their income tax return. Instead, all of the foreign source income related to the brokerage accounts that petitioner Maher Bassily owned jointly with his sons was reported on his son Daniel Bassily’s [year at issue] Federal income tax return. Despite the fact that petitioners did not report any of the foreign source income earned from the brokerage accounts on their tax return, they apparently attempted to make an election to claim a credit for foreign taxes paid related to the brokerage accounts by attaching a Form 1116, Foreign Tax Credit (Individual, Estate, or Trust), to their Form 1040. On the Form 1116 petitioners reported $3,550 in total foreign taxes paid or accrued during the [year at issue] and zero foreign source income. Petitioners reported a foreign tax credit of zero on both the Form 1116 and the Form 1040 for the year in issue.

“Rather than claim the foreign tax credit on the line designated for that credit on the tax return, petitioners added the $3,550 of foreign taxes to the total Federal income taxes withheld as reported on Form 1040. Thus, while petitioners’ Federal tax withholding amounted to $40,985, the Form 1040 reflected withholding of $44,535 (the amount of Federal withholding plus the $3,550 in foreign taxes withheld by the Canadian Government).” 2021 T. C. Sum. Op. 20, at pp. 3-4.

Well, I have to give Maher credit. That’s quite a move. Unfortunately for Maher, it doesn’t work.

“At trial petitioner Maher Bassily explained that he reported the income on his son Daniel’s income tax return because his son did not have a Federal income tax liability for the [year at issue]. Petitioners did not report any foreign-source income on their [year at issue] tax return. Therefore, the ratio of petitioners’ foreign taxable income to their total taxable income for [year at issue] is zero. Pursuant to the limitation in section 904(a), the amount of foreign tax credit petitioners may claim for [year at issue] is zero.” 2021 T. C. Sum. Op. 20, at p. 9.

Maher’s attempted shunt of the income to his son is a nonstarter.

“We have long held that income is taxable to the person who earns it and taxpayers may not shift the incidence of taxation to a person or entity having less or no tax liability. See, e.g., Frey v. Commissioner, T.C. Memo. 2019-62, at *7.” 2021 T. C. Sum. Op. 20, at p. 9, footnote 3.

But I still want to award Maher a Taishoff “good try,” even though I shouldn’t.

STJ Peter Panuthos is unwilling to give Cohan treatment to any part of the $100K that Sam Fagenboym and Oksana Fagenboym, 2021 T. C. Sum. Op. 19, filed 7/19/21, say they paid for some purchases for Sam’s electrical contractor Sub S.

“Mr. Fagenboym submitted four pages of handwritten calculations that attempt to reconstruct [Sub S’] purchases and other expenses related to four alleged business contracts. Mr. Fagenboym testified that he created the handwritten document because he was unable to produce original records of the amounts paid to one of [Sub S’] electrical suppliers, AED, on the four business contracts. In support of his calculations Mr. Fagenboym testified that he was able to estimate the amount paid to AED by [Sub S] during the year in issue by taking the total amount paid to the S corporation on each of the four contracts and subtracting a 12% profit margin to produce an estimated total for the hard costs of each project. Mr. Fagenboym then subtracted all known labor and materials costs from the resulting total hard costs to produce the estimated total paid to AED on each contract. During the trial Mr. Fagenboym did not produce contemporaneous records or any other business records pertaining to [Sub S’] operations. He testified that he had previously provided substantiating documents to respondent for all hard costs on the four contracts except for the amounts paid to AED.

“Although Mr. Fagenboym’s testimony about industry operations was generally reliable, the amounts included in the handwritten calculations proffered are not backed by any underlying bank statements, receipts, or other documentation. Mr. Fagenboym testified that the 12% profit margin on which his calculations hinge was a rough estimate based on similar contracts in the industry. He stated that the 12% figure was ‘potential profit’ but noted that [Sub S’] actual profit was ‘much less than that’. Although we have no doubt that Mr. Fagenboym produced his calculations in good faith, the reconstruction of expenses on the basis of an individual’s estimate of industry standard profit margins does not take the place of substantiation or provide a rational basis upon which an estimate can be made under the Cohan rule. The record includes no reliable evidence establishing error in respondent’s determinations in the notice disallowing petitioners’ claimed loss deductions related to certain expenses reported by [Sub S] during the year in issue. On the record before us, we conclude that petitioners have failed to carry their burden of establishing that [Sub S] paid or incurred the expenses underlying the deductions that respondent disallowed for [year at issue]. 2021 T. C. Sum. Op. 19, at pp. 9-10. (Names omitted).