It Is Over

I take my text from Jimmy Webb’s 1965 hit about Phoenix, Albuquerque, and Oklahoma, and love gone bad. And my version of the song is true whether the petition is from a SNOD or a NOD. I dare say most Tax Court cases are lost before they ever get there.

First, the NOD. Alberta L. Reynolds, Docket No. 6371-19SL, filed 7/2/21* had two (count ’em, two) returns bounced for years subsequent to the years at issue. In the first year at issue, she self-reported but didn’t pay, and in the second, she claimed no tax due but got bounced for a math error, showing tax due.

Her 433-A showed ability to pay, and she never provided a signed copy of one of her missing returns. So Alberta lost at Appeals, but petitioned got a remand to consider a collection alternative and whether she was CNC.

Judge Paris describes what happened at the supplemental CDP: “Petitioner did not provide SO Salinas with updated financial documents or information, nor did she provide signed copies of her 2016 and 2018 tax returns. Petitioner stated that she was unaware that she needed to provide updated financial information, despite the Court’s [remand] Order ordering petitioner to provide updated information and SO S’… letter requesting updated information and tax returns. Petitioner informed SO S that her financial information had not changed other than a decrease in rent. SO S informed petitioner that she cannot enter into a payment plan until her delinquent tax returns are filed. SO S also noted that if petitioner’s financial information had not changed, she still showed an ability to pay the underlying liabilities.” Order, at pp. 3-4.

Alberta’s petition from the supplemental CDP again raised her underlying tax liability. That’s OK, even if self-reported. But you have to raise underlying tax liability at the CDP; the supplemental CDP, like a remand from an appellate court, is limited to what the remanding court says to consider, nothing else.

Summary J to IRS.

Next is Theresa Adams, Deceased, Docket No. 10602-19, filed 7/2/21**, but it isn’t anything to do with the late Theresa. Whatever her problems, the petition was tossed, since its wasn’t signed by the late Theresa before she became the late Theresa, or anyone with authority to act for her before or after.

However, Delores L. Knight moves to vacate the toss, although she loses because no SNOD or NOD was issued to her. Possibly this is one of the spousal cases, where the deficiency is attributable only to one spouse. Howbeit, Delores L. wants a refund.

“Delores Knight filed a Motion To Change or Correct Caption. However, further review indicates that Ms. Knight’s motion appears to be more akin to a Motion To Vacate. In the motion, Ms. Knight asserts that this case should be a refund case for her tax years 2010 through 2014. To the extent that Ms. Knight is seeking a refund of taxes paid, taxpayers generally have two years to file a lawsuit following disallowance of a claim for refund. See sec. 6532(a)(1). However, the Tax Court is not the proper forum in which to do so. A taxpayer may seek judicial remedy for wrongful denial of refund claims – i.e., a refund suit in compliance with I.R.C. section 6532(a)(1) and 7422(a), either in the U.S. Court of Federal Claims pursuant to 28 U.S.C. section 1491(a)(1), or in Federal district court pursuant to 28 U.S.C. section1346(a)(1). None of those statutes confer refund jurisdiction on this Court.” Order, at p. 1.

Tax Court can order refunds only in a deficiency review, when it turns out the petitioner overpaid. No stand-alones.

It might be well for some enterprising person to compile  current statistics on how many Tax Court cases are actually won in US Tax Court.

*Alberta L Reynolds 6271-19L 7 2 21

**Theresa Adams 10602-19 7 2 21

CSTJ Lewis (“Wotta Name!”) Carluzzo returns to the words of Scotland’s Greatest, as he absolves from Section 6662(a) accuracy chops Todd A. Minarich and Judy A. Minarich, 2021 T. C. Sum. Op. 17, filed 7/1/21.

Todd and Judy were light on recordkeeping, relying on QuickBooks and the usual miscellany of receipts, bank statements, credit card slips, and testimony (some of which actually passes muster as he processes “distilling truth from the testimony of witnesses, whose demeanor we observe and whose credibility we evaluate, is the daily grist of judicial life,” as Judge Vasquez said often).

Todd and Judy are bound for a Rule 155 on the impacts of this opinion on their Sub S real estate and gluten-free baking products operation, but the QuickBooks downloads and the paper miscellany carry the day on the chops, even though the QuickBooks download itself never got into evidence.

“Petitioners engaged a paid income tax return preparer to prepare their Federal income tax returns for the years in issue. They furnished their return preparer with the source documents underlying the deductions claimed on their returns along with the [Sub S] QuickBooks reports before each return was drafted. Considering all the facts and circumstances, we find that petitioners have shown reasonable cause and that they acted in good faith in respect of the underpayments of tax. Therefore, we hold that petitioners are not liable for a section 6662(a) accuracy-related penalty for either year in issue.” 2021 T. C. Sum. Op. 17, at pp.14-15.

Of course, this is a “don’t quote me” small-claimer and Todd and Judy seem to have told a good tale on the stand. The qualifications of the paid preparer are nowhere stated, so apparently CSTJ Lew thought they were good enough, whatever they were, as the preparer never testified.

Takeaway- The download from QuickBooks or its ilk might bail out your client from chops in a small-claimer, but I wouldn’t stake much on it in a regular case.

No, this is not a CDP case where the RCP includes assets petitioner diverted to creditors other than the fisc. This is Judge Gale’s tale of a petitioner from a Section 6015(f) NOD, wherein said petitioner, like the Ancient Mariner, stoppeth one of three. Kimberly Ann Jones, Docket No. 5700-19S, filed 7/1/21, got innocence for Year One, but lost Years Two and Three.

Kimberly petitioned, and then did nothing. It took a year before the case was on the trial calendar, during which the two (count ’em, two) IRS attorneys assigned to the case attempted to contact Kimberly for the usual stip-or-disagree and file pretrial memos. Then trial was postponed and reassigned due to COVID-19. Whereupon there followed the usual epistolary barrage.

“Petitioner has failed to properly prosecute this case. Petitioner did not appear for trial on March 9, 2020, despite being warned by the Trial Notice, Standing Pretrial Notice, Reminder Notice, and the Court’s Order dated February 18, 2020, that failure to appear could result in dismissal of the case and entry of a decision against her. Moreover, petitioner has failed to cooperate with respondent’s counsel to prepare for trial or otherwise resolve this case as directed in the Standing Pretrial Notice. Finally, petitioner has failed to file a pretrial memorandum as directed by the Standing Pretrial Notice.” Order, at p. 3.

Now I yield to no one in vociferous advocacy that everyone with anything like a colorable claim deserves their day in court. But is not Tax Court solving the wrong problem here?

A docket search reveals that Kimberly applied for and got a waiver of the sixty George filing fee. Wherefore I doubt she petitioned to stave off IRS’ collection efforts. I’m guessing that what Kimberly probably wanted is CNC; obviously she hasn’t a clue that she can’t get there by taking the innocent spouse route.

Judge Gale’s chronology points out the inordinate waste of resources in cases like this, brought by a deer-in-the-headlights pro se. And that’s obvious. But the sledgehammer solution is not the answer.

“Petitioner’s failure to appear for trial and failure to comply with the terms of the Standing Pretrial Notice requiring adequate pretrial preparation have prejudiced respondent by causing him to expend resources that could have been expended elsewhere. Moreover, petitioner’s failure to appear for trial and failure to comply with the Standing Pretrial Notice have hindered the Court’s management of its docket. See Tebedo v. Commissioner, 676 F. App’x at 752 (finding taxpayer’s ‘interference with the judicial process’ was ‘obvious’ where “he failed to comply with any of the court’s orders, and decided not to appear for trial with no advance notice to the court’); Franklin v. Commissioner, 297 F. App’x 307, 309-310 (5th Cir. 2008) (finding ‘a clear record of * * * delay and contumacious conduct’ where taxpayer failed to appear for trial, failed to cooperate with the Commissioner, failed to comply with a court order, and failed to file a pretrial memorandum as directed by the standing pretrial order). None of petitioner’s failures are excused.” Order, at pp. 3-4. (Some citations omitted; there’s enough “somber reasoning and copious citation of precedent” already).

Now I don’t say that Kimberly is an innocent here. She should have said something; that might have invoked an LITC or calendar call commando. But to presume Kimberly is a wit, wag or wiseacre because she did nothing does not consider the fact that she applied for and got the filing fee waiver. The wits, wags, and wiseacres that litter the Tax Court docket and this my blog all of them either get their waiver apps tossed or come up with the three Andys off the bat, so as to kick off their wiseguy antics at The Glasshouse on Second Street, NW.

Must I say again that Tax Court, as much as or even more than the USDCs, need an Office for the Self-Represented? I most respectfully submit that the cost thereof has to be less than what gets wasted in these tossed-for-non-action cases.

Please believe me when I say I’m not piling on to Monique D. Long, 2021 T. C. Memo. 81, filed 6/30/21. I’m arguing once again for the establishment of an Office for the Self-Represented in US Tax Court, and her case provides a good example of the need therefor. See my blogpost “The Self-Represented,” 5/30/17.

I know the LITCs and the calendar call commandos are providing yeoman service with stringently limited resources, but the evidence shows that upwards of 90% of the self-representeds who seek solutions in The Glasshouse on Second Street, NW, haven’t the foggiest. As I said four years ago, the calendar call commandos are in the position of emergency room trauma surgeons assigned to rehabilitative medicine; this assumes the patients have a chance of survival by the time they get finally get there.

And they only find out the rules of the process too late.

Monique had two separate SNODs, six months apart. Both sent certified mail, neither collected, although addressed to the same address shown on the returns at issue, the papers submitted to Appeals in response to the NFTL Monique got after she didn’t petition the SNODs, and her petition and subsequent correspondence. Monique claims her used her grandmother’s address, and sometimes didn’t get her mail there. IRS claims Monique ducked, but as IRS wants summary J, Judge Albert G (“Scholar Al”) Lauber is willing to give Monique the benefit of the doubt.

Except that when he does so, Monique has already been to Appeals.

“In her CDP hearing request petitioner stated that she did not know why she had outstanding tax liabilities, and she repeated that question at the start of the conference call. But after the SO explained the background and summarized the notices of deficiency, petitioner withdrew any challenge to her underlying liabilities. Indeed, she stated that she intended to pay those liabilities in full and asked for an extension of time to do so. At no time did petitioner submit any evidence to the SO regarding her entitlement to a dependency exemption (or any other issue relevant to her…tax liability).”2021 T. C. Memo. 81, at p. 10. (Citations omitted).

It would be cheap to ask rhetorically what Monique expected Judge Scholar Al to do to help her with this record. But my point is that whatever she expected, it wasn’t going to happen. And I strongly suspect she had no way of knowing that.

I submit that the overwhelming majority of self-represented Tax Court cases are lost long before the petition is filed. In proof thereof, look at how many cases are dismissed for want of prosecution. Today there were issued no fewer than three hundred sixty nine (count ’em, three hundred sixty nine) Standing Pretrial Orders. How many of these will actually go to trial?

A simple explanation that all IRS correspondence gets top priority, that SNODs are serious, and that usually when you get a NFTL or NITL the real trial will take place at Appeals so get your papers together and show up, would help. And someone to tell these self-representeds so.

Cynthia Pragias didn’t tell enough about the $4 million capital gain she got when the partnership of which she was a partner sold some stock options, so 6SOL is on tap. Since Cindy wants summary J that 3SOL applies and has run out, Judge Travis A. (“Tag”) Greaves, giving IRS (non-movant) every favorable inference, assumes that $4 million is more than 25% of Cindy’s AGI (and it certainly would be more than 25% of mine).

But there were only six individual partners in Cindy’s partnership, and they were all onshore, so too small for TEFRA, unless they elected in per Section 6231(a)(1)(B)(ii), as it was in effect for year at issue, and they didn’t. So no need for FPAA, wherefore Tax Court has jurisdiction in Athanasios Pragias and Cynthia Pragias, 2021 T. C. Memo. 82, filed 6/30/21.

Cindy did disclose about $1 million capital gain, but never specified whence it came, and never mentioned any gain from the partnership that sold the options. Cindy claims she just understated the gain, but that doesn’t convince Judge Tag Greaves.

“Their return did not apprise the IRS of the amount of the gain. Adequate disclosure is a question of fact, and the taxpayer bears the burden of proving that the return adequately disclosed the nature and amount of the determined omitted income. In a quintessential case of adequate disclosure, the taxpayer errs in computing gross income but fully discloses the amounts underlying the error elsewhere in the return.” 2021 T. C. Memo. 82, at p. 11. (Citation and footnote omitted, but the footnote says that the capital gain reported didn’t identify the partnership that generated the gain).

And the partnership didn’t file Form 1065 nor a K-1, until way after the audit for year at issue had commenced. Way too late.

Cindy doesn’t get summary J on 3SOL. 6SOL is in play.

Engen Robert Nurumbi, 2021 T. C. Memo. 79, filed 6/30/21, showed a real entrepreneurial spirit; he signed on with Uber, got the IT hook-ups, and subcontracted the driving to friends and relations, using a couple cars (hi, Judge Holmes) registered to him and stored at his residence. Uber gave Engen a 1099-K for $546K, which didn’t make it onto Engen’s late-filed 1040.

Engen had set up an LLC, but he never filed Form 8832, Entity Classification Election, or filed Form 1065 and K-1s. So The LLC is disregarded, and the money belongs to Engen. Engen paid his drivers with checks and cash, but has no records, so he gets no greater allowance than IRS allows for wages to his driver-employees.

Engen tries to reopen the record to put in more evidence post-trial, but Judge Pugh won’t have it.

“The character of the evidence petitioner attached to his motion is that of hearsay and impermissible summary. See Fed . R. Evid. 802, 1006. He offers it to prove facts that were foreseeably at issue at trial, namely the substantiation of business expenses and how he organized his Uber driving operation. And to the extent petitioner does not use it to prove relevant facts, he uses it to impeach the credibility of the revenue agent who testified at trial. Petitioner cites his medical history as reason for failure to produce evidence at trial, and respondent does not object to certain medical history documents petitioner attached to his motion. We are sympathetic to petitioner’s health issues, but to the extent the documents discuss petitioner’s health, they cover periods…before respondent issued the notice of deficiency and well before the trial in this case. And petitioner understood the issues to be addressed at trial, even bringing a supporting witness to testify. Finally, and most importantly, respondent could not examine this evidence at or before trial. In his response to petitioner’s motion, respondent lists relevant questions he would have asked on cross-examination had he been given the opportunity; the effect of granting petitioner’s motion would be to deny respondent that opportunity.” 2021 T. C. Memo. 79, at p. 10.

Engen flunks the Section 274 strict substantiation for his vehicles, even though he’s transporting unrelated persons and property for hire; See Section 280F(d)(4)(c). Except Engen’s vehicles are “SUVs or passenger trucks.” 2021 T. C. Memo. 79, at p. 17. I’m not sure what a “passenger truck” is. Howbeit, since such can be used for personal, rather than business purposes, and as Engen has no reliable records as to what was, or was not, business, vehicle deductions are out. He never documented his deals with his drivers as to what was permissible use of his vehicles.

But as Engen was a year late with his return, he does get a late-filing add-on.

“Petitioner argues that we should apply the reasonable cause exception because he believed he had already timely filed a …Form 1040 before filing the late-filed return. Whether a taxpayer has ‘reasonable cause’ within the meaning of section 6651(a)(1) depends on whether the taxpayer ‘exercised “ordinary business care and prudence” but nevertheless was “unable to file the return within the prescribed time.’ Petitioner’s mistaken belief that he had already filed a return within the prescribed time does not constitute reasonable cause.” 2021 T. C. Memo. 79, at pp. 19-20. (Citations omitted). And sincerity of the mistaken belief doesn’t count.

Uber and out.

Judge Albert G (“Scholar Al”) Lauber adheres to the old saying when it comes to frivolite Jamillah Kamillah Muhammad, 2021 T. C. Memo. 77, filed 6/29/21.

Jamillah Kamillah tries the hackneyed protester jive about Sections 3104 and 3121, the FICA tax, rather than the income tax. And she otherwise strews the usual gibberish.

“Petitioner admitted at trial that she had received payments from the University during [year at issue] but insisted that these payments were not ‘wages.’ When asked whether she had performed services for the University during [year at issue], she refused to answer. When asked what kind of payment the University had made to her, if not wages, she refused to answer. When asked why she did not report the payments as taxable income, she replied that nothing she did in connection with the University was the ‘exercise of Federal privileges.’ When asked why that mattered in determining whether she had received taxable income, she professed reliance on sections 3401 and 3121.” 2021 T. C. Memo. 77, at p. 5.

Jamillah Kamillah also moved in limine to exclude the SNOD IRS gave her, and the wage and tax statement from the W-2 Samuel Merritt University gave her. “Petitioner filed a motion in limine seeking to exclude the first two documents from evidence on the grounds of ‘[h]earsay, lack of foundation, lack of personal knowledge, no opportunity to cross-examine, declaration not signed under penalty of perjury, declaration not dated, irrelevant, [and] calls for speculation.’ She asserted that the notice of deficiency was inadmissible as ‘needlessly presenting cumulative evidence.’ She asserted that her own Form 1040X should be excluded from evidence on the grounds of ‘[i]rrelevan[ce], unfair prejudice, confusing the issues, undue delay, wasting time, and needlessly presenting cumulative evidence.’” 2021 T. C. Memo. 77, at pp. 4-5.

Judge Scholar Al denied the motion. Surprise, surprise. He also spends time on “somber reasoning and copious citation of precedent,” perhaps to convince Jamillah Kamillah that it’s one thing to play the lawyer, but quite another to play the fool. Because anyone who does minimal investigation will discover that her argument is “a time-worn tax-protestor argument that no court has ever accepted.” 2021 T. C. Memo. 77, at p. 8.

 Of course, Jamillah Kamillah was shown the yellow card more than once. “We warned petitioner during the calendar call that she risked a penalty if she advanced frivolous arguments and that ‘wages are not income’ is a frivolous argument. Despite this warning, petitioner persisted throughout the trial on the path on which she had embarked. Counsel for respondent urged that a section 6673 penalty was appropriate, representing that she had repeatedly advised petitioner in pretrial communications that she was advancing a frivolous position.” 2021 T. C. Memo. 77, at p. 11.

So Judge Scholar Al is about to hand Jamillah Kamillah the Section 6673 frivolity chop, when she pleads poverty. And Judge Scholar Al tempers the wind to the allegedly shorn lamb.

“When we advised petitioner at trial that we would consider imposing such a penalty, she stated that she was now unemployed and that a penalty would cause her financial hardship. Taking her at her word, we will impose a modest penalty of $250. But we warn petitioner that she will risk a much more severe penalty if she advances frivolous positions in any future appearance before this Court.” 2021 T. C. Memo. 77, at p. 11.

Far be it from me to seek to curb Judge Scholar Al’s (or any judge’s) charitable impulses.

But there should be a level of consistency in the Section 6673 mulcts. I suggested a year ago that “let’s have a sliding scale. I propose one free kick, then a grand for each succeeding kick, cumulative. With an automatic press after four (Nassau, as the golfers say: bet doubles on the back nine).” See my blogpost “One Free Bite,” 8/28/20.

After all, we have Federal and State sentencing guidelines, whatever their faults (and I’m not going there; my last criminal case was more than thirty years ago, and it can stay that way). Anything else runs the risk of arbitrary-and-capricious or excessive-fines-and-penalties.

Here’s another item for Ch J Maurice B (“Mighty Mo”) Foley’s to-do list.

The review of a NOD from a CDP is always, or almost always, a recap of the record made at the CDP hearing. For that reason, a short but comprehensive checklist is a useful article in the practitioner’s toolkit.

Judge Mark V Holmes has a one-pager in Alan Courtney Preston, Docket No. 4050-20L, filed 6/29/21.

First, parties should stip to the contents of the record (s/a/k/a the “administrative record”). If they can’t, IRS should prepare an index of the documents they assert comprise the record, with a typical Judge Holmes addition: “The Court urges the IRS to make this index comprehensible to a nonlawyer.” Order, at p. 1.

Good luck with that one, Judge. Remember your eminent predecessor, the English Lord Chief Justice Campbell, writing in 1850: “There is nothing so dangerous as for one not of the craft to tamper with our freemasonry.”

Howbeit, once IRS delivers its index, petitioner has to “(1) provide the IRS with any evidence that he thinks should be added to the administrative record but is not in the IRS index and (2) list any documents in the IRS index that he thinks should not be in the administrative record.” Order, at p. 1.

Ultimately, if there’s no settlement, a trial will be limited to ascertaining the proper contents of the record, whether that shows IRS abused its discretion in sustaining the collection action, or whether to send it back to Appeals (“remand”) “because of new evidence or a change in circumstance since the collection due process hearing was held.” Order, at p. 1.

And not a dissed partitive genitive in sight.

Sometimes the wheeler-dealer’s long-established practice of treating all his controlled entities, even those co-owned with others, as different pockets in the same suit of clothes, while possibly fraud on his creditors, isn’t fraud on the IRS. Judge Goeke thus rings down the curtain on a couple years’ worth of tax troubles (hi, Judge Holmes) for Michael R. Kelly, 2021 T. C. Memo. 76, filed 6/28/21.

It takes 45 (count ’em, 45) pages of Judge Goeke’s prose to set forth some of Mike’s wheeling-dealing, from his start as a bad-debt stripminer (buying bad secured loans to foreclose and strip the collateral), to buying and selling business as diverse as linen rental and yacht-chartering. He used a plethora of SPEs (Single Purpose Entities), each of whose integrity he safeguarded to keep from being rolled up if any one business failed (as Joe Hooker should have done at Chancellorsville). But he reported all but his one publicly-held corporation on his own 1040, as they were all disregardeds. And he flipped cash back and forth with fine abandon, until The Black ’08.

IRS claims Mike missed filing two Forms 5471, Information Return of U.S. Persons With Respect to Certain Foreign Corporations (Mike’s yacht SPE was Cayman Islands-based), and that means substantial understatement 6SOL sinks him, unless Section 6501(c)(8)(B) good-faith reliance on experts saves him.

And it does. Mike’s CPAs were pros, with no adverse disciplinary history. Mike, or his staff, told them everything (and Mike cooperated with IRS during the audit). “Respondent contends that it was not enough for Mr. Kelly to inform [CPAs] that [Yacht] was a foreign entity, and he implies that Mr. Kelly should have advised Mr. S [preparer] that Form 5471 was required. The failure to file the Forms 5471 does not present an obvious tax obligation which was negligently omitted from information that a taxpayer provided to the return preparer. Mr. Kelly, through his staff, provided the necessary information to [CPAs], identified [Yacht] as a foreign corporation, and stated that he was unsure of the reporting requirements. Having done this, Mr. Kelly reasonably relied on [CPAs] to prepare his returns properly. While it could be argued that [CPAs] should have done more to ascertain Mr. Kelly’s filing obligations, it was reasonable for Mr. Kelly to rely on [CPAs] do so. A taxpayer need not question the advice provided, obtain a second opinion, or monitor the advice received from the professional.” 2021 T. C. Memo. 76, at p. 50 (Citation and name omitted).

“Respondent’s list [of badges of fraud] depends totally on the premise that Mr. Kelly’s intercompany transfers or withdrawals recorded as loans were not properly treated as loans and were concealed with intent to defraud the United States. While we do not presume the accounting by Mr. Kelly and his companies is always accurate regarding the ‘loans’, we do not believe the record establishes by clear and convincing evidence that the ‘loans’ were the basis of a fraudulent tax scheme; rather they were the products of two decades of Mr. Kelly’s business practices. As we discuss later herein, we agree with respondent that by 2008 there was no reasonable expectation the ‘loans’ would be repaid when incurred, and they should be treated as distributions. This conclusion does not in itself lead to a finding of fraud.” 2021 T. C. Memo. 76, at p. 55.

Howbeit, maybe some pre-Black ’08 transfers were loans, but after the subprime meltdown, game over.

So a major league Rule 155 bangers-and-mashed to follow.

I’ve often blogged Judge David Gustafson’s obliging nature; see, e.g., my blogposts “Obliging? This Beats All,” 3/6/19, and “Obliging – Even Though He’s Only Passing Through,” 8/10/18. Today, however, Judge Courtney D. (“CD”) Jones is much less obliging.

Unlike Judge Gustafson, she won’t help out IRS’ counsel, as IRS’ summary J motion prevails only in part, in Paul Edwin Johnson, Docket No. 16077-19, filed 6/28/21. Paul Edwin is a candidate for a Section 6673 chop, but his petition is timely and he loses the deficiency. So he only gets the yellow card.

Judge CD faults IRS counsel on misplaying the Boss Hoss underpinning of the Section 6662 accuracy chop they bestowed on Paul Edwin.

The AUR issued a CP2000 to Paul Edwin, when his retirement drawdown hit IRS’ computer but missed Paul Edwin’s 1040. Paul Edwin replied to the CP2000.

“…the AUR program received a response to the CP2000 Notice from Mr. Johnson in which he appeared to agree with the changes but argued that he should be eligible for increased credits. … CW, an AUR Tax Examiner, considered Mr. Johnson’s response to the AUR and found that he was eligible for increased credits but determined that the IRS should impose a penalty. JB was CW’s immediate supervisor and approved, in writing, CW’s initial determination of the penalty….” Order, at p. 7. (Names and dates omitted).

So the AUR issued the SNOD with the accuracy chop in it.

Now comes a silt-stir that would gladden Judge Holmes’ heart.

“Respondent contends that respondent obtained supervisory approval prior to the issuance of the notice of deficiency…and the record seems to support this conclusion. But it appears to the Court that the CP2000 Notice… was the IRS’ first formal communication of the initial determination to assert penalties pursuant to section 6662(a). Therefore, respondent has the burden of production with respect to its compliance with section 6751(b)(1) regarding the CP2000 Notice, not the notice of deficiency. As there is no evidence in the record to support that written supervisory approval was obtained prior to the issuance of the CP2000 Notice, we hold that there is a genuine dispute of material fact regarding whether respondent carried respondent’s burden of production pursuant to 6751(b)(1) with regard to the section 6662(a) penalties for this case.” Order, at p. 6 (Citation and footnote omitted, but the footnote says it all).

OK, so my ultra-sophisticated readers all just shouted “Section 6751(b)(2)! AUR untouched by human hands! Boss Hoss irrelevant!”

Now for everybody else, here’s Judge CD being unobliging.

“We note that it appears that the CP2000 Notice was issued through the AUR program. Managerial approval pursuant to sec. 6751(b)(1) is not required for penalties calculated through electronic means. See sec. 6751(b)(2)(B); It is curious that respondent did not address the potential application of sec. 6751(b)(2)(B) to this case, but we will not argue it for him. See Rule 151(e)(5). As we have said before, our job is to consider the issues advanced by the parties, not to craft alternative arguments never raised.” Order, at p. 6, footnote 5. (Citations omitted).

Takeaway- As IRS’ resources are stretched without further Congressional appropriations, expect more computerization to replace humanity, and perhaps unhorse the Boss Hoss.