In the current roster of Tax Court rounders (frequent litigators with specious or frivolous arguments), Gregory J. Podlucky, lead in Gregory J. Podlucky & Karla S. Podlucky, Docket No. 453-17, filed 6/25/21, has earned the coveted (?) Rounder First Class With Oak Leaf Cluster award.

Greg has appeared so often in this my blog that I no longer catalogue these. And today’s efforts show Greg has lost none of the moves and maneuvers that have brought him to the heights of rounderdom.

Here’s that patient jurist, Judge Albert G. (“Scholar Al”) Lauber to explain. Greg wants summary J and IRS’ papers stricken. And his trial continued (that’s “adjourned,” for us State courtiers).

“In their Motions petitioners urge that respondent ‘has perpetrated fraud upon this Court by alleging that the Petitioners have evaded taxes for the years 2003, 2004, and 2006.’ They ask us to strike ‘all briefs, documents, and other papers’ relating to those tax years and to dismiss the case with respect to those years.” Order, at p. 1.

Judge Scholar Al isn’t even looking, much less buying.

“We will deny both Motions. Petitioners’ assertion that respondent has ‘perpetrated fraud upon this Court’ is frivolous. Petitioners appear to contend that they cannot be liable for tax deficiencies for 2003, 2004, or 2006 because the Government, in petitioner husband’s criminal case, withdrew the counts that alleged tax evasion under I.R.C. sec. 7201 for those years, in exchange for a guilty plea by petitioner husband with respect to 2005.” Order, at p. 1.

So just maybe Greg was playing the Fiore gambit, for which see my blogpost “Lawyers Can’t Add,” 1/17/13, by copping to one year only so as to duck issue preclusion for “pattern of fraud” to support civil fraud chops per Section 6663. I told you Greg is a top-drawer rounder.

Judge Scholar Al plays what I will call the Scholar’s countergambit to the Fiore gambit.

“Needless to say, a taxpayer need not have been convicted of a tax crime in order to be liable for a tax deficiency. Respondent does not allege that either petitioner ‘evaded taxes’ for 2003, 2004, 2006, the gravamen of a criminal offense under I.R.C. sec. 7201. Rather, respondent contends that petitioners underpaid their income tax for those years and that petitioner husband is liable for civil fraud penalties under I.R.C. sec. 6663(a).” Order, at pp. 1-2.

But la partie continue, because Greg isn’t done yet. As the COVID reshuffle caused trials to go remote, Greg’s trial was first set for Los Angeles, then moved at Greg’s request to Denver, and then moved for administrative purposes only back to Los Angeles.

“Petitioners now assert ‘that the place of trial is improper’ and that they ‘cannot proceed until this egregious occurrence is corrected.’ To the extent petitioners are seeking a continuance of their October 4 trial date, that request is denied. Because the calendar call and any ensuing trial during that session will be conducted remotely, it is immaterial whether petitioners are physically located in Denver, Los Angeles, or some other city in which they happen to be.” Order, at p. 2.

I regret I cannot furnish an actual decoration for Greg to pin on his battledress. He certainly earned Rounder First Class With Oak Leaf Cluster.

Periodic real estate meltdowns furnish the grittier grist that comes to the practitioner’s mill. Even those with thirty (count ‘erm, thirty) years’ experience can get it wrong. Witness Richard S. Hussey, 156 T. C. 12, filed 6/24/21, and his highly-credentialed adviser, whom I’ll call Mike the K.

Richard had twenty-seven (count ’em, twenty-seven) investment properties, and had to unload most of them. He short sold a bunch over a couple years (hi, Judge Holmes).

A “short sale” is one where the purchaser pays less than the outstanding balance of the mortgage for the property, also known as “underwater” property. All the mortgages on the properties were held by the same lender, who issued 1099-Cs for some, but charged off others and treated those unpaid balances as a loan loss reserve. Maybe Richard was personally liable on the notes as restated, and deficiency judgments were possible, hence the reserve. But that reserve was created in Year Two, so no discharge of debt in that year. Also no 1099-Cs for Year Two, although that isn’t necessarily dispositive.

Richard and Mike the K want to throw the basis adjustment to offset immediate CoD taxable gain one year forward into Year Two, using Section 1017(a). There’s no doubt Section 108(c)(2)(B) allows the treatment, if Section 1017(b)(3)(f)(iii) doesn’t anchor it to year of sale.

Judge Colvin finds that it does.

“Petitioner points out that section 1017(a) states generally that  basis reductions resulting from the discharge of QRPBI [Qualified Real Property Busines Indebtedness, and this is] are made the year after the debt is discharged. If section 1017(a) applies here, the basis adjustments at issue would, as petitioner contends, be made in [Year One]. However, section 1017(b)(3)(F) provides three additional rules which govern reduction of basis following discharge of QRPBI. First, real property, the aggregate bases of which are considered under section 108(c)(2)(B), includes only depreciable real property. Sec. 1017(b)(3)(F)(i). Second, the depreciable real property may not be held as inventory. Sec. 1017(b)(3)(F)(ii).” 156 T. C. 12, at pp. 10-11. (Footnote omitted, but it says specifics override generals).

OK so far.

But when Richard sold the properties, the debt was discharged. And that’s what Section 1017(b)(3(F)(iii) says mandates basis reduction in year of sale.

Judge Colvin checks out the House Report, to make sure.

“If the taxpayer disposes of real property (in the transaction that gave rise to the discharge or otherwise) prior to the first day of the next taxable year, then the reduction in basis of such property is made as of the time immediately before the disposition. 15-H.R. Rept. No. 103-111, at 623-624 (1993), 1993 U.S.C.C.A.N. 378, 854-855 (emphasis added).” 156 T. C. 12, at pp. 14-15. (Footnotes omitted).

Note the cited House Report is online behind some kind of subscription wall. Here’s the link; use at your own risk. I make no guaranty, warranty, or representation of any kind whatsoever, however denominated, as to safety, accuracy, adequacy, fitness for purpose, merchantability, quality, or anything else. Sue them, not me.

No forwarding of basis reduction for Richard. And IRS wants accuracy chops.

Richard claims he knows nothing of tax or accounting, and Judge Colvin buys it. He didn’t like the return his usual preparer did, so found a CPA who turned him onto to Mike the K, thirty-year veteran tax attorney. And he gave Mike the K everything he asked for. So Richard claims good faith reliance.

IRS claims Mike the K was less than spectacular.

“Respondent points out that there are errors on petitioner’s returns prepared by the K Firm. For example, the bases in real properties retained by petitioner in 2013 had not been reduced on petitioner’s 2013 return even though they should have been under Mr. K’s analysis. Respondent also points out that petitioner’s home was erroneously listed as an investment property sold in 2013 and then recorded that it had been sold again in 2014 when reporting debt cancellation on a Form 982. Respondent contends these errors show that petitioner was not acting in good faith. We disagree. We do not believe petitioner is responsible for detecting errors of this nature in the reporting of complicated tax transactions.” 156 T. C. 12, at p. 23.

And IRS argues, with no basis in the record, that Richard went shopping for tax advice to suit, and that Richard should have realized that Mike the K’s advice was too good to be true. Yes, but; the latter assumes Richard was sharp enough to know about Section 1017(b)(3)(f)(iii), which he wasn’t.

No chops for Richard.

To get the picture here, see my blogpost “Old-Time Head-Banging – Part Deux” 9/4/20. To save your time, here’s what I said: “When I was a young man (and had, contrary to the late great Pete Seeger, been kissed), there were old-school judges, men (sorry ladies, this was in the Bad Old Days) who dragged into chambers and robing rooms recalcitrant litigants and badgered settlements out of them.

“We called it ‘banging heads.’”

Today STJ Peter (“HB”) Panuthos follows up on the story told in my blogpost hereinabove particularly bounded and described, with Peter Brancovich Turek, Docket No. 15447-19S, filed 6/24/21. Although pro se, PB is “highly educated (Dr. Turek is a psychiatrist and psychoanalyst)”. Order, at p. 4.

PB, refusing STJ Panuthos’ suggestion that he settle with IRS, ripostes with a “Motion to Concede Deficit Assessment”. Order, at p. 2. Problem is, IRS wants to raise the deficiency for the second of the two (count ’em, two) years at issue, and PB isn’t buying.

So IRS moves out of time to amend the answer to assert an increased deficiency. STJ Panuthos goes through the Rule 41 foxtrot, continuing the trial so that PB has time to deal with the amended answer, and grants the motion to amend the answer.

“In his motion for leave respondent indicates that the bases for seeking an increased deficiency were not evident at the time of filing his answer. Respondent also asserts that there is a voluminous administrative file, available only in paper and that shortly after March 13, 2020, it was no longer available because of the closure of offices due to COVID-19. Finally, respondent asserts that the files did not become available until about July 13, 2020, when restrictions were eased allowing access to the documents and opportunity for review and analysis.” Order, at p. 4.

Since PB knew that the higher deficiency was in the cards for some time, he isn’t ambushed. And STJ Panuthos allows for further discovery on the increased deficiency, so the parties can talk.

Translated from Judgespeak, that means “PB, settle this case. Please settle this case.”

And to move matters along, STJ HB Panuthos kicks PB’s S.

“As noted above, petitioner elected, and the Court granted, small tax case status. The deficiencies and penalties determined in the notice of deficiency for each of the tax years [X] and [Y] did not exceed $50,000 and thus this case qualified for small tax case procedures. See sec. 7463(a); Rules 170-174. Considering the claim made by respondent in his First Amendment to Answer, the deficiency and penalty in issue for [Y] exceed $50,000. It is thus clear that this case no longer qualifies for small tax case status. Sec. 7463(d)…. Accordingly, the Court will strike the ‘S’ designation from the docket in this case and this matter will be proceed on the regular docket of the Court.” Order, at p. 5. (Citation and dates omitted).

Now that’s what I call old-time head-banging.

The worker on extended assignment is like the turtle. He carries his home with him, “howe’er so far he roam.” Such is the story of Robert J. Sherman & Catherine Sherman, Docket No. 21094-17S, filed 6/24/21. Or rather, it’s Rob’s story.

Rob lives in one place, but for the year at issue, and more, works in another. Unlike the hero of my blogpost “I’m Stickin’ to th’ Union,” 9/21/11, Rob doesn’t seem to have a business affiliation with his hometown sufficient to keep it as his tax home.

Judge Buch: “The term ‘home” for these purposes means the location of a taxpayer’s principal place of employment, not the location of his personal residence. Generally, if the location of the taxpayer’s place of business changes for an extended period, so does his tax home. More specifically, if a person works in a location for more than one year, then that person is not treated as being temporarily away from home when at that location. Sec. 162(a) (flush language).” Transcript, at pp. 10-11. (Citations omitted).

Rob also got a flat per diem for his expenses from his employer, which he didn’t report for the year at issue. His substantiation was the usual back-of-the-envelope.

Another many-times-told tale. But note the word “generally” in Judge Buch’s off-the-bencher; there may be a business reason why your client needs his home to stay put while s/he wanders far and wide.

Unlike his Hall of Fame namesake, who was one of only five (count ’em, five) players to steal home in a World Series game, Monty Ervin, 2021 T. C. Memo. 75, filed 6/23/21, gets late filing, late paying, no estimateds and fraudulent non-filing add-ons on top of the revised deficiency that finally got paid via the restitution order bestowed upon him by USDCMDAL as part of the fall he took for tax evasion.

Monty claims he doesn’t owe add-ons, because the sale of his gold coins two years after IRS hit him with the SNOD they later revised paid his taxes in full. Anyway, now he’s back in the free world, Monty is CNC.

Judge Albert G (“Scholar Al”) Lauber points out that add-ons do not arise the moment that restitution is imposed, but only after assessment of tax. It’s our old friend “as if”; restitution is collected as if it were tax, except it isn’t. But once IRS assesses the tax, it’s open season for add-ons.

“It made the assessment after the restitution order became final. It subsequently commenced a civil examination of petitioner’s individual liabilities for 2002-2007 and prepared SFRs, allocating him a portion of the relevant income and deductions. It then calculated additions to tax based on the deficiencies so determined.” 2021 T. C. Memo. 75, at p. 9.

Monty agrees he owes what IRS says, but he paid it via restitution. And IRS can’t collect twice. No issue there.

But all, or almost all, the add-ons accrued prior to Monty making any restitution payment. So he neither filed nor paid when tax was assessed.

Monty’s economic woes do not help him.

“Petitioner’s second argument is no better. Inability to pay is not a defense, on the merits, to the additions to tax. Petitioner represents that the IRS has placed his…accounts in ‘currently not collectible’ status. If that should change and the IRS should seek to collect additions to tax…petitioner may request a collection due process hearing and urge inability to pay as a proper ground for a collection alternative. See sec. 6330(c)(2)(A)(iii).” 2021 T. C. Memo. 75, at p. 12.

Judge Scholar Al cruises through the add-ons, finds IRS carried BProd, and hits Monty with the full boat.

Monty is out at the plate.

I’m adding Sandy Lee Rowe & Sylvia Marie Rowe, Docket No. 6432-20, filed 6/23/21, to my “Don’t Ambush” series, which began with my blogpost “Don’t Ambush the Indians,” 4/7/11. They’re neither accountants nor ranchers nor yet the IRS, but Judge Buch rightly shuts down IRS when they try to wildcard in the “goofy regulation” on the trial of S&S’ unsubstantiated business deductions for their travel agency.

You can read for yourselves Judge Buch’s attempted scrape of S&S’ palimpsest of pieced-together spreadsheets and credit card slips, no two of which seem to jibe. So S&S are out on substantiation, especially since the stuff is travel and therefore Section 274 heavy-duty substantiation is needed.

On the trial, however, Sandy Lee testifies as follows: “‘The income was secondary to us, because we like to see people travel, family and other acquaintances.” He continued, ‘So it’s not to make money; it’s for the pleasure of inspiring people to travel.'” Transcript, at pp. 4-5.

One can only imagine IRS counsel’s feeling when Sandy Lee thus expatiates. Rather like watching one’s foe pause as the front sight blade lines up with the rear sight reticle, and one’s finger slowly eases the trigger back. Sandy Lee is pro se, of course, so we are spared the sweet smile of his attorney watching the case do a Coriolis.

But IRS counsel only adverts to this testimony at the very end of trial.

“Mr. Rowe’s statements suggest that the business losses may be non-deductible hobby losses. However, the Commissioner did not raise this issue in the notice of deficiency, pleadings, or pre-trial memorandum. In his closing, the Commissioner mentioned the nondeductibility of hobby losses in an apparent invitation for the Court to disallow the losses on those grounds.” Transcript, at pp. 12-13.

Tried by consent, per Rule 41? Not with a pro se, who obviously wouldn’t know Section 162 from Section 183.

“We will decline the Commissioner’s invitation.

“Our Rules are designed to give the parties fair notice of the matters in controversy. Rule 31(a). To that end, the Commissioner is required to ‘advise the petitioner * * * fully of the nature of the defense’ and provide a ‘specific admission or denial of each material allegation in the petition.’ Rule 36(b). The Commissioner may raise a new matter provided the taxpayer receives fair warning. If a previously unraised issue is tried ‘by express or implied consent’ of the parties, we will treat it as though it had been raised in the pleadings. Rule 41(b)(1). To determine whether it is appropriate to apply the principle of implied consent, we consider whether sustaining the issue would result in unfair surprise or prejudice to the opposing party and limit the evidence that party might have otherwise introduced if the issue had been timely raised.” Transcript, at p. 13. (Citations omitted.)

Of course it would surprise S&S. Hobby loss might require evidence of profitability in years other than those at issue. And bringing in hobby loss might increase the deficiency above that set forth in the SNOD, with a BoP knock-on.

So don’t ambush the travel agents, either.

I am pleased to report that Ch J Maurice B (“Mighty Mo”) has taken up my plea to identify correctly the non-attorney representative who seeks to execute petitions and appear in Tax Court without first having been admitted to practice, or at least leading at the sixteenth pole in the race to admitted status. The “non-attorney representative” is so designated by a power of attorney (generally Form 2848), which is either a piece of paper or a concatenation of electrons.

See, e.g., David H. Sylvester & Erin Sylvester, Docket No. 9966-21, filed 6/22/21.

But Ch J Mighty Mo persists in demanding “wet-ink” paper petitions and amendments thereto, ignoring Rule 34(a), as amended: “A petition may be filed electronically under the electronic filing procedures established by the Court, or a petition may be filed by properly mailing or hand delivering it to the Court.”

However, I must admit that Ch J Mighty Mo is wiser than I. Aware that whatever electronic filing procedure he may craft, however foolproof and user-friendly, implementation thereof will fall to Genius Baristas who foisted upon us this DAWSON catastrophe.

That thought would scare away the most intrepid blogger, or even the utterly fearless jurist.

The practitioner would do well to keep a copy of the list of days which are holidays in the Stateless City. These are material; see Rule 25(a)(2).

And that may save Frank C. Cunningham, Docket No. 1233-20S, filed 6/21/21.  STJ Diana L (“The Taxpayer’s Friend”) Leyden suspects Frank is a day late and more than a dollar short with his petition.

“The petition in this case was filed on January 21, 2020. Petitioner seeks review of a notice of deficiency dated October 21, 2019, issued to him for the taxable year 2017. Attached to that petition is a copy of the October 21, 2019, deficiency notice issued to petitioner. That deficiency notice states that the date to file a timely Tax Court petition as to that notice would expire on January 20, 2020.”  Order, at p. 1.

Well, Frank’s petition was filed “…in a UPS Next Day Air envelope with a date of ‘January 21, 2020’.” Order, at p. 1. And STJ Di thinks that was late.

Well, maybe it wasn’t.

Although STJ Di wants Frank and IRS to show cause why she shouldn’t bounce the petition because not filed on January 20, 2020, maybe she and they should check the list of public holidays in The Stateless City for 2020.

January 20, 2020,  was the Dr. Martin Luther King, Jr., holiday, hence Rule 25(a)(2).

And UPS Next Day Air is one of the “blessed communion, fellowship divine” PDS of Notice 2004-83, 2004-2 C. B. 1030, 12/27/04.

Edited to add, 7/19/21: Both IRS and Frank showed cause, so STJ Di folded. See Order, 7/13/21. I wonder if anybody read my blogpost.

From the USTC website.

On June 17, 2021, President Biden signed the Juneteenth National Independence Day Act establishing June 19th as a federal holiday. The Court will be closed on June 18, 2021, in observance of the holiday.

Back in the day when the US Tax Court website served some useful purpose, thereon appeared a statement that ran something like this: “Generally, a Tax Court Opinion is issued in a regular case when the Tax Court believes it involves a sufficiently important legal issue or principle.” “Generally, a Memorandum Opinion is issued in a regular case that does not involve a novel legal issue. A Memorandum Opinion addresses cases where the law is settled or factually driven.”  See my blogpost “One Size Fits Most,” 3/4/21.

So one expects a full-dress Tax Court Opinion to have a certain gravitas; if not an Olympian pronouncement, or one accompanied with Sinaiatical tablets, then at least an oracular quality.

Today Judge Gale decides his colleagues can dismiss a petition seeking to review denial of Section 7430(a)(1) administrative expenses, in Robert Stein & Elaine Stein, 156 T. C. 11, filed 6/17/21. Especially since IRS agrees.

It’s not as if Section 7459(d) mandatory entry of decision for IRS is in play. Rob & Elaine must have had at least some kind of claim that they prevailed in whatever throwdown they had with IRS.

So after plowing through Wagner, Davidson, Jacobson, and Mainstay Business Solutions, all of which I’ve blogged, he decides they can. Now all we need are worker classifications and 501(c)(3) knockouts.  

Or maybe Tax Court should adopt its own version of FRCP 41.

“Because there is no Rule that governs motions for voluntary dismissal, we look to the Federal Rules of Civil Procedure to guide our consideration of such motions. See Rule 1(b), (d). Under rule 41(a)(1)(A) of the Federal Rules of Civil Procedure, a plaintiff may voluntarily dismiss a civil action without a court order either by filing a notice of dismissal before the opposing party serves an answer or a motion for summary judgment or by filing a stipulation of dismissal signed by all parties who have appeared. Otherwise, a case may be dismissed at a plaintiff’s request only by court order. See Fed. R. Civ. P. 41(a)(2). A court ‘enjoys broad discretion in determining whether to allow a voluntary dismissal’ pursuant to rule 41(a)(2) of the Federal Rules of Civil Procedure, and such a dismissal should generally be granted ‘unless the defendant will suffer clear legal prejudice, other than the mere prospect of a subsequent lawsuit, as a result.’ When a court issues an order granting a voluntary dismissal, the dismissal is deemed to be without prejudice and the lawsuit is treated as if it had never been filed.” 156 T. C. 11, at pp. 4-5. (Citations omitted).  

Judge, you just wrote the Rule. Now just ask Ch J Maurice B (“Mighty Mo”) Foley to adopt it.