Judge David Gustafson obliges us today with a playbook entry on Section 6651(a)(1) and (a)(3), the late-filing and late-paying add-ons, in Adalius Thomas, Docket No. 7724-20L, filed 6/17/21, an off-the-bencher.

Adalius, ex-Baltimore Raven and NE Patriot, was swindled in the Green Gas alternate fuel tax credit dodge., the dénoument of which I did not blog for some unaccountable reason. He got tackled with $584K in tax, plus the 20% negligence chop and the aforesaid add-ons. IRS drops the negligence chops, as Adalius was well and truly swindled. But the fact he was swindled doesn’t excuse that he filed three weeks late, nor paid up nearly four (count ’em, four) years late.

Adalius never got the NITL, so the enhanced 1% per month add-on didn’t hit when IRS claimed, but only after Appeals was finished with Adalius’ case. So Adalius gets to contest de novo in Tax Court. The add-ons came after the FPAA demolished the Green Gassers, and there was no SNOD.

Judge Gustafson explains how Section 6651(a)(1) and (a)(3) work together, at Transcript, pp. 21-22. I cannot copy the language, as the text of the transcript is in a PDF format that is not capable of being copied-and-pasted. Once again, DAWSON proves its uselessness.

Better yet, Judge Silt

All y’all will recall that Judge Mark V. Holmes called down the Rachegötter when ex-Ch J Michael B (“Iron Mike”) Thornton extended the reach of Chai to “every living heart and hearthstone, all over this broad land.” What, no? Then see my blogpost “Stir, Baby, Stir – That Silt,” 12/20/17.

Today Judge Holmes is stirring that silt with a vim, in CFM Insurance, Inc., Docket No. 10703-19, filed 6/16/21*. Like today’s honoree Poldy Bloom, Judge Holmes is on a voyage through IRS’ multifarious papers. IRS is trying to pin chops on CFM, a micro-captive insurance dodger, via summary J.

Judge Holmes doesn’t even need to draw inferences in favor of the non-movant. IRS has an RA recommendation with Section 6751(b) Boss Hoss sign-off, which CFM got with the 30-day letter. Problem is, the recommendation and sign-off are for 40% chops, but the SNOD which followed the 30-day letter only mentions 20%.

OK, but the 30-day letter came first: what did that say?

“Ordinarily, an Examination Report and 30-day letter is sufficient to clear the 6751(b)(1) hurdle. But in this case, there was no mention of a 20% penalty’s being asserted in the 30-day letter or any of the documents listed as enclosures; the Examination Report and Agreement Form both mention 40% penalties for each year pursuant to section 6662, but section 6662 allows for 40% penalties in only three instances: when an underpayment is due to a ‘gross misvaluation misstatement,’ § 6662(h), a ‘nondisclosed noneconomic substance transaction,’ § 6662(i), or an ‘undisclosed foreign financial asset understatement,’ §6662(j). The 20% penalties under section 6662(b)(1) for negligence or disregard of rules or regulations (or substantial understatement) are distinct from each of these 40% penalties and must receive separate supervisory approval to cross over the section 6751(b) threshold. ‘Formal notice’ requires that the penalty be described with sufficient particularity so a taxpayer knows what he is accused of…. An Examination Report and 30-day letter that mention only a 40% penalty do not provide notice of a 20% penalty. As a matter of law, then, neither the 30-day letter nor any of the documents listed as enclosures provided CFM with formal notice of the 20% penalties under section 6662(b)(1).” Order, at p. 3. (Citations omitted).

So IRS loses, right?

Not yet. Judge Holmes delves into the murky depths of the enclosures with the 30-day letter, specifically the Form 886-A Explanation of Items, and it’s SOP for that form to accompany a 30-day letter.

Except.

“…the Form 886-A that CFM got was not standard. It first lists as an issue ‘[w]hether Taxpayer is liable for the [a]ccuracy[-]related penalty under IRC § 6662(a) and (b) for the taxable years 2012, 2013, 2014, and 2015 in an amount that is 40% of the amount of the underpayment.’ But it then asserts in its conclusion that ‘the Taxpayer is subject to the penalty under IRC §§ 6662(b)(1) and (2) for negligence, disregard of rules and regulations, and substantial understatement with the primary position being IRC [§] 6662(b)(1) and the secondary position IRC § 6662(b)(2).’ That is the only mention of the 20% penalty in the package CFM got.” Order, at pp. 3-4.

And the document itself looks like a draft. Judge Holmes points to the typographical discrepancies between the Form 886-A that CFM got, and the standard issue version, and concludes it’s only a draft.

So what? It was notice, wasn’t it?

“The form itself doesn’t have any names on it. We have the Examining Officer’s Activity Record, which shows that three separate revenue agents worked on it over the course of four years: RA F from August 2014 to November 2017, an unnamed RA from November 2017 to January 2018, and RA N from January 2018 to the examination’s completion. The parties agree that RA S, who signed the 30-day letter, was RA N’s immediate supervisor. There is nothing in the record on this motion to show who supervised RA F or the secret agent man. We also can’t tell from the Activity Record when the decision was made to impose the 20% penalties on CFM or who made that decision. But we can tell that RA F had begun working on the Form 886-A by October 2015, and it was ‘[a]lmost as complete as it will be’ by December 2017. And even if one assumes that RA N was the one who made the ‘initial determination’ to impose the penalty, the evidence does not definitively show that RA S approved that determination in writing. It is true that RA S signed the 30-day letter and that the Form 886-A was sent to CFM with that letter. But we must infer on this motion that the Form 886-A was in an incomplete state. That it was not mentioned as an enclosure on the 30-day letter also supports as a plausible inference at this point that RA S never saw the Form before signing the letter.” Order, at pp. 4-5. (Footnote omitted, but it quotes the P. F. Stone – Peter Barri 1966 theme song that Johnny Rivers made famous, to honor the “secret agent man.”)

OK, so now everybody is thoroughly confused, but Judge Holmes is only warmed up. If the 30-day letter is not the first notice CFM got, what was? Well, CFM’s trusty attorney called RA S and RA N when she got the 30-day letter, and they told her they didn’t know why the 40% chop; OCC told them just do it. So maybe the IRS counsel with whom RA N traded e-mails did the recommending.

But who was IRS counsel’s Boss Hoss, and did s/he sign off?

No summary J. Plenty of silt.

*CFM Insurance 10370-19 6 16 21

You’d think that Andrea Finegan-Bryan, Docket No. 17566-18, filed 6/15/21, or more appropriately her trusty attorneys, would have figured out that, to get Section 7430 legals and admins, it would be best to follow the one-hit wonder above referred to in the title first set forth at the head hereof, as my about-to-have-their-two-Martini-lunch colleagues would say. But there may be contrary strategic considerations; see infra, as the aforesaid colleagues would say.

Andrea and trusty attorneys hold back, so Judge Patrick J. (“Scholar Pat”) Urda sends them down with nothing, even though IRS folds when Andrea’s trusty attorneys unload the hardship info they’d discussed at Appeals but never showed until ready for trial of Andrea’s innocent spousery.

“…the Commissioner’s decision to concede came only after Ms. Finegan-Bryan provided updated financial information (after ignoring multiple opportunities to do so in both the Office of Appeals and this Court) that supported her position on economic hardship, which had previously weighed against her.” Order, at p. 6. (Footnote omitted, but it says since IRS was justified, Judge Scholar Pat won’t discuss failure to exhaust administrative remedies or unreasonably protracting the proceedings).

All IRS had on Andrea’s plus side at Appeals was that she was divorced. The economic hardship info swung the pointer her way after Appeals was done. Turns out the case might have been mooted out, because Andrea’s loved-once ponied up the three (count ’em, three) years’ worth of missing returns and paid up what was at issue, while trusty attorneys were playing tag at Appeals.

But trusty attorneys wanted Andrea adjudged innocent, because part of those payments might have been credited to Andrea in the ongoing equitable distribution split-up fight; maybe they held off nailing down innocent spousery until after loved-once paid up, lest he condition payment on Andrea acknowledging credit for her piece. Yeah, I’m speculating, but that’s a blogger’s prerogative.

I wonder if Scholar Pat beat me to it, and wasn’t giving Andrea’s trusty attorneys a Federal payday on top of their canny maneuvering.

Successors to the late Ron H. Bell’s interest in Bell Capital Management, Inc., 2021 T. C. Memo. 74, filed 6/14/21, the corporation the late Bell founded and 100% of whose shares he owned, find the corp facing unpaid FICA/FUTA plus fraud chops, as a result of the late Bell’s offshore employee leasing games.

These dodges involved an onshore highroller with a one-man-band operation causing his wholly-owned to rent him from an offshore dummy. The wholly-owned supposedly avoids payroll taxes, which the offshore dummy surreptitiously funnels back to the highroller.

The late Bell came unglued before my blogging days back in 2009 in Foxworthy, Inc., 2009 T. C. Memo. 203, and affirmed by 11 Cir. in 2012. IRS claims collateral estoppel (issue preclusion). Judge Wells unwraps the factors and finds for IRS.

The corp’s claim that the late Bell’s guilty knowledge cannot be imputed to it because there was another corporate officer besides the last Bell collapses, as it came out in Foxworthy that the other officer would sign whatever the late Bell put in front of him.

“We find that for each period in issue, petitioner’s withholding form and Forms 941 and 940 were false or fraudulent returns because its officers intentionally omitted payments made for Mr. Bell’s benefit with the specific purpose to evade tax believed to be owing. Petitioner properly reported Mr. Bell’s wages before 1996. For the periods in issue, petitioner’s officers entered into leasing contracts which were part of an overall scheme of offshore transactions. Mr. Bell’s already established fraud as to those offshore transactions is evidence we can consider in finding petitioner’s fraudulent intent. Mr. Bell acted in his capacity as petitioner’s officer when he designed and implemented the OEL transaction with Mr. R. Mr. C, another individual acting in his capacity as an officer, assisted by signing petitioner’s lease agreements. We find that as a result of the scheme to understate Mr. Bell’s Federal income, petitioner evaded its employment tax obligations. Whether this was by design or implementation is irrelevant. Any employment tax fraud was part and parcel of an overall intent to defraud the Government. Petitioner had to avoid the employment taxes due respondent for either it or Mr. Bell to evade responsibility. The reporting of one would almost certainly have led respondent to challenge the omission of the other.” 2021 T. C. 74, at pp. 15-16. (Names and citations omitted).

As for challenging IRS’ proof, the successors are playing the Michael Corleone gambit.

And Judge Wells isn’t buying the Eighth Amendment excessive fines argument about the Section 6663 fraud chop. Gotta protect the fisc, y’know.

Today in the Virtual Windy City, Judge Kathleen Kerrigan, chastened by 8 Cir (see my blogpost “CUT Uncut,” 8/17/18), is trying what’s left of Medtronic, Inc., and Consolidated Subsidiaries, Docket No. 17488-08.

The brigade of experts is being paraded again, ostensibly to fine-tune Judge Kerrigan’s analysis of the IP licensing agreement between Medtronic US and Medtronic Puerto Rico, but actually to fight to the death. Comparable Uncontrolled Transaction takes the stage.

As I listen to counsels’ opening statements (fortunately not being able to see the slides the parties produce), I really pity poor Judge Kerrigan. Once again, she will produce dozens of pages of well-wrought analysis, only to face another second-guess from 8 Cir.

The famous remark of the Boston Theosophist to William James echoes today in Montgomery-Alabama River, LLC, Parkway South, LLC, Tax Matters Partner, Docket No. 9254-19, filed 6/11/21. I’d adverted to that case in my most recent blogpost.

The turkeys in this case are the National Wild Turkey Federation Research Foundation, a 501(c)(3) specializing in the wild turkeys that fly, as opposed to the variety that swim on the rocks with the Cinzano Rosso and a couple Luxardos (hi, Judge Holmes). Howbeit, the story has a twist on the usual conservation easements, because a week after the Monty-Als grant the conservation easement to the Turkeys-at-issue, they convey the fee (with the usual cutouts for improvements) to a wholly-Turkey-owned LLC pass-through.

Both sides want partial summary J.

The Monty-Als claim perpetuity is off the table, because if extinguishment is on the table, the Turkeys get it all anyway.

IRS claims the intervening week puts perpetuity back on the table, because “perpetuity” means “forever from the getgo.”

Judge Albert G (“Scholar Al”) Lauber, apparently Tax Court’s conservation honcho, isn’t ready to give anybody summary J.

“Respondent urges that the fee simple donation is irrelevant because it was not made simultaneously with the donation of the easement, but a week later. He asserts that the value of the donor’s and donee’s interests must be analyzed ‘at the time of the gift.’ Sec. 1.170A-14(g)(6)(ii), Income Tax Regs…. Petitioner counters that both donations were made pursuant to a ‘unified plan’ and should be considered to have been made simultaneously. Respondent alternatively contends that the fee simple donation caused violation of the Code’s perpetuity requirement ‘by terminating the easement through the state law merger of estates,’ reserving the right to present evidence at trial on this point.

“We conclude that genuine disputes of material fact dictate that we deny both motions for partial summary judgment. The question whether Montgomery made both donations as part of a ‘unified plan’ presents factual questions that are ill-suited to summary disposition. And we do not believe that respondent should be foreclosed from showing at trial that the subsequent fee simple donation terminated the easement through a ‘merger of estates.’” Order, at p. 6. (Citation omitted, but it’s our old pal PBBM-Rose Hill; see my blogpost “Stirring Times  – Enter the Supremes?” 5/15/20).

Anyway, if the easement disappears, whether because non-perpetual or merged, there are two (count ’em, two) grants forming one conveyance of certain property, for which the Monty-Als paid $3.4 million, but claimed an aggregate tax break of $16.9 million ($12.675 million for the easement and $4.225 for the fee).

IRS claims the whole turkey-shoot is worth $543K.

Ah, Judge Holmes, looks as if Judge Scholar Al, like you, prefers a valuation trial to highly contestable readings of documents concerning events so remote as to be negligible.

I just got done with an online CLE concerning the new form of New York State Statutory Short Form Power of Attorney. Don’t worry, I’m not posting about that. I write for an international readership, the greatest part of whom could have no interest in that topic.

But the CLE put me in mind of the well-worn CLE panoply of presentations about winning one’s case anywhere but in the courtroom. Scrolling through today’s Tax Court orders (there being, as usual, no opinions on Friday), I came upon Judge Patrick J. (“Scholar Pat”) Urda’s disposition of the motions in limine that set up my blogpost “Win Your Case Anywhere,” 4/1/21.

You can read all about it in Bernand T. Swift, Jr. & Kathy L. Swift, Docket No. 13705-16, filed 6/11/21.

Judge Scholar Pat lets the parties try to put in, or rule out, whatever evidence might be at issue, and lets it all in, after cross-examination. Much of the fighting went to the weight to be accorded the evidence, rather than admissibility. Evidence may be admissible without being probative or conclusive. Remember the old Tokarski rule: “…we are not required to accept the self-serving testimony of petitioner or that of his mother as gospel.” 87 T. C. 74, at p. 77. Maybe not “gospel,” but they did get to testify.

A source tells me that KJ, who featured in my blogpost “No Comment – Redivivus, ” 2/2/21 took my comments in good part. I’m glad. The place to try, and maybe even win, your case, is in the courtroom.

No, not the pride of the St. James Gate Brewery, Dublin, best had at The Galway Hooker public house in Heuston Street Railway Station (eleven minute walk from the brewery; the nearest pub, freshest draft. Trust me.). The statistical empire the brew inspired forms the predicate for today’s episode of Gregory J. Podlucky & Karla S. Podlucky, Docket No. 435-17, filed 6/10/21.

Greg’s been here before, of course; I get ’em all, every wit, wag, wiseacre, wiseguy, and rounder swims into my ken, eventually. See my blogpost “Work Ethic,” 6/26/19.

You’ll note that it’s been a while since Greg was here. Judge Albert G (“Scholar Al”) Lauber explains. “In 2009 petitioner husband was indicted in the U.S. District Court for the Western District of Pennsylvania for mail fraud, conspiracy to commit money laundering, and attempting to evade or defeat tax for 2003-2006, in violation of I.R.C. § 7201. In 2011 petitioner husband pleaded guilty to these charges. He was sentenced to a lengthy term of imprisonment.” Order, at p. 1. So Greg’s Tax Court trial has been continued (that means “adjourned,” to  us State courtiers) a couple times (hi, Judge Holmes), because of Greg’s incarceration.

But Greg has nowise been idle. Like other residents of slammerdom, Greg just churns out frivolities; apparently he has little else to do. “Largely because of these gratuitous filings, the docket in this case already has more than 180 entries.” Order, at p. 2. Why not? If the maximum Section 6673 frivolity chop is $25K, your total deficiencies plus fraud chops are north of $8 million, and you’ve got plenty of time on your hands, you might as well seek an entry in Guinness World Records for whatever year you get out of the clink.

You can read Greg’s further productions for yourself. Greg has apparently cruised every protester-defier site, mastered drag-and-drop, and keeps on rolling along.

Meantime, Judge Scholar Al bounces Greg’s latest production (number 181), with a warning that maybe should have been given before now. “I.R.C. § 6673(a)(1) authorizes this Court to require a taxpayer to pay to the United States a penalty of up to $25,000 if it appears to the Court that the taxpayer has instituted or maintained proceedings “primarily for delay” or has taken a posi-tion that “is frivolous or groundless.” Petitioner husband’s submissions to this Court to date have included numerous frivolous statements and positions. We warn petitioner husband that he risks a significant penalty if he continues on this path. See, e.g., Briggs v. Commissioner, T.C. Memo. 2016-86 (imposing penalty of $3,000); Balice v. Commissioner, T.C. Memo. 2015-46 (imposing penalty of $25,000).” Order, at p. 2.

I don’t know why I didn’t blog Briggs, but I can’t find the T. C. Memo. on Google, and the DAWSONized Tax Court website is, as usual, utterly worthless; there is no way to search for opinions. For the story of Mike Balice, see my blogpost “The Jolly Rounder,” 3 /16/15.

What price a $25K chop when Guinness immortality is in view?

Edited to add, 7/21/21: Stephen H. Briggs and Patricia S. Briggs, 2016 T. C. Memo. 86, filed 5/2/86, is online at last. Turns out Steve and Pat were in Tax Court back in 2014, protesting, and got chopped with $500 “as a warning.”

That is not what you want your client to say when he’s seeking abatement of interest on a liability for which he requested credit from an overpayment, but received a refund check instead. Especially when your client has taken a Section 7201 fall for tax evasion. And even more so when your client is on the PDT list; see IRM 25.4.1.1.1 (Oct. 31, 2018).

Spoiler alert- PDT means “potential danger to IRS employees.”

Michael J. Hogan, Docket No. 11229-15, filed 6/9/21, has been around Tax Court before in the days before I launched this my blog. This time he wants Section 6404 abatement. He claims IRS says it made no mistakes.

Judge Buch agrees with MJ that IRS did make mistakes, but none has risen to the level of unreasonable delay. And MJ stiped that the refund check he got, rather than the credit against liability he requested, was OK by him.

Putting MJ on the PDT list isn’t enough. “He did not establish that there was an error in designating him as a PDT. Even if that were erroneous, he did not establish that the designation caused any error, delay, or additional interest. And given his repeated efforts to avoid payment, he clearly did not establish that he would have paid his tax earlier.” Transcript, at p. 16.

If you get a refund check when you wanted a credit, send back the check with a clear and concise statement of what liability you want credited. Testifying at trial “I sat on it,” Transcript, at p. 18, does not help your client’s cause.

But need I add MJ was pro se?

You really could have seen this coming after Judge Goeke denied his discovery request last September. So, no surprise, there’s no whistleblower award for 10084-16W, 2021 T. C. Memo. 73, filed 6/9/21. For the discovery joust, see my blogpost “Raise High the Beam,” 9/29/20.

OK, so the SEC filing is a broken reed. LBI’s SME says Blower84’s info didn’t lead to the big grab IRS got from target (not the department store, the alleged bad dudes). Judge Goeke walks us through the giant slalom that Blower84’s info traveled, but at the end, all Blower84 had was the SEC 10-K that said target paid $170 million to “taxing authorities.”

Judge Goeke: ” As we stated in our order denying petitioner’s motion to compel, petitioner’s allegations relating to the 2010 settlement are speculative and based on a highly improbable timeline under which respondent would have needed to use the information received in June 2010 to audit the target, make a determination, and assess tax which the target paid before November 2010. This theory is so implausible that it does not justify the supplementation of the administrative record.” 2021 T. C. Memo. 73, at p. 12.

But IRS, like me, loves summary J, although Tax Court frowns thereon. Whistleblower cases are decided on the administrative record; there’s no trial.  If the record is incomplete, IRS can supplement, and the blower can demand other matter, which IRS saw but left out of the record, be inserted. But it doesn’t matter here.

I can’t remember the last time a blower won in Tax Court.