I most respectfully suggest this is not the testimony you want to hear, when fighting an unreported income item of $25K, given by the surviving sibling seller of taxpayer’s erstwhile employer when the business is sold.

Juan Pesante, Jr., and Maria A. Moreno-Pesante, Docket No. 9107-19S, filed 5/6/21, are the recipients of the bad news from Judge Elizabeth A. (“Tex”) Copeland.

Juan was a good and faithful employee. He built up the worth of his employer, so as to make the sale of the business possible at a good price, but the buyer, as is the way of the world, gave Juan a plank-walk.  The surviving sibling seller gave Juan the $25K, which Juan claims they told him was a gift. They also gave Juan a 1099-MISC, at no extra charge, except by the IRS.

Of course the 1099-MISC they gave Juan preserved their tax deduction (compensation for services), but scuttled Juan’s nonrecognition. Juan was a credible witness on the trial, and the managing member contradicted a written (but unsworn) statement he’d made before.

The managing member of the surviving sibling seller testified ” (1) that after the sale of [Juan’s employer], the members of [surviving sibling seller] ‘wanted to do something for [Mr. Pesante],’ (2) that not all members were originally in agreement on making the payment, (3) that the $25,000 ultimate payment was a ‘gift, reward, or whatever you want to call it,’ and (4) that but for Mr. Pesante’s work with [Juan’s employer] he would not have received the payment from [surviving sibling seller].” Transcript, at p. 7.

“Problematic here are three objective facts: (1) there was a disagreement between the members of the payor entity as to whether or not to make the payment to Mr. Pesante; (2) the payor issued a Form 1099-MISC treating the payment as taxable; and (3) the payment was made close in time to the sale of [Juan’s employer], an entity that had employed Mr. Pesante and an entity to which Mr. Pesante had added value.” Transcript, at p. 10.

Juan was self-represented, and contributed an “own goal” on the trial. When asked about the value he added to his employer, that boosted the sales price, “Mr. Pesante emphasized this fact at trial.” Transcript, at p. 10.

“Unfortunately, here, Mr. Pesante has not presented sufficient evidence to overcome the payor’s treatment of the gift/reward as taxable or to overcome whether the payment was made to compensate him for his past services in building up the value of the Company that was sold.” Transcript, at pp. 10-11.

So the $25K is taxable, ” whether it was a gift, reward, or the like.” Transcript, at p. 11.

That’s STJ Diana L. (“Sidewalks of New York”) Leyden’s direction to Tikar, Inc., 2021 T. C. Memo. 53, filed 5/6/21, as she declares their 501(c)(3) status revoked ab initio.

Tikar, Inc., claimed it was promoting the art of the Cameroons by exhibiting the artifacts of the Tikar people of that country, as well as other African peoples.

Except.

They have serious problems, and STJ Di will tell you all about them.

Tikar neither bought any African artifacts nor exhibited them. They spent money authenticating artifacts owned by a Belgian cardiologist who collected them, but Tikar couldn’t prove he sold or donated them, directly or indirectly, to Tikar. And the artifacts were only exhibited while the Belgian cardiologist still owned them.

“On the basis of administrative record the Court concludes that Tikar was not operated for an exempt purpose because it has not proven (1) that it owned the African artifacts or the [Belgian] Collection and (2) that all of its activities with respect to those artifacts primarily benefit the private interest of Dr. [Belgian] or the [Belgian] Foundation or both. Alternatively, if the Court were to assume that Tikar owned all or any part of the [Belgian] Collection or the African artifacts, Tikar failed to prove that its activities were in furtherance of an exempt purpose, namely charitable or educational.” 2021 T. C. Memo. 52, at p. 33.

A list of exempt purposes is found in Section 501(c)(3).

All the money spent to authenticate the artifacts benefited the owner thereof, and that wasn’t Tikar. So substantial benefit to private parties.

Tikar claims they tried to interest museums in exhibiting the artifacts, but proof is lacking, and they didn’t do anything else.

A charity can do charitable work outside its stated purposes, but it must do them.

Be doers, and not hearers only. That’s STJ Di’s motto.

Daniel S. Jacobs, 2021 T. C. Memo. 51, filed 5/5/21, doesn’t get legals from Judge Emin (“Eminent”) Toro, but he does get a Taishoff “Good try, first class.” However, this accolade does not come in the Section 7430 context. There’s enough tangles in Dan’s (that’s “Prof. Dan”, “Attorney/Professor/Author” as he styles himself in one year’s return) story so that, despite Exam’s miscues, there was enough ambiguity for a reasonable person to disallow Prof. Dan’s deductions when IRS answered. I want you to hold that thought; it matters.

IRS ultimately folds on all.

Prof. Dan first wanted a representative of TAS (Taxpayer Advocate Service) to attend the Appeals face-to-face with him. That didn’t happen, although TAS asked Appeals to change their policy such that a TAS representative could be present at Appeals hearings. After all, IRS Counsel and Exam people can attend. See 2021 T. C. Memo. 51, at p. 17.

Might be a move to consider if you have to advise someone with a case too small to afford counsel. Consult TAS and ask for a TAS rep. After all, they were willing at least to consider showing up for an Attorney/Professor/Author.

Even better is the move Prof. Dan used when confronted by a Form 872 SOL extender. He offered IRS 35 days, when they asked for eight (count ‘em, eight) months. He rejected the deal, told IRS to hit him with a SNOD, petitioned same, and stiped with IRS to a remand to Appeals. See 2021 T. C. Memo. 51, at pp. 18-19.

The case settled at Appeals.

This tactic may not work if IRS thinks your client is a wit, wag or wiseacre. But it might work with a reasonable client with a reasonable case. And even if IRS won’t stip, you can always ask for a remand.

Prof. Dan, a tip of the battered Stetson.

Edited to add, 5/6/21: “When IRS answered” is the cutoff for justification in a Section 7430. So if IRS shot back an answer as soon as Prof Dan petitioned the SNOD, there had been no remand to Appeals. So all IRS counsel had to go on was the Exam material and the limited Appeals approval thereof, which was enough to scupper Prof. Dan’s Section 7430 legals.

It’s an odd coupling, but I’ve blogged it more than once. See, for example, my blogposts “Easy Rider,” 11/21/14, and “Rev Up Yer Engines!” 4/7/21. There must be something that attracts builders to racing vehicles.

Andrew Mitchell Berry and Sara Alexine Berry, 2021 T. C. Memo. 52, filed 5/5/21, starred in the second of the aforementioned blogposts. They have what they called on their Facebook page a “family drag racing team.” 2021 T. C. Memo. 52, at p. 6.

Although maybe it’s Andy and his dad, who own the Sub S construction company, who own the racing operation. Andy does win some money drag racing, but assigns the money to the Sub S, which also pays the (unsubstantiated) racing expenses.

Judge Kathleen Kerrigan finds this unavailing. It’s Andy’s money and his expenses.

“A taxpayer may not determine the nature of his or her income merely by using a particular form, or by labeling it as he or she wishes, but must report his or her income according to the economic realities of the situation.

“Petitioners contend that petitioner husband’s race car winnings should be included in Phoenix’s gross receipts. In support of this contention Mr. Berry testified that Phoenix paid the entry fees for petitioner husband’s car races. Petitioner husband testified that he raced under the name ‘Berry Racing’, which he described on his Facebook account as a family drag racing team. During the years in issue petitioner husband’s racing crew wore shirts emblazoned with ‘Berry Racing’.
The evidence does not show that car racing was part of Phoenix’s business.

“Because income earned by petitioner husband as a race car driver is not income derived from [Sub S]’s business of remodeling and construction, it should not be included in Phoenix’s gross receipts. “ 2021 T. C. Memo. 52, at pp. 6-7. (Citations omitted).

And while “comin’ off the line when the light turns green/ ya know he blows ‘em out of the water like ya never seen,” Andy is weak on paper.

IRS does give him some COGs for building permits, but not what he claims. Judge Kerrigan finds he double-counted some items.

Failure to keep records gives Andy a negligence chop.

And for any reader who asks why I give this much space to a more-or-less ordinary indocumentado, when I only picked up Judge Holmes’ off-the-cuff dismissal of tax-affected valuation analysis in the Michael Jackson case, I reply that I am writing for the in-the-trenches practitioner. The fine points of valuing at date of death the much-besmirched image of a popular music icon is not one that my readers, much less myself, are likely to encounter. You’ll notice my blogposts over the eight (count ‘em, eight) years I covered the case in Tax Court dealt with general procedural points the ordinary practitioner might encounter. I left the “rarefied heights of pure mathematics” and matters unique to the upper reaches of the music business to the blogoshere and trade press. Maybe some of those dudes will find themselves at those Olympian heights.

I invite my readers, having by now recovered from Judge Mark V Holmes’ Tolstoyan tale of the appraisal of the estate of the late Michael J. Jackson, and the erudite commentary thereon in the blogosphere and trade press, to observe again the interface between bankruptcy and taxes. Marc S. Barnes and Anne M. Barnes, 2021 T. C. 49, filed 5/4/21, have returned to reprise the missing year; see my blogpost “The Call,” 7/21/20.

Y’all will recall that Marc and Anne filed Ch 11 after post-trial briefing in their Tax Court trial eleven (count ‘em, eleven) years ago. And their Plan was fully paid. Except the missing year’s taxes, add-ons, and chops, were never adjudicated in Bankruptcy Court, because they were never assessed, decision having been stayed during the pendency of the proceeding, including but not limited to the duration of the Ch 11 plan. IRS moved to lift the automatic stay so that Judge Lauber could render decision.

Judge Lauber did, Marc and Anne appealed, and DC Cir affirmed.

IRS then filed NFTL. Marc and Anne, having had a chance to contest, were out on liability. But they did claim discharge in bankruptcy at their CDP.

Judge Lauber: “The SO consulted on this point with an IRS insolvency specialist. The specialist advised that the 2003 liability was a nondischargeable priority debt that was neither addressed in nor discharged by the Plan. See 11 U.S.C. sec. 507(a)(8)(A)(iii) (2006) (defining a ‘priority debt’ to include a tax liability that was ‘not assessed before, but assessable,’ when the bankruptcy case commenced); 11 U.S.C. sec. 523(a)(1)(A) (2006) (excepting certain priority debts from discharge).” 2021 T. C. Memo. 49, at pp. 4-5.

So the SO bounced Marc’s and Anne’s OIC, and suggested a full-pay IA. Marc and Anne rejected that, and went back to Bankruptcy Court to fight about discharge of the missing year. And at that point my blog told the story.

Well, Marc and Anne lost in Bankruptcy Court on tax and interest, but won on add-ons and chops, 11 U.S.C. sec. 507(a)(8)(G) accords priority only to actual out-of-pocket (actual pecuniary loss).

Marc’s and Anne’s argument that the Ch 11 plan permanently barred collection of the missing year is wrong on the law. And their claim that IRS should have filed notice of claim for the missing year is also wrong. “…the fact that the IRS did not amend its proof of claim to include the 2003 liability is irrelevant: A priority tax claim, such as the IRS’ claim for the 2003 liability, is nondischargeable ‘whether or not a claim for such tax was filed or allowed.’ 11 U.S.C. sec. 523(a)(1)(A)…. Indeed, even if the Plan’s injunctive provisions could be read as broadly as petitioners wish, an order that purports to discharge a nondischargeable claim would not be binding on the IRS as the claim holder.” 2021 T. C. Memo. 49, at p. 10.

As we used to sing, “Ain’t no discharge on the ground.”

All y’all will doubtless have seen Judge Mark V Holmes’ 271-page extravaganza Estate of Michael J Jackson, Deceased, John G. Branca, Co-Executor and John McClain, Co-Executor, 2021 T. C. Memo. 48, filed 5/3/21, which I blogged yesterday. 

That is to say, I’m sure you saw the opinion if you were on DAWSON yesterday, because it’s gone today. My colleague, Peter Reilly, CPA, the Forbes flash, tipped me off by dawn’s early light that the entire case is sealed on the new, improved (give me a break!), jim-handy DAWSON website.

Of course, the opinion is all over the internet. Except on DAWSON. 

Of course, I’ve blogged orders in that case for the last eight (count ’em, eight) years. With links yet, when the old Tax Court website (nameless but useful) permitted same. No seals, no protective orders. But now all of it is a secret.

I’ve just about had it with this clownish schemozzle.

I most respectfully submit that the public needs better access to US Tax Court orders, opinions, and decisions than what I, a “general practitioner of limited experience and mediocre qualifications,” can provide. The public deserves more than “If Taishoff doesn’t blog it, then forget about it.” 

If my blogpost is late today, it’s because I’ve just emerged from 271 (count ’em, 271, and I have) pages of Judge Mark V. Holmes’ opinion in Estate of Michael J. Jackson, Deceased, John G. Branca, Co-Executor and John McClain, Co-Executor, 2021 T. C. Memo. 48, filed 5/3/21*.

The co-ex’rs and IRS stiped out most of the multi-multimillion dollar estate tax fight, leaving only three open items, for the ten attorneys for the co-ex’rs and the five IRS attorneys to fight over. Judge Holmes will tell you a lot more about popular music marketing than you wanted to know. I’ve blogged this story all the way for the last eight (count ’em, eight) years, from Mr. Woods’ rather flippant comment through the perjured expert, through Judge Holmes deciding to review the evidence his own self. I won’t list them all.

Both sides have Boss Hoss problems, with BProd on IRS, but BoP on the estate (not an individual). In the end, the estate’s experts, though not getting everything right, were at least as credible as IRS’ appraiser of the Century (2021 T. C. Memo. 48, at p. 60). No chops.

If the sad story of the King of Pop’s meteoric rise, unparalleled success (even an American President did not want to be seen basking in Jackson’s limelight; 2021 T. C. Memo. 48, at p. 11, footnote 4), and final collapse does not move you, I am truly sorry for you. Judge Holmes starts with a quote from Plutarch; I’d suggest Aeschylus.

There are numbers; oh, are there numbers! It’s clear the co-ex’rs managed a great salvage job after Michael died, but the test is our old friend the willing buyer.

Judge Holmes notes the evolution of business organizations; tax affected (or tax effected) analyses are on their way out. The C Corp double-taxation vis-a-vis S Corp passthrough and ownership limitations don’t matter as much now.

“There has also been a boom in different types of pass-through entities–such as limited liability companies–that give organizations the many benefits of C corporations in raising capital from large numbers of shareholders or members while avoiding double taxation. Many of our precedents arose from S corporations, which have sharp restrictions on who and what can own them. With the advent and popularity of other, less restrictive, forms of pass-through ownership we cannot but find that the gap between C corporations and other entities has narrowed over time. The Estate’s experts did not consider such distinctions and did not consider both the tax detriments and benefits of pass-through status.” 2021 T. C. Memo. 48, at pp. 81-82.

Finally, the “rarefied heights of higher mathematics” boil down to Michael Jackson’s image and likeness being worth $1.1 million more than estate claimed; Bankruptcy protection trust No. 1 worth zero, as the estate claimed (not the $200 million IRS claimed); but Bankruptcy protection trust No. 2 worth $105 million more than the estate claimed. So estate takes a $111 million hit.

Specialists in valuation will find this opinion interesting reading.

*MichaelJackson 2021 T. C. Memo. 48

It seems the Genius Baristas, or perhaps the Tax Court webmeister, has a vendetta going on, as regards Judge Mark V Holmes’ off-the-benchers. While the orders directing the Clerk to serve the transcripts are copy-and-pasteable, the transcripts themselves are not.

Therefore I can only say “Amen!” to Judge Holmes’ diatribe against the Affordable Care Act’s MAGI ambush in Marion Jean Antilla-Brown & Vernon James Brown, 14511-19S, filed 4/30/21. Marion Jean and Vernon James, reeling from a cancer diagnosis and need to move as their rented home was sold out from under them, drew down Marion Jean’s trad IRA, which threw them from their fixed income exchange APTC into the gulch of 400% of poverty MAGI-land to the extent of $956.

This triggered a $7K tax liability.

Judge Holmes rails against this absurd and unjust confiscation. Read it, because I can’t print it. And he even keeps his grammatical neologisms out of it. I thought his middle initial, which is “V,” stood for Vittorio Emmanuele, the Italian King who vowed to impose on his subjects throughout Italy even his errors of grammar. But my sources tell me it is not.

And Judge Holmes is definitely on his game today, when he pulls a Judge Posner by skirting the new “admin record only” amendments to Section 6015(e) innocent spousery in Momoudou Lamin Fatty, Petitioner, and Hansoutie Fatty, Intervenor, Docket No. 3787-20S, filed 4/30/21. Emphasizing that this is a small-claimer, Judge Holmes says the testimony of Mo and Han is “new evidence,” because they never got a chance to testify before.

So he finds that Mo is not entitled to innocent spousery because he knew all about the tax hit that caused him and Han to enter into the IA, out from which Mo seeks to clamber. The monthly installment is only $135, frugal Mo’s outgo is a grand less than his income, and their divorce decree says that Han has to pay all taxes; so if IRS tries to glom from Mo, he can sue Han in small claims court. Just like roommates in a fight over the electric bill.

I can just hear ex-Ch J Michael B (“Iron Mike”) Thornton’s “oh yeah?”

Practitioner, the “testimony is new evidence” gambit might be a longshot when you’ve got a tough case, but in a regular case I’m betting it’s a nonstarter; and I don’t hold out much hope for a small-claimer, either.

It Doesn’t Matter

Judge Mark V Holmes has bad news for Mary Walsh Woll & Jonathan Woll, Docket No. 7024-20, filed 4/29/21, in this off-the-bencher. Or maybe she’s Molly Walsh Woll, because her name is “Mary” on the order and “Molly” on the transcript. Whichever it is, she owes the Section 6662(a) accuracy chop on top of the 10% whatever-it-is on the 401(k) drawdown she took when she lost her job.

Mary/Molly is a lawyer. She got cut from Thompson-Reuters, rolled part of her 401(k), but needed the rest to live. She disclosed the drawdown on herself-prepared 1040MFJ, but didn’t file Form 5329 with it, nor did she bring the software she used to do her return to the trial.

IRS hit Mary/Molly with a SNOD for the 10%, as Mary/Molly was neither “exempt from the Law of Fifty and Five” nor 59-1/2 during year at issue. And they added the Section 6662(a) chop at no extra charge.

Well, the 10% is a given. Mary/Molly qualifies for none of the statutory exemptions, credible as her hardship testimony is.

Now the Genius Baristas have once again published a transcript from which I can’t copy-and-paste. And while I hang on every one of Judge Holmes’ words, and admire his neo-Piedmontese imposition of his own grammatical neologisms (explanation below), I will not copy them at length herein. If I wanted to be a typist, I would have been.

So check out the transcript at pp. 7 – 9. Mary/Molly might could have been befogged by the references to Code 2 and Code 1 in Box 7 of the 1099-R she got from the 401(k) trustee, as the same are described in the instructions for Form 1099-R. Now of course Judge Holmes is generally (love that word) the first to dismiss forms and instructions when they conflict with IRC and Regs. But here he reviews them, and finds that a lawyer like Mary/Molly should have known to send in Form 5329.

Boss Hossery is off the table, as the chop was computer-generated when the unreported 10% whatever-it-is went in. Untouched by human hands.

Oh, the reference to Piedmontese. The story is that when Vittorio Emanuele II, formerly King of the combined Kingdom of Piedmont, became the first King of a unified Italy in 1861, he said that he would so unify Italy that he would impose upon all Italians even his errors of grammar.

My colleague, Peter Reilly, CPA, is a widely-read blogger who always brings an interesting point of view to everything he writes. We mostly agree as to method and analysis, and I’m always learning from his observations.

But today, as I’m blogging Jeffrey B. Stankiewicz & Leslie A. Stankiewicz, Docket No. 3139-20, filed 4/28/21, I observe once again a long-time divergence of approach between my colleague and me.

I’ll let Mr. Reilly express his viewpoint. Here’s a recent comment he made to my blogpost “Shy? Try This,” 6/29/17, citing that post in a blogpost of his made at around that time. “The name of the petitioner is there for you if you want to know, but I figure he doesn’t need me to help make him famous. * * * * Mr. Taishoff includes the names.  By odd coincidence, yesterday Mr. Taishoff had a piece on how to keep some of your personal information out of the Tax Court record.”

Obviously, we differ. The names of the petitioners are public record of course, save in the rare instances where a Rule 27 sealing is ordered, or a Rule 345 protector arises in a whistleblower case. At least this was so pre-DAWSON, but that’s another story.

To my way of thinking, it’s not fame, it’s making the petitioner a person in the reader’s eyes. To tell the tale of an abstract “taxpayer” or “Petitioner” takes way the humanity, for good or for ill, and turns the case into a chess puzzle. Chess puzzles can be fun, but I chose to follow the law because there are people here, not chess pieces.

Jeff is a protester, and Judge Kathleen Kerrigan has little patience for such as Jeff.

“Petitioners did not make any valid arguments that petitioner husband’s wages are excludable from gross income because of any specific provision of law. Instead, they advanced frivolous arguments that his wages are not taxable. We do not need to discuss petitioner’s frivolous and groundless arguments. We shall not painstakingly address petitioner’s assertions ‘with somber reasoning and copious citation of precedent; to do so might suggest that these arguments have some colorable merit.’ Crain v. Commissioner, 737 F.2d 1417 (5th Cir. 1984).” Transcript, at p. 6. (Citations omitted).

Now I doubt Mr. Reilly would blog a case like this; it’s too ordinary, commonplace. But to me, it shows Tax Court at work, plodding through the dodgers and protesters until some interesting facts or novel question of law arises to let these highly-qualified judges and STJs show what they can do.

But dodgers and protesters, be they big-ticket highrollers grabbing a too-good-to-be-true solar energy dodge or a marked-up, strip-mined GA backwoods conservation easement, or a run-of-the-mine, wage-worker dodger claiming wages aren’t taxable or the Sixteenth Amendment wasn’t ratified, earn my ire. They want all the benefits of living in this great country without paying for it. They want all the rights and privileges, and all the due process of law, but someone else should pay. Well, if y’all want to go to court, be prepared to have your story told.

And the ordinary petitioner, enmeshed in the wrinkled tangles of our tax system, also needs their story told, with a human face, so that maybe so, just possibly, might could be, the Congress or Treasury might fix things.