Anna Elise Walton, 2021 T. C. Memo. 40, filed 3/30/21, “skimmed over a copy of her return after filing and thought that the totals were correct.” 2021 T. C. Memo. 40, filed 3/30/21, at p. 7.

Unhappily, AE didn’t do enough, says Judge Patrick J (“Scholar Pat”) Urda, despite the efforts of Frantic Frank Agostino and The Jersey Boys. The Jersey Boys lose a lot of cases, because they get the real tough ones; I very much doubt anyone could do better. I was once an attorney in a firm where we lost a lot of cases, because we took a lot of the toughest cases.

AE concedes her return missed about 32% of her taxable income for the year in question. And even though her trusty CPAs, to whom she’d entrusted her taxes for twenty (count ’em, twenty) years, may have failed to press her for the missing 1099-MISCs, which triggered the AUR and electroSNOD that followed, size does matter. When you know you made money (and AE did), and your reported AGI swings lower than a sweet chariot, you won’t get Section 6664(a) good faithery. That’s all AE could try for this time.

The AUR and electroSNOD defeat Section 6751(b). No Boss Hoss needed when the computer does it all.

Takeaway- Read and heed…your return, if not my blogposts.

That’s Judge Emin (“Eminent”) Toro’s version of Treasury’s reply to Robert Rowen, 156 T. C. 8, filed 3/30/21. Rob (that’s Doc Rob, as he’s a travelling MD with family and friends in Singapore and China, and patients all over the world) claims Section 7345, the delinquents’-passports-grab, is unconstitutional (Fifth Amendment due process) and UN Dec of Human Rights (which the Supremes said confers no rights enforceable in US courts).

Review is record-rule. But in this case it doesn’t much matter.

Judge Eminent Toro takes a close look at the FAST Act. That’s Fixing America’s Surface Transportation Act of 2015. That enactment sets up the mechanism for the passport grab.

“To summarize the foregoing, the FAST Act authorizes different Government actors to make different decisions and carry out different actions. Pursuant to section 7345, the Commissioner is charged with determining whether a seriously delinquent tax debt exists, making a certification of that fact, and notifying the taxpayer of that certification. Also pursuant to section 7345, the Secretary of the Treasury is charged with transmitting the certification made by the Commissioner to the Secretary of State. By contrast, pursuant to FAST Act section 32101(e), the Secretary of State acts with respect to the passport of an individual who has been certified to have a seriously delinquent tax debt. The Secretary of State is permitted, in his discretion, to revoke a passport that has already been issued. And he is prohibited from issuing a new passport or renewing an expiring one, although the prohibition is not absolute. He retains discretion to issue a new passport or renew an expiring one ‘in emergency circumstances or for humanitarian reasons.’ FAST Act sec. 32101(e)(1)(B).” 156 T. C. 8, at p. 16.

And Doc Rob has serious tax debt, like $474K worth. His SOL argument is an affirmative defense, not a jurisdictional bar. Btw, at time of trial State hadn’t yet grabbed his passport.

Tax Court, like all Federal courts, tries to avoid ruling over-broadly on constitutional questions. Whether the statute as applied to State is constitutional is not before Tax Court.

Summary J for IRS.

Seems like ex-Ch J L Paige (“Iron Fist”) Marvel is revisiting US Tax Court’s worldwide reach today in Denny Chan, et al. Docket 2435-17, filed 3/30/21. It seems Denny’s ex, Tramy Van, has flown the cliché and returned to her native land.

So we have a video replay of Jon and Esther Zuhovitsky. You remember Jon and Esther? No? Then see my blogpost “Come From Away – Part Deux,” 11/17/17.

Y’all will surely remember Tramy. What, no? Then see my blogpost “A Snapshot in Time,” 10/1/19.

The question, which Jon and Esther ducked by coming to our Minor Outlying Island off the Coast of North America for trial, was Tax Court’s aforesaid reach.

Ex-Ch J Iron Fist gives IRS more time to grapple with the question.

“…respondent is given additional time until April 30, 2021, to file a status report that states his position as to whether the Court is authorized under applicable domestic law or treaty to hold a remote Zoom trial in which a party residing in Vietnam participates and to administer an oath to a party residing in Vietnam.” Order, at p. 1.

I don’t know about the Court’s power to Zoom or administer oaths in Vietnam, but I can reassure the Court and the parties, and my readers.

No worries. I hereby solemnly affirm that I myself did administer any number of oaths in Vietnam, to say nothing of colorful metaphors, undeleted expletives, objurgations and maledictions. And some half-a-million of my then-colleagues, temporarily resident therein, did likewise.

I miss my very occasional visits to the track. It’s not the thought of making money; horseplayers die broke is a truism. I like trying to dope out a race, and complaining to myself in sulphurous terms when I get it wrong, as I almost always do. Watching the paddock parade on television isn’t the same.

Howbeit, I was so taken up by the tale of Leon Max that I didn’t pick up two other opinions today. So here’s the late double.

First, a win for Frantic Frank Agostino and The Jersey Boys, John K. Crandall and Nives M. Crandall, 2021 T. C. Memo. 39, filed 3/29/21. It’s Nives’ story, as she’s a US-Italian dual citizen with some Italian-sourced income that never made it onto the 1040.

Nives saw the light, and availed herself of OVDP; that’s the come-clean for offshoreniks. There’s much back-and-forth, but at close of play Nives and IRS sign off on Form 906. I’ll let Judge Vasquez describe that.

“All closing agreements must be executed on forms prescribed by the Commissioner. Section 601.202(b), Statement of Procedural Rules, provides that the Commissioner will use one of two forms for closing agreements: (1) Form 866, Agreement as to Final Determination of Tax Liability, generally used to determine conclusively a taxpayer’s total tax liability for a taxable period; and (2) Form 906, which is the type at issue here, generally used if the agreement relates to one or more separate items affecting the tax liability of a taxpayer.” 2021 T. C. Memo. 39, at p. 17 (Citations omitted).

Of course, these settlement deals are strictly construed, and general contract law applies. The fight here is about a $6K minimum tax credit that the RA mistakenly allowed Nives and John, but which John and Nives never claimed. Now IRS wants it back, plus chop.

The form says it covers a bunch years (hi, Judge Holmes) for which John and Nives are allowed FTC (Foreign Tax Credit), but doesn’t state a sum certain for the year at issue. So IRS says that’s a free-fire zone.

No, says Judge Vasquez. The form says IRS can adjust everything but the offshore stuff. The FTC that Nives and John claimed for year at issue was never adjusted. Though IRS says that means no agreement, Judge Vasquez says the claimed FTC stands.

A Taishoff “Good Job” goes to The Jersey Boys.

Next entry, Purple Heart Patient Center, Inc., 2021 T. C. Memo. 38, filed 3/29/21. PHPC is a CA nonprofit pottery taxed as a C Corp. Keith Stephenson, sole director, shredded all proofs of COGS, fearing that same would be used to sustain Draconian mandatory minimum trafficking jail time. So he has not a shred of evidence (sorry, guys) of the cost of his COGS.

Keith tries the expert witness manœuvre, whereby the witness testifies as to industry standards. We saw that in the PMAC case; see my blogpost “Bei Mir Bist Du Schane,” 6/3/16. It didn’t work there, and it doesn’t work here.

But Keith himself takes the stand.

“Neither Mr. Stephenson’s nor Mr. [expert]’s testimony was precise enough to substantiate the amounts of COGS Purple Heart claimed on its tax returns. But Mr. Stephenson’s testimony may have been credible enough for us to estimate part of Purple Heart’s claimed COGS under Cohan. He testified that Purple Heart marked up the cannabis it sold by 100% and determined the price of its noncannabis products by doubling the wholesale price; both practices would suggest COGS of approximately 50% of its gross receipts. Mr. Stephenson also reviewed the general ledger each week to ensure that all of Purple Heart’s purchases and sales were properly recorded; and Mr. [expert] testified that, before preparing its tax returns each year, he checked the records Purple Heart provided to him to determine whether any of the sales or purchases appeared to be inaccurate. However, Mr. [expert] did not review any of the source documents for Purple Heart’s sales and purchases; and Mr. Stephenson testified that it was ‘almost impossible * * * [for Mr. Stephenson]to know everything” happening with Purple Heart’s sales and purchases because he “dealt with operations at a higher level’.” 2021 T. C. Memo. 38, at pp. 29-30.

One year’s COGS go by the board because end prior year’s inventory and opening year at issue inventory don’t match. So no basis for determining COGS. But next year’s opening inventory did match previous year’s closing inventory, so Keith’s 50% COGS number works.

There’s unreported income that Keith can’t rebut, arising out of claimed purchases of boo for cash.

Keith claims reasonable basis for escaping chops, because he filed Form 8275, the “please audit me” form. But that would help only if the issue were misallocation, not substantiation. And Keith knew that shredding his records wouldn’t help him avoid the slammer, because he had been quoted in national publications, and taught at the first pot university in America. Judge Pugh won’t even consider if Keith’s fear of prosecution is reasonable, much less a reasonable excuse for avoiding chops.

Pot university? Well, I’ll be dipped.

(Please Pardon Arcane Technical Term)

A personal digression before we engage Judge Buch’s exhaustive (not to say exhausting) dissertation about women’s clothing design and development in Leon Max, 2021 T. C. Memo. 37, filed 3/29/21. My great-grandfather owned a ladies’ dressmaking business, wherein he employed a young wannabe operatic tenor, whom he reskilled as a sewing machine operator. The tenor-operator stole the heart of his daughter, my beloved grandma. Had that not happened, I would not be writing this blogpost. So the rag trade has a warm place in my heart.

Yes, Leon Max was here before. See my blogpost “Let It All Hang Out” – Redivivus,” 9/6/19. No worries; doesn’t look like Judge Buch was confused by anybody’s testimony.

Leon Max is a major figure in women’s clothing. He claims to do a lot of research, and wants Section 41 credits therefor.

Except it isn’t qualified research. It’s not hard science in search of a new method. What it is, is fashion. The basics, designs based on consumer research, the choices of textiles, patterns, dyeing, sizing, fitting, are all well-known processes.

The experts are given a brief mention, but Judge Buch isn’t persuaded.

Read the opinion. It’s engrossing, especially if you’re a fashionista.  

I often feel like the voice crying in the wilderness. Either everyone but myself is overjoyed with the new, improved (???), jim-handy DAWSON electronicated coruscation, or is just resigned to the current opacity.

But being in a minority of one never stopped me yet. Besides, I see today that I am not alone. Even the august Tax Court Office of Information Services, the Keepers of the Scared Flame, gets swangtangled in the new, improved et cetera.

Case in point: Kiran Rawat, Petitioner and Raghvendra Singh, Intervenor, Docket No. 11350-18, filed 3/29/21. Kiran wants to get off the electrons and onto the paper chase. True, Kirwan and Raghvendra have filed seven (count ’em, seven) petitions before, and strewn paper and e-mail addresses broadcast. Read Judge Gale’s hereinbefore-cited order for the backstory.

Seems Raghvendra is in the slammer since he filed this petition. But all the paper seems to be going to his free world address.

Here’s Judge Gale: “Although the Court’s Order served January 28, 2021, directed the Clerk of the Court to change intervenor’s mailing address of record, the Court was thereafter notified by the Deputy Clerk of the Court that due to technical limitations the Clerk could not complete the foregoing directive at that time. Consequently, intervenor’s mailing address of record has not changed during the pendency of this case.” Order, at p. 3, footnote 3.

Great system, guys. Takes more than two (count ’em, two) months to change a mailing address.

We might (or might not) get searchable opinions and orders by the end of the current millennium.

In the meantime, let the Clerk change Kiran’s service to mail-only, and get her the four documents in paper that she already got electronically.

Edited to add, 4/20/21: See order of even date herewith. “On April 5, 2021, the Court received an envelope bearing a postmark of March 31, 2021, and containing a document signed and dated by petitioner on March 30, 2021. The document, titled ‘Notice of change of address of Petitioner’s witness’, is addressed both to the Court and counsel for respondent and lists a current mailing address for intervenor Raghvendra Singh at North Kern State Prison (NKSP).” Order, at p. 1.

Judge Gale, not willing to deal with several purported addresses, susses out the correct address by contacting the North Kern State Prison, and gets assured that North Kern State will reroute mail as necessary. And tells all hands to use the correct address, lest he visit condign punishment on those who do not.

Proves the old saw: If you want something done right, do it yourself.

Fifty-four (count ’em, fifty-four, and I have) years of practicing law. Still enthusiastic.

There’s a live horse tale coming off the bench in the LA regular session today, Laurel Daphne, Docket No. 8615-19.

It’s coming from Judge Emin (“Eminent”) Toro, and it’s live as I write this (2:40 p.m., EDT, 3/26/21). I’m writing this as it’s coming through the internet, and the YouTube video is none too clear, so bear with me. Look for the whole story to hit the opinions page next week.

Diva, Sugar and Cherry (? phonetic) are the horses. Plus a healthy gelding for petitioner’s personal use, who was “healthy and didn’t eat much,” so she didn’t need to segregate his expenses.

It’s a seventeen (count ’em, seventeen) year string of losses, and a sad tale of injured foals. Only one foal sale. And no logs, separate bank account, and “(S)he should have kept better records.” Her ranch appreciated in value, but that appreciation was independent of the horsing around, and she didn’t buy the property (it was a gift).

Of course, she and her children had fun.

There’s the usual trudge through the “goofy regulation,” Reg. Section 1.183-2(b), and Judge Eminent can trudge with the best. The usual “somber reasoning and copious citation of precedent” results in a loss in Tax Court to match the horse-drawn losses. Judge Posner would reiterate his often-expressed review.

Tax Court is manifesting a deep understanding of horse breeding, horse training, and other horse-related matters.

I remember seeing a film, long ago, when I made E-5 and was freed from guard duty and elevated to CQ. If this is incomprehensible to you, reader, consider yourself lucky. CQ was Charge of Quarters, one who sat all night long next to a telephone, prepared for any emergency. The film showed a counterpart, stationed in Germany, answering the telephone, running through a barracks shouting “Alert! Alert!” as the troops vaulted from their racks to rehearse for World War Three.

It seems this has happened in Long Leaf Property Holdings, LLC, Long Leaf Manager, LLC, Tax Matters Partner, Docket No. 11982-16, filed 3/24/21, although not quite so dramatically.

I’ll let Judge Albert G (“Scholar Al”) Lauber tell the story.

Last September, “…we received a joint status report indicating that a tentative settlement had been reached between respondent and petitioner Long Leaf Manager, LLC, the tax matters partner (TMP) of the partnership. …respondent filed a motion for entry of decision to which petitioner did not object. By Order…we instructed any partner who objected to respondent’s motion to file, by March 1, 2021, a motion for leave to file a notice of election to participate out of time. See Tax Court Rules 245(b) and 248(b).

“On March 1, 2021, two partners filed… separate Motions for Leave to File Notices of Election to Participate, and lodged…separate Notices of Election to Participate. The partners represent that they collectively hold approximately a 99% interest in the partnership. They represent that the TMP does not object to the granting of their Motions, but they do not know whether respondent objects.” Order, at p. 1.

Well, today IRS gets a month to answer.

Turns out back in May last year, the Long Leaf Manager stiped to be bound by 11838-16.

One might echo the Cockney enquiry “Who’s 11838-16 when ‘e’s at ‘ome?” Why, nobody but our old friend Railroad Holdings, LLC, who, three months earlier, had their conservation easement blown up by Judge David Gustafson, as more particularly bounded and described in my blogpost “The Old Texas Maxim,” 2/5/20.

I strongly suspect the minute the partners glanced at the proposed decision, the TMP got The Phone Call; in fact, more than one Phone Call. I’ll bet the TMP didn’t object.

Today Judge James S (“Big Jim”) Halpern allows that, when you’re down and out, IRS can still levy. American Limousines, Inc., 2021 T. C. Memo. 36, filed 3/24/21, offers a $2K per month IA for its $1.17 million FICA/FUTA/ITW liabilities.

Except, even allowing its own figures, it’s $900 in the hole every month. Of course, that includes the principal payments on the new cars it bought before it started paying the taxes it owed. Reminds me of Will Rogers’ famous Depression-era statement: “We own the distinction of being the only nation in the history of the world that ever went to the poorhouse in an automobile.”

Anyway, since the Limousine types can’t pay by their own figures, and won’t pay per IRS’ (leaving out the principal payments on the new cars aforesaid, IRS reckons the Limousines could pay $22K per month), looks like the Limousines are going broke, so no IA.

The Limousines are game, trying for CNC, but give that game away.

“On brief, petitioner argues: ‘[It] is compliant with its current tax obligations and has substantial assets.’ The latter claim, alone, would seemingly disqualify it from currently not collectible status. SO D thought that the corporation was on its way to insolvency and could not pay the $2,000 monthly installments it had proposed and that it was in the best interests of the Government for collection by levy or otherwise to proceed. Petitioner’s claim on brief, unsupported by any citation of the record, that it is ‘optimistic about its prospects’ is insufficient to raise a question in our mind that SO D abused her discretion in determining not to classify petitioner’s past due account as currently not collectible. Her decision was neither arbitrary nor capricious or without a sound basis in fact and law.” 2021 T. C. Memo. 36, at pp. 15-16. (Name omitted).

When claiming you’re down and out, don’t talk about how much assets you’ve got.

Finally, says Judge Big Jim, it isn’t the role of us taxpayers to bail out failing businesses. 2021 T. C. Memo. 36, at p. 16.