We’ve heard a lot about 401(k) to IRA rollovers. And we’ve also heard a lot about the Law of the Fifty and Five (see my blogpost “Exempt from the Law of the Fifty and Five,” 4/20/20). The Law of the Fifty and Five (that’s Section 72(t)(2)(A)(v) to you) says a distribution from a 401(k), taken by an employee at or after age fifty-five upon separation from the employer, is exempt from the 10% Section 72(t) whatever-it-is.

Well, John Catania, 2021 T. C. Memo. 33, filed 3/15/21, rolled over his 401(k) into his trad IRA when he retired from his employment at the age of fifty-five. But John was under the age of 59-1/2, when he took the distribution at issue from his trad IRA a couple years later (hi, Judge Holmes).

Judge Vasquez has the bad news for John. He gets rolled under.

“On brief petitioner suggests that the section 72(t)(2)(A)(v) exception should apply to the distribution at issue because he was 55 years old when he retired from Home Depot. As stated above, section 72(t)(2)(A)(v) is not applicable to premature IRA distributions. See sec. 72(t)(3)(A). Although petitioner had a section 401(k) plan when he worked for Home Depot, he transferred the funds from that account to a traditional IRA at Vanguard in 2014. Because he withdrew the distribution at issue from a traditional IRA in 2016, section72(t)(2)(A)(v) does not apply.” 2021 T. C. Memo. 33, at p. 5.

And there are no equitable exceptions.

Islander

The unguided Congressional largesse afforded Our Insolvent Islands in the Sun have provided me a perennial source of blogfodder. Here’s an eleven (count ’em, eleven) year old well-aged case strained clear by Judge Patrick J. (“Scholar Pat”) Urda.

Patrick A. McGrogan, Petitioner and The Government of The United States Virgin Islands, Intervenor, Docket No. 456-10, filed 3/15/21, started back in January, 2010. Today, Judge Scholar Pat is mooting out motions made, respectively, six, five, and three years ago. It seems the parties finally filed a stipulated decision a couple weeks ago (hi, Judge Holmes). Judge Scholar Pat signed off on same.

Unfortunately, the Genius Baristas who gave us DAWSON have seen fit to prevent anyone not a party or attorney from viewing same.

My blogging colleague Mr. Paul Streckfus has called this the “hidden law.” Matters are settled, and the veil of secrecy is dropped, without benefit of a Rule 27 motion, and a judicial ruling thereon.

Either Rule 27 is adequate, or it is not. If it is, nothing should be sealed or excluded from public view except as protected in compliance therewith. If not, revise it.

Decisions, whether stipulated or not, should be public. Rule 27(b)(2)(B) provides that “any other person… may have remote electronic access only to: (B) any opinion, order, or decision of the Court, but not any other part of the case file.” Emphasis added.

The docket shows no motion made pursuant to Rule 27.

So let’s see the stipulated decision. It must be great if it took ten years to make.

I thought that DAWSON, the brand-new, improved (most affirmative, right?), jim-handy, electronic staircase to The Cloud, would finally bring into being electronic petitioning and amending.

After all, Rule 34 cleared the way, three years ago. See my blogpost “I Dreamed a Dream,” 11/25/20.

But no.

For no apparent reason, Tax Court is still enamored of Fourth Century B.C. technology. For example, see Donald L. Adkins & Janette Adkins, Docket No. 13060-20, filed 3/12/21. Ch J Maurice B (“Mighty Mo”) Foley is still expending scarce judicial resources on “(T)he Amended Petition should be signed by both petitioners (preferably in blue ink) and submitted in PAPER FORM (not eFiled), as petitioners’ original signatures are needed to support jurisdiction in this proceeding.” Order, at p. 1.

If it be objected that the petition (or any amendment thereto) must be executed under penalty of perjury, and therefore must be wet-ink papered, what price the electronically filed tax return, which now constitutes the overwhelming majority of returns filed? Are these not filed under penalty of perjury? And must IRS’ answer be wet-ink papered? Or need the answer not comply with FRCP 11? Perhaps Chuck Rettig and the 1111 Constitution Ave guys are exempt somehow.

Paper submissions, whether via mail or PDS (hand delivery is out during COVID as The Glasshouse is closed), are slow, cost money, and produce useless debates about timeliness, and potential malpractice claims. So what price Rule 1(d), the darling of The Great Chieftain of The Jersey Boys?

“The Court’s Rules shall be construed to secure the just, speedy, and inexpensive determination of every case.” Rule 1(d).

Time to get past Herodotus and the Persian posties.

I need not, of course, translate, but Brian E. Harriss, 2021 T. C. Memo. 31, filed 3/11/21, is playing the Leroy Muncy variation of that gambit.

I’m sure y’all remember Leroy Muncy, no? What, no? How fleeting is fame. Well, check out my blogpost “Delegati Non Potest Delegare – Redivivus,” 5/17/17. And 8 Cir affirmed Judge Nega that time.

Brian petitioned, however, before 8 Cir put the hems on Leroy, and fired off the usual protester jive after his three all-zeros returns got SNODed. IRS was late with one year, so conceded on SOL.

Ex-Ch J Michael B (“Iron Mike”) Thornton has a bunch to say about IRS’ “ill-considered” concession. See 2021 T. C. Memo. 31, at p. 7, footnote 4. Brian would lose on the delegation of authority to the signer of the SNOD issue anyway.

I’ve often spoken of ex-Ch J Iron Mike’s lexicographical prowess and inexhaustible appetite; dictionaries prostrate themselves when he devours them to bring forth deeper explications of the subtleties of our English tongue. Now I must add praise for his exhaustive research into the entire delegation issue.

When it comes to “somber reasoning and copious citation of precedent,” ex-Ch J Iron Mike can somber with the best, and out-copious the rest. But, surprisingly, when kicking Brian’s reliance on 8 Cir’s initial toss of Judge Nega’s first Muncy opinion, ex-Ch J Iron Mike goes off on Golsen (Brian filed from AK, so 9 Cir rules). He doesn’t note that 8 Cir tossed Leroy the second time around.

And, talking about “ill-considered,” IRS conceded the Section 6662(a) chops. A guy doesn’t know why.

No, not a misprint for Sir Peter Shaffer’s 1958 London hit, but Debra L. Zalk Spitulnik, Petitioner and Charles A. Spitulnik, Intervenor, Docket No. 21286-18L, filed 3/11/21, bring back theatrical recollections. See my blogpost “Now, Voyager,” 11/26/19, where Judge David Gustafson obligingly gave Deb & Chas a blueprint for the subsequent IA.

Deb & Chas forwent the IA route. Deb files for innocent spousery. Now Judge Emin (“Eminent”) Toro has the case, but Deb fares no better.

Judge Eminent Toro delivers an off-the-bencher. Although everyone admits Deb was in very poor health during the years at issue, the high-priced private school whereat she taught jumped through clichés to keep Deb on the roster, assigning her aides, interns, limiting hours, sending her home early, and limiting her to teaching lower grades. She was as eminent in her field as Judge Toro.

Chas was also solicitous to his spouse of 46 (count ’em, 46) years and counting. He insured his life for $1 million and Deb was beneficiary. Deb also got a brand-new Volvo when she felt unsafe in her three-year old CRV. And Deb & Chas were a wee bit casual with their tax compliance over the last thirteen (count ’em, thirteen) years. See the table at p. 11 of the transcript.

“Also recently, Mrs. Spitulnik traded in some family jewelry and paid more than $500 to buy gold and diamond necklaces for herself, her daughter, and her daughter-in-law.” Transcript, at p. 23.

While Deb’s income alone just ducks under the 250% of poverty, she’s married to lawyer Chas. “… when added to Mr. Spitulnik’s annual income of $241,240, the couple’s combined earnings of $272,538 far exceed 250% of the applicable Federal poverty guidelines for a household of two ($17,240 x 250% = $43,100). A review of the Spitulniks’ 2019 Federal income tax return leads to the same conclusion, as their adjusted gross income for the year was approximately $432,000.” Transcript, at pp. 18-19. (Citation omitted).

Deb also doesn’t help her cause on the stand. “Indeed, Mrs. Spitulnik stated repeatedly at trial that her husband’s top priority is and has always been to ensure her welfare. Consistent with the record and her statements, we conclude that nonpayment of the Spitulniks’ tax liability afforded significant benefits to Mrs. Spitulnik beyond normal support, and therefore that this factor weighs against relief.” Transcript, at pp. 23-24.

Taishoff says that factor plus the Volvo and the gold and diamond necklaces play a six-figure exercise on Deb’s case.

At least Deb & Chas saved the legal fees.

A microcaptive insurance company that takes prepaid, tax-deductible premiums up to the Section 831(b)(2)(A)(ii), $1.2 million limit (and pays no tax thereon), writes “claims made” policies taking effect only after the claims period has expired, covers over $1 million above the ten-year moving average claims, and pays what claims the insured tells them to pay (whether or not the policy is in effect)…that’s my kind of insurance company.

Alas, I don’t have one. But Caylor Land & Development, Inc., et al., 2021 T. C. Memo. 30, filed 3/10/21, based upon a country club pitch from a micromanager, started one. Wherefore, the wish I expressed back on 4/26/16 (see my blogpost “I Wanna Testify,” 4/26/16), namely and to wit, “I’m glad there’s going to be a trial, so I get more blogfodder.” Waited a long time, but here it is.

The Caylor family built up a major construction company in the wild west, and ran it accordingly, writing off family chats around the breakfast table as seven-figure “consulting fees,” and sending said fees to their various controlleds (about a dozen). The controlleds off-loaded same to the microcaptive.

It’s a replay of Avrahami. For that story, see my blogpost “The Selfies – Eclipsed,” 8/21/17. And Ben’s & Orna’s deal gets a good workout in the retelling, as Judge Mark V Holmes sends off the Caylors.

It’s a great try at a dodge, but it isn’t insurance as commonly understood.

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Judge Mark V Holmes has noted numerous Chaighouls, the spillovers of the extension of Chai via Graev beyond 2 Cir “to every living heart and hearthstone all over this broad land.” Today Judge James S (“Big Jim”) Halpern has IRS running around its stables, trying to mix-and-match Originators, Reviewers, and Supervisors, to find the right Boss Hoss for every one of the four (count ’em, four) Section 6702 frivolity chops they laid upon Sheila Ann Smith, 2021 T. C. Memo. 29, filed 3/10/21.

Sheila is a disciple of Gwen Kestin, the fast and furious photocopier. For Gwen’s story, see my blogpost “From the Serious to the Frivolous,” 8/29/19. Sheila sent in a bunch of zero returns, clearly frivolous, and frivoled on the trial.

Sheila has so mastered Graev, that IRS, in desperation, has to come up with a table worthy of Abbott and Costello’s immortal routine. See 2021 T. C. Memo. 29, at p. 17.

Sheila started with six (count ’em, six) photocopy chops, and IRS conceded one. Another was accompanied by a letter that clearly stated it was only a copy, and IRS was not expected to act thereon, so did not purport to be a return, wherefore no chop. As to the remaining four, three survived the Boss Hoss stampede, but the last one was a true “ya can’t make this stuff up.”

Judge Big Jim: “With respect to the 2008 Form 1040 copy No. 1, Ms. I [Frivolous Return Program Coordinator] informed SO L that three individuals (Mss. H, E, and Mr. O) ‘were the department managers and direct supervisors of Ms. D’ when Ms. D signed the attendant Form 8278. SO L reasoned that the originator of the form ‘can only have one immediate manager/direct supervisor, and that therefore the * * * penalty * * * [was] valid because the Form 8278 was signed by the originator’s immediate supervisor.’ S H was the individual who signed the Form 8278 approving the penalty with respect to the 2008 Form 1040 copy No. 1. But she was one of three individuals that Ms. I described as Ms. D’s ‘immediate manager/supervisor’ when Ms. H signed the form. We accept at face value SO L’s premise that an originating employee has only one immediate supervisor. Perhaps Ms. I did not understand the question, but, on the basis of her answer, we think that the best one can conclude is that there was a one in three chance that Ms. H was Ms. D’s immediate supervisor when Ms. H signed the form. SO L abused his discretion– i.e., he did not have a sound basis in fact–in concluding that Ms. H was Ms. D’s immediate supervisor. Respondent failed to obtain the necessary section 6751(b)(1) approval of a section 6702(a) penalty with respect to the 2008 Form 1040 copy No. 1.” 2021 T. C. Memo. 29, at pp. 36-37. (Names omitted).

Sheila gets a Section 6673 delay chop because she frivoled in Tax Court.

But Taishoff says Judge Holmes was right in his concurrence in Graev: “I’m afraid we’ve bought ourselves years of procedural litigation.” 149 T. C. 23, at p. 69.

Doug Shulman, ex-Com’r, and Dave Williams, ex-Chief of OPR, may have bent 31 USC §330 far out of shape; Judge Boasberg, and later DC Cir, may have been right in rapping Doug and Dave on the cliché. All that said, the unenrolled, unregistered, unregulated paid preparers are a continuing menace to the tax system.

Follow me, if you will, to today’s case in point: Clarence J. Mathews, 2021 T. C. Memo. 28, filed 3/9/21. CJ says he’s an employee truck driver who commutes 75 miles to work. The Reverend J.H. Reynolds, pastor of Beulah Missionary Baptist Church, says CJ is a minister thereof, but unpaid, so no W-2.

Notwithstanding the foregoing, CJ’s return, prepared by his paid preparer, had a Sched C describing CJ as “Minister” of “Beulah Missionary BA,” with income and expenses generating a $20K loss, but no SE. CJ gets a SNOD at no extra cost.

On the trial, “…petitioner testified that his preparer should not have filed a Schedule C. At trial petitioner did not know what a Schedule C was or whether he had any responsibilities or requirements in relation to the Schedule C, and he asked how the Schedule C affected his job as a truck driver. He testified that the preparer should have reported only his ‘regular’, or wage, income and the pension amount.” 2021 T. C. Memo. 28, at p. 4.

Of course, CJ has no substantiation for the rest of the paid preparer’s fiction, and candidly testifies that the vehicular deductions are commuting expenses.

Judge Wells disallows IRS’ assertion of SE, as CJ wasn’t self-employed, and Rule 155s the rest.

IRS couldn’t find a Section 6751(b) Boss Hoss signoff for the accuracy chop, although if IRS had one, it would be a slam dunk.

I wonder if the paid preparer got a piece of any refund, or even maybe cashed the refund check, took the cut, and gave CJ the rest.

Please don’t think I’m piling on to CJ. He isn’t the heavy here, and his story is legion.

Paid tax preparation, aside from us Circular 230 types, the very few States that regulate, and the realm of the big chains, is America’s Alsatia, where the king’s writ doth not run, a land where imagination rules and fact is always the first casualty, a free-fire enclave in The Twilight Zone.

Spreadsheets are popular. Spreadsheets are useful. Universally available software makes compiling and producing spreadsheets easy.

Spreadsheets are useless for substantiating tax deductions. The sad fact is, you still need back-ups.

Ask Abrahan Pichardo and Carolina Pichardo, 2021 T. C. Sum. Op. 7, filed 3/8/21. They gave spreadsheets to their trusty preparer (qualifications not stated, but as IRS conceded the accuracy chop, it doesn’t matter), showing Abrahan’s Section 2106s for his loss prevention work.

But the reimbursements from Abrahan’s employer, and any Section 274 documentation, never make it into the trial.

The reimbursement issue sinks Abrahan’s deductions, but I want to note what STJ Peter Panuthos says about spreadsheets. As is often the case, there’s good stuff in footnotes.

“Although we find for respondent on a separate ground, we note that Mr. Pichardo’s records were generally insufficient to substantiate his reported business expenses. Mr. Pichardo submitted into evidence a spreadsheet entitled ‘2016 Expense Report Totals’ listing, among other expenses, amounts purportedly spent on gas, hotels, airfares, rental cars, and overnight meals. Each of these categories is subject to the strict substantiation rules of sec. 274(d), and thus the amounts cannot be estimated. Apart from a single airline invoice and a document entitled ‘Summary of Tolls per Transponder / Vehicle’ (toll invoice), Mr. Pichardo did not provide the Court with additional substantiating receipts, invoices, or other documentary evidence.” 2021 T. C. Sum. Op. 7, at p. 10, footnote 4.

The toll story is also a wee bit dodgy, says STJ Panuthos. “Mr. Pichardo did submit documentary evidence that $544 in tolls and $110 in fees associated with eight different toll transponders were prepaid by some party in 2016. However, the toll invoice did not list Mr. Pichardo as the payor. Nor did Mr. Pichardo provide additional evidence connecting him to the account number listed on the document. Additionally, his testimony was unclear as to why he would have used eight different transponders in a single year and whether any of the transponders listed on the toll invoice were associated with his vehicle.” Ibid., at p 11.

Eight (count ’em, eight) transponders would work if Abrahan constantly rented cars for work-related trips. Different cars from same rental company would generate same payor but different transponder codes. No evidence of that. Maybe trusty preparer should have looked closer and asked.

Abrahan has problems with his American Opportunity Tax Credit. Yes, he took relevant courses at a well-respected university, but couldn’t show he was a half-time student.

My colleague Peter Reilly, CPA, is pursuing a case on which I took a pass a week ago, involving substantial compliance in a charitable deduction case (non-conservation type). It didn’t interest me sufficiently, as the appraisal was way off the mark as to specificity, however qualified the appraiser.

But I keep searching for a good story.

This morning there’s a novel frivolite, who managed to bring a grin even to my battered visage, as I await, a wee bit apprehensively, my first COVID shot this afternoon.

Here’s Dmitry Tsibulskiy, Docket No. 15660-19, filed 3/8/21 (an important date in our family for reasons other than inoculations).

IRS was wrong-footed when the numbers in the tax return and SNOD didn’t match those in the business records proffered in support, but between calendar call and recall, IRS stumped up a supplement harmonizing all.

So Judge Elizabeth A. (“Tex”) Copeland told IRS to certify the numbers, and report. But if Dmitry continued to stall with trial prep, IRS could refile its motion to dismiss for want of prosecution. So, surprise, surprise, IRS tries again to toss Dmitry.

Ya gotta admit, Dmitry’s status report is a doozy.

“The status of the petitioner is one of an ‘Internationally Protected Person’ by the proper surredner [sic] to the Occupying military forces. See attached the ‘Notice of Surrender to the Commander-nChief.’ All claims have been properly filed as required by the occuping [sic] forces. The tax Court being a military court shall address all actions to the President of the United States as the holder in due course of the PERSON named: DMITRIY TSIBULSKIY.” Order, at p. 2.

Judge Tex Copeland notes, with a straight face, “(N)o attachment was included.” Order, at p. 2.

I somehow doubt that, even if there were an attachment, Dmitry would have survived this triumph.

He’s tossed, to the tune of a hundred grand plus interest.