Jacob Berger & Evelyn R. Berger, 2021 T. C. Memo. 89, filed 7/15/21, is the usual indocumentado with less-than-credible testimony. So I’ll bypass Jake’s cannabidiol operation with his late son.

The “good part,” as we used that term to categorize certain books in my middle school days, is the divorce agreement between Jake’s and Evelyn’s daughter Merav and her husband Mr. Moscovitch. You’ll not find something like this in a US court, but Merav and Mr. M. (and their offspring) were residents of Israel then. As I know nothing of the laws of that country, I cannot comment on whether similar deals are standard issue there.

Judge Nega: “The divorce agreement included a visitation arrangement, which provided for travel arrangements in the event that petitioners’ daughter moved to the United States with the children. Under the visitation arrangement, petitioners’ daughter would be required to pay for the children to travel to Israel twice a year to visit Mr. Moscovitch and for Mr. Moscovitch to travel to the United States three times a year to visit the children. With respect to Mr. Moscovitch’s travel, petitioners’ daughter was obliged to provide a roundtrip airplane ticket, lodging at a hotel of her selection, access to a vehicle, and a stipend of $100 per day for up to 14 days. In addition, petitioners’ daughter would be required to provide for three additional people, such as Mr. Moscovitch’s mother, his girlfriend, and his girl-friend’s son, to travel to the United States once a year. In the event that petitioners’ daughter or petitioners, who were also bound by the divorce agreement, could not fulfill these obligations, the visitation arrangement stated that petitioners’ daughter and the children would be required to return to Israel.

“At a time not specified in the record, petitioners’ daughter and her two children moved to the United States. During the years at issue petitioners’ daughter and her children lived with and were financially supported by petitioners. Because petitioners’ daughter was unable to fulfill her obligations under the visitation arrangement, petitioners provided the necessary financing on her behalf. As per the visitation arrangement, petitioners paid for the children to travel to Israel and for Mr. Moscovitch, Mr. Moscovitch’s mother, and Mr. Moscovitch’s girlfriend and her son to travel to the United States and petitioners provided the agreed-upon vehicle and stipend.” 2021 T. C. Memo. 90, at pp. 5-6.

I can hear several of my readers saying “I’ll make that deal, where do I sign?”

Exactly how daughter Merav and her nestlings were to be removed from the Land of the Free to the Land of Abraham, should they stay here and place Mr. M. and his entourage on the no-fly list, is nowhere stated, but I can hear my beloved Grandma saying “don’t ask.”

In any event, when Jake and Evelyn try to deduct what they paid Mr. M and entourage as alimony, they strike out. “A deduction for alimony under section 215 is permitted only to the obligor spouse; ‘[i]t is not allowed to * * * any other person who may pay the alimony obligation of such obligor spouse.’ Sec. 1.215-1(b), Income Tax Regs. Assuming, arguendo, that the obligations required under the visitation agreement constitute alimony, petitioners are not entitled under section 215 and the accompanying regulations to deduct any payments made on behalf of their daughter. Accordingly, the Court sustains respondent’s determinations to disallow the alimony deductions for the years at issue.” 2021 T. C. Memo. 90, at p. 26.

Jesse C. Morreale, 2021 T. C. Memo. 90, filed 7/15/21, substantially prevailed; his trusty attorney got USBCDCO to let him fight out the SNODs IRS gave him in Tax Court rather than in Bankruptcy Court.

The two big issues were Jesse’s basis in his Sketch restaurant, and his use of the accrual method of accounting. When Jesse filed in bankruptcy, he hadn’t filed two (count ’em, two) years’ worth of tax returns, so IRS detailed RA T (Name omitted; ex-Ch J L Paige (“Iron Fist”) Marvel details RA T’s failings sufficiently) to prepare substitutes at no extra charge. RA T ignores e-mails from Jesse’s trusty accountant that dispose of the basis and accounting method issues, and IRS sticks with RA T’s miscues until Appeals tells them Jesse is right.

Jesse’s trusty attorney goes for Section 7430 legal fees.

The justification test in 10 Cir, whence Jesse is Golsenized, is Johnson. Pre-Johnson, IRS was justified issue-by-issue. Post-Johnson, the rule is holistic. Let it all hang out.

Jesse’s trusty attorney says that means IRS is always justified, because Section 7602 says IRS can audit anybody any time.

“While we share some of petitioner’s concerns with regard to the interplay of the Johnson standard and the unique provisions of section 7430, we believe that petitioner’s hyperbole is misplaced. Upon careful inspection, the Johnson standard–in practice–works in harmony with section 7430 and our caselaw construing it. Accordingly, we next consider how–in practice–this Court should apply the Johnson standard. To start, the ‘inquiry should focus holistically on ‘whether the government acted reasonably in causing the litigation or in taking a stance during the litigation.’  This means that a trial court ‘should focus “not on the government’s success or failure [on a particular issue], but on the reasonableness of its position in bringing about or continuing the litigation.” And while ‘the statutory language of § 7430 * * * does not use the terms “issue” and “position” interchangeably’, a trial court may consider the various contentions taken on individual issues as part of its overall analysis of the holistic position of the United States. This is because, under the Johnson standard, this Court must consider the totality of the circumstances, including the possibility that “a more egregious example of [governmental] misconduct might, even if confined to a narrow but important issue, taint the government’s “position” in the entire case as unreasonable’. 2021 T. C. Memo. 90, at p. 15. (Citations omitted, but get them for your memos of law file).

OK, IRS folds, and is concededly unjustified.

But trusty attorney can only recover fees for what work he did on the Tax Court case. The Bankruptcy motions and stuff are off the table. And ex-Ch J Iron Fist had twice to remind said trusty attorney to file his Rule 232(d) affidavit specifying his claimed costs with enough particularity to let ex-Ch J Iron Fist figure out what they were. So he has to eat whatever time he spent getting it right.

And the usual “nobody will take a case like this anywhere in CO for $200 per hour” claim founders for want of proof, and ex-Ch J Iron Fist, whose career spans all kinds of big-ticket white-shoe litigation, says this case wasn’t so tough. So here’s $14K.

But trusty attorney does get the Sixty Georges filing fee and $14 mailing.

See my blogpost “A Seal Upon Your Arm,” 7/15/21. Further thereto, a source informs me that a seal was imposed in the Ryder case at trial, from the bench, with no written order.

Perhaps the material that gave rise to the order aforesaid might be redacted from the record so as to permit the entire docket to be made public and online accessible.

I’m sure Judge Mark V. Holmes never claimed the wisdom of the author of the words first written hereinabove at the head hereof (as my expensive colleagues would say).

But I really would like to know if he set the seal I and one of my readers found yesterday on the docket in Ernest S. Ryder & Associates, APLC, et al, 2021 T. C. Memo. 88, filed 7/14/21. The opinion, all 191 (count ’em, 191, and I did) pages, appeared in full, unaltered, on the Tax Court website yesterday. Then the docket vanished. I telephoned Public Affairs, and they knew nothing about it. Deadline approaching, I posted my account of the opinion.

I telephoned Judge Holmes’ Chambers first thing this morning, and left the obligatory voicemail posing the question. Had I missed a Rule 27 sealing order or a Rule 103 protective order? It’s more than just possible, as I slalom through hundreds of orders every day, at least glancing at all opinions. And deadline is ever-present; if I haven’t posted by 6 p.m. local time, I’ve lost that day. Being a single-shingle, I often miss blogfodder on the crowded DAWSON site.

But Rule 103s are carefully crafted, the grounds for each restriction stated, and I’d never seen a Rule 103 interdict an entire docket. I’ve blogged numerous Rule 103s, and expressed admiration at the surgical precision with which they’re drafted. Rule 27s mostly cover pro ses who put personally identifiable information in their filings, and the redacted versions become available as soon as filed. See Rule 27(c).

Anyway, Rule 27(b)(2) provides that “any other person may have electronic access at the courthouse to the public record maintained by the Court in electronic form, but may have remote electronic access only to: (A) The docket record maintained by the Court; and (B) any opinion, order, or decision of the Court, but not any other part of the case file.”

Yes, the Judge can issue a protective order under Rule 27(d), but that only provides for redaction or an order of the Rule 103 kind.

I’ve seen any number of dockets sealed post-DAWSON with no explanation, but in some cases the seals were removed, likewise with no explanation.

I assert that Section 7461 prohibits a complete suppression of the docket.

I know blowers get special protections, but Ernie is no whistleblower. Rule 345 anonymity is off the table. And I’ve seen that waived before.

So who put the seal on Ernie’s docket? Is it another specimen of the case I mentioned in my blogpost “Welcome to DAWSON,” 5/4/21?

Ryder’s Last Ride

A couple days ago (hi, Judge Holmes) I lamented that my sources of blogfodder were drying up (see my blogpost “Drying Up My Sources,” 7/7/21). Today it’s getting worse, as Judge Mark V. Holmes unloads 191 (count ’em, 191) pages on one of my better sources of blogfodder, Ernest S. Ryder & Associates, APLC, et al, 2021 T. C. Memo. 88, filed 7/14/21*.

But I will say this for him, Judge Holmes waits until page 115 to unload his first diss on the partitive genitive, and there are only two more.

Ernie is an accountant and an attorney, a pioneer ERISA pundit, and a Rounder First Class with Oak Leaves, Swords and Diamonds. Ernie’s multiple roundy-rounds with Son-of-Boss, microcaptive insurers, and employee leasing, culminate in a ten-year audit, Graev missteps by IRS, but massive deficiency to Ernie and a fraud chop to boot.

For some backstory, see my blogposts “ESOPs Fables,” 8/20/18, “Ryder Rides Again,” 9/21/16, and “Chopfallen – Part Deux,” 8/28/18.

Ernie flogged multiple dodges, skimming off variously denominated fees into the multifarious entities he created. WY should name a road after him; he incorporated enough phony shell corps there to pay the WY Sec’y of State’s pension.

“All of these fees paid by the clients of the different tax products were compensation to R&A for its services in spinning webs of entities and squirting barrels of ink to hide the connection between itself and the fees it charged. We of course recognize that Ryder diverted these payments through contracts and entities, and the accounts and divisions within entities. We also recognize the invocation of Moline Properties that corporate forms must be respected. But the assignment-of-income doctrine does not immunize assignments of income to corporations or other entities. The income that R&A produced from sales of these deals to its clients was income to R&A because it was R&A itself that did the work.” 2021 T. C. Memo. 88, at p. 118.

There are charts (oh, are there charts!), and bank deposit analyses. One can but marvel at Ernie’s inventiveness, as he tries to bamboozle government subsidies for his ranching hobby, paper over attempts by IRS to put his dodger merchandise on the no-fly list, and obfuscate his way through eight million (count ’em, because I won’t) pages of trial testimony.

Truly a Holmesian extravaganza.

*ernest s ryder & Assoc T. C. Memo. 2021-88

The follow-up to today’s account of the troubles of Blossom Day Care Centers, Inc., 2021 T. C. Memo. 86, filed 7/13/21, relate to the nonpayment of FICA/FUTA for the two officers of Blossom, Mr. and Mrs. H. Judge Paris has this one as well as the lead; see my blogpost “Headline News?” 7/13/21 for the corporate side.

Proving once again the truth of the headline hereof, “Petitioner has stipulated that the Hs were corporate officers during all of the calendar quarters and years [at issue]. Both provided substantial services far beyond minor services, and both directly and indirectly received remuneration for their services. Mrs. H was petitioner’s 51% shareholder and acted as president of the corporation and director of curriculum and education for all six childcare locations and supervised over 90 employees and students of those centers. Mr. H was 49% shareholder and acted as vice president, secretary, and treasurer; as director of Blossom Day Care Centers; and as director of accounting and finance for petitioner. Both Mr. and Mrs. H had check-signing authority over petitioner’s bank accounts and credit card authorization in their corporate capacity.” 2021 T. C. Memo. 86, at pp. 11-12. (Names omitted).

The Hs claim there was a management agreement with another corporation they owned, but produced no evidence of any agreement with Blossom, or directive from the other corp that would make Mr. or Mrs. H anything other than corporate officers of Blossom.

The Hs claim that what they were paid by the other corp should offset whatever Blossom should have paid them.

“Petitioner’s arguments are misguided in that wages paid by [other corp] do not offset reasonable compensation requirements for the services provided by petitioner’s corporate officers to petitioner. Whatever wages paid for whatever purposes by [other corp] to the Hs as employees of the [other corp] will be better addressed in relation to respondent’s notice of deficiency for the Hs’ individual income tax, in consideration that [other corp] is a wholly owned S corporation.” 2021 T. C. Memo. 86, at p. 14.

And the Hs get hit with what amounts to a competency tax. “Additionally, petitioner contends that the notice of determination is flawed in that the determined compensation reflects requirements of higher educational qualifications than either Mr. H or Mrs. H has achieved, since Mr. H did not graduate from college and Mrs. H has only an associate’s degree in child development. While petitioner has not further developed this contention in its briefs and there was limited trial testimony on the topic, whatever higher educational qualifications might be required have been far eclipsed by the Hs’ practical experience, professional qualifications, success in running daycare centers, and ownership prerogatives.” 2021 T. C. Memo. 86, at p. 15.

There’s Boss Hossery enough to satisfy Judge Paris, as the Hs’ attorneys raise the Section 6751(b) issue too late (on brief) and put in nothing on the trial about when the Section 6656 nonfiling and Section 6662 negligence chops were first on the menu.

Just lately there has been a lot of news around this Minor U.S. Outlying Island concerning payment of personal expenses from corporate sources. I’d commented elsewhere that such delictions might be alleged against any number of corporate entities and their controlling persons. Today we have proof of my assertion, in fifty-nine (count ’em, fifty-nine) pages of Judge Elizabeth Crewson Paris’ prose; read all about it in Blossom Day Care Centers, Inc., 2021 T. C. Memo. 87, filed 7/13/21. Except the docket for the case is blocked, and says it’s sealed; exactly why I can’t tell*.

The case is the usual. Officers and their family members used AMEX and CitiCards issued in the corporate name, with all charges paid for by the corporation, for personal expenses and more. And there’s unreported income and self-rentals, but nothing new there either.

“In addition to routine personal purchases, such as restaurant meals, auto expenses, and personal medical expenses, the Hs either used the corporate credit card to pay or had petitioner pay their personal credit cards for such expenses as college tuition, vacations, jewelry, and other luxury items. The H children continued to make personal purchases with the credit cards even during periods when they were not employees of petitioner or H Corp.” 20-21 T. C. Memo. 97, at pp. 10-11. (Names omitted).

But the Hs are spared Section 6663 fraud chops because their trusty CPA and later their equally trusty employee bookkeeper made  “Note Receivable from Officers” entries.

“Regarding the inappropriate deductions, respondent is correct that petitioner claimed large deductions for expenses either that were personal or that lacked a demonstrated business purpose, and the Court has sustained respondent’s disallowance of such deductions in large part. However, petitioner maintained a running balance, reported on its returns as ‘Note Receivable from Officers.’ The balance of the purported note increased from $236,189 at the beginning of 2004 to $1,332,006 at the end of 2007, an increase that closely tracks the credit card expenditures respondent determined to be personal expenses. Petitioner’s recording and reporting of the expenses indicates an acknowledgment of their personal nature and an intention to repay or recognize as dividends the deemed distributed amounts at some point in the future, albeit an unspecified and indeterminate one.” 2021 T. C. Memo. 87, at p. 55.

So while the “Note Receivable” isn’t a note (or at least none was proffered on the trial), and maybe doesn’t truly evidence a debt, for want of documentation, stated maturity, interest, stated events of default, and suchlike, reporting it on the returns might just be enough to dodge “clear and convincing” proof of fraud. And the corp did overstate receipts in two years, while understating same in two others. After all, maybe sloppy saves the day. Except maybe it’s a guaranty you’ll be audited. Don’t try this at home (or anywhere else).

There’s no need for Boss Hossery for the Section 6662a chops when a corp is the target, and IRS came up with a Boss Hoss signed-off copy of the answer before first asserting chops. However, I question Judge Paris’ reliance on Koh unless it has been established that the first mention of chops did not occur until after the Boss Hoss signed-off answer had been served; see my blogpost “Greaves on Graev,” 6/4/20.

The corp’s Section 45A Indian employment tax credit fails for illegible records. And while Mrs. H is an Indian, she owns 51% of the business, and that sinks her claimed credit. (Name omitted).

So despite our local prosecutors’ proclamations that they have trodden new ground, or at any rate have found a novel dodge, this story and theirs are both many-times-told tales.

*Edited to add, 4/5/22: Though sealed on the Tax Court website, despite the Genius Baristas’ averments that they would unseal whatever they could (yeah, roger that, most F affirmative (the F is for emphasis)), the opinion is all over the internet.

As a well-known online gearjammer would say. Direct linkage to orders is back on DAWSON! Somebody must have given the Genius Baristas a triple-shot espresso mocha frappacino with extra sugar. Or kicked in the F-18 afterburner at 18F.

Complaints about “the law’s delay” long predate Hamlet’s list of “these fardels.” Sometimes the slow pace of Tax Court litigation makes its way onto the list.

Today we have something completely different, and yet the same. The star of the show is Larry A. (“Swing for the Fences”) Campagna, Esq., (see my blogpost “The Great Dissenter – Redivivus,” 9/3/13, for Larry’s story).

I’ll let Judge Alina I. Marshall tell the story, in Gregory M. Fischer & Karen S. Fischer, Docket No. 28718-15, filed 7/12/21. Note the dates; they are important.

“On June 16, 2021 at 4:45 p.m., Larry A. Campagna and Peter A. Lowy, counsel for petitioners, filed a notice of death of counsel for Donovan Hamm. On the same day at 5:35 p.m., Mr. Campagna and Mr. Lowy filed an additional notice of death of counsel for Donovan Hamm. Upon review of each of those filings, it appears to the Court that the notice of death filed June 16, 2021, at 5:35 p.m. is identical to the notice filed at 4:45 p.m. with the exception of Exhibit A attached thereto.” Order, at p. 1.

Refiling an entire document when the first attempt at filing omitted an exhibit or attachment is not uncommon. Scanners jam, papers stick together on a hot, humid day even with air conditioning, and the internet sometimes takes a two-second break.

OK, so Judge AIM orders the first, incomplete filing stricken. No biggie.

Except.

My sources tell me that the late Donovan M. Hamm, Esq., distinguished USVI attorney, died in May of 2019.

Reminds me of Mark Twain’s story of one of the Mississippi sternwheelers on which he served as a “cub” pilot. Twain said the boat was very slow. “For a long time I was on a boat that was so slow we used to forget what year it was we left port in. But of course this was at rare intervals.” And when that same vessel finally sank, it took five years for the owners to get the news.

No, I’ve not taken up paleontology; I’ve discovered how to link to the text of certain orders and opinions, since DAWSON obliterated the links I’d carefully embedded in my blogposts over ten (count ’em, ten) years.

However, the process is laborious, and is no substitute for the pre-DAWSON method that was simplicity personified. My colleague Peter Reilly, CPA, once suggested that I might hire some impecunious undergraduate to figure out how to do an Ezekiel on the dry bones of several thousand blogposts thus afflicted, and do it. I replied I had neither money for the purpose, nor the inclination to undo damage not of my making.

I await the fulfillment of the Genius Baristas’ promise to make orders and opinions searchable without the need to memorize names and docket numbers. It can be done.