The Good Book (Exodus) plays a large role in Judge Holmes’ prose, but Kevin A. Sells, et al., 2021 T. C. Memo. 12, filed 1/28/21, fares less well than the hero of that history. Kev and the als have their conservation easement burned up on the improvements-out-split-at-extinguishment clause we’ve seen so often (and enshrined in Oakbrook, despite Judge Holmes’ dissent; see my blogpost “They Always Must Be With Us,” 5/12/20).

Now what would a conservation easement case be, without a passing stone thrown at Reg. Section 1.170A-14(g)(6)(ii)? Here, Kev and the als claim the last sentence thereof nullifies the improvements-out-split-at-extinguishment clause if State law does. And AL law does say easements are contract rights, not real property rights, when land thus encumbered is taken for a public purpose, like eminent domain. But this applies to easements appurtenant, that is, between adjacent landowners, not easements in gross, where the donee of the easement owns no land. This sort of law is to prevent adjacent landowners, who are not having their land taken, from gumming up condemnation proceedings and extorting the municipalities. CA is different (what else is new?), because they’re concerned that if the 501(c)(3)s were frozen out in condemnation, municipalities would try to glom the servient tenements at scrap prices, based on after tax valuations, and cut out the 501(c)(3)s.

OK, the conservation deed miscue (if easement extinguished, 501(c)(3) doesn’t get any benefit of improvements) takes out the land. But on the land there stands some trees, which Kev and the als also claim were part of the grant to the 501(c)(3).

“According to the appraisal, [Kev’s and the als’ LLC] acquired the land on which it placed the easement on the very same date that it reported it had acquired the timber–August 6, 2002. And [LLC] contributed both the easement and the timber to the same donee, [501(c)(3)]. Because of this, we find it more likely than not that the timber donated by [LLC] is the same standing timber on which it had placed a conservation easement.

“That is a problem. The value that [LLC] placed on the standing timber is its value as timber products. One can see this on the Form 8283–which describes the donation of “Pulp, Chip N Saw, Saw Timber”–products that result from timber’s harvest. And the attached appraisal–which described eight products–would require the timber’s harvest.” 2021 T. C. Memo. 12, at p. 23.

But by AL State law, since unsevered timber belongs to the landowner, either that was a partial gift of a present interest (barred by Section 170 since lumbering isn’t a conservation purpose), or a gift of a future interest (and that’s not deductible at present, if at all).

But looking at chops, since the fatal split-at-extinguishment clause showed up often throughout the Southeastern United States, where these dodges flourished, and their 501(c)(3) easement protector wasn’t a promoter, Ken and the als have a reasonable cause to think their deal was legit, even if they had not a reasonable basis so to assume. See 2021 T. C. Memo. 12, at p. 38, footnote 21. Hence Section 6664 spares them almost all the chops.

And anyway, IRS’ Boss Hoss looks like a camel; a camel is a horse designed by a committee. If you want a good chuckle (and in these times, who doesn’t?), check out 2021 T. C. Memo. 12, at p. 34, where we have a vintage Holmes table encapsulating IRS’ miscues and pratfalls, as shots on goal and saves, in trying to hand chops to Kev and the als. And read the account commencing at p. 27, aptly entitled “The Chaighoul Problem.” The Jersey Boys should love this.

Judge Holmes, no fan of Boss Hossery, certainly loves it. See my blogpost “Stir, Baby, Stir – That Silt,” 12/20/17.

One of the als, Steve Whatley, is an outlier, so he gets a separate case all to himself.

Read this opinion. Despite the handling the Joint ABA/NYSBA Tax Committee gave the order in Liao (see my blogpost “A Couple Trusts, A Couple Iowa Tax cases – Knock It Off,” 11/17/20), I’m a fan of Judge Holmes.

But I shouldn’t omit a Taishoff “Good Try,” to Gregory P. (“Dusty”) Rhodes, Esq., and his team from Sirote & Permutt, PC.

I thought it a good idea to put my suggestions for DAWSON in one document and share it with the Genius Baristas, while they deal with getting the litigants onstream. So here is the text of my e-mail to DAWSON.support, dated 1/28/21, timed at 10:48 a.m.

When you’re done making DAWSON easier for litigants (which I’ve admitted on my blog is your first priority), how about making it easier for us journalists? First, have the Dockets show appearances. For self-representeds, so state. Where individual attorneys appear for petitioners, state address for solos, and state firm affiliation (and firm address) where applicable. I’ll renew my request to the Chief Judge to amend the Rules to allow for firm appearances, as that’s outside your jurisdiction.

Second, list all orders and opinions by date. Make them word-searchable. Now one needs a docket number or a name to find them, and we may not have either. The old system worked perfectly. When you rolled out DAWSON, you destroyed ten years’ worth of my links in my blogposts. Why?

Third, bring back designated orders. Judges can designate or not as they see fit, and I’d never have the temerity to suggest that that should change. But the present count-the-pages system is a joke, when you post 400+ orders per day for us to wade through while on deadline. Besides, count-the-pages is ridiculous; the worst novel by Edward Bulwer-Lytton (he of the worst opening sentence competition) has more pages than the Four Gospels. Which is more important? (No prize for the correct answer).

Fourth, why are opinions not posted until 3 p.m. Eastern Time? If judges, or their proofreaders (if any), need more time to re-read and correct their opinions, hold them over until the next morning, and post them at noon, ET. My deadline is effectively 6 p.m. ET; my blog has been read in more than 150 countries, commonwealths, and semi-autonomous regions. I’m writing for the busy practitioner, who hasn’t time to read lengthy law review articles, and whose first language may well not be English, or even Indo-European-based. Hence, my blogposts average fewer than 500 words each, and I must write simply. I may need several hours to unpack, digest, and put in readable form multiple opinions and orders. Some important opinions are more than a hundred pages long, where every detail may be significant to a reader.  Even if I can get it all done in the three hours you’ve given me, at 6 p.m. ET, it’s already midnight in Europe. And in the Far East, it’s already the next morning. So after 6 p.m. ET, I’ve lost that day.

Fifth, the texts of orders and opinions must be drag-and-dropable. This serves the journalist on deadline, who hasn’t time to retype and proofread, or run through some deskewing software and proofread,  whole paragraphs of text, and also the solo or small-firm practitioner, who hasn’t the personnel to retype or deskew, and proofread, the language s/he needs for a memo of law or opinion letter. I’ve done briefs on appeal in under an hour, when I could drag-and-drop the language I needed, without wasting time to type, cite-and-substance-check. Every lawyer has memo of law files, arranged by subject, with the language of the leading cases in wordprocessing format, ready to insert when wanted; and the up-to-date practitioner keeps adding to the files. That saves the practitioner time, and the client money. And makes pro bono work more affordable to the practitioner, and thus more available to the needy.

Best regards.

Lewis C. Taishoff, Esq.

Judge Travis A. (“Tag”) Greaves tags SO D (name omitted) for overlooking some non-cash income that Isaac Moore, Docket No. 8759-19L, filed 1/27/21, claims prevents him from coming up with the moola SO D claims he has to pay off his $386K tax liability.

Isaac had a couple years’ returns (hi, Judge Holmes) showing seven-figure income. So SO D says Isaac’s submissions at the CDP were less than transparent. Moreover, SO D reckoned Isaac might have been dissipating assets.

Isaac says The Phantom of the Opera is the Opera.

He sings thus: “… his unusually high AGI in 2016 and 2017 resulted from transactions that did not produce substantial cash he could use to pay his 2016 liability. Petitioner explains that his 2016 AGI of $1,497,552 includes a $1,642,927 gain from the sale of his medical office building in which he had no equity, and that he received only about $13,000 in cash from the sale. Of the $1,293,878 AGI reported on the 2017 return, petitioner claims $1,137,843 reflects his default on prior year borrowing from the principal of his annuities. He says this was cancellation of indebtedness income from which he received no cash in 2017.” Order, at p. 3.

Plausible, at least enough to be worth investigating, says Judge Tag Greaves, and SO D didn’t.

Phantom income isn’t cash. Taishoff says maybe Isaac paid too much for his office building, or it went in a forced sale. As for his previous loans, they weren’t income until he couldn’t or wouldn’t pay it back. And what he did with the loan proceeds is also a question for the dissipation analysis.

Howbeit, SO D didn’t consider phantom income might explain some or all of Isaac’s predicament.

No summary J for IRS.

Judge Travis A. (“Tag”) Greaves once again appears in relief of Judge Ruwe (retired). And he faces another example of the human comedy, as played out in the United States Tax Court, the prepay playpen of our judicial system.

I’ll wager Judge Tag Graves never expected the testimony he saw from Akeem Adebayo Soboyede, 2021 T. C. Sum. Op. 3, filed 1/26/21.

That’s Akeem Adebayo Soboyede, Esq., admitted in DC and MN. Most of Judge Travis A. (“Tag”) Greaves’ work is to do with Akeem’s tax home, which is DC and not MN, so his DC living expense deduction goes by the boards.

The rest of his deductions don’t fare a lot better.

“Petitioner admitted in his testimony that he did not keep the necessary documentation because he ‘did not know * * * [he] was going to get audited.’” 2021 T. C. Sum. Op. 3, at p. 10.

Akeem, none of us does. But be prepared; it could happen again.

There’s yet another contestant in the Taishoff no-prize, sporadic “Good Excuse” sweepstakes, Terry T. Brown, Sr., 2021 T. C. Sum. Op. 4, filed 1/26/21. TT’s tale is told by Judge Travis A. (“Tag”) Greaves, coming on in relief of Judge Ruwe (retired).

It’s a fairly familiar indocumentado. Employed by a “non-profit,” TT pays some unreimbursed expenses for said “non-profit,” but has some problems, even aside from the fact that said “non-profit” is never identified as a Section 501(c)(3) type.

“In support of his position, petitioner submitted a letter from a former [non-profit] board member. The letter stated that petitioner paid out-of-pocket expenses on [non-profit]’s behalf for which he was never reimbursed and that those unreimbursed expenses should be considered contributions to a nonprofit. The letter is dated… nearly a year after the close of the [year at issue] –and does not provide an amount, date, location, or description of any cash or property actually donated. Neither this letter nor any other evidence set forth in the record meets the requirements of the section 170 regulations. Accordingly, petitioner failed to sufficiently show that he incurred such expenses and may not claim a deduction for the disallowed charitable contributions on his [year at issue] Form 1040.” 2021 T.C. Sum. Op. 4, at pp. 13-14.

Now that’s not enough for a sweepstakes entry.  But this is.

“At some point… respondent audited petitioner’s returns for the years at issue. When asked to provide records necessary to substantiate the expenses and losses reported on his Schedules A, C, and E, petitioner claimed that he maintained the supporting documentation exclusively on his [non-profit] work computer, which he no longer had access to following his termination from [non-profit]. Petitioner claimed that he made several attempts to retrieve the files but that [non-profit] informed him that they had been destroyed.” 2021 T. C. Sum. Op. 4, at p. 5.

And we can stop here.

Dana Ray Reynolds, 2021 T. C. Memo. 10, filed 1/26/21, went down for two years on two subscriptions in USDCCDCA. Dana Ray was a phony corp merchant, who used the corps to siphon income for himself, and sold his phony maneuver. So he wound up owing restitution via some Restitution-Based Assessments (RBAs). But DOJ got into the act via the DOJFLU (Department of Justice Financial Litigation Unit), resulting in Dana Ray’s request for an IA and CNC getting bounced around, ending up in a CDP, where the question of an ARI (Appeals Referral Investigation) by IRSCD (Internal Revenue Service Collection Division) was bruited. And that leaves out the marital agreement between Dana Ray and spouse, which left Dana Ray with no income or living expenses. So did IRS coordinate with DOJ? And should Dana Ray get an IA or be CNC?

If this leaves your head spinning, think of ex-Ch J Michael B (“Iron Mike”) Thornton, confronted with the task of unbaking this strawberry shortcake and putting the whipped cream back in the cow.

Well, ex-Ch J Iron Mike does it, without even a dictionary to chew upon for consolation.

First, there’s no Tax Court challenge to court-ordered restitution in a criminal case. And IRS has independent authority to collect same. Section 6201(a)(4) says so, and ex-Ch J Iron Mike is not revisiting that one.

As for DOJ billing and Dana Ray paying a few bucks monthly, that isn’t an IA and Section 6331(k)(2)(C) is no bar to the NFTL or the NITL (which ex-Ch J Iron Mike calls a FNTL) with which Appeals hit Dana Ray, because no IA per Section 6159.

Now for the headline hereof. Coordination. “Petitioner argues that SO T failed the verification requirement of section 6330(c)(1) by failing to ensure that the IRS coordinated with the DOJ, as he contends the Internal Revenue Manual (IRM) requires. Petitioner cites, and we have found, no case in which an SO flunked the verification requirement with respect to an IRM provision.” 2021 T. C. Memo. 10, at pp. 25-26. (Name and citations omitted). And there’s much about how IRS is supposed to coordinate with DOJ, and how IRS did. Well worth reading if you have clients about to take heavy-duty falls, with restitution on the menu.

Dana Ray’s bid for CNC fails, because a NFTL can be filed to protect the government’s interest howsoever broke the taxpayer may be today. And Dana Ray’s marital agreement shenanigans (like laying off a bunch of his corps on Mrs. Dana Ray) and his claims that he has no income or living expenses make an ARI unnecessary to bounce his CNC.

Dana Ray claims to be sick, but has no medical expenses.

“The attachment to the notice of determination indicated that in the absence of any claimed living expenses, petitioner had failed to demonstrate economic hardship justifying CNC status, stating that ‘[i]f, as you claim, you have no expenses, then making payments wouldn’t cause an economic hardship.’ As this statement suggests, if it were true, as petitioner claimed, that he had no assets, then there was no levy source at the time of the determination; if, however, a levy source were subsequently to become available, by petitioner’s own admission he had no living expenses that would cause a levy to give rise to economic hardship. Consequently, even accepting at face value the financial information petitioner submitted, respondent did not abuse his discretion in determining, on the basis of the information that petitioner provided, that he did not qualify for CNC status.” 2021 T. C. Memo. 10, at p. 38. (Footnote omitted, but it says there’s no need for a source of funds when a NITL is issued.)

I give Dana Ray’s counsel a Taishoff “Captain James Lawrence” Award. James Lawrence, USN, law student turned naval officer, was the dying captain of the USS Chesapeake in the War of 1812, who uttered the immortal words “Don’t give up the ship!” just as the British boarded the Chesapeake.

My colleague Peter Reilly, CPA, has a blogpost interfacing grumpy old men with DAWSON, to which your attention is respectfully directed. I will own the appellation “grumpy old man”; if the shoe fits, I wear it, however dusky it may be.

I have been very hard on DAWSON (I can hear readers saying “No! If you hadn’t’a told me, I’d never have known!”). But Mr Reilly and Mr Milgrom have a very valid point, and it stopped me on a dime.

Yes, DAWSON falls short of reasonable transparency from the journalist’s point of view, and compliance with Section 7461 is at Pirates of the Caribbean standards: “guidelines. Aspirational goals.”

But DAWSON was not designed solely for the convenience of the trade press or the blogosphere.

DAWSON was designed for the self-represented and the practitioner, the people in the trenches. DAWSON did give them the online filing of petition and amendment thereto, finally bringing Rule 34(a) as amended in 2018 into the Twentieth Century, if not the Twenty-first. It gives them every standing scheduling order as they are issued each day, so they needn’t wait for the snail-mail version. It lets them find the docket of their case, the only case that matters, quicker than the old way.

Those of us in the ivory tower behind the lines, who observe the struggle from afar, may object that we haven’t been given a larger window or better binoculars. And our gripes are meritorious. I write every blogpost in compliance with FRCP 11 and our New York Rule 130; no frivolity.

But I must admit in fairness: The petitioner is first, the active litigating practitioner is second.

I am third.

I direct this to my colleagues who practice in the field of personal injury, but specifically those whose practices involve Workers’ Compensation. Beware Section 86, and the comp-meets-Social-Security Disability Insurance (SSDI) shunt.

Here’s Dianne S. Hairston and Steve R. Hairston, 2021 T. C. Sum. Op. 2, filed 1/25/21, from Judge Colvin, one of the small-claimer read-and-heeds that make blogging so much fun.

It’s Steve’s story. Steve was getting Comp, until the VA Comp Bd (that’s Virginia, not Veterans’ Administration) cut him off, and SSDI took over paying, which included some payments for year before year at issue. Then VA decided they’d wrongfully cut Steve off, started paying him again retro to cutoff. Whereupon SSA wanted the SSDI money back, which Steve paid.

Steve never paid tax on the SSDI. He claimed that he’d paid that back in another year.

Judge Colvin sorts it out. Each year stands on its own. What Steve paid back in years after the year at issue is nothing to the point.

OK, so why should PI practitioners care?

Well, pardon an old beaten-up, beaten-down, single-shingle “general practitioner of mediocre qualifications and limited experience,” as a much finer writer than I put it, but I doubt the VA Comp Bd was suddenly, out of the blue, struck with the injustice of cutting Steve off, then sua sponte and ex proprio motu reinstated and paid him retroactive. Could happen, but don’t hang by your cliché until it does.

I’ll wager a couple ales in Jake’s Saloon (hi, Judge Holmes) that Steve had a lawyer. Don’t take the bet.

“Petitioners also raise three questions regarding actions taken by the SSA and their former attorney: (1) why did petitioner husband receive Social Security disability benefits rather than retirement benefits starting in 2013; (2) why did petitioners’ attorney tell petitioner husband to sign up for Social Security disability benefits; and (3) why did neither the SSA nor petitioners’ attorney inform petitioner husband about his receipt of Social Security benefits.” 2021 T. C. Sum. Op. 2, at p. 8.

Judge Colvin ducks.

“We do not consider those questions because they do not relate to matters within our jurisdiction, which in this case is limited to petitioners’ tax liability for 2014. See sec. 6214(a).” 2021 T. C. Sum. Op. 2, at p.8.

Steve’s lawyer may not be able to duck.

No, not a reprise of Betty MacDonald’s 1945 best-seller, nor yet of the travails of Nichelle G. Perez (see my blogpost “The Egg and I,” 1/22/15). Judge James S (“Big Jim”) Halpern has for your perusal the story of William Bruce Costello and Maritza Legarcie, 2021 T. C. Memo. 9, filed 1/25/21, and how Maritza kept ’em down on the farm.

That’s chickens, which she raised first for meat and then for eggs, and then for meat again, but made no money either way. Finally, wild dogs ate most of her chickens. She also raised watermelons, squash, peppers, apples, bananas, pomegranates, date palms, and asparagus, but that also didn’t go well, as Maritza’s farm “…is on the edge of the world’s largest evaporative salt plant, and, in 1973, a spill from the salt plant created a salt flat on a portion of the property. Moreover, evaporation from the salt plant blows across the property and poisons the soil. Crops grown on the property are not commercially acceptable.” 2021 T. C. Memo. 9, at pp. 5-6.

Maritza refused to give up. She tried planting peppers, but the insects ate them up. Then she tried cattle, but the cattle couldn’t get enough to eat by gazing, so they were sold.

But Wm Bruce was no quitter. On the trial, he testified thus: “When you have something in a business that is not making money, you change it, and you figure out why it’s not making money. You evaluate to see if you could make it make money. If it doesn’t, you stop doing that and you start doing something else. He conceded: ‘[W]e have tried several things on this property; so far, nothing has worked.’ He was, however, hopeful that something would come along that would work and be profitable: ‘Will something come along that will work? When the right opportunity comes, financial conditions change, market conditions change, then yes, I fully expect to be able to make a profit. At the present moment, no, * * * [we] don’t.'” 2021 T. C. Memo. 9, at pp. 6-7. And during the two years at issue they didn’t. They deducted losses.

And also losses on rental real estate that had been flooded.

Judge Big Jim takes a quick peek at “the goofy regulation,” the Section 183 hobby loss with its nine factors, and decides Wm Bruce’s story is a good one. It clearly isn’t horsing around or having too much fun, but it is preoperational start-up and thus not deductible per Section 195.

“In order for expenses to be deductible under section 162(a), the expenses must relate to a trade or business functioning when the expenses were incurred.” 2021 T. C. Memo. 9, at p. 12. There follows a whole bunch of cases that say you have to be up and running. All that Maritza and Wm Bruce had done was try lots of farming activities, but none was sufficiently onstream.

And the rental real estate was untenantable, so losses disallowed. But the other rental properties that Maritza and Wm Bruce sold during one of the years at issue did show a capital gain, so no passive activity loss carryforward. IRS has to redo lots of numbers, so stand by for a Rule 155 beancount.

Many years ago, in the 1950s, an advertisement for a hair dye coined the memorable catchphrase “Does she…or doesn’t she? Only her hairdresser knows for sure.” This found an echo when Chief Justice Roberts upheld the Affordable Care Act of 2010, as the debate centered upon whether the impost for those who avoided the mandate was or was not a tax.

See National Federation of Independent Business [NFIB] v. Sebelius, 567 U.S. 519 (2012). The debate lingers on.

So today ex-Ch J Michael B. (“Iron Mike”) Thornton must face the same question, albeit in the context of the Section 72(t) ten-percent what-is-it. Because if it is a tax, and not a chop, then unsaddle the Section 6751(b) Boss Hoss.

And who better to engage in advanced Boss Hossery than that eminent firm of attorneys and counsellors-at-law, Frantic Frank Agostino and The Jersey Boys?

The full-dress T. C. is Kirgizia I. Grajales, 156 T. C. 3, filed 1/25/21. Of course Kirgizia was underage when she took the distribution from her New York State retirement plan. The original $9K with which IRS tagged her was reduced to $908.52 by concessions, so Kirgizia and the Jersey Boys are fighting about the ten-percent solution,  which works out to ninety (count ’em, ninety) bucks.

That won’t pay for the bagels at one of Mr Agostino’s engrossing CLE presentations (to say nothing of non-vacuum-packed hot-smoked whitefish; hi, Judge Holmes), but it’s a good question.

IRS claims, naturally, that the 10% is not a “penalty”, “addition to tax”, or “additional amount” within the meaning of section 6751(b) and (c) but rather a “tax”, and therefore no Boss Hoss need apply.

Now the caption to Section 72(t) says “additional tax,” but captions may or may not be the answer. Reaching back to Ralim S. El., ex-Ch J Iron Mike says he can consider similar terms and provisions, and descriptive matter in the IRC. See my blogpost “Mein! Was Ist Das?” 5/16/14, for the backstory on Ralim. The whole story is in 144 T.C. 9, filed 3/12/15.

And of course NFIB, above referred to, is extensively cited by ex-Ch J Iron Mike. “Explaining that the same exaction might be considered either a ‘penalty’ or a ‘tax’ depending upon the context, the Court held that the individual mandate is a ‘penalty’ for purposes of the Anti-Injunction Act but is a ‘tax’ for purposes of constitutional analysis. NFIB, 567 U.S. at 564.” 156 T. C. 3, at pp. 8-9.

If you’re into “somber reasoning and copious citation of precedent,” ex-Ch J Iron Mike is your kind of guy. Mr Agostino wants Tax Court to revisit the question because NFIB, but ex-Ch J Iron Mike won’t budge.

“Petitioner contends that we should employ the NFIB ‘functional approach’, i.e., the approach that the Court applied in its constitutional analysis, and conclude that the section 72(t) exaction is a ‘penalty’ rather than a ‘tax’. We disagree. The instant case presents no constitutional issue–neither party contends that section 72(t) is unconstitutional. Consequently the ‘functional approach’ as employed in the NFIB constitutional analysis is inapposite. Rather, because the issue before us is one of statutory construction, NFIB, 567 U.S. 544, directs us to look to the statutory text as “the best evidence of Congress’s intent”. ‘[I]t makes sense to be guided by Congress’s choice of label’ in this regard. Id. at 564. As discussed above, section 72(t) expressly labels its exaction a ‘tax’, consistently with the larger statutory structure. See El v. Commissioner, 144 T.C. at 148.” 156 T.C. 3, at pp. 10-11. (Footnote omitted).

There’s an argument about Section 72(q) annuity distributions (denominated as “penalties”) and Section 72(t) retirement plan draws (whatevers), but that’s fought out in a footnote.

There’s also some Bankruptcy Court learning that says “penalty,” but that’s for the Bankruptcy guys to sort out. Ex-Ch J Iron Mike is not going bankrupt.

In short, all NFIB says is what the Twitterers say, DSFDF, and YMMV.

Tax, not penalty.