While it was a good idea, mandatory CLE has spawned the “Win Your Case Anywhere But In The Courtroom” school of practice. Win with the demand letter, in the pleadings, at discovery, by judge-or- jury-shopping, or at simulated jury selection or at mock-trial, the presenters and lecturers have always been ding, dinging their pet panaceas into our ears.

It’s even infected the play-nice corridors of The Glasshouse. Today we have Judge Courtney D. (“CD”) Jones giving the win-at-discovery types a break in Picayune Pearl Aggregates, LLC, Picayune Pearl Aggregates Investors, LLC, Tax Matters Partner, Docket No. 7045-19, filed 11/13/20.

The Picayunes want IRS’ fact and expert witness’ list, with summary of testimony, but IRS says that’s a work in progress. Judge CD Jones isn’t buying.

“To the extent respondent has identified potential witnesses for trial and the nature of their testimony, he must disclose such information to petitioners. If respondent has not yet identified potential witnesses, we remind respondent that once he has in fact identified such witnesses, Rules 102(1)(A) and (B) require him to seasonably supplement any prior response concerning the identity and location of persons having knowledge of discoverable matters, as well as the identity of each person expected to be called as an expert witness at trial, the subject matter on which such person is expected to testify, and the substance of such person’s testimony.” Order, at p. 1. (Footnote omitted).

Now the Picayunes have a wishlist of what supports whatever IRS contends.

“Discovery is to assist the parties in their preparation for trial. ‘To prepare properly for a trial, it is necessary for each party to know the position of the other party, and discovery may be used to clarify that position.’ Petitioners’ interrogatories 4 through 25 primarily seek to clarify respondent’s position, and we find they request discoverable information. In response to these interrogatories, respondent states that the FPAA sets out his position, or that petitioners have not ‘established that the claimed deduction meets all of the requirements of Internal Revenue Code Section 170.’ We conclude that respondent’s responses, which consist of high-level contentions, are inadequate because they fail to facilitate reasonable trial preparation….” Order, at pp.1-2. (Citations omitted).

And IRS’ boilerplate “work product” and “unduly burdensome” objections founder for want of substantiation.

 Finally, IRS tries to jump aboard Greenberg’s Express, but miss their footing. “…respondent argues that interrogatories 23, 24, and 25, which inquire into the bases for the positions and penalties asserted in the FPAA, improperly seek information behind the FPAA. We have denied discovery requests when the taxpayers argue that the Commissioner’s deficiency determinations are arbitrary and capricious or challenge the Commissioner’s motives or procedures in making the deficiency determination. But the question of whether the deficiency notice is arbitrary or capricious was not placed in issue by these interrogatories. Rather, petitioners’ interrogatories seek information as to the grounds on which respondent relies to deny the deduction at issue. Therefore, respondent’s reliance on Greenberg’s Express v. Commissioner in this context is misplaced.” Order, at p. 2 (Citations omitted).

CSTJ Lewis (“How To Spell It”) Carluzzo evinces the above sentiment to save Andrea Darnell, Docket No. 2548-20S, filed 11/13/20, from the Friday the Thirteenth jinx, not to mention a Section 6673 frivolity chop. But he also spares IRS any Section 6751 Boss Hoss inquiry in this off-the-bencher.

Andrea claims no taxable income, despite a $38K W-2, a $2500 1099-R and a SNOD.

“Petitioner does not dispute that she received the wage and pension income determined in the notice. Rather, she argues that the payments are not income. According to petitioner, gross income does not include compensation for services, wages, or salaries, and in any event, she is not the type of taxpayer that is subject to tax.” Order, Transcript, at p. 5.

Andrea could have done better than this tired protester jive.

CSTJ Lew only needs to go to his desktop to get the boilerplate.

“Petitioner’s position to that end is patently inconsistent with the literal language of section 61(a)(1) and (a)(10) and obviously frivolous. There is no need for the Court to address frivolous arguments ‘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, 1417 (5th Cir. 1984). It suffices to note that petitioner’s arguments have no colorable merit and nothing more be said other than to state that she is a taxpayer who is subject to Federal income taxation and obligated to pay Federal income tax on the wage and pension income she received….” Order, Transcript, pp. 5-6.

IRS’ counsel calls an audible post-trial for a Section 6673 frivolity chop. Does a Section 6673 require Boss Hossery? CSTJ Lew isn’t going there, especially in a small claimer.

Yeah, Andrea is a frivolite, and doubtless chopworthy.

“Nevertheless, in addressing respondent’s oral motion in this case, we consider not only petitioner’s arguments, but her behavior in advancing those arguments as well. In that regard we note that she stipulated to the receipt of the contested items of income thereby reducing what might have otherwise been a more lengthy trial and eliminating the need for the Court to consider additional evidence regarding the disputed items of income. Potential implications of section 6751(b) and Petitioner’s behavior tips the scales ever so slightly in her favor. That being so, respondent’s oral motion to impose a section 6673 penalty upon petitioner will be denied.” Order, Transcript, at pp. 6-7.

Takeaway 1- Frivolites, don’t count on this treatment in a T. C. Memo. or even a T. C. Sum. Op.

Takeaway 2- IRS trial counsel, I know that defending these petitions is frustrating, but calling post-trial audible Section 6673s isn’t going to help.

Takeaway 3- All litigants, don’t make the Judge work too hard.

Wasting readers’ time (few though my readers may be, and short though everyone’s time when trying to make a living, even pre-COVID19; now, don’t ask) with speculation isn’t my thing. I’ll invest fact, even though less remunerative than conjecture.

Today, Friday the Thirteenth, I’ll break my rule. Looks like Judge Christian N. (“Speedy”) Weiler has another Jawjuh conservatorium, Longwood Preserve Holdings, LLC, Longwood Preserve Investors, LLC, Tax Matters Partner, Docket No. 12421-19, filed 11/13/20. And they’ve gotten to the summary J stage, so it might could be maybe so that Swiss cheese is on the cards.

For the Swiss cheese take-out, see my blogpost “Perpetually Swiss,” 12/27/18.

But the Longwoods want a stay of proceedings, to which IRS objects. Judge Speedy Weiler doesn’t tell us why IRS objects, but maybe the grounds on which the Longwoods seek same might enlighten us.

They want the stay pending the appeal in Hewitt.

All y’all will recollect that Dave Hewitt saved his Daddy’s farm from the mobile homemakers (those who develop trailer parks, not itinerant household managers) with a syndicated conservation easement that blew up on Swiss cheesery (Dave left five homesites for his kids, locations to be determined later), with extinguishment coming up fast, but was saved from the 40% chop by Dave’s cool appraisers. If not, see my blogpost “Gude Faith, He Maunna’ Fa’ That – Part Deux,” 6/17/20.

Dave later turned Daddy’s farm’s salvation into a cottage industry, but Judge Goeke left that for another day.

Well, the Elevenses just hammered IRS’ Swiss cheesery argument in Pine Moutain [sic] Preserve, LLLP, f.k.a. Chelsea Preserve, LLLP, F Eddleman Properties, LLC, Tax Matters Partner, No. 19-11795, 10/22/20. Read Judge Newsom’s hammer-job, but forgive the typo in the caption: should be “Mountain,” Elevenses proofreader.

And Dave’s appeal, filed 9/30/20, is bound for the Elevenses.

I’ll wager IRS would sooner have a collective root canal than another Elevenses’ hammering. And so would the Tax Court Bench.

Starting Monday, November 16, 2020, you can do your hand-offs at The Glasshouse on Second Street, Nord-Ouest, in L’Enfant City.

Here’s the scoop.

No, not another Section 469(c)(7) dance-of-the-hours. Today we have Judge Holmes doing a history and an architectural portrait of The Queen City on the Lake, comparing and contrasting income-and-expense statements, doing brokers’ set-ups, checking out local economic conditions, patterns of building code enforcement, and generally mixing-and-matching dueling appraisals. A true real estate professional.

Beyond not dissing the partitive genitive, Judge Holmes shows an unusual understanding of what it is to “beg the question.” That’s petitio principi for scholars like Judges Albert G. Lauber and Patrick J. Urda. Speaking of the IRS’ expert’s appraisal, “K instead used the selected comparable properties to calculate pre-easement values and then begged the question of an easement’s effect by concluding that the after values would remain unchanged because “there is no credible support for a Facade Easement adversely effecting the market value of a property like the subject when the property is already encumbered with Historic Preservation Restrictions.” 2020 T. C. Memo. 153, at p. 33.(Name omitted). The proof assumes the proposition; circular reasoning, as opposed to “raises” or “invokes” or “invites” the question.

You have to read the opinion to see how Judge Holmes deals with the before-and-after appraisals. IRS’ appraiser comes nearest to what my colleague Peter Reilly, CPA, has called a Gunga Din appraisal: “Was nothin’ much before, An’ rather less than ’arf o’ that be’ind.”

The case is Anthony M. Kissling and Suzanne R. Kissling, 2020 T. C. Memo. 153, filed 11/12/20. Yes, they were here before, in my classic blogpost “The Stealth Subpoena,” 7/16/15.

Tony was a NYC real estate pro who, finding the Apple scene a wee bit rich, clichéd off to Buffalo, bought a couple run-down but landmarked relics of the early-Twentieth Century-gilded age (this is Judge Holmes, after all), gave them a facelift, and put on some historic façade easements. And though Tony got the mortgagees to sign aboard from the getgo, IRS stiped away any problems with grabs of proceeds from casualty or condemnation.

When Judge Holmes gets through shredding the appraisers (two for Tony, and one for IRS) and mixing-and-matching the shards (he has tables; oh, does he have tables!), Tony and Suz only overstated their deductions by 15%, so Section 6662(h) is off the table.

My ultra-hip readers, who no doubt have read all my façade easement and conservation easement blogposts, not to mention all the cases cited by Judge Holmes, have cried out with one voice “Hold on, Champ! Where’s the extinguishment fracas? If the easement isn’t forever, it’s nothing, and there’s nada to deduct! So any number is too much!”

IRS stiped away any extinguishment objections. But even so, “The extinguishment clause grants the Trust “a portion of the proceeds * * * equal to the same proportion that the value of the initial easement donation bore to the entire value of the property * * * as estimated by a state licensed appraiser.” (Emphasis added.) Though the Commissioner stipulated away any potential issue related to the extinguishment clause, this doesn’t run afoul of our recent decision in Oakbrook Land Holdings, LLC v. Commissioner, T.C. Memo. 2020-54.” 2020 T. C. Memo. 153, at p. 17, footnote 13.

Vintage Holmes. I’ll miss him when he retires.

Judge Buch comes on in relief of Judge Ruwe, to strike out Dewayne Bridges, 26519-16, filed 11/12/20. Dewayne wants a Rule 161 of his TEFRA loss, more particularly bounded and described in my blogpost “Bamboozle Your Way To Victory,” 4/27/20.

This was the irreconcilably inconsistent 1065 Dewayne and partner Steve unloaded on IRS, who gave it the Section 6231(g) “reasonable belief”, and small-partnershiped Dewayne and Steve out of TEFRA.

Judge Buch: “Recognizing the mischief that might result if the IRS follows the wrong procedures, Congress enacted section 6231(g), captioned ‘Partnership Return To Be Determinative Of Whether Subchapter Applies.’ That provision, in effect, provides that, if the Commissioner reasonably determines from the face of the return that TEFRA applies, then TEFRA applies even if – with perfect knowledge of the facts – it should not. Sec. 6231(g)(1). Likewise, if the Commissioner reasonably determines from the face of the return that TEFRA does not apply, then TEFRA does not apply even if – with perfect knowledge of the facts – it should. Sec.6231(g)(2). In short, Congress authorized the Commissioner to determine whether TEFRA applies based on the face of the partnership return.” Order, at p. 2. (Citation omitted).

Of course, captions don’t limit statutory language, but they help if there’s any ambiguity, Order, at p.3, footnote 2.

All Dewayne is doing in this reconsideration motion is rehashing. “Petitioner spills considerable ink highlighting all of the information gathered during the examination that conflicts with a determination that Mr. Bridges was a direct partner in … LLC. But in our memorandum opinion, we directly addressed the irrelevance of this information, stating that ‘conflicting information provided during the give-and-take of the examination * * * did not prevent * * * [the Commissioner] from relying on the returns to make a TEFRA determination.’ T.C. Memo. 2020-51, at *21.” Order, at p. 3.

How quaint: “spills considerable ink.” Judge, welcome to the Twenty-first Century. How about “discomposes considerable electrons” or “dumps a lot of toner”?

But as I said in my blogpost hereinabove-cited (as my high-priced colleagues would say), it’s Dewayne’s and Steve’s return. Did neither sign it? If neither, then who did? In any case, someone provided the information shown in the return, and it’s to that person Dewayne should turn if he’s unhappy. Remember, a partner who serves as tax matters partner (whether or not it’s a TEFRA partnership) is a partner first and a tax matterer second.

Now what will happen under the new Section 6223 “partnership representative” regime, where the PR only needs a name, TIN, onshore address, and phone number, and need not be a partner, is a fertile field for blogfodder. Watch this space.

f/k/a Armistice Day

It’s so strange, not to be putting on suit and boots, and making my way to Madison Square Park to march up Fifth Avenue with my Post. I usually am part of the detail that carries our banner, twelve feet across. A warm day like this, at first pleasant, becomes oppressive; but it certainly beats Veterans’ Day 2017, when Our Fair City set the record for the coldest November 11 since 1869. We froze.

But today is strange. Every day is alike now.  I went to the Tax Court homepage to check if today was an opinion day, or, if not, to scan the orders for potential blogfodder. It wasn’t until I saw that yesterday’s T. C. Memo. was still up, and no orders had been posted today, that the penny dropped.

National holiday. Tax Court closed.

It just doesn’t feel right.

If you want to buy something for your IRA (or your SEP-IRA), ask the trustee to do it. Only if the trustee says no are you free to DIY. We had that lesson four (count ’em, four) years ago. See my blogpost “FBO,” 2/25/16.

But Brett John Ball, 2020 T. C. Memo. 152, filed 11/10/20, decides, after “…he ‘strived to remain compliant with his qualified plan, expending a significant amount of time and resources’ to do so….” 2020 T. C. Memo. 152, at p. 13, that he can do it himself.

Judge James S. (“Big Jim”) Halpern is not impressed.

BJ never told the trustee of his SEP-IRA, JP Morgan Chase, to do anything but fund a business checking account with the same name as BJ’s SEP-IRA but not itself an IRA of any kind. BJ ran the account, funded a couple investments (hi, Judge Holmes), and repaid his SEP-IRA.

Taishoff notes that there’s no mention of what happened with the investments; did they make money above the purchase prices funded by BJ’s SEP-IRA? If so, where did the profits go? Who held record title to the investments?

BJ claims he was just a conduit for his SEP-IRA.

“This Court has previously found in certain circumstances that an otherwise taxable IRA distribution was not includible in a taxpayer’s gross income when the taxpayer was acting as an agent or conduit on behalf of the IRA’s custodian to carry out an investment. But we have also found that, when a distributee had unfettered control over an IRA distribution, he could not claim that he was acting as a mere conduit or an agent for the IRA custodian with respect to the distributed funds.

“Our difficulty with petitioner’s argument is that we cannot conclude that Ball LLC was acting as an agent or conduit on behalf of Chase (as custodian of the SEP-IRA) when Ball LLC received and made use of the distributions. Chase had no knowledge of the disposition of the $209,600 that it deposited into the Ball LLC account other than that it made the deposits at petitioner’s direction. Petitioner controlled Ball LLC, and nothing in the record convinces us that he did not have unfettered control over the $209,600 Ball LLC received from Chase. Yes, petitioner caused Ball LLC to lend the distributions nominally for the benefit of ‘The Ball SEP Account’, but he could just as well have made the loans in Ball LLC’s name or in his own name.”  2020 T. C. Memo. 152, at pp. 8-9. (Citations omitted).

There’s some argy-bargy about whether BJ was a Section 408(d)(1) distributee or payee, since the money went into Ball LLC.  Except caselaw says that the nominal payee isn’t always the real payee; see my blogpost “Common Sense?” 12/30/13.

Since, on his 1040, BJ claimed the money wasn’t taxable, he got an AUR-issued CP2000 mismatch form from IRS, because Chase said it was taxable. Since he did not respond thereto, he got an electronic SNOD, so no Section 6751 Boss Hoss needed. And BJ’s protestations that he really tried to comply don’t cut off the five-and ten chop. He should have filed a Form 8275 Disclosure Form, a/k/a Please Audit Me.

I’m not going to try to summarize Norman Douglas Diamond, Petitioner and Zaida Golena Del Rosario, Intervenor, Docket No. 14095-18, filed 11/9/20.  Judge Elizabeth A (“Tex”) Copeland has designated this farrago, and it surely qualifies Norm (and maybe Zaida Golena, for whom Norm claims he prepared phony tax returns so she could claim Fifth Amendment privilege because she didn’t have a SSAN. Order, at p. 7) for the title hereof.

Norm has sued three (count ’em, three) times in Tax Court, twice in USCFC, and three (count ’em, three) times in USDCCDCA. And lost every time. Order, at pp. 4-6.

 Judge Tex Copeland is far more patient than I.

“For over a decade, petitioner filed more than a dozen ill-conceived lawsuits in attempt to obtain a refund for the years at issue in this case. He has consistently advanced losing arguments upon a belief that the IRS “confiscated” refunds he was owed, and many courts repeated attempts to explain that his positions have no basis in law.12Before us in this case, petitioner acknowledged he “sued the IRS many times” to no avail. Yet, he still filed this case under the preposterous theory that he is entitled to innocent spouse relief because he is ‘innocent’–he altered his tax returns because of his ‘wife’s situation’–and he is also a spouse–he is married to intervenor. Herein, we have attempted to explain once again that he is not entitled to the refund sought but warn petitioner to tread carefully before bringing another suit in this Court.” Order, at pp. 12-13.

But Norm is industrious.

“Like his positions in other cases, petitioner’s numerous filings, some of which exceeding one-hundred (100) pages, in opposition to respondent’s summary judgment motion make baseless allegations of misconduct and fraud against respondent. He attempted to characterize those allegations as raising ‘genuine material issues of facts ‘requiring our denial of respondent’s motion. Petitioner also accused this Court of willfully ‘evading its statutory responsibilities’ in our previous decisions and repeatedly sought to relitigate closed cases, and all his requests were denied. See Doc. No. 62; see also supra p.4 (discussing Cases 1 and 3). Petitioner’s legal arguments in support of the alleged misconduct cite unrelated case law and are frivolous and wholly lacking in merit.” Order, at p. 13.

Judge Tex Copeland gives Norm one last chance. No Section 6673 chop.

Taishoff regrets he cannot award a prize for Rounder of the Year. Norm is definitely in the running.

And a Goofy Regulation

Section 7430 legals and admins is a classic example of How Not to Do It in the best Charles Dickens tradition. Today we see the finale to Tung Dang and Hieu Pham Dang, 2020 T. C. Memo. 150, filed 11/9/20. Tung and Hieu wanted IRS to levy from their IRA, which would have paid their bill in full and spared them the 10% early-out bite.

If this sounds familiar to you, great; if not, see my blogposts “The Fruit of the Tree,” 11/1/18, and “The Tree of Bertoldo,” 6/4/18.

Ex-Ch J L Paige Marvel says you can’t get admins for a CDP.

“Reasonable administrative costs are limited to those costs incurred by the taxpayer on or after the earliest of: (1) the date of the receipt by the taxpayer of the notice of determination, (2) the date of the notice of deficiency, or (3) the date of the first letter of proposed deficiency that allows the taxpayer to appeal a decision to the IRS Appeals Office. Sec. 7430(c)(2); see also sec. 301.7430-4(a), Proced. & Admin. Regs. (providing that reasonable administrative costs include only those costs incurred on or after the “administrative proceeding date”); sec. 301.7430-3(c)(1)(i), Proced. & Admin. Regs. (providing that the “administrative proceeding date” is the date of the receipt of a notice of decision by the Appeals Office). Because a section 6330/6320 proceeding ordinarily occurs only after an assessment is recorded, the date of the notice of determination is the only applicable date under the statute for a claim of administrative costs in section 6330/6320 cases to begin accruing. Sec. 7430(c)(2); see also Worthan v. Commissioner, T.C. Memo. 2012-263, at *18. And, because the notice of determination in section 6330/6320 cases also concludes the administrative proceeding, a taxpayer cannot recover an award for administrative costs arising in a section 6330/6320 proceeding. Sec. 7430(c)(2); see Worthan v. Commissioner, at *18; see also sec. 301.7430-3(a) and (b), Proced. & Admin. Regs. (clarifying that hearings under sections 6320 and 6330 are collection actions and accordingly not administrative proceedings within the meaning of section 7430).” 2020 T. C. Memo. 150, at pp. 7-8.

For the Terry Worthan saga, see my blogpost “Lien on Me,” 9/12/12.

OK, so Legal Aid of SD CA are bowling for legals only. But IRS folded in its answer, and remanded to Appeals, which gave Tung and Hieu everything they wanted. And 9 Cir said that if IRS folds in its answer, it is substantially justified.

I guess I’m slow; so if Appeals is dead wrong on the law, and yoicks a taxpayer around, causing them great expense, the taxpayer gets nothing. And after the taxpayer hires counsel and petitions, when IRS folds it is deemed to be justified, notwithstanding any and every shenanigan theretofore pulled. And the taxpayer gets nothing.

Great statute.