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.

A proper fraction, the arithmeticians tell me, is one which represents less than the whole; briefly, a proper fraction is less than 1.

Judge Patrick J (“Scholar Pat”) Urda confronts a proper fraction when dealing with Patricia Dumas, Docket No. 22859-19, filed 1/25/21, an off-the-bencher. It’s an EITC and additional child care credit, with Patricia’s grandson JCN (minor children have only initials in Tax Court; see Rule 27(a)(3)) as her qualifying child.

JCN passes the Section 152 relationship test, doesn’t provide more than half his own support, and isn’t married so doesn’t file MFJ. The problem is, he’s born during the year at issue, so couldn’t have lived more than half the year with Patricia.

To the rescue comes Reg Section 1.152-4(d)(1), Proposed Income Tax Regs., 82 Fed Reg.6370, 6387, Jan. 19, 2017. “If an individual is born or dies during a taxpayer’s taxable year, the residency test for a qualifying child is treated as met if the taxpayer and the individual have the same principal place of abode for more than one-half of the portion of the taxable year during which the individual is alive.” Order, Transcript, at p. 7, footnote 2.

A tip of the battered Taishoff Stetson to Kimberly A. Daigle, Esq., IRS’ counsel, for bringing the temp. reg. to the Court’s attention on the trial, and another to Joseph B. Schimmel, Esq., for representing Patricia at the calendar call. It would be great if these appearances appeared on the docket sheet, but DAWSON.

Howbeit, Patricia has only her own testimony for the number of nights young JCN stayed beneath her roof, and that doesn’t get it done, though obviously Judge Scholar Pat and Mr. Schimmel are trying to cut Patricia as much cliché as they can.

“On the record before us, we are unable to determine the number of nights in [year at issue] that JCN stayed in Ms. Dumas’ house.  Ms. Dumas did not present any evidence beyond her own testimony, such as a calendar, an agreement with her daughter, an affidavit, or testimony from another witnesses (such as her daughter), regarding the number of nights JCN spent at her home in [year at issue].   When asked by the Court how often JCN stayed with her, Ms. Dumas could not provide an estimated number of nights.  Instead, she vaguely testified that:  ‘So yes, I kept him.  He did stay the night a lot of nights.’  When asked by the Court whether she had a certain agreement with her daughter with regard to caring for JCN, she answered that:  ‘I would keep him.  * * *  But he has stayed the night.'” Order, Transcript, at p. 8.

Not good enough.

But Judge Scholar Pat has given Patricia and anyone similarly situated a checklist for substantiating residence requirements for EITC and additional child care credit.

I take my text from John Lennon’s best-selling solo performance.

I have probably overwearied my readers with my complaints about DAWSON. In my own defense, I have received feedback from other bloggers with not dissimilar criticisms. Nonetheless, I will try to keep this blog from becoming an endless gripe session, as these are neither edifying nor amusing. Neither does griping influence anyone who can effect an improvement; they just go into a defensive hedgehog, “consuming miles of red tape in the correctest forms of activity,” and convinced that everything is for the best in this best of all possible worlds.

But today I encounter one who seems to be a fellow-sufferer, albeit on the practitioner’s side, rather than the journalist’s.

I don’t know his/her name, but Ch J Maurice B (“Mighty Mo”) Foley tells the sorry tale in his accustomed laconic style.

“…counsel for respondent attempted to file an Entry of Appearance in the above-docketed matter. However, the underlying submission reflects no substantive content, instead suggesting a problem with the upload process.” Brad A. Governor, Docket No. 3788-20S, filed 1/25/21, Order, at p. 1.

One person’s frustrated upload is another’s frustrated download. Or search.

The failed filing is stricken, of course. And Charles Dickens’ Circumlocution Office goes on.

There are (so far) no fewer than 456 (count ’em, 456) orders on the Tax Court website today. This may be part of the post-DAWSON hiatus tsunami. Half of these are simply pretrial standing orders, as Spring session teletrials taxi out and line up.

But most unusual are some seventeen (count ’em, seventeen) orders granting motions to withdraw as counsel by a well-known Tax Court attorney.

I have reached out to the attorney, asking for any non-privileged statement he may wish to make, but I can conceive of at least four grounds whereunder privilege may be asserted. So I certainly draw no inference as to any basis for any of such motions, nor from any failure or refusal to respond to my request for comment.

And of course I will publish any response in this my blog.

But what a good question it would make for the Multi-State Ethics segment of the Multi-State Bar Examination (or any State, Commonwealth or Territory equivalent). “X, Esq., presently attorney of record in the case of X vs Y, moves to withdraw as counsel. What privileged communications or statements might be involved in, or form a basis for, such motion? Cite to specific provisions of the ABA Model Rules of Professional Conduct, or other relevant source.”

Here’s a reminder, from Luerine Tunstle, Docket No. 11770-20, filed 1/22/21 (Another Palindrome Day).

I had to go back to the incumbency of ex-Ch J Michael B (“Iron Mike”) Thornton to find my last visitation to the topic of refunds of the sixty George ante-up. See my blogpost “You Pay, You’re Stuck,” 4/23/14.

Ch J Maurice B (“Mighty Mo”) adheres to precedent.

“…petitioner filed in the above-docketed matter an Application for Waiver of Filing Fee. However, review of the record in this proceeding reflects that the filing fee has already been paid. Accordingly, insofar as the Court is generally not in a position to provide refunds of fees paid, it is ORDERED that petitioner’s just-referenced Application for Waiver of Filing Fee is denied as moot.” Order, at p. 1.

Play before you pay.

From the Casebook of Lew Taishoff

I’m thinking of starting a casebook, assembling all the cases from blogposts past where the odd and unusual are on the menu.

Today I’ve got a case where DAWSON is the perp, The Case of the Disappearing Appearances.

Formerly, under the old and much-lamented no-name system, the docket sheet showed appearances. If petitioner were self-represented, that showed. If counsel filed the petition, or entered appearance thereafter, that showed. And IRS’ counsel was shown as soon as assigned.

That enabled me to call out dubious practitioners and sharp practice, and to praise those who did well, strove diligently, and generally took one for the side.

And it might have served as a referral service for pro ses in above their depth and looking for cover.

But the new, improved (ya gotta be kiddin’), jazzy, jim-handy DAWSON eliminated all that, and anonymity reigns.

If there is a reason for this obscurantism, it entirely escapes me.

Edited to add, 4/10/21: The appearances are there. There is a Release Note dated 3/7/21 that states appearances are to be found on the printable version of the docket sheet. But why the same information cannot be found on the docket sheet itself eludes me.

I can’t remember in which blogpost I quoted the late Henry Miller, Esq., renowned plaintiff’s  lawyer, but the quote is a classic: “When your witness shreds your client’s case on the stand, smile your sweetest smile, as if that was exactly the testimony you wanted, and wait for the recess to go into the hallway and sob.”

I don’t know if the Front Four attorneys for ASPRO, Inc., 2021 T. C. Memo. 8, filed 1/21/21, took Mr. Miller’s advice, but when “management fees” (deductible by the client) collide with “excessive compensation” (definitely not), and the fallout is nondeductible dividends, you don’t want this testimony from one of your client’s stockholders (who got said fees).

“One of petitioner’s board members, BM, credibly testified that he understood a dividend to be a ‘distribution of profits’; and when he was asked to describe his understanding of the difference between a dividend and a management fee, he testified that ‘a management fee is a distribution from the company that’s not taxed by the company and a distribution is a [sic] after-tax distribution of profits. * * * They’re both distributions.’” 2021 T. C. Memo. 8, at pp. 26-27. (Name omitted).

ASPRO’s three stockholders were using “management fees” paid to them in place of dividends or direct (excessive) compensation.

Judge Pugh runs through a bunch of factors, but BM’s testimony tells the whole story.

Edited to add, 1/27/21: I quoted Henry Miller, Esq.’s phrase somewhat differently in my blogpost “A Grammatical Shift,” 5/14/13.

Paul B. Bruneau and Karen L. Bruneau, 2021 T. C. Sum. Op. 1, filed 1/21/21, have a problem substantiating the depreciation deductions on their dog hotel and salon operation.

“Petitioners did not provide direct evidence of the amounts they paid for the various improvements to the [dog] property described above or the amounts of depreciation deductions they claimed for years before [first year at issue]. Mr. Bruneau explained that petitioners’ former accountant was in possession of their original records and that he had disappeared.” 2021 T. C. Sum. Op. 1, at p. 7.

STJ Daniel A (“Yuda”) Guy isn’t impressed with Paul’s story and blows off most of the depreciation, but Paul does get an entry in the Taishoff no-prize, sporadic “Good Excuse” sweepstakes.

There’s a lot of insubstantiation and defective recordkeeping, but it’s mostly the usual case of people running businesses who are bad bookkeepers. It’s the disappearing accountant that makes this one blogworthy.