No, I have not abandoned my law practice to flog dubious vegetal extracts. Rather today’s full-dress T. C. shows the high bar blowers must clear to supplement the administrative record, and how easily their blowings will crater even if they do.

Here’s Michael van Bemmelen, 155 T. C. 4, filed 8/27/20. Even though he’s self-represented in IRS’ motion for summary J sustaining Mike’s toss, he was represented before the Ogden Sunseteers by his trusty attorney, whom I’ll call Casey.

Mike whistled a bunch of Virgin Islanders who supposedly bilked the fisc of billions. Mike first sent in a bunch stuff (hi, Judge Holmes) in 2012, and sent in more thereafter. Casey sent in a Form 211, but had no Form 2848, so the OS told Mike to speak to them directly. Casey later submitted a Form 2848.

The OS initial claims evaluater couldn’t find whatever Mike sent over the years, so bucked Casey’s stuff to an LB&I classifier, who found Mike’s original stuff, reviewed Casey’s, and decided Mike’s and Casey’s stuff was “…speculative and/or did not provide specific or credible information regarding tax underpayments or violations of internal revenue laws.” 155 T. C. 4, at p. 10.

All y’all know that “and/or” is not a favored locution at Tax Court in whistleblower cases, but ex-Ch J Michael B (“Iron Mike”) Thornton disses that in a footnote.

“The record is clear, however, that in classifying petitioner’s claim Ms. G [LB&I classifier] explicitly premised her recommended rejection of the claim on conclusions both that his allegations were ‘purely speculative’ and that ‘the claim does not have enough information to support the alleged violations.’ The ARM [Award Recommendation Memorandum] adopted these recommendations. Accordingly we review whether the WBO abused its discretion in rejecting petitioner’s claim under these rationales.” 155 T. C. 4, at p. 30, footnote 10. (Name Omitted).

Mike wants to supplement the administrative record with the 2012 material he sent and a 2019 account of stuff Mike gave to CID.

2019 is out. Mike hasn’t provided “clear” evidence to show “(1) if the agency ‘deliberately or negligently excluded documents that may have been adverse to its decision,’ (2) if background information was needed ‘to determine whether the agency considered all the relevant factors,’ or (3) if the ‘agency failed to explain administrative action so as to frustrate judicial review….” 155 T. C. 4, at p. 22 (Citations omitted).

2012 does get in. You need clear evidence for that, and Mike has it.

“Both the Form 211 that petitioner submitted in March 2018 and [Casey’s] cover letter referenced petitioner’s 2012 submission. Indeed, in response to the directive ‘Name and title and contact information of IRS employees to whom violation was first reported, if known’ petitioner’s Form 211 states: ‘Written claims submitted to IRS WBO, October 2012.’ Moreover, Ms. G’s classification checklist memorandum, as incorporated in the ARM, states:

‘The information obtained in this claim is referenced to the claimant’s original claim (2012-003653). The original claim was determined to lack substance. The supplemental information provided in this claim does not have enough information to support the alleged violations.’

“These statements, coupled with the contents of petitioner’s Form 211, constitute a substantial showing made with clear evidence that the 2012 submission is properly part of the administrative record. Accordingly, we will grant petitioner’s motion to supplement the record, as supplemented, insofar as it seeks to complete the record with the 2012 submission.” 155 T. C. 4, at p. 20.

Doesn’t help, though.

“The administrative record shows that the WBO received and reviewed petitioner’s claim before forwarding it to Ms. G, a classifier in LB&I, for further review. Ms. G reviewed petitioner’s claim and noted that it referenced an earlier 2012 submission which had been ‘determined to lack substance. The supplemental information provided in this claim does not have enough information to support the alleged violations.’ Ms. G recommended that petitioner’s claim be rejected on the basis that the ‘[a]llegations are not specific, credible, or are speculative–[a]llegations are purely speculative in nature.’ The WBO accepted Ms. G’s recommendation and issued its determination rejecting petitioner’s claim because “the information provided was speculative and/or did not provide specific or credible information regarding tax underpayments or violations of internal revenue laws.’ We conclude that the WBO did not abuse its discretion in rejecting petitioner’s claim on this rationale.” 155 T. C. 4, at pp. 29-30.  (Footnote omitted, but I quoted most of it hereinabove).

Mike talked of money laundering, but it wasn’t clear what tax laws were violated, or whether it was target or some third party who did the violating. And all the 2012 stuff said is that Mike would provide more information later. And the 2018 Form 211 did no better.

His motion to supplement seems to seek some kind of discovery and evidentiary hearing that the Ogden Sunseteers intentionally subverted the whistleblowing process. The last collapses for want of evidence, sort of son-of-Greenberg’s Express. You need strong evidence, and Mike hasn’t got that.

Mike’s claim the OS should have done more investigation founders on Pub. L. No. 109-432, sec. 406(b)(1)(C), which lets the OS talk to the claimant and counsel if it wishes, “in its sole discretion.” 155 T. C. 4, at p. 33. (Emphasis by the Court). There’s no standard for judicial review here.

Summary J for IRS.

While Judge Gale is sympathetic to a 78-year old petitioner who received a brain injury from a fall (and having survived such when some years younger, I can tell you as the car advertisements do, do not attempt), he sees a hint of the Hidden Spouse trick in James A Malone, Docket No. 13892-19, filed 8/27/20.

The status reports so far state that Appeals, tired of waiting for some information from Mr M, sent the file back to IRS counsel; Mr M’s counsel states that “family members” are helping Mr M find the stuff, and they hope to settle. But the status reports aren’t consistent, some numbers differ, and some issues from the SNOD aren’t addressed.

Mr M’s brain injury troubles Judge Gale. Might could be time to go to the bullpen for a next friend, especially as the trial prep seems to be stalled.

And Mr M filed MFS for the year at issue.

“…the Court is also concerned by petitioner’s counsel’s related assertion that unidentified members of petitioner’s family are “assist[ing] him in retrieving and organizing documents needed for this matter”, insofar as it raises the question of whether such family members may have a potential conflict of interest in this case. The notice of deficiency indicates that the filing status on the substitute return filed for petitioner for [year at issue] is married filing separate. In the event petitioner were to challenge respondent’s determination of his filing status by submitting a joint return with his spouse for [year at issue], petitioner’s spouse may have a conflict of interest in this case, unless he or she disavows section 6015 relief.” Order, at pp. 3-4. (Footnote omitted, but read it; it’s the playbook for the Hidden Spouse trick).

OK, I know you won’t go look at the order just to read the footnote, so here it is.

“See Millsap v. Commissioner, 91 T.C. 926 (1988) (holding that a taxpayer is entitled to challenge the Commissioner’s determination of filing status in a deficiency proceeding and that substitute returns filed by the Commissioner do not constitute ‘separate’ returns for purposes of sec. 6013(b)); see also Saltzman & Book, IRS Practice and Procedure, para. 4.02[1][b] (Rev. 2d ed. 2002 & Supp. 2020-1) (‘Similarly, for purposes of making an election to file a joint return, the Section 6020(b) return is not the taxpayer’s return when the taxpayer makes an election on a subsequently filed return. As a result, when the Service prepares a Section 6020(b) return for each of two spouses as married filing separately, and sends them a notice of deficiency, the husband and wife may petition the Tax Court, file a joint return, and challenge the Service’s determination of their fling status in the same manner as they contest the amount of the deficiency.”) (citing Millsap v. Commissioner).” Order, at pp. 3-4, footnote 10.

So Judge Gale orders the parties to dish on next friendliness, spousal situation, conflicts of interest, and what gives with every determination in the SNOD, including but not limited to chops.

For more about the Hidden Spouse trick, see my blogpost “Hidden Spouse,” 4/3/18.

Judge Emin (“Eminent”) Toro engages in what Judge David Gustafson calls ” the interesting and difficult theoretical question whether we have the power to ‘enforce’ our decisions.” 155 T. C. 2, at p. 27.

Though Judge Gustafson, concurring in result, says nobody questions that proposition, so why go there as nobody has briefed or argued the point, Judge Eminent has Ch. J. Foley, and JJ. Gale, Thornton, Morrison, Buch, Nega, Pugh, Ashford, Urda, Copeland, and Greaves on board. Judge Jones is down with the holding on the merits.

Here again are Whistleblower 21276-13W and 21277-13W. And they’re claiming they shouldn’t be sequestered on the back piece of their monumental whistleblowing award, when the James Bond number they did on some offshore CD pirates handed IRS a home run.

Backstory in my blogposts “Sunset in Ogden,” 6/2/15, and “Dares or Forfeits,” 8/3/16.

The 212s claim that when Tax Court entered decision after the second of the TCs aforementioned, the Court entered the full 24% stipulated between the parties, but didn’t reduce same by the sequester mandated by 2 U.S.C. §§ 900-907 (2018). So the 212s want the full amount, and Tax Court should order IRS to pay it.

Before deciding what they can order IRS to do, Judge Eminent inquires if Tax Court has jurisdiction to order anybody to do anything. But nobody questions jurisdiction to decide the matter at hand.

And remand would be futile, because the sole question is one the answer to which the parties have already stipulated.

Howbeit, “…Congress made clear that the Court ‘shall have such assistance in the carrying out of its lawful writ, process, order, rule, decree, or command as is available to a court of the United States,’ sec. 7456(c). In adopting section 7456(c), Congress confirmed the Court’s power to enforce its own orders.” 155 T. C. 2, at p. 15. (Footnote omitted, but read it; and then ask yourself “what price Section 6673(b)(2)?”).

And the finality provisions of Section 7481 play no part here, as all that is at issue is enforcement of the decision already entered and final. Judge Eminent opens no doors to any attempt to relitigate a final decision.

But there’s a hitch.

IRS and the 212s stipulated what would happen if the 212s won on the back piece. But they never bothered to tell Tax Court exactly to what they stipulated.

“As an initial matter, we note that the parties explicitly addressed the sequestration issue in their partial settlement agreement. There, the parties agreed that $20,000,001 paid to the Government as restitution constituted collected proceeds and that the whistleblowers were entitled to an award of 24%, less a sequester reduction. The parties left for judicial resolution the treatment of the remaining $54,131,693.42 collected by the Government, but they expressly noted that “[a]ny such further payment will be reduced by the sequester reduction percentage in effect at the time of payment.” (Emphasis added.) Although the parties did not inform the Court of the precise terms of their settlement, they did explain that a settlement had been reached. And the settlement provided the backdrop for our subsequent proceedings.” 155 T. C. 2, at pp. 21-22. (Emphasis by the Court).

Judge Eminent isn’t going to let these games go on.

“The whistleblowers now seek to back out of their deal, contending that our entry of the January 2017 Decisions in specific amounts foreclosed their agreement to reduce any further award payments by the applicable sequester reduction percentage when the award payments were made. We disagree. Nothing in the January 2017 Decisions set aside this express agreement of the parties.

“The January 2017 Decisions do not purport to specify a particular amount that the Commissioner must pay to each whistleblower in all events. Rather, the January 2017 Decisions set out the gross amounts ‘calculated’ as part of the Court’s Opinion, based on the underlying ‘collected proceeds’ and the ‘award percentage’ the parties had stipulated in connection with that Opinion.” 155 T. C. 2, at p. 22.

Finally, and most importantly, Judge Eminent has a takeaway for all practitioners.

“These cases should, however, serve as a cautionary tale to parties that reach partial settlements. Filing with the Court complete copies of the agreements that reflect any settlements reached by the parties gives the Court a fuller picture of the disputes that remain at issue and permits the Court to render decisions that appropriately take into account the parties’ agreements. That, in turn, may spare the parties the inconvenience and expense of postdecision litigation avoidable through greater transparency.” 155 T. C. 2, at pp. 25-26.

And I give counsel for both parties a Taishoff “bad move.”

Former Section 199 was a casualty of the 2017 Act, but Judge Paris must deal with the fallout from years gone by in TGS-NOPEC Geophysical Company and Subsidiaries, 155 T. C. 3, filed 8/26/20.

TGS is the onshore sub of a Norwegian corp. TGS acquires, processes and licenses marine seismic data for the oil and gas industry. TGS wants a $1.9 million DPAD. For year at issue, TGS employed over 500 people onshore, contracted for vessels to go to sea, depth-bomb and hoover up raw data, which the employees would process (and maybe reprocess, as the algorithms got more precise) and TGS would lease, on off-the-shelf mag media TGS did not manufacture, to the drillers. TGS’ processing headquarters were in The Bayou City.

TGS claims either the processed data is qualifying production property (Section 199(c)(4)(A(i)(I), or engineering services (Section 199(c)(4)(A)(iii)).

There’s the usual experts’ jumpball, but Judge Paris finds that data is not tangible personal property. The fact that said data dwells on off-the-shelf mag media is irrelevant. Maybe if TGS manufactured the mag media, the package might be tangible, and therefore qualifying. Burt computer programs aren’t…generally. 155 T. C. 3, at p. 21.

“The item licensed by petitioner in this case is the processed seismic data. Data, as such, is inherently intangible. It lacks corporeal form. The intangible nature of this data is not changed by petitioner’s loading the information onto a CD or other tangible medium. Such a medium serves only as the vehicle of transfer for the data; it does not become an embodiment of the data itself. In contrast to the printing of a book, where the physical medium becomes the item itself, the data and the delivery medium remain separate and separable items. Petitioner’s clients are able to transfer the processed data from the tangible medium, copy the information, and share it within their organization.” 155 T. C. 3, at p. 21.

Sorry, Prof. McLuhan, the medium isn’t the message. If the original medium on which the processed data had been licensed to the end-users, or if the data could only be found on the original mag media, like original film negatives that had never been copied, and if destroyed would be gone forever, it might have qualified. But TGS kept the original data, had multiple copies made, and the copies were what was licensed.

And what TGS licensed weren’t sound recordings. Reg. Section 1.199- 3(j)(4)(ii) “…excludes from the definition of sound recordings ‘copyrighted material in a form other than a sound recording, such as lyrics or music composition.’ In other words, representations of sound in a manner other than in an audible format are not themselves ‘sound recordings’.” 155 T. C.3, at p. 28. Besides, TGS asserts no copyright in the raw data.

But the engineers carry the day…partially.

TGS certainly uses scientific principles in its work, high-powered computers and sophisticated software. That fits squarely within Section 199(c)(4)(a)(iii). And they’re in a NAICS 5413 classification, fitting in with Reg. Section 1.199-3(n)(1).

Since oil wells and drilling rigs satisfy the “with respect to construction of real property” condition, TGS is in.

Judge Paris blows off IRS’ arguments, which you can read for yourself.

But as to how much is deductible, there will need to be a Rule 155 beancount.

Where TGS processed its own data for its own clients, that counts. Likewise when TGS subcontracted certain processing services for its own clients, but retained oversight and licensing, that counts. Where it just reprocessed its Norwegian parent’s data for the parent’s clients, that’s too remote, and doesn’t count. And TGS’ overriding royalty interests are out, as there’s no statutory basis for that.

CSTJ Lewis (“Gotta Luv That Name”) Carluzzo is generous when he hands out a mere $1,000.00 Section 6673 frivolite to Gary L. Pansier & Joan Renee Pansier, Docket No. 2866-18, filed 8/26/20.

“According to the petition, petitioners never received certain notices issued by respondent for any of the years referenced in that document. This allegation is patently false and frivolous. A notice of determination concerning collection action for the years 1999 through 2006, inclusive, is attached to the petition they submitted to the Court in docket number 3143-13L.” Order, at p. 1.

There’s a lot more, which I didn’t blog back in 2014. Check out Gary L. Pansier & Joan Renee Pansier, 2014 T. C. Memo. 255, filed 12/22/14. Real rounder stuff.

Inasmuch as “…the petition contains allegations that are patently false and frivolous….” CSTJ Lew orders a $1,000 Section 6673 chop, and tosses Gary’s & Joan’s petition and “motion to reconvene,” whatever that is.

The silt-stir engendered by Clay merrily rolls along, and easing its path (like a first-class sweep in a curling match) is The Taxpayer’s Friend, STJ Diana L. Leyden.

Again we have IRS claiming that the Correspondence Examination Automated Support (CEAS) program obviates the need for any Section 6751(b) Boss Hoss sign-off, as the electronic chopper slices, dices, and chops untouched by human hands.

But in the case of Sandra D. Hallmon, Docket No. 19008-19S, filed 8/26/20, STJ Di isn’t so sure about absence of human involvement. Once again, CEAS turned out a 30-day letter; and, like others in similar circumstances whom I have blogged, Sandra stood mute.

“Contrary to respondent’s assertion that no Service employee was involved in the assertion of the penalty, the Case Summary includes the name “SHEA PATRICIA” under Examiner Name. Based on the record in this case, the Court would find it helpful to receive an additional response from respondent explaining why the Case Summary includes a name of an examiner and how he has concluded that the penalty was automatically calculated if there was an examiner assigned to this case.” Order, at p. 2.

Possibly the CEAS assigns an examiner as a control or placeholder when it sends out the 30-day letter, in case there is a response from the taxpayer. If so, it might be a good idea for IRS counsel to make that part of the boilerplate answer in such cases.

In any event, IRS has some ‘splainin’ to do.

Let’s all give a hearty Glasshouse welcome to the newest Judge of the “small court,” Judge Alina I. Marshall. She’s taking the seat formerly held by ex-Ch J L Paige (“Iron Fist”) Marvel, who went senior last year. I’m working on a cognomen; watch this space. I look forward to many learned opinions from Judge Marshall.

When the lights go on again all over the world, and the  judges’ cafeteria at the Glasshouse reopens, Judge Travis A. (“Tag”) Greaves should sit down with fellow-Tejano Judge Juan Vasquez over a cup coffee and a piece pie (hi, Judge Holmes), and talk about when lawyers claim they dropped a petition in the mailbox on the last of the magic Ninety Days.

My readers will recall Judge Vasquez’s painstaking review and meticulous day-counting, of a kind found only in religious rituals, more particularly bounded and described in my blogpost “Days of Our Lives,” 1/13/20, where Judge Vasquez let an attorney whom I called then, and will call now, Scotty, off the hook and saved his clients’ petition. But then there was no postmark on Scotty’s envelope.

Today, Judge Tag is much less kindly disposed to the unlucky attorney for Blanca Rivas, 2020 T. C. Memo. 124, filed 8/25/20, whom I’ll call Mo, and who bailed last week.  There was a postmark on his.

Mo dropped the petition in the mailbox on the last day. The postmark was the next day. IRS claims a day late and a lot more than a dollar short.

I am sure he is awaiting The Phone Call.

As the mailing in question took place last year, the current postal issues (which, being political, I will not discuss in this avowedly nonpolitical blog, although I have vociferously stated my views elsewhere) are not in play. I nevertheless caution practitioners to get the USPS cancellation on the envelope. Standing in line at the post office beats The Phone Call; trust me.

Judge Tag: “Petitioner does not contradict that the 90-day period expired [day before postmark] but rather asserts that the deadline to file a petition for redetermination is a ‘claims processing rule’ and equitable tolling applies.” 2020 T. C. Memo. 124, at pp. 2-3.

Before you, my hip readers, yell “nonstarter!” please take pity on Mo. He obviously never read my blogposts “Le Quinzième Juillet,” 4/10/20, as edited, and “Harvard Gets It Right,” 6/29/20. Section 6213 is jurisdictional.

Judge Tag belabors Blanca and Mo with a couple pages (hi again, Judge Holmes) of citations to cases wherein the Circuiteers have continually put paid to any assertion other than “90 days is 90 days, and only a USPS postmark can prove it.”

To begin with, a “huh?” more particularly bounded and described as a query. IC Improvements, LLC, Michael J. Luciano, Tax Matters Partner, Docket No. 4669-20S, filed 8/25/20. IC moves to dismiss, IRS doesn’t object, so Ch J Maurice B (“Mighty Mo”) dismisses, saying nothing else. But what about Section 7459(d)? The “L” suffix is missing, as is the obligatory citation to Wagner, so this isn’t a CDP. Likewise, no “W” suffix or citation to Jacobson, so it isn’t a blower case (assuming an LLC can maintain a whistleblower case; see Section 7623(b)(1)). Therefore, why no entry of decision for the amount stated in deficiency, or statement that from the record Ch J Mighty Mo can’t compute what the decision should be?

Next, STJ Diana L (“The Taxpayer’s Friend”) Leyden has four (count ’em, four) dubious Section 6751(b) Boss Hosses. Donald Bound and Frances Bound, Deceased, Docket No. 18743-19S, filed 8/25/20, has an unsigned CPAF dated after the Letter 915, 30-day. Same Michelle Y. Love, and William Love III, Docket No. 16713-19S, of even date therewith. IRS claims Joseph A. Albright and Elizabeth Albright, Docket No. 1709-20S, filed 8/25/20 never responded to the 30-day, so no IRS employee was involved, thus the chop was electronically computed. Ditto Michael Walter Brown and Gloria E. Brown, 1485-20S, filed 8/25/20. STJ Di wants the 30-day and the Revenue Agent Report. Looks like STJ Di will corral the Boss Hosses.

Finally, it’s truly an ill wind that blows no one any good. If the COVID-19 disaster brings us viable teletrials, then no more time will be wasted telling people with deficiencies north of $50K, who seek venue in localities reserved for small claimers, to look elsewhere. With teletrials, geography is irrelevant. Now if only there were a way for the public to observe teletrials, as required by Sections 7458 and 7461….

The State of Wisconsin Investment Board, Transferee, Docket No. 26867-08, filed 8/24/20, may have transferee liability for the Shockley Broadcasters’ give-and-go with Midcoast, but they go down fighting over prenotice interest.

Their reconsideration request is too late and too prejudicial “… to the Court, to respondent, and to other transferees whose liability has been determined under T. C. Memo 2016-08, filed four years before our opinion in this case.” Order, at p. 2.

The cited T. C. Memo., which I didn’t blog, was a supplement to one I did blog. See my blogpost “Gude Faith, He Maun Fa’ That,” 6/22/15. And I did blog its successor; see my blogpost “Bad Faith, He Maun Definitely Fa’ That,” 1/13/20.

The Investors should have heeded the words of their State song, and “Fight! Fellows! Fight!” Only a lot sooner.