Too often we find (and judges too) that the experts retained by litigants are more advocates for a party’s position than educators of the Court, or anyone else.

So a certain Family Court (jurisdiction unstated, but petitioner filed from NV), wearied of the Wild West scene, had an approved panel of experts, from which litigants were required to pick and pay, removing the experts’ temptation to get their opinions where they get their cornpone, as a much finer writer than I put it.

Peeved at having to fork over $13.5K for “the services of several attorney, physician, and psychology service providers,” as she and loved-once jousted over custody of their lineal descendants, Monique Epperson, Docket No. 20287-18W, filed 7/6/20, dropped a bunch of Forms 211 on the Ogden Sunseteers.

The above quoted matter is found in the aforesaid order, at p. 2.

Monique claims Family Court never filed 1099s on the recipients of this judicial largesse. She also claims that the Gang of Four providers never paid tax on the credit card, check and cash payments she gave them over two (count ’em, two) tax years.

The Ogden Sunseteers, facing this volley, bobbled the ball. Judge Elizabeth A. (“Tex”) Copeland explains.

“Upon receiving the initial Forms 211, the WBO assigned master claim number 2018-003598 to the Family Court (identified in the administrative file as Taxpayer A), and related claim numbers to the Contractors: 2018-003599 (Contractor B), 2018-003600 (Contractor C), 2018-003601 (Contractor D), and 2018-003602 (Contractor E). First, in the WBO’s electronic tracking system (e-trak), the WBO classifier coded the claims as falling within the purview of the Small Business and Self-Employed division (SB/SE) of the IRS. Then…the classifier re-coded the Family Court claim as belonging to the Tax Exempt and Government Entities division, particularly the sub-division responsible for Federal, State, and Local Governments (TEGE). Additionally, the classifier placed the Contractors’ claims in suspense based on the related master claim, with instruction to ‘follow any action taken on the related claim.'” Order, at pp. 3-4. (Footnote omitted).

The TEGE subject matter guru rightly concluded that Family Court paid nobody, so they weren’t required to file anything. The right Boss Hoss signed off, so the OS analyst sent Monique a bounce letter, stating “Allegations are Not Specific, Credible, or are Speculative.”

The OS analyst followed instructions, and simultaneously bounced Monique’s Contractors claims.

Judge Tex Copeland gives IRS summary J on Family Court. Monique paid the Contractors directly.

As to her Contractors claim, Monique can’t tell if any or all of them cleared the $200K Section 7623(b) gross income limit, but for summary J Judge Tex Copeland will give Monique a bye. The Section 7623(b)(5)(B) $2 million amount-in-dispute limit is another story.

Though Monique only claims $13.5K, the $2 million stop-strip is an affirmative defense, not a jurisdictional bar. And IRS only raises that in its summary J motion.

Too late, says Judge Tex Copeland. “An affirmative defense cannot be raised, for the first time, in a motion for summary judgment. Our rules require that an answer ‘be drawn so that it will advise the petitioner and the Court fully of the nature of the defense. * * * [T]he answer shall contain a clear and concise statement of every ground, together with the facts in support thereof on which the Commissioner relies and has the burden of proof.’ Rule 36(b); see also Whistleblower 14376-16W v. Commissioner, T.C. Memo. 2017-181 at *14.” Order, at p. 8.

For the story of Six One Six Whiskey, star of the immediately aforementioned, see my blogpost “Voluntary Malgré Lui,” 9/18/17.

As to the Contractors, the record shows right church, wrong pew. Yes, a TEGE subject matterer sussed out Family Court. But an SBSE sachem never weighed in. The record is incomplete. There remain questions of fact as to what, if anything, SBSE did or concluded.

But IRS can try again. I make the morning line 8 to 5 for a motion to remand.

US Tax Court shuts down, I shut up.

Enjoy the holiday.

But That’s No Reason To Go To Tax Court

Ordinarily, I wouldn’t even bother blogging Mark Pilyavsky, 2020 T. C. Sum. Op. 20, filed 7/2/20. Judge Gerber is remarkably douce, given how quickly and thoroughly Mark’s case craters.

But we’re coming up on a three-day weekend. I can’t spend it with one of my nearest and dearest in her Berkshire retreat; the Bayou City is under siege; and my local museums and concert halls are locked down, as am I. Note well, I am not complaining; so many have it so much worse, and I fear worse is yet to come. But if I have to shut down (or, as I’m sure some would say, shut up), I’ll take one more time at bat.

Mark claims IC, except his employment contract with PIMCO as senior database engineer says he can’t work for anyone else as a consultant, which he claimed on his return he was, and anything he invents or creates is work for hire.

Mark testifies truthfully and candidly.

“At trial, however, petitioner disavowed his statement that he was an independent contractor with PIMCO. Instead he testified that he was an employee. In addition, evidence in the record shows that he had agreed with PIMCO that he would not perform the same type of work with outside clients or use his experience in such pursuits. The presentation and explanation attached to the Schedule C was accordingly a fabrication intended to establish the appearance of a Schedule C business activity in order to report losses that could be claimed to be deductible from ordinary income.

“Further diluting petitioner’s position is that he does not have any original records of the alleged activity other than his bank statements from which his return preparer developed summaries in an attempt to support the more than $50,000 in claimed deductions. Petitioner’s testimony was vague, and he did not go into any details of his alleged business activity. On cross-examination it was shown that the summaries had numerous inaccuracies and contradictions. Under the circumstances, we find that petitioner’s testimony and other evidence lack credibility.” 2020 T. C. Sum. Op. 20, at pp. 6-7.

Mark was pro se, of course. I lament the recent death of Henry G. Miller, Esq., a remarkable trial lawyer from whose lectures I learned much. He said that when one’s client’s testimony sent the client’s entire case down the drain, one should brighten up, as if that testimony was just what you wanted the jury to hear, and smile one’s sweetest smile.

Then, when the judge nonsuited your client and dismissed the jury without having given them the case (as there was no case to give them), go out, find a quiet corner, and cry your eyes out.

IRS has them, when they try to fraud-chop John Thomas Minemeyer, 2020 T. C. Memo. 99, filed 7/1/20. John Thomas is no angel; he went down for Section 7201 tax evasion for two (count ’em, two) different years in USDCDCO. IRS was looking for $100K in 75% chops for both years.

Judge Kerrigan tells the story of one of those years.

“… a revenue agent visited petitioner in prison and provided him a Form 4549, Income Tax Examination Changes, for [years at issue]. No letter from respondent was attached to the report. Petitioner signed the Form 4549 agreeing to deficiencies and penalties but later requested that the agreement be withdrawn.” 2020 T. C. Memo. 99, at p. 3.

” Upon petitioner’s request, respondent withdrew and disregarded the Form 4549 that petitioner signed…. a Letter 950, commonly referred to as a 30-day letter, was sent to petitioner. L, the immediate supervisor of the revenue agent, signed the 30-day letter as group manager. A Form 4549-A, in which respondent asserted that petitioner was liable for a section 6663 fraud penalty of $42,708 for [one year at issue], was included with the 30- day letter. The Form 4549-A included the words ‘corrected report’ at the top of both pages of the form. The revenue agent signed the Form 4549-A. Above the revenue agent’s signature the following statement was included: ‘This Report supersedes the report issued….'” 2020 T. C. Memo. 99, at p. 4. (Name omitted).

There followed a SNOD, of course, countersigned by L.

I can almost hear my readers shouting “Boss Hoss! Jailhouse 4549 not Boss Hossed! Clay!”

Of course, Judge Kerrigan is on this one like cliché on rice.

“When the revenue agent visited petitioner in prison, he provided petitioner a Form 4549, which petitioner signed. Petitioner contends that he was under duress to sign the Form 4549 and for that reason he withdrew his consent. During respondent’s counsel’s opening statement at trial he contended that petitioner received a preliminary form before the formal communication in the 30-day letter and that petitioner signed it, agreeing to the fraud penalty for [one of the years at issue]. This statement is an acknowledgment that the Form 4549 communicated an intention to impose a penalty.

“Respondent did not offer this Form 4549 into evidence. Therefore, we cannot determine whether the Form 4549 or the 30-day letter was the initial determination for the purpose of section 6751(b). Without the Form 4549 we cannot determine whether that form clearly reflected the revenue agent’s conclusion that petitioner should be subject to a penalty. If the Form 4549 was the initial determination of the fraud penalty for [one of the years at issue], there is no evidence of its timely written approval.” 2020 T. C. Memo. 99, at pp. 7-8. (Citation omitted).

IRS has burden of production to establish Section 6751(b) sign-off. No earlier 4549, so IRS dropped the burden.

Note that hitting John Thomas with a 4549 while he was sitting in the slammer was less than a brilliant move; if SOL was an issue, the 30-day letter, duly Boss Hossed, would have served. And not saving the 4549 was even less brilliant.

STJ Panuthos sends off Gary M. Dennis and Sharon D. Dennis, 2020 T. C. Memo. 98, filed 7/1/20, without admins or legals.

It’s true that the amount stated in both the NFTL and NITL was overstated, as the number didn’t include a $7500 payment Gary and Shannon made. They weren’t in default of their IA, but they had to petition the NITL and NFTL, and go to remand, before the numbers worked out.

Gary and Sharon want Section 7430 legals and admins.

No, IRS wasn’t justified, and admits it.

But Gary and Sharon get nothing.

“Petitioners…question the application of a payment. They do not claim they are due a refund or other tax credit that would change the amount of their underlying tax liability. Their challenge is to the amount of tax liability that remained unpaid at the time the NFTL was filed, not the total tax liability as imposed by the Code. Accordingly, the CDP hearing was a proceeding in connection with a collection action and was not an administrative proceeding pursuant to section 7430. We therefore hold that petitioners are barred from recovering compensation for administrative costs.” 2020 T. C. Memo. 98, at p. 11. (Citation omitted).

CDPs aren’t compensable, unless the amount of tax due at inception changes. Here, the amount of tax didn’t change, just how much thereof was unpaid.

As for legals, Gary and Sharon were pro se. But Gary has an interesting argument.

“Petitioners argue that although they are ‘aware of precedent relating to reimbursement of [p]ro [s]e petitioners’, this Court’s holdings ignore ‘the possibility that responsibility for [p]ro [s]e representation of two [p]etitioners may be disproportionately shared between the individuals.’ Petitioners claim that petitioner Gary Dennis produced all documents and performed all other legal services related to the case, while petitioner Sharon Dennis did not participate in the case in any way. Petitioners assert that the number of hours of requested compensation has been reduced by 50% to reflect the lost income-producing capacity of one spouse in defending the other during litigation.” 2020 T. C. Memo. 98, at pp. 12-13.

STJ Panuthos can’t give Gary a Taishoff “good try, second class,” but I can.

Gary, ya gotta be out-of-pocket to a lawyer or USTCP, and pay disbursements, to get legals.

It’s another reprise of Sam’s Club. That’s Sam’l T. Coleridge, and his “greybeard loon,” the one with the albatross. But today Judge Wells has this small-claimer, Dorothea E. Beckett, 2020 T. C. Sum. Op. 19, filed 7/1/20, that’s a natural for Sam.

Dorothea’s pro se in this fight over the $19K IRS claims she didn’t report but should have, after she settled her ADA claim. But though now pro se, on the litigation with her employer she was well-served by her trusty attorney Thomas B. Corbin, Esq.

Dorothea has seizures. “She would hit her head hard enough to require stitches or would bite her tongue, and at least once she was sent to the emergency room.” 2020 T. C. Memo. 19, at p. 2. I cite these physical details to show that, when trusty attorney Tom sued her employer for failing to make reasonable accommodation, he made sure the stip of settlement included “pain and suffering, physical distress,” as well as emotional injury, in what was settled. 2020 T. C. Sum. Op. 19, at p. 3.

Dorothea was less well-served by the trial judge (whether State courtier or Federale not stated; concurrent jurisdiction, y’know). “Petitioner asked the judge presiding over her lawsuit whether the $19,000 was taxable and was told that it was not taxable because the lawsuit was based on her seizures.” 2020 T. C. Memo. 19, at p. 4. Well, Judge, the right answer is the one Judge Wells gives: yes and no.

The problem is that most trial judges have to deal with a plethora of issues in any but the simplest cases. And taxes impinge on the vast majority of even the simple ones. A fender-bender in Village Court, that settles over the Judge’s coffeetable in her livingroom, has tax implications.

Beware, litigant, of free advice from the bench. The learned judge may know a lot; none I’ve ever encountered knows everything.

Now of course there’s the calculus of what the parties actually settled, not what they said they settled. If I’m counsel for a settling defendant, I want to make sure my client can write off the costs of the settlement; the plaintiff is on his, her, its or their own.

Here, Dorothea’s real physical injuries carry the day. At least part of the day.

“The $19,000 payment in issue was made ‘for claims of emotional distress, pain and suffering, physical distress and damages’. Petitioner’s complaint alleged violations of the ADA, which is not a worker’s compensation statute. We find that the $19,000 settlement payment clearly meets the definition for damages because petitioner received an amount through a settlement agreement entered into in lieu of a legal suit or action.” 2020 T. C. Sum. Op. 19, at pp. 7-8. (Citation omitted).

OK, but is “physical distress” enough?

It is in Judge Wells’ court…sort of.

“Petitioner’s suit began as a discrimination suit. Damages received as the result of a wrongful termination of employment claim are generally not received on account of personal physical injuries or physical sickness. There was, however, a physical component to petitioner’s complaint. The settlement agreement explicitly states that the compensatory damages were paid in part for ‘physical distress and damages’. These terms are evidence that the payor, petitioner’s former employer, intended a portion of the $19,000 to compensate petitioner for her physical injuries. This is supported by the observation of the judge presiding over petitioner’s ADA claim, that petitioner’s seizures were an actual basis for the settlement. Petitioner credibly testified that she suffered head and other physical injuries directly caused by her employer’s refusal to make reasonable accommodations. This sets petitioner’s case apart from the myriad of cases in which we have held that taxpayers’ settlement payments for wrongful termination claims are not excludable from income under section 104(a)(2).” 2020 T. C. Sum. Op. 9, at p. 9. (Citations omitted).

OK, but other claims were settled as well. And here Judge Wells gives a useful hint for drafting settlement agreements.

“The agreement in the instant case explicitly allocates the settlement amount among backpay, attorney’s fees, and compensatory damages. Petitioner’s settlement agreement further identifies three bases for the $19,000 settlement payment: ’emotional distress’, ‘pain and suffering’, and ‘physical distress and damages’. We have no reason to believe that this express allocation was not the result of adversarial, arm’s-length, and good-faith negotiations, or that it is incongruous with the ‘economic realities’ of petitioner’s underlying claims. Accordingly, we conclude that one third of petitioner’s $19,000 settlement payment is excluded from income under section 104(a)(2).” 2020 T. C. Sum. Op. 19, at p. 11.

So Judge Wells “stoppeth one of three.”

I understand plaintiffs’ counsel will want to go for a better allocation to physicals if at all possible. But watch out for “incongruous with the economic realities” landmine, and have your local jury verdict comparables handy.

Likewise, this is, after all, a small-claimer. Maybe Judge Wells was a little more generous than he might be in a T. C. Memo., with bigger bucks on the table and IRS’ appeals counsel heading for the USCCA website to set up the appeal.

But it’s your case and your call. Me, I’d go for it.

Rebecca L. Bethune, 2020 T. C. Memo. 96, filed 6/30/20, loses her HOH, dependency and child tax credits, because Kirby, her loved-once, played the above-captioned on her.

Rebecca and Kirby were splitsville, but amended their divorce decree, which originally said nothing about who got the tax breaks for their four (count ’em, four) offspring, two adults and two minors. They amended in the year after the year at issue.

Rebecca took both minors for year at issue, even though they lived with Kirby for the whole year.  And the acknowledged divorce decree amendment said that she could.

What it didn’t say was that Kirby wouldn’t. So when IRS hit Rebecca with a SNOD two years later and she proffered the amended divorce decree, a helpful IRS employee told her to get a Form 8332 from Kirby. Rebecca never heard of a Form 8332; I wonder if she had an attorney, and, if she did, whether that attorney ever had.

So Rebecca went off, got hold of Kirby, and had him sign the Form 8332.

But the helpful IRS employee didn’t tell Rebecca that if Kirby had taken the minors on his return for year at issue, any Form 8332 he signed was worthless unless accompanied by an amended return handing back whatever benefits he took.

See my blogpost “‘I’m From The Government And I’m Here To Help’ – Part Deux,” 3/19/15.

Kirby claims he never signed nuthin’, but Rebecca’s circumstantial testimony convinces Judge David Gustafson that ol’ Kirby’s fibbing. Unhappily, Kirby had taken the minors and never amended.

Sorry, Rebecca.

IRS claims that, even if Kirby signed the Form 8332, it wasn’t attached to Rebecca’s return for year at issue. Now my ultra-sophisticated readers are doubtless exclaiming “But Sec. 1.152-5(e)(2)(i), Proposed Income Tax Regs., 82 Fed. Reg. 6387 (Jan. 19, 2017) says you can hand in a Form 8332 at exam.” Of course proposed regs don’t bind the Court, and are just guidance.

And the “attached” question really applies only in the electronic filing context.

” However, the provisions for electronic filing are not applicable here, where Ms. Bethune filed a paper return, and the provisions for submission during examination are not applicable here, where the custodial parent never relinquished the dependency exemption deduction. The applicable, operative rule is that Ms. Bethune had to ‘attach’ the Form 8332 to her return, but she did not do so. Consequently, she is not entitled to the dependency exemption deductions….” 2020 T. C. Memo. 96, at p. 16.

Of course we remember Judge Holmes’ syntactical macarena in my blogpost “Swift, Light and Unattached,” 12/19/12.

But I go back to an old story. Child care tax breaks are complicated. Quick-and-dirty split-the-years solutions don’t stand up. Family lawyers, read and heed.

Judge Mark V Holmes called it the brush hog, dissenting in Oakbrook (see my blogpost “They Always Must Be With Us,” 5/12/20). And it certainly does chop through everything in its path.

I refer, of course, to the fixed-price payout at extinguishment, which indiscriminately eviscerates scenic/conservation deductions, syndicated or otherwise, abusive or innocuous.

Today we have Habitat Green Investments, LLC, MM Bulldawg Manager, LLC, Tax Matters Partner, et al., Docket No. 14433-17, Green Creek, LLC (same TMP, Docket No. 14435-17), Turtle River Properties, LLC (same TMP, Docket No. 14434-17), and Charles W. Harris & Jacqueline Harris, Docket No. 24201-15, all filed 6/30/20.

The opinions are much of a muchness. Chas & Jacque play the “Swiss cheese” variation (reserving rights to “…install underground utilities, construct structures necessary for drainage, construct bridges foot, horse, bicycle, and maintenance traffic, and construct certain roads, trails, and walkways–all, we assume, subject to the conservation purposes of the deed.” Order, at p. 3.).

But, at close of play, the fixed-price payout at extinguishment sends off all four.

Judge David Gustafson has the whole thing. And he follows Procrustes by putting them all to bed in the same bed.

“In Oakbrook Land Holdings, LLC v. Commissioner, T.C. Memo. 2020-54, we held a deed violates the “protected in perpetuity” requirement of section 170(h)(5), as interpreted in 26 C.F.R. sec.1.170A-14(g)(6), if the donee’s share of the extinguishment proceeds is reduced by excluding the value of any improvements made by the donor after the date of gift. We reached the same conclusion in Hewitt v. Commissioner, T.C. Memo. 2020-89, where the deed at issue was equivalent to the Deed at issue here. (The provision allocating the proceeds in the event of a judicial extinguishment in the deed in Hewitt contained language virtually identical to the critical parenthetical in paragraph 9.4 in the Deed at issue here).

“Petitioners contend that we misconstrue the regulation. However, we strictly construe Section 1.170A-14(g)(6), Income Tax Regs., see Hewitt, slip op. at *15- 17 (and in the cases cited therein), and such construction requires in the context of allocating proceeds from an extinguishment that ‘the value of post easement improvements may not be subtracted out of the proceeds before determining the donee’s proportionate share.’ Id. slip op. at *19; see also Oakbrook Land Holdings, slip op. at *37-41.” Harris, Order, at p. 6, but the others follow suit, with slight but insignificant variation.

For the story of Dave Hewitt, who saved Daddy’s farm from the mobile homesters, see my blogpost “‘Gude Faith, He Maunna’ Fau’ That’- Part Deux,” 6/17/20.

When the USCCAs get their innings, watch out for the silt-stir. I’m still backing Judge Holmes’ dissent in Oakbrook.

Now lest I be accused of favoring phony dodges, allow me to point out that Judge Holmes said there remains the trial, where Tax Court expertise in valuations will assure that bogus valuations and bogus valuers will share the fate of the crumbling façade easement merchants.

A docket search of Sheila Lynne Rosenthal & Sheri Lyn Holbrook 18392-19S, filed 6/29/20, shows their formidable counsel is none other than Temple Keith Fogg, Esq., Clinical Professor of Law at the redoubtable Harvard Law School.

And Temple Keith and his formidable colleagues are, naturally, au courant with the latest handy hints and kinks in USTC practice. So when their hapless clients petition their small-claimer to the IRS and not to The Glasshouse Gang, resulting in their petition getting to the Glasshouse fifty (count ’em, fifty) days late after IRS at Laguna Niguel, CA relays the same, Temple Keith and crew try the equitable tolling gambit.

I said it was a loser when I edited my blogpost “Le Quinzième Juillet,” 4/10/20, on 4/18/20. “But the explicit Section 6213 language, with the stay of collection, makes the 90-150 day limitation on petitioning a SNOD jurisdictional.” Equitable tolling only works when no prejudice to the other side. But to impose a stay of collection activities after IRS may have reasonably commenced same is muy prejudicial. And the uncertainty such a ruling would create is even worse.

Apparently the Harvard guys reached the same result.

“On January 15, 2020, petitioners filed a Response to the order to show cause, in which they argued that I.R.C. section 6213(a) is not jurisdictional and is subject to equitable tolling. On June 26, 2020, petitioners filed a Status Report, in which they state that they no longer object to the order to show cause issued in this case being made absolute and the Court dismissing this case for lack of jurisdiction as untimely filed. The record establishes that the petition was not timely filed.” Order, at pp. 1-2.

I certainly do not presume to suggest that so exalted a squadron as the Harvard Law School Federal Tax Clinic, the ne plus ultra of pro bono taxologists, deigns to read so paltry a production as this my blog.

Still, as we said on The Hill Far Above: “Harvard…because not everybody can go to Cornell.”

Although I gave credit to Mark Twain for years for this one, it’s really much older. But whether an anonymous English humorist or an anonymous nineteenth-century schoolchild gets the credit, on a Friday in the doldrums, with neither opinion nor designated hitter on the Glasshouse radar, the blogger must take what he can get from wherever he can get it.

So here is the short tale of Juan Carlos Canales, Docket No. 15657-19, filed 6/26/20.

I’ll let Judge Albert G (“Scholar Al”) Lauber tell the story. It is truly a scholar’s tale.

“This case involves petitioner’s Federal income tax liability for tax year 2017. The notice of deficiency asserted that petitioner had received unreported income for 2017, determining a deficiency and an accuracy-related penalty. In his petition petitioner alleged that the income in question was received by his father and uncle, whose names resemble his.” Order, at p. 1.

Remember Sunset Charlie Shaffran, Sr., whose signature so resembled his son’s that he got slugged with $85K in TFRPs when he signed a couple checks (hi, Judge Holmes) for said son’s soon-to-be defunct-restaurant? No? Really? Then read my blogpost “Chi Se Firma È Perduto,” 2/17/17.

IRS is kinder to Juan Carlos than they were to Sunset Charlie.

“… respondent’s counsel filed a status report indicating that the IRS Appeals Office had agreed to a settlement under which the deficiency and penalty ‘would not be sustained.’ This appears to mean that the IRS has decided to concede this case in full.” Order, at p. 2.

But since Juan Carlos didn’t sign off on the decision document IRS proffered, maybe IRS should move for entry of decision showing zero due.

The line that gives me my title is “The plays of Shakespeare were not written by Shakespeare, but by another man of the same name.”