How many times have I said it: “stipulate, don’t capitulate”? Too many. Here’s one follow-up, Vishal Mishra & Ritu Mishra, Docket No. 16492-18, filed 6/3/20. I’m sure all y’all will remember Vishal & Ritu; no?

Dig my blogpost “Backing Out,” 4/28/20.

Judge Albert G (“Scholar Al”) Lauber told Vishal & Ritu to dish why they should be let out of their stip to the Section 6662(a) chops.

“The stipulation reflected major concessions by both parties: Respondent conceded more than half of the deficiencies, and petitioners agreed that they were liable for the balance of the deficiencies and ’for accuracy- related penalties pursuant to I.R.C. §6662(a) for the 2014 and 2015 taxable years.’” Order, at pp. 1-2.

Judge Scholar Al asked Vishal & Ritu for their story back in April.

“petitioners filed a response to respondent’s motion stating that they did ‘not wish to concede that they are liable for an accuracy-related penalty.’

“Contrary to the plain language of the stipulation that they signed, they assert that ‘there was no mention of a 20% penalty being added to the agreed upon numbers.”” Order, at p. 2.

Judge Scholar Al holds them to the deal.

“Paragraph 5 of the stipulation of settled issues plainly states that ‘the parties stipulate and agree that petitioners are liable for accuracy-related penalties pursuant to I.R.C. § 6662(a) for the 2014 and 2015 taxable years.’ That concession is utterly unambiguous.” Order, at p. 3.

Judge, I most respectfully submit it is ambiguous.

Not to you, or to me, or to Vishal’s & Mitu’s able counsel.

Maybe so we’ve all of us been doing this too long, or maybe too often we’ve represented sophisticated clients who know as much as we do, if not more.

But I’ll wager a few quid that Vishal & Mitu don’t deal with IRC Sections every day. We know what the Section 6662 accuracy, negligence, and five-and-ten substantial understatement of tax 20-percenters are.

They don’t. A Code Section in the middle of a lengthy stip is gibberish to the unsophisticated. So maybe IRS, and certainly we practitioners, should put the precise dollar amount of the chops in our stips.

Lest anyone jumps on me for claiming unilateral mistake of law or fact voids a contract, take it slow. I know that they don’t. I know a stip is a contract.

Likewise before claiming I’m playing Monday-morning quarterback with Vishal’s & Mitu’s able counsel, I’ll confess that, under time pressure, I’ve also overestimated clients’ comprehension as I’ve read a document to them, and didn’t check for the deer-in-the headlights look.

Yes, I know interest is another story, and we can’t know precisely how much that will be.

But guys, I’m only giving a practice hint here.

Thomas M. McCarthy, 2020 T. C. Memo. 74, filed 6/3/20, receives a lecture from ex-Ch J Michael B (“Iron Mike”) Thornton in the above-entitled course. Only the tuition isn’t cheap; Tom gets a $7K deficiency confirmed.

Tom is a CPA with an MBA. His chum JQ is also a CPA, plus an attorney and tax preparer. Tom claims he bought a stake in JQ’s CA MacMansion, which he paid for with a note and deed of trust (unrecorded). Instead of paying cash, he claims JQ owed him money, so he forgave the debt. He also claims he lived there some time during year at issue. Except both his return for year at issue and his petition show a MN address, which he says is a rental where he lived with his parents.

It gets better. Tom owned a NYC co-op apartment, which he rented to an unrelated for the entire year at issue, yet took his mortgage interest deduction on Sched A, not Sched E. My ultra-sophisticated readers will no doubt exclaim “rental real estate equals passive deduction against passive income, not ordinary deduction against ordinary income!”

Tom tries the Section 163(h)(4)(A)(i) two residence gambit. “On his [year at issue] Federal income tax return petitioner did not ‘select’ either the New York City property or the [CA] property as his second residence, nor did he indicate on his return which of these properties he regarded as his principal residence. Neither the Code nor the regulations fix the time or manner by which a taxpayer makes a selection of the ‘1 other residence’ under section 163(h)(4)(A)(i)(II). Accordingly, making the selection in litigation is acceptable.” 2020 T. C. Memo. 74, at p. 7. (Citations omitted).

So Tom is cool when he claims NYC coop as principal residence on trial, right?

Wrong. Tom filed MFS. “Pursuant to section 163(h)(4)(A)(ii)(II), if a married couple does not file a joint return for the taxable year, each of them ‘shall be entitled to take into account 1 residence unless both individuals consent in writing to 1 individual taking into account the principal residence and 1 other residence.’ The record does not reflect that petitioner and his wife both consented in writing to petitioner’s taking mortgage interest deductions with respect to more than one residence. Consequently, petitioner is precluded from claiming mortgage interest deductions with respect to both the New York City property and the [CA] property. The Code does not make clear, however, in these circumstances which of these properties, if either, should be considered the ‘1 residence’ that petitioner may take into account pursuant to section 163(h)(4)(A)(iii). “ 2020 T. C. Memo. 74, at p.8. As Ben Franklin put it, “He that would thrive, must ask his wife.”

Anyway, Tom is out because he can’t prove he ever lived in the NYC coop during year at issue. While Tom claims there is a saver per Section 121 (using a carryover from old Section 1034, which it replaced), he can’t show that he moved and rented because he couldn’t sell.

“The lack of a ready market for selling a property may be taken into account in determining whether the property remained the taxpayer’s principal residence after he moved out; if the taxpayer’s efforts to sell the property demonstrate that his dominant motive was to sell the property at the earliest possible date instead of holding it for rental income, the property would not necessarily cease to qualify as the taxpayer’s principal residence.

“Petitioner asserts that renting his New York City property was a financial necessity for him in [year at issue] because a downturn in the real estate market during the 2008 financial crisis had caused the New York City property to be worth significantly less than he had paid for it. He asserts that he sold the property in [year at issue plus one]. Petitioner has offered no evidence, however, as to what he paid for the New York City property (or exactly when he bought it), what he sold it for, what efforts he made to sell the property after he moved out…, or to what extent market conditions might have created a bar to his selling the New York City property when he moved out of it….” 2020 T. C. Memo. 74, at pp. 10-11. (Citations omitted).

And Tom flunks the driver’s license, employment, mailing address, voter registration, motor vehicle registration, religious institution and civic activities tests for residence. It’s MN all the way.

The CA MacMansion fares no better.

Tom has a note and a deed of trust (that’s a CA mortgage), and a document supposedly tying them together, that he says shows the debt for which he claims his CA interest deduction. “The aforementioned deed of trust includes an acknowledgment form indicating that the document was notarized on December 16, 2004, and that the notary’s commission expired January 28, 2007. At trial neither petitioner nor Mr. Rodgers, who testified as petitioner’s witness, was able to explain why the purported deed of trust shows that they both signed it January 13, 2010, but that it was notarized in 2004 by a notary whose commission expired in 2007. Furthermore, neither petitioner nor Mr. Rodgers was able to explain adequately the provenance of any of these documents. The unexplained inclusion of an obviously fictitious acknowledgment form as part of the deed of trust, as well as the lack of a clear explanation as to where these photocopied documents even came from, calls into question the genuineness and trustworthiness of these three interrelated documents.” 2020 T. C. Memo. 74, at p. 15-16. Anyway, even if this stuff got into evidence, which it didn’t of course, no showing the deed of trust was recorded, so the debt is unsecured under CA law. See Reg. Section 1.163-10T(o)(1)(ii).

Ex-Ch J Iron Mike says JQ was an attorney. If I saw a client trying to put this stuff in evidence, I’d ask for an in-chambers and wouldn’t even keep the ripcord.

There’s more, but we can stop here, unless you enjoy watching a case go down in flames.

But IRS has their own problems. Note the dates, because they’re relevant.

“…respondent relies exclusively on a notation in a one-page stipulated exhibit captioned ‘Correspondence Examination Automation Support’, dated April 25, 2018. On this document in a single line entry dated September 6, 2017, with an indication that it was ‘Submitted by’ an otherwise unidentified ‘Brodnax Felicia L’ and with an indication that the ‘Action Type’ is (mysteriously) ‘Non Action’, the ‘Note’ states in its entirety: ‘6662 penalty approved’. Without any other supporting evidence or explanation or elaboration, on brief respondent argues that this document “reflects the timely managerial approval of the accuracy-related penalty.’ Respondent’s position is problematic for a variety of reasons.” 2020 T. C. Memo. 73, at p. 28.

I’ll leave it to my ultra-sophisticates to enumerate the reasons. Or they can read for themselves, to check their answers.

This blogpost is long enough.

Jason B. Sage, 154 T. C. 12, filed 6/2/20, was a real estate type caught in the Black ’08. He had three deals in hock to two banks, so he put them, via the standard S Corp – LLC daisychain, into liquidating trusts, with one of his management outfits as trustee and the lenders as beneficiaries. The initial draft of the trust instruments had the usual wordprocessing hangovers and technical delicts, showing the drafter took the last deal they did and doctored same, without “search and replace.” 154 T. C. 12, at p. 8. No, I’m not gloating; I’ve done that too, but the errors got caught before they got to court.

The trust instruments did track the language of Reg. Section 301.7701-4(d). JB structured the paperwork so that he assigned the membership interests in the LLCs that had the parcels to the lenders, and they in turn simultaneously transferred the interests to the respective trusts in exchange for beneficial interests therein. And JB would take a Section 165 loss for the difference between debts and FMV of his subaqueous realty, using carryback and carryforwards thereof.

He only told the lenders after the fact.

And he told the county transfer tax authorities that the property was “not being sold, but simply transferred to another wholly owned entity” with “no transfer of debt”, in order to “create a liability protection entity.” 154 T. C. 12, at p. 10. I’ve seen people play fast-and-loose with local transfer taxes, playing for pennies when telling the truth and paying up would help secure the deal. Head-shake.

IRS changed their trial theory from those of the SNODs they gave JB, so they do have BoP. But I’m sure my hip readers, whether or not under curfew, have already shouted “closed and completed!”

So did Judge Patrick J (“Scholar Pat”) Urda. The key is whether or not JB was no longer owner of the trust in year at issue; see Reg. Section 1.677(a)-1(d). Since each trust’s sole function was to pay off JB’s debts, the trusts weren’t separate from JB’s passthough. So no “closed and completed” transaction in year for which loss was asserted. No loss in year at issue, no carryback, no carryforwards.

Judge Scholar Pat puts it simply. “The [year at issue] transfers accordingly did not accomplish bona fide dispositions of the property evidenced by closed and completed transactions as necessary to support the losses ultimately reported by [passthrough] and passed on to Mr. Sage.” 154 T. C. 12, at pp. 24-25. (Footnote omitted, but I’ll summarize in the next succeeding paragraph hereinbelow, as my high-priced colleagues would say.)

The footnote says JB’s argument that lenders weren’t legally obligated to take whatever cash the trusts threw off to pay down the debt doesn’t matter. Even though Reg. Section 1.677(a)-1(d) speaks of nonadverse parties: says money may (emphasis by the Court) be applied to debts of the grantor-owner; and trust beneficiaries are usually adverse parties, no one is an adverse party if you give them money. Anyway, legally obligated or not, the lenders took the money.

I’m sure my readers, whether they first saw Snuffy as parents or children, recall Big Bird’s BFF Mr. Snuffleupagus, whom no adult could ever see, despite Big Bird’s assiduous efforts. 

Well, today Bert Kroner, 2020 T. C. Memo. 73, filed 6/1/20, finds himself situated as did Big Bird before the celebrated Episode 2096. And alas, ex-Ch J L Paige (“Iron Fist”) Marvel has not the imagination to conceive that Mr H (name omitted, but the latter-day counterpart of Will Shakespeare’s “onlie begetter”) could have gifted Bert with $24.775 million as soon as Mr H bailed out of some cashflow-financing deals.

For the latecomers, cashflow-financing means buying up structured settlements, lottery winning payouts, and similar payment-over-time deals by paying recipients spot cash and taking assignments of the remaining income stream. Sort of OID-on-steroids.

Bert and Mr H, who was a UK US-indifferent, did some deals together, and according to Bert and Mr H’s attorney (whom I’ll call Bob and who later became Bert’s attorney as well), became real chummy.

So chummy, in fact, that whenever Mr H cashed out heavy-duty on a cashflow financing deal, he gave his buddy Burt seven figures. Bert split the beneficence among some entities, on and off shore, that Bob set up for him aided by Mr H’s associate, whom I’ll call Mr M.

Bert claimed these were all motivated by “detached and disinterested generosity, out of affection, respect, admiration, charity or like impulses.” 2020 T. C. Memo. 73, at p. 8, and so neither reported nor paid tax on any thereof, per Section 102, as advised by Bob.

We should all have such friends.

Of course, the one who can best explain this munificence is Mr H. Except Mr H never shows for the trial, and Bert has no idea where he lives or even what his phone number is. 2020 T. C. Memo. 73, at p. 17, footnote 8.

“The intention with which Mr. H made the transfers is the most critical factor. Although the Court granted petitioner’s motion in limine to preclude the drawing of any adverse inference from Mr. H’s absence at trial, the Court also warned the parties on multiple occasions of the importance of hearing Mr. H’s testimony. The Court’s ruling on the motion in no way relieved petitioner of his burden of proving Mr. H’s intention by a preponderance of credible evidence.” 2020 T. C. Memo. 73, at p. 9.

So it’s time for the trier-of-fact to sort through the evidence.

The only paper is a one-page note drafted by Bob and Mr M, who also authenticate Mr H’s signature. It gets into evidence, over IRS’ objection, per FRE 803(3). “Rule 803(3) of the Federal Rules of Evidence excludes from the rule against hearsay statements that describe a declarant’s then- existing state of mind (such as motive, intent, or plan). Because we find that rule 803(3) applies, we admit the note over respondent’s objection.” 2020 T. C. Memo. 73, at p. 20. But ex-Ch J Iron Fist says it’s not credible evidence.

Neither is Bert’s trial testimony. In fact, since on one deal Bert was barred by a noncompete from being in the business, it looked like Mr H was Bert’s nominee. And Bert allegedly acted as nominee for Mr H on another deal.

Before we leave Bert and his deficiencies, remember I said in my immediately previous blogpost this date that the only time IRS loses on BoP is Graev defects in Boss Hossery? Well, here IRS does it again. The RA hits Bert with a Letter 915 and then a Letter 950, each time attaching Form 4549. What IRS didn’t have was a CPAF signed off by Boss Hoss before either.

IRS’ claim that the Letter 915 was merely a request for information and not a 30-day letter goes the way of Bert’s testimony. Titles mean nothing; substance means everything.

$1.7 million in chops vanish with Mr H.

Perhaps Estate of Mary P. Bolles, Deceased, John T. Bolles, Executor, 2020 T.C. Memo. 71, filed 6/12/20, might have been assigned to Judge Patrick J. (“Scholar Pat”) Urda, or his equally scholarly colleague Judge Albert G (“Scholar Al”) Lauber, but now the mantle of Publius Ovidius Naso (to say nothing of the carapace of Franz Kafka) falls upon Judge Goeke.

The late Mary wanted to split the not-inconsiderable loot she and late husband (“late” as in both divorced and dead) accumulated among their five (count ‘em, five) offpsring. So the late Mary, before she became the late Mary, created a loan structure, with advances and repayments within the annual exclusion and lifetime exemption limitations.

We’ve all worked on those; rarely is it rocket science. Except Pete.

Pete was Number One Son. He inherited late father’s architectural talents but not his business acumen. So Mary transferred from the family trust she controlled better than $1 million to Pete over a 22-year span. Pete did make some repayments the first couple years (hi, Judge Holmes), but never thereafter.

Mary next created a self-settled trust, cutting Pete out of everything, and then engaged Karen Hawkins, Esq., to straighten matters out with Pete, and recast the loan-gift situation. I wonder if this was the same Karen Hawkins who later became chief of OPR while Chair-Elect of the ABA Tax Section (to which august body I do not belong), and as OPR chief ran the revision of Circular 230. She had practiced on the Left Coast when Mary was dealing with Pete. Since Judge Goeke names her specifically, that’s strong evidence.

She amended Mary’s trust to recharacterize the advances to Pete as loans, and papered accordingly. But being a good lawyer, she left herself a out, namely, that if IRS held the note Pete gave was adjudged worthless, they were all gifts. IRS drops the worthless note argument.

The ex’r claims loans, IRS claims gifts, and Judge Goeke decides metamorphoses.

First, IRS drops interest on the gifts; it was never in the SNOD or the Answer, nor did IRS amend. Second, BoP. The ex’r claims IRS has it.

“While petitioner’s position has merit, we do not need to resolve the issue because the evidence in this case permits a resolution on the record of trial, and we do not rely on the burden of proof to decide this case.” 2020 T. C. Memo. 71, at p. 9.

If anyone remembers the last time IRS lost on BoP, other than a Graev lapse in Boss Hossery, please raise your hand. You’re better than I.

But, spoiler alert, the loans are gifts. At least mostly.

“While Mary recorded the advances to Peter as loans and kept track of interest, there were no loan agreements or attempts to force repayment. Respondent focuses on the lack of security for the loans to Peter. We agree that the reasonable possibility of repayment is an objective measure of Mary’s intent. The estate maintains that during her life Mary always considered these advances as loans. We cannot reconcile this argument with the deterioration of Peter’s financial situation and the ultimate failure of his practice in San Francisco and later in Las Vegas.” 2020 T. C. Memo. 71, at p. 10.

So there came a metamorphosis.

“Peter’s creativity as an architect and his ability to attract clients likely impressed Mary. We find she expected him to make a success of the practice as his father had, and she was slow to lose that expectation. However, it is clear she realized he was very unlikely to repay her loans by October 27, 1989, when her trust provided for a specific block of Peter’s receipt of assets at the time of her death. Accordingly, in 1990 the ‘loans’ lost that characterization for tax purposes and became advances on Peter’s inheritance from Mary. In conclusion, we find the advances to Peter were loans through 1989 but after that were gifts. We have considered whether she forgave any of the prior loans in 1989, but we find that she did not forgive the loans but rather accepted they could not be repaid on the basis of Peter’s financial distress.” 2020 T. C. Memo. 71, at pp. 10-11.

In intrafamily loans, reasonable possibility of repayment is a big deal.

If you want to spring for the “fitty cent a throw, three George cap” on USTC documents of record, the hard-laboring clerks afar remote from the Glasshouse are ready to serve them up. Just call them and they’ll e-mail you the papers.

Here’s the official word: https://ustaxcourt.gov/press/05292020_copies.pdf

Note they don’t tell you how to pay, so have your credit card and bank routing/account numbers handy.

Edited to add: As before, you may use pay.gov to make payment.

Having wholly-owned or controlled corporate-type entities as placeholders or fronts isn’t necessarily a tax dodge. But IRS is distinctly inhospitable when taxes are on the table.

Ch J Maurice B (“Mighty Mo”) Foley expatiates thereon in River X, Inc., Docket No. 22324-19L, filed 5/29/20.

There’s a bunch of years, taxes, TFRPs and assorted penalties. And IRS claims River X is a nominee or alter ego of the Xaviers.

But missing from this picture is a SNOD or NOD. The case comes up on a motion to restrain or refund.

After the usual “we’re only a little court with limited jurisdiction” patter, Ch J Mighty Mo man-splains the alter ego-nominee story.

“Petitioner’s assertion that as a ‘person liable for the tax’ it is entitled to its own CDP rights is misplaced. Regulations promulgated under sections 6320 and 6330 state that known nominees of, or persons holding property of, the taxpayer are not entitled to a collection due process or equivalent hearing. Secs.301.6320-1(b)(2), Q&A-B5; 301.6330-1(b)(2), Q&A-B5, Proced. & Admin. Regs. The Internal Revenue Manual (IRM) also explains that the ‘terms often interchange or overlap, but “alter egos” are usually corporate and business entities controlled by the taxpayer, whereas “nominees” are usually individuals who clearly have a separate physical identity.’ IRM pt. 5.17.2.5.7(3) (Jan. 8, 2016). The IRM further explains that although a nominee or alter ego is not entitled to CDP rights, the nominee or alter ego may appeal the filing under the Collection Appeals Program (CAP) process. IRM pt. 5.12.6.3.11(2) (Jan. 19, 2018). Any determination resulting from a CAP appeal, however, is not sufficient to invoke this Court’s jurisdiction. See e.g., IRM pt.5.1.9.4(5)(Feb.7.2014).” Order, at p. 3.

Note- A CAP is sort of equivalent hearing lite.

And since there’s no CDP or petition therefrom, Section 6330(e)(1) bars restraining levies. And in any case, even with a CDP or petition therefrom in play, nothing bars or lifts a NFTL.

If the Xaviers think IRS grabbed improperly, “…I.R.C. section 7426 provides that a person, other than the taxpayer, who is subject to a wrongful levy may bring an action in a District Court.” Order, at p. 5. More about that in my blogpost “Whose Money Is It Anyway?” 1/11/12.

The slogan of old Household Finance Corp. echoes through our profession. In recent years, I’ve gotten pitches from litigation lending outfits that will lend money against a home run in the courtroom. Those loans were real loans, although nonrecourse. And anyone taking such would be wise to put the proceeds in their escrow account, appropriately labeled and documented, and draw out the funds only to pay expenses and legal fees.

Judge Lauber comes down heavily on David A. Novoselsky and Charmain J. Novoselsky, 2020 T. C. Memo. 68, filed 5/28/20. It’s Dave’s story.

Dave was a Chicago litigator suing the State of IL for allegedly grabbing fees to which it was not entitled. Somehow doctors were among the grabbed, and a couple doctors (hi, Judge Holmes) ponied up better than $1.4 million, nonrecourse, stated interest but no promissory note or periodic payments, payout due only if Dave and co-counsel bring home the cliché.

Dave never reported the loan proceeds as income (or anything else), and also conceded he didn’t report another $253K. 2020 T. C. Memo. 68, at p. 2, footnote 2.

Now loan proceeds aren’t income, but there must be a noncontingent obligation to repay and a reasonable possibility of repayment. For the standard trudge through the factors, see 2020 T. C. Memo. 68, at p. 20, with 7 Cir no-factor-controlling gloss, and the overwhelming question “Was there a genuine attempt to create a debt, with reasonable expectation of repayment?”

Not this time. The contingency kills the loan.

But Dave had a saver. He could have treated the litigation support proceeds as trust funds, to be applied to fees only as earned (with hourly billing records; courts love those), and expenses per vouchers cataloged “through every passion ranging,” as a much finer writer than I put it.

Except he didn’t.

“The agreements stated (for example) that the money was to be ‘used to pay for all time and expenses incurred by NOVOSELSKY in pursuant [sic] of this litigation.’ If the funds had been meant to be held in trust, Mr. Novoselsky would not have been permitted to keep the money in his personal or business account. See Ill. S. Ct. R. Prof’l Conduct 1.15 (requiring that trust funds be kept separate from the lawyer’s own property). Nothing in the record suggests that Mr. Novoselksy held the counter-parties’ funds in a separate trust account.” 2020 T. C. Memo. 68, at p. 27. (Footnote omitted).

I note that the omitted footnote cites an IL case that says advance retainer fees belong to the firm and not the client. But those fees haven’t been earned yet. And in such a case as this, I’d be surprised if an attorney would be faulted for treating those advance payments as the clients’ money until earned, or expended in pursuance (hi, Judge Lauber) of the clients’ litigation. I always do.

I have discomposed numberless electrons praising the obliging nature of Judge David Gustafson. But there are limits, and today he establishes that Daniel E. Larkin and Christine L. Larkin, 2020 T. C. Memo. 70, filed 5/28/20, have stretched his patience to the limit.

Dan is a high-priced colleague in a big-time Cleveland OH firm, to an associate’s berth in which we were taught to aspire in my young day on the Hill Far Above. Needless to say, I never got there. Y’all might recall Dan and Chris from my blogpost “Obliging? He Lets It All In,” 3/14/18.

Well, after the continuances, the lawyer swaps, the trial and the post-trial briefing, Dan does less than brilliantly in USTC, despite his equally high-priced counsel.

“The Larkins did not make a plausible showing of reasonable cause and good faith. Their record-keeping was in disarray; they failed to timely report large amounts of income; they claimed substantial deductions for which they had no proof at all and others for which their proof was insufficient.

“The Larkins are sophisticated business people. Mr. Larkin is a highly educated attorney with more than 20 years’ experience dealing in a variety of complex transactional matters. He was certainly capable of keeping appropriate, contemporaneous records, preparing detailed notes, and distinguishing personal from business expenses, yet the evidence he used to substantiate their deductions shows that he failed to make these efforts. Mr. Larkin disregarded instructions for properly completing his returns, as evidenced by his failure to attach underlying documents and the forms and calculations required to claim certain loss deductions. Such inaccurate and misleading income tax reporting does not reflect a reasonable attempt to comply with the Code.

“There is no evidence besides Mr. Larkin’s testimony that the Larkins sought advice in the preparation of their returns. The evidence shows that Mr. Larkin did little more than briefly consult with individuals at his place of employ; and he did not say who those individuals were, what information the Larkins provided to them, or what specific advice they supposedly gave. Moreover, Mr. Larkin clearly assumed the ultimate responsibility for the preparation of his returns.” 2020 T. C. Memo. 70, at pp. 71-72.

But before I go, there’s one point Judge Gustafson makes that wants repeating. Dan tries three (count ‘em, three) separate tries to reopen the record to put in stuff. At the end of trial, Dan moved to leave the record open yet again.

Judge Gustafson has about lost patience with Dan and his delaying tactics. This is from the bench.

“I’m going to deny your very broad motion to leave the record open so that you can bring in anything that relates to any deduction already at issue in the case.

“However, I am going to do so without prejudice to your renewing that motion when you have specific documents that you wish to offer. * * * You are free to file whatever motion you wish. I will tell you that a motion filed after 45 days…when Respondent [’s counsel] begins to work on her brief and invests time in it, and then you would be changing the ground underneath her, that would not be just.” 2020 T. C. Memo. 70, at p. 16.

My kind of Judge.

The words Neil Sedaka sang, and he and Howard Greenfield wrote, in 1962, fast-forward fifty years, typify the case of Roland J. Thoma and Donna M. Thoma, 2020 T. C. Memo. 67, fled 5/27/20. And they summarize the 104 (count ‘em, 104) pages of Judge Morrison’s prose and tables.

I’m sure all you practitioners have seen the sale of a practice or business, where the founding senior partner sells to the junior, and they do a role-reversal. Whereby junior becomes senior, but senior hangs around to smooth the transition, comfort the clientele, and make sure junior don’t loot the cookie jar until senior has his (it’s usually “his”).

Senior wants to claim he’s still a partner, to get SE treatment and those good above-the-line write-offs. And of course the junior wants to keep the goodwill, for which he’s paying big bucks. But junior has also bought the shop, so senior’s powers are severely constrained. Senior would like limited partner status, but the Luna factors impinge, and thereby hangs the tale. For a quick refresher on Luna, see my blogpost “Substance Over Form,” 2/11/11, and 2020 T. C. Memo. 67, at pp. 64-65.

The Luna analysis is thoroughly fact-driven, and I won’t drive over Judge Morrison’s 104-page extravaganza.

But the key takeaways are the limitations on what Roland, outgoing alpha-accountant, could not do pursuant to the buyout agreement. What ultimately sinks Roland’s claim to guaranteed payments, partner status, or even IC, is that, when junior tossed him claiming misconduct, he filed for and won unemployment compensation.

And his eventual success getting junior to cough up the balance of the purchase price for the CPA practice doesn’t help.

Of course, as Roland is a CPA with beaucoup years of experience, the chops rain down.