Judge Colvin kicks Martin D. Kirkley and Sheila G. Kirkley, 2020 T. C. Memo. 57, filed 5/13/20, back to Appeals. Mart and Sheila owe the Feds around $3 million from their Sub S, and don’t deny it. They want an IA, but only have around $3K per mensem wherewith to pay, and one bank denied their home equity loan.

Mart and Sheila went to Appeals, but the SO said they had to sell their house and some land their Sub S owned before they could get an IA.

No, says Judge Colvin.

“IRM pt. 5.14.1.4(5) states in pertinent part that the SO should ‘explore the possibility of liquidating or borrowing against * * * assets’ when considering an installment agreement “unless * * * the asset is necessary for the production of income or the health and welfare of the family.’ The property listed to be sold in… the notice of determination includes property used by petitioners’ S corporation and petitioners’ principal residence. The record does not show whether the SO considered whether those properties were ‘asset[s] necessary for the production of income or the health and welfare of the family.’

“IRM pt. 5.14.2.1.2(3) states that when a taxpayer has equity in assets ‘the taxpayer will normally be required to make a good faith attempt to utilize equity before the Service [IRS] will approve a’ partial payment installment agreement (i.e., a payment plan where the taxpayer pays less than the total outstanding liability). However, IRM pt. 5.14.2.1.2(5) states that when the taxpayer cannot ‘secure a loan or liquidate an asset following a good faith attempt to do so, the * * * [SO] will need to make a seizure/levy determination’. IRM pt. 5.14.2.1.2 does not require taxpayers to liquidate all of their assets; instead, it requires that the SO make a ‘levy determination’. Making a levy determination is not the same thing as imposing a levy. Budish v. Commissioner, T.C. Memo. 2014-239, at *19, *22, *25. Thus, IRM pt. 5.14.2.1.2 does not support the SO’s conclusion that petitioners were required to liquidate all their assets before the IRS would accept an installment agreement.” 2020 T. C. Memo. 57, at pp. 10-11. For the Budish case, see my blogpost “Cast in Bronze,” 11/24/14.

And the SO’s notes are so skimpy one can’t tell if or how she did the Section 6330(c)(3)(C) no more intrusive than necessary test.

Remanded. Note to SO – If at all possible, make the deal.

Now for the lien/levy. Mart and Sheila got a NITL and a NFTL. They sent in the Form 12153 timely on the NITL (levy), but 18 (count ‘em, 18) days too late for the NFTL (lien). Judge Colvin wants to know what effect the late lien CDP request has on jurisdiction. And he cites some cases.

Now I’m not giving advice to Mart and Sheila’s trusty attorney, who is doing great. But he might want to consider maybe taking a wee quick peek at my blogpost “Le Quinzième Juillet,” 4/10/20. Equitable tolling of the SOL won’t work for petitions from SNODs or NITLs, because statutory stays are involved, and Anti-Injunction Act considerations arise. But this is a NFTL: there’s no stay of collection. And the issue for the timely Form 12153 is the same for NFTL and NITL: did the SO abuse her discretion?

I never knew IRS was a fan of Woody Guthrie’s. But I do know that STJ Lewis (“Wotta Name!”) Carluzzo, like the late great Woody, “don’t like dictators not much” his own self.

So when IRS claims that the Section 6721(e) check-raise takes the Section 6721(a) $250 a throw for nonfiling of info returns chop to $500 a throw for willfulness by electricity sans Boss Hoss, STJ Lew isn’t having it.

Here’s Soccer Garage, Inc., 6946-19SL, filed 5/13/20. The Soccers failed to file the info returns when IRS asked, so they hit the Soccers with the chops and a motion for summary J. IRS claims Section 6751(b) un-Boss Hosses Section 6721 because computed electronically.

“Respondent’s motion proceeds as though petitioner not only failed to satisfy a filing obligation, but intentionally disregarded that obligation. According to respondent’s motion, supervisory approval did not precede the assessment of the penalties. According to respondent, ‘the section 6721 penalty is one automatically calculated through electronic means and may be assessed without written supervisory approval’. See sec. 6751(b)(2).

“Section 6721(a) imposes a penalty of $250 for each failure to file an information return with respondent on or before the required filing date. Sec. 6721(a)(2)(A). If the employer intentionally disregards the filing requirement set forth in section 6721(a)(2), then section 6721(e) increases the penalty with respect to each failure that would otherwise be calculated under section 6721(a) to $500, or, if greater, 10% of the aggregate amount of the items required to be reported correctly. Sec. 6721(e). As relevant, a failure to file correct information returns under code section 6721(e) is due to ‘intentional disregard if it is a knowing or willful * * * failure to file timely’. Sec. 301.6721-1(f)(2), Proced. & Admin. Regs. Whether a person knowingly or willfully fails to file timely ‘is determined on the basis of all the facts and circumstances in the particular case.’ Id. In this case, we are called upon to resolve the parties’ dispute over the assessment of section 6721(e) penalties.” Order, at p. 2.

IRS’ electronic mind-reader, huh? Not for summary J.

Not while STJ Lew is on the watch.

“It would seem that somewhere in the process of the assessment of a section 6721(e) penalty a human being is required to consider ‘all of the facts and circumstances’ alluded to in the regulation in order to determine whether a taxpayer’s ’disregard’ was ’intentional’. According to respondent, that didn’t happen in this case. If, as respondent’s motion suggests, human input is not required because intentional disregard can be established by inference, then respondent is not entitled to a finding that petitioner intentionally disregarded its filing obligations at this stage of the proceedings.” Order, at pp. 2-3.

Of course, as an assessable, Section 6721 liability can be contested at a CDP, because no prior opportunity to contest, per Section 6330(c)(2)(B).

And intention and willfulness are obviously fact-driven issues, so no summary J.

No, IRS, the whole country hadn’t ought to be run by electricity.

The echoes of Oakbrook Land Holdings, LLC, William Duane Horton, Tax Matters Partner, 154 T. C. 10, filed 5/12/20, and its companion 2020 T. C. Memo. 54, of even date therewith, have already disturbed my morning quiet on this Minor Outlying Island off the Coast of North America.

Taking the title hereof in reverse order, the silt-stir has begun. Ex-Ch J Michael B (“Iron Mike”) Thornton was dealing with an IRS summary J motion in Buckelew Farm, LLC f.k.a. Big K Farms LLC, Big K LLC, Tax Matters Partner, Docket No. 14273-17, filed 5/13/20, when the silt-splash from Oakbrook hit.

Seems “(T)hese opinions address issues similar to those raised in respondent’s motion for partial summary judgment….” Order, at p. 1.

So, “…the parties shall each…file a memorandum setting forth the effect, if any, of the Court’s May 12, 2020, opinions in Oakbrook Land Holdings, LLC, William Duane Horton, Tax Matters Partner v. Commissioner, 154 T. C. __ (May 12, 2020) and Oakbrook Land Holdings, LLC, William Duane Horton, Tax Matters Partner v. Commissioner, T.C. Memo. 2020- 54, on respondent’s motion for partial summary judgment….” Order, at pp. 1-2.

I’ve said it before: Stir, baby, stir – that silt.

But now for a treat.

How ‘bout some non-vacuum-packed hot-smoked whitefish? With a couple slices old-time Russian rye-pumpernickel, salted butter and a wee glass tea (hi, Judge Holmes, this is your party).

Judge Holmes, dissenting in 154 T. C. 10, at, p. 110, starts talking about US v Nova Scotia Food Prods. Corp., 568 F. 2d 240 (2 Cir, 1977). “Nova Scotia also shows what should happen when an agency doesn’t consider significant comments.” And a lot more to the same effect.

That’s like throwing the fish head at Judge Scholar Al, a dab hand with the footnotes.

“Our dissenting colleague errs in relying on United States v. Nova Scotia Food Prods. Corp., 568 F.2d 240 (2d Cir. 1977), to support his position. See dissenting op. pp. 110-113. That case involved a Food and Drug Administration (FDA) regulation establishing minimum ‘time, temperature, and salinity’ requirements for processing fish. The Second Circuit invalidated the regulation as applied to one category of fish product, ‘non-vacuum-packed hot-smoked whitefish.’ Nova Scotia Food Prods. Corp., 568 F.2d at 253. The court first held that the FDA had ‘failed to disclose to interested parties the scientific data and the methodology upon which it relied.’ Id. at 250. ‘When the basis for a proposed rule is a scientific decision, the scientific material which is believed to support the rule should be exposed to the view of interested parties for their comment.’ Id. at 252. The court also held that the agency had failed to consider: (1) evidence that heating ‘certain types of fish to high temperatures will completely destroy the product,’ (2) the suggestion that using ‘nitrite and salt as additives could safely lower the high temperature otherwise required,’ and (3) the suggestion that different processing requirements should be established for different species of fish. Id. at 245. Here, the basis for the proposed regulation was not ‘a scientific decision’; Treasury relied on no undisclosed data when proposing its regulation; the two commenters who opposed the judicial extinguishment rule offered no concrete alternative suggestions; and the concerns they expressed lacked the significance of concerns about destroying the commercial viability of a product, which the Second Circuit aptly described as ‘vital questions’ in Nova Scotia Food Prods. Corp., 568 F.2d at 252.” 154 T. C. 10, at pp. 22=-23, Footnote 17.

Ya gotta love this stuff.

Here’s the second half of Oakbrook Land Holdings, LLC, William Duane Horton, Tax Matters Partner, 2020 T. C. Memo. 54, filed 5/12/20.

Judge Mark V Holmes finds IRS interpreted reg 1.170A-14(g)(6)(ii) correctly; the 501(c)(3) guardian of the conservation easement must get the proportion of the FMV of the property at the date of judicial extinguishment that is the worth of the easement, and not the absolute value at date of granting.

Conservation easements are special, because of the public interest (tax-subsidized) in keeping them. Ordinary easements can be extinguished by mutual agreement; these can’t be. But circumstances may arise where the easement cannot be preserved.

What to do? Split the proceeds. But how?

“The Commissioner would be happier with a regulation that said ‘proportionate share’ instead of ‘proportionate value,’ and Oakbrook would be happier with a regulation that deleted the word ‘proportionate’ from the phrase ‘proportionate value.’ It argues that we should hold that an easement’s conservation purpose would be protected in perpetuity so long as the FMV of a donee’s property interest equals the value of the perpetual conservation restriction at the time of the gift. But ‘proportionate’ isn’t the only part of the regulation that Oakbrook’s reading would have us cut out–it would also force us to excise the rest of the key sentence—‘bears to the value of the property as a whole at that time.’ Sec. 1.170A-14(g)(6)(ii), Income Tax Regs. This reading would have us allocate proceeds through the use of subtraction, not multiplication. Treasury’s regulation writers, however, know how to command subtraction. See, e.g., sec. 1.422-1(a)(2)(ii), Income Tax Regs. (‘[C]apital gain or loss must be recognized * * * to the extent of the difference between the amount realized from such transfer and the adjusted basis of such share’ (emphasis added)). And reading “proportionate” out of “proportionate value”–much less effectively excising an entire chunk of a sentence of the regulation–runs afoul of the traditional rule that courts should attempt to give meaning to every word of a regulation.” 2020 T. C. Memo. 54, at pp. 22-23. (Citation omitted).

Whatever the scenario, the deed falls foul of the reg. “Oakbrook’s Deed violates the regulation because the Conservancy must be entitled to any proceeds from extinguishment or condemnation that are at least equal to the total proceeds (unadjusted by the value of any of Oakbrook’s improvements), multiplied by a fraction defined by the ratio of the FMV of the easement to the FMV of the unencumbered property determined as of the date of the Deed.” 2020 T. C. Memo. 54, at pp. 40-41.

But, of course, Oakbrook isn’t done if 6 Cir reverses 154 T. C. 10. Judge Holmes wrote their decision for them. See my blogpost “They Always Must Be With Us,” of even date herewith, as my high-priced colleagues would say.

Howbeit, Oakbrook and Billy D reasonably relied on the old PLRs, and did everything they could to make sure the deal was OK. So no chops, whatever happens.

John Keats gave voice to Reg. 1.170A-14(g)(6): the thing of beauty must always be with us, or, if extinguished, the 501(c)(3) has to get its fair share of the boodle. So today we get a double helping of Oakbrook Land Holdings, LLC, William Duane Horton, Tax Matters Partner.

Oakbrook is another fixed-price share if judicially extinguished, rather than a proportion.

Let’s start with 154 T. C. 10. Judge Albert G (“Scholar Al”) Lauber, writing for the majority, fills up with Chevron, and allows that Treasury properly considered the 700 pages of commentary on the reg when first proposed. Therefore the Administrative Procedures Act notice-and-comment provision was complied with. And Judge Scholar Al devotes some commentary to the New York Landmarks Conservancy’s proposal, which suggested dropping the whole thing, so I’ll give a shout-out to its present President, my friend Ms Peg Breen. See 154 T. C. 10, at p. 22.

Judges Foley, Gale, Thornton, Paris, Morrison, Kerrigan, Buch, Nega, Pugh, Ashford, and Copeland are down with this. Judge Gustafson likes parts A, B, C, D.1, and D.2, but has nothing to say about the rest.

Judge Emin (“eminent”) Toro says the statute covers the problem, so concurs in the result (dumping the deduction). No reason to go behind the statute and examine the reg. He doesn’t like the Chevron analysis. I’ll leave that to the law review writers. Judge Urda is on board with the concurrence, and Judge Jones likes Part I thereof.

But there’s a dissent. Judge Mark V Holmes may be relegated to senior status, but he tried the case and wrote the opinion (2020 T. C. Memo. 54, of which more later), so he weighs in. And how! Treasury gave a nod-and-a-wink to the comments to the reg. Even if the reg passes procedural tests, substantively it destroys a whole forest of conservation easement deductions. And Treasury overlooked valid comments; while an agency doesn’t have to respond to everything, it must consider serious things. The incantation that all were considered isn’t sufficient. And like a good neighbor, State Farm is there. The four-part State Farm test is lacking here.

And Judge Holmes cuts to the chase: “Conservation-easement cases might have been more reasonably resolved case-by-case in contests of valuation. The syndicated conservation-easement deals with wildly inflated deductions on land bought at much lower prices would seem perfectly fine fodder for feeding into a valuation grinder. Valuation law is reasonably well known, and valuation cases are exceptionally capable of settlement.

“Congress, however, enacted these sections of the Code and presumably wanted reasonably valued conservation easements to be allowed. Yet we’ve come to a point where we are disallowing a great many conservation-easement deductions altogether, not for exaggeration of their value or lack of conservation purpose, but because of very contestable readings of what it means for an easement to be perpetual.” 154 T. C. 10, at pp. 126-127.

What the majority does is insert invalidity into the overvaluation calculation.

“I fear that our efforts to clear cut and brush hog our way out of the volume of conservation-easement cases we have to deal with has left us a field far stumpier than when we began.” 154 T. C. 10, at p. 128.

This case is Golsenized to 6 Cir. I’ll bet there’s an appeal. And I make the morning line 3 to 1 on Judge Holmes. And I’ll even forgive him “just a couple years ago.” 154 T. C.10, at p. 110.

A couple weeks ago (hi, Judge Holmes) I celebrated the ninetieth birthday of Steven Sondheim with ASTEP, a most worthy cause that even pried a couple kopeks out of my notoriously tight fist. And today we have a sequel to Steve’s (and Richard Rodgers’) 1965 opus.

Here’s Barclay L. Douglas, Docket No. 22207-18, filed 5/12/20, a special day for a dear one far away. But Barclay is something else. I’ll let Judge Albert G (“Scholar Al”) Lauber take up Barc’s story.

“Counsel for respondent notes that petitioner is a finance professional who had substantial income during 2011-2016, and that his failure to file returns reporting that income have generated deficiencies and additions to tax that exceed $1 million.” Order, at p. 2. Un bello spendere, as they say in super-Tuscan vineyards.

Back last October, IRS tried to toss Barc for non-prosecution after extensive ducking, but Judge Scholar Al ran a phoneathon, where Barc and IRS promised to work and play well together. Judge Scholar Al gave them a continuance, and told them to check in with him in January.

IRS then reported that Barc was MIA. Judge Scholar Al issued an order to Barc to get with it or get tossed.

“On March 16, 2020, respondent’s counsel filed a status report representing that petitioner had continued in his refusal to respond to phone calls and letters.” Order, at p. 2. IRS’ counsel listed a bunch of tries, but Barc laid low. So Judge Scholar Al again told Barc to play nice or get tossed.

“On May 8, 2020, respondent filed his second Motion to Dismiss for Failure to Properly Prosecute. Counsel for respondent represents that petitioner recently telephoned him inquiring about the status of the case and stating that: (1) he has engaged an accountant to prepare returns for the 2011-2016 tax years at issue, but that the returns are not yet compete; (2) he would still like to meet with the revenue agent assigned to this case; and (3) he would object to the granting of a motion to dismiss for lack of prosecution.” Order, at p. 2.

IRS’ counsel says Barc is waltzing, so stop the music.

But Barc is saved by the pandemic. It’s an ill wind, and all like that.

“While respondent’s contentions have force, we will give petitioner one final chance to avoid dismissal of this case, influenced in part by concerns surrounding the COVID-19 epidemic. If petitioner wishes to avoid dismissal of this case he must see to it that certain steps are taken by the deadlines set in this Order.” Order, at p. 2.

So let Barc get his accountant to give IRS Form 2848 POA, and talk about when these returns get filed. And report back at the end of June.

Judge David Gustafson could have done no more.

Back in the winter of ’15, Winter Storm Octavia blew through Our Nation’s Capital and shuttered the Glasshouse on Second Street. And then-STJ Armen, the Judge With a Heart, crafted an exception to the Iron Law of wet ink snail mail on time. See my blogpost “Blow, Blow, Thou Winter Wind – Part Deux,” 8/24/15.

Well, last week the Octavia Rules were applied to applications to take the Tax Court Bar exam. Aspirants for torture can e-mail their forms. Here’s the skinny.

OK, so everyone who has a case is urged to sign up for eAccess. And if you don’t have a case but want to represent those who do, you can e-mail your application. While the press release doesn’t say so, why shouldn’t attorneys admitted in any US jurisdiction be allowed to seek admission via e-mail or e-filing?

And even more to the point, why can’t petitions and amendments thereto be filed electronically? Rule 34(a), effective 11/30/18 says, in pertinent part, “A petition may be filed electronically under the electronic filing procedures established by the Court, or a petition may be filed by properly mailing or hand delivering it to the Court.” So what’s holding up the parade?

Octavia was a one-day wonder. COVID-19 is here for the long haul.

All y’all who are bashing the FRE, the Tax Court Rules, and the Code and regs, in hot pursuit of the non-attorney admission to USTC via the toughest Bar exam around, thank the virus.

COVID-19, proving that it is indeed an ill wind that blows no one some good, has given you more study time.

Like a year’s worth.

Here’s the hot flash from The Glasshouse.

I hesitate to draw a sweeping conclusion from a single instance. Except our commonlaw system is a “wilderness of single instances.”

So perhaps STJ Lewis (“Gets It Right Every Time”) Carluzzo’s designated hitter today is more than just another voice crying in the wilderness.

Here’s Salvador Vasquez, Docket No. 10386-19S, filed 5/11/20.

Sal never responded to IRS’ multitudinous pretrial approaches to ready his case for trial. So IRS wants to dismiss Sal’s petition from a SNOD for want of prosecution.

“The failure of a party: (1) properly to prosecute; or (2) to comply with Court Rules or orders; or (3) to appear for trial, are grounds for dismissal. See Rules 104(c)(3), 123(b) and 149(a).” Order, at p. 1. (Footnote omitted). No quarrel with that.

But it is the severest and harshest sanction known to Tax Court Rules. You’re out, and since by the time you’re tossed the magic 90 (or 150) days to petition the SNOD is gone, never to return.

So since trial was set for June 1, but the trial session was postponed sine die, “(U)nder the circumstances and at this stage of the proceedings, we are reluctant to impose the harsh sanction that respondent requests.” Order, at p. 1.

However, lest Sal become too elated, like a much more exalted personage he gets a thorn in his flesh: “Our reluctance, however, to impose the sanction at this time in this case should not in any way be taken as a suggestion that a party’s behavior, as petitioner’s behavior is described in respondent’s motion, could not support such a sanction under appropriate circumstances.” Order, at p.1.

I know this is a small-claimer, unreviewed, off-the-cuff, don’t-quote-me, nonprecedential.

But something in me asks: Is it time for a verse or two of the late great Steve Allen’s 1954 hit? “This could be the start of something big”?

We all must recognize and help, to the extent we can, the waitstaff furloughed by COVID-19. It’s a tough job. My only experience of that life, as a dining room orderly (the best job on KP at Fort Jackson, and I only got it once), taught me that much. Separate orders, separate checks, are only two of the many things that cross and vex them.

Tax Court has a plethora of such problems for counsel who venture into the floating world of USTC.

Here’s Norma L. Slone, Transferee, et al, Docket No. 6629-10, filed 5/11/20. Except Norma has three (count ‘em, three) companion cases all conjoined. And two attorneys trying to join the fun.

Apparently each of the two has figured out that he need file a separate Entry of Appearance for himself. But both apparently missed the fact that, even if the cases be consolidated, he needs a separate Form 7 for each.

Judge Vasquez has a busy day trying to match clients with attorneys.

“…the entries of appearance are designed as entries of appearance for the case docketed at 6629-10 only.

“If counsel wish to enter appearances in the cases docketed at 6630-10, 6631-10, and 6632-10, they must file separate entries of appearance for each docketed case. See Rule 24(a)(3).” Order, at p. 1.

Note-while the docket search shows a motion to consolidate, it doesn’t show whether the motion was granted, although the cases all appear to have been tried together, and appealed to 9 Cir together. For the backstory, see my blogpost “Substance Matters – Part Deux,” 6/13/16. And for the upshot, see Norma Slone, Transferee v. CIR, 16-73349, 9 Cir, 2018.