IRS claims they haven’t a clue that a bunch of purported non-taxable stock purchases were really payments to settle patent infringement cases, wherefore nondisclosure triggers the 6SOL substantial omission of gross income. Naturally, Acqis Technology, Inc. and Consolidated Subsidiary, 2020 T. C. Memo. 38, filed 3/26/20, tell Judge Ruwe that IRS should have twigged to their little ballet at once, 3SOL and thus IRS is SOL.

Acquis had a bunch of ultra-tech patents. They claimed the likes of IBM, H-P, and Oracle infringed thereon. Laying a blast on these Fortune 50s, Acqis picked up about $30 million and the Fortunates got bundles of Acqis Class B stock, with which now one could relieve oneself of a shortage of an extremely necessary domestic article, and a couple license agreements (hi, Judge Holmes).

There were also cash settlements with other alleged infringers, but those were reported and play no part here.

Acquis claims contributions to its capital, no tax due. Judge Ruwe has the Schedule L to the relevant 1120 for Year One, and it shows a $30 million increase in capital stock. No mention of patent litigation, except they showed $12 million in “settlement legal fees” on Sched A, offsetting the $2 million of gross receipts on the 1120. Oh, and “…petitioner listed its business activity as ‘Sales & Development’ and listed its product or service as ‘Computer.’ 2020 T. C. Memo. 38, at p. 6.

For Year Two, business has changed to “Patents” and product as “Royalties.” The capital stock increased by $8 million.

Year Three showed $337K in royalties (no gross receipts), legal fees of another $12 million, but the capital stock was up $30 million.

A real growth industry. IRS invested a SNOD in the operation, in exchange for which IRS got a petition.

Is the SNOD time-barred? Of course the law (Section 6501) changed in between the years at issue, but Judge Ruwe isn’t going there (yet). See 2020 T. C. Memo. 38, at pp. 11-12, footnote 5, for a real head-spinner.

Howbeit, the test is whether the return and attachments gave IRS enough information to suss out the unreported income.

“In order to determine whether disclosure was adequate to apprise the Commissioner of the nature and amount of omitted income, the Court examines whether the return offered a ‘clue’ regarding the existence, nature, and amount of the omitted income. The disclosure need not detail every underlying fact but must be ‘more substantial than simply providing a clue that would intrigue the likes of Sherlock Holmes.’ Although a   misleading statement may provide a ‘clue’ to omitted gross income, it does not adequately apprise the Commissioner of the nature and amount of an item.” 2020 T. C. Memo. 38, at pp. 13-14 (Citations omitted).

And this is a question of fact.

Acqis wants a subjective test. We have to report how we characterized the transactions, not what IRS thought or might think, and that’s enough.

No, says Judge Ruwe, characterize and report whatever you want, but “…the disclosure must still provide an adequate clue as to the nature and amount of omitted income, even if the taxpayer may report the legal construction of a transaction as he sees fit. In this case the Court must know what the nature of the underlying transaction actually is, not just the taxpayer’s subjective view of how the underlying transaction should be characterized, in order to determine if an adequate clue was provided by the taxpayer’s disclosure.” 2020 T. C. Memo. 38, at p. 15 (Citations omitted).

But IRS isn’t off the hook, either. “Respondent implicitly argues in his motion that the adequacy of disclosure should be judged according to his view of the transactions. Respondent’s motion is a Trojan horse, and this Court would have to adopt his view of the transactions in order to grant it. Certain material facts remain in dispute regarding the proper characterization of the transactions, and therefore it would be premature for the Court to reach a conclusion as to which party’s view of the transactions is correct and accordingly whether disclosure was adequate.” 2020 T. C. Memo. 38, at p. 17 (Footnotes omitted).

But there are other facts (not mentioned in the opinion) concerning how these deals actually happened have to be resolved, so no summary J for either side.

That’s not grade school arithmetic gone bonkers, that’s Ch J Maurice B (“Mighty Mo”) Foley again tossing a late-filed petition in Josefa Castillo, Docket No. 18336-19L, filed 3/25/20. Jo’s time to petition the NOD was extended by the Guralnik shutdown rule, as to which see my blogpost “Neither Equity Nor Designation,” 6/2/16. Notwithstanding the foregoing, Jo was  249 (count ‘em, 249) days with her petition.

But Jo has an argument. “…petitioner asserts/indicates that: (1) respondent has not provided a properly completed U.S. Postal Service Form 3877 establishing the IRS sent the notice of determination by certified mail to petitioner at her last known address on December 11, 2018; and (2) the U.S. Postal Service never delivered that notice of determination to her.” Order, at p. 2.

Oh no, please, Ch J Mighty Mo, not “asserts/indicates”! That’s son of “and/or.” As a much more exalted Personage put it “But let your ‘Yes’ be ‘Yes,’ and your ‘No,’ ‘No.’ For whatever is more than these is from the evil one.”

Anyhow, whether she asserts or indicates or simply says, Jo loses.

“Contrary to petitioner’s argument, however, even without the presumption of official regularity afforded by a properly completed USPS Form 3877, the IRS can still prevail so long as it provides evidence of mailing that is ‘otherwise sufficient’. As respondent notes in his … Response, attached as Exhibit B to respondent’s motion to dismiss is a USPS Form 3800 which includes a U.S. Postal Service postmark … and a certified mail number that matches the certified mail number on the notice of determination.” Order, at p. 2. (Citation omitted).

The USPS Form 3800 is the green slip the postal clerk gives you when you send a certified letter, showing postage paid, addressee, and USPS date stamp. It’s just as good as a Form 3877 Proof of Mailing “because reasons.” As my granddaughters say. But Ch J Mighty Mo indicates the reasons.

“…the procedures authorized by I.R.C. section 6212(a) and (b) for sending a notice of deficiency apply to the mailing of a notice of determination issued pursuant to I.R.C. section 6320 and/or 6330. A notice of determination issued in a collection due process case that is mailed in accordance with section 6212(a) and (b) is sufficient to start the 30-day period within which a taxpayer may appeal the determination to the Tax Court under section 6330(d). If a notice of determination issued pursuant to section 6330 is properly mailed to a taxpayer’s last known address by certified mail, the date on which the taxpayer actually receives the notice of determination is irrelevant in determining whether a petition appealing that determination was filed within the 30-day period prescribed in section 6330(d)(1).” Order, at p. 2 (Citations omitted).

I’ll overlook the “and/or” in the foregoing paragraph, lest I be accused of piling on after the whistle.

So 3800 does equal 3877, when you’re playing post office. But see my blogpost “Form Over Substance?” 12/23/15. Maybe this time IRS got the Form 3800 gambit right, unlike Latrina Gray’s case/

.

Once again the words of Gus Cannon, songwriter and eponymous chief of the Cannon Jug Stompers, from back in 1929, echo in the order of Judge Gale today, in Brian Clifford Chubboy, Docket No. 12131-18W, filed 3/24/20. BC was twice taped by IRS at a sit-down, and now demands copies thereof.

IRS claims they already gave BC a copy of one of the tapings, but can’t find the other. Judge Gale tossed BC’s motion to produce.

But now BC wants reconsideration as to the missing tape. And he gets it.

“In his Motion for Reconsideration, petitioner provides a list of the attendees of the [missing tape] interview, describes the location of the recording device during the interview, and states that ‘Petitioner’s lawyer sat to the left of the Petitioner’ during the interview.” Order, at p. 1.

Judge Gale’s order raises a fascinating question, one I never encountered in all my years of negotiating, representing people in depositions, arguing in court, or even taking a client out for a friendly dram.

“Does it matter where your lawyer sits?”

Judge Gale seems to say it does.

Note this interview took place at least nine (count ‘em, nine) years ago.

So let IRS report in detail in a couple weeks (hi, Judge Holmes) its efforts to search out the tape, any transcripts, pictures, descriptions and accounts thereof.

And meanwhile let BC “…contact his lawyer who attended the …interview for the purpose of determining whether the lawyer possesses a copy of the audio recording of the … interview, any transcript thereof, or any other materials relating to the recording or the substance of the…interview.” Order at p. 2.

And when he’s done that, but in any case when or before IRS has to bukh, “…file a report describing in detail his efforts to contact his lawyer who attended the … interview and advising the Court whether any of the aforementioned materials are in the lawyer’s possession.” Order, at p. 2.

So counsel, walk right in, set right down, but make sure your client takes note where you set.

Maybe Someone Will Listen

It was difficult to resist the pun for the headline, but Karen D. Grim, Docket No. 19478-19S, filed 3/24/20, is an innocent bystander. It’s her attorneys who are under the gun here. Apparently two “relationship-centered” attorneys from a well-known KC MO firm were doing an intramural hand-off of her case, a not-uncommon occurrence. In every firm I was ever in, retainer (engagement) letters always specified that hand-offs might take place within the firm, based upon delivering most efficient service to the client and needs of the firm.

C h J Maurice B (“Mighty Mo”) Foley, to whom this blogpost is respectfully specifically addressed, takes up the story. I’ll name the attorneys involved, as their names figure prominently on their firm’s website, and they’ve made a perfectly natural assumption, which would work anywhere except in US Tax Court.

“…counsel Bobby J. Taylor filed in entry of appearance in the above-docketed matter, thereby becoming counsel of record on behalf of petitioner. Thereafter, a separate entry of appearance reflecting Kent A. Coxe was filed…,using Bobby J. Taylor’s electronic access code. Such entry of appearance was thus reflected on the docket record as another entry of appearance by Bobby J. Taylor, a moot action.” Order, at p. 1.

So Kent’s EoA is stricken, and Ch J Mighty Mo admonishes him thus: “Kent A. Coxe is advised that if he wishes to enter an appearances as counsel for petitioner in this case, Kent A. Coxe must electronically file such entry of appearance not using the electronic access code issued to Bobby J. Taylor or other such practitioner.” Order, at p. 1.

Now a quick docket search shown that Kent A. Coxe just did that.

But why not a firm-wide access code for all partners and associates admitted to US Tax Court to enter appearances? All, or almost all, Tax Court judges and STJs have been in private practice, and none, or almost none, has ever been a single-shingle like me. So they must know that intramural hand-offs are almost daily occurrences.

Such a system would require no cybernetic reverse judicial backflips, and would save time and effort. Most importantly, it would recognize the realities of law firm practice.

How ‘bout it, Ch J Mighty Mo?

The Tax Court homepage was mumchance on March 9 when Judge Travis A. Greaves was sworn in. Unlike his colleague Judge Courtney D. (“Watch This Space, I’m Working on It”) Jones, Judge Greaves’ curriculum vitæ is already spread upon the record, and a distinguished one it is.

So welcome, Judge Greaves. And I’ll have a cognomen for you too, as soon as I find one for Judge Courtney D Jones.

Now since we’re looking at Senate confirmations, what’s the story with Judge Mark V Holmes? I don’t want to get political and violate my own Prime Directive, but get with the program.

I didn’t blog Anthony McBryde, Docket No. 4820-19L, filed 1/16/20, because he was lost in the plethora of decisions, opinions and orders from Tax Court that day. Anthony had some protester jive, a couple 1040s with balances and additions he never paid, a couple SFRs he never petitioned (hi, Judge Holmes), and around $125K of unpaid gift taxes and chops for three (count ‘em, three) years resulting from math errors. STJ Diana L (“Sidewalks of New York”) Leyden told IRS to lien and levy.

Now Anthony wants STJ Di to fix the amount of an appeal bond, in Anthony McBryde, Docket No. 4820-19L, filed 3/23/20.

I’m sure all my readers, doing the Aida number to avoid Corona, will shout “but you can’t do that! Section 7485(a) and Taishoff’s blogpost ‘Crave the Bond,’ 6/9/15!”

And so says STJ Di, echoing IRS’ response to Anthony’s motion. “…section7485(a), of the Internal Revenue Code, which requires a taxpayer to post an appeal bond in order to stay collection, does not apply to collection due process (CDP) cases. By its terms, section 7485 applies only to the collection (and assessment) of deficiencies, not assessed liabilities that are the subject of a CDP case. Because the above-referenced case is a CDP case, an appeal bond is not required.” Order, at p. 1.

So Anthony can appeal, but IRS can grab while he does.

Tax Court goes goes online and off the map through 6/30/20. Here’s the scoop: https://ustaxcourt.gov/press/03232020.pdf

Judge David Gustafson brooks no snark or sneer. He will allow none of the mishegas (please pardon an arcane technical term) in which certain litigators engage to vex, oppress, harass or annoy their opponents.

And it matters not whether the litigator is a pro se, petitioners’ counsel or IRS.

Here’s Peak Potentials Training International, Docket No. 23373-18, filed 3/20/20.

PPTI’s counsel, to whom I’ll hereinafter refer as John M., objected to IRS’ motion for leave to serve the exhibits, inadvertently omitted, from IRS’s response to PPTI’s summary J motion. IRS’ motion for leave was “appropriately” filed, Order, at p. 1. Likewise “appropriately,” IRS’ counsel asked John M. to consent. Id.

John M. said OK, but as I have a date certain two weeks from your response to reply to your response, and as you’re going to serve me two business days late, give me a two business days extension to reply.

IRS’ counsel, whom a docket search reveals is William A. McCarthy, Esq., in Seattle, WA, responds as follows. “Petitioner’s counsel informed respondent’s counsel that petitioner objects to the granting of this motion unless petitioner’s time to reply is also extended by two business days to April 1, 2020. Respondent’s counsel informed petitioner’s counsel that such a request would not be (and is not) part of this motion.” Order, at p. 1.

Judge Gustafson: “Respondent’s description of his dealings with petitioner does not reflect the level of cooperation and courtesy that we expect and normally see. We think his position was unreasonable.” Order, at p. 2.

Motion to serve late denied without prejudice.

I’ll translate, for Mr. McCarthy’s benefit, if he reads this my blog (which I doubt): “Give him the two business days. The judge won’t object.”

I may also point out our New York Standards of Civility: “Lawyers should avoid unnecessary motion practice or other judicial intervention by negotiating and agreeing with other counsel whenever it is practicable to do so.” Section II(A). Maybe so Ch J Maurice B (“Mighty Mo”) Foley might consider adding something to this effect to Rule 201.

At least they aren’t for Section 7482(a)(2)(A) interlocutory appeals. So says Judge Albert G (“Scholar Al”) Lauber in Belair Woods, LLC, Effingham Managers, LLC, Tax Matters Partner, Docket No. 19493-17L, filed 3/20/20.

All y’all will recollect Judge Lauber leading a four-way Tax Court bench split that laid some, but not all, of the chops IRS was seeking on Belair. What, no? Then see my blogpost “Can We Talk – Part Deux,” 1/6/20.

So Belair wants an interlocutory appeal. Specifically, they want 11Cir to rule on “…our determination that the Commissioner met the supervisory approval requirement with respect to the penalties asserted under section 6662(c), (d), and (h).” Order, at p. 2.

These are negligence, substantial understatement, and gross valuation misstatement chops, and Belair is disputing the Boss Hossery therewith involved.

Judge Scholar Al: “Before certifying an order under section 7482(a)(2) the trial judge must confirm that the order involves a ‘controlling question of law’ and that ‘substantial ground for difference of opinion’ exists as to the correctness of the determination underlying the order. The judge must also ascertain whether an immediate appeal will ‘materially advance the ultimate termination of the litigation.’ In assessing these factors the Court must weigh the policies favoring the ‘avoidance of piecemeal litigation and dilatory and harassing appeals.’ We do not believe that the supervisory approval issue involves a ‘controlling question of law’ or that immediate appeal of this issue would ‘materially advance the ultimate termination of the litigation.’ Order, at p. 3.

The Section 7482 interlocutory appeal has to be a clean-kill, one-shot question of law, with no record to review. Even if the appeal could result in a reversal, that isn’t enough. The appeal would have to obviate the need for a trial or materially shorten one.

And since this is another conservation easement case, the appeal would do none of the above. There still is perpetuity to decide. Neither would it shorten the trial, as the same experts upon whom Belair relied for a reliance-on-professionals defense to the chops would have to testify as to their expert opinions on valuation on the trial.

Takeaway- Unless all you’re trying is whether whatever piece of paper IRS relies upon for the chops is the proper Boss Hoss sign-off, getting an interlocutory appeal on the chops issue is a real longshot.

Remember Judge Vasquez’s statement that we don’t need no bills? Well, see my blogpost “We Don’t Need No Stinkin’ Bills,” 11/18/19. OK, but now, even if he had bills, Lior Blas, Docket No. 1031-17, filed 3/20/20, is off the hook because 11USC§362(a)(8).

Ya see, before Lior went on trial in June, 2018, he filed Chapter 13 the previous November, which was rolled into a 7, and had neither been discharged nor dismissed from USBCDAK (that’s United States Bankruptcy Court for the District of Alaska) when trial took place. Lior, being pro se (natch), never disclosed same.

Lior got discharged before Judge Vasquez issued the opinion and decision more particularly bounded and described in my blogpost hereinabove set forth, as my lunching-at-home-with-two-Grey-Goose-martinis colleagues would say.

But IRS somehow got the word of the foregoing, and now moves to vacate the decision. Lior agrees.

“According to respondent, the automatic stay under 11 U.S.C. sec. 362(a)(8) commenced on November 30, 2017, and was in effect during the June 19, 2018, trial of this case. Respondent asserts that the automatic stay ended when petitioner received a discharge on May 31, 2019. Respondent also asserts that the Memorandum Opinion and Decision are void because they were based on evidence from a trial that occurred in violation of the automatic stay.

“Petitioner agrees with respondent that the Decision is void. However, petitioner maintains that his bankruptcy proceeding remains active and that the automatic stay remains in effect.” Order, at pp. 1-2. (Footnote omitted, but it says IRS never heard about Lior’s bankruptcy until this past January).

Golsenizing to 9 Cir, Judge Vasquez finds that any part of any Tax Court case carried on after the filing of the petition is void, not voidable, so his carefully crafted T. C. Memo. and Decision are void. Happily, my blogpost remains.

It doesn’t matter that said T. C. Memo. and Decision came after discharge, the trial was between petition and discharge and taints the whole shebang.

“Regardless of whether the automatic stay remained in effect after the discharge, our Memorandum Opinion and Decision are void. Assuming the automatic stay terminated when petitioner received a discharge on May 31, 2019 (as respondent contends), the Memorandum Opinion and Decision are based on factual findings from a trial held in violation of the stay and are therefore void. See Trustees of the United Health and Welfare Fund v. N. Kofsky & Son, Inc., No. 8 Civ. 11219, 2015 WL 59173, at *2 (S.D.N.Y. Jan. 5, 2015) (stating that bench trial ‘was void and without vitality because it occurred while the * * * stay was in effect.’); Cramer v. Grover, 7 B.R. 133, 135 (Bankr. D. Col. 1980) (holding that a State court judgment was void because it was based on evidence from the continuation of a trial in violation of the automatic stay). Conversely, assuming the automatic stay was in effect when we issued the Memorandum Opinion and entered the Decision (as petitioner contends), these actions violated the stay and are void. See Shutts v. Commissioner, T.C. Memo. 2010-160 (voiding a Tax Court decision because it was entered while the automatic stay was in effect).” Order, at pp. 2-3.

So vacation.

But where do we go from here? Remember 11USC§105: Bankruptcy Court can order reimposition of the 11USC§362 automatic stay. So let IRS and Lior make up for their previous nondisclosures by letting Judge Vasquez know what, if anything, USBCDAK did to that effect that is still in effect now.