No opinions, no designated hitters, The Glasshouse on lockdown, and 209 orders, the greatest number of which announce cancellations of trial sessions in San Diego, Chicago, Los Angeles, Buffalo, Syracuse, Shreveport, and New Orleans (did I miss any?).

Needless to say, views on this my blog have plummeted.

I paraphrase Sir Paul, because Sean MacNamee, 2020 T. C. Memo. 37, filed 3/18/20, is contesting just seventeen (count ‘em, seventeen) $1K Section 6694(a) preparer chops, IRS having dropped pre-trial the other nineteen (2 for an out year, and 17 Section 6694(b) $4K willful-or-reckless chops) arising out of Sean’s tax prep, and Sean conceding the income tax he owes.

Sean claims he never got a final administrative determination when he went to Appeals on the 36 (although Appeals did drop 2, leaving 34, of which IRS as aforesaid is only challenging 17). Sean wouldn’t sign a Form 872-D, preparer chop version of the consent to extend the applicable 3SOL. So, as there were only a few days until 3SOL ran out, and the chops are assessables, IRS chopped Sean for the whole 36.

Sean sent in Letter 12153, but at Appeals he was told he couldn’t contest liability, which IRS now concedes was wrong. Sean petitioned that four (count ‘em, four) months late, and so was tossed.

So Sean then got a NITL, went to Appeals, got told he had had a prior chance to contest, so NOD, which he now petitions.

Clear? Thought not. Howbeit, Judge Albert G (“Scholar Al”) Lauber thought it was.

Sean claims he had no chance to contest, and cites a Section 6672 TFRP case.

Judge Lauber: “Petitioner participated in a CDP hearing regarding these penalties. During the hearing he attempted to challenge the penalties, but SO1–erroneously, as respondent now concedes– did not permit him to do so. Petitioner could have challenged SO1’s determination, as well as his underlying liability for the penalties, by filing a timely petition for review in this Court, which he failed to do. Because he failed to take advantage of a prior opportunity to contest the penalties, his underlying liability for the penalties was not properly before SO2 during the second CDP hearing, and he is thus precluded from now advancing that challenge in this Court.” 2020 T. C. Memo. 37, at p. 13.

But what about a “final administrative determination”?

Note that IRS conceded the 17 Section 6694(b) $4K willful-or-reckless chops because, unlike the $1K Section 6694(a) chops, the $4Ks can be assessed at any time; no 3SOL, so Sean should’ve gotten a hearing and a final administrative determination on those.

But as for the $1Ks, the Section 6672 TFRP case is inapplicable, because Section 6672(b)(3) expressly extends the 3SOL until “30 days after the Secretary makes a final administrative determination with respect to such protest.” Section 6694(a) has no such provision.

Takeaway- Petition. When in doubt, petition. When you have any non-frivolous argument (unlike Sean’s claim for $1 million in damages to offset his own income tax liabilities), petition.

Takeaway 2- Sometimes an Appeals goof can help, when it’s too late to remand. If SO1 had given Sean the chance to contest, and he lost, he’d be worse off. Likewise if he’d timely petitioned SO1’s goof and gotten a remand.

Subtitle C Employment taxes can spill over into what appears to be income tax, causing much confusion. Judge Albert G (“Scholar Al”) Lauber has such a case for us today, Research Scientific Services LLC, Docket No. 11424-19L, filed 3/17/20, a designated hitter on a strangely silent St. Patrick’s Day.

Of course, the lien here for is unpaid Forms 940 and 941 to the tune of better than $200K.

Spill-over is on RM, an officer of Research Scientific and its representative in this case. RM is trying to solve his own problems with IRS. So when Research Scientific got its own NITL, RM told Judge Scholar Al he thought that, if he squared up with IRS, he needn’t deal with Research Scientific’s problems, and ducked the CDP hearing.

“Mr. M stated that, in addition to the collection action involving petitioner’s unpaid employment taxes, the IRS also sought to collect certain taxes from him personally. Mr. M represented that he was negotiating with an IRS collection officer about his individual liabilities. Assuming that those negotiations would also resolve petitioner’s employment tax liabilities, Mr. M suggested that the notice of determination may have been issued in error.” Order, at p. 2. (Name omitted).

I’ll bet RM conflated the Section 6672 TFRP responsible person chops for unpaid FICA/FUTA/ITW with the taxes themselves; they are two separate things. RM, being pro se, missed the point.

But IRS wants, and gets, summary J against Research Scientific sustaining the NITL.

“In its response to the motion for summary judgment, petitioner admits that it was at fault for failing to participate in the CDP proceedings, an error attributable to Mr. Moffat’s mistaken belief that he ‘was resolving the issue with the [other] IRS officer.’ Mr. M represents that he has now executed an installment agreement with the IRS covering his personal liabilities, and he expresses hope that a similar agreement can be reached covering petitioner’s employment tax liabilities. Unfortunately, we cannot consider that option in this CDP case because petitioner failed to propose any collection alternative to the SO. See Solny v. Commissioner, T.C. Memo. 2018-71, at *10 (‘We have consistently held that it is not an abuse of discretion for an Appeals officer to reject collection alternatives and sustain collection action where (as here) the taxpayer has failed, after being given sufficient opportunities, to supply the necessary information.’); see also Gentile v. Commissioner, T.C. Memo. 2013-175, 106 T.C.M. (CCH) 75, 77, aff’d, 592 F.App’x 824 (11th Cir. 2014). However, petitioner is free to submit to the IRS at any time, for its consideration and possible acceptance, a collection alternative, in the form of an offer-in-compromise or an installment agreement, addressing the employment tax liabilities involved here.” Order, at p. 4.

For more on Solny, see my blogpost “Decision Equals Determination,” 5/22/18.

But Judge Scholar Al holds out hope for RM, and a suggestion for IRS.

“It appears to us that petitioner and Mr. M are genuinely interested in resolving all of their tax liabilities in a coherent manner. Mr. M expresses concern that a levy on petitioner’s assets would ’put the existing personal installment agreement at risk,’ which would be an unfortunate turn of events. We are hopeful that respondent’s counsel will work with the other IRS officers involved in this process to secure a sensible and comprehensive resolution.” Order, at p. 4. (Name omitted).

Crosstalk is always harmful.

Judge David Gustafson compares and contrasts a whistleblower rejection (failure to satisfy the basic requirements for an award; see 26 C.F.R. sec. 301.7623-1(c)(1), (4)), and denial (a determination that is made after the Ogden Sunseteers engage in some substantive consideration of the claim).

A blower who gets blown out on each count for his two conjoined claims is first-sergeant-turned-bookkeeper Walter Nicklaus Cline, 2020 T. C. Memo. 35, filed 3/16/20.

Again we have a lament for the constricted jurisdiction of pore l’Il ole Tax Court, the poor relation of the Federal judiciary.

“It is not to the Tax Court but to the Secretary of the Treasury that Congress has given the authority to ‘make the inquiries, determinations, and assessments of all taxes’, sec. 6201, and to ‘collect the taxes’, sec. 6301. The Tax Court has no practical means for evaluating the IRS’s audit priorities, its allocation of its audit resources, or its judgments about the likelihood of collecting particular liabilities. Congress has given to the Tax Court not plenary oversight over the IRS but rather circumscribed jurisdiction to review certain actions in certain circumstances. In the award context, Congress has given the Tax Court jurisdiction to review the determinations of the WBO. Consequently, ‘we do not review the IRS’s decision whether to audit a target in response to a whistleblower’s claim and * * * we have no authority to require the IRS to explain a decision not to audit.’ Lacey v. Commissioner, 153 T.C. at __ (slip op. at 30).” 2020 T. C. Memo. 35, at p. 15 (Footnotes omitted, but they just give more examples of Treasury’s broad enforcement and administrative powers.)

For the Lacey story, see my blogpost “The Whistleblower Office – Blown,” 11/25/19.

In the first instance, the Ogden Sunseteers didn’t need no operating branch look-see to toss Walt’s beefs about Target 1, because 3SOL had run on the years wherein Walt claimed the skullduggery occurred, and the skullduggery was non-recurring, so confined to those out years. Remember, Tax Court cannot “‘… review the IRS’s decision whether to audit a target in response to a whistleblower’s claim’. Lacey v. Commissioner, 153 T.C. at __ (slip op. at 30). Even if we did proceed to review the classifiers’ reasoning, they were right that assessment of tax would be barred by the three-year period of limitations of section 6501(a). It is also true, as Mr. Cline insists, that section 6501(c)(1) provides an exception to the three-year bar: ‘In the case of a false or fraudulent return with the intent to evade tax, the tax may be assessed * * * at any time”, so that where an audit yields evidence proving fraud, the three- year limit does not apply. However, ‘[i]n any proceeding involving the issue whether the petitioner has been guilty of fraud with intent to evade tax, the burden of proof in respect of such issue shall be upon the Secretary’, sec. 7454(a), ‘and that burden of proof is to be carried by clear and convincing evidence’, Rule 142(b). Especially when it faces the prospect of that heightened burden of proof (such as to prove fraud, or even to prove a substantial omission of an item having a six-year period of limitations under section 6501(e)), the IRS’s decisions about how to allocate its audit resources must take into account the costs of developing ‘clear and convincing’ evidence and its hazards of litigation. We do not review these judgments that Congress has committed to the agency.” 2020 T. C. Memo. 35, at pp. 16-17, footnote 9. Rejection affirmed.

As for Target 2, all Judge Gustafson can say is that the classifiers who eyeballed Walt’s info weren’t completely offbase when they denied Walt an award. “In reviewing the WBO’s rejection of the second claim, we do not substitute our judgment for its judgment but review only for an abuse of discretion. The WBO’s conclusion that the claim was ‘speculative’ does not appear to lack a sound basis in fact and law because the claim stated that Mr. Cline was ‘uncertain’, that ‘we believe’ there was improper bookkeeping, that there were ‘[u]nknown [e]xpenses’, that there was ‘probable fraud’, and that the taxpayer’s manipulations were ‘without rhyme or reason’. (Emphasis added.)” 2020 T. C. Memo. 35, at pp. 18-19. Denial affirmed.

Here’s a leftover from last hectic week.

Judge Elizabeth A. (“Tex”) Copeland seems to have acquired the potters’ field at USTC. The potters are the people who supply herbal medicaments in States where the same is legal for use in medicinal or recreational contexts, or both.

Judge Tex designates Jo Ann Sharp & Randall W. Sharp, Docket No. 7196-19, filed 3/11/20, as another in the Constitutional challenges to Section 280E’s traffic shutdown. Jo Ann & Randall must be on the same page as Ryan Foster, who made an appearance on this my blog yesterday in similar circumstances. See my blogpost “Let It All Hang Out – Once More,” 3/10/20.

Same story today. Jo Ann & Randall are connected with High Mountain Medz LLC, but fail to describe the activities thereof sufficiently to enable Judge Tex to decide what HMM does.

Summary J denied, without prejudice.

I most respectfully request Judge Elizabeth A. (“Tex”) Copeland to call a statutory notice of deficiency a SNOD, to distinguish it from a notice of determination, known as a NOD (as, e.g., in a CDP, whistleblower, worker classification, 501(c)(3) or retirement plan disqualification case).

The designated hitter William Michael Shumer & Susan Elaine Shumer, Docket No. 9095-19, filed 3/13/20, was clear enough on the law (no need for a signature on a SNOD), but confusing in nomenclature.

Saved by the Virus

Judge Courtney D. (Watch This Space) Jones has the cure for last-minute ambushes launched from late-filed amended pleadings. Here, IRS wants to amend its answer eighteen (count ‘em, eighteen) days before trial.

“Whether a party may amend its answer lies within the sound discretion of the Court.  In determining the justice of allowing a proposed amendment, the Court must examine the particular circumstances of the case, and consider, among other factors (1) whether an excuse for the delay exists; and, (2) whether the opposing party would suffer unfair surprise, disadvantage, or prejudice.” Kevin John, Sr. & Whitney S. Witasick, Docket No. 23069-16, filed 3/13/20, at pp. 1-2. (Footnote and citation omitted).

IRS claims the SNOD that kicked off this dust-up was flawed because it contained a “clerical and reporting error,” and so wishes to amend.

Judge Jones isn’t happy. “The Court is troubled by respondent’s motion. The notice of deficiency at issue is dated July 26, 2016, but respondent’s motion was not filed until more than 3 years later. In the years since the petition was filed, respondent has had ample time to identify and seek correction of its ‘clerical and reporting’ error. Petitioners’ frustration on this score is understandable. Further, this case is facing its sixth continuance, and respondent’s motion comes only 18 days prior to the (since canceled) trial.” Order, at p. 3.

A continuance (that’s an adjournment, to you State courtiers) cures unfair surprise, as the surprised party can regroup and recalibrate. And just because an amended pleading makes it harder or more expensive for the erstwhile ambushee to win is no reason to deny the amendment, as long as ambushee has time to prepare.

Judge Jones held a phoneathon, at which Kev suggested a continuance from the March trial date to April. IRS was prepared to buy the April trial date. But this was before the Corona virus intervened to quash the March trial in Philly.

So Judge Jones is unwilling to set a new trial date until the parties have stiped and settled what they can. And reported thereon in May.

IRS is saved by the virus.

They’re dropping fast. USTC is ditching upcoming appearances in Big D, the Motor City, the Big Apple, and the Steel City. Here’s the official word.

Is blogging next? Stay tuned.

How often have we seen those words in an order fairly directed to a wit, wag or wiseacre who is dodging a direct answer to a Rule 71 interrog. But today IRS is on the receiving end of that admonition, albeit it administered by Judge Gale “discreetly, reverently, advisedly and soberly,” as a much more exalted source puts it, in Adrian D. Smith & Nancy W. Smith, et al., Docket No. 11382-17, filed 3/12/20.

AD & Nancy want IRS to tell them the legal and factual bases why IRS is bouncing their Section 41 researching deductions.When they asked why and wherefore, IRS tells AD & Nancy to RTFS, namely, Read the SNOD (the “F” is for emphasis).

No no, says Judge Gale.

“In Estate of Allensworth v. Commissioner, 66 T.C. at 39, the Court required the Commissioner to advise the taxpayer of the contentions maintained by him, including his construction of State law, noting that the Commissioner’s responses to the taxpayer’s requested admissions ‘should serve the purposes of Rule 90 by narrowing the issues to be litigated.’ See also Zaentz v. Commissioner, 73 T.C. 469, 478 (1979) (“The notice of deficiency serves to establish the issues which the petitioner must face in the case, and Allensworth makes clear that admissions and requests for discovery may be used by a petitioner to seek clarification of the Commissioner’s position or contentions.”). In Owens-Illinois, Inc. v. Commissioner, 76 T.C. at 499, the Court required the taxpayer to advise the Commissioner of the contentions maintained by it, including its construction of foreign law, in order ‘to proceed with the stipulation process and to get to the merits of the case.’ In doing so, the Court stated that while a party ‘should not have to fully disclose its litigating position before trial’, ‘a party cannot play games with the other party and refuse to disclose the contentions which he, at the time of the request, plans to present in the case. Id. at 498. See also Rule 70(b) (‘If the information or response sought [in a discovery request] is otherwise proper, it is not objectionable merely because the information or response involves an opinion or contention that relates to fact or to the application of law to fact.’). In sum, the Court has been clear that ‘to prepare properly for a trial, it is necessary for each party to know the position of the other party, and discovery may be used to clarify that position.’ Zaentz v. Commissioner, 73 T.C. at 478.” Order, at pp. 3-4 (Footnote omitted, but it says there’s no difference in this case between a Rule 71 interrog and a Rule 90 admission).

And if IRS is objecting that AD & Nancy are trying to shift the BoP or trying to derail Greenberg’s Express by going behind the SNOD, those objections are overruled.

Takeaway- I quoted Judge Gale’s order in extenso so you can crib the whole thing and cut-and-paste it in your declaration in support of your motion to get IRS to pony up and come clean when they try to dodge your well-crafted interrogs or requests for admission.

Those magic words either open or close the door to a fight over liability for a tax, addition, or chop, or all of the above. Thus, when Joseph Thomas Lander and Kimberly W. Lander, 154 T. C. 7, filed 3/12/20, who admittedly did not receive the SNOD that the IRS mailed both to their last known residence and JT’s temporary abode in a Federal slammer, the question arises.

Was a meeting with Appeals, whereat JT & Kim disputed their liability to the extent that Appeals abated some of it, such an opportunity? Prior caselaw says that in an assessable, where no SNOD required, a trip to Appeals where the party assessed gets a chance to bukh about how IRS did them wrong, is sufficient. But what about where an unreceived SNOD is involved?

STJ Daniel A. (“Yuda”) Guy had this one, but since it’s a first-impression job, the generalities get a whack at it, and Judge Goeke, writing for a unanimous bench, hands down the full-dress T. C., saying, yes the trip to Appeals was a chance to contest.

“The record shows that petitioners were afforded a postassessment conference with the Appeals Office.  After the IRS sent petitioners a notice and demand for payment of the tax due…, they requested a reexamination of their tax liability.  The audit reconsideration process that followed began with a review of the matter by the Examination Division.  When the Examination Division reaffirmed the adjustments to petitioners’ tax liability as determined in the notice of deficiency, they requested and were granted an independent review in the Appeals Office.  AO B engaged with petitioners, took a fresh look at the record, conceded certain issues, and abated a significant portion of the tax previously assessed against them.  Only then did the IRS file the tax lien that led to the additional collection review proceedings in the Appeals Office and this action.” 154 T. C. 7, at pp. 31-32. (Name omitted).

It seems JT & Kim also asked for CNC, which Appeals never considered, and Kim wanted innocent spousery, which Appeals apparently also overlooked. So Judge Goeke remands for a hash-out for those.

Takeaway- If offered a trip to Appeals, take it, but lay everything on the table.