Belongs on a Bottle, Not An Alimony Payment

Family lawyers should have rejoiced as 2017 became 2018, as their obsolete and oft-copied boilerplate concerning expiry of alimony payments when a child reaches the age of 18 years could no longer torpedo a Section 215 deduction. Because there were no more until maybe 2026. But they forgot the Bard of Avon’s warning: “The evil men do lives after them.”

Here’s Timothy Clinton Biddle, 2020 T. C. Memo. 39, filed 4/6/20. In Tim’s case, the divorce decree separated alimony (then deductible) and child support (nondeductible) into two separate amounts. But neither that nor the amendment thereto removed the septic clause that alimony would continue to be payable: “…until the occurrence of one of the following events: (1) the youngest child’s 18th birthday, (2) the wife or husband’s death, (3) the wife’s remarriage at the five-year point or anytime thereafter, or (4) the wife becomes self-supporting.” 2020 T. C. Memo. 39, at p. 4.

Tim says he and ex-Mrs Tim never intended the 18th birthday cut off. Too bad, says Judge Vasquez. “In defining alimony section 71(b) does not list the parties’ intent as a factor. Thus, the Court cannot rely on the intent of the parties in determining whether a payment should be characterized as alimony for Federal income tax purposes; it must apply the explicit requirements listed under section 71(b). Therefore, petitioner’s argument that the parties intended that the designated alimony payments would continue indefinitely, regardless of the contingency relating to his youngest child’s 18th birthday, is unavailing. That the designated alimony payments were also subject to termination contingencies relating to petitioner’s ex-spouse does not change this result.” 2020 T. C. Memo. 39, at p. 8. (Citation omitted, but Judge Vasquez cites a case I blogged in my blogpost “The Phone Call,” 4/15/14.).

Creating separate pockets of dollars and labeling one “child support” and the other “alimony” doesn’t prevent Section 71(c)(2) from tearing off the labels and picking both pockets.

IRS magnanimously spares Tim, pro se, retired military, the Section 6662 chops.

Dear family lawyers, leave the 18 year olds in the drinks cabinet. And save a wee dram for me.

Looks like IRS is up to its old tricks, dropping the SNOD after the petition, and trying to knock out the valid petition by claiming it duplicates the untimely one, then dismissing the untimely one on lateness grounds. I’ve blogged this more than once before now, but the grandma of these is “Another Taishoff ‘Oh Please,’” 9/24/14.

Ch J Maurice B (“Mighty Mo”) Foley plays today’s version like the speedy third baseman who races to the bunt and nails the lead runner with a bullet throw (I remember Billy Cox of the old Brooklyn Dodgers making a similar play against the Yankees more than 60 years ago; holy canoli, what about the baseball season, with this COVID-19?).

Back to work. Here’s Steven Lindsey & Shannan Lindsey, filed 4/6/20, with two docket Nos., namely, viz., and two wit, 826-20 and 1396-20. The numbers matter.

Ch J Mighty Mo is on the case, with the numbers and dates firmly in mind. Do thou likewise.

“On January 13, 2020, petitioners filed a petition with the Court, at docket No. 826-20, challenging the notice of deficiency dated October 21, 2019, issued to them for taxable year 2017.The fling fee in that case was paid. On January 22, 2020,petitioners filed timely a second petition, at docket No. 1396-20, challenging the same notice of deficiency for 2017. The filing fee in that case was not paid. On April 3, 2020, respondent filed, at docket No. 1396-20, a Motion To Close on Ground of Duplication seeking to close that case as duplicative of the case at docket No. 826-20. In his motion to close respondent states that petitioners do not object to the granting of the motion.” Order, at p.1.

As a docket search shows Steve & Shannan are pro sese, no surprise they didn’t pick up on the fact that IRS was torpedoing their valid petition and floating away their untimely one.

But Ch J Mighty Mo will have none of it. He tosses IRS’ motion to toss the timely for duplication, and tosses the untimely in its stead.

Even better, he credits the filing fee paid for the untimely to the surviving timely.

Does Ch J Mighty Mo read this my blog? I suggested this very thing in my blogpost “Fake Out – Part Deux,” 6/23/15.

That “quirky” jurist (see the Wall Street Journal, 6/1/18), Judge Mark V. Holmes, may be debarred from going to Buffalo just now, but he’s willing to hold a phoneathon with IRS and The Cannon Corporation and Subsidiaries, Docket No. 12466-16, filed 4/3/20.

I’m sure you remember the Cannoneers and their rather expansive reading of Section 179D. What, no? Then review my blogpost “No Method, No Madness,” 6/5/18. Now you recall that you read it here first.

OK, IRS got partial summary J on the deficiency. But now IRS wants chops, and the Cannoneers claim they acted reasonably and in good faith, so no chops. And that’s a question of fact. But we have a couple steps (this is Judge Holmes, remember) before we get there.

To begin with, corporations are not people for Section 7491(c) BoP. “At trial, this would mean that the burden of production would remain on Cannon, which is a corporation. But when the Commissioner moves for summary judgment, he must show that ‘there is no genuine dispute as to any material fact and that a decision may be rendered as a matter of law.’” Order, at p. 2 (Citations and footnote omitted, but (spoiler alert) the footnote says the Cannoneers’ counsel doubtless will preserve this issue for the trial that will follow when the lights go on again all over the world.)

Judge Holmes, reveling in the massive silt-stir (more like a landslide) stirred up by Chai, Graev and Clay, notes that there is no required form which the Section 6751(b) Boss Hoss must take, nor even that the Boss Hoss need lay hoof to paper. The Boss Hoss sign-off must be in writing and from the Boss Hoss. But Clay says that has to come before Word One of penalty is breathed to the hapless taxpayer.

“There is no genuine dispute that MG was the revenue agent assigned to examine Cannon’s [year at issue] return. There is no genuine dispute that MG’s immediate supervisor was LH. There is also no genuine dispute that MG prepared a Form 5701 — titled Notice of Proposed Adjustment — and a Form 886-A — titled Explanation of Items — that proposed to disallow Cannon’s claim for taking an I.R.C. § 179D deduction it had earned in previous years on its [year at issue] return and to assert that Cannon owed a penalty under I.R.C. §6662(a).” Order, at p. 4. (Names omitted).

But what did LH do with MG’s productions?

IRS claims LH made some changes to MG’s draft (Oh H.G. Wells, thou should’st be living at this hour!), and e-mailed them back to him to revise accordingly and forward on. And this was before the Cannoneers first heard the P word.

OK, so what did the changes look like?

Ah no, says IRS, deliberative-process privilege. I.R.M. §35.4.6.3.3.1(1) says that is “a qualified privilege that protects from disclosure certain statements of advice, deliberation, and recommendation of governmental officials. In order to successfully claim the privilege, the respondent must show that a document is predecisional, i.e., ‘antecedent to the adoption of an agency policy,’ and deliberative, i.e., ‘a direct part of the deliberative process in that it makes recommendations or expresses opinions on legal and policy matters.’” OK, people in government need to speak freely without worrying that what they say will be used against the agency in litigation.

“This assertion of the deliberative-process privilege may or may not be justified (Cannon hasn’t moved for in camera review or disclaimed any intent to object to its introduction at trial).

“But the Commissioner’s assertion of the privilege does prevent us from verifying that the changes LH recommended or the language that she possibly approved without change would qualify as supervisory approval.” Order, at p. 5.

“Without being able to see the Form 886-A draft, Cannon makes the reasonable point that this email might just cover editorial changes to MG’s draft without actually approving the penalty. It also makes the very good point that the Commissioner’s assertion of a predecisional privilege means that the drafts were just drafts, and not a final anything, much less the required decision or approval made by a supervisor. It may well be that LH made no actual decision to approve MG’s determination to assert the I.R.C. § 6662 penalty.” Order, at p. 5. (Emphasis in original.)

No summary J on chops.

Judge Holmes calls this situation a Chaighoul, an unforeseen consequence of Graev extending Chai nationwide. And cannot help quoting himself.

“This roused a Chaighoul hitherto unseen and, indeed, whose existence had not even been predicted by theory. See Graev, 149 T.C. at 512-16 (Holmes, J., concurring).” Order, at p. 4. See my blogpost “Stir, Baby, Stir – That Silt,” 12/20/17.

Wouldn’t I just love to be in Jake’s Saloon on 23rd Street with Peter Reilly, CPA, Judge Holmes, Frantic Frankie Agostino, and a couple pitchers of Jake’s Ale, kicking this one around? At this point I’m so locked-down stir-crazy I’d even buy.

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While not leading in the lame excuse stakes, the sentence at the head hereof is coming up three wide at the head of the stretch. I have heretofore stated (although some might say I have obsessively stated) that the Entry of Appearance (Form 7 on your scorecard) ignores the realities of law practice.

There are law firms. There have been law firms for centuries. These have multiple lawyers, either as partners, shareholders, counsel, associates, or hangers-on however denominated. While one of these may be assigned to a case and remain with it from intake to file-close, it happens more often than not that one lawyer needs another to cover a court appearance, a deposition, a settlement negotiation, or any of the hundred-and-one day to days in the life of a lawyer. Surprisingly, lawyers are human: some need parental leave; some fall ill. Some even take vacations.

But there is no Entry of Appearance for law firms. I understand that only attorneys admitted to USTC should be permitted to file Entry of Appearance (with limited exceptions; see my blogpost “Battlefield Commission,” 1/14/19). I also know that Rule 201(f) does the Genesis 3:24 number on law firms.

All that said, take a gander at Elliott Family Holdings, LLC., Justin C. Elliott, Tax Matters Partner, Per Klixbull, Brigg Bloomquist, and M. L. Lambert, Partners Other Than The Tax (sic; should be “Matters Partner”) , et al, Docket No. 1062-19, filed 4/3/20. And note the dates: they are significant.

“The petition in this case was filed on January 28, 2019, by counsel S as counsel for petitioners. On April 1, 2020, C electronically filed a Substitution of Counsel for counsels C and T. The substitution of counsel is improper because it is seeking to have S enter an appearance as counsel for petitioners in this case. The Practitioners’ Guide to Electronic Case Access and Filing (a copy of which guide is posted in the eAccess section of the Court’s website at http://www.ustaxcourt.gov) states, in pertinent part:

“An entry of appearance, substitution of counsel * * * may be signed and filed by only one practitioner–the practitioner who is eFiling the document. The system will not add additional practitioners who sign the document to the case. Each practitioner seeking to gain access to a case must eFile his or her own separate document.” Order, at p. 1. (Names omitted).

Maybe so a few things changed between January 28 and April 1.

The Elliott Family is represented by a Chicago boutique that does estates and taxes. There are nine (count ‘em, nine) lawyers listed on their website. I carefully avoid stating that all the partners listed thereon are men, and all the associates are women. At all events, more than one of the attorneys mentioned in the order is admitted in USTC. Moreover, to the best of my knowledge, but without having made an exhaustive and independent investigation and review, USTC is the only court in the Federal system with this requirement.

I do not mention the Judge who wrote the order. So to do would sound like a cheap shot, and it wasn’t that Judge who made up the Rule. And I understand why a Judge wouldn’t make a suggestion in an order that the Rule might be changed; that’s for a quiet moment in the Judges’ cafeteria in the Glasshouse, over a cup coffee and a piece pie (hi, Judge Holmes), with colleagues, when the world is free.

In the meantime, while enforced leisure is upon us, let us remember that thoughts are free. And maybe so it’s time for some more Octavia Rules. Permanently.

Seems like just yesterday (but it was actually the day before), we saw counsel for Adrian D. Smith & Nancy W. Smith, et al., Docket No. 13382-17, filed 4/3/20, try to wild-card in their expert’s report as an attachment to a status report. Judge Gale let it in, as the Glasshouse in the City on Lockdown was locked down.

IRS’ counsel, Jonathan E. (“Jeb”) Behrens, Esq., shows us (and incidentally Ad & Nan’s counsel) the right way to do it, when Tax Court is doing the Greta Garbo number.

Judge Gale: “…respondent filed a Motion for Leave to File Report, and lodged therewith the Report of his proffered expert, JR, referred to in his Report filed March 25, 2020.” Order, at p. 1. (Name omitted).

Judge Gale grants the motion, does some recharacterizing (how could a Tax Court judge refuse a chance to recharacterize?), and files the report.

Except of course that the report isn’t evidence until Judge Gale finds JR to be qualified.

So make a motion if you’re locked down and The Glasshouse is locked up. And don’t worry if you get the title of your papers wrong. Tax Court judges are disciples of H. G. Wells: “There is no passion, neither love nor hate, equal to the passion for altering someone else’s draft.”

Harold M. Behn, Docket No. 11337-19L, filed 4/2/20, is a disabled Army vet who did multiple combat tours in Iraq.

Harold was in CNC, and thought that was permanent, except it isn’t, and STJ Panuthos can’t help with that. I’ll note the dates, because they’re material.

“In his objection and various letters, petitioner states that this case stems from the fact that he did not understand that his account was only temporarily on hold as a result of the stipulated decision in Docket No. 17013-11 L, when his account was placed in Currently Not Collectible status. Petitioner states that because of the stipulated decision in that case, he thought that he was no longer liable for taxes related to tax years 2002 through 2006 and 2008. Petitioner states that he did not understand that the amount owed for those tax years would continue to grow due to interest and penalties. Tax years 2002 through 2006 and 2008 are not properly before the Court in this case.” Order, at p. 3.

Currently means currently, not permanently. And not collectible doesn’t mean not payable.

But Harold has an argument. He says he has an affidavit wherein he swears to support his spouse, even though they’re not living together. And in working on his IA, the SO didn’t let him put that in. Harold went to TAS, who got him a meeting with the Appeals manager, who sustained the SO. Appeals claimed the spousal payment wasn’t court-ordered.

So what, asks STJ Panuthos. CA law, where Harold lives, allows voluntary support agreements.

“Petitioner repeatedly expressed confusion regarding IRS information requests, but was not given an in-person hearing. Petitioner’s objection, in which he strongly opposes summary judgment, persuades us that he should be provided an opportunity to present evidence regarding spousal support which should be considered by the Appeals ofñcer. He should also be able to present issues relating to his continuing disabilities and other issues related to his case. For the aforementioned reasons, we conclude that respondent is not entitled to judgment as a matter of law. We further conclude that this matter should be remanded to the Appeals Ofñce for action consistent with this order. The Court expects that petitioner will fully cooperate with the Appeals Ofñce and promptly provide forms, documents, and other relevant information.” Order, at p. 5. (Citations omitted).

I know it’s only a Sum. Op., but see my blogpost “The Magic Paper Saves the Deduction,” 4/7/11.

That’s Ronald L. Goldberg’s complaint in 2020 T. C. Memo. 38, filed 4/2/20, but except for 117 (count ‘em, 117) days’ worth of interest, which IRS concedes, Ron loses the rest.

Ron claims the Form 4549 Income Tax Examination Changes he signed was a contract that showed he owed zero interest.

Judge Morrison: “The statement is a consent to the immediate assessment of the taxes and penalties shown on the form. See Evans v. Commissioner, T.C. Memo. 1999-66, slip op. at 10 (‘By executing the Form 4549, petitioner merely consented to the immediate assessment and collection of the deficiency proposed therein.’ (Emphasis added.)). In its opening brief, the IRS argues that the statement should also be interpreted as a consent to the assessment of interest on the Goldbergs’ 2004 income-tax liability. The IRS’s explanation is as follows:

“Accordingly, while petitioner’s consent to the assessment of tax and penalties was limited to the dollar amounts ‘shown above’ on the Form 4549, petitioner’s consent to the assessment of interest was not limited to the dollar amounts ‘shown above’ on the Form 4549. To the contrary, petitioner agreed that interest would be assessed ‘as provided by law.’” 2020 T. C. Memo. 38, at p. 21. And that argument carries the day.

If you’re subject to a sequestration order and have time on your hands, you can read Judge Morrison’s 163 (count ‘em, 163) page blow-by-blow, as the RAs and SOs timesheets and case notes are deconstructed. Reminds me of legal fee hearings, true eye-glazers for all but the parties.

But there is one interesting note. Either Treasury has changed its mind, or Judge Morrison missed something.

“Section 6502(a)(1) and section 6601(g) in combination form the following rule: the assessment of interest may occur only after the assessment of ‘the tax to which such interest relates’. See also Field v. United States, 381 F.3d 109, 113 (2d Cir. 2004) (‘Since the IRS’s assessment of interest against * * * [the taxpayer-plaintiff] coincided with the commencement of the collection period, the assessment [of the interest] was no doubt timely.’); Priv. Ltr. Rul. 201319017 (May 10, 2013) (‘[T]he Service cannot assess additional interest on * * * [a] tax liability that was never actually assessed.’). By executing a Form 4549, a taxpayer consents to the immediate assessment and collection of the tax and the interest to which the tax relates. Aguirre v. Commissioner, 117 T.C. at 327. “ 2020 T. C. Memo. 38, at p. 15.(Emphasis added).

Like Section 6110(k)(3), maybe? “Unless the Secretary otherwise establishes by regulations, a written determination may not be used or cited as precedent.” So why the PLR?

The latest skirmish in Adrian D. Smith & Nancy W. Smith, et al., Docket No. 13382-17, filed 4/1/20, is no April Fools’ Day prank. Judge Gale seems to go down Memory Lane, though he doesn’t say so.

Remember Winter Storm Octavia, back in 2015? And the closure of Tax Court back then? No? Well, see my blogpost “’Blow, Blow, Thou Winter Wind’ – Part Deux,” 8/24/15.

The Smiths & Gills had an expert’s report due on Monday. But Tax Court had been on lockdown for two weeks at that point; no snailmail, no PDS. So they e-filed the report, stating they were complying with Rule 143(g)(2).

Of course they weren’t, because Rule 143(g)(2) says the report is served on the adversary, submitted to the Judge, marked for identification and will be received into evidence as direct testimony of the expert (unless the Judge bounces the expert as unqualified). It isn’t filed.

Judge Gale: “While petitioners’ electronic filing of the ‘Expert Report of B’ as an attachment to petitioners’ Report filed March 30, 2020, violates Rule 143, we nevertheless conclude that compliance with the mailing requirement is infeasible with mail delivery suspended. Accordingly, the Court will direct the Clerk of the Court to recharacterize petitioners’ Report filed March 30, 2020, as the Report of B, Petitioners’ Proffered Expert, file it as of the foregoing date, and serve a copy thereof on respondent.” Order, at p. 2. (Name omitted).

And Judge Gale reminds everyone that the Report isn’t evidence until Judge Gale Daubertizes it.

Use of e-filed status reports as a means of wildcarding in evidence or argument is a definite no-no, or was pre-virus (if anyone remembers back to a time before virus). See my blogppost “Chai, Chai, V’Kayom,” 4/18/17.

But for the duration of the pandemic, it would seem that Octavia Rules trump the rest.

I had stated some time ago that “Obliging Is Contagious,” 7/14/16. Then it was Ch J L Paige (“Iron Fist”) Marvel whom I apostrophized. Now I address Ch J Maurice B (“Mighty Mo”) Foley, who exhibits the same commendable characteristic in Frederick Edward Wellman, Docket No. 18854-19W, filed 3/31/20.

I was perhaps too stern with Ch J Mighty Mo when he tossed petitions for short-changing USTC the sixty Georges a week after they were filed. But now his treatment of Fred deserves praise.

IRS moves to toss Fred’s petition with the usual pre-Lacey brush-off. “’Petitioner appears to challenge only respondent’s decision not to pursue petitioner’s claim. Because this Court lacks the authority to direct respondent to initiate an administrative or judicial action, there is no relief available to petitioner.’” Order, at p. 1.

But Ch J Mighty Mo won’t have that.

“However, in Lacey v. Commissioner, 153 T.C. __ (Nov. 25, 2019), we held that the Court can review, for abuse of discretion, the Whistleblower Office’s (WBO) decision to reject a whistleblower claim for failure to meet certain threshold criteria. A fair reading of the allegations contained in the amended petition shows that petitioner is challenging the WBO’s rejection of his whistleblower claim. Giving petitioner not only the benefit of every doubt as we are required to do at this stage of the proceedings, see Hicks v. Small, 69 F.3d 967, 969 (9th Cir. 1995), but also wide pleading latitude as a self-represented litigant, see Estelle v. Gamble, 429 U.S. 97, 106 (1976), the allegations made by petitioner in this case are sufficient to avoid dismissal upon respondent’s motion.” Order, at pp. 1-2.

Even more praiseworthy is Ch J Mighty Mo’s obliging nature when, as my astute readers doubtless recollect, he was a dissenter in Lacey, endorsing the Ogden Sunseteers’ mantra “No dough, so you must go.” And I dissented from the dissenters myself, quite explicitly, at that time. See my blogpost “The Whistleblower Office – Blown,” 11/25/19.

Well done, Your Honor. I am not so impudent as to give Judges and STJs a Taishoff “Good Job,  First Class.”

I’ve pointed out before now that remand is a double-edged sword; while remand can let you get in facts and arguments you missed the first time around, it also lets IRS clean up its act, and refresh and refurbish the administrative record.

Looks like IRS has a problem with Richard G. Saffire, Jr., Docket No. 101-18W, filed 3/30/20. Richard wants discovery, and IRS, leafing through the documents responsive thereto, finds some unturned stones that maybe perhaps the Ogden Sunseteers might want to check out.

Remember, the administrative record in a Section 7623 whistleblower case is “All ye know on earth, and all ye need to know,” as a much greater writer than I put it.

So IRS says “send it through again.” Richard wants discovery first. Now usually Tax Court will remand whistleblower cases, even though Judge Vasquez once thought they couldn’t. See my blogpost “Remand? You Can Whistle For It,” 1/31/18.

So why is Richard fighting remand? Well, I haven’t seen his papers, and The Glasshouse in Lockdown City is itself locked down, as is your blogger, so no one can say. But maybe a glimpse of my blogpost “Trust Me – It Wasn’t Yours,” 3/12/19, will give a hint at Richard’s impatience with the Ogden Sunseteers.

Howbeit, Ch J Maurice B (“Mighty Mo”) Foley is willing to cut the OS crowd some cliché.

“In this case, it appears the administrative record is presently incomplete, and we find that remanding petitioner’s whistleblower claim for further consideration by the WBO prior to the parties engaging in any further discovery will be the most efficient way to supplement the administrative record and conserve the resources of the parties and the Court.” Order, at p. 2.

Lest the IRS and the OS become too elated, Ch J Mighty Mo, like a much more exalted authority with a much more exalted personage, reserves for them a thorn in the flesh.

“We will, however, hold petitioner’s motion to compel in abeyance.” Order, at p. 2.