Melissa Featherston Lecour & Glenn Lecour, 22905-18L, filed 12/30/19, want an IA. But they need a year to straighten out their living expenses. And the AO on their case (self-reported taxes assessed) was a trifle casual with the IRM’s prescriptions.

So no summary J for IRS.

“Petitioners timely filed a petition requesting review of the notices of determination asserting that the IRS did not properly calculate petitioners’ ability to pay their outstanding Federal tax liabilities and that ‘[t]he IRM specifically directs that respondent shall allow a taxpayer one year to reorganize living expenses to meet petitioners’ allowable personal living expense standards.’ Petitioners further allege that ‘Respondent’s allowable personal living expense calculation does not permit respondent such one year period, for all claimed expenses.’” Order, at p. 3.

Ex-CSTJ Peter Panuthos: “We have held that an Appeals officer properly exercises his or her discretion by adhering to IRM provisions governing acceptance of collection alternatives. The IRM provides that settlement officers should allow taxpayers the national standard amount for their family size without questioning the amount actually spent. See IRM pt. 5.15.1.9(2) and (7) (Aug.29,2018). For housing, utilities, and vehicle expenses, taxpayers are allowed the local standard amounts unless they have claimed lesser amounts. See IRM pt. 5.15.1.10(1)(a.) and (b.). The IRM further advises that all deviations from the national and local standards must be ‘verified, reasonable and documented in the case history.’” See IRM pts. 5.15.1.9(4), and 5.15.1.10(1)(a.) and (b.).” Order, at pp. 4-5.

Seems clear enough, no? And Tax Court’s scope of review is abuse-of-discretion, not de novo. So ex-CSTJ Panuthos isn’t going to recalculate the AO’s number.

But ex-CSTJ Panuthos is a sidewalks-of-New York lawyer, and if he can’t find an ambiguity in a NOD, nobody can.

“Contrary to IRM guidelines, the Notice of Determination does not supply, and respondent’s motion and supporting declaration do not elucidate, any explanation for (1) the amounts used when calculating petitioners’ allowable expenses and whether they deviate from the local and national standards, or (2) the calculation of petitioners’ ability to pay for the initial 12-month period. Because the record demonstrates a departure from administrative guidelines without a full and clear explanation of the AO’s reasoning, there is a genuine issue of fact in this case and summary judgment is inappropriate.” Order, at p. 5.

Takeaway- Add the one-year reset to your AI toolkit. If it isn’t there already.

Maria R. Manzanarez, Docket No. 19592-18, filed 12/27/19, may find her correspondence from 400 Second Street, NW, on the pavement, since Ch J Maurice B (“Mighty Mo”) ordered the following.

“ORDERED that petitioner’s address is changed in that mail shall be sent to the street Berkley.” Order, at p. 1. (Emphasis by the Court).

A benevolent Congress having expanded the scope of Tax Court review of innocent spousery, ex-Ch J L Paige (“Iron Fist”) Marvel obliges us today with a checklist for the petitioner seeking Section 6015 relief. She expands and expatiates on the checklist of her predecessor, ex-Ch J Michael B (“Iron Mike”) Thornton; see my blogpost “First Checklist for Innocent Spouser,” 11/4/19.

Ilya Iussa, Docket No. 24775-18, filed 12/27/18, is a beneficiary of ex-Ch J Iron Fist’s precision.

First, let petitioner and IRS stip out whatever they can, especially the contents of the administrative record, which led to the denial or abridgment of the relief sought.

But if they cannot, the petitioner needs to make a list like this.

“(1) the reasons why she disagrees with the administrative record as submitted by respondent and, if applicable, what documents she believes should be included in or excluded from the administrative record; (2) whether she plans to introduce evidence outside the administrative record and, if so, on what basis; and (3) whether she believes that a trial is necessary and, if so, why.” Order, at p. 2.

Read and heed.

Antoine A. Johnson, Docket No. 17324-18, filed 12/26/19, doesn’t mind if Bank of America hands over some papers to IRS before he goes to trial on the 1099-C BoA gave him. Antoine claims someone stole his bankcard and ran up a lot of debt. IRS gave BoA a trial subpoena (Form 14), but quite reasonably wants the stuff sooner, and moves for an earlier response.

BoA won’t do anything sooner than the subpoena requires unless a judge tells them, and Form 14 says show up at USTC on the trial date with the stuff.

“Given that the Form 14 subpoena duces tecum expressly directs the subpoenaed person to produce documents on the date of the calendar call, respondent is unable, without Court approval, to specify a date other than the calendar call date. Respondent’s motion would ensure receipt of the subpoenaed documents with sufficient time to review them and pursue further inquiry in the event the documents produced are either not in full compliance with the subpoena or otherwise contain information that may lead to discovery of more relevant information.” Order, at p. 2.

Makes sense. If Antoine is right, then some or all of the debt BoA relieved wasn’t his, so the SNOD is reduced or invalid. And checking it out pre-trial will save a lot of time, because if the stuff only shows up at trial, a lot of scarce judicial resources will be wasted as counsel and Antoine go over the stuff page by page.

But that Obliging Jurist, Judge David Gustafson, won’t agree to a change of the date whereon BoA’s person shows up with the stuff for IRS to eyeball.

Rule 147 allows for subpoenas duces tecum when deposing a nonparty, but unlike FRCP 45 (a)(1)(A) and (c)(2)(A), Rule 147 makes no provision for a subpoena duces tecum to non-parties for documents alone.

And unlike the stealth subpoena issue, which I’ve blogged in extenso, Judge Gustafson thinks that Congress has formally handcuffed pore l’il ole Tax Court.

Section 7456(a)(1) gives Tax Court judges the power to require production of documents “at any designated place of hearing.”

“A Tax Court litigant may serve on a third party a subpoena to produce documents at a trial session and, at that session, may call on the Court to enforce the subpoena. A litigant who has served such a subpoena may ask the third party to voluntarily produce the documents in advance of the trial session and, if the third complies, excuse him from appearing at the trial session. A litigant who has served such a subpoena may also ask the Court to attempt a telephone conference with the parties and with counsel for the third party for the purpose of encouraging such voluntary production of documents. But given the wording of section 7456(a), we do not authorize the service of a subpoena of the sort that the Commissioner here requests.” Order, at p. 3.

It’s easy to blame BoA for not playing nice, but it’s not their pony and it’s not their horserace. BoA has bank secrecy laws to consider. Since Antoine is pro se, any consent of his to handing over the stuff is hardly informed consent. A judicial subpoena clears their decks of any liability to Antoine or anyone else.

Pore l’il ole Tax Court, step-child of Congress.

Everything West of the Hudson Is Kansas

It’s been a while since I’ve gone geographical on this my blog, but with Christmas cheer lingering on, I turn to Phil W. Baxter & Betty C. Baxter, Docket No. 22250-19, filed 12/26/19.

See my blogpost “Everything West of the Hudson Is Kansas,” 7/5/17.

Phil & Betty never filed Form 5, Request for Place of Trial with their petition, a common omission that lately necessitates more than one-third of the Court’s orders, sending non-filers (of Form 5) hither and thither to try their cases at what Ch J Maurice B (“Mighty Mo”) Foley thinks is the most convenient venue.

Given the volume of such orders, it’s not surprising that Phil & Betty are sent off to “Nashville, TX” [sic] to seek redress for their grievances.

Unfortunately, unless the list in Rev. 9/10 of Form 5 has been amended and the amendment not yet made it onto the forms page of the USTC website, Tax Court does not sit in Nashville, TX, which my informant tells me is a/k/a Nashville-on-the-Brazos, in Milam County, TX. I am also informed that Nashville, TX is now a ghost town.

Some litigants might prefer such a locale, but I expect that Phil & Betty would prefer Nashville, TN. Better options for coffee and doughnuts on the morning of calendar call in Opryland.

Back on 9/19/19, I wrote “Judge Kerrigan’s solution just might be something for you to think about,” when dealing with protective orders to keep your clients’ customers’ names and the terms of their deals from prying eyes…including among themselves. See my blogpost “Contents of Contracts,” 9/19/19.

Well, today (12/23/19), in Mahaffey Tent & Awning Co., Inc., et al., Docket No.5061-17, filed 12/23/19, IRS gets another nudge to follow Judge Kerrigan’s advice.

IRS wants to contact eleven (count ‘em, eleven) of Mahaffey’s customers for a wee chat before a stenographer. And IRS lists said customers in an exhibit to its motion.

Judge Kerrigan orders the motion sealed, and bounces the motion. But IRS can, if it wishes, file a redacted motion, using only internal identifying numbers that Mahaffey uses for its customers.

And Mahaffey gets a protective order that IRS must “…use petitioner’s internal customer numbers in lieu of identifying information and not include customer contracts in any Court filed document.” Order, at p. 2.

A hint before Tax Court shuts down for Christmas, and I do likewise.

Best holiday wishes to all. Back on December 26.

Thrasys, Inc., Docket No. 11565-15, filed 12/20/19, has ruffled the holiday spirits both of IRS and Judge Albert G (“Scholar Al”) Lauber, as Thrasys tries to bail on three (count ‘em, three) stips, embedded in a single motion for summary J.

We know that’s a Rule 54(b) footfault, but Judge Lauber will let them move on two points only: “(1) whether petitioner may properly defer to 2009, under the deferral method permitted by Rev. Proc. 2004-34, the $15 million payment it received form [sic] its customer in 2008; and (2) if the $15 million payment is properly deferred to 2009, after petitioner converted to S corporation status, whether the $15 million was subject to tax under I.R.C. § 1374(b)(1) as a ‘net recognized built-in gain.’” Order, at p. 6.

And lest Thrasys try another quarterback sneak, “(T)he Court will not consider any other issues when ruling on any forthcoming motion for summary judgment by petitioner.” Order, at p. 6.

Thrasys wants to bail on the stips signed by two former attorneys who worked on their case. Stip one stated that 2008 was resolved, except for proper treatment of the $15 million. Stip two conceded that the $15 million was not a non-taxable “deposit.” This in 2017; in 2018, both attorneys were separated from Thrasys’ attorney’s firm (under what circumstances is not stated).

Now Thrasys wants to go back to the “deposit” argument formerly conceded, and to raise other 2008 issues.

I often admire the deft maneuver, but this merits a Taishoff “Oh, Please.”

Judge Lauber says that although Thrasys failed to hand over all documents in response to IRS’ discovery request, and IRS moved for sanctions, the first former attorney ponied up, so he dropped the sanctions. And when same Thrasys’ attorney conceded all 2008 issues except the $15 million, Judge Scholar Al denied IRS’ motion for summary J on the change in accounting method issue. See my blogpost “Plus Ça Change,” 12/4/18. Judge Scholar Al notes that Thrasys never moved for a Rule 161 vacation if Judge Scholar Al got it wrong, as they now claim.

Besides, the same attorney signed the petition and was counsel throughout this five-year journey. Judge Scholar Al finds it “implausible” that both attorneys who worked under him acted without his or his client’s knowledge. That’s being kinder and gentler than I would be; I’d use a phrase connected with omnibuses.

So now counsel wants to put the 2008 year back on the table four (count ‘em, four) years after IRS answered the petition, and after counsel conceded all but the $15 million. That’s attempting to amend pleadings, where leave is required, and Judge Scholar Al tells counsel, in the phraseology of our home town,  “fuggedaboutit.”

This is ambush on steroids.

Counsel is stuck. So is Thrasys.

Another installment of my arithmetic equivalency series is Jesus J. Rivas & Oralicia Valdez, Docket No. 26456-17, filed 12/19/19. It’s Jesus’ story, mostly about his unreported income and his unsubstantiated deductions in his landscaping bsuiness.

I want to bring forward Jesus’ trial expert, Mr. Rappoport, whose report Judge David Gustafson bounces, along with Mr. R’s testimony.

“His report does not set forth any ‘facts or data’ on which he relied. Fed. R. Evid. 702(b); Rule 143(g)(1)(B). He estimated the expenses of the landscaping business on the basis of what he called ‘industry average profit margin of 10% and indirect overhead expense of 10%.’ His report includes no source for these figures. The report makes no reference to any receipts, invoices, canceled checks, bank or credit card statements, or other documents to substantiate the expenses actually incurred by petitioner husband’s landscaping business.

“The report is also deficient in its explanation of the ‘principles and methods’ that Mr. Rappoport employed in performing his analysis. See Fed. R. Evid. 702(c). The 17 sample projects show aggregate income of$192,606, but Mr. Rappoport derives his expense estimate by assuming total income of $704,725 from all construction projects during the four years at issue. The report does not disclose how Mr. Rappoport determined the total income from all of the projects, nor does he explain why he believes the 17 projects to be representative of the entire universe. His report thus fails to establish that he ‘reliably applied the principles and methods to the facts of the case.’ See Fed. R. Evid. 702(d).” Order, at p. 3.

Judge Gustafson is willing to allow that Mr. R is an expert. “Petitioners contend, and we assume arguendo, that Mr. Rappaport is ‘an undeniable subject matter expert, with forty years of experience.’” Order, at p. 3.

That said, it isn’t enough. “…while an expert can be qualified on the basis of his experience, he cannot cite his experience as the sole basis for estimating four years’ worth of business expenses.” Order, at p. 3.

Forty won’t get you four.

When It Comes to NFTLs

It’s true, maybe, that Taxpayer Advocate Service sent a letter to IRS stating that the NFTL filed on Michael Gordon Banks, 2019 T. C. Memo. 166, filed 12/19/19, should be withdrawn. Judge Kerrigan says the SO reviewing Mike’s CDP request “…followed up with the TAS regarding the status of the NFTL withdrawal.  She attempted to contact the appropriate person with the TAS and left a message regarding the NFTL.  The settlement officer concluded that there was no new financial information in support of petitioner’s appeal of the rejection of his offer-in-compromise.  The settlement officer verified that all legal and procedural requirements had been met and the collection action taken was appropriate under the circumstances.” 2019 T. C. Memo. 166, at p. 5.

Mike never proved he had less equity than $110K, or that he owed less than $23K to IRS.

“Petitioner contends that respondent falsified information, but he never produced evidence of any criminal activity.  He asserted that his ability to pay should be considered even though he did not dispute the asset valuation, which is sufficient grounds for rejecting his $12,000 offer.  Nevertheless, the settlement officer provided petitioner with an opportunity to produce additional information to show that the COIC’s rejection was inappropriate in accordance with the procedures laid out in IRM pt. 8.23.3.3(5).  The settlement officer also provided petitioner additional time to prepare for the CDP hearing when petitioner requested an extension.

“Petitioner did not provide any new information to support his dispute of the COIC’s rejection.  The settlement officer’s offer to place petitioner’s account in CNC status and suspend collection activities demonstrates respondent’s willingness to assess reasonably and fairly petitioner’s ability to pay his tax liabilities.  Accordingly, we find that the settlement officer did not abuse her discretion in sustaining the COIC’s rejection of petitioner’s offer-in-compromise.” 2019 T. C. Memo. 166, at pp. 11-12.

Anyway, while TAS protects each taxpayer, IRS protects the rest of us.

“Section 6323(j)(1)(D) provides that an NFTL may be withdrawn if the Secretary determines that withdrawal would be in the best interests of both the taxpayer and the United States.  While the statute requires the TAS to determine whether withdrawal would be in the best interest of the taxpayer, it also explicitly requires a determination by the Secretary or his designee that withdrawal is in the best interest of the United States.  IRM pt. 5.12.9.3.4(1) (Oct. 14, 2013).  Neither the Secretary nor his designee determined that the withdrawal of the NFTL was in the best interest of the United States.” 2019 T. C. Memo. 166, at p. 14.

James J. Lillie & Donna Lillie, Docket No. 17056-19, filed 12/18/19, raise an interesting question: Does Section 7502 apply if USPS returns the timely filed Priority Mail envelope (paid with basic postage)?

Here’s the story, Jim & Donna sent in the petition with the $7.35 basic postage prepaid, but didn’t pay for certified mail service. USPS bounced the envelope back to Jim & Donna, and they volleyed it back to 400 Second Street with the additional postage paid.

By the time it reached the Glasshouse, the ninety days had run. IRS moves to toss for late filing.

Jim & Donna cite the Reg.

“26 C.F.R. 301.7502-1(c)(1) dictates the petition must be contained in an envelope, be properly addressed to the Court, and be deposited within the prescribed time in the mail in the United States with sufficient postage prepaid. Here, the envelope was properly addressed to the Court and deposited with the USPS with sufficient postage to get the envelope to its destination in the flat rate Priority Mail envelope.” Order, at p. 2.

What means “sufficient postage”?

Ch J Maurice B (“Mighty Mo”) Foley also wants to know.

He orders Jim & Donna to file a supplement to their response to IRS, wherein  “petitioners shall set forth and discuss fully: (1) whether petitioners requested the petition deposited … be sent to the Tax Court by both priority mail and certified mail; and (2) whether the USPS properly returned the envelope bearing that petition for lack of proper postage to petitioners.” Order, at p. 2.