Ex-Ch J L Paige “Iron Fist”) Marvel has a review of the caselaw nailing the potteries in pot-friendly States with the Section 280E traffic tickets.

Boulder Alternative Care, LLC, GLG Holdings, LLC, Tax Matters Partner, Docket No. 16495-16, filed 8/28/19, goes for judgment on the pleadings.

They get more than they bargained for. “’ Colorado state-legal marijuana sales do not conflict with the federal Controlled Substances Act or any other federal drug law. Under those circumstances, the Supreme Court has made clear that state law must control. Since Colorado law controls, state legal marijuana sales cannot be considered “prohibited” under federal law.’” Order, at pp. 1-2.

Well, the Boulderers get bowled over (sorry, guys). The motion relies on facts outside the pleadings, thus Rule 120(b) turns the motion into one for summary J. And all y’all know I just love summary J.

The Boulderers get buried in a judicial landslide.

“The precedent regarding the application of section 280E to state licensed marijuana dispensaries is well settled. In Gonzales v. Raich, 545 U.S. 1 (2005), the Supreme Court rejected the argument that the cultivation and possession of medical marijuana, isolated to and policed by a state, somehow removed the activities from the purview of the Comprehensive Drug Abuse Prevention and Control Act of 1970 (CSA). The U.S. Court of Appeals for the 10th Circuit has consistently upheld denials of deductions and credits under section 280E, noting in its most recent pronouncement that ‘[d]espite its legality in many states, marijuana is still a schedule I “controlled substance” under federal law.’ Feinberg v. Commissioner, 916 F.3d 1330, 1333 (10th Cir. 2019), aff’g T.C. Memo. 2017-211, petition for cert. filed, No. 19-129 (July 26, 2019); see also High Desert Relief, Inc. v. United States, 917 F.3d 1170 (10th Cir. 2019); Alpenglow Botanicals, LLC v. United States, 894 F.3d 1187 (10th Cir. 2018), cert. denied, 139 S. Ct. 2745 (2019); Green Sol. Retail, Inc. v. United States, 855 F.3d 1111 (10th Cir. 2017), cert. denied, 138 S. Ct. 1281 (2018). This Court has also consistently applied section 280E, irrespective of any permissive state laws, to disallow deductions and credits with respect to a taxpayer’s trade or business that consists of trafficking in controlled substances. See Alt. Health Care Advocates v. Commissioner, 151 T.C. __ (Dec. 20, 2018); Patients Mut. Assistance Collective Corp. v. Commissioner, 151 T.C. __ (Nov. 29, 2018); Olive v. Commissioner, 139 T.C. 19 (2012), aff’d, 792 F.3d 1146 (9th Cir. 2015); Californians Helpingto Alleviate Med. Problems, Inc. v. Commissioner, 128 T.C. 173 (2007).” Order, at p. 2.

The issue the Boulderers raise is whether State law takes their admitted pottery out of CSA. “Petitioner misreads applicable case law from the Supreme Court, the U.S. Court of Appeals for the 10th Circuit and this Court. As noted above, the courts have consistently held that permissive state laws have no effect on Federal enforcement of the CSA. In following that precedent, we conclude that Colorado’s permissive medical marijuana laws have no effect on the CSA.” Order, at p. 3.

I’ll spare you a collation of my blogposts on this subject.

Ex-Ch J Iron Fist bounces the Boulderers’ motion. It’s unfortunate that the Rules don’t provide for cross-motions for summary J. That would save a lot of time.

The race to the back in the New Gambit stakes goes on apace. See my blogposts “I’m Beginning to See the Light,” 4/9/18, and “The Light at the End,” 8/20/19.

Today Frank M. Dartee, Docket No. 3792-18, 8/27/19, goes for the record…forty (count ‘em, forty) years, in one petition.

Ch J Maurice B (“mighty Mo”) Foley tells the story.

“Petitioner seeks review of purported notices of deficiency and notices of determination concerning collection action allegedly issued to petitioner for taxable years 2000 through 2018. On April 11, 2019, respondent filed a Motion for More Definite Statement Pursuant to Rule 51. On August 5, 2019, petitioner filed an Amended Petition seeking review of purported notices of deficiency and notices of determination concerning collection action issued to petitioner for taxable years 1979 through 2018.” Order, at p.1.

Ch J Mighty Mo, in a more mellow mood than is his wont, tells IRS to forget about a more definite statement from Frank, but to look and see whether there is anywhere to be found either NOD or SNOD issued to Frank for any of those years. Then tell Ch J Mighty Mo whether there is anything that would confer jurisdiction.

Is there a Section 6673 on the horizon?

All y’all (going to Texas next week, so I’ve got to warm up) will remember Denise Celeste McMillan, 2019 T. C. Memo. 108, filed 8/26/19, who has twice appeared in this my blog. You don’t? Well, see my blogposts “Who Would These Burdens Bear,” 6/12/15, and “Sad Tales,” 11/3/15.

Denise has a never-say-die approach. She’s been litigating in Tax Court five times before this case, And Judge Mark V Holmes schedules them all.

“Ms. McMillan’s litigation experience also includes five previous cases in the Tax Court.  She and the Commissioner settled three of those cases, but the other two went to trial with one going to appeal and then to the Supreme Court.  See McMillan v. Commissioner (McMillan II), T.C. Memo. 2015-109 (finding no trade or business in horse activity in which petitioner’s one horse had died); McMillan v. Commissioner (McMillan I), T.C. Memo. 2013-40 (finding no trade or business in horse activity in which petitioner’s one horse had neither been bred nor competed in eight years), aff’d, 697 F. App’x 489 (9th Cir. 2017), cert. denied, 138 S. Ct. 1010 (2018).” 2019 T. C. Memo. 108, at p. 9.

She’s a dab hand at correcting defective trial transcripts, too, “…such as when she wrote ‘should be “breeding,” not “breading” — was Spellcheck broken?”. 2019 T. C. Memo. 108, at p. 13. I’ve often had the same feeling when I see some deposition and trial transcripts here, although I’m a wee bit more douce in my corrections.

She’s the kind of unit owner that makes Board of Managers members cringe. She got a $70K settlement for noise and mold, which she excluded from income, but her physical harm argument loses, especially when her CPA warns her.

“While cross-examining Ms. McMillan the Commissioner’s attorney established that she didn’t consult any of her attorneys about her return position.  She did, however, admit that she asked a CPA she’d retained in the 1990s whether the exclusion for pain and suffering awards was still in place, and he told her that it’s now more ‘narrowly defined’ and applies only when someone is ‘physically ill.’  Rather than suggest reasonable reliance that might excuse a section 6662(a) penalty, see sec. 6664(c)(1); Neonatology Assocs., P.A. v. Commissioner, 115 T.C. 43, 98 (2000), aff’d, 299 F.3d 221 (3d Cir. 2002); sec. 1.6664-4(b)(1), Income Tax Regs., this testimony shows that Ms. McMillan knew that the exclusion she was relying on was limited, that she had reason to question whether she qualified for it, and that she didn’t follow up to make sure her position was reasonable.  It’s also another reason to question her testimony about her physical symptoms–of which there’s no contemporaneous evidence and the treatment for which she could not remember.  The Commissioner therefore met his burden of showing that Ms. McMillan did not reasonably rely in good faith on professional advice, and that she had neither reasonable cause nor good faith in failing to report her settlement with the HOA.” 2019 T. C. Memo. 108, at pp. 48-49. But IRS counsel can’t come up with the Section 6751(b) Boss Hoss sign-off for the additional deficiencies IRS laid on Denise, so she avoids the chops.

My colleague Peter Reilly, CPA, a fan of hobby loss cases, will find little joy with Denise’s horse breeding/showing business. Denise shipped the late Goldrush, her last horse, to Australia in 2008, where the late Goldrush became the late Goldrush, and never replaced him. Since this case is appealable to 9 Cir, Judge Holmes walks through the Section 183 “goofy” regulations, even though Judge Posner in 7 Cir would have let him take a holistic approach.

Either way, Denise is beating a dead horse.

Denise tried the home-office deduction, but the office was the livingroom in her 800 sq ft unit, and Judge Holmes has four reasons for disallowing that deduction, the chiefest of which is “(E)ven if her lawsuits and websites were somehow trades or businesses–and we find that they weren’t–she still couldn’t take the deduction if she used her living room for anything else, and her testimony that she never used any part of it for anything other than business is simply impossible for us to believe.” 2019 T. C. Memo. 108, at p. 42.

I’m sure Denise will be back in Tax Court. Petitioners like her is what keeps bloggers writing.

The late great Dr Eric Berne would find an embarras de richesses in US Tax Court. To begin with, CSTJ Lewis (“Not Chief In Name Only”) Carluzzo has no patience for IRS counsel’s gameplaying in Ralph B. Marra, Docket No. 24599-17L, filed 8/23/19.

IRS claims Ralph had an opportunity to contest liability at the CDP, but didn’t, so wats summary J. Ralph wants a remand.

CSTJ Lew: “According to petitioner, his challenge to the amount of the underlying liability, or at least a portion of it, was raised at the administrative hearing by the submission of a Form 1127, Application for Extension of Time for Payment of Tax Due to Hardship, to the respondent’s settlement officer. We note that a similar challenge is made in the petition.” Order, at p. 1.

So summary J goes down.

“The parties disagreement over petitioner’s entitlement to challenge the existence or the amount of the underlying liability in this proceeding, not to mention their apparent disagreement over whether petitioner had reasonable cause for his failure to pay the underlying liability, see sec. 6651(a)(2), requires that respondent’s motion be denied because genuine issues of material fact remain in dispute, see Rule 121.” Order, at p. 2.

But CSTJ Lew isn’t sending Ralph and IRS back to Appeals, either.

“Turning our attention to petitioner’s motion, we fail to see what could be accomplished by further administrative review and action that could not otherwise be given effect by the parties without a remand.” Order, at p. 2.

Maybe CSTJ Lew is going to try this one.

But IRS isn’t the only gameplayer today.

Elizabeth Koham, Docket No. 5227-18L, filed 8/23/19, is part of a designated hitter coupled entry. Elizabeth tries a ploy with Judge Buch, who is definitely not playing. Elizabeth wants an OIC, and isn’t getting it. She and co-petitioner sent in a Form 433-A claiming “patently excessive monthly expenses.” Order, at p. 1.

“On their 433-A, Mr. Bereliani and Ms. Kohanmehr listed among monthly expenses: $7,500 for food, clothing, and miscellaneous, $9,500 for housing and utilities, and $1,000 for public transportation. They also listed a $250,000 student loan debt as a monthly expense, labeling it as a total debt, but offering no information about the monthly loan expense.” Order, at pp. 1-2, footnote 4.

This is not the way to ingratiate oneself with the court. Especially when one’s RCP is $312K and one offers an OIC of $2500.

But one does get “somber reasoning and copious citation of precedent” at no extra charge.

Today’s episode of the story of Richard R. Raley, Docket No. 15789-17, filed 8/22/19, lets Judge Buch tell us that stipulations don’t solve every issue.

“The Commissioner filed a document captioned ‘Respondent’s Designation of Deposition Testimony To Be Used At Trial.’ This appears to be an attempt to put into the evidentiary record of this case a deposition of a non-party taken pursuant to a stipulation under Rule 81(d), Tax Court Rules of Practice & Procedure. The mere fact that a deposition was taken by stipulation does not automatically mean that a party can put that deposition into the evidentiary record of the case. See Rule 81(i).” Order, at p. 1.

The deposition can be used to impeach the witness, or by the adverse party for any purpose, but to let the deposition in for any purpose requires judicial oversight. See Rule 81(i)(3).

Neither side can smuggle the deposition in while Judge Buch is on the case.

Sometimes the taxpayer gets a lot more than sixty bucks’ worth of justice from US Tax Court. Taryn L. Dodd, 2019 T. C. Memo. 107, filed 8/22/19, a legal secretary who got tagged with $1 million of real estate sales proceeds based on an erroneous 1040, never got a chance to contest her liability, even though she got a CDP and a remand.

The remand went to the same SO who had quick-pitched Taryn before.

Judge Albert G (“Scholar Al”) Lauber doesn’t think much of what justice Taryn got before now.

“We remanded this case after respondent conceded that the SO had abused her discretion by failing to consider petitioner’s challenge to her underlying liability and by failing to give petitioner enough time to submit information relevant to her request for a collection alternative.  Given these concessions by IRS counsel and the terms of our remand order, one might have expected the Appeals Office to take all steps reasonably necessary to accomplish the purpose of our remand.  Unfortunately, this is not what happened.”  2019 T. C. Memo. 107, at pp. 8-9.

“Here, the SO was fully aware of petitioner’s position concerning her underlying tax liability….  But the SO did not advise her, either in the letter scheduling the supplemental hearing or during the hearing itself, of the factual information that was needed to resolve that challenge.  And rather than give petitioner a reasonable extension of time to supply that information, the SO closed the case the very next day.

“On the record before us, we find that there exists (at the very least) a question of material fact as to whether the SO abused her discretion in handling this case on remand.  We will accordingly deny respondent’s motion for summary judgment.  We will also direct respondent to show cause why this case should not be remanded once again for the conduct of a supplemental hearing–ideally, before a different SO–that is genuinely designed to get to the right answer concerning petitioner’s underlying tax liability … and (if her underlying liability challenge is rejected) concerning her request for a collection alternative.” 2019 T. C. 107, at pp. 10-11.

Why IRS had four (count ‘em, four) attorneys assigned to this summary J fiasco, and not one patient SO to the remanded CDP, makes me question IRS’ allocation of scarce resources.

Next up, Santiago Guiterrez, 2019 T. C. Sum. Op. 23, filed 8/22/19. Santiago had a court order awarding him and his partner custody of his partner’s two minor grandchildren, as their father had deserted and couldn’t be found, and their mother abandoned them and died. Santiago was the sole support of them and his partner’s 19 year old daughter (whom he claimed was a student, except her school transcript showed she wasn’t).

CSTJ Lewis (“A Man Worthy of the Name”) Carluzzo gives Santiago the two minors for all the child bennies and HOH, but not the 19 year old.

Both the minors are qualifying foster children for year at issue (Sec. 152(f)(1)(C). But they qualify both for Santiago and for partner. Except Santiago wins the tie-breaker as he’s the only one with gross income.

So it’s a Rule 155 beancount, to take the 19 year old out of the mix for EITC and kiddie creds.

And Santiago used a paid preparer, who had creds, and he acted in good faith. No chops.

It is this blogger’s oft-repeated lament, whenever reporting a pro se’s obvious misunderstanding of the law, whether advertent or inadvertent, that “Those who read it don’t need it, and those who need it won’t read it.”

Today STJ Daniel A (“Yuda”) Guy gives us another example, Anthony Barfield, Docket No. 322-19, filed 8/22/19.

AB got tossed in May a year ago, when he petitioned before the SNOD had been mailed to him. I’ve blogged that often enough; see my blogpost “Illegal Procedure,” 12/1/16 and the posts cited therein. So IRS hit him with the SNOD, which he now petitions, saying Section 7481 finality renders the SNOD invalid, as IRS had their chance.

Except IRS didn’t. AB filed a “years petition,” when neither SNOD nor NOD has issued for a bunch of years. STJ Yuda explains: “Such a petition, commonly known as a “years petition”, does nothing other than allege for a substantial number of consecutive years that the taxpayer did not receive any jurisdictionally relevant IRS notice, such as a notice of deficiency or a notice of determination, that would permit an appeal to the Tax Court. A ‘years petition’ is a manifestation of protest from tax deniers and tax protestors.” Order, at p. 2, footnote 2.

I’ve blogged this gambit often enough. I was unaware it had acquired a popular name.

“Returning now to the present case, it bears mention that petitioner did not pay the filing fee when he filed his petition nor did he file at that time an affidavit or declaration containing specific financial information regarding the inability to pay the filing fee. By Order dated February 7, 2019, the Court directed petitioner to pay the filing fee or submit an application for waiver on or before March 25, 2019. Petitioner did not comply with this Order.” Order, at p. 3, footnote 3.

So STJ Yuda could toss AB for nonpayment, but instead gives IRS judgment on the pleadings, nails AB for the deficiency and the chop.

And AB gets the Section 6673 yellow card at no extra charge.” Finally, the Court takes this opportunity to remind petitioner that section 6673(a)(1) authorizes this Court to impose on a taxpayer a penalty not to exceed $25,000 whenever it appears that proceedings have been instituted or maintained by the taxpayer primarily for delay or that the taxpayer’s position in such proceedings is frivolous or groundless. Although the Court will not impose such a penalty in this case, petitioner is warned that the Court may not be so forgiving if he returns to the Court and advances frivolous and groundless arguments in the future.” Order, at p. 4 (Citation omitted).

It seems like another non-substantiation case, but Jasper J. Nzedu and Vivian A. Nzedu, 2019 T. C. Sum. Op. 22, filed 8/21/19, has a couple lessons for us all (hi, Judge Holmes).

It’s Jas’ story. Jas is an attorney who, after white shoeing, ran his own tax software and tax prep operations, under two entities, one a corporation and the other an LLC.

He’d have some good passthrough losses, if he timely filed the Sub S election for the C Corp.

CSTJ Lewis (“What’s in a name? Everything!”) Carluzzo instructs us on the extreme importance of little things.

“Petitioner asserts that he personally prepared a Form 2553 [S election] [covering year at issue] for [C Corp] and then gave it to one of his employees with instructions to mail it to the IRS. According to respondent, petitioner did not make a valid S election until [three years later].

“Respondent’s records do not show that a Form 2553 on behalf of [C Corp] was received…, nor has petitioner provided any persuasive evidence of timely mailing Form 2553….” 2019 T. C. Sum. Op. 22, at p. 7.

Certified mail is cheap, even cheaper if return receipt is not requested (and it doesn’t have to be to satisfy Section 7502). And the USPS website offers track-and-confirm.

Next is the case of the purloined laptop.

Jas claims his laptop, whereon resided all his records for years at issue, was stolen. I don’t doubt Jas’ testimony on that point, and I don’t think CSTJ Lew did either.

Except.

“Petitioners explain that the lack of detailed substantiating records is due to the theft of petitioner’s laptop.  According to petitioners, because they have introduced evidence, in the form of petitioner’s testimony and other documents, showing the expenses incurred, they are entitled to the deductions as claimed on the returns.  When a taxpayer’s records have been destroyed or lost because of circumstances beyond the taxpayer’s control, the taxpayer may substantiate his expenses by making a reasonable reconstruction of the expenditures or use.  See sec. 1.274-5T(c)(5), Temporary Income Tax Regs., 50 Fed. Reg. 46022 (Nov. 6, 1985).  A taxpayer is required to reconstruct what records he can.  In this case, however, the evidence presented discloses a tangled web of shared expenses that is difficult to unravel.  We are unable to determine whether expenses reported on the [LLC] Schedules C were already reported and allowed as deductions by respondent by one or the other of petitioner’s other businesses.  Nor is there sufficient evidence in the record to provide a basis for estimating the expenses.” 2019 T. C. Sum. Op. 22, at pp. 12-13. (Citation omitted).

Thus the title of this blogpost. A standalone harddrive with hefty capacity can be purchased for $100 or less. The harddrives of most laptops can be easily stored in a standalone harddrive off-campus, and it doesn’t take a lot of time or tech savvy to do so.

Finally, Jas is way too credentialled to dodge the Section 6662(a) five-and-ten.

The Low Income Tax Clinics do laudable work. Primacy of place must go to the law schools, whose pro bono beneficence I’ve often commended before now. The Texas Technophobes, the Harvard Fierce Fighters, the Golden Gophers, The Fordham Flashes, and Sandy Freund’s Jersey Lightning, are just a sampling.

Unhappily, some of the VITAs, and today the AARP, fall somewhat short.

Maria M. Faust, 2019 T. C. Memo. 105, filed 8/20/19, evokes pity from Judge Elizabeth A. Copeland, as Maria needed a Spanish-language interpreter on the trial, was found by the US Navy’s Family Advocacy Program Case Review Committee to be abused by her husband, never finished secondary school, and was confronted by a series of  family court orders that baffled even IRS’ counsel. There was a preliminary order and a final order, when Maria unhitched from abusive spouse, and Maria got money.

Of course, what cash Maria got was alimony, and taxable to her. VA law, where she lived, says all such court-ordered payments end with death, unless expressly otherwise stated, so Section 71(b)(1)(D), the rock upon which so many alimony claims foundered, was avoided. And nowhere was it stated in any document that payments were not income to Maria.

Maria got tax advice from AARP’s local MD tax clinic. “…we note that petitioner obtained what low-income-taxpayer professional assistance she could in preparing her tax return.” 2019 T. C. Memo. 105, at p. 20. So Maria is excused the Section 6662 chops.

We’ve seen that non-law school VITAs have problems with things like self-employment tax for workers with foreign governments (see my blogpost “That’s The Way To Do It,” 10/2/12). Here’s another example. Maybe AARP (to which organization I belong) should partner with the law school clinics.

I said it back in April last year. Those who petition multi-years, when IRS issued neither SNOD nor NOD for any thereof, risked the Section 6673 yellow card, if it looked like they were trying to limp in to cut off nonassessables, like refund grabs. See my blogpost “I’m Beginning to See the Light,” 4/9/18.

Well, today Ch J Maurice B (“Mighty Mo”) Foley, he of the quick-pitch, lines up on Stella Beth Nager-Curry, Docket No. 5101-19, filed 8/20/19.

Stella Beth petitioned nineteen (count ‘em, nineteen) years, from 1998 to 2017.

IRS was not amused, and Ch J Mighty Mo grants IRS’ motion to toss Stella Beth’s petition.

But as the late-night telehucksters say, “But wait! There’s more!”

“In his motion to dismiss respondent states that petitioner does not object to the granting of the motion. In his motion, respondent further requests that the Court warn petitioner about I.R.C. section 6673. That section authorizes the Court to require a taxpayer to pay to the United States a penalty not in excess of$25,000 whenever it appears that proceedings have been instituted or maintained by the taxpayer primarily for delay or that the position of the taxpayer in such proceeding is frivolous or groundless.” Order, at p. 1.

Ch J Mighty Mo is quick to oblige.

“Although respondent does not seek and the Court thus will not impose an I.R.C. section 6673 penalty here, petitioner is admonished that the Court will consider imposing such a penalty in future cases commenced by petitioner seeking similar relief under similar circumstances.” Order, at p. 1.