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.

I sometimes think that creativity is an overrated talent. Case in point: King Solarman, Inc., 2019 T. C. Memo. 103, filed 8/19/19. King is the business of Cung, Taiwanese immigrant, who starts a successful business selling those carts with the giraffe solar panels, that tell us of lane changes and closed exit ramps.

Cung, no accountant, has an inventive CPA who tries to hide $5 million of income via a promissory note. The note was given by Cung’s customer. The CPA claimed that Cung’s business didn’t have inventory, because there were no carts on the lot at year’s end, and therefore Cung could use cash method, although he’d always filed accrual and never asked for a change. Loser, because it’s whether the income-producing stuff could be inventory, and of course it could.

I’ll spare you Judge Lauber’s extensive trek through the facts, demolishing Cung’s team’s arguments.

The key is that Cung dodges a substantial chop.

“Although Mr. Cung has a college degree, he had no knowledge regarding tax law, and English is his second language.  He retained a CPA to prepare [King Solarman]’s return for each year of its existence.  The accounting issues we have addressed present technical questions of the sort a reasonable businessperson would refer to his accountant, to whom Mr. Cung made full disclosure of all relevant facts.

“Petitioner’s CPA did a less-than-masterful job in preparing KSI’s returns, but we are convinced that Mr. Cung did not know, and had no reason to know, of any deficiencies in that respect.  We do not fault Mr. Cung for not questioning his accountant when he was aware of no reason for doing so.” 2019 T. C. Memo. 103, at p. 37.

True, Cung’s legal team didn’t call the CPA to testify, and that “cuts somewhat in respondent’s favor.” 2019 T. C. memo. 103, at p. 37. But I don’t know I would have called the CPA either; that individual had done quite enough.

Appraisal aficionados will enjoy two from Tax Court today. We begin with Houston, and the high-priced part of town known as River Oaks, wherein stood the celebrated Harry Hanszen House, now or formerly the abode of Robert G. Taylor, II, 2019 T. C. Memo. 102, filed 8/19/19. Judge Paris gets this tale of Hurricane Ike and the havoc it wrought in Baja Oklahoma.

While I’ll spare you Judge Paris’ three-page broker’s set-up, I especially lament the destruction of RGTII’s “…6,889 bottles of wine stored in the basement, and approximately half were submerged.  A dedicated computer with customized wine database software, a bar code labeler and a scanner, and a work station were destroyed in the basement flood.” 2019 T. C. Memo. 102, at p. 10.

What a bummer.

Then there was mold, asbestos, the real estate market collapse of the Black ’08… as Grandma would have said, don’t ask.

RGTII originally went with his CPA’s appraisal of before and after, but supplemented with a local broker whose 30 years of experience sufficiently impressed Judge Paris to allow in both the broker’s report and her testimony.

But that doesn’t help, as all that a casualty loss involves is actual physical damage. “A competent appraisal must recognize the ‘effects of any general market decline affecting undamaged as well as damaged property which may occur simultaneously with the casualty’ so that any deduction will be ‘limited to the actual loss resulting from damage to the property.’” 2019 T. C. Memo. 102, at pp. 24-25, citing Reg. 1.165-7(a)(2)(i).

The flooded basement, mold and asbestos, plus the Black ’08 crash, and popular perceptions thereof, played too great a role in RGTII’s expert’s valuation. But though the CPA flunks as valuer, CPA does help RGTII escape the Section 6662 chops.

Next up is the trees and the forests of Oregon, in which was situated the world-class sawmills of the late Aaron U. Jones. So we have Estate of Aaron U. Jones, Donor, Deceased, Rebecca L. Jones and Dale A. Riddle, Personal Representatives, 2019 T. C. 101, filed 8/19/19, Judge Pugh at the cutting edge (sorry, guys).

The late Aaron U. had a LLC to do the forestry and his S Corp to do the sawing, and they swapped cash back and forth. The documentation apparently passed muster. Now the question is the worth of the interests the late Aaron U. gifted to his nearest and dearest before he became the late Aaron U.

Here we have Schwab and Reilly, dueling valuers, Schwartz for IRS and Reilly (apparently a professional sawmill valuer with over 100 woodpushers under his belt) for the estate. Schwab’s expertise is closely-helds.

Reilly’s valuation is the better. He harkens back to our old friends the late Natale and his heir Laraway Guistina (see my blogpost “Into the Woods,” 2/16/16), and uses an income approach rather than Schwab’s net asset valuation.

These lumber outfits both grow and hold timber (assets) and sell wood, so they’re both investment vehicles and operating businesses.  And the S Corp and the LLC are essentially two arms of the same enterprise. Moreover, Reilly takes tax effects into account in valuing the same.

“While respondent objects vociferously in his brief to petitioner’s tax affecting, his experts are notably silent.  The only mention comes in Mr. Schwab’s rebuttal report, in which he argues that Mr. Reilly’s tax-affecting was improper, not because SJTC pays no entity level tax, but because SJTC is a natural resources holding company and therefore its ‘rate of return is closer to the property rates of Return’.  They do not offer any defense of respondent’s proposed zero tax rate. Thus, we do not have a fight between valuation experts but a fight between lawyers.” 2019 T. C. Memo. 101, at p. 39.

If you buy an S Corp, you’re buying the flowthrough of tax incidents. That’s worth something.

“We find on the record before us that Mr. Reilly has more accurately taken into account the tax consequences of SJTC’s flowthrough status for purposes of estimating what a willing buyer and willing seller might conclude regarding its value.  His adjustments include a reduction in the total tax burden by imputing the burden of the current tax that an owner might owe on the entity’s earnings and the benefit of a future dividend tax avoided that an owner might enjoy.  We are mindful that the science of valuing closely held companies usually results in a ‘gross terminal logical inexactitude’ in the words of Winston Churchill.” 2019 T. C. Memo. 101, at p. 41.

If you’re a valuation geek, read these. And even if you’re not, there’s useful material here.

Sam T. Coleridge’s grey-beard loon has nothing on Judge Buch, who does not “his hand dropped he” but hangs on to the CPA I’ll call Jody in NCA Argyle LP, Newport Capital Advisors, LLC, A Partner Other Than the Tax Matters Partner, et al., Docket No. 3272-18, filed 8/16/19, one of a quad of designated hitters.

Trial is set for next month, IRS moves to depose three (count ‘em, three) of taxpayers’ advisors, including without in any way limiting the generality of the foregoing (as my already on their second Grey Goose and Tonic colleagues would say), the aforesaid CPA, despite everybody having Branertoned up to now.

The Argyles claim too near to trial, burdensome, and IRS didn’t ask earlier.

“The Commissioner believes these depositions will help him to understand the advice given to petitioners regarding the settlement proceeds.” Order, at p. 2.

BTW, IRS claims the Argyles opposed their demand too late. Their response was due 8/14/19, but the Argyles, being on the left coast, got their opposition in at 1:04 a.m., EDT, on 8/15/19.

Now we all know Rule 22 changed effective 11/30/18. The 6 a.m. the next day grace period was dropped, and 11:59 p.m. on the due date substituted. But the Practitioners’ Guide to Electronic Case Access and Filing available on the Court’s website still states at page 42, “A document is considered timely filed if it is electronically transmitted no later than 6:00 a.m. Eastern time on the day after the last day for filing.”

Needless to say, the Rule overcalls the Practitioner’s Guide. But Judge Buch will make sure no one is misled. “The Court will take steps to conform the online guide(s) to the recently amended rule. As for this case, no one was prejudiced by the 65 minute delay, and the Court has filed petitioners’ response.” Order, at p. 2, footnote 2.

Judge Holmes, please copy. See my blogpost “Technologically Challenged,” 3/21/16.

OK, so IRS can depose. “The information the Commissioner seeks to obtain through the proposed depositions is relevant and discoverable information. The proposed depositions would examine, for all three of the individuals, their role in advising petitioners as to the proper tax treatment of the income at issue. This information is relevant to the question of whether petitioners had reasonable cause for their reporting on their returns.” Order, at p. 3.

But Judge Buch invokes Rule 70(c)(1)(C). Three depositions are too burdensome and expensive, and trial is less than three weeks away. And the nonparties’ testimony will overlap anyway.

So since Jody prepped the returns, let him talk.

Geoffrey R. Myers & Lin C. Liu, Docket No. 7998-18S, filed 8/16/19, claim their DC tax refund was grabbed by IRS. IRS says State tax refund grabs don’t need no NODs, and therefore Section 6330 avails naught.

Geoff and Lin reply thus: “The IRS determined to seize assets from us, and effected that seizure on three separate occasions, creating a valid basis for a petition to the Tax Court for Tax Year 2017. When the IRS indicated its intention to seize our assets, in January 2019, that did not constitute a determination. But when the IRS actually seized our assets, that action did constitute a determination. As far as the IRS is concerned, its actions are now final, and thus its seizures are unquestionably subject to jurisdiction of the Tax Court. The IRS’ Motion to Dismiss suggests that the Tax Court may not consider this case until the IRS issues a notice of determination. However, the IRS inconsistent communication and lack of response prove that the IRS will not hesitate to seize assets without a formal notice of determination. Thus I assert that the IRS’ repeated seizure of our assets constructively form any and all notice sufficient to provide the Tax Court with jurisdiction. Further, we have complied with every other timeliness requirement established by law or by the IRS, while the IRS has consistently failed to respond timely, or respond at all until required to do so by this petition to the Tax Court. Thus it is reasonable to conclude that the only way the IRS will respond to our valid concerns is for the Tax Court to insist that the [sic] it do so.” Order, at p. 3.

Ch J Maurice B (“Mighty Mo”) Foley tells the rest of Geoff’s and Lin’s sad tale. “The balance of the objection then continued with a litany of complaints regarding the treatment received by petitioners in their extensive efforts to communicate with the IRS and to resolve the 2017 tax problems, which petitioners largely attributed to a computer or data entry error occurring during the agency’s processing of their 2017 return. Petitioners characterized the IRS operations as unfair, incompetent, and in bad faith, justifying corrective and controlling measures by the Tax Court. They did not, however, allude to or attach any further notices from the IRS that could bear upon the jurisdictional question before the Court.” Order, at p. 3.

Of course, that does it for Geoff and Lin. Even though there is no prescribed form of NOD, just like there is no prescribed form of SNOD, if you don’t have whatever it is, the doors of the Glasshouse at 400 Second Street, NW, are closed to you.

Ch J Mighty Mo suggests Geoff and Lin continue to work administratively with IRS. But as Al Hoffman and Dick Manning put it in their 1952 hit, “Takes Two To Tango,” and apparently IRS ain’t dancing.

So much for the sixty buck ticket to justice.

The title of this petit opuscule derives from the time that Judge Boasberg and DC Cir put the slug on Doug Shulman and Dave Williams, ex-IRS Com’r and OPR honcho, respectively, when they tried to regulate preparers. Congress, which could have solved the problem, of course did nothing, and did it very well, rather like Sir W. S. Gilbert’s House of Peers.

I’m not going to expatiate on ex-Ch J L Paige (“Iron Fist”) Marvel’s opinion in Todd Myron Moore, 2019 T. C. Memo. 100, filed 8/15/19.

I just got home from the Stadium, where I was watching the Cleveland Indians score 19 (count ‘em, 19) runs on 24 (count ‘em, 24) hits, against the Yankees’ 5 runs on nine (count ‘em and weep, nine) hits. I’m not a fan of either team, but that game had to make history.

I will say that Todd Myron, ex-civil engineer who ran a multi-state tax prep business, having taken “…online training courses and also attended a 12-week program provided by Jackson Hewitt before he embarked on his new career,” 2019 T. C. Memo. 100, at p. 3, was extremely successful.

Todd Myron’s recordkeeping was of course not of the best, but ex-Ch Judge Iron Fist gives Todd Myron the benefit of the Cohan for the commissions he pays to the actual return preparers. “In his tax return preparation business petitioner hired return preparers throughout the country as independent contractors. Petitioner’s company served as a clearinghouse for processing returns and also provided training and support to his contractors. Each contractor developed and maintained his or her own client base and prepared returns for these clients.” 2019 T. C. Memo. 100, at p. 4.

Myron Todd’s method of compensating himself and his contractors would get us Circular 230 types hanged.

“Petitioner maintained several business bank accounts. When one of petitioner’s return preparers would file a return for a client that generated a tax refund, the refund was deposited into one of petitioner’s bank accounts, which petitioner referred to as a third-party bank account and appears to have treated as an escrow account. Petitioner would then take from the client’s refund the agreed-upon preparation fee, which would be deposited into another of petitioner’s business accounts, and the remainder would be paid to the client. From the preparation fee petitioner would then pay a commission to the individual return preparer, ranging from 60% to 90% of the preparation fee depending on the return preparer’s expertise and client base. Petitioner would retain the rest of the preparation fee.” 2019 T. C. Memo. 100, at pp. 4-5.

I need not, of course, remind my readers, positively jagged with sophistication, of the provisions of 31CFR§10.31(a): “A practitioner may not endorse or otherwise negotiate any check (including directing or accepting payment by any means, electronic or otherwise, into an account owned or controlled by the practitioner or any firm or other entity with whom the practitioner is associated) issued to a client by the government in respect of a Federal tax liability.”

But of course such unenrolled types as Todd Myron and his cohorts may do so with impunity.

I’ll spare you the rant.

As I said two-and-one-half years ago, “My ongoing perplexity on the assigned counsel issue in Tax Court continues apace. I’m trying to get an answer I can share with my readers, without, I hope, unduly wearing their patience.” See my blogpost “Assigned Counsel? – Two Votes ‘No,’” 2/5/16.

Today gives me a further perplexity, James Dupas, Deceased and Judith M. Dupas, Docket No. 5287-19S, filed 8/14/19.

It seems that being obliging is contagious, because Ch J Maurice B (“Mighty Mo”) Foley is trying to help Judy out. Judy petitioned on behalf of herself and the late James, but when she did the late James was already the late James.

Ch J Mighty Mo reads us all the usual catechism about how only authorized representatives can represent the deceased in US Tax Court. So Ch J Mighty Mo wants a show-and-tell about what powers, if any, Judy has.

Judy sends a billet doux, stating the will of the late James was admitted to probate two years ago, but no letters testamentary or of administration.

Ch J Mighty Mo must have talked to that Obliging Jurist, Judge David Gustafson, because he enlists aid for Judy.

“By Order dated June 13, 2019, the Court directed respondent [IRS] to file a response discussing his position whether, under applicable Texas law, petitioner Judith M. Dupas has the capacity to litigate in this Court on behalf of the Estate of James Dupas. On July 11, 2019, respondent filed a Response to Order dated June 13, 2019, in which he states that he is working with Judith M. Dupas and her representative to retrieve the documents necessary to establish Judith M. Dupas’ standing before this Court with regard to the Estate of James Dupas.” Order, at p. 2.

Judith is listed as pro se on the docket sheet, so whoever her representative may be, s/he is not admitted to US Tax Court.

IRS counsel to the rescue?

Dadisi W. Crawford, Docket No. 4318-18L, filed 8/13/19, gets remanded, because the SO at Appeals failed to consider overstated withholding assessments.

But the issue isn’t whether Dad goes back to appeals, but who goes back with him. On a phoneathon with IRS and Judge Buch, Dad was joined by TW (name omitted) “to help facilitate the call.” Order, at p. 1.

Now IRS claims TW is in the prohibited class of those acting in concert with or participating with Cubby Williams, against whom IRS got an injunction. So IRS wants Judge Buch to prohibit TW from showing up at Appeals on the remand.

No dice, says Judge Buch.

“We have rules governing who may appear before the Court. See Rule 200. We do not have rules, and we are not inclined to create ad hoc rules, governing who may appear before the IRS.

“The Commissioner has already obtained an injunction against Cubby Williams and any other person acting in active concert with him. That injunction is not a matter for this Court to enforce.” Order, at p. 2.

If in fact TW is in the prohibited class, it’s for the court that enjoined that class to toss TW. Tax Court can’t enjoin someone enjoined by another court from doing anything somewhere else.

Check out Judge Buch’s order for the cases to cite in your brief.

Readers with long memories will remember that Cubby Williams made a cameo appearance in my blogpost “He Wuz Robbed – And How,” 3/2/15. But whether Cubby was with the good guys or not at that time is unclear.

In a Nutshell

Judge Patrick J. (“Scholar Pat”) Urda has summed up the whole abatement of interest conundrum. Take a look at Jon D. Adams, 2019 T. C. Memo. 99, filed 8/12/19.

Jon went down for tax fraud when he sold one of his Mississippi cabarets and didn’t bother reporting the sale. IRS first went the criminal route, and only later went for the deficiency and civil fraud 75% chop.

Jon wants to claim that Section 6404(e)(1)(A) “unreasonable delay” began with the criminal stuff, long before the civil stuff began. Judge Scholar Pat isn’t having it. “The flush language of section 6404(e)(1) authorizes abatement of interest only ‘after the Internal Revenue Service has contacted the taxpayer in writing with respect to’ the deficiency in question.  In other words, ‘the period pursuant to section 6404(e)(1) may begin when the IRS commences an audit.’  Allcorn v. Commissioner, 139 T.C. 53, 57 (2012); see also Sims v. Commissioner, T.C. Memo. 1999-414, 78 T.C.M. (CCH) 1198, 1200 (1999).  Although Mr. Adams contends that the period should begin with the first issuance of written contact regarding his criminal investigation, he offers no support for deviating from our precedent. So we will not.” 2019 T. C. Memo. 99, at p. 11.

There is no abatement for interest due on income tax. See Section 6404(b). “Section 6404(a)(1) empowers the IRS to abate the unpaid portion of the assessment of any tax or any liability in respect thereof that is “excessive in amount”.  But what section 6404(a) gives, section 6404(b) takes away (in certain circumstances).” 2019 T. C. Memo. 99, at p. 8. Title A taxes (that’s income tax) are expressly excluded from abatement.

The only saver is Section 6404(e)(1)(A) unreasonable delay. But that means abuse of discretion. And IRS trial counsel have discretion how to proceed. And once audit began, Jon’s people delayed the game.

Anyway, a decision how to apply Federal income tax law involves judgement and discretion.

Simply, Section 6404(a) allows abatement. But Section 6404(b) says that doesn’t apply to interest on income taxes. And although Section 6404(e) allows abatement for “unreasonable delay” once IRS has commenced examination, unreasonable delay means moving files and assigning personnel, not exercising judgment and discretion in interpreting and applying tax law. Finally, mere passage of time is not necessarily unreasonable delay.

No announcement on the Tax Court website preceded Judge Courtney D. Jones’ arrival at The Glasshouse at 400 Second Street, NW. Guess the hard-laboring clerks and flailing datestampers are on vacation.

A click on her name at the Judges’ page on said website revealed no link.

Your enterprising blogger only discovered confirmation of her nomination on August 1, 2019, by Senate voice vote by scouring the internet.

Anyway, here’s the story.

“Jones earned her Bachelor of Science, magna cum laude, from Hampton University and was the recipient of the President’s Award for Exceptional Achievement. She earned her Juris Doctor from Harvard Law School, where she served for two years as the editor in chief of the Harvard BlackLetter Law Journal, (which has since been renamed the Harvard Journal on Racial & Ethnic Justice). She practiced for four years at Bird, Loechl, Brittain & McCants, a boutique law firm in Atlanta. Prior to joining the IRS she practiced for three years in the exempt organizations and intellectual property practice groups of the Washington, D.C.-based firm Caplin & Drysdale.” Wikipedia.

Prior to hitting the Glasshouse, she was a senior attorney in the Tax-Exempt and Government Entities division in the Office of Chief Counsel.

Sometimes the one who limps in scoops the pot.

I expect great opinions from Judge Jones.