Seriously Off-Topic

At very rare intervals I stray from the august precincts of 400 Second Street, NW. My readers, few in number but strong in stomach, want Tax Court and nothing but. Notwithstanding the risk that anything else might cause even one of them to bail on me, today I once again play music critic.

In my own defense, it has been more than two (count ‘em, two) years since I inflicted this sort of thing on the internet.

Last night the Opening Night Gala Lead Sponsor of Carnegie Hall, a Big Four with which I am acquainted, presented the Cleveland Orchestra. I wish they had given us a heftier program, but the musicianship was first-class.

Anne-Sophie Mutter gave us as beautiful a Beethoven Violin Romance as I ever heard. It’s the usual thing to say that LvB was warming up for the Violin Concerto, but there’s no contemporary evidence he was doing anything more than trying to scare up a few groschen from the music-lovers of Vienna. He certainly did not want to write anything beyond the compass of a good nonprofessional and a wealthy patron’s house band. For a world-class violinist, this is a chance for expression. For a world-class orchestra, it’s a walk in the park. But a beautiful park.

Same for the Triple Concerto. Really a shame that Yefim Bronfman had so little to do, but what he did do, he did superlatively well. There must have been a cello-playing patron to inspire Beethoven to write this, because Lynn Harrell had the most to do, and the best material. Again Anne-Sophie Mutter’s expression and delicate feeling was much appreciated, for all that her technique was unnecessary. The elegiac second movement brought a smile even to my ravaged visage, and the third movement is a joy. It’s interesting that the printed score was dedicated to Prince Lobkovitz. When we visited his Prague premises, we saw the original Beethoven scores in the family’s collection, and reflected that the family had the unhappy circumstances to be plundered twice: once by the Nazis and again by the Communists.

Franz Welser-Möst and the Cleveland are Franz Welser-Möst and the Cleveland. They are up to their usual standard, which says it all.

But what possessed FW-M to discard the Rosenkavalier suite that has survived 75 years in favor of the abomination that Mandell foisted 25 years ago upon a world that did him no apparent harm? And to give it its Carnegie Hall debut? It should have been given its quietus, with or without a bodkin.

A more revolting parody of Richard Strauss’ happiest creation it would be hard to imagine. This thing substitutes noise for nuance. Baron Ochs’ elephantine but charming waltz is passed over for endless reiterations of the farewell, seemingly on the principle that if one is delighted by two minutes of melody, five must be better. It was like the drunken guest that ruins the party.

There was an encore, but I had left by that time.

Elena Lea Morgan Weschenfelder and Frederick Burkhart Weschenfelder, 2019 T. C.  Memo. 133, filed 10/3/19, were analyzing intelligence in Iraq and Germany. But some three (count ‘em, three) years’ worth of their US tax returns never got to IRS.

Almost as obliging as Judge David Gustafson, IRS gave El and Fred SFRs, and non-filing and non-paying additions, all at no extra charge. When El and Fred sent in their returns eight (count ‘em, eight) years after the SFRs, IRS abated the taxes shown on the SFRs, and gave El and Fred SNODs for what they reported. El and Fred claim Section 911 abroad status.

Judge Mary Ann (“S.E.C. = “She Eschews Cognomens”) Cohen has this one. IRS drops the weight-of-the-attachments test, to focus on the late election, as permitted by Reg. 1.911-7(a)(2)(i). And that reg has survived previous validity challenges.

El and Fred claim they sent the returns, but couldn’t get proof of mailing from Iraq. But they were back home in the Lone Star State in time to file from there as to two of the years at issue.

But only Reg. 1.911-(7)(a)(i)(2)(D) will avail El and Fred.

“…it applies provided:

“(1) The taxpayer owes no federal income tax after taking into account the exclusion and files Form 1040 with Form 2555 or a comparable form attached either before or after the Internal Revenue Service discovers that the taxpayer failed to elect the exclusion; or

“(2) The taxpayer owes federal income tax after taking into account the exclusion and files Form 1040 with Form 2555 or a comparable form attached before the Internal Revenue Service discovers that the taxpayer failed to elect the exclusion.

“(3) A taxpayer filing an income tax return pursuant to paragraph (a)(2)(i)(D)(1) or (2) of this section must type or legibly print the following statement at the top of the first page of the Form 1040:  ‘Filed Pursuant to Section 1.911-7(a)(2)(i)(D).’” 2019 T. C. Memo. 133, at p. 9.

There’s a provision in  Reg. 301.9100-3 for a PLR even if tax is owed after IRS discovers failure to elect, but El and Fred didn’t ask for one. Likewise, Judge Cohen doesn’t decide if conceded unreported income would count for putting El and Fred over the owing-tax line.

“Petitioners argue that application of credits from [other subsequent years] eliminated the tax owed for [first two years at issue].  Subsequent credits to a taxpayer’s account do not change the amount owed on a return; they merely reflect amounts deemed paid.  Petitioners are not entitled to bootstrap their argument that tax was not owed by asserting that tax reported as owed was subsequently paid. The reported liabilities for [first two years at issue] disqualify their elections of the foreign earned income exclusion for those years because their belated filings do not qualify under subdivision (i)(D)(1).” 2019 T. C. Memo. 133, at p. 11.

IRS concedes the last of the years at issue, assuming the Section 911 exclusion applies. But El and Fred never typed the magic language of Reg. 1.911-7(a)(2)(i)(D)(3), “filed pursuant to 1.911-7(a)(2)(i)(D).”

They claim substantial compliance, but Judge Cohen says no.

“We have also considered whether petitioners’ late returns substantially complied with the regulations.  Respondent argues that the doctrine does not apply because the applicable standards are established in section 1.911-7(a)(4), Income Tax Regs.  In any event respondent argues that the doctrine of substantial compliance does not apply where the failure to comply fully relates to the substance or essence of a statute and the statute or regulation provides the manner in which an election is made with detailed specificity.

“The regulations in this case are detailed and specific and are not lacking in clarity.  Cf. Estate of McAlpine v. Commissioner, 968 F.2d 459, 462 (5th Cir. 1992) (holding that a taxpayer who exercises due diligence and good faith in complying with an unclear regulation may be held to have substantially complied), aff’g 96 T.C. 134 (1991).  They include unambiguous provisions, one of which was not complied with by petitioners.” 2019 T. C. Memo. 133, at p. 13.

This is not filling out a complicated form. It is a material statement, especially when the returns come in eight years late. Moreover, El and Fred stated throughout their home was in Texas.

IRS had the Boss Hossery for the additions, and El and Fred had no good excuses.

Takeaway- If filing late, the magic language can save the day. Also, if abroad, say so.

Read My Blog

I’m not revivifying the old advertising slogan in attempt to be coy. Of my many faults, being coy is not one. But when I saw Tramy T. Van, Docket No. 4460-17, filed 10/2/19, reprised as a designated hitter today, I did a double-take.

Only yesterday I blogged Tramy T. in my blogpost “A Snapshot in Time,” 10/1/19. And today’s version differs in no discernible respect from yesterday’s.

I had suggested as a tailpiece to my blogpost above-cited that this order should have been designated, as “(T)here’s stuff here that practitioners should know.”

Maybe somebody does read my blog.

It’s a rare article wherever sought for, but today we see common sense reappear in US Tax Court, in a designated hitter from Judge Gale.

Here’s Joseph Michael Balint, Docket No. 21452-16L, filed 10/2/19. Judge Gale is parsimonious with details, but I glean that Joe has a problem with a retirement plan distribution, which someone may have pinched unbeknownst to Joe.

I deduce that conclusion because Judge Gale, after checking out the stiped facts and settled issues, “…concludes that pretrial briefing addressing the impact of Roberts v. Commissioner, 141 T.C. 569 (2013), would aid the Court in analyzing the issues involved in this case.” Order, at p 1.

Now all y’all surely remember Andrew Wayne Roberts and his light-fingered ex Ms. Smith. No? Then scope out my blogpost “Common Sense?” 12/30/13, wherein ex-Ch J L Paige (“Iron Fist”) Marvel penned this memorable sentence: ““Common sense dictates that the answer must be no, and our findings of fact and analysis support that answer.”

I guess Judge Gale wants a proper take-out on Andy Wayne’s situation as it relates to Joe’s, so he suggests Joe sit down with one of the local LITCs, who might enlighten him.

STJ Daniel A (“Yuda”) Guy has a designated hitter that points up a real defect in the deficiency procedure that is a pillar of Tax Court jurisdiction. It’s the story of Rajan R. Kamath, Docket No. 5307-19S, filed 10/1/19.

Raj didn’t file returns for some four (count ‘em, four) tax years, until he got SFRs and 30-day letters. Whereupon Raj banged in the returns, which IRS processed. IRS assessed the taxes shown on Raj’s self-reported returns.

So, as IRS found no difference between what Raj belatedly reported and what Raj owed, no deficiencies. But not to leave Raj with nothing to show for his efforts, IRS did give him a couple additions to tax for late payment, late filing and failure to file estimateds (hi, Judge Holmes).

Raj petitions. STJ Yuda regretfully tosses Raj’s petition.

Check out Section 6665(b).

“…the additions to tax under section 6651 are not attributable to a ‘deficiency in tax described in section 6211’. Sec. 6665(b)(1). Likewise, the additions to tax under section 6654 are not subject to the deficiency procedures because petitioner filed delinquent tax returns for the years in issue. See Wilson v. Commissioner, 118 T.C. 537, 540-541 (2002) (the Commissioner may summarily assess additions to tax under section 6654 arising from delinquently filed tax returns). It follows that the notice of deficiency is invalid and we are obliged to grant respondent’s motion to dismiss.” Order, at p. 3.

So Raj is out, and has to go the file-for-a-refund-and-sue-in-USDC route. But in a small-claimer, even if the delinquent had reasonable cause and made a good-faith effort that in a tax deficiency case would carry the day, how many taxpayers have the wherewithal to do that?

STJ Yuda understands, but is helpless.

“As a final matter, petitioner asserts that it is inequitable to deny him the opportunity to petition this Court. As we have previously said in similar cases: ‘We recognize the difficult position in which petitioners are placed by not being able to come to the Tax Court to test the validity of the respondent’s action in asserting the penalty. Nevertheless, that is the law and we must take it as we find it.’ Wilson v. Commissioner, 118 T.C. at 541 (quoting Estate of Scarangella v. Commissioner, 60 T.C. 184, 186-187 (1973)).” Order, at p. 3.

It’s a forlorn hope, but maybe Congress could do something to help. Yeah, I know, but “hope springs eternal.”

Failing that, maybe self-reporters in such a situation as Raj’s might go a couple bucks short (hi again, Judge Holmes) on their belated returns, to draw IRS into a real deficiency, and get their day in court.

See my blogpost “Repeat Business,” 5/3/18. Once again my prediction comes true; I said then that I was sure these players would be back again, and Michael C. Worsham, 2019 T. C. Memo. 132, filed 10/1/19, certainly fills the bill.

Take a look at my blogpost above-cited, and the blogpost therein referred to, for the backstory on Mike.

Mike’s got the usual protester “basis in labor” and “undelegated signer” arguments, that fall flat. I won’t go over them here.

But Mike has a new one: Section 6673 is unconstitutional because, says he, it inhibits Mike’s free speech.

I’ll let Judge Colvin take this one.

“First, section 6673 does not apply to, and therefore does not discourage, legitimate arguments.  There is no constitutional right to litigate frivolous claims without being sanctioned. Banat v. Commissioner, 80 F. App’x 705 (2d Cir. 2003); Sterner v. Commissioner, 867 F.2d 609 (4th Cir. 1989); Dixon v. Commissioner, 836 F.2d 546 (4th Cir. 1987), aff’g T.C. Memo. 1986-563; Larsen v. Commissioner, 765 F.2d 939, 941 (9th Cir. 1985).  Second, petitioner cites no authority holding that it is unconstitutional for a sanction to apply unequally to taxpayers and the government, and section 6673(a)(2)(B) authorizes the Court to impose costs on Government counsel who engage in unreasonable and vexatious litigation. Section 7430 entitles taxpayers, but not the Government, to payment of litigation expenses under certain circumstances.  Petitioner cites some rules from other courts which apply to both parties, but the existence of those rules does not address the constitutionality of a statute which does not apply equally to both parties.  Thus, we hold that section 6673 is not unconstitutional.” 2019 T. C. Memo. 132, at pp. 14-15.

But stick around. IRS moved for Section 6673 chops, and Judge Colvin will deal with that separately.

Judge Elizabeth A (“Tex”) Copeland had a timeline to unravel in Tramy T. Van, Docket No. 4460-17, filed 10/1/19, and it’s quite a tangled one. Seems that there were three (count ‘em, three) separate SNODs, spread over two years. Only two of the SNODs touched the year Tramy is petitioning. But Tramy claims she’s petitioning all three years covered by the three SNODs, even though she never received any.

IRS sent them to Tramy’s last known address, which was the address only of ex-husband Danny Chan. Tramy filed two petitions, but the second of them was tossed because it petitioned the first of the three SNODs, which had been mailed to last known address two years before (although IRS couldn‘t find the certified mail list, claimed at first that the petition was valid, and tried to toss Tramy’s second petition as duplicative).

So Tramy’s petition 1, petitioning SNOD 3, is timely. Clear? Thought not.

But is it a petition? “To be treated as a petition from a particular notice of deficiency, the document filed by taxpayers within the 90-day period must contain some objective indication that the taxpayer contests the deficiency determined by respondent against the taxpayer.” Order, at p. 6. (Citations omitted).

And the petition (or an amendment thereof) must let IRS know something about what bœuf the petitioner has. “Further, our Court Rules provide a petition must be ‘complete so as to enable ascertainment of the issues intended to be presented.’ Rule 34(a). ‘[T]he propose [sic] of [a petition, along with other pleadings filed in this Court] is to give the parties and the Court fair notice of the matters in controversy and the basis for their respective positions.’ Rule 31(a).” Order, at p. 6.

“Propose”? Somebody needs to proofread these orders.

Well, Tramy seems to have got it right. “In paragraph six of Petition #1, petitioner contests ‘all’ changes to her [year at issue] return with respect to her as an individual and her two businesses, Tramy Beauty School (Partnership) and Tramy Beauty School, Inc. (S Corp).” Order, at pp. 6-7.

Now just because she didn’t get the SNOD in the mail doesn’t preclude Tramy from contesting the year covered by the SNOD, or any interrelated year (a NOL carryforward from the year at issue got disallowed in the SNOD she petitioned).

I’ll let Judge Tex lay it out.

“Under our precedent, Notice #3 was deemed to be received by petitioner because it was mailed in accordance with section 6212(b). This safe harbor, however, does not prevent petitioner from access to the Court because she was unaware of a deemed received notice when she filed Petition #1. Rather, we use a snapshot in time approach; petitioner explicitly contests any redetermination with respect to [year at issue] in Petition #1; she observed that a year at issue in the notice she actually received are interrelated to [year at issue], and as such, brought it to respondent and the Court’s attention. Stated differently, in the Petition #1 case, respondent’s Notice #3 is valid, petitioner contested respondent’s redetermination within 90 days of such notice, and although she asserts she did not receive a [year at issue] notice, in Petition #1 she explicitly contested ‘all the IRS’s changes to the tax returns examined for the applicable tax years ending [year at issue] through [year three].’ Thus, the Court has jurisdiction over the [year at issue] in the Petition #1 case because it satisfies the statutory requirements under sections 6212(b) and 6213(a), and contains an objective indication that petitioner asked us to redetermine the deficiencies respondent determined against her for the [year at issue.” Order, at p. 7.

Judge, I wish you’d designated this order. There’s stuff here that practitioners should know.

I would now embark upon a lengthy diatribe about social engineering, using a mechanism for the designed for the collection of revenue as a welfare fund, and agitating for (or decrying) a comprehensive overhaul of the whole shootin’ match.

But as this blog is not a political one, I will merely refer my readers to the sad tale of Richard Alan Saunders and Shelia Candy Saunders, 2019 T. C. Sum. Op. 29, filed 9/30/19, while echoing the oft-used but unreliably-attributed phrase “no good deed goes unpunished.”

STJ Daniel A (“Yuda’) Guy has the message for IRS as hereinabove at the head hereof set forth (as my already-on-their-second-dirty-Grey-Goose-Martini colleagues would say), delivered via designated hitter,  Albert Carnesale & Robin Carnesale, Docket No. 25757-18S, filed 9/30/19.

It’s Al’s & Robin’s trusty accountant who sends in the check that kicks off the match. Al & Robin agree on the tax due, but want to contest the chops. Trusty accountant sends in check in reply to CP2000, stating “’[Petitioners] received the IRS notice CP2000 * * *. We agree with the changes of the tax liabilities. However, we would like to request that [the IRS] waive the penalty being assessed. * * * Payment for [the tax due] is enclosed with this letter in order to remedy the situation expeditiously.’” Order, at p. 1.

Well, that’s not how you do it per Rev. Proc. 2005-18, 2005-1 C.B. 798. Trusty accountant didn’t provide the 7.02 statement, showing what tax, what year, how calculated, and basis for belief trusty accountant is right.

So IRS wants to toss Al & Robin, as payment was a payment and not a deposit, hence no valid deficiency.

Howbeit, “…IRS recorded petitioners’ remittance as ‘Advance payment of tax owed’. No assessments were entered, however, for the tax, penalty, or interest proposed in the Notice CP2000, which left a credit balance in petitioners’ account. Contrary to the procedures established in Rev. Proc. 2005-18, supra, upon which respondent relies, petitioners’ remittance was not offset by a corresponding assessment of additional tax to which the ‘payment’ relates. See sec. 6213(b)(4).

“On this record, the Court concludes that respondent treated petitioners’ remittance as a deposit, not as a payment, and respondent did not assess additional tax equal to the amount of the remittance before issuing the notice of deficiency.” Order, at p. 2 (Citations omitted).

IRS and trusty accountant could have saved time by reading my blogposts “Which Is It?” 8/27/15, and “Went to Make a Deposit,” 10/5/16.

Before IRS can terminate an accepted OIC for failure of the taxpayer to stick to the straight-and-narrow for five (count ‘em, five) succeeding tax years post-acceptance, and make the taxpayer cough up the whole shebang (less what was previously paid), IRS must send a default letter, warning the delinquent to get with the pogrom.

Here, Brookhaven Appeals terminated without confirming issuance of default letter, and Judge Goeke won’t have that. See Coleman Moore, 2019 T. C. Memo. 129, filed 9/30/19.

Coleman claims he never got IRS’ billets doux. Moreover, the address on one of the checks he sent in to cover a late payment chop had his correct address on it, but his returns all had a P.O. Box, as did the 1040-V payment voucher that accompanied the check. Judge Goeke:  ”The address on this check is hardly clear and concise notification to respondent of petitioner’s change of address.” 2019 T. C. Memo. 129, at p. 27.

True, IRS can terminate an OIC for post-acceptance default. IRS may, but need not, allow a defaulter to cure, even though Coleman ultimately remedied every default. And even though his OIC got retro-bounced after he paid up the defaulted taxes, IRS can still terminate.

Except.

Both IRM Part 5 (exam) and Part 8 (Appeals) say there has to be the default letter before termination. And Coleman, a Caliifornian, is dealing with 9 Cir record rule.

“It is clear that the OIC was not terminated because of circumstances beyond petitioner’s control.  His default was his own doing.  He failed to carefully manage his income tax liabilities and filing obligations for five years after being granted a favorable OIC that was conditioned on his tax compliance.  He also failed to notify respondent of a change to his mailing address.  However, these failures on petitioner’s part do not excuse respondent’s failure to follow his own administrative procedures for terminating an OIC.  The administrative record does not contain a potential default letter providing an opportunity to cure the noncompliance.  If respondent did send a potential default letter to petitioner’s last known address, it is unlikely petitioner would have received it.  However, the administrative record does not establish that respondent sent a potential default letter to petitioner’s last known address.” 2019 T. C. Memo. 129, at p. 28.

Although Coleman did drop the ball a couple times (hi, Judge Holmes), IRS was not faultless.

“We have no way of knowing what respondent may have proposed for petitioner to cure the noncompliance if he indeed sent a potential default letter. What we do know is that petitioner cured the noncompliance promptly once he discovered that he owed additional amounts.  Notably, respondent did not revoke the release of the liens for the years at issue associated with the terminated OIC until after petitioner had already paid the income tax liabilities due, and he did not issue the notice of intent to levy at issue in the original and supplemental CDP hearings until over one year after petitioner had paid the tax.” 2019 T. C. Memo. 129, at p. 29. (Footnote omitted, but read it. It says the termination letter said Coleman failed to cure by a date certain, which seems to show that paying up cures the default in his case).

So Judge Goeke sends them back to appeals, recommending a new SO this time.