STJ Diana L (“Sidewalks of New York”) Leyden echoes the immortal words of Charles Edward Anderson Berry’s 1955 homage to Hank Williams, when William Joseph Davidson, Docket No. 5849-09, filed 6/27/19*, laments that he cannot review his documents to verify those IRS attached to their Rule 90(b) request for admissions, because William Joseph is in the slammer.

IRS attached 35 (count ‘em, 35) documents to their motion.

Now I’ve said before I’m a great fan of motions (or notices, as we State courtiers call them) to admit. They smoke out opposing parties and save time. And maybe 35 documents are appropriate; from STJ Di’s order I can’t tell.

IRS claims the responses William Joseph sent them “…are ‘incredulous’ and ‘violate the requirements of Tax Court Rule 90(a) and (c)’, and that petitioner failed to ‘specifically admit or deny the requests, or to make reasonable inquiry thereof’. Furthermore, respondent asserts that petitioner did not provide an original signature on his response.” Order, at p. 1.

I think you meant “incredible,” IRS, that is “unbelievable,” not “incredulous,” which means “unable to believe.” You were “incredulous,” if his statements were “incredible.”

Howbeit, William Joseph is off the hook.

Tax Court can review the responses, and order an amended response.

And since William Joseph is due for release this year, STJ Di orders  “an amended answer, that complies with Rule 90(c), including an original signature, be served on respondent no later than by January 22, 2020, which is 30 days from the date petitioner is expected to be released from incarceration. Failure to comply with this Order will result in petitioner’s response being stricken from the record.” Order, at p. 2.

So William Joseph does get satisfaction from the judge, as the late great Chuck predicted.

*Wm J Davidson 5849-09 6 27 19

Hector Baca and Magdalena Baca, 2019 T. C. Memo. 78, filed 6/26/19, certainly have that. Immigrants, Maggie is a bank officer and Hector has many more businesses than records, from oil field stimulation (that’s fracking, so stop with the smirks) to belly dumping (that’s moving sanitary landfill) to multi-level marketing, a fraud I fought in my young days at our State’s Attorney General’s Office.

It’s the usual want of substantiation, so Judge Holmes gives the win to IRS.

I only want to point out yet again that, in a deficiency case, which this is, past is prologue.

“This leaves us with an unusually messy substantiation case, which we start to untangle by noting that it is up to the Bacas to show that they are entitled to the deductions they took for 2012 and 2013.  See Rule 142(a).  The Bacas, however, urge us to look only to the administrative record compiled during the audit.  When considering just this record, they insist we must find that the Commissioner’s notice of deficiency is ‘defective and perfunctory’ under the Administrative Procedure Act (APA), 5 U.S.C. secs. 501-559, 701-706 (2006), because it is arbitrary, capricious, and an abuse of discretion. The Bacas also argue that, if this case is reviewed de novo, they have substantiated every deduction that the Commissioner disallowed.  The Commissioner disagrees.” 2019 T. C. Memo. 78, at pp. 12-13. (Footnote omitted, but see below).

“We won’t discuss this issue [APA] beyond noting that the Bacas have preserved it.  We have already held that the default provisions of the APA do not apply to our deficiency cases.  See Ax v. Commissioner, 146 T.C. 153, 161-63 (2016). Every circuit court to consider the question has agreed with us.  See QinetiQ US Holdings, Inc. & Subs. v. Commissioner, 845 F.3d 555, 559-61 (4th Cir. 2017), aff’g T.C. Memo. 2015-123; Bratcher v. Commissioner, 116 F.3d 1482 (7th Cir. 1997), aff’g without published opinion T.C. Memo. 1996-252; Clapp v. Commissioner, 875 F.2d 1396, 1403 (9th Cir. 1989); see also Humphreys v. United States, 62 F.3d 667, 672 (5th Cir. 1995) (the Code and not the APA provides a basis for review of a taxpayer’s tax liability).”2019 T. C. Memo. 78, at p. 13, footnote 9.

But before I go, I really have to mention Gregory J. Podlucky & Karla S. Podlucky, Docket No. 453-17, filed 6/26/19.

One of the joys of covering US Tax Court is discovering the truly unique, ya-can’t-make-this-stuff-up, tidbits that, like Tommy Gray’s “gem of purest ray serene,” lie in the “dark, unfathom’d” files at The Glasshouse at 400 Second Street, NW.

Greg has bestowed upon Judge Goeke the following: “a Bill in Chancery for Vacating of Void Judgments for Delictual Fault for Fraud and for Misprision of Felony By and Through Jurat Affidavit.” Then Greg followed this up with “an Exception to Final Judgment and Decree for Compelling Immediate Discharge and an Offer in Compromise as Non-Disclosure Agreement.” Order, at p. 1.

But Judge Goeke has had enough of Greg’s inventive style.

“These documents are not in accordance with Tax Court Rules of Practice and Procedure given the current status of this case. Accordingly, we will take no further action with respect to these documents…” Order, at p. 1.

Who said tax is dull?

I’ve quoted 2 Samuel 1:20 often enough so that y’all can recite it in unison, like the verses my daughters intoned in their schooldays. But though scholars over the millennia have located the original Gath on more tells than a poker game, we find it migrated to the Internet, whence come all things to be registered. Here’s John Horner, Docket No. 15601-17L, filed 6/25/19.

John had no return for the year at issue, but three (count ‘em, three) 1099-MISCs, aggregating about $33K. Plus affidavits from responsible officers of John’s customers. Plus copies of canceled checks that John signed.

John gets a CDP, with a chance to challenge the SFR that IRS bestowed upon him, the 1099s, and anything else he can suggest, like collection alternatives.

John says, “I don’t make an income.” Order, at p. 4. Plus the State of NV granted him a tax exemption (from what tax not stated), and IRS gave him an EIN.

But IRS presents The Judge With a Heart, STJ Robt N Armen, with what shows that John has quite a business. Here’s just a sample of what John has told in CyberGath, and shouted in the tents of the Internet.

“Hello! My name is John Horner. My dad and I started this company in 1995 with a lot of firm convictions. Both of us having much experience in the trucking and moving industry, we decided that we could build a company on complete Christian integrity and reasonable prices. We have been the exclusive Kansas City Mover for the Bryan Cave Law Firm (which is in the top 35 law firms in the world) since the year 2000.” Order, at p. 6.

There’s a lot more, but I’ll spare you.

Needless to say, there’s a 1099-MISC from Bryan Cave.

And we can stop here.

We all know the rationale for Rule 155: Judges don’t want to be bothered with arithmetic. And lawyers notoriously can’t add; I’ve blogged that often enough.

Bradley Sharpe-Geisler & Valli Sharpe-Geisler, Docket No. 5460-19S, filed 6/25/19 are listed as pro sese, and neither seems to be an attorney. But neither they nor IRS’ representative from OCC seem able to figure out if Brad & Valli should lose their “S.”

And unlike that Obliging Jurist, Judge David Gustafson, Ch J Maurice B (“Mighty Mo”) Foley will not whip out his calculating engine to help them.

IRS moved to de-small Brad & Valli. Brad & Valli riposted, and IRS came back with something other and further on the subject.

Ch J Mighty Mo bears out my title.

“At this juncture, and despite the multiple submissions, suffice it to say that neither party has provided computational information that would clearly establish that the contested amount falls under $50,000. The $50,000 limit refers to the amount challenged, not the amount that will ultimately be owed. There may also be some confusion about the significance of various Tax Court procedures and designations. Petitioners are therefore advised that this case will proceed and that opportunity will be afforded for petitioners to present to the Tax Court evidence and/or argument in support of their position. The case will simply go forward here as a ‘regular’ case and will not be designated as a ‘small tax’ case.” Order, at p. 1.

It’s what number you’re challenging that decides whether you get your “S” handed to you, not the final number (which no one yet knows).

And don’t count on Ch J Mighty Mo to do your numbers for you.

Neither movie nor magazine, this is the story of Donald Burden and Mary Torres, 2019 T. C. Sum. Op. 11, filed 6/24/19. Don and Mary are traveling people, Don as a Seventh Day Adventist pastor, and Mary as aircrew for United Airlines, on which by coincidence I flew home this afternoon.

Mary maintains a “crash pad” in northern NJ when she has to work from there. But her problem is her home is with Pastor Don in OH; thus her “crash pad” is her personal choice, and her deduction for rent thereon crashes.

Pastor Don’s problems are his car mileage logs. Judge James B (“Big Jim”) Halpern finds these unworthy of belief.

“Fourth, respondent claims that the logs contain patently wrong or dubious entries. For instance, respondent points out, the logs purport that Pastor Burden drove for business purposes 360 days out of 365 days during [year at issue], and, on average, he drove more than 100 business miles a day in and around Columbus, Ohio. The travel log also appears to indicate that Pastor Burden drove to and from the Dominican Republic, once in January …, leaving on a Sunday and returning the next Wednesday, and again in September …, leaving on a Sunday and returning eight days later. And the log also indicates he drove to and from South Africa in December …. Also, while the logs claim business trips to Alabama, Florida, and Texas, petitioners failed to produce gas receipts or other records that would substantiate that the travel actually occurred. They also offered nothing other than Pastor Burden’s testimony to prove the business purpose of any of the trips.” 2019 T. C. Sum. Op. 11, at pp. 11-12.

And Pastor Burden’s overseas travels featured too much sightseeing to serve as “strictly business.”

“Petitioners have failed to show that Pastor Burden’s travel … either to the Dominican Republic or to South Africa primarily related to his trade or business. We conclude that his traveling expenses were personal expenses and not deductible for Federal income tax purposes. See sec. 262(a); sec. 1.162-2(b)(1), Income Tax Regs.” 2019 T. C. Sum. Op. 11, at pp. 15-16.

Your Section 162s had better be “strictly business.” Even if you have fun.

We all know that Settles settled the question whether a petition from a CDP could be dismissed without entry of decision for IRS. See my blogpost “Dismissed!” 5/8/12. But today STJ Lewis (“The Name”) Carluzzo has an unsettling variation on the Settles theme (sorry, guys and Judge Posner).

Here’s a Friday designated hitter, Matthew D. Betters, Docket No. 8386-17L, filed 6/21/19.

Matt is a convert to Ch 7 bankruptcy, and claims IRS has filed a proof of claim, which will be completely paid in the bankruptcy proceeding. So dismiss the petition.

No, says STJ Lew. Tom Settles had litigated his bœuf with IRS to a finish, but Matt’s claim hasn‘t yet been adjudicated.

“The parties recognize that unlike the situation in Settles, the bankruptcy court in petitioner’s related bankruptcy proceeding has not yet adjudicated respondent’s claim with respect to petitioner’s 2014 and 2015 Federal income tax liabilities. That distinction is meaningful and constrains us to disagree with respect to the parties’ position that petitioner’s motion may, and should, now be granted.” Order, at p. 3.

Even though the parties are happy, the Bankruptcy Court still has the final word. But there is a way out.

“Either party, of course, can apply to the bankruptcy court for an order that modifies the automatic stay to allow the Court to dismiss this case or allow other appropriate relief related to this proceeding. See11U.S.C.§362(d)(1). Until then, or until the bankruptcy court adjudicates petitioner’s 2014 and 2015 Federal income tax liabilities, the relief sought in petitioner’s motion is unavailable.” Order, at p. 3.

Back in April, I lamented that, when Maria Ivon Moya invoked the Taxpayer Bill of Rights (TBOR) and got short shrift, “… this case was hardly well-litigated, and I’m sorry we didn’t get a better fact pattern and record in a precedent-setting case.” See my blogpost “The Taxpayer Bill of Goods,” 4/17/19.

Well, today Judge Goeke has gotten something better than one pro se against four (count ‘em, four) IRS lawyers. The Jersey Boys are here, facing off against one IRS counsel, and I hoped for better.

But in Atlantic Pacific Management Group, LLC, 152 T. C. 17, filed 6/20/19, the facts are no better than Maria Ivon’s case. The NFTL for the late-filed partnership returns and information return was delivered to AP’s last known address, and while AP tried to raise delivery as an issue (the TMP was out of the country when the NFTL arrived at the last known address), the USPS’ records show delivery.

“In Buffano v. Commissioner, 2007 WL 424705, at *1, the record included information showing the address appearing on the taxpayer’s most recently filed Federal income tax return. This is the starting point for establishing a taxpayer’s last known address. In addition, the taxpayer did not even become aware of the Commissioner’s levy filing until the Internal Revenue Service (IRS) served a notice of levy on his employer. Buffano v. Commissioner, 2007 WL 424705, at *2. By contrast, petitioner has not shown that its last known address was one other than the New York address used by respondent. In fact, petitioner admits that it received the notice of NFTL filing at its New York address, and petitioner filed a request, albeit untimely, for a CDP hearing based on the notice of NFTL filing. Further, petitioner listed its New York address as its current address on Form 12153, and petitioner’s attorneys listed the New York address as the taxpayer’s address on Form 2848. Accordingly, we find this case distinguishable from Buffano.” 152 T. C. 17, at pp. 8-9 (Citations and footnotes omitted).

But the Jersey Boys are resourceful, and try the epistolary ping-pong move often seen in whistleblower cases. They claim the later letter Appeals sent denying a CDP for lateness constitutes a “determination.” And since there is no mandated form of NOD, the letter was it.

No dice, says Judge Goeke: “While we have said ‘that the absence of a document bearing a particular title or format does not mean that no determination has been made’, SECC Corp. v. Commissioner, 142 T.C. 225, 231 (2014), we have never held such a letter to be a determination that can establish our jurisdiction. Regardless, respondent mailed the letter on August 28, 2017, but petitioner did not file its petition with this Court until May 2, 2018. Assuming without deciding that the August 28, 2017, letter could constitute a determination under sec. 6330, the petition was filed well outside the 30-day window for filing under sec. 6330(d)(1).” 152 T. C. 17, at p. 10, footnote 7. For the SECC story, see my blogpost “Classified,” 4/3/14.

But all this is background. The Jersey Boys invoke Section 7803(a)(3), the TBOR. They claim their client’s right to a hearing in an impartial forum has been denied.

The Jersey Boys never practiced “no-fault” law. Be the ice thin and the sun hot, they will go for it. Unhappily, this is not the case that favors the approach.

“…section 7803(a)(3) itself does not confer any new rights on taxpayers; it merely lists ‘taxpayer rights as afforded by other provisions of’ the Code. Further, section 7803(a)(3) imposes an obligation on the Commissioner to ‘ensure that employees of the Internal Revenue Service are familiar with and act in accord with’ such rights. It does not independently establish a basis for jurisdiction in this Court.” 152 T. C. 17, at pp. 10-11.

The Jersey Boys can’t connect the dots to show how they get jurisdiction. And it gets worse.

“Petitioner cites section 6320(b)(1) as giving it a right to a hearing but conspicuously omits any reference to section 6320(a)(3)(B) mandating a 30-day timeframe in which to request such a hearing. Petitioner’s failure to cite this provision evidences either an unfamiliarity with the statute or a deliberate attempt to mislead the Court. We have already held that petitioner’s failure to timely request a CDP hearing leaves us without jurisdiction to consider this matter. Attempting to confuse our jurisdiction in this case with citations of section 7803(a)(3) does not aid petitioner’s point. Petitioner appears eager to raise arguments it could have raised at a CDP hearing; however, its failure to timely request a hearing has left it without a right to raise those points before respondent or this Court.” 152 T. C. 17, at p. 12.

But all is not lost for AP. “It would appear, however, that petitioner is not without remedy and remains free to challenge respondent’s determinations through a refund action.” 152 T. C. 17, at p. 12.

Looks like I was right back in April: The Taxpayer Bill of Rights is The Taxpayer Bill of Goods.

No, not the 1956 Comden-Styne-Green musical (and later film). This is yet another in The Phone Call series. I’ll spare the petitioner’s counsel in FC-Canal Operating LLC, Docket No. 2488-19, filed 6/19/19.

Ch J Maurice B. (“Mighty Mo”) Foley sets the scene.

“…the parties… submitted a stipulated decision resolving the case and reflecting no deficiency or penalty due from petitioner for [year at issue]. Nonetheless, review of the record continued to suggest a fundamental jurisdictional defect that would prevent entry of the just-referenced decision. In particular, the date of the notice of deficiency underlying this proceeding indicated a statutory deadline for filing a petition pursuant to section 6213(a) of the Internal Revenue Code (I.R.C.) that expired on January 28, 2019. Conversely, the envelope in which the petition was received bore a private postal meter mark dated January 29, 2019. Moreover, inspection of the envelope and related tracking information seemed to reflect that the item was initially returned to petitioner’s counsel by the U.S. Postal Service on January 28, 2019, for insufficient postage before being re-sent to the Court.” Order, at p. 1.

Fortunately, as neither tax nor chops were on the table, this wasn’t as bad as might have been. Still and all, it doesn’t look good; see infra, as my expensive colleagues would say.

IRS showed certified mailing to last known address with proper 90-day notice. Ch J Mighty Mo ordered the Canals to show cause why they shouldn’t be tossed.

Counsel replied thus: “…a mailroom clerk at counsel’s law firm never placed postage on the certified mail envelope when it was mailed to the Tax Court on January 23, 2019. The envelope was then returned to the firm on January 28, 2019, and the clerk unilaterally applied proper postage on January 29, 2019, with a private postal meter and re-mailed the envelope, without knowledge of anyone at the firm. Counsel apologized and advised that there was no objection to dismissal.” Order, at p. 2.

No need for a takeaway.

I said it back in December when Joseph J. Zajac, III, Docket No. 1885-15, filed 6/18/19, went for a Mulligan when Judge Carolyn Chiechi bailed after trying JJZIII’s case without writing a “dission.” “Everybody’s testimony looks the same as anybody else’s on paper; nobody’s testimony looks the same as anybody else’s on the stand.” See my blogpost “Second Time Lucky?” 12/26/18.

But that’s all Judge Gale is giving JJZIII the second time around.

In the pretrial phoneathon, Judge Gale laid it out. “…the Court advised the parties that, while a new trial will be conducted, the various pretrial rulings and decisions of Judge Chiechi and the other judicial officers of the Court in this proceeding constitute the law of the case. The Court explained that under the law of the case doctrine a successor judge generally should not, in the absence of exceptional circumstances, overrule a ruling or decision of the initial judge. The Court advised the parties that, based on a comprehensive review of the record in this case, the undersigned is satisfied that: (1) all pretrial rulings and decisions were well-reasoned and sound; and (2) there are no exceptional circumstances presented in this case that would warrant his overruling any of the aforementioned rulings or decisions. Thus, the Court advised, those rulings and decisions will remain intact. In response to an inquiry by petitioner, the Court confirmed that prior evidentiary rulings will stand, with the result that the stipulations of facts, together with the exhibits referenced therein and attached thereto, that were received into evidence and made apart of the record at the initial trial, will remain a part of the record in this case.” Order, at pp. 2-3 (Footnotes omitted, but they are longer than the opinion).

So it’s strictly testimonial credibility.

As to whether the Boss Hoss was or was not justified in signing off on the (conceded) Section 6751(b) approval, that’s not on the table, as JJZIII fought the Constitutional fight in USDCMDFL, and lost.

So JJZIII, it all depends on your performance on the stand.

This was a designated hitter, so from today’s T. C. Memos comes yet more horsing around, Sheldon Sapoznik and Melissa McCrosse, 2019 T. C. Memo. 77, filed 6/18/19. It’s another push through the Section 183 “goofy regulation,” featuring a 100K loss over four (count ‘em, four) years, with more fun than bookkeeping. I leave this to my colleague Peter Reilly, CPA.

When Chapter 7 bankruptcy results in a discharge, personal liabilities included in the proceeding are discharged…except some. And the some that aren’t include taxes, additions and interest.

The Judge with a Heart, STJ Robert N. Armen explains it all to Scott Daniel Wilson & Sarah Margaret Wilson, Docket No. 25218-18SL, filed 6/17/19.

SD & SM wanted two past years’ overpayments credited against the liability for the year at issue, but the Form 4530 Cert shows that the overpayments had been so applied, and SD & SM were still short.

Then too, their bankruptcy petition was filed sooner than three (count ‘em, three) years after the liability in question arose, thus triggering 11 USC §523 and §507. “As applicable to the present case, section 523(a)(1)(A) of the Bankruptcy Act, through its cross-reference to section 507(a)(8) of the Bankruptcy Act, excepts from discharge any tax ‘for which a return * * * is last due, including extensions, after three years before the date of the filing of the [bankruptcy] petition’.” Order, at p. 5.

Bankruptcy practitioners, beware! Here be dragons! Note these dates, and catechize clients accordingly. And put IRS on your creditors’ list.

“In the present case, petitioners filed their bankruptcy petition on September 12,2017. Three years before that date was September 12, 2014. Petitioners’ income tax return for 2014 was due on October 15, 2015, pursuant to an extension of time to file. The return filing date was after September 12, 2014. Therefore, petitioners’ income tax liability for 2014 was not discharged in bankruptcy because it was a tax ‘for which a return * * * is last due, including extensions, after three years before the date of the filing of the [bankruptcy] petition’.” Order, at p. 5. Maybe so should’a waited a while before filing, if possible.

As for additions to tax, late payment has the same three-year cutoff. See 11 USC § 523(a)(7).

And STJ Armen wraps it all up.

“Finally, regarding statutory interest on an underpayment of tax, this Court has previously held that debtors remain personally liable after a discharge for both (1) any pre(bankruptcy)petition interest that was not satisfied out of the bankruptcy estate in respect of a nondischargeable tax debt and (2) post(bankruptcy)petition interest in respect of such debt. Leathley v. Commissioner, T .C. 2010-194, at*2. See In re Moore,2017WL934641 (Bankr., N.D. Okl. 2017), at n.7, citing with approval Leathley v. Commissioner, T.C. Memo. 2010-194. Accordingly, statutory interest on petitioners’ liability for income tax for 2014 is not excepted from discharge.” Order, at p. 6 (Footnote omitted, but it says IRS never recovered anything in the bankruptcy proceeding).

Whoever did the bankruptcy proceeding (assuming petitioners weren’t pro sese) is probably in line for The Phone Call.