It’s Friday, and. as usual, the Glasshouse Gang has neither opinion nor designated hitter to send the blogger off to the Magnolia City for a Father’s Day visit. I wish Judge Nega had designated this off-the-bencher, Paul M. Harris & Rosemary Harris, Docket No. 4519-18L, filed 6/14/19.

Paul & Rosemary need an installment agreement, because they have neither paid estimated nor the balance due for the year at issue. Paul & Rosemary claim they didn’t have the cash to pay, but that cuts no ice either with Appeals when they try to get the additions for late payment and failure to pay estimateds scrubbed, nor with Judge Nega when they petition Appeals’ denial of the IA.

“With respect to the year at issue, petitioners dealt with a number of significant personal expenses and inconsistent cash flow. The record in this respect, however, does not support a determination that timely payment of their tax bill stood to impose an undue financial hardship upon petitioners. Further, the record does not suggest that petitioners exercised ordinary business care and prudence in providing for payment of their tax liability. Petitioners did not make estimated tax payments, or otherwise set aside and account for their tax bill for the year at issue. Rather, the record suggests that petitioners made a decision to administer their personal finances in a manner which came at the expense of their taxes for the year at issue. On that record, we conclude that petitioners did not have reasonable cause for their failure to timely pay, and that petitioners are liable for the addition to tax under section 6651(a)(2) for the year at issue.” Order, transcript, at p. 11.

Paul & Rosemary do no better with the estimateds. “As relevant here, to the extent reasonable cause might except a taxpayer from this addition to tax, a taxpayer also must have, either: (1) become disabled, or (2) retired after having attained the age of 62 during that, or the preceding taxable year. As discussed above, the record does not support petitioners’ argument that their failures were grounded in reasonable cause. Further, the record lacks any evidence suggesting that petitioners otherwise meet the age and retirement, or disability requirements to qualify for exception under this section. On that record, we conclude that petitioners are liable for the addition to tax under section 6654 for the year at issue.” Order, transcript, at p. 12.

Finally, Paul & Rosemary balk at paying the $225 fee for the IA.

“Through 31 U.S.C. 9701, Congress authorized the Secretary to prescribe regulations imposing fees for services rendered by the Commissioner, in order to defray the costs incurred by the Government in providing those services. Pursuant to that grant of authority, the Secretary promulgated regulations that impose a user fee on taxpayers that, as relevant here, enter into installment agreements. Secs. 300.0(b)(1) and 300.1(c), User Fee Regs. These fees and the amounts charged therefor are mandatory unless a taxpayer meets certain poverty-based criteria not at issue here. See sec. 300.103)(3), User Fee Regs.; see also sec. 6159(f) (2).” Order, transcript, at p. 14.

Even though the hard-laboring SO at Appeals spent months working with Paul & Rosemary on an IA, Paul & Rosemary refused to pony up, so the SO closed the file.

Apparently Paul & Rosemary were frustrated. That is not unusual in such cases, but it really doesn’t help.

“While petitioners’ frustration is palpable, their argument does little to change our view of the character of the SO’s actions. Regulations require taxpayers to pay a user fee when they enter into an installment agreement. Accordingly, the SO’s actions — inclusion of this fee in the terms of the agreement, and refusal to accept an installment agreement lacking that fee — were actions rooted in applicable law. For that reason, we hold that the SO did not abuse her discretion.” Order, transcript, at p. 15.

So IRS will now levy.

Aldo V. Fonticiella, 2019 T. C. Memo. 74, filed 6/13/19, has four (count ‘em, four) lawyers to IRS’ two, for an historical sashay through the Officer ranks of the United States and the US Tax Court, and echoes the immortal words of the Fab Four. Appeals is within the IRS, so Aldo is out.

For Tax Court antiquarians, Judge Joel (“The History Guy”) Gerber has a special treat.

And you Tax Court groupies will find this the best thing since Dubroff’s & Hellwig’s “The United States Tax Court – An Historical Analysis,” as to which see my blogpost “Extra, Extra – Real All About It,” 6/23/15.

Aldo (that’s Doc Aldo to you) is an AR cardiologist, who claims Appeals violates separation of powers. So the CDP he got is bogus.

“Petitioner moves this Court to declare that Appeals is an unconstitutional de facto independent agency, which violates the separation of powers doctrine, and separately seeks to have the Court remand his case to Appeals on the basis that the Appeals settlement officer who reviewed his case was an ‘Officer of the United States’ and was not constitutionally appointed in a manner consistent with the Appointments Clause.  The facts and analysis presented in petitioner’s motions are substantially similar to those considered by this Court in Tucker v. Commissioner, 135 T.C. 114.” 2019 T. C. 74, at p. 4.

Tax Court decomposed much brain tissue and 36 pages of text in Tucker to upend that interesting but exaggerated argument, as told by that Obliging Jurist Judge David Gustafson. And D.C. Cir. unanimously affirmed. Doc Aldo and his Fab Four do no better.

“Petitioner’s argument that Appeals is an independent agency because of references to the term ‘independent’ in connection with the function of Appeals exaggerates the meaning of independence in the context of Appeals’ function.  Although Appeals has an independent function within the IRS, it does not mean that Appeals is inherently an independent agency.  We hold that Appeals is not a de facto independent agency in accordance with the Court’s reasoning in Tucker.” 2019 T. C. Memo. 74, at p. 5.

The magic language in the 1998 Reorganization Act that gave us the Appeals we know and love today is “’an independent appeals function within the Internal Revenue Service.’  RRA sec. 1001(a)(4), 112 Stat. at 689 (emphasis added).” 2019 T. C. 74, at p. 7.

“Although Congress established an independent function within the IRS and prescribed procedures for Appeals, the use of the term ‘independent’ to describe Appeals’ function does not automatically make Appeals an independent agency.” 2019 T. C. Memo. 74, at p. 7. (Footnote omitted).

L’il Ole Appeals isn’t the SEC, the EEOC, the CFPB, and anyway, Section 7803(a) lets the President control the Com’r, and Section 7804 lets the Com’r keep Appeals strong and free.

And its AOs don’t need the Senate to bless them.

No Taishoff “Good Try”s here.

Philip N. Rose and Leanna Rose, 2019 T. C. 73, filed 6/13/19, didn’t have such a little tin box as was so melodically apostrophized in 1959 by Sheldon Harnick and Jerry Bock. Rather, they had a safe with around $56K in it.

“Petitioners kept approximately $56,000 in cash from two large tax refunds in a home safe to conceal it from creditors.  Petitioners did not keep specific records of how much money they kept in their safe, but the tax refunds and Christmas gift checks accounted for most of the cash they had.  Petitioners had several bank accounts during the years in issue and transferred funds among those accounts at various times.  The record does not include bank deposit records for any year before…the first year before the Court.” 2019 T. C. Memo. 73, at p. 10.

Their problems are the not uncommon ones – unreported income and dubious real estate records. Phil and Leanna make out slightly better with Judge Pugh than with IRS’ examiners, but they fall down on the records.

“While we generally accept petitioners’ explanation that they were moving money around between their accounts and their safe, especially where they memorialized the transfers by writing checks, they did not convince us that these transfers took place in these amounts.  We question their ability to recall so many transactions so many years ago without contemporaneous documentation; and we question whether their default explanation of money transfers between their accounts and their safe can explain all of the deposits at issue.  Petitioners’ credibility is diminished by their reflexive tendency to claim that all of the deposits lacking another explanation were transfers either from another of their accounts or from their home safe.  Their credibility is further reduced by their occasional inability to choose which explanation applied to a particular deposit, as we explain below.  Without better records, and with the passage of time, their testimony is not enough.” 2019 T. C. Memo. 73, at p. 19.

Of course there were logs for the magic 750 hours, but these left something to be desired.

“The logs themselves are not reliable and therefore are not reasonable means of establishing real estate service hours. Nor are we persuaded by petitioners’ repeated concessions on brief to eliminate defects identified by respondent.  This is not a negotiation but rather an examination of the record to determine whether petitioners’ logs and other evidence are reliable.  Rather than improving their reliability, these repeated concessions highlight the logs’ inherent unreliability.” 2019 T. C. Memo. 73, at p. 29.

Takeaway: Negotiate before, not during, trial.

Off-Topic

I have occasion today to reflect upon Billy Yeats (who didn’t make it this far, regrettably). He bestowed upon us “a terrible beauty.”

Today, especially today, Bill really got this one right.

“An aged man is but a paltry thing/ a tattered coat upon a stick unless/ soul clap its hands and sing and louder sing/ for every tatter in its mortal dress.”

I am blogging James P. Donoghue and Elaine S. Donoghue, 2019 T. C. Memo. 71, filed 6/11/19, not for any novel legal propositions, nor for any off-beat factual circumstances, therein set forth, but rather for the delectation of my colleague Peter Reilly, CPA.

Mr. Reilly has made a substantial collation of hobby horse and similar Section 183 “goofy regulation” cases. This one poses no new concepts, and the facts are straightforward enough.

Mrs D loves horseracing ever since her beloved grandfather introduced her to same. She went in for virtual horsefarming (her “farm” was various use-by-the-day premises, brought together on the internet) and breeding, but rarely raced her horses, and lost $974K over 35 years. She claimed to be a “continuous start-up.”

Judge Ashford wasn’t amused. And wasn’t buying.

Take it away, Mr Reilly.

Gregory L. Murphy and Monica J. Murphy, 2019 T. C. Memo. 72, filed 6/11/19, are petitioning a decision letter from an equivalent hearing off a NITL.

Before you holler “no jurisdiction! Equivalent hearings confer no jurisdiction on Tax Court,” consider. The Murphys’ Form 12153 was timely postmarked, although the flailing datestampers at Appeals didn’t get around to tagging it until much later. So IRS concedes the equivalent hearing was really a CDP, and the Murphys’ petition therefrom is timely.

But the Murphys’ claim that they should’a had a credit from four (count ‘em four) years before the year at issue to offset their liability for the year at issue,  founders. There must be an actual credit available, not a might-be, could-be.

Judge Albert G (“Scholar Al”) Lauber allows as how there’s caselaw allowing Tax Court to consider a prior year, which impacts a current year. But that has to be more than a “maybe so.”

“Our jurisdiction in CDP cases generally does not permit us to consider matters involved for nondetermination years, that is, for tax years that are not a subject of the collection action before us.  But we may consider facts and issues from other years to the extent they ‘are relevant in evaluating a claim that an unpaid tax has been paid.’  Freije v. Commissioner, 125 T.C. 14, 27 (2005).  An available credit from another year is a fact that may affect the taxpayer’s correct liability for the year that is the subject of the collection action.  Weber v. Commissioner, 138 T.C. 348, 371-372 (2012).  But a credit must actually exist in order to constitute an ‘available credit.’  A mere claim for a credit ‘is not an “available credit,’” and such a claim ‘need not be resolved before the IRS can proceed with collection of the liability at issue.”  Id. at 372; see Del-Co W. v. Commissioner, T.C. Memo. 2015-142, 110 T.C.M. (CCH) 119, 120-121.” 2019 T. C. Memo. 72, at pp. 9-10.

For the Del-Co story, see my blogpost “A Claim Is Not a Credit,” 8/5/15.

The Murphys had claimed the credit before, and IRS denied it. But the Murphys never headed for USDC or USCFC for a rematch, per Section 7422.

Ch J Maurice B (“Mighty Mo”) Foley announced today that His Honor Big Julie, Judge Julian I Jacobs, fully retired from the Tax Court, whereon he had illustriously served these last 35 years.

“The Court thanks Judge Jacobs for his many years of excellent service. His contributions to this Court and to the Court’s jurisprudence will be missed.”

I bid farewell to His Honor, and wish him a fruitful retirement.

I will retire his cognomen.

Once again Judge Mark V Holmes shuffles off to Buffalo, and that metropolis’ gourmet delights in Mikel A. Brown, Sr., and Debra A. Brown, 2019 T. C. Memo. 69, filed 6/10/19. Beef on weck, sweet sponge candy and spaghetti parm, though tickling His Honor’s palate, didn’t make the grade in Alamogordo, NM; and the celebrated wings of the Nickel City crashed.

The Alamogordo noshery, foisting a Taste of Buffalo on The Land of Enchantment, featured Cynthia and Bryan Harris on deep-fryers, but it was Mikel who was the brains of the joint venture. That’s the Rev. Mikel. While his unreported income earns him the usual slam (no resolution by trustees, board or anyone else for parsonage, and lots of cash from faithful flock; see my blogpost “The Envelope Please – Part Deux,” 10/11/18), Rev Mikel did participate enough to get some of the operating losses based on “regular, continuous, and substantial ” participation. Even though Rev Mikel was based in El Paso, TX, he and Ms Debra really kept the noshery on track.

“We also find that, even given their occasional share of management-related participation, the Browns have met what this test requires.  It is obvious to us that the Harrises managed [the noshery]–they ran the restaurant’s day-to-day operations. This means that the Browns’ participation included only a de minimis amount of management.  But the Browns focused on the important chores of handling the finances, product development, and customer retention.  It seems to us that the record as a whole tells a story of two couples who decided to open a restaurant, with one pair able to man the post and provide the hands-on experience, and the other able to provide the business know-how and funds.  Just because the Browns weren’t running the day-to-day operations doesn’t mean they weren’t playing a major role in [noshery’s] operation.  They spent a lot of time working together on [noshery’s] menus, advertising, decor, and whatever else needed to be done.  On top of this, Reverend Brown handled most of the finances and wrote most of the checks for supplies and vendors, rent, and utilities.  The Harrises gave him the daily receipts and cash, and he would do the books.  He also did the payroll for [noshery].  We don’t believe any testimony that the Browns spent many, many hundreds or even thousands of hours doing this, but we do find it more likely than not that they spent more than 100 hours combined on these chores and were integral to [noshery’s] operation.  This lets us find that the Browns materially participated….” 2019 T. C. Memo. 65, at pp. 40-41 (Citations omitted).

The obscurest part of Section 469 saves the day.

An online dictionary defines one described in the title of this blogpost as “Engaged in a continuous, fast-paced procession of actions or events.”

The phrase certainly describes that Obliging (and energetic, fast-paced) Jurist, Judge David Gustafson, who gives us three (count ‘em, three) designated hitters today.

I’m going to pass on Johannes Lamprecht & Linda Lamprecht, Docket No. 14410-15, filed 6/7/19. The Lamprechts have been here before, but when they featured on my blog the previous four (count ‘em, four) times, we had the full story. This time it’s a throw-down about responses to interrogatories, but without full texts of both interrogatories and responses, it’s like trying to make out a telephone conversation when one hears only one party (and that not even in full). So whatever Judge Gustrafson conveyed to the parties, I can draw no conclusions for anyone else.

It’s a different story for Scott Alan Webber, Docket No. 14307-18L, filed 6/7/19. Scott is fighting a NITL, but IRS claims he’s a day late (and much more than a dollar short, like $9K) with his filing, as he used the return address from the wrong side of a two sided IRS one-size-fits-nobody Notice LT11.

I hasten to add the the “LT” designation of  this befuddling document has nothing to do with me. It’s six pages, and was sent with a blank Form 12153 and a window envelope, so that the party requesting a CDP could use one side of the LT11 to fold down and use to address the window envelope to Philly, enclosing the completed Form 12153.

Except on the other side of the same page was another address, in Kansas City, to use to pay up if you didn’t want to fight. And use the same envelope to send in your check.

Of course, Scott got it wrong, the 12153 went to KC, KC relayed to Philly, and IRS called the play dead because the 12153 got to Philly a day late, so Scott only got an equivalent (non-appealable to Tax Court) hearing, which he petitions. And IRS moves to bounce because you can’t get to Tax Court from an equivalent.

Judge Gustafson wants a supplemental memo from IRS. Reg § 301.6330-1(c)(2) Q&A-C6 says you have to send your 12153 to “the IRS office and address as directed on the CDP notice.”

What notice? There are two, each one for a different purpose, on the obverse and reverse of the same page of the same document.

Judge Gustafson takes judicial notice to a new height. ”Within recent memory the undersigned judge has paid a bill using an address slip of the sort the IRS employed here, and he inserted the address slip into the envelope wrong side out and sealed the envelope. In that instance, the wrong side was blank, the error was obvious, and the fix could be made by opening the envelope, turning the address slip around, and re-sealing the envelope. But if the wrong side had borne another similar (but incorrect) address, the error would probably have been overlooked, and the bill payment would have gone astray. That is to say, we sympathize with a taxpayer who is confused by the design of Notice LT11.” Order, at p. 8.

Now of course IRS has had to do more with less for years. IRS must deal with tsunamis of paper and electrons, from serried ranks of millions of taxpayers, deer-in-the-headlights, wits, wags and wiseacres, et hoc genus omne. And do it with fewer people and resources. Judge Gustafson is sympathetic. And the law is the law.

But.

“…where the IRS intends to require that a CDP hearing request be sent to a particular address, and where it takes the position that a CDP hearing request sent to a different address is invalid and ineffectual, and where it argues that the use of the wrong address ultimately deprives the Tax Court of jurisdiction over the case–in such a circumstance, we wonder whether an occasion for confusion is predictably and unfairly created by (a) combining the CDP notice with a gratuitous demand for payment, (b) providing multiple address slips back to back with multiple addresses , (c) putting the wrong address slip on the front page of the notice, and (d) failing to label the CDP address slip with any indication that it is the CDP address slip. It would seem reasonable for the IRS either to insist that a CDP hearing request must be sent to a specific address or to decide to make use of its mailing of a CDP notice for the additional purpose of soliciting payments to be mailed to a different address—but probably not both.” Order, at pp. 8-9.

So let IRS file a supplemental memo, explaining (1) why KC isn’t the right address, and (2) the “first levy” conundrum: IRS can’t levy until thirty days have passed since notice and no 12153 has been sooner filed, but if 12153 is filed then no “first levy” until (a) NOD and (b) if timely petitioned, then Tax Court decision and (c) Section 7481 finality thereof. So “first levy” is a future event that may never happen. But IRS has conflated lien (which is automatic and arises before notice need be given) and levy (which requires notice) in the LT11.

Unless, of course, IRS withdraws its motion to dismiss Scott’s petition (hint-hint, nudge-nudge, wink-wink).

Finally, the Return of the Palmolives, Palmolive Building Investors, LLC,  DK Palmolive Building Investors  CLC Participants, LLC, Tax Matters Partner, Docket No. 23444-14, filed 6/7/19. Here Judge Gustafson ascends  “to such rarefied heights of pure mathematics that it is said that there was no man in the scientific press capable of criticizing it.”

The Palmolives erected a wall of LLCs worthy of Game of Thrones. They sliced and diced the poor old Palmolive building into commercial spaces, residential condominiums, and the Building Base. Each LLC got a different piece, but each member of an LLC not only had a piece of one, but maybe a (different fractional) piece of another.

Then they split off the façade, so that the poor thing got sliced and diced in two directions.

Judge Gustafson turns to linear algebra, and propounds a series of equations worthy of Professor Moriarity in his prime. And in my checkered career I’ve done some slice-and-dice, chop-and-swap condominium deals, with Fortune 500s and a merry crowd of pirates (who all sued one another) in the mix…but enough of war stories.

“It is perhaps fortunate to have in this case a circumstance that seems to be rare in cases involving the valuation of a facade easement–i.e., a transaction in which portions of a facade are transferred separately from the building behind that facade. An arm’s-length transaction in which a facade was sold, separate from the building, might be good evidence of the fair-market value of that facade. As we have shown above, it appears in this case that, in the 2003 transaction, [X} transferred to [Y] [X’s] entire interest (both facade and associated building) for floors 5 to 15 but also transferred to [Y] [X’s] interest in only the facade of floors 1 to 4. The foregoing analysis is the Court’s attempt, unassisted by the parties or their experts, to identify that distinct value. If the Court’s attempt requires correction (e.g., as to the value received by [X], or the property rights transferred during the 2003 restructuring), then we would appreciate receiving that correction in the parties’ memoranda and in their presentations at trial.” Order, at pp. 6-7. (Names omitted).

However the numbers come out, the Palmolives get a Taishoff “Good Try, hors classe.”

No, not Sam T. Coleridge’s “greybeard loon” having a mix-and-match. This is a designated hitter from Judge Buch off a CDP, John M. Annesi & Cheryl L. Annesi, Docket No. 988-18L, filed 6/6/19.

The major wrangle here is John’s & Cheryl’s RCP. IRS wanted to grab $92K, John & Cheryl offered an ETA OIC of $2500, which got bounced when the OIC offer specialist decided that they had a $385K RCP, based on their most recent return.

I’ll let Judge Buch take it from here.

“To determine their RCP, the offer specialist relied on information from the Annesis’ most recently filed return and calculated their monthly income based on this one year of income. The offer specialist rejected the Annesis’ offer-in-compromise because she concluded that the Annesis were able to pay the liability in full and that their special circumstances did not warrant a hardship.

“The offer-in-compromise was sent to a settlement officer for the Annesis’ appeal of the offer specialist’s decision. During the hearing with the settlement officer, the Annesis’ representative would not accept an installment agreement because she asserted that the Annesis were unable to make the payments. After the hearing, the Annesis’ representative sent a fax to the settlement officer, asserting that the Internal Revenue Manual allows for the past three years of income to be averaged in calculating the Annesis’ monthly income to determine their RCP.” Order, at p. 2.

One or three, it’s all one. On the three-year recount, the SO comes up with a $198K RCP.

“While the parties do not dispute the liability, the Annesis attempt to raise doubt as to collectability by claiming the Commissioner incorrectly calculated their RCP. The Commissioner may reject an offer-in-compromise when the taxpayer’s RCP is greater than the amount he proposes to pay. Here, the Annesis’ proposed calculation method results in a RCP that far exceeds their offer amount. Therefore, the alleged error is immaterial and the Commissioner did not abuse his discretion.” Order, at p. 4. (Footnotes omitted, but note the cases cited.)

I give the Anchorage AK representatives a Taishoff “Good try, second class.”