Litigators are conditioned to oppose. When the Lone Ranger rides to their rescue, they suspect Silver is a Trojan Horse, and want to run him out of town. Given the usual course of American litigation, I can’t say that it’s the wrong attitude. But sometimes it’s proof of my old adage: “Lawyers can’t add.”

Here’s our breaker-buddies Eaton Corporation and Subsidiaries, Docket 28040-14, filed 5/10/19.

Eaton is sweating out the “dission” in 2017 T. C. Memo. 147, where apparently the Rule 155 beancount Judge Kerrigan ordered is still undone; for more about that, see my blogpost “Breaking Bad,” 7/26/17. Trying to move the case, the parties cross-moved for summary J, but didn’t get it. They got a full-dress T. C. instead. See my blogpost “When Judge Gustafson Dissents,” 2/25/19.

Well, with nothing doing, and trial not yet scheduled, IRS decides to stir up the old silt by moving to amend its answer.

“Respondent’s requested first amendment to answer seeks to raise a new issue which would adjust petitioner’s income under sections 951 and 956. This new issue involves petitioner’s upper-tier CFCs’ loans to one of its U.S. corporations, AT Holdings Corporation (Loans). Respondent’s position is that the Loans are ‘obligations of a United States person’ and, as such, are U.S. property under section 956(c)(1)(C), supporting an increased income inclusion to petitioner under section 951(a)(1)(B). In support of respondent’s motion, respondent states that because the increased income to petitioner would result in redetermined adjustments for each taxable year in an amount less than the amount determined in the notice of deficiency, the requested first amendment to answer does not result in an increased deficiency for any year.” Order, at p. 2.

Well, sound discretion of the Court, avoid more trial prep and more expense, and all that jazz. But at close of play, IRS is asking for less than the SNOD sought that started this fight.

Eaton’s counsel, white shoe to the core, objects.

“Petitioner contends that respondent’s motion would cause petitioner to suffer substantial delay and prejudice. Petitioner further contends that respondent previously had ample opportunity to identify and characterize the Loans as U.S. property attributable to the upper-tier CFC partners, and that respondent’s mischaracterization results from a lack of due diligence.” Order, at pp. 2-3.

Well, maybe IRS could have done better, but Judge Kerrigan doesn’t see how Eaton is really hurt.

“…, the circumstances of this proceeding do not meet the requisite prejudice or delay to justify denial of respondent’s motion. The requested first amendment to answer will not require substantial new preparation at a late stage in the proceedings, nor will it ‘surprise and/or unfairly disadvantage’ petitioner.” Order, at p. 3. (Citation omitted).

Even though Judge Tamara Ashford follows counsels’ lead in calling it the “crewmen’s exemption,” I’ll jump headlong into the Twentieth Century (if not the Twenty-First) and call it the “crews’ exemption.” For those whose practice is limited to these shores, check out Section 3121(b)(4).

Now that y’all are aboard, let’s hoist the revenue pennant to the maintop, and muster the IRS boarding party.

DAF Charters, LLC, 152 T. C. 14, filed 5/9/19, is a FL LLC wholly-owned by a Cayman Islands corporation. So DAF is disregarded, and all its tax attributes are those of its owner. For the year at issue, DAF operated the charter yacht Diamonds Are Forever in and out of US territorial waters.

Except.

The issue is FICA. An LLC is a regarded taxpayer since 2009, when FICA is on the menu. See my blogpost “Is an LLC a Person?” 9/11/15.

OK, so DAF is a FL LLC, but the yacht is Cayman Islands registered, so it isn’t an “American Vessel,” as the statute defines that term.

Then is DAF an “American Employer”? And one such is “…a corporation organized under the laws of the United States or of any State.’ Sec. 3121(h); see also sec. 31.3121(h)-1, Employment Tax Regs. (reiterating statutory rule).  Neither section 3121 nor any other provision in subtitle C of the Code separately defines ‘corporation’.” 152 T. C. 14, at p. 15 (footnote omitted, but it says the FUTA definition of “employer” as anyone who pays anyone to do anything works for FICA as well. Nobody doubts DAF was an employer; but was DAF an American employer?).

The famous “check-the-box” regs give all kinds of room for businesspeople to slice and dice their enterprises, be they regarded or disregarded. But when it comes to employment taxes, the statute bodychecks the would be box-checker and makes the entity (LLC) into a corporation and separate from its ownership.

Judge Ashford Judge’splains: “In other words, a disregarded entity is treated as a separate entity for purposes of employment taxes imposed under subtitle C and, in addition, the separate entity is treated as a corporation for purposes of employment taxes imposed under subtitle C and related reporting requirements.” 152 T. C. 14, at p. 18.

Although DAF’s counsel points out what absurd results one might get by variations on the statutory theme, those aren’t this case. DAF proposed no collection alternatives at Appeals, so the levy stands.

Away, boarders!

No opinions or designated hitters today, May 8, 2019, so I have to work through six (count ‘em, six) pages of Tax Court orders, which have the most stultifying effect on me, your blogger. The labors inherent in this search would wear out even the gamest trufflepig in the forests of Limousin.

But I will never quit (well, hardly ever).

Here’s Catera Nelson, Docket No. 3983-19, filed 5/8/19.

Catera neither signed her petition, nor did she fork over the Sixty Buck small blind, so Ch J Maurice B (“Mighty Mo”) Foley gave her a separate order for each, at no extra charge.

Catera stands mute.

IRS answered, attaching the SNOD from which Catera supposedly petitions, but never discusses timeliness of the petition. “Not through the Iron Duke,” says Ch J Mighty Mo, with his weather eye firmly upon the calendar. The SNOD says petition by February 4; Catera’s envelope is postmarked Feb. 15.

OK, so what? The usual OSC why the Court shouldn’t toss Catera for tardiness, right?

Not quite. And thereby hangs the cliché.

Oh yes, there’s the OSC.

But here’s the kicker: “ORDERED that the Court’s $60.00 filing fee for this case is waived, and petitioner is no longer required to pay such amount.” Order, at p. 2.

Unlike Jose F. Pacheco Jaime, whose tale of ducking-by-stip I blogged the other day, and unlike Mark E. Wood, Jr., whose holography got him waived through yestrerday, Catera didn’t even bother trying.

And she still gets a bye, when others would routinely get tossed.

I’m confused. Isn’t the rule that once you break the entry plane at the Glasshouse on Second Street, NW, timely or otherwise, you owe the sixty bucks unless you can get a waiver; but you gotta ask for the waiver.

Or is the sixty-buck-ticket-to-justice optional?

No, not the now-passé, formerly ubiquitous, three-dimensional imagery. Today we have the lesser-known version of the term, meaning “entirely in one’s own handwriting.” This was the delight of the wills and trusts professors of my young day, teasing out those jurisdictions where such scrawls were accorded probate as wills.

If memory serves, recourse to the holographic will was limited to active-duty servicemembers. It needed to be written almost on the field of battle and in the presence of the enemy, the testator having no time to revoke same by the execution of a proper instrument in the presence of alert witnesses and competent counsel.

That doughty guardian of the USTC coffers, ever alert to bounce, without notice or warning, thrifty petitioners who fail to ante up the Big Sixty small blind, Ch J Maurice B (“Mighty Mo”) Foley, lets in a holographic waiver from Mark E. Wood, Jr., Docket No. 6339-19, filed 5/7/19.

“…the Court directed petitioner to pay the Court’s $60.00 filing fee or submit an Application for Fee Waiver for consideration. …(P)etitioner filed a Request for Place of Trial, upon which he handwrote a request for fee waiver.” Order, at p. 1.

Ch J Mighty Mo gives Mark Jr. the waiver.

Word to the impecunious: When you send whatever to the Glasshouse at 400 Second Street, NW, write something about how you want a waiver.

Jose F. Pacheco Jaime, Docket No. 24023-18, filed 5/6/19, didn’t bother signing his petition or sending in the sixty Georges, so Ch J Maurice B (“Mighty Mo”) Foley, having given him a second chance, tossed JFPJ a couple weeks ago (hi, Judge Holmes).

But now JFPJ and IRS have a stipulated decision.

So “upon due consideration and to permit entry of the stipulated decision,” Order, at p. 1, Ch J Mighty Mo vacates the toss.

OK, so what happened to the sixty bucks? We know that defective petitions and unsigned petitions get cured by a stiped decision. But Ch J Mighty Mo has tossed petitions less than a week after they come through the door at 400 Second Street, NW, for want of the sixty bucks. See, e.g. (as my two-Grey-Goose-Gibson-lunching colleagues would put it), my blogpost “The Tossed Petitioner,” 10/29/18.

So can we save sixty bucks by shooting in a petition, stipping out with IRS, and, if in the meantime we’ve been tossed, reversing the toss by entering decision?

Looks like JFPJ did just that. Here’s the stiped decision.

Frequenters of the fountain in Washington Square Park, on this Minor Outlying Island off the North American Coast,  so long ago will remember a lugubrious ditty entitled, if rusty memory serves, “Down in the Valley,” wherein appeared the title hereof. Said lament continued “send it by mail, send it in care of, the Birmingham jail.”

Well, today, Ch J Maurice B (“Mighty Mo”) Foley tells IRS to put His Honor wise as to what happened to the letters from Michael T. Sestak, Docket No. 17286-18, filed 5/3/19.

Mike and IRS are fighting about tax year Y, but the same RA and Mike had a joust over earlier tax year X. Mike attaches some exhibits to his riposte to IRS’ motion to toss to show IRS knew Mike’s epistolary whereabouts long since.

Thus, the SNOD for tax year Y is invalid as not mailed to last known address.

Of course, this brings into play Rev. Proc. 2010-16, 2010-19 I.R.B. 664, specifically Section 5(.04)(1)(b): “Correspondence sent by the Service that solicits or requires a response by the taxpayer that is returned to the Service by the taxpayer with corrections marked on the taxpayer’s address information will constitute clear and concise written notification of change of address.” Order, at p. 2.

So let IRS file a Second Supplement to its Answer to Mike’s petition, stating whether Mike’s exhibits “…constitutes, or should have been treated by the Internal Revenue Service as, clear and concise notification by petitioner of petitioner’s change of address to… SPC McCreary…, Pine Knot, TN 42635, under Rev. Proc. 2010-16.” Order, at p. 2.

This is the second go-round with Mike’s present residence. My readers will remember Mike from my blogpost “Numbered With The Transgressors,” 12/14/18, wherein I moved Mike from TN to KY, an error induced by the happiness of that festal day and which I now correct.

I suggest IRS heed the words of the captioned ballad, and sing along.

No, I didn’t have him in the ’92 Travers, nor the Derby (fortunately). But although he went to The Great Track in the Sky two years ago, he does give me my title for this late blogpost. The principles that justified IRS grabbing him in Toga Town justify IRS nailing the Larchmont homestead of Norman Hinerfeld, 2019 T. C. Memo. 47, filed 5/2/19, notwithstanding title thereof was transferred by an erronseously-styled “quitclaim” deed to Mrs. Norm in exchange for some payments of his debts (the amounts and debts were subject to change without notice, so Judge James S (“Big Jim”) Halpern dumps the lot.).

All y’all will remember Norm. No? See my blogpost “Breaching the Wall,” 9/27/12. Norm was a dab hand at OICs and laying off assets to duck TFRPs of $300K at trial.

First issue: The AO gave a super-skimpy explanation why she included the Larchmont residence of Norm and Mrs. Norm in Norm’s RCP. The $1.1 million of variable debt Mrs. Norm claims to have paid to acquire and shield the property from Norm’s creditors (she admits this at trial) is sketchy, but husbands and wives do live together. Norm wants this factor neutral, but Judge Big Jim says that’s grounds for additional scrutiny. So Chenery.

But does the record rule rule? Will Tax Court finally abandon Robinette? Not today. “As with the issue regarding the standard of our review, we need not resolve the question of the scope of our review. Whether or not we limit our review to the administrative record, we would conclude that SO X correctly took into account the value of the Larchmont residence in evaluating petitioner’s OIC.” 2019 T. C. Memo. 47, at p. 19. (Name omitted).

Second, the LiButti standard. Devil His Due was swapped to duck taxes, and USDCNDNY found six (count ‘em, six) factors to evaluate a swap-to-duck: “(1) whether inadequate or no consideration was paid by the nominee; (2) whether the property was placed in the nominee’s name in anticipation of a lawsuit or other liability while the transferor remains in control of the property; (3) whether there is a close relationship between the nominee and transferor; (4) whether the * * * [parties] failed to record the conveyance; (5) whether the transferor retains possession; and (6) whether the transferor continues to enjoy the benefits of the transferred property. * * * “ 2019 T. C. Memo. 47, at pp. 29-30.

Norm flunks.

True, the SO was wrong about the law. The deed whereby Norm devised to Mrs. Norm recited the usual ten buck consideration. The SO said that was a quitclaim, and the parties so stipulated, but it turns out the form (see NYRPL§243) was a bargain-and-sale. Mox nix. Courts may be Chenery-limited by what is in IRS’ administrative record, but errors of law are something else.

And going through the factors, the consideration was indefinite (too many stories about what Mrs. Norm paid and when she paid it), no written contract of sale (see NYGOL§5-703), the debts of Norm’s old company were growing, the close relationship certainly was there and not a neutral factor, and Norm stayed in the Larchmont house and enjoyed the benefits thereof.

Yes, the deed got recorded, or at least IRS didn’t claim otherwise. I’m surprised IRS’ counsel didn’t ask for copies of the NYS real estate transfer tax return; you can’t record a deed in Westchester County (or anywhere else in Excelsiorland) without filing one. I wonder what consideration, if any, was stated in the return. And the amount paid on real estate transfers is a public record as well. If my shaky arithmetic is right, Mrs. Norm owed NYS about $15,400 if the consideration paid or required to be paid was $1,100,000 between RET and the “Mansion Tax” (don’t ask). I’d not be surprised if those trying to paper a shady transaction balk at forking over such a sum. I hasten to add I have not done any such transactions myself.

Howbeit, Norm’s OIC is toast. Now let’s see if IRS grabs the Larchmont house.

The morning line on admins & legals in USTC cases of first impression is definitely in longshot country. Jason Bontrager, 2019 T. C. Memo. 45, filed 5/1/19, is willing to try a bet, and his trusty attorney Holly C. Henson, Esq., already a recipient of a Taishoff “Good Try, First Class,” for trying to get Jason out of $72K worth of restitution, and getting IRS to fold on the Section 6601(a) underpayment interest, is in there pitching.

For Holly’s story, see my blogpost “One Man’s Tax,” 12/12/18.

But Judge Albert G (“Scholar Al”) Lauber will have none of it.

Justification is measured at different dates for admins & legals.

“For purposes of the administrative proceeding, the IRS’ position is that taken at the earlier of: (1) the date the taxpayer receives the decision of the IRS Appeals Office or (2) the date of the notice of deficiency.  Sec. 7430(c)(7)(B).  For purposes of a Tax Court proceeding, the IRS’ position generally is that taken when the Commissioner files his answer.

“As of both dates identified above, there existed no Court of Appeals precedent addressing whether the Commissioner was authorized to assess underpayment interest on restitution-based assessments.” 2019 T. C. Memo 45, at p. 7.

Tax Court hadn’t yet issued its full-dress T. C. saying “nuthin’ doin’ on the underpayment front, IRS”; for more on this, see my blogpost “IRS Gets Zip,” 10/3/17.

On both magic dates, “… what guidance was available supported the Commissioner’s view.  Respondent cites three opinions from other Federal trial courts adopting his earlier position that the IRS can assess underpayment interest on restitution-based assessments.  The IRS itself had consistently interpreted section 6201(a)(4) to authorize the assessment of underpayment interest in these circumstances.” 2019 T. C. Memo. 45, at p. 8. (Footnotes omitted).

So that IRS folded after Zip Klein called them on the river doesn’t help Jason, and doesn’t help Holly either. IRS concessions don’t equal want of justification.

I hope Holly’s other clients are paying her.

Timothy Todd Fisher and Christina Fisher, 2019 T. C. Memo. 44, filed 4/30/19, grappling with the Premium Tax Credit of the Affordable Care Act, without doubt an enigma within a conundrum within a puzzle, brought to mind the words of Harvard scholar Thomas Andrew Lehrer above captioned. Commenting upon The New Math, Lehrer wrote (and later sang) “It’s so simple, so very simple, that only a child can do it!”

But Prof. Lehrer never met Judge Juan F. Vasquez or the three (count ‘em, three) attorneys IRS sent to unpack the alternative computation of the PTC for those who marry during the tax year wherein one spouse qualified “for honest poverty, and a’ that,” but upon wedding the other, rose above the 400% of Federal poverty (I suppose as distinguished from honest poverty) line.

Chris had a dependent child and qualified for FL exchange insurance, and concomitant PTC, for ten-and-a-half months. Then she married TT, and her fortunes brightened.

Until Reg. 1.36B-4(b)(2)(i) intervened.

“Taxpayers’ additional tax liability using the alternative computation is equal to the excess of the taxpayers’ advance PTC payments for the taxable year over the amount of the ‘alternative marriage-year credit.’  Id. subdiv. (ii)(A).  The alternative marriage-year credit is the sum of both taxpayers’ ‘alternative premium assistance amounts for the premarriage months’ and the ‘premium assistance amounts for the marriage months.’  Id.

“Taxpayers compute the alternative premium assistance amounts for premarriage months for each taxpayer and for each full or partial month the taxpayers are unmarried.  Id. subdiv. (ii)(B).  The alternative premium assistance amount for premarriage months is equal to the excess of the taxpayer’s benchmark qualified health plan premium amount over the taxpayer’s required contribution amount.  Id.; see sec. 1.36B-4(b)(5), Example (2), Income Tax Regs.  When calculating the taxpayer’s contribution amount for premarriage months, each taxpayer uses ‘one-half of the actual household income for the taxable year and treats family size as the number of individuals in the taxpayer’s family prior to the marriage.’  Sec. 1.36B-4(b)(2)(ii)(B), Income Tax Regs.; see also 1.36B-4(a)(2), Income Tax Regs.” 2019 T. C. Memo. 44, at pp. 8-9. (Footnotes omitted.)

They then do the post-marriage months, but throw in the whole family income and family size.

There’s more, but I am no math whiz. Howbeit,  Cris and TT miss the cut, and have to pay $4K that they gave to the insurer.

Judge Vasquez sympathizes, agrees it’s unfair, but that’s the law.

As this is a resolutely nonpolitical blog, I withhold comment.

A brief refresher might be in season here. The scope of this my blog is limited; I cover US Tax Court. Unless there’s a seismic shifter like Loving, I leave USDC to the trade press and the blogosphere, which includes but in no way is limited to the commercial services and the universities. Likewise the USCFC is off limits as an area of practice with which I am insufficiently familiar. Lastly, USCCAs are sufficiently covered by the aforesaid sources, and their opinions/decisions feature here only when brought to my attention by a remittur (mandate) of a case I’ve previously blogged. And maybe not always even then.

I make no undertaking to update what I write.

Therefore, if anyone wants to cite an opinion (T. C. or T. C. Memo.) they read here first, let them do as we did in my youth, and “Shepardize” the case. For those too young to remember the maroon volumes and the flimsy paper updates through which we combed in the last millennium, there are online resources to ascertain if the limb on which you hang your client’s “life, fortune, and sacred honor” is solid, dubious, or just plain rotten.

Use them.