But the late great Vincent Thomas Lombardi was heard to say in response thereto, “It’s the only thing.” Now The Judge With a Heart, STJ Robt. N. Armen, isn’t quite so single-minded as the late great Vince, but Theodore James Zalesiak, 2019 T. C. Sum. Op. 16, filed 7/15/19, didn’t win, and didn’t play, often enough, to qualify as a pro in the poker stakes.

TJ did play the online game, and did play cash games and show-up tournaments, but never got on television. And he mostly worked as a construction manager in the Chicagoland area, although he did play when traveling (mostly to visit family on his accrued leave time from work), and whenever he got a break from construction managing.

My colleague Peter Reilly, CPA, would doubtless comb through the Section 183 factors for deductions from profit-making activity. STJ Armen does a quicker sweep.

“Petitioner testified at trial that engaging in poker-related activities consumed his nights and weekends for the year in issue.  But simply spending all of one’s free time on an activity does not transform the activity into a trade or business, nor does it make the participant a professional.  In addition, petitioner stopped engaging in poker-related activities for a substantial period during the year in issue because his job as a construction manager would not permit him to continue playing poker at that time.  He also took a trip… and played poker in various cities, but it was possible only because he accrued enough leave to do so; and, notably, he visited family and friends in those cities during the trip (i.e., he “was able to get two birds with one stone”).

“Most importantly, petitioner relied on his full-time employment to substantially support his pursuit of poker.  In [year at issue] petitioner’s wages constituted 98.1% of his total income. Without his wages as a construction manager he could not have paid his rent or otherwise have supported himself, nor could he have indulged his passion for poker.  Furthermore, he recognized the need for wage income, and he looked to employment, not poker, for his livelihood.  Petitioner’s reliance on employment for his livelihood is consistent with his characterization on his returns of his occupation as a ‘manager’.  Indeed, petitioner testified at trial that self-describing himself as a “manager” ‘was always something that I would tell people that I was doing if they would ask me on a professional level.’” 2019 T. C. Memo. 16, at pp. 12-13.

I expect Phil Hellmuth, Daniel Negreanu, and Phil Ivey would each use different nomenclature if asked what he does on a “professional” level. And spend a lot more time, and do a lot better, at the poker table.

A fellow blogger, commenting upon Martin A. Kapp, as to which see my blogpost “The Rogues’ March – Part Deux,” 7/9/19, was kind enough to remark that “I swear you can get an almost complete liberal arts education from Mr Taishoff’s tax blog.”

Thank you.

Tribune Media Company f.k.a. Tribune Company & Affiliates, et al., Docket No. 20940-16, filed 7/12/19, are back again, with more good material for discovery geeks and penalty avoiders.

The Tribuners favored us with “Privilege – A Graev Matter,” 9/13/18, and “Here Comes the Silt,” 4/25/19.

Now the joust is over what the Tribuners told their expert advisers. Everyone agrees that Section 7525 privilege, client-attorney and attorney work product are all waived; but how far waived? The Tribuners only want to dish what they told their advisers that found its way into the tax opinion and related advice they got.

But IRS echoes Robert Frost, that “knowing how way leads on to way,” everything that the Tribuners told their experts would enable FRCP Rule 70(b) by providing stuff “reasonably calculated to lead to discovery of admissible evidence.”

Judge Buch buys it.

“Because Tribune raised the defense of reasonable cause and good faith, any information or responses relevant to that defense is discoverable. This includes discovery regarding whether Tribune disclosed all relevant facts to its advisors and whether it acted in good faith by relying on those advisors. Anything that could help the Commissioner understand these facts and circumstances is potentially discoverable.” Order, at p. 5.

For the Tribuners to establish they leveled with the experts, they must put in whatever they told said experts.

But the Tribuners get one saver.

“We agree with Tribune, however, that the information must have been known to Tribune for it to be relevant to its defense. Communications internal to Tribune’s advisors but unknown to Tribune would not shed light on Tribune’s knowledge at the time of filing its return. Thus, if the information was not exchanged between Tribune and its advisors, it is not relevant for establishing whether Tribune’s reliance on their opinion was in good faith.

“Further, the documents must have existed and known to Tribune before it filed its …tax return. It is axiomatic that Tribune could not have had knowledge at the time it filed its return of documents that had not yet been created or communicated to it.” Order, at p. 9.

So when the Tribuners told IRS they’d given everything, Judge Buch goes no farther.

IRS wants all documents that the Tribuners relied upon. “…Tribune asserts that it has produced the only documents it relied on in raising its affirmative defense to the penalties. We take Tribune’s statement as true and thus there is nothing for us to compel.” Order, at p. 9.

But hasn’t Judge Buch forgotten that Graev and Clay are in play here?

No, although he relegates it to a footnote.

“¹We acknowledge that the parties have filed cross motions for partial summary judgment on the issue of whether the Commissioner complied with section 6751(b) when he determined penalties. Those motions remain under consideration by the Court. If petitioners prevail in full, then no penalties will remain at issue. But if any of the asserted penalties remain at issue, then the reasonable cause and good faith defense will also remain at issue. Tribune suggests that the Court defer resolving this discovery dispute until after it has decided the motions for summary judgment. But unless and until petitioners’ motion is granted in full, the reasonable cause and good faith defense is at issue.” Order, at p. 3, footnote 1.

No, it’s not a misspelling. Janice Kay Haskins and Julian William Haskins, 2019 T. C. Memo. 87, filed 7/11/19, get a metal brake from Judge Morrison. They also get a paint sprayer, an air compressor, and painting supplies. But they don’t get the power generator or the saw blades, whether circular or reciprocating.

The stuff needs to be depreciated, and Judge Morrison obligingly does the numbers. It’s Julie’s stuff, which IRS claims aren’t unreimbursed employee expenses, because when he bought them he was no longer employed.

“The record (including the testimony of Mr. Haskins) establishes that the metal brake was purchased for Mr. Haskins’ own business of construction, not for his business of performing services as an employee of L D Greer Builders & Trim. The fact that the metal brake was not purchased for the business of performing services as an employee does not preclude a deduction under section 167(a).” 2019 T. C. Memo. 87, at pp. 24-25. (Footnote omitted).

When I stopped being an employee and went out on my own, I deducted my business expenses. But unlike Janice Kay, who lumped together unreimbursed employee business expenses and Julie’s own business expenses when she did their MFJ, I filed each category separately.

Janice Kay claimed Section 911 treatment for her year in Afghanistan as a contractor. But she kept her AZ contacts, and never left either forward operations base to which was assigned, either the one she liked or the one she didn’t. “These bases were often under attack by rocket-propelled grenades and suicide bombers.” 2019 T. C. Memo. 87, at p. 18.

Not the sort of places you’d want for your “abode.”

So no exclusion for Janice Kay.

By the way, “A metal brake is a tool that bends sheet metal.” 2019 T. C. Memo. 87, at p. 23.

Today William James Basie meets William Shakespeare yet again, as we examine Irvin Hannis Catlett, Jr., 2019 T. C. Memo. 86, filed 7/11/19. Irv is petitioning a NOD from a CDP, but IRS has withdrawn the NFTL and abated all the assessments underlying same, so Judge Albert G (“Scholar Al”) Lauber dismisses Irv’s petition as moot.

Irv ran a tax prep operation, from which he got the assessments and NFTL at no extra charge. He went down in USDCDMD on one count of conspiracy to defraud the US of A (18 USC §371), ten (count ‘em, ten) counts of Section 7206(2) prepping phony tax documents, and one count of Section 7212 obstruction. 4 Cir. affirmed, so Irv at time of petition is our guest, and is expected to remain so until 2026.

Oh, and the District Court ordered $3.8 million in restitution, to be paid $500 per month during Irv’s three years of supervised release, which commences when Irv is sprung.

Well, since Irv doesn’t owe until he starts his supervised release in 2026, IRS can’t assess, lien or levy. But once he rejoins the Free World, IRS will be back.

Irv yells “No! Remember Vigon!” I’m sure all y’all vividly recollect Matthew Dean Vigon, star of my blogpost “Crafty – Akin to the Weasel,” 7/24/17.  Irv’s argument is that releasing the lien and abating the assessments doesn’t determine my liability, and I didn’t get a fair trial.

Judge Scholar Al distinguishes both himself and Matty Dean.

“The Tax Court is an Article I court that is not directly constrained by the case or controversy requirement under Article III of the Constitution.  However, the same principles apply to the exercise of our judicial power.  Accordingly, we will dismiss a case as moot if the parties’ subsequent actions have produced a situation in which neither party retains any ‘legally cognizable interest in the outcome.’

“Generally, a CDP case becomes moot when we can grant the taxpayer no further relief.” 2019 T. C. Memo. 86, at p. 7. (Citations omitted).

But of course Tax Court can redetermine liability where petitioner had no chance to litigate same before. Except Irv did. He lost his trial in USDCDMD, 4 Cir affirmed, and that affirmation is final.

“The instant case differs from Vigon in a critical respect.  The premise of our analysis in Vigon was that the taxpayer had raised a proper challenge to his underlying liability for the penalties, a challenge that we had the authority to adjudicate. Petitioner, by contrast, has not raised a proper challenge to his underlying liability for the restitution, and we have no authority to adjudicate that question. His liability for the restitution was fixed by the District Court’s sentencing order, which is now final, and section 6201(c)(4)(C) bars him from challenging the amount of the restitution he has been ordered to pay.” 2019 T. C. Memo. 86, at pp. 11-12.

Matty Dean was fighting Section 6702 nonassessables. You can’t petition those, since you get no SNOD for those, so no Tax Court trial. Irv got a USDC trial and a 4 Cir appeal.

“In sum, petitioner’s underlying liability for the restitution is not properly before us.  By withdrawing the NFTL filing and abating the assessments as premature, respondent has afforded petitioner all the relief to which he was entitled at the CDP hearing.  Because there is no other relief that we can possibly grant, there is no case or controversy left for us to decide, and we will accordingly dismiss this case as moot.  If respondent elects to reassess the restitution after petitioner is released from prison, current law permits petitioner to challenge that collection effort (on grounds other than nonliability for the restitution) at a future CDP hearing. And if he is dissatisfied with the outcome of that hearing, he may petition this Court for review.” 2019 T. C. Memo. 86, at p. 13.

I make the morning line 8 to 5 that Irv will be back in 2026.

Edited to add, 8/25/21: Hope no one took the bet. See my blogpost “Running Around the Bases,” 8/16/21.

No question that his employers never reimbursed Sunderam Krishnan, 2019 T. C. Sum. Op. 14, filed 7/10/19, for any “…relocation, rent, meals, telephone, internet, equipment, traveling, or commuting costs while he was working on contract projects for its clients.” 2019 T. C. Sum. Op. 14, at p. 4.

And Sun certainly worked in different places.

But his contacts with his uncle’s home in Santone were too tenuous to make it home, so STJ Panuthos finds Sun’s tax home was wherever he might be.

And Sun’s recordkeeping didn’t even come up to shoebox standards.

Sun’s bank records are sufficient, though, to get him cellphone and internet, as what he claims for business was far less than his total bills. And the 2009 liberation of cell and internet from the Section 274 straitjacket definitely helps.

Sun is an IT expert. Too bad he didn’t have the usual software to set up his records.

Unlike Oscar Hammerstein II’s heroine walking through a storm with her head held high at the close of Carousel, Jaroslaw Janusz Waszczuk, Docket No. 23105-18W, filed 7/9/19, will find that he will be tossed if he doesn’t agree to IRS’ standard Rule 103 shield order, protecting the Section 6103 return info of the blown third-party, which IRS will hand over to JJ in the course of discovery.

JJ protests. “…petitioner filed a 136-page Opposition to respondent’s aforementioned motion, alleging such motion to be ‘frivolous, meritless, and groundless’. Petitioner then goes on to allege that ‘By granting the Motion for Protective Order to Respondent, the Court would interfere with Petitioner’s litigations in State of California Courts and with Petitioner’s complaints with various state and federal law enforcement agencies.’ The scores of pages and exhibits that then follow this allegation suggest to this Court (i.e., to the Tax Court) that petitioner may regard the present whistleblower proceeding as collateral to his other ‘litigations’ and ‘complaints’ and that he may also regard the present whistleblower proceeding useful in unearthing material for his use in such other ‘litigations’ and ‘complaints’.” Order, at p. 2.

The Judge with a Heart, STJ Robt N Armen, is unimpressed.

IRS won’t dish Section 6103 protected info without a tough protective order, limiting the use thereof to this case only. And without the Section 6103 info, JJ should understand he “…has little, if any, likelihood of success in this Court insofar as the whistleblower’s claim for reward under section 7623(b) is concerned. (This is not to say that the disclosure of Section 6103 Information by the Commissioner to the whistleblower assures such success.).” Order, at p. 3.

But STJ Armen lets JJ decide: he can withdraw his opposition, consent to the Rule 103 gag, and try his whistleblower but nothing else. Or he can continue to object, in which event he gets nothing, and can play the Michael Corleone gambit.

But because of JJ’s predilection to leap into print, STJ Armen cautions him.

“(A) lengthy response to this Order is not required; indeed, a lengthy response would be inappropriate and may be regarded by the Court as tantamount to petitioner choosing….” to oppose the motion and get nothing. Order, at p. 4.

And if JJ tries to rewrite the Rule 103 order, he’ll be deemed to have chosen to oppose and get nothing.

So if JJ wants to grab the spoils from the blown, he had better not get the Rule 103 gag tossed.

Edited to add, 6/5/20: Doesn’t matter whether JJ was gagged or not, he got tossed. See 2020 T. C. Memo. 75, filed 6/4/20.

Today we have two more candidates for the “’ollow square” treatment.

First, to establish that it is unwise to try to stonewall IRS, especially when you have massively understated income, we have Shahram Kohan and Yonina Kohan, 2019 T. C. Memo. 85, filed 7/9/19. Judge Albert G (“Scholar Al”) Lauber is unimpressed by Shah’s less-than-candid testimony, especially after he tried stiff-arming the IRS examiner, dodging informal discovery, and ignoring court-ordered formal discovery. Shah (that’s Doctor Shah, dentist) finally hires counsel, and admits to underreporting better than $300K in each of two years. He never mentioned the cash and credit card payments he got, only the insurance reimbursements and a guess at the copays.

Scholar All pins five of the eight badges of fraud on Doctor Shah.

Second is STJ Panuthos expending 123 (count ‘em, 123) pages of prose on Martin A. Kapp, 2019 T. C. Memo. 84, filed 7/9/19. Martin is a CPA and EA, and his specialty was misinterpreting two Tax Court cases, thereby causing some thousands of mariners to claim deductions for meals provided by their employers, for which they were never charged. In short, claiming expenses, either for which they were reimbursed or never paid.

STJ Panuthos quotes at length from Martin’s websites, wherein he promised the jolly tars mighty refunds. Martin apparently was unaware that, while it pays to advertise, a short glance at 2 Samuel 1:20 would counsel a lower profile.

Although enjoined by USDCCDCA, affirmed by 9 Cir., at the close of play, Martin goes down for Section 6701 phony return chops for 5,176 (count ‘em, 5,176) returns over four years. That’s a three million dollar hit.

March off.

Samuel Wegbreit and Elizabeth J. Wegbreit, 2019 T. C. Memo. 82, filed 7/8/19, have unerring noses for fraud. And among other frauds, they meet up with “…Sugarloaf Investment Fund (Sugarloaf).  Sugarloaf contributed Brazilian receivables to the [Wegbreit phony trust] as part of a distressed asset trust transaction (DAT transaction).  Petitioners Wegbreit claimed losses generated by the DAT transaction on their return….  Their deductions of losses in the DAT transaction were not allowable, and the parties have stipulated that they would be bound by this Court’s final judgment in Kenna Trading, LLC v. Commissioner, 143 T.C. 322 (2014), aff’d, 911 F.3d 854 (7th Cir. 2018).” 2019 T. C. Memo. 82, at pp. 39-40.

Readers of this my blog will recall Mr. Rogers and his dicey neighborhood; if not, see my blog “To Build a Record,” 10/16/14.

But there’s a lot more. Backdated documents, dubious notarial acknowledgements, trusts that are alter egos, and offshore insurance policies from insurers whose existence is, let us say, problematic. And trial  testimony that is, shall we say, unhelpful.

Judge Mary Ann (“S.E.C. = She Eschews Cognomens”) Cohen trudges through the morass and nails the Wegbreits on all counts.

But she seems to have gotten little help from counsel on both sides. “The number of documents in the record that are on their face unreliable has made this case considerably more difficult.  Our chore is compounded because the parties included numerous duplicate copies of key documents without explanation or analysis.  Notwithstanding the Court’s comments and directions at the conclusion of the trial, the briefs of the parties failed to focus on the material facts.  Respondent’s proposed findings of fact merely summarize testimony and documents and generally fail to analyze the transactions and entities involved.  See Rule 151(e).  Respondent continues to use the shotgun approach to theories of the case rather than selecting the strongest arguments and focusing on them.  Petitioners Wegbreit’s briefs misstate the record and are unreliable.  After dealing directly with the record with little aid from the parties’ briefs, we conclude that the reliable evidence is clear and convincing as to unreported income and fraudulent intent.” 2019 T. C. Memo. 82, at pp. 48-49.

Takeaway- Make the judge’s job easy, and she might make yours easy, too.

Being engaged has its upsides and downsides, as Joseph Thomas Lander & Kimberly W. Lander, Docket No. 25751-15L, filed 7/8/19, find out. This is a 33-page designated hitter from STJ Daniel A (“Yuda”) Guy, which is up for comment by the parties per Rule 183(c), and referral to Ch J Maurice B (“Mighty Mo”) Foley for ultimate disposition. See Rules 182 and 183; these don’t happen very often.

JT was in the slammer, and Kimberly had POA, and the IRS exam unit first bounced Kim’s protest of the 30-day letter, and then got the certified mail numbers wrong on the SNODs (they put JT’s SNOD in the envelope with Kim’s number, and vice versa), but the last known addresses were right.

Except Kim never picked up hers, and JT’s went to the slammer from which he had been moved before the SNOD got there (although he was still there when it was mailed).

After the usual argy-bargy, the Taxpayer Advocate got JT and Kim an audit reconsideration, which didn’t resolve their protests, so the case got sent to Appeals. In the meantime, JT got sprung.

JT & Kim argued they never got the SNODs, but the AO met with them twice, and in the end knocked off $61K of tax (and the interest thereon) and about $30K in penalties. There followed a NFTL for the rest.

JT & Kim filed Letter 12153 to fight over nonreceipt of the SNODs, to claim they couldn’t pay, and Kim wants innocent spousery.

At this CDP, the SO said they’d settled at the audit reconsideration-to-Appeals, so no go, but didn’t address collection alternatives nor innocent spousery. STJ Yuda proposes to buck those issues back to Appeals.

But the key here is engagement: JT & Kim had full opportunity to fight over the capital gain vs unreported income in one of JT’s partnerships.

First, the mixed-up certified mail numbers.

“The Court finds that the information recorded on Form 3877 and confirmed by USPS.com track and confirm records is correct and accurate and that Tax Examiner M inadvertently switched the certified mail numbers associated with the [Kim] and [JT] notices when he prepared the file copies in question. Although TE M’s error caused confusion, it does not undermine the trustworthiness of the cumulative evidence related to the mailing of the notice of deficiency by certified mail outlined above.” Order, at pp. 25-26 (Name omitted).

For another case of getting certified mailings messed up, see my blogpost “Going Postal, 2/4/13.”

Now for engagement.

“The record shows that petitioners were afforded a postassessment conference with the Appeals Office. After the IRS sent petitioners a notice and demand for payment of the tax due…, they requested a reexamination of their tax liability. The audit reconsideration process that followed began with a review of the matter by the Examination Division. When the Examination Division reaffirmed the adjustments to petitioners’ tax liability as determined in the notice of deficiency, they requested and were granted an independent review in the Appeals Office. AO B engaged with petitioners, took a fresh look at the record, conceded certain issues, and abated a significant portion of the tax previously assessed against them. Only then did the IRS file the tax lien that led to the additional collection review proceedings in the Appeals Office and this action.

“Petitioners’ argument that they were not given a full and fair opportunity to challenge their tax liability during the audit reconsideration process is belied by the record.” Order, at p. 30. (Name omitted).

More engagement.

“The record shows that petitioners were fully engaged with AO B, that he reviewed the evidence and arguments that they presented to him, and that in the end petitioners enjoyed a full and fair opportunity to challenge their underlying tax liability before the Appeals Office during the course of the audit reconsideration process. Under the circumstances, the Court is satisfied that the Appeals Office correctly determined, within the context of the collection review process, that petitioners had an opportunity to dispute their tax liability within the meaning of section 6330(c)(2)(B).” Order, at p. 31 (Name and footnote omitted, but the footnote says JT & Kim and pay and sue for a refund).

Be careful about getting engaged.