I place the question mark because the old maxim is so ingrained that no excuse seems possible. The old maxim is that misinformation, disinformation, misconstruction of law and regulation, and misdirection of taxpayers, by IRS servants, agents and employees does not excuse the taxpayer if s/he follows any thereof. The statute and regulations are paramount; all else is irrelevant. Believe IRS personnel at your peril.

Or maybe not.

Here’s Judge James S (“Big Jim”) Halpern, revisiting James L. McCarthy, Docket No. 21940-15L, filed 1/29/19 (hereinafter referred to as “Poor Jim”), and Poor Jim’s trusty attorney (hereinafter referred to as “Mr A”)..

All y’all will remember Poor Jim and his trust, but just in case the shutdown wiped your memorybank, see my blogposts “Futility,” 12/10/18, “When – Reprise,” 10/31/18, “Big Jim, Poor Jim,” 3/31/17, and “The Twelfth of Never,” 1/18/17. You see that Poor Jim has frequent litigator points here.

Appeals bounced Poor Jim’s OIC and PPIA after Mr A concluded there was no use sending in fresh financials, because the SO first told him to hold while Area Counsel pondered the matter, and after Area Counsel confirmed the SO’s view, the SO said Appeals was sticking to the trust-as-nominee.

In the last-named of my above blogposts, Judge Big Jim wanted to know if IRS was claiming that failure to update financials was a separate basis for bouncing the OIC and PPIA, regardless of the trust angle. And if IRS did so assert, let Mr A show that he was right to refuse to do so.

“In support of his claim, Mr. A refers us to SO M’s case activity report (Report). According to the Report, after our remand of the case, SO M requested an updated analysis from respondent’s Area Counsel on the issue of whether a trust created by petitioner’s accountant held specified properties on petitioner’s behalf as his nominee. In her initial communication with Mr. A after remand, SO M advised him that it ‘would be best to wait for * * * [the updated Area Counsel opinion] before potentially requesting any additional financial information or further discussing the issues.’ SO M had another call with Mr. A after Area Counsel advised her that it was adhering to its position that the trust was petitioner’s nominee. In that call, according to SO M: ‘I explained that upon my review of the trial transcript, I did not change my determination * * * [regarding the nominee issue]. I said that I followed up with a request for a second opinion and that the Counsel attorney said the same thing.’ She continued: ‘I stated that * * * [petitioner] could provide updated financial information and requested the information within 45 days. Mr. A pointed out that as long as Appeals is going to maintain its position with regard to the nominee situation, there is no point in providing updated financial information.’” Order, at pp. 1-2. (Names omitted).

Mr A gets a Taishoff “Good Job.” And Judge Big Jim seems to agree.

“Thus, the Report tends to confirm Mr. A’s claim. It shows that SO M discouraged Mr. A from providing updated financial information before she had received an updated analysis from Area Counsel and that, after she had received that analysis, she advised Mr. A of her intention to adhere to her determination that the trust was petitioner’s nominee. Although she went on to invite Mr. A to submit updated financial information, she did not tell him that the failure to do so would provide independent grounds for rejecting petitioner’s proposed collection alternatives.” Order, at p. 2.

It may be one thing to mislead, misdirect, misconstrue or misinform, but quite another to ambush.

So let IRS now explain if they want to assert nonproduction of current financials as a separate ground, and why, based on the futility of production thereof, Poor Jim shouldn’t be let off the hook.

Judge Holmes is back with a designated hitter in a shifty case, and a hard result for Drill Right Consultants, LLC, Docket No. 16986-14, filed 1/28/19, and its skilled lawyer, who gets a Taishoff “Good Try.”

Drill Right mimics an ancient Roman centurion. “Drill Right acts as a labor-market middleman. It finds qualified workers for oil-field operators in the Permian Basin — welders, drivers, and the like — tells them where to go if they want the work, and to take their tools with them. The workers get hourly wages and Drill Right collects a small margin on what they are paid. At the end of the year, the company sent out 1099s and not W2s, because it takes the position that the workers are independent contractors and not its employees. If Drill Right is right, it is a facilitator for the oil field’s equivalent of a Hollywood production team of the sort we analyzed in Quintanilla v. Commissioner, 111 T.C.M. 1017 (2016).” Order, at p. 2.

Indubitably all y’all will recollect Jorge Quintanilla, the sets-and-props whiz of TV commercials. What, the shutdown has befogged your memory? Then dig my blogpost “Gigged,” 1/7/16.

There now.

Drill Right got hit by the TX Workforce Commission (no, not chain-gang operators; they’re the TX equivalent of Our Fair State’s Labor Department) for unemployment compensation tax.

“That tax is not large — at least in comparison to the cost of lawyers skilled in the field — and Drill Right made the business decision to just pay it and move on.” Order, at p. 2.

But alas, the TX Workforcers tipped off IRS, who whanged the Drill Right pate with heavy-duty FICA-FUTA. And these being assessable without SNOD, collection jumped in to the tune of $2.5 million-plus. And that’s enough to hire a skilled lawyer.

Skilled lawyer invokes Section 7436(a) to petition, and Section 7436(d) to abate said assessment. And skilled lawyer raises Section 7491 to shift the burden of proof to IRS that the Drill Right workers are ICs and not EEs, hence no FICA-FUTA, rather Sched Cs.

But here’s the rub: Section 7491 allows the shift if petitioner introduces credible evidence with respect to any factual issue about liability for any tax imposed by subtitle A or B.

And we all know that FICA-FUTA is subtitle C.

Judge Holmes looks at the pre-amended Section 7491 cases, but none fits here. And Scar (the patently defective SNOD case) involved a SNOD, which is not required for subtitle C taxes like these. For the Scar story, see my blogpost “Scar Tissue,” 4/14/17. And unlike Scar, here there’s no asserted deficiency (none needed for FICA-FUTA) and no assessment (because abated by Section 7491(d) pending trial and decision).

Drill Right’s skilled lawyer is out of luck. Congress excluded Title C cases from the Section 7491 shift.

Time for a Section 7482 interlocutory?

The information sought by IRS may be protected by State laws, but that doesn’t help Verde Wellness Center, Inc., Docket No. 23785-17, filed 1/28/19*, an AZ pottery. The AZ Dep’t of Health Services tries to quash an IRS trial subpoena, but Judge Buch quashes the AZ Health types, using Art. VI, cl. 2, known to the cognoscenti as the Supremacy Clause. Any State law that hinders or conflicts with Federal law is inoperative. Constitutionally.

“In the tax area, courts have often addressed the question of whether a privilege created by state statute is to be recognized, specifically with regard to the accountant-client privilege often created under state law. The Supreme Court addressed this in Couch v. United States, 409 U.S. 322, 335 (1973), holding that ‘no confidential accountant-client privilege exists under federal law, and no state created privilege had been recognized in federal cases.’ See also, United States v. Arthur Young & Co, 465 U.S. 805 (1984). Except where the Federally authorized tax practitioner privilege of section 7525 applies, this remains the law today. This remains true even when (like here) the records are in the possession of the State and disclosure of the State’s records is a crime under State law.” Order, at p. 3.

Since the AZ Health types could face jail time for disclosing what IRS wants, they ask Judge Buch, if he rules for IRS (spoiler alert: he does), to let them off the hook.

“…Federal supremacy renders the confidentiality provision of the Arizona Medical Marijuana Act (and its corresponding criminal sanction) inapplicable insofar as responding to the Commissioner’s subpoena is concerned.” Order, at p. 5.

Thanks Judge. Isn’t it great to be back?

*Verde Wellness Ctr 23785-17 1 28 19

It gives me great pleasure to post the first post-shutdown order. Judge Gerber is first off the starting line at Second Street, NW, with Thu-Huong Tran, Docket No. 485-18S, filed 1/28/19.

It’s a simple uncontested no-tax-due order & decision, but for those of us who suffered through the long dark of Tax Court withdrawal, it’s a cause for celebration.

The Long Night is over. Starting by dawn’s early light tomorrow, January 28, 2019, the Glasshouse doors will be flung wide, the formerly furloughed flailing datestampers and hard-laboring intake clerks will stand to their action stations, Judges and STJs will once more pour forth “somber reasoning and copious citation of precedent,” and I shall again take up keyboard and electron to chronicle the sixty-buck ticket to justice.

Cain’t hardly wait.

It’s been a long time since I looked at an AR (not a rifle, an Army Regulation), but one of the cases at this morning’s calendar call in New York City sent me off to AR 601-50, Part VI, Par. 19 (15 Dec 86), whence comes the title of this blogpost.

The case is Gerard J. McEnroe and Regina McEnroe, Docket No. 7381-18S, 1/14/19, but the formal order won’t be around for some time, what with the shutdown and all. And if and when the order does come, it may not embody today’s developments as they may then be moot.

It’s another of those Section 72 pension loan cases. This variation has to do with whether the loan was in fact in default, and the balance paid from Gerard’s account as a taxable distribution. There was to be a trial on that point. Remember that cancellation of debt goes off on facts and circumstances.

So up steps Gerard and his counsel, whom I’ll call Denny. Denny tenders a massive pre-trial brief, but IRS’ counsel has a wee problem.

Though admitted in Our Fair State, and otherwise apparently eligible, Denny never got admitted to Tax Court. When he tried to get the application form from the Glasshouse Gang, Tax Court was shut down.

Although STJ Daniel A (“Yuda”) Guy rightly pointed out that Form 30 and instructions are available on the still-operating Tax Court website in down-loadable and form-fillable PDF, filling in and sending in the form, check and certificate of good standing today would do no good, as there is no one at the Glasshouse to process same.

What to do?

STJ Yuda checks in with the Glasshouse High Command, and obtains from Denny an undertaking to apply as soon as the shutdown ends, but in the meantime, he invokes Rule 24(a)(4) top-of-the-stretch provision.

“…counsel may be recognized as counsel in a pending case to the extent permitted by the Court and then only where it appears that counsel can and will be promptly admitted.”

I’d never seen this before, but I expect we will see it again if this shutdown continues.

I headed down to 26 Federal Plaza on this U. S. Minor Outlying Island this morning. I was suffering an extreme case of Blogger’s Withdrawal during the record-breaking shutdown. Tax Court’s website said Our Fair City would host a calendar call, and my reportorial instincts told me there might be blogfodder here.

Well, there were the volunteers from the New York County Lawyers’ Association’s Calendar Call, trying to help the self-representeds; IRS had counsel working, and STJ Daniel A (“Yuda”) Guy  was on the bench, with his trial clerk close at hand.

I heard through the grapevine that true emergencies are being addressed, even as IRS and Tax Court are handcuffed as to personnel. IRS managers are stepping up, I am told.

One certainly hopes the current emergency is swiftly abated.

I will say nothing more here. My views on the current record-breaking shutdown are extensively stated elsewhere.

To the best of my admittedly-imperfect memory, the flailing datestampers and hard-laboring clerks at The Glasshouse in Shutdown City have today set a record they’ll be hard-pressed to equal, much less excel.

They’ve managed to put up 260 (count ‘em, 260) orders today, and three (count ‘em, three) are designated hitters off-the-bench from STJ Lewis (“Ya Can’t Shut That Name Down”) Carluzzo.

Apparently they pushed long and hard to clear the clichés before “the long winter’s nap” that faces The Land of the Free.

STJ Lew’s cases are two duplicates of the old “delegation of authority to sign a SNOD” variety, and the last is an OIC that gets bounced (and there are no “preliminary” bounces).

But STJ Lew has some useful advice for the few going to court despite the shutdown.

Here’s Khadidiatou Donatelli Neumann, Docket No. 979-18S, filed 12/28/18. Khadid is bound for LA in a couple weeks (hi, Judge Holmes, enjoy the break), and STJ Lew hands out a handy hint.

“To avoid potential complications caused by the partial government shutdown, it is ORDERED that a paper copy of any document submitted to the Court for filing, either electronically or in paper, between the date of this Order and the date of the above-referenced trial session, shall be made available at the trial session by the party who submitted the document.” Order, at p. 1.

Even the electrons may be shut down.

In any case, I wish all my readers a very happy new calendar year. I’ll see all y’all when The Glasshouse is back in action.

Two Mondays in January are still scheduled for trials and motion practice. January 7 still goes forward in Birmingham, LA and Santone, while a week later LA, The Apple and Phoenix host the Great Roadshow from the Glasshouse.

In the meantime, at one minute to midnight this very evening, The Glasshouse Gang turns out the lights, puts up the shutters, and locks the doors.

And here’s the skinny for the rest of y’all: eFiling and eAccess will be available. Taxpayers may comply with statutory deadlines for filing petitions or notices of appeal by timely mailing a petition or notice of appeal to the Court. Timeliness of mailing of the petition or notice of appeal is determined by the United States Postal Service’s postmark or the delivery certificate of a designated private delivery service.

Remember to get the list of acceptable subsets of the PDSs in Notice 2016-30.

No, this is not a Helvetian patriot’s hymn to the Alpine cantonments. Rather, we have a 116-page (count ‘em, 116 pages) battle of the heavyweights between Judge Albert G (“Scholar Al”) Lauber and Judge  Morrison, over whether one can move the holes in a slice of Emmenthaler by cutting new holes and filling the old ones, thus encumbering said slice in perpetuity. We also review Belk and Bosque, diss 5 Cir’s take on Bosque and end up with one $4 million deduction (out of three tries) for Pine Mountain Preserve, LLLP f.k.a. Chelsea Preserve, LLLP, Eddleman Properties, LLC, Tax Matters Partner, 151 T. C. 14, filed 12/27/18.

The Pine Mountaineers lose Easement One because they could build too much and move around where they could build. And Judge Scholar Al (and the majority) like how Judge Dennis of 5 Cir, dissenting in Bosque, put it.

“Our thinking about this issue is well captured by the ‘Swiss cheese’ metaphor that Judge Dennis employed.  See BC Ranch II, L.P., 867 F.3d at 562 (Dennis, J., dissenting).  For this purpose one must imagine the entire easement related area as a large slice of Emmenthaler cheese.  The cheese represents the real property initially restricted by the conservation easement.  The holes represent the zones reserved for commercial or residential development.  Section 170(h)(2)(C) requires that the land restricted by the conservation easement be protected from development in perpetuity.  The statute thus bars the developer from putting any new holes in the cheese.

“As relevant here, the developer could consider two techniques for putting new holes in the cheese.  First, he could put new holes in the cheese and make up for it by adding an equal amount of previously unprotected land to the conservation area.  That was the pattern in Belk.  Alternatively, he could put new holes in the cheese and make up for it by plugging the same number of holes elsewhere in the conservation area.  That was the pattern in Bosque Canyon and in the instant case.  In each instance the acreage subject to the easement remains exactly the same.  But in both instances the developer has achieved the impermissible objective of putting new holes in the cheese, i.e., subjecting to commercial or residential development land that was supposed to be protected in perpetuity from such development.

“Like Judge Dennis, we are unable to discern any meaningful legal distinction between these two paths to the same bottom line.  In both scenarios, the developer has retained the right to develop a portion of the conservation area by substituting other property.  The only difference among Belk, Bosque Canyon, and this case is whether the other property lies inside or adjacent to the conservation area.  We do not see why it matters where the other property lies.  What matters is whether there is a perpetual use restriction on ‘the real property’ covered by the easement at the time the easement is granted.  Sec. 170(h)(2)(C).” 151 T. C. 14, at pp. 43-44.

The majority are JJ. Foley, Gale, Thornton, Marvel, Gustafson, Kerrigan, Buch, Nega, Pugh, and Ashford.

But Judge Morrison, dissenting, says yes it does. The easement area is protected in Easement Two, which the majority dumped. While some building can go on, the entire parcel is guarded by the easement. He does dump Easement Two on other grounds, viz., said easement allows inconsistent uses sufficient to knock out preservation for conservation. If the most exhaustive (and exhausting) analysis of put-and-take scenic easementing to date floats your boat, this is the real deal.

Everyone agrees that Easement Three, which permits a water tower and piping and nothing else, is OK. And Judge Morrison does a King Solomon in evaluating the worth of that easement in Pine Mountain Preserve, LLLP f.k.a. Chelsea Preserve, LLLP, Eddleman Properties, LLC, Tax Matters Partner, 2018 T. C. Memo. 214, filed 12/27/18, taking 50% of petitioner and 50% of IRS, as the errors made by each side’s expert cancel out those of the other’s.

“Using an equally weighted average, we conclude that the value of the…easement is $4,779,500, equal to 50% of [Pine Mountaineers’] $9,110,000 value plus 50% of [IRS’] $449,000 value.” 2018 T. C. Memo. 214, at p. 36.

Shutdown or no shutdown, Tax Court is in there pitching.