Is Another Man’s Restitution

Jason Bontrager, 151 T. C. 12, filed 12/12/18, wanted to patch up his relationship with his Dad. Dad offered to help Jason in his real estate business. With help like this, Jason got convicted for aiding and abetting Dad in evading $727K in Dad’s income tax. USDCWDWA hit Jason with $72K in restitution, 10% of Dad’s evading.

Jason filed bankruptcy, and IRS put in an unsecured claim, although Federal restitution is non-dischargeable per 11 USC §523(a)(13), 727(b) (2012). Jason claims IRS waived its chance to collect, as he got discharged in bankruptcy and paid IRS $17K.

Judge Lauber isn’t buying.

“Contrary to petitioner’s view, nothing in the Bankruptcy Code prevents a creditor of a nondischargeable debt from filing a claim.  Generally, all properly filed creditor claims are allowed in a bankruptcy case unless expressly disallowed by the Bankruptcy Court under a specific provision.  See 11 U.S.C. sec. 502(a), (b), (d), (e) (2012).  None of these provisions disallows claims for nondischargeable debts.  And no provision of the Bankruptcy Code prevented the IRS from filing a claim or attached any adverse consequences to its doing so.   Further, the IRS properly filed its claim as a general unsecured creditor.

“Because the IRS had not assessed the restitution obligation at the time of petitioner’s bankruptcy, let alone filed an NFTL, it was required to file its claim as a general unsecured creditor.” 151 T. C. 12, at p. 18 (Citations omitted).

Jason claims that IRS can’t assess the ordered restitution, because Section 6012 (a)(4(A) restitution was ordered “for failure to pay any tax imposed by this title.” But USDCWDWA ordered restitution for failure to pay Dad’s tax, not Jason’s.

I award Holly C. Henson, Esq., Jason’s attorney, a Taishoff “good try, first class.”

“Petitioner notes correctly that the tax, the payment of which he was convicted of evading, was not originally imposed upon him by title 26.  But neither section 7201 nor section 6201(a)(4) requires that this be the case.  Section 7201 criminalizes any willful attempt to evade payment of ‘any tax imposed by this title.’  Section 6201(a)(4) authorizes the assessment of restitution ‘for failure to pay any tax imposed under this title.’  Petitioner was ordered to pay restitution for aiding and abetting [Dad’s] failure to pay Federal income tax.  That tax was clearly ‘[a] tax imposed under this title.’

The phrase ‘any tax imposed under this title’ in section 6201(a)(4) contains no limiting language.” 151 T. C. 12, at p. 14. (Emphasis by the Court).

The reason for Section 6201(a)(4)(A) was that Justice prosecuted evasion and won restitution; Treasury (IRS) may not even have begun examination at that point, thus there was no account receivable against which to debit restitution. So Congress let IRS collect restitution “as if” it were a tax. Remember Hans Vaihinger, the philosopher of “as if”? No? See my blogpost “Als Ob,” 11/22/16.

And Congress could not have intended a gap that gives a free kick to aiders and abettors.

“If the IRS cannot assess restitution of the sort involved here, the problem Congress aimed to solve in 2010 would be perpetuated for a subset of restitution payments.  Indeed, the problem would be particularly acute in this context.  The IRS cannot commence an examination of petitioner to determine {Dad’s] civil tax liability.  Thus, it could never make an assessment against petitioner for that tax unless permitted to do so by section 6201(a)(4).  And this problem could arise in the case of restitution ordered, not just for violations of section 7201, but for violations of other Code provisions.  See, e.g., secs. 7202 (willful failure to collect or pay over tax) and 7203 (willful failure to file, supply information, or pay tax).  We decline to find a gap in the statutory scheme in the absence of any textual evidence suggesting that such gap exists.” 151 T. C. 12, at p. 16.

But IRS concedes that Section 6601(a) underpayment interest doesn’t apply.

IRS picks up on Frank Loesser’s 1950 anti-hero’s line in Greenteam Materials Recovery Facility PN, Greenwaste Recovery, Inc., Tax Matters Partner, Docket No. 21946-09, filed 12/11/18. All y’all will recall the Greenteamers (or Greenwasters) and their capital gains from franchise sales.

No? Seriously? Well, dig my blogposts “Das Kapital,” 8/6/13, “Das Kapital – Part Deux,” 6/21/17, and the most popular of the three, “Settle Order on Notice,” 6/23/17. There now.

The Greens won the FPAA joust, and did the numbers. The Greens won big.

But the Green’s counsel complains to Judge Mark V Holmes in a letter.

“In it he stated that the effect of these decisions was to generate a substantial refund to the individual partners for tax year X and small deficiencies for them for two later tax years. He also stated that the IRS proceeded at speed to issue the notices of computational adjustment to them to collect the deficiencies for those two later years, but invited the individual partners to sue in the Court of Federal Claims or their local District Court for the substantial refund for [Year X].” Order, at p. 1.

So counsel asks Judge Holmes to order IRS to pay up.

No can do, says Judge Holmes. At least not yet.

If this involved individual partners who were entitled to a refund, no need for another lawsuit. A Rule 260 motion based on Section 6512(b) does the trick. But this is a TEFRA FPAA. No amount of refund for each individual partner is part of the decision. Thus Tax Court may have no jurisdiction.

Or maybe it does. “One practitioner’s guide says this means that our Court ‘has overpayment jurisdiction with respect to affected items.’ IRS Practice Adviser Report, ¶ 430: Judicial Review of the FPAA/FSAA. Another practitioner’s guide warns instead: “Comment: It is unclear whether § 6512(b)(2) and Tax Court Rule 260 apply in partnership actions where an overpayment would result to a partner based on the decision entered by the court in the partnership proceeding.” Richard A. Levine et al., Proced. & Admin.: Tax Court Litigation, 630-5th Income Tax (BNA).” Order, at p. 3.

So Judge Holmes treats counsel’s letter as a Rule 260 motion, and denies same without prejudice.

“It may turn out that following the Rule’s procedures moves the Commissioner to act expeditiously to wrap these cases up. It may turn out that petitioners discover through their own research that they do not want to proceed under this Rule; or the Commissioner may want to argue that it is inapplicable either on its own terms or by analogy.” Order, at p. 3.

So make the motion in proper form, and we’ll see.

I bet you’re asking what will happen in new cases now that TEFRA is gone. My bet is that the whole thing gets done at once.

It is a long-standing legal maxim that the law does not require performance of a futile act. In the ongoing chanson de geste of James L. McCarthy, Docket No. 21940-15L, filed 12/10/18, Judge James S (“Big Jim”) Halpern wants to be sure that no violation of that hallowed principle has occurred.

All y’all will recall Judge Big Jim sent IRS’ and James L’s counsel off to tell him more before. See my blogpost “When? – Reprise,” 10/31/18, when Judge Big Jim wanted enlightenment of James L’s relationship to his wife’s C Corp, which leased some property from a trust, and which lease might have had some value before wife walked away therefrom.

Whatever enlightenment was furnished, the trust angle is still on the table. When James L went back to Appeals on remand, his OIC and PPIA again were bounced, because Appeals was convinced the trust property was still in play, and James L’s counsel didn’t furnish fresh financial info.

The supp NOD from the remand “…states that…apparently in response to a request for updated financial information from the Settlement Officer (SO) R, petitioner’s attorney ‘stated that if Appeals was going to maintain its decision regarding nominee ownership, there was no point in providing updated financial information.’” Order, at p. 1. (Name omitted).

Well, IRM pt. 5.15.1.l(4) (Nov. 17, 2014), and IRM pt. 5.15.1.2(3) (Aug. 29, 2018) state that for any collection alternative, the financial info must be no older than six (count ‘em, six) months. So mox nix that whatever info James L and his attorney would furnish would either constitute a concession on the trust angle if that were included, or would be bounced as insufficient if weren’t included.

Except.

“…petitioner’s refusal to submit updated financial information may provide an independent basis for upholding Appeals’ determination in the present case, regardless of petitioner’s interest in the trust’s assets–unless, perhaps, petitioner’s refusal was justified because he or his counsel were given reason to believe that Appeals had resolved to adhere to its position on the nominee issue after remand so that the provision of updated financial information would be futile.

“The parties’ briefs do not address the potential impact on our disposition of the case of petitioner’s refusal to provide updated financial information. Respondent’s briefs focus on whether SO M was correct in her conclusion that the value of the trust’s assets had to be considered in evaluating petitioner’s proposed collection alternatives. Respondent does not advance petitioner’s failure to provide updated financial information as an independent ground for upholding Appeals’ rejection of petitioner’s proposed collection alternatives. And petitioner’s briefs offer no justification for his failure to submit updated financial information. In particular, they do not describe any communications received from SO M or other Appeals representatives that might have supported an inference that the provision of updated financial information would be futile. Because the parties’ briefs are insufficient to allow us to determine the impact of petitioner’s failure to provide SO M with updated financial information, we will require further submissions. With this Order, we require petitioner to explain that failure. If appropriate, after receiving petitioner’s explanation, we will give respondent the opportunity to respond to it.” Order, at p. 2. (Name omitted).

Takeaway- Build a record. If all you get on remand is the same argument you consistently rejected, and that got you to Appeals, put something in writing about no point in giving more financial info that omits the items at issue, as Appeals won’t give on that point. And tell ‘em Judge Big Jim sent you.

Andy Marvell was chatting up his girlfriend, but The Judge with a Heart, STJ Rob’t N Armen, has no time for chatting in this designated hitter, Kwabena Owusu Banahene, Docket No. 6086-16L, filed 12/10/18.

KO’s fighting a trio of preparer chops, and opposes IRS’ summary J motion, challenging “…(1) whether Letter 1125 and the examination reports (Forms 5816) proposing return preparer penalties for [the trio] were sent to petitioner before assessment of such penalties; (2) whether petitioner received sufficient time to request further administrative consideration before assessment of such penalties; and (3) whether respondent validly assessed against petitioner return preparer penalties for the years in issue.” Order, at p. 1.

Sort of a junior version of Graev; did IRS jump the gun?

IRS claims there’s no gun to jump, unless they feel like it.

“The Court recognizes that respondent contends, inter alia, that the provisions of section 1.6694-4(a)(1) and (2), Income Tax Regs., are directory rather than mandatory, a contention that appears to present a legal issue of first impression. However, the Court questions whether it would be judicious to address such issue at the present time given that it would be moot (and any opinion addressing it would arguably be dicta) if respondent did, in fact, comply with the provisions of the aforecited regulation. As previously indicated, whether respondent did, in fact, comply with such provisions presents a disputed issue of material fact.” Order, at p. 2.

IRS of course wants to get partial summary J on some other stuff. As a long-time fan of summary J, I’m all in favor using it to clean up everything around. Like the famous paper towel, summary J is the “quicker picker-upper.”

STJ Armen isn’t buying.

“Further, the Court recognizes that respondent seeks, in the alternative, partial summary judgment on a number of non-dispositive matters. However, the Court again questions whether it would be judicious to address those matters at the present time because of the paramount nature of the fundamental issue, i.e., the validity of the underlying assessments.” Order, at p. 2.

Summary J denied.

Judge James S (“Big Jim”) Halpern breaks the record-breaker today, with a one-sentence, designated hitter, blow-off of what I thought was a really good blogpost (“Record-Breaking,” 12/7/18).

Well, the Supremes ducked a loaded case today, so why shouldn’t Judge Big Jim duck one a lot less loaded?

Here’s Whistleblower 11099-13W, Docket No. 11099-13, filed 12/10/18, in extenso.

“It is, ORDERED that the Court’s Order dated December 6, 2018, is hereby vacated and set aside.”

As the old State court calendar call service used to put on their slips, “Following.”

Whistleblower 11099-13W, Docket No. 11099-13W, filed 12/7/18, is setting up for a record-breaking summary J. And Judge James S (“Big Jim”) Halpern is up for the challenge, as he designates 11099.

11099 claims Ogden done him/her wrong. Nothing new here. 11099 is also jousting with Ogden about what should (or should not) be in the administrative record. Also nothing new. 11099 wants to put in expert testimony, call ex-Chief Whistler Robert Gardner as a witness, and add testimony and stuff outside what Ogden claims is the entire administrative record.

Also nothing new. See my blogpost ”Two Old Cases,” 1/10/18, where Kenneth William Kasper was terminally unhorsed by Judge Mark V. Holmes, whom I then characterized as “friend of Chenery (the doctrine, not the dodgeflogger), and Foe of the Partitive Genitive (but apparently in recovery).” Section 7623(b) defaults to the Administrative Procedures Act as for scope of review (abuse of discretion).  And if abuse of discretion is the guide, then all there is to review is what the agency had before it, and whatever the petitioner can wild-card into the administrative record that the agency had but overlooked.

But 11099 isn’t fazed by Judge Holmes’ “somber reasoning and copious citation of precedent.”

IRS of course wants summary J (nothing new there either), but isn’t getting it, because Judge Big Jim finds a factual dispute about what should be in the administrative record.

But the record-breaking news is here.

“Moreover, petitioner has filed a pretrial memorandum, in which he states his disagreement with our holdings in Kasper as to the scope and standard of review for whistleblower award determinations, and he urges us to reconsider our holdings (including that he is entitled to a trial de novo because the record rule does not govern the scope of our review in whistleblower cases).” Order, at p. 2.

So IRS can deal with 11099’s motions directed to the administrative record.

But 11099 is told to file a motion for partial summary J on his record-breaking allegations.

To the tune of the Irving Gordon 1951 hit “Unforgettable”: Non-political/ describes my blog/Analytical/But not a slog/Hope I’m being/Most uncritical/Avoiding all that’s metaphysical/And I hope that/You’re non-political too.

That said, I offer a small-claimer coupled entry, Abdeia Hassan, 2018 T. C. Sum. Op. 56, filed 12/6/18, and her non-spouse Mohamed A. Kaviro, 2018 T. C. Sum. Op. 57, of even date therewith (as my high-priced colleagues say).

I’m not going to discuss the facts or the law. I shall only mention in passing the result, namely and to wit, that, despite unreported actual income and phony SE income, Ab and Mo split their six (count ’em, six) children, and each get EIC, Child Credit, HOH status, Federally-subsidized housing (four bedroom flats in ME), and Medicaid and SNAP for the kids.

STJ Daniel A. (“Yuda”) Guy applies the law as it is, not as I or any (or perhaps none) of my readers might wish it to be.

I leave to my readers the discussion of whether the Internal Revenue Code should function as a public assistance law, and IRS (with assists from Tax Court) as a public welfare agency; and if so, whether you like the results.

Talk among yourselves.

Maybe Matty Arnold’s portrait of Dover Beach is a picture of me as Tax Court blogger. Again and again I comment upon some procedural flaw or shortcoming, whether statutory or regulatory, that trips up the pro se, and might even ensnare a practitioner. And the result is the very occasional recognition from on high, but more often a snub from the exalted ABA Committee on Taxation (to which eminent body I do not belong; my shoes are too dusky.).

However, cliché springs eternal, so at risk of wearying those few readers I have left, here’s a couple old beefs (hi, Judge Holmes) served up again to coldly furnish forth the blogger’s table.

First, Form 6, Ownership Disclosure Statement. The ratio of correct to defective Forms 6 is probably 1 to 100. Those corporate officers (they’re all pro se, of course) who cannot assimilate the concept of “state there is no such entity” comprise a surprisingly large part of Tax Court’s tossed petitioners. There were at least four of them today (12/6/18); to spare their officers embarrassment I won’t name them. Perhaps the only solution is to amend the form by putting next to each section “YOU CANNOT LEAVE THIS SPACE BLANK; IF THERE IS NONE, WRITE ‘NONE’.” Of course, it’s just possible that a public corporation with millions of shares traded every day might not know at any moment who owns any of their stock. In any event, the form needs to be updated going forward, as there are no longer tax matters partners for newer entities.

Next, the “blessed communion, fellowship divine” of private delivery services. See my blogpost “The Blessed Communion, Fellowship Divine,” 4/13/17. Dilatory pro se types commonly use the right service but the wrong method. Not everything on the FedEx, UPS, or DHL menu satisfies Notice 2016-30.

Even IRS gets confused. Here’s Cherynisha Marie Ingram, Docket No. 20023-18S, filed 12/6/18, but Cherynisha didn’t draw IRS’ counsel offside. She’s gotten SNODs for two years, 2016 and 2017.

Cherynisha sent in a petition to the 2017 SNOD dated July 9, 2018, “… received by the Court in an envelope sent by FedEx Ground and bearing a ship date of October 8, 2018.” Order, at p. 1.

My readers, glancing at the Notice 2016-30 list posted on every available surface in home or office, have already noticed that FedEx Ground is not included in the ranks of the Elect.

IRS apparently never posted the list, or maybe it fell off the wall, because, though they move to toss 2016 as untimely, “(R)espondent acknowledges that the petitioner attached a timely notice of deficiency for the tax year 2017 to her petition.” Order, at p.1.

Ch J Maurice B (“Mighty Mo”) Foley is positively douce. I expected something rougher than “(S)uch statement, however, raises questions vis-a-vis the rules under section 7502, I.R.C., regarding designated private delivery services.” Order, at p. 1.

So he directs IRS to “clarify” its position in a supplement to its motion to toss.

The statutory and regulatory grand slalom through which any PDS must go to certify one of its services (see my blogpost above-cited) guarantees that none of the Big Three will bother to add any service to the blessed communion. Why should they spend one minute or one cent on a process that will add nothing to their respective bottom lines? If the hapless pro se or ill-informed practitioner uses the wrong option, the PDS got paid, and xin loi about the toss. The only injured parties are the pro sese with meritorious claims that get tossed on a ridiculous hyper-technicality.

The pebbles roar again, and “bring the eternal note of sadness in.”

It’s been five years and more since I first introduced the new-fledged US citizen who starred in essayist-raconteur Harry Golden’s tale, but in fairness to latecomers, here it is again.

“An immigrant finally attained citizenship. After the swearing-in, he stoutly refused to understand, much less speak, his native tongue. He spoke only broken, heavily-accented English. When his wife of many years addressed him in the language they had shared throughout their lives, he turned to his US-born and educated children and asked them “Vot did she set?” Whereupon his wife called down upon his head maledictions unknown even to scholars of their childhood language, but which connoisseurs hastened to extol as masterpieces of invective.”

Well, I’m sure Frederick G. Durham, Docket No. 26563-17S, filed 12/6/18, is too well-bred to utter even the smallest cry of dismay, when STJ Lewis (“Oh, sweet name”) Carluzzo requires him to show cause why STJ Lew shouldn’t grant “respondent’s oral motion to dismiss for lack of prosecution.” Order, at p. 1.

True, Fred was a no-show at last month’s trial calendar call in Philly. And maybe so Fred’s pre-trial show-and-tell was non-existent. And it may very well be that IRS’ counsel told the whole story with “the punctilio of an honor the most sensitive,” as a far more brilliant lawyer than I put it.

Still and all, how can anyone reply to an oral motion that s/he never heard, otherwise than by quoting the new citizen’s catchphrase?

Tax Court will be closed tomorrow, Wednesday, December 5, 2018, in mourning.