Judge Paris is singing that Toby Keith 1993 hit for Jeff M. Potter and Marsha R. Potter, 2018 T. C. Memo. 153, filed 9/17/18.

It’s Jeff’s story. He was working as the employee of his wholly-owned C Corp as an IC salesman for his baby bro’s business of “bagging and potting and top soils, manures, peat, mulches, and rocks.” 2018 T. C. Memo. 153, at p. 4, footnote 3.

Baby bro and Jeff get bought out. Jeff wants to claim goodwill on account of his customer base, but that belonged to baby bro’s business. That business had the name and repute, unlike the King of Insurance in Harvey, ND, Harold Schmeets, star of my blogpost “His Name Is His Fame,” 10/15/12. Jeff signed onto the buy-out, when a competitor bought them out, but Jeff threw in the office furniture, equipment and vehicles and he got no separate money for that.

His salary as salesman is subject to SE, of course, and his buy-out from his deal with baby bro’s business is ordinary income because it was based on Jeff’s C Corp’s previous year’s commissions (quantity and quality of work), and Jeff had no goodwill to sell.

Now to the reason for today’s title. After Jeff sold out to baby bro’s business, Judge Paris puts it best.

“Want to be a Cowboy?” 2018 T. C. Memo. 153, at p. 6.

“With a bit of free time on his hands, a history of working long hours, and the desire to continue working, Mr. Potter began looking for something to fill his days.  Several years before the [potting earth] sale he had been introduced to the activity, which is a timed event where an individual rides a horse through a designated course while shooting a firearm at targets.  The activity is governed by two organizations–the Cowboy Mounted Shooting Association (CMSA), formed in the mid-1990s, and the Mounted Shooters of America (MSA), formed in 2000.” 2018 T. C. Memo. 153, at pp. 6-7. (Footnote omitted, but ya can’t make this stuff up.).

“The rider’s firearm is loaded with primer and black powder that will shoot approximately 20 feet and make contact with the targets, i.e., balloons.  The embers of the powder burst the balloons.” 2018 T. C. Memo. 153, at p. 7, footnote 8.
Only in America.

Jeff and his trusty old paint Dakota, campaigning under Jeff’s C Corp, which paid the entry fees, collected the prizes, and took all the expense deductions (which everyone agreed were correct), were championship grade. “By 2014 Mr. Potter was a successful competitor and had won several national titles in the activity, including the MSA nonpro world title and the amateur American Paint Horse Association world title, and finished second in the CMSA world competition.” 2018 T. C. Memo. 153, at p. 8, footnote 9.

The C Corp move was the idea of Jeff’s trusty CPA, who for 35 years did the Potters’ taxes.

Why the C Corp? Well, remember dear old Section 183, home of the “goofy regulation?” See my blogpost “Amen, Judge Posner,” 12/22/16.

“Respondent disallowed all of the claimed deductions associated with the activity and included the prize money won for each year as income to the Potters.  The parties then stipulated that all of the deductions had been properly substantiated and that if the Court found that the activity was for profit then Potter Sales properly claimed the deductions.  Through their stipulation the parties have recrafted the question to be who performed the activity–Mr. Potter in his individual capacity or Potter Sales as a corporation-because section 183 does not apply to C corporations.  See sec. 183(a) (“In the case of an activity engaged in by an individual or an S corporation, if such activity is not engaged in for profit, no deduction attributable to such activity shall be allowed under this chapter except as provided in this section.” (Emphasis added.)); sec. 1.183-1(a), Income Tax Regs. (stating that no inference may be drawn from section 183 and its regulations as to whether a C corporation is engaged in an activity for profit)….” 2018 T. C. Memo. 153, at pp. 17-18. (Citations omitted).

‘No evidence was entered into the record questioning [C Corp]’s corporate validity.  Indeed, respondent has conceded that the deductions related to the activity belong to [C Corp].  There is nothing to preclude [C Corp] from operating multiple trades or businesses or changing from one trade or business to another.  That is exactly what happened here; [C Corp] stopped selling potting soil and began operating the activity as its trade or business.  The fact that Mr. Potter was the named rider in the competitions does not preclude the activity from being that of [C Corp].  The Court finds that Mr. Potter received any prize winnings as [C Corp]’s nominee.  [C Corp] performed the activity as a trade or business; section 183 does not apply.” 2018 T. C. Memo. 18.

IRS wants a Graev reopener, but that fails because Jeff leveled with their trusty CPA, their trusty CPA was indubitably qualified with 35 years-plus, got all the info from Jeff and Jeff reasonably relied.

Jeff’s CPA is not named, but s/he gets a Taishoff “Good Job! First Class.”

Mies van der Rohe might wince if he knew how his famous dictum is being used and misused. Today that Obliging Jurist, Judge David Gustafson, shows when there’s more, there’s truly little enough, so no summary J for IRS.

Northside Carting, Inc., Docket No. 1117-18L, filed 9/17/18, wanted an OIC, or maybe an IA, but in any event the SO said he hadn’t sufficient information from Northside and its “power of attorney.”

Once again I point out that a power of attorney is either a piece of paper or a concatenation of electrons, which appoints and empowers a “Representative” or “Agent” to act for the grantor of said power of attorney.

The SO closed out the file, and ordered the NFTL sustained.

Now this would be enough, generally (ah, generally, my favorite tax word).

Except over the next six weeks or so Northside’s representative sent in two more batches of information, and the SO requested more. Finally, the SO gave the representative a week to respond to the last request, but the rest was silence.

And maybe Northside wasn’t current with its filings. The NOD says so, but not the summary J motion.

So Judge David Gustafson can’t really oblige IRS with summary J.

“Thus, Northside provided more information to Appeals on August 7 and August 17, 2017. Of course, ‘more information’ might not have been enough information to warrant a collection alternative. But we cannot tell. It seems that neither Appeals’ Notice of Determination nor the Commissioner’s motion for summary judgment itemizes what information was requested but never provided. We are unable to review Appeals’ judgment that Northside failed to provide relevant information.

“The SO’s ‘Case Activity Record Print’ that the Commissioner filed as Exhibit B does provide somewhat more detail about the SO’s correspondence with Mr. [Representative]. But when we study that document to learn more, we think we see an intention to sustain the collection action because Northside was ‘Not Current with filing or paying requirements’ (Ex. B at 12/11/2017)—a point also made in the Notice of Determination–but the motion for summary judgment is silent on that point.” Order, at p. 3. (Emphasis by the Court; mame omitted).

Of course, this is a “record rule” case, as Northside is Golsenized to 1 Cir., and the record rules there.

But Judge Gustafson isn’t through.

“We therefore follow that rule in this case, and under that rule the parties might proceed simply by offering into evidence the agency-level administrative record. It may be that the administrative record viewed in its entirety (or considered with attention to details to which the Commissioner’s motion did not point us) will enable us to review Appeals’ judgment that Northside failed to provide relevant information. But if instead ‘the existing administrative record [is] inadequate to permit effective judicial review,’ then we might conclude that a remand for a supplemental hearing would be appropriate, or might conclude simply that the Notice of Determination cannot be sustained.” Order, at p. 3. (Citation omitted).

But Northside shouldn’t skip the review session. “Northside is warned that if it fails to appear on November 5, 2018, it should expect that its case may be dismissed for failure to properly prosecute, under Rule 123(b).” Order, at p. 4.

A Tax Court Judge, be she or he a Judge, Senior Judge, or STJ, must be many things to many people (the post of being all things to all people having been taken by an even more exalted personage). Like Shakespeare’s man on the stage of life, the Tax Court Judge must play many parts.

She or he must be learned in law generally; an unrivalled untangler of the IRC, the Regs, caselaw and legislative intent; a quick study of complex businesses (e. g., used airplane parts dealer, tugboat operator, flour miller, real estate developer, Mississippi riverboat pilot, airline pilot, fine artist, professional golfer, popular entertainer, medical practice operator, brand ambassador and Global Icon); social worker; past-master analyst of human behavior (“the daily grist that comes to the judicial mill,” as Judge Vasquez puts it), able to distinguish and deal with the true deer-in-the-headlights petitioner, good of faith but ignorant of law and procedure, and distinguish same from the gamester, the rounder, the wag, wit and wiseguy, and the endlessly inventive counsel of all the foregoing; master lexicographer and linguistician (a word I just invented, meaning one combining the science of Chomsky and Hayakawa with the nuanced approach of a poet); and  a skilled arithmetician withal.

I must acknowledge both the high standard and how well the Tax Court bench rises to the occasion, despite the cavilings of bloggers like me, to say nothing of disappointed litigants and litigators.

But there must come a time, even to such as The Judge with a Heart, STJ Robert N Armen, when even the ability to perform all the foregoing is insufficient to take a marlinspike to the Gordian knot in which taxpayers and IRS can enwrap themselves.

Case in point: Mary A. Zegeer & M. Scott Zegeer, Docket No. 25533-17SL, filed 9/14/18. IRS wants summary J (vuss noch? as Grandma would have said), but STJ Armen will none of it.

Mary and M Scott can’t pay, but they claim IRS messed up the results of a seven-year-old decision, misapplied a refund back five (or maybe six) years ago, and ignored that they paid the old years off years ago, but STJ Armen finds IRS might have gotten some other offsets right.

“It is unclear from the record exactly how much Ms. Zegeer might owe for 2001 and 2002 if the adjustments called for by the Court’s August 31, 2011 Decision were properly reflected in her transcripts for those years. For that reason it is also unclear from the record whether any portion of the 2015 or 2016 overpayments would remain as offsets for petitioners’ 2010 and/or 2011 joint Federal income tax liabilities.” Order, at pp. 4-5.

There’s more. The record doesn’t show whether Mary separately paid the liabilities for which IRS grabbed their joint refund (M Scott claims injured spouse, as he and Mary weren’t married back in 2001 and 2002). IRS, of course, maybe got that one wrong also.

“As previously stated, petitioners also contend that Mr. Zegeer is not responsible for Ms. Zegeer’s 2001 and 2002 separate Federal income tax liabilities and that, for such reason, Mr. Zegeer is entitled to an allocable portion of petitioners’ 2015 (and 2016) overpayments. Although the Attachment to the notice of determination states that ‘[t]he [SO] investigated the issue of the overpayment/refund offset from 2015 applied to the 2002 balance’, the record does not include what analysis, if any, the SO performed in evaluating Mr. Zegeer’s injured spouse allocation claim. The record includes Mr. Zegeer’s 2015 Form 8379, Injured Spouse Allocation, but the record suggests that the SO may not have considered it or did not otherwise take any action. Finally, although the record does not include a Form 8379 for 2016 for Mr. Zegeer, the record suggests that a claim for an injured spouse allocation was also made for that year.” Order, at p. 5.

Again to quote Grandma, “From this you want summary judgment?” The problem, of course, is that the cold print on the page cannot evoke the impassioned inflection of the word “this,” worthy of Sutherland at her peak, with which the foregoing was delivered.

So STJ Armen, with pardonable patience, takes two pages to school IRS’ counsel how to supplement her motion papers, including “plain-English and current transcripts of account (Forms 4340).” Order, at p. 6. And Mary & M Scott shall trot out and lay bare all “…documentation such as cancelled checks, invoices, acknowledgments, statements of account, etc., demonstrating the payment, as alleged by them, of all or any part of Ms. Zegeer’s 2001 and 2002 separate Federal income tax liabilities.” Id., as my high-priced colleagues would say.

STJ Armen even warns Mary & M Scott against being a wee bit casual in producing same. “Petitioners are advised that without such documentation, any allegation regarding full payment of Ms. Zegeer’s 2001 and 2002 separate liabilities carries little, if any, weight.” Id.

Finally, and it should be enough for a humid Friday afternoon, to justify the headline of this little opusculum, STJ Armen tells Mary & M Scott, and IRS’ counsel, to “…each, separately and on or before October 12, 2018, show cause in writing why the Court should not, on its own motion, remand this case to respondent’s Appeals Office for the purpose of addressing the proper application of petitioners’ subsequent-year overpayments, the adjustment of Ms. Zegeer’s 2001 and 2002 separate account balances, and Mr. Zegeer’s injured spouse claims, as well as further consideration of petitioners’ interest in a collection alternative in the form of an installment agreement.” Order, at p. 6.

Job has nothing on STJ Armen.

Once again the ghouls, ghosts and hobgoblins stirred up by the celebrated Graev Boss Hossery battle return to bedevil Tax Court. Judge Buch has this one, Tribune Media Company f.k.a. Tribune Company & Affiliates, et al., Docket No. 20940-16, filed 9/13/18.

We’ve got a Section 6662(h) 40% overvaluation chop and the usual accuracy chops here.The issue is which Boss Hoss was whose Boss Hoss, who approved what and how did they do it, with another whistlestop by Greenberg’s Express.

If you’re new to this evergreen kerfuffle, read Judge Buch’s order, and all will be made somewhat less obscure.

The Tribuners want a bushelbasket of documents, claiming IRS’ privilege log is a blanket, not a veil.

Judge Buch dissects some of what IRS gave the Tribuners, allows some of their demands but squelches others. Since he doesn’t tell us which documents are which in all cases, the parties may be enlightened, but I’m not.

Howbeit, here’s the main takeaways.

“The documents and information sought by Tribune in its third Branerton request are not reasonably calculated to lead to the discovery of admissible evidence, and the request is not proper under Greenberg’s Express, Inc. v. Commissioner, 62 T.C. 324 (1974). We have previously stated that ‘it would be imprudent for this Court to now begin examining the propriety of the Commissioner’s administrative policy or procedure underlying his penalty determinations.’ It has long been settled law that we do not look behind the Commissioner’s determinations. When Congress enacted section 6751(b) it ‘understood the longstanding rule of Greenberg’s Express * * * and at that time did not deem it necessary to expand our jurisdiction or overturn our precedent’. Written supervisory approval under section 6751(b)(1) ‘requires just that: written supervisory approval’; we do not review or second-guess the approval itself. We make our own de novo determination of the applicability of any penalty; we do not conduct a review of the Commissioner’s policies or procedures in determining penalties other than to confirm that written supervisory approval occurred.” Order, at pp. 6-7. (Footnotes omitted, but they all cite to Raifman; see my blogpost “Too True to Be Good,” 7/3/18 for the end of the Raifman saga.)

As for logging, IRS needs to provide a supplementary log, knocking out what Judge Buch allows today.

“We have held that many of the items requested by Tribune are irrelevant. Our ruling may well render many (or all) of the items on the privilege log as outside the scope of discovery. Rather that waste the Court’s resources evaluating privilege claims that have been rendered moot, we will order the Commissioner to produce an updated privilege log containing only those privileged items that remain responsive to the requests addressed in this order.

“In producing that privilege log, we remind the Commissioner that the burden of proving that a privilege applies to a communication is on the party asserting the privilege. We have held that ‘[b]lanket claims of privilege * * * are insufficient to sustain a claim of attorney-client privilege.’ The Tax Court Rules of Practice and Procedure are silent on the issue of proving a privilege applies; therefore, we look to the Federal Rules of Civil Procedure. The Federal Rules of Civil Procedure provide that the party asserting privilege must ‘describe the nature of the withheld documents, communications, or tangible things in a manner that, without revealing information itself privileged or protected, will enable the parties to assess the claim.”

“An adequate privilege log is a method by which a party may meet its burden of proof.  A privilege log must set forth adequate facts to establish each element of the claimed privilege. The privilege log must contain enough detail to enable the requesting party and this Court to determine whether the privilege is properly asserted. This would typically include information regarding who a communication is from and to, the date of the communication, and its subject matter. A privilege log that does not state the subject of the communications at issue or indicate the contents of a document is insufficient.” Order, at pp. 8-9. (Footnotes omitted, but you can see my blogpost “Privileged Characters – Part Deux,” 5/26/15, for the Pacific Management story.).

I have been looking for a definitive answer, if such there be, why Section 6673 chops should or should not be imposed in the case of the multi-year petition, where for the greatest part there was neither SNOD nor NOD. See my blogpost “I’m Beginning to See the Light,” 4/19/18.

Today we have two orders, both of which may yield an answer.

George Gasich, Docket No. 12943-18, filed 9/12/18, petitions “…the taxable years 2000 through 2016….” Order, at p. 1.

IRS responds, moving to toss 2000, and 2006 through 2016. “As to 2001 through 2005, however, the motion represented that research and jurisdictional discovery remained ongoing.” Order, at p. 1.  OK, if that were all I wouldn’t be writing this blogpost, but IRS also moved for a Section 6673 frivolity chop.

Ch J Maurice B (“Mighty Mo”) Foley tells IRS to get back to him with the results of their research and discovery, and on what basis they want to dispose of the missing years. I hope Ch J Mighty Mo will give us reasons why George gets the chop…or not.

And if George’s case is resolved without an answer, perhaps Ch J Mighty Mo can tell us in Paula Jeanne McAdam, Docket No. 12536-18, filed 9/12/18.

I’ve got to insert the whole story here, because the facts will determine the outcome, maybe.

PJ petitions 2000 through 2017. IRS moves to toss, and here’s the rundown.

“(1) no notice of deficiency or notice of determination was issued to petitioner for taxable years 2000 through 2002, and 2009 through 2017, that would permit petitioner to invoke the Court’s jurisdiction; and (2) the petition in this case was not filed timely as to the April 3, 2015, deficiency notice issued to petitioner for taxable years 2003 through 2008, nor was any other notice of determination issued to petitioner for taxable years 2003 through 2008 that would confer jurisdiction upon the Court. As also indicated in respondent’s motion to dismiss: (1) on June 15, 2015, petitioner filed a Tax Court petition commencing the redetermination case at docket No. 15503-15 challenging the notice of deficiency dated April 3, 2015, issued to her for taxable years 2003 through 2008; (2) petitioner was represented by counsel in that case at docket No. 15503-15; (3) on August 25, 2016, the Court entered a stipulated decision in docket No. 15503-15; and (4) that decision at docket No. 15503-15 is final [see I.R.C. secs. 7481(a)(1), 7483. In his motion respondent further requests that the Court impose an I.R.C. section 6673 penalty. Section 6673(a)(1) authorizes the Court to require a taxpayer to pay to the United States a penalty not in excess of $25,000 whenever it appears that proceedings have been instituted or maintained by the taxpayer primarily for delay or that the position of the taxpayer in such proceeding is frivolous or groundless.” Order, at p. 1. (Footnote omitted.)

OK, if PJ had a chance to contest the six (count  ‘em, six) years for which she got a SNOD, and settled the whole thing two years ago, that’s final and can’t be disturbed. If that’s the basis for the Section 6673, OK, but what about the rest?

PJ responds to IRS’ motion with a letter, wherein she doesn’t dispute the jurisdictional facts. “However, petitioner does question respondent’s requesting the Court to impose the penalty, asking how the Court can impose a penalty upon petitioner here “without jurisdiction being established” in the present action at docket No. 12536-18.” Order, at p. 2.

Ch J Mighty Mo does toss PJ’s petition, but doesn’t give IRS the Section 6673 chop. But he does warn PJ “…that the Court will consider imposing such a penalty in future cases commenced by petitioner seeking similar relief under similar circumstances.” Order, at p. 2.

One free bite, I guess. But must one have actually litigated or settled a case during the period petitioned to risk the Section 6673 chop? How if one never contested, but IRS liened or levied, with or without a petitioned CDP?

I’d really like to know.

He’s already given me the stuffing for  “Basis for Dummies,” 11/24/11, and “The Sum of Its Parts,” 3/12/12, so who better to deal with basis in all its permutations, variations, combinations and tergiversations, than The Great Dissenter/Concurrer, a/k/a The Judge Who Writes like a Human Being, Master Silt Stirrer and Old China Hand? Of course I mean Judge Mark V Holmes.

Today he has a designated hitter, Donald Bailey & Sandra M. Bailey, et al., Docket No, 5477-14, filed 9/11/12. And the subject is basis. Carryover type.

Don & Sandra bought 10% of the stock of a Sub S formed by two dudes with a software program. The dudes had the software in an LLC, and swapped the software for the Sub S stock. Everyone agrees that the software, being self-created, had a basis of zero in the hands of the dudes when they transferred same to Sub S, and they only got Sub S stock in exchange.

Sounds like the plainest vanilla Section 351 tax-free incorporation. We did a lot of those years ago.

“The Baileys, as shareholders of the S corporation, argue that it got a stepped-up basis in the software. The Baileys have filed two motions for partial summary judgment and ask for oral arguments on their first motion.

“Both parties have fully briefed their arguments, so oral arguments aren’t necessary to decide the Baileys’ partial summary-judgment motions.” Order, at p. 2.

Now here’s where it gets cute.

“After the transaction, the corporation increased its basis in the software from zero to around $9.7 million and began to depreciate it. This enabled the company to offset its cash income and therefore the amount of passthrough income taxable to its shareholders, including the Baileys. The Commissioner says the basis of the software should have stayed at zero. This disagreement is important — it’s the difference between the Baileys’ having taxable income or not.” Order, at p. 2.

Don & Sandra get a brief lesson in basis from Judge Holmes.

“The Code tells us that when there is no boot in a section 351 transfer, the basis of the stock the shareholders get must be the same as the property exchanged. I.R.C. § 358(a). The corporation gets a carryover basis in the property it receives too. I.R.C. § 362. So the corporation’s basis in the software should have been the same as it was before the transaction — zero. The Baileys point to Revenue Ruling 85-164, but this ruling doesn’t help them. This ruling tells taxpayers how to allocate basis among different stocks and securities received in exchange for property contributed to a corporation, not how to increase the basis of that property to its fair market value. That means the Baileys haven’t shown they are entitled to judgment as a matter of law here.” Order, at p. 2.

But Don & Sandra aren’t done yet. They attach new Forms 1040 to their motion, but all a 1040 is, is a taxpayer’s assertion (and maybe an admission). They’re not proofs of their correct tax.

Don & Sandra lose both motions.

But ya gotta like their never-give-up attitude. They ask for Section 7430 admins and legals. No, says Judge Holmes, you haven’t prevailed, “at least not at this stage.” Order, at p. 2.

Judge, on this record, I wouldn’t bet the ranch that they prevail at any stage.

Unhappily, STJ Daniel A (“Yuda”) Guy has a negative answer for poor Jason J. Gartlan, 2018 T. C. Sum. Op. 42, filed 9/11/18.

There isn’t, for honest poverty. That is, there isn’t a Premium Tax Credit (Section 36B) for JJ, even though he’s below 100% of the Federal poverty limit. So the much-contemned Affordable Care Act doesn’t afford JJ anything but a $3K deficiency, even though it’s uncontroverted that JJ’s MAGI was minus $799.

But doesn’t the special rule help JJ, notwithstanding that he fails the 100% – 400% poverty line cut? Is there never an exception; this is tax, after all.

Of course there’s an exception. Reg. Section 1.36B-2(b)(6)(i) says if the exchange to which JJ applies for coverage determines that he could make the 100% cut (and stay below the 400% cut), he enrolls in an approved plan for one month and the premium gets paid for one month, the premiums are creditable.

Except.

“Section 1.36B-2(b)(6)(i)(B), Income Tax Regs., requires that, at the time that petitioner enrolled in a health insurance plan, the insurance exchange estimated that his household income would be at least 100%, but not more than 400%, of the FPL [Federal Poverty Level] for the taxable year.  In addition, section 1.36B-2(b)(6)(i)(C), Income Tax Regs., requires that advance premium assistance payments were authorized and paid on petitioner’s behalf during the year in issue.  There is no dispute that neither of these requirements was met in this case.  Consequently, petitioner does not qualify under the special rule for taxpayers with household income below 100% of the FPL.” 2018 T. C. Sum. Op. 42, at p. 7.

JJ says the ACA was designed to help the poverty-stricken like him, and the only problem was that the exchange, his home State (DE), and the insurance company weren’t on speaking terms, a situation over which JJ had no control.

“While we are not unsympathetic to petitioner’s situation, we are bound by the statute as written and the accompanying regulations when consistent therewith. The controlling facts are that petitioner’s MAGI was below eligible levels and he does not qualify for the exception set forth in section 1.36B-2(b)(6)(i), Income Tax Regs.  To the extent that petitioner believes that he has suffered an injustice due to a flaw in the controlling statutory provisions, his recourse may be to seek a legislative remedy.” 2018 T. C. Sum. Op. 42, at p. 8.

As (A) this is a non-political blog, and (B) this is a blog meant for family audiences, I cannot express my opinion as to the chance of a legislative remedy. So all I can say to the question posed by Scotland’s Greatest, is “No, there isn’t, for honest poverty.”

When redetermining underlying liability in a CDP (e.g., SNOD not sent to last known address, so no prior opportunity to contest), Tax Court has always tried to dodge determining a refund. The lookbacks in Section 6511 are the limiting factors. Today, despite the efforts of the University of the District of Columbia David A. Clarke School of Law Tax Clinic, there’s no refund for Brian H. McLane, 2018 T. C. Memo. 149, filed 9/11/18.

Brian reported his tax and asked for an IA, under which he paid money. While paying, IRS hit him with a SNOD, disallowing most of his deductions. Brian never got the SNOD, but he got the NITL. After Appeals affirms IRS on the CDP, Brian petitions. He gets a remand,  and after trial establishes all his deductions, so for the year at issue, he owes zero.

Brian wants back what he paid on the IA. Tax Court says “no jurisdiction to order a refund, as the Sections 6511 clocks have run.”

Our old friend Greene-Thapedi says “if no lien or levy, nothing more for Tax Court to do.” As Brian owes nothing, game over. Brian never raised an overpayment in his petition or on brief.

But the DC Clinicians are in as amicus “in the area of taxpayer rights and procedural efficiency.” 2018 T. C. Memo. 149, at p. 6.

Section 6214 (a) lets Tax Court redetermine a deficiency if timely petitioned (and Brian did). “But section 6512(b)(3) limits our jurisdiction to order a credit or refund to only that portion of a tax paid after the mailing of a notice of deficiency or in regard to which a timely claim for refund was pending (or could have been filed) on the date of mailing of the notice of deficiency.” 2018 T. C Memo. 149, at p. 8.

Brian was past the cutoff. He raised the refund post-trial, and that was years after the SOL.

The DC Clinicians argue Judge Vasquez’s dissent in Greene-Thapedi. But Judge Halpern isn‘t buying. Brian wants to claim that the SNOD language in Section 6512(b)(3) grants Tax Court authority to order a refund for a non-mailed or non-received SNOD. “We see no reason why the issuance of a notice of deficiency that petitioner never received should allow him to pursue a claim for refund that would otherwise have become time barred long before he manifested any awareness of it.” 2018 T. C. Memo. 149, at p. 17.

It’s true that the CDP process is there to make sure IRS collects the right amount of tax. But it doesn’t protect taxpayers who don’t file timely for refunds, or raise the refund issue from the getgo.

And the cases on which the DC Clinicians rely are abatement of interest cases.

“Because a claim for interest abatement made in connection with a CDP hearing gives us jurisdiction under section 6404(h) that is independent of our jurisdiction under section 6330, it follows that, in our review of a notice of determination denying abatement, we can consider any claim by the taxpayer that the abatement requested would result in an overpayment that should be refunded to the taxpayer or credited to his account.

“The refund petitioner seeks, however, is not grounded in a claim for abatement of interest.  And, more generally, on the facts before us, we cannot view the petition filed in this case as one filed not only under section 6330(d)(1) but also under another provision that would give us overpayment jurisdiction.  In particular, we cannot accept the petition as one for redetermination of the deficiency in petitioner’s 2008 Federal income tax that would provide us with ancillary overpayment jurisdiction under section 6512(b)(1).  Petitioner’s supplemental brief posits that respondent mailed him a notice of deficiency for his 2008 taxable year on August 7, 2012.  On that premise, a petition for redetermination of that deficiency would have been timely under section 6213(a) only if filed by November 5, 2012–a date that preceded by almost nine months the issuance of the notice of determination in response to which petitioner filed his petition.  (Moreover, neither in that petition nor, as far as the record discloses, in his CDP hearing did petitioner claim that he had overpaid his 2008 Federal income tax liability.).” 2018 T. C. Memo. 149, at pp. 32-33.

Innocent spousery cases differ. “Even if amicus’ premise were correct, the resulting disparate treatment of innocent spouse claims depending on their jurisdictional posture would be required by the applicable statutory provisions.  Section 6330(c)(2)(A)(i) allows for the raising of “appropriate spousal defenses” when “relevant * * * to the unpaid tax or the proposed levy”.  In contrast to section 6015(g), section 6330(c) provides no express basis for a taxpayer to claim (or for Appeals to consider) a taxpayer’s claim for a refund arising from a grant of relief from joint and several liability.  Such a claim could be considered only if the taxpayer’s request for a CDP hearing and petition to this Court for review of a notice of determination denying the requested relief could be viewed as grounded in section 6015 as well as section 6330.” 2018 T. C. Memo. 149, at p. 34.

And if Brian has a due process beef, it’s his own fault.

“Whenever the statute of limitations bars a taxpayer from pursuing a claim for refund, however, it will result in the Commissioner’s retention of an overpayment of tax.  That result cannot be viewed as violating the taxpayer’s due process rights because his loss of any refund to which he might have been entitled would arise from his own failure to claim the refund timely.  Moreover, most of the payments that petitioner now seeks to have refunded to him were voluntary payments of the tax he reported on his 2008 Federal income tax return.  We fail to see how our decision not to assume jurisdiction to consider a refund claim of which petitioner manifested no awareness before the expiration of the applicable period of limitations would result in an unconstitutional violation of his due process rights.” 149 T. C. Memo. 149, at pp. 36-37.

Takeaway- If not frivolous, ask for a refund every chance you get.

If You Want to Claim Good-Faith Reliance

Jeffrey B. Yapp and Tamara A. Yapp, 2018 T. C. Memo. 147, filed 9/10/18, are looking at a $95K accuracy chop. While Judge Cohen does allow Jeff’s $120K legal fee deduction, as he was the sole member of the LLC when it paid the fee (he only sold off other membership interests thereafter, converting from disregarded to passthrough), Tamara’s probiotic start-up was just that. She gets a Section 195 throw-out of all her deductions.

Jeff had amended operating agreements and records showing when he paid the legal fees and when the rest of his crew came aboard. His claimed wages fail, because he has no canceled checks, no W-2s, no 1099-MISCs and no employment contracts.

Tamara is a nonstarter.

So the chop, somewhat diminished, is still in play, awaiting the Rule 155.

“According to petitioners, the penalties are not applicable because they relied upon their C.P.A. to report the Federal income tax liabilities shown on their joint returns.  Under certain circumstances a taxpayer’s reliance upon professional advice may establish the taxpayer’s reasonable cause and good faith with respect to an underpayment of tax.” 2018 T. C. Memo. 147, at p. 17. And all they have to do is show they told the pro the whole story, that the pro was competent, and that they relied in good faith. And “rely in good faith” means at least you glanced at the return and nothing jumped off the page.

But on the trial, Jeff and Tamara chop the ground out from under their CPA. Sound familiar, my CPA readers?

“T. Yapp testified at trial that they provided their C.P.A. with only the general ledgers that their bookkeeper kept to record income and expenses for [Jeff’s LLC], [Tamara’s LLC], and the Yapp household.

“Furthermore, J. Yapp admitted at trial that he approved the filing of the returns without fully reviewing them.  Had petitioners reviewed the returns, they would have noticed the numerous mistakes that they claim their C.P.A. made, such as selecting the wrong accounting method for reporting [Jeff’s LLC]’s taxable income in 2009, including personal expenses as part of [Tamara’s LLC]’s business deductions, and failing to continue to claim on the 2010 return depreciation deductions claimed for 2009.  The identified mistakes undermine any assumption that the preparer was a competent professional merely because he was a C.P.A.  Petitioners’ purported reliance on their C.P.A. does not establish that they acted with reasonable cause and in good faith.”  2018 T. C. Memo. 147, at pp. 17-18.

No, this is not a retelling of the old joke about what certain young ladies make for dinner. This is the point for Catherine J. Clay, 2018 T. C. Memo. 145, filed 9/10/18.

Cath’s biggest problem is the $36K of long-term disability insurance payments she got from the policy her school district carried (for which she contributed nothing), but which she was obligated to repay when she qualified for Social Security Disability, and collected thereunder.

Cath agreed she owed the money, but never repaid. Or paid tax on it.

Judge Gale: “The claim-of-right doctrine treats otherwise taxable money proceeds received by a taxpayer under a claim of right, without restriction as to their disposition, as taxable income even though the taxpayer may be under a contingent obligation to return the money at a later time.” 2018 T. C. 145, at p. 11.

Except. What would we ever do in tax law without an “except?”

If someone gets money they shouldn’t have, recognizes the mistake, and makes provision to pay it back, it’s not received in the year in question as claim-of-right, because taxpayer recognized it had no right, and acted accordingly. If a repayment agreement is made, or money put aside or reserved for repayment, no recognition in year received.

It’s called the Merrill rule, and Judge Gale has a lot to say about it. But it doesn’t help Cath; she should have made reservation.