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.

Champions Retreat Golf Founders, LLC., Riverwood Land, LLC., Tax Matters Partner, 2018 T. C. Memo. 146, filed 9/10/18*, is more like a rout than a retreat, as Judge Pugh finds there weren’t enough “rare, endangered, or threatened species in the easement area to satisfy the conservation purpose requirement.” 2018 T. C, Memo. 146, at p. 24.

The aim is to preserve a significant relatively natural habitat for flora and fauna. “A significant relatively natural habitat can include but is not limited to ‘habitats for rare, endangered, or threatened species of animals, fish, or plants; * * * and natural areas which are included in, or which contribute to, the ecological viability of a local, state, or national park, nature preserve, wildlife refuge, wilderness area, or other similar conservation area.’  Sec. 1.170A-14(d)(3)(ii), Income Tax Regs.  Some human alteration of a significant relatively natural habitat will not result in the denial of a deduction, as long as ‘the fish, wildlife, or plants continue to exist there in a relatively natural state.’  Id. subdiv. (i).” 2018 T. C. Memo. 146, at p. 23.

Now it’s not necessary for a rare, endangered or threatened species to be covered by the Endangered Species Act of 1973, but the avian population at the Champions’ beaten-down golf course doesn’t make the cut. Only the brown-headed nuthatch is anywhere on the leaderboard.

The land-based fauna don’t fare a lot better. Only the southern fox squirrels are listed as “declining,” but they can’t be too far off the glidepath, because they can be legally hunted in GA.

The Champions might have a shot with the denseflower knotweed, but they show up in only 7.5% of the $10 million easement area, and anyway the Champions are trying to extirpate the same.

“Assuming that denseflower knotweed could flourish in both swaths of undisturbed bottomland forest in the easement area, its found suitable habitat would constitute less than 17% of the easement area.  Moreover, hole 4 on the Island course was designed to drain into the only swath of bottomland forest on the easement area in which the denseflower knotweed is found, introducing the chemicals used by Champions Retreat (albeit legally and in accordance with the easement)–including herbicides–into its habitat.  Less than 17% of the easement area is not enough to fulfill the conservation purpose of providing a significant relatively natural habitat.  See Atkinson v. Commissioner, at *35 (holding that a plant found on 24% of the easement area was ‘too insignificant’ to lead the Court to conclude that the easement area was a significant relatively natural habitat).” 2018 T. C. Memo. 146, at p. 27.

And visual space is limited to those who own houses around the golf course. Access to Little River, which meanders about the property, may not be open to the public: there was a kerfuffle, still unresolved, the Benderdinker row.

“The Benderdinker Festival–a community boating event held annually that included upwards of 800 people–also was held annually on the Savannah and Little Rivers, taking participants in a loop around Germain Island.  In 2013 there was a dispute over whether the Benderdinker Festival could use the Little River while Champions Retreat was hosting a golf tournament, which turned on whether the Little River was a public waterway or was privately owned by Champions Retreat. Champions Retreat eventually gave its permission, but whether the Little River is public or private remains unresolved.” 2018 T. C. Memo. 146, at p. 17.

No deduction.

Takeaway- Having only a nuthatch, a knotweed, a fox squirrel, and a busted Benderdinker, when you’ve got a $10 million deduction on the line, is the nearest thing to a Michael Corleone gambit I can think of.

*champions rtetreat golf 9 10 18

Now That We Need Him

Some of my senior readers may recall Judge Gustafson’s ultra-obliging nature, when he offered to try John Carter’s case in the slammer wherein John was an involuntary resident. Those who don’t, check out my blogpost “We’ll Come to You,” 9/18/12.

Can’t believe it was six years ago.

Well, today Michael Jack Riolo, Docket No. 1941-16, filed 9/7/18, might be standing in the need of similar treatment.

Judge Buch has this one.

“This case is calendared for trial at the Court’s December 10, 2018, Miami, Florida trial session. On September 6, 2018, the Commissioner filed a Motion for Continuance informing the Court that Mr. Riolo is incarcerated in Coleman, Florida, which is approximately 277 miles from Miami. The Commissioner also informed the Court that he had sent Mr. Riolo a letter explaining the he needed to file a Motion for Writ of Habeas Corpus Ad Testificandum with the Tax Court requesting his release from prison in order for him to testify at trial.” Order, at p. 1.

The issue, of course, is that Mike Jack will have to stump up the cash to pay for his trip to Miami and back from Coleman (wherever that may be).

So Mike Jack can respond to IRS. And see if Tax Court can send a Judge to Coleman.

Rebecca Gebman, who last appeared a year ago in this my blog (“No Good Deed – Redux,” 9/18/17) is back. And while the leader of The Jersey Boys is no longer counsel of record, Rebecca can’t seem to adjust to that fact.

So I entitle Rebecca’s story with that classic Hammerstein – Kern torch song from 1927.

Here’s Judge Chiechi to toss six (count ‘em, six) attempts by Rebecca to amend her petition, Clark J. Gebman & Rebecca Gebman, et al., Docket No. 15941-12, filed 9/6/18.

Rebecca moved a couple weeks ago (hi, Judge Holmes) to amend her petition. But she never lodged (that is, sent in but not attached to the motion) the proposed amendment. So Judge Chiechi ordered her to do so.

Judge Chiechi unleashed a torrent.

“On September 4, 2018, at 4:50 p.m., Ms. Gebman filed a document titled ‘PETITIONERS’ MOTION FOR LEAVE TO FILE AMENDED PETITION’. That document was dated March 1, 2017, and signed by Frank Agostino (Mr. Agostino), who is no longer counsel of record for petitioners in these cases. On the same date, at 5:02 p.m., Ms. Gebman filed a document titled ‘PETITIONERS’ FIRST AMENDMENT TO MOTION FOR LEAVE TO FILE AMENDED PETITION’. That document was dated March 1, 2017, and signed by Mr. Agostino. Moreover, that document is duplicative of the document titled ‘PETITIONERS’ MOTION FOR LEAVE TO FILE AMENDED PETITION’ that Ms. Gebman filed on September 4, 2018, at 4:50 p.m.

“On September 4, 2018, at 4:51 p.m., Ms. Gebman filed a document titled ‘PETITIONERS’ MEMORANDUM IN SUPPORT OF MOTION FOR LEAVE TO FILE AMENDED PETITION’. That document was dated March 1, 2017, and signed by Mr. Agostino. On the same date, at 5:02 p.m., Ms. Gebman filed a document titled ‘PETITIONERS’ MEMORANDUM IN SUPPORT OF FIRST AMENDMENT TO MOTION FOR LEAVE TO FILE AMENDED PETITION’. That document was dated March 1, 2017, and signed by Mr. Agostino. Moreover, that document is duplicative of the document titled ‘PETITIONERS’ MEMORANDUM IN SUPPORT OF MOTION FOR LEAVE TO FILE AMENDED PETITION’ that Ms. Gebman filed on September 4, 2018, at 4:51 p.m.

“On September 4, 2018, at 5:02 p.m., Ms. Gebman filed a document titled ‘PETITIONERS’ AFFIDAVIT OF REBECCA GEBMAN IN SUPPORT OF FIRST AMENDMENT TO MOTION FOR LEAVE TO FILE AMENDED PETITION’.

“On September 4, 2018, at 5:02 p.m., Ms. Gebman lodged a document titled “PETITIONERS’ FIRST AMENDMENT TO MOTION FOR LEAVE TO FILE AMENDED PETITION’. That document was dated March 1, 2017, and signed by Mr. Agostino.” Order, at pp. 1-2.

With commendable patience, Judge Chiechi asks Ms. Gebman please to lodge an amendment to her petition per Rule 41(a).

If she doesn’t, though I’m sure she can understand Ms. Gebman’s emotional attachment to her former attorney, Judge Chiechi warns that “…the Court is strongly inclined to deny Ms. Gebman’s motion.” Order, at p. 3.

Once you raise underlying liability, the record rule is off the table.

Debra L. March, Docket No. 6161-17L, filed 9/5/18, is making a return appearance here, as that Obliging Jurist, Judge David Gustafson, once again makes plain that SNODs don’t equal NODs when it comes to the record rule.

Debra was here last month in my blogpost “Agree with Thine Adversary Whilst Thou Art in the Way” – Maybe,” 8/10/18.

Debra is unhappy that Judge David Gustafson deemed IRS’ Rule 91 facts conclusive. She claims now she objects to IRS going outside the record rule in her CDP.

But she also challenged her underlying liability, although Judge Gustafson isn’t going to decide that she had a prior chance.

“However, this Court remains of the view that it is not confined to the administrative record in CDP cases, and this is especially so where the CDP case involves a challenge to the underlying liability, pursuant to section 6330(c)(2)(B), and thus resembles the more typical deficiency case. Of course, we do submit to the Courts of Appeals, and we therefore follow the law as construed by the Court of Appeals to which a given case is appealable, even where we disagree; but in this case appeal would be to the Court of Appeals for the 10th Circuit, which, as far as we know, has not spoken on this issue. Cf. Kasper v. Commissioner, 150 T.C. No. 2, slip op. at 19, n.13 (2018) (surveying circuit law). (Ms. March cites Olenhouse v. Commodity Credit Corp., 42 F.3d 1560 (10th Cir. 1994), but it is not a CDP case, has no obvious relation to tax, and was decided before section 6330 was even enacted.)” Order, at pp. 3-4.

“Obvious relation to tax,” Judge? What about Mayo Clinic? No separate body of law for tax, as opposed to all other law.

Howbeit, Debra doesn’t want to show for a trial, and is willing to go with a Rule 122. So let both sides stipulate to everything they can, and go with it.

Coaches grit their teeth in indefinite-possession games (like soccer or ice hockey) where players must go from offense to defense in a split-second, and fail to transition smartly.

I’ve blogged before the failings of criminal defense counsel in tax evasion cases, where a plea bargain fails to mention tax (other than restitution, a separate matter) and civil penalties.

Today STJ Armen (“The Judge With a Heart”) has a pair of designated hitters, wherein he denies a pair of petitioners summary J. The pair claim their plea bargain was “a final and global bill of peace.”

Nope, says STJ Armen. I’ll cite Krystina L. Szabo, Docket No. 22616-17, filed 9/5/18, although spouse Michael P. Martin, Docket No. 22560-17, filed 9/5/18, was in it with her.

Krys and Mike copped in USDCWDVA to defrauding Medicaid and health insurance benefit programs by phony billing and claiming residence in residential care facilities operated by their outfit Pony Express Services, LLC.

For the nonresidential residence dodge, see my blogpost “A House is not a Home,” 3/13/12. But the taxpayers there weren’t real wiseguys.

STJ Armen goes through the Plea Agreement, and can’t find anything civil therein.

“Petitioner’s Plea Agreement ‘sets forth the entire understanding between the parties’; ‘constitutes the complete Plea Agreement’; and, noticeably, fails to address the civil assessment and collection of taxes, much less bar respondent from proceeding civilly. In short, there is nothing in petitioner’s Plea Agreement that precludes respondent from determining, assessing, and collecting any deficiency in income tax, penalty, and addition to tax for either of the years at issue in the present case.” Order, at pp. 5-6. I’m citing to the 22560-17 Order, but no different result in 22616-17.

Word to criminal tax defense counsel: Get informed written consent from client(s) that plea bargains will not save them from civil tax enforcement. Failure to do so could be hazardous to your wallet.

Much have I admonished family law practitioners about their casual treatment of alimony and child support in the past. Congress has relieved me of that burden for divorces in years commencing January 1, 2019 and ending at midnight, December 31, 2025, as they’ve cut taxes and created jobs (or so they say…but this is a nonpolitical blog) by making alimony nondeductible and non-recognition for those years.

But here’s a family lawyer who did well, even though his/her client is pro se. So a Taishoff “Good Job” goes to the anonymous attorney for Jeremy Adam Vanderhal, 2018 T. C. Sum. Op. 41, filed 9/5/18.

CSTJ Lewis (“Spell It Again”) Carluzzo has this one, and he delves deeply into the ‘…the division and distribution of assets and debts * * * as set forth in the Exhibit ‘A” (agreement) attached to the divorce decree.” 2018 T. C. Sum. Op. 41, at p. 3.

Here’s where meticulous drafting pays off.

“The agreement includes a reference to a Sallie Mae student loan account that relates to petitioner’s former spouse.  That reference is found in the ‘Division of Community Debts’ section of the agreement and obligates petitioner to ‘assume and hold * * * [his former spouse] harmless’ from that debt.

“The agreement also includes a section titled ‘Tax Free Transfers’ that states

the parties ‘believe and agree that the transfers of property between them required by * * * [the agreement] are tax free transfers of property between them and are therefore tax-free transfers of property made pursuant to Section 1041 of the Internal Revenue Code and are not taxable sales or exchanges of property or payments for alimony, except where this agreement specifically denotes payments as such.’” Order, at p. 3.

The issue is whether Jeremy gets an alimony deduction for the Sallie Mae loan payments he made.

CSTJ Lew blows off IRS’ argument that it’s all property division, thus nondeductible.

“In this case the divorce decree and the agreement frequently distinguish between property and debt.  For example, the divorce decree states that petitioner and his former spouse ‘entered into an equitable agreement settling all issues regarding the division and distribution of assets and debts * * * as set forth in the’ agreement.  The agreement provides separate sections with respect to the division of community property and debt.  Other provisions of the agreement make reference to both community property and debt, in which case it is clear that the provisions apply to both.  Notably, the ‘Tax Free Transfers’  paragraph in the agreement refers only to ‘property’, without including any reference to debt.  As we construe the divorce decree and agreement, the reference to property in the ‘Tax Free Transfers’ section of the agreement does not clearly encompass the division of community debt.  Furthermore, in construing divorce or separation agreements, we can find no authority that suggests that the terms ‘property’ and ‘debt’ are interchangeable.  The divorce decree and the agreement do not otherwise address or ‘specifically denote’ the division of debts as tax-free transfers of property made pursuant to section 1041.” 2018 T. C. Sum. Op. 41, at p. 6.

So payment of loved-once’s debts are concededly alimony, and hence it’s not part of the property division.

Jeremy wins.

Back a year ago, I almost picked up on John Hawk-Bey, then known as John Hawkbey. See my blogpost “Does IRS Read My Blog?” 10/11/17.

John sorely tempted me, though. You can read about him again if you missed his first appearance in 2017 T. C. Memo. 199, filed 11/10/17. John was a frivolity merchant, and IRS whanged him accordingly.

But nowise deterred, either by his conviction after a jury trial on four counts of tax evasion in USDCEDPA or Judge Lauber’s blow-off of his petitioned SNOD above-referenced, John is back. Here’s John V. Hawk-Bey, Docket No. 10377-17L, filed 9/5/18, with STJ Diana L. (“Sidewalks of New York”) Leyden dealing with IRS’ motion.

Now John has petitioned a NOD from a CDP. IRS wants John’s petition tossed for failure to state a claim. John claims the Section 6702(a) chop he got is a “frivolous penalty.” Order, at p. 3, footnote 2.

After the usual supplementary paper joust, IRS admits it has both burden of production and burden of proof as to the Section 6702(a) frivolous-return chop. But IRS claims John still hasn’t stated a claim upon which relief can be granted.

Remember, STJ Di is the taxpayer’s friend, and even the non-taxpaying-frivolity-merchant’s friend.

“In support of his motion to dismiss respondent points out that much of the petition consists of frivolous materials that give rise to no justiciable issue. For the most part, the Court agrees. However, because the burden of proof with respect to the section 6702(a) penalty is upon respondent, petitioner’s pleading threshold is extremely low. In his Amendment to Amended Petition, petitioner claims he should not have been assessed a section 6702(a) penalty in his Amendment to Amended Petition and, therefore, has stated a claim for which relief can be granted.” Order, at p. 3.

So STJ Di strikes everything in John’s pleadings but the “shouldn’t have” part, and tells IRS to respond.

Takeaway- If IRS has burden of proof, you don’t have to plead much. Practitioner, enGraev that in concrete.