I never cease to be confounded by Ch J Maurice B (“Mighty Mo”) Foley’s quick kicks of petitions when faced by nonpaying petitioners. At first, I thought he was hearkening back to his days in private practice, when he learned, along with the rest of us, to toss nonpaying clients speedily. Except his bio on the Tax Court website doesn’t say he was ever in private practice.

Still, as far as I can tell he set the all-time record today. According to today’s order, David Lynwood Toppin, Docket No. 20829-18, filed 10/26/18, filed his petition on Monday, October 22, 2018.

But Toppin never sent in a check. So Ch J Mighty Mo tosses his petition today.

Now Toppin has another case pending from February (Docket No. 3998-18), and didn’t send in the sixty bucks then either. So just last week Ch J Mighty Mo gave Toppin until Guy Fawkes’ Day to ante.

If the October petition was a duplicate of February, or if petitioner is manifestly a wiseacre, sure, toss it whether or not the sixty bucks came with it.

But if a petitioner in February gets nine (count ‘em, nine) months to come up with the sixty bucks, why does the same petitioner not even get four days in October?

No opinions today, but Judge Holmes has an order that should be a designated hitter if it isn’t already, Rui-Kang Zhang & Jau-Fei Chen, Docket No. 10488-10, filed 10/25/18. No, that’s not a typo; this case is older than most Bourbon.

R-K & J-F were in the infamous National Benefit Plan, which tried to disguise individual employer insurance purchases as multiemployer plans via Sections 419 and 419A. When IRS blew this dodge up, R-K & J-F folded their plan and took in their policies, paying tax on the $160K FMV of policies plus some cash they got, for a total around $200K.

But IRS is hunting bigger game, and socks R-K & J-F for $550K, claiming that the policies were “vested” as well as “distributed,” thus triggering both Section 402(b)(1) and 402(b)(2). If that’s so, then the policies must be valued without regard to any provision triggering a lapse of the policy.

A policy that can never lapse is clearly worth more than one which can. So IRS wants to avoid dealing with surrender charges (which take place during the early years of a policy but which phase out the longer the policy is in effect; this is to compensate for the insurance company’s sales costs, which typically run for some years after a policy is issued), which Section 402(b)(1) does, using Section 83(a) not-subject-to-forfeiture rules.

R-K & J-F want to focus on Section 402(b)(2), which limits a distribution to the FMV of what the distributee actually got.

“Even the Commissioner’s textual argument specific to this case doesn’t cohere once one looks at it. He argues that according to the Plan’s terms, once petitioners’ corporation notified the Plan of its withdrawal, petitioners became ‘beneficial owners’ of the policies. The reason is that the notification triggered the Plan’s obligation to identify petitioners and fix their claim to the Plan’s assets, creating ‘a separate [vesting] event’ at ‘a slightly different moment in time’ than distribution. But this Plan had an unusual feature — the notification didn’t take effect immediately, but only started a 23-month waiting period during which petitioners could forfeit their benefits by dying or leaving the corporation’s employ.

“The Commissioner admits that this meant there wasn’t really vesting right away. But, he says, petitioners in this case agreed to an amendment to the Trust to waive the 23-month waiting period. This means that there really wasn’t a risk of forfeiture, and so the vesting rules of section 402(b)(1) apply.” Order, at p. 4.

The waiver of the 23-month hold was in a standard form given to every withdrawing employer as part of the exit package. Thus, says IRS, vesting becomes part of withdrawal and distribution.

Judge Holmes isn’t buying.

This is like saying when the Plan administrator cuts a check and puts it in a stamped envelope, the money is “vested,” and when the taxpayer gets the envelope and opens it, there’s a “distribution.”

Nope, the caselaw says the two subsections of Section 402(b) are disjunctive. Section 402(b)(1) deals with transfers of policies from one trustee to another, whereby they are no longer subject to surrender charges or the like, and vest per Section 83(a). In that case the employee never gets the policy or cash or anything else in hand. But when the lucky employee gets money in hand, it’s a distribution, and the FMV of cash is cash.

IRS loses. But I will give IRS’ inventive counsel a Taishoff “good try, third class.”

Judge Holmes asks, somewhat plaintively, if the parties are going to settle, or will he have to try this case the next time he goes to Buffalo. C’mon, guys, spare Senior Judge Holmes the Buffalo Waterfront in the winter.

The late Frank D. Streightoff, before becoming the late Frank D. Streightoff, put a bushelbasketful of marketable securities and cash into a family limited partnership, the greatest part of whose limited partnership interests he kept for himself. His daughter, subsequently his executor, set up an LLC as general partner, which she ran. The assets were managed by a professional manager.

The limited partnership never held meetings or votes. The late Frank D.’s children were minuscule limited partners, with no power to combine to do anything.

The late Frank D attempted to assign an assignee’s interest in his limited partnership interest to his self-settled revocable trust, of which said daughter was trustee, rather than the whole enchilada. But he gave away too much, so when he became the late Frank D it turns out the trust had the partnership interest itself, and not an assignee’s interest.

This meant there’s no lack-of-control discount available to the late Frank D’s estate, and the discount for lack-of-marketability must be computed based upon a shorter lock-out period, due to the trust’s greater control over the limited partnership interest and thus the limited partnership.

At least Judge Kerrigan so holds in Estate of Frank D. Streightoff, Deceased, Elizabeth Doan Streightoff, Executor, 2018 T. C. Memo. 178, filed 10/24/18.

The issue, of course, is exactly what the assignment from Frank D to Frank D’s trustee (Elizabeth) assigned: the limited partnership interest itself or an interest in the limited partnership interest less than the whole interest.

“The agreement provided that decedent made an ‘assignment’ of all of his limited partnership interest in [the LP].  It provided that decedent transferred ‘[his] interest in the above described premises, together with all and singular the rights and appurtenances thereto in anywise belonging, unto the said Assignee, its beneficiaries and assigns forever’ and that he bound himself and ‘[his] heirs, executors, and administrators to * * * provide any further documentation or  execute any additional legal instruments necessary to provide the assignee all the rights the Assignor may have had in the property.’  The agreement provided that the revocable trust “by signing this Assignment of Interest, hereby agrees to abide by all the terms and provisions in that certain Limited Partnership Agreement….” 2018 T. C. Memo. 178, at pp. 8-9.

Oh, that boilerplate!

While State law defines interests in property, “(T)he doctrine that the substance of a transaction will prevail over its form has been applied in Federal estate and gift tax cases. In particular, we have indicated a willingness to look beyond the formalities of intrafamily partnership transfers to determine what, in substance, was transferred.” 2018 T. C. Memo. 178, at p. 16. (Citations omitted).

And Judge Kerrigan is willing, ya betcha!

“The agreement provided that decedent made a transfer to the revocable trust of ‘[a]ll of * * * [his 88.99%] limited partnership interest’ in [limited partnership].  It further stated that decedent transferred with the interest “all and singular the rights and appurtenances thereto in anywise belonging”. Although the transfer was labeled an ‘[a]ssignment’, the agreement states that the revocable trust is entitled to all rights associated with the ownership of decedent’s 88.99% limited partnership interest, not those of an assignee.  All ‘rights and appurtenances’ belonging to decedent’s interest include the right to vote as a limited partner and exercise certain powers as provided in the partnership agreement.

“The agreement provided that decedent was bound to provide any documentation or execute any legal instruments necessary ‘to provide * * * [the revocable trust] all the rights * * * [decedent] may have had’ in the limited partnership interest.  Decedent’s rights in the limited partnership interest were those of a limited partner in the partnership.  The agreement satisfied all the conditions for the transfer of decedent’s limited partnership interest and the admission of the revocable trust as a substituted limited partner.” 2018 T. C. Memo. 178, at pp. 17-18.

Finally, “Ms. Streightoff signed the agreement as manager of [limited partnership]’s general partner and gave consent to its terms, which provided for the transfer of all of decedent’s rights in the limited partnership interest to the revocable trust.  The parties have stipulated that the transfer was a permitted transfer.  Lastly, the agreement provided that the revocable trust agreed to abide by all terms and provisions of the partnership agreement, and Ms. Streightoff executed the agreement on behalf of the revocable trust.” 2018 T. C. Memo. 178, at p. 19.

Whatever was transferred, there was no difference: Elizabeth as trustee had all the information of a limited partner, and absence of voting rights here is not significant.

Takeaway: Before reaching for the formbook or opening the form file, ask what it is that you’re trying to accomplish.

That’s Judge Albert G (“Scholar Al”) Lauber, fellow-alumnus of a well-regarded local high school with my colleague Peter Reilly CPA and my nephew, and MA Clare College (Cambridge).

Today, we have Judge Scholar Al issuing a well-tempered warning to Azael Dythian Perales, 2018 T. C. Memo. 177, filed 10/23/18.

Az seems to be a serial blower, but his blowing is wide of the mark.

“His Form 211 and the materials appended to it, apparently cut and pasted from various websites, were rambling and incoherent.  He made no discernible allegations regarding the tax liability of any person.  Rather, he alleged that numerous individuals and entities – banks, public utilities, California government entities, and agencies of the U.S. Government–had committed espionage, conspiracy, bank fraud, and other crimes. He adduced in support of these assertions no factual material of any kind.” 2018 T. C. Memo. 177, at p. 2.

Well, the Ogden Sunseteers assigned 11 (count ‘em, 11) claim numbers to Az’s excurses, and bounced every one of them for no credible information, no tax information and no specific information. Ogden sent no branch of IRS any of Az’s stuff.

Az petitions, of course.

Judge Scholar Al gives IRS summary J tossing AZ.

Here’s the kicker: “Petitioner is no stranger to the Office or this Court.  He has filed numerous substantially similar claims for award, advancing in each case unsupported allegations of criminal activity by hundreds of individuals, corporations, and government entities, including Federal courts.  In no case did he allege a Federal tax underpayment or noncompliance by any discernible taxpayer.  We have granted summary judgment to respondent in three cases so far.  Two more cases wait in the wings. Our patience is wearing thin.” 2018 T. C. Memo. 177, at pp. 5-6. (Citations and footnotes omitted).

Az, read and heed.

Judge Holmes has a designated hitter for us, Damon R. Becnel, Docket No. 14707-14, filed 10/23/18. Y’all will remember Da-Bec and his trusty yacht  Britney Jean, the entertainment facility. What, no? Then check out my blogpost “Go Fish – Part Deux,” 8/2/18.

Judge Holmes sent the parties out for a Rule 155 beancount, but Da-Bec had no numbers to riposte to IRS’ arithmetic.

IRS, however, is too quick off the mark, moving to enter decision on their numbers.

Judge Holmes: “This isn’t quite the right pigeonhole–Rule 155(b) says that in the absence of agreement between the parties, ‘[t]he Clerk will serve upon the opposite party a notice of such filing and if, on or before a date specified in the Clerk’s notice, the opposite party fails to file an objection or an alternative computation, then the Court may enter decision in accordance with the computation already submitted.’ A check of the Court’s docket shows that no such notice was ever sent to petitioner; the Commissioner likewise doesn’t seem to have attached a certificate of service under Rule 21(b)(1) — at least none was scanned to a .pdf image on the Court’s docket.” Order, at p. 1.

So to save the hard-laboring Clerk any further labor, Judge Holmes recharacterizes IRS’ motion as “Respondent’s Computations Under Rule 155.” And he tells Da-Bec to come up with his own in three weeks.

If Da-Bec doesn’t, Judge Holmes may enter judgment based on IRS’ numbers.

Christopher Schorse, Petitioner, and Cynthia Palabrica, Intervenor, 2018 T. C. Memo.176, filed 10/22/18, reprise the Doris Day – Jimmy Stewart – Alfred Hitchcock classic, and as in the movie, Chris is the man who knows too much.

Chris the computer guy originally got innocent spousery from IRS because of the losses allegedly sustained by loved-once OB/GYN Cynthia’s Sub S, that Chris deducted although he shouldn’t. But then Cynthia intervened, and Chris’ innocent spousery for the two (count ‘em, two) years at issue is out.

For the years at issue, when Chris and Cynthia were still wed, each kept their own bank accounts, but paid mortgage, insurance and utilities from a common account. Cynthia paid the greatest portion of their children’s high-priced private school and high-priced nanny.

But Chris did the taxes. Cynthia gave Chris the K-1s she got from her wholly-owned Sub S, which showed delightful losses.

But Cynthia’s accountant told Chris Cynthia hadn’t enough basis in her Sub S stock to deduct the losses.

So Chris dispensed with the time-honored two-adviser rule (see my blogpost thus entitled, 6/23/16), and did it himself.

Judge Paris: “…intervenor provided petitioner with her tax information, including her [Sub S] Schedules K-1, Partner’s Share of Income, Deductions, Credits, etc.  Intervenor’s [Sub S] Schedules K-1 reflected losses for [years at issue]. Petitioner asked intervenor and her business accountant about the losses.  They informed him that intervenor did not have a sufficient basis in [Sub S] to deduct the losses for those years.  For each year in issue petitioner calculated their tax liability both with and without the loss claimed.  For each year in issue petitioner then instructed his business accountant to prepare and file a joint return that claimed the loss deduction.  Petitioner thought that the information on intervenor’s [Sub S] Schedules K-1 was similar to the information he would have reported on his business’ Schedules K-1 and that the profits and losses reported on intervenor’s [Sub S] Schedules K-1 were the amounts to be used on the joint returns.” 2018 T. C. Memo. 176, at p. 4.

Chris took full responsibility for all tax issues in the divorce decree.

Chris knew Cynthia was paying the freight for the children’s school and nanny, and the tax refunds generated by the Sub S losses went into home improvements.

Judge Paris trudges through the Section 6015 options, both regular and streamline, but at the end of the day, it boils down as follows.

” Although many of the factors for equitable relief either favor petitioner or are neutral, petitioner’s actual knowledge of the losses deducted on the joint returns, his involvement in preparing those returns, and the significant benefit he received from the understatements weigh too heavily against him to allow relief.  Weighing all the facts and circumstances, the Court finds that petitioner is not entitled to relief from joint and several liability under section 6015(f).” 2018 T. C. Memo. 176, at pp. 22-23.

Too much knowledge is as dangerous as too little. See my blogpost “A Dangerous Thing,” 4/13/11.

And There Are Days

There are days when the life of a blogger is a land of milk and cliché, when surfeit becomes embarras de richesses, as Sinaiatical full-dress T. C.s and no less weighty T. C. Memo.s vie with designated hitters. The cornucopia overflows with “somber reasoning and copious citation of precedent,” combined with literary skill, and gravitas without over-portentousness.

And then there are days. Usually Fridays, more often than not before three-day weekends, but not necessarily.

I remember a super-efficient office manager three (or was it four?) law firms ago, whose word was law. Offending her meant being sent to a real estate closing of unendurable length, at the outermost reaches of public transport, on a Friday afternoon, before a three-day weekend, in a snowstorm.

Fortunately, such is no longer my fate, but today is a day of drought. No opinions, no designated hitters, only Judge Holmes again dissing the partitive genitive and Ch J Foley correcting a caption to show reports of petitioner’s death were greatly exaggerated.

Enough. See y’all Monday.

More than a couple times (hi, Judge Holmes) have I torn up tickets on the leader at the top of the stretch who never quite got there at the wire. Sometimes it was accompanied by just a sigh; other times, it featured imprecations hurled to the heavens, excoriating owner, trainer, jockey, stablehands, dam, sire, and the track announcer. But at the end, it was just another loss.

Well, I feel that way today, although I send no imprecations to the Glasshouse crew, and only my deepest respects to STJ Daniel A. (“Yuda”) Guy, who presided at today’s off-the-bencher, Xiangcun Shi, Docket No. 6852-17S, filed 10/18/18.

First, the post parade.

X e-filed a detailed 1040, with schedules, showing all kinds of numbers for his “international sales” business. The return featured his name, SSAN, address and phone number. The tax due stated therein was paid by credit card.

It wasn’t clear from the record who prepared same, but IRS small-d (this is a nonpolitical blog) democratically issued a SNOD, disallowing deductions in all directions.

X timely petitions.

Now the bell sounds, and X leaps from the starting gate, as the Taishoff no-prize, best-excuse sweepstakes is off.

“Petitioner alleged in the petition and asserted at trial that the tax return in question was totally fabricated, that he did not work or otherwise conduct any trade or business in [year at issue], and that the tax return was filed without his knowledge to ‘trap’ him.” Transcript, at p. 5.

X claims he graduated college in China, came to the US and ran a travel business for 10 years, filing returns all the while, and then retired. In the year at issue, he was supported by his “affluent daughter” in China (a consummation devoutly to be wished), who apparently bankrolled X’s trips to the homeland that year to care for his aging parents. And, while there, he apparently attended various health and wellness seminars, all paid for by said daughter.

Now we come to the top of the stretch.

“Petitioner testified that on one of his trips to China in [year at issue], his girlfriend had suggested that he meet with an individual in Beijing who might assist him in obtaining U.S. citizenship. Petitioner says he met with the unnamed individual who told him that he should file a Federal income tax return to enhance his chances of gaining U.S. citizenship. Petitioner further testified that he provided this individual with personal information, including his social security number and credit card information. Finally, petitioner testified that the individual later became unhappy with him after he rejected the individual’s request for a loan. Petitioner failed to identify the individual in question.” Transcript, at p. 6.

X claims the unnamed person filed the phony return. Now, while there are many bogus returns filed by identity thieves fraudulently seeking refunds, I’ve yet to hear of an identity thief who pays taxes in someone else’s name.

Still, X is leading in the stretch.

We come to the wire.

“Although petitioner asserts that the tax return was a fabrication, he nevertheless offered a few receipts in an attempt to substantiate some of the expenses claimed on Schedule C. The Court finds that petitioner did not present any objective evidence to corroborate his testimony that the tax return was a complete fabrication. There would seem to have been a number of avenues available to petitioner to provide his case, but he offered the Court nothing but his own self-serving testimony.” Transcript, at p. 8.

STJ Yuda, it’s hardly fair to call testimony “self-serving” when the witness stipulates in evidence that totally destroys the witness’ own case. However, see my blogpost “A Joy Forever? – Not Hardly,” 3/31/14, where distinguished counsel did just that.

So X fades to also-ran status. “The receipts attached to the stipulation of facts bear no discernable relationship to the professional and legal expenses in dispute. On this record, respondent’s determination that petitioner is liable for a Federal income tax deficiency is sustained.” Transcript, at p. 9.

Too bad. I had high hopes for X.

Mega-movie-mogul Samuel Goldwyn (the pivot man in Metro-Goldwyn-Mayer, a/k/a MGM) was noted for his Berra-like (or better, Goldwyn-like) neologisms. Among these was the term “definite maybe,” apparently meaning a proposition to which he would accord just a trifle more consideration than a flat “maybe,” meaning “no.”

Today, absent any opinions, we have a designated hitter from STJ Robert N. Armen, The Judge with a Heart. Unfortunately, Dana Ann Cheshier, Docket No. 19154-16SL, filed 10/17/18, gives him nothing with which to work his sympathies, not even a definite maybe. She provides neither missing returns, nor a petition from the SFR-derived deficiencies, nor timely responses to orders, nor yet a Form 8857 innocent spouse request.

Even when remanded, Dana Ann failed to deliver. Uncontested summary J for IRS.

“On her Form 12153 petitioner did not check the box for “Innocent Spouse Relief” but she did write “Maybe ?” opposite the printed words on the form preceding that box. However, petitioner never submitted Form 8857 (“Request For Innocent Spouse Relief”), nor did she otherwise pursue the matter during the administrative proceeding. Accordingly, such matter need not be considered further.” Order, at p. 7. (Citations omitted).

Long ago, a casual reader reprimanded me for taking lightly the plight of those finding themselves in Tax Court with little or no comprehension of what they must do. I noted my interlocutor was light on specifics and long on invective. As a lawyer, I’m used to that.

Still, Dana Ann’s plight is exemplified by “Maybe?”

Might have been better to send her to a LITC, if such is available in Dana Ann’s part of TN.

Whatever will Tax Court get up to when I take an evening off to go to the opera? Even though Judge Chiechi is officially fully retired (see my blogpost “Judge Chiechi Retires – Fully,” 9/25/18), she had a decision last evening that almost had me following Judge Holmes’ lead and quoting Scripture. It’s another church case, and it brings out the importance of bearing the burden of proof.

Richard I. Presley and Martine N. Presley, 2018 T. C. Memo. 171, filed 10/15/18, don’t get a break from the Section 6662(a) chop, despite having three (count ’em, three) CPA’s (one of whom also had a master’s degree in tax) to guide them. Plus a qualified appraiser.

No scenic easement here, but a donation of land (or maybe ponds) to grow blueberries to fund their non-profit family church via a for-profit LLC, their residence (where they resided post-donation, a no-no), and a tractor-mower.

You can, if you wish, read all 103 (count ’em, 103) pages of Judge Chiechi’s deconstruction of the trial record. Richard’s and Martine’s crew of experts reminds me of G. B. Shaw’s remark about trying to grow roses on opera house seats by hiring expensive gardeners.

But the key is knowing what you have to prove and getting it into the record.

Editorializing, I think Judge Chiechi came down a wee bit too hard on Richard and Martine when it came to the accuracy chops. True, their experts may have been less than brilliant on the stand, and Richard may not have been the best of witnesses, but Judge Chiechi has assigned to Richard and Martine foreknowledge of the inconsistencies and contradictions IRS’ astute trial counsel brought out on the trial.

If Richard and Martine were capable of the cross-examination meted out to the experts by IRS’ trial counsel, chopping them might answer. To expect a preacher and a blueberry farmer to do so is loading too heavy a burden, and woe to Richard’s and Martine’s trial lawyer.

Oops, almost quoted Scripture again.

Edited to add: Thinking it over, maybe I was a little too heavy on Judge Chiechi. After all, I didn’t see the trial, or hear and watch the witnesses’ testimony. The experts may have been far less brilliant on the stand than their resumes. And Richard and Martine might have told a tale that was less than compelling.

Of course, few people find the witness stand a pleasant locale in the best of circumstances. I remember how distasteful it is, even when one wins.