Let’s give a big Tax Court enthusiasts’ welcome to Judge Elizabeth Ann Copeland, who joined the “small court” on Friday last. Her delayed appointment was reinstated (or whatever the technical term is), and prompt Senatorial confirmation followed.

Nice to see the system working.

My colleague Peter Reilly, CPA, will be no doubt pleased to note that Judge Copeland is a fellow-CPA, as well as being a Tax Notes 2012 Tax Person of the Year. She is also a long-time Texas practitioner.

I’m anticipating great things from Judge Copeland.

The Beatles’ 1966 conclusion to their hit album gives me the title for this essay. Gail Goldberg, Docket No. 13148-14L, filed 10/12/18, gives me the rest.

Gail is fighting an NFTL, but had sent in a Letter 12153 late after the NFTL was sent to her. So there was no appeal, and the NOD she got dismissed her request for a CDP as late. At best she could get an equivalent hearing, from which there is no appeal to Tax Court.

Gail is inventive.

“…petitioner appeared generally to take the position that the circumstances underlying this proceeding should operate in lieu of a determination to confer jurisdiction on this Court, presumably implying that the… decision letter attached to the petition should be treated as a determination with respect to the Notice of Federal Tax Lien. More specifically, statements by petitioner suggested an attempt to rely on an extensive, years-long history of interactions with the IRS regarding the…tax liabilities. The saga began with investments by petitioner’s spouse in oil and gas TEFRA partnerships, which partnerships were subsequently examined and proposed adjustments litigated before the Tax Court between 2008 and 2013. Corresponding proposed adjustments were then made to petitioner’s joint returns, and the couple sought to challenge those changes via a protest submitted…after learning about them through a Form 4549-A, Income Tax Discrepancy Adjustments…. Petitioner thus contended: ‘Respondent cannot successfully argue that Petitioner did not respond to notices that were not timely responded to….’ In a similar vein, petitioner added: “Respondent also cannot argue that the IRS has not received timely noticed [sic]… as this matter as a group of plaintiffs, which include the Petitioner, has been in litigation with the IRS in the United States District Court, Chicago, Illinois, known as case #16CV6130 over these same issues’. Multiple documents pertaining to the protest and district court case were attached.” Order, at p. 3.

Ch J Maurice B (“Mighty Mo”) has the bad news for Gail.

“Unfortunately, whatever other proceedings and interactions petitioner may have had with the IRS cannot alter the necessity of complying with the definitive requirement to submit a Form 12153 (or an equivalent request) within the specified timeframe. Regrettably, such confusion is not uncommon given that the IRS frequently treats as separate processes or proceedings what taxpayers view as a single dispute.” Order, at p. 3.

“Hence, the record herein at this juncture contains nothing that might suggest a timely request for a collection due process (CDP) hearing as to the Notice of Federal Tax Lien Filing and Your Right to a Hearing Under IRC 6320. Petitioner’s attempts to rely on a protest sent more than a year earlier in response to an entirely different communication from the IRS and on other IRS-connected proceedings are unavailing for multiple reasons. In particular, the cited materials lacked the information required for a document to constitute a CDP request. See sec. 301.6330-1(c)(2), Q&A-C1, Proced. & Admin. Regs.; sec 301.6330-1(c)(2), Q&A-C1, Proced. & Admin. Regs. Moreover, insofar as the Notice of Federal Tax Lien Filing and Your Right to a Hearing Under IRC 6320 was dated April 7, 2015, only items submitted to the agency within the pertinent 30-day window ending in May 2015 would be germane.” Order, at pp. 3-4.

At least there’s a form called an NFTL, and only one so denominated, and garnished with a timely-filed Form 12153, can make the cut for Appeals, and ultimately a timely-filed petition can qualify for Tax Court review.

As there’s no standard form for a SNOD, and as it doesn’t matter what IRS knows or says, best of luck, taxpayer.

But Not on the Court

Back in August, 2014, Judge James S (“Big Jim”) Halpern filed an opinion in Brown, 2014 T. C. Memo. 167, wherein the petitioners were mulcted for nearly everything IRS wanted, due in large part to the inadequacies of their attorney, whom I’ll call Wilf.

I’ve blogged the misadventures of more than one attorney whom I’ve called Wilf over the years, but this one is a new one on me. In any event, this Wilf is now out of the picture, as he was disbarred in August, 2015, and DC Cir affirmed same in 2017.

But now come Bassett H. Brown & Marcela M. Brown, Docket No. 28934-10, filed 10/11/18, seeking a Rule 162 vacation, based upon the fraud on the Court committed, allegedly, by Wilf.

It’s a wee bit late under ordinary rules, as 162s need to be made within 90 days after filing of decision. But fraud on the Court is special, because it undercuts the entire judicial process.

However, the hurdle is high, and Bassett (that’s Dr Bassett) cannot surmount same.

One must prove, by clear and convincing evidence, an unconscionable scheme or plan designed to influence the Court improperly, and that the Court was deceived thereby.

And not all fraud in a judicial proceeding is fraud on the Court. Because Dr Bassett (and maybe Marcela) were defrauded by Wilf’s negligence and incompetence doesn’t mean Judge Big Jim was taken in.

“… we concede that [Wilf] may have been untruthful with the Court in excusing his failures to obey our orders because he was out of the country, his computer crashed, or he had no ability to access the Court’s website. Nevertheless, even accepting that his excuses were untruthful, we believe that [Wilf] lied not to influence the outcome of the case one way or the other but to avoid reprimand by the Court and to excuse his failures to obey our orders. And while there maybe evidence that [Wilf] failed to introduce–though petitioners have failed to identify any–and certainly he failed effectively to argue their case (we struck petitioners’ brief as untimely), those factors did not work any corruption on our decision making. We were aware of [Wilf]’s inadequacies and warned petitioners of them. We decided this case on the evidence the parties, acting through their counsel, presented to us. We were not deceived, and certainly we were not improperly influenced or corrupted by [Wilf]’s thin excuses. Petitioners have failed to prove that [Wilf]’s untruths resulted in a fraud on the Court.” Order, at p. 7.

Wilf may have blown it, but Dr Barrett was there throughout. “Respondent points out that the Court, at the conclusion of the trial, recognizing [Wilf]’s shortcomings, advised petitioners to supplement their representation, yet they continued to rely on him, and, thus, they must bear the risk that his inadequate representation imposed.” Order, at p. 6.

Motion to vacate denied.

Please Pardon High School French

We old-time beaten-up, beaten-down, single-shingle, “general practitioner(s) of limited experience and mediocre qualifications” have seen clients play the games people play, and then some. Games undreamt-of by the late Eric Berne and unknown to anyone’s philosophy frequently swim into our bleary-eyed ken.

But today we have a new one on me so again I quote the taxi dispatcher of the Marne, General Joseph Simon Galieni. It’s sort of son-of-The-Scarlet-Letter; see my blogpost thus entitled 10/13/15, but this one is even more adventurous.

Ryan M. Richardson & Kathryn M. Richardson, Docket No. 15436-18, filed 10/11/18, seem to have timely petitioned a SNOD arising from alleged involvement in something called Clean Energy Systems, LLC. And said SNOD, dated 5/9/18, is properly attached to their petition.

So why does IRS move to dismiss?

Ch J Maurice B (“Mighty Mo”) Foley will tell us what IRS is telling him.

“…Among other things, attached to respondent’s motion to dismiss are: (1) as Exhibit A, a postmarked Substitute PS Form 3877, reflecting that January 31, 2018, deficiency notices for 2015 was sent by certified mail to petitioners at their last known address…on January 31, 2018; (2) as Exhibit B, tracking information obtained from the U.S. Postal Service showing those deficiency notices were delivered…on February 7, 2018, and (3) as Exhibit C, copies of those January 31, 2018, deficiency notices issued to petitioner for 2015, showing the last day for filing a timely Tax Court petition as to those notices would expire on May 1, 2018.” Order, at p. 1.

Except Ryan & Kathryn didn’t file their petition until 8/7/18.

Wait a minute, were there two SNODs for the same year?

IRS says “no way.” Here’s what IRS “reasonably believes.” Note that’s IRS talking, not Ch J Mighty Mo.

“…Respondent notes that the notice of deficiency attached [as Exhibit A] to the petition contains different dates on its first page. That notice of deficiency states that it was issued on May 9, 2018, and that the last day to file a petition with the Court is August 7, 2018. Respondent has determined that this page has been altered, presumably in a bid to secure the jurisdiction of this Court. * * *

“…Respondent reasonably believes that the dates used in the alteration were copied from a notice of deficiency issued to different taxpayers. That notice of deficiency is the basis for the Court’s jurisdiction in Leto v. Commissioner, Docket No. 15167-18, a case that was timely filed. Like petitioners, the taxpayers in the Leto case are purported investors in Clean Energy Systems, LLC.” Order, at p. 2.

Both the Leto petitioners and Ryan & Kathryn are self-representeds. And the same IRS counsel is assigned to both Leto and Ryan & Kathryn. I haven’t yet blogged Leto because IRS filed its answer in that case last week, and nothing has happened.

But Ch J Mighty Mo wants something to happen here.

Let Ryan & Kathryn tell him whether they ever got a SNOD back in February, and how come they got the May SNOD.

If they can’t tell a good story, they’ll get tossed. Although Ch J Mighty Mo is not prejudging anything, this might go beyond their getting tossed, maybe so.

Edited 12/2/18: Guess Ryan & Kathryn didn’t have much of a story.

https://ustaxcourt.gov/UstcDockInq/DocumentViewer.aspx?IndexID=7480587

Wayne R. Felton and Deondra J. Felton, 2018 T. C. Memo. 168, filed 10/10/18, has Judge Mark V Holmes quoting Holy Writ, a commendable departure from his sometimes picturesque style. Alas, at the end of the day, the blue envelopes stuffed with cash are income to the Rev. Wayne, founder and beloved pastor of the Holy Christian Church of Minneapolis, MN.

Rev. Wayne’s church had three envelopes: white, gold and blue. White envelopes were for  operational offerings – keeping the lights on, paying Rev. Wayne a salary (although for years he didn’t take one), and operating costs. These were readily available, and the contents thereof made their way into the church’s books of account. Gold envelopes contained cash and checks for special programs and retreats, and these likewise were booked.

The blue envelopes were special gifts to Rev. Wayne, and weren’t booked. Rev. Wayne disliked the “shake-hand” money pressed into the pastoral hand as the worshipers filed out of the church, so the blue envelopes were made available upon request, but not generally handed out. Judge Holmes obliges us with copies of the blue envelope and white envelope, and tables differentiating between the two and the proceeds of each.

For each of the years at issue, the blue envelopes contained better than $200K. Nisht azay gefaylach, as they say around the Holy Christian Church never. These sums never made it into the church’s books, onto Rev. Wayne’s Sched C or 1040, but they appeared on the SNOD.

Well, gifts aren’t taxable per Section 102(a), right?

Well, no, they aren’t, if they are gifts and not disguised salary and wages.

To begin with, there is no bright-line test. While a gift must be made from motives of disinterested love and benevolence, subjective intent does not decide. Ultimately, the tribunal’s experience with the mainsprings of human conduct must be applied to the facts and circumstances of the individual case.

But judicial precedent is a restraint on judicial vagaries. And while gifts to religious leaders are commonplace, Fifth Circuit has a pattern jury instruction that sums up the tax angle. “The federal income tax is levied on income received by ministers. When an individual provides ministerial services as his trade or business, controls the money he receives in that business, and receives no separate salary, the income of that business is taxable to the minister. Voluntary contributions, when received by the minister, are income to him. Payments made to a minister as compensation for his services also constitute income to him. If money is given to a minister for religious purposes, any money used instead for the personal benefit of the minister becomes taxable income to him.” 2018 T. C. Memo. 168, at p. 20. The case from which this is taken is United States v. Terrell, 754 F.2d 1139, at p. 1148-49 (5th Cir. 1985).

Per contra, as my high-priced colleagues would say, there are a couple cases (this is Judge Holmes, after all) where ministers got substantial payouts, but they were either ill or retiring, and weren’t expect to continue ministering to the payor flocks.

But payments substantially in excess of salary, made routinely, on behalf of the congregation generally and not individually, are income.

“From personal observation at trial we think it highly likely that Reverend Felton would follow his vocation whether he and his church got envelopes of any color. But we also think that the exhortation by the Supreme Court…to focus on objective evidence of a donor’s intent means we have to ask whether the donations are of the magnitude and type that would make us doubt that what is called a gift amounts to one in reality.” 2018 T. C. Memo. 168, at p. 29 (Citation omitted).

Now the blue envelope payments were made by individuals, not by the congregation generally, and weren’t solicited. But the amount and regularity of the blue envelope money (varying only 10% in the two years at issue), amounting to almost double Rev. Wayne’s handsome parsonage allowance plus his stated salary, speak louder than testimony.

“As another former seminarian is widely thought (though unlikely actually) to have said: ‘Quantity has a quality all its own.’ When comparatively so much money flows to a person from people for whom he provides services (even intangible ones), and to whom he expects to provide services in the future, we find it to be income and not gifts.” 2018 T. C. Memo. 168, at p. 34.

And Rev. Wayne, who prepared his own tax returns and filed them late (and only after the IRS came calling), never showed he made any effort to ascertain his liability. Late-filing plus substantial understatement (five-and-ten) chops for Rev. Wayne.

The method (accounting type) seems to be a non-factor, as Walter J. Antonyshyn and Georgiana L. Antonyshyn, 2018 T. C. Memo. 169, filed 10/10/18, reprise Georgina’s real estate professionalism, and do no better than they did in my blogpost “Madness In His Method?” 4/6/16.

Judge Ashford has this one.

Back two years ago, Georgina was fighting a lien after her professionalism claim collapsed.

Now she tries again, but fails. She hired professional management firms to do the day-to-day, so what hours she can substantiate were investor type, and thus fall foul of Reg. Section 1.469-5T(f)(2)(ii)(B).

And her records are internally contradictory and thus unreliable.

Enrollment can be lengthy, and you need to enroll well in advance of any payment being due (allow at least three weeks, because PIN comes by snail-mail), and you need password, PIN, your previous year’s AGI, and your bank account routing number and account number to use it. And you have to change your password every six months or so. Check out Publication 966.

But if you want a good reason to enroll in, and pay via, the Electronic Federal Tax Payment System, take a look at David H Malasky and Audrey Malasky, 151 T. C. 9, filed 10/10/18 and glance at 151 T. C. 8, filed same date with same parties.

Tax Court burns through one hundred fourteen (count ’em, 114) pages to conclude that, when Dave’s and Audrey’s check (which was written on an account with sufficient funds when written) bounced because IRS had levied on their account before cashing their check, IRS could apply the proceeds how IRS wanted.

The scope of review in this CDP is abuse of discretion. Judge Holmes needs six (count ’em) six pages to get there in 151 T. C. 8, largely because IRS and Dave and Audrey agree it is, and there’s no dispute about the liability in question, hence de novo review is off the table.

On to 151 T. C. 9.

Ex-ch J Michael B (“Iron Mike”) Thornton relies on the voluntary-vs-involuntary payment rules, and basic negotiable instruments law. Payment from a levy is involuntary; a check is conditional payment until final payment from the drawee bank; and there’s no frustration of performance absent a contract, and taxes aren’t a contract between sovereign and taxpayer. So voluntary payment becomes involuntary when the check bounces, even if IRS caused the bounce.

There’s much argy-bargy about Audrey’s daddy’s trust, of which Audrey was both trustee and beneficiary, which I leave to the T&E specialists to unscramble. That’s to do with whether the SO was wrong about the RCP in bouncing Dave’s and Audrey’s PPIA. But as I’ve said before, any attorney who can’t find an ambiguity in any document should find another line of work.

But even though Judge Mark V Holmes plays again his signature role as The Great Dissenter (his real argument is it isn’t fair, even though Dave and Audrey tendered in Houston and the levy came from Philly), ex-Ch J Iron Mike carries the day without even a dictionary chaw.

Judges Buch and Pugh suggest paying by certified check, showing how the law lags technology.

I’ll spare all y’all a systematic dissertation of this unfortunate tale, except to say that had Dave and Audrey used EFTPS, they’d have beaten the levy, paid (or almost paid) the recent year’s liability, and had a shot at an SOL blow-off of the earliest year, to which IRS applied the levied sum.

With neither opinion nor designated hitter today, I turn to an oldie-but-goody, the two-advisor rule. For backstory, see my blogpost thus entitled, 6/23/16.

Again I acknowledge the advisor, whose name I have forgotten, from whom I stole this mantra: “Every taxpayer needs two advisors: one to tell her what the law is, and the other to tell her what she wishes the law was. Then she can choose whose advice to follow.”

Today we have Jessie Daniel McDonald, Docket No. 24295-16, filed 10/9/18. No advisor is stated for Jessie, but her case sounds like one of the kind exemplified by the aforesaid.

Judge Albert G (“Scholar Al”) Lauber states Jessie’s case simply.

“The sole issue in this case is whether petitioner had unreported Social Security income…. After the IRS issued the notice of deficiency, petitioner filed an amended return…admitting receipt of taxable Social Security benefits. On the amended return she reported taxable Social Security benefits of $8,764 and additional tax owed of $1,313.” Order, at p. 1.

When IRS moved to toss Jessie for want of prosecution, and Judge Scholar Al ordered Jessie to respond, she responded thus: “… petitioner submitted a letter that we filed as Petitioner’s Response to Order…. She offered no explanation as to why she failed to appear for trial…. She asserts that she objects to the entering of a decision because she is over the age of 70 and thus ‘exempt’ from taxation of Social Security income.” Order, at p.1.

I caution my readers against relying on Jessie’s litigating position, however much I wish it were the law. Being on the downslope of the age of 70, it would brighten my declining years.

Judge Scholar Al, however, is not buying.

“There is no legal basis for petitioner’s assertion that her age entitles her to an exemption from taxation of Social Security income. See I.R.C.§§61(a),86(a). She admitted that she received taxable Social Security income by filing an amended return reporting it. And she admitted that she had a deficiency of $1,313… by showing on her amended return additional tax due in that amount.” Order, at p. 2.

He enters decision (minus chops) for IRS.

Inasmuch as United States Tax Court is closed today, 10/8/18, for a public holiday in the District of Columbia, the nomenclature of which has become politically controversial and therefore outside the scope of this avowedly nonpolitical blog, I am taking the day off. Barbecue, Blue Bell and bourbon will suffice, in the absence of full-dress T. C.s, learned Memos, Balzacian Sum. Op.s., and pithy designated hitters.

Enjoy the day off.

Giuseppe Verdi’s 1840 flop serves as the backdrop for a further look into the unsettling case of the unsettling partner. For reference, see my blogpost “Settle Order on Notice – To The Nonparticipant,” 10/26/17.

But here we have multiple nonsettlers, or maybe potential nonsettlers, because no one can find them. They were the TMP, each for a one-year term long since over, of the settling partnership some of whose eighteen (count ’em, 18) members are Capitol BC Restaurants, LLC, Banyan Equity Investors, Inc., Banyan Equity Investors II, Inc., Banyan Mezzanine Fund, LP, Banyan Mezzanine Fund II, LP, et al, Docket No.9281-17, filed 10/5/18.

Fortunately for the MIA TMPs, Judge David Gustafson, obliging as ever, is on the case, which is set for trial a week from Monday. IRS and the partners move to enter the decision document embodying the settlement.

Here’s the problem.

“To the motion is attached a certificate of service, alleging service on ‘petitioners and the following partners, including the Tax Matters Partner’, with a list of 18 names and addresses following. One of the names on the certificate of service is ‘Greg Morris / Tax Matters Partner’ (who the petition alleges is TMP for 2014) and another is ‘Richard Pawlowski’ (who the petition alleges is TMP for 2013).” Order, at p. 1.

But the trial reminders mailed by to Greg and Richard by the hardlaboring clerks at 400 Second Street, NW, came back “unable to forward.”

This troubles Judge Gustafson.

“Generally speaking, it is the duty of the TMP to apprise partners of events affecting their interests. The return of our mail to the TMPs suggests that the TMPs may similarly have not received the motion for entry of decision and may not be functioning in their capacity as TMPs.” Order, at p. 1.

So the trial is off, and IRS is directed to tell Judge Gustafson whether the Tax Matterers got served, and, if not, what to do.

May I suggest “last known address” mailing?