That’s IRS’ counter to Robert Manashi and Nahrin Manashi, 2018 T. C. Memo. 106, when Rob and Nah claim IRS should’a could’a seen from their 1120S and 1099s and all that, that Rob and Nah didn’t bother reporting about $2.6 mil in income over four years in their 1040s.

Thus 3SOL.

Nope, says Judge Gale. You ran up 241 days stalling with a motion to quash IRS subpoenas. Plus whatever you put on the 1120S, or whatever was in the 1099s, it didn’t show you were hiding other income.

“Simply put, reporting some amount of gross receipts offers no ‘clue’ that other gross receipts have been omitted.  Nothing on [Rob’s and Nah’s Sub S]’s Form 1120S for each year reasonably alerted respondent that gross receipts had been underreported.  The ‘clue’ must be on the face of the return; respondent is not required to undertake further examination absent a ‘clue’ that would inform a reasonable person.” 2018 T. C. Memo. 106, at pp. 8-9.

Of course, if the 1120S had enough stuff to tip off IRS, then 3SOL.

Rob and Nah got 1099s from their three (count ‘em, three) banks they were running their business income through, and also got 1099s from their customers. Shouldn’t those have tipped off IRS?

No.

“There are no Forms 1099 issued by petitioners’ banks or [Sub S]’s clients in the record and certainly none attached to the returns filed by either petitioners or [Sub S].  Thus, any information from Forms 1099, if they were in fact filed, would not have been ‘disclosed in the return, or in a statement attached to the return’, as required by section 6501(e)(1)(B)(ii).” 2018 T. C. Memo. 106, at p. 9.

Takeaway- Practitioner, the record is your friend. Guard it as you would the dearest friend you are ever likely to have. A 1099 or two in the record, even if not attached to the return , would enhance credibility, and maybe set the stage for an appeal.

Islander

Travis (“Surge”) Sanders may be gone from this vail of tears, but his soul goes marching on. At the behest of 11 Cir, Judge Kerrigan takes up the march in Estate of Travis L. Sanders, Deceased, Thomas S. Hogan, Jr., Personal Representative, Petitioner, and the Government of The United States Virgin Islands, Intervenor, 2018 T. C. Memo. 104, filed 7/5/18.

You may not immediately recollect the story of the late Travis, so scope out my blogposts “He Married a Virgin,” 1/29/15, and “Maybe Not So Virgin,” 2/7/17.

So Judge Kerrigan falls in and marches through the four (count ’em, four) categories and 11 (count ‘em, 11) factors of the Sochurek-Vento factorial concatenation.

Though peripatetic when it came to business (the late Travis visited Antigua, Guadalupe, and Mebus [sic], 2018 T. C. Memo. 104, at p. 14; ya sure it was “Mebus,” Judge, and not Nevis? I’ve kicked around the Caribbean a trifle these last forty-five years or so, and been to Antigua, Guadalupe and Nevis, but never to Mebus), the late Travis was firmly ensconced on his two-story, five (count ‘em, five) bedroom yacht in the American Yacht Basin. He had his VI Humane Society membership card, drivers’ license, VI checkbooks, and marriage certificate clenched firmly in his grasp.

Except for one of the three years at issue, when he spent only eight days in Our Insolvent Island in the Sun. That earns his estate a six-figure slam by way of deficiency (SOL off the table, as the late Travis wasn’t a bona fide Virgin Islander that year), plus another quarter-mil in chops.

I note the late Travis’ dreamboat boasted “…two stories and had a full kitchen, a second, smaller kitchen on the second floor, an elevator, five bedrooms including a master suite, and hardwood floors.” 2018 T. C. Memo. 104, at pp. 14-15. And all this was insured for a mere $300K.

Well, as I said in an earlier blogpost “Your Money or Your Life,” 1/10/13, “That must explain my career; I never had a boat.”

Again there comes around the beach-and-barbecue break that personifies our National Holiday.

So to all my readers, in “Each degree of Latitude, Strung about Creation”; to the Tax Court Judges, STJs, law clerks, hard-laboring intake clerks and flailing datestampers, who make The Glasshouse at 400 Second Street, NW, what it is; to my colleagues and adversaries; and not least of all, to my nearest and dearest: Best holiday wishes.

George Bernard Shaw was my age when he wrote the comedy that provides the title for today’s final installment of Gregory Raifman and Susan Raifman, 2018 T. C. Memo. 101, filed 7/3/18.

Greg and Sue have been long-running players on this my blog, so it’s hard to say goodbye. Longtime readers will remember my blogposts “We Wuz Robbed,” 8/7/12; “An Unerring Nose for Fraud,” 2/27/15; “I Wanna Testify – Part Deux,” 6/5/15; and “The Night of the Living Dead – Part Deux,” 1/23/18.

But Judge Nega finally puts an end to this long-running show. CA may have a one-size-fits-all larceny statute, incorporating everything from armed robbery to larceny by trick or device, but specific criminal intent (“the evil-meaning mind and the evil-doing hand”) must be proven to establish the kinds of theft that Greg and Sue need.

Greg and Sue may have been robbed by the improbably-named-but-larcenously-inclined Yuri Debevc Derivium, but they can’t establish in what year all hope of recovery vanished, or prove classic criminal intent. While ClassicStar may have been a total tax-dodge, likewise Greg and Sue can’t prove the requisite criminal intent on the part of the promoters: at worst, they were merely flogging a bogus dodge, intending to rob the fisc but not specifically Greg and Sue. And ClassicStar wasn’t a Ponzi scheme, entitling Greg and Sue to the largesse extended to the victims of Bernie Madoff.

Greg and Sue also got mixed up in a truly shady hard money lending scheme, where they thought they were secured lenders but really weren’t (there was an assignment of collateral, supposedly, but what was assigned was dubious), but again, the criminal intent wasn’t proven.

Finally, Greg and Sue got into a movie deal that cratered, and they had a real loss, but not in the year they claimed, as they got some money back the following year.

IRS wants a reopener to enGraev (sorry, guys) approval of the chops, and they get it. Greg and Sue want to cross-examine the RA and supervisor, but Judge Nega says “no.” IRS has the signed forms, and that does it.

Besides, Greg was a lawyer doing corporate high finance and Sue was a CPA. Too sophisticated not to know that these deals were too good to be true.

Curtain.

Rides the Boss Hoss

I’m sure my readers, those few, those happy few, have been seized with doubt and misgivings, until today’s happy news from Judge Ruwe. The answer is here (at least until 6 Cir weighs in). When frivolity is on the table, the Boss Hoss is not.

Benton Williams, Jr., 151 T. C. 1, filed 7/3/18, has a penchant for frivolity. He never bothered with a return, so IRS gave him a SFR and a deficiency at the same price. Ben riposted as follows.

“In his petition, petitioner raised frivolous arguments.  He then filed several pretrial motions in which he raised the same type of arguments.  …respondent’s counsel sent petitioner a letter informing him that the arguments he raised in a motion for summary judgment were frivolous and that respondent would move for the Court to impose a penalty under section 6673(a)(1) if he persisted. …respondent’s counsel sent petitioner another letter, in which he reminded petitioner of the Tax Court’s authority to impose a penalty under section 6673(a)(1).” 151 T. C. 1, at p. 4.

But on the trial Ben was adamant, frivoling away.

Judge Ruwe: “At trial petitioner neither testified nor presented any witnesses. However, he asserts, using tax-protester type arguments, that the income he received in 2012 is not taxable under the Code.  His arguments are shopworn tax protester arguments that have been universally rejected by this Court. We will not painstakingly address petitioner’s arguments ‘with somber reasoning and copious citation of precedent; to do so might suggest that these arguments have some colorable merit.’” 151 T. C. 1, at p. 5 (Citations omitted, but they’re all the usual suspects I’ve blogged, from Wnuck forward).

So Ben gets hit with nonfiling and nonpaying chops because Section 6751(b)(2). As we used to yell playing tag, grasping a fellow player’s hand while touching the base, “Electricity!”

But is the Section 6673 frivolity chop a Graev matter?

“The penalty at issue in Graev III was a section 6662(a) penalty, which is a penalty determined by the Commissioner in a notice of deficiency or by Chief Counsel for the Internal Revenue Service (IRS) in the answer or amended answer filed on behalf of the Commissioner in this Court.  What Graev III made clear is that an initial determination by the IRS to assert a penalty requires written approval by an IRS supervisor and that an initial determination by a Chief Counsel attorney to affirmatively plead such a penalty on behalf of the IRS requires written supervisory approval by the attorney’s supervisor. However, Graev III left many questions unanswered.” 151 T. C. 1, at p. 10. (Citations omitted).

Of course, Judge Ruwe is referring to The Great Concurrer, Judge Mark V Holmes’ concurrence in Graev III, so check out my blogpost “Stir, Baby, Stir – That Silt,”12/20/17. Now you’re up to speed.

But did Section 6751 overrule Section 6673 by implication?

Negatory, good buddy, says Judge Ruwe and the entire Tax Court bench.

‘Sections 6673(a)(1) and 6751(b)(1) are not in irreconcilable conflict, section 6751(b)(1) is not a substitute for section 6673(a)(1), and Congress did not express a manifest intent to repeal section 6673(a)(1) or to modify the longstanding procedural rules that govern the processing of cases in the Tax Court.

“An irreconcilable conflict exists when ‘there is a positive repugnancy between * * * [the statutes] or * * * they cannot mutually coexist.’  If the two statutes can coexist, it is the duty of the courts to give effect to both.”

“Here the purposes of sections 6751(b)(1) and 6673(a)(1) can both be served while giving effect to both provisions.” 151 T.C. 1, at p. 12. (Citations omitted).

The legislative histories of the two statutes make it clear. The 1998 addition of Section 6751 was made to keep IRS grunts from using chops to bludgeon taxpayers into adverse settlements. The 1989 addition of Section 6673 was to permit Tax Court Judges to whang the pates of the rounders and frivolers who dissipate scarce judicial resources and divert same from meritorious petitioners.

And the “Big Courts,” those enshrined by Art III of the Constitution, have the same powers.

“Title 26, section 7482(c)(4) is similar to section 6673(a)(1).  It grants the Supreme Court of the United States and the U.S. Circuit Courts of Appeals the power to impose penalties in cases where the decision of the Tax Court is affirmed and the court decides ‘that the appeal was instituted or maintained primarily for delay or that the taxpayer’s position in the appeal is frivolous or groundless. ‘Section 6673(b)(1) authorizes the District Courts to impose a penalty not in excess of $10,000 if a taxpayer maintains a ‘frivolous or groundless’ position in a section 7433 proceeding.  Section 6751(b)(1) was not intended as a broad restraint mechanism on the Federal judiciary.  It was not intended to cover the imposition of penalties that Congress intended could be imposed by courts because of misbehavior by a litigant during the course of a judicial proceeding.  Accordingly, we hold that section 6751(b)(1) does not apply to the Tax Court when it imposes penalties under section 6673(a)(1).” 151 T. C. 1, at p. 16.

Ben was warned…twice. He frivoled. He earns a $2K Section 6673 chop, and enduring fame, as his case will doubtless be picked up by the trade press and the blogosphere.

Or, No Love for Chenery

It’s the end of the Custom Adjustable Rate Debt Structure (CARDS), which I’ve blogged extensively over the years. Judge Nega cites all the cases I’ve blogged and more.

See my blogposts “House of CARDS,” 3/8/11, “Not in the CARDS,” 12/6/16; and “CARDS? It’s For the Birds,” 8/2/17.

At the end of the day, there’s neither economic substance nor a non-tax business purpose to this marriage of offshore debt to onshore gain. But neither was there in any of the other CARDS cases.

The only reason I blog this case is that the protagonists are the founders of the CARDS deal, and the original principals of Chenery Associates, Inc., Roy E. Hahn and Linda G. Montgomery, 2018 T. C. Memo. 100, filed 7/2/18.

You can read for yourselves the wheeling and dealing, but it’s of a piece with those I’ve heretofore dissected. I’ll only close the books with Judge Nega’s envoi: “On the record before us, we find that petitioners’ CARDS transaction did not have any practical economic effects beyond the creation of tax benefits and therefore lacks economic substance.  On that record, we further find that the loss deductions arising from the CARDS transaction are disallowed.” 2018 T. C. Memo. 100, at p. 24.

IRS seems to have a problem with Estate Of Michael J. Jackson,  Deceased, John G. Branca, Co- Executor and John McClain, Co-Executor, Docket No. 17152-13, filed 7/2/18. Or rather, with the attorneys for the co-ex’rs.

So there comes before the Great Dissenter/Concurrer, a/k/a The Judge Who Writes Like a Human Being, s/a/k/a The Master Silt-Stirrer and Old China Hand, Judge Mark V. Holmes, IRS’ motion to “… strike part of petitioner’s opening brief.”

That’s the post-trial opening brief, after thirty-six (count ‘em, thirty-six) volumes of trial testimony, enough stips to stock a fair-sized bookstore (if any such exist post-Amazon), and a reopened record (obviously for Boss Hoss sign-offs for chops).

Now we all know Rule 52 provides, in pertinent part (as my two-Grey Goose-Gibson lunching colleagues state) “…upon motion made by a party…or upon the Court’s own initiative at any time, the Court may order stricken from any pleading any insufficient claim or defense or any redundant, immaterial, impertinent, frivolous, or scandalous matter. In like manner and procedure, the Court may order stricken any such objectionable matter from briefs, documents, or any other papers or responses filed with the Court.”

You’ll doubtless remember IRS’ lying witness who featured in my blogpost “I’m Shocked…Shocked,” 4/28/17. But Judge Holmes hardly gave that a shrug of the shoulders. So how can any remarks on that score overtop the bar for a strike?

Now whatever else might the ex’rs’ high-priced, Beverly Hills 90212 attorneys put in an opening brief that could possibly be “insufficient, redundant, immaterial, impertinent, frivolous, or scandalous”?

I’d dearly love to know.

That might well be a lot more interesting than another valuation joust between squadrons of dueling appraisers, generating hundreds of pages of regurgitation of their cogitations and coruscations, followed by a mix-and-match exagmination round their factifications.

With the world in the throes of the Kickball Championship of the Galaxy, the aficionados thereof doubtless glued to the screens and discoursing at length and with vehemence about the offside rule (did not the Lower Oölitic striker outpace (or not) the Silurian fullback? And the ref allowed the goal? Sound the alarum, blow wind, come wrack!), that Obliging Jurist Judge David Gustafson has a lecture on the Tax Court appellate offside rule in Duncan Bass, Docket No. 12871-17, filed 7/2/18.

Dunc lost a Section 274 and Section 170 substantiation off-the-bencher last month that I didn’t blog, and got sent off to do a Rule 155 beancount. Nothing daunted, Dunc, a Tar Heel, headed for 4 Cir sans beancount, protesting Judge Gustafson’s order. Judge Gustafson wants the beancount to go forward so he can issue a decision. This is a deficiency case, and a deficiency can’t be decided without a number.

Courtesy is Judge Gustafson’s middle name.

“Of course we do not speak for Court of Appeals, nor do we rule on appeals of our own orders, but we are responsible to determine whether to continue our proceedings when a party has filed a notice of appeal.” Order, at p. 2.

Bowing to Golsen (the law of the Circuit where the taxpayer is located at time of trial rules), Judge Gustafson finds 4 Cir decides appeals from decisions and appealable interlocutory or collateral orders.

“These non-final, interlocutory orders that may be appealed are, pursuant to 26 U.S.C. sec. 7482(a)(2)(A) (which is the Tax Court analog to 28 U.S.C. sec. 1292), orders that include a ‘statement that a controlling question of law is involved with respect to which there is a substantial ground for difference of opinion and that an immediate appeal from that order may materially advance the ultimate termination of the litigation’. Our order did not include such a statement (and neither party requested that we amend the order to include such a statement). Thus, our order from which Mr. Bass purported to appeal does not meet the exception in section 7482(a)(2)(A).” Order, at p. 2.

“Tax Court Rule 193(c) provides that ‘proceedings in the Tax Court shall not be stayed by virtue of any interlocutory order that is or may be the subject of an appeal.” Thus, Mr. Bass’s premature appeal does not stay our Rule 155 proceedings.” Order, at p 2.

So Dunc, do the numbers. And don’t panic. When the numbers are done, Judge Gustafson has promised to give you a final, appealable order

It’s been five years to the day, near enough, that I first entitled a blogpost with this tagline from Harry Golden, journalist and raconteur. So at the risk of prolixity, but given the lapse of time, I’ll retell this thrice-told tale.

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

Well, on this torrid Friday, with the usual want of opinions, I turn to that Obliging Jurist, Judge David Gustafson, who has provided yet another opportunity to repeat Harry Golden’s anecdote.

Judge Gustafson has many a time and oft helped the hapless and feckless petitioners who flounder and founder in the toils of US Tax Court. Now he turns his benevolent attention to Appeals, and one little word from a Supplemental NOD that befuddles him.

Here’s James Houk and Marsha Houk, Deceased, Docket No. 22140-15L, filed 6/29/18. This is not the first time Judge Gustafson has to serve as drafter in this case; see my blogpost “Obliging? He’ll Rewrite Your Papers For You,” 2/28/18.

Well, we all know the fastest way to get something done is to give it to someone who is very busy.

Jim went back to Appeals to fight over his self-reported liability, and handed in an amended return. Appeals issued a supplemental NOD. So maybe Appeals bought the revised version. Maybe not.

“However, we cannot tell the exact meaning of the supplemental notice and the determination that it states. The supplemental notice states that Appeals ‘made the determination to adjust your account to the amended return filed to correct the amount of taxes you now owe. The Appeals Officer submitted the Form 3870, Request for Adjustment for an abatement of prior tax assessment in the amount of $7,369.00.’ This might mean that the total original assessment was $7,369 and it has all been abated, but the supplemental notice elsewhere states that the ‘Settlement Officer informed [Mr. Houk] that if there’s still a balance due we would have to discuss a collection resolution.’ That ‘if’ leaves us uncertain. Since the supplemental notice states that it ‘supplements the Notice of Determination…,’ that might mean that it leaves standing the prior determination in the … notice that ‘the proposed levy action is the appropriate action in this case’, or perhaps silence about the levy might mean that the levy will not be necessary and is not sustained.

“As far as we can tell, the record in this case so far does not include either the Houks’ original return or their amended return, and the record does not show what the amount of their originally assessed liability was, nor what the adjusted liability is, nor how much of that adjusted liability remains unpaid.” Order, at p. 2.

Charging boldly, IRS moves for entry of decision per the supplemental NOD. And Jim agrees that he’s made a deal with IRS.

 “However, it [IRS’ motion] proposes no explicit decision embodying the resolution of his liability challenge, and it does not state explicitly whether there is an unpaid balance that would warrant the sustaining of the levy.” Order, at pp. 2-3.

“In the supplemental notice issued here, Appeals determined that the Houks’ … tax liability should be reduced by $7,369, but it does not state what that adjusted liability is nor whether it has been paid in full. Moreover, the supplemental notice purports to sustain the proposed levy, but we cannot tell whether there is any unpaid portion of the … liability to make the levy appropriate.

“We will therefore order that the motion for entry of decision be supplemented and be accompanied by a revised proposed decision document that sufficiently resolves the issues in this case.” Order, at p. 3.

To enter decision in a deficiency, there has to be a number. To enter decision sustaining a levy, there has to be a sum certain that would satisfy the levy.

And Judge Gustafson even obliges me, poor as I am, by taking up a pet peeve of mine.

“Sometimes a CDP hearing addresses a lien notice (see section 6320), sometimes a levy notice (see section 6330), and sometimes both. Presumably for that reason, IRS Appeals has developed “and/or” letters and forms that are intended to serve in all three of those circumstances. That approach sometimes causes confusion.” Order, at p. 4.

Judge, roger that. MFA, as we used to say. That stands for “Most Affirmative,” the “F” being for emphasis.

“Indication whether the notice addresses a lien or a levy or both does not appear on the first page. Lawyers and judges know to look on subsequent pages to find references to “lien” (or “NFTL” or “6320”) or “levy” (or “NOIL” or “6330”) or both, but we think that people of ordinary intelligence who do not have tax training and who have previously received both a lien notice and a levy notice and have requested CDP hearings for both (apparently not Mr. Houk’s circumstance) must find this confusing.” Order, at p. 4.

Worse, both the NOD and the supplemental NOD both contained this sentence : “There was a balance due when the Notice of intent to Levy was issued or when the NFTL filing was requested. [Emphasis added.]” Order, at p. 4. (Emphasis in original).

This is obvious boilerplate, because here only a NITL (Judge Gustafson prefers “NOIL,” and I won’t quibble) is involved. That said, “…when one sees this unedited sentence, one knows that it was not composed to address the actual circumstances of the case then before Appeals. One assumes that someone at Appeals actually did address the question whether there was a balance due when the notice was issued, but one dislikes assuming. (And in this case, in its current posture, the question whether there remains a balance due is a very good question, for which an answer in the supplemental notice would have been helpful.). “Order, at p. 4. (Emphasis by the Court).

Now you may say I’m trying to curry favor. I protest I am not, but when a judge writes a sentence like this, ya gotta love it.

“It appears this case is headed for settlement, in which event all is well. But we cannot endorse the ‘and/or’ approach reflected in IRS Appeals’ notices.” Order, at p. 5.

The silt stir that Judge Mark V Holmes foresaw has again buried IRS, as two Class A, top-fuel phonies escape the chops, notwithstanding that the deficiencies rain on like a river, and IRS’ claim for chops like a never-failing stream.

Here’s Endeavor Partners Fund, LLC, Delta Currency Trading, LLC, Tax Matters Partner, et al., 2018 T. C. Memo. 96, filed 6/28/18, with Judge Albert G (“Scholar Al”) Lauber trouncing a colleague (now or formerly a member of that Bar Association taxation subcommittee a/k/a Charlie’s Pizza Party).

The currency options trades rigged by Deutsche Bank and Andy Beer (with Jason Chai as soloist) are an old story, and one I’ve blogged for years. I’ll spare you the cross-references.

Suffice it to say that there’s no economic substance or business purpose except tax-dodging in any of the seven (count ‘em, seven) cases consolidated here. By rigging the exchange rates in advance, any exchange-rate risk is off the radar, and the deals Bialystok on schedule, yielding large recognized offsetting losses with non-recognition gains. Essentially, Deutsche Bank got interest on a one-week loan, and Andy & Co. picked up some vigorish. The customers paid no tax.

But IRS confesses they have no Section 6751(b) Boss Hoss sign-offs for the heavy-duty chops they wish to affix to Andy & Co with fetters of bronze. So Andy & Co. walk on the chops, despite a rather desperate goal-line stand by IRS, that earns them a Taishoff “Oh Please!”

“Respondent contends that he satisfied the requirements of section 6751(b) by amending his answers to reassert the accuracy-related penalties and by securing supervisory approval for those amendments.  We are unable to accept this argument.  Section 6751(b) requires written supervisory approval for the ‘initial determination’ of a penalty assessment.  In the instant cases the ‘initial determination’ of the accuracy-related penalties was made before the date on which those penalties were included in the FPAAs.  Because the requisite supervisory approval was not secured at that time, the IRS did not comply with the statutory requirement.

“Allowing respondent to cure an admitted violation of section 6751(b) by reasserting penalties in an amended pleading would frustrate Congress’ purpose in enacting this statute.  See S. Rept. No. 105-174, at 65 (1998), 1998-3 C.B. 537 (expressing Congress’ belief ‘that penalties should only be imposed where appropriate and not as a bargaining chip’); Chai, 851 F.3d at 219 (noting that Congress intended to ‘prevent IRS agents from threatening unjustified penalties to encourage taxpayers to settle’).  The accuracy-related penalties determined by the IRS therefore are not sustained.” 2018 T. C. 96, at pp. 65-66.

Well, OK, one cross-reference; see my blogpost “Chai, Chai, V’Kayom,” 4/18/17, wherein I blogged the Chai case with a trilingual pun.

Next is L. Donald Guess, 2018 T. C. Memo. 97, filed 6/28/18. And His Honor Big Julie, a/k/a His Honor Big Julie Judge Julian I Jacobs, hereinafter sometimes referred to as HHBJJJIJ, finds Graev difficulty when IRS tries to chop L. Donald for a phony charitable contribution to his private charitable foundation, notwithstanding that L. Donald took a double fall in USDCCDCA for two years’ worth of Section 7206(1) fraudulent returns. And 9 Cir affirmed same.

If no fraud, then SOL lets L. Donald walk on the SNOD, but collateral estoppel or res judicata keeps him in.

Notwithstanding the foregoing, IRS is again chopfallen (sorry guys).

HHBJJJIJ: “Even though we have made a finding of fraud for purposes of determining whether the period of limitations on assessment and collection remains open, that does not necessarily mean that it is appropriate to impose the section 6663 fraud penalty.  Respondent still has the burden of production with respect to the section 6663 fraud penalty.  See Sec. 7491(c).  Respondent’s burden of production under section 7491(c) includes establishing compliance with the supervisory approval requirements of section 6751(b). To meet his burden of production with respect to the section 6663 fraud penalty, respondent must show there was written supervisory approval of the initial penalty determination.  Respondent has failed to make this showing.  Consequently, respondent has not met his burden of production.” 2018 T. C. Memo. at pp. 24-25. (Citations omitted, but Graev is right in there.)

Judge Holmes got it right. Stir that silt.