The irrepressible Sam Jewell is back in Tax Court with a doubleheader, as 10 Cir vacated Judge Paris’ decision in Lindsay Manor Nursing Home, Inc., No. 17-9002, filed 3/27/18, leaving Ch J Maurice B (“Mighty Mo”) Foley to hand the case back to Judge Paris in Lindsay Manor Nursing Home, Inc., 24596-14L, filed 6/6/18.

That’s the opener. In the nightcap, we have Seminole Nursing Home, Inc., Docket No. 24577-14L, filed 6/6/18, with Judge Nega up.

In both cases, Sam wants what Jimmy Webb wrote about in his 1968 hit (No. 195 on the Rolling Stone all-time hit list).

Well, Sam goes one-for-two on vacations, but loses both cases.

Y’all will recall Judge Paris tossed Sam’s “economic hardship” levylifter plea in Lindsay Manor. If not, see my blogpost “It’s Personal,” 3/23/17. Economic hardship is for people, not corporations. Sam appeals, and 10 Cir vacates Judge Paris’ decision. But 10 Cir says it avails Sam naught, because the State of OK lifted Sam’s licenses and put in a receiver six (count ‘em, six) months before Judge Paris put out Sam economic hardship plea. So Lindsay Manor can’t take care of nursing home patients any more, because it operates no nursing homes “where the wind goes sweeping down the plain.” And that Lindsay Manor owes $100K-plus in tax is Lindsay Manor’s problem, as to which the alleged economic hardship is now, and was when Judge Paris issued her decision, irrelevant. Likewise, that Sam might get back in the nursing home business is too speculative to support his argument.

Sam is fighting Seminole, whose story I summarily blew off in my blogpost “Slammin’ Sammy,” 5/31/17, as it was much of a muchness with Lindsay Manor and Sam’s other dodges.

Sam claims 10 Cir’s toss of Judge Paris’ Lindsay manor decision requires the tossing of Seminole. No, says Judge Nega.

“The Tenth Circuit, however, only vacated this Court’s decision in Lindsay Manor for procedural purposes (i.e., mootness), not for substantive reasons. Accordingly, we find no reason to grant petitioner’s motion because the Tenth Circuit’s decision to vacate Lindsay Manor on grounds of mootness is unrelated to the legal conclusions found in our Memorandum Opinion issued on June 5, 2017.” Order, at p. 2.

All 10 Cir said was that Sam’s economic hardship argument, even if he was right, wouldn’t help, now that the State of OK had lifted Sam’s licenses so that Sam’s poor patients had come under new and different management.

So Sam goes to trial on Seminole in Oklahoma City. And I doubt Lindsay Manor will be far behind.

And his fate is still unlearned, as His Honor Big Julie, hereinafter and elsewhere sometimes referred to as His Honor Judge Julian I Jacobs, and sometimes herein and elsewhere also referred to as HHBJJJIJ, embeds Ab’s tale in a hearing transcript unavailable online, and does not further enlighten us on the whereabouts of Aboubacar Camara, Docket No. 15727-15, filed 6/6/18.

You remember Ab, of course, and his spouse Fanta. No? Then see my blogpost “Stole Away! So Ho!” 11/27/17, when I made Ab 5 to 2 in my desultory, on-and-off, no-prize, Taishoff best excuse sweepstakes.

Ab’s missing travel documents (and mayhap some other unexplained problems) kept Ab offshore, and unable to show up for trial. Back last year, even that Obliging Jurist Judge David Gustafson lost patience with Ab and handed him off to the general docket.

Well, Ab drew HHBJJJIJ, and didn’t show up this past Monday either. Fan was there, but what tale she told, if any, HHBJJJIJ saith not, but I make it even money Ab hadn’t yet returned. IRS moved to toss.

HHBJJJIJ obliged, and tossed Ab’s petition, throwing in two years’ and $40K worth of deficiencies, additions and chops.

So the immortal words of Jacqueline Steiner and Bess Lomax Hawes (she of the great folksong family) from 69 (count’ em, 69) years ago echo in United States Tax Court.

Most attempts at the Section 7491 burden of proof shift founder, either on failure to play sufficiently nice with IRS, or on the “preponderance of the evidence” dodge. But today Judge Vasquez lets the shift go through, in Donald R. Golan and Sheila E. Golan, 2018 T. C. 76, filed 6/5/18.

IRS didn’t help its cause with a SNOD that claimed Section 179 was at issue (it wasn’t) and that Don and Sheila weren’t entitled to the rehab credit on their Form 3468 because Section 47 (but Section 47 wasn’t in play either).

When we get to trial, IRS claims no basis in the solar panels and submetering equipment Don and Sheila are depreciating, they’re not materially participating (the promoter is doing the billing and collecting) and they’re not at-risk per Section 465.

But none of this showed up in the SNOD, and all of this requires different proofs than what the SNOD says.

It’s the particle physicist’s delight, new matter.

The Golans are in one of those solar electricity deals. See my blogpost “Sittin’ in the Mornin’ Sun,” 4/10/12.

But IRS can’t show that the $152K promissory note Don gave the promoter to pay for the solar stuff is a sham, even though the $90K downpayment Don supposedly made for the stuff wasn’t paid. And Don was an original user; he placed the stuff in service at the right time, and the promoter from whom he bought it was a dealer and so couldn’t depreciate it. And unlike Mike Brown’s highflying airplane (see my blogpost “Not Ready for Prime Time,” 12/3/13), it was ready for full use.

Don claims he put in the magic hours for material participation. Rental activity, thus passive, y’know. But Don doesn’t have to prove he did, IRS has to prove he didn’t. And IRS can’t.

That the promoter got paid via the gross proceeds of the electricity sales doesn’t constitute a prohibited continuing interest in the property Don bought.

“Section 465(b)(3) contemplates fixed and definite rights or interests that realistically may cause creditors to act contrary to how independent creditors would act with respect to their rights under the debt obligations in question. That a creditor was a promoter with respect to a particular transaction does not necessarily mean that he has a prohibited continuing interest in the transaction.” 2018 T. C. Memo. 76, at pp. 29-30. (Citations and footnote omitted.) The promoter had no interest in the capital upon liquidation and got paid from gross proceeds, not net income.

Finally, Don and Sheila met four times with their trusty CPA, whom IRS’ counsel acknowledged on the trial was a “qualified professional.” 2018 T. C. Memo. 76, at p. 36. So the chops are gone. Rule 155 beancount to follow.

Some of this got tried on consent (Rule 41(b)).

A Taishoff  “good job” goes to Walter D. Channels, Esq., attorney for Don and Sheila.

The Cannon Corporation and Subsidiaries, Docket No. 12466-26, filed 6/5/18, claim they just want to change their method of accounting via Section 481(a), to load up six (count ‘em, six) years’ worth of heavy-duty deductions for energy-saving equipment into one year.  Cannon never installed that equipment in any property Cannon owned or leased. And Cannon claims Rev. Proc. 2011-14, 2011-4 I.R.B. 330 lets Cannon (and the subs) do it, because IRS never got around to promulgating the regs Congress told them to.

IRS wants partial summary J saying “no can do.” Cannon claims IRS speaks with forked Proc., and wants barrelsful of IRS documents showing said Rev. Proc. means what Cannon says it means.

Once again, Congress’ unguided tax largesse makes trouble. Old Section 179D gave an immediate write-off for installing energy-efficient stuff. But when it came to exempts, like State and municipal facilities that pay no income tax, the largesse vanished. Instead of saying “them’s the breaks,” Congress allowed the exempts to give the write-off to the designers of said stuff. And IRS “shall” make regs telling them how to do it.

Ya think IRS made regs? Roger that.

So Cannon wound up with about $6 million in write-offs for the six years. For one open year, Cannon files an 1120X, so that’s off the table. But for the rest, Cannon gets inventive.

And who better to deal with inventive taxpayers than one whom the Wall Street Journal, in its June 1, 2018 issue, calls “a jurist known for his quirky writings,” Judge Mark V (“Quirky”) Holmes? Thanks to Mr Richard Rubin of the WSJ, and my colleague Peter Reilly, CPA, for finally giving me the right cognomen for Judge Holmes.

“But for the [V] through [Y] tax years, Cannon did something unusual — it claimed both the deductions for those years and the deduction for its [Z] tax year on its [Z] tax return, which it filed with the IRS…. All these § 179D deductions for the [V]-[Z] tax years were lumped together with “other deductions” on this return. While it reported the §179D deduction for the [Z] tax year like any other deduction, it separately identified its [V]-[Y] deductions as I.R.C. § 481(a) adjustments on a Form 3115, Application for Change in Accounting Method, that it attached to the return.” Order, at p. 3.

Accounting method changes are designed to prevent duplication or omission of items. An accounting change is either an overall change (like cash to accrual) or a material item change (a change in a material item used in the overall plan for the tax years in question). The big question in a material item change is timing: not whether an item is deductible, but when?

Well, isn’t that what Cannon (and the subs) are fighting about? Well, yes, but there’s more.

“And an item involves timing only if its tax treatment accelerates deduction or postpones income, but not if its tax treatment permanently distorts the taxpayer’s lifetime taxable income.” Order, at p. 6. (Citations omitted, but check them out.)

And here it does. Cannon is not like a non-exempt owner that took the one-year Section 179D deduction. The non-exempt has to reduce basis dollar for dollar with the one-year deduction, so at disposition or annually, decreased basis means either greater gain or smaller depreciation deductions. Cannon (and the subs) has no basis to reduce.

Judge Holmes has to parse the language of the Rev. Proc., but finds its doesn’t change timing, only requires that a certification be filed where the exempt is giving the designer the write-off the exempt can’t itself use.

No need for barrelsful of documents. No change in method. Partial summary J to IRS.

The sixteenth-century Italian storyteller Giulio Cesare Croce furnishes the title and the plotline for this twenty-first century retelling, by The Judge with a Heart, STJ Rob’t. N. Armen, in a designated hitter.

Tung Dang & Hieu Pham Dang, Docket No. 21100-17L, filed 6/4/18, are “highly unusual” CDP litigants. Order, at p. 2. They actually want to pay up in full, and actually can do so.

So what are they doing in Tax Court? Well, they want IRS to accept a substitute. Rather than grabbing the Dang goods and chattels at random, they want IRS to levy on Tung’s IRA, which everyone agrees has sufficient cash to pay up and satisfy the levy. Tung and Hieu want the IRA levy because Section 72(t)(2)(A)(vii) exempts a distribution made on account of a levy under Section 6331 from the 10-percent early withdrawal additional tax.

At first Appeals claimed that Tung couldn’t pick where IRS should grab, but IRS’ counsel put them wise on a remand. “Substitution of assets” is a legitimate collection alternative. So Appeals issued a supplemental NOD, and said that Tung’s IRA was IRS’ go-to source.

But maybe IRS missed something. See my blogpost “No Invasion,” 4/23/14. Perhaps it’s not as simple as IRS’ counsel and STJ Armen think. But I won’t tell if you won’t.

Howbeit again, what are Tung and Hieu doing back in front of STJ Armen?

The supplemental NOD says if the levy isn’t satisfied in full from the IRA in sixty (count ‘em, sixty) days, IRS can grab what it likes, where it likes.

Tung and Hieu claim IRS is playing games.

STJ Armen won’t go that far, but the sixty-day cutoff goes by the boards.

STJ Armen: “The Court will not indulge in ‘conspiracy theories’, as alluded to in petitioners’ Status Report, nor will the Court presume bad faith on respondent’s part. However, petitioners do have a point: respondent is the party who will levy on the IRA, and the IRA custodian is a third party who will respond to the levy. This lack of control by petitioners, combined with the absence of any rationale expressed for the aforementioned 60-day proviso, together with respondent’s acknowledgment that levy on the IRA will fully satisfy petitioners’ outstanding liabilities for the two years in issue, lead the Court to conclude that respondent’s authority to proceed with the proposed levy should be limited to levying on the IRA in question. Further, given that petitioners’ underlying liabilities are not in issue in this case and that petitioners desire to promptly pay in full their outstanding liabilities for the two years in issue through a levy by respondent on the IRA in question, the Court concludes that good cause exists not to suspend the levy on such IRA. See I.R.C. sec. 6330(e)(2).” Order, at p. 3.

So let IRS grab the IRA, without regard to any sixty-day cutoff, and let the parties check in next month with a status report.

The plotline? Croce’s hero Bertoldo, a sort of primeval Tyl Eulenspiegel, got sentenced to be hanged. He asked for one last wish. It was granted. His wish? Let him choose the tree from which he was to be hanged. Bertoldo traveled the length and breadth of Italy for many years, lived to a ripe old age, and died in bed, never having found the right tree from which to be hanged.

I’m going back a couple days (hi, Judge Holmes) for a designated hitter from that Obliging Jurist, Judge David Gustafson, Trilogy, Inc. & Subsidiaries, Docket No. 12097-16, filed 5/31/18. But it’s a good brush-up for you stipulationists, a how-to when you get it wrong. And a warning: if you blow an admission or a stip, fix it quick.

I love requests for admissions. You can often get good stuff therefrom, and Trilogy’s lawyers struck gold. At first.

DE’s Supreme Court decided a while back that Trilogy wasn’t trying a hostile takeover of Selectica, but rather trying to “intentionally impair corporate assets, or else coerce Selectica into meeting certain business demands under the threat of such impairment.” Order, at p. 1. (Citation omitted).

Trilogy was in Tax Court trying to deduct some legal fees, which they claimed was for a hostile takeover, notwithstanding the DE judgment that Trilogy wasn’t doing no such thing.

IRS first admitted, and then stiped, that Trilogy was trying a hostile takeover; maybe they didn’t know about the DE judgment.

Whatever, IRS asks to be let out of the admission and the stip.

Trilogy claims they’re unfairly prejudiced, but they knew about the DE judgment for seven (count ‘em, seven) years. Still, IRS waited two months to try to bail.

Well, obliging as ever, Judge Gustafson lets IRS out of the blunders.

Judge Gustafson: “However, we do not condone the Commissioner’s inefficient handling of this issue. Absent truly extraordinary circumstances, we do not expect to allow the Commissioner to make any further correction of his admissions or stipulations in this case.” Order, at p. 4.

If you want to bail, bail early, bail often. The Judge you get may not be as douce as Judge David Gustafson.

The Judge With a Heart, STJ Rob’t. N. Armen, has that message for IRS today in an undesignated hitter, Johnathan Jerome Parson & Sindy Maciel Parson, Docket No. 26024-17, filed 6/1/18. And he takes the words of that 1966 hit by Wm. (“Mickey”) Stevenson and Sylvia Moy to deliver it.

There are two (count ‘em, two) years at issue. IRS wants to toss Sindy for Year One, and neither she nor JJ objects. The issue is Year Two. JJ and Sindy were married throughout both years.

JJ filed MFS for Year One, Sindy filed nothing, and there’s no SFR for her.

Except JJ and Sindy filed MFJ for Year Two, and IRS riposted with a SNOD for both years. But the SNOD was a wee bit equivocal, and STJ Armen isn’t pleased.

“The letter portion of the notice of deficiency was addressed solely to petitioner Johnathan Jerome Parson, and the notice of deficiency-waiver likewise listed petitioner Johnathan Jerome Parson as the sole taxpayer. Notably, the notice of deficiency stated, under the heading ‘The law regarding married couples”, that ‘The law requires separate notices for husbands and wives.’ Nevertheless, attached to ‘the notice of deficiency were (1) a Form 4549-A, Income Tax Examination Changes, in the sole name of petitioner Johnathan Jerome Parson for [Year One] and (2) a separate Form 4549-A in the joint names of petitioners for [Year Two].” Order, at p. 2.

IRS concedes that Sindy can walk as to Year One. But IRS claims Sindy is in for Year Two.

STJ Armen wasn’t happy with this, and raised the problem of a SNOD for Sindy in an earlier order I didn’t blog (and I wish STJs and Judges would designate these orders; the public deserves to know).  So IRS supplements their previous papers, but it doesn’t help.

“Respondent contends that such jurisdiction exists, essentially because of the attachment of the second Form 4549-A to the notice of deficiency and because petitioners were allegedly not misled or confused by respondent’s approach. However, the Court views the matter differently. First and foremost, it is clear that the…notice of deficiency was addressed solely to petitioner Johnathan Jerome Parson. See I.R.C. sec. 6212(a) and (b). Second, the Commissioner is obliged, “wherever practicable, [to] send any notice relating to a joint return under section 6013 of the Internal Revenue Code of 1986 separately to each individual filing the joint return.” Internal Revenue Service Restructuring and Reform Act of 1998, Pub. L. No. 105-206, sec. 3201(d), 112 Stat. at 740. This was not done in the present case.” Order, at p. 2.

So Sindy is out as to both years. For now, at least. But she’d better not secure from battle stations.

“Whether respondent might care to remedy this situation by issuing a notice of deficiency to her for such year at this time is, of course, a matter within respondent’s sole discretion. If respondent should choose to do so, then Sindy Maciel Parson is cautioned that she must, if she should wish to contest any deficiency and/or penalty determination, timely file a petition with this Court.” Order, at p. 2 (Emphasis by the Court).

He read himself in, the salutes were exchanged, ex-Ch J L Paige (“Iron Fist”) Marvel marched the divisions off, and Ch J Maurice B (“Mighty Mo”) Foley is now Chief Judge of the United States Tax Court, serving a two-year term.

Hail to the Chief.

“We Have Never Found A Son-Of-BOSS Deal That Works.”

And The Great Dissenter/Concurrer, a/k/a The Judge Who Writes Like a Human Being, Master Silt-Stirrer and Old China Hand, Judge Mark V. Holmes, isn’t finding one now, in David B. Greenberg, et al., 2018 T. C. Memo. 74, filed 5/31/18, wherein are consolidated fifteen (count ‘em, 15) cases, going back thirteen (count ‘em, 13) years.

And Judge Holmes is just the judge for the task of slogging through 64 pages to unravel the tale of GG Capital and AD Global, dodges worthy of the Ivy League wiseguys who concocted them to the extent of $400 million or so of dodged taxes.

The argy-bargy concerning whether IRS should have unloaded FPAAs rather than going straight after Dave ends because Will, Dave’s sidekick, didn’t check the right boxes on the 1065s. And anyway, there was a pass-through “partner” in the deal, although at the end of the day, the whole thing was a sham to manufacture losses.

It’s the usual digital options game, with a “sweet spot” that can never happen, as the counterparty to the option can easily cause the “sweet spot” to miss.

I’m not going to try to digest 64 pages of same-old, same-old, except to note that the civil case was delayed on the criminal side. Dave was indicted for setting up phony tax deals for a Big Four back in ’07 but acquitted, and Will, who had skipped to Portugal, was never indicted. It was a waste of time. No jury in the galaxy can possibly understand this stuff, so after the fourth Excedrin, they’ll acquit.

But just as the 40% gross-valuation-misstatement chop was about to descend, IRS lost the Section 6751(b) Boss Hoss in the sun.

Judge Holmes: “Were it not for section 6751, we would find them liable for the 40% gross-valuation-misstatement penalty.” 2018 T. C. Memo. 74, at p. 64.

Ah, Judge Holmes, the silt we stir….

Lose on the Numbers

Slawomir J. Fiedziuszko and Alicia M. Fiedziuszko, 2018 T. C. Memo. 75, filed 5/31/18, find themselves in a frustrating situation.

It’s Slawo’s story. He’s a consulting aerospace engineer, semi-retired from his old firm but gigging along, working from home, getting work from former employer via an employment agency and trying to hook up with other firms in the same line. His W-2s from the employment agency show “statutory employee” for the year immediately preceding year at issue, but not the year at issue.

Judge Pugh: “[Agency] processed Mr. Fiedziuszko’s pay for his work for [previous employer] and withheld Federal income tax as well as Social Security and Medicare taxes.  [Agency] did not offer medical or dental insurance, paid vacation leave, or reimbursement of Mr. Fiedziuszko’s expenses, but it did offer a deferred compensation plan.” 2018 T. C. Memo. 75, at p. 3.

The issue is Slawo’s Schedule C.  He took unreimbursed employee expenses without the 2% AGI limit and without the 3% – 80% phaseouts. This is OK if you’re a statutory employee, but not commonlaw Schedule A type.

Judge Pugh cruises through the factors, and Slawo wins.

“We find on the record before us that Mr. Fiedziuszko was not a common law employee of [former employer] and that he is instead a statutory employee.  While his Form W-2 for [year at issue] did not indicate that he was a statutory employee, we believe this to be a mistake.  Mr. Fiedziuszko’s Form W-2 for [immediately previous year] indicated that he was a statutory employee.  Nothing changed between [immediately previous year] and [year at issue]:  Mr. Fiedziuszko was providing services under the same consulting contract with [previous employer] in [year at issue] as he was in [immediately previous year].  Further, Mr. Fiedziuszko worked primarily from his home office rather than [previous employer’s] offices and produced reports and patents according to his assignments from [previous employer].  We therefore find that Mr. Fiedziuszko’s employment status did not change….

“We also conclude that both Mr. Fiedziuszko and [previous employer] intended to form an independent consulting relationship rather than a common law employee-employer relationship.  Mr. Fiedziuszko advertised his services to several satellite companies and was hired by [previous employer] through the temporary employment agency…with which [previous employer] works.  Their relationship was a temporary assignment that terminated in [year at issue].” 2018 T. C. Memo. 75, at pp. 12-13.

And the payment record for Slawo’s services also shows statutory employee earmarks.

Footnote- Note that the Tax Cuts and Jobs Act of 2017 eliminates unreimbursed employee business expenses deduction deducted as miscellaneous deductions subject to the 2% limitation. So what about those of statutory employees, not subject to the 2% AGI limitation and not reported on Schedule A?

But Slawo’s recordkeeping is, to put it charitably, sketchy. So his charitables mostly go by the board. Alicia’s weight-loss program, though Section 213 qualified, likewise founders for want of substantiation. His travel expenses hit the Section 274 landmine. And his pension withdrawal results in unreported income, as Slawo claims it was partially non-taxable, but can’t explain on what basis he reaches that conclusion.

IRS wins the reopener on the chops, sending in the Section 6751(b) Boss Hoss, so if the Rule 155 beancount shows Slawo was over the five-and-ten, Slawo will get hit.

The good-faith out avails him not. Slawo is a rocket scientist (aerospace engineer).

“Petitioners have not shown reasonable cause for the underpayment of tax…. They offered no explanation for their understatement and we conclude that petitioners’ attempt at substantiation, which came far after the return was filed, fell short of what was required.  Mr. Fiedziuszko’s level of sophistication would indicate a better understanding of the requirements than petitioners displayed. Further, some of Mr. Fiedziuszko’s testimony–particularly his testimony regarding his pension income–was not credible.” 2018 T. C. Memo. 75, at p. 28.