No, not the NBC giveway show from the 1950s, neither is this about the pop-culture name for certain religious beliefs. No, this is the story of Ruth A. Lobs, 2015 T. C. Sum. Op. 17, filed 3/3/15, as told by The Judge With A Heart, STJ Armen.

Ruth and former spouse had savings bonds that they split when they split. Former spouse bought them, but titled them “either-or”, a not uncommon (and permissible) approach. See 31CFR§353.7.

When they split, Ruth and former wanted her share to go to son Joe. But Ruth never retitled the bonds.

In the year at issue, son Joe needed money, as is often the case with children, even grown children like son Joe. So Ruth headed over to the credit union, cashed in the bonds, and had the cashier draw a check for net proceeds directly to son Joe.

The record doesn’t reflect whether son Joe paid income tax on the accrued interest, but Ruth sure didn’t, and that’s why she’s in Tax Court.

Ruth testifies she and former always treated the bonds she had as “Joe’s bonds.” She intended him to have them, but never got around to changing the names on the bonds.

“Registration of series EE U. S. savings bonds is generally conclusive of actual ownership of, and interest in, such bonds. 31 C. F. R. sec. 353(a)(2010). Generally, saving bonds are not transferable and are payable only to the owner(s) named on the bonds. Id. sec. 353.15; see id. sec. 353.35(a). Savings bonds registered in coownership form will be paid to either coowner upon request of either coowner and surrender of the bonds. Id. sec. 353.37; see id. 353.39.” 2015 T. C. Sum. Op. 17, at p. 6 (Footnote omitted).

Ruth claims the bonds really were Joe’s, and should have been so registered.

Mox nix, says STJ Armen.

“The fact that the…bonds could have been registered in some other manner is of no moment. As the U. S. Supreme Court instructs, we give effect to what actually happened and not what might have happened.” 2015 T. C. Sum. Op. 17, at p. 7 (Emphasis by the Court; citations omitted).

Ruth’s name was on the bonds, she told the cashier how to make out the check, and so it was as if Ruth got the money and gifted it to son Joe.

Takeaway- Get those bonds out of the shoebox under the bed, go to the Treasury website, and get them titled right.

There was a recent debate on a message board I follow about whether, when stiffed by a client, an attorney can file Form 1099-C on the deadbeat.

The proponent of the tactic was strongly rebuked, as 1099-Cs are to be filed only by governments and applicable financial entities. See Section 6050P and the regs.

But IRS can file them, and does. One result is that they get shot down, as shown in my blogpost “Sunk By The Navy?”, 9/28/11.

And today we have another example in a small-claimer, Suzanne Moore Bacon, 2015 T. C. Sum. Op. 15, filed 3/2/15, from The Judge With A Heart, STJ Armen.

Suzanne is no angel; she claimed FEMA money from the Northridge CA earthquake for what she said was her primary residence, except FEMA later claimed it wasn’t and sent Sue dunning letters for two years. Sue did nothing, of course, so FEMA bucked Sue’s file to DOJ so they could sue Sue for the $3450 of unguided largesse, with a billet doux stating the date when the SOL ran.

You can imagine what DOJ did. And Sue did the same.

The 28USC§2415 six-year SOL clock had long since run down while DOJ was doing other stuff. Nothing daunted, IRS dropped a 1099-C on Sue for the $3450 plus interest (which she ignored), asserting that sending the 1099-C was the “identifiable event” that Section 6050P requires to establish uncollectibility and therefore cancellation of debt.

Nope, says STJ Armen. “The Court recognizes that, in general, the expiration of a period of limitations on collection of indebtedness does not extinguish an underlying debt obligation but simply provides an affirmative defense for the debtor in an action by the creditor. Miller Trust v. Commissioner, 76 T.C. 191, 195 (1981). This is confirmed by section 1.6050P-1(b)(2)(ii), Income Tax Regs. However, the instant case deals with the second clause of the subdivision, ‘expiration of a statutory period for filing a claim’. Sec. 1.6050P-1(b)(2)(i)(C), Income Tax Regs. That clause is not so limited.”

So, even though the theoretical right remains (without a legal remedy), the end of the remediation period extinguishes the debt for tax purposes.

And the SOL ran six years before IRS dropped the 1099-C on Sue. So no cancellation of debt in that year, and no deficiency.

That’s Gregory Raifman & Susan Raifman, Docket No. 3897-14, filed 2/27/15. Greg & Sue can spot a crook a mile away–and hand him millions.

You’ll remember Greg & Sue from my blogpost “We Wuz Robbed”, 8/7/12. What, you don’t remember? Then check out my blogpost aforementioned, as Judge Wells allowed that Greg & Sue were well and truly robbed by the improbably-named-but-larcenously-inclined Yuri Debevc Derivium.

Would you believe that Greg & Sue handed over $2,475,000 to ClassicStar? And if you don’t remember ClassicStar, dig my blogpost “Horsing Around?”, 8/15/11.

Well, today Greg & Sue want summary J allowing the $2,475,000 loss to the ClassicStar swindlers as a carryback from 2009 (a year not at issue) to 2008. IRS balks, but Judge Wells, by now almost an old friend of Greg’s & Sue’s, lets them carry back.

“Generally, this Court has jurisdiction to consider later years not before the Court as may be necessary to correctly redetermine the deficiency for years currently before the Court. I.R.C. sec. 6214(b); Vincentini v. Commissioner, T.C. Memo. 2008-271. Accordingly, this Court may consider petitioners’ 2009 tax year in order to redetermine the correct amount of the theft loss carryback for 2008.” Order, at p. 1.

So Greg & Sue are leading in the backstretch.

But I regret that they, like me, have torn up tickets on horses leading in the backstretch that never quite led at the finish line.

Greg & Sue want to claim they were victims of a Rev. Proc. 2009-20, 2009-14 IRB 735 “specified fraudulent arrangement”. This would get them a theft-loss ordinary deduction, rather than a capital loss.

IRS concedes Greg & Sue were robbed (again), but claims no summary J on “specified fraudulent arrangement.”

Greg & Sue rely on a USDCWDKY trial of the ClassicStar gang.

The KY trial doesn’t establish that ClassicStar promised income to the swindled, nor that they reported to them or paid to them any purported “income”. The “specified fraudulent arrangement” gambit is strictly for Madoff-Ponzi deals, and the KY trial, on which Greg & Sue hang their harness, doesn’t establish anything other than fraudulent representations, but no rob-Peter-to-pay-Paul of the Madoff-Ponzi kind.

So Greg & Sue were robbed (again). But not through a “specified fraudulent arrangement.”

The “rarefied heights” were there, sure enough, in Judge Morrison’s opinion in Estate of Natale B. Giustina, Laraway Michael Giustina, Ex’r (as to which see my blogpost “Such Rarefied Heights of Pure Mathematics”, 6/25/11), but Ninth Circuit found that mathematics wasn’t enough.

As I said back in 2011, “Judge Morrison finds a sale would yield more present value dollars than continuing lumbering operations, finding the probability of the sale sufficiently high to justify a valuation taking that probability into account.”

Ninth Circuit was less than overwhelmed by Judge Morrison’s oddsmaking.

“The Tax Court concluded that there was a 25% likelihood of liquidation of the partnership. It therefore gave a 25% weight to an asset-based valuation and a 75% weight to the valuation of the partnership as a going concern. Although the Tax Court recognized that the owner of the limited interest could not unilaterally force liquidation, it concluded that the owner of that interest could form a two-thirds voting bloc with other limited partners to do so, and assigned a 25% probability to this occurrence. This conclusion is contrary to the evidence in the record. In order for liquidation to occur, we must assume that (1) a hypothetical buyer would somehow obtain admission as a limited partner from the general partners, who have repeatedly emphasized the importance that they place upon continued operation of the partnership; (2) the buyer would then turn around and seek dissolution of the partnership or removal of the general partners who just approved his admission to the partnership; and (3) the buyer would manage to convince at least two (or possibly more) other limited partners to go along, despite the fact that ‘no limited partner ever asked or ever discussed the sale of an interest.’ Alternatively, we must assume that the existing limited partners, or their heirs or assigns, owning two-thirds of the partnership, would seek dissolution. We conclude that it was clear error to assign a 25% likelihood to these hypothetical events. As in Estate of Simplot v. Commissioner, 249 F.3d 1191, 1195 (9th Cir. 2001), the Tax Court engaged in ‘imaginary scenarios as to who a purchaser might be, how long the purchaser would be willing to wait without any return on his investment, and what combinations the purchaser might be able to effect’ with the existing partners.” Estate of Giustina v. Com’r, No. 12-71747, 9th Cir., decided 12/5/14, at pp.2-3.

So Judge Morrison’s scenario is tossed, and back to Tax Court and Judge Morrison goes Laraway for a replay.

But Judge Morrison is looking for a punt on the rarefied pure mathematics.

“Because the remand by the Ninth Circuit contemplates further explanation from the Tax Court of an aspect of its prior opinion, the Court will issue a supplemental opinion. In the meantime, the parties are free-as always-to negotiate a settlement. The parties are to advise the Tax Court of any settlement by filing status reports on or before 60 days after the issuance of the mandate.” Estate Of Natale B. Giustina, Deceased, Laraway Michael Giustina, Executor, Docket No. 10983-09, filed 2/27/15, at p. 2.

Off-Topic

As one of his multitude of fans, I very much regret the death of Leonard Nimoy. Now he is free to roam among the stars, with Bones and Scotty.

No, not that cookware cleanser that sitteth on my right hand when I’m washing up after my cooking forays. It’s Judge Kathleen Kerrigan helping out hardworking but undertipped barkeeper Alan Sabolic, 2015 T. C. Memo. 32, filed 2/26/15, concluding my trifecta for this date.

Al was helping drown the sorrows of the slotmachinists who sat on the six stools in front of his bar at the MGM Grand in Sin City. They could buy or get comped, but mostly comped, the goodies which Al dispsensed. (For you who have never visited, “comped” is short for “complimentary”, and refers to freebies extended to those who keep Sin City going).

Al worked with no waitstaff, and only split tips with barbacks (those who carry the good news to the barkeeper) and the cashiers who convert Al’s loose change to green.

Al dropped out of the GITCA (Gaming Industry Tip Compliance Agreement), which was sort of an Advance Something-Or-Other between the Las Vegas infantry and the Federales, whereunder a set dollar amount was attributed to tips received by the barkeeper for each hour worked (and hours were clocked by automated system).

Al claimed that, in the post-subprime-meltdown, the GITCA was too rich. The college kids and the foreigners didn’t tip, and the attributed stiff rate was too low.

Al needed really good records, so he kept his timeslips, his point-of-sale printouts showing credit card tips, and put whatever change he got into a glass jar, which, at the end of his shift, he emptied and got the cashiers to convert to green, giving the cashier whatever odd change remained. He kept slips and a daily tip diary.

He did “tip out” the barbacks between 10% and 20% of the tips he got. IRS said the number should be 10%.

And of course IRS quibbled with Al’s recordkeeping.

But if a cruel fate should land you behind a six-stool Las Vegas bar jammed with sullen slotmachinists who guzzle and don’t tip, or, even worse, give you, the in-the-trenches tax preparer, a platoon of clients so situated, read Judge Kerrigan’s tip to Al, who gets the deficiency bounced based upon his well-kept records and truthful testimony.

A busy day at 400 Second Street, NW, notwithstanding a two-hour late start and teletubbying, yields a sequel to my blogpost “Two Old Rounders”, 7/31/14.

It’s Alvin Sheldon Kanofsky, 2015 T. C. Memo. 34, filed 2/26/15.

I ended my blogpost above-cited with a question, and Judge Lauber answers as I thought he would.

“Will Al get twenty? Stay tuned.”

Well, Al does.

“Petitioner is no stranger to this Court. He has been warned in prior proceedings that his conduct would subject him to penalty if he continued to repeat the same litany about fraud, corruption, and whistleblowing that he recites in this case and has recited almost verbatim previously. During the trial of his 2006 and 2007 tax liabilities, the collection of which is at issue here, the Court explicitly warned petitioner that his assertion of frivolous positions risked the imposition of a significant penalty. The Court of Appeals for the Third Circuit has previously warned petitioner that his ‘arguments based on obstruction of justice, corruption and fraud committed by public figures in Pennsylvania and New Jersey,’ as well as his alleged ‘extensive whisteblower activity,’ are ‘not relevant * * * and do not advance his cause.’ Kanofsky v. Commissioner, 424 Fed. Appx. 189, 191-192 (3d Cir. 2011) (per curiam), aff’g T.C. Memo. 2010-46. 2015 T. C. Memo. 34, at p. 8.

On July 31, 2014, Al was slapped with the $10K Section 6673 chop, and warned that further frivolity would cost him. I was prepared to wager that would not deter the redoutable Al from further frivol.

It didn’t, of course.

But Judge Lauber is a man of his word. “We find once again that petitioner’s arguments are frivolous and that he has instituted this case for the sole purpose of delaying the collection of his Federal tax liabilities. True to our word, we will accordingly require that he pay to the United States a penalty under section 6673(a), this time in the amount of $20,000.” 2015 T. C. Memo. 34, at pp.9-10.

Will Al go for the top banana? The suspense is killing me.

I wanted to subtitle this blogpost “Until What Freezes Over?” for reasons that shall appear hereinafter. But first, the moving part.

Judge Morrison follows the trail of Jeffrey B. Palmer, in 2015 T. C. Memo. 30, filed 2/25/15, but Jeff fetches up fewer than fifty (50) miles from his old home base in search of employment.

Jeff wants to deduct expenses for moving his new wife (referred to in the opinion as “Palmer’s wife”, 2015 T. C. Memo. 30, at p. 4), plus her two children and her mother from South Carolina to Minnesota.

The nameless wife reminds me of a children’s book I used to read to a now-managing director in a Big Four accounting firm and a now-store manager for Starbuck’s. It featured Stephen of Blois, a Twelfth-Century King of England, also with a nameless wife. We had a lot of laughs about Stephen.

Anyway, Section 217 only refers to the employed, and mandates the over-fifty-mile limit. While Jeff does amble around the Great North Woods, from start to finish he’s fewer than fifty miles farther from work than he was at his old home. “No deduction is allowed under section 217 unless the taxpayer’s new principal place of work is at least 50 miles farther from the taxpayer’s old residence than was the taxpayer’s old principal place of work. Sec. 217(c)(1)(A).” 2015 T. C. Memo. 30, at p. 8.

Moreover, moving spouses count only when spouses shared old home; Jeff and Palmer’s wife (sorry, Ma’am) never lived together in South Carolina.

Simple enough case, with a textbook application of Section 217, but there is a delightful twist. And that sets up my subtitle “Until What Freezes Over?”. It’s the freeze that gives Jeff an entry in the maiden-claimer division of the Taishoff “no-prize good excuses” sweepstakes.

Jeff never bothered to file returns for the years at issue, although he did get extensions for both of them. Here’s his entry.

“Palmer alleges that he could not access his 2007 tax records and that these records were necessary for him to file his 2008 return. Palmer alleges that his 2007 records were in outside storage units and that the doors to these units were frozen over until the spring of 2009. However, because of an extension, Palmer’s 2008 return was not due until October 15, 2009. Any ice would have melted before October 15, 2009. Thus, the ice is not a reasonable cause for Palmer’s failure to file a tax return on or before October 15, 2009. See Stevens Bros. Found. v. Commissioner, 39 T.C. 93, 130 (1962) (‘[A]n acceptable reason for failure to file a return will excuse such failure only so long as the reason remains valid.’), aff’d in part, rev’d in part on another issue, 324 F.2d 633 (8th Cir. 1963).

Hey Judge, given the weather for the last couple weeks (hi, Judge Holmes), it isn’t a bad try.