Euripides. Haste to sustain the assault!

Dionysus. Great gods, what a number of assaults!

Tanyard Farms, LLC, Tanyard Investors, LLC, Tax Matters Partner, Docket No. 11216-21, filed 1/14/25 echoes Euripides’ immortal words, as IRS echoes those of Dionysus, from Aristophanes’ 405 BC smash hit The Frogs. But the target of the assaults isn’t the plays of Aeschylus, rather 11 Cir’s resuscitation of the old “Boss Hoss any time before assessment” dictionary chaw that ex-Ch J Michael D (“Iron Mike”) Thornton first bit off. See my blogpost “Money-Back Guarantee Meets the Boss Hoss,”11/30/16*.

Even though Tax Court subsequently dissed that rationale, 11 Cir enshrined same in Kroner.**

Tanyard is Golsenized to 11 Cir, and concedes IRS’s motion for Boss Hoss partial summary J, while reserving its right to appeal. Of course IRS wants to protect Kroner as a goalmouth save in case they find out they’d blown the Boss Hossery in the middle of trial. For like reason Tanyard wants to demolish it.

The assault fails, says Judge Elizabeth Crewson Paris.

IRS coppered its bets by getting Boss Hoss signoffs before each of the two (count ’em, two) penalty forms were displayed to Tanyard. So, even under Tanyard’s desired reading of Section 6751(b), the supe had oversight over the RAs on the case when signoff occurred. Only thereafter was each penalty first announced to Tanyard.

* https://taishofflaw.com/2016/11/30/money-back-guarantee-meets-the-boss-hoss/

** https://law.justia.com/cases/federal/appellate-courts/ca11/20-13902/20-13902-2022-09-13.html

I think it was George Bernard Shaw who said that it was difficult to garner even a small success. Karen Lee Shuster, Docket No. 27575-22, filed 1/13/25, has done that, avoiding the Section 6673 frivolity chop by virtue of an IRS miscue.

Karen Lee filed a W-4 claiming exemption from Federal income tax, filed a zero wages 1040, and sought a refund of FICA/FUTA/ITW. IRS refused refund, but gave Karen Lee a SND at no extra charge. IRS asserted the five-and-ten substantial understatement add-on, and Section 6651(a)(2) late payment chop.

Karen Lee petitions, but it’s the usual protester jive, on which Judge Ronald L. (“Ingenuity”) Buch wastes little time and less ingenuity. The substantial understatement is a walkover, but failure to pay is where Karen Lee gains her small success.

IRS has BoP on failure to pay, and drops the ball.

“Section 6651(a)(2) applies when someone fails ‘to pay the amount shown as tax on any return.’ The amount shown as tax on Ms. Shuster’s return was zero. The Commissioner accepted Ms. Shuster’s return, and she paid the amount reported, zero.” Transcript, at   p. 9.

And while Karen Lee made no nonfrivolous arguments, and persisted even when warned by Judge Buch, she did prevail on the Section 6651(a)(2) failure to pay, so no Section 6673 chop.

I’ve often before now questioned why a line on a map should affect the application of a statute of national application. Especially is this so when it comes to the IRC, which affects more Americans than any other Federal enactment, even those who need not pay taxes or file returns.

But today STJ Diana L. (“Sidewalks of New York”) Leyden finds that the lordly Hudson is the moat behind which Zia H. Shaikh, Docket No. 10493-24L, filed 1/13/25, is protected from Hallmark Collective‘s ban on equitable tolling in Section 6213(a) SND cases. Zia petitioned when he resided in NJ, thus invoking Culp, 3 Cir’s gift to the tax controversy commiunity. See my blogpost “‘Rare Noodle’ – On Steroids,” 11/2/23* for the Culp story.

Unhappily for him, Zia, a/k/a Zis, flunks the “diligent pursuit of his rights and extraordinary circumstances” tests for equitable tolling. Like those seeking a temporary restraining order, those who seek equity must do equity. Zia a/k/a Zis didn’t.

“He filed amended returns … (20 days before the IRS issued petitioner notices of deficiency for those years), claiming zero income in those years and that he was entitled to refunds. The IRS did not accept petitioner’s amended returns. Petitioner also claims that he had medical and mental health issues that impacted his ability to meet deadlines. But both before and after the notices of deficiency were issued to petitioner, he continued to engage with the IRS, and later this Court, making arguments to both that the Court recognizes as frivolous tax protester arguments. Despite this engagement, petitioner did not file a petition with this Court to contest the notices of deficiency… until nearly three years after the 90-day deadline to do so expired. Petitioner’s other arguments, including purported hardships that should entitle him to equitable tolling such as restrictions to his professional license and the subsequent loss to his income are consequences of his own design. Petitioner owed taxes…, and instead of paying what he owed or contesting the deficiency in a timely manner he chose to continuously hide behind delay tactics and frivolous arguments to avoid payment. Under these circumstances there is not any need to catalog petitioner’s arguments and painstakingly address them.” Order, at p. 3.

In short, Culp won’t help you, even in 3 Cir, if you’re culpable. (Sorry, guys, the devil made me do it.)

* https://taishofflaw.com/2023/11/02/rare-noodle-on-steroids/

It’s long been a motto in Twelve Step circles, and many other places, that “you have to show up.” Far be it from me to belittle or denigrate a true piece of folk wisdom, but sometimes showing up isn’t by itself enough.

Just ask Judge Ronald L. (“Ingenuity”) Buch or the president of KRV Construction Inc., Docket No. 26712-22L, filed 1/10/25, whom I’ll call K.

While K provided Appeals with neither FICA returns, FUTA returns, nor 1120s for a bunch years (hi, Judge Holmes), nor did he contest liability, he did show up for the hearing on his petition from the NOD Appeals gave him sustaining the NITL.

K claims at the Tax Court hearing that KRV “did not receive a phone call from the Commissioner on the date of the hearing, never received a letter for a face-to-face conference, did not receive responses from the Commissioner to its phone calls, and requested a payment plan for the taxes owed.” Order, at p. 2.

IRS claims Appeals never got the tax returns after they asked for them, nor was KRV current with required filings as at date of hearing. And K never attended the telephone hearing.

Judge Buch: “Even if KRV attended the hearing, the appeals officer would not have abused her discretion in rejecting collection alternatives. This Court has consistently held that appeals officers do not abuse their discretion in rejecting collection alternatives if they find that the taxpayer is not in current compliance with tax laws. KRV was not in filing compliance at the time of the hearing, and the record is clear that it is not in compliance with its tax return filing obligations. On those grounds alone it would have been sufficient to justify the appeals officer’s rejecting of collection alternatives.” Order, at p. 3. (Citations omitted).

And when K showed up at the petition hearing, K “did not provide any additional information or arguments in response to the Commissioner’s Motion.” Order, at p. 2.

If you show up with nothing useful, better save the fare.

See my blogpost “A Mark of Respect,” 1/7/24*.

* https://taishofflaw.com/2025/01/07/a-mark-of-respect/

Most indocumentados are cases involving little, few, or no papers. But Ishveen K. Chopra, T. C. Memo. 2025-2, filed 1/8/25, has a lot of papers. Only they don’t substantiate her claimed deductions.

Judge Albert G. (“Scholar Al”) Lauber spends seventeen (count ’em, seventeen) pages demolishing Ishveen’s paperwork.

A sample. “One group of statements showed alleged transactions on an American Express (AmEx) account ending in 15008; the other showed alleged transactions on a Discover Bank (Discover) account ending in 4260. The RA noticed inconsistencies in these statements, which prompted him to issue a summons to Discover. Discover supplied the IRS with information about all Discover accounts in petitioner’s name for [year at issue]. They did not include any account ending in 4260.” T. C. Memo. 2024-2, at p. 3.

“Hotel receipts misspelled the hotel’s name and had unusually late checkout times (such as 11:10 p.m.).” T. C. Memo. 2024-2, at p. 3.

There’s a lot more, enough to get Ishveen the 75% fraud chop.

Maybe sometimes it’s better not to substantiate.

The latest addition to my list of those who cannot add comes from Judge Cary Douglas Pugh. She denies IRS’ motion for issue preclusion summary J on the amount of deficiency to be assessed against Craig P. Orrock, Docket No. 113-24, filed 1/7/24. Notwithstanding Craig’s conviction on three (count  ’em, three) counts, two Section 7201 tax evasions and one Section 7212 attempting to interfere with the internal revenue laws, by a jury of his peers in USDCDNV and affirmance thereof by 9 Cir, that doesn’t preclude Craig from litigating how much he owes.

I’ve told this story before, but the result always puzzled me. Craig’s story is even more puzzling. “The District Court sentenced petitioner to 32 months of imprisonment and ordered him to pay a $300 assessment and $923,667 in restitution to the Internal Revenue Service.” Order, at p. 2.

Seriously? $300? Y’all will recollect that the word “assessed” in Section 6751(b) triggered the whole Boss Hoss fandango; is this “assessment” the amount of tax IRS is to enter upon its books? And for that Craig gets 2 years 8 months in jail? And must pay $900K in restitution?

Of course not. IRS gave Craig a SND at no extra charge that determined a “$340,260 deficiency largely attributable to $965,816 in unreported ‘Other Income.'” Order, at p. 3. This was the result of some corporate shenanigans to hide the proceeds of a real estate sale that was the basis of the criminal case.

Apparently computing basis and deducting same from net sales proceeds is beyond the competence of an AUSA to explain, and a Federal trial jury to comprehend.

Anyway, though Craig is precluded from relitigating fraud (hence the Section 6663 chop is in), he can fight about what the tax is.

“Petitioner points out that the specific amount of reported income was not an essential element of his conviction. A jury plausibly could reach a guilty verdict at count two of the indictment without finding that petitioner owed the entire $340,260 deficiency determined in respondent’s notice of deficiency. Nor does the restitution ordered in the District Court’s final judgment conclusively establish that petitioner is liable for the entire deficiency. Thus while certain admissions from the criminal trial may constitute evidence in determining petitioner’s liability, the conviction alone does not establish that there is no genuine issue of fact as to the precise amount of petitioner’s unreported [year at issue] income.” Order, at p. 4.

The United States Tax Court Courthouse will be closed Thursday, January 9, 2025 “as a mark of respect for James Earl Carter, Jr., the thirty-ninth President of the United States.” However, DAWSON, no respecter of persons, will remain available for electronic access and electronic filing.

I confess it, and deny it not: I am a fan of the late Jimmy B. He was a “brash embodiment of the street-smart New Yorker,” my kind of guy. Especially his 1997 memoir I Want to Thank My Brain for Remembering Me struck home, when four (count ’em, four) years later I woke up in the recovery room at Duke University Medical Center drafting aloud a petition in a holdover proceeding, which caused the medics to summon my wife, as they thought I had gone mad. No, just grateful beyond words that I was able to continue to practice law, which I admit is easy to conflate with insanity.

But now it’s another work of Jimmy B.’s, The Gang Who Couldn’t Shoot Straight, 1969 vintage. And the sequel is written by Judge Mark V. (“Vittorio Emanuele”) Holmes in Crystal Anne Nelson & Joseph Nelson, Docket No. 5223-19L, filed 1/6/24.

Crys & Joe were down $2 million in tax for years at issue, which they didn’t contest, but wanted an OIC of $1750 payable in  installments. So they riposted the NFTL with Letter 12153, whereupon IRS earned the title first set forth above at the head hereof, as my two-Grey-Goose-Gibson-lunching colleagues would say.

“The IRS botched the hearing, however, by sending some important correspondence—including the notice scheduling the CDP hearing—to the wrong address. When the Nelsons didn’t show up at the hearing, the Commissioner sent them a ‘last chance letter”—also to the wrong address.” Order, at p. 2 (unnumbered).

The NOD did get to them, properly addressed, which they petitioned, after which they received the rejection of their OIC. As trial approached, remand was the obvious course. Then SO F (name omitted) got into the act. As can be seen from the following, SO F did not exactly cover himself with glory.

“At this point his manager intervened. She noted in the case activity report that:

‘Although SO informed the POA [i.e., power of attorney—the Nelsons were represented by their accountant, BS, during the CDP hearing] of the missing documents, SO F did not explain why he needed these documents (which are presumably for a collection alternative) . . . did not specify what months of bank statements are needed . . . did not specify which estimated tax payments are needed … did not provide a deadline for the filing of the [most recent year] Form 1040 tax return . . . did not provide a deadline for the other documents . . . did not explain what would happen if the requested documents were not submitted by the deadline.’

“The manager also noted that she did not consider the SO’s vague recollection of requiring the Nelsons to produce these documents on the same day he asked for them to be ‘a reasonable opportunity to submit documents.'” Order, at p. 3. (unnumbered).

But when SO F, duly chastened, requested the information in proper form, trusty accountant BS told SO F that client refused and that SO F could file a supplemental NOD rejecting everything. Obviously, BS is too well-bred to repeat what I daresay was his clients’ actual response.

Judge Holmes is constrained by the record rule in this 9 Cir Golsenized case, and sustains the supplemental NOD.

“This case has had many odd twists, but in the end the Commissioner is right that the deliberate refusal of a taxpayer to comply with reasonable demands for documents and proof of compliance with filing obligations for later years means there was no abuse of discretion in denying the Nelsons an offer in compromise and issuing the supplemental notice of determination.” Order, at p. 7 (unnumbered).

I want to thank Judge Holmes for issuing the order in drag-and-drop format even though the pages are unnumbered. Much better than trying to retype or paraphrase.

That’s what Judge Ronald L. (“Ingenuity”) Buch does, and tells IRS, when dealing with IRS’ motion for partial summary J denying Section 41 Qualified Research credits, in System Technologies, Inc., Docket No. 12211-21, filed 1/3/24. STI made powder-coating equipment for outboard motors and stuff, which it sold to manufacturers. All the contracts at issue specified IN law; but the contractual warranty was simply “exclusively repair or replace.” No other remedy provided for breach.

IRS claims this puts the fun in “funded” research. Buyer is paying for the research; seller has no skin in the cliché. Researchers have to buy the credit by taking the economic risk of failure.

So what if STI couldn’t deliver any conforming goods? IRS says that’s a nonissue, everybody knows that STI could deliver. Judge Ingenuity Buch says that goes to uncertainty, a different gate in the four-part Section 41(d) slalom. Maybe STI flunks on uncertainty, but that’s not at issue here.

Taishoff says uncertainty is inherently factual. Holmes (Sherlock, not Judge Mark) asked the basic question: “Of what had you made certain, after you had made certain that you had made certain of nothing?” The Adventure of the Golden Pince-Nez.

IN law (their take on the Uniform Commercial Code, which is pretty uniform on sales; I remember when we first saw this brand-new enactment On The Hill Far Above under the firm hand of The 49th MacNeill of Barra, RIP) provides among the remedies for seller’s nonperformance is restitution of whatever buyer paid seller. And while the IN UCC says the parties can contractually modify or eliminate the warranties and remedies provided by statute or commonlaw, IN decisional law says the parties can’t trade away all their rights if the result would be inequitable. Practice tip: IN lawyers check out Judge Buch’s essay on IN sales of goods law, Order, at pp. 5-6.

“Although the Commissioner’s factual suppositions may be correct, we cannot rely on them in deciding a motion for summary judgment, where we must draw factual inferences in the light most favorable to the non-moving party. Furthermore, the Commissioner’s argument does not appear to be directed at the question of funded research, but instead at the question of whether the research is qualified research. As previously discussed, for expenses to constitute qualified research, the research must pass each prong of a four-part test. The first prong of this test, the section 174 test, requires the taxpayer to demonstrate that the research ‘would eliminate uncertainty concerning the development or improvement of a product.’ Treas. Reg. §1.174-2(a)(1). The Commissioner expressly argues that neither System Technologies nor its customers had any doubt that System Technologies could deliver the contracted products. This may raise a fact question as to whether there was uncertainty concerning the development or improvement of a product, but it does not answer the question of what remedies might be available in the event of such a failure. In such an event, however remote, Indiana state law provides the remedy of a refund of payments made.” Order, at p. 7.

Oh, and for blow-off and cool-off, see Order, at p. 2 (Tomita project).