That’s the paraphrase from The Great Dissenter, a/k/a The Judge Who Writes Like a Human Being, s/a/k/a The Foe of the Partitive Genitive, Judge Mark V. Holmes, in a designated hitter 8/7/14.

And Judge Holmes embellishes this text from a much more exalted source in HTM Fidelity Insurance Company Ltd, Docket No. 18925-13.

These are two companion cases, but IRS and HTM agree to continue Case No. One, so they can go back to Appeals and try to hash out their disputes, and Judge Holmes is down with that.

But IRS tries to wildcard in an economic substance argument in Case No. Two, and HTM says “OK, but IRS has burden of proof, as that’s new matter, not new theory.” HTM will go back to Appeals on Case No. Two as well as Case No. One, but IRS must carry the weight on economic substance.

IRS needs to amend its answer in Case No. Two, and that’s OK with Judge Holmes. He has discretion. The key points are whether there’s an excuse for the delay in amending (there really isn’t, as IRS was fiddling with economic substance at Examination) and whether HTM would “suffer unfair surprise, disadvantage, or prejudice.” Order, at p. 2 (Citation omitted).

Since HTM and IRS are going back to Appeals to haggle, and trial won’t be happening soon, HTM has time to deal with economic substance. It’s not like the parties were on the eve of trial, with witness lists and documents exchanged, pretrial briefs written and exchanged, and all that jazz. So IRS can amend.

But the question remains: who has to prove what? And the answer depends upon whether economic substance is new theory or new matter.

If the facts to be established at trial, and the burden of establishing them, is the same whatever the legal theory, then that burden doesn’t shift from the party that had it to begin with (here it’s HTM). The application of the law can be fought out on papers.

But in this case it isn’t so simple.

“The reason is that the evidence needed to show nondeductibility because a transaction lacks economic substance is different from that needed to show that a deduction is not ordinary and necessary (or not really insurance) – it can stretch to the subjective intent of some entity associated with the transaction and usually includes some notion of profit potential. And the need for different evidence is what distinguishes a new ‘matter’ from a new ‘theory’.” Order, at p. 2.

And Weekend Warrior Trailers, 2011 T. C. Memo. 105, filed 5/19/11, doesn’t help IRS, because there IRS first raised economic substance, and only afterwards threw in Section 162 nondeductibility, so the evidence for economic substance was already out there (and taxpayer won). See my blogpost “Even a Little Substance Matters”, 5/19/11.

Or as Judge Holmes puts it: “But there respondent was trying to add the narrower ground (nondeductibility under section 162) to a case in which he first raised the broader ground. That larger sets contain smaller sets doesn’t mean that the sets are congruent.” Order, at p. 2.

Remember lesser-included-offenses from Criminal Law 101?

So IRS, you must bear your own burden.

The Best in the House?

Readers of this blog come from 111 countries, per statistics from 2/25/12 to present.

In the long-ago days of my youth, when I could get served at some of the better bars in My Fair City before I turned eighteen years of age (I cleaned up pretty good in those days, in a suit and tie), I remember old Canadian Club whiskey billing itself as “The Best in the House in 167 Countries”.

Well, I’m not in that league, but hey, for an old guy I get around.

Larry Michael Welenc needs a reminder of this fact, and Judge Nega is the Judge to give it to him. See Order at Docket No. 21295-11, filed 8/6/14.

Ya can’t keep Larry down. Unlike some technophobic lawyers I’ve blogged heretofore, Larry just loves to e-file.

Here’s a sample, with dates, as they are relevant:

“On July 11, 2014, petitioner filed a Motion for an Order Under Model Rule of Professional Conduct 4.2. The Court denied petitioner’s motion.

“On July 17, 2014, petitioner filed a Statement.

“On July 20, 2014, petitioner filed a First Supplement to Statement.

“On July 23, 2014, the Court advised petitioner that it was inappropriate to communicate in an ex parte fashion with the undersigned or with Court personnel on the merits of his case or the advisability of any motion. The Court also reminded petitioner of the option of contacting pro bono clinics for legal advice in his case.

“On July 23, 2014, petitioner filed a Declaration of Larry M. Welenc in Support of Statement.

“On July 23, 2014, petitioner filed a Request for a Pretrial Conference.

“On July 23, 2014, petitioner filed a Second Supplement to Statement.

“On July 30, 2014, petitioner filed a Pretrial Memorandum. Also, petitioner filed a [sic] Amendment to Pretrial Memorandum on July 30, 2014.

“On August 1, 2014, petitioner filed a Request for Pretrial Conference requesting a pretrial conference with the undersigned judge.

“On August 3, 2014, petitioner filed a Second Supplement to Pretrial Memorandum.

“On August 4, 2014, petitioner filed a Statement. In his statement, petitioner requested that the Court withdraw its July 22, 2014 [sic] Order, and sought clarification from the Judge’s Chambers regarding a Clerk’s office memo.

“On August 5, 2014, petitioner filed a Second Supplement to Statement. “ Order, at pp. 1-2.

You get the idea. Of course, Larry is a pro se, but I’ve seen attorneys pull the same stunts.

And Larry seems to think he has Tax Court’s clerks on retainer, calling up for free advice.

Judge Nega loses patience. Larry is diverting resources from those who need them.

“Petitioner has submitted various documents that contain nothing but frivolous and groundless arguments. Petitioner’s tactics have consumed valuable Government resources. These tactics should not be condoned. They damage the integrity of the Federal tax litigation system because the time and attention the Court and respondent must devote to these frivolous arguments deprives other taxpayers with genuine controversies. We are mindful that petitioner is representing himself and may not be familiar with all the Court’s Rules and procedures. Pro se status, however, is not a license to litter the dockets of the Federal courts with ridiculous allegations concerning the Code.” Order, at p. 2. (Citations omitted).

So look out, Larry.

“Petitioner is advised that I.R.C. section 6673(a) (1) provides that the Tax Court may impose a penalty of up to $25,000 whenever it appears to the Court that proceedings have been instituted or maintained by the taxpayer primarily for delay or that the taxpayer’s position in the proceeding is frivolous or groundless.

“Petitioner is also cautioned that if he continues to submit unsolicited filings that contain mostly immaterial, impertinent, and/or frivolous matters, his e-filing privileges may be revoked by the Court.” Order, at pp. 2-3.

So Larry, cut it out and play nice. Or you may find yourself with a kick in the wallet and a seat in Outer Darkness with Terri Morgeson, Louis Samuel and Old Bill Wise.

Getting nostalgic fifty years on for the days of my misspent youth on that Hill Far Above, I remember the famous line “To the tune of our profs we must always keep time”. And I offer that snippet from “The Song of the Classes” (no, it’s not by Karl Marx) to those wannabe material participants in what would otherwise be passivity in the first degree.

Especially to my brethren and sistern at the Bar, who are bombarded with pitches from vendors of timekeeping and billing software.

Case in point today comes from Judge Buch, obviously a fan of time-billing. This is the story of Scott Wesley Williams and Michaele Anna Williams, 2014 T. C. Memo. 158, filed 8/5/14.

But it’s really Scotty’s story. He’s running his Dad’s old business training telephone reps, and carrying on an active law practice, but he finds time to run an airplane rental business too, that he claims is active.

He tries to tie in his flying with his telephoning, but that doesn’t fly (sorry, guys). So he can’t offset his flying deductions against his telephoning, because all they have in common is him. Check out Judge Buch’s take on the “single activity” rules in Reg. 1.469-4(c) at pp. 17-19.

And Scotty can’t prove the hours test (500 and 100). One sentence says it all: “Although Mr. Williams is a practicing attorney and likely is familiar with the practice of tracking his hours, he did not provide a log of his hours spent on the airplane activity, not even for the amount of time he spent drafting legal documents such as the aircraft marketing agreements.” 2014 T. C. Memo. 158, at p. 10.

Judge Buch must be recalling his time at McKee Nelson LLP and Bingham McCutcheon LLP, at both of which firms, and at the exalted rank of partner, no doubt he billed with the best of them.

So deficiency and the Section 6662(a) negligence chop stand.

Takeaway: Software and obsessive-compulsive behavior are cheap; deficiencies, penalties and interest are expensive.

One interesting question that doesn’t get answered by that highly-credentialed jurist, Judge Albert G. (“Big Al”) Lauber is whether an FBAR penalty is part of the base for a Section 7623 whistleblower award.

The conundrum arises in Whistleblower 22231-12W, 2014 T. C. Memo. 157, filed 8/4/14.

Ol’ 22231 claims s/he blew the whistle on Taxpayer 1, who was consorting with the Swiss to disappear the boodle. The Federales nailed Taxpayer 1, but there’s a dispute whether Ol’ 22231 was in on the tackle.

Would it paralyze you with shock to learn that, after Ol’ 22231 had petitioned, IRS claimed no jurisdiction, and moreover, IRS hadn’t used Ol’ 22231’s info in the slightest little bit?

Judge Lauber: “During July or August 2013 the Office received information from the IRS Criminal Investigation Division and the IRS Large Business and International Division that the Government had not used petitioner’s information as a basis for taking action against Taxpayer 1. The Office thereafter issued to petitioner… a letter that both parties agree constitutes a ‘determination’ that petitioner’s Taxpayer 1 claim has been denied. Petitioner filed a petition from that determination, and the matter is currently pending before the Court. See Whistleblower 22716-13W v. Commissioner, dkt. No. 22716-13W.”2014 T. C. Memo. 157, at p. 7.

Flashback: After an earlier exchange of e-mails between Ol’ 22231’s attorney and a Whistleblower office analyst (the “Whistling Analyst”), Ol’ 2231’s attorney was told that IRS got a pittance by way of income tax from Taxpayer 1, but a multi-million dollar FBAR nonfiling award.

Of course, the Whistling Analyst says IRS takes the position that FBAR penalties aren’t collected proceeds per Section 7623, so it’s irrelevant whether Ol’  22231 tipped off Treasury so they could make the big score. Ol’ 22231 wouldn’t get more than a penny anyway, even if they used his info, which they still hadn’t decided.

An Associate Chief Counsel at IRS’ General Legal Services wrote a memo setting forth “… the legal foundation for the Office’s position that FBAR payments, because they are made pursuant to title 31 rather than title 26 of the U.S. Code, are not ‘collected proceeds’ within the meaning of section 7623(b)(1).” 2014 T. C. Memo. 157, at pp. 5-6. Nice, huh?

So even though the Whistling Analyst kept telling Ol’ 22231’s attorney that IRS decided nothing, Ol’ 22231 and counsel decided they’d had enough and petitioned.

Judge Big Al, relied on “…the … testimony from Stephen Whitlock, Director of the Office. He testified about the Office’s procedures for processing claims generally and about its handling of the particular claim at issue here. We found his testimony instructive and credible in all respects.” 2014 T. C. Memo. 157, at p. 2.

Quite a story, getting the Chief Whistler on the stand. Poor ol’ Joe Insinga couldn’t even get the Whistleblower Program Operations Manager, Retiring Bob Gardner, to say “hello” to him. See my blogpost “A Voyage of Discovery”, 3/30/13.

But now the Chief Whistler is IRS’ witness.

So Ol’ 22231 petitioned again at a time when his counsel and IRS later stipulated that a determination had been made.

But petition no. 2 fails, because deciding whether FBAR penalties apply would be merely advisory, as Ol’ 22231 gets nothing because IRS claims they never used his info anyway, whether or not FBAR penalties are includable in whistleblower recoveries.

I’ll spare you the quote from Little Dorrit, although I’ll wager ten new pence that Charlie Dickens is laughing heartily, wherever he is.

Oh, and see my earlier blogpost, “Mighty Tough Language”, 8/4/14.

And From a US Senator, Yet

As quoted by one Shawna Ohm on the Yahoo.Finance website (and I’ll spare you the “live wire” pun) 8/4/14, Sen. Ron Wyden, Oregon Democrat, calls the Internal Revenue Code a “rotting economic carcass that’s infected with chronic diseases like loopholes and inefficiencies”.

Hey Senator, that’s what keeps us vultures of the tax world and the blogosphere eating.

No, not applause, and certainly not for apprentice rounder Janice Marie Cross, whose recent doings featured in my blogpost “Forthright, Credible, and Largely Undisputed”, 7/24/14, although, according to that Obliging Jurist Judge David Gustafson, Janice Marie is none of the above.

Still, even an apprentice rounder and frivolity merchant is entitled to due process. So IRS must get its “Disclosure Office [to] certify the SFRs via a Form 2866, ‘Certificate of Official Record’….”. See Janice Marie Cross, Docket No. 1439-13, filed 8/1/14, at p. 1.

When Janice Marie first asked that the SFRs be certified (of course she didn’t file returns), IRS said they could do it, but why bother? They’d given her uncertified ones already, and whatever they gave Janice Marie now, she’d just dispute them anyway.

Judge Gustafson hews to the law. “Unless the parties stipulate the authenticity of the SFRs, it would seem that respondent must at trial authenticate the SFRs by means of a certificate of official record. Since the offering of such certificates seems highly likely (if not inevitable), we see no reason not to require respondent to produce them now.” Order, at p. 2.

So give it up, IRS. And Janice Marie, be careful what you ask for–you might just get it.

I mean persons who are seeking frequent litigator points in Tax Court. They gravitate to 400 Second Street, NW, in Our Nation’s Capital, as moths to a cliché. We have two of them back today, one a multiple previous participant in my blogposts, and one swum fresh into my ken.

Randy Thompson is back again. You remember Randy, who inspired The Great Dissenter, a/k/a The Judge Who Writes Like a Human Being and implacable foe of the partitive genitive, Judge Mark V. Holmes, to a memorable dissent, as to which see my blogpost “The Great Dissenter”, 12/28/11. And Randy even got Eighth Circuit to praise Judge Holmes, as more fully set forth in my blogpost “The Great Dissenter Vindicated”, 11/12/13.

But Randy stipulates and capitulates, so the point that Judge Holmes raised is moot. See Randall J. Thompson and Karen G. Thompson, 2014 T. C. Memo. 154, filed 7/31/14.

Judge Wherry gets in the last word, but Randy really handed it to him. “The Court of Appeals found that we have jurisdiction to determine Mr. Thompson’s outside basis in his partnership interest. We need not make such a determination, however, because the parties have stipulated the deficiency. See Thompson v. Commissioner, 137 T.C. at 223-224. Our task on remand is, therefore, limited to entry of a decision formalizing that agreement.” 2014 T. C. Memo. 154, at p. 8. (Footnote omitted).

Finally, in United States v. Woods, 571 U.S. ___, 134 S. Ct. 557 (2013), the Supremes said that Tax Court could apply the overvaluation chop at a partner-level proceeding, but how that impacts each partner necessitates a partner-level proceeding. Unless, as here, the partnership is a sham, so a fortiori (as my high-priced colleagues say), the partners’ outside basis is zero, and the chop is purely computational.

So if Randy is still unhappy, let him pay and sue for a refund.

The new rounder is Alvin Sheldon Kanofsky, 2014 T. C. Memo. 153, filed 7/31/14. Al has been around. He lost in Tax Court, lost again in Third Circuit, filed for cert with the Supremes (denied), and moved for rehearing (ditto). Al never filed a bond on appeal, so IRS proceeded with collection.

Al, of course, asked for a CDP and raises the same arguments that got blown away before. Appeals says no, so does Tax Court, Alvin hits the Third Circuit trail again, loses, moves for rehearing en banc, knocks on the Supremes’ door and gets denied.

Al is a physics professor at Lehigh University. He didn’t follow the dictum misattributed to his famous colleague from Princeton, Dr. Einstein: “Insanity is doing the same thing and expecting a different result.”

Judge Dawson: “Petitioner is no stranger to this Court. He was warned in prior proceedings that his conduct could subject him to a penalty if he continued to repeat the arguments he made in earlier cases before this Court and the Court of Appeals for the Third Circuit in his deficiency and levy cases for the tax years 1996, 1997, 1998 and 2000. He has also litigated in this Court in docket No. 3774-11 his case involving income tax deficiency for 2006 and 2007. In each case, petitioner has continued to raise arguments of fraud, corruption, and whistleblowing activities nearly identical to those raised in this lien case.” 2014 T. C. Memo. 153, at pp. 16-17. (Footnote omitted).

Now that sounds like a Section 6673 chop is on the way.

Especially since, when trying the docket No. 3774-11 case, Al got what Rudy Kipling would have called a “wigging”:

“Now, to the extent that you start off on side trips that I don’t think are relevant, I’m going to warn you. But if it turns out that you persist in making arguments — now, you know the government has been yelping about the fact that you’re taking positions they view as frivolous and groundless. And to some degree, if those positions are the same positions you asserted in your previous two visits to the Tax Court [Kanofsky I and II], I may well agree with them.

“If I do, you’ve run the risk that you might be penalized because there is a penalty under the Internal Revenue Code that I can impose in my discretion if I conclude that various arguments and positions are being asserted that are frivolous, groundless, have been rejected over and over again. So you just need to be forewarned.” 2104 T. C. Memo. 153, at p. 17.

Of course Al appealed. Third Circuit gave Al the usual. So Al is back for the fourth (count ‘em, fourth) time in Tax Court. And that’s enough.

“Petitioner is a well-educated individual who admits that he understood cautions and warnings given by this Court, yet he continues to reiterate the same irrelevant and groundless arguments.” 2014 T. C. Memo. 153, at p. 19.

Ten grand, Al.

But check today’s orders, namely and to wit, Alvin Sheldon Kanofsky, Docket No. 21821-13 L, filed 7/31/14. Judge Lauber, that man of many talents, can use them in dealing with Al yet again.

Will Al get twenty? Stay tuned.

A classic case of deer-in-the-headlights gives me my blogpost for today. The one T. C. Memo. for 7/30/14, is a reiteration of the old story–for an OIC you must file a Form 656 and follow the Regs to the letter. There’s not a lot of new learning here, so I’m not blogging it.

And the one order I am blogging is really a warning to those who will not read it–the self-represented. Ch J Michael B. (“Iron Mike”) Thornton may have thought he was doing Deborah Loftsgard, Docket No. 15923-14, filed 7/30/14, a favor by saving her $60. Of course Debs is pro se.

I submit that he was assisting her (most likely unwittingly) to deprive herself of prepayment judicial review.

The facts are so simple. And for once I’m including the dates, because they really matter.

“On July 8, 2014, the Court received from petitioner a letter which referenced a notice of determination dated June 6, 2014, issued to petitioner with respect to the 2001 taxable year. To protect petitioner’s statutory time period within which to begin a case, the Court filed that letter as a petition to commence this case at docket No. 15923-14. On July 15, 2014, the Court issued an Order directing payment of the filing fee for this matter on or before August 29, 2014. On July 28, 2014, the Court received from petitioner a letter indicating that petitioner did not intend through her initial correspondence with this Court to commence a case herein. Rather, petitioner is seeking information regarding the basis for the determination made by Internal Revenue Service (IRS).” Order, at p. 1.

Debs, if you want to find out the basis for what IRS did, send IRS a Branerton letter. If you don’t know what that is, read my blog or Google Branerton v. Com’r.

But do it after you pay the $60 bucks and move to vacate this Order. If ordered to amend your petition, just state you disagree with whatever IRS did, need informal discovery and have sent a Branerton letter. Tax Court loves Branerton letters.

Even if IRS wants to fight, talk to their attorney and suggest you can settle if you can talk.

But what happens here sinks Debs.

Ch J Iron Mike: “Petitioner is advised that the IRS and the Commissioner are separate from this Court and that petitioner would need to contact the IRS directly for such inquiries as to IRS activities and determinations. Accordingly, it appearing that petitioner does not intend to pay the filing fee as directed in the Court’s Order dated July 15, 2014, it is

“ORDERED that, on the Court’s own motion, this case is dismissed for lack of jurisdiction.” Order, at p. 1.

Debs, if this was a NOD and not a SNOD, you just lost any chance of Tax Court review, whatever IRS tells you or doesn’t tell you. And whatever IRS tells you or doesn’t tell you, if you want to fight you have to pay in full and sue in District Court or Federal Claims. And best of luck with that.

If what you got was a SNOD, you might have time to petition again, but whether SNOD or NOD, it’s simpler to ask for a Rule 162 motion to vacate.

Just mail in a $60 check with your letter, and say you were unaware you were giving up your right to Tax Court review, and you want your petition to stand. But do it now. You only have 30 days.

With so many self-representeds, winning is easy for IRS.

Edited to Add: Of course, the foregoing should not be construed, and may not be used, as (a) legal advice, or (b) to abate in whole or in part any interest or penalties for, related to, or in connection with any tax or imposition by any governmental authority having or asserting jurisdiction, or (c) solicitation of retention or employment, or for the furnishing of legal or non-legal services, or (d) to create a client-attorney relationship or privilege.

All recipients hereof are advised that a qualified common interest privilege is asserted, both as to the substance of this communication or any claims in connection herewith or in consequence hereof.

It’s been a many-times-told tale, but payments in a divorce case by way of property settlements, whether or not actually so denominated, aren’t deductible.

Of course, the record in today’s illustration doesn’t make clear whether it was the divorce lawyer who advised taking the disallowed deduction. I do hope it wasn’t; I’ve beaten up enough on the family law bar.

However, by whomever they were advised, Joseph Peery and Dawn Shannon Chapel come seriously unglued in 2014 T. C. Memo. 151, filed 7/29/14, as Judge Ruwe lands them with an $18K deficiency plus a substantial understatement 20% chop.

Simple facts. Joe casts away his loved-once, Katrina H. Peery, and marries Dawn Shannon. As part of the casting away, Joe signs on to a certain separation agreement, which is incorporated into the divorce decree.

Said sep agreement provides, in pertinent part: “Paragraph 1 of the separation agreement sets forth certain items of ‘property’ that Ms. Peery ‘shall have as her own, free and clear of all claims of * * * [petitioner].’ As part of her property rights, subparagraph 1(I) of the separation agreement assigns to Ms. Peery ‘[a]n award of property settlement in the sum of $63,500.00, which amount shall be paid within thirty (30) days’….” 2014 T. C. Memo. 151, at p. 3.

Joe pays and tries to take the alimony deduction.

Judge Ruwe: “Section 71(b)(1)(B) provides that, in order to be considered deductible
alimony, ‘the divorce or separation instrument does not designate such payment as
a payment which is not includible in gross income under this section and not allowable as a deduction under section 215′. Generally, property settlements incident to a divorce are not taxable events and do not give rise to deductions or recognizable income.” 2014 T. C. Memo. 151, at pp. 8-9. (Citations omitted, but there’s a bushelbasketful.).

Joe does get a $3K payment, because IRS raises the objection late and can’t show that it wasn’t spousal support.

Even so, there’s a substantial understatement and a 20% chop, as soon as the Rule 151 beancount is over.

And check out page 4 for some interesting scrivener’s errors in the separation agreement.