No, not another “thing of beauty”, unlike my blogpost “A Thing of Beauty – Accept No Substitutes”, 1/28/13. This time it’s an accountant trying to use a Form 1045 refund request in place of a petition, and it doesn’t work.

STJ Daniel A. (“Yuda”) Guy has the bad news for James William Harrison, 2014 T. C. Sum. Op. 69, filed 7/14/14.

J.W. claims his restaurant, A Little Asia, yielded not-so-little losses that would have resulted in no tax due, and not the $4200 that the SNOD says he owes.

But he never petitioned the SNOD. Instead, his accountant sent in the Form 1045 and asked TAS to expedite it. So J.W. petitioned the NOD he got from Appeals.

He gave the Account Appeals Resolution Specialist some info, so she put him into CNC (currently not collectible) status.

But J.W.’s claim that IRS should have dealt with his Form 1045 before Appeals goes nowhere.

Judge Yuda: “Petitioner asserts that the IRS should not be permitted to proceed with collection without first processing the Form 1045 or the amended tax return that he submitted for 2009. Petitioner’s argument amounts to a back door challenge to the existence or amount of his underlying tax liability for 2009 within the meaning of section 6330(c)(2)(B). However, as discussed above, petitioner admits that he received the notice of deficiency for 2009 but decided not to file a petition for redetermination with the Court. Consistent with section 6330(c)(2)(B), the Appeals Office correctly determined that petitioner is not permitted to challenge the existence or amount of his underlying tax liability for 2009 in this action. See Sego v. Commissioner, 114 T.C. at 611.

“Even assuming for the sake of argument that we could consider petitioner’s complaint that the IRS failed to process his Form 1045 and related amended returns, we would not overturn the Appeals Office determination in this case. In short, petitioner’s submission of Form 1045 to the IRS claiming a tentative refund for 2009 did not preclude respondent from issuing a notice of deficiency to him for that year. See Zarnow v. Commissioner, 48 T.C. 213, 215 (1967) (failure to act on a Form 1045 within the 90-day period prescribed in section 6411(b) does not prevent the Commissioner from determining a deficiency for that year).” 2014 T. C. Sum. Op. 69, at pp. 8-9.

And the AARS took J.W.’s story at face value, and put him in CNC. No abuse of discretion here.

Takeaway- Nothing substitutes for a petition, even if it’s just a letter, or even a check (see my blogpost “Show Me The Money”, 11/13/13).

See my blogpost “The Phone Call”, 4/15/14. The unhappy incident there discussed can manifest itself in ways other than a Phone Call.

Case in point: Brent T. Wiedbusch & Christina Wiedbusch, Docket No. 15257-13, filed 7/14/14.

Brent’s and Chris’ counsel, whom I’ll call Vandy, wants to bail. He claimed last month that Brent and Chris told him they wanted to go it alone. However, Judge Gale wanted to be sure, so he had Vandy file a supplement to his Motion to Withdraw, and, receiving same, invited Brent and Chris to dish thereupon.

And they do: “…they dispute some assertions in [Vandy’s] Supplement and contend that they were not adequately informed concerning various aspects of their representation in this case.” Order, at p. 1.

Judge Gale, wanting to make absolutely sure he misses nothing, “…has concluded that [Vandy] should be afforded an opportunity to respond to the assertions concerning petitioners’ representation in the Response, including their assertion that the Petition in this case was filed without their knowledge of, or consent to, its contents.” Order, at p. 1.

So Vandy will get his chance at a riposte. Should be interesting.

Takeaway for counsel- Document everything. Repeat, document everything.

See my blogpost “Leftovers”, 3/19/14. I thought that blogpost had faded into obscurity, when the following e-mail arrived today, 7/14/14.

I replied to the sender that I would post the text of the e-mail in its entirety. I omit only the sender’s e-mail address.

Here it is:

“Name: Teresa Sanak Comment: I would like you to remove the post about me dated in March of this year. Your fact’s are not correct and can cause personal harm to me. This is the post regarding The Bogart’s. These are the incorrect facts. 1)The judge added and additional $10,000.00 to the judgment for their time and trouble, judgment amount incorrect. 2) I repaid over $7,000.00 to the Bogart’s prior to going the prison. 3) I have made my monthly, court ordered restriction payment to them since I was released.”

You Know the Rest

Repeating a comment from my blogpost “No Benefits, No Burdens, No Deduction”, 12/9/13, I quote Oscar Wilde: “No good deed goes unpunished.”

In my abovecited blogpost, Lourdes Puente got the message. This time, Judge Chiechi has the message for Ronald R. Dickenson and Shirley F. Dickenson, 2014 T. C. Memo. 136, filed 7/10/14. Shirley F. is a non-participant, but she gets the hit along with Ron.

Ron is a big-hearted consultant who routinely makes loans to his employees, he says, but he never bothers with notes, repayment schedules, interest or events of default. He claims he hired back a former employee, ol’ Terry, and fronted ol’ Terry $33K to tide him over while he moved back to Ron’s bailiwick.

Ron sent ol’ Terry a billet doux which stated, in pertinent part as my high-billing colleagues like to say: “Terry… I want to tell you once again, I am quite excited to get you over here and get our operation started together. * * *From my initial marketing efforts, you can fulfill the areas I cannot achieve by myself * * *. Anyway, I want to reiterate again my commitment to you financially, and what I would expect from you in paying me back. I am not going to prepare a note, or any form of contract, because I trust you to be honest about this matter, just like all of the other people I have loaned money.

“Anyway, I agree to loan you money to get settled in over here, and help you out financially as long as I see our new company is working, and you are going to work as hard as you did for me the last time we worked together.” 2014 T. C. Memo. 136, at p. 4.

You can guess the rest. Ol’ Terry rips off Ron (he claims), and absquatulates. Ron claims a business bad debt, but sued ol’ Terry and the case wasn’t concluded (Ron lost, of course) for two years after the year at issue, when he claimed the deduction.

There’s no unconditional obligation to repay, none of the usual indicia of a loan (note, interest, collateral, fixed repayment schedule), and the ability of the “borrower” to repay is dubious in this case. Ron himself testified that ol’ Terry was up against it when Ron sent him the $33K.

Ron was pro se, of course, and the trial record shows nothing that would indicate either a business, or even a non-business, bad debt.

The story is in a footnote, as Tax Court Judges tend to be ex-law review types, of whom a bona fide occupational qualification is the worship of footnotes.

Here it is: “Assuming arguendo that Mr. Dickinson had satisfied his burden of establishing that the … funds in question constituted loans by him to [ol’ Terry] and thus bona fide debts for purposes of sec. 166, on the basis of the record before us, we would find that he has failed to carry his burden of establishing that those alleged bad debts constitute bad debts that are not nonbusiness bad debts. See sec. 166(d); sec. 1.166-5(b), Income Tax Regs. In this connection, Mr. Dickinson has failed to show that the alleged bad debts were created or acquired in connection with a trade or business of his or that the losses from the worthlessness of the alleged bad debts were incurred in a trade or business of his. See sec. 166(d); sec. 1.166-5(b), Income Tax Regs.

“In addition, assuming arguendo that Mr. Dickinson had satisfied his burden of establishing that the … funds in question constituted loans by him to [ol’ Terry] and thus bona fide debts that are not nonbusiness bad debts, on the basis of the record before us, we would find that he has failed to carry his burden of establishing that those alleged nonbusiness bad debts became either wholly or partially worthless in taxable year 2007, the year for which petitioners claimed the deduction for those alleged business bad debts. In this connection, Mr. Dickinson has failed to show any identifiable events that could have formed the basis for his having reasonable grounds as of the end of 2007 for his abandoning any hope of recovering the …  funds in question. In fact, the record establishes that Mr. Dickinson continued … to prosecute the Dickinson lawsuit in order to recover those funds until the Marion Circuit Court dismissed that lawsuit….” 2014 Tc. Memo. 136, at p. 15, footnote 7. (Citation omitted).

One wonders if Ron had an attorney for the Marion County lawsuit. He needed one for this case, if for no other reason that to warn him.

It’s a real dull day at Tax Court, 7/9/14: no opinions, no designated hitters, not even an Order with a funny typo. So I was stumped for a blogpost, and felt that my fans, however few may be left, would have to do without a Taishoff disquisition.

All is not lost, pals. A previous poster-person may be going to knock on the doors of the Supremes.

Remember bookish Mike Oros? No? Check out my blogpost “I Could Write a Book”, 1/5/12, wherein I tell how bookish Mike’s attempt to sell his literary endeavors as a trade or business fell short of Judge Vasquez’s approbation.

Not dismayed, bookish Mike went off to Ninth Circuit, stipulating with IRS that both they and bookish Mike would be bound by whatever Ninth Circuit did with bookish Mike’s round-the-world literary extravaganza.

Back in December 2013, in a not-for-nuthin’ memo under Docket No. 12-71071, filed 12/13/13, the Ninth Circuit blew off bookish Mike, finding “(T)ax Court did not clearly err” in blowing off  bookish Mike as aforesaid, and “(W)e reject Oros’s contentions regarding conduct by Internal Revenue Service officials because it is irrelevant to the Tax Court’s determination.” Memo. at p. 2.

Still, apparently the Ninth Circuit held off on the blow-off from December, 2013, until June 5, 2014, stating in its mandate to Tax Court that same would take effect from that date.

So STJ Armen, The Judge With a Heart, gets bookish Mike’s case back from the Circuit.

But IRS, filing a status report, throws this in: “Pursuant to Sup. Ct. R.13, petitioner must file a petition for a writ of certiorari by September 3, 2014.” Order, Docket No. 19223-11S, filed 7/9/14.

Bookish Mike files no report, so STJ Armen presumes Mike agrees.

Think Mike will petition the Supremes? Given the track record of petitions from unanimous Circuit Court affirmances of Tax Court opinions in pro se petitioners’ cases, I suggest taking the snowball.

No, not the 1985 Michael J. Fox  – Christopher Lloyd American Film Institute’s tenth-best sci-fi film, but rather Judge Haines giving retroactive effect to the petition of US Loan Auditors, Inc., Docket No. 27157-13, filed 7/8/14.

There’s retroactivity all over the place in this Order, even without Chris Lloyd’s souped-up DeLorean. Try this: “On August 20, 2003, respondent [IRS] issued a Notice of Deficiency for the tax year that ended on December 31, 2010.” Order, at p. 1. Pretty cool for IRS to know that USLA’s return would be deficient seven years before the end of that tax year, eh? Doesn’t anybody proofread these orders?

It gets more retroactive.

“Petitioner filed the petition in this case on November 18, 2013. On January 10, 2014, respondent filed a Motion to Dismiss for Lack of Jurisdiction.

“Pursuant to petitioner’s motion, the United States Bankruptcy Court for the Eastern District of California issued a Civil Minute Order dated February 28, 2014 modifying the automatic stay ‘effective as of November 18, 2013, to allow United States Tax Court case number 27157-13 to proceed to a judgment or settlement.’ Petitioner and respondent have filed pleadings representing that, as a result of the United States Bankruptcy Court’s Civil Minute Order, the Tax Court has jurisdiction over this case.” Order, at p. 1.

Now of course there’s the automatic toll of the 90-day Section 6213(a) deadline in Section 6213(f), running from discharge or dismissal to Day 60 thereafter. But USLA either couldn’t wait, or didn’t know it had the toll, so it filed while the 11 USC §362 automatic stay was in effect.

So Judge Haines needs to know if he has jurisdiction. Golsen-izing, he finds Ninth Circuit says violations are void, not voidable, but Bankruptcy Courts have the power to lift the stay (and I’ve done it). And they can lift the stay retroactively (in extreme circumstances).

Howbeit, USLA was able to convince BCEDC to lift the stay retroactively. And USLA filed timely, given the retroactive lift-stay order, unlike another case where, although the stay was lifted, the petitioner filed late.

“Petitioner’s Motion to Annul the Automatic Stay filed with the United States Bankruptcy Court did not indicate that the 90 day period for filing a petition with the Tax Court was tolled by section 6213(f). Despite this defect in petitioner’s Motion to Annul the Automatic Stay, the United States Bankruptcy Court for the Eastern District of California has issued a Civil Minute Order retroactively lifting the automatic stay to allow this case to proceed.” Order, at p. 4.

So USLA is in, Tax Court has jurisdiction, and the Bankruptcy Court has gone back to the future.

This gem from Howell’s English Proverbs, 1659, is probably a lot older, for I once heard it ascribed, I expect incorrectly, to Niccolo Machiavelli, who lived more than a century earlier.

But whoever first said it, it remains a good rule, as counsel for Thomas J. Ratke & Bonnie F. Ratke, Docket No. 09641-01L, filed 7/7/14 finds out.

Said counsel, whom I’ll call Jacky, wanted STJ Lewis (“His Name Is His Fame”) Carluzzo to recuse himself from the case, and said so in a conference call.

“According to petitioners’ motion to recuse, the rulings embodied in the order are: (1) not based upon the record in this case; and (2) tainted on account of a ‘personal’ and/or ‘on going social’ relationship between the undersigned and respondent’s counsel. In response to a question from [Jacky] during a January 16, 2014, conference call (referenced in the order and petitioners’ motion to recuse) the parties were advised that the undersigned was familiar with Anne Durning and Ann Welhaf; the former as a student and the latter as a law clerk with the Tax Court. The parties were further advised that no other ‘personal’ or ‘social’ relationship exists between those individuals and the undersigned. During the conference call [Jacky] expressed an intention to make a motion to recuse the undersigned, now filed almost seven months later and following the order that embodies rulings adverse to petitioners.” Order, at p. 3.

And Jacky’s own file notes disclose that IRS’ counsel did not make “fabricated” or “misleading” statements to STJ Lew (“His Name Is His Fame”) Carluzzo.

You can guess the outcome of this one.

Takeaway- If you’re going to ask a Judge to recuse him/herself, (a) don’t wait until s/he rules against you, and (b) better have really good grounds. Really good. And read the headline of this blogpost before you make the motion.

But maybe you can get a bye, if you argue SOL. John Lewis Hill shows us how, in 2014 T. C. Memo. 134, filed 7/7/14.

John Lewis is an old Tax Court rounder. Here’s Judge Vasquez’s review of John Lewis’ rap sheet: “Respondent [IRS] has asked the Court to impose a sec. 6673 penalty on Mr. Hill on multiple occasions. In the case at docket no. 13267-09L, we warned Mr. Hill not to raise frivolous arguments again but declined to impose a sec. 6673 penalty. In the case at docket no. 15452-10L, we imposed a $5,000 penalty. In the case at docket no. 14625-12, we imposed a $10,000 penalty. And, in a consolidated proceeding under docket nos. 221-10 and 15501-10, we imposed $10,000 for each of the consolidated cases for total penalties of $20,000.” 2014 T. C. Memo. 134, at pp. 15-16 (Footnote 10).

John Lewis might qualify for Frequent Frivol points.

But this time John Lewis escapes the chop. As usual, for the year at issue he sent in an all-blank 1040, with just the standard deduction and the exemptions filled in. But IRS is a wee bit late, blowing the Section 6501(a) three-year deadline, in asserting the $5K Section 6702 frivolity chop.

John Lewis doesn’t raise this: IRS’ counsel does.

“However, during the summary judgment hearing, respondent’s counsel invited the Court’s attention to a potential statute of limitations issue.

“As respondent’s counsel explained, the section 6702 penalty was assessed…more than three years after Mr. Hill’s Form 1040 was filed.  Section 6501(a) establishes a general rule that taxes imposed under title 26 must be assessed within three years after a return is filed. If (1) the section 6702 penalty is considered a tax for purposes of section 6501 and (2) Mr. Hill’s Form 1040 does not fall within any of the exceptions to the general three-year rule, then assessment of the section 6702 penalty would be barred. The Court directed the parties to submit briefs on this issue.

“On brief, Mr. Hill adopts as his own argument the section 6501 statute of limitations issue raised by respondent’s counsel.” 2014 T. C. Memo. 134, at pp. 11-12.

And that saves John Lewis’ wallet this time.

Judge Vasquez easily disposes of the argument that a zero return is sufficient to start the SOL clock. It’s not a good-faith attempt to comply with law nor does it provide IRS with sufficient information to reckon John Lewis’ tax obligations.

It’s not a return, so whether the Section 6702 penalty is a tax or not for Section 6501(a) SOL reckoning is off the table. No return, no SOL.

But John Lewis’ lifting the IRS’ SOL argument isn’t frivolous; it’s an issue that might be worth considering in the right case. And even though this isn’t it, Judge Vasquez is letting John Lewis off this time.

“Mr. Hill’s checkered history notwithstanding, he has succeeded here in arguing an issue that merits consideration. While we hold that Mr. Hill’s Form 1040 was invalid and that the period of limitations is open, Mr. Hill made some arguments, on brief, that were not frivolous. Although a taxpayer who makes frivolous arguments is not immune from penalty just because some of his arguments are not frivolous, we decline to sanction Mr. Hill in this case. We do, however, strongly warn Mr. Hill, once again, that he may be subject to further section 6673 penalties in future cases if he persists in maintaining proceedings to delay or to advance frivolous arguments.” 2014 T. C. Memo. 134, at p. 16.

I do not indulge in schadenfreude; I find such stuff unworthy of discussion in a high-minded blog like mine. So today’s blogpost is not a gloat over others’ difficulties, but to point the way for my readers, or their respective counsel, to avoid the pitfalls hereinbelow set forth, as my already-on-their-second-bottle-of-2003-Château-Léoville-Poyferré colleagues say.

Welcome Steven T. Waltner back to my blog. Don’t remember Steven T. (s/a/k/a Steve)? See my blogpost “Cracking Up”, 2/27/14, wherein Judge Buch threw the book at Steve, in 62 pages full of well-chosen words.

Steve’s fighting over an $8800 deficiency and a $1760 penalty. But as you’ll see from my blogpost abovecited, Steve’s an old-time protester and frivolity merchant.

One must admit that Steve is a persistent type. His latest puts him before Judge Marvel in Steven T. Waltner and Sarah V. Waltner, 2014 T. C. Memo. 133, filed 7/3/14. Sarah lives in another State, but shows up when the case finally comes up for trial, which neither Steve nor their lawyer bothers to do. Her contribution at the trial is to recite frivolities.

Steve filed the usual zero-for-wages returns. IRS doesn’t give him the refund he claims; so he goes to Ct. Cl., gets tossed on the grounds he can’t claim anything because he never filed a return (his filing being a non-return as a matter of law), and therefore no Ct. Cl. jurisdiction; goes up to Fed Circuit, who boots him on the same grounds; and climaxes his campaign with a petition for certiorari to the Supremes.

Now when it comes to grants of such petition to taxpayers, one can’t say the petitioners have much success, even those with some dim chance. As for Steve, in a match race, my money is on the proverbial snowball in you-know-where.

The Supremes don’t bite, of course, so IRS gives Steve a deficiency, which he of course petitions.

Steve is toast on collateral estoppel (claim preclusion for you recent law school grads). Ct. Cl. and Fed Circuit had to decide whether Steve had filed a valid return to establish whether either of them had jurisdiction. Steve had a chance to claim he did, and lost; no second swing at the baseball.

But IRS claimed Steve had sold some stock and didn’t report the income therefrom. No dice, says Judge Marvel.

First of all, IRS raised the stock sale in an amended answer to an amended petition, so Rule 142(a)(1) puts the burden of proof on IRS.

Second (and here’s where IRS’ two lawyers fall down): “Gain from the sale or exchange of property must be recognized, unless the Code provides otherwise. Sec. 1001(c). Section 1001(a) defines gain from the sale or exchange of property as the excess of the amount realized on the sale of the property over the adjusted basis of the property sold or exchanged. See also sec. 1.61-6(a), Income Tax Regs. Respondent bears the burden of proof on this issue…. Respondent failed to introduce any evidence with respect to Mr. Waltner’s basis in the mutual fund shares that he sold through his Citigroup account. Accordingly, respondent has failed to prove that petitioners are liable for tax on the amount realized from that sale.” 2014 T. C. Memo. 133, at p. 19.

The gain-equals-sales-price-minus-basis is Tax 101, guys. Someone was seriously asleep at the whatever. If you found the item from Steve’s broker’s 1099-B, why not ask the broker for the basis information? If it came from elsewhere, still ask the broker.

And the Section 6662(a) accuracy penalty IRS seeks only applies when a valid return is filed. But here there was none.

So one side’s lawyers blew it. But lest Steve and Sarah feel neglected, Judge Marvel hands them a $10K Section 6673(a)(1) frivolity penalty.

Now for Steve’s side.

Steve is represented by counsel we’ll call Donny. Judge Marvel is not amused by what she considers Donny’s shenanigans.

“Under section 6673(a)(2) we may impose on any person admitted to practice before this Court who unreasonably and vexatiously multiplies the proceedings in any case the excessive costs reasonably incurred on account of such conduct. This Court may sua sponte impose such costs. Rule 33(b) sets standards in connection with counsel’s signature on a pleading and provides that upon our own motion we may sanction counsel for failure to meet those standards. Although we have found petitioners deserving of a section 6673(a)(1) penalty, we believe that petitioners’ counsel may also be deserving of a sanction for unreasonably and vexatiously prolonging these proceedings. We will therefore order petitioners’ counsel to show cause why we should not impose on him excessive costs pursuant to section 6673(a)(2) or sanction him pursuant to Rule 33(b). We will also order respondent to express his position on these issues and to provide us with his computations of the excess costs, expenses, and attorney’s fees reasonably incurred on account of petitioners’ counsel’s conduct in this case.” 2014 T. C. Memo. 133, at pp. 23-24. (Citations and footnote omitted).

Because it’s important, here’s the omitted footnote: “In computing the excessive costs respondent should not include costs incurred before petitioners’ counsel entered an appearance in this case or costs attributable to the issues of (1) whether the statute of limitations on assessment and collection applies in this case; (2) whether petitioners had unreported income from the sale of assets in Mr. Waltner’s Citigroup account; (3) whether petitioners are liable for an accuracy-related penalty under sec. 6662(a); and (4) whether petitioners are liable for an addition to tax under sec. 6651(a)(1).” 2014 T. C. Memo. 133, at p. 24, footnote 7.

So Donny and IRS’ lawyers, each of whom has his own problems, now has some homework to do.

Edited to add, 2/25/26: See Steven T. Waltner & Sarah V. Waltner, Docket No. 1729-13, filed 12/17/14. Ex-Ch J L. Paige (“Iron Fist”) Marvel hit Donny with $15,550 in sanctions per Section 6673(a)(2), while forbearing to deal with Rule 33(b), although ex-Ch J Iron Fist holds that in reserve as an alternative.

And, Use It or Lose It

IRS announced on Tuesday that beginning January 1, 2015, the IRS will limit to three the number of refunds being sent to any direct deposit bank account or issued as prepaid debit card.

IRS will send a billet doux to the over-the-limit taxpayer, telling him, her, it or they to expect a paper check for refund number four et seq., as my expensive colleagues say.

This will limit identity thieves to small-time thievery, it is hoped. In the meantime, the honest refundees should continue to use direct deposit…just take it easy.

The barn door is locked.

And on Monday, IRS announced that ITIN holders who stand mute for five years and don’t use their ITINs on a filed tax return will see them automatically expire. IRS found that barely five million of the roughly 21 million were being used on tax returns. You can imagine what has become of the others. So the clock starts in 2016, and the former automatic expiry of all ITINs is now off the table; now only the dormant will be put to sleep.

Here’s the story: http://www.irs.gov/uac/Newsroom/Unused-ITINS-to-Expire-After-Five-Years;-New-Uniform-Policy-Eases-Burden-on-Taxpayers,-Protects-ITIN-Integrity