Some purveyors of continuing legal education purport to deliver the magic formula for defeating one’s adversary without giving battle (that is, going to trial). “Win your case at discovery”, they proclaim.

That’s not a bad idea. The legendary Chinese general Sun Tzu remarked that “to win a hundred battles is not the acme of skill; to win without fighting is the acme of skill.” It’s hard to disagree; but pulling off that interesting trick is even harder.

I am not immune. See my blogpost “Win Your Case”, 2/11/14.

But IRS seems to have taken my advice a trifle too exuberantly.

Even after my blogpost “Related vs Responsive”, 6/26/14, wherein Judge Gale gave IRS a timeout for an overbroad discovery request, the 1111 Constitution Avenue gang are at it again, this time in Amazon.com, Inc. & Subsidiaries, Docket No. 31197-12, filed 7/2/14.

It’s a transfer pricing scrimmage with a Luxembourg affiliate, which immediately sets off bells. But IRS seeks documents from 32 (count ‘em, 32) cost centers dealing with “Technology and Content” (T&C) and intangible development costs (IDC); the Amazonians claim the demand is burdensome and overbroad, but offer to work with IRS to show them how reasonable the Amazonians and the Luxembourgers were in setting up their deal.

Judge Lauber agrees: “It is clear that respondent is entitled to discovery as to the facts underlying petitioner’s cost allocations, as to whether costs within the T&C category are ‘mixed’ as petitioner contends, and as to the appropriateness of the formula petitioner has used to allocate T&C category costs to IDC. However, the Court agrees with petitioner that the documents and information sought by respondent in his Requests… would be burdensome and expensive to produce, and that these requests are not calculated to lead in an efficient manner to the discovery of relevant evidence. Petitioner has offered to work with respondent to identify information pertaining to the reasonableness of its allocation method, and we will hold petitioner to that promise. We will therefore deny respondent’s motion as currently drafted, without prejudice to respondent’s ability to file a more narrowly-tailored motion to compel production of documents if informal discovery efforts prove unsatisfactory.” Order, at p. 3.

Win at discovery is a good gameplan, but if overused and overburdensome, it will backfire.

IRS, please copy.

We all know the benefits of the revocable lifetime trust as a tool for avoiding probate and its hurdles, delays and unending formalities. One need only title all one’s worldly goods into oneself as trustee, designate the chosen objects of one’s bounty as co-beneficiaries and one’s chosen few as successor trustees, and all one’s estate problems die with one.

If IRS is pursuing one as one departs this vale of tears, one’s successor trustees have a trip to probate court in their short-term future.

So Ch J Michael B. (“Iron Mike”) Thornton teaches Patricia Doepke. Don’t look for a Tax Court case with Pat’s name in the caption, because there isn’t any. Pat is apparently the successor trustee of the late Jennie Dudowicz, whose estate you will find in the caption of Ch J Iron Mike’s order, Docket No. 7480-14S, filed 7/1/14.

Here’s the story: “The petition filed to commence this case was ratified by Patricia Doepke as the purported executrix of the estate of decedent. By Order…, the Court directed Patricia Doepke to file a Response to that Order and attach thereto (1) a copy of petitioner’s death certificate, and (2) letters of administration or letters testamentary appointing her (or someone else) the executor, personal representative, or fiduciary for the estate of the decedent. Patricia Doepke filed a Response. Attached to that Response was a copy of petitioner’s death certificate and three documents purportedly showing Patricia Doepke as trustee of a revocable trust. None of the documents provided show that Patricia Doepke is authorized to represent the estate of the decedent in this proceeding.” Order, at p. 1.

Now we remember Jane Gudie. She starred, post-mortem, in my blogpost “The Case of the Reluctant Executor”, 12/1/11. Her co-star, the reluctant executor Mary Helen Nordberg, having actual or constructive possession of the late Jane’s worldlys, was her executor, like it or not; so she couldn’t bail out of the petition she signed.

But that case involved estate tax, and the IRC provision that locked in reluctant Mary Helen  is Section 2203.

Now I can’t tell from Ch J Iron Mike’s order what tax is involved here, but if it’s not estate tax, Pat gets no help from reluctant Mary Helen’s case, whatever assets of the late Jennie she may hold.

So Pat, having avoided probate, also avoids Tax Court. No jurisdiction.

Takeaway- Remember, successor trustees. If there’s a Tax Court case in this estate, there’s a trip to probate court in your immediate future.

Or, do as I say, not as I do. I love cutesy names for corporations, LLCs, partnerships and DBAs; sometimes clients even go along with my suggestions. And cutesys make great headlines for my tax blogposts.

But John J. Petito, or one of his connections (as we say around the track), got carried away when bestowing titles on the various petroleum-seeking entities under his tax command.

Doubtless you remember John J. You don’t? Well, cast your mind back to 8/26/13, and my blogpost of even date therewith, as my high-priced colleagues say, entitled “Honor Your Partner”, the stories of Jimastowlo Oil, LLC and Oil Comming We Are Humming, LLC, and their search for the source, accompanied by Judge Halpern.

It seems John J. was a busy fellow, tax-mattering a platoon of whimsically-named LLCs, all in search of black gold (or something oleagenous). And today, 7/1/14, Ch J Michael B. (“Iron Mike”) Thornton unloads a bushelbasketful of orders to John J. and IRS, directing them to come back after their summer vacations (and I assume Ch J Iron Mike’s as well) with either status reports or decision documents for each and every one.

We have such gems as Wyo-Big Oil We Dig LLC, Iluvoil LLC, Horny For Oil LLC, We Have Oil So Jump For Joy-il, LLC, Oil Is Our Ignition For Successful Pecuniary Fruition, LLC, and Oil For One & One for Oil LLC; there’s more, but I’ll spare you.

You don’t need either docket numbers or links. Each order is identical.

My point (and I can hear readers say “There is one? How nice.”) is think first, promoter/tax-matterer, had John J. named his several enterprises Oil Venture I, Oil Venture II, et seq., would IRS would have picked up on them so fast. Should not promoter/tax matterer types reflect before getting cutesy?

Combine a cutesy name with something that might be a tax dodge, and you might just maybe attract the attentions of the IRS.

Of course, you are free to name your enterprise what you will. And it will retain all its rights, even those we had no idea it had, no matter how cutesy the name–like Hobby Lobby.

But this is, of course, a non-political blog.

No, I’m not rehearsing the replacements for the original Florodora sextette, rather echoing Judge Dawson’s instructions to Thomas J. Hickman, in 2014 T.C. Memo. 131, filed 6/30/14.

Tom claims he told IRS he received a $137K ESOP distribution, but it was six years ago. So the SOL has run…but has it?

Tom rolled his ESOP money into his personal IRA, but never picked up the money on his 1040. And when IRS disqualified the ESOP retroactively to Day One, thereby blowing up his rollover to his IRA, the question was whether Tom satisfied the Sec. 6501(e)(1)(A)(ii) tell-me provision.

Surely you remember the Sec. 6501(e)(1)(A)(ii) tell-me provision. No? Well, Judge Dawson has it down pat.

“Section 6501(e)(1)(A) extends the three-year period of limitations to six years where the taxpayer ‘omits from gross income an amount properly includible therein which is in excess of 25 percent of the amount of gross income stated in the return’. In computing the amount of gross income omitted, any amounts ‘disclosed in the return, or in a statement attached to the return, in a manner adequate to apprise the Secretary of the nature and amount of such item’ are not taken into account. Sec. 6501(e)(1)(A)(ii).” 2014 T. C. Memo. 131, at p. 10. (Footnote omitted, but read it; Congress moved the provision later).

The taxpayer has to provide a clue to IRS to cut the SOL to three years, but it has to be sufficiently detailed to let IRS to decide to audit the return.

Tom fails the test. The statement has to be made on a return, or attached to a return, and Tom didn’t, exactly.

Tom claims a K-1, a Form SS-4, and Form 5498 (listing Tom as owner of a nominee account) are “adjuncts” to the return. But none of this was attached to Tom’s return, and it doesn’t prove more than Tom and his IRA were partners in a LLC.

No go.

Thus spake Captain Frederick Marryat, R. N., in his 1834 novel Jacob Faithful,  and no, I haven’t read it either. But IRS boss John Koskinen took the words out of Fred’s book, because he now proclaims a new volunteer tax prep course for the unregistered, now that D. C. Circuit disarmed his predecessor’s pressgang.

Here’s the scoop for you soon-to-be volunteers.

“About 60 percent of paid tax return preparers in the U.S. operate without regulation or oversight. Although many of them do a good job, we have found that others are poorly equipped to assist taxpayers in preparing returns.

“For that reason, the IRS had started a mandatory program of education and testing for unregulated tax return preparers who did not have professional credentials. But we had to suspend that program because the courts ruled that we didn’t have the legal authority to require education and testing. So we’re launching a voluntary program as a temporary substitute. It’s called the Annual Filing Season Program.

“I say ‘temporary’ because we have been urging Congress to enact a proposal in the President’s Fiscal Year 2015 Budget that would give us the authority for mandatory oversight of return preparers. This voluntary program is not the ideal solution. But until legislation is enacted, we still have a responsibility to taxpayers and to our tax system to keep moving forward with our efforts to improve service to taxpayers.”

The ganze geschichte, as my beloved Grandma would have said, can be found at:

http://www.irs.gov/uac/Newsroom/Commissioner-Koskinen-on-the-Voluntary-Return-Preparer-Education-Program

So come on, me bould volunteers!

I don’t get a lot of snail mail. Other than junk, I mean, or pleas from the charities to which I donate modestly. I get the usual political e-mail bombardment. I participate on professional listservs, and co-manage a tax group on LinkedIn, so there’s e-stuff flying about. But not a great deal of paper.

I must mention the odd check, of course; thanks, guys, much appreciated.

Lo and behold, as a late colleague was wont to remark, I got a phonecall a few days ago from a former blogee. And today the postie dropped off two copies of what purports to be a petition for a writ of certiorari directed to the Supremes, apparently to review a Seventh Circuit decision of which I had been unaware, but which I have turned up just now. Here it is: Docket Nos. 12-2574 and 12-2575, decided 7/25/13.

I won’t opine on the blogee’s chances. Her story is fact-specific, and I’ll let  the Supremes deal with it for now. If, as and when that Honorable Court issues an opinion or decision or order, and same is brought to my attention (I have enough to do without scouting round the Circuits, much less the Supremes; the trade press and blogosphere do that well enough), I’ll post a blog on it, if any of the foregoing is materially instructive.

The petitioner-blogee? Carol Diane Gray, whose stories I told in my blogposts “Too Late But Still Timely”, 3/28/12, and “Too Late and Not Timely”, 4/25/13.

I have to give IRS’ counsel a Taishoff “good try”, first, because I am evenhanded, and second, because it’s a nice move, given petitioners’ gameplaying with document production. Counsel must have been awake at some of those “win your case at discovery” CLE’s.

But Judge Gale will have none of it, in William P. Terhune & Jennifer S. Terhune, Docket No. 11768-13, filed 6/26/14.

Will and Jenn ducked IRS’ interrogatories and the document production requests, so IRS made a Rule 104 motion with sanctions attached. This awakened Will and Jenn, and they did reply to the interrogatories, at least enough to mollify the Constitution Avenue crowd. But the documents produced fell short, and IRS wanted to preclude any documents, or testimony, related to any of the documents IRS had requested, saving only documents related to Jenn’s Section 6015 innocent spousery claim.

Judge Gale won’t go that far. Yes, sanctions are appropriate, as Will and Jenn are less than cleanhanded. However:

“We believe that respondent’s modified request sweeps too broadly, given that it would likely exclude documents or materials that were not sought in the Request for Production of Documents, as well as any relevant testimony. This would potentially put respondent in a better position in this litigation than if petitioners had promptly and fully complied with the document production request. Instead, we conclude that a narrower sanction is appropriate: petitioners should be precluded from introducing into evidence any documents or materials that would have been responsive to respondent’s Request for Production of Documents, except in the case of items related to petitioner Jennifer S. Terhune’s request for spousal relief.” Order, at p. 4. (Footnote omitted, but read it; there’s the Standard PreTrial Order, which gives everyone either a chance to come clean or get whacked).

So I’m giving IRS a Taishoff “good try”, even though they canceled the IRS Tax Forum webcast on Retirement Plans after Windsor v. United States today at the last minute, without notice and with a footling scheduling excuse.

I’ve taken the 1963 Brian Wilson/Roger Christian iconic evocation of California cardom for my title, and its first line for an introduction: “Well I’m not braggin’, babe/So don’t put me down”.

No, I claim no Olympian or Sinaiatical omniscience, as too often writers in the tax blogosphere seem to do. Not only don’t I claim to know everything, but every day and every blogpost bring a chance to learn.

And if my blogposts do not equip the in-the-trenches practitioners with all they need to know, at least I hope I haven’t led any too far wrong.

That said, let’s look again at a topic I don’t really understand, or didn’t, until Judge Goeke laid it out today in Frank Sawyer Trust of May 1992, Transferee, Carol S. Parks, Trustee, 2014 T. C. Memo. 128, filed 6/25/14.

This is a Rule 161 rewrite of 2014 T. C. 59, filed 4/3/14, and no, I didn’t blog that case, because it involved that topic I didn’t understand, equitable recoupment.

Oh, I knew in general terms that equitable recoupment involved someone who overpaid a tax, refund of which is barred by SOL, and is now hit with another tax somehow cabalistically related to the acts or transactions or something wherefrom arose Tax No. 1, and is permitted to offset the aforesaid overpayment against Tax No. 2, with interest and penalties only on any overage post-ER.

But how the taxes were related, and what qualifies for ER and what doesn’t, was a mystery.

Judge Goeke finally lifts the fog: “To apply equitable recoupment, the taxpayer must prove the following elements: (1) the overpayment or deficiency for which recoupment is sought by way of offset is barred by an expired period of limitation, (2) the time-barred overpayment or deficiency arose out of the same transaction, item, or taxable event as the overpayment or deficiency before the Court, (3) the transaction, item, or taxable event has been inconsistently subjected to two taxes, and (4) if the transaction, item, or taxable event involves two or more taxpayers, there is sufficient identity of interest between the taxpayers subject to the two taxes that the taxpayers should be treated as one.” 2014 T. C. Memo. 128, at pp. 6-7.

This was another MidCoast fiasco, where the trust sold off the stock of four C Corps with monumental assets and almost zero basis, to a MidCoast stooge, who pulled the usually phony shelter, looted the C Corps and skipped.

There’s transferee liability, of course, but IRS couldn’t establish fraudulent conveyance, so the fight is now over whether the trust beneficiary can offset any overpaid estate tax by the trust against income tax transferee liability.

Here, IRS folds on items (1) and (4), fighting about (2) and (3).

As to item (2), this involves the sale of the C Corp stock on both ends: the estate tax was based on an incorrect valuation of the stock, which it’s now too late to correct, and the income tax is based on the same stock.

As to item (3), IRS treated the stock price as if the C Corps had no income tax liability, but now is trying to collect income tax as if they had. That’s inconsistent enough for Judge Goeke.

“The equitable recoupment doctrine seeks to prevent an inequitable windfall to the taxpayer or the Government for inconsistent tax treatment. The estate valued the corporations’ shares of stock at their sale prices, and it calculated its estate tax using those values. For purposes of demonstrating petitioner’s transferee liability, respondent has proved that the sale prices exceeded the fair market values of the corporations’ shares of stock. However, respondent seeks to retain the estate tax petitioner paid, even though it was calculated on the basis of the sale prices. Denying petitioner a credit for the estate’s overpayment of estate tax would give respondent an inequitable windfall. To prevent this result, we will modify our opinion in Frank Sawyer IV to further reduce petitioner’s liability by the amount of the estate’s estate tax overpayment resulting from its misvaluation of the taxi corporations’ stock.” 2014 T. C. Memo. 128, at p. 10.

And, again because IRS couldn’t establish that the deal with the MidCoast stooge was a fraudulent conveyance, no accuracy penalty.

A Taishoff “good job, guys” to David R. Andelman, Esq., and Juliette M. Galicia, Esq., of Lourie & Cutler, counsel for taxpayer.

But Only If You Ask Us

Judge James S. (“Big Jim”) Halpern, not quite so obliging as his colleague Judge David Gustafson, is apparently willing to visit Tax Court petitioners in whatsoever Stony Lonesome they are doing a guest appearance. Maybe.

But Judge Big Jim doesn’t go charging in, as Judge David Gustafson did; see my blogpost “We’ll Come To You”, 9/18/12.

No, Big Jim waits to be asked, in Robert Ray Sanders, et al., Docket No. 8386-11, filed 6/25/14.

The visitation issue apparently isn’t with Robert Ray, but rather with the “al.”, namely and to wit, Robert Ray’s wife, Rachal Shannamarie Sanders. Seems like Rachal Shannamarie is a-servin’ of her time, at least until the end of calendar 2014.

So Judge Big Jim decides to see what’s going to be with Rachal Shannamarie and her return to civilian life.

“The Court has received reports from all parties. We agree with respondent’s statement that, barring stipulation between the parties, these cases will probably require a trial. No stipulation of settlement has been presented and no dispositive motion, such as a motion for summary judgment, has been made. Nor has any party asked that we conduct a trial at petitioner-wife Rachal Shannamarie Sanders’ place of detention. We have contacted a caseworker at her place of detention, who stated that, perhaps by the end of the year, information will be available concerning her release date.” Order, at p. 1.

So Judge Big Jim releases the case to the general trial docket, and orders status reports by December 1, unless information sooner arrives as to Rachal Shannamarie’s return to liberty.

Judge Big Jim holds off going to jail. Unless someone asks him.

You-Know-What

Y’all will doubtless recollect my response to Rob’t W. Wood, Esq., and his article “Jackson Estate Says, ‘Beat It, IRS’.”

No? Well, see my blogpost “Letter to the Editor”, 11/19/13.

Now, however, notwithstanding their erstwhile belligerence, or so much thereof as was alleged by Rob’t W. Wood, Esq., above-cited, Messrs. John G. Branca and John McClain, the co-executors of the Estate of the late great King of Pop, seem to be taking the path of less resistance in the face of Com’r. Koskinen’s somewhat shop-soiled myrmidons.

I’ll defer to 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 Estate of Michael J. Jackson, Deceased, John G. Branca, Co- Executor and John Mcclain, Co-Executor,  Docket No. 17152-13, filed 6/24/14.

“This case is on the Court’s November 17, 2014 trial calendar for Los Angeles, California. Although a very large deficiency is at stake, the Court learned in a call with the parties on June 20, 2014 that it raises mostly valuation questions. The parties are cooperating in informal discovery and want to try to settle as many issues as possible at IRS Appeals. The Court agrees with their suggestion that the case be put on a status-report track….” Order, at p. 1.

Amazing how we bystanders, bloggers, kibitzers and curbstone critics are so wise and so combative, while and so long as we’re not pushing our diñero all-in, eh, Mr. Wood?