No, neither leaving the premises nor indulging in a certain herbaceous substance legal in 23 States and the District of Columbia (for medicinal purposes only in most of them), but rather the plight of Donald Thomas Salzer, 2014 T. C. Sum. Op. 59, filed 6/24/14.

Don’s problems arise when Mrs. Don, his wife of almost thirty years, gets into some kind of dispute with former President Bush the Second. The nature of the dispute is not stated by STJ Armen (it’s really irrelevant), but howbeit, she refuses to sign the joint returns they’ve been tendering annually through all their marital years theretofore.

So Don doesn’t file for two tax years, since he can’t get Mrs. Don’s autograph.

IRS, heedless of the niceties of Mrs. Don’s disagreement, gives Don SFRs for both years, and a deficiency for each of the two, “irregardless”, as the grammatically-challenged might say.

Don says “if I am married and filed joint returns, I’d owe nothing, as I was adequately withheld.”

STJ Armen, although The Judge with a Heart, is still bound by the law.

“Joint return rates apply only if a married individual files a return jointly with his or her spouse under section 6013. Sec. 1(a)(1). With exceptions not applicable herein, section 6013(a) provides that a husband and wife may file a return jointly even though one of the spouses has neither gross income nor deductions. See sec. 1.6013-1(a), Income Tax Regs. To file jointly, however, both spouses must intend to do so.” 2014 T. C. Sum. Op. 59, at p. 5.

But neither filed. So Don is on his own, and his status is MFS, not MFJ, which is a major tax hit. Mrs. Don is a woman of principle, but as she had no taxable income and thus no liability or obligation to file, Don might point out that her principles cost them both plenty.

Don is persistent, though: “Petitioner contends that he would have filed joint returns for the years in issue had it not been for his wife’s refusal to do so. Petitioner also contends that it would be ‘illogical’ to pay tax as a married person filing separately given his history of filing joint returns from 1985 through 2007. However, as the U.S. Supreme Court instructs, we give effect to what actually happened and not what might have happened.” 2014 T. C. Sum. Op. 59, at pp. 5-6 (Citations omitted, but our old friend Nat’l Alfalfa is in on the tackle.)

And of course, in dealing with taxes, we might paraphrase Tina Turner’s 1984 classic: what’s logic got to do with it?

STJ Armen: “However much one might sympathize with petitioner, who faces much higher tax liabilities than those that would otherwise be required, the fact remains that joint filing status cannot be imputed. Taxpayers can secure such status only by filing a joint return.” 2014 T. C. Sum. Op. 59, at p. 6.

Moreover, when confronted with nonfiling and nonpayment chops, Don is on his own again. “…petitioner’s wife’s refusal to file joint returns does not constitute reasonable cause for his failure to timely file or his failure to timely pay or otherwise excuse him from liability.” 2014 T. C. Sum. Op. 59, at p.7. (Footnote omitted).

My diligent readers may ask why I haven’t blogposted 142 T. C. 24, filed this date, featuring our old acquaintance Eric Onyango. You’ll remember Eric from my blogpost “You Have To Fulfill The Requirements”, 8/20/13. Well, this is another of those full-dress T. C.’s that make me wonder why an ordinary T. C. Memo. wouldn’t do. See my blogpost “This Old House”, 1/30/12.

Eric never bothered picking up his certified mail, like the letter with the SNOD in it, so he gets no shot at fighting his underlying tax liabilities at the CDP.

Don’t know why Tax Court issued a full-dress on that proposition.

No, not Paul Simon’s 1970 opus that appeared on his final album with Art Garfunkel, but rather the story of Tarri M. Harrold-Jones, spouse of Darryl L. Jones, leading man in the eponymous 2014 T. C. Memo. 125, filed 6/23/14, as narrated by Judge Goeke.

Darryl is an Alaskan lawyer with a nonchalant approach to depositing clients’ checks (he only deposits them when he needs money; how delightful that must be, but I have never had that luxury. When I get a check, it never sees sunset in my hands.). This befuddles IRS when they do the bank account reconstruction, so some of Darryl’s unreported income slips by. But then Darryl’s claimed NOL goes down unsubstantiated.

And there’s the usual argy-bargy about business deductions, both by Darryl and by Tarri.

But Darryl and Tarri, who file MFS, escape the 20% chop because they told their CPA Darlene Dotzler, whose 10 years of CPA-hood convinces Judge Goeke, the whole story, and Darlene so testifies.

Tarri claimed to be an IC, but IRS said she was an EE, did a reclassification as against Darryl, which Darryl didn’t petition.

But when a deficiency arises out of a reclassification, those affected can raise the reclassification in their petition on the deficiency.

Now the link to Paul Simon’s ditty. I’ll let Judge Goeke furnish it.

“Mr. Jones regularly hires extra workers to help him manage his caseload, and … he enlisted Mrs. Harrold-Jones to work on two of his largest cases. Petitioners were concerned that working together might damage their marital relationship, so they carefully arranged their business relationship to give Mrs. Harrold-Jones as much freedom as possible. Mrs. Harrold-Jones did not work at the law office; she worked from petitioners’ home, which was about 45 miles away. Mr. Jones told Mrs. Harrold-Jones what he needed her to do, but he allowed her to accomplish her tasks in her own time and in her own way. Petitioners agreed that Mr. Jones could discharge Mrs. Harrold-Jones if the arrangement became unproductive.

“One of the cases on which Mrs. Harrold-Jones worked involved a protracted criminal investigation against Mr. Jones’ client. The client had an eccentric personality but got along well with Mrs. Harrold-Jones, so Mr. Jones appointed her to review documents with the client and keep her calm and focused. Mrs. Harrold-Jones also performed basic legal research for the law office. She did not receive regular wages; her cases settled…, and she received a percentage of the fees Mr. Jones collected.” 2014 T. C. Memo. 125, at pp. 5-6.

So, says Judge Goeke, weighing the usual IC-EE factors: “Mr. Jones did not control the details of Mrs. Harrold-Jones’ work. He told her what he needed done, and she was free to decide how to accomplish it. Mrs. Harrold-Jones’ most important responsibility was keeping an important client calm in the face of a lengthy criminal investigation. The client was eccentric but got along well with Mrs. Harrold-Jones, so Mr. Jones trusted her to interact with the client and review documents with her. Mr. Jones cared only about the client’s satisfaction and did not control how Mrs. Harrold-Jones achieved it. These facts suggest that Mrs. Harrold-Jones was an independent contractor.” 2104 T. C. Memo. 125, at pp. 14-15.

Just tryin’ to keep the customer satisfied really helped. Also it helps that Tarri worked from home and got paid a piece of the collected fees, rather than fixed wage (although fee-splitting with a nonlawyer might be a separate issue, Judge Goeke doesn’t need to go there).

So Tarri wins the IC-EE face-off.

Treasury and the IRS, I mean. Why am I not surprised?

I’m talking about the now-adopted amendments to Circular 230. Here’s the whole ball of wax:

http://www.irs.gov/pub/irs-utl/TD_9668_6-9-14_Cir%20230_6-9-14_Final_Reg.pdf

See my blogpost “Comments to Circular 230 Revisions”, 11/12/12, so I won’t have to rehash here what I said there.

I still think I am right, but that hardly matters. Read and heed the new slippery-slope rules. I will continue to use a warning legend in my marketed opinions, and the new regulations do not prohibit that, at least.

They’re dead wrong about §10.82, and its distinction between annual and more-often-than-annual filings. It’s unfair to lump the two, and all the talk about “showing disregard” ignores the fact that sixteen months is a lot less than thirtysix months. Again, see my blogpost.

There’s too much emphasis in the preamble on saving money, with assumptions drawn from the thinnest of air and calculations worthy of a façade easement appraisal, and not enough on practical in-the-field experience.

OK, I’m annoyed, and that’s a poor frame of mind in which to be writing a blogpost, especially at 3 a.m. local time.

So I’ll close with Abraham Lincoln’s words. “I do the very best I know how – the very best I can; and I mean to keep doing so until the end. If the end brings me out all right, what’s said against me won’t amount to anything. If the end brings me out wrong, ten angels swearing I was right would make no difference.”

An e-mail from colleague Joel E. Miller, Esq., furnishes today’s blogpost. But first, see my blogpost “The Façade Collapses”, 3/21/14, the tale of the Primoli safeharborers and tax-break merchants sent to the sin-bin by Karen Hawkins and her myrmidons at OPR, offered subject to connection, as the high-priced lawyers say.

Now for today’s installment. It’s the last gasp of an old story, Huda T. Scheidelman v. Com’r., No. 13-2650, decided 6/18/14 by the long-suffering Second Circuit, which had give Huda a second bite at the cliché a couple of years back (as to which see my blogpost “Method to His Madness?”, 6/18/12; I got a lot of mileage out of Huda and her doings). (Emphasis by author).

Huda says the easement she gave the now-banished National Architectural Trust must have diminished the value of her Fort Greene townhouse. Fort Greene, once a slum, is now a chi-chi enclave in Brooklyn.

But you remember her appraiser “Iron Mike” Drazner’s opinion, though it slid under the regulatory tag as far as Second Circuit was concerned, certainly didn’t bind IRS or Tax Court.

The three-judge bench makes that clear, citing to its earlier decision: “As we emphasized, however, ‘[o]ur conclusion that Drazner’s appraisal meets the minimal requirements of a qualified appraisal mandates neither that the Tax Court find it persuasive nor that Scheidelman be entitled to any deduction for the donated easement.’” Opinion, at p. 5.

Now circuit courts of appeal treat Tax Court like a District Court, owing no Chevron-Mayo deference, reviewing law de novo, but reviewing facts only for clear error. Circuit courts of appeal don’t retry cases. If there’s substantial evidence in the record for what Tax Court (or a USDC) found, then game over.

And there’s plenty in the record to sustain Tax Court. While one would expect granting such an easement might diminish the value of the servient tenement (no, that’s not a 50-Shades-of-Grey hovel, that’s old English that I learned at an expensive law school), that’s no automatic result.

“To the contrary, the regulations provide that an easement that has no material effect on the obligations of the property owner or the uses to which the property may be put ‘may have no material effect on the value of the property.’. Treas. Reg. § 1.170A-14(h)(3)(ii). And sometimes an easement ‘may in fact serve to enhance, rather than reduce, the value of property. In such instances no deduction would be allowable.’ Id.” Opinion, at p. 8. (Footnote omitted, but read it; it quotes testimony from the VP and general counsel of the National Trust for Historic Preservation.)

Finally, Huda’s big witness on the Tax Court trial, Michael Ehrmann, had his expert opinion shredded, and, last year along with his firm, wound up being permanently enjoined by the USDC Northern District of Ohio “from preparing any further property appraisals for federal tax purposes.” Opinion, at p. 10, footnote 2.

Judge Polster did let Mr Ehrmann finish his engagement with Huda, and whatever matters he still had in his shop, even though IRS claimed “Ehrmann distorts data and provides misinformation or unsupported personal opinions to get artificially high values for conservation-easement donations.” Opinion, at p. 10, footnote 2.

And one of Huda’s own witnesses put the ball squarely in her net. This was the local preservation guru, whom I mistakenly said was a witness for IRS in my blogpost “Appraising the Appraisal (and Appraisers)”, 1/18/13, but I must plead in my own defense that I could not believe that the taxpayer would call a witness who would so testify.

I’ll let the Court tell this one: “Moreover, the Chairman of the Fort Greene Association (a witness for Scheidelman) explained that the Fort Greene Historic District, which provides guidelines to maintain the historic integrity of the District’s façades, has ‘actually has created Fort Greene to what it is today. It’s created — it’s an economic engine for Fort Greene.’” Opinion, at p. 11.

I did note at page 12 of the opinion that Second Circuit can’t tell a mortgagor from a mortgagee. Your Honors, a “mortgagor” is one who encumbers his, her, its or their property with a mortgage, generally to obtain a loan of money. A “mortgagee” is the party who lends money to the mortgagor, and secures the mortgagor’s obligation to repay same by placing a mortgage on the property.

Huda also argued that the burden of proof should shift to IRS, as she satisfied the Section 7491 requirements. Mox nix, says Second Circuit, your evidence crumbles before IRS’ evidence.

You can see that this wasn’t a great day for Huda.

I am told her attorney remarked after reading the opinion that this was his first easement case, and that he would know better the next time. Supposedly words of like import were said by General Edward Braddock in 1755, after he was ambushed, his troops routed, and he mortally wounded.

It is often very hard to convince clients, especially sophisticated clients, that you, their tax adviser, actually know what you’re talking about and why they should follow your advice (for which, maybe, they’re actually paying you).

But clients sophisticated and otherwise should read and heed Judge Marvel’s opinion in Seventeen Seventy Sherman Street, LLC, Martin Wohnlich, Tax Matters Partner, 2014 T. C. Memo. 124, filed 6/19/14.

Mr Wohnlich and his copartners claimed they listened to Karl Leppman, Esq., a tax attorney they retained, when Mr Leppman told them they had to reduce the charitable deduction they were claiming for the granting of a façade easement in favor of Historic Denver, Inc., a 501(c)(3) dedicated to protecting, preserving and defending what remains of the history of the Mile-High City.

Unfortunately, Historic Denver, Inc., was, at the relevant time, a toothless tiger, so Mr Wohnlich and his copartners struck a tough deal with the City of Denver in exchange for granting the aforesaid easement, which had actual teeth.

The deal involved the façade and interior of the celebrated Mosque of the El Jebel Shrine of the Ancient Arabic Order of Nobles of the Mystic Shrine (El Jebel Shrine), which Mr Wohnlich and copartners wanted to turn into a high-priced condominium, and for which they got major concessions from the municipality. My kind of guys.

Well, Mr Wohnlich sent in the 1060 and 8283 claiming the deduction, backed up with appraisals, but IRS ripostes with its own hotshots, so Judge Marvel, invoking the mix-and-match rules, throws them all out and opines that, because Mr Wohnlich didn’t prove that the worth of what he got from the City was less than what he gave by way of the easement, there is no deduction.

Now for the penalty shots, which include the 40% substantial overvaluation chop.

Judge Marvel: “Petitioner contends that Seventeen Seventy acted with reasonable cause and good faith through its reliance on professional advice and therefore no section 6662(a) accuracy-related penalty is applicable. With regard to its compliance with section 170, Seventeen Seventy sought the advice of Mr. Leppman. Petitioner contends that Seventeen Seventy provided Mr. Leppman with all necessary and accurate information, and that it reasonably relied in good faith on the advice of Mr. Leppman. See Freytag v. Commissioner, 89 T.C. at 888. However, Mr. Leppman testified that he advised Seventeen Seventy that it had to reduce the value of the claimed charitable contribution deduction by the consideration received in the quid pro quo exchange. Seventeen Seventy did not follow Mr.Leppman’s advice to reduce the value of its deduction by the consideration it received. It would be unreasonable for us to believe that at the time of the contribution and at the time of filing Seventeen Seventy’s return, either Seventeen Seventy or its advisers believed that the contribution of the easements was an unrequited contribution or that the consideration received had no value. Consequently, Seventeen Seventy’s disregard of Mr. Leppman’s advice was not reasonable and in good faith, and therefore Seventeen Seventy cannot rely on the professional advice of Mr. Leppman to negate the section 6662(a) penalty. ” 2104 T. C. Memo. 214, at pp. 43-44. (Footnote omitted, but read it. Mr Wohnlich’s appraiser seems to be talking at cross-purposes).

So the deduction goes down the drain. But the substantial overvaluation 40% chop does also, because IRS introduces that post-answer, has the burden of proof, and its hotshots don’t carry it.

Finally, Mr Wohnlich and his copartners have four (count ‘em, four) trial lawyers trying this case, whereas, if they had listened to one tax lawyer, Mr Leppman, they would have saved themselves a lot of trouble.

“The payment of taxes has seldom proved the most soothing thing for doubtful tempers.” Chapter 153 of the Saga of Olaf the Holy,  Heimskringla of Snorri Sturluson, c. 1230, translated from the Old Icelandic by William Morris and Eiríkr Magnússon.

CSTJ Peter Panuthos has some (qualified) good news for Georgette M. Klat-Ginex, Docket No. 17275-13S, filed 6/18/14.

Georgette was in bankruptcy when she filed her petition, but IRS didn’t know about it (either someone obviously messed up the creditor matrix, or decided Georgette’s tax debts weren’t dischargeable so didn’t list them, and in either case didn’t tell IRS). So when the case got to trial, the bankruptcy proceeding was over and the extended time to petition after dismissal or discharge was also over.

So no valid petition, and no jurisdiction.

CSTJ Panuthos: “There is no doubt that it would have been helpful to this pro se petitioner if respondent had filed his motion to dismiss at some earlier point in time thus permitting petitioner to file a petition after the automatic stay had been lifted but within the extended period provided by section 6213(f). However, our jurisdiction can be questioned by either party at any time, and the failure to do so by a certain point in time does not constitute a waiver of this right.” Order, at p. 1. (Citations omitted).

But CSTJ Panuthos has a thin rope to throw Georgette: “Given the circumstances of the timing of the filing of respondent’s motion and the fact that petitioner did not have an opportunity to have a judicial review of the adjustments set forth in the notice of deficiency the Court encouraged petitioner to pursue an audit reconsideration. Counsel for respondent advised that the Commissioner would be receptive to such reconsideration.” Order, at p. 2.

Judge Ruwe reminds us of the exceptions to the draconian and much-reviled provisions of Section 274 for business truckers, per Section 280F(d)(4)(C), which “… provides that listed property under section 280F(d)(4)(A)(ii) does not include ‘property substantially all of the use of which is in a trade or business of providing to unrelated persons services consisting of the transportation of persons or property for compensation or hire.’” 2014 T. C. Memo. 122, at p. 6.

The whole cite is Lee Anthony Baker, 2014 T. C. Memo. 122, filed 6/18/14.

Now Lee Anthony Baker did run his Mack tractor and pull trailers he didn’t own, for Advantage Tank Lines, which he didn’t own, and he did work for others, so he’s an IC and can deduct based upon his less-than-perfect numbers (in fact he had nothing but some credible testimony).

Of course, he gets a lot less than he would have gotten if he had good numbers, like George M. (“Give My Regards to Broadway”) Cohan teaches us, plus the substantial understatement, non-filing, non-payment and non-withholding chops.

I’m giving the late great Edward R. Murrow’s signature sign-off to Judge Diane Kroupa, whose retirement from Tax Court on 6/16/14 was announced this date. I echo the comment of the gang at 400 Second Street, November Whiskey (as we used to say): “The Court is deeply grateful for the excellent judicial service that Judge Kroupa has rendered in her eleven years on the Court.”

Echoing the words of a former President of the United States of America, I know just how David H. Garza, starring in 2014 T. C. Memo. 121, filed 6/17/14, feels.

Dave traveled far and wide in his truck, at the behest of his employer, Time Warner Cable. And he did have a calendar planner, wherein he jotted down odometer readings at least monthly during the year at issue. Now he did use the aforesaid truck for his own use, and concedes about 10% of his recorded mileage was personal use. But Time Warner Cable did not reimburse Dave for his vehicular expenses.

So Dave took unreimbursed employee business expense deduction on his 1040.

Judge Cohen believes Dave did drive a lot of miles for business. But that isn’t good enough for Section 274(d)’s strict substantiation.

“Petitioner’s calendar planner, while contemporaneous, is not reliable substantiation for the claimed expenses because petitioner failed to meet the criteria set out in section 1.274-5T(b)(6), Temporary Income Tax Regs., supra. Petitioner did not record the amount, the time, or the business purpose of each business use of his truck because, in his words, ‘it was just too much to do.’ Accordingly, his deduction must be disallowed.” 2014 T. C. Memo. 121, at pp. 6-7.

While I recognize people were, and are, playing games with vehicle, and travel and entertainment, expenses, I stopped claiming most of mine because I agree with Dave: keeping track is too much to do. It was all very well when I was in a law firm, whether large or small, which had billing programs and reimbursement policies. Keeping track was someone else’s job.

But when I went solo six years ago, I decided I was a lawyer, full-time, not a bookkeeper, not even part-time. No thanks; if I wanted to be a bookkeeper, I would be.

And Dave is a cable guy, and I assume not a bookkeeper either. Full or part-time.