Rosa M. Marcano, T. C. Sum. Op. 2024-26, filed 12/23/24, claims, since she was out of country for 24 of the 90 days she had to petition her SND, she was entitled to the 150-day out of country exception to the Section 6213(a) in-country timeframe.

I give her trusty attorney, whom I’ll call CH, a Taishoff “Good Try, Second Class.”

But Judge Jeffrey S. (“Schwer”) Arbeit isn’t buying.

“The facts petitioner asserts are not enough to entitle her to the 150-day period for filing the petition. Petitioner was in the United States when the notice was mailed, in the United States when the notice was delivered, and in the United States for almost three weeks thereafter. Indeed, petitioner concedes she was in the United States at least 66 days of the 90-day period.

“Petitioner is ineligible for the 150-day period because her absence from the country neither delayed her receipt of the notice nor otherwise adversely affected her ability to file a timely Tax Court petition.” T. C. Sum. Op. 2024-26, at p. 3.

Judge Schwer Arbeit has copious citation of precedent in support, which I needn’t repeat here.

Walt Whitman’s 1855 leaf of grass is a gift that keeps on giving. Today, it’s the song of “quintessential tax protester” Christopher Aubuchon, T. C. Memo. 2024-115, filed 12/23/24, at p. 2. IRS says Chris omitted some income, even after IRS nailed his all-zeros Form 4852 W-2 substitute. IRS amended its answer to Chris’ petition to put in the extra income from bank records reconstruction.

But Judge Christian N. (Speedy”) Weiler has a problem with IRS’ characterization.

While any deposit is presumptively income, and a lot of what IRS reconstructed is unrebutted by Chris’ lack of records, certain electronic transfers can’t be established as taxable income from IRS’ calculations. And as those figures were raised in an amendment to answer, IRS has BoP.

“However, considering the limited evidence presented, we are unable to conclude respondent has met his burden of proof with respect to all deposits found in Mr. Aubuchon’s Stanford Federal Credit Union account. Specifically, there is nothing in the record supporting a conclusion that (i) the electronic deposit of $29,173 made March 25, 2017, resulted from a sale of securities or (ii) the electronic deposits of $3,000 on January 20 and February 7, 2017, $5,000 on March 4, 2017, and $18,000 on July 25, 2017, are funds from an income-producing activity. Rather, we view these ‘electronic deposits’ to be synonymous with ‘electronic transfers’ likely between accounts of Mr. Aubuchon and not gross receipts. Other than Mr. Aubuchon’s employment and business activities with Filld and Exojoule, the record is void as to what other business activities (if any) Mr. Aubuchon conducted to derive income in tax year 2017. Accordingly, aside from those deposits attributable to Filld, E*TRADE, Coinbase.com, and Exojoule, we find the record to be unclear and insufficient to support a conclusion that these remaining electronic deposits are sources of unreported income by Mr. Aubuchon.” T. C. Memo. 2024-115, at p. 6.

So Chris gets a bye on just over half the unreported income IRS claims. But since Chris is a Stanford Ph.D., as evidenced by his loyalty to his school’s credit union, he gets full chops.

The above acronym stands for “Limited In Name Only,” and so holds Ch J. Kathleen (“TBS = The Big Shillelagh”) Kerrigan in Denham Capital Management LP, Denham Capital Management GP LLC, Tax Matters Partner, T.C. Memo. 2024-114, filed 12/23/24.

The partners in the TMP claim to be limited partners per State (MA) law, therefore net earnings from self-employment should exclude the partners’ distributive shares.

Wrong, says Ch J TBS. The TMP partners run the show, provide all decision making functions for the (box-checked) partnership, made no capital contribution (except one partner did), and therefore State law is irrelevant. There’s copious citation of Tax Court precedent, and the TMP’s invitation to ignore same gets rejected.

As usual, it’s a case of “what do you do” rather than “what do you call yourself.”

Werner Heisenberg (1901-1976) was a physicist, not an engineer. But his famous uncertainty principle is the model for Judge Travis A. (“Tag”) Greaves’ exhaustive (not to say exhausting) review of the Section 41 additional research credits claimed by Phoenix Design Group, Inc., T. C. Memo. 2024-111, filed 12/23/24.

The Phoenixes are MEPF (mechanical, electrical, plumbing and fire prevention) engineers of great skill and high repute. Only their experimentation to solve uncertainty fails to show both what was uncertain and what they did to resolve the uncertainty. They had timesheets galore, but few details thereon. And their meticulous drawings confounded even their attorneys. “As aptly summarized by petitioner’s counsel, the unexplained design drawings ‘tell[] me nothing.’” T. C. Memo. 2024-111, at p. 36.

Just solving problems isn’t enough. The Phoenixes are masters of that. The scientific method is the key to the credit. And explaining it to a judge is essential.

As Judge Greaves sums it up. “As said before, engineers solve problems you did not know you had in ways you cannot understand. Without an explanation of the work or process of the engineers, we cannot understand how PDG engineers came to the ultimate solutions and determine whether the activities qualify as research within the meaning of section 41. None of the trial projects as a whole or at the shrinking-back level involved qualified research. Petitioner is liable for the accuracy-related penalties as stipulated by the parties.” T. C. Memo. 2024-111, at p. 45.

All the tax sites and pundits are coming up with their year-end strategies; like old-time wedding regalia, some are old, some are new, some are borrowed, and maybe even some are blue. I’ll be in style, and offer a year-end tip with help from STJ Diana L. (“Sidewalks of New York”) Leyden.

Even if you’re not required to file a return (e.g., income under the wire), file anyway. If you don’t, the passage of time will bar your otherwise meritorious refund claim.

Just ask Mary C. deNourie, Docket No. 18182-22, filed 12/23/24. Mary’s income was Social Security and part-time retail clerking, so neither she nor spouse had filed for years. But IRS claimed she got some money from a LLC in year at issue, and hit her with a SND. She and IRS settled out the alleged deficiency at zero, but when Mary claimed a refund of withholding, IRS interposed Section 6511. Mary filed a return six years late claiming the refund, which IRS bounced. The Section 6511 three-and-two limits were long since passed.

STJ Di says it’s harsh but true. If you want a refund, even if you’re not required to file, you’d best file timely to claim it.

“As is true in many of the cases in this field, ‘[w]hile the result may seem harsh where the tax has actually been overpaid by withholding or payments of estimated tax, the result is mandated by the law and is also a problem of the taxpayer’s own creation.’ The situation is not an unfamiliar one, and has been before this Court in a variety of other circumstances.” Order, at p. 6. (Citations omitted).

A short form, like a 1040A or 1040-EZ, might do; try a LITC first. But file. Starts the SOL running, too. And tell ’em Mary sent ya.

After years of seeing requests for sealing records or proceeding anonymously routinely denied, even in whistleblower cases until DC Cir stopped it, I wanted to use the old ice hockey players’ watchword: “If you step on the ice you gonna get hit.” Non-whistleblower petitioners should read and heed. Section 7461 sets a high bar for privacy.

Now nonparty S.Crow Collateral Corp. (SCCC) wants to seal an IRS expert’s report in Richard B. Stillahn & Lisa R. Lang Stillahn, Docket No. 13492-20, filed 12/20/24, to lock out some SCCC’s tax return info IRS got via the audit process. IRS claims transactional relationship between SCCC and an LLC on the one side, and Stillahn on the other. I’ve blogged these situations a few times before now, and generally IRS wins.

Trade secrets, privileged information, and Section 6103 info usually clear the bar, except where, as here, it relates directly to the two lead issues in the case.

Ex-Ch J L. Paige (“Iron Fist”) Marvel spells out the ground rules.

“An item of evidence received by this Court is presumptively a public record open to the inspection of the public. While we may seal a record for good cause, the burden of demonstrating good cause—including whether information is confidential pursuant to section 6103—falls on the party or other affected person moving us to seal the record. SCCC thus bears the burden of demonstrating good cause, and respondent does not bear a burden in relation to SCCC’s Motion to Seal.” Order, at p. 3.

And that a proceeding for unauthorized disclosure per Section 7431 is ongoing in USDCDID doesn’t matter. The sealing or otherwise of the expert’s report doesn’t only affect the parties (and participants, willing or unwilling), but the public at large.

The real capper is this: “SCCC, however, has not specifically identified each item of disclosed return information to which it objects and has not explained with particularity how section 6103(h)(4)(C) should apply to each such item of information.” Order, at p. 3.

So SCC’s trusty attorney’s request to brief the matter really doesn’t answer the question why this stuff should be secret.

So to all who ask that I not comment on their cases, I can only paraphrase ex-Ch J Iron Fist: “Even if you don’t step on the ice, you gonna get hit.”

I had not blogged the precvious Tax Court Appearances of Marie Claudia Estorge, Docket No. 36014-21W, filed 12/20/24. The most IRS came up with, whether or not from Marie’s blow, was under $300K on a non-individual; hence Section 7623(b)(5) locked her out regardless.

Marie is a fighter in the Fighting Joe Insinga tradition, but it’s a lost cause. Though she’s pro se, either she knows the ropes or has a helper who does.

I’m only noting the case because I think Judge Courtney D. (“CD”) Jones walked past a promising path to settling the summary J vs. stipulated facts dispute in Whistleblower cases.

Here’s Judge CD Jones: “… in cases in which judicial review is based solely on the administrative record, Rule 121(a)(2) does not apply, and the parties must provide “statement[s] of facts with references to the administrative record.” Rule 121(j). In this context, summary judgment serves as a mechanism for deciding, as a matter of law, whether the agency action is supported by the administrative record or whether the WBO’s determination was ‘arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law.’ Van Bemmelen, 155 T.C. at 72 (quoting Kasper v. Commissioner, 150 T.C. 8, 21 (2018)). In conducting this analysis, we do not substitute our judgment for that of the agency, but instead confine ourselves to ensuring that its determination was ‘within the bounds of reasoned decisionmaking.’ Id. (quoting Dep’t of Com. v. New York, 139 S. Ct. 2551, 2569 (2019)). With respect to factual matters, this includes accepting the agency’s determinations as long as they are not clearly erroneous. See Kasper, 150 T.C. at 23 (citing Fargo v. Commissioner, 447 F.3d 706, 709 (9th Cir. 2006), aff’g T.C. Memo. 2004-13).” Order, at p. 5.

Taishoff says there are no “stipulated facts” in a record-rule whistleblower case. There’s a filed administrative record, which the parties either agree is complete as to what the WBO had before it, or have attempted and failed to enlarge. But the Court may not look behind except for manifest injustice.

In essence, this is the equivalent of the old commonlaw writ of certiorari to review, ordering the decider of fact to certify the record to the body charged to review, which can then to sustain or reverse the decision based on that record solely.

Adopt such a Rule, call it what it is, and the ambiguity first noted by Judge David Gustafson in Bialer (see my blogpost “The Whistle Blown on Summary J,” 12/2/19*) will vanish leaving not a wrack behind.

But alas, without a Tax Court Bar Association to support rational Rule amendments, I fear it will be a long long way to certiorari.

* https://taishofflaw.com/2019/12/02/the-whistle-blown-on-summary-j/

Jackson Crossroads, LLC, Greencone Investments, LLC, Tax Matters Partner, T.C. Memo. 2024-111, filed 12/19/24, has some GA boondocks they claim is a great source of Lower Paleozoic metamorphic granitic gneiss, the stuff they make aggregate from, which is used in construction. They claim the property is worth $23 million (and there’s a picture at p. 6) showing what might be). Conjoined with them is Long Branch Investments, LLC, Greencone Investments, LLC, Tax Matters Partner, who are out on a limb over a bulk industrial distribution park on some nearby boondocks (picture on p. 8); they claim $14.6 million.

Of course, after the syndicated conservation easements put together by a couple good ol’ boys (hi,  Judge Holmes) who met at an Atlanta Braves game reduce these goldmines to “planted loblolly pine and natural hardwood forest areas as well as fields planted with soybean, chufa, corn, and wheat. The property also had two intermittent streams and two small, man-made ponds. In addition, a pole shed and dilapidated hunting camps stood on the property,” T. C. Memo. 2024-111, at p. 9, the whole shebang ain’t wuth nuthin’.

They say.

Judge Christian N. (“Speedy”) Weiler ain’t so sure, although he blows off IRS’ usual attacks on the appraisals. Most of the objections get brushed off with “they comply with the Regs, so your objections go to weight, not admissibility”. Of interest is IRS’ invocation of Reg. Section 1.170A-13(c)(5), the so-called knowledge regulation. The test is whether a reasonable person would see that the appraisal was way out of line with reality. But Judge Speedy Weiler says this has to be equal to the cataclysmic own-goal testimony from the appraiser in Oconee Landing Property, LLC, Oconee Landing Investors, LLC, Tax Matters Partner, T.C. Memo. 2024-25; see my blogpost “Four-To-One,” 2/22/24*. In short, were the LLC managers in cahoots with the appraiser?

Not here, says Judge Speedy Weiler; just the “a relatively normal back-and-forth between client and appraiser,” T. C. Memo. 2024-111, at p. 26. Judge, did you ever hear the hypertechnical phrase “mach gresser, mach veyniger“?

The appraisers are in, but the appraisals are out. There are what the USPAP call extraordinary assumptions, and irrational exuberance. CSX isn’t rebuilding their railway to suit. Judge Speedy Weiler carefully slices, dices, dissects, and shaves the worth of the two easements to about $1.1 million for the Jacksons, and $1.5 million for the Long Branchers.

Plus 40% overvaluation chops.

* https://taishofflaw.com/2024/02/22/four-to-one/

Adrian D. Smith & Nancy Smith, et. al., Docket No. 13382-17, filed 12/18/24, are part of a firm of architectural designers with a worldwide clientele. Here, they’re enmeshed in a brouhaha over Section 41 additional research credits for a trio castles (hi, Judge Holmes), one each in Dubai, Saudi Arabia, and Abu Dhabi.

Judge Christian N. (“Speedy”) Weiler tosses IRS’ summary J motion because of ambiguous language in the contracts. To whom do the results of the research belong? IOW, is this work-for-hire, in which case no credit. And is this funded research, that is, upon whom does the risk of failure fall? Judge Speedy Weiler lays out the conflicting contractual paragraphs.

It comes down to whether the petitioner was paid for research or for results. And foreign copyright and IP law are also in play. IRS’ claim that petitioners’ failure to give a Rule 146 notice before invoking foreign law is treated as a “no hurt, no foul.” These are offshore deals, so from the get go foreign law must be considered. Order, at p. 12.

Plenty of drafting hints (and landmines) here. This is what happens when the large print giveth and the small print taketh away.

Mario G. Duckett, Docket No. 6697-22, filed 12/17/24, has two ex-spouses to pay in year at issue (pre-TCJA). The ladies come away with $117K between them, but Mario gets his Section 215 alimony deduction for a mere $82K, leaving Mario holding a $35K nondeductible bag.

Separation and death are the problems.

Mario’s marital settlement agreement (MSA) incident to divorce from ex-2 provided Mario had to dump some stock and options, from the proceeds of which he had to pay ex-2 the lesser of $30K or whatever he got. But the heading of the section of the MSA that spells this out reads “Equitable Distribution of Marital Property.” The MSA section relating to periodic installments of alimony is entitled “Support.” That section only deals with periodic payments, and that IRS folds.

Mario’s trial testimony that the stock money was intended to offset a higher monthly payout demanded by ex-2 doesn’t get it. “However, the subjective intent of the parties is not determinative of whether a payment constitutes alimony.” Transcript, at p. 9.

Remember, family lawyers, while your documents don’t have to track the statutes word for word, if you separate property settlement too far from alimony, your clients will have separation anxiety when their returns get examined.

Death? That’s the usual Section 71(b)(1)(D) death of either party cancels obligation. Mario obligingly testifies nobody ever mentioned death at the negotiations of the MSA. Game over, of course.

Now the TCJA put paid to all this stuff for years after 2018. But in case it ever comes back, beware!