There’s a resounding “yes” from Judge Kroupa, in a full-dress T. C. and also in a T. C. Memo. These reprise the cases I cited in my blogpost “The Whistleblower Blown Up”, 5/20/14, about the two bullet-dodging whistleblowers who uncorked a tax evasion scheme that netted the Federals a cool $30 million.

The full-dress is Whistleblower 11332-13W, filed 6/4/14, and the T. C. Memo. is Whistleblower 10949-13W, 2014 T. C. Memo. 106, filed 6/4/14.

The story is almost identical for both, so I’ll cite to the full-dress.

Of course, the Whistleblowing Crew in Ogden, UT, generous to the last, gave the blower a discretionary award (amount not stated, but certainly less than the post-2006 15% to 30% payday), and now claims Tax Court has no jurisdiction, as the whistleblower began to blow pre-December 20, 2006, the magic day that the nondiscretionary award in Section 7623(b) descended from on high.

So Judge Kroupa begins the incantation: “The Tax Court is a court of limited jurisdiction and may exercise jurisdiction only to the extent authorized by Congress. The Tax Court is without authority to enlarge upon that statutory grant. We nevertheless have jurisdiction to determine whether we have jurisdiction.” 142 T. C. 21, at p. 7 (Citations omitted, but they’re the usual).

Now while this may be a case of first instance for Tax Court, Judge Kroupa, unlike Starship Captain James T. Kirk, isn’t going where no one has gone before.

As usual in motions to dismiss, the plaintiff (petitioner-whistleblower) gets the benefit of the doubt. The question is: did s/he state facts upon which relief can be granted? It’s not “can s/he prove it?” That’s why we have trials. Tax Court has no specific rule as to deciding motions to dismiss, but the Federal Rules of Civil Procedure fill the gap nicely.

Judge Kroupa turns up the case of John Dacosta and N. B. Salty Miller, 82 Fed. Cl. 549 (2008). John and Salty blew the tax whistle to the tune of $2 million, so the bighearted guys in Ogden UT gave them each less than $140K and the thanks of a grateful government. But John and N. B. Salty said they gave the Federales information both pre-and-post 12/20/2006.

Judge Miller (Not Christine Odell, but George) said the guys made a good case, but Tax Court has exclusive jurisdiction, and since Tax Court isn’t an enumerated Court whence Ct. Cl. can transfer cases, he must dismiss, even though justice would be served by the transfer.

But Judge Kroupa takes up the sword dropped by John and N. B. Salty, and whacks the Ogdenites good. “Nevertheless, the Dacosta court’s analysis and rationale are persuasive. In Dacosta, as here, the claimants provided the Commissioner with information both before and after the enactment of TRHCA [Tax Relief and Health Care Act of 2006, the bestower of the 15%-30% largesse]. The Government moved to dismiss for lack of subject matter jurisdiction and argued that the information submitted by the claimants in 2007 was identical to the information submitted in 2003. The Government further argued that, even if claimants provided new and different information, the Commissioner did not proceed using the later application and documents. The court rejected the Government’s arguments and determined that the claimants alleged sufficient facts to avail themselves of section 7623(b)(1) for jurisdictional purposes. The court concluded that the claimants’ alleged facts, if proven at trial, would establish that the Commissioner acted on information provided by the claimants after the amendments to section 7623.” 142 T. C. 21, at pp. 13-14.

Despite the Ogdenite Pooh-Bahs’ claim that the post 12/20/2006 information was, in the words of the Master Savoyard, “merely corroborative detail, intended to give artistic verisimilitude to an otherwise bald and unconvincing narrative”, Whistleblower 11332-13W claims he gave the IRS and DOJ bushelbasketsful of other and further information, of which they were theretofore unaware, and fed them more goods than Deep Throat.

That’s enough. “We hold that the whistleblower satisfied the whistleblower’s pleading burden by alleging facts that respondent proceeded with an action against the targets using information brought to respondent’s attention by the whistleblower both before and after December 20, 2006. This is consistent with TRHCA’s intent to provide whistleblowers with judicial review of award determinations.” 142 T. C 21, at p. 12.

So Tax Court has jurisdiction. IRS’ motion to dismiss is dismissed. And it’s time for a trial.

Justice is done, for a change.

It was on a June day some 32 years ago that I was standing in Covent Garden, watching my spellbound daughter at Percy Press, Jr.’s, Punch-and-Judy show. Junior was a son of Percy Press, Sr., who was one of the all-time masters of the ancient craft, revered in his day.

And as the time-honored puppets shouted “Oh no I didn’t!” “Oh yes you did!”, disputing an alleged theft of sausages, I remember the delighted yelps of the little children gathered round on that sunny afternoon. A happy memory, and I hope my daughter, the international transfer pricing expert at a Big Four accounting firm, remembers it as well.

Well, there aren’t any happy yelps, I imagine, from IRS, and I doubt there are too many from Chenery Management, Inc., even though their cry of “Oh yes, it is!” prevails, in Docket No. 23888-13L, filed 6/3/14, a designated hitter from CSTJ Panuthos.

IRS sent Chenery a letter stating “You are entitled to judicial review of my determination to sustain lien filing regarding all applicable periods raised in your Collection Due Process appeals . . . .” Order, at p. 1.

Chenery petitions at once, but IRS moves to dismiss, claiming that its letter wasn’t a NOD enabling Tax Court jurisdiction. IRS later does issue a NOD.

CSTJ Panuthos holds a hearing, at which IRS’ counsel unceasingly maintains that the letter wasn’t a determination.

However, discretion being the better part of the cliché, IRS’ counsel asks to submit a post-argument response.

Naturally, IRS folds (and they should be sanctioned for wasting scarce judicial resources). It takes IRS seven (count ‘em, seven) paragraphs to come to the point, but here it is:

“Respondent now asks the Court to deny respondent’s Motion. Respondent concedes the Court’s jurisdiction over the letter… because that correspondence resolved petitioner’s issues and stated that petitioner was entitled to judicial review, therefore, the letter should be treated as a notice of determination.” Order, at p. 1.

Oh yes, it is!

No, not a lyric from The Pied Piper, Steve Duboff’s and Artie Kornfeld’s one-off wonder that sparked the career of Crispian St. Peters in 1966, but rather STJ Lewis (“Oh, Can He Spell”) Carluzzo sending an Order to Garry Zephyr & Marthe R. Menard, Docket No. 22613-11S, filed 6/2/14.

Remember Garry & Marthe? No? Then take a quick peek at my blogpost “I Was Misinformed”, 1/6/14, when Garry & Marthe showed up at IRS counsel’s office for the trial that was to take place at the Courthouse.

But even though STJ Lew tossed Garry & Marthe at New Year’s, he lets them back in today. Garry & Marthe ask for a vacation, that is, STJ Lew should vacate the Order kicking them to the curb.

Being a big-hearted guy and having such a great first name, STJ Lew relents.

“Giving due regard to the representations contained in the affidavit filed in support of petitioners’ motion for reconsideration, because the address given for the place of trial contained in the first notice might have caused some of the confusion complained about by petitioners with respect to the location for trial, and because dismissal is a harsh remedy, we will give petitioners the benefit of the doubt and grant them the relief they now seek. We do so reservedly, however, because (1) we disagree with petitioners’ contention that correspondence received from respondent’s counsel directed or otherwise misled them to appear at the wrong address on October 28, 2013; and (2) petitioners’ apparently have thus far failed to communicate with respondent’s counsel to the extent necessary in order to prepare a stipulation of facts. See Rule 91.” (Footnote omiotted.) Order, at p. 2.

So STJ Lew tells Garry & Marthe where it’s at: “In due course, and unless the case is resolved sooner without the need for trial, the parties will be served with a third notice setting the case for trial. That notice will show the address where the trial will be conducted, and unless otherwise notified by the Court, that is the address where petitioners will be expected to appear at the designated time and date.” Order, at p. 2.

So, Garry & Marthe, get with the program, stipulate or capitulate, but above all, be there or beware.

No, not a story of the Big City apartment-dweller, but rather the saga of The Howard Hughes Company, LLC, f.k.a. The Howard Hughes Corporation, and Subsidiaries, 142 T. C. 20, filed 6/2/14, as unwhimsically told by Judge Wherry.

The late Howard Hughes owned a vast patch of Nevada desert next to Sin City. After Howard left this vale of tears, various successor entities put together a master plan for the soon-to-be planned development of Summerlin, named for the late Howard’s maternal grandmother. One of my old colleagues retired thereto, and it is nice…if you like that sort of thing.

Howbeit, The Howard Hughes Corporation (“THHC”) subdivided, sliced and diced said vast patch, and sold same off to homebuilders and individuals, all of whom were obligated to build dwellings thereon. THHC had to provide infrastructure, off-homestead amenities, stub in utilities both wet and dry, post bonds to secure same, comply with zoning, and cede land to city and county for firehouses, parks, trails, etc.

THHC sold land on bulk sales contracts, pad sales contracts (whence the title of this blogpost), finished lot sales and custom lot sales, all to those who would build homes, and were obligated so to do. Bottom line: although bulk sales and pad sales are pretty much the same, and finished lots aren’t custom lots, at the close of play THHC did a lot of site work and built a lot of infrastructure, but themselves built no homes.

And the homebuilders didn’t subcontract the build-out of the infrastructure and amenities to THHC, which would have enabled THHC to claim the completed contract method that electricians and other trades get. However, that argument earns a Taishoff “good try” for the five (count ‘em, five) lawyers representing THHC.

So THHC’s attempt to use completed contract accounting and reporting, with its deferral of recognition for tax purposes until 95% completion, trying to latch on to Shea Homes (see my blogpost “Medal Count”, 2/12/14), doesn’t connect.

While it’s true that the sales contracts, at least to the extent of the bulks and pads, and maybe some finished, cannot be completed within the same tax year as the binding contract is entered into, so that percentage of completion is available to THHC, completed contract isn’t.

Infrastructure and amenities without the sale of a completed and accepted home is just too much grin and not enough cat for Judge Wherry. The statute and regulations call for “dwellings”. The legislative history behind the complete contract method says it was designed for homebuilders, to make homes cheaper. And Chevron and Mayo say the regulations rule, which THHC doesn’t question.

The amenity packages that got Shea Homes home (sorry, guys) was part and parcel of the building and sale of homes.

And a pad is not a home.

No, not Michael Jackson’s 1971 debut single, that launched his meteoric career, but rather Judge Kroupa’s direction to IRS’ attorney in Anson D. Massey & Kersulyn D. Augillard, Docket No. 12410-13, filed 5/30/14.

IRS’ attorney (I won’t name names) says he can’t reach Anson or Kersulyn (great name!) to find out if they object to his motion to dismiss for lack of prosecution, and stick them with deficiencies, additions to tax and penalties, as demanded in the SNOD.

But Judge Kroupa should grant his motion anyway.

Not so fast, old lad. Be cool.

“The Court notes that motions to dismiss for lack of prosecution are generally handled at the calendar call on the first day of the session to give petitioners an opportunity to appear. Thus, this motion is premature.” Order, at p. 1.

So, IRS attorney, like Anson and Kersulyn, you “got to be there”. If you are there, whether or not Anson and Kersulyn, or either of them, or their counsel, if any, show up, you got another chance to make your motion.

Unlike that Obliging Judge, Judge David Gustafson (see my blogposts “We’ll Come To You“, 9/18/12, and “We’ll Come To you – Part Deux”, 10/12/12), Ch Judge Michael B. (“Iron Mike”) Thornton has a limit as to how far he will go.

So Balan Sadasivam & Ramya Umashankar, Docket No. 8005-14, filed 5/30/14, have to mix-and-match, or else get to Washington, D. C. somehow.

Ch J Iron Mike told Bal and Ram to pick a trial venue. But Bal and Ram claim they’re in India, and can’t travel to the Land of the Free.

So Ch J Iron Mike, unwilling to travel outside the USA because Tax Court doesn’t hold trials outside the USA, suggests the following:

“Because petitioners have not properly designated a place of trial, the Court will designate Washington, D.C., as the place of trial in this matter. If travel is difficult, petitioners may wish to consider the possibility of submitting their case for decision under Rule 122, Tax Court Rules of Practice and Procedure. A copy of Rule 122 may be accessed at the Tax Court’s website at http://www.ustaxcourt.gov. Furthermore, petitioners may wish to contact the IRS attorney assigned to their case to discuss further options. On May 8, 2014, respondent filed an Answer in this case. The Answer contains the name, address, and telephone number of the attorney from the IRS whom petitioners may contact about their case.” Order, at p.1.

Meantime, Bal and Ram, trial will take place at 400 Second Street, N.W.

Julia, Maggie and Dotty and their numerous descendants are heirs of Grandpa Dick Reynolds, a primordial rapper, but spelled with a “w”. Dick invented Reynolds Wrap, a trusted ally in my kitchen and those of millions of others. He parked the C Corp stock in a PHC (of course), basis bupkiss (as we say), FMV astronomical, especially after Reynolds Aluminum merged with Alcoa fifteen years ago.

Dick’s son Dave put the PHC stock into family trusts, run by Dave’s daughters Julia, Maggie and Dotty. Julia, Maggie and Dotty, of course, followed Grandpa’s deathbed advice “Never sell nothing never”, until their trusted attorneys were approached by Seidman BDO, well-known accounting firm (full disclosure: they even did work for me thirty years ago, but not the dirty work hereinbelow set forth), with a wonderful deal: move your stock into an LLC, and sell it to our “financial buyers”.

You pay capital gains, and the buyer is stuck with the BICG. They buyer, of course, is anonymous and will borrow the money to pay you, and deal with the BICG.

Sound familiar?

See my blogpost “A Good Day for Taxpayers”, 3/15/11. But here innocence once more saves the innocent transferees of a Bialystok roundy-rounder, in Julia R. Swords Trust, Transferee, Margaret R. Mackell, Dorothy R. Brotherton, and Julia R. Swords, Co-Trustees, et al., 142 T. C. 19, filed 5/29/14.

IRS wants to use Federal law to collapse the sale of the stock into a liquidation of the PHC, distribution of the assets to Julia, Maggie and Dotty as trustees, and then a sale of the assets to the “financial buyer”, thereby rendering the PHC insolvent, and setting up a State law fraudulent transfer set-aside.

Nope, says Judge Marvel, writing for a unanimous Court.

“This Court has previously never explicitly adopted or rejected respondent’s proposed two-step analysis to decide whether a transaction should be recast under the Federal substance over form (or similar) doctrine when analyzing whether a transferee is liable under section 6901. Our approach, however, has been to require that State law allow such a transaction to be recast under a substance over form (or similar) doctrine before doing so.” 142 T. C. 19, at p. 38.

But Tax Court has always acted as if State law rules. Federal law decides if someone is a transferee, but State law decides if they should be liable for the unpaid tax. And Tax Court’s not changing now.

State law decides the form-over-substance jump-ball in a Section 6901 transferee liability case. “The Commissioner may collect the transferor’s unpaid tax from the transferee if an independent basis exists under applicable State law or State equity principles for holding the transferee liable for the transferor’s debts. Sec. 6901(a);Commissioner v. Stern, 357 U.S. at 45; Hagaman v. Commissioner, 100 T.C. 180, 183 (1993); Starnes v. Commissioner, T.C. Memo. 2011-63, slip op. at 15. State law determines the elements of liability, and section 6901 provides the remedy or procedure to be employed by the Commissioner as the means of enforcing that liability. Ginsberg v. Commissioner, 305 F.2d 664, 667 (2d Cir. 1962), aff’g 35 T.C. 1148 (1961); Starnes v. Commissioner, T.C. Memo. 2011-63, slip op. at 15. The applicable State law is the law of the State where the transfer occurred. See Commissioner v. Stern, 357 U.S. at 45; Starnes v. Commissioner, 680 F.3d at 426.” 142 T. C. 19, at p. 31.

There are three legs to the Section 6901 stool: transferor must owe unpaid tax, transferee must be a transferee as defined in Section 6901 (briefly one who got the boodle from the deadbeat taxpayer), and there must be independent State law or State equity basis for holding the transferee liable.

Judge Marvel chronicles all the losses IRS took trying to nail transferees in the roundy-rounders of Mid-Coast Financial and its imitators. And this is another one.

So no Federal form-over-substance here. State law doesn’t help, first because the only State (here the Commonwealth of Virginia) law has to do with a broker’s commission, and second because Virginia has its own fraudulent conveyance statute (doesn’t have the Uniform).

And Julia, Maggie and Dotty relied on their attorneys and accountants, as they had been doing for years, didn’t have a clue about the post-closing shenanigans of the “financial buyer” (of whose identity they were unaware pre-closing), and testified credibly on the trial as to their utter good faith.

Note that this may save Billyhawk and the hawklings when they go to trial. See my blogpost “Game Ends In No Score”, 5/30/12. There, Judge Wells wouldn’t buy Mrs Billyhawk’s affidavit and the hawklings’ paper averments that they knew nothing of Mid-Coast Financial and their skullduggery. But the trial may save them.

So the rappers’ tale has a happy ending–for the wrappers.

How many times has an in-the-trenches, battle-weary, preparer heard that line? And how many times has that preparer replied, “no, you need a record of the people or firm involved and your business purpose, made at the time you paid the expense you’re claiming”?

True, you don’t need a logbook, but you do need an appointment book or some record not made up after the fact, connecting the expense to the ordinary and necessary requirements of your business.

Another telling of the many-times-told-tale is Judge Chiechi and Richard A. Canatella, in 2014 T. C. Memo. 102, filed 5/28/14.

I blog this case only because nothing else, and I mean nothing else, worthy of the slightest consideration emerged from 400 Second Street, N.W., today.

Richard is an attorney. No, I’m not going to harp on automatic Tax Court admission, notwithstanding that the Tax Court admissions exam is coming in November for everyone but attorneys. But here’s something from Richard’s trial testimony that makes my point better than I could.

“THE COURT: Okay, let’s move on to each of the expenses, and I’ll tell you what they are, just in the order in which they were in the statutory notice of deficiency. Meals and entertainment of $2,436, what do you have to tell me in support of your position that that entire amount is deductible?

“THE WITNESS: As far as I’m concerned, every expense is allowable, and if the examiner didn’t allow it, it’s because he didn’t accept cancelled checks, bank statements, and documentation that prove under, I believe, 7491 of the probate — I mean, of the revenue code that we’re entitled to the allowance.

“THE COURT: So you believe that having a cancelled check or a credit card [statement] entitles you to each of the deductions, is that right?

“THE WITNESS: Yes.” 2014 T. C. Memo. 102, at pp. 8-9.

Judge Chiechi blows that one off, and hardly bothers with Section 274, throwing it away with a footnote (footnote 7 at p. 11).

How ‘bout it, Tax Court? Want to let us all take the exam?

Though I never served in the British Army engineers (one Army engineers is enough, thanks), I remember hearing the famous bugle call “You can be a defaulter as long as you like, as long as you answer your name”. Well, Judge James S. (“Big Jim”) Halpern is sounding that call with a vengeance today, 5/27/14, as he deals with various defaulters.

What’s the difference between a default and a failure to prosecute? Turns out the difference is no big difference for Peter H. Jones, 2014 T. C. Memo. 101, filed 5/27/14, although procedurally it might make a difference in S. E. C. (Someone Else’s Case).

Here’s Judge Big Jim’s exegesis: “At least with respect to the deficiencies in tax that he determined, respondent [IRS] states that dismissal of petitioner’s cases pursuant to Rule 123(b) on account of his failure to properly prosecute would reach the same result that would be reached if we hold him in default under Rule 123(a). That is true. We have said: ‘A Rule 123(b) dismissal, as a sanction against petitioner, is available as to those issues for which petitioner bears the burden of proof. A Rule 123(a) default would be the proper sanction against petitioner as to those issues for which respondent bears the burden of proof.’ Lopez v. Commissioner, T.C. Memo. 2001-93, 2001 WL 388758, at *4 (citing Smith v. Commissioner, 926 F.2d 1470, 1476 (6th Cir. 1991), aff’g 91 T.C. 1049 (1988)). Petitioner bears the burden of proof with respect to the determined deficiencies. See Rule 142(a). Nevertheless, respondent has moved that we hold petitioner in default and dismiss under Rule 123(a), and we will do so.” 2014 T. C. Memo. 101, at p. 13, footnote 4.

Pete is a graduate of the Air Force College and a thirty-year contractor, but also a long-time non-filer and frivolity merchant. So he gets a bushelbasketful of chops.

But Judge Big Jim isn’t finished defaulting people. He even tells the IRS to default itself, and they do. Check out Jose Vega, Docket No. 10713-13, filed 5/27/14.

IRS got an order and decision against Jose on default back at the end of April, hitting Jose for $5K tax and a $700 Section 6662(a) penalty, but either IRS changed its mind or Jose paid up (Judge Big Jim doesn’t say which), so IRS makes a Rule 162 motion to vacate or revise.

Judge Big Jim’s order is such a gem that I cannot do better than print it in extenso:

“This case was called from the calendar…. There was no appearance by or on behalf of petitioner. Respondent [IRS] orally moved for default judgment against respondent at the suggestion of the Court. It is

“ORDERED that respondent’s motion to vacate or revise pursuant to Rule 162 is granted, in that the Court’s Order and Decision entered on April 30, 2014, is hereby vacated and set aside. It is further

“ORDERED that respondent’s oral motion for default judgment against respondent is granted. It is further

“ORDERED AND DECIDED that there is no deficiency in income tax or penalty pursuant to I.R.C. section 6662(a) due from petitioner for the taxable year 2010.” Order, at p. 1.

So IRS, with its counsel present in Court, declares itself in default, therefore its motion is granted, and Jose, who isn’t there and didn’t show up for either Court appearance, wins.

Ya can’t make this up.

Now you know why I love this stuff so much.

IRS has decided to let some disbarred or suspended tax pros get PTINs, and go back to preparing and filing returns.

But as someone said in a much more solemn circumstance, not all of you are clean.

“Individuals who have been enjoined by a court from return preparation are not affected by this action. And individuals under suspension or disbarment will not be entitled to represent their clients before the IRS for any purpose during their disciplinary period.” This from an announcement from OPR, 5/23/14.

You’ll remember Sabrina Loving and her chums, who threw Dave Williams and Dougie Shulman for a loss over the RTRP maneuver. No? How quickly they forget! See my blogposts “Chevron, Mayo–I’m Loving It”, 1/21/13, “Modified Loving”, 2/4/13, and “Loving Conquers All”, 2/12/14.

Well, since IRS can’t treat preparers as Circular 230 types, because they aren’t “practicing” before IRS, they can’t keep people from being preparers even if they flunk the Circular 230 tests for adherence to Truth, Justice and The American Way.

Judge Boasberg let IRS continue the PTIN program (see my blogpost “Modified Loving”, supra, as my already-out-on-their-yachts colleagues would say), because unlike the Dave-and-Dougie show, there was actual statutory authority for the PTIN program, so IRS could collect fees and hand out PTINs, notwithstanding they could do nothing else to the holders thereof, irrespective of their sins, negligences or ignorances.

Of course, if a Court determined that someone is unworthy of filing returns, that’s another story.