Judge James S. (“Big Jim”) Halpern sends long-suffering IRS Attorney John (“Scholar”) Schmittdiel, Esq., to the head of the class in Tax Court Law and Procedure.

Remember Scholar John? No? Then you didn’t read my blogposts “Tax Court Admission Exam”, 9/6/13, and “He Passed the Exam”, 1/9/14.

Judge Big Jim chastised Scholar John for not opposing the intervenor’s motion for summary judgment in Stephanie Lynn Christie A.K.A. Stephanie Lynn Foran, Petitioner, and John Foran A.K.A. Arthur J. Maurello, Intervenor, Docket No. 24515-12S, filed 9/6/13.

Judge Big Jim hit Scholar John with an exam that would rattle the bones of even the most battle-hardened veteran of the Tax Court wars.

Remember these conundra now? ““May an intervenor move for summary adjudication in a proceeding brought pursuant to section 6015(e)? If so, does intervenor present an issue for which there is no genuine dispute as to any material fact and with respect to which a decision may be rendered as a matter of law? See Rule 121(b), Tax Court Rules of Practice and Procedure. In answering the last question, discuss whether interpretation of the judgment presents an issue of fact. If the issue presented by intervenor is ripe for summary adjudication, does petitioner’s claim for relief in this proceeding raise any issue identical to an issue decided in the judgment, by the State Court? If so, are the other elements of collateral estoppel satisfied? If they are, what is the issue and what effect does it have on us to determine the appropriate relief we may accord petitioner under section 6013(e)[sic; should be 6015(e)]. Respondent may address any other issues that he deems relevant.”” Order, op. cit., at p. 2.

Well, although Scholar John apparently passed the exam, we never got to see the answers.

But Judge Big Jim, anxious that all may know the answers, tells all in Stephanie Lynn Christie, a.k.a. Stephanie Lynn Foran, Petitioner, and John Foran, a.k.a. Arthur J. Maurello, Intervenor, 2014 T. C. Sum. Op. 27, filed 3/26/14. And Scholar John is IRS’ lead counsel on this one.

Here’s the answers: “We have not previously determined whether an individual intervening in a case pursuant to section 6015(e)(4) and our Rules has standing to move for summary judgment. We decide that he does. Rule 24(a)(1) of the Federal Rules of Civil Procedure provides that, on timely motion, anyone who is given an unconditional right to intervene by a Federal statute must be permitted to intervene. Federal District Courts have held that, under rule 24 of the Federal Rules of  Civil Procedure, an intervenor in an action or proceeding is, for all intents and purposes, an original party.” 2014 T. C. Sum. Op. 27, at pp. 3-4. (Citations omitted).

Whatever Steph could do, John a.k.a Arthur can do.

But that’s all, because John a.k.a. Arthur’s claim that the State Court divorce proceedings estop Steph from contesting that she’s liable for half the deficiency doesn’t fly.

In the first place, the State court proceeding resulted in a stipulation, and that’s not a judgment (per Restatement of the Law, Judgments 2d), but even if it was given the effect of a judgment, IRS wasn’t a party to the divorce proceeding, and can do what it wishes. And John a.k.a. Arthur admits as much. The State court proceeding only said Steph would pay what IRS decided she should pay, didn’t mention Tax Court or innocent spousery per Section 6015.

So no issue preclusion or claim preclusion. Maybe John a.k.a Arthur has some State court claim against Steph, who really bushwacked him, but that’s for another day and another court.

In the meantime, there are the usual fact questions, so, while John a.k.a Arthur can move for summary judgment, he loses.

And all these a.k.a.’s remind me of Sigmund Freud’s famous remark in his letter to Wilhelm Fliess, August 1, 1899: “I am also getting used to considering every sexual act as a process involving four individuals.” Sig would have loved Tax Court.

No, not the Neiman-Marcus helicopters and similar spousal toys of yore, but rather the tax items of spouses on joint returns, and how to put these asunder.

It’s a small-claimer, Stephen D. Bowerman and Jani A. Bowerman, 2014 T. C. Sum. Op. 26, filed 3/25/14, from the desk of Judge Goeke.

Steve has some dodgy deductions and costs of good sold in his construction business, and Jani hasn’t reported some income, so the combined Bowerman outlook isn’t too bright. But Steve finds some documentation for some of what he claims.

And Jani wants to bail on Steve’s shenanigans. They’re still married, but Section 6015(b) is there to help.

Jani is out of luck as regards her own items (interest and dividends paid to her) and some unemployment comp to Steve, because Jani can’t prove she had no way of knowing about this.

But she does get lucky about Steve’s business stuff, and that’s the moral of this story, how to use Section 6015(b) to help the unknowing spouse. You can’t cite the case, but you can sure use the reasoning and the cases Judge Goeke does cite. And I won’t omit them from this excerpt, so as to save you the trouble of reading Judge Goeke’s opinion to find them.

“When the understatement of tax liability results from improper deductions, courts have applied a reasonably prudent person standard to evaluate knowledge. Courts have generally found that a taxpayer knew or had reason to know of an understatement if a reasonably prudent person in the taxpayer’s position would have known the return contained a substantial understatement. Reser v. Commissioner, 112 F.3d 1258, 1267 (5th Cir. 1997), aff’g in part, rev’g in part T.C. Memo. 1995-572; Resser v. Commissioner, 74 F.3d 1528, 1536 (7th Cir. 1996), rev’g T.C. Memo. 1994-241; Kistner v. Commissioner, 18 F.3d 1521, 1527 (11th Cir. 1994), rev’g T.C. Memo. 1991-463; Hayman v. Commissioner, 992 F.2d 1256, 1261 (2d Cir. 1993), aff’g T.C. Memo. 1992-228; Erdahl v. Commissioner, 930 F.2d 585, 589 (8th Cir. 1991), rev’g T.C. Memo. 1990-101. In applying this standard, we consider four factors: (1) the taxpayer’s education, (2) the taxpayer’s involvement in the family’s financial affairs, (3) the presence of unusual or lavish expenses beyond the family’s norm, and (4) the other spouse’s evasiveness or deceitfulness concerning the family’s finances. Price v. Commissioner, 887 F.2d at 965.” 2014 T. C. Sum. Op. 26, at p.16.

And here’s how this works out in realtime. “On the basis of the four factors of the Price test, we hold that Mrs. Bowerman did not know or have reason to know of the understatement. First, although there is no specific evidence in the record of Mrs. Bowerman’s education, her employment as an administrative assistant for UPS does not indicate any specialized knowledge of finance, business, or taxation. Second, we find credible Mr. Bowerman’s testimony that Mrs. Bowerman was entirely unaware of the details of Mr. Bowerman’s business. Third, nothing in the record indicates changes in family income or spending, but petitioners bear the burden of proving that no changes occurred. Because petitioners have presented no evidence on the matter, this factor weighs in respondent’s favor. See Rule 142(a). Finally, we do not find that Mr. Bowerman consciously deceived Mrs. Bowerman or hid his erroneous deductions from her. However, the record demonstrates that he did not involve Mrs. Bowerman in managing his business or maintaining his records. Considering these factors, we hold Mrs. Bowerman had no reason to know of her husband’s erroneous deductions.” 2014 T. C. Sum. Op. 26, at p. 17.

While the Bowermans, pro se of course, didn’t have the best case, it was good enough for Jani to win on Steve’s business items.

Takeaway- Read and heed.

John Purciello sure thought he did, and the US District Court for New Jersey gave him summary judgment for legal fees against the IRS, when IRS tried to nail Honest John for TFRPs, even though he was just a salesman and never a “responsible person”.

His Honor Big Julie a/k/a Judge Julian Jacobs, hereinafter HHBJJJJ, tells the story in 2014 T. C. Memo. 50, filed 3/24/14.

There’s a complicated timeline here, but, cutting to the proverbial, IRS lost the file, grabbed Honest John’s tax refund to the extent of $59K, yoicked Honest John around while IRS tried to show he was responsible for the FICA withholdings that his bosses didn’t remit, and when IRS finally caved at Appeals, they told Honest John to file for a refund and then bounced his claim, arguing Honest John’s claim was barred by the SOL.

Judge Cavanaugh in New Jersey District Court wasn’t having any of it. He gave Honest John summary judgment when Honest John sued for the refund. Judge Cavanaugh said IRS couldn’t concede they’d grabbed Honest John’s refund wrongfully, yoick him around and then claim he’s too late asking for his money. And Honest John gets his legal fees, as IRS was no way justified in claiming SOL.

Now Honest John wants his administrative fees for the time he spent with Appeals.

But HHBJJJJ says no. IRS caved, but the magic date is when a notice of decision is issued to a taxpayer, per Section 7430. But IRS claims they caved before they issued a notice of determination, and when they did they agreed with Honest John that he wasn’t a responsible person and that they grabbed his refund improperly (although they claimed it was too late for him to do anything about it).

Now IRS shucked and jived around, but they never issued a notice of determination. Honest John says that shucking and jiving was just to thwart him, but that’s tough, says HHBJJJJ. “At first blush, it would appear that our holding might be inconsistent with that of the District Court, which had awarded petitioner litigation costs. But it is not. In the situation involved in the District Court, the IRS Appeals Office denied petitioner’s request for a refund on the basis that petitioner’s refund claim was untimely, a position the District Court found not to be substantially justified. In the situation involved in this case, the IRS Appeals Office agreed with petitioner, resulting in the IRS’ abating the trust fund recovery penalty assessment, a position all agree was substantially justified.” 2104 T. C. Memo. 50, at pp. 12-13.

Quoting Kwestel v. Commissioner, 2007 T. C. Memo. 135, anent the narrow statutory language of Section 7430(c)(7), HHBJJJJ regretfully denies Honest John his administrative costs: “taxpayers * * * who do a good job at the administrative level of resolving issues and getting respondent to realize the error of his ways are precluded from recovering administrative costs incurred in achieving those favorable results. To the contrary, taxpayers who do not do as good a job at the administrative level and who receive adverse Appeals Office notices of decision or notices of deficiency, but who later convince respondent to concede issues or who substantially prevail in litigation on the issues, are able to seek a recovery of administrative costs. In effect, taxpayers who do a better job at the administrative level of resolving issues raised by respondent on audit are prejudiced in their ability to recover administrative costs under section 7430.” 2014 T. C. Memo. 50, at p. 14.

Honesty and competence of counsel are their own rewards. If that makes sense, you’ll do just fine in Tax Court–if you mess up.

You might remember all the blogposts I expended on the subject of appraisals of facades (I counted ten of them, but maybe there are more), in connection with the Section 170(h) giveaway.

Well, those who played fast-and-loose with the numbers, or pulled numbers from thin air, or who otherwise have been deemed by Karen Hawkins and her myrmidons at OPR to have transgressed, have been sent to the penalty box for an extended stay.

Check out IR-2014-31, 3/19/14. It’s a five-year vacation for the unnamed malfeasors.

As the IRS press releasors put it: “The appraisers agreed to a five-year suspension of valuing facade easements and undertaking any appraisal services that could subject them to penalties under the Internal Revenue Code. The appraisers also agreed to abide by all applicable provisions of Circular 230.

“‘Appraisers need to understand that they are subject to Circular 230, and must exercise due diligence in the preparation of documents relating to federal tax matters,’ said Karen L. Hawkins, Director of OPR. ‘“Taxpayers expect advice rendered with competence and diligence that goes beyond the mere mechanical application of a rule of thumb based on conjecture and unsupported conclusions.”’

Apparently the defrocked appraisers were the Mark Primoli safe-harborers.

“The appraisers prepared reports valuing facade easements donated over several tax years. On behalf of each donating taxpayer, an appraiser completed Part III, Declaration of Appraiser, of Form 8283, Noncash Charitable Contributions, certifying that the appraiser did not fraudulently or falsely overstate the value of such facade easement. In valuing the facade easements, the appraisers applied a flat percentage diminution, generally 15 percent, to the fair market values of the underlying properties prior to the easement’s donation.

“Specifically, the appraisers admitted violating Circular 230, Section 10.22(a)(1), for failing to exercise due diligence in the preparation of documents relating to IRS matters, and Section 10.22(a)(2) for failing to determine the correctness of written representations made to the Department of the Treasury.”

The appraisers consented to the press release, from which the foregoing is excerpted. Devotees of the Rule of Completeness can check out the whole story at:

 http://www.irs.gov/uac/Newsroom/IRS-Bars-Appraisers-from-Valuing-Facade-Easements-for-Federal-Tax-Purposes-for-Five-Years

Readers yesterday will note that I alluded to an earlier comment from John Henry Ryskamp (see my blogpost “Enough”, 1/8/14). I do not hide from those who want to post derogatory material about me.

However, I was obliged just now to delete John Henry’s comment, as I received the following e-mail. As I telephoned the sender and obtained oral permission to post it here, I will do so, in extenso.  I suggest it as a caution to those who wish to vent their spleen; no incitement, please.

From: Derrick Fitzgerald <donotreply@wordpress.com>
To: ltaishoff <ltaishoff@netscape.net>
Sent: Fri, Mar 21, 2014 1:24 pm
Subject: [The Taishoff Law Firm] Contact Us

Name: Derrick Fitzgerald
Email: derrick.fitzgerald@usdoj.gov
Comment: Mr. Lew Taishoff,

The United States Marshal Service (USMS) has the responsibility of 
safeguarding the United States Federal Judicial process by providing
protection to U. S. Federal Judges and other members of the 
Judiciary.  The USMS is able to fulfill the Court Security mission 
by investigating all reports of threatening and inappropriate 
communications directed at USMS protected persons.
On March 21, 2014 I was informed of a threatening statement which 
currently appears on your firms website at 
https://taishofflaw.com/2014/01/08/enough/#comments. 
See below 
“Since the Appeals office serves as the trial court (this by the way
is the reasoning of the dog Mark Holmes, who ought to be executed, 
the Notice of determination etc…”  
The statement dated 21 January 2014, 1400 at hrs. bears the 
signature John Riskamp.  This investigation has disclosed the 
existence of a John Henry Ryskamp who is a litigant appearing before
the U.S. Tax Court.  My present interpretation of the statement is
that it is a violation of 18 U.S.C.  2385 Advocating the overthrow 
of the government of the United States.  The statement may also fall
with the realm of 18 U.S.C. 115 Influencing, impeding, or 
retaliating against a Federal official by threatening or injuring 
etc…
The U.S. Marshal Service has the immediate protective interest in 
requesting the removal of the statement from your web site.  I 
appreciate your attention in addressing the security matter.  
Please advise if additional information is required to facilitate 
the request.
 
Thank you,
 
Derrick Fitzgerald
Protective Intelligence Investigator
U.S. Marshal Service D/DC
Office (202)353-0663
BlackBerry (202)359-7920
Fax (202)273-5036
Company: U.S. Marshal Service

In the absence of any T. C.s, and only one designated hitter that illustrated a sad situation rather than any point of law, I turn to an order from Judge Nega to John Henry Ryskamp, Docket No. 8888-13, filed 3/20/14.

Remember John Henry? Hint: he is a leading exponent of the proposition that flattery will get one nowhere. See my blogpost “Enough”, 1/8/14.

Judge Holmes booted John Henry. But John Henry wasn’t through. He had some remaining jibes. He responded to my blogpost. He sent me a lengthy rant in his usual ingratiating style, all of which is attached to my blogpost as a comment.

Delusion seems to be John Henry’s strong suit. Here’s a sample: “Dream on. Judge Nega is about to restore 013681-11L to the docket and vacate the decision. See 8888-13. You are a fool.”

There’s more, but I’ll spare you. Having served in the United States Army in wartime, and practiced law in New York City for 47 years, insults and jibes do not affect me. I have received them from better men than John Henry.

John Henry thought he won. Needless to say, Judge Nega was setting him up.

John Henry made six (count ‘em, six) motions. I won’t catalog them, except to say they were the usual.

Judge Nega: “On February 10, 2014, the Court allowed the parties to address the above- referenced motions, and both respondent and petitioner were heard on each motion. Without exception, petitioner made only arguments that are without merit in support of his motions. For example, petitioner asserted meritless arguments including the constitutionality of the Federal income tax, the authority and legality of the Internal Revenue Service, and the jurisdiction of the Tax Court. Petitioner made other meritless arguments which are more fully evidenced by the transcript of the Court’s February 10, 2014, San Francisco, California, trial session.” Order, at p. 1.

But John Henry is still entitled to due process. So Judge Nega gives him his chance.

“At the time the motions were heard on February 10, 2014, the Court scheduled this case for trial on that same afternoon. The case was called for trial on February 10, 2014. There was no appearance by or on behalf of petitioner. Voicemail messages were left for petitioner that his trial was rescheduled for February 11, 2014. The case was again called for trial on February 11, 2014. Again, there was no appearance by or on behalf of petitioner. At that time, respondent orally moved to dismiss the case for lack of prosecution. Respondent’s motion to dismiss will be addressed in a separate order.” Order, at p. 2.

I’ll bet it will, Judge. Do I hear a Section 6673 chop in the distance?

Anyway, Judge Nega kicks all six (count ‘em, six) of John Henry’s motions.

I suppose John Henry will move to vacate Judge Nega’s orders. And lose.

Enough.

The story of Jennifer Lynn Fields, featured in 2014 T. C. Memo. 48, filed 3/19/14, is an example of the truth of this headline, cribbed from my blogpost “Cracking Up”, 2/27/14.

Jenny had a 401(k) with that alleged corporate badguy Wal-Mart. When Jenny and Wally parted ways, Jenny took her 401(k) by check, asking Wally to withhold whatever tax she owed.

Wally took 20%, sent it to the Feds, and gave Jenny a 1099-R. Jenny reports the income and the withholding. Jenny was less than 59-1/2 years of age on the last day of the year in question. Jenny prepared her own return.

Need I say more? Battle-hardened practitioners can see the SNOD coming.

Judge Vasquez is sorry, but of course has no choice; Jenny owes the 10% excise tax on this early distribution. “…petitioner admits that the distribution was not used to pay medical expenses, health insurance premiums, or expenses attributable to a disability, or to make a first home purchase.” 2014 T. C. Memo. 48, at p. 3. So Jenny can’t use the safe harbors of Section 72(t)(2).

“Petitioner argues that she should not be required to pay any additional tax because she asked that all taxes be withheld at the time of the distribution. Despite her good intentions, petitioner should have reported a 10% additional tax on the distribution on line 58 of her return. Petitioner’s failure to do so caused her to improperly claim a $639 refund.” 2014 T. C. Memo. 48, at p. 5.

Judge Vasquez is “sympathetic to petitioner’s plight”, but the law is clear. Jenny owes the 10%.

And Jenny, don’t trust Wal-Mart to give you tax advice.

In our house, I predominantly do the cooking ( “if you can call it that”, as some might add; still, my cooking sustains life, if it doesn’t ennoble it). So very often when I return home after a hard day of blogging and doing as little as reasonably possible, I might reach into the fridge for remnants of a previous repast, mess with it some, and serve it out. With enough wine, it’s always good.

So today I do likewise in the blogosphere, although I do have a new T. C. Memo. to blog as well, under separate cover.

This is an opinion filed yesterday, 3/18/14, which I didn’t have time to get to. It’s the story of an ETA OIC. No, that has nothing to do with aircraft. It’s short for “Effective Tax Administration Offer in Compromise”. OICs are the delight of continuing ed. instructors and appellants.

The story told in Stacey L. Bogart and Timothy P. Bogart, 2014 T. C. Memo. 46, filed 3/18/14 is simple. I’ll let Judge Kroupa tell it: “Petitioners are a married couple with four children. They operated a construction business during the relevant times. Petitioners treated the construction business as an S corporation for Federal income tax purposes. Petitioners were not wealthy, but they had accumulated $225,478 in assets in the form of real property equity, personal property, retirement accounts and other investments.

“Before 2006 petitioners relied on Teresa Sanak to prepare Federal income tax returns on their behalf. Petitioners expanded Ms. Sanak’s role in 2006 to serve as the bookkeeper for the construction business. Unbeknownst to petitioners, Ms. Sanak was a gambling addict.” 2014 T. C. Memo. 46, at p. 3.

You can guess the rest. It would seem Ms. Sanak’s ponies did about as well as mine, but I at least didn’t have to steal $116K from people who trusted me to make up for their slowness of foot (or hoof). Ms. Sanak played the old game of running money through her employers’ various accounts and out onto the track.

IRS audits hapless Stace and Tim, and in doing so discovers Ms. Sanak’s defalcations. The forces of justice put Ms. Sanak away and order her to pay back what she stole. Good luck with that, Stace and Tim.

Meanwhile, back at the office, IRS hits Stace and Tim with a SNOD for $69K plus interest. Stace and Tim claim they can’t pay because Ms. Sanak’s ponies are Ken-L-Ration, the money is gone with them, and Ms. Sanak hasn’t paid them back yet.

IRS hits them with a NIL (Notice of Intent to Levy, etc.), and Stace and Tim ask for a CDP.

Now here’s something that shows why Doug Shulman and Dave Williams were right in spirit, although short on legal authority. “Petitioners at first were represented by so-called Tax Resolution Services, Co. [sic](TRS). TRS twice requested additional time for petitioners to provide information. It appears that TRS never submitted information on petitioners’ behalf. Petitioner wife then contacted the settlement officer. Petitioner wife indicated that she would provide the information that her representative did not provide. Petitioners then represented themselves until counsel from the tax clinic at the University of Washington School of Law appeared in this matter.” 2014 T. C. Memo. 46, at p. 4, Footnote 3.

Judge Kroupa doesn’t state what Stace and Tim paid TRS, or what TRS undertook to do on their behalf; and as I don’t know whether any principals of TRS were CPAs, attorneys or EAs, I can’t say that that specific organization requires other or further regulatory oversight. But the late-night television ads I see, which promise speedy and successful resolution of all fights with IRS, make me seriously advocate for expansion of Circular 230 (by Congressional enactment if necessary) and stronger enforcement of its disciplinary sanctions.

Howbeit, three (count ‘em, three) Appeals SOs look over Stace’s and Tim’s OIC and deposits (Stace and Tim offer $10K), and all the requested information that Stace, Tim and the Washington tax clinicians provide. And one of the SOs does not “perceive” (the SO’s word) that there’s a public policy effective tax administration issue. After all, Stace and Tim have that quarter-million in assets, so no economic hardship for them to produce the $69K plus interest.

So Appeals gives IRS the NOD, and the Washingtonians petition.

Now before Judge Kroupa knocks out the NOD and sends Stace, Tim and the Washingtonians back to Appeals, I’d like to say a word in defense of the SO. While the Washingtonians argue for equity (after all, Stace and Tim were robbed), so was Ray Fouche, in the same way and for plenty; see my blogposts “The Cover-Up”, 11/23/11, and “The Cover-up Uncovered”, 4/24/13. Second Circuit didn’t care that Ray was robbed.

And although Nina (“The Big O”) Olson, the Taxpayer Advocate, claims Appeals too rarely uses equity, the examples in the relevant regulation aren’t in point, and the IRM provides that the SO must ask him/herself whether other taxpayers would think the OIC fair and reasonable.

So the SO, with however many other cases s/he has, must play King Solomon. And if s/he gets it wrong, somebody else in Appeals gets the case back.

Now I’m not arguing the SO shouldn’t do his/her job, and follow the regulations and the IRM. But remember, Stace and Tim have more than enough assets to pay in full, and after hearing an endless number of hard-luck stories (and as lenders’ foreclosure counsel in a former lifetime I heard them all), it is rarely the wrong choice to twist blasphemously a famous statement: “Sell all thou hast, give it to the IRS, take up thy cross, and get out of here”.

Judge Kroupa, assisted by the zeal of the Washingtonians (a hearty Taishoff “good try”, guys!), remands. “But at the administrative level respondent did not consider whether the theft loss constituted exceptional circumstances–even though petitioners requested relief on public policy and equity grounds. The administrative record indicates that respondent did not consider those grounds but focused solely on economic hardship grounds. He merely concluded that the ETA OIC did not merit consideration under public policy or equity grounds. Respondent did not adequately consider this issue.” 2104 T. C. Memo. 46, at p. 11.

Of course, the Washingtonians want to score from first base on a bloop single. Why not? I would: “…petitioners claim that they satisfied the requirements as a matter of law for respondent to accept the ETA OIC. See IRM pt. 5.8.11.2.2. We disagree. It is undeniable that Ms. Sanak perpetrated a fraud against petitioners. The Commissioner maintains, however, wide discretion when evaluating an OIC and determining whether a taxpayer demonstrated exceptional circumstances. The record does not establish as a matter of law that respondent was obligated to accept the ETA OIC.” 2104 T. C. Memo. 46, at p. 12.

Neither was the SO obliged to send the OIC to the OIC-NEH (non-economic hardship) squad. That’s in the SO’s discretion.

But the SO didn’t consider equity and public policy, so Judge Kroupa bounces IRS’ and the Washingtonian’s requests for summary judgment (without prejudice, so they can try again) and remands to Appeals.

UPDATE

The following was received by e-mail 7/14/14:

“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."

Doesn’t save James Haber from the 40% chop. James has been dodging this one for years; see my blogposts “Ironbridge Over Troubled Waters”, 6/5/12, and “Getting Shifty”, 9/20/13, while the US Attorney in the Big Apple havered over prosecuting James or granting him immunity.

But the day of reckoning comes, and Judge Goeke is the man to deliver the reckoning in Humboldt Shelby Holding Corporation and Subsidiaries, 2014 T. C. Memo. 47, filed 3/18/14.

Humboldt Shelby and its progeny figured in my blogpost “Everything Has An End”, 10/10/12, when it jousted with IRS about turning over some tax opinions from the well-known and well-respected NYC law firm Pryor, Cashman, Sherman, and Flynn, LLP. I have friends there, and they’re good guys.

Well, apparently some of James’ legal fees (maybe the ones James paid the Pryor Cashman guys) get disallowed, but that’s not the main story.

The main story is that, even though James doesn’t testify, Judge Goeke says the tussle over whether to shift the burden of proof or the burden of persuasion proved to be meaningless after trial.

“After careful consideration of Mr. Haber’s circumstances, we determined that he could invoke his Fifth Amendment right to avoid testifying, but we declined to shift the burden of persuasion. After trial it is apparent that the burden of persuasion has no bearing on the resolution of this case. The evidence in the record would support our conclusion even if we had shifted the burden and even if Mr. Haber had testified as petitioner claimed in its offer of proof. Considering the significant objective evidence of his intent here, we would have given little weight to his self-serving testimony.” 2014 T. C. Memo. 47, at pp. 12-13.

It’s all about economic substance.

Judge Goeke: “Any seeming business purpose that existed here was merely a facade. The options could have resulted in a $320,000 loss or a $510,000 profit. These economic effects are inconsequential compared to the $25 million tax benefit the options were guaranteed to generate. Although the transaction had some profit potential, that potential was not significant enough to persuade us that petitioner engaged in the transaction for any nontax business reason.” 2014 T. C. Memo. 47, at p. 16.

James peddled mix-and-match shelters, as to which I’ve blogged so many I won’t cite them here. Judge Goeke does give a good explanation of the mechanics, though; see pages 7 through 10. In short, James wanted to do an asset-strip of two corporations with large built-in capital gains. He bought the stock of both at a price such that paying tax would have left him no profit; so he created partnerships which contributed digital options, which almost offset each other, but as to which one option was recognized to build basis, and the other disregarded, based on some juggling with Section 752. Don’t forget the sweet spot, but these were true Bialystoks.

Thus, when the partnerships were unwound after the options expired (never hitting the “sweet spot”, of course, due to jiggery-pokery with Refco, the options vender that later came monumentally unglued amidst allegations of massive fraud), the assets could be stripped with a capital loss to offset the gains.

Too good to be true, and James is a veteran shelter peddler.

So Judge Goeke blows up the whole roundy-rounder, with or without James’ testimony, and gets James the 40% chop. And his deductions disallowed.

He may be immune from prosecution, but from little else.

Judge Gustafson, that obliging jurist, has finally had it with Henry J. Lazniarz & Gina M. Lazniarz, Docket No. 31002-09, filed 3/18/14. Apparently a day off on account of snow did not put Judge Gustafson in a better mood.

Remember Henry J.? No? Then refresh your recollection (as my high-priced colleagues say) with my blogpost “I Told You Once, I Told You Twice”, 11/14/13.

Henry J. had a trial, but trial counsel number one blew it, so Judge Gustafson let Henry J. have a substitution and a second chance, albeit that such beneficence is extraordinary.

Trial counsel number two was little better than number one, so Henry J. moved for another new trial. Judge Gustafson, apparently tired of Henry J.’s traveling circus, stamped the motion “denied”, with nothing more, so Henry J. (with trial counsel number three at his side, presumably) moves for reconsideration.

To explain the headline of this blogpost, Henry J. is apparently a disciple of the late great Gene (“Big Daddy”) Lipscomb, twice MVP lineman of the Super Bowl, in the glory days of the old Baltimore Colts. As Big Daddy used to say: “I just wrap my arms around the whole backfield and peel ’em one by one until I get to the ball carrier. Him I keep.”

Well, Henry J. is trying to wrap his arms around the whole Tax Court Bar until he finds a lawyer who can win his case, and him (or her) he’ll keep.

But Judge Gustafson calls the play dead.

A new trial is an extraordinary remedy, and rests within trial court’s discretion. It’s not automatic, and you’d better show the first trial was a disaster–or worse.

“The deductions that form the basis for this case are from tax year 2006, for which petitioners’ tax return was due in April 2007–six and a half years before their second trial. The IRS issued to petitioners the notice of deficiency on October 2, 2009–over four years before that trial. Thus, petitioners have long been on notice that they needed to assemble proof of their deductions.

“Moreover, at various stages in this litigation, petitioners have been allowed extra time to muster their evidence to substantiate their claimed deductions. When they first requested a continuance, it was granted; and when thereafter they moved for a new trial, that ‘extraordinary measure’ was allowed to them. A Tax Court litigant could hardly be entitled to more.” Order, at p. 3.

And save the Constitutional arguments for a criminal trial. “The Sixth Amendment to the U.S. Constitution provides that ‘[i]n all criminal prosecutions, the accused shall enjoy the right … to have the Assistance of Counsel for his defense’, and this provision provides the basis for a criminal defendant’s contention that he suffered from “ineffective assistance of counsel”. But this principle does not apply to civil proceedings. See Cupp v. Commissioner, 65 T.C 68, 85-86 (1975) (“The sixth amendment of the United States Constitution deals with criminal prosecution and is not applicable to a civil proceeding”). Tax Court petitioners are permitted but are not required to hire counsel to represent them, and most Tax Court petitioners are self-represented.” Order, at pp. 3-4.

Note that even gross negligence on the part of counsel isn’t enough to warrant a new trial in Tax Court.

Henry J. got the benefit of every break, and then some.

Besides, the “new evidence” Henry J. now produces is a bunch of papers, some new and some old, thrown together, without any explanation why they weren’t presented years ago.

So the party’s over. Judge Gustafson: “Especially since Mr. Lazniarz is a person of substantial intelligence with substantial expertise and acumen in financial business matters, petitioners must now be held responsible for their decision thereafter to hire their second lawyer and commit the matter to him. They are certainly not entitled to hire an indefinite series of lawyers and keep retrying the case until one of the lawyers finally performs to their liking.” Order, at p. 5.

Henry J., you aren’t Big Daddy.