Thus spake the trusty attorneys for Raju K. Mukhi, Docket No. 15315-19, filed 12/16/24. Y’all who are from around my blog will recollect that Raju lost the nonassessable joust over Section 8039 furriner chops. What, no? See my blogpost “È Pur Nonassessable,” 11/18/24*.

Now, as trial looms, the fight becomes over the evidence of Raju’s offshore dealings, and the certification of Ms. Eveline Schmocker-Meier, an employee of Clariden Leu in Zurich, Switzerland. She is certifying a bunch documents (hi, Judge Holmes) allegedly exemplifying Raju’s Helvetian hijinks.

Judge Travis A. (“Tag”) Greaves referees the fracas.

First, classic hearsay. Out-of-court statements offered for the truth thereof, not subject to cross-examination, are out. And you can’t cross-examine pieces of paper or concatenations of electrons. But there are a bunch exceptions: whatever shall we do without exceptions?

“… foreign business record of a regularly conducted activity satisfies both a hearsay exception and the authentication requirement if the record meets certain criteria. Fed. R. Evid. 803(6), 902(11), (12). First, the record must have been made at or near the time of the event by someone with firsthand knowledge or through information transmitted by that person. Fed. R. Evid. 803(6)(A). Documents such as financial statements that are prepared periodically satisfy this timing requirement.” Order, at p. 4.

The documents must be kept in the ordinary course of a regularly-conducted business, and be kept as a regular practice. Hence, material prepared for litigation or other one-offs don’t make the cut. “Regularly integrated with day-to-day business affairs” is the magic language.

And the custodian or other qualifying witness, while not necessarily having first-hand knowledge of the process, must know enough to be able to testify with specificity about it. And has to be able to testify about it without showing that the stuff is untrustworthy.

Of course, the other side has to be able to see and review the stuff, FRE §803(6)(D), 902(11).

Last scene of all that ends this strange eventful history, the document’s certification must have been signed “in a manner that, if falsely made, would subject the certifier to a criminal penalty in the country where the certification is signed.” Fed. R. Evid. 803(6)(D), 902(12). In addition to these considerations, “[t]he principal precondition [of this exception] is that the records have sufficient indicia of trustworthiness to be considered reliable.” Order, at pp. 4-5. (Citation omitted).

OK, but how about authentication?

Needn’t be conclusively established, but only a preponderance of evidence presented. Circumstances where document produced and content of document are the tests. Here, documents produced in response to an IRS IDR, or which have binding legal force (like contracts), or admissions against interest, make the cut.

Judge Tag Greaves’ examination of foreign-source documents is worth a read by anyone learning, or reviewing, objections to documentary evidence.

* https://taishofflaw.com/2024/11/18/e-pur-nonassessable/

Maybe most lawyers can’t add, but not Judge Tamara W. (“Math Whiz”) Ashford. My offer of proof in substantiation of the foregoing is Leon A. Greenblatt III and Leslie N. Jabine Greenblatt, T. C. Memo. 2024-109, filed 12/16/24.

This is a multi-decade, multi-corporate joust over $36 million in NOL carryforwards, unreported income, and Section 351 corporate give-and-gos, which go off largely on want of substantiation.  Takeaway- Packrats win; save every scrap of paper. Back up your harddrives. Put a litigation hold on everything.

Leon left too much to his ex-partner, but the ex hired a topnotch CPA and gave him all the stuff he asked for, thus saving Leon from massive chops.

It’s entirely too fact-based to paraphrase or abstract, but Judge Ashford stays with it. If you’ve got a tangled twenty-plus-year NOL, Judge Ashford has written an essay here on how to unscramble it.

Daniel J. Bealko, T. C. Memo. 2024-110, filed 12/16/24, eschews such feeble steps as seeking collection alternatives, inventing instead a novel tax credit to offset IRS’ levy on his annuity in support of collection the $7.4 million in back taxes he owes.

IRS applied the grab to the oldest IRS applied the grab to the oldest year, as SOL was about to run. IRS didn’t release its lien for that year until after the levy was complete. Dan takes the levy as a refundable credit for his most current year, claiming that if IRS grabs current income to pay past debts he can never wipe out his total debt, as the levies just keep cascading, wiping out current income so he can’t pay tax thereon, as the years roll on.

Judge Albert G. (“Scholar Al”) Lauber can’t hand out “Good Try” Awards for originality but can refer to classical mythology.

“…petitioner does confront a practical problem, and we understand why he feels frustration akin to that of Sisyphus, who could never get the huge rock all the way up the hill. At trial we suggested that a sensible course of action may be to submit to the IRS a request for collection relief, in the form of an offer-in-compromise or an installment agreement, and seek assistance from a Low Income Taxpayer Clinic or the Taxpayer Advocate Service in that endeavor.” T. C. Memo. 2024-110, at p. 4.

But as Daniel didn’t seek a CA via a CDP for the levy as issue, he’s stuck.

Ch J Kathleen (“TBS = The Big Shillelagh”) Kerrigan announced the swearing-in of Judge Cathy Fung, the newest luminary on the Glasshouse bench. Difficult to find a cognomen, so I’m reaching out to my readers. No prizes, all submissions my property, no correspondence will be entered into.

Some fascinating legal issues recently arising, we look forward to learned opinions from the fully-staffed Tax Court Bench.

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Then It’s Discipline You’ll Get

The Supremes have been on a multi-year tear, of a kind not seen since the heady days of the Sixties and Seventies. “Judicial activism on steroids” say some; “a reassertion of separation of powers, reining in a runaway Executive” say others.

I report, you decide; so let’s look at Deep Rock, LLC, GH Manager, LLC, Tax Matters Partner, Docket No. 32696-21, filed 12/12/24.

The Deep Rockers want to amend their petition twice. IRS claims ambush, futile argument, and sovereign immunity, but Judge Travis A. (“Tag”) Greaves will none of the above. The Deep Rockers can have a go at getting jury trials on Section 6662 chops, specifically the 6662(c)-(e), 6662(h), and 6662A varieties.

Jury trials? In Tax Court? What happened to all that Eighth Amendment excessive-fines and right-to-counsel learning? It’s still there.

Except Jarkesy.

That’s SEC v. Jarkesy, 144 S. Ct. 2117 (2024)*, wherein the Supremes  “held that (1) penalties imposed by the U.S. Securities and Exchange Commission (SEC) were subject to the Seventh Amendment right to a jury trial because a dispute regarding those penalties resembles a common law cause of action and (2) that the public rights exception does not apply to penalties imposed by the SEC. See Jarkesy, 144 S. Ct. at 2127, 2128, 2131, 2132.” Order, at p. 1, footnote 2.

Btw, the public affairs exception “allows Congress to delegate deciding matters concerning public rights to an administrative body or other tribunal without a jury. See Jarkesy, 144 S. Ct. at 2132. In other words, according to petitioner, the imposition of these penalties can only be adjudicated before an Article III court.” Order, at p. 2.

As for ambush, trial hasn’t been set, so IRS has plenty of time to prepare.

As for futile argument or dilatory tactics, “(T)here is no evidence that petitioner made a conscious decision to delay bringing this issue or failed to exercise reasonable diligence. Instead, the argument that petitioner seeks to assert through its amendment is in response to a recent change of precedent regarding deference afforded to regulations.” Order, at p. 3., citing Loper-Bright, of course. Discipline by the barrelful, silt unlimited. And Tax Court never considered expanding Jarkesy to chops before, because Jarkesy was only decided a couple months ago (hi, Judge Holmes).

So go at it, guys.

I must award a Taishoff “Good Move, With Swords and Diamonds” to the Deep Rockers’ trusty attorneys, among whom is my esteemed colleague Lyle B. (“Full-Court”) Press, Esq.

If the Deep Rockers rock this one, they’ll put Boss Hoss out to pasture.

*https://scholar.google.com/scholar_case?case=4970553488002399673&q=SEC+v.+Jarkesy,+144+S.+Ct.+2117+(2024),&hl=en&as_sdt=6,33&as_vis=1

Bloomberg L.P., Bloomberg, Inc., Tax Matters Partner, T. C. Memo. 2024-108, filed 12/11/24, claimed around $10 billion-with-a-B in Domestic Production Gross Receipts (DPGR) over a three (count ’em, three) tax-year span. Judge Goeke allows only some $3.862 billion-with-a-B DPGRs.

This all is of historical interest, as the 2017 Tax Cuts and Jobs Creation Act repealed Section 199.

Mike Bloomberg’s brainchild was his eponymous professional service, an online omniscient that let its high-priced subscribers “access a vast amount of financial data and news. Users could also use included software to manipulate, analyze, and model that data and news.” T. C. Memo. 2024-108, at p. 8.  It was a smash hit, and propelled His Honor the Mayor to stratospheric heights.

Subscription was flat-fee, with some optional add-ons, but the fees were not broken down among data, news, software, and other features. Judge Goeke traces it all.

Bloomberg reported everything as information services. Bloomberg sought a Residual Profit Split Method for transfer pricing in its APA request. This breaks down routine services and residual profit from intangibles. News services were routine, brand recognition and customer loyalty were intangibles. See Reg. Section 1.482-9(g)(2) (example 2 (vii)).

IRS bought most of Bloomberg’s pitch, but assigned more profit to onshore technology and less to offshore customer goodwill. When IRS audited the three years at issue, they disallowed all DPGRs and all deductions therefrom. Bloomberg petitioned.

Software is Qualifying Production Property, and proceeds from leasing same are DPGR, but services are neither. IRS claims Bloomberg provided only services, but Bloomberg claims the self-comparable and third-party comparable software exceptions. For more about this, see my blogpost “Making A Big Production,” 3/31/22*, the BATS case, cited by Judge Goeke here. But Bloomberg’s graphing and analytical software was more than just a service; the subscriber used the software to do more than place and execute securities offers. And Bloomberg’s reporting separated news and data receipts from analytic and graphing.

Both Reuters and an outfit called Charles River provided substantially similar software.

Parenthetically, if Section 199 was intended to increase American employment, it sure did for Bloomberg. But Reg. Section 1.199-3 gets a real bashing from Judge Goeke, who finds ambiguities galore, as a good lawyer should. While not Loper-Brighting it to the curb, there isn’t much left in the software realm.

However, the Reg is good enough for Judge Goeke to find that providing access to Bloomberg’s vast data collection is a service, so fees therefrom aren’t DPGR. Likewise the instant messaging and e-mail functions are telecom, hence barred from DPGR.

But analytics and graphing are different stories. “While other [Bloomberg] software enabled or facilitated Bloomberg’s financial information or communication services, BPS analytical and graphing software did not. Instead, it helped users to draw their own insights from financial information. Whereas users had no control over the underlying financial information that they could access through [Bloomberg], users had a high amount of control over how they could analyze and/or visualize that information. Indeed, users could use analytical and graphing software to overwrite [Bloomberg]-supplied data with other values to test assumptions or hypotheses. Users could also create bespoke visual representations using the extensive number of graphing functions and tools that BPS provided.” T. C. Memo. 2024-108, at p. 53. And it doesn’t matter that these functions are run in conjunction with Bloomberg’s data bases. The subscribers directly used graphing and analytics, and the software for these functions were mostly made in USA.

Merely allowing scraping and reformatting of data doesn’t count as DPGR. That Bloomberg took inconsistent State and foreign sales and withholding tax doesn’t preclude Bloomberg from claiming otherwise in this context; even though providing information on the internet is a service, the Reg. Section 1.199-3(i)(6)(iii) provides an out, treating software that lets the user refine and modify the information as DP-eligible. And the Reg doesn’t mandate that no nonqualifying services can be provided with qualifying services.

But we get (at last) to allocation of gross receipts, which brings in as a matter of course the dueling experts. Clearing the air, Judge Goeke finds that Bloomberg changed its reporting position too many times, and whatever it came up with wasn’t reasonable, or reasonable enough to satisfy Reg. Section 1.199-1(d)(2). So, after slicing, dicing, chopping and changing, and belaboring the experts for their miscues, Judge Goeke comes up with the number first set forth at the head hereof, at page 102 of T. C. Memo. 2024-108.

On the US wages issue, Judge Goeke finally throws in the towel, telling the parties to settle this in the Rule 155 beancount. If they can’t, Judge Goeke will reopen the record and let them put in whatever they have.

* https://taishofflaw.com/2022/03/31/making-a-big-production/

The two-year-three-year Section 6511 lookbacks get equitable tolling scrutiny, but flunk the Boechler test, in Paul V. Applegarth, T. C. Memo. 2024-107, filed 12/10/24.

No doubt Paul overpaid about an aggregate of $75K in income tax over the two (count ’em, two) years at issue. And no doubt Paul’s refund claims (one of which was dubious at best, an unsigned 1040 sent to IRS’ counsel, not IRS) were too late for the Section 6511 deadlines. And Paul never claims physical or mental impairment.

Judge Morrison finds that, unlike the Section 6330(d)(1) general language that underpins Boechler, P. C. equitable tolling, the “detailed” and “technical” language of section 6511(a) precludes any unguided judicial lookback largesse. “Furthermore, the enactment of the narrow section 6511(h) exception for physical and mental impairment suggests that Congress did not intend there to be a broader equitable-tolling exception to the period in section 6511(b)(2) (or the other periods in section 6511).” T. C. Memo. 2024-107, at p. 13.

Paul sent an unsigned 1040 to IRS’ counsel for the second of the years at issue, asserting the refund, but that’s not a claim, says Judge Morrison. Even if it were, Paul’s overpayments for that year were made outside the three-year-two-year barriers.

So all Paul’s trusty attorneys have is equitable tolling. I give them a Taishoff “Good Try, Hail Mary Division.” And they keep trying, attempting to use some pretrial calendar call colloquy involving Paul and IRS counsel to claim the case was settled with IRS folding the refunds. See T. C. Memo. 2024-107, at pp. 18-19.

No, says Judge Morrison, the only writing was the decision setting forth the amount of the deficiency, not whether it was paid or overpaid. The record contains only an ambiguous reference in an exhibit. Any lawyer who can’t find an ambiguity should,,,but you know the rest.

And while oral stips in open court can constitute settlement of a case, behind which the Court ordinarily may not look, what Paul has here is well below the bar.

Judge Morrison: “For example, if a case is called by the Court, and one-party states on the record that there is a settlement agreement with the other party, and that party states with specificity the essential terms of that settlement agreement, and the other party states that this is the settlement agreement so described, the Court may view this oral discussion as a valid settlement agreement.” T. C. Memo. 2024-107, at p. 18.  

The Boechler silt-stir continues. This should have been a full-dress T. C.

Apparently many people bought a used car from Mohamad Nasser Aboui and Mahyar Mizani, T. C. Memo. 2024-106, filed 12/9/24, during the four (count ’em, four) years at issue. And Judge Goeke buys a lot of Mo’s trial testimony, while finding fault with a lot of IRS’ audit work.

IRS treated Mo’s Sub S as a cash basis taxpayer  based on a representative’s erroneous tale, despite documents that proved otherwise. And the AO’s painstaking bank records reconstruction worked only sometimes. Judge Goeke is nothing if not thorough;  Mo is a great witness and for once has plenty of paper, all which help Mo’s trusty attorneys to get a Taishoff “Good Job, First Class.”

Mo’s also got real estate. IRS’ last-minute attempt to wildcard in “material participation” to thwart Mo’s $25K-per-yr loss deduction fails. Only the $100K AGI limitation thwarts Mo.

Mo and Ma get no chops at all, and a much-reduced deficiency.

Judge Goeke has a timely discussion of the “buy here, pay here” used car dealer’s situation, T. C. Memo. 2024-106, at pp. 2-3. Fewer words than Ray and Brandon on YouTube, and more to the point.

CSTJ Lewis (“He Doesn’t Only Spell It Right, He Gets it Right”) Carluzzo is not one to be hindered by trifles. CSTJ Lew is strictly a “bottom line” kind of jurist, one after the heart of the late Judge Richard Posner of 7 Cir.

Judge Posner issued the famous statement: “I pay very little attention to legal rules, statutes, constitutional provisions. … A case is just a dispute. The first thing you do is ask yourself—forget about the law—what is a sensible resolution of this dispute?” This from the most-quoted (as of 2021) American legal scholar.

CSTJ Lew is on the case in Timothy R. Taylor, Deceased, Sally Ann Taylor, Successor in Interest, and Sally R. Taylor, Docket No. 16843-23S, filed 12/9/24.

I’ll quote CSTJ Lew. “The caption in the Proposed Stipulated Decision… is incorrect, and the document is otherwise not properly signed. For those reasons, it is ORDERED that the document is stricken.” Order, at p. 1.

Now most Judges, sticklers for form, would leave it at that, do the kindergarten teacher approach, and send the parties back to get it right, and resubmit.

Not CSTJ Lew. This is United States Tax Court, constituted pursuant to the Constitution of the United States, Article I, Section 8, clause 9, by Act of Congress duly enacted, not Ding Dong School.

“To give effect to the basis of settlement reflected in the stricken document it is further ORDERED and DECIDED that there is a $4,015 deficiency in petitioners’ 2021 federal income tax.” Order, at p. 1.

My kind of judge: stipulate or don’t stipulate, just capitulate.