The WordPress.com stats helper monkeys prepared a 2013 annual report for this blog.
Here’s an excerpt:
The concert hall at the Sydney Opera House holds 2,700 people. This blog was viewed about 12,000 times in 2013. If it were a concert at Sydney Opera House, it would take about 4 sold-out performances for that many people to see it.
Who’d’a thunk we’d ever see a sentence like this in a full-dress T.C.: “Common sense dictates that the answer must be no, and our findings of fact and analysis support that answer.” 141 T. C. 19, at p. 14.
That sentence made Andrew Wayne Roberts a happy camper. He’s the star of the eponymous 141 T. C. 19, filed 12/30/13, with Judge Marvel as the exponent of common sense.
Andy Wayne loved not wisely but too well; Mrs. Andy Wayne, hereinafter referred to as “Ms. Smith”, as the high-priced lawyers say, was a master of penmanship. She forged Andy’s name to a bunch of withdrawal orders from his IRAs, forged his signature on the checks the custodians of said IRAs trustingly issued (notwithstanding the forged signatures bore no resemblance to Andy Wayne’s true signature) and mailed to her job, whereupon she deposited them in a joint account (of which she alone possessed checks, and she alone got the bank statements), and finally used the cash to take their kids to Disneyland and set up a separate dwelling for herself.
And then she prepared phony tax returns for herself and Andy, and e-filed them. She’d done all their joint returns in past years, but this time Andy never got a copy, although he asked.
Andy claims he never got wind of Ms. Smith’s shenanigans until the next year, when the 1099-Rs hit the fan, and he never got any benefit from the cash she stole.
IRS says Section 408(d)(1) says IRA distributions are taxable to the “distributee” or “payee”, and that was Andy.
No, says Judge Marvel, Section 408(d)(1) doesn’t define those terms. “The taxable distributee under section 408(d)(1) may be someone other than the recipient or purported recipient eligible to receive funds from the IRA. Indeed, we have previously rejected the contention that the recipient of an IRA distribution is automatically the taxable distributee. See Bunney v. Commissioner, 114 T.C. at 262.” 141 T. C. Memo. 19, at p. 13.
So now we have a case of first impression (which is why this is a T. C. and not a Memo.): is payment based on forged documents, of which the true owner was unaware and from which he got no benefit, a taxable distribution?
No, of course not.
Andy testified he signed nothing, got nothing and knew nothing until he got the 1099-Rs, showing he’d been robbed. No economic benefit, no participation, and no legal obligation to make payment. This last point distinguishes Andy’s case from Vorwald, 1995 T. C. Memo. 15, because Vorwald’s IRA was grabbed to pay court-ordered child support, so did serve to discharge a legal obligation and was thus like writing Vorwald a check and having Vorwald write his spouse a check. Andy didn’t owe Ms. Smith nuthin’, at that point.
Andy is off the hook, right?
Not yet, says IRS. Under State law, Andy had a year to go back to the custodians of his IRAs, make a claim they paid on a forged instrument, get back the money, and treat it as a rollover contribution (and thus not taxable), per PLR Priv. Ltr. Rul. 201119040 (May 13, 2011). How a PLR is authority for anything is another story, but Judge Marvel lets it pass.
Even if Andy could have done (which he didn’t), he had a year to do it, and that throws the question of his ratifying the distribution by his non-action into a year not before the Court.
One last try. IRS claims Andy got the benefit of the cash Ms. Smith grabbed by way of a credit in the divorce decree two years later. But that was also after the year at issue, so no constructive or ratified distribution to Andy in that year.
Judge Marvel makes this clear: “We express no opinion as to whether petitioner’s failure to exercise available remedies under [State] law resulted in a constructive distribution from the IRA accounts in a later tax year.” 141 T. C. 19, at p. 22, footnote 18.
My comment: And they’re all probably closed years by now, anyway.
Andy’s on the hook for Ms. Smith’s erroneous 2008 tax return, because he took no steps to correct (amend) it, and he concedes he didn’t report some interest income, and underreported some wages. So he may get the Section 6662(d)(1)(A) 20% substantial underpayment based on substantial understatement chop on that money, but not on the IRA theft.
Of course, he can’t rely on Ms. Smith as preparer, even if the criminal charges against her were dismissed.
No, not the Beach Boys’ 1963 track from their Surfin’ USA album (good golly, is it really fifty years since then?), but rather Ch J Michael B. (“Iron Mike”) Thornton chastising IRS for failing to read Tax Court’s ukase anent the famous government shutdown this past October.
And as the elephants fight, the proverbial gets trampled, in this case Lauren E. Goldstein, Docket No. 25669-13, filed 12/27/13, who gets her petition tossed, notwithstanding that IRS is willing to give her a bye because their doors were closed.
See my blogpost “High Noon”, 9/30/13.
IRS moved to bounce Lauren’s petition because the postmark on her envelope was outside the ninety-day safety zone, but then relented.
Ch J Thornton: “…respondent [IRS] filed a Motion To Withdraw the motion to dismiss, stating therein that ‘[t]he due date of petitions required to be filed during October 1, 2013 and October 16, 2013 was extended to October 25, 2013’. The Court is unaware of any authority that would support that statement, and none has been provided by respondent.” Order, at p. 1.
Ninety days is ninety days, and the USPS was truckin’ right along, even though Tax Court’s doors were barred.
In fact, Ch J Iron Mike refers to the Tax Court reopening announcement of October 17, 2013; but the Tax Court shutdown notice of September 30, 2013, cited in my blogpost aforementioned, told the same story. Section 7502 mailed-is-filed controls, whether Tax Court is open or closed.
So Ch J Iron Mike denies IRS’ motion to withdraw its motion to dismiss, and tells Lauren to file any objection she might have to getting summarily tossed.
Yeah, right: good luck, Lauren.
Yes, I know The Judge Who Writes Like A Human Being, a/k/a The Great Dissenter, Judge Mark V. Holmes, had a six-page disquisition on discovery today, in Harper International Corp. But that’s strictly for technicians and the terminally obsessive-compulsive.
Or, Gambler’s Choice
A belated Christmas present for that Prince of Orthography, STJ Lewis (“The Right Spelling”) Carluzzo is delivered through the opaque verbiage of Kimberly J. Gafford, Docket No. 19207-13L, filed 12/26/13.
KJ gets off on the wrong foot. STJ Lew: “If either of petitioner’s affidavits, both filed October 29, 2013, were construed as a motion to compel some form of discovery, the motion would be denied. But neither is, so respondent’s Motion for Protective Order, filed November 27, 2013, and presently before us, is, at this point, unnecessary.” Order, at p. 1.
Moot? Maybe not. As I said in an earlier blogpost, “It Depends”, 10/22/13.
Only we now know upon what it depends.
STJ Lew: “Respondent [IRS] is free to construe the affidavits in the manner he sees fit, and further may choose to respond to, or ignore the demands, if any, made in those documents.” Order, at p. 1.
So it’s gambler’s choice: if IRS wants to respond, it may do so, in whole or in part, reserving (or maybe renewing) its protective order motion (in whole or in part), or do nothing.
In the meantime, lest KJ feel neglected or ignored, STJ has a pertinent suggestion to KJ et hoc genus omne: “If petitioner is unsatisfied with respondent’s response or respondent’s failure to respond, he should consult the Tax Court Rules of Practice and Procedure, which are available on the Internet, and proceed accordingly.” Order, at p. 1.
Here, KJ, I’ll make it easy for ya; paste in this URL: http://www.ustaxcourt.gov/notice.htm
Then look at Rules 70 through 74, both inclusive.
Note that, although STJ Lew says IRS’ motion “is moot”, he didn’t deny it on that ground.
So the moral of Harry Golden’s tale remains: “Vot Did She Set?”
This time from Judge David (“That Obliging Jurist”) Gustafson, on a day when Tax Court seems to have the holiday hangover, no opinions and a few designated hitters of no great novelty, except–well, see for yourselves, guys.
Here’s our old petitioners Ovadia Meron & Galit Meron, Docket No. 9172-11, filed 12/26/13. Remember them? No? Well, see my blogpost “Which Side Are You On?”, 7/9/13, where Judge Gustafson asked Ovadia’s & Galit’s counsel to explain how he wasn’t conflicted out of representing Galit on her innocent spousery, while representing Ovadia on his defense of IRS’ unpaid taxable income claim. Oh, Judge Gustafson also wanted to know why he shouldn’t toss Galit’s innocent spousery for failure to prosecute.
And they could even respond to one issue without responding to the other.
Of course, in the immortal words of the Bard, “The rest is silence”.
Although Ovadia & Galit got three (count ‘em, three) extensions of Judge Gustafson’s deadline to respond, not Word One came from either or their attorney.
So Judge Gustafson tosses Galit’s innocent spousery. Maybe he thinks that by doing so, there’s no longer a conflict of interest between Ovadia & Galit, so their attorney is off the metaphorical.
But there’s still a question.
Many a time and oft have I heard (or used) this phrase in a deposition. A deponent’s answer, if not downright non-responsive, is the deponent’s answer, and the party taking the deposition is stuck with it, absent proof of perjury.
The Great Dissenter, a/k/a The Judge Who Writes Like a Human Being (despite his unprovoked war on the partitive genitive), His Honor Mark V. Holmes, gives the IRS an early Christmas present with his illustration of this principle in Rolv Heggenhougen & Linn H. Heggenhougen, Docket No. 7441-12, filed 12/23/13.
Because Tax Court is closed today, 12/24/13, I had to go back a day to find a subject worthy of a Taishoff blogpost. This is pretty good.
Background: “…respondent [IRS] moved to compel responses to his first request for production of documents and his interrogatories. Very similar motions had already been denied the last time this case was on a calendar, but without explanation. This suggests that those denials were less on the merits and more as an accompaniment to the granting of a continuance.” Order, at p. 1.
Remember the Tax Court show-and-tell and “play nice” rules for discovery.
But now IRS stops playing nice. And Judge Holmes gives them a time-out.
“The Court will deny the motion to compel answers to interrogatories because the Heggenhougens did answer the questions. The Court understands that respondent may disagree with those responses, and if they turn out to be perjurious, the Court can sanction the Heggenhougens and consider that fact in deciding any fraud questions still at issue. But the Court can’t presume that on the face of these responses.” Order, at p. 1.
Asked and answered, IRS. Move on.
But Judge Holmes isn’t through. “The Court will likewise deny the motion to compel responses to respondent’s first request for the production of documents. The Heggenhougens responded to these requests with a response in which they stated that they had supplied all documents that they had been able to obtain. Nothing in this response is contradicted by their responses to the requests themselves. If, however, the Heggenhougens attempt to introduce documents not already produced to respondent at trial, it is very likely that the Court will sustain an objection to their admission.” Order, at pp. 1-2.
While it’s fine to pursue discovery diligently, enough is enough.
No, not the late great Ferlin Husky’s 1957 crossover single (but that brings back memories of standing next the old Kingsbridge Armory, under the Jerome Avenue elevated tracks, singing “Uh-uh-uh-uh-uh-uh-oh, what I’d give, fuh-or the life time I’ve wasted….” I remember that teenage angst so well, fifty-five years on).
No, this is Tax Court taking today and, of course, tomorrow, off, with a day of grace to all you filers.
As a former boss used to say, here’s the scoop, Betty Boop:
NOTICE
“The United States Tax Court will be closed on Tuesday, December 24, 2013, and will close for regular business at noon on Tuesday, December 31, 2013.
“For purposes of computation of time under Rule 25, Tax Court Rules of Practice and Procedure, December 24, 2013, and December 31, 2013, shall each be treated in the same manner as a legal holiday. See Rule 25(a)(2) and (b), Tax Court Rules of Practice and Procedure.”
Merry Christmas.
No, not Charlie Dickens’ done-to-death classic, but rather another of my unending causeries on tactics and strategies for Tax Court, herein in three staves (or takeaways).
Now I know that the easiest position to play is Monday morning quarterback; and remember, there but for the grace of you-know-Whom goes any of us.
Case in point, Linda Sharp, 2013 T. C. Memo. 290, filed 12/23/13. It’s another Section 104 settled-for-personal-injuries-on-the-job case. Personal, not physical.
Takeaway the First: Even if you denominate the settlement as entirely for mental, and not physical, injuries, if you have any medical expenses that you can tie to the mental, put them in evidence. “Damages not in excess of the amount a taxpayer pays for medical care for emotional distress are generally excludable from gross income. Sec. 104(a)(2) (flush language); sec. 1.104-1(c), Income Tax Regs. Petitioner failed to make this argument at trial or on brief and offered no evidence as to the amount she paid for medical care costs for her emotional distress. Accordingly, we find that none of the settlement award is excludable under this theory.” 2013 T. C. Memo. 290, at p. 11, footnote 10.
Takeaway the Second: Make a Workers’ Comp claim and follow it up. Make sure your settlement documents reflect you’re settling a Comp claim against the former employer. “Amounts that a taxpayer receives as compensation for personal injuries under a statute in the nature of a workmen’s compensation act may be excluded from gross income. See sec. 104(a)(1); sec. 1.104-1(b), Income Tax Regs.” 2013 T. C. Memo. 290, at p. 6.
Here, Linda’s attorney blows it: “The settlement agreement does not indicate that the parties intended petitioner to receive the settlement proceeds in exchange for her settling a claim under the IWCA [Iowa Workers’ Compensation Act]. The sole arguable reference to a workers’ compensation claim is lodged in the seventh and final term of the agreement and conditions the agreement on petitioner’s settling her ‘W.C. claim.’ This sole vague reference is insufficient to prove that the university paid petitioner the settlement proceeds in exchange for her settling a claim under the IWCA.” 2013 T. C. Memo. 290, at p. 8.
It gets worse: “Moreover, petitioner failed to offer any documents relating to her claims under the IWCA. This failure is particularly curious, given petitioner is currently being represented by her workers’ compensation attorney, who seemingly would have unfettered access to these documents. We remind petitioner that the burden of proof is on her.” 2013 T.C. Memo. 290, at p. 9, footnote 7.
Yes, I know, Constant Readers, that Tax Court looks at what the parties actually settled, not what they said they settled. I read my own blogposts; see “An Unsettling Settlement”, 10/3/11. But at least give the Judge a peg on which to hang a favorable conclusion: a longshot is better than no shot. If there’s a Comp claim, have the settlement refer to the claim in extenso, and put in all the documents on the trial.
Takeaway the Third. Although Linda is denied her exclusion, she had a shot at the Section 6664(c)(1) good-faith reliance on her attorney to avoid the 20% understatement chop. Judge Kroupa says all Linda offered was her own unsubstantiated testimony about what she told her lawyer. But Judge Kroupa ruled out her attorney’s testimony in yet another footnote.
“Petitioner could not offer the testimony of the attorney who had represented her in her workers’ compensation case and who had advised her that she could exclude the settlement proceeds from gross income because the same attorney represented her at trial before this Court.” 2013 T. C. Memo. 290, at p. 4, footnote 4.
Excuse me, Judge, but we get our ethical rules in Tax Court from the ABA Model Rules of Professional Conduct. See Rule 202(a)(3).
And the 2013 Edition of said Model Rules provides as follows, in pertinent part, as the high-priced lawyers say: “Rule 3.7 Lawyer As Witness
“A lawyer shall not act as advocate at a trial in which the lawyer is likely to be a necessary witness unless: (3) disqualification of the lawyer would work substantial hardship on the client.”
Wouldn’t precluding her attorney as a witness “work substantial hardship on the client”? Her lawyer was the sole party who could provide the evidence to corroborate her statements, there is no jury, which could be misled, in a Tax Court trial, and Judge Kroupa is certainly able to assess credibility without being overawed by the advocates who appear before her. Remember Judge Vasquez in Donald R. Fitch and Brenda T. Fitch, 2012 T. C. Memo. 358, at p. 12: “See Diaz v. Commissioner, 58 T.C. 560, 564 (1972) (stating that the process of distilling truth from the testimony of witnesses, whose demeanor we observe and whose credibility we evaluate, is the daily grist of judicial life).” And see my blogpost “Practicing Accountancy Can Be Hazardous To Your Health”, 12/6/12.
So why didn’t Linda’s lawyer object? Or if s/he did, I hope s/he can appeal.
That ever-obliging jurist, Judge David Gustafson, who has been running wild through the bench opinions lately, designating them all and even providing the transcripts of his off-the-benchers, is the blogger’s friend. Never a dull moment, even on Fridays, when the opinions dry up and the judges head for the exits.
Today’s gem is Kelly & Christopher Roe, Docket No. 19423-12, Filed 12/20/13. Although Chris is a wildlife biologist with a college education, it’s Kelly who catches Judge David Gustafson’s fancy. She has a J.D. degree, in addition to her wildlife learning equal to Chris’; moreover, “(S)he is an intelligent, competent, and articulate person.” Order, at p. 5.
Take it easy, Judge; she’s also an accomplished tax dodger. When nailed back in 2005 for filing an all-zeros set of 1040s, Kelly confessed that at least some of her positions were frivolous, after Tax Court proposed a $5K hammer each for her and Chris. Protesting her loyalty and devotion to the Sixteenth Amendment and Article 26 of the United States Code was sufficient to cause Tax Court to drop the penalty.
But not a whit dismayed, ol’ Kelly didn’t bother filing returns for the next five years; apparently she thought filling in all those zeros was fatiguing.
IRS, finding little to detain the tourist, goes for a slew of SFRs. “Each SFR consisted of a Form 13496 (‘IRC Section 6020 (b) Certification’) as a front page, to which were attached Forms 4543-A (‘Income Tax Discrepancy Adjustments’) and Forms 886-A (‘Explanation of Items’) . The SFRs did not include any Form 1040 nor any transcript of account showing the entry of data used to establish the taxpayer’s IRS account. Each front page states that the composite document is a valid return under section 6020(b) and lists the contents of the SFR as being (1) the agent’ s report (including Form 4549), (2) Form 886 and (3) the cover sheet (Form 13496) . It does not list, as a fourth item, a Form 1040 or a transcript.” Order, at pp. 7-8.
What’s wrong with this picture?
Well, when IRS tries for fraudulent non-filing penalties, IRS can’t get those just because someone didn’t file; there has to be concealment or deception. But Kelly and Chris kept good records, even though IRS needed a subpoena to get them; they didn’t deal in cash, or advance spurious claims that the money wasn’t theirs.
In fact, “(T)he closest thing to concealment that appears in our record is the Roes’ non-cooperation with the IRS; but that non-cooperation is as easily explained by cussedness as by any attempt to defraud.” Order, at p. 12. Especially when the cussed one is “intelligent, competent and articulate”, right Judge?
So IRS fails to come up with the “clear and convincing evidence” required for fraud.
Kelly and Chris owe the taxes, plus the non-withholding and the non-filing additions.
But not the nonpayment of tax shown on return (Section 6651(a)(2)). Kelly beats that one in her usual intelligent, competent and articulate way.
“As Ms. Roe correctly argued, however, the SFR’s in this case are deficient. A ‘section 6020(b)(2) substitute for return is fatally defective if it is missing a copy of the Form 1040 the IRS used to establish his account on its computer system or a transcript of account reflecting the entry of data used to establish the account,’ Buckardt v. Commissioner, T.C. Memo, 2010-145,. slip op. at 13, and these SFRs had neither. During closing argument it seemed that Ms. Rose [sic] insisted that in all cases an SFR must include a Form 1040, and the Court resisted this contention (which is an imprecise statement of the law). However, upon study and reflection we now conclude that, under the authorities Ms. Roe cited, the SFRs are deficient; no returns valid under section 6020(b) were prepared; and the Roes cannot be held liable for the section 6651(a) (2) addition to tax.” Order, at pp. 14-15.
But should the Roes get hit with a Section 6673 frivolity penalty? Well, on the one hand they owe us all half-a-million bucks between them, and that’s a substantial hit; and they played nice on the trial. On the other hand, they’ve been down this road before, they’re not stupid, they cooperated sometimes and not others, their former professions of loyalty and devotion ring false (either they didn’t mean them then or they backslid substantially), and while Chris may claim the Lady MacBeth defense, they’re both in this together.
So it’s $20K apiece. “…high within the permissible range, but not the very top. We urge the Roes to abandon frivolous arguments once and for all, lest in a future suit they be held liable for even more.” Order, at p. 19.
No bargains in Judge Gustafson’s court.
No, not an opponent of the title character in the 1962 classic taken from Richard Condon’s novel, with great performances by Ol’ Blue Eyes and Angela Lansbury.
IRS, anticipating the arrival of its recently-confirmed chief, John (“Kosy”) Kosinen, an attorney even older than I but substantially richer, has gone on the Korean warparth.
And thanks to Mr. Patrick Temple-West who is spreading the word about Kosy’s confirmation by our esteemed United States Senate.
Back to business. Y’all will recollect that when we made the free trade deal with the Land of the Morning Quiet (at least it’s quiet south of the Yalu), there was a $500 belt in Section 501 of the statute incorporating the same, for preparers of returns claiming EITC, where the Form 8867 left out a question. See my blogpost “The $500 Misunderstanding”, 10/25/11.
Here’s the latest skinny, direct from Kosy’s new command: “IRS sent warning Letter 4989 to preparers who did not comply for tax year 2011, and, starting this month, IRS will be sending nearly 800 of those preparers notices of proposed penalties for continued failure to attach the form for tax year 2012 returns. Get details on EITC Due Diligence at www.EITC.irs.gov.”
So all you preparers for the poorest of our citizens, be prepared to pay for Kosy’s inauguration if you don’t fill in and send in those 8867s, all 23 (or is it 24?) questions.
