See my blogpost “Stipulate, Don’t Capitulate”, 9/23/11, for the story of Bernie and Martha Williams. There, Bernie stipulated.

But today, 5/24/13, in a designated hitter from Judge Gale, David Franklin & Ronda Ching Day, Docket No. 1770-12L, filed 5/24/13, don’t even do that. They don’t answer IRS’ Rule 91 motion that proposed facts should be deemed established.

Now the classic rule is that ultimate facts, those which give the other side (in this case IRS) the victory, should only be deemed established if there’s no effective defense to proving such facts if there were to be a trial, and then on a motion for summary judgment (Rule 121). Ordinarily, if there’s a defense to introducing proofs of such facts on a trial, or if one side is jumping the gun and short-circuiting Rule 121, they should not be deemed admitted.

And that’s what Judge Gale does, using Rule 91(f)(4). “Under Rule 91(f)(4), the Court must determine ‘whether in the interests of justice a matter ought not be deemed stipulated.’” Order, p. 1.

Well, IRS wants Dave and Ronda to be deemed to have stipulated to the contents of “Forms 4340, Certificates of Assessments and Payments; to the facts establishing whether respondent effected assessments of their income tax liabilities; or to the Case Activity Record Print purportedly maintained by respondent’s Appeals Office concerning the consideration of petitioners’ request for a hearing with respect to the collection action at issue in this case.” Order, p. 1.

In other words, unconditional surrender.

Nice try, IRS; but that’s a motion for summary judgment, and you’re not there yet.

So in the interests of justice, Judge Gale lets in everything else, but the aforementioned ultimate facts must await further proceedings.

Hint to Dave and Ronda: get a lawyer.

Judge Laro has scant sympathy for James S. Callahan and Carol S. Callahan in 2013 T. C. Memo. 131, filed 5/22/13.

It’s an oft-recurring scenario following the Great Real Estate Debacle of 2007. Carol had two dwellings, the New Jersey home she got from Papa and the FL condo she bought with Mama and inherited as Mama’s demise. They were both mortgaged and both in foreclosure.

Carol fell in with thieves, namely Ronnie (the Ganef–an arcane technical term) Losner, who pulled the now-clichéd home equity theft game on both properties. Carol sells both to Ronnie’s shills, who finagle fresh mortgages to pay off the old defaulted one, and gets a short-term lease from the shills at a ruinous rent, with an option to buy back her properties.

Ronnie the Ganef gets disbarred, and while Judge Laro takes judicial notice of the NY proceeding, he can’t see how that helps Carol.

Carol sues in NJ and the NJ court voids the sale; Carol claims NJ voided it ab initio, and she paid off the fresh mortgage, but Judge Laro says no. The NJ court left the fresh mortgage, which Carol later paid off, in place. “The fact that the Chancery Court voided the transfers subject to Chase’s existing mortgage suggests that the court was mindful that voiding the transactions from the beginning could nullify all transactions that followed the initial transfers, including the mortgaging of the property by Chase as a successor to Washington Mutual. Implicit in the Chancery Court’s order voiding the transfers subject to the existing mortgage was that Chase’s mortgage interest in the property was valid. As a corollary, the Chancery Court did not void the transfers from the beginning.” 2013 T. C. Memo 131, at p. 23.

Anyway, IRS wasn’t a party to the NJ proceeding, IRS isn’t in privity with Carol or the crooks or the banks, so IRS isn’t bound by any of this.

I don’t know what was pleaded or proved in the NJ case, and anyway I’m not admitted in NJ, but shouldn’t Carol have argued that the whole thing should be set aside, Chase could look to its title insurer on the mortgage, and the insurer subrogate and sue Ronnie and the shills?

Howbeit, Carol admits she had capital gains on both mortgage payoffs, even if fraudulently obtained, but not as much as IRS claims.

Judge Laro agrees, up to a point. IRS claimed that Carol recognized income on each sale to the shills at the full stated purchase price. No, said Judge Laro, the shills made sure she got nothing except some cash to prepay the phony rent on her lease from the shills, some expenses like real estate taxes, and the cancellation of her personal liability on the old defaulted mortgage. I respectfully refer the reader to the text of the decision for the arithmetic.

But the gain is ordinary, not capital.

Judge Laro: “In their brief petitioners appear to be claiming that any debt cancellation income is considered capital gain income. The amount realized on the sale of property that secures a recourse liability, however, does not include amounts that are (or would be if realized and recognized) income from the discharge of that liability under section 61(a)(12). Sec. 1.1001-2(a)(2), Income Tax Regs.; see also Commissioner v. Tufts, 461 U.S. 300, 318-320 (1983) (O’Connor, J., concurring) (noting Commissioner’s longstanding position reflected in section 1.1001-2, Income Tax Regs.). Income realized on the discharge of such debt is ordinary income taxed at ordinary rates.” 2013 T. C. Memo. 131, at pp. 28-29.

And Section 108(h), with its relief from relief as to qualified principal residence indebtedness doesn’t help poor Carol. “The record before us does not support such claim. There is no evidence showing any part of Ms. Callahan’s original 1998 purchase price of $437,500 was financed with a mortgage loan that was then refinanced with the Wall Street note in December 2005. The record also does not show Ms. Callahan used any of the proceeds from the Wall Street note to finance the construction or substantial improvement of the New Jersey property or to refinance a debt that she incurred for such construction or improvement. Thus, the record does not support a conclusion that any portion of the Wall Street note was qualified principal residence indebtedness within the meaning of section 108(a)(1)(E). See sec. 108(h)(2).” 2013 T. C. Memo. 131, at p.  30.

Judge Laro cuts Carol some slack, in that some of the debt may be home equity indebtedness, and lets her deduct interest to the extent of the $100K limit (see my blogposts “Sophy’s Choice”, 3/6/12 and “Faina, Meet Sophy”, 5/17/12).

So Carol ends up in much the same straits as an earlier person who fell in with thieves.

The Indians might not be, but their subsidiaries incorporated in Delaware will.

Howbeit, I will spare the reader Obliging Judge Gustafson’s 68-page novelette concerning the Indian Employment Tax Credit as it impacts the Delaware subsidiary corporation of the Turtle Mountain Band of the Chippewa Indians, to be found in Uniband, Inc., 140 T. C. 13, filed 5/22/13.

Judge G.’s disquisition does not explicate an issue that the in-the-trenches preparer is likely to encounter. And if s/he does, my condolences.

Islands, That Is

The last chapter of a Section 932 saga, the unguided Congressional largesse to our bankrupt islands in the sun, brings to a close the unbroken string of IRS losses to Artie Appleton and his legal beagles, in Arthur I. Appleton, Jr., Petitioner, and The Government of The United States Virgin Islands, Intervenor, 140 T. C. 14, filed 5/22/13, Judge Jacobs bringing down the curtain, with twenty-one (count ‘em, 21) lawyers in on the play.

To review, see my blogposts “Statute of Limitations? Maybe Not”, 12/28/10, “Missed It, But Better Late Than Never”, 8/24/11, and finally “Somebody Does Read This Blog”, 12/4/11.

Briefly, Artie fled the North American mainland, settled in the aforesaid impoverished paradise, and got into an employee lease deal whereby he avoided payment of a bushelbasket of income tax. Of course, he sedulously and meticulously filed with Virgin Islands Internal Revenue Service (VIBIR), as directed by the instructions to Form 1040. And if that was his sole obligation, the three-year SOL had long run.

But IRS claimed that, as Artie never filed with them, the SOL was wide open and Artie owed the aforesaid bushelbasket plus interest, additions and penalties.

The VI guvmint leaped into the fray, was denied by Tax Court but let back in by Third Circuit (where VI appeals lie). “Counsel for intervenor stated that the Virgin Islands is involved in this matter because ‘we want the jobs’ and “the IRS’s position is a job killer’.” 40 T. C. 14, at p. 14, footnote 13 cont’d.

IRS’ feeble arguments get longer shrift than they deserve (but 21 lawyers have to bill for something, y’know).

Artie’s returns weren’t returns. Forget it; they were 1040s filed with VIBIR, like the instructions for said forms stated.

Artie should have filed with Bensalem PA as a foreigner, showing zero income and deductions. Nope, not for the years at issue. The Form 1040 instructions for those years said no such thing. And Artie was no foreigner; he was a resident of the VI, and IRS so stipulated.

Artie should have filed with IRS and with VIBIR. No, only if he was a corporation, and he wasn’t.

IRS issued a Notice that would have required Artie to file with IRS, after the years at issue, claiming it was retroactive. “Retroactive notices published by the IRS do not have the force and effect of law, nor are they regulatory. At best these notices can be considered as the IRS’ litigating position.” 140 T. C. 14, at p. 29. (Citations omitted).

So IRS has another bad day (and they have had many lately). And Artie sails off into the sunset, clutching summary judgment in his favor. How many jobs he and his fellow gamesters created for the VI guvmint is nowhere stated.

But this blogger got a lot of mileage out of this saga.

No designated hitters, and no interesting learning, out of Tax Court today, 5/21/13, so I went back to an oldie-but-goodie, Ileana Sonnabend, Docket No. 649-12. See my blogpost “The Eagle Sleeps Tonight?”, 2/13/13.

You remember the kerfuffle about the late Robert Rauchenberg’s 1959 post-modern masterpiece “Canyon”, featuring the famous eagle that set the art world a-twitter when IRS demanded a monumental estate tax deficiency. Ileana’s executors claimed the piece was worth nichts, nada, nothing, as it was a Federal criminal offense to sell or gift or barter or otherwise dispose of same.

IRS claimed the executors could always unload it to some offshorenik who would never come anywhere near The Land of the Free, for $65 million.

Well, you also remember Judge Wells sent the parties off to settle.

They did. Here’s the skinny, in  Ileana Sonnabend, Docket No. 649-12, filed 3/5/13. Ileana’s executors pay IRS $1,321,421.00 plus interest; no penalties.

So the eagle in fact does sleep tonight–probably in an undisclosed location.

And You Might Be An IC

That’s the story of Jonny Ramirez, radio personality and savior of station KXTN in San Antonio, TX. Judge Jacobs tells Jonny’s story in Juan A. Ramirez and Rebecca Ybarra-Ramirez, a “not-for-nuthin’”,  Section 7463, in 2013 T. C. Sum. Op. 38, filed 5/20/13.

Jonny, as Juan A. is known professionally, worked under contract to Univision, owners of KXTN, and toiled five hours per day, six days a week, at the mike, made personal appearances, and promoted KXTN, for a salary, benefits and stock options.

But it looked like the stock options, Jonny’s employment, and KXTN, were all about to go south, never to return, as Univision claimed the station was a loser.

Jonny, in his own words, “hit the bricks”, running from advertiser to advertiser, glad-handing, cajoling, charming and enticing, until he saved the station by hauling in a netful of new fish.

Judge Jacobs: “Mr. Ramirez established a direct, personal relationship with his sponsors, working hand-in-hand with them from the start of the advertising campaign to its end. They had no written contracts, just handshake agreements. Mr. Ramirez set the amount to be paid to him for his promotional services without input from Univision or KXTN. The amounts he received for these services varied from year to year depending on how hard he ‘hit the bricks’, i.e., the amount of effort Mr.Ramirez exerted in working with his sponsors.” 2013 T. C. Sum. Op. 38, at p. 4.

“Indeed, Univision’s and KXTN’s only involvement was to ensure that (1) the script did not contain fraudulent material, and (2) Mr. Ramirez did not use language that would jeopardize the radio station’s broadcasting license.” 2013 T. C. Memo. 38, at p. 5

Jonny got $82K for his troubles, but Univision treated him as an employee for everything, and gave him a W-2, as the IRS had “whanged their pates”, as the late Mike Berger put it, for treating other employees as ICs. Jonny’s CPA’s protests went nowhere.

Jonny’s work was outside the scope of his employment as an on-air personality. He worked with his sponsors, and his name and persona were what brought them in and kept them in the KXTN corral. True, KXTN monitored Jonny’s language and any larcenous tendencies on the part of his sponsors’ radio ads, but that’s not enough. Jonny had to maintain his good standing with KXTN to maintain his value to his sponsors, but that’s not enough either.

As for the classic test of “profit or loss from the activity”, Judge Jacobs buys Jonny’s testimony that what he makes depends upon how hard he “hits the bricks”. And Jonny hit ‘em hard.

IRS’ argument that advertising is an integral part of the radio broadcasting business fares no better. “Selling and broadcasting advertising is the manner by which a radio station earns a profit; it is an integral part (i.e., the so-called mother’s milk) of the station’s business. But Mr. Ramirez was not employed by Univision to sell on-air advertising; rather, he was employed to create on-air content (i.e., his radio program). Univision hired him to be a radio personality, not a salesperson.” 2013 T. C. Sum. Op. 38, at p. 16.

Jonny hit Tax Court as hard as he hit the bricks. And it pays off.

And Gets An Answer

Courtesy of Judge Ruwe, in Julie Beiler Zook, 2013 T.C. Memo. 128, filed 5/20/13, we get a partial answer to the question I posed in my blogpost “Youth Wants To Know”, 4/24/13, wherein I asked Judge Thornton why he dropped the Big Hammer, the $25K Section 6673 frivolity penalty, on hapless Laurel Ann Curtis.

Judge Ruwe only deals a $2K on Julie B., but tells us why.

“Petitioner attended the CDP hearing with her husband and two other family members. Petitioner acknowledged that she received the notice of deficiency. Petitioner did not request a collection alternative. Petitioner’s husband argued that she did not receive proper notice from the Commissioner and that the assessments were not constitutional.” 2013 T. C. Memo. 128, at p. 3. (Footnote omitted, but apparently Julie B.’s husband got shown the yellow card back in 2008, in an order denominated Zook I, when he pulled a similar maneuver. It would seem that one spouse’s delictions may be attributed to the other.).

After the usual recitation of SFR, deficiency, failure to petition, NFTL, CDP and Appeal, NOD and petition, with de novo and abuse-of-discretion review, Judge Ruwe cuts to the chase.

“The notice of determination advised petitioner that this Court may impose the section 6673(a)(1) penalty against her if she raises frivolous or groundless arguments. Petitioner did not heed this advice and made the following arguments in her amended petition and in her opposition to motion for summary judgment: (1) she was not properly served with notice under section 6001; (2) the SFRs constitute evidence of computer fraud and are a fraud on this Court; (3) the notice of deficiency is a nullity and constitutes evidence of mail fraud; (4) the notice of Federal tax lien is a nullity and constitutes evidence of mail fraud; (5) respondent is “exercising such powers through an officer other than the officer specified in law” and “in the absence of proof of jurisdiction”; and (6) “[p]etitioner received no ‘income’”, citing Eisner v. Macomber, 252 U.S. 189 (1920), Doyle v. Mitchell Bros. Co., 247 U.S. 179 (1918), and Merchants’ Loan & Trust Co. v. Smietanka, 255 U.S. 509 (1921). The amended petition included many of the same arguments the Court deemed frivolous in Zook I (“The petition set forth various frivolous arguments”.).” 2013 T. C. Memo. 128, at pp. 8-9. (Footnote omitted).

Julie B., that’ll cost you $2K, with more to come if you don’t mend your ways.

Takeaway–Judge Ruwe gave us a pricelist for frivolity. It’s all à la carte.

An old bugbear of mine is the lack of a single court with nationwide jurisdiction to which appeals from Tax Court may be taken, and whose decisions must be followed by Tax Court. Golsen v. Commissioner, 54 T. C. 745 (1970), aff’d on o/grds 445 F. 2d 985 (10th Cir. 1971) initially confines appellants to the decisional law of the Circuit wherein Tax Court had jurisdiction over the taxpayer when the case was tried (absent contrary agreement, which happens so rarely as to be negligible).

So STJ Daniel A. (“Yuda”) Guy can’t help out poor confused, stressed and traumatized Johnny Steven Vallejo, because Johnny can’t claim fraud and that’s all Ninth Circuit will allow to set aside the stipulated decision Johnny entered into. See my blogpost ‘Confused, Stressed and Traumatized”, 4/9/13.

But had Johnny Steven quitted the Golden State, he might have done better.

Ch STJ Peter Panuthos has a different take in Francisco & Maria Goncalves, Docket No. 9831-10S, a designated hitter filed 5/17/13.

Francisco and Maria lived in the Bay State.

“In addition to fraud on the Court, there are some other narrow exceptions to finality. Thus, this Court and some Courts of Appeals have ruled that this Court may vacate a final decision if that decision is shown to be void, or a legal nullity, for lack of jurisdiction over either the subject matter or the party. See Billingsley v. Commissioner, 868 F.2d 1081, 1084-1085 (9th Cir. 1989); Abeles v. Commissioner, 90 T.C. 103, 105-106 (1988); Brannon’s of Shawnee, Inc. v. Commissioner, 69 T.C. 999 (1978). We also have authority to correct a clerical error discovered after the decision has become final. Michaels v. Commissioner, 144 F.3d 495 (7th Cir. 1998), af[‘g T.C. Memo. 1995-294; see also Fed. R. Civ. P. 60(a). The Court is satisfied that a clerical error was made by the Court, and was discovered after the decision in this case became final. Thus, we will vacate the Order of Dismissal and Decision entered June 30, 2011.” Order, at p. 2.

Here the Court had the wrong address for the petitioners, so all the notices went astray.

Time for one size fits all.

Not, not another single parent of a disabled child taking on the IRS, whose counsel seemed not to be current on the law (see my blogpost “Read the Law”, 9/12/11), but the case of a Tax Court admittee  who needs that admonition.

 It’s Herb Vest, Docket No. 30510-12, filed 5/17/13, Ch. J. Colvin at the controls.

Herb timely filed his petition, but before he did that he filed a petition in bankruptcy and the automatic stay was still in effect.

So IRS moved to dismiss pursuant to 11 USC §362(8). “Petitioner opposes the granting of respondent’s motion to dismiss on two grounds: (1) the Fifth Circuit has held that a stay pursuant to 11 U.S.C. 362(a)(1) does not necessarily bar all proceedings; and (2) petitioner fears that he would be ‘statutorily barred from bringing a Petition for Redetermination in Tax Court’ if the case is dismissed rather than stayed.” Order, p. 1.

Ch Judge Colvin: “As an initial matter, petitioner–represented here by counsel admitted to practice before the Court–is reminded of the applicability of I.R.C. section 6213(f)(1), which provides that the running of time for filing a Tax Court petition is suspended during the time the automatic stay prohibits the filing of a Tax Court petition, and for 60 days thereafter. The automatic stay is lifted upon the earliest of (1) the date the bankruptcy case is closed, (2) the date the bankruptcy case is dismissed, or (3) the date a bankruptcy discharge is granted or denied. 11 U.S.C. sec. 362(c)(2).” Order, at p. 1.

Ch Judge Colvin continues the lesson: “Second, and perhaps more directly to the point of petitioner’s opposition, is that respondent’s motion is being made pursuant to 11 U.S.C. section 362(a)(8), not 11 U.S.C. 362(a)(1). In fact, 11 U.S.C. section 362(a)(8) specifically prohibits ‘the commencement or continuation of a proceeding before the United States Tax Court’. Order, at pp. 1-2.

Petition dismissed.

Automatic admittee, ya think?

From IRS website 5/16/13, at http://www.irs.gov/uac/IRS-Statement-on-Court-Ruling-Related-to-Return-Preparers:

“Fee amounts collected for scheduled registered tax return preparer test appointments canceled due to the court ordered injunction are being refunded. Additionally, fees collected from return preparers who tested on or after January 18, 2013, the date the test was enjoined, are also being refunded. No additional refund or reimbursement requests related to registered tax return preparer regulation are being provided or considered at this time. E-mail notifications will be provided to those receiving refunds to explain the process. No action is necessary to receive the refund. A credit for the test fee will automatically be made to the account used to pay the fee. It is anticipated that all refunds will be processed by July 19, 2013.”