To Play It

If you want to fight in Tax Court about interest on your deficiency, you have to pay the deficiency and the interest, and then petition.

That’s Judge Foley’s directive to James B. & Jane Z. Paternostro, Docket No. 15753-10, filed 5/8/13.

JB & JZ agreed that their Sub S, Skidmarks, Inc., was not entitled to some $200K of Schedule E losses over a two-year period, plus Section 6662(a) accuracy (or better-styled, inaccuracy) penalties.

But when IRS moved to enter decision, JB & JZ objected, complaining about IRS’ computation of interest.

Judge Foley: “The Court’s jurisdiction to redetermine a deficiency generally does not extend to statutory interest imposed pursuant to section 6601. The Court may redetermine a section 6601 interest computation if the taxpayer petitions the Court within one year after the date the decision of the Court becomes final, an assessment has been made by the Commissioner which includes interest, the taxpayer has paid the entire amount of the deficiency plus interest, and the Court determines that the taxpayer has made an overpayment. The Court has not entered a final decision and petitioners have not paid the deficiency plus interest relating to the years in issue. Accordingly, petitioners may not challenge respondent’s interest computations.” Order, p. 2. (Citations omitted).

Pay to play, guys. And don’t jump the gun.

No, not Jean-Paul Sartre’s 1943 opus, but rather Tax Court considering the effect of a corporation flickering in and out of existence. The corporation is John C. Hom & Associates, Inc., whose existential travails are more particularly bounded and described in 140 T. C. 11, filed 5/7/13.

John C. came into being in 1986, but was deprived of its powers, rights and privileges by the California Franchise Board in 2004. John C. thereby lapsed into nothingness, but while John C. sojourned in nothingness, in 2011 the IRS sent John C. a SNOD for some five years of income taxes, additions, penalties and interest.

Both SNOD and petition occurred in 2011, but John C. was restored to being in 2012, on the eve of trial.

IRS wants to dismiss for want of jurisdiction.

John C. first argued the SNOD was defective because it gave the web address (URL) of the National Taxpayer Advocate, and not the address and telephone number, as required by Section 6212(a).

Judge Cohen dumps that one. Section 6212(a) doesn’t say the omission invalidates the SNOD, and anyway “…courts have held repeatedly that a notice of deficiency is valid if it notifies the taxpayer that a deficiency has been determined and gives the taxpayer the opportunity to petition this Court for redetermination of the proposed deficiency.” 140 T. C. 11, at p. 5. (Citations omitted).

John C., via its officer John C. Hom, did so petition. And he never showed he tried to contact NTA.

As for the existential question, Judge Cohen gives John C. short shrift: “Rule 60(c) states in part: ‘The capacity of a corporation to engage in such litigation [in this Court] shall be determined by the law under which it was organized.’ Petitioner’s corporate capacity was suspended at the time the petition was filed on June 13, 2011, and was not reinstated until April 2012, shortly before trial. Under the same scenario, in David Dung Le, M.D., Inc. v. Commissioner, 114 T.C. 268 (2000), aff’d, 22 Fed. Appx. 837 (9th Cir. 2001), interpreting California law, we concluded that the Court lacked jurisdiction. That case is controlling here.” 140 T.C. 11, at p. 9.

So John C. is flung back into nothingness, except that it can pay the tax and sue for a refund.

“Abstract from the Tax Court website. ‘Generally, a Tax Court Opinion is issued in a regular case when the Tax Court believes it involves a sufficiently important legal issue or principle.’ ‘Generally, a Memorandum Opinion is issued in a regular case that does not involve a novel legal issue. A Memorandum Opinion addresses cases where the law is settled or factually driven.’

“So one expects a Tax Court Opinion to have a certain gravitas;  if not an Olympian pronouncement, then at least an oracular quality.”

See my blogpost “This Old House”,  1/30/12, from  which the foregoing is taken.

So I question why Michael Keith Shenk, 140 T. C. 10, filed 5/6/13, is so favored.

After all, Mike’s story is a many-times-told tale of matrimonial counsel’s ineptitude, awarding dependency exemption and child tax credit to the non-custodial Mike, but not requiring custodial Julie to give Mike a Form 8332 or equivalent. So non-custodial Mike wanted all of it, but custodial Julie split the exemption and credit, for the three minor offspring they have bestowed on the world.

IRS gave custodial Julie the two she claimed, and Mike one of three (like the Ancient Mariner). Mike says “No, I should have it all per the divorce decree.” And he asked for a continuance of the trial to get one from custodial Julie or modify the divorce decree to require her to give him one.

IRS says non-custodial Mike can file the Form 8332 late, but in this case the statute is about to run for IRS to recover from custodial Julie the exemptions and credits she took for the year at issue.

The ever-obliging Judge Gustafson: “Because Mr. Shenk made no accounting for his having waited a year to try to obtain Form 8332, the Court denied Mr. Shenk’s motion for a continuance, stating that the parties should ‘go ahead and have today the trial that you are ready to have now, to put on the evidence you have to put on now,’ and that the Court would then ‘entertain at the end of it whatever motion you want to make about keeping the record open.’ Mr. Shenk put on his case and contended he is entitled to a dependency exemption deduction for all three children. At the end of trial, he again moved that the record be left open so that he could obtain and offer a Form 8332 signed by his ex-wife for 2009. We denied the motion without prejudice and stated that we would delay issuing any opinion in the case until after April 15, 2013, in order to give Mr. Shenk the opportunity to obtain the Form 8332, if he could, and to move to reopen the record of this case by that date. He did not do so.” 140 T. C. 10, at p. 7.

Non-custodial Mike argues that under the divorce decree and State law, custodial Julie should have signed the Form 8332, and custodial Mike is therefore entitled.

The ever-obliging Judge Gustafson can’t go that far. “But ultimately it is the Internal Revenue Code and not State court orders that determine one’s eligibility to claim a deduction for Federal income tax purposes, and Mr. Shenk does not meet the criteria of the Code for claiming the disputed dependency exemption deduction. He is the noncustodial parent, and the custodial parent did not sign the required declaration.” 140 T. C. 10, at p. 11.

And “coulda woulda shoulda” doesn’t get it. Neither does a Form 8332 obtained after custodial Julie got the tax benefits, and it’s too late for IRS to go after her. Then both custodial Julie and non-custodial Mike would get the benefits, and that’s a double-dip.

So what else is new?

No, not the 1960 Jules Dassin-Melina Mercouri film that gave rise to that year’s Oscar-winning tune, but rather the sad tale of Sunday G. Agwu, caught up in the toils of Tax Court and the IRS.

You’ll find the whole shebang in Docket No. 12997-12S, and Judge Buch tells the tale. You can learn more about Judge Buch from my blogpost “An Open Buch”, 1/16/13.

Anyway, here’s the mise-en-scène:  “…respondent [IRS] submìtted to the Court, prior to the call of the calendar, a stipulated decision that had been signed both by petitioner (Mr. Agwu) and on behalf of respondent.

“A few hours after the call of the calendar (and after the Court had initially concluded for the day), petitioner arrived at Court and began an off-the-record conversation with respondent’s counsel. Because of the apparent disagreement between the parties, the Court intervened and held an off-the-record conference with the parties. The Court then went on the record to describe the issues and confirm with the parties that the Court was accurately describing the apparent dispute.

“Petitioner stated that he was misled into signing a stipulated decision. He understood that, if he signed the stipulated decision, the IRS would not pursue collection activity against him.” Order, p. 1.

Nice work if you can get it, Sunny, but not quite.

“Respondent’s counsel stated that she advised petitioner that he could work with the IRS to address collection alternatives, including an offer in compromise, an installment agreement, or being placed in currently not collectible status.” Order, p. 1.

Now whether Sunny understood Word One of the foregoing is a good question. Ya gotta wonder how the self-representeds fare in a Court where even seasoned litigators often come seriously unglued. I’ve blogged this so often I won’t even cite to my past blogs. The “People’s Court” is a minefield that makes Afghanistan look like a kindergarten playground.

So Judge Buch catechizes Sunny, tells him this is liability and not collection, and elicits the following: “In this regard, Mr. Agwu stated that he does not dispute the terms of the stipulated decision. Indeed, he agrees that the 2006 and 2008 tax deficiencies shown in the stipulated decision document are correct; he agrees that he did not file tax returns for 2006 and 2008; and he agrees that he did not pay his taxes for 2006 and 2008. These oral concessions conform to the terms of the stipulated decision and also conform to the notices of deficiency on which this case is based.” Order, p. 1.

Sunny’s story is “I ain’t got no money, honey.”

Sunny having thus offered himself up as a living sacrifice, Judge Buch files the stipulated decision, and directs Sunny to file “…a response to this Order in which he explains (shows cause) why his case should not be dismissed for failure to state a claim upon which relief can be granted.” Order, p. 2.

And the best of luck, Sunny. Did you understand Word One of the foregoing?

The old legal principle that the employer is responsible for the malfeasance of the employee, known to the expensively-schooled as the doctrine of “respondeat superior” (let the master answer for the servant), gets turned around when trust funds like FICA and FUTA, and the TFRPs concomitant therewith, are concerned.

Case in point: Solucorp, Ltd., 2013 T. C. Memo. 118, filed 5/2/13. Solucorp is the Canadian parent of EPS Envtl., Inc., whose checkered history is told elsewhere in Tax Court annals. EPS didn’t remit withheld trust funds, and while EPS’ troubles were wending their way through Tax Court, IRS fired off 1153s for the TFRPs to Solucorp , which asked for IRS to wait until EPS’ troubles were resolved.

IRS gave Solucorp levy notices, and Solucorp petitioned, saying IRS should have waited before going after Solucorp.

No, says Judge Wells. “Petitioner contends that the Appeals Office abused its discretion by not suspending collection action pending the outcome of the EPS proceeding before this Court. Specifically, petitioner contends that respondent’s collection action, determination, and motion for summary judgment were premature until the EPS proceeding was fully adjudicated. We disagree. Section 6672(a) imposes a penalty on persons, other than the employer, who are responsible for withholding taxes (trust fund taxes). ‘[L]iability under section 6672(a) is not derived from, or dependent upon, an employer’s outstanding [trust fund] tax [withholding] obligation. Rather, the section imposes a penalty upon persons who fail to perform a specified statutory task.’ Bradley v. United States, 936 F.2d 707, 710 (2d Cir. 1991). The liability imposed on responsible persons pursuant to section 6672 is separate and distinct from the employer’s liability for trust fund taxes. Consequently, the Commissioner is not required to attempt to collect the underlying trust fund taxes from the employer before attempting to collect the section 6672 penalty against a responsible person. Petitioner’s liabilities for section 6672 penalties are separate and distinct from EPS’ Form 941 tax liabilities. Accordingly, the Appeals Office did not abuse its discretion in sustaining collection actions against petitioner for its outstanding TFRPs for the periods in issue.” 2013 T. C. Memo. 118, at pp. 11-12 (Citations and footnote omitted).

Takeaway- Pay those withheld taxes, or face the consequences.

No, not the prequel to the 1977 John Travolta production, but Tax Court’s website going down at 9 p.m. EDST on Friday May, 3, until 9 a.m., Saturday, May 4.

And the Tax Court webmeister announces the outage in red letters, thus:

Those who can’t proceed on their own, be it from youth or incapacity, get a boost in Tax Court from a guardian ad litem, to represent their interests. I leave the distinction between a next friend and a guardian ad litem to the law review writers, but take a peek at my blogpost “With Friends Like Him”, 2/26/13.

And see also Rule 60(d): “An infant or incompetent person who does not have a duly appointed representative may act by a next friend or by a guardian ad litem.”

Now Shawna A. Garg wants Mommy and Daddy to represent her, and asks STJ Lew (Love That Name) Carluzzo to let them in.

But Judge Lew needs more than the billet doux young Shawna sent Judge Lew in February, so see Shawna A. Garg, Docket No. 19263-12S, filed 5/1/13.

Show me, says Judge Lew: “In the February letter petitioner advises the Court that the petition in this case for the redetermination of a deficiency was submitted to the Court on her behalf by her parents. The letter goes on to advise the Court that petitioner ratifies the filing of the petition and requests that petitioner’s parents be allowed to represent her in this proceeding.

“Nothing submitted by petitioner or her parents suggests that either of petitioner’s parents is admitted to practice before the Court, see Rule 200, and we are unable to determine whether the circumstances contemplated by Rule 60(d) would apply to otherwise allow petitioner’s parents to participate in a representative capacity in this case.” Order, p. 1. (Footnote omitted).

So Judge Lew will treat the February letter as an amendment to the petition and as a motion for appointment of a guardian ad litem for young Shawna, but deny the motion without prejudice to young Shawna renewing her motion and showing she’s entitled to Rule 60(d) treatment.

I doubt her parents are admitted to practice in Tax Court.

When it comes to Section 152(a)(1) qualifying children, ties don’t count if only one person could claim the child. That’s the lesson Judge Paris has for IRS in Basil Oliver, Jr, 2013 T. C. Memo.117, filed 4/30/13.

BO and IRS are fighting over the dependency exemption, child tax credit and additional EITC that BO took for baby TAH, who is “the twin son of petitioner’s halfbrother, Trenton Freeman. Petitioner and Mr. Freeman have the same mother but not the same father. Accordingly, petitioner’s father, Basil Oliver, Sr. (Basil Sr.),  is not the biological grandfather of TAH.” 2013 T.C. Memo. 117, at p. 2.

Clear?

BO and Sr. lived in the same house and took care of TAH, one of them babysitting while the other worked. Mama Deirdre provided healthcare via Medicaid, and she was TAH’s legal guardian. BO doesn’t have a lot of records to show what diapers, formula, shoes and clothing he bought TAH, but TAH had his own crib in BO’s bedroom.

IRS says no go; see the Section 152(c)(4) rules. This was a pain to memorize for the SEE, and I promptly forgot them as soon as the test was over.

Judge Paris: “…only taxpayers who share the same abode with the individual can claim the individual as a qualifying child. Sec. 152(c)(1)(B). The only taxpayers who satisfy this requirement are petitioner and his father. Specifically, neither of TAH’s parents can claim TAH as a qualifying child because neither had the same principal place of abode as TAH for more than one-half of the taxable year. Further, Basil Sr. cannot claim TAH as a qualifying child because TAH does not bear the requisite relationship to Basil Sr. See sec. 152(c)(2). TAH is not his child or stepchild–or descendent thereof–under section 152(f)(1)(A). Accordingly, petitioner is the only individual who can claim TAH as a qualifying child, and the section 152(c)(4) tie-breaker rules are inapplicable.” 2013 T. C. Memo. 117, at p. 9. (Footnote omitted).

BO gets the whole boat. And see my blogpost “Read The Law”, 9/12/11.

Is no excuse for Deborah E. Cole in Harry E. Cole and Deborah L. Cole, a “not for nuthin’” Section 7463, 2013 T. C. Sum Op. 34, filed 4/29/13, an example of willful blindness that would gratify the Judge Who Writes Like a Human Being, a/k/a The Great Dissenter, Judge Mark V. Holmes, although here it’s STJ Daniel A. (“Yuda”) Guy, Jr., who tells the story.

As for willful blindness, see my blogpost “Lawyers Can’t Add”, 1/17/13.

Debbie wants Section 6015(f) equitable innocent spouse treatment, “(A)lthough petitioners testified at trial that they consider themselves to be separated, they have never been divorced or legally separated, and they continued to reside in the same household at all times relevant to this case.” 2013 T. C. Sum Op. 34, at p. 3.

Harry and Debbie conceded a lot of their non-existent deductions. Their claim for casualty loss to their pre-owned Mercedes-Benz crashes when they can’t prove their basis in the vehicle, and their claim for their flooded basement founders when they testify that their lawsuit against the City of Baltimore is ongoing and they are vigorously prosecuting same, so there’s no “loss” if there’s a reasonable chance of recovery.

Debbie claims it’s all Harry’s fault.

STJ “Yuda” Guy: “…Mrs. Cole had reason to know of the understatements of tax within the meaning of section 6015(b)(1)(C). A spouse seeking relief under section 6015(b) has reason to know of the understatement ‘if a reasonably prudent taxpayer in her position at the time she signed the return could be expected to know that the return contained the * * * understatement.’ Price v. Commissioner, 887 F.2d 959, 965 (9th Cir. 1989). A taxpayer has reason to know of an understatement if she had a duty to inquire and failed to satisfy that duty. Id. A joint tax return reporting a large deduction that significantly reduces a couple’s tax liability generally puts both spouses on notice that the return may contain an understatement. See Levin v. Commissioner, T.C. Memo. 1987-67.” 2013 T. C. Sum. Op. 34, at p. 17.

Debbie was participating in the lawsuit about the basement, and the big deductions Harry claimed but later conceded were big enough for Debbie to question. And Debbie never testified she didn’t know about the bogus deductions.

“A spouse cannot obtain relief under section 6015 in a case involving disallowed deductions ‘by simply turning a blind eye to–by preferring not to know of–facts fully disclosed on a return, of such a large nature as would reasonably put such spouse on notice that further inquiry would need to be made’.” 2013 T.C. Sum. Op. 34, at p. 18 (Citation omitted).

Debbie, you’re stuck.

Or Appealing

Carol Diane Gray, star of my blogpost “Too Late But Still Timely”, 3/28/12, tries to get a Section 7284(a)(2)(A) fast-track interlocutory appeal from Judge Gale’s decision dismissing her one-day-late petition, seeking review of Appeals’ sustentation of IRS’ lien and levy in respect of her late-filed returns.

But Carol Diane gets no better treatment from Judge Gale this time than she got last time, in Carol Diane Gray, 140 T. C. 9, filed 4/25/13.

Carol Diane claims substantial difference of opinion as to whether she should get 90 days, and not 30 days, to petition, as she had contested her underlying liability, and therefore her case involves a deficiency.

Except she got a NOD and not a SNOD. And a “deficiency”, which triggers the 90 day period, is “(S)imply put, a ‘deficiency’ in income tax generally exists where the amount of tax imposed by subtitle A of the Code exceeds the amount of tax shown by the taxpayer on his return.” 140 T.C. 9, at p. 11.

But Carol Diane’s problem is that she stated the amount of tax due on her late-filed returns, but never paid any of them, and IRS never said she owed any more. Thus, no deficiency.

And the IRC distinguishes carefully between the 6213 (deficiency) and 6330 (collection) petition time limits. It’s 30 days in the latter case, and that’s what Carol Diane missed.

Moreover, Section 7284(a)(2)(A) fast-tracking is to be used sparingly. It is an extraordinary remedy, and this is not an extraordinary case.