But while it lasts, it’s “all hands off deck” at IRS.

Acting Commissioner Miller has informed all IRS personnel that “public-facing operations” (whatever that means), including but without in any way limiting the generality of the foregoing (as the high-priced lawyers say) toll-free phone ops, will be closed on May 24, June 14, July 5, July 22, and August 30, plus maybe two days of closing in August or September to be named later.

This means everybody, from the A/C to managers and line employees.

Whether Tax Court is to be sequestrated as well is unclear. Stay tuned.

Ya gotta love a Congress and President who save money by not collecting money.

Remember poor Ray Fouche, the bus operator victimized by the late and infamous Manzoor Bey? No? Then see my blogpost “The Cover-up”, 11/23/11, wherein I retold Ray’s sad tale and lauded her legal team for convincing Judge Vasquez to let Ray off the hook for the unpaid payroll taxes which the late and infamous Manzoor Bey stole.

Unhappily for Ray and her team, Second Circuit wasn’t having it. And now Ray is remanded to Tax Court to have the unpaid taxes taken out of her hide.

See City Wide Transit Inc. v. Com’r, Docket No. 12–1040–ag, decided 3/1/13, Judge Wesley.

“Some have suggested that the Commissioner of Internal Revenue (“Commissioner”) rarely loses in tax court, tax court decisions are rarely appealed, and federal circuit courts rarely reverse tax court decisions. See, e.g., James Edward Maule, Instant Replay, Weak Teams, and Disputed Calls: An Empirical Study of Alleged Tax Court Judge Bias, 66 Tenn. L. Rev. 351, 353, 401 (1999) (reviewing empirical studies). Despite some of these expectations, after losing in tax court, the Commissioner appealed, and we now reverse.”

Ray’s team argued Manzoor filed false returns to cover up his embezzlement, not to defraud the US of A. Irrelevant, says Judge Wesley.

“By concluding that the Commissioner failed to prove that Beg intended to evade City Wide’s taxes and that, at best, tax evasion was but an ‘incidental,’ ‘secondary effect’ to Beg’s embezzlement scheme, the tax court inappropriately substituted motive for intent. The statute is agnostic as to the attendant motivations for submitting a fraudulent return and only requires that the Commissioner prove a fraudulent return was filed with an intent to evade, that is avoid, paying a tax otherwise due. Thus, ‘if one of [a conspiracy’s] objectives, even a minor one, be the evasion of federal taxes, the offense is made out, though the primary objective may be concealment of another crime.’ Ingram v. United States, 360 U.S. 672, 679–80, 79 S.Ct. 1314, 3 L.Ed.2d 1503 (1959). Moreover, ‘if a “tax evasion motive plays any part” in certain conduct, an “affirmative willful attempt” to evade taxes may be inferred from that conduct.’ United States v. Klausner, 80 F.3d 55, 63 (2d Cir.1996) (quoting Spies v. United States, 317 U.S. 492, 499, 63 S.Ct. 364, 87 L.Ed. 418 (1943)). The Commissioner only had to prove that Beg intended to underpay the Commissioner taxes that City Wide owed when he filed a fraudulent return on City Wide’s behalf, not that he intended to avoid City Wide’s taxes for City Wide’s benefit.”

Sorry Ray and team, you get a first-class Taishoff “good try”. But IRS gets the money.

Judge Wherry is calling “Batter up!” to Jason Giambi and Kristian Giambi (and telling IRS to take the field) in Docket No. 2961-11, Order filed 4/24/13.*

The Cleveland Indians slugger and his lingerie-designing spouse, along with IRS, filed a joint status report and stip of agreed issues on 2/1/13.

The rest, according to Judge Wherry, is silence.

So let’s get on with it. Either give Judge Wherry a status report or tell him when he can expect decision documents by 5/22.

And I wish I knew what this case was about. Sounds interesting.

*Giambi 2961-11 4 24 13

Edited to add, 9/2/21: Jason and Kristian stiped out 7/1/13, but the stiped decision is sealed.

But No Explanation

No, not the 1950s television show, but the name carries weight today, 4/23, even though Tax Court issued no opinions today, and the designated orders don’t give much, barring Joe Insinga, the star of my blogposts “Did Nothing”, 3/13/13, and “A Voyage of Discovery”, 3/30/13. Joe hauls down his battle flag and consents to a dismissal of his whistleblower petition without prejudice today, with no explanation.

So here’s another unexplained phenomenon, a full Section 6673(a) frivolity penalty in Docket No. 5657-10, filed 4/23/13, nailing Laurel Ann Curtis.

Now Laurel Ann has a four-year string of deficiencies going back to 1994, with additions and penalties galore, but why the full-Monty frivolity sanctions, Judge Thornton?  How can we counsel clients without knowing exactly what will cause Tax Court to drop the Big Hammer?

Even where, as here, the frivolous taxpayer doesn’t respond to IRS’ motion for sanctions, Tom Jefferson’s “decent respect to the opinions of mankind” should impel the Court to tell us why.

Maybe Not

 When you get a SNOD, petition at once; that’s Tax Court 101. If you need to amend, see Rule 41. Leave is to be freely given where justice requires.

As for a FPAA, the best practice is the same. Petition prontito.

Judge Thornton makes the point in Wise Guys Holdings, LLC, Peter J. Forster, Tax Matters Partner, 140 T.C. 8, filed 4/22/13. I’m sorry this case goes off on jurisdictional grounds, as I’d like to hear more about Wise Guys Holdings; they sound like amusing clients.

The facts are simple enough: “R mailed to P, as W’s tax matters partner (TMP), a notice of final partnership administrative adjustment (FPAA) for W’s 2007 taxable year. Approximately nine months later, R (through an office different from the office that mailed the FPAA) mailed to P, as W’s TMP, a second FPAA for W’s 2007 taxable year. The first FPAA and the second FPAA are similar in content but are different in the contact information (and a few other minor items) shown on the face. P filed his petition in response to the second FPAA but after the statutory deadline for challenging the first FPAA had expired.” 140 T.C. 8, at p. 1.

IRS says FPAA One is the real deal, and FAA Two is to be disregarded, as Section 6223(f) bars IRS from a second bite at the partnership apple absent fraud, malfeasance or misrepresentation of a material fact. And IRS doesn’t claim Pete is guilty of any thereof.

Judge Thornton: “The first FPAA and the second FPAA are similar in content but are different in the contact information (and a few other minor items) shown on the face. The second FPAA does not set forth any partnership-level adjustment or determination that is not listed in the first FPAA.

“Petitioner attached the second FPAA to his petition underlying this case.” 140 T.C. 8, at p. 6.

Pete claims he was misled, that IRS wants to deny him and his Wise Guys their day in court on a technicality. “Petitioner counters in his objection to respondent’s motion [to dismiss for want of jurisdiction] that he filed his petition in ‘good faith’ in response to the second FPAA and he cannot be faulted for respondent’s mailing of that document or for relying on that document as ‘presumably valid’. Petitioner adds in his objection to respondent’s motion that the audit underlying this case was an ‘arduous process’, that he has been ‘frustrated throughout this process due to the lack of communication’ with respondent, and that ‘fairness and justice’ dictate that the Court not dismiss this case ‘on a technicality that the second FPAA was not valid because one had already been sent’.” 140 T.C. 8, at pp. 7-8.

No dice, Wise Guys. The second FPAA is a nullity as a matter of law, Tax Court is a court of limited jurisdiction with no equitable powers to give itself jurisdiction where Congress has not, and, most importantly, “(P)etitioner also does not advance any reason he did not timely petition the Court in response to the first FPAA.” 140 T.C. 8, at p. 11.

And FPAA Two is not a “duplicate copy” of FPAA One, which is authorized by Section 301.6223(f)-1(a) of the Regulations, under circumstances like the original being lost.

Tax Matters Partners, read and heed; send in that petition at once. And five-percenters and notice partners (Section 6226(b)(1), check in with the TMP and be ready to roll on Day 91.

Finally, TMPs: remember you are partners first and tax matterers second. See my blogpost “Bang – A Warning to Tax Matters Partners (and their advisors)”, 1/5/11.

With a respectful bow to Wm Blake, I’m returning to a previous blogpost “No Good Deed”, 4/18/13, and the story of Danial Robert Martin and Christina Martin, 2013 T.C. Sum. Op. 31, filed 4/17/13.

You’ll remember than Danial wanted to help his unemployed, sickly ex-wife Ruth by increasing her spousal support, without going back to court. After all, they both agreed, she needed the money, and what judge would say no?

Danial wanted a deduction for alimony, and he had been taking one for the previous three years at the rate fixed by their divorce decree, with no apparent ill effects.

But there was no contemporaneous documentation of the increase, so IRS torpedoes Danial’s enhanced deduction, and CSTJ Panuthos agrees.

Now why do I rehash this? Because fellow tax blogger Peter Reilly over at Forbes picked up on Danial’s plight and discoursed at length on the unfairness of the result; and he very kindly mentioned I had blogged the case first. But Pete omitted CSTJ Panuthos’ rationale for his decision.

Symmetry.

If one party pays a deductible expense, the receiving party must recognize  income. Now whether the receiving party’s recognition triggers taxation of that income is another story. But income there must be.

CSTJ Panuthos: “Allowing petitioner to deduct the increased payments to Ruth under sec. 215(a) would result in an asymmetry, since the increased payments were not made pursuant to a written divorce or separation agreement, and would therefore not be includible in Ruth’s gross income under sec. 71(a).” 2013 T. C. Memo. 31, at p. 7, footnote 2.

Again, see my blogpost “The Magic Paper Saves the Deduction”, 4/7/11.

But it won’t help you even if you do hide. On this Friday, 4/19, with no opinions out of Tax Court, STJ Lew (The Right Way) Carluzzo has this designated admonition for the peripatetic Robert Schulz, the founder and an officer of various iterations of We The People Foundation For Constitutional Education, Inc., Docket No. 20999-10 L, filed 4/19/13.

We The People, etc., (hereinafter “wee peeps”) may or may not be educational and constitutional, but its Section 501(c)(3) tax exempt status was retroactively revoked, and Mr Robert signed a Form 872 extension for assessment of tax, interest, penalties, fire and slaughter.

Within the extended time thereby fixed, IRS sent a certified letter or two, assessing tax, etc., to the last known address of the wee peeps and Mr Robert (coincidentally the same address on Ridge Road). No one says either Mr Robert or his wee peeps had any other, and all agree Mr Robert wasn’t there; in the immortal words of Willie Nelson, he was on the road again. Extensively.

But not one to leave his homestead vacant and broom-clean, Mr Robert turned the place over to one Michael F. Bodine, also an agent of the wee peeps, who “‘only occasionally’ left Ridge Road. While at Ridge Road Mr. Bodine performed numerous and various services for each petitioner, including collecting petitioners’ mail.” Order, p. 2.

Mr Robert, always mindful that the Revenoors might take advantage of Mr Bodine’s naïveté, strictly enjoined Mr Bodine not to receive, sign for or otherwise reduce to his possession, any certified mail from anyone.

Mr Bodine, like Simonides’ Lacedaemonians, proved faithful to his trust. The USPS contract deliverer, baulked of attempted delivery, marked the letters “refused” and returned them to the IRS.

Not refused, says Mr Robert on his return, but rather unclaimed.

You can guess what’s coming, but my natural loquacity compels me to tell you anyway. As neither Mr Robert nor the wee peeps petitioned the deficiencies, IRS files liens and/or levies. Mr Robert and the wee peeps ask for a CDP whereat they want to contest the deficiencies.

Never got the letters, says Mr Robert.

Mox nix, says STJ Lew.

“Under the circumstances, we attach little significance to the ‘refused’ stamp shown on the envelopes in which the deficiency notices were mailed. We also attach little significance to where Robert Schulz was located as of the date the Forms 3849 were placed in petitioners’ mailbox. After all, the deficiency notices are not addressed to him, and he is not a petitioner in this proceeding.

“We find it more significant that at the time the deficiency notices were issued and mailed, and as of the date the Forms 3849 with respect to the deficiency notices were placed in petitioners’ mailbox, petitioners had an agent at their home office, and that one of that agent’s responsibilities was to collect petitioners’ mail while Robert Schulz was traveling. The fact that the agent was not authorized by petitioners to sign for certified mail is tantamount to a deliberate failure to claim the deficiency notices, and that deliberate failure constitutes receipt, albeit constructive, of the deficiency notices within the meaning of section 6330(c)(2)(B).” Order, p. 3. (Citation omitted).

It’s trial time, Mr Robert. And no, you can’t contest the deficiencies.

Nancy Louise Field tries telling  Tax Court not to play favorites, but Judge Thornton isn’t joining Nancy Lou’s Constitutional parade in 2013 T. C. Memo. 111, filed 4/18/13.

However, Judge Thornton has that message for Kenneth J. Taggart in 2013 T.C. Memo. 113, filed 4/18/13.

Ladies first, so here’s Nancy Lou’s story. “On July 16, 2008, petitioner and her husband, who is petitioner’s counsel of record, were married. They did not live apart during the last six months of 2009. On her 2009 Federal income tax return petitioner claimed a status of married filing separate and claimed that under section 23(a) she was entitled to a qualified adoption expense credit of $10,144, which exactly offset her reported tentative tax of the same amount.” 2013 T.C.Memo. 111, at p. 2.

The only thing wrong is that one must be in married filing jointly status to take the Section 23(a) credit; see Section 23(f)(1).

When IRS gigs Nancy Lou, she yells “denial of equal protection”. “She alleges that before she married in 2008 she adopted 15 children, that her husband has never adopted any of these children, and that for all practical purposes she has been their only support. Petitioner contends that the effect of the joint filing requirement is to penalize her for having married in 2008. She contends that in ‘this unique situation of hers * * * she should be treated as * * * unmarried’.” 2013 T.C.Memo. 111, at p. 4.

Give her attorney-husband John M. Mooney, Jr., a round of applause. With 15 adopted kids and another rounding third and heading for home, John M. is a man among men for signing aboard.

Judge Thornton: “The Supreme Court recently reiterated its longstanding holding that ‘‘a classification neither involving fundamental rights nor proceeding along suspect lines * * * cannot run afoul of the Equal Protection Clause if there is a rational relationship between the disparity of treatment and some legitimate governmental purpose.’’ See Armour v. City of Indianapolis, __ U.S. __, __, 132 S. Ct. 2073, 2080 (2012) (quoting Heller v. Doe, 509 U.S. 312, 319-320 (1993)).” 2013 T.C. Memo. 111, at pp. 4-5.

The burden Section 23 imposes, Nancy Lou, is tangential, and doesn’t impermissibly interfere with your getting married or adopting as many children as you wish.

“A tax classification is ‘constitutionally valid if “there is a plausible policy reason for the classification, the legislative facts on which the classification is apparently based rationally may have been considered to be true by the governmental decisionmaker, and the relationship of the classification to its goal is not so attenuated as to render the distinction arbitrary or irrational.’” 2013 T. C. Memo. 111, at pp. 5-6 (Citation omitted).

Nancy Lou’s claim that she got away with the married filing separately dodge in another year doesn’t help, as each tax year stands upon its own.

Nancy Lou, meet Navajo tribal elder Lucy Gabey, the star of my blogpost “Losing My Religion”, 1/17/13. Congress can play tax favorites with adoptions.

Now for KenTag and 2013 T. C. Memo. 113. KenTag is fighting a NFTL, lost in Appeals and petitions timely. The underlying taxes are those he himself reported but didn’t pay, so KenTag gets no second bite at the apple.

KenTag has numerous arguments why IRS should not be allowed to lien on him, but they all founder on the fact that while KenTag owed $60K in tax, he refinanced two properties he owned, pulled out cash in excess of $60K, and paid creditors ahead of IRS. He paid IRS nothing.

IRS gets rightly peeved, and accuses KenTag of dissipation. “A dissipated asset, defined as any asset that has been sold, transferred, or spent on nonpriority items or debts in disregard of an outstanding tax liability, may be included in a taxpayer’s RCP. The record indicates that during the Appeals hearing petitioner failed to show that he used the dissipated assets for necessary living expenses so as to make them excludable from RCP. Nor, despite his assertions to the contrary, has petitioner made any such showing in this proceeding.” 2013 T. C. Memo. 113, at pp. 13-14. (Citations omitted).

So KenTag, pay in full.

In short, Nancy Lou and KenTag, Congress can play favorites when it comes to tax, but taxpayers can’t.

You know the rest. So now does Danial Robert Martin, after the lesson is once again taught by Chief Special Trial Judge Panuthos in Danial Robert Martin and Christina Martin, 2013 T.C.Sum. Op. 31, filed 4/17/13.

Like many a 7463, the plot is simple. Danial divorces Ruth after 29 years, and the decree requires Danial to pay $1K per month spousal support. Three years into the program, Ruth falls ill, loses her job, and asks Danial for more support. Danial stumps up an additional $1300, and wants the alimony deduction.

Of course, they don’t modify the divorce decree, exchange letters or anything else. Only a year later does Ruth come up with a couple of letters telling the story, and Danial has nothing but his good deed to show IRS.

CSTJ Panuthos: “The first requirement is that the payment be received by or on behalf of a spouse under a divorce or separation instrument. Sec. 71(b)(1).” 2013 T. C. Sum. Op. 31, at p. 5.

Now there’s plenty of latitude as to what constitutes a “divorce or separation instrument.” See my blogpost “The Magic Paper Saves the Deduction”, 4/7/11. Here, as there, IRS does not dispute Danial’s deal meets the rest of the Section 71(b) tests: (a) doesn’t say not includible in payee’s income; (b) payor and payee not in same household; and (c) no liability to pay after payee spouse’s death. See 2013 T. C. Sum. Op. 31, at p. 5, footnote 1.

But no writing.

CSTJ Panuthos: “The letters from Ruth that petitioner submitted do not show a meeting of the minds between her and petitioner and therefore do not collectively constitute a written separation agreement.

“Petitioner’s [Danial’s] testimony was credible, and his willingness to provide additional funds to his former spouse is admirable. While the result may seem harsh, we are bound by the provisions of the Internal Revenue Code defining the circumstances in which payments are deductible as alimony under sections 71(b) and 215(a).” 2013 T.C. Sum.Op. 31, at p. 7 (Citation and footnote omitted, but CSTJ Panuthos notes that Ruth didn’t report the payments as income, so Danial should not get the deduction, lest an “asymmetry” result).

An “asymmetry”, by the way, means if someone gets a deduction, someone else gets income.

So Danial and other generous divorcees, get it in writing–from both of you.

Thus Judge Goeke admonishes Barnes Group, Inc. and Subsidiaries, in 2013 T.C. Memo. 109, filed 4/16/13.

Barnes is a publicly-traded Delaware metalsmithy founded in 1857 with worldwide reach. Barnes wanted to acquire new businesses, and had ginormous sums of untaxed cash stashed in Singapore. Barnes’ legal beagles claimed Singapore company law prevented ASA, Barnes’ Singapore subsidiary, from acquiring other companies’ stock. And Barnes’ high command wanted to bring the cash home anyway, tax-free of course.

So Barnes went shopping for a way to make it happen without paying tax. Deloitte and E&Y had nothing that pleased Barnes’ management, but PwC had a database with canned solutions for every problem.

Enter the reinvestment plan, a mix-and-match of loans and stock swaps among Barnes in the US and subsidiaries in Singapore, Canada, France and the UK.

The deal comes unglued over step transaction (interdependence of the steps) and our old friend economic substance.

Though Barnes tries to argue Singapore company law and some Delaware State tax benefit, Judge Goeke rebukes Barnes: “The only specific reference to Singapore law restrictions was in the PwC memo mentioning section 21 of the Singapore Companies Act. Oddly, petitioners do not cite section 21 of the Singapore Companies Act in their brief, nor do they explain the reason this restriction required involving Bermuda in the reinvestment plan. We will not attempt to do petitioners’ research or make their argument for them.” 2013 T.C. Memo. 109, at p. 52 (Citations omitted).

As for Delaware, “Petitioners have not explained what ‘state tax benefit’ they are referring to, and as noted supra, we will not attempt to do their research or make their argument for them. Furthermore, while we recognize that many large corporations create financing subsidiaries for various legitimate nontax business reasons, petitioners’ inability to show that the form of the plan was respected, discussed infra, renders any further consideration of petitioners’ ‘cash management’ argument moot.” 2013 T. C. Memo. 109, at pp. 53-54.

In short, do your homework.

Now for the clean room. Barnes had built some clean rooms wherein one could make green sheets, whatever they are, in one of Barnes’ warehouses. IBM used them for a while, then quitclaimed them to Barnes. Barnes reported gain on the deal, but now wants to claim it got back the clean rooms at the end of a lease, so Section 109 says no gain.

Judge Goeke: “Crucial in our determination is the fact that Barnes not only constructed the clean rooms in its warehouse, but also maintained control of and used those clean rooms for approximately 16 years making green sheets for IBM. In return Barnes was paid by IBM for its services; these payments reimbursed Barnes for all direct and indirect costs as well as a 10% fee. Although IBM had legal ownership of the clean rooms, Barnes was the party using those clean rooms in its own warehouse for its own benefit. The fact that the clean rooms were stored in the warehouse may have provided some indirect benefits to IBM (such as protection from the elements), but the direct benefit was to Barnes, which was able to use the clean rooms to obtain a profit as a result of its deal with IBM. We thus believe that IBM was not using or occupying Barnes’ warehouse and was therefore not a tenant to a lease.” 2013 T.C. Memo. 109, at pp. 58-59.

Judge Goeke notes that Second Circuit law rules here per Golson. After that Court’s gyrations to find a lease in Alphonso v. Com’r, Docket No. 11-2364-ag, dated 2/6/13, it might be worth Barnes’ team to do some homework and take an appeal. Oh yes, and read my blogpost “A New York Cooperative Conundrum – Part Deux”, 2/6/13.

Disclosure– A member of my immediate family works for PwC, but was not involved in this project. I did not very often have to tell her to do her homework or clean up her room.