Once again, litigation settlement costs aren’t deductible, according to The Great Dissenter, a/k/a The Judge Who Writes Like a Human Being, Mark V. Holmes, in James A. Cavanaugh, Jr., 2012 T. C. Memo. 324, filed 11/26/12.

Big Jim was a heavy cleanup hitter, having founded and operated Jani-King International, Inc., a Sub S that was one of the world’s leading janitorial-services franchisors. To take a break from cleaning up, Big Jim, his bodyguard Rock Walker, and a Jani-King employee named Erica Fortner (job title unclear), took a Thanksgiving holiday at Big Jim’s villa on St. Maarten, strictly for fun (as everyone stipulates).

Unfortunately, Big Jim brings along 27-year-old Ms. Colony Anne (Claire) Robinson. Unhappily, their holiday in the sun is marred by the death of Ms. Colony Anne (Claire), whose death is caused by an overdose of cocaine.

Momma Robinson sues all and sundry, claiming Big Jim and his employees provided the drugs that killed her baby.

Fearing that his corporation’s good name and his own would wind up in the trash, with the Texas jurors acting as the janitors,  Big Jim’s Sub S, echoing the words of Paul Simon, says “so here’s to you Mrs. Robinson”, forking over $2.3 million to Momma Robinson, of which Big Jim kicks in $250K, but gets reimbursed by his Sub S. Oh, and Big Jim’s Sub S also claims $180K in legal fees it paid to its own lawyers to get it out of the case.

Judge Holmes cuts to the chase: “From Cavanaugh’s perspective, it is an unfortunate fact of business life that corporations and prominent individuals get sued, sometimes on dubious facts and theories of liability. Settling such suits may be distasteful, but even a small chance of an enormous payout may justify a deal that protects assets from the uncertainty of litigation and protects a business reputation from scandal.

“The Commissioner has a different view–he argues that however jumbled and wrinkly the legal topography created by the collision of Code, regulations, and caselaw may sometimes seem, it cannot possibly hide a crevice dark enough to successfully shelter an argument that the price paid for the death of the boss’s girlfriend is a deductible corporate business expense.” 2012 T. C. Memo. 324, at p. 6.

The issue is origin versus consequences. Did the claim that the parties settled arise out of business operations, that is, out of the use of business premises, business property, business equipment or in furtherance of a business purpose? Or was the origin of the claim a personal, nonbusiness matter?

While damage to reputation is certainly a concern, “(O)ur Court has never held that naming a company as defendant in a lawsuit ipso facto makes legal fees or settlement costs into business expenses.” 2012 T. C. Memo. 324, at p. 10.

And Tax Court doesn’t consider the merits of the claim that was settled; to do so would punish those who settle, and that would be a bad result; judges want settlements. The claim was that Jani-King’s employees, Big Jim, Rock and Erica Fortner plied poor Colony Anne (Claire) with blow, causing her death, and both the employees and the employer (respondeat superior) are liable.

But the analysis doesn’t end there. They may be employees, but were they engaged in business activities? No. “The Commissioner argues that the parties stipulated that the trip to St. Maarten involved no business conduct, and that this fact alone means that he should win. Cavanaugh argues that tort claims against company employees are nearly certain to arise in business today, and that this makes them proximately related to undertaking business operations. But Cavanaugh cites no authority to support such a broad assertion.” 2012 T. C. Memo. 324, at p. 15.

What cases there are that would sustain Big Jim’s deduction all involve use of business property or business activity, for profit; and going to St. Maarten was none of the above.

Big Jim might argue that Rock was acting for the Sub S in the course of the St. Maarten’s trip, but the evidence is too scanty to say what Rock was doing.

To sum up, here’s part of a Judge Holmes footnote that says it all: “If the Jani-King employees had been attending a conference in St. Maarten or if they had given Robinson the drugs that killed her back in Dallas, at Jani King’s offices, and during business hours, our analysis might be different.” 2012 T. C. Memo. 324, at p. 18, footnote 7, last sentence.

And while his Sub S by-laws provided for indemnification and reimbursement of an officer of Jani-King, when made party to litigation, those benefits are limited to litigation in the indemnitee’s capacity as officer or director, acting in good faith and in the best interests of Jani-King, and Jani-King’s Board and counsel must so find. No evidence of this, so no deduction for the reimbursement to Big Jim of the $250K. And if the $250K is treated as a voluntary payment by the Sub S, it still needs a business purpose, and we don’t have that here.

Finally, IRS wants to claim the $250K is a constructive dividend to Big Jim. But that involves us in all the Sub S E&P, AAA and basis computations. “For an S corporation that does have accumulated earnings and profits, a shareholder distribution is more complicated. The amount of a distribution that exceeds the corporation’s accumulated adjustment account (AAA) is a dividend– but only to the extent it does not exceed the S corporation’s accumulated E&P. See sec. 1368(c)(2). The portion of the distribution that doesn’t exceed the AAA is taxable only to the extent it is greater than the shareholder’s basis in his stock. See sec. 1368(c)(1).

“When Jani-King reimbursed Cavanaugh $250,000 in 2005 its reported AAA was nearly $6.4 million. But the Commissioner introduced no evidence of Jani-King’s accumulated E&P or Cavanaugh’s basis in his Jani-King stock, which leaves us with no grounds to decide if the distribution is a constructive dividend.” 2012 T. C. Memo. 324, at p. 27.

See my blogpost “Well-Settled – No Deduction”, 11/7/2012.

That’s Judge Paris’ message for the many-named Carletta Ragan A.K.A. Carlotta Ragan A.K.A Karen Ragan, Docket No. 14909-11L, filed 11/26/12.

IRS says  “that petitioner self-reported a tax liability on her 2007 amended income tax return, that petitioner does not owe tax because her net earnings did not exceed $400, and that respondent has fully abated petitioner’s 2007 income tax liability and, therefore, the Notice of Determination Concerning Collection Action(s) Under Section 6320 and/or 6330, dated May 19, 2011, for petitioner’s tax year 2007 is moot.” Order, p. 1.

So dismiss the petition, says IRS, nothing going on here.

Carletta, a/k/a Carlotta, a/k/a Karen, says no (just once, not three times). She “claims that respondent’s abatement of her self-reported tax liability has an effect on her Social Security earnings as a sole proprietor of a small business…. Petitioner’s remaining arguments are based on the original income tax return she filed with the Internal Revenue Service and are irrelevant because the liability underlying the Notice of Determination stems from petitioner’s amended income tax return.” Order, p. 1.

Caselaw provides that if the liability underlying the NOD is satisfied (whether by payment, discharge, SOL or whatever), there is no longer any case or controversy for Tax Court to determine.

So petition dismissed, and Carletta, a/k/a Carlotta, a/k/a Karen, can deal with Social Security Administration.

Or, The Ballad of Feckless Freddie

Tax Court is off to the turkeys today (11/21/12), so no opinions filed, but Judge Holmes, The Great Dissenter, a/k/a The Judge Who Writes Like a Human Being, has a Designated Order, delivering a harsh chastisement for an attorney who evinces too casual an attitude toward Standing Pretrial Orders, timely motions, and showing up for calendar calls.

Once again I point to Rule 200(a)(2), the mail-order admission for attorneys. I’ve posted about this before, so I won’t cite to those posts yet again. If Tax Court is prepared to let in any attorney, without inquiring into his or her knowledge of Tax Court practice and procedure, or the Code and Regs, then Judge Holmes should not be surprised by Freddie and others of that ilk.

You’ll find the Designated Order at Docket No. 20997-11, Brad Walters. There are two other cases, but they get consolidated. The attorney (hereinafter “Freddie”) has behaved in this casual fashion before now, and Judge Holmes is out of patience.

Freddie misses the calendar call, but shows up at recall.

Here’s just an abstract of Freddie’s derelictions: “He appeared and asked for a continuance, despite Tax Court Rule 133 which tells those who appear before us that motions for a continuance filed 30 days or less before calendar call will ordinarily be deemed dilatory, and that continuances in general are granted only in exceptional circumstances.

“These cases are exceptionally unexceptional. All three appear to involve only questions of substantiation. We must say ‘appear ’, because petitioners’ counsel didn’t even follow our rules and attach complete copies of the notices of deficiency to the petitions he prepared. He and his clients also failed to answer respondent’s requests for a Branerton conference to engage in informal discovery. He didn’t file pretrial memoranda in any of these cases, despite our standing pretrial order requiring him to do so. He didn’t even have his clients appear at calendar call.” Order, p. 1.

Judge Holmes tells Freddie that whatever he turned over to IRS (late) is all he can introduce on the trial, and that he’d better settle. Moreover, “He is advised to reform the way he prepares for trial in our Court.” Order, p. 1.

Maybe a test would have kept Freddie out, and spared Judge Holmes.

As the song says, “Call me, don’t be afraid, you can call me”, and that’s the message Jean Bridgmon has for the IRS Appeals Office, who claims they did call, but Judge Morrison finds they didn’t, in 2012 T. C. Memo. 322, filed 11/20/12.

Jean was fighting a levy (she never filed returns for the two years at issue, and never petitioned to contest the SNODs she got), and IRS’ curious computations of her liabilities. “It is not obvious how some of the amounts of the additions to tax reflected in the assessments and notices relate to each other or how they were computed. Our description does not attempt to resolve these questions.” 2012 T. C. Memo. 322, at p. 2. See also 2012 T. C. Memo. 322, at p. 7, where a column of figures from IRS, supposedly showing Jean’s liabilities, don’t add up.

And a number of IRS notices to Jean don’t get into the record either. As Jean is pro se, it’s not surprising she doesn’t know how to build a record, but IRS trial counsel should.

Anyway, Jean’s Error Number One, the issue of computations, is off the table, as Jean never petitioned for review of  the SNODs.

“The second error Bridgmon alleges is that the Appeals Office failed to consider her proposal to make installment payments of her tax liabilities. The reasons the Appeals Office did not consider the proposal are that Bridgmon allegedly failed to telephone the Appeals Office at the time and date scheduled for her hearing with the Appeals Office and that she did not submit financial information that the Appeals Office had requested. We find that Bridgmon did call the Appeals Office at the scheduled date and time. We further find that the Appeals Office did not telephone Bridgmon at the scheduled date and time. The scheduled telephone conference was to be Bridgmon’s primary opportunity to discuss her installment agreement proposal with the Appeals Office. Under these circumstances, we hold that the Appeals Office erred in failing to make better efforts to contact Bridgmon (such as telephoning her) even though Bridgmon did not submit the requested financial information. Bridgmon should be afforded another opportunity for a hearing with the Appeals Office.” 2012 T. C. Memo. 322, at pp. 2-3.

I won’t go into the whole chronology that Judge Morrison lays out. Jean is a credible witness, says she called the AO and waited on hold as long as two hours with no response (2012 T. C. Memo. 322, at p. 10; Nina Olson and Taxpayer Advocate Service please copy). All IRS’ evidence shows that someone tried to call Jean at some point, but the calls seemed to come from Automated Collection, not Appeals. 2012 T. C. Memo. 322, at p. 17.

So Jean gets sent to Appeals again; hopefully someone will pick up the phone this time and call her.

But If It’s Not a Return, It Doesn’t Count

There is much in the saga of Karl Gregg Weatherly and Jinny H.S. Weatherly, 2012 T. C. Memo. 320, filed 11/19/12, and Judge Morrison deals with it all, but I’ll confine my comment to the single point: if a filed document isn’t a return, it can’t be a frivolous return.

Instead of the usual Form 1040 with schedules for Karl’s photography endeavors, Karl filed a document styled “Notice of Affidavit Statement in Rebuttal to Internal Revenue Code Section 6011 For Year Period Ending December 31, 2003” (“Notice of Affidavit”), 2012 T. C. Memo. 320, at p. 2, footnote 2. Eventually Karl filed a Form 1040 for the year at issue. IRS issued a SNOD that appears untimely, but Karl never raises SOL, and so Judge Morrison deems it waived. Practice tip–unless patently erroneous, raise SOL every time.

“The Notice of Affidavit could qualify as a valid tax return, thereby relieving Karl Weatherly of liability for the addition to tax, only if it meets all four requirements of the test set forth in Beard v. Commissioner, 82 T.C. 766, 777 (1984), aff’d, 793 F.2d 139 (6th Cir. 1986). See Oman v. Commissioner, T.C. Memo. 2010-276, slip op. at 16-24 (explaining why the Beard test determines whether a return was filed for the purpose of the addition to tax under section 6651(a)(1) in cases appealable to the Court of Appeals for the Ninth Circuit). The four requirements are that the document must (1) contain sufficient data to calculate the correct liability; (2) purport to be a return; (3) be an honest and reasonable attempt to follow the tax laws, and (4) be executed under penalty of perjury. Beard v. Commissioner, 82 T.C. at 777. The Notice of Affidavit is a 40-page list of spurious pseudolegal arguments. It does not contain sufficient data to calculate Karl Weatherly’s correct tax liability for 2003. It does not purport to be a return. And it is not an honest and reasonable attempt to follow the tax laws. Therefore, the Notice of Affidavit fails the first, second, and third Beard requirements. It is not a valid return.” 2012 T. C. Memo. 320, at pp. 17-18. (Footnote omitted, but read it. Karl tries to save the day by claiming his screed is a “notice”, but that doesn’t fly.)

See Section 6702(a)(1). That section imposes a penalty for filing a frivolous return. Karl’s return wasn’t a return. Because he eventually filed a proper return (late), he gets the late-filing and late-paying additions to tax.

But Karl escapes the Section 6673 frivolous proceedings penalty, as he makes a last-gasp repentance. “The Weatherlys’ arguments that they are entitled to deductions for legal expenses (for 2003 and 2004), a theft-loss deduction (for 2003), and a net operating-loss-carryforward deduction (for 2004) were advanced by Karl Weatherly’s testimony. We did not reach the question whether his testimony was sufficient to secure the deductions because the Weatherlys abandoned their claims on brief. Nonetheless, their initial claims were not frivolous. We do not want to discourage taxpayers from litigating colorable claims. Moreover, we note that while the arguments Karl Weatherly made in his Notice of Affidavit were frivolous, the Weatherlys did not pursue any of those arguments in their briefs or testimony to this Court. Thus, we decline to impose a penalty.

“However, we emphasize to the Weatherlys that they should expect to be penalized if they make frivolous and groundless arguments in the future.” 2012 T. C. Memo. 320, at pp. 21-22.

So beware, Weatherlys. You engage in frivolity at your peril.

I’d been running a little contest for the best excuse for not filing a tax return (see my blogpost “Whose Line Is It, Anyway?”, 2/8/12), which I expanded to cover best excuse for not providing documents and records (see my blogpost “A Good Excuse”, 9/28/12). But today’s entry falls far short, and Judge Goeke gives the excuse short shrift in Fred Deutsch, 2012 T. C. Memo. 319, filed 11/15/12.

The cast of characters and mise-en-scene brought back memories. Petitioner Fred was a wheeler-dealer thirty years ago, but in this case he was collateral damage in the great savings & loan meltdown in the early 1990s, when the Resolution Trust Company was engineering Real Estate and Bank Bailout No. 1 (the first of many). He claimed to be what we used to call a “hard-money lender”, one who lent quickly and without the paperwork a bank or institution would require. One of the loans he made was to an architect I knew and worked with years ago (around 1990). He claimed the loans he made tanked, with huge losses, and he took a big hit on loans he personally guaranteed for his own deals.

Fred was represented by a colleague I respect, who drew a miserable fact pattern in this case.

Fred’s problem was he claimed NOLs from these defaulted loans and personal guarantees, but didn’t have documents. Fred claimed that long ago an IRS Special Agent went through his records, took them, and never gave them back, but the Special Agent did help the US Attorney give Fred a felony information, to which Fred pled guilty, specifically to signing a false return (see Section 7206(1)).

At Fred’s current trial, the Special Agent testified he gave them back ten years ago, either to Fred’s trial counsel or tax accountant, neither of whom testified.

Fred tried to shift the burden of proof to IRS because of the unreturned documents. “Petitioner submits that he has satisfied all requirements to shift the burden of proof as to the propriety of his claimed NOL deduction to respondent. In particular, petitioner refers the Court to respondent’s revenue agent report, prepared by Revenue Agent C at the conclusion of his examination of petitioner’s 1997 NOL claim, to demonstrate that credible transactional records were maintained and that he is entitled to an NOL deduction as a matter of law. Alternatively, he avers that, but for respondent’s alleged failure to return business records that were submitted for purposes of respondent’s criminal investigation into petitioner’s taxable year 1997, he would have been able to fully substantiate his NOL with supporting primary documentation. Petitioner, in essence, asserts that respondent’s supposed error should not be used against him in this case.” 2012 T. C. Memo. 319, at p. 10 (Name omitted; footnote omitted, but read it; as Judge Goeke is interested in the scope of Tax Court’s discretion to shift the burden. This isn’t the case, however.)

Nice try by my colleague, but hard-hearted Judge Goeke isn’t buying. “Logically, for petitioner to even proceed with this novel argument it was incumbent upon him to, at minimum, establish the chain of custody of the supposed evidence to demonstrate that the pertinent documents were never returned. At trial petitioner merely testified that he sent the documents to his criminal attorneys, who thereafter delivered the documents to respondent. Petitioner did not call Mr. Criminal Attorney or Mr. Tax Accountant at trial to verify this assertion. Special Agent C, however, testified that he returned petitioner’s documents to petitioner’s attorneys several months after the conclusion of the criminal case in 2002 or 2003. While Special Agent C was unable to specify whether he gave the documents to Mr. Criminal Attorney or Mr. Tax Accountant, he convincingly recalled that he personally returned those documents to one of their offices. This was the only credible testimony offered at trial concerning the present location of the documents.” 2012 T. C. Memo. 319, at pp. 12-13. (Names omitted.)

Even worse, “(P)etitioner never filed a motion to compel respondent to produce the records he allegedly possessed nor made any effort to inform the Court that all reasonable attempts to locate the relevant documents were exhausted. Instead, petitioner demonstrated that he was content to proceed in this case with an indeterminate record; however, we find this clearly insufficient to shift the burden of proof.” 2012 T. C. Memo. 319, at p.14.

Compare and contrast with Andrew M. Ross, the star of my blogpost “A Good Excuse”, supra as the high-priced lawyers say. Of course, Andy drew STJ Armen, The Judge With a Heart, who buys Andy’s tale (backed up with copies of a search warrant and an FBI inventory) that his documents were grabbed by the Federales, and that Andy’s attorney strove mightily to get the documents back, to no avail.

But here Fred was content to rely on his own testimony alone, a broken reed. And absent papers, Fred’s case goes south, just like his loans, guarantees and NOLs.

See my blogpost “Passive Aggressive”, 8/8/12, for the story of Joe Veriha.

And now Part Deux, the story of Francis J. Dirico and Jennifer Dirico, 139 T. C. 16, filed 11/13/12, and Frank’s self-rented land and radiophone towers.

Frank was a tinkerer with radios, and in the early cellphone days he ran what was called SMR, “…a pre-cellular-telephone-technology, push-to-talk radio system with some telephone capabilities.  Before the cellular telephone industry matured, SMR was an attractive technology, offering party-line or intercom-like services to such users as security companies, plumbers, electricians, construction companies, and tow-truck and rubbish companies.” 139 T. C. 16, at p. 5. SMR was a good business until cellphones took over, and Frank had to give up some frequencies to the cellphone providers.

Frank had a wholly-owned Sub S, that leased land and communications towers that Frank owned and built, to various SMR and cellphone operators. Frank had some losses and some profits from leases of towers, and some losses from leases of raw land with no towers.

Frank’s Sub S ICE, “is liable for repairs except those ‘required because of the fault or negligence of * * * [the licensee] or its designated maintenance company’, in which event the ‘licensee’ becomes responsible for the repairs.  ICE, as lessor or ‘licensor’, generally maintained each tower, made sure that it was painted and that the lights were working, picked up papers and other debris, plowed snow, etc.” 139 T. C. 16, at p. 8.

At first Frank worked a six-day week on the tower business, but subsequently slacked off. He reported the rents he got from his Sub S as passive, but the Sub S reported all its income as “ordinary business income”. IRS, using Section 469, recharacterized all Frank’s profitable rental activity as non-passive, but left his losses as passive.

It’s the old story: income from rental of tangible personal property is passive, regardless of material participation, and that applies to income from a Sub S passed through to the taxpayer. But the self-rental rule, Reg. 1.469-2(f)(6), would make the income active if the operation of the towers by the Sub S was a “trade or business.”

Judge Halpern finds the tower operations were not a trade or business. “…the fundamental fact that ICE’s leasing of towers and land to unrelated third parties was a rental activity within the meaning of section 469(j)(8) and section 1.469-1T(e)(3)(i), Temporary Income Tax Regs., supra. The few services that ICE provided in connection with its rentals (e.g., painting the towers, making sure the lights worked, plowing the snow around the towers) were equivalent to the services routinely provided by any lessor or landlord in order to make premises habitable by a lessee.  They were no more than supportive of ICE’s rental activities and did not turn those activities into trade or business activities as defined in section 1.469-4(b)(1), Income Tax Regs.  More importantly, ICE’s performance of those services did not bring its tower leasing activities within any of the exceptions to the definition of a rental activity that are described in section 1.469-1T(e)(3)(ii)(A)-(F), Temporary Income Tax Regs., supra.” 139 T. C. 16, at pp. 22-23.

So since all of Frank’s income from the tower leases is passive, he can offset his losses against his gains, as he was in no trade or business, either individually or through his Sub S.

As for the land-only leases, IRS claims that the 30% test of Reg. 1.469-2T(f)(3), that rental of property less than 30% of whose unadjusted basis is subject to depreciation per IRC 167 cannot be passive, knocks Frank out on the land leases, as land cannot be depreciated.

Frank says IRS raised this on brief, and therefore is untimely. He thought that since all his properties were grouped, more than 30% of the whole unadjusted basis of all his properties was subject to depreciation, so he put in no evidence on the land-only leases.

Judge Halpern: “…petitioners may have been surprised by respondent’s argument, but they were not prejudiced.  The issue respondent raises (application of the 30% test to the land-only rentals) presents an issue of law.  The fact that there were three land-only rentals in each of the years in issue is not in dispute.  Therefore, we fail to see what additional evidence petitioners were prevented from introducing in refutation of respondent’s argument (i.e., it is beyond dispute that 100% of each of those rentals consisted of nondepreciable land).  Moreover, any surprise to petitioners was mitigated by their ability to address the merits of respondent’s argument in their reply brief, which, in fact, they did.” 139 T. C. 16, at pp. 34-35.

So it’s a question of law, and both sides got an opportunity to argue the law.

And the law is you can’t mix-and-match rentals of land with personal property and rentals of land only. So IRS wins that one.

But what was the personal property Frank was renting? Was it the cellphone tower? If so, why did Frank’s lawyers not introduce evidence, if such is the case, that the towers were so affixed to the realty that they could not be removed without damaging the realty? If, as I suspect, at common law the towers would be fixtures (and therefore real property), why not group all the real property leases as one passive activity?

But Wait For the Trial

That’s Judge Halpern’s message for Teflon Jr., John A. Gotti, in JAG Brokerage, Inc., 2012 T. C. Memo. 315, filed 11/13/12.

The only issue the corporate petitioner (miscaptioned as JAG Brokerage, Inc., but probably really J. A. G. Brokerage Corp., 2012 T. C. Memo. 315, at p. 11, footnote 2) raises in its petition after losing the CDP is the amount of its tax liabilities, which the AO threw out, claiming petitioner got a SNOD and didn’t petition in the 90 days. IRS claims they mailed JAG a SNOD to its last known address more than 90 days pre-petition, and wants summary judgment dismissing the petition.

IRS also mailed notices to Mrs. Teflon Jr. (Kim) and to John hisself, but John claims he was in jail, and in solitary to boot, so had limited means of communication. IRS says they knew John was in the Metropolitan Detention Center, Brooklyn, New York, but didn’t know he was in solitary.

Besides, “… a copy of a Postal Service Form 3877 attached to the declaration evidences the mailing to petitioner at what we presume to be its last known address of a deficiency notice for the years in issue, and a copy of a Postal Service Track & Confirm statement confirms its subsequent delivery to that address.  The Postal Service Form 3877 also evidences the mailing to the Gottis of six ‘notices of claim disallowance’ (not ‘notices of deficiency’) for 2004 and 2005, but not 2006, with two of them, for 2004 and 2005, addressed to Mr. Gotti at the detention center and the rest addressed to one or the other of the Gottis at the presumed last known address.  There is no evidence that any of the notices of claim disallowance were delivered.”

IRS trots out the old “mailbox rule” that, absent direct evidence of receipt, proof of mailing presumes official regularity and delivery. That’s fine for individuals, but here we have a corporate petitioner, so we have to ask whether an individual employed by, or acting for, the corporation, received the SNOD. Judge Halpern canvasses the legislative history, and Congress seems to want someone to receive the SNOD to trigger the 90-day time limit to file, but doesn’t say who or how if the SNOD is directed to a corporation.

Judge Halpern: “Both our own analysis and respondent’s position with respect to the adequacy of receipt of the deficiency notice by Mr. Gotti suggest that there is an unresolved question of law as to whether a corporate taxpayer has actually received a deficiency notice for purposes of section 6330(c)(2)(B) if it can show that the notice was not timely received by an individual authorized to act for the corporation.  And while the inference of receipt to be drawn from the mailbox rule may, if unrebutted, be sufficient to carry respondent’s burden of showing receipt by petitioner of the deficiency notice, we do have the fact, admitted by respondent, that Mr. Gotti was incarcerated when the notice was mailed.  He is an officer of petitioner, and we assume that he could have acted for petitioner.  Petitioner did not respond to the motion and has not established that (1) Mr. Gotti lacked timely knowledge of the notice (and was, therefore, precluded from acting on it) and (2) there was no one else knowledgeable of the notice and able to act on it. While for those reasons we might conclude that petitioner has failed to rebut the inference to be drawn from the mailbox rule (and, thus, has failed to show a dispute as to a material issue of fact), given the uncertainty as to the relevance of receipt by someone authorized to act for the corporation, we are hesitant to, and will not, grant the motion.  If the case proceeds to trial, the parties can assist us in resolving the uncertainties.” 2012 T. C. Memo. 315, at pp. 11-12 (Footnote omitted).

The omitted footnote says Kim Gotti signed the petition, but doesn’t indicate whether she is an owner, officer or employee of JAG. 2012 T. C. Memo. 315, at p. 11, footnote 2.

So John, you can assist Judge Halpern in resolving the uncertainties.

I finally got around to sending in my comments to the proposed Section 230 regulations on http://www.regulations.gov (see my blogpost “The Rule of Reason – Circular 230 Revisited”, 9/15/12). Comments are due no later than this Friday, 11/16/12, so send them in, guys.

At all events, here are mine:

As to 31 CFR §10.35: I agree that the “cigarette pack” warnings of 10.35(e)(3) and 10.35(e)(4) should be eliminated. These warnings were grafted onto everyone’s e-mail stationery, so that they appear even in a social message to a colleague or client.

However, the required disclosure for a marketed opinion should be retained. The entire deletion of 10.35 in its current form is too extreme. I have written hundreds of marketed opinions; our State’s securities laws treat sales of cooperative and condominium apartments to the public as securities, and the relevant regulations require offering statements to contain a counsel’s tax opinion on deductibility of real estate taxes and mortgage interest by apartment owners.

While it is extremely unlikely that the primary aim of such transactions is evasion or avoidance of tax, the public is entitled to the warnings currently provided for in 10.35(e)(1) and 10.35(e)(2). The language of the current regulation furnishes an excellent template, and should be retained as a guide for practitioners.

The marketed opinion, unlike most opinions, is directed at taxpayers other than the practitioner’s client. Those taxpayers need the warnings of the current regulation. And practitioners need the guidance the current regulations afford to draft the appropriate warnings.

As to 31 CFR §10.82: There is an extreme disconnect between immediate disciplinary action against a practitioner who, in the first instance, fails to file returns required to be filed annually for four of the five preceding years, and in the second instance, one who fails to file returns required more often than annually for five out of seven periods when such returns are required to be filed.

In the first instance, at least four years must elapse before immediate disciplinary action may be commenced. In the second, fewer than two years need elapse in the case of returns required to be filed quarterly, such as Form 941.

Of course, the rule must be different if the returns involved require remittances of trust funds, such as FICA or FUTA withholdings.

But if a practitioner believes an employee to be an independent contractor, and fails to file Forms 941 for 28 months (but files Forms 1099-MISC and provides the later-determined employee with a copy annually), that practitioner is liable to immediate disciplinary action.

The practitioner’s competitor across the street who fails to file Form 1040 for three years is not so liable.

Imposing the proposed penalty in the first instance is Draconian, excessive and unwarranted.

I suggest that non-filing of returns required more often than annually serve as a basis for immediate disciplinary action (a) only if trust funds actually withheld from employees and others and required to be remitted with such returns are not remitted for five out of the previous seven filing periods, and (b) in all other cases, if non-filing persists for ten out of the previous twelve periods.

Such a provision places practitioners on an equal footing, and does not impose a penalty greater than the offense deserves.

Treasury has held out the hand of fellowship to even more countries, in its never-ending effort to pursue defaulting taxpayers and assist other nations to do likewise, and is pleased to report the results in a press release  dated 11/8/12.

The UK is already on board (see my blogpost “You Wash My Back – Part Deux”, 7/27/12). Next up by year-end are France, Germany, Italy, Spain, Japan, Switzerland, Canada, Denmark, Finland, Guernsey, Ireland, Isle of Man, Jersey, Mexico, the Netherlands, and Norway, so Treasury hopes.

Meantime, in what the Wall Street gang calls a forward-looking statement, Treasury is actively engaged in dialogue towards concluding an intergovernmental agreement with Argentina, Australia, Belgium, the Cayman Islands, Cyprus, Estonia, Hungary, Israel, Korea, Liechtenstein, Malaysia, Malta, New Zealand, the Slovak Republic, Singapore, and Sweden.

And Treasury is heading for a meeting hosted by the Qatar Central Bank in early December to provide information about FATCA and the intergovernmental agreements to invited senior government officials and financial institutions in the Gulf Cooperation Council.

Of course, Treasury would be pleased to talk to any interested jurisdictions that wish to consider an intergovernmental approach to implementing FATCA.

Soon, nowhere will be safe. Tax dodgers, pack up the boodle in your old kitbag and flee, flee, flee.