Judge Nega only has to take a stroll through MD State law to find that the two (count ’em, two) life insurance policies taken out by the irrevocable trust in Estate of Larry Becker, Deceased, Gary C. Becker, Executor, T. C. Memo. 2024-89, filed 9/24/24, are true insurance policies, as to which the late Larry retained none of the benefits prohibited by Reg. Section § 20.2042-1(c)(2).

Judge Nega finds the drafting of the late Larry’s trusty estate planning attorney is bulletproof.

While the initial beneficiaries of the policies, via the trust, were the late Larry’s nearest and dearest, hence holders of an insurable interest, there followed an extensive series of give-and-goes with various LLCs controlled by the late Larry’s insurance broker, with promissory notes exchanged and paid among an apparent colleague of the late Larry, trusty insurance broker, and an unrelated funding operation, which was going to pay all premiums in exchange for 75% of the death benefit.

IRS claims step transaction; the real beneficiary was the unrelated funder, hence the policy was void (funder had no insurable interest), and the estate has a claim for whatever proceeds the funder got, and that money should be part of taxable estate per Section 2031 or 2042(2).

Judge Nega goes through the three (count ’em, three) step transaction tests. “Binding commitment” fails, because that applies when there’s a long time between steps and the parties have bound themselves to complete them, which isn’t the case here; the loans are one-and-done. “End result” also requires commitment, but that is subjective, and the facts here don’t square; note that IRS, changing theories between SNOD and answer, thus requiring different proof, gets BoP. “Interdependence” fails, as the policies were funded before the funder came on the scene, and the late Larry, still alive, had assets, and among the possibilities for take-out financing, he chose the most advantageous.

Of course, when the late Larry became the late Larry, there was a lawsuit between estate, the funder, trusty estate planning attorney, and trusty insurance broker. Job wouldn’t be surprised. https://biblehub.com/kjv/job/5-12.htm

IRS loses. MD law says that once there is an insurable interest in beneficiaries at inception, the policy can be assigned to anyone.

“However, as there has been no violation of Maryland’s insurable interest doctrine, there can be no chose in action under Md. Code Ann., Ins. § 12-201(d). Consequently, it matters not whether a potential claim under that section should be treated as an ‘incident of ownership’ under section 2042(2) or as ‘property’ under section 2033, such that its value must be included in the value of decedent’s gross estate under section 2031, as no such claim exists. Likewise, without an increase in the gross estate, there can be no offsetting deduction to the taxable estate under section 2053 for the amounts paid to LT Funding pursuant to the settlement agreement as a claim against the estate. See §2053(a)(3).” T.  C. Memo. 2024-89, at p. 20. (Footnotes omitted).

One of their trusty attorneys bills himself as a food and wine connoisseur, so clearly he’s my kind of lawyer. And I’ll give him a Taishoff “Good Try, Second Class,” free of charge for his move in Peak Potentials Training International, Docket No. 23373-18, filed 9/24/24.

Judge Ronald L. (“Ingenuity”) Buch taxes his ingenuity to the full as he finds there is a material question of fact sufficient to defeat IRS’ motion for summary J.

I’ve blogged the Peak’s backstory. See my blogpost “Play Nice and Go International,” 5/16/22 (see below).

“The petitioner has filed multiple documents containing contradictory accounts of the material facts in the case. Summary judgment is only appropriate where there is no genuine dispute as to any material facts and the moving party is entitled to judgment as a matter of law. Because of petitioner’s contradictory account of the material facts of this case, a genuine dispute of material fact remains, and we may not grant summary judgment.” Order, at p. 1.

Remember, inferences are drawn in favor of the non-movant.

Judge Buch judge-‘splains.

“The petitioner’s very own account of the facts contradict themselves. It is unclear to the Court what the relationship is between the petitioner, PPTI, and their customers. Because genuine disputes of material fact remain, we will deny the Commissioner’s Motion.

“Given that the parties have not stipulated to the facts in this case, and that the petitioner has not reached a consensus with itself as to the facts of the case, genuine disputes of material fact remain.” Order, at p. 5.

Perhaps the Peaks can hold a conference with themselves in an undisclosed location and divine what the facts are.

https://taishofflaw.com/2022/05/16/play-nice-and-go-international/

The IRS has a slam dunk in Mark Feathers and Natalie E. Feathers, T. C. Memo. 2024-88, filed 9/23/24. While the financial wheeling-dealing is head-spinning, the bottom line is that the small business lending businesses Mark was running combined unregistered securities with a Ponzi scheme. Mark took a 33-month fall in USDCNDCA (see below).

IRS got into the act with the usual bank deposits and specific-item analyses, which you can read for yourselves. And if you want to learn how to buy an SBA small business lending license, Judge Mark V. (“Vittorio Emanuele”) Holmes will tell you, T.C. Memo. 2024-88, at pp. 5-6.

The only reason I found this case noteworthy is that, despite the amount of money involved, on which IRS virtually entirely prevails, there still has to be a Rule 155 beancount.

“The [Year One] bank-deposits analysis concluded that [Mark’s Sub S] had $1,654,110 in gross receipts, and $82,310 in rental income not includible on Form 8825, Rental Real Estate Income and Expenses of a Partnership or an S Corporation. Adding these two numbers together leaves us with $1,736,420, which is $38,578 less than in the notice of deficiency, requiring a decision under Rule 155.

“Other than that we don’t see any problems with the Commissioner’s numbers for [Year One], and there is no doubt that he has traced that income from the Funds to [Mark’s Sub S] and on to Mr. Feathers.” T. C. Memo. 2024-88, at pp. 12-13.

Despite wading through a plethora numbers (hi, Judge Holmes), and showing how carefully he can add, he won’t add.

https://www.sec.gov/enforcement-litigation/litigation-releases/lr-24128

She played the slots, not cards, but Yelena Tolstov, T. C. Sum. Op. 2024-19, filed 9/23/24, is another story of gambling losses. STJ Peter (“HB”) Panuthos has this one, and it’s another sad tale of compulsion.

Yelena was an immigrant success story, until personal and business problems overwhelmed her. “Petitioner’s personal and business difficulties, compounded by the isolating circumstances of the pandemic, caused her to begin to gamble compulsively.” T. C. Sum. Op. 2024-19, at p. 2.

Yelena’s slotting led to massive losses, but her record keeping was confined to a casino statement showing a “coin-in” (money she placed on the plastic card she used in the casino’s slot machines) and ATM withdrawals. But better documentation eluded her efforts.

“We have previously considered evidence such as casino ATM receipts, bank statements, the taxpayer’s lifestyle, and the taxpayer’s overall financial position.” T. C. Sum. Op. 19, at pp. 4-5. (Citations omitted). Gambling losses can be approximated Cohan-style where the gambler has little income, no great accessions to wealth during the period at issue, and few assets, all of which fits Yelena’s case. And we all know that slot habitués have to lose.

But STJ Panuthos does even better than a Cohan inexactitude.

“The Court is satisfied on this record that petitioner undoubtedly incurred a loss at least equal to her winnings. The Court is also satisfied that petitioner was frustrated in good faith attempts to obtain substantiation from third parties. Petitioner is entitled to deduct $61,929 of gambling losses for the year in issue.” T. C. Sum. Op. 2024-19, at p. 5.

But her efforts and good faith can’t save Yelena from the Section 6662(a) accuracy chop.

David J. Tarantino, Docket No. 13025-19L, filed 9/20/24, asserts that “that petitioner’s financial disability also established reasonable cause for relief from certain “penalties”—i.e., additions to tax—that had been assessed against him. The letter therefore requested abatement of the additions to tax.” Order, at p. 2. It’s a Section 6511(h)(2) defense to the NITL; see my blogpost “The Song the Old Cow Died On – Part Deux,” 8/6/18* for more about this provision.

No one has produced NODs for three of the years David is fighting, so Judge Gale tosses that part of the petition for want of jurisdiction.

As for the rest, Appeals didn’t cover itself with glory.  David wants to challenge all the years on the ground he never received the SNODs for those years. And the SO didn’t properly address any.

“…we reject respondent’s implicit suggestion that petitioner’s alleged failure at the hearing to identify any irregularity in the assessment procedure amounts to a waiver of any challenge to the existence, mailing, or receipt of the notices of deficiency on which respondent relies. Petitioner’s efforts to challenge the underlying liabilities at the hearing, as well as the SO’s treatment of the underlying liability issues for years other than [out years] in the notice of determination, implicitly rest on the premise that petitioner did not receive notices of deficiency that would have precluded his challenges under section 6330(c)(2)(B). The SO’s failure to address the consequences of the notices of deficiency on which respondent now relies suggests that she either failed to recognize their existence or significance, or that she concluded for some reason that they did not have preclusive effect. We are thus left to question whether the SO properly verified that the underlying liabilities were lawfully assessed following the issuance of the notices of deficiency, and even if she did, whether her conclusions are adequately explained in the notice of determination. Order, at pp. 7-8.

IRS previously hit David with an NFTL years before to collect some of those taxes, but they were paid. It is unclear to Judge Gale whether IRS is seeking to collect the same liabilities or enhancements thereof, which latter attempt would trigger a new CDP.

In any event, no summary J.

So remand, for Appeals to resolve “(1) whether a notice of deficiency was properly issued to petitioner for any of the years at issue, (2) the validity of any assessment made for any of the years at issue on the basis of a notice of deficiency, (3) to what extent, and on what grounds, petitioner is precluded from challenging his underlying liability for each of the years at issue, and (4) for each taxable year for which Appeals concludes that petitioner is entitled to challenge any portion of the underlying liability, whether and on what grounds any amount assessed against petitioner should be abated.” Order, at p. 11.

A Taishoff “Good Job” to David’s trusty attorney, whom I’ll call Woody.

https://taishofflaw.com/2016/08/06/the-song-the-old-cow-died-on-part-deux-2/

Judge Cary Douglas (“CDP”) Pugh notes that she has been acting as referee in the ongoing discovery jousts in Conrad Industries, Inc. and Subsidiaries, Docket No. 8359-23, filed 9/20/24. The foregoing order is a split decision, but that’s not why I’m blogging it.

Rather, this order is a springboard for a Taishoff suggestion to US Tax Court. Some of my past suggestions have emerged after years of hibernation in some ” dark unfathom’d caves” beneath The Glasshouse on Second Street, NW; whether direct from me or from some august assemblage or personage who think as I do doesn’t matter.

What matters is that the results “secure the just, speedy, and inexpensive determination of every action and proceeding.”

I propose that either a Special Trial Judge or designated law clerk be assigned the task of sorting out all discovery disputes. I submit it is wasteful for highly qualified Tax Court Judges to spend valuable time and scarce resources on whether a response to a document discovery demand or interrogatory satisfies the demander’s most cherished result.

It should be unnecessary to point out that our State Courts deal with such matters by designating judges’ law secretaries, law clerks (either post-graduate fellows or permanent cadre), special referees or magistrates, as do the Article III Courts (except in special circumstances where resolution of the dispute will provide rules of general application). Of course, the trial judge (if appointed) or another judge should review the outcome of the designee’s lucubration.

But the “win your case at discovery” types will soon discover that their favorite stalling and harassing tactics will not sway the judge.

I invite comment and criticism.

I award these for ploys and gambits of the kind described in my blogpost “Titanium? Tungsten? Chromium?” 6/19/20*. The latest recipient is the one among the twelve (count ’em, twelve) trusty attorneys for North Donald LA Property, LLC, North Donald LA Investors, LLC, Tax Matters Partner, Docket No. 24703-21, filed 9/19/24.

I bet I know which of the aforesaid twelve came up with this one.

Judge Albert G. (“Scholar Al”) Lauber judge-‘splains.

“Over the weekend following the fifth day of trial…, petitioner filed … Motions for Leave to File the First Amended Report of Messrs. Brooks and Williams and concurrently lodged their amended report.” Order, at p. 1.

“According to the Motions, the proposed amended report revises the market price for minerals using information that the authors recently obtained, revises other types of factual information, and adds supporting documentation and references.” Order, at p. 1.

Expert reports were lodged at the 60-day deadline.

“The proposed amended report is the result of substantial revisions to the [deadline] report. It contains numerous new or heavily modified paragraphs that analyze market conditions and discuss the pricing of clay. Sections 1 through 14 of the report, which set forth the text of the authors’ opinions, have been expanded from 27 pages in the original version to 30 pages in the amended version. The amended version estimates the value of the clay reserve on the property to be $93.21 million, a $30 million increase over the previous estimate of $63.27 million.” Order, at pp. 1-2.

How do you spell “ambush”?

Judge Scholar Al knows how.

“The reason for requiring that reports be lodged in advance is to enable the opposing party and his experts to evaluate the reports, consider the possible need for rebuttal reports, and prepare cross-examination. The proposed amended report contains a substantial amount of new information that was not made available to respondent in a timely fashion. It would thus prejudice respondent if the amended report petitioner now offers were received into evidence at this late date.” Order, at p.2.

Not a “Good Try.” Definitely “Metallica.”

*https://taishofflaw.com/2020/06/19/titanium-tungsten-chromium/

I’ve commented before on the late Supreme Court Justice Antonin Scalia’s haughty dismissal of United States Tax Court as “an inferior court,” likening same to a village justice court. I’ve objected that some pretty heavy cases come before the Tax Court bench, whose members have extensive qualifications in the field of taxation.

But then I get orders like John R. Bacon & Darlene Y. Bacon, Docket No. 12598-24, filed 9/18/24, where Ch J Kathleen (“TBS = The Big Shillelagh”) Kerrigan orders IRS to answer the correct (amended) petition, and Maria Sauceda and Ezequiel Y. Ramirez, Docket No. 8795-24, filed 9/18/24, a real original.

IRS asserts that Ezequiel died before the petition was filed, but “under Texas law a surviving spouse may represent a decedent’s estate if no executor or administrator has been court-appointed to represent the estate; and … petitioner Maria Sauceda, in her capacity of surviving spouse, may properly represent Mr. Ramirez’s estate in this case.” Order, at p. 1.

OK, no biggie, right, if that’s what TX law says?

Except.

“Upon further review of the record, however, the Court notes the following: (1) the notice of deficiency was issued to petitioners at a New Mexico address; (2) the death certificate for Mr. Ramirez was issued by the state of New Mexico and indicates that Mr. Ramirez was a resident of New Mexico at the time of his death; and (3) the Petition was filed by petitioner Maria Sauceda using a New Mexico address.” Order, at pp. 1-2.

One must wonder why one with extensive, high-level tax experience in the legislative, executive, and private sectors, as well as judicial, has to deal with such stuff.

And I sometimes wonder why I report it.

Bruce E. McDougall, Donor, et al., 163 T. C. 5, filed 9/17/24, is not the subject of any municipal tax on those who come from the suburbs to work in town, at least not so far as Judge Emin (“Eminent”) Toro is concerned. No, Bruce and the et als are following in the footsteps of Steve, canny ex’r of the Estate of the late Sally J. Anenberg.

For the story of canny Steve and the late Sally J., see my blogpost “Terminable Terminated,” 3/20/24.

Bruce works the same maneuver with the Residuary Trust of the late Clotilde, his spouse, making a QTIP election. He then gets their kids to join with him to commute the trust (that’s like commuting a criminal sentence, not like drivetime). Bruce gets the trust corpus (which had doubled since Clotilde passed) free of the kids’ remainder interests; he promptly puts the whole shebang in trust for the kids and grandkids, getting in exchange  Anenberg style promissory notes from the kids.

IRS of course claims the kids gifted their remainder interests to Bruce when they let him take the corpus free of the trust, per Section 2519, hence commuter tax. And Bruce gave a gift to the kids when he regifted their remainder interests to their respective trusts, as the note business wasn’t adequate and full consideration.

Unfortunately for IRS, Judge Eminent Toro decided Anenberg. No facts in dispute, the papers tell the whole story, so summary J. And a split decision.

Anenberg lets Bruce out of gift tax country. But the kids are a different story. When they commuted the trust, they got their remainder interests. Those were worth money. And when they let Bruce get the whole shebang, that was a gratuitous transfer. The notes are after the fact.

“Under the ‘gratuitous transfer’ framework described in Estate of Anenberg, [kids]  plainly made gratuitous transfers. Before the implementation of the Nonjudicial Agreement, they held valuable rights, i.e., the remainder interests in the QTIP. After the implementation of that agreement, which required their consent, [kids]  had given up those valuable rights by agreeing that all of the Residuary Trust assets would be transferred to Bruce. And they received nothing in return. By giving up something for nothing, [kids] engaged in quintessential gratuitous transfers and are therefore subject to gift tax under sections 2501 and 2511.” 163 T. C. 5, at p. 12. (Footnote and citations omitted, but read the footnote; Judge Eminent Toro sums it all up).

The kids want to stretch the QTIP triple exception too far. All QTIPery does is to defer tax from first spouse to die to second. Remainderers are on their own. Section 2519(a) deems a transfer, not a gift. So by agreeing to commute the trust, Bruce and the kids transferred both the income and the remainder interests to Bruce, but as the kids gave up their remainder interests for nothing, it isn’t tax-free or tax-deferred as to the kids. Bruce’s situation stands on its own.

And Clotilde’s will created the residuary trust. The residuary trust only got QTIPed after Bruce so elected. The kids’ remainder interests vested before the election.

Bruce and the kids argue that this transaction did not move the economic needle. Wrong, says Judge Eminent Toro. Commuting the QTIP trust by giving Bruce everything left the kids with nothing. Bruce could have made a will leaving the kids nothing. True, he did fund the kids’ trusts, but he got promissory notes for that.

Of course, working out what was worth how much, as between remainder interests and promissory notes, is for another day.

Ch J Kerrigan, and JJ. Foley, Buch, Nega, Pugh, Ashford, Urda, Copeland, Jones, Greaves, Marshall, and Weiler are down with this. Judge Halpern concurs.

Anenberg says either Bruce swapped his life interest for the whole corpus when he commuted, so no gratuitous transfer (he got more than he gave), or any purported “gift” was wholly incomplete because Bruce had full control over the trust corpus at commutation. But not both.

Judge Halpern goes for incomplete, because at commutation Bruce got all interests (income and remainder), and got paid for the transfers to the kids’ trusts, so disposed of nothing for gift tax purposes.

“If the commutation of the Residuary Trust and the distribution of all trust property to Bruce did not effect a ‘disposition,’ within the meaning of section 2519(a), of Bruce’s qualifying income interest in the Residuary Trust property, then Bruce cannot be treated under that section as having transferred all the interests in that property other than his qualifying income interest. [Kids’} constructive transfers to Bruce cannot have provided adequate and full consideration to Bruce for a transfer he did not make. If section 2519(a) did not apply, we would have no occasion to impose asymmetrical treatment on a single exchange, treating Linda’s and Peter’s constructive transfers to Bruce as, simultaneously, (1) adequate and full consideration to him for a deemed transfer by him to [kids], and (2) wholly gratuitous, and thus taxable gifts by them to him. If Bruce made no deemed transfer under section 2519(a) to [kids], then, as the majority concludes, he made no taxable gifts to them, and their ‘very real’ transfers to him stand alone as taxable gifts.” 163 T. C. 5, at p. 29.

In short, concluding that commutation wasn’t a disposition by Bruce of his income interest means Bruce made no taxable gift, but kids surely did.