Readers of this my blog know I can be opinionated, even hardheaded; I confess it, and don’t deny it. In discussing James E. Keith and Julie Keith, T. C. Memo. 2024-81, filed 8/28/24, I’m going to back off a bit, reserving my rights to get opinionated.

Jim & Julie were represented in working out a tiered-IA with Appeals, but got behind with some paperwork, when their representative left the firm with which she’d been affiliated. Jim & Julie then elected to go self-represented. The SO then quadrupled the proposed IA, and untiered it to a straight payout, claiming increased RCP.

Jim & Julie then engaged a new representative, who corrected a miscalculation by the SO, and asked for time to provide more evidence. Two (count ’em, two) weeks after expiry of the extension, the SO issued a NOD sustaining NITL.

Judge Cary Douglas Pugh grants Jim’s & Julie’s trusty attorney’s (who presumably is their new representative) motion to remand.

“The administrative record shows shortcomings on both sides. Petitioners should have provided the requested documents. SO H (and Collections) should have reviewed the documents petitioners provided more carefully. Petitioners have identified enough evidence in the administrative record to cause us to question whether the calculation of their ability to pay was flawed. We therefore will remand this case for Appeals to reconsider petitioners’ ability to pay, and to afford petitioners a final opportunity to submit a legible 2021 tax return (as well as any other documents relevant to their assertions regarding their personal and financial circumstances).” T. C. Memo. 2024-81, at p. 5. (Name omitted).

Though trusty attorney claims he raised underlying liability at Appeals, Judge Pugh finds nothing in the administrative record, and nothing in the motion to remand or filings in support thereof, to show either he or predecessor raised it.

It’s always a tough call for a petitioner whether to engage a representative for Appeals. In many cases, the choice is made for the petitioner: they haven’t got the money, and may be over the income limits for the LITCs. In other cases, it hurts to pay money to find out you owe less money, but still owe money. Here, the petitioner may owe the same amount of money, but get more time to pay it. 

And of course, the usual Taishoff takeaway, from my late and lamented law partner Sid: Protect your record! At the hearing, say it loud, say it proud. And don’t be quick to stip in the admin record. If you said something or filed something, make sure it’s there. If it isn’t, move to enlarge. As with the petitioner, so shall it be with the representative: don’t walk alone. The record, if you do it right, is your best friend.

YA Global Investments, LP f.k.a. Cornell Capital Partners, LP, et al., Docket No. 14546-15, filed 8/27/24, claim the Supremes’ blockbuster opinion is a change in law, entitling them to reconsideration. But Judge James S. (“Big Jim”) Halpern won’t have it.

The issue is Section 1446 withholding for offshore partners in effectively connected US businesses. The YAs claim Judge Big Jim was wrong when he disregarded the YAs nonpartnership deductions in computing the withholding liabilities. For a quick refresh of this, see my blogpost “On the Button,” 11/15/23.

Reg. Section § 1.1446-3(e)(2) allows the expenses offset only if it reduces the amount of tax to zero. The YAs claim there’s no statutory basis for this, Chevron deference is toast, so toss the Reg.

“That our prior Opinion did not cite Chevron does not mean that Chevron was not implicit controlling law. But Chevron would have been implicit controlling law only if, in reaching the conclusion in question, we relied on a construction of a relevant Code provision adopted by the Treasury Department that, while permissible, was not the interpretation we would have adopted in the absence of the agency’s interpretation.” Order, at p. 5. (Footnote omitted, but it says that just because the YAs didn’t ask to toss the Reg back in November, it gave up the argument.)

Judge Big Jim gets positively waspish at YAs suggestion that he slavishly followed Treasury’s take on Section 1464. He gives us another entry in the “We Don’t Need No” stakes.

“We did not rely on any interpretation of section 1464 adopted by the Treasury Department in concluding that that provision did not allow any ‘adjustment’ of YA Global’s section 1446 withholding tax liability … to take into account YA Offshore’s nonpartnership expenses. Instead, we rejected petitioners’ argument because it was circular. We do not need help from the Treasury Department to judge tautological arguments as unavailing.” Order, at p. 5.

Anyway, YA didn’t put in evidence that any offshore gave YA a Reg. Section 1.1446-6 certification of expenses.

And YA didn’t show that the only reason they didn’t attack Reg. Section § 1.1446-3(e)(2) was Chevron.

Oh, what a lovely silt-stir!

Once again the most famous sentence that never made it on the screen gives me a title. Here, it’s Varian Medical Systems, Inc. and Subsidiaries, 163 T.C. 4, filed 8/26/24. Because of a mismatch in the effective date of the TCJA amendment to Section 78, and that of the newly-added Section 245A, Varian gets both its foreign tax credit and its dividends received deduction.

Of course, there’s a Section 245A(d)(1) disallowance of tax credit, that reduces some of the beneficence bestowed on multinationals with offshore CFCs, which fall into this No-Man’s Land. Judge Emin (“Eminent”) Toro has the arithmetic all worked out; see 163 T. C. 4, at pp. 34-35.

IRS tries the usual ambiguity hunt, but Reg. Section 1.78-1 gets the Loper-Bright heave-ho; IRS tried to rewrite the statute. Absurd result fails; IRS doesn’t even argue it, as bar too high. All the squabbling about the dividend not being the result of a distribution is irrelevant.

“…the operative rule in section 245A sets out the conditions for deductibility, but says nothing about distributions. Rather, it says simply that the deduction is available ‘[i]n the case of any dividend received,’ I.R.C. § 245A(a) (emphasis added), essentially mirroring the text of section 78. We are not inclined to read the reference to ‘distributions’ in the effective date provision to add another unstated requirement to the operative rule. Similarly, the references in section 245A(c)(2) to the ‘year . . . in which the dividend is distributed’ and the ‘dividends distributed during [the] taxable year’ simply explain how to compute the foreign-source portion of a dividend for purposes of section 245A. And the computation works just fine for section 78 dividends: one simply treats the section 78 dividend as the dividend for purposes of applying the instructions, as section 78 mandates. We disagree that a computation that may easily be applied to a section 78 dividend somehow shows that section 78 dividends cannot qualify for the deduction.” 163 T. C. 4, at p.15.

The idea, of course, was to have the deduction and the anti-double-dip provision work together. Except they didn’t.

And it’s clear Congress knew about the mismatch.

“Specifically, the Senate version of the bill that became the TCJA had conforming effective dates for the bill’s section 78 amendments and for new section 245A, which, if applied, would have precluded Varian’s deduction. Compare S. 1, 115th Cong. § 14101(f) (2017) (applying new section 245A to ‘to taxable years of foreign corporations beginning after December 31, 2017, and to taxable years of United States shareholders in which or with which such taxable years of foreign corporations end’), with id. § 14301(d) (applying the same effective date to the amendments to section 78). The House version, on the other hand, proposed the disparate effective dates that ultimately were enacted. Compare H.R. 1, 115th Cong. § 4001(f) (2017) (applying new section 245A to ‘distributions made after . . . December 31, 2017’), with id. § 4101(d) (“The amendments made [to section 78] shall apply to taxable years beginning after December 31, 2017.”). And Congress chose the House proposal, with slight modifications. See TCJA § 14101(f), 131 Stat. at 2192; id. § 14301(d), 131 Stat. at 2225.” 163 T. C. 4, at pp. 26-27.

“So, at bottom, the Commissioner’s problem lies with the text of the statute, not Varian’s position.” 163 T. C. 4, at p. 27.

Taishoff says I hope Varian tips out the lobbyist who engineered that fast one real good. The dude saved Varian a couple million bucks (hi, Judge Holmes). All I can do is award him/her/them a Taishoff “Good Job, First Class with Swords and Diamonds, Grand Weasel Division.”

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

The latest episode in the ongoing saga of misuse of discovery, originally designed to prevent ambush, by using it as an offensive (in both senses of the word) weapon, brings IRS a mild but decisive rebuke from Judge Cary Douglas Pugh.

Conrad Industries, Inc. and Subsidiaries, Docket No. 8359-23, filed 8/23/24, faces an IRS barrage despite trying to play nice. In fewer than 90 (count ’em, 90) days, IRS hits Conrad & Subs with a Motion to Compel Production of Documents, another Motion to Compel Production of Documents, a Motion for Leave to Serve Additional Interrogatories, and a Motion to Compel Responses to Interrogatories. Oh, and there was an informal document request two (count ’em, two) days after the first motion to compel.

Conrad & Subs asked for more time to reply, and did show what they’d complied with. IRS hasn’t stated in what respects the replies they did get were deficient.

“Respondent’s Motion for Leave to Serve Additional Interrogatories appears to be premature. He claims that additional interrogatories are justified by perceived inadequacies in petitioner’s efforts during the informal discovery process. But to date, respondent has served only six interrogatories (the subject of his Motion to Compel Responses to Interrogatories). He has not yet exhausted the allotted number of interrogatories pursuant to Rule 71(a), much less explained with sufficient detail what additional interrogatories he would serve and why they are necessary. We therefore will deny respondent’s Motion without prejudice.” Order, at pp. 2-3. (Footnote omitted).

Judge Pugh is mild but decisive. “At this stage in pretrial preparations, the parties should focus on developing the facts rather than fighting over process.” Order, at p. 3.

And without quoting me directly, she turns to my well-worn phrase “Stipulate, Don’t Capitulate.”

“…we remind the parties of the advantage of the stipulation process over other formal discovery options. To the extent that the parties seek to establish specific facts, they should concentrate on stipulations of facts or, if necessary, motions to compel stipulation under Rule 91(f). The parties need not wait until the Rule 91(f) deadline, although the stipulation sought to be compelled must be supported in any motion.” Order, at p. 3.

Stip what you can, and go try what you can’t.

Estate of Ralph W. Baumgardner, Jr., Deceased, Patricia L. Baumgardner, Personal Representative, and Patricia L. Baumgardner, T. C. Memo. 2024-80, filed 8/22/24, claim the SO on their CDP didn’t cut their RCP for the cost of replacing their cars during the rest of their lives, or for rebuilding their residence during that time.

The SO did cut their RCP from $354,241 to $109,605 on remand.  T. C. Memo. 2024-80, at p. 9.

But that’s not enough for their trusty attorney, whom I’ll call JB. He wants the clients’ OIC of $1800.

Judge Alina I. (“AIM”) Marshall won’t wear it. The retained assets the SO allowed on remand are enough “to meet their substantiated and unspeculative current and future expenses.” T. C. 2024-80, at p. 19.

As for including cash surrender value of a life insurance policy in RCP, unless you can prove need to borrow on it for basic living expenses, that’s just another investment asset.

“SO C used the insurance policy’s net account value less loan and loan interest amounts to reach the net equity for purposes of the revised RCP. We note that this amount was less than each of (i) the cash surrender value of the policy or (ii) the loan amount available. Petitioners’ primary argument that the inclusion of the life insurance policy in the revised RCP was in error is that the asset was needed for future expenses and that, contrary to SO Covey’s allegation in the Supplemental Notice, it had been used to pay past expenses. The only support that we can find in the administrative record for their assertion is (i) the completed Form 433–A, which lists the insurance policy, its current cash value, and the loan balance from the policy, and (ii) a life insurance policy statement indicating the same. However, they do not point us to any other document in the administrative record that indicates what the loan proceeds were used for. Even if we assume that the loan proceeds were used to pay past basic living expenses, that by itself does not demonstrate that inclusion of the net equity from the insurance policy would cause economic hardship.” T. C. Memo. 2024-80, at p. 24. (Name omitted).

OIC-ETA tossed, levy sustained.

Lawrence Leroy Henry, T. C. Memo. 2024-79, filed 8/22/24, ran a bunch consulting businesses (hi, Judge Holmes), wherein he incorporated his law school graduate wife’s principle: “[W]e teach you what is tax deductible, and help you convert your personal life into your business life and write it all off. Okay. We call it anyway expenses. You gonna eat anyway, ya might as well write it off, talk business.” T. C. Memo. 2024-79, at p. 7. In other words, “’convert your personal life into your business life and write it all off.’” T. C. Memo. 2024-79, at p. 28.

Of course, there are no separate records either for any of Mr. Henry’s businesses, or that separate his business activities from his personal ones.

Judge David Gustafson, obliging as always, cannot rescue Mr. Henry, despite multiple continuances and conferences followed by further document dumps from Mr. Henry that only further confound any attempts to unscramble the four (count ’em, four) years at issue.

But Judge Gustafson does absolve Mr. Henry from Section 6651(f) fraudulent failure to file, as IRS can’t prove intent (Mr. Henry relied on Mrs. Henry in good faith), and blows off $322K of COD, as IRS raised this as new matter post-SNOD (which Judge Gustafson insists upon calling a NOD, confusing me thereby), thus having BoP on solvency, which IRS can’t carry.

Judge Gustafson does find a few minor deductions beyond what IRS would allow.

But Mr. Henry’s lectures on how to “write it all off” cast a wee bit shade on his testimony.

I close with Judge Gustafson’s admonition: “On brief and during trial, the Commissioner provided evidence and argument that might support a finding that the Henrys’ businesses were counseling their clients to file fraudulent returns; Ms. Hunter-Henry provided tax advice to clients with the aim to avoid tax liability and ‘pay the IRS without using your money’ and encouraged clients to falsely characterize their personal expenses as deductible business expenses. But we do not address here any fraud that might have been committed by their clients, nor any criminal liability that might arise from conspiring with them to do so. See 18 U.S.C. § 371. We do not consider here Ms. Hunter-Henry’s failure to timely file a return, but only Mr. Henry’s failure. We do not consider false deductions claimed on or omissions of income from the returns that the Henrys eventually, belatedly, filed… but only Mr. Henry’s failure to file returns for [years at issue] when they were due in the succeeding years….” T. C. Memo. 2024-79, at p. 44.

Anyway, don’t do it.

No, there’s neither porridge nor dorm rooms in The Glasshouse in The City of the Unenfranchised. Judge Patrick J. (“Scholar Pat”) Urda, a true polymath, denies a spot for the interloper Goldilocks therein.

Lontrac Enterprises, LLC, Lontrac Investors, LLC, Tax Matters Partner, Docket No. 272-18, filed 8/22/24, still gamely pitching after yesterday’s brush-off of a couple their exhibits (hi, Judge Holmes), want to squelch Boss Hossery.

The Lontracs claim the RA who handed out the chops had two (count ’em, two) immediate  supervisors, one of whom gave the Section 6751(b) sign-off too soon, while the other gave it too late.

” We are not persuaded that Lontrac Investors is entitled to summary judgment on this issue. ‘[A]n agent’s “immediate supervisor” is most logically viewed as the person who supervises the agent’s substantive work on an examination.’ Sand Inv. Co., LLC v. Commissioner, 157 T.C. 136, 142 (2021). This depends on who had the ‘familiarity with the facts and legal issues presented by the case . . . [so as] to supply the approval that Congress believed desirable.’ Id. In this case, both SRA W and SRA G apparently supervised RA T’s work, raising factual questions as to who was the immediate supervisor for purposes of section 6751(b) and whether both were actually immediate supervisors who could approve penalties at different stages in the process.” Order, at p. 2. (Names omitted).

For the Sand Investors‘ story, see my blogpost “Changing Hosses in Midstream,” 11/23/21.

But Judge Scholar Pat’s real bœuf with this move gives me the title for this sermonette.

“… Lontrac Investors’ motion with respect to penalty approval seems to employ a Goldilocks strategy, whereby SRA W’s approval was too early and SRA G’s too late and none was just right. Neither the factual record nor legal principles annunciated by this Court or the U.S. Court of Appeals for the Eleventh Circuit support Lontrac Investors’ request for summary judgment on this point.” Order, at p. 2. (Names omitted).

Bears are safe at US Tax Court; Goldilocks doesn’t have a look-in.

I’m not sure what advice to give Lontrac Enterprises, LLC, Lontrac Investors, LLC, Tax Matters Partner, Docket No. 272-18, filed 8/21/24. A docket search shows they’ve been through a number of trusty attorneys; I don’t know any more than any of them.  But the last time the Lontracs showed up here on this my blog, I stated that  their “free-swinging demands for depositions of IRS personnel and production of their employment files are out.” See my blogpost “Practice Tips – Part Deux,” 2/22/24.

Now the Lontracs want to lodge the activity record of an IRS examining officer and an IRS Notice of Proposed Adjustment (Greenberg’s Express, anyone?). They picked up both in informal discovery.

Judge Patrick J. (“Scholar Pat”) Urda, a stickler for proper procedure, sends the Lontracs off again, as he did back on 2/22/24. There’s no lodging at The Glasshouse.

“The documents lodged with the Court appear to be in the nature of evidence that petitioner wishes the Court to consider. The Court’s rules permit the introduction of such evidence through the stipulation process or as proposed trial exhibits with ultimate admissibility determined at trial.” Order, at p. 1.

So if IRS won’t stip, the Lontracs can treat them as proposed trial exhibits, and try to get them in on the trial.

I wouldn’t bet the ranch on it.

I’ll borrow a wee bit N’Awlins flavor as I mention Ch J Kathleen (“TBS = The Big Shillelagh”) Kerrigan’s curb-kick of Oakbrook Land Holdings, LLC, William Duane Horton, Tax Matters Partner, Docket No. 5444-13, filed 8/20/24.

Yes, dat (sorry, that) Oakbrook, the one where “Highly Contestable” got brushhogged via Valley Park Ranch. See my blogpost “‘Highly Contestable’ Gets Brushhogged,” 3/28/24, for the skinny.

Well, looks like the Oakbrook crowd read either Valley Park Ranch or my blogpost (or both), because ninety (count ”em, ninety) days later, they moved for reconsideration, claiming change in law. Ch J TBS says they mean Rule 162 vacation, but mox nix, whatever they want, they’re not getting it. The Supremes denied cert after 6 Cir affirmed IRS a year before this motion, so Valley Park Ranch has ridden off into the sunset.

“Except for very limited exceptions, this Court lacks jurisdiction once a decision becomes final within the meaning of section 7481. As relevant here, a decision of the Tax Court becomes final upon the denial of a petition for certiorari, if the decision of the Tax Court has been affirmed or the appeal dismissed by the United States Court of Appeals. See §7481(a)(2)(B).” Order, at pp. 1-2. (Footnote and citations omitted, but see infra, as my expensive colleagues would say, for the footnote).

“As a general rule, the finality of a decision is absolute, with the few following exceptions: (1) where there was fraud on the Court, (2) where the Court never acquired jurisdiction to make a decision, and (3) where the Court discovered a clerical error after the decision had become final.” Order, at p. 1, footnote 2. (Citations omitted).

Just as important is 6 Cir’s mandate; and a mandate is what the appellate court told the lower court to do. 6 Cir affirmed Tax Court’s decision.

And as we’ve seen again and again,  when mandate is on the menu, “(T)hat court cannot vary it, or examine it for any other purpose than execution; or give any other or further relief; or review it, even for apparent error, upon any matter decided on appeal; or intermeddle with it, further than to settle so much as has been remanded.” In re Sanford Fork & Tool Co., 160 U.S. 247 (1895), at p. 255.

I’m going to give John S. Winkler & Lynne A. Price, Docket No. 25989-22, filed 8/20/24, a Taishoff  “Invention Class Honorable Mention” for John’s careful papering of his bid for his own Section 7430 legals and admins. Judge Travis A. (“Tag”) Greaves does toss John’s bid for legals notwithstanding.

Immediately upon receipt of the SNOD, “… Husband, in his capacity as attorney, sent himself and Wife a client engagement letter for his legal services. After respondent later conceded that petitioners actually owed no deficiency… Husband sent Wife an invoice for $6,147 for legal services rendered and a court filing fee paid during the dispute. On the same day, both Husband, in his attorney capacity, and Wife, in her petitioner capacity, submitted a Motion for Reasonable Litigation or Administrative Costs (Motion), requesting $6,087 in attorney’s fees and $60 for the Court’s filing fee. Days later, Wife wrote Husband a check for the amount indicated in the invoice” Order, at pp. 1-2. (Footnote omitted, but it says the check is attached to John’s motion to supplement his claim).

Ol’ Joe Alfred Izen, Jr., would be proud to welcome John to the Inventors’ Club. See my blogpost “The $2000 Misunderstanding,” 6/12/12, for Joe’s story.

Meantime, Judge Tag Greaves slams the door on John’s invention.

“In determining whether a fee was incurred, pro se petitioners cannot recover the costs of their own time. There are several reasons to justify this restriction. First, an individual appears before the Court as a petitioner or as an attorney—not both. In other words, there is no difference between pro se petitioner attorneys and pro see petitioner non-attorneys; in either instance a person may fill the role of attorney or petitioner. Second, to incur an expense, one must have liability to pay it. Critically, one does not have liability to pay one’s own self back.

“The restriction against collecting for one’s own labor is true when a petitioner-attorney represents his spouse as well.” Order, at pp. 2-3. (Citations omitted).

But John does win one: he gets the Sixty Georges.

Admins aren’t like legals; you can flunk one of the tests for legals (like unreasonably protracting the proceedings or not exhausting administrative remedies) and still get admins, as long as you substantially prevailed.

And it doesn’t matter if you hired counsel or were self-represented, you still paid those costs. If you got legals, part of the award would include some or all of the admins.

“Here, respondent only contends that petitioners unreasonably protracted the proceedings. However, even if that were so, we find that they may nonetheless be awarded the $60 court filing fee.” Order, at p. 4.