Bowing to the Supremes’ Protean metaphysical efforts to “bring some discipline” to tax law and practice, with a couple USCCAs joining in (hi, Judge Holmes), Ch J Kathleen (“TBS = The Big Shillelagh”) Kerrigan promulgates some “final” amendments to US Tax Court Rules of Practice and Procedure, effective today, 8/8/24.

I use inverted commas, because I fully expect the Supremes to launch other and further bouleversées at us practitioners, who never did them any harm.

Hence, I deem that which is “final” to be at best provisional.

Even If You Wuz Robbed

Despite his claims that his former fellow shareholders LL and WJ (Court’s nomenclature) looted the S Corp he cofounded, and ripped him off by stealing his share of corporate passthroughs, James J. Maggard, star of James J. Maggard and Szu-Yi Chang, T. C. Memo.  2024-77, filed 8/7/24, is still taxable on his share of the corporate income, deductions, and credits.

JJ claims, when he blew the whistle on the looters,  the Ogden Sunseteers suggested the unequal division of goodies might’ve forfeited the corporation’s S status, relegating it to C Corp and negating any poassthrough. The disproportionate grabs might violate the one-class-of-stock requirement in Section 1361(b)(1)(D), in the absence of which a corporation cannot elect or maintain Sub S status.

However, the caselaw and Reg. Section Reg.§ 1.1361-1(l)(1) tell us that unless the organic corporate documents (certificate of incorporation and bylaws) provide for unequal rights to distributions and liquidation proceeds, anything goes. JJ and his fellow shareholders, past and present, never changed those documents to provide otherwise than for a single class of stock with identical rights.

“The IRS has said it won’t treat any disproportionate distributions made by a corporation as violating the one-class-of-stock requirement if the governing provisions provide for identical rights. Rev. Proc. 2022-19, § 3.02, 2022-41 I.R.B. 282, 286.” T. C. Memo. 2024-77, at pp. 8-9. The idea is that, if the shareholders aren’t trying to duck the one-class rule (on which IRS will not opine), they can make what deals they like.

Judge Mark V. (“Vittorio Emanuele”) Holmes is sympathetic to JJ, who was well and truly plundered, but the law is the law.

“The regulation plainly states that uneven distributions don’t mean that the corporation has more than one class of stock. Treas. Reg. § 1.1361-1(l)(2) (‘[A] corporation is not treated as having more than one class of stock so long as the governing provisions provide for identical distribution and liquidation rights . . . .’). We recognize that this can create a serious problem for a taxpayer who winds up on the hook for taxes owed on an S corporation’s income without actually receiving his just share of its distributions. This is especially problematic when the taxpayer relies on the S corporation distributions to pay these taxes. Worse yet is when a shareholder fails to receive information from the corporation that he needs to accurately report his income.” T. C. Memo. 2024-77, at p. 9.

And of course the looters gave JJ bogus information, based upon which he filed his taxes, and made sure he couldn’t see the real books.

Hard though it is, the “law is ironclad” on this issue. JJ must pay tax on cash he never got, because it was stolen by his fellow shareholders.

Sliding under the Section 6103 tag requires more than a handshake, but maybe James M. Meyer, Transferee, Docket No. 1072-22, filed 8/6/24, and his trusty attorneys  (whom I”ll call “The LIttle Foxes”) can craft narrow enough demands for IRS’ materials relating to its criminal investigation of James (“Little Jim”) Haber sufficient to cast shade on Little Jim’s Form 872 SOL extenders, which rope James M. in via TEFRA as transferee in a MidCo-type roundy-round, where assets are stripped, leaving a C Corp with massive taxes and no assets.

I’ve blogged these by the bushelbasketful. Little Jim and Grant Thornton were running a bunch these (hi, Judge Holmes). So there is a transactional relationship between James M and Little Jim to scale the Section 6103(h)(4)(C) barrier.

The key here is whether the TMP (Little Jim) signed the extenders, thereby binding the partners thereto, to try to buy his way out of the slammer, while kicking said partners to the cliché. In such event, 2 Cir has held that’s a nonwaivable conflict of interest, and the partners aren’t bound.

Judge Ronald L. (“Ingenuity”) Buch, like a good first-baseman, is holding The Little Foxes close to the bag. Trying to show Little Jim’s and some of Grant Thornton’s people had a propensity to engage in miching malicho, hence give shady advice to partners, fails because such propensity evidence is inadmissible. See, e.g., FRE §404(b).

But I’ll give The Little Foxes a Taishoff “Good Job, Second Class” for the conflict-of-interest move.

Y’all will recall that CSTJ Lewis (“Wotta Name!”) Carluzzo gave “James Lindor,” Docket No. 217-23, filed 8/5/24, thirty (count ’em, thirty) days to submit “1) a motion to proceed anonymously, supported by sufficient grounds for such relief, or (2) a motion to voluntarily dismiss the case,.” Or else, ” the Court will amend the caption of this case to show petitioner’s proper name.”

This was back on 7/1/24; see my blogpost “Call Me By My Rightful Name,” of even date therewith, as my power-breakfast-eating colleagues would say.

“Jim” filed pseudonymously, a Tax Court no-no.

But a brief docket search shows “Jim” didn’t move before 7/31/24, and either CSTJ Lew’s amendment didn’t go through or the Genius Baristas muffed the ball, because Ch J Kathleen (“TBS = The Big Shillelagh”) Kerrigan still thinks “Jim” is really Jim.

See the above-referenced order.

Will we be seeing more phony names on Tax Court filings, as a sidestep around the requirements of Rule 27?

I echo the greeting of the old Montréal Forum (now Bell Centre) to the new online petition generator, with its multifarious warnings to self-represented petitioners to redact all PII (Personally Identifiable Information) from submissions utilizing the same. The new facility will surely obviate the need for orders such as Crystal Elbert, Docket No. 12346-24, filed 8/2/24.

Crystal filed her pro se petition just last week, but already found she’d foot-faulted.

Ch J Kathleen (“TBS = The Big Shillelagh”) Kerrigan tells the story.

“…petitioner electronically filed the Petition to commence the above-docketed case, not accompanied by payment of the filing fee. On the same date, petitioner filed an Attachment to Petition. Petitioner’s filings were not properly redacted to eliminate references to taxpayer identifying information.” Order, at p. 1.

C h J TBS jumped on Crystal’s miscue the next day, ordering her to pay the Three Andys and file a properly-redacted petition. Simultaneously, Crystal “…filed a document … under the title ‘Motion to Close Case due to Lack of Redaction.’ Therein petitioner wrote, ‘I am writing this to create a motion to request case 12346-24 be redacted and closed due to petition social security number not redacted. Also missing important documentation.'” Order, at p. 1.

OK, Crystal, Ch J TBS will turn from her many important tasks and employ scarce judicial resources to help you out. And throw in some useful advice at no extra charge.

“We will seal petitioner’s improperly redacted documents. However, to the extent petitioner may be seeking to seal this entire proceeding, we inform her that, as a general rule, the official records of all courts are to be open and available for public inspection. See Willie Nelson Music Co. v. Commissioner, 85 T.C. 914, 917 (1985).” Order, at p. 1.

Hopefully, the new robopetitioner will make extinct “Motions to Close Case due to Lack of Redaction.”

J. E. Ryckman, 163 T. C. 3, filed 8/1/24, owes the Canadian Revenue Authority $200K in tax, whether USD or CAD not stated. So CRA filed an MCAR (Mutual Collection Assistance Request), per the 1995 consolidated tax treaty, with the US competent authority, who bucked it over to IRS. IRS hit J. E. with a NFTL. J. E. wants a CDP, but IRS says, no, the treaty says if Canada certifies that all remedies exhausted, game over.

But is it?

Judge Elizabeth A. (“Tex”) Copeland says yes. The treaty says all remedies exhausted, so no CDP. No conflict between the 1998 IRS Reorganization Act, which gave us the CDP régime three (count ’em, three) years after the final touches to the tax treaty with our Neighbour to the North, and said treaty.

We all know that treaties are equal to statutes, and are to be construed broadly to give effect to the intentions of the contracting parties.

So with a dictionary chaw or two, and a bunch full-page footnotes (hi, Judge Holmes), Judge Tex Copeland says Tax Court has no jurisdiction, no CDP or NOD necessary, and IRS can go collect. Ch J Kerrigan, and Judges Foley, Nega, Jones, Greaves, and Marshall agree. Judge Jones concurs strongly. The dissent would create rights not contemplated by the treaty. Judges Foley, Nega and Copeland agree.

But it’s a cliffhanger, as six (count ’em, six) judges dissent, namely, viz., and to wit Judges Urda, Toro, Pugh, Buch, Ashford and Weiler. They find “irreconcilable conflict” between the 1995 treaty and the 1998 statute, therefore the statute , later in time, rules.

Taishoff says the dissent makes hash of the intent of the parties, giving the foreign nonpayer a double dip. If a Canadian claim is to be collected with a mandated short stop at a US CDP, what’s to stop Appeals from reducing the claim via a PPIA, or giving petitioner CNC status, on either of which Tax Court signs off, notwithstanding that the petitioner had a shot at those remedies in Canada and lost?

IRS is still flogging the dead cliché in Albero Holdings, LLC, Albero Investors, LLC, Tax Matters Partner, Docket No. 16284-21, filed 8/1/24. This is the second case I’ve blogged wherein IRS sought to bootstrap a Section 6662A reportable chop onto Notice 2017-10; see my blogpost “How Green Is Still Green Valley,” 2/8/23. And lost, both times.

Both USTC and the Elevenses say IRS didn’t follow the Administrative Procedures Act, hence Notice 2017-10 is procedurally invalid. So why this second futility, which the Alberos’ trusty attorneys blow off with partial summary J?

Judge Elizabeth Crewson Paris tells us.

“Respondent objects to petitioner’s Motion for Partial Summary Judgment and maintains that Notice 2017-10 is valid to preserve its argument for purposes of appeal.” Order, at p. 3.

Appeal where? Albero is a GA LLC; place of trial is Atlanta, GA. IRS is Golsenized to 11 Cir, where IRS lost on this very point just two (count ’em, two) months ago. See Green Rock, LLC, No. 23-11041, filed 6/4/24, and no, I didn’t blog it because it came up via USDCNDAL.

Taishoff asks, when do we get a Section 6673 against IRS? Or maybe a Section 7430 legals motion? Why should the Alberos pay the freight for this Sisyphean excursion? And why should we taxpayers foot IRS’ bill for wasting “scarce judicial resources”?

I’ve often said that any lawyer who can’t find an ambiguity should find another way to make a living. Judge Travis A. (“Tag”) Greaves provides even more proof, if any were required, that he is abundantly qualified as a lawyer, in Amgen Inc. & Subsidiaries, Docket No. 16017-21, filed 7/31/24. The issue is whether various offshore subsidiaries generated income for parent when they reimbursed parent for Healthcare Reform Fees (HCRs), another offspring of the much-contemned Patient Protection and Affordable Care Act of 2010. HCRs are fees paid by manufacturers and sellers of certain prescription drugs. No doubt Amgen Inc. is one such.

Amgen’s trusty attorneys, all 24 (count ’em, 24) of them, want summary J that reimbursement is not income. But Judge Tag Greaves finds them a wee bit light on specifics. Paying another’s debt is income to the other when the other is relieved of the obligation to pay. But the payor does not receive income when it is reimbursed for the payment of the other’s debt. However, when one pays a deductible expense and receives (or has the right to receive, even if conditional) reimbursement, one has no deduction.

Mere legal liability is insufficient to establish who is responsible for the debt and who can deduct payment thereof. Judge Tag Greaves says this is often Tax Court’s job, but Amgen hasn’t given him enough information. It’s all ambiguous.

“Petitioner failed to show as a matter of law that the HCR Fees are expenses of the reimbursing parties. Petitioner asserts that the HCR Fees are ‘indelibly tied to the revenue’ that [subs] received. Other than this conclusory statement, petitioner failed to set forth any specific information related to the income [subs] generated in relation to the licensed drugs or how the reimbursement amount was calculated. Petitioner also failed to provide what effect, if any, the sale of the licensed drugs to Amgen USA had on the ability to connect [sub]’s income to the branded drug sales. The same factual footfalls [sic] prevent our ruling related to the allocation between Amgen Inc. and Pfizer. Petitioner fails to offer specific evidentiary support tying Pfizer’s income to the HCR Fees. In fact, petitioner fails to set forth any drug sales resulting from the joint venture. Therefore, we are unable to determine as a matter of law whether at least a portion of the HCR Fees properly belonged to Pfizer.

“The same uncertainty exists regarding Amgen Inc.’s right to reimbursement. First, we reject petitioner’s argument that the HCR Fees statutory scheme required the parties to reimburse Amgen Inc. The statute does not require repayment from a subsidiary or unrelated party. Rather, the statute only specifies that the designated entity, in this case Amgen Inc., is responsible for paying the government.

“Petitioner has further failed to show that any of the commercial exploitation agreements established a right to reimbursement.” Order, at p. 9. (I think you meant “footfaults,” Judge, not “footfalls.”).

While there was perhaps an oral agreement that was memorialized ten (count ’em, ten) years after it was made, various written agreements covering HCR activities made during that time all contained the usual boilerplate merger and integration clauses (“entire agreement of parties and supersedes all prior understandings”), and none of them mentions reimbursement.

No summary J on income, and no summary J on chops.

Although the rollout of the “new online petition generator, a tool to help pro se petitioners and others file petitions with the Court” allegedly occurred at 0800 Eastern this morning, no mention thereof can be found on the Tax Court website. I suppose the pro se has to register with DAWSON before being admitted to the robosphere.

Who the “others” might be in the above set forth statement is likewise nowhere stated, as yesterday’s webinar stressed that the new jim-handy generator is for the self-represented only. Practitioners are relegated to their own preparation. Like Dorothy Parker’s fat hen, “You cannot persuade her with gun or lariat to come across for the proletariat.”

Natheless, I expect great things from the robopetitioner. It finally got rid of the endless orders directing redaction of SSANs and TINs from kit-prepared petitions. The new system supposedly routes that information straight to IRS, never reaching Tax Court’s files. Of course, redacting everything else still falls to the petitioner.

And regrettably, the invaluable introductory webinar aired yesterday, July 30, has joined darling Clementine and the snows of yesteryear, gone forever.

It’s an old cliché that the law loves to talk. I spent a couple minutes (hi, Judge Holmes) the other day talking to a colleague out West about a cool tactical move he pulled, and we both gave Judge Elizabeth A. (“Tex”) Copeland a kind mention. Win or lose, you get a fair shake.

While perhaps the trusty attorneys for Point72 Asset Management, L.P., Point72 Capital Advisors, Inc., Tax Matters Partner, Docket No. 12752-23, filed 7/30/24, might grumble at the foregoing, voicing a couple objurgations and colorful metaphors, I’m sure they’ll calm down.

Because they got a fair shake.

Trying to get IRS’ understanding of abstract principles of law in discovery is a no-no. Maybe they might have done better had they been a wee bit subtle, but check out Order at p. 3, discussion of Interrogatory 2.  And IRS can produce business records in lieu of responses, per Rule 71(e).

But IRS should know by now that when they want to exclude documents or testimony based on privilege, they’d best brandish a privilege log, with chapter and verse.

Point72’s trusty attorneys can always try again as they keep on with discovery.