Going for the record for the shortest full-dress T. C., Judge Goeke expends but five (count ’em, five) pages on John F. Carter, 163 T. C. 6, filed 10/3/24. John blew, got denied by the Ogden Sunseteers (“no dough, you go”), and then filed Chapter. IRS filed a claim for pre=Petition taxes in the bankruptcy proceeding, but John and IRS waited some fourteen (count ’em, fourteen) months to tell Tax Court.

John’s trusty attorney wants to invoke 11 USC §362(a)(8) to stay the review of the Section 7623 shootdown. While ordinarily one would ask what John’s back taxes had to do with his blowing, John blew on the counterparty to a deal he did, claiming the counterparty misreported the deal. So he claims IRS may have setoff of the ultimate reward against John’s taxes.

Judge Goeke says he don’t need no 11 USC 362(a)(8) stay, because 11 USC 362(a)(7) takes care of it.

The 2005 amendment to 11 USC 362(a)(8) expressly limits the automatic stay to matters “concerning the tax liability of a debtor who is an individual for a taxable period ending before the date of the order for relief.” 163 T. C. 6, at p. 3. That both John’s tax liability and his blowing claim arise out of the same deal doesn’t extend the stay, even if the record supported John’s assertions, which in this case it doesn’t. Anyway, pre-amendment Tax Court opinions said the same thing as the amendment.

Of course, Tax Court has no jurisdiction under Section 7623 to determine the blower’s own tax liability.

IRS also tried to stay the blow review pending the outcome of Lissack in DC Cir, but that was denied as moot.

Still and all, I’ll award a Taishoff “Good Try, Second Class” to John’s trusty attorney, Paul Michael Spizzirri, Esq.

STJ Peter J. (“HB”) Panuthos has six decades of top-class experience as attorney and STJ. But when I find STJ Panuthos confronted by such as Tonia L. Hartman, Docket 1713-24, filed 10/2/24, I am reminded of a line from Nobel Laureate R. A. Zimmerman: “Twenty years of schoolin’ and they put you on the day shift.”

It’s another all-zeros Form 1040. I understand the frustrations and anger; the present system is deeply flawed. But the cure is not effected by making a fruitless protest that only worsens your situation by invoking Section 6673, although STJ Panuthos spares the rod this time.

So STJ Panuthos, ostensibly avoiding “somber reasoning and copious citation of precedent” does exactly that. And at close of play, “… here the record demonstrates that, whether focusing on the invalidity of petitioner’s return reflecting zero income… or the computational amount of income omitted, the statute of limitations does not bar assessment of petitioner’s [year at issue] taxes.” Order, at p. 4. (Citations omitted).

Plus five-and-ten chop, of course.

But is a law review article by a distinguished attorney going to convince such as Tonia?

Ruben T. Varela, T. C. Memo. 2024-92, filed 10/1/24, filed an all-zeros return for year at issue, and settled with IRS for no tax due and no refund due. IRS did go for a $5K Section 6702 frivolous return penalty and seeks to levy to collect. Ruben petitions, and IRS seeks a Section 6673 frivolity penalty for that.

Judge Cary Douglas Pugh decides that Ruben filed a frivolous return, even if he didn’t owe anything. He did seek a refund of his FICA withholding, to which he stipulated he wasn’t entitled. He did avoid a Section 6702 chop for another year, which IRS had tacked on.

Judge Pugh holds that even though Ruben owes nothing, his all-zeros return is frivolous. Somber reasoning and copious citation of precedent supports her view. Ruben’s 1040-EZ was all-zeros, accompanied by the usual Forms 4852 purported correcters; it purports to be a return, didn’t contain information sufficient to show how to calculate tax due; and it shows a position identified as frivolous by IRS in Notice 2010-33, 2010-17 I.R.B. at 609, 611.*

So IRS can levy for the $5K.

But the Section 6673 chop doesn’t happen.

“We have seen no other case in which petitioner was warned against pursuing these types of arguments (nor did we warn him in this case before respondent’s Motion was filed). We decline to impose a section 6673 penalty at this time. We caution petitioner that a penalty may be imposed in future cases before this Court should he continue to pursue these misguided positions.” T. C. Memo. 2024-92, at p. 7.

Taishoff says a quick docket search shows that IRS sought a Section 6673 chop against Ruben T. Varela, Docket No. 16694-18L, 7/29/19, which ex-Ch J Michael B. (“Iron Mike”) Thornton denied as moot; the order doesn’t state that Ruben was warned.

* https://www.irs.gov/pub/irs-irbs/irb10-17.pdf

Judge Joseph H. Gale retired effective 9/30/24. An appropriate announcement appeared on the Tax Court website homepage.*

I’m sure we all wish Judge Gale a happy and fruitful retirement.

* https://ustaxcourt.gov/resources/press/10012024.pdf

Seems an old-time protester/defier move is making a comeback. Joel S. Bliss & Valerie S. Bliss, Docket No. 10609-24, filed 9/30/24, are a couple weeks (hi, Judge Holmes) late with their petition from a SNOD.

When IRS moves to toss, Joel & Valerie respond with “the notice of deficiency is invalid because it violates I.R.C. section 6065, which states in relevant part: ‘Except as otherwise provided by the Secretary, any return, declaration, statement, or other document required to be made under any provision of the internal revenue laws or regulations shall contain or be verified by a written declaration that it is made under the penalties of perjury.'” Order, at pp. 2-3.

Ch J Kathleen (“TBS = The Big Shillelagh”) Kerrigan rejects.

“Petitioners, however, are mistaken. Section 6065 imposes requirements on documents filed by taxpayers and does not apply to the Commissioner. See Davis v. Commissioner, 115 T.C. 35, 42 (2000)*.” Order, at p. 3.

As the old song says, “for you, not for me.”

* https://casetext.com/case/davis-v-commr-of-internal-revenue-4

It’s Friday, so enough already.  Autumn weather has already come to our Minor Outlying Island. Time for cocoa and a brief listen to Les Feuilles Mortes.

Except.

Judge Ronald L. (“Ingenuity”) Buch, grappling Laocoön-like with twenty (count ’em, twenty) consolidated microcaptives headed up by Skylab Series of Fortress Insurance, LLC, et al., Docket No. 25669-16, filed 9/27/24, gives us a primer on what are appropriate responses to notices to admit and interrogatories. The result is a split decision, but I’m not going into the minutia. Discovery geeks can read that for themselves.

My objection is that a Tax Court judge, one of 15 when there should be 19 (Section 7443(a)), has to spend time on this stuff when the USDCs and State trial courts have shunted these sideshows off to magistrates, special referees, judges’ law secretaries, and law clerks.

I just said it a week ago. See my blogpost “Referee?” 9/20/24.*

If you want to clear a docket, make it clear that gamesmanship is off the menu. Discovery disputes go to the bullpen; stipulate, don’t capitulate; the SPTO (or small-claim version thereof) is “an order, not a suggestion,” as the late Bankruptcy Judge Adlai Stevenson Hardin was wont to say. And courts are where trials take place, so be ready to go.

*https://taishofflaw.com/2024/09/20/referee/

It’s a well-worn (some readers might say worn out) jibe of mine: lawyers can’t add, and Tax Court judges won’t add. But that’s not so for Judge Elizabeth A. (“Tex”) Copeland, who was a CPA before capping off a stellar career by ascending the Tax Court Bench.

When she sends parties off to a Rule 155 beancount, she has already gotten granular with bank deposit reconstructions, depreciation schedules, and drive-by gasoline deductions.

See Ralph M. Ottuso, T. C. Memo. 2024-91, filed 9/26/24. Ralph sells stoves in Caroga, NY, which features “refreshing rippling waters and its rugged rocky terrain.”

Ralph and his neighbor had an arrangement where Ralph could fill his vehicles at the neighbor’s pump and pay as he went, running a balance. But want of specificity and recordkeeping defeat Ralph’s Section 162 deduction. Ralph can’t show the vehicles are QNUVs, per Section 274(d). The 14K GVW hurdle in Reg. Section §1.274-5(k)(2)(ii) is the problem.

Judge Tex Copeland sorts out a loan and the sales proceeds of a personal use truck, neither of which are taxable, which confused the RA who did the bank deposit reconstruction. And she sorts out and Cohanizes some depreciation deductions.

There’s a bunch concessions (hi, Judge Holmes) , so the Rule 155 beancount is necessary, but it shouldn’t take long.

The offloading of cargo from larger to smaller vessels is a necessity in some confined ports, but doesn’t work when limited liability companies or limited partnerships are drawn up alongside well-heeled elders to unload goodies in anticipation of estate taxes.

Such is the case of the well-meaning grandnephew ex’r in Estate of Anne Milner Fields, Deceased, Bryan K. Milner, Executor, T. C. Memo. 2024-90, filed 9/26/24. Who better to expatiate on a classic Texican matriarch than Judge Elizabeth A. (“Tex”) Copeland?

The late Anne was a highschool graduate secretary who married a highroller in what my native-born Texan granddaughters call “th’awl bidniz.” When her spouse died, she showed herself a true Mustang, abandoning the social whirl and going to SMU for accounting and business courses, consulting business partners, and ultimately “(H)er schooling, charisma, drive, and curiosity yielded good business decisions, which over time compounded into considerable personal wealth.” T. C. Memo. 2024-90, at p. 3.

The late Anne’s ex’r was her devoted protege, and he took care of her in her declining years, seeing off dishonest caregivers and calling the cops on scammers. He had POA, but found one of Anne’s banks didn’t like them, so he got his accountant and an attorney to set up a couple intermediaries (hi, Judge Holmes), whereon to offload $15 million of Annie’s goodies, leaving her with about $2.8 million and a hefty estate tax bill. He had to claw back money from the offloaders to pay legacies and tax.

Anne of course retained enough control to get the offloaded goodies back into her gross estate. While there was a transfer to the intermediaries, it wasn’t for reasonably equivalent value.

Judge Tax Copeland, a CPA herself before ascending the bench, sorts it out, shows IRS got their numbers wrong but lets them stand (it helps the petitioner).

No good faith reliance to defeat the chops, as what the advisers did was too good to be true.

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).