Or Swings?

I have commented often on the varieties of warnings Tax Court Judges and STJs issue before imposing a Section 6673 frivolity/delay chop. At all, or almost all, times, I noted that judges need broad discretion how to run their courtrooms and trial parts; micromanagement is as bad as unbridled discretion.

But I’m puzzled. Ch J Kathleen (“TBS = The Big Shillelagh”) Kerrigan withholds Sir W. S. Gilbert’s “cheap and chippy chopper on the big black block” from Curtis B. Leiss, Docket No. 11421-23, filed 9/12/24, for the second time.

Curtis was before Ch J TBS before, in Docket No. 16613-22, filed 1/17/23, which I didn’t blog; it was much of a muchness with the usual defier/protester gibberish, with which I won’t burden myself, much less my readers. Ch J TBS did show Curtis the Section 6673 yellow card then.

So why no chop here?

“Among other things, respondent argues that such a penalty is appropriate here because petitioner has advanced frivolous and groundless positions in this case and in a previous case before this Court at Docket No. 16613-22. As respondent notes, the Court declined in petitioner’s previous case to impose a penalty but admonished petitioner that such a penalty may be imposed in future cases commenced by petitioner advancing frivolous and groundless positions. We agree with respondent that the positions advanced by petitioner in this case are frivolous and groundless but will decline to impose a penalty under section 6673(a) at this time.” Order, at p. 3.

Curtis does get a further admonition. “Nonetheless, petitioner is again admonished that that future submissions advancing a frivolous or groundless position may result in the imposition of such a penalty.” Ibid., as my expensive colleagues would say.

I am compelled to ask a question and make a comment. Question: Does the Ch J believe that this second admonition will effect any greater deterrence than the first? Comment: As I have said before, some defier/protester, chopped after one warning with a Section 6673 mulct, will claim the imposition is arbitrary and capricious, as Curtis got two (count ’em, two) admonitions. Will the Supremes use this as another opportunity to “bring discipline” to Tax Court?

I gratefully acknowledge the information I received from reader izxyz, with the link to the Tax Court website’s carefully concealed results of the November 8, 2023, examination for admission to United States Tax Court for non-attorneys.

This is found halfway down the Guidance for Practitioners page.

But since those taking the examination, whether they passed or failed, are not practitioners, why that information should be placed on that page, and not issued as a Press Release, eludes me.

Surely Ch J Kathleen (“TBS = The Big Shillelagh”) Kerrigan should join with the Swan of Avon and make these results a “motley to the view.”

How appropriate this examination was given on the 81st anniversary of the North African landings (Operation Torch). Fortunately the Allies did much better than those who took the examination.

And, of course a Taishoff “Well Done” to those who passed.

Edited to add: By my admittedly imperfect arithmetic (lawyers can’t add, y’know), the cumulative passing rate over the twelve (count ’em, twelve) examination cycles from and including 2000 to and including 2023 is 12.53%; IOW, of every eight candidates in a 23-year period, only one succeeded. Slaughter of the Innocents, indeed.

That’s the invitation from John K. Pak, T. C. Memo. 2024-86, filed 9/11/24. John ran a high-end sushi/hibachi operation in a mall vanilla box that he built out, featuring a 25-foot (count ’em, 25 foot) sushi bar and the above-referred-to aforesaid 16-foot martini bar. My kind of place (if someone else is paying).

Problem is, John filed a couple years (hi, Judge Holmes) of dicey returns, and skipped another couple (for which IRS gave John SFRs at no extra charge). So Judge Gale has six (count ’em, six) years’ worth of claims for depreciation (leasehold improvement type) and contract labor (cash paid to high-priced, highly-skilled sushi slicers and hibachi heroes), John having stiped out everything else.

Yes, says Judge Gale, we can do a Cohan on depreciation. But we need some basic evidentiary basis for determining their depreciable basis. John did file for year he commenced operations (two years before first year at issue). IRS processed that return and never audited, so now it’s closed (nobody claims fraud), and IRS is bound for that year. IRS of course isn’t bound for subsequent years (each year stands on its own). But the first-year return does jibe with John’s trial testimony; IRS concedes John built out a high-end operation in an empty shell and concedes the sushi bar (all 25 feet) and the martini bar.

“The figures on the [first year of operations] return appear reasonable. They did not attract respondent’s attention and trigger an audit, nor do they appear unreasonable for a restaurant with reported gross receipts of $887,994 for [first year of operations].” T. C. Memo. 2024-86, at p. 8. But this is Cohan country and John cooked up his own inexactitude, so he gets half what he claimed.

Likewise John has problems with the cash he slipped his sushi slicers and hibachi heroes. Since almost all his trade was credit cards, he had to cash checks and slip the cash as aforesaid. Needless to say, the slippery slicers and hot-handed heroes got no enhanced W-2s.

Fortunately, John has a top-class CPA, whom I’ll call Ken. Ken has thirty (count ’em, thirty) years of return prep and restaurant savvy. He testifies as to industry standards. IRS claims on post-trial brief that John’s trusty attorney The Man From Mobile is trying to slide Ken in as an expert witness under the tag of Rule 143(g).

“Although respondent did not object at trial to [Ken]’s testimony concerning restaurant industry standards for labor costs, on brief respondent contends that this testimony is expert testimony and [Ken] testified only as a fact witness. Under Rule 143(g)(3), we may consider expert testimony without the witness’ having provided an expert report where the witness ‘testifies only with respect to industry practice.’ In the absence of a party’s timely objection, we have considered expert testimony of this nature even where the witness was not listed as an expert before trial, see Schmidt v. Commissioner, T.C. Memo. 2014-159, at *28–29, and we do so here. [Ken] had 30 years’ experience in accounting and appeared knowledgeable regarding the restaurant industry.” T. C. Memo. 2024-86, at p. 19.

Selma Brinson is a busy lady; she has some good tax advice on her website, including without in any way limiting the generality of the foregoing using a Registered Tax Return Preparer to prepare one’s taxes. But she herself hasn’t yet passed the examination for admission to practice before the United States Tax Court, which causes Ch J Kathleen (“TBS = The Big Shillelagh”) Kerrigan to put Ch Clk Charles Jeane and his crew to work sending out the Q&A about representing petitioners and intervenors in Tax Court.

Selma is getting no fewer than four (count ’em, four) of those jim-handy guides.

Apparently a lot of people, even those who know their way around taxes, conflate the Glasshouse Gang with the Constitution Avenue Crowd. They are, and of right ought to be, separate and independent. So Form 2848 opens no doors at 400 Second St., NW.

Speaking of which, we still haven’t gotten the numbers of those who took the last admissions exam, and those who passed it.

When the Supremes bring the Administrative Procedures Act to bear upon the Executive Branch, new winds blow through Ogden. So STJ Diana L. (“Sidewalks of New York”) Leyden wants to hear from IRS about admitting extrarecord documents to the administrative record, and the impact of Loper Bright Enter. v. Raimondo, 603 U. S. _____ (2024), in John Dee, Docket No. 26749-16W, filed 9/9/24.

John was here last month with his expansive motion; see my blogpost “Watching Fewer Sunsets in Ogden,” 8/14/24.

Maybe the Ogden Sunseteers’ clampdown on expanding the admin record unduly cramps STJ Di’s style, when she unpacks whether the OS considered all that IRS did with what John turned up.

If so, is this a new trend in record-rule cases? Of course, Congress slammed the door on administrative record extensions with Section 6015(e)(7) in innocent spousery. Are we likely to see an amendment of like tenor to Section 7623, if STJ Di and the CCAs go full Loper Bright on John (“Hoppin’  John”) Hinman’s outfit?

More and better silt-stirs a-comin’.

I hardly think the above will serve as the title for a successful CLE, but IRS’ trusty counsel is showing us the way in North Donald LA Property, LLC, North Donald LA Investors, LLC, Tax Matters Partner, Docket No. 24703-21, filed 9/6/24.

Trial Session One is set for this coming Monday, 9/9/24, before Judge Albert G. (“Scholar Al”) Lauber. Of course, Judge Scholar Al put out a scheduling order for the trial, with a cutoff date for pretrial memoranda, wherein witness lists were to be exchanged.

Less than three (count ’em, three) weeks before trial, IRS serves a subpoena on nonparty RESPEC, which moves to quash. The subpoena calls for a “company representative” to testify about RESPEC’s mining generally, its work for the LA Donalds, and its former employee who prepared a feasibility study for LA Donald’s Dixieland boondockery. Said employee is already on the witness list.

RESPEC never made the witness list of either party.

But wait, there’s more.

Judge Scholar Al already quashed a subpoena duces tecum, which called for similar information.

“The subpoena requests information from a ‘corporate representative’ about RESPEC’s work for North Donald. But it was Mr. L who prepared the feasibility study that North Donald hired RESPEC to complete, and it would seem obvious that he is much better positioned than a ‘corporate representative’ to shed light on RESPEC’s work for North Donald. The subpoena also requests that a RESPEC representative be prepared to testify about the company’s experience in clay mining and mining generally. That information strikes us as irrelevant—what work other RESPEC employees may have performed on other projects or for other clients sheds no light on the specific clay feasibility report that Mr. Laporte prepared for North Donald in or around 2017.” Order, at p. 2. (Name omitted).

The subpoena is burdensome, untimely (no showing of good cause to ignore the deadline), requests information already denied…That’s how to get your subpoena quashed.

He doesn’t say so explicitly in Wanrietta Faye Coursel, Docket No. 16247-23L, filed 9/6/24, but Judge Ronald L. (“Ingenuity”) Buch decides that when the AO pulled the plug on Wanrietta’s CDP on the last day of the stated period to reply to the latest request for information, the AO abused his/her discretion. Wanrietta says she mailed that information on that last day.

Of course an AO can set reasonable limits within which taxpayers must respond to requests. But Wanrietta had been responding timely all the way through the CDP, meeting all deadlines and showing up for the hearing.

“Similar to the taxpayer in Long, Ms. Coursel had demonstrated cooperation with the appeals officer and promptly responded to all communications with all requested information. Ms. Coursel attended her hearing and promptly provided requested information. And, according to Ms. Coursel, when the appeals officer requested additional information, she likewise mailed it on the due date. But the appeals officer closed the case on the date of the deadline. Ms. Coursel established a pattern of responsive communication with the appeals officer. Thus, an abrupt closure of the case without confirming whether Ms. Coursel had sent the requested information was an abuse of discretion by the appeals officer, particularly given the course of conduct of the parties.” Order, at p. 5.

For the Long story, see my blogpost “I’ve Heard That Song Before,” 10/30/23.

Note that whether Wanrietta actually mailed the information isn’t the issue. Note also that Wanrietta had previously faxed a response to an earlier request, after the AO had telephoned her to find out why she had missed a previous deadline. Order, at p. 2.

“We make no finding as to whether Ms. Coursel, in fact, provided the requested information on [last day]. The administrative record neither establishes nor refutes the mailing of the requested additional information. But we need not resolve this question, because whether or not Ms. Coursel responded, the appeals officer abused her discretion in not allowing time for that response to arrive.” Order, at p. 5.

Maybe a course of conduct establishes that mailed is filed.

No doubt about it, Dennis Lee Simpson is definitely a WFC (Wag First Class). See my blogposts “Sign on the Dotted Line – No,” 1/21/23, and “The IEDs of Tax Court Practice,” 9/12/23.

See also Dennis Lee Simpson, T. C. Memo. 2024-85, filed 9/5/24.

Judge Ronald L. (“Ingenuity”) Buch simultaneously acknowledges Dennis’ canny dodging of the fraud exception to Section 6501 3SOL, incidentally defeating the Section 6651(f) enhanced late filing for fraud add-on, but hoists him with his own petard in proving he never filed for one year at issue. See my blogpost first hereinabove-mentioned, as my high-priced colleagues would say. No 1040, no SOL.

IRS wants to use one or two Dennis’ finger-fehler (hi, Judge Holmes) to cover multiple badges of fraud, but Judge Buch won’t let them. He plays Humphrey Bogart, as IRS’ seven (count ’em, seven) attorneys try to play Alfonso Bedoya, uttering the world-famous line that Bedoya never spoke. IRS doesn’t have enough badges, says Judge Buch. So one of Dennis’ years, and two of his self-settled trust’s, are out, per 3SOL. And the Section 6651(f) fraudulent late filing enhancement is out for everything.

But one year is in, the one for which Dennis established he never filed a return (the one filed in his name he successfully disavowed). So Dennis is drawing dead. He put in no evidence to overturn all the delicts more particularly bounded and described in IRS’ First Amended Answer to Second Amended Petition.

Incidentally, if you’re interested in how those magazine subscription solicitation businesses work, Judge Buch will tell you.

It’s a truism: if you gotta gamble in a casino, lay off the slots. They’re the worst-paying game in the place.

But Katherine J. Kalk, T. C. Memo. 2024-82, filed 9/4/24, confounds both me and six (count ’em, six) IRS attorneys, as she stips out with IRS that she won amounts equal to in one, and more in five, tax years than IRS originally allowed.

KJK was trying to develop a “casino app” to help slotniks track their action and casino marketers get angles on patrons, but that never came to fruition. She claims she gambled to get “patrons’ perspective” and get in with the casino’s marketing people. She also had a full-time job as a computer consultant.

The consultant activity’s deductions founder on the usual indocumentado. But the gambling losses survive, despite KJK’s somewhat casual recordkeeping.

“As a backup position petitioner urges that we estimate her gambling losses by considering evidence supplied by her bank statements. We have previously held that relevant evidence may include ‘casino ATM receipts, canceled checks made payable to casinos, * * * and credit card statements stating that cash was advanced at the casinos.’ We will do the same here.” T. C. Memo. 2024-82, at pp. 18-19. (Citation omitted).

KJK has bank statements showing cash withdrawals at casino ATMs, and those substantiate amounts KJK claimed.

But notwithstanding getting more winnings than she first claimed, KJK still ends up behind.

Lay off the slots.

Was Karen Veeraswamy, T. C. Memo. 2024-83, filed 9/4/23, a shareholder in the S Corp, the sale of whose principal asset threw off a $2.5 million gain, despite the sale taking place while the S Corp was in bankruptcy?

Judge Mark V. Holmes says she was, despite first IRS and DOJ saying she wasn’t, then saying she was, and then she first saying she was and then saying she wasn’t. It took several twists during her tumultuous marriage and divorce, but she discovered the original corporate records in a “cockroach-infested basement” (T. C. Memo. 2024-83, at p. 5) while serving as adm’r of her late (divorced) husband’s estate. And those records say she was a fifty percenter.

This could take place only in NYC. And ya can’t make this stuff up.

Karen, pro se, says her husband told her he was the sole shareholder, and that’s what he told the bankruptcy court twice (corporate and personal). But after first claiming she wasn’t, she then found the records and  claimed she was a fifty percenter, and got her share out of the surplus on the bankruptcy sale. Now she claims the IRS is collaterally estopped from claiming she is a shareholder, and hitting her for tax.

For a pro se, Karen gets a Taishoff “Good Try,” claiming she’s entitled to half the gain but owes no tax.

Bad luck, Karen; Judge Holmes quotes Blaise Pascal: “Contradiction is not a sign of falsity, nor the want of contradiction a sign of truth.” T. C. Memo. 2024-83, at p. 1. (Footnote omitted).

To opt out of ownership of corporate stock, there must be an affirmative act.

“Abandonment also generally requires a taxpayer to relinquish the asset and any future claims to it. When the asset is an intangible property interest—such as shares in an S corporation—we look for an express manifestation of abandonment.” T. C. 2028-83, at p.10. (Citations omitted).

Karen didn’t. She filed a proof of claim, saying she was, in her husband’s personal bankruptcy, which Judge Holmes takes as her “final, considered position in those proceedings.” T. C. Memo. 2024-83, at p. 10.

No court ever finally adjudicated Karen’s status as shareholder, hence no issue or claim preclusion. Judge Holmes wades through the tests for both forms of preclusion, and finds Karen flunks both.

Taishoff says, ultimately, Judge Holmes won’t let anyone walk away with half of a $2.5 million gain without paying tax.