Judge Gale has a blast from the past for us today, as Edward L. Berman and Ellen L. Berman team up with Cousin Annie Berman in 163 T. C. 1, filed 7/16/24, to explore the interface between Section 1042 deferral of ESOP stock gains with Section 453 installment sale reporting. Into that statutory goulash jumps the improbably-named but larcenously-inclined Yuri Debevc Derivium, the alchemist who claimed to turn capital gains into non-taxable debt; long-time readers of this my blog will recall Greg and Sue Raifman, entrapped by ol’ Yuri in my blogpost “We Wuz Robbed,” 8/7/12.

Briefly, the Bermen had $4 million in ESOP stock they wanted to turn to cash. Yuri got them to sell same back to the ESOP for the ESOP’s promissory notes, and buy some A-rated variable rate notes from listed outfits on margin, which they sold to him for 90% of face (he selling same at par and keeping the change). The variable notes were Qualified Replacement Property, so would defer gain from sale back to ESOP until sale or payoff of the ESOP’s notes. Except Yuri and the Bermen tried to disguise the sale of the variable notes as a loan, which triggered gain. The ESOP couldn’t pay the notes they gave the Bermen.

OK, the Bermen have gain. And Section 1042(e) says gain must be picked up in year of disposition of QRP, which would be year when the Bermen did the “loan” deal with Yuri. But the Bermen got nothing that year, and only got paid something in the next.

The Bermen claim their 1042 election was defective because of their defective opt-out from Sub S status to C Corp (only C Corp stock qualifies for Section 1042 treatment), but they’re a day late per Section 1362(e)(2)(B), and anyway duty of consistency means their position, taken for a year now closed, bars them from revoking it now. Likewise, their claim that their Section 1042 election was induced by fraud fails, because there was no mistake as to then-existing fact, only as to legal consequences.

But the Bermen can use Section 453 to throw gain into the next year, because any payment received after the year of sale automatically invokes Section 453 installment sale reporting.

See 163 T. C. 1, at pp. 27-32 for the rundown. It’s a technician’s delight.

Judge Gale has been here before; see my blogpost “Expedite Litigation and Avoid Unnecessary Trials,” 9/25/20.

It must be vacay time in Our Nation’s Capital, because no opinions from Tax Court today. But the hardlaboring clerks and flailing datestampers are going all out, as the paper and electrons keep flying.

North Donald LA Property, LLC, North Donald LA Investors, LLC, Tax Matters Partner, Docket No. 24703-21, filed 7/12/24 but served today, has unleashed a barrage of expert reports worthy of the pen of a Francis Scott Key. Judge Albert G. (“Scholar Al”) Lauber has generously lodged them all at the Glasshouse Guest House.

Ch J Kathleen (“TBS = The Big Shillelagh”) Kerrigan is less hospitable toward Marsha Francina Constantine, Docket No. 9722-24, filed 7/15/24. Marsha Francina wants to file a CPAF, which Ch J TBS says is mistitled, and a Certificate of Service of Motion for an Order under Federal Rule of Evidence 502(d), likewise misnamed. Ch J TBS says these are Exhibits, and Marsha Francina should talk to IRS’ counsel, whose identity and whereabouts will be made plain when IRS counsel answers her petition, due by 8/16/24. Meantime, their fate is unknown.

But not so Marsha Francina’s separate Motion for an Order under Federal Rule of Evidence 502(d) and a Motion to Enforce a Refund of Overpayment Pursuant to Rule 260 that appear to be the same document filed as a Civil Penalty Approval Form. Those get tossed.

In another development, discussion is starting up on IRS’ settlement offer for non-petitioned SCEs (that’s taxspeak for Dixieland Boondockery). My colleague Peter Reilly CPA thinks it’s a sweet deal; I think there’s a thorn or two amongst the proffered roses. I do hope IRS publishes a Notice as to how successful the program is when the results starting coming in. The proof of the pudding, and all that.

The trust form of ownership is popular and problematic, especially when sole trustees forget formalities. I can’t say that Richard K. Archer, MD, forgot or neglected appropriate formalities when running Richard K. Archer M.D. P.A. Profit Sharing Plan & Trust, acting through its sole Trustee and Administrator Richard K. Archer. And I can’t ask him, because he’s dead.

Howbeit, the late Richard petitioned a retirement plan disqualification, before becoming the late Richard. But he petitioned sub nom. Richard K. Archer, Docket No. 11375-20R, filed 7/12/24. IRS objects, saying the trustee is the real party in interest, acting for the trust, and Judge Elizabeth A. (“Tex”) Copeland agrees.

When an individual dies, Rule 63(a) lets a duly authorized successor substitute in and prosecute the case. Burt the late Richard is a trustee, not an individual, and the trust itself is facing the consequences. Still, the individual decedent situation is the nearest analogy Judge Tax Copeland can find. And the late Richard’s adm’r says they can’t represent the trust.

“Most retirement plans, as entities, have other individuals who can represent their interests before this Court in the event one of the representatives or fiduciaries passes away. The same is true with most employers that sponsor retirement plans. However, that is not the case here. Dr. Archer, the plan trustee and administrator when the Petition in this case was filed, was the only individual with capacity to act on behalf of Petitioner and had complete control over the retirement plan.

“Without a representative who can further Petitioner’s interest, this case must be dismissed, and the determinations made in Respondent’s … Final Revocation Letter must be upheld.” Order, at p. 2.

Trust disqualified for years commencing after 12/31/11. Could be very expensive.

Warning to those with self-settled trusts of whatever kind: get a backup. And tell ’em Richard sent ya.

STJ Diana L. (“Sidewalks of New York”) Leyden shows us the truth of G. B. Shaw’s saying “A thing that nobody believes cannot be proved too often.” I don’t know that nobody believes in the necessity of keeping meticulous records, but too many people don’t do it.

And that hurts them, especially records of time actually spent, when Section 469 material participation is on the menu. And it’s even more the case when one has been “workin’ on the rairoad.”

Second case first. I’ve blogged the interplay between Social Security and Railroad Retirement Board benefits before now. See my blogposts “I’ve Been Workin’ On the Railroad,” 4/27/15, and “I’ve Been Workin’ On the Railroad – Part Deux,” 11/22/22.

Although Judge Alina I. (“AIM”) Marshall uses Kenneth Steven Tuma, Sr., and Deborah Ann Tuma, T. C. Memo. 2024-71, filed 7/11/24, to run a how-to-do-it CPE course for preparers confronted with retired or disabled, or both, benefitted railroaders, I want to focus on one area where a slightly obsessive paperkeeping might’ve helped. Ken claims he made contributions to his retirement plan for which the SNODs (not, Judge AIM Marshall, the “NOD”s) did not credit him.

“With respect to this argument, respondent conceded at trial that an employee contribution amount of $51,393 was reported on Mr. Tuma’s 2015 and 2016 Forms RRB–1099–R. He also conceded that this amount ‘is recovered ratably over the period of time that Mr. Tuma receives the benefit. And so that’ll be a computation that is done once we determine what is or isn’t gross income. And that recovery will be computed.’ On posttrial brief, however, respondent asserted that, although Mr. Tuma would ‘ordinarily be permitted to exclude a portion of’ the contributory amounts shown on his Forms RRB–1099–R from his gross income, Mr. Tuma failed to provide information with respect to his annuity starting date and his age on that date needed to compute the proper recovery. And on this ground, respondent further asserted that Mr. Tuma should therefore be allowed no offset for contributions or, ‘[a]ssuming the Court is inclined to provide some offset,’ an offset that assumes the facts most favorable to respondent.

“Mr. Tuma generally testified that that he was entitled to receive benefits from the RRB as early as 2009 but that he did not receive any payments until sometime in 2010. Mr. Tuma did not testify to any specific dates, however, or introduce any documentary evidence to support the testimony that he did provide.” T.C. Memo. 2024-71, at p. 18.

Wherefore, Ken gets the longest spread-out of the $51K (30 years), when he could have gotten more sooner with a couple pieces of paper (hi, Judge Holmes).

Ditto Timothy L. Foradis and Jessica L. Moore, T. C. Sum. Op. 2024-13, filed 7/11/24. Tim claims he built his carriage house to rent out and worked at renting it in his spare time while working forty (count ’em, forty) hours a week at his regular job. STJ Diana L. (“Sidewalks of New York”) Leyden finds Tim’s testimony that his construction and renting out hours are more than half of all his working hours fails the Tokarski test, and therefore “the Court need not address the reasonableness of the receipts or logs and whether Mr. Foradis performed more than 750 hours of services during the taxable year in real property trades or businesses in which he materially participated.” T. C. Sum. Op. 2024-71, at p. 5

Apparently those logs didn’t show dates and hours worked, including time of day and activities performed. I had pointed out, as had many of my colleagues before me, that relatively cheap and generally accepted software is available to track those matters contemporaneously. If Tim had proffered such, would STJ Di have been so quick to toss his case?

And even if Tim took more time to perform such tasks than a skilled professional would have done, that is not necessarily fatal. See my blogpost “Disabled Veteran – Part Deux,” 12/23/14.

Back last October, Ch J Kathleen (“TBS = The Big Shillelagh”) Kerrigan warned Pradeep Kumar Xplorer Pulappatta, Docket No. 17427-23, filed 7/10/24, in Docket No. 15791-23, filed 10/24/23, that he could lose his e-filing privileges if he continues with frivolity.

Today, CSTJ Lewis (“The Great Name”) Carluzzo does revoke Pradeep’s privileges “(B)ecause of petitioner’s continual submission of documents that contain impertinent matter.” Order, at p. 1.

Scarce judicial resources, anyone? How about a few Section 6673 frivolity chops, pour encourager les autres?

“Dear readers, I do not recommend trying that answer in the courtroom, or anywhere else.”

Nigh on nine (count ’em, nine) years ago, I opined thus in my blogpost “‘Tell the Judge I’m Busy,'” 11/15/16. IIRC, it did not end well for either attorney or petitioner.

The trusty attorney for Ginel Coeuranour, Docket No. 9270-24, filed 7/9/24, whom I’ll call JW, takes a similar tack. Ch J Kathleen (“TBS = The Big Shillelagh”) Kerrigan is more friendly than Judge Chiechi was back in the day.

“…petitioner’s counsel [JW] filed a Notice of Unavailability. In that filing, [JW] indicates that he will be unavailable in connection with this case from July 17, 2024, through July 25, 2024, and requests that no hearings or other matters be scheduled during that time.” Order, at p. 1.

In fact, Ch J TBS is positively genteel.

“If the Court should set this case for hearing or trial, the parties will be notified in advance of such hearing or trial date. If a party is unable to appear for such scheduled hearing or trial, that party may file an appropriate motion for continuance. The Court will then rule on that motion or take other appropriate action.” Order, at p. 1.

Taishoff makes so bold as to suggest to JW, Esq., that, given the leisurely pace of Tax Court litigation and the facts that (a) the petition was filed barely a month ago, and (b) the answer was filed today, he need have little fear that anything will happen in the next two weeks.

For Tax Court, but not for me. No opinions, and no orders worth noting.

But visiting nearest and dearest in TX, I got a ringside seat on Hurricane Beryl. Don’t ask.

The trusty attorneys for Aventis Inc. & Subsidiaries, Docket No. 11832-20, filed 7/5/24, are fellow fans of summary J. Although their case that the convoluted shellgame their clients concocted qualified per Section 860L, hence is a Financial Asset Securitization Investment Trust (FASIT), they’re trying to get Judge David Gustafson to agree that what’s under the shell is in fact debt, not equity, irrespective of whether Section 860L saves the game.

It takes three (count ’em, three) pages for Judge Gustafson to describe the machinations, which the Aventis crew claim will let the treat dividends as interest for US tax, and the same as dividends for French tax. Subsidiaries, siblings, and Chase bank shuttle in and out like line changes in a hockey game.

But Aventis is homeported in DE, thus 3 Cir learning, with its sixteen (count ’em, sixteen) factors for distinguishing debt from equity, bars any chance at summary J.

Too many facts.

Of course, this is an alternative argument, and as hereinabove set forth, whether or not the deal qualified per Section 860L is for another day.

As today is Our National Holiday, and as Tax Court is in lockdown per Rules 10(d) and 25(a)(5), there will be neither of the above from me.

It’s an old Tax Court maxim that Constitutional arguments don’t cut any Glasshouse ice, but Amgen Inc. & Subsidiaries, 16017-21, filed 7/3/24, claim IRS violated Due Process when they disavowed seven (count ’em, seven) closing agreements covering nine (count ’em, nine) tax years.

IRS gave Amgen annual audits for each of those years, with the adjustments culminating in the abovementioned closing agreements. But shortly thereafter, IRS audited another six (count ’em, six) subsequent years, adjusting all and adding chops to the last three, using a transfer pricing method deviating from that in the settled years’ agreements. Amgen petitioned all, but seeks summary J only as to chops in the last three. IRS cross moves as to all six, but Judge Travis A. (“Tag”) Greaves sorts it out.

There’s caselaw that government cannot change the rules justifiably relied upon without giving notice, but that applies to guidance. Here, there’s a specific agreement, covering only the years then at issue. Moreover, the agreements do not discuss the Section 482 transfer pricing methodology.

And Supreme Court learning says IRS isn’t bound by prior years. Another old Tax Court maxim is each year stands on its own.

“Petitioner had no legitimate reliance interest for future years derived from the closing agreements. The closing agreements unambiguously do not cover future tax years. The agreements are silent as to what transfer pricing methodology was to apply for years after [last year]. In fact, the closing agreements related to [last three] tax years made it clear that the IRS could make future transfer pricing adjustments regardless of any alleged prior approval. These closing agreements specifically stated ‘This agreement does not prevent further allocations under section 482 with respect to taxable events involving Amgen and [sub] that are attributable to taxable periods of Amgen for which allocations are not determined by this agreement.’ This clause put petitioner on notice that the IRS might make transfer pricing adjustments in future tax years. Additionally, none of the closing agreements used the phrases ‘best method’ or ‘arm’s length’ to describe the reallocation. Instead, the adjustments are simply those to which the parties agreed in settling the disputes before them at that moment. The closing agreements unambiguously do not cover tax years past [last year], and therefore, petitioner does not have a legitimate reliance interest created by the closing agreements.” Order, at pp. 6-7.

And Amgen could always have entered into advance pricing agreements.

“If petitioner sought to apply its transfer pricing methodology to future years, it could have attempted to negotiate a closing agreement that made the method applicable for future years. Petitioner likewise could have applied for an advanced pricing agreement that would have set forth a ‘binding agreement’ between petitioner and the IRS as to ‘the best transfer pricing method (‘TPM’) within the meaning of § 482 of the Code and the regulations.’ Rev. Proc. 2006-9, §§ 2.04, 10.01, 2006-2 I.R.B. 278. Had petitioner sought one of these options, it would have had a genuine reliance interest grounded in a binding contract. However, the closing agreements fall significantly short of creating a legitimate reliance interest.” Order, at p. 7.

Summary J to IRS.

Of course, the leading case on IRS mind-changing, Dickman v. Commissioner, 465 U.S. 330 (1984), just happened to be decided by the same Court in the same year that decided Chevron.

Taishoff says, post-Loper Bright and post-Boechler, P. C,  exactly what is any Rev. Proc. worth? Is Mayo Foundation still good law? What is any IRS Reg. worth? The Supremes are bringing “discipline” to tax law, all right all right. Yeah, roger that.