Judge Mark V. (“Vittorio Emanuele”) Holmes is finally vindicated, as the majority view in Oakbrook, from which he dissented back in 2020 (see my blogpost “They Always Must Be With Us,” 5/12/20), finally collapses when Hewitt rams Reg. Section 1.170A-14(g)(6)(ii) clean amidships.

Judge Courtney D. (“CD”) Jones sees that much-contemned Regulation section off in Valley Park Ranch, LLC, Reed Oppenheimer, Tax Matters Partner, 162 T.C. 6, filed 3/28/24.

The Valley Parkers did the conservation thing with 45.76 acres, be the same more or less as we dirt lawyers say, of Okie Boondocks. Their deed said the easement “can only be terminated or extinguished, whether in whole or in part, by judicial proceedings in a court of competent jurisdiction, and the amount of the proceeds to which [501(c)(3) guardian] shall be entitled, after the satisfaction of prior claims, from any sale, exchange, or involuntary conversion of all or any portion of the Property subsequent to such termination or extinguishment, shall be determined by the court, unless otherwise provided by State or Federal law at the time.” 162 T. C. 6, at p. 5.

Moreover, the deed went on “If the Easement is taken, in whole or in part, by exercise of the power of eminent domain, [Valley Park] and [501(c)(3) guardian] shall be entitled to compensation, by the entity declaring power of eminent domain, in accordance with applicable law, policy and procedures. Respective portions shall be determined by a Qualified Appraisal meeting standards as established by the United States Department of the Treasury.” Idem, as my expensive colleagues say.

Now Oakbrook was affirmed by 6 Cir, but Hewitt was overturned by 11 Cir. The Valley Parkers are 10 Cir, which has not ruled. Generally (love that word!), Tax Court doesn’t change course based on one reversal, except sometimes. Oakbrook didn’t need to consider the validity of the Reg Section, as the concurrence said. And if the dissenters here say this renders the law unstable, well, it’s already unstable.

“Moreover, Oakbrook I—decided just four years ago—is not entrenched precedent. To our knowledge, the Sixth and Eleventh Circuits are the only courts of appeals to speak on the issues we consider today.” 162 T. C. 6, at p. 11. So Judge CD Jones overhauls the whole tale of the adoption of Reg Section 1.170A-14(g)(6)(ii), with the New York Landmarks Conservancy (now brilliantly led by my friend Peg Breen) in the forefront.

At close of play, for the majority at least, the deed satisfies the statute. Prior claims means claims arising before the grant: here there aren’t any. IRS’ claim that an OK court might read a claim arising post-grant but before extinguishment as being prior is too great a stretch. And there’s no possibility of reverter of title to grantors, which stifles attempts to get deductions for give-and-go maneuvers.

Judges Foley, Urda, Toro, Greaves, Marshall, and Weiler agree.

Judges Buch and Copeland concur. Judge “Ingenuity” Buch says IRS’ attempts for a quick knockout of overvalued boondocks, wheresoever situate, via summary J has created more uncertainty than clarity. The best rule is RTFS = Read The Statute (the “F” is for emphasis). “We need not reach the question of the validity of the proceeds regulation to decide this case.” 162 T. C. 6, at p. 33.

Ch J Kerrigan, with Judges Nega, Pugh, and Ashford following, dissents. Oakbrook was decided after Hewitt, and 6 Cir wasn’t convinced by the Hewitt opinion.

“I am concerned that the Court’s reversing a prior position taken only four years ago and without compelling new legal argument will result in instability of the law in the area of conservation easements. Additionally, the opinion of the Court may result in challenges to regulations that have been relied upon for over 40 years. I reiterate here what I stated in my concurrence to 3M about ‘creat[ing] a slippery slope whereby courts would be constantly faced with determining whether comments are significant and whether the agency responded appropriately to them.” 3M Co. & Subs. v. Commissioner, No. 5816-13, 160 T.C., slip op. at 280 (Feb. 9, 2023) (Kerrigan, C.J., concurring).” 162 T. C. 6, at p. 39.

I didn’t have a lot to say about 3M, as I expected the trade press and blogosphere to make much of it.

But I must give a modest cough, and say that I was right two years ago: betting against 6 Cir in Oakbrook was taking the bookies’ money.

No, not a reprise of an obsolete video game, this is the story of Khurram Shahzad Gondal and Arooj Asmat, T. C. Memo. 2024-36, filed 3/27/24. Arooj is out of the Section 6663 fraud chops, although she gets the Section 6662 negligence variety.  Apparently Exam decided not to press for fraud chops on Arooj, so the SNOD (which Judge Courtney (“CD”) Jones calls a NOD, inviting conflation with Notices of Determination in CDPs, SS-8 reclassifications, 501(c)(3) disqualifications, and innocent spousery) only chops Khurram.

Khurram gets nailed by the Medicaiders in Our Fair State for false billing. Khurram and partner ran a bunch C Corp taxi companies (hi, Judge Holmes), but not the De Niro-Foster type. Khurram provided transportation to Medicaid clients seeking doctor visits or hospital outpatientry. Only Khurram billed NYS for nonmedical trips. Only Khurram siphoned cash from his C Corps for personal expenses.

After the State authorities got through with Khurram, they sent word to the IRS. Infoshare is standard operating at the NYS/IRS interface. Khurram and Arooj were less than cooperative at Exam, and produced no records.

I shouldn’t be surprised, but I am. Leaving an audit trail with bank accounts is an invitation. IRS has world-class bank account reconstructors, and the presumption that everything that goes in is taxable, except what obviously is not, makes their lives easy.  And Khurram doesn’t put up much of a fight. Close to $1.5 million in constructive dividends over two (count ’em, two) years, with enough badges of fraud to qualify for vulture scout, sets up a nice haul for IRS.

Edited to add, 3/28/24: I should read my own blog. WordPress reminds me of my blogpost “Nailed in Nebraska,” 2/26/20, wherein I recounted that Judge Elizabeth Crewson Paris decried hitting spouse with Section 6662 negligence chop when other spouse got Section 6663 fraud chop; same is impermissible stacking of penalties. Taishioff says pro se Arooj should move for reconsideration on error of law.

There’s another Tax Court webinar coming, and it’s a hot topic, sure to attract the attention of even the most jaggedly-sophisticated practitioner.

Judge Travis A. (“Tag”) Greaves leads a star-saturated panel, including but without in any way limiting the generality of the foregoing (as my paid-by-the-word colleagues say) Judge Emin (“Eminent”) Toro, and CSTJ Lewis (“Ah, How That Name Sings”) Carluzzo, in an exploration of Tax Court discovery.

Catherine Gugar, Esq., AAC LB&I specialist, and Guinevere Moore, Esq., tax attorney (representing us civilians) round out the team.

Here’s how to register. https://us02web.zoom.us/webinar/register/WN_ehSms0omT3i-e294Qu1mSg#/registration

A must-have.

The third appearance of Sunil S. Patel and Laurie McAnally Patel, et al., T. C. Memo. 2024-34, filed 3/26/24, is just a reiteration of all the microcaptive dodges to which Judge Courtney D. (“CD”) Jones cites so patiently. For backstrory, see my blogposts “Are You Being Served? – Pert Deux,” 5/20/20, and “Loro Firmani, Tu Perdi,” 9/22/20. Sunil’s manifest desire to get into the microcaptive taxdodging business is his downfall. Interesting side note: Sunil’s actuarial whiz was apparently sued by one of his high-profile customers for the made-as-instructed numbers that undid said customer, T. C. Memo. 2024-34, at p. 49. Support staff, watch it; your customers will turn on you.

Savannah Shoals, LLC, Green Creek Resources, LLC, Tax Matters Partner, T. C. Memo. 2024-35, filed 3/26/24, once again justifies Judge Holmes’ celebrated dictum in Oakbrook: “Conservation-easement cases might have been more reasonably resolved case-by-case in contests of valuation. The syndicated conservation-easement deals with wildly inflated deductions on land bought at much lower prices would seem perfectly fine fodder for feeding into a valuation grinder.” 154 T. C. 10, at p. 126.

Here, Judge Goeke boots IRS’ argy-bargy about Section 708(b) termination of partnership, timely reporting of the conservation easement, proper appraisal and appraisal summary, and in thirteen (count ’em, thirteen) pages, demolishes the Shoals’ valuation, chopping them with 40% overvaluation. T. C. Memo. 2024-35, at pp. 34-47.

If you want to see what Judge Mark V. (“Vittorio Emanuele”) Holmes was talking about, here’s Judge Goeke’s take. “New Shoals claimed a $23 million deduction. The easement had a fair market value on the donation date of $480,000. Because the amount of the claimed deduction was more than 200% of the fair market value, the 40% gross valuation misstatement penalty applies to any underpayment of tax attributable to the valuation misstatement.” T. C. Memo. 2024-35, at p. 48.

Ch J Kathleen (“TBS = The Big Shillelagh”) signed off 3/20/23 on ex-Ch J Maurice B. (“Mighty Mo”) Foley’s proposed Tax Court Rules amendments; included therein was new Rule 151.1, “Brief of an Amicus Curiae.” Said amended Rule, however, took effect only from and after 3/20/23. Wherefore, given the leisurely pace of Tax Court litigation, no post-Amendment exemplar has yet swum into our ken, to give practitioners a view of how the Tax Court Bench deals therewith.

But the fierce fighters of the Federal Tax Clinic at the Legal Services Center of Harvard Law School, ably captained by T. Keith Fogg, Esq., come charging in to assist Catherine L. LaRosa, Docket No. 10164-20, filed 3/26/24, proffering a pre-Amendment brief amicus. Judge Ronald L. (“Ingenuity”) Buch rejects same, and better yet, tells us why, setting forth the criteria that (I hope) will continue to apply when post-Amendment amici deglie amici offer to do judges favors.

Briefly, “(U)nder Fed. R. App. P. 29(b), an amicus must demonstrate ‘why an amicus brief is desirable and why the matters asserted are relevant to the disposition of the case.’ Under the D.C. District Court’s Local Rule 7(o), an amicus must demonstrate ‘why an amicus brief is desirable, why the movant’s position is not adequately represented by a party, and why the matters asserted are relevant to the disposition of the case.’” Order, at p. 2.

Except.

Neither of the rules cited are Tax Court Rules.

Except.

Pore l’il ol’ Tax Court didn’t have no Rule about briefs amicus before 3/20/23, and Cathy’s trusty attorneys (and man, are they trusty! See infra, as my expensive colleagues say) petitioned years before.

Except, when the Glasshouse cupboard is bare, Tax Court Judges shop locally.

“Where we don’t have rules of our own, we look to the Federal Rules of Civil Procedure and adapt them as appropriate. But the Federal Rules of Civil Procedure do not have a rule specific to the allowance of amicus briefs  In Erwin v. Commissioner, T.C. Memo. 1986-474, we noted our (then) absence of a rule regarding amicus briefs, and consistent with our Rule 1, we looked to the rules of other courts to fill the gap. We noted that amicus briefs are welcomed when they provide information and assistance to the Court beyond what the parties can provide. This may be for the purpose of making points a party is unable or unwilling to make or where the amicus is more knowledgeable than the parties.” Order, at p. 2. (Citation omitted).

And the comment to Rule 151.1 notes it is drawn from the two (count ’em, two) abovecited FRAP and USDCDC local rule.

Bottom line, “Although new Rule 151.1 is effective March 20, 2023, the standard articulated in that Rule is consistent with the Court’s precedent setting forth standards for when amicus briefs are desirable.” Order, at p. 2.

OK, so does the Fogg come in, whether or not on little cat feet?

Negatory, says Judge Ingenuity Buch.

“The issues presented by the Amicus are not helpful to the Court in resolving the narrow issue presented. The Amicus’s primary argument seems to rely on some sort of stare decisis by silence, implying that the Court should be controlled by its failure to address an issue that was not raised in a previous case. But principles such as stare decisis apply to issues actually presented and decided, and ‘drive-by jurisdictional rulings … have no precedential effect.’ The Amicus’s second argument merely posits a counterfactual where innocent spouse relief was sought before the chain of events that actually transpired occurred. But those are not the facts before us. Lastly, the Amicus quibbles with a statement in the Commissioner’s Memorandum, yet misses the point of the statement. The statement with which the Amicus takes issue is, ‘the Code did not permit respondent to assess the amount petitioner and Mr. LaRosa were ordered to repay, because that amount is not a tax liability.’ From this, the Amicus argues that the manner of collection is irrelevant. But that is not the Commissioner’s point. The Commissioner observes that the manner of collection sheds light on the question of whether the erroneous refund in this case is or is not a ‘tax liability.’” Order, at p. 2. (Citation omitted).

OK, but does Cathy need help? That’s a thrashing great negatory, good buddy, says Judge Buch, albeit a lot more elegantly than I.

“…Ms. LaRosa is ably represented in her case. The petition in this case was filed by Paul Butler and Caroline Ciraolo. Mr. Butler has gone on to become the Associate Chief Counsel (Procedure & Administration), heading up one of the largest divisions within the IRS Office of Chief Counsel. But Ms. Ciraolo continues to represent Ms. LaRosa. Ms. Ciraolo is a former Acting Assistant Attorney General of the U.S. Department of Justice’s Tax Division, an adjunct professor in the tax LL.M. program at Georgetown Law, a member and former President of the American College of Tax Counsel, and a former committee chair within the American Bar Association’s Section of Taxation. She has received innumerable accolades for her work and is well known within the tax profession.” Order, at pp. 2-3.

Although neither Mr. Butler nor Ms. Ciraolo went to Harvard, they are indeed trusty attorneys. The IRS OCC types definitely have a foe worthy of their steel.

That’s the story Rodney A. Taylor, T. C. Memo. 2024-23, filed 3/25/24, tells CSTJ Lewis (“Quite A Name”) Carluzzo. “According to petitioner, his successes in management consulting and other professional endeavors are attributable to his interpersonal skills. He claims to suffer from a learning disability with respect to mathematics, but he is otherwise competent to conduct his personal and business affairs. Throughout his professional career he delegated many business and sometimes personal financial responsibilities to employees and accountants….” T. C. Memo. 2024-23, at p. 2.

Despite this handicap, Rod runs a multimillion-dollar management consulting and executive search outfit (Company), of which he is CEO and sole shareholder. Unhappily, his less-than-trusty CPA takes a couple million (hi, Judge Holmes) from Company’s cookie jar without paying the FICA/FUTA/ITW Company owes. You can guess the rest.

Rod claims his mathematical ineptitude renders him an irresponsible person or officer for Section 6672 TFRPs. Notwithstanding, Rod keeps Company running while suing insurers and the defaulting CPA, collecting cash and not paying the FICA etc. Rod also claims IRS sent the notice of TFRPs to the wrong address.

“The essential question is whether the person had sufficient control over a taxpayer’s affairs to ensure the payment of the taxpayer’s employment taxes. The indicia of that control held by a responsible person include ‘the holding of corporate office, control over financial affairs, the authority to disburse corporate funds, stock ownership, and the ability to hire and fire employees.’ In considering an individual’s status, duty, and authority, the test is one of substance, and the focus of the inquiry does not involve a mechanical application of any particular list of factors. The inquiry must focus on actual authority to control, not on trivial duties.” T. C. Memo. 20240-23, at pp. 5-6. (Citations omitted).

It’s what could you do, not what did you do. Rod was the boss. He ran the show. He claims it’s the CPA’s fault, not his innumerate self. CSTJ Lew won’t wear it. “The focus, however, is on his authority to control Company’s obligations to pay its employment taxes, not on whether he personally took responsibility for that duty. Considering his position with Company and taking into account his decisions to disburse Company funds to pay for items other than Company’s employment tax liabilities, we find that petitioner was a person described in section 6672(a) for purposes of Company’s outstanding employment tax liabilities.” T. C. Memo. 2024-23, at p. 6. (Citation omitted).

As for the last-known address, that was the one on the updated Form 433-A Rod furnished to a RO. T. C. Memo. 2024-23, at p. 8.

Btw, Rod paid himself a $77K bonus from the settlement he got out of the defaulting CPA, while not paying the FICA etc. Bad idea.

OTOH, Kathleen M. Stegman, T. C. Memo. 2024-24, filed 3/25/24, certainly could handle numbers. Her problem is, she couldn’t bring herself to pay taxes on the numbers she and her corporation got. Kathleen went down in USDCDKS for tax fraud. It’s the usual fact-driven corporation-pays-personal-expenses, phony invoices, cash dealings, stiff-arming IRS at Exam, so I’ll spare you and me. The issue here is that the AUSA blew it, trying to pin the corporation’s taxes on Kathleen.

Judge Elizabeth Crewson Paris judge-‘splains: “… the federal district court acquitted Ms. Stegman of evasion of corporate tax on the grounds that the indictment and the jury instructions were flawed in attributing to Ms. Stegman the loss due and owing by the corporation. The prosecutors did not put on evidence to pierce the corporate veil, so the indictment and the jury instructions attributed the tax to the wrong legal person.” T. C. Memo. 2024-24, at p. 4.

No doubt that there was proof of tax evasion beyond a reasonable doubt on the trial; but the wrong person was charged in the indictment, raising Fifth Amendment issues. On appeal, 10 Cir. went over that in extenso.

So Kathleen gets hit only for her own stuff. I doubt the IRS will get much joy from the corp. Maybe try Section 6901 transferee?

Judge Patrick J. (“Scholar Pat”) Urda isn’t sure, so he won’t grant a Rule 103 protective order, stopping IRS from making informal discovery moves (demands? requests?) of various members (partners other than TMP) of Pauls Farm Properties, LLC, Eco Terra 2016 Fund, LLC, Tax Matters Partner, et al., Docket No. 7519-20, filed 3/25/24.

“We start with some skepticism whether the Commissioner’s informal discovery requests are subject to Rule 103(a) at all. See Fu Inv. Co. v. Commissioner, 104 T.C. 408, 410 (1995) (‘Arguably, [informal discovery requests] do not fall within our discovery procedures and, thus, are not subject to restriction under Rule 103.’). Even putting that concern to the side, petitioners have not shown any harm from the Commissioner’s informal discovery—either to petitioners or the members. Nor have they established that the discovery represents undue burden or expense. And we are not convinced that the information sought from the members is either irrelevant or duplicative, as might raise concerns about annoyance or proportionality.” Order, at pp. 1-2.

OK, so informal discovery may be unrecognized discovery. Except.

Rule 70(a)(1): “However, the Court expects the parties to attempt to attain the objectives of discovery through informal consultation or communication before utilizing the discovery procedures provided in these Rules.” It would be easy enough to amend the Rule to rule out protective orders in informal discovery altogether.

Except.

In Fu Inv., abovecited, then-CSTJ Peter (“HB”) Panuthos went on to say: “Nonetheless, it is well settled that courts have inherent powers not derived from any statute to, inter alia, control the conduct of attorneys practicing before them and to regulate their own processes to prevent injustice.” 108 T. C., at pp. 410-411. (Citations omitted).

So may be some “informal” isn’t quite as informal as other informals.

Back in December, 2021, I pointed out that Tax Court Administrative Order 2020-02, 5/29/20, which required all documents filed at The Glasshouse on Second Street, NW, to be written in the English language, or to be accompanied by a certified English translation, was superseded by Tax Court Administrative Order 2021-01, 8/27/01, which omitted any such requirement. See my blogpost “No Hablamos Espanol,” 12/3/21.

There is no Tax Court Rule requiring the use of the English language; Rule 143(f) refers to the use of interpreters at trial, but the greatest part of Tax Court cases are disposed of without trial.

The website’s Guidance for Practitioners states: “All proceedings in the Tax Court are in English.” But this is based neither on statute nor Rule.

I am not trying to start a debate (more likely in these times a fistfight) over whether the US of A should adopt a national language by law. But as Tax Court has enough problems, why not make a Rule that documents and proceedings must either be in English, or, if a party requires translation of speech or documents, that party must provide a certified English translation of documents, and court-certified interpreters for oral communications?

It would save Ch J Kathleen (“TBS = The Big Shillelagh”) Kerrigan the trouble of telling Jose M. Reyes Reyes, Docket No. 4441-24, filed 3/22/24, to “file a proper Amended Petition, written in English only, setting forth (1) clear and concise statements of each and every error that petitioner allege was committed by the Commissioner in the determination of deficiency for 2020, and (2) clear and concise lettered statements of the facts on which petitioner base those assignments of error.” Order, at p. 1.

The surest way to sink a document without trace is to fail to scrub the metadata before sending. An extremely common wordprocessing software program saves dates, times, edits, authors, and probably several more things I haven’t mentioned, all invisible to the naked eye but easily accessible to the non-technophobic.

Ilana Jivago, Docket No. 5411-21, filed 3/21/24, finds that the management agreement and a rental agreement she submits in that format give Judge Mark V. (“Vittorio Emanuele”) Holmes some problems, in that both show metadata that states they were prepared well after the events they describe.

Ilana has a sad tale about reverse engineering pirates blowing up her perfumery business, so Judge Holmes gives her a bye on Section 6662 five-and-ten chops on COD from when her home mortgage was foreclosed. The mortgage in question wasn’t acquisition or improvement money (and the appraisal in support thereof proves it wasn’t improvement money), so qualified principal (not “principle,” as at Transcript, p. 9, line 12) residence indebtedness, per Section 163(h)(3)(B), is off the table. But Ilana never got the 1099-C, which the foreclosing mortgagee mailed to an address whereat she had not resided for four (count ’em, four) years.

In this age of securitization, where lenders rarely hold onto mortgages but sell them into the secondary market, where they’re sliced, diced, and pooled, servicing agents sometimes get things wrong. Their mistake might save the mortgagor.

Unhappily, the Genius Baristas have scrubbed the transcript of Judge Holmes’ off-the-bencher, so I cannot drag-and-drop any of his inimitable prose.

Now water cooler and scuttlebutt have been succeeded by that which began as servants, became the masters, and are now the enemy: the internet and the chat.

Judge Elizabeth Crewson Paris tells us all about it in Econfina Resources, LLC, Econfina Corporation, Tax Matters Partner Docket, No. 12980-22, filed 3/21/24. This is but one of six (count ’em, six; see Order, at p. 1, footnote 1) cases sprung from the subdivision of a parcel of Dixieland Boondocks, whereon are found, to judge from the valuations thereunto ascribed, some or all of the Fountain of Youth (sorry, Ponce de Leon, ya blew it), the Philosopher’s Stone, and dilithium crystals.

Judge Elizabeth Crewson Paris has to deal with an attempted IRS OCC clawback of an offhand chat remark by a Chief Counselor to a suggestion by the Group Captain to hit all Dixieland Boondockers with Section 6663 fraud chops. As is not infrequent, the chatgroup inadvertently included “a former partner of petitioner’s counsel’s firm.” Order, at p. 2.

“Can you claim fraud without the classic badges?” asked the Counselor. “Ha ha and ho ho,” yell the Econfinas, “bad faith! Scrap the fraud chops!” IRS ripostes with “deliberative privilege, seal it all.”

Judge Elizabeth Crewson Paris tells both sides she isn’t having it.

“Nothing in the group chat for which respondent asserts the deliberative process privilege reveals information of the kind the privilege was meant to protect. Those messages reveal no policy deliberations and, by respondent’s own admission, are an informal discussion among Chief Counsel attorneys. There are no modes ‘of formulating or exercising policy-implicating judgment,’…, nor do the messages ‘directly contribute to the formulation of important public policy,.” Order, at p. 3 (Citations omitted).

IRS initially suggested attorney work product, but abandoned that claim.

The Econfinas want Judge Elizabeth Crewson Paris to reconsider her order allowing IRS to amend the answer to assert the Section 6663 chops, claiming the chatting is new evidence.

“The group chat may be evidence relating to an alleged fact that must be proven or disproven at trial, namely, whether respondent obtained the supervisory approval necessary to satisfy section 6751(b), but it does not constitute ‘new evidence.’” Order, at p. 4.

Nothing is sealed, everything goes in.

Taishoff says that while Judge Elizabeth Crewson Paris is constrained by copious citation of precedent to restrict deliberative privilege to the most formal, high-level, appropriately labeled and protected Sinaiatical conclaves, that isn’t the only way policy is formulated. Apparently unbeknownst to the judiciary at the highest level, the internet exists, and people use it for everything. It has abolished time and space, to the extent that the world has shrunk from a village to the size of an iPad. That’s how we roll in the Twenty-First Century. Time for the higher courts to recognize this.

As for the “seal everything” approach, it’s time to put that gambit away. The ancient Japanese saying is right: “A word spoken, even the Emperor’s horsemen cannot bring it back.”