When you’ve blown a Rule 90 Request for Admissions and want to get out of what you’ve been deemed to admit, you’ve got to clear two (count ’em, two) bars.

Judge Elizabeth A. (“Tex”) Copeland will show you how, as she lets Cindat Manhattan Hotel Portfolio LLC, Docket No. 12905-20-, filed 3/20/24, out of at least some of theirs. Cindat missed three (count ’em, three) Requests, but woke up a couple weeks (hi, Judge Holmes) after the last was deemed, and wanted out. Cindat claimed “additional facts and items of proposed evidence have come about, and therefore Petitioner should not be subject to deemed admitted Admissions that are inconsistent with the evidence.” Order, at p. 1.

Looks like Cindat either changed counsel or retained counsel; good move.

First bar. Show facts that refute the deemed admissions. Merely claiming IRS can’t prove what you are deemed to have admitted isn’t enough. Show what you will prove (and can prove) on the trial. And DKI (deny knowledge or information sufficient to form a belief as to the truth of the deemed) is also a nonstarter. “We may deny a taxpayer’s motion to withdraw deemed admissions when it claims it has insufficient information to admit or deny facts of which it has personal knowledge.” Order, at p. 2. (Citation omitted). In short, you have enough to go to trial.

Second bar. Prejudice to IRS. “We should not lightly weigh the burdens of establishing admissions for a party who properly uses Rule 90 to advance litigation initiated by the opposing party. But neither should we find prejudice merely because the party who obtained the admissions would need to pursue its case on the merits.” Order, at p. 2. (Citations omitted). For example, a witness formerly available is now unavailable, documents formerly existing destroyed (e-mails purged), or last-minute attempts to disrupt trial strategy (ambush). In short, unfair surprise.

Cindat finds fault with IRS’ requests; claims they’re ambiguous. Judge Tex Copeland agrees, and lets Cindat clear up the ambiguities on the trial. Of course, any lawyer who can’t find an ambiguity should find another way to make a living. And IRS knew these objections to admissions were on the table, because Cindat had earlier moved to withdraw the admissions (denied without prejudice).

Admissions calling for legal conclusions going to the matters at the heart of the controversy are of course subject to withdrawal.

But the Request for Admissions remains a useful tool for pinning down an adversary. Draft carefully.

Just when you thought the Dixieland Boondockers were in the lead with cookiecutter cases of dubious merit, here’s Australia coming up on the outside. Judge David Gustafson has “about twenty similar cases involving issues related to the effect of closing agreements on the availability of the foreign earned income exclusion for income earned in Australia,” on the radar as he considers Alejandro Nunez & Amy Nunez, Docket No. 6500-20, filed 3/19/24, at p. 1.

Apparently the leader of the pack is Cory H. Smith, who figured in my blogpost “Unclosed?” 8/25/22. Check it out.

Anyway, Cory is in a hold at DC Cir, and Judge David Gustafson is in no immoderate haste to deal with Al’s & Amy’s cookiecutter summary J motion. IRS and Al & Amy want to go on briefing, but DC Cir, a great fan of going early to the bullpen (cf. Mandy Mobley Li), had an amicus come in to deal with the Section 7121 closeouts The amicus said DC Cir should affirm Tax Court.

Whereupon IRS broke out the ice bucket and the Veuve Cliquot, but Cory filed a brief in opposition.

Al & Amy claim residence in Australia at material time, so any appeal goes to DC Cir, per Section 7482(b)(1) (flush language).

“Although both parties suggest that we should proceed with briefing this case, any appeal from this case would be to the D.C. Circuit, in which Smith remains pending.” Order, at p. 2.

In the interest of judicial economy, therefore, keep filing status reports, guys.

Translated from judgespeak, this means “Give me a break, guys, I don’t need drafting exercises, you admit there are no factual issues here so the law is whatever DC Cir says (or whatever their outside expert says) it is. Wake me up when they’ve told you.”

Twenty (count ’em, twenty) cases from the original Outback? Advance, Australia fair!

When Tax Court documents can be sealed has been a good source of blogfodder for ten (count ’em, ten) years, especially when other sources fall fallow. For example, see my blogpost “Guess Who Reads My Blog? – Part Deux,” 8/11/14.

Cora J. Herron, Taji Rayshard Jacobs, Next Friend, Docket No. 1363-24, filed 3/18/24, shows how working with IRS’ counsel can protect personal information. IRS moves to change parties and amend caption, a standard motion. Ch J Kathleen (“TBS = The Big Shillelagh”) Kerrigan tells the story.

“…respondent advised that the petition herein on behalf of Cora J. Herron was filed, and signed, by her nephew Taji Rayshard Jacobs. The motion further explained that petitioner was 89 years old and under full-time care, as well as that Taji Rayshard Jacobs had been appointed as her attorney-in-fact via a power of attorney. A copy of the power of attorney was attached to the motion. Given those circumstances, respondent requested that Taji Rayshard Jacobs be recognized as next friend of petitioner for purposes this case, and respondent noted that, per Taji Rayshard Jacobs, there was no objection to thegranting of the motion.

“Subsequently… respondent filed a Motion for Leave To File First Supplement to Motion to Substitute Parties and Change Caption Under Seal … and simultaneously lodged therewith the corresponding First Supplement to Motion to Substitute Parties and Change Caption. Attached to the supplement was documentation establishing petitioner’s medical condition and resultant incompetence independently to pursue this case.” Order, at p. 1.

Medical information is sealed, of course, to protect privacy, as required by law.

And a Taishoff “Good Job” to IRS’ counsel AMB and JLL.

Tax Court Judges and STJs have to din it into the ears of practitioners used to the automatic deposition notices in other Federal Courts (and most State courts): “Nonconsensual depositions are an extraordinary method of discovery that can only be taken pursuant to an order from our Court. These depositions are available only where a party or nonparty witness can give testimony that is discoverable within the meaning of Rule 70(b) and where such testimony practicably cannot be obtained through informal consultation or communication under Rule 70(a)(1), interrogatories under Rule 71, requests for production of documents under Rule 72, or consensual depositions under Rule 74(b).” This is taken from Carl B. Barney, Docket No. 5310-22, filed 3/15/24.

But Carl gets to depose Mr. Z, the RA Carl claims done him wrong. Carl claims Mr. Z arbitrarily, capriciously, and with malice aforethought refused to let Carl bail from his installment sale election, thereby costing Carl tax on $400 million. IRS claims privilege, but produces no privilege log or specific allegations. IRS claims record rule (it’s all in the administrative record, “all ye know on earth and all ye need to know”), and Greenberg’s Express (“the door is shut, we may not look behind.”).

But Judge Christian N. (“Speedy”) Weiler isn’t having any.

Yes, Carl can’t ask about the appraisal of some of Carl’s Sub Ss, as that goes behind the numbers in the SNOD, thus trenching on Greenberg’s Express and the deficiency trial de novo exam-is-irrelevant.

But here abuse of discretion is the issue, and the administrative record needs filling out.

“… we reject respondent’s contention that the administrative record contains all relevant facts; since at this stage in the case, we cannot accept that respondent’s potential abuse of discretion arises solely out of the administrative record. As such, the deposition of Mr. Z appears, at least in part, reasonably calculated to lead to the discovery of admissible evidence and fit within the scope of discovery as prescribed by Rule 70(b).” Order, at p. 4.

Besides, IRS has stonewalled Carl.

“Both parties agree that an issue for trial is whether respondent properly exercised his discretion in denying petitioner’s request to revoke his election out of the installment method. Relying on Mr. Z’s contemporaneous written explanation denying petitioner’s request, respondent contends how Mr. Z (some six years later) ‘cannot provide any additional information’ to help determine whether respondent’s actions were in fact an abuse of discretion. Similar to our finding above, we are not prepared to predetermine the relevance or usefulness of Mr. Z’s testimony and rely solely on his written explanation at this point in the proceedings. Ultimately, the deposition may (or may not) bear fruit for petitioner in his inquiry.” Order, at p. 5. (Name omitted).

Carl has checked all the boxes: can’t get the evidence any other way, this is not a substitute for cross-examination (Mr Z has direct knowledge of materials facts needed to decide the claim), and Carl has had no prior opportunity to get Mr. Z’s story.

Carl can’t ask about the Sub Ss, but he can ask “whether respondent properly exercised discretion in denying petitioner’s request to revoke the election out of the installment method.” Order, at p. 6.

Whistleblowers, innocent spousers, and record-rulers, please copy. While orders have no precedential value, this line of reasoning might get you some yardage.

Edited to add, 3/16/24: A Taishoff “Good Job, First Class” goes to Carl’s trusty attorneys, who “enjoy an unparalleled reputation for excellence and integrity in the tax community,” if they do say so themselves.

That is, Judge Albert G. (“Scholar Al”) Lauber seems to take his departure from Amanda Iris Gluck Irrevocable Trust, Index No. 5760-19L, filed 3/15/24, based upon a statement attributed to Albert Einstein: “Doing the same thing and expecting a different result is insanity.”

Judge Scholar Al is leaving this case, kicking the same to the general docket “for trial or other disposition,” after again denying summary J both to AIGIT and to IRS. For the previous outings of this saga, see my blogpost “Sue Now, Pay Later,” 5/26/20, and “No Summary J Either Way,” 4/8/22.

So notwithstanding anything in either of the foregoing above-cited blogposts at variance therewith or to the contrary thereof, both AIGIT and IRS are trying for summary J again. No indication that any discovery, formal or informal, has been sought or taken place.

“Petitioners’ motion is largely a reiteration of the summary judgment motion filed on December 2, 2021, which we denied on April 8, 2022. Now as then, petitioners have supplied no factual evidence, merely assertions made on tax returns, to support the critical elements of their argument. And while respondent makes that point convincingly, he has a hard time denying that there remain genuine disputes of material act—chiefly, whether the entries on the tax returns relied upon by petitioners comported with reality. We will accordingly deny both parties’ Motions.” Order, at pp. 1-2.

AIGIT and her two (count ’em, two) sister trusts are indirect partners in a tiered-LLC TEFRA partnership. The issues are whether there is qualified nonrecourse financing giving basis in such partnership, if so how much, and whether the loss which such basis gave AIGIT could be used in the year wherein such partnership terminated per Section 708(b), if it did so terminate in that year.

All AIGIT and her sisters have is entries on their tax returns, and even those don’t match up with the story they now tell.

So Judge Scholar Al has obviously had it with this case.

Now I am a great fan of summary J, as I’ve said often enough.  But enough is enough. We have a State court rule here in Excelsiorland, Civil :Practice Rule 3212(a), that says “any  party may move for summary judgment in any action, after issue has  been  joined;  provided  however, that the court may set a date after which no such motion may be made, such date being no  earlier than thirty  days after  the  filing  of  the note of issue (that’s a statement that discovery is complete or has been waived). If no such date is set by the  court, such motion shall be made no later than one hundred twenty days after the filing  of  the note of issue, except with leave of court on good cause shown.”

I’m not suggesting Tax Court adopt this rule in its entirety, but a Rule stating no motions for summary J unless discovery is complete or been waived, otherwise than by leave of Court on good cause shown, should be adopted. That would stop such charades as these.

It’s Spring cleaning time on Dawson’s Creek. The Genius Baristas have grabbed mops and scrubbies, and will turn to on Saturday, March 16.

Here’s the skinny.

“DAWSON will be offline for scheduled maintenance for approximately 2 hours starting at 11:30pm EDT on March 16th, 2024. During this time users will not be able to access DAWSON, review any case information, or file documents electronically. Updates on this scheduled maintenance will be posted to our Statuspage: https://status.ustaxcourt.gov/“

Tax Court aficiònados will mourn the death of Judge John O. Colvin (on 3/11/24).  Even though the position of Public Affairs Officer remains vacant with no sign that it will be filled anytime soon, the Press Release announcing the sad news gives a proper heartfelt appreciation, quite unlike the recent anonymous departure of a STJ, which had all the air of the locked room with the pistol on the desk, and a single bullet in the chamber. To the contrary, the salute to Judge Colvin was the true 21-gun variety.

And end to another trail comes today, but with all participants standing. Long-time readers of this my blog may remember Lance C. Standifird, T. C. Memo. 2024-30, filed 3/14/23 (happy π day!).  Those new readers should check out my blogpost “The Fraudulent Partnership,” 11/15/17, for the backstory on Lance C. Standifird, RFC (Rounder First Class).

Judge Travis A. (“Tag”) Greaves finds enough badges of fraud in the 2017 off-the-bencher more particularly bounded and described in my aforesaid blogpost above-cited (as my paid-by-the-word colleagues would say) to make Lance RFC a Vulture Scout, but not enough to invoke collateral estoppel (issue preclusion) as to Lance RFC’s fraudulent failure to file personal returns.

“The issue of petitioner’s fraudulent failure to file his personal returns was not in front of the Court in the partnership-level proceeding. There we found that petitioner’s brother signed the partnership returns with an intent to evade tax. In contrast, this case requires us to determine whether petitioner’s failure to timely file his personal tax returns was fraudulent. Additionally, the Court’s discussion of petitioner’s involvement with the partnership’s fraudulent returns was not essential to the determination regarding the extension of the periods of assessment under section 6229(c). In the partnership-level proceeding respondent asserted that petitioner signing the false returns was a basis for extending the periods of assessment. While we acknowledged this argument as possibly true, we found it sufficient that petitioner’s brother signed the false returns regardless of petitioner’s involvement with the returns. Therefore, the issue regarding petitioner’s fraud was not essential to the partnership-level proceeding. Collateral estoppel does not satisfy respondent’s burden of proof on fraud.” T. C. 2024-30, at p. 16.

But because he was treated as a partner in the off-the-bencher, and because the partnership was adjudicated a sham, Lance RFC can’t escape or retry the facts thereat determined. Lance RFC gets nailed.

IRS is submarining again, though, trying to get Section 6651(a)(2) failure-to-file-timely chops post-hearing, although never raising same in SNOD or answer, and never moving to amend answer. Judge Tag Greaves stifles that. “We have jurisdiction to consider an addition to tax ‘if [the] claim therefor is asserted by the Secretary at or before the hearing or rehearing.’ See §6214(a). We will not consider issues that have not been properly pleaded. Respondent has not asked the Court for leave to amend the answer. Thus, the issue of penalties under section 6651(a)(2) is not properly before the Court.” T. C. Memo. 2024-30, at p. 18 (Citations and footnote omitted).

The footnote says IRS tried to use a catchall phrase “as determined in the Notice of Deficiency” in their answer, but they never mentioned Section 6651(a)(2), only Section 6651(a)(1).

Takeaway- Practitioners, watch for these moves, and have your depth charges ready.

Just about two-and-a-half years ago I predicted that Anthony Aulisio, Jr., T. C. Memo. 2024-29, filed 3/13/24, “(S)hould be quite a trial.” See my blogpost “The Limits of Summary J,” 10/4/20.

Was it ever! AA’s testimony (or testimonies, as they were varied) was definitely self-service, when his amended but unprocessed return for year at issue didn’t contradict him. For some samples see T. C. Memo. 2024-29, at p. 16, footnotes 13 and 14.

And AA’s documentation and substantiation fell far short of convincing Judge Alina I. (“AIM”) Marshall.

I’ll spare you the forty (count ’em, forty) pages of her prose.

Few fields so narrow and technical as the Section 41 Qualified Research Expenses (QRE) have generated so much blogfodder. Today it’s Ramesh C. Kapur and Chandra Kapur, T. C. Memo. 2024-28, filed 3/12/24, fighting over a $186K deficiency and $7K of chops for four (count ’em, four) separate years.

All Judge Cary Douglas Pugh has for today is whether to limit discovery to the two biggest items of a random sample of the 2K -3K projects Ramesh’s Sub S and its couple hundred employees worked on (hi, Judge Holmes), or whether to allow IRS to grill 16 of Ramesh’s employees and go through the whole frame. The employees’ wages are the subject of the deficiency.

It comes down to the third leg in the Section 41 table, the “business component” of the claimed additional research. “We note that entitlement to research credits is based on evaluation of each ‘business component.’ § 41(d)(2)(A); Treas. Reg. § 1.41-4(b). A ‘business component’ generally is defined as a product or process that the taxpayer either holds for sale, lease, or license or uses in its trade or business. § 41(d)(2)(B).” T. C. Memo. 2024-28, at p. 2, footnote 3.

IRS says they can’t evaluate the random sample without knowing what business components the research generated, and Judge Pugh buys that.

Now sampling is a generally-applied method when many projects are involved, and a review of every one of them would cost disproportionate time and  money. While this is an unusual case, in that the parties can’t even agree to use a sample at all, here “…petitioners have not given respondent, or us, enough information about all of the projects to determine whether a sample of two to four projects would be a representative sample.” T. C. Memo. 2024-28, at p. 5.

Ramesh claims the two biggest of the sample projects amount to 72% of all the QRE, but that’s not good enough for Judge Pugh.

“Evaluating compliance with section 41 necessarily involves consideration of the underlying business components. And petitioners agree that they have the burden of showing entitlement to the claimed research credits. See Feigh, 152 T.C. at 270. As we have said previously, ‘[a]bsent an agreement between the parties, project sampling improperly relieves the taxpayer of its burden of proving entitlement to the research credit claimed.’” Betz v. Commissioner, T.C. Memo. 2023-84, at *77 n.30 (citing Bayer, 850 F. Supp. 2d at 538, 545–46).” T. C. Memo. 2024-28, at p. 5.

For Feigh, see my blogpost “The Golden Gophers vs Scholar John – Part Deux,” 5/15/19; for Betz, a/k/a Lincoln, see my blogpost “Uncertainty, Investigation, Experimentation,” 7/6/23.

Of course, there’s always a Plan B, and Judge Pugh has got it.

“to the extent that petitioners believe that the expense is disproportionate they can limit their claim to research credits for QREs relating to the two projects they represent should be the sample. But if they claim more research credits, they must be prepared to substantiate QREs. And nothing bars petitioners from identifying information regarding business components in the sampling frame that then might allow respondent to agree to a representative sample.” T. C. Memo. 2024=28, at p. 6.

So while y’all are sorting out the sample, chaps, file some status reports.

George Thompson’s million-selling 1913 comic monologue reappears as Judge Elizabeth A. (“Tex’) Copeland provides Patricia S. Chappell,  T. C.  Sum. Op. 2024-2, filed 3/11/24, with a Cohan approximation for the cellphone use, equipment,  and “service charges” for the cellphones she and her son used in her tax prep business.

Used to be that cellphones required strict substantiation, like automobiles, but not any more since 2009. Judge Tex Copeland allows more of what Patricia paid during tax season (January through May), and part of what she paid for her son’s phone, despite a written IC agreement with son that he would pay all his own expenses. “…it is not unusual to provide cell phones to independent contractors in order for them to speak to the business’ owner and its clients.: T. C. Sum. Op. 2024-2, at p. 7, footnote 5. That lets the owner avoid call waiting while IC talks to friends on personal phone. And buying the phones invokes Section 179 expensing, even if not claimed as such.

Patricia’s vehicle expense substantiation is truly substandard, but she can show business travel from home office to satellite office, and other trips, so she gets the standard mileage for the business miles her testimony proves, based on what her cellphone software pulls via GPS.

See my blogpost “Pilot Saved by GPS,” 11/14/18, for a similar story.