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ME, MYSELF AND I

In Uncategorized on 08/20/2018 at 18:11

Catherine Ann Heath, Docket No. 6155-17, filed 8/20/18 is disputing a couple K-1s (hi Judge Holmes), and whether she was a partner in either of the entities that issued her the same.

IRS caves in its bid for summary J for the contents of the K-1s and the Section 6662(a) chops in connection therewith. But Catherine has raised enough doubt in the mind of STJ Robert N. Armen (“The Judge with a Heart”) so that he tosses the rest of IRS’s summary J motion as well.

Was Catherine tossed as a partner at the end of the year preceding the year at issue? That’s for a trial.

So why is this a designated hitter?

Well, Catherine wants to add to the caption Michael Heath. The SNOD was issued both to Michael Heath and C. Eberhard Heath, but Mike didn’t sign the petition.

Now we all know that anyone wanting to get aboard in a SNOD fight has to do so within the magic 90 days.

“See Rules 34(a), 34(b)(7); cf Rule 41(a) (‘No amendment shall be allowed after expiration of the time for filing the petition, however, which would involve conferring jurisdiction on the Court over a matter which otherwise would not come within its jurisdiction under the petition as then on file.’).” Order, at p. 4.

Of course, there’s what some call the Dead Man’s Rule.

“However, ‘a case timely brought shall not be dismissed on the ground that it is not properly brought on behalf of a party until a reasonable time has been allowed after objection for ratification by such party of the bringing of the case’. Rule 60(a). If such ratification is allowed, it will relate back to the time of the filing of the petition. Rule 41(d).” Order, at p. 4.

It’s called the Dead Man’s Rule because it’s usually applied when a survivor petitions on behalf of a decedent where letters testamentary or administration haven’t issued. Once the personal rep or ex’r has been appointed, the case goes on under their name.

In other cases, one spouse signs in blue ink and the other doesn’t. Or there are photocopied signatures, when wet-inks are needed.

But Catherine never mentioned Mike, and evinced no clear intent to include him from the get-go.

“The petition filed in this case does not objectively indicate an intent to be a joint petition by Catherine Heath and her husband Michael Heath. Catherine Heath filed and signed the handwritten petition herself. She captioned the case in her name alone. In explaining her grounds for contesting the alleged deficiency she repeatedly used the first-person personal and possessive pronouns, both in the petition and in a handwritten note on a copy of the deficiency notice that was attached to the petition. Petitioner also attached two letters to her petition, signed only by her, wherein she exclusively uses the first-person personal pronoun in contesting the principal adjustment underlying respondent’s deficiency determination, which adjustment appears to involve only her and not her husband as well. Indeed, petitioner states in her Motion To Change Or Correct Caption that the underlying tax issue had nothing to do with her husband and “arose before they were married.” Further, petitioner filed the Motion To Change Or Correct Caption virtually a year after she filed the petition, six months after counsel filed an entry of appearance, and admittedly in response to respondent’s collection efforts directed at her husband. In sum, there is no objective indication that the original petition was intended to be a joint petition. Consequently, the Court will deny petitioner’s Motion To Change Or Correct Caption. Whether respondent might agree, administratively, to defer collection against petitioner’s husband pending resolution of the present case is something for discussion between the parties and not a matter in which the Court may, or will, become involved.” Order, at pp. 4-5. (Footnote omitted, but even when Catherine’s counsel entered appearance, it was only for Catherine, and even when the motion to change caption was made, it wasn’t accompanied by Mike’s ratification of the petition).

Me, myself and I means just that.

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ESOPS FABLES

In Uncategorized on 08/20/2018 at 17:43

Ernie Ryder’s Sub S ESOPs finally get deconstructed in Pacific Management Group, BSC Leasing, Inc., Tax Matters Partner, et al., 2018 T. C. Memo. 131, filed 8/20/18, a consolidation of eleven (count ‘em, eleven) cases, all involving the water boys who put together an aquatic environment firm that ranged from water traps on golf courses to artificial lakes and waterfalls.

I’ve blogged Mr Ryder’s various maneuvers and delictions before. I’ll skip the cross-references.

Ernie’s gambit this time was stuff-the-ESOPs. The original outfit was a group of C Corps, so the principals were being double taxed. Ernie had them each form a Sub S with an ESOP, the only beneficiary of  each of which was a principal. He set up the usual ”management” and an original  “factoring” skim via a partnership of the sub Ss, which drained the profits of the C Corps, paying nominal salaries to the principals, and having the S Corps stuff the ESOPs.

The C Corp supposedly sold its receivables to a partnership of the S Corps in exchange for some “management fees” that partnership was skimming from the C Corp. Of course, the factoring partnership did none of the things a commercial factor does (pays up front at a discounted rate for the receivables, collects amounts due themselves, files UCC-1 financing statements, gets verification of services rendered and monies owed). In effect, the C Corps had to fund the factor via the “management fees”, not the other way round. I’ve represented factors, and a tougher crew would be hard to find; these guys weren’t in that league.

Ernie of course got a piece of the tax-avoidance action.

At the end of 2005, Congress ended the single-member ESOP dodge. Whereupon Ernie set up a new structure with more players, but the same dodge.

IRS was late with the NBAPs to the notice partners, but that’s not a jurisdictional defect. And even where the Sub Ss who were partners elected out of TEFRA, the sole shareholders all got SNODs, so they’re in. And since the items in question are before the court, the fact that the FPAA partnership itself is out for want of jurisdiction (no partner left) doesn’t matter.

First up, Judge Lauber blows off the C Corps’ deductions. The factoring deal totally ignored industry standards (see my comment above about professional factors).

“In a true factoring relationship, the factor supplies working capital and liquidity to the client.  Here the opposite was true:  The client provided working capital to the factor to enable the factor to do the factoring.  There is no factual basis whatever for petitioners’ assertion that the factoring arrangement ‘facilitated working capital.’  The scheme was a circular flow of funds whereby the (C Corps] supplied liquidity to themselves.” 2018 T. C. Memo. 131, at p. 46 (footnote omitted).

As for the “management fees” and bonuses paid the principals, Judge Lauber does a mix-and-match based on IRS’ expert and adding back the phony factoring money, and gives the principals more than IRS, but a lot less than Ernie’s numbers.

“The principals hired Mr. Ryder to create a tax structure that would enable them to defer taxation of substantial portions of their income, paying current tax only on income needed to defray current living expenses.  The bulk of the [C Corps’] profits was distributed through [partnership] as disguised expenses and was invested for the principals’ benefit on a tax-free basis.  It is clear that the funds extracted from the [C Corps’] in this way ‘create[d] “economic gain, benefit, or income to the owner-taxpayer[s].’”” 2018 T. C. Memo. 131, at pp. 67-68. (Citation omitted).  Thus constructive C Corp dividends to the principals, which Judge Lauber apportions as best he can “scientific accuracy” being impossible.

 

 

“WHOLESALE RETURNS OF CONJECTURE OUT OF SUCH A TRIFLING INVESTMENT OF FACT”

In Uncategorized on 08/20/2018 at 15:39

Mark Twain has given me a headline, but Ch J Maurice B (“Mighty Mo”) Foley has given me a minuscule quantum of fact in Beverly Waldorf Tokarz f.k.a. Beverly Mary Waldorf, Docket No. 3797-18, filed 8/20/18.

All Ch J Mighty Mo has to say is that IRS’ motion to toss Bev’s petition is granted for every year therein, for want of current SNOD or NOD.

It’s what happens next that has me conjecturing.

“In his motion, respondent requests that the Court impose a penalty pursuant to Internal Revenue Code (I.R.C.) section 6673. That section authorizes the Court to require a taxpayer to pay to the United States a penalty not in excess of $25,000 whenever it appears that proceedings have been instituted or maintained by the taxpayer primarily for delay or that the position of the taxpayer in such proceeding is frivolous or groundless. Although the Court directed petitioner to file an objection, if any, to respondent’s motion, petitioner has failed to do so.” Order, at p 1.

A frivolity chop?

Can it possibly be that someone at IRS actually read my blogpost “I’m Beginning to See the Light,” 4/9/18?

Anyway, Ch J Mighty Mo gives Bev a bye on the chop, but warns her not to try this gambit (whatever it is) again.

2500 POSTS

In Uncategorized on 08/17/2018 at 16:08

136,869 views in 140 countries, semiautonomous regions, colonies and geographic waypoints, by 55,864 visitors. More to follow, if time permits.

OLD BILL GETS ON HIS BIKE

In Uncategorized on 08/17/2018 at 16:02

I’m certain y’all will recollect Old Bill Wise, distinguished Chicago attorney and old technophobe. No? How evanescent is the bubble reputation, even when it isn’t in the cannon’s mouth. It’s Friday, it’s hot, so check out my blogpost “(Old) Technophobes, Rejoice,” 12/18/13.

Old Bill Wise is currently involved in the Chicago Tribune case, which is way too big for me, who am “only a general practitioner with very limited experience and mediocre qualifications” to blog.

But Old Bill Wise is going to bat for Laidlaw’s Harley Davidson Sales, Inc., Docket No. 14616-14L, filed 8/17/18. Notwithstanding some recent bad press for Harley-Davidson, Old Bill Wise wants in as amicus curiæ.

IRS objects, but Judge David Gustafson, obliging to young and old, technophilic and technophobic alike, doesn’t even mention what IRS’ objections might be, but welcomes Old Bill Wise’s interjections.

Of course, Laidlaw’s Harley Davidson Sales, Inc., can reply, and IRS’ can sur-reply, taking on both Laidlaw and The Tribune.

For the backstory on Laidlaw’s Harley Davidson Sales, Inc., see my blogposts “SOL On SOL?”10/16/15, “Obliging, Toujours Obliging,” 1/3/18, and “Obliging Gets Results,” 1/13/18.

Interestingly, I see no motion by Old Bill Wise to file on paper. He must be a quick study.

CUT UNCUT

In Uncategorized on 08/17/2018 at 13:51

8 Cir has a laundry list of factors Judge Kerrigan missed or misapplied in Medtronic, Inc. & Consolidated Subsidiaries, No. 17-1866, filed 8/16/18.

For Judge Kerrigan’s foray into the Comparable Uncontrolled Transaction, see my blogpost “This Is A Memo?” 6/10/16.

Y’all will recall Judge Kerrigan dwelt heavily on the Siemens deal (which 8 Cir calls “Pascesetter”), and did her own mix-and-match with the dueling experts.

8 Cir dissects poor Judge Kerrigan’s 144 pages in just 13 (count ‘em, 13) pages, including concurrence. Siemens grew out of patent infringement, not licensing of intangibles; Siemens had a lump-sum payout, whereas this was a royalty pay-as-you-earn; things other than patents are involved here, and not in Siemens; this is direct licensing, not cross-licensing; litigation risk and product liability weren’t considered in Siemens.

As Mark Twain said when he and and the great Henry Fairfield Osborn reconstructed a dinosaur skeleton, “It is the very way Professor Osborn and I built the colossal skeleton brontosaur that stands fifty-seven feet long and sixteen feet high in the Natural History Museum, the awe and admiration of all the world, the stateliest skeleton that exists on the planet. We had nine bones, and we built the rest of him out of plaster of Paris.” Twain, Is Shakespeare Dead?

But in deference to poor Judge Kerrigan, Judge Wollman (concurring) realizes the problem.

“To conclude, “any search for a ‘comparable uncontrolled [transaction is “undoubtedly quixotic.”” Order, at p. 13 (Citation omitted).

But still Tax Court is bound by Reg. 1.482-1(D)(1).

A minor Taishoff rant follows. These Regs are at least forty years out of date as far as modern business practices are concerned. Judge Kerrigan tried to craft the best result she could while giving lip service to these obsolete impossibilities. Expecting Congress or Treasury to play catch-up with the best brains in the private sector is what gave us the Brewster Buffalo fighter plane against the Mitsubishi A6N Zero.

But wait, there’s more, as the midnight telehucksters say.

As Judge Reinhart died before Altera Corporation and Subsidiaries, No. 16-70496, filed 7/24/18, was published, 9 Cir has a Mulligan going on in October. See my blogpost “Aspirational Goals,” 7/24/18, for the backstory.

“LONG, LONG TRAIL A’WINDIN’” – PART DEUX

In Uncategorized on 08/17/2018 at 00:19

Two venerable veterans furnish materials for designated hitters today, and since they churned up good blogfodder I’m sorry to see them go.

First up, Judge David Gustafson goes beyond vacating his own decisions. While denying vacation to Douglas Stauffer Bell & Nancy Clark Bell, Docket No. 1973-10L, filed 8/15/18, he does give Nancy Bell a hint about when to appeal.

This, even though Doug & Nancy Bell never cooperated with IRS to prepare for trial, despite Judge David Gustafson’s almost-paternal directions on numerous occasions. After Judge Gustafson entered decision in June, after Doug & Nancy Bell ignored Judge Gustafson’s OSC, on the date set for the non-trial, Nancy Bell walks into court with some papers.

“On the morning of August 6, 2018, the date that the Bells’ now-closed case had been calendared for trial, and a month after the Court had entered its Order and Decision, Ms. Bell appeared in the courtroom in Winston-Salem, where another trial was ongoing. The Commissioner’s attorney assigned to this case was absent from the courtroom (appropriately, since decision had been entered in the case), was at her work station 30 miles away in Greensboro, North Carolina, and immediately drove to Winston-Salem to appear in this case. During a break in the proceedings in the other case, the Court called the Bells’ case and heard from Ms. Bell. She stated that she wanted to have her trial and that she had documents with her–documents, however, that she had not previously identified or exchanged with her opponent. Ms. Bell made comments that we construe as petitioners’ oral motion for reconsideration and their oral motion to vacate the Court’s Order and Decision entered on July 5, 2018.” Order, at p. 3.

Turns out August 6 was the last day a Rule 162 vacation motion could be made. So Judge Gustafson asked Nancy Bell why she sat out the last eight (count ‘em, eight) years. But she only wanted to go to trial with these unexchanged documents.

Nancy Bell gets tossed, of course. But Judge Gustafson takes his text from a much more exalted authority who said something about forgiving seventy times seven times.

“At the August 6 hearing, Ms. Bell asked questions about appealing this Court’s decision. It is not our place to advise her. However, we note the following truisms: The period for filing an appeal in this case is ‘90 days after the decision of the Tax Court is entered.’ I.R.C. section 7483; see also Tax Court Rule 190(a). Decision was entered July 5, 2018 (see Doc. 72), and the 90-day period would expire October 3, 2018. However, Rule 13(a)(1)(B) of the Federal Rules of Appellate Procedure provides: ‘If, under Tax Court rules, a party makes a timely motion to vacate or revise the Tax Court’s decision, the time to file a notice of appeal runs from the entry of the order disposing of the motion”–i.e., from the date of this order. By so stating, we do not imply that such an appeal would have any merit.” Order, at p. 4.

And not a single Section 6673 chop in sight. IRS’ counsel is almost as obliging as Judge David Gustafson.

In the nightcap of this doubleheader, there comes to the mound Judge Mark V Holmes. And he throws smoke at IRS in Renka, Inc., Docket No. 15998-11R, filed 8/15/18. And the smoke is labeled Chenery.

I missed the argument of a previous IRS try at summary J. And the Renka team never raised Chenery back then. See my blogpost “Chen-Chenery,” 8/21/14.

For those who tuned in late, the Chenery doctrine states that when an administrative agency’s actions are under review, the actions stand or fall based on what evidence the agency had and what explanation they gave for their decision, not what they might have decided or what they came up with later. In other words, no could’a would’a should’a.

But does the Chenery doctrine apply in ESOP cases? You betcha, because the parties agree and so does Judge Holmes. This is a new day, and the old question raised back in 2014 about applying Chenery to ESOPs is answered with a thwacking great affirmatory, good buddy.

So IRS is thoroughly trounced. They relied on the 1998 status of the Renka ESOP to disqualify the plan, but the 1998 facts showed the plan was qualified. That it might have been disqualified later is nothing to the point. IRS relied on 1998; IRS is stuck with 1998.

Beside, correctly disqualified plans can’t subsequently migrate to qualified status; so a correctly qualified plan doesn’t migrate to disqualification.

Maybe IRS can try again, but there’s a bunch of closed years in between.

“Next the Commissioner suggests we should ignore the letter’s details and consider instead its ‘independent gravamen’ (emphasis in original). Unsurprisingly, he doesn’t cite any authority that says we can decide whether a final agency determination was an abuse of discretion by considering only the determination’s gravamen. It’s true that we can ‘uphold * * * [an administrative agency’s] decision of less than ideal clarity if the agency’s path may reasonably be discerned,’ Bowman Transp., Inc. v. Arkansas-Best Freight Sys., Inc., 419 U.S. 281, 286 (1974), but the reasoning in the Commissioner’s letter here isn’t ambiguous — it’s just wrong.” Order, at p. 2.

There’s much discussion about “management” in an affiliated service group; see Section 414, if you suffer from terminal insomnia. But Renka didn’t manage, they did the job; they weren’t even a player-coach, they were players. And IRS’ only argument is a proposed regulation they later withdrew. Proposed regulations are just argument. And an argument based on an argument is nothing.

Renka wins.

THE INDIANS STILL AREN’T TAXED

In Uncategorized on 08/15/2018 at 16:16

But He Is

Amas Canzoni, 2018 T. C. Memo. 130, filed 8/15/18, jogged my memory. He featured all the way back in August, 2016 in my blogpost “Indians Not Taxed – Part Deux,” 8/25/16.

As I said then, Judge Kerrigan missed the chance to declare that, whether or not the Indians are taxed, Amas is.

But she got a second chance, and missed it.

Amas filed chapter as soon as Judge Kerrigan entered her decision, which whanged Amas’ pate for the tax he never paid. So Judge Kerrigan vacated her decision in deference to 11USC§362(a)(8), and waited on Bankruptcy Court (WDWA) to adjudicate Amas.

USBCWDWA took its time, but eventually tossed Amas, undischarged, in May, so IRS got an OSC why Amas’ pate shouldn’t be rewhanged.

Amas responded, but what he had to say is buried in the Glasshouse files, because Judge Kerrigan reissues the 2016 T. C. Memo. (No. 165) in idem verba, as my scholarly colleagues like Peter Reilly, CPA would say.

Amas is taxed. Again.

A WHISTLESTOP FOR GREENBERG’S EXPRESS

In Uncategorized on 08/14/2018 at 15:49

I’ve called STJ Robert N. Armen “The Judge With a Heart,” as he let off the truly repentant. But today his designated hitter Marshall M. Goldstein, Docket No. 361-18W, filed 8/14/18, has no room for heart, as Appeals bounced Tax Exempt/Government Entities’ proposed 30-day letter for fear of litigation.

No proceeds, no whistleblower award.

Marshall wanted discovery, specifically the entire Appeals Transmittal and Case Memo that bounced TEGE, unredacted.

“Thus, on the Schedule of Adjustments that is a part of the Appeals Transmittal And Case Memo the description of the adjustments examined for 2013 and 2014 has been redacted, although the dollar amounts of TEGE’s adjustments and changes made by the Office of Appeals are not redacted. But of much greater concern to petitioner is the fact that most of the portion of that document that was authored by the Appeals officer, i.e., the Appeals Case Memorandum, is redacted. Thus, all of the section entitled ‘BRIEF BACKGROUND’ is redacted, as is the portion under ‘DISCUSSION AND ANALYSIS’ that is devoted to ‘Exam’s Position’. Although most of the portion under ‘DISCUSSION AND ANALYSIS’ that is devoted to ‘Law and Legal Analysis’ is not redacted, a substantial portion is. Further, most of the portion under ‘MY EVALUATION’ is redacted, as is most of the portion under the introductory heading ‘SUMMARY AND RECOMMENDATION’.” Order, at p. 5.

IRS wants to bounce Marshall’s petition for failure to state a claim. No money means no claim.

STJ Armen comes to the point fast. “The Court’s jurisdiction does not contemplate review of the Commissioner’s determination of the alleged tax liability to which the claim pertains.” Order, at p. 5 (Citation omitted).

“Petitioner contends that respondent may be hiding information and that the production of certain documents, specifically an unredacted copy of the Appeals Transmittal And Case Memorandum, would ‘provide transparency’ as to whether there was ‘no collection’ of proceeds.” Order, at p. 6.

Now discovery has been granted in the past, but then in cases where there were collected proceeds. The question was, to what extent did the information those petitioners furnished result in collecting those proceeds.

But here there were no proceeds. And therefore, whatever the reason Appeals chickened out, it avails Marshall not.

But tomorrow is another day. “Petitioner also argues that discovery is warranted because the information he provided may possibly lead to, somehow or sometime in the future, collected proceeds. Such argument strikes the Court as too speculative to warrant the granting of petitioner’s motion. Nor will the Court presume that the redaction of the Appeals Transmittal And Case Memo represents anything other than respondent’s good faith effort to comply with his view regarding limitations affecting the disclosure of confidential taxpayer returns and return information as prescribed by section 6103(h)(4).” Order, at p. 7.

In a manner worthy of Lord Tennyson, STJ Armen concludes “Whether the concession by the Office of Appeals was warranted is not a matter over which the Court has jurisdiction in this whistleblower case. In short, it is enough to know that the Office of Appeals fully conceded the case and then closed it; why it did so is not properly a subject for inquiry.” Order, at p. 7. (Citation omitted).

 Ours not to reason why. Once again, what happens before matters not. Greenberg’s Express rolls on.

OBLIGING? – HE’LL VACATE HIS OWN DECISIONS

In Uncategorized on 08/13/2018 at 14:26

Tax Court once again manifests its user-friendly side; Judge David Gustafson is even more obliging, and Ch J Maurice B (“Mighty Mo”) Foley is giving a couple nonpayor-nonjurors (hi, Judge Holmes) a second chance.

For the latter, see, e.g., as my already-on-their-second-Grey-Goose-Gibson colleagues say, Alicia Tisdale & Roland Tisdale, Docket No. 10833-18S, filed 8/13/18.

For Judge Gustafson’s latest, see Michael Paul Snoonian, 2381-17, filed 8/13/18.

Judge Gustafson warned Mike back in June that he needed to “…cooperate and communicate with his opponent (counsel for the IRS) in order to prepare his case for trial (and so that the parties can resolve among themselves any issues that can be resolved without the Court’s involvement). A petitioner’s failure to fulfill this duty can result in dismissal of the case ‘for failure … properly to prosecute’, pursuant to Rule 123(b).” Order, at p. 1.

Mike didn’t.

Judge Gustafson had warned him at the same time that a Section 7459(d) win for the IRS was on the menu.

Mike does nothing.

So Judge Gustafson tosses Mike’s petition for failure to prosecute. And hands IRS the win.

Except.

“Mr. Snoonian is advised that, under Rule 162, the deadline for filing a motion to vacate this decision would be 30 days after entry of the decision. By so advising him we do not imply that such a motion would be granted.” Order, at p. 2.

Totally obliging.