Archive for the ‘Uncategorized’ Category


In Uncategorized on 02/23/2018 at 14:54

I was nearly exhausted reading the back-and-forth between Michael J. Baumgartner & Keri A. Baumgartner, Docket No. 2670-16, filed 2/23/18, their trusty attorney, to whom I’ll hereinafter refer as “JC,” and IRS TCO and subsequent group manager.

Mike and Keri claim section 301.7430-1(f)(2), Proc. & Admin. Regs, lets them off the hook if they bypass Appeals before IRS folds. This is another Section 7430 legals, but Judge Nega isn’t dealing with justification.

No, it’s the old exhaustion-of-administrative remedies.

IRS is rather like the Pirates of the Caribbean when it comes to IRS’ Procedural Rules. They’re “guidelines,” ”aspirational goals.”

Besides, there were two (count ‘em, two) letters from the TCO and subsequent group manager that were in fact thirty-day letters, and Mike and Keri should have gone to Appeals.

Having elected not to go, the legals are off the table.



In Uncategorized on 02/23/2018 at 14:19

Judge David Gustafson has a bunch of Frequent Second miles. Today, he adds to them in James Houk and  Marsha Houk, Deceased, Docket No. 22140-15L, filed 2/23/18.

Marsha died between petition and Judge Gustafson’s grant of partial summary J to IRS on innocent spousery and collection alternatives. But Judge Gustafson left open the underlying tax liability. IRS sought remand to Appeals to consider same, got it, and Appeals issued a supplemental NOD (and Judge, thanks for not calling a supplemental NOD a “SNOD”; that would really confuse things).

Then Judge Gustafson decided to dismiss for lack of prosecution as to the late Marsha. But Jim and IRS settle before Judge Gustafson and the order clerks at the Glasshouse can crank out the dismissal order.

“…IRS informs the Court that Mr. Houk and respondent have reached a basis for settlement as to this case. The IRS reports that it has sent a proposed decision document to Mr. Houk captioned only in the name James Houk. The Court appreciates the parties’ work on the case. We note however, that the supplemental notice of determination underlying the matter was issued jointly to the Houks. Therefore, we will direct the parties to submit an appropriate decision document for the Court’s consideration bearing the appropriate caption of this case including the names of both Mr. Houk and Mrs. Houk.” Order, at pp. 1-2.

Just in case IRS’ counsel and Jim can’t sort all this out, Judge Gustafson orders “…Mr. Houk and the IRS shall submit a stipulated decision disposing of this case as to petitioners bearing the caption ‘James Houk and Marsha Houk, Deceased, Petitioners v. Commissioner of Internal Revenue, Commissioner’ [sic: I think you meant “Respondent,” Judge] and shall include the appropriate language dismissing for lack of prosecution insofar as the case relates to petitioner Marsha Houk, Deceased, and sustaining the determination of the Office of Appeals as to petitioner James Houk to the extent the parties have agreed.” Order, at p. 2.

Always obliging.


In Uncategorized on 02/22/2018 at 17:12

I Feel Your Pain

I’ve been tough on my family law colleagues when it comes to taxes. The Section 71(b)(1)(D) and 71(c)(2) miscues have been painful to watch. But when the client doesn’t follow what is clearly the right advice, what is the poor family lawyer to do?

Here’s John R. Kirkpatrick, 2018 T. C. Memo. 20, filed 2/22/18. That’s Doc John R, as he’s an MD.

In an acrimonious untangling from ex-Mrs Doc John R, the State Court entered an interim spousal maintenance order, requiring Doc John R to transfer $100K from his IRA “…directly (and in a non-taxable transaction) into an IRA appropriately titled in Ms. Kirkpatrick’s name within fourteen (14) days of the entry of this Order….” 2018 T. C. 20, at p. 4.

Of course, ex-Mrs Doc John R doesn’t have an IRA titled in her name, but apparently nobody hastens to make sure that she does, and Doc John R doesn’t try to do a trustee-to-trustee.

Instead, he draws down his IRA and sends ex-Mrs Doc John R his own checks during the year between interim decree and final divorce. Doc John R says it’s the same thing.

Only neither the statute nor the case law says it is. And as for what the State Court said in its decree, Federal tax law overrules State law, per the Supremacy Clause of the Constitution.

Judge Laro: “We agree with respondent that petitioner does not fall within the section 408(d)(6) exclusion from gross income and that the disputed distributions from his…IRAs should be included in his gross income.  As noted above, this Court has held that for section 408(d)(6) to apply, two requirements must be met: (1) there must be a transfer of the IRA participant’s interest in the IRA to his spouse or former spouse, and (2) the transfer must have been made under a section 71(b)(2)(A) divorce or separation instrument.  Bunney v. Commissioner, 114 T.C. at 265.  As the Court observed in Bunney, two commonly used methods of transferring an interest in an IRA are to (1) change the name on the IRA to that of the nonparticipant spouse or (2) direct the IRA’s trustee to transfer the IRA assets to the trustee of an IRA owned by the nonparticipant spouse.  Id. at 265 n.6.  In Bunney we rejected the idea that taking a distribution from an IRA and then making a payment to one’s spouse qualifies as a transfer of an interest in that IRA. Id. at 265.  We further clarified in Jones v. Commissioner, 80 T.C.M. (CCH) at 77-78, that the section 408(d)(6) exception is limited and that ‘interest’ is not synonymous with the money or other assets held in an IRA–indeed, that the withdrawal of funds from an IRA extinguishes the owner’s interest in that IRA or the appropriate proportion thereof.” 2018 T. C. Memo. 20, at pp. 15-16.

In law, form is substance. Congress said “interest” in the IRA, not “interest or money.”

Now second-guessing is a well-beloved indoor sport. The two-week deadline for the transfer may well have been unrealistic, given the need for the battling Kirkpatricks to act together after she “kicked him out of the house” and he moved to another State (2018 T. C. Memo. 20, at p. 3). And how well Doc John R was dealing with business matters at such a time may have indicated a need for closer oversight by his attorneys. Careful tax planning was surely evident; but it is too often the case that a brilliant play comes in from the bench and gets shredded on the field. Especially when the quarterback has been recently sacked.


In Uncategorized on 02/22/2018 at 16:39

If You Want Capital Gains Treatment

Once again we have the deal(er) or no deal(er) question. But Sugar Land Ranch Development, LLC, Sugar Land Advisors, LLC, Tax Matters Partner, 2018 T. C. Memo. 21, filed 2/22/18 succeeds where Donald Flood failed, simply by doing nothing.

For Don’s defeat, see my blogpost “Deal(er) or No Deal(er),” 9/28/12.

Ex-Ch J Michael B (“Iron Mike”) Thornton really likes the torpid tactics of the Sugar crew. And as they’re denizens of 5 Cir, Ex-Ch J Iron Mike drinks deep of 5 Cir learning and comes up with “Frequency and substantiality of sales is the most important factor.” 2018 T. C. Memo. 21, at p. 10 (Citation omitted).

Well, due to the subprime meltdown, the Sugar crew didn’t speak to brokers, post signs or anything but testify on the trial that their land “just sat there.”

Until a fellow developer, unsolicited, approached them and bought three big tracts.

Although the Sugar crew had kickers based on sales and subdivisions, they got nothing during the years at issue, and anyway, the kickers would be ordinary even if the base sales prices weren’t.

“More particularly, when the [subject] parcels were sold, they were not sold in the ordinary course of [Sugar crew]’s business:  [Sugar crew] did not market the parcels by advertising or other promotional activities.  [Sugar crew] did not solicit purchasers for the…parcels, nor does any evidence suggest that [Sugar crew]’s managers or members devoted any time or effort to selling the property; [Fellow developer] approached [Sugar crew].  Most importantly, sale of the…parcels was essentially a bulk sale of a single, large, and contiguous tract of land (which was clearly separated from any other properties by the [Houston Light and Power?] easement and the levee) to a single seller–clearly not a frequent occurrence in [Sugar crew]’s ordinary business.” 2018 T. C. Memo. 21, at p. 11.

And that the Sugar crew were developers and conducted themselves as such in other years and other deals is irrelevant here.

Best advice to get capital gain treatment: do nothing.


In Uncategorized on 02/22/2018 at 15:09

Fraud serves more than one purpose, for IRS as well as for the fraudster. That Obliging Jurist, Judge David Gustafson, revisits fraud as a tool for IRS, not only as grounds for the Section 6663 chop, but also to toll the statute of limitations, in Johannes Lamprecht & Linda Lamprecht, Docket No. 14410-15, filed 2/22/18.

Y’all will recall Judge Gustafson having Graev second thoughts about the Section 6751(b)Boss Hoss sign-off last September. No? See my blogpost “Misplaced Modesty,” 9/26/17.

Well, IRS let Judge Gustafson off the hook when they conceded they didn’t have the Boss Hoss for the fraud chops. But IRS does claim they have the Boss Hoss for the Section 6662 accuracy chops.

Except Jo & Lin claim SOL ran on years for which IRS issued the SNOD.

IRS wants to run a slalom, skirting the fraud chops for want of Boss Hoss, but nevertheless proving fraud to get around SOL, and hitting the finish line with the Section 6662 accuracy chops.

“Fraud was the main argument advanced by the Commissioner (among other alternatives) for why the statute of limitations remained open through the time that the IRS issued the NOD, pursuant to section 6501(c)(1). (ECF 30 at 7, ¶20(a).) Section 6501(c)(1) provides that the statute of limitations is extended indefinitely if a return is false or fraudulent, meaning that ‘the tax may be assessed, or a proceeding in court for collection of such tax may be begun without assessment, at any time.’” Order, at pp. 2-3.

In today’s episode, IRS is seeking responses to interrogatories and document production, but is a wee bit coy. Judge Gustafson wants some more candor.

“The Commissioner stated that in the event he ‘does not prove that petitioners’ returns were false or fraudulent, the Commissioner’s alternative position [among others], is that the accuracy-related penalty applies in each year as set forth in the statutory notice of deficiency.” (ECF 30 at 7-8, ¶ 20-21). While the Commissioner’s [latest] status report concedes that the requirements of section 6751(b) were not met with respect to the section 6663 fraud penalty, the status report is silent as to whether the Commissioner intends to concede the issue of fraud in its entirety, or if he still plans to argue fraud for purposes of the statute of limitation issue (i.e., section 6501(c)(1)).” Order, at p.3.

Now civil procedure 101 taught us that discovery is used to ferret out information germane to the issues of the case. But IRS wants information without telling Judge Gustafson and Jo & Lin’s attorneys whether they’re going to try the fraud issue or not.

So Judge Gustafson holds onto IRS’ discovery motions until IRS fesses up. If IRS isn’t going to try to prove fraud, the SOL puts paid to their case.

I beseech Judge Gustafson to call a Statutory Notice of Deficiency a “SNOD” for short, to distinguish it from a Notice of Determination (for example, in a Section 7428 tax-exempt, a Section 7436 EE-vs-IC, or a ticket to a CDP), which is properly a “NOD.”


In Uncategorized on 02/21/2018 at 16:57

No, this is not the latest entry in the #MeToo log. Judge Holmes is steadfastly refusing to be detoured from determining the intent of the parties, notwithstanding the nine-prong debt-vs-equity cheval de frise erected by 9 Cir.

“We of course follow this caselaw, and discuss each of these factors, but will not let ourselves be poked by any of these prongs away from our goal of discerning the parties’ intent at the time of the advances.  Bauer v. Commissioner, 748 F.2d 1365, 1367-68 (9th Cir. 1984), rev’g T.C. Memo. 1983-120.” 2018 T. C. Memo. 18, at p. 11.

Y’all can find the whole story in Michael J. Burke and Jane S. Burke, 2018 T. C. Memo. 18, filed 2/21/18. Mike’s old college pal and fellow-scuba enthusiast Hugh surfaced after many years, and wanted to start a scuba operation in Belize. One of my nearest and dearest said it was great fun scuba-diving there, until she got an ear infection.

Mike got more than infection; Hugh and Mrs Hugh spent the $11 million Mike claims he lent them (but which IRS claims is equity) for the scuba business, and claimed bad debt when the business was under water (sorry guys).

Well, no demands, no due date, no periodic (or otherwise) payments, no interest, no attempts to collect, subordination to other financing, and no notes until Mike’s trusty lawyers got aboard. Judge Holmes trudges through all nine (count ‘em, nine) factors. There are a couple neutrals (it’s Judge Holmes, after all), and Mike wins one (a bank or two did lend to Hugh and Mrs Hugh), but the rest are losers.

Especially so are the notes, drawn up well after the advances which they evidence were made, and after Mike had a big capital gain which needed speedy burial. “We specifically find that the promissory notes, the sale of the note to Mrs. [Hugh], and the deferred compensation agreement were more likely than not orchestrated by Burke and his attorneys to offset the large capital gains Burke had from unrelated interests….. They are not proof of what they purport to show happened before they were all executed.” 2018 T. C. Memo. 18, at p. 8.

Maybe Mike can take a capital loss when he disposes of the stock he got from Hugh and Mrs Hugh, but he didn’t do it in the years at issue.

IRS wants heavy-duty Section 6662(a) five-and-tens. But guess what? IRS has another Mike to contend with: Michael Corleone. Nothing in their hands from Boss Hoss. So even though Mike couldn’t reasonably rely upon his attorneys who concocted the note dodge, no chops.


In Uncategorized on 02/21/2018 at 16:24

And Tax Court

IRS outrageously stalled the Friends of the Benedictines In the Holy Land, Inc., 150 T. C. 5, filed 2/21/18, sitting for a year on the Friends’ 1023 application for 501(c)(3) exemption, and refusing to give a date certain when they would act.

IRS blew past the 270-day Section 7428(b)(2) clear-to-sue; but the Friends, mindful of St. Benedict’s Rule 54, didn’t want to receive letters, so they waited until fourteen (count ‘em, fourteen) months had passed, to send in a petition, arduously and painstakingly drafted by their high-priced attorneys.

They served it on a Friday. IRS folded on the Monday.

Judge Wells takes up the tale.

A week after IRS unloaded the letter exempting the Friends, “…counsel for respondent spoke with petitioner’s counsel and discussed the recently issued determination letter.  Respondent’s counsel intended to file a motion to dismiss, but petitioner’s counsel instead proposed that they resolve the case with a joint decision and stipulation.  Respondent agreed, and over the next month and a half worked with three separate attorneys for petitioner to file the stipulation and decision documents.” 150 T. C. 5, at p. 3.

Does the phrase “Section 7430” come to mind?

The Friends want $68,990 in undifferentiated admins and legals. That sum they had not yet paid, at least when the Section 7430 motion was filed (150 T. C. 5, at p. 19, footnote 8). And some invoices were directed to an organization different from the Friends.

Bottom line: IRS’ folderoo means that no admins or legals can be allowed.

“Congress amended section 7430 to allow for the awarding of costs in declaratory judgment proceedings…but only where the Government’s position is not ‘substantially justified’.  While we recognize that section 7430 leaves a gap in coverage in circumstances such as this one, it is not our place to provide a remedy.  See, e.g., Pac. Fisheries, Inc. v. United States, 484 F.3d 1103, 1111 (9th Cir. 2007) (Although the IRS’s issuance of the administrative summonses forced the taxpayers into litigation, we see no fees remedy for them in the judicial proceeding.  We conclude that their case falls into a gap in the statute, but it is not our role to bridge that gap.’).  In the instant judicial proceeding, because respondent’s counsel promptly conceded the case, the Government’s position was substantially justified, and petitioner is not a prevailing party entitled to recover litigation costs.” 150 T. C. 5, at p. 19. (Footnote omitted, but read it, lawyers; informal billing can torpedo your claim for fees).

Judge Wells is sympathetic to the Friends, but as far as Tax Court is concerned, they are friendless.

Not only are they friendless, but as far as the Friends, or any would-be 501(c)(3), is concerned, Section 7430 is toothless. All IRS has to do is jack them around for a year (or more), let them run up a bill for preparing a petition (unless they can find a pro bono), and fold the minute the petition hits. Given the games played with the 501(c)(4)s, here is a first-class reason why the statute needs Congressional remediation.

I will refrain from making a political comment on the possibility of that happening.


In Uncategorized on 02/20/2018 at 15:35

That ever-obliging jurist, Judge David Gustafson, echoing the words of Neil Diamond some 49 years ago, exercises saintly patience, and again tries to school IRS counsel, who unlike the petitioner communicates with Judge Gustafson, albeit not entirely to the point. And it’s once again the Chapter-imposed shootdown of the settlement agreement in Cecil K. Kyei, Docket No. 9118-12, filed 2/20/18.

Y’all will recall CKK’s bankrupt manœuvers. No? Well, dig my blogpost “Obliging But Befuddled,” 1/26/18. And eyeball today’s installment above-cited.

OK, so Judge Gustafson did correct the erroneous date in his order, which gave rise to my above-cited blogpost. But then IRS failed to tell Judge Gustafson how the settlement agreement, which CKK’s bankruptcy stay voided, could be the basis for entry of decision. IRS now moves to enter decision based on the SNODs for two of the three years at issue, cutting the deficiency alleged in SNOD no. 3, and asking for reduced chops.

“Unlike his first such motion, it was complete, with no pages missing. Like the first motion, the second motion for entry of decision asks us to enter decision on the basis of the June 2015 agreement.” Order, at p. 2

Judge Gustafson, positively exuding benevolence toward an attorney clearly out of his/her depth (or perhaps oblivious to that 800-pound gorilla wearing a t-shirt emblazoned with “11USC§362(a)(8)” in day-glo orange letters 12 inches high), decides to treat the motion as one to dismiss for lack of prosecution.

CKK has dropped out of sight, perhaps better to prepare his next bankruptcy petition.

So maybe IRS will finally nail CKK, despite counsel’s somewhat less than stellar performance. Judge Gustafson has his hand and invitation extended.

But wait, there’s more.

“One issue requires supplementation: Although the motion makes a showing of compliance with section 6751(b)(1) as to the penalties for 2008 and 2009, with a ‘Civil Penalty Approval Form’ dated ‘12/20/11’, the motion makes no such showing as to the penalty still asserted for 2010, in the amount of $2,614.80. We do not know whether this omission as to 2010 was an oversight, or whether the Commissioner takes the position that section 6751(b)(1) does not apply to the penalty at issue here, or takes the position that a movant under Rule 123(b) does not bear a ‘burden of production’ pursuant to section 7491(c). We will require the Commissioner to explain his position on this issue.” Order, at pp. 3-4.

I’ll drop a wee hint to IRS’ counsel: watch the Rule 123(a) vs Rule 123(b) distinction. See my blogpost “Defaulters,” 5/27/14, and the cases therein referred to. Remember that post-Graev burden of production may be burden of proof, at least in 2 Cir.



In Uncategorized on 02/19/2018 at 15:17

As a much finer writer than I put it. Except 2/19/18 is a holiday in DC, so Tax Court is closed, wherefore opinion, decision, and order issue not from The Glasshouse at 440 Second Street, NW.

See y’all tomorrow.


In Uncategorized on 02/16/2018 at 16:15

Judge David Gustafson is sometimes a trifle idiosyncratic in retaining jurisdiction over cases in long-term reporting mode. See my blogpost “He Loves Me Not, He Loves Me,” 12/8/17.

But when he has locked onto jurisdiction in a case, he grapples it with hoops of steel, as a much finer writer than I put it.

So here’s a designated hitter to close out the work-week before the born-again Presidents give us a three-day break, Robert Rose, Docket No. 2060-17, filed 2/16/18.

Back in November last year, Judge Gustafson put Rob and IRS on the 90-day reporting list, and explicitly retained jurisdiction.

But when IRS reported yesterday for the first time on the new regime, IRS’ counsel asked “Respondent requests that Judge Gustafson retains jurisdiction of this case and orders another status report due in May or August 2018.” Order, at p. 1.

It must have been a very long day for that Obliging Jurist, because Judge David Gustafson waxes a wee bit testy, giving IRS a wake-up call.

First, you make motions. Putting requests for judicial intervention in status reports runs the risk of your request being overlooked. Moreover, the Judge can’t stamp the document “Granted” or “Denied” without engaging in busywork.

But ever willing to go the twain, or even the thrain, when a litigant, be the litigant a humble pro se or even the Com’r hisself, asks him to go the mile, Judge Gustafson does it.

“Moreover, in this instance, the request was unnecessary, and no motion was needed. By the Court’s order of November 27, 2017, the undersigned judge had already retained jurisdiction and had already required the filing of periodic status reports (“… and every 90 days thereafter”). However, respondent’s inclusion of the request in his status report makes us suppose that he may have overlooked the requirement of periodic status reports in our prior order and might fail to comply with that requirement unless we issue yet another order.” Order, at p. 2.

Shortening somewhat C. L. Dodgson’s immortal line, Judge Gustafson says “What I tell you two times is true,” and confirms that his above-referred-to order remains in full force and effect.