Attorney-at-Law

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LEG BEFORE WICKET – PART DEUX

In Uncategorized on 10/20/2017 at 15:48

It’s caused more trouble at matches than the late arrival of tea without jam for the scones. It’s an ancient rule that goes back to the Eighteenth Century, to deter batsmen from deflecting the wicket-bound ball with pads, to avoid being bowled out.

If all the foregoing is unintelligible to you, go back to watching the Yankees and Astros.

Today it features analogically in Steven W. Webert & Catherine S.  Webert, Docket No. 15981-17, filed 10/20/17, and Ch J L Paige (“Iron Fist”) Marvel has to deal with what might become a full-dress T. C. when it grows up.

The Weberts petitioned SNODs for five (count ‘em, five) years, for which IRS claims the Weberts didn’t file returns.

So based on SFRs maybe, but Ch J Iron Fist doesn’t say.

Two days after the SNODs went out, the Weberts filed returns for the five years, but didn’t pay. Before IRS answered, the Weberts moved to restrain collection per Section 6213(a). Then IRS answered, moving to collect the self-reported taxes.

IRS says a deficiency is the shortfall between what is shown on a return and what tax is due. But there is no difference between what the Weberts showed on the delinquent returns that IRS processed, and what is due, so there is no requirement to issue a SNOD to assess tax. Thus IRS can go collect.

Ch J Iron Fist: “I.R.C. section 6213(a) provides that respondent generally is precluded from assessing or collecting a deficiency until after the mailing of a notice of deficiency authorized by section 6212 and the expiration of the period for filing a timely petition for redetermination. Meyer v. Commissioner, 97 T.C. 555, 560 (1991). If the taxpayer does file a petition with this Court, respondent is further precluded under section 6213(a) from assessing or collecting the deficiency until the decision of this Court becomes final. Id.; see also I.R.C. sec. 6215(a).

“With respect to this Court’s jurisdiction to restrain assessment and collection of a deficiency, section 6213(a) provides, in pertinent part:

“Notwithstanding the provisions of section 7421(a), the making of such assessment or the beginning of such proceeding or levy during the time such prohibition is in force may be enjoined by a proceeding in * * * the Tax Court, and a refund may be ordered * * * of any amount collected within the period during which the Secretary is prohibited from collecting * * * under the provisions of this subsection. The Tax Court shall have no jurisdiction to enjoin any action or proceeding or order any refund under this subsection unless a timely petition for redetermination of the deficiency has been filed and then only in respect of the deficiency that is the subject of such petition. [Emphasis added.]” Order, at p. 2.

So, IRS, supplement your answer by explaining which tax assessments you’re going after, the first batch the Weberts petitioned or the ones from the late-filed returns.

For procedure junkies, this case should be real fun.

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WIPE OUT

In Uncategorized on 10/19/2017 at 16:08

No, not the 1963 Surfaris’ immortal instrumental that encapsulated California surfing. This is the story of how IRS wiped out one year’s shortfall with a supposed overpayment in another year (that latter year not being before the court), but discovered arithmetic errors that nullified the supposed overpayment, so wiped out the previous wipe out.

Wendell C. Robinson and May T. Jung-Robinson, 2017 T. C. Memo. 207, filed 10/19/17, put in no evidence that their computation of tax was correct. They claim IRS needed to send them a SNOD for the unpaid tax due as a result of the wipe-out of the wipe-out.

“While in general section 6213(a) restricts the Secretary from assessing or taking action to collect any deficiency in tax until after he has mailed the taxpayer a statutory notice of deficiency, section 6213(b)(1) provides an exception for assessments arising out of the taxpayer’s mathematical or clerical errors.  The Secretary need not issue a statutory notice before assessing a tax when a ‘taxpayer is notified that, on account of a mathematical or clerical error appearing on the return, an amount of tax in excess of that shown on the return is due, and that an assessment of the tax has been or will be made on the basis of what would have been the correct amount of tax but for the mathematical or clerical error”.  See sec. 6213(b)(1).  If, however, the taxpayer requests abatement of the assessment within 60 days of the notice of mathematical or clerical error, the Secretary must abate the assessment and must use deficiency procedures to reassess.  Sec. 6213(b)(2)(A).

“Similarly, section 6201(a)(3) authorizes the Secretary to assess any payment amount overstated as estimated income tax ‘in the same manner as in the case of a mathematical or clerical error.’  However, the Secretary does not have to abate the assessment and use deficiency procedures, as he would under section 6213(b)(2)(A) if the taxpayer objects to the notice of the assessment.  Sec. 6201(a)(3).

“Under section 6665(b), the Secretary is authorized to summarily assess additions to tax under section 6651 for late filing of a return and for failure to pay the amount shown on the return.  See Gray v. Commissioner, 140 T.C. 163, 169-170 (2013).  Finally, interest is not generally subject to deficiency proceedings.  Sec. 6601(e).” 2017 T. C. Memo. 207, at pp. 17-18.

For more about the Gray case, see my blogpost “Too Late and Not Timely,” 4/25/13.

So Wendell and May get levied, and suffer a wipe out.

OFF THE HOOK

In Uncategorized on 10/19/2017 at 01:43

Now don’t get me wrong; I like accountants, generally, I really do. I’ll stop at that, lest someone claim that the laddie doth protest too much.

But a well-known accounting firm, in extricating itself from the rubble of a client’s shot-down dodge, really showed a want of stand-up.

Remember Corbin A. McNeill and Dorice S. McNeill? No? See my blogpost “Searchin’, Searchin’,” 6/19/17. Now the sequel, wherein Corb and Dori get chopped with the 40% substantial overstatement, is to be found in 2017 T. C. Memo. 206, filed 10/18/17.

This is a tale of two accounting firms, one which promoted the DAD dodge (and which firm actually did work for me years ago, but promoted no dodges) and the other which prepared Corb’s and Dori’s returns for the years at issue.

It’s the latter to which I direct your attention.

The second of the years at issue was the first when T.D. 9046, 2003-1 C.B. 614, classified Corb’s and Dori’s dodge as reportable. When it came time to file Corb’s and Dori’s return, “X concluded that Mr. McNeill should file a Form 8886, Reportable Transaction Disclosure Statement, and that X should not be listed as a material adviser because it had not provided any tax advice with respect to the 2003 DAD transaction. A ‘Loss transaction’ was indicated as the reportable transaction on petitioners’ Form 8886.” 2017 T. C. Memo. 205, at p. 35. (Name omitted).

For those unacquainted with this particular dodge, a DAD married distressed assets or debt with high cost basis but market value of bortscht, to use a technical term, to big-ticket capital gains in a tiered LLC set up, generating big tax loss with no balance sheet impact. No business purpose, no economic substance.

You’ll recall from my above-cited blogpost that Corb and Dori conceded the deficiency, but contested the chop after Judge Paris found jurisdiction.

Corb and Dori claim they relied on X, not the other accounting firm that promoted and sold the dodge. But it’s not enough that X prepared the return; X has to have given Corn and Dori advice.

“X prepared and signed petitioners’ 2003 tax return but did not give petitioners advice on the loss attributable to the 2003 DAD transaction. For both 2002 and 2003 X prepared internal memorandums that briefly analyzed Mr. McNeill’s DAD transactions. In the memorandums X looked at the transactions for a ‘realistic possibility of success’. This standard, derived from section 6694(a)(1), relates to imposing penalties on tax return preparers for understating a taxpayer’s liability. X’s memoranda reflected the standard of review to ensure it would not be penalized for the positions taken on petitioners’ returns–not that they were providing return position advice to petitioners on the DAD transactions.” 2017 T. C. Memo. 205, at p. 29.

Likewise, X did not appear on the Form 8886 report of dubious dealings, as an adviser, preparer, guide, philosopher or friend.

Now, to be fair, Corb and Dori claim they also replied upon the advice of counsel, legal-type counsel. But the lawyers in question were one of two firms hand-picked by the dodgeflogger accountants who put Corb and Dori in the DAD deal, and who churned out opinions for a piece of the action. That clearly doesn’t get it.

So if you get a memo from a lawyer or accountant with the words “realistic possibility of success” therein, ask them to keep the ripcord as a souvenir. And don’t get on that plane.

Before you weep for Corb and Dori, note that Corb was chairman and co-CEO of Exelon, another dodger. See my blogpost “1031 and All That,” 9/19/16.

HEAD? SINGLE? MOX NIX

In Uncategorized on 10/19/2017 at 00:18

Judge Lauber doesn’t care which it is. Section 6013(b)(2)(B) only bars those who file MFS from switching to MFJ, or vice versa, after they get hit with a SNOD. Those who file “single” whilst married, or “HOH” while likewise conjoined, get a bye.

Patricia Marie Knez, 2017 T. C. Memo. 205, filed 10/18/17, was married, though living separately from husband George during year at issue, but no court decree did do them part.

Patricia Marie filed HOH, as minor child lived with her. Husband George filed single. Both claimed EITCs, but only Patricia Marie got hit with a SNOD. So, although George was tossed after both he and Patricia Marie petitioned, they filed an amended MFJ before the case was submitted, and that kept them in the hunt.

Patricia Marie moved for entry of decision. That got bounced as premature, but IRS’ motion for summary J also gets bounced, based on Fan and Ami.

Fan and Ami can be found in my blogpost “Whom the Typo Puts Asunder,” 9/28/17.

Judge Lauber does a prolonged jaunt through the history of MFS and MFJ, and the meaning of the word “election.”

Here’s the Cliff Notes version. “We confronted a similar question in Camara v. Commissioner, 149 T.C. __ (Sept. 28, 2017), where we held that the bar in section 6013(b)(2)(B) against filing jointly did not apply because the married taxpayer initially had not filed ‘a separate return.’ This case differs from Camara in that petitioner initially made an erroneous election of ‘head of household’ filing status whereas the taxpayer in Camara initially made an erroneous election of ‘single’ filing status. We conclude that this distinction makes no legal difference: Because the filing status initially selected by each married taxpayer was legally impermissible, the logic of our Opinion in Camara has equal force here. With the bar in section 6013(b)(2)(B) being thus inapplicable, petitioner was entitled under section 6013(a) to file jointly with her spouse. We will therefore deny respondent’s motion for summary judgment.” 2017 T. C. Memo. 205, at pp. 2-3.

Note that “mistake,” which was the underpinning of Ibrahim v. Commissioner (see my blogpost “Whom the Preparer Puts Asunder – Part Deux,” 1/5/17), and apparently of Camara, seems to have vanished, as Judge Lauber never states that either George or Patricia Marie mistakenly filed in their separate capacities.

There’s nothing to show either Patricia Marie or George was playing games, but these cases offer an opportunity for wiseguys to dodge Section 6013.

If tax reform is on the menu, maybe this is another one for Congress to fix.

PRIVATE SCHOOL BLUES

In Uncategorized on 10/17/2017 at 15:50

I sang those for many years, and one of my nearest and dearest is joining the chorus.

But at least we weren’t and aren’t sharing the plight of John Moriarty and Cassandra Moriarty, 2017 T. C. Memo. 204, filed 10/17/17.

John and Cass were serial nonfilers, with four (count ‘em, four) of the unfiled years at issue. So IRS bestowed the usual SFR for one of the years, whereupon John and Cass coughed up all four. Without payment. IRS then doubled down with additions for late filing and late payment, plus NITLs and NFTLs.

John and Cass sought a CDP, whereat they were afforded the chance to contest their self-reported liabilities. John and Cass produced only one year’s amended return, but it showed they owed $23K more than they said they owed before.

The usual IA was applied for, but John and Cass wanted their younger children’s religious school payments deducted from their ability-to-pay calculation.

That’s OK, but.

Here’s Judge Lauber to tell you the “but.”

“Under the IRM, secondary school and college tuition is a ‘conditional expense that may in some circumstances be allowed in evaluating a collection alternative.  But for such expenses to be allowable, the taxpayer must establish that he will discharge his entire unpaid tax liability within six years.  See IRM Exh. 5.15.1-1 Q&A 10 (Nov. 17, 2014) (specifying that parochial school expenses are allowed in evaluating a proposed installment agreement only ‘if the taxpayer can pay the liability plus accruals within six years”).’ 2017 T. C. Memo. 204, at pp. 13-14. (Citation omitted.)

John’s and Cass’ offer would only pay half in six.

No go.

TOSS THE CHIEF?

In Uncategorized on 10/17/2017 at 15:23

We’re used to the toss-all-the-judges, separation-of-powers cases. See my blogpost “Pay the Man – Part Deux,” 9/1/17, and my blogposts therein cited. Well, as Lucius Annaeus Seneca would remark, “Ex Tax Court semper aliquid novi.”

So we go from Latin Lu to CSTJ Lewis (“Lew”) Carluzzo, and onward to blogger Lew (that’s me), via Mark Y. Liu and Ginger Y. Bian, Deceased, Mark Y. Liu, Surviving Spouse, Docket No. 8667-17, filed 10/17/17, an off-the-bencher.

Mark Y. is unhappy with CSTJ Lew. Very unhappy.

“According to Petitioners, I should recuse myself from this proceeding because of my involvement in a prior Tax Court proceeding, that is Liu v. Commissioner, docket number 16841-14 (prior proceeding). The prior proceeding also was a proceeding for the redetermination of a deficiency. It was resolved by stipulated decision.

“Believing themselves ill-advised with respect to the resolution of the prior proceeding, Petitioners moved to vacate the stipulated decision upon the ground that the decision represented a fraud on the Court.

“Petitioners’ motion to vacate the decision in the previous proceeding was heard….. A bench opinion was rendered…,, and by Order…, I denied Petitioners’ motion. Petitioners appealed my ruling, which was affirmed by the U.S. Court of  Appeals for the Fifth Circuit….  See Liu v. Commissioner, 689 Fed Appx. 264 (5th cir. 2017).” Order, Transcript at p. 5.

Well, if at first you don’t succeed, try, try again. So Mark Y. files a misconduct complaint against CSTJ Lew, and makes fresh motions to toss the Chief, fearing he will be judge in his own cause.

Now Mark Y. is pro se, of course, so he needs some comfort from CSTJ Lew. CSTJ Lew well knows nemo judex in sua causa (and I need not translate for my learned readers), but CSTJ Lew lays it on Mark Y.

“Sometimes it makes sense to state the obvious, and in so doing, I’ll note that the misconduct complaint against me will not be resolved by me, either as a result of the matters now pending before me, or otherwise. The misconduct complaint will be resolved independent of this proceeding and in accordance with the Courts’ procedures now in effect for such matters.” Order, at p. 6.

In any case, Mark Y.’s remaining motions are legal and don’t require any testimony.

There is a SNOD and petition, so there’s jurisdiction. There is a trial pending, and CSTJ Lew is not keeping jurisdiction, so he isn’t trying this case. As for Mark Y.’s motion for summary J, neither Mark Y. nor IRS has submitted anything that looks like agreed facts, so there needs to be a trial.

CSTJ Lew is out.

I’m not betting that CSTJ Lew loses the misconduct hearing, either.

THE BOSS AS CONSULTANT

In Uncategorized on 10/16/2017 at 16:08

I will not repeat the story of the cat who, returned from the veterinarian’s surgery, took up the role of consultant.  I will instead return to Jeffrey Wycoff and Merrie Pisanno-Wycoff, 2017 T. C. Memo. 203, filed 10/16/17.

Doubtless you remember Jeff and Merrie, and their conflicted past? No? Well, take a fast gander at my blogpost “Open and Shut,” 1/13/14. Merrie’s innocent spousery plays no part here, and Ch J L Paige (“Iron Fist”) Marvel doesn’t find enough to let Jeff and Merrie shift the burden of proof, and anyway falls back on “preponderance of evidence.”

Jeff and Merrie claim IRS shifted ground from the SNOD, so presumption of correctness is out. While some 9 Cir cases say so, Jeff and Merrie are Golsenized to 10 Cir.

Anyway “Although in the notice of deficiency respondent disallowed petitioners’ claimed deductions for management fees, on brief he allowed the deductions to the extent petitioners proved that [management corp.] had paid wages or payroll taxes.  When the Commissioner concedes certain facts or issues, the notice of deficiency is still presumed correct.  See U.S. Holding Co. v. Commissioner, 44 T.C. 323, 328 (1965).” 2017 T. C. Memo. 203, at pp. 34-35.

The deal is a couple Sub Ss (hi Judge Holmes) feeding an ESOP enclosing a Rabbi Trust (see infra, as my high-priced colleagues say), to siphon off profits as salary and deferred comp to the Boss Hoss of the whole outfit, namely Jeff, via a management company he owns and controls, along with the rest of the structure.

“A rabbi trust is an unfunded deferred compensation plan.  Funds deposited into the trust remain subject to the claims of the employer’s creditors. The employee beneficiary of the rabbi trust is not taxed on the funds deposited into the account until the funds are actually distributed to him.  Likewise, the employer is not entitled to a deduction for the funds deposited into the rabbi trust until the rabbi trust actually distributes the contributions.” 2017 T. C. Memo. 203, at p. 10, footnote 8. (Citations omitted). Since the Rabbi Trust was part of the qualifying ESOP, it’s tax-exempt and therefore doesn’t need a current deduction.

There are the usual dueling experts, but Jeff is overcompensated on a comparable profits method computation, thus more income and the 20% chop.

Jeff and Merrie were warned by the promoters that this was aggressive tax planning, and that they should seek independent advice; are you surprised that they never did?

Though there’s a somewhat tangled fact pattern here, the endstory is pretty clear. If the boss is also the consultant, the fees he gets are an IRS free-fire zone.

CALLING BOLIVIA

In Uncategorized on 10/16/2017 at 15:06

I’ve often enough lamented most publicly that this my blog is ignored by The Plurinational State of Bolivia; not one of its nearly 12 million citizens has bothered to perform a touch-and-go here, for reasons which I’m at a loss to understand.

Perhaps the doings of the United States Tax Court aren’t quite as enthralling as I think they are.

I completely understand Guiana (that’s Guyane to you Francophones) giving me the go-by. Much of it is jungle, and I’m sure the French rocket base attracts most attention.

But today, 10/16/17, I collected five (count ‘em, five) visits from Afghanistan, a first in the six years I’ve been pouring my full heart in profuse strains of unpremeditated whatever on the world-wide web.

If five visitors from war-torn, impoverished, bombed-out Afghanistan can spare a few minutes to check out this my blog, wha’ssup wit’ Bolivia?

“ECONOMY OF EXPRESSION AND CITATION”

In Uncategorized on 10/16/2017 at 14:44

That obliging jurist Judge David Gustafson is bemused by the economy of expression above-cited in Anthony Sean Martinez, Docket No. 14385-15, filed 10/16/17.

It seems Mr Martinez got his VA disability rating (a sine qua non for nontaxability of certain military service pensions; see my blogpost “Disabled Veteran,” 12/22/14) before he got the lump sum payment at issue. IRS, relying on St. Clair v. US, 778 F. Supp. 894 (1991), acq. 1992-06, 1991 WL 772483 says that St. Clair got his rating after he got the money, so somehow the timing makes the difference.

The above-cited economy of citation omits any reference to Section 104(a)(4) and (b)(2)(D), but IRS concedes the money that Mr Martinez got was for “personal injuries or sickness resulting from active service in the armed forces of any country.” Order, at pp. 1-2.  And the VA blessed the same.

The IRM Internal Revenue Manual, part 21.6.6.4.20.2 (12-09-2014) is likewise parsimonious with Section 104, but reaches the St. Clair conclusion.

And Judge Gustafson cites IRS Publication 4491 (“VITA/TCE Training Guide”) to the same effect.

Remember, neither the IRM nor the Publication are precedential, confer any rights on the taxpayer, bind the Courts or the IRS (except maybe in New Jersey; see the Jersey Boys’ latest newsletter).

But the Air Force, from which Mr Martinez was separated, seems to think his personal injury or sickness wasn’t combat related. Judge Gustafson is entirely too genteel to give IRS a Taishoff “Oh, Please!” Instead, “This contention is arguably at odds with St. Clair, the Commissioner’s Action on Decision acquiescing to it, the IRM provisions cited here, and Publication 4491.” Order, at p. 3.

Now maybe IRS doesn’t entirely acquiesce in St. Clair after all, or maybe Judge Gustafson misunderstands IRS’ logic (but don’t bet the lunch money on that one).

And maybe IRS could tell us all why “the UAVs and the video equipment by which their operators view their effects are ‘instrumentalit[ies] of war’ for purposes of section 104(b)(3)(B).” Order, at p. 4.

Or maybe Mr Martinez can tell us why in a supplemental brief, if he wishes.

A UAV is an unmanned aerial vehicle; that’s a “drone” to you civilians. The USAF uses these extensively, often to break things and hurt people terminally. And a young man with whom I had a slight acquaintance operated them in Afghanistan for a couple deployments (hi, Judge Holmes). And what it did to him emotionally shouldn’t be done to anyone.

So, IRS, lay it on us. I cain’t hardly wait.

TAX REFORM – PART DEUX

In Uncategorized on 10/13/2017 at 16:06

Tax reform is in the air (or, perhaps more accurately, up in the air). As this is a non-political blog, I eschew discussion of the multitudinous proposed excisions and additions and a thousand indecisions (especially the last-named).

Rather, I offer what I hope is the odd non-controversial proposal that really doesn’t require legislative or executive intervention.

Preamble: Tax Court is the prepayment ticket to justice. While its jurisdiction is shackled with fetters of bronze to its narrow rock, thereupon it affords low-cost or no-cost relief to the humble taxpayer with a few hundred dollars deficiency (hi, Judge Holmes). Almost all such are self-represented until the calendar call, at which time pleadings and proof are set in stone.

Perhaps the administrative arm of the Court might make access a wee bit easier than the rigmarole that faces Arobert Tonoghanua, Docket No. 19656-16, filed 10/12/17. And no, I’m not picking on Judge Chiechi; there are plenty of such orders every working day, but it’s Friday, with neither opinion nor designated hitter, and all is cliché that comes to my mill.

A-Rob is pro se, and the filing fee has been waived. Clearly A-Rob has a long way to go to join the One Percent, and such luxuries as an attorney or a USTCP are out of the question.

A-Rob started alone, and was told to amend his petition. He did, and IRS dropped its motion to dismiss for untimely filing. Now A-Rob wants to amend again, and add one M. Magsonoc as an additional petitioner.

This he did by a document styled “PETITIONER’S MOTION FOR LEAVE TO FILE AMENDED TAX PETITION NAMING M. MAGSANOC AS AN ADDITIONAL PETITIONER”.

Now of course that is an inappropriate title, but exactly how A-Rob is supposed to know the correct one is unclear.

So Judge Chiechi puts A-Rob on the path: “That is an inappropriately titled document. Morever [sic], Mr. Tonogbanua did not submit at the time he filed that inappropriately titled document a second amended petition. Finally, M. Magsonoc (Ms. Magsonoc) is required to file a ratification of both the petition … and the amended petition…, before she may become a party in this case.” Order, at p. 1.

OK, that should be easy enough. Do an amended petition (No.2), and have M-Mag sign both that and the original petition. Right?

Wrong.

“In order to add Ms. Magsonoc as a party in this case the following, as ordered below, is the proper procedure to follow: (1) Ms. Magsonoc should sign, date, and file with the Court a ratification of both the petition and the amended petition ratifying and affirming the petition… and the amended petition…  (2) at the same time Ms. Magsonoc files a ratification of both the petition and the amended petition, Mr. Tonogbanua and Ms. Magsonoc should sign, date, and file with the Court a motion titled “motion for leave to file second amended petition”; (3) at the same time Ms. Magsonoc files a ratification of both the petition and the amended petition and Mr. Tonogbanua and Ms. Magsonoc file a motion for leave to file second amended petition, Mr. Tonogbanua and Ms. Magsonoc should submit to the Court with respect to that motion for leave a document titled “second amended petition”; and (4) in that second amended petition, Mr. Tonogbanua and Ms. Magsonoc must restate all of the allegations set forth in the amended petition…, as well as any allegations with respect to the claim by Ms. Magsonoc for relief under section 6015 of the Internal Revenue Code (I.R.C.).” Order, at pp. 1-2.

And they have exactly two weeks to get it to Judge Chiechi, but if not electronically, delay on account of the nuclear threat (see my blogpost “The Nuclear Threat,” 10/11/17) will not excuse late delivery.

Why all this rigmarole? A-Rob and M-Mag aren’t a Wall Street 500-lawyer megalith. If A-Rob was excused coughing up 60 clams, he clearly isn’t hiring any Wall Street megalith.

How about simplifying procedures, like a one-page online motion for leave to amend with amendment attached? How about an Office of the Self-Represented, just to help with paperwork, not give legal advice? How about allowing deadlines to take into account the nuclear threat?

Any comments?