Attorney-at-Law

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HIT THE BRICKS – PART DEUX

In Uncategorized on 10/17/2019 at 15:59

The tagline hereof fits K. Slaughter, 13256-14, filed 10/17/19, though Judge Wells refuses to vacate the opinion more particularly bounded and described in my blogpost “The Brand,” 6/4/19, to which the reader is respectfully referred.

K.’s trusty legal team wants Judge Wells to opine that K.’s brand promotion business, to which she allegedly devotes the majority of her time, is separate from her writing business. K. apparently tosses off murder mysteries featuring bloody corpses and Georgia Bureau of Investigation supersleuths in her spare time while promoting.

But it’s all one to Judge Wells.

“We find no unusual circumstance or substantial error in the opinion we issued in the instant case. Our holding is consistent with the fact that petitioner was engaged solely in the writing business. Ultimately, we agreed with respondent’s contention that petitioner’s brand formed part of her writing business. Petitioner presented a considerable amount of evidence regarding the value and role of branding in the publishing industry. Once we determined that branding was part of petitioner’s writing business, a separate allocation of the value of petitioner’s brand was moot. As we stated in our opinion, ‘an allocation [between amounts paid for writing and for branding] within petitioner’s contracts is beside the point if all elements are to be allocated to a trade or business,’ Slip. op. at 18. We do not agree with petitioner’s contention that our opinion holds that petitioner’s brand was a separate trade or business, nor did we intend to make such a conclusion.” Order, at p. 2.

Writing for dollars in the Twenty-First Century goes beyond sitting at the keyboard or the voice-recognition. As the radio hero of KXTN in Santone told us, ya gotta hit the bricks.

But maybe now-retired Judge Big Julie’s words about Jonny Ramirez’s separate activities might have been useful to K.’s high-priced team, even if those words came from a not-for-nuthin’ small-claimer. See my blogpost “Hit The Bricks,” 5/20/13.

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FINDER’S FEE

In Uncategorized on 10/16/2019 at 17:19

“Why Don’t Everybody Smoke Their Own?”

The nasal drawl of the immortal Humphrey Bogart forms the background for my review of Judge Patrick J. (“Scholar Pat”) Urda’s unhorsing of Plano Holding LLC, 2019 T. C. 140, filed 10/16/19.

Plano Holding is the child of one of Canada’s largest pension funds, which bought the plastics manufacturer Plano Holding holds from a US hedge fund. The Canadians had been hunting for a US firm for its portfolio, and agreed to compensate  B (name omitted) for their previous efforts in locating the target, although the deal was brought off by an investment banker unrelated to B.

Plano Holding took the payment to the investment banker as a reduction on purchase price to the hedgies, and Judge Scholar Pat says OK. But when parent (Plano Holding) and child (the plastics manufacturer) filed their first consolidated return, child wrote off $1.5 million to B as a Section 162 business expense. IRS says no, and Judge Scholar Pat agrees.

“A taxpayer generally may not deduct the payment of another person’s expenses.  We have recognized a narrow exception to this rule where (1) the taxpayer’s primary motive for paying the other’s obligation is to protect or promote the taxpayer’s own business and (2) the expenditure is an ordinary and necessary expense of the taxpayer’s business.” 2019 T. C. Memo. 140, at pp. 8-9. (Citations omitted).

Child flunks both tests.

First, the deal between the Canadians and B was entered into a week after the deal was inked between Canadians and child. There was no adverse consequence to child if it did not pay B, as the deal between the Canadians and child (the plastics manufacturer) was not contingent upon child picking up B’s tab, nor an adjustment to the purchase price, unlike the payment to the investment banker. And the Canadians were the real beneficiaries of the deal. They wanted a US company, and child fit the bill.

Second, the payment to B was not for anything but finding child for the Canadians. “To the contrary, the parties agree that the B payment came about because [Canadians] felt obligated to B for its legwork… in identifying a potential acquisition for [Canadians].

“The B payment thus is in the nature of a finder’s fee that [Canadians] decided to bestow months after the fact.  Were we looking at the business of an institutional investor like [Canadians], we very well might conclude that a fee of this sort (if it were not a capital expenditure to acquire [child]) would be an ordinary and necessary expense that could be deducted.  But we are not.  [Child]’s business is manufacturing plastic goods, primarily storage items for outdoor sports. [Parent] fails to persuade us that such a payment qualifies as either ordinary or necessary in that line of business.” 2019 T. C. Memo. 140, at p. 13. (Footnote omitted, but it’s interesting.)

“Our holding today accordingly should not be seen to opine on whether a payment stemming from B’s [earlier] efforts on behalf of [child] would have been an ordinary and necessary expense of [child]’s business.” 2019 T. C. Memo. 140, at p. 13, footnote 4.

TAXPAYER FIRST – MAYBE

In Uncategorized on 10/16/2019 at 16:38

Speaking of innocent spousery, Lindsey Jones, 2019 T. C. Memo. 139, filed 10/16/19, is the first go-round of the expanded scope of review in such cases, arising out of the Taxpayer First Act (TFA), Pub. L. No. 116-25, 133 Stat. 981 (2019).

Judge Ashford let in a bunch of post-hearing stuff, including “…(1) the testimonies of petitioner, her ex-husband …, and three additional witnesses for petitioner without objection from respondent’s counsel and (2) four additional exhibits proffered by petitioner.” 2019 T. C. Memo. 139, at p. 2, Footnote 2. (Name omitted).

The footnote is the most interesting part of the case, as the rest is the usual fact-bound tiptoe through the factors.

“TFA sec. 1203, 133 Stat. at 988, amended sec. 6015(e) by adding paragraph (7), which provides for the standard and scope of Tax Court review.  Specifically, paragraph (7) provides that ‘[a]ny review of a determination made under this section [sec. 6015] shall be reviewed de novo by the Tax Court and shall be based upon–(A) the administrative record established at the time of the determination, and (B) any additional newly discovered or previously unavailable evidence.’  According to TFA sec. 1203(b), this provision applies ‘to petitions or requests filed or pending on or after the date of the enactment of this Act.’

“It would thus seem that the effective date provision calls on us to apply sec. 6015(e)(7) to cases tried before that section was enacted, which would include this case.” 2019 T. C. Memo. 139, at p. 2, Footnote 2.

But even the new stuff avails Lindsey naught. She loses even after “… allowing petitioner to present her case to the fullest extent and considering all of the evidence presented….” Idem, as my contemplating-their-spit-shined-Bruno-Magli-Maiocos-atop-their-two-acre-desks colleagues would say.

But I do want to give a Taishoff “Good Try, First Class” to Jonathan T. Amitrano, Esq., and Alvah Lavar Taylor,Esq., counsel to Lindsey.

All that said, I see nothing in Taxpayer First or this case to modify my earlier-expressed view that a nonrequestor had better put in everything at Appeals, lest IRS fold on the river, leaving the nonrequestor Michael Corleone’d.

Even the Taxpayer First second-bite provision limits the wild-cards to “newly discovered or previously unavailable evidence.” The “review de novo” language seems to apply only to the usual romp through the administrative record (but how can the Court try de novo a case that exists purely on paper, thereby substituting the judge’s impressions for the AO who saw the parties, heard their voices,  and observed their body language?), plus the new-or-previously-unavailable stuff. Unless the Court stands the language on its head (as appears to have happened with Lindsey, since her ex plus the other witnesses and stuff appear neither to have been unavailable nor newly-discovered), the requestor can always object to nonrequestor wild-cards on the ground that these folks and this stuff were around and available for the hearing, so ambush.

Howbeit, I’m sure we’ll see this latest Congressional coruscation enlivening my future blogposts.

A HILL OF BEANS

In Uncategorized on 10/16/2019 at 15:59

AG Processing, Inc. A Cooperative and Subsidiaries, 153 T. C. 3, filed 10/16/19, is an agricultural cooperative “…engaged in procuring, processing, marketing, and transporting oilseeds, grains, and related products.  AGP’s businesses include soybean processing, vegetable oil refining, renewable fuels, grain and agricultural products, and international businesses.  AGP operates soybean processing plants, soybean oil refineries, and biodiesel production facilities.” 153 T. C. 3, at p. 6.

Most of the 52 (count ‘em, 52) pages of Judge Paris’ prose involve PURPIMs, which I didn’t know either are per-unit retain allocations paid in money for purposes of I.R.C. secs. 1382(b)(3) and 1388(f), as opposed to those paid by certificates, and the Domestic Production Activity Deduction.  I leave all that to the specialists in agricultural and horticultural cooperatives, both exempt and nonexempt. All I know about horticulture can be summed up in Dorothy Parker’s famous quip, which I cannot repeat in a blog meant for family reading.

What is interesting is the Court’s reiteration that the duty of consistency does not apply “…to one taxpayer where the period of limitations has expired with respect to a different taxpayer.” 153 T. C. 3, at p. 37 (Footnote omitted, but it’s important).

“This Court has previously recognized that under the duty of consistency a representation by one party may bind another party where the two are deemed to be in privity.  See, e.g., Estate of Letts v. Commissioner, 109 T.C. 290, 298 (2004).  However, respondent does not argue, and the Court does not address, whether a similar concept should apply with respect to a cooperative and its patrons.” 153 T. C. 3, at p. 37, Footnote 26.

An interesting observation this, here in NYC, where there are many housing cooperatives. Does a decision or position taken by the Board of Directors involving taxes bind the shareholders?

And once again the Court stresses the great gulf fixed between patronage and nonpatronage income and deductions to prevent paying out taxable dividends as patronage (nontaxable) dividends.

“…the purpose of distinguishing and separating patronage income from nonpatronage income is to ensure that patronage dividends are not paid out of earnings from business done with nonpatrons by virtue of applying patronage-specific deductions or expenses (or a loss created by such deductions or expenses) to nonpatronage income.” 153 T. C. 3, at pp. 43-44. (Footnote omitted, but it’s important).

“A cooperative taxpayer reports taxable income from both patronage and nonpatronage earnings on Form 1120-C, and net income from patronage earnings is taxable to the extent the cooperative does not distribute it as a patronage dividend.  For tax purposes cooperative taxpayers distinguish patronage income and expenses/deductions from nonpatronage income and expenses/deductions on Form 1120-C Schedule G.” 153 T. C. 3, at p. 45, Footnote 31.

Note that AGP doesn’t have to compute patronage and nonpatronage income separately for DPAD purposes, because of the language of the statute, but that’s an outlier.

STILL UNANSWERED – A CAUSERIE

In Uncategorized on 10/16/2019 at 13:53

I wondered yesterday why the Tax Court had not answered the question of where the burden of proof lies when IRS folds in an innocent spousery, but the intervenor wants to keep fighting. Does the burden of proof somehow shift to the intervenor?

On reflection, why should Judge Buch, or any other Judge, waste time on this? Let me waste some time.

The burden of proof is on petitioner and remains on petitioner in an innocent spouse case, like all other Tax Court cases.

Section 7491(a) restates a simple rule: where petitioner has adduced credible evidence on any material point at issue, IRS must carry the burden of proof on that issue. But carrying the burden in that case means producing credible evidence to rebut, which is another way of saying bears the burden of going forward. I say that all Section 7491(a) does is restate what was always the rule, unless Congress meant that “any credible evidence” is something less than “credible evidence which, if not rebutted, would entitle the proponent to judgment in its favor.” I can’t tell the difference.

Anyway, judges routinely duck that one by going with “preponderance of the evidence,” regardless of who has the nominal burden of proof and who has that of production.

Innocent spouseries go off on abuse-of-discretion. There is no trial de novo; IRS determines whether any Section 6015 out is available, based on whatever evidence the alleged innocent can adduce and IRS rebut. Tax Court reviews IRS’ NOD as supported (or not) by the administrative record.

The intervenor’s cards are dealt at the hearing on the requesting spouse’s application. Note that Reg. 1.6015-6(a)(1) states that the nonrequesting spouse need not submit any information, but that any information furnished by either spouse will be shared with the other.

So if the nonrequesting spouse (later intervenor) does nothing, following  the Reg. and relying upon IRS to make the running, should IRS fold, the intervenor is stuck. So mox nix that the intervenor objects in Tax Court, all s/he has is what IRS threw away.

I don’t know the background in the Kruja case. I don’t know what happened at the hearing on Habibe’s stand-alone application, but apparently Emir trusted IRS and folded, even though he was under the gun. When IRS folded, Emir was on the Michael Corleone.

Takeaway- Nonrequesting spouse, you are under the gun. You must try your case at least as hard as IRS; it costs IRS much less to fold than it could cost you if they do.

As always, I welcome comments.

STILL UNANSWERED

In Uncategorized on 10/15/2019 at 16:32

Habibe Kruja, Petitioner, and Ermir Kruja, Intervenor, 2019 T. C. Memo. 136, filed 10/15/19, leave unanswered the question to what extent burden of proof shifts, when IRS reverses course, allows innocent spousery to petitioner when formerly denying, and intervenor resists.

Judge Buch doesn’t want to sort it out for us.

“Our Court has not answered and we leave open the question of whether the burden of proof shifts to the intervenor when the Commissioner concedes that a taxpayer is entitled to relief and an intervenor opposes relief. Because we would decide this case the same way regardless of which party bears the burden, we do not need to decide who bears the burden.” 2019 T. C. Memo. 136, at p. 14. (Footnote omitted).

But Emir has only the Michael Corleone gambit to play. He never put anything in the administrative record about how Habibe knew Emir was playing games with unreported income and dubious deductions.

IRS did want to stick Emir with 100% of the unreported State income tax refunds, but Judge Buch limits the hit to 50%.

“In the absence of clear and convincing evidence supporting a different allocation, an erroneous item of income is generally allocated 50% to each spouse.  Mr. and Ms. Kruja owned the State tax refunds jointly and there is no evidence in the administrative record, or adduced at trial, to support an allocation other than 50% to each spouse.  Accordingly, the State tax refunds are properly allocated 50% each to Mr. and Ms. Kruja.”2019 T. C. Memo. 136, at pp. 14-15. (Footnote omitted).

But maybe Habibe knew about the refunds.

“The Commissioner contends that Ms. Kruja had actual knowledge of the unreported State tax refunds.  Although the Krujas’ bank account statements indicate receipt of State tax refunds from Arizona, the record is insufficient to establish that Ms. Kruja had actual knowledge of the unreported State tax refunds.” 2019 T. C. Memo. 136, at p. 15.

And once again the self-represented gets the short end.

“Ms. Kruja generally requested relief under section 6015 but did not provide arguments regarding relief under section 6015(b) or equitable relief under section 6015(f).  As a result, Ms. Kruja is not alternatively eligible for relief for the State tax refunds or the employee business expenses under subsections (b) and (f).” 2019 T. C. Memo. 136, at p. 15.

Since I don’t know how much is at issue, or the parties’ finances, I can’t say that a LITC would have been able to help Habibe, but it would have been worth a try.

And the Section 6662 chops have to be apportioned with the items of the spouse who generated same. So Habibe gets hit for her share of the State income tax refund and the chops appurtenant thereto.

 

THE $500 MISUNDERSTANDING – AND HOW!

In Uncategorized on 10/15/2019 at 16:09

CSTJ Lewis (“Modest Despite His Name”) Carluzzo, leaving off his honorific, hands out a Section 6673 chop to the tune of $500 to Ernest Richard Brown, Docket No. 12646-19, filed 10/15/19, without even a warning.

That’s really unlike CSTJ Lew, but in this case it’s more like what Click & Clack called a “dopeslap.”

CSTJ Lew will man’splain.

“In a notice of deficiency (notice) dated March 14, 2011, respondent determined a deficiency in, and imposed I.R.C. §6651 additions to tax with respect to petitioner’s 2008 Federal income tax. A copy of the notice is attached to the petition filed May 24, 2011, in response. See Brown v. Commissioner, docket number 12335-11.” Order, at p. 1.

OK, so Ernest followed proper procedure, attaching copy of SNOD to petition therefrom. Surely that can’t be grounds for frivolity, even though Ernest got tossed by then-Ch J Colvin for nonpayment of the $60.

Of course not. But Ernest files a new petition. And thereby hangs the cliché.

“The petition filed in this case on July 9, 2019, specifically denies receipt of the notice that petitioner attached to the petition in docket number 12335-11. That allegation is patently false; otherwise, petitioner has demonstrated no legitimate reason for attempting to invoke the Court’s jurisdiction with respect to 2008 or any of the other years listed in the petition filed in this case.” Order, at p. 1.

CSTJ Lew, maybe he forgot.

 

NOT THERE

In Uncategorized on 10/14/2019 at 14:54

For those who reside or work in the City That L’Enfant Built, it is a public holiday; for some throughout this land, it is a religious holiday; while not a “major” Federal holiday, Post Offices and the Federal Reserve System are closed, though stock exchanges are open.

But US Tax Court is shut. Whether Judges, STJs, law clerks, flailing date-stampers or hard-laboring clerks deem it Columbus Day, Indigenous Peoples’ Day, or a religious holiday, they ain’t around.

So neither is this my blog.

ANNUALCREDITREPORT.COM

In Uncategorized on 10/11/2019 at 16:06

I guess Tribune Media Company f.k.a. Tribune Company & Affiliates, et al., Docket No. 20940-16, filed 10/10/19, must have logged in and gotten their credit reports from S&P and Moody’s, from sites other than the captioned one we ordinary types use, because the Tribunes want them in and IRS wants them out.

I’ll let Judge Buch explain: “This case is about whether a transaction engaged in by Tribune … was a nontaxable contribution of capital to the newly formed partnership … or a disguised sale of assets. Debt was incurred as part of the transaction, and Tribune guaranteed that debt. Whether those guarantees were real is an issue in this case.” Order, at p. 1.

IRS claims the proffered reports deal with years after the year wherein the transaction occurred, thus irrelevant; but even if relevant, they’re either hearsay or experts’ reports not complying with Rule 143(g).

I give IRS counsel JDS a Taishoff “Good try.” But he loses, all the way.

The Tribunes claim a lot of Tax Court cases use subsequent years info to see if year-at-issue position was real. Judge Buch buys it, subject to weighing it. “Although how those guarantees were perceived in years after the transaction may be less probative than how they were perceived at the time of the transaction, that distinction goes to the weight we give the evidence when we consider it. It does not mean we should not consider the evidence at all.” Order, at p. 2.

As for hearsay, a FRE 902(11) cert plus FRE 803(6) report-kept-in-regular-course-of-business holds the reports in, for now. But lest the crew representing the Tribunes put the ’00 Krug on ice, dig this. “Petitioners did not provide any authentication of the Moody’s credit reports or establish any other hearsay exception. We will not exclude these reports now, but will decide their admissibility at trial.” Order, at pp. 2-3.

Best get the Moody’s employees familiar with credit reporting acts and practices lined up and waiting.

Finally, “(T)he credit reports at issue are not an expert’s opinion based on the facts of this case. They are experts’ conclusions drawn from facts gathered for the purpose of rating Tribune’s credit worthiness at the time they were created. They are not documents or reports created for this litigation. These reports are factual evidence and not expert witness reports.” Order, at p. 3.

JDS’ motions in limine all crash, for now at least.

I might most humbly suggest to Judge Buch that when he gets out the scale to weigh S&P’s and Moody’s opinions on anybody’s creditworthiness, he recall that these were the guys who AAA-rated the subprime junk pools that set off the Black ’08.

And many thanks, Judge, for this designated hitter on a Friday before a three day weekend (“A klug zu Columbus’n,” y’all), when there are as usual no opinions, and 150 orders for me to plow through. Have a great weekend.

THE FIRE THIS TIME

In Uncategorized on 10/10/2019 at 15:50

It wasn’t his fire. The fire destroyed the home of his CPA. Brent Katusha, 2019 T. C. Sum. Op. 31, filed 10/10/19, thereby lost the records to substantiate his Sched C deductions. The fire apparently didn’t keep Brent from failing to report $10K of nonemployee compensation, but he wants $7K of deductions that IRS disallowed.

This brings into play, and before STJ Panuthos, Reg. 1.274-5(T)(c)(3), the longest-running off-Broadway temporary reg.

“’Where the taxpayer establishes that the failure to produce adequate records is due to the loss of such records through circumstances beyond the taxpayer’s control, such as destruction by fire, flood, earthquake, or other casualty, the taxpayer shall have a right to substantiate a deduction by reasonable reconstruction of his expenditures or use.”  Id. subpara. (5), 50 Fed. Reg. 46022. The burden is on the taxpayer to show that the documentation was actually lost or destroyed because of circumstances beyond his control.  See McClellan v. Commissioner, T.C. Memo. 2014-257, at *13.” 2019 T. C. Sum. Op. 31, at p. 8. I missed Oliver McClellan, for whatever reason.

Well, it turns out that Brent can establish his CPA was burned out (Oliver couldn’t prove which hurricane wiped out what), and at least some of Brent’s records went up with the house. But Brent can’t prove how he usually kept his records and specifically what was destroyed.

“Petitioner presented 49 pages of checking account statements with notations providing partial but inadequate details on the business purpose of each expense deduction claimed.  Petitioner’s testimony was vague and unspecific as to the business expenses for meals, events, gifts, and purchases for his mechanic’s shop. Petitioner’s attempts to specifically identify persons and business purposes related to the purported expenses were not sufficient.  While petitioner identified individuals with whom he dined and attended social events, he later indicated that his attempts at identification were speculative and acknowledged that his reconstruction of expenses did not specifically identify the business conducted on these occasions.  Likewise, petitioner’s recall of purchases from music stores, book stores, and other vendors was only general, and it was not clear whether the expenditures were incurred primarily for business rather than personal reasons. Petitioner acknowledged the difficulty in associating any expense paid in [year at issue] with a specific business purpose.  On numerous occasions at trial petitioner indicated that his notations could be inaccurate because he was attempting to piece together his purchases years after charges were incurred.” 2019 T. C. Sum. Op. 31, at pp. 9-10.

And some of the checking account statements contradicts his testimony.

IRS wins.

But again, the self-represented, unless OCD to the max, rarely has decent records to begin with, even before the wind, earthquake, or fire. And there’s rarely a still small voice to help out. Reconstructing while trying to make a living hardly favors reconstructing. Finally, testifying by oneself in court, even if one has been there before, does not make the Top Ten faves among indoor sports.