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MORE GAMES PEOPLE PLAY

In Uncategorized on 08/23/2019 at 15:44

The late great Dr Eric Berne would find an embarras de richesses in US Tax Court. To begin with, CSTJ Lewis (“Not Chief In Name Only”) Carluzzo has no patience for IRS counsel’s gameplaying in Ralph B. Marra, Docket No. 24599-17L, filed 8/23/19.

IRS claims Ralph had an opportunity to contest liability at the CDP, but didn’t, so wats summary J. Ralph wants a remand.

CSTJ Lew: “According to petitioner, his challenge to the amount of the underlying liability, or at least a portion of it, was raised at the administrative hearing by the submission of a Form 1127, Application for Extension of Time for Payment of Tax Due to Hardship, to the respondent’s settlement officer. We note that a similar challenge is made in the petition.” Order, at p. 1.

So summary J goes down.

“The parties disagreement over petitioner’s entitlement to challenge the existence or the amount of the underlying liability in this proceeding, not to mention their apparent disagreement over whether petitioner had reasonable cause for his failure to pay the underlying liability, see sec. 6651(a)(2), requires that respondent’s motion be denied because genuine issues of material fact remain in dispute, see Rule 121.” Order, at p. 2.

But CSTJ Lew isn’t sending Ralph and IRS back to Appeals, either.

“Turning our attention to petitioner’s motion, we fail to see what could be accomplished by further administrative review and action that could not otherwise be given effect by the parties without a remand.” Order, at p. 2.

Maybe CSTJ Lew is going to try this one.

But IRS isn’t the only gameplayer today.

Elizabeth Koham, Docket No. 5227-18L, filed 8/23/19, is part of a designated hitter coupled entry. Elizabeth tries a ploy with Judge Buch, who is definitely not playing. Elizabeth wants an OIC, and isn’t getting it. She and co-petitioner sent in a Form 433-A claiming “patently excessive monthly expenses.” Order, at p. 1.

“0n their 433-A, Mr. Bereliani and Ms. Kohanmehr listed among monthly expenses: $7,500 for food, clothing, and miscellaneous, $9,500 for housing and utilities, and $1,000 for public transportation. They also listed a $250,000 student loan debt as a monthly expense, labeling it as a total debt, but offering no information about the monthly loan expense.” Order, at pp. 1-2, footnote 4.

This is not the way to ingratiate oneself with the court. Especially when one’s RCP is $312K and one offers an OIC of $2500.

But one does get “somber reasoning and copious citation of precedent” at no extra charge.

 

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STIPULATION ISN’T CAPITULATION

In Uncategorized on 08/22/2019 at 15:51

Today’s episode of the story of Richard R. Raley, Docket No. 15789-17, filed 8/22/19, lets Judge Buch tell us that stipulations don’t solve every issue.

“The Commissioner filed a document captioned ‘Respondent’s Designation of Deposition Testimony To Be Used At Trial.’ This appears to be an attempt to put into the evidentiary record of this case a deposition of a non-party taken pursuant to a stipulation under Rule 81(d), Tax Court Rules of Practice & Procedure. The mere fact that a deposition was taken by stipulation does not automatically mean that a party can put that deposition into the evidentiary record of the case. See Rule 81(i).” Order, at p. 1.

The deposition can be used to impeach the witness, or by the adverse party for any purpose, but to let the deposition in for any purpose requires judicial oversight. See Rule 81(i)(3).

Neither side can smuggle the deposition in while Judge Buch is on the case.

TWO GOOD ONES

In Uncategorized on 08/22/2019 at 15:34

Sometimes the taxpayer gets a lot more than sixty bucks’ worth of justice from US Tax Court. Taryn L. Dodd, 2019 T. C. Memo. 107, filed 8/22/19, a legal secretary who got tagged with $1 million of real estate sales proceeds based on an erroneous 1040, never got a chance to contest her liability, even though she got a CDP and a remand.

The remand went to the same SO who had quick-pitched Taryn before.

Judge Albert G (“Scholar Al”) Lauber doesn’t think much of what justice Taryn got before now.

“We remanded this case after respondent conceded that the SO had abused her discretion by failing to consider petitioner’s challenge to her underlying liability and by failing to give petitioner enough time to submit information relevant to her request for a collection alternative.  Given these concessions by IRS counsel and the terms of our remand order, one might have expected the Appeals Office to take all steps reasonably necessary to accomplish the purpose of our remand.  Unfortunately, this is not what happened.”  2019 T. C. Memo. 107, at pp. 8-9.

“Here, the SO was fully aware of petitioner’s position concerning her underlying tax liability….  But the SO did not advise her, either in the letter scheduling the supplemental hearing or during the hearing itself, of the factual information that was needed to resolve that challenge.  And rather than give petitioner a reasonable extension of time to supply that information, the SO closed the case the very next day.

“On the record before us, we find that there exists (at the very least) a question of material fact as to whether the SO abused her discretion in handling this case on remand.  We will accordingly deny respondent’s motion for summary judgment.  We will also direct respondent to show cause why this case should not be remanded once again for the conduct of a supplemental hearing–ideally, before a different SO–that is genuinely designed to get to the right answer concerning petitioner’s underlying tax liability … and (if her underlying liability challenge is rejected) concerning her request for a collection alternative.” 2019 T. C. 107, at pp. 10-11.

Why IRS had four (count ‘em, four) attorneys assigned to this summary J fiasco, and not one patient SO to the remanded CDP, makes me question IRS’ allocation of scarce resources.

Next up, Santiago Guiterrez, 2019 T. C. Sum. Op. 23, filed 8/22/19. Santiago had a court order awarding him and his partner custody of his partner’s two minor grandchildren, as their father had deserted and couldn’t be found, and their mother abandoned them and died. Santiago was the sole support of them and his partner’s 19 year old daughter (whom he claimed was a student, except her school transcript showed she wasn’t).

CSTJ Lewis (“A Man Worthy of the Name”) Carluzzo gives Santiago the two minors for all the child bennies and HOH, but not the 19 year old.

Both the minors are qualifying foster children for year at issue (Sec. 152(f)(1)(C). But they qualify both for Santiago and for partner. Except Santiago wins the tie-breaker as he’s the only one with gross income.

So it’s a Rule 155 beancount, to take the 19 year old out of the mix for EITC and kiddie creds.

And Santiago used a paid preparer, who had creds, and he acted in good faith. No chops.

THOSE WHO NEED IT

In Uncategorized on 08/22/2019 at 14:35

It is this blogger’s oft-repeated lament, whenever reporting a pro se’s obvious misunderstanding of the law, whether advertent or inadvertent, that “Those who read it don’t need it, and those who need it won’t read it.”

Today STJ Daniel A (“Yuda”) Guy gives us another example, Anthony Barfield, Docket No. 322-19, filed 8/22/19.

AB got tossed in May a year ago, when he petitioned before the SNOD had been mailed to him. I’ve blogged that often enough; see my blogpost “Illegal Procedure,” 12/1/16 and the posts cited therein. So IRS hit him with the SNOD, which he now petitions, saying Section 7481 finality renders the SNOD invalid, as IRS had their chance.

Except IRS didn’t. AB filed a “years petition,” when neither SNOD nor NOD has issued for a bunch of years. STJ Yuda explains: “Such a petition, commonly known as a “years petition”, does nothing other than allege for a substantial number of consecutive years that the taxpayer did not receive any jurisdictionally relevant IRS notice, such as a notice of deficiency or a notice of determination, that would permit an appeal to the Tax Court. A ‘years petition’ is a manifestation of protest from tax deniers and tax protestors.” Order, at p. 2, footnote 2.

I’ve blogged this gambit often enough. I was unaware it had acquired a popular name.

“Returning now to the present case, it bears mention that petitioner did not pay the filing fee when he filed his petition nor did he file at that time an affidavit or declaration containing specific financial information regarding the inability to pay the filing fee. By Order dated February 7, 2019, the Court directed petitioner to pay the filing fee or submit an application for waiver on or before March 25, 2019. Petitioner did not comply with this Order.” Order, at p. 3, footnote 3.

So STJ Yuda could toss AB for nonpayment, but instead gives IRS judgment on the pleadings, nails AB for the deficiency and the chop.

And AB gets the Section 6673 yellow card at no extra charge.” Finally, the Court takes this opportunity to remind petitioner that section 6673(a)(1) authorizes this Court to impose on a taxpayer a penalty not to exceed $25,000 whenever it appears that proceedings have been instituted or maintained by the taxpayer primarily for delay or that the taxpayer’s position in such proceedings is frivolous or groundless. Although the Court will not impose such a penalty in this case, petitioner is warned that the Court may not be so forgiving if he returns to the Court and advances frivolous and groundless arguments in the future.” Order, at p. 4 (Citation omitted).

BACK-UP

In Uncategorized on 08/21/2019 at 16:01

It seems like another non-substantiation case, but Jasper J. Nzedu and Vivian A. Nzedu, 2019 T. C. Sum. Op. 22, filed 8/21/19, has a couple lessons for us all (hi, Judge Holmes).

It’s Jas’ story. Jas is an attorney who, after white shoeing, ran his own tax software and tax prep operations, under two entities, one a corporation and the other an LLC.

He’d have some good passthrough losses, if he timely filed the Sub S election for the C Corp.

CSTJ Lewis (“What’s in a name? Everything!”) Carluzzo instructs us on the extreme importance of little things.

“Petitioner asserts that he personally prepared a Form 2553 [S election] [covering year at issue] for [C Corp] and then gave it to one of his employees with instructions to mail it to the IRS. According to respondent, petitioner did not make a valid S election until [three years later].

“Respondent’s records do not show that a Form 2553 on behalf of [C Corp] was received…, nor has petitioner provided any persuasive evidence of timely mailing Form 2553….” 2019 T. C. Sum. Op. 22, at p. 7.

Certified mail is cheap, even cheaper if return receipt is not requested (and it doesn’t have to be to satisfy Section 7502). And the USPS website offers track-and-confirm.

Next is the case of the purloined laptop.

Jas claims his laptop, whereon resided all his records for years at issue, was stolen. I don’t doubt Jas’ testimony on that point, and I don’t think CSTJ Lew did either.

Except.

“Petitioners explain that the lack of detailed substantiating records is due to the theft of petitioner’s laptop.  According to petitioners, because they have introduced evidence, in the form of petitioner’s testimony and other documents, showing the expenses incurred, they are entitled to the deductions as claimed on the returns.  When a taxpayer’s records have been destroyed or lost because of circumstances beyond the taxpayer’s control, the taxpayer may substantiate his expenses by making a reasonable reconstruction of the expenditures or use.  See sec. 1.274-5T(c)(5), Temporary Income Tax Regs., 50 Fed. Reg. 46022 (Nov. 6, 1985).  A taxpayer is required to reconstruct what records he can.  In this case, however, the evidence presented discloses a tangled web of shared expenses that is difficult to unravel.  We are unable to determine whether expenses reported on the [LLC] Schedules C were already reported and allowed as deductions by respondent by one or the other of petitioner’s other businesses.  Nor is there sufficient evidence in the record to provide a basis for estimating the expenses.” 2019 T. C. Sum. Op. 22, at pp. 12-13. (Citation omitted).

Thus the title of this blogpost. A standalone harddrive with hefty capacity can be purchased for $100 or less. The harddrives of most laptops can be easily stored in a standalone harddrive off-campus, and it doesn’t take a lot of time or tech savvy to do so.

Finally, Jas is way too credentialled to dodge the Section 6662(a) five-and-ten.

 

LITC AND VITA

In Uncategorized on 08/20/2019 at 16:11

The Low Income Tax Clinics do laudable work. Primacy of place must go to the law schools, whose pro bono beneficence I’ve often commended before now. The Texas Technophobes, the Harvard Fierce Fighters, the Golden Gophers, The Fordham Flashes, and Sandy Freund’s Jersey Lightning, are just a sampling.

Unhappily, some of the VITAs, and today the AARP, fall somewhat short.

Maria M. Faust, 2019 T. C. Memo. 105, filed 8/20/19, evokes pity from Judge Elizabeth A. Copeland, as Maria needed a Spanish-language interpreter on the trial, was found by the US Navy’s Family Advocacy Program Case Review Committee to be abused by her husband, never finished secondary school, and was confronted by a series of  family court orders that baffled even IRS’ counsel. There was a preliminary order and a final order, when Maria unhitched from abusive spouse, and Maria got money.

Of course, what cash Maria got was alimony, and taxable to her. VA law, where she lived, says all such court-ordered payments end with death, unless expressly otherwise stated, so Section 71(b)(1)(D), the rock upon which so many alimony claims foundered, was avoided. And nowhere was it stated in any document that payments were not income to Maria.

Maria got tax advice from AARP’s local MD tax clinic. “…we note that petitioner obtained what low-income-taxpayer professional assistance she could in preparing her tax return.” 2019 T. C. Memo. 105, at p. 20. So Maria is excused the Section 6662 chops.

We’ve seen that non-law school VITAs have problems with things like self-employment tax for workers with foreign governments (see my blogpost “That’s The Way To Do It,” 10/2/12). Here’s another example. Maybe AARP (to which organization I belong) should partner with the law school clinics.

THE LIGHT AT THE END

In Uncategorized on 08/20/2019 at 15:23

I said it back in April last year. Those who petition multi-years, when IRS issued neither SNOD nor NOD for any thereof, risked the Section 6673 yellow card, if it looked like they were trying to limp in to cut off nonassessables, like refund grabs. See my blogpost “I’m Beginning to See the Light,” 4/9/18.

Well, today Ch J Maurice B (“Mighty Mo”) Foley, he of the quick-pitch, lines up on Stella Beth Nager-Curry, Docket No. 5101-19, filed 8/20/19.

Stella Beth petitioned nineteen (count ‘em, nineteen) years, from 1998 to 2017.

IRS was not amused, and Ch J Mighty Mo grants IRS’ motion to toss Stella Beth’s petition.

But as the late-night telehucksters say, “But wait! There’s more!”

“In his motion to dismiss respondent states that petitioner does not object to the granting of the motion. In his motion, respondent further requests that the Court warn petitioner about 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.” Order, at p. 1.

Ch J Mighty Mo is quick to oblige.

“Although respondent does not seek and the Court thus will not impose an I.R.C. section 6673 penalty here, petitioner is admonished that the Court will consider imposing such a penalty in future cases commenced by petitioner seeking similar relief under similar circumstances.” Order, at p. 1.

CREATIVITY

In Uncategorized on 08/19/2019 at 17:16

I sometimes think that creativity is an overrated talent. Case in point: King Solarman, Inc., 2019 T. C. Memo. 103, filed 8/19/19. King is the business of Cung, Taiwanese immigrant, who starts a successful business selling those carts with the giraffe solar panels, that tell us of lane changes and closed exit ramps.

Cung, no accountant, has an inventive CPA who tries to hide $5 million of income via a promissory note. The note was given by Cung’s customer. The CPA claimed that Cung’s business didn’t have inventory, because there were no carts on the lot at year’s end, and therefore Cung could use cash method, although he’d always filed accrual and never asked for a change. Loser, because it’s whether the income-producing stuff could be inventory, and of course it could.

I’ll spare you Judge Lauber’s extensive trek through the facts, demolishing Cung’s team’s arguments.

The key is that Cung dodges a substantial chop.

“Although Mr. Cung has a college degree, he had no knowledge regarding tax law, and English is his second language.  He retained a CPA to prepare [King Solarman]’s return for each year of its existence.  The accounting issues we have addressed present technical questions of the sort a reasonable businessperson would refer to his accountant, to whom Mr. Cung made full disclosure of all relevant facts.

“Petitioner’s CPA did a less-than-masterful job in preparing KSI’s returns, but we are convinced that Mr. Cung did not know, and had no reason to know, of any deficiencies in that respect.  We do not fault Mr. Cung for not questioning his accountant when he was aware of no reason for doing so.” 2019 T. C. Memo. 103, at p. 37.

True, Cung’s legal team didn’t call the CPA to testify, and that “cuts somewhat in respondent’s favor.” 2019 T. C. memo. 103, at p. 37. But I don’t know I would have called the CPA either; that individual had done quite enough.

APPRAISALS – FROM TEXAS TO OREGON

In Uncategorized on 08/19/2019 at 16:55

Appraisal aficionados will enjoy two from Tax Court today. We begin with Houston, and the high-priced part of town known as River Oaks, wherein stood the celebrated Harry Hanszen House, now or formerly the abode of Robert G. Taylor, II, 2019 T. C. Memo. 102, filed 8/19/19. Judge Paris gets this tale of Hurricane Ike and the havoc it wrought in Baja Oklahoma.

While I’ll spare you Judge Paris’ three-page broker’s set-up, I especially lament the destruction of RGTII’s “…6,889 bottles of wine stored in the basement, and approximately half were submerged.  A dedicated computer with customized wine database software, a bar code labeler and a scanner, and a work station were destroyed in the basement flood.” 2019 T. C. Memo. 102, at p. 10.

What a bummer.

Then there was mold, asbestos, the real estate market collapse of the Black ’08… as Grandma would have said, don’t ask.

RGTII originally went with his CPA’s appraisal of before and after, but supplemented with a local broker whose 30 years of experience sufficiently impressed Judge Paris to allow in both the broker’s report and her testimony.

But that doesn’t help, as all that a casualty loss involves is actual physical damage. “A competent appraisal must recognize the ‘effects of any general market decline affecting undamaged as well as damaged property which may occur simultaneously with the casualty’ so that any deduction will be ‘limited to the actual loss resulting from damage to the property.’” 2019 T. C. Memo. 102, at pp. 24-25, citing Reg. 1.165-7(a)(2)(i).

The flooded basement, mold and asbestos, plus the Black ’08 crash, and popular perceptions thereof, played too great a role in RGTII’s expert’s valuation. But though the CPA flunks as valuer, CPA does help RGTII escape the Section 6662 chops.

Next up is the trees and the forests of Oregon, in which was situated the world-class sawmills of the late Aaron U. Jones. So we have Estate of Aaron U. Jones, Donor, Deceased, Rebecca L. Jones and Dale A. Riddle, Personal Representatives, 2019 T. C. 101, filed 8/19/19, Judge Pugh at the cutting edge (sorry, guys).

The late Aaron U. had a LLC to do the forestry and his S Corp to do the sawing, and they swapped cash back and forth. The documentation apparently passed muster. Now the question is the worth of the interests the late Aaron U. gifted to his nearest and dearest before he became the late Aaron U.

Here we have Schwab and Reilly, dueling valuers, Schwartz for IRS and Reilly (apparently a professional sawmill valuer with over 100 woodpushers under his belt) for the estate. Schwab’s expertise is closely-helds.

Reilly’s valuation is the better. He harkens back to our old friends the late Natale and his heir Laraway Guistina (see my blogpost “Into the Woods,” 2/16/16), and uses an income approach rather than Schwab’s net asset valuation.

These lumber outfits both grow and hold timber (assets) and sell wood, so they’re both investment vehicles and operating businesses.  And the S Corp and the LLC are essentially two arms of the same enterprise. Moreover, Reilly takes tax effects into account in valuing the same.

“While respondent objects vociferously in his brief to petitioner’s tax affecting, his experts are notably silent.  The only mention comes in Mr. Schwab’s rebuttal report, in which he argues that Mr. Reilly’s tax-affecting was improper, not because (SJTC pays no entity level tax, but because SJTC is a natural resources holding company and therefore its ‘rate of return is closer to the property rates of Return’.  They do not offer any defense of respondent’s proposed zero tax rate. Thus, we do not have a fight between valuation experts but a fight between lawyers.” 2019 T. C. Memo. 101, at p. 39.

If you buy an S Corp, you’re buying the flowthrough of tax incidents. That’s worth something.

“We find on the record before us that Mr. Reilly has more accurately taken into account the tax consequences of SJTC’s flowthrough status for purposes of estimating what a willing buyer and willing seller might conclude regarding its value.  His adjustments include a reduction in the total tax burden by imputing the burden of the current tax that an owner might owe on the entity’s earnings and the benefit of a future dividend tax avoided that an owner might enjoy.  We are mindful that the science of valuing closely held companies usually results in a ‘gross terminal logical inexactitude’ in the words of Winston Churchill.” 2019 T. C. Memo. 101, at p. 41.

If you’re a valuation geek, read these. And even if you’re not, there’s useful material here.

 

ONE OF THREE

In Uncategorized on 08/16/2019 at 15:36

Sam T. Coleridge’s grey-beard loon has nothing on Judge Buch, who does not “his hand dropped he” but hangs on to the CPA I’ll call Jody in NCA Argyle LP, Newport Capital Advisors, LLC, A Partner Other Than the Tax Matters Partner, et al., Docket No. 3272-18, filed 8/16/19, one of a quad of designated hitters.

Trial is set for next month, IRS moves to depose three (count ‘em, three) of taxpayers’ advisors, including without in any way limiting the generality of the foregoing (as my already on their second Grey Goose and Tonic colleagues would say), the aforesaid CPA, despite everybody having Branertoned up to now.

The Argyles claim too near to trial, burdensome, and IRS didn’t ask earlier.

“The Commissioner believes these depositions will help him to understand the advice given to petitioners regarding the settlement proceeds.” Order, at p. 2.

BTW, IRS claims the Argyles opposed their demand too late. Their response was due 8/14/19, but the Argyles, being on the left coast, got their opposition in at 1:04 a.m., EDT, on 8/15/19.

Now we all know Rule 22 changed effective 11/30/18. The 6 a.m. the next day grace period was dropped, and 11:59 p.m. on the due date substituted. But the Practitioners’ Guide to Electronic Case Access and Filing available on the Court’s website still states at page 42, “A document is considered timely filed if it is electronically transmitted no later than 6:00 a.m. Eastern time on the day after the last day for filing.”

Needless to say, the Rule overcalls the Practitioner’s Guide. But Judge Buch will make sure no one is misled. “The Court will take steps to conform the online guide(s) to the recently amended rule. As for this case, no one was prejudiced by the 65 minute delay, and the Court has filed petitioners’ response.” Order, at p. 2, footnote 2.

Judge Holmes, please copy. See my blogpost “Technologically Challenged,” 3/21/16.

OK, so IRS can depose. “The information the Commissioner seeks to obtain through the proposed depositions is relevant and discoverable information. The proposed depositions would examine, for all three of the individuals, their role in advising petitioners as to the proper tax treatment of the income at issue. This information is relevant to the question of whether petitioners had reasonable cause for their reporting on their returns.” Order, at p. 3.

But Judge Buch invokes Rule 70(c)(1)(C). Three depositions are too burdensome and expensive, and trial is less than three weeks away. And the nonparties’ testimony will overlap anyway.

So since Jody prepped the returns, let him talk.