Attorney-at-Law

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“GUDE FAITH, HE MAUNNA FA’ THAT”

In Uncategorized on 12/14/2018 at 17:18

Maybe Not, But You Have To Prove It

Judge David Gustafson is down with Scotland’s Greatest. He won’t fault good faith, but he needs to see facts that manifest the good faith of Palmolive Building Investors, LLC, DK Palmolive Building Investors Participants, LLC, Tax Matters Partner, Docket No. 23444-14, filed 12/14/18, a special day at our house.

The Palmolives want partial summary J that they took the $33 million façade deduction that got blown away back in October of 2017 (see my blogpost “No Joy Forever – Because Golsen,” 10/10/17, a/k/a Palmolive I) in good faith and with reasonable cause, per Section 6664, to prevent substantial overvaluation chops. Judge Gustafson, smarting from 1 Cir’s shootdown of Tax Court in Gordo and Lorna Kaufman, refused to apply 1 Cir to the Palmolives, who are 7 Cir domiciliaries. But there was no other appellate learning.

Tax Court generally doesn’t hand out chops on first-impression cases, but good faith and reasonable cause are matters of fact. True, since 1 Cir reversed Tax Court, there is room for good-faith dispute, but what did the Palmolives do besides cite 1 Cir?

“Palmolive contends that it has a reasonable cause and good faith defense for the portion of underpayment attributable to its failure to comply with this regulation. Though this contention is insufficient to entitle Palmolive to partial summary judgment on ‘reasonable cause’, we do accept Palmolive’s argument that our analysis of its non-compliance with section 1.170A-14(g)(2) was an issue of first impression in Palmolive I. However, that alone does not result in our holding that Palmolive had reasonable cause and acted in good faith. See sec. 1.6664-4(b)(1), Income Tax Regs. Deciding whether Palmolive had reasonable cause and good faith for its understatement based, in part, on an alleged honest misunderstanding of law, will require the Court to determine whether that misunderstanding was ‘reasonable in light of all of the facts and circumstances, including the experience, knowledge, and education of the taxpayer.’ Some of those facts and circumstances are disputed by the parties.” Order, at p. 6. (Citations omitted).

Even though Mike Ehrmann’s appraisal was stipulated in as a qualified appraisal for Reg. § 1.170A-13(c)(3) purposes, there remains the fact question whether it was too good to be true, and what the Palmolives did to confirm it. They didn’t claim to have consulted other authorities; did they do anything else?

Lest we think Judge Gustafson is whistling past the Graevyard, he notes that the cross-motions regarding the Section 6751(b) Boss Hoss sign-offs for the chops remain pending.

But Palmolives, don’t get your hopes up. The Boss Hosses won’t be the subject of a trial.

 

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“NUMBERED WITH THE TRANSGRESSORS”

In Uncategorized on 12/14/2018 at 16:35

A much more exalted personage even than Ch J Maurice B (“Mighty Mo”) Foley gives me the title for this blogpost, Michael T. Sestak, Docket No. 17286-18, filed 12/14/18, a special day in our house.

Mike claims IRS failed to send the SNOD to his last-known address.

IRS points to a handwritten letter from Mike that sets forth his address and directs that all correspondence be sent to him at Pine Knot, KY. Mike sent this two (count ‘em, two) years before the SNOD was mailed.

Mike claims he gave the IRS his complete address. IRS says no, Mike didn’t include Mike’s prison registration number.

Despite this season of goodwill, Ch J Mighty Mo isn’t letting IRS get by.

“… I.R.M. 4.8.9.8.2.8 (07-09-2013) states, in pertinent part: Incarcerated Taxpayers *******

“2. The address in the Letter 531, Notice of Deficiency, should be where the taxpayer is incarcerated and should reference the prisoner locator number if available.

“3. For federal prison inmates, the prisoner locator number and address can be obtained from the Bureau of Prisons web site.” Order, at p. 2.

DC Cir has held that IRS should make a reasonably diligent effort to find out a party’s address if there’s doubt that the address they have won’t reach that party.

So let IRS explain why they didn’t check out Mike’s prisoner locator number.

 

CONDOLENCES

In Uncategorized on 12/13/2018 at 15:46

When a newly-minted colleague announces gleefully that s/he has “passed the bar,” my invariable reply is “My condolences.” I’m speaking only partially tongue-in-cheek (although how one can speak at all with tongue in cheek is a good question).

This can be an exhilarating profession, an intriguing life’s work, a ringside seat on the Human Comedy; it can also be stress-inducing, relationship-destroying and dehumanizing.

All that to one side, it can also destroy one’s business tuition deduction. I’ve blogged this before (see my blogpost “Moaning of the Bar,” 11/5/18).

Today’s candidate is another bright, hardworking voyager who comes from away to our shores to learn and earn, Serge Raymond Banini, Docket No. 6699-18S, filed 12/13/18. Serge earns a designated hitter from STJ Diana L Leyden, but IRS gets partial summary J tossing Serge’s deductions.

Serge added to his Cameroon BA in chemistry with a Ph.D. at West Virginia University, and signed up as a Patent Technical Adviser (Life Sciences) with a white-shoe. Serge claims the white-shoe wanted him to get admitted to MA Bar to get his job, but when show-and-tell comes around, his acceptance letter from the white-shoe doesn’t mention lawyering, only helping lawyers understand the life sciences.

The white-shoe did lend him the money for his law school tuition at no interest, but that isn’t enough. Neither is it that having his MA admission helped Serge do his work better.

“…petitioner asserts that the deduction of his legal education expenses should be allowed at least in part because some of the law school courses were only taken to maintain and improve his skills as a patent advisor. However, the regulation provides that expenditures for education which qualify a taxpayer for a new trade or business are not deductible even though the education may maintain or improve skills required for his employment. Sec. 1.162-5(b)(1), Income Tax Regs.; see Bodley v. Commissioner, 56 T.C. 1357, 1361 (1971). The undisputed material facts indicate that attending law school qualified petitioner for the new trade or business of a practicing attorney. Therefore, no partial deduction is allowed even if the education may have maintained or improved petitioner’s skills required for his employment as a patent advisor.” Order, at p. 5.

So summary J for IRS knocking off Serge’s tuition deductions.

Another reason why I express my condolences to those newly-admitted to this crazy profession.

“FASTER THAN A SPEEDING BULLET”

In Uncategorized on 12/13/2018 at 14:44

That’s Ch J Maurice B (“Mighty Mo”) Foley, when he spots a petitioner who hasn’t thrown the sixty coins in the Tax Court fountain when s/he posted the petition. He bounces the petitioner for want of jurisdiction, with no warnings or second chances.

And today Ch J Mighty Mo is so fast he outruns IRS’ counsel to toss Edward Thomas Kennedy, Docket No. 21004-18, filed 12/13/18.

Edward Thomas sent in an application for waiver of the filing fee with his petition in October, so this isn’t the usual one-week-or-less trademark toss from Ch J Mighty Mo.

But in November, Ch J Mighty Mo denied Edward Thomas’ poverty pitch, and told him to stump up or stand down. Edward Thomas moved for Ch J Mighty Mo to recuse himself. As the papers aren’t available online, I cannot tell on what grounds Edward Thomas relied.

In any case, if there’s no jurisdiction there’s no reason for anyone to recuse himself, so on Monday last Ch J Mighty Mo tossed Edward Thomas for failure to ante up.

IRS’ counsel didn’t catch the Monday bounce, so yesterday he banged in a motion to dismiss for failure to state a claim.

Too late, so that motion gets bounced.

But the irrepressible Edward Thomas, yesterday, throws in a motion “for a new trial,” in a case that (a) has been dismissed, and (b) where there never was a trial to begin with.

Neither Edward Thomas nor IRS’ counsel can outrun Ch J Mighty Mo when there’s money at stake.

TEFRA, MEET TOM HOBBES

In Uncategorized on 12/12/2018 at 16:55

As Judge Goeke points out in Raghunathan Sarma and Gaile Sarma, 2018 T. C. Memo. 201, filed 12/12/18, at p. 44, footnote 11: “Congress repealed the TEFRA procedures in the Bipartisan Budget Act of 2015, Pub. L. No. 114-74, sec. 1101(a), 129 Stat. at 625.”

And I, for one, am glad.

If you are still interested in this labyrinthian concoction, you can read all 48 pages of Judge Goeke’s dissection of Rag’s max-and-match, three-ring LLC circus, which marries the usual recognized loss with unrecognized gain to bury recognized gain.

IRS goofed when they handed out NBAPs to small-partnership LLCs, but Section 6231(g)(1) bails out IRS, as they had a reasonable basis for issuing same, and bailed when they found their mistake.

And even if a couple of the three-ring LLPs weren’t TEFRA-bait, it turns out that one of them was big enough to warrant TEFRA, and that brings in Section 6229 to save the SOL.

Taishoff comment: I see an appeal on this one.

Finally, the famous Woods dictum: “In dicta, responding to a point raised in an amicus brief, the Supreme Court in Woods observed that where a partnership is a sham and disregarded for tax purposes, the determination of the partner’s outside basis may not require a partner-level determination to adjust outside basis and thus the adjustment may be computational.  Woods, 571 U.S. at 42 n.2.  The Court stated that the amici’s argument ‘assumes that the underpayment would not be exempt from deficiency proceedings because it would rest on outside basis.’  Id.  The Court further observed: ‘Even an underpayment attributable to an affected item is exempt so long as the affected item does not ‘require partner-level determinations,’ * * * and it is not readily apparent why additional partner level determinations would be required before adjusting outside basis in a sham partnership.’  Id. (citations omitted).

Woods did not, however, answer the question of whether the partner-level adjustment of outside basis incident to a deficiency determination is computational and the Commissioner may directly assess the resulting tax against the purported partners or whether the adjustment requires a partner-level determination and the issuance of a notice of deficiency.” 2018 T. C. Memo. 201, at pp. 41-42.

If you are not stunned by the foregoing, try this: “While the Supreme Court’s dicta in Woods gives us pause, we conclude that the adjustment of outside basis in a sham partnership requires a partner-level determination.  No Court of Appeals has discussed the question of whether the adjustment of outside basis could be computational.  At this late date in the life of the TEFRA partnership provisions, it would be unwise for us to introduce uncertainty in the application of this well-worn law.  It is logical, as the Supreme Court suggests, to conclude Lincoln’s outside basis in its Kearney partnership interest was zero.” 2018 T. C. Memo. 201, at p. 44. (Footnote omitted, but I set it forth at the head hereof).

So I again quote Tommy Hobbes: ““When men write whole volumes of such stuffe, are they not Mad, or intend to make others so?” Leviathan, Book VIII (1651).

ONE MAN’S TAX

In Uncategorized on 12/12/2018 at 16:01

Is Another Man’s Restitution

Jason Bontrager, 151 T. C. 12, filed 12/12/18, wanted to patch up his relationship with his Dad. Dad offered to help Jason in his real estate business. With help like this, Jason got convicted for aiding and abetting Dad in evading $727K in Dad’s income tax. USDCWDWA hit Jason with $72K in restitution, 10% of Dad’s evading.

Jason filed bankruptcy, and IRS put in an unsecured claim, although Federal restitution is non-dischargeable per 11 USC §523(a)(13), 727(b) (2012). Jason claims IRS waived its chance to collect, as he got discharged in bankruptcy and paid IRS $17K.

Judge Lauber isn’t buying.

“Contrary to petitioner’s view, nothing in the Bankruptcy Code prevents a creditor of a nondischargeable debt from filing a claim.  Generally, all properly filed creditor claims are allowed in a bankruptcy case unless expressly disallowed by the Bankruptcy Court under a specific provision.  See 11 U.S.C. sec. 502(a), (b), (d), (e) (2012).  None of these provisions disallows claims for nondischargeable debts.  And no provision of the Bankruptcy Code prevented the IRS from filing a claim or attached any adverse consequences to its doing so.   Further, the IRS properly filed its claim as a general unsecured creditor.

“Because the IRS had not assessed the restitution obligation at the time of petitioner’s bankruptcy, let alone filed an NFTL, it was required to file its claim as a general unsecured creditor.” 151 T. C. 12, at p. 18 (Citations omitted).

Jason claims that IRS can’t assess the ordered restitution, because Section 6012 (a)(4(A) restitution was ordered “for failure to pay any tax imposed by this title.” But USDCWDWA ordered restitution for failure to pay Dad’s tax, not Jason’s.

I award Holly C. Henson, Esq., Jason’s attorney, a Taishoff “good try, first class.”

“Petitioner notes correctly that the tax, the payment of which he was convicted of evading, was not originally imposed upon him by title 26.  But neither section 7201 nor section 6201(a)(4) requires that this be the case.  Section 7201 criminalizes any willful attempt to evade payment of ‘any tax imposed by this title.’  Section 6201(a)(4) authorizes the assessment of restitution ‘for failure to pay any tax imposed under this title.’  Petitioner was ordered to pay restitution for aiding and abetting [Dad’s] failure to pay Federal income tax.  That tax was clearly ‘[a] tax imposed under this title.’

The phrase ‘any tax imposed under this title’ in section 6201(a)(4) contains no limiting language.” 151 T. C. 12, at p. 14. (Emphasis by the Court).

The reason for Section 6201(a)(4)(A) was that Justice prosecuted evasion and won restitution; Treasury (IRS) may not even have begun examination at that point, thus there was no account receivable against which to debit restitution. So Congress let IRS collect restitution “as if” it were a tax. Remember Hans Vaihinger, the philosopher of “as if”? No? See my blogpost “Als Ob,” 11/22/16.

And Congress could not have intended a gap that gives a free kick to aiders and abettors.

“If the IRS cannot assess restitution of the sort involved here, the problem Congress aimed to solve in 2010 would be perpetuated for a subset of restitution payments.  Indeed, the problem would be particularly acute in this context.  The IRS cannot commence an examination of petitioner to determine {Dad’s] civil tax liability.  Thus, it could never make an assessment against petitioner for that tax unless permitted to do so by section 6201(a)(4).  And this problem could arise in the case of restitution ordered, not just for violations of section 7201, but for violations of other Code provisions.  See, e.g., secs. 7202 (willful failure to collect or pay over tax) and 7203 (willful failure to file, supply information, or pay tax).  We decline to find a gap in the statutory scheme in the absence of any textual evidence suggesting that such gap exists.” 151 T. C. 12, at p. 16.

But IRS concedes that Section 6601(a) underpayment interest doesn’t apply.

“SUE ME, SUE ME”

In Uncategorized on 12/11/2018 at 14:38

IRS picks up on Frank Loesser’s 1950 anti-hero’s line in Greenteam Materials Recovery Facility PN, Greenwaste Recovery, Inc., Tax Matters Partner, Docket No. 21946-09, filed 12/11/18. All y’all will recall the Greenteamers (or Greenwasters) and their capital gains from franchise sales.

No? Seriously? Well, dig my blogposts “Das Kapital,” 8/6/13, “Das Kapital – Part Deux,” 6/21/17, and the most popular of the three, “Settle Order on Notice,” 6/23/17. There now.

The Greens won the FPAA joust, and did the numbers. The Greens won big.

But the Green’s counsel complains to Judge Mark V Holmes in a letter.

“In it he stated that the effect of these decisions was to generate a substantial refund to the individual partners for tax year X and small deficiencies for them for two later tax years. He also stated that the IRS proceeded at speed to issue the notices of computational adjustment to them to collect the deficiencies for those two later years, but invited the individual partners to sue in the Court of Federal Claims or their local District Court for the substantial refund for [Year X].” Order, at p. 1.

So counsel asks Judge Holmes to order IRS to pay up.

No can do, says Judge Holmes. At least not yet.

If this involved individual partners who were entitled to a refund, no need for another lawsuit. A Rule 260 motion based on Section 6512(b) does the trick. But this is a TEFRA FPAA. No amount of refund for each individual partner is part of the decision. Thus Tax Court may have no jurisdiction.

Or maybe it does. “One practitioner’s guide says this means that our Court ‘has overpayment jurisdiction with respect to affected items.’ IRS Practice Adviser Report, ¶ 430: Judicial Review of the FPAA/FSAA. Another practitioner’s guide warns instead: “Comment: It is unclear whether § 6512(b)(2) and Tax Court Rule 260 apply in partnership actions where an overpayment would result to a partner based on the decision entered by the court in the partnership proceeding.” Richard A. Levine et al., Proced. & Admin.: Tax Court Litigation, 630-5th Income Tax (BNA).” Order, at p. 3.

So Judge Holmes treats counsel’s letter as a Rule 260 motion, and denies same without prejudice.

“It may turn out that following the Rule’s procedures moves the Commissioner to act expeditiously to wrap these cases up. It may turn out that petitioners discover through their own research that they do not want to proceed under this Rule; or the Commissioner may want to argue that it is inapplicable either on its own terms or by analogy.” Order, at p. 3.

So make the motion in proper form, and we’ll see.

I bet you’re asking what will happen in new cases now that TEFRA is gone. My bet is that the whole thing gets done at once.

FUTILITY

In Uncategorized on 12/10/2018 at 16:38

It is a long-standing legal maxim that the law does not require performance of a futile act. In the ongoing chanson de geste of James L. McCarthy, Docket No. 21940-15L, filed 12/10/18, Judge James S (“Big Jim”) Halpern wants to be sure that no violation of that hallowed principle has occurred.

All y’all will recall Judge Big Jim sent IRS’ and James L’s counsel off to tell him more before. See my blogpost “When? – Reprise,” 10/31/18, when Judge Big Jim wanted enlightenment of James L’s relationship to his wife’s C Corp, which leased some property from a trust, and which lease might have had some value before wife walked away therefrom.

Whatever enlightenment was furnished, the trust angle is still on the table. When James L went back to Appeals on remand, his OIC and PPIA again were bounced, because Appeals was convinced the trust property was still in play, and James L’s counsel didn’t furnish fresh financial info.

The supp NOD from the remand “…states that…apparently in response to a request for updated financial information from the Settlement Officer (SO) R, petitioner’s attorney ‘stated that if Appeals was going to maintain its decision regarding nominee ownership, there was no point in providing updated financial information.’” Order, at p. 1. (Name omitted).

Well, IRM pt. 5.15.1.l(4) (Nov. 17, 2014), and IRM pt. 5.15.1.2(3) (Aug. 29, 2018) state that for any collection alternative, the financial info must be no older than six (count ‘em, six) months. So mox nix that whatever info James L and his attorney would furnish would either constitute a concession on the trust angle if that were included, or would be bounced as insufficient if weren’t included.

Except.

“…petitioner’s refusal to submit updated financial information may provide an independent basis for upholding Appeals’ determination in the present case, regardless of petitioner’s interest in the trust’s assets–unless, perhaps, petitioner’s refusal was justified because he or his counsel were given reason to believe that Appeals had resolved to adhere to its position on the nominee issue after remand so that the provision of updated financial information would be futile.

“The parties’ briefs do not address the potential impact on our disposition of the case of petitioner’s refusal to provide updated financial information. Respondent’s briefs focus on whether SO M was correct in her conclusion that the value of the trust’s assets had to be considered in evaluating petitioner’s proposed collection alternatives. Respondent does not advance petitioner’s failure to provide updated financial information as an independent ground for upholding Appeals’ rejection of petitioner’s proposed collection alternatives. And petitioner’s briefs offer no justification for his failure to submit updated financial information. In particular, they do not describe any communications received from SO M or other Appeals representatives that might have supported an inference that the provision of updated financial information would be futile. Because the parties’ briefs are insufficient to allow us to determine the impact of petitioner’s failure to provide SO M with updated financial information, we will require further submissions. With this Order, we require petitioner to explain that failure. If appropriate, after receiving petitioner’s explanation, we will give respondent the opportunity to respond to it.” Order, at p. 2. (Name omitted).

Takeaway- Build a record. If all you get on remand is the same argument you consistently rejected, and that got you to Appeals, put something in writing about no point in giving more financial info that omits the items at issue, as Appeals won’t give on that point. And tell ‘em Judge Big Jim sent you.

“HAD WE BUT WORLD ENOUGH, AND TIME”

In Uncategorized on 12/10/2018 at 15:52

Andy Marvell was chatting up his girlfriend, but The Judge with a Heart, STJ Rob’t N Armen, has no time for chatting in this designated hitter, Kwabena Owusu Banahene, Docket No. 6086-16L, filed 12/10/18.

KO’s fighting a trio of preparer chops, and opposes IRS’ summary J motion, challenging “…(1) whether Letter 1125 and the examination reports (Forms 5816) proposing return preparer penalties for [the trio] were sent to petitioner before assessment of such penalties; (2) whether petitioner received sufficient time to request further administrative consideration before assessment of such penalties; and (3) whether respondent validly assessed against petitioner return preparer penalties for the years in issue.” Order, at p. 1.

Sort of a junior version of Graev; did IRS jump the gun?

IRS claims there’s no gun to jump, unless they feel like it.

“The Court recognizes that respondent contends, inter alia, that the provisions of section 1.6694-4(a)(1) and (2), Income Tax Regs., are directory rather than mandatory, a contention that appears to present a legal issue of first impression. However, the Court questions whether it would be judicious to address such issue at the present time given that it would be moot (and any opinion addressing it would arguably be dicta) if respondent did, in fact, comply with the provisions of the aforecited regulation. As previously indicated, whether respondent did, in fact, comply with such provisions presents a disputed issue of material fact.” Order, at p. 2.

IRS of course wants to get partial summary J on some other stuff. As a long-time fan of summary J, I’m all in favor using it to clean up everything around. Like the famous paper towel, summary J is the “quicker picker-upper.”

STJ Armen isn’t buying.

“Further, the Court recognizes that respondent seeks, in the alternative, partial summary judgment on a number of non-dispositive matters. However, the Court again questions whether it would be judicious to address those matters at the present time because of the paramount nature of the fundamental issue, i.e., the validity of the underlying assessments.” Order, at p. 2.

Summary J denied.

BROKEN RECORD

In Uncategorized on 12/10/2018 at 15:26

Judge James S (“Big Jim”) Halpern breaks the record-breaker today, with a one-sentence, designated hitter, blow-off of what I thought was a really good blogpost (“Record-Breaking,” 12/7/18).

Well, the Supremes ducked a loaded case today, so why shouldn’t Judge Big Jim duck one a lot less loaded?

Here’s Whistleblower 11099-13W, Docket No. 11099-13, filed 12/10/18, in extenso.

“It is, ORDERED that the Court’s Order dated December 6, 2018, is hereby vacated and set aside.”

As the old State court calendar call service used to put on their slips, “Following.”