The undergrowth of TEFRA bedevils IRS and petitioners to the end. Fears Drive Henry 58, LLC, Fears Drive Manager, LLC, Tax Matters Partner, Docket No. 13235-21, filed 7/26/23, incorporated in GA (where else?) 12/15/17. Should’a waited the two weeks, guys. When the FPAA hit, and FDM petitioned, FDM had already been dissolved by GA DoS.

So Judge Travis A. (“Tag”) Greaves has to bash through the boondocks of GA corporate law to find if Henry 58 or somebody else can ratify FDM’s petition.

You’d expect a David Dung Le here, and IRS doesn’t disappoint. For the backstory, see my blogpost “Being and Nothingness,” 5/7/13.

FDM tries the nunc pro tunc reinstatement language GA DoS used when they revived FDM 309 days late, saying FDM was reinstated back to the day of dissolution. IRS has GA caselaw that says that doesn’t help, but FDM has a GA case that says it does.

Judge Tag Greaves has the right view; though State law governs capacity to sue (or petition), Rule 60(a) allows for ratification when the wrong party sues on behalf of another. There’s a three-step process: “(1) the person who attempted to file the petition thought he was authorized, and (2) those who ratified were authorized to file or approve the filing of the petition, and (3) ratification was expressly attempted or possible.” Order, at p. 6.

This is extremely fact-bound, so let FDM or Henry 85 or whoever show who, if anyone, ratified, and when, if ever. Remember the now-extinct Section 6226(b)(1) notice partners and five-percenters.

Taishoff says it’s a toughie, as if the notice partners and five-percenters were unaware that FDM was dead (a) when the 90-day door slammed on the TMP, and (b) when the 150-day door slammed on them, what could they have done to ratify? Should the notice partners and five-percenters have filed their own petitions, even if they didn’t know FDM was dead? Offside petitioners get bounced. See my blogpost “Tax Smatterer,” 3/12/15.

Practice tip- When representing an entity, make sure it still exists. Representing a lender, I found two (count ’em, two) mortgagors who had ceased to exist, and saved their counsel from malpractice by having them get straight with NY DoS and the tax people.

How often have I heard that phrase delivered in lugubrious tones, to lament the unworthy expenditure of the aforementioned on the dubious (not to say frivolous) claims of an ignorant or piratical litigant, be the litigant plaintiff or defendant.

Now I don’t wish anyone to suppose I abate one jot of respect for the distinguished schoolmate of my colleague Peter Reilly, CPA, Judge Albert G. (“Scholar Al”) Lauber. Mr. Reilly’s account of Judge Scholar Al’s exalted rank at the old schoolhouse was almost as impressive as Judge Scholar Al’s resumé.

But Judge, was it really necessary to expend eighteen (count ’em, eighteen) pages of your pellucid prose on Lawrence James Saccato, T. C. Memo. 2023-96, filed 7/25/23? Larry ran a miniwarehouse operation through a bunch of entities and trusts without any beneficiary but himself, hiding the money and not filing. As usual, he had a bunch bank accounts (hi,  Judge Holmes) and a girlfriend and a dodger-specializing sidekick to help him run the various stashes.

Of course Larry has no records, just lots of self-serving testimony, like he’s trustee of trusts and doesn’t know who the beneficiaries are. So bank deposits are the spécialité du jour, and they serve Larry up on toast. The deficiencies (four years’ worth, plus chops) rain down.

IRS does concede $44K of COD for which they haven’t evidence, but they win all the rest.

But Judge Scholar Al does recognize what a waste this all has been.

“Although petitioner maintains that ‘[he] is not a tax protestor,’ his filings in this Court belie that contention. His persistent filing of frivolous papers has wasted the Government’s time and ours. We will accordingly require that he pay to the United States a penalty of $10,000.” T. C. Memo. 2023-96, at p. 18.

Footnote to the foregoing: Reynold Harvey, T. C. Memo. 2023-95, filed 7/25/23 must be a kindred spirit to Larry, although they reside a continent apart. Rey resides in my old stamping grounds and boyhood home, The Bronx.

And Rey claims he’s gonna take his argument “all the way to the Supreme Court,” T. C. 2023-95, at p. 8. Apparently because he wasted fewer scarce judicial resources than Larry, Rey gets only a $1K Section 6673 frivolity chop.

Judge Scholar Al apparently collects ’em. “The assertion that wages are not income is a time-worn tax-protester argument. Variations on this theme have been compiled by the IRS in The Truth About Frivolous Tax Arguments, a compendium of frivolous positions and the caselaw refuting them. See Internal Revenue Serv., The Truth About Frivolous Tax Arguments 9–13 (Mar. 2022), https://www.irs.gov/pub/irs-utl/2022-the-truth-about-frivolous-tax-arguments.pdf. In plain English, this document characterizes as frivolous the arguments that ‘wages . . . and other compensation received for personal services are not income’ and that ‘there is no taxable gain when a person ‘exchanges’ labor for money.” See id. at 10. Although petitioner is not a lawyer, had he made even a modest inquiry using an internet search engine he would have found the copious authorities refuting his stance.” T. C. Memo. 2023-95, at pp. 7-8.

Rey did get a warning, but went ahead, with his eye on the Supremes.

I make the morning line 6 to 5 that Rey doesn’t get to the Supreme Court.

Section 6751(b), the famous Boss Hoss chickenscratch delivered whenever, is a gift that never stops giving. Ever since Chai, the fight over when said chickenscratch need be obtained has embroiled the CCAs and kept Tax Court forever on the twinkle.

And the Dixieland Boondockery tsunami has added the partial summary J for chops both simple and enhanced to the menu.

Necessity is the mother of cliché, and this red-hot Mama has given birth to the implacable scorched-Boondocks defensive style of such as Vivian D. Hoard, Esq. Ms. H. exhibits a fighting spirit that evokes admiration in Dorchester Farms Property, LLC, Dorchester Farms Manager, LLC, Tax Matters Partner, T. C. Memo. 2023-93, filed 7/24/23.

Judge Albert G. (“Scholar Al”) Lauber must yearn for the calm of Hatchard’s of  Petty Curry at dear old Cambridge (and luncheon at the Garden Inn; yes, I’ll have just a spot more of the Old Landed), as Ms. H. delves into the deep background of who suggested what to whom, and who supervised, and when supervisory authority ceased. Confronted with six (count ’em, six) OCC minions, and with but a single associate, Ms. H. turns Liberty County, Georgia, into the French Foreign Legion at Camarone, and earns a Taishoff “Good Try, First Class.”

All Judge Scholar Al can do is riposte with “but the chickenscratch.”

Of course, lost in this farrago is the real issue: Is Exam brandishing chops to bludgeon settlements out of terrified taxpayers with meritorious claims they cannot afford to pursue?

Not to be outdone by Judge Pugh, who just mulcted Lou & Dawn Giannini a grand for frivolizing (see my blogpost “A Section 6673 Template,” of even date herewith, as my expensive colleagues say), Judge Christian N. (“Speedy”) Weiler raises to $5K for second-offenders Arlin G. Hatfield III and Jennifer W. Hatfield, T. C. Memo. 2023-93, filed 7/24/23.

That’s Doc Arlin the radiologist, and unlike Dawn the investment specialist who omitted just $100K of income, Doc Arlin the radiologist left out $300K. Both, of course, omitted no frivolity.

Doc Arlin the radiologist’s last outing was T. C. Memo. 2022-59, aff’d w/o op. by 5 Cir. I didn’t blog the case; apparently 5 Cir didn’t find it interesting enough to write about it either.

But it serves as the predicate warning for the Section 6673 chop.

Maybe somebody does read this blog, maybe so.

I’ve had a lot to say about apparently arbitrary Section 6673 frivolity chops. For the most recent, see my blogpost “Every Dog Gets One Bite,” 5/2/23.

I then suggested one free bite for the frivolite, to be followed by a chop for recidivism.

Judge Pugh seems to adopt that view in Louis Giannini & Dawn Giannini, Docket 4623-22, filed 7/24/23. Lou & Dawn were prior contestants in T. C. Memo 2022-65, which I blogged under the title “Scholar Pat on Frivolites,” 6/23/22.

While ostensibly eschewing somber reasoning and copious citation of precedent, Judge Pugh lays a bunch on Lou & Dawn, who frivol away notwithstanding.

I have to award Lou & Dawn something for the following. “…respondent filed a Motion for Summary Judgment…. We directed petitioners to file a response by May 15, 2023, but they missed that deadline. And, after petitioners did not respond timely we entered an Order on May 24, 2023, setting respondent’s Motion for hearing at the June 12, 2023, calendar call. Instead of appearing, on June 2, 2023, petitioners filed a Complaint against the U.S. Department of Justice in the U.S. District Court for the Eastern District of Wisconsin (Civil Action No. 23-C-0693), concerning this case and the tax year at issue. On June 8, 2023, the Court received from petitioners a copy of their Complaint which we filed as their response to respondent’s Motion.” Order, at p. 1.

How ’bout a nomination for The Rounders’ Hall of Fame?

Judge Pugh, of course, is not amused. She amerces Lou & Dawn a $1K Section 6673 chop, and throws in the following at no  extra charge: “We again warn petitioners that if they do not abandon their misguided positions—e.g., that wages received for services are not taxable income, even though reported to them as such, and they are not subject to tax—a greater penalty may be imposed in future cases before this Court.” Order, at p. 4.

Few provisions of US Code Title 26 befog pro se petitioners like Subtitle F, Chapter 65, Section 6404(h). Michael Thurston, Docket No. 7070-23, filed 7/21/23, is one such.

Mike timely petitions a SNOD. But he has neither NOD from a CDP where he raised Section 6404(e), nor IRS shootdown on a standalone, nor has he alleged the lapse of the 180-actionless-days-since-filing-claim.

When IRS moves to blow off Mike’s abatement of interest claim for want of jurisdiction, Mike responds thus.

“The present dispute concerns the Respondent’s final determination to disallow the Petitioner’s claim for head of household status and their failure to rectify the error of a stimulus check being issued to the wrong person. These issues fall within the subject matter of the suit and warrant the court’s consideration.” Order, at p. 3.

Ch J Kathleen (“TBS = The Big Shillelagh”) Kerrigan says “No, it don’t,” only she says so much more elegantly.

“…even beyond the controlling jurisdictional parameters quoted above, insofar as these claims would appear to fall within the purview of the of the deficiency litigation properly before the Court, and would not appear to relate to interest abatement, no meaningful difference or perceptible harm has been identified.” Order, at p. 3.

Ch J TBS provides the checklist of the bases for specific Tax Court jurisdiction, all of which are absent here, and remarks on the basis for declaratory judgment.

“Similarly absent is any suggestion that the perquisites have been met to support one of the statutorily described declaratory judgment actions that may be undertaken by the Court.” Order, at pp 2-3.

I think you meant “prerequisites”, Judge, “a prior condition for something else to happen or exist.” Perquisites are “special rights or privileges enjoyed as a result of one’s position”; what our UK cousins call “perks,” like exclusive access for Judges and STJs to the Judges’ Cafeteria.

Karim Gobran and Ashley Smith-Gobran, T. C. Sum. Op. 2023-24, filed 7/20/23, told CSTJ Lewis (“A Better Name Would Be Hard to Find”) Carluzzo that the deaths of two close relatives (more than five years after the due date of a late-filed return) caused the late filing and the Section 6651(a)()1) chop.

“We understand how family deaths can disrupt or interfere with routine obligations; but the timing of the events suggests that one had nothing to do with the other.” T. C. Sum. Op. 2023-24, at p. 6.

And Karim apparently was able to carry on with his tennis pro teaching as the due date of that year’s return slipped farther astern.

So Karim’s testimony ” that petitioner was ‘consumed’ with his work and there ‘was always something more important than doing the taxes,” T. C. Sum. Op. 2023-24, at p. 6, was something that Taishoff would not recommend telling any Tax Court Judge or STJ, even one so douce as CSTJ Lew.

“…it might well have been that petitioner had competing demands on his time around the due date of petitioners’ [late] return. We expect that petitioner prioritized those demands in a manner that best suited petitioners’ interests at the time. However, as we noted in Wilkinson v. Commissioner, T.C. Memo. 1997-410, slip op. at 18, ‘a taxpayer’s selective inability to meet his or her tax obligations when he or she can carry on normal activities does not excuse a late filing.’” T. C. Sum. Op. 2023-24, at p. 6.

Tennis pro, when it comes to filing returns, the only court you should care about is Tax Court.

Sorry for the late blogposts, but today’s events at the American Legion Department of New York Convention District One caucus were far more taxing than the events recounted in these my blogposts today.

James H. (“JIm”) Kim, T. C. Memo. 2023-91, filed 7/20/23, claims he shouldn’t be taxed on his long-term capital gains from now-closed pre-COVID years, because he got slaughtered on his cryptocurrency dealings in 2020, which slaughterings he can’t carryback.

Judge Albert G. (“Scholar Al”) Lauber suggests that, even if Jim Kim’s claims that the guv’mint is a den of iniquity, his claims are but the din of inequity, or, as an authority even more exalted than Judge Scholar Al put it, “a resounding gong or a clanging cymbal.”

“Petitioner does not dispute the amount or character of the net capital gains determined in the notice of deficiency for [closed years]. But he contends that the virtual currency assets that gave rise to these gains ‘were completely wiped out’ in 2020, during the early days of the COVID epidemic. He represents that he had taken out a large loan to finance his cryptocurrency transactions; that BTC and other virtual currencies declined precipitously in a single day; that he was unable to meet a margin call; and that his virtual currency positions were liquidated at a very substantial loss. He asserts that the actions (or inaction) of the U.S. Government in response to the COVID epidemic ‘directly caused [that] harm’” and that, “under the Clean Hands doctrine of US law,’ the IRS should be estopped from collecting tax on his [closed years] gains.” T. C. Memo. 2023-91, at p. 4.

Sorry, Jim Kim, “Petitioner’s argument has no legal basis. The doctrine of estoppel can be invoked against the United States only in the rarest of circumstances. In any event, the ‘unclean hands’ principle is designed to withhold equitable relief from one who has acted improperly. Respondent is not seeking equitable relief but is endeavoring to recover taxes determined to be due from petitioner under the Internal Revenue Code. And while petitioner may disagree with the Government’s policy response to the COVID epidemic, he has not shown that any agency of the Government (much less the IRS) acted improperly.

“When relevant, the ‘unclean hands’ defense applies only to conduct immediately related to the cause in controversy. The Government’s actions in response to the COVID epidemic have no relationship whatever to the determination of petitioner’s [closed years] tax liabilities.” T. C. Memo. 2023-91, at p. 5. (Citations omitted).

Besides, every year stands on its own.

“‘A fundamental tenet of the Federal income tax is the “annual accounting principle.”‘ This principle dictates that a taxpayer’s income for a particular year be calculated on the basis of the events occurring during that year. Congress has mitigated this principle to some degree by allowing the carryback and carryforward of certain losses and credits. But while corporations generally may carry capital losses both forward and back, § 1212(a)(1), Congress has been less generous in the case of individual taxpayers. For them, the excess of capital losses over capital gains recognized for any year may be carried only to ‘the succeeding taxable year.’ § 1212(b)(1). Any capital losses petitioner realized in 2020 are thus irrelevant in determining his tax liabilities for [closed years].” T. C. Memo. 2023-91, at p. 5. (Citation omitted).

I most respectfully implore Judge James S. (“Big Jim”) Halpern as first hereinabove set forth; please remember that lawyers can’t add. So when RA KK (name omitted), armed with zeal and Excel, takes on the self-prepared, mostly handwritten returns of Richard John Cardulla, T. C. Memo. 2023-89, filed 7/19/23, numbers fly blizzard-like. RJ is “an attorney. His mailing address was in California when he filed the Petition. He has been involved in real estate activities for many years.” T. C. Memo. 2023-89, at p. 5.

Judge Big Jim spent most of pages 4 and 5 eviscerating RJ’s reply brief.

RJ is scanty with the substantiation, so many deductions founder. Blank lines on returns and arithmetic delictions furnish forth an eye-glazing trudge through RJ’s wheeling and nondealing. He can’t make out that he was in a trade or business for years at issue, but he does score on investment. Unhappily, Section 163(d)(1) investment interest capped at investment income puts paid to that one.

But Judge Big Jim comes into his own when Section 163(e) boards RJ over the bows. RJ buys out a couple partners (hi, Judge Holmes) with a 10-year, 10%, $1.2 million note, no installment payments, and single payment of principal and accrued interest at maturity. The note is bona fide, mostly for want of any contrary evidence.

RJ wants to deduct the accrued but unpaid interest annually.

In piratical tones, Judge Big Jim intones, “OID!”

Taishoff says “OMG!”

There follows from page 22 to and including page 27 a granular analysis of how to compute, characterize, categorize, deconstruct and defenestrate RJ’s note.

I recommend the analysis to those who can add.

William J. (“Old Bill”) Wise, Esq., cannot save Laidlaws Harley Davidson Sales, Inc., T. C. Memo. 2023-90, filed 7/19/23, as the Laidlaws materially participated in challenging the deficiency and entered into a stipulated (agreed) decision (the “2016 decision”, what we State courtiers would call a “judgment”) fixing tax and chops.

Now the bikers want to challenge the enhanced Section 6662A chop for failing to report a listed transaction, per Notice 2007-83, 2007-2 C.B. 960. The bikers claim inadequate Section 6751(b) Boss Hossery, and failure of IRS to consider all comments per APA. When IRS hit them with NITL and NFTL, they asked for a CDP.

“Petitioner represented to the settlement officer that the only ground on which it challenged the collection activities was respondent’s lack of compliance with section 6751(b) related to the 2008 section 6662A penalty. Petitioner requested that the collection due process hearing be rescheduled to allow for the attendance of an additional attorney, who would argue that respondent failed to comply with section 6751(b). The settlement officer rejected this request on the basis that petitioner was precluded from advancing that argument.” T. C. Memo. 2023-90, at p. 3. (Footnote omitted).

Judge Travis A. (“Tag”) Greaves says Old Bill is too late.

“In the prior [deficiency] case petitioner challenged the assessment of the penalty under section 6662A. That penalty was specifically noted in the 2016 decision. Further, petitioner materially participated in the proceedings as it instituted the proceeding, filed numerous motions, and engaged in settlement negotiations resulting in the stipulated decision. Thus, the issue of the section 6662A penalty satisfies the requirements of section 6330(c)(4), and petitioner is precluded from arguing the penalty was improperly determined.” T. C. Memo. 2023-90, at p. 5.

Old Bill fares no better with trying to unscramble the Section 6662A-Notice 2007-83-APA frittata.

“Verifying compliance with the APA is a substantive review. Like verifying the retroactive repeal of a statute, verifying APA compliance would require the settlement officer to comb through the record created at the time of publication and ascertain the applicable requirements of the APA. To require this analysis of every publication relied upon by the IRS would impose a substantive review, which is not a proper inquiry under section 6330(c)(1). Rather, the APA challenge to the validity of Notice 2007-83 is a challenge to the underlying liability. Petitioner cannot challenge the underlying liability in this case, and therefore the settlement officer did not abuse his discretion in not verifying compliance with the APA.” T. C. Memo. 2023-90, at p. 9.

Oh yes, to all my readers who are yelling “Hey dude, read your blogpost ‘Listing Is Legislating,’  11/9/22,” I reply that Judge Tag Greaves cites the Green Valley Invs. case, and says maybe so it might could be peradventure that IRS flunked the APA test on Notice 2007-83, but an SO needn’t check that out in a Section 6330(c)(1) verification.

Laidlaws is 9 Cir bound. With $16,800 on the table, is it worth bonding and appealing?

But again my mantra rings true: Participate, stipulate, but don’t capitulate.