Judge Emin  (“Eminent”) Toro seems to echo Kurt Vonnegut’s famous quip, “‘To be is to do’-Socrates. ‘To do is to be’ — Jean-Paul Sartre.  ‘Do be do be do be do’ — Frank Sinatra.’” Once again, he’s confronted with the discovery maneuvers of the celebrated “Attorney/Professor/Author” and Tactician Daniel S. Jacobs, Docket No. 7118-19, filed 12/18/23.

Again, we’re reminded of 9 Cir’s take on the “substantially justified” rubric. It means justified to a degree that would satisfy a reasonable person. Of course, that’s more than just enough to slide under the Section 6673 frivolity tag. But Rule 33(b)’s “reasonable inquiry” requirement is a different pair of shoes.

“… the [Tax] Court expressed reservations concerning petitioner’s view that Rule 33(b)’s requirement that parties make ‘reasonable inquiry’ when preparing their pleadings affects the analysis with respect to the ‘substantially justified’ standard under section 7430. The former is directed towards the parties’ conduct during the litigation before our Court, and violations of the rule may cause the Court, in its discretion, to apply appropriate sanctions. The latter is a statutory rule that entitles a prevailing party to attorney’s fees as a matter of law if, among other things, the government’s position (as opposed to its conduct) is not substantially justified. Given that petitioner has moved for fees under the latter, the Court fails to see why respondent’s obligations under Rule 33(b) affect the analysis in these proceedings.” Order, at p. 2. (Emphasis by the Court).

Again, the issue is whether what IRS actually learned in the administrative proceedings, or would have learned if considered by a reasonable person (that quintessential legal fiction), would have altered, if at all, IRS’ answer to the petition.

“But our task does not include determining whether the administrative proceedings should have been conducted differently than they were. Nor does our task include deciding what the Commissioner might or might not have learned if the administrative proceeding had been conducted differently. The focus of the remand proceedings, based on the Ninth Circuit’s direction, is on the information Mr. Jacobs had already provided and the Commissioner had already received at the time the Commissioner filed the Answer.” Order, at p. 2.

So Judge Toro goes through interrogatories and document requests, and Dan goes 5 for 17, getting IRS to come up with more.

This is a useful template for seekers after admins and legals.

“I’ll try pottery for $253,741,” says Victor Attisha and Josephine Attisha, T. C. Memo. 2023-150, filed 12/18/23. It’s Vic’s story. Besides his legitimate credit card processing operation and ATM standalones, Vic and his partners were flogging boo and allegedly running the boodle through his Holy Moly Donut Shop (really; ya can’t make this stuff up). Enter the DEA and its Oakland County, MI anti-drug task force, who raid Vic’s operations with search warrants and haul away enough to cause Vic to cop to one count of Conspiracy to Manufacture, Possess with Intent to Distribute, and Distribute Marijuana in USDCEDMI. The Federales also grab $500K in cash from the Donut store and various bank accounts and safe deposits. Vic also gets a Section 6861 jeopardy assessment, which means no SNOD, but a ticket to Tax Court anyway per Section 6213(a).

There’s no records (Vic had some ledger sheets, but not specific), and almost no bank deposits. Vic claims IRS has no basis for the deficiency, but Judge Alina I. (“AIM”) Marshall finds Vic’s plea and the stuff DEA grabbed connects him to the potfloggery.  And the search warrants, plea, and whatever paper IRS was able to get from DEA was enough to support the assessment. Even hearsay or other inadmissible evidence can support a deficiency, lest clever crooks escape taxation.

Finally, Vic’s and his partners’ testimony vary widely. His explanation that he sold his credit card operation to his partners (hence the $500K in cash he got) founders when compared with the sale agreement. Now I’ve seen deals renegotiated at the closing to a point where the contract of sale bears zero relationship to the actual deal; but we’re always careful to document the variances, for ease of the CPAs and to enable our malpractice insurers to sleep soundly. Vic has no paper.

Vic loses.

Need I add that the sovereign State of Michigan legalized possession and use of marijuana (even for recreational purposes) the year after the year at issue?

I will spare my readers the political rant.

Edited to add, 10/3/25: Per Stipulated Decision filed May 5, 2021, it has been stipulated and agreed between IRS and all parties as follows: TO THE EXTENT IT IS DETERMINED THAT THERE IS A DEFICIENCY IN INCOME TAX AS WELL AS ANY PENALTIES DUE FROM PETITIONERS FOR THE 2017 TAXABLE YEAR, THE PARTIES AGREE THAT PETITIONER JOSEPHINE ATTISHA IS ENTITLED TO RELIEF FROM JOINT AND SEVERAL LIABILITY FOR THE 2017 TAXABLE YEAR PURSUANT TO I.R.C. §6015 (C).

This means that only her ex-spouse is liable for anything. AS I SAID IN MY ORIGINAL BLOGPOST, “THIS IS VIC’S STORY,” NOT JOSEPHINE’S.

The above-written well-known admonition from the literate to the post-huked-on-fonixes has fallen short in many places. Today it avails not Carla J. Chavez & Maynor G. Chavez, Docket No. 12250-23, filed 12/15/23. Carla & Maynor are a day late, and a lot more than a dollar short, with their petition. Again, electronic filing, but it doesn’t matter, since the filing didn’t hit until 6:34 p.m., on Day 91.

Carla maintains IRS spelled her name wrong repeatedly. I entirely sympathize; mine has been mangled beyond description. It took our family genealogist (the Girl of My Dreams) several years to find my paternal grandma in a census, so wretchedly was our name inscribed.

Ch J Kathleen (“TBS = The Big Shillelagh”) Kerrigan is also sympathetic with Carla’s & Maynor’s attempts to get her name spelled right.

In their response to IRS’ motion to toss, they “highlighted repeated and ongoing errors by the IRS in the spelling of petitioner Carla J. Chavez’s first name, attaching voluminous correspondence in support thereof, which they indicated hindered their communications with the agency. Such correspondence, and petitioners’ responses thereto…continued on a regular basis….” Order, at p. 2.

Alas, doesn’t help.

“…the repeated errors by IRS personnel in the spelling of Carla J. Chavez’s first name throughout the administrative process are highly regrettable, but they cannot alter the legal outcome. Critically, the notice of deficiency on which this case is based reflects a proper spelling.” Order, at p. 3.

Taishoff says this is yet another reason why there has to be a standard form of SNOD, clearly stating that anyone wanting Tax Court must immediately petition Tax Court, not IRS. Congress will have to prescribe the form by statute, as IRS won’t.

As for proper English spelling, it’s a lost cause.

Judge Albert G. (“Scholar Al”) Lauber ordered the parties in Royalty Management Insurance Company, Ltd., et al., Docket No. 3823-19, filed 12/14/23, to do just what James Joyce said. Examine the facts and set forth what facts you want Judge Scholar Al to find, based upon the trial record, but belay the legal argy-bargy.

IRS does just that, but the Royals’ attorneys don’t. Twice.

You can read for yourselves how to irritate and antagonize the judge of your case. If you think you’ve benefited your client thereby, have your explanation ready when you get The Phone Call.

Oh, btw, have your checking account handy when you get the sanctions.

That’s the message from Ch J Kathleen (“TBS = The Big Shillelagh”) Kerrigan. Particulars will follow in a webinar scheduled for High Noon Eastern on 1/10/24.

Slated to join Ch J TBS on the panel are Judge James S. (“Big Jim”) Halpern, CSTJ Lewis (“It’s That Name Again”) Carluzzo, IRS Strategic Bomber Shawna A. Early, Esq., and Maxine Aaronson, Esq., of Dallas, TX.

Here’s the skinny. https://ustaxcourt.gov/resources/outreach/January_2024_Webinar_Flyer.pdf

See ya there.

Some might think Immunologist Edward Francis Bachner, IV (EFB4) more than a bit of a rogue, if they read Judge Morrison’s account of EFB4’s doings in Edward Francis Bachner, IV and Rebecca Gay Bachner, T. C. Memo. 2023-148, filed 12/13/23, or my blogpost “On Information and Belief,” 10/4/23..

Besides EFB4’s talent for fictional W-2s, life insurance applications, and Forms 1040 MFJ, it is alleged he sought to knock off Rebecca Gay for the $20 million insurance policy he placed on her life.

Judge Morrison deals with jurisdiction. The SNOD is addressed to both EFB4 and Rebecca Gay, although Rebecca Gay gets total innocent spousery; innocent spousery of one party doesn’t efface Tax Court jurisdiction on a timely filed petition.

Likewise, fraud chops alone are enough for deficiency jurisdiction. “A notice of deficiency that determines a fraud penalty under section 6663, but no deficiency, is a valid basis for the Court to take jurisdiction (upon the filing of a timely petition) to determine the amount of the underpayment and the amount of the underpayment due to fraud.” T. C. Memo. 2023-148, at p. 25. (Citations omitted).

As for jurisdiction over Rebecca Gay, deficiency jurisdiction includes possible overpayment, so an innocent spouse may still be in the money.

And even when jurisdiction is lacking for one spouse, that does not let the other off the hook.

As for fraud, you can read for yourself, T. C. Memo. 2023-148, at pp. 29-35.

EFB4 bought tetrodotoxin, wherewith allegedly to dispose of Rebecca Gay. This is a neurotoxin, which in tiny, almost undetectable, amounts is deadly. It’s found in puffer fish, a Japanese delicacy, preparation of which is restricted to chefs of grandmaster status because of the risk to the gourmet. It features in the late mystery writer and champion jockey Dick Francis’ 1991 thriller “Comeback.”

So what could EFB4’s “redeeming quality” be?

I am a great fan of the late Dick Francis’ work. If EFB4 is too, that may be his only redeeming quality.

I didn’t blog John Thomas Minemyer, T. C. Memo. 2020-99, filed 7/1/20 when it came out; it was just another blown Boss Hoss (mention of fraud penalty before Boss Hoss sign-off). But then 10 Cir filled the inside straight that 9 Cir and the Elevenses are playing, picking up on Kroner and Laidlaw’s Harley Davidson (whenever, as long as supe is still supe). 10 Cir affirmed the deficiencies but reversed on the chops, reinstating same per ex-Ch J. Michael B (“Iron Mike”) Thornton’s monumental dictionary chaw (see my blogpost “Money-Back Guarantee Meets the Boss Hoss,” 11/30/16).

Judge David Gustafson and I ain’t doin’ so well.

So Ch J Kathleen (“TBS = The Big Shillelagh”) Kerrigan has to decide if civil fraud chops should be applied to JT’s offshoring of substantial cash from his underground activities (his partnership sold “a molded polymer coupler—a device that connects pipes that hold underground fiber optic cables—to the telecommunications industry.”). T. C. Memo. 2023-149, filed 12/13/23, at p. 2.

JT ran cash through Malaysia and Nevis (a charming island; the old sugarcane steam train ride is fun), and ultimately pled out in USDCDCO to one count of tax evasion.

Ch J TBS finds JT understated, underpaid, concealed, gave implausible and inconsistent statements, filed false returns, and pled to tax evasion, a criminal offense. Enough badges of fraud for Eagle Scout.

Section 6751(b) is the Dead Hoss.

If the injured petitioner is likely to invoke the Section 104 exclusion for personal physical injury, the wise practitioner needs to start with the demand letter. Remediation rarely succeeds. Judge Ronald L. (“Ingenuity”) Buch teaches the lesson in Kristen L. Quevy, T. C. Sum. Op. 2023-34, filed 12/12/23.

Kristen had physical and emotional problems, ran up big medical expenses, which she deducted prior to year at issue, was terminated by her employer, and sued.

“The first demand letter set forth Ms. Quevy’s potential claims ‘of discrimination and retaliation on the basis of her disabilities and requests for reasonable accommodation and wrongful termination.’ The second demand letter further elaborated on Ms. Quevy’s claims of discrimination and wrongful termination. The demand letters expressed her intent to sue for damages for wrongful termination on account of [employer]’s failure to accommodate her disabilities.” T. C. Sum. Op. 2023-34, at p. 3.

Of course, the employer’s counsel were careful to draw a broad release; every settling defendant wants to make sure that plaintiff will not be coming back.

“Under the terms of the settlement agreement, [employer] compensated Ms. Quevy for a broad release of claims, both known and unknown. The agreement characterizes the payment as ‘severance compensation.’ It was intended to ‘resolve all issues between them, including but not limited to Employee’s employment and the termination of that employment.’ The terms state that payment is ‘for [Ms. Quevy’s] alleged damages, which includes alleged injuries incident to her employment with Employer, including those related to both her purported personal injury and employment.’ Although the agreement mentions ‘personal injuries,’ nothing in the agreement indicates that it is for physical injuries. Ms. Quevy contends that [employer] was well aware that she suffered an assault in the workplace, and that it was ‘against that backdrop that they use the word personal injury.’ However, the record does not support Ms. Quevy’s reading of the agreement.” T. C. Sum. Op. 2023-34, at p. 6.

Whatever demands and settlement agreement say, Kristen deducted her medicals. So even if her emotional and physical injuries were treated by physicians, and reimbursement for those expenses thus eligible for Section 104 exclusion, Kristen didn’t clear the Section 111 tax benefit rule bar. She can’t exclude recompense for the medical expenses for which she’d previously gotten a tax benefit. And Kristen put in no evidence of eligible expenses for which she received no tax benefit.

The calculus for plaintiffs’ counsel is far from simple. And does the tax tail end up wagging the payout dog?

Apparently the trial subpoena is the new discovery cluster bomb for Dixieland Boondockers. What was previously obscure (see my blogpost “Rule 70(g)(2),” 11/7/23) is unwrapped by Judge Goeke in Halyard Holdings, LLC, Halyard Holdings Group, LLC, Tax Matters Partner, et al. 14145-21, filed 12/12/23.

A heavy-duty real estate outfit, known to provide expert witnessing for IRS, gets third-party subpoenas from Halyarders. IRS and outfit move to quash, but outfit wants legal fees. That brings in Rule 147(d)(1).

Stand back: when an unusual request is made to Judge Goeke, the requester is often deluged with somber reasoning and copious citation of precedent. And at Order, p. 4, Judge Goeke lays it on. I counted eleven (count ’em, eleven, and I did) cases cited, not one from Tax Court. The bottom line: Judge Goeke follows FRCP 45(d)(1) learning. Attorneys’ fees are permissible, but facts-and-circumstances decide how much, if any. The key is “unduly burdensome.”

“Considering the facts of these cases, we will deny [outfit]’s request for attorney’s fees. We strongly weigh the facts that petitioners proactively clarified their requests by letter… and narrowed the subpoena by letter…. We also consider the fact that [outfit] did not clearly state that it had no responsive documents for several months. Instead, [outfit] was coy about its possession of responsive documents, and it (and respondent) made arguments and statements that petitioners could take to mean that [outfit] had responsive documents in its possession.” Order, at p.4.

But don’t put the La Grande Dame on ice yet, Halyarders.

“…we have significant concerns with petitioners’ subpoenas, as we expressed to the parties during the …conference call and the … hearing. We caution practitioners before this court that the use of subpoenas as a substitute for discovery is not favored. It is not lost on us that petitioners issued subpoenas to three parties known to act as expert witnesses for respondent in cases involving syndicated conservation easements. There is a high likelihood that future use of such subpoenas (especially those involving frequent expert witnesses) as an end run around the Tax Court’s discovery rules will result in sanctions against that practitioner. The Court will not tolerate intimidation and harassment of potential expert witnesses by quietly watching these tactics become commonplace.

“We also advise practitioners before this court to avoid unclear requests in subpoenas that could reasonably be interpreted as being extremely broad.” Order, at p. 5.

My word, attorneys trying to game the system? Making end runs around Rules? Trying to push witnesses around? Perish forbid! I’m aghast!

Seriously, folks, this “win your case at discovery” business has gone far enough.

Once again, I resort to lingo of the opposable-thumbed virtuosi, they who transmit whole volumes of stuff by thumbs alone, while hanging from subway straps and holding their smartphones at impossible angles. For the traditionally-handed, that means “shaking my head.”

Paul C. Robinson, T. C. Memo. 2023-147, filed 12/11/23, has run up three (count ’em, three) years’ worth of deficiencies aggregating $41K plus the Section 6662(a) five-and-ten substantial understatement chops. Paul folds the deficiencies post-trial, but wants to contest the chops.

However,  Paul put in no evidence on the trial of substantial authority, disclosed facts and reasonable basis, or reasonable cause and good faith. And Paul files no opening brief, so is barred from filing a post-trial brief.

Judge Courtney D (“CD”) Jones had already given Paul a chance to file.

Unless the size of the deficiencies militates against negotiating (doubtful), or unless Paul played games (and a docket search reveals nothing more than ordinary pro se ineptitude), I don’t see why it needed three (count ’em, three) lawyers for IRS to deal with this case.