The fallout from TEFRA goes on apace, as American Milling, LP, UN Limited, Tax Matters Partner, T.C. Memo. 2023-83, filed 6/29/23, makes a return engagement with Judge Pugh. I won’t fault you if you don’t remember this Son-of-BOSS with tugboats; its’s been a wee while, like about eight (count ’em, eight) years. See my blogpost “Jumping Through the Mill,” 9/28/15.

All that’s left now is whether SOL has run on David Jump, an indirect partner in Milling. You’ll recall that Milling got nailed in USDCSDIL for the shenanigans, but not for the chops. Then Milling got into the Tax Court scrimmage described in my blogpost above cited. But IRS never hit Dave with the deficiencies from the blow-up of the tugboat dodge in the Section 6229(a) three year plus court time plus one year SOL extension. So Dave claims SOL.

IRS claims they’re OK because Section 6229(e) gives extra time from when the indirect partner’s identity is given to IRS. And IRS concedes Section 6501(c)(10) doesn’t apply. IRS further claims that, as there were separate FPAAs for both Milling and Boat (the counterparty in the phony partnership), the Section 6229(e) one-year add-on to SOL runs from Boat FPAA, which was later than Milling.

Except.

“Respondent’s argument works only if we can ignore the Milling FPAA and treat the partnership items in it as affected items of American Milling. The parties do not dispute that the American Boat FPAA was issued within the prescribed limitations period, and they do not dispute that the Milling FPAA was not. Their argument focuses specifically on which FPAA counts for purposes of section 6229(e)(2).” T. C. Memo. 2023-83, at p. 9.

Problem is, the same item cannot be both a partnership item and an affected item (partner level) in the same entity. Remember, IRS won back in 2015 by showing that there were separate  FPAAs for Milling and Boat, not duplicates of the same FPAA, which Section 6223(f) prohibits absent fraud, and no one claimed fraud.  Wherefore, the item in question wasn’t an affected item for Milling that flowed through to Milling as a partner of Boat, but a Milling partnership item. So now IRS can’t claim that item is an affected item in order to nail Dave at this late date.

“Respondent in American Milling I convinced us that the adjustments in the Milling FPAA were partnership items of American Milling, not merely affected items flowing from American Boat through American Milling ultimately to Mr. Jump. Now, to satisfy section 6229(e)(2)(A), respondent asks us to conclude that the same items are also affected items of American Milling. But if that were the case, then they would be determined at the partner level (that is, Mr. Jump’s level) and this TEFRA partnership-level proceeding would not be necessary or appropriate. Respondent cannot have it both ways.” T. C. Memo. 2023-83, at p. 10.

IRS claims Dave and Boat reported inconsistently and never filed Form 8082, so Section 6229(e)(2)(B) kept the SOL open. Judge Pugh says Boat is irrelevant.

“Under the plain wording of the statute, we must consider the partnership items that flow to Mr. Jump. Those were American Milling’s partnership items determined in the Milling FPAA. Because Mr. Jump did not file inconsistently from American Milling, section 6229(e)(2)(B) did not keep the period of limitations open with respect to Mr. Jump when the Milling FPAA was issued.” T. C. Memo. 2023-83, at p. 12.

IRS is SOL on SOL. A Taishoff “Good Job” to Dave’s trusty attorneys, whom I’ll call Tough Tony and JPT.

And now you see why I don’t mourn TEFRA.

Donald E. Swanson, T.C. Memo. 2023-81, filed 6/29/23, retired from loading cargo and driving a city bus, and went fishing.. He had thirty (count ’em, thirty) happy years of fishing in AK, so he started a charter fishing operation. Don had health issues, but they were treated and didn’t keep him from his skipper role.

Don may have been a good fisherman, but a bad bookkeeper. Judge Pugh finds fault with Don’s lack of records several times, and sustains IRS’ bank deposits analysis. Don had rental income and got paid for doing some tax prep work.

Judge Pugh does the obligatory trudge through Reg. Section 1.183-2(b), the famous “goofy regulation” so-called by the late Judge Richard Posner and exhaustively cataloged by my colleague Peter Reilly, CPA.

As is common,  it’s the lack of records and no separate bank account for the fishing operation that sink Don’s fishing expeditions. Without records, how can an operator decide what strategies are unprofitable, and correct or eliminate them? Not only must one have records, but use them.

Merely taking steps to comply with local law, like getting a commercial fishing license and commercial insurance, isn’t enough. You’re not businesslike if the losses just keep on coming and you make no changes to your operations. And despite losses you buy an airplane and run up more losses.

Don was represented by Christopher Crago, Esq., and his students from the Zag LITC (that’s Gonzaga University School of Law Low Income Tax Clinic). Tough case.

Plaintiffs’ lawyers wisely shun tax advice. The straits of Section 104 abound with perils, and the need to plead everything resembling a claim upon which relief can be granted requires the pleader to steer a wide course,. with the Scylla of missing a valid claim for fear of negative tax consequences on one side, and the Charybdis of touching every base to make sure of success on the other. So the wise lawyer steers wide, gets the verdict or settlement that the client can accept, and leaves the tax consequences to the return preparer.

The preparer would do well to review the demand letter (if any), any workers’ comp, insurance claim forms, or similar filings (if any) and the pleadings before voicing an opinion.

I don’t know if the unnamed CPA who advised pioneering firefighter Suzanne Montes, Docket No. 17332-21, filed 6/29/23 to exclude from her 1040 the $400K she got from settlement of her lawsuit against the San Francisco Fire Dep’t. did any of the foregoing, but Judge Mark V. (“Vittorio Emanuele”) Holmes sure did at pp. 6-8  of this off-the-bencher.

I’d like to quote Judge Holmes’ language, but once again the Genius Baristas have posted the decision in a format which prohibits me from dragging-and-dropping. He scans the settlement agreement, but what really does Suzanne in is the complaint.

Note I don’t fault Suzanne’s attorney. S/he pled everything one could reasonably plead, based on the facts Judge Holmes states. And s/he got what seems to be a reasonable settlement.

Judge Holmes lets the CPA preparer off lightly. He holds Suzanne reasonably relied on the CPA’s advice, so no chops.

And he does have criticism for the IRC’s mind-body dualism, which he says he’s criticized elsewhere. See, for example, my blogpost “The Egg and I,” 1/22/15.

In the absence of T. C.s, Memo.s, or Sum. Op.s, I must perforce scroll through hundreds of orders to find wherewith to enlighten, instruct, or amuse my readers. Frequenters of DAWSON are fully familiar with the acres of SPTOs and SPTOSCs that engorge the Glasshouse electrons. Each such order carries with it the name of the issuing Judge or STJ.

Except.

For the last couple days (hi, Judge Holmes, and no, it’s not you), a blank space has appeared for each and every such order issued by Judge Adam B. (“Sport”) Landy. I wonder if, and how, STJ Sport Landy has given offense to the Genius Baristas, or the hardlaboring clerks and flailing date stampers in The House Vic Lundy Built.

In any case, perhaps STJ Landy might bring a couple boxes Krispy Kremes around one morning, and maybe smuggle a carafe or two of coffee from the Judges’ Cafeteria, to propitiate the Glasshouse Gang.

Letting in testimony from the SO on a CDP as to the contents of the admin record, and more unusually to discuss the petitioners’ allegations of bad faith, shouldn’t give rise to a blogpost. After all, completeness of the admin record is the foundation stone of review where de novo is off the table.

But Kevin J. Mirch & Marie C. Mirch, Docket No. 16277-16L, filed 6/28/23, have a more unusual problem. Kev is a CA attorney, and wants an opinion from the State Bar of California before Judge Patrick J (“Scholar Pat”) Urda goes on with the trial.

On what points of law this opinion is to enlighten the parties is not stated, but as a docket search reveals Kev is representing both himself and Marie C, have we echoes of Gebman here?

For the Gebman story, see my blogpost “No Good Deed – Redux,” 9/18/17.

But Judge Scholar Pat is taking no chances.

“In an abundance of caution and over the Commissioner’s objection, the Court will stay proceedings for the Mirches to confer with the State Bar. After doing so, the Mirches will report back to the Court, and we will take appropriate action for the conclusion of this trial.” Order, at p. 1.

A reliable source informs me that Kev is no stranger to the State Bar.

No, not the 1944 Sumner Welles’ story of his European eyeballings for FDR. Rather, today we note the amendment to Rule 23(a), which brings us to Rule 23(a)(4): “Decision Documents: A decision document, including a proposed decision document, must omit a party’s mailing address, email address, and telephone number.”

Unlike other filed documents, be they pulp-based or electronified, the time for decision is the time for  anonymity.

The general jubilation that followed the Supremes’ “endeavor to bring some discipline to use of the jurisdictional label” in Boechler, P. C., was rather like the starting gun in a wide-open footrace. The scramble succeeded the jubilation, many figuring that if they were a couple days late (hi, Judge Holmes), just claim Boechler and all would be well.

Not quite. Just ask John Roberts Coggs, Docket No. 13772-21L, filed 6/27/23.

JR was twelve (count ’em, twelve) days late with his petition from a NOD. IRS so alleges in its answer, and moved for a Rule 37(c) undenied-is-deemed-admitted. JR stands mute.

Judge Nega: “The section 6330(d)(1) 30-day filing deadline is not jurisdictional, which means this Court has authority to consider late-filed petitions, and the Court may accept a tardy filing by applying the doctrine of equitable tolling. Boechler, P.C. v. Commissioner, 142 S. Ct. 1493, 1496 (2022). A litigant is entitled to equitable tolling of a statute of limitations only if the litigant establishes that he or she has been pursuing his or her rights diligently and that some extraordinary circumstance prevented him or her from timely filing. Menominee Indian Tribe of Wisc. v. United States, 577 U.S. 250, 255–57 (2016); Smith v. Davis, 953 F.3d 582, 588 (9th Cir. 2020)(en banc). Petitioner has not asserted that he satisfies this test, so the Court may not accept his Petition by equitable tolling.” Order, at p. 2. (Footnote omitted).

Takeaway- Tell your story. If you’ve played straight so far, and you’re late only a couple days, maybe “extraordinary” needn’t be so extraordinary.

Sir Paul McCartney’s immortal words (assisted by the immortal John Lennon) from 1966 ring out again in Harry G. Zavisch, III and Estate of Eddy M. Zavisch, Deceased, Harry G. Zavisch, III, Surviving Spouse, Docket No. 14576-22L, filed 6/27/23.

Harry Z’s trusty attorneys move for vacation of the toss of their petition, claiming first that Harry  Z never got the NFTL. Doesn’t matter, says STJ Adam B. (“Sport”) Landy; NFTL properly mailed to last known address by certified mail within five (count ’em, five) days of filing.

Next, NFTL was filed in a county where neither Harry Z nor the late Eddy owned any property.

“…petitioners argue that the NFTL was filed in Bexar County, Texas, in a county they did not own property, and for this additional reason, the… NFTL was not properly filed. The Commissioner may file a lien against ‘all property and rights to property, whether real or personal” of any person liable for taxes upon demand for payment and failure to pay. See § 6321.  The lien arises automatically on the date of assessment and continues until the tax liability is satisfied or becomes unenforceable by reason of lapse of time. § 6322.. Section 6321 ‘is broad and reveals on its face that Congress meant to reach every interest in property that a taxpayer might have. The purpose of filing the notice of the tax lien, originating under section 6321, is simply to protect the Commissioner’s interest in a taxpayers’ property against the claims of a purchaser, holder of a security interest, mechanic’s lienor, or judgment lien creditor. §6323(a).

“The NFTL filed by the Commissioner is valid and properly attached to all property and rights to property, whether real or personal, tangible or intangible, belonging to petitioners. Therefore, the … NFTL properly protected the Commissioner’s interest in petitioners’ personal property and future acquired property even though petitioners allegedly owned no real property in Bexar County, Texas, the county in which the Commissioner filed the NFTL.” Order, at p. 2. (Citations omitted).

Note that IRS maybe gets no benefit from the recording statutes as to real property if they don’t file NFTLs in the counties where Harry Z and the late Eddy do own real property. But that goes to priority of lien, not existence of lien. As for personal property, check your local laws; YMMV.

The late Donald M. Arndt, before he became the late Donald M. Arndt, blew the whistle on a step transaction that covered a couple years (hi, Judge Holmes). While Don blew for Year One, IRS only got the boodle for Years Two and Three. Don’s trusty attorneys want a bunch documents (ditto) covering those years, but IRS says they aren’t in the admin record, hence off-limits.

Judge Albert G (“Scholar Al”) Lauber isn’t buying, yet.

“Respondent contends that the documents petitioner seeks are not subject to section 6103(h)(4)(B) because they were not found within the administrative record compiled by the WBO. See Kasper v. Commissioner, 150 T.C. 8, 20–21 (limiting scope of review in whistleblower cases to administrative record barring exceptions). But a document may be “directly related to” an issue in a whistleblower proceeding, see § 6103(h)(4)(B), whether or not it is contained in the WBO’s own file. In other words, we do not view our ‘record rule’ for whistleblower cases as limiting what sorts of documents the IRS may disclose pursuant to section 6103(h)(4)(B).” Order, at pp. 2-3. (Footnote omitted, but read it. Maybe Section 6103(h)(4)(A), dealing with production for Federal tax proceedings, might play a part here).

For the Kasper backstory, see my blogpost “Two Old Cases,” 1/10/18.

So Don wins, right?

Not quite.

“Although we agree with petitioner that neither section 6103 nor Rule 70 precludes our granting the Motion to Compel, we believe it would be premature to rule on the Motion at this time. The Court recently provided further guidance on ‘whistleblower discovery requests’ in the context of motions to compel. See Berenblatt v. Commissioner, 160 T.C. No. 14 (May 23, 2023). We would find it helpful for the parties to set forth their views as to how (if at all) Berenblatt affects the proper disposition of petitioner’s second Motion to Compel.” Order, at p. 4.

For the Berenblatt story, see my blogpost “The. Bialystok Blower,” 5/24/23. Spoiler alert: it’s good news for Don’s trusty attorneys

Oh yes, the case is Estate of Donald M. Arndt, Deceased, Kathy R. Arndt, Personal Representative,, 1246-16W, filed 6/27/23.

Frank R. McNamara and Collette M. McNamara, T. C. Sum. Op. 2023-22, filed 6/26/23, find that their MA home secured the mortgage thereon for only five (count ’em, five) months, and not twelve months, during year at issue. Thus Reg. Section 1.163-10T(h) disallows Frank’s and Collette’s deduction, which they based upon a 12-month, and not a 5-month, average balance. The 5-month calculation puts Frank and Collette over the $1 million total indebtedness cutoff.

And the magic number is how long the home secured the mortgage debt.

No mention of chops, but Frank and Collette claim reliance upon examples in IRS Pub 936, Home Mortgage Interest Deduction, “to assert they correctly used a 12-month period to calculate the average monthly mortgage debt for their Massachusetts home.” T. C. Sum. Op. 2023-22, at p. 4.

Well, STJ Eunkyong (“N’Yawk”) Choi says of course that’s not good enough to ward off the tax bite when the statute and the regs clearly say otherwise.

But it seems to have allowed Frank and Collette to avoid the chops.

Taishoff says that if the statute and regs, or either, is so obtuse that IRS’ own pamphleteers get it wrong, maybe Congress and Treasury should pull a Habakkuk 2:2 and do a better job.