Section 6015(e)(7) is as fine an example of How Not To Do It as might be devised by Charles Dickens’ Circumlocution Office on steroids. An issue is to be faced, and ignored; a problem is to be solved, and not solved; something is to be changed, and nothing is changed.

Y’all will recall that Section 6015(e)(7) promised an innocent spousery trial de novo in Tax Court.

Except.

The “trial” is limited to the administrative record when IRS granted (or refused) innocent spousery, plus “any additional newly discovered or previously unavailable evidence.” In the case of Keri A. deGuzman and Brian deGuzman, Docket No. 13230-20, filed 6/2/23, there ain’t no newly discovered evidence.

And Judge Emin (“Eminent”) Toro can’t ascertain from the record of what deficiencies of unreported income and improper deductions Keri was supposed to have actual knowledge, sufficient to defeat Section 6015(c) apportioned relief.

Doc DeG was a business whiz as well as a cardiopulmonary surgeon. Keri “holds a college degree, performed at a high level as an intensive care unit nurse before her marriage, and is now pursuing a Master’s degree.  She understands financial matters and is able to track and analyze complicated transactions.  She is capable of distinguishing between personal and business transactions.” Transcript, at p. 8.

Notwithstanding the foregoing, IRS was willing to let Keri off the hook on a combination of 6015(b) and 6015(c). But Judge Eminent lets her off entirely on Section 6015(c), even though she flunked the Section 6015(b) “no reason not to know of the understatements of tax” test in the four (count ’em, four) years at issue, and the inequitable test.  Shortly before trial, Keri traded in the $31K Mercedes Benz she got when she shed Doc DeG for a $78K Merc. “She testified that she decided to purchase the new Mercedes-Benz rather than a Kia Telluride that would also have accommodated her family because the transaction afforded her a better trade-in value for the existing car and the financing was more attractive.  Regardless of whether one agrees with Ms. DeGuzman’s economic analysis here (and it is difficult not to view it skeptically), these are not the actions of a taxpayer experiencing economic hardship.” Transcript, at pp. 17-18.

But the BoP shifts to IRS under Section 6015(c) to prove Keri had actual knowledge.  IRS never tried to prove that; only Doc DeG intervened to do so. Fortunately, Judge Eminent can duck BoP, because the record.

“…the record lacks sufficient evidence to permit us to conclude that it is more likely than not that Ms. DeGuzman had actual knowledge of the understatements.” Transcript, at p. 20.

“Applying these standards, most of the erroneous return items… were related to Dr. DeGuzman’s various businesses.  For several of them, the record lacks sufficient specificity as to what the error was. Furthermore, the record does not demonstrate that Ms. DeGuzman had any special knowledge of Dr. DeGuzman’s businesses, including any specific items of income derived from them or expenses that Dr. DeGuzman incurred.  And apart from the parties’ contradictory and general testimony, there is no evidence that Ms. DeGuzman accessed accounts or account statements where the items were reflected or that she discussed the items with Dr. DeGuzman or [trusty CPA].  As a result, we cannot conclude that Ms. DeGuzman had actual knowledge of the items related to Dr. DeGuzman’s businesses.

“With regard to interest expense reflected on the Schedules A for the years at issue, the record does contain a few indications that Ms. DeGuzman was aware of one or more of the loans that gave rise to the disallowed amounts. But again, apart from inconsistent and general testimony, the parties introduced little evidence of what the expenses actually consisted of, let alone evidence that Ms. DeGuzman was aware of sufficient facts (for example, the balances of the loans and the amount of interest paid annually) to constitute actual knowledge.” Transcript, at pp. 21-22. (Name omitted),

Doc DeG was pro se, of course.

So despite her shared living-the-dream lifestyle with Doc DeG (check out Transcript, at p. 7), Keri drives into the sunset in her new $78K Merc and none of Doc DeG’s tax bill.

I used to see this more often, but after a hiatus, the missing year-before-first-year-at-issue has come back to bail out Ann Dunlap, Docket No. 3729-22, filed 6/1/23.

There are two (count ’em, two) years at issue before Judge Elizabeth A. (“Tex”) Copeland, and Ann frivols both. Judge Tex Copeland gives Ann enough somber reasoning and copious citation of precedent to justify the sixty Georges Ann paid for this.

“Implicit in the statements relied upon by [the petitioner] to the effect that the system is based upon voluntary compliance is the known fact that, in spite of its extensive bureaucracy and technical equipment, the manpower and facilities of the IRS for policing compliance by every taxpayer are limited and that the effectiveness of the system depends upon the taxpayer’s voluntary obedience to the law. These statements certainly were never intended to suggest that the internal revenue laws were self-destructive. Yet, this is precisely what petitioner’s argument comes down to, for if [the petitioner was] correct,  Congress has supplied every taxpayer with a facile device for totally avoiding all liability by simply declaring that he does not choose to comply. We cannot find that Congress ever intended any such absurd result.

“The result would be absurd, and the very argument is absurd. Waltner, T.C. Memo. 2014-35, at *56–57 (footnote omitted).” Transcript, at pp. 9-10.

Ann is obviously a Hendrickson follower. For the Waltner story, see my blogpost “Cracking Up,” 2/27/14.

So Ann gets hit with tax, and the two Section 6651(a) add-ons, failure to file and failure to pay. But she only gets one Section 6654 adsd-on, failure to file ES, for nonfiling and nonpaying ES in Year Two. Now Ann had income beside salary and wages. She had nonemployee income (1099-MISC), interest, and royalties in both years. But IRS can prove only one year.

“However, section 6654(e)(2) exempts a taxpayer from the section 6654 addition to tax if the taxpayer did not have a tax liability in the preceding 12-month tax year and was a citizen or resident of the United States.  For this case, we will focus on subparagraph (B) of this exception, which requires Ms. Dunlap to not have a tax liability in tax years [Year Minus One] and [Year One] (the preceding tax years for the years in issue). The record is devoid of any evidence showing that Ms. Dunlap had a tax liability in [Year Minus One]. She does have a tax liability for [Year One]. Thus, respondent has met his burden of production as to tax year [Two], but not as to tax year [One]. We accordingly hold that Ms.Dunlap is not liable for the section 6654 addition to tax for tax year [One], but is liable for such addition to taxfor tax year [Two].” Transcript, at p. 17.

Lest Ann grow too elated, Judge Tex Copeland gives her a Section 6673 yellow card, at no extra charge.

Taishoff says it should be simple enough, even with the post-COVID logjams, for IRS’ counsel to pull a transcript of Ann’s Year Minus One. And 3SOL is nothing to the point; IRS wouldn’t be contesting any tax incident of that year, only that there was a liability reported.

Yes, I know, you can spare me the comments and e-mails: I know Bogie never said that line. Notwithstanding anything therein or elsewhere to the contrary or at material variance therewith (as my paid-by-the-word colleagues would say), that line has gone down as part of the canon, and my unhallowed hands shall not disturb it, or the country’s done for.

Come to think of it, the country may well…but this is a nonpolitical blog.

Anyway, coming to the point (and I can hear my readers saying “There is one? How quaint.”), yesterday’s Zoomstravaganza, under the masterful guidance of Judge Ronald L. (“Ingenuity”) Buch, was well worth the time spent by the panel and audience. In addition to a thorough discussion of the variations between USTC discovery and FRCP in the Art. IIIs, we got to hear the viewpoints of OCC, a white shoe, and LITC. The facial expressions of Golden Gopher LITC honcho Caleb (“The”) Smith alone were worth the time. I’d only suggest that The Smith not play poker, even with friends.

But seriously folks, I asked whether these webinars could be recorded and made available on the USTC website for future viewing, for the benefit of those unable to attend at this time. I inquired using the Q&A function while the program was going on. Ms. Siegel, the czar of Public Affairs, replied that the program was not being recorded.

True, but it should have been. The remote mock trials run on the website during COVID by CSTJ Lewis (“It’s That Name Again”) Carluzzo were an enormous help. They should be continued.

As for discovery, it’s an area where even seasoned attorneys have come seriously unglued; to say nothing of self-representeds who never heard of Branerton but have watched one CLE about “win your case at discovery” and blast off all kinds of impermissible demands ten seconds after they file their petition.

Anything that might educate the parties coming to The Glasshouse in The City That Avoided Default, to save even a few of the endless wasted replies and orders in response to endless wasted discovery motions, must be greeted with loud cheers. Especially by Tax  Court’s hardlaboring intake clerks and flailing datestampers.

Surely recording and making available these useful guides on the USTC website is not beyond the capacity of the Genius Baristas and 18Fs.

So how ’bout it, Ch J Kathleen (“TBS = The Big Shillelagh”) Kerrigan?

Before you beat me up as a conspiracy theorist, I am aware that most if not all of what is ascribed to malice is actually stupidity. While one must assume that every adversary and counterparty knows everything one knows, one cannot assume that adversary or counterparty will draw the correct conclusion therefrom.

Which leads me to Salacoa Stone Quarry, LLC, Eco Terra 2017 Fund, LLC, Tax Matters Partner, T. C. Memo. 2023-68, filed 5/31/23. It’s the usual Dixieland boondockery, 106 acres of scrub bought for $304K, syndicated exactly a year later for $24.8 million. Love those dilithium crystals.

IRS moves for summary J on the 6751(b) Boss Hoss.

The Salacoa Stones want discovery, because the dates on the penalty lead sheet vary.

Judge Albert G. (“Scholar Al”) Lauber expends the usual somber reasoning and copious citation of precedent, both Tax Court and 11 Cir, to blow off the Salacoa Stones’ trusty attorneys’ attempt to freeze the puck. All that is necessary is the right signature from the right person in the right place before Word One of chops is breathed to the Salacoa Stones. As the Man from Mumbai put it, “The door is shut; we may not look behind.”

But why all these summary J cases to nail down Boss Hossery?

I posit that Section 6751(b)’s avowed purpose was to prevent the bludgeoning of taxpayers with the threat of penalties into unfair settlements. OK, but what happens after the Boss Hoss signs on the dotted line? Then the penalty jack is hoisted to the maintop. The Salacoa Stones are confronted with a 40% gross overvaluation misstatement chop, with the 20% five-and-ten as a fallback.

Remember, Hewitt put paid to IRS’ tactic of decapitating syndicated easements without expensive trials featuring expensive expert witnesses, by means of “highly contestable readings of what it means to be perpetual.”

So how to avoid said trials now? How about flaunting the aforesaid penalty jack early by way of summary J, to evoke a sense of dread in the hearts of the syndicated highrollers who wrote off telephonic gains based upon this marked-up mudflat?

But The Flesh Was Weak

Add-ons for failure to file returns, and pay the sums withheld, for FICA/FUTA/ITW have outs for reasonable cause. But as STJ Eunkyong (“N’Yawk”) Choi tells us and Donald S. Tracy, T. C. Sum. Op. 2023-20, filed 5/30/23, there’s a higher bar for trust funds than ordinary income tax.

“In determining whether a taxpayer’s failure to pay was reasonable, the Court will also consider the nature of the tax at issue. Treas. Reg. § 301.6651-1(c)(2) (‘[C]ircumstances which . . . may constitute reasonable cause for nonpayment of income taxes may not constitute reasonable cause for failure to pay over taxes described in section 7501 that are collected or withheld from any other person.’). However, the Court must still give consideration ‘to all the facts and circumstances of the taxpayer’s financial situation.” Id.; see also Fran Corp., 164 F.3d at 819 (stating that taxpayers are not subject to heightened scrutiny for failure to pay trust fund taxes, and the type of tax in issue is only one fact for courts to consider).” T. C. Sum. Op. 2023-20, at p. 6.

And unlike the Art. III big boys and girls, pore l’il ol’ Art. II Tax Court has no equitable powers.

But STJ N’Yawk has a heart. This Donald has a sad story. He’s 92 years old.

“A Navy veteran, petitioner had long been determined disabled because of hearing loss and a back injury that had worsened with time.  He was nearly deaf and had significant balance difficulties. Petitioner also suffered from joint disease in his knees and hips (which were in poor condition and needed replacing), atrial fibrillation, hypertension, and cardiopulmonary disease. As he took the steps necessary to close his law practice, petitioner’s assistant of more than 25 years helped him in his daily business operations while another attorney substantially worked petitioner’s cases. In addition, he relied on a part-time aide for his daily living activities, including grocery shopping, errands, laundry, cooking,  and cleaning. During this time, petitioner also cared for his dying wife of 55 years.

“An attorney, petitioner had an ethical obligation to his remaining clients. He could not simply close his practice and walk away. Although petitioner’s law practice continued to operate, it was not he who did the bulk of the work. Petitioner’s assistant and another attorney kept the law practice operating until it closed.” T. C. Sum. Op. 2023-20, at p. 2.

The assistant is the one who failed to follow the systems Donald had put in place for assuring collection, reporting, and payment of trust funds.

“…the assistant, privy to the law practice’s declining income and fearful of losing her job, did not perform the duties assigned to her in relation to petitioner’s employment taxes.” Idem. As as soon as Donald found out, he got the returns filed and the withholdings paid.

IRS gave Donald a partial abatement of the add-ons. STJ N’Yawk gives him the rest.

Now just because you’re sick, you’re not off the hook for filing and paying.

“Illness or incapacity generally does not prevent a taxpayer from filing returns where the taxpayer is able to continue his business affairs despite the illness or incapacity. (‘[A] taxpayer’s selective inability to perform his or her tax obligations, while performing their regular business, does not excuse failure to file.”). Further, failure to timely file is not excused by a taxpayer’s reliance on an agent, and such reliance is not reasonable cause for a late filing under section 6651(a)(1).” T. C. Sum. Op. 2023-20, at p. 5 (Citations omitted).

But Donald’s systems save the day, both for late filing and for late paying.

“Notwithstanding petitioner’s many difficulties due to his failing health and advanced age, petitioner was diligent in exercising ordinary business care and prudence. He had systems in place to ensure tax compliance. Petitioner’s systems had not previously failed him in his approximately 60 years of solo law practice. It was reasonable, and not willfully neglectful, for petitioner to trust his systems’ continued reliability. Further, it was not petitioner’s reliance on his assistant but his inability to adequately supervise her (due to his failing health and advanced age) that caused his failure to file. Petitioner acted quickly to file the outstanding returns upon discovering he was out of compliance.  Had he been able to supervise his assistant properly, petitioner would have ensured that the returns were filed.” T. C. Sum. Op. 2023-20, at p. 5.

So STJ N’Yawk doesn’t need to consider hardship. Donald wins.

Takeaway- Be systematic. Old or young, be systematic.

As United States Tax Court is closed for the holiday, there will be no post other than this. I ask that readers place a candle in a window, if possible, in remembrance (electric preferred). Someone gave their todays for your todays, and your tomorrows.

Susan A. Spizzirri, Docket No. 13508-22, filed 5/26/23 (a special day for one of my nearest and dearest), has duck-dived. The SPTO was returned by USPS, as was the notice of motion to toss for want of prosecution. Sue never filed Form 10, was off-grid, off-radar, and unresponsive, even when Court personnel reached out at the return date of the motion to toss.

Judge Emin (“Eminent”) Toro, choice in his language as always, gently observes “In the absence of any contact from petitioner, it appears that she no longer intends to prosecute this case.” Order, at pp. 1-2.

OK, so why am I writing this as we approach a three-day weekend, as the barbecue and swimming pool beckon, and a few of us note that this is a time to remember and honor those who died for this country, rather than to hit the Mall or the beach?

Because Judge Eminent holds up the toss.

“In his Motion to Dismiss for Failure to Properly Prosecute, respondent moves that the Court dismiss the case and find in its order that there is a deficiency in income tax due from petitioner in the amount of $7,599.00 for the [year at issue] and a ‘penalty’ due from petitioner in the amount of $3,438.00 for the [year at issue]. The Motion does not specify the basis for the ‘penalty.’ Based on the Court’s review of the record, it appears that the amount that respondent identifies as penalty in his Motion is in fact the sum of the additions to tax under sections 6651(a)(1), 6651(a)(2), and 6654, determined in the notice of deficiency…. Respondent, however, does not address the additions to tax in his Motion, and he has not presented any evidence in support of the additions to tax.” Order, at p. 2.

As this is resolutely a nonpartisan blog, I will not advert to the recent reports that the President was going to give up the increased funding for IRS to make a deal on the debt ceiling. But I can think very loudly, especially when I read something like this.

That said, Judge Eminent digs deep, and, like an infinitely Higher Authority,  gives Sue the Psalm 40:2 treatment.

“Because petitioner is not represented in this case, we construe her pleadings liberally. Reading the Petition with this standard in mind, we conclude that petitioner disputes her liability for the additions to tax under sections 6651(a)(1),  6651(a)(2), and 6654, proposed in the notice of deficiency….. And respondent’s pleadings do not allege specific facts sufficient to sustain the additions to tax he has determined, nor do the allegations in the petition appear to be frivolous so as to relieve respondent of the obligation imposed by section 7491(c). Respondent has the burden of production to come forward with evidence in support of the proposed additions to tax.” Order, at p. 2. (Citations omitted, but get them for your canned briefs cupboard).

So motion denied without prejudice, and let’s have a trial.

Which means that IRS now gets a chance to remedy the shortcomings in their pleadings, with a roadmap how to do so.

And if Sue gets wind thereof, she can get back in the game.

Joseph Michael Ledbetter and Ashley Jones Ledbetter, T. C. Sum. Op. 19, filed 5/25/23, kept excellent records “detailing Mr. Ledbetter’s daily travel, including times, locations, and business purpose.” T. C. Sum. Op. 19, at p. 5.  Mr. Ledbetter was a lead foreman on sheet metal jobs, which he got from his union, and worked at a Tennessee Valley Authority nuclear power station, on and off, for the same employer.

He would get furloughed (short time) or laid off (indefinite time) when contracts ended or funds ran short, but no break was more than four (count ’em, four) months, and during the two years at issue, no break was more than nine days. His daily round trip to work was 184.2 carefully documented miles. He claims unreimbursed employee business expense, claiming work was temporary, hence not commuting.

Judge Elizabeth Crewson Paris has this one.

“Petitioners rely primarily on the fact that work assignments from the union were indefinite in duration, contingent on the availability of funding, and prone to work stoppages. In support of their position, petitioners provided a copy of Mr. Ledbetter’s Temporary Employment Agreement with [employer], as well as a letter from [employer], stating that ‘[a]ll contract work is considered temporary assignments.’” T. C. Sum. Op. 19, at p. 7.

The employer and the union may think so, but not Judge Paris.

“While it is true that Mr. Ledbetter’s work assignments were indefinite in length, it cannot be said that his employment at the … Nuclear Plant was ‘temporary’ as that term is defined by the caselaw. Mr. Ledbetter was continuously employed at the … Nuclear Plant from 2012 until 2019, albeit with different contractors. From 2012 through 2019 he faced no period of layoff exceeding four months. During the years at issue specifically, Mr. Ledbetter worked 235 days in 2015 and 252 days during 2016. The longest break between workdays during either of those years was 9 days. Mr. Ledbetter’s employment at the … Nuclear Plant was consistent throughout the years at issue, and at no point during 2014 through 2016 was Mr. Ledbetter not employed at the plant.” T. C. Sum. Op. 19, at p. 7.

Construction work is by nature impermanent, and workers often have to travel substantial distances from home as the worksite changes. But the law and Tax Court make no distinction between construction workers and all others.

Taishoff says, everybody is equal until 2026: nobody gets to deduct unreimbursed employee expenses.

Judge Mark V. (“Vittorio Emanuele”) Holmes, whatever his expertise in English grammar, certainly has spent much of his illustrious Tax Court career assessing the worth of expert testimony and those who propound it. So as trial approaches, the parties in Kimberly Road Fulton 25, LLC,  Kimberly Road Manager, LLC, Tax Matters Partner, Docket No. 17852-21, filed 5/25/23, gird their loins and give Judge Holmes the usual boatload of motions in limine, trying to KO each other’s experts before they enter the ring.

Dixieland Boondockery is the blogger’s delight.

First up, the Kimberly’s landscape architect and planner, who wants to regale Judge Holmes with what might be built on the syndicated marked-up site, notwithstanding “its steep terrain and meandering water course.” Order, at p. 1. IRS says she isn’t qualified as to economics, her notions were unknown to the Kimberlys when they did the deal, and her opinion didn’t touch any matter at issue. Judge Holmes will let her in, as highest and best use at granting of easement is material, and the expert is knowledgeable about the locality.

Next, IRS’ valuation expert, who relies on an engineering report concerning the terrain, but the engineers aren’t testifying, hence the Kimberlys call hearsay. “It is not unusual for an expert to rely on hearsay from others with different expertise in the course of formulating their own opinions. Federal Rule of Evidence 703 allows experts to do so if they have been made aware of them and experts in the field would reasonably rely on them. The advisory committee notes cite as an example a physician who relies on the observations and opinions of nurses, technicians, and other doctors.” Order, at p. 2.

That said, IRS’ expert can expect “a vigorous cross-examination.” Dude best bring body armor, Kevlar helmet, and a couple extra mags (this is Judge Holmes, after all).

Last but hardly least, IRS has an expert appraiser to testify about standards of appraisal. The Kimberlys say he’s testifying about the legal issue of whether the appraisals submitted with the Form 8283 are qualified per Section 170, and that’s an ultimate issue in the case. If Kimberlys’ appraisals are bogus, an overvaluation chop, or no deduction at all. “We disagree. Mr. K (himself an appraiser) will be testifying as an appraiser about the standards of appraising. We understand that this is a very important issue in these cases, and that the failure of a taxpayer to attach a qualified appraisal to its return may trigger the disallowance of its deduction. If so, that might well make Mr. K’s opinion an opinion about ‘an ultimate issue’ in these cases. But with the exception of expert testimony in a criminal case about a defendant’s mental state, Federal Rule of Evidence 704 allows such opinion testimony about ‘ultimate issues.’” Order, at p. 2. (Name omitted).

Takeaway- Good stuff for the next USTCP admission exam.

For those who tuned in late, a Bialystok is a deal, named after the hero of The Producers, wherein the participants cannot possibly make money, but only suffer monumental unrealized but recognized losses, wherewith to offset realized economic gains.

Judge Elizabeth A. (“Tex”) Copeland leads us on a stroll down memory lane as she permits a wee bit of admin record enlargement to Jeremy Berenblatt, 160 T. C. 14, filed 5/24/23. JB’s trusty attorney moved for production of tons of documents and to compel responses to interrogatories, and trusty attorney does get one, but the rest founder for want of proof of bad faith, namely, the Ogden Sunseteers hiding stuff, or incomplete admin record.

JB claims he’s the dude who tipped IRS off how to unhorse the European digital options phony partnership dodge. He says he was a day trader approached by dodgefloggers selling these unrecognized gains but recognized losses phony partnerships, à la James (“Little Jim”) Haber; see, e.g., my blogpost “Haber-Dashery,” 11/19/15. He blew off the floggers, and blew the whistle to IRS. But JB was one of a hundred people IRS interviewed. JB claims IRS lost on step transaction, but once he showed the Federales to play want of economic substance, they clobbered the dodgers.

The Ogden Sunseteers claim whatever JB told them, they already knew.

Apparently Tax Court was too busy blowing off wannabe blowers like Mandy Mobley Li in no-money cases to elucidate the standards for discovery in cases where they actually had jurisdiction. And Section 7482 Golsens ’em to USDCDC and DC Cir.

First, every whistleblower case post-Li requires the jurisdictional drilldown. Here, for once, there is jurisdiction. “If the question of whether the IRS prevailed in the various … shelter collection actions ‘based on’ Mr. Berenblatt’s information were jurisdictional, then we could not determine whether we have jurisdiction until deciding virtually the entire case on its merits. Moreover, it would be unclear what scope and standard of review to apply in making that jurisdictional determination. Here, with an ‘action’ commenced and  ‘collection’ of proceeds, we conclude that we have jurisdiction to review Mr. Berenblatt’s appeal of the denial of his claim for an award.” 160 T. C. 14, at p. 13. (Citation omitted).

Next, standard and scope of review. This requires somber reasoning and copious citation of precedent, at which task Judge Tex Copeland is no slouch. See 160 T. C. 14, at pp. 13-14. And she concludes that Tax Court must review the administrative record only, so as, like Humpty Dumpty, to have before it “neither more nor less information than the agency (here, the WBO) had when it made its determination.” 160 T. C. 14, at p. 14.

Now in most record rule cases, there is no discovery. The admin record, like Johnny Keates’ Greek pot, is “all ye know on earth and all ye need to know.” But DC Cir has hewn out an exception or two. If petitioner can show what DC Cir “variously described as a strong, substantial, or prima facie showing” that the agency sandbagged by hiding stuff, or that the admin record proffered is incomplete, then the Ogden Sunseteers must pony up. But there’s a strong presumption that the admin record as presented is the real deal. Reg. Section 301.7623-3(e) sets forth what has to be there.

So distilling the foregoing and a lot more, here’s the skinny.

“…we hold that whistleblower discovery requests are appropriate upon a significant showing that (1) there is material in the IRS’s possession indicative of bad faith on the IRS’s part in connection with the case or (2) there is material in the IRS’s possession indicating that the designated record omits material the WBO actually considered (directly or indirectly) or that otherwise falls under a category listed in Treasury Regulation § 301.7623-3(e).” 160 T. C. 14, at p. 18.

JB’s trusty attorney folds bad faith. Only incompleteness is on the table. Anything related to what happened before JB came on the scene is excluded, so no previous interviews. And JB’s claim he was the first to show want of economic substance is belied by IRS’ expert’s report in Stobie Creek, which was dated before JB’s interview. But that doesn’t sink JB’s award claim, only his claim that IRS was negligent in ignoring economic substance. For the Stobie Creek story, see my blogpost “A Piece of the Action,” 1/9/11.

But before sinking all the rest of JB’s trusty attorney’s discovery requests, Judge Tex Copeland does allow one. JB claims that RA M took notes at his interview, and he wants to see them.

“…Respondent leaves unclear whether RA M took notes, stating that “Special Agent C does not believe RA M took notes at the interview.” (Emphasis added.) By contrast, Mr. Berenblatt has conveyed his recollection that RA M took notes throughout the interview. We have no reason to doubt the sincerity or accuracy of Mr. Berenblatt’s memory. And because Treasury Regulation §301.7623-3(e)(2)(ii) refers to ‘[c]opies of all debriefing notes and recorded interviews held with the whistleblower,” any notes that RA M took at the interview are part of the complete record. Therefore,  we will compel Respondent to clarify whether RA M took notes during Mr. Berenblatt’s interview and, if so, whether such notes still exist, were lost, or were destroyed.” 160 T. C. 14, at p. 24. (Names omitted; SA C ran the interview.).

At close of play, generally (love that word!) only the blower’s direct dealings with IRS and the Sunseteers are targets for discovery, unless bad faith can be strongly shown.

So Judge Patrick J (“Scholar Pat”) Urda’s upcoming discovery Zoom extravaganza will have very little to say about discovery in Section 7623 whistleblower cases.

Edited to add, 5/26/23: The Zoom discovery special will be moderated  by Judge Ronald L. (“Ingenuity”) Buch, not Judge Scholar Pat. But I can’t think there’ll be much about discovery in Section 7623 blower cases.