Judge Emin (“Eminent”) Toro has an appetite for a good dictionary chaw and romp through statutory thickets, and gets both in United Therapeutics Corporation, 160 T. C. 12, filed 5/17/23. UTC did enhanced research via clinical trials of Section 45C orphan drugs over a four (count ’em, four) year stretch.

Section 45C orphans are drugs that would treat or cure diseases so rare that the Big Pharma beancounters wouldn’t spend a dime on them, but people would die for want of them. So Congress strewed some ill-defined largesse by way of a dollar-for-dollar credit against tax for those who sought them out. Everyone agrees UTC did that kind of research and incurred creditable costs.

But since our old chum the Section 41 enhanced research credit is also applicable, Section 45(C)(c)(2) attempts to harmonize the two. Absent this enactment, which UTC says is a dead letter and should be ignored, taxpayers could run research over a bunch years (hi, Judge Holmes), average the costs, and if the last year’s expenses after deducting the average yielded a better break than ignoring them and taking the last year alone for Section 45C, take the Section 41 enhanced rather than the Section 45C straight.

Clear? Thought not. So try the tables at 160 T. C. 11, at pp. 10-12.

Judge Eminent puts the issue thus. “Section 45C(c) provides that qualified clinical testing expenses must be excluded from all section 41 calculations, except that, under section 45C(c)(2), qualified clinical testing expenses that are also qualified research expenses must be included ‘in determining base period research expenses for purposes of applying section 41 to subsequent taxable years.’ The parties agree that the qualified clinical testing expenses at issue are qualified research expenses. So the only question before us is whether ‘base period research expenses’ are relevant to United Therapeutics’ research credit computation for [year at issue].” 160 T. C. 11, at p. 13.

The term “base period research expenses” is defined neither in Section 41 nor Section 45C. Happily, everyone agrees that the expenses at issue are research expenses for both statutes.

There follows an exhaustive, not to say exhausting, slog through the rules of statutory construction. UTC’s trusty attorneys need find no other way of making a living; they drag out any ambiguity, be it as thin even as a spider’s web, to entrap Judge Eminent. But he conquers all, and decides that the statute says what it means, and means what it says.

And it means UTC loses.

Two statutes that have endured their share of political flak unite in Memorial Hermann Accountable Care Organization, T.C. Memo. 2023-62, filed 5/16/23. MHAC claims they’re exempt, as they provide healthcare for Medicare patients and other insureds, and participate in the Medicare Shared Savings Program (MSSP). This split-up of guided largesse rewards healthcare providers who keep costs down and performance up.

As some of my nearest and dearest have been, and may again be, involved in the Memorial Herrman hospital complex, high performance thereof is top priority.

501(c)(4) exemption requires a civic organization, not for profit, and operated exclusively for social welfare. You’ll remember some political groups had a dust-up with IRS some years back over their 501(c)(4) status, with political hoot-‘n’-hollerin’. MSSP is a subset of the much-contemned ACA. So Ch J Kathleen (“T.B.S. = The Big Shillelagh”) Kerrigan, a follower of President Theodore Roosevelt, speaks softly but carries a big stick.

It’s the split with the insurers that sinks MHAC, which exhausted its administrative remedies, so Section 7428(a)(1)(E) ropes in Tax Court.

“Petitioner fails to qualify as an organization described by section 501(c)(4) because its non-MSSP activities primarily benefit its commercial payor and healthcare provider participants, rather than the public, and therefore constitute a substantial nonexempt purpose. While petitioner’s stated goal of providing affordable healthcare to patients is an admirable one, the provision of healthcare alone is insufficient to qualify for recognition of exemption under section 501(c)(4). Petitioner’s non-MSSP activities benefit primarily the commercial payors and healthcare providers with which it contracts. To that end, petitioner contravenes the requirements of section 501 by conducting business with the public in a manner similar to a for-profit business. See Treas. Reg. § 1.501(c)(4)-1(a)(2)(ii).

“Furthermore, petitioner has failed to demonstrate that its non-MSSP activities benefit the public. There is no evidence that petitioner has coordinated with the State of Texas to administer healthcare to the Greater Houston community, and petitioner has not otherwise shown that its non-MSSP activities promote the common good and general welfare of the community.” T. C. Memo. 2023-62, at p. 8. (Citation omitted).

There is still no United States Tax Court admissions examination for an attorney at law who “has been admitted to practice before and is a member in good standing of the Bar of the Supreme Court of the United States, or of the highest or appropriate court of any State or of the District of Columbia, or any commonwealth, territory, or possession of the United States.” Tax Court Rule 200(a)(2).

I deplored this lack in my blogpost “A Book and a Modest Proposal,” 5/22/12. Eleven (count ’em, eleven) years later, no change.

In witness whereof, here’s the tale of Guy Alvarez Gayou, T. C. Memo. 2023-61, filed 5/16/23, This is a passport grab, and the only issue is substantial tax debt per Section 7345. IRS certifies $61K, the cutoff for year at issue being $54K.

Judge Courtney D. (“CD”) Jones: “… the record is devoid of any evidence that would warrant the application of an exception under section 7345(b)(2). The record reflects that Mr. Gayou is not currently paying his debt pursuant to either an installment agreement under section 6159 or a compromise agreement under section 7122. Furthermore, there is no evidence that collection of Mr. Gayou’s debt is currently suspended because of a requested or pending CDP hearing under section 6330 or an election or request for relief under section 6015(b), (c), or (f).” T. C. Memo. 2023-61, at p. 6.

OK, right-about-face-and-march-out GAG. So why does this run-of-the-mine grab rate a proposal from me, modest or otherwise?

“In his objection to respondent’s Motion for Summary Judgment, Mr. Gayou, through his representative, cites several inapplicable authorities, advances multiple unfounded arguments, and ignores the Court’s limited inquiry in the instant case. First, Mr. Gayou’s objection is nearly unintelligible because it repeatedly confuses the terms  ‘petitioner’ and ‘respondent.’ See Rules 350(a), 60(b), 3(c). Second, the objection cites Rules 15 and 56 of the Federal Rules of Civil Procedure,  which are not the primary authorities governing amended and supplemental pleadings or summary judgment, respectively, before this Court. See Rules 41, 121, 1(b). Third, the objection cites a nonprecedential order issued by this Division of the Court that discusses the IRS Independent Office of Appeals’ (Appeals) failure to discuss outstanding debts when considering a collection alternative in the context of a CDP hearing, which is wholly inapplicable to the scope of the current Passport Notice proceeding. Fourth, to the extent that an argument can be divined from the objection, it acknowledges that no CDP hearing is currently pending, which forecloses the potential application of the statutory exclusion under section 7345(b)(2)(B)(i); yet the objection still asserts that the exclusion applies. Fifth, the objection asks the Court to grant Mr. Gayou an opportunity to speak with Appeals, which is outside the scope of the Court’s jurisdiction in this matter. See § 7345(e)(2); Ruesch v. Commissioner, 25 F.4th at 70; see also Adams, 160 T.C., slip op. at 8. Finally, the objection claims that the Court’s electronic filing system, DAWSON, somehow constrained the contents of the filing. As the Court similarly noted in its Order dated October 26, 2022, no such limit exists, and we find this argument similarly unavailing.” T. C. Memo. 2023-61, at pp. 6-7.

I don’t want to name GAG’s representative, even with a nom de guerre. I shudder to think what Judge Halpern would do in this case.

But if someone can thus represent a client in a serious litigation in a Federal court (even a humble Art. I court), should there not be some examination, however perfunctory, of the representative’s capacity?

All y’all whose anticipatory agita I left back in December, 2019, can finally relax, as Judge Elizabeth Crewson Paris, Tax Court’s resident agricultural mayvinn, authors a full-dress T. C., Growmark Inc. & Subsidiaries, 160 T. C. 11,  filed 5/16/23. Judge Paris and the Tax Court Bench have finally unscrambled Growmark’s COGS, allowing only the Federal fuel excise taxes net of the tax credits under I.R.C. § 6426(b) and (c) for fuel mixtures it blended.

Growmark and the subs blend biodiesel and ethanol. They were on this blog in 2019; see my blogpost “Another Corny Cooperative,” 12/11/19, when their DPADs were disposed of. Judge. Paris then promised that she “will deal with Growmark’s COGS issues in a later opinion. I’m sure you’re all ‘hanging, breathless, on its fate,’ as a far better writer than I put it.”

Well, here it is.

The only question is “whether a taxpayer that claims a credit against fuel excise tax under section 6426(b) or (c) may also claim as part of its COGS its gross excise tax liability, unreduced by the amount of the credit itreceived.” 160 T. C. 11, at p. 6.

How do you spell “doubledip”?

Section 164 generally (love that word!) disallows deductions for excise taxes, but where these are paid or accrued in acquisition or disposition of property, they’re part of cost of acquisition or expenses of disposition, and deductible.

But only to the extent actually paid or incurred. These are the highway trust fund taxes on gas, ethanol, and diesel.

AJCA 2004 changed the rules. Before, there was no difference to the taxpayer if they took a reduced excise tax rate or took the tax credit.

“The AJCA replaced the prior benefit of the reduced rate with a credit under section 6426 that could be applied against excise tax imposed under section 4081. AJCA § 301(a), (c)(7), 118 Stat. at 1459–61. It tied the new excise tax credit to the gallons of alcohol used to produce any taxable fuel for sale or use in a taxpayer’s trade or business, not the alcohol fuel mixture produced. Id. Additionally, the AJCA extended the existing income tax credit for alcohol fuel mixtures through December 31, 2010. Id. § 301(c)(3), 118 Stat. at 1461. It also created new incentives for the production of biodiesel mixtures by adding an income tax credit for biodiesel mixtures and making those mixtures eligible for the credit against excise taxes. Id. §§ 301(a), 302(a),  118 Stat. at 1459–61, 1463. Section 87 was also amended to include the amount of the biodiesel income tax credit in the taxpayer’s gross income.” 160 T. C. 11, at p. 8.

If any of this makes sense to you, congratulations.

Other courts have considered the issue. The credit is not a part payment of tax, but a reduction of tax. “Consistent with those courts and giving effect to the plain meaning of the statutory text at issue, this Court agrees with respondent for purposes of calculating petitioner’s COGS. Accordingly,  this Court also concludes that when considering the text of all of the relevant provisions together, the credits produced from fuel mixtures for sale in the trade or business of the fuel blender are first used, to the extent of excise tax owed, to reduce excise tax liability. Only then are those credits refundable payments to the extent of any excess.” 160 T. C. 11, at p. 12.

What AJCA tried to do was make the math easier, and keep the taxpayers in the same position as before, not confer an additional tax break.

Judge Gale must feel like he’s Mr. Fred Rogers’ successor, as he has to deal with an imaginary attorney and an unnamed witness who claims he saw him, although nobody else has. Benjamin Soleimani and Sharyn Soleimani, T. C. Memo. 2023-60, filed 5/15/23, claim Ben had multi-millions in Tehran real estate that his uncle bought for him as nominee, because Ben was on  the Islamic Republic’s hitlist as a chum of the ex-Shah.

The Republicans grabbed the real estate, so Ben and Sharyn claim a whopping capital loss in the year when the alleged grab took place. IRS says no, so enter Mohammad Ali Soltanpour, Esq.

MoAli was retained by Witness 1, a compatriot of Ben’s. Witness 1 dares not speak his name as he still has contacts with the Republic. Witness 1 claims MoAli produces ” a document from the ‘State Organization for the Registration of Deeds and Real Estates,’ dated September 24, 2008 (Registration), and a  ‘Declaration Sheet’ from the ‘Justice Administration of the Islamic Republic of Iran (Central Branch),’ dated October 16, 2008 (Declaration).” T. C. Memo. 2023-60, at p. 3. These show that Ben supposedly got the properties just before the revolution, and were grabbed in year at issue by the Republicans.

Except.

“Respondent engaged an expert and submitted his report. Respondent’s expert’s report concluded inter alia that Mohammad Ali Soltanpour was a fictitious person. He visited the addresses listed for Mr. Soltanpour in Tehran; no one at those addresses had any knowledge of anyone by that name. He tried the phone numbers listed for Mr. Soltanpour and encountered the same. Finally, he researched Iranian Bar Association listings and found no entry for anyone by that name. Indeed, the bar number given for Mr. Soltanpour on the Declaration had never been issued to anyone, according to Iranian Bar Association records. The Report further concluded that the Registration and the Declaration were forgeries because, inter alia, they were purportedly issued to a nonexistent Iranian attorney with a fictitious bar number, they stated property values in U.S. dollars, and two of the properties referenced in the documents as owned by petitioner before their confiscation by the Iranian government could in fact be traced in Iranian property records, and those records showed that the properties had at no time been owned by petitioner or the Iranian government. (Respondent’s expert was unable to find any records pertaining to the third property.)” T. C . Memo. 2023-60, at p. 6.

Given a chance to rebut, Witness 1 waffled. MoAli was an assumed name, and Witness 1 wasn’t sure now whether he’d met MoAli or some Iranian broker. Finally, even Ben’s and Sharyn’s expert witness agreed that no one could get those documents out of the Republican government with a phony attorney and phony Bar number. And the Republicans wouldn’t state property values in US dollars.

So both Registration and Declaration, translated from the Farsi, are found to be Farsical (sorry guys, the devil made me do it).

IRS has some problems with the CPAF for Boss Hossery, and Judge Gale takes up two (count ’em, two) pages unscrambling the examiner’s frittata, T. C. 2023-60, at pp. 10-11. At the end of the day, he sustains the substantial understatement chop.

Taishoff says Ben and Witness 1 were lucky I wasn’t the judge.

It’s a rough ride for Appeals. Judge Mark V. (“Vittorio Emanuele”) Holmes finds the admin record more than a trifle dicey in Duane Whittaker and Candace Whittaker, T. C. Memo. 2023-59, filed 5/15/23, especially when Caleb B. Smith and the Golden Gophers LITC are on the case.

D and C claim the old homestead is in rough shape, and there’s a HAMP loan with a big balloon, so the local tax assessor’s number is out to lunch, although they can’t show they tried to refinance or otherwise realize upon whatever equity they have. Besides, COVID descended while they were negotiating an OIC with Appeals, and the SO didn’t make much of a record about what happened to D’s and C’s finances in consequence. IRS post-event speculation gets tossed. Most importantly, their retirement account never got into the admin record, and the SO got Duane’s military pension wrong.

Both sides quote the IRM, and Judge Holmes says, while it creates no rights in the taxpayer, “(T)he IRM is important here—it enables the IRS itself to put some bounds on its employees’ exercise of discretion.  But the IRM ‘does not have the force of law and does not confer rights on taxpayers.’ Fargo v. Commissioner, 447 F.3d at 713. Its guidance is usually quite reasonable, however, and we generally uphold a determination to reject an offer if the settlement officer has followed it.” T. C. Memo. 2023-59, at p. 8. And even though the SO’s reasoning wasn’t of the clearest, Judge Holmes could see a path to rejecting the OIC.

Except.

The SO didn’t consider the condition of the house as a special circumstance, which it is.

And the effects of COVID and D’s retirement and C’s two-day-a-week work schedule got such short shrift that all IRS has is speculation (tossed).

Judge Holmes tosses the NOD and remands.

“The Whittakers lost their jobs in the middle of the CDP hearing. Because their current income was important to the RCP calculation, this was a material change of circumstances. On remand the Appeals Office is directed to consider updated financial information that they should provide to document any change in their ability to pay resulting from their loss of income due to the pandemic, as well as other factors in accord with this opinion.” T. C. Memo. 2023-59, at p. 15.

I’ve chronicled in the past SOs at Appeals who gave appellants a quick-kick (to say nothing of ex-Ch Js who did the same to non-payors of the sixty bucks), but today I’d like to thank patient SO2 who went the extra for Aubree Hill, T. C. Memo. 2023-58, filed 5/15/23.

Aubree had a couple unpaid years (hi, Judge Holmes), but petitioned only one NOD. Judge Albert G (“Scholar Al”) Lauber has this one.

Aubree wanted an OIC, but never sent in Form 656 or the deposit; Aubree did send in a Form 433-A, and enough backups for one SO to begin work, but things got stalled by the pandemic. SO2 came in, and did negotiate with Aubree.

Finally, “Although SO2 calculated petitioner’s monthly disposable income as $2,043, he offered to ‘split the difference’ with her. Recognizing that ‘the cost-of-living for the D.C. metro area is higher than [the local and national] standards,’ he allowed an additional $200 of monthly expenses. By letter… he offered petitioner a direct-debit IA with a monthly payment of $1,800, which would fully discharge her… tax liabilities in 24 months.” T. C. Memo. 2023-58, at p. 4.

Aubree claims that, due to local delivery problems, she never got the letter. But Judge Scholar Al points out that she never followed up with SO2, who closed the case eleven (count ’em, eleven) days after the deadline for responding to the letter.

“And even if SO2 were thought to have closed the case prematurely, we find that any error was harmless. In her Petition, petitioner characterizes the $1,800 monthly payment plan as ‘much higher than [she] can afford.’ This strongly suggests that she would have rejected SO2’s $1,800-per-month offer. It is thus hard to see how she was prejudiced by any alleged non- receipt of his letter.” T. C. Memo. 2023-58, at p. 7.

And Judge Scholar Al says Aubree can still try for an IA or OIC.

Takeaway- If you get someone at IRS willing to talk to you, keep talking. Talk early, talk often.

Obliging as always, Judge David Gustafson can’t help IE & J Co. CMD, LLC, Docket No. 16245-22L, filed 5/12/23. IE & J get stung for Section 6721 chops, and no, I didn’t know what those were either, until Judge Gustafson man-‘splained.

“(Section 6721 imposes a penalty for ‘Failure to file correct information returns’.).” Order, at pp. 1-2.

Not your run-of-the-mill knucklerapper; apparently the IE & J guys failed to file a bunch W-2s and W-3 coversheets for a couple years (hi, Judge Holmes). They did get a NFTL and a CDP, whereat they lost, but the lien issue isn’t preserved here.

When IE & J didn’t come across,  IRS gave the guys a NITL at no extra charge. The IE & J guys went to Appeals, wanting to contest liability, and checked both the lien box and the levy box on the Form 12153 CDP request, but that ship sailed with the NFTL CDP they lost. At the NITL CDP, IE & J’s representative claimed an installment agreement (for which no proof was submitted, and IRS had no record either). So Appeals gave them a NOD at no extra charge, which IE & J petition.

Trouble was, the NITL NOD spoke only about liens, not levies.

“… the contention in the petition that ‘[t]he filing of the notice was premature or otherwise not in accordance with the service’s administrative procedures’ tracks closely the language of section 6323(j), which is a provision pertinent to a notice of lien; but if we nonetheless assume that petitioner means to so contend about the notice of levy at issue here, we acknowledge that contention that a notice of levy was ‘premature’ or otherwise not in accordance with proper ‘procedures’ could be a valid contention in a levy-based CDP case if the contention is construed to invoke the general requirement of section 6330(c)(1) that ‘[t]he appeals officer shall at the hearing obtain verification from the Secretary that the requirements of any applicable law or administrative procedure have been met.’” Order, at p. 5

IRS claims Appeals tagged all the bases, both for liens and for levies, and aver accordingly. “Of course, the notice of determination could have been mistaken in its recitation of  ‘verification’, or IRS Appeals could have overlooked (and this Court could overlook) a legal or procedural requirement. But we know of none, and petitioner has not alleged any.” Order, at p. 6.

This is Judge Gustafson, remember, so before giving IE & J the right-about-face-and-march-out, he provides a helpful hint.

“Although we will enter this Order and Decision, will sustain the notice of determination, and will close this case, we point out to petitioner that the closing of its Tax Court case does not end its opportunity to correspond with the IRS. Its further dealings with the IRS about collection of the [years at issue] liabilities by levy will not be subject to Tax Court review, but they might nonetheless result in a satisfactory agreement.” Order, at p. 6.

Taishoff says such chops may be rare because the usual problem is the FICA-FUTA-ITW that W-2s report never reached IRS, and the chops are Section 6722 TFRPs. The $250-a-pop Section 6721s are throwaways in comparison. I’m surprised that if IE & J correctly filed Forms 941 and paid the FICA-FUTA-ITW therewith, either their payroll service or their own in-house software didn’t automatically generate W-2s and W-3s.

JOAN. Thou are a rare noodle, Master. Do what was done last time is thy rule, eh?

G. B. Shaw, Saint Joan, 1920

Ch J Kathleen (“TBS = The Big Shillelagh”) Kerrigan is caught between rationality and judicial restraint, with a large helping of Congressional cognitive dissonance thrown in. Having no choice but to play the rare noodle gambit, distasteful though it be, she tosses the motion for judgement on the pleadings, brought by the trusty attorney for the Estate of Ronald E. Van Steyn, Deceased, Holly A. Cook, Personal Representative, Docket No. 30991-21, filed 5/12/23 (a very happy day at our house).

The late Ron was apparently a potter. Thus he was Section 280E’d out of Section 162 deductions for his State-legal but Federally-outlawed potting. Trusty attorney claims Justice Clarence Thomas’ remarks in Standing Akimbo undercut the rationale of Gonzales v. Raich, 545 U. S. 1 (2005), so Tax Court should allow said deductions.

“…petitioner contends that the reasoning in Raich has been hollowed out by factual and legal developments, including the proliferation of state-sanctioned marijuana businesses (introducing new federalism questions), subsequent Commerce Clause jurisprudence, and the statement of Justice Thomas in Standing Akimbo, LLC v. United States, 141 S. Ct. 2236 (2021), where the Supreme Court declined to review the Court of Appeals for the Tenth Circuit’s decision in the case below.” Order, at p. 1.

But Raich is not overruled, and Congress, which could end this mess…well, this is a nonpolitical blog, so the less I say about Congress, the better.

So Ch J TBS is forced to play the rare noodle gambit.

“The Supreme Court has advised the lower courts that ‘[i]f a precedent of [the Supreme Court] has direct application in a case, yet appears to rest on reasons rejected in some other line of decisions, the  [lower courts] should follow the case which directly controls, leaving to [the Supreme Court] the prerogative of overruling its own decisions.’ Raich directly controls the question here, and we accordingly will follow it unless and until the Supreme Court determines its previous decision should be overruled.” Order, at p. 1. (Citations omitted).

Whatever my view of certain decisions of the Supreme Court (which I’ve expressed in extenso elsewhere), I must commend judicial restraint here. There are places where courts should not, indeed cannot, go. Courts do not exist to get legislators off the hook.

I need not state yet again how great a fan I am of summary J. It can resolve a case quickly and less expensively than a trial. It can provide a record of sworn testimony faster, more succinctly, and far cheaper than depositions. It is faster at gathering a party’s essential contentions than interrogatories, and at least comparable in speed and efficiency to notices to admit.

Best of all, it provides discovery of one’s own client, one’s adversary, and discovery of what the judge thinks of one’s case.

But Judge Mark V (“Vittorio Emanuele”) Holmes goes one better. Damian Waje Bautista, Docket No. 13903-21, filed 5/11/23, has run aground, as a companion case, which was supposed to settle out and solve the remaining problems in this one, has likewise hung up.

“The major issue is petitioner’s request for innocent-spouse relief, but the parties had largely settled that. What remained are adjustments to the original deficiency amount triggered by likely adjustments in a related case, docket number 8194-21. We continued this case to try to coordinate the two cases, which do not have the same designated place of trial. We agreed with the parties then that waiting till the other case was resolved is reasonable.

“But that case has not settled, and it then got generally continued, which means its settlement may be farther off than one would think. We spoke with the parties again today to try to figure out how to bring this case to a close.” Order, at p. 1.

So geography and arithmetic combine to frustrate Judge Holmes’ earnest efforts to perfect Damian Waje’s innocent spousery. From whence cometh salvation?

Why, summary J, the all-time, all-purpose, all-sufficient cure-all.

Judge Holmes orders as follows: “…on or before June 8, 2023 the parties shall submit settlement documents or file a stipulated administrative record that can serve as the basis for deciding this case through summary judgment.” Order, at p. 1.

His Honor gets a Taishoff “Good Job, First Class.”