Notwithstanding the late Justice Antonin Scalia’s dismissive characterization of Tax Court as the equivalent of a village traffic court at a long-ago Tax Court Judicial Forum, Taishoff says it’s a real court. That too many self-represented petitioners seem to agree with the late Justice is nothing to the point. Today we have two (count ’em, two) instances.

First, Ronald Powell and Cynthia Powell, T. C. Memo. 2023-48, filed 4/17/23. Appeals generously accepts their late-filed return and drops the deficiency from the SFR. Even more generously, Appeals offers two (count ’em, two) IAs, both well within Ron’s and Cynthia’s ability to pay per their belated 433-A, adjusted to the local standards for mortgage payment and car loans. Ron and Cynthia do nothing until they get the NOD, when they claim Appeals erroneously computed their RCP, but provide no backup.

“Petitioners assert that they sent the SO additional financial information, which allegedly would have supported a deviation from national and local standards, and they speculate that these documents were lost in the mail. Petitioners do not claim that they sent the documents by certified or registered mail, and they have supplied no affidavit or exhibit supporting their allegation. The taxpayer generally bears the risk of nondelivery when a tax return or other document is not sent by registered or certified mail.” T. C. Memo. 2023-48, at p. 7. (Citation omitted).

Do not try this with Judge Albert G (“Scholar Al”) Lauber (or any other Tax Court Judge or STJ).

Second, John J. Evan and Carissa R. Clark, T. C. Sum. Op. 2023-15, filed 4/17/23. John and Carissa claim the software made them do it, claim a Section 53 excess prior years’ AMT. Except IRS transcripts show whatever AMT John and Carissa paid in prior years was more than accounted for by what Section 53 credits John and Carissa claimed.

“Petitioner testified at trial that [his tax software] automatically generated his Form 8801 and that he had relied on the software to calculate the amount of tax credit to claim. Petitioner indicated that he had been unable to retrieve tax return documents for prior tax years from either [tax software company] and/or the IRS.” T. C. Sum., Op. 2023-15, at p. 4.

Petitioners have burden of proof, generally.

STJ Peter Panuthos: “Petitioners bear the burden of proving that the AMT was imposed and that they are entitled to the claimed credits. See Rule 142(a). From the record before us, we are unable to conclude that there is prior year minimum tax credit carryforward from which petitioners could claim a credit for the year in issue. Petitioners have failed to demonstrate their entitlement to the prior year minimum tax credit for the year in issue.” T. C. Sum. Op. 2023-15, at p. 5.

It’s a real Court, with real rules, and real trials. And real judges.

This was a hot topic years ago among us Excelsior State courtiers: could one rescue a late filing on the basis that the party’s attorney missed the cutoff? Turned out that, barring prejudice to the diligent, most of the time law office failure was an adequate excuse.

STJ Adam B (“Sport”)  Landy has recourse to that calculation in Thornell Johnson, Docket No. 17082-22SL, filed 4/14/23. Back in January, Ch J Kathleen (“TBS = The Big Shillelagh”) Kerrigan told IRS to man-‘splain why they should be allowed to file a late answer to Thornell’s petition to toss his various preparer penalties. IRS was late by two (count ’em, two) days after Thornell’s motion to dismiss and for summary judgment.

I told the story in my blogpost “All Those Old Familiar Faces – One Mo’ Time,” 1/31/23, which includes Thornell’s appearance here ten years ago.

STJ Sport Landy: “Although the Commissioner filed the Motion for Leave and lodged his Answer two days late, Mr. Johnson has not shown that the delay has caused him to be at a disadvantage or any form of prejudice. This Court has the discretion in the interest of justice to allow pleadings to be filed out of time, and the Court will allow the Commissioner to file his Answer out of time in this case.” Order, at p. 2. (Citations omitted, but check out Rule 25(b)(1)(B)).

As for summary J, giving nonmovant IRS the benefit of the doubt and scoping out Thornell’s averments, questions of fact remain as to all issues raised in his papers.

Taishoff says: But given that there is no limit to the number of motions for summary J (complete or partial) subject only to the Rule 121(b) temporal cutoffs, petitioners might do well to consider IRS’ tactic du jour and make motions for partial summary J, being careful to avoid the shoals of Rule 121(i).

2021 was the year of the Great Petition Tsunami. I thought the highwater mark was reached at Docket No. 35423-21 (see my blogpost thus entitled, 1/3/22), but I was wrong, as the hardlaboring intake clerks and flailing date stampers were laboring and flailing well into the new year with the overburden.

But imagine my astonishment as I discover a remaining trickle generated by Ch J Kathleen (“TBS = The Big Shillelagh”) Kerrigan, as she crafts another docket number for 2021, 468 (count ’em, 468) days after the calendar year 2021 had ended.

Keith M. Phillips, Docket No. 5854-21P, filed 4/13/23, is fighting about a seriously delinquent tax debt that locks up his passport per Section 7345. But Keith threw into the mix a SNOD, so his petition was one-size-fits-both, which offends Ch J TBS’ sense of order.

So Keith gets a new Docket for the SNOD, and keeps the old for the passport. Since his petition was filed in the 2021 tsunami, he gets the 21 suffix for the SNOD, as docket No. 37955-21 takes the lead as last of the tsunami.

Best of all, no filing fee for the new docket.

Will the adventure continue? Watch this space.

Judge Mark V Holmes explores another variety of ambiguity in Edwin L. Gage and Elaine R. Gage, T. C. Memo. 2023-47, filed 4/12/23. Ed and Elaine were personally liable to HUD under a regulatory agreement executed in connection with an HUD insured mortgage on their nursing home, when said mortgage went south. IRS claimed the liability, $4 million, was punitive damages, therefore not deductible per Section 162(f). So when Ed and Elaine settled for $875K and tried to deduct the payment, did they incur the Section 6662 substantial understatement of tax chop?

The Gages did buy an official bank check for the $875K in December and give it to their trusty attorney to give to the AUSA. But the AUSA couldn’t take the check until the settlement papers were approved, and that wasn’t until the following March.

“The record we have shows the Gages are competent, skilled business people able to organize and operate two different corporations, but that they are not learned in tax law. We do find it more likely than not that they delivered the check to their attorney with the intent of fulfilling the terms of the settlement agreement. From their perspective they were out the $875,000 when they bought the check and gave it to their lawyer. We think their reporting position on the timing issue was reasonable under the circumstances, and that they acted in good faith in thinking they’d made the payment in [December].” T. C. Memo. 2023-47, at p. 9.

But that’s not enough. If the $875K is for retributive damages, not compensatory, mox nix when it was paid. So what was the payment for? IRS claims DOJ sued the Gages for equity skimming from the project insured by HUD, , in violation of the regulatory agreement, per the National Housing Act, 12 U.S.C. §§ 1701–1750, and section 421 of the Housing and Community Development Act of 1987, 12 U.S.C. § 1715z-4a.

That enactment allows for “double damages, costs, and fees for breach of a regulatory agreement with HUD. The United States also sought in its complaint recovery under federal common-law theories of unjust enrichment, fraud, disgorgement of profits, recoupment, and restitution.” T. C. Memo. 2023-47, at pp. 10-11.

1 Cir and 2 Cir have slightly different takes on what the statutes are trying to do. 2 Cir says the statute is a deterrent, smacking the bad guys hard. 1 Cir says DOJ can ask for doubles, but USDC decides, and then only for repeated or substantial default.

Judge Holmes is a lawyer’s lawyer. If he can’t find an ambiguity, no one can.

“We conclude from this that the double-damages provision under which the government sued the Gages may serve both to compensate the government and to punish. We also conclude that is not clear from the text of the statute or the caselaw construing it which purpose was present in the Gage’s settlement.” T. C. Memo. 2023-47, at p. 12.

The settlement agreement provides no clues. It just specifies that payment releases the Gages from civil or criminal liability, and expressly excludes any tax characterization. This case went up on Rule 122, fully submitted, so no testimony as to intent or evidence of “intercourse” between DOJ and Gages’ trusty attorneys.

And the settlement was less than HUD’s actual damages. So the Gages were justified in thinking the payment was compensatory.

The Gages did lose the timing issue. Until the USA got the check, the amount of the settlement wasn’t paid. So payment took place in March, not December. Federal law, not State law, decides that; the need for national uniformity trumps any State interest.

So that saves Judge Holmes from having to decide whether the payment was in fact deductible per Section 162. The Gages might think in good faith that the payment was compensatory and not punitive, but thinking doesn’t make it so.

For background, see my blogposts “Why The Chop?” 3/13/23, and “Why The Chop? – Part Deux,” 3/16/23.

Late last night, 4/11/23, I received the following unsigned text message: “Good evening. I am reaching out with respect to the Delgado case and Judge Halpern’s show cause order re:  6637 penalty. In response to your question, no warning re: imposition of the penalty was given by the court, or penalty sought by Chief Counsel.”

I expect my correspondent meant “6673 penalty.” Indeed, Judge Halpern’s OSC (to which a docket search shows Petitioners’ reply was filed yesterday, 4/11/23) refers specifically to Section 6673(a), the general frivolity delay-of-game penalty. I had thought that Rule 33(b) was implicated, but Judge Halpern did not refer to that Rule.

True, no warning is mandated either by statute or reg, but rarely has the chop been administered under either provision without at least an off-the-bench oral warning. Only in cases of well-documented egregious conduct can I recollect an OSC prelude to an immediate chop. I can’t find a more recent example from Judge Halpern than that set forth in my blogpost “A Further Cautionary Tale,” 4/28/14, nine years ago, when he invoked both Section 6673 and Rule 33(b). In that case, the documented misdoings of attorney Mac were well over the mark.

The Dixieland Boondockery epidemic bids fair to eclipse Son-of-Boss and Boss Hossery mass trials of the past. Today Judge David Gustafson is confronted with 50 (count ’em, 50) conservation easement cases, and the valiant attempts of counsel for both sides to try to corral the stampede, in Garden Lakes Estates, LLC, Garden Lakes Estates Holdings, LLC, Tax Matters Partner, Docket No. 3052-21, filed 4/11/23.

“…the parties filed a joint motion for continuance, in which they gave a helpful description of a group of 50 conservation easement cases related to this one and of counsel’s collaboration in recommending an orderly and economical approach to resolving the cases. We appreciate counsel’s work on these cases, and we agree in principle with the proposition that the economies of the parties and the Court would be served by identifying a small number of ‘exemplar’ cases, scheduling them for trial, and receiving in the non-exemplar cases stipulations to be bound by the outcome in an exemplar.” Order, at p. 1.

Maybe this isn’t quite as bad as the asbestos and other mass tort litigations, but clearly 50 trials are a wee bit much. Nevertheless, corraling the stampede requires more than one experienced cowpoke.

“Counsel understand that a single judge who is assigned to an essentially random sample from among the 50 cases (while other cases are assigned to another judge and others are still in the General Docket under the immediate responsibility of the Chief Judge) is not in a position to adopt the parties’ recommendations and assign judges. But their making their proposal in a single case does provide an occasion for one judge to learn more and perhaps to become able to make a recommendation to Court as a whole.” Order, at p. 1.

So Judge Gustafson propounds some seven (count ’em, seven) headings, which counsel should use to direct case management in a status report. Maybe the parties can draw a chart to show issues and features that align or diverge among the cases.

Clearly, this will provide blogfodder well into my twilight years.

Judge Pugh is not describing her yachting holiday where the Trade Winds blow and the Anegada Passage beckons. Rather, this is the story of David W. Tice, 160 T. C. 8, filed 4/10/23, who runs aground among the shoal waters of Section 932, as Congress both dredges and silts the filing requirements for USVI residents who are, or are not, bona fide residents of Our Insolvent Islands in the Sun at the magic date or dates. If bona fide, their filing with VIBIR starts 3SOL for VI and USA; if not, they need to double-file, if have both USVI-connected and US-connected income, at least for years at issue.

Dave is non-bona fide, but claims the cover-over regime adopted for years long post-years-at-issue should apply retroactively to the two (count ’em, two) years at issue.

Judge Pugh trudges through the convoluted history of Tax Court’s Laocöon-like struggles with Section 932(a) and its regulations (or non-regulations). I’ve blogged all this stuff for the last twelve (count ’em, twelve) years, starting with Appleton (“Statute of Limitations – Maybe Not,” 12/28/10), Cooper (“A Virgin State of Mind,” 4/8/15), Sanders, (“How to Be a Virgin,” 7/5/18), and Hulett (“Another Non-Virgin,” 1/30/18).  And I’m not even counting la famille Vento.

If by now your head isn’t spinning enough, Dave argues that the regulation that would save him if made retroactive violates both the APA and the Fifth Amendment.

“And were we to find Treasury’s election parameters arbitrary and capricious, the consequence would be to’hold [that part of the regulation] unlawful and set [it] aside,’ 5 U.S.C. § 706(2), not make it applicable for the years in issue. Although petitioner contends that the consequence of the regulation’s invalidity is that “the[r]egulation applies to [p]etitioner’s taxable years 2002 and 2003, thus making the  [n]otice of [d]eficiency untimely,’ petitioner does not explain how invalidating a regulation not applicable for the years in issue could make it applicable for the years in issue. Nor could we identify any legal basis for in effect rewriting a regulation in this way.” 160 T. C. 8, at p. 12.

Dave loses.

If you’re cruising the Virgins and have income, jump overboard.

That’s what Ch J Kathleen (“TBS = The Big Shillelagh”) Kerrigan decides is what counts when Section 6702(a) frivolity chops are on the menu in Srbislav B. Stanojevich, 160 T. C. 7, filed 4/10/23.

Srbi ‘s 1041’s for his “grantor-type” trust for each of the four (count ’em, four) years at issue reported interest income, but claimed “…federal income tax withheld in an amount equal to the amount of the interest/total taxable income reported on the return, that [trust]’s ‘[t]otal tax’ for the year was zero, and that [trust] was entitled to receive an overpayment equal to the amount of the withheld tax. The returns included as attachments various Forms 1099 that petitioner had prepared and that reported payments to and from [trust]. Some of the Forms 1099 also reported the amounts of withheld federal income tax that the returns reported were withheld federal income tax.” 160 T. C. 7, at p. 3.

Srbi claims the frivolity chops don’t involve him, because the returns weren’t his, but rather the trust’s. Apparently disregarded entity doesn’t play a role, because the statutory language places the burden on the “person files what purports to be a return of a tax imposed by this title,” Section 6702(a). And Reg. Section 1.6012-3(a)(1) requires the fiduciary of a trust to file Form 1041.

Ch J TBS goes through the indicia of frivolity in 160 T. C. 7, at pp. 6-8, and Srbi tags all the bases.

“We now need to determine whether a taxpayer may be assessed a section 6702(a) penalty for filing a frivolous return that is not his personal return. We read section 6702(a) to answer that question in the affirmative. We read nothing in section 6702 that conditions the applicability of section 6702(a) on a person’s filing of his or her personal income tax return. In fact section 6012(b)(4) points to our contrary reading through its mandate that the return of a trust ‘shall be made by the fiduciary thereof,’ or in other words, by its trustee. See also §7701(a)(6) (defining the term ‘fiduciary’ as a ‘trustee . . . or any person acting in any fiduciary capacity for any person’).” 160 T. C. 7, at p. 9.

Judge David Gustafson also displays the human touch in Keith Barclay Nelson & Christine Alicia Kourtides, Docket No. 231439-21L, filed 4/10/23.

“The CDP process is one of the remedies Congress has created to assure that tax collection is reasonable and humane–but in the end,  the IRS is required to collect the taxes that are due. The liabilities at issue in this case arose and should have been paid beginning as early as April 2017–nearly six years ago. Petitioners have enjoyed six years of the IRS’s forbearance, and at some point the IRS must use the means at its disposal (i.e., levy) to collect those taxes.” Order, at p. 3.

But he does suggest that Keith & Christine can try a Rule 161 reconsideration, or try for an IA with IRS. Truly reasonable and humane.

I learn a lot from clients. Many years ago, a client taught me that one’s credibility and trustworthiness can be established simply by showing up when and where you’re expected to be. Being a couple minutes early (hi, Judge Holmes) can often make a difference, in these days of added security.

That obliging jurist, Judge David Gustafson, is clearly a strong adherent of showing up. Here, he tells a representative how to do it, in IE & J Co, CMD, LLC, Docket No. 16245-22-L, filed 4/7/23.

“The Court will hear argument on the cross-motions for summary judgment at or soon after the calendar call of the Court’s upcoming session…. The parties should arrive before 10:00 a.m. and should go to the front of the courtroom and report their presence to the trial clerk stationed there. Petitioner would be well advised to arrive no later than 9:30 a.m.  in order to consult with the volunteers from the Lower [sic] Income Tax Clinic who will be present to advise and consult with self-represented taxpayers. Petitioner should understand that the Court is scheduling this hearing on the motions in order to make available to petitioner this helpful resource.” Order, at p. 3.

I like the idea of a “Lower Income” tax clinic. The Low Income Tax Clinics are for persons of low income, but most people’s income is lower than someone else’s, and the “Lower Income” clinics sure fill a need. I hope the clinic is able to litigate the case, as it is a rarity, a Section 6721 failure-to-file-information returns. I’ve blogged only three (count ’em, three) in the last twelve years.

George Azeh & Daniele Ambatta, Docket No. 1841-22, filed 4/6/23, claimed three (count ’em, three) personal exemptions, one each for George and Danielle, and one for a minor child from George’s previous marriage. George’s other minor child’s exemption belonged to George’s loved-once, per divorce decree.

George lost his previous job, got a new one that didn’t provide health cover, so joined the WI exchange. You can see where this is going.

George seems to have thought that he had a family of four, but he didn’t. The other minor child’s tax incidents go to loved-once. So the $100K 400% of poverty for year at issue for four families shrinks to $83K for threes.

“When determining family size, the size of the family is equal to the number of individuals the taxpayer is permitted to deduct as personal exemptions. § 36B(d)(1).” Transcript, at p. 7.

George’s and Daniele’s MAGI was $91K. Their APTC was $23K. So being $8K over the limit gets them a $23K deficiency. And $23K in insurance premiums is north of 25% of their MAGI.

IRS magnanimously folds the Section 6662 chops.

Judge Christian N. “Speedy” Weiler: “Finally, while we are sympathetic to the arguments made by Mr. Azeh at trial, we are unable to provide equitable relief from this tax deficiency, as we are obligated to apply the law as written by Congress.” Transcript, at pp. 8-9.

“The law as written by Congress” has been the target of enough condemnation from all points of the political spectrum to require no comment from me on this avowedly nonpolitical blog. So, instead of quoting Ebenezer Scrooge (which might be taken as political), I can only once again invoke Charles Dickens’ immortal words from Chapter 10 of Little Dorrit.