I’m more than a little chary of handing out a Taishoff “Good Job” for anything less than a shootdown. Not merely a victory, but a demonstration of skill and thinking outside-the-cliché, is the standard here.

So I’m more than a little puzzled at Judge Alina I. (“AIM”) Marshall’s send-off to Ruby Tang, Docket No. 6020-21S, filed 4/5/23 and IRS’ counsel. Ruby claimed $96K in medicals and $25K on her 1040 for year at issue, for none of which did she adduce any proofs on the trial. IRS counsel did produce Boss Hossery for the $5K Section 6662(b)(1) substantial understatement chop that IRS included in Ruby’s $25K SNOD at no extra charge.

“At trial, Petitioner presented evidence regarding events in the administrative record that took place prior to the issuance of the notice of deficiency, asserting that the lack of audit on a particular date invalidated the notice.  Petitioner did not present evidence or testimony regarding her medical and dental expenses or her charitable contributions.” Transcript, at p. 2.

Needless to say (but I’ll say it anyway), Greenberg’s Express hauls away the past; SNODs get tried de novo. “Although Petitioner seeks to identify missing signatures and irregularities in Respondent’s documents, we generally do not look behind a notice of deficiency to review what occurred during the course of an examination. See Greenberg’s Express, Inc. v. Commissioner, 62 T.C. 324 327 (1974).” Transcript, at pp. 5-6.

Ruby does have an attempted save in the goalmouth.

“Section 7605(B), however, opens a narrow exception to that rule. Section 7605(B) provides that no taxpayer shall be subjected to unnecessary examination or investigations, and only one inspection of a taxpayer’s books of account shall be made for each taxable year unless the taxpayer requests otherwise, or unless the secretary after investigation notifies the taxpayer inviting [sic; “indicating”?] that additional inspection is necessary.

“Petitioner argues that the Internal Revenue Service account transcript for her [year at issue] tax year shows two audits, but it does not. Petitioner identifies the … date on the Form 4549-A report of income tax examination changes, sent with her notice of deficiency and notes that this date differs from the one on the civil penalty approval form that was also sent with Petitioner’s notice of deficiency. These different dates do not indicate that a second audit occurred.” Transcript, at p. 6.

But the transcript here is somewhat less than clear. “We have held that the Commissioner does not conduct a second examination and he does not obtain any new information. Estate of Sower v. Commissioner, 149 T.C. 279 289 (2017). We have also held that there was no second examination when a taxpayer failed to meet his burden, to show that there was a second examination of his books of account when the Commissioner issued a notice from the returns already in his possession. Id.” Transcript, at pp. 6-7.

Judge, I think you meant “We have held that the Commissioner does not conduct a second examination when (not “and”) he does not obtain any new information.” For the Sower story, see my blogpost “A Lot Less Portable,” 9/11/17.

Ruby filed before the April 17 due date for the year-at-issue return, and claims IRS blew the SOL, but SOL doesn’t start running until due date, so SNOD is timely.

Judge AIM’s send-off to the parties is the strangest I’ve yet encountered.

“Ms. Tang, thank you for your work on this case.  And thank you to Mr. [IRS counsel], who is not here. I hope you have a wonderful weekend.” Transcript, at p. 10.

Yeah, I’ll bet Ruby had a fine weekend, having gotten a $30K gazumph off the bench.

Judge Alina I. (“AIM”) Marshall provides the latest entry in my “Play Nice” series. Winona W. Smitherman & Richard E. Smitherman, Docket No. 8552-21, filed 4/4/23, are frivolites of the wages-aren’t-income species. Judge AIM warns Win & Rich at commencement of trial that their pleadings are without merit, and to come up with real arguments.

Win & Rich use the “trade or business includes public office” Section 7701 (a)(26) argument, but “includes” doesn’t exclude everything else.

Judge AIM brandishes the Section 6673 yellow card. But petitioners “were polite and brief at trial, and this is the first time petitioners have advanced such arguments before the court.” Transcript, at p. 10.

But don’t try it again, guys.

I proffer this off-the-bencher as an example of how warning should be given before the Section 6673 chop (or the Rule 33(b)) variety) is imposed.

I’ve chronicled any number of petitioners who come seriously unglued when Reg. Section 1.274-5T strict substantiation tags out their car and truck expenses, whether as the now-sequestered unreimbursed employee business expense deduction or expenses for production of income. CSTJ Lewis (“The Name Alone Suffices”) Carluzzo says “mox nix, year-at-issue is pre-TCJA, treat both the same” so Noah Schmerling and Susana Schmerling, T. C. Sum. Op. 2023-14, filed 4/4/23, get $12K of travel expenses using the BMW X3 he leased from his boss allowed.

“Petitioners prepared a noncontemporaneous mileage log showing petitioner’s use of his leased BMW X3 during [year at issue]. Petitioners’ mileage log does not show a beginning destination, nor does it state the business purpose of the use of the automobile, as required under Temporary Treasury Regulation § 1.274-5T(b)(6). Nonetheless, petitioners’ mileage log substantially complies with the ‘adequate records’ requirement of the regulations; to the extent their log is deficient, they have provided corroborative evidence sufficient to establish the required elements. See Treas. Reg. § 1.274-5(c)(2)(iii); Temp. Treas. Reg. § 1.274-5T(c)(2).

“We have reviewed the evidence and compared the mileage log with [Boss’] commission list records and petitioners’ credit card and bank statements. Taking into account petitioner’s personal use of the BMW X3 and the extent to which petitioners have properly substantiated expenses for travel, car and truck, and rent or lease of other business property, we find that petitioners are entitled to deduct $12,000 attributable to actual expenses.” T. C. Sum. Op. 2023-14, at p. 9.

Noah is sales manager for a BMW dealership. He gives “tips” to certain fellow employees, and auctioneers at used car auctions, whereat Noah buys vehicles for his boss to offload, and some of those are ordinary and necessary enough to be allowed as deductions. Noah also gets bonuses directly from BMW and commissions for the sale of extended warranties from an entity unrelated to his boss the dealership. No one claims Noah is an employee of either, but the income is inseparable from his work as sales manager at the dealership, so no Schedule C treatment for Noah.

I don’t know if CSTJ Lew would buy a used car from Noah, but he sure bought Noah’s mileage log.

Two Sum. Op.s from the NY Duo of STJs Diana L. (“Sidewalks of New York”) Leyden and STJ Eunkyong (“N’Yawk”) Choi today.

Magdy A. Ghaly and Laila Ryad, T. C. Sum. Op[. 13, filed 4/3/23. Magdy lost his job, drew down  from his “retirement company” (IRA? 401(k)?) and defaulted on a loan therefrom. He started new accounts two years later, to try to replenish what he had taken. Of course, he neither reported nor paid tax on what he had taken out. And was under 59-1/2 when he took it out. IRS drops the chops. Of course, Magdy has to pay the tax and interest.

Robert L. Drocella and Pamela M. Drocella, T. C. Sum. Op. 2023-12, filed 4/3/23. Rob and Pam, both full-time employees, claim real estate pro status on their six real estate rentals. Rob and Pam never establish what hours they worked as employees, but did have logs of time worked on the real estate. IRS stips to the logs, but not the truth or otherwise thereof. The logs show Rob meets the 750 hour test, but Pam does not. Even so, in the absence of proof of what hours each spent in their day jobs, they can’t pass the Section 469(c)(7)(b)(i) test: more than one-half of the personal services performed in trades and businesses by the taxpayer during such taxable year are performed in real property trades or businesses in which the taxpayer materially participates. No proof the hours Rob spent on the day job were less than those he spent on the real estate. Takeaway- The 750 hours aren’t enough. Hours spent on real estate must be greater than half of all the personal services you provide.

No, this is not another casualty loss case, nor yet another Dixieland boondockery. Here, Whistleblower 9252-18W, T. C. Memo. 2023-45, filed 4/3/23, claims Tax Court gets jurisdiction because he filed his 200 (count ’em, 200) Forms 211 after 12/20/2006, when the current sliding scale for remuneration for blowers came into effect.

9252-18W had filed the same stuff before with CID as an informant, and entered into a CIRA (Confidential Informant Reward Agreement) that expressly precluded 9252-18W from making any Whistleblower filing. But Judge Albert G (“Scholar Al”) Lauber doesn’t let that deter him.

CID dropped their investigation, having collected nothing, whereupon 9252-18W sued on the CIRA in USCFC and got tossed after six (count ’em, six) years of litigation. 9252-18W doesn’t let any of that deter him either; he then files his 200 Forms 211 under the current Section 7623, which of course get tossed by the Ogden Sunseteers with the usual “speculative and/or did not provide specific or credible information regarding tax underpayments or violations of internal revenue laws.”

9252-18W claims Tax Court has jurisdiction under the amended Section 7623 because they looked at his pre-12/20/2006 information after that date. “Petitioner contends, in other words, that our jurisdiction depends, not on when he supplied information to the IRS, but on when the IRS used that information, e.g., by commencing an investigation.” T. C. Memo. 45, at p. 5.

As Whistleblower information submitted pre-12/20/2006 was subject to complete IRS discretion as to amount of reward, 9252-18W would be out. But he submitted nothing new. And caselaw prohibits trying to slide old information in to get jurisdiction.

Finally, the classifier (IRS subject-matter reviewer) rejected 9252-18W’s stuff.

No dough, no go.

Judge Scholar Al calls in Mandy Mobley Li, Ogden’s closer. “In any event, assuming arguendo that petitioner supplied a scintilla of new information after the statute’s effective date, we lack jurisdiction because the IRS took no action with respect to his claims. This case, like whistleblower award cases generally, is appealable to the U.S. Court of Appeals for the D.C. Circuit. See § 7482(b)(1) (penultimate sentence); Kasper v. Commissioner, 150 T.C. 8, 11 n.1 (2018). That court held in Li v. Commissioner, 22 F.4th 1014, that we lack jurisdiction to review cases (like this one) where the IRS has issued a threshold rejection of a whistleblower’s claim.” T. C. Memo. 2023-45, at p. 6.

No, Not Non-Assessable

Alon Farhy,  160 T. C. 6, filed 4/3/23 owes the $10K per annum chop for willful nonfiling of Form 5471 Information Return of U.S. Persons With Respect to Certain Foreign Corporations per Section 6038(b)(1), and $50K in continuations per Section 6038(b)(2) for the eight (count ’em, eight) years at issue. And Alon timely went to Appeals when he got the Letter 1153 NITL, and timely petitioned the NOD sustaining the levy. IRS Boss Hossed appropriately.

But ex-Ch J L Paige (“Iron Fist”) Marvel finds a wee problem, namely, viz., and to wit: IRS has no statutory authority to collect. IRS says these chops are assessable penalties, meaning they can enter them on their books per Section 6201 as a prelude to collection without the need for Section 6213 SNOD procedures, and collect as if they were taxes. But the statute doesn’t say that.

“Congress has explicitly authorized assessment with respect to myriad penalty provisions in the Code, but not for section 6038(b) penalties. Section 6671(a) provides that the numerous penalties found in subchapter B of chapter 68 of subtitle F (i.e., in sections 6671–6725) ‘shall be assessed and collected in the same manner as taxes,’ subjecting those penalties to the Secretary’s assessment authority under section 6201. Section 6665(a)(1) contains a similar statement that the additions to tax, additional amounts, and penalties provided in chapter 68 of subtitle F (i.e., in sections 6651–6751) “shall be assessed, collected, and paid in the same manner as taxes.’ Code sections outside of chapter 68 of subtitle F whose violations the Code specifically penalizes commonly  (1) contain their own express provision specifying the treatment of penalties or other amounts as a tax or an assessable penalty for purposes of assessment and collection, see, e.g., §§ 527(j)(1), 856(g)(5)(C),  857(f)(2)(A), 4980H(d)(1), 5000A(g)(1), 5114(c)(3), 5684(b), 5761(e),  9707(f); (2) contain a cross-reference to a provision within chapter 68 of subtitle F providing a penalty for their violation, see, e.g., §§ 1275(c)(4), 6033(o), 6043(d), 6046(f), 6046A(e), 6420(i)(2), 6421(j)(1), 6427(p)(1), 7501(b); or (3) are expressly covered by a penalty provision within chapter 68 of subtitle F, see, e.g., §§ 6652(c), 6674, 6675, 6677, 6679,  6685, 6686, 6688, 6689, 6690, 6692, 6693, 6695, 6698, 6699, 6704, 6705,  6706, 6707, 6707A, 6708, 6709(c), 6710, 6712, 6714, 6717, 6718, 6719, 6720. In contrast, section 6038 contains only a cross-reference to a criminal penalty provision, section 7203. § 6038(f)(1).

“Furthermore, 28 U.S.C. § 2461(a) expressly provides that ‘[w]henever a civil fine, penalty or pecuniary forfeiture is prescribed for the violation of an Act of Congress without specifying the mode of recovery or enforcement thereof, it may be recovered in a civil action.” 160 T. C. 6, at p. 7.

Ex-Ch J Iron Fist is “loath to disturb this well-established statutory framework by inferring the power to administratively assess and collect the section 6038(b) penalties when Congress did not see fit to grant that power to the Secretary of the Treasury expressly as it did for other penalties in the Code.” 160 T. C. 6, at p. 8.

So Janet Yellen will have to get Merrick Garland’s guys to sue, and in the meantime get Congress to amend Section 6038 (best of luck with that one).

A Taishoff “Good Job, First Class,” goes to Alon’s trusty attorney Edward M. Robbins, Jr.

All y’all will recall that Tax Court adopted ex-Ch  Maurice B (“Mighty Mo”) Foley’s amendments to the Tax Court Rules of Practice and Procedure, effective 3/20/23. Current Ch J Kathleen (“TBS = The Big Shillelagh”) Kerrigan did not state, however, whether any or all of the amendments will be applied retroactively.

If I may make a modest suggestion, I propose that Rule 20(c) be given retroactive application. I have often commented in this my blog that the former Ownership Disclosure Statement Form 6 was a reef whereon many a small corporation, represented only by an unsophisticated officer, foundered, with the loss of what may have been a meritorious claim.

Not only is the newly adopted Rule 20(c) an immense literary improvement on its prolix predecessor, but the new Form 6 Corporate Ownership Disclosure is simpler and more readily understandable.

Hence I most respectfully urge reconsideration of STJ Adam B (“Sport”) Landy’s decision in Lil Orbits, Inc., Docket No. 12654-20SL, filed 3/31/30. In November, 2020, Lil Orbits was ordered to file the old Form 6 by February, 2021. Though Lil Orbits didn’t, they and IRS filed a stipulated decision in January of this year.  Whereupon STJ Sport Landy ordered Lil Orbits to show cause why they shouldn’t be tossed for nonfiling by March 17 of this year. The old Form 6 was attached both to the November, 2020, order, and the January OSC.

Taishoff says given that the new Rules came into effect a scant three (count ’em, three) days after Lil Orbits’ reply was due, and given that there were no adverse public comments on the proposed revision to Rule 20(c) and the adoption of the new Form 6, and given that there was no conceivable prejudice to IRS or anyone else in giving Lil Orbits a shot at filing the newly-adopted Form 6, and given the announced policy of the Supremes “to bring some discipline to use of the jurisdictional label” (Boechler) by requiring explicit Congressional establishment of jurisdictional barriers, and given that Section 7453 establishes no such barrier, why not let Lil Orbits file the new Form 6, and enter the stiped decision? As ex-Ch J Mighty Mo said in his commentary. “The proposed amendment is intended to eliminate unnecessary burdens on the parties and on the Court….”

Remedial amendments and enactments should be given broad application and retroactive effect.

Too much of a good thing is bad. That’s the lesson Judge Travis A. (“Tag”) Greaves has for IRS in Ivey Branch Holdings, LLC, Ivey Branch Investors, LLC, Tax Matters Partner, Docket No. 19189-19, filed 3/30/23. IRS files for summary J twice, and comes up empty.

Need I say this is another Dixieland boondockery? Guess not.

IRS wants summary J tossing the Iveys for want of compliance with the improvements-in requirements of Reg. Section 1.170A-14(g)(6). This they don’t get because of the Hewitt-Oakbrook jumpball: did 11 Cir invalidate the Reg entirely, or only so much as pertained to condemnation awards for post-donation improvements going to donor-grantor?

“In Oakbrook Land Holdings, LLC v. Commissioner, 154 T.C. 180 (2020), and Hewitt v. Commissioner, T.C. Memo. 2020-89, this Court upheld and applied Treasury Regulation § 1.170A-14(g)(6). However, the U.S. Court of Appeals for the Eleventh Circuit, in which venue would lie for an appeal in this case, reversed Hewitt and held that ‘the Commissioner’s interpretation of § 1.170A-14(g)(6)(ii), to disallow the subtraction of the value of post-donation improvements … is arbitrary and capricious and therefore invalid under the APA’s procedural requirements.” Hewitt v. Commissioner, 21 F.4th 1336 (11th Cir. 2021), rev’g and remanding T.C. Memo. 2020-89. A few months after the Eleventh Circuit’s reversal in Hewitt, the Court of Appeals for the Sixth Circuit affirmed the Tax Court’s view of the regulation in Oakbrook Land Holdings, LLC v. Commissioner, 28 F.4th 700 (6th Cir. 2022), aff’g 154 T.C. 180, 189-200 (2020), causing a “split” in the Circuits. Petitioner in Oakbrook filed a petition for writ of certiorari with the Supreme Court, which the Supreme Court denied on January 9, 2023. No. 22-323, 2023 WL 124412 (Jan. 9, 2023).

“In light of the Supreme Court’s denial of certiorari, we will follow Eleventh Circuit precedent with respect to the issue of the validity of Treasury Regulation § 1.170A-14(g)(6). See Golsen v. Commissioner, 54 T.C. 742, 756–57 (1970), aff’d, 445 F.2d 985 (10th Cir. 1971). Accordingly, respondent is not entitled to judgment as a matter of law based on his interpretation of § 1.170A-14(g)(6)(ii), i.e., prohibiting the subtraction of the value of post-donation improvements to the property on which a conservation easement exists from the proceeds in the event of judicial extinguishment. See Hewitt 21 F.4th at 1339.” Order, at pp. 7-8.

IRS also wanted summary J because the Iveys deed wants prior claims satisfied out of condemnation proceeds, but that founders on the same Hewitt-Oakbrook reef.

The Iveys reserved the right to build one structure within a defined two-acre piece of the property. IRS claims this doesn’t protect the property in perpetuity (see Section 170(h)(5)()A)), as these are “moveable rights.” Except Judge Tag Traves says the Iveys get only one shot at doing this, and if the donee 501(c)(3) shoots it down, they’re done. And IRS’ argument over forestry rights also fails, as there is enough protection provided by donee and State authorities.

Of course, IRS can try all this again at trial and in post-trial briefing.

In the second summary J motion, IRS sought gross valuation misstatement and reportable transaction underpayment chops if the Court invalidated the deductibility of the easement. But since they don’t get summary J on the first motion, they lose this one, but can try again.

Taishoff says this points up the need for the same kind of limitations our New York Civil Practice Law and Rules imposes on summary J motions. This salami-slice tactic is a waste of resources. I’m a great fan of summary J, as I’ve often said, but one size should fit all, and only come after discovery is complete. Ch J Kathleen (“TBS = The Big Shillelagh”) Kerrigan, respectfully submitted.

Judge David Gustafson is up against The System, namely DAWSON, the new, improved (???), jim-handy electronic Czar of The Glasshouse That Vic Lundy Built. And he’s got thirteen (count ’em, thirteen) syndicated conservation easement cases lined up and waiting to do their “pretrial activity.”

The captions for Judge Gustafson’s order take up more than four pages of this six page order, so I’ll just cite to the first in numerical order of docket entry, Walker Drive Development Partners LLC, Walker Drive Manager, LLC, Tax Matters Partner, Docket No. 10748-20, filed 3/30/23.

There are enough differences among the properties and personnel involved to prevent consolidation for briefing and trial. But Judge Gustafson thinks that consolidating the cases for pretrial activity (I suppose that includes but is not limited to discovery, pretrial motions, and scheduling thereof) would be orderly.

The reason for the headline first written at the head hereof (as my looking-forward-to-the-two-Martini-lunch colleagues would say) is designating the place for trial.

“Atlanta is the requested place of trial for a five-case plurality of the thirteen cases, with Knoxville requested for three, Jacksonville for two, and one each for Birmingham, Nashville, and Tampa. Under the current configuration of the Court’s  “Dawson” case management program, cases with different requested places of trial cannot be consolidated. We will therefore make a nominal change to the requested places of trial so that all are designated for Atlanta. This change does not reflect an actual decision to try the cases in any particular location. When it is time to set the cases for trial, the Court will entertain a motion to change the place for trial.” Order, at p. 5.

Note that a principal difference between these cases is that different appraisers were used in some, although in all, counsel are the same, the properties are all in the same county, the pre-contribution highest-and-best-use is the same, “etc.” Order, at p. 5.

This situation calls for a Zoomietrial of whatever cases can be consolidated for trial and briefing. Have Zoomietrials been so flawed that only in-person trials will do? I’ve yet to see a Zoomietried decision being tossed on grounds other than those which would invalidate the decision in an in-person trial.

Kenneth S. Ingber & Karol H. Ingber, Docket No. 20904-22L, filed 3/29/23 (last Palindrome Day this year) had me scratching my head. Judge Mark V Holmes was waking the echoes of my blogpost “Without Prejudice?” 7/20/16.

Ken & Karol want to dismiss their petition from a NOD, and IRS says OK.

Judge Holmes dismisses, but states “without prejudice.”

As I said in my above-cited blogpost “If in fact there was jurisdiction based on a timely petition at that time, and if the one-hearing-per-tax-year rules of Section 6330(c)(4)(A) apply, then any new petition…must be time-barred, no?”

Well, yes and no.

Yes, Ken & Karol can’t go back to Tax Court; even with post-Boechler equitable tolling, they only get one hearing per tax year.

But perhaps like Richard T. Wagner and Margie Wagner, 118 T. C. 330, filed 4/15/2002, the lead case on motions for dismissal from lien/levy cases, they don’t want to be in Tax Court. The late Judge Laro dismissed Richard’s and Margie’s petition without prejudice to their right to go to USDC to fight over their NOL carryforward.

As Ken & Karol are represented by counsel, I must conclude there is a strategic retreat here.

So dismissal of a lien/levy petition is without prejudice both to petitioner and IRS. Judge Laro noted in Wagner that FRCP 41(a)(2) allowed dismissal unless there was prejudice (other than the prospect of another proceeding) to the other side (IRS); here, there isn’t. IRS can proceed with collection as soon as the petition is dismissed, unless Ken & Karol post bond or pay up and seek refund in USDC. And no prejudice to petitioner going to try their luck there; no issue or claim preclusion from Tax Court.

Takeaway- After 56 (count ’em, 56, and I have) years of practicing law, I should know by now that you have to read the cases.