The late Scott Hoensheid did make a charitable gift to Fidelity Charitable Gift Fund, a donor-directed 501(c)(3). And if a gift is made without expectation of tangible reward, out of disinterested love and affection, then the late Scott’s gift of $3.5 million worth of his family’s closely-held corporate stock was certainly a gift. Scott got absolutely nothing for it, except a major capital gains hit. He got no charitable deduction. He did duck the enhanced Section 6662(a) understatement chop via his trusty tax attorney.

Judge Nega tells why trying to time your gift to the minute before the stock sale becomes subject to a definite agreement doesn’t work. The case is Estate of Scott M. Hoensheid, Deceased, Anne M.  Hoensheid, Personal Representative, and Anne M. Hoensheid, T. C. Memo. 2023-34, filed 5/15/23.

Before he became the late Scott, he was afraid that if he made the gift of stock to Fidelity and the deal to sell the family business cratered, his brothers would have more stock than he. Scott and siblings apparently didn’t make the Psalm 113, verse 1 cut. So Scott said he didn’t want the gift to go final “until we are 99% sure we are closing.” T. C. Memo. 2023-34, at p. 5.

After negotiations for sale of the corporate stock are virtually completed,  massive change-of-control bonuses are paid out, and the corp stripped of whatever cash it had thereafter, Scott’s backdated gift was made and the deal closed.

Judge Nega deconstructs. Scott’s trial testimony is less than stellar. The piece of paper from Fidelity that was later corrected never makes it into evidence, drawing a negative inference that the gift was accepted when it had to be for tax purposes. There’s endless “intercourse” between Scott, his trusty tax attorney, and his financial adviser, which all gets into the record. Oh, those e-mails!

Scott decided to save money by having his financial adviser do the appraisal of the stock, notwithstanding his trusty tax attorney suggested using a major accounting firm with creds, although said adviser’s appraisal qualifications were submarginal.

Taishoff says when there’s big bucks on the line, don’t get silly about fees.

This is an assignment of income case. Fidelity’s standard policy was to sell closely-held stock as soon as it got any, although it wasn’t obligated to do so. So IRS claims what really happened was that Fidelity was Scott’s agent, unloading the stock to the buyer of the business. See my blogpost “Cosi Fan Tutti,” 9/3/20.

Judge Nega trudges through MI law as to what constitutes a gift. There’s a gift here, but it was completed when the sale was a 99% certainty.

So assignment of income. But a fallback is that, if there was a taxable assignment of income but a real gift, shouldn’t there be a charitable deduction? Yes, if the appraisal is good. Here it isn’t, because of the unqualified appraiser; substantial compliance can’t cure a dud appraisal. And Scott’s good faith reliance is lacking, as he ignored the suggestion to get a qualified appraiser.

But Scott’s trusty tax attorney saves him from IRS’ enhanced chop. IRS has burden of proof when its amended answer increases the chop sought.

Takeaway- Maybe it’s better to trust your brothers than to trust to luck.

No, not the 1949 English crime film, nor the 1979 Little River Band’s number, nor even Sir Paul McCartney’s upcoming post-Beatles retrospective. This is the story of Thomas LaRonn Mitchell, T.C. Sum. Op. 2023-9, filed 3/14/23.

Tom LaRonn “… was employed by Dallas Independent School District (DISD) and Liberty Mutual Group, Inc. (Liberty), as a school counselor and an insurance salesman, respectively. He worked a 40-hour week between those two jobs. He also performed ‘business consultant’ activities that he reported on Schedule C attached to his [year at issue] Form 1040, U.S. Individual Income Tax Return. Mr. Mitchell described his ‘business consultant’ activities as ‘artist development,’ ‘studio production consultation,’ ‘performance consultation,’ and ‘business consultation’ in connection with managing gospel and R&B artists. Mr. Mitchell did not report any income from his Schedule C business for the year in issue.” T. C. Sum. Op. 2023-9, at p. 2.

But Tom LaRonn had business expenses from the Sched C  that threw him for a $49K loss, wiping out his taxable income from his counseling-insurance selling gigs.

STJ Adam B (“Sport”) Landy drew this case, and Tom LaRonn’s $22K of vehicle expenses took center stage. Tom proffered a logbook showing “… a beginning odometer reading on January 1, 2018, of 50,000 miles and an ending odometer reading of 132,205 miles on August 1, 2018. Mr. Mitchell claimed that all miles listed were driven for business purposes.” T.C. Sum. Op. 2023-9, at p. 4

“To discredit the mileage log and refute the starting mileage of 50,000, respondent offered copies of Mr. Mitchell’s Texas vehicle inspection reports dated October 20, 2017, and November 15, 2018, providing the odometer readings for his vehicle of 182,291 and 204,107, respectively. According to the inspection reports between October 20, 2017, and November 15, 2018, 21,816 miles were driven on the vehicle, far less than the driven miles shown on the mileage log. Mr. Mitchell failed to explain or refute the inconsistencies.” T. C. Sum. Op. 2023-9, at p. 5.

Tom LaRonn also had receipts for travel expenses. They only made matters worse.

“Additionally, there were inconsistencies between the mileage log and the hotel receipts Mr. Mitchell provided. One receipt stated that Mr.  Mitchell stayed in Houston, Texas, on June 15, 2018, but the mileage log showed that he was in Charlotte, North Carolina, from June 15 through 20, 2018. Similarly, Mr. Mitchell provided another receipt showing that he stayed in Miami, Florida, on July 10, 2018, but the mileage log showed that he was in Dallas, Texas, from July 8 through 15, 2018. Mr. Mitchell claimed that the discrepancies were due to his artist-clients driving his vehicle for business purposes even though he was not present in the vehicle. We are not bound to accept a taxpayer’s self-serving, unverified, and undocumented testimony. Mr. Mitchell’s testimony is not credible, and the Court finds that no mileage was incurred for a business purpose.” T. C. Sum. Op. 9, at p. 5. (Citations omitted).

Takeaway- If you’re going to be on the run, make sure your paperwork runs with you.

Taken to Canada as a lad of ten years, naturalized as a Canadian, and not divested of his natural-born US citizenship until fifty-six (count ’em, fifty-six) years later, successful stockbroker and investor George B. Dengin, T. C. Memo. 2023-31, filed 3/14/23, finds the price of his relinquished citizenship to be very high.

GB was beneficiary of three (count ’em, three) Canadian RRSPs, the north-border equivalent of an IRA. Like US IRAs, Canada only taxes distributions from RRSPs, not accumulations within; but US taxes RRSP accumulations in the years they take place, even if the beneficiary cannot or does not draw them down. There is, of course, a treaty, and IRS promulgated various Rev. Proc.s to help out people like GB, who never filed US income tax returns until IRS audited him. The treaty and Rev. Proc.s let a Canadian elect to have his RRSPs taxed for US purposes at distribution.

Although Judge Ronald L. (“Ingenuity”) Buch doesn’t so state, the audit probably resulted from GB’s relinquishment and the Section 877A expatriation tax.

GB filed a bunch returns late. IRS says that’s insufficient as untimely, but Judge Buch reads Rev. Proc. 2014-55 to omit the requirement that the returns be timely, as its predecessors required. So GB’s belated returns are sufficient.

Next, GB claimed substantial compliance. He did substantially comply for two RRSPs, filing for every year he had them, but not for the last. The last goes back years before GB ever filed.

I’m not sure of my arithmetic, but it looks like GB’s US citizenship, of which he was unaware for fifty-six years, will cost him around $9 million in deficiency and add-ons.

USA is the land of the free, but citizenship sure isn’t.

Judge James S (“Big Jim”) Halpern is a stickler for the Rules, and I don’t fault that. But I wonder today that he might have been too quick to give an OSC to the trusty attorney for Alberto Delgado and Virginia Delgado, T.C. Sum. Op. 2023-8, filed 3/13/23, why he shouldn’t get the Section 6673 chop.

True, Alberto’s unreported income came from the same source as his reported income, so any Section 6201 claim about the 1099-MISC fails. Both Alberto and IRS got confused about what Alberto reported, $49K or zero, but at close of play the parties agree on $25K, apparently an employment discrimination recovery net of legal fees (this is pre-TCJA, so deductions for production of income are still on the table).

Alberto’s trusty attorney argues defective SNOD, but that fails. IRS complied with Section 7522(a): basis for deficiency, year, amount(s) of tax, interest, add-ons, and chops. Even if they didn’t comply, it’s good enough. Judge Big Jim says the concept of what it takes to notify a taxpayer of a deficiency is “evolving.” T. C. Sum. Op. 8, at p. 9. Judge Big Jim goes into the evolutionary process. I’m still confused.

Apparently there was some epistolary volleying between Alberto and IRS. Judge Big Jim finds Alberto’s (and maybe trusty attorney’s) reluctance to put this “intercourse” into the record shows nefarious intent. I’m not so sure, but I didn’t see the parties.

“Petitioners have no arguments on the merits to respondent’s adjustments resulting in a deficiency in income tax. Their grounds for this lawsuit are process related, and we have rejected all of those grounds. The course of respondent’s determination of a deficiency in petitioners’ … income tax is fairly clear. There is, however, one opaque chapter, i.e., petitioners’ intercourse with respondent in response to the May CP 2000 Notice. Petitioners have not volunteered that information, and they have objected to respondent’s attempts to inform us. Petitioners’ response to the May CP 2000 Notice may well have resolved the confusion resulting from the improbable statement both in the December CP 2000 Notice and in the Statutory Notice that petitioners had reported $49,062 on the … Return. Petitioners’ failure to be forthright and their lack of arguments on the merits lead us to suspect that perhaps they have little or no reason for bringing this lawsuit other than to delay collection of a tax rightfully owing.” T. C. Sum. Op. 8, at pp. 15-16.

Judge, I thought deficiency cases were de novo. What happened at exam is not even prologue. Greenberg’s Express sums it up. If Alberto’s (and trusty attorney’s) arguments are spider-web thin, they aren’t frivolous. And IRS didn’t exactly cover itself with glory here either. It takes two to have “intercourse;”  IRS could have put in the writings, if relevant.

So why the OSC  for the chop? Besides the lack of “intercourse”?

Unlike O. Henry’s 1903 short story that became the Broadway classic, the reformation here wasn’t the result of a judicial proceeding commenced within 90 (count ’em, 90) days after the due date of the estate tax return, so the attempted reformation of the Katz Trust, a subtrust of the late Susan R. Block’s own revocable trust, costs the late Susan’s estate the charitable deduction for the remainder of the Katz Trust. The case is Estate of Susan R. Block, Deceased, Julie B. Saffir and Peter A. Block, Executors, T. C. Memo. 2023-30, filed 3/13/23.

The late Susan, before she became the late Susan, wanted to provide for her sister and sister’s spouse, so she put $761K in the Katz Trust. Sister, and sister’s spouse if he survived sister, was to get the greater of all net income or $50K annually, remainder to a 501(c)(3). The co-trustees of the Katz Trust, who were also the late Susan’s co-ex’rs, had power to amend the Katz Trust to maintain compliance with Section 664(d)(1) and Rev. Proc. 2003-57.

And they did amend to reform, but only after IRS was auditing the estate tax return. And more than a year after the estate tax return was due. And they never started a judicial proceeding.

Problem: Section 2055(e)(2)(A) requires the income beneficiaries to get annual distributions of a fixed dollar amount or fixed percentage of net asset value, and Katz Trust did neither. Prior to enactment of Section 2055, settlors and income beneficiaries were playing games, by whacking up income distributions so as to shortchange charitable remainderguys after claiming big charitable deductions based upon cooked numbers. So whether the reformation might be made pursuant to State law (CT) is irrelevant.

Judge Elizabeth A. (“Tex”) Copeland finds substantial compliance doesn’t rescue the Katz Trust.

“Petitioners ask us to deem the Estate to have substantially complied with the exception. We decline to do so. As we have previously observed, Congress made clear that the rules for qualified reformations are to be construed strictly, in order to prevent abuse of the charitable deduction. Specifically, Congress was concerned that if the reformation regime were overly lenient, taxpayers would not reform trusts to comply with the split-interest rules unless and until the IRS discovered defects upon audit.” T. C. Memo. 2023-30, at p. 8. (Citation omitted).

I don’t mean to suggest that the ex’rs here, or their trusty attorney, were playing games, although this error was expensive.

I would suggest to my estate planning brethren and sistern that the kind of free-riding the statute means to prevent is a dangerous game. If you’re reforming a CRAT, make it a proper reformation.

No, this is not the story of a yuppie romance. It’s the apparently ongoing saga of Dennis Lee Simpson, Docket No. 17771-21, filed 3/10/21. Scarcely two weeks ago, I chronicled Dennis’ monumental requests for admissions; see my blogpost “Inadmissible Admissions,” 2/27/23.

Nowise daunted, Dennis now seeks “(A)ll and complete copies of IRS files and responses from the Jeff/Lori Hoyal IRS tax audit, the Crater Lake Trust IRS tax audit, and the Noel M. Parducci/Kenneth L. Parducci IRS tax audit.” Order, at p. 1.

Dennis is conjoined for briefing, trial, and opinion with the Hoyals, the Parduccis, and the Crater Lake Trust. So once again Judge Ronald L. (“Ingenuity”) Buch is called upon to exercise his considerable talent for devising ingenious solutions.

“Mr. Simpson’s request is facially overbroad, in that it has the potential to yield information that is wholly unrelated to the matters at issue in this proceeding. But his request also runs afoul of section 6103’s general prohibition on the disclosure of returns or return information by government employees. There are several exceptions to this general rule, and a limited exception is applicable here. Section 6103(h)(4) allows some disclosures in administrative or judicial proceedings. One such disclosure that is permitted is ‘if such return or return information directly relates to a transactional relationship between a person who is a party to the proceeding and the taxpayer which directly affects the resolution of an issue in the proceeding.’ To the extent Mr. Simpson’s request seeks information regarding transactions between and among parties to these cases, we will grant his motion.” Order, at p. 1.

IRS is down with this, and says it can have the stuff for Dennis by month’s end.

“We will enforce that deadline,” says Judge Buch.

The Great Chieftain of The Jersey Boys furnishes me with the latest addition to my “Stealth” collection in Techtron Holding, Inc., T. C. Memo. 2023-29, filed 3/9/22. Judge Vasquez has to decide whether to toss the petition for want of jurisdiction (IRS’ pursuit of Techtron Holding’s successor-by-merger for deficiency and Section 6663 fraud chops goes on), or invalid SNOD (case goes away as SOL runs).

TH merged into its wholly-owned sub, which in turn merged into a BVI Corp. The Jersey Boys and its predecessor firm represented the whole shebang pre-and-post merger. While BVI claimed to take on all of predecessor’s tax liabilities as transferee, IRS says that’s not the same as being fiduciary. BVI claims it is, but neither files notice per Section 6903, and doesn’t undertake to ratify petition prontito. Transferee’s liability extends only to what transferee got from transferor per Section 6901, which may be less than what transferor owes IRS, hence BVI’s reticence to go all-in.

The SNOD was sent to TH at last known address, even though it had previously ceased to exist per local (DE) law. Section 6212(b) says this is OK, absent notice of a fiduciary relationship.

“Although [BVI]’s Form 2045 references the ‘tax liabilities of [petitioner] for 12-31-2000,’ it does not state that [BVI] is acting for petitioner in a fiduciary capacity. Instead it identifies [BVI] as the “Transferee’ of certain assets from Techtron, petitioner’s initial corporate successor. The terms  ‘transferee’ and ‘fiduciary’ are distinct terms under the Code and applicable regulations. Compare § 6901(h) (defining ‘transferee’ to include a ‘donee, heir, legatee, devisee, and distributee’), and Treas. Reg. § 301.6901-1(b) (expanding the definition of ‘transferee’ to include a ‘distributee of an estate of a deceased person, the shareholder of a dissolved corporation, the assignee or donee of an insolvent person, the successor of a corporation, a party to a reorganization as defined in section 368, and all other classes of distributees’), with § 7701(a)(6) (defining ‘fiduciary’ to mean ‘a guardian, trustee, executor, administrator, receiver, conservator, or any person acting in any fiduciary capacity for any person’). Thus, [BVI]’s identifying itself as a ‘transferee’ did not serve as notice to respondent that it was ‘acting for another person in a fiduciary capacity.’ See § 6903(a); see also §§ 6901(h), 7701(a)(6); Treas. Reg. § 301.6901-1(b).” T. C. Memo. 2023-29, at pp. 11-12.

Rule 63 doesn’t help BVI sub in for TH; TH never properly petitioned, as it had ceased to exist by DE law when it was merged. True, Rule 60 allows for timely ratification by proper party seeking to amend caption and join case, but BVI said it wasn’t going to do that until validity of the SNOD was determined. That’s not enough for Judge Vasquez, who wants a clear indication BVI would ratify without delay.

Taishoff says “The Rule says ‘a reasonable time’ must be allowed. Is The Great Chieftain being cute? Or is his objection reasonable? Worth an appeal?”

But at close of play, TH is out as nonexistent, and BVI is timed out.

However, all is not lost. “Dismissal of this case for lack of jurisdiction does not constitute a decision that petitioner is liable for the determined deficiency.” T. C. Memo. 2023-29, at p. 15, footnote 15. (Citations omitted).

Edited to add, 3/9/23: How could I have omitted a Taishoff “Good Try, First Class” for the transferee-fiduciary gambit, and the Rule 60-63 Shuffle? The Great Chieftain is always trying.

Ex-Ch J L Paige (“Iron Fist”) Marvel rules it’s too soon to decide whether Cindat Manhattan Hotel Portfolio LLC, Docket No. 12905-20, filed 3/8/23, can withdraw its Rule 90(f) deemed admissions, or whether Cindat can withdraw its Rule 37(c) deemed admissions at all.

As to the Rule 90(f) admissions, the bulk of those from which Cindat is seeking to bail, Cindat is light with facts to show that “the presentation of the merits of the case will be subserved thereby, and the party who obtained the admission fails to satisfy the Court that the withdrawal or modification will prejudice such party in prosecuting such party’s case or defense on the merits.” Order, at p. 2. That Cindat has a newly-retained attorney, and that discovery might help, doesn’t answer. Neither does substituting bookkeeping entries for corroborative proof.

As to the Rule 37(c) deemed admissions, while caselaw says the same considerations apply as with Rule 90(f) withdrawals, there is no explicit out in Rule 37(c) as there is in Rule 90(f). Ex-Ch J Iron Fist needn’t go there either now.

“Nonetheless, we think it is appropriate to deny petitioner’s Motion with respect to its deemed Rule 37(c) deemed admissions without prejudice for the same reasons that we deny petitioner’s Motion with respect to its Rule 90(c) deemed admissions without prejudice. We caution petitioner that if it again makes a motion to withdraw its Rule 37(c) deemed admissions, its timeliness in making such a motion before its trial date would likely be a factor in deciding whether respondent is prejudiced by the withdrawal of those deemed admissions.” Order, at p. 6.

Note the decretal paragraph of the Order speaks only to the Rule 90(f) motion, not the Rule 37 request. Might want to clarify the point that both motions are involved.

Taishoff says ex-Ch J Iron Fist is right, given the state of the current record. If Cindat has sufficient evidence to warrant reconsideration, let them try again, taking care not to get into the pretrial Red Zone, potentially ambushing IRS with eve-of-trial wildcards.

Taishoff also says we’re two weeks short of a year since ex-Ch J Maurice B (Mighty Mo”) Foley proposed his Rule changes. Let’s get those approved, and turn attention to amending Rule 37 to bring it into line with Rule 90, as regards withdrawing deemed admissions. Why rely on 30-year-old caselaw, as ex-Ch J Iron Fist must do here, when a simple Rule change would solve the problem?

1973 North Rulon Road in The City of the Golden Spike is a perfect site for a statue of Mandy Mobley Li, whose perfect own-goal lightened forever the burdens of the Ogden Sunseteers, and forever immunized said Sunseteers from any form of judicial scrutiny.

Thomas Shands, 160 T. C. 5, filed 3/8/23 (a very special day in our family’s calendar), delivered a Swiss bankster, an architect of hidey-holes for tax evaders, into the hands of the Federales. Tom claims the highly-publicized bust caused numerous hidey-holeowners to come out with their hands up, confess their sins and join OVDI II. Tom wore a wire for IRS CI and got Renzo Gadola, leading skulldugger, to spill the legumes thereinto. The US Attorney at Renzo’s sentencing told everyone that Tom was the man who made the case.

Of course, John (“Hoppin’ John”) Hinman’s crew says the info Tom gave IRS didn’t involve specific taxpayers, and the fact that a bunch Swiss squirrels (hi, Judge Holmes) fessed up isn’t a “related action” within the meaning of Reg.  Section 301.7623-2(c)(1).

Judge Travis A. (“Tag”) Greaves agrees.

Section 7623(b)(5)(A) refers to money realized from an action or proceeding “against a taxpayer.” Renzo was none of the above. “We likewise reject petitioner’s argument that inherently voluntary participation in OVDI by a taxpayer constitutes an administrative or judicial action by the IRS. This Court has recognized that a taxpayer’s voluntary compliance absent an examination entailed no administrative action, even if IRS scrutiny prompted the taxpayer’s compliance.” 160 T. C. 5, at p. 9. (Citation omitted). (Emphasis by the Court).

No longer does Lacey afford Tax Court a backdoor to oversee whether the Sunseteers are taking serious looks at Forms 211. All the Sunseteers need do is claim “no dough, no award.”

And of course the Li decision debars Tax Court from looking behind any rejection or denial of a whistleblower’s claim. Anyway, there’s no difference between rejection and denial. Bottom line is blower gets nothing, Treasury gets billions.

So, blowers, virtue is definitely its own reward.

Even If You’re in CNC

CNC is not a slam dunk for innocent spousery. STJ Peter (“HB”) Panuthos has that lesson for Ahmed Maregn Mohamed, T. C. Sum Op. 2023-6, filed 3/7/23.

Ahmed’s troubles are 97% his own, because he failed to report his unemployment insurance receipt and $15K of his wages when he was working. His 1040 MFJ with ex-spouse Zemzem also failed to include her qualified dividends. Ahmed “… indicated that he had not reviewed the tax return before it was filed and that a mistake had been made by the preparer. Petitioner also indicated that he had knowledge of Ms. Bedada’s income as a ‘W–2’ and a ‘health-related benefit.’” T. C. Sum. Op. 2023-6, at p. 3.

STJ Panuthos rules out hardship, because Ahmed is in CNC. ” Petitioner has been granted currently not collectible status for tax year [at issue]…. There is nothing in the record from which to conclude that denying relief would cause economic hardship. This factor is neutral.” T. C. Sum. Op[. 2023-6, at p. 7.

And knowledge defeats everything else.

“After weighing the factors and considering the facts and circumstances, the Court is unable to conclude that it would be inequitable to hold petitioner liable for the tax liability. Petitioner had knowledge of the item giving rise to the unreported income before signing the return. Therefore, petitioner is not entitled to relief under section 6015(b), (c), or (f).” T. C. Sum. Op. 2023-6, at p. 9.