I’ve blogged a lot of cases where spouses were represented by the same counsel at Appeals or in Tax Court, and where the conflict-of-interest toss was routinely applied. But not every joint representation is inherently conflicted, as Judge David Gustafson obligingly informs us in Joanne Gilmore, Docket 189-21L, filed 1/24/23.

Joanne is still married to George, whose story I told in my blogpost “Argue Your Own Credibility,” 4/12/22. Her latest beef is that, at her CDP,  no one from Appeals or her representative mentioned innocent spousery. But her rep did mention Joanne was seeking independent advice, and in fact she did file Form 8857, litigate the shootdown of her plea at Appeals, and stiped out with IRS.

Judge Gustafson: “… it is by no means true that a conflict exists every time one spouse seeks relief under section 6015. Where the two spouses remain married and have a shared financial situation, the grant of relief may have little practical effect on the non-requesting spouse, or might even have an advantageous effect on the household as a whole. In some innocent spouse cases, the non-requesting spouse does not intervene to oppose relief, and sometimes a non-requesting spouse affirmatively concurs in the granting of the relief. Therefore, a conflict cannot be presumed.” Order, at p. 11.

Joanne had an interest in the properties George didn’t sell, so Judge Gustafson isn’t remanding her to Appeals to get the CNC she desired. She still might have assets that would yield cash. And as for reallocating the overpayments of tax she made, which were credited to the earliest of the still-collectible years, IRS always wants to get the most for years where SOL on collection is running out, and anyway, Joanne stiped that away.

Judge Gustafson says remand here would be futile. Partial summary J for IRS.

Taishoff still says “Stipulate, don’t capitulate.”

But It Helps To Get The Paper Right

Michael L. Meyer, now or formerly an attorney, should’a heeded the abovestated. Even though he managed to get Calvin A. Lim and Helen K. Chu, T. C. Memo. 2023-11, filed 1/23/23, tossed when they sued him in Orange County Superior Court for reasons unclearly stated (T. C. Memo. 2023-11, at p. 8), Cal’s and Helen’s $1.6 million charitable deduction in Year One, and the Year Two carryover of $415K, bite the dust, despite Mike’s claim of “The Ultimate Plan: the Ultimate Tax, Estate and Charitable Plan.”

Mike creates an LLC, whose only assets are some promissory notes from Helen, payable to Helen and Cal. The LLC’s sole member is Cal’s and Helen’s Sub S, apparently operating a valid business; Cal and Helen are managers. Cal and Helen donate “units” (apparently membership interests in the LLC) to a 501(c)(3) charitable foundation created and run by Mike. Mike does all the paperwork, appraises the units (or maybe the notes; his paperwork isn’t of the best), issues the 170(f)(8)(A) contemporaneous written acknowledgment.

Except there is no documentation for the transfer of anything. And Mike gets paid a piece of the action (the tax savings).

Of course IRS enjoins Mike and grabs his client list, so Cal and Helen get an invitation to the party via a SNOD.

First, was there a transfer of something to Mike’s charity? Cal and Helen have only Mike’s form unsigned acknowledgment letter. But IRS wants summary J, Cal and Helen get every favorable inference. And Judge Albert G (“Scholar Al”) Lauber is lavish therewith.

“… we conclude that petitioners would face a decidedly uphill task in attempting to prove that [Sub S] actually transferred [LLC] units to [Mike’s charity] during [Year One]. However, viewing all facts in the light most favorable to petitioners, as we must at the summary judgment stage, we conclude that respondent is not entitled to judgment as a matter of law on this ground.” T. C. Memo. 2023-11, at p. 11.

Next, Mike’s “appraisal.” I use the quote marks advisedly.

“The regulations provide that ‘no part of the fee arrangement for a qualified appraisal can be based, in effect, on a percentage (or set of percentages) of the appraised value of the property.’ Treas. Reg. § 1.170A-13(c)(6)(i); see Alli v. Commissioner, T.C. Memo. 2014-15, 107 T.C.M. (CCH) 1082, 1087 n.14. We agree that Mr. Meyer’s fee was a prohibited appraisal fee within the meaning of this regulation.” T. C. Memo. 2023-11, at p. 12.

Cal’s and Helen’s trusty attorney plays the only card left. He argues Mike appraised the notes, not the LLC “units,” so he wasn’t appraising the “property transferred.” He gets a Taishoff “Good Try, Desperation Class.”

But Judge Scholar Al boots that one into touch.

“This argument does not pass the straight-face test. First, Mr. Meyer did not appraise the promissory notes. His appraisal contains no discussion of the factors that would affect the FMV of the notes, e.g., the seven-year term, the specified interest rate, prevailing market interest rates, and petitioners’ creditworthiness. His appraisal is explicitly captioned, ‘Appraisal of the Fair Market Value of the [LLC] Interests….” That he was appraising [LLC] units, not promissory notes, is plain from his methodology (if it can be called that). He reached his valuation conclusion by applying discounts for lack of control and lack of marketability, which he derived from closed-end investment funds. This is not how one would value promissory notes.” T. C. Memo. 2023-11, at p. 13.

And in any case, all the LLC had was the notes. Whatever the LLC was worth depended solely upon the worth of the notes.

Cal and Helen claim reasonable cause, based on advice from a different attorney and a different CPA. That’s all fact questions, and maybe these two can rescue Cal and Helen from the Section 6662 chops on the trial.

But read Judge Scholar Al deconstructing Mike’s paperwork. If you’re trying to pull a fast one, go slow with the paper.

Kari Jane Freman, Petitioner, T.C. Memo. 2023-10, filed 1/23/23, went down to then-spouse Rodney C. Freman (Intervenor)’s employer to take the Retirement Account drawdown from Rod’s account. She says she knew about the $90K piece, but not the entire $173K piece. And while she can’t establish spousal abuse, economic hardship, her forged signature on returns (although Judge Courtney D (“CD”) Jones does bail Kari out of admitting thereby that she has no standing for innocent spousery, by using the stipulation Kari signed that says she did sign the returns, T. C. Memo. 2023-10, at p. 12), or that she had lived separate from Rod for the requisite 12 months, Judge CD Jones manages to get Kari innocence to the extent of the overage above the $90K.

But Kari only has a high school education, and was taking care of the couple’s child. Rod was a currency trader and controlled the family’s finances.  There are two pieces here, understatement of tax in Year One and underpayments in Years Two and Three.

“Regarding the understatement of tax for [Year One], we find that this factor weighs against relief for the $90,000 Amount because Mr. Freman’s financial control does not negate Ms. Freman’s actual knowledge and clear awareness of that portion of the Retirement Account distribution. However, we find that this factor weighs in favor of relief for the amount of the distribution above the $90,000 Amount and negates Ms. Freman’s reason to know of that portion of the understatement for [Year One] because Mr. Freman assumed and sustained sole control of the finances; excluded Ms. Freman from involvement; rebuffed her attempts to be involved except when he was obligated to involve her; and misled Ms. Freman about the full extent of the distribution transaction.

“Regarding the underpayments of tax for [Years Two and Three], we find that this factor weighs in favor of relief and negates Ms.  Freman’s knowledge of Mr. Freman’s inability to pay the amounts due because Mr. Freman assumed and sustained control over all financial matters; Mr. Freman did not give Ms. Freman an opportunity to review the returns at issue and she did not know the amounts due; Mr. Freman was not forthcoming and ‘got angry’ when Ms. Freman tried to inquire about financial matters; and Mr. Freman otherwise excluded Ms. Freman from the finances, saying that he ‘had it handled’.” T. C. Memo. 2023-10, at p. 30. (Footnote omitted, but it says that even though Kari and Rod had joint accounts, Rod’s economic control outweighs any negative effect).

No lavish lifestyle helps Kari, and her spotty tax reporting and paying compliance shows good faith.

Takeaway- Financial control and superior education and employment by nonrequesting spouse tops sketchy proofs of requesting spouse.

Last March I chronicled the pretrial and trial behavior of Michael Zorn, Docket No. 25974-17, under the title “Don’t Raise Your Blood Pressure,” 3/30/22.

Today Judge Courtney D (“CD”) Jones has the outcome of the trial, and if this tale of Mike’s ripping off an old woman with terminal cancer and early dementia to support his tax-dodging, high-hog lifestyle does not raise your blood pressure, you might wish to stop reading this blogpost now.

Mike was an insurance peddler who had his MD license suspended, but peddled on regardless. He didn’t bother filing a return from 1997 onward. IRS hits Mike for eleven (count ’em, eleven) years’ worth of unfiled, unpaid, unestimated and fraudulently nonfiled.

Judge CD Jones tells the story of Mike’s raid on Mrs. Jewett’s money at pp. 12-15 of the transcript of this off-the-bencher, Michael Zorn, Docket No. 25974-17, filed 1/23/23.

She then marches through the factors for loans (Mike loses) and Section 6651(f) fraudulent nonfiling (Mike loses).

I can only say again what I said some five years ago: “I am reminded of Rudy Kipling’s story of an India long ago, where the hero handed the victim of an equally despicable fraud a horsewhip, and left the scene.”

The single most dangerous keystroke is that which sends the document to tribunal or adversary (or both). We may speak of clawbacks per FRE 502 and corrective resubmissions, but the ancient Japanese proverb remains true: “The word once spoken, not even the Emperor’s horsemen can return.”

However great the time pressure, read it again, slowly.

Judge Alina I. (“AIM”) Marshall provides an example that reinforces the aforesaid. To save embarrassment, I’ll call the attorney Jimmy.

Jimmy, “…filed a document titled ‘entry of appearance for respondent’. Upon review of that filing, the Court concludes that [Jimmy] is entering an appearance on behalf of petitioner. Accordingly, the Court will recharacterize counsel’s filing appropriately.”

Form 7 makes it easy. Just drag and drop your client’s name.

The order is Airreyon S. Lowe Docket No. 4629-20, filed 1/20/23.

DC Cir put paid to the dream of wealth of many Section 7623 hopefuls when they torpedoed Mandy Mobley Li, whose judicial defenestration I chronicled last year in extenso. I fully expected Tax Court’s hardlaboring clerks to delete every claimant, based solely upon the Ogden Sunseteers’ solemnly intoning “we didn’t get nuthin’.”

Of course, though Fighting Joe Insinga, Docket No. 9011-13W, passed from this vale of tears, his redoubtable successor, Ms. Amanda Gilmore, stepped into the fray and was greeted by a successful IRS motion to stay proceedings last November, after nine (count ’em, nine) years.

But there’s an even older case that today meets the same fate, Albert G. Hill, III, Docket No. 25539-10W, filed 1/18/23. I can’t help but wonder whether this Albert G. Hill, III, is the same Al III who starred in my blogpost “Three Point Play,” 10/25/21.

Howbeit, the OS claim they didn’t get nuthin’, but this Al III claims they did. For the last eleven years, there’s been some discovery jousting with the almost-obligatory sanctions motion, and an IRS motion for summary J that got bounced back in November, 2018. Then status reports.

Is now the time for the Li toss? As subjects worthy of blogging become fewer, I’m sorry to lose the whistleblowing crowd. Given the current political climate concerning IRS’ headcount (as to which I’ll say no more on this nonpolitical blog), the Ogden Sunseteers might want to take a more active role.

Robert B. Lucas, T. C. Memo. 2023-9, filed 1/17/23, had diabetes, which he treated with insulin in the year at issue. He also lost his job and took a draw from his retirement plan, which netted him a SNOD and the 10% whatever-it-is.

Robert conflates the taxability of the draw itself with the 10% whatever-it-is. The draw is taxable; health has nothing to do with it.

As regards the 10%, Judge Patrick J (“Scholar Pat”) Urda checks out the Section 72(t)(2)(A)(iii) exception, and finds the drawer must be “unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment which can be expected to result in death or to be of long-continued and indefinite duration.” T. C. Memo. 2023-9, at p. 4. And even though Reg. 1.72-17A(f)(2) includes diabetes as a condition preventing gainful employment, the question remains: did the condition prevent Robert from working?

Judge Scholar Pat: ” Mr. Lucas was diagnosed with diabetes… but was able to work as a software engineer for two years, including the year that he received the distribution from his 401(k) plan account, effectively treating his diabetes with a mix of insulin shots and other medications.” T. C. Memo. 2023-9, at p. 5.

No break for Robert.

My readers will doubtless recollect that Judge Mark V Holmes went easy on the daughter of Ernesto P. Patacsil and Marilyn E. Patacsil, T. C. Memo. 2023-8, filed 1/17/23, a year ago December, when she used her Mom’s recordkeeping described at the head hereof. If not, see my blogpost “The Shoebox – RedWeld System,”12/8/21.

Unhappily, Mom and Dad had previously suffered an audit and a Tax Court defeat affirmed by 9 Cir, and another visit for another year, in all of which they came unglued by virtue of the recordkeeping system (or lack thereof) which saved daughter Maryann from the chops.

The Patascils put in none of the envelopes nor their enclosures for any year at issue, and so got no more than whatever IRS gave them.

IRS did get it wrong on a claimed loss from a foreclosure sale of some investment property. CA’s anti-deficiency statute (that’s personal liability of the mortgagor when the foreclosure sale nets less than the indebtedness) makes the debt nonrecourse, so must be added to sales price, which might yield taxable gain. IRS only disallows the claimed loss, and Judge Holmes sticks them with that. Moreover, for another year and another property, the third-party reporting evidence IRS put in utterly failed to substantiate the claimed COI in the SNOD. The Patascils failed to raise the issue at trial but Judge Holmes helps them out with “tried by consent.”

They didn’t give their new accountant all the info to calculate their insolvency defense to the COI income, so whatever IRS substantiated stands. Likewise their claimed NOL fails for want of election not to carryback, but since the Patascils aren’t tax experts they could reasonably rely upon their CPA preparer’s advice to take the carryforward (which under current law they could do, but not for the years at issue).  

Of course, I can’t let Judge Holmes off without a rebuke for “a couple unusual issues.” T. C. Memo. 2023-8, at p. 4. The partitive genitive must be preserved.

My text today comes from the 1967 Brothers Gibb’s classic, as today is a public holiday pursuant to proposed Rule 25(a)(5). Wherefore, neither opinion nor order will issue from The Glasshouse in the City of the Taxed Unrepresented, not even a press release.

So I too am silent.

I find it astonishing that it could take a year to correct a typographical error. Exactly how great the error was to begin with I cannot tell, as the stipulated decision which gave rise to said error is not accessible on DAWSON, the new, improved, jim-handy (don’t get me started) Tax Court portal.

Howbeit, that which was erroneously filed on January 20, 2022, is corrected on January 13, 2023, in Trevor Isaacs & Carmen Isaacs, Docket No. 6642-21. And there the correct numbers are given. Why stipulated decisions are not shown in full on DAWSON eludes me.