Neville Shute’s 1950 classic forms the background for Cory s/a/k/a Corey Smith, T. C. Memo. 2023-6, filed 1/12/23. Corey a/k/a Cory is also a returning customer, as Cory a/k/a Corey starred in my blogpost “Unclosed?” 8/25/22.

Corey a/k/a Cory is offered housing in Alice Springs, Northern Territory, Australia, which he takes. He’s there as a spy-in-the-sky for Raytheon, and claims his housing off-base is for the convenience of employer, and therefore excludable under Section 119.

It’s facts-and-circumstances, but the question is what work did Corey a/k/a Cory do at home. And the key-fob that let him into the Raytheon cyberloop from home to do employee evaluations, timesheets, and mandatory job training isn’t enough; you have to be on-premises by day and by night, and Alice Springs is too far from the jobsite to qualify.

We saw a variant of this play out here in The Empire State recently. A tough bar to clear.

Judge James S. (“Big Jim”) Halpern has a repeat visitor, Joseph DeCrescenzo, T. C. Memo. 2023-7, filed 1/12/23. Joe was here ten (count ’em, ten) years ago; see my blogpost “NOL a Nullity,” 2/27/12. The results of the encounter therein described echo, in giving Joe chops for the underpayments of tax arising from his ignoring that decision, but Joe escapes the remaining accuracy chops that IRS wants to wild-card in.

Joe wants to quibble about the SNOD he got, claiming IRS has no jurisdiction to assess tax against him, fails to make a determination as to him, and contains information about others. These Judge Big Jim kicks to the curb; he does give Joe a going-over on his opening brief. Read T. C. Memo. 2023-7, at p. 3; don’t let this happen to you.

But all that Joe and his trusty attorney are arguing is the validity of the SNOD. And as long as the SNOD has the tax and the year, that’s enough. Judge Big Jim tells the story at pp. 14-16.

Joe gets a $5K Section 6673 frivolity chop, based on his ten-year-old visit to Tax Court. But IRS fails to negate any reasonable cause or good faith argument Joe might have had for his uncontested miscues. As IRS raises all the accuracy penalties in the answer, IRS has BoP. IRS never asked Joe about reasonable cause or good faith on the trial, so did not sustain BoP.

Note to a colleague: Mr. Press, this was one of yours.

A casual observer mightn’t notice, but US Tax Court is a “medley of extemporanea,” variegated, with curious sidelights and unexpected appearances.

As I scroll through the coming attractions (SPTOs), I notice Floyd J. Mayweather, Docket No. 10353-22, filed 1/11/23. It is, of course, possible, that among some hundreds of millions of taxpayers, two or more persons might have the same name as a well-known boxer and fight promoter. They might even both have disputes meriting a visit to Tax Court’s trial session in Las Vegas, NV.

I am sure the Las Vegas bookies will give you odds; Taishoff says don’t take the bet.

I hope this one goes to trial: should be good blogfodder.

I had thought that Mandy Mobley Li, 22 F.4th 1014 (DC Cir, 2022), had put paid to any attempt at Section 7623 whistleblowing; all the Ogden Sunseteers needed to do was say “got no cash,” and the blower was done.

But the hardcore blowers, however battered and belittled by Chief Whistler John W. (“Hoppin’ John”) Hinman’s myrmidons, persist. And a leader of the pack is Suzanne Jean McCrory, Docket No. 12264-21W, filed 1/10/23.

It’s only a Standing Pretrial Order (SPTO), one of the ninety-eight (count ’em, ninety-eight) issued today by Judge Courtney D. (“CD”) Jones. But it’s the only whistleblower case in the bunch. And I’m prepared to wager at least a couple ales (hi, Judge Holmes) in Jake’s Saloon that this one actually goes to trial, unlike the vast majority of the hundreds of SPTOs issued today.

I’m surprised IRS didn’t seek summary J, but I haven’t seen the petition and answer (and can’t, as ex-Ch J Maurice B (“Mighty Mo”) Foley sealed the whole shebang last September). So who knows what the story might be.

Hurray for the hardcore blowers, who give me blogfodder on a day when Tax Court issues 574 (count ’em, 574) orders, no opinions, and only Suzanne Jean giving me anything worth reporting.

Sub S corporations are pass-throughs; tax incidents flow through to the shareholders. But when shareholders pay the expenses of the business, which ostensibly belongs to the S Corp, who gets the deduction? And it matters, because if the deductions belong to the shareholder and not the S Corp, they’re unreimbursed employee business expenses. These were subject to the 2% AGI limit pre-1/1/18, and so it was with Kyle D. Simpson and Christen Simpson, T. C. 2023-4, filed 1/9/23.

Judge Courtney D (“CD”) Jones does a lot of slicing and dicing of expenses over three (count ’em, three) different tax years. Kyle and Chris claim accountable expenses reimbursement plan with their Sub S. Even though such arrangements need not be in writing, Kyle and Chris come up short on proof.

Judge CD Jones: “While a shareholder may identify his interest and business with those of the corporation, they are legally distinct and, ordinarily, if he voluntarily pays or guarantees the corporation’s obligations, his expense may not be deducted on his personal return. Such payments, absent any fixed obligation for repayment, are generally regarded as a contribution to the capital of a corporation and are deductible, if at all, by the corporation. However, a corporate resolution or policy requiring a corporate officer to assume certain expenses indicates that those expenses are his rather than the corporation’s.” T. C. Memo. 2023-4, at p. 10. (Citations omitted).

The question is whether the expenses confer future benefits or are made to acquire or create a capital asset. If for ordinary operations, they are expenses of the corporate employees. Kyle and Chris do get one year’s home office deduction, but only as unreimbursed employee business expense.

This result would definitely be a stinger post-1/1/18, as unreimbursed employee business expense deductions are off the table until 1/1/26.

But Paul C. Wondries and Patricia Wondries, T. C. Memo. 2023-5, filed 1/9/23, managed to find Mr. Palm, ranchero extraordinaire, to manage their multi-millon-dollar cattle ranch. Even though said ranch ended up with neither hat nor cattle, but with a bushelbasketful of operating losses, Paul and Pat shoot the “goofy regulation” slalom, and get their loss deductions from Ch J Kathleen (“TBS = The Big Shillelagh”) Kerrigan.

Paul is a turnaround king in the car business. Starting with one dealership, he bought fourteen (count ’em, fourteen) losing dealerships and turned around a dozen, T. C. Memo. 2023-5, at p. 11. He was making heavy-duty money from his car business, which he needed, as the ranch was hemorrhaging cash. The drought that came after he bought the ranch, and the inability to use the ranch for trophy hunting, didn’t count for post-purchase unforseeables, but rather poor planning, so no help there.

But Mr. Palm the manager saves the day. Mr. Palm had a great track record managing cattle ranches, and Paul kept records and oversight sufficient to show that he meant business. And he didn’t have too much fun, although that was a close-run thing.

My colleague Peter Reilly, CPA, can add this to his list of successful defenses to the hobby-loss attack, the Great Manager countergambit.

While I’ve often intoned the truism that “lawyers can’t add,” because, I suppose, if they could add they’d be CPAs like my colleague Mr Peter Reilly, there are judges who can add. I’ve chronicled those as they’ve picked and nitpicked their way through attorney solecism, error, and sloppiness.

But that’s not to say that even those jurists whose arithmetical skills are professional grade enjoy it.

Judge Elizabeth A. (“Tex”) Copeland, no slouch with a column figures (hi, Judge Holmes), eschews doing the numbers for Harbinder S. Brar & Barbara P. Brar, Docket No. 21908-19, filed 1/6/23.

Harb & Barb have stiped out their officers’ comp numbers with IRS, so their passthrough Sub S profits are reduced, which they claim is a wash. They’d like partial summary J on that point. While that clearly falls well short of “such rarefied heights of pure mathematics that it is said that there was no man [or woman] in the scientific press capable of criticizing it,” Judge Tex Copeland won’t go there, giving Harb & Barb (and us as well) a lecture on why we have Rule 155 beancounts.

“At this point, there are a multitude of additional adjustments at issue that remain to be decided and will affect the tax computations.  While it seems obvious that the increased wage income and the corresponding reduction in pass-through income that resulted will directly offset, it is better left for conclusion of the case when Rule 155 computations are submitted to the Court. It is both premature and wasteful of judicial resources to have hearings over the calculation of the tax impact of each individual adjustment to income, when many times adjustments are interrelated. For the foregoing reasons, we will deny Petitioners’ Motion for Partial Summary Judgment, as supplemented and as modified by the parties settlement of issues. Petitioners will be afforded full opportunity to renew any computational objections at the conclusion of this matter under the parameters set forth in Rule 155.” Order, at p. 2.

In short, “…the Court is tasked with finding facts and making conclusions of law, not with calculating taxes as Petitioners’ Motion desires.” Order, at p. 2.

She doesn’t do numbers and she doesn’t fill out returns.

If, in reading Marie E. Henry, T. C. Memo. 2023-2, filed 1/5/22, you do not feel a slight rise in your blood pressure, you can skip the rest of this blogpost. As for me, writing a nonpolitical blog, if this case illustrates the best Congress can do, it might be best if Congress does nothing, as they are doing now.

According to Judge Ashford, during 2016 (year at issue) Marie “…has been unemployed, and during at least 2015 and 2016 she was not only in a terrible financial state but also in a terrible physical and mental state. Consequently, starting in 2015 and through at least 2016 she made early withdrawals from a retirement or pension plan to cover her living expenses, and during at least 2016 she limited her medical treatment.” T. C. Memo. 2023-2, at p. 2.

To add to Marie’s terrible financial, physical, and emotional state, she enrolled in the FL Marketplace, a creature of the much-contemned Affordable Care Act of 2010. Although Marie claimed she canceled in Month Two, she had no written proof, and the FL insurance crowd said their files showed she was in it until Month Eleven, hence the $7K APTC. Marie’s pension draws put her at 598% of the applicable poverty line (her draws and her son’s income).

Judge Ashford: “Although she appeared sincere at trial, and we do not doubt that she was in a fragile mental state during 2016, petitioner was unable to offer any documentation to corroborate her contention. Indeed, the documentation from the Marketplace shows otherwise; the documentation stated that there was no record of her attempting to request termination or cancellation of her health coverage during 2016 and on November 30, 2016, her coverage was terminated for nonpayment of premiums. We sustain respondent’s determination.” T. C. Memo. 2023-2, at p. 6.

So, sick and fragile, and eating up her retirement to stay alive, Marie owes $7K to the fisc to repay what the fisc paid to the insurance company.

I cannot very well comment on this result in language fit for reading at the family dinnertable.

I can give a Taishoff “Good Try, Pro Bono Class,” to Marie’s trusty attorney Robert D. Probasco, Esq., now or formerly of the Texas A&M University School of Law LITC. Hullabaloo Kaneck Kaneck, Hullaballoo Kaneck!

XC Foundation, T.C. Memo. 2023-3, filed 1/5/22, found its 503(c)dom yanked retro to 1/1/2016. So XC petitioned, as simultaneously its former CEO and former Secretary found themselves looking at Section 4941 excise self-dealing taxes.

Meanwhile, the CA Franchise Tax Board, like an even more Exalted Authority, has its version of a winnowing fork and gave XC the Matthew 3:12 treatment. So IRS answers “no jurisdiction, because XC the non-exempt is also XC the non-existent.” No powers, per CA law.

XC’s trusty attorney says “but XC signed a Form 872 SOL extender, which says we keep appeal rights.” Judge Albert G (“Scholar Al”) Lauber says “(P)etitioner errs in contending that this statement in Form 872 preserves its right to petition this Court. The ‘appeal rights’ to which Form 872 refers are the rights to administrative appeal within the IRS, not the taxpayer’s ability to secure judicial review. An IRS Form cannot define this Court’s jurisdiction. In any event, Form 872 preserves only those appeal rights to which the taxpayer ‘would otherwise be entitled.’ A corporation whose powers have been suspended under State law is not ‘entitled’ to commence litigation in this Court.” Order, at pp. 4-5.

Nowise daunted, XC’s trusty attorney claims keeping out XC increases the litigation burden on former CEO and former Sec’y.

Hard lines, says Judge Scholar Al. “… any litigation burden a party may incur has nothing to do with our jurisdiction.” Order, at p. 5.

I was about to award XC’s trusty attorney a Taishoff “Good Try,” but she blew it by going a bridge too far. She attacks Rule 60, that says corporate status is determined by State law.

“Finally, petitioner contends that Rule 60 is unconstitutional and violates its rights to procedural due process, equal protection, and to the protection against cruel and unusual punishment. These arguments are frivolous, and we decline to consider them further. See Wnuck v. Commissioner, 136 T.C. 498 (2011); Aldrich v. Commissioner, T.C. Memo. 2013-201, 106 T.C.M. (CCH) 192, 194 (citing Crain v. Commissioner, 737 F.2d 1417, 1417 (5th Cir. 1984)).” Order, at p. 5.

Yesterday, I wondered why Judge Alina I. (“AIM”) Marshall treated us to “somber reasoning and copious citation of precedent” when “a simple cite to Crain and Wnuck would be enough for us professionals.” Judge Scholar Al got it right.

I’m sure Judge Alina I. (“AIM”) Marshall is glad to join in the Psalm 118:15 treatment when Ryan Charles Minnig folds his frivolity, leading off the 2023 memorandum parade with T. C. Memo. 2023-1, filed 1/4/23.

RC was frivoling away with the wages-aren’t-income and no-valid-delegation standard protester jive from SNOD to trial. Whereupon, when Judge AIM cautioned him about the Section 6673 frivolity chop IRS wanted should he continue to frivol, RC, like many another who saw the red laser dot on the seam of their body armor, threw down his weapons.

“Although petitioner did not abandon his frivolous arguments, he was cooperative at trial and worked collaboratively with respondent’s counsel in the stipulation process. He stated: “I certainly don’t want to make any other frivolous points as they’re called, but I’m just trying to do what I think is right and not sort of ruffle any feathers.” T. C. Memo. 2023-1, at p. 3.

Although a simple cite to Crain and Wnuck would be enough for us professionals, Judge AIM provides the usual “somber reasoning and copious citation of precedent” to not sort of ruffle any feathers. And RC, although a second-time loser (see T. C. Memo. 2023-1 at p. 3), avoids the Section 6673 chop.