Henry Muhlenburg, Docket No. 14316-22S, filed 6/16/23, stars in a bench opinion by STJ Eunkyong (“N’Yawk”) Choi. He learns therefrom that, while said enactment gives him no tax cuts, it certainly does a job on his Sched A.

Hank claimed travel expenses from NC to NY for post-2018 year at issue, because he lost his NC job and couldn’t find another nearer than Excelsiorland. STJ N’Yawk says Hank might have had at least some of these allowed, except TCJA amended Section 67 to suspend these until 2026 (and don’t hold your breath until they come back).

You can still take them if you’re a performing artist, an official who is an employee of a State, an elementary or secondary school teacher, or member of the reserve component of the Armed Forces. See Section 62(a)(2). Hank, of course, is none of the above.

IRS generously folds the Section 6662 chops, and helps Hank out by finding an extra $3K of charitables at Exam that never made it onto Hank’s return.

STJ N’Yawk: “The Court is very sympathetic to petitioner. The facts and circumstances show he may have been entitled to claim the employee business expense deduction for taxable year… but for the suspension of miscellaneous itemized deductions for taxable years December 31, 2017, through January 1, 2026. However, because miscellaneous itemized deductions were suspended for taxable year … and because petitioner did not fall within any of the classes of employees entitled to deduct employee business expenses for taxable year…, he was not entitled to claim the employee business expense deduction for taxable year….” Transcript, at pp. 6-7.

Technically, that’s “before January 1, 2026,” not “through January 1, 2026,” Judge.

Quibbles aside, I had expected a lot more of these from those self-preparers who use outdated software or none at all, out-of-date forms, and don’t bother to read the current Pub 17. We’ll be getting them shortly.

The words of Judge Mark V. (“Vittorio Emanuele”) Holmes, concurring in Oakbrook, are borne out as that Obliging Jurist David Gustafson renders a daily double of T. C. Memo.s, beginning with Murfam Enterprises LLC, Wendell Murphy, Jr., Tax Matters Partner, T. C. 2023-73, filed 6/15/23. Hard to believe that it’s two weeks shy of five (count ’em, five) years since I posted the first of the eventual six (count ’em, six) blogposts on this case.

Thanks, Junior and Wendy, Dell and Linda. Great blogfodder.

Spoiler alert. It’s all about the appraisals, as IRS folds almost all the Section 170 jive. But IRS was slow with the chops, which never featured in the FPAA, so IRS has “new matter” BoP.

“In this case, the FPAA included no penalty determination. Rather, the Commissioner first asserted penalties in an amended answer to the petition that pleaded liability for gross valuation misstatement penalties under section 6662(e) and (h), or in the alternative, accuracy-related penalties under section 6662(a). Because the penalties asserted by the Commissioner in his amended answer would increase the liability determined in the FPAA issued to Murfam, they are ‘new matter’ for which the Commissioner bears the overall burden of proof. That burden includes the burden to prove the absence of ‘reasonable cause’.” T. C. Memo. 2023-73, at pp. 12-13.

IRS comes cropper on Section 6664.

“The straightforward and unchallenged trial testimony of R  (the D CPA who prepared Murfam’s Form 1065) established that D was a well-known firm with a good reputation in North Carolina, that Murfam retained D to prepare all of its returns during a three-year period and relied on it to do so, that D requested all the information it thought necessary for preparing Murfam’s returns, that D received all the information that it had requested from Murfam, that D prepared the returns in accordance with that information, and that Murfam filed the returns as they had been prepared by D.” T. C. Memo. 2023-73, at pp. 21-22. (Names omitted).

Checked all the Neonatology boxes. But that’s not good enough. Reg. Section 1.6664-4(b)(1) requires no unreasonable assumptions, no reliance on invalidity of any Reg. Section, and the usual facts-and-circumstances.

IRS’ only argument is that Murfam willfully withheld the essential statement of donor’s basis. But IRS has only the Michael Corleone classical gambit for this.

“The cited evidence does not make this showing. There is simply no evidence as to whether the advisors asked for basis information. There is no evidence as to whether Murfam provided basis information. To the extent there was basis information not provided by Murfam, there is no evidence to show why it was not provided. The reason that there is no such evidence is that the Commissioner did not cross-examine the witnesses on the point.” T. C. Memo. 2023-73, at pp. 23-24.

The valuation issue goes off on swine breeding. If you care how your bacon and Black Forest-style got from NC to your plate, read pp. 26-31.

The impact of the undervaluation is taken up in Wendell H. Murphy, Jr. and Wendy F. Murphy, T. C. 2023-72, filed 6/15/23, at pp. 63-69. They’re up for the Section 6662 gross overvaluation chop.

The trusty attorneys for Seabrook Property, LLC, Seabrook Manager, LLC, Tax Matters Partner, Docket No. 5071-21, filed 6/15/23, are true believers in the “Win Your Case at Discovery” tactic, hawked far and wee by every CLEflogger. They’re trying it again, as Little Horse Creek Property’s conserved and easemented land, which twice heretofore appeared on this my blog before the Little Horses stiped out two (count ’em, two) years ago, was a mere thirty miles from the Seabrooks’ Dixieland Boondocks.

So the Seabrooks want the entire IRS file on the Little Horses.

Nuttin’ doin’, says Judge Emin (“Eminent”) Toro, although his language is much more elegant than mine and features somber reasoning and copious citation of precedent.

I’d be a lot more specific, with substantial swaths of Judge Eminent’s learned discussion embedded herein, but again the Genius Baristas have barred me (and everyone else) from cut-and-paste or drag-and-drop.

So I can only direct you to pages 1-2 for breadth of scope of discovery, page 3 thereof for a discussion of disparate treatment of taxpayers as irrelevant, and pages 3-4 for the role of Section 6103 in protecting taxpayer info, and the breadth of scope of such info.

As for this trend of blocking access to text, is it AI they’re worried about? Post-Avianca, a 2 Cir demolition of a 30-year NY State courtier, no attorney in his/her right mind would trust AI for legal research. As for fraudsters generating phony orders and opinions, there’s been cheap software that lets them deskew and tamper for more than twenty years, and to my knowledge, but without having made an independent investigation, no one has done so.

So c’mon, Genius Baristas, do as The Hombres did and let it all hang out

Claude Franklin Sanders, T. C. Memo. 2023-71, filed 6/14/23, “published monthly newsletters about the gold and silver market and provided brokerage services for clients.” T. C. Memo. 2023-71, at p. 2. He carried on his business under two names, one of which was “Moneychanger.”

Claude also never bothered to file or pay income tax for some ten (count ’em, ten) years, claiming he was neither a citizen nor an individual, and that Treasury violated APA by not publishing an organization chart. But he had managed to get run out of AR for sales tax evasion, and ran to TN, whose own sales taxers nailed him. So IRS hits Claude for about $1.6 million in tax, add-ons and chops, including without in any way limiting the generality of the foregoing (as my expensive colleagues would say), Section 6663 fraud chops, all of which Judge Travis A. (“Tag”) Greaves lays upon him.

“Moneychanger” is an unfortunate moniker. Perhaps Claude was unaware of John 2:13-16. But I daresay Judge Tag Greaves is fully familiar therewith, and acted accordingly.

Now I must remember publicly that the entire aim of a self-assessment tax system like ours is to bring taxpayers into compliance therewith. Publicly excoriating and berating noncompliants, however egregious their actions and nonactions, does not induce compliance; to the contrary, it rather perversely induces sympathy on the part of burdened compliants, even where those compliants’ burdens are increased by the malfeasance and nonfeasance of the noncompliant.

Still, if an Authority highly exalted above even Tax Court judges resorted to whipping moneychangers….

The Bipartisan Budget Act of 2015 will save Judge Joseph Robert Goeke from the toils and travails he encounters in Intelligent Transportation & Monitoring Wireless LLC, Warren C. Havens, Tax Matters Partner, Docket No. 19514-17, filed 6/13/23. TMP Warren C. didn’t show for the trial, so no testimony taken, but Judge Goeke has the filings the parties made, and from same constructs this off-the-bencher.

IT&MW is a DE LLC, but a CA judge put IT&MW into receivership. Warren C. was TMP on the 1065s throughout. No State court judge can oust the TMP. But Warren C. hasn’t been diligent in trial prep, and all that issues from the TMP are vague statements. So, notwithstanding Warren C. claims he’s ill, Judge Goeke gives him one last chance to amend the petition and deal with the FPAA.

The problem is TEFRA.

“Relative to the status of Mr. Havens as the Tax Matters Partner, we note that the receiver in the California State matter was not a partner of the petitioner and therefore, the receiver could not be selected, pursuant to the regulations, as the Tax Matters Partner in this case. See 1983 Western Reserve Oil & Gas Co. v. Commissioner, 95 T.C. 51 (1990). Accordingly, Mr. Havens remains the Tax Matters Partner for purposes of the present case.” Transcript, at p. 6.

But remember, the BBA of 2015, which tanked TEFRA, also brought in the Partnership Representative. And per current Section 6223, the Partnership Representative need not be a partner. So post-TEFRA, formerly ineligible receivers are now in play.

Nothing Else Matters

It doesn’t matter whether Ty turned over the information on his profit-sharing plan. It doesn’t matter if the SO was “hostile, irate, [and] yelling” and “not qualified to be impartial and honest in this case.” It certainly doesn’t matter that a thoroughly accurate Reasonable Collection Potential cannot be calculated.

For Judge Christian N. (“Speedy”) Weiler, all that matters for Tyrone Dietz and Toni Dietz, T. C. Memo. 2023-69, filed 6/13/23, is that the RCP exceeds the OIC.

Their equity in their residence was large enough, however calculated, to scupper the OIC.

“Our role is not to redetermine the RCP of the taxpayers and whether it is 100% accurate as determined by the COIC unit. See Gustashaw v. Commissioner, T.C. Memo. 2018-215, at *23 (finding that a ‘[d]etermination of [a taxpayer’s] exact RCP would be a meaningless exercise’ when the taxpayer’s RCP far exceeds the OIC (quoting Estate of Duncan v. Commissioner, T.C. Memo. 2016-204, at *22 n.5, aff’d, 890 F.3d 192 (5th Cir. 2018))). Rather our role is to review the actions of Appeals for abuse of discretion and determine whether the SO’s actions were arbitrary, capricious, or without sound basis in fact or law. On the basis of the record before us, we conclude that the SO did not abuse her discretion in rejecting petitioners’ OICs.” T. C. Memo. 2023-69, at p. 13. (Citations omitted).

It’s a many-times-told tale, but worth repeating. When making an OIC, do as the bridge players do…lead from your longest and strongest

The Japanese term for “goodbye” applies both to Aruki Yamada, T. C. Memo. 2023-70, filed 6/13/23, and to the Genius Baristas. Aruki and spouse Yasuka Ogawa left the US of A (of which Aruki was a dual US-+Japanese national, and Yasuko had work visas) without bothering to notify IRS or USPS of their new address in Yokohama.

This deprives them of Section 7430 admins and legals, as IRS was substantially justified in believing that the unreported bank deposits aggregating more than $1.1 million over the four (count ’em, four) years at issue were US-sourced, whereas in truth and in fact they were sourced in The Land of the Rising Sun, and Aruki and Yasuko were long gone at the time.

Judge Goeke: “At the time the deposits were made, Mr. Yamada was a U.S. citizen. Although Ms. Ogawa was not a U.S. citizen, respondent believed her to be a lawful permanent resident at that time because petitioners never provided respondent with an updated mailing address. Petitioners concede that they failed to notify respondent of their address change once they left the United States. Because respondent was under the belief that petitioners remained U.S. residents at the time the deposits were made, it was reasonable for respondent to assume that petitioners remained liable for U.S. tax on their worldwide income.

“Respondent therefore was substantially justified in asserting that petitioners were liable for tax on the unreported income solely on the basis of the bank deposit analyses.” T. C. Memo. 2023-70, at p. 8. (Citation omitted).

Their trusty attorney was dead when their motion for admins and legals was decided. T. C. Memo. 2023-70, at p. 1, footnote 2.

Oh yes, the Genius Baristas. There are more opinions today, but DAWSON, the new, improved, jim-handy (yeah right, roger that) website, has crashed. Here’s their story.

“Investigating – We are observing errors for users on the east coast while attempting to use DAWSON. We are currently investigating the issue. It appears this issue is due to an outage by our service provider.”

Sayonara.

It’s been said that stipulations are the “bedrock of Tax Court practice,” but Taishoff says when Dixieland Boondockery is in play, motions in limine are the new “bedrock of Tax Court practice.” And Judge Emin (“Eminent”) Toro is busily engaged in sorting out witnesses both expert, inexpert, percipient, and none of the above, as exemplified by Seabrook Property, LLC, Seabrook Manager, LLC, Tax Matters Partner, Docket No. 5071-21, filed 6/12/23.

The Seabrooks want Mac (name omitted) to “Testify as a Lay Opinion Witness with Percipient Expert Witness Knowledge Without a Written Report,” and so move, Order, at p. 1. IRS’ counsel want to preclude any of Mac’s expertising; Mac is a GA-Registered Forester and  has four (count ’em, four) decades of experience “regarding forestry practices on the Seabrook Property and the impact of those practices on conservation.” Order, at p. 1.

IRS says the Seabrooks are violating Judge Eminent’s scheduling order with this percipient expert witness with no report jive. Judge Eminent shuts that down, but Mac can rebut IRS’ witnesses.

“Petitioner’s Motion, however, also refers to [Mac] at several points as a ‘percipient expert witness.’ And it makes the following representations about [Mac’s] intended testimony: ‘he will use his specialized knowledge as a Registered Forester to testify as to how active forest management on the Seabrook Property interacts with the habitats on the Seabrook Property’ and his testimony will include ‘how effective timber management has helped habitats generally and not destroy[ed] them.’  These and other similar statements in petitioner’s Motion could be interpreted as petitioner requesting that [Mac] be allowed to testify as an expert witness without filing an expert report. Our Pretrial Scheduling Order… mirrors what the parties proposed and specifically states that ‘[a] party is prohibited from calling any expert witness as part of its case-in-chief if that party has not exchanged and lodged an expert witness report….’ An exception is provided when the expert testimony is offered as rebuttal testimony; however, petitioner’s Motion does not indicate that [Mac’s] testimony is being offered for such a purpose. Accordingly, to the extent petitioner’s Motion requests that [Mac]  be allowed to testify as an expert witness, we will deny it.” Order, at p. 2. (Citations omitted, but get them; this could be a good one for the next Slaughter of the Innocents, the next Tax Court admission exam.)

So Mac is a lay (nonexpert) witness on direct, but only as to what he actually did and does for the Seabrooks; but he can testify, whether percipient or not but an expert nevertheless, on rebuttal.

It’s a many-times-told tale, and I might have skipped blogging it, but just this morning a colleague asked about the income tax consequences of a proposed settlement into which his client was about to enter, and of course I replied to his question with the question first written at the head hereof. I had not yet seen STJ Diana L (“Sidewalks of New York”) Leyden’s off-the-bencher in Troy Christopher Keenan, Docket No. 29299-21S, filed 6/12/23. but STJ Di’s analysis of the deal between Troy and his former employer is a template for cases even more general than the Section 104(a)(2) physical-vs-emotional injury here at issue.

Troy was a ranch manager who quarreled with some clients of the ranch, and stopped showing up. He claimed wrongful termination, and the ranch settled with him by paying $4K for medical insurance, $5K for dropping an age discrimination claim, and $66K for “emotional distress damages and relocation expenses,” Transcript, at p. 5.

Troy’s attempt to use Section 104(a)(2) to avoid tax on the settlement flops.

Troy’s claim he had some physical injuries attended to founders on want of proof that the settlement proceeds were used to pay the expenses thereof, or that his health insurance covered any part thereof. And payments for emotional injuries are exempt only to the extent that said payments are used for medical treatment thereof; again, no proof that proceeds or insurance were used to provide any.

What really was settled, says STJ Di, is an employment dispute. Troy credibly testified that he thought he was being paid for emotional injuries, but the paperwork he signed shows he really settled an employment dispute, Transcript, at pp. 8-9. And the reason I can’t quote STJ Di’s exact language is again that the Genius Baristas have formatted the transcript so I can’t drag-and-drop. What are they afraid of?

Troy does get the Section 6662 chops dropped.

My platform WordPress.com just advised me that I had a reader today on this my blog from an “unknown region.”

Instantly my mind flashed back to Bernie Taupin’s and Sir Elton John’s 1972 classic, and I could imagine my reader reflecting on “all this science I don’t understand/It’s just my job five days a week/A rocket man.”