Judge David Gustafson has corrected his masterpiece Hallmark Research Collective, 159 T. C. 6, corrected 12/5/22.

Unfortunately, Judge Gustafson does not highlight his pentimenti, so I must leave it to my readers to download both the corrected and uncorrected texts, and run whatever software permits a line-by-line comparison.

I regret I have neither the time nor the equipment to do so.

Judge Courtney D (“CD”) Jones, confronted with an arithmetical barrage in Jacqueline Denise Ford & David Lindsay Ford, Docket No. 29172-21L, filed 12/2/22, seeks refuge in a remand to Appeals. She finds it, in a failure by the hard-pressed SO to accord appropriate attention to Jacquie’s return to the office from enforced teletubbying.

In calculating RCP, Judge CD Jones finds SO P (name omitted) should have considered proffered bank statements, pay stubs, and expense statements showing pre-pandemic parking expenses, Order, at p. 10. Parking at the office is necessary for production of income.

SO P also failed to consider personal loans taken out by Jacquie & Dave, although repaying the 401(k) loan Jacquie took out doesn’t make the cut for OIC because necessity not shown.

“However, the same cannot be said regarding the personal loans from Lending Club and Bay Country. The record clearly reflects that both COIC and SO P considered the inclusion of the Fords’ 401(k) loan, but there is scant evidence that the Fords’ personal loans were considered. The record contains one reference to the consideration of the personal loans, wherein the COIC case history states: ‘Other Secured Debt: 401-k loan and personal loans: $1,782 listed and disallowed. Not allowable expenses.’ There is no associated discussion or reasoning following this statement, and it does not appear as if the two personal loans were ever considered by SO P. All other references to the ‘secured debt’ category include a specific mention of the Fords’ 401(k) loan, but do not include any reference to or discussion of either of the Fords’ personal loans.” Order, at p. 12.

This is an IRS motion for summary J sustaining the NOD affirming a NFTL, so Jacquie & Dave get the benefit of every doubt.

There’s an interesting procedural point. Jacquie & Dave contest seven (count ’em, seven) years covered by the NFTL and NOD, but their OIC includes an additional year, for which no collection action has been taken.

“The Fords have failed to present any evidence showing that the IRS issued a notice that would provide this Court with jurisdiction to review the Commissioner’s collection activities relating to [out year], as is their burden. See Abraham v. Commissioner, T.C. Memo. 2021-97, at *10. However, the Court does have jurisdiction to review a settlement officer’s rejection of an OIC that encompasses liabilities for both CDP years and non-CDP years. See, e.g., Flynn v. Commissioner T.C. Memo. 2022-5, at *7 (citing Sullivan v. Commissioner, T.C. Memo. 2009-4, 2009 WL 20979, at *8–9).

“Accordingly, this Court has jurisdiction to review the IRS’s collection activities for taxable years [1 through 7] and the settlement officer’s rejection of the OIC that encompasses both CDP and non-CDP years. However, this Court does not have jurisdiction to review a claim relating to the Commissioner’s collection activities for [out year], and any such claim is dismissed for lack of jurisdiction. See §§6320(c), 6330(d)(1); see also Alt. Pac. Mgmt. Grp., LLC v. Commissioner, 152 T.C. 330, 333 (2019).” Order, at pp. 5-6.

For Abraham, see my blogpost “Lawyers Can’t Add – Part Deux,” 8/3/21; for Flynn, see my blogpost “Accustomed Standard of Living,” 2/3/22; and for Atl. Pac. Mgmt., see my blogpost “The Taxpayer Bill of Goods – Part Deux,” 6/20/19.

When you check out the arithmetical back-and-forth, Taishoff says SO P did a good job.

Of course, Jacquie’s & Dave’s trusty attorneys also did a good job protecting their clients. Their firm is a well-known whiteshoe that donates a great deal pro bono time and effort (hi, Judge Holmes) as calendar call commandos and CPE/CLE providers.

And, purely coincidentally, their firm’s name is also Jones.

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Charlie Dickens’s 1854 serial gives me the title for Kevin T. Lipka and Shelly Z. Lipka, T. C. Memo. 2022-116, filed 12/1/22, as Judge David Gustafson, fresh off his Herculean Hallmark opinion, dives into Reg. Section § 301.6343-1(b)(4) and finds that Kev comes up short in the hardship stakes.

Kev reported, but did not pay tax on, $466K of income in year at issue, because Kev was under criminal indictment in NJ, and available assets were tied up. He also said he was facing heavy-duty legal fees (bit did not quantify same). IRS had given Kev and Shelly a NITL, which they appealed, and when Appeals sustained, they petitioned.

Want of supporting documentation torpedoes a lot of what Kev and Shelly claim, so I’ll focus on economic hardship as basis for release of lien.

“Under the pertinent regulation… IRS Appeals is to consider any information provided by the taxpayer,  including the following: (1) the taxpayer’s age, employment status and history, ability to earn, number of dependents, and status as a dependent of someone else; (2) the amount reasonably necessary for food, clothing, housing, medical expenses, transportation, current tax payments, or other court-ordered payments; (3) the cost of living in the geographic area in which the taxpayer resides; (4) the amount of property exempt from the levy which is available to pay the taxpayer’s expenses; (5) any extraordinary circumstances such as special education expenses, a medical catastrophe, or a natural disaster; and (6) any other factor that the taxpayer claims bears on economic hardship. Treas. Reg.  § 301.6343-1(b)(4)(ii). Reasonable basic living expenses are based on the taxpayer’s circumstances but do not include amounts needed to maintain an affluent or luxurious standard of living. Treas. Reg. § 301.6343-1(b)(4)(i).” T. C. Memo. 2022-116, at p. 9.

Kev and Shelly wanted Appeals to consider the legal fees they would incur in defending the criminal case. “The case activity report reflects that they complained during a telephone conference of ‘a large bill’ associated with the impending criminal matter against  them.  The IRS Appeals officer subsequently asked them for documentation regarding their legal expenses, but the supplemental documentation they provided did not include any legal bills.” T. C. Memo. 2022-116, at p. 9.

I have yet to hear of a criminal defense lawyer who deferred billing when her/his client might go down.  

Takeaway: Defense lawyers bill; if your client is situated as Kev and Shelly, put in the retainer agreement and any invoices you have.

Jim D. Parker should bear through the days ahead like a torch in flame the immortal words of the late great Lawrence Peter Berra first above set forth at the head hereof (as my expensive colleagues would say).

Ch J Kathleen (“TBS = The Big Shillelagh”) Kerrigan D. sent Jim D. off in Mary Y. Escobedo, Docket No. 21183-19, filed 12/1/22. Mary Y., through her trusty attorney, petitioned a SNOD that named both Mary Y. and Jim D. But trusty attorney filed in the name of, and solely on behalf of, Mary Y. And Jim D.’s attempted ratification of said petition is a wee bit beyond the 90-day cutoff. Like a year.

Ch J TBS: “In general, when a notice of deficiency is issued to more than one person, each person wishing to contest it must do so by signing the petition within the specified 90-day period in order to invoke the Court’s jurisdiction. See Rules 34(a), 34(b)(7). Rule 41(a) explains that ‘[n]o amendment shall be allowed after expiration of the time for filing the petition, however, which would involve conferring jurisdiction on the Court over a matter which otherwise would not come within its jurisdiction under the petition as then on file.” In other words, an amendment such as a ratification of petition cannot confer jurisdiction upon the Court where there was none.'” Order, at pp. 1-2.

Jim D., take heart. Taishoff says read and heed the words first written at the head hereof. Move to vacate per Rule 162, and cite Boechler, P. C., No. 20-1472 (2022), U. S. Supreme Court. Tax Court should have considered equitable tolling. When did you first see the SNOD? Did you receive a copy? On what terms were you with Mary Y. when the petition was mailed to you? Did you think Mary Y.’s petition covered you as well as her?

Suppose you lose the vacation, because you don’t have the facts.

All is not lost. Follow the case. When decision is entered and IRS seeks to collect, file for innocent spousery. You may not be able to contest liability for your items, but what about Mary Y.’s?

Talk to IRS’ attorney about settlement.

And if you qualify, talk to a LITC.

Thus I remarked ten (count ’em, ten) years ago. Today Judge Ronald L. (“Ingenuity”) Buch unloads six (count ’em, six) IRS webposts, of which he takes judicial notice. After having noticed, and recounted the post-handoff bobble by AO M. (name omitted), who took the case from AO S. (name omitted), who hadn’t been able to get to her office because COVID, Judge Buch bucks Ryan Michael Sterling, Docket No. 10995-21L, filed 11/30/22, back to Appeals in an off-the-bencher..

Ryan was another victim of the midyear fall from ACA grace when a pay raise or other good fortune lifts the lucky winner above the 400% of poverty limit, causing the APTA cutoff. Since Ryan Michael’s pickup of the overage was a self reported, he never got a SNOD, so he could challenge liability as the CDP he got after IRS gave him a NITL.

But his “no fair” argument wasn’t raised at the telephonic hearing, and even if it had been, “we apply the law as written.” Transcript, at p. 11.

So Ryan Michael is out, right?

No. Because AO S was locked out of her office, whence Ryan Michael had mailed the Form 433-A and supporting documents in support of his IA request, Judge Buch has the webposts to prove the lockout, and Ryan Michael was a believable witness when he swore he mailed the materials timely.

AO M. got the case from AO S. for reasons unexplained. AO M. should have followed up with Ryan Michael before issuing a NOD.

“Here, Mr. Sterling raised the issue of a collection alternative. Generally, it is not an abuse of discretion for a settlement officer to refuse to consider collection alternatives if the taxpayer failed to submit requested financial information. The settlement officer’s failure to follow up with the taxpayer regarding missing information before sustaining a collection action, however, might be considered an abuse of discretion. See, e.g., Lewis v. Commissioner, T.C. Memo. 2012–138, 103 T.C.M. (CCH) 1758, 1761.” Transcript, at p. 12.

For the story on Lewis, see my blogpost “Patching Doesn’t Cover,” 5/16/12. But here the story is worse.

” Ms. S. sent Mr. Sterling a letter scheduling a hearing and requesting collection information. Going into the telephonic hearing, Ms. S. was unaware whether Mr. Sterling had mailed the requested information because she had not been to the office. Ms. S. again requested financial information. Mr. Sterling testified that he promptly mailed the information to Ms. S. The case activity record does not show that anyone followed up with Mr. Sterling, even after his case was reassigned to a new settlement officer, Ms. M. She received the case and immediately proceeded to issue a notice of immediately determination….” Transcript, at pp. 13-14.

But the webposts prove that IRS was well aware that there were more than 2.9 million (count ’em, 2.9 million) pieces of unopened mail sitting in various IRS locations, Transcript, at p.10..

Abuse of discretion. Back to Appeals, and go find Ryan Michael’s packages.

Judge Wells has occasion today to consider the effect of an incarcerated spouse when innocent spousery is on the menu. Here’s Jason Todd Reynolds and Kelli Hunter Reynolds, T. C. Memo. 2022-115, filed 11/30/22.There’s a bunch deficiencies, add-ons and chops (hi, Judge Holmes), but these are conceded. Kelli wants innocent spousery.

Some of the deficiencies arise from Kelli’s unreported unemployment compensation, interest, and legal fees; although employed during some of the years at issue, Kelli also had her own law practice in the basement of their five (count ’em, five) bedroom house. She and JT did have five (count ’em, five) children, the last of whom was born while JT was in the slammer.

JT did provide Kelli with a diamond anniversary ring, a vintage coat (not sure what that is; maybe what thrills Steven Porterfield on Antiques Roadshow), and a designer handbag. Unhappily, JT was adding to his salary with irregular unauthorized donations from the church where he worked as director of finance, for which he eventually took an eight-year fall.

After Judge Wells blows off all Kelli’s arguments for innocent spousery, he is left with the question whether Kelli and JT were married while JT was guesting with the State of Maryland.

“Petitioner wife argues, however, that she is entitled to relief because under Maryland law they became legally separated during petitioner husband’s incarceration. She alternatively argues that they were not members of the same household during that time. We disagree with both arguments. Under Maryland law, there are only two types of judicially sanctioned marital dissolutions: an absolute divorce and a limited one. Each type of divorce requires a judicial decree to be effective. Petitioners do not assert that they ever obtained a judicial decree of legal separation. We therefore reject that argument as providing grounds for section 6015(c) relief.

“We similarly reject petitioner wife’s argument that she had not been a member of the same household as her husband during the 12- month period ending on the date she elected section 6015 relief. The regulations provide that a requesting spouse and a nonrequesting spouse ‘are considered members of the same household during either spouse’s temporary absences from the household if it is reasonable to assume that the absent spouse will return to the household, and the household or a substantially equivalent household is maintained in anticipation of such return.’ Treas. Reg. § 1.6015-3(b)(3)(i). Petitioner husband’s period in federal prison is considered a temporary absence. Id. (‘Examples of temporary absences may include, but are not limited to, absence due to incarceration, illness, business, vacation, military service, or education.’ (Emphasis added.)). Petitioners therefore remained members of the same household during that time.” T. C. Memo. 2022-115, at p. 9. (Citations omitted).

Kelli says she lost the five-bedroom home to foreclosure while JT was doing time. She took the kids and moved in with her parents. That’s compelling, says Judge Wells, but Kelli never sought judicial separation or divorce, and JT promptly moved back in with Kelli and kids as soon as he got outside.

Loyalty defeats innocent spousery.

“Entia non sunt multiplicanda sine necessitate” or “keep it simple, stupid” is a good rule to follow, especially when creating business entities. Today’s Tax Court release features two (count ’em, two) such.

First up, Heather P. Dunn and Edison Dunn, T. C. Memo. 2022-112, filed 11/29/22. Heather and Edison each separately run one real estate operation, and also formed an LLC, which they owned together, to acquire and manage another. But they both have full-time non-real estate jobs, and dodgy time logs for their material participation in the real estate. The LLC had first an on-site agent (Heather and Ed lived 150 miles away) and then a managing agency. What they didn’t have was a Section 469(c)(7)(A) coverall, grouping all their real estate into one activity. This might have saved their real estate pro status. Heather tried to write off her individually owned automobile on the LLC’s return; “Petitioners failed to explain why [LLC] should be entitled to deductions for property it did not own.” T. C. Memo. 2022-112, at p.4.

It doesn’t get better.

Next, Intan N. Ismail & Mohd Razi Abd Rahim, T. C. Memo. 2022-113, filed 11/29/22, claim passthrough deductions from Daddy’s RNR Sendirian Berhad, which is Malaysian for LLC. Except they never showed they owned any interest in said LLC, until in response to an IRS challenge, they produced a “share-swap” agreement that said that In & Mohd would acquire the shares some time after the years at issue. And they backed that up with more paper.

Judge Paris: “During the course of the litigation, Dr. Rahim provided a revised directors’ report for fiscal [Year One] that listed him as owning half the shares of RNR and a directors’ report for the previous fiscal year purporting to reflect his purchase of 250,000 shares of RNR. Given Dr. Rahim’s easy access to the directors’ reports, and ability to influence the contents thereof, and without other evidence to support his purported ownership of RNR, we do not find the revised directors’ report to be credible.

“Neither have petitioners provided any evidence that Dr. Rahim and Mr. Nordin exercised the share swap agreement before the relinquishment date set forth by the express terms of the contract.” T. C. Memo. 2022-113, at p. 8.

And RNR never filed Form 8832, Entity Classification Election, the famous “check-the-box”, electing passthrough status, or Form 8858, Information Return of U.S. Persons With Respect to Foreign Disregarded Entities (FDEs) and Foreign Branches (FBs). In and Mohd listed RNR’s address as Overland Park, KS, and not Malaysia, on the Schedule Cs they filed whereon they reported the losses from RNR.

Watch those entia.

“Bringing Some Discipline”

Boechler, P.C., 142 S. Ct. 1493 (2022), you’ll remember, grafted equitable tolling onto CDP petitions. Now Hallmark Research Collective, 159 T. C. 6, filed 11/29/22, whose motion to vacate the one-day-late based toss of their petition from a SNOD then-Ch J Maurice B (“Mighty Mo”) Foley bucked over to Judge David Gustafson, get their 57 (count ’em, 57) page response.

And it’s a beauty.

The Supremes said equitable tolling was non-jurisdictional in Section 6330 cases, as there was no long line of settled law on CDP petitions. Quite right, says Judge Gustafson; Congress first added CDP petitions to Tax Court jurisprudence in 1998; only 24 (count ’em, 24) years ago. By Tax Court standards, that’s last week.

But the petitioning a SNOD goes back to 1924. For a blow-by-blow enumeration, see 159 T. C. 6, at pp. 43-57. Judge Gustafson catalogues every enactment and amendment of Section 6213 and its ancestors. Nowhere was it ever suggested that the 90-day cutoff was anything but jurisdictional.

Section 7459(d) gets a play. Barring Tax Court from entering decision in the amount sought by IRS when a petition is tossed for want of jurisdiction prevents both an IRS walkover for one day late petitions, and a petitioner from withdrawing a timely petition, thus preventing Tax Court from entering decision in the amount sought.

The Hallmarks try claiming that Section 6214, and not Section 6213 confers jurisdiction. Judge Gustafson says no,. all Section 6214 does is prevent a multiplicity of proceedings, by letting IRS assert a greater deficiency than stated in the SNOD, rather than serving a second SNOD.

You have to read this opinion. If you want someone to dam the silt, buck the case over to Judge David Gustafson.

As there is neither opinion nor order from United States Tax Court worthy of comment today, I withdraw my pass from a request from my colleague Peter Reilly, CPA. Mr. Reilly, as always manifests “the cool clear eyes of a seeker of wisdom and truth,” as Mr. Frank Loesser put it. During this Thanksgiving weekend, Mr. Reilly suggested that it would “(B)e great if you give the Taishoff treatment to that opinion.  It has a lot of interesting elements to it.”

“That opinion” is, of course, the hallowed Cohan v. Com’r, 11 B.T.A. 743 (1928), re’d in part 39 F. 2d 540 (2 Cir, 1930).. George M., theatrical legend whose graven image overlooks the cut-rate ticket outlet at 48th & Broadway on this Minor Outlying Island off the Coast of North America, starred in this epic. Judge Learned Hand’s famous suggestion, which later grew into a mandate less variable than the laws of the Medes and the Persians, in Cohan v. Com’r, 39 F. 2d 540 (2 Cir, 1930), at pp. 543-544 is, my sources tell me, one of the ten most-cited decisions.

“Absolute certainty in such matters is usually impossible and is not necessary; the Board should make as close an approximation as it can, bearing heavily if it chooses upon the taxpayer whose inexactitude is of his own making.”

OK, Mr. Reilly, my unhallowed hands shall now disturb the sacred Sinaiatical pronouncement; the country’s probably done for anyway.

Judge Arundell at the Board (of Tax Appeals, Tax Court’s forebear) found some seven (count ’em, seven) issues upon which to rule. T&E, advertising, and excise taxes, which George M.’s inexactitude gave rise to the famous formula hereinabove set forth, is only one.

There was the famous family partnership between George and Mom, which both Judges Arundell and Hand blew off as an assignment of income. George’s attempt to characterize a gift of the cash generated from certain royalties as an assignment of the right to receive the royalties failed at least as to a one-third share.

George dropped some annuities, and the losses he took survived. George’s short year manoeuver worked. A loan to George M’s former business partner was just that, and not deductible.

But what about the remand? What did the Board allow George M. on the T&E, advertising and excise taxes? Mr. Reilly would like to know. But Google is silent.

The answer lies, I suspect, in the archives of the old B.T.A. But how to access them? Can the Tax Court Copycats work their three-buck magic?

Suggestions welcome.

I’ve probably discomposed as many electrons on the differences between discovery in United States Tax Court and discovery in the Article III courts with which most of my readers are familiar than on any other topic. And nowhere is the difference so great as in nonconsensual depositions. Rule 74(c) sets a very high bar for one seeking same.

Today, in Lakepont Land II, LLC, Lakepoint Land Group, LLC,  Tax Matters Partner, Docket No. 13925-17, filed 11/23/22, Judge Christian N. (“Speedy”) Weiler provides another vestpocket guide to the perplexed. Lakepoint wants to depose a couple IRS employees (hi, Judge Holmes) about whether they were offside on the Section 6751(b) Boss Hoss signoff. IRS wants summary J, Lakepoint wants obviously to stir up some questions of fact.

“Nonconsensual depositions are an extraordinary method of discovery that can only be taken pursuant to an order from our Court. These depositions are available only where a party or nonparty witness can give testimony that is discoverable within the meaning of Rule 70(b) and where such testimony practicably cannot be obtained through informal consultation or communication under Rule 70(a)(1), interrogatories under Rule 71, requests for production of documents under Rule 72, or consensual depositions under Rule 74(b). The decision to require an individual to submit to a nonconsensual discovery deposition is a matter that is solely within the discretion of the presiding judge. In addition to the essential criteria that the moving party must show under Rule 74(c), the Court weighs various factors to determine whether a particular case warrants an extraordinary discovery method. Order at pp. 2-3. (Citation omitted).

The factors are whether the movant has established a specific and compelling basis for the deposition; whether the movant intends the deposition to serve as more than a substitute for cross-examination at trial; and whether the movant has had prior opportunities to obtain the desired information or could obtain it through other means or from another source.

Judge Speedy Weiler seems to think that Lakepoint hasn’t tried every other door; Taishoff thinks that maybe IRS has been stonewalling a wee bit.

Judge Speedy Weiler says this is an attempt to substitute the depositions for cross-examination on the trial. Taishoff says if IRS gets summary J on the chops, what’s to try?

Depositions, consensual or not, are SOP in most courts. Yes, I know Our Fair State’s Civil Practice Law & Rules Section 408; a former associate in a firm in which I was a partner got gigged for hitting this speedbump in a special proceeding. But that’s strictly a one-off.

I know the rationale for Rule 74(c): depositions are expensive, the overwhelming number of Tax Court petitioners are self-represented, and most of their cases are indocumentados. And the defier-protesters would use depositions only to harass IRS personnel.

But the one-size-fits-all approach doesn’t fit all. Big ticket cases with heavy-duty counsel for both sides should follow FRCP 30.