Judge Emin (“Eminent”) Toro surveys the post-Taxpayer First Act Section 6015(e)(7) landscape in Sydney Ann Chaney Thomas, Docket No. 12982-20, filed 4/26/22. There’s a chart at pp. 1-2.

The biggest issue is the administrative record. Since the statute provides, in pertinent part “a determination made under this section shall be reviewed de novo by the Tax Court and shall be based upon (A) the administrative record established at the time of the determination….” Order, at p. 2, how does the Court deal with what’s in it?

Here the admin record includes letters (two of which are notarized) from petitioner’s friends. IRS says “hearsay.” Of course, the letters are hearsay. But Judge Eminent isn’t so sure about excluding them.

“In general, the exclusionary rule in Rule 802 of the Federal Rules of Evidence provides that hearsay is not admissible. By its terms, however, the exclusionary rule applies unless a federal statute, the Federal Rules of Evidence (the ‘Rule Against Hearsay’), or a rule prescribed by the Supreme Court provides otherwise. Fed. R. Evid. 802. It would appear that, by requiring that we review innocent spouse cases ‘based upon . . . the administrative record’, I.R.C. §6015(e)(7) provides otherwise for purposes of this case. We recognize, however, that paragraph (e)(7) is a new provision that our Court has not yet analyzed in depth in the context of evidentiary matters, and we would welcome the parties’ views on this point.” Order, at p. 3. (Footnote omitted).

Likewise, relevance of what is in the admin record is an issue, although the relevance bar is low. Cf. FRE 401.

But really interesting is IRS counsel’s attempt to put in Sydney Ann’s personal blogposts. These weren’t in the admin record, but counsel claims “newly discovered,” Section 6015(e)(7)(B).

Judge Eminent has a dinner menu of questions and hints-and-kinks about this Stout Cortezery (yes, I know it was Balboa, but Keats thought Cortez scanned better), including without in any way limiting the generality of the foregoing a dictionary chaw worthy of ex-Ch J Michael B (“Iron Mike”) Thornton.

“Should the phrase ‘newly discovered evidence’ be given its ordinary meaning (e.g., evidence that was not “found out” before a relevant time) or should it be viewed as a term of art? See, e.g., Discover, OED.com, https://www.oed.com/view/Entry/54005?redirectedFrom=discover& (last visited April 14, 2022); see also Discover, Mirriam-Webster.com, https://www.merriam-webster.com/dictionary/discover (last visited April 14, 2022) defining ‘discover’ in relevant part to mean ‘to obtain sight or knowledge of for the first time’ or to ‘find out’?” Order, at p. 5.

But read all nine (count ’em, nine) conundra that Judge Eminent unloads, Order at pp. 5-6. And if your head starts to spin, lie down and rest a while. While you’re lying down and rising up, spare a thought for poor Sydney Ann, who’s pro se.

There’s also argy-bargy about stuff from a Ch 13 filing Sydney Ann made but that got tossed for nonpayment. IRS claims that’s not newly-discovered, but IRS and Sydney Ann stiped in some of the bankruptcy file, so why is IRS ambushed by this other stuff?

The real takeaway here is that, if this case goes any farther, the Cincinnati (that’s the reviewers of innocent spousery, not Washington’s officers) will start vigorously pruning the admin record, to keep out anything that helps the innocent. So keep copies of everything you send to the Cincinnati, and get itemized receipts for what you sent. Be prepared for a top-fuel challenge to the admin record proffered at petition time if what you sent, like love for the late great John Lennon, “has a nasty habit of disappearing overnight.”

As the CLE floggers never fail to point out, win your case at discovery. But Judge Eminent has a new twist: when it comes to innocent spousery, win your case at newly-discovery.

The elusive Michael T. Sestak, T. C.  Memo. 2022-41, filed 4/25/22, is back, but not for further epistolary jousting with IRS. This time Mike wants a tax loss for the forced sale of the Thai real estate whereat he parked the bribe money he took for selling US immigration visas.

Judge Christian N. (“Speedy”) Weiler has the sorry tale of Mike’s delictions. As part of the fall he took in USDCDC, Mike agreed to the sale, proceeds to go toward the $6 million money judgment the US of A was taking against him.

The sale fell short of what Mike had paid. Mike claims he was renting the Thai property. He wants a loss offsetting his liability.

“Federal courts consistently have disallowed loss deductions where the deduction would frustrate a sharply defined federal or state policy. The test of ‘nondeductibility on public policy grounds under section 165’ is the severity and immediacy of the frustration of a ‘sharply defined national or state policy’ that would result from allowance of the deduction.” T. C. Memo. 2022-41, at p. 7.

The cases Mike cites are payments to other than Federal or State governments. And public policy is clear: forfeitures sting. Neither Section 165 nor Section 162 helps Mike, and he didn’t argue Section 212. This is not an income tax case, this is a forfeiture of ill-gotten gains.

Mike doesn’t get a Taishoff “Good Try,” but he does get a Taishoff “Metallica”.

I will spare Chief Clerk Servoss any correspondence from me anent Ch J Maurice B (“Mighty Mo”) Foley’s proposed amendments to the Rules. Rather than offer my comments and suggestions for embalming in an administrative record that, more likely than not, will never see the light of day, I can secure a wider audience for them on my own account, right here.

Today I revert yet again to Rule 24, untouched by Ch J Mighty Mo’s latest effort.

Here’s Tumi Staffing, Inc., Docket No. 8667-22L, filed 4/25/22. And here’s why Rule 24 should be brought to the end of the Eighteenth Century, when law firms first in the courtroom bloomed in Our Fair City.

“When a petition is electronically filed with the Court, the combination of the username and password of the individual eFiling the petition serves as the signature of the individual filing the petition. If the petition is being filed by multiple practitioners, the Petition should be signed by the additional practitioners. However,  review shows that the petition bears a stylized signature of counsel Jaime Vasquez and does not bear signatures of counsels Adrian Ochoa and Victor Viser. The Tax Court’s procedures require at a minimum a digital image of an actual signature or use of an authentication program. See DAWSON User Guides on the Court’s website, http://www.ustaxcourt.gov. If petitioner’s counsels wish to be recognized as counsel of record in this case, it will be necessary at this juncture to electronically file an entry of appearance on behalf of petitioner in accordance with Rule 24 Tax Court Rules of Practice and Procedure. Petitioners’ counsel may obtain an Entry of Appearance form under ‘Case Related Forms’ on the Tax Court’s website at http://www.ustaxcourt.gov/case_related_forms.html.” Order, at p. 1.

Of course, all Tax Court regulars know the three attorneys hereinabove referred to are on the team of a well-known and well-regarded tax litigation law firm.

So why no law firm entry of appearance form?

With a firm entry of appearance, a single click can enter all of its USTC admitted attorneys and appoint a lead attorney for all communications. It will be the duty of the lead attorney to arrange for any individual or team actions in the case, including making and responding to motions, making any necessary appearances (in-person or Zoomgov), conducting phoneathons, covering discovery, and anything else.

Whenever a client engages or retains a law firm, retainer and engagement agreements come from the law firms, not any individual attorney.

Lawyers take vacations, fall ill, have family emergencies, take family leave, attend CLE courses and conventions, are working on more than one matter at a time, have appearances scheduled at the same date and time for more than one case. Anyone who has ever been in a law firm knows that s/he may be called upon at any time to “cover” for a colleague with less than ten minutes’ notice.

Every other court I know of recognizes this, and lets any admitted attorney in a firm cover a case.

Why is Tax Court different?

it’s the usual Section 6511 credit-for-overpayment lookback case, but John R. Moran & Carolyn P. Moran, Docket No. 1934-20, filed 4/22/22, signed a Form 872 SOL extender, so Section 6511(c)(2) is in play. This gives an extended lookback to six (count ’em, six) months after assessment can be made under the extender deal. But this only covers “…the portion of the tax paid after the execution of the agreement and before the filing of the claim or the making of the credit or refund, as the case may be, plus the portion of the tax paid within the period which would be applicable under subsection (b)(2) if a claim had been filed on the date the agreement was executed.” Order, at pp. 4-5.

Subsection (b)(2) provides the three-year-or-two-year lookback.

John & Carolyn claim three years, because they made an oral claim at exam.

Unhappily, they stiped that they had made no claim prior to issuance of the SNOD. Judge Ashford is not letting them out. So two years doesn’t help them, as the clock has run.

But even if John & Carolyn had made an oral claim and not stiped, an oral claim is a no-go.

“While a taxpayer’s request for refund that does not meet all of the requirements of a formal claim for refund may nevertheless be treated as a claim that may later be perfected for the purposes of the limitations of section 6511…, as respondent also correctly points out, even an informal request for refund must include a written component…. Conversations between a taxpayer or a taxpayer’s representative and an IRS revenue agent may not serve as a substitute for a written claim for refund. Thus, even if petitioners’ allegations regarding oral statements made during the examination of the [year at issue] return are accepted as true, those statements do not constitute a valid informal or protective claim for refund.” Order, at pp. 5-6 (Citations omitted).

IRS agrees there’s a $29K overpayment, but John & Carolyn get none of it, either by way of cash or credit.

Takeaway- Ya gotta try it. Make the written claim, if you have any colorable grounds. Make it early, at exam. Make it again in your petition. Just don’t be frivolous; even if you aren’t chopped, you blow your credibility if you frivol.

Stalwart to the end of his chieftainship, Ch J Maurice B (“Mighty Mo”) Foley strives to keep errant petitioners on the straight-and-narrow. But in the case of Ferlencia Aispuro, Docket No. 33825-21, filed 4/21/22, I fear an even greater effort will be needed than today’s order manifests.

IRS has moved to strike Ferlenica’s petition (apparently from a SNOD) for failure to state a claim. Not having seen the petition, I cannot comment, but I am certain neither of the two (count ’em, two) attorneys to whom the case was assigned would incur the Court’s wrath with a frivolous motion. And apparently one of those counsel moved to withdraw after the motion was made, also certain that the motion would be granted, and his/her presence would no longer be required.

So Ch J Mighty Mo orders Ferlencia to respond to the motion.

And, while she’s about it, “…petitioner may file with the Court a proper amended petition (see attached form) that sets forth clear and concise assignments of each and every error that petitioner alleges to have been committed by the Commissioner in the determination of the deficiencies, additions to tax, and/or penalties in dispute in this case, and/or the determination regarding any collection action in dispute in this case, and clear and concise lettered statements of the facts on which petitioner bases the assignments of error. See Rules 34(b), 331(b), Tax Court Rules of Practice and Procedure; Jarvis v. Commissioner, 78 T.C. 646, 658 (1982).” Order, at p. 1.

Now for the above-referred-to bet.

I am prepared to wager a couple ales and maybe even a plate French fries at Jake’s Saloon on 23rd and Seventh on this Minor Outlying Island off the North American Coast (hi, Judge Holmes, want in on the bet?) that Ferlencia can better unpack Andy Wiles’ proof of a special case of the modularity theorem for elliptic curves, a/k/a Fermat’s Last Theorem, than Your Honor’s order above-quoted.

I suggest something like “Tell me what specific facts IRS got wrong, and tell me specifically what they got wrong about the law. And keep it as simple as possible, but not more simple.”

I recently opined that “when Congress starves the IRS, it isn’t the IRS that is hurt, it is the honest taxpayers.” See my blogpost “Starvation Hurts,” 3/15/22. But apparently some nutriment got through, because IRS was vigorously recruiting litigation counsel. See my blogpost “The Teddy Roosevelt Gambit,” 1/21/22.

OK, great, now we can cheer the IRS’ new-fledged myrmidons in Wystan Hugh Auden’s immortal words “Agents of the Fisc pursue/Absconding tax-defaulters through/The sewers of provincial towns.”

But do we really need three such agents to try the case of Christian Sezonov and Francine M. Sezonov, T. C. Memo. 2022-40, filed 4/20/22? OCC put three  (count ’em, three) of “these few, these happy few” on a Section 469(c)(7)(B) real estate pro case that was dead long before arrival.

Check out Chris’ and Francine’s summaries of their post-event, ballpark guesstimates of the hours they spent professionally real estating, T. C. Memo. 2022-40, at p. 3.

What’s wrong with this picture?

Ex-Ch J L Paige (“Iron Fist”) Marvel will tell us, if we hadn’t already found out.

“Both Mr. and Mrs. Sezonov’s estimated hours fall well short of the 750 hours that are required to qualify them as real estate professionals in each of the years at issue.”  T. C. Memo. 2022-40, at p. 6.

Now I don’t know what other issues there were to hash out, so maybe three IRS attorneys were necessary to get to this point. But when this case went to trial there was only the Section 469(c)(7)(B) issue left standing. So why didn’t two of the three go do something else? Or maybe just move for summary J; assuming that Chris’ and Francine’s numbers were spot on, they still lose.

Starvation sure hurts, but worse than starvation is failure to deploy effectively and economically the resources you do have.

Just ask Vlad. But this is a nonpolitical blog.

In addition to showing David Isaac Bindel, T. C. Memo. 2022-39, filed 4/20/22, the Section 6673 frivolity yellow card lest he repeat the “mine-run of tax-defier arguments” he trundled out, T. C. Memo. 2022-39, at p. 4, footnote 4, Judge Patrick J. (“Scholar Pat”) Urda should have directed Davy to the above-set-forth advice from an authority even higher than the United States Tax Court.

In addition to the time-worn Subtitle C payroll tax gambit to defeat salary and wages, Davy claims he didn’t get the $20 shown on a W-2 from a software outfit for whom he developed something.

But Davy seriously overplayed his hand.

“Although Mr. Bindel testified at trial that [outfit] did not pay him $20 in [year at issue], we find this testimony not credible. The record before us contains a [year at issue] Form W-2, Wage and Tax Statement, from [outfit] that reflects a $20 payment and Social Security and Medicare tax withholdings totaling $1.53. Mr. Bindel reported no wages  (or other income aside from $118 in interest income) on his [year at issue] income tax return, consistent with his position that his earnings are not taxable under the Internal Revenue Code. On Form 4852, Substitute for Form W-2, Wage and Tax Statement, or Form 1099-R, Distributions From Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc., which he attached to his [year at issue] return, Mr. Bindel reported $1.53 in Social Security and Medicare tax withholdings by [outfit]. Mr. Bindel’s affirmative decision to report the exact amount of withholdings associated with a $20 payment (as part of his broader effort to seek a refund) belies his testimony and supports the existence of the $20 payment reflected on the [year at issue] [outfit] Form W-2.” T. C. Memo. 2022-39, at p. 2, footnote 3.

Today Dock D. Treece gives us a doubleheader, Treece Financial Services Group, 158 T. C. 6, filed 4/19/22, and Treece Investment Advisory Corp., T.C. Memo. 2022-38, same date.

Spoiler alert: Dock is principal of both, and stips he’s an employee and ineligble for SSA §530 treatment. He’s also recipient (through these entities) of Letter 3523, Notice of Employment Tax Determination Under IRC 7436, for an aggregate FICA/FUTA/ITW hit north of $66K, plus add-ons and chops (but IRS concedes those).

Dock wants the benefit of the Voluntary Classification Settlement Program (VCSP), more particularly bounded and described in I.R.S. Announcement 2012-45, 2012-51 I.R.B. 724. This is a play nice, come clean, and we’ll give ya a discount deal.

Two issues in both cases: Has Tax Court jurisdiction to decide whether Dock’s outfits made the VCSP cut? And Dock wants summary J that it has made the cut.

ChJiW (Ch J in waiting) Kathleen (“TBS = The Big Shillelagh”) Kerrigan: “Generally, we have jurisdiction under section 7436(a) to determine: (1) whether an individual providing services to a person is that person’s employee for purposes of subtitle C;  (2) whether the person, if an employer, is entitled to relief under section 530 of the Revenue Act of 1978; and (3) the proper amounts of employment taxes which relate to the Commissioner’s determination concerning worker classification.” 158 T. C. 6, at p. 4.

The 2000 amendment to Section 7436 says Tax Court can do more than merely decide if an individual is an EE or IC. There’s also a strong presumption in favor of jurisdiction.

“Because the denial of a taxpayer’s eligibility for VCSP directly affects the amounts of tax, the procedures that Congress has established for judicial review of the Commissioner’s determinations logically contemplate review of such a denial as one element of the determination.” 158 T. C. 6, at p. 5.

So yes, Tax Court can decide if Dock’s outfits made the VCSP cut.

But Dock isn’t home-and-dry yet.

The VCSP says if you’re under employment audit, you can’t opt into VCSP. It’s not a free ride for those already collared. And IRS says the Letters 3523 show Dock had already been audited.

Not quite. “We conclude that whether there was an employment tax audit is a dispute of material fact, and therefore we will deny petitioner’s Motion for Summary Judgment.” 158 T. C. 6, at p. 6.

Well, we know the date of the Letter 3523 (10/10/19); we know the date of filing of the petition (11/25/19). We don’t know the date when Dock filed the Form 8952, Application for Voluntary Classification Settlement Program (VCSP). And we don’t know the date of the commencement of whatever led to the Letter 3523, be that audit or something else (whistleblower?). And is “commencement” measured like Boss Hossery, from the first instant?

Should be an interesting trial.

No, this is not another paean to Rule 121; Judge Courtney D (“CD”) Jones disfavors a summary of transactions proffered by Todd Kohout and Lisa M. Kohout, T. C. Memo. 2022-37, filed 4/18/22. The half-battalion of my combat-hardened veteran readers are fully conversant with FRE 1006. Where stuff is voluminous, so that it can’t be conveniently examined in court, the proponent of the stuff (that’s the side that wants it in evidence) can introduce charts, calculations, and summaries, provided same fairly summarize the stuff.

Todd did his own records, and maybe his return and that of his Sub S, but some records he changed after he prepared the returns, and some got lost when his computer crashed. So he hired a trusty CPA with Big Four experience to reconstruct records and summarize same. But the summaries characterized items, and the CPA “took ‘[Mr. Kohout’s] word for it’ when he would inform him of the nature of certain transactions.” T. C. Memo. 2022-37, at p. 9.

And some of the characterizations are belied by the record.

Judge CD Jones exercises her judgment, and summarily bounces the summaries.

Todd also amended his petition after he entered into two (count ’em, two) stips of settled issues, to claim he overstated receipts by more than the deficiency, and that he had enough basis in the Sub S to take better than $100K of losses. Needless to say, the record supports none thereof.

Takeaway- Courts love summaries…if they are summaries.

It’s that form again, Form 8082, Notice of Inconsistent Treatment or Administrative Adjustment Request, which Urban Dynamic, LLC, Resurgam Equity Investments, LLC, Tax Matters Partner, Docket No. 15755-19, filed 4/15/22, didn’t file with any of the multiple returns they filed for the two (count ’em, two) years at issue. The Form 8082 they did file came after the upper-tier partnership (of which UD was a partner) had gotten a “no change” for the years at issue, and UD had gotten a FPAA. The Forms 8275 Disclosure that UD filed with earlier returns disclosed basis enhancements in UD’s piece of the upper-tier that UD claims the upper-tier partnership got wrong, but that’s not enough for ChJIW (Chief Judge in Waiting) Kathleen (“TBS = The Big Shillelagh”) Kerrigan.

The upper-tier partnership makes the basis calls, and if the lower-tier partnership dissents, then they should file Form 8082. And get involved when the upper-tier partnership gets Letter 1787-F. Better yet, when the lower-tier partner contributes property to the upper-tier, spell out the basis.

“Partnership items include items relating to contributions to a partnership, to the extent that a determination of such items can be made from determinations that the partnership is required to make with respect to an amount, the character of an amount, or the percentage interest of a partner in the partnership, for purposes of the partnership books and records or for purposes of furnishing information to a partner. The determinations a partnership is required to make include the basis to the partnership of the contributed property, including necessary preliminary determinations, such as the partner’s basis in the contributed property. Treas. Reg. § 301.6231(a)(3)-1(c)(2)(iv). Failure by the partnership to make such determinations—for example, because it does not maintain proper books and records—does not prevent an item from being a partnership item.” Order, at p. 5. (Citations omitted).

And that means that the basis adjustments had to be hashed out in a FPAA for the upper-tier partnership, or else Tax Court has no jurisdiction. The items are partnership-level items, not partner-level items. And IRS never said they would treat these items as partner-level items for UD.

Now before my ultra-hip readers refer me to the Bipartisan Budget Act of 2015 and the regulations thereunder, note that the one of the years at issue was before the effective date of the BBA, and UD didn’t elect to use the BBA for the second year.

I can’t wait to see how a case like this would play out under the new régime.