No, it’s not my horn I’m tooting. I’m calling once again for reform of standards for admission to practice before United States Tax Court. There should be an examination for attorneys, wherever else they may be admitted and however highly spoken of they might be in other venues. It’s going on ten (count ’em, ten) years since my “modest proposal” pancaked onto deaf ears. See my blogpost “A Book and a Modest Proposal,” 5/22/12.

I’m not going to go over STJ Eunkyong (“N’Yawk”) Choi’s Order in Isobel Berry Culp and David Culp, Docket No. 14054-21, filed 2/15/22. My sources tell me that Ms. and Mr. Culp are lawyers in the Philadelphia area. For that reason, they are entitled to automatic admission to the Tax Court Bar.

STJ N’Yawk Choi makes my point far better than I could. I most respectfully direct your attention to Her Honor’s Order.

Judge Patrick J. (“Scholar Pat”) Urda looks deep into the craft of steamfitter in James P. Harwood and Connie J. Harwood, T. C. Memo. 2022-8, filed 2/15/22.

“According to the U.S. Bureau of Labor Statistics, steamfitters ‘specialize in systems that are designed for the flow of liquids or gases at high pressure.’ What Plumbers, Pipefitters, and Steamfitters Do, Occupational Outlook Handbook, U.S.  Bureau of Lab. Stat., https://www.bls.gov/ooh/construction-and-extraction/plumbers-pipefitters-and-steamfitters.htm#tab-2 (last visited Feb. 10, 2022)” T. C. Memo. 2022-8, at p. 2, footnote 2.

Judge Scholar Pat must have a good deal of fellow-feeling for Jim, as each in his own way plies similar crafts. Jim deals with high-pressure gasses in industrial settings; Judge Scholar Pat gets his high-pressure gas delivered by counsel at trial or oral argument. And we need both steamfitters and judges, else neither pipes nor precedents would stand up under continuous high pressure.

Jim’s contretemps with IRS stems from his now-mothballed unreimbursed employee travel expenses travel, which were live issues back in the day. Jim wandered “far and wee” but mostly through the jurisdiction of Plumbers and Steamfitters Union Local 598, whence came Jim’s work assignments; and when he wandered outside the 598 swath, he got his “travel card” ticket to work where other locals ruled.

But his heart, hearth and home were in Yakima, WA, where he and Ms Connie raised their family. When he wandered from job to job (that being the steamfitter’s life), he kept a log. Hard-hearted IRS said the Yakima homestead was for Jim’s convenience; as all Jim’s jobs for years at issue were short and of uncertain duration (lasting less than a year), Jim had no permanent tax home, so he had no travel expenses.

Judge Scholar Pat holds otherwise.

“We consider whether the taxpayer (1) incurs duplicate living expenses while traveling and maintaining the home, (2) has personal and historical connections to the home, and (3) has a business justification for maintaining the home.” T. C. Memo. 2022-8, at p. 10. (Citations omitted).

Jim definitely has two of the above. It’s the third that divides the parties.

“We are satisfied that Mr. Harwood had a sufficient business reason for living in Yakima. He was a member of a union local with a geographically disparate territory. Although he had not worked jobs in Yakima since 2005, almost all of his work during 2015–17 was within the Local’s footprint, with some assignments closer to his house than the hall in Pasco… and some further away…. We believe that his union membership, which gave him access to jobs within the union’s expansive territory, provided an adequate business justification for continuing to live in Yakima.” Order, at p. 11. (Citations omitted, but see my blogpost “I’m Stickin’ to th’ Union,” 9/21/11).

Judge Scholar Pat even judicially notices the map of Local 598’s territory, and includes same in T. C. Memo. 2022-8, at p. 2.

But there’s a noteworthy wrinkle here.

“…a taxpayer may deduct travel expenses between his or her residence and temporary work locations outside of the “metropolitan area” where the taxpayer lives and normally works. Thus, if a taxpayer usually works in Chicago, she may be entitled to deduct expenses if she drove back and forth to a worksite in Springfield. Although Mr. Harwood lives in Yakima, he does not normally work there, instead working throughout the disparate territorial jurisdiction of the Local. His travel accordingly does not qualify for this exception.” T. C. Memo. 2022-8, at p. 15, footnote 9. (Citations omitted).

Judge Albert G (“Scholar Al”) Lauber has acquired that sobriquet through much labor. My colleague Peter Reilly, CPA, a schoolmate of Judge Lauber’s at an elite boys’ high school (one of my nephews is also an alumnus), has remarked on Judge Scholar Al’s stand-out academics at the old school. But he must be echoing Sherlock Holmes’ famous remark “I am somewhat exhausted; I wonder how a battery feels when it pours electricity into a non-conductor?” after dealing with Gregory J. Podlucky & Karla S. Podlucky, Docket No. 453-17, filed 2/14/22.

Greg moves Judge Scholar Al to recuse himself.

“On June 21, 2021, he filed a 244-page motion asserting (among other things) that respondent has ‘perpetrat[ed] fraud [on] this Court by proceeding with the prosecution of the void Notice of Deficiency by and through a want of subject-matter jurisdiction.’ Later that day he filed a 199-page motion asserting that ‘the Federal Tax Statutes are clearly in derogation of personal rights and property rights.’ We denied both motions and reiterated our warning about frivolous arguments. Undeterred, petitioner husband filed on July 12, 2021, a 545-page document asserting (among other things) that there is no ‘enforcement clause in the 16th Amendment’ and that ‘the citing . . . of any statutes in Title 26 . . . [is] both unconstitutional and fraudulent.’” Order, at p. 2.

Judge Scholar Al, patiently: “At trial we reasonably characterized these positions as ‘frivolous.’” Order, idem., as my expensive colleagues would say.

But Greg is just warming up.

“Petitioners also assert that the Court showed bias by embracing respondent’s position on the central question in the case, namely, whether assets from petitioners’ corporation were diverted to them personally. In this passage the Court was urging Mr. Podlucky to use his time at trial to present testimony and evidence that were relevant to the issues the Court had to decide. The Court summarized respondent’s position and urged Mr. Podlucky to address it forthrightly rather than digress into facts that did not matter. In so doing the Court was attempting to help Mr. Podlucky, a pro se litigant, present his case more effectively.” Order, at p. 2.

Judge, it’s an old saw that should really be pensioned-off: “To present a case, you need to have a case.”

This is another instance of British Army slang going back more than 100 years. One authority defines it as “A soldiers’ greeting to a shower of rain likely to postpone a parade.” Although the “David” in the phrase is not otherwise identified, I maintain David refers to St. David, Welsh bishop of Mynyw during the 6th century, patron saint of Wales. Wherefore, the phrase may have started with a Welsh regiment’s distaste for regimentation in the rain, and their invocation of their homeland’s patron for deliverance.

However all that may be, today we have two Davids sending it down, Dave Hewitt, the victor in 11 Cir’s view of Reg. Section 1.170A-14(g)(6)(ii), and that Obliging Jurist, Judge David Gustafson. And the two Davids are sending down Habitat Green Investments, LLC, MM Bulldawg Manager, LLC, Tax Matters Partner, Docket No. 14433-17, filed 2/14/22, and two (count ’em, two) companions, all Bulldawg-managed and all whanged with Oakbrook pre-Hewitt.

There are consolidated motions for leave to file out-of-time reconsiderations. You’ll recall the Dawgs lost back in 2019, moved to reconsider in 2020, lost again, but then came Hewitt.

Of course, Judge David Gustafson, noting that appeals here go to 11 Cir, grants the late filing. But IRS is at its usual crafty maneuvering.

“The motions for leave state that the Commissioner does not object to those motions (i.e., does not object to the filing of the motions for reconsideration), and we will therefore grant the motions for leave and will file the motions for reconsideration that were lodged with them. However, the motions state that the Commissioner objects to the motions for reconsideration.” Order, at p. 2. (Emphasis by the Court).

So let IRS respond. But while IRS is trying to salvage the wreckage of its reading of the Proceeds Regulation, Judge David Gustafson sends down a wee reminder.

“We note that in response to an apparently equivalent motion in Oconee Landing Property, LLC v. Commissioner,  No. 11814-19, the Commissioner filed on January 27, 2022, ‘Respondent’s Notice of No Objection’. We do not insist that the Commissioner is obliged to take the same position in this case as in Oconee Landing, but that position does seem reasonable in light of the Eleventh Circuit’s reversal of Hewitt.” Order, at p. 2.

Another major silt-stir has arrived, with blogfodder galore. Send it down, David, indeed!

Judge Christian N. (“Speedy”) Weiler denies two appraisers the chance to intervene in opposing IRS’ motions to compel their depositions in Green Valley Investors, LLC,  Bobby A. Branch, Tax Matters Partner, et. al., Docket No. 17379-19, filed 2/11/22.

And he echoes Yeats’ Irish fighter pilot: “No likely end could bring them loss or leave them happier than before.”

Tax Court has no equivalent to FRCP 24; there are individual Tax Court rules, and Judge Speedy Weiler lays them out, Order, at p. 7.  Those, however, are for specific proceedings permitted by statute. But Tax Court can draw on FRCP 24 for the odd off-menu situation. See my blogpost “Snow(den) Job,” 7/18/16.

However, the would-be intervenor needs to show the outcome of the case would effect a seismic shift in their own life. The appraisers don’t make the cut.

“Messrs. V and W do not present any questions of law or fact in common with the main action in these cases. Messrs. V and W aver they are seeking intervention since they are both currently being investigated by respondent and respondent is also investigating several of their clients, and intervention is necessary to ensure that they and their clients’ rights are protected. As far as we can tell, however, Messrs. V and W fail to describe a ‘claim or defense’ they have, much less a claim or defense that they share with petitioners. Accordingly, we do not find the intervention of Messrs. V and W in these consolidated cases to be appropriate.” Order, at p. 8 (Names omitted).

IRS also wanted to depose the appraisers to ascertain basis for the Greeners’ reliance on their opinions, but the Greeners had already given IRS 8000 (count ’em, 8000) pages of documents, and Bobby Branch, the TMP, is the go-to party.

“First, we find that respondent has not demonstrated a specific need to take depositions in these cases. Respondent seeks information to determine whether the LLCs acted reasonably and in good faith in hiring the advisors and relying on their appraisals. Petitioners’ knowledge regarding the Properties’ transfer history, Mr. Branch’s professional background, specifically his experiences and knowledge in the real estate and mining industries, are important in determining these issues. However, while we previously found respondent needs to depose Mr. Branch to understand his personal knowledge, understanding, and beliefs at the time of the valuation as appropriate, we do not find that respondent has established such a need to depose the deponents. It is Mr. Branch’s state of mind, as the Tax Matters Partner, that is relevant in this determination. While reliance is at issue in this case, much of the information sought from the deponents is duplicative to that sought from petitioners and Mr.  Branch. Respondent has failed to show that the depositions would yield specific and precise factual information essential to the remaining issues in these cases or could lead to such admissible evidence that could not otherwise be obtained in the deposition of Mr. Branch.” Order, at pp. 6-7. (Citation omitted).

Remember, depositions, which are free for the asking everywhere else, are “extraordinary” in US Tax Court.

Those who at best lament, and at worst disparage, the hypertechnical, dry-as-dust arcana that (they believe) constitute tax practice really miss the human comedy (or tragicomedy), that is played out before them.

I didn’t blog Nikta Fatemeh Abdolrahim and Melvin Collins, T. C. Memo. 2020-50, filed 4/3/20. I thought the three (count ’em, three) orders I posted that day were more interesting than another preparer-gone-wrong story. And Nik and Mel had appeared before; see my blogpost “Residuals,” 4/25/18, which spoke of the fraud chops wherewith Nik and Mel were mulcted by Judge Tamara Ashcroft.

Today Judge Ashcroft enters decision (that’s what we State courtiers call a “judgment”) per Rule 155, the rule that is supposed to shield judges from having to do arithmetic to decide who owes what, a variant on our State “settle judgment on notice” judicial gambit (see my blogpost “Settle Order on Notice,” 6/23/17).

Of course Nik and Mel try to relitigate the numbers in the beancount, and lose. I’ll blog the order at Docket No. 9650-14, filed 2/10/22, not for the maneuvering, but for the result. And that’s what the human tragicomedy is about, “hearing oftentimes/The still, sad music of humanity.”

Year One, deficiency $8400, Section 6663(a) chop $6300. Year Two, deficiency $8800, Section 6663(a) chop a poetical $6664. I know, add a zero, as ex-Ch J L Paige (“Iron Fist”) Marvel so wisely put it. Both Nik and Mel had extensive educations, and income that most would envy. But I don’t know, and can’t know, what stresses they were under. Much less can I pretend that I would, or did, or could, do better in like circumstance.

But this is really what tax practice is about: real people, real stress.

So, to my brethren and sistern at the personal injury, criminal, and family law bars, all law is ultimately about people. Even our little corner of the world.

This is a tactic worth considering. Piedmont Breeze, LLC, Greencone Investments, LLC, Tax Matters Partner, Docket No. 12011-20, filed 2/9/22, uses it to narrow the issues for trial by trotting out their motion before even the show-and-tell, play-nice, of Tax Court’s usual discovery quadrille.

It’s another marked-up GA boondock conservation easement.

The Breezes claim that they “…had “satisfied all section 170 elements’ needed to sustain its charitable contribution deduction. It filed this motion before respondent had had the opportunity to pursue informal discovery or engage in discussions regarding stipulations of fact. Petitioner allegedly filed its motion at an early stage of the litigation in order to spare the Court from the ‘backbreaking burden in having to endure ersatz disputes on the scores of incontestable section 170 elements.’ Petitioner subsequently filed a motion for oral argument.” Order, at p. 1.(Footnote omitted).

Now I’d expect a Branerton lecture from Judge Albert G (“Scholar Al”) Lauber, extolling the merits of collaborative fact stipulation and issue-framing.

But there’s no need, as IRS has used the interval between the Breezes’ motions to engage in some informal discovery and “… appears to agree that (1) Piedmont conveyed a valid real property interest, (2) the property interest was granted in perpetuity, (3) [501(c)(3)] was a ‘qualified organization,’ (4) Piedmont obtained sufficient ‘baseline documentation,’ (5) Piedmont obtained a sufficient ‘contemporaneous written acknowledgement,’ (6) the land was not secured by a mortgage, (7) the easement deed contains no ‘judicial extinguishment’ problem, and (8) Piedmont obtained a ‘qualified appraisal’ prepared by a ‘qualified appraiser’.” Order, at p. 3, footnote 3.

OK, so what is there to try? My ultra-sophisticated boondock-bashing readers will cry with one voice “Valuation!”

Yes, but.

Judge Scholar Al seems to think there’s some problem with the Breezes’ reservation of rights respecting hunting stands, viewing platforms, picnic tables, fences, and ponds, as to all which the Breezes needn’t consult the 501(c(3). Order, at p. 4. This impacts perpetuity, and perpetuity is a fact question. Order, at pp. 4-5.

So two (count ’em, two) fact questions. Of course, post-Hewitt, I’d not lean too heavily on “highly contestable readings of what it means to be perpetual,” especially when I’m leaning on picnic tables in GA scrub.

But the Breezes’ early attack moved the football; Go Dawgs!, as they say in Georgia.

Once again, that Obliging Jurist, Judge David Gustafson, the friend of the litigant both IRS and petitioner, will help both sides draft their papers, assemble their trial exhibits, and negotiate a continuance. Here’s Stephen Cary, Docket 9745-20, filed 2/9/22.

Stephen petitioned “…more than 20 months ago. We issued a notice of trial and a standing pretrial order … more than four months ago … setting this case for trial at a session beginning February 7, 2022.” Order, at p. 1.

IRS moves to toss last month for want of prosecution. Judge Gustafson sets up a phoneathon, wherein Stephen claims he’s disabled. Judge Gustafson accepts that, and moreover all sides agree that what Stephen paid in year at issue would cover the disputed IRA distribution (which Stephen says he never got, but IRS has the 1099-R). IRS wants a decision confirming the assessed tax, but Stephen claims additional deductions (unspecified) and says his disability is reasonable cause for no chops. He also refuses a next friend appointment.

So Judge Gustafson tells IRS’ counsel to move for summary J, and tells her what to put in her pleadings. He tells Stephen how to respond. He bargains Stephen down and IRS up, and gets a three-month continuance.

This is a good use of summary J, to smoke out both sides. Stephen will have to do more than simply claim “I didn’t get it,” and IRS will have to subpoena the IRS trustee’s records to show payment. And Stephen will need to come up with proofs of the additional deductions.

That’s how to move a case.

Today Judge James B (“Big Jim”) Halpern gives us the “corrected” version of TBL Licensing LLC f.k.a. The Timberland Company, and Subsidiaries (A Consolidated Group), 158 T. C. 1, filed 1/31/22 (although this “correction” appears 2/8/22).

It might possibly be of some little service to practitioners if I could set out of what the “correction” consists.

But Judge Big Jim doesn’t tell us.

Happily the attorneys for the parties (five for petitioner, four for respondent) can proofread the uncorrected version against the corrected. I cannot, as the Genius Baristas have obliterated the uncorrected version. And in the limited time I have before deadline, I cannot compare both versions even if available.

It would be nice if Judge Big Jim listed the corrections.

Failing that, please ignore my blogpost “Into the Woods – Part Deux,” 1/31/22

.

With a Side of Interest

Judge Albert G (“Scholar Al”) Lauber serves up today’s plat du jour at the Tax Court cafeteria, but Norma L. Slone, Transferee, T. C. Memo. 2022-6, filed 2/7/22, may find it unappetizing. Norma and her entourage of trusts and relatives have been here before; see my blogposts “Substance Matters,” 3/1/12, “Spring Cleaning,” 5/11/16, “Substance Matters – Part Deux,” 6/13/16, and  “Separate Checks – Redux,” 5/11/20.

Well, Tax Court, having twice been pate-whanged by 9 Cir for claiming the Slone Rangers (sorry, guys, the devil made me do it) were innocents, now must reckon up the bill for the transferor’s transgressions. That means a Rule 155 beancount.

“The IRS has calculated these numbers to include a deficiency of $13,494,884, an accuracy-related penalty of $2,698,997, and interest of $8,559,729, for a total of $24,753,610. The Ninth Circuit remanded the cases ‘for entry of judgment in favor of the Commissioner.’” T. C. Memo. 2022-6, at p. 2. The Slone Rangers claim IRS is double-dipping; they agree on the $24 million tax-plus-interest. “But they disagree as to the extent to which petitioners are liable for this debt. Petitioners contend that they are not liable for the penalty or ‘pre-notice’ interest, that the IRS has ‘double counted’ the transfers, and that they are entitled to reductions for ‘equitable recoupment.’” Idem., as my expensive colleagues say.

A transfer made for no consideration, that serves to defeat, delay and hinder creditors, gives rights to creditors, even if they aren’t yet creditors, under the AZ Uniform Fraudulent Transfers Act. A deadbeat can’t lay off all their assets in advance, incur a liability, and then claim poverty. And fraudulent intent on the part of the transferee is irrelevant; if the transferor sells all he has and gives it all to the poor, but instead of taking up as ordered, and then incurs debts he can’t pay, the poor transferees, though innocent as doves, are still on the hook.

Section 6751(b) Boss Hossery is off the table, as the Slone Rangers waited until now to raise it. And the Slones’ C Corp conceded the chop while controlled by the MidCo; to reverse that would be an ambush. Moreover, the chop belongs to the Slones’ C Corp, and Section 7491(c) applies to individuals, not  corporations.

Now no one is liable as transferee for more than they got from the transferor, so Norma and spouse, and their GST, only have to pony up $13 million. But their big trust got $30 million, so that’s in the crosshairs.

“The Slone Trust received cash totaling $30,819,544, but Slone Broadcasting’s aggregate Federal tax liability was only $24,753,610. Because the Slone Trust received assets with a value that exceeded the transferor’s total tax liability (including pre-notice interest), the Slone Trust’s liability for interest is governed by Federal law, and the availability of interest under Arizona law is irrelevant. We thus hold that respondent is entitled to recover pre-notice interest as provided in sections 6601(a) and 6621.” T. C. Memo. 2022-6, at p. 11 (Citation omitted, but read it).

And Judge Scholar Al issues a winter weather advisory.

“Petitioners urge that the IRS is attempting to “double count” the transfers and “impose an aggregate transferee liability . . . that far exceeds” Slone Broadcasting’s debt. Petitioners argue that, for section 6901 purposes, the assets deemed received by the Slone Trust should be reduced to $4,794,752—viz., the assets it actually received ($30,819,544) minus the assets it transferred to Mr. and Mrs. Slone ($26,024,792). But petitioners cite no authority, and we know of none, for the proposition that a transferee may reduce its liability by distributing the transferred assets to other persons. Indeed, such a rule would incentivize transferees to make a blizzard of subsequent transfers, hoping to frustrate IRS collection efforts.” T. C. Memo. 2022-6 ,at p. 11.

Transferee liability is several, that is, one after another; each transferee is liable for the whole amount, but no more than what she/he/it/they got. No transferee can claim that IRS should first pursue someone else. And once IRS gets the $24 million, the Slone Rangers are off the hook for anything else.

The Slone Rangers seek equitable recoupment, claiming their original returns showed too great a sales price for the stock in Slone Broadcasting, if the sale to the MidCo is disregarded as a sham. But equitable recoupment only helps if there’s no adequate remedy at law. But there is. Section 1341 claim-of-right.

“Section 1341 is captioned ‘Computation of Tax Where Taxpayer Restores Substantial Amount Held Under Claim of Right.’ It applies where (1) “an item was included in gross income for a prior taxable year . . . because it appeared that the taxpayer had an unrestricted right to such item,” and (2) a deduction is allowable in a later year ‘because it was established after the close of such prior taxable year . . . that the taxpayer did not have an unrestricted right to such item or to a portion of such item.’ § 1341(a)(1) and (2). If these conditions are met, and if  the deduction exceeds $3,000, the taxpayer’s tax for the later year is reduced by taking account of this deduction. See § 1341(a)(3), (4), and (5).” T. C. Memo. 2022-6, at pp. 13-14.

Except.

“Petitioners do not now have an existing claim under section 1341. That section applies only if ‘a deduction is allowable’ for the later year. § 1341(a)(2). Petitioners are cash basis taxpayers, and no deduction will be allowable on account of their transferee liability until they have paid the tax. See Estate of Stein, 37 T.C. at 957 (stating that relief is available ‘in the year of repayment’). We accordingly conclude that neither the doctrine of equitable recoupment nor petitioners’ section 1341 claim is properly before us in these cases. After paying the tax, petitioners may pursue these forms of relief by filing claims for refund and (if their claims are denied) by commencing suit in district court, see 28 U.S.C. § 1346(a) (2018), or the U.S. Court of Federal Claims, see id. § 1491(a).” T. C. Memo. 2022-6, at pp.14-15. (Footnote omitted, but it says if the Slone Rangers lose the Section 1341, they can try equitable recoupment again.).