I am sure my ultra-sophisticated, battle-hardened readers will not be convulsed with shock when they read Judge Albert G (“Scholar Al”) Lauber’s flooring of the brake pedal in Wisawee Partners II, LLC, E. Ronald Martin, Jr., Tax Matters Partner, Petitioner, Docket No. 6105-18, filed 2/7/21.

E-Ron and IRS cross-moved for partial summary J over the latest “goofy regulation,” Reg. Section 1.170A-14(g)(6). Of course, this is a conservation easement of GA boondock; Judge Scholar Al says nothing about overvaluation, but goes into the deed and amendments thereto concerning improvements in or out on extinguishment.

Scholar Al, Oakbrook clutched in his hand, with the Coalholders and TOT in reserve, was ready to smite E-Ron therewith otherwise than in friendly rebuke. I’ve blogged all this stuff in extenso.

But then 11 Cir came down with Hewitt.

“Petitioner contends that the ‘judicial extinguishment’ regulation is substantively invalid under Chevron, U.S.A., Inc. v. Nat. Res. Def. Council, Inc., 467 U.S. 837 (1984), and constitutes ‘arbitrary and capricious’ rulemaking in violation of the Administrative Procedure Act (APA). We rejected these arguments in a recent Court-reviewed Opinion. See Oakbrook Land Holdings, LLC v. Commissioner, 154 T.C. 180, 189-200 (2020). However, on December 29, 2021, the Eleventh Circuit held that ‘the Commissioner’s interpretation of § 1.170A-14(g)(6)(ii), to disallow the subtraction of the value of post-donation improvements … is arbitrary and capricious and therefore invalid under the APA’s procedural requirements.” Hewitt v. Commissioner, __ F.4th __, __ (slip op. at 36) (11th Cir. Dec. 29, 2021), rev’g and remanding T.C. Memo. 2020-89 (applying Oakbrook). In light of the Eleventh Circuit’s opinion, we will hold petitioner’s motion for partial summary judgment in abeyance pending further developments.” Order, at p.  6.

Like what, Judge? An appeal to the Supremes? Maybe IRS conceding the paperwork and going to valuation? An act of Congress amending Section 170 (best of luck)?

Judge Mark V Holmes’ dissent in Oakbrook, although glossed over by 11 Cir, carries the day, and again The Great Dissenter has gifted us with a massive silt-stir.

When it comes to so-called “apportioned” innocent spousery, the 6015(b) type, actual knowledge of the unreported or underreported ex’s income means just that – actual, not constructive.

Today Judge Buch absolves Catherine M. Blappert of the $108K unreported income from spouse Bradley M. Blappert (that’s Doc Blappert, M.D.) because she played no material role in Peak Medical Partners, LLC (the “operation”). You’ll find the whole story in Bradley M. Blappert & Catherine M. Blappert, Docket No. 10417-18, filed  2/7/21.

Doc Blappert’s operation employed an office manager and engaged a CPA to do the returns; return prep involved three-way meetings with Doc Blappert, manager, and CPA. Though Catherine got paid $36K in year at issue by the operation, she mostly did some sales rep work, and stayed home with their four (count ’em,, four) children. IRS let Catherine off the hook, but Doc Blappert wants her on.

I note that the operation, though styled “partners,” was a single member LLC (Transcript, at p. 5) reporting as sole proprietorship. As I am not admitted in LA where all this took place, I cannot comment upon LA’s view of those who use the term “partners” for a sole proprietorship.

Howbeit, Doc Blappert claims Catherine was a partner, took a “significant” part of the operation’s profits as wages. She did draw some money from the operation’s business accounts, but that was when Doc Blappert was shutting it down. Doc Blappert claims Catherine was in on the tax meetings, but there’s no evidence other than his testimony.

Their lifestyle wasn’t extravagant, the biggest expense being the kids’ parochial school expenses, and the $276K net profit the operation showed would have covered everything. Catherine admits she glanced at page one of their MFJ, and it looked OK. Besides, she knew nothing of the operation’s finances, Transcript, at p. 7. And $36K is less than 15% of $276.

Only actual knowledge is in dispute. Judge Buch sets out the checklist.

“Actual knowledge requires knowledge of the receipt of the income; knowledge of the source alone is not sufficient. Sec. 1.6015-3(c)(2)(i)(A) and  (iii), Income Tax Regs. It also requires knowledge of the amount received. See sec. 1.6015-3(c)(2)(ii) and (c)(4)(example 4), Income Tax Regs. Ms. Blappert believed that Dr. Blappert properly reported his income. She did not participate in bookkeeping for Peak Medical. Peak Medical’s office manager handled insurance payments and co-payments processed through Square. Moreover, Peak Medical maintained a separate business account that Ms.  Blappert did not access while Peak Medical was in operation. Ms. Blappert did not actually know about the source, receipt, or amount of the omitted income.  Ms. Blappert also did not have reason to know about the omitted income. She would have reason to know of the understatement if a reasonable person in similar circumstances would have known of the understatement. Sec. 1.6015-2(c), Income Tax Regs.; Cheshire v.  Commissioner, 115 T.C. 183, 192-93 (2000), aff’d, 282 F.3d 326, 332-34 (5th Cir. 2002).” Transcript, at p. 11.

Of course, we need facts and circumstances (I really miss Sir Eddie Elgar).

“We consider all the facts and circumstances, including: the nature of the erroneous item and its amount relative to other items; the requesting spouse’s education and business experience; the extent that the requesting spouse participated in the activity producing the erroneous item; whether the erroneous item departed from a pattern reflected in prior returns; and whether the requesting spouse failed to ask about erroneous or omitted items that a reasonable person would question. Sec. 1.6015-2(c), Income Tax Regs.” Transcript, at pp. 11-12.

Catherine was no partner.

Judge James S (“Big Jim”) Halpern amends his order and decision sending off 901 South Broadway Limited Partnership, Standard Development, LLC, Tax Matters Partner, Docket No. 14179-17, filed 1/6/21. IRS asked for vacation, but if vacated, how can an order be amended? But Judge Big Jim denies IRS’ motion to vacate, and orders an amendment to reflect IRS’ concession of the Section 6662a chops.

Now y’all will remember that Judge Big Jim brushed off 1 Cir’s Kaufman decision, because the 901s are Golsenized to 9 Cir. If not, see 2021 T. C. Memo. 132, filed 11/23/21, at p. 28.

But after Hewitt in 11 Cir, is IRS (or anyone else) so sanguine that 1 Cir’s renunciation of a “highly contestable reading of what it means to be perpetual” will remain a lone outlier?

As I gleaned what blogfodder I could from last year’s petition tsunami, I knew very well that the vast majority of those petitions would be tossed by Ch J Maurice B (“Mighty Mo”) Foley. Like an Authority even more exalted than the Chief Judge of the U S Tax Court, “his winnowing fork is in his hand,” and the clumsy, the inept, and the protester will get the Luke 3:17 treatment, unless their petition or amended petition clears the Rule 34 bar.

I doubt Michael Rottinghaus, Docket No. 14724-21, filed 2/5/21, has ever read this my blog. But his case shows the perils of putting money before petition. Michael got tossed just before Christmas, as Ch J Mighty Mo found he had not stumped up the sixty George table stakes.

“Petitioner thereafter contacted the Court informally to advise that he had paid the Court’s filing fee. In view of the foregoing, the Court will vacate and set aside the Order of Dismissal previously entered in this case.” Order, at p. 1.

But back in July, Ch J Mighty Mo told Michael to file a “proper amended petition,” id., which to date Michael has not. So Ch J Mighty Mo gives Michael until 2/1/21 to do so. The hardlaboring Clerk will attach a form for that purpose at no extra charge.

And if Mrs. Michael wants in, she can sign on to Michael’s proper amended petition.

Word to Michael and/or Mrs. Michael (hi, Ogden Sunseteers): Always make sure your petition (or any amendment thereto) will pass muster before you send in the Three Andys. Filing fees are nonrefundable. Blow your petition, blow your money.

The recent flurry of correspondence and commentary anent 11 Cir’s reining in of IRS’ and Tax Court’s Procrustean reading of Reg. Section 1.170A-14(g)(6)(ii), including without limitation whether or not 11 Cir invalidated the Reg Section altogether, is not surprising; I’m not sure what the following means.

“After careful consideration of the agency record before us, the several opinions in Oakbrook and precedent from the Supreme Court, and this Court’s interpretation of procedural validity under the APA, we conclude that § 1.170A-14(g)(6)(ii)—as read by the Commissioner to prohibit subtracting the value of post-donation improvements to the easement property from the proceeds allocated to the donor and donee in the event of judicial extinguishment—is arbitrary and capricious under the APA for failing to comply with the APA’s procedural requirements and is thus invalid. See §§ 553(c), 706(2)(A).” Hewitt, at p. 28.

What’s invalid? The Reg, or the Com’r’s reading of the Reg to require improvements-in?

I’m not entirely sure the Court answers the question at p. 36: “Because Treasury, in promulgating the extinguishment proceeds regulation, failed to respond to NYLC’s (New York Landmarks Conservancy] significant comment concerning the post-donation improvements issue as to proceeds, it violated the APA’s procedural requirements. See Lloyd Noland, 762 F.2d at 1566; see also Oakbrook, 154 T.C. at 225–27 (Toro, J., concurring). We thus conclude that the Commissioner’s interpretation of § 1.170A-14(g)(6)(ii), to disallow the subtraction of the value of post-donation improvements to the easement property in the extinguishment proceeds allocated to the done, is arbitrary and capricious and therefore invalid under the APA’s procedural requirements. Accordingly, we reverse the Tax Court’s order disallowing the Hewitts’ carryover charitable deductions as to the donation of the conservation easement and remand for further proceedings.”

OK, so I include a tip of my battered Stetson to Judge Emin (“Eminent”) Toro for his persuasive reasoning.

Today we have a fresh reading on Treasury’s insouciant dealing with statutes. Judge Kathleen Kerrigan looks to be ready to toss Reece David Simmons, Docket No. 14352-20S, filed 1/4/21, no matter what. But her order throws a curious post-Hewitt shadow.

“The date of the notice of deficiency underlying this proceeding indicates a statutory deadline for filing a petition pursuant to section 6213(a) of the Internal Revenue Code (I.R.C.) that expired on May 11, 2020, which would have been extended to July 15, 2020, per I.R.S. Notice 2020-23. Conversely, the envelope in which the petition was received bears postage dated December 3, 2020.” Order, at p. 1.

When IRS Notice 2020-23 was first issued, I tangentially speculated whether a Notice could override an explicit statutory directive; see my blogpost “Le Quinzième Juillet,” 4/10/20, as edited. Of course, that argument is of no use to R.D. Simmons, unless the 12/3/20 mailing included an envelope with an earlier postmark that was returned during the Tax Court shutdown.

IRS could argue that Treasury’s Notice did not override the statute. The Notice only stated, somewhat elliptically, that IRS would not interpose the Section 6213(a) jurisdictional defense in any pandemic-related case. And indeed, Judge Kerrigan notes that IRS made no jurisdictional motion in this case.

But Judge Kerrigan wants the parties to show cause why she should not toss R. D. Simmons anyway.

I am not without scruples. Though I made the morning line 3 to 1 that “highly contestable readings of what it means to be perpetual” would founder in 6 Cir (see my blogpost “They Always Must be With Us,” 5/12/20), I had no bet on, as it would be taking the bookies’ money.

Well, my colleague Peter Reilly, CPA, informed me that 11 Cir had put paid to perpetual motion in Hewitt v Com’r, No. 20-13700, 12/29/31. Mr Reilly asked whether I’d blog the decision on appeal. I usually don’t blog appeals, because the trade press and the blogosphere jump on the CCAs and USDCs, and I’m left fishing behind the net. I also don’t want an inference to arise that I have any obligation to update my blogposts. These are essays, not legal opinions. Use, if at all, wholly at your own risk.

But Mr Reilly turned up some political commentary, claiming judicial misconduct. Arrant nonsense; proof once again that Lord Chief Justice Campbell was right: “There is nothing so dangerous as for one not of the craft to tamper with our freemasonry.”

Allow me to stress that Dave Hewitt’s appraisers beat IRS’. And that Dave didn’t flog pieces of his deal to dodge-hungry highrollers. And Dave raised the Administrative Procedures Act below, to contest the “highly contestable reading” by Judge Goeke.

You can read 11 Cir’s decision for yourselves, but Judge Richard Posner, late of 7 Cir, got it right. “I pay very little attention to legal rules, statutes, constitutional provisions. … A case is just a dispute. The first thing you do is ask yourself—forget about the law—what is a sensible resolution of this dispute? The next thing … is to see if a recent Supreme Court precedent or some other legal obstacle stood in the way of ruling in favor of that sensible resolution. And the answer is that’s actually rarely the case. When you have a Supreme Court case or something similar, they’re often extremely easy to get around.”

Judge Holmes got it right in his dissent in Oakbrook. The phony easements, be they scenic, conservation, or façade, are phony because overvalued. Tax Court is the valuation court par excellence. Don’t throw out the legitimate deals because the wiseguys play games.

The highwater mark of the 2021 petition tsunami was reached as at 12/31/21.

Elder brethren and sistern from Tax Court’s past can tell me if the numeration system has changed, but petitions bearing docket numbers above 40000 were filed in 1987. Since then, so far as DAWSON reveals, no year’s docket numbers reached 35000 until 2021.

I can assure my readers that this numerological excursion is a one-off, unless 2022 produces another petition tsunami. Absit omen!

As I post my last for calendar 2021, I recall, from the earliest days of my infancy, Norman Corwin’s monumental 1945 radio play thus entitled, which aired VE-day. However dated and bombastic it may sound to jaded modern ears (assuming we can pry their blueteeth loose and Sisyphus-like roll their attention spans to greater than five (count ’em, five) seconds), it remains the greatest radio broadcast of all time.

No opinions, decisions, orders, or press releases today. The tumult and the shouting have died, the captains and the kings are checking the temp on the Veuve Cliquot La Grande Dame or the Billecart-Salmon Cuvée Elisabeth Salmon Rosé (and if the temp is right, please save a couple glasses for Judge Holmes and me). The Ancient Sacrifice is hanging out, as usual, per Psalm 51:17 and Rudy Kipling.

But, praise be, we have the old USTC DAWSONized website chugging again, at full cask strength. One can word-search, download, cut-and-paste, and even link (no more PDF-ing and footnoting). Loud cheers from this bedraggled, grizzled blogger.

And this my blog’s December views total has climbed above 4700 for the first time ever, going 20% better than ever in the last eleven (count ’em, eleven, and you’d better believe I have) years.

So no matter the vicissitudes of 2021, the year ends on a note of triumph.

Happy New Year!

At long last, the promise is kept, and the US Tax Court website, so long exiled and obscured, is recalled to life.

My colleague Peter Reilly, CPA, sent me the gladsome news thus: ” Something good may have finally come from Dawson.

“It now allows key word searching.

https://www.ustaxcourt.gov/release_notes.html

“In just a few minutes I found some 183 bench opinions that I had missed.”

Better yet, all those dockets previously sealed because of one (count it, one) document, now reenter the light of day, the Genius Baristas having assumed the role of Leonora in the second act of Fidelio.

Check it out, faithful readers.

A. Asterino Starcher, 2021 T. C. Memo. 144, filed 12/30/21*, didn’t petition the SNOD from the SFR for the year she never filed. She did petition the NITL, claiming her expenses would offset her income. She got the usual pre-hearing letter, but sent in nothing.

Came the telephonic CDP hearing.

” …petitioner joined the telephone conference as scheduled. She stated that she wished to submit a delinquent return for 2014 that would replace the SFR and reduce her tax liability. The SO explained that she could not dispute her underlying liability at the CDP hearing because she had failed to petition this Court in response to the notice of deficiency that the IRS sent her…. Petitioner confirmed that she had received the notice of deficiency. The SO nevertheless offered to look at a proposed 2014 return if submitted to him by August 7, 2020. He reminded petitioner that she needed to supply financial information by the same date if she desired consideration of a collection alternative.” 2021 T. C. Memo. 144, at pp. 3-4.

“The SO never received any financial information necessary for considering a collection alternative. He did receive from petitioner, on September 3, 2020, a delinquent … tax return, which he forwarded to a different IRS office.” 2021 T. C. Memo. 1445, at p. 4. Wherepuon, the SO confirmed the NITL.

A. Asterino asks why she can’t contest her liability, since the SO was willing to look at her (belated) return.

Judge Albert G (“Scholar Al”) Lauber eschews psychoanalyzing the SO.

” Petitioner notes that the SO offered to let her submit a delinquent return…. Why, she asks, would the SO have done this if he was unable to address her tax liability for that year? The record does not clearly establish the SO’s reasoning; one possibility is that he was considering whether petitioner’s… tax year could be submitted for audit reconsideration. But the SO’s thinking on this point is not important to our analysis. The only question of legal relevance is whether petitioner had a previous opportunity to challenge her … liability.” 2021 T. C. Memo. 144, at p. 6, footnote omitted.

No SO can consider liability if there was a previous opportunity to contest (the “single-shot” rule, per Section 6330(c)(2)(B)). Any such consideration forms no part of a NOD and may not be judicially reviewed, Reg Section 301.6330-1(e)(3), Q&A-E11.

All of which bears out the old trusim: most CDPs are lost long before they ever get to Tax Court.

*A Asterino Starcher 2021 T C Memo 144 12 30 21