Folk wisdom tells us not to do this, but IRS did. They promoted RA C (name omitted) while she was auditing Sand Investment Co., LLC, Inland Capital Management, LLC, Tax Matters Partner, 157 T. C. 11, filed 11/23/21*. In consequence whereof, she moved from Team One to Team Two, hence from the command of Manager One to that of Manager Two.

Judge Lauber takes up the story.

“But because the Sand examination was ongoing, the IRS authorized RA C to continue her work with Team 1 until that examination concluded. Although Manager Two became responsible for approving RA C’s timesheets, leave requests, and other routine administrative matters, Manager One remained the case and issue manager of the Sand examination and continued to oversee all of RA C’s work on that examination.” 157 T. C. 11, at p. 5 (Names omitted).

At this juncture, my ultra-sophisticated readers will have shouted “Conservation easement, GA boonies, Section 6662(h) overvaluation/understatement chops!” And they will be almost 100% right, except these boonies are in Jasper County, SC.

Also at this juncture I must give a Taishoff “Good try, First Class, with Chaighoul skull-and-bones,” to Sand’s trusty attorneys at Chamberlain Hrdlicka.

RA C whanged Sand with Section 6662A and section 6662(a), (b)(1), (2), and (3), (d), (e), and (h) chops. 157 T. C. 11, at p. 6.

“Her recommendations to this effect were set forth in a ‘Penalties Lead Sheet.’ Manager One digitally signed this document on November 20, 2018, as the ‘Case/Issue Manager.’ RA C concurrently prepared a Supplemental Civil Penalty Approval Form, which states that she ‘made the initial determination to assert * * * penalties.’ RA C signed that form on November 20, 2018, and Manager One digitally signed it the same day as the “Case & Issue Supervisor.” RA C also sent a copy of her penalty approval form to Manager Two, who signed on November 23 as the ‘Immediate Supervisor.'” 157 T. C. 11, at p. 6. (Names omitted).

Again, my ultra-sophisticates have already yelled “But between November 20 and November 23, RA C tipped off Sands!”

Right again, champs.

IRS claims the first notification was the FPAA more than sixty (count ’em, sixty) days later, but of course Sands’ trusty attorneys say “no, mailed is communicated, and sending the 5701 and 1807 even if only a couple days (hi, Judge Holmes) before RA C’s new immediate supervisor, Manager Two, signed off, is leg-before-wicket and you’re out.” Of course, like lbw, Boss Hossery has produced much controversy.

Trust Judge Albert G (“Scholar Al”) Lauber. Boss Hossery turns on the magic Section 6751(b) words “immediate supervisor.”

“Congress did not define the term ‘immediate supervisor,’ and that term elsewhere appears only once in the Code. See sec. 7521(c). The IRS itself does not appear to employ the term ‘immediate supervisor’ uniformly in its personnel practices. See, e.g., IRM pt. 4.46.4.11.2(3) (Dec. 13, 2018) (referring to an examiner’s ‘issue manager’” as the immediate supervisor); id. pt. 20.1.4.1.3(3) (Feb. 9, 2018) (referring to an examiner’s ‘team manager’ as the immediate supervisor); id. pt. 4.19.10.4.5.3(3) (Dec. 9, 2020) (referring to an examiner’s ‘immediate manager’). In this respect as in others, section 6751(b) is not a paragon of statutory draftsmanship.” 157 T. C. 11, at pp. 9-10. (Citation omitted).

So in dealing with this one-off language, let’s use ordinary meanings. Congress wanted the Boss Hoss sign-off to cool off overzealous grunts, who would use the threat of astronomical chops to bludgeon settlements out of timorous taxpayers, despite IRS’ case being none too strong and the taxpayer’s case being better than somewhat.

“Given this legislative purpose, an agent’s ‘immediate supervisor’ is most logically viewed as the person who supervises the agent’s substantive work on an examination. That person (after the agent) presumably has the greatest familiarity with the facts and legal issues presented by the case. That person is thus in the best position to supply the approval that Congress believed desirable.” 157 T. C. 11, at p. 11. (Footnote omitted, but read it; it says assertion of penalties in litigation is “(S)omewhat different (though analogous) considerations may apply.” 157 T. C.11, at p. 11, footnote 5. (Citations omitted, but get them).

And RA C got both her old Boss Hoss and his successor to sign off, even though Manager Two only approved her time sheets and leave requests. “Because of the ever-changing landscape created by evolving judicial interpretations of this ambiguous statute, RA C evidently took a belt-and-suspenders approach. We decline to penalize her for doing more than the statute required.” 157 T. C. 11, at p. 14.

Judge Holmes’ disciple. Remember my blogpost “Stir, Baby, Stir – That Silt,” 12/20/17.

Takeaway- Boss Hossery can get tricky. And not only at exam, but in the answer, amendments, and motions. What about Section 6673s? Be alert to spot the angles.

I want to mention by name the Sands’ trusty attorneys. Hale E. Sheppard, Esq.,  Jeffrey S. Luechtefeld, Esq., John W. Hackney, Esq., Brent N. Bartlett, Esq., Samuel H. Grier, Esq., and Cassandra S. Bradford, Esq. I wish I could hold an awards ceremony, and pin their decorations on their battledress. Good try, tough loss, guys.

*Sand Invesdtment Co 157 T C 11 11 23 21

The great post-Oakbrook turkey shoot season has opened, and IRS has Buckelew Farm, LLC F.K.A. Big K Farms LLC, Big K LLC, Tax Matters Partner, Docket No. 14273-17, filed 11/22/21* all lined up, but Judge Christian N. (“Speedy”) Weiler says subordination doesn’t control split-at-extinguishment.

For Oakbrook, see my blogposts “They Always Must Be With Us,” 5/12/20, and “Keeping Things in Proportion,” of even date therewith, as my expensive colleagues would say.

For some backstory on the Buckelews, see my blogposts “Ins and Outs,” 10/28/21, and “Whitefish and Silt,” 5/13/20.

The Buckelew fight is the usual: a $47.5 million conservation easement write-off of GA boondocks. The Buckelews want to amend the deed of gift to cut the 501(c)(3) protector, preserver, and defender in on the improvement goodies if the easement is judicially extinguished. Of course, the 501(c)(3) is down with that, there being better odds that the Islanders will win the Cup than that any government will raise taxes to stump up cash to buy this.

The Buickelews want to “fight old battles o’er,” and relitigate the validity of the Proceeds Reg, 1.170A-14(g)(6)(ii), which mandates the improvements-in split-up, but Judge Speedy Weiler is quick to jettison that line.

“The Court is not convinced by petitioner’s challenge to the Proceeds Regulations. We comprehensively addressed and rejected these arguments in a recent Court-reviewed Opinion. See Oakbrook Land Holdings, LLC v. Commissioner, 154 T.C. 180, 189-200 (2020). We need not repeat that analysis here.” Order, at p. 6.

OK, so what about the correction deed? The Buckelews want a trial, with testimony about who intended what, and much briefing of GA law that says you can correct mutual mistakes by way of a correction deed. IRS says you have to have all the requirements met at Day One, so whether GA lets you amend or correct is beside the point. IRS relies on Ramona Mitchell (see my blogpost “Subordinate or You Lose,” 4/3/12; note that 10th Cir affirmed Tax Court). But Ramona’s problem was an insubordinate mortgagee, Lonesome Charley Sheek. Although Lonesome Charlie eventually became a good subordinate, it was too late to save Ramona’s deduction.

No mortgage here, so insubordination plays no part.”Although respondent relies on Mitchell to argue that all of the requirements of section 170 must be met at the time of the grant, we find the issues in Mitchell to be distinguishable from the issues in the instant case. In Mitchell, the Tenth Circuit held, inter alia, that a taxpayer’s grant of a conservation easement was not ‘protected in perpetuity’ due to a violation of the mortgage subordination provision of the conservation easement regulations. Mitchell v. Commissioner, 775 F.3d at 1251. However, in Mitchell, the third party mortgagees did not subordinate their mortgages until after the easements were donated and section 1.170A-14(g)(2) was therefore held not to have been satisfied. We find the Tenth Circuit’s reasoning in Mitchell to be specific to the mortgage subordination provision of the regulation.” Order, at p. 8. (Footnotes omitted).

Note Judge Tamara Ashford (then Acting AAG) was on the brief in Mitchell. And note no one mentioned Gordo and Lorna Kaufman and their insubordinate mortgagees at 1st Cir; see my blogpost “A Joy Forever? – Maybe Not,” 7/20/12.

While Tax Court and the Circuits have not allowed amendments to change the tax consequences of completed transactions, there’s an outlier, where a scrivener’s error was allowed under GA law.

“Although the Court is doubtful that equitable reformation can operate to change the Federal tax consequences of a completed transaction; since the Court has found there remains a genuine dispute of material fact precluding summary adjudication, it is not necessary for the Court to determine now whether the facts of this case warrant the equitable remedy of reformation under Georgia law.”

Taishoff says, I’m not sure what this material fact might be. The Reg was in existence long before the initial deed. If there was a mistake, it was a unilateral mistake of law at best. The 501(c)(3) is exempt from tax. In any case, the risk of judicial extinguishment is so remote as to be negligible. This is just one more case of highly-contestible readings of what it means for an easement to be “perpetual.”

Judge Holmes is right; the trial should be on valuation, not about what some lawyers and highly-interested parties claim they thought years after the fact.

*Buckelew Farm LLC Docket No 14273-17 11 22 21

Judge Kathleen Kerrigan clarifies that a return (if it is a return) only needs to be filed with the proper IRS office to beat the Section 6511(b)(1) three-year cutoff for a credit or refund. If IRS doesn’t accept or process the return, mox nix.

So James Forrest Willetts, 2021 T.C. Sum. Op. 39, filed 11/22/21*, is going to get a credit or refund of his $1533 overpayment. Or whatever’s left after the Rule 155 beancount, because Jim was almost three (count ’em, almost three) years late with the return.

IRS claims they didn’t accept Jim’s return because it looked like he was a victim if identity theft, but either they didn’t tell Jim or he didn’t understand until IRS sent him an AUR and he resubmitted the same return he’d sent before. IRS bought his numbers then.

IRS doesn’t dispute that Jim’s return satisfied Beard and was legit at least as to AGI. But they claim Jim resubmitted late.

“A return is considered filed when it is ‘delivered, in the appropriate form, to the specific individual or individuals identified in the Code or Regulations.’ Allnutt v. Commissioner, 523 F.3d 406, 413 (4th Cir. 2008), aff’g T.C. Memo. 2002-311; see also sec. 7502 (implicitly equating filing with delivery). A valid return is deemed filed on the day it is delivered, regardless of whether it is accepted by the Commissioner. See Blount v. Commissioner, 86 T.C. 383, 387 (1986) (holding that the period of limitation begins to run when a valid return is delivered to the Commissioner, whether or not accepted).” 2021 T. C. Sum. Op. 39, at p. 6.

The return claimed the refund, and therefore beat the Lookback clock by a couple months (hi, Judge Holmes).

Judge Kerrigan says explicitly at p. 7 that Jim gets $1533, so why a Rule 155?

*James Forrest Willetts 2021 T C Sum Op[ 39 11 22 21

That’s what Herman J. Marino, 2021 T. C. Memo. 138, filed 11/22/21*, wants from Judge James S (“Big Jim”) Halpern. While IRS’ investigation and audit may have been less than brilliant, and the administrative record itself been insufficient to support IRS’ motion for summary J tossing Herman, Judge Big Jim isn’t buying it.

First, as to the deficient administrative record, “(R)ule 802 of the Federal Rules of Evidence generally prohibits the admission of hearsay. But those rules ‘apply [only] to proceedings in United States courts.’ Fed. R. Evid. 101. Thus, in determining petitioner’s eligibility for an award, the WBO was not barred from considering hearsay evidence. And in determining whether the administrative record supports the WBO’s denial of an award, we must consider the contents of that record without regard to whether it might include evidence that would be inadmissible as hearsay in a trial de novo. A court reviewing agency action for abuse of discretion must uphold the agency’s factual findings if they are ‘supported by substantial evidence’.”2021 T.C. Memo. 138, at p. 21. (Citations omitted). And Judge Big Jim finds the hearsay trustworthy and reliable.

Of course, Tax Court can’t order IRS to audit, investigate, or sue. All pore l’il ol’ Tax Court can do is see if the reward (or lack thereof) is based on substantial evidence, the  abuse-of-discretion standard.

Herman relies on the 2018 amendment to Section 7623, which added the parenthetical “(determined without regard to whether such proceeds are available to the Secretary).” Herman says that means he gets an award even if IRS got nothing. Herman is nothing if not inventive: he gets a simultaneous Taishoff “Oh, Please!” and a Taishoff “Good Try, Third Class.”

Alas, Judge Big Jim awards Herman only a brush-off. “…petitioner’s interpretation of section 7623(b)(1), as amended in 2018, is nonsensical. If a whistleblower’s entitlement to an award no longer depends on the collection of proceeds, how would the amount of the required award be determined? As a percentage of the proceeds that would have been collected had the IRS conducted an audit satisfactory to the whistleblower? Petitioner never explains.” 2021 T. C. Memo. 138, at p. 36.

There’s a lot here for practitioners who represent blowers, or for those seeking to enter the practice, that time and space limits prevent me from drilling down. To them I say, read and heed. And watch the administrative record: there’s a lot of room for wildcards and last-minute ben trovatos.

*Herman J Marino 2021 T C Memo 138 11 22 21

STJ Daniel A (“Yuda”) Guy has received the J. Edgar Murdock Award for distinguished service to the United States Tax Court.

I’m sure my readers will join in congratulating STJ Guy.

Thus saith the Tax Court website; and had saith it thus for over a year. I expect the Genius Baristas’ definition of “soon”  involves geologic terms.

The point I was going to make involved an off-the-bencher yesterday that I didn’t blog, as the Golden Legend of the McNultys (see my blogpost “The One Who Has the Gold,” 11/18/21) occupied all my time. I’ve forgotten the name of the petitioner in the omitted case, but it was the usual basis-in-labor, Section 3401 frivolity.

I was going to put it up today, as nothing is going on in Tax Court on Friday a week before Thanksgiving and Black Friday. You know, the day President Lincoln proclaimed as a fast.

But the ability to search opinions and orders is not yet, other than those issued today.

So I won’t have another example of one who is happy to enjoy the benefits of living in this country without paying for it. In fact, I’m rather tired of chronicling deadbeats and Welfare Queens, and disciples of dodgefloggers.

Varying my comment on 11/11/21, some gave little, some gave much, some gave all…but nobody has the right to give nothing.

We all know the oft-repeated restatement of the Golden Rule: “The one who has the gold makes the rules.” Well, having the gold makes Andrew McNulty & Donna McNulty, 157 T. C. 10, filed 11/18/21*, fall foul of the Section 408 rules, because they took physical possession of the American Eagle (“AE”) gold coins their single-member LLCs bought with IRA money, thus triggering a distribution to the McNultys in the year when they got the gold. The nominal trustees of each IRA had no role in managing the LLCs or anything else.

Judge Goeke goes over the Section 408 tests.

“Respondent argues that Mrs. McNulty should be treated as having possession of the AE coins irrespective of [LLC]’s existence, her status as its manager, and its purported ownership of the coins. Petitioners counter that the AE coins were assets of [LLC] and Mrs. McNulty’s physical receipt of them did not constitute taxable distributions from her IRA. The parties’ arguments reveal numerous disagreements including whether Mrs. McNulty or her IRA was [LLC]’s sole member, who owned the AE coins, who held legal title to the AE coins, whether AE coins are bullion, whether the AE coins were commingled with non-IRA assets, and who can have physical possession of the AE coins purchased with IRA funds. We resolve this case on the answer to the last question and hold that Mrs. McNulty had taxable distributions from her IRA when she received physical custody of the AE coins irrespective of her status as [LLC]’s manager.” 157 T. C. 10, at p. 12, footnote omitted, but it says IRS concedes that Mrs. McN has not engaged in a prohibited transaction under sec. 4975 with respect to her IRA, its investment in LLC, or the purchase of AE coins.

The IRA trustee’s statutory duty is to lock up the assets; a self-directed IRA beneficiary can tell the trustee what to buy, sell, or hold (with certain self-dealing exceptions), but can’t get her hands on the goodies themselves. Mrs. McN locked up the American Eagle goldies all right, but in her own safe in her own residence.

Mrs. McN makes a great to-do over Section 408(m), which says her goldies aren’t collectibles, so an IRA can invest in them. OK, say IRS and Judge Goeke, but the trustee still has to hold them, not Mrs. McN, the beneficiary.

“A qualified custodian or trustee is required to be responsible for the management and disposition of property held in a self-directed IRA. Sec. 1.408-2(e), Income Tax Regs. A custodian is required to maintain custody of the IRA assets, maintain the required records, and process transactions that involve IRA assets. See sec. 408(h) and (i); sec. 1.408-2(e)(4), (5)(i)(2), (iii), (vii), Income Tax Regs. The presence of such a fiduciary is fundamentally important to the statutory scheme of IRAs, which is intended to encourage retirement savings and to protect those savings for retirement. Independent oversight by a third-party fiduciary to track and monitor investment activities is one of the key aspects of the statutory scheme. When coins or bullion are in the physical possession of the IRA owner (in whatever capacity the owner may be acting), there is no independent oversight that could prevent the owner from invading her retirement funds. This lack of oversight is clearly inconsistent with the statutory scheme. Personal control over the IRA assets by the IRA owner is against the very nature of an IRA.” 157 T. C. 10, at pp. 13-14.

And reliance on the website of the promoter isn’t enough to stave off the five-and-ten understatement chop.

The one who has the gold can make the rules, but has to pay the tax.

*McNulty 157 T C 10 11 18 21

No, Judge Nega has not assumed the role of Permanent Secretary to James E. Van Pelt,  Docket No. 13494-20, filed 11/17/21*, though James E. is a minister; James E. is a Congregational minister in CT who thinks he shouldn’t pay income taxes. This is no Britcom; this is an off-the-bencher.

We’ve seen ministerial frivolites before now, and James E. is neither the Alpha nor the Omega, neither first nor last, to encounter Section 61. Judge Nega doesn’t expend much “somber reasoning and copious citation of precedent” in sending off James E., with a $2K Section 6673 chop, pour encourager les autres.

“We find that petitioner has advanced a frivolous and groundless argument in this proceeding. In his petition, petitioner contended that he is a ‘worker of common right and a nontaxpayer’ and thus ‘not subject to the jurisdiction of revenue law because of his occupation.’ Despite the Court’s warning in its order of September 8, 2021 that such an argument is frivolous, petitioner has continued to advance it in his most recent filing (Exhibit 1003-P) and at trial. In his most recent filing, petitioner continues to claim that his compensation is excluded from gross income and that he is not subject to self-employment tax. These contentions have no merit and reflect common tax protestor arguments.” Transcript, at p. 10.

Note that “(S)ection 3401(a)(9) provides that compensation for services paid to a ‘duly ordained, commissioned or licensed minister of a church’ (church minister) is not wages for purposes of employment taxes and thus not subject to withholding and payment by a church employer. See sec. 3402(a); see also sec. 3121(b)(8). Instead, the provision of services by a church minister generally constitutes a trade or business, and a church minister’s wages are subject to self-employment tax. See sec. 1402(c)(4); id. at (c) (flush language); see also Knight v. Commissioner, 92 T.C. 199, 201-202 (1989). While a church minister is permitted to submit a certificate seeking exemption from self-employment tax on religious or conscientious grounds, see sec. 1402(e), petitioner has not alleged – nor does the record indicate – that he timely did so for [year at issue].” Transcript, at pp. 8-9.

Yes Minister, you must pay taxes.

*James E Van Pelt 13494-20 11 17 21

We won’t see the final shakeout of this pandemic for years. Disruption is the flavor of the decade; much that we thought was settled long ago has come adrift. One effect is the strain on family life occasioned by the necessity of establishing a home office, and decreeing the exclusive business use thereof to preserve the deduction.

Who can tell what stress was placed on domestic tranquility by the lock on the bathroom door, the bathroom allegedly for business guests only, to the exclusion of even the nearest and dearest of the businessperson?

Today the unlocked bathroom costs Howard E. Steele the $370 he paid for the lighting fixture he placed in said office bathroom.

Judge Colvin: “Petitioners deducted $370 for a light fixture placed in the bathroom adjoining petitioner husband’s home office. Generally, under section 162(a), a taxpayer may deduct ordinary and necessary expenses incurred in carrying on a trade or business. Under section 262, however, items bought for personal, living, or family use generally cannot be deducted. Items bought for a business section of a residence cannot be deducted if that area is not exclusively used for the business (i.e., the area is for both personal and business use). See Sam Goldberger, Inc. v. Commissioner, 88 T.C. 1532, 1557 (1987). Petitioner husband testified that the bathroom was used not only by his clients but also by him when he was not working, his wife, and their personal guests. Thus, petitioners may not deduct the $370 they paid for the light fixture. See id.” 2021 T. C. Sum. Op. 38, at p. 9.

The rest of the case is the usual mix-and-match of illegible receipts and sketchy testimony, with equipment allegedly for the rental property delivered to the principal residence. Still, Howard and Tracy glean a couple extra bucks (hi, Judge Holmes) of basis and deductions at close of play.

Takeaway- the lockout continues, if you want the deduction.

Oh yes, the case is Howard E. Steele and Tracy M. Steele, 2021 T. C. Sum. Op. 38, filed 11/17/21.*

*Steele 2021 T C Sum Op 38 11 17 21

The hardlaboring clerks at the Glasshouse have flooded the zone today, but the two (count ’em, two) opinions I haven’t yet blogged need little embellishment.

Tara K. Tobin has three (count ’em, three) lawyers for this walkover, Tara K. Tobin, Petitioner, and Jeffrey Tobin, Intervenor, 2021 T. C. Sum. Op. 36, filed 11/16/21*. My source tells me the three, including but not in any wise limited to one who is Chair of the California Lawyers Association Young Tax Lawyers Committee, another who is a Big Four alum, and another, last but in no wise least, president of the Chapman Tax Law Society and president of the Chapman Hispanic Law Students Association and was awarded the Tax Law Honors Scholarship in 2020. The issue is Section 6015(c) apportionment, with actual knowledge the key.

To use Judge Albert G (“Scholar Al”) Lauber’s metaphor, all this firepower is lined up against two of IRS’ footsoldiers, who fold with commendable rapidity, and an intervenor who doesn’t know if he got $97K in income in one of the years at issue.

STJ Daniel A (“Yuda”) Guy wastes no time sending Jeff off.

“Intervenor asserted that petitioner should be denied relief because she was aware of the items of unreported income for the years in issue and she directly benefited from the understatements of tax. At trial, however, intervenor maintained that he did not have actual knowledge of the items of unreported income when the returns were filed for the years in issue and acknowledged that, under the circumstances, it was doubtful that petitioner had actual knowledge of them.” 2021 T. C. Sum. Op. 36, at p. 8.

Finally, Constant B. Bidzimou, Docket No. 11917-20, filed 11/16/21**, loses his HOH, child credit, and dependent exemption. His infant descendant spent more nights with Mama than Connie can prove. Connie does have an affirmed decision from the Kansas District Court of Sedgwick County, saying he can take the tax benefits.

Of course, Judge Emin (“Eminent”) Toro blows off Connie’s argument. If Connie is unhappy with Kansas’ treatment, the remedy is in Kansas. “To the extent Mr. Bidzimou objects to Ms. Bidzimou’s alleged failure to comply with the order of the Kansas District Court, he should seek his remedy, if any, from that court, as the power to grant relief does not lie within the jurisdiction of this Court.” Transcript, at p.  18.

PS- Wasn’t Sedgwick County, KS, the home of Joan Farr, f.k.a Joan Heffington, founder of the Association for Honest Attorneys AFH? See my blogpost “I’m Glad She Didn’t Ask Me,” 4/3/18.

*Tara K Tobin 2021 T C Memo 37 11 16 21

**Constant B Bidzimou Docket No 11917-20 11 16 21