No, this is not another taxed-as-a-partnership; this is the story of eighteen (count ’em, eighteen) Forms 211 unloaded on the Ogden Sunseteers by that indefatigable former GAO auditor and Master Hunch Merchant Suzanne Jean McCrory, 2021 T. C. Memo. 116, filed 10/4/21*.

Suzanne’s been here before: see my blogposts “Remand? You Can Whistle For it,” 1/31/18; “A Guide to Whistleblowers,” 3/18/19; “Follow-Ups,” 3/9/20; and “STJ Lew Stirs the Silt,”4/24/20. There, now.

Suzanne unleashed the Forms 211 in two packages, but based both sets on a “hypothesis” and publicly available information. The OS classifier prepared an Award Recommendation Memorandum for each, citing command codes for various databases which IRS maintains. Judge Courtney D (“CD”) Jones explains the Integrated Data Retrieval System (IDRS), the roadmap wherewith the classifier can check out what IRS did.

If alphanumeric babble floats your boat, check out pages 5 through 7 of 2021 T. C. Memo. 116, but at day’s end, all the classifier can find is that Suzanne’s hunches were wrong, or not specific or credible, or speculative. And the classifier checked the appropriate boxes on the ARM, showing which code groups were checked to generate the result.

Notwithstanding Suzanne’s claim that the OS bounced her claims because she used public information, “(N)one of the ARMs refer to the fact that petitioner’s allegations were based on publicly available information.” 2021 T. C. Memo. 116, at p. 9.

And the Sunseteers have adopted my advice. They labeled each bounce letter “‘FINAL DECISION UNDER SECTION 7623(a)’ and informed petitioner that ‘[t]he Whistleblower Office has made a final decision to reject your claim for an award.’” 2021 T. C. Memo. 116, at p. 10. No more epistolary volleying and counter-battery fire.

Suzanne’s claim that the proper bounce for some should be Section 7623(b), because they cleared the $2 million bar, but Van Bemmelen put paid to that. If the information isn’t specific or credible, or speculative, mox nix.

Suzanne also claims that when the classifier checked out IRS databases, taxpayer information is involved, and therefore her claim was denied, not rejected. Judge Gustafson had much to say about that; see my blogpost “Rejection and Denial,” 3/16/20. But every time a classifier checks out the database does not trigger a denial. “Indeed, IRS guidance directs classifiers to use all available resources, including IDRS and other databases, to evaluate every whistleblower claim. See IRM pt. 25.2.1.3.2(4) (Jan. 11, 2018).” 2021 T. C. Memo.116, at p. 22, footnote 25.

Whatever, Suzanne’s information was wrong, not credible or specific, or speculative, and the administrative record shows nothing to the contrary. And that is enough for Judge CD Jones.

I bet Suzanne takes an appeal.

McCrory 2021 T C Memo 116 10 4 21

Judge Travis A (“Tag”) Greaves has a bonus for the family lawyers (if we ever get back Section 215) in Charles H. Leyh, 157 T. C. 7, filed 10/4/21. Charles got health insurance for his loved-once through his employer’s Section 125 Cafeteria plan, and deducted those premiums as alimony (in a year when you could still do that). IRS said, no, double-dip, but Judge Tag says yes.

“…petitioner paid $10,683 for Ms. Leyh’s health insurance premiums as pretax payroll reductions from his wages through his employer’s ‘cafeteria plan’ (alimony payments). On his [year at issue] Form 1040, U.S. Individual Income Tax Return, petitioner excluded from his gross income the total amount of health care coverage premiums he and Ms. Leyh received through his employer’s ‘cafeteria plan’ (health insurance compensation) and also claimed an alimony deduction for the alimony payments.” 157 T. C. 7, at p. 3 (Footnotes omitted, but Charles and ex-Mrs. Charles filed MFS, per their separation agreement, pre-divorce, which was granted the next year).

“Petitioner received the health insurance compensation while Ms. Leyh was still considered his spouse as Pennsylvania law recognizes only divorce, not legal separation, and a final decree of divorce was not granted until [next year]. Consequently, there is no dispute that petitioner was entitled under sections 106 and 125 and the regulations thereunder to exclude from his gross income the health insurance compensation, including the portion covering Ms. Leyh’s health insurance coverage. Respondent, however, challenges petitioner’s attempt to also deduct the alimony payments.” 157 T. C. 7, at p. 5. (Citation omitted).

I’m sure my ultra-sophisticated readers already yelled, “Why not file MFJ? Premiums not income to either, and no income to ex-Mrs. Charles.” But here Charles gets the double-dip.

It’s the “alimony régime,” says Judge Tag.

“If a taxpayer pays alimony as defined in section 71(b), then the taxpayer may deduct such payments from gross income if the amounts are includible in the gross income of the recipient under section 71. Secs. 62(a)(10), 215(a) and (b).8 We are satisfied, and respondent does not dispute, that the alimony payments statutorily qualify as alimony and that Ms. Leyh was required to include these amounts in her gross income in accordance with section 71. In most cases there is little question as to whether the taxpayer may deduct a payment if it qualifies as alimony under the Code and is included in the recipient’s income. However, the facts here require us to consider another matter outside the statute: Did petitioner claim an impermissible ‘double deduction’ when deducting the alimony payments and excluding the health insurance compensation from his gross income?” Order, at p. 6.

Alimony reallocates income and deductions. If the parties have Mrs. Charles picking up the income, then Charles should get the deduction.

“As a married couple awaiting a final decree of divorce under Pennsylvania law, petitioner and Ms. Leyh could have chosen to file a joint return for [year at issue] and avoid the alimony regime altogether. If they had, they would have had an exclusion from gross income equal to the amount of the health insurance compensation, no alimony deduction for that amount, and no alimony income inclusion for that amount. Instead, petitioner and Ms. Leyh chose to file separately and treat the alimony payments as alimony. But for the alimony regime, Ms. Leyh would not have been required to include any portion of the alimony payments in her gross income. It follows that, per the general matching design of the alimony regime, if Ms. Leyh is required to include the alimony payments in her income, then petitioner should be permitted a corresponding deduction for those payments to preserve this equilibrium. In other words, petitioner’s alimony deduction should be properly viewed as being matched against Ms. Leyh’s alimony income, not against his excluded wage income.” 157 T. C. 7, at pp. 8-9.

IRS fights on: “Respondent points to a statement from the Senate Finance Committee describing the creation of the alimony deduction as an attempt by Congress to relieve a payor-spouse from the tax burden of whatever part of an alimony payment was ‘includible in * * * [the payor’s] gross income.’ S. Rept. No. 77- 1631, at 83 (1942), 1942-2 C.B. 504, 568. We believe, however, that this legislative history cannot be read to override the plain text of sections 62, 215, and 71 by interpreting these comments as imposing a precondition not present in the statutes themselves. These sections are clear that a payor of alimony may deduct such expenses to the extent they constitute alimony and are includible in the recipient’s gross income. Respondent recognizes that these elements are present in petitioner’s case by conceding that the alimony payments meet the section 71(b) definition of alimony and would otherwise be deductible under sections 62 and 215 but for petitioner’s exclusion of the health insurance compensation from his gross income. If respondent is concerned that petitioner’s situation might create an unanticipated statutory ‘loophole (which we do not believe is the case here), it would be up to Congress, not the Commissioner or this Court, to retroactively address.” (Footnote omitted).

Anyway, IRS can’t rewrite the statutes.

Section 265 does prohibit taking deductions with tax-exempt money, but here there is taxable income to ex-Mrs. Charles.

Judge Tag nails it.

“Neither the double deduction common law principle nor section 265 applies to prevent the deduction of alimony where a separated couple pending a final decree of divorce create an alimony pendente lite agreement that includes continued health care coverage as provided by the payor spouse’s employer, premiums for which are properly excluded from the payor’s gross income and included in the recipient spouse’s gross income. Accordingly, petitioner is entitled to deduct an amount equal to the alimony payments from his gross income.” 157 T. C. 7, at pp. 14-15.

Edited to add, 10/5/21: Of course my ultra-savvy readers have long since twigged to the fact that by filing MFS, ex-Mrs. Leyh’s net tax bite is way lower than Charles’, so the deduction helps Charles a lot more than the alimony income hurts ex-Mrs. Leyh. So I must infer that, in negotiating the break-up, ex-Mrs. Leyh got suitable off-tax-return compensation. And if my source got it right, Chuck Leyh is President and CEO of Enterprise Bank, and has forty (count ’em, forty) years’ combat time as a CPA, specializing in tax.  So although pro se, Chuck didn’t need any help litigating this case. Chuck gets a Taishoff “Good Job, First Class.”

And Depositions

I’ve said it many a time: I’m a great fan of summary J. It’s quick and a (relatively) cheap form of discovery. It requires your client to lay bare his/her proofs, and requires your adversary to do likewise. Best of all, and unlike every other form of discovery, it gives you discovery of the judge; you can see what the judge thinks of your case, and your adversary’s.

But overuse of summary J is the hallmark of the lazy (or maybe overworked) lawyer. It cannot substitute for knowing your case and adequately preparing it.

Here’s Anthony Aulisio, Jr., Docket No. 13943-18, filed 10/4/21, and he’s on a discovery doubleheader. He’s fighting an increase in the deficiency (based on his amended return), and denial of a NOL. IRS has also moved (cross-moved, although you can’t do that in Tax Court, unlike every other court I know of) for summary J.

But Judge Alina I. (“AIM”) Marshall will have none of it.

AA tried to knock out IRS’ late-filed motion for leave to amend to up the ante, but he lost that one, so he can’t fight it again.

“The Court will not entertain arguments with respect to its order… granting respondent’s motion for leave to file an amendment to answer. The Court has already denied petitioner’s motion for reconsideration of the order, holding that petitioner’s arguments went to the underlying merits of the case and not to any procedural deficiencies. Under section 6214(a), the Court has jurisdiction to redetermine the correct amount of petitioner’s deficiency, even if the amount so redetermined is greater than the amount in the notice of deficiency.” Order, at p. 3.

But the increased deficiency isn’t a walkover for IRS, either.

“Respondent’s motion and petitioner’s motion do not present the Court with undisputed material facts from which a decision may be rendered as a matter of law. See Rule 121(b). Petitioner’s amended tax return does not establish the truth of the facts stated therein, … but his statements in his return are admissions that may be overcome only through cogent evidence…. Petitioner will be given the opportunity to present such evidence at trial. While the parties agreed to exchange evidence for the issue to the greatest extent possible by February 22, 2021, the record is not closed. The parties’ respective motions for partial summary judgment on the issue are denied.” Order, at p. 3. (Citations omitted, but get them for your memo of law file).

AA is also fighting a disallowed business deduction for a money judgment against him later overturned by an appellate court. My hip readers, of course, have shouted “Tax benefit rule! Deduct in Year X, take as income in Year Y!” AA apparently didn’t, but that’s not all.

Section 461(f) requires transfer of control over the property given in satisfaction of the judgment. “While petitioner has submitted a writ of levy for the real property, neither party has submitted evidence showing whether petitioner transferred control of the real property. The parties also do not adequately address respondent’s arguments with sufficient facts or legal analysis to permit us to decide this issue as a matter of law. The parties’ respective motions for partial summary judgment on the issue are denied.” Order, at p. 5.

As for the NOL, “(I)n general, the taxpayer bears the burden of establishing both the existence of the net operating losses and the amounts of the losses that may be carried forward. To substantiate both, the taxpayer is required to maintain records sufficient to enable the Commissioner to determine the correct tax liability. Sec. 6001; sec. 1.6001- 1(a), Income Tax Regs. Under the Cohan rule, if a taxpayer establishes that an expense is deductible but is unable to substantiate the precise amount, the Court may estimate the amount, bearing heavily against the taxpayer whose inexactitude is of his or her own making. However, to apply the Cohan rule the Court must have some information to estimate the proper deduction. It is well settled that self-serving declarations are not sufficient to substitute for records …and that tax returns alone do not establish that a taxpayer suffered a loss…. “Order, at pp. 5-6. (Citations omitted).

But Judge AIM falls back on the good old “most favorable inferences for the non-movant” presumption, and cuts off IRS’ summary J.

So set up for trial, guys.

But AA isn’t through; he wants to depose the plaintiff and their attorney from his money judgment case. See Order, 10/4/21.

But he never bothers to show that he notified them that he was going to ask for the depositions; in fact “… petitioner requested that we order respondent ‘not to warn the deponents that they may be served.’”

AA obviously never read Rule 74(c)(2)(B), but Judge AIM explains it to him.

“Rule 74(c)(2)(B) allows 15 days for a party or the nonparty witness to object to the deposition. The noticing party may then move for an order with respect to any objection and must annex to the motion the notice of deposition, proof of service, and a copy of any responses and objections. Petitioner filed petitioner’s motion pursuant to Rule 74(c)(3), which provides the procedures for deposing party witnesses without the consent of all the parties. As a threshold matter, neither Mr. B nor Mr. S is a party in this case. The appropriate procedures for deposing nonparty witnesses—without consent of the parties—are provided in Rule 74(c)(2). Petitioner has not met the procedural requirements of Rule 74(c)(2) as there is no indication that he gave proper written notice to the nonparty witnesses to be deposed nor that his motion was filed with respect to an objection from a party or nonparty witness.” Order, at pp. 2-3. (Names omitted).

“Petitioner has failed to show that the deposition of Messrs. B and S would yield specific and precise factual information essential to his case or could lead to such admissible evidence that is not already in the record. We remind petitioner that nonconsensual depositions are not to be used as a substitute for cross-examination at trial or to obtain information that can practicably be obtained by other informal or formal discovery methods.” Order, at p. 3. (Names omitted).

AA is pro se. Should be quite a trial.

While this my blog has neither positraction nor dual-quad carburetors, it does have 409 followers this morning. So for one brief shining moment, I join The Beach Boys: “giddy up, giddy up 409.”

For once, we’re not talking about Title VII of the Tax Court Rules; no, today it’s discovery in the real-life world. Turns out the late Lonnie has a daughter in Lawrence W. Nelson, III, Deceased, and Jacalyn A. Thompson, Docket No. 18374-15, filed 10/1/21.  And she isn’t the one child of the late Lawrence a/k/a Lonnie and Jacalyn that had heretofore appeared in the filings over the last six (count ’em, six) years.

Back in June, Judge Gale told Jacalyn and IRS’ counsel to report on the status of the estate of the late Lawrence a/k/a Lonnie and who the heirs at law might be. Previously only Jacalyn and her daughter Brittany were known. But IRS ran a title search on certain realty owned by the late Lawrence a/k/a Lonnie, with interesting results.

The title search “… identifies a lien recorded against the [real estate] in December 2016 for spousal or child support payments due from Lonnie Nelson to the County of Tulare…. From a review of the publicly available Superior Court docket, which lists the plaintiff as the County of Tulare and the defendant as Lonnie Nelson, it appears that the case related to the support of a minor child, ANR. In addition, the copy of Mr. Nelson’s death certificate attached to respondent’s Motion to Dismiss states that he was known not only as Lawrence W. Nelson, III, but also as Lonnie Nelson. It thus appears that Mr. Nelson may have been the same person who was the defendant in the Superior Court case associated with the lien recorded against petitioners’ property.” Order, at pp. 1-2. (Footnote omitted, but it says ANR isn’t a minor any more; I’ve left out her name, as she isn’t a party…yet).

So let Jacalyn tell Judge Gale why Lawrence’s estate is insolvent, and let IRS’ counsel track down Ms. ANR. And if Jacalyn has any idea where Ms. ANR might be, let her likewise enlighten Jiudge Gale.

Yes, Tax Court is truly a voyage of discovery. File a petition, and you never know what you’re going to find.

So far, that is, at 4:42 p.m., Eastern time, there have been posted 539 orders on the Tax Court website. None has come from Judge James S. (“Big Jim”) Halpern; that is to say, none has come from Judge Big Jim that has been posted.

This morning I telephoned Chambers to find out when there would issue the order or decision embodying the result of Judge Big Jim’s 72 (count ’em, 72) page monograph on the publicity of the anonymous (for which see my blogpost “A. Nonymus, Serial Blower – Blown,” 9/28/21; you won’t find nary a page on the Tax Court website, as same is sealed, notwithstanding that I and the entire online law community have posted it “far and wee”).

Public Affairs responded that the order would post today. However, as I anticipated in my above-referred-to blogpost when I asked if A. would be outed in the order, Public Affairs told me that A. would be given a chance to appeal to DC Cir again.

The iron curtain has descended yet again.

Not Hardly

I do not know if Judge Albert G. (“Scholar Al”) Lauber is a particular fan of The Beach Boys. But as Congress yet again repeats the Wilson-Christian 1963 hit and starts to “tach it up tach it up” to shut somebody down, Judge Scholar Al is ready with plan in place to avoid being out-dragged when “comin’ off the line when the light turns green” at the CA dragstrip on Tuesday.

And whom else is on the card for the Los Angeles remote but my great source of blogfodder Gregory J. Podlucky & Karla S. Podlucky, Docket No.: 453-17, filed 9/30/21.

Judge Scholar Al: ” The Court is aware of the possibility of a Government shutdown beginning Friday, October 1, 2021. The Court has implemented a contingency plan that will enable the undersigned to conduct the trial session as planned. The Internal Revenue Service has informed the Court that its attorneys will appear for trial next week whether or not there is a Government shutdown.” Order, at p.1.

So get ready to try the case, guys.

And I want to express thanks from us journos, that Tax Court stands ready to keep ’em coming, whatever may happen tomorrow.

I want to begin with a Taishoff “Good Try,” to Vivian Hoard, Esq., even though Judge Courtney D (“CD”) Jones doesn’t buy her arguments about the Section 183 hobby deductions. Ms. Hoard, like The Great Chieftain of The Jersey Boys, transitioned to tax litigation from criminal litigation. The case for today is Carl L. Gregory and Leila Gregory, 2021 T. C. Memo. 115, filed 9/29/21.

We all know that Section 183 allows two (count ’em, two) types of deductions from fun money, that is, income derived from activities engaged in otherwise than for profit, in the case of Carl his boat chartering. The first class of deduction is where the service provides for a specific deduction; in Carl’s case, he gets his couple hundred dollars’ (hi, Judge Holmes) worth of taxes and licenses.

That only leaves north of $300K of expenses in each of the two years at issue. Vivian and Carl claim the 2% AGI floor in Section 67(a) doesn’t apply.

Judge CD says it does. “Section 63(d) defines itemized deductions as deductions other than (i) those allowable in computing AGI and (ii) the deduction for personal exemptions allowed under section 151. Section 183(b)(2) is not identified as a deduction allowable in computing AGI. See sec. 62(a). Consequently, section 183(b)(2) is properly viewed as an itemized deduction. The broader statutory scheme confirms as much; section 183(b)(2) is enumerated under Part VI, Itemized Deductions for Individuals and Corporations, of Subchapter B, Computation of Taxable Income. As the title of Part VI suggests, section 183(b)(2) is by default an itemized deduction, and nothing in the text of section 183 or another provision of the Code suggests otherwise.” 2021 T. C. Memo. 115, at pp. 8-9.

“Miscellaneous itemized deductions are defined as itemized deductions other than those described in section 67(b). See sec. 67(b). Thus, if an itemized deduction, such as section 183(b)(2), is not identified on the list provided under section 67(b), it is a miscellaneous itemized deduction and therefore subject to the restriction provided under section 67(a).” 2021 T. C. Memo. 115, at p. 9.

Judge CD says “The Gregorys misleadingly claim that the plain language of section 183(b)(2) supports their view that it is an above-the-line deduction, placing particular emphasis on the language in section 183(b)(2) capping the amount of the deduction to gross income derived from the underlying activity (less the deduction(s) allowable by reason of section 183(b)(1)). We find this line of argument unpersuasive.

“The language they point to in support of their argument concerns only the maximum permissible amount of the deduction. It does not instruct taxpayers to apply the deduction itself against gross income for purposes of calculating AGI.” 2021 T. C. Memo. 115, at p. 11.

IRS Pub 529 says the same.

Now there is Tax Court learning that says Section 183(b)(2)s are miscellaneous itemized deductions, and one CFC case, but no appellate learning. See 2021 T. C. Memo.115, at p. 9-10.

There’s enough on the table to make a trip to 11 Cir (Carl is in FL) worth considering.

Judge Buch has the reputation of being taciturn, not given to loquaciousness. Not abrupt, of course, courteous, but direct.

Today he demonstrates that many words are unnecessary when facts speak for themselves. Here’s Robert S. Clark, 2021 T.C. Memo. 114, filed 9/28/21

” In… the years at issue, Robert S. Clark owned an auto body shop, rental properties, a large home, and numerous trucks, automobiles, and utility vehicles. His ability to acquire these assets is a remarkable feat given that, according to his tax returns, he had taxable income of $114, $0, $0, and $0, respectively, during those years. Or he fraudulently underreported his income. The Commissioner established by clear and convincing evidence that he fraudulently underreported his income.” 2021 T. C. Memo. 114, at pp. 1-2.

A correspondent advises me that the Genius Baristas belatedly posted all 72 (count ’em, 72) pages of Judge James S (“Big Jim”) Halpern’s takedown of Whistleblower 14377-16W, 2021 T. C. Memo. 113*, filed 9/27/21, today, as I had missed it when they posted it late yesterday. Well, since 3:00 p.m., Eastern time came and went before I posted at 3:40 p.m. yesterday, I am hardly put out of countenance by this much-belated publication.

Judge Big Jim, clearly vexed by DC Cir’s right-about-face when he tried to blow the cover of A. Nonymous, Serial Blower (see my blogpost “A.Nonymous, Serial Blower – Anonymous,” 7/23/19), has a full-dress trial, wherein he blows up A’s claims of physical, economic, marital, and reputational harm (want of specificity on all counts), and, bowing to the protection of innocent third parties, deals likewise with Mrs. A and her business.

The key is whether the public’s interest in knowing who’s clogging the courts is weakened by the need to protect. A class representative’s identity isn’t important when the class comprises a multitude. Where the plaintiff (petitioner)(blower) is a one-off, harm from disclosure has to be shown beyond annoyance. As the hockey players say, “step on the ice and you’re gonna get hit.” But getting roughed, cross-checked, high-sticked, boarded, or speared is something else, and that won’t be assumed. No hurt, no cover.

A. is light on facts.

As IRS wants summary J, we’re back to Van Bemmelen; the record rule rules. In the usual case, if a material fact is disputed, there has to be a trial. But whistleblower cases go off on abuse-of-discretion, and the administrative record is “all ye know on earth and all ye need to know,” as a much finer writer than I put it. A. sinks himself by asking for discovery; if you want to supplement the record, you must specify what was left out. As for suppression or concealment by the agency, you must specify what was thus hidden. Conspiracy theories don’t get it. IRS wins; no payday for A.

Judge Big Jim promises us an appropriate decision and order. Will it feature A. Nonymous unmasked? Even if it does, won’t the Genius Baristas seal it anyway? So A. Nonymous remains A. Nonymous.

*Whistleblower 14377-16W 9 28 21