I noted the other day that my colleague Peter Reilly CPA was seeking blogfodder in the tsunami of petitions flooding The Glasshouse in the City-NonState; see my blogpost “Draining The Swamp,” 8/17/21.

He and I spoke by telephone yesterday, and we agreed that Mark Twain was right again. “One gets such wholesale returns of conjecture out of such a trifling investment of fact.”

It could be the shutdown that preceded the roll-out of DAWSON. It could be the early days of DAWSON. It could be the economic effects of the pandemic, as the only relief accorded was some permissible delays in filing, but not in paying. It could be something “between Heaven and earth, not dreamt of in your philosophy,” or mine.

I’m offering no prizes for the most imaginative guess, or even the correct answer.

It’s entirely possible we may never have an answer.

But I do know this much. Once the petitions are all logged in and docket numbers assigned, we will still have petitioners like Anthony Andrews, Docket No. 14029-17*, filed 8/19/21. And deploying what few resources Tax Court may have on such as this.

“Throughout this case, petitioner has failed to directly address his entitlement to the EIC that he claimed for 2015, which in part depends on whether he had qualified dependents during 2015. He has claimed that his constitutional rights have been violated, that the EIC issue was settled, and that respondent’s counsel was guilty of misconduct. His claims have been analyzed and rejected in the Court Order dated May 2, 2018, denying petitioner’s Motion for Summary Judgment filed October 30, 2017, and Court’s Order dated April 10, 2019, denying petitioner’s Motion to Seal Documents filed January 28, 2019. Petitioner refuses to accept the Orders of the Court, instead filing repetitive documents and motions and attempting a premature appeal.” Order, at pp.1-2.

Oh, and are you surprised by this?

“Petitioner has been incarcerated during the pendency of this case and apparently will be for some time. On August 4, 2021, he filed a notice of change of address indicated that he is now in a Federal Correctional facility in Florida. By maintaining only previously rejected positions, he has failed to pursue reasonable means of resolving this case. Unless he indicates an intention to abandon his meritless arguments and address the EIC issue in this case, the Motion to Dismiss for Lack of Prosecution is well taken and may be granted. See Rules 123 and 149(b).” Order, at p. 2

Judge Nega, I agree that everyone is entitled to his or her day in Court. But it’s a “day in court,” not four years.

*Anthony Andrews 8 19 21

I asked the Genius Baristas how I might link to an opinion reported on the day it was issued, but thereafter disappeared when the entire docket was blocked.

Here is the reply: “The docket record is available to the public.

“You appear to be receiving an error message because you are trying to link to a particular document.  DAWSON generally does not create permanent links.   The one exception to this is the docket record.  If you would like to create a permanent link to a Tax Court document, you will need to download the document and create your own permalink.”

Except the docket record is not available to the public when the docket record is sealed, notwithstanding the fact that orders and the opinion have appeared on the day(s) issued in plain sight on the Tax Court website.

And I have no intention of creating a library of Tax Court orders and opinions that should be available to the public for review, and is mandated by statute to be made available to the public (Section 7461).

That is, creating for free. If Tax Court wants to pay me my hourly billing rate to do it, let’s talk.

My colleague Peter Reilly, CPA, must be back from his summer vacation, because he’s looking for blogfodder. He asked me about the 5/29/20 press release announcing the return of the online document photocopy service from the Tax Court Records Department.

He asked what had been done before. I emailed him that one had to visit The Glasshouse in the Stateless City, and petition the clerks for a quick peek at the file, glancing at the same while immured within the Glasshouse walls.

I ought to have referred him to my blogpost “Copycats,” 12/3/20, wherein I stated  “(C)heaper than PACER, given the three-buck cap. Any document you want, for the price of a bottle of Trader Joe’s famous plonk.”

Edited to add, 8/18/21: Y’know, maybe sealing a lot of files and charging for copies of orders and opinions that were made public for just one day is a fundraiser for Tax Court. I wonder.

No, I’ve not become  a foreign correspondent. Rather, this is the account of the tax court trial of Deborah C. Wood, 2021 T. C. Memo. 103, filed 8/18/21*. Deb and seven (count ’em, seven) of her US contractor witnesses testified back in February at the Albuquerque NM trial session, live from Kandahar, 2021 T. C. Memo. 103, at p. 10. I’ve said it before: why have mobile trial sessions, when Zoom covers the world?

Deb is an ex-GI who tried the free world, didn’t like it, and signed up for Afghanistan. Until this week there were plenty of jobs for qualified personnel there. Deb was a logistics specialist right out of high school, a specialty in high demand.

Deb stayed in Afghanistan. She couldn’t leave the base, didn’t learn the local languages because the few locals on base didn’t talk to foreign women, couldn’t open a local bank account or invest locally. She never rented the house she owned in TX; she let her TX car registration lapse but kept her driver license because her job required it.

Judge Albert G (“Scholar Al”) Lauber: “She had a U.S. bank account, but that was necessary to enable her employer to make direct deposit of her paychecks. Opening a local bank account or buying property in Afghanistan would have been impracticable if not impossible, given the requirements of her security clearance and the ban on leaving the base. Petitioner worked 12 hours a day in Afghanistan, with a half-day off every 14 days. Despite the strenuous demands of her work, she managed to have a full social life, including visiting restaurants and shops on the boardwalk, cooking with friends, and pursuing her weightlifting hobby.

“Petitioner had limited family and personal ties to the United States. She was unmarried and had no children; although she visited her parents in Boston occasionally, she spent a significant amount of her vacation time traveling to other foreign countries.” 2021 T. C. Memo. 103, at p. 22.

The “boardwalk” was apparently an on-base area “which consisted of shops and restaurants surrounding a soccer field and encircled by a running track. The boardwalk had a cigar club and a beauty parlor, as well as American chain restaurants, including Popeye’s and TGI Fridays. As petitioner explained, this was a popular place to ‘hang out.’” 2021 T. C. Memo. 103, at p. 6.

I doubt too many grunts hung out there.

But Deb apparently had what we used to call “a good war.” When friends offered her onshore employment, she turned them all down.

“She credibly testified–and we find–that she planned to continue working as an overseas contractor as long as these jobs continue to be available to her.” 2021 T. C. Memo. 103, at p. 9.

Sure, she got paid well over US rates tax free, since Judge Scholar Al gives her almost all her Foreign Earned Income exclusions.

Well, today she can join with the Man from Mumbai: “Kabul town’ll go to hell –Blow the bugle, draw the sword….”

Does somebody at Tax Court actually have a sense of humor?

But this is a nonpolitical blog.

*Deborah C Wood 2021 T. C. Memo 103

Except it usually is in an innocent spouse Section 6015(f) equity case. Jessica Lynn Grady, a/k/a Jessica Lynn Gans, 2021 T. C. Sum. Op. 29, filed 8/17/21* surely knew her deadbeat ex would never cough up for the five (count ’em, five) years at issue. He specialized in nonfiling and busted IAs. And the IRS’ CCISO, the Cincinnati Bengals, chewed up Jessica’s application. Her timely submitted Form 12509, Statement of Disagreement requesting a hearing with the IRS Office of Appeals (Appeals Office) met no better fate.

“After its review the Appeals Office agreed with the preliminary determination to deny Ms. Gans’ request for innocent spouse relief and issued a final determination letter…stating: ‘Our review of the facts and circumstances of your claim didn’t show it would be unfair to hold you jointly responsible. You didn’t have a reasonable expectation that the person you filed the joint return with would or could pay the tax.’ 2021 T. C. Sum. Op. 29, at p. 11.

But the Bengals and Appeals didn’t reckon with two savvy ladies, Cynthia S. Agostini, EA, USTCP, whose website boasts that she holds a “a distinction held by fewer than 100 tax professionals nationwide,” and STJ Diana L (“The Taxpayer’s Friend”) Leyden.

Cindy and STJ Di review Jessica’s sad tale of ignorance, oppression, poverty, disease, miscarriages, substance abusing son, deadbeat ex, and retiring new spouse, and give Jessica the full boat, leaving IRS with guilty knowledge and nothing else, as Jessica grabs every brass ring for streamliner for one year, and scores equity everywhere else.

Happy ending.

*Jessica Lynn Grady 2021 T. C. Sum. Op. 29

Doesn’t Help a Whistleblower

Michael Lissack, 157 T. C. 5, filed 8/17/21, turned IRS onto a $60 million adjustment, except not quite. Mr L. claimed the target failed to report income on certain membership fees. The Ogden Sunseteers took Mr L. seriously, and the RA to whom they bucked Mr L.’s claim checked it out. The RA, though, declared the fees to be non-taxable deposits, so the target was OK.

Except.

The RA kept looking, and found some sketchy deductions, whence came the $60 million hit.

Mr L. claims he gave IRS a piece of the action, wherefore he wants a piece of the action. Ogden says no, IRS says no, and Judge Albert G (“Scholar Al) Lauber says no.

The case goes off on Reg. Section sec. 301.7623-2. To begin with Section 7623(b)(1) requires that IRS collect “as the result of the action,” that is, following what the blower told them. But Mr L. told them about deposits, not deductions.

“Among the terms defined by the regulations is the verb phrase ‘proceeds based on.’ Id. para. (b). The IRS ‘proceeds based on’ the whistleblower’s information when his information ‘substantially contributes to an [administrative or judicial] action against a person identified by the whistleblower.’ Id. para. (b)(1). That is true when the IRS ‘initiates a new action, expands the scope of an ongoing action, or continues to pursue an ongoing action, that the IRS would not have initiated, expanded the scope of, or continued to pursue, but for the information provided.’ Ibid. On the other hand the IRS does not ‘proceed based on’ the whistleblower’s information when it merely ‘analyzes the information provided or investigates a matter raised by the information provided.’ Ibid.” 157 T. C. 5, at p. 9.

“In short, the regulation concludes that the portion of the examination that is unrelated to the facts and issue identified by the whistleblower is a separate ‘administrative action.’ See id. para. (a)(2) (defining ‘administrative action’ as ‘all or a portion’ of an IRS examination).” 157 T. C. 5, at p. 10.

So Mr L. attacks the regulation, which means a Chevron pitstop.

IRS says since Congress didn’t define the term “action” in Section 7623(b)(1), it left a gap for the Reg definition. Mr L. says the statute is unambiguous, that “any action” means “any action.”

Judge Scholar Al once again proves my assertion that any lawyer who can’t find an ambiguity should find another way to make a living.

“We disagree with petitioner’s submission that the statute is unambiguous. Subsection (b)(1) refers to any administrative or judicial action ‘described in subsection (a).’ Sec. 7623(b)(1). But subsection (a) does not describe or define an ‘administrative or judicial action.’ Subsection (a) does not even refer to that term. It speaks only of paying an award ‘from the proceeds of amounts collected by reason of the information provided.’ Sec. 7623(a) (flush language).

“Subsection (b) thus refers to a description in subsection (a) that does not exist.” 157 T. C. 5, at p. 15.

That’s Congress for ya.

But it’s necessary that the blower furnish more than the name of the target. If not actually lead IRS to the skullduggery, the blower must tell the IRS where to find the scene of the crime and where to find the smoking cliché.

And the Reg is rational. An IRS examination may include more than one action. And the blower must have substantially contributed to the specific action that yielded the happy result.

“Paragraphs (a)(2) and (b)(1), coupled with Example 2, [in the Regs] work together to ensure that a whistleblower is rewarded only for providing information that substantially contributes to a distinct ‘administrative action.’ Otherwise whistleblowers would be incentivized to file innumerable claims as mere fishing expeditions, hoping that the IRS will find something wrong with those taxpayers’ returns (related to the information they supplied or not). There is no evidence that Congress wished to encourage this sort of behavior.” 157 T. C. 5, at p. 21.

And Mr L.’s action isn’t “related” to the sketchy deductions. His claim had nothing to do with deductions.

Mr L. wants discovery, but Van Bemmelen and the record rule sink that one.

“The administrative record that is before us may not contain exhaustive information about ‘how and when’ the RA identified the bad debt issue, e.g., which line entries on which returns caught his attention, or the date(s) on which he gleaned these insights. But the record provides more than enough evidence to confirm that petitioner is not eligible for a mandatory award. The record contains all of petitioner’s submissions to the Office: None of these submissions includes any information about Target’s intercompany debt, Target’s reporting of a bad debt deduction, or the facts that would be relevant in assessing the propriety of such a deduction. In response to Ms. [OS]’s specific question whether the ‘whistleblower submission contribute[d] to any of the adjusted issues,’ the RA replied (with emphasis) that petitioner had not ‘provided any information for the adjusted issues.’ Because petitioner did not supply any information about the bad debt issue (or about the other issue that generated an adjustment), he is not entitled to an award under section 7623(b). No amount of discovery will change this fact.” 157 T. C. 5, at p. 25.

IRS wins.

Disclosure: I represented Mr. Lissack once, many years ago, in an entirely unrelated matter.

Comment: Of course I can’t link to Judge Scholar Al’s opinion, as the Genius Baristas have blocked the whole docket. But as soon as the online services pick this up, I’ll link to them. If I’m late or forget, just google 157 T. C. 5, and it’ll pop. So much for these Stealth Geniuses.

Edited to add, 8/25/21: See link at the head hereof. The Stealth Genius Baristas are once again shown up.

No, this is not a political comment. This is a non-political blog; like Rick Blaine, I run a cyber-saloon, so let the political types take their politics elsewhere.

Tax Court confessed that it is currently swamped with petitions. See my blogpost “Premature,” 7/23/21.

So now it is announced that Tax Court met with the favored few (journos excluded, of course; they don’t want us nosy types asking questions), the net result of which may be found here.

Tax Court will try to drain the swamp. To what extent DAWSON has anything to do with the swamp is yet unanswered.

No, this is not another of my walks down Memory Lane, to revisit long-extinct SF psychedelic bands, even the one that catapulted to heights of immortality the most tragic of rock heroines. Rather more mundane is the story of David Evan Ushio and Judith S. Ushio, 2021 T. C. Sum. Op. 27, filed 8/16/21, and it sends me off in search of something clear and cold to end a busy blogging day. Especially when the Genius Baristas sealed the whole docket for no discernible reason, so I can’t link to the text of the Sum. Op., even though it is emblazoned all over the Tax Court website for one day only. No wonder I need a drink.

Briefly, Dave and Judy sunk $50K into the stock of something called PCHG, which never earned a sou, but for which stock Dave and Judy claimed Section 1244 small busineshood and an ordinary loss when PCHG cratered.

PCHG was supposed to invest in some kind of three-way deal to produce alternative energy. You figure it out, because it produced nada.

STJ Diana L (“Sidewalks of New York”) Leyden cuts to the cliché.

“Congress intended section 1244 to encourage taxpayers to invest new funds in small businesses, rather than provide favorable tax treatment for losses suffered by investment and holding companies.” 2021 T. C. Sum Op. 27, at p. 8. (Citations omitted).

Section 1244 corporations are supposed to be operating companies, making money from operations, not investing. PCHG never operated anything. Dave and Judy couldn’t prove PCHG got less than $1 million capital.

Moreover, Dave and Judy couldn’t prove “… more than 50% of PCHG’s aggregate gross receipts were not from sources other than royalties, rents, dividends, interests, annuities, and sales or exchanges of stocks or securities. In fact PCHG could not meet this requirement because it did not have any gross receipts during its existence and failed to operate largely as an operating company.” 2021 T. C. Sum. Op . 27, at p. 10.

So Dave and Judy can write off $3K for each of the following seventeen (count ’em, seventeen) years, as capital losses.

I must express sympathy to Dave’s and Judy’s counsel, Sandra M. Robb, EA, USTCP. You were dealt a tough hand to play.

Dependent child and child tax credit cases are tough; without an 8332, you’re out. Even with one, it isn’t easy. So a Taishoff “Good Job” goes to William K. Schmidt, Esq., of KCMO Legal Aid, who pulls a winner in Carol Denise Griffin, 2021 T. C. Sum. Op. 26, filed 8/16/21.

Carol Denise took care of Mom at her home via a contractor with Kansas Senior Services. Carol Denise also cared for her minor niece and nephews, the children of her disabled single-parent brother. Carol Denise took the dependency, child tax and EIC. She had income from the contractor. She also had an 8332 signed by her brother, but never attached it to her 1040.

IRS disallowed it all, and Carol Denise timely petitioned the SNOD.

So Judge Vasquez once again observes “…that the process of distilling truth from the testimony of witnesses, whose demeanor we observe and whose credibility we evaluate, ‘is the daily grist of judicial life’.” 2021 T. C. Sum. Op. 26, at p. 8.

IRS folds the age test, the relationship test, and the support test. IRS says the kids didn’t spend the requisite number of nights at Carol Denise’ home.

“Petitioner has demonstrated that all three children satisfied this requirement. Petitioner credibly testified that: (1) she took care of the children to help her disabled brother; (2) the children stayed overnight with her all summer and on weekends, school closures, and holidays during the school year; and (3) the children also stayed with her when they had to leave school early or when the school could not reach their father. Petitioner corroborated her testimony with a school calendar for the [year after year at issue] academic year, which confirmed that the children had at least two days off per month during the school year. After observing petitioner’s credible testimony and reviewing the school calendar, we find it more likely than not that the children resided with petitioner for more than one-half of [year at issue]. 2021 T. C. Sum. Op.  26, at p. 6-7 . (Footnote omitted, but it says that the school years are probably pretty much alike, so the next year’s calendar doesn’t vary much from the last.)

IRS’ counsel claim the school records Carol Denise submitted in evidence are inconsistent and have handwritten notes. Carol Denise explains the inconsistencies, and says the notes are the school secretary’s.

The 8332 from her brother says Carol Denise is the “non-custodial parent,” but that’s impossible. But Judge Vasquez pushes that aside. Neither party called the brother as a witness, and IRS didn’t raise missing witness to rebut.

Carol Denise wins.

In baseball, when a team doesn’t show up, the umpire enters the score of 9 to 0 in favor of the non-defaulter, and everyone leaves the field. Not so in US Tax Court. IRS and Judge Albert G (“Scholar Al”) Lauber have to run around the bases for each and every one of the five (count ’em, five) years, in each of which IRS wants to tag Irvin Hannis Catlett, Jr., Deceased, 2021 T. C. Memo. 102, filed 8/16/21, for deficiencies, add-ons and chops.

Irv was not yet deceased when he petitioned, though he was in the slammer doing seventeen years six months for “…violation of 18 U.S.C. sec. 371, aiding and assisting in the preparation of false tax documents in violation of section 7206(2), and attempting to obstruct and impede the administration of the internal revenue laws in violation of section 7212(a).” 2021 T. C. Memo. 102, at p. 3.

Irv was a preparer, who concocted phony entities generating phony losses to offset real gains for his customers, with the assistance of a bent penny in the IRS. While enjoying (if that is the correct word) board and lodging at our expense, Irv failed to cooperate (surprise, surprise) with the audit of his personal taxes, thrice unsuccessfully sued to quash subpoenas to his various banks, and petitioned the SNODs IRS gave him. Before trial, Irv went before a much higher Judge than can be found at Second Street, NW.

Irv’s next of kin repeatedly state they have no interest in participating in any trial, and no will, nor ex’r or adm’r can be found.

So why a T. C. Memo.? Well, although dismissal for want of prosecution is a no-brainer, IRS wants to enter decision for whatever reason. Maybe Irv had a stash somewhere they can grab. So IRS needs to satisfy BoP and BProd to get a default. What we State courtiers would call an “inquest for a default judgment.”

So Judge Scholar Al must run the bases, 25 (count ’em, 25) pages’ worth, giving IRS their heart’s desire (assuming they have a heart, a fact not in evidence), save only one minuscule break for Irv’s non-estate.

“Section 6651(f) provides that, ‘[i]f any failure to file any return is fraudulent,’ the addition to tax imposed by section 6651(a)(1) shall accrue at a rate of 15% per month, not to exceed 75% in the aggregate. Respondent has the burden of proving fraud, and he must prove it by clear and convincing evidence. See sec. 7454(a); Rule 142(b). Where dismissal for lack of prosecution is appropriate, the Commissioner can satisfy his burden by presenting, ‘either in the pleadings or at trial, * * * sufficient facts to sustain a finding of fraud.'” 2021 T. C. Memo. 102, at p. 23. (Citations omitted).

But IRS needs clear and convincing proof of fraudulent intent, and they haven’t got it.

“The IRS determined an addition to tax under this provision for 2009. Petitioner’s return for 2009 was due on April 15, 2010, roughly one month after he was indicted for tax crimes. Under these circumstances, petitioner’s failure to file a 2009 return may have been attributable to various causes, e.g., distraction occasioned by the criminal prosecution, advice of counsel, or reluctance to take a position inconsistent with the positions taken on his prior returns. Considering the record as a whole (including the facts contained in respondent’s pleadings), we conclude that respondent has not carried his burden of proving that petitioner’s failure to file for 2009 was fraudulent. We will therefore not sustain the section 6651(f) addition to tax for 2009.” 2021 T. C. Memo. 102, at p. 24.

But before you rend your garments in mourning for IRS, Judge Scholar Al notes all is not lost.”However, the notice of deficiency stated that, ‘if the fraudulent failure to file penalty is determined not to apply, the failure to file penalty [sic] under * * * [section] 6651(a)(1) does apply.’” 2021 T. C. Memo. 102, at p. 24. And IRS Boss Hossed this case to a fare-thee-well. So the lesser add-on sticks.

Game forfeited, Rule 155 beancount to follow. It will be a trifle one-sided.

Edited to add, 10/12/21: Yup, a trifle one-sided. But the numbers here lead me to believe that the stash of cash is more than a mere possibility. Irvin Hannis Catlett Jr 13058-14 10 12 21