Judge Alina I. (“AIM”) Marshall has a missing tax matterer in Colorado Land and Holdings LLC, John Sfondrini, Tax Matters Partner, Docket No. 11875-20, filed 7/26/21.

When the case was called for trial last month, IRS counsel claimed the case was settled, but couldn’t find Mr. S., tax matterer. Earlier this month, petitioner’s counsel moves to scuttle Mr. S. (who supposedly resigned at the end of 2019, before the petition was filed), and sub in an LLC, whose managing member is Mr. G.

“The petition in this case was filed on September 28, 2020, a date after which Mr. Sfondrini tendered his resignation. The petition was signed by counsel, but it is unclear who the counsel represented. The petition states that ‘[t]he Tax Matters Partner [Mr. Sfondrini] resigned on or around January 1, 2020’ and that ‘[o]n or around the same date, Gerald Greenspoon, in his capacity as manager of GM Investments III, LLC, was named as TMP for all taxable years following 2015.’ The year at issue in this case is 2017, so the statement in the petition suggests that GM Investments III, LLC may be the proper tax matters partner for this case.” Order, at p. 1.

OK, so do we settle or not? Judge AIM can’t tell who the players are.

“The Court has the authority to appoint a tax matters partner only when the partnership fails to do so. If the partnership has properly designated GM Investments III, LLC as the tax matters partner, we have no need to do so on its behalf and we lack the authority to do so on the basis of petitioner’s motion. Instead, the proper procedural posture may be better addressed by a motion to substitute parties and change caption.” Order, at p. 1. (Citation omitted).

OK, simple enough, no? Not while Judge AIM has the case, and petitioners’ trusty attorney is less than lucid about whom he represents. So let said trusty attorney tell Judge AIM whether he is counsel to (a) Colorado Land and Holdings, LLC, (b) Mr. Sfondrini, (c) GM Investments III, LLC, (d) Mr. Greenspoon, or (e) all or some of the above.

I refrain from raising conflicts of interest if the answer is “too many”, because trusty attorney has enough to do.

Let him dish whether the tax matters partner appointed at the end of 2019 to replace Mr. S is GM Investments III, LLC (represented by Mr. G as managing member) and whether the tax matters partner’s appointment complied with the requirements of section 301.6231(a)(7)–1(d), Proced. & Admin. Regs.

Now both sides can get into the act, and tell Judge AIM, separately or together, whether GM Investments III, LLC must ratify the petition in this case, and whether the appropriate filing in this case is a motion to substitute parties and change caption, rather than a motion to remove tax matters partner.

Nudge nudge, wink wink, say no more.

The Section 162 ordinary-and-necessary business expense deduction pays off for Yishi Zuo, 5716-19S, filed 7/26/21, even though Yishi was sometimes entrepreneuring and sometimes not, as he pursued his MIT MBA.

Yishi got his BBA from UC Berkeley, and went at entrepreneuring with a vim after he left a two-year hitch at Goldman Sachs. Internet start-ups flowed from his inventive mind, and while they mostly cratered, Yishi forged gamely on.

STJ Peter Panuthos: “We have held that a taxpayer may deduct the cost of an MBA degree as an unreimbursed employee expense if his studies improve on a preexisting skill such as management skills. A taxpayer is in the same trade or business if he is still in the same general field and still using the same skills; for example, moving from one position to another that also uses management, administrative, and planning skills.” Transcript, at p. 8. (Citations omitted; see also my blogpost “Presently Engaged While Unemployed,” 8/2/16).

After deciding that there is no certification, qualification, or licensure for “entrepreneur,” with the obligatory dictionary chaw over the word, STJ Panuthos greenlights Yoshi. He was honing skills, not entering a new trade or business.

“We are satisfied that petitioner was qualified in the trade or business of being an entrepreneur before enrolling in the MBA program at MIT on the basis of the time and money he had previously spent founding, organizing, and assuming the financial risks of his two entrepreneurial ventures….

“Further, petitioner had likely developed significant business acumen that was useful in pursuing these ventures while obtaining an undergraduate degree in business administration and working as an investment analyst… Petitioner continued to develop his entrepreneurial skillset when he helped found and served as the CEO of DB….” Transcript, at pp. 9-10. (Name omitted).

Finally, although Yishi’s entrepreneuring while at MIT was a wee bit sporadic,he testifies that he continued his entrepreneurial ventures both during his temporary unemployment over the summer, and concurrently with his MBA education. STJ Panuthos says that’s OK.

“A taxpayer may be engaged in a trade or business, although not working, if he was previously involved in and actively sought to continue in that trade or business while pursuing a defined degree program related to his or her line of work. The taxpayer must clearly intend to seek employment in the same trade or business.” Transcript, at p. 10.

Yishi fills the bill.

On a late autumn morning nearly sixty years ago, on The Hill Far Above, I first became acquainted with another of England’s gifts to our legal system, the rule hereinabove first cited at the head hereof, which required something to happen within lives in being plus twenty-one (count ’em, twenty-one) years. I knew what that something was some three-and-a-half years later, when I took the Bar examination.

Today, I’ll be dipped if I know, and my alma mater’s Legal Information Institute provides corroboration: “Because the meaning of this rule is virtually impossible to decipher, many states have modified it, and some have abolished it altogether.”

When it comes to conservation easements, I’m sure Judge Holmes is in favor of enacting the Rule Against Perpetuities. So am I. But Judge James S. (“Big Jim”) Halpern has confounded me.

See my blogpost “Es Ist Ein Ganzes Meer,” 4/27/21; Judge Big Jim refers to the order therein described hereinbelow. Then see 901 South Broadway Limited Partnership, Standard Development, LLC, Tax Matters Partner, Docket No. 14179-17, filed 7/23/21.

Once again we’re back with the “very contestable readings of what it means for an easement to be perpetual.”

While admitting that the valuation issue is not susceptible of summary J (in fact, the 901s want to put in even more expert witnesses than they had specified heretofore; see Order, at p, 5, footnote 5), Judge Big Jim is citing Palmolive, and suggesting that judicial expediency might be best solved with the perpetuity gambit.

“The Court bears a responsibility to the public and to the parties who appear before it to manage its proceedings efficiently. In our exercise of that responsibility, we have determined that the time and potential expense of trial may be unnecessary to our disposition of the case. The April 27 Order suggests the possibility of our deciding the case in respondent’s favor on the ground that the partnership’s contribution of the easement to the Conservancy does not satisfy section 170(h)(5)(A)’s perpetual protection requirement because, as stated in that order, ‘proceeds from the condemnation of the Building attributable to the easement could be used to satisfy indebtedness owed by the partnership’. If the partnership is not entitled to any deduction for its contribution of the easement because of a failure to satisfy the mortgage subordination requirement provided in section 1.170A-14(g)(2), Income Tax Regs., the easement’s value on the date of the contribution — the issue that we understand would be the trial’s principal focus — would be moot. Therefore, with this order, we are directing the parties to proceed in a manner that would allow the resolution of a potentially dispositive legal issue before any trial of the case.” Order, at pp. 5-6.

So let the 901s show cause why they shouldn’t be tossed for nonperpetuity, and let IRS further attempt to eviscerate whatever subordinations the 901s managed to winkle out of the three (count ’em, three) holders of the five (count ’em, five) mortgages on the property.

Word to the 901s: Please try “so remote as to be negligible.” Does Los Angeles County have the money to pay an eminent domain award, even assuming they could do a Kelo and flip the building to a developer? Their police chief says he hasn’t resources to enforce COVID masking orders.

No, this is not about those e-mails, ostensibly from Canadian druggists, that flood spam filters. This is about the hardlaboring intake clerks and flailing datestampers who are the make-it-happeners at The Old Vic, s/a/k/a the Glasshouse Vic Lundy Built on Second Street in The Stateless City.

Clerks and stampers alike are overwhelmed by a tsunami of petitions. While the average calendar year sees somewhere between 23K and 26K petitions, the 2021 season has seen 24K+ already, with no end in sight.

They’re doing the best they can, and of course collection is stayed upon timely filing of petitions from SNODs and CDPs, but it may be a wee while before Tax Court tips off IRS about every “new-fledged, untried” petition. So Mr. Rettig’s myrmidons may “Cry havoc, and let slip the dogs of war” already.

So if your clients are thus embrangled, contact the Public Affairs Office at (202) 521-3355 or email publicaffairs@ustaxcourt.gov.

Here’s the official: https://ustaxcourt.gov/resources/press/07232021.pdf

Edited to add, 7/28/21: Y’all will recall Tax Court was not accepting mail from 3/18/20 to 7/10/20, and electronic filing of petitions was then, and still is, verboten, Rule 34 notwithstanding. Petitioners were told to mail timely, and when their mailed petitions were returned to them, remail same with original envelope, thus evidencing timely mailing. By the time time USPS or PDS returned the undelivered petitions, and the petitioners returned same (there was no time limit set for the return, so long as the original filing was timely), I’m sure at least some of what would have been included had calendar 2020 been an ordinary year got shunted into 2021.

 My publisher tells me I have readers in Brazil, Paraguay, Argentina, Chile, and Peru. My source tells me that Bolivia, a plurinational State, is bordered to the north and east by Brazil, to the southeast by Paraguay, to the south by Argentina, to the southwest by Chile, and to the northwest by Peru.

 I have no readers (don’t count ’em, there aren’t any) in Bolivia. So I make my request as follows: Señores/Señoras/Senhors/Senhoras, please knock on your next-door neighbor’s door, or ring the doorbell, and ask politely that please somebody there look me up. Many thanks.

See Infra

Judge Nega has bad news for Michael F. Kissell and Maddelena P. Kissel, Docket No. 20103-18, filed 7/23/21, straight off the bench. It’s Mike’s story. Mike won a dustup with PA Dep’t of Corrections over discrimination, and got a back-pay award. PA paid the whole amount without withholding. Then PA woke up and gave Mike a bill for FICA/FUTA/union dues/retirement of $159K.

Mike had a choice of payment plans, but asked for forgiveness of the debt. PA said no, and took it out of Mike’s pension payments for the two years at issue. PA gave Mike 1099-Rs at no extra charge, showing the gross. Mike reported only the net.

On the trial, Mike claimed he didn’t owe PA for the alleged withholding. Judge Nega isn’t buying. “As an initial matter, we note that the validity of petitioner husband’s outstanding debt to the Commonwealth is an issue between petitioners and the Commonwealth, and is not an issue properly before this Court. The only issue before this Court is whether petitioners had … unreported pension income in [taxable years at issue] with respect to petitioner husband’s pension distributions.” Transcript, at pp.14-15.

Of course, income is anything not exempt, and the fact that it gets intercepted to pay a debt of the taxpayer doesn’t matter. And individuals are cash-basis, so we owe when we get, actually or constructively.

“An employer’s payment of an obligation of the taxpayer is equivalent to the taxpayer’s receipt of income in the amount paid. Lack of control over the earnings does not justify exclusion of earnings from the employee’s gross income used to pay an obligation of the employee. Similarly, where the transfer of funds at least partially discharges a legal obligation of the taxpayer, the transfer is equivalent to receipt by the taxpayer. The fact that the transfer is involuntary, such as by garnishment, has no significance.” Transcript, at p. 14. (Citations omitted, but you probably saw most of them in your Income Tax 101 class).

Mike being a PA resident, he’s Golsenized to 3 Cir. 3 Cir learning says IRS must provide a minimal foundation for unearned income claims, linking taxpayer to income-producing activity. If. not, presumption of correctness of SNODs doesn’t apply. IRS has PA’s retirement records concerning Mike’s withholding deductions from his pension, and that’s enough.

Nothing about chops, so no discussion of good faith reliance; perhaps Mike didn’t consult his trusty attorney who won the employment discrimination case, or maybe said trusty attorney steered clear of the issue.

But before I close this blogpost, I must thank the  Tax Court webmeisters for getting this designated hitter up before start of the business day. And that goes double for a Friday; there’s almost never an opinion on a Friday, and I have to scrape and scrounge through hundreds of soul-killing orders to find blogfodder. Not today, though. Thanks.

Now if only y’all could get opinions up before NYC breakfast time every working morning, in the immortal words of The Chords, life could be a dream.

I wonder why Ch J. Maurice B (“Mighty Mo”) Foley bothers to lecture Roy J. Meidinger, Docket No. 15365-20W, filed 7/22/21, about filing unredacted documents. Under the admittedly flawed, new, improved (oh yeah?), jim-handy DAWSON system, the whole case will be automatically sealed anyway.

So anybody interested, or considering filing a Section 7623 whistleblower petition, had better read Ch J Mighty Mo’s prose today, because it will be gone tomorrow.

And though Roy was here before, back in ’13 (see my blogpost “Another Whistleblower Gets Blown,” 8/30/13), you won’t find that case on DAWSON, because it’s sealed, even though under the old Blackstone system I was able to quote from that order extensively.

Roy didn’t bother to name the target in his latest petition, probably anticipating the Genius Baristas’ immediate seal.

Judge Kathleen Kerrigan supplements the latest CLE from The Great Chieftain of The Jersey Boys (and thanks again, Frank), to go over some FREs that might could just possibly maybe so show up in November at the USTC Death March (a/k/a examination for admission to practice before the United States Tax Court).

It’s a reprise of yesterday’s blogpost “An Unerring Nose for Fraud – Part Deux,” 7/20/21. Y’all will remember that Frank Vennes lost his theft loss deduction. But there were some evidentiary holdovers that Judge Kerrigan rules on, in Frank E. Vennes, Jr. & Kimberly Vennes, Docket No. 23860-17, filed 7/21/21.

Frank’s counsel moved to strike the direct testimony of Mr. T. J. Petters, master-fraudster, Ponzi division, and loses.

“Pursuant to an agreement between the parties, Mr. Petters testified remotely via telephone from the U.S. Penitentiary in Leavenworth, Kansas. …Mr. Petters only provided direct testimony. The parties agreed that petitioner’s cross-examination would occur at a later date.” Order, at p. 1.

But when Frank’s counsel called Mr. T. J. for cross a couple days (hi, Judge Holmes) later, Mr. T. J. took the Fifth, claiming he might go down for perjury, based upon his testimony in this or other proceedings. So counsel moved to strike.

“Petitioners’ counsel still could have questioned Mr. Petters to determine his credibility. Instead, petitioners made an oral motion to have Mr. Petters’ direct testimony stricken from the record. The purpose of striking a witness’ testimony from the record is to prevent the Fifth Amendment privilege–intended for use as a shield against self-incrimination–from being used as an offensive sword. In this case Mr. Petters was not testifying on his own behalf or on a matter favorable to his cause. Therefore, the testimony of Mr. Petters is not stricken from the record.” Order, at p. 1. (Citation omitted, but get the case and read it.)

Note that Judge Kerrigan says she didn’t rely on Mr. T. J.’s testimony in deciding the case. If this stuff isn’t a question on the exam, it should be.

Next is the famous Baker Tilly-prepared tax files for Frank’s Sub. S. IRS claims hearsay, but the BT maintainer-corroborator runs the FRE 803(6)(A – E) slalom. Read the order at p. 1. It’s a good crib for the business document hearsay exception. I’d be surprised if that weren’t on the exam.

Finally, though I didn’t mention it in my blogpost above-cited, Frank had an expert witness testify as to the flow of funds from Frank’s Sub S into Petters’ scam platform, 2021 T. C. Memo. 93, at p. 43.

IRS objected, of course. Remember, if you have a basis to object, be it anything above frivolous, object.

Here’s Judge Kerrigan letting the expert in, via FRE 702: “The M expert report (exhibit 2147-P) included special knowledge to assist the trier of fact, was based on sufficient facts or data, was the product of reliable principles and methods, and applied those principles and methods to the fact of this case. See Fed. R. Evid. 702. The expert report of M is, therefore, admitted into evidence.” Order, at p. 2. (Name omitted).

Study hard, guys. And remember, a good advocate is always learning.

As I said back in 2017, “No, I’m not showing off my Italian; I know very little. But the title of this blogpost is a pun. The old saying ‘Chi si ferma è perduto’ (he who hesitates is lost) mutated to ‘Chi se firma è perduto’ (he who signs his name is lost) in the upheavals between 1943 and 1945, when Italy was divided by war, and signing one’s name to anything might not end well for the signer.” See my blogpost thus entitled.

Today Indu Rawat, Docket No. 15340-16, filed 7/20/21*, is caught in the same thicket. Indu is a Canadian NRA (no, not a gunslinger, Non Resident Alien) who sold her US partnership interest. IRS wants her to pick up a $6 million share of gain on inventory sold after she left. Section 752 then mandated same, but Indu wants to play like Aristophanes’ hero in his 424 B. C. smash hit The Knights, and traffic in mines (see my blogpost “It’s Not FIRPTA,” 7/13/17).

So Indu wants summary J.

But Indu, and her “representative under a Form 2848, Power of Attorney and Declaration of Representative,” (Order, at p. 2, and thanks, Judge Gustafson, for the right terminology) got a Form 5701 Notice of Proposed Adjustment, and Indu later signed off on Form 870-LT, agreeing to the changes to partnership items, add-ons and chops, and affected items (that’s TEFRA for “individual partner stuff”). Attached was Form 886-A, the man-‘splainer.

IRS can’t produce the signed original, but IRS claims they’re looking, and both Indu and her rep signed it. In summary J, nonmovant gets every favorable inference. Indu claims the Form 886-A doesn’t take care of her individual (affected) items. IRS says it does. Therefore, there must be a trial.

Indu claims Grecian Magnesite (see my blogpost “It’s Not FIRPTA,” above-cited) puts paid to any question of any gain other than sale of the interest itself; partnership assets don’t count. Yes, the statute was amended, but Indu is pre-amendment. And Indu ignores the binding effect of Form 870-LT.

Sorry, Indu. You settled. The law changed later, but Section 7122 governs. You settle, and absent fraud, malfeasance, or misrepresentation of material fact, you’re stuck.

I’d like to quote language from the order, but this is another of the uncopyable PDF documents that occasionally shows up both before and after DAWSON. Read Judge Gustafson’s order before you sign a Form 870-LT.

*Indu Rawat 15340-16 7 20 21

The Great Chieftain of The Jersey Boys gets the tough ones. Today he has a replay of my blogpost “Execute the Executor?” 3/14/16

Once again Section 3713, the Federal Priority Statute, comes in to hook the executor. Judge Travis A. (“Tag”) Greaves administers same to Estate of Kwang Lee, Deceased, Anthony J. Frese, Executor, 2021 T. C. Memo. 92, filed 7/20/21.

There was a lot of litigation over Kwang Lee’s estate. IRS started with a $1 million SNOD, plus $450K in add-ons and chops. Frantic Frankie got it cut in half, but then there was an appeal…; you get the idea.

While all this was going on, AJ, “a licensed attorney and municipal court judge,” 2021 T. C. Memo. 92, at p. 2, was distributing assets. The last distribution, $640K, causes the problem. Only $183K remains in the pot to pay the tax and interest. And that’s way low.

When IRS unloads a NFTL, AJ tries an OIC, but Appeals says the RCP should include the executor who handed out the boodle. AJ says he didn’t know.

“An executor must have had actual or constructive knowledge of the Government’s claim when the estate had sufficient assets to pay it, or notice of such facts as would put a reasonably prudent person on inquiry as to the existence of the Government’s unpaid claim. A notice of deficiency with respect to estate tax liabilities given to an executor before the executor’s distribution of estate assets is sufficient to satisfy this notice requirement.” 2021 T. C. Memo. 92, at p. 11.

AJ got the SNOD before he handed over the $640K. He was party to the litigation. He claims that the estate’s tax adviser told him it was OK, but he put in no evidence as to who said what. Anyway, he’s a lawyer and a judge, which apparently makes him ipso facto unable to rely on anybody’s advice, and must act “at his own peril.” 2021 T. C. Memo. 92, at p. 13.

There’s some argy-bargy about SOL, but Section 2415 is off the point, and Section 6901(c)(3) (fiduciary liability) and Section 6502(a)(1) ten-year SOL for estate tax put paid to that.

“The estate argues that the SO was required to independently investigate the amounts, if any, actually collectible from third parties, including an ‘evaluation of the hazards of litigation’ and an analysis of the current financial status of such persons. The estate cites no rule mandating or suggesting that the SO should have taken such exhaustive action as it related to Mr. Frese’s potential collection amount. Although the estate may disagree with this policy, we do not find it or the SO’s actions in this case arbitrary or capricious under the circumstances, especially where the record shows that the SO acted diligently in considering the estate’s concerns by consulting with respondent’s Collection Division and Office of Chief Counsel in reaching his conclusion.” 2021 T. C. Memo. 92, at pp. 16-17. (Footnote omitted).

Another tough loss.