The dandiest dodgers’ delight has been around some thirty years, the multi-tiered LLC check-boxed to partnership taxation, with a bunch classes membership interests (hi, Judge Holmes), with each class scattered far and wee, causing FPAAs to shatter on Section 6226(f).

Judge Christian N. (“Speedy”) Weiler will tell you all about it (with pictures, yet) in ES NPA Holding, LLC, Joseph NPA Investment, LLC, Tax Matters Partner, 2021 T. C. Memo. 68, filed 6/3/21. IRS dinged ES NPA in a FPAA with $16 million unreported income, plus chops to the partners thereof at no extra charge.

“In general, section 6226(f) gives this Court jurisdiction to determine all partnership items of the partnership for the partnership’s taxable year to which the FPAA relates. However, this Court’s jurisdiction does not extend to determining the partnership items of lower tier partnerships. That means that we may determine only the partnership items of the partnership to which the FPAA relates. If the partnership items of a lower tier partnership are included in the FPAA of the partnership before us, we are without jurisdiction to determine those lower tier partnership items.” 2021 T. C. Memo. 68, at pp. 11-12. (Citation omitted).

And of course ES NPA claims a lower-tier box-checked LLC (IDS) got the boodle, wherefore summary J tossing FPAA. Check out the picture at p. 8. Enough triangles to stock Bermuda, Bahamas, Antigua and Jamaica.

The bottom line is that ES NPA got a membership interest in the down-tier LLC IDS. There was no passthrough of partnership income and expense. Judge Speedy stresses that all he finds is that ES NPA got a partnership interest, not whether IRS correctly characterized it in the FPAA. See 2021 T. C. Memo. 68,at p. 17, footnote 11.

The membership interests were supposedly payment for services. Property for partnership interest is not taxable, but partnership interest for services might be. Howbeit, there remains the fact question whether what ES NPA got was an income interest or a capital interest. And in any case, whether what ES NPA paid IDS is deductible as compensation is also a fact question.

The roundy-round with tiered LLCs is clearly a growth industry.

One can be intelligent, and yet have no idea how limited is the jurisdiction of the United States Tax Court. Compared to the broad powers of the Art IIIs, pore l’il ole USTC, an Art I stepchild, is a mere “bruised reed, and a dimly-burning wick,” in the words of a much more exalted authority even than Judge Joseph W. Nega.

Here’s Intelligent Transportation & Monitoring Wireless LLC, Warren C. Havens, Tax Matters Partner, Docket No. 19514-17, filed 6/2/21.

Looks like TMP Warren is tapped out, and the Intelligent piggybank has been wrested from his hands. Nevertheless, gotta pay the lawyers.

So TMP Warren files a “Motion for Leave to File Petitioner TMP’s Motion for an Order to the Taxpayer-LLC’s Receiver, Susan Uecker, to Release Taxpayer-LLC Funds to Enable the Tax Matters Partner to Conduct this Case.” Order, at p. 1.

Judge Nega just denies the motion without explanation.

But because I’m an obliging sort, and a general busybody, here it is.

TMP Warren, Tax Court has no jurisdiction over Taxpayer-LLC’s receiver. Receivers are governed by the law under which they were appointed and are subject to the orders of the judge who appointed them. Tax Court has no jurisdiction to appoint a receiver. Tax Court has no jurisdiction to order a receiver to do anything.

The American infatuation with our judicial system, combined with a total misunderstanding of what that system can do, leads to smh, as the texters say.

New Capital Fire, Inc., 2021 T. C. Memo. 67, filed 6/2/21, is back, trying to undo the win it got four years back. You doubtless remember how the Newbies ditched the SNOD with which IRS wanted to hit them for heavy-duty built-in capital gains on the stock portfolio they cashed out in one of James (“Little Jim”) Haber’s phony digital options non-partnerships.

What, no? Then see my blogpost “The Long and the Short – Part Deux,” 9/11/17. And see 2021 T. C. Memo. 67, at pp. 43-44 for more of Little Jim’s maneuvers. OK, welcome aboard.

The Newbies, having won, thereupon filed an amended petition. Judge Goeke explains.

“In the amended petition, petitioner alleged that respondent erred in determining that petitioner had realized the capital gains of approximately $7.8 million that petitioner had reported on its 2002 return. In a stipulation of settled issues…petitioner conceded that respondent did not adjust petitioner’s reported capital gains in the notice of deficiency. The notice of deficiency reflected an adjustment to income of $7.8 million on the basis of respondent’s determination to disallow the capital loss deductions from the [digital] options.” 2021 T. C. Memo. 67, at p. 22.

IRS says the Newbies can’t go back there.

“Respondent argues that petitioner is estopped under the duty of consistency or the doctrine of equitable estoppel from changing its reporting of the capital gains after the period of limitations expired for Old Capital’s 2002 tax year. He argues that we should not permit petitioner to treat the merger of petitioner and Old Capital as a taxable event. Had petitioner treated the merger as taxable, it would have reported the bases in the Old Capital securities equal to their fair market values on the merger date, at or near their sale prices, and would have had minimal or no capital gains on the sales. Therefore, respondent argues that we should not allow petitioner to argue that Old Capital should have recognized capital gains on the deemed sale of the securities on the merger date and that petitioner had bases in the securities equal to their fair market values on the merger date.” 2021 T. C. Memo. 67, at p. 22. (Footnote omitted, but read it. The Newbies claim unfair surprise, but this is a Rule 122 fully-stiped. No new evidence or discovery needed).

There’s much argy-bargy about 2 Cir’s refusal to accept the doctrine of consistency (the Newbies are Golsenized to 2 Cir), but that applies only to innocent mistakes, and the return for the year at issue was carefully crafted to mislead IRS.

Moreover, the Newbies stonewalled IRS on the audit. Bad idea.

So the Newbies can’t change their story. They had capital gains, and their phony digital options losses can’t shelter them.

The English Lord Chief Justice Campbell wrote in 1850: “There is nothing so dangerous as for one not of the craft to tamper with our freemasonry.”  He meant playing lawyer at the amateur level.

Troy E. Marshall, Docket No. 10184-20, filed 6/1/21*, shows us why the ol’ LCJ got it right.

IRS moved to toss Troy’s petition for want of jurisdiction: no SNOD or NOD for year at issue. Troy came roaring back.

“Petitioner did not file an Objection to the motion to dismiss. Instead, petitioner filed these documents: (1) a Statement Notice of Default…, (2) a Statement Notice of Default Three Day Opportunity of Cure…, (3) Statement Motion Notice of Default…, (4) Motion for Default and Dismissal…, and (5) Motion for Default and Dismissal…. Petitioner did not provide a copy of a notice of deficiency or notice of determination that would confer jurisdiction on this Court, or deny the jurisdictional allegations set forth in respondent’s motion. Instead, petitioner contends that because respondent filed ‘no answer or defense’ to his petition, ‘a Default was entered’ by the Court….” Order, at p. 1.

Ch J Maurice B (“Mighty Mo”) Foley, now starting his second two-year stint as CJ, must have breathed at least a small sigh when he read Troy’s screeds.

No doubt taking a deep breath, Ch J Mighty Mo dictated the following: “We disagree. The fact that petitioner filed a Statement Motion Notice of Default… does not mean that the Court entered a Default in this case on that date nor on any date subsequent thereto. The record establishes that no notice of deficiency or notice of determination which confers jurisdiction on this Court has been sent to petitioner…. Accordingly, the Court is obliged to grant respondent’s motion and dismiss the case for lack of jurisdiction.” Order, at p. 1.

I wonder if a precursor of Troy inspired LCJ Campbell’s above-referenced dictum.

*Troy E Marshal 10184-20 6 1 21

Once or twice in the past I have been asked by those whose stories I’ve blogged, and casual readers of this my blog, why I have my blogsite headed with the phrase that first appears hereinabove at the head hereof (as my paid-by-the-word colleagues would say).

Simply put, I cannot secure my IT infrastructure against hackers. Any personal information I receive other than face-to-face, word-of-mouth, and in an electronically-secured location, or on paper in a sealed envelope via USPS or an IRS-approved PDS, is a fortiori insecure.

As we know, the US gov’t has been repeatedly hacked; the largest gas pipeline company has been hacked. The largest meatpacker has been hacked.

Exactly how IRS, the EU (whose members have all of them been hacked, whether they admit it or not), or anyone else, expects a single-shingle “general practitioner of limited experience and mediocre qualifications” to do what governments with unlimited resources, and megabusinesses with resources at least equal to those of many governments, cannot do, eludes me.

No orders have been issued today.

No payday for Danny R. Love, Docket No. 8808-20, filed 5/28/21, one of Judge Morrison’s off-the-benchers. And maybe no payday for Citifinancial, who lent Danny $10K, of which Danny got $1894 in cash, while the rest was used to pay off the balance of Danny’s previous loan. Citifinancial did forgive $9K after nine (count ’em, nine) years of getting some payments and garnishing Danny’s wages. Of course, the stated rate of interest was 25.55%.

I said it long ago. “In the old days, it was six for five in seven days, or three broken fingers in eight; the sharks would lend a worker five dollars and get back six dollars in seven days. Should the worker not pay, the appropriate digits would.” See my blogpost “Family Feud,” 12/12/11. Now, of course, we have courts, benevolent institutional lenders, and the same poor workers, so no one gets hurt.

But it is a payday for IRS (maybe, if Danny has any money left), for tax on the cancellation of debt income Danny got when Citifinancial gave him the 1099-C for the $9K.

Danny tries to convince Judge Morrison that he wasn’t relieved of debt, because he settled out with another beneficent organization after suing them for “breach of contract, violation of the FTC, Fair Debt Collection Practices Act, violation of Tennessee debt collection law, and unfair predatory collection practices.” Transcript, at p. 6. Danny claims the Citifinancial loan was the same as the loan he stiped out.

Note Judge Morrison states “Love’s suit was dismissed with prejudice.” Transcript at p. 8. When a case settles, the parties stip to a discontinuance or dismissal of the predicate action with prejudice.

Except it’s not the same loan. There was no transfer of paper or collateral. The loan balances were different at the same time. Both the benevolent lenders were garnishing Danny’s wages at the same time. None of the payments one lender got showed up on the other’s books. And ultimately nothing shows the Citifinancial loan was satisfied when Danny stiped out the other loan.

I refrain from commenting on loans to people like Danny at interest rates of 25.55%. At least, not here.

Judge Christian A. (“Speedy”) Weiler defoliates another bunch of syndicated conservation easements with the “Joy Forever” Gambit. Here’s Green Valley Investors, LLC, Bobby A. Branch, Tax Matters Partner, et. al., Docket No.  17379-19, filed 5/27/21*, and three (count ’em, three) other syndicates.

It’s the same old “improvements out” at extinguishment story. For those coming late to this non-party, check out Section 1.170A-14(g)(6)(ii), Income Tax Regs. (the “Proceeds Regulation”).

And Judge Speedy lives up to his cognomen, as he takes us through the caselaw at warp speed.

“The Proceeds Regulation does not provide that ‘any amount, including that attributable to improvements, may be subtracted out’ of the proceeds. PBBM-Rose Hill, Ltd. v. Commissioner, 900 F.3d 193, 208 (5th Cir. 2018); see also Coal Prop. Holdings, LLC v. Commissioner, 153 T.C. 126, 138-40 (2019). Thus, language that subtracts the amount attributable to improvements from a condemnation award before calculating the percentage of the proceeds that would go to the donee violates the Proceeds Regulation. See, e.g., PBBM-Rose Hill, Ltd. v. Commissioner, 900 F.3d at 207-0 8; Coal Prop. Holdings, LLC v. Commissioner, 153 T.C. at 138-40; Sells v. Commissioner, T.C. Memo. 2021-12, at *14; Red Oak Estates, LLC v. Commissioner, T.C. Memo. 2020-116, at *15; Cottonwood Place, LLC v. Commissioner, T.C. Memo. 2020-115, at *15; Smith Lake, LLC v. Commissioner, T.C. Memo. 2020-107, at *8-*9; Engelwood Place, LLC v. Commissioner, T.C. Memo. 2020-105, at *9; Hewitt v. Commissioner, T.C. Memo. 2020-89, at *5; Oakbrook Land Holdings, LLC v. Commissioner, T.C. Memo. 2020-54, at *37-*38.” Order, at p. 7.

I’ve blogged all, or almost all, of these.

But because the Greenvalleys have appraisals, IRS loses its attempt at summary J on the overvaluation chops. There are questions of fact what the true values of the easements might have been at date of donation. So on to the trial, maybe.

Need I add that Judge Holmes’ comment about the need for trials following “very contestable readings of what it means for an easement to be perpetual” remains the ghost at the banquet. See my blogpost “They Always Must Be With Us,” 5/12/20.

*Green Valley 17379-19 5 27 21

John Legoski, 2021 T. C. Sum. Op. 15, filed 5/26/21, thought the $29K he got from Amazon was below the threshold for reporting payment card and third-party network payments. The 1099-k he got from Amazon Payments should have awakened him, but it didn’t, at least to the extent of reporting the $29K on his 1040-A.

John didn’t. No problem, AUR picked it up, and, untouched by human hands, gave John a SNOD for the tax on the $29K unreported income, plus a Section 6662 five-and-ten chop at no extra charge.

John ran a part-time dropship routine. One of my colleagues long ago had a similar game, with bicycles. Judge Pugh explains for the year at issue.

“…petitioner bought and sold items online, using a drop-shipping model in which he would purchase an item from a third party such as Walmart or Home Depot or through the online sales and auction website http://www.eBay.com, sell the item online on Amazon, and then arrange for the item to be shipped directly to the buyer. He would pay for the items through the online payment service PayPal. When a customer purchased an item from petitioner, Amazon Payments, Inc. (Amazon Payments), would receive the payment, deduct its fee, and then remit the remainder to him.” 2021 T. C. Memo. 15, at p. 3.

This phenomenon may explain the sudden proliferation of online apps, which claim to find the lowest price for items offered on these various sites, cutting out the dropshipper-arbitrageur.

Howbeit, whether or not Amazon Payments had to report John’s payout, they did. John was put wise on the trial, and caved.

John wanted to claim COGS. After all, Amazon paid him gross; he didn’t get the goods he dropshipped for nothing.

Except.

John hasn’t a scrap of paper to show what he bought and what he sold. The Michael Corleone Gambit won’t get you a Cohan.

John claims he lost money in the year at issue on the dropshipping. But no proof, no loss.

Today Judge Gale is again doing it all himself in Kiran Rawat, Petitioner and Raghvendra Singh, Intervenor, Docket No. 11350-18, filed 5/26/21. I missed Judge Gale’s 5/19/21 order, to which he adverts in today’s opus.

Ragh, a guest of CA, laments he can’t prepare for trial, which is on for June 7. “… the Court received a letter from intervenor Raghvendra Singh, wherein he requests that this case be continued to December 2021. In support of his request, Mr. Singh alleges: ‘Being a prisoner, I am not allowed to participate in any court action.’ He further alleges: ‘I expect my release in October, 2021. I need some time to prepare the case.’” Order, 5/19/21, at p. 1.

Judge Gale, having already communicated with the authorities at Kern State, wherein Ragh then resided, is assured that Ragh would appear for any Zoomie proceedings.

But Ragh was on the move. And today he echoes that classic lament from the late great John R. Cash. That song brings back memories. It was a favorite among us so long ago. My pocket transistor radio, and those of my fellows, echoed with the lonesome whistle; we’d call up Radio Dong Ba Thin (“Serving Cam Ranh, Phan Rang and Nha Trang”) and ask the GI DJ to dedicate that song to one of us with a derogatory but acceptable cognomen (e.g., “Louie the Lifer”) on the D Bar T Jamboree at 1600 local time. Those were the days. And if this is meaningless to you, consider yourself lucky. But I digress.

Judge Gale is also on the move.

“Officials at North Kern State Prison (NKSP) recently contacted the Court to advise that on May 20, 2021, Mr. Singh was transferred from NKSP to Folsom State Prison. Accordingly, the Court has been in contact with the proper officials at Folsom State Prison and is presently engaged in making the necessary arrangements to ensure that Mr. Singh will be made available on June 8, 2021, for the remote trial in this case.” Order, 5/26/21, at p. 1.

Hit it, Johnny. One last time, for old times’ sake.