Attorney-at-Law

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AMENUENSIS MISTAKES

In Uncategorized on 10/14/2020 at 13:14

Rock Bordelon eked out a win from Judge Gustafson back in February (see my blogpost “Risky Business – Part Deux,” 2/20/20). He and IRS went to the Rule 155 beancount, agreed on the numbers, but the IRS junior grade who did up the final agreed decision doc blew it big time. Instead of putting in the $675K deficiency, the JG put in $24K.

As is not uncommon, the JG cloned a prior decision doc from another case in the old wordprocessor, and changed all the numbers except the bottom line. Neither IRS nor Rock’s trusty attorney (whom I’ll call RCM) caught the error, says Judge David Gustafson, obligingly acquitting said RCM of having played “gotcha” and letting the goof go by. And Judge Gustafson didn’t proofread the signed-off document; after all, that’s counsels’ job.

IRS, hamstrung by COVID-19, awakens after the Section 7481 90-day finality cutoff, and wants to revise or vacate. RCM says he hasn’t had time to do the numbers, so can’t agree to any change, because can’t verify the “calculation.”

“To our reading, this statement about the ‘calculation’, which is silent about the amount stated in the proposed decision document, is ambiguous. Of course, ‘verify[ing] the accuracy’ of the proposed decision amount would have been downright impossible, since we now know it was wildly inaccurate; and counsel might have been ‘not able to agree to it’ for the reason that it bore a gross and obvious error. Petitioner’s counsel did not request additional time to prepare an alternative calculation or to otherwise determine whether he agreed to respondent’s proposed stipulated decision. That might mean that (in view of the magnitude of the error) he perceived an apparent petitioner-favorable error in the too-good-to-be-true proposed decision and decided to sign it without doing his own computation, which could only be disadvantageous to his client. For purposes of this order, however, we assume that petitioner’s counsel perceived no error but simply thought it appropriate to rely on his opponent.” Rock Bordelon, Docket No. 11905-14, filed 10/14/20. (Emphasis by the Court).

Taishoff says the foregoing is Gustafson for “don’t play the wag here, Laddie.” Remember ABA Model Rule 3.3(a).

 Now pore l’il ole Article I Tax Court hasn’t got the sweeping FRCP 60 powers of Article III Courts to clean up all goofs whenever they may have occurred.

“However, because Tax Court decisions become final by an express statute (I.R.C. sec. 7481), the Tax Court’s authority to vacate a decision under Tax Court Rule 162 is more limited than a district Court’s authority to grant relief from a judgment under Fed. R. Civ. P. 60(b), and in an appeal from a Tax Court decision the power of the Court of Appeals is similarly constrained. See Wapnick v. Commissioner, 365 F.3d 131, 132 (2d Cir. 2004) (‘In considering the predecessor to section 7481, the Supreme Court ruled that after an order of the Tax Court has become final the “statute deprives us of jurisdiction over the case.” R. Simpson & Co. v. Commissioner, 321 U.S. 225, 230 (1944); see also Lasky v. Commissioner, 235 F.2d 97, 99 (9th Cir. 1956). The Court recognized that “the usual rules of law applicable in court procedure must be changed” to achieve the finality needed in the realm of tax decisions. See Simpson, 321 U.S. at 228“). Order, at p. 7.

Now Tax Court has jurisdiction and there wasn’t fraud. And though RCM claims there was only unilateral mistake by IRS, reading RCM’s papers and IRS’, Judge Gustafson finds there was mutual mistake. Nobody challenges the $675K number.

“We do not need to set aside an agreement; we do not need a new trial; we do not need to retract a wrongful purported exercise of jurisdiction. Rather, we see on the computation the parties’ concurrence about the amount of the decision, and there is no dispute that the computation is correct. That is, contrary to petitioner’s characterization, there was no ‘mathematical error’ by one of the parties in the computation. Rather, by an error (of an employee of one of the parties’ counsel) left uncorrected by both parties, the wrong number–a number other than the agreed-upon and correct number– was printed on the stipulated decision document. That is, we know quite precisely the error on the decision, how it was made, and how to fix it.” Order, at pp. 7-8 (Emphasis by the Court).

Tax Court can correct clerical errors.

“…our authority to correct clerical errors in otherwise final decisions derives from Tax Court Rule 1(b), which allows us to adapt Federal Rules of Civil Procedure when no Tax Court rule applies, and from Fed. R. Civ. P. 60(a), which allows a court to correct clerical errors at any time. See Snow v. Commissioner, 142 T.C. at 420 (‘We may also “correct” a final decision where a clerical error in the decision is discovered after the decision has become final’). In that connection,”[c]lerical mistakes need not be made by the clerk, but they must be in the nature of recitation of amanuensis mistakes that a clerk might make.” Jones v. Anderson-Tully Co., 722 F.2d 211, 212 (5th Cir. 1984). In other words, a clerical mistake, i.e., a mistake that we can correct without vacating our decision, can include failing to update an entry on the face page of a computation statement and on a proposed decision document, where the actual agreed computation was correct. And though the petitioner contends that this mistake was not the Court’s mistake, and thus would not be something we have power to correct, we disagree. The mistake was originated by respondent, concurred in by petitioner, proposed by the parties jointly, and adopted by the Court–and it was a clerical mistake.” Order, at p. 9.

And Judge Gustafson puts in the right numbers into the order and decision.

What a misfortune he wasn’t there in 1991, for the celebrated $92 million misunderstanding.

A TALE OF TWO EXPERTS – CONT’D.

In Uncategorized on 10/13/2020 at 18:47

IRS is trying to toss the second of two (count ’em, two) of petitioner’s experts in YA Global Investments, LP f.k.a. Cornell Capital Partners, LP, et al., Docket No. 14546-16, filed 10/13/20, but Judge James S (“Big Jim”) Halpern won’t let them.

The issue is the value of the stock of an Australian mining company, which YA held but was in “administration,” which apparently is Australian for bankruptcy.

IRS says YA’s expert, whom I’ll call Dos, is trying to wild-card in Australian bankruptcy law, on which he admittedly isn’t an expert, but a humble CPA, “accredited in Business Valuation, and …certified in Financial Forensics by the American Institute of Certified Public Accountants.” Order, at p. 1.

 Judge Big Jim won’t buy it.

“[Dos] assumption that the entry of [Australian miner] into voluntary administration in Australia worked a moratorium on the contractual remedies of [Australian miner’s] creditors does involve assumptions about the legal rights of [Australian miner’s] creditors and others. Nevertheless, we agree with petitioners that valuation experts often are called upon to determine the value of rights in property that are given substance by rules of law, i.e., a tenancy in common or copyright. If [Dos]’s understanding of voluntary administration in Australia erroneous, we assume that respondent will be prepared to correct him if his report is received into evidence as his direct testimony and respondent undertakes cross examination.

“And respondent will have a like opportunity to show that [Dos]’s analysis is insufficient. Respondent has not persuaded us that [Dos] ‘s report is unreliable, irrelevant, and speculative. We will have ample opportunity to exercise our gatekeeper authority after [Dos] is accepted as an expert, his report is proffered as his direct testimony, and respondent exercises his right to voir dire. See Fed. R. Evid. 702; Daubert v. Merrell Dow Pharm., Inc., 509 U.S. 579 (1993).” Order, at p. 3.

A TALE OF TWO EXPERTS

In Uncategorized on 10/13/2020 at 18:27

IRS is trying to toss two (count ’em, two) of petitioner’s experts in YA Global Investments, LP f.k.a. Cornell Capital Partners, LP, et al., Docket No. 14546-16, filed 10/13/20, but Judge James S (“Big Jim”) Halpern won’t let them.

The issues are whether YA was in a trade or business, and, if so, were they dealers in securities, such that Section 475 required YA to recognize unrealized gains and losses at year-end.

IRS’ expert says all YA Expert Numero Uno (hereinafter “Uno”), a rebuttal expert, is doing is giving conclusions of law, and going beyond the scope of IRS’ expert’s report. IRS’ expert says he isn’t giving legal conclusions, but it looks like YA is an investment banker.

Uno runs a consulting firm, is former chair of SEC, former SEC general counsel, and has practiced securities law for fifty years. He says the difference between investing and underwriting is whether the entity acquires stock to hold and eventually sell, or to distribute to investors as soon as possible.

Judge Big Jim: “Notwithstanding Mr. [IRS’ expert]’s disclaimers that he is not a lawyer nor expressing any legal opinion, his conclusions go to what respondent describes as ‘ultimate determinations for the court to make’, viz. whether ‘YA Global is an investment banking firm, a securities dealer or an underwriter.’ Mr. [IRS’ expert] includes within his description of investment banking activities ‘underwriting, advisory services, securities brokerage, direct investing and lending activities.’ With respect to ATM offerings and YA Global’s SEDAs, he does speak about the issuer selling the securities ‘through a broker-dealer–typically an investment bank’. Respondent may attempt to qualify Mr. [IRS’ expert] as an expert on securities industry practices and investment banking. Nevertheless, ‘testimony encompassing an ultimate legal conclusion based upon the facts of the case is not admissable [sic], and may not be made so simply because it is presented in terms of industry practice.'” Order, at p. 7. (Citation omitted).

Anyway, Judge Big Jim isn’t prepared to say that either expert is useful. He understands where they’re coming from, and how they differ, but both are in, for now.

YA’s second expert is the subject of the next succeeding blogpost.

ENHANCEMENT

In Uncategorized on 10/13/2020 at 17:41

No, this is not a reference to those spam e-mails, promising improvements not to be discussed in a blog meant for family reading, but with which we are bombarded. Rather, Judge Albert G (“Scholar Al”) Lauber, master textualist (hi, Mr Reilly), leads a full-dress T. C. to establish that the Section 6662(b)(6) nondisclosure-of-non-economic-substance transaction, as enhanced by the Section 6662(i) 40% chop, isn’t really a chop, but an enhancement.

The opinion is Jesus R. Oropeza, 155 T. C. 9, filed 10/13/20. For the backstory on JR and his microcaptivity, see my blogpost “Forty’ll Get Ya Twenty,” 7/21/20\, which dealt with the year after the year at issue here. But while in that case the 20% chop was sustained, here no chop survives.

Again we have as Revenue Agent Report (RAR) where the 40% amount is shown as zero, and a mix-and-match of 20% chops.  But as 3SOL was about to run, JR got Letter 5153, offering Form 872 SOL waiver and go to Appeals, or pay up. JR said “no,” so the RA, CPAF in hand, closed the case and got his boss’ sign-off on the CPAF. SNOD followed.

Summary J for JR.

IRS claims the SNOD was the kick-off for chops, and they had the Section 6751 Boss Hoss sign-off in hand. JR’s trusty attorneys say “no, the Letter 5153 and RAR said ‘penalties’, and that’s enough.” Judge Scholar Al goes with Belair (see my blogpost “Can We Talk – Part Deux,” 1/6/20).

“Respondent seeks to distinguish this case from Belair Woods, noting that the taxpayer there received a 60-day letter enabling it to go to Appeals, whereas petitioner did not receive a 30-day letter enabling him to do so. We find this to be a distinction without a difference. A 30- or 60-day letter is one way of communicating to a taxpayer that the Examination Division has concluded its work. But it is not the only way. The Letter 5153 clearly communicated the same message to petitioner: It told him that he could now go to Appeals, but only if he first executed a Form 872 that would give Appeals enough time to consider his case.” 155 T. C. 9, at p. 11.

OK, says IRS, the 20% chops are off the table, but the 40% chop is still in play, because that was only communicated to JR in the SNOD, not in the RAR or the Letter 5153.

Wrong, says Judge Scholar Al.

“Section 6662(a), captioned ‘Imposition of Penalty,’ provides that, ‘[i]f this section applies to any portion of an underpayment * * * , there shall be added to the tax an amount equal to 20 percent of the portion of the underpayment to which this section applies.’ Section 6662(b) provides that the penalty applies to the portion of any underpayment attributable to one or more of eight specified grounds. The sixth specified ground is ‘[a]ny disallowance of claimed tax benefits by reason of a transaction lacking economic substance.’ Sec. 6662(b)(6).

“Section 6662(i) is captioned ‘Increase in Penalty in Case of Nondisclosed Noneconomic Substance Transactions.’ It provides: ‘In the case of any portion of an underpayment which is attributable to one or more nondisclosed noneconomic substance transactions, subsection (a) shall be applied with respect to such portion by substituting “40 percent” for “20 percent”.’ Sec. 6662(i)(1). Litigants sometimes refer to section 6662(i)–like section 6662(h), applicable in the case of a ‘gross valuation misstatement’–as imposing a ‘40% penalty.’ As the statute’s text makes clear, however, section 6662(i) does not impose a distinct penalty. It simply increases the rate of the penalty imposed by section 6662(a) and (b)(6) for engaging in a transaction lacking economic substance.” 155 T. C. 9, at p. 13.

Judge Scholar Al paints the picture.

“The rule we extract from these cases is that boilerplate text in an IRS communication, determining liability for an accuracy-related penalty ‘attributable to one or more of’ specified grounds, will be interpreted to assert all of the specified grounds as alternative bases for the penalty, unless other portions of the communication explicitly limit the penalty determination to a subset of those grounds. Here, the Letter 5153 and the RAR determined that petitioner was liable for a 20% penalty ‘attributable to one or more of’ four specified grounds, including ‘a transaction lacking economic substance.’ Nothing in either document disavowed any of the four grounds as a justification for the penalty. We accordingly conclude that the IRS asserted in the RAR, but did not secure timely supervisory approval for, a penalty under section 6662(a) and (b)(6).” 155 T. C. 9, at pp. 15-16.

As in Belair, the subjective thought processes of the RA are irrelevant. What was communicated to the taxpayer is the key.

Finally, “…failure to disclose the transaction on the return is not a separate penalizable offense. Rather, it is analogous to an ‘aggravating factor’ in criminal law that justifies a harsher penalty for the basic offense. Under 18 U.S.C. sec. 111 (2018), for example, a defendant who assaults or forcibly interferes with a Federal officer engaged in official duties faces a possible prison term of 8 years. But if the defendant uses a deadly weapon while committing that offense, the maximum term of imprisonment is extended to 20 years. See id. subsec. (b). In this scenario, using a deadly weapon is not a separate Federal crime. It is an aggravating factor that authorizes an enhanced penalty for the underlying crime.” 155 T. C. 9, at p. 19.

IRS can’t double-dip; having failed to get Boss Hoss sign-off for 20%, IRS can’t cover up its error and seek 40%.

THE MICHAEL CORLEONE GAMBIT

In Uncategorized on 10/13/2020 at 11:18

Admin Record Variation

A classic line from a classic movie furnished me with great taglines for blogposts. I’ve said that it’s a gift that keeps on giving. Today, IRS plays a new variation in Jared Mitchell & K. Sullivan Mitchell, Docket No. 10883-19L, filed 10/13/20.

IRS wants summary J on the NITL with which it hit Jared & K. But you think you got problems? “In connection with their submission of an offer in compromise, petitioners informed the Appeals Office that Mr. Mitchell had been convicted of securities fraud, was incarcerated at that time, and had been ordered to pay restitution in excess of $9 million.” Order, at pp. 1-2.

But if Jared & K. have problems, IRS is not far behind.

“The record indicates that the Appeals Office rejected petitioners’ offer in compromise and, after reviewing their tax return for 2018, concluded that they could pay their outstanding tax liability in monthly installments of $2,150. Petitioners maintain that they provided all financial information that they had access to in connection with the IRS’s evaluation of their offer in compromise. When petitioners declined the proposed installment agreement, the Appeals Office issued the notice of determination in dispute.” Order, at p. 2.

My argute readers have already discovered what’s wrong with this picture, but I’ll let STJ Daniel A (“Yuda”) Guy tell the story.

“Respondent’s motion for summary judgment is not properly supported. What the record lacks is any documentation, such as a Form 433-A, Collection Information Statement, and related financial records, which would tend to show that the Appeals Office properly evaluated petitioners’ reasonable collection potential and their overall ability to pay the taxes they owe for the years in issue. Similarly, there are no transcripts of account (such as Forms 4340) that would demonstrate that the Appeals Office properly verified that the IRS followed all applicable laws and procedures in this case.” Order, at p. 2.

So, Appeals, do it right, build a record. And Jared & K., play nice, and give Appeals everything you got. So that when y’all come out, you’ve got something in your hands.

VACATION? RECONSIDERATION? WHO CARES?

In Uncategorized on 10/13/2020 at 10:29

Judge Colvin Does

And he’s happy to provide a short summary, in support of a Sum. Op., Deborah Louise Biegalski, 4671-18S, filed 10/13/20. Deb’s Sum. Op. is 2019 T. C. Sum. Op. 35, filed 12/3/19. I didn’t blog it because I had four (count ’em, four) more interesting matters that day, including but without in any way limiting the generality of the foregoing (as my power-breakfasting colleagues would say) a full-dress T. C.

Deb filed a 162 vacation motion, but Judge Colvin says she meant Rule 161 reconsideration, treats the motion as such, and denies it. Deb says Judge Colvin got it wrong, and it matters whether her motion is considered pursuant to Rule 162; using Rule 161 is an error.

Wrong, says Judge Colvin. But here’s how they differ.

“The standard for granting relief under Rule 161 is ‘to correct substantial errors of fact or law and allow the introduction of newly discovered evidence that the moving party could not have introduced by the exercise of due diligence in the prior proceeding. Reconsideration is not the appropriate forum for rehashing previously rejected legal arguments or tendering new legal theories to reach the end result desired by the moving party. The standard for granting relief under Rule 162 is to make corrections after a showing of unusual circumstances or substantial error, e.g., mistake, inadvertence, surprise, excusable neglect, newly discovered evidence, fraud, or other reason justifying relief.” Order, at p. 1 (Citations omitted).

But vive la difference doesn’t help Deb.

“Petitioner does not prevail under either standard. Petitioner does not identify any substantial errors in fact or law in the opinion, does not present any evidence that was not available at the time of trial, and does not identify any unusual circumstances. She merely repeats her interpretation of the facts, her prior testimony, and the arguments she made at trial and in her posttrial briefs, all of which were previously considered by the Court.” Order, at p. 2.

UP DAWSON’S CREEK

In Uncategorized on 10/12/2020 at 15:52

I didn’t blog the Genius Baristas’ shutdown of USTC from November 20 through December 28, because I thought the blogosphere and the trade press would be all over the month-plus USTC offline, due to the installation of DAWSON (“Docket Access Within a Secure Online Network”).

Crickets.

As usual, the trade press and the blogosphere care little for pore l’il ole Tax Court, the “small court,” or its “dissions.”

But the October 7 press release contains one sentence that froze the electrons in my laptop.

“The Court does not anticipate issuing any orders or opinions during the time e-filing is inaccessible.”

Are y’all serious? Nothing for a month, with thousands of taxpayers and the IRS waiting on resolution of their cases, each of which is important to the parties involved, whether it be $10 or $10 million caught in this logjam up Dawson’s Creek without a paddle or a log Peavy.

I do not even consider mentioning that this shuts me down for a month, or however long it takes to get this latest coruscation up and running.

Given the schemozzle that occurred when the jazzy new homepage was unleashed in July, I can just see what December 28 will bring us, when the Genius Baristas push the “ENTER” key. “Shambolic” isn’t even close.

See my blogpost “If It Ain’t Broke, Don’t Fix It,” 7/20/20.

“A KLUG ZU COLUMBUS’N” – REPRISE

In Uncategorized on 10/12/2020 at 10:14

From an oldie but goodie, six years ago.

As Harry Golden, raconteur and essayist, put it more than fifty years ago, “The most famous expression among the immigrants on the East Side of New York was ‘A klug zu Columbus’n’ which, freely translated, meant that Columbus should have broken his head before he discovered it (America).  The expression was always used in good humor and often as a term of endearment, as we shall see.”

Mr Golden went on to describe Columbus as a folk-hero, a kind of mythic figure both praised and blamed, but ultimately the source of good-humored comment.

Howbeit, my readers, descendants of immigrants as we all are, whether our several ancestors crossed the Bering Strait coming from the Olduvai Gorge, or from the steppes of Central Asia, or even across the Atlantic or Pacific, I note that Tax Court is closed today, so I can bring y’all neither entertainment nor enlightenment.

Enjoy a day off, whether it be for you Indigenous Peoples’ Day or Columbus Day. And anyway, have a klug zu Columbus’n.

THERE ONCE WAS A MAN FROM PERU

In Uncategorized on 10/10/2020 at 23:03

No, not that limerick. That’s for the reader in Peru, who must have tipped off eight (count ’em, eight) of his friends, because all nine of them viewed my blog today.

Before today, I’d had nineteen views from Peru in the last ten (count ’em, ten) years. A bonanza!

Now if the nine nice people from Peru would tip off their next-door neighbors in Bolivia….

VACATION CHECKLIST

In Uncategorized on 10/09/2020 at 13:18

No, not another one of those “what to pack for the cruise” thinly-concealed adverts for stuff you’ll never use again. Today, STJ Peter (“HB”) Panuthos (for the “HB” story, see my blogpost “Old-Time Head-Banging – Part Deux,” 9/4/20) gives the right-about-face to Shona S. Pendse, Docket No. 25665-17, filed 10/9/20.

Shona stiped out 8/30 when COVID-19 teletrial was set for 9/16. The stip said no tax due, no additions, no penalties, no overpayments. Stiped decision entered 9/3.

Shona now files for a vacation of the stiped decision, claiming conditions to do with a barred refund. IRS ripostes with e-mails and documents showing everybody agreed to everything.

So why am I bringing you this tale of settler’s remorse?

Because STJ HB Panuthos, seeing that IRS has gone the mile, goes the twain, thrain and quatrain. This is a checklist for those seeking to overturn a stip, especially one entered into on eve of trial.

To save time and electrons, I’ve omitted the “copious citation of precedent,” but get all the citations for your memo of law file.

Here’s the threshold. “The decision to grant a motion to vacate or revise a decision lies within the discretion of the Court. A motion to vacate is generally not granted absent a showing of unusual circumstances or substantial error, e.g. mistake, inadvertence, surprise, excusable neglect, newly discovered evidence, fraud, or other reason justifying relief.” Order, at p. 2.

STJ HB Panuthos says he eyeballed the pictures, descriptions and accounts of the negotiations between the parties, and is satisfied Shona was onboard with the stip.

“We have held that ‘[a] settlement is a contract and, consequently, general principles of contract law determine whether a settlement has been reached.’ In settling a case each party agrees to concede some rights which may have been asserted against the opposing party as consideration for those secured in the settlement agreement.

“A valid settlement, once reached, cannot be repudiated by either party; and after parties have entered into a binding settlement agreement, the actual merits of the settled controversy are without consequence. This Court has declined to set aside a settlement duly executed by the parties and filed with the Court in the absence of fraud, mutual mistake, or other similar ground. Where the parties’ settlement leads to the vacating of an imminent trial date, the Court applies stringent standards to modify or set aside the settlement. In such cases the moving party must satisfy standards akin to those applicable in vacating a judgment entered into by consent. The Court has discretion to set aside a settlement agreement filed with it, but its discretion will not be exercised unless good cause is shown.” Order, at p. 2.

“Hear, read, mark, learn, and inwardly digest,” as a much better writer than I put it.