Archive for the ‘Uncategorized’ Category


In Uncategorized on 11/07/2019 at 15:06

Judge Gale has a designated hitter for us, dealing with responsibility and bankruptcy. It’s a useful refresher for the Section 6672 TFRP chop when the entity, not the responsible person, is in bankruptcy.

Christopher B. Scott, Docket No. 10487-18L, filed 11/7/19, has double trouble. He has two entities, both of which owe FICA/FUTA/ITW and both of which are in bankruptcy.

Although Chris wants to contest liability, he proffers no evidence to support said contest. And the SO gave him a reasonable time to submit same.

Chris wanted more time to submit two delinquent personal tax returns, but as he proposed no collection alternatives, even had he submitted those returns, it would not avail him.

On to bankruptcy.

Judge Gale: “Petitioner’s position that it was inappropriate for respondent to pursue him personally for collection of the section 6672 penalties while the business entities for which he was being held responsible were in bankruptcy is also unavailing. Respondent ‘is not obligated to collect taxes from an employer’s corporate assets or from its bankruptcy estate before collecting a trust fund recovery penalty from the responsible person.’ Bishay v. Commissioner, T.C. Memo. 2015-105, at *20 (citing Frank v. D’Ambrosi, 4 F.3d 1378, 1386 (6th Cir. 1993)). Although respondent’s general policy is not to pursue collection of trust fund recovery penalties from an individual taxpayer while a liable business entity is in compliance with a bankruptcy plan that provides for full payment of the delinquent taxes, see Internal Revenue Manual pt. (Sept. 29, 2015), the SO confirmed that neither [Entity One] nor [Entity two] was in compliance with its bankruptcy payment obligations. The SO consequently did not abuse her discretion in determining that the collection action against petitioner should be sustained.” Order, at pp. 8-9.



In Uncategorized on 11/07/2019 at 14:06

When it comes to being obliging, he’s hors classe. He’ll bring coffee and doughnuts to calendar call, and feed the parking meter while you wait; he‘ll try your case in the slammer wherein you languish; he’ll draft your papers, make your motions, suggest your legal strategies, all at no extra charge. I’ve blogged all these in the past. Of course, that be none other than that Obliging Jurist, Judge David Gustafson.

And he’s on his game today with Gramercy Financial Group LLC, Cerro Negro Capital Management, LLC, Tax Matters Partner, Docket No. 25760-17, filed 11/7/19. As you can tell, it’s another TEFRA holdover, and the TMP and a couple other partners (hi, Judge Holmes) are joining with IRS in a motion to enter decision, based upon a stip they laboriously hammered out with IRS.

One partner, Fereneze, sat on the bench during the game. But when confronted with the stip, Frerenze moves to participate out of time…well out of time.

The TMP and others object; they claim their hard-fought settlement would be endangered if Fereneze came in now.

I believe the TMP: the settlement hits Fereneze with $2.7 million of ordinary income. The settlement stip recharacterizes a $9.2 million guaranteed payment as a $10.9 million distribution of property to Fereneze.

Hinc illae lacrimae (I need not, of course, translate).

Fereneze claims the TMP and the participating partners froze Fereneze out of the settlement negotiations and sold Fereneze down the cliché. So for sure if Fereneze jumps into the pond and muddies the waters, the settlement may go down.

Shades of poor old Beverly Bernice Bang; see my blogpost “Bang – A Warning to Tax Matters Partners (and their advisors)”, 1/5/11.

Judge David Gustafson to the rescue: “This Court has held that a partner who did not have sufficient opportunity to participate in procedures leading to a proposed settlement and motion for decision under Rule 248(b) was allowed to participate pursuant to Rule 248(c) after the filing of the Commissioner’s motion for entry of decision. We think that such participation is further warranted when the proposed settlement–negotiated and agreed upon by the other partners–includes recharacterizing a $9.2 million partnership expense as a $10.9 million distribution to be allocated to the previously nonparticipating partner. We think sufficient cause has thus been established.” Order, at p. 3 (Citation omitted).

But all is not lost for IRS, the hard-negotiating TMP and the other participating partners.

“With regard to such participation resulting in prejudice to the other parties, Fereneze …points out that it does not intend to challenge the remaining six items the parties have agreed on in the proposed settlement, so the efforts exerted towards settling those items would not be wasted by allowing Fereneze…to participate. This may be true, though the Court notes the possibility that one or more of the parties’ willingness to settle those six items may have depended on the resolution of this $9.2 (or $10.9) million issue. However, the other parties do retain their option to settle the case under Rule 248(c) even if Fereneze…does not wish to enter into the settlement.” Order, at pp. 2-3.

Roger that, Judge. The other partners might not be so gung-ho to settle if they have to eat all or part of the $2.7 million.

Two takeaways- Tax matters partners (and maybe representatives under the new post-PATH partnership regime) are hereby again reminded they’re partners first, and tax matterers second. As Justice Benjamin Nathan Cardozo remarked, a fiduciary “is held to something stricter than the morals of the market place. Not honesty alone, but the punctilio of an honor the most sensitive, is then the standard of behavior.”

Second, the old wheeze is still true: the only thing two partners can agree upon is how much a third partner should pay.



In Uncategorized on 11/06/2019 at 16:43

As my blogposts, and Judge Mark V Holmes’ order, all more particularly bounded and described in my blogpost “Change the Rules,” 7/2/19, have vanished into the æther, leaving “not a rack behind,” as a much finer writer than I put it, counsel for Reflectxion Resources, Inc., Docket No. 12017-16, filed 11/6/19, goes on the offensive.

“…petitioner filed a motion (Doc. 70) asking the Court to modify its order of that same date. In particular, petitioner asks the Court to require that a party serving a subpoena on a non-party give advance notification thereof to the opposing party as provided in Federal Rule of Civil Procedure 45(a)(4).” Order, at p.1.

I didn’t blog the order Judge David Gustafson referred to, as it only says the parties are to follow their agreed-upon discovery schedule. But apparently that schedule was prepared without thought to the FRCP Rule 45(a)(4) vs TC Rule 147(d) jumpball.

Now I do not arrogate credit to myself for this well-played move by a canny litigator from a prominent law firm. I am sure counsel thought outside the Bockius (sorry, guys) and came up with this unaided.

But maybe, just maybe, when IRS answers as Judge David Gustafson obliges them to do, they will stop the games and announce that, now and forever, they will notify parties when they subpoena non-party witnesses, just like the FRCP 45(a)(4) says, despite the lethargy at 400 Second Street, NW, on that score.

As that much finer writer remarked, “’tis a consummation devoutly to be wished.”


In Uncategorized on 11/06/2019 at 16:01

Melvin Duane Salter, Docket No. 13443-19, filed 11/6/19, is back. pro se of course, in this, his fourth appearance in USTC. And his second appearance in this my blog; for the last, see my blogpost “Pro Se? Oy, Vey!” 8/15/17.

All y’all will recollect that Mel’s first appearance hereon had to do with then-Ch J L Paige Marvel kicking Mel and his belated notice of appeal upstairs to 4 Cir. 4 Cir wasted no time bouncing Mel; see Salter v Com’r, 17-1957, decided 10/20/17. 4 Cir said it best. “Because Salter failed to file a timely notice of appeal, and because this jurisdictional appeal period is not subject to equitable tolling, we dismiss the appeal. We dispense with oral argument because the facts and legal contentions are adequately presented in the materials before this court and argument would not aid the decisional process.” (Citation omitted).

But Mel is undaunted. Now he petitions two years’ worth of SNODs based on SFRs, because Mel didn’t bother filing returns. But his petition says nothing about the matters alleged in the SFRs or the SNODs.

STJ Daniel A (“Yuda”) Guy has this one. IRS wants Mel tossed for Rule 40 violation, failure to state a claim upon which relief can be granted. In simplest terms, the nub of this motion was expressed by the late Grey Thoron, Esq., formerly Dean of the School on the Hill Far Above: “Everything you say is true; so what?!”

Mel apparently feels IRS is picking on him. Well, IRS does get a trifle testy when they get 1099-MISCs but no return, because they have to prepare the returns for you.

STJ Yuda is more genteel. “Petitioner made vague claims in the petition that he was being improperly targeted by the Internal Revenue Service (IRS). Petitioner made similar allegations in three prior cases before the Court, at docket Nos. 12442-12L, 21045-15L, and 553-18L. Conversely, the petition did not in any way address the items of income and absence of returns or payments underlying the taxes and additions to tax determined in the notices.” Order, at p. 2.

And Mel throws in some of the usual protester stuff.

That earns Mel not only a toss of his petition, with concomitant decision for IRS, but also a Section 6673 yellow card.


In Uncategorized on 11/05/2019 at 16:01

Unless You’re a Great Bluffer

The old Hold ’em player’s maxim holds true. Don’t chase a blind with a bad hand; fold the ten-four off-suit, unless you can bluff with the best.

The German word schadenfreude, which has no equivalent single word in English, means “rejoicing in the misfortune of others.” I long ago eschewed engaging in schadenfreude; see my blogpost “A Tale of Three Lawyers,” 7/3/14.

So today I will give only the citation: 2019 T. C. Memo. 149, filed 11/5/19.

No names. But the tale told therein brings out the truth of the old maxim in bold relief.

I will not recite all that Judge Kerrigan found (or failed to find, because petitioners had no evidence but the burden of proof) on the trial. I will confine myself to stating that the lead petitioner “…holds a bachelor’s degree in law, a master’s degree in law, and a master of laws degree in litigation and dispute resolution.” 2019 T. C. Memo. 149, at p. 3. And that petitioners lost the case.

Inasmuch as lead petitioner obviously qualifies for automatic admission to US Tax Court (assuming still in good standing in the Courts of the petitioner’s home State), I must cite one, and only one, example.

“…petitioners claimed a $4,000 tuition and fees deduction on their joint Federal income tax return.  In the notice of deficiency for [year at issue] respondent disallowed this deduction.

“For qualifying individuals, section 222(a) allows a taxpayer to deduct an amount equal to qualified tuition and related expenses paid by the taxpayer during the taxable year.  See sec. 25A(f)(1).  Petitioners failed to substantiate a qualified tuition and related expense.  Petitioners produced a document which notified petitioner…that … payment to the University of Tulsa had been returned because of insufficient funds.  Respondent’s disallowance of this deduction is sustained.” 2019 T. C. Memo. 149, at p. 19.

I’ll draw the curtain. And the moral.


In Uncategorized on 11/05/2019 at 14:54

Interestingly, neither Section 7345(b)(2) nor the IRS website on passport grabs mentions starting a case with the Taxpayer Advocate Service (TAS) as a way to force decertification of delinquency and spring the alleged delinquent’s passport.

Howbeit, Wayne Irving Newton, Docket No. 16578-18P, filed 11/5/19, got “erroneously decertified” per TAS’ intervention. Order, at p. 1.

But Judge Joel Gerber, apparently now Tax Court’s passport-grab specialist, seems to have found a basis somewhere, besides an unpublished IRS or TAS ipse dixit. “The opening of a TAS case is one of the situations where respondent will ‘decertify’ a taxpayer.” Order, at p. 1.

My colleagues Peter Reilly, CPA, and Mr. Paul Streckfus were recently lamenting about “secret law” in the area of exempt organizations, settlements made where there is no way to review briefs and ancillary documents online, to the detriment of the small firm or single-shingle, who has not a K Street office housing a platoon of paras to surry on down to The Glasshouse at 400 Second Street NW, to photocopy the lot.

Seems there’s secret law in the passport-grabbing area too.

IRS quickly sent out a recertification, but it was after Wayne Irving moved to restrain collection or cause disgorgement, and after IRS had moved for summary J, and after Cert One was decertified. So theoretically everything was mooted when the decertification, whether erroneous, baseless or otherwise, took place.

IRS, trying to retrieve the situation, asks Judge Gerber to bail them out.

“Respondent asks the Court to continue with the present proceeding as though the decertification had not occurred. In support of respondent’s contention, it is argued that petitioner continues to meet the serious delinquent debt definition for the new certification. In essence, respondent asks the Court to ignore the decertification and proceed on the merits of the initial certification from which we acquired jurisdiction over petitioner’s case.

“Under section 7345(e)(1) this Court has jurisdiction to review the Commissioner’s certification of a seriously delinquent tax debt for error. Our jurisdiction in this case springs from {Cert One] from which petitioner sought relief. Because [Cert One] was decertified and no longer exists, this case premised upon that certification became moot. We have not been advised if petitioner filed a petition seeking relief from the new certification…. Moreover, Petitioner’s Motion to Restrain Assessment or Collection or to Order Refund of Amount Collected and Respondent’s Motion for Summary Judgment, as supplemented, are likewise moot.” Order, at pp. 1-2.

So Wayne Irving can petition the new certification, unless he has sooner flown the coop with passport in hand.

Judge Gerber, sua sponte, kicks both IRS and Wayne Irving to the cliché. Both motions are moot. And so is the case.

Be careful, readers. I’m not suggesting the TAS gambit will work to unstick your clients’ passports. Especially now that Judge Gerber has turned on the lights. Still and all,  I can’t help wondering if that’s how Derrick Tartt got his passport unstuck. See my blogpost “If Ya Gotta Go,” 10/18/19.

Edited to add, 11/9/19: I must be slow on the uptake. TAS can issue a Taxpayer Assistance Order, per Section 7811(b)(2), to require IRS to spring a passport. Judge Gerber obviously thought that “opening a TAS case” was sufficient shorthand for “TAS issuing a TAO per Section 7811(b)(2)” to tip off slow-witted bloggers that there’s nothing “secret” about it. It’s been the law for upwards of twenty years.


In Uncategorized on 11/04/2019 at 16:08

Senior Judge Joel Gerber is willing to let Roger G. Maki write off travel and meal expenses for looking after his 100 acres of Washington State timberlands. The timber on the lands was worth millions, and some of it had been rustled. Rog’s logs and records for the year at issue had been lost when his cabin was vandalized, but he had made an abstract (he said), which he gave to IRS pretrial.

But Judge Gerber says “No” when Rog poses a paraphrase of the above inquiry from the 1959 Huey “Piano” Smith and Frankie Ford hit.

Rog claimed he made 47 round trips of 300 miles each from his home to the timberlands, and was away 161 days during the year at issue. And Judge Gerber buys Rog’s testimony about his repetitive trips to the timber, and planting new trees to replace old. So Rog is in business and gets Section 162 treatment.

IRS bought Rog’s car and truck, and taxes and licenses expenses. They hit him for unreported Social Security, which he doesn’t contest. But IRS disallows Rog’s 7K of travel expenses and $55K of per diem.

Hence and wherefore, Roger G. Maki and Lilane J. Gervais, 2019 T. C. Sum. Op. 34, filed 11/4/19.

“A self-employed individual can deduct meal expenses computed at the Federal rate established for the locality in which meal expenses were incurred while away from home. See Rev. Proc. 2011-47, sec. 1, 2011-42 I.R.B. 520, 520. The Federal published rate is deemed substantiated for purposes of section 1.274- 5T(b)(2)(i) and (c), Temporary Income Tax Regs., 50 Fed. Reg. 46014-46015, 46016 (Nov. 6, 1985). Self-employed individuals may not use this method to substantiate lodging expenses. See Rev. Proc. 2011-47, sec. 1.” 2019 T. C. Sum. Op. 34, at p. 6.

But Rog has a problem, as indicated by the headline hereof.

“Petitioners used the per diem rates for ‘Luxury Water Travel’ to compute the annual per diem deduction. The rates used ranged from $320 to $374 per day and are intended for away from home expenses incurred on an ocean liner or cruise ship. The rates are based on the highest Federal per diem rates, which include lodging, meals, and incidentals. Using the luxury rates, petitioners computed and deducted $55,925 in away from home per diem expenses for [year at issue]. We note that petitioners did not provide any evidence of the lodging expenses actually incurred in the timber activity during [year at issue].

“Under Rev. Proc. 2011-47, 2011-42 I.R.B. 520, the Federal per diem rate (for meals) that applies to many smaller localities, including the counties in which petitioner’s timber land is situated, is $46. Petitioner through his testimony and the summary taken from his logs has shown that he was away from home on business for 161 days during [year at issue]. Accordingly, he is entitled to deduct $7,406 of per diem expenses ,,,(161 times $46).” 2019 T. C. Sum. Op. 34, at pp. 6-7.

Rog’s travel miles stand up, although Judge Gerber won’t let Rog take him on a sea cruise.





In Uncategorized on 11/04/2019 at 12:53

Ex-Ch. J Michael B (“Iron Mike”) Thornton has a pretrial checklist for every innocent spouser (both potitioner and intervenor) lined up and holding short, awaiting trial.

Here’s Malka Yerushalmi, Petitioner, and Joseph Yerushalmi, Intervenor, Docket No. 5520-08, filed 11/4/19. And the docket number is no mistake; this one has been going for eleven (count ‘em, eleven) years.

But trial is finally coming on. It all happens on March 30, 2020 in Our Fair City, on this Minor Outlying Island off the Coast of North America. Cain’t hardly wait.

Meantime, our national legislature enacted Public Law 116-26, 7/1/19; that’s the Taxpayer First Act to you. Who says Congress can’t get anything done? Oops, sorry, this is a non-political blog.

All y’all will recall that this statute opens for innocent spousers information dehors the administrative record, namely, specifically and to wit, “any additional newly discovered or previously unavailable evidence. “ Section 6015(e)(7)(B).

How about changed circumstances? Maybe what wasn’t a hardship for petitioner eleven years ago is a hardship today. See my blogpost “Back to the Future,” 8/1/11.

However that may be, to prevent ambushes and wild cards, ex-Ch. J Iron Mike hands the parties a pretrial checklist, which they are to complete and set forth in a written report discussing how Section 6015(e)(7) impacts their case, and also “…(1) identifying the administrative record established at the time of the determination, (2) informing the Court of any additional newly discovered or previously unavailable evidence the parties plan to submit, (3) describing any disputes to the completeness of the administrative record or evidentiary problems the parties anticipate, and (4) the current status of this case.” Order, at p. 2.

Oh, btw, if the parties haven’t settled, they shall also “…report on the preparation of the stipulation of facts and preparation for trial, including the estimated length of trial. “ Order, at p. 2.

Innocent spousers and counsel, best make this checklist part of your pretrial prep.




In Uncategorized on 11/01/2019 at 15:57

Occasionally I get a headline that is so serviceable it impels me to reuse, repurpose and recycle it. Today is another example, a designated hitter from STJ Daniel A (“Yuda”) Guy, wherein he denies admins & legals to Paul Edwin Johnson & Susan H. Johnson, Docket No. 14429-18, filed 11/1/19.

Paul got a big IRA distribution and rolled it over, but he didn’t give IRS anything more than his say-so until after the CP2501 mismatch notice (the trustees of the rolled-into IRA did send in Form 5498, but it had no date for the rollover, so the 60-day barrier was still there), CP2000 proposed changes, SNOD, petition, remand to Appeals, and finally a stip of settlement agreeing that the IRA distrib was properly rolled.

Paul & Susan want admins, consisting of “$71 for out of pocket expenses (postage and the Court’s $60 petition filing fee), $3 for mileage expenses, $3,709 for preparation and filing expenses, and $9,703 representing a purported accuracy related penalty.” Order, at p. 3.

STJ Yuda treats this matter-of-factly, as is his usual wont. In a footnote. “The majority of the expenses that Mr. Johnson claims do not constitute ‘reasonable litigation costs’ as Congress defined that term in sec. 7430(c)(1)(A) and (B). Consequently, the Court limits its consideration to his claim for an award of $71 (i.e., postage expenses and the Court’s filing fee).” Order, at p. 3, footnote 2.

Maybe Mr. J. didn’t exhaust his administrative remedies, but STJ Yuda need not go there.

“…IRS received third-party information that Mr. Johnson received a pension distribution from ETC and an IRA distribution of $141,793 from Riversource, and that he made a contribution of $141,233 to an IRA account at ETC. In the light of this information, respondent was justified in seeking clarification from Mr. Johnson on three points: (1) did he receive a $20,000 pension distribution from ETC, (2) did he make a rollover contribution of the full amount of the IRA distribution from Riversource, and if so, (3) did he make the rollover contribution to ETC within the 60-day period prescribed in section 408(d)(3)(A)(i). As the owner and beneficiary of these retirement accounts, and having claimed the benefit of a rollover contribution on his joint tax return, Mr. Johnson should have maintained records of these transactions and readily shared them with respondent upon request. Unfortunately, petitioners failed to provide any documentation to respondent to assist in resolving these questions, leading to the issuance of the notice of deficiency.

“The Commissioner is entitled to maintain his position, for purposes of determining whether it was substantially justified, until adequate substantiation is received from the taxpayer. Where the resolution of adjustments hinges on factual determinations, the Commissioner is not required to concede the adjustments until he has received, and has had reasonable time to review, sufficient substantiation for the matter in question. Because petitioners did not provide any documents, records, or other objective evidence to show that Mr. Johnson made a timely and proper rollover contribution during the year in issue, respondent’s position in this case was substantially justified.” Order, at pp. 4-5. (Citations omitted).

If you’re going to claim legals & admins, by all means go all-in, but follow the rules. And when IRS wants information, see the title of this sermonette.


In Uncategorized on 11/01/2019 at 12:41

Nevertheless, and notwithstanding anything to the contrary or at variance with anything hereinbefore or hereinafter set forth (as my already-on-their-way-to-a-two-cliché lunch colleagues would say), the sad tale of Richard Alan Saunders & Shelia Candy Saunders, Docket No. 13352-15S, filed 11/1/19 is told again, with a rewrite from Judge Wells.

“In our opinion, we found that petitioners were not entitled to claim Mr. Steed as a dependent because he did not meet the section 152(d) definition of a “qualifying relative”. Saunders v. Commissioner, T.C. Summary Opinion 2019-29 (slip op. at 9). While this conclusion is correct, on the Court’s own motion, we deem it necessary to make a technical correction to our reasoning to comply with the relevant statutory prerequisites. We found that because Mr. Steed’s SSI exceeded the section 151(d)(1)(B) exemption amount, he failed to meet the requirement of section 152(d)(1)(B). We also noted that it was unclear whether petitioners provided for more than one-half of Mr. Steed’s support, as required by section 152(d)(1)(C).

“SSI is not taken into account for purposes of the section 152(d)(1)(B) requirement; it is, however, taken into account for purposes of the section 152(d)(1)(C) requirement. Sec. 1.152-1, Income Tax Regs….. During [year at issue], Mr. Steed received $733 per month in SSI. Petitioners did not provide an estimate or evidence of the amount of total support Mr. Steed received per month. We do not know the fair market value of the lodging petitioners provided to Mr. Steed. We noted in our opinion that Mr. Steed’s share of the household expenses varies depending on whether it is calculated on a per room or a per person basis. We now consider that each member of the household received an equal part of petitioners’ contributions as part of his or her support. See id.slip 20. Using a per person basis and adding the $80 per month in transportation costs, we estimate that petitioners provided Mr. Steed with monthly support of $560. This amount is less than the $733 in SSI, and therefore less than half of Mr. Steed’s total support. Accordingly, Mr. Steed does not meet the definition of a “qualifying relative”. See sec. 152(d)(1)(C).” Order, at pp. 1-2. (Citation omitted).

Now it’s true that Rich and Sheila Candy used a paid preparer. But Judge Wells excused chops, because they reasonably relied, were unsophisticated, and acted in good faith. And the paid preparer got it wrong.

But even a Tax Court Senior Judge with 33 (count ‘em, 33) years on the Tax Court bench got mixed up in the labyrinth that is Section 152.

See my blogpost “If This Were a Political Blog,” 9/30/19.

Congress, please copy.