Attorney-at-Law

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NO FOREIGN INCOME, NO FOREIGN TAX CREDIT

In Uncategorized on 07/19/2021 at 18:17

Sometimes small-claimers are as much fun as the big cases in the “small court.” Here’s Maher Bassily and Nermine Bassily, 2021 T. C. Sum  Op. 20, filed 7/19/21, with a new one on me.

I’ll let STJ Peter Panuthos, a hardened veteran jurist who has seen much, tell the tale.

“Petitioner Maher Bassily jointly owned two brokerage accounts, one with each of his sons, David Bassily and Daniel Bassily. Each of the brokerage accounts generated foreign-source income during [year at issue]. The Canadian Government withheld a total of $3,550 in taxes from the income earned on the brokerage accounts in [year at issue]. Petitioners timely filed a joint Form 1040, U.S. Individual Income Tax Return, for the [year at issue], but they did not report any foreign source income on their income tax return. Instead, all of the foreign source income related to the brokerage accounts that petitioner Maher Bassily owned jointly with his sons was reported on his son Daniel Bassily’s [year at issue] Federal income tax return. Despite the fact that petitioners did not report any of the foreign source income earned from the brokerage accounts on their tax return, they apparently attempted to make an election to claim a credit for foreign taxes paid related to the brokerage accounts by attaching a Form 1116, Foreign Tax Credit (Individual, Estate, or Trust), to their Form 1040. On the Form 1116 petitioners reported $3,550 in total foreign taxes paid or accrued during the [year at issue] and zero foreign source income. Petitioners reported a foreign tax credit of zero on both the Form 1116 and the Form 1040 for the year in issue.

“Rather than claim the foreign tax credit on the line designated for that credit on the tax return, petitioners added the $3,550 of foreign taxes to the total Federal income taxes withheld as reported on Form 1040. Thus, while petitioners’ Federal tax withholding amounted to $40,985, the Form 1040 reflected withholding of $44,535 (the amount of Federal withholding plus the $3,550 in foreign taxes withheld by the Canadian Government).” 2021 T. C. Sum. Op. 20, at pp. 3-4.

Well, I have to give Maher credit. That’s quite a move. Unfortunately for Maher, it doesn’t work.

“At trial petitioner Maher Bassily explained that he reported the income on his son Daniel’s income tax return because his son did not have a Federal income tax liability for the [year at issue]. Petitioners did not report any foreign-source income on their [year at issue] tax return. Therefore, the ratio of petitioners’ foreign taxable income to their total taxable income for [year at issue] is zero. Pursuant to the limitation in section 904(a), the amount of foreign tax credit petitioners may claim for [year at issue] is zero.” 2021 T. C. Sum. Op. 20, at p. 9.

Maher’s attempted shunt of the income to his son is a nonstarter.

“We have long held that income is taxable to the person who earns it and taxpayers may not shift the incidence of taxation to a person or entity having less or no tax liability. See, e.g., Frey v. Commissioner, T.C. Memo. 2019-62, at *7.” 2021 T. C. Sum. Op. 20, at p. 9, footnote 3.

But I still want to award Maher a Taishoff “good try,” even though I shouldn’t.

INDUSTRY SUBSTANDARDS

In Uncategorized on 07/19/2021 at 16:34

STJ Peter Panuthos is unwilling to give Cohan treatment to any part of the $100K that Sam Fagenboym and Oksana Fagenboym, 2021 T. C. Sum. Op. 19, filed 7/19/21, say they paid for some purchases for Sam’s electrical contractor Sub S.

“Mr. Fagenboym submitted four pages of handwritten calculations that attempt to reconstruct [Sub S’] purchases and other expenses related to four alleged business contracts. Mr. Fagenboym testified that he created the handwritten document because he was unable to produce original records of the amounts paid to one of [Sub S’] electrical suppliers, AED, on the four business contracts. In support of his calculations Mr. Fagenboym testified that he was able to estimate the amount paid to AED by [Sub S] during the year in issue by taking the total amount paid to the S corporation on each of the four contracts and subtracting a 12% profit margin to produce an estimated total for the hard costs of each project. Mr. Fagenboym then subtracted all known labor and materials costs from the resulting total hard costs to produce the estimated total paid to AED on each contract. During the trial Mr. Fagenboym did not produce contemporaneous records or any other business records pertaining to [Sub S’] operations. He testified that he had previously provided substantiating documents to respondent for all hard costs on the four contracts except for the amounts paid to AED.

“Although Mr. Fagenboym’s testimony about industry operations was generally reliable, the amounts included in the handwritten calculations proffered are not backed by any underlying bank statements, receipts, or other documentation. Mr. Fagenboym testified that the 12% profit margin on which his calculations hinge was a rough estimate based on similar contracts in the industry. He stated that the 12% figure was ‘potential profit’ but noted that [Sub S’] actual profit was ‘much less than that’. Although we have no doubt that Mr. Fagenboym produced his calculations in good faith, the reconstruction of expenses on the basis of an individual’s estimate of industry standard profit margins does not take the place of substantiation or provide a rational basis upon which an estimate can be made under the Cohan rule. The record includes no reliable evidence establishing error in respondent’s determinations in the notice disallowing petitioners’ claimed loss deductions related to certain expenses reported by [Sub S] during the year in issue. On the record before us, we conclude that petitioners have failed to carry their burden of establishing that [Sub S] paid or incurred the expenses underlying the deductions that respondent disallowed for [year at issue]. 2021 T. C. Sum. Op. 19, at pp. 9-10. (Names omitted).

 

GETTING THE JOINT

In Uncategorized on 07/19/2021 at 16:00

Judge Albert G (“Scholar Al”) leads off 157 T. C. with Morris F. Garcia, Deceased, and Sharon Garcia, 157 T. C. 1, filed 7/19/21.

Seems the late Morris and Sharon owed north of $500K in back taxes, so IRS told State, which lifted their passports. At no extra charge, IRS gave the late Morris (before he became the late Morris) and Sandra substantially identical notices of the lift. They petitioned jointly, but between petition and hearing, the late Morris became so.

As not rarely happens, IRS reversed course.

“…the IRS reversed its certification of petitioners as persons owing a seriously delinquent tax debt, citing their submission of a processable offer-in-compromise of the liability referenced in the two notices. … respondent filed a motion to dismiss on the ground of mootness, contending that petitioners have received all of the relief to which they are entitled, that this Court can afford no further relief at this juncture, and that the case is therefore moot. We agree and accordingly will grant the motion.” 157 T. C. 1, at p. 3.

The tax liability arose in a year where the not-yet-late Morris and Sharon filed MFJ. So Morris and Sharon petitioned twice, alleging the OIC in the first petition; the second was closed for duplication.

“They alleged that they had filed… an amended return for [year at issue], reporting what they believed their correct tax liability to be. Urging that the IRS had improperly rejected their offer, they asked us to determine that their certifications as persons owing a seriously delinquent tax debt were erroneous. They also requested ‘declaratory relief’ to the effect that their offer-in-compromise ‘was erroneously denied in violation of * ** [their] rights.’” 157 T. C.1, at p. 5.

IRS says the OIC is still pending, that they’ve reversed the lift request to State because when a processable OIC is pending, collection is suspended, so for Sharon, as we used to say, “that’s all she wrote.”

Sharon’s trusty attorneys moved in opposition to IRS’ motion to toss, but then bailed, notwithstanding their online proclamation that “(T)hrough life, divorce, death, and taxes, you can count on partners CW and LM to be there for your legal needs.” (Names omitted).

I’m sure my readers are “hanging breathless,” awaiting the answer to whether a joint petition under Section 7345(e)(1) is OK.

Judge Scholar Al turns to Rule 34(a)(1) for the deficiency analogy, as neither Section 7345 nor any Tax Court Rule gives explicit guidance. Thereunder, each SNOD must be petitioned separately, unless issued to MFJs individually.  As for anything else, “… Rule 34(c) cross-refers to the Rules governing those actions. But these other Rules do not address the question whether spouses may file a joint petition to secure review of notices issued to them separately. The Rules governing passport certification cases follow this pattern. Rule 351 governs the commencement of such actions, and Rule 351(b) describes generally what such a petition shall contain. But neither Rule addresses the possibility of a joint filing.” 157 T. C. 1, at p. 8.

So let’s look at equity and common sense.

“It is natural for spouses to file a joint petition in these circumstances. To hold otherwise would occasion unnecessary delay and expense. Where spouses present similar questions regarding the same liability, it would be wasteful to try their cases separately. If petitioners had filed separate petitions in response to their separate notices, we would almost certainly have consolidated their cases for trial, briefing, and opinion. See Rule 141(a). The cases would thus proceed in the same manner as where a joint petition was filed, except that petitioners would have paid two filing fees and respondent would have filed additional pleadings for no good reason. Collection due process (CDP) cases present a similar paradigm. In those cases the IRS not infrequently issues married taxpayers separate notices of determination sustaining the same collection action for the same underlying liability. Rule 331(a) governs the commencement of CDP cases, and Rule 331(b) provides general guidance about the contents of such petitions. These Rules, which are virtually identical to the Rules governing passport certification cases, do not address the possibility of joint filing. But married taxpayers have routinely filed joint petitions in these circumstances, and we have never questioned the propriety of their doing so. We see no reason why different treatment should be mandated in passport certification cases.” 157 T. C. 1, at pp. 9-10. (Citations omitted).

Sharon claimed that IRS had seriously messed up the OIC and wants declaratory relief. Tax Court can’t do that. All they can do is order the passport lift unlifted, and IRS has agreed to do that.

Interesting footnote, where Judge Scholar Al wonders if a decedent can contest a passport lift. 157  T. C.1, at p. 12, footnote 4. But no ex’r or adm’r for the late Morris showed to raise the issue.

BEEVES

In Uncategorized on 07/16/2021 at 17:10

Or Whatever is the Plural of “Beef”

No opinions today, no orders of any substance, so I’m thrown back on my meager resources.

First beef. “Seal one, seal all.” The DAWSON Q&A states the following: “Until additional functionality is added in DAWSON, cases migrated from the previous eAccess system are temporarily sealed in their entirety if there are any sealed documents in the case. The ability to view unsealed documents (such as orders) while still protecting sealed documents is one of the features that was unavailable for the initial rollout but remains one of our highest priority system enhancements.” OK, I understand there are teething problems with every new system.

But why does it take seven (count ’em, seven) months to fix this one?

A reliable source tells me that the sealing of the dockets in the bushelbasket of cases consolidated in the Ernest S. Ryder saga (see my blogpost “The Shell Game Ends,” 7/14/21) resulted from an off-the-bench order in mid-trial, when Ernie and IRS stiped to a data-dump of the hard drive in Ernie’s law office, spilling a bunch of irrelevant, client-attorney-privileged matter. Y’all will recall Judge Holmes likes doing the evidence himself; see my blogpost “Please, Mother, I’d Rather Do It Myself,” 7/26/18.

I won’t discuss how Ernie can agree to reveal client-attorney-privileged matter without each client’s informed written consent as to each item. Ernie has enough problems.

So I lose the capability of referring to any order or opinion over the seven years I’ve been following this case, utterly unrelated to the faux pas on the trial, because the Genius Baristas (or 18F, whoever they may be; sounds like 4F squared and then some) can’t get their cliché together.

Next beef (more will follow when time permits). The Zoomietrials are here to stay. There’s much good news in that. When the Tax Court Judges did the Willie Nelson (no, did not have unpaid taxes, liens and levies, just went on the road again), petitioners had to travel to the one (or maybe two) locations in their State where Tax Court assizes were held. Small-claimers were heard in some, but not all, such. Pre-COVID, if the petitioner couldn’t afford to take time off to travel, first to calendar call and then to the trial on the date and time certain fixed at calendar call, the petitioner had to fold, however meritorious their case. If they couldn’t show for calendar call, the calendar call commandos couldn’t help, nor could the judge do any head-banging.

Now the Zoomietrial leaves the driving to whomever. Having once booted up the pooter and logged in, “everyone shall sit under his vine and under his fig tree, And no one shall make them afraid,” as an authority greater even than a Tax Court Judge put it.

My beef therefore is purely selfish. The youtube public version of the trial is purely audio. I understand exhibits may show Section 6103 information, and the public cannot see that. Without a human face, it’s near impossible to follow.

Offer of proof. Take a look at how many people are following each trial session on youtube. You don’t have to take off but one sock to count ’em up.

Maybe there should be a unique password protected link for the press to see it all.

 

A DIVORCE MADE IN HEAVEN

In Uncategorized on 07/15/2021 at 19:38

Jacob Berger and Evelyn R. Berger, 2021 T. C. Memo. 89, filed 7/15/21, is the usual indocumentado with less-than-credible testimony. So I’ll bypass Jake’s cannabidiol operation with his late son.

The “good part,” as we used that term to categorize certain books in my middle school days, is the divorce agreement between Jake’s and Evelyn’s daughter Merav and her husband Mr. Moscovitch. You’ll not find something like this in a US court, but Merav and Mr. M. (and their offspring) were residents of Israel then. As I know nothing of the laws of that country, I cannot comment on whether similar deals are standard issue there.

Judge Nega: “The divorce agreement included a visitation arrangement, which provided for travel arrangements in the event that petitioners’ daughter moved to the United States with the children. Under the visitation arrangement, petitioners’ daughter would be required to pay for the children to travel to Israel twice a year to visit Mr. Moscovitch and for Mr. Moscovitch to travel to the United States three times a year to visit the children. With respect to Mr. Moscovitch’s travel, petitioners’ daughter was obliged to provide a roundtrip airplane ticket, lodging at a hotel of her selection, access to a vehicle, and a stipend of $100 per day for up to 14 days. In addition, petitioners’ daughter would be required to provide for three additional people, such as Mr. Moscovitch’s mother, his girlfriend, and his girl-friend’s son, to travel to the United States once a year. In the event that petitioners’ daughter or petitioners, who were also bound by the divorce agreement, could not fulfill these obligations, the visitation arrangement stated that petitioners’ daughter and the children would be required to return to Israel.

“At a time not specified in the record, petitioners’ daughter and her two children moved to the United States. During the years at issue petitioners’ daughter and her children lived with and were financially supported by petitioners. Because petitioners’ daughter was unable to fulfill her obligations under the visitation arrangement, petitioners provided the necessary financing on her behalf. As per the visitation arrangement, petitioners paid for the children to travel to Israel and for Mr. Moscovitch, Mr. Moscovitch’s mother, and Mr. Moscovitch’s girlfriend and her son to travel to the United States and petitioners provided the agreed-upon vehicle and stipend.” 2021 T. C. Memo. 90, at pp. 5-6.

I can hear several of my readers saying “I’ll make that deal, where do I sign?”

Exactly how daughter Merav and her nestlings were to be removed from the Land of the Free to the Land of Abraham, should they stay here and place Mr. M. and his entourage on the no-fly list, is nowhere stated, but I can hear my beloved Grandma saying “don’t ask.”

In any event, when Jake and Evelyn try to deduct what they paid Mr. M and entourage as alimony, they strike out. “A deduction for alimony under section 215 is permitted only to the obligor spouse; ‘[i]t is not allowed to * * * any other person who may pay the alimony obligation of such obligor spouse.’ Sec. 1.215-1(b), Income Tax Regs. Assuming, arguendo, that the obligations required under the visitation agreement constitute alimony, petitioners are not entitled under section 215 and the accompanying regulations to deduct any payments made on behalf of their daughter. Accordingly, the Court sustains respondent’s determinations to disallow the alimony deductions for the years at issue.” 2021 T. C. Memo. 90, at p. 26.

 

YOU WIN – BUT YOU LOSE

In Uncategorized on 07/15/2021 at 15:44

Jesse C. Morreale, 2021 T. C. Memo. 90, filed 7/15/21, substantially prevailed; his trusty attorney got USBCDCO to let him fight out the SNODs IRS gave him in Tax Court rather than in Bankruptcy Court.

The two big issues were Jesse’s basis in his Sketch restaurant, and his use of the accrual method of accounting. When Jesse filed in bankruptcy, he hadn’t filed two (count ’em, two) years’ worth of tax returns, so IRS detailed RA T (Name omitted; ex-Ch J L Paige (“Iron Fist”) Marvel details RA T’s failings sufficiently) to prepare substitutes at no extra charge. RA T ignores e-mails from Jesse’s trusty accountant that dispose of the basis and accounting method issues, and IRS sticks with RA T’s miscues until Appeals tells them Jesse is right.

Jesse’s trusty attorney goes for Section 7430 legal fees.

The justification test in 10 Cir, whence Jesse is Golsenized, is Johnson. Pre-Johnson, IRS was justified issue-by-issue. Post-Johnson, the rule is holistic. Let it all hang out.

Jesse’s trusty attorney says that means IRS is always justified, because Section 7602 says IRS can audit anybody any time.

“While we share some of petitioner’s concerns with regard to the interplay of the Johnson standard and the unique provisions of section 7430, we believe that petitioner’s hyperbole is misplaced. Upon careful inspection, the Johnson standard–in practice–works in harmony with section 7430 and our caselaw construing it. Accordingly, we next consider how–in practice–this Court should apply the Johnson standard. To start, the ‘inquiry should focus holistically on ‘whether the government acted reasonably in causing the litigation or in taking a stance during the litigation.’  This means that a trial court ‘should focus “not on the government’s success or failure [on a particular issue], but on the reasonableness of its position in bringing about or continuing the litigation.” And while ‘the statutory language of § 7430 * * * does not use the terms “issue” and “position” interchangeably’, a trial court may consider the various contentions taken on individual issues as part of its overall analysis of the holistic position of the United States. This is because, under the Johnson standard, this Court must consider the totality of the circumstances, including the possibility that “a more egregious example of [governmental] misconduct might, even if confined to a narrow but important issue, taint the government’s “position” in the entire case as unreasonable’. 2021 T. C. Memo. 90, at p. 15. (Citations omitted, but get them for your memos of law file).

OK, IRS folds, and is concededly unjustified.

But trusty attorney can only recover fees for what work he did on the Tax Court case. The Bankruptcy motions and stuff are off the table. And ex-Ch J Iron Fist had twice to remind said trusty attorney to file his Rule 232(d) affidavit specifying his claimed costs with enough particularity to let ex-Ch J Iron Fist figure out what they were. So he has to eat whatever time he spent getting it right.

And the usual “nobody will take a case like this anywhere in CO for $200 per hour” claim founders for want of proof, and ex-Ch J Iron Fist, whose career spans all kinds of big-ticket white-shoe litigation, says this case wasn’t so tough. So here’s $14K.

But trusty attorney does get the Sixty Georges filing fee and $14 mailing.

 

FURTHER TO THE FOREGOING

In Uncategorized on 07/15/2021 at 12:07

See my blogpost “A Seal Upon Your Arm,” 7/15/21. Further thereto, a source informs me that a seal was imposed in the Ryder case at trial, from the bench, with no written order.

Perhaps the material that gave rise to the order aforesaid might be redacted from the record so as to permit the entire docket to be made public and online accessible.

“A SEAL UPON YOUR ARM”

In Uncategorized on 07/15/2021 at 09:28

I’m sure Judge Mark V. Holmes never claimed the wisdom of the author of the words first written hereinabove at the head hereof (as my expensive colleagues would say).

But I really would like to know if he set the seal I and one of my readers found yesterday on the docket in Ernest S. Ryder & Associates, APLC, et al, 2021 T. C. Memo. 88, filed 7/14/21. The opinion, all 191 (count ’em, 191, and I did) pages, appeared in full, unaltered, on the Tax Court website yesterday. Then the docket vanished. I telephoned Public Affairs, and they knew nothing about it. Deadline approaching, I posted my account of the opinion.

I telephoned Judge Holmes’ Chambers first thing this morning, and left the obligatory voicemail posing the question. Had I missed a Rule 27 sealing order or a Rule 103 protective order? It’s more than just possible, as I slalom through hundreds of orders every day, at least glancing at all opinions. And deadline is ever-present; if I haven’t posted by 6 p.m. local time, I’ve lost that day. Being a single-shingle, I often miss blogfodder on the crowded DAWSON site.

But Rule 103s are carefully crafted, the grounds for each restriction stated, and I’d never seen a Rule 103 interdict an entire docket. I’ve blogged numerous Rule 103s, and expressed admiration at the surgical precision with which they’re drafted. Rule 27s mostly cover pro ses who put personally identifiable information in their filings, and the redacted versions become available as soon as filed. See Rule 27(c).

Anyway, Rule 27(b)(2) provides that “any other person may have electronic access at the courthouse to the public record maintained by the Court in electronic form, but may have remote electronic access only to: (A) The docket record maintained by the Court; and (B) any opinion, order, or decision of the Court, but not any other part of the case file.”

Yes, the Judge can issue a protective order under Rule 27(d), but that only provides for redaction or an order of the Rule 103 kind.

I’ve seen any number of dockets sealed post-DAWSON with no explanation, but in some cases the seals were removed, likewise with no explanation.

I assert that Section 7461 prohibits a complete suppression of the docket.

I know blowers get special protections, but Ernie is no whistleblower. Rule 345 anonymity is off the table. And I’ve seen that waived before.

So who put the seal on Ernie’s docket? Is it another specimen of the case I mentioned in my blogpost “Welcome to DAWSON,” 5/4/21?

THE SHELL GAME ENDS

In Uncategorized on 07/14/2021 at 16:53

Ryder’s Last Ride

A couple days ago (hi, Judge Holmes) I lamented that my sources of blogfodder were drying up (see my blogpost “Drying Up My Sources,” 7/7/21). Today it’s getting worse, as Judge Mark V. Holmes unloads 191 (count ’em, 191) pages on one of my better sources of blogfodder, Ernest S. Ryder & Associates, APLC, et al, 2021 T. C. Memo. 88, filed 7/14/21.

But I will say this for him, Judge Holmes waits until page 115 to unload his first diss on the partitive genitive, and there are only two more.

Ernie is an accountant and an attorney, a pioneer ERISA pundit, and a Rounder First Class with Oak Leaves, Swords and Diamonds. Ernie’s multiple roundy-rounds with Son-of-Boss, microcaptive insurers, and employee leasing, culminate in a ten-year audit, Graev missteps by IRS, but massive deficiency to Ernie and a fraud chop to boot.

For some backstory, see my blogposts “ESOPs Fables,” 8/20/18, “Ryder Rides Again,” 9/21/16, and “Chopfallen – Part Deux,” 8/28/18.

Ernie flogged multiple dodges, skimming off variously denominated fees into the multifarious entities he created. WY should name a road after him; he incorporated enough phony shell corps there to pay the WY Sec’y of State’s pension.

“All of these fees paid by the clients of the different tax products were compensation to R&A for its services in spinning webs of entities and squirting barrels of ink to hide the connection between itself and the fees it charged. We of course recognize that Ryder diverted these payments through contracts and entities, and the accounts and divisions within entities. We also recognize the invocation of Moline Properties that corporate forms must be respected. But the assignment-of-income doctrine does not immunize assignments of income to corporations or other entities. The income that R&A produced from sales of these deals to its clients was income to R&A because it was R&A itself that did the work.” 2021 T. C. Memo. 88, at p. 118.

There are charts (oh, are there charts!), and bank deposit analyses. One can but marvel at Ernie’s inventiveness, as he tries to bamboozle government subsidies for his ranching hobby, paper over attempts by IRS to put his dodger merchandise on the no-fly list, and obfuscate his way through eight million (count ’em, because I won’t) pages of trial testimony.

Truly a Holmesian extravaganza.

STIPULATE, DON’T CAPITULATE – ONE MO’ TIME

In Uncategorized on 07/13/2021 at 17:01

The follow-up to today’s account of the troubles of Blossom Day Care Centers, Inc., 2021 T. C. Memo. 86, filed 7/13/21, relate to the nonpayment of FICA/FUTA for the two officers of Blossom, Mr. and Mrs. H. Judge Paris has this one as well as the lead; see my blogpost “Headline News?” 7/13/21 for the corporate side.

Proving once again the truth of the headline hereof, “Petitioner has stipulated that the Hs were corporate officers during all of the calendar quarters and years [at issue]. Both provided substantial services far beyond minor services, and both directly and indirectly received remuneration for their services. Mrs. H was petitioner’s 51% shareholder and acted as president of the corporation and director of curriculum and education for all six childcare locations and supervised over 90 employees and students of those centers. Mr. H was 49% shareholder and acted as vice president, secretary, and treasurer; as director of Blossom Day Care Centers; and as director of accounting and finance for petitioner. Both Mr. and Mrs. H had check-signing authority over petitioner’s bank accounts and credit card authorization in their corporate capacity.” 2021 T. C. Memo. 86, at pp. 11-12. (Names omitted).

The Hs claim there was a management agreement with another corporation they owned, but produced no evidence of any agreement with Blossom, or directive from the other corp that would make Mr. or Mrs. H anything other than corporate officers of Blossom.

The Hs claim that what they were paid by the other corp should offset whatever Blossom should have paid them.

“Petitioner’s arguments are misguided in that wages paid by [other corp] do not offset reasonable compensation requirements for the services provided by petitioner’s corporate officers to petitioner. Whatever wages paid for whatever purposes by [other corp] to the Hs as employees of the [other corp] will be better addressed in relation to respondent’s notice of deficiency for the Hs’ individual income tax, in consideration that [other corp] is a wholly owned S corporation.” 2021 T. C. Memo. 86, at p. 14.

And the Hs get hit with what amounts to a competency tax. “Additionally, petitioner contends that the notice of determination is flawed in that the determined compensation reflects requirements of higher educational qualifications than either Mr. H or Mrs. H has achieved, since Mr. H did not graduate from college and Mrs. H has only an associate’s degree in child development. While petitioner has not further developed this contention in its briefs and there was limited trial testimony on the topic, whatever higher educational qualifications might be required have been far eclipsed by the Hs’ practical experience, professional qualifications, success in running daycare centers, and ownership prerogatives.” 2021 T. C. Memo. 86, at p. 15.

There’s Boss Hossery enough to satisfy Judge Paris, as the Hs’ attorneys raise the Section 6751(b) issue too late (on brief) and put in nothing on the trial about when the Section 6656 nonfiling and Section 6662 negligence chops were first on the menu.