Jennevieve Marie Fletcher, 2021 T. C. Sum. Op. 9, filed 5/10/21, did the right thing. When she started her home-based business, she’d been receiving SSDI. So she told SSA, who took their time but agreed.  SSA let Jennevieve pay back the excess at $100 per month. Jennevieve paid, but it was after the year she had received the overpayment but hadn’t reported it on her 1040.

Section 86(d)(2)(A) lets those who pay back Social Security benefits received for a prior year deduct repayments in the current year, but that doesn’t help Jennevieve.

STJ Daniel A (“Yuda”) Guy has the story.

“Petitioner contends that the Social Security benefits that she received in [year at issue] should be excluded from her gross income because she is obliged to repay those benefits to the SSA. As petitioner sees it, the Social Security benefits that she received in [year at issue] are tantamount to a nontaxable bank loan or cash advance.” 2021 T. C. Sum. Op. 9, at p. 4.

Except it isn’t.

“Although we understand why petitioner might view the excess Social Security benefits as a loan or advance, the Code provides otherwise. Petitioner does not dispute that she received Social Security benefits in [year at issue] and, consequently, she must include those payments as income for that year to the extent provided in section 86. Petitioner’s repayment in [future year] of Social Security benefits received in [year at issue] does not affect her [year at issue] tax liability. Inasmuch as respondent properly computed petitioner’s income tax deficiency in accordance with section 86, the deficiency must be sustained, and we so hold.” 2021 T. C. Sum. Op. 9, at p. 4. (Footnote omitted, but it says that while Section 86(d)(2) might help Jennevieve, STJ Yuda isn’t going there).

Jennevieve did the right thing.

Randy Jenkins, 2021 T. C. Memo. 54, filed 5/10/21, tried to help his buddy Ira W. Gentry, Jr., with whom he is conjoined in said opinion, become a mover in the world of shakers, but both went down for numerous fraud counts.

The “shakers” were a new concept to me, until Judge Mark V Holmes man-‘splained. Shakers play a major role in product development and quality control, especially in the field of electronics. One needs to know what causes these expensive articles to fail. Dropping them from heights is expensive, and doesn’t answer all questions.

“While some electronics can be tested by dropping, others (like car headlights) can’t–they must instead be shaken. A headlight, for example, needs to withstand a substantial amount of road vibration to be useful. To test its durability, a ‘shaker system’ simulates road vibrations. A shaker system has three parts. The first is the shaker itself, and the second is an amplifier that runs the shaker. The third is software that can program the other two parts to simulate different road conditions.” 2021 T. C. Memo. 54, at p. 4.

Ira claimed he had some great software that would revolutionize shaking. He put together a corporate structure whereby he controlled a public company. He and Randy ran a “pump-and-dump,” putting out false statements that they were making millions, selling their stock at the top, and bailing when the lies were exposed, netting themselves millions. Judge Holmes has tables; oh, does he have tables! Meantime, Ira stashed the cash in corporations domiciled, respectively, in AZ, the Bahamas, and Belize, each of which traded through the same Canadian brokerage house.

The point is what these corporations, controlled by Ira, are. IRS doesn’t claim they’re shams. IRS wants to claim they’re alter egos for Ira. But whose law defines “alter ego”? IRS claims AZ, where Ira resides. Judge Holmes isn’t happy with the record; the stock that was traded had no particular location. So both nominee theory and sham are off the table.

Now we get vintage Holmes, a March-of-the-Penguins through the concept of Federal common law (blown up by the Erie Railroad case, known to every first-year law student), Restatement of Conflict of Laws One and Two, and a “flexible” approach which is now the flavor du jour.

How I miss that towering figure from the Hill Far Above, the late Professor Rudolph Berthold Schlessinger. That he could pound these concepts into my thick skull bespeaks him a grand master.

But Judge Holmes comes back to AZ. “… most states have adopted a policy that their own law should apply when third parties are affected by those using corporations as their alter egos. This makes some sense–alter-ego doctrine protects those outside the corporation, and if most state courts have come around to the view that they will apply their own alter-ego law in their own courts, it also means that adoption of Arizona law here would ‘further the needs of the interstate and international systems and likewise the values of certainty, predictability and uniformity of result.” See Second Restatement, sec. 6(2) cmt. d.” 2021 T. C. Memo. 54, at p. 40.

And the Bahamas and Belize corporations never did business in their nations of incorporation.  “Perhaps even a new rule that reflects the change, in the decades since the First Restatement’s publication, to newer and easier methods of incorporation in jurisdictions that have no connection whatsoever to where a corporation is active.”2021 T. C. Memo. 54, at p. 41, footnote 23.

So back in AZ, the corporations are alter egos of Ira.

Randy ran his money through some trusts, so again we have tables.

IRS Boss Hossed the fraud chop, but conceded it post-trial.

The Genius Baristas better get with the program, as Morris Lee Brill, III, Docket No. 1881-21, filed 5/10/21, has his whole petition posted online.

Ch J Maurice B (“Mighty Mo”) Foley ordered that, because a page didn’t get scanned on the counterpart IRS got, “…the Clerk of the Court shall attach a complete copy of the Petition served on March 18, 2021, to this Order.” Order, at p. 1.

Well, the Clerk did, but the Genius Baristas posted the whole thing. Replete with Section 6103 material.

Welcome to DAWSON, where what should be available online is not, and what should not be, is.

Edited to add, 5/10/21: I exchanged v/ms with counsel for petitioner, who gave me to understand she will follow up with the relevant parties.

Joseph L. K. Snyder Trust, Docket No. 11520-20, filed 5/7/21, claims they are owed a refund of some excise taxes (type unspecified).

That may be, says Ch J Maurice B (“Mighty Mo”) Foley, but we here at The Glasshouse, a/k/a Pore L’il Ole Article I Tax Court, can’t help you.

The JLKS Trust got a disallowance letter from IRS, which said “(I)f you want to bring suit or proceedings for the recovery of any tax, penalties or other moneys shown on this disallowance notice, you can file suit with the United States District Court having jurisdiction or with the United States Court of Federal Claims. Generally, the law requires you to file suit within two years from the mailing date of this letter. However, if you signed Form 2297, Waiver of Statutory Notification of Claim Disallowance, the two-year period in which to bring suit began on the date you filed the waiver.” (Emphasis by the Court).

Tax Court is not in the picture.

The JLKS Trust does get a Taishoff “Good try, third class.”

They claim “…this Court has jurisdiction because, in assessing excise taxes for tax year 2015 and disallowing petitioner’s claim for abatement of those excise taxes, respondent is in effect seeking to collect a ‘deficiency’ within the meaning of the Internal Revenue Code. However… this Court’s jurisdictional [sic; I think you meant “jurisdictional limits,” Judge] are clear. The Tax Court is not the proper court in which to file a lawsuit challenging the IRS’s denial of a claim for refund or abatement such as petitioner’s. A taxpayer may seek a judicial remedy for wrongful denial of claims for refund—i.e., a refund suit in compliance with Internal Revenue Code sections 6532(a)(1) and 7422(a)—only in the United States Court of Federal Claims, pursuant to 28 U.S.C. sec. 1491(a)(1), or in Federal district court, pursuant to 28 U.S.C. sec. 1346(a)(1). Those statutes do not confer refund jurisdiction on the Tax Court. Accordingly, this Court cannot and does not decide whether petitioner is entitled to a refund or abatement of excise taxes for the 2015 tax year.” Order, at p. 2.

Excise tax refunds are excised in Tax Court.

I most respectfully suggest this is not the testimony you want to hear, when fighting an unreported income item of $25K, given by the surviving sibling seller of taxpayer’s erstwhile employer when the business is sold.

Juan Pesante, Jr., and Maria A. Moreno-Pesante, Docket No. 9107-19S, filed 5/6/21, are the recipients of the bad news from Judge Elizabeth A. (“Tex”) Copeland.

Juan was a good and faithful employee. He built up the worth of his employer, so as to make the sale of the business possible at a good price, but the buyer, as is the way of the world, gave Juan a plank-walk.  The surviving sibling seller gave Juan the $25K, which Juan claims they told him was a gift. They also gave Juan a 1099-MISC, at no extra charge, except by the IRS.

Of course the 1099-MISC they gave Juan preserved their tax deduction (compensation for services), but scuttled Juan’s nonrecognition. Juan was a credible witness on the trial, and the managing member contradicted a written (but unsworn) statement he’d made before.

The managing member of the surviving sibling seller testified ” (1) that after the sale of [Juan’s employer], the members of [surviving sibling seller] ‘wanted to do something for [Mr. Pesante],’ (2) that not all members were originally in agreement on making the payment, (3) that the $25,000 ultimate payment was a ‘gift, reward, or whatever you want to call it,’ and (4) that but for Mr. Pesante’s work with [Juan’s employer] he would not have received the payment from [surviving sibling seller].” Transcript, at p. 7.

“Problematic here are three objective facts: (1) there was a disagreement between the members of the payor entity as to whether or not to make the payment to Mr. Pesante; (2) the payor issued a Form 1099-MISC treating the payment as taxable; and (3) the payment was made close in time to the sale of [Juan’s employer], an entity that had employed Mr. Pesante and an entity to which Mr. Pesante had added value.” Transcript, at p. 10.

Juan was self-represented, and contributed an “own goal” on the trial. When asked about the value he added to his employer, that boosted the sales price, “Mr. Pesante emphasized this fact at trial.” Transcript, at p. 10.

“Unfortunately, here, Mr. Pesante has not presented sufficient evidence to overcome the payor’s treatment of the gift/reward as taxable or to overcome whether the payment was made to compensate him for his past services in building up the value of the Company that was sold.” Transcript, at pp. 10-11.

So the $25K is taxable, ” whether it was a gift, reward, or the like.” Transcript, at p. 11.

That’s STJ Diana L. (“Sidewalks of New York”) Leyden’s direction to Tikar, Inc., 2021 T. C. Memo. 53, filed 5/6/21, as she declares their 501(c)(3) status revoked ab initio.

Tikar, Inc., claimed it was promoting the art of the Cameroons by exhibiting the artifacts of the Tikar people of that country, as well as other African peoples.

Except.

They have serious problems, and STJ Di will tell you all about them.

Tikar neither bought any African artifacts nor exhibited them. They spent money authenticating artifacts owned by a Belgian cardiologist who collected them, but Tikar couldn’t prove he sold or donated them, directly or indirectly, to Tikar. And the artifacts were only exhibited while the Belgian cardiologist still owned them.

“On the basis of administrative record the Court concludes that Tikar was not operated for an exempt purpose because it has not proven (1) that it owned the African artifacts or the [Belgian] Collection and (2) that all of its activities with respect to those artifacts primarily benefit the private interest of Dr. [Belgian] or the [Belgian] Foundation or both. Alternatively, if the Court were to assume that Tikar owned all or any part of the [Belgian] Collection or the African artifacts, Tikar failed to prove that its activities were in furtherance of an exempt purpose, namely charitable or educational.” 2021 T. C. Memo. 52, at p. 33.

A list of exempt purposes is found in Section 501(c)(3).

All the money spent to authenticate the artifacts benefited the owner thereof, and that wasn’t Tikar. So substantial benefit to private parties.

Tikar claims they tried to interest museums in exhibiting the artifacts, but proof is lacking, and they didn’t do anything else.

A charity can do charitable work outside its stated purposes, but it must do them.

Be doers, and not hearers only. That’s STJ Di’s motto.

Daniel S. Jacobs, 2021 T. C. Memo. 51, filed 5/5/21, doesn’t get legals from Judge Emin (“Eminent”) Toro, but he does get a Taishoff “Good try, first class.” However, this accolade does not come in the Section 7430 context. There’s enough tangles in Dan’s (that’s “Prof. Dan”, “Attorney/Professor/Author” as he styles himself in one year’s return) story so that, despite Exam’s miscues, there was enough ambiguity for a reasonable person to disallow Prof. Dan’s deductions when IRS answered. I want you to hold that thought; it matters.

IRS ultimately folds on all.

Prof. Dan first wanted a representative of TAS (Taxpayer Advocate Service) to attend the Appeals face-to-face with him. That didn’t happen, although TAS asked Appeals to change their policy such that a TAS representative could be present at Appeals hearings. After all, IRS Counsel and Exam people can attend. See 2021 T. C. Memo. 51, at p. 17.

Might be a move to consider if you have to advise someone with a case too small to afford counsel. Consult TAS and ask for a TAS rep. After all, they were willing at least to consider showing up for an Attorney/Professor/Author.

Even better is the move Prof. Dan used when confronted by a Form 872 SOL extender. He offered IRS 35 days, when they asked for eight (count ‘em, eight) months. He rejected the deal, told IRS to hit him with a SNOD, petitioned same, and stiped with IRS to a remand to Appeals. See 2021 T. C. Memo. 51, at pp. 18-19.

The case settled at Appeals.

This tactic may not work if IRS thinks your client is a wit, wag or wiseacre. But it might work with a reasonable client with a reasonable case. And even if IRS won’t stip, you can always ask for a remand.

Prof. Dan, a tip of the battered Stetson.

Edited to add, 5/6/21: “When IRS answered” is the cutoff for justification in a Section 7430. So if IRS shot back an answer as soon as Prof Dan petitioned the SNOD, there had been no remand to Appeals. So all IRS counsel had to go on was the Exam material and the limited Appeals approval thereof, which was enough to scupper Prof. Dan’s Section 7430 legals.

It’s an odd coupling, but I’ve blogged it more than once. See, for example, my blogposts “Easy Rider,” 11/21/14, and “Rev Up Yer Engines!” 4/7/21. There must be something that attracts builders to racing vehicles.

Andrew Mitchell Berry and Sara Alexine Berry, 2021 T. C. Memo. 52, filed 5/5/21, starred in the second of the aforementioned blogposts. They have what they called on their Facebook page a “family drag racing team.” 2021 T. C. Memo. 52, at p. 6.

Although maybe it’s Andy and his dad, who own the Sub S construction company, who own the racing operation. Andy does win some money drag racing, but assigns the money to the Sub S, which also pays the (unsubstantiated) racing expenses.

Judge Kathleen Kerrigan finds this unavailing. It’s Andy’s money and his expenses.

“A taxpayer may not determine the nature of his or her income merely by using a particular form, or by labeling it as he or she wishes, but must report his or her income according to the economic realities of the situation.

“Petitioners contend that petitioner husband’s race car winnings should be included in Phoenix’s gross receipts. In support of this contention Mr. Berry testified that Phoenix paid the entry fees for petitioner husband’s car races. Petitioner husband testified that he raced under the name ‘Berry Racing’, which he described on his Facebook account as a family drag racing team. During the years in issue petitioner husband’s racing crew wore shirts emblazoned with ‘Berry Racing’.
The evidence does not show that car racing was part of Phoenix’s business.

“Because income earned by petitioner husband as a race car driver is not income derived from [Sub S]’s business of remodeling and construction, it should not be included in Phoenix’s gross receipts. “ 2021 T. C. Memo. 52, at pp. 6-7. (Citations omitted).

And while “comin’ off the line when the light turns green/ ya know he blows ‘em out of the water like ya never seen,” Andy is weak on paper.

IRS does give him some COGs for building permits, but not what he claims. Judge Kerrigan finds he double-counted some items.

Failure to keep records gives Andy a negligence chop.

And for any reader who asks why I give this much space to a more-or-less ordinary indocumentado, when I only picked up Judge Holmes’ off-the-cuff dismissal of tax-affected valuation analysis in the Michael Jackson case, I reply that I am writing for the in-the-trenches practitioner. The fine points of valuing at date of death the much-besmirched image of a popular music icon is not one that my readers, much less myself, are likely to encounter. You’ll notice my blogposts over the eight (count ‘em, eight) years I covered the case in Tax Court dealt with general procedural points the ordinary practitioner might encounter. I left the “rarefied heights of pure mathematics” and matters unique to the upper reaches of the music business to the blogoshere and trade press. Maybe some of those dudes will find themselves at those Olympian heights.

I invite my readers, having by now recovered from Judge Mark V Holmes’ Tolstoyan tale of the appraisal of the estate of the late Michael J. Jackson, and the erudite commentary thereon in the blogosphere and trade press, to observe again the interface between bankruptcy and taxes. Marc S. Barnes and Anne M. Barnes, 2021 T. C. 49, filed 5/4/21, have returned to reprise the missing year; see my blogpost “The Call,” 7/21/20.

Y’all will recall that Marc and Anne filed Ch 11 after post-trial briefing in their Tax Court trial eleven (count ‘em, eleven) years ago. And their Plan was fully paid. Except the missing year’s taxes, add-ons, and chops, were never adjudicated in Bankruptcy Court, because they were never assessed, decision having been stayed during the pendency of the proceeding, including but not limited to the duration of the Ch 11 plan. IRS moved to lift the automatic stay so that Judge Lauber could render decision.

Judge Lauber did, Marc and Anne appealed, and DC Cir affirmed.

IRS then filed NFTL. Marc and Anne, having had a chance to contest, were out on liability. But they did claim discharge in bankruptcy at their CDP.

Judge Lauber: “The SO consulted on this point with an IRS insolvency specialist. The specialist advised that the 2003 liability was a nondischargeable priority debt that was neither addressed in nor discharged by the Plan. See 11 U.S.C. sec. 507(a)(8)(A)(iii) (2006) (defining a ‘priority debt’ to include a tax liability that was ‘not assessed before, but assessable,’ when the bankruptcy case commenced); 11 U.S.C. sec. 523(a)(1)(A) (2006) (excepting certain priority debts from discharge).” 2021 T. C. Memo. 49, at pp. 4-5.

So the SO bounced Marc’s and Anne’s OIC, and suggested a full-pay IA. Marc and Anne rejected that, and went back to Bankruptcy Court to fight about discharge of the missing year. And at that point my blog told the story.

Well, Marc and Anne lost in Bankruptcy Court on tax and interest, but won on add-ons and chops, 11 U.S.C. sec. 507(a)(8)(G) accords priority only to actual out-of-pocket (actual pecuniary loss).

Marc’s and Anne’s argument that the Ch 11 plan permanently barred collection of the missing year is wrong on the law. And their claim that IRS should have filed notice of claim for the missing year is also wrong. “…the fact that the IRS did not amend its proof of claim to include the 2003 liability is irrelevant: A priority tax claim, such as the IRS’ claim for the 2003 liability, is nondischargeable ‘whether or not a claim for such tax was filed or allowed.’ 11 U.S.C. sec. 523(a)(1)(A)…. Indeed, even if the Plan’s injunctive provisions could be read as broadly as petitioners wish, an order that purports to discharge a nondischargeable claim would not be binding on the IRS as the claim holder.” 2021 T. C. Memo. 49, at p. 10.

As we used to sing, “Ain’t no discharge on the ground.”

All y’all will doubtless have seen Judge Mark V Holmes’ 271-page extravaganza Estate of Michael J Jackson, Deceased, John G. Branca, Co-Executor and John McClain, Co-Executor, 2021 T. C. Memo. 48, filed 5/3/21, which I blogged yesterday. 

That is to say, I’m sure you saw the opinion if you were on DAWSON yesterday, because it’s gone today. My colleague, Peter Reilly, CPA, the Forbes flash, tipped me off by dawn’s early light that the entire case is sealed on the new, improved (give me a break!), jim-handy DAWSON website.

Of course, the opinion is all over the internet. Except on DAWSON. 

Of course, I’ve blogged orders in that case for the last eight (count ’em, eight) years. With links yet, when the old Tax Court website (nameless but useful) permitted same. No seals, no protective orders. But now all of it is a secret.

I’ve just about had it with this clownish schemozzle.

I most respectfully submit that the public needs better access to US Tax Court orders, opinions, and decisions than what I, a “general practitioner of limited experience and mediocre qualifications,” can provide. The public deserves more than “If Taishoff doesn’t blog it, then forget about it.”