One can almost hear the weariness in Judge Mark V. Holmes’ voice as he dictates the opinion in Desert Organic Solutions, 2021 T. C. Memo. 22, filed 2/22/21.

The Desert Organists are potters seeking Section 162 ordinary-and-necessaries for their CA-legal pottery.

You can almost hear Judge Holmes’ pleading falling upon IRS’ deaf ears. “In Patients Mutual Assistance Collective Corp. v. Commissioner, 151 T.C. 176 (2018), appeal filed, No. 19-73078 (9th Cir. Dec. 3, 2019), we extensively analyzed the taxation of this still relatively new industry. Patients Mutual is currently on appeal to the Ninth Circuit. We’d suggested to the parties that it might be sensible to wait to see what happens to that appeal before taking this case to decision, but the Commissioner disagreed.” 2021 T. C. Memo. 22, at p. 2.

Of course I’d blogged Patients Mutual. See my blogpost “The War on Drugs,” 11/29/18.

So the Desert Organists ask for everything, they and IRS stip to a different everything, and Judge Holmes decides some kind of everything.

Wherefore, we have a three-page T. C. Memo., contending for the shortest of the year.

While Dodging the Tax

I didn’t blog William A. Llanos, Docket No. 9890-18, filed 10/15/19, when it was decided; it was the usual off-the-bench tax-dodger.

Fortunately for Wm A, though, he filed his petition in William Allen Llanos, 2021 T. C. Memo. 21, filed 2/22/21, before Judge Kerrigan unloaded the aforementioned off-the-bencher, and IRS wasn’t then looking for Section 6673 chops, so no yellow card to Wm A. Wherefore, Wm A dodges the Section 6673 chop this time.

It’s the usual wages-aren’t-taxable frivol, just like the last time. I won’t quote William Blake again; as C. S. Lewis said of the great artist-poet, “I am not at all sure I know what he meant.” But I am entirely sure that persisting in frivolity is not wise.

Here’s Judge Kerrigan’s take.

“Although petitioner did advance frivolous arguments during trial, he agreed to stipulations of facts and raised an argument addressing whether the penalty approval requirement of section 6751(b) was met. This case is not the first time petitioner has raised frivolous arguments before this Court. In Llanos v. Commissioner, T.C. Dkt. No. 9890-18 (Sept. 11, 2019) (bench opinion), read into the record on September 11, 2019, this Court made it clear that petitioner did not make any valid arguments, and the same is true of this case. Since the petition in this case was filed before the trial of petitioner’s previous case, we will warn petitioner, rather than impose sanctions. If petitioner does not abandon his misguided positions, it is very likely that a sanction will be imposed in any future cases before this Court.” 2021 T. C. Memo. 21, at p. 9.

Wm A gets Section 6702 chops, dodges the Section 6673.

Today Ch J Maurice B (“Mighty Mo”) Foley rebukes Jordan S. Musen, Esq., for signing the same Entry of Appearance as Joanne H. Kim, Esq. The rule, y’all remember, is separate checks when checking in to Tax Court. See my blogpost “The System Won’t Allow It,” 4/3/20.

And that’s so, even post-DAWSON, when the system was apparently beClouded, supposedly to make it more user-friendly (yeah, most F affirmative; the F is for emphasis).

Y’all can get the ganze geschichte, as my beloved grandma would have put it, in Maria I. Amaya a.k.a. Maria Ilda Ramos Amaya, Docket No. 3082-20, filed 2/19/21.

But Joanne and Jordan must have got it right before now, or maybe the system loosened up a little, because only last month they appeared together as IRS’ counsel in 156 T. C. 1; see the reference to the text in my blogpost “We Don’t Need No Authority,” 1/14/21. DAWSON won’t let me link to the Tax Court text of the opinion. Edited to add, 7/10/21: except I did figure it out, no thanks to the Genius Baristas or the 18F, whoever they might be.

And a quick docket search in that case shows neither Entry of Appearance nor bounce of any.

Besides, since when does IRS counsel have to file Entry of Appearance? Not that that’s a bad idea.

Maybe we should finally get a law firm – gov’t agency attorney master E of A filing system that does allow it. Think the Genius Baristas are capable of that?

That’s Ch J Maurice B (“Mighty Mo”) Foley in an unofficial moment; no wonder he was elected, and re-elected, as Ch J. His official demeanor, of course, is as grave and judicial as anyone might wish.

I was surprised, therefore, when on Tuesday he hit Damita Collette Johnson El Bey with a quick-kick nonpayment toss. See my blogpost “Reformed? Maybe Not,” 2/16/21.

But today he’s back on form (or perhaps has more sympathetic petitioners) with N. Khatchatrian & A. Aghamalyan, Docket No. 14338-20S, filed 2/19/21.

N & A are thus admonished: “…on or before April 5, 2021, petitioners shall pay the Court’s filing fee of $60.00, or this case may be dismissed. Waiver of the filing fee requires an affidavit or declaration containing specific financial information regarding the inability to make such payment. An Application for Waiver of Filing Fee form is available on the Court’s website at http://www.ustaxcourt.gov. The Court will consider whether to waive the filing fee upon receipt of such information from petitioners. Failure to pay the Court’s $60.00 filing fee or submit an Application for Waiver of Filing Fee on or before April 5, 2021 may result in dismissal of this case.” Order, at p. 1.

You can’t say fairer than that.

Valuations of net-leased properties for estate and gift taxes often lead to dueling appraisers, but Estate of Miriam M. Warne, Deceased, William R. Warne and Thomas H. Warne, Co-Executors, 2021 T. C. Memo. 17, file 2/18/21, finds Judge Buch handing out fewer judicial rebukes and resets than usual.

This is an example of a much more nuanced appraisal contest, more chess game than fistfight, and for that reason worthy of attention.

The parties even stipulated to some discounted percentages if the Court sustained certain split-ups of interests among charities. Good job to both counsels; I’d name them if I knew who they were, but DAWSON won’t tell me.

Note Judge Buch’s explication of the difference in valuations as between gift tax due and estate tax charitable deductions. What the giver gave and what the given got aren’t the same. “In short, when valuing charitable contributions, we do not value what an estate contributed; we value what the charitable organizations received.” 2021 T. C. Memo. 17, at p. 53. Your discounts may vary.

I might disagree with Judge Buch’s disregard of any possibility of future intrafamily litigation, especially when long-term net leases held in family LLCs, whose operating agreements give the managing member virtual dictatorial powers, are involved. But maybe that’s the bias of one who has seen too many multi-generational family feuds; the hollers of KY and WV have nothing on Manhattan real estate.

I am surprised that counsel for the petitioner didn’t put in any good faith reliance evidence for the Section 6651(a)(1) gift tax add-on.

This part of the famous could’a would’a should’a trio doesn’t help Debra Jean Blum, 2021 T. C. Memo. 18, filed 2/18/21. Deb sued her lawyers, claiming they blew her med mal case against a WA hospital, which put her in a defective wheelchair. The lawyers settled, and Deb got $125K, but the settlement agreement expressly disclaimed compensating any physical injury and said that the claim was for legal malpractice only.

Deb doesn’t report the $125K, and IRS lets her off the chops, but wants the tax. Deb claims it’s physical per Section 104, but the plain language of the settlement agreement blows that away. And Deb’s claim that it was physical because, had her lawyers not blown her case, she would have been compensated by the hospital for her admittedly physical injuries, does not impress Judge Patrick J (“Scholar Pat”) Urda.

“The purported loss that she claims was the amount that she might have received from winning her personal injury lawsuit, which strikes us as a highly speculative proposition. Moreover, Ms. Blum fails to convince us that the settlement payment was meant to replace this purported loss, rather than for any of the other reasons that might have prompted her former attorneys to settle.” 2021 T. C. Memo. 18, at p. 12.

Deb’s new lawyers try the “recovery of capital” argument. They base this on a case, cited in the Memo., which held that what a taxpayer recovered from the preparer, on account of the tax they had to pay based on the preparer’s erroneous advice, wasn’t income. But in that case the recovery was matched, as to nature of claim and as to dollars, by what the taxpayer was actually out of pocket.

Here, we won’t ever know what a jury would’ve awarded Deb, if anything. And the settlement agreement expressly stated it was to settle the legal malpractice claim; having seen such settlement agreements, I doubt there was any admission of fault.

A few scraps from today’s budget of orders.

The abate-debate continues. Section 6404(h), that hardy perennial, is getting a workout. Estate of Lourdes Theodossis, Deceased, Victor M. Crown, Independent Administrator, Docket No. 20584-11, filed 2/18/21, is seeking abatement of interest on thirteen (count ’em, thirteen) year old income tax the Estate owed, the late Lourdes having become so in 1991, but his estate kept marching on. Judge Kerrigan finds that the Section 6166 closely-held stretched payout is only for estate tax, not income tax.

” Section 7481(d) and Rule 262 allow the reopening of a case upon motion of a petitioner to modify the Court’s decision to reflect an estate’s entitlement to administrative expenses pursuant to section 2053 for the period of the extension of time for payment of the federal estate tax liability under section 6166. An extension of time for the payment of estate tax where an estate consists largely of an interest in closely held businesses is allowed pursuant to section 6166. The extension of time under section 6166 does not relate to income generated by an estate.

“This case concerns the abatement of interest on the estate’s 2006 income tax return and not liability for the estate tax. Therefore, this case cannot be reopened pursuant to section 7481(d) and Rule 262.” Order, at p. 2.

New change of address rules? Judge Gale seems to be taking a new path when petitioners change their address without telling Tax Court. Formerly, it seemed routine that, when communication of a new address reached The Glasshouse by whatever means, the assigned Judge would order the Clerk to note the change, with a mild admonition to file Form 10 the next time. Today, Judge Gale tells Michael Chandler & Harriette Chandler, Docket No. 11908-19S, filed 2/18/21, that they’d better file Form 10 unless they want to miss out on all future mailings. Here, USPS bounced the Trial Notice without forwarding address, but IRS got the updated address from Mike & Harriette, and asked for a continuance. Looks like Judge Gale has lost patience with the old practice of doing petitioners’ work for them. He holds up the continuance until Mike & Harriette file Form 10.

“Under Rule 21(b)(4), a party in a Tax Court case must promptly notify the Court of any change in his or her mailing address and telephone number by filing a notice of change of address with the Court. Except for the mailing of this Order, the Court may continue to use the address the petitioners listed on the Petition for all future mailings to them unless they file a Notice of Change of Address.” Order, at p. 1. (Footnote omitted, but it says the Clerk shall add a copy of Form 10 to the Order and send it to Michael & Harriette.)

Now I expect the august and learned ABA Tax Section, whose shoes were white even before the current snowstorms, and who denounced my suggestion that petitioners need show some nexus between place of trial and the case as being unduly burdensome on the pore unrepresented, will denounce this further imposition.

Crafty, Akin to the Weasel. See my blogpost thus entitled, 7/24/17. I am again reminded of my laughing little girl long ago, as my thoughts and prayers are with her and our families in TX.

IRS is ever-inventive, and is always pulling novel tricks from their well-stocked cubby. Here’s Judge Courtney D (“CD”) Jones, to tell us about Picayune Pearl Aggregates, LLC, Picayune Pearl Aggregates Investors, LLC, Tax Matters Partner, Docket No. 7045-19, filed 2/18/21. It’s a discovery joust, and since the original trial date was continued sine die (that means “with no new date set,” for you civilians), there’s no 45-day pretrial limit on IRS’ asking for, and getting, more document production. But the curveball is in a footnote.

“Our grant of these requests only extends in so far as they seek the production of documents. We note that certain portions of respondent’s requests for production…appear to embed interrogatories therein, which we will not enforce through the present motion.” Order, at p. 2, footnote 2.

This morning brought to this my blog its first view from Nepal.

Hey Bolivia, this is really too much. If Kanchenjunga, Annapurna, and Everest aren’t obstacles, Navado Sajama is no excuse.

C’mon, guys, tune in!

Judge Emin (“Eminent”) Toro knows the way well enough to send off San Jose Wellness, 156 T. C. 4, filed 2/17/21, like the unhappy heroine of the 1968 Bert Bacharach-Hal David hit. The San Joses run a pottery, and want to deduct depreciation (because not “paid or incurred” like other deductions) and charitables (because, well, they’re not a business expense).

Judge Eminent says Sections 167 and 170, respectively, call these items deductions, and besides, “As the Supreme Court has explained, the ‘deductions specified in Part VI of Subchapter B of the Income Tax Subtitle of the Code [which includes sections 167 and 170] are “subject to the exceptions provided in part IX.’” Commissioner v. Idaho Power Co., 418 U.S. 1, 17 (1974) (quoting section 161). One of these exceptions is section 280E.” 156 T. C. 4, at p. 7.

And Tax Court has held again and again that pottering is trafficking.

But the San Joses want to preserve their arguments for appeal, so they claim they’re not trafficking.

It takes Judge Eminent 30 (count ’em, thirty) pages of discomposed electrons to complete the send-off of the San Joses. He’s puzzled when IRS fails to cite the Northern California Small Business Assistants case (156 T. C. 4, at p. 9, footnote 7), in which a divided bench blew off the not-a-deduction argument. But maybe IRS’ counsel read my blogpost “Through the Vegetation,” 10/23/19, and were scared off by Judge David Gustafson’s brilliant dissent, and my editorial riffs thereon.

Howbeit, Judge Eminent says “case closed.” And the San Joses get the accuracy chop.

The San Joses can join the Assistants and appeal. But with the presently-constituted 9 Cir., I’m not seeing great odds.

This was an admonition I received in my early days. And it’s still true. One doesn’t want to alienate the trier of fact (be it bench trial or jury trial) by wasting their time or insulting their intelligence. Still, has to protect one’s record, especially when confronting such as Don Kramer, 2021 T. C. Memo. 16, filed 2/16/21. Though Don defaulted no fewer than three (count ’em, three) times, he’s clearly an inventive type.

So Judge Gale burns through 31 (count ’em, 31) pages of electrons, to establish and confirm each and every element of the whopping deficiencies, additions, and chops IRS has bestowed on Don.

It’s thoroughly fact-bound, so I’ll skip retelling. The only practice point I found is the breadth of pleading accorded Don and any pro se petitioner.

The issue is two items of unreported income, State tax refunds and pension and annuity payments. IRS has to show the usual minimal connection between such items and the taxpayer, and neither the deemed Rule 91 stips nor Don’s other defaults does that.

Judge Gale: “Respondent contends that these two income adjustments (which appear in the notice of deficiency on line ‘e’ of section 7, titled ‘Adjustments to income’, in Forms 5278, Statement – Income Tax Changes) are not in dispute because the petition…did not properly assign error to them. It is true that, despite assigning error to other adjustments…by identifying specific lettered items listed in section 7 of the Forms 5278, the petition did not specifically assign error to the line 7(e) adjustments. But the petition nevertheless alleged that respondent’s written explanations with respect to ‘Taxable Refunds of State and Local Income Taxes’ and ‘Pensions and Annuities’ were ‘baseless and arbitrary’. Those written explanations (which appear in the notice of deficiency in Form 886-A, Explanation of Items) list the specific amounts of the relevant income adjustments. Under these circumstances, we conclude that the petition adequately assigned error to both adjustments.” 2021 T. C. Memo. 16, at p. 12, footnote 9 (Citation omitted).

Turns out that returns for other years showed income from such sources, so Don is roped in anyway.

Pro ses get indulgence, where we lawyers would be told to amend to be more definite and certain, and likely also get rapped on the knuckles for conclusory pleading, if all we said was “baseless and arbitrary.”