Dana Ray Reynolds, 2021 T. C. Memo. 10, filed 1/26/21, went down for two years on two subscriptions in USDCCDCA. Dana Ray was a phony corp merchant, who used the corps to siphon income for himself, and sold his phony maneuver. So he wound up owing restitution via some Restitution-Based Assessments (RBAs). But DOJ got into the act via the DOJFLU (Department of Justice Financial Litigation Unit), resulting in Dana Ray’s request for an IA and CNC getting bounced around, ending up in a CDP, where the question of an ARI (Appeals Referral Investigation) by IRSCD (Internal Revenue Service Collection Division) was bruited. And that leaves out the marital agreement between Dana Ray and spouse, which left Dana Ray with no income or living expenses. So did IRS coordinate with DOJ? And should Dana Ray get an IA or be CNC?

If this leaves your head spinning, think of ex-Ch J Michael B (“Iron Mike”) Thornton, confronted with the task of unbaking this strawberry shortcake and putting the whipped cream back in the cow.

Well, ex-Ch J Iron Mike does it, without even a dictionary to chew upon for consolation.

First, there’s no Tax Court challenge to court-ordered restitution in a criminal case. And IRS has independent authority to collect same. Section 6201(a)(4) says so, and ex-Ch J Iron Mike is not revisiting that one.

As for DOJ billing and Dana Ray paying a few bucks monthly, that isn’t an IA and Section 6331(k)(2)(C) is no bar to the NFTL or the NITL (which ex-Ch J Iron Mike calls a FNTL) with which Appeals hit Dana Ray, because no IA per Section 6159.

Now for the headline hereof. Coordination. “Petitioner argues that SO T failed the verification requirement of section 6330(c)(1) by failing to ensure that the IRS coordinated with the DOJ, as he contends the Internal Revenue Manual (IRM) requires. Petitioner cites, and we have found, no case in which an SO flunked the verification requirement with respect to an IRM provision.” 2021 T. C. Memo. 10, at pp. 25-26. (Name and citations omitted). And there’s much about how IRS is supposed to coordinate with DOJ, and how IRS did. Well worth reading if you have clients about to take heavy-duty falls, with restitution on the menu.

Dana Ray’s bid for CNC fails, because a NFTL can be filed to protect the government’s interest howsoever broke the taxpayer may be today. And Dana Ray’s marital agreement shenanigans (like laying off a bunch of his corps on Mrs. Dana Ray) and his claims that he has no income or living expenses make an ARI unnecessary to bounce his CNC.

Dana Ray claims to be sick, but has no medical expenses.

“The attachment to the notice of determination indicated that in the absence of any claimed living expenses, petitioner had failed to demonstrate economic hardship justifying CNC status, stating that ‘[i]f, as you claim, you have no expenses, then making payments wouldn’t cause an economic hardship.’ As this statement suggests, if it were true, as petitioner claimed, that he had no assets, then there was no levy source at the time of the determination; if, however, a levy source were subsequently to become available, by petitioner’s own admission he had no living expenses that would cause a levy to give rise to economic hardship. Consequently, even accepting at face value the financial information petitioner submitted, respondent did not abuse his discretion in determining, on the basis of the information that petitioner provided, that he did not qualify for CNC status.” 2021 T. C. Memo. 10, at p. 38. (Footnote omitted, but it says there’s no need for a source of funds when a NITL is issued.)

I give Dana Ray’s counsel a Taishoff “Captain James Lawrence” Award. James Lawrence, USN, law student turned naval officer, was the dying captain of the USS Chesapeake in the War of 1812, who uttered the immortal words “Don’t give up the ship!” just as the British boarded the Chesapeake.

My colleague Peter Reilly, CPA, has a blogpost interfacing grumpy old men with DAWSON, to which your attention is respectfully directed. I will own the appellation “grumpy old man”; if the shoe fits, I wear it, however dusky it may be.

I have been very hard on DAWSON (I can hear readers saying “No! If you hadn’t’a told me, I’d never have known!”). But Mr Reilly and Mr Milgrom have a very valid point, and it stopped me on a dime.

Yes, DAWSON falls short of reasonable transparency from the journalist’s point of view, and compliance with Section 7461 is at Pirates of the Caribbean standards: “guidelines. Aspirational goals.”

But DAWSON was not designed solely for the convenience of the trade press or the blogosphere.

DAWSON was designed for the self-represented and the practitioner, the people in the trenches. DAWSON did give them the online filing of petition and amendment thereto, finally bringing Rule 34(a) as amended in 2018 into the Twentieth Century, if not the Twenty-first. It gives them every standing scheduling order as they are issued each day, so they needn’t wait for the snail-mail version. It lets them find the docket of their case, the only case that matters, quicker than the old way.

Those of us in the ivory tower behind the lines, who observe the struggle from afar, may object that we haven’t been given a larger window or better binoculars. And our gripes are meritorious. I write every blogpost in compliance with FRCP 11 and our New York Rule 130; no frivolity.

But I must admit in fairness: The petitioner is first, the active litigating practitioner is second.

I am third.

I direct this to my colleagues who practice in the field of personal injury, but specifically those whose practices involve Workers’ Compensation. Beware Section 86, and the comp-meets-Social-Security Disability Insurance (SSDI) shunt.

Here’s Dianne S. Hairston and Steve R. Hairston, 2021 T. C. Sum. Op. 2, filed 1/25/21, from Judge Colvin, one of the small-claimer read-and-heeds that make blogging so much fun.

It’s Steve’s story. Steve was getting Comp, until the VA Comp Bd (that’s Virginia, not Veterans’ Administration) cut him off, and SSDI took over paying, which included some payments for year before year at issue. Then VA decided they’d wrongfully cut Steve off, started paying him again retro to cutoff. Whereupon SSA wanted the SSDI money back, which Steve paid.

Steve never paid tax on the SSDI. He claimed that he’d paid that back in another year.

Judge Colvin sorts it out. Each year stands on its own. What Steve paid back in years after the year at issue is nothing to the point.

OK, so why should PI practitioners care?

Well, pardon an old beaten-up, beaten-down, single-shingle “general practitioner of mediocre qualifications and limited experience,” as a much finer writer than I put it, but I doubt the VA Comp Bd was suddenly, out of the blue, struck with the injustice of cutting Steve off, then sua sponte and ex proprio motu reinstated and paid him retroactive. Could happen, but don’t hang by your cliché until it does.

I’ll wager a couple ales in Jake’s Saloon (hi, Judge Holmes) that Steve had a lawyer. Don’t take the bet.

“Petitioners also raise three questions regarding actions taken by the SSA and their former attorney: (1) why did petitioner husband receive Social Security disability benefits rather than retirement benefits starting in 2013; (2) why did petitioners’ attorney tell petitioner husband to sign up for Social Security disability benefits; and (3) why did neither the SSA nor petitioners’ attorney inform petitioner husband about his receipt of Social Security benefits.” 2021 T. C. Sum. Op. 2, at p. 8.

Judge Colvin ducks.

“We do not consider those questions because they do not relate to matters within our jurisdiction, which in this case is limited to petitioners’ tax liability for 2014. See sec. 6214(a).” 2021 T. C. Sum. Op. 2, at p.8.

Steve’s lawyer may not be able to duck.

No, not a reprise of Betty MacDonald’s 1945 best-seller, nor yet of the travails of Nichelle G. Perez (see my blogpost “The Egg and I,” 1/22/15). Judge James S (“Big Jim”) Halpern has for your perusal the story of William Bruce Costello and Maritza Legarcie, 2021 T. C. Memo. 9, filed 1/25/21, and how Maritza kept ’em down on the farm.

That’s chickens, which she raised first for meat and then for eggs, and then for meat again, but made no money either way. Finally, wild dogs ate most of her chickens. She also raised watermelons, squash, peppers, apples, bananas, pomegranates, date palms, and asparagus, but that also didn’t go well, as Maritza’s farm “…is on the edge of the world’s largest evaporative salt plant, and, in 1973, a spill from the salt plant created a salt flat on a portion of the property. Moreover, evaporation from the salt plant blows across the property and poisons the soil. Crops grown on the property are not commercially acceptable.” 2021 T. C. Memo. 9, at pp. 5-6.

Maritza refused to give up. She tried planting peppers, but the insects ate them up. Then she tried cattle, but the cattle couldn’t get enough to eat by gazing, so they were sold.

But Wm Bruce was no quitter. On the trial, he testified thus: “When you have something in a business that is not making money, you change it, and you figure out why it’s not making money. You evaluate to see if you could make it make money. If it doesn’t, you stop doing that and you start doing something else. He conceded: ‘[W]e have tried several things on this property; so far, nothing has worked.’ He was, however, hopeful that something would come along that would work and be profitable: ‘Will something come along that will work? When the right opportunity comes, financial conditions change, market conditions change, then yes, I fully expect to be able to make a profit. At the present moment, no, * * * [we] don’t.'” 2021 T. C. Memo. 9, at pp. 6-7. And during the two years at issue they didn’t. They deducted losses.

And also losses on rental real estate that had been flooded.

Judge Big Jim takes a quick peek at “the goofy regulation,” the Section 183 hobby loss with its nine factors, and decides Wm Bruce’s story is a good one. It clearly isn’t horsing around or having too much fun, but it is preoperational start-up and thus not deductible per Section 195.

“In order for expenses to be deductible under section 162(a), the expenses must relate to a trade or business functioning when the expenses were incurred.” 2021 T. C. Memo. 9, at p. 12. There follows a whole bunch of cases that say you have to be up and running. All that Maritza and Wm Bruce had done was try lots of farming activities, but none was sufficiently onstream.

And the rental real estate was untenantable, so losses disallowed. But the other rental properties that Maritza and Wm Bruce sold during one of the years at issue did show a capital gain, so no passive activity loss carryforward. IRS has to redo lots of numbers, so stand by for a Rule 155 beancount.

Many years ago, in the 1950s, an advertisement for a hair dye coined the memorable catchphrase “Does she…or doesn’t she? Only her hairdresser knows for sure.” This found an echo when Chief Justice Roberts upheld the Affordable Care Act of 2010, as the debate centered upon whether the impost for those who avoided the mandate was or was not a tax.

See National Federation of Independent Business [NFIB] v. Sebelius, 567 U.S. 519 (2012). The debate lingers on.

So today ex-Ch J Michael B. (“Iron Mike”) Thornton must face the same question, albeit in the context of the Section 72(t) ten-percent what-is-it. Because if it is a tax, and not a chop, then unsaddle the Section 6751(b) Boss Hoss.

And who better to engage in advanced Boss Hossery than that eminent firm of attorneys and counsellors-at-law, Frantic Frank Agostino and The Jersey Boys?

The full-dress T. C. is Kirgizia I. Grajales, 156 T. C. 3, filed 1/25/21. Of course Kirgizia was underage when she took the distribution from her New York State retirement plan. The original $9K with which IRS tagged her was reduced to $908.52 by concessions, so Kirgizia and the Jersey Boys are fighting about the ten-percent solution,  which works out to ninety (count ’em, ninety) bucks.

That won’t pay for the bagels at one of Mr Agostino’s engrossing CLE presentations (to say nothing of non-vacuum-packed hot-smoked whitefish; hi, Judge Holmes), but it’s a good question.

IRS claims, naturally, that the 10% is not a “penalty”, “addition to tax”, or “additional amount” within the meaning of section 6751(b) and (c) but rather a “tax”, and therefore no Boss Hoss need apply.

Now the caption to Section 72(t) says “additional tax,” but captions may or may not be the answer. Reaching back to Ralim S. El., ex-Ch J Iron Mike says he can consider similar terms and provisions, and descriptive matter in the IRC. See my blogpost “Mein! Was Ist Das?” 5/16/14, for the backstory on Ralim. The whole story is in 144 T.C. 9, filed 3/12/15.

And of course NFIB, above referred to, is extensively cited by ex-Ch J Iron Mike. “Explaining that the same exaction might be considered either a ‘penalty’ or a ‘tax’ depending upon the context, the Court held that the individual mandate is a ‘penalty’ for purposes of the Anti-Injunction Act but is a ‘tax’ for purposes of constitutional analysis. NFIB, 567 U.S. at 564.” 156 T. C. 3, at pp. 8-9.

If you’re into “somber reasoning and copious citation of precedent,” ex-Ch J Iron Mike is your kind of guy. Mr Agostino wants Tax Court to revisit the question because NFIB, but ex-Ch J Iron Mike won’t budge.

“Petitioner contends that we should employ the NFIB ‘functional approach’, i.e., the approach that the Court applied in its constitutional analysis, and conclude that the section 72(t) exaction is a ‘penalty’ rather than a ‘tax’. We disagree. The instant case presents no constitutional issue–neither party contends that section 72(t) is unconstitutional. Consequently the ‘functional approach’ as employed in the NFIB constitutional analysis is inapposite. Rather, because the issue before us is one of statutory construction, NFIB, 567 U.S. 544, directs us to look to the statutory text as “the best evidence of Congress’s intent”. ‘[I]t makes sense to be guided by Congress’s choice of label’ in this regard. Id. at 564. As discussed above, section 72(t) expressly labels its exaction a ‘tax’, consistently with the larger statutory structure. See El v. Commissioner, 144 T.C. at 148.” 156 T.C. 3, at pp. 10-11. (Footnote omitted).

There’s an argument about Section 72(q) annuity distributions (denominated as “penalties”) and Section 72(t) retirement plan draws (whatevers), but that’s fought out in a footnote.

There’s also some Bankruptcy Court learning that says “penalty,” but that’s for the Bankruptcy guys to sort out. Ex-Ch J Iron Mike is not going bankrupt.

In short, all NFIB says is what the Twitterers say, DSFDF, and YMMV.

Tax, not penalty.

A proper fraction, the arithmeticians tell me, is one which represents less than the whole; briefly, a proper fraction is less than 1.

Judge Patrick J (“Scholar Pat”) Urda confronts a proper fraction when dealing with Patricia Dumas, Docket No. 22859-19, filed 1/25/21, an off-the-bencher. It’s an EITC and additional child care credit, with Patricia’s grandson JCN (minor children have only initials in Tax Court; see Rule 27(a)(3)) as her qualifying child.

JCN passes the Section 152 relationship test, doesn’t provide more than half his own support, and isn’t married so doesn’t file MFJ. The problem is, he’s born during the year at issue, so couldn’t have lived more than half the year with Patricia.

To the rescue comes Reg Section 1.152-4(d)(1), Proposed Income Tax Regs., 82 Fed Reg.6370, 6387, Jan. 19, 2017. “If an individual is born or dies during a taxpayer’s taxable year, the residency test for a qualifying child is treated as met if the taxpayer and the individual have the same principal place of abode for more than one-half of the portion of the taxable year during which the individual is alive.” Order, Transcript, at p. 7, footnote 2.

A tip of the battered Taishoff Stetson to Kimberly A. Daigle, Esq., IRS’ counsel, for bringing the temp. reg. to the Court’s attention on the trial, and another to Joseph B. Schimmel, Esq., for representing Patricia at the calendar call. It would be great if these appearances appeared on the docket sheet, but DAWSON.

Howbeit, Patricia has only her own testimony for the number of nights young JCN stayed beneath her roof, and that doesn’t get it done, though obviously Judge Scholar Pat and Mr. Schimmel are trying to cut Patricia as much cliché as they can.

“On the record before us, we are unable to determine the number of nights in [year at issue] that JCN stayed in Ms. Dumas’ house.  Ms. Dumas did not present any evidence beyond her own testimony, such as a calendar, an agreement with her daughter, an affidavit, or testimony from another witnesses (such as her daughter), regarding the number of nights JCN spent at her home in [year at issue].   When asked by the Court how often JCN stayed with her, Ms. Dumas could not provide an estimated number of nights.  Instead, she vaguely testified that:  ‘So yes, I kept him.  He did stay the night a lot of nights.’  When asked by the Court whether she had a certain agreement with her daughter with regard to caring for JCN, she answered that:  ‘I would keep him.  * * *  But he has stayed the night.'” Order, Transcript, at p. 8.

Not good enough.

But Judge Scholar Pat has given Patricia and anyone similarly situated a checklist for substantiating residence requirements for EITC and additional child care credit.

I take my text from John Lennon’s best-selling solo performance.

I have probably overwearied my readers with my complaints about DAWSON. In my own defense, I have received feedback from other bloggers with not dissimilar criticisms. Nonetheless, I will try to keep this blog from becoming an endless gripe session, as these are neither edifying nor amusing. Neither does griping influence anyone who can effect an improvement; they just go into a defensive hedgehog, “consuming miles of red tape in the correctest forms of activity,” and convinced that everything is for the best in this best of all possible worlds.

But today I encounter one who seems to be a fellow-sufferer, albeit on the practitioner’s side, rather than the journalist’s.

I don’t know his/her name, but Ch J Maurice B (“Mighty Mo”) Foley tells the sorry tale in his accustomed laconic style.

“…counsel for respondent attempted to file an Entry of Appearance in the above-docketed matter. However, the underlying submission reflects no substantive content, instead suggesting a problem with the upload process.” Brad A. Governor, Docket No. 3788-20S, filed 1/25/21, Order, at p. 1.

One person’s frustrated upload is another’s frustrated download. Or search.

The failed filing is stricken, of course. And Charles Dickens’ Circumlocution Office goes on.

There are (so far) no fewer than 456 (count ’em, 456) orders on the Tax Court website today. This may be part of the post-DAWSON hiatus tsunami. Half of these are simply pretrial standing orders, as Spring session teletrials taxi out and line up.

But most unusual are some seventeen (count ’em, seventeen) orders granting motions to withdraw as counsel by a well-known Tax Court attorney.

I have reached out to the attorney, asking for any non-privileged statement he may wish to make, but I can conceive of at least four grounds whereunder privilege may be asserted. So I certainly draw no inference as to any basis for any of such motions, nor from any failure or refusal to respond to my request for comment.

And of course I will publish any response in this my blog.

But what a good question it would make for the Multi-State Ethics segment of the Multi-State Bar Examination (or any State, Commonwealth or Territory equivalent). “X, Esq., presently attorney of record in the case of X vs Y, moves to withdraw as counsel. What privileged communications or statements might be involved in, or form a basis for, such motion? Cite to specific provisions of the ABA Model Rules of Professional Conduct, or other relevant source.”

Here’s a reminder, from Luerine Tunstle, Docket No. 11770-20, filed 1/22/21 (Another Palindrome Day).

I had to go back to the incumbency of ex-Ch J Michael B (“Iron Mike”) Thornton to find my last visitation to the topic of refunds of the sixty George ante-up. See my blogpost “You Pay, You’re Stuck,” 4/23/14.

Ch J Maurice B (“Mighty Mo”) adheres to precedent.

“…petitioner filed in the above-docketed matter an Application for Waiver of Filing Fee. However, review of the record in this proceeding reflects that the filing fee has already been paid. Accordingly, insofar as the Court is generally not in a position to provide refunds of fees paid, it is ORDERED that petitioner’s just-referenced Application for Waiver of Filing Fee is denied as moot.” Order, at p. 1.

Play before you pay.