From the Casebook of Lew Taishoff

I’m thinking of starting a casebook, assembling all the cases from blogposts past where the odd and unusual are on the menu.

Today I’ve got a case where DAWSON is the perp, The Case of the Disappearing Appearances.

Formerly, under the old and much-lamented no-name system, the docket sheet showed appearances. If petitioner were self-represented, that showed. If counsel filed the petition, or entered appearance thereafter, that showed. And IRS’ counsel was shown as soon as assigned.

That enabled me to call out dubious practitioners and sharp practice, and to praise those who did well, strove diligently, and generally took one for the side.

And it might have served as a referral service for pro ses in above their depth and looking for cover.

But the new, improved (ya gotta be kiddin’), jazzy, jim-handy DAWSON eliminated all that, and anonymity reigns.

If there is a reason for this obscurantism, it entirely escapes me.

Edited to add, 4/10/21: The appearances are there. There is a Release Note dated 3/7/21 that states appearances are to be found on the printable version of the docket sheet. But why the same information cannot be found on the docket sheet itself eludes me.

I can’t remember in which blogpost I quoted the late Henry Miller, Esq., renowned plaintiff’s  lawyer, but the quote is a classic: “When your witness shreds your client’s case on the stand, smile your sweetest smile, as if that was exactly the testimony you wanted, and wait for the recess to go into the hallway and sob.”

I don’t know if the Front Four attorneys for ASPRO, Inc., 2021 T. C. Memo. 8, filed 1/21/21, took Mr. Miller’s advice, but when “management fees” (deductible by the client) collide with “excessive compensation” (definitely not), and the fallout is nondeductible dividends, you don’t want this testimony from one of your client’s stockholders (who got said fees).

“One of petitioner’s board members, BM, credibly testified that he understood a dividend to be a ‘distribution of profits’; and when he was asked to describe his understanding of the difference between a dividend and a management fee, he testified that ‘a management fee is a distribution from the company that’s not taxed by the company and a distribution is a [sic] after-tax distribution of profits. * * * They’re both distributions.’” 2021 T. C. Memo. 8, at pp. 26-27. (Name omitted).

ASPRO’s three stockholders were using “management fees” paid to them in place of dividends or direct (excessive) compensation.

Judge Pugh runs through a bunch of factors, but BM’s testimony tells the whole story.

Edited to add, 1/27/21: I quoted Henry Miller, Esq.’s phrase somewhat differently in my blogpost “A Grammatical Shift,” 5/14/13.

Paul B. Bruneau and Karen L. Bruneau, 2021 T. C. Sum. Op. 1, filed 1/21/21, have a problem substantiating the depreciation deductions on their dog hotel and salon operation.

“Petitioners did not provide direct evidence of the amounts they paid for the various improvements to the [dog] property described above or the amounts of depreciation deductions they claimed for years before [first year at issue]. Mr. Bruneau explained that petitioners’ former accountant was in possession of their original records and that he had disappeared.” 2021 T. C. Sum. Op. 1, at p. 7.

STJ Daniel A (“Yuda”) Guy isn’t impressed with Paul’s story and blows off most of the depreciation, but Paul does get an entry in the Taishoff no-prize, sporadic “Good Excuse” sweepstakes.

There’s a lot of insubstantiation and defective recordkeeping, but it’s mostly the usual case of people running businesses who are bad bookkeepers. It’s the disappearing accountant that makes this one blogworthy.

All of my readers who are “hanging breathless on thy fate,” as a better writer than I wrote about a different ship, now can know the fate of the Challenge Vessel’s deductions and credits. Just check out Judge Albert G (“Scholar Al”) Lauber’s exegesis of Section 882(c)(2), Reg Section 1.882-4(a)(3)(i), and the Convention for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income and on Capital Gains, U.K.-U.S., July 24, 2001, T.I.A.S. No. 13,161 (entered into force Mar. 31, 2003).

But before you delve into Adams Challenge (UK) Limited, 156 T. C. 2, filed 1/21/21 (Happy Palindrome Day!), check out my blogpost ““Related To,” “In Connection With,” “With Respect To”, 1/8/20.

IRS hit the Adams gang with a jeopardy assessment they later dropped, but gave them a couple SFRs (hi, Judge Holmes) showing zero deductions. The Adams gang riposted with protective zero returns per Reg Section 1.882-4(a)(3)(vi) after the SFRs, claiming the statute had no time limit, the Reg was invalid and the treaty prevented any limit. So the Adams gang could claim deductions and credits whenever.

The issue is whether denying the Adams gang deductions and credits falls foul of statute, regs, or the US-UK tax treaty. And Judge Lauber says no, and goes back to 1918 to find consistent US policy to keep foreigners from playing roulette with US taxes. The US statute and regs say that foreigners lose deductions and credits if they don’t file returns before IRS hits them with SFRs, unless they have a great excuse (which the Adams gang doesn’t).

The problem is that IRS may not even know that an offshore has US-connected income if the offshore never files. IRS tracked down the Adams gang via satellite; Adams had to tell the US Coast Guard they were on the Outer Continental Shelf, but never told IRS.

“Congress enacted section 882(c)(2) to ensure that foreign corporations comply with the internal revenue laws. Predicating a foreign corporation’s entitlement to deductions and credits on the filing of a return is justified in the light of the administrative difficulties the IRS faces. The Fourth Circuit described this situation as ‘pregnant with possibilities of tax evasion.’ Blenheim Co., 125 F.2d at 909. ‘[U]nless a foreign corporation is induced voluntarily to advise the Commissioner of all of its income attributable to sources within the United States * * *, the Commissioner may never learn even of the corporation’s existence.’ Ibid.

“Allowing a foreign taxpayer an endless period to file a return, moreover, would enable it to game the system. If a foreign taxpayer could ‘wait and see what information the Commissioner puts on a substitute return before the taxpayer has to file a return of his own,’ Espinosa, 107 T.C. at 157, the foreign taxpayer could elect to report its actual gross income or the income the IRS alleged, whichever amount was less. The foreign taxpayer would thus enjoy a one-way street in its favor. That outcome ‘would put a premium on tax evasion and would reduce the administration of the tax laws to mere idle activity.’ Blenheim Co., 125 F.2d at 912. Congress’ enactment of an administrative provision to prevent that result is not ‘discriminatory.’” 156 T. C. 2, at p. 57.

In practice, the offshore has 23-1/2 months to come clean after the end of each tax year, before IRS can whang their deduction pate.

Now, even forty-six (count ’em, forty-six, and I have, trust me) years later, the rebuke from a steely-eyed senior law partner of a legendary real estate operator and attorney echoes in my heart’s-core.

There I was, looking for a job as we entered the Black ’74, another NYC real estate meltdown. It was only my second experience of such a one, but cliché springs eternal.

“You must have so many interesting cases,” I said, “so many interesting questions and cases.”

“Mr Taishoff,” said he, pronouncing my name correctly, “we are not in the romantic practice of law. We are here to make money…lots of money.”

I expect that if he had, on his immaculately clean, empty, half-acre George Nakashima desktop (signed), a button that would have ejected me onto Pershing Square, he would have pushed it.

Doubtless you will ask: “What has this to do with United States Tax Court, and its august Ch J, Maurice B (“Mighty Mo”) Foley?”

I had hoped in this my blog to chronicle interesting questions and cases, explore the “jumbled and wrinkly legal topography created by the collision of Code, regulations, and caselaw,” and generally wow my readers with the cases that wow the judges. Moreover, I had hoped Ch J Mighty Mo would lead us into the broad, sunny uplands of intellectually stunning tax jurisprudence.

And what did I get? DAWSON.

But Ch J Mighty Mo has even worse before him.

Here’s Motaz H. Abu Hakmeh & Wisam M. Hamdan, Docket No.  7665-19S, filed 1/21/21 (Happy Palindrome Day!). But it’s only half Mo’s & Wis’ story. IRS’ counsel (now anonymous on the DAWSON docket page, unlike the old system where you could tell the players) also takes a hand.

“… the parties filed a Proposed Stipulated Decision (docket entry #7) and a duplicate of the Proposed Stipulated Decision (docket entry #8). Neither copy of the Proposed Stipulated Decision contains the entire case caption. Furthermore, the docket number on the second page is incomplete/illegible.” Order, at p. 1.

So Ch J Mighty Mo is reduced to ordering the offending documents stricken, and gives the parties until Tuesday next to clean up their act.

And this is the grist that comes to the judicial mill in The City of the Late Insurrection.

I still long for the romantic practice of law.

From the US Tax Court homepage: “The Tax Court in Washington, D.C. will be closed on Wednesday, January 20, 2021, for Inauguration Day. Remote hearings scheduled on that day will proceed. No documents may be hand-delivered between Wednesday, January 13, 2021 and Thursday, January 21, 2021.”

That’s what IRS is claiming Transupport, Inc., Docket No. 16422-18L, 1/19/21, did to its officers, so its RCP (Reasonable Collection Potential) should be adjusted accordingly. Transupport claims this is a new issue, and anyway, the AO at their CDP didn’t properly evaluate its RCP.

Because inventories.

Y’all remember Transupport, Inc., of course, with their collection of obsolete, crashed-smashed-and-trashed militaria, for which they never kept an itemized inventory. What, no? Well, I’m sure Rafe Eledge of Antiques Roadshow wouldn’t get weepy if la famille Foote brung in their stuff, but you can check ’em out in my blogposts “No Inventory? No Fraud,” 9/14/15, and “No Inventory? – No Change,” 11/23/16. OK?

Judge Mary Ann (“S. E. C. = “She Eschews Cognomens”) Cohen is off the case, but ex-Ch J L Paige (“Iron Fist”) Marvel is on this one, the CDP off the NITL that followed the overcompensation SNOD.

“We conclude that both substantive questions presented by the parties (i.e., the fair market value of petitioner’s inventories and whether any of petitioner’s payments to its officers constitute voidable fraudulent transactions) are subsidiary determinations necessary to ascertaining petitioner’s ability to fully pay its liabilities. The initial hearing did not resolve these issues, however, so we cannot properly review whether the Commissioner abused his discretion in rejecting petitioner’s proposed collection alternative on this record. Accordingly, we will grant petitioner’s motion to remand for further development of the record regarding petitioner’s ability to pay, including both substantive subsidiary determinations noted above.” Order, at pp. 1-2.

There’s the usual joust about what the junk is worth, with numbers all over the lot. Now ex-Ch J Iron Fist isn’t going to make her own appraisal, but just check out Appeals’ factual basis for whatever number the AO came up with. The administrative record here is less than pellucid. And since both sides want remand, what’s the biggie?

“While both parties agree that remand is appropriate in this case, petitioner seeks to limit remand to consideration of the fair market value of its inventories only. Petitioner’s arguments for such a limitation are unconvincing. While we agree that properly valuing petitioner’s inventories is an important aspect of determining its reasonable collection potential and, therefore, whether the Commissioner abused his discretion in rejecting petitioner’s proposed collection alternative, we do not agree that it is the only permissible consideration on remand. Of equal importance is a determination of whether petitioner improperly drained itself of assets available for collection through allegedly fraudulent transfers to its officers via excessive compensation.

“Petitioner attempts to limit remand by characterizing any consideration of allegedly fraudulent transfers as a ‘new issue’. Petitioner relies on numerous cases, from this Court and higher courts, that stand for the proposition that remand does not create a new hearing and so does not permit consideration of new issues. Petitioner is correct that the cases upon which it relies stand for that proposition. Petitioner is mistaken, however, in considering the question of whether any excessive compensation constitutes a voidable fraudulent transfer to be a “new issue”. Rather, this question is a subsidiary determination essential to resolving the main issue in the initial hearing–petitioner’s ability to pay.” Order, at p. 6.

Anyhow, the administrative record .

“The record in this case is not a model of clarity. It reveals that Compliance may not have finalized its valuation of petitioner’s inventories. It also reveals that petitioner provided a third-party valuation, albeit belatedly. The record and respondent’s admissions in his answer show that the AO F agreed to consider petitioner’s valuation report after issuing the Notice of Determination and raised the possibility that he may rescind the determination. As to the issue of valuing petitioner’s inventories, in short, the record is hopelessly murky as to any basis for reviewing whether respondent abused his discretion.

“Additionally, the record indicates that the parties discussed the excessive compensation issue during the hearing and that petitioner’s counsel sought to decrease compensation amounts to enhance the chances that respondent accept a proposed collection alternative. The notice of determination reflects these conversations by stating that ‘compensation was excessive and not reasonable’, but it does not determine the specific amount of excessive compensation that may represent an asset available for collection. Far from being a new issue, this question is simply underdeveloped; remand will allow the record to be supplemented and the necessary determinations to be made, which will allow petitioner to meaningfully avail itself of this Court’s jurisdiction to review those determinations. As it stands now, however, we cannot review whether respondent’s determination as to excessive compensation was reasonable because there was no final determination of an amount that may be voidable and therefore available for collection for us to review.” Order, at pp. 7-8. Name omitted).

I think ex-Ch J Iron Fist has some muddy waters here. To talk of voidable or fraudulent transfers metastisizes what should be a dissipation of assets issue, i.e., one that applies only to what the taxpayer did, into a third-party issue, i. e., what happens to the party who got the dissipated assets. The latter’s way premature. If excessive compensation was paid to the officers and directors of Transupport, Inc., who were all family members, then if the inventory plus cash on hand (without reference to excessive compensation a/k/a dissipated assets) will pay in full, or if same plus ongoing net profit (without regard to excessive compensation) will pay the full liability within the lien period, why bother about which officer or director got what?

Suppose a taxpayer bought whiskey instead paying taxes, but still has some saleable whiskey and cash on hand; does Old Grand-Dad have transferee liability?

Judge Albert G. (“Scholar Al”) Lauber sends off another entrant in the Taishoff sporadic, no-prize, “best excuses” sweepstakes, Robert Craig Colton & Alina Mazwin, Docket No. 10742-19, filed 1/19/21. For the backstory on the sweepstakes, see my blogpost “The Excuse Sweepstakes,” 3/21/19.

And since the Genius Baristas dredged the latest sandreef in Dawson’s Creek (see my blogpost “Well, Sir – Your Credentials – Redivivus,” 1/15/21), now the whole story can be told.

“…respondent sent petitioners a notice of deficiency determining an income tax deficiency of $3,113 for [year at issue]. The deficiency is chiefly attributable to a $3,003 increase in alternative minimum tax (AMT), caused by the disallowance for AMT purposes of a miscellaneous itemized deduction that was allowable for regular tax purposes. Petitioners dispute the deficiency but do [sic; I think you meant “do not,” Judge] explain how respondent may have erred, beyond stating that they ‘have never heard of alternative minimum tax.’” Order, at p. 1.

Nice. I wish I had never heard of it, also. I have heard much about it from clients and colleagues, mostly to the effect that they were like to be bankrupted thereby.

Sorry, Rob’t Craig. Check out 26USC§68.

But Rob’t Craig, nowise daunted, doubles down. Having petitioned the SNOD as aforesaid, he moves for judgment on the pleadings.

“…petitioners have filed a Motion for Judgment on the Pleadings, a Motion to Strike Respondent’s Answer, a Motion for Sanctions, a Motion for Reconsideration, and a Motion to Submit Case Pursuant to Rule 122, all of which this Court has denied. …petitioner husband filed a second Motion for Judgment on the Pleadings in which he falsely asserts that he has previously submitted overwhelming and undisputed evidence that respondent engaged in fraud and various corrupt actions. He demands $5,000,000 in punitive damages.” Order, at p. 1.

Judge Scholar Al, having little patience with frivolites, shows Rob’t Craig the Section 6673 yellow card.

But Rob’t Craig has secured an entry in my sweepstakes above-mentioned.

I can only repeat the words of my blogpost “A Turn-Down Day,” 1/16/17.

It’s been a wee while since I echoed the words of Voltaire on his deathbed, when he asked that question of the abbé who approached him and said he came from God. But Judge Emin (“Eminent) Toro got an answer from a CPA that spelled trouble for Business By Experts, LLC, Docket No. 21302-19L, filed 1/15/21.

Said CPA, whom I’ll call MD, is head honcho of BBE, LLC, and “an experienced Certified Public Accountant (‘C. P. A.’) who is familiar with the IRS collection process.” Order, Transcript, at p. 4.

There are several years at issue: there are a late filed 1065 “penalty” and TFRPs for one year, for which there’s both a NITL and a NFTL. MD sends in separate Forms 12153, and both get to the same SO. Then there’s another NFTL for other years from an RO, but apparently MD already included those years in one of the Forms 12153 he’d already sent in.

Clear? Thought not.

MD wanted an IA or an OIC, but never ponied up documentation in support of either. The SO offered MD several chances to do so. The SO did the balancing act, and got it right.

MD claims that the SO never called his cellphone (the “best contact number”) when the SO said he did, and proffers printouts from his provider; but there’s attached a Q&A saying that missed calls aren’t listed, only calls answered and outbound calls. And there was another number the SO used, but for which MD didn’t provide logs.

MD also claims he stood up the SO for one meeting, because he thought he could solve his problems with the RO. But MD, “an experienced Certified Public Accountant (‘C. P. A.’) who is familiar with the IRS collection process,” should know the difference between an SO and an RO, and that when Form 12153 is the flavor du jour, you talk to the SO.

MD loses this off-the-bencher.

The reader will doubtless note I haven’t cited to specific language for the substance of Judge Eminent’s opinion. The Genius Baristas of Dawson’s Creek have again created new problems without solving any old ones. I can’t cut and paste language from the website text today, although I could do so yesterday. To do so today, I’d have to input the language separately. Why this should be I have no idea. As a journalist on deadline, I have not the luxury of time to copy Judge Eminent’s wisdom, well worth the labor though it is.

Perhaps the Geniuses are afraid someone might make these matters public, despite Section 7461’s mandate that they should be publicly available.

I had promised I would forswear ranting about the Genius Baristas’ shambolic schemozzle. I take my pledged word seriously. But the Genius Baristas have provided density altitude that shortens the runway, so I may have a very bad fit of plain speaking if they don’t sort this out.