My professional career has been a search for enlightenment. In my first five minutes on The Hill Far Above, I learned that answering a hypothetical with “Plaintiff wins” earns a failing grade. The right answer is why plaintiff wins. Now, fifty-seven (count ’em, fifty-seven) years after that memorable occasion, the search (and the adventure) continues.

Just last week I asked what purpose Form 6 served. See my blogpost “A Bad Day for Lawyers – Part Deux,” 10/30/20. For those new to the game, Form 6 is the Ownership Disclosure Form for nongovernmental corporations, large partnerships or large LLCs, wherein the entity must state that it is parentless or parented, and whether or not fewer than 10 percent of its shares are held by a publicly-held. For a large partnership or large LLC, any publicly-held ownership must be disclosed. A PDF online fillable version of the form is available on the Tax Court website.

Today Arkanada Corporation, Docket No. 19153-19, filed 11/3/20, is on the verge of an eve-of-trial stipulated decision. Trial was set for 11/9/20 when two weeks ago IRS reported the settlement.

Ch J Maurice B (“Mighty Mo”) Foley orders either a stiped decision or a status report by 1/19/20, a special date in our family.

But Arkanada still hasn’t filed Form 6, although Ch J Mighty Mo twice told Arkanada to file before now. And even gave them a form to fill out. So now let them do it.

Arkanada is pro se, of course. And even if they had an attorney, the odds on Arkanada getting the form right, or even filing it at all, are by no means a laydown. And even if Arkanada files and gets it right, who is enlightened thereby?

BTW, a quick-peek Google search shows Arkanada dissolved in 2018 because of some default in franchise tax. An equally quick-peek docket search shows petition filed 10/24/19. Wouldn’t the Internet solve the problem without the form?

Judge David Gustafson might well be thinking of the 1971 Carole King hit, as he tries to explain how to establish the last-known address of Brenda Reddix-Smalls, 17975-18L, filed 11/2/20. And this is a designated hitter, so as to let everybody know not to change your address at Appeals.

Brenda is up for four (count ’em, four) years’ worth of assessed but unpaid, with a NITL. She went to Appeals, but there the story becomes fuzzy. Brenda says that during her phonecon “… she orally informed the Appeals Settlement Officer (“ASO”) that her address had changed to the address in Durham and (b) that the ASO stated that she must file a notice of change of address. (The Commissioner disputes this account, pointing to the contemporaneous notes of the ASO from the CDP hearing and the summary and recommendation attached to the notice of determination, which both repeatedly state that petitioner ‘declined’ to provide her new address when prompted by the ASO. There was no trial in which we could resolve this dispute of fact, but even in the absence of an agreement about what petitioner told the ASO–and assuming the accuracy of petitioner’s account–we are able to rule on the Commissioner’s motion.)” Order, at p. 2.

Brenda had filed a change of address with USPS in February, 2017, giving an address in Durham, NC. But in April, 2018, she and her husband filed MFJ, showing an address in Columbia, SC. Brenda’s phonecon with Appeals, when she says she told the ASO she was back in Durham, NC, took place in July, 2018.

ASO affirms the NITL Brenda was contesting, but Brenda is one day late mailing in her petition.

Brenda claims the affirmance wasn’t sent to last known address. IRS says whatever Brenda told (or didn’t tell) the ASO, “… the ASO does ‘not have access to IDRS, the program that manages the information in the Service Master File, and cannot change a taxpayer’s address’ unless the ASO follows a certain procedure by which the ASO fills out a Form 2363 and sends it to Account and Processing Support (Doc. 22, paras. 4-7). (Emphasis added). The Commissioner showed that the ASO in petitioner’s case did not have access to the service master file and that the ASO did not attempt to utilize the procedure to change petitioner’s address by sending a Form 2363 to APS.” Order, at pp. 2-3)(Footnote omitted, but apparently only Appeals Technical Employees can prepare Form 2363, Master File Entity Change, and send it to Account and Processing Support, which alone can lay its hallowed hands upon the Service Master File).

“Petitioner disputes neither of these contentions.” Order, at p. 3.

I doubt that there exists any sane human being outside the guarded domain of the Master Service File who has the foggiest idea what this means, much less how to dispute it.

And here’s the formal statement.

“Clear and concise oral notification is a statement made by a taxpayer in person or directly via telephone to a Service employee who has access to the Service Master File informing the Service employee of the address change. In addition to the new address, the taxpayer must provide the taxpayer’s full name and old address as well as the taxpayer’s social security number, individual taxpayer identification number, or employer identification number. The Service employee must follow established procedures to verify the taxpayer’s identity. The Service employee also will inform the taxpayer that the new address, and not the former address, will be used by the Service for all purposes.

“Rev. Proc. 2010-16, 2010-19 I.R.B.664. (Emphasis added).” Order, at p. 4.

Brenda is out for lack of jurisdiction.

Exactly how anyone is supposed to know this is nowhere stated. So it’s up to you, practitioner.

Ya Still Gotta Do an Appraisal Joust

It’s been suggested that the extinguishment torpedo sinks the overvalued conservation easement without the need for “lengthy and expensive trials,” and therefore IRS should use same liberally (in a non-political sense, of course).

Well, that doesn’t happen in Glade Creek Partners, LLC, Sequatchie Holdings, LLC, Tax Matters Partner, 2020 T. C. Memo. 148, filed 11/2/20. Yes, the fixed-price ex-value of improvements clause in the deed sinks Glade Creek crew; the Coalholders, PBBM-Rose Hill, and Oakbrook are all in on the play. If you don’t know who they are, you’ve come late to the party, so check out the cites Judge Goeke gives you as set forth at 2020 T. C. Memo. 148, at p. 25, in the paragraph immediately preceding the following.

“The deed improperly subtracts any value attributable to posteasement improvements from the extinguishment proceeds before determining the Conservancy’s share. It does not properly allocate extinguishment proceeds to the Conservancy in accordance with the proceeds regulation. The proceeds regulation is not satisfied, and the easement’s conservation purposes are not protected in perpetuity. Glade Creek is not entitled to the easement deduction.”  2020 T.C. Memo. 148, at p. 25.

OK, so march out the Glade Creek crew, right? Except.

IRS wants the 40% excessive overvaluation chop. The Glade Creek crew syndicated a $17.5 million conservation easement deduction, plus a $35K charitable to the 501(c)(3) protector, preserver and defender of same. IRS nixes the whole, but the IRS appraiser gets shredded on the stand.

His appraisal “was nothin’ much before, an’ rather less than ’arf o’ that be’ind,” as a much finer writer than I put it. IRS’ appraiser’s “after” value uses a 10-yr old CA article. His “before” used a couple logging sites (hi, Judge Holmes), not homes, such as the predecessors to the Glade Creek crew were building before The Black ’08.

The Glade Creek crew had two (count ’em, two) appraisers, who both did a much better job, but still came in north of $16 million. Judge Goeke decides that residential development is the highest and best use. So he does a cost-benefit analysis that shows if he retires from Tax Court, he has a great future as cost estimator for a national homebuilder. He does an analysis of builder’s profit margin worth reading, 2020 T. C. Memo. 148, at pp. 49-52.

Judge Goeke concludes the easement, if properly drafted (which it wasn’t), would be worth north of $8 million. So the Glade Creek crew only gets the 20% overvaluation chop, not 40%. And IRS conceded any misstatement chop, so the 20% only applies to the overstatement above $8 million.

But they do get the $35K charitable to the 501(c)(3). That got paid in escrow at closing, but only got to the 501(c)(3) the next January. IRS says there must be unconditional delivery for a deduction to be taken. “Ordinarily, a charitable contribution is made when its delivery is effected. Sec. 1.170A-1(b), Income Tax Regs. When delivery is effected through an agent acting on behalf of the donee or donor, the critical question is whether the donor has relinquished dominion and control.” 2020 T. C. Memo. 148, at p. 26 (Citation omitted).

Enter our old chum, Reg. Sec. 1.170A-1(e), “so remote as to be negligible.” But IRS says the escrow agreement never got into the record, so must infer that it would show there were conditions.

“Under the circumstances of this case, we find such an inference unwarranted. Ministerial escrow tasks are generally not considered substantial limitations or restrictions on a taxpayer’s receipt of funds and are not conditions precedent of the type that precludes the transfer of control. The chance that the settlement agent would not pay the escrowed funds to the Conservancy was so remote as to be negligible. Once the funds were deposited into escrow, they were not under Glade Creek’s control. Glade Creek had directed their payment to the Conservancy and could no longer use or redirect the funds. We find that Glade Creek is entitled to deduct the $35,077 donation for [year at issue].” 2020 T. C. Memo. 148, at p. 28.

Judge, I’ve been escrowee enough times to know that no condition is “so remote as to be negligible,” especially where I would be liable for any erroneous payment. I once had to track some beneficiary down years after the closing to get fifteen grand out of my former firm’s escrow account, so we could settle up what was due to each of us when I left. They weren’t wrong, and neither was I.

Or the Electrons

Judge Gale has a designated hitter that makes my day. Laura B. Walker, Docket No. 3136-20S, filed 10/30/20, is regrettably unable to manage her own affairs, but I am grateful to her for the vindication of my long-standing campaign for recognition that a power of attorney is a piece of paper or a concatenation of electrons. It follows therefrom that the human being who is appointed by said paper or electrons is either a Representative (see Form 2848) or an agent (see, e.g., See 20 Pa. Stat. and Cons. Stat. Ann. secs. 5601.1, 5604(a) (Westlaw through 2020 Reg. Sess. Act 79)).

Laura B., prior to becoming so unable, appointed Kimberly Walker Fuller as her agent. Judge Gale elucidates.

“The Petition in this case was filed by Ms. Fuller, acting as petitioner’s agent, to seek redetermination of a deficiency determined for petitioner’s … taxable year. Attached to the Petition is a copy of a power of attorney authorizing Ms. Fuller to act as petitioner’s agent for a variety of purposes, including ‘[t]o pursue claims and litigation’ and ‘[t]o pursue tax matters’. The power of attorney also provides that it ‘shall not be affected by * * * [petitioner’s] subsequent disability or incapacity’, and that it is governed by Pennsylvania law.” Order, at pp. 1-2.

Here in NY we have something like this, but check your local laws for correct forms and nomenclature; as always, YMMV. BTW, an amendment to our statute has passed the Legislature, but somehow has failed of delivery to the Governor for signature. Given our State’s Byzantine legislative process, I’m not surprised.

Howbeit, IRS wants Judge Gale to extend Next Friendship to Kimberly. Judge Gale does a boot-scoot through Pa. Stat. and Cons State Ann., finding that the Penn’s Woods Commonwealth allows Kimberly to “‘…protest and litigate tax assessments’, ‘claim, sue for and collect tax refunds’, and ‘waive rights and sign all documents required to settle, pay, and determine tax liabilities’.” Order, at p. 2.

So Kimberly, formerly agent, is now next friend. But never Power of Attorney.

How’s that for a question on the next Tax Court admission exam? Under what circumstances can a State form of Power of Attorney authorize a non-admitted person to appear in Tax Court for another?

That’s Judge Buch’s view of the plight of Peter Hoskey, Docket No. 17570-19L, filed 10/30/20. Pete is up against it; he tried to take his grandchildren as dependents, IRS gave Pete a SNOD which he never petitioned, and he defaulted on the IA he entered into thereafter.

IRS gives Pete a NITL at no extra charge, which Pete CDPs claiming inability to pay, but provides no Form 433-A and doesn’t show for the phone conference or answer the last-chance letter. Appeals NODs the NITL, and Pete petitions Tax Court. Here’s Judge Buch’s off-the-bencher: “At trial, Mr. Hoskey testified about his efforts to provide information to the Commissioner and his current collectability status. Mr. Hoskey was, at some time, responsive to the Commissioner. It is likely that he was responsive during an earlier time, for example, when getting his installment agreement. But there is no evidence that he responded to the Appeals Officer during this collection proceeding. As for collectability, Mr. Hoskey had stopped making payments on his liability because he could no longer afford to do so.” Order, Transcript, at p. 6.

I have a certain amount of sympathy for Pete’s story. The old pilot’s Big Three “Aviate, Navigate, Communicate” is as true on the ground as in the air. First, don’t crash, fly the plane; second, find your way out of trouble; only then go on the air. But Appeals, even though independent of IRS, shares IRS’ proclivity to get peeved when ignored.

Pete’s tale gets sadder.”In the time since the Commissioner issued his notice of determination, matters have only gotten worse.  Mr. Hoskey had been earning income selling produce along the roadside. We glean from Mr. Hoskey’s testimony that his truck was impounded, and as a result, he lost that source of income. The result is that Mr. Hoskey remains unable to pay his liability or make the payments on the installment agreement.” Order, Transcript, at pp. 6-7. The Commissioner’s notice of determination? I thought Appeals was independent.

Howbeit, maybe so it’s time for Churchill. No, not Winston, although Judge Buch has nothing to offer Pete but blood, toil, tears, and sweat. I mean John L. Churchill, as to whom see my blogpost “Back to the Future,” 8/1/11, where John L.’s divorce earned him a remand back to Appeals.

“In limited situations, we can remand a case to appeals for further consideration even if the Commissioner did not abuse his discretion. One such instance occurs where a taxpayer has undergone a material change in circumstances after the Commissioner issued a determination. A material change in circumstances occurs when the taxpayer’s ability to pay has decreased such that Appeal’s determination would have differed had the circumstance been present at the time of the hearing.” Order, Transcript, at p. 10. (Citations omitted, but get them for your memos of law file).

Alas, that doesn’t help poor Pete. He was broke when he went to Appeals, so losing his truck and his produce-pushing gig makes him broker, but that isn’t remandable.

“In this particular case, Mr. Hoskey’s change in circumstances is not material under this standard. At the time Mr. Hoskey requested a collection hearing, he did not have the ability to pay the taxes owed. The Appeals Officer sustained the levy because Mr. Hoskey failed to provide the requested documentation substantiating his financial situation. If he could have afforded to pay and the subsequent loss of income made him uncollectible, this likely would have constituted a material change. However, Mr. Hoskey claimed to be unable to pay at the time he requested Appeals consideration, and his loss of income does not alter his claimed inability to pay. If he was uncollectible beforehand, his reduction in income does not change that material fact – that he was and remains uncollectible.” Order, Transcript, at pp. 10-11.

Pete could have requested CNC, but he provided no information, so the AO had nothing to go on. Pete can always go back to Appeals with documents in hand, and request CNC, but Judge Buch can’t give that to him on this record.

This is a classic case for a LITC, but Pete needs to be told to go to one.

Maybe the end of Daylight Time is causing judicial grumpiness at The Glasshouse On the Street Where Taxation Lives. I cannot tell, but something is causing the Tax Court Bar to be on the receiving end of a bunch rebukes (hi, Judge Holmes).

First, counsel for Mark Yagalla, Docket No. 12152-20L, filed 10/30/20.”… improperly filed a Redacted Petition in paper form. No motion to be exempt from electronic filing (eFiling) accompanied the paper filing.

“Petitioner’s counsel is reminded that eFiling is mandatory for most documents filed by parties represented by counsel. If petitioner’s counsel wishes to be exempt from the eFiling requirements, he must file a motion and show good cause why he should be exempt from eFiling. See Rule 26(b),Tax Court Rules of Practice and Procedure.” Order, at p. 1.

And of course Ch J Maurice B (“Mighty Mo”) Foley, apparently taking his text from Luke 11:52, tosses the paper.

Taishoff says said counsel could easily have become confused by reading all the orders where self-representeds had their electronic petitions tossed. And only the very old technophobes can gain exemption from electrofiling. See my blogpost “(Old) Technophobes, Rejoice!” 12/28/13.

Next, Beanstalk Computing, Inc., Docket No. 7850-20S, filed 10/31/20. It’s our old chum Form 6, a notorious stumbling block. Ch J Mighty Mo admonishes the Beanstalks thus: “…the Court directed petitioner to file an Ownership Disclosure Statement on or before October 5, 2020. To date, no such statement has been received by the Court, despite petitioner being represented by counsel. Petitioner is also reminded of the Court’s electronic filing (eFiling) requirements.” Order, at p. 1.

Taishoff asks exactly what purpose this document serves except to confuse self-representeds and some counsel, as 99% of the corporations coming into Tax Court are closely-held Sub Ss, which cannot have publicly-helds as shareholders, and 90% of such petitioners are not subsidiaries.

Finally, Parkerson Church Reserve, LLC, Stuckey Timberland, Inc., Tax Matters Partner, Docket No. 11686-20, filed 10/30/20. Here the object of Ch J Mighty Mo’s bawling-out is an associate in a well-known tax white-shoe, who, prior to shedding his lace-ups for slip-ons, served as an Honors Attorney in the IRS Office of Chief Counsel where he represented the IRS in Tax Court litigation as lead counsel and trial team co-chair.

Notwithstanding the foregoing and anything hereinabove or hereinbelow, express or implied, to the contrary or at variance therewith (as I’m sure said counsel and his high-priced colleagues would say), Ch J Mighty Mo observes said counsel’s miscue and responds like many a drill sergeant I had the dubious pleasure of encountering long ago.

“[Mr P.] improperly filed an Entry of Appearance as counsel for petitioners in paper form. An Entry of Appearance must be electronically filed. See Rule 26(b), Tax Court Rules of Practice and Procedure. The Entry of Appearance was not accompanied by a motion for exception from electronic filing. Accordingly, we will strike as improperly filed Mr. P’s Entry of Appearance.” Order, at p. 1. (Name omitted).

And he can file electronically if he wants to stay in.

A copy of this order goes to his firm. And to the client, of course. I expect the PIC (partner in charge) will receive The Phone Call.

I wonder if twenty pushups will follow. On the gravel-strewn Company Street.

From and including tomorrow, Friday, 10/30/20, The Glasshouse Gang will stop in-person acceptance of hand-delivered documents, until further notice.

Here’s the skinny.

The 1971 Rod Stewart-Martin Quittenton lament of the pool-playing schoolboy echoes in Judge Gale’s tale of Ram Ratan Sharma and Shakuntala Sharma, 2020 T. C. Memo. 147, filed 10/29/20. Ram and Shak are trying to deduct $27K of rental real estate losses, but fall foul of the Section 469(i) $25K stop-loss, to the extent of a $5230 deficiency, and a Section 6662(a) chop.

IRS concedes the chop, but Judge Gale sustains the deficiency.

Ram and Shak agree they’re not real estate pros, but they do actively participate in their real estating. Thus, they claim the $25K stop-loss.

” The $25,000 maximum exemption is subject to a phaseout that reduces the exemption by 50% of the amount by which a taxpayer’s “modified adjusted gross income” (MAGI) for the taxable year exceeds $100,000. See sec. 469(i)(3)(A), (F). Consequently, if a taxpayer’s MAGI is $150,000 or more, the Section 469(i) exemption is fully phased out. Spouses who have filed a joint return are treated as a single taxpayer for purposes of the MAGI calculation, and both spouses’ income therefore must be taken into account in calculating their MAGI.” 2020 T. C. Memo. 147, at p. 5. (Citations and footnote omitted, but the footnote says that the $27K Ram and Shak claim is over the $25K, so the $25K is the best they could get even if they’re right, which they’re not).

Ram and Shak want to exclude their IRA and pension income from their Section 469 MAGI. They claim the instructions to Form 8582 allow this, and attach a copy of said instructions for a year other than the year at issue. Judge Gale allows this, taking judicial notice that those instructions do not vary.

Except the instructions don’t allow deductions for contributions to IRAs, much less withdrawals. Ram and Shak didn’t make any such contributions; if they had, the amount thereof would only increase their MAGI, and hence their deficiency.

There has to be a Rule 155 beancount, because Ram and Shak overstated the Social Security they received, so they need a Section 86 recalculation, and thus yet another go-around with MAGI.

See the title at the head hereof.

Chasing mirages and searching for pots of gold at the ends of rainbows have nothing on trying Section 7482 interlocutory appeals. The statute says it’s available; caselaw proves it isn’t. Case in point: Frederick Howe & Bonita A. McVaugh-Howe, Docket No. 29743-14, filed 10/29/20.

Quick man-‘splain from Judge Kerrigan: “Section 7482(a)(2)(A) provides that a Court of Appeals, upon a timely request by a party to litigation in this Court, may permit an immediate appeal of an interlocutory order of this Court when it contains a statement that a controlling question of law is involved with respect to which there is a substantial ground for difference of opinion and that an immediate appeal from that order may materially advance the ultimate termination of the litigation. Each of these three grounds must be met before we certify an interlocutory order for immediate appeal.” Order, at pp. 1-2. (Citations omitted).

The usual rule is one can appeal only from final judgments, that decide the case “and leave not a rack behind,” as a far better writer than I put it. Here, there’s still plenty of stuff; see my blogpost “Estopped to Estop,” 6/8/20.

Boni was out of the case by virtue of innocent spousery, so Fred is on his own here, with an $8 million deficiency and chops proportional.

There has to be a substantial variance of opinion on a legal issue essential to the case. Here, it’s a question whether an 872-AD is a contract like a Section 7122 closing agreement, and the caselaw says it isn’t, nemine contradicente as my high-priced colleagues would say.

Walt Whitman has certainly given me the gift that keeps on giving. My “electronic” takeoff of his leaf of grass is now in its fourth year, with no end in sight (groans from my readers).

Today, that obliging jurist Judge David Gustafson obliges me and Rashida Vance McNeil, Docket No. 14472-19, filed 10/29/20, with a pretrial checklist for the Zoomgov age. Technology provides that, although “Each degree of Latitude, Strung about Creation, Seeth one or more of us,” as a far better writer than I put it, we all can gather for a Zoomie-based teletubby.

But to make it work, here’s what y’all need to do, as Judge Gustafson advises Ms McNeil in a phoneathon.

“…the Court…instructed her to review any draft stipulation of facts that the Commissioner proposes, to propose any necessary corrections, and to cooperate with the Commissioner’s counsel in filing a joint stipulation of facts timely. The Court also gave instruction to Ms. McNeil to immediately share with her opponent any documents that she will offer into evidence at trial. The Court reminded her that any non-stipulated exhibits are also due to be filed on Monday, November 2, 2020, so that her opponent can see them in advance of trial and so that the documents can be accessed by the parties and the Court during the remote trial proceedings.” Order, at p. 1.  

And don’t forget the pretrial memorandum. Apparently Ms McNeil has, and that does not bode well. “The Court noted that one important aspect of the pretrial memorandum is its identification of any witnesses that the parties expect to call. The Court observed that this information is overdue and urged Ms. McNeil to promptly notify [IRS’ counsel] of any witnesses and to prepare for the witnesses’ participation in the video proceeding.” Order, at pp. 1-2.

Finally, make sure your laptop has a video camera, and show up for the Zoomgov dry run.