STJ Panuthos finds that Dale W. Laue and Alicia Laue, 2020 T. C. Sum. Op. 14, filed 4/20/20, unlike Rudy Kipling’s hero Exeter Battleby Tring, is not exempt from the Law of Fifty and Five.

The Law of Fifty and Five for STJ Panuthos is Section 72(t)(2)(A)(v). That says that distributions from a qualified retirement plan (in this case Dale’s pension from his ex-employer) are exempt from the 10% whatever-it-is if “made to an employee after separation from service after attainment of age 55.”

Dale got laid off years before, but thirteen (count ‘em, thirteen) years thereafter, he took a lump-sum pension payout from the successor to his former employer.

Y’wanna hear a hard-luck story? I’ve heard ‘em by the bushelbasketful, but Dale‘s is a first-class bummer. Ya see, Dale got the $25K payout and cashed the check when he was 59, but not yet 59-1/2.

I know what I would have told Dale if he’d asked me before, but I will keep that to myself. And I’m sure in such case my readers (if any) will shoot out their lips and wag their heads, saying nothing.

But STJ Panuthos must go by the letter of the law.

“When we interpret a statute, our purpose is to give effect to congressional intent. To accomplish this we begin with the statutory text, which is the most persuasive evidence of the statutory purpose. Statutory text is ambiguous where ‘the ordinary and common meaning of the statutory language supports more than one interpretation’. Where ‘statutory language is ambiguous, * * * we may consult legislative history to assist us in interpreting the language in question.’ We may also consult a statute’s history to assure that a plain meaning application of the statute’s text does not ‘thwart the purpose of the overall statutory scheme or lead to an absurd or futile result.’” 2020 T. C. Sum. Op. 14, at pp. 5-6. (Citations omitted).

The Conference Report lays it out: “In all cases, the exception applies only if the participant has attained age 55 on or before separation from service. Thus, for example, the exception does not apply to a participant who separates from service at age 52, and, pursuant to the early retirement provisions of the plan, begins receiving benefits at or after age 55.” H.R. Conf. Rept. No. 99-841 (Vol. II), at II-456 to II-457 (1986), 1986-3 C.B. (Vol. 4) 1, 456-457.” 2020 T. C. Sum. Op. 14, at p. 6.

Poor Dale, who was laid off at age 46, is clearly not exempt from the Law of Fifty and Five.

To Jorge Castillo, Docket No. 19507-19, filed 4/20/20, who asserts entitlement to relief from the 90 day bar to his petition from a SNOD per Section 7508(a)(1)(c) because he was situated as above set forth on the magic ninetieth day, I can only respond “as you were then, so was I once.”

But though Ch J Maurice B (“Mighty Mo”) Foley is sympathetic, he rules that boot camp in South Carolina is not sufficiently a combat zone or a contingency operation to warrant statutory relief.

“I.R.C. section 7508(a)(1)(C) extends the time to file a Tax Court petition with respect to a notice of deficiency if an individual is in military service in a combat zone or contingency operation. Nothing that petitioner submitted has established that I.R.C. section 7508(a)(1)(C) is applicable to this particular case.” Order, at p. 2.

Judge, there were times I couldn’t tell the difference. I bet Jorge feels the same way. Jorge, good luck, man.

This COVID-19 business has upended whatever I thought was normal heretofore. I had no idea that Judge Albert G (“Scholar Al”) Lauber, MA Clare College (Cantab.), was also familiar with Blues Traveler’s 1994 hit off the bat of John Popper.

Lest Francis I. Spagnoletti, Docket No. 10204-19L, filed 4/20/20, think he’s being given the runaround, Judge Scholar Al gives Francis some good advice.

Francis’ response to IRS’ motion for summary J was due the day after Tax Court locked down last month. Both before and after lockdown, Francis asked IRS’ counsel for more time.

“…respondent filed a status report in this case. In his report respondent’s counsel represents that petitioner contacted him… to request extensions of time to file a response to the Motion for Summary Judgment. Although petitioner apparently mailed extension requests to the Court, we were unable to process those incoming documents. Respondent does not object to granting petitioner an extension of time.” Order at p. 1.

After suggesting that Francis get electronic, Judge Scholar Al, aware that these resources are not yet universally available, gives Francis the means to do as the headline hereof suggests.

“If petitioner is unable to register for eAccess and file his response electronically before that date, he shall contact the chambers administrator for the undersigned, X@ustaxcourt.gov…, and explain the situation. If petitioner is unable to contact the chambers administrator for the undersigned by email, he may leave a voice message for her at 202-521-xxxx. Petitioner is advised that he may NOT file documents with the Court by email.” Order, at p. 2. (Name and number omitted).

Takeaway for the technophobic and tech-disabled: Read and heed.

My colleague and pleasant luncheon companion, Peter Reilly, CPA, in the past has gently chided me for my “dated pop culture references.” See his response to my blogpost “Days of Our Lives,” 1/13/20. I regret I must once more try that gentleman’s patience in that direction, without even being able to offer the balm of paying for lunch at Legal Seafood at Harborside, or the Union Oyster House in his hometown. Being confined to quarters at Firebase Taishoff, and doing fatigue duty receiving resupplies from Amazon and other online supply depots via USPS and UPS (and my deepest thanks to the warehouse crews, deliverypeople, and essential retail staff, including without limitation one of my nearest and dearest; ladies and gentlemen, stay safe, stay strong!), I cannot oblige.

I can only beg that Mr. Reilly will, for the moment, take the will for the deed, until I can substitute the deed, when the lights go on again all over the world.

Today is Friday, so no opinions. But Judge Albert G (”Scholar Al”) Lauber is not one to let a pandemic wither or stale his trusty word processor, as this Friday he echoes the immortal words of Sergeant Joe Friday: “Just the facts, ma’am.”

Scholar Al gifts the eager blogger with a designated hitter, Little Horse Creek Property, LLC, Little Horse Creek, LLC, Tax Matters Partner, Docket No. 7421-19, filed 4/17/20.

Now when I see stacked LLCs, with cutesy, outdoorsy names, I see Section 170 conservation easements, Swiss cheese cutouts, the rule for perpetuity, and IRS seeking summary J.

Judge Scholar Al and the parties don’t disappoint me. IRS wants a stay of discovery pending order on its summary J motion. Neither Tax Court Rules nor FRCP 56 grants an automatic stay, unlike our New York Civil Practice Law and Rules Section 3214(b). But that doesn’t deter IRS.

The Little Horses object, claiming “…that responses to its First and Second Requests for Admissions will support its defense against respondent’s Motion for Partial Summary Judgment and will support a potential cross-motion for summary judgment on one or more issues.” Order, at p. 2.

Judge Scholar Al is interested in the donor improvements issue. The deed of easement here contains the much-contemned language exempting the worth of donor improvements post-easement from the all-proceeds-of-extinguishment-to-the-501(c)(3) required clause. See my blogpost “The Old Texas Maxim,” 2/5/20, for some backstory.

Still, maybe the Little Horses can stave off the Boss Hoss’ chops. So Judge Scholar Al throws the Little Horses out onto the trail.

“In considering the donor improvements issue, it would seem desirable to have all relevant material before the Court at the same time, to enable the Court to determine (among other things) whether there exist any genuine disputes of material fact. Accordingly, we will deny respondent’s Motion to Stay Proceedings insofar as respondent seeks to be relieved of the duty to respond to petitioner’s First and Second Requests for Admissions, previously filed.” Order, at p. 2.

However, the Little Horses don’t have free rein.

“We will grant respondent’s Motion to Stay Proceedings insofar as he seeks to defer other forms of discovery until after the Court has disposed of respondent’s Motion for Partial Summary Judgment and any cross-motion that petitioner may file on the donor improvements issue.” Order, at p. 2.

Mr. Reilly, I hope to see you very soon.

Unlike the magnificent start to creation, Henry C. Williams and Sonja L. Johnson, 202 T. C. Memo. 48, filed 4/16/20, find that the expenses of beginning one’s own business can only be amortized over 15 (count ‘em, 15) years, and then commencing in the year when the business becomes a going concern. Those expenses are not deductible in year when paid or incurred.

Judge Vasquez: “To qualify for deduction under section 162 or 212, expenses must be associated with a trade or business or other income-producing activity that is functioning as a going concern. Although a taxpayer may be committed to entering into a business and invest considerable time and money in preparing to do so, the activity does not constitute a trade or business for section 162(a) purposes until the business is actually functioning and performing the activities for which it was organized. Business operations with respect to the activity must have actually commenced.” 2020 T. C. Memo. 48, at p.18. (Citations omitted). So nothing doing until something is doing.

And when something is doing, here’s how to deal with those expenses.

“However, under section 195(b)(1)(A), a taxpayer may elect to deduct for the taxable year in which the active trade or business begins up to $5,000 of startup expenditures, reduced by the amount by which those expenditures exceed $50,000. The remainder is allowable as a deduction ratably over the 180-month period beginning with the month in which the active trade or business begins. Sec. 195(b)(1)(B). This election must be made no later than the time prescribed for filing the return for the taxable year in which the trade or business begins. Sec. 195(d)(1). Section 1.195-1(b), Income Tax Regs., provides that a ‘taxpayer is deemed to have made an election under section 195(b) to amortize start-up expenditures as defined in section 195(c)(1) for the taxable year in which the active trade or business to which the expenditures relate begins.’ A taxpayer may forgo this deemed election by affirmatively electing to capitalize startup expenditures on a timely filed return for that year. Sec. 1.195-1(b), Income Tax Regs.” 2020 T. C. Memo. 48, at p. 19. (Footnote omitted; it deals with years for which the election can be taken).

Henry’s testimony that he really looked hard for business to buy is entirely believable, but that just means he was really starting a business.

When one acquires a new business, as Henry ultimately did, one pays for goodwill among other things. Henry claims the insurance business he bought was all goodwill, as the other assets were almost worthless. Section 197 gives a 15-year writeoff similar to start-up costs, and again Henry’s credible testimony carries the day. I myself have found that sales of service companies generally involve assets that walk out the door every evening, namely “an established staff with extensive knowledge of the customer base, the accounts, and other aspects of the business.” 2020 T. C. Memo. 48, at p. 30. Of course, a one-man band like Harold Schmeets is another story, for which see my blogpost “His Name Is His Fame,” 10/15/12.

There’s the usual Section 274 insubstantiation for a lot of Henry’s expenses, a Section 72 10% whatever, and IRS does some major folderoos. But nothing that need long detain the tourist.

For the Content of this Blog

This being a non-political blog, I restrict the caption hereof to this blog. When I am wrong, I admit it, as I did this morning, and correct the error.

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I needed something to fill space on a day when there are no opinions, no designated hitters, and 247 (count ‘em, and I did, 247) orders, none of which is worth blogging.

RTWFS

My breakfast this morning consists of a large helping of crow.

I apologize to Judge David Gustafson. I cited the wrong statute yesterday in my blogpost “A Different Kind of Blower,” 4/14/20.

I read Section 62(a)(21) instead of 62(a)(20). I looked at the caption of the latter enactment, not the statute itself. The caption ”Costs involving discrimination suits, etc.,” should have warned me. “Et cetera” is a warning to look closely.

Congress, like another ruler long ago, has dealt cunningly. Tucked away in the middle of the enactment is this gem. “Any deduction allowable under this chapter for attorney fees and court costs paid by, or on behalf of, the taxpayer in connection with any action involving a claim of… a violation of subchapter III of Chapter 37 of title 31, United States Code….”.

I should have to write 500 times “Read the Whole Statute.” The “F” is for emphasis.

Haste makes waste. Deadlines are no excuse for sloppiness. Sorry, Judge.

You remember Pengcheng Si, Docket No. 18748-18, filed 4/14/20, got his trial. No? How come? Well, see my blogpost “‘Too Soon Arrives As Tardy As Too Late’ – The Next Generation,”1/20/20.

But Pengcheng lost. After a bench trial, Judge David Gustafson obliged IRS (but not Pengcheng) by tossing his deductions for “other expenses”, “meals and entertainment”, and “legal and professional services”. Order, at p. 1.

Now Pengcheng wants reconsideration of the last of these. $19K of legals, he says, was paid in connection with his whistleblower case. You’ll note there is no “W” in Pengcheng’s docket number. Pengcheng blew under 31 USC 18 (sic) Section 3730, the Civil War qui tam False Claims Act. Has nothing to do with taxes.

But his whistleblower case got tossed with no recovery three years after the year at issue, wherein Pengcheng claimed the $19K.

And Judge Gustafson states the rule for False Claims is the same as Section 7623 whistleblowing: “No dough, no go.” Only Judge Gustafson is a lot more elegant than I.

“Neither Mr. Si’s motion for reconsideration nor his reply in support of that motion cites or discusses the controlling statute, section 62(a)(20) of the Internal Revenue Code (26 U.S.C.), nor suggests any reason that it does not have the effect stated in our bench opinion.” Order, at p. 2.

Judge, with submission, Section 62(a)(20) only mentions legal fees in connection with awards under section 7623(b), or, in the case of taxable years beginning after December 31, 2017, any action brought under section 21F of the Securities Exchange Act of 1934 (15 U.S.C. 78u–6), a State false claims act, including a State False Claims act with qui tam provisions, or Section 23 of the Commodities Exchange Act (7 USC 26).

Pengcheng didn’t mention a statute that clearly on its face doesn’t apply.

Privilege characters, that is, those whose studies of evidentiary rules concentrate on evidentiary privileges, such as client-attorney and governmental deliberative privilege, and 6103 confidentiality, will find Thomas Shands, Docket No. 13499-16W, filed 4/14/20, a mine of DC Cir and allied learning on those topics.

STJ Diana L. (“Sidewalks of New York”) Leyden has outdone herself. As set forth in the above-cited, she ordered the parties to do simultaneous memoranda of law on DC Cir’s take on client-attorney privilege in light of the 61 (count ‘em, 61) Ogden Sunseteers who could peek at the info on e-Trak, and the impact of Section 6103(k)(13)’s bukh to blowers provision. Y’all will recall STJ Di’s interest in Section 6103(k)(13) from my blogpost “Taxpayer First,” 8/2/19.

Spoiler alert: the parties agree Section 6103(k)(13) plays no role here. Notwithstanding anything otherwise or to the contrary hereinabove set forth, as my high-priced colleagues would say,  STJ Di dishes on all of it in 23 pages.

A quick summary follows, but you privilege characters will want to read and heed in depth, grabbing citations for law review articles, memos of law and casual conversazioni.

No problem with the 61 peeking at e-Trak, IRS’ case management system. “The Court finds that the number of employees who could have accessed the e-Trak system does not, in and of itself, defeat the confidentiality of the communications in the e-Trak system. Further, the Court finds that the system for obtaining authorization to access the information along with the penalties for willfully accessing information that is not authorized assures that the persons who accessed the e-Trak system entries were assigned to process petitioner’s claim and, therefore, needed to know the information, and that the communications were not transmitted outside the WBO.” Order, at pp. 8-9.

If you’re interested in waiver of client-attorney, STJ Di has something for you. “Assuming, without finding, that the application of the attorney-client privilege would deny petitioner access to information vital to his appeal, petitioner has failed to prove the first two conditions required to establish respondent impliedly waived the privilege. Respondent has not asserted the attorney-client privilege as a result of an affirmative act, such as filing suit or asserting an affirmative defense, nor has respondent through an affirmative act put the protected information at issue by making it relevant to the case.” Order, at p. 9.

And deliberative privilege gets a going-over from STJ Di. “Petitioner has not asserted that his need for disclosure outweighs the harm that disclosure may do to intragovernmental candor.

“As to petitioner’s assertion that respondent engaged in misconduct, the Court finds that petitioner has not shown that the WBO engaged in misconduct. The length of time respondent took to make a determination of petitioner’s claim is not, in and of itself, evidence of misconduct. Therefore, the Court does not find any basis not to apply the deliberative process privilege claimed by respondent….” Order, at p. 13.

And STJ Di has an extra. When information, and not paper or electrons, is sought, use interrogatories, not document production demands. See Order, at pp. 18-19.

Although STJ Di says the parties agree Section 6103(k)(13) plays no role here, she has plenty to say about Section 6103(h)(4)(B). This enactment lets IRS dish about matters directly related to a judicial proceeding.

“Section 6103(h)(4)(B) does not define ’directly related’. The legislative history of section 6103(h)(4)(B) indicates that it was created to provide a limited exception to the general nondisclosure rules for a taxpayer who is seeking to resolve his or her tax liability but only with respect to the treatment of an item reflected on the return being sought that was directly related to the resolution of the taxpayer’s tax liability.” Order, at p. 15.

Contrast this with Section 6103(h)(2)(B). STJ Di does, and comes up with this.

“’By using “directly” to modify “related to” language in § 6103(h)(4)(B), Congress intended an even narrower exception to apply for disclosure to members of the public in judicial proceedings’. In re United States, 669 F.3d at 1338. Therefore, the Court declines to adopt petitioner’s assertion that evidence that may be relevant and lead to admissible evidence would be directly related to petitioner’s issue. Rather, the Court examines the documents to determine if they are directly related to petitioner’s claim that information he provided in connection with the prosecution of the targets was the basis for the IRS to create the 2011 OVDI program and what spurred the unnamed taxpayers to file under that program for the period noted.” Order, at p. 16.

Of course, there’s more, but I don’t want unduly to try the patience of the unprivilege characters who may stumble upon this my blog.

I expect whatever readership I have left is as tired as I am of the endless mantra “those who need it won’t read it, and those who read it don’t need it.” But I will plod on, however Sisyphean my labors.

Vox clamantis in deserto, as they say around Hanover, NH.

Jason E. Shepherd, 2020 T. C. Memo. 45, filed 4/13/20, learned the lesson above-captioned from STJ Daniel A (“Yuda”) Guy, but it comes too late and the tuition is very high, $165K in TFRPs from the ambulance company of which Jason was CEO, hence Section 6672 “responsible person.”

Jason never got the Letter 1153 pay-up notice. He did send in Form 12153 when he got the NITL. And he got an Appeals review, at which he was placed in CNC. But Jason never mentioned doubt as to liability.

The readership above-mentioned will now say “And we can stop here.”

But I must go on. Jason’s circumstances bettered, he submitted an OIC of $1.00 based upon doubt as to liability. That got kicked, so he went to Appeals. Appeals said his liability might be reduced if he withdrew the OIC, which he didn’t. So IRS gave Jason a NFTL, which he took up to Appeals. Appeals said you had your chance to contest, and you blew it.

STJ Yuda: “Although petitioner did not receive a notice of deficiency, the Appeals Office determined that he nevertheless had an earlier opportunity to challenge his liability for the TFRPs within the meaning of section 6330(c)(2)(B) and consequently was barred from reasserting that claim in the administrative proceeding concerning the lien at issue.

“Respondent maintains that petitioner had two prior opportunities to contest his liability for the TFRPs. First, when he obtained Appeals Office review of the notice of intent to levy issued to him in 2013, and a second time in 2016 and 2017 when he submitted his OIC in respect of the TFRPs.” 2020 T. C. Memo. 46, at pp. 10-11. (Footnotes omitted, but one says there is no SNOD for TFRP, and the second says the first go-round, when Jason got CNC, was a real chance to contest liability).

The Letter 1153 was mailed to Jason’s last known address by certified mail, so his not getting it doesn’t matter. And the RO in that case got Form 4183 signed off by her Boss Hoss before the Letter 1153 issued.

NOD and NFTL sustained.

When first you go to Appeals, lay out everything but officially-noticed frivolities. Don’t think you’re going to win if you get CNC; that’s only temporary. Your first chance is your only chance, so let it all hang out.