Lockdown or no lockdown, the hard-laboring clerks at The Glasshouse on Second Street are pumping out those T. C. Memos. and designated hitters today.

So I’ve plenty on my plate, a veritable embarras de richesses. I already beat the throw by blogging Kent Trembly, Docket No. 25068-17L, filed today, before the hard-laboring clerks could get it on the designated hitter list. See my blogpost “Time Sensitivity,” 4/13/20.

Zaid Hakkah and Layla Naji, 2020 T. C. Memo. 46, filed 4/13/20, is just another unsubstantiated Section 469 real estate pro try. But for one of Judge Tamara Ashford’s classic observations, I’d give it a pass.

But this is too good to pass up.

“At trial petitioners discussed how Mr. Hakkak had health problems during the years at issue, and Mr. Hakkak testified that he worked as an attorney only from “12 to three” about “two times a week”. However, despite these claims Mr. Hakkak still managed to have income of $449,437 in [Year One] and $81,777 in [Year Two] from the practice of law… and petitioners did not produce any calendars or timesheets related to Mr. Hakkak’s legal work because he apparently had no such records.” 2020 T. C. Memo. 46, at pp. 18-19.

I wish I could do what he done.

Section 481 undermines SOL when a Section 446 change in accounting method (imposed by IRS) causes a rollback to closed years. For Gary Pinkston and Janice Pinkston, 2020 T. C. Memo. 44, filed 4/13/20, even having seven (count ‘em, seven) lawyers to contend with IRS’ two, cannot defeat the inexorable slugfest that IRS’ reallocation between nondepreciable land and depreciable improvements thereto wreaks on their island paradises.

Gary and Janice own a couple Hawaiian rental properties (hi, Judge Holmes). They have to use Section 168 MACRIS depreciation, so they load up the improvements and downplay the land. My former (I stress the word “former”) clients would describe this as “mach gresser, mach veyniger.”

Well, Judge Albert G (“Scholar Al”) Lauber isn’t impressed.

“Section 481, captioned ‘Adjustments required by changes in method of accounting,’ was enacted as part of the 1954 Code. It applies in situations where a taxpayer’s income for a particular year (the ‘year of change’) is computed ‘under a method of accounting different from the method under which the taxpayer’s taxable income for the preceding taxable year was computed.’ In that event section 481(a)(2) provides that ‘there shall be taken into account those adjustments which are determined to be necessary solely by reason of the change in order to prevent amounts from being duplicated or omitted.’” 2040 T. C. Memo. 44, at pp. 8-9.

Even though Section 481 has been criticized as “codified confusion,” the Courts, says Judge Scholar Al, have concluded that if prior (closed) years couldn’t be adjusted after the year of change, the statute would be virtually useless. And duty of consistency doesn’t o’ercrow the powers of Congress.

The tests for a change in method are materiality of the item and prior consistency of treatment. Well, Gary and Janice certainly were consistent over the time they owned each of their paradises. And depreciation is certainly a timing issue: if they depreciate their basis quickly, when they sell or dispose, basis lower, so their gain is greater; if depreciate slowly, basis higher, gain less. And timing issues are material.

What we have here is a change in MACRIS classes for improvements and timing of deductions. These trigger both the reporting of income and the allowance of deductions. And Gary and Janice will still recover their allowable cost bases; the only question is when and how.

Gary and Janice (and their seven lawyers) argue that IRS didn’t change their method, only the characterization of their deductions.

“Changes that affect whether, as opposed to when, an item is includible in (or deductible from) gross income generally do not implicate changes of accounting method.

“Here, it is far from clear that respondent’s basis reallocations are aptly described as involving ‘characterization’ of petitioners’ real estate. But even if they do, it would not matter. Because the IRS has initiated changes only in the timing of petitioners’ cost recovery, it makes no difference whether the changes coincide with or result from a change in character.” 2020 T. C. Memo. 44, at p. 16.

Reg. Section 1.446-1(e)(2)(ii)(d)(1) applies to Section 168 (MACRIS) property, and depreciation or amortization of same. True, the same Reg. also takes Section 167 property out of change-in-method, as far as “useful life” calculations are concerned. But what Gary and Janice have is Section 168 property, and therein are found specific statutory useful lives.

And there are no changes in underlying facts that might confine change-of-method to year of change.

But all Judge Scholar Al decides is that Section 481 is in play. Whatever other beeves exist between Gary and Janice, and IRS, are for another day.

Just the other day we saw Steve Mnuchin and the Treasury Munchkins giving everybody Corona-induced temporal distancing in Notice 2020-23, 4/9/20. But note well that Tax Court motion practice is apparently not subsumed within the mantle of Specified Time-Sensitive Actions. And if your motion required action before 4/1/20, Notice 2020-23 won’t help you, even if your trial got pushed off to the indefinite future.

Kent Trembly, Docket No. 25068-17L, filed 4/13/20, is caught up in the Twilight Zone of Corona. It’s really Kent’s trusty attorney, whom I’ll call Howie, who is involved.

Kent’s response to IRS’ motion for summary J, pre-supplement, was due last month. IRS supplemented four (count ‘em, four) days before Howie’s due date. But five days after due date, Howie not having responded to IRS’ motion, supplemented or unsupplemented, Judge Gale called off Kent’s trial because Corona.

“Petitioner was already delinquent in responding to the Motion for Summary Judgment when the Cancellation Order was served on him and to date petitioner has not filed a response.

“The Court surmises that petitioner’s counsel assumed that cancellation of the trial setting relieved petitioner of any obligation to respond to the Motion for Summary Judgment. However, the Cancellation Order provides: “The Court expects that the parties will continue to * * * work towards a resolution of the issue(s) in this case.” In the procedural posture of this case, that work includes resolution of the pending Motion for Summary Judgment. In these circumstances, the Court will exercise its discretion to waive any consequences of petitioner’s failure heretofore to respond to the Motion for Summary Judgment, see Rule 121(d) (last sentence), Tax Court Rules of Practice and Procedure, and instead extend sua sponte the date by which petitioner shall respond to the Motion for Summary Judgment, as supplemented.” Order, at pp. 1-2.

Takeaway- Unspecified Time-Sensitive Paperwork goes on.

And one more thing. IRS’ latest game of supplementing a motion for summary J a couple days (hi, Judge Holmes) before the date-certain cutoff for petitioner’s response is dirty deck tennis. If the original motion is incomplete or defective, IRS should move to withdraw and refile, or ask the Court in the supplement to give petitioner or counsel additional time to respond. The present system wrong-foots petitioners and their counsel, who may have spent hours working up a response, only to find their work nullified by the “supplement,” with no time to respond adequately. I called out one IRS attorney in my blogpost “Play Nice or Go Home,” 3/20/20. Now I’m calling out Lisa Kathryn Hunter, Esq.  And most respectfully suggesting Judge Gale do as Judge David Gustafson did in my blogpost aforesaid.

Back in January, in what now seems like another world since lockdown brings to mind Goethe on the battle of Valmy in 1792 (“Today a new world begins”), I lamented (off-blog) the death of Bob Shane, the last of the original Kingston Trio.

So as I scanned the website roster of USTC Judges and saw all the slots were filled, I remembered the Hawes-Steiner lament that Bob and his buddies sang so long ago.

Judge Mark V (“Quirky”) Holmes isn’t coming off senior status. There’s no room in the inn at the Glasshouse. I’d love to be proven wrong, but I doubt I am.

My comments on appointments to the Federal Judiciary, regrettably but necessarily political, are expressed elsewhere.

Reste tranquille, enfants de la patrie, your national holiday hasn’t changed, but Steve Mnuchin and the Treasury Munchkins have extended more than the due date of your 1040NRs, and that of the 1040s of the rest of us.

Here’s Notice 2020-23, 4/9/20, with good news for the dilatory, quarantined and isolated who are trying to petition, or otherwise wet-ink via snail mail or PDS, the Glasshouse Gang, while the Glasshouse Gang aren’t receiving mail.

“Affected Taxpayers also have until July 15, 2020, to perform all Specified Time-Sensitive Actions, that are due to be performed on or after April 1, 2020, and before July 15, 2020. This relief includes the time for filing all petitions with the Tax Court, or for review of a decision rendered by the Tax Court, filing a claim for credit or refund of any tax, and bringing suit upon a claim for credit or refund of any tax. This notice does not provide relief for the time period for filing a petition with the Tax Court, or for filing a claim or bringing a suit for credit or refund if that period expired before April 1, 2020.” Notice, at p. 8.

An Affected Taxpayer is any person (see Reg. Section 7701(a)(1)) who has or had to file a return or anything else on or after 4/1/20 and before 7/15/20, and who is covered under the current COVID-19 emergency declaration of 3/13/20.

My colleague Peter Reilly, CPA, asked why I hadn’t blogged this. I’d seen the Notice, but I thought the blogosphere and the trade press would be all over this.

The weekly IRS e-news for tax professionals hasn’t hit my inbox yet, and I had expected that e-news would have tipped off everybody. Apparently not.

Thanks again, Mr Reilly. Stay safe, stay strong, and the rest of you go and do likewise.

Edited to add: Of course, even if the clock ran, one could always try equitable tolling. See my blogpost “For Whom The Equitable Tolls,” 4/9/20.

Further edited to add: But the explicit Section 6213 language, with the stay of collection, makes the 90-150 day limitation on petitioning a SNOD jurisdictional. Likewise Section 6015(e)(1)(A) slams the ninety day-six month door on innocent spousery. Yet maybe, just maybe, Sections 6320 and 6330 lien-levy CDP petitions might could slide under the tag. See Myers DC Cir opinion at p. 20: “Although this Circuit is the first to decide whether Section 7623(b)(4) is jurisdictional in nature, we recognize that our holding is in some tension with that of another circuit regarding a similarly worded provision of the Internal Revenue Code 26 USC §6330(d)(1).” But DC Cir says notwithstanding other learning, including our old pal Guralnik, the statutory language is the same for petitions from NODs in CDPs as for whistleblower NODs. Of course, watch out for statutory stay language in Section 6330(e)(1); that’s a tripwire for a landmine that might blow your case sky-high. So ya pays yer money and yer takes yer chances.

I don’t generally (love that word!) follow Tax Court cases on appeal to the USCCAs. I leave that to the blogosphere and the trade press. They have the personnel and time to keep watch over that flock by night and day.

But today Judge Tamara Ashford has gotten David T. Myers, 2151-15W, filed 4/10/20 back from DC Cir on R&R, and that’s no holiday package. It’s Reversed & Remanded. All my readers (dwindling in numbers each day under the brunt of COVID-19) will remember David T as an epistolary warrior with the Ogden Sunseteers over the opacity of their purported shootdowns.

If you don’t, then see my blogpost “Forms and Letters,” 6/5/17.

Well, last year DC Cir decided that the Section 7623(b)(4) thirty-day cutoff to petition an OS shootdown is not jurisdictional, and maybe so David T, an humble pro se, should get the benefit of equitable tolling. Equitable tolling means SOL affirmative defense doesn’t bar a claim in cases where the petitioner, despite use of due diligence, could not or did not discover the injury until after the expiration of SOL. Like the sponge left in the patient cases.

And even though Section 7623 is not overly protective of blowers, which is one of the usual standards, “(T)hat the whistleblower statute is not unusually protective of claimants is the only consideration on the IRS side of the ledger. Without more, we are not persuaded to set aside a presumption that has been so consistently applied. See e.g., Young v. United States, 535 U.S. 43, 49 (2002). ‘It is hornbook law that limitations periods are subject to equitable tolling.’ (cleaned up).” Myers v. Com’r, No. 18-1003, filed 7/2/19 (DC Cir), at p. 22.

So now Judge Ashford would like to hear what the parties have to say.

What a lovely silt-stir this will create. I wish the Senate would get Judge Holmes back with the juniors, so he and Judge David Gustafson could provide me with more good blogfodder, while I couch-potato my way through the viral impasse.

We New York dirt lawyers well know the provisions of Article 14 of our Real Property Law, the Property Condition Disclosure Act. That enactment requires a seller of residential real property to give the purchaser a property condition disclosure statement (the “PCDS” referred to hereinabove, as my sequestered-in-style colleagues would say), or pay a mulct in lieu thereof.  A NY PCDS goes into exhaustive and exhausting detail about every condition of the property, inside and out, and is the buyer’s blueprint for a lawsuit. My form contract of sale awards the buyer the 500 Georges the statute requires, doesn’t represent that today is Thursday, and wishes the buyer a soldier’s farewell.

I don’t know if CA has a like mulct for non-compliance, but the sellers sure should have paid it, in Charles P. Littlejohn And Maxine M. Littlejohn, 2020 T. C. Memo. 42, filed 4/9/20.

This is another unsubstantiated deductions case. But I found it so reminiscent of single-family house purchases I’ve seen, or heard about. Charles and Maxine claim they were defrauded and robbed when their MacMansion fell apart.

Charles “…has a law degree and previously taught law at the Southern California Institute of Law in Santa Barbara.” 2020 T. C. Memo. 42, at p. 3. Ex-Ch J Michael B (“Iron Mike”) Thornton doesn’t say what Charles taught, but somehow I doubt that real property, tax, and trial techniques were on the menu.

There’s some back-and-fill about deductions for the two rental jobs Charles ran for Maxine, but given “the voluminous materials petitioners have provided,” 2020 T. C. Memo. 43, at p. 19, ex-Ch J Iron Mike manages to Cohanize a few kopeks for Charles over what IRS allowed. “Bearing heavily against petitioners, who have created this evidentiary quagmire, we conclude that they have substantiated one-half of the total amounts that they report as payments” for some repairs. 2020 T. C. Memo. 43, at pp. 19-20.

Depreciation also comes in for a healthy helping of skepticism from ex-Ch J Iron Mike. Charles isn’t sure what Maxine’s basis is in one of the rental jobs. ”Petitioners contend that they are unable to produce all their receipts for the improvements to the Oak Hill property because, they say, most of their records, which had been stored on shelves in the [MacMansion] garage, were destroyed when the garage roof collapsed…. Consequently, petitioners assert, on the basis of Mr. Littlejohn’s testimony we should find that the cost of the improvements was at least $600,000. We are unpersuaded.” 2020 T. C. Memo. 43, at p. 23.

And it seems a lot of records did survive the Fall of the House of Littlejohn. “Notwithstanding petitioners’ claims about the destruction of their records, as noted they have in fact produced a great many documents in an effort to substantiate the cost of certain improvements and repairs to the Oak Hill property. These documents purport to substantiate a great many expenditures over a period stretching from January 1, 1997, to March 8, 2007. These documents obviously were not destroyed by the garage roof’s collapse in December 2007. Petitioners have not explained the selective availability of these documents or even exactly what documents they contend are missing from this period. Nor have they explained the absence of records for expenditures after December 2007, when the garage roof collapsed.” 2020 T. C. Memo. 43, at pp. 23-24.

While Charles and Maxine aren’t doing so well on ex-Ch J Iron Mike’s track, they’re running strong in the Taishoff Good Excuse Sweepstakes.

But the best comes when Charles and Maxine claim the theft loss for fraudulent reps in the CA iteration of the PCDS in the MacMansion deal.

Ex-Ch J Iron Mike reads CA law as requiring criminal theft before Section 165 comes in play. But all Charles and Maxine have is a default judgment for $150K against a contractor who did some pre-closing work. And a big settlement from seller and realtor.

Besides, civil default judgments, no matter what they allege, don’t establish criminal liability, at least in CA. CA lawyers, see 2020 T. C. Memo. 43, at pp. 31-32.

Anyway, at least in CA, failure to disclose defects in a building isn’t criminal. The only criminal cases are where contractors took money and absconded or diverted the money elsewhere than to the job. Mere commercial defaults aren’t criminal, unless you can prove intent.

Maybe Charles didn’t teach contract law either.

And for you valuation fans, check out Charles’ and Maxine’s trusty expert, whom I’ll call Andy. Andy knocked down the before-FMV of the MacMansion by $1,755,000. “Questioned at trial about this $1,755,000 discount, [Andy] offered no detailed explanation but rather stated that it was a ‘pretty close ball park’.” 2020 T. C. Memo. 43, at p. 41.

There’s more, but ex-Ch J Iron Mike draws the curtain. “In short, [Andy]’s expert report, based on unexplained assumptions and third-hand information, is insufficient to substantiate petitioners’ claimed theft loss. The record contains no other competent evidence by which to reliably measure or estimate the amount of any supposed theft loss.” 2020 T. C. Memo. 43, at p. 44.

Of course IRS has the Boss Hoss sign-off stiped in, and Charles’ and Maxine’s CPA just filled in the forms with what the clients gave him.

And we can stop here.

Judge Emin (“Eminent”) Toro heeds the plea of Sandra M. Conard, Docket 27571-10, filed 4/8/20, in the words of Jimmy Webb, as sung by Glenn Campbell.

Y’all will recall that Sandra got tagged with the 10% Section 72 early withdrawal whatever-it-is a month ago. No? The see my blogpost ”Rational Basis,” 3/10/20.

But this is not about that. Judge Eminent then slugged Sandra for the whole deficiency plus chops. Now Sandra claims she has a NOL carryback that would erase a lot of the deficiency.

And after a couple phoneathons (hi, Judge Holmes) wherein IRS supports Sandra’s plea, Judge Eminent vacates and sends the parties off to a Rule 155 beancount.

“The disposition of a motion under Rule 162 to vacate a decision rests within the Court’s discretion. Such motions are generally granted only upon a showing of unusual circumstances or substantial error, e.g., mistake, inadvertence, surprise, excusable neglect, newly discovered evidence, mistake, or other reason justifying relief. See, e.g., Rule1(a); Fed.R.Civ.P. 60(b); Brannon’s of Shawnee, Inc. v. Commissioner, 69 T.C. 999 (1978). After considering the parties’ arguments, Ms. Conard’s status as a self-represented taxpayer, and the record before the Court, we conclude that unusual circumstances justify vacating our March 10, 2020, Decision” Order, at p. 2..

Note there are two (count ‘em, two) orders of even date and even docket number. One vacates, the other amends.

Sorry to play the spoiler, but shouldn’t the motion be one to revise, not vacate? How can you amend an order that was vacated and set aside?

Must be the stress of the lockdown sequester. I think we all need a small vacation.

No, this is not a recipe for cleaning up Corona. Today we have Judge Goeke sticking Timothy J. Lewis, 154 T. C. 8, filed 4/8/20, for $15K out of the $222K whistleblower award he got, or 6.9%,  per sequestration formula.

IRS claims Tax Court has no jurisdiction to decide if an award should be subject to the 2011 Budget Control Act, as amended.

“Under section 7623(b)(4) we have jurisdiction to review the WBO’s determinations of whistleblower awards. The sequestration of petitioner’s award reduces the amount of the award. Our jurisdiction to review the WBO’s award determinations includes jurisdiction to review whether the WBO considered an inappropriate factor in making its award determination. Petitioner argues that the sequestration is an inappropriate factor. While respondent argues that the WBO merely followed the OMB’s guidance on the budget sequestration provisions, section 7623 confers on the WBO the sole statutory authority to determine whether a whistleblower is entitled to an award and, if so, the amount of the award. We are required to review the WBO’s determinations, including whether it properly exercised its discretion to follow any guidance given by the OMB and whether it appropriately applied the sequestration provisions. Accordingly, our jurisdiction under section 7623(b)(4) once invoked includes deciding whether the WBO properly applied the sequestration provisions to petitioner’s whistleblower award.” 154 T. C. 8, at pp. 22-23 (Footnote omitted).

Tim’s claim that the whistleblower money is a separate fund is a nonstarter, as collected proceeds are measuring tools for computing awards, not funding sources. So is the claim that the factors for determining the amount of the award are exclusive. See Reg. 301.7623-4(b). And whistleblower awards are not statutorily exempt from sequestration. So no abuse of discretion in sequestering.

Tim argues that target shifted treatment for the year after the audit sparked by Tim’s blowing, but Whistleblower 16158-14W puts paid to that. See my blogpost “Straightforward, Expansive, Useless,” 4/17/17.

There’s also argy-bargy about unused unified gift-estate credit when Target H died, but Target W will pay tax per Section 2204(a) on the credit shelter testamentary trust Target H set up, so no more proceeds for Tim to claim.

He may be quirky, but when it comes to “such rarefied heights of pure mathematics that it is said that there was no man in the scientific press capable of criticizing it,” Judge Mark V. Holmes is in his element.

And he combines his mathematics with a tale worthy of John Steinbeck in Howard V. Moore, Donor, a.k.a. Estate of Howard V. Moore, Deceased, Virgil L. Moore, Executor and Trustee, 2020 T. C. Memo. 40, filed 4/7/20.

The late Howard started in an AZ hardscrbble “…home thatched out of arrowweed, not that different from the precolonial homes of the local Native Americans.” 2020 T.C. Memo. 40, at p. 3. But he made his career as a leveler, one who made every valley exalted and the rough places plain, so the AZ farmers could irrigate, and got paid in land because cash money was nonexistent. By the time Howard met The Great Leveler, his net worth was in the millions, and his trusty attorney had put together five (count ‘em, five) trusts and a FLP, with loans and paperwork to hold together his dysfunctional family. Read Judge Holmes’ prose, and imagine what Steinbeck or O’Neill could do with this.

Howbeit, Howard’s whole aim was to save taxes, which torpedoes the whole shebang. No business purpose, no assets to preserve and manage, no creditors to swoop down and plunder, charitable contributions to be computed only after IRS audits the estate, and Howard sold the farm for $16 million at arms’-length, but lived there and kept managing until he died, about a year after all this estate planning stuff (which he did while in a hospice, and checked himself out to go home).

Judge Holmes’ aim seems to be to mix-and-match Sections 2033, 2035, 2036, 2043, and 2051, until he reduces all the gyrations to an equation. “The final equation: ((Either $5.3 million or $8.5 million + (.2 * value of farm at date of death)) – (money that left the estate between the time of the sale and Moore’s death)) + ((value of farm at date of death) – ((either $5.3 million or $8.5 million) + (.2 * value of farm at date of death))). We can then simplify the equation to: (The value of the farm at date of death) – (money that left the estate between the time of the sale and date of death).” 2020 T. C. Memo. 40, at p. 55.

For you who are mathematicians, or old enough to remember the Greyhound Bus slogan (“getting there is half the fun”), start at p. 42 and read on. As for me, “(W)hen the proofs, the figures, were ranged in columns before me, When I was shown the charts and diagrams, to add, divide, and measure…how soon unaccountable I became tired,” as a much finer writer than I put it.

And, as the headline of this blogpost says, Judge Holmes sends the parties off to the Rule 155 beancount with the understatement of the decade. “We have no doubt that computations will be difficult.” 2020 T. C. Memo. 40, at p. 63.