Mr Charles here is not a symbol, as in the James Baldwin 1964 drama. Mr Charles is the proponent of a software program that Floyd X. Proctor, Docket No. 13072-18, filed 1/23/20, tried valiantly to use to complete his overdue tax returns.

Floyd admits his fault in delaying. But Floyd failed to input some 1099-MISCs he got for snowplowing. Floyd had a dump truck and an LLC. The truckin’ life he led was incidental to his main job.

Who better to let Floyd off the Section 6662 chops than that Obliging Jurist, Judge David Gustafson, in this designated hitter off-the-bencher?

“Mr. Proctor has a high school education. After he graduated in 1985, he worked at a Safeway grocery store. Since about 1987 he has worked as an explosive operator for the Department of Defense (‘DOD’) as a civilian employee.” Transcript, at p. 4.

Here’s the story. “Mr. Proctor was uncertain how to report hi trucking activity on his return. A friend referred him to  a supposedly knowledgeable man named Mr. Charles, who (Mr. Proctor believed) owned a truck and used it in an income-  producing activity similar to Mr. Proctor’s. Mr. Proctor obtained tax preparation software called “Tax Act”, and when he prepared his … returns, Mr. Charles came over to Mr. Proctor’s house and stood over his shoulder, helping him respond to the software prompts and fill in the information that was reported on Schedule C.

“When Mr. Proctor prepared his tax returns in this manner, he showed Mr. Charles the Forms 1099 that he had received and that he had issued to workers, as well as cancelled checks, invoices, and receipts for his trucking expenses. Mr. Proctor used the Forms 1099 that he had received from customers to tally and report income from his trucking activity. However, he did not realize that he had not received Forms 1099 from all of his trucking activity income (probably missing Forms 1099 for income from snow-plowing jobs in both years), so he under-reported his income on his returns. He reported trucking activity expenses on the returns that, he eventually agreed by stipulation, should be reduced; but we conclude the deductions he claimed were not deliberately faked.” Transcript, at p. 5.

Floyd testified forthrightly. Given his education and his good-faith efforts to do the right thing, even belatedly, Judge Gustafson lets Floyd off the penalties, but not the late-filing additions.

Lon B. Isaacson, 2020 T. C. Memo. 17, filed 1/23/20, brings forcefully to mind Abraham Lincoln’s words: “A moral tone ought to be infused into the profession which should drive such men out of it.”

I’ll spare you an extensive dissection of the overreaching, lies, fraud and other disbarable offenses. You can read all 56 (count ‘em, 56) pages of ex-Ch J L Paige (“Iron Fist”) Marvel’s prose. When I saw a 60% of recovery contingent fee charged to victims of childhood sexual abuse, which he concealed, and how he diverted the remainder to his own use, lying all the while, it was enough for me.

The petitioner also practiced in the field of tax fraud defense. He apparently learned nothing from the experience.

Honest Abe got it right.

When accuracy or substantial understatement of tax chops are in play, the preparer is often the person under the gun. So look for signs that point the way to ducking the chops, based upon the trustworthiness of the preparer.

Patrick Lind and Mary Beth Blotnick Lind, 2020 T. C. Sum. Op. 7, filed 1/22/20, relied on their trusty preparer of thirty years’ unblemished service. So notwithstanding their want of substantiation, constructive dividends, and failure to account for inventory in their wholly-owned C Corp Reliable, among other delictions, they get off without being chopped.

Here’s CSTJ Lewis (“The Man Can Spell”) Carluzzo.

“The Linds and Reliable engaged a paid income tax return preparer to prepare their Federal income tax returns for the years in issue.  We are satisfied that they relied completely upon the preparer not only for advice in the preparation of the relevant Federal income tax returns but also during the examinations of the returns and the preparations for trial in these cases.  The return preparer testified on behalf of the Linds and Reliable in response to questions presented by Mr. Lind but, more likely than not, drafted by the return preparer.  We are further satisfied that the Linds and Reliable presented what financial information each had before each return was drafted, and it is the return preparer who is responsible for the positions taken on each of those returns.  Although we now reject some of those positions, we find that the Linds’ and Reliable’s reliance on the return preparer was made in good faith.  The Linds and Reliable employed the same return preparer for more than 30 years before the years in issue, and nothing in the record suggests they had any reasons to question the return preparer’s competence.” 2020 T. C. Sum. Op. 7, at p. 21.

But here be dragons, so woodshed your preparer good before you put the preparer on the stand.

“As to the return preparer’s competence, we note that he testified on behalf of the Linds and Reliable at trial and his competence was not attacked during cross-examination.  We can envision circumstances that could support a finding of a return preparer’s incompetence from nothing other than the improper positions taken on a Federal income tax return.  This, however, is not that case, and we are reluctant to assume or infer incompetence here.  It follows and we find the Linds and Reliable are not liable for a section 6662(a) accuracy-related penalty for any year in issue.” 2020 T. C. Sum. Op. 7, at pp. 21-22.

Trusty but incompetent? Trusty but a writer of fiction? Don’t find out at the trial.

For definition of the term “tohubohu,” see my blogpost “More TEFRA Tohubohu,” 9/12/17. For the background to Lori J. Manroe, 2020 T. C. Memo. 16, filed 1/22/20, see my blogpost “It’s A Sham,” 9/28/12. And for the history of the Gunther case, much-cited in the T. C. Memo. aforesaid, see my blogpost “Hearing the Bad News,” 2/5/19.

OK, so what’s new? Well, IRS has hit Lori with two (count ‘em, two) SNODs for affected items arising out of her blown-up Son-of-BOSS partnership currency swaps. And, at no extra charge, they throw in 40% overvaluation chops per Section 6662(h).

All sides agree Tax Court has jurisdiction over the SNODs. Per Gunther, there’s the question of Lori’s basis in the Swiss francs she allegedly swapped, whether what she swapped was the same as what she bought, and whether she had any other basis. But IRS assessed tax before issuing the SNODs, so they were offside. Wherefore Section 6213(a) gives Tax Court jurisdiction to enjoin collection, and cause IRS to refund what was grabbed. IRS agrees with all the foregoing.

But Lori wants IRS enjoined as to the chops; Judge Patrick J. (“Scholar Pat”) Urda says no. No jurisdiction for that.

“Our analysis begins with section 6230(a)(1):  ‘Except as provided in paragraph (2) or (3), subchapter B of this chapter shall not apply to the assessment or collection of any computational adjustment.’ Section 6230(a)(1) establishes a default rule that ‘normal deficiency procedures generally do not apply to the assessment or collection of computational adjustments.’ Our jurisdiction over the penalties at issue, therefore, relies on whether the penalties are computational adjustments and whether they fall within the exceptions to the default rule set forth in section 6230(a)(2) or (3).  … we conclude that the penalties at issue constitute computational adjustments and that neither exception applies.” 2020 T. C. Memo. 16, at pp. 11-12 (Citations omitted).

The gross overvaluation is a partnership item, not a partner-level item, and is therefore computational. Lori also claims the chops relate to her outside basis, therefore is an affected item and not computational. Except the Supremes in Woods put paid to that. “…the Supreme Court’s decision in Woods refutes the notion that penalties that relate to adjustments to partnership items and penalties relating to affected items that require partner-level determinations are mutually exclusive. To the contrary, ‘[t]he valuation-misstatement penalty at issue can be an affected item requiring partner-level determinations while also relating to adjustments to partnership items.’ As the valuation-misstatement penalty is related to an adjustment to a partnership item, it ‘fall[s] within § 6230(a)(2)(A)(i)’s exclusion of such items from deficiency jurisdiction.’” 2020 T. C. Memo. 16, at p. 15 (Citations and footnote omitted).

I was going to give Lori’s counsel a Taishoff “Good Job,” but as her counsel is the celebrated Ernest S. Ryder, whose exploits I’ve blogged ofttimes elsewhere (see, e.g., my blogpost “Privileged Characters,” 5/21/15), I have to set forth the omitted footnote.

“We pause to address two additional points.  First, the Manroes argue that the stipulation in the partnership-level proceeding that BLAK was a sham resulted in the ‘agreed creation of a new TEFRA partnership’.  The Manroes claim that this new TEFRA partnership entitled them to a substantially similar tax result to the one they hoped to achieve through their Son-of-BOSS transaction.  This argument is patently ridiculous.  Second, Ms. Manroe asserts that she is entitled to innocent spouse relief.  Her vague statement in her petition that ‘it would appear that * * * [Ms. Manroe] would be eligible for innocent spouse relief, to the extent the Court finds any additional tax liability’ does not satisfy our pleading requirements under Rule 321(b).  Therefore, we do not consider the merits of any potential innocent spouse claim Ms. Manroe may have.” 2020 T. C. Memo. 16, at pp. 15-16, footnote 4.

There’s no fee to attend the continuing education classes put on by the Honcho of the Jersey Boys. While I’ve often denounced continuing education courses as a racket, today’s class was stimulating and a real learning experience. You can contact The Jersey Boys to find out more here: https://www.agostinolaw.com/

It’s only a small-claimer, and Jemar Y. Purdie, 2020 T. C. Sum. Op. 6, filed 1/21/20,  didn’t even respond to IRS’ summary J, so maybe Judge Ruwe gave this one more than it required.

Still, it’s nice to note that the Automated Underreporting (AUR) program is exempt from Boss Hossery pursuant to Section 6751(b)(2)(B).

“The examination of petitioner’s 2016 return was processed through the AUR program.  This software program automatically determined the amount of income petitioner had omitted from his return and automatically calculated petitioner’s tax deficiency.  Based on this information the program automatically calculated the penalty under section 6662(a).  This penalty falls firmly within the exception provided under section 6751(b)(2)(B), and the Commissioner was therefore not required to obtain written supervisory approval.” 2020 T. C. Sum. Op. 6, at p. 9.

Jemar took a couple draws (hi, Judge Holmes) from retirement accounts, the trustees generated 1099-Rs, but Jemar didn’t bother to list $41K thereof on his return. IRS gets a declaration from the trustees, the 1099-Rs, and sundry other paperwork, to show Jemar got the dough. IRS bears burden of production handsomely.

Judge Albert G (“Scholar Al”) Lauber is diligently sifting the silt that Graev unleashed upon an unsuspecting world, and today turns his attentions to the TFRPs, the hundred-percent chops for responsible persons who behave irresponsibly and finance their businesses with the withholding from payroll.

Apparently, David J. Chadwick, 154 T. C. 5, filed 1/21/20, is one such. IRS wants to chop Dave for a bunch from each of his two wholly-owned LLCs. A serious deliciton, to be sure, but is it Graeven in stone that a Boss Hoss is required to sign off prior to the Letter 1153?

Yup.

“Section 6751(b)(1) provides that “’[n]o penalty under this title’–that is, no penalty under the Code—’shall be assessed unless the initial determination of such assessment’ receives the requisite supervisory approval.  Section 6672(a), which authorizes the assessment of TFRPs, provides that a responsible person who fails to collect or pay over any tax ‘shall, in addition to other penalties provided by law, be liable to a penalty equal to the total amount of the tax evaded, or not collected, or not accounted for and paid over.’  The plain text of section 6672(a) indicates that a TFRP is a ‘penalty’ under the Code.” 154 T. C. 5, at pp. 11-12 (footnote omitted).

Now we all know IRS can collect only once. If the LLCs have money and pay, Dave is off the hook. So isn’t the TFRP really a tax? No, because it only applies to responsible persons who willfully fail to pay. And Section 6671 just says the chops are to be collected as if such penalties were taxes; that doesn’t make them taxes.

And when it comes to “as if”, Judge Scholar Al is a true disciple of the early Twentieth Century philosopher Hans Vaihinger. See my blogpost “Als Ob,” 11/22/16.

But IRS has learned from hard experience, and produces Forms 4183s from the appropriate Boss Hosses prior to the Letters 1153 hitting the postbox.

Judge Mark V Holmes discusses how an OIC transitions from Appeals to COIC and back again in Franklin H. Orienter & Sharon E. Orienter, Docket No. 20004-13L, filed 1/17/20.

Frank & Sharon had health problems, big medical bills, and $300K in unpaid taxes owed for four (count ‘em, four) years, but IRS only gave them a NITL for one of those years. Frank & Sharon wanted to settle all four years, and gave Appeals an OIC for all of them. That’s when the trouble started.

“When a taxpayer has filed a request for a CDP hearing, the COIC rejection automatically gets sent to the Appeals Office. And that’s just what happened here. The COIC rejection letter sent to the Orienters noted that ‘[a] final determination on the offer will be issued by [the Appeals Office] in conjunction with the CDP case.’” Order, at p. 3.

The RCP was way over the OIC that Frank & Sharon put in.

Tax Court can consider abuse-of-discretion for one year for which there’s proper petition if it’s part of a multi-year OIC for years not petitioned. What Tax Court can’t do is stop collection for the out years.

Section 6330 says Appeals must consider law and administrative procedure. Everyone agrees the IRM is “administrative procedure.” But Appeals says they followed procedure, and Frank & Sharon say they didn’t. So we have what Judge Holmes characteristically describers as “the intersection, or perhaps one might say at the point of collision, of a couple lines of authority.” Order, at p. 3. Vintage Holmes, as another partitive genitive bites the dust.

The “couple” lines? IRM creates no rights for the taxpayer, and Judge Holmes has a bushelbasketful of cases that say so. But agency rules that constrain others also bind the agency, say another bushelbasketful of cases. Since Frank & Sharon are New Yorkers, 2 Cir wants agencies to follow even those procedures not yet published in Fed Register. I know, Tax Court has to Golsen these cases to DC Cir, since they’re prior to the 2015 effective date of the amendment to Section 7482(b)(1)(G).

But Judge Holmes is a master at ducking.

IRM 8.22.7.10.6.5 (Jul. 18, 2013) sets forth the steps to take when Appeals gets back an OIC that COIC bounced. And the AO did that. He reviews the entire file, recalculates the RCP using the assets and values identified by COIC, and determines if the special circumstances described in the file warranted acceptance of the [original] offer.

Frank’s & Sharon’s attorney wants to testify about discussions with the AO, but that’s not a fact question, that’s an abuse of discretion question.

“The Orienters have not raised a factual dispute that the Appeals officer excluded material evidence of his consideration of their request from the administrative record. There is reasonable disagreement about the merits of his decision, but that’s not enough to conclude that he abused his discretion.

“This also means that we need not plumb the difficult questions raised by the Commissioner in opposing the Orienters’ motion for waiver of conflict of interest to allow their attorney to testify — we’ll deny that motion because the testimony wouldn’t make a difference to an issue material to the case.” Order, at p. 10.

I really want to see something more than the blanket assertion that a petitioner’s attorney can’t testify. That isn’t what the ABA Model Rules say, and I’ve blogged that often enough. But Judge Holmes isn’t going there.

Frank & Sharon wanted a face-to-face, but they live in Monroe County, Appeals has no money for roadies, and Frank & Sharon can’t travel to Nassau County where the local Appeals crew hangs out. No right to a face-to-face anyway.

Years ago a client told me what he’d learned in AA. Show up. Even if you can’t do much, show up. Be where you’re supposed to be. Be there sober, but be there.

Well, that obliging Jurist, Judge David Gustafson puts that lesson in a designated hitter off-the-bencher, Thomas V. Meyers & Joanne T. Meyers, Docket No. 8453-19, filed 1/16/20.

Their trial was the only one on that day in Winston-Salem, NC. The morning was spent with a stip of agreed facts. IRS dropped the chops. Trial started in the afternoon. First up was Thomas, but his testimony was halted for Joanne, who couldn’t be present the next day, to testify about her extensive religious activities. Thomas said he’d show up the next day, but didn’t.

“At about 9:15 a.m…., respondent’s counsel advised the Court that Mr. Meyers had sent an email (Ex. 30-R) stating that he would not appear.

“The email stated that business conflicts had arisen so that he could not come. A second email stated that the judge has ‘already made up his mind – it’s going to be a waste of time. We were were all there today, and he’s got all the information he needs. He’ll have to make a decision with what he’s got, and we’ll accept his decision.’ We placed a telephone call to Mr. Meyers with respondent’s counsel standing by, in the hope that we
could have a conference call, but the call went straight to voicemail. We stated in voicemail that his failure to appear is improper, that he should come to trial, and that we would start at 9:30 as scheduled. He did not appear, and proceedings resumed at 9:30 a.m., consisting of argument by respondent’s attorney from the evidence on the record. The Commissioner moved orally for dismissal of the case for failure to prosecute and for the imposition of a penalty under section 6673(a).” Transcript, at p. 10.

Thomas’ no-show really steamed Judge Gustafson.

“A party’s failure to appear at trial – and especially his failure to appear for cross-examination after he has been permitted to put on his own testimony in ‘direct examination’ –is a most serious offense against the process. Ours is an adversary system, and it presumes that the truth can best be discerned by allowing competing parties to challenge and probe each other’s claims. Where a party evades cross-examination, he frustrates this process fundamentally. He unfairly disables the opposing party from being able to probe his evidence, and he invites the inference that his claims could not bear up under examination.

“So serious is this violation that it justifies wholesale dismissal of the case for ‘failure to prosecute”, with the consequence that the deficiency determination of the Commissioner is upheld.” Transcript, at p. 12.

But the quality of Judge Gustafson’s obliging character is unstrained.

“However, it is the frequent practice of this Court-often at the instance of the Commissioner – to dismiss a case for failure to prosecute but to enter decision in a deficiency amount smaller than what appears in the SNOD. Typically this occurs when respondent’s counsel has determined to concede an issue and affirmatively proposes the smaller deficiency amount. In the same way, we prefer if possible, even in such a circumstance, to enter a decision based on the facts demonstrated by the evidence rather than as a punishment. But to do so without rewarding the petitioner for his non-appearance, we must scrutinize his evidence closely and resolve all doubts against him. We will attempt to do so in this instance, but this requires us, in effect, to impose a heightened burden of proof on the non-complying petitioners.” Transcript, at pp. 12-13.

Well, Thomas seems to have “deliberately concocted a non-authentic receipt and tried to make the Commissioner and the Court assume that it was authentic.” Transcript, at p. 14.

IRS counsel then elaborated on what her cross would have been. Thomas would have had a most unhappy morning. As it was, Judge Gustafson has no confidence in Thomas’ veracity, and was inclined to bounce all his claims absent independent corroboration, which Thomas had not.

Judge Gustafson mercifully allowed Thomas and Joanne all of their home mortgage interest on Schedule A, even though they claimed 94% of their home was used for business on their Schedule Cs, because the lender confirmed the amount.

I’ll spare you Judge Gustafson’s deconstruction of the rest of the Meyers’ deductions. Joanne had a lot of mileage for religious purposes but no substantiation. Section 274 blew away most of their other deductions, and want of receipts put paid to all but $187 of the rest.

IRS wants a Section 6673 frivolity chop, but Judge Gustafson says it might require Section 6751(b) Boss Hossery, and IRS’ version is an e-mail that is hardly unequivocal. Nevertheless, Judge Gustafson isn’t deciding that in an off-the-bencher, although as a dyed-in-the-wool Boss Hoss fan, he comes mighty close. And while he can sua sponte do one for Thomas and Joanne, Thomas and Joanne never had a yellow card in either of their two previous trips to USTC.

So a Rule 155 beancount. But I somehow doubt Thomas and Joanne will be putting in a lot of numbers.

Swifter even than jeopardy comes Section 6851 termination. If it looks like the non-taxpayer is about to scarper with the readies, IRS can immediately assess and grab. Ugorji Timothy Wilson Onyeani, 2020 T. C. Memo. 15, filed 1/16/2020, is a perfect candidate.

UTWO was born in Nigeria, naturalized in the UK where he practiced medicine (but lost his license for falsifying records and misconduct), got a US green card and, claiming to be a broker for the Nigerian National Petroleum Corp., got an $800K advance from a couple customers (hi, Judge Holmes), who should have known better, for Bonny Crude, of which he had none but he did have a phony corporate shell. When he tried to wire $300K to a UK corporation from his BoA account, BoA shut him down.

UTWO then went to Harris Bank, who tipped off the Secret Service. Then IRS got word, did a flash bank deposits reconstruction and a quick-and-dirty SFR, and did the Section 6851 grab. Harris escrowed $289K to cover the potential lien, which UTWO fought unsuccessfully in USDCNDIL, whereupon Harris paid IRS the $289K, and UTWO took the rest. Some he’d already spent on trips to Disneyland and at Victoria’s Secret (don’t ask). The onshore customer sued him, and he settled for $400K. And he and Mrs. UTWO filed a return for the year at issue showing only Mrs. UTWO’s income, and paid $2K in tax.

Maybe I got one of UTWO’s e-mails in my spam box; I don’t remember.

Judge Albert G (“Scholar Al”) Lauber spends some time on the Section 6751(b) Boss Hoss, but that was OK.

UTWO does get credit for the $400K he paid back to one of his customers. If you steal and repay in  the same year, you deduct what you repaid.

But whomever he defrauded, it wasn’t IRS.

Remember, Section 6664(a) defines “underpayment of tax,” a necessary component of a deficiency, as “the amount by which the tax imposed for the year (i.e., the correct amount of tax) exceeds the sum of ‘(A) the amount shown as the tax by the taxpayer on his return, plus (B) amounts not so shown previously assessed (or collected without assessment).’” 2020 T. C. Memo. 15, at p. 30. And Reg. Section 1.6664-2(a) includes termination assessments per Section 6851 in “amounts not shown previously assessed.”

IRS knew about the termination assessment, and the money was paid to IRS. UTWO gets a deduction for what he paid back to the onshore customer. And the amount of tax that IRS assessed on the termination, plus Mrs. UTWO’s tax exceeds the amount of tax they owed. And UTWO couldn’t evade payment of tax that was already in IRS’ hands.

No deficiency, no fraud chop, not even an accuracy penalty. There’s a Rule 155, so it just might be possible that UTWO gets a refund.

UTWO was pro se. I’ll give him a Taishoff “Good Job, Second Class.”