We are all used to the demands for responses to interrogatories and document production. From our salad days in Civil Procedure 101, through our apprenticeships as the very trash of the legal profession, to our present eminences (be they never so small), it has been dinned into our consciousness that the first thing a defendant does (and IRS is a perennial defendant in Tax Court) is to herniate the plaintiff with discovery demands, simultaneously with our answer.

IRS is nowise loath to do so. It’s a “win your case before discovery” gambit that enthralls the Continuing Ed crowd, and brings to mind the ancient Tammany Hall war-cry today.

IRS is at it again in Jesse Alvarado & Maria De Lourdes Velasquez, Docket No. 15059-18, filed 10/8/19.

Judge Elizabeth A. (“Tex”) Copeland has sussed out the fact that Jess & Maria are not battle-hardened pro se litigators or frequent rounders.

“The interrogatories (e.g. questions to be answered by the Taxpayers) begin after the six page motion and include questions numbered one (1) through (8) for which the government requests a written response. The request for production of documents begins after a seven page motion and has twelve (12) separate requests for documents. Under this Order, the Taxpayers, also known as ‘petitioners’ in this case, must respond to the IRS’ questions in writing and must produce the documents the IRS has requested.” Order, at p.1.

A seven-page motion, filled with enough legalese to glaze the eyes of even the hardiest, followed by twelve (count ’em, twelve) separate requests (doubtless with division, subdivision, paragraph and sub-paragraph). And a couple self-representeds (hi, Judge Holmes) are supposed to decode, demystify, deconstruct, and respond to same in thirty days or less.

Although I myself never heard it, IRS counsel must chant the Old Tammany Hall war cry every day. “Big chief sit in teepee, cheering braves to victory, swamp ‘em, swamp ‘em, get the wampum, Tammaneeee!”

No, this is not an essay on the overbearing micromanaging forebear of some innocent infant. Today we have the story of the helicopter pilot whose younger son is a keen tennisplayer, so off to GA he and family go from ME. But the pilot is flying off-again, on-again Medevacs on contract in Saudi Arabia (hereinafter “The Kingdom”), and wants Section 911 treatment.

You see where this one is going in Joseph S. Bellwood and Jacqueline E. Bellwood, 2019 T. C. Memo. 135, filed 10/7/19. Joe never had the 330 days in The Kingdom, so the enhanced scrutiny of “tax home” in The Kingdom is then applied.

Judge David Gustafson tries to be obliging, but Joe has too much density altitude to get his case off the ground. Joe’s “abode” was back in the U.S.A.

“One’s ‘abode’ is where he ‘abides’.  Acone v. Commissioner, T.C. Memo. 2017-162, at *12.  However, an individual’s abode cannot be determined by simply identifying the location where he spent the greatest number of days during  a given period, especially if a location where he spent fewer days was his family home where he spent those days with his wife and youngest son.  This Court and at least one Court of Appeals have recognized a domestic-vs.-vocational distinction for determining one’s ‘abode’ under section 911….” 2019 T. C. Memo. 133, at p 17. (Citations omitted).

They key test, though trite, is simple: Home is where the heart is.

“Consequently, when one of the locations with which an individual is connected is in the United States (e.g., when during the relevant periods the taxpayer owns a home in the United States and spends numerous days at that home, and when the taxpayer’s spouse and youngest child live at that home during the relevant periods), we consider the domestic or vocational nature of the time spent in each location in addition to counting the number of days. Accordingly, we compare the domestic and vocational qualities of Mr. Bellwood’s respective dwellings, and the time he spent at each, to help determine whether his ‘abode’ remained in the United States.” 2019 T. C. Memo. 133, at p. 18.

Of course, the fact of home ownership in The Land of the Free, and the presence of one’s nearest and dearest there (as opposed to exiling them to “stronds afar remote”), do not negate Foreign Earned Income Credit.

Except.

“During the time Mr. Bellwood spent in Saudi Arabia, his regular activities were primarily vocational.  Mr. Bellwood testified that his non-work-related activities in Saudi Arabia were limited because of the demanding nature of his work–he went to the barber or grocery store as needed and visited the occasional restaurant, but most of his time in Saudi Arabia was spent either working or resting and preparing for his next shift.  That is true, but only because when Mr. Bellwood had spare time, he did not wish to spend it in Saudi Arabia.  Rather, during his days off duty, Mr. Bellwood returned to his home in the United States where he spent time with his family, pursued his hobbies, and managed the day-to-day affairs of his personal life.  In Georgia he maintained his registration to vote, received his mail, updated his driver’s license, and registered his vehicle.  Thus, the nature of Mr. Bellwood’s respective dwellings and the manner in which he spent his time at each indicate that his ‘abode’ was in the United States, and that he traveled to Saudi Arabia for work only.” 2019 T. C. Memo. 133, at p. 20.

Besides, his employment contract said that when his tour was over, he would be repatriated.

Unreimbursed employee expenses go by the boards. as does reliance on Turbotax. One again, “(A)lthough this Court has not held that TurboTax or other tax preparation software would qualify or fail to) qualify as advice of a ‘competent professional’, we have held that ‘[t]ax preparation software such as TurboTax is only as good as the information the taxpayer puts into it.  The misuse of tax preparation software, even if unintentional or accidental, is no defense to accuracy-related penalties under section 6662.’  Langley v. Commissioner, T.C. Memo. 2013-22, at *9-*10 (citations omitted).” 2019 T. C. Memo. 133, at p. 33.

And Joe’s inputs were replete with what Judge Gustafson characterizes as “foot faults.”

I reiterate a firm offer I made to US Tax Court right after Tax Day on April 16 this year. See my blogpost “Admitted but not Recognized.”

“There exist such things as law firms, with principals and associates all of whom are admitted to Tax Court. So there really needs to be a new form of Entry of Appearance, recognizing that law firms do exist, that various attorneys employed therein share files among themselves, and might occasionally ask a colleague to cover a routine matter while on trial or on vacation. Maybe we don’t need the covering attorney to file an Entry of Appearance for essentially a one-time appearance. Perhaps a one-size-fits-all law firm Entry of Appearance, listing all admittees in one place, might save time and paper (or electrons).”

But no.

Here’s Estate of James Dieffenwierth, Deceased, Vicki Dieffenwierth, Executrix, Docket No. 17268-19, filed 10/4/19. Same old, same old. Ms. Dowd, in the same firm as Mr. Brown (according to their website), used Mr. Brown’s e-access because the firm has none. And gets the old right-about-face.

Would it be beyond the technical capabilities of the Tax Court Techies to create a firm Entry of Appearance, which the managing clerk of the firm can update as personnel changes, with appropriate e-signatures for each attorney in the firm admitted to USTC?

If they can manage it, we wouldn’t have to play put-and-take every time the lead attorney wants to take a vacation, gets sick, goes on family leave, has a family crisis, or is actually engaged elsewhere on the date a motion is to be argued.

Other courts have managed to recognize the existence of law firms.

Seriously Off-Topic

At very rare intervals I stray from the august precincts of 400 Second Street, NW. My readers, few in number but strong in stomach, want Tax Court and nothing but. Notwithstanding the risk that anything else might cause even one of them to bail on me, today I once again play music critic.

In my own defense, it has been more than two (count ‘em, two) years since I inflicted this sort of thing on the internet.

Last night the Opening Night Gala Lead Sponsor of Carnegie Hall, a Big Four with which I am acquainted, presented the Cleveland Orchestra. I wish they had given us a heftier program, but the musicianship was first-class.

Anne-Sophie Mutter gave us as beautiful a Beethoven Violin Romance as I ever heard. It’s the usual thing to say that LvB was warming up for the Violin Concerto, but there’s no contemporary evidence he was doing anything more than trying to scare up a few groschen from the music-lovers of Vienna. He certainly did not want to write anything beyond the compass of a good nonprofessional and a wealthy patron’s house band. For a world-class violinist, this is a chance for expression. For a world-class orchestra, it’s a walk in the park. But a beautiful park.

Same for the Triple Concerto. Really a shame that Yefim Bronfman had so little to do, but what he did do, he did superlatively well. There must have been a cello-playing patron to inspire Beethoven to write this, because Lynn Harrell had the most to do, and the best material. Again Anne-Sophie Mutter’s expression and delicate feeling was much appreciated, for all that her technique was unnecessary. The elegiac second movement brought a smile even to my ravaged visage, and the third movement is a joy. It’s interesting that the printed score was dedicated to Prince Lobkovitz. When we visited his Prague premises, we saw the original Beethoven scores in the family’s collection, and reflected that the family had the unhappy circumstances to be plundered twice: once by the Nazis and again by the Communists.

Franz Welser-Möst and the Cleveland are Franz Welser-Möst and the Cleveland. They are up to their usual standard, which says it all.

But what possessed FW-M to discard the Rosenkavalier suite that has survived 75 years in favor of the abomination that Mandell foisted 25 years ago upon a world that did him no apparent harm? And to give it its Carnegie Hall debut? It should have been given its quietus, with or without a bodkin.

A more revolting parody of Richard Strauss’ happiest creation it would be hard to imagine. This thing substitutes noise for nuance. Baron Ochs’ elephantine but charming waltz is passed over for endless reiterations of the farewell, seemingly on the principle that if one is delighted by two minutes of melody, five must be better. It was like the drunken guest that ruins the party.

There was an encore, but I had left by that time.

Elena Lea Morgan Weschenfelder and Frederick Burkhart Weschenfelder, 2019 T. C.  Memo. 133, filed 10/3/19, were analyzing intelligence in Iraq and Germany. But some three (count ‘em, three) years’ worth of their US tax returns never got to IRS.

Almost as obliging as Judge David Gustafson, IRS gave El and Fred SFRs, and non-filing and non-paying additions, all at no extra charge. When El and Fred sent in their returns eight (count ‘em, eight) years after the SFRs, IRS abated the taxes shown on the SFRs, and gave El and Fred SNODs for what they reported. El and Fred claim Section 911 abroad status.

Judge Mary Ann (“S.E.C. = “She Eschews Cognomens”) Cohen has this one. IRS drops the weight-of-the-attachments test, to focus on the late election, as permitted by Reg. 1.911-7(a)(2)(i). And that reg has survived previous validity challenges.

El and Fred claim they sent the returns, but couldn’t get proof of mailing from Iraq. But they were back home in the Lone Star State in time to file from there as to two of the years at issue.

But only Reg. 1.911-(7)(a)(i)(2)(D) will avail El and Fred.

“…it applies provided:

“(1) The taxpayer owes no federal income tax after taking into account the exclusion and files Form 1040 with Form 2555 or a comparable form attached either before or after the Internal Revenue Service discovers that the taxpayer failed to elect the exclusion; or

“(2) The taxpayer owes federal income tax after taking into account the exclusion and files Form 1040 with Form 2555 or a comparable form attached before the Internal Revenue Service discovers that the taxpayer failed to elect the exclusion.

“(3) A taxpayer filing an income tax return pursuant to paragraph (a)(2)(i)(D)(1) or (2) of this section must type or legibly print the following statement at the top of the first page of the Form 1040:  ‘Filed Pursuant to Section 1.911-7(a)(2)(i)(D).’” 2019 T. C. Memo. 133, at p. 9.

There’s a provision in  Reg. 301.9100-3 for a PLR even if tax is owed after IRS discovers failure to elect, but El and Fred didn’t ask for one. Likewise, Judge Cohen doesn’t decide if conceded unreported income would count for putting El and Fred over the owing-tax line.

“Petitioners argue that application of credits from [other subsequent years] eliminated the tax owed for [first two years at issue].  Subsequent credits to a taxpayer’s account do not change the amount owed on a return; they merely reflect amounts deemed paid.  Petitioners are not entitled to bootstrap their argument that tax was not owed by asserting that tax reported as owed was subsequently paid. The reported liabilities for [first two years at issue] disqualify their elections of the foreign earned income exclusion for those years because their belated filings do not qualify under subdivision (i)(D)(1).” 2019 T. C. Memo. 133, at p. 11.

IRS concedes the last of the years at issue, assuming the Section 911 exclusion applies. But El and Fred never typed the magic language of Reg. 1.911-7(a)(2)(i)(D)(3), “filed pursuant to 1.911-7(a)(2)(i)(D).”

They claim substantial compliance, but Judge Cohen says no.

“We have also considered whether petitioners’ late returns substantially complied with the regulations.  Respondent argues that the doctrine does not apply because the applicable standards are established in section 1.911-7(a)(4), Income Tax Regs.  In any event respondent argues that the doctrine of substantial compliance does not apply where the failure to comply fully relates to the substance or essence of a statute and the statute or regulation provides the manner in which an election is made with detailed specificity.

“The regulations in this case are detailed and specific and are not lacking in clarity.  Cf. Estate of McAlpine v. Commissioner, 968 F.2d 459, 462 (5th Cir. 1992) (holding that a taxpayer who exercises due diligence and good faith in complying with an unclear regulation may be held to have substantially complied), aff’g 96 T.C. 134 (1991).  They include unambiguous provisions, one of which was not complied with by petitioners.” 2019 T. C. Memo. 133, at p. 13.

This is not filling out a complicated form. It is a material statement, especially when the returns come in eight years late. Moreover, El and Fred stated throughout their home was in Texas.

IRS had the Boss Hossery for the additions, and El and Fred had no good excuses.

Takeaway- If filing late, the magic language can save the day. Also, if abroad, say so.

Read My Blog

I’m not revivifying the old advertising slogan in attempt to be coy. Of my many faults, being coy is not one. But when I saw Tramy T. Van, Docket No. 4460-17, filed 10/2/19, reprised as a designated hitter today, I did a double-take.

Only yesterday I blogged Tramy T. in my blogpost “A Snapshot in Time,” 10/1/19. And today’s version differs in no discernible respect from yesterday’s.

I had suggested as a tailpiece to my blogpost above-cited that this order should have been designated, as “(T)here’s stuff here that practitioners should know.”

Maybe somebody does read my blog.

It’s a rare article wherever sought for, but today we see common sense reappear in US Tax Court, in a designated hitter from Judge Gale.

Here’s Joseph Michael Balint, Docket No. 21452-16L, filed 10/2/19. Judge Gale is parsimonious with details, but I glean that Joe has a problem with a retirement plan distribution, which someone may have pinched unbeknownst to Joe.

I deduce that conclusion because Judge Gale, after checking out the stiped facts and settled issues, “…concludes that pretrial briefing addressing the impact of Roberts v. Commissioner, 141 T.C. 569 (2013), would aid the Court in analyzing the issues involved in this case.” Order, at p 1.

Now all y’all surely remember Andrew Wayne Roberts and his light-fingered ex Ms. Smith. No? Then scope out my blogpost “Common Sense?” 12/30/13, wherein ex-Ch J L Paige (“Iron Fist”) Marvel penned this memorable sentence: ““Common sense dictates that the answer must be no, and our findings of fact and analysis support that answer.”

I guess Judge Gale wants a proper take-out on Andy Wayne’s situation as it relates to Joe’s, so he suggests Joe sit down with one of the local LITCs, who might enlighten him.

STJ Daniel A (“Yuda”) Guy has a designated hitter that points up a real defect in the deficiency procedure that is a pillar of Tax Court jurisdiction. It’s the story of Rajan R. Kamath, Docket No. 5307-19S, filed 10/1/19.

Raj didn’t file returns for some four (count ‘em, four) tax years, until he got SFRs and 30-day letters. Whereupon Raj banged in the returns, which IRS processed. IRS assessed the taxes shown on Raj’s self-reported returns.

So, as IRS found no difference between what Raj belatedly reported and what Raj owed, no deficiencies. But not to leave Raj with nothing to show for his efforts, IRS did give him a couple additions to tax for late payment, late filing and failure to file estimateds (hi, Judge Holmes).

Raj petitions. STJ Yuda regretfully tosses Raj’s petition.

Check out Section 6665(b).

“…the additions to tax under section 6651 are not attributable to a ‘deficiency in tax described in section 6211’. Sec. 6665(b)(1). Likewise, the additions to tax under section 6654 are not subject to the deficiency procedures because petitioner filed delinquent tax returns for the years in issue. See Wilson v. Commissioner, 118 T.C. 537, 540-541 (2002) (the Commissioner may summarily assess additions to tax under section 6654 arising from delinquently filed tax returns). It follows that the notice of deficiency is invalid and we are obliged to grant respondent’s motion to dismiss.” Order, at p. 3.

So Raj is out, and has to go the file-for-a-refund-and-sue-in-USDC route. But in a small-claimer, even if the delinquent had reasonable cause and made a good-faith effort that in a tax deficiency case would carry the day, how many taxpayers have the wherewithal to do that?

STJ Yuda understands, but is helpless.

“As a final matter, petitioner asserts that it is inequitable to deny him the opportunity to petition this Court. As we have previously said in similar cases: ‘We recognize the difficult position in which petitioners are placed by not being able to come to the Tax Court to test the validity of the respondent’s action in asserting the penalty. Nevertheless, that is the law and we must take it as we find it.’ Wilson v. Commissioner, 118 T.C. at 541 (quoting Estate of Scarangella v. Commissioner, 60 T.C. 184, 186-187 (1973)).” Order, at p. 3.

It’s a forlorn hope, but maybe Congress could do something to help. Yeah, I know, but “hope springs eternal.”

Failing that, maybe self-reporters in such a situation as Raj’s might go a couple bucks short (hi again, Judge Holmes) on their belated returns, to draw IRS into a real deficiency, and get their day in court.

See my blogpost “Repeat Business,” 5/3/18. Once again my prediction comes true; I said then that I was sure these players would be back again, and Michael C. Worsham, 2019 T. C. Memo. 132, filed 10/1/19, certainly fills the bill.

Take a look at my blogpost above-cited, and the blogpost therein referred to, for the backstory on Mike.

Mike’s got the usual protester “basis in labor” and “undelegated signer” arguments, that fall flat. I won’t go over them here.

But Mike has a new one: Section 6673 is unconstitutional because, says he, it inhibits Mike’s free speech.

I’ll let Judge Colvin take this one.

“First, section 6673 does not apply to, and therefore does not discourage, legitimate arguments.  There is no constitutional right to litigate frivolous claims without being sanctioned. Banat v. Commissioner, 80 F. App’x 705 (2d Cir. 2003); Sterner v. Commissioner, 867 F.2d 609 (4th Cir. 1989); Dixon v. Commissioner, 836 F.2d 546 (4th Cir. 1987), aff’g T.C. Memo. 1986-563; Larsen v. Commissioner, 765 F.2d 939, 941 (9th Cir. 1985).  Second, petitioner cites no authority holding that it is unconstitutional for a sanction to apply unequally to taxpayers and the government, and section 6673(a)(2)(B) authorizes the Court to impose costs on Government counsel who engage in unreasonable and vexatious litigation. Section 7430 entitles taxpayers, but not the Government, to payment of litigation expenses under certain circumstances.  Petitioner cites some rules from other courts which apply to both parties, but the existence of those rules does not address the constitutionality of a statute which does not apply equally to both parties.  Thus, we hold that section 6673 is not unconstitutional.” 2019 T. C. Memo. 132, at pp. 14-15.

But stick around. IRS moved for Section 6673 chops, and Judge Colvin will deal with that separately.

Judge Elizabeth A (“Tex”) Copeland had a timeline to unravel in Tramy T. Van, Docket No. 4460-17, filed 10/1/19, and it’s quite a tangled one. Seems that there were three (count ‘em, three) separate SNODs, spread over two years. Only two of the SNODs touched the year Tramy is petitioning. But Tramy claims she’s petitioning all three years covered by the three SNODs, even though she never received any.

IRS sent them to Tramy’s last known address, which was the address only of ex-husband Danny Chan. Tramy filed two petitions, but the second of them was tossed because it petitioned the first of the three SNODs, which had been mailed to last known address two years before (although IRS couldn‘t find the certified mail list, claimed at first that the petition was valid, and tried to toss Tramy’s second petition as duplicative).

So Tramy’s petition 1, petitioning SNOD 3, is timely. Clear? Thought not.

But is it a petition? “To be treated as a petition from a particular notice of deficiency, the document filed by taxpayers within the 90-day period must contain some objective indication that the taxpayer contests the deficiency determined by respondent against the taxpayer.” Order, at p. 6. (Citations omitted).

And the petition (or an amendment thereof) must let IRS know something about what bœuf the petitioner has. “Further, our Court Rules provide a petition must be ‘complete so as to enable ascertainment of the issues intended to be presented.’ Rule 34(a). ‘[T]he propose [sic] of [a petition, along with other pleadings filed in this Court] is to give the parties and the Court fair notice of the matters in controversy and the basis for their respective positions.’ Rule 31(a).” Order, at p. 6.

“Propose”? Somebody needs to proofread these orders.

Well, Tramy seems to have got it right. “In paragraph six of Petition #1, petitioner contests ‘all’ changes to her [year at issue] return with respect to her as an individual and her two businesses, Tramy Beauty School (Partnership) and Tramy Beauty School, Inc. (S Corp).” Order, at pp. 6-7.

Now just because she didn’t get the SNOD in the mail doesn’t preclude Tramy from contesting the year covered by the SNOD, or any interrelated year (a NOL carryforward from the year at issue got disallowed in the SNOD she petitioned).

I’ll let Judge Tex lay it out.

“Under our precedent, Notice #3 was deemed to be received by petitioner because it was mailed in accordance with section 6212(b). This safe harbor, however, does not prevent petitioner from access to the Court because she was unaware of a deemed received notice when she filed Petition #1. Rather, we use a snapshot in time approach; petitioner explicitly contests any redetermination with respect to [year at issue] in Petition #1; she observed that a year at issue in the notice she actually received are interrelated to [year at issue], and as such, brought it to respondent and the Court’s attention. Stated differently, in the Petition #1 case, respondent’s Notice #3 is valid, petitioner contested respondent’s redetermination within 90 days of such notice, and although she asserts she did not receive a [year at issue] notice, in Petition #1 she explicitly contested ‘all the IRS’s changes to the tax returns examined for the applicable tax years ending [year at issue] through [year three].’ Thus, the Court has jurisdiction over the [year at issue] in the Petition #1 case because it satisfies the statutory requirements under sections 6212(b) and 6213(a), and contains an objective indication that petitioner asked us to redetermine the deficiencies respondent determined against her for the [year at issue.” Order, at p. 7.

Judge, I wish you’d designated this order. There’s stuff here that practitioners should know.