Unlike the Light Brigade, Appeals has to reason why IRS terminated an IA. So says Judge James S (“Big Jim”) Halpern, in Don R. Means, Docket No. 2018-17L, filed 8/7/19.

Don fell foul of some tax shelters and got heavy-duty deficiencies. Don, being retired, entered into an IA, but two years later IRS terminated same, and gave Don a NITL at no extra charge. Don sent in a Letter 12153, and asked Appeals why they dumped his IA.

Articulation didn’t come easy to IRS, but finally they came up with the following, after Appeals issued a NOD sustaining the NITL.

“In the Attachment to the Notice of Determination issued to petitioner, Respondent states that he did not know why the installment agreement was terminated. SO R’s notes from the hearing states the same. Yet, notes taken by another one of respondent’s agents…appear to indicate the termination may have been attributable to petitioner’s ex-wife. Respondent’s Answer to Mr. Means amended petition responds to his contention that he received no explanation of the termination by alleging that SO R informed him that it may have been due to a failure of Mr. Means, his ex-wife, or both, to provide the IRS updated financial information.” Order, at p. 3, footnote 1 (Name omitted).

Well, that’s a wee bit thin for Judge Big Jim. Section 6159 requires a notice of termination, with a 30-day lead time, stating the reason. The hodgepodge that SO R found satisfied Section 6159 didn’t satisfy Section 6331(k)(2)(C), which bars collection activity while an IA is in effect.

“Because there is no mention in the Notice of Determination of SO R’s verification of section 6159(b)(5)’s requirements being met nor any conclusive indication in the record that respondent provided such notice to petitioner, we hold that SO R failed to properly verify that ‘the requirements of any applicable law or administrative procedure’ were met as required by section 6330(c)(1). Furthermore, in the absence of such verification, we cannot agree with respondent that SO R’s determination comports with section 6330(c)(3). We therefore conclude that SO R’s determination sustaining the proposed levy was an abuse of discretion.” Order, at p. 3.

But Don isn’t home free, because SO R’s team gets a mulligan.

“For the reasons elaborated upon above, we remand this case to Appeals for a supplemental hearing to investigate whether the requirements of section 6159(b)(5) were met. On remand, if it is determined that respondent did not provide proper notice to petitioner regarding his intent to terminate the installment agreement, petitioner should either be given an opportunity to continue making payments under it to satisfy his unpaid liability for the years in issue or otherwise be provided proper notice of the intended termination, with the right to appeal, pursuant to sections 6159(b)(5) and (e) and the regulations promulgated thereunder.” Order, at pp. 3-4.

A very wise former law partner, now regrettably deceased, used to say that the trouble with winning your case short of dismissal with prejudice is that you educate your adversary.

We all know that when a nonrequesting spouse wants in on innocent spousery, Rule 325(b) requires the wannabe intervenor to jump in within 60 (count ‘em, sixty) days of the Notice from IRS spelling out what the wannabe has to do.

Pam Elliott wants in on Jeffrey C. Elliott, Docket No. 10341-18, filed 8/7/19.  Jeff petitioned the denial of his Section 6015 a year ago May. Pam only moved to intervene this June, a wee bit late.

Judge Buch designates this one, as it’s a checklist for latecomers.

There’s a four-part test for allowing late intervention. First is whether the wannabe knew about his/her right to intervene. Pam certainly got the notice, but she claims she had no lawyer and didn’t know her rights.

“Ms. Elliott blames the delay on the fact that she was not initially represented by counsel and did not understand her procedural rights. But the Commissioner’s notice to Ms. Elliott spelled out those procedural rights in clear and simple language.” Order, at p. 3. No go.

Second is prejudice to the petitioner. Jeff claims he’s incurred fees to work up his case without Pam’s presence. But he has no evidence, and that swings the balance. “Mr. Elliott claims he will suffer prejudice because of the various fees he accrued while Ms. Elliott remained silent. But he provided no evidence of such fees. And a cursory review of the docket reveals no meaningful activity taking place in this case since it was first docketed. Other than his bare assertion, there is no evidence that Mr. Elliott would incur any additional expense as a result of the delayed intervention.” Order, at p. 3. Also no go.

And while Jeff isn’t prejudiced (or can’t show he is), Pam is certainly prejudiced if she can’t contest Jeff’s claim. Looks good for Pam.

Finally, unusual circumstances. But nobody claims any such.

Judge Buch notes that there’s a deficiency redetermination case that Jeff started back in February, involving the same liability Jeff wants to duck. Pam intervened in that one. Looks very good for Pam. She gets in.

No, not the character immortalized by the late great Anne Bancroft on the screen, and Paul Simon on the disc. This is another Taxpayer First, Beverly Robinson, Docket No. 12498-16, filed 8/6/19, a designated hitter from Judge Elizabeth A. Copeland.

Thanks for the designation, from a tired blogger, Judge; it’s been a long day.

Ms. Robinson is seeking innocent spousery. Her case went to trial a year ago February.

“The parties filed with the Court a Joint First Stipulation of Facts consisting of51 paragraphs and Exhibits 1-J through 6-J, 8-R, 9-J through 52-J. The parties also filed a Joint First Supplemental Stipulation of Facts consisting of two paragraphs and Exhibits 53-J, 54-J, 55-P through 57-P. At the trial, petitioner moved to admit Exhibit 58-P which was admitted into evidence. The entire administrative record was not presented or received into evidence.” Order, at p. 1.

Judge Chiechi tried the case before she retired. There were a couple witnesses (hi, Judge Holmes).

So what?

Well, enter the Taxpayer First Act on July 1 this year, before Judge Copeland, in relief of Judge Chiechi, could decide the case.

Section 1203(a)(1) of the Taxpayer First Act puts all the evidence on the table. “Any review of a determination made under this section [Section 6015] shall be reviewed de novo by the Tax Court and shall be based upon (A) the administrative record established at the time of the determination, and (B) any additional newly discovered or previously unavailable evidence.” Order, at p. 1.

And Taxpayer First Act applies to all “petitions or requests” pending on date of effectiveness.

So Judge Copeland tells IRS and Ms. Robinson to weigh in on the effect of the Taxpayer First Act on this case.

I make the morning line 8 to 5 the record gets reopened to put the administrative record all-in.

The cliché would say “cup of tea” for my colleague, Peter Reilly, CPA, ace Forbes blogger and Section 183 maevin (please pardon arcane technical term), but Kent Alan Wegener and Shinae Wegener, 2019 T. C. Memo. 98, filed 8/6/19, fail both the Section 162 “ordinary and necessary business expense” and the Section 212 “activity engaged in for production of income” test. And with no income but a big loss, the Section 183 hobby loss rules don’t help, either.

Kent was a big-ticket executive, specializing in international finance. He got big-ticket deficiencies from trying to write off his investments in Ghanaian cocoa farms, and his “rescue” of African refugees from countries neighboring Ghana. See infra, as my high-priced colleagues say, for the reason for the quotation marks.

Kent took his hefty salary and a lot of his IRA squirrelings and lent same to various Ghanaian cocoa farmers, in the hope of being first repaid his capital and then splitting the profits fifty-fifty. Kent maintained these were loans to partnerships, as the farmers titled in their land, “improvements, unharvested crops, and inventories of salable farm products.” 2019 T. C. Memo. 89, at p. 5.

These were also foreign partnerships, if indeed they were what US law would so characterize. So TEFRA plays no role here. The issue is what Kent could deduct, not anything to do with the “partnerships.”

Now my hip readers say, “But Kent was here in the Land of the Free, at his big-ticket job. So where is ‘continuous, regular, extensive activity’?”

Judge Goeke has the same question.

“Petitioner has not established that he was sufficiently regularly and actively involved in cocoa farms’ operations for it to constitute a trade or business, and it seems improbable that he could have been, given the fact that the farms were across the world and he worked full time as a vice president….  Rather, he made financial investments in the farms to acquire half of the farmers’ assets and lent money to the farmers.  Under the partnership agreements, he received 50% ownership of the land and other assets and the right to 50% of future profits.  He invested in farms that were unable to pay their expenses and did not have sufficient funding to harvest their current crops.  He believed that with better management the farms could be profitable.  The farmers continued to manage the day-to-day operations, but the farms also engaged a business manager often chosen by petitioner.  Petitioner’s limited involvement in the farms, primarily wiring money to individuals in Ghana, does not rise to the level of the regular and active involvement required to establish a trade or business and deductible business expenses under section 162.

“Even if petitioner could establish that his activities constituted a trade or business, he has another problem.  He stated that the bulk of his deducted expenses were in fact loans that he expected to be repaid.  Transfers made with the expectation of repayment are loans, and we have repeatedly held that they are not deductible business expenses. This is true even where the prospect of repayment is doubtful.  Therefore, even if petitioner had established a trade or business, he would not be entitled to deduct the loans under section 162.” 2019 T. C. Memo. 89, at pp. 14-15. (Citations omitted).

It doesn’t get better for Kent.

“Each of these factors weighs against petitioner with respect to both the farming and the rescue services.  He engaged in the activities primarily through email and online chat services.  He had no expertise in cocoa farming, helping persons immigrate, or transporting large sums of money into the United States.  His full-time job limited his ability to be regularly and actively involved in either activity.  The activities were structured so that he would have to invest minimal time and effort.  His contribution was almost exclusively financial.  He had no expectation that the farm’s real estate would appreciate in value.  He had no success at these or any similar activities; he had no income for the years at issue from these activities and no profit.  Petitioner had a substantial IRA and earned an annual salary of over $200,000.  It appears his finances suffered as a result of his activities; he reported over $500,000 in IRA and pension distributions for the years at issue.  Finally, the record suggests a personal relationship with some Ghanaian farmers, indicating elements of personal pleasure or recreation.  We find that petitioner did not engage in his cocoa farming or rescue service activities with the primary purpose and intent of making a profit.” 2019 T. C. Memo. 89, at pp. 18-19.

In fact, it gets even worse.

“Petitioner also deducted business expenses related to his purported rescue services on Schedules C for ‘monies spent to enter new line of business’ of $28,065 and $3,950….  The Ghanaian Government and the United Nations High Commission for Refugees (UNHCR) established refugee camps in Ghana for persons fleeing conflict and political turmoil in neighboring west African countries.  Persons representing themselves as diplomats or officials working with the UNHCR contacted petitioner online and asked him to help families from the refugee camps immigrate to the United States. Petitioner’s principal means of contact with these individuals was online.  He believed that the refugees were former members of an overthrown government or executives of a large diamond company.

“As part of the rescue services, the contacts represented to petitioner that the refugee families had substantial wealth and needed assistance with physically transferring their wealth to the United States.  The contacts further represented that petitioner would receive a substantial portion of the families’ wealth upon their immigration to the United States as compensation for his assistance.  Petitioner transferred his own money to his contacts for the purported purpose of paying the expenses incurred to physically transfer the refugees’ money to the United States through the delivery and consignment of metal trunks containing cash and/or other assets.  He received correspondence with letterheads from the U.S. Customs and Border Protection Services, the United Nations General Assembly, the U.S. Department of Homeland Security, various ministries within the Ghanaian Government, and airport security or storage facilities in California, among others.  He received certificates labeled as from the World Bank, the International Monetary Fund, and the Supreme Court of Florida, among others.  Petitioner never helped anyone successfully immigrate to the United States and did not receive any payment for his services or repayment of the amounts he had advanced.  Over the course of at least one year he received emails identifying a series of new obstacles to the delivery of the refugees’ money and seeking additional funds allegedly needed to overcome these obstacles to the delivery.” 2019 T. C. Memo. 89, at pp. 7-9.

I’ll let Judge Goeke characterize this “business.”

“He appears to be the victim of a scam.  We sympathize for his situation, but such activity is not a trade or business that gives rise to deductible expenses.” 2019 T. C. Memo. 89, at pp. 16-17.

Kent, meet Greg and Sue Raifman. Or see my blogpost “An Unerring Nose for Fraud,” 2/27/15.

Like the famous curate’s egg in 19th Century English humor, an accountant’s advice can be good in parts. At least, good enough to avoid Section 6662 chops, in part.

Rodrigo Kho and Loreta Kho, 2019 T. C. Sum. Op. 18, filed 8/5/19, is the usual unsubstantiated deductions story, but CSTJ Lewis (“Love That Name”) Carluzzo salvages some business home use deductions.

But the kicker is the accountant and CSTJ Lew’s salvage operation.

“Considering all the facts and circumstances, including petitioners’ good- faith reliance on the assistance of an accountant in preparing their tax returns for the years in issue, we conclude that petitioners have shown reasonable cause and that they acted in good faith in respect of the portions of the underpayments that are attributable to the disallowance of deductions for depreciation and business use of home expenses claimed on their Schedules C for [Year A and Year B] and the dependency exemption deductions claimed for [Year B] Therefore, we hold that petitioners are not liable for section 6662(a) accuracy-related penalties in respect of those portions of the underpayments. In contrast, petitioners’ explanations for claiming personal expenses as business expenses on their Schedules C and their failure to substantiate payments of the ‘qualified tuition and related expenses’ shown on the Form 8863 and charitable contributions for [Year A and Year B] do not demonstrate that they acted with reasonable cause and in good faith with respect to the portions of the underpayments attributable to those adjustments, and we, therefore, conclude that petitioners are liable for the penalties in respect of those portions of the underpayments.” 2019 T. C. Sum. Op. 18, at pp. 23-24.

I had suggested a year ago that Patrick Combs was “definitely not a keeper.” See my blogpost “Not A Keeper,” 8/3/18. But Judge Mark V. Holmes was prepared to drop the Section 6673 frivolity chop if Pat the Monologist came clean and settled with IRS.

Does Pat the Monologist straighten up and fly right?

Today, ex-Ch J Michael B (“Iron Mike”) Thornton gives me no reason to revise my earlier opinion.

Ex-Ch Iron Mike Thornton thinks Pat the Monologist hasn’t taken Judge Holmes’ advice to heart, so Pat the Monologist gets a $2500 Section 6673 on top of the deficiencies resulting from constructive dividends from his tax evasion game. For details, see my above-referred-to blogpost and Patrick Combs, 2019 T. C. Memo. 96, filed 8/5/19.

Pat the Monologist has a wholly-owned C Corp to funnel cash to him and significant other. The test is E&P plus payment to shareholder of non-deductible expenses with no expectation of repayment.

“Petitioner offered into evidence, without meaningful explanation, hundreds of pages of photocopied receipts, expense ledgers, spreadsheets, and various other unsorted documentation. These materials are not linked in any meaningful way to respondent’s adjustments. At trial petitioner attempted selectively to link a very few of these items to deductible expenses of [C Corp]. We did not find his testimony as to these few items credible or adequate to show that any particular item represented an ordinary and necessary business expense of [C Corp.].” 2019 T. C. Memo. 96, at p. 15 (footnote omitted, but it says that having used Holcomb’s dodge, Pat the Monologist’s testimony gets “heightened skepticism” from Ex-Ch J Iron Mike).

Moreover, Pat the Monologist persisted in his old ways, despite Judge Holmes’ yellow card.

“Throughout these proceedings petitioner has advanced frivolous and groundless positions. He has been warned repeatedly about the possibility of a penalty under section 6673(a). Nevertheless, he has persisted in his misguided course of conduct, causing this Court and respondent to waste significant time and resources. It appears to the Court that petitioner’s position in this proceeding is frivolous and groundless and that he has instituted and maintained these proceedings primarily for delay.” 2019 T. C. Memo. 96, at p. 22. (Footnote omitted, but it says Pat the Monologist put Holcomb’s arguments in on the trial).

At least when STJ Diana L (“Sidewalks of New York”) Leyden can find a way to help him/her. And today STJ Di has legislative largesse to bestow upon Thomas Shands, Docket No. 13499-16W, filed 8/2/19.

I’ve long objected to the stiff-arming and stonewalling with which the Ogden Sunseteers treat the blowers. I don’t mean the serialists or cottage-industrialists who tie up Ogden and Tax Court with some stuff they scrounged from EDGAR, or who play hunches. I mean the honest blower.

Tom wants some info, but IRS plays the time-worn Section 6103 gambit: sacred taxpayer info. Tom claims it isn’t, and counters with Section 6103(h)(4)(B) necessity.

STJ Di held a hearing back in October, and was going to get around to doing an in camera, but just last month the Taxpayer First Act, Sec. 1405 thereof, added Section 6103(k)(13)(A) to the blower’s armory.

“(A) IN GENERAL.-The Secretary may disclose, to any individual providing information relating to any purpose described in paragraph (1) or (2) of section 7623(a), return information related to the investigation of any taxpayer with respect to whom the individual has provided such information, but only to the extent that such disclosure is necessary in obtaining information, which is not otherwise reasonably available, with respect to the correct determination of tax liability for tax, or the amount to be collected with respect to the enforcement of any other provision of this title.” Order, at p. 2.

And the statute applies to all disclosures from and after 7/1/19.

So, Tom and IRS, remand? Discuss whether Section 6103(k)(13)(A) applies, and give STJ Di the results of your lucubrations.

Time for a shout-out to a well-known NYC law firm’s FL branch; H&K, go for it!

Cross Refined Coal, LLC, USA Refined Coal, LLC, Tax Matters Partner, Docket No. 19502-17, filed 8/1/19, has been a good source of blogfodder, but today that Obliging Jurist, Judge David Gustafson, has outdone himself.

Here is an essay on the trial subpoena to nonparties per Section 7456(a)(1), and its proclivity to subvert Rule 70(a)(2) and the play-nice discovery that pervades Tax Court litigation. And give us stealth on steroids.

IRS hits six (count ‘em, six) nonparties with trial subpoenas, the Cross Colliers want them quashed, but the nonparties apparently don’t care.

“We are sympathetic to petitioner’s complaint about the possible difficulty it might suffer from having to review newly produced documents during trial for purposes of determining whether petitioner should object to their admission into evidence. However, we do not yet know whether there will in fact be any documents produced by the third parties, nor whether respondent will offer them into evidence, nor in what quantities. If respondent’s use of the subpoenas actually were to result in prejudice to petitioner, then its objections on that basis could be evaluated at that time.

“Our standing pretrial order does requires that exhibits be exchanged before trial, and sometimes an exception to this requirement is made in the case of documents received from a third party at the trial session, where the proffering party had no prior opportunity to receive and exchange them. However, if respondent’s use of the subpoenas in this case were to result in a large number of previously undisclosed documents being offered at trial, we would expect to inquire about whether the last-minute production of the documents was actually imposed on respondent through no fault of his own, or whether instead the subpoenas were a blameworthy last-minute attempt to obtain documents that he could have attempted to obtain in time to comply with the standing pretrial order. But we will not now try to anticipate and adjudicate that dispute, since it may not even arise. For that reason,we will deny without prejudice petitioner’s request, ‘[i]n the alternative, … [that] the Court should prohibit the introduction of subpoenaed documents at trial.’” Order, at p. 2. No quash, though.

True, we don’t know what, if anything, the six, or any of them, has or has not. But if there is any serious doubt about what any of them has, this is the biggest fishing expedition since Jonah’s unsuccessful bail on the trip to Nineveh.

And the prospect that, at calendar call, or worse, on a date and time certain, six eighteen-wheelers pull up to the courthouse, each drops its tailgate, and turns a forklift loose on forty million (count ‘em, forty million) documents, is too frightening to contemplate.

If you think I’m being unusually hyperbolic, re-read my blogpost “The Forty Million – Part Deux,” 5/15/15.

Discovery geeks may salivate, but trial lawyers blench.

This is a golden opportunity for wags, wits, wiseguys and wiseacres to play games.

Time for a legislative fix.

And, Judge Gustafson, please oblige this poor blogger by designating orders like these. Even though you must admonish the Cross Colliers “Petitioner cites orders in its motion, but we remind petitioner that ‘Orders shall not be treated as precedent’. Rule 50(f).” Order, at p. 2.

The latest in the series that I have found is Ream Hanna, Docket No. 22599-18, filed 8/1/19. That’s not to say that a couple other “dissions” (hi, Judge Holmes) haven’t escaped my eagle eye.

It’s the usual story. Ream was tossed for nonpayment after having been told twice to ante up the sixty bucks. Two months later, Ream and IRS come to terms and stip out.

“To permit entry of the stipulated decision” (Order, at p.1), Ch J Maurice B (“Mighty Mo”) Foley vacates the toss.

Yesterday Geofrey Austin Calvert got tossed two (count ‘em, two) days after his petition cleared the threshold of the Glasshouse at 400 Second Street, NW, because the sixty bucks wasn’t stapled thereto.

So I assume if Geofrey Austin can stip out, he gets his “dission” for free also.

The star of my blogpost “A. Nonymous, Serial Blower,” 6/28/17, took my advice, and took up Judge James S (“Big Jim”) Halpern’s suggestion, and ran to DC Cir to maintain his anonymity. And got help from a court-appointed amicus; Mr. Qian and his team get a Taishoff  “Good job!”

And my colleague Peter Reilly, CPA, ever on the trail of follow-ups to my blogposts, has found In Re: Sealed Case, 124 AFTR 2d 2019-XXXX, filed 7/26/19.

And Senior Circuit Judge Ginsburg doesn’t buy Judge Big Jim’s need to tell all.

Judge Big Jim thought that serial blowers, using publicly-available information and with no inside dope, therefore bound to lose under Section 7623, should be made known.

Judge Ginsburg: “It simply does not follow that the public must know the serial filers’ names in order to determine either the extent to which serial filers affect the work of the Tax Court or whether any particular whistleblower is a serial filer. As the Appellant correctly points out, the Tax Court can serve those interests by alerting the public to the serial filer’s history and by explaining the burdens that serial filers impose upon the court; indeed, that is precisely what it did in this case. The use of a unique pseudonym (John Doe, Jane Roe and the like) in all the cases filed by a particular filer would similarly inform the public in the two respects identified by the Tax Court.” (Citation omitted).

A. Nonymous remains A. Nonymous, and the serial goes unspilled.

Thanks, Mr. Reilly.