I asked for it, but didn’t get it. Ch J Maurice B (“Mighty Mo”) Foley gave me a bunch of Tax Court Rules changes (see my blogpost “Stealth Shot Down,” 11/21/19) today, but updating Rule 147 wasn’t one of them.

So the Stealth Subpoena is alive and well, surviving from the eighth decade of the last century of the last millennium unto the second decade of first century of the present millennium. Should be vested in the pension plan by now.

But the good news is that you can come up with the sixty Georges to file your petition via PAY.gov.

The bad news is that the application fee for admission is now $50.00, and the fee to take the test for non-attorneys is now $150.00.

Check the whole thing out here.

Edited to add, 11/27/19: I failed to note that the PAY.gov feature had been added back on 11/30/18.

Reference is made to my blogpost “Another Taishoff ‘Oh Please,’” 2/24/14. But this time IRS gets it right, and tips off Ch J Maurice B (“Mighty Mo”) Foley to his miscue.

Dmitriy Tsibulskiy, Docket No. 15660-19, filed 11/22/19, has a resuscitated docket no., because Ch J Mighty Mo sua spontedly closed his present one (15660-19) as duplicative of the earlier one (2456-19).

IRS, filing a response as directed in the earlier one (2456-19), pointed out there was no NOD for any of the four (count ‘em, four) years that Dmitriy petitioned, and he was too late for the SNOD they had issued back in 2010. By about nine (count ‘em, nine) years.

But the latest SNOD (one for one of the four years Dmitriy petitioned) was issued before Dmitriy’s petition.

Dmitiry is timely for that year, if the heretofore-duplicative docket no. returns to life.

So Ch J Mighty Mo vacates his earlier order, closes the earlier docket, and resuscitates the later one.

And IRS can file “an appropriate jurisdictional motion” (Order, at p. 2) in the current case.

Ch J Mighty Mo is quick off the mark, but maybe this time too quick.

And Elisa M. Gonzalez, Esq., of OCC, gets a Taishoff “Good Going, First Class.”

No, this is not a war story. At least, not that kind of war story. But today that Obliging Jurist Judge David Gustafson has joined Judge Mark V Holmes and your reporter in shooting down the Stealth Subpoena, thereby bringing Tax Court into the last decade of the Twentieth Century.

With luck, we might make it to the second decade of the Twenty First.

Here’s Reflectxion Resources, Inc., Docket No. 12017-16, filed 11/21/19.

All y’all (going to Texas next month, so have to warm up to make sure my nearest and dearest will understand me) will remember the Reflectxologists. They were here just a couple weeks (hi, Judge Holmes) ago.

See my blogpost “Stealth Countermeasures,” 11/6/19, wherein I expressed this pious hope: “But maybe, just maybe, when IRS answers as Judge David Gustafson obliges them to do, they will stop the games and announce that, now and forever, they will notify parties when they subpoena non-party witnesses, just like the FRCP 45(a)(4) says, despite the lethargy at 400 Second Street, NW, on that score.”

Nevah hoppen, GI.

Judge Gustafson goes surface-to-air to shoot down the Stealth Subpoena “(F)or the reasons stated in petitioner’s motion, and over the objection of the Commissioner (Doc. 72)….” Order, at p. 1.

I’d love to see how IRS articulates its deep-seated opposition to complying with a Federal Rule of Civil Procedure of more than twenty five (count ‘em, twenty five) years’ standing, that every litigant, be it individual, corporate, pro se, represented, or entity, and every attorney, be they white-shoe,  single shingle, or small firm, and every government, NGO, quasi-governmental, and anyone I left out, save IRS in Tax Court only, have complied with without demur.

But Doc. 72 is stored in The Glasshouse Equivalent of Area 51, where PACER cannot tread, so one must trek to 400 Second Street, NW and beg for a peek at same.

Howbeit, Judge Gustafson orders an all-round show-and-tell.

“ORDERED that, when a party serves a subpoena on a non-party commanding the production of documents, electronically stored information, or tangible things or the inspection of premises before trial, then the party serving that subpoena shall serve a copy of that subpoena on the opposing party before the subpoena is served on the person to whom it is directed.” Order, at p. 1.

And just in case IRS used the interval between the original discovery schedule and today to send in a few Stealth Subpoenas, “…if, before the issuance of this order, either party has already served on a non-party a subpoena commanding the production of documents, electronically stored information, or tangible things or the inspection of premises before trial, then the party who served that subpoena shall serve a copy of that subpoena on the opposing party no later than December 2, 2019.” Order, at p. 2.

And just to keep the stealth stealthy, Judge Gustafson didn’t designate this order.

Note to Ch J Maurice B (“Mighty Mo”) Foley: Ex-Ch J Michael B (“Iron Mike”) Thornton sent out some proposed Rule changes in November a couple years ago (hi again, Judge Holmes). Why not make our Thanksgiving truly thankful this year by bringing Rule 147 into the last decade of the last millennium?

IRS goes two for three today before CSTJ Lewis (“That Name Should be in Lights”) Carluzzo, who designates George Luniw, 17789-16SL, filed 11/20/19.

All y’all will recollect George, whose trifecta of 1040s (or maybe they weren’t all 1040s, but copies) so befuddled STJ Diana L (“Sidewalks of New York”) Leyden a year ago last March. If you don’t so recollect, see my blogpost “Three in One or One in Three?” 3/8/18.

George is clearly a fellow-rounder with Gwen Kestin, whose seven (count ‘em, seven) 1040s, including without limitation original and copies, gave me my blogpost “From the Serious to the Frivolous,” 8/29/19. Gwen got hit only for the original, not the salvo of copies.

But George doesn’t do as well as Gwen, who got seven frivolities for the price of one Section 6702 chop.

IRS goes two for three, as above-stated, but George still gets three for the price of two.

Number One is so clearly frivolous that STJ Lew only cites Crain without the “somber reasoning and copious citation of precedent” lingo. George is an all-zeroes type.

Number Two is next. “A second…Form 1040 (second Form 1040) was received by respondent…. The second Form 1040 was submitted by petitioner apparently in response to a letter… advising petitioner that respondent made changes to the first Form 1040. See sec. 6213(b)(1). Along with the second Form 1040, petitioner  submitted an affidavit of mailing in which the second Form 1040 is characterized as a ‘corrected return’. The second Form 1040 was printed from a digital image of a Form 1040 created by petitioner and apparently stored on an electronic device owned by petitioner, or to which petitioner has access. Both the first Form 1040 and the second Form 1040 show identical entries and both bear Petitioner’s original signature. The second Form 1040 also satisfies the definition of a frivolous return for the same reasons that the first Form 1040 does and again, we need say nothing more on the point.” Order, transcript, at p. 5.

Number Three is a knuckleball.  “A third…Form 1040 (third Form 1040) was received by respondent… apparently in response to a letter… advising petitioner that respondent considered the first Form 1040 to be a frivolous income tax return, subject to a section 6702(a) penalty. Like the second Form 1040, the third Form 1040 was printed from a digital image of the Form 1040 created by petitioner and apparently stored on an electronic device owned by petitioner, or to which petitioner has access. The entries on the third Form 1040 are identical to the entries on the first and second Forms 1040, except it is unclear whether the third Form 1040 bears petitioner’s original signature. In an affidavit of mailing included with the third Form 1040 petitioner characterizes the first Form 1040 as his ‘original’ 1040 (actually he refers to the form as a ‘2040’ but that reference is an obvious error), and he again characterizes the second Form 1040 as a ‘corrected 1040’, but he describes the third Form 1040 ‘enclosed’ with the affidavit as a ‘copy’.” Order, Transcript, at p. 6.

IRS whiffs on the knuckleball.

“Keeping in mind that the burden of proof with respect to the imposition of a section 6702(a) penalty rests with respondent, see section 6703(a), petitioner’s characterization of the third Form 1040 as a ‘copy’ constrains us to find that the third Form 1040 did not constitute the filing of ‘what purports to be a return of a tax’ within the meaning of section 6702 (a) (1) .” Order, Transcript, at pp. 6-7. Quoting Kestin, of course. So George goes down on Numbers One and Two, but gets Number Three at no extra charge.

I said it a few days ago: “Tax Court orders are where it’s at. It took me some time, but when I stated early on in this bloging life I lead that I would ignore small claimers and orders, I was utterly wrong.

“If anyone wants to see the gears meshing (or grinding), the wheels turning (or screeching to a halt), and which way the smoke is blowing, the orders are essential. The Stealth Subpoena is just one example; all the discovery moves, all the variances between Tax Court Rules and FRCP, all the gambits, are in the orders.” 26 USC § 2461, 11/13/19.

But this also brings to mind the raspy, cigar-roughened voice of my old law partner Sid (may he rest in peace), whenever I waxed rhapsodic about summary J. “Whether or not you win the motion, you educate your adversary.”

Now every rounder can bombard the service centers (and Gwen Kestin hit four (count ‘em, four) with endless copies (prominently labeled “COPY- SEE 153 T. C. 2) of frivolities, and get away with it.

No, I am not suggesting this.

Only Pay Your Taxes First

IRS gets summary J sustaining NITLs for two years at issue, although Judge Albert G (“Scholar Al”) Lauber tells Ronald Sylvester Sullivan, 2019 T. C. Memo. 153, filed 11/19/19, that he’s free at any time to file an OIC, or propose an IA, if he files his nine (count ‘em, nine) missing tax returns and proffers the requisite financial information. See 2019 T. C. Memo. 153, at p. 12.

Ron S.S. did none of the above in support of his CDP. He came to IRS’ attention only because of third-party reporting for two of said years, leading to unpetitioned SNODs.

To explain both why I posted this routine Memo., and why I have given such a mundane post this headline, let me quote only the following.

“Petitioner is a clinical professor of law at Harvard Law School and the faculty director of the Harvard Trial Advocacy Workshop and the Harvard Criminal Justice Institute.” 2019 T. C. Memo. 153, at p. 2.

Leciel L. Lowery, Jr., is a pilot on the Chesapeake, boarding incoming vessels on the bay and steering them to the harbor they were bound for. Leciel works in all weathers, clambering from the pilot boat (today’s version of the Baltimore clipper) to tanker and container carrier. At age 60, Leciel is wore out and plans to retire in eight years.

But Leciel L. Lowery, Jr. and Charlene A. Lowery, 2019 T. C. Memo. 151, filed 11/18/19,  also didn’t bother to pay nine (count ‘em, nine) years’ worth of income tax, which, with interest and chops, comes to $639,100.

IRS hits LLL with a couple NITLs (hi, Judge Holmes), LLL petitions the lot, and Senior Judge John Colvin gets to review the AOs work-up. It doesn’t cut it for Senior Judge John, so he remands, with a few hints to Appeals to steer a straight course.

LLL gets paid through the Pilots’ Association, which takes a bunch of stuff out of LLL’s pay, but the AO only allows some of the take-out. So Senior Judge John would like to know how LLL can pay with money he doesn’t get. “The AO did not treat amounts required to be withheld from petitioner husband’s distribution as reducing the amount of income available to petitioners because those expenses ‘were not allowed as expenses per the IRM.’ The AO did not cite an IRM provision to support that position…. On remand, the Appeals Office will have an opportunity to articulate the basis on which it determined that amounts subtracted from petitioner husband’s distribution should be treated as available to pay petitioners’ unpaid tax liabilities.” 2019 T. C. Memo. 151, at p. 11.

Likewise, the AO wants LLL to liquidate his IRA, but how is LLL to retire in his planned eight years? IRS claims he can make it back. Senior Judge John ain’t so sure. “We are unsure on what basis respondent concluded that eight years is long enough for petitioners to accumulate retirement savings in addition to fulfilling their other financial obligations.” 2019 T. C. Memo. 151, at p. 16.

And while you’re at it, Appeals, check out LLL’s age and physical condition and see if special circumstances don’t warrant not requiring LLL to liquidate his IRA.

LLL claims he had unreimbursed business expenses (overnight stays, special gear) and proffers credit card receipts to show same, but AO claims he never showed them. Well, Senior Judge John gives Appeals a chance to make it up, since there’s a letter in the record that shows LLL offering to provide same. Appeals shall “…review records previously made available by petitioners and consider whether or to what extent those records substantiate the amounts of petitioners’ reported unreimbursed expenses, and, to the extent respondent concludes that petitioners had unreimbursed employee expenses, why funds so expended should be considered available to petitioners to pay their back tax….” 2019 T. C. Memo. 151, at p. 18.

And Charlene is trustee under a trust created by her dad for her benefit and that of her two siblings. The only asset of the trust is a house in AZ that is rented but shows no income. Charlene has broad power to sell, so the AO wants Charlene to sell and hand over her share of the proceeds. But Senior Judge John reads AZ law to require trustees to act for benefit of all beneficiaries. So Appeals should check out AZ law to see if Charlene can sell to benefit herself, without regard to the other beneficiaries.

I want to give a Taishoff “good job” to Stephen P. Kauffman, Esq., and Terry L. Goddard, Jr., who represented LLL and Charlene. As they say in Gleesca, they are “verra thorough.”

That’s IRS’ response to Lior Blas, 2019 T. C. Memo. 152, filed 11/18/19. Lior was unemployed and uninsured, but, fearing the penalty (or is it a tax? Ask Chief Justice Roberts) mulcted upon the uninsured, Lior joined the Marketplace and got Affordable Care Act insurance.

He never got any bills, but he did get an insurance card. He also got a job, which paid him $83K, but provided no health insurance. Lior claims he never knew he was getting coverage and that our tax dollars were picking up his tab. But IRS knew, and hit Lior with a SNOD for the $8K of premiums his insurer got.

Lior claims “phantom income” and “never got a bill but IRS has burden of proof to show I got anything.”

Judge Vasquez don’t need no stinkin’ bills either, because preponderance of evidence.

“Despite the lack of billing statements for petitioner’s [year at issue] insurance coverage, the preponderance of the evidence establishes that petitioner was the beneficiary of APTC [advancxe premium tax credits] payments….  At trial respondent submitted business records from [insurer] and the Marketplace.  The Marketplace’s records establish that…petitioner applied for insurance coverage on the Marketplace website.  On his application petitioner reported household income of $15,000, which qualified him for monthly APTC payments of up to $765.  At trial petitioner acknowledged completing this application.

“[Insurer]’s business records establish that petitioner was enrolled in its … plan with a coverage start date of January 1 [year at issue].  In [year at issue] the monthly premium for this plan was $694, which is the same monthly amount reported on the Form 1095-A.

“We understand petitioner’s concerns about the lack of billing statements, which in different circumstances might support a finding that no APTC payments were made.  In this case, however, petitioner admitted applying for insurance through the Marketplace, and respondent provided evidence that he received insurance coverage for which APTC payments were made.  Thus, we find it more likely than not that petitioner was the beneficiary of the APTC payments. Although we are sympathetic to petitioner’s situation, we are not a court of equity, and we cannot ignore the law to achieve an equitable end.” 2019 T. C. Memo. 152, at pp. 9-10. (Citations omitted).

Lior also claims a casualty loss for the first time at trial. No evidence.

We have a designated hitter from Judge Gale, reversing an order from Ch J Maurice B (“Mighty Mo”) Foley, a rarity in the extreme. With the abundance of routine “OK to amend” orders, I can understand how this happens, and am glad it happens so rarely. I can easily see how any Ch J would get snowblind going through the daily barrage of routine.

Here’s William M. Hefley & Aimee J. Hefley, Docket No. 17455-16, filed 11/15/19. A quick internet search shows both Bill & Aimee are lawyers in the same firm. But not tax partners, apparently, as Aimee wants innocent spousery. But they both timely petitioned the same SNOD, and Aimee timely petitioned the NOD that bounced her innocent spousery, in the same petition.

Bill is listed as a criminal defense lawyer. So is Aimee. Bill may be a hot ticket in the Orange County, FL, criminal courts (the Aimee Hefley firm website says it specializes in DUI and domestic violence…cases, that is), but he needs to brush up his Tax Court skills. And send in the thirty Georges and a good standing cert to get on board.

Judge Gale: Bill “…electronically filed a Motion for Leave to File Amended Petition in which he sought leave to amend the petition to withdraw the challenge to the Notice of Determination. He purported to do so as ‘Counsel for Petitioner’. Attached to the Motion for Leave was an Amended Petition bearing the signatures of each petitioner. …the Court granted the Motion for Leave and filed the Amended Petition. The Amended Petition is identical to the Petition except that the references to the Notice of Determination are eliminated and an additional ground for contesting the Notice of Deficiency is added.” Order, at p. 1 (Footnote omitted, but it says “Objection to method of selection for audit as communicated by agent.” Greenberg’s Express, anyone?).

Judge Gale voids the motion to amend ab initio (that’s “from the getgo,” for you who went to reasonably-priced law schools).

“First, Mr. Hefley lacks authority to act on behalf of Mrs. Hefley with respect to review of the Notice of Determination. Although Mr. Hefley purported to act on behalf of Mrs. Hefley as her ‘counsel’ in the Motion for Leave, he has not entered an appearance in this case and in any event would be ineligible to do so because he is not a member of the Tax Court bar. More importantly, his purported representation of her is in direct conflict with the Model Rules of Professional Conduct in that Mrs. Hefley’s interests are adverse to his interests with respect to I.R.C. section 6015 relief. See Model Rule 1.7 Cmt. [1] (‘Loyalty and independent judgment are essential elements in the lawyer’s relationship to a client.’); see also Gebman v. Commissioner, T.C. Memo. 2017-184. Consequently, Mr. Hefley does not represent Mrs. Hefley and may not act on her behalf with respect to this Court’s review of the Notice of Determination. Second, although the Amended Petition contains what purports to be Mrs. Hefley’s signature, she stated in a telephone conference call between the Court and the parties on November 6, 2019, that she did not sign the Amended Petition.” Order, at pp. 1-2.

Judge Gale and I may be too harsh on Bill as regards the conflict of interest issue. In Gebman, supra, even the Great Chieftain of The Jersey Boys came unstuck on that score. See my blogpost “No Good Deed – Redux,” 9/18/17. I wish I knew all that Frantic Frank knows. For the rest, draw your own conclusions.

So what to do now?

When on a collision course, bifurcate.

IRS relied on the defective amendment and didn’t do any discovery on Aimee’s innocent spousery. Bill & Aimee disputed some of IRS’ initial discovery requests on Aimee’s innocent spousery, but IRS dropped taking that up with Judge Gale when Bill took innocent spousery off the table.

Judge Gale doesn’t say it, but post-Taxpayer First, which would apply here, IRS definitely needs all the discovery it can get, and then some. Judge Ashford, at least, will let everything in, new or old. See my blogpost “Taxpayer First – Maybe,” 10/16/19.

So try the SNOD issues first. Like on Monday, 11/18/19, as scheduled. But no evidence regarding Aimee’s alleged innocent spousery may be submitted thereat. And Judge Gale will schedule the innocent spousery trial later.

Don’t Count On It

It isn’t clear whether TAS issued a Section 7811 TAO telling IRS to withdraw the SNOD it handed Darline Augustine, Docket No. 12248-18L, filed 11/14/19. In any event, IRS didn’t.

All Judge David Gustafson tells us is that “Ms. Augustine had correspondence with personnel in the office of the National Taxpayer Advocate (‘NTA’) about a request that the IRS rescind the SNOD. The NTA stated that a rescission should be made, but no action was taken before Ms. Augustine’s deadline for filing a Tax Court petition; and it appears the SNOD was never rescinded.” Order, at p. 2.

Darline never engaged a LITC, although she said she was going to, and didn’t provide a completed Form 433-A. Notwithstanding same, the SO offered an IA, but Darline refused. Darline wanted to fight about liability, but it was too late. IRS gets summary J.

Questions arise. Was there a TAO? What happens if there is a TAO and IRS doesn’t comply? Tax Court clearly hasn’t jurisdiction to enforce the TAO, and hasn’t jurisdiction to review the SNOD once the magic 90 days is gone. Does TAS go to USDC for an injunction? Can the taxpayer?

Judge David Gustafson, once a purveyor of conundra to puzzle, bewilder, instruct and (dare I say it?) amuse practitioners, is not in the vein.

“Whatever else transpired among Ms. Augustine, SBSE, the NTA, and Appeals, it remains true that she received the SNOD and could have litigated her … liabilities in this Court if she had filed a timely petition seeking that relief. Moreover, even if her receipt of the SNOD were not determinative, she was also given an opportunity…to be heard by IRS Appeals on the issue of her underlying liabilities. This, too, was a prior ‘opportunity to dispute such tax liability’.

“We note that, if Ms. Augustine were to pay the tax in dispute, section 6330(c)(2)(B) would not bar her from filing a timely administrative claimed for refund and, if it were denied, timely litigating that refund claim in the district court or the Court of Federal Claims. See 26 U.S.C. secs. 6511(a), 6532(a), 7422(a); 28 U.S.C. secs. 1346(a)(1), 1491(a)(1). “ Order, at p. 7.

Takeaway—Get a TAO from TAS. Make it as broad as the TAS will allow. But petition anyway.

Edited to add, 11/16/19: I don’t see how TAS or the taxpayer can use the Courts to stop assessment or collection if TAS issues a Section 7811(b) TAO, and IRS assesses or collects anyway. Section 7421 (Anti-Injunction Act) makes no exception for Section 7811 TAOs. Did Congress overlook something, or is this another example of The Taxpayer Bill of Goods?

Woods v Com’r and Home Concrete taught us that building basis, even with a son-of-BOSS or similar give-and-go, doesn’t trigger 6SOL, because non-omission. Well, see my blogpost “Woods, Concrete & Sham,” 3/23/15. But whatever Judge Wherry teased out to help IRS in CNT, doesn’t work for Judge Pugh in Beverly Clark Collection, LLC, Nelson Clark, Tax Matters Partner, 2019 T. C. Memo. 150, filed 11/14/19.

IRS first argued built-up basis equals understatement, thus 6SOL, but abandoned that on the appeal post-Home Concrete, and argued sham. As the appeal was from summary J in favor of Bev and Nelson, no new facts, so only theory involved. 9 Cir sent Bev and Nelson and IRS back to Tax Court to sort out.

So is a sham transaction different from a basis-builder when it comes to 6SOL substantial understatement?

Negatory, good buddy, says Judge Pugh.

In the first place, omission means saying nothing. IRS is at a disadvantage, because they don’t even know the income was there. But if what you do state is the right type of income, but too low in amount, then IRS does know it was there.

Bev and Nelson reported 19.9%, and didn’t state the remaining 80.1%. The reason they didn’t state 100% and did state 19.9%, was the sham, not the built-up basis. So, says IRS, Home Concrete shouldn’t apply.

So what, says Judge Pugh.

“The question before us is a little different, as respondent’s theory here is that a sham sale, not an overstatement of basis, gave rise to the omission. So we must decide whether that distinction makes any difference. We conclude that it does not; we are bound to the Supreme Court’s analysis. That is, even if we assume that the basis was not wrong but the sale of [Bev’s LLC] to [stooge] was a sham, the Clarks did not omit an item of gain entirely; they just reported an incorrect amount of gain….. We therefore reject respondent’s assertion that the test in section 6501(e)(1)(A) is computational. And we find no support for respondent’s claim that Colony, Inc. should not apply here because that case involved gross proceeds of a business unlike here.” 2019 T. C. Memo. 150, at p. 12.

And while more of a clue is required to avoid 6SOL than “one that would intrigue Sherlock Holmes,” 2019 T. C. Memo. 150, at p. 13, Judge Pugh says that what the Supremes said is good enough for pore l’il ole Tax Court.

No 6SOL, Bev and Nelson win.