As If He Needed More

I’ve often referred here to my late grandmother’s salty, ironic view of the world. It might just be hereditary.

Today I belatedly lament the passing of David F. Burbach, Docket No. 12021-12, filed 7/3/19. Judge Holmes tells me (and anyone else on the Tax Court website) that Dave died last month.

You’ll remember Dave’s entanglement with GTE, the dodge-monger alleged EA, who landed Dave in heavy-duty troubles with IRS. If not, see my blogpost “A Bad Influence,” 3/7/19.

Dave’s troubles continue even after he departs this vale of tears.

Judge Holmes notes probate proceedings may be necessary, unless Dave’s team have their Rule 155 beans ready to hand in. And even then maybe so parties need to be substituted and the caption amended.

A sorrowful story.

As it was in the beginning, this shall remain a non-political blog. But Shapat Nabaya, Docket No. 7207-19, filed 7/2/19, seeking to remove from public view his SSAN, which he thriftlessly strewed all over his petition from an alleged NOD, has gifted Ch J Maurice B (“Mighty Mo”) Foley with a motion thus entitled.

Ch J Mighty Mo, wasting no time, doesn’t bother recharacterising Shap’s motion, but tells him to send in an amended petition in idem verba (as my already-on-their-second Grey-Goose-V&T colleagues would say), erasing only TINs.

Of course, there remains the question whether there was in fact a NOD from a CDP, from which Shap timely petitioned.

So let IRS and Shap send in copies of every document upon which each relies to establish (or disestablish) jurisdiction.

Though pleadings may be liberal, jurisdiction is another story.

End the Stealth Subpoena

And spare Judge Holmes the need to remind litigants to play nice. Here’ s EZ Lube, LLC, EZL-1 Investments, Inc., A Partner Other Than the Tax Matters Partner, Docket No. 18021-13.

Judge Mark V Holmes sent the parties off to work out whatever salvation they could back in April. For that, see my blogpost “No EZ Telephone ‘Determinations,’” 4/21/19.

Now IRS, the incomers, and the outgoers, all think they can do a Rule 122 on-the-papers, if only they can get some third-party testimony. But they’ll need a judicial subpoena to do it.

Judge Holmes, in his usual expansive style, lets them go to it.

“Our Rules generally make subpoenas returnable only at trial sessions, which can be inconvenient when the division handling the case isn’t scheduled for a trial session in the city involved. The parties have suggested that this case be set for a hearing at the October 7, 2019 trial session to enable a subpoena to be served and returned by that date. The trial judge involved is amenable to this solution.” Order, at p. 1.

Apparently ex-Ch J Michael B (“Iron Mike”) Thornton will be on the bench at that session.

But Judge Holmes wants to make sure there’s no stealthy dealings.

He orders “…that the both parties comply with Federal Rule of Civil Procedure 45(a)(4).” Order, at p. 2.

See my blogpost “The Stealth Subpoena,” 7/16/15. It’s really time that Rule 147 was brought into line with FRCP 45(a)(4)

May or may not be half-done, as the old saw has it, but Steven Austin Smith, 2019 T. C. Sum. Op. 12, filed 7/1/19 (that’s Prof. Steve to you, as he’s tenure-track at the U of Southern Connecticut) had certainly begun his vegan food exporting business. At least well enough to convince Judge Vasquez that Prof. Steve could write off his start-up expenses per Section 195, thereby thwarting IRS’ attempt to wild-card in the Section 195 argument post-SNOD.

Prof. Steve was hawking various non-animal alimentary products as a private label reseller around Jamaica, the Dominican Republic, Brazil, Argentina and Colombia. Although there was some interest, retailers were unwilling to give shelf space to specialized exotica.

Prof. Steve showed his travels to attend food fairs and his use of the associates he met while working for Procter & Gamble and Pepsico to market his stuff, but in the year at issue he ran up expenses and lost big.

Judge Vasquez: “In the matter before us, respondent’s notice of deficiency makes no mention of section 195, the text of section 195, or the principles upon which section 195 rests.  The record does not establish that respondent raised section 195 during the examination of petitioner’s income tax return or otherwise notified petitioner that section 195 was relevant to his determination.  In fact, respondent’s allowance of petitioner’s Schedule C deductions for advertising, legal and professional services, office expenses, supplies, and utilities in the notice of deficiency contradicts respondent’s section 195 argument.  Accordingly, respondent’s section 195 argument is a new matter, and respondent bears the burden of proof with respect to that argument.” 2019 T. C. Sum. Op. 12, at p. 8.

IRS fails to show Prof. Steve wasn’t actively running a business.

“The record in this case establishes that petitioner, through Worldwide, was actively engaged in the trade or business of selling vegan products in Colombia, Brazil, Jamaica, and the Dominican Republic during [year at issue].  In [previous year] petitioner completed his business plan for [his corp.], according to which he would purchase vegan products from domestic manufacturers and sell them for a profit in certain foreign countries.  During [year at issue] petitioner had an agreement with B, which permitted [his corp.] to sell and market B’s Soy Curls product in foreign countries.  [His corp.] also received an exclusive license from T to sell Seitan products in Brazil, Argentina, Colombia, Jamaica, and the Dominican Republic in the beginning of [year at issue].

“Having secured products to sell, petitioner actively marketed those products in several foreign countries through his own efforts and those of business associates.  Petitioner credibly testified that he attended food shows and other meetings in Colombia, Brazil, Jamaica, and the Dominican Republic, where he provided samples of [his corp.]’s products to local distributors and retailers.  Petitioner also credibly testified that he used a network of foreign business associates to market [his corp.]’s products and find potential customers.  The record in this case includes emails that corroborate petitioner’s extensive efforts to sell [his corp.]’s products.” 2019 T. C. Sum. Op. 12, at pp. 12-13. (Names and footnote omitted).

IRS couldn’t prove Prof. Steve wasn’t able to sell the veggies overseas.

So Prof. Steve wins, right?

Wrong.

Because substantiation. Judge Vasquez can only come up with a couple bucks (hi Judge Holmes) deductions beyond whatever IRS allowed. Prof. Steve might have been a good business operator, but a wretched bookkeeper.

And no evidence that Prof. Steve utilized a competent tax adviser, plus the five-and-ten chops at issue here were calculated untouched by human hands, thus neither Graev nor Clay.

Speaking of Graev and Clay, Judge James S (“Big Jim”) Halpern has a couple designated hitters, wherein he pelts IRS with Clay, as IRS maybe breathed chops before the Boss Hoss Section 6751(b) sign-off. See Nathaniel A. Carter & Stella C. Carter, et al., Docket No. 23621-15, filed 7/1/19.

Go get your refund claims filed. The diplomats have won the day. This from the IRS’ e-news for tax pros:

“This year the United States and the French Republic memorialized through diplomatic communications an understanding that the French Contribution Sociale Generalisee (CSG) and Contribution au Remboursement de la Dette Sociale (CRDS) taxes are not social taxes covered by the Agreement on Social Security between the two countries. Accordingly, the IRS will not challenge foreign tax credits for CSG and CRDS payments on the basis that the Agreement on Social Security applies to those taxes.

“Taxpayers have 10 years to file a claim for refund of U.S. tax with respect to a foreign tax credit. The 10-year period begins the day after the regular due date for filing the return (without extensions) for the year to which the foreign taxes relate. The IRS will update information on claiming these taxes as foreign tax credits soon.”

STJ Diana L (“The Taxpayer’s Friend”) Leyden examines the factification underlying the title of this blogpost in an off-the-bench designated hitter, Forrest Wade Gillespie, Docket No. 6174-18S, filed 6/28/19.

Forrest drives long-haul from CA to UT, and spends 339 (count ‘em, 339) days of the year at issue on the road, mostly sleeping in the compartment of the truck, occasionally sleeping in a rented room in Sandy, UT, paying out-of-pocket for minor repairs so the trucking company doesn’t dock his bonus which they pay, and renting a car to “see the sites” (I guess he meant “see the sights”) when his truck was in for major repairs or when he didn’t have a load to haul.

USDOT requires rest periods.

“Petitioner testified that regulations required that truck drivers not drive for more than 11 hours without resting and then had to rest, without driving, for 10 hours. Further, once a truck driver drove for 70 hours, he had to rest for 34 hours. [His company] accounted for its truck driver’s driving and off duty time in a daily log.” Order, transcript, at pp. 5-6.

Forrest’s unreimbursed employee expenses go down. The minor repairs could have been reimbursed. His meals and room rentals weren’t for travel. Because he had no home.

“The purpose of the deduction for expenses incurred away from home is to alleviate the burden on the taxpayer whose business requires him to maintain two homes and therefore incur duplicate living expenses. Kroll v. 25 Commissioner, 49 T.C. 557, 562 (1968).” Order, transcript, at p. 13.

“…petitioner did not have a principal place of business. He was a long-distance truck driver and was on the road 339 days out of the year. Petitioner was not required to return to [his boss’] principal location and receive his driving assignments at the end point of a previous assignment. Thus, because of the nature of his employment petitioner did not have a principal place of business in [year at issue]. See Howard v. Commissioner, T.C. Memo. 2015-38.” Order, transcript, at p. 14.

So Forrest’s deductions, mostly unsubstantiated, fail.

But IRS has feet of Clay, so they lose the Section 6751(b) Boss Hossery.

“Respondent has presented evidence that the section 6662(a) penalty was ‘personally approved (in writing) by the immediate supervisor of the individual making such determination’ on November 6, 2017. Respondent also provided evidence that the 30-day letter, the first time the IRS proposed the accuracy-related penalty, was dated October 2, 2017, before the date of the managerial approval. Respondent has failed to meet his burden of production.” Order, transcript, at p. 15.

For the story of Clay, see my blogpost “Indians Not Taxed – Not!” 4/24/19.

For the title of this blogpost, see Dave Dudley’s 1981 classic about various over-the-counter medications that speed to your side the food you eat, the clothes you wear and the flickering screens whereon appear these words of wisdom.

No, this is not Cohan revisited. George M.’s T&E deductions have gotten more mileage than “Give My Regards to Broadway.” This is the inexactitude of Kelvin R Crews, 2019 T. C. Memo. 80, filed 6/27/19.

Kelvin was a chicken farmer, and his wife was a registered nurse. To supplement the chickenfeed he got from the farm, he started a couple businesses (hi, Judge Holmes), but put his wife, and later his daughter, in charge of everything. Then the agrigiant for whom Kelvin worked fired him.

IRS hits Kelvin with TFRPs for both of the businesses. Kelvin filed Form 843 for a refund. And that’s where the trouble started. IRS was prepared to let Kelvin off, but he thought for both businesses. The deficient quarters covered the same times for both businesses.

But IRS was never clear that they meant the TFRPs for Business One, but not Business Two. And enough different IRS employees were involved so nobody had enough of a handle to say definitively.

Kelvin called in counsel, but they couldn’t unscramble the frittata to Judge Morrison’s satisfaction. And Kelvin has the burden of proof.

The real problem is that the letter from IRS on which Kelvin relies specifically mentions Business One, but not Business Two. And worse, the stipulation of facts said that all Kelvin was off the hook for was Business One. The stip didn’t mention Business Two.

After all the tohubohu, whatever the standard and scope of review, Kelvin loses.

Read the opinion. With some headache medicine close at hand.

Yes, Tax Court bears heavily against the taxpayer…whose inexactitude is of his own making.

No, not a remake of Gene Roddenberry’s never-ending story. This is the next generation of tax dodgers, Troy K. Dixon, 2019 T. C. Memo. 79, filed 6/27/19, who gets nailed from some, but not all, of the TFRPs from his parents’ now-defunct staffing agencies.

His parents are James and Sharon Dixon. Their tale is told in part in  my blogpost “The Great Dissenter – Redivivus,” 9/3/13.

Troy started from the bottom.

Judge Paris: “Despite his being established as the sole director and president of the corporation on paper, petitioner initially worked under the control and direction of his parents.  Petitioner was directed to work on third-shift labor crews, drive forklifts, and do other ‘dirty jobs’ while his parents actively managed the corporation. He worked at locations offsite from the corporate office.  Initially he had meetings with clients and focused on the “labor side” of the business.  Later he became more involved in sales and spent more time in the corporate office.

“In 2005 petitioner became the safety coordinator for the corporation and handled some sales.  Petitioner continued to work on safety and sales offsite and checked in with the corporate office in the mornings and evenings.  When he was at the corporate office, he would often have a stack of documents to sign.  He did so without reviewing them.  Occasionally petitioner checked the mail and made bank deposits, but primarily he left the mail for his parents to open and review.” 2019 T. C. 79, at p. 4.

But he was being groomed for the C-suite. And when he got there, with signature over accounts and hire-fire power, he didn’t bother paying a couple million dollars’ worth (hi, Judge Holmes) of FICA-FUTA-ITW for fifteen (count ‘em, fifteen) quarters.

Troy loses his CDP, and Judge Paris sustains.

STJ Diana L (“Sidewalks of New York”) Leyden echoes the immortal words of Charles Edward Anderson Berry’s 1955 homage to Hank Williams, when William Joseph Davidson, Docket No. 5849-09, filed 6/27/19*, laments that he cannot review his documents to verify those IRS attached to their Rule 90(b) request for admissions, because William Joseph is in the slammer.

IRS attached 35 (count ‘em, 35) documents to their motion.

Now I’ve said before I’m a great fan of motions (or notices, as we State courtiers call them) to admit. They smoke out opposing parties and save time. And maybe 35 documents are appropriate; from STJ Di’s order I can’t tell.

IRS claims the responses William Joseph sent them “…are ‘incredulous’ and ‘violate the requirements of Tax Court Rule 90(a) and (c)’, and that petitioner failed to ‘specifically admit or deny the requests, or to make reasonable inquiry thereof’. Furthermore, respondent asserts that petitioner did not provide an original signature on his response.” Order, at p. 1.

I think you meant “incredible,” IRS, that is “unbelievable,” not “incredulous,” which means “unable to believe.” You were “incredulous,” if his statements were “incredible.”

Howbeit, William Joseph is off the hook.

Tax Court can review the responses, and order an amended response.

And since William Joseph is due for release this year, STJ Di orders  “an amended answer, that complies with Rule 90(c), including an original signature, be served on respondent no later than by January 22, 2020, which is 30 days from the date petitioner is expected to be released from incarceration. Failure to comply with this Order will result in petitioner’s response being stricken from the record.” Order, at p. 2.

So William Joseph does get satisfaction from the judge, as the late great Chuck predicted.

*Wm J Davidson 5849-09 6 27 19

Hector Baca and Magdalena Baca, 2019 T. C. Memo. 78, filed 6/26/19, certainly have that. Immigrants, Maggie is a bank officer and Hector has many more businesses than records, from oil field stimulation (that’s fracking, so stop with the smirks) to belly dumping (that’s moving sanitary landfill) to multi-level marketing, a fraud I fought in my young days at our State’s Attorney General’s Office.

It’s the usual want of substantiation, so Judge Holmes gives the win to IRS.

I only want to point out yet again that, in a deficiency case, which this is, past is prologue.

“This leaves us with an unusually messy substantiation case, which we start to untangle by noting that it is up to the Bacas to show that they are entitled to the deductions they took for 2012 and 2013.  See Rule 142(a).  The Bacas, however, urge us to look only to the administrative record compiled during the audit.  When considering just this record, they insist we must find that the Commissioner’s notice of deficiency is ‘defective and perfunctory’ under the Administrative Procedure Act (APA), 5 U.S.C. secs. 501-559, 701-706 (2006), because it is arbitrary, capricious, and an abuse of discretion. The Bacas also argue that, if this case is reviewed de novo, they have substantiated every deduction that the Commissioner disallowed.  The Commissioner disagrees.” 2019 T. C. Memo. 78, at pp. 12-13. (Footnote omitted, but see below).

“We won’t discuss this issue [APA] beyond noting that the Bacas have preserved it.  We have already held that the default provisions of the APA do not apply to our deficiency cases.  See Ax v. Commissioner, 146 T.C. 153, 161-63 (2016). Every circuit court to consider the question has agreed with us.  See QinetiQ US Holdings, Inc. & Subs. v. Commissioner, 845 F.3d 555, 559-61 (4th Cir. 2017), aff’g T.C. Memo. 2015-123; Bratcher v. Commissioner, 116 F.3d 1482 (7th Cir. 1997), aff’g without published opinion T.C. Memo. 1996-252; Clapp v. Commissioner, 875 F.2d 1396, 1403 (9th Cir. 1989); see also Humphreys v. United States, 62 F.3d 667, 672 (5th Cir. 1995) (the Code and not the APA provides a basis for review of a taxpayer’s tax liability).”2019 T. C. Memo. 78, at p. 13, footnote 9.

But before I go, I really have to mention Gregory J. Podlucky & Karla S. Podlucky, Docket No. 453-17, filed 6/26/19.

One of the joys of covering US Tax Court is discovering the truly unique, ya-can’t-make-this-stuff-up, tidbits that, like Tommy Gray’s “gem of purest ray serene,” lie in the “dark, unfathom’d” files at The Glasshouse at 400 Second Street, NW.

Greg has bestowed upon Judge Goeke the following: “a Bill in Chancery for Vacating of Void Judgments for Delictual Fault for Fraud and for Misprision of Felony By and Through Jurat Affidavit.” Then Greg followed this up with “an Exception to Final Judgment and Decree for Compelling Immediate Discharge and an Offer in Compromise as Non-Disclosure Agreement.” Order, at p. 1.

But Judge Goeke has had enough of Greg’s inventive style.

“These documents are not in accordance with Tax Court Rules of Practice and Procedure given the current status of this case. Accordingly, we will take no further action with respect to these documents…” Order, at p. 1.

Who said tax is dull?