Melvin Duane Salter, Docket No. 13443-19, filed 11/6/19, is back. pro se of course, in this, his fourth appearance in USTC. And his second appearance in this my blog; for the last, see my blogpost “Pro Se? Oy, Vey!” 8/15/17.

All y’all will recollect that Mel’s first appearance hereon had to do with then-Ch J L Paige Marvel kicking Mel and his belated notice of appeal upstairs to 4 Cir. 4 Cir wasted no time bouncing Mel; see Salter v Com’r, 17-1957, decided 10/20/17. 4 Cir said it best. “Because Salter failed to file a timely notice of appeal, and because this jurisdictional appeal period is not subject to equitable tolling, we dismiss the appeal. We dispense with oral argument because the facts and legal contentions are adequately presented in the materials before this court and argument would not aid the decisional process.” (Citation omitted).

But Mel is undaunted. Now he petitions two years’ worth of SNODs based on SFRs, because Mel didn’t bother filing returns. But his petition says nothing about the matters alleged in the SFRs or the SNODs.

STJ Daniel A (“Yuda”) Guy has this one. IRS wants Mel tossed for Rule 40 violation, failure to state a claim upon which relief can be granted. In simplest terms, the nub of this motion was expressed by the late Grey Thoron, Esq., formerly Dean of the School on the Hill Far Above: “Everything you say is true; so what?!”

Mel apparently feels IRS is picking on him. Well, IRS does get a trifle testy when they get 1099-MISCs but no return, because they have to prepare the returns for you.

STJ Yuda is more genteel. “Petitioner made vague claims in the petition that he was being improperly targeted by the Internal Revenue Service (IRS). Petitioner made similar allegations in three prior cases before the Court, at docket Nos. 12442-12L, 21045-15L, and 553-18L. Conversely, the petition did not in any way address the items of income and absence of returns or payments underlying the taxes and additions to tax determined in the notices.” Order, at p. 2.

And Mel throws in some of the usual protester stuff.

That earns Mel not only a toss of his petition, with concomitant decision for IRS, but also a Section 6673 yellow card.

Unless You’re a Great Bluffer

The old Hold ’em player’s maxim holds true. Don’t chase a blind with a bad hand; fold the ten-four off-suit, unless you can bluff with the best.

The German word schadenfreude, which has no equivalent single word in English, means “rejoicing in the misfortune of others.” I long ago eschewed engaging in schadenfreude; see my blogpost “A Tale of Three Lawyers,” 7/3/14.

So today I will give only the citation: 2019 T. C. Memo. 149, filed 11/5/19.

No names. But the tale told therein brings out the truth of the old maxim in bold relief.

I will not recite all that Judge Kerrigan found (or failed to find, because petitioners had no evidence but the burden of proof) on the trial. I will confine myself to stating that the lead petitioner “…holds a bachelor’s degree in law, a master’s degree in law, and a master of laws degree in litigation and dispute resolution.” 2019 T. C. Memo. 149, at p. 3. And that petitioners lost the case.

Inasmuch as lead petitioner obviously qualifies for automatic admission to US Tax Court (assuming still in good standing in the Courts of the petitioner’s home State), I must cite one, and only one, example.

“…petitioners claimed a $4,000 tuition and fees deduction on their joint Federal income tax return.  In the notice of deficiency for [year at issue] respondent disallowed this deduction.

“For qualifying individuals, section 222(a) allows a taxpayer to deduct an amount equal to qualified tuition and related expenses paid by the taxpayer during the taxable year.  See sec. 25A(f)(1).  Petitioners failed to substantiate a qualified tuition and related expense.  Petitioners produced a document which notified petitioner…that … payment to the University of Tulsa had been returned because of insufficient funds.  Respondent’s disallowance of this deduction is sustained.” 2019 T. C. Memo. 149, at p. 19.

I’ll draw the curtain. And the moral.

Interestingly, neither Section 7345(b)(2) nor the IRS website on passport grabs mentions starting a case with the Taxpayer Advocate Service (TAS) as a way to force decertification of delinquency and spring the alleged delinquent’s passport.

Howbeit, Wayne Irving Newton, Docket No. 16578-18P, filed 11/5/19, got “erroneously decertified” per TAS’ intervention. Order, at p. 1.

But Judge Joel Gerber, apparently now Tax Court’s passport-grab specialist, seems to have found a basis somewhere, besides an unpublished IRS or TAS ipse dixit. “The opening of a TAS case is one of the situations where respondent will ‘decertify’ a taxpayer.” Order, at p. 1.

My colleagues Peter Reilly, CPA, and Mr. Paul Streckfus were recently lamenting about “secret law” in the area of exempt organizations, settlements made where there is no way to review briefs and ancillary documents online, to the detriment of the small firm or single-shingle, who has not a K Street office housing a platoon of paras to surry on down to The Glasshouse at 400 Second Street NW, to photocopy the lot.

Seems there’s secret law in the passport-grabbing area too.

IRS quickly sent out a recertification, but it was after Wayne Irving moved to restrain collection or cause disgorgement, and after IRS had moved for summary J, and after Cert One was decertified. So theoretically everything was mooted when the decertification, whether erroneous, baseless or otherwise, took place.

IRS, trying to retrieve the situation, asks Judge Gerber to bail them out.

“Respondent asks the Court to continue with the present proceeding as though the decertification had not occurred. In support of respondent’s contention, it is argued that petitioner continues to meet the serious delinquent debt definition for the new certification. In essence, respondent asks the Court to ignore the decertification and proceed on the merits of the initial certification from which we acquired jurisdiction over petitioner’s case.

“Under section 7345(e)(1) this Court has jurisdiction to review the Commissioner’s certification of a seriously delinquent tax debt for error. Our jurisdiction in this case springs from [Cert One] from which petitioner sought relief. Because [Cert One] was decertified and no longer exists, this case premised upon that certification became moot. We have not been advised if petitioner filed a petition seeking relief from the new certification…. Moreover, Petitioner’s Motion to Restrain Assessment or Collection or to Order Refund of Amount Collected and Respondent’s Motion for Summary Judgment, as supplemented, are likewise moot.” Order, at pp. 1-2.

So Wayne Irving can petition the new certification, unless he has sooner flown the coop with passport in hand.

Judge Gerber, sua sponte, kicks both IRS and Wayne Irving to the cliché. Both motions are moot. And so is the case.

Be careful, readers. I’m not suggesting the TAS gambit will work to unstick your clients’ passports. Especially now that Judge Gerber has turned on the lights. Still and all,  I can’t help wondering if that’s how Derrick Tartt got his passport unstuck. See my blogpost “If Ya Gotta Go,” 10/18/19.

Edited to add, 11/9/19: I must be slow on the uptake. TAS can issue a Taxpayer Assistance Order, per Section 7811(b)(2), to require IRS to spring a passport. Judge Gerber obviously thought that “opening a TAS case” was sufficient shorthand for “TAS issuing a TAO per Section 7811(b)(2)” to tip off slow-witted bloggers that there’s nothing “secret” about it. It’s been the law for upwards of twenty years.

Senior Judge Joel Gerber is willing to let Roger G. Maki write off travel and meal expenses for looking after his 100 acres of Washington State timberlands. The timber on the lands was worth millions, and some of it had been rustled. Rog’s logs and records for the year at issue had been lost when his cabin was vandalized, but he had made an abstract (he said), which he gave to IRS pretrial.

But Judge Gerber says “No” when Rog poses a paraphrase of the above inquiry from the 1959 Huey “Piano” Smith and Frankie Ford hit.

Rog claimed he made 47 round trips of 300 miles each from his home to the timberlands, and was away 161 days during the year at issue. And Judge Gerber buys Rog’s testimony about his repetitive trips to the timber, and planting new trees to replace old. So Rog is in business and gets Section 162 treatment.

IRS bought Rog’s car and truck, and taxes and licenses expenses. They hit him for unreported Social Security, which he doesn’t contest. But IRS disallows Rog’s 7K of travel expenses and $55K of per diem.

Hence and wherefore, Roger G. Maki and Lilane J. Gervais, 2019 T. C. Sum. Op. 34, filed 11/4/19.

“A self-employed individual can deduct meal expenses computed at the Federal rate established for the locality in which meal expenses were incurred while away from home. See Rev. Proc. 2011-47, sec. 1, 2011-42 I.R.B. 520, 520. The Federal published rate is deemed substantiated for purposes of section 1.274- 5T(b)(2)(i) and (c), Temporary Income Tax Regs., 50 Fed. Reg. 46014-46015, 46016 (Nov. 6, 1985). Self-employed individuals may not use this method to substantiate lodging expenses. See Rev. Proc. 2011-47, sec. 1.” 2019 T. C. Sum. Op. 34, at p. 6.

But Rog has a problem, as indicated by the headline hereof.

“Petitioners used the per diem rates for ‘Luxury Water Travel’ to compute the annual per diem deduction. The rates used ranged from $320 to $374 per day and are intended for away from home expenses incurred on an ocean liner or cruise ship. The rates are based on the highest Federal per diem rates, which include lodging, meals, and incidentals. Using the luxury rates, petitioners computed and deducted $55,925 in away from home per diem expenses for [year at issue]. We note that petitioners did not provide any evidence of the lodging expenses actually incurred in the timber activity during [year at issue].

“Under Rev. Proc. 2011-47, 2011-42 I.R.B. 520, the Federal per diem rate (for meals) that applies to many smaller localities, including the counties in which petitioner’s timber land is situated, is $46. Petitioner through his testimony and the summary taken from his logs has shown that he was away from home on business for 161 days during [year at issue]. Accordingly, he is entitled to deduct $7,406 of per diem expenses ,,,(161 times $46).” 2019 T. C. Sum. Op. 34, at pp. 6-7.

Rog’s travel miles stand up, although Judge Gerber won’t let Rog take him on a sea cruise.

Ex-Ch. J Michael B (“Iron Mike”) Thornton has a pretrial checklist for every innocent spouser (both potitioner and intervenor) lined up and holding short, awaiting trial.

Here’s Malka Yerushalmi, Petitioner, and Joseph Yerushalmi, Intervenor, Docket No. 5520-08, filed 11/4/19. And the docket number is no mistake; this one has been going for eleven (count ‘em, eleven) years.

But trial is finally coming on. It all happens on March 30, 2020 in Our Fair City, on this Minor Outlying Island off the Coast of North America. Cain’t hardly wait.

Meantime, our national legislature enacted Public Law 116-26, 7/1/19; that’s the Taxpayer First Act to you. Who says Congress can’t get anything done? Oops, sorry, this is a non-political blog.

All y’all will recall that this statute opens for innocent spousers information dehors the administrative record, namely, specifically and to wit, “any additional newly discovered or previously unavailable evidence. “ Section 6015(e)(7)(B).

How about changed circumstances? Maybe what wasn’t a hardship for petitioner eleven years ago is a hardship today. See my blogpost “Back to the Future,” 8/1/11.

However that may be, to prevent ambushes and wild cards, ex-Ch. J Iron Mike hands the parties a pretrial checklist, which they are to complete and set forth in a written report discussing how Section 6015(e)(7) impacts their case, and also “…(1) identifying the administrative record established at the time of the determination, (2) informing the Court of any additional newly discovered or previously unavailable evidence the parties plan to submit, (3) describing any disputes to the completeness of the administrative record or evidentiary problems the parties anticipate, and (4) the current status of this case.” Order, at p. 2.

Oh, btw, if the parties haven’t settled, they shall also “…report on the preparation of the stipulation of facts and preparation for trial, including the estimated length of trial. “ Order, at p. 2.

Innocent spousers and counsel, best make this checklist part of your pretrial prep.

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Occasionally I get a headline that is so serviceable it impels me to reuse, repurpose and recycle it. Today is another example, a designated hitter from STJ Daniel A (“Yuda”) Guy, wherein he denies admins & legals to Paul Edwin Johnson & Susan H. Johnson, Docket No. 14429-18, filed 11/1/19.

Paul got a big IRA distribution and rolled it over, but he didn’t give IRS anything more than his say-so until after the CP2501 mismatch notice (the trustees of the rolled-into IRA did send in Form 5498, but it had no date for the rollover, so the 60-day barrier was still there), CP2000 proposed changes, SNOD, petition, remand to Appeals, and finally a stip of settlement agreeing that the IRA distrib was properly rolled.

Paul & Susan want admins, consisting of “$71 for out of pocket expenses (postage and the Court’s $60 petition filing fee), $3 for mileage expenses, $3,709 for preparation and filing expenses, and $9,703 representing a purported accuracy related penalty.” Order, at p. 3.

STJ Yuda treats this matter-of-factly, as is his usual wont. In a footnote. “The majority of the expenses that Mr. Johnson claims do not constitute ‘reasonable litigation costs’ as Congress defined that term in sec. 7430(c)(1)(A) and (B). Consequently, the Court limits its consideration to his claim for an award of $71 (i.e., postage expenses and the Court’s filing fee).” Order, at p. 3, footnote 2.

Maybe Mr. J. didn’t exhaust his administrative remedies, but STJ Yuda need not go there.

“…IRS received third-party information that Mr. Johnson received a pension distribution from ETC and an IRA distribution of $141,793 from Riversource, and that he made a contribution of $141,233 to an IRA account at ETC. In the light of this information, respondent was justified in seeking clarification from Mr. Johnson on three points: (1) did he receive a $20,000 pension distribution from ETC, (2) did he make a rollover contribution of the full amount of the IRA distribution from Riversource, and if so, (3) did he make the rollover contribution to ETC within the 60-day period prescribed in section 408(d)(3)(A)(i). As the owner and beneficiary of these retirement accounts, and having claimed the benefit of a rollover contribution on his joint tax return, Mr. Johnson should have maintained records of these transactions and readily shared them with respondent upon request. Unfortunately, petitioners failed to provide any documentation to respondent to assist in resolving these questions, leading to the issuance of the notice of deficiency.

“The Commissioner is entitled to maintain his position, for purposes of determining whether it was substantially justified, until adequate substantiation is received from the taxpayer. Where the resolution of adjustments hinges on factual determinations, the Commissioner is not required to concede the adjustments until he has received, and has had reasonable time to review, sufficient substantiation for the matter in question. Because petitioners did not provide any documents, records, or other objective evidence to show that Mr. Johnson made a timely and proper rollover contribution during the year in issue, respondent’s position in this case was substantially justified.” Order, at pp. 4-5. (Citations omitted).

If you’re going to claim legals & admins, by all means go all-in, but follow the rules. And when IRS wants information, see the title of this sermonette.

Nevertheless, and notwithstanding anything to the contrary or at variance with anything hereinbefore or hereinafter set forth (as my already-on-their-way-to-a-two-cliché lunch colleagues would say), the sad tale of Richard Alan Saunders & Shelia Candy Saunders, Docket No. 13352-15S, filed 11/1/19 is told again, with a rewrite from Judge Wells.

“In our opinion, we found that petitioners were not entitled to claim Mr. Steed as a dependent because he did not meet the section 152(d) definition of a “qualifying relative”. Saunders v. Commissioner, T.C. Summary Opinion 2019-29 (slip op. at 9). While this conclusion is correct, on the Court’s own motion, we deem it necessary to make a technical correction to our reasoning to comply with the relevant statutory prerequisites. We found that because Mr. Steed’s SSI exceeded the section 151(d)(1)(B) exemption amount, he failed to meet the requirement of section 152(d)(1)(B). We also noted that it was unclear whether petitioners provided for more than one-half of Mr. Steed’s support, as required by section 152(d)(1)(C).

“SSI is not taken into account for purposes of the section 152(d)(1)(B) requirement; it is, however, taken into account for purposes of the section 152(d)(1)(C) requirement. Sec. 1.152-1, Income Tax Regs….. During [year at issue], Mr. Steed received $733 per month in SSI. Petitioners did not provide an estimate or evidence of the amount of total support Mr. Steed received per month. We do not know the fair market value of the lodging petitioners provided to Mr. Steed. We noted in our opinion that Mr. Steed’s share of the household expenses varies depending on whether it is calculated on a per room or a per person basis. We now consider that each member of the household received an equal part of petitioners’ contributions as part of his or her support. See id.slip op.at 20. Using a per person basis and adding the $80 per month in transportation costs, we estimate that petitioners provided Mr. Steed with monthly support of $560. This amount is less than the $733 in SSI, and therefore less than half of Mr. Steed’s total support. Accordingly, Mr. Steed does not meet the definition of a “qualifying relative”. See sec. 152(d)(1)(C).” Order, at pp. 1-2. (Citation omitted).

Now it’s true that Rich and Sheila Candy used a paid preparer. But Judge Wells excused chops, because they reasonably relied, were unsophisticated, and acted in good faith. And the paid preparer got it wrong.

But even a Tax Court Senior Judge with 33 (count ‘em, 33) years on the Tax Court bench got mixed up in the labyrinth that is Section 152.

See my blogpost “If This Were a Political Blog,” 9/30/19.

Congress, please copy.

But the Bushwhacker Gets Whacked

Moacir Santos, 2019 T. C. Memo. 148, filed 10/31/19, wants to claim he was prejudiced when IRS, at the trial, asserted that instead of unreported business income, he had constructive dividends from his wholly-owned C Corp.

Mo never bothered with tax returns until eighteen months after his petition, and then handed in unsigned ones, that included Sched Cs. Then, at the start of trial, Mo claimed all the income went to his C Corp. IRS said OK, so you got constructive dividends. And as we concede this is new matter, we have the burden of proof. And we also have your bank records.

Judge David Gustafson has this one.

“The Commissioner initially determined that Mr. Santos’s deficiency arose from unreported Schedule C income; and Mr. Santos’s petition appeared to claim that he was entitled to additional deductions.  However, at trial Mr. Santos moved to amend his petition (and the Commissioner did not oppose) to contend that the unreported amounts were gross receipts of [C Corp] and were therefore taxable as [C Corp]’s income, not his.  The Commissioner conceded the point, but this significant change prompted him to proceed under a new theory–i.e., that Mr. Santos had received constructive dividends from [C Corp].  Even though Mr. Santos’s asserted tax liability was smaller under this new theory than the amount stated in the SNOD, the Commissioner concedes that his constructive dividends argument constitutes ‘new matter’ since it required Mr. Santos to present different evidence.” 2019 T. C. Memo. 148, at p. 11 (Citation omitted).

Needless to say, IRS lost nothing by its concession. Mo’s proof was, shall we say, dubious.

“The Commissioner’s constructive dividend argument was tried by the implied consent of the parties.  See Rule 41(b)(1).  However, on brief, Mr. Santos argues that he will be deprived of ‘due process if * * * [the Commissioner] is allowed to proceed on a new theory first presented at the hearing’.  We interpret Mr. Santos’s argument to mean that he alleges that he was prejudiced because he was unfairly surprised by the Commissioner’s constructive dividend argument.  We disagree.  In the first place, he explicitly consented to the Commissioner’s raising that contention.  More important, Mr. Santos was the party who moved, on the day of trial, to amend his pleading in a manner that required the Commissioner to revise his position.  Mr. Santos was neither surprised nor prejudiced by the Commissioner’s constructive dividend argument.  Consequently, the Commissioner is permitted to advance his contention of constructive dividends; but as to that contention he bears the burden of proof.  He successfully sustained that burden….” 2019 T. C. Memo. 148, at p. 12.

Mo’s proof sustains IRS’ burden. I include only a couple examples (hi, Judge Holmes).

“First, the total value of the receipts Mr. Santos provided is $107,476, not the $79,928 he alleges constituted business expenses.  He does not specify which receipts compose the $79,928 of supposed business expenses, and he does not explain how he has a greater amount of receipts that are among his supposed business expenses but do not constitute business expenses.  It appears that he fabricated the receipts before he settled on his final story and did not notice the discrepancy.

“Second, receipts that are ostensibly from different vendors appear to be from the same receipt book.  He did not explain this fact.

“Third, the chronology of the dates written on the receipts does not follow the sequential order of the preprinted receipt numbers.  For example, a receipt numbered 238777 was dated July 2, 2010, for ‘New Fence our Richmond yard labor’, but the subsequent receipt, numbered 238778, was dated December 28, 2010 (more than 6 months later), for a $7,200 payment on an ‘Excavator CAT 308’.  And the next receipt, numbered 238779, jumps back 10 months and is dated February 28, 2010, allegedly for a payment on the same machinery.” 2019 T. C. Memo. 148, at pp. 15-16.

There’s more, but I’ll spare you.

As we start the basketball season, Judge Ruwe is getting back a blocked shot from a Monster forward; here’s Estate of Andrew J. McKelvey, Bradford Peters, Executor, Docket No. 26834-14, filed 10/31/19.

You’ll doubtless recall that the late Andrew’s Monster forward had scored big-time, according to Judge Ruwe. If not, see my blogpost “A Monster Forward,” 4/19/17.

Well, 2 Cir wasn’t so sure. They found that the late Andrew had not extended the contracts, but had entered into new contracts and had constructively sold the Monster shares, because there was a statistically insignificant chance the share price would rebound to let the late Andrew (or his estate) keep any. So the late Andrew’s attempt to extend until he died and his estate get the stepped-up basis cratered.

And the purported extensions are new contracts. So there’s both short-term capital gains and long-term capital gains in play. Short-term on the “extension” deemed termination,  and long-term on the constructive sale of the new contracts (which supposedly would never hit the “sweet spot” on termination).  See Estate of Andrew J. McKelvey v. Commissioner, No. 17-2554 (2d Cir. 2018), decided 9/26/18, cert. den.. 6/13/19.

Clear? Thought not.

But this is what 2 Cir meant. “A taxpayer and his VPFC long party can often be expected to repeat these extensions for the taxpayer’s life, knowing that at his death the shares will have a stepped‐up basis in the hands of his estate. The up‐front payment will have been received without ever incurring the capital gains tax that would have been due had the payment resulted from a sale of the stock. In this case that payment was $194 million, and thus far, no capital gains taxes have been paid. The Internal Revenue Code should not be readily construed to permit that result.” 17-2554, at p. 31.

But 2 Cir bucks this frittata back to Judge Ruwe, to decide.

“Whether the replacement of the obligations in the original VPFCs with the obligations in what we hold are new contracts satisfies the criteria for a termination of obligations that gives rise to taxable income, presumably capital gain, and the amount of such gain are issues that we leave for determination in the first instance by the Tax Court on remand.” No. 17-2554, at p. 20.

So Judge Ruwe tells the parties to brief this stuff seriatim.

Walk Into a Blog

No, I’m not auditioning for a late-night comedy slot. This afternoon the hard-laboring clerks and flailing datestampers at the Glasshouse on Second Street, NW,  have favored me with two T. C. Memos. The subject is dodging.

First up is Francis Steffan Hayes, 2019 T. C. Memo. 147, filed 10/30/19, who gets Wnuck’d by Judge Patrick J. (“Scholar Pat”) Urda. It doesn’t take excessive scholarship by Judge Scholar Pat to conclude that, instead of taking on IRS’ extensive reconstruction of five (count ‘em, five) of Francis Steffan’s tax years, Francis Steffan “…reserves his energy for laying out assorted tax-defier chestnuts about the scope of the Sixteenth Amendment, the purportedly unworkable definition of income under the Internal Revenue Code, and the effect of regulations relating to the Alcohol and Tobacco Tax and Trade Bureau on the administration of the income tax regime.  The shopworn arguments he offers in support of his position are incomplete, misleading, and misguided, and have been rejected more times than we care to count.” 2019 T. C. Memo. 147, at p. 11. (Citations omitted, but ya gotta know Wnuck is in there).

IRS does more reconstruction than a plastic surgeon, and after conceding around $10K, establishes deficiencies and chops for the years at issue. But IRS left out the $400 Making Work Pay credit they originally allowed, so Judge Scholar Pat tells IRS to include it in the Rule 155 beancount or tell him why.

Taishoff says if anyone deserves credit for making work pay, it’s the RA who went through the “reams of bank account statements, checks, and money orders showing that in the years in issue Mr. Hayes received income both directly and through the media ventures he alone controlled.” 2019 T. C. Memo. 147, at p. 10. And testified in extenso about the same.

Next case is Bertram Russell, 2019 T. C. Memo. 146, filed 10/30/19. That’s Dr. Bertram Russell, although maybe after he went down for Section 7201 tax evasion in USDCEDPA and did 66 months, he stopped practicing medicine.

Anyway, Doc Bert’s game was the phony corporation. Doc Bert claimed he was an IC working for said corporation, but he never got a W-2, a 1099-MISC, or anything but sole signatory power over the corporation’s checking account, into which the IC payments for Doc Bert’s services were funneled, and from which he paid his personal expenses.

Supposedly an attorney and another doctor set up this dodge; they really could have done a better job.

Now of course an individual can incorporate his or her trade or business or occupation. And our beneficent tax system allows each of us to roll our own. But the corporation has to be real.

I’ll let Judge Ruwe explain.

“Taxpayers have the right to shape business transactions to minimize the incidence of taxation, including the right to use corporate entities.  Furthering this pursuit, a ‘corporate entity is deemed to exist as a separate taxpayer if it is organized to carry on a business activity or if, in fact, it has carried on such activity.’ (‘[S]o long as * * * [the corporate purpose] is the equivalent of business activity or is followed by the carrying on of business by the corporation, the corporation remains a separate taxable entity.’).  However, in ‘matters relating to the revenue, the corporate form may be disregarded where it is a sham or unreal.’” 2019 T. C. Memo. 146, at pp. 9-10. (Citations omitted.)

Judge Ruwe finds Doc Bert’s corporation activities “reek of a sham corporate entity.” 2019 T. C. Memo. 146, at p. 10.

“[Corp] filed no corporate income tax return for any year, including [year at issue].  The entity had no employees and no proper physical location, and it appears to have respected no corporate formalities.  There is no evidence that it ever paid any dividends.  The 13 payments … to [Corp] were deposited into a checking account that petitioner, and only petitioner, exercised control over.  Funds in this checking account were later used to pay petitioner’s personal expenses, such as private school tuition for his children.  Petitioner observed no meaningful distinction between his personal funds and the funds of [Corp].  We therefore find that [Corp] is a sham corporate entity which is disregarded for Federal income tax purposes.“  2019 T. C. Memo., 146, at p. 10-11.

Now we all know that conviction for tax evasion with an order for restitution does not determine actual tax liability, unless the judgment of conviction so states. Nor does conviction estop IRS from going after the taxpayer for actual tax. But the conviction does establish fraud, to the extent of the Section 6663 75% chop, if for the same year as evasion is determined.

Oh, and Doc Bert owes a late filing chop.