Philip N. Rose and Leanna Rose, 2019 T. C. 73, filed 6/13/19, didn’t have such a little tin box as was so melodically apostrophized in 1959 by Sheldon Harnick and Jerry Bock. Rather, they had a safe with around $56K in it.

“Petitioners kept approximately $56,000 in cash from two large tax refunds in a home safe to conceal it from creditors.  Petitioners did not keep specific records of how much money they kept in their safe, but the tax refunds and Christmas gift checks accounted for most of the cash they had.  Petitioners had several bank accounts during the years in issue and transferred funds among those accounts at various times.  The record does not include bank deposit records for any year before…the first year before the Court.” 2019 T. C. Memo. 73, at p. 10.

Their problems are the not uncommon ones – unreported income and dubious real estate records. Phil and Leanna make out slightly better with Judge Pugh than with IRS’ examiners, but they fall down on the records.

“While we generally accept petitioners’ explanation that they were moving money around between their accounts and their safe, especially where they memorialized the transfers by writing checks, they did not convince us that these transfers took place in these amounts.  We question their ability to recall so many transactions so many years ago without contemporaneous documentation; and we question whether their default explanation of money transfers between their accounts and their safe can explain all of the deposits at issue.  Petitioners’ credibility is diminished by their reflexive tendency to claim that all of the deposits lacking another explanation were transfers either from another of their accounts or from their home safe.  Their credibility is further reduced by their occasional inability to choose which explanation applied to a particular deposit, as we explain below.  Without better records, and with the passage of time, their testimony is not enough.” 2019 T. C. Memo. 73, at p. 19.

Of course there were logs for the magic 750 hours, but these left something to be desired.

“The logs themselves are not reliable and therefore are not reasonable means of establishing real estate service hours. Nor are we persuaded by petitioners’ repeated concessions on brief to eliminate defects identified by respondent.  This is not a negotiation but rather an examination of the record to determine whether petitioners’ logs and other evidence are reliable.  Rather than improving their reliability, these repeated concessions highlight the logs’ inherent unreliability.” 2019 T. C. Memo. 73, at p. 29.

Takeaway: Negotiate before, not during, trial.

Off-Topic

I have occasion today to reflect upon Billy Yeats (who didn’t make it this far, regrettably). He bestowed upon us “a terrible beauty.”

Today, especially today, Bill really got this one right.

“An aged man is but a paltry thing/ a tattered coat upon a stick unless/ soul clap its hands and sing and louder sing/ for every tatter in its mortal dress.”

I am blogging James P. Donoghue and Elaine S. Donoghue, 2019 T. C. Memo. 71, filed 6/11/19, not for any novel legal propositions, nor for any off-beat factual circumstances, therein set forth, but rather for the delectation of my colleague Peter Reilly, CPA.

Mr. Reilly has made a substantial collation of hobby horse and similar Section 183 “goofy regulation” cases. This one poses no new concepts, and the facts are straightforward enough.

Mrs D loves horseracing ever since her beloved grandfather introduced her to same. She went in for virtual horsefarming (her “farm” was various use-by-the-day premises, brought together on the internet) and breeding, but rarely raced her horses, and lost $974K over 35 years. She claimed to be a “continuous start-up.”

Judge Ashford wasn’t amused. And wasn’t buying.

Take it away, Mr Reilly.

Gregory L. Murphy and Monica J. Murphy, 2019 T. C. Memo. 72, filed 6/11/19, are petitioning a decision letter from an equivalent hearing off a NITL.

Before you holler “no jurisdiction! Equivalent hearings confer no jurisdiction on Tax Court,” consider. The Murphys’ Form 12153 was timely postmarked, although the flailing datestampers at Appeals didn’t get around to tagging it until much later. So IRS concedes the equivalent hearing was really a CDP, and the Murphys’ petition therefrom is timely.

But the Murphys’ claim that they should’a had a credit from four (count ‘em four) years before the year at issue to offset their liability for the year at issue,  founders. There must be an actual credit available, not a might-be, could-be.

Judge Albert G (“Scholar Al”) Lauber allows as how there’s caselaw allowing Tax Court to consider a prior year, which impacts a current year. But that has to be more than a “maybe so.”

“Our jurisdiction in CDP cases generally does not permit us to consider matters involved for nondetermination years, that is, for tax years that are not a subject of the collection action before us.  But we may consider facts and issues from other years to the extent they ‘are relevant in evaluating a claim that an unpaid tax has been paid.’  Freije v. Commissioner, 125 T.C. 14, 27 (2005).  An available credit from another year is a fact that may affect the taxpayer’s correct liability for the year that is the subject of the collection action.  Weber v. Commissioner, 138 T.C. 348, 371-372 (2012).  But a credit must actually exist in order to constitute an ‘available credit.’  A mere claim for a credit ‘is not an “available credit,’” and such a claim ‘need not be resolved before the IRS can proceed with collection of the liability at issue.”  Id. at 372; see Del-Co W. v. Commissioner, T.C. Memo. 2015-142, 110 T.C.M. (CCH) 119, 120-121.” 2019 T. C. Memo. 72, at pp. 9-10.

For the Del-Co story, see my blogpost “A Claim Is Not a Credit,” 8/5/15.

The Murphys had claimed the credit before, and IRS denied it. But the Murphys never headed for USDC or USCFC for a rematch, per Section 7422.

Ch J Maurice B (“Mighty Mo”) Foley announced today that His Honor Big Julie, Judge Julian I Jacobs, fully retired from the Tax Court, whereon he had illustriously served these last 35 years.

“The Court thanks Judge Jacobs for his many years of excellent service. His contributions to this Court and to the Court’s jurisprudence will be missed.”

I bid farewell to His Honor, and wish him a fruitful retirement.

I will retire his cognomen.

Once again Judge Mark V Holmes shuffles off to Buffalo, and that metropolis’ gourmet delights in Mikel A. Brown, Sr., and Debra A. Brown, 2019 T. C. Memo. 69, filed 6/10/19. Beef on weck, sweet sponge candy and spaghetti parm, though tickling His Honor’s palate, didn’t make the grade in Alamogordo, NM; and the celebrated wings of the Nickel City crashed.

The Alamogordo noshery, foisting a Taste of Buffalo on The Land of Enchantment, featured Cynthia and Bryan Harris on deep-fryers, but it was Mikel who was the brains of the joint venture. That’s the Rev. Mikel. While his unreported income earns him the usual slam (no resolution by trustees, board or anyone else for parsonage, and lots of cash from faithful flock; see my blogpost “The Envelope Please – Part Deux,” 10/11/18), Rev Mikel did participate enough to get some of the operating losses based on “regular, continuous, and substantial ” participation. Even though Rev Mikel was based in El Paso, TX, he and Ms Debra really kept the noshery on track.

“We also find that, even given their occasional share of management-related participation, the Browns have met what this test requires.  It is obvious to us that the Harrises managed [the noshery]–they ran the restaurant’s day-to-day operations. This means that the Browns’ participation included only a de minimis amount of management.  But the Browns focused on the important chores of handling the finances, product development, and customer retention.  It seems to us that the record as a whole tells a story of two couples who decided to open a restaurant, with one pair able to man the post and provide the hands-on experience, and the other able to provide the business know-how and funds.  Just because the Browns weren’t running the day-to-day operations doesn’t mean they weren’t playing a major role in [noshery’s] operation.  They spent a lot of time working together on [noshery’s] menus, advertising, decor, and whatever else needed to be done.  On top of this, Reverend Brown handled most of the finances and wrote most of the checks for supplies and vendors, rent, and utilities.  The Harrises gave him the daily receipts and cash, and he would do the books.  He also did the payroll for [noshery].  We don’t believe any testimony that the Browns spent many, many hundreds or even thousands of hours doing this, but we do find it more likely than not that they spent more than 100 hours combined on these chores and were integral to [noshery’s] operation.  This lets us find that the Browns materially participated….” 2019 T. C. Memo. 65, at pp. 40-41 (Citations omitted).

The obscurest part of Section 469 saves the day.

An online dictionary defines one described in the title of this blogpost as “Engaged in a continuous, fast-paced procession of actions or events.”

The phrase certainly describes that Obliging (and energetic, fast-paced) Jurist, Judge David Gustafson, who gives us three (count ‘em, three) designated hitters today.

I’m going to pass on Johannes Lamprecht & Linda Lamprecht, Docket No. 14410-15, filed 6/7/19. The Lamprechts have been here before, but when they featured on my blog the previous four (count ‘em, four) times, we had the full story. This time it’s a throw-down about responses to interrogatories, but without full texts of both interrogatories and responses, it’s like trying to make out a telephone conversation when one hears only one party (and that not even in full). So whatever Judge Gustrafson conveyed to the parties, I can draw no conclusions for anyone else.

It’s a different story for Scott Alan Webber, Docket No. 14307-18L, filed 6/7/19. Scott is fighting a NITL, but IRS claims he’s a day late (and much more than a dollar short, like $9K) with his filing, as he used the return address from the wrong side of a two sided IRS one-size-fits-nobody Notice LT11.

I hasten to add the the “LT” designation of  this befuddling document has nothing to do with me. It’s six pages, and was sent with a blank Form 12153 and a window envelope, so that the party requesting a CDP could use one side of the LT11 to fold down and use to address the window envelope to Philly, enclosing the completed Form 12153.

Except on the other side of the same page was another address, in Kansas City, to use to pay up if you didn’t want to fight. And use the same envelope to send in your check.

Of course, Scott got it wrong, the 12153 went to KC, KC relayed to Philly, and IRS called the play dead because the 12153 got to Philly a day late, so Scott only got an equivalent (non-appealable to Tax Court) hearing, which he petitions. And IRS moves to bounce because you can’t get to Tax Court from an equivalent.

Judge Gustafson wants a supplemental memo from IRS. Reg § 301.6330-1(c)(2) Q&A-C6 says you have to send your 12153 to “the IRS office and address as directed on the CDP notice.”

What notice? There are two, each one for a different purpose, on the obverse and reverse of the same page of the same document.

Judge Gustafson takes judicial notice to a new height. ”Within recent memory the undersigned judge has paid a bill using an address slip of the sort the IRS employed here, and he inserted the address slip into the envelope wrong side out and sealed the envelope. In that instance, the wrong side was blank, the error was obvious, and the fix could be made by opening the envelope, turning the address slip around, and re-sealing the envelope. But if the wrong side had borne another similar (but incorrect) address, the error would probably have been overlooked, and the bill payment would have gone astray. That is to say, we sympathize with a taxpayer who is confused by the design of Notice LT11.” Order, at p. 8.

Now of course IRS has had to do more with less for years. IRS must deal with tsunamis of paper and electrons, from serried ranks of millions of taxpayers, deer-in-the-headlights, wits, wags and wiseacres, et hoc genus omne. And do it with fewer people and resources. Judge Gustafson is sympathetic. And the law is the law.

But.

“…where the IRS intends to require that a CDP hearing request be sent to a particular address, and where it takes the position that a CDP hearing request sent to a different address is invalid and ineffectual, and where it argues that the use of the wrong address ultimately deprives the Tax Court of jurisdiction over the case–in such a circumstance, we wonder whether an occasion for confusion is predictably and unfairly created by (a) combining the CDP notice with a gratuitous demand for payment, (b) providing multiple address slips back to back with multiple addresses , (c) putting the wrong address slip on the front page of the notice, and (d) failing to label the CDP address slip with any indication that it is the CDP address slip. It would seem reasonable for the IRS either to insist that a CDP hearing request must be sent to a specific address or to decide to make use of its mailing of a CDP notice for the additional purpose of soliciting payments to be mailed to a different address—but probably not both.” Order, at pp. 8-9.

So let IRS file a supplemental memo, explaining (1) why KC isn’t the right address, and (2) the “first levy” conundrum: IRS can’t levy until thirty days have passed since notice and no 12153 has been sooner filed, but if 12153 is filed then no “first levy” until (a) NOD and (b) if timely petitioned, then Tax Court decision and (c) Section 7481 finality thereof. So “first levy” is a future event that may never happen. But IRS has conflated lien (which is automatic and arises before notice need be given) and levy (which requires notice) in the LT11.

Unless, of course, IRS withdraws its motion to dismiss Scott’s petition (hint-hint, nudge-nudge, wink-wink).

Finally, the Return of the Palmolives, Palmolive Building Investors, LLC,  DK Palmolive Building Investors  CLC Participants, LLC, Tax Matters Partner, Docket No. 23444-14, filed 6/7/19. Here Judge Gustafson ascends  “to such rarefied heights of pure mathematics that it is said that there was no man in the scientific press capable of criticizing it.”

The Palmolives erected a wall of LLCs worthy of Game of Thrones. They sliced and diced the poor old Palmolive building into commercial spaces, residential condominiums, and the Building Base. Each LLC got a different piece, but each member of an LLC not only had a piece of one, but maybe a (different fractional) piece of another.

Then they split off the façade, so that the poor thing got sliced and diced in two directions.

Judge Gustafson turns to linear algebra, and propounds a series of equations worthy of Professor Moriarity in his prime. And in my checkered career I’ve done some slice-and-dice, chop-and-swap condominium deals, with Fortune 500s and a merry crowd of pirates (who all sued one another) in the mix…but enough of war stories.

“It is perhaps fortunate to have in this case a circumstance that seems to be rare in cases involving the valuation of a facade easement–i.e., a transaction in which portions of a facade are transferred separately from the building behind that facade. An arm’s-length transaction in which a facade was sold, separate from the building, might be good evidence of the fair-market value of that facade. As we have shown above, it appears in this case that, in the 2003 transaction, [X} transferred to [Y] [X’s] entire interest (both facade and associated building) for floors 5 to 15 but also transferred to [Y] [X’s] interest in only the facade of floors 1 to 4. The foregoing analysis is the Court’s attempt, unassisted by the parties or their experts, to identify that distinct value. If the Court’s attempt requires correction (e.g., as to the value received by [X], or the property rights transferred during the 2003 restructuring), then we would appreciate receiving that correction in the parties’ memoranda and in their presentations at trial.” Order, at pp. 6-7. (Names omitted).

However the numbers come out, the Palmolives get a Taishoff “Good Try, hors classe.”

No, not Sam T. Coleridge’s “greybeard loon” having a mix-and-match. This is a designated hitter from Judge Buch off a CDP, John M. Annesi & Cheryl L. Annesi, Docket No. 988-18L, filed 6/6/19.

The major wrangle here is John’s & Cheryl’s RCP. IRS wanted to grab $92K, John & Cheryl offered an ETA OIC of $2500, which got bounced when the OIC offer specialist decided that they had a $385K RCP, based on their most recent return.

I’ll let Judge Buch take it from here.

“To determine their RCP, the offer specialist relied on information from the Annesis’ most recently filed return and calculated their monthly income based on this one year of income. The offer specialist rejected the Annesis’ offer-in-compromise because she concluded that the Annesis were able to pay the liability in full and that their special circumstances did not warrant a hardship.

“The offer-in-compromise was sent to a settlement officer for the Annesis’ appeal of the offer specialist’s decision. During the hearing with the settlement officer, the Annesis’ representative would not accept an installment agreement because she asserted that the Annesis were unable to make the payments. After the hearing, the Annesis’ representative sent a fax to the settlement officer, asserting that the Internal Revenue Manual allows for the past three years of income to be averaged in calculating the Annesis’ monthly income to determine their RCP.” Order, at p. 2.

One or three, it’s all one. On the three-year recount, the SO comes up with a $198K RCP.

“While the parties do not dispute the liability, the Annesis attempt to raise doubt as to collectability by claiming the Commissioner incorrectly calculated their RCP. The Commissioner may reject an offer-in-compromise when the taxpayer’s RCP is greater than the amount he proposes to pay. Here, the Annesis’ proposed calculation method results in a RCP that far exceeds their offer amount. Therefore, the alleged error is immaterial and the Commissioner did not abuse his discretion.” Order, at p. 4. (Footnotes omitted, but note the cases cited.)

I give the Anchorage AK representatives a Taishoff “Good try, second class.”

Maria Shenorah McCree, 2019 T. C. Memo. 67, filed 6/6/19, definitely spent money from her TX Employee Retirement System withdrawal for qualified higher education expenses. And though Maria Shenorah is on the sunny side of 59-1/2, she still gets the benefit of exemption from the 10% addition/tax/whatever to the extent such expenses were incurred, net of scholarships and grants. And Judge Vasquez assists in her higher education.

Maria Shenorah claimed rollover for the whole withdrawal, although she didn’t. She put the withdrawal in a regular bank account, and that triggers tax. And though IRS, notwithstanding the Letter 4464C Questionable Refund 3rd Party Notification she got, gave her the refund she claimed, IRS is not estopped to issue a SNOD when they caught their error.

Maria Shenorah’s claim she shouldn’t have to suffer for IRS’ mistake is a loser. She owes tax, plus the 10% whatever, on what isn’t qualified higher education expense (see Section 529(e)(3)).

Maria Shenorah never got the SNOD, so she’s entitled to trial de novo on her liability.

But a trial de novo is still a trial, and Maria Shenorah comes up short on her liability and on abuse of discretion.

Judge Vasquez: “Petitioner has not advanced any evidence that SO T abused his discretion in sustaining the proposed levy action against petitioner for her … income tax liability.  Petitioner’s briefs and trial testimony did not identify any defects in SO T’s verification process.  At trial petitioner argued that she should not be required to pay her … income tax liability because respondent should have verified that she did not roll over the proceeds from her ERS distribution when respondent’s IVO reviewed her … tax return.  She further alleged that respondent misallocated funds by issuing a refund to her before determining a deficiency for the … tax year.  This Court has already rejected petitioner’s arguments by holding that (1) the IVO’s review and verification of petitioner’s 2010 tax return does not constitute an audit or examination and (2) respondent is not precluded from determining a deficiency after issuing a refund.” 2019 T. C. Memo., 65, at p. 19. (Name omitted).

Maria Shenorah had been up to Tax Court two years ago, when IRS tried for summary J from a NOD off a CDP. IRS got a win on the IVO and the SNOD-after-refund, but Maria Shenorah got a trial de novo. I didn’t blog that opinion, although maybe I should have. Here it is.

But since Maria Shenorah gets allowed more qualified higher education expense to offset the 10% gig than IRS allowed in the 2017 CDP, she’ll need to do a Rule 155 beancount.

I Know There Are Variations, I Just Picked One

My understanding of the meaning of this word is “compassion, fellow-feeling.” There are many transliterations and as many variant pronunciations. But the underlying emotion is the same.

A docket search shows counsel moved to withdraw before Judge Albert G (“Scholar Al”) Lauber tossed his client’s petition for lateness. I expect counsel has already received The Phone Call. See my blogpost thus entitled.

The opinion is Curtiss T. Williams, 2019 T. C. Memo. 66, filed 6/5/19. I blog it for the laundry list of the ways and means Tax Court uses to suss out the timely delivery of a petition when USPS fails to provide a legible postmark, which Judge Scholar Al kindly lays out for us. Save this list for your briefing file.

But counsel’s declaration under penalty of perjury in support of timely mailing (Section 7502 mailed-is-filed) falls way short. While the usual delivery time from point of mailing (counsel’s home) to the hands of the hard-laboring intake clerks and flailing datestampers at the Glasshouse is seven (count ‘em, seven) days, and the max Tax Court ever saw was eight days, this one got there in 36 days. The date of the petition doesn’t match the date of mailing stated in counsel’s declaration. And getting caught in the Thanksgiving-New Year’s flood of mail can’t explain 36 days.

I’m not saying counsel did or said anything wrong. I have no personal knowledge; and let any one of us who has never blown a deadline cast the first cliché.

But I have sympathy for counsel. This is one tough story.