I must add the title hereof to my extensive and ever-growing list of sins of levity and irreverence, to say nothing of worse ones, the subject of an even-faster-growing list.

Cross Refined Coal, LLC, USA Refined Coal, LLC, Tax Matters Partner, Docket No. 19502-17, filed 5/24/19, is once again vexing that Obliging Jurist, Judge David Gustafson, who, I dare say, never did the Cross Colliers any harm. Here’s the designated hitter, on the eve of a three-day weekend.

The Cross Colliers want to strike an out-of-time IRS document demand, which got enmeshed in The Shut Down, and got overlooked in the unscrambling of the mountain of frittattas generated thereby.

Although from the government, Judge Gustafson definitely is here to help, and not frighten anyone.

Tax Court “was busy recovering from the shutdown and was awash in scheduling issues in numerous cases. Given that context, and given that we had indicated our ‘inclin[ation] to adjust the pretrial schedule’ and had invited the Commissioner to ‘renew his motion after February 15, 2019’, his service of document requests three weeks out of time (under the schedule entered in October 2018) was not unreasonable.” Order, at p. 3.

Judge Gustafson, like a very much Higher Authority, was willing to help both sides get out of commitments that The Shut Down and the rehabilitative steps necessitated thereby rendered unduly burdensome. Hence the title of this blogpost.

So the motion to strike the document demand is denied, and let the Cross Colliers and IRS play nice and sort out the rest of their problems.

The Glasshouse Bargain Basement seems to be going full-bore, as Terri A. Singleton, Docket No. 16064-18, filed 5/23/19, gets her “dission” from Ch J Maurice B (“Mighty Mo”) Foley, erstwhile guardian of the Tax Court fisc, on a stip, apparently ponying neither waiver nor sixty smackers.

Terri got tossed for want of payment on Monday, got reinstated yesterday (order of dismissal vacated), and today she and IRS stip out, which stip gets entered as a decision, with no word of chops. Or the sixty bucks.

The late Justice Potter Stewart’s immortal phrase echoes from the wordprocessor of His Honor Big Julie, Judge Julian I Jacobs, hereinafter HHBJJJIJ, to toss Constance H. Briley, 2019 T. C. Memo. 55, filed 5/22/19, as Connie seeks innocent spousery.

Connie should have known that two (count ‘em, two) straight years of six-figure losses on the MFJ 1040s she filed with now-ex spouse was dodgy, since now-ex’s construction business was flourishing. Even though HHBJJJIJ can’t find any extravagant living, Connie testifies she was sure that the business was making money for more years than those at issue.

Connie had “…a degree in industrial psychology, [and] was employed as a recruiter and human resources department generalist.” 2019 T. C. Memo. 55, at p. 2. So she had no financial education background.

Still and all, “(W)e believe petitioner had reason to know of the understatement of tax on her and Mr. Briley’s joint Form 1040 for each of the years involved.  Petitioner was college educated.  Even a cursory review of each year’s tax return would have revealed that the return reported a large negative income and caused a reasonably prudent individual in the shoes of petitioner to question the accuracy of the negative income.

“Admittedly, much of the negative income in [years at issue] arises from NOL carryforwards, and petitioner does not have a financial education.  But having a sophisticated financial education is not necessary to understand petitioner’s and Mr. Briley’s joint tax returns.” 2019 T. C. Memo. 55, at p. 15.

I wonder if Connie knew about Section 263’s capitalization requirements, which her now-ex and his aggressive preparer Mr. Shaft, of a well-known national tax prep franchisee, blew past to generate the aforementioned NOL and carryforwards thereof. I’m not so sure as HHBJJJIJ that Connie knew about that; however, it’s a much less close question that she should have asked.

Connie is Golsenized to 4 Cir. Is an appeal worth it?

Anyway, big negatives on a MFJ 1040, when no obvious financial stress, are shady, even if you know nothing about tax, aren’t a great recipe for innocent spousery. You should know it when you see it.

Cross Refined Coal, LLC, USA Refined Coal, LLC, Tax Matters Partner, Docket No. 19502-17, filed 5/22/19, once again pits the Cross Colliers’ squad of lawyers against IRS, but that Obliging Jurist, Judge David Gustafson, isn’t playing.

The Cross Colliers apparently weren’t minded to play nice; neither was IRS, despite Judge Gustafson’s objurgation set forth in my blogpost “Discovery In Lieu of Trial,” 4/18/19.

The Cross Colliers want to depose and gain admissions from IRS about a certain Chief Counsel Memo (CCM) that has something to do with Section 45, whereunder the Cross Colliers claim all manner of tax breaks for their alleged partners.

Judge Gustafson is a trial judge in a court with limited discovery and a long history of “play nice” pretrial stuff.

Besides, Judge Gustafson is trying this case about these facts, these parties, the law and the regs.

“Cross’s entitlement to the credits at issue in this case will be decided by applying the law to the facts about Cross and its transactions. All of the facts that the Commissioner knows about Cross he learned from Cross. Cross makes no allegation that, in responding to discovery, the Commissioner has withheld any facts about Cross. Rather, the principal dispute now before us concerns facts about other entities and their transactions. But such facts will have no bearing on the outcome of this case.

The Court will not adjudicate the correctness of the CCM. Neither party argues that the CCM has precedential value nor that we should defer to it in any way. We do not expect to attempt to distinguish Cross’s facts from those in the CCM. We do not expect to evaluate the CCM’s conclusions as to other taxpayers nor to determine whether, in issuing the CCM, the Office of Chief Counsel had an adequate factual or legal predicate for those conclusions. If the CCM was factually unsupported and legally without merit, that would not help Cross; and if instead the CCM was factually impeccable and legally brilliant, that fact would not help the Commissioner. Consequently, Cross’s efforts in discovery to learn more about the background of the CCM are misdirected.” Order, at p. 3.

The Cross Colliers want Judge Gustafson to require IRS to dish on the CCM per FOIA, but Judge Gustafson isn’t playing USDCJ, whether or not IRS bargained away a relevance objection on that material. “We will not use the resources and authority of the Tax Court to compel disclosures extraneous to our proper business.” Order, at p. 4.

And if the Cross Colliers are sweating that IRS might be smuggling in evidence about other taxpayers, then Judge Gustafson will call them on it. “In the unlikely event that the Court were to be forgetful or inattentive on this point at trial, we would expect petitioner’s counsel to remind us of the ruling we make in this order.” Order, at p. 4.

Trial is August 5, 2019. Get with it.

Only a sip away for Mary Bui, 2019 T. C. Memo. 54, filed 5/21/19. IRS claims Mary omitted $355K of canceled debt from her return for the year at issue. Mary gets about $48K from Judge Goeke, but gets hit for the rest.

We remember the Qualified Principal Residence Indebtedness largesse, now off the books but active for Mary’s year. The problem is that Mary can only show $12K of one of the mortgage loans out from under which she walked was used to expand and repair the driveway in principal residence. The $10K of custom drapery doesn’t count. The magic words are “…used to acquire, construct, or substantially improve the taxpayer’s primary residence, and that residence must secure the loan.” 2109 T. C. Memo. 54, at p. 10. If the debt wasn’t so secured and so used, no dice.

And anyway, Section 108(h)(4) limits Mary’s QPRI exclusion to about $5K, the difference between what debt was canceled and what wasn’t QPRI.

Mary claims she was insolvent when debt canceled, and IRS agrees. So Section 108(a)(1)(B). But Mary was only underwater around $42K, and you can’t cancel more debt than gets you to zero.

Mary tries for a goal-line save, but has forgotten, or never heard, Taishoff’s Law:  “Stipulate, Don’t Capitulate.”

“Petitioner suggests that respondent did not accurately account for her assets and liabilities when calculating her insolvency.  However, petitioner stipulated respondent’s insolvency calculations and has offered no coherent argument as to why the calculations are in error.” 2019 T. C. Memo. 54, at p. 12.

When it comes to TFRP liens and levies, 11 Cir. says it doesn’t fly, even though Tax Court thought it did. I didn’t blog Romano-Murphy v. Commissioner, T.C. Memo. 2012-330, nor the vacation and remand thereof in 816 F.3d 707 (11 Cir., 2016), for which omissions I now apologize and remedy.

Judge Morrison has the remand in Linda J. Romano-Murphy, 152 T. C. 16, filed 5/21/19. 11 Cir told Tax Court figure out what to do about IRS’ violation of Section 6722(b)(3)(B); IRS assessed first and determined afterward. That, says 11 Cir, is a no-no.

Here’s the short answer.

“…we hold that the assessment is invalid and that the Office of Appeals abused its discretion in upholding the proposed levy and the filing of the notice of lien to collect the assessment.  We do not sustain the determination of the Office of Appeals.” 152 T. C. 16, at p. 6.

Every IRS argument to the contrary is met by “but that’s not what 11 Cir said.” Wherefore I’ll spare you IRS’ multifarious attempts to rescue their $346K lien, which take up about 70 pages of Judge Morrison’s prose.

For a refresher on the entire IRS collections process, read this opinion.

IRS claims harmless error. Even if Linda didn’t get a determination before assessment, she got the same kind of hearing she would have gotten. No good, says Judge Morrison. Because 11 Cir.

“…the timing of assessment affects the ‘procedure used’ for collecting a tax liability.  Here we cannot be sure when the assessment of the trust-fund-recovery penalty would have taken place had the IRS made a final administrative determination before the assessment.  Therefore, its error potentially had a bearing on the ‘procedure used’ for collecting Romano-Murphy’s penalty. Furthermore, Romano-Murphy had a right, under the Eleventh Circuit opinion, to a pre-assessment administrative determination of her liability.  A pre-assessment determination is fundamentally different from a post-assessment determination.  A person seeking a post-assessment determination may be simultaneously dealing with collection actions, such as proposed levies and notices of liens.  The harmless-error rule therefore does not apply.” 155 T. C. 16, at pp. 58-59 (Citation and footnote omitted, but the footnote matters. It says IRS claims it can just redetermine and reassess, as SOL hasn’t run. So what, says Judge Morrison. The old assessment is no good, and that you could do a new one doesn’t validate the defective old one.)

Finally, Linda wants an injunction, but since IRS (which improperly took the “litigation hold” off her file and restarted collection) has reinstated the “litigation hold,” and anyway, the underlying assessment is invalid, there’s no basis for collection.

Linda was pro se throughout. She gets a Taishoff “Good job, first class.”

It’s not enough for the AO at the CDP to check the IRS’ Integrated Data Retrieval System (IDRS) to see that the SNOD was properly mailed, when IRS hasn’t got either the Form PS3877 or the certified mailing list, and the taxpayer raises an irregularity at the CDP, even if he raises it “inartfully.” 2019 T. C. Memo. 53, filed 5/20/19, at p. 12.

Now generally (love that word! Here comes the exception) “Respondent is correct that IRS guidance does advise Appeals officers that they may ‘rely’ on IDRS to verify the validity of an assessment from a notice of deficiency.  See IRM pt. 8.22.5.4.2.1.1(2) (Nov. 8, 2013).  But that is the ‘general[]’ rule.  Id.  Where a taxpayer alleges that the notice of deficiency was not properly mailed to him, he has ‘alleged an irregularity’, id. pt. 8.22.5.4.2.1.1(5), thereby requiring Appeals officers, according to further IRS guidance, to do more than ‘rely solely’ on IDRS; they must review:  (1) a copy of the notice of deficiency and (2) the USPS Form 3877 or equivalent IRS certified mail list bearing a USPS date stamp or the initials of a postal employee, id. pt. 8.22.5.4.2.1.1(6).” 2019 T. C. Memo. 53, at p. 14.

So the AO didn’t follow procedures, was arbitrary and capricious, and gets sacked.

And sacked by a real expert, “The Freak,” Jevon Kearse, of  Florida Gators, Tennessee Titans and Philadelphia Eagles fame.

Judge Ashford whistles the play.

Thomas L. Kitts & Amanda M. Kitts, Docket No. 5629-17, filed 5/17/19, echo the words of Hank Longfellow, but Judge Buch can‘t get them out of the stip they signed, apparently on the eve of trial last December, after they’d bounced an earlier one IRS proposed.

When IRS tries to enter decision, Thom & Amanda balk, because the numbers on the Form 4549B embodying the changes were not what they thought. Judge Buch was induced to hold a phoneathon, whereat IRS agreed to drop a number or two. IRS then moved to enter decision incorporating the agreed changes, whereupon Tom & Amanda moved to be relieved from the stip, claiming IRS misrepresented something. Clearly, Tom & Amanda didn’t like the numbers their stip yielded.

Nope, says Judge Buch.

“The Kitts did not provide any basis to support their claim of misrepresentation. The Kitts may have misunderstood the tax effect of their stipulation, but that unilateral mistake (assuming there was one) is not grounds to set aside the stipulation.

“A stipulation of settled issues is a compromise, and we are unlikely to grant relief from a stipulation entered into through considerable negotiation. The Kitts had the Form 4549B from the Commissioner’s initial settlement offer since at least April 2018. The Kitts were represented by their accountant who also had the Form 4549B before they entered into the stipulation. The parties freely and fairly signed the stipulation long after both parties were aware of what was at issue.” Order, at p. 3 (Footnotes omitted, but get the cases cited and be prepared for bombardment therewith if you ever need to avoid a stip).

The various IRS Manuals give taxpayers no rights. And if Tom & Amanda wanted a trial, that train has left.

And having your accountant represent you in Tax Court raises other and further questions, which I have elucidated more than once.

Remember my advice: Stipulate, don’t capitulate.

It looked like Hisham N. Ashkouri & Ann C. Draper, Docket No. 17514-15, filed 5/17/19, might have caught a break when Clay & Osceola walked back the initial chop determination date to the 30-day letter.

Confused? See my blogposts “Indians Not Taxed – NOT!” 4/24/19, and “Here Comes the Silt,” 4/25/19.

Now Judge James S (“Big Jim”) Halpern finds IRS’ tell-all establishes the Section 6751(b) Boss Hossery, so he allows a reopener so IRS can dish.

Hish & Ann claim that after the RA and Acting Group Manager (his boss) confabbed as alleged, they went to Appeals and got their alleged deficiency cut by 50%.

No go, says Judge Big Jim.

“Petitioners base their opposition to respondent’s motion on the transfer of their case to Appeals after [AGM]’s involvement in it. Although petitioners do not explicitly address the standards we employ in considering a party’s request to reopen the record, they suggest that receipt of the evidence respondent seeks to admit would not affect the outcome of their case because it does not establish compliance with section 6751(b)(1). Petitioners allege that Appeals ‘amended’ their tax liability by reducing their deficiencies ‘by 50% of what was stated by [AGM].’ ‘This change in tax liability and amount of deficiency,’ they contend, ‘amounts to a fundamental change to * * * [what was] proposed by [AGM].’ They thus view Appeals’ offer of compromise as having ‘supersede[d]’ the 30-day letter.

“Contrary to petitioners’ argument, the evidence respondent seeks to admit would establish compliance with section 6751(b)(1). The plain terms of that section require the approval of ‘the initial determination’ to assess penalties. Clay & Osceola establishes that the initial determination to assess penalties occurs no later than the issuance of a 30-day letter to the taxpayer. Because a 30-day letter advises a taxpayer of his right to appeal proposed adjustments or penalties, the rule established in Clay & Osceola presupposes the possibility that a taxpayer’s case may go ‘beyond’ the examining agent and his immediate supervisor. Neither the statute nor our opinion in Clay & Osceola gives any indication that a determination to assess penalties must receive subsequent approval during consideration of the taxpayer’s case by Appeals. (Indeed, as noted above, such a requirement would be contrary to section 6751(b)(1)’s plain language.) Moreover, the compromise offered to petitioners by Appeals did not amount to a ‘fundamental’ redetermination of their tax liabilities for the years in issue. The offer–which the notice of deficiency demonstrates was never implemented—simply reduced each proposed adjustment by approximately half.” Order, at p. 3.

So this evidence is a game-changer, is material, and is neither cumulative nor impeaching.

Hish & Ann are “wrapped in white linen as cold as the Clay.”

On May 16, 2019, United States Tax Court issued 206 (count ‘em, 206, and I did) orders. Not one was designated.

Not one deserved to be designated.

On May 16, 2019, United States Tax Court issued no opinions.

On May 16, 2019, I posted nothing. Nothing was worth posting.

On May 16, 2019, my blog got 108 (count ‘em, 108) views. So far, in this month of May, 2019, my blog averages 35 views per day, and I posted every weekday so far.

Go figure.