I’ve lost count of the times I’ve repeated this mantra, or told the story of the Judge who granted my motion (dearly sought by the client) and set in train a monster.

Today I note its application even to the exalted personages on the learned and distinguished Bench of the United States Tax Court, even at the Senior Judge level.

Y’all will recall Oakbrook Land Holdings, LLC, William Duane Horton, Tax Matters Partner, Docket No. 5444-13, filed 3/15/19. Tax Matterer Billy D was leading the charge to knock out Reg. §1.170A-14(g)(6)(ii).

If not, see my blogpost “Perpetuum Fragile?,” 2/27/19.

There you are. Now you know Judge Mark V Holmes, aware that there might have been public comments submitted to the Treasury Department during the course of considering said Reg., was unable to extricate same by usual means (and neither was I, btw).

So, setting a tight deadline for a minimalist’s delight of briefing once said comments, if any, surfaced, Judge Holmes sent IRS to go find same.

Comes now the point of this little essay.

“On March 14, 2019 we spoke with the parties again and learned that the comments are approximately 2600 pages in length. The Commissioner will mercifully produce them in .pdf and indexed form with Bates-stamped page numbering.” Order, at p. 1.

So the briefs, though still minuscule, are put off for a couple months (this is Judge Holmes, after all).

And maybe Treasury can put this megillah online, now they’ve gone to the trouble of producing it. Judge Holmes must have forgotten that most commentators on proposed Federal regs are lawyers. As Tom Jefferson said, these are those “…whose trade it is to question everything, yield nothing, and to talk by the hour.”

Heed the title hereinabove at the head hereof set forth.

The frivols get a break today, Pi Day.

First, Robert Wesley, 2019 T. C. Memo. 18, filed 3/14/19. Rob is back before Judge Albert G (“Scholar Al”) Lauber. The last time Robert got chopped for frivolity to the extent of $7500. Back then Robert “…had made ‘baseless allegations of fraud against respondent’ and had submitted to the settlement officer a purported amended return for 2010 showing zero gross income and zero tax due.  In support of this ‘zero return’ he cited ‘irrelevant Code sections and IRS regulations’ and alleged that he had no obligation to file an income tax return because ‘he is not dead and is not * * * an executor of an estate.’” 2019 T. C. Memo. 18, at pp. 2-3. Robert may have forgotten the $2500 chop he got back in 2002.

Judge Scholar Al hasn’t forgotten.

But IRS conceded the 10% Section 72(t) addition, and the nontaxability of $737 in miscellaneous income. Judge Scholar Al isn’t quite so forgiving, but he’ll let it go. “We do not believe that respondent was obligated to concede the inapplicability of the section 72(t) additional tax or the nontaxability of $737 in miscellaneous income.  For purposes of deciding this case, however, we will give effect to these concessions and to respondent’s agreement to abate the portion of the 2012 tax attributable to those amounts.  We assume that further abatements may be required with respect to self-employment tax and for portions of the sections 6651 and 6654 additions to tax.” 2019 T. C. Memo. 18, at p. 16, footnote 4.

Ultimately, Robert catches a break.

“Petitioner has raised many frivolous arguments during this litigation.  We sanctioned him on two prior occasions for advancing frivolous arguments, and in this case we repeatedly warned him to desist from doing so.  We struck from his amended petition 10 paragraphs containing frivolous arguments, yet he persisted in advancing those very same arguments in discovery motions and at trial.  He has wasted considerable resources of the IRS and this Court.

“Given this track record, we believe petitioner to be deserving of a very severe sanction.  But because respondent (rather generously) made several concessions in this case, petitioner by filing his petition has secured some relief despite his own worst efforts.  We will accordingly require him to pay in this case a penalty of only $10,000.” Order, at p. 20.

So do a Rule 155 beancount.

Ex-Ch J Michael B (“Iron Mike”) Thornton has an off-the-bencher designated hitter for Keith William Brown, Docket No. 5817-18, filed 3/14/19. KW only gets a yellow card for stating in his petition that “…as his basis for disagreeing with the determination in the notice of deficiency, petitioner states: ‘irreconcilable differences’. And for the facts upon which he relies: ‘the facts are many and span a period of 37 years, beginning in 1981’.” Order, transcript page 6.

And of course the deficiency in the SFR IRS gave KW at no extra charge is sustained.  And the additions for nonfiling, nonpayment and underwithholding are sustained as well. KW’s arguments on that score are frivolous, but ex-Ch J Iron Mike only warns KW against trying this tack again.

Well, Neither Form 2848 Nor Form 4868 Is

The short answer to the question Zedd asked via Foxes back in 2012 is set forth hereinabove. But Judge Buch tells the whole story in Damian K. Gregory and Shayla A. Gregory, 152 T. C. 7, filed 3/13/19.

I put in dates because they’re necessary.

D and S moved between June, 2015 and filing 2014 on extension in October. When 2014 was examined, they had already sent in a Form 2848 Power of Attorney in November 2015, and an Application for Automatic Extension to File, Form 4868, in April, 2016, showing new address. IRS send a SNOD to old address in October, 2016.

Everyone agrees D and S never were aware of the SNOD until just after the 90 days had run, in January, 2017. They petitioned same day. D and S argue IRS knew of new address via the 2848 and the 4868.

“Last filed return” is one test. “These forms do not fall within the class of documents that are typically considered to be returns.  Most commonly, a return is a document that is used to report a tax liability.  See. e.g., Beard v. Commissioner, 82 T.C. 766 (1984), aff’d, 793 F.2d 139 (6th Cir. 1986). Under what is commonly called the Beard test, for example, a return must meet the following criteria:  ‘First, there must be sufficient data to calculate tax liability; second, the document must purport to be a return; third, there must be an honest and reasonable attempt to satisfy the requirements of the tax law; and fourth, the taxpayer must execute the return under penalties of perjury.”  Id. at 777.  Neither Form 2848 nor Form 4868 meets any of these criteria:  They do not provide any data necessary for calculation of a taxpayer’s tax liability, they do not purport to be returns, and they cannot reasonably be considered attempts at making a return.” 152 T. C. 7, at pp. 7-8.

Anyhow, Rev. Proc. 2010-16 says neither one is a return.

“Clear and concise notice” is the other test. If either the 2848 or the 4868, both of which showed new address, gave “clear and concise” notice to IRS of new address, then SNOD invalid.

Well, once upon a time they did. But not now.

Back in 1997, the 2848 did give notice. But that ended prior to 2014. Now the instructions to both forms follow Rev. Proc. 2010-16, and explicitly state that neither of these give “clear and concise” notice to IRS of a change of address. Form 8822 Change of Address, to which the applicant is directed in the instructions to the Form 4868, is the form to use.

D and S are out.

Once again, those who need this won’t read this, and those who read this don’t need this.

I need to expand my vocabulary, so I invented a new word wherewith to entitle my discussion of ATL & Sons Holdings, Inc., 152 T. C. 8, filed 3/13/19. ATL is a Sub S with two (count ‘em, two) shareholders. As they had done in a prior year, they filed their 1040s on extension, showing whatever the late-filed 1120S would have required them to show.

In the prior year, IRS gave the shareholders a bye on the Section 6699 late-filing chops. But for year at issue, ATL forgot the Form 7004 extension, so IRS chops ATL six months’ worth of the statutory $135 for each shareholder. Likewise, there’s no Section 6751(b) Boss Hoss sign-off because “automatically calculated by electronic means.”

ATL wants the same as before, but each year stands on its own. And the first-time bye for a late-filed 1120S is out because ATL had theirs.

The Tax Payer Advocate, the redoutable Nina E. (“The Big O”) Olsen, has weighed-in, urging Boss Hoss second-look for 6699s, and ATL picks up her commentary.

“Nina E. Olson, ‘IRS Administrative Policy and Recent Litigation Weaken Supervisory Approval Requirement for Penalties’, Taxpayer Advocate Service: NTA Blog (Oct. 4, 2017), https://taxpayeradvocate.irs.gov/news/nta-blog-irspolicy-weakens-requirements-for-penalties.  In the quoted article, the National Taxpayer Advocate seems to be arguing what the law and IRS practice should be, not necessarily what they are.  If ATL means to argue what the law should be, then its argument would be properly addressed to Congress.  We attempt here to discern ATL’s contention about what the law is.” 152 T. C. 8, at p. 25, footnote 5.

Judge David Gustafson, obliging though he is, is unwilling to defer to The Big O’s views about the weaknesses of present law, leaving that to Congress. As this is a non-political blog, I will not say “Best of luck with that.”

If IRS should address good faith and reasonable cause pre-chop, as The Big O and ATL seem to state, those are affirmative defenses to be raised at a CDP; ATL did, so review is de novo. ATL and those similarly electronicuted must fight it out at a CDP and at Tax Court, rather than have a pre-chop Boss Hoss review.

Sections 6651 and 6751 deal with penalties based upon tax due. With a Sub S, barring FICA/FUTA/ITW, there is no tax due. So 6699 is based entirely on number of shareholders and a fixed sum, regardless of what the 1120S shows or doesn’t show.

ATL didn’t put in any facts showing reasonable cause, and the Section 6699 regs don’t define that term, but analogies to Section 6651 “ordinary business care and prudence” plus facts-and-circumstances fit Judge Gustafson’s bill. And ATL has only the Michael Corleone gambit for that.

ATL says the shareholders paid what they were supposed to pay, and ATL didn’t owe anything anyway. So no hurt, no foul.

“ATL cites no authority in support of its claim that the penalty should be waived on the grounds that its two shareholders were aware of the information to be shown on the return.  Section 6699 does not include a condition of harm before the penalty is imposed; it simply imposes a penalty when the filing is late (without reasonable cause).  A taxpayer may not disregard a filing deadline and be excused from this penalty simply because it reckons that no harm was done.” 152 T. C. 8, at p. 18.

While IRS credited a previous year’s overpayment to the Section 6699 chop before giving ATL the NITL, Section 6330(a)(1) only bars grabbing stuff before issuing NITL, not crediting.

Looks like the Boss Hoss sign-off has been electronicuted too.

Judge Nega must be hearing this Robert Stolz classic Viennese bonbon, as he admonishes Thomas P. Kaczmarek & Christine L. Kaczmarek, Docket No, 14435-18, filed 3/13/19.

Thom & Chris, pro se until yesterday, with their case on for trial in less than two weeks, bring in their attorney (whom I’ll call Mac). Surprise, surprise, IRS moves for a continuance out of time (that means late, for you civilians). And Mac objects not.

Judge Nega doesn’t even bother citing Rule 133’s thirty-day lock-out of the dilatory, or the “copious citations and somber reasoning” in support of the proposition that bringing in new counsel is no basis for a continuance.

“The motion offers no assurance that the parties have proceeded to prepare for trial or other resolution of the case. The Court is also concerned that continuing the case for some undetermined time in the future will delay preparation for trial by either party and that either may seek another continuance in the future. Meanwhile, petitioners’ liabilities…will remain unresolved.” Order, at p. 1.

Of course, with Mac parachuted in only yesterday, it is clear that opposing counsel barely had time to say “howdy-do,” much less discuss anything of substance.

Judge Nega is having none of it.

“The parties also failed to file a pretrial memorandum with the Court which is due from both parties 14 days prior to the calendar call. The parties are advised that a pretrial memorandum is required pursuant to the Court’s Standing Pretrial Order dated November 1, 2018, and in this case the Court will not treat respondent’s motion for continuance as a substitution for a pretrial memorandum.” Order, at p. 1.

So both sides show up on the trial date prepared to argue for a continuance. I suggest y’all bring your Nomex earmuffs, and a really good story about how you’re really doing your trial prep.

This is a really short waltz.

STJ Rob’t N Armen is a Judge With a Heart. I’ve blogged his lenity to repentant sinners, but today he has no sympathy for the stonewalling Ogden Sunseteers in this designated hitter, Richard G. Saffire, Jr., Docket No. 101-18W, filed 3/12/19. Rich claims he blew first, and gave CID and the Ogden Sunseteers a bunch of stuff,  but the Ogden Sunseteers either lost or sat on his file for five (count ‘em, five) years, while some other blower jumped his claim.

“It is known that at the very least an administrative proceeding was undertaken against the taxpayer and/or the advisor. And petitioner posits from public information that ‘large monetary recoveries’ from the taxpayer resulted from such proceeding and that the Securities and Exchange Commission (SEC) “collected more than $1 million in a related action against the Advisor.’

‘During the aforementioned 5-year time frame petitioner periodically contacted the Whistleblower Office to inquire about the status of his claim and was told each time only that his claim was ‘still open’. Order, at p. 3.

Finally, as aforesaid, Rich got a turndown from the Ogden Sunseteers. He volleyed off comments, got a final denial of claim letter (apparently so denominated, to prevent the epistolary counterbattery fire that once prevailed) and he petitions.

Rich tries playing nice, asking for documents. Counsel responds with 392 (count ‘em, 392) pages entirely redacted, and copies of what Rich sent them. So Rich moves for production.

“Petitioner seeks discovery regarding, in part, ‘what information the Commissioner relied on, if not petitioner’s.’ Respondent seeks to resist discovery by alleging that ‘respondent did not use any of petitioner’s information’ and asking petitioner to accept his word. In the Court’s view, this ‘Trust me — It wasn’t yours’ defense is insufficient.” Order, at p. 7.

Counsel’s boilerplate “overbroad and unduly burdensome” kvetch (please pardon this arcane technical term) doesn’t cut it either.

“Viewing petitioner’s request more expansively, respondent’s argument that it is overbroad and burdensome is undercut by respondent’s further argument that the Court should hold petitioner’s motion to compel in abeyance until respondent can file a motion for summary judgment and ‘establish a firm timeline and chain of custody for petitioner’s claim information that supports respondent’s position.’ It is axiomatic that a party filing a motion for summary judgment bears the burden of establishing that no genuine issue of material fact remains in dispute. If respondent thinks that he can shoulder such burden, then there is no reason why he cannot comply with petitioner’s request and not merely select documents to disclose that support his position.” Order, at p. 9. (Footnote omitted, but it says counsel claimed to be preparing this motion for summary J last October, and so far nothing.)

And Section 6103(h)(4)(B) lets this stuff in, subject to a Rule 103 protective order that STJ Armen issues at no extra charge. Read it, practitioner; it has useful stuff.

And if counsel has any privilege objections, let each objection “…be individually and specifically supported by the specific basis therefor.” Order, at p. 11. (Emphasis by the Court).

While Chief Whistler Lee D. Martin is a delightful luncheon companion, as I learned at the last Tax Court Judicial Conference, his legal team needs a wee talking-to.

Except 11 Cir. Says He Didn’t

Surely all y’all will remember Judge Nega employing the terms of the above acronym in my blogpost “RTFC – Part Deux,” 6/14/17.

Well, back two months ago 11 Cir. was confronted with both la famille Watts and IRS agreeing that the hedgefundie had no preferential rights to the $35 million that Judge Nega thought they had. It seems the hedgefundie never exercised its rights thereto. Here’s the unpublished per cur tossback. And one of IRS’ victorious counsel was none other than Patrick J. (“Scholar Pat”) Urda, now Judge Scholar Pat.

So today we have Ch J Maurice B (“Mighty Mo”) bucking la famille Watts (Thomas E. Watts & Mary E. Watts, et al., Docket No. 18882-13, filed 3/12/19) back to Judge Nega, with a list of issues to be considered.

Judge Patrick J. (“Scholar Pat”) Urda should have no trouble with the title of this blogpost, despite the puzzlement furnished by Zoomobile Alliances, Inc., Docket No. 10328-18, filed 3/11/19.

The Allies complain IRS is too slow furnishing them documents, but Judge Scholar Pat says it’s early times.

“Although we are sympathetic to petitioner’s frustration with the lack of a quick response from respondent, it is premature for this Court to intervene. We issued our notice setting this case for trial on February 7, 2019, and we gave the parties until early June to fulfill their obligations. There still is ample time left on the clock.” Order, at p.1.

But maybe the petitioner’s representative (this is a corporation, after all) has a time problem of his/her own.

“This case does present a wrinkle in that petitioner’s representative is apparently incarcerated. We are mindful that this status complicates the parties’ efforts to meaningfully fulfill their discovery obligations under our Rules (and the notice setting the case for trial). Given this situation, it would be helpful to understand more concretely how the parties propose to do so, as well as the current status of such discovery.” Order, at p. 2.

Tax Court routinely deals with petitioners doing time. But corporate representatives are something else.

Once again I remember the lady in the 1971 Rod Stewart – Martin Quittenton lament that ranks 131st on the Rolling Stone 2004 all-time list, as I blog the sad tale of Levon Johnson, 152 T. C. 6, filed 3/11/19. And Levon gets tripped up by MAGI, just like the pool-playing schoolboy hero of the Stewart-Quittenton saga.

Levon gets trapped by Section 36B(d)(2)(B)(iii) and its pendant Reg, 1.36B-1(c)(2). He would have slid under the 400% Federal poverty line and saved most of his premium tax credits under the Affordable Care Act, but for some Social Security benefits paid during the year at issue (2014) for a previous year (2013), that he elected to exclude per Section 86(e). That raised his MAGI, and gave me the title for this blogpost.

Unhappily, Judge Gerber finds Section 36B(d) ropes in what Section 86 excludes.

“The parties agree that petitioner’s 2014 adjusted gross income is $31,137 (including only $6,687 of taxable Social Security benefits as a result of a section 86(e) election) and that he received $26,180 of total Social Security benefits in 2014.  Petitioner contends, relying primarily on the intended purpose of the ACA, its legislative history, and public policy arguments, that his section 86(e) election should result in the exclusion from his 2014 MAGI all the Social Security benefits attributable to 2013 or, alternatively, the Social Security benefits attributable to 2013 except the portion of his 2013 benefits included in his 2014 gross income. Respondent contends, however, that section 36B is clear and that petitioner’s section 86(e) election has no effect on the computation of his 2014 MAGI.  Respondent therefore contends that petitioner must include in his 2014 MAGI all of the Social Security benefits received in 2014 (i.e., $6,687 of taxable and $19,493 of nontaxable Social Security benefits–the entire $26,180) regardless of the year to which the benefits were attributable.” 152 T. C. 6, at p. 8.

No joy for Levon.

“Although section 36B and its accompanying regulations are silent with regard to the effect, if any, on MAGI if a taxpayer makes a section 86(e) election, section 36B and the underlying regulations provide that Social Security benefits received in a taxable year that were ‘not included in gross income under section 86 for the taxable year’ must be added to a taxpayer’s MAGI.  Sec. 36B(d)(2)(B)(iii); see sec. 1.36B-1(e)(2), Income Tax Regs.  Petitioner, however, misinterprets the application of section 36B when a section 86(e) election has been made.  A section 86(e) election determines the amount included in gross income for the year of receipt.  Petitioner’s section 86(e) election simply determined which amount of the lump-sum payment attributable to 2013 should be included in his gross income for 2014.  We find that the phrase ‘under section 86’ is not ambiguous and the cross-reference requires the consideration of section 86 in its entirety, including section 86(e).” 152 T. C. 6, at p. 12.

Anyway, “When the ACA was initially enacted, MAGI did not require the inclusion of nontaxable Social Security benefits.  See ACA sec. 1401(a), 124 Stat. at 217-218.  The definition of MAGI, however, was amended to specifically include the full amount of a taxpayer’s Social Security benefits.  See Act of Nov. 21, 2011, Pub. L. No. 112-56, sec. 401(a), 125 Stat. at 734; see also H.R. 2576, 112th Cong. (2011); H.R. Rept. No. 112-254, at 2 (2011).” 152 T. C. ^, at p. 13.

Even though Levon pleads equity, Judge Gerber says no: “Petitioner contends that denying him the PTC because of income attributable to a prior year leads to an absurd result, which is contrary to the intended purpose of the ACA, and that he is within the class of persons that the statute was intended to assist.  We, however, do not find that the interpretation of the statute leads to an absurd result in this case.  Moreover, we cannot ignore the law to achieve an equitable end.” 152 T. C. 6, at p. 13.

Nothing about chops, but I can’t think chops are on the table.

And a Taishoff “Good Try” to Walter E. Afield, Esq., of the GA State Law School LITC.

I’ve blogged a number of petitioners (and others) who’ve sought anonymity at The Glasshouse; the celebrated Dance of a Thousand Veils would be too few for such as they.

But today Judge Elizabeth A (no cognomen yet, but watch this space; suggestions accepted, no prizes awarded) Copeland encounters a petitioner who demands to reveal all, both as to herself and her ex.

Here’s Julia Castaneda, Docket No. 7697-17L, filed 3/8/19 (a special day in our family), seeking to unmask her personally identifiable information.

Julia filed unredacted, but a month ago Judge Copeland told her to file redacted, and in the meantime sealed the unredacted.

Now Julia “…argues that Rule 27(a) is permissive in that Rule 27(a) states that a party or nonparty ‘should’ redact instead of a prescriptive ‘shall’ redact. Ms. Castaneda further argues that Rule 27(g) grants her the right to waive the protection of her own personally identifying information. She additionally cites Rule 5.2 of the Federal Rules of Civil Procedure (Rule 5.2 FRCP) as further evidence in support of both of her positions. We give particular weight to the Federal Rules of Civil Procedure when we have no applicable rule. Rule 1(b).” Order, at p. 1 (Footnote omitted).

OK, that’s what Rule 27(a) says. And Judge Copeland is pleased to follow FRCP 5.2, especially Rule 5.2(e).

“Rule 5.2(e) FRCP states that, ‘[f]or good cause, the court may’ require redaction of additional information.” Order, at p. 2.

Julia can waive as to Julia. Tax Court might override Julia’s waiver, but there’s no need for that. Julia can let it all hang out.

But only as to Julia.

“Ms. Castaneda desires to waive her right to having her personally identifying information protected. In this instance, we will respect Ms. Castaneda’s desire. However, we find no basis for allowing Ms. Castaneda to waive the protection of a nonparty’s personally identifying information. While Rudy Castaneda was initially a party to this action, we dismissed him from this action for lack of jurisdiction…. While Ms. Castaneda and Rudy Castaneda are or were married, the petition that originated this action itself notes that Ms. Castaneda and Rudy Castaneda were then separated. Moreover, for each of the years which we ordered redaction, the filing status of Ms. Castaneda and Rudy Castaneda was married filing separate.” Order, at p. 3.

Judge Copeland is sending all this stuff to Rudy, so he can weigh in on Julia’s attempt to tell the world.