Once again The Great Dissenter/Concurrer, Master Silt Stirrer and Old China Hand, Judge Mark V. Holmes, has a designated hitter with some rare judicial acrobatics.

I offer for your reading pleasure James L. Wilson & Vivien Wilson, et al., Docket No. 26547-13, filed 8/2/18. This consolidated case was tried two years ago,  but briefing still isn’t finished. Jim & Viv and their affiliated LLC and C Corps raised the chops issue.

But the Boss Hosses never made it out of the stable, so IRS wants a reopener. And it’s a good one, with a TEFRA partnership, a C Corp and an LLC all thrown in.

Ordinarily our old chum Beekman-Dynamo would dig the C Corp’s Graev, because C Corps aren’t individuals, so Section 7491(c) ousts them from IRS’ burden of production or proof.

Except.

“If § 7491(c) doesn’t apply, it calls into question the importance of the Commissioner’s proffered evidence. (additional evidence needs to be material to the issues involved and something that would probably change the outcome of the case). There’s a different reason, though, that the Commissioner has the burden here: He raised the § 6662 penalty against [C Corp] for the first time in his answer, which makes it a new matter and one that the Commissioner has the burden of production and proof on. See Tax Court Rule 142(a)(1)….(we have long recognized that a penalty raised in the answer is a new matter on which the Commissioner bears burden of production and proof). This all means that the Commissioner might be able to pass the first test for reopening the record — that the additional evidence is not merely cumulative or impeaching, is material to the issues involved, and probably would change the outcome of the case.” Order, at p. 3.

Except.

All IRS has is a hearsay affidavit to substantiate its answer, prepared three years later and not in the ordinary course of business.

As for the individuals, Judge Holmes has penalty-approvals that might survive a hearsay objection, and he’ll let them in, but the parties can deal with their problems in their non-yet-completed briefs. It’s an open question whether anyone waived Section 6751(b).

Ain’t tax fun?

Once again we’re on FL’s sunny shores, and at sea again on a high-priced fishing boat. This time, though, it’s no latter-day Flying Dutchman like the ill-fated Shockwave, the 62-foot Viking Convertible in my blogpost “Go Fish,” 10/15/12. Rather, we have Damon R. Becnel, 2018 T. C. Memo. 120, filed 8/2/18 and his 67-foot Bertram fishing boat. Da-Bec is a heavy-hitting real estate developer out of Destin, FL, “The World’s Luckiest Fishing Village.”

Poor Judge Holmes; I feel his pain. I remember lamenting that the surest sign of my failure in the world is that I do not own a boat; see my blogpost “Your Money or Your Life,” 1/10/13. So here’s The Great Dissenter/Concurrer, Master Silt Stirrer and Old China Hand, Judge Mark V. Holmes, pining over Da-Bec’s seagoing palazzo.

“…Becnel paid just over $2 million for a Bertram fishing yacht.  We find the boat a beautiful specimen of its species:  It’s 67 feet long with four staterooms; a well-appointed salon, galley, and bar; a tuna tower; and a slew of electronic gadgets and built-in fishing equipment.” 2018 T. C. Memo. 120, at p. 4. (Footnote omitted, but it says Da-Bec bought it in a disregarded, so it’s his).

Of course Da-Bec wrote it off, hiding expenses under the heading of “beach chairs, boxes and umbrellas,” and being coy about handing over documents to IRS’ auditor. Da-Bec claimed it was “relationship marketing,” wooing high-rolling types to his high-priced fishing village to buy his condos. And he did credibly testify he made sales.

But his substantiation of expenses craters when he tries the shoebox gambit, handing in a ton of paper at the trial and claiming IRS’ auditor never asked. Except Judge Holmes says she credibly testified she did. So the 14-day rule ruled out Da-Bec’s shoebox.

“Becnel might have gained access to potential condominium buyers at the fishing tournaments, and he did credibly testify about anglers he met who later bought units.  But just because an activity generates some business doesn’t mean it can’t be entertainment under section 274(a).  See, e.g., Harrigan Lumber Co. v. Commissioner, 88 T.C. 1562, 1563-64 (1987) (hunting with clients is entertainment even if those clients generated over $5 million worth of business in two-year period), aff’d without published opinion, 851 F.2d 362 (11th Cir. 1988).  Becnel emphasized the third party referrals he received from people he met at the tournaments, but this is analogous to the influence that wives of appliance retailers might exercise over their husbands.  See Churchill Downs, 307 F.3d at 427.  And Becnel may have kept sales packets for his condos on board the [yacht] at tournaments, but that doesn’t make condominium sales the focus of those events.  See id.  Becnel is not a professional fisherman–he isn’t even in the boat business–so we find that the fishing tournaments were merely entertainment activities for him and his company.” 2018 T. C. Memo. 120, at p. 17 (Citation omitted).

And the yacht was an entertainment facility, of the kind abhorred by Reg. 1.274-2(e)(2)(I). Da-Bec’s lack of logbooks of business guests, business talk and business doings sinks his attempt to distinguish between entertainment activity (deductible, maybe) and entertainment facility (definitely not).

But his yacht, the Britney Jean, motors safely though the Shoals of Graev. Da-Bec raised the accuracy chops on the merits in his papers, but IRS fell silent on Section 6751(b). No chops.

So it’s a Rule 155 beancount. Da-Bec and IRS, go fish.

This infamous term figured largely in a major crime many years ago, wherein a serious miscarriage of justice occurred. Now it resurfaces, as IRS tries to wild-card in evidence, and the Section 6751(b) Boss Hoss sign-off, in two different designated hitters today.

First up, Judge David Gustafson with yet another chapter in the discovery joust on the eve of trial in Murfam Enterprises LLC, Wendell Murphy, Jr., Tax Matters Partner, et al., Docket 8039-16, filed 8/1/18 (Happy Palindrome Day!). I’ve blogged this case before, as the kerfuffle regarding IRS’ expert’s report is ongoing even as calendar call arrives Monday, August 6.

IRS claims it gave Murfam’s counsel all the stuff they want to supplement their expert’s report long ago. But Judge Gustafson isn’t buying. Rule 143(g) says reports have to be served and submitted 30 days in advance of calendar call, unless good cause shown and no prejudice to the other side.

“The Commissioner’s motion does not cite Rule 143(g) and does not mention (much less discuss) either ‘good cause’ for the untimely service and submission of the newly proposed material or ‘prejudice [to] the opposing party.” Order, at p. 3 (Close parentheses omitted in original).

So IRS, answer tomorrow. Murfam can reply, but better to prepare for trial. And guys, Judge Gustafson may not be able to rule on the supplement before the expert goes on the stand.

Next up, Benjamin Soleimani & Sharyn Soleimani, Docket No. 8884-13, filed 8/1/18. Trial ended a year ago, but IRS left out the Boss Hoss sign-off and Ben’s and Shar’s counsel never raised it either. Of course, in the meantime 2 Cir decided IRS has burden of production and proof, and thereby opened the whole Graevyard.

Judge Gale decides the Boss Hoss sign-off justifies reopener, as not cumulative, not impeaching, is material, would change outcome, and might satisfy the business record or res gestae hearsay exceptions. So he’ll reopen.

Except.

“Petitioners principally allege three ambiguities in the penalty approval form. First, petitioners note that under a column on the penalty approval form labeled ‘Assert Penalty’, there are two boxes, respectively labeled “Yes” and “No”, which may be checked for each penalty listed on the form. Petitioners note that, with respect to the substantial understatement penalty asserted by respondent, both the ‘Yes and ‘No’ boxes are checked.

“Second, petitioners note that within a box on the penalty approval form labeled ‘Reason(s) for Non-Assertions of Penalty(s)’, someone, ostensibly RA K, has typed, ‘The agent as [sic] considered and applied substantial understatement penalty per Section 6662.’ Petitioners note that a box underneath the aforementioned non-assertion box, labeled ‘Reasons for Assertions of Penalty(s)’, is blank.

“Third, petitioners note that the signature block provided on the penalty approval form for the supervisory approval of any initially determined penalty is labeled ‘Group Manager Approval to Assess Penalties Identified Above * * * (And for non-assertion of Substantial Understatement Penalty where dollar criteria for penalty has been met)’.” Order, at pp. 4-5. (Footnote and name omitted).

So let’s have discovery.

“While we will reopen the record, we will exclude the declaration and penalty approval form without prejudice in order to ensure petitioners are accorded the notice to which they are entitled. See 902(11), Fed. R. Evid. In addition, in order to eliminate any possible prejudice to petitioners from reopening the record for possible receipt of the evidence respondent has proffered, and to accord petitioners any rights to which they would have been entitled if respondent had sought to introduce the declaration and penalty approval form at trial…. we will allow discovery regarding the declaration and penalty approval form, as set forth below, and thereafter consider whether supplemental trial proceedings are necessary.” Order, at p. 8.

The past isn’t prologue when the Boss Hoss sign-off gets wild-carded in.

That Obliging Jurist, Judge David Gustafson, has a designated hitter today. In spite of Mies van der Rohe, Judge David Gustafson is convinced that more is more in Loys Vallee, Docket No. 13513-16W, filed 7/31/18.

Loys has been here before. See my blogpost “General Knowledge, Private Information,” 7/7/17, and “A Word to a Colleague,” 7/21/17.

Loys takes a while to get there, but he convinces Judge Gustafson that the record in his blower case isn’t all it should be. So Judge Gustafson places both Loys’ motion for more discovery and IRS’ motion for summary J in a holding pattern until IRS certifies and delivers the entire administrative file, so Judge Gustafson can see if everything is there that should be.

In fact, even Loys’ original Form 211 is missing from the papers thus far filed.

We all know that Section 7623 whistleblowing is different from the mine run of Tax Court cases, because third-party info is involved, and Section 6103 casts a wide mantle over tax return info. Of course, there’s an exception: Reg. 301.6103(h)(4)-1(a) applies here, and the items in the targets’ return are relevant to this proceeding.

Loys claims more IRS people were involved in this case than IRS’s declarations in support of their summary J motion state.

“We cannot resolve this dispute–either in the context of the Commissioner’s current motion for summary judgment, nor later in these proceedings–without having the administrative file before us. This means that, at least for the time being, we must deny the Commissioner’s motion. To enable us to resolve this dispute in due course, and to ensure that Mr. Vallee was provided with the entire administrative record, we will, in a manner analogous to Rule 217(b), order the Commissioner to file with the Court the entire administrative record, borrowing the definition from Rule 210(b)(12), appropriately certified as to its genuineness by the Commissioner or by an official authorized to act for the Commissioner in such situation.” Order, at p. 7.

Takeaway- If your case is a record-ruler, your case stands or falls on that record. Make sure you and the Judge get it all.

Although she was the taxpayer’s friend when she was stationed on the sidewalks of New York, STJ Diana L. (“STJ Di”) Leyden can’t grant blanket anonymity to every whistleblower. Here’s Whistleblower 7208-17W, filed 7/31/18, and he’ll be known here as Eight-Seventeen Whiskey only for the next thirty days, unless he sooner appeals.

Eight-Seventeen Whiskey trumpeted his blower status around the real estate investing community to show he was an “upstander,” one of the righteous, while trying to get his clichés in a row to file his now-bounced 211.

Eight-Seventeen Whiskey was a desk trader who kicked around the investing community with his parabolic trading concept, designed to allow investors holding illiquid assets (like real estate) to take advantage of “vol” (I assume that means volatility). But he came up dry until he got solicited by what he claims was a dodgeflogger. A couple years later (hi, Judge Holmes), and after principals of the alleged flogger were being investigated, he filed his Form 211.

All STJ Di has to deal with here is Eight-Seventeen Whiskey’s Rule 345 anonymity claim.

STJ Di recalls Judge James S (“Big Jim”) Halpern’s concurrence in Whistleblower 14106-10, 137 T. C. 183., at p. 208” “…we will not automatically grant anonymity upon a claim of possible employment discrimination.” Opinion, at p. 25.

Much of the opinion deals with Eight-Seventeen Whiskey’s trumpeting his blowerness to all and sundry, claiming that full disclosure and his upstanderness required same. But he also claims a blower’s lot is not a happy one, and tenders a study to prove it.

But Eight-Seventeen Whiskey has no substantive evidence of unemployment, retaliation or threats of physical harm. He wasn’t employed by the blown floggers, and wasn’t a fiduciary. And he has since switched to another field.

“The Court has acknowledged that ‘fears of such harm befalling a confidential informant are reasonable although necessarily difficult to prove.’  Nevertheless, each request to proceed anonymously stands upon its own…, and petitioner must provide some factual basis sufficient and specific enough to allow the Court to determine whether the severity of the asserted risk of harm amounts to more than mere embarrassment or annoyance and outweighs the societal interest of the public’s right to know who is using the Court.  Otherwise the grant of anonymity would be automatic in every whistleblower case.” Opinion, at p. 26.

And Eight-Seventeen Whiskey was using publicly-available information (the alleged flogger was pitching far and wide). Of course, IRS hasn’t yet made any dispositive motion, but I expect one will soon be forthcoming.

Blow, and you’re on your own.

Judge Albert G (“Scholar Al”) Lauber needs demonstrate little of his vaunted classical erudition to establish that, for Kimberly S. Nix, 2018 T. C. Memo. 116, filed 7/30/18, the title of this blogpost is apposite.

“Petitioner has established that she devoted many hours to travel during [years at issue].  But there is no evidence to establish a strong link between this travel and her alleged business.  To the contrary, at least 24 of her trips involved travel to her daughter’s volleyball tournaments, vacations to Disney World and Europe, and reunions with her sorority sisters.  Even if she could plausibly characterize these excursions as ‘marketing trips,’ the travel had obvious personal and recreational aspects.  That in turn suggests the absence of a true profit motive.  See sec. 1.183-2(b)(9), Income Tax Regs.” 2018 T. C. Memo. 116, at p. 12.

I want to give Kimberly’s counsel, whom I’ll herein denominate as Mike, a Taishoff “Good Try, Forlorn Hope Division.“ He’s playing a losing hand as well as might be expected.

“Petitioner’s argument, in essence, is that she engaged in a business for three years, lost money every year, and decided to quit after concluding that the business would never be profitable.  But the sequence of events makes this narrative suspect:  Petitioner terminated her … activity shortly after receiving the IRS notice of deficiency in this case, which suggested that the jig might well be up.” 2018 T. C. Memo. 116, at p. 15.

And today’s blogtitle might well fit a return visitor to this my blog, Estelle C. Grainger, 2018 T. C. Memo. 117, filed 7/30/18. Estelle is a Judge Scholar Al alum; see my blogpost “Don’t Ambush the Pro Se,” 11/15/17.

But Judge Scholar Al’s toss of IRS’ belated attempts to up the deficiency and chop Estelle with the five-and-ten doesn’t save Estelle from the deficiency as determined.

Estelle bought marked-down clothing and contributed it to Goodwill, claiming the pre-markdown price as FMV for a charitable deduction. Nice try, Estelle, but “shop till you drop” doesn’t play at 400 Second Street, NW.

“Contrary to petitioner’s view, the FMV of an item is not the price at which a hopeful retailer initially lists that item for sale.  By the time petitioner purchased her clothing, Talbots had marked down the prices of those items three or four times.  She purchased each item for a small fraction of its original list price.  No rational buyer having knowledge of the relevant facts would have paid for these items a price higher than the price Talbots was then charging.  Petitioner has failed to establish for the donated items an FMV higher than her acquisition cost.” 2018 T. C. Memo. 117, at pp. 9-10. (Footnote omitted, but read it. Even if Estelle proved FMV exceeded purchase price, as soon as she bought she contributed it, so only short-term capital gain, thus Section 170(e)(1)(A) limits Estelle to FMV.)

Johannes Lamprecht & Linda Lamprecht, Docket No. 14410-15, filed 7/27/18, are trying to reprise Mick’s and Keith’s 1966 melodic rebuke, as IRS tries belatedly to amend its answer to hit Hans & Linda with 6SOL for underreported offshore income.

If you don’t know who Mick & Keith are, I’m truly sorry for you.

IRS claims when they subpoenaed Hans’ employer that tolled the SOL, but Section 6501(e)(1)(A)(ii) doesn’t apply here; see my blogpost “Backward, Turn Backward, O Time in Thy Flight – Redivivus,” 1/2/18.

IRS also ditches their fraud argument.

The Section 7609(e) subpoena extension has been on the table since the beginning, so no surprise. Anyway, trial isn’t yet scheduled, so Hans & Linda can discover away.

Hans & Linda try the now-obligatory Section 6751(b) Boss Hoss enGraeving (sorry, guys), but the SOL isn’t a penalty. “Even if we were to accept the Lamprechts’ novel suggestion that an extension of the statute constitutes a ‘penalty’ of sorts, it would not be the sort of penalty affected by section 6751(b), which provides that ‘No penalty shall be assessed’. A statute of limitations is not ‘assessed’. The Lamprechts have not demonstrated that section 6751(b)(1) renders futile the Commisioner’s [sic] proposed new argument based on section 6501(e)(1)(A)(i).” Order, at p. 6 (Emphasis by the court; note that the pagination again is idiosyncratic).

All Hans’ & Linda’s other arguments have been out there since the beginning.

“The Lamprechts’ arguments do not establish that the Commissioner ‘cannot prevail on the merits’; rather they oppose the amended answer with counter-arguments concerning disputed facts, which are the type of questions that are not resolved at trial and not at the pleading stage.” Order, at p. 7.

I think Judge Gustafson, who is having a busy day, meant to say “…disputed facts, which are the type of questions that are resolved at trial and not at the pleading stage.” If disputed facts are resolved neither at pleading nor at trial, when and where do they get resolved?

Anyway, he lets IRS amend and the parties can duke this out later.

Judge David Gustafson is still wrestling with Murfam’s tag-team of experts (sorry, guys). For backstory, see my blogpost “Who’s On First?” 7/25/18.

Today it’s Murfam Enterprises LLC, Wendell Murphy, Jr., Tax Matters Partner, et al., Docket No. 8039-16, filed 7/27/18.*

As usual, there is a plethora of players on the ice. And though usually obliging to a fault, Judge Gustafson cannot allow this Calgary Stampede.

“The listing of multiple authors in an expert report is an anomaly in the Tax Court, given this Court’s unique procedure regarding expert testimony: Under Tax Court Rule 143(g)(1), every (singular) ‘expert witness’ must submit a (singular) ‘written report’; and under Rule 143(g)(2) ‘[t]he report will be … received in evidence as the direct testimony of the [singular] expert witness’. A report written by multiple authors cannot really be received into evidence as the direct testimony of one of them. In a trial each witness gives his own testimony and only his own testimony, and the witness then is subject to cross-examination that is limited to the scope of his direct testimony. Fed. R. Evid. 611(b).” Order, at p. 1.

There are seven (count ‘em, seven) motions in limine. The Murfams have one, and the IRS the rest. All denied without prejudice.

So Judge Gustafson held a phoneathon, and got the following result.

“… Murfam may intend that one or more of these five reports is in fact the report of, and reflects the opinions of, one single expert (whom we will call ‘the principal expert’) who warrants the entire report; that Murfam may have named the other experts (whom  we will call ‘assisting experts’) only to indicate their work on the report as helpers of the principal expert; and that Murfam may intend to offer the report as the opinion of only that principal expert and to call only that principal expert as their witness.” Order, at p. 2.

But anyway, Murfam must indicate in each report which expert drafted what, have all of them available for trial whether or not they testify, and let Judge Gustafson have the principal experts’ names prontito.

And IRS and Murfam, please keep it short.

*Murfam 8039-16 7 27 18

Even persons of fewer academic achievements than Judge Albert G (“Scholar Al”) Lauber and my distinguished colleague Peter Reilly, CPA, (“The Forbes Flash”) will remember the ten-year journey of Ulysses.

Well, today His Honor Big Julie Judge Julian I Jacobs (hereinafter sometimes referred to as “HHBJJJIJ”) imposes a like hiatus upon Katrina E. Taylor & Avery Taylor, Docket No. 20967-16, filed 7/26/18.

Kat & Ave have a Cadillac truck and a Beemer with odometers that take me back to the used car lots of my youth; they record mileages that HHBJJJIJ finds it hard to credit.

“The purported logs, which were not prepared contemporaneously with Mrs. Taylor’s purported travel, state that Mrs. Taylor drove 130,513 miles on … business: she allegedly drove a 2004 Cadillac truck 41,483 miles and drove a 2006 BMW 89,030 miles. The logs are demonstrably unreliable. For example, when petitioners traded in the 2004 Cadillac truck, Mrs. Taylor signed an odometer disclosure statement which reported the odometer reading at the time of sale to be 102,345 miles; according to the logs, the truck’s December 23, 2013 year end odometer reading was 154,990 miles. Similarly, when petitioners traded in the 2006 BMW, the odometer disclosure statement reported the odometer reading to be 91,333 miles; the purported logs stated that as of December 17, 2013, the odometer read 186,880 miles.

“Moreover, the distances traveled as listed in the logs do not accurately represent the distances between petitioners’ home and the purported business destinations, as demonstrated by the exhibits attached to respondent’s Motion to Take Judicial Notice. We are satisfied that the mileage reported in the logs is inflated. For example, the logs state that Mrs. Taylor drove the 2004 Cadillac truck 1,376 miles and drove the 2006 BMW 701 miles, a total of 2,077 miles, on September 22, 2013. As respondent points out, the driving distance between Manhattan, New York, and Los Angeles, California, is approximately 2,800 miles and ‘[a]t a constant speed of 70 miles per hour (‘MPH’) it would take 29.7 hours to drive 2,077 miles.’ Further, the logs report trips of 1,200 miles to 1,800 miles for other days.” Order, at p. 4.

You must remember the story of the lawyer denied admission to Heaven for misrepresentation; he told St Peter he was 76 years old when he died, but his billing sheets showed he had billed enough hours to have lived to 107.

No, the 10-year sit-down arises because Kat & Ave jiggered the car mileage to get down to EITC country, and got a $4K credit thereby. Section 32(k)(1)(B)(I) imposes the ten-year freeze-out for gameplaying with the EITC. So Kat & Ave must wait ten (count ’em, ten) years before EITC comes around again. Of course, IRS has the burden of proof by preponderance of the evidence.

HHBJJJIJ: “After reviewing the entire record, we conclude that the facts deemed to have been established, combined with the affirmative allegations of fraud, and the affirmative allegations that petitioners improperly claimed the earned income credit and should be subject to the 10-year ban on claiming the earned income credit that petitioners are deemed to have admitted under Rule 90(c), collectively satisfy respondent’s burdens of production and proof as to each and every issue in this case. We therefore will grant respondent’s Motion for Default Judgment and enter a decision against petitioners.” Order, at pp. 5-6.

My colleague Peter Reilly, CPA, over at Forbes, asked me to keep a lookout for the opinion in Estate of Michael J. Jackson, Deceased, John G. Branca, Co-Executor and John McClain, Co-Executor, Docket No. 17152-13, filed 7/26/18.

I’m sure Mr. Reilly, an argute schoolmate of Judge Albert G (“Scholar Al”) Lauber, is aware, as Judge Holmes stresses today, that “…the posttrial briefing runs into early next year.” Order, at p. 1. So an opinion is some distance away.

Nevertheless, the parties are unable to possess their souls in patience; hence today’s order and my reprise of a fifty-year-old commercial for a nostrum called Anacin.

The co-ex’rs, energetic types, throw into their opening post-trial brief ”… an annotated copy of the operating agreement of Sony/ATV Music Publishing. It’s [sic] origins are obscure, but petitioner argues that it is a helpful compilation of the original operating agreement to show its numerous amendments, but is not evidence. It is, however, a sort of summary exhibit, which is a type of evidence.” Order, at p. 1.

Leaving out the misplaced apostrophe, evidence doesn’t belong in a brief, however helpfully compiled.

So Judge Holmes echoes the words of the harried headachy heroine, “…the original operating agreement and all its amendments are in the record. This enables the Court to slog through the agreement as amended without the addendum’s help….” Order, at p. 1.

IRS wants this helpful compilation stricken, and Judge Holmes strikes it.

Mr. Reilly, I’ll keep looking out for the opinion, which I anticipate will arrive “(W)hen Spring comes back with rustling shade/And apple-blossoms fill the air….” as a much finer writer than I put it.