Judge David Gustafson is a source of conundrums (conundra?) that never fails. This is my third blogpost thereon, and I don’t doubt there will be others.

For the earlier ones, see my blogposts “Judge Gustafson’s Conundrums,” 6/2/15, and “Judge Gustafson’s Conundrums – Part Deux,” 11/10/15. And while you’re looking, check out “A Hotly Burning Question What Has Swept the Continent – Part Deux,” 2/8/17, as Elizabeth M. Jacobson features in this little puzzlement.

Who better to bring a first-class puzzler than Joseph A. (“Fighting Joe”) Insinga, Docket No. 16575-16W, filed 7/25/18?

Fighting Joe dropped a Form 211 on the Ogden Sunseteers, who blew him off. Joe petitioned. But now Fighting Joe wants to dismiss his own petition…without prejudice.

IRS objects.

To begin with, “’(T)he “Final Determination’ that the IRS’s Whistleblower Office (‘WBO’) issued to Mr. Insinga regarding his [target] claim (Doc. 1, petition Exhibit 1) is dated ‘July 18, 2106’– a date almost 80 years in the future. Neither party mentions this fact; but Mr. Insinga’s petition (at ¶ 2) implicitly admits that is a transposition of 2016; and the Commissioner likewise asserts that the date of the final determination is July 18, 2016; so we take that date as a given. (If either party attaches any significance or effect to the erroneous year date, it should so state in the filing it makes in response to this order.).” Order, at p. 1. (Emphasis by the Court)(Name omitted).

IRS objects because they want Fighting Joe to acknowledge that dismissal, per Jacobson (see above) must be with prejudice. After all, Fighting Joe had a thirty-day window to petition the blow-off, and that’s long gone. But Fighting Joe wants to fight again.

“The extent to which such a dismissal is with or without ‘prejudice’ is not completely articulated in Jacobson, where the motion to dismiss was unopposed, and the motion did not explicitly state whether the asked-for dismissal was to be with or without prejudice. The opinion does observe that the dismissal ‘leave[s the final determination] binding’, but it does not explicitly characterize the permissible dismissal as ‘with prejudice’. That phrase likewise does not appear in the subsequent order dismissing the case.” Order, at pp. 3-4.

So Judge Gustafson is in his element: a full-dress T. C. that seems to settle the issue, except it doesn’t.

And Judge Gustafson has as many hands as an octopus.

“On the one hand, it is clear that the dismissal of the Tax Court suit does (in the words of Jacobson) ‘leave binding on petitioner the [WBO’s July 2016] … determination to deny [his] claim for an award’ concerning [target]–but it is binding by virtue of Mr. Insinga’s inability to file another timely petition founded on that July 2016 determination. Since the time limit for filing a timely whistleblower petition is so very short–a mere 30 days–the claimant has only a very brief opportunity to file a timely petition. Because the WBO’s final determination on Mr. Insinga’s July 2016 claim was made almost 2 years ago, Mr. Insinga has no right to file another petition in our Court for review of that determination. If we grant his motion and dismiss this case, then it seems Mr. Insinga can never file another petition seeking a holding that the WBO abused its discretion in issuing its July 2016 final determination–even if we were to declare that the dismissal is ‘without prejudice’.” Order, at p. 4.

But whether dismissal here is with or without prejudice, Fighting Joe can always drop another 211 concerning target with Ogden, and if bounced, can petition. Of course, all he could do then is protest the latest bounce. But Section 7623(b)(4) says a blower can petition any determination, so even if this case is dismissed with prejudice, Fighting Joe can always start again.

IRS, what do you want to do? And Fighting Joe, what do you want?

It’s an old saw that expertise is so specialized that an expert is one who knows more and more about less and less, until the expert knows everything about nothing. That Obliging Jurist, Judge David Gustafson, is confronted by a problem so abstruse that it needs more than one expert to write one report in Murfam Enterprises LLC, Wendell Murphy, Jr., Tax Matters Partner, et al., Docket No. 8039-16, filed 7/25/18.

And there are two reports with multiple authors.

IRS wants the reports stricken. How can they know whom to cross-examine on which points in the reports?

And they have a trial ruling from Belk, which tossed a two-author report even when both authors were present to testify. You remember Belk, of course; you must have just re-read my blogposts “A Thing of Beauty – Accept No Substitutes,” 1/28/13, and “If At First You Don’t Succeed,” 6/20/13.

Well, off-the-bench trial rulings aren’t precedent for anything.

“We understand this argument to ask us to rely on the Court’s evidentiary ruling in Belk as precedent we should follow here. Although we will not literally strike Exhibit A from each motion, we will not treat as precedent the evidentiary ruling in Belk as we decide how to rule on the motions now pending. Rule 50(f) provides generally that orders (in contrast with opinions) ‘shall not be treated as precedent”. We think that an evidentiary ruling given orally during a trial is similarly nonprecedential.” Order, at pp. 1-2.

Especially when the ruling came in another case and was made by another Judge.

However, to save IRS from cross-examining a multitude of experts, let the Murfams set out which expert wrote what, which expert will testify on direct as to what.

And as trial starts August 6, don’t waste a lot of time with written responses. Judge Gustafson will oblige with rulings at the trial.

Many thanks to a partner in a Big Four accounting firm for the breaking news that 9 Cir. has overturned TC in Altera Corporation and Subsidiaries, No. 16-70496, filed 7/24/18.

Disarming the old arms’-length comparable uncontrolled transactions via sustaining the 2003 amendment to Section 482 (providing for matching income to expense), two out of three 9 Cir Judges (one of whom died before this decision was published) overturn TC (and incidentally give ex-Ch J L Paige (“Iron Fist”) Marvel another tough loss). 9 Cir has matching income to expense as what Congress wanted in 1986.

“The Commissioner’s allocation of employee stock compensation costs between related parties is necessary for Treasury to fulfill its obligation under § 482. Congress did not intend to interfere with qualified cost-sharing arrangements when those arrangements provided for the allocation of income consistent with the commensurate with income provision. H.R. Conf. Rep. No. 99-841, at II-638.” Opinion, at p. 43.

“As demonstrated by nearly a century of interpreting §482 and its precursor, the arm’s length standard is aspirational, not descriptive. It reflects neither how related parties behave nor how they are taxed.” Opinion, at p. 43. Guidelines…aspirational goals. The Pirates’ Code is alive and well.

Needless to say, there’s a dissent. The majority tramples on the APA, Chenery, Xilinx, and eviscerates the sacred arms’-length standard. Put the apostrophe where you will, arm’s-length is now the Venus de Milo of tax law.

Reversed. Without remand.

Pages 2 through 4 of the opinion list the attorneys on this case. Looks like there are more of them than were in my engineer company in Vietnam. I hope they all got paid.

Edited to add: When pore l’il ole Tax Court had this case, there were but sixteen (count ’em, sixteen) lawyers. See my blogpost “Sixteen Lawyers – Part Deux,” 7/27/15.

The Great Dissenter/Concurrer, Master Silt-Stirrer and now Coffey stirrer, Judge Mark V. Holmes, just can’t get enough of Coffey. So I’m taking my text from Irving Berlin’s 1932 feel-good song, and Judge Holmes is having another go with Judith S. Coffey, Petitioner & The Government Of The United States Virgin Islands, Intervenor, Docket No. 4720-10, filed 7/24/18.

IRS wins this vacation. Tax Court got the right answer for the wrong reasons twice.

Originally Tax Court dismissed 150 T. C. 4 for lack of jurisdiction, but that was wrong because there was a SNOD and a petition. What there also was, was a valid SOL defense. But remember, SOL is an affirmative defense, not a jurisdictional defect. Aff Defs must be pled and proven; if not, waived. Judith did plead and prove.

So TC vacated, and decided no deficiency.

Wrong again, because there was a deficiency. “Our court gains jurisdiction in a deficiency case when there’s a valid notice of deficiency and a timely petition. I.R.C. §§ 6212(a), 6213(a), 7442…. I.R.C. §6501(a) says the Commissioner has only three years after a return is filed to assess tax, and while a valid notice of deficiency tolls that three year period, see I.R.C. § 6503(a), a notice of deficiency isn’t automatically invalid if the Commissioner sends it after that period ends…. A late notice therefore doesn’t affect our jurisdiction, but the Commissioner also can’t assess the tax it shows when a statute-of-limitations defense is properly raised. See I.R.C. § 6501(a).” Order, at pp. 1-2 (Emphasis by the Court)(Citations omitted).

So Judith won summary J, and that’s the right answer.

Of course, Judith Coffey doesn’t care how the case ends, as long as she doesn’t owe any money. So summary J for Judy.

No, not a religious tract nor even a scary story; today we have what appears to be a Graev ghoul, a case already tried, briefed and awaiting Judge Holmes’ Solomonic baby-carving, when IRS wakes up and wants to wildcard in the missing Section 6751(b) Boss Hoss. And petitioner furiously responds with a shivaree of well-reasoned objections.

Now let’s see if you pick up why this is going nowhere. The case is Patients Mutual Assistance Collective Corporation d.b.a. Harborside Health Center, et al., a consolidated threesome, so I’ll give Docket No. 29212-11, filed 7/24/18 as the lead.

No reopener, despite IRS’ petition and the Patients’ “…compelling response about all the ways it might be prejudiced if we were to reopen the record to admit the penalty-approval forms.” Order, at p.1.

Well, I’m sure you’ve sussed it out by now.

Judge Holmes: “…looks can be deceiving. Petitioner is a C corporation, and that means the Commissioner doesn’t have the burden of production here for showing compliance with § 6751. Petitioner also never argued as a defense to penalties that the Commissioner failed to comply with §6751(b)(1) -not in its petitions or amended petitions, at trial, or on brief. The Commissioner doesn’t need to show compliance with § 6751 to win on penalties here, and the penalty-approval forms thus would not change the outcome of the case.” Order, at pp. 1-2. (Citations omitted, but our old chum Dynamo is definitely in on the play. See my blogpost “Howdy, Partner – Part Deux,” 5/7/18).

Silt is the winner, as Master Silt-Stirrer Mark V. Holmes affirms TC’s SOL shootdown of IRS in Coffey v. Com’r. The arguments of IRS and ex-Ch J L Paige (“Iron Fist”) Marvel  don’t impose a consent requirement on filing a return, only on making the return. Here’s Judith S. Coffey, Petitioner & The Government of The United States Virgin Islands, Intervenor, Docket No. 4720-10, filed 7/24/18.

Backstory is found in my blogpost “Another Non-Virgin,”1/30/18. IRS, relying largely on ex-Ch J Iron Fist’s dissent in Coffey, wants reconsideration. They get it, but it doesn’t give them what they want.

First, IRS claims they never conceded that a third party (not the agent of taxpayer) can file a taxpayer’s return. Remember, Virgin Islands Bureau of Internal Revenue covered-over Judith return to IRS. But Judge Holmes met them with a retelling of an account from a much higher source.

“A taxpayer on his way to mail his return to the IRS gets mugged. He drops the return, but a Good Samaritan picks it up and mails it to the IRS, who receives it…. The Commissioner’s counsel’s response was simple: ‘it’s filed…..” Later during the hearing the Commissioner’s counsel said that the return the IRS received from VIBIR didn’t count because the Coffeys hadn’t sent it, but we reminded him of his answer to our hypothetical…. He then asked for an opportunity to further consider the hypothetical, and said he would produce a written response to it.

“He never did.” Order, at p. 2.

The better answer might paraphrase another saying from that much higher source: “Whoever does my will is my agent.” But that answer was never given. Perhaps IRS’s counsel considered and rejected it, or didn’t know the source or the saying.

As for starting the SOL, the question is whose return starts it. It’s the taxpayer’s return, not any party who files a return (or anything else) from which the taxpayer must derive items to be reported on the taxpayer’s return. Humphrey Bogart’s question from Treasure of the Sierra Madre (“Why doesn’t everybody smoke their own?”) is answered. Everybody must smoke their own, that is, their own return starts the SOL.

In short, as long as the taxpayer followed the Beard foursome in preparing a document, it doesn’t matter how it gets to the right IRS service center. Once filed, it’s a return, and starts the SOL.

“The Code, regulations, and caselaw all show that a taxpayer’s intent is not relevant to the question of whether his return is ‘filed’. ‘On the other hand, it does have a role to play in determining whether a filed document constitutes a valid return.’ Mem. in Supp. Of Resp’t’s Op. to the Mots. for Recons. Filed by Pet’s and Intervenor at 6 n.3 (emphasis added). Because this is the law we followed, there was no substantial error.” Order, at p. 8.

IRS claims a computer processed the covered-over Coffey stuff VIBIR sent them. So what, says Judge Holmes. IRS processed it. Playing a big role here is Marty Dingman; see my blogpost “The Check’s The Thing,” 6/1/11.

And before truth, the right stamp.  “Second, the Commissioner says that VIBIR, not the IRS, stamped the top of the return ‘U.S. Claim.’ Resp’t’s Mot. for Recons. at 6. But when we said the IRS stamped it, we weren’t talking about that stamp — we were talking about the one on the left-hand side of the first page of the Coffeys’ return that says ‘RECEIVED 02082005 IRS – PHILA., PA.’ See Coffey, 150 T.C. at __ (slip op. at 12-13, 45). In light of this evidence, it wasn’t error to find that the IRS’s Philadelphia service center received the Coffeys’ returns.” Order, at p. 9.

Judge Holmes expresses the pious hope that Inman Partners, RCB Investments, LLC, Tax Matters Partner, 2018 T. C. Memo. 114, filed 7/23/18, is “…perhaps the last of its kind,” that is the last Son-of-BOSS case, 2018 T. C. Memo. 114, at p. 2.

Well, I won’t be sorry if it is the last, although these dodges furnished some real good blogposts. And furnished Judge Holmes one of his footnotes. Read 2018 T. C. Memo 114, footnote 1 at page 2, and then read my blogposts “They Were Warned; They were Given an Explanation; They Persisted,” 8/9/17, and “He Wuz Robbed! – Not!” 2/18/15.

Howbeit, today’s sole remaining question is whether the Form 872-I SOL extenders that the partners signed extended the SOL for the partnership items. The dodge was the old reliable, the short-year partnership that terminated three weeks before the partners’ calendar tax year ended.

“Does an extension for individual returns for a year that ends on December 31 include any partnership items from partnerships whose tax years ended less than a month before?  In WHO515 Inv. Partners v. Commissioner, T.C. Memo. 2012-316, appeal filed (D.C. Cir. Apr. 6, 2018), we said it did.  The taxpayers here admit that they would lose under WHO515, but point out it was only a Memorandum Opinion and ask us to rethink our reasoning.” 2018 T. C. Memo. 114, at pp. 1-2.

“In computing the taxable income of a partner for a taxable year, the inclusions required by section 702 * * * with respect to a partnership shall be based on the income, gain, loss, deduction, or credit of the partnership for any taxable year of the partnership ending within or with the taxable year of the partner. Sec. 706(a) (emphasis added).  Inman Partners’ short tax year ended on December 19, 2000–within each of its partners’ tax years, which all ended on December 31, 2000.  That means that the partners had to include their distributive shares of Inman Partners’ income, gain, loss, deduction, or credit for its final tax year on their 2000 tax returns.  To tie this to the disputed language in the IRS forms, the partners had to use these partnership numbers to report the “income tax due” on their returns for the calendar year 2000.

“The partners here did just that.  The Commissioner wasn’t satisfied with how they reported their incomes, however, so he made adjustments to Inman Partners’ partnership items. This is where another timing issue comes up:  Section 6501(a) provides the general rule that any tax deficiency ‘shall be assessed within 3 years after the return was filed (whether or not such return was filed on or after the date prescribed) * * * and no proceeding in court without assessment for the collection of such tax shall be begun after the expiration of such period.’  That statute of limitations is for the ‘return required to be filed by the taxpayer (and does not include a return of any person from whom the taxpayer has received an item of income, gain, loss, deduction, or credit).’” 2018 T. C. Memo. 114, at pp. 7-8.

In WHO515, as in Inman, IRS used the right form; Form 872-I specifically includes any partnership item, affected item, computational item, and partnership item converted to nonpartnership item. The argument that the short-year partnership return is excluded from the SOL extender is irrelevant, as the partners need to report those items on their personal returns. And on those the SOL is extended.

WHO515 is confirmed.

There is really an existentialist quality to the Section 6751(b) Boss Hoss penalty sign-off. As Marty Heidegger might have said, “What does it mean to be?” Is the mere existence of the sign-off its whole function? Scott T. Blackburn would seem to stand for that proposition. See my blogpost “Robosigner? – Part Deux,” 4/5/18.

But ex-Ch J L. Paige (“Iron Fist”) Marvel seems to think that, in the Boss Hoss corral at least, being is nothingness until there’s a trial if necessary to find out something or other regarding the section 6751(b)(1) penalty approval requirement and whether it is met in a particular case. See my blogpost “Play Nice At the Graev,” 7/10/18.

Into the fray leaps Judge Gale with a designated hitter and another long-since-tried-and-awaiting-opinion case, George Fakiris, Docket No. 18292-12, filed 7/20/18.

George never raised Boss Hossery, because his case was tried pre-Graev. And since on the trial George didn’t ask, IRS didn’t tell, thinking George had waived. But IRS wants a reopener to make sure that the Boss Hoss sign-off requirement is satisfied. And in furtherance of its motion, IRS hands in three (count ‘em, three) documents, one for accuracy, one for negligence, and one for gross valuation misstatement.

Judge Gale will buy the reopener. It’s discretionary, non-cumulative, nonimpeaching, material, and certainly is a game-changer.

But he won’t buy the wild-carded documents. If any are business records, they need a foundation. And as one is an Office of Chief Counsel billet doux with no showing that the author-attorney got a sign-off from her Boss Hoss, its existence isn’t enough.

So let’s have an informal discovery play-nice, followed by a trial. Or better yet, a settlement.

Is the Boss Hoss’ being nothingness?

Judge James S (“Big Jim”) Halpern has another TEFRA silt-stirrer, and it’s all about basis. The silt stirred up by TEFRA through its computational-vs.-deficiency dogpaddle results today in Judge Big Jim finding Tax Court has jurisdiction, that notwithstanding the stipulated decision entered years ago the issue of the nonpartner’s basis in the contributed property (euros; this is another Son-of-Boss mix-and-match dodge) was never determined, so there’s a free kick awarded to Larry S. Freedman & Sheri L. Freedman, docket No. 23420-14, filed 7/20/18.

The partnership Larry got into was a phony, but it got an FPAA and Larry got hammered. The only issue now is the 40% overvaluation penalty. Larry claims good faith, and that the net amount of the liquidating distribution of the euros needs to be determined.

Judge Big Jim agrees. Computational adjustments (no SNOD, straight to assessment) are those related to what the FPAA determined, and don’t need partner facts. IRS “…can collect the penalty he determined in the notice of deficiency as a computational adjustment apart from the present case only if he establishes that the penalty ‘relates to’ our redetermination of the capital contributions made to [phony partnership] and is ‘based on’ our determination that the reported contributions were overstated by at least 400%. Respondent has not made the showing required for us to grant his motion to dismiss the portion of the case involving petitioners’ request for a redetermination of the penalty respondent determined.” Order, at p. 5.

Although Tax Court could have determined Larry’s basis in the euros, Tax Court didn’t. And as it was an agreed decision, neither Larry nor IRS asked them to. So if Larry had any basis, that might offset the overvaluation chop IRS wants to slug him with.

Now if you want to see why TEFRA was the mother of abominations, try this.

“It may be that, in asking us to redetermine to be zero the capital contributions made to Pinnacle in the decision entered in [phony partnership]’s partnership case, the Commissioner was referring not to the capital account credits allowed for the contributions (and reported on Schedule M-2 of its Forms 1065), but instead to the partnership’s ‘inside’ basis in the contributed property. Even under that interpretation of our Order & Decision in Pinnacle’s partnership case, however, it would not follow that the penalty respondent determined in the notice of deficiency was based on our Order & Decision. Because a partnership’s inside basis in contributed property and the outside basis of a partnership interest issued in exchange for the property are both determined by reference to the partner’s precontribution basis in the property, secs. 722, 723, a determination that the partnership overstated its inside basis in the property would indicate that the partner’s initial outside basis was also overstated. If Mr. Freedman overstated his initial outside basis in his interest in [phony partnership], it would tend to follow that he also overstated the basis of the euros he received from the partnership in liquidation of that interest. But Mr. Freedman’s correct basis in the euros (in contrast to the redetermined capital contributions and partnership inside basis) was almost certainly higher than zero. Therefore, a determination that [phony partnership]’s basis in the property Mr. Freedman contributed was zero (or, more precisely, did not exist) would not establish that Mr. Freedman’s claimed basis in the distributed euros was overstated by at least 400%.” Order, at p. 7.

I remember admiring, years ago, on a table in a cozy corner of an old-fashioned wirtschaft, reserved for the long-time regulars, with their fragrant pipes and large steins of local brew, the shining brass base with the black-letter brazen placard.

Well, I once threatened, on this very blog, that if ever I retire I might just open up a pub and call it The Jolly Rounder; see my blogpost thus entitled, 3/16/15.

And if I do open the pub, it will have a stammtisch. And the regulars will feature such as Christopher R. Chapman & Pamela J. Chapman, Docket No. 3007-18, filed 7/19/18. Now I’m not starting a pub or issuing invitations, but The Jolly Rounder is an appealing idea.

Chris & Pam are definitely candidates for the title. They’re long-time nonfilers, they’ve twice in the past petitioned SFRs, claiming these weren’t returns, and lost at every turn. Nothing daunted, they’re trying again.

IRS claims there’s neither SNOD nor NOD, so no jurisdiction, and move to toss Chris & Pam. But so that they don’t leave with nothing, IRS moves to hand Chris & Pam a $3K Section 6673 chop.

Chris & Pam have drawn STJ Daniel A (“Yuda”) Guy, who chooses to designate this tale, for which I thank him. STJ Yuda is a pleasant person among friends and family, I am told, but is rather testy with those who waste time and resources with protester blather.

“Although respondent correctly points out that the Court’s jurisdiction typically depends on a determination by the Commissioner and a timely filed petition, see secs. 6213(a) and 6330(d), we need not focus on those requirements in this case. Rather, we look to the doctrine of res judicata which bars repetitious suits on the same cause of action. See Koprowski v. Commissioner, 138 T.C. 54, 59-60 (2012). This doctrine serves a dual purpose of protecting litigants from the burden of relitigating the same cause of action and promoting judicial economy by preventing unnecessary or redundant litigation. Meier v. Commissioner, 91 T.C. 273, 282 (1988). In short, once a court of competent jurisdiction has ruled on the merits of a cause of action, the parties may thereafter be barred from relitigating every matter which was offered in the prior suit, as well as any matter which might have been offered in the prior suit. Koprowski v. Commissioner, 138 T.C. at 60; see Commissioner v. Sunnen, 333 U.S. 591, 598 (1948).” Order, at p. 4.

In short, Chris & Pam, you had your chance and you blew it.

And STJ Yuda is clearly annoyed.

“Petitioners argue that the Court should not impose a penalty because they have raised a novel question as to whether they are properly characterized as ‘taxpayers’ subject to Federal income tax where they have not filed Federal income tax returns and their tax liabilities arise from substitutes for return made by the Secretary under section 6020(b).

“The Court informed petitioners in their collection cases at docket Nos. 30014-15L and 30031-15L that section 6330(c)(2)(B) barred them from challenging the existence or amount of their tax liabilities for the years in issue. Petitioners were reminded of that fact again in connection with the agreed dismissals of the petitions that they had filed at docket Nos. 22516-17 and 22520-17. Against this backdrop, it is clear to the Court that petitioners’ latest attempt to challenge their tax liabilities represents a delay tactic and that their argument amounts to nothing more than time-worn tax protestor rhetoric that is both frivolous and groundless. Addressing this matter has resulted in a needless waste of the Court’s resources. Accordingly, the Court will grant respondent’s motion and impose a penalty of $3,000 on petitioners pursuant to section 6673(a).” Order, at p. 5.