Tax Court Style

Let’s take these in reverse order. Both Richard Edward McCormick & Cielo Marie Mendoza, Docket No. 6186-17, filed 4/16/18, are, according to that Obliging Jurist Judge David Gustafson, “…attorneys, though apparently they are not tax attorneys and are not admitted to practice in the U.S. Tax Court.” Order, at p. 1.

I seriously doubt that box-top admission to USTC would much avail Rich & Ciel, or either of them, as they seem unable to deal with pre-trial prep. They prefer to seek continuance six (count ‘em, six) days before trial, without an affidavit or declaration under penalty of perjury or hospital admission slip in sight.

“…the Court received from petitioners an amended motion for continuance…. It includes no affidavit or unsworn declaration substantiating petitioners’ allegations. It does not state whether petitioners challenge the four numbered allegations about which the Court asked [the unreported income]. It does not give detailed allegations about the merits of the disputes in this case and does not give any supporting documentation. Rather, it alleges that ‘petitioners are reviewing their records and are still compiling primary documents from 2014’.” Order, at p. 4

This does not go over big with Judge David Gustafson.

“When a party mails a motion for a continuance to the Court 6 days before a trial date and then leaves the country, he does not thereby tie the Court’s hands and effectively grant himself a continuance.” Order, at p. 5.

IRS played nice before an earlier trial date, because IRS needed info from the State of VT as to the accuracy of its third-party reporting. Turns out VT confirms all the shortfalls.

Rich & Ciel get hit with the fully monty plus chops.

Don’t do it.

Judge Pugh is in on the hunt in Eric S. Harrop, Docket No. 6174-17, filed 4/16/18, but it isn’t about Eric at all. His attorney, to whom I’ll hereinafter refer as RJR, is a trifle casual with his motion practice.

“…counsel for petitioner, filed a motion to withdraw as counsel that did not comply with the Court’s Rules. After RJR failed to respond to our… Order for a supplement to his motion, we denied his motion to withdraw….

“This case was called from the calendar for the Trial Session of the Court at Salt Lake City, Utah…. There was no appearance by or on behalf of petitioner. Counsel for respondent appeared and filed with the Court a motion to dismiss for lack of prosecution.” Order, at p. 1.

So Eric is ordered to show cause why his petition should not be tossed, with a win on all counts for IRS thrown in at no extra charge. And so that RJR doesn’t feel left out, RJR “shall show cause in writing… why he should not be sanctioned for failure to respond to this Court’s…Order and for failure to appear…, or otherwise comply with the Court’s Rules.” Order, at p. 1.

Definitely don’t do it.

Here’s the “do” part of my blogpost, as Ch J L Paige (“Iron Fist”) Marvel shows the correct way to let an attorney who is allowed a peek (quick or otherwise) at the sacrosanct Section 6103(b) taxpayer info through the Section 6014(h)(4) peephole to prepare for trial.

It’s a whistleblower case, of course, Richard G. Saffire, Jr., Docket No. 101-18W, filed 4/16/18.

And I do want to give a Taishoff “Good Job” to that well-respected Buffalo NY law firm representing Mr. S.

Of course, the material protected must be appropriately marked (see Order), and communicated only “…for the sole bona fide purpose of trial or hearing preparation….” Order, at p. 2.

As for anyone getting a glimpse from the Buffalonians, here’s the drill.

“…whenever petitioner or petitioner’s counsel intends to provide to any person(s) any document(s) containing section 6103 information of third party taxpayer(s) that respondent has designated and marked as ordered in the second ordered paragraph and provided to petitioner or petitioner’s counsel, petitioner or petitioner’s counsel must first provide a copy of this Order to any such person(s), inform such person(s) that he or she must comply with the terms of this Order, and obtain on a copy of this Order the name, the business or home address of such person(s) at which service of process can generally be made during business hours, and the signature(s) of such person(s). Petitioner or petitioner’s counsel shall retain the signed copy of this Order until one year after the decision in this case becomes final within the meaning of section 7481(a). After petitioner or petitioner’s counsel has complied with the first sentence of this ordered paragraph, petitioner or petitioner’s counsel may provide to any person(s) described in the first sentence any document(s) containing section 6103 information of third party taxpayer(s) that respondent has designated and marked as ordered in the second ordered paragraph and provided to petitioner or petitioner’s counsel.” Order, at p. 2.

Finally, anyone with any of the aforesaid material must, within fourteen (count ‘em, fourteen) days after decision becomes final per Section 7481(a), either destroy same and so certify to IRS, or give it all back to IRS.

I suggest getting a receipt in the latter case.

And I’d really like to read the moving papers that allowed the Buffalonians to get the peek, appropriately redacted, of course. But that isn’t possible.

Sir Winston Churchill was talking about Ireland and spelled differently in 1912, but Judge Cohen is letting Darrell Archer, et al., Docket No. 10444-16, filed 4/13/18, “go forward together” when it comes to proving the Graev Boss Hoss sign-off.

Darrell and the als fell foul of Section 274 strict substantiation, and had maybe a substantiation issue with their Section 170 charitables. Moreover, Judge Cohen found Darrell and the als had other problems, when IRS tried to wild-card in the Section 6751 Boss Hoss post-trial.

“Petitioner’s responses make various other meritless arguments about the validity of the notices of deficiency. We will disregard them for present purposes but note that he is apparently misguided in his citation of legal authorities in the context of his acknowledged ignorance of sections 274(a) and 170(f)(8). With respect to relevant considerations, he suggests that motions made after the record is closed are untimely and that receipt of the evidence probably would not change the outcome of these cases. He is mistaken in the latter regard because our view of the evidence supports the application of section 6662(a) penalties.” Order, at p. 2.

Darrell claims the Boss Hoss won’t change the outcome. Maybe not as to the deficiency at issue (which doesn’t look rosy for Darrell), but it sure would as to the 20% chops.

So IRS gets their wild card. But Darrell also gets his innings.

“Petitioner requests the right to examine the examiner who executed the declarations accompanying respondent’s motions, which we interpret as a hearsay objection to certain representations therein. We will allow limited discovery to propound the questions that petitioner wishes to pursue. In view of his propensity for misguided and meritless arguments, we will limit that discovery to proper areas of inquiry.” Order, at p. 3.

Darrell can hit the IRS declarant with “single, definite” interrogatories, dealing with what declarant declared.

There has been some buzz on the Internet about teachers’ strikes in various localities. I don’t comment upon news developments outside the realm of tax, except in the rarest of instances.

But while much has been made of the hard work and advanced educational qualifications of teachers, Tax Court judges need a wee boost as well.

The educational and real-world experience that the judge brings to his or her seat on the bench in the “small court” is beyond cavil or controversy. I’ve said in the past if I could find even two or three of equal stature, I could build a world-class tax department in any major law firm. But so could any lawyer.

Now see to what these extraordinarily-talented people are reduced.

Judge Elizabeth Crewson Paris: Aspro, Inc., Docket No. 17494-17, filed 4/12/18. “…petitioner filed a Stipulation to Take Deposition of A and B. However, the document internally states that it is supplementing respondent’s …Motion to Take Deposition Pursuant to Rule 74(c)(3). …petitioner cannot supplement a document that respondent has filed….” Order, at p. 1. (Names omitted).

Johnny, you can’t draw on Mary’s paper.

Ch J L Paige (“Iron Fist”) Marvel: Teresa Conaty Tierman, Docket No. 1135-18, filed 4/12/18. TC got bounced for lack of jurisdiction. The following week she sends in a letter that her name was misspelled. So Ch J Iron Fist (1) orders the caption amended, (2) orders the bounce order amended, and (3) “the Court’s Order of Dismissal for Lack of Jurisdiction…remains in full force and effect.” Order, at p. 1.

I’ve corrected your library card, but your library book is still overdue.

Right? Isn’t it the function of the “small court” to afford taxpayers the only prepayment tribunal whereat to contest liability? So once there’s no longer a liability or threat of collection, there’s no longer a case, no?

Maybe not. What happens when a Section 6015 innocent spousery is interjected into a deficiency proceeding, whether or not by intervention, and the claim is paid?

Judge Morrison has the question, but maybe hasn’t read my blogpost “Entropy,” 2/5/18, where Judge Pugh had the answer.

Joanne Folger, Docket No. 3633-17S, filed 4/11/18, apparently coughed up the deficiency, additions, chops and interest at issue, so IRS moves to dismiss as moot.

OK, no-brainer, right?

But what about Joanne’s innocent spousery?

Judge Morrison takes Joanne off the trial calendar, but keeps jurisdiction and tells IRS to: “…file a supplement to its motion to dismiss, addressing the question of whether a court has ever dismissed a § 6015 case on grounds of mootness because the joint tax liability has been paid.” Order, at p. 1.

Hint- Read my blogpost abovecited, and Connie L. Minton, a.k.a. Connie L. Keeney, 2018 T. C. Memo. 15, filed 2/5/18.

No, not the Lennon-McCartney classic; rather, one gets the feeling that Judge James S (“Big Jim”) Halpern has had enough of certain tactical manœuvres in this designated hitter, George E. Joseph, Docket No. 27759-15, filed 4/11/18.

Judge Big Jim gives George and counsel one (count it, one) day to respond to an IRS oral motion to bar testimony from the AO who, according to George and counsel, “re-performed the audit of taxpayer based on serious deficiencies apparent from the original audit.” Order, at p. 1.

So George wants to get the AO’s testimony.

Except trial is set for Tuesday, 4/17/18, date and time certain. And IRS’ counsel says the testimony is inadmissible and irrelevant.

Now my sophisticated readers will say “hey, deficiency cases are tried de novo, so who cares what IRS or Appeals did or didn’t do? The past is prologue. Let George and counsel prove the return or returns at issue are substantially correct.”

Judge Big Jim is a little more explicit.

“The gravamen of respondent’s objection is that any testimony by AO would be excludible under Fed. R. Evid. 408 as evidence of a compromise of the deficiency in tax determined by respondent. Also, respondent argues that petitioner bears the burden of proof, see Rule 142(a), Tax Court Rules of Practice and Procedure, and that AO’s testimony is not necessary or relevant for petitioner to meet his burden. Finally, the Court brought to the parties [sic] attention what the Court announced long ago in Greenberg’s Express, Inc. v. Commissioner, 62 T.C. 324, 327 (1974): ‘As a general rule, this Court will not look behind a deficiency notice to examine the evidence used or the propriety of respondent’s motives or of the administrative policy or procedure involved in making his determinations.’

“Also, the Court has looked at the petition and is somewhat at a loss as to what, other than matters precluded by Fed. R. Evid. 408, AO would testify to. Petitioner assigns error to respondent’s deficiency determination claiming: ‘The amounts filed in the filed returns are the correct numbers.’ In support of that assignment of error, petitioner avers in relevant part: ‘Although a significant tax liability remains, the numbers are correct and are not nearly as large as the numbers seemingly pulled out of the air by the auditor.’” Order, at pp. 1-2. (Name omitted).

Of course, George’s petition flunks the Rule 34 separately state and number clear and concise statements of facts relied upon test. And settlement negotiations can’t be introduced at trial.

So George and counsel have to unload the following on Judge Big Jim: “…an objection to respondent’s oral motion under Fed. R. Evid. 408 and also to respond to respondent'[sic] concerns as to the relevance of AO’s testimony and to our concern under Greenberg’s Express. He shall identify in particular the adjustments on the Form 4549-A attached to respondent’s notice of deficiency as to which he believes AO has knowledge. He shall specify the facts that petitioner relies on to show error in each of those adjustments. He shall identify what knowledge AO possesses of each of those facts. He shall identify how she obtained knowledge of each such fact.” Order, at p. 2. (Name omitted).

And they have to do this by close of business tomorrow, 4/12/18.

When the owner of an IRA hears that they’ve made a prohibited transaction, there is usually weeping, wailing and gnashing of teeth. This unhappiness is engendered by Section 408(e)(2(A), which obliterates the account as an IRA from Day One of the tax year wherein the prohibited transaction occurs. This results in all gain being taxable to the owner.

But if the prohibited transaction took place far enough back to knock out 6SOL, IRS may be relegated to picking up only recent unreported gain.

Stacey S. Marks, 2018 T. C. Memo. 49, filed 4/10/18, steers around the Scylla of a busted rollover that would have hit her with a $98K taxable gain, the Section 72(t) 10% youth chop (or addition to tax), and the 20% substantial understatement chop.

Whether there’s a Charybdis of unreported income within the SOL is another question.

Eight (count ‘em, eight) years before the year at issue, Stacey lent her father $40,000. Only she didn’t; her IRA advanced the money, and got a promissory note from Dad.

My sophisticated readers have blown the whistle, thrown the flag, and made the Section 4975 hand signals. Can’t lend to mishpocha (please pardon arcane technical term).

So Stacey’s IRA cratered as of Day One, eight years before year at issue, and entire account was deemed distributed to Stacey on that day.

So when Stacey tried, during the year at issue, to roll her non-IRA over and got caught with a couple notes from the loans her IRA made to Dad and to a friend of hers that the new non-trustee refused to take, she doesn’t owe tax on the FMV of the notes (she got them eight years before when she crashed her IRA), she doesn’t owe the Section 72(t) chop-or-addition (she had no IRA from which to take a distribution in the year at issue), and there was no underreporting of tax for that distribution (because it wasn’t a distribution from an IRA and therefore wasn’t taxable).

So Judge Morrison orders a Rule 155 beancount.

Because Stacey admits she left a $162 dividend off her return.

Those words from a long-ago hit (Duke Ellington and Harry James in on the play) came back to me as I read Jeffrey M. McMeel, Docket No. 414/18, filed 4/9/18.

Mr Mac is petitioning seven (count ‘em, seven) years, the last of which is 2011. I’d queried this sort of thing in my blogposts “A New Gambit?” 4/2/18, and “They Paid the Sixty Bucks,” 4/3/18. As at 4/9/18, no joy from any reader.

But Ch J L Paige (“Iron Fist”) Marvel digs into Mr Mac’s petition to find what Mark Twain called the “nub”…the whole point of the petition.

Although IRS simply responded “No SNOD or NOD for years enumerated that would grant jurisdiction,” Ch J Iron Fist digs deeper, for which this humble blogger thanks her.

“In his objection to respondent’s motion to dismiss, petitioner states, among other things, that ‘Petitioner agrees with the grounds cited by Respondent that several required statutory notices were not issued to Petitioner by IRS employees, without which the IRS lacked jurisdiction over the Petitioner for the stated tax years. This set of facts is not in dispute. Petitioner’s contention is that Respondent failed to follow statutory and regulatory requirements resulting in damage to Petitioner’s rights to property and credit. * * * Relying on “account transcripts” to prove or disprove that the required notices were sent or not is insufficient and inappropriate.’ Petitioner’s statements reflect a misunderstanding of tax law and procedure. It appears that petitioner may have filed his petition in an effort to have this Court make a determination that, by not issuing notices of deficiency or notices of determination for the tax years at issue in this case, respondent failed to follow proper procedures and, thus, may not attempt to take any actions with respect to petitioner for those tax years. However, as discussed above, this Court lacks jurisdiction to hear a case unless a notice of deficiency or notice of determination was issued to petitioner. Furthermore, because a taxpayer’s account transcripts reflect information included in official IRS records with respect to that taxpayer, reliance on account transcripts has been held to be appropriate. See May v. Commissioner, T.C. Memo. 2014-194; Sherwood v. Commissioner, T.C. Memo. 2005-268.” Order, at p. 2.

I am enlightened; this move is an attempt at cutting off assessables, like refund grabs and frivolity chops. Not bad.

Mr Mac gets a Taishoff “good try, third class.” But dodgers, beware. Someone trying this risks the Section 6673 $25K yellow card.

No, neither Sam’l T. Coleridge’s “grey-beard loon” nor a certain first baseman, now deceased, known as “The Man With the Iron Glove,” for he also “stoppeth one of three” hit to him. Today it’s The Great Dissenter/Concurrer, a/k/a The Judge Who Writes Like a Human Being, Old China Hand and Master Silt Stirrer, Judge Mark V. Holmes (and, I must add, a delightful dinner companion; the walls at the Wright Ballroom echoed with our laughter), telling the sad tale of Lisa M. Brigulio & James M. Murray, Docket No. 11087-12, filed 4/6/18.

There are three conjoined cases, but this one is Lisa’s sad tale, as she’s the sole petitioner. She loved not wisely but too well; James turned out to be a wrong ‘un.

“…she was married to petitioner Murray for only a little over three years and during that time filed joint returns for [two of those years]. She did not know that he was a white-collar criminal whose nefarious schemes were producing a large amount of income which he did not report on their returns. And none of the adjustment items on the notice of deficiency are allocated to her under I.R.C. § 6015(d). Ms. Brigulio established these facts by serving her former husband with requests for admission, to which he did not respond. See Tax Court Rules 90(c) and (f).

“Toward the end of the marriage, Mr. Murray fled to Monaco. He was arrested while trying to return,  and has since been convicted of several counts of wire fraud and aggravated identity theft. He is currently imprisoned. “ Order, at p. 1.

James obviously has other things on his mind than Tax Court Rules 90(c) and (f).

Lisa got innocent spousery summary J. But she’s still joined at the petition with James on a couple other cases (it is Judge Holmes’ case, after all).

Lisa should follow the advice of my daughters’ dear childhood friend, and get out, but Judge Holmes forgot to remind her about Siewert.

Even I didn’t blog the Siewert order of 9/15/15, to which Judge Holmes refers. When I blogged Siewert it was back on 6/1/15. See my blogpost “To Bifurcate or Not to Bifurcate – That Is the Question.”

Judge Homes held a phoneathon with IRS and Lisa, but forgot to tell Lisa about how Teresa Siewert bailed.

So Judge Holmes gave us a designated hitter, to help Lisa “stoppeth one of three.”

The Section 6751(b) Boss Hoss is a gift that keeps on giving. Today we have Scott T. Blackburn, 150 T. C. 9, filed 4/5/18, a full-dress revisitation, wherein Judge Goeke, writing for a unanimous court, concludes that the signature of the Boss Hoss need not be manifest or manual, but an electronic abstract naming the Boss Hoss is sufficient.

Scott is fighting the chops on a Section 6672 TFRP. He admits he owes the TFRP.

“…petitioner asserts that the Form 4183 does not have an actual signature.  This is true; however, the form does show Ms. R as the party who approved the TFRP as the revenue officer’s supervisor.  A finding of fact that Ms. R signed the Form 4183 might be based upon rule 803(6) of the Federal Rule of Evidence, but in the context of an abuse of discretion determination the mere existence of the form in the administrative record supports the settlement officer’s verification.” 150 T. C. 9, at p. 9. (Name omitted).

Judge Goeke doesn’t have to deal with whether or not Section 6751(b) applies to TFRPs, because IRS got one. Says the administrative record.

But this begs the question. It assumes assertion of a mere signature is sufficient to satisfy Section 6751(b). Scott objects, says there has to be some kind of evaluation manifested.

Here’s Judge David Gustafson dissenting in Graev I.

“Through its Conference Report, Congress made its intent clear:

‘The Committee believes that penalties should only be imposed where appropriate and not as a bargaining chip.’ S. Rept. No. 105-174, at 65 (1998), 1998-3 C.B. 537, 601. Taxpayers had complained to Congress that, in disputes about income tax liability, IRS agents sometimes unreasonably asserted penalty liability on top of the tax liability in order to create a bargaining chip for use in settlement negotiations with taxpayers.” 147 T. C. 16, at p. 85.

So Congress wanted someone with shoulder boards to see that the grunt wasn’t overdoing it.

What assures the taxpayer that there was the “second look” Congress directed? Anyone can drag-and-drop a name into an electronic document. And even if the Boss Hoss did sign something, was there even a second look?

I’ll reiterate what I wrote back in 2016, in my blogpost “Robosigner?” 12/23/16. When the subprime mortgage debacle exploded and foreclosures rained from the skies, we dirt lawyers “…saw the flurry of ‘robosigners,’ junior clerks given titles above their pay grades who signed affidavits and pleadings at the rate of ten a minute, with flailing notaries at their elbows stamping their nights away. None had any idea what they were signing or to what they were swearing.”

Eventually these got torn up in court, as the pro bonos and the defendants’ wolfpack deposed the signers.

Judge Gustafson, where are you?

Scott is Golsenized to 5 Cir., unless stiped otherwise. Might be worth a visit.

Not a great day for IRS, as their appraiser misses the point that sinks Wendell Falls Development, LLC, Gregory Alan Ferguson, Tax Matters Partner, 2018 T. C. Memo. 45, filed 4/4/18, when Wendell Falls goes for a conservation easement (disallowed, but IRS’ appraiser’s miscue lets Wendell Falls off the chops).

Then it’s a small-claimer, Alan A. Vest, 2018 T. C. Sum. Op., 18, filed 4/4/18, where IRS blew the Section 6402(g) mandated payment to the Small Business Administration for Alan’s defaulted loan, and applied Alan’s refund to his subsequent tax year. Doesn’t end well for Alan, though, as the Section 6402(g) grabs aren’t reviewable by any Federal court.

Wendell Falls’ conservation easement is worth nothing, because the Town of Wendell (NC) bought the adjoining land whereon Wendell Falls was going to build its tract housing for a good number to use as a public park, and Wendell Falls would get more for its houses with a 125-acre public park next door.

“The conservation easement therefore did not diminish the value of the 125 acres because it did not prevent it from being put to its best use.  The value of the easement is therefore zero.  Our answer does not change if the land valued before and after the easement is the entire 1,280 acres rather than the 125 acres.  See sec. 1.170A-14(h)(3)(i), Income Tax Regs. (fourth sentence).  We believe, as Wendell Falls did, that using the 125 acres as a park would make the master-planned community more desirable and therefore increase the value of the residential and commercial lots that Wendell Falls eventually intended to sell.  Taking this enhancement into account, the total value of the 1,280 acres would be undiminished by the easement, and this undiminished value leads to the conclusion that the value of the easement is zero.” 2018 Tc. C. Memo. 45, at pp. 14-15 (Citation and footnotes omitted, but read the footnotes; footnote no. 4 says Town of Wendell bought to property cum easement for the same price as they would have paid ex-easement.)

So Wendell Falls’ $1.7 million deduction fails. But the penalties? See the second of the two footnotes aforesaid, footnote no. 5.

“Neither valuation expert witness accounted for the enhancement to the surrounding land created by access to the park.  The IRS’s expert’s failure to consider the enhancement is inconsistent with the evidence in this case, which, as the IRS points out, includes a PUD showing that the park was linked to the residential units.  A court is not required to accept an opinion of an expert witness that is contrary to the evidence.” 2018 T. C. Memo. 45, at p. 15, footnote 5.

Judge Morrison: “Our determinations regarding substantial benefit depend on the resolution of tests for which the factfinder has broad discretion–(1) whether there was a substantial expected benefit to Wendell Falls, and if so, (2) whether the benefit was incidental.  We do not think that Wendell Falls’ failure to anticipate the adverse resolution of these tests shows that it did not make sufficient effort to assess the proper tax treatment of the easement. As to the value of the easement, Wendell Falls retained two different state certified real estate appraisers… to appraise the easement.  Although neither appraiser correctly accounted for the enhancement conferred by the easement on the unencumbered property, neither did the IRS’s trial expert.” 2018 T. C. Memo. 45, at pp. 16-17.

As Scotland’s greatest said, “Gude faith, he mauna’ fau’ that.” No penalty.

As for Alan A., IRS’ miscue doesn’t help. He owes the tax, because IRS erred in following his direction rather than Section 6402(g).

Judge Nega: “Section 6402(d), the Treasury offset program, requires the Commissioner, upon receiving notice from any Federal agency that a taxpayer owes a past-due legally enforceable debt to that agency, to reduce the amount of any overpayment due that taxpayer by the amount of such debt and remit that amount to the notifying Federal agency.

“This duty is mandatory upon the Commissioner and overrides any request by the taxpayer that an overpayment be credited or refunded otherwise.  Sec. 301.6402-6(g)(3), Proced. & Admin. Regs. In this regard, the terms of the Treasury offset program place the Commissioner in the limited and purely ministerial role of collecting those debts referred to him by other Federal agencies.” 2018 T. C. Sum. Op. 18, at pp. 7-8 (Citations omitted).

Better IRS training would save the money expended on these cases.