Islander

Y’all will remember Judge Hardiman in 3 Cir confirming the insular virginity of Richard Vento back in 2013. Virgin islander, that is, recipient of the now-extinguished unguided largesse to those who settled in our Insolvent Islands in the Sun by tax-year’s end long ago. If not, see my blogpost “Catching Up,” 9/30/13.

So Richard’s 1040 directed to VIBIR (Virgin islands Bureau of Internal Revenue) for the year he sold a bushelbasket of appreciated stock, with a sideways hand-off to a Cayman Islands insurance peddler’s sub to bury a few millions in taxable gain, kicked off the 3SOL, and IRS can’t prove the 25% substantial understatement to pin the 6SOL appropriately on Richard.

The assignment of interest in the LLC Richard set up (the DTDV, LLC in the case) wasn’t a sham, and if it was an assignment of income, it wasn’t 25%. Richard gets there with some help from his trusty tax counsel and Judge James S. (“Big Jim”) Halpern, in DTDV, LLC, Richard G. Vento, Tax Matters Partner, 2018 T. C. Memo. 32, filed 3/20/18.

As Richard’s C Corp was about to be acquired, he set up the LLC, assigned a piece of his interest to an outfit fetchingly called Square Leg for a price pre-announcement in exchange for an annuity give-and-go with Square Leg, upon which Square Leg defaulted within six months.

BTW, “square leg” is a mid-fielder’s position at cricket. Oh to be in England in June, watching a match on Hampstead Heath!

Anyway, State law says that Square Leg got a capital interest even if strict formalities weren’t observed in the assignment process. The short life of the annuity doesn’t mean it was a sham; Richard went to arbitration and was awarded money damages (how much he collected is unstated). And estate planning isn’t necessarily a non-business purpose, although that may not be as clear as Richard claims.

Basis-building via Section 754, with an assist from Section 743, is a big help to Square Leg. As Square Leg isn’t a sham, and isn’t part of a step transaction (not preconcerted from the getgo, says Judge Big Jim; or at least not proven by IRS, who has the burden to get 6SOL), it’s a partner and can build basis thus by buying into a partnership with appreciated assets (the stock that was worth thirteen bucks on Friday and seventeen bucks the following Tuesday, after the buy-out was announced).

IRS should have gone after Richard directly, and not the LLC on an FPAA. The LLC was real enough, and its numbers hold up. Now it’s too late to go after Richard.

IRS was too slow off the mark and is out to Square Leg. I’ll have some tea with milk and sugar, and scones…with strawberry jam, please.

But the Pay-Out Was Low

Y’all will surely remember Stefan A. Tolin, the horse-breeding lawyer, who beat the IRS in a photo finish? No? Check out my blogpost “I’ve Got the Horse Right Here,” 4/9/14.

Well, Stef was first past the post, and now his trusty attorney wants $260K in legals per Section 7430, claiming he made a qualified offer that IRS turned down.

Here’s Stefan A. Tolin, 2018 T. C. Memo. 29, filed 3/19/18.

For the qualified offer gambit, see my blogpost “Concession Equals Settlement,” 4/1/13.

Judge Gale decides that even though Stef’s trusty attorney agreed to some adjustments to do with Stef’s law practice, he still could contest them. I’m not sure how Judge Gale gets there, as trusty attorney stipulated to the adjustments. But if trusty attorney could still confute the stipulated-to adjustments, his qualified offer was too low.

Notwithstanding the foregoing,  trusty attorney does get some cash. His hourly rate of $400 (by coincidence that’s mine, too, when I can collect it) gets cut to $180 (less than a first-year in a white shoe firm). He’s only entitled to time spent after IRS ceased to be justified (and Judge Gale takes that to the day IRS concedes).

And even that time gets cut, because trusty attorney spent too much time on sorting out Stef’s telephone bills and preparing for trial.

So trusty attorney gets his hours cut from 453 to 276, and his billing rate cut as aforesaid.

Judge Gale wouldn’t have been a big hit as a billing reviewing partner in any firm I was ever in.

Or, A Message From Garcia

Gregory S. Larson, 2018 T. C. Memo. 30, filed 3/19/18, is the recipient of the message that formed the plot of the famous short story by “The Sage of East Aurora,” Elbert Hubbard, from which I get my sub-head.

Gregory was a lawyer and he hired a bookkeeping firm to do his taxes. A certain CPA, Mr Garcia, worked on the return. Gregory “did not provide receipts to the bookkeeper, ‘just [his] checking account and descriptions of whatever the check was for’.” 2018 T. C. Memo. 30, at p. 2.

But the point of this blogpost (and, dear readers, note how quickly I got there) is that “(A)lthough the C.P.A. was designated on the returns as a person with whom the returns could be discussed, the C.P.A. refused to assist petitioner when the returns were audited.” 2018 T. C. Memo. 30, at p. 3.

Although Gregory obtained other representation, the case did not end well. To avoid penalties, Gregory claims he relied upon CPA Garcia.

Judge Cohen: “He acknowledges that he identified the purposes for which checks were written and did not provide receipts to his bookkeeper. He could not state definitively whether he had provided to the preparer backup receipts for the totals claimed as travel expenses on his returns. He testified that he gave the preparer the items and amounts claimed for the casualty loss. Petitioner testified: ‘Mr. Garcia didn’t ask me any questions. I relied a hundred percent on him after I handed him those materials. He didn’t ask me any questions’. Petitioner did not describe any specific advice that Garcia gave him before the audit. He testified that after the audit began Garcia said: ‘[Y]ou’re on your own’.” 2018 T. C. Memo. 30, at p. 4.

I don’t know the ethical rules for CPAs, so I won’t comment. Perhaps Mr. Garcia’s version might vary from Gregory’s.

But I suggest that if the CPA who prepared your return tells you when you get the audit notice that “you’re on your own,” be afraid. Be very afraid.

The silt is really stirring at the Glasshouse at 400 Second Street, NW,  since 2 Cir gave the Glasshouse Gang the right-about-face, and the Boss Hoss Section 6751(b) sign-off for penalties became the 2018 flavor of the year.

STJ Diana L (“The Taxpayer’s Friend”) Leyden doesn’t even wait for post-trial motions, but sua sponte tells IRS to put up or the alternative.

Here’s Corey V. Triggs, Docket No. 14824-16S, filed 3/16/18. Only the trial happened last year, and, according to the Docket Inquiry link on the Tax Court website, no briefs are due. And IRS hasn’t moved for a reopener.

Notwithstanding anything otherwise, contrary to, or at variance with, the immediately preceding sentence, STJ Di tells IRS it “…(1) may move to reopen the record to provide evidence of compliance with I.R.C. section 6751(b), including filing the written supervisory approval form contemplated in I.R.C. 6571(b) or submitting an explanation as to why respondent is unable to do so, or(2) will advise the Court of respondent’s position with respect to the accuracy related penalty under I.R.C. section 6662(a) referenced in respondent’s pretrial memorandum….” Order, at pp. 1-2.

Of course, Corey is pro se in this small-claimer. And I doubt he reads this my blog.

STJ Di, does Corey get to review and respond to any proffered evidence of compliance, including without in any way abridging or limiting the generality of the foregoing (as my two-dirty-olive-martini lunching colleagues would say), cross-examining the signers of any written evidence of any thereof?

I must again cite to my blogpost “Robosigner?” 12/23/16.

While I rejoiced at the well-deserved triumph of my daughters’ friend since their childhood days, I will refrain from further praise of that gifted actor-director-screenwriter and all-around great human being in this blog other than saying once again “JORDAN!!!”

I only use the title of his film to illustrate to fellow practitioners how to get out of representing a client in Tax Court, or, more politely, withdrawal as attorney.

Two examples.

First, petitioners and intervenors are represented in Tax Court by individual attorneys. Form 7 (Entry of Appearance) is a trifle ambiguous, but see my blogpost “Separate Checks,” 9/1/15. So here’s Whistleblower 18370-16W, Docket No. 18370-16W, filed 3/15/18, where a well-respected NYC law firm specializing in tax representation (and with whom I’ve worked in the past) tries to get out, and fails.

Judge Morrison: “…counsel for petitioner moved the Court to issue an order withdrawing X & Y LLP as counsel for petitioner in this case. This motion is improper as it moves the Court to withdraw as counsel the law firm rather than moving the Court to withdraw as counsel the individual attorneys who have entered appearances in this case….” Order, at p. 1 (names omitted).

The second example is what happens when there are too many cooks in the kitchen, and one tries to tell the other to “get out!”

Here’s Mildred Barrett, Donor, Docket No. 22051-17, filed 3/15/18. But Mildred isn’t involved, although she should have been.

Attorney A signs petition and duly files same. A month later, Attorney B files Entry of Appearance. So as far as Ch J L Paige (“Iron Fist”) Marvel is concerned, there are two attorneys representing Mildred.

No biggie; any number can play.

But five months later, Attorney B tries to oust Attorney A, and that doesn’t fly.

Attorney B “…filed a paper Motion To Withdraw Counsel seeking to withdraw [Attorney A]’s appearance as counsel for petitioner in this case (Index No. 0010). An examination of that motion reflects that it (Index No. 0010) is signed only by [Attorney B], and not by petitioner herself. In pertinent part, Tax Court Rule 24(c) provides that any party desiring to withdraw the appearance of counsel of record for such party, must file a motion to withdraw counsel with the Court. Although [Attorney B] represents that he is acting on petitioner’s behalf, Rule 24(c) does not allow [Attorney B] alone to file a motion to withdraw [Attorney A]’s appearance as counsel for petitioner in this case, and that motion to withdraw counsel must also be signed by petitioner herself.” Order, at p. 1.

Ch J Iron Fist bounces Attorney B’s paper filing (and shouldn’t that have been electronically filed? M116 motions aren’t barred from electronic filing; see p. 93 of the Guide).

Having done so, she turns to Attorney A with some free advice.

“[Attorney A] is advised that if he wishes to withdraw as counsel for petitioner in this case, [Attorney A] must file an appropriate motion to withdraw as counsel under Tax Court Rule 24(c). Such motion to withdraw as counsel must be electronically filed by [Attorney A], and may not be filed in paper form. Petitioner and [Attorney B] are advised that if petitioner wishes to withdraw [Attorney A]’s appearance as counsel for petitioner in this case, petitioner must file an appropriate motion to withdraw counsel under Rule 24(c) that bears petitioner’s signature.” Order, at p. 2.

And this is the second try at getting either Attorney A or Attorney B out of the case. See my blogpost “Accept No Substitutes – Redivivus,” 12/8/17.

Keep trying, guys. Only read the Rules first.

I’m not blogging today’s T. C. Memo., R. J. Channels, Inc. It’s the story of an EA gone wrong, and those who want can read it. But Judge David Gustafson’s unlimited largesse is once again in evidence in a designated hitter, Daniel E. Larkin & Christine L. Larkin, Docket No. 6345-14, filed 3/14/18. And once again, it’s about what is in evidence.

Dan’s & Chris’ trial was twice postponed at their request, and was finally tried a year-and-a-half ago. Then followed motions to put additional exhibits into the trial record, stipulation of fact and supplemental stip, and on the post-trial brief yet another motion to put in fresh stuff.

Now IRS wants to put in the Section 6751(b) Boss Hoss sign-off that never made the trial record. The Glasshouse at 400 Second Street, NW has become the Land of the Free and the Home of the Graev.

Judge Gustafson: “The Court held a telephone conference with counsel for the parties…during which petitioners objected to respondent’s motion to reopen the record on the grounds that (1) the motion comes too late, (2) granting the motion would deprive petitioners of the chance to cross-examine the witnesses on whom respondent would rely for this issue, and (3) granting the motion would deprive petitioners of the opportunity to include this issue in their (already concluded) briefing of the case.” Order, at p. 3.

OK, the failure of IRS to put in the Boss Hoss on the trial is their misstep, not induced by Dan & Chris, let alone that Obliging Jurist Judge David Gustafson. So maybe IRS shouldn’t be allowed to wild card the Boss Hoss in so long after trial ended and briefing was finished.

But not in Judge David Gustafson’s courtroom.

“However, this is a case in which great latitude as to supplementing the trial record has been granted to petitioners. They have been twice allowed to supplement the trial record with additional evidence–and that, after having requested and having received two continuances of trial. In such a case, it seems inappropriate now to discover a new rigor that will be enforced only against respondent. Rather, in this circumstance we think that an even-handed approach is best obtained by allowing respondent to submit additional evidence.

“However, we acknowledge petitioners’ desire to be allowed to cross examine respondent’s witness(es). For example, section 6751(b)(1) requires approval by the determining individual’s ‘immediate supervisor’, whereas the ‘Civil Penalty Approval Form’ that respondent proffers bears a signature by a ‘Group Manager’, who might or (for all we can tell) might not be the immediate supervisor of the examiner who made the initial determination. Therefore, we will hold a supplemental trial session, at which petitioners will be able to explore this issue (unless it is resolved to their satisfaction before that session). We also acknowledge petitioners’ reasonable request to brief this issue; and at the conclusion of the session, we will set a schedule for doing so.” Order, at p.4.

In the meantime guys, play nice, stip it all out and save Judge David Gustafson from holding a post-trial trial.

But I can’t say Dan & Chris are wrong in wanting to scope out the Boss Hoss thoroughly. See my blogpost “Robosigner?” 12/23/16.

The stock market version may yield cash and a gain, but the real estate version never does, only a gain with no cash. This is the story of Karl F. Simonsen and Christina M. Simonsen, 150 T. C. 8, filed 3/14/18, and it’s a tale told many times.

For those recently arrived from other planets, Judge Holmes explains in one of his footnotes.

“In a short sale of real property, ‘the borrower sells the home to a third party for an amount that falls short of the outstanding loan balance; the lender agrees to release its lien on the property to facilitate the sale; and the borrower agrees to give all the proceeds to the lender.’” 150 T. C. 8, at p. 2 footnote 1 (Citation omitted).

Karl and Chris bought their house just before the meltdown. They converted to business use (rental), but the rent couldn’t cover the debt service. They finally unloaded for a six-figure loss, and the lender gave them a 1099-C at no extra charge.

Karl and Chris claimed the loss, plus COI wiped out by now-expired Section 108(a)(1)(E). IRS says it’s all one deal, and COI is additional gain on the sale.

The caselaw and Judge Holmes agree with IRS.

“We think the key point here is the complete dependence of Wells Fargo’s willingness to cancel the debt on the Simonsens’ willingness to turn over the proceeds from the sale of their home.  The Commissioner’s view is consistent with the obvious realities of the transaction–that Wells Fargo had to reconvey the deed of trust for the sale to close, and that it would’ve been able to dictate the terms of the sale as long as it retained the deed of trust.  Because Wells Fargo couldn’t collect on the debt once it reconveyed the deed of trust–it was nonrecourse debt after all–the debt forgiveness occurred when the sale closed.  There was but one transaction.” 150 T. C. 8, at pp. 17-18.

Now if Karl and Chris were still liable to Wells Fargo after the short sale, then there was no cancellation of debt. But under CA law, Wells Fargo couldn’t go after Karl and Chris once they handed over all the proceeds of sale.

So Karl and Chris got discharged from the Wells Fargo debt, and that was the consideration from the short sale.

“Because the Simonsens’ home loan was nonrecourse debt, the amount realized on its sale includes the discharged debt.  They received no consideration in addition to Wells Fargo’s forgiveness cancelling that loan balance….” 150 T. C. 8, at pp. 21-22.

OK, that’s amount realized. But in a sale we need to figure basis. That’s cost plus improvements. Judge Holmes credits Karl and Chris with some, but not enough to upset his analysis. For numbers, note that Karl and Chris paid $695,000 for the house, but stiped with IRS that at conversion from residential to commercial FMV was $495,000.

As Judge Holmes would say, now pay attention. This is why we love this stuff.

“The Simonsens realized $555,960 [the balance of the Wells Fargo loan], which falls between the basis we would use to calculate a loss ($495,000) [per Reg. 1.165-9(b)(2)] and the basis we would use to calculate a gain ($695,000)[same: difference between existing basis at conversion to commercial use or FMV at that date].  In other words, the regulations tell us to use a basis in calculating a loss that would result in a gain (because $555,960 is greater than $495,000); but they also tell us to use a basis in calculating a gain that would result in a loss (because $555,960 is less than $695,000).

“This is the kind of conundrum only tax lawyers love.  And it is not one we’ve been able to find anywhere in any case that involves a short sale of a house or any other asset for that matter.  The closest analogy we can find is to what happens to bases in property that one person gives to another.  The Code tells us that the person receiving a gift generally takes the donor’s basis in the gift as his own.  Sec. 1015(a).  But what if such a gift has a value lower than that basis when it is given?  The answer that the Code and regulations give us for gifts is that the donee uses the lower fair market value to compute a loss but the donor’s basis to compute a gain.  Id.; sec. 1.1015-1(a)(1), Income Tax Regs.  So far, so similar to the Simonsens’ situation.  But what to do when a donee sells the gift at a price between these two possible bases?  The regulations on gifts tell us:  Section 1.1015-1(a)(2), Income Tax Regs., provides that there’s no gain or loss.  ‘The no gain or loss answer derives from a conceptual vacuum when the asset is sold for an amount less than its gain basis and more than its loss basis.’  1 Arthur B. Willis et al., Partnership Taxation 4-73, para. 4.03[2][c] (8th ed. 2017) (discussing the same odd result that must occur under section 1.165-9(b)(2), Income Tax Regs.).” 150 T. C. 8, at pp. 23-24.

Talk about Reverse Judicial Backflips! This is a Double Judicio-Legislative Back Jacknife.

But it all ends up where IRS wanted it. In another footnote.

“Our holding that the Simonsens realized neither a gain nor a loss on the short sale differs from the Commissioner’s argument on brief–that the Simonsens should’ve reported a gain.  But the notice of deficiency itself disallowed the purported loss from the short sale that the Simonsens reported on their return. Because we agree that the Simonsens didn’t realize a deductible loss on the short sale, the amount of the tax understatement in the notice of deficiency stands.” 150 T. C. 8, at p. 26.

Unable to resist yet another silt-stir, Judge Holmes finds IRS blew the Boss Hoss Section 6751(b) sign-off. But there was substantial understatement.

Now for good faith. Karl and Chris got both the 1099-C from Wells Fargo for the cancelled mortgage debt, and a 1099-S (Proceeds From Real Estate Transaction) from the CA escrowee. Together they summed up the short sale. But the 1099-C made reference to the Section 121 exclusion, which Judge Holmes bypasses by means of the no-gain-or-loss gift sale mambo. The various forms and publications from IRS are still more confusing. And “Christina is not trained in tax law–she is a lawyer but had the misfortune of not taking even Intro Tax in law school.” 150 T. C. 8, at p. 5.

“We therefore find that the Simonsens’ …reporting errors were the result of an honest misunderstanding of the law that was reasonable considering their lack of tax knowledge, the complexity of the issues, and the information returns that they received.  And we are convinced, based in large part on Christina’s honest and believable testimony, that the Simonsens acted in good faith.  Even if the Commissioner had met his burden of production, we would find that the Simonsens had met their burden of proof in refuting the penalty.” 150 T.C. 8, at pp. 29-30.

Finally, “We will not penalize taxpayers for mistakes of law in a complicated subject area that lacks clear guidance, see Everson v. United States, 108 F.3d 234, 238 (9th Cir. 1997); Van Wyk v. Commissioner, 113 T.C. 440, 449 (1999), especially when their bank dangled a red herring of a Form 1099-C in front of them.” 150 T. C. 8, at p. 29.

Judge, I’m no fan of Wells Fargo (for reasons I won’t discuss here), but Wells was obligated to issue a 1099-C, and the form is IRS’, not theirs.

OK, I’m not saying that I would have gotten the right answer…assuming that Karl and Chris don’t appeal and 9 Cir doesn’t make hash of your analysis. Possibly not even my learned colleague Peter Reilly, CPA, would reach this conclusion.

But I find it incomprehensible that a person can be admitted to the practice of law in the U. S. of A. in the Third Millennium without having taken a basic course in Federal income taxation. This is the single area of the law that impacts every citizen, every resident (legal or not), and even every sojourner in this country.  In my young day on The Hill Far Above, basic income taxation was a required course.

No, not Bonnie Prince Charlie. And this being a non-political blog, firearms are not a topic of conversation. At any rate, not here.

Today’s forty-five is the forty-five days within which the American Association of Historic Preservation (AAHP), a bona fide 501(c)(3) protector, preserver and defender of historic façades, had to approve or reject (within the “secretary’s standards,” whatever those might have been) any alteration to the Tremaine building on Prospect Avenue in colorful downtown Cleveland, OH, after which the Tremaine property was a free-fire zone for Hoffman Properties II, L.P, Five M Acq I, LLC, Tax Matters Partner, Docket No. 14130-15, filed 3/14/18. Hoffman had the usual historic façade easement ploy.

This is a reconsideration motion, based on an order from last July. I never blogged it because it was another “no joy forever.” And Judge Nega sticks to the story.

Hoffman claims that even if AAHP blows the forty-five day cutoff, the OH AG or the public generally can sue. But that doesn’t satisfy the joy-forever. “None of the Ohio law cited by Hoffman, however, states that the Ohio Attorney General’s exercise of such powers imbue him with any greater right or dominion over a charitable interest, or property, than otherwise possessed by the erstwhile ineffective charitable organization. Thus, it is unclear why Hoffman believes that a hypothetical ‘enforcement’ of the agreement by the Ohio Attorney General would somehow alter the scope and applicability of the legal and equitable rights granted through the agreement’s terms.” Order, at p. 9. The OH AG gets no greater rights than AAHP had.

And if Hoffman wants to argue the AG’s cy pres rights to modify charitable agreements to promote the common good, it’s too late to raise it after losing summary J.

Hoffman tries to wild-card in a statement made under penalty of perjury that AAHP is a qualified 501(c)(3), which Section 170(h)(4)(B) requires, even though no one disputes that AAHP is so qualified.

Except the “sworn statement” is the notarial acknowledgement (commonly miscalled a “notarization”) on the easement agreement. But that doesn’t mean that the party signing the document is swearing to the truth of its contents or affirming same under penalty of perjury, only saying they signed it.

Judge Nega: “…there is no need for a notary to administer any oath, or to attest that the representations of the donor-taxpayer and donee were made thereunder. Presumably, should parties wish to comply with the sworn statement requirement by proffering a written declaration made under oath and notarized accordingly, such an affidavit may very well satisfy section 170(h)(4)(B)(ii). Hoffman, however, has neither alleged that the agreement was prepared and signed under oath, nor has Hoffman attempted to argue that any of the notaries’ declarations and seals affixed to the agreement purport to testify as much.” Order, at p. 11 (Footnote omitted, but read it; it’s the standard “he says he signed it” acknowledgement, not the jurat “sworn-to-before-me,” and that makes all the difference).

Takeaway- Boilerplate and routine can be hazardous to your clients’ tax health. And your general health.

Who Is Glad That TEFRA Is Gone

I am prepared to wager a few bobs that some if not all Tax Court Judges will be glad when the last of the TEFRA dinosaurs waddles to oblivion.

But it’s a long, slow waddle for Judge Mark V. Holmes, as he hunts down Ernie Ryder and his sixteen (count ‘em, sixteen, and they aren’t sweet) dodger cases. Same opinion for everyone of these designated hitters, so here’s Ernest S. Ryder & Associates, Inc., APLC, et al., Docket No. 14619-10, filed 3/13/18.

I’ve blogged Ernie’s adventures and misadventures before.

It turns out that the fight is what is a partnership item (needing FPAA and audit) or nonpartnership (no need for TEFRA activity) is irrelevant here.

Judge Holmes: “The primary issues the parties address are whether funds that passed from a C corporation through partnerships are constructive dividends or otherwise income to the Ryders, whether the Ryders have sufficient basis in those partnerships to take flow-through losses, and whether certain losses were from passive activities and could therefore only offset passive income. The Commissioner says these issues either aren’t partnership items or the relevant entities aren’t subject to TEFRA for the years at issue.” Order, at p. 1.

Judge, please don’t call a Statutory Notice of Deficiency a “NOD.” The term “NOD” is reserved for Notice of Determination, as in a CDP, a worker classification (IC or EE), a stand-alone innocent spouse, or a 501(c)(3) revocation.

Ernie was running cash from a C Corp through a bevy of partnerships, and having the cash applied to his personal benefit. Ernie claims IRS is trying to treat the partnerships as shams, and that’s a partnership-level determination, so TEFRA applies.

“But these things are irrelevant to the question of whether funds leaving a C corporation were income to Ryder. See Watkins v. Commissioner, 108 T.C.M. 337, 340 (2014) (where Commissioner agreed partnerships not shams and partnership distributions didn’t go directly to petitioners, ‘[t]he fact that the funds may have at some point come from a distribution from [a partnership] does not make the petitioners’ alleged use of the funds for personal gain necessarily a partnership item’).” Order, at p. 2.

Watkins was the asbestos-remover with the tiered LLCs that came unglued. For the backstory, see my blogpost “Substance Over Form,” 2/11/11. The 2014 T. C. Memo. Judge Holmes quotes was a follow-up.

So TEFRA is irrelevant. But IRS is rather farblungeit (please pardon technical term) as to which of Ernie’s multifarious partnerships is or is not a partnership subject to TEFRA. IRS’ counsel’s record-building isn’t of the best.

But even as to the partnership IRS concedes is a TEFRA partnership, IRS accepted the relevant year’s return as filed, so no audit, no partnership-level proceeding, and all items are strictly partner items, and Judge Holmes has jurisdiction. Remember, no FPAA, no partnership audit, no TEFRA.

Ernie does win on the claim that IRS can’t litigate in this proceeding whether his car outfit was operated for profit in the relevant years. That’s a TEFRA issue. But whether Ernie can take losses from that business for those years is something else. Even if the car thing was for profit, has Ernie sufficient basis and is he subject to the passive loss rules?

After all, this is a motion in limine and to dismiss for lack of jurisdiction, essentially the same thing. But as Judge Holmes finds he has jurisdiction, I eagerly await the opnion.

Judge James S. (“Big Jim”) Halpern casts a wide net when dealing with the wrinkled skin of our tax law. And when a new legal planet swims into his ken, he invites others to share, and bids the parties involved look at each other with a wild surmise. Thus today’s designated hitter, Brian H. McClane, Docket No. 20317-13K, filed 3/13/18.

But Judge Big Jim is a fair man. “We recognize that petitioner, as a pro se taxpayer, may have difficulty addressing the legal questions that we would like covered by the parties’ supplemental briefs. And the amount at stake does not appear to justify the hiring of private counsel. Petitioner may be able to obtain assistance in preparing his supplemental brief on a pro bono basis from a low income taxpayer clinic (LITC) in his locale.” Order, at p. 5. And he gives Brian H. a list of the local LITCs.

Clearly, the supplemental briefing Judge Big Jim wants is not for amateurs.

To begin with, Brian H. claims he never got the SNOD for the year at issue, but since IRS allows him greater deductions than he claimed and agrees he overpaid, it’s all moot except for Brian H.’s claim he should get a refund. And even though not pled, the issue is deemed tried by consent (Rule 41(b)(1))

Unfortunately, the year at issue was nine years ago.

Notwithstanding anything otherwise or to the contrary contained in the foregoing sentence (as my high-priced colleagues would say), Judge Big Jim delivers himself of the following.

“We view section 6330(d)(1) as the principal (if not sole) basis for our jurisdiction in this case. That section allows us to consider a taxpayer’s appeal of a determination made by the Internal Revenue Service Appeals office. Our authority under that section would thus appear to be limited to matters within the scope of Appeals’ determination. We thus can decline to uphold Appeals’ determination to sustain the NFTL in regard to petitioner’s 2008 taxable year. Whether section 6330(d)(1) allows us to go further and determine that respondent’s Appeals office erred in not ordering a refund to petitioner of any portion of the tax he previously paid for that year may turn on whether Appeals had the authority to take that action. Appeals cannot have erred in failing to do something that it lacked the authority to do. Thus, we expect petitioner to advise us of whether he views our ability to order the refund he seeks as within the jurisdiction granted to us by section 6330(d)(1) and, if so, what analysis or authorities support that view. If respondent’s position is that our jurisdiction under section 6330(d)(1) does not allow us to order the refund of an overpayment because his Appeals office had no authority to do so, we expect him to provide us with relevant documentation regarding the scope of Appeals’ authority.” Order, at pp. 2-3.

Of course Tax Court can order a refund in a deficiency case, if the strictures of Section 6511(a) are met. But this isn’t a deficiency case, and nine years is a wee bit too long for a Section 6511(a) lookback.

“Does petitioner claim that respondent’s issuance of the NFTL, or any other event that occurred as part of this CDP case, suspended the running of the period of limitations provided in section 6511(a)? If so, on what authority does petitioner rely? Alternatively, does petitioner claim that he took action prior to the expiration of the period of limitations to preserve his ability to claim a refund of any overpayment he might have made for 2008? If so, what was that action? If respondent’s issuance of the NFTL did not affect petitioner’s ability to pursue a refund claim that has since become time-barred, he has no apparent grounds for complaint about our inability to entertain a belated refund claim as part of the present case.” Order, at p. 5.

So IRS may have started collection, and put the year at issue in play, but does that toll SOL? What says IRS?

There’s more, but I will let y’all read it.

I can only commend Judge Big Jim for sending Brian H. to a LITC. I doubt Brian H. is prepared to deal with Judge Big Jim’s conundrums on his own.