Judge Mark V. Holmes claims Tax Court has gone back to Ancient Rome, but fortunately the gang at 400 Second Street, NW, is a lot “more collegial.”

To begin with, four years ago Judge Chiechi left in play the excess Roth IRA contributions of Celia Mazzei, 150 T. C. 7, filed 3/5/18. Income tax was off the table, due to SOL.

For the backstory, see my blogpost “Foolish Consistency – Redivivus,” 4/1/14.

Well, today ex-Ch J Michael B (“Iron Mike”) Thornton doesn’t need a dictionary chomp, because the tax benefits from Celia’s and famiglia’s Foreign Sales Corporation (a now-defunct export subsidy via Congressional largesse) are for income tax, not for the 6% overfunding Section 4973 hit.

The Great Dissenter, a/k/a The Judge Who Writes Like a Human Being, Master Silt-Stirrer and Suetonius Scholar, Judge Mark V. Holmes, says ex-Ch J Iron Mike ignores 6 Cir precedent (though Mazzei is 9 Cir bound), and acts like Caligula. 150 T. C. 7, at p. 77. If Congress carelessly gave away the ranch twice, it’s not Tax Court’s job to remedy same.

The FSC was properly set up, even if Celia and famiglia bought shares for a buck a pop and got better than half-a-million funneled into their Roth IRAs. Celia’s reliance on her CPA of 29 years’ standing was justified. But Celia and family controlled both the FSC and their own C Corp who paid the commissions to the FSC when, how, and in what amounts they wished.

While the FSC legislation made this OK, and exempted same from Section 482 reshuffling, that was for income tax, says the majority. And the majority does the usual form-over-substance. The only party with any economic risk was Celia and famiglia. They were on all asides of the deal, and while that may be OK for income tax purposes, it was too great stretch to cover Roth IRA funding limits.

The Great Dissenter says the majority could wreck many small corporations, capitalized for pennies, which later made millions. No, says ex-Ch J Iron Mike.

“The dissent’s hypothetical scenario would not involve a mismatch between substance and form.  At the initial point of capitalization, the fair market value and the substantive economic value would be identical and equal to the capital investment.  As the day-to-day operations commenced, that initial value would begin to change in concert with changing expectations regarding future cashflows.  The fair market value and the substantive economic value of the stock would remain identical, whether the business was a success or not.  Petitioners’ situation is different because at the moment of purchase petitioners’ formal characterization of the purchase did not match the underlying substantive and related-party economics.” 150 T. C. 7, at p. 66 (Footnote omitted).

I agree with ex-Ch J Iron Mike. Celia and famiglia were doing a double-dip, and the statute upon which they relied gave them only a single dip.

The Great Dissenter again went too far. See my blogpost so entitled, 2/11/13.

It’s a standard football tactic, to overwhelm a defender by dispatching a large number of attackers into the area the defender seeks to protect. IRS seems to think the tactic goes better with Coke, so they try it in The Coca-Cola Company and Subsidiaries, Docket No. 31183-15, filed 3/5/18.

And this is just one of four (count ‘em, four) discovery face-offs on the Tax Court order board today; the remainder have to do with expert witnesses and their limitations.

The Cokers’ gripe is that IRS is trying to flood the zone.

The Cokers claim “…that respondent’s listing of trial exhibits is excessively voluminous and includes many items that respondent could not possibly intend to use at trial. As directed by the Court, respondent timely responded to this motion…. In that filing respondent states: ‘If petitioner’s concern is to avoid surprise and shorten trial time, a timely exchange of documents used to question witnesses is a practical solution.’” Order, at p. 1.

Judge Lauber has a useful suggestion. “The Court favors a requirement that each party must (absent exceptional or unexpected circumstances) provide to the other party, at least one week in advance of calling a particular witness: (1) the identity of that witness and (2) identification of all documents that the party expects to use on direct examination of that witness.” Order, at p. 1.

The parties are to discuss this at trial opening. Of course, this order is dated March 1, but since the Nor’easter last week it only gets published today. And today is the day when trial opens.

Good luck, guys.

Our Nation’s Capital, s/a/k/a The Swamp, is being slammed by the cyclobomb, wherefore teletubby is the order of the day. My e-mail is out because aol.com has been down for hours, so I can’t even teletubby. And my tolerance for cutesy names for weather events, as well as statutes, is at an all-time low.

So with only four (count ‘em, four) orders, and no opinions, out of The Glasshouse today, I was going to shut up and shut down, and go have a tassie or two with my old chum Fred.

But Ch J L Paige (“Iron Fist”) Marvel absolved me from my vow of silence. Unhappily, that’s not good news for Roger W. Guge & Susan A. Guge, Docket No. 25443-17L, filed 3/2/18.

Rog & Sue really have a sad tale. Rog & Sue got a notice of decision in their equivalent hearing, and petition. A year earlier, they had sent in Letter 12153, asking for a CDP, but at that point no NITL or NFTL had been issued. When they got the CP90, which gave them a chance to send in a new 12153, they sent in the old one.

“Petitioners contended that they had been improperly denied a Collection Due Process (CDP) hearing under section 6330(d)(1), I.R.C., through operation of constitutionally inadequate IRS notice procedures. They argued that the February 13, 2017, Notice CP90 did not sufficiently advise that an already submitted Form 12153 would be ineffective to serve as a timely request. (In that connection, petitioners also offered copy of an email in support of a claim that they re-sent the November 2016 Form 12153 to IRS in December 2016 as well.) Petitioners further stressed that they were not disabused of such misunderstanding until too late to respond in a timely manner. Specifically, they attached an IRS Letter 4473C, dated March 13, 2017, stating that they were not entitled to a CDP at that time on the basis of the earlier Form 12153, because that IRS had not yet issued an underlying notice of lien filing or intent to levy when it was submitted. Petitioners highlighted that the period for filing a timely Form 12153 expired on March 15, 2017, only two days after the date of the Letter 4473C.” Order, at p. 3.

Talk about being scrod, if I may use the pluperfect subjunctive.  Another little game from IRS’ cubby of dirty tricks.

“Unfortunately, despite the sympathetic nature of petitioners’ circumstances, the bona fides of their extensive efforts, and the facial appeal of their arguments, the potential efficacy of a premature Form 12153 has been thoroughly considered and rejected by this Court. In Andre v. Commissioner, 127 T.C. 68 (2006), the taxpayers’ attempts to rely on a Form 12153 that predated the underlying notice of intent to levy were held unavailing. Petitioners regrettably fall into the same situation here, and the Court is convinced that the reasoning in Andre v. Commissioner, 127 T.C. at 70-74, remains valid.

And to top it off, Sue’s name is misspelled as “Gage,” Order, at p. 1.

The “People’s Court,” the sixty-buck-ticket-to-justice, right? Yeah, roger that.

For those looking forward to the next USTCP exam, there’s a detailed look at some of the anfractuosities of the hearsay exclusion and its convoluted variations and exceptions today, as Judge Holmes reviews FRE Art VIII in Estate of Michael J. Jackson, Deceased, John G. Branca, Co-Executor and John McClain, Co-Executor, Docket No. 17152-13, filed 3/1/18.

Though the case was tried a year ago, there’s still post-trial briefing going on, and there’s a pickle-barrel full of exhibits (57, to be precise), where the parties have reservations as to admissibility, both as to the truth thereof and relevance.

I suggest the serious student read the order, side by side with the Rules cited by Judge Holmes. Some of this might just be on the exam.

Neither treaties with, or enactments by, the US of A (like the General Allotment Act of 1887, the Canandaigua Treaty of 1794, and the Treaty of 1842), nor the Two Wampum Belt from the 17th Century treaty with the Dutch, rescue Alice Perkins and Fredrick Perkins, 150 T. C. 6, filed 3/1/18, from income tax on the gravel they sold, even though Alice, an enrolled member of the Seneca Nation, extracted the gravel from the lands of the Seneca Nation with permission therefrom.

Alice and Fred are jousting with IRS in USDCWDNY, and doing OK in said Court, having stalled IRS’ attempted toss in a refund case.

But today Judge Holmes, who seems to specialize in Western New York cases, relishes the chance to second-guess USDCWDNY. He interprets the Canandaigua treaty to limit the exemption from tax to products of land allocated to individual member of the Nation in trust. Alice admits that the gravel came from common lands of the Nation.

Now when interpreting treaties between the US of A and the Indians (I use the term as the Court uses it; “Much of the literature in this area refers to ‘Indian law’ and ‘Indian treaties’ and the like, however; so to maintain some continuity with this legal-historical past, we will use the traditional nomenclature….” 150 T. C. 6, at p. 2, footnote 1), “(T)he normal maxims–cited almost every day our Court releases opinions–that deductions ‘are a matter of legislative grace,’ and that exemptions from tax are strictly construed are displaced a bit when Indians are involved.  We construe treaties and statutes in favor of Indians because courts have viewed Indians as being in a more vulnerable position in relation to the United States government.” 150 T. C. 6, at p. 7 (Citations omitted).

But that doesn’t help Alice and Fred. The General Allotment Act of 1887 means allocated to specific individuals. The Treaty of 1842 doesn’t exempt individuals, only the Seneca Nation as a whole and its allied members of the Iroquois Confederacy. It’s a non-alienation treaty, that prevents the lands of the Nation and its allies from being taken.

And the famous Two-Wampum Belt, which is two-parallel rows of contrasting colored shells, is insufficient to confer tax exemption. It means “peaceful coexistence” to Judge Holmes, but the Indian Citizenship Act of 1924 makes Alice and her fellow-Nationals US citizens, just like the rest of us, and subject to tax unless exempted.

Alice didn’t mine and sell the gravel for the benefit of the Nation, but only for herself (and Fred). Art. 9 of the 1842 Treaty pledges the US of A to prevent lands of the Nations and allies from being taxed by New York State (and New York State knows how to tax; I’ll say!). New York State was hot to tax the Nations and allies for roads in 1842. Some things never change.

It’s unnecessary to distinguish between gravel as realty or non-realty, because it was detached when sold. In any case, the 1842 Treaty only exempts the lands of the Nation from real estate taxes.

But see Judges Lauber and Pugh concurring, and especially Ch J-in-waiting Foley’s dissent. Judge Holmes shouldn’t play with gravel. Just stick to treaties and wampum.

As for chops, they’re off the table, as it’s another Fifty Shades of Graev, with IRS once more playing the Michael Corleone gambit.

Judges Vasquez, Morrison, Buch, and Nega are down with this.

Judges Lauber and Pugh, agreeing with the result, take issue about the gravel. Ch J-in-waiting Foley (I’m still taking applications for soubriquet) raises the very valid point about products taken from the land being part of the land. USDCWDNY went off on whether the gravel was real property, which would somehow take Alice out from all the other cases that taxed salaries, wages, royalties, rental income and unearthly stuff.

Judges Lauber and Pugh don’t want to go anywhere near the gravel or the land. “Unlike the opinion of the Court, we would not reach the issue of whether gravel constitutes real property.  Instead, we would grant summary judgment for respondent because article 9 of the 1842 Treaty conferred rights on the Seneca Nation, not its constituent members, and because immunity from Federal taxation was not among the rights conferred.” 150 T. C. 6, at p. 28.

Ch J Marvel, and Judges Gale, Thornton, Goeke, Gustafson, Paris, Kerrigan, and Ashford agree with this opinion concurring in part and concurring in the result.

Ch J-in-waiting Foley dissents, saying land is dirt. And it isn’t as simple as Judge Holmes thinks it is.

“The opinion of the Court concludes that gravel mined from Indian land is not part of Indian land, reasoning that ‘[t]he gravel wasn’t attached to the land when it was sold, so the Perkinses aren’t exempt from tax on the sale of the gravel under the 1842 Treaty.’  See op. Ct. p. 18.  More convincingly, the United States District Court for the Western District of New York stated that ‘[g]iven the liberal principles of treaty construction that apply here, there is no reason to believe that one rule would apply to taxing the dirt, gravel, and foliage that make up the property and another to the property itself–if ‘the property’ can even be distinguished from the dirt, gravel, and foliage that comprise it.’  The opinion of the Court’s conclusion, see op. Ct. p. 18, that it is not ‘difficult to distinguish real property from the gravel severed from it’ ignores the complexities relating to mineral rights and property law.” 150 T. C. 6, at pp. 29-30 (Citation omitted). I think you meant “op. cit.” Judge, but maybe supra would have done better.

I agree with Ch J-in-waiting Foley. As a dirt lawyer with fifty years in, it isn’t as simple as Judge Holmes would let on. “So affixed to the freehold that it cannot be removed without injury to the freehold” has fed many of my brethren and sistern very well, thank’ee. I remember all the throwdowns about fixtures in leasehold negotiations and litigations, mortgage negotiations, workouts and foreclosures; even in apartment sales, where “built-ins” was a fighting word; and what about cellphone towers, like Frank Dirico in my blogpost “Passive Aggressive – Part Deux,” 11/13/12?

Tell me that mining doesn’t damage the freehold.

Best advice came from Judges Lauber and Pugh: stay away from the dirt.

I’ve often said I’m a great fan of summary J; it smokes out one’s opponent (and the Court), and paves the way for an efficient trial. One tells one’s own story first, and the other side tells theirs. Then, Rashomon-like, the Judge untangles the story, finding out what, if anything, must be fought out at the trial.

Stipulated facts, on the other hand, can be a trap. I know that the darling of the Tax Court’s nursery is the Rule 122 fully-stipulated case. But where one’s whole case depends upon the actions of a nonparty, one ought not to stipulate one’s case away.

Here’s the sad tale of Kevin E. Rushing, 2018 T. C. Memo. 23, filed 2/28/18. The case went from Judge Pugh to Judge Gustafson to Judge Laro.

It’s an SFR for each year at issue, based on third-party reportage and bank records reconstruction. Kev has got a VA 80% disability rating, and claims ex-Mrs Kev made away with all the cash from his real estate rentals, his military pay, and his construction and insurance business, so he never got a dime. Therefore, he never was in receipt of any of the income IRS claims he had.

Except.

The Rule 122 record is a four-page stipulation, which never mentions ex-Mrs Kev or disappearing moneys. Kev argues ex-Mrs. Kev’s depredations on brief, but that’s not evidence, and Kev has burden of proof.

“All that is before the Court is a four-page stipulation of facts (without any corresponding exhibits) establishing that petitioner had received certain income during the tax years at issue, that there were rental checks deposited into petitioner’s bank accounts, and that there were unexplained deposits into the LLC’s bank accounts over which petitioner had signature authority.  While petitioner had sought to introduce as evidence certain exhibits attached to his seriatim reply brief, we held by order that those exhibits were inappropriate for inclusion with the brief and were to be stricken from the record.  One of those exhibits, petitioner’s affidavit, could not have constituted evidence.  See Rule 143(c).  Petitioner’s other exhibits, while supporting some of his statements made on brief, were not timely or appropriate and would not have been dispositive on the issues in contention even were they admissible.

“The core of petitioner’s argument–that his former wife wrongfully gained access to the bank accounts in question and had exclusive dominion over them during the taxable years at issue–is unsupported by any evidence, whether a stipulation or exhibit thereto or other appropriate source.” 2018 T. C. 23, at p. 15.

Judge Laro rounds it out: “Had petitioner timely offered further stipulations of facts, witness testimony, or any other evidence, we would have been able to consider the ways in which such evidence supported his contentions.  In its absence, we can look no further than the facts stipulated by the parties and summarized in this opinion’s background section.  Those facts do not controvert respondent’s determination in the notice of deficiency of petitioner’s tax liabilities.” 2018 T. C. Memo. 23, at p. 16.

Kev was not pro se. I’ll not comment further in that regard, except to say that there but for the grace of you-know-Whom go any of us.

Acknowledgment to a certain tax guru partner in a Big Four accounting firm situated in The Magnolia City for the title of this blogpost.

The Graev reopener has become a major endeavor for IRS and Tax Court, just as Judge Holmes predicted. See my blogpost “Stir, Baby, Stir – That Silt,” 12/20/17.

Laocoön-like, Judge Buch is today enveloped by the toils in a case appealable to 6 Cir, Peter E. Hendrickson & Doreen M. Hendrickson, Docket No. 6863-14, filed 2/27/18.

While no opinions issued from the Glasshouse this date, the designated hitters sure furnished forth the blogger’s table.

Pete & Doreen went to trial last March. Opinion (and order?) are still hanging fire, but the parties did litigate the Section 6663 fraud chop. Only IRS never put in the Section 6751(b) Boss Hoss sign-off.

Now IRS wants the reopener to wild-card the Boss Hoss in.

Judge Buch tells the whole tale.

Pete & Doreen object, because 2 Cir delivered Chai the week before trial, so IRS knew they needed the Boss Hoss. Judge Buch isn’t buying it, because Graev at that point was Golsenized to 2 Cir. Tax Court just loves Golsen.

Pete & Doreen were situated in 6 Cir. And Tax Court wanted to let the other CCAs get a whack at Congress’ miserably-drafted language, ex-Ch J Michael B (“Iron Mike”) Thornton’s dictionary-chaw thereon for the Court, and Judge Gustafson’s evisceration thereof in dissent.

Then came the last iteration of Graev, wherein Tax Court folded, letting the other CCAs deal with the evil thereof whenever, and if ever, it came before them on appeal.

Y’all can read the whole chronology for yourselves,  and decide who’s right.

But for my money, Judge Holmes got it right. And so did the Texas tax guru. Fifty shades of Graev, indeed.

Judge David Gustafson may not have hung around South Street in Philadelphia during the early days of The Twist, but he sure picks up on the words of Cornell Muldrow, Dee Clark and Kal Mann.

And whether or not you can’t sit down, Judge Gustafson takes the cited lyrics literally, and so instructs IRS and Joe Earl York, Docket No. 2122-17, filed 2/27/18.

Joe Earl and IRS put the pedal to the cliché and settled before trial. Judge Gustafson is appropriately commendatory for the hard work and explicit status report reflecting same.

IRS needs more time to craft and draft a decision doc that appropriately reflects the happy result. But alas, IRS asks for more time in its status report aforesaid.

Now all my readers well know this is a faux pas. And Judge Gustafson lays it on IRS in a designated hitter.

“A request for the issuance of an order should ordinarily be stated in a motion. See Rule 50(a) (‘An application to the Court for an order shall be by motion’), and parties should generally avoid putting requests for relief in documents that they file as status reports.

“Filing a motion not only simplifies the matter for the Court (enabling the immediate granting of a motion without the need for preparing an order) but also helps to assure that the Court does not overlook a request. Filing a request as a motion also helps to assure that the requesting party will comply with the requirements for motions, such as Rule 50(a), sent. 2 (‘The motion shall show that prior notice thereof has been given to each other party or counsel for each other party and shall state whether there is any objection to the motion’); respondent’s recent status report does not show such compliance.” Order, at pp. 1-2.

IRS, in Judge Gustafson’s court, notwithstanding the immortal words of Messrs. Muldrow, Clark and Mann above-cited, you can’t “slop, bop, flip flop, hip hop never stop.” Ya gotta move, move, move.

Request denied. Without prejudice.

Edited to add- Judge Gustafson has been down this road before. See my blogpost “We May Never Know,” 11/26/13.

Breathless to discover that Judge Maurice B. Foley will take over from Ch J L Paige (“Iron Fist”) Marvel as capo di tutti capi on June 1.

Of course nominations are open for an appropriate soubriquet for the new Glasshouse Boss.

Sorry, no prize for the winning entry. The paths of glory lead to the usual place.

I’ve blogged before the situation where non-receipt of a Letter 3172 notice of TFRPs allows a challenge at a CDP.  Today Judge Halpern has some SFRs, which gave rise to SNODs, the mailings of which are somewhat less than perfectly documented.

Therefore Rodney P. Walker, 2018 T. C. Memo. 22, filed 2/26/18, gets remanded to Appeals, so IRS can rifle through their files to see what evidence they can muster that Rod got the SNODs.

Both Rod and IRS want summary J. Rod loses his bid, but IRS only gets partial.

“Summary judgment expedites litigation.  It is intended to avoid unnecessary and expensive trials.  It is not, however, a substitute for trial and should not be used to resolve genuine issues of material fact.” 2018 T. C. Memo. 22, at p. 3.

Rod didn’t raise nonreceipt for a couple years (hi, Judge Holmes). so those are off the table, but he did for the rest.

Because of dicey mailing logs and dubious USPS Forms 3877, IRS doesn’t get presumption of regularity of mailing.

“The ‘presumption of regularity in mailing’ is a particular application of the more general ‘presumption of regularity’ (sometimes, presumption of official regularity), which supports the proposition that, in the absence of evidence to the contrary, public officers are presumed to have discharged their duties.  See, e.g., United States v. Ahrens, 530 F.2d 781, 785 (8th Cir. 1976) (‘In our view, the presumption of official regularity controls the question of the validity of the notice of deficiency.  “The presumption of regularity supports the official acts of public officers and, in the absence of clear evidence to the contrary, courts presume that they have properly discharged their official duties.”  United States v. Chem. Found., Inc., 272 U.S. 1, 14-15, * * * (1926).’).  With respect to the mailing of a statutory notice, we have said: ‘[W]here the existence of the notice of deficiency is not disputed, a properly completed Form 3877 by itself is sufficient, absent evidence to the contrary, to establish that the notice was properly mailed to a taxpayer.  * * * More specifically, exact compliance with the Form 3877 mailing procedures raises a presumption of official regularity in favor of respondent.’ Coleman v. Commissioner, 94 T.C. 82, 91 (1990).  The failure of exact compliance with the Form 3877 mailing instructions, however, does not mean that the notice was not mailed; it means only that the evidence of an undisputed notice and a Form 3877 in less than exact compliance do not, even absent evidence to the contrary, establish as a matter of law that the notice was mailed to the taxpayer. As we said in Coleman v. Commissioner, 94 T.C. at 91:  ‘A failure to comply precisely with the Form 3877 mailing procedures may not be fatal if the evidence adduced is otherwise sufficient to prove mailing.’” 2018 T. C. Memo. 22, at p. 19, footnote 6.

But IRS doesn’t have any other evidence. So back to Appeals.