Stephanie Elizabeth Gentry, Docket No. 15580-17S, filed 5/14/18, gets plenty of sympathy from that Obliging Jurist, Judge David Gustafson, but IRS gets the deficiency it claims in this designated hitter off-the-bencher.

Steph merged her art consultancy expenses with her expenses for the boat-chartering business she thought she co-owned with her boyfriend, except she didn’t.

All her records didn’t go back to her parents’ house when she moved onto the boat she was renovating for the business. Instead, they remained on the boat, and were either lost in a “sailboat accident” (Transcript, at p. 11) or when, in the year after the year at issue, “…Ms. Gentry suffered serious burns from a mishap in the boat involving boiling water. She testified — and we assume — that in order to evade liability for her injuries, her boyfriend made false accusations against her, had her evicted from the marina, and obtained a protective order barring her from the boat on which she had been living. At that time she realized that her boyfriend had tricked her into paying expenses for and working in the business and that she did not really own any stake in it.” Transcript, at p. 6.

Howbeit, Judge David Gustafson has a legitimate concern about Steph’s recordkeeping. “…her account is not impossible, but we think it unusual that, when she moved from her studio apartment, she took her records with her onto a boat, not the most stable and secure storage situation — and a boat that she did not even own — rather than including those records with the personal effects that she stored at her parents’ house.” Transcript, at p. 11.

And while Steph tries to reconstruct expenses from her business bank account, expenditures therefrom seem to be personal as well as business. “The deductions include expenses for clothing. Ms. Gentry testified that there was no uniform required for her job, but explained that the employees were required to dress very well. However, the clothes that she bought were evidently not specialized but were suitable for use outside of her work environment – illustrated by the fact that she wore to her trial a pair of shoes for which she had deducted the expense for 2014.” Transcript, at p. 13.

She may have a theft loss claim for the money she paid to her (doubtless by now ex) boyfriend, but that probably only became worthless in a succeeding year to that at issue.

I had thought Judge Mark V. Holmes was cured of disrespecting the partitive genitive. Unhappily, I found this in RB-1 Investment Partners, Eric Reinhart, Tax Matters Partner, 2018 T. C. Memo. 64, filed 5/14/18: “Doug had already left the Navy a couple years earlier….” 2018 T. C. Memo. 64, at p. 3.

As for the substance of the case, it was a Jenkens & Gilchrist son-of-BOSS, without a Section 6751(b) Boss Hoss sign-off but with a 40% substantial undervaluation chop. Plus the usual Section 6662(a) accuracy chop.

The accuracy chop was all that was left to argue about.

Judge Holmes tells a story in a footnote.

“The Commissioner didn’t produce any evidence of his compliance with section 6751(b)(1), see Graev v. Commissioner, 149 T.C.      ,       (slip op. at 1315) (Dec. 20, 2017), supplementing 147 T.C. 460 (2016), which would normally result in a holding that the Commissioner failed to meet his burden of production on the penalty, see, e.g., Ford v. Commissioner, T.C. Memo. 2018-8, at *6.  We recently held, however, that the Commissioner does not bear the burden of production on penalties in TEFRA partnership-level proceedings.  Dynamo Holdings Ltd. P’ship v. Commissioner, 150 T.C.      ,       (slip op. at 21) (May 7, 2018).  That means that the burden of production on this issue fell on Eric, who could have raised lack of compliance with section 6751(b)(1) as a defense to penalties, see id. at  ____    (slip op. at 21-22), but who failed to do that at any stage. The defense is therefore waived.  Id. (citing Petzoldt v. Commissioner, 92 T.C. 661, 683 (1989), and Rule 151).” 2018 T. C. Memo. 64, at p. 19, footnote 15.

For Dynamo and its impact on Graev, see my blogpost “Howdy Partner – Part Deux,” 5/7/18.

The latest statistics I can find show I average about 400 words per blogpost. This means I get whatever info I have into as few words as possible, so the harried practitioner can decide if s/he needs to read any opinion or order before reaching for the hard-earned Grey Goose and Noilly Prat (olive, twist or onion at your discretion).

But if Judge Holmes reopens the war on the partitive genitive, I may have to put back the honorifics.

And that would hurt my average.

Today’s practice tip from Ch J L Paige (“Iron Fist”) Marvel involves neither politics nor history. But as the stipulated decision is a hardy perennial in the Tax Court garden, it behooves the practitioner to know how to deal with the odd erroneous stipdec.

Here’s Harold D. Rawlings & Ulrica A. Rawlings, Docket No. 12184-17, filed 5/11/18.

The end of last month IRS and counsel for Harold & Ulrica stiped out the case. Lo and behold, the numbers were wrong.

What to do?

IRS goes to a Rule 162 revisor, to which counsel for Harold & Ulrica doesn’t object. Revise the stipdec to correct the numbers, and enter accordingly.

Nope, says Ch J Iron Fist.

“…a motion for the Court to revise a stipulated decision pursuant to Rule 162 is procedurally improper. Accordingly, the Court will deny respondent’s motion. At this juncture, however, the Court will permit respondent to file an appropriate motion to vacate the stipulated decision, pursuant to Rule 162, and submit a revised stipulated decision executed by the parties.” Order, at p. 1.

Presumably they’ll get the numbers right this time.

But practitioner, remember. Vacation beats revision when your stipdec gets it wrong.

WordPress.com, the host of this my blog, tells me that, as at this writing, I have made 2,392 posts, which have received 130,027 views from 53,170 visitors, over the last seven (count ‘em) seven years or so that this my blog has been up and running.

Until now, none of my posts has gone unread.

But here’s the one exception, that brings to mind Paul Simon’s magnum opus, which gives me the title for this little essay.

“Knowledge, Skill, Experience, Education or Training,” 5/9/18, received no views. Not one.

Extraordinary.

Mica Ringo is back, again posing conundra for IRS and Tax Court, in Docket No. 29562-12W, filed 5/10/18.

If you’ve forgotten Mica, check out my blogpost “A Hotly Burning Question What Has Swept the Continent – Redivivus,” 7/28/17. Mica features therein, and the questions posed then reverberate now.

Mica and IRS made a joint motion to remand this whistleblower case to Appeals, and IRS files a motion for leave to file a supplement to the joint motion, and the First Supplement.

“Foot fault!” shout my hip readers. “You file your motion for leave, and lodge, not file, your supplement.” Remember, in Tax Court, it’s “mother, may I?”

Ch J L Paige (“Iron Fist”) Marvel jumps on the point, of course, and so gently chides IRS. “Because a motion for leave should be resolved prior to the filing of the supplement, the First Supplement to Motion To Remand should have been lodged rather than filed.” Order, at p. 1.

I bet Ch J Iron Fist can’t wait for the salute-and-march-off at the change of command ceremony at the end of this month, when Ch J-elect Maurice B (“Mighty Mo”) Foley steps forward to play “Mother, may I?”

But there’s a twist.

Mica’s cool with the motion for leave to file the supp, but changed his mind as to the remand.

Lots of good tactical theory here. If the supp helps Mica, let it come in, and let Ch J Iron Fist or her designate decide the case on the present record plus the supp, without the further delay of sending everybody back to Appeals.

Check out Judge Albert G (“Scholar Al”) Lauber’s take in my abovecited blogpost.

On the other hand, if the supp helps Mica, but if IRS needs to refurbish, reconstitute and reupholster the administrative record to keep the supp from sinking them, why give IRS a second swing at the baseball?

And the question of a motion to remand in a whistleblower case is not finally determined. All those I know of were joint motions, so no need for a judge to look behind.

But here one party, having consented, now reneges. Sounds like something ripped from the headlines, huh? Sorry, this is a non-political blog.

So Ch J Iron Fist denies the motion for leave, strikes the supp, and tells the parties to show cause why the joint motion should not be stricken from the record.

Depending upon how Mica and IRS come back, Ch J Iron Fist will let the parties each file what motion they like.

But why show cause why the motion should not be stricken from the record, and not just denied?

In baseball hagiography, the line-up of the 1927 New York Yankees was so-called, although I am told the term originated with the 1918 Boston Red Sox; Babe Ruth was on both teams. ‘Nuff said.

In Tax Court lore, murderers’ row denotes those seventeen or eighteen pages of questions (the number of pages governed by the sadism of the preparers thereof) on the Admission to Practice for Non-Attorneys examination.

This year’s slaughter of the innocents will take place at quarter-past-noon on Thursday, November 8, 2018.

Get those applications in, ladies and gentlemen. You have nothing to lose but your minds.

Here’s the blurb with the skinny: https://www.ustaxcourt.gov/press/050818.pdf

Surely one possessed of one or more of the attributes listed at the head hereof, and listed in FRE 702(a), can definitively lift the burden from CSTJ Lewis (“The Name of Names”) Carluzzo, which IRS and petitioner have laid upon his shoulders in 130 Ionia, LLC, Andrew T. Winkel Trust U/A/D January 30, 2008, Tax Matters Partner, Docket No. 4901-16, filed 5/9/18.

CSTJ Lew: “As characterized by petitioner, the “question is simple; is * * * [the property] listed in the National Register”. The question might be simple to a person with “knowledge, skill, experience, training, or education”, see Fed. R. Evid. 702, with respect to the National Register, but the question is not so simple to allow for a finding based upon judicial notice, see Fed. R. Evid. 201. In the absence of a stipulation, expert opinion might be necessary to resolve the dispute between the parties on the point. So far, neither party has submitted anything that would qualify as such that would conclusively answer the question.” Order, at p. 1.

Well, CSTJ Lew, if the property isn’t so listed, petitioner loses, so don’t wager the ranch that petitioner stipulates to that. And if IRS does so stipulate, they have to try the case rather than win a quick summary J, so that ain’t in the cards neither.

This is obviously another historic easement jumpball, with Section 170(h)(4)(C)(i) front-and-center.

So CSTJ Lew denies IRS “partial” summary J.

I don’t see how it’s “partial” if granting the motion nonsuits the Ionians.

So send in the dudes with knowledge, skill, experience, training or education. Or all thereof. Looks like CSTJ Lew might need it.

Note to my practitioner readers: Finding the answer from one’s desktop isn’t as easy as it looks. The National Parks Service website has some links one might search, but to my aging eyes these look a wee bit less than slam-dunk certain.

The old Philo 101 legend went like this. Bertrand Russell and Alfred North Whitehead were writing their three-volume mathematics text, and the story was logic. Everything was logical. Russell told Whitehead, “It’s all about logic, Alfie. Grant me that two plus two equals five, and I’ll prove to you I’m the King of England.”

Well, today we see that if you stipulate to what isn’t, Bertie may have gotten it right.

Here’s Vincent C. Hamilton and Stephanie Hamilton, 2018 T. C. Memo. 62, filed 5/8/18. They stipulate that, if they were insolvent because son Andy’s bank account shouldn’t be counted as theirs, the $158K forgiveness of the student loan they took out for son Andy was not taxable per Section 108(a)(1)(B). IRS agrees.

Vince and Steph were off the cliché on the loan because Vince hurt his back and was therefore disabled. Vince couldn’t work. But during the year at issue, “…Mr. Hamilton received a $308,105 nontaxable cash distribution relating to his 14.4% interest in a limited liability company.” 2018 T. C. Memo. 62, at p. 2.

Of course, we don’t know what other debts Vince and Steph may have had, and whether any thereof was discharged, on the magic date, the date immediately prior to the date of the forgiveness of the student loan debt.

But Steph, concerned that Vince was spending a wee bit too freely, transferred $323K to Andy’s savings account. Andy gave Steph the magic info so she could tap in periodically for household expenses on-line. What part of the $323K Andy kept is nowhere set forth.

Vince’s and Steph’s CPA said they were insolvent, and prepared their return for the year at issue, which they filed almost two years late.

My hip readers already shouted “Section 6651(a) chop!”

Here’s Ch J-elect Maurice B (“Mighty Mo”) Foley.

“The parties’ stipulations reflect that although the transferred funds were placed in Andrew’s savings account, Mrs. Hamilton was able to freely transfer funds to petitioners’ joint account to pay household bills (i.e., she exercised dominion and control). There is no evidence that Andrew paid any consideration for the funds transferred to his savings account, or that the funds were transferred in anticipation of a lawsuit or a liability. There is, however, sufficient evidence to establish that a close relationship existed between petitioners and their son Andrew, and that petitioners continued to enjoy the benefits of the funds they transferred to Andrew’s savings account. In short, petitioners have failed to establish that Andrew was not their nominee. See Rule 142(a).” 2018 T. C. Memo. 62, at pp. 5-6.

Vince and Steph were therefore in the black to the tune of $60K, so the forgiveness is taxable, and they get the Section 6651(a) late-filing chop at no extra charge. Vince and Steph had no reasonable cause for the delay.

My hip readers aforesaid have doubtless wondered if the CPA aforesaid got Vince and Steph out from under the Section 6662 negligence-accuracy chops.

Nope. IRS dug its own Graev (sorry, guys) when they failed to come up with the Section 6751(b) Boss Hoss sign-off.

Be careful of those major premises.

IRS did win the Boss Hoss TEFRA throwdown.  But when the remainder of Dynamo Holdings Limited Partnership, Dynamo, GP, Inc., Tax Matters Partner, 2018 T. C. Memo. 61, filed 5/7/18, came around, IRS was only able to win the undervalued transfers among related parties.

True, there were big bucks involved, heavy-duty chops and withholding penalties (FIRPTA style), and IRS’ experts prevailed on the low-ball numbers.

But Dynamo, and its buddy Beekman, proved their somewhat unorthodox loan system did create real indebtedness, which was accounted for and paid off. Of course, IRS had no one to challenge Dynamo’s ace CPA, who spent “…thousands of hours analyzing the financial records of Dynamo and Beekman and selected records of Canada Square, each of which maintained separate books.  He prepared schedules of all the transactions recorded by Dynamo and Beekman from 2005 to 2011.” 2018 T. C. Memo. 61, at pp. 14-15.

And when it came to whether a commercial lender would have lent to Dynamo, once again Israel (“Bring Home the Bacon”) Shaked, the hero of my blogpost “The Scottish Play,” 6/19/12, works his magic. Of course, IRS’ expert would better have stayed home. He employed some method known as the KMV-Merton model.

“The KMV-Merton model increases the probability of default over time.  The Court questioned Mr. L on the nature of this assumption in his report.  The Court asked Mr. L whether over a 10-year period, where each year the company had a 2% chance of default, the company would have a 20% chance of default.  Mr. Lucas said that it would.  Yet when the Court asked Mr. L:  ‘If I were to flip a coin twice, do I have a 100 percent chance of getting heads in one of those two flips?’, Mr. L replied ‘No’ and then added that “I may have misresponded to the additive nature of the probability of default’.  Mr. L’s original report was riddled with errors, and his testimony indicated a lack of familiarity with  probabilities, the very subject about which he testified.  After corrections for errors, Mr. L’s report largely supported  petitioners’ position that Dynamo would have been able to borrow from a third party lender.” 2018 T. C. Memo. 61, at pp. 21-22 (Name omitted).

I suppose we taxpayers paid for this dude’s opinion.

Gwen Kestin is back. You remember Gwen from my blogpost “Gustafson on Evidence,” 2/1/18.

Well, IRS gets summary J that Gwen’s amended return was frivolous. But IRS seemed to think when Gwen sent them a photocopy of her frivolous 1040X in response to the Letter 3176 that IRS sent her, that was frivolous return number 2, so IRS zonked Gwen with a second $5K chop. And the chops kept on coming as Gwen and IRS ping-ponged her forms, until Gwen is up to $35K and counting.

So how many chops are on the table?

Ex-PFC Wintergreen, where are you now that we need you?

By the way, the Boss Hoss sign-offs aren’t clear on the Form 8278. But maybe the “presumption of regularity” would solve the problem. So let the parties brief that one.