A Graev Production

No, Larry and Lorna haven’t gone into the movie business, but their collapsed façade has been a gift to the hard-laboring blogger.

And now Judge Buch has the answer to a question that has evoked Graev doubts. Has IRS the burden of production of the Section 6751 Boss Hoss sign-off at a FPAA partnership-level throwdown?

After all, the magic language in Section 7491(c), whereby hangs the cliché in all burden-of-prod chop cases is “…with respect to the liability of any individual for any penalty, addition to tax, or additional amount imposed by this title.” (Emphasis added).

So our old friends Beekman (a C Corp) and Dynamo (a partnership) should’a raised the issue in their petitions as an affirmative defense. They didn’t. Of course, their trial was early last year, before the Great Boss Hoss kerfuffle, which I’ve blogged hither and yon.

Beekman and Dynamo were fuel for the discovery wonks’ campfire in my earlier blogposts, but here it’s the penalties. Judge Buch leaves the undervaluation of the properties exchanged between them for another opinion.

This is a full-dress T. C., Dynamo Holdings Limited Partnership, Dynamo, GP, Inc., Tax Matters Partner, 150 T. C. 10, filed 5/7/18.

IRS wants a reopener; this is SOP post-Graev for pre-Graev trials. IRS flourishes various documents allegedly signed by one or another Boss Hoss who oversaw the labors of the RAs who chopped Dynamo and Beekman. Dynamo and Beekman say these guys weren’t the true Boss Hosses.

First as to the reopener IRS wants.

Judge Buch: “If we conclude that granting a motion to reopen the record would not affect the outcome of the cases, the motion should be denied.  Granting such a motion would be a meaningless gesture if it would not affect the outcome, and it would be a waste of judicial resources.” 150 T. C. 10, at p. 11.

So do the penalties or additions at issue meet the Boss Hoss test?

Judge Buch: “The notice of deficiency issued to Beekman Vista determined for each year an addition to tax under section 6651(a) for failure to file and a penalty under section 6656 for failure to make deposits.  The FPAA issued with respect to Dynamo determined the applicability of an accuracy-related penalty under section 6662(a).  Additions to tax under section 6651 are not subject to the supervisory approval requirement of section 6751.  See sec. 6751(b)(2)(A).  Accordingly, whether there was supervisory approval for the section 6651(a) addition to tax is not an issue we need to consider.” 150 T. C. 10, at pp. 11-12.

Late filing and late paying aren’t judgment calls. Either you did file and pay, or you didn’t. And in any case, the good faith defense is yours.

OK, so now the big question, where we have six (count ‘em, six) lawyers for Dynamo and Beekman, and five (count ‘em, five) lawyers for IRS: does a partnership get the Section 7491(c) ticket to the Section 6751(b) Boss Hoss production?

Beekman is the low-hanging cliché. Tax Court ruled twelve years ago that a corporation isn’t an individual, whatever the Supremes may say about a corporation’s religious views or right to free speech.

So what about Dynamo?

Well, in some cases Tax Court just assumed IRS had met the burden. Sometimes Tax Court didn’t have to decide, because IRS had met the burden and nobody claimed otherwise. But for Dynamo the evidence is apparently inconclusive that IRS met the burden (if it has the burden to begin with).

Judge Buch trudges through the TEFRA mire, and indulges in the obligatory dictionary-chaw.

“Not only do partnership-level proceedings not determine liabilities, but they also are not proceedings with respect to individuals.  See sec. 7491(c).  Partnerships themselves are not individuals.  Sec. 761(a).  The term ‘individual’ is not explicitly defined in the Code.  When a term is not defined, we give it its ordinary meaning.  Black’s Law Dictionary 892 (10th ed. 2014) defines the word ‘individual’ as ‘1. Existing as an indivisible entity. 2. Of, relating to, or involving a single person or thing, as opposed to a group.’ Merriam-Webster’s Collegiate Dictionary 593 (10th ed. 1996) defines ‘individual’ as ‘a particular being or thing as distinguished from a class, species, or collection: [such] as * * * a single human being’.  The ‘single human being’ definition is consistent with the Code.  Section 7701(a)(1) defines a person as ‘an individual, a trust, estate, partnership, association, company or corporation’, making clear that an individual is distinct from any of the other entities on the list.” 150 T. C. 10, at p. 17. (Citations omitted).

And Section 7491(a)(2)(c) deals with the burden in the partnership setting, while Section 7491(c) deals with individuals. But in both cases, the focus is on the proceeding.

Finally, Judge Buch puts down the dictionary and turns to the world as it is.

“The practical effect of applying section 7491(c) in a partnership-level proceeding would be to require the Commissioner and the Court to identify the ultimate taxpaying partners of a partnership to determine who bears the burden of production as to penalties.  In cases with tiered partnership structures the Commissioner and the Court would spend time and resources to identify the ultimate taxpaying partners, something the TEFRA notice provisions are designed to avoid.  See sec. 6223(c).  And in a partnership in which one of the ultimate taxpaying partners is a corporation and another is an individual, the Commissioner would bear the burden of production as to one partner but not the other.  As applied in cases like these, the Court might need to render separate holdings if the Commissioner did not have the burden of production as to one partner but had the burden of production (and failed to meet it) as to another partner.” 150 T. C. 10, at pp. 20-21.

Reopener would change nothing. Beekman never had the right to a Boss Hoss, and Dynamo isn’t an individual.

Now with TEFRA gone, where are we?

Judge Holmes reiterates the wisdom of that great American C. D. Stengel that heads this blogpost in a bunch of designated hitters. I’ll choose Frank W. Dollarhide & Michelle D. Dollarhide, et al., Docket No. 23113-12, filed 5/4/18.

The Dollarhides lost late last year, and decision was entered. And they’re not disputing those numbers.

But the Rule 162 vacation they want is based on some overpayments they claim from 2006, although they didn’t file their 2006 return, wherein they claimed said overpayments, until 2011.

Section 6511(b)(2) says three (count ‘em, three) years for refund claim from date of filing return.

“The Dollarhides claim, however, that they never would have agreed to the stipulation of settled issues if they knew they weren’t going to get that refund. Is that enough?” Order, at p. 2.

Well, let’s see.

“In ruling on Rule 162 motions, we look to Federal Rule of Civil Procedure 60. FRCP Rule 60(b) is the rule that’s applicable here, and the Dollarhides point us to FRCP 60(b)(3) which requires a showing of ‘fraud (whether previously called intrinsic or extrinsic), misrepresentation, or misconduct by an opposing party.’ The fraud or other misconduct that the Dollarhides argue the Commissioner engaged in is not telling them about the legal requirement that they had only three years from the due date of their 2006 tax return to file a claim for refund of any overpayment.” Order, at p. 2 (Citation omitted).

Well, that’s a nonstarter.

As set forth at the head hereof, “you could look it up.” The IRC says what it says. And the text is available in many places for free.

Second, “The Dollarhides do also complain that the only reason that they didn’t file their 2006 tax return within three years of its due date is that the revenue agent examining that year insisted that they submit it to her. The records that they attach to their motion, however, do not show that there was even an ongoing audit of this year for themselves as individuals (in contrast to their corporation, Dollarhide Enterprises, Inc.) within three years of that return’s due date.” Order, at pp. 2-3.

Finally, when the Dollarhides petitioned, they never mentioned the refund, so when the stip of settled issues said it resolved the issues in their case the stip was correct, as the refund question was not on the table at that time.

No vacation.

I don’t get upset about cases that somebody else loses. I may observe from a comfortable distance that an attorney or a pro se (or even a judge) got it wrong. Sometimes my remarks might even show a slight acerbic (not to say sardonic) quality.

But this one is just bad. And I’m not faulting Judge Colvin. Tax Court Judges must follow the law as it is, not the law as they might wish it to be.

But this is not a great start to a weekend.

Robert R. Whiteley, Docket No. 22628-16SL, filed 5/4/18, made a very minor mistake on the 1040 wherein he claimed HOH, a dependent daughter and the education credit in respect of said daughter.

Judge Colvin: “…petitioner correctly reported his daughter’s Social Security number, as he had done in prior years. However, instead of spelling out his daughter’s two middle names as he had done in those years, on his…return petitioner used his daughter’s two middle initials. Because of that difference (abbreviating his daughter’s middle names) respondent disallowed the head of household filing status and disallowed the deduction for a personal exemption for his daughter and the claimed education tax credit.” Order, at p. 1.

OK, so issue a SNOD and let RR and IRS counsel settle it with a phonecall.

Oh no. “The Internal Revenue Service (IRS) notified petitioner that it concluded that petitioner had made mathematical and clerical errors on his 2011 return. What the IRS treated as math and clerical errors included denial of the three tax items discussed above (filing status, a deduction for a personal exemption, and an education credit, all relating to petitioner’s daughter) and also petitioner’s calculation of taxable Social Security benefits and his total income. The IRS recalculated the tax due based on these changes and assessed the tax due pursuant to section 6213(b) without issuing a notice of deficiency. According to Chief Counsel Notice CC-2006-019 (Aug. 18, 2006), petitioner was not provided an opportunity to dispute respondent’s assertion of his tax liability for 2011.” Order, at pp. 1-2 (footnotes omitted).

OK, so when RR gets the NFTL or NITL, he can duke it out at Appeals on a Letter 12153, or if Appeals sustains this abomination and unloads a NOD, petition.

Appeals does and RR does.

Except IRS grabs a refund from another year, says RR owes nothing, and Tax Court has no jurisdiction, Greene-Thepadi and all that, y’know.

Judge Colvin sustains. IRS can grab refunds from one year to satisfy liabilities for another year, and if no tax due (and the 4340 says there isn’t), tough luck, RR. Poor l’il ol’ Tax Court got no jurisdiction to order refunds.

Except. There was no math error. There was at most a minor typographical error, and if you call it a clerical error to avoid working you get the comments I am making here. IRS had all the information they needed to compute RR’s liability, and he manifestly filed a return. And IRS took the path of least resistance.

This is beyond nonsense. If this is what Congress and IRS think is a proper resolution, I am without language to describe this “resolution” otherwise than with language I have but rarely used when not wearing combat boots.

Word to Nina E. (“The Big O”) Olson and her Taxpayer Advocate squad: This one’s for you.

All of us solo and small-firm practitioners live for repeat business. It’s the best kind, to deal with the clients we know well, the operating styles and cast of characters we’ve seen before, and the bond of trust and confidence between us that grew like a coral reef over many years.

Well, today Tax Court has repeat business, but it isn’t the kind about which I waxed lyrical in the immediately preceding paragraph hereinabove set forth, as my already-on-their-second-Grey-Goose G&T colleagues would say.

First is Derringer Trading, LLC, Jetstream Business Limited, Tax Matters Partner, 2018 T. C. Memo. 59, filed 5/3/18, and its companion Marlin Trading, LLC, with the same TMP. And our well-known DAD flogger John E. Rogers is joined by Tax Lawyer Michael D. Hartigan.

I’ve blogged Mr. Rogers extensively, and you’ll remember Tax Lawyer Michael Hartigan from my blogpost “Getting Out of the Neighborhood,” 8/11/17.

So if you’re a stipulation wonk (in which event you have my sincerest condolences), this is your kind of case, as Derringer, Marlin and their members are trying to bail from various stips they made. Judge Goeke cruises through the FRE and considers “unfair prejudice, confusions of issues, or accumulative evidence [that] substantially exceeds the probative value of any stipulation.” 2018 T. C. Memo. 59, at p. 7. None of the foregoing helps out Derringer or Marlin.

If you’re looking for caselaw on Tax Court stips, this is your kind of case.

Next is another repeat customer, come back after a long hiatus. It’s Michael Craig Worsham, n/k/a Michael C. Worsham, Docket No. 26210-16, filed 5/3/18.

I won’t be too hard on the readers who don’t remember Mr. W. He last appeared here almost six (count ‘em, six) years ago. See my blogpost “Pay the Man,” 7/31/12. Mr. W has almost as many degrees as Mr Rogers.

Mr W makes his appearance before Judge Colvin, and shows his old form.

Mr W shows up last month and files a “…Motion to Show Cause for the IRS to Provide Factual Basis for Cost Determinations and a Motion to Determine the Constitutionality of 26 U.S.C. § 6673(a)(1).” Order, at p. 1.

Mr W follows this up with a Motion to Dismiss for Lack of Jurisdiction.

Judge Colvin orders IRS counsel to respond to the whole shootin’ match, but I’m not sure what Mr W is trying to accomplish. Why dismiss your own request for substantiated numbers? And why dismiss your own Constitutional challenge to the Section 6673 frivolity chop?

Of course Tax Court hasn’t jurisdiction to determine the Constitutionality of anything. And given Mr W’s credentials and prior experience with the 400 Second Street, NW, crowd, I’d be surprised f he didn’t know that.

But substantiation of numbers is another story in a deficiency case.

I’m sure all these players will be back again.

No, not the medieval English assize court. This is the conclusion of the 57 (count ‘em, 57) year saga of Shirley Jean Oyer, Docket No. 2555-18, filed 5/2/18.

Shirley Jean petitioned the 57 years from and including 1960 to and including 2017.

IRS can’t find hide nor hair of a SNOD or NOD for any of those years. Wherefore Ch J L Paige (“Iron Fist”) Marvel tosses Shirley Jean for want of jurisdiction.

I’ve commented before that those who file these petitions seem to be seeking sixty-buck plenary indulgences. See my blogpost “I’m Beginning to See the Light,” 4/9/18.

But Ch J Iron Fist is onto that game.

If no jurisdiction, Tax Court can’t decide anything. And IRS has plenty of options when no SNOD or NOD has issued, from refund grabs to enhanced SOL to no SOL to non-assessables to jeopardy assessments.

Might be better to save the sixty bucks.

I’ve noted in the past that the obliging nature of Judge David Gustafson might be contagious; I noted instances where CSTJ Carluzzo, ex-Ch J Thornton and Ch J Marvel each demonstrated an obliging  nature.

Now it’s STJ Daniel A (“Yuda”) Guy’s turn to allow a pro se the benefit of the doubt.

Here’s Merle D. Melvin, 12803-17S, filed 5/1/18.

When Merle D. proffered evidence that he owed nothing, IRS folded.

Merle D. wanted his sixty buck entry fee back. He wasn’t going to sign the decision documents settling the case (which showed he owed nothing).

STJ Yuda told Merle D. he could make a Section 7430 motion for admins, but Merle didn’t take the hint. Merle D. admitted to STJ Yuda “…he had not cooperated with the IRS during the examination process or when the case had been referred to the Appeals Office for consideration. He had only provided the documentation necessary to substantiate the deduction in dispute to respondent’s counsel about one week before the calendar call.” Order, at p. 1.

Merle D. was wise not to try for admins on that record.

IRS’ counsel was perhaps less obliging than STJ Yuda.

“Respondent subsequently made an oral motion for entry of decision, and, in the alternative, an oral motion to dismiss for failure to properly prosecute. Petitioner then left the courtroom and stated that the Court could do what it pleased.” Order, at p. 1.

Comment is superfluous.

But STJ Yuda keeps his cool. “Given petitioner’s conduct outlined above, the Court would be justified in granting respondent’s motion to dismiss. Giving petitioner the benefit of the doubt, however, and assuming that he was simply having a bad day, the Court will deny respondent’s oral motion to dismiss and grant respondent’s oral motion for entry of decision.” Order, at pp. 1-2.

Takeaway- It’s always nice to see judicial gentility. Just don’t push it too far.

The popular advice from the personal finance bloggers is likely a good idea for the wage-earner and the self-employed, but is not the path to a 501(c)(3) approval, as we see today in Abovo Foundation, Inc., 2018 T. C. Memo. 57, filed 4/30/18.

Emmanuel C. Okonkwo. M. D., is a military veteran and board certified expert in patient safety and risk management. He seeks tax exemption for his Texas domestic nonprofit corporation, the petitioner herein. “Abovo’s primary purpose would be to deliver quality management consulting services to medical providers and advance Government programs through patient safety initiatives.  Its quality management services would include ‘defining, identifying, analyzing, measuring and controlling systems and processes to ensure desirable outcomes’.  In addition, Abovo would provide ‘uplifting services for the elderly and veterans’, housing for low-income individuals, and internal auditing services.” 2018 T. C. Memo. 57, at p. 2.

Sounds great, no?

Well, there’s a hitch that brings Abovo down. And here’s my chance to unveil my latest cognomen, after an exhaustive search and review, for Ch J-elect Maurice B (“Mighty Mo”) Foley.

Ch J-elect Mighty Mo: “Abovo would solicit donations and receive fees relating to its services.  Dr. Okonkwo, Abovo’s president, chief executive officer, and sole employee, would perform services provided to clients (i.e., at an hourly rate of $350), receive a $217,000 salary, and be eligible for an annual performance-based bonus (i.e., not to exceed $100,000).  While Abovo has not entered into any service contracts, its fee structure would be market based and dependent on the nature of the project and the expertise required to complete it.” Order, at p. 3.

For those of my readers who shouted out “inure to the benefit,” congratulations.

“Abovo contends and bears the burden of establishing that its services would advance Government programs pursuant to Federal patient safety laws and lessen the Government’s burden.  See Rule 142(a).  To the contrary, Abovo’s services would not serve an exempt purpose, would be commercial in nature, and would serve Dr. Okonkwo’s, rather than the public’s, interest.  The administrative record does not establish that Abovo would act on the Government’s behalf or that Abovo’s consulting services would lessen the Government’s burden. “ 20187 T. C. Memo. 57, at p. 4 (Citations omitted).

“In short, Abovo is a facade for Dr. Okonkwo’s consulting activities.” 2018 T. C. Memo. 57, at p. 4.

If you’re seeking tax-exemption and deductions for contributions, don’t pay yourself first.

STJ Lewis (“Great Name”) Carluzzo echoes the words of the late great Sir George Harrison in a designated hitter off-the-bencher, Glen Tremayne Morgan, Docket No. 7695-17S, filed 4/27/18.

Glen had some looseleaf pages showing his backs-and-forths to the asbestos-removing gigs whereat he worked, wherewith to substantiate his unreimbursed employee mileage deductions.

He had no permanent worksite.

“The distance between petitioner’s residence and the jobsites, according to his notes, varied from 20 miles to 58 miles, with a majority of the jobsites being 50 miles or less from his residence.

“At trial petitioner called the Court’s attention to an IRS publication that addresses deductions for travel to temporary jobsites. The Court treated that document as petitioner’s pretrial memorandum and had it filed as such. That document provides a sufficient explanation of the applicable law and we see no need to repeat that analysis here. All of petitioner’s jobsites were ‘temporary’, but as petitioner’s pretrial memorandum correctly points out, taxpayers such as petitioner, who have no regular place of employment, may only deduct travel expenses to temporary jobsites if the jobsite is outside of the metropolitan area where the taxpayer lives and normally works.” Order, Transcript, at p. 5. (Citations omitted).

STJ Lew buys Glen’s notes, despite IRS throwing some serious shade on Glen’s claim that they were contemporaneous. I don’t suggest trying the looseleaf bit otherwise than in a small-claimer with a truthful-looking petitioner, but Glen gets past the Section 274 traffic stop.

Problem: what is Glen’s metropolitan area? His notes don’t help.

STJ Lew is inventive.

“Taking into account the information shown on petitioner’s notes, we find that travel to jobsites 40 miles or less are within the relevant metropolitan area and petitioner is not entitled to a deduction for travel to those jobsites. More likely than not, some of the jobsites shown to be more than 40 miles from petitioner’s residence would be considered inside the relevant metropolitan area, and some would not. In the absence of specific evidence on the point, we find that petitioner is entitled to a deduction for one-half of those miles.” Order, Transcript, at pp. 7-8.

And IRS’ counsel and Glen can do a Rule 155 beancount, using standard mileage rates.

His Honor Big Julie, better known as His Honor Judge Julian I Jacobs, hereinafter HHBJJJIJ, reaches back for a State Court remedy and finds it in Rule 104(e)(3).

Amnesty National, Docket No. 4570-17, filed 4/26/18, isn’t a first-timer at 400 Second Street, NW, although it’s been years between appearances.

IRS claims the documents it seeks are necessary to prepare a defense for the trial. HHBJJJIJ buys it, especially as Amnesty has been ducking IRS’ counsel.

So here are the sanctions HHBJJJIJ will lay upon Amnesty if the documents aren’t forthcoming: “…the issues to which respondent’s discovery request pertain shall be taken as established in this case as set forth in (and petitioner will be prohibited from offering evidence to rebut the determinations made in) the notice of deficiency issued to petitioner, …the assignments of error set forth in the petition will be struck, and … such other and further relief as the Court deems proper.” Order, at p. 2.

Of course, in the days of my youth such a drastic remedy was rarely if ever imposed in State Court.

No, this is not about yesteryears’ TV performers waxing comfortably stout in the wallet as their ancient epics fill the midnight streamings of the exotic entertainment providers. This is about the residual exception to hearsay in FRE 807.

Now where would one encounter this catch-all? Well, one might guess when a party is trying to wild-card an otherwise inadmissible statement into evidence, hasn’t got anything better, and the judge is leaning toward that party’s case anyway.

And in Tax Court, that has to be the Section 6751(b) Boss Hoss sign-off, the flavor de l’année post-Graev. All manner of Civil Penalty Approval Forms (CPAF) made their appearance in record reopeners, as the silt-stir predicted by Judge Holmes (see my blogpost “Stir, Baby, Stir – That Silt,” 12/20/17) shifts into overdrive with the afterburners cutting in.

Judge Ashford goes off here on Nikta Fatemeh Abdolrahim & Melvin Collins, 9650-14, filed 4/25/18. Each of them and both of them have tax problems, but Mel is looking at some Section 6663 75% fraud chops. And when they tried their cases back in 2015, neither Mel nor Nik nor IRS mentioned Section 6751(b).

But the RA who proposed chopping Mel testified on the trial, although the CPAF, allegedly duly signed by the RA’s immediate supervisor, never made it into the record.

Mel & Nik object that they never got a chance to challenge the CPAF. But they can’t tell Judge Ashford what evidence they would adduce now to challenge it.

Mel “…seemed only to question the authenticity of the Civil Penalty Approval Form, stating that he thought the form was recently signed and that there were undated handwritten notations on it. The form, however, clearly shows that it was signed on October 21, 2013, several months before the January 23, 2014, notice of deficiency was issued to petitioners, and the handwritten notations (which are below the signature and date line of the form) confirm the assertion of the section 6663 penalties and the section 6651 additions to tax for 2009 and 2010. Similar to their written objection, at no point during the [Court’s phoneathon] did petitioners identify any particular testimony they would wish to elicit from either Mr. [RA] or Mr. [Boss Hoss], or suggest any other additional evidence they would like to proffer.” Order, at p. 4. (Names omitted).

So Mel & Nik got enough advance warning to satisfy Judge Ashford that they got sufficient FRE 902(11) heads-up. And though the CPAF stumbles at the FRE 803 barrier, it recovers enough to jump the FRE 807 residual fence.

Read this designated hitter, practitioner. Think carefully: what might you proffer to avoid the chops hitting Mel, when aimed at your clients?