When it comes to TFRPs, Section 6672 echoes the famous Three Musketeers’ motto. IRS can go after all, some or any responsible person. If more than one responsible type is kicking in, the others get credit. And they can fight about who overpaid in a separate lawsuit.

Sheila Woodley, 2017 T. C. Memo. 242, filed 12/6/17 thinks because two other responsible types are paying, she doesn’t have to pay.

Sorry, says Judge Lauber, IRS can mix and match until the trust funds are replenished for the years at issue.

“The IRS has also assessed TFRPs against [Ernie], another former owner of [Sheila’s sandwich shop], for the same trust fund tax liabilities.  During the pendency of petitioner’s CDP case, the IRS has received periodic payments toward [Sheila’s sandwich shop]’s tax liabilities from [Ernie] and/or from [Sheila’s sandwich shop’s purchaser].  For each payment it has received, the IRS has abated a corresponding portion of petitioner’s assessed TFRPs for the relevant tax period.” 2017 T. C. Memo. 242, at p. 6.

Sheila never contested the TFRPs until the CDP, but it was too late.  The Letter 1153 opens the door to Appeals and a dispute as to liability and amount. Sheila didn’t walk in.

Sheila claims the CDP was defective because her case was referred from FL to the USVI, where she resided.

“By virtue of this referral petitioner was able to present her financial information in a face-to-face meeting with a local IRS officer in the USVI. Because petitioner had not previously submitted financial documentation for consideration of a collection alternative, we find that the SO acted properly in making this referral.  Although petitioner asserts that the RO was somehow biased against her, there is no credible evidence to support that assertion.  Indeed, the RO recommended that petitioner be considered for an IA with monthly payments as low as $350.  In any event, there is no evidence that referral of the case to the RO in any way impeded the SO’s impartiality.  The SO, who conducted the actual CDP hearing, had no previous involvement with petitioner’s case.” 2017 T. C. Memo. 242, at pp. 9-10.

And whether the other responsible types paid less than they should is for another day and another court.

“Where multiple individuals have TFRP liability for the same underlying tax, the Code affords a responsible person a claim for contribution against other responsible persons if he or she has paid the IRS more than his or her ‘proportionate share of the penalty.’  Sec. 6672(d).  However, a claim for recovery against other responsible persons cannot be made in ‘an action for collection of such penalty brought by the United States.’  Sec. 6672(d)(1).  Rather, the taxpayer must seek contribution in an action ‘separate and apart from proceedings to collect the penalty brought by the United States.’ Thus, petitioner in this CDP case cannot seek to reduce her liability on the theory that she is being asked to pay more than her proportionate share of … delinquent taxes.” 2017 T. C. Memo. 242, at p. 12, footnote 3. (Citations omitted).

Takeaway- When selling (or buying) a business, sales taxes, franchise taxes, and withholding taxes require close examination of sellers’ records and returns, and careful drafting of instruments. And maybe even holdbacks of purchase price.

We all know Section 7605(b) limits IRS to one go-through of a taxpayer’s books of account per tax year. But IRS changed the numbers four (count ‘em, four) times on Donald J. Planty and Miriam Alvarez, 2017 T. C. Memo. 240, filed 12/5/17 before assessing a fifth number, all in the $2K range.

Then Don and Mim filed a 1040X, which IRS processed, and said they were making no further changes. But, reversing course, IRS decided to treat the 1040X as an audit reconsideration and slugged Don & Mim with a $64K deficiency, up from $2K.

Turns out IRS bounced Don’s & Mim’s $147K real estate losses.

Don & Mim yell it’s a double audit for same year.

Nope, says Judge Halpern.

“Indeed, petitioners have presented no evidence that, in reconsidering his prior examination, respondent inspected petitioners’ books and records.  Nor can petitioners plausibly claim that an examination of the items reported on the Form 1040X was not necessary to evaluate their overpayment claim.  Respondent’s examination undertaken in response to the Form 1040X did not run afoul of section 7605(b).  See Jackson v. Commissioner, T.C. Memo. 1982-556, 44 T.C.M. (CCH) 1213, 1218-1219 (1982).” 2017 T. C. Memo. 240, at pp. 5-6.

And the increased tax shown on the 1040X Don & Mim sent in after the audit started isn’t a “qualified amended return,” per Reg. 1.6664-2(c)(3), so it doesn’t count to reduce the five-and-ten understatement chop.

Don’s & Mim’s tax attorney doesn’t testify, so her advice doesn’t mitigate the chop. And Don’s & Mim’s reliance on their tax preparer for deducting the real estate loss doesn’t help, as they don’t show what their preparer told them.

No second time around.

Takeaway- Sometimes it’s better just to pay the first time.

Even though he doesn’t indulge in head-banging to effect a settlement, I do sometimes feel a twinge of sympathy for Judge Holmes, even enough to forgo the honorifics I usually attach to his name.

He tried this case last June, but IRS says they forgot to put in the Section 6751(b) Boss Hoss sign-offs for the undervaluation and accuracy penalties. Judge Holmes is prepared to grant IRS’ motions to reopen the record to let them in.

It’s another chapter in the Graev-Chai novelette that has produced much blogfodder.

Here’s Kumar Rajagopalan & Susamma Kumar, et al., Docket No. 21394-11, filed 12/5/17. Kum & Sus wanted Judge Holmes to bang heads and settle their 40% chop (or 20% chop if the 40% didn’t fly), but he wouldn’t. See my blogpost “Old-Time Head-Banging,” 6/5/15.

So now that IRS wants to show that yes, they had the Boss Hoss sign-offs in time to assert the chops, Kum & Sus get a chance to whack the piñata.

But Judge Holmes needs Kum & Sus to cut him a wee bit slack.

“…petitioners may file a response to this motion — though a statement that their arguments in opposition are the same here as in the first motion would be welcome if true.” Order, at p. 1.

Translation: “Please don’t make me read this stuff again; have a heart, guys.”

I echo Joe Darion’s lyrics from fifty-plus years ago, although my quest is not that of a chivalrous knight, but rather the humble blogger seeking blogfodder. While it’s premature to assert that any portion of either of the tax reform bills just passed will survive conference untouched, I was alarmed to read that the Section 215 alimony deduction was on the plank-walk list.

Whatever shall I do when the last dead spouse bounce finally works its way to 400 Second Street, NW, the Judge or STJ scuppers the deduction, and the curtain falls?

Well, for the moment the dead spouse bounce is really a side issue, as the Section 1041(a)(2) unrecognizable gain or loss scuppers the deduction for David W. Stapleton and Melinda Stapleton, 2017 T. C. Sum. Op. 87, filed 12/4/17.

Melinda’s just along for the ride. It’s Dave’s story, as he unloads the ranch formerly the property of himself and loved-once, ex-spouse Maureen Stapleton, the established real estate broker.

The parties enter into the usual marital settlement agreement, whereby the ex-couple’s worldly goods were disendowed, and Dave got to unload the horse ranch.

As is almost invariably the case, forced sales are a license to get plundered, and Dave wound up having to sell to Maureen after a couple years (hi, Judge Holmes) of busted deals or no deals at a scrap price.

Dave takes a capital loss that IRS disallows. The tax effect is under $50K, so Dave goes small-claimer and STJ Daniel A. (“Yuda”) Guy is on the case.

“The deed stated that petitioner was transferring the ranch property to her ‘as a part of the distribution of marital property in the dissolution of Case No. 07 DR 320’.” 2017 T. C. Sum. Op. 87, at p. 6. This drafting gem should put any gain or loss squarely within Section 1041(a)(2) “transfer is incident to divorce.”

It does, although STJ Yuda says it doesn’t. How long it takes to effect the transfer is nothing to the point, provided the six-year cutoff in Reg. Section 1.1041-1T(b), Q&A-7, has not yet been reached.

And here, it hasn’t.

“In defining the phrase ‘incident to divorce’ which appears in section 1041(a)(2), Congress adopted the blanket phrase ‘related to the cessation of the marriage’ in section 1041(c)(2). In the absence of a statutory definition of the latter phrase, and consistent with the legislative history quoted above, courts have concluded that the phrase should be broadly construed. See Young v. Commissioner, 240 F.3d 369, 375-376 (4th Cir. 2001), aff’g 113 T.C. 152 (1999); Blatt v. Commissioner, 102 T.C. 77, 79 (1994).

If you give STJ Yuda a chance to construe a statute broadly, he’ll make it broad where a broad should be broad, per Oscar Hammerstein II.

Shrugging off the deed language abovecited (although it has to have carried some weight), STJ Yuda comes down for IRS.

“What is clear on this record is that the division of the couple’s marital property, as prescribed by the [Marital Settlement Agreement], was not complete until the ranch property was sold. As discussed above, both petitioner and Maureen Stapleton had retained significant rights and obligations in respect of the ranch property after their marriage was dissolved. We therefore conclude that petitioner’s sale of the property to Maureen Stapleton was made to effect the division of property that the couple owned at the time of the cessation of their marriage within the meaning of section 1.1041-1T(b), Q&A-7, Temporary Income Tax Regs., supra. Moreover, the sale was ‘related to the cessation of the marriage’ when we construe section 1041(c) broadly in accordance with the legislative history of the provision and this Court’s caselaw.” 2017 T. C. Sum. Op. 87, at p. 16.

And the transfer doesn’t have to satisfy an outstanding marital obligation. It’s like winding up a corporation or dissolving a partnership; distribute or liquidate the assets, turn out the lights and lock up the door.

Hopefully Section 1041 survives. I need all the blogfodder I can get.

IRS is putting Judge Buch through the mill again. This started with Siemer Milling Company; see my blogpost “Come From Away,” 11/3/17.

The “do over” Judge Buch gave the battling millers resulted in some more facts being stiped in, but IRS gets creative with their objections. Here’s Siemer Milling Company, Docket No. 21655-15, filed 12/4/17.

And Judge Buch finally loses patience. “This order closes the Court’s intervention in the stipulation process and denies Siemer Milling’s renewed Motion under Rule 91(f).” Order, at p 1.

IRS has a laundry list of objections, each one given a letter, which IRS strews over the millers’ renewed Rule 91(f) motion.

IRS objects to some documents, without contesting the factual statements therein, and objects to other statements as based on hearsay. No good, says Judge Buch. Are the facts as stated true or not, regardless of provenance or admissibility?

But some of IRS’s objections are well-taken. There are some disputed facts; there are some misstated facts. There are some conclusions of law which are not matters for stipulation.

You can plow through Judge Buch’s analysis your own self, and prepare your own boilerplate Rule 91 motions, or objections to the IRS’, therefrom.

But remember, the “bedrock” of Tax Court discovery is the stipulation of facts. State court jousting, or even Federal Court trips to the magistrate, may be good tactics. But that won’t fly at 400 Second St, NW.

“Although several of the bases for not stipulating to certain facts are well taken, even cursory examination of the annotated proposed stipulation of facts leaves the Court with the sense that the Commissioner and Siemer Milling could have, with a little cooperation, come to agreement as to many more facts. However, the Court is not in the business of rewriting stipulations for the parties.

“After reviewing each of the specific objections, there is little left the Court can do. Each fact for which there is an objection that is not well taken also has a perfectly appropriate objection.” Order, at p. 4,

So discovery game over. Go try the case.

My readers may well wonder what this obscure village in the Ardennes has to do with US Federal taxation. Well, it was the scene of a major turning point in the French Revolution. And this latest tax legislation, whatever the politics, is, as Germany’s greatest poet described Valmy, the beginning of a new epoch.

My often-expressed position is that this is a nonpolitical blog. So partisan comments won’t be found here. There’s a plenitude of those a mouseclick away.

But whatever emerges from the conference, passes Congress and is ratified, be its fruits as rosy as its most fervent adherent claims, or as disastrous as its most fervent opponent’s jeremiads assert, y’all, the in-the-trenches preparers and controversialists, will have to deal with them.

I am surprised that the blogosphere and trade press haven’t considered the impact on our practices. True, we haven’t the final product. But that won’t be long in coming. There are too many powerful forces pushing for a conclusion.

And there aren’t that many uncertainties. We know the tax effects of the ACA will be gone. We know that the brackets will change, and some of the deductions formerly thought to be “third-rail” untouchables will be reduced or eliminated.

And the miscellaneous itemized deduction for tax preparation fees will be eliminated.

Perhaps an increased standard deduction may offset the effect, but that’s an imponderable.

The older among my readers may remember 1985 and 1986 and the evolution of the Tax Reform Act. We certainly followed the process minute by minute, through Regan One, Regan Two, Treasury One and Treasury Two, up to the final Report of the Joint Committee.

Most importantly, in those antediluvian days, tax preparation software was barely out of infancy.

So be prepared; the software floggers will go into overtime, and you’ll be buying updates. Given that the tax prep industry has had zero input, the dodge floggers and gimmick peddlers will be camped out on your e-doorstep. And we can look forward to more litigation.

Mark Twain got it right. Nobody’s life, liberty or property is safe when Congress is in session.

Whether your Civil Procedure prof called it “reese judicayter” or “ray’s Judy Carter,” it avails not John C. Hom, 9778-16L, filed 12/1/17.

Y’all remember John C. Hom, whose corporation had faded away pre-petition. No? Then see my blogpost “Being and Nothingness,” 5/7/13.

Well, that wasn’t the end of John C.’s miseries. He got nailed for four (count ’em, four) years’ worth of deficiencies, and 9 Cir affirmed. John C. claims he has new stuff that would unnail him therefrom.

IRS wants summary J, bouncing John C.’s petition from the NOD Appeals gave him, but John C. claims he filed current returns, and sent stuff to Appeals. John C. claims the AO never contacted him or reviewed his papers. That suffices to end summary J on collection, but John C. is stuck with the underlying liabilities.

Judge Cohen takes up the story.

“Petitioner contends that res judicata does not apply because rules and information available subsequent to his trial of the deficiencies determined for [years at issue] would make it possible for him to establish deductions not allowed in the decision for those years. He also asserts fraud in the earlier case by questioning the credibility of the revenue agent who testified there. Petitioner is seeking a new trial in which the burden of proof would be adjusted, the notice of deficiency held invalid, and the results changed substantially.” Order, at p. 2.

IRS and John C. have a faceoff about commonlaw res judicata (however you say it), but that’s not for a petition from a CDP. Remember, the “small court” is truly limited by the IRC.

“Petitioner’s collateral attack on the final decision is inconsistent with the purpose and language of Internal Revenue Code sections 6320 and 6330 in limiting the opportunity to delay and challenge collection activities by raising specific issues by certain deadlines in “one hearing . . .with respect to the taxable period to which the unpaid tax . . . relates”. Section 6330(b)(2). Although petitioner is entitled to a fair hearing under section 6330(b), he is not entitled to raise the underlying liability because he received a statutory notice and pursued a prior opportunity to dispute that liability. Even if petitioner’s claims of change in the law and his tenuous assertion of fraud during the earlier trial could be raised in a direct attack on the decision entered by this Court and affirmed by the Court of Appeals, they are not an appropriate challenge in this collection action.” Order, at p. 2.

John C., you can have a remand to Appeals, because Appeals never gave you a hearing on collection alternatives, but you’re stuck on your liabilities.

Marjorie E. Davis, Petitioner and Lee A. Davis, Intervenor, Docket No. 3719-16, filed 11/30/17, starts with Marjorie standing alone. She wants Section 6015(e)(1) detachment, apparently from Lee, who doesn’t object, for her tax liabilities for nine (count ‘em, nine) different tax years.

IRS held Marjorie in notwithstanding, and gave her a NOD. So Marjorie headed for Winston-Salem, NC, to plead her case before Judge Ashford. She’s due to go to trial next week, but IRS has moved to dismiss Marjorie’s petition.

Why? Valid NOD, timely petition. Except.

“…an Order discharging the debts of petitioner, including the income tax liabilities for the years at issue, was entered by the United States Bankruptcy Court for the Western District of North Carolina pursuant to 11 U.S.C. section 727. Furthermore, according to respondent, respondent has adjusted petitioner’s IRS account so that she has zero tax, interest, and penalties due for the years at issue. Accordingly, respondent asserts, there is no outstanding liability owed by petitioner for each of the years at issue; there is neither an underpayment nor a deficiency remaining for which this Court may provide relief under I.R.C. section 6015.” Order, at p. 1.

So why isn’t Marjorie walking out with head held high?

Marjorie wants any Tax Court decision to overturn the denial of her stand-aloneness.

No can do, says Judge Ashford.

“It is undisputed that petitioner received a discharge of her income tax liabilities for the years at issue by the Bankruptcy Court and that her IRS account reflects that she has no outstanding tax liabilities for those years. Petitioner thus has been ‘relieved’ of liability for the years at issue and as a result, there is no remaining case or controversy to sustain this Court’s jurisdiction over her case. Indeed, petitioner’s situation is no different than the situation in a lien and levy action under I.R.C. sections 6230(c) and 6330(d) where, after commencing such an action in this Court, the underlying liability is paid in full and the IRS has released the applicable lien and no longer needs, nor intends, to pursue collection by levy; there is no further relief that we are able to grant under I.R.C. sections 6320 and 6330 and the case must be dismissed as moot.” Order, at p. 2.

Can’t be relieved when discharged.

Never were the words of The Man From Mumbai truer spoken than yesterday, 11/29/17.

I gave myself a day off, called a truce to my labors, and headed for the Big A, on a delightful sunny afternoon. I should’a stood in bed. I didn’t cash a single winning ticket; I was as vexed as mild-mannered horse-talker Andy Serlin with the number of scratches. Why send a horse to a meet if you don’t mean to run her/him? OK, a vet scratch can’t be helped; but half-a-dozen scratches, not counting also-eligibles?

Howbeit, when I return,  materially poorer, from my non-holiday, Judge Lauber is stamping around with Lincoln C. Pearson and Victoria K. Pearson, 149 T. C. 20, filed 11/29/17.

It’s only tangentially Linc’s and Vic’s story. The players are an administrative assistant in the law office of Linc’s and Vic’s trusty attorneys, and Rob’t. H. Tilden. You remember Rob’t H. Tilden, whose stamp act caused almost as much of a tax kerfuffle as King George III’s? No? Then see my blogposts “Stamp Out Stamps.com – Part Deux,” 7/20/15, and “Just As I Was Settling Down,” 1/13/17. There, now.

Well, Judge Lauber and a majority of the USTC bench come out with their hands up, and Judge Easterbrook’s 7 Cir exegesis carries the day.

When it comes to USPS postmarks or the lack thereof, Reg. 301.7502-1(c)(1)(iii)(B)(3) rules.

Although Judge Lauber says a lengthy exposition is not needed in light of 7 Cir’s reversal in Tilden, he gives it the full monty.

“That provision applies ‘[i]f the envelope has a postmark made by the U.S. Postal Service in addition to a postmark not so made.’ In that event, ‘the postmark that was not made by the U.S. Postal Service is disregarded.’ Ibid.

“The envelope in Tilden, like the envelope here, did not actually have a USPS postmark, but only a Stamps.com postage label showing the date on which the label had been generated. But the record in Tilden, like the record here, included USPS tracking information showing that ‘the envelope entered the U.S. mail system [a day late].’ T.C. Memo. 2015-188, 110 T.C.M. (CCH) 314, 316. This Court concluded that this tracking datum could ‘serve as the functional equivalent of, or be tantamount to, a USPS postmark.’ Id. at 316 (citing Boultbee v. Commissioner, T.C. Memo. 2011-11, 101 T.C.M. (CCH) 1031, 1033-1034). Invoking subdivision (iii)(B)(3) of the regulation, this Court disregarded the Stamps.com postmark and concluded that the petition, deemed to have been postmarked on [a day late], was not ‘timely mailed.’” 149 T. C. 20, at pp. 11-12.

Well, 7 Cir blew that one off when IRS stiped that the petition was timely, based on a USPS statement from the relevant post office that, notwithstanding the track-and-confirm, the petition hit the mailbox in time.

Judge Buch concurs, with a lengthy discussion of technology since the old-fashioned postage meter.

But Judge David Gustafson is pressing Judge Holmes hard in the stretch of The Great Dissenter stakes. IRS isn’t “interpreting” its regs, it’s jumping several steps to buy into Judge Easterbrook’s view of Stamps.com and IRS’ acquiescence therein.

The bottom line is that anything other than the cancellation by the clerk behind the post office window can be jiggered to suit. While the USPS Manual says they’ll over-cancel anything wrongly dated, with the volume of mail as it is, things can slip. And while Stamps.com Q&A says you must deposit the article in the USPS mailbox the day, nobody is standing there to make sure you do it. Of course, Tax Court can’t conduct its own online investigation into these matters, per FRE 201.

“It appears to us that, if a date printed on a postage meter label or on a Stamps.com label could count as a postmark, it would have to be because the sender is obliged to mail the item on the date appearing on the label–an obligation as to which the opinion of the Court is silent. Otherwise, the date simply gives information about when the postage was purchased, not when the item was mailed. A mere receipt for the purchase of postage is not a ‘postmark’.” 149 T. C. 20, at p. 37.

Clearly Judge David Gustafson doesn’t oblige USCCAs like he does litigants.

Judge Morrison is with him on this.

I  point out that the same trusty attorney represented Rob’t. H. Tilden as represents Linc and Vic. His clients apparently make a habit of dashing in, SNOD in hand, at the last red-hot minute. Or maybe he likes photo-finishes.

Me, I couldn’t win yesterday if there was one.

After my lamentation yesterday about professional liability and nonpaying clients (cf. my blogpost “England, Texas, Who Cares?” 11/27/17), it did my jagged old heart good today to see the lawyers did get paid in William M. Barry and Trudi G. Swain, 2017 T. C. Memo. 237, filed 11/28/17.

But Bill wasn’t best pleased, as his claimed deduction for legal fees gets scuppered.

Bill claimed he paid $34K, but ex-Ch J Michael B (“Iron Mike”) Thornton, DFC (Dictionarian First Class) finds that Bill could only prove $25K thereof, which Bill forked over in his time-barred fight to recoup $241K in alimony he claimed he overpaid his loved-once.

Apparently Bill’s lawyers got it right, and the $241K was deductible as alimony. Had Bill gotten it back, the tax benefit rule says the whole enchilada gets recaptured in year of receipt and is therefore taxable. So the legal fees paid in recouping same would be expenses for the production of income, no? Hence deductible, no?

Negatory, says Ex-Ch J Iron Mike, DFC, and he needs no stroll through the dictionary to get there.

“In United States v. Gilmore, 372 U.S. 39, 51 (1963), the Supreme Court held that legal fees incurred by a taxpayer in resisting his wife’s property claims in a divorce proceeding were not deductible because the wife’s claims that gave rise to the fees stemmed from the taxpayer’s marital relationship rather than from any profit-seeking activity.  The Court stated that ‘the origin and character of the claim with respect to which an expense was incurred, rather than its potential consequences upon the fortunes of the taxpayer, is the controlling basic test of whether the expense was ‘business’ or ‘personal’ and hence whether it is deductible or not under * * * [section] 23(a)(2)’ of the 1939 Code, as amended, (the predecessor of section 212(1) and (2) of the 1954 Code).” 2017 T. C. 237, at pp. 4-5. And on the same day as Gilmore, the Supremes sang the same song in Patrick v. US, 372 US 53 (1963), interpreting Section 212(2).

It’s not the end, it’s the beginning that determines deductibility: did the claim arise out of business (like spouse fighting ex who was trying to sabotage spouse’s business)? And there’s the Reg. Sec. 1.262-1(b)(7) allowing the deduction for the spouse’s legal fees when fighting for alimony that would be directly includable in spouse’s income. But none of that helps Bill. He stipulated that, but for the marital relationship between himself and ex, there would have been no lawsuit and no legal fees. The claim arose from the marital relationship, and that makes the expenses in connection therewith nondeductible.

A timely point is the obsolete “husband-wife” language in statute and regs, but ex-Ch J Iron Mike, DFC, brushes that off. Tax Court reads all this spousal stuff gender-neutrally.

So Bill gets neither the alimony back nor his deduction. But I hope the lawyers got paid.