A look at the PRC – USA Tax Treaty completes today’s foursome on the T. C. Memo. parade, as we have Zhongxia Ye, 2017 T. C. Memo. 216, filed 11/6/17. And that’s Dr. Ye, as Temple University gave her a Ph.D. in business administration.

Well, for the two years at issue, Dr. Ye was teaching at Kenesaw State University, and only went back to her native China once for a month, and to Canada for three days for a conference. She was tenure-track at Kenesaw, and got good evaluations toward that end.

Dr Ye didn’t bother paying China income tax or US Income tax either, claiming the Treaty Art. 19 teaching-lecturing-researching out. But the magic words there are “temporarily present.” That means a J or Q visa, not the H1B Dr. Ye had. And Dr. Ye clearly intended to stay, even though her five (count ‘em, five) lawyers claim that various contingencies could have caused her to return.

Too remote, says IRS, and Judge Nega agrees. She was tenure track at Kenesaw, got consistently good evaluations, and was clearly not going anywhere.

Too bad for Dr. Ye and her lawyers, among whom I find a gentleman I believe I met at the last USTC Judicial Conference, Juan F. Vasquez, Jr., Esq. It’s always tough to lose.

Happily this is not the story of those on eternal patrol or on the site of a disaster that claimed many brave lives. This is Judge Vasquez bringing the right kind of relief to FloEtta Bullock, 2017 T. C. Memo. 219, filed 11/6/17.

IRS wanted to hit FloEtta with the wrong kind of relief, Section 61(a)(12) relief of indebtedness.

FloEtta claims she signed on the wrong line when her son borrowed money from the local credit union to buy a new dually for his business. Judge Vasquez takes pains to explain: “A dually truck is a truck with dual wheels on the rear axle for a total of four tires on the rear axle.” 2017 T. C. Memo. 219, at p. 2, footnote 1. It’s pronounced “dooly” by those who drive them.

Well, the tires, axles and everything else got stolen from out in front of FloEtta’s abode, the insurance didn’t cover the note, and the credit union waited five years to hit FloEtta with a 1099-C for the $8k underwater loan. Son and daughter-in-law stopped paying when the insurance settled.

Judge Vasquez: “However, the ultimate question regarding the existence of a bona fide debt is: ‘Was there a genuine intention to create a debt with a reasonable expectation of repayment, and did that intention comport with the economic reality of creating a debtor-creditor relationship?’” 2017 T. C. Memo. 219, at p. 6. (Citations omitted).

FloEtta was a guarantor. She didn’t get the loan proceeds or any benefit therefrom. To be relieved of indebtedness, there must be a bona fide debt. The theory is that relief from the debt frees up the debtor’s other assets, resulting in an accretion to wealth. But the credit union never pursued FloEtta, sued FloEtta, or did anything but send the belated Form 1099-C.

“When petitioner went to the car dealership, she did not intend to be the primary obligor on the loan.  In fact, she did not realize until trial that she had signed paperwork stating otherwise.  She did not intend to personally repay the loan, and she made no payments on the loan.  See Monon R.R. v. Commissioner, 55 T.C. 345, 357 (1970) (‘The intent of the parties, in turn, may be reflected by their subsequent acts[.]’).  The credit union also understood that petitioner intended only to be a cosigner; it was aware that petitioner’s son and daughter-in-law were responsible for the loan payments, and it never looked to petitioner for repayment.  See id.  Without an intention for petitioner to repay the debt, there was no bona fide primary obligation between petitioner and the credit union.” 2017 T. C. Memo. 219, at p. 7.

So FloEtta is relieved from being relieved.

Bob was TX Inventor of the Year one year, invented a fix for the Space Shuttle post-Challenger, had 400 patents issued or applied for, and was the go-to guy at National Couplings, producer of pneumatic and hydraulic subsea couplers.

Although he never graduated from college, Bob “…was the company’s vice president and the manager at its manufacturing facility. He was in charge of manufacturing, engineering, intellectual property work, and trademarks> 2017 T. C. Memo. 218, at p. 3.

Angela was his wife of fifty years, and a homemaker.

National Couplings got sold, Bob retired into the Golden Years, with plenty of gold.

Alas, Bob found himself with a UT grad lawyer who rigged up a Sub S collapsed into a FLP, with a big discount for the cash and stock Bob and Angela accumulated from years of toil and uncoupling from National Couplings.

Bob and Angela swim into the ken of Judge Goeke, unraveller of mix-and-match dodges. Here’s Robert E. Smith, III and Angela K. Smith, 2017 T. C. Memo. 218, filed 11/6/17.

The story was that Bob had a patent (or maybe it still belonged to National Couplings) for a lawn sprinkler that dispersed water, fertilizer and insecticide, and he was awaiting the patent so he could start selling it. So he created the Sub S to go into business.

But the Sub S collapsed into the FLP in the same year, while patents take months, if not years, to get registered.

Judge Goeke finds the sprinkler story too thin to support Bob’s very hefty discounts for the assets that went from the Sub S to the FLP, that Bob had control of the assets throughout, and the whole thing was a dodge to create a loss to offset the bodacious gains on Bob’s cash-out from National Couplings.

Unfortunately, Angela kept good notes of all the tax shenanigans. Those got in on the trial, undercut reliance on the UT grad expert, and set up the chops.

The late Billy Hawk and the Hawklings have furnished me with blogfodder for more than five (count ‘em, five) years.

So it is with a heavy heart that I bid farewell to Billy F. Hawk, Jr., GST Non-Exempt Marital Trust, Trustee, Transferee, Nancy Sue Hawk and Regions Bank, Co-Trustees, et al., 2017 T. C. Memo. 217, filed 11/6/17, as Judge Goeke finds the TN Uniform Fraudulent Transfers Act (TUFTA) blows away the Hawks’ Midco deal with MidCoast, of infamous memory.

The late Billy Hawk, you remember, was a bowling alley operator while he lived, but Nancy Sue wanted no part of the operation. The Hawklings were squabbling, so at the behest of bowling alley broker Hansell (I said five years ago ya couldn’t make this up), who got a commission from MidCoast for finding these guys, the Hawklings did the roundy-round with a MidCoast sub.

The basis for the case can be found in my blogpost “Game Ends in No Score,” 5/30/12. Did MidCoast get a real loan to buy the stock in the Hawk Corp, or did they really just use the Hawk Corp’s cash from the sale of the bowling alleys to pay the Hawklings and skim some vigorish for themselves?

Well, Judge Goeke finds the “loan” from an offshore was an in-and-out (funded and paid out same day), the Hawk Corp cash wasn’t really segregated, the MidCoast DKK/USD digital option mix-and-match didn’t really generate an offsetting lost and Hawk Corp did no business after the asset sale.

Judge Goeke romps through TN law on economic substance (no law, but no substance either), collapsing transactions, and TUFTA. And the Hawklings get the worst of it on all fronts.

Nancy Sue gets spared prenotice interest under TN law, as she’s an innocent, but Judge Goeke has to hit her with postnotice.

And Nancy Sue is admittedly not a tax expert, but her advisers fell well short of the diligence of the Alterman crew (as to whom see my blogpost “It’s Not Fraud,” 12/1/15). So she gets the chops.

A niece of mine is a graduate of an illustrious New England college whose motto, I believe, is “vox clamantis in deserto.” I need not, of course, translate, but I know just how the Hanover gang must feel. Even though I count 281 followers of this my blog, it sometimes seems like Tommy Gray was speaking my language. I mean the bit about blooming to blush unseen and all that.

But today Ch J L Paige (“Iron Fist”) Marvel puts on the velvet glove in Scott A. Spicer & Diane E. Spicer, Docket No. 19185-17S, filed 11/3/17.

For background, see my blogpost “Where the ‘L’ is My ‘S’?” filed 11/2/17.

Here’s the whole shebang, which brightens a gloomy November evening.

“…the Court issued an Order in the above-docketed case, which inadvertently states that this case will be processed to trial or other disposition pursuant to the lien and levy procedures of the Court. For cause, it is

ORDERED that the Court’s Order dated November 2, 2017, is amended in that the reference in the second ordered paragraph to the lien and levy procedures is deemed to be to the regular deficiency procedures of the Court.” Order, at p. 1.

So Scott and Diane get their “S” back. And their “L” goes…away.

No, not the 2017 Tony-nominee for best musical. No theatrical criticism on this blog. But today Tax Court has two (count ‘em, two) orders dealing with those far away…or far apart.

2590 Associates, LLC, 5615 Associates, LLC, as successor in interest to 5615 Associates, LP, Tax Matters Partner, Docket No. 12924-16, filed 11/3/17, looks like a simple joust over a continuance (that’s called an “adjournment” by us State courtiers).

IRS is asking for the time out, and the numbers guys are objecting. But curiously, it’s IRS who has the problem.

“Respondent states that petitioner objects to respondent’s motion. Respondent maintains that certain witnesses may be unavailable for trial.” Order, at p. 1.

Well, the numbers guys have the burden of proof, so maybe this is one of those façades or phony partnerships where valuation is critical. So maybe IRS needs the absentee heavy artillerists.

Judge Goeke has ways to deal with this.

“If respondent has subpoenaed witnesses and they are unavailable, we can discuss alternative means to take their testimony at trial but that is not a basis for a continuance.” Order, at p. 1.

Facetime conquers all?

IRS claims Siemer Milling Company, Docket No. 21655-15, filed 11/3/17, is putting them through the mill, but Siemer claims IRS is dodging the “play nice and stip it out” rules.

Judge Buch rushes to the defense of the “bedrock of all Tax Court practice,” the cure-all for litigation and settlement.

Siemer put in 343 (count ‘em, 343) separately numbered matters to be stiped out. IRS bought nine, edited nine more, and rejected 325 (count ‘em, 325) and didn’t say why.

Was Siemer playing the clown, making frivolous, burdensome, scandalous requests?

“Siemer Milling Co. filed a motion for order to show cause why proposed facts and evidence should not be accepted as established pursuant to Rule 91(f). That motion did not ‘set forth the sources, reasons, and basis for claiming, with respect to each such matter, that it should be stipulated’. See Rule 91(f)(1)(B). However, the motion recited that the documents underlying the proposed stipulations had been in the Commissioner’s possession for over three years. See Rule 91(f)(1)(D). The Court granted that motion and ordered the Commissioner to show cause why the facts and evidence set forth in the proposed stipulations should not be deemed admitted.” Order, at p. 1.

Well, IRS didn’t state what they disagreed with, only that Siemer didn’t attach the papers they relied upon.

Judge Buch brings together the two parties who are far apart.

“While it appears that the Commissioner has been uncooperative as to this series of proposed stipulations, it cannot be said that Siemer Milling is without fault. While it is unclear whether there is sufficient time for the parties to have a ‘do-over’, we will permit Siemer Milling to resubmit its proposed stipulations with an accelerated timeline.” Order, at p. 2.

And Judge Buch tells them how to do it.

“Siemer Milling, if it chooses, may resubmit its proposed stipulations to the Commissioner. If it resubmits its proposed stipulations, each proposed stipulation shall refer to the source of the underlying information (at a minimum, directing the Commissioner to the specific page). If Siemer Milling serves a new set of proposed stipulations on the Commissioner, the Commissioner shall respond separately as to each proposed stipulation. For any proposed stipulation that the Commissioner does not accept without alteration, the Commissioner must set forth a specific basis for not accepting the proposed stipulation. While evidentiary objections may be noted, they will not be considered a sufficient basis for a failure to stipulate.” Order, at p. 3.

And make it snappy.

This is a good one to have handy when confronted by brush-offs or stonewalls.

It’s truly a puzzlement. I mean correcting the “inadvertent clerical error” (I often wonder if a clerical error can be advertent; can you intend to make a mistake?) in Scott A. Spicer & Diane E. Spicer, Docket No. 19185-17SL, filed 11/2/17.

Ch J L Paige (“Iron Fist”) Marvel begins correcting Scott’s & Diane’s case by ordering the Clerk to delete the letter “L” from the docket sheet and other records in the Clerk’s office. OK, that happens when a non-lien-or-levy is mistakenly tagged.

But then Ch J Iron Fist goes on to befuddle me (and possibly the Clerk as well).

She orders the Clerk to “…process this case to trial or other disposition pursuant to the of [sic] the Petition for Lien and Levy Action Under Code Section 6320 (c) or 6330 (d) procedures of the Court.” Order, at p. 1.

Well, doesn’t the letter “L” designate a case proceeding as a lien or levy action, whether large case or small-claimer? Isn’t leaving the petitioners’ “S” hanging out there confusing?

Or have we got the stealth lien-or-levy in addition to the stealth subpoena? As to the stealth subpoena, see my blogpost “The Stealth Subpoena is Alive and Well,” 12/2/16.

You see to what I am reduced, when I missed the NYSBA Coop/Condo Committee meeting to prepare for a closing, on a stuffy November day?

I’m really tired of blogging the old story of petitioners filing and paying the sixty bucks, only for IRS to move to dismiss because neither SNOD or NOD had issued, and then dropping one after, when the hapless pro se was out of time when the motion to dismiss came on for determination.

Fortunately, the lesson seems to have been learned, and here’s a NOD case, with the thirty-day quick-kick filing window, Gregory Dwight Goosby, Sr., Docket No. 22731-17L, filed 11/1/17.

GDG petitioned, and IRS says “no SNOD or NOD, thus no jurisdiction.”

But IRS dropped a NOD on GDG 25 days after he petitioned. So GDG attaches that to his objection to IRS’ motion to toss.

Ch J L Paige (“Iron Fist”) Marvel, now wise to this stunt, gives GDG a new docket no., waives the filing fee (which GDG paid for the previous filing) , and tells IRS to answer.

I would have told IRS something else as well, were I the judge. I guess I’ll never get appointed to Tax Court (and I can hear my readers thanking whatever gods may be for that).

Nothing so cheers a weary blogger on a grey autumn afternoon as a hot cup cocoa (hi, Judge Holmes) and a repeat customer. Even more so is the case when the day’s only opinion is a non-substantiation small-claimer and the only designated hitter is a one-pager better left in obscurity.

So thanks to Ten Twenty Six Investors, Douglas Oliver, Tax Matters Partner, Docket No. 29483-14, filed 11/1/17, and ex-Ch J Michael B (“Iron Mike”) Thornton, for sending this blogfeeder my way.

Remember IRS has burden of production when seeking to slug the taxpayer with a chop in the Glasshouse. Well, Dauntless Doug and the Ten Twenty Sixers claim their façade easement collapsed because they claimed same in wrong year, the beneficiary of the easement having not recorded their easement deed until two (count ‘em, two) years after the Ten Twenty Sixers claimed they’d given it and took the deduction. Therefore, either the unrecorded easement wasn’t effective, or if effective wasn’t perpetual, in the year granted, so even if invalid, there was no overvaluation and the concomitant 20% – 40% chop is off the table.

For more about the recording issue, see my blogpost “The Race to the Courthouse Door,” 6/15/17.

Ex-Ch J Iron Mike points out the obvious.

“When the correct value of property claimed on a return is zero, any claimed value is deemed to be 400% or more of the correct amount. Sec. 1.6662-5(g), Income Tax Regs. Consequently, the entire amount of the under payment resulting from disallowance of the noncash contribution deduction is attributable to a gross valuation misstatement. Respondent’s burden of production with respect to the substantive elements of the gross valuation misstatement penalty found in section 6662 is therefore met, and we shall grant in part respondent’s motion for partial summary judgment…on this issue and deny petitioner’s motion for partial summary judgment…. Order, at p. 5.

OK, so march out Dauntless Doug and the Ten Twenty Sixers, and face the chop, right?

Not so fast. It’s time for a Chai. The Section 6751(b) Boss Hoss sign-off, which IRS seems to have forgotten, is still out there, and IRS’ motion for summary J on the chop is denied to that extent.

Likewise IRS’ claim that the appraisal the Ten Twenty Sixers proffered was older than sixty days prior to granting the easement, because it was done two years before the easement was recorded  (and therefore effectively granted).

Mox nix, says ex-Ch J Iron Mike, no biggie.

“This Court has held that ‘[t]he provisions of section 1.170A-13(c)(3), Income Tax Regs., are directory, requiring substantial compliance, rather than mandatory, requiring strict compliance.’ Zarlengo v. Commissioner, T.C. Memo. 2014-161, at *32 (citing Bond v. Commissioner, 100 T.C. 32 (1993)). When we examine whether the taxpayer has substantially complied, we look at all the facts and circumstances in the light of the requirements set out in section 1.170A13(c)(3), Income Tax Regs. See Zarlengo v. Commissioner, T.C. Memo. 2014–161; Rothman v. Commissioner, T.C. Memo. 2012-163. In Zarlengo, the Court concluded that the taxpayer had substantially complied with the requirements for a qualified appraisal report even though the appraisal in that case was found to have been made too early. The Court stated that ‘a taxpayer may substantially comply with the substantiation requirements notwithstanding the taxpayer’s premature appraisal.’ Zarlengo v. Commissioner, T.C. Memo. 2014-161, at *32 (citing Consol. Inv’rs Grp. v. Commissioner, T.C. Memo. 2009-290).” Order, at p. 6.

Rothman, although unblogged by me, unhorsed that appraisal for defects other than timeliness. Here, nobody is raising other defects than timeliness. As for Zarlengo, see my blogpost “Don’t Give a Sham – Part Deux,” 8/11/14.

So IRS, like Sam T. Coleridge’s ancient mariner, “stoppeth one of three.” IRS bore one burden, but dropped two others.

Thus spake Judge Laro in Carlos Alamo, 2017 T. C. Memo. 215, filed 10/31/17.  Carlos claimed IRS never sent him a SNOD, so the alleged deficiency was fatally flawed.

“Notwithstanding respondent’s disorganized recordkeeping as to the tax account for petitioner for [year at issue], we find that respondent has carried his burden of proving that he mailed a deficiency notice to petitioner.” 2017 T. C. Memo. 215, at p. 24. You can read the facts and conjectures for yourselves. IRS didn’t cover itself with glory on that score.

But Carlos was a trifle casual with what mail he picked up and what he didn’t.

Carlos petitioned from a NOD on a NFTL, although there had be a NITL (which Judge Laro calls FNIL; we really need uniformity here), which Carlos didn’t contest because the certified letter was returned uinclaimed.

When Carlos first went to Appeals on the NFTL, although Appeals turned down Carlos on his contest of liability based on nonmailing of the SNOD, when Carlos petitioned the NOD, IRS moved to remand, to give Carlos a chance to put in evidence of what he owed, if anything.

Carlos stuck to the “you never mailed a SNOD” story, and put in nothing else.

“We have already determined that respondent did mail a notice of deficiency to petitioner.  But it is also true that because petitioner did not receive the notice, he was entitled to raise the issue of the underlying liability at his CDP hearing. See sec. 6330(c)(2)(B).  Petitioner errs, however, by contending that he was not required to provide a completed [year at issue] income tax return or any other documentation to the IRS Office of Appeals to contest his income tax liability.” 2017 T. C. Memo. 215, at p. 29.

In short, you get a chance to tell your story if you didn’t get a SNOD. But you have to tell your story.

“A taxpayer may not claim to challenge the underlying tax liability in a CDP hearing and then refuse to cooperate with the Office of Appeals in attempting to establish that liability.  In previous cases, we have found against taxpayers where they stated that they were challenging the underlying tax liability in a CDP hearing but failed to provide to the Office of Appeals any evidence on that issue.  See, e.g., Snodgrass v. Commissioner, T.C. Memo. 2016-235; Stevenson v. Commissioner, T.C. Memo. 2013-284.  In short, intransigence has no reward.” 2017 T. C. Memo. 215, at pp. 31-32.

Note that IRS knew they blew it at Appeals the first time around, so they sought (and got) remand. They used that opportunity to build a fortress of a record.

Practitioner, when IRS seeks remand to Appeals, they’re looking for a chance to remediate a sketchy record. And you should be looking for a chance to strengthen yours.