Turns out Judge Ruwe used IRS’ 50% numbers for the Boston Bruins’ snacks and chow-downs yesterday. See my blogpost “Feed Those Bears!” 6/27/17. So today we get Jeremy M. Jacobs and Margaret J. Jacobs, Docket No. 19009-15, filed 6/28/17.

Judge Ruwe modifies his opinion thus: “On page 12 [last sentence], line 19, ‘$127,877 and $142,223, respectively.’ is deleted and ‘$255,754 and $284,446, respectively, for pregame meals provided to the Bruins’ traveling employees while at away city hotels.’ is substituted therefor.” Order, at p. 1.

So Jer and Marg get 100% for feeding the Bruins.

Notwithstanding the words of Jessie J, Dr. Luke, Claude Kelly and B.o.B. from their 2011 hit “Price Tag,” it is about the money, and IRS wants to amend its petition to claim judicial estoppel against Moneygram International, Inc. and Subsidiaries, et al., Docket No. 12231-12, filed 6/27/17.

Y’all will remember Moneygram, having been stomped in Tax Court back in January, 2015, took the Fifth (that is, the United States Court of Appeals for the Fifth Circuit), and scored a per. cur. remand back to Judge Lauber.

And if you didn’t remember, see my blogpost “Maybe You Can Bank On It,” 2/15/17.

Well, aside from giving discounts (which doesn’t mean what most people think it means, when you’re dealing with banks), the question remains whether Moneygram and the subs make loans to their agents, the floggers of Moneygram’s payment instruments, when the agents get money but don’t forward same to MoneyGram forthwith.

Banks make loans, and Moneygram needs to be a bank to get $82 million of Section 581 offsetting capital losses. Moneygram charges no interest, but banks don’t have to charge interest to be banks (although find me a bank that will lend me money at no interest, please).

Now judicial estoppel means that you took one position in a litigation and now want to backtrack when it suits you. Judge Lauber lets IRS amend, claiming Moneygram knew for three years that IRS would take the position that Moneygram wanted it both ways, and amendment is liberal if no prejudice. There are no disputed facts.

If Moneygram made loans to agents by letting them hang onto Moneygram’s money, the relationship between Moneygram and agents is creditor-debtor.

But here’s the kicker: “Respondent contends that petitioner has successfully argued in other courts, including bankruptcy courts, that it has a fiduciary relationship, not a debtor-creditor relationship, with its agents. Respondent wishes to amend his answer to assert judicial estoppel as an affirmative defense.” Order, at pp. 1-2. Neither Tax Court nor Fifth Cir. had considered this before now.

It’s pretty obvious when you think about it. If an agent is holding Moneygram’s cash, and if the cash is a loan, should the agent tank and file Chapter, Moneygram is just another unsecured general creditor, likely to get a scanty serving of cold bortscht when the goodies are doled out. But if the agents are trustees or fiduciaries, the cash always belongs to Moneygram and hands-off to the creditors, secured, unsecured or otherwise.

This is not a tangential issue. Banks make discounts, but they also make loans without discounting commercial paper.

Should be interesting reading when this all sorts out…if they don’t settle.

So often do ex-spouses whose divorce decrees specify the other spouse must pay all income tax liabilities discover the hard way that IRS doesn’t enforce divorce decrees. That the ex-spouse so obligated stiffs both the loved-once and the IRS is unfortunate, but STJ Diana L. Leyden is no more sympathetic than any other judge: the law is what it is, and the State court decree cuts no coarse-grain Dijon in the USTC.

I’ve given up citing to the large number of such cases I’ve blogged, and the unblogged substantially exceed the blogged.

Today, however, Patrice Anna Butsko, Petitioner and Geoffrey W. Butsko, Intervenor, Docket No. 17147-16S, filed 6/27/17 show how to save a Section 6015 innocent spousery when it’s about to crater.

Patty Ann petitions a NOD dumping her innocent spousery, even though Geof was supposed to pony up the tax, add-ons and chops, because he didn’t. It’s a “stand alone,” that is, an application for innocent spousery without a SNOD involved.

Patty Ann wasn’t done, though. She haled Geof into the Circuit Court of Loudoun County, VA.

STJ Di picks up the tale. Patty Ann sends STJ Di a billet doux: “Please find the following documents that relate to the satisfaction of the IRS outstanding taxes and responsibility. The matter was tried, in Loudoun County… and resolved in court… with proof of payment. Please let me know if there is any other documentation that is needed for the closing/withdrawing of the above mentioned Docket number (removal from the case).

“Petitioner attached to her letter a copy of an order from the Circuit Court of Loudoun County… finding that intervenor was found in willful contempt for his failure to pay the 2010 tax liability and ordering him to either pay in full or establish an installment agreement with the IRS to pay the entire tax liability for 2010…. Petitioner also attached to her letter a copy of correspondence from intervenor’s attorney in that case… stating that intervenor had paid, among other tax liabilities, the 2010 tax liability and including a copy of the check as proof of payment.” Order, at pp. 1-2.

Now Patty Ann wants STJ Di to toss without prejudice. While petitioners can move to dismiss a “stand-alone,” if the 90-day clock has run, so has petitioner’s chance to contest afresh.

“However, dismissal without prejudice is not possible at this stage of the proceeding. Because petitioner will be outside of the 90-day window for filing another stand alone petition challenging the IRS determination, dismissal of this case will preclude her from further contesting in this Court her entitlement to section 6015 relief for the tax year at issue.” Order, at p. 2 (Citations omitted).

So, since neither Patty Ann, nor Geof, nor IRS objects, petition dismissed.

Takeaway- If one spouse agrees but welches, sue early and sue often.

There is any number of sad tales to be found on the Tax Court’s website. Here’s one, where a husband, seeking an amicable, decent parting of the ways from his loved-once, and unwilling or unable to bear the price of a practitioner with Section 72(t) hyper-awareness, gets hit with the 10% “additional tax” on an IRA distribution.

Jeremy Ray Summers, 2017 T. C. Memo. 125, filed 6/26/17, has three (count ‘em, three) IRS lawyers confronting him over $1700. And while Judge Lauber is all kinds of sympathetic, Jeremy still takes the hit.

Jeremy and the about to be former Mrs Jeremy part ways, agreeing on child support, visitation, property, and trying to do the right thing. The about to be former Mrs Jeremy needs cash, so Jeremy liquidates his IRA (all $17K worth), gets a check from the trustee, deposits same in his checking account and writes a check for half to the about to be former Mrs Jeremy.

I say “about to be former” because Jeremy and the about to be former Mrs Jeremy don’t bother to put their agreement into divorce court and get it so-ordered until after Jeremy gives the about to be former Mrs Jeremy her half. And, of course, having divvied up the IRA, Jeremy puts in the so-ordered agreement that there aren’t any IRAs. Jeremy claims the QDRO exception to the 10% hit. Qualified Domestic Relations Order, except this one isn’t.

I’m sure my readers are face-palming Jeremy’s generosity. So is Judge Lauber.

“The exception on which Jeremy relies appears in section 72(t)(2)(C).  It applies to a distribution that is made ’to an alternate payee pursuant to a qualified domestic relations order (within the meaning of section 414(p)(1)).’  Section 414(p)(8) defines an ‘alternate payee’ as ‘any spouse, former spouse, child or other dependent of a participant who is recognized by a domestic relations order as having a right to receive all, or a portion of, the benefits payable under a plan with respect to such participant.’  Section 414(p)(1)(B) defines a ‘domestic relations order’ as a ‘judgment, decree, or order relating to ‘the provision of child support, alimony payments, or marital property rights’ that ‘is made pursuant to a State domestic relations law.’

“[About to be former Mrs Jeremy] indirectly received half the value of Jeremy’s IRA account, and respondent readily agrees that the transaction could likely have been organized so as to entitle Jeremy to a section 72(t)(2)(C) exception for her 50% share. (Jeremy concedes that he erred in claiming this exception for his own 50% share.)  As it is, respondent contends persuasively that Jeremy does not qualify for this exception for two reasons.” 2017 T. C. Memo. 125, at pp. 5-6.

I’m sure my readers know the two reasons. One, Jeremy got the distribution, not about to be former Mrs Jeremy. It doesn’t matter that she wound up with the cash, she has to get it to begin with. Second, the payout wasn’t pursuant to a QDRO; the DRO said there wasn’t an IRA. That was true, because when the agreement was so-ordered and became a DRO, there was no IRA to distribute “pursuant to” that DRO.

Now Section 72(t)(2)(c) requires strict compliance, because the QDRO has to drive the whole deal; there’s no “substantial compliance” out.

So although Judge Lauber has “considerable sympathy” for Jeremy, a decent guy in a tough situation, “…we are not at liberty to add equitable exceptions to the statutory scheme that Congress enacted, and we thus have no alternative but to sustain the 10% additional tax that respondent has determined.” 2017 T. C. Memo. 125, at p. 8.

I will forbear to comment on some of the “statutory schemes that Congress has enacted,” lest this blog become unfit for family reading round the dinner table.

No, I am not advising visitors to Yellowstone to ignore the warnings of the National Park Service Rangers, nor am I again making promises of home cooking to certain of my nearest and dearest; Bear BnB will always be open.

Rather, I am referring to Judge Ruwe’s direction to IRS in Jeremy M. Jacobs and Margaret J. Jacobs, 148 T. C. 24, filed 6/26/17.

Jer and Marg cause me to break yet again the Tenth Commandment. They own the Boston Bruins NHL team. How I covet the chance to own an NHL franchise! Alas, nevah hoppen, GI.

Anyway, Jer and Marg, zealous to provide for those who cause the Boston faithful to fill the seats at the TD Garden, contract with various caravanserais to provide bed, breakfast, snacks and pre-game chow-downs for the chaps in yellow and black, while the Bruins are on the road. Jer and Marg pick up the tab.

Jer’s and Marg’s corporate set-up is a bunch of pass-throughs, ending in a Sub S owned by Jer and Marg, who write off 100% of road room and board.

IRS says “no, 50% for meals.”

Judge Ruwe must be a die-hard hockey fan, because he does a play-by-play, with pictures, descriptions and accounts, of every away-day event, from boarding the plane the night before to the moment when the announcer at the away arena shouts “And now, the starting line-up for the Boston Bruins” accompanied by the “horrid shapes, and shrieks, and sights unholy” of the home team fans.

Bruins fans, read this. NHL fans, read this, as your faves might be doing likewise.

BTW, the meal tabs for the years at issue run around $150K. The Bruins like to eat.

IRS sends to the face-off circle at center a player wearing number 274(n)(1).

Jer and Marg send out D. Minimis, wearing number 132. D. wins the face-off, hits the open forward down the left-side boards, who shoots and scores, high on the glove side.

As Jer and Marg’s three attorneys on the forward line raise their sticks in the air and pound each other on the back, Judge Ruwe picks up his spilled popcorn and opines as follows.

“Section 274(a)(1)(A) disallows a deduction for certain meal and entertainment expenses otherwise deductible under section 162 unless the expenses are associated with the active conduct of the taxpayer’s trade or business.  Respondent does not challenge that the Bruins’ pregame meal expenses are associated with the active conduct of petitioners’ trade or business. If the deduction for meal expenses is not disallowed by section 274(a)(1)(A), then section 274(n) imposes a 50% limitation on the deduction for meal expenses unless an exception applies.” 148 T. C. 24, at pp. 14-15.

Whatever should we do without exceptions?

“Petitioners argue that the Bruins’ provision of pregame meals to traveling hockey employees at away city hotels qualifies for the de minimis fringe exception under section 274(n)(2)(B)….” 148 T. C. 24, at p. 15.

Section 132, the de minimis fringes to employees, requires that the benefits not be restricted to highly-compensated (over $110K annually for years at issue; check your local listings for current rate) types. OK, Jer and Marg let everyone on the road crew dine with the stars.

“Petitioners provided credible testimony that the pregame meals were made available to all Bruins’ traveling hockey employees–highly compensated, nonhighly compensated, players, and nonplayers–on substantially the same terms. Petitioners also provided testimony, which we find credible, that any discrepancy between anticipated and actual meal attendees was a function of cost reduction concerns and not discrimination.  We therefore hold that the Bruins’ provision of pregame meals to traveling hockey employees satisfies the nondiscriminatory manner requirement of section 132(e)(2).

“Employee meals provided in a nondiscriminatory manner constitute a de minimis fringe under section 132(e) if:  (1) the eating facility is owned or leased by the employer; (2) the facility is operated by the employer; (3) the facility is located on or near the business premises of the employer; (4) the meals furnished at the facility are provided during, or immediately before or after, the employee’s workday; and (5) the annual revenue derived from the facility normally equals or exceeds the direct operating costs of the facility (the revenue/operating cost test).” 148 T. C. 24, at p. 17.

While the eating room is not leased specifically by the Sub S, it is exclusive to the Bruins, and that’s good enough. The Bruins contract with the hotel to provide the goodies, and that satisfies Reg. 1.132-7(a)(2)(ii). Now the messhall has to be on “business premises,” but Tax Court takes a broad view; the Bruins’ business premises are not only in TD Garden, but on the road where they play half their games. Their NHL franchise requires them to play the other teams home-and-home, and Jer and Marg could lose the third-oldest NHL franchise if they don’t (and the City of Boston would go into perpetual mourning). So the Bruins business premises is “where the boys are.” Check the caselaw Judge Ruwe cites, if your clients are running field kitchens.

IRS, scrapping against the Bruins like the old Broad Street Bullies, claim that the business is on the ice, not the hotel room. But Judge Ruwe says health and rest are essential to a winning team.

And it’s quality time, not just hours. “Furthermore, respondent provides no precedent to support the argument that business premises are limited to the location where the most qualitatively significant business activity occurs. We also disagree with respondent’s argument that away city hotels cannot constitute the Bruins’ business premises because the team spends quantitatively less time at each individual away city hotel when compared to the team’s time spent at its Boston facilities.  Although the Bruins do spend quantitatively less time at each individual away city hotel than they do in Boston, this goes to the unique nature of a professional hockey team that is required to play one-half of its games away from home.  It is therefore illogical for respondent to ignore the nature of the Bruins’ business and the NHL and analyze the amount of time spent at each away city hotel in isolation.  Respondent also provides no precedent to support the proposition that a quantitative comparison of time is critical to determining business premises.” 148 T. C. 24, at p. 28 (Citations omitted).

The meals are furnished near worktime and for noncompensatory reasons. The food is specially designed to nourish the players of a rough, physical game, and the off-ice people are hardworking and can’t hunt up the local Burger King in each city.

The Section 274(c)(8) entertainment issue goes away, because the meals are de minimis.

Now the fans can file out of the TD Arena, as the Bruins have won another one.

In my young day, back in New York State court, when a motion, or an entire case, was disposed of, the judge often would not write more than an opinion, and direct the parties each to submit an order or judgment effectuating the terms of the opinion (which we State courtiers called a “decision”).

The opinion ended with the words “settle order on notice.”

So we’d draft an order or judgment, and our adversary had the chance to do likewise. We’d send our order or judgment to the judge, with a copy simultaneously to our adversary, in a blueback (pardon the ancient terminology) with something on the back like this: “PLEASE TAKE NOTICE that the within judgment will be submitted to Judge X for entry on the blank day of blank.”

The judge would sign ours or theirs, or mix-and-match.

I recommend this procedure to Tax Court in non-arithmetic cases.

In fact, it seems that Judge Holmes (honorifics omitted, as I have to catch a flight home shortly) has already caught on.

Here’s Greenteam Materials Recovery Facility PN, Greenwaste Recovery, Inc., Tax Matters Partner, et al., Docket No. 423-11, filed 6/23/17*. You’ll recall Judge Holmes decided yesterday that the Greenteam gets capital gains on their franchise sales. Well, the parties promptly continued the face-off.

“It would be helpful to the Court if the parties were able to agree on the language of the decisions, and it is therefore

“ORDERED that on or before August 21, 2017, the parties submit agreed decisions or file their own with explanations of any points of disagreement.” Order, at p. 1.

How about ending the opinion with “settle decision on notice”?

*Greenteam materials 423-11 6 23 17

No, I have not turned this blog into an advice for the lovelorn, or otherwise romantically disadvantaged. Today’s story involves two separate and distinct SNODs for the same year.

One just covers a single year, but the other covers six (count ‘em, six) different tax years, although the single year aforesaid is included in the six-pack SNOD.

Now there’s plenty of caselaw saying that when a SNOD has been issued but the taxpayer doesn’t timely petition, IRS can hit the taxpayer with another SNOD for the same year in order to assert a greater tax liability.

The theory behind the Section 6212(c)(1) single-shot rule (one SNOD per year) is to prevent a multiplicity of proceedings. If IRS wants to up the ante, claiming a SNOD was too low, and a petition was timely filed, IRS can assert increased deficiency in its answer and get the burden of proof thrown in at no extra charge. If the SNOD was too low and no timely petition filed, IRS can go again with a higher SNOD. Still only one proceeding.

But how if there are two SNODs for one year, and both were petitioned timely?

In today’s installment, IRS first moves to dismiss for duplication, but then withdraws, because it got the SNODs backwards.

SNOD No. 1 was for a smaller amount for year in question, but was petitioned after SNOD No. 2, which was for a higher amount for that year, but both SNODs were timely petitioned. So IRS wanted to drop SNOD No. 1.

No, says Ch J L Paige (“Iron Fist”) Marvel. The case is Azita J. Larijani, Docket No. 4966-17, filed 6/22/17, and I cite that docket no. because that’s the one that stays in for the year at issue.

IRS relies on caselaw where the first SNOD was never petitioned, so in the interest of judicial economy the second SNOD avoids the Section 6212(c)(1) hammer.

Here, even though SNOD No. 2 for the higher amount was timely petitioned before SNOD No. 1 was timely petitioned, the essentials for Tax Court jurisdiction were there for both: a SNOD facially valid and a timely petition.

The first SNOD is the lead.

So Ch J Iron Fist denies IRS’ motion to dismiss petition from SNOD No. 1, and instead sua sponte tosses so much of SNOD No. 2 as deals with the year in question.

So IRS can try to assert the higher deficiency in its answer, and bear the burden of proof if they do.

It’s been almost four years, but those of my readers with long memories may recall the previous appearance of Greenteam Materials Recovery Facility PN, Greenwaste Recovery, Inc., Tax Matters Partner, et al., 2017 T. C. Memo. 122, filed 6/21/17.

If not, see my blogpost “Das Kapital,” 8/6/13.

Well, the parties seem to have done the homework to which they were set by The Great Dissenter, a/k/a The Judge Who Writes Like a Human Being, s/a/k/a The Implacable, Illustrious, Incontrovertible, Insuperable, Ineffable, Ineluctable and Indefatigable Foe of the Partitive Genitive, Old China Hand and Master Silt Stirrer, Judge Mark V. Holmes. And the result is anything but jolly for IRS, who argued that the sale of waste collection, recycling and landfilling agreements with various CA municipalities generated ordinary income and not capital gains.

Question presented: Are these agreements “franchises” within the meaning of Section 1253?

“The Greenteam partnerships’ argument is simple. The sales of the contracts fall under section 1253, which says that a taxpayer gets capital-gains treatment when it sells a ‘franchise’ unless it has a continuing interest in the franchise after the transfer. The Commissioner disagrees. He thinks section 1253 doesn’t apply precisely because the Greenteam partnerships didn’t keep any interests in the contracts and didn’t receive any contingent payments. The Commissioner says that since section 1253 doesn’t apply, we have to decide whether the contracts were capital assets by looking at section 1221, the six-part multiprong test of Foy v. Commissioner, 84 T.C. 50 (1985), and the substitute-for-ordinary-income doctrine. The Greenteam partnerships think they still win under Foy.” 2017 T. C. Memo. 122, at pp. 11-12.

Well, they are franchises. IRS’ argument that franchises are only private deals and not deals with municipalities goes down.

“Section 1253(b)(1) defines ‘franchise’ for the purposes of that section: Franchise.–The term ‘franchise’ includes an agreement which gives one of the parties to the agreement the right to distribute, sell, or provide goods, services, or facilities, within a specified area.

“The definition is unambiguous, so we need only look at the plain language of the statute. Section 1253(b)(1) tells us that there’s a ‘franchise’ for the purposes of section 1253 if there is: an agreement in which one party receives the right to provide services within a defined area. If a transaction satisfies these three requirements, then it falls under section 1253.” 2017 T. C. Memo. 122, at pp. 12-13. (Citations omitted, but get them for your memo of law).

IRS already lost this one in Tele-Commc’ns, Inc. v. Commissioner, 12 F.3d 1005 (10th Cir. 1993), aff’g 95 T.C. 495 (1990).

IRS trots out a new argument, that under CA law and usage, the contracts aren’t franchises but indefinitely renewable annual contracts, known as “evergreens.” So what, says Judge Holmes; “The Commissioner’s problem is that the industry definition in California doesn’t matter for federal income-tax purposes.” 2017 T. C. Memo. 122, at p. 15.

But that isn’t the end of the search. It may be that the Greenteam sold franchises, but are the gains capital or ordinary?

“Holding that section 1253 includes the contracts here as ‘franchises’ isn’t the end of the matter. We also need to figure out whether the Greenteam partnerships kept any ‘significant power, right, or continuing interest’ in the franchises. If they did, their income from the sales is ordinary. See sec. 1253(a), (b)(2); see also Rev. Rul. 88-24, 1988-1 C.B. 306. But that’s an easy question here–none of the Greenteam partnerships kept any interest in the franchises, and they didn’t receive contingent payments–they got lump-sum payments. Even the Commissioner concedes in his briefs that the partnerships didn’t hold onto any significant interests in the franchises or receive contingent payments. Since we are dealing with franchises under section 1253, and the partnerships didn’t keep any interests in the franchises or receive contingent payments, we know the transactions aren’t ineligible for capital-gains treatment. See sec. 1253(a).” 2017 T. C. Memo. 122, at pp. 15-16.

The Greens claim that satisfying the Section 1253 franchise definition means automatic capital gains treatment. But section 1253(a) only says what isn’t a capital gain, not what is.

Judge Holmes and Section 1253(d)(2) to the rescue.

“Any amount paid or incurred on account of a transfer, sale, or other disposition of a franchise, trademark, or trade name to which paragraph (1) does not apply shall be treated as an amount chargeable to capital account. [Emphasis added.].” 2017 T. C. Memo. 122, at p. 16.

Anyway, Tax Court dealt with this one too.

“Our Court has already addressed this issue too. In Jackson v. Commissioner, 86 T.C. 492, 520 (1986), aff’d, 864 F.2d 1521 (10th Cir. 1989), we held that section 1253 gives a transferor of a franchise capital-gains treatment so long as it doesn’t retain any significant interest in the franchise and the franchise was a capital asset. The Fifth Circuit agrees. It also explained that section 1253(a) says a taxpayer doesn’t get capital-gains treatment when it transfers a franchise if it retains a significant interest in the franchise. McIngvale v. Commissioner, 936 F.2d 833, 839 (5th Cir. 1991), aff’g T.C. Memo. 1990-340. McIngvale also said that section 1253 assumes the inverse too–when a taxpayer transfers a franchise and doesn’t retain a significant interest, the transaction is taxed as the sale or exchange of a capital asset. Id.” 2017 T. C. Memo. 122, at p. 17. (Footnote omitted, but read it; legislative history and more cases for your memo of law).

The Greens win.

I cannot find in Judge Holmes’ opinion any reference to IRS advancing “a good faith argument for an extension, modification or reversal of existing law.” See ABA Model Rules of Professional Conduct 3.1. Maybe the Greens should go for legals and admins. Or something else.

A rule that should be graven in stone on the walls of 1111 Constitution Ave, NW, and every outpost thereof is the source of defeat for IRS’ summary J motion in Security Management and Integration Company, Docket No. 15248-16L, filed 6/20/17.

This is a petition from a CDP NOD. IRS claims that the Decision Letter here isn’t a NOD, but CSTJ-in-waiting Lewis (“A Name Denoting Chieftainship”) Carluzzo doesn’t let technicalities deter him from proceeding as if the Decision Letter was in fact a NOD.

That said, was the petition timely?

“Because the letter was not sent by certified mail, respondent relies entirely upon the date shown on the letter, April 6, 2016, to establish the date it was sent, and therefore the date the period prescribed in section 6330(d) began to run. Using that date, it is obvious that the petition, filed July 5, 2016, would not be treated as timely. Although petitioner does not identify a specific date that he received the letter, petitioner claims that he mailed the petition to the Court within 30 days from the date he received it. Without a certified mailing list, or any other information regarding the date the letter was mailed, we are reluctant to find that it was mailed as dated. See Magazine v.Commissioner,89 T.C. 321(1987). Without being able to determine the date the letter was mailed to petitioner, we are left only with his claim that he mailed the petition within 30 days of its receipt. That being so, we find that the petition was timely.” Order, at p. 2.

IRS gets summary J, but it goes against them.

Lest the Security Managers and Integraters feel too elated, they also sought summary J, prohibiting collection during the pendency of the proceeding, and they too lose.

“The record shows that petitioner is a Federal government contractor. See sec. 6330(h)(2). Section 6330(f)(4) somewhat limits the rights otherwise provided to taxpayers by section 6320 and 6330 in the case of a taxpayer who is a Federal government contractor. See Bussell v. Commissioner, 130 T.C. 222,237(2008); Dorn v. Commissioner, 119 T.C. 356, 359 (2002). For example, the prohibition against collection during the pendency of the section 6330(d) proceeding does not apply. See sec. 6330(e)(1).” Order, at p. 2.

Takeaway- Use certified mail. Use even Priority Mail. Save receipts and screenshots from USPS website.

Takeaway 2- When representing government contractors, expect the unexpected. Come to think of it, that’s a good rule in any case.

Baseball season is in full swing, with the All-Star break soon to arrive. So I take my text from a phrase often heard in that context, as Judge Pugh (and I) deal with W. Zintl Construction, Inc., 2017 T. C. Memo. 119, filed 6/19/17.

WZ is a C Corp, owned by the eponymous W and wife Ann. WZ owes about $6.5 million in self-reported FICA-FUTA-ITW over three years. IRS hits WZ with NITLs and NFTLs, and WZ bangs in a 12153 and seeks OIC, claiming liquidation value of $1.5 million and offering $1 million to settle. The SO blows that one off, claims as a going concern WZ is worth $5 million. WZ tries to borrow this amount, but can’t.

WZ petitions, claiming the SO valued the C Corp cum tax obligations, but no one would buy the firm with those obligations unpaid. IRS claims IRM pt. 5.8.5.17 (Sept. 30, 2013) lets the SO use going concern value.

So the issue is whether to sell off the assets or sell the entire business.

This case goes up on stipulated facts (Rule 121), as no one disputes the numbers, only which set of numbers to apply.

WZ claims going concern value is never apposite where the taxpayer is the business, because IRS can never sell the business. Judge Pugh need not go there, even when IRS says “Oh, yes we can.”

“In effect petitioner asks us to decide that use of the going-concern value of a business is never appropriate when the business being valued is the taxpayer. We cannot so conclude, nor need we, because we find that SO A’s calculation of RCP was faulty for a different reason: In calculating petitioner’s RCP, SO A increased petitioner’s going-concern value by the amount of the unpaid tax liability that the appraisal took into account in its calculation of value and based his determination of RCP solely on this modified value.

“This modification to the value at first blush seems logical. Reducing petitioner’s going-concern value by its tax liability when determining how much of this tax liability petitioner can pay would seem to double count the tax liability and provide a boon to a business taxpayer whose tax debt is part of the business being valued. It is this tax liability that will be satisfied with the OIC, after all. The problem is that the going-concern value is intended to give some indication of the value of petitioner as a continuing business, that is, what a third party might pay to buy petitioner as a whole, including all of its assets and liabilities. No third party would buy petitioner without taking into account the unpaid tax liability. And the record shows that petitioner could not obtain financing for the modified amount either. This highlights the logical difficulty of using going- concern value–which presumes that a taxpayer can sell itself–to determine RCP.” 2017 T. C. Memo. 119, at pp. 11-12. (Name omitted).

Judge Pugh’s balancing act doesn’t end there. She doesn’t decide that going concern value is never relevant where the taxpayer is the business being valued. Neither does she let WZ off the hook by allowing the $1 million OIC.

SO A wasn’t reasonable in denying the OIC by leaving in most of the tax liability as part of the RCP.

So back to Appeals for WZ and SO A.

Note we see a similar argument in the Section 6901 transferee cases:  no one would buy a business at full price when a yuge tax liability is hanging over its head.