One of the longer-running shows at The Glasshouse at 400 Second Street, NW is Diebold Foundation, Transferee, Docket No. 24702-08, filed 6/6/17. It seemed to be winding down after trial, a trip to 2nd Cir, and a collapse of the ring-a-ring-rosie that tried to marry a made-up loss to a heavy gain, the ancestor of any number of Section 6901 give-and-goes.

But now the agile attorneys for Diebold turn to the existence of collapsed Double-D Ranch, the corporate intermediary for whom Diebold was transferee.

They claim the original SNOD is invalid, because it listed the wrong year. Double-D ran a short year because it consolidated with Diebold, but as the transaction had been collapsed, the short year collapsed as well, and the correct tax year wasn’t the short year but the full year. It only took them four (count ’em, four) years to come up with this.

“Double-D Ranch filed a short year return on the basis that it entered into a consolidated group upon the sale of the stock on July 2, 1999. A corporation’s tax year ends when the corporation becomes a member of a consolidated group. Sec. 1.1502-76(b)(1)(ii)(A)(1), Income Tax Regs. Petitioner argues that as the Court has held no stock sale occurred in substance, Double-D Ranch did not become a member of a consolidated group on July 2, 1999, and accordingly, it was improper for Double-D Ranch to file a short year return. Petitioner’s argument follows that because it was improper to file a short year return, the notices of deficiency and transferee liability based on the short year are invalid and the Court lacks jurisdiction. Petitioner argues that Double-D Ranch’s proper taxable year is July 1, 1999 through June 30, 2000. According to petitioner, the Commissioner should have issued the notice of deficiency and the notice of transferee liability for Double-D Ranch’s taxable year ended June 30, 2000. See IRC sec. 7701(a)(23); sec. 7701(a)(24).” Order, at p. 2.

I give the Diebold attorneys, from a well-known firm that originated in Chicago, a Taishoff  “good try, third class.”

Judge Goeke doesn’t even give them an “Oh Please!”

“Double-D Ranch in substance liquidated and terminated its existence for Federal tax purposes on July 2, 1999. It was proper for respondent to issue notices on the basis of the short year ending July 2, 1999. The notices of deficiency and transferee liability were valid, and the Court has jurisdiction in this case.

“Furthermore, even if we were to find that respondent issued the notices with respect to an incorrect taxable period, we would hold that the error did not invalidate the notices because the error did not mislead petitioner.” Order, at pp. 4-5.

You picked it, Double-D, you own it.

Judge Goeke, you spent six (count ’em, six) pages, and much “somber reasoning and copious citation of precedent,”on this order. Why not designate it? I have work to do, so make it easy for the poor blogger. Please.

There’s a witness who really wants to testify, but he has a wee problem getting to the courtroom. Mr Keys, the witness, doesn’t have the keys to the Federal slammer wherein he sits, and apparently isn’t going to get them any time soon.

And that’s a problem for the parties who want Mr Keys’ testimony. Once again appearing on this my blog are Gregory Raifman & Susan Raifman, Docket No. 3897-14, filed 6/5/17.

Greg & Sue haven’t the best of batting averages in the Glasshouse. See my blogposts “We Wuz Robbed,” 8/7/12 and “An Unerring Nose for Fraud,” 2/27/15.

But they catch a break from Judge Nega, because he lets in the written declaration of Mr Keys in lieu of his actual testimony.

However, the exhibits to his written declaration run aground and are tossed.

So if a key witness (sorry, guys) is tied up when it’s time for trial, try the written declaration route.

IRS needs to do some updating of its forms and letters. Both Judge Ashford and that Obliging Jurist Judge David Gustafson agree.

But Judge Ashford goes first, as she has a full-dress T. C., David T. Myers, 148 T. C. 20, filed 6/5/17. Dave is reprising the Incomparable Comparinis, as to whose epistolary interlocutions see my blogpost “Contra Proferentem,” 10/2/14, wherein I suggested what verbiage the Ogden Sunseteers should insert in their shoot-down billets doux to start the petitioning clock on the wannabe blowers.

Of course they didn’t. So Dave and the OS volleyed missives back and forth over five (count ‘em, five) years. At the fourth year in the chain, OS sent Dave the “we got no money” brush-off. This they claim was the final determination.

Dave kept volleying through year four until, disgusted with OS, he e-mailed other governmental officials into year five, admitting he had a letter from OS saying “no repeat no” at year four. And he got no other letters.

It took Dave 290 days to file a petition. Well, this is a thirty-day rule situation.

Judge Ashford borrows from deficiency learning. While Dave could petition from any of the OS letters, cf. Comparini, he had notice and a reasonable time to file after the last one in year four.

Although OS didn’t send any letters by certified mail, in contravention of the then-IRM provision, the IRM gives Dave no rights, and anyway he got the letters in time to petition.

As for the updating, “…the Whistleblower Office typically does not include in such letters any information regarding a claimant’s right to appeal to this Court or the timeframe in which he must do so.” 148 T. C. 20, at p. 11 (Footnote omitted, but see infra, as my expensive colleagues say).

But the OS apparently got the hint. Here’s the footnote.

“Indeed, the consistent lack of this information in such letters not only is inconsistent with respondent’s practice in many other areas where our jurisdiction is implicated (in particular, deficiency cases, cases involving relief from joint and several liability, and lien/levy cases), but also, we believe, can be prejudicial to claimants–especially because there are only 30 days to appeal–and the cause of much unnecessary confusion and consternation in our adjudication of such cases. Respondent apparently agrees, as the IRM was modified, effective August 7, 2015, to direct that the Whistleblower Office include such information in the final determination letters that it issues to claimants.  See IRM pt. 25.2.2.9(9) (Aug. 7, 2015).” 148 T. C. 20, at p. 11, footnote 6.

Of course, putting it in the IRM doesn’t help the blowers if the OS don’t bother updating their letters.

And now for that Obliging Jurist Judge David Gustafson, who will join me in suggesting appropriate revisions to another IRS missive, the one-size-fits-both CDP NOD.

Here’s Douglas Stauffer Bell & Nancy Clark Bell, Docket No. 1973-10L, filed 6/5/17. Doug & Nancy are befuddled. They petition a NOD as to levies, but don’t petition one as to liens. So even Obliging Judge Gustafson can’t review the liens. No petition in thirty days, no review.

But it’s not like pro sese Doug & Nancy were negligent.

“We have sympathy for the petitioners’ probable confusion about whether they needed to file another petition (or amend their existing petition) to obtain judicial review of the notice of determination concerning the liens. Where a taxpayer is receiving multiple forms of communication from the IRS about both liens and levies, concerning multiple liabilities for multiple periods, the opportunities for confusion over oversight are obvious. The IRS’s all-purpose form for giving notice of determination for both liens and levies (‘Notice of Determination Concerning Collection Action(s) Under Section(s) 6320 and/or 6330’) is not helpful in such a situation. Sometimes the form denotes a lien determination, sometimes a levy determination, and sometimes both. The front page gives no indication; one must read and understand the summary on the second page or the attachment, in order to know whether it is for lien or levy or both. If a taxpayer has been dealing with IRS Appeals about both liens and levies, the taxpayer may assume wrongly that the notice addresses all of his pending issues and that a timely petition will bring all those issues before the Tax Court. We assume it is not our place in a CDP case to stand in judgment of the IRS’s forms, but we believe that the this [sic] form could be improved.” Order, at pp. 1-2.

Judge Gustafson, it may not be the Court’s place, but we bloggers stand (or sit) and type in judgment about all kinds of delictions, misadventures and misdirections, whether on the part of government, litigants, advocates, clerks or whomever. And we are nowise loath to sound the trumpet, summon the elders, and proclaim a solemn assembly, to paraphrase a much more exalted commentator.

See my blogpost “Fake Out,” 12/16/14. And let’s have another Judicial Conference, as Congress ordered two years ago. Maybe we can talk all this over.

PS- IRS and Doug & Nancy will agree to a remand to Appeals, so Doug & Nancy get a supplemental CDP, from which they can petition, but only as to what the supplemental CDP covers.

I remember with fondness the old Schedule H (I think it was), which, again allowing for an old man’s faulty memory, allowed for a five-year averaging of income to permit lower taxation of windfall amounts, such as we got in the boom times years ago, when the seven fat kine were stomping their seven lean compatriots. But the 1986 Tax Reform Act put paid to that particular goody.

Though dead, it is apparently not forgotten, as another attorney tries it on in a NOD case.

Here’s Stephen C. Moore, Docket No. 4290-16L, filed 6/2/17, today’s designated hitter from Judge Morrison on an otherwise rather somnolent Friday at The Glasshouse. Really, Judge, this should have been an opinion.

Stephen is a plaintiffs’ PI lawyer (that’s Personal Injury). That work generally yields big payouts after years of getting by, and practitioners therein hope to glean enough in the out years to keep them eating until the next Big Bird drops off the goodies at the landing strip.

Well, Stephen is a trifle behind on five (count ‘em, five) years’ worth of tax. He’s not contesting liability, so it’s abuse-of-discretion after his installment deal gets bounced at the CDP. And Stephen has a table showing seven (count ‘em, seven) years of income previous to the CDP, which he averages out (after dropping out a $1.5 million referral fee he picked up along the way, claiming that was an outlier; we should all have such outliers).

Stephen claims Appeals looked at only the most recent year, but he didn’t earn that much every year.

Appeals wasn’t buying, and neither was Judge Morrison. First, Appeals looked at Stephen’s income for the three most recent years.

“…the Appeals Office considered the three most recent years. To consider more years of income might increase the reliability of an estimate of income in some circumstances. Yet income in recent years might offer a better prediction of future income than income in older years. We hold that the Appeals Office’s decision to focus on the three most recent years was a matter of judgment rather than an abuse of discretion.” Order, at p. 5.

And omitting the $1.5 million from the mix fares no better.

“Moore urged the Appeals Office to exclude the $1.5 million referral fee in calculating his…income. If the Appeals Office had excluded this fee, his [income for that year] would have been $114,425. Under the Appeals Office’s approach of estimating projected income from the lowest income of the three years …the lowest income would have been [that year’s] income–$114,425. This is low compared to other alternative predictions. For example, it is less than a third the annual future income that Moore projected–$394,954. We think the Appeals Office was within its discretion in refusing to exclude the $1.5 million referral fee from its calculations of the income for [that year]. Order, at p. 5.

An average is an average; it takes in big scores and droughts and evens them out.

So Appeals wasn’t wrong in kicking Stephen’s number.

Takeaway- Just because Stephen lost is no reason not to try income averaging where the client is in a boom-and-bust situation. Just use recent numbers (unless you can show a major error in so doing), and don’t cherrypick.

I’ve often blogged The Phone Call. For the ur-text, see my blogpost thus entitled, 4/15/14, the 102nd anniversary of the sinking of RMS Titanic.

I therein described The Phone Call thus: “Every lawyer has received The Phone Call. It comes, for the most part, long after the case or matter is concluded, the file closed, and client forgotten (or nearly so). It comes, again for the most part, when one is finally packing up to go home after an exhausting day, and one dares to turn one’s mind to something cold, and clear, and containing an olive.”

The client’s voice is grating, loud. I omit the expletives and colorful metaphors in deference to the delicate constitutions of my readers. “You XYZ, you never told me about Pi R Square when you did (or didn’t) do ABC!”

Well, today I am pleased to report on Barry M. Smith & Rochelle Smith, Docket No. 14900-15, filed 6/2/17. In keeping with the point of this blogpost, it’s really to do with their counsel.

In a phone-a-thon with the parties after IRS counsel raised issues of conflict of interest between Barry & Rochelle, Judge Lauber suggested conflict waivers might solve the problem. Maybe Judge Lauber concluded the conflict was waivable, per ABA Model Rule 1.7(b).

Of course, there must be informed consent, expressed in writing. And what that means can be found in Rule 1.0(e). To save you from looking it up, the lawyer has to give the client “adequate information and explanation about the material risks of and reasonably available alternatives to the proposed course of conduct.”

Tax Court Rule 24(g) provides for conflict waivers in slightly different terms, but there’s no apparent conflict between Tax Court and ABA here.

Well, Judge Lauber suggested in the phone-a-thon that when Barry’s & Rochelle’s conflicted counsel got the waivers, they share same with IRS counsel.

Barry & Rochelle’s counsel says no.

“…petitioners filed a Motion for Reconsideration of Order, which the Court believes should properly be characterized as a status report. In that status report counsel for petitioners represent that the waiver agreements executed by petitioners include confidential information concerning legal advice and potential risks regarding the representation that is protected by attorney-client privilege. Counsel for petitioners accordingly submit that it would be inappropriate to disclose these documents to counsel for respondent.” Order, at p. 1.

In order for consent to be “informed consent,” every reasonably foreseeable possibility must be dealt with. And a duplicate original should be locked away very carefully. A fortiori, as my high-priced colleagues would say, any such consent would be replete with client confidences, potential trial strategies, evaluations of potential witnesses and evidence, in short, whatever could fend off The Phone Call.

Judge Lauber: “We accept the representations of petitioners’ counsel that they have secured the necessary consents and have thus complied with the requirements of Rule 24(g). Given the manner in which these waiver agreements have apparently been drafted, we do not believe it necessary that copies be supplied to respondent’s counsel.” Order, at pp. 1-2.

I submit that there is no other way to draft such waivers adequately and in compliance with the governing Rules. And avoid The Phone Call.

No, not the 1940s radio quiz show that was the first prerecorded show (to permit it to be aired on the West Coast in prime time simultaneously with East Coast prime time).

This is the factual issue raised by Kenneth A. McRae, Docket No. 21799-016, filed 6/1/17, a designated hitter off the bat of Chief Special Trial Judge In Waiting Lewis (“Wotta Name!”) Carluzzo.

Ken may be “impertinent, if not frivolous” (Order, at p. 2), but CSTJIW Lew finds that Ken has a valid point.

Ken didn’t bother to file, so the SNOD from which he’s petitioning is based on SFRs, which in turn are based on Information Return Documents.  The exact nature of these InfoReDs aren’t specified, but might be W-2s or 1099s from third parties.

Ken claims “on information and belief” these were “based on inaccurate and unreliable records.” Order, at p. 1.

Now IRS claims Ken only raised legal questions, and these were at best dubious. But CSTJIW Lew isn’t handing IRS summary J just yet.

“The details of the information reported on the ‘Information Return Documents’, however, are not set forth in the copy of the notice attached to respondent’s motion, which is the only copy of the notice currently in the record. That being so, and giving petitioner the benefit of every doubt as we are required to do in our consideration of respondent’s motion, see Bell Atlantic Corp. v. Twombly, 550 U.S. 544 (2007), the above-referenced allegation gives rise to a justiciable issue, that is, whether the information return reports relied upon by respondent are accurate and reliable. Consequently, resolving this case in summary fashion, as respondent’s motion would have us do, is inappropriate at this stage of the proceedings.” Order, at pp. 1-2.

But lest Ken be too elated, CSTJIW Lew prunes the impertinent and/or maybe frivolous material from his petition.

Takeaway- When you’re fighting SFRs and InfoReDs, make sure IRS has properly noticed and pled them, and sweat the client for whatever s/he may have gotten. Review same, and if any are dubious, you know what to do.

If any of my readers, that tiny but dedicated band, wonder why I had not commented on Judge Paris’ slam of five of Sammy Jewell’s nursing homes today, letting IRS descend like the Assyrian in George Gordon’s famous epic to grab unpaid FICA/FUTA, I can only say that I blogged Sammy’s delictions in my blogpost “It’s Personal,” 3/23/17.

You can read the opinions, but there’s really nothing new there.

I was ranting yesterday about Ch J L Paige (“Iron Fist”) Marvel trying to turn IRS counsel into a Low Income Tax Clinic, and incidentally violate ABA Model Rules of Professional Conduct Rule 4.3.

But I had not reckoned with that Obliging Jurist, Judge David Gustafson. Judge Gustafson shows how to solve the problem that had poor Momma Donna Poleon so distressed.

For Momma Donna’s problem, see my blogpost “The Self-Represented,” 5/30/17.

Well, today Vonnie K. Poche, Docket No. 20344-16, filed 5/31/17, is even worse off than poor Keith D. Poleon, as Judge Gustafson finds out in a telethon with Ms. Poche.

“…Ms. Poche is 84 years of age, is now living with her 59 year-old son Ricky Poche in Paulina [LA], is homebound, and suffers from dementia, neuropathy, and arthritis in both legs (making her unable to walk), so that she is unable to come for a trial in Jackson…. She stated that she does not remember receiving an IRA distribution in [year at issue]. She asked that the place of trial be changed to New Orleans, and we will order that change.” Order, at pp. 1-2.

Good start, but having gone one mile, Judge Gustafson follows the voice of a much higher Authority than even the Internal Revenue Code. Having gone one mile with Vonnie, he goes with her the twain.

“For Ms. Poche’s benefit, we point out that Tax Court Rule 60(d) provides for the prosecution of a case in this Court through a ‘next friend’ recognized by the Court. See Campos v. Commissioner, T.C. 2003-193. In view of Ms. Poche’s disability, we are willing under the circumstances to entertain a Motion to Be Recognized as Next Friend, if one is filed by an appropriate person (such as perhaps Ms. Poche’s son or daughter). Such a motion should recite and explain:

“that the person filing the motion would like to be recognized as Ms. Poche’s next friend and would represent Ms. Poche’s best interests;

“that Ms. Poche cannot prosecute this case without assistance;

“that the person filing the motion has a significant relationship with Ms. Poche; and

“that there is no other person better suited to serve as next friend.

“The person filing the motion should also state in the motion whether anyone (including Ms. Poche) is known to have an objection to the Court’s recognizing that person as Ms. Poche’s next friend. If Ms. Poche intends that this person also speak on her behalf with the IRS, then she should execute a Form 2848 ‘Power of Attorney’ authorizing that person to do so.” Order, at p. 2.

Note this is the one time that a POA gets one in the door at 400 Second Street, NW, or NOLA, or anywhere else the peripatetic Tax Court may wander.

There, Ch J Iron Fist, put that in the word processor, and let IRS counsel represent IRS.

Twice Told

Let’s begin with Henry Langer and Patricia Langer, 2017 T. C. Memo. 92, filed 5/30/17. Henry was a two-time loser in Tax Court with personal deductions imperfectly disguised as business expenses. This time around, Henry got nailed yet again for taking deductions for “expenses for parties, gifts, flowers, vases, and holiday decorations, to name a few.” 2017 T. C. Memo. 92, at p. 3.

Henry’s casual approach to compliance with the law triggered a fraud chop.

Judge Nega sustains the chop.

“Petitioners conceded in full the deficiencies for [the three years at issue], and therefore respondent satisfied his burden of proving an underpayment of tax for each year at issue.  Respondent established that, for each year at issue, petitioners’ underpayment of tax was fraudulent and that they intended to conceal taxable income and prevent the collection of tax by overstating deductions and claiming nondeductible and obvious personal expenditures as business expenses.” 2017 T. C. Memo. 92, at p. 4.

So? Overstated deductions aren’t necessarily fraudulent. Henry hasn’t got a great track record when it comes to compliance, but is that enough?

Well, Harry should know better.

“Mr. Langer’s nearly 30 years of experience as a revenue agent and petitioners’ history before this Court for identical issues are relevant considerations in determining whether they had fraudulent intent.  See Beaver v. Commissioner, 55 T.C. 85, 93-94 (1970) (stating that petitioner’s business experience is a relevant consideration in determining whether he had fraudulent intent).  Petitioners’ repeated concealment of income by overstating deductions exemplifies a pattern of fraudulent behavior, and their explanations are implausible and unpersuasive.  See McGraw v. Commissioner, 384 F.3d 965, 971 (8th Cir. 2004) (‘[A] consistent pattern of sizeable underreporting of income * * * and unsatisfactory explanations for such underreporting also can establish fraud.’), aff’g Butler v. Commissioner, T.C. Memo. 2002-314; Sanchez v. Commissioner, T.C. Memo. 2014-174, at *17 (stating that ‘a pattern of conduct that evidences an intent to mislead’ is one of the ‘badges of fraud’ from which fraudulent intent can be inferred), aff’d, ___ F. App’x ___, 2016 WL 7336626 (9th Cir. Dec. 19, 2016); Bruce Goldberg, Inc. v. Commissioner, T.C. Memo. 1989-582, 58 T.C.M. (CCH) 519, 529 (1989) (‘[F]raud may sometimes be inferred from a pattern of overstating deductions.’). Accordingly, petitioners are liable for the fraud penalties under section 6663 for all years at issue.” 2017 T. C. Memo. 92, at pp. 4-5.

The next sad story needed some digging. The order is simple enough, Genci Gjergjani, Docket No. 15311-16, filed 5/20/17.

And the effect is simple enough. “…petitioner’s counsel, Joe Manuel Gonzalez, having been suspended from practice before this Court, it is ORDERED that Joe Manuel Gonzalez is hereby withdrawn as petitioner’s counsel from this case.” Order, at p. 1.

Except that the suspension order is not to be found on the Tax Court website. I expect the usual press release listing delinquents and defaulters hasn’t yet issued.

So I dug. Joe Manuel got nailed for laundering what were said to be proceeds of a marijuana-growing operation. He got time and a fine from the Federales via a sting, and suspended by the FL Bar.

Up here in NY he’d be disbarred, but that’s by the way.

The sad part is what the Tampa Bay Business Journal reports was Joe Manuel’s fee: $4500.00. Forty-five hundred dollars, at the age of 66, after thirty-plus years of practicing law, to throw it all away. The “clients” claimed to be hiding $250K in illegal cash.

Shaking my head.

STJ Daniel A. (“Yuda”) Guy is headquartered at 400 Second Street, NW, but IRS wants him to pretend he moved to the above-captioned address, headquarters of the VA, in Kent E. Keeter. 2017 T. C. Sum. Op.. 36, filed 5/30/17.

Kent joined the Army thirty-some years ago, and went to “boot camp” (that’s Basic Combat Training for you civilians). While going through that interesting experience, Kent got a head injury that gave him a two-to-three-month hospital stay, a seizure disorder, an honorable discharge, and a 100% disability rating from the Army.

Kent swears he spoke to the VA, who said he could apply for their benefits as well, but didn’t apply. This could have been a costly mistake, but for STJ Yuda. Although Kent settled out with IRS over certain years when he neither reported his disability payments nor paid tax thereon, IRS came after him for another year. Each year stands on its own, so the VA vs Dep’t of the Army joust is in play.

See my blogpost “Disabled Veteran,” 12/22/14, wherein STJ Yuda tells the story of the joust in more detail.

Kent never got the VASRD number, but got a college degree in computer science, and worked for years in that field. So how disabled was he?

STJ Yuda believed that Kent spoke to the VA.

“Petitioner directs us to his testimony that he understood after meeting with a VA representative at the time of his honorable discharge that he would qualify for benefits.  Respondent would have us examine the VA standard and apply it to petitioner with the hindsight of knowing that petitioner had a career in computers after he was honorably discharged.  We will decline respondent’s invitation to put ourselves in the shoes of the VA today and instead base our holding on the information petitioner had at the time which was that he would qualify for VA benefits.  We therefore hold that petitioner’s military disability retirement income…is excludible from his gross income.” 2017 T. C. Sum. Op. 36, at pp. 5-6 (Footnote omitted, but read it.)

In the omitted footnote, IRS tries to cite a Sum. Op. (which of course isn’t precedent), but there the petitioner had no evidence he ever went near the VA, although he was “sure” he could have gotten the magic number if he’d asked. That’s a no-go.

So while the VA can be found on Vermont Avenue, STJ Yuda isn’t going there.