That’s the bad news for Pei Fang Guo, 149 T. C. 14, filed 10/2/17. Pei got unemployment compensation from the State of Ohio after she lost her job as a post-doctoral fellow at the University of Cincinnati.

Pei was in the USA as a nonimmigrant professional, and never claimed US citizenship, being a Canadian citizen all the while. Pei claims Article XV of the Convention With Respect to Taxes on Income and on Capital, Can.-U.S., Sept. 26, 1980, T.I.A.S. No. 11087 (the “treaty”) exempts the payment from US income tax (and Pei’s below the radar for Canadian income tax).

Well, the magic language for exemption in Article XV is “Dependent Personal Services,” which Pei claims her unemployment compensation is. IRS claims that this is “Other Income,” per Article XXII, thus US taxable.

Judge Lauber has this one.

“Nonresident alien individuals generally are taxed on their U.S.-source income. See secs. 871, 872. The parties agree that petitioner’s unemployment compensation, by analogy to other items of income specified in section 861, was U.S.-source income. They agree that ‘gross income includes unemployment compensation,’ section 85(a), and that this income was ‘effectively connected’ with the conduct by petitioner of a U.S. trade or business, see section 871(b). The sole question presented is whether petitioner’s unemployment compensation was exempt from Federal income tax under the treaty.” 149 T. C. 14, at pp. 5-6.

This is a case of first instance, thus it gets a full-dress T. C. opinion.

Treaties get broadly interpreted, as they are deals between sovereigns. Dictionary approaches are out, although plain meaning is in. See my blogpost “Revenez, Enfants de la Patrie,” 9/21/16.

The treaty never mentions unemployment compensation, except to say that it isn’t social security. Article XV, the underpinning of Pei’s argument, talks about “remuneration,” but the treaty doesn’t define that word. So the general rule of Art. III(2) that the definition comes from the government that taxes the income applies.

“Remuneration” is mentioned only twice in the IRC, and then in connection with FICA. There, it’s any payment for labor or services, with 23 (count ‘em, 23) exceptions.

Ya gotta love this stuff, you really do.

Pei didn’t get unemployment compensation from her former employer, U of Cincy. She got it from the State of Ohio.

“Even if unemployment compensation were thought to be ‘remuneration derived * * * in respect of an employment,’ article XV(1) would not help petitioner. Paragraph 1 thereof provides that ‘salaries, wages and other similar remuneration derived by a resident of a Contracting State in respect of an employment shall be taxable only in that State unless the employment is exercised in the other Contracting State.’ If the employment is so exercised, ‘such remuneration as is derived therefrom may be taxed in that other State.’ Ibid.

“If petitioner’s unemployment compensation were thought to be ‘remuneration derived * * * in respect of an employment,’ it would have to be regarded as remuneration derived in respect of her former employment with UC. See ibid. That employment was ‘exercised’ in the United States. Paragraph 1 accordingly provides that such remuneration may be taxed in the United States.” 149 T. C. 14, at p. 10.

Pei is over the $10K limit for the exception in Art XV(2), and anyway she wasn’t paid by a Canadian entity, but by Ohio.

This is a deficiency case, so Tax Court can’t abate interest, as Pei asked. Section 6404(a)(1)(E) bars that door.

Canada can allow Pei a deduction or credit for the US income tax she pays, per Article XXIV(2)(a), but as this is the US Tax Court, Judge Lauber can’t tell Canada Revenue Agency, a/k/a Agence du Revenue du Canada, to do anything.

US unemployment compensation may be compensation, but it isn’t remuneration.

Judge Carolyn P. Chiechi is far too cultured and well-bred to use such a boisterous, “yeehaw” word as “absquatulate.” After all, Judge Chiechi was first in her undergraduate class, and stood ninth in her law school class, at Georgetown.

But this blogger is nowise so constrained. I, much less gifted, did well enough (although unranked) as an undergraduate at a local City school, but barely evaded the cellar On The Hill Far Above.

Howbeit, the title of this opuscule accurately describes the proper procedure when stipulating and seeking a continuance (what we State courtiers call an “adjournment”).

Here’s You De Li & Biyan Liang, Docket No. 19748-16, filed 10/2/17, to tell you all about it.

“…respondent filed a motion for continuance (respondent’s motion). In that motion, respondent represents that the parties will be filing soon a stipulation of settled issues relating to certain issues in this case. The Court will not act on respondent’s motion until that stipulation of settled issues is filed.” Order, at p. 1.

So if you mean to stipulate as the thirty-day cut-off per Rule 133 is bearing down on you, stipulate first, and send in the stip with your motion for a continuance.

Or maybe, if you’re particularly adventurous, you can try for a continuance without talking about stipulations. But I don’t recommend this. Judges get very testy with those who are parsimonious with the truth.

Y’all will remember the jumpball over the testimony of Weston Anson, IRS’ expert witness, who on cross-examination admitted he lied. And IRS likewise admitted he lied.

On the stand. Under oath.

OK, bring forth the guillotine and the sawdust.

Well, not so fast, says Judge Holmes. Perjury is a criminal offense, and I ain’t got no criminal jurisdiction.

Am I going too fast for y’all? Well, to start, read my blogpost “The Plot Thickens,” 3/9/17. That’ll give you a wee bit of background, plus Judge Holmes’ honorifics.

Now scope out Estate of Michael J. Jackson, Deceased, John G. Branca, Co-Executor and John McClain, Co-Executor, Docket No. 17152-13, filed 9/29/17.

Yes, Weston Anson lied. But he omitted two items from the Rule 143(g) list of all the stuff he wrote over the past ten (count ‘em, ten) years, and all the cases wherein he testified, whether on trial or deposition, over the last four (count ‘em, four) years. There were 100 of each type, so leaving out two isn’t the end of the world, unless the co-ex’rs are prejudiced, and they don’t claim they are.

They do claim one omission was material, but the name stated in Weston Anson’s disclosure was the d/b/a of the entity involved. “We won’t read Tax Court Rule 143(g) to require the exclusion of Mr. Anson’s testimony without some reason for treating the disclosure of a d/b/a as something other than the equivalent of the disclosure of the underlying business name.” Order, at p. 3.

So a litigant has to do a name search in who knows how many jurisdictions to find whether the given name of an entity is the name of the entity or a d/b/a? Judge Holmes, you were doing great up to that point. You just got a Taishoff “Oh, Please!”

The co-ex’rs claim Weston Anson is biased, a professional witness. OK, says Judge Holmes, but that goes to the weight I give his testimony, not to whether I toss him altogether. “Only when an expert report becomes absurd or ‘so far beyond the realm of usefulness’ does bias make an expert report inadmissible. See Boltar, L.L.C. v. Commissioner, 136 T.C. 326, 335-36 (2011). That isn’t the case here, so any bias that Mr. Anson’s false statements may reflect will be accounted for in the weight given to his testimony.” Order, at p. 3.

Finally, the co-ex’rs go to FRE 403 and 702, the “gatekeeper” rules. Trial judges have the duty to keep bogus opinions and junk science out of the courtroom. And trial judges certainly can and should toss lying witnesses.

But the Rule of Necessity, even though not stated, seems to be the main thrust. Weston Anson was IRS’ sole witness. Toss him, and IRS is left with the Michael Corleone gambit.

Judge Holmes punts: “There has to be some consequence for Mr. Anson’s false testimony about his dealings with the IRS, but to in effect strip the Commissioner of any expert-testimony about the value of the Estate’s assets because of Mr. Anson’s parsimonious relationship with the truth about his dealings with the IRS in other cases seems to us too severe. A more proportionate remedy would be to discount the credibility and weight we give to his opinions. See Contreras, 121 Fed. Cl. at 239 (stating that ‘a rational approach is to diminish the weight of th[e] expert’s testimony or to subject th[e] expert’s testimony to stricter scrutiny’).” Order, at p. 4.

If I were the counsel to the co-ex’rs, I’d await the decision, and ready my appeal.

That’s Martin R. Dingman, who appeared on this blog in my blogpost “The Check’s The Thing,” 6/1/11. To save you rereading (or reading anew, if you weren’t among my faithful followers six years ago), Martin got SOL because, even though his attorney gave the returns and checks to the CID dudes and not to the relevant service center, the checks still got cashed in a timely way, thereby showing they got to the right place in time, and the SNOD (or maybe non-SNOD) was over the three-year limit.

Well, Martin’s done gone, but here’s another Taishofflaw alumnus trying the same gambit, but it crashes.

Here’s Scott Kimrey Goldsmith, Docket No. 21235-16L, filed 9/29/17. Scott Kim showed up 6/10/15, in my blogpost “’I Must Make Amends’” – Part Deux.”

Once again Scott Kim has drawn The Great Dissenter, a/k/a The Judge Who Writes Like a Human Being, s/a/k/a The Indomitable, Indefatigable, Illustrious, Industrious, Ineffable, Ineluctable, Incontrovertible, Implacable and Irrefragable Foe of the Partitive Genitive, Old China Hand and Master Silt Stirrer (drumroll and cymbal crash) Judge Mark V. Holmes.

You get two for the price of one today.

First, Scott Kim claims the notes of an AO, which were never included in the administrative record from his CDP, should have been included. Moreover, the notes show that Martin R. Dingman’s case was Scott Kim’s case, too.

No, says Judge Holmes. Reg. 301.6330-1(e)(3), Q&A E-8, says determinations are written documents, setting forth Appeals’ findings and decisions and sent by registered or certified mail. So although neither Section 6230 nor Section 6330 define “determination,” the Reg. does.

Judge Holmes enlightens us further.

“This tells us that the ‘determination’ that we analyze is the determination that we need to establish our jurisdiction in the first place — not an earlier draft, not preliminary notes, not an outline an IRS officer jots down to help her write a Notice of Determination. As we said in Lunsford v. Commissioner, 117 T.C. 159, 164 (2001), ‘[o]ur jurisdiction under section 6330(d)(1)(A) is established when there is a written notice that embodies a determination to proceed with the collection of the taxes in issue, and a timely filed petition.’ And this has to be what ‘determination’ means under I.R.C. § 6330(d)(1), which gives a taxpayer ‘within 30 days of a determination under this section [the right to] petition the Tax Court for review of such determination’ – if it were anything preliminary to this, how would a taxpayer even know he had a right to appeal or what to appeal from?” Order, at p. 5.

Anyway, Martin R. Dingman produced canceled checks. Scott Kim only has the Michael Corleone gambit.

Next is the prior opportunity to contest. Scott Kim did go to Appeals. That was his opportunity to contest.

Judge Holmes has a very useful practice tip, and as usual he’s put it in a footnote. Judge Holmes writes cool footnotes, as I said in my blogpost “The Great Dissenter – Part Deux,” 2/15/12.

“’Assessment’ is an important concept in tax procedure. It is the recording of a tax debt in the IRS’s records, I.R.C. § 6203, and it enables the IRS to use collection methods (such as liens and levies) without having to go to court. I.R.C. §§ 6321, 6331; see Bull v. United States, 295 U.S. 247, 260 (1935). The IRS generally has to give taxpayers whom it thinks owe income tax a notice of deficiency before assessing, which gives them the opportunity to challenge the proposed tax in Tax Court. I.R.C. § 6213(a). But trust-fund-recovery penalties are different: The Code makes them directly assessable, which means no judicial review before they are assessed. See, e.g., Wilt v. Commissioner, 60 T.C. 977, 978 (1973).” Order, at pp. 2-3, footnote 3.

Summary J for IRS. Go collect the TFRPs.

STJ Panuthos won’t seal the filings in Michael A. Bandish & Jacqueline M. Bandish, Docket No. 13342-16, filed 9/28/17, even though Mike claims “…petitioners are concerned about the safety of themselves and their family, and assert that they keep all their personal information confidential due to Mr. Bandish’s occupation.” Order, at p. 1.

Well, Mike and Jacquie are pro sese, and apparently not blowers. What bases there are for their concerns aren’t spelled out in this designated hitter, but apparently they aren’t enough to cut the Dijonnaise in STJ Panuthos’ court.

“Although the Court understands that petitioners have concerns, the assertions made are not sufficient to overcome the presumption in favor of public access to the Court’s records.” Order, at p. 2.

Section 7461 shines a bright spotlight on all Tax Court’s doings, and people caught in the headlights are just collateral damage in the Glasshouse at 400 Second Street, NW. Their Tax Court doings are open to all comers, unless they are at clear and present risk of death or bodily injury to self or immediate family. In witness whereof, see my blogpost “The Whistleblower Blown Up,” 5/20/14.

So Mike and Jacquie have to take their chances.

But STJ Panuthos has some consolatory words for them, as, in homage to the Bard of Long Island, he sings the filing electronic.

“The Court notes that Rule 27(b)(2) of the Tax Court Rules of Practice and Procedure provides that individuals other than the parties and their counsel have only limited remote electronic access to the docket record maintained by the Court. Thus petitioners’ address would not ordinarily be available to the public by remote electronic access. In addition, the Court regularly redacts a taxpayer’s address for purposes of remote electronic access on a decision document when the decision is entered. Accordingly, third parties, unrelated to this docket, would not normally have electronic access to petitioners’ address.” Order, at p. 2.

Judge, may I point out most respectfully that a bus ticket from much of the country to The City in the Swamp (that’s topographically, not politically, speaking) is not beyond the reach of even a low-balance prepaid credit card in the hands of one who wishes Mike and Jacquie ill. Moreover, may I say with all deference that one can, without extraordinary exertion or unusual difficulty, walk from the usual bus drop-offs to the Glasshouse at 400 Second Street, NW, and there peruse whatever files are unsealed and unredacted?

Where technology fails, determination may succeed.

Tax Court Will Join Together

To get the backstory for this blogpost, check out my blogpost “Whom the Preparer Puts Asunder – Part Deux,” 1/5/17, the contrarian 8 Cir putdown to Judge Nega, and the earlier blogpost therein cited. So now you can understand Fansu Camara and Aminata Jatta, 149 T. C. 13, filed 9/28/17, a lucky 13 for Fan and Ami, pro sese.

Fan checked the wrong box for one of the two years at issue, filing as “single” when he was at all times married to Ami. IRS doesn’t contend Fan was playing games, just that the correct MFJ return he and Ami filed after they petitioned Tax Court from the ensuing SNOD was too late to allow him the Section 6013(b) switch rather than fight. The SNOD treated Fan as filing MFS, clobbering him with $30K in tax and chop.

Fan and IRS settle out of the other year at issue, so all that’s on the table is whether Fan can rejoin the ranks of the righteous MFJs. If he can, he and IRS agree that the belated MFJ return, with a few tweaks, is A-OK.

Ex-Ch J Michael B (“Iron Mike, the Dictionary King”) Thornton has this one. Although Fan and Ami are Tennesseans and therefore in 6 Cir, the one 6 Cir case is a protester case where husband filed alternately as MFJ and MFS intentionally. Though IRS says “that settles it,” Ex-Ch J Iron Mike says it really doesn’t answer the question, because no one claims Fan was a protester or wiseguy. Likewise Fan didn’t file MFS first and then try to go MFJ.

This is clearly an honest mistake.

“Because the Court of Appeals for the Sixth Circuit has not decided the precise issue before us, and in the light of the recent reversal of this Court’s Memorandum Opinion in Ibrahim v. Commissioner, T.C. Memo. 2014-8, and the longstanding position of the Court of Appeals for the Fifth Circuit in Glaze, which is consistent with that of the Court of Appeals for the Sixth Circuit, we reexamine this Court’s holdings with respect to this issue.  Although mindful of the virtue of adhering to this Court’s long-established judicial holdings, we believe that the importance of reaching the right result and of promoting uniformity in the tax law requires that we carefully reexamine the issue before us.” 149 T. C. 13, at p. 12.

So while Tax Court is playing good shepherd, the Circuit Courts of Appeals are doing their “all we like sheep have gone astray, and have turned every one to his own way” number. And the iniquity of all of them has been laid on poor li’l ol’ Tax Court, to paraphrase a much higher authority.

“The term ‘separate return’ in section 6013(b)(1) is not defined in the Code or the regulations.  Considering the context of section 6013(b) as a whole, however, and giving due regard to the Courts of Appeals’ opinions in Ibrahim and Glaze, we think ‘separate return’ means a return on which a married taxpayer has claimed the permissible status of married filing separately, rather than a return on which a married taxpayer has claimed a filing status not properly available to him or her.” 149 T. C. 13, at pp. 12-13.

Of course, ex-Ch J Iron Mike can’t refrain from linguistic gyrations, so he cruises through Glaze and Ibrahim, parsing “election” and “separate” to restrict Section 6013(b) strictly to MFS types who are belatedly trying to get over to MFJ, or the reverse, or to wiseguys seeking to play games.

I do agree that you can’t “elect” an invalid option. “Election” means to choose between two possibilities, not to choose what doesn’t exist. If you’re married for the relevant portion of the year at issue, you file joint or separate, but not single.

And this case won’t upset all the learning on elections and how they’re binding.

Judge David Gustafson is obliging once again, and modest to a fault.

After a morning spent listening to enlightenment from Judge Vasquez and Taxpayer Advocate Nina E. (“The Big O”) Olson, two TIGTA gunners and a trio of journalists from big-time publications, all courtesy of The Jersey Boys (thanks again, Frank), and setting up a real estate closing well into the evening, for a weary blogger it’s good to have a designated hitter to finish off the day.

The story is simple. Jason Chai may have buried Graev, but only in New York, Connecticut and Vermont.

Here’s Johannes Lamprecht & Linda Lamprecht, Docket 14410-15, filed 9/26/17, trying to dodge fraud chops, and playing the Section 6751(b) Boss Hoss gambit.

For those who tuned in late, see my blogpost “The Jersey Bounce – Part Deux,” 3/22/17.

2 Cir. upended ex-Ch J Michael B. (“Iron Mike”) Thornton’s romp through the dictionary, and made Judge Gustafson a hero.

But Judge Gustafson is a stickler. Even though his brilliant dissent sparked the 2 Cir.’s burial of Graev, geography once again is destiny.

“…petitioners’ motion for summary judgment, addressing section 6751(b), is denied. We denied their equivalent motion by our order of December 20, 2016, in which we ‘conclude[d] that I.R.C. sec. 6751(b) does not preclude respondent from raising the fraud issue. See Graev v. Commissioner, 147 T.C.__(Nov.30,2016).’ Petitioners’ new motion points out that about three months later, ‘[o]n March 17, 2017, the United States Court of Appeals for the Second Circuit [issued its decision] in Chai v. Commissioner, 851 F.3d 190, 216 (2d Cir 2017), … h[olding] that the opinion of the majority in Graev was incorrect and substantially adopt[ing] the opinion of the dissent in Graev.’ However, this current case is evidently not appealable to the Second Circuit and would be bound by the opinion of the Tax Court in Graev. See Golsen v. Commissioner of Internal Revenue, 54 T.C. 742 (1970), aff’d 445 F.2d 985 (10th Cir. 1971).” Order, at pp. 1-2.

Interestingly, a quick docket search doesn’t reveal any State of residence for the Lamprechts, and their request for place of trial is Washington, DC. So is it appealable to Fed Cir or DC Cir? In either case, Judge Gustafson, don’t you want to see further appreciation of your handiwork?

The last couple days (hi, Judge Holmes) haven’t been great for preparers. Yesterday that Obliging Jurist Judge David Gustafson sent Tarig Gabr’s trusty attorney off to an evidentiary hearing to try to get Tarig a CDP from the Section 6694(b) preparer chops the IRS unloaded on Tarig.

See my blogpost “Read The Whole Thing,” 9/25/17, for the whole story.

Now George J. Foxx, Docket No. 14404-17, filed 9/26/17, is on the Section 6694(b) chopping block for three (count ‘em, three) years. George got bounced by Appeals with a Letter 1342, and IRS sent him back his papers.

George petitions the “small court.”

Ch J L Paige (“Iron Fist”) Marvel isn’t having any.

After the obligatory “we are a court of strictly limited jurisdiction,” Ch J Iron Fist notes that while George claimed he wanted Section 6404(h) abatement, he admits in his petition that interest isn’t an issue.

“Although petitioner indicated in his petition that he seeks review of a notice of final determination not to abate interest, he states in his objection to respondent’s motion to dismiss that this case ‘has nothing to do with interest abatement.’ Accordingly, no pertinent claims involving I.R.C. section 6015, 6404(h), or 7436, respectively, appear to be involved in this case.

“In his objection, petitioner argues that he is being denied due process and that this Court has jurisdiction to review the ‘final determination proffered to Petitioner to just pay a fine’. Petitioner’s statement appears to be a reference to the Letter 1342 that petitioner received from the IRS Appeals Office sustaining the imposition against him of tax preparer penalties pursuant to I.R.C. 6694(b). However, petitioner’s belief that this Court has jurisdiction to review that decision by the IRS is mistaken. I.R.C. 6696(b) specifically provides that deficiency procedures do not apply to the assessment or collection of the penalties set forth in I.R.C. section 6694, 6695, and 6695A. Nor is the Letter 1342 that petitioner received one of the types of notice of determination (described above) that is sufficient to confer jurisdiction on this Court.” Order, at pp. 2-3.

The doors of the “small court” are closed to chopped preparers. And if they go to Appeals rather than waiting for a NFTL or NITL, they lost their chance to contest if they get one now.

But Like Pornography

Nowhere in the IRC is there a definition of the term “earnings and profits.” Yet Tax Court Judges, the IRS, and most if not all tax practitioners, know it when we see it. And Western Property Restoration, Inc., 2017 T. C. Memo. 190, filed 9/26/17, has enough to hand the Western Restorer some Section 6662 chops and slug sole shareholder Bill with some heavy taxable dividend income (but no chops).

Judge Morrison doesn’t examine the Western Restorer’s books to look for E&P, because IRS and the Western Restorer agree there were, and enough to cover what the Western Restorer paid Bill. But Bill claims that the cash he got (and personal expenses the Western Restorer picked up) was return of capital, therefore reduced his bases but wasn’t taxable.

Bill claims the Western Restorer intended the cash it gave Bill to be return of capital.

Judge Morrison is too polite to give Bill and the Western Restorer a loud “Oh Please!”

“A distribution to a shareholder is a dividend if it is made out of earnings and profits. Sec. 316(a). A distribution is made out of earnings and profits if earnings and profits is at least equal to the amount of the distribution. Id. Western Property Restoration’s earnings and profits for the [year at issue] was at least $82,461, the amount of the distributions it made…. Therefore, the distributions totaling $82,461 are dividends within the meaning of section 316(a). That Western Property Restoration intended the distributions to consist of returned capital is irrelevant. See Boulware v. United States, 552 U.S. 421, 430-431 (2008). It is also irrelevant that the company treated the distributions as returned capital on its books. See id.” 2017 T. C. Memo. 190, at pp. 7-8.

For the legal gibberishly challenged, “Id or “id” means “in the same place.”

Bottom line: If you know it when you see it, it’s probably taxable.