Seems like practitioners are picking up on Rob’t H. Tilden, as delineated by Seventh Circuit and my blogpost “Just As I Was Settling Down,” 1/13/17.

Here’s Doreen DiToro, Docket No. 12571-16, filed 2/24/17, where ex-Ch J Michael B (“Iron Mike”) Thornton must grapple with another agreed mailing date.

Doreen claims innocent spousery for nine years at issue, but IRS claims no NOD on two of those years, and Doreen’s Section 6015 petition from the NOD that was issued for the rest is late, so Doreen is out all the way.

There’s also a question whether Doreen filed a duplicative petition, but that’s disposed of elsewhere.

So there’s the usual motion ping-ponging. Finally, IRS responds to Doreen’s motion to permit a late-filed petition to vacate an earlier order tossing Doreen for late filing by stating no objection.

And here ex-Ch J Iron Mike finds himself bemused by the contrapunctal motions.

“In the notice of no objection respondent states:

‘[I]n light of petitioner’s counsel’s sworn statement that a copy of the petition was timely placed in the U.S. postal system, respondent does not oppose petitioner’s Motion For Leave To File Motion Out Of Time Motion To Vacate Order Dated September 6, 2016, Embodying Motion To Vacate Order Dated September 6, 2016, Filed November 15, 2016, At Docket No. 12571-16.’

“The Court is left uncertain from this statement as to whether respondent disagrees with petitioner’s counsel’s sworn statement that he mailed the petition on May 17, 2016.” Order, at p. 2.

So let IRS make a jurisdictional motion, if appropriate, and in any case report on jurisdiction and provide copies of all innocent spousery NODs.

And yes, the order tossing Doreen’s earlier petition is vacated.

Clear? Thought not.

Judge Wherry, less modest than Judge Nega, designates his Sub S employee case, even though he’s just dropping a petitioner and amending a caption, in Patricia Arroyo DDS, Corp., Alex Mansilla, and Mercedes P. Arroyo, Docket No. 5874-15, filed 2/23/17.

The facts are almost foursquare with my blogpost “You Said It,” 7/21/17.

IRS hit Alex and Mercedes with passthrough employment taxes for the wage shortfalls from their sub S.

“During the examination of DDS Corp.’s returns, respondent determined that the salaries paid to petitioners as employees were artificially low and proposed new salaries based on nationwide market information. Based on these increased salaries, respondent determined that DDS Corp. had a deficiency in employment taxes….” Order, at pp. 2-3.

So my surmise in my abovecaptioned blogpost looks good. IRS is hunting the low-wage high-profit sub S dodge, when professional services are in the mix.

Alex and Mercedes want Tax Court to decide the correct payscales for their sub S.

“In the petition, petitioners assert that the salaries paid by DDS Corp. during the years at issue were appropriate given the company’s circumstances, and they contend that the Court has jurisdiction over their dispute as to the amount of employment tax owed by DDS Corp….” Order, at p. 3.

Nope, says Judge Wherry.

The Section 7436 is for reclassification, but there was nobody to reclassify. DDS Corp always treated Alex and Mercedes as employees.

Obviously, if they were ICs, whatever they got would be subject to SE, so there’d be no point to creating a sub S. For the dodge to work, the sub S shareholders would have to be paid wages (subject to FICA-FUTA) and profits (not subject to FICA-FUTA), and fiddle the mix.

So DDS Corp is out as petitioner, as the employment tax hit is a passthrough, and the caption is amended accordingly. As Mercedes listed herself as an officer in State filings, Judge Wherry judicially notices her sua sponte as a statutory employee.

Of course, to the extent there are deficiencies for Alex and Mercedes, they’re still in.

We all know that Woods v. Com’r, 571 U. S.___, 134 S. Ct. 557 (2013) settled the silt from Tiger Eye and Petaluma about zero outside basis in sham partnerships and immediate computational assessment of the 40% understatement chop.

Well, today John K. Luke & Maureen O. Luke, Docket No. 32208-15, filed 2/23/17, are trying to duck the deficiency and the chop arising from their participation in LVI Investors, LLC, which cratered back in 2014. A stipulated decision was entered by then-Ch J Michael B (“Iron Mike”) Thornton nailing LVI.

I didn’t blog it because it didn’t say much. The original blowup dates back to my pre-blog days of 2009.

Howbeit, LVI was a sham, son-of-BOSS variation.

John & Maureen want to fight the deficiency, and IRS has nothing to say about that. So John & Maureen get a stay of assessment on the deficiency.

The fight about whether a deficiency arising from a blow-up sham partnership is assessable or requires a SNOD may be settled, but apparently in John’s & Maureen’s case, IRS went for belt-and-suspenders-and-Crazy-Glue and slipped them a SNOD just to be safe.

But IRS says Tax Court has no jurisdiction over the penalty.

Judge Goeke agrees. The penalty is another story.

“The following quotation from Thompson v. Commissioner, T.C. Memo. 2014-154, at *3, aptly describes the law as it applies to this case:

‘Our final decision in the partnership-level proceeding applied the gross valuation misstatement penalty. The penalty may be directly assessed as a computational adjustment, notwithstanding any need for [*9] partner-level determinations. Petitioners may raise partner-level defenses, if any, only in a postpayment refund suit. See sec. 6230(c)(1)(C); sec. 301.6221-1(c), Proced. & Admin. Regs.’

“Any question as to the validity of this analysis has been settled by United States v. Woods, 571 U.S. __, 134 S.Ct. 557 (2013).” Order, at pp. 1-2.

So now all the silt is settled.

Whassup Wit’ That?

I can understand Mongolia, Kyrgyzstan and Yemen. This my blog has never been read in any of them, not even once. I’m sure there are good reasons for these lacunæ, like civil war, poverty, different time zones, and utter indifference to the goings-on in US Tax Court.

However, moving to the Western Hemisphere, to use the old ham radio phrase, I’ve worked every country save one…Bolivia.

Oh, I know, French Guiana ignores me as well. But I can quibble that French Guiana isn’t a country; it’s the last foreign-owned mainland real estate in the hemisphere, so it’s really part of France.

Back to Bolivia.

I’m apparently persona non grata there,  and I don’t know why.

Hey Bolivia, whassup wit’ that?

That ancient cry rings no bells with Judge Gale, as he discusses the cleaning of Old Master paintings in Estate of Eva Franzen Kollsman, Deceased, Jeffrey Hyland, Executor, 2017 T. C. Memo. 40, filed 2/22/17.

The late Eva was another art collector with a collection to die for, and she did. She was a heavy smoker, and her Breughels were unclean.

And it is uncertain if Jan Elder or Jan Younger did one of them, and to what extent the studio was involved.

It’s the usual estate valuation mix-and-match.

The estate’s lead witness is a co-chair of Sotheby’s Old Masters squad. He downgrades the paintings’ values, because they are extremely dirty, and the dirt may hide a multitude of sins. But ex’r Jeff goes to a leading cleaner of such works, who makes them come alive with mild cleaning stuff at a cost less than $9K.

Turns out the Sotheby’s squad leader was angling for auction rights, and got them. Art auction commissions make stockbrokers and real estate brokers look charitable.

This is a heavy conflict-of-interest, and makes Judge Gale regard the squad leader as unclean. He wants the auction rights, so he’ll low-ball the valuation.

Insurance policies rarely reflect FMV, unless supported by appraisals, and neither the late Eva’s, nor ex’r Jeff’s, gives any basis for a valuation decision.

IRS’ expert has got comparables, which ex’r Jeff’s squad leader does not. So although IRS’ expert doesn’t ding for dirt, Judge Gale cuts 5% because the major painting (Peter the Elder) was dirty, but the cleaning risk was low. The painting cleaned up real nice.

As for the attribution risk on painting number two, Jan Younger is a poor bet; Jan Elder is the real deal. So Judge Gale cuts IRS’ expert by 25%, 10% for attribution, 5% for dirt, and 10% because the Jan, older or younger, painting was “bowed.”

I’ve stated before that Tax Court gets more valuation cases than almost any other court. This case gives a look at how the process works.

Takeaway- If your expert wants any piece of the action, walk away.

It’s not enough to disqualify a whistleblower if the info provided may be inadmissible on a trial. And if IRS keeps getting info from whistleblower after rejecting earlier info as “tainted”, does that let IRS off the Section 7623 hook?

No, says Judge Lauber. Here’s Whistleblower 23711-15W, filed 2/22/17.

Notwithstanding an initial “extensive and rigorous” grilling by CID after the Ogden Sunseteers scanned and sent them the info he gave, the whistleblower gets bounced, the Sunseteers producing a document from CID that claimed the info was “tainted,” but didn’t say how.

Answering IRS’ summary J motion, whistleblower claims “…’at various dates…, [he] supplied a substantial amount of updated information.’ Petitioners avers, without contradiction by respondent, that the IRS commenced ‘criminal and civil investigations of Target that resulted, ultimately, in the IRS collecting substantial revenue.’” Order, at p. 2.

“For a variety of reasons, we conclude that respondent’s motion for summary judgment must be denied. Respondent does not dispute petitioner’s averment that the IRS proceeded against Target with an administrative or judicial action described in section 7623(a). Assuming satisfaction of the statute’s other requirements, petitioner would thus be entitled to an award if the IRS action against Target was ‘based on information brought to the Secretary’s attention’ by petitioner. Sec. 7623(b)(1). We find that there exist material disputes of fact on this point.

“Respondent asserts that… the IRS did not use petitioner’s information to ‘further develop’ its investigation of Target because it determined that his information was ‘tainted.’ This assertion raises a number of questions, both legal and factual. Petitioner avers that his information was not in fact ‘tainted’; he presents two distinct arguments in support of that averment, neither of which respondent has addressed. Petitioner also avers that he continued to supply the IRS with updated information ‘at various dates…’; this appears to create a factual dispute in light of respondent’s assertion that the IRS did not use petitioner’s information…. And even if the IRS did not use petitioner’s information to ‘further develop’ its investigation…, there is a material dispute of fact as to whether any IRS action against Target was nevertheless ‘based on information’ that petitioner ‘brought to the Secretary’s attention’….” Order, at pp. 2-3.

And Section 7623 says nothing about whether the information was admissible on a trial, privileged or illegally obtained.

“Section 7623(b)(3) provides that the Secretary may reduce or deny an award in certain circumstances, i.e., if the whistleblower ‘planned or initiated the actions’ that led to the tax underpayment or ‘is convicted of criminal conduct arising from’ such activity. The statute does not list the provision of privileged or ‘tainted’ information as a basis for denying an award, and respondent has cited no other authority for denying an award on this basis. It is entirely possible that information which would not constitute admissible evidence at trial–hearsay, for example—may nevertheless be ‘used’ by the Secretary in the course of conducting an investigation. Without a clearer understanding of the legal theory upon which respondent is relying, and the authority for and scope of that theory, we could not find that respondent is entitled to judgment ‘as a matter of law.’ Rule 121(b).” Order, at p. 3.

And the whistleblower gets a break.

“The IRS has not disputed that it took action against and collected proceeds from Target, and we find that there exist material disputes of fact as to whether such action was ‘based on information brought to the Secretary’s attention’ by petitioner. Sec. 7623(b)(1). Given that the very facts that petitioner may need to prove his case are in the sole possession of respondent, petitioner will be entitled to discovery that will aid in resolving these factual disputes. See W.L. Gore & Associates, Inc. v. Commissioner, T.C. Memo. 1995-96; Rule 121(e).” Order, at p. 3.

That’s Judge Nega’s comeback to Martin S. Azarian P.A., Docket No. 28957-15, filed 2/21/17.

P.A. is Marty’s law firm sub S, of which Marty was sole owner. He was also an officer and director, and always treated himself as an employee.

I’m inferring here, but it sounds like Marty was playing the sub S dodge. That’s where the Sub S employs its owner, pays him some wages (with W-2 and withholding to match), and treats the rest of the earnings as profit (dividend to owner, but no W-2 and no withholding).

IRS stomps these moves by treating the profits as wages and claiming unpaid FICA-FUTA.

But all Judge Nega has to tell us is “… respondent sent petitioner Forms 4668, Employment Tax Examination Changes Report, which (1) concluded that petitioner failed to report reasonable wage compensation paid to Mr. Azarian…, (2) proposed that petitioner should have reported $125,000 in annual wages to Mr. Azarian…, and (3) concluded that petitioner was therefore liable for proposed employment tax increases and additions to tax…. Respondent did not issue petitioner a Letter 3523, Notice of Determination of Worker Classification, with respect to the taxable periods at issue.” Order, at p. 2.

P.A. petitions. IRS says no jurisdiction, because this isn’t a reclassification case. Marty was always an employee, and neither he nor P.A. ever said otherwise.

Section 7436 gives Tax Court jurisdiction when there’s a dispute over IC-vs-EE status in connection with an audit. OK, here there was an audit. And both sides agree that the relief for habitual erroneous EE classifications in Section 530(a) of the 1978 Revenue Act isn’t in play here.

For more about that, see my blogpost “Classified,” 4/3/13.

But there’s no classification issue here.

“Petitioner consistently treated Mr. Azarian as an employee for the taxable periods at issue. Therefore respondent did not make a determination that Mr. Azarian was an employee of petitioner, but rather concluded that petitioner failed to report reasonable wage compensation paid to Mr. Azarian…. Section 7436(a)(1) only confers jurisdiction upon this Court to determine the ‘correct and the proper amount of employment tax’ when respondent makes a worker classification determination, not when respondent concludes that petitioner underreported reasonable wage compensation, as is the case here.” Order, at pp. 2-3 (Footnote omitted, but read it; it discusses the case that was the subject of my blogpost hereinabove referred to).

This one was a loss for Eric William Johnson, Esq., even though as usual he provided “Honest tax representation at reasonable rates.” See my blogpost thus entitled, 8/28/14.

This is the day whereon two former Presidents of these United States are born again on a Monday. Wherefore, as Tax Court, and indeed the entire government, is closed, my keyboard is dumb.

See y’all tomorrow.

Sandy Freund, Esq., top gun from Rutgers Law School Federal Tax Clinic, like the Lennon-McCartney 1965 titlist, gets a ticket to ride to Tax Court even though her client was too late with his petition from the SNOD, and too late with his Form 12153 in response to the NFTL that followed.

It’s Estate of Daniel J. Sager, Deceased, Steven Sager, Executor, Docket No. 3057-16L, filed 2/17/17, a designated hitter from that modest jurist, CSTJ Panuthos, still hiding his light under the cliché and signing as STJ tout court.

And the Rutgers clinicians aren’t in it only for the small-claimers, because here the amounts at issue were in six figures before IRS conceded the interest down to $30K after Ex’r Steve ponied up the tax.

Appeals gave Ex’r Steve an equivalency hearing, the one-year consolation prize for the dilatory, and bounces his pleas thereat, issuing a determination letter and not a NOD. Steve’s petition falls on deaf statutes as CSTJ Panuthos explains.

“Mr. Sager requests that the decision letter be treated as a determination letter for purposes of conferring jurisdiction under section 6320 and section 6330. Mr. Sager concedes that he cannot cite existing precedent for this unique set of facts (where the lien notice was not sent to the last known address, where the request for the CDP hearing was not timely, and where the lien has already been discharged). Thus, he has not met the burden of proving that we have jurisdiction under section 6320 or section 6330. See Fehrs v. Commissioner, 65 T.C. 346, 348 (1975); Wheeler’s Peachtree Pharmacy, Inc. v. Commissioner, 35 T.C.177, 180 (1960).” Order, at p. 5, footnote 6.

So Ex’r Steve is out?

Negatory, good buddy, as they say on the Left Bank of the Lordly Hudson, not while Sandy is on the case. She also asked for abatement of interest. And IRS concedes she may have a chance to duke that one out.

“In a case involving an abatement of interest request under section 6404(e), under the law in effect at the time the petition in this case was filed, the Court has jurisdiction if the petition is filed ‘at any time the earlier of’ (1) the date the Secretary mails a final determination not to abate interest or (2) 180 days after the taxpayer files a claim for abatement of interest with the Secretary. Secs. 6040(h)(1)(A)(i) and (ii). The petition cannot be filed later than 180 days after the Secretary mails the final determination not to abate interest. E subpara. (B). The Court has jurisdiction to determine overpayments pursuant to section 6404(h). See Goettee v. Commissioner, T.C. Memo. 2003-43, 2003 WL 464862, at *19.” Order, at p. 6. (Footnote omitted.)

The determination letter bouncing Ex’r Steve’s equivalency hearing said he couldn’t have interest abated, and that was final enough; IRS never claimed it wasn’t. A statement denying abatement is as much a ticket to Tax Court as a SNOD or NOD.

And this time the petition is timely. So Sandy can duke it out with IRS about dropping the remaining interest.

Good job for Sandy and her student attorney Charlie Rioux.

Another wannabe immunologist, Edward Francis Bachner, IV, comes before Judge Morrison with at least sixteen (count ‘em, sixteen) reasons why he won’t sign off on the Rule 91(f) stip that IRS wants.

And leading the pack is the Fifth Amendment to the Constitution. Ed claims IRS wants him to incriminate himself, as to two of the three years he committed tax fraud.

Like the dude in Sam T. Coleridge’s classic, the IRS did “stoppeth one of three.” The Federales managed to nail Ed for one year, and he pled to a count of 18USC§287 for falsely claiming withholding and getting a six figure refund.

He also claims the government defrauded him, but Judge Morrison doesn’t go there.

The case is Edward Francis Bachner, IV & Rebecca Gay Bachner, Docket No. 23219-15, filed 2/17/17, but Becca is out of the fraud penalties on Section 6015 innocent spousery.

Leaving aside Ed’s attempt to frustrate the fisc with jivetalk, Judge Morrison cuts to the cliché.

“However, we find that addressing the proposed stipulation of facts would not expose the Bachners to a real danger of prosecution. Mr. Bachner has already been indicted for, and has pled guilty to, filing a false claim for the 2005 tax year. U.S. Const. amend. V; United States ex. rel. Stevens v. Circuit Ct. of Milwaukee County, Wis., Branch VIII, 675 F.2d 946, 948 (7th Cir. 1982). The question becomes whether he faces a real danger of being prosecuted for the other two years, 2006 and 2007. In his agreement to plead guilty for the 2005 year, Mr. Bachner admitted that he filed false claims against the government for the 2006 and 2007 years. Despite this admission, the government did not prosecute Mr. Bachner for the 2006 and 2007 years. We find the possibility remote that the government will later prosecute Mr. Bachner for the 2006 and 2007 years based upon his statements regarding the proposed stipulation of facts. We therefore hold that the Bachners may not claim privilege in this Rule 91(f) matter.” Order, at pp. 5-6. (Footnote omitted, but read it.)

Remember, immunologist, “(I)t is for the Court to determine whether the privilege justifies a refusal to answer questions. Hoffman v. United States, 341 U.S. at 487. In making the determination the trial judge ‘must be governed as much by his personal perception of the peculiarities of the case as by the facts actually in evidence.’ Id.” Order, at p. 5.

And jivetalking may give an unpleasant personal perception.