Spousal abuse moved front-and-center in Rev. Proc. 2013-34, I.R.B. 2013-43, where such abuse might keep the abused from challenging the abuser’s dodging, thus enabling the abused’s plea Section 6015 innocent spousery .

But even serious abuse, when established, isn’t enough where the abused actually got free in time to participate meaningfully in the preparation of the return.

Today’s case is a Section 7430 legals and admins, that fails on IRS, like another tax collector in a much more exalted narrative, “going down justified.”

But I want to touch upon the abuse issue, as being of more general interest and application. 7430 justification is too often a case of 20-20 hindsight. And anyway, the point in today’s case on justification is that a concession, whether partial or complete, does not mean IRS wasn’t substantially justified at the time Appeals issued its NOD on the deficiency and the innocent spousery, and when IRS counsel filed the answer to the petition.

The case is Nina H. Kazazian, 2017 T. C. Memo. 135, filed 7/10/17 (Happy Palindrome Day, again).

Judge Lauber notes the spousal abuse, both in the statement of facts and in the opinion.

“Mr. Stackpool and petitioner both alleged spousal abuse in support of their requests for innocent spouse relief.  The AO noted that their short-lived marriage was tumultuous, with the police having been called to their residence on several occasions.  Indeed, Mr. Stackpool ultimately secured a judicial restraining order against petitioner, which she violated on at least one occasion, leading to her arrest and jailing.” 2017 T. C. Memo. at p. 5.

But this avails neither Mr Stackpool nor petitioner.

“In challenging the reasonableness of the AO’s determination petitioner relies heavily on her charge of spousal abuse.  Generally, abuse is a relevant factor where it ‘undermines the requesting spouse’s ability to reason independently and be able to do what is required under the tax laws.’   This may be true where the requesting spouse ‘was not able to challenge the treatment of any items on the return, or was not able to question the payment of any balance due reported on the return, for fear of the nonrequesting spouse’s retaliation.’

“The AO reasonably concluded that petitioner could not make this kind of showing.  Petitioner and Mr. Stackpool had permanently separated in August 2010, three months before the 2009 joint return was filed in November of that year.  She was directly and actively involved in the preparation of that return, as evidenced by her extensive communications with the [CPA preparer] firm.” 2017 T. C. Memo. 135, at pp. 12-13. (Citations omitted).

IRS did concede both the portion of the deficiency relating to Mr Stackpool’s taxes, and a big chunk of petitioner’s NOL and real estate pro portion of the deficiency. But the record is inconclusive as to the reason for the first, and the litigation risk reason for the second, which petitioner initially claims she had nothing to do with, turns out to be something she argued heavily at Appeals. And won in part.

As for the dollar amount of the claim, petitioner was pro se, even though a lawyer herself. No award without client-attorney relationship.

Thus did the late G. M. Fraser entitle one chapter in his history of the scruffiest soldier in the world, Private John MacAuslan, Gordon Highlanders, a favorite of my little ones when they were still little.

Today we have another case where general knowledge of private information was already out of the bag, in Loys Vallee, Docket No. 13513-16W, filed 7/7/17.

Loys, a blower fighting an Ogden Sunseteers shootdown, wants his info sealed after IRS messed up a couple of Branerton mailings, sending them to the wrong address. The parties who got them must have opened them, because Loys got them forwarded, resealed with tape.

So eleven (count ‘em, eleven) months post-petition, Loys wants Rule 345(a) treatment, the blower’s Rule 27 equivalent duckdive.

Unfortunately, even that Obliging Jurist, Judge David Gustafson, can’t help Loys now.

“Petitioner’s motion does not present potential harm in any concrete, ‘fact-specific’ way. The motion points to two categories of concern-letters sent to a nearby wrong address, and nebulous, theoretical concerns of economic or physical harm. Even if we were to grant the motion, our action could not un-send the two letters respondent already incorrectly mailed. And in his motion, ‘Petitioner has not identified a taxpayer who, upon learning petitioner’s identity, would have the power to, and might be expected to, act against him.’ Whistleblower 14377-16W v. Commissioner, 148 T.C. No. 25, slip op. at 37 (June 28, 2017).” Order, at p. 3.

As for Whistleblower 14377-16, a/k/a 716 Whiskey, see my blogpost “A. Nonymous, Serial Blower,” 6/28/17.

Since Loys his own self originally unbagged the cliché almost a year ago, all Judge Gustafson can do is promise a future sealing, should events and the course of the proceedings warrant the same.

In the meantime, Judge Gustafson will seal Loys’ motion, and tell IRS to be careful when sending out correspondence in blower cases.

Takeaway- Whether it’s a petition from a SNOD, NOD, worker classification or 501(c)(3)  or blower shootdown, put that motion to seal in with your petition and your sixty bucks. Get there first.

I remember with gratitude the enthralling lectures in trial tactics and evidence from James Wilson (“Hey, Bald Guy!”) McElhany, Esq., wherein the Bald Guy (and brilliant trial tactician) dissected the famous response “(T)he document speaks for itself” when counsel tried to read into the record a portion of a document already in evidence.

Sometimes that would shut counsel up. But not the Bald Guy.

No, said Prof McElhaney, the correct riposte is: ”Rule of Completeness; you read what you want into the record, and then I’ll read enough of the rest to put in context what y’all have cherrypicked.”

So here is the finale of Karen Spenningsby, Docket No. 13699-19, filed 7/6/17. For completeness.

Or, “Toto, I’ve a Feeling We’re Not in Kansas Anymore”

Perhaps someone at The Glasshouse at 400 Second Street, NW, in the Town L’Enfant Built, reads this blog. Peut être, as the late great Pierre Charles might have said.

Here’s Karen Spenningsby, Docket No. 13699-17, filed 7/6/17.

Karen and her trusty attorney Chris the K are back without even one day’s rest, as it would seem that my blogpost from yesterday, “Everything West of the Hudson is Kansas,” 7/5/17, awakened somebody.

Read for yourself.

We’ve all been there, when the facts are bad enough to bury your case right from the start. And today I’ve got sympathy for that hardworking lawyer who furnishes “honest tax representation at reasonable rates,” Eric William Johnson. He’s up against, among others John (“Scholar John”) Schmittdiel, Esq., star of my blogpost “Go To the Head of the Class,” 3/26/14.

Eric William’s client, Xibitmax, LLC, 2017 T. C. Memo. 133, filed 7/5/17, was a wee bit casual about filing Forms 941 for 10 quarters, and ponying up the money withheld from employees for FICA-FUTA-ITW.  These are non-assessables, so de novo review by Judge Nega. But that doesn’t help.

JP is Xibitmax’s sole shareholder and officer. Xibitmax makes trade show displays. JP spends much time on the road, so he hires an employee with no background in payroll taxes to do the Forms 941, and doesn’t look too closely when these don’t get filed or the withholding paid.

True, the economy tanks while this is going on, but Judge Nega isn’t interested. “[JP] testified that, on at least one occasion, he directed his employee not to remit–to ‘defer’–payment of petitioner’s employment and trust fund taxes.  This was done in early 2009 while petitioner was facing cashflow problems during a national economic recession.  Later that year, however, he instructed his employee to resume making timely payments on petitioner’s tax obligations, but the payments never resumed.

“During all periods at issue petitioner continued to withhold employment taxes from the paychecks of its employees and continued to pay its vendors and creditors.  Although he had access to, and would frequently review, petitioner’s only bank account, Mr. Powell never noticed, or chose to overlook, the fact that petitioner’s employment and trust fund tax payments were not being drawn from its account.” 2017 T. C. Memo. 133, at pp. 11-12.

It’s a tough case. Late filing and nonpaying chops sustained.

Older readers of the New Yorker magazine will remember Saul Steinberg’s immortal drawing of the New Yorker’s vision of America, where there was nothing between NYC and SF, except maybe Chicago and Kansas.

Well, even though she’s a native of the Old Line State, she’s still a Right Coaster, so Ch J L Paige (“Iron Fist”) Marvel can’t be bothered with those flyovers.

Here’s Karen Spenningsby, Docket No. 13699-17, filed 7/5/17, and her trusty attorney, whom I’ll hereinafter designate as “Chris the K.”

Chris the K hangs out in Fargo. Chris the K files a petition for Karen and asks for place of trial down the road in Bismarck.

But apparently Karen’s case is a nonstarter for small-claimer status, so Ch J Iron Fist suggests trial elsewhere.

Only she does it thus: “…the Court lodged a Request for Place of Trial which improperly seeks to Bismarck, North Dakota, as the requested place of trial in this case. The Court’s records reflect that this case is being conducted under the Court’s regular tax case procedures, and not the small tax case procedures. Only cases conducted under the Court’s small tax case procedures may be tried in Wichita, Kansas.” Order, at p. 1.

Wichita, Bismarck, who cares? Everything west of the Hudson is Kansas.

And so am I.

The hard-laboring clerks and flailing date-stampers at 400 Second Street, NW, in the homeplace of tomorrow’s birthday honoree, must already be on their way to the beach and barby, because the opinions that usually emerge at 3:30 EDT were up this morning before noon.

But it now falls to the hard-laboring blogger, here in The City That Never Sleeps, who has before him neither beach nor barbecue, to lay before the public the saga of RERI Holdings I, LLC, Jeff Blau, Tax Matters Partner, 149 T. C. 1, filed 7/3/17.

If somewhere in the dimmer recesses of the reader’s mind a faint tintinnabulation is heard, the reader is one sharp cookie. See my blogposts “Don’t Give a Sham,” 5/22/14, and “Don’t Give a Sham – Part Deux,” 8/11/14.

But today’s iteration of the charitable donee’s celebrated fight song “Hail to the Victors Valiant,” goes not to the chaps in yellow and blue, but to IRS, as Judge James S. (“Big Jim”) Halpern tells us in 69 pages.

You’ll remember that a remainder interest in realty that cost a hair less than $3 million gave rise to a $33 million charitable deduction, although the charitable donee, alma mater to both my mother and my nephew (but not in the same class), get way less than $33 million.

After plowing through nearly 20 pages contrasting and comparing dueling appraisals of the worth of the remainder interest transferred to the donee, Judge Big Jim goes off on the Form 8283, which does not state the cost basis of the interest donated in the hands of the donor.

RERI, the donor, claims substantial compliance.

No, says Judge Big Jim.

“The significant disparity between the claimed fair market value and the price RERI paid to acquire the SMI just 17 months before it assigned the SMI to the University, had it been disclosed, would have alerted respondent to a potential overvaluation of the SMI. Because RERI failed to provide sufficient information on its Form 8283 to permit respondent to evaluate its reported contribution, cf. Smith v. Commissioner, 2007 WL 4410771, at *19, we cannot excuse on substantial compliance grounds RERI’s omission from that form of its basis in the SMI. Therefore, RERI did not “[a]ttach a fully completed appraisal summary” to its 2003 return as required by section 1.170A- 13(c)(2)(i)(B), Income Tax Regs. Because RERI did not meet the substantiation requirements provided in section 1.170A-13(c)(2), Income Tax Regs., it is not entitled to any deduction under section 170 for its contribution of the SMI to the University. See sec. 170(a)(1); sec. 1.170A-13(c)(1), Income Tax Regs.” 149 T. C. 1, at pp. 26-28, footnotes omitted.

Since this is a petition from a FPAA, determination is made at entity level. So on with the 400% overvaluation chop.

But no chop if FMV of the donated interest cannot be proven, or proves to be under the radar for the overvaluation chop. The Section 7520 tables to be used for remainders fail to consider that the holder of the donated interest couldn’t sue for damages or to enforce the tenant for years to make good any damage, only evict the tenant for years. Thus inadequate protection for the remainder, throwing the Section 7520 tables off the table. Check out Reg, 1.7520-3(b)(1)(iii).

Follows the usual mix-and-match among appraisers, and whoever has burden of proof for enhanced chop, the evidence to prove good-faith reliance is the same. The words and deeds at time of donation are what they are.

And RERI relied on 18-month old numbers for FMV when it made the contribution. Not good enough for good-faith reliance.

IRS wins. Rule 155 beancount follows.

But individual partners may have an out. “Although the liability of a particular partner for the gross valuation misstatement penalty will depend on the arithmetic threshold provided in section 6662(e)(2), no partner will be able to avoid the penalty on the basis of the reasonable cause exception provided in section 6664(c).” 149 T. C. 1, at p. 69.

Frances L. Rogers, 2017 T.C. Memo. 130, filed 7/3/17, is no stranger to this blog, although she now appears as lead player.

More properly, she is Frances L. Rogers, Esq., member of the Chicago Bar Association, sporting the following credentials: “In 1963 she graduated with a bachelor’s degree in chemistry, and in 1965 she completed a master’s degree in biochemistry. In 1975 she completed a master’s degree in business administration (M.B.A.). In 1981 she earned a doctorate in educational administration. Petitioner attended law school, and in 1990 she completed her law degree. While attending law school she took classes in corporate and individual income tax. Petitioner has taken courses at her local community college. In 2011 and 2012 she completed multiple classes in tax and accounting, including income tax accounting, advance tax accounting, and principles of financial accounting.” 2017 T. C. Memo. 130, at pp. 2-3.

No, Frances isn’t putting out her c.v. to apply for a job as Trial Clerk in Tax Court. Rather, she is seeking Section 6015 innocent spousery from her trial counsel, spouse and well-credential master dodger John E. Rogers, whose career I and Judge Ruwe have pursued from Brazil to Seventh Circuit. There must be half-a-dozen of John’s peccadilloes that have featured in this my blog, and Frances was right by his side.

In fact, when John was ill back in 2009, Frances took over his law office and ran the whole show.

Now Judge Kerrigan has this one, and she has a lot more patience than I would have were I a Tax Court Judge (which Heaven forfend!).

This is a 90-day stand alone, which happens when there is no deficiency pending, collection has commenced, and ninety days has elapsed after the Form 8857 has gone in and IRS did nothing; they were probably still convulsed with mirth.

On the trial, Frances claims “…she did not meaningfully participate in the…deficiency case. She did not sign the court documents filed in the … deficiency case, and she testified that she had not looked at many of those documents. On her Form 8857 and in her testimony petitioner portrays herself as having a near complete lack of knowledge or sophistication with respect to business and financial matters. For example, she states that before 2009 she ‘was not capable of understanding a checking account or credit card statement’ and that she still ‘is unable to understand basic financial statements’.

“According to petitioner her husband ‘took care of everything’ regarding the family’s finances and made most or all financial decisions for her. She claims that she relied on him to handle tax and financial matters that affected the family, and she believed her reliance was appropriate given that he was a ‘tax professional * * * well respected by his colleagues and clients.’ Despite having an M.B.A. and a J.D. and having completed multiple courses in taxation petitioner contends that she has ‘no understanding’ of items and transactions reported on their joint returns, which were the subject of the … deficiency case. Petitioner testified that during the 2012 trial she ‘had no idea what was happening’. 2017 T. C. Memo. 130, at pp. 14-15.

I cannot comment on the foregoing without using language unfit for the chaste eyes of my readers, but the words “load of” and  “horse” play a role therein.

Judge Kerrigan, dainty as always: “Petitioner’s testimony about the extent of her ignorance is not credible.” 2017 T. C. Memo. 130, at p. 15.

She was independently wealthy before she married, ran her inherited real estate, ran her own real estate  brokerage, was associate principal of a high school with over 2,000 students, worked with her husband, never alleged abuse, was still married to him, and utterly failed to sustain her burden of proof.

If ever a case called for a Section 6673 chop to add to the family bill, this is the case.

The prelude to a bunch of papers in litigated cases gets transformed, as Judge Goeke unloads eight (count ‘em, eight) pages of undesignated order on this poor, hard-laboring blogger and Estate of Richard L. Marshall, Deceased, Patsy L. Marshall, Personal Representative, and Patsy L. Marshall, Transferees, et al., Docket No. 27241-11, filed 6/30/17, just as I was thinking of taking off for the three-day weekend. And I bet Patsy and the als aren’t best pleased either, although this is going to smart for them more than a wee bit.

This is the dénouement of a Section 6901 transferee case, as you’ll deduce from the caption. For an ultra-brief synopsis of the backstory, see my blogpost “Schooled and Unschooled,” 6/20/16.

The dust has settled, the Section 155 beancount is almost done, the lawyers are packing the lit bags, the accountants are shutting the adding machines and folding two miles of tape, when someone says “prenotice interest.”

That’s when the fight starts.

Transferee liability cases compute interest in two parts: first, no earlier than date of transfer up to, but not including, and not after, the date of notice of liability. Next, interest from notice to payment.

State law determines the prejudgment interest (in Tax Court “prenotice”), and here it’s OR. Judge Laro dealt with the TX version in my blogpost “Deep in the Heart of Texas – Part Deux,” 7/8/15.

Anyway, the long and short of it is that the start date for prejudgment interest depends upon knowing the amount due and the date when it became due. That the number is difficult to ascertain and may involve mathematical complexity doesn’t stop the start date if the debtor-taxpayer knew they owed something.

And here the date’s certain, when the Marshalls got the boodle from the mix-and-match Midco.

I’m not quoting Judge Goeke’s law review article here, so he can publish it afresh in the University of Oregon Law Review. After all, that illustrious institution describes itself thus: “(W)e don’t view law school as ruthless competition. We view it as a way to make a positive difference. We’re known for a friendly, supportive, and collaborative environment—and any of our students will tell you this.”

Makes me weep.

Howbeit, the Marshalls get mulcted for $8 million in prejudgment interest. And their shot at equitable recoupment, OR State law or anything else was shut down last June.

“Second, petitioners are not entitled to reductions in judgment based on Or. Rev. Stat. sec. 95.270(3), the doctrine of equitable recoupment, or any other offsets. In Estate of Marshall, we determined that petitioners were not entitled to any offsets, adjustments, or other reductions to the amount of their transferee liability under Or. Rev. Stat. sec. 95.270(5) because they had at least constructive knowledge that MAC’s tax liability would not be paid. Petitioners are now attempting to reduce their transferee liability by making the same arguments under Or. Rev. Stat. sec. 95.270(3) and the doctrine of equitable recoupment in their Rule 155 computations that they presented in their briefs.” Order, at p. 5.

The Marshalls knew the deal was a tax dodge, got the boodle, and moreover got the boodle with a premium of 60% over what anyone else would pay because they knew the Midco was going to walk on the tax liability.

OR statutes talks about “equities,” but the Marshalls have none. For equitable recoupment, use Section 1341, not a Rule 155 beancount. And the Marshalls got whatever credit to which they were entitled under equal access to justice for their fight with the Bureau of Reclamation; no more here.

Have a great weekend.