No, this is neither a medical alert nor the latest computer alert that your e-mail has been hacked. This is the computer code IRS puts on your dossier when you file bankruptcy.

I’m going on the road again tomorrow, so I’m late with the sad tale of Silvia Santana, 2017 T. C. Memo. 14, filed 1/12/17, as told by His Honor Big Julie, a/k/a His Honor Judge Julian I. Jacobs, hereinafter HHBJJJIJ.

While Silvia and her trusty attorney were dukeing it out about Silvia’s deficiency, and reaching a negotiated decision, nobody told IRS that Silvia had filed a bankruptcy petition. I wonder if she told her trusty counsel; surely he would know about 11USC§362(a)(8) and the automatic stay therein.

Howbeit, IRS wakes up and agrees the decision must go. But IRS and Silvia agreed as to the deficiencies, waived SNOD and told IRS to go and collect.

Silvia’s petition is thereupon tossed. But some clerk forgot to clear Code TC 520 out of the computer thereat.

Because Silvia remained frozen, her returns for the next four (count ‘em, four) years never got applied to the old deficiency, neither did a previous overpayment just shy of the three-year SOL for claiming.

Notwithstanding the foregoing, IRS sent Silvia a NFTL promptly after Silvia exited bankruptcy. Silvia did nothing.

IRS applied all the refunds to the earlier year as of April 15 of the year for which the refund was due, even though the TC 520 wasn’t pulled until years later.

But interest was running.

When IRS hit Silvia with a NITL, she petitioned, claiming IRS charged her too much interest and contested the failure to pay additions to tax.

Appeals cut some of the additions, and 50% of the interest.

Silvia did get cash refunds for some EICs that were part of the deficiency, and that interest stands. She had the money.

Silvia claims reasonable cause for nonpayment.

HHBJJJIJ: “With respect to reasonable cause, we observe that petitioners have not provided the Court with their financial information. Thus, we cannot determine whether they exercised the ordinary care and prudence that they must to demonstrate reasonable cause. See, e.g., Taylor v. Commissioner, T.C. Memo. 2009-27 (where taxpayer failed to introduce evidence regarding her investment in a club or how the club’s failure affected her ability to pay her taxes, finding that ‘[b]ecause of the lack of evidence regarding petitioner’s investment in the club, we cannot conclude that the investment constituted reasonable cause for her failure to pay her 1998, 2000, and 2001 tax liabilities by their respective due dates’). Despite petitioners’ failure to provide Settlement Officer Andrews with the necessary information, she reduced, but did not eliminate, the section 6651(a)(3) addition to tax imposed on them. We will not disturb her determination.” 2017 T.C. Memo. 14, at pp. 16-17. (Footnote omitted).

Since Silvia could prove no reasonable cause, willful neglect is not discussed.

And since the NFTL should have awakened Silvia, she has no beef that she would have paid sooner had she known.

Takeaway- Don’t ignore IRS correspondence; it could be expensive.

You Know the Rest

When an SO, hearing that the taxpayer can’t pay after the taxpayer stalls sending in a completed 433-A, suggests he try for CNC by sending in some financial records, that shouldn’t bounce the NOD.

At least not in Judge Lauber’s court.

Thus he instructs Tyree Phillips, 2017 T. C. Memo 13, filed 1/11/17.

“This argument calls to mind the adage that no good deed goes unpunished. As petitioner acknowledges, SO X offered the suggestion of CNC status only after petitioner had represented that he could not afford the cost of having the missing tax returns professionally prepared. SO X mentioned this option as a possible solution to petitioner’s problem; this suggestion was clearly not the cause of petitioner’s problem. SO X’s suggestion would not have halted petitioner in his tracks if he were actually making progress in assembling the documents required for consideration of an OIC or an installment agreement. Petitioner found this suggestion attractive because he was not making such progress.

“The documentation that SO X requested in order to consider petitioner for CNC status was quite basic–copies of his bank account statements and pay- stubs and evidence of his monthly rent expense. SO X ultimately gave petitioner five weeks to submit these documents, a period that we find reasonable. Petitioner tries to lay at SO X’s door the blame for his failure to submit the required documents, urging that the SO erred by not ‘following up.’ But petitioner waited until two weeks after the initial deadline had passed before contacting SO X, citing ‘printer problems’ and promising to fax the documents within the next two days. He failed to deliver them within the next four weeks.

“We reject petitioner’s suggestion that an IRS settlement officer has an affirmative duty to check up on a taxpayer who fails to make good on his own promise to submit documentation required to consider a collection alternative.” 2017 T. C. Memo. 13, at pp. 10-11. (Name omitted).

I give Ty’s counsel from a well-known white shoe firm a Taishoff “Oh Please.”

STJ Lewis (“Our Name is Our Fame”) Carluzzo has a provision that should be enshrined in the Tax Court Rules of Practice and Procedure, rather like FRCP 11 light.

Here’s the language, to be signed by attorney, USTCP, or the party him/herself.

“I certify that I have read the applicable Rule(s) of the Tax Court Rules of Practice and Procedure with respect to the submission of this document, and the document in all respects conforms to those Rules.”

The order is Chastity Kirven, Docket No. 30393-15W, filed 1/10/17. The language appears at p. 2 thereof.

Ms Kirven is enamored of FRCP, but Tax Court has its own rules. Having been heretofore admonished to steer by that constellation, Ms Kirven again goes off on a frolic of her own.

STJ Lew will receive her papers, but will neither file nor act thereon.

“The failure to include the above language in any future submission by petitioner, or the submission of a document that shows that petitioner has failed to proceed in accordance with such language, will result in the document being retained by the Court, but not filed. Otherwise, no action will be taken by the Court, and no action need be taken by respondent in response to any document so treated.” Order, at p. 2.

“We understand that petitioner is a self-represented litigant, and a review of the record in this case demonstrates that we have afforded her wide latitude in dealing with her many submissions. Enough, however, is enough.” Order, at p. 1.

No, I’m not suggesting how you should comport yourself “if you ever go to Houston.” I just did, and neither staggered nor fought. I would not want to incur the obloquy of my nearest and dearest, among whom, I have discovered, is a ukulele virtuoso.

Rather, this is about the special tax lien that attaches to all property of a decedent eo instante she or he becomes a decedent, more particularly bounded and described in Section 6324(a)(1).

In Estate of Ruben A. Myers, Deceased, Ken Norton, Executor, 2017 T. C. Memo. 11, filed 1/10/17, ex’r complains that IRS slugged the estate with a NFTL and a NITL, after he urged IRS to go after nonprobate assets in the hands of persons beyond his control, and the SO at Appeals agreed.

The RO on the case apparently was guilty of certain missteps, but that doesn’t affect the outcome.

Ex’r said he’d have to sell the farm at a loss, he didn’t have money, and he couldn’t touch the nonprobate assets. So IRS should’ve hit the nonprobate assets with a NFTL. And since the SOL (10 years) ran before IRS did anything, IRS abused its discretion.

Judge James S. (“Big Jim”) Halpern is on the case, and he puts the ex’r right.

“We first observe that petitioner misunderstands section 6324. Unlike the general tax lien provided for in section 6321, which was the subject of the NFTL and which attaches to all property belonging to a taxpayer after assessment, demand, and nonpayment of the tax and which secures the payment of all types of Federal taxes, including estate taxes, the special estate tax lien comes into being without assessment or notice and demand automatically on the date of death, and it attaches to all of the property the value of which is included in the gross estate whether or not the property comes into the possession of the executor or administrator. It continues for 10 years unless, before the end of the 10-year period, the estate tax is paid in full or becomes unenforceable by expiration of the period of limitations on collection. See sec. 6324(a)(1). Petitioner’s claim that respondent abused his discretion by failing to file a special estate tax lien against the nonprobate assets the value of which was included in decedent’s gross estate is without merit, since that lien came into existence upon decedent’s death without the necessity of respondent’s doing anything.” 2017 T. C. Memo. 11, at pp. 13-14.

So? For nine years plus IRS did nothing as regards the nonprobate assets. Then, when the estate coffers were bare, IRS woke up and hit the estate as aforesaid. Ex’r petitions, staying collection, with three (count ‘em, three) months to go before the SOL clock runs out.

Of course, with collection stayed and the SOL clock running all the while, the special lien, in the words of American National Treasure Charles Edward Anderson (“Chuck”) Berry, is “gone like the cool breeze.”

 Judge Big Jim cares not.  “We are left only to consider that, as the parties have stipulated, the section 6324 special estate tax lien encumbering the nonprobate assets included in the gross estate expired on November 15, 2015, and respondent has not taken any action to attach or otherwise pursue collection of the estate tax liability with respect to nonprobate assets. Those are events occurring after Appeals issued the determination on July 1, 2015. And while pursuant to our authority under section 6330(d) to review CDP determinations we may take into account changed circumstances, see Churchill v. Commissioner, T.C. Memo. 2011-182, 2011 WL 3300235, at *6 (‘[W]e do have authority to remand a CDP case for consideration of changed circumstances when remand would be helpful, necessary, or productive.’), petitioner has not convinced us that a remand would be helpful, necessary, or productive. Respondent explains that, pursuant to his collection procedures, he froze collection actions three months before the special estate tax lien lapsed when, on August 17, 2015, petitioner filed the petition. See Internal Revenue Manual (IRM) pt. 5.1.9.3.5.1 (June 24, 2014) (stating that levy actions are suspended on filing of timely CDP notice). ‘In other words,’ argues respondent, ‘[he] agreed to petitioner’s request to pursue non-probate assets, but petitioner’s actions prevented the collection action from going forward.’” 2017 T. C. Memo. 11, at pp. 16-17.

Sure, like IRS was going to start to grab the nonprobate assets after nine years and nine months of doing nothing, but the nasty ex’r, with only thirty days to petition the NOD, interfered?

Give me a break.

Well, of course Tax Court can’t start a wide-ranging excursus into what IRS could’a would’a should’a done. No abuse of discretion. IRS wins.

But Judge Big Jim has a hint for IRS, which has hardly covered itself with glory here.

“Before we close, we point out that there may still be ways for respondent to collect the estate tax liability from third parties. For example, the period of limitations applicable to the personal liability imposed on transferees and others by section 6324(a)(2) is not the 10-year period from the date of death provided in section 6324(a)(1). It is the 10-year collection period provided in section 6502(a) running from the date of assessment. See United States v. Bevan, No. 2:07-cv- 1944 MCE JFM PS, 2008 WL 5179099, at *6 (E.D. Cal. Dec. 10, 2008); United States v. Degroft, 539 F. Supp. 42, 44 (D. Md. 1981). We do not know the date the estate tax was assessed, but the parties have stipulated that the estate tax return was filed February 15, 2007, a date that almost certainly was before the date the estate tax was assessed. The 10-year period for imposing personal liability is probably still open.” 2017 T. C. Memo. 11, at p. 18.

As we said in my young day, get with the program.

You Know the Rest

New Millennium Trading, LLC, AJF-1, LLC, Tax Matters Partner, 2017 T. C. Memo. 9, filed 1/10/17, is another blown-up Bialystok, Son-of-Boss variation.

We have BDO Seidman’s Tax Solutions dodgefloggers, a cameo appearance by Jenkens & Gilchrest, and an inventive CPA-turned-hedge fund manager whom I’ll call Bergie.

It’s the old Section 752 unrecognized liability (gain) meets recognized loss. Bergie is the guiding light of the enterprise, with total hands-on control over the deal.

If you’re interested in the details of a blown-up Bialystok that’s been on IRS’ Ten Worst for many years, read Judge Goeke’s surgical dissection.

New Millennium Trading was a sham.

I’m going to focus on the 40% substantial undervaluation chop.

But first, “When a partnership is disregarded for tax purposes, the rules of subchapter K of chapter 1 of the Code no longer apply, and the partnership’s activities will be deemed to have been engaged by one or more of its purported partners. A disregarded partnership has no identity separate from its owners, and we treat is as an agent or nominee. Pursuant to section 6233(a) and (b), TEFRA procedures still apply to the entity, its items, and persons holding an interest in the entity as long as the purported partnership filed a return, which NMT did for tax year 1999. See sec. 6233(b); sec. 301.6233- 1T(a), (c)(1), Temporary Proced. & Admin. Regs., 52 Fed. Reg. 6795 (Mar. 5, 1987). Thus, we have jurisdiction to determine any items that would have been ‘partnership items’, as defined in section 6231(a)(3), and section 301.6231(a)(3)- 1, Proced. & Admin. Regs., had NMT been a valid partnership for tax purposes.” 2017 T. C. Memo. 9, at pp. 34-35. Citations omitted).

So Judge Goeke has jurisdiction to deal with the chops, even though partner-level items are involved. But when the partners go under the chopper, what Tax Court did here may be provisional.

Since the taxpayer, whom I’ll call Fili (founder of a $5 billion software outfit he unloaded for Social Security numbers, basis of bortscht) reported an inflated basis in the “partnership” when he should have reported zero, a fortiori Fili is up for the 40% chop.

Fili can’t yell he was an injured innocent who relied upon an oceanful of sharks; at least not in Tax Court. As the Supremes pointed out in Woods, Fili can fight in USDC or USCFC after he has paid up in full.

The real issue is the good faith reliance of the “managing partner” of the non-partnership, which brings us back to Bergie.

Bergie “…was the only individual with the authority to act on behalf of NMT, and it is his conduct that is relevant for determining whether we should sustain the accuracy-related penalty.” 2017 T. C. Memo. 9, at p. 35.

Of course, Bergie, a sophisticated CPA, should have known this deal was too good to be true.

Off-Topic

The monuments of unaging intellect who operate wordpress.com, the soapbox wherefrom I orate at a modest annual charge of USD twenty-six, have eliminated the stat page showing, on a cumulative basis from inception, which countries, commonwealths, semi-autonomous regions and other political thingies have viewed this my blog.

Why?

Was it too complicated? If so, why had it run for more than five (count ‘em, five) years?

Too expensive? But there’s a daily list. What’s so hard about a cumulative list?

Were various sovereignties checking up on the viewing habits of their citizens? They could do that without the help of wordpress.com. These sovereignties can, and most likely do, prevent anything from wordpress.com entering their sacred servers.

I liked to see whether I was giving Canadian Club (“The best in the house in 167 countries”) a run for its loonies.

A blog site should provide its customers with the most bang for the buck, especially when the incremental cost thereof is bupkis, to use a technical term.

C’mon, wordpress.com., a satisfied customer is your best advertisement.

Please excuse the late posting. I got back late last night from the Magnolia City, a/k/a the Bayou City, after a tumultuous weekend with nearest and dearest, a snowed-out return trip, and the LaGuardia Airport Horror. They are rebuilding the place; the project may take longer than the construction of the Panama Canal, which I shall visit later this month.

Howbeit, nothing today from the Glasshouse at 400 Second Street, NW, but an arithmetic T. C. Memo. about unreported income and restatement of deductions. And no designated hitters.

So I excavated two orders, where IRS counsel came up with a novel motion.

As the texts of the pertinent paragraph of both orders, from Judge Nega’s wordprocessor, are virtually idem verba, let’s use Laulass, Inc., Docket No. 31172-14, filed 1/9/17.

“…respondent filed a status report indicating that respondent intends to file a Motion to Compel Responses to Discovery… As of this date, no motion has been filed by respondent.” Order, at p. 1.

What “discovery”? Does counsel mean requests for admissions, or document production, or interrogatories, or depositions? One of the above? More than one of the above? Or all of the above?

If a single motion is contemplated for more than one of the above, what happened to Rule 54(b)?

“(b) Joinder of Motions: Unless otherwise permitted by the Court, motions shall be separately stated and not joined together, except that motions may be joined in the following instances: (1) Motions under Rules 51 and 52 directed to the same pleading or other paper; and (2) motions under Rule 56 for the review of a jeopardy assessment and for the review of a jeopardy levy, but only if the assessment and the levy are the subject of the same written statement required by Code section 7429(a)(1).”

And what is meant by “responses to discovery”? Is “responses to discovery demand(s)” what is wanted? Or something else?

The best response to discovery I know of is that of Archimedes, who jumped stark naked out of his Athenian bathtub and ran thus through the streets yelling “Eureka!”

But the parties can keep their shirts on. Judge Nega just wants a status report on discovery issues.

It Won’t Play in Peoria

John E. Rogers, Docket No. 27208-15L, filed 1/6/17, has provided me lots of blogfodder. In this designated hitter from The Judge With a Heart, STJ Armen, Mr Rogers is battling IRS about a NFTL for chops galore arising out of his DADS deals.

For Mr Rogers’s history, see Order, at pp. 1-2, footnote 2. For a schedule of chops, see Order, at pp. 5-6.

IRS concedes Mr Rogers can’t pay the chops themselves, so he gets CNC.

But he wants the liens lifted. And he went to Appeals in Peoria, IL, from which he was tossed. So he petitions.

There’s also a stack of penalties pending in Chicago, Il. Mr Rogers fought those, tooth and nail.

In the meantime, the Peoria liens stand.

Mr Rogers tries to re-fight the chops in his petition, but he had a full chance to fight at Appeals in Chicago.

His Eighth Amendment arguments fail, as the precedents show that the chops are fractions of the tax owed, and are not excessive.

“In the instant case, petitioner essentially relies on section 6323(j)(1)(C), which provides that the Secretary may withdraw a NFTL if the Secretary determines that withdrawal will facilitate the collection of the tax liability. In that regard, petitioner argues that ‘[t]he lien precludes petitioner from engaging funding necessary to finance his businesses going forward and earning the money necessary to satisfy the lien, earn a living in his profession, and provide for his retirement and medical care.’ But this argument is not meaningfully different from those rejected by the Court…, nor does the argument acknowledge that withdrawal of the NFTL would compromise the lien priority interests of the United States vis-a-vis petitioner’s other creditors, both present and future. Further, petitioner’s argument ignores the fact that a lien, which is a security device that assures the United States of its priority over other possible creditors, does not deprive a taxpayer of property, unlike a levy.” Order, at p. 21. (Citations omitted).

But this Order and Decision affects only Peoria. As to Chicago Appeals, Mr Rogers can carry out his stated intention that “…he will proceed all the way to the U.S. Supreme Court if necessary.” Order, at p. 11.

I confidently expect more blogfodder.

While cases for years prior to those beginning last Sunday will continue with FPAAs, tax matterers, partner-level and partnership-level adjustments, computationals and deficiency reviewables, I hope that the new partnership regime will simplify the current silt-stirrings swirling around the Glasshouse at 400 Second Street, NW.

Here’s Hubert Oxford, III & Cynthia Oxford, Docket No. 16916-15, filed 1/5/17, from Judge Goeke.

You remember HO3 and Cynthia, of course. What, no? Well, check out my blogpost “Inside, Outside – Part Deux,” 6/21/16.

HO3 and Cynthia want to enjoin and restrain IRS from assessing and collecting, or make IRS disgorge if they did, and IRS wants to dismiss the petition and strike the penalty.

The partnership here involved had a FPAA, litigated at partnership level, and the adjustments and chops IRS laid upon HO3 & Cynthia all arise therefrom.

HO3 & Cynthia say it’s premature to hit them with a deficiency; IRS doesn’t fight the adjustment issues, but claims Tax Court has no jurisdiction over the chop.

Judge Goeke: “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 no restraining the chop, although the adjustment impact on HO3 & Cynthia are put off for another day.

But as I said in my blogpost above referred to, “I have a feeling that these face-offs will be going on long after TEFRA is an unpleasant memory, when we’ll be grousing about PATH partnership audits.”

We all know the Section 6651(a)(2) addition to tax for failure to pay tax shown on return, 0.5% per month to a maximum of 25%.

Well, IRS apparently never issued a SFR, or didn’t get it into the trial notebook, in Brian E. Harriss, 2016 T. C. Memo. 5, filed 1/5/17.

Brian filed a return for the year at issue here, but all it showed was zero. Brian had salary and wages and an IRA distribution, but all his petition showed was the usual protester stuff, ending in zero.

IRS wants the aforesaid addition to tax, but Judge Vasquez finds IRS has a problem.

“The section 6651(a)(2) addition to tax applies only when an amount of tax is shown on a return filed by the taxpayer or prepared by the Secretary. Sec. 6651(a)(2), (g)(2); Cabirac v. Commissioner, 120 T.C. 163, 170 (2003), aff’d without published opinion, 94 A.F.T.R. 2d (RIA) 2004-5490 (3d Cir. 2004). Pursuant to section 7491(c), respondent has the burden of production with respect to this addition to tax. See Higbee v. Commissioner, 116 T.C. at 446.

“Respondent has not carried his burden here. Petitioner’s…return, which respondent received and processed, shows a tax of zero. There is nothing in the record to indicate that a substitute for return (SFR) meeting the requirements of section 6020(b) was ever prepared…. We therefore hold that petitioner is not liable for the section 6651(a)(2) addition to tax.” 2016 T. C. Memo. 5, at pp. 11-12. (Footnote omitted, but read it; IRS introduced a “literal transcript” over Brian’s objection, but it neither showed an SFR or any compliance with Section 6020(b)(1)).

Takeaway– If Section 6651(a)(2) is in play, get a copy of the return and any SFR and keep it handy. That goes both for petitioners and IRS.