Back on 3/24/16 I said “I have no doubt STJ Leyden will give the taxpayers a fair shake in Tax Court.” See my blogpost “Straight from the Sidewalks of New York,” 3/24/16.

Well, making an offer of proof in support thereof, I give you Jack Dewain Burke, Docket No. 27301-15S, filed 12/27/16, an off-the-bencher, with IRS represented by a law student (under supervision, of course). Welcome to the real world, kid.

JD is “… a disabled veteran with physical and mental disabilities. These physical disabilities included a recurring hernia in his groin, spinal disease and damage, and full body osteoarthritis, which caused painful joints in his knees and pain in his back.” Order, at p. 6 (transcript).

JD also has ADD for which he is taking medication that contains amphetamines.

His employer Home Depot (remind me not to shop there and to discourage anyone I know from shopping there; I cannot well describe their management in a blog meant for family reading), to whom he had made full disclosure on first being hired,  fired him for failing a drug test after reassigning him from a job he could handle well to one he couldn’t, although they did increase his pay even after a bad report.

He told them that the drug was prescribed, but they refused to allow him a defense.

He sued. His lawyer amended the first complaint (how, JD doesn’t know, and he doesn’t have complaint number one).

Home Depot settled. JD’s lawyer told him he didn’t need to pay tax on the settlement, but IRS did.

Judge Di goes through the “what did they really settle, not what did they say they settled” catalogue.

“The payor’s intent can be ‘based on all the facts and  circumstances of the case, including the complaint that was filed and the details surrounding the litigation.’ See, e.g., Allum v. Commissioner, T.C  Memo. 2005-177, 2005 Tax Ct. Memo LEXIS 178, at *15, aff’d 231 Fed. Appx. 550 (9th Cir. 2007). Under California law, which governs the interpretation of petitioner’s settlement agreement with Home Depot, we must consider all credible evidence to determine whether the language of the agreement is fairly susceptible of more than on [sic] interpretation. If it is, we must consider extrinsic evidence relevant to prove which of these meanings reflects the intent of the contracting parties.” Order, at p. 16. (Transcript; Citation omitted).

Now any lawyer who can’t find an ambiguity should find another job, and Judge Di is on the case.

So let’s look at the settlement. There was a modest amount of lost wages, and JD paid tax on that. There were attorneys’ fees, and those get a Section 62(a)(20) above-the-line writeoff, as JD’s attorney pleaded the right kind of discrimination. Those aren’t excludable, but are deductible without phaseout or AMIT.

But in a neat piece of judicial cherrypicking, Judge Di gives JD a well-deserved break.

“Of the 11 causes of action, the last one was for punitive damages. Awards for punitive damages are not excludable from gross income under Section 104(a)(2). Of the remaining ten causes of action, six of them expressly refer to petitioner’s physical injuries or sickness and indicate that petitioner would be seeking damages for medical care by physicians, surgeons, and other health care advisors. Accordingly, the Court concludes that six-tenths of the $31,500 of the settlement payment, or $18,900, is excludable from petitioner’s gross income for 2013 under Section 104(a)(2).” Order, at pp. 18-19. (Transcript).

Plaintiffs’ attorneys, go and do thou likewise. Only you really shouldn’t give tax advice. Just send the client to Judge Di, the veterans’ friend.

OK, the halls were decked, the wassail has sailed away, and I’m back at the same old stand on Lower Broadway here on this US Minor Outlying Island.

I wish I had something novel, but Ch J L Paige (“Iron Fist”) Marvel insists upon admitting CPAs to practice in Tax Court (with or without POAs, which are of course worthless in Tax Court), notwithstanding the explcit provisions of Rule 24(a)(4).

“No entry of appearance by counsel not admitted to practice before this Court will be effective until counsel shall have been admitted, but counsel may be recognized as counsel in a pending case to the extent permitted by the Court and then only where it appears that counsel can and will be promptly admitted.”

We all know that fiduciaries of various kinds (personal representatives, trustees, ex’rs and administrators), next friends, corporate officers, partners and LLC managers (tax matterers until next week, and tax representatives after that) may appear, if either named in the document conferring jurisdiction on Tax Court or obtaining Tax Court approval if not so named.

But Ch J Iron Fist keeps letting ‘em all in, even none of the above, with special preference for CPAs.

Here’s another one welcoming me back, Marta Torre De Morimoto & Masayoshi Morimoto, Docket No. 25494-16S, filed 12/27/16.

Mart & Masa got a “no change” from IRS after they dropped their pro se petition back on December 1. And Ch J Iron Fist quite properly told them to sign same or get “…a representative with proper authorization and capacity pursuant to the Tax Court Rules of Practice and Procedure” to do it.

As Grandma would have said “Nu? Va’ denn?”

So now, instead of doing what Ch J Iron Fist told them to do, but apparently at their direction, into the mail slot at 400 Second Street, NW falls “…a Letter Dated December 12, 2016 by Richard E. Evans on Behalf of Petitioners. That letter states that: (1) petitioners have received a ‘no change’ letter from the IRS with respect to their 2013 tax year and (2) petitioners wish to withdraw their petition. A copy of the ‘no change’ letter was attached to that document.” Order, at p. 1.

Of course you can’t withdraw a petition from a SNOD, small-claimer or no small-claimer, once Tax Court has jurisdiction, without decision for IRS for the full boat of the SNOD.

Now who, saving his reverence, might Richard E. Evans be? According to Tax Court’s docket inquiry link, Mart & Masa are still pro se, so perchance Richard E. Evans is a Tax Court admittee who’s a wee bit slow filing Form 7, or maybe one awaiting prompt admission.

But my inquiring mind found that a certain Richard E. Evans is a partner in one of the seventy (count ‘em, seventy) largest firms of Certified Public Accountants in our country, with offices in San Diego, CA, where Mart & Masa want to try their case.

Now it may be that there’s more than one Richard E. Evans in SD CA, so I apologize in advance if I’ve named the wrong person.

And the true Richard E. Evans may not be a CPA. But I’m prepared to wager a couple ales at Jake’s Saloon on 23rd Street (hi Judge Holmes, sorry I can’t buy you a drink; no Judges can take this bet) that Richard E. Evans is neither an admittee nor leading the field down to the wire.

So Ch J Iron Fist one again crushes the Rules of Practice and Procedure.

“…the Letter Dated December 12, 2016 by Richard E. Evans on Behalf of Petitioners is recharacterized as a Motion for Entry of Decision by Richard E. Evans on Behalf of Petitioners.” Order, at p. 1.

And Mart & Masa have five weeks to get with IRS’ counsel, put in decision documents, or file a status report.

I know this is a small-claimer, and we don’t play strict rules of golf, but there are some vestigial rules. I also know Judges want to clear the docket like a goalie down 5 to 3 on a powerplay wants to clear pucks, and like said goalie is willing to risk taking a delay-of-the-game by throwing the puck into the stands.

But if the Rules need changing, change them. Don’t tiptoe around them.

Tax Court is shuttered today. According to a fictional colleague of my youth, everyone has been born again on a Monday, so neither opinion nor order issues forth to give me an excuse to blog.

So I go back to a troubling pair of blogposts that interrupted my somnolent holiday and drove me to the keyboard electric. Compare and contrast “Robosigner?” 12/23/16, with “Money-Back Guarantee meets The Boss Hoss,” 11/30/16.

If it turns out that Judge Gustafson has discovered that the famous Section 6751(b)(1) sign-off by “immediate supervisor” is actually done by some “Reviewer,” who may or may not be the “immediate supervisor” of the initial determinator, and moreover may be “personally approving” such determination by a robosignature, like papers in a phony subprime mortgage foreclosure, what price ex-Ch J Michael B. (“Iron Mike”) Thornton’s psycholinguistic hopscotch in the second of my blogposts aforementioned?

I went back to an old favorite Christmas story by O. Henry, wherein his antihero tramp berates a fellow roadster thus: “Chewin’ de stuffin’ out ‘n de dictionary, as usual, Boston.”

The answer isn’t in the dictionary, nor in The Oxford English Grammar.

Either Congress meant that someone, who has oversight responsibility for the IRS employee who chooses to impose a penalty, exercises, and documents the exercise of,  that responsibility before the taxpayer first gets hit with the chop, or they meant something unintelligible from the plain words (without philological gloss) that appear on the page.

As best I, a mere old-time, beaten-up, beaten-down, single-shingle dirt lawyer “of limited experience and mediocre qualifications” can discern, Congress proposed that IRS stop using penalties to bully taxpayers.

And the way to do it, said Congress, is to require a second look before dropping the bomb. And that’s a documented second look by a specific individual senior to the would-be bomber.

If the second look needn’t be given or documented until after a Tax Court litigation, wherein the taxpayer may have paid or incurred monumental legal fees, costs and disbursements, finally to be justified; or worse, where the taxpayer is unjustly mulcted but cannot afford even the “reasonable rates” of Eric William Johnson, Esq., what exactly is the point of the statute?

Moreover, if the famous “second look” can be accomplished by a robosigner with an illegible signature many years after said initial determination, the statute becomes positively farcical.

If ever an opinion needed reargument, it’s 147 T. C. 16.

Blogging is like eating Crackerjacks^©. I defy anyone to stop after the first one.

So notwithstanding the holiday signoff on the immediately preceding blogpost, I’m back, with a tip of the battered Stetson to the late Alvin Toffler, whose 1970 opus thus entitled delineated the social confusion and breakdown of former normality when change comes too fast in too many ways.

Ring any bells? Sorry about that; this is a nonpolitical blog. I’m talking about the latest IRS coruscation, the “Future State” Plan. See IR-2016-174, 12/21/16.

“In a survey, the IRS asked tax professionals what changes in the Future State could have the biggest impact on the experience taxpayers have with the IRS. More than 1,300 tax professionals responded to the question. More than 30 percent of respondents cited enhanced support and tools for taxpayers and overall more than 20 percent cited agile, efficient and effective operations as the areas of greatest impact.”

I’m all for agility, efficiency and effectiveness. Especially if it doesn’t cost money. But it always does.

Howbeit, after having called the Tax Professional helpline a couple days ago (Merry Christmas, Judge Holmes) and being told that yuge call volume prevents me from getting through or even leaving a message, the following leaves me more Scrooge than Tiny Tim.

“The Future State does not contemplate replacing current methods of customer service, such as phone assistance; rather it envisions finding alternative ways for people to receive the specific services they need.”

Well, if IRS is going to leave current methods of service in place, I expect a lot of future shock.

Especially when IRS gets its info from attendees at the Nationwide Tax Fora, which cost at least a grand to attend and three days out of a work-week if you don’t live next door.

I’m going to need a lot of runway to deal with the density altitude here, so the following is all subject to connection with Tax Court.

When the subprime mortgage debacle ceased to be “contained,” as a well-known financial expert put it, the cascading home mortgage foreclosure clouds opened, and pleadings rained from the skies.

Many of these mortgages were allegedly held by an electronic nominee, to avoid recording chains of mortgage assignments (and paying fees to local governments). It also kept the true holders well-shielded, as the mortgages were combined into syndicated portfolios, of which pieces were dumped on the fixed-income market.

Needless to say, accurate document preparation was the first casualty.

We then saw the flurry of “robosigners,” junior clerks given titles above their pay grades who signed affidavits and pleadings at the rate of ten a minute, with flailing notaries at their elbows stamping their nights away. None had any idea what they were signing or to what they were swearing.

When the defendants’ bar and the pro bono wolfpack descended and did the first depositions, the game was blown sky-high.

OK, here’s the connection. It’s that obliging jurist Judge David Gustafson, and he’s dealing with the Boss Hoss Section 6751 kerfuffle in Dean Matthew Vigon, Docket No. 28788-14L, filed 12/23/16, a designated hitter that’s a real holiday gift to a blogger.

IRS claims Dean is a frivolity merchant, and whacks him with nine (count ’em, nine) $5K Section 6702 frivolous return chops.

IRS has problems producing returns in question for their motion for summary J.  First they claim no returns were amended returns, although three were checked as amended returns. Next, they have only photocopies of parts of returns, some unsigned ones, and one faxed version.

But that’s not all.

Back in April, when he first got wind that IRS would go for summary J, Judge Gustafson told IRS to verify that it had gotten the Section 6751 Boss Hoss signoff before whacking Dean as aforesaid. IRS asked for a remand and Judge Gustafson, obliging as always, said OK. Counsel told Appeals to make sure that the supplemental NOD named both decider and Boss Hoss.

“In apparent response to this instruction, the Appeals settlement officer noted in her case activity report (Ex. X, p. 112) that the two Forms 8278 showing approval for 2007 were ‘signed’, but one with an ‘illegible signature’. For all of the 2008 and 2009 Forms 8278, the settlement officer noted: ‘Automated signed by auto signature’. The purported signatures that appear on the Forms 8278 do appear to be facsimile signatures.

“The Commissioner’s motion for summary judgment asserts that ‘before each of the I.R.C. section 6702 penalties was assessed, an immediate supervisor of the individual making the determination to assess the penalty approved that determination in writing’. The Forms 8278 do name an ‘Originator’ on line 10a and a ‘Reviewer’ on line 16. However, not in keeping with the remand memorandum, neither the motion nor any of its attachments (as far as we can tell) identify the person approving the penalty determination as being in fact the immediate supervisor of the individual making the initial determination of the penalty. (Rather, in an email to counsel (Ex. V), the settlement officer observed, ‘[T]he form 8278 shows a “Reviewer” signature which everyone seems to constitute as a manager signature but it would be better presented in a court situation if the form was changed to notate Manager or Supervisor as the actual person signing the form.’)” Order, at pp. 2-3. (Emphasis in original).

But Section 6751 calls for “immediate supervisor.” And exactly who this “Reviewer” might be is nowhere stated.

Nor whether there’s a difference for Section 6702 purposes if a return is original or amended. IRS counsel seems to think there is.

IRS’ summary J motion tanks. Trial in February.

Jersey Boys, this is my Christmas present to you. Please copy and enjoy.

Thanks, Judge, Merry Christmas to you and the whole corps de ballet at 400 Second Street, NW.

And best holiday wishes to all my readers.

What happens when Congress tells Treasury to make regulations, and Treasury doesn’t? What happens when Congress suggests Treasury make regulations, but Treasury doesn’t?

And specifically, what does Tax Court do when confronted with one or the other?

Well, here’s 15 West 17th Street LLC, Isaac Mishan, Tax Matters Partner, 147 T. C. 19, filed 12/22/16. And Judge Lauber is eager to tell us.

The Jersey Boys are at it again, fighting for 17th Street Band. And they’ve started a real Tax Court slugfest, with Judge Lauber dukeing it out with Judge Foley in one dissent and the obliging jurist Judge David Gustafson in another.

The Great Dissenter concurs, and, as is his wont, stirs the silt by threatening to bring the fight up again if ever it comes before him.

The Gordian knot is Section 170(f)(8)(D), where maybe so the donee of a charitable gift can provide substantiation of the gift otherwise than by the three part contemporaneous written acknowledgment we all know and loathe, “if the donee organization files a return, on such form and in accordance with such regulations as the Secretary may prescribe.”

Well, the 17th Street Band bought an old building and was going to demolish, when the Landmarkers came storming in and put paid to that. Enter our old chum the Trust for Architectural Easements, ex-National Architectural Trust.

You can guess the rest. But candor compels me to tell you.

The 17th Street Band gave an easement to the Trust.

“…the Trust sent the LLC a letter acknowledging receipt of the easement.  This letter did not state whether the Trust had provided any goods or services to the LLC, or whether the Trust had otherwise given the LLC anything of value, in exchange for the easement.

“The LLC secured an appraisal concluding that…the property had a fair market value of $69,230,000 before placement of the easement. The appraisal thus opined that the property–acquired for $10 million in September, 2005–had risen in value by almost 600% in 2-1/2 years.  Opining that the property was worth only $4,740,000 after the donation, the appraisal concluded that the easement had reduced the property’s value by $64,490,000.” 147 T. C. 19, at p. 6.

Take that, Landmarkers!

When the Trust filed its next Form 990 (the 501(c)(3) tell-all), it never mentioned the gift. But IRS did, and handed the 17th Street Band a FPAA.

Only three years after that, and seven years after the return for the year at issue, the Trust amends its 990 for the year at issue to show said gift, and the 17th Street Band claims that cures the contemporaneous written acknowledgment problem.

That earns them a Taishoff “Good Try, First Class.”

Unfortunately, Judge Lauber, ably assisted by Judges Gale, Thornton, Goeke, Holmes, Kerrigan, Buch, Nega, and Ashford, with Ch J Iron Fist and Pugh concurring in result only, gives the Band “yer out!”

While Treasury can’t nullify an act of Congress by doing nothing, the Courts must tread warily. The Courts can’t write regs when the executive agency charged with doing so didn’t; neither can the Court rewrite the enacted statute to suit themselves.

So there grew out of agency inaction (willful or distracted) two classes of statutes: self-executing and not.

When the statutes were deemed taxpayer-friendly, or where Congress said “may” but not “shall”, the Judges stretched the point for the taxpayer. But where Congress needed to plug gaps, and agency input was the method, the Courts would not tread.

The whole idea started with having the charitables collect info (name, rank and serial number) from the donors and report this to IRS, like son-of-1099. The small charitables screamed this would kill their contributions, and the donors screamed that this would open the door to identity theft, as many small charitables are ill-equipped to handle data security.

Judge Lauber writes a law review article on the history of the reporting scheme, which Judge Foley blows off as follows: “In a valiant attempt to legitimize a holding not supported by the statute, the majority is compelled to rely on regulatory history relating to regulations that were never promulgated and legislative history (i.e., pledges from Treasury officials who served in a previous Administration, a hearing statement from a congressman who retired before section 170(f)(8)(D) was enacted, etc.) relating to a bill vetoed during a previous Congress.” 147 T. C. 19, at  p. 60.

Judge Foley says the statute’s clear enough. File the form and you’re done. Or even amend the form seven years later and you’re done.

Judge Gustafson says the statute is crystalline. There is a form and there are regulations…the 990 and 1.6033-2, which covers the waterfront by requiring the charitable to give names and addresses (but not SSANs, TINs or ITINs) of everyone who gives more than $5K.

Besides, the contemporaneous written acknowledgement need not be signed, and need not even identify an authorized acknowledger. But failure to comply with any of the three (3) requirements torpedoes an otherwise valid gift. Letting the charitable remedy the defect with an amended 990 saves the day.

And the contemporaneous written acknowledgment is not rendered surplusage by this approach.

“This alternative substantiation must be made on the Form 990 return (not a mere receipt) and thus is potentially subject to civil penalties under section 6701 and, since the return is signed ‘[u]nder penalties of perjury’, the criminal penalties of section 7206(1) as well.  In addition, an organization that decided not to issue receipts would surely disappoint and confuse its donors–not a good thing for an organization that depends on donations.  It would therefore seem unlikely that an organization would elect not to issue receipts but instead to report its contributions on its return.” 147 T. C. 19, at p. 66, footnote 4.

I’ll bet this is going up on appeal to Second Circuit, but the tough part is the seven-year gap between 990 1 and 990 2.

If this weren’t one of those overblown façade farragoes, The Jersey Boys would stand a better chance.

Judge Posner of USCA 7 is a tough critic of Tax Court. All y’all (I’m going to Houston next week, so I’m warming up) will remember the drubbing he gave poor Judge Wherry for wisecracking.

If not, see my blogpost “There Goes the Neighborhood,” 9/3/13.

But Judge Ruwe is a diligent student of Judge Posner’s prose, and quotes him in Cecilia M. Hylton, 2016 T. C. Memo. 234, filed 12/22/16.

Cecilia is another horse fancier, and Judge Ruwe has 38 pages of her horsey lore. And Cecilia even outdoes the inventive counsel for Raymond Price, III. Counsel asserted “… the receipt of cooled stallion semen at the Honda dealership as evidence that a horse activity is conducted at that dealership.” See my blogpost “More Horseplay,” 12/16/14.

On her way to losing $17 million on her horse operation while earning $89 million from her father’s real estate business, Cecilia shows her dedication to her deceased world champion stallion Flashy Zipper by having  “…a veterinarian remove his testicles and ship them to Colorado State University to harvest and freeze his semen.” 2016 T. C. Memo. 234, at pp. 12-13.

By now you’ve sussed out that this is another Section 183 hobbyhorse.

Judge Ruwe goes through the nine-part checklist, which Judge Posner calls “a goofy regulation,” namely, Reg. 1.183-2.

Finally,  Judge Ruwe breaks down and quotes Judge Posner.

“…the Tax Court would be better off if rather than wading through the nine factors it said simply that a business that is in an industry known to attract hobbyists (and horse racing is that business par excellence), and that loses large sums of money year after year that the owner of the business deducts from a very large income that he derives from other (and genuine) businesses or from trusts or other conventional sources of income, is presumptively a hobby, though before deciding for sure the court must listen to the owner’s protestations of business motive.” 2016 T. C. Memo. 234, at p. 31, footnote 11.

This tired-out old-time single-shingle lawyer-blogger couldn’t agree more, Judge Posner!

And the case Judge Ruwe refers to is Roberts v. Com’r, 820 F. 3d 247, at p. 254, reversing Judge Paris in part.

Tax Court just can’t catch a break when Judge Posner is on the case.

Once again, this is a non-political blog, so the title hereof has nothing to do with a certain Cabinet Secretary-designate. Rather, it concerns some documents disclosed in an ongoing discovery melee that petitioner claims were privileged when revealed by IRS, but privilege was later waived, and IRS claims their experts didn’t rely on the documents in their reports, and anyway petitioners’ main objection was relevance, and that’s admissibility, not confidentiality.

Judge Buch has the Beekman Vista – Dynamo Holdings dynamic duo, in Dynamo Holdings Limited Partnership, Dynamo, GP, Inc., Tax Matters Partner, et al., Docket No. 8393-12, filed 12/21/16.

The duo want IRS’s experts precluded. No, says Judge Buch, in a designated hitter.

Eleven documents from the “Quick Peek” and predictive coding muddle slipped through the cracks and IRS’ experts got a look.

The duo want preclusion of reports and experts. IRS says the punishment is excessive.

Judge Buch engages in the usual “somber reasoning and copious citation of precedent.”

And in the end, the sanction must be proportionate to the offense.

“Striking or excluding respondent’s experts is not warranted. Petitioners strain to identify any harm they suffered. The only harm they claim to have suffered is an effect on their ability to cross-examine the experts, but even that description is vague and unconvincing. This is particularly true when privilege claims as to most of the documents were withdrawn; the claimed reason for the clawback of most of the documents was a lack of relevance. It is unclear how the production of irrelevant documents to respondent’s experts could adversely affect the cross-examination of those experts. Any exploration of the extent to which the experts might have considered the improperly produced documents can be (or could have been) explored during the depositions of the experts. And, if necessary, the Court can give latitude to petitioners when cross-examining experts during trial. In short, it is not clear that any harm has been suffered by petitioners, and to the extent they may have been harmed, the remedy sought is grossly out of proportion to the hypothetical harm they might have suffered.” Order, at p. 7. (Footnote omitted, but read it; IRS’ counsel promptly gave notice to the duo and destroyed the documents).

But the duo claim that if the Court doesn’t slam such conduct, who will comply with discovery orders? And that goes to the integrity of the whole process.

True, says Judge Buch. It’s not only the duo, but the system that needs protection.

But.

“When a party fails to comply with the Court’s orders, the integrity of the judicial system is implicated even when the opposing party is not prejudiced by the conduct. The Court expects parties and their counsel to abide by its orders. When a party fails to abide by the Court’s orders, several questions arise. Did the party violate the order intentionally or mistakenly? If mistakenly, was the party careless or reckless? And is there a pattern of noncompliance beyond the specific case in which the current violation occurred? These types of questions relate to how serious the party is about complying with the Court’s orders. And they relate to the professional responsibility of the lawyers involved, either in their own actions or in their supervision of staff working for them. Troubling answers to these questions might justify the Court imposing a sanction on a party or on a specific counsel appearing on behalf of a party.” Order, at pp. 7-8.

But IRS played fair, and there’s no showing a pattern of noncompliance.

So no sanctions.

No, not the Kenny Rodgers – Don Schlitz cult classic. Neither is this a tale of taxes.

Rather, this is a tip of the battered Stetson to a well-known law firm that does more than litigate tax cases, herein and elsewhere referred to as The Jersey Boys.

A well-known professional gambler sought to break the bank, rather like “Bond…James Bond” in the 1963 spy classic, at a major casino.

He didn’t break the bank, but he broke the rules, and The Jersey Boys nailed him for $10 million-plus.

Here’s their story:

“On December 15, 2016, Agostino & Associates was successful in obtaining a judgment in favor of Borgata Hotel Casino & Spa against professional gambler Phil Ivey for $10.1 million. The case involved the use of marked cards at the game of Baccarat in a unique scheme known as “edge  sorting.” Because of the parties involved, the case garnered much national attention from its inception. Jeremy Klausner handled the case for the firm in the United States District Court for the District of New Jersey.”

If you check the details as more particularly bounded and described in the media, “edge sorting” involves memorizing the backs of cards. There was a short story from the 1920s involving a similar situation, called “Fallen Angels” as the backs of the cards in question showed pictures of angels (artfully marked).

Nothing new under the sun.

And move to reconsider if you blew it.

Judge David Gustafson outdoes even himself today in a designated off-the-bencher. Renee Sunyoung Lim, Docket No. 15130-15, filed 12/20/16.

Doc Renee is a dentist with unreported income from her Sub S (conceded), and a dubious capital loss on her rental condominium.  The sales price exceeds the purchase price, but Doc Renee claims a lot of improvements, which maybe she paid for when she mortgaged out a couple times (hi, Judge Holmes), but she isn’t sure on the stand and produces no paper.

Worse, her long-time preparer filed late for her and other clients of his during the year before the year at issue, claiming he got divorced.

However, he had some excuses (please do not try these on your clients).

“He mitigated his fault to Dr. Lim and minimized the value of filing returns on time, explaining to her that if you file your return late, the IRS is less likely to audit you–a rumor she said she had also heard from some of her acquaintances.” Order, at p. 5.

Apparently the other clients canned the dude, but Doc Renee stuck with him.

She handed over her financial info and told preparer to do his thing.

“He told her he would file it electronically. Mr. A did not file a [year at issue] return for Dr. Lim, and Dr. Lim then began to get letters from the IRS inquiring about her [year at issue] return. Dr. Lim  testified that she asked Mr. A what was going on. We accept that she did contact Mr. A, but her testimony as to the details of their conversation–i.e., that he assured her that the return had been filed, that he told her that the IRS often loses returns, and that when she asked him for a copy of her return, he said he could not give it to her because it had been filed electronically–are not credible to us, and we are unable to find the precise facts of that conversation.” Order, at p. 6. (Name omitted).

Definitely don’t try these excuses on your clients.

However, 25 months late, what purports to be a return, filed on paper and not electronically, bearing the paid preparer signature of a colleague of Mr A’s, and maybe the signature of Doc Renee (or maybe not), gets to IRS.

Doc Renee is fighting the disallowance of the Schedule E loss shown on that return. Doc Renee did a stip with IRS, and never contended the return wasn’t hers.

Doc Renee stalls around, but finally Judge Gustafson has had enough and Doc Renee’s testimony is insufficient.

But she might have papers. She relegated the entire pre-trial prep to Mr. A, claiming she only found him unreliable after months of ignoring IRS’ counsel’s communications and passing them on to Mr A unread.

OK, says Judge Gustafson, here’s a hint.

“It is also true that we denied petitioner’s counsel’s motion during closing argument to reopen the record to admit additional evidence. However, the additional evidence was not in the courtroom but was anticipated testimony of Mr. A. This motion was in effect simply another request for a continuance. We denied that motion. (However, we did so without prejudice to a timely motion (see Rule 161) to reconsider this opinion, reopen the record, and allow into evidence actual documents proffered with the motion. We do not say we would grant such a motion; instead, we would consider its merits at the time; but if Dr. Lim’s position is that with a little more time she could have carried her burden of proof, then she has one last chance to demonstrate that with a presentation of the actual proof.)” Order, at pp. 12-13.

Y’wanna draft the motion papers for them, Judge?

But as the dawn patrolling telepitchers say, “Wait! There’s more.”

If there’s a Rule 161 motion to reconsider, IRS gets a bonus.

“Here the parties seem to agree that petitioner acquired her condo for about $368,000 and that she sold it for $490,000. Without more, those figures yield not a loss of $205,053 (as Dr. Lim’s return reported) but a gain of at least $122,000. Of course, that result could be affected by proving that one could add, to the cost of initially acquiring the condo, subsequent capital costs for improvements. But Dr. Lim failed to so prove. Respondent did not plead the greater deficiency that would result from determining gain on the sale, but rather simply defended the NOD’s disallowance of the loss. We sustain that disallowance.” Order, at p. 13. (Emphasis by the Court.)

If there’s reconsideration, shouldn’t IRS get to put in the greater deficiency (with burden of proof)?

Finally, there’s the dubious tax return. Doc Renee has none of the Section 6664 ducks for the chops. But Judge Gustafson has one…definitely maybe.

“During closing argument after trial, we raised with respondent the question whether, if Dr. Lim did not sign the return, then perhaps it might not have been her return; and section 6664(b) provides that the accuracy-related penalty applies ‘only in cases where a return of tax is filed’. However, neither Dr. Lim nor her counsel initiated argument on that issue nor took it up after the Court raised it. Moreover, while it is true that a return not signed by the taxpayer is not valid, see Mohamed v. Commissioner, T.C. Memo. 2013-255, it is also true that in some circumstances (such as a joint return) a taxpayer may file a return by ‘tacit consent’, see Reifler v. Commissioner, T.C. Memo. 2015-199, part II.C, or may ratify an unsigned return, see Harris v. Commissioner, T.C. Memo. 2009-26, n.3; and it is also true that a taxpayer like Dr. Lim might be equitably estopped from making a contention, see Reifler v. Commissioner, T.C. Memo. 2013-258, that contradicted her prior behavior and the positions she took.“ Order, at p. 16.

Fascinating, but it avails Doc Renee not.

“In any event, respondent was genuinely surprised by the Court’s raising this issue; and if after trial petitioner had moved for leave to amend her petition to state as a defense to penalty that she had not signed the return, then the motion would have been denied as unfairly prejudicial to respondent. We therefore do not consider that issue now.”  Order, at pp. 16-17.

Surprised? I wouldn’t have been surprised if counsel said “Whiskey Tango Foxtrot! She was fighting a disallowed loss on the return. If it wasn’t her return, why was she fighting the disallowance?”

And Judge, please oblige me by calling a Statutory Notice of Deficiency a “SNOD,” and a Notice of Determination (whether CDP, 501(c)(3), SS-8, or whistleblower) a “NOD.” Makes it clearer. Thanks.