Judge Holmes is wandering outside the record, and verging on the loquacious, in Boris Putanec and Jeana J. Toney, 2016 T. C. Memo. 221, filed 12/6/16.

Boris was a computer hotshot, and Jeana is along for the ride, having filed MFJ.

Judge Holmes, obviously intrigued by Boris’ meteoric rise to millionairedom, regales us with arcanery such as lockups, blackouts, dead-cat bounces and tax lawyers who flog dodges and get locked up their own selves.

Boris was one of the creators of Ariba, a B2B online that was a poster child for the Great Illusion of Y2K, the dot.com boom.

“We note that this short course on Ariba’s history is drawn from extrarecord sources.  The history is for engaging background alone and is immaterial to the contested facts and issues.” 2015 T. C. Memo. 221, at p. 4.

Well, Judge Goeke got caught up in golf mania with Retief Goosen and Sergio Garcia. See my blogpost “Icon v. Iceman,” 3/15/13.

Boris wanted to cash out some of his Ariba stock while keeping most of it. So he took the road which led Mark (“Shades”) Kerman to disaster. For a much briefer account of the pitfalls dug by the Chenery gang, which ensnared Mark, and later Boris, see my blogpost “House of CARDS,” 3/8/11.

Boris crashes at the same fence as Shades. No economic substance. Pure tax dodge.

And Boris obligingly sticks his head in the noose. “Putanec was admirably honest with this admission.  At trial he even said the last redemption was done in order to get the loss so that he could ‘take [his] aggressive tax position * * * .’” 2016 T. C. Memo. 221, at p. 21, footnote 14.

But since Boris ran his redemptions of debt denominated in Euros through traded currency options, he does get to deduct his Section 1256 mark-to-markets.

Confidentially speaking, Judge Holmes knows his way around. Today, he grapples with the Health Insurance Portability and Accountability Act, the “onlie begetter” of so many eye-glazing CLEs, in Continuing Life Communities Thousand Oaks LLC, Spieker CLC, LLC,  Tax Matters Partner, Docket No. 4806-15, filed 12/6/16.

The Thousand Oakies are afeared that IRS wants confidential health info.

Judge Holmes, the King of the Phonathon, gets the Thousand Oakies and IRS on the hoot-‘n’-holler, and they hammer out a Rule 103 spectacular, with marking of confidential stuff, a 45-day clawback, list of permitted eyeballers, challenge procedures, and a whole lot more, complete with citations to relevant statutes and regs.

Practitioners representing the disciples of Asclepius should get this language in their forms files.

I shift my hands in a horizontal plane while contemplating Chinweike Nwabasili, 2016 T. C. Memo. 220, filed 12/5/16. Chin and his brother ran an event-promotion (music performance) business and a car exporting business together, and Chin testifies they were partners, except Chin files his business income and expenses for both businesses on a single Schedule C.

This is not a good start, but Judge Morrison does find that Chin did make some business payments, like buying three cars to sell offshore, and hiring bars and similar venues, such as for “musician Flavour Nabania and his band to perform at the bar New Karibbean City in Oakland, California,…..” 2016 T. C. Memo. 220, at p. 4.

IRS agrees that Chin was in business but balks at Chin’s substantiation of expenses.

Though on the trial Chin claims he and his brother were partners, that’s the first IRS heard of it. IRS claims each brother had his own business.

Well, Judge Morrison found that the bulk of the expenses Chin claimed were business-type expenses and he paid them.

But how to deal with the losses?

“Nwabasili credibly testified that he and his brother were partners in the two businesses.  He credibly testified that he and his brother agreed to share the income and expenses of the two businesses.  He explained how they divided the tasks with respect to the businesses.  Although many of the business documents referred to his brother and not him, Nwabasili explained that this was because his brother was the front man for the businesses even though they considered themselves equal partners.

“We find that the brothers intended to join together to conduct the businesses.  The event-promotion business and the car-export business were conducted in partnership.” Order, at p. 13.

So the expenses are partnership expenses, there being no showing the brother-partners agreed that each should bear his own expenses, or so engaged as a course of conduct.

But there’s no way to compute partnership income, because Chin didn’t report everything the partners took in. Ditto the partnership expenses, and some items might be disallowable personal expenses.

“Even if we could calculate the partnership’s loss, we face another problem in determining the deductible portion of Nwabasili’s distributive share of the loss. Section 704(d) provides that a partner’s distributive share of a partnership loss is allowed as a deduction only to the extent of the adjusted basis of the partner’s interest in the partnership at the end of the tax year.

“To be entitled to his share of any partnership loss, Nwabasili had to have a sufficient adjusted basis in his partnership interest….  See sec. 704(d).  The basis of a partner’s interest in the partnership acquired by a contribution of money is initially equal to the money the partner initially contributed.  Sec. 722.  It is increased by any other contributions by the partner to the partnership.” 2016 T. C. 220, at p. 16.

And of course there is no information sufficient to calculate Chin’s adjusted basis in the partnership.

So no fix on partnership income, partnership expenses or Chin’s basis in the partnership.

OK, but nobody raised this on the trial.

“The IRS did not raise these matters regarding the difficulty of calculating Nwabasili’s distributive share of the partnership loss.  Normally we do not consider matters not raised by the parties.  We make an exception in this instance.  Nwabasili did not explain to the IRS until trial that he had a partnership with his brother.  He filed his tax return as if he was not in partnership with his brother.  This gave the IRS the false impression that his disputed Schedule C expenses related to businesses that were exclusively his and that he had paid the disputed expenses.  He manipulated documents in an attempt to show that he had made payments that were actually made by his brother….  Given Nwabasili’s subterfuge, it is understandable that the IRS remained skeptical of whether the disputed expenses related to Nwabasili at all, whether directly or through a partnership.  That the IRS did not contend that the disputed deductions should be evaluated under the partnership tax rules (subchapter K of the Internal Revenue Code, sections 701 to 777) and disallowed for lack of information about the partnership’s gross income, the partnership’s deductions, or the adjusted basis in the partnership, does not prevent us from holding that the deductions should be denied on these grounds.  After all, it was Nwabasili who presented persuasive evidence that his businesses were conducted in partnership with brother.  For us to sustain the deductions he seeks on the ground that his businesses were conducted not in partnership with his brother would be contrary to what he argued at trial.  And it would be contrary to our view of the reality of the business arrangements.  We believe that Nwabasili conducted his businesses in partnership with his brother.  Partnerships are taxed under the partnership tax rules.”2016 T. C. Memo. 220, 18-20.

Chin, you broke it, you own it. No pass-through.

Buried among the spam, the clickbait, the propaganda, half-truths and downright lies spread abroad every nanosecond by the internet, one can find objective and useful information from trustworthy sources.

One might even stumble upon my blogposts, but modesty requires that I leave to your discretion into what category these shall go.

Judge Wherry reminds us that government agencies have websites. On such as these one can find data that cannot reasonably be questioned. FRCP 201(c) is the touchstone for permitting the Court to take juridical notice thereof.

Despite IRS’ claim that the proffer is untimely, and the proffered cyberinfo is cumulative of evidence already upon the record, Judge Wherry lets Lon B. Isaacson, Docket No. 29848-14, filed 12/5/16, introduce the webpage detailing his CA disbarment.

Judge Wherry relies on analogical Federal webpages locating inmates in Federal slammers and providing medical records for discharged military personnel, but apparently the CA Bar website passes muster.

“In general, the court may take notice of facts that are capable of accurate and ready determination by resort to sources whose accuracy cannot reasonably be questioned. Fed. R. Evid. 201(b).” Order, at p. 1.

Lon hasn’t got a certified copy of the CA order, and Judge Wherry can’t find it either.

So in goes the website, but only, as the texters say, FWIW.

John Melvin Corker & Lisa Ann Adame-Corker, Docket No. 19090-16, filed 12/2/16, are pardonably peeved with having missed the cutoff due to the standard pro se conflation of IRS with Tax Court. John & Lisa apparently mailed all sorts of paperwork all over the lot, but missed the Glasshouse at 400 Second Street, NW, by 19 days.

Ch J L Paige (“Iron Fist”) Marvel gives John & Lisa the bad news sympathetically.

A sad tale, but what else is new? This happens almost every day. Notwithstanding all the political chatter about amending Title 26, I have yet to hear anyone suggesting a rule of reason for filing Tax Court petitions.

Well, John & Lisa want their sixty bucks back, especially since Ch J Iron Fist ordered them to send it in before telling them they were late.

Too bad, so sad, John & Lisa. “…, insofar as petitioners have suggested a degree of dissatisfaction with having been directed to pay the filing fee for a case subject to dismissal, they are advised that the filing fee is intended to defray the administrative expense of filing and processing a petitioner’s paperwork, without regard to whether such paperwork establishes a valid basis for jurisdiction and/or a continuing action. Subsequent dismissal or resolution does not affect the fact that a case was begun. Consequently, the filing fee is not refundable by the Court.” Order, at p. 4.

I’ll try again, as I am a man of great patience.

So what price Ethel M. Stewart, Docket No. 9223-16, filed 9/27/16?

Because it looked like John & Lisa wanted to start the case, and Ethel seemed uncertain (or maybe Ch J Iron Fist couldn’t figure out what Ethel wanted), Ethel gets her money back and John & Lisa don’t? But in both cases there was paperwork, a docket number assigned, and an order issued. And the sixty bucks is owed “without regard to whether such paperwork established a valid basis for jurisdiction,” right?

So what’s the rule?

And this is not just another irrelevant rant. More people are involved at the sixty-buck-ticket-to-justice phase than anywhere else. Every Tax Court case starts with something, be it even an unaccompanied money order, a partial copy of a NOD or SNOD, one or more of IRS’ multifarious billets doux that look like a SNOD but aren’t, or even a letter from a confused pro se without a clue.

If there’s a rule, let it be consistent. And let it be known.

Judge Chiechi, Meet Judge Holmes

The issue here involved shows up in a bushelbasketful of orders, but for ease of reference, let’s eyeball Edward J. Tangel & Beatrice C. Tangel, et al., Docket No. 27268-13, filed 12/2/16.

Judge Chiechi has a bushelbasketful of protective order requests from the Tangels and the als, apparently due to IRS subpoenas served on third parties pursuant to Rule 147.

Y’all remember Rule 147, eh what? Well, as a great American once remarked, “you could look it up.”

Rule 147 don’t say nothin’ ‘bout tellin’ the other side.

Judge Chiechi: “A party that issues a subpoena under Rule 147(a) and/or (b) is not required to give prior notice to the other party.” Order, at p. 1.

Moreover, the IRS was genteel. “The Court finds under the facts and circumstances presented that respondent did not issue the subpoenas in question to harass, annoy, embarrass, oppress, or cause an undue burden on petitioners.” Order, at pp. 1-2.

So what?

FRCP 45 does require notice. And Rule 147 hasn’t been touched since 1973, long before the 1991 amendment to FRCP 45.

Gentility has nothing to do with it.

See my blogposts “Judge Holmes’ Vendetta,” 7/8/16, and “The Stealth Subpoena,” 7/16/15.

Maybe Judge Holmes and Judge Chiechi ought to get together for a cup coffee and a piece pie, and peradventure discuss bringing Tax Court into the last decade of the Twentieth Century, if not into the second decade of the Twenty-First.

Innocent spousery is multiform. Today we deal with apportionment, or rather Judge Lauber, recovered from unscrambling defective lodgings and filings, takes up that task in Dwight McDonald and Donna McDonald, 2016 T. C. Sum. Op. 79, filed 12/1/16.

Apportionment falls under Section 6015(c). So let’s go down the checklist. Dwight and Donna filed jointly for years at issue. Check. Dwight and Donna are now divorced and living apart. Check. Donna seeks to bail not later than two (2) years after IRS starts to collect. Check.

So Donna’s cleared the bar.

Now what does she get?

Well, the State tax refunds (unreported) get split 50-50, as the returns that generated same were joint.

And Donna’s unreported wages are all hers.

The biggest items are current losses and carryforwards arising from Dwight’s real estate operation. Though Dwight had a full-time job in RI, both Dwight and Donna owned ten (count ‘em, ten) rental real estate parcels in FL and AL. And Donna did answer the phone when the managing agent called for Dwight’s decisions. She knew Dwight spent a lot of time on the real estate, but he kept all the records in a locked room, to which Donna did not have the key. Donna knows nothing of tax law and relied on Dwight and their CPA.

The CPA figured Dwight was a real estate pro, and told Donna so, but didn’t go over the tax returns with her.

IRS says Dwight “actually participated,” so he gets the $25K of losses, but did not “materially participate,” so loses the rest. Hence Dwight’s tears.

IRS says Donna is innocent, but Dwight disagrees.

Judge Lauber: “The statute does not address burden of proof in the situation we face here, where the IRS supports relief from joint and several liability and the nonrequesting spouse opposes it.  In such cases we ‘inquire whether actual knowledge has been established by a preponderance of the evidence’ presented by all three parties.

“’Actual knowledge’ means ‘an actual and clear awareness (as opposed to reason to know)’ about the item giving rise to the deficiency.  A taxpayer lacks actual knowledge if she ‘is unaware of the circumstances that give rise to error on the tax return.’  In the context of a disallowed deduction, the relevant question is whether the requesting spouse ‘had actual knowledge of the factual circumstances which made the item unallowable as a deduction.’”  2016 T. C. Sum. Op., 79, at pp. 9-10. (Citations omitted, but look them up for your next memo of law).

Quite Cartesian.

Dwight argues Donna knew about the real estate business, answered the phonecalls of the managing agent, and was told by the CPA that either she or Dwight or both were real estate pros. Therefore Donna knew about the dicey deductions.

No, says Judge Lauber. Yes, she knew about the real estate business. But that’s not enough.

Since the distinction between actually participating and materially participating means counting hours, knowing who did what and whether all activities were treated as a single activity (and appropriate election filed), and since Dwight called all the shots and kept the records locked away, no way could Donna know that Dwight was a short-timer. Especially when the CPA said he was the real deal.

The accuracy chops will follow the erroneous items.

I’m only an obscure old-time, beaten-down and beaten-up single-shingle, “with very limited experience and mediocre qualifications,” as a much finer writer than I put it.

But take a look at what an unkind Fate has bestowed upon that Phi Beta Kappa graduate of Yale University, M. A. Clare College Cambridge, and Note Editor of Yale Law Review, now Tax Court Judge Albert G. Lauber.

Here is but one instance wherein he employs his formidable talents and jurisprudential gravitas, namely, viz., and to wit Martha G. Smith & George S. Lakner, et al., 8847-12, filed 12/1/16*.

“…the parties filed a First Stipulation of Facts and exhibits. However, in accordance with the Court’s… Order this document should have been lodged, rather than filed. …the parties called the chambers of the undersigned and informed the chambers administrator that the First Stipulation of Facts and exhibits… had errors in the page numbering and the parties intended to lodge an amended copy. … the parties filed a First Amended Stipulation of Facts and exhibits. Again, this document should have been lodged. In consideration of the foregoing, it is

“ORDERED that the Clerk of the Court shall; (1) change the docket entry for the parties’ First Stipulation of Facts and exhibits to reflect that the First Stipulation of Facts and exhibits was lodged…; (2) add a cover sheet to the parties’ First Stipulation of Facts and exhibits that bears an eLodged stamp…; (3) change the docket entry for the parties’ First Amended Stipulation of Facts and exhibits to reflect that the First Amended Stipulation of Facts and exhibits was lodged…; (4) add a cover sheet to the parties’ First Amended Stipulation of Facts and exhibits that bears an eLodged stamp….” Order, at pp. 1-2.

Da capo al fin.

Edited to add, 8/30/21: Scholar Al did get a chance to show off his considerable judicial expertise in Martha G. Smith and George S. Lakner, et al, 2018 T. C. Memo. 127, filed 8/13/18**, which for some inexplicable reason I did not blog. The issue of Section 104(a)(2) physical injury is interesting here, as George did suffer physical injury, but that was in the year after the $328K settlement Col. Lakner got for employment discrimination. See  T. C. Memo. 2018-127, at pp. 15-19. And Judge Scholar Al was affirmed in USCADC.

*Smith Lakner 8847-12 12 1 16

**Smith Lakner 2018 T C Memo 127 8 13 18

Today I really need white trousers and a striped shirt, and a loud whistle, so that I might continuously rotate my forearms before me after having deafened all within earshot.

Once again IRS deploys the SNOD-after-petition formation. This deft but slimy move has IRS bombarding taxpayer with a bunch of form letters, which elicit a petition, and then claiming there never was a SNOD (notwithstanding that there is no standard form of SNOD, and don’t hang by anything tender until IRS promulgates such a form), moving successfully to dismiss the petition, and then dropping the real SNOD.

Usually by the time the taxpayer (pro se) gets word of the fake, the 90 days has run on the real SNOD.

See my blogposts “Fake Out,” 12/16/14, and “Fake Out – Part Deux,” 6/23/15.

Today’s victim is Gilson Alexander Tallentire, II, Docket No. 19435-16, filed 12/1/16.

Ch J L. Paige (“Iron Fist”) Marvel kicks Gil to the cliché, without mentioning that Gil has time to refile if he files anew at once, or even sends in a letter, which can be characterized as an imperfect petition from the “real” SNOD.

I call illegal procedure! Tweet!

Footnote- Ch J Iron Fist’s predecessor ex-Ch J Michael B. (“Iron Mike”) Thornton rightly tipped off the taxpayer in the second of my blogposts abovecited.

Is the failure to get the Boss Hoss Section 6751(b) sign-off fatal to a 20% substantial understatement penalty added to a revised SNOD? Tax Court spends 106 pages on this angelic tapdance, and ex-Ch J Michael B (“Iron Mike”) Thornton, writing for the majority, says it isn’t; Tax Court can fix it on the trial.

Negatory, says that Obliging Jurist Judge David  Gustafson, the majority just gutted Section 6751(b).

Not heeding USCADC’s throw of the dictionary at Judge Lauber (see my blogpost “Revenez, Enfants de la Patrie,” 9/21/16), ex-Ch J Iron Mike belabors the word “making” in a two-page, three-paragraph footnote to show that the Boss Hoss can sign off even after Tax Court’s opinion, because assessment is barred prior thereto.

Read all about it (if you suffer from terminal insomnia) in Lawrence G. Graev and Lorna Graev. 147 T. C. 16, filed 11/30/16.

And if you’re a total grammar-polizei type, try this for size: “(‘The present participle, infinitive, and gerund are not confined to reference to present time.’); Sidney Greenbaum, The Oxford English Grammar 277 (1996) (‘The time reference of the participle clause is inferred from the host clause’).  In sec. 6751(b)(1), ‘making’ functions without specific tense, much as it does in this statement:  ‘We should respect the individual making such an argument’.  This statement obviously does not mean, as the dissent’s analysis would suggest, that we should respect this type of individual only while such an argument is being made.  Rather, in this example, as in the statute, ‘making’ is part of a reduced adjectival clause modifying ‘individual’–it tells which ‘individual’ without indicating when exactly the ‘making’ occurred, occurs, or will occur.

“Furthermore, in sec. 6751(b)(1) the ‘making’ clause is itself part of a larger adjectival prepositional phrase, ‘of the individual making such determination’ modifying ‘supervisor’–it tells which supervisor, without indicating when the supervisor’s action of approving the initial determination occurs or will occur (although from the context we know that the supervisor’s approval must follow the subordinate’s determination, as explained in the text above).  At most, the verb form ‘making’ might suggest that the immediate supervisor giving the approval should be the same immediate supervisor who held that position at the time of the making of the initial determination, as opposed to someone who might have held that position at some other time.  And although the dissent initially refers to ‘making’ as an adjective, ultimately the dissent finds it necessary to assign it an adverbial function, paraphrasing the statute by using an adverbial ‘when’ clause not found in the statute and then for good measure inserting into the statute an extra word, so as to state:  ‘[T]he statute indicates that the supervisor must act when ‘the individual [is] making such determination.’  See dissenting op. p. 80. But that is not what the statute says, and that is not what it means.” 147 T. C. 16, at pp. 30-31, footnote 15 (in part only; there’s more, but you get the idea).

Judge Gustafson has the better argument. Before imposing a penalty, a RO has to get a sign-off from the Boss Hoss.  It is not “harmless error” if s/he doesn’t. It doesn’t matter if the petitioner isn’t ambushed. Before the hammer falls the shadow, ex-Ch J Iron Mike, and it’s the shadow Congress put there. And to wait until after the trial to get the sign-off makes the sign-off meaningless. A statute is not to be construed to create an absurd result.

Incidentally, I doubt one Senator or Representative in the whole 538, whether in 1998 or any time since, had or has the slightest idea what that footnote means, or even thought about it when this statute was enacted. They wanted to rein in the examination types by having someone with bars on their shoulders sign off before launching missiles.

The well-known firm of Tax Court practitioners sometimes herein and elsewhere referred to as The Jersey Boys lost this one, and they shouldn’t have. Does the client have enough left to appeal?

Of course, the Graevs went down on their historic façade easement with a money-back guarantee, with which the majority tosses their reasonable reliance and substantial authority arguments in sustaining the 20% substantial understatement chop, which is all that is at issue here.

For the backstory, see my blogposts “Money-Back Guarantee,” 6/24/13, and “Penalty Kick,” 4/17/14.