The hood in this blogpost being Lincoln Center on the Upper West Side of the Minor US Outlying Island off the Coast of North America, whereon I reside. The guys are student members the Federal Tax Clinic at the Fordham Law School, under the able guidance of Prof. Elizabeth (“Prof Liz”) Maresca.

And I’m giving the guys and Prof. Liz a shout-out, and a Taishoff “Good Job,” for John C. Trimmer and Susan Trimmer, 2017 T. C. 14, filed 4/20/17. The guys manage to cop a win from ex-Ch J. Michael B. (“Iron Mike”) Thornton, no small feat even for battle-hardened TC vets.

John C. was a NYC police officer who retired to take a job on Wall Street. No, not as a hedge-fund manager or dodge-flogger; John C. was going to be a security guard. But the job fell through and John C. fell into serious depression.

There’s beaucoup evidence of John C.’s disorientation and sad condition, which I won’t rehash here. The guys built a good record, notwithstanding IRS’ beat-down on their expert, of which more hereinafter.

John C. got a couple draws (hi, Judge Holmes) from his pension, let the checks sit on his dresser for a month, deposited them in his checking account, and was late getting the family’s 1040 together. This was usually his job, and Susan thought he was doing it.

When the family’s trusty preparer saw the 1099-Rs with Box 1 (early, no known exception) checked, he told John C. to get the cash into an IRA. John C. did, but IRS hits him with deficiency and 10% Section 72(t) chop.

John C. sent a pathetic letter describing his former and current troubles. Three days after getting the letter, IRS Exam bounced John’s plea, without considering hardship waivers.

IRS, being all heart, argues Exam hasn’t authority to grant hardship waivers, and anyway Tax Court hasn’t jurisdiction to review denials of hardship waivers.

“Respondent [IRS] contends that the hardship waiver provision of section 402(c)(3)(B) is ‘inapplicable’ because Mr. Trimmer failed to apply for relief pursuant to the terms of Rev. Proc. 2003-16, 2003-1 C.B. 359.  Respondent also contends that there has been no final administrative determination denying petitioners relief, and that even if there had been, it would not be subject to judicial review. Furthermore, respondent contends, there was no abuse of discretion in denying petitioners the requested waiver, because petitioners have failed to establish that Mr. Trimmer was unable to complete the rollovers within 60 days of the two distributions.” 148 T. C. 14, at p. 12, footnote omitted, but you gotta read this.

“Both before and after trial the Court encouraged the parties to explore further administrative consideration of petitioners’ claim for a hardship waiver, but respondent declined.” 148 T. C. 14, at p. 12, footnote 4.

Word to IRS counsel: When ex-Ch J Iron Mike, not conspicuously friendly to petitioners, tells you to play nice, don’t play the clown. Prof Liz and her guys may just be going for Section 7430 legals, even if they don’t get them. More about that later.

We all know that  Rev. Proc. 2003-4, 2003-1 C.B. 123 provides the means for obtaining the waiver, and Rev Proc 2003-8, 2003-1 C.B. 236 sets out the user fee for getting one (if you can find it; the thing is nearly incomprehensible. How a depressed retired patrolman is supposed to find this out is nowhere stated).

Well, John C. didn’t, so IRS says he’s out.

Moreover, IRS says Rev Proc 2016-47, 2016-37 I.R.B., which allows hardship consideration during Exam wasn’t in effect when John C. was under examination, so it doesn’t apply.

Ex-Ch J Iron Mike blows IRS away.

“We are not persuaded.  Nothing in Rev. Proc. 2003-16, supra, purports to limit or constrain an IRS examiner’s ability to consider a hardship waiver during the course of an examination.  Certainly no such constraint is found in section 402(c)(3)(B).  Moreover, respondent’s position appears to be at odds with Internal Revenue Manual (IRM) pt. 4.10.7.4(2) (Jan. 1, 2006), which states:  ‘Examiners are given the authority to recommend the proper disposition of all identified issues, as well as any issues raised by the taxpayer.’

“Consequently, the purpose and effect of the 2016 modification of Rev. Proc.  2003-16, supra, we believe, was not to create some new authority that had not previously existed for IRS examiners to consider hardship waivers during examinations, but rather to make clear the existence of that authority.  This conclusion is reinforced by careful consideration of the substantive coordination between the two revenue procedures.” 148 T. C. 14, at pp. 14-15. (Emphasis by the Court.)(Footnote omitted, but ex-Ch J Iron Mike asked the parties to brief the impact of Rev Proc 2016-47).

The two Rev Procs are coordinated very carefully, the old self-certification procedure being modified, while the examiner’s (auditor’s) ability to consider any request remains the same.

“Furthermore, the examining agent’s authority to consider a hardship waiver during the examination strongly implies, we believe, that the taxpayer may request the waiver.  It would be anomalous if the examining agent could consider the relief only if the taxpayer had not requested it.” 148 T. C. 14, at p. 16.

Only three (count ‘em, three) days after John C.’s pitiable plea, Exam responded with an incomplete legal analysis.

IRS has some cases where failure to apply for hardship waiver for IRA rollovers sank the taxpayer (John C.’s miscue arose from a pension plan, not an IRA). I blogged more than one such; by way of illustration of the foregoing, as my Grey Goose Gibson-gulping high-priced colleagues say, see my blogpost “The Case of the Reluctant Trustee,” 6/6/14. But in none thereof did the petitioner seek the waiver at Exam, by PLR per the Rev Proc, or anywhere else. John C did.

IRS finally claims that the three-day rejection letter said John C could write and tell them if he disagreed, and he didn’t so either there was no final determination or he waived objection.

Ex-Ch J Iron Mike treats that argument with more consideration than it deserves.

“Considering that Mr. Trimmer’s letter had resulted in the IRS’ summarily denying his request on legal grounds that seemed to admit of no possibility of administrative relief, without even acknowledging the specific facts and circumstances spelled out in Mr. Trimmer’s letter, the invitation for petitioners to respond yet again if they disagreed strikes us as an empty gesture or mere boilerplate.” 148 T. C. 14, at p. 19.

As for arguing Tax Court has no jurisdiction to consider the hardship waiver, ex-Ch J Iron Mike blows them off with a laundry list of cases where a SNOD and petition put everything in play.

IRS challenges the guys’ expert witness on credentials and local law. Ex-Ch J Iron Mike, truly in his element, tears up both statutes, regs and dictionary to flatten that attack. True, the expert’s report was eight days beyond the thirty-day deadline, but IRS’ counsel gave the expert a good going-over on cross, so no prejudice.

And it would be against “equity and good conscience” to deny John C the waiver.

Now what may be the saver, when Prof Liz and the guys go for legals. John C failed to disclose $40 in dividends on stock he claimed he bought for his son’s education, but can’t show any proof. So maybe so IRS was partly justified.

No, not a ten-foot tall basketball player. These are carefully-structured Variable Prepaid Forward Contracts (VPFC), whereby a stockholder with a basis of zippo cashes out $200 million worth of stock for no current gain.

Estate of Andrew J. McKelvey, Deceased, Bradford G. Peters, Executor, 148 T. C. 13, filed 4/19/17, tells the story.

The late Andy was the founder of Monster Worldwide, Inc., owner/operator of monster.com, internet flesh peddler extraordinary. I, even I, once had my resume out there.

The late Andy wanted cash in the years shortly before he became the late Andy. So he made deals with BoA and Morgan Stanley, using as his template Rev. Rul. 2003-7, 2003-1 C.B. 363.

The late Andy pledged a boatload of Monster stock and got $200 million in cash, with which he could do whatever he liked. In exchange, a year later, Andy had to give BoA or MS a certain number either of the pledged shares, or other shares, or pay off in cash.  And he could substitute collateral for the pledged shares, if BoA or MS agreed. The exact number of shares, or amount of cash, was determined by formulas based on Monster stock price over certain dates.

At delivery date, the late Andy’s gain or loss would be known. He might owe more cash than he got. The stock he gave to BoA or MS had a certain basis in his hands, and had a determinable worth when he handed them over.

So far, so good.

But before the year was up, Andy paid for a one-year extension of the delivery date. IRS claimed that was an exchange of a property right in that year, and therefore a constructive sale of the Monster stock.

No, says Judge Ruwe.

“In Rev. Rul. 2003-7, 2003-1 C.B. 363, the IRS recognized that VPFCs are open transactions when executed and do not result in the recognition of gain or loss until future delivery.  The rationale of Rev. Rul. 2003-7, supra, is straightforward:  A taxpayer entering into a VPFC does not know the identity or amount of property that will be delivered until the future settlement date arrives and delivery is made.  In the instant case, the treatment of the original VPFCs is not in dispute.  Both parties agree that when decedent entered into the original VPFCs in 2007, the contracts satisfied the requirements of Rev. Rul. 2003-7, supra, and decedent recognized no current gain or loss.” 148 T. C.  13, at pp. 13-14.

All the late Andy had was an obligation to deliver stock or cash. The extension only put off the date when had to deliver. He had no unlimited right to substitute collateral, and he got no more money when he got the extension. He still didn’t know what his basis might be if he delivered stock (he might deliver the pledged stock or other stock, or mix-and-match), or how much cash he’d have to pay BoA or MS, as the price of Monster stock would fluctuate.

In short, the transaction was still open. Keeping it open was valuable, but the late Andy paid for that. He still had the same obligation. And given the fluctuations in Monster stock, he might be worse off with the extension.

And the late Andy’s right to choose stock, or which specific shares of stock, or cash, or to substitute collateral, weren’t property rights he could sell or hock.

Editorial comment: I ain’t so sure. If I were going to short Monster, I might want to buy into the formula and assume the obligation, figuring I could buy enough stock in the open market to deliver to BoA or MS without the problem of actually borrowing stock to sell short up front, and getting an extended delivery date at the same time. But that’s pure speculation, and who would want to buy that deal (and prove to the late Andy that s/he could deliver) is another story.

Finally, Section 1259 constructive sale doesn’t apply, because the worth of the obligation to deliver or pay is variable, not fixed. And Rev. Rul. 2003-7 went off on that rationale.

Nicely structured.

The old rounder’s delegation gambit (SNOD not signed by one authorized by Treas Sec’y’s order) falls flat for rounder Bonny Goselin, Docket No. 6293-14L, filed 4/19/17.

Y’all will remember Bonny from my blogpost “The Envelope, Please,” 3/10/17. But Bonny doesn’t quit so easily.

She’s back as above-stated, taking a leaf from the playbook of Leroy Muncy. I blogged Leroy’s adventures in my blogpost “Delegati Non Potest Delegare,” 5/9/16.

After being undone by Judge Pugh back in March, Bonny wants a vacation. That is, Judge Pugh should vacate the March order and decision based upon Leroy’s victory in 8th Cir.

Doesn’t fly.

“Petitioner argues for the first time in her motion to vacate that the individual signing the notices of deficiency underlying the proposed collection actions at issue in this case lacked the requisite authority based on Muncy. Unlike the taxpayer in Muncy, petitioner failed to raise the delegation of authority issue prior to her motion to vacate, even though Muncy was decided on March 2, 2016, and petitioner’s motion for summary judgment (which we also considered to be her response to respondent’s motion), was filed on December 20, 2016. Although petitioner is unrepresented, her filings in this case illustrate that she is well versed in possible challenges to collection actions. Her motion for summary judgment stated the general legal requirement of verification but only challenged whether the Settlement Officer properly verified that the notices of deficiency were properly mailed. See Rule 331(b)(4), Tax Court Rules of Practice and Procedure (‘Any issue not raised in the assignments of error shall be deemed to be conceded.’). We, therefore, will deny her motion to vacate.” Order, at p. 1.

Bonny obviously doesn’t read this my blog.

Back on 3/22/17, I blogged 2nd Cir.’s blow-up of Graev in Chai. Had Bonny read my blog for that date, she’d have had a much better chance playing the Boss Hoss Section 6751(b) gambit. Rather the stale delegation order ploy, newer is better.

I know Chai only works for chops, not deficiencies or additions. But it might just could get the rounder something. And a possible 20% of something is a lot better than a certain 100% of nothing.

Once again I strike up Prof. Tom Lehrer’s 1945 classic, as the Harvard Federal Tax clinicians fight fiercely to overturn Reg. 1.6015-4, which bans refunds to innocent spouses in Section 6015(c) apportioned-guilt cases. They’re in as amicus curiae.

Of course, they’re in Tax Court, and challenges of this kind are non-starters, but they do get a footnote at the bottom of the last page of Judge Vasquez’s opinion.

The case is Brenda Taft, 2017 T. C. 66, filed 4/18/17.

The scrimmage here is about $1570 that was held back from Brenda’s refund. IRS gave Brenda Section 6015(c) innocent spousery, based on the thoroughpaced skullduggery of her nogoodnik ex-husband, who wasted his retirement money on his girlfriend. Brenda got wind of this and ditched him.

He’d e-filed a phony return to disguise the plunder, but didn’t disclose some dividends, for which IRS hit him with a deficiency. The phony return with a forged e-signature for Brenda was a MFJ, so IRS hit Brenda.

Brenda got Section 6015(c), but the aforesaid regulation bars refunds.

Judge Vasquez Judge ‘splains: “Section 6015 provides three avenues for relief from that liability (often referred to as innocent spouse relief) to a taxpayer who has filed a joint return: (1) section 6015(b) allows relief for understatements of tax attributable to certain erroneous items on a return; (2) section 6015(c) provides relief for a portion of an understatement of tax to taxpayers who are separated or divorced; and (3) section 6015(f) more broadly confers on the Commissioner discretion to grant equitable relief to taxpayers who otherwise do not qualify under section 6015(b) or (c). See also sec. 6015(e).” 2017 T. C. Memo. 66, at p. 4.

Brenda wants the refund she can get under 6015(b), not the 6015(c) sorry-‘bout-that no refund.

IRS says Brenda had reason to know of the understatement of tax on the forged return and it wouldn’t be inequitable to hold her for her share, so Section 6015(b) doesn’t get it.

Judge Vasquez cruises through the 6015(b) factors. Brenda was a nurse, had no tax background, and kept a separate checkbook from her spouse (who told her nothing). He certainly didn’t lavish anything on Brenda (he gave it all to his girlfriend), claimed “he took care of their taxes,” and the divorce court found that her ex was a total swine.

So Brenda had no reason to know that her ex plundered his retirement money, and it would not be inequitable to give her back the $1570.

Now as to the Harvard Clinicians: “Petitioner and amicus alternatively argue that she is entitled to relief under sec. 6015(f) and that the Court should invalidate sec. 1.6015-4(b), Income Tax Regs., which bars refunds under certain circumstances. Because we determine that petitioner is entitled to relief under sec. 6015(b), we need not address this alternative argument.” 2017 T. C. 66, at p. 10, Footnote 4.

Apparently Judge Vasquez was going to consider invalidating Reg. 1.6015-4, but thought better of it. He might have a slight jurisdictional problem if he did.

A memorable line from a time when political debates were jocular, rather than toxic, gives me my headline for this blogpost.

The order is Nicholas O. Blechman & Luise Stauss Blechman, Docket No. 26252-16S, filed 4/18/17.

And perhaps I’m just a wee bit testy today, having just posted off my Federal, State and City income tax returns. And a check, of course, for less than 10% of total tax due, having of course made sufficient estimated payments.

But Ch J L Paige (“Iron Fist”) Marvel has done it again, getting two of my pet peeves in one order.

Nich & Lu are innocent bystanders here. Their “…power of attorney Steven P. Goldglit, CPA, filed an Opposition to Motion To Dismiss for Lack of Jurisdiction on behalf of petitioners. In it, he states that petitioners were confused about the due date for filing the petition and they did not seek professional advice until after they filed the petition because they are have been under financial hardship.” Order, at p. 2.

Must I repeat yet again that a “power of attorney” is not a person, but a piece of paper (or perhaps, if faxed to the CAF, an aggregation of electrons)? The “power of attorney” empowers a “Representative” to represent the “Taxpayer.”

So Mr Goldglit, CPA, is a Representative.

But is he admitted to practice before the United States Tax Court?

If he is, he hasn’t filed an Entry of Appearance, at least according to the Tax Court’s Docket Inquiry website.

If he isn’t, is he awaiting admission per Rule 24(a)(3)?

Or are we again seeing CPAs admitted to practice before the United States Tax Court, on the strength of a Form 2848 (a form which Tax Court has repeatedly said it does not recognize), with no admissions examination, no payment of a fee, no admission to the Bar of any State, Commonwealth or Territory, and no Entry of Appearance?

Why not just amend Rule 200, and have done?

I fancy myself a punster. But a trilingual pun is a summit I rarely achieve. Today, however, the enduring nature of the Second Circuit’s decision in Chai v. Com’r, 851 F.3d 190 (2 Cir., 2017), is my springboard to gold in the punster’s Olympics, claiming a pun in Chinese, Hebrew and English.

You remember Jason Chai, of course, A. Beer’s cousin-in-law and frontman. No? How fleeting is fame. OK, dig my blogpost “The Jersey Bounce – Part Deux,” 3/22/17, and accelerate from the “on” ramp to the fast lane.

Well, Jason had his day in court while cousin-in-law A. Beer and cohorts were getting slammed for their shelter-flogging. But Jason’s Second Circuit score off the failure of the Section 6751(b) Boss Hoss signoff to justify the chops inflicted upon him came after cousin-in-law and cohorts finished their trial, with chops hanging over their collective heads, and not a mention of the Section 6751(b) to meliorate their plight.

And no decision has yet issued from the week-long trial two years ago.

Judge Lauber deals with inventive counsel in Endeavor Partners Fund, LLC, Delta Currency Trading, LLC, Tax Matters Partner, et al., Docket No. 8698-12, filed 4/18/17.

The boom about to fall, counsel files a status report, reminding Judge Lauber of Second Circuit’s blow-off of ex-Ch J Michael B (“Iron Mike”) Thornton’s dictionary-tear.

“In their status report, however, petitioners do not simply bring this supplemental authority to the Court’s attention. In addition, they advance a new argument–that the accuracy-related penalty determined by respondent in these cases should not be sustained because respondent did not meet his burden of production to show written supervisory approval for the penalty, as the Second Circuit in Chai interpreted section 6571(b)(1) to require. But regardless of which party bears the burden of demonstrating compliance with section 6751(b)(1), petitioners ‘had the responsibility of arguing in the Tax Court that the Commissioner had not complied with the statute in order to put the Commissioner on notice that the issue was in dispute.’ Kaufman v. Commissioner, 784 F.3d 56, 71 (1st Cir. 2015) (emphasis in original). As far as the Court has been able to determine, petitioners did not make this argument in their pleadings, during trial, or in their post-trial briefs.” Order, at p. 1.

Irrespective of the outcome of this ploy, I give counsel a Taishoff “good try, first class.”

And I note counsel is a fellow member of the ABA/NYSBA Tax Subcommittee on the Taxation of Cooperatives and Condominiums, s/a/k/a Charlie’s Pizza Party. Really good job, EZ.

Now of course one doesn’t make motions by means of status reports. EZ came in through the window immortalized by Sir Paul McCartney in 1969. Judge Lauber wants him to enter through the front door, so he must move to amend his pleadings.

And of course The Jersey Boys, who litigated Chai, raised the Boss Hoss issue in their initial post-trial brief, whereas EZ came somewhat tardily to the feast. So IRS gets a chance to bewail the same.

“If petitioners do file a motion for leave as described above, we will give respondent an opportunity to respond to that motion. Together with any such forthcoming response, respondent may file, if he deems it appropriate, a motion to reopen the record for the purpose of including any documentary or other evidence relevant to the question of whether supervisory approval within the meaning of section 6751(b)(1) was secured for the penalties at issue in these cases. If we do grant one or both of these motions, we will then order supplemental briefing on the requirements that section 6751(b)(1) imposed on respondent and whether he satisfied them.” Order, at p. 2.

So move, EZ, and best of luck.

I’ve often commended Judge David Gustafson. He’ll try your case in the slammer where you are; he’ll help you draft your brief, and do everything but bring coffee and doughnuts to your trial.

But don’t ignore him. He will get more than a trifle testy when he suspects counsel of straying from the paths of righteousness.

There are six (count ‘em, six) designated hitters, all of equal tenor, of which I have chosen Kenneth Bailey, Docket No. 21003-16L, filed 4/17/17, as my case-in-point.

Ken and his fellow petitioners are all facing NITLs for some TFRPs, IRS moved for summary J in all cases, Ken and his fellows said nothing, and Judge David Gustafson awards IRS summary J.

No biggie, right? Ordinary grist that comes to the Tax Court mill every day.

But the difference is that all six have the same attorney, whom I will call Mac.

“We will grant the Commissioner’s motion for summary judgment, but we will not yet enter decision. Instead, we will order petitioner’s counsel to appear at the calendar call on June 12, 2017, and show cause why sanctions should not be entered under section 6672(a)(2) and why counsel should not be referred to the Court’s Committee on Admissions, Ethics, and Discipline.” Order, at pp. 1-2.

“Counsel’s non-responses have required the Commissioner to file status reports and have required the Court to determine in each case without petitioners’ counsel’s input whether a grant of summary judgment is ‘appropriate’, Rule 121(d). We cannot tell whether this indicates that counsel is unaware of or is ignoring the Court’s orders. We cannot tell whether counsel knew the cases had no merit but filed petitions to collude in an attempt to use the CDP proceedings to delay collection. We cannot tell whether counsel determined after filing the petition that the cases have no merit and therefore did not bother to comply with the Court’ s order. We cannot tell the extent to which counsel’s non-compliance with the Court’s orders prejudices his own clients and/or the Commissioner.” Order, at p. 2.

I’m not judging which, if any, of these possibilities is correct, or even is close to correct. I firmly support our State Bar’s Lawyer Assistance Program for lawyers overwhelmed by the enormous stresses of the profession I love. If Mac is in such case, I hope his State’s Bar Association, or local association, has a similar program. If so, he should avail himself thereof.

But if not, he did not do well to peeve Judge David Gustafson. Obliging as that jurist is, there is a limit.

Whistleblower 16158-14W, 148 T. C. 12, filed 4/17/17, falls short. Even though his/her target, a gameplayer with FICA/FUTA, changed his/hers/its/their evil ways thereafter, to the enlargement of the fisc, ol’ 16158-14W gets nothing, because IRS didn’t even audit subsequent years, much less start proceedings.

Judge Buch: “The explanation attached to the Form 11369 [the whistleblower blow-off form] stated that the whistleblower was correct that the taxpayer had made errors but the cause of the errors was an ‘honest mistake’ made while updating its reporting systems. The explanation went on to say that ‘[i]t appears the * * * [taxpayer] has been convinced by its close call to become fully compliant with its withholding tax responsibilities and further examination is not warranted.’’ 148 T. C. 12, at p. 4.

Yeah, roger that. Like the dude would have straightened up and flown right if ol’ 16158-14W hadn’t tipped IRS off while IRS was auditing an unrelated matter.

Anyway, the changed compliance of the blown didn’t generate any ”collected proceeds,” at least according to Judge Buch’s view of Section 7623.

“We have described section 7623(b)(1) as ‘straightforward’ and ‘written in expansive terms’. Whistleblower 21276-13W v. Commissioner, 147 T.C. __ , __ (slip op. at 10-11) (Aug. 3, 2016).”

Yes, but.

“Collected proceeds do not include self-reported amounts collected when a taxpayer changes its reporting for years that are not part of the action. The Commissioner argues, and we agree, that because of the significant costs and heavy administrative burden, collected proceeds cannot include amounts collected for years after examination years on account of a taxpayer’s changing its reporting. Petitioner takes the definition of ‘collected proceeds’ as ‘all proceeds collected by the Government from the taxpayer’, Whistleblower 21276-13W v. Commissioner, 147 T.C. at __ (slip op. at 32), to an irrational extreme to argue that self-assessed amounts collected for future years are proceeds collected by the Government. Indeed, many, if not all, of the Commissioner’s examinations will have some influence on a taxpayer’s reporting. However, any determination of an award based on additional amounts collected for years following examination years would be based on speculation.” 148 T. C. 12, at pp. 13-14.

Straightforward, expansive, useless.

I said “Wow!” when I read that clause in Hurford Investments No. 2, Ltd., Hurford Management No. 2, LLC, Tax Matters Partner, Docket No. 23017-11, filed 4/17/17. And read the opinion before commenting on what is “as clear as anything in the Code.”

Now if anyone objects that I blog a lot of Judge Holmes’ opinions, with or without honorifics, I can only reply that he gets some really good cases. So fans of other judges can complain to Ch J L. Paige (“Iron Fist”) Marvel or to the Office of the Clerk.

This tangled trail starts back in 2008 with Estate of Thelma G. Hurford, Deceased, Donor, G. Michael Hurford, Independent Executor, 2008 T. C. Memo.278, filed 12/11/08. I won’t digest this, except to say what Judge Holmes said: “This plan did not go well in design or execution….” Order, at p. 1.

So today’s episode moves from the late Thelma’s botched estate to the FLP set up by her attorney. The FLP wound up with the late Thelma’s late husband Gary’s phantom stock.

Gary worked for the legendary Hunt Brothers, who were what my daughter the Texan would call “awl kings.” Gary was the first non-Hunt president of Hunt Oil Corp. But he got no stock as compensation, and couldn’t buy any.

What he did get was a book entry in a notional amount, equivalent to the FMV of a number of Hunt Oil shares. This amount increased or decreased as the value of an equivalent number of shares as at 12/31 annually. When an employee reached qualified termination (which Gary did by dying), a five-year clock started ticking, at the end of which the non-stock was redeemed at book value. This non-stock is called “phantom stock.”

Well, Thelma got the phantom stock, but she died before the five-year clock ran out. She could have redeemed sooner, but didn’t. And she transferred the stock to the FLP while still alive.

Thelma never reported the phantom stock on her 1040, but the FLP did on its 1065, as a short-term capital gain, by which logic both Judge Holmes and I are confused.

Howbeit, in the case above-cited, relating to Thelma’s estate’s tax, the Court held that the phantom stock was includable in Thelma’s estate. Then the five-year clock ran, Hunt Oil gave the FLP much money, and IRS audited the FLP.

IRS and FLP made a closing agreement, whereby they agreed that the phantom stock proceeds were income in respect of a decedent, agreed on the amount, and that FLP got basis in the same amount.

IRS wants summary J. So does the FLP.

No issue preclusion or claim preclusion. The 2008 case only involved Thelma’s estate; nothing to do with the FLP.

Well the phantom stock was surely income in respect of a decedent (IRD). Gary was dead before he got it. Now Thelma, as the person who inherited the phantom stock from Gary, should have paid tax at ordinary rates, except she transferred the phantom stock to FLP before she died. And it’s too late to change that.

Now for the clear language.

“There’s another sentence in section 691 that deals with this possibility: ‘If a right . . . to receive an amount is transferred by . . . a person who received such right by reason of the death of the decedent . . . there shall be included in the gross income of. . . such person . . . for the taxable period in which the transfer occurs, the fair market value of such right at the time of such transfer . . . .’ I.R.C. § 691(a)(2).

“This is another good reason for Thelma’s not doing what the estate planner who advised her back in 2000 told her to do: He seems to have been unaware of this section (as was, to be sure, the Commissioner and the Court during the estate tax case). But the language is, as [FLP] now emphasizes, as clear as anything in the Code. Thelma got the phantom stock by reason of her husband’s death. She transferred it to [FLP]. This means that she should have reported the phantom stock’s value at the time of the transfer. And section 691(a)(3) says that she should have reported it as ordinary income.

“Except that she didn’t report it at all, much less as ordinary income, and now too much time has passed to fix this mistake. And there’s the added complication that [FLP] did report it on its own 2000 tax return, albeit as short-term capital gain. (How it came up with that characterization is another mystery.).” Order, at pp. 5-6.

Even more interesting is whether the phantom stock is a capital asset. It’s not on the Section 1221 exclusion list. But the right to receive future income doesn’t make that right a capital asset. However, the right can change character with transfer. The original right was Gary’s. He died before he could get it. Thelma got it, but transferred it and at that point owed ordinary income tax. But the FLP reported and paid tax, not Thelma.

Most importantly, the phantom stock could go up or down in value, just like real stock. All the FLP could do was sit and suffer, or sit and gloat.

OK, so it’s a capital asset. But was there a sale or exchange by FLP?

Not in the traditional sense, bur remember Pilgrim’s Pride. What, you don’t? Well, see my blogpost “Just Walk Away – Part Deux,” 3/10/14, especially the reversal by 5th Cir.

“Remember that both parties to the phantom-stock arrangement had the right to liquidate the account at any time. When Hunt Oil liquidated the phantom stock and distributed the proceeds, it ended [FLP]’s right to sell the phantom stock when it chose. We think that means there was a termination of a right to buy or sell a capital asset, and not an abandonment of property, under the Fifth Circuit’s interpretation of 1234A(1). [FLP] still owned the rights to the phantom stock or, after the liquidation, to the cash proceeds. We therefore conclude that the transaction was a sale or exchange of a right to sell a capital asset under section 1234A(1) and [FLP] is entitled to capital-gains treatment.” Order, at p. 11.

OK, capital gain. But what basis? IRS said basis was stipulated on the closing agreement. No, says FLP, we get step-up in basis to FMV at DOD.

Hold on. The FLP didn’t die, and Thelma didn’t own the phantom stock when she died.

Judge Holmes to the rescue. “Yet section 1014(b)(9) tells us to consider property ‘to have been acquired from or to have passed from the decedent . . . if by reason thereof the property is required to be included in determining the value of the decedent’s gross estate.’ That’s what happened here — in the estate-tax case we included the value of the phantom stock in Thelma’s gross estate.” Order, at p. 12.

So what? Section 1014(c) expressly excludes “property which constitutes a right to receive an item of income in respect of a decedent under section 691.”

But Judge Holmes already concluded that the phantom stock changed character when it went from Thelma to the FLP. So it was a capital asset in the FLP’s hands and not IRD.

A Taishoff “good job, first class” to J. L. Kennedy, Jr., Esq., and his team.

No, not literally. And the Roesler of this story is Mark Roesler, expert witness and extractor of value from dead poets and celebrities, by means of exploiting the public interest therein.

And of course Mr Roesler is a featured player in the ongoing saga of the late Michael Jackson, as told by The Great Dissenter, a/k/a The Judge Who Writes Like a Human Being, s/a/k/a The Implacable, Inveterate, Ineluctable, Indefatigable, Illustrious, Incontrovertible, Ineffable and Indomitable Foe of the Partitive Genitive, and Old China Hand, Judge Mark V. Holmes.

Mr Roesler reports and testifies about the worth of the late King of Pop’s pictures, descriptions and account in Estate of Michael J. Jackson, Deceased, John G. Branca, Co-Executor and John McClain, Co- Executor, Docket No., 17152-13, filed 4/17/17.

But Mr Roesler wants a large part of his report and testimony sealed, because it contains trade secrets, namely, details of what he got for the relicts of the deceased greats he’s represented over the years.

But remember Section 7461(a), says IRS. The public has a right to know.

Judge Holmes sets the ground rules. We’re not dealing with national security, law enforcement, endangered individuals, or scandalous information. This is about patents, customer lists, pricing and trade secrets.

“Asserting annoyance isn’t enough — there must be some demonstration of harm that disclosure will cause. Our focus on harm means that the presumption of public access trumps any private interest in nondisclosure when otherwise confidential business information is stale. When information becomes stale is a factbound determination. “ Order, at p. 2. (Citations omitted).

Well, Mr Roesler’s pricing arrangements are clearly trade secrets.

“Roesler’s report also reveals the commission he charges (or attempts to charge) for his representation of estates to help them exploit their right of publicity. This is very much an ongoing feature of his business strategy. The Commissioner makes the reasonable point that these charges might be important in estimating a value of Jackson’s image and likeness to the Estate. It seems unlikely, however, that the Court would use only a single source to estimate such costs; whereas their revelation to a wider public could definitely place Roesler at a competitive disadvantage to his peers in this industry.

“The Estate wins on this one — and the Court noticed as well that Roesler’s commissions show up on pages 28 and 29. Although the Court is not granting the Estate’s request to seal these pages in their entirety, we will allow a redaction of this information.” Order, at p.3.

Roesler loses the tussle with IRS on his aggregated numbers. Individual deals aren’t mentioned, and the identities of the heirs is not revealed. And some material is more than five years old, and to Judge Holmes, that means they’re stale.

“The Court agrees with the Commissioner that the terms of deals that Jackson himself entered between 7 and 37 years ago are quite stale — the Estate has not shown how their revelation would affect any similar and more recent deal. This information and analysis is, moreover, likely to be quite relevant in the Court’s analysis for what it might show about the effects on the Estate of the public-relations troubles Jackson had during the last 15 years of his life.” Order, at p. 3.

So Roesler wins only one out of three falls.

Edited to add, 9/30/21: Note that because only a few pages of one expert report were sealed, the Genius Baristas who inflicted the DAWSON schemozzle upon us have sealed the entire file, including but without in any way limiting the gener5ality of the foregoing (as my expensive colleagues say), millions of documents in this litigation that were formerly public and readily available on the inernet. This assault on Section 7461 and the people’s right to know has gone far enough. Whether sheer incompetence or malice aforethought impels this is irrelevant. It has to end.

No, not literally. And the Roesler of this story is Mark Roesler, expert witness and extractor of value from dead poets and celebrities, by means of exploiting the public interest therein.

And of course Mr Roesler is a featured player in the ongoing saga of the late Michael Jackson, as told by The Great Dissenter, a/k/a The Judge Who Writes Like a Human Being, s/a/k/a The Implacable, Inveterate, Ineluctable, Indefatigable, Illustrious, Incontrovertible, Ineffable and Indomitable Foe of the Partitive Genitive, and Old China Hand, Judge Mark V. Holmes.

Mr Roesler reports and testifies about the worth of the late King of Pop’s pictures, descriptions and account in Estate of Michael J. Jackson, Deceased, John G. Branca, Co-Executor and John McClain, Co- Executor, Docket No., 17152-13, filed 4/17/17.

But Mr Roesler wants a large part of his report and testimony sealed, because it contains trade secrets, namely, details of what he got for the relicts of the deceased greats he’s represented over the years.

But remember Section 7461(a), says IRS. The public has a right to know.

Judge Holmes sets the ground rules. We’re not dealing with national security, law enforcement, endangered individuals, or scandalous information. This is about patents, customer lists, pricing and trade secrets.

“Asserting annoyance isn’t enough — there must be some demonstration of harm that disclosure will cause. Our focus on harm means that the presumption of public access trumps any private interest in nondisclosure when otherwise confidential business information is stale. When information becomes stale is a factbound determination. “ Order, at p. 2. (Citations omitted).

Well, Mr Roesler’s pricing arrangements are clearly trade secrets.

“Roesler’s report also reveals the commission he charges (or attempts to charge) for his representation of estates to help them exploit their right of publicity. This is very much an ongoing feature of his business strategy. The Commissioner makes the reasonable point that these charges might be important in estimating a value of Jackson’s image and likeness to the Estate. It seems unlikely, however, that the Court would use only a single source to estimate such costs; whereas their revelation to a wider public could definitely place Roesler at a competitive disadvantage to his peers in this industry.

“The Estate wins on this one — and the Court noticed as well that Roesler’s commissions show up on pages 28 and 29. Although the Court is not granting the Estate’s request to seal these pages in their entirety, we will allow a redaction of this information.” Order, at p.3.

Roesler loses the tussle with IRS on his aggregated numbers. Individual deals aren’t mentioned, and the identities of the heirs is not revealed. And some material is more than five years old, and to Judge Holmes, that means they’re stale.

“The Court agrees with the Commissioner that the terms of deals that Jackson himself entered between 7 and 37 years ago are quite stale — the Estate has not shown how their revelation would affect any similar and more recent deal. This information and analysis is, moreover, likely to be quite relevant in the Court’s analysis for what it might show about the effects on the Estate of the public-relations troubles Jackson had during the last 15 years of his life.” Order, at p. 3.

So Roesler wins only one out of three falls.

Edited to add, 9/30/21: Note that because only a few pages of one expert report were sealed, the Genius Baristas who inflicted the DAWSON schemozzle upon us have sealed the entire file, including but without in any way limiting the generality of the foregoing (as my expensive colleagues say), millions of documents in this litigation that were formerly public and readily available on the internet. This assault on Section 7461 and the people’s right to know has gone far enough. Whether sheer incompetence or malice aforethought impels this is irrelevant. It has to end.