High on the list of Robert Gover’s (he of the cult novel The Hundred Dollar Misunderstanding) offspring is the Section 72(t) misunderstanding.

Case in point: Candace Elaine, Docket No. 26078-14S, filed 10/25/16, an off-the-bencher by STJ Lewis (“Oh, that name makes me want to sing”) Carluzzo.

The usual sad tale: Candace gets canned in 2009, as the economy melted down. Like many others, she used her retirement plan (type not stated) to feed and house her family. She declares the income therefrom but pays not the 10% chop thereon. Candace is in the under-59-1/2 set at the time.

Note that even STJ Lew gets messed up, as he states, at p. 5 of the order (page 4 of the transcript) that Candace was under 55; even if she was over 55, she was up for the chop if under 59-1/2.

Candace’s plea that economic distress and hardship should exempt her from the 10% chop avails her naught.

STJ Lew catalogues five (count ‘em, five) cases that say that economic hardship doesn’t help. If you take too young, you’re hung.

“The long list of cases cited above, as well as many others decided by this Court to the same effect, strongly suggests there is a common misunderstanding among taxpayers that financial hardship is an exception to the imposition of an otherwise applicable Section 72(t) additional tax. Petitioner apparently proceeded under that misunderstanding not only with respect to the year here in dispute, but to several previous years as well. Given her explanation at trial, we are satisfied that petitioner had reasonable cause and acted in good faith with respect to the portion of the underpayment of tax resulting from her failure to include Section 72(t) additional tax in the tax liability shown on her 2012 return.” Order, at pp. 6 -7.

So Candace gets a bye on the negligence chop, and her actual deficiency, after STJ Lew gives her credit for some medicals she paid with the distribution (and medicals are OK), is under the five-and-ten radar.

STJ Lew is a judge with a heart, like his colleague, STJ Armen.

But Candace still owes the 10%.

I am using that term in more than one sense. Samuel D. Kelker, Docket No. 15061-14L, filed 10/24/16, claims Tax Court should act like an appellate court when it reviews CDPs from Appeals, and therefore should follow Fifth Circuit rules (Sam apparently is Golsenized to Fifth Circuit).

So we get this designated hitter from The Great Dissenter, a/k/a The Judge Who Writes Like a Human Being, s/a/k/a The Implacable, Irrefragable, Ineluctable, Indefatigable, Impeccable, Illustrious, and Incontrovertible Foe of the Partitive Genitive, and Old China Hand, Judge Mark. V. Holmes.

Sam’s Fifth Circuitry is short-circuited.

“This is just wrong. Section 6330(d)(1) gives us jurisdiction to review the IRS’s notices of determination that sustain its decisions to collect tax debts like Kelker’s through levies. Section 7453 gives us the authority to conduct cases in accord with rules of our own devising, and we have chosen to do so with our Rules of Practice and Procedure.” Order, at p. 1.

But Sam isn’t entirely wrong.

“Kelker is a little bit right that our function in CDP cases is largely an appellate one. Our job is to review the record that the IRS compiled in reaching its decision to try to collect Kelker’s taxes by levy. Sometimes a trial is necessary to figure out whether that record is complete or defective in some way, but in this case neither Kelker nor the IRS has identified any issue that needs to be tried. To get the record before us, the IRS usually (as it did here) attaches it to an affidavit of the IRS employee who conducted the CDP hearing. The IRS and the taxpayer can then move for summary judgment — and much like arguing in briefs to a circuit court — can argue in the form of motion papers that the IRS’s conclusion was correct or incorrect on that record.” Order, at p. 2.

There’s some argy-bargy about whether Sam got the SNOD when he didn’t pay the SFR, but Sam caved at the CDP, didn’t propose an collection alternatives, and just groused about underlying liability.

So Sam’s demand for a face-to-face and a trial are short-circuited by summary J.

I post this order to show the inventiveness of petitioners. Never a dull moment at 400 Second Street, NW.

But It’s Taxable

I’m borrowing the title of John Lennon’s 1967 message to the world to tell the story of Joseph L. Jackson and Sylvia A. Jackson, 2016 T. C. Sum. Op. 69, filed 10/24/16.

In the year at issue, Joseph L. “…was the pastor, a director, and the registered agent for Triumph Church of God (church).  Mrs. Jackson was also a church director.  The church had approximately 25 to 30 active members and as many as seven ministers and offered services three days each week.  Mr. Jackson had informed the church’s board of directors that he did not want to be paid a salary for his pastoral services but that he would not be opposed to receiving ‘love offerings’, gifts, or loans from the church.” 2016 T. C. Sum. Op. 69, at pp.2-3 (footnote omitted, but it might explain things, so see infra, as my high-priced colleagues say).

“For a discussion of the meaning of the term ‘love offering’, see Michael P. Mosher & Ryan K. Oberly, ’A Gift Not So Simple–Current Tax Issues Associated With ‘Love Offerings’, 24 Tax’n of Exempts 28 (July/Aug. 2012).  For present purposes, we understand that petitioners consider the term to be synonymous with ‘nontaxable gift’.” 2016 T. C. Sum. Op. 69, at p. 3, footnote 3.

Well, the loans were undocumented, so those go by the cliché.

And the “love offerings” might just be payment in lieu of compensation; but not salary or wages, since IRS doesn’t claim Joseph L. was an employee of the church or anyone else.

“In Commissioner v. Duberstein, 363 U.S. at 284-285, the Supreme Court stated that the problem of distinguishing gifts from taxable income ‘does not lend itself to any more definitive statement that would produce a talisman for the solution of concrete cases.’  The Supreme Court concluded that, in cases such as this one, the transferor’s intention is the most critical consideration, and there must be an objective inquiry into the transferor’s intent.  Id. at 285-286.  In other words, rather than relying on a taxpayer’s subjective characterization of the transfers, a court must focus on the objective facts and circumstances.  Id. at 286.” 2016 T. C. Sum. Op. 69,

None of the 25 or 30 active members come forward, and Joseph L. and Sylvia both testify that he told his board of directors that he would accept “love offerings” in lieu of pay.

Joseph L. is out of luck.

“Petitioners did not offer the testimony of any members of the congregation (including the other directors) or Ms. Simmons that would allow the Court to conclude that the transfers were anything other than compensation for services.  The frequency of the transfers and the fact that they purport to have been made on behalf of the entire congregation is further objective evidence that the transfers represented a form of compensation.  See Goodwin v. United States, 67 F.3d 149, 152-153 (8th Cir. 1995) (holding that substantial, ongoing cash payments collected from church congregation and transferred to pastor as ‘special occasion gifts’ constitute taxable income).” 2016 T. C. Sum. Op. 69, at p. 7.

So STJ Daniel A. (“Yuda”) Guy gives IRS the win and a Rule 155 beancount.

Or Nothing Is Better Than Something?

The visiting practices of readers to this blog is endlessly fascinating and thoroughly inexplicable. Swallows to Capistrano have nothing on my readers.

Yesterday I posted nothing. Yet the blog had 116 views.

Today I posted three (count ‘em, three) blogposts, and so far, as at 3:30 p.m. EST, my blog has garnered 47 views.

I have commented heretofore on this phenomenon.

As I asked then, “But why am I posting at all, when I could get more views if I shut up (as some have suggested)?”

I really must consider this question.

Whatever disagreements I may have with Ch J L. Paige (“Iron Fist”) Marvel, I want to be the first to praise her for bringing to the attention of the self-represented the counter to the IRS one-two punch I’ve often faulted heretofore.

For details, see, e.g., my blogpost “Fake Out – Part Deux,” 6/23/15.

IRS seems to like this move, bombarding the pro se taxpayer with stuff that looks like a SNOD, but isn’t, even though there’s no mandatory form which a SNOD must take, and after the pro se petitions, hits them with the real thing. By the time Tax Court has told the self-represented that the bombardment was a dud round, and therefore tosses their petition, the magic ninety days has run on the real thing, so tough luck.

I think my readers know I’m no fan of sneaky.

So here’s Alvin Hines, Docket No. 19440-16S, filed 10/21/16.

Apparently IRS muffed the mailing address for the SNOD, and wants to claim no jurisdiction for want of valid SNOD.

Ch J Iron Fist tips off Alvin.

“Petitioner is also reminded that if he should receive a new and properly addressed statutory notice of deficiency…, he should (within 90 days of the date of the notice) file a new and separate petition, in order to protect any statutory rights to dispute that notice.” Order, at p. 1.

Thanks, Ch J Iron Fist. This should be SOP. And how about the filing fee?

Law review writers and bloggers to the stars may wonder at my piecing together the refund mechanism (or lack thereof) in USTC for the sixty bucks for which the petitioner is mulcted, when his case is tossed (or when she folds).

I submit, however, that this is as important to the ordinary petitioner as the correct structuring of a multi-tier partnership is to those who retain demi-brigades of whiteshoes where in the financials the last six digits are omitted.

So here’s Albert L. Dunlap, Docket No. 20511-16SL, filed 10/20/16, who wants out of Tax Court but wants his sixty bucks back.

Ch. J L. Paige (“Iron Fist”) Marvel tells IRS’ counsel to give legal advice to an unrepresented.

“…at a reasonable and mutually agreed upon date and time, but no later than November 9, 2016, the parties shall confer as to petitioner’s Motion To Dismiss. Respondent shall undertake to discuss fully with petitioner the consequences to petitioner if the Court were to dismiss this case.” Order, at p. 1.

This is par for the course. See my blogpost “Assigned Counsel? – Part Deux,” 1/28/16.

But now comes the story. “…the Court’s $60.00 filing fee in the instant case is not refundable to petitioner. That filing fee covers the cost of processing this case. See I.R.C. sec. 7451.” Order, at p. 1.

But it didn’t for Ethel M. Stewart, and it did for Harold B. Rhoney. And it didn’t for Travis Strable & Elana Strable. See my blogposts “Now I’m Really Confused,” 9/27/16, and “Returns,” 10/18/16.

Maybe the answer is in the magic words of Section 7451. “The tax court is authorized to impose a fee in an amount not in excess of $60 to be fixed by the Tax Court for the filing of any petition.”

Tax Court is authorized, but maybe doesn’t have to.

OK, but if that’s discretionary, what are the guidelines? Maybe someone will move to vacate if they don’t get back their deposit, claiming denial is arbitrary and capricious.

And There Are Phonies

 Judge Chiechi finds that some phonies are less phony than others, and that sinks Michael Shamrock and Victoria Bigg, 2016 T. C. Memo. 193, filed 10/20/16.

Refresh your recollection with my blogpost “A Phony,” 1/30/15. The person in question, though admitted to the IL Bar, was on the inactive list because he didn’t pay his registration fee. And he told IRS via a Form 2848 POA, and told Tax Court in his Entry of Appearance, that he was a lawyer.

A mere nothing, says Judge Chiechi.

Judge Chiechi survived the motion to recuse, Mike’s & Vic’s new lawyer’s brilliant argument falls flat, and the former phony is lauded by Judge Chichi as having provided Mike & Vic “competent, valuable, diligent, and effective assistance,” 2016 T. C. Memo. at pp. 10, 73, 76, 77, 78, 80, 88, 94 and 95. I never saw any properly dues-paying lawyer so praised in any Tax Court opinion.

As IL law is involved, Seventh Circuit weighed in on the nonpayment suspension in a criminal effective-assistance case. “…persons who obtain [legal] credentials by fraud * * * are classes apart from persons who satisfied the court of their legal skills but later ran afoul of some technical rule. Lawyers who do not pay their dues violate a legal norm, but not one established for the protection of clients; suspensions used to wring money from lawyers’ pockets do not stem from any doubt about their ability to furnish zealous and effective assistance.” 2016 T. C. Memo. 193, at p. 64. (Citation omitted).

And he forgot to pay because of a personal tragedy.

I wish NY were so forgiving. And that Judge Chiechi had some kind words for attorneys who pay up. Here, in the Empire State, it’s a disciplinary offense not to pay up, however sad a tale you may tell. If it’s only a “whoops!” in IL, I wonder that any lawyer pays.

And I paid thirty (count ‘em, thirty) bucks for my admission to Tax Court. I feel silly. I could have gotten in for free, if I played my cards right.

“The entry of appearance form that Mr. N had provided to the trial clerk did not show a ‘Tax Court Bar Number’ in the appropriate place in that entry of appearance form that requires such a number to be shown. That was because Mr. N had not applied to be, and consequently was not, admitted to practice before the Court before the October 28, 2013 Chicago trial session commenced. As a result, the Court had not assigned a Tax Court bar number to him.” 2016 T. C. Memo. 193, at p. 40. (Name omitted).

No biggie. Mr N went right on giving Mike & Vic his ““competent, valuable, diligent, and effective assistance” notwithstanding.

Of course, the only reason Mike & Vic denounced Mr N.’s lapse from grace was the stip he entered made them pay more than they wanted. The new lawyer pointed out Mr N’s  minor registration deliction (amazing how few clients search the relevant websites when engaging counsel), and suggested a case that would save the day.

Except it didn’t. Mr N’s advice was as aforesaid above the price of rubies. Mike & Vic are stuck with their stip. And new lawyer, who presumably did pay and got properly admitted to USTC, barely escapes a Section 6673 chop.

Ya can’t make this stuff up.

STJ Daniel A. (“Yuda”) Guy is walking the trail of Robbie Robertson, whose 1987 song was promoted (or butchered, depending upon your point of view) by Rod Stewart, as he hands a broken arrow to an attorney I’ll call AA, who finally gets three (count ‘em, three) 8332s accepted by IRS (who claims they were forged) and gets the whole batch of parental tax benefits for Michael J. St. Claire, 2016 T. C. Memo. 192, filed 10/19/16.

IRS doesn’t cover itself with glory. We all know that, no matter what the noncustodial does or pays, if no 8332 signed by custodial, custodial is the tax beneficiary.

Unlike the usual situation, Michael J gets the forms. Ex-Mrs Michael J defaulted, custody was never determined by the court, and AA got the 8332s.

As aforementioned, IRS claims forgery. AA asks do how they know, and wants to go to Appeals. IRS says no, this is a correspondence examination. AA says “hit me with a SNOD.” That much IRS gets right, and IRS’ counsel caves at the answer stage.

AA goes for legal and administratives (Section 7430).

I’ll spare you the nitpick over when IRS was “substantially justified.” Somebody apparently tried to claim the tax breaks to which Michael J was entitled (who the record does not state), so IRS gets a bye from STJ Yuda.

AA wants 15.7 hours at $325 per, and IRS offers 10.6 at $200.

AA has evidence from another local tax practitioner that his fee is reasonable (and I’d concur with that).

“Section 7430(a)(1) and (2) limits the prevailing party to an award of ‘reasonable’ litigation and administrative costs.  In this regard, section 7430(c)(1)(B)(iii) (and its flush language) generally limits the hourly rate for attorney’s fees to $125 per hour, plus an adjustment for cost of living, unless the Court determines that a special factor such as the limited availability of qualified attorneys for the proceeding, the difficulty of the issues presented, or the local availability of tax expertise justifies a higher rate.  For purposes of this case, the statutory rate for attorney’s fees incurred in 2015 and 2016 was $200 per hour. See Rev. Proc. 2015-53, 2015-44 I.R.B. 615; Rev. Proc. 2014-61, 2014-47 I.R.B. 860.  Petitioner bears the burden of proving that the amount of costs he claimed is reasonable.  See Rule 232(e).

“[AA] submitted to the Court a declaration stating that his $325 hourly rate is reasonable ‘based on the prevailing community rate’ and his expertise in tax matters.  Mr. Gibson stated that petitioner could not find an attorney to represent him at less than $325 per hour and that it made practical sense for him to provide legal representation given that he had prepared petitioner’s tax return for [the year at issue] and was already familiar with the underlying facts of the case.” 2016 T. C. Memo. 192, at p. 20.

Not good enough, AA.

“General expertise in tax law in itself is not a special factor warranting a fee award in excess of the statutory rate under section 7430.  See Huffman v. Commissioner, 978 F.2d at 1150; Powers v. Commissioner, 100 T.C. 457, 489 (1993), aff’d in part, rev’d in part and remanded on another issue, 43 F.3d 172 (5^th Cir. 1995).  Moreover, there was nothing particularly unique or unusual about these proceedings (involving a simple question of substantiation) that presented extraordinary difficulty or required specialized expertise.  See Nguyen v. Commissioner, T.C. Memo. 2001-41.” 2016 T. C. Memo. 192, at p. 21.

So,  “(C)onsidering all the facts and circumstances, we conclude that petitioner has failed to establish any special factor that warrants attorney’s fees in excess of the statutory rate provided in section 7430(c)(1)(B)(iii).” 2016 T. C. Memo. 192, at p. 21.

AA gets $2,120. Don’t spend it all in one place, AA.

Thus the headline of this blogpost. Section 7430 is a broken arrow.

No, this is neither about tax forms nor about elections. Once again Ch J L. Paige (“Iron Fist”) Marvel enlightens us about returning the sixty buck ticket to justice when the petitioner sends money but no papers.

On a day with no opinions or designated orders, the resolute blogger is reduced to sifting through clerical busywork to find blogfodder.

So here’s Travis Strable & Elana Strable, Docket No. 24933-15, filed 10/18/16.

The Strables started with correspondence (minus check) from an unadmitted person. Ch J Iron Fist treated that as a defective petition, to keep the Strables in the hunt, but told them to put up and cough up.

They didn’t, so they got bounced.

Almost a month later, the Strables sent in their sixty bucks, but nothing else.

I’ll let Ch J Iron Fist take it from there.

“Accordingly, the Court by Order…filed the envelope in which petitioners’ check was received as a Motion To Vacate as of the…date of receipt, and afforded petitioners a final opportunity…to file an Amended Petition.” Order, at p.1.

Ch J Iron Fist also told the Strables if they didn’t file “hard copy” manually signed by them and not some unadmitted dude (whether said dude was attorney-in-fact or not, as Tax Court doesn’t take POAs) by the cutoff date, the bounce would not be vacated.

The Strables send nothing.

Ch J Iron Fist tells the Clerk of the Court to mail back the check (apparently sans envelope) to the Strables, with a copy of the order to the unadmitted.

I don’t know if this clarifies when you get your check back from Tax Court, but I’ll keep following this, when there’s nothing more interesting to follow.

I was up on The Hill Far Above last Saturday, and promised the Legal Information Institute of the Cornell University Law School I’d give them a plug on this blog. I did get a very good lunch, so I felt expansive. When I want a quick research tool for Code and Regs, it’s my go-to place. Take a quick peek, as the e-discoverers say, and send ‘em a few bucks.

If you steal but want to repent, hand back the boodle in the same tax year.

That’s the lesson for Mark H. Swartz & Karen M. Swartz, Docket No. 3583-10, filed 10/17/16. It’s really Mark’s lesson, as Karen’s only connection is the joint return she and CPA-hubby Mark filed for the year at issue. And Karen still has the innocent spousery bailout.

The teacher? Whom else but The Great Dissenter, a/k/a The Judge Who Writes Like a Human Being, s/a/k/a The Indefatigable, Illustrious, Incontrovertible, Ineffable, Ineluctable, Intrepid, Insuperable Foe of the Partitive Genitive, and Old China Hand, Judge Mark V. Holmes?

Mark, a CPA, left private practice to go in-house but wound up in the Big House.

Seduced by wealth and power, Mark became CFO of “…a large and diversified manufacturing and service company. It designs, manufactures, and installs undersea cable-communication systems, conducts auto redistribution services, maintains electronic security systems, and distributes flow-control products. During the year at issue, …did quite well: It had combined net sales of $22.5 billion, assets of $32.4 billion and employed almost 200,000 people worldwide.” Order, at p. 1, footnote 2.

In support of the redistribution activity (although not the one authorized by the company), Mark joined “…a Key Employee Loan Program (KELP) for its executive officers — Mr. Swartz participated in the program for many years, including the … tax year at issue. In [that year], a handwritten journal entry in [the Corp’s] accounting records mysteriously reduced Mr. Swartz’s outstanding loan balance by $12.5 million. Swartz did not make any payments on this loan… during the year at issue. He also did not include the $12.5 million on his Form 1040 (for example, as cancellation-of-debt income), and …did not include the amount on Mr. Swartz’s W-2.” Order, at p. 2.

So Mark redistributed corporate assets, and two years later, Mark joined the Board of Directors.

His fall from the pinnacle came swiftly.  The pinnacle was called Tyco, his überBoss Dennis Kozlowski got nailed for NYS sales tax shenanigans, and the rescue party found Mark’s little entry and made him pay back the $12.5 mil with interest.

As a reward for his belated repentance, Mark got indicted with Dennis, survived a hung jury but got nailed on the retrial and, appeals exhausted, went away for making away with the $12.5 mil.

On his return, IRS nails him for the COD.

Mark claims collateral estoppel (issue preclusion) doesn’t apply, because his payback erased the earlier erasure. Paying back what he took unstole the $12.5 mil, making it “null and void.”

“Mr. Swartz concedes that the Commissioner has shown that several of the requirements for collateral estoppel exist. He argues, however, that the elements of issue identity and actual litigation are not, because he never presented his ‘null and void’ theory in the criminal case.” Order, at p. 3.

But that doesn’t fly with The Great Dissenter.

“The first problem with this is that a party’s failure to make an argument about an issue in the first case doesn’t mean that he gets a do-over in the second. As the Restatement (Second) of Judgments, § 27 cmt. c (Am. Law Inst. 1982), concisely summarizes ‘if the party against whom preclusion is sought did in fact litigate an issue of ultimate fact and suffered an adverse determination, new evidentiary facts may not be brought forward to obtain a different determination of that ultimate fact. . . . And similarly if the issue was one of law, new arguments may not be presented to obtain a different determination of that issue.’

“We recognize the Mr. Swartz may be arguing a subtler point — that, although his distinction between a void theft and a voidable one might not have mattered as a matter of New York criminal law, it should matter under federal income tax law.” Order, at p. 3.

But subtlety fails when tax law is on the playlist, because the Supremes long ago said that Federal tax questions aren’t determined by “attenuated subtleties.”

The jury found Mark knocked the $12.5 mil in the year IRS is claiming he did. He didn’t pay it back that year, but finally disgorged when the forces of truth and righteousness held his paws to the proverbial two years later.

Of course, the tax effect of the belated payback is for another day.

Takeaway—If you grab it, give it back…prontito. sur le champ, mit schnell.