STJ Diana L. Leyden accepts silence as consent, but IRS was perplexed by Wesley Ira Lane & Jessica Lynn Lane, Docket No. 23805-14, filed 3/28/17.

IRS filed Motion for Entry of Decision (hereinafter “MEOD”). This means that the parties stipulate and agree to the amount of tax, refund, adjustments, penalties and additions for the year or years at issue, and that same may be entered as an Order and Decision; what we State courtiers call a “judgment.”

Sort of like a plea bargain, or a “so-ordered” stipulation of settlement.

In so moving, IRS must state whether Wes & Jes agree with the proposed Order and Decision, a copy of which IRS thoughtfully attached to the MEOD.

Wes & Jes responded by e-mail. “Great. Thanks.”

Consent? Maybe so; might could be. Maybe Wes & Jes were on the hook for beaucoup, and the $8K tax and $1K Section 6662(a) chop was a cheap out. Interestingly, the chop is less than the mandated 20%, so maybe not all the tax was understated for the reasons set forth in Section 6662(b), or maybe Wes & Jes had substantial authority for some of it.

Perhaps, in the alternative, Wes & Jes were being ironic, sardonic or sarcastic.

Howbeit, IRS wasn’t sure if Wes & Jes agreed, and they said so in the MEOD.

STJ Di asked Wes & Jes what they meant, but Wes & Jes stood mute.

So STJ Di enters decision as aforesaid.

Takeaway- I don’t think my readers need this, but if some do, permit me to suggest gently that “Great. Thanks.” is not how you show consent to a MEOD. Or anything else.

In More Ways Than One

Despite her middle name, Janice Luck O’Connor, Docket No. 2472-11, filed 3/27/17, doesn’t have any in her motion for reconsideration of the order giving IRS summary J, knocking out Janice Luck’s charitable contribution.

Back in January, while I was packing up and getting ready to sail the ocean blue, Judge Holmes granted summary J to IRS as aforesaid, because Janice Luck’s appraiser failed to consider the restrictive covenants in Janice Luck’s gift of 145 acres of farmland to a 501(c)(3). Note this wasn’t a conservation easement or scenic easement; this was a deed of gift of the whole enchilada.

And as Judge Holmes said back on 1/18/17, he cut Janice Luck a bunch of slack. “We can and have forgiven a number of the shortcomings that are indisputably present in Ms. O’Connor’s qualified appraisal. Using a substantial compliance standard, we have found that an appraisal was qualified even though the partnership obtained it more than sixty days before the contribution, even though the appraisal failed to state that it was prepared for income-tax purposes, and even though the appraisal estimated the fair market value on the date of appraisal instead of on the date of the expected contribution.“ Order, Docket No. 2472-11, filed 1/18/17, at p. 3.

Substantial compliance means “close enough for jazz.” But the appraiser admits he didn’t consider the restrictive covenants, and Janice Luck claims they were inserted at the behest, instance and insistence of the 501(c)(3).

Mox nix, says Judge Holmes.

“See 26 C.F.R. § 1.170A13(c)(3)(ii)(D) (appraisal must include an ‘agreement or understanding entered into . . . by or on behalf of the donor or the donee that relates to the use, sale, or other disposition of the property contributed, including, for example, the terms of any agreement . . . that restricts temporarily or permanently a donee’s right to use or dispose of the donated property.”) (Emphasis added.)

“The appraiser here was similarly required to consider the restrictions placed in the deed, regardless of which party wanted them. The appraiser failed to do so.” Order, Docket No. 2472-11, 3/27/17, at p. 2.

And that’s not a minor fault.

Takeaway- Don’t let your client’s generosity give away the tax deduction while your client is giving away the ranch.

Footnote to Mr. Peter Reilly, CPA: Yes sir, you were right. Judge Holmes was getting up to all kinds of stuff while I was away.

Today is the fiftieth anniversary of my admission to the Bar of Our Fair State. Some friends are buying me lunch.

To clients, friends, colleagues, adversaries, judges, administrative agents, but most of all, to my family, thanks, guys.

It’s been a blast.

IRS has some ‘splainin’ to do, and Ch J L. Paige (“Iron Fist”) Marvel is all agog for IRS’ ‘planation in Donald Albont Watkins & Kathy L.  Watkins, Docket No. 500-17S, filed 3/24/17.

Dates matter here, so I’m including them.

IRS hit Donald Albont & Kathy L. with a SNOD. When Donald Albont & Kathy L. petitioned same, IRS claimed “too late, no jurisdiction,” and threw in proof of mailing date as September 14, 2016.

All hands agree that Donald Albont & Kathy L. submitted their petition after December 13, 2016. Apparently the USPS postmark establishes that beyond mayhap or peradventure.

But Donald Albont & Kathy L. riposte as follows. “Stamped on the first page of that notice as the ‘Last day to file petition with US tax court’ was December 31, 2016. On March 23, 2017, petitioners filed a response in objection to the motion to dismiss, replying explicitly to each allegation made by respondent and emphasizing their reliance on the December 31, 2016, deadline stamped on the notice of deficiency.” Order, at p. 1.

Well, we all know that Section 6213 (a) says that the date specified by the Secretary (of the Treasury, or his or her delegate) as the last day to file is what controls.

So IRS has the aforesaid ‘splainin’ to do.

And maybe they should take a close look at their stamps.

From an earlier part of this famous speech, IRS, “If you have tears, prepare to shed them now.”

Tax Court, per Judge Lauber, has unloaded upon you 188 pages, demolishing your twelve (count ‘em, twelve) lawyers under a barrage of eighteen (count ‘em, eighteen) lawyers, in Amazon.Com, Inc. & Subsidiaries, 148 T. C. 8, filed 2/23/17.

There’s also about seventeen pages of CVs, for the expert witnesses.

If you think I’m going to digest this, when I’ve sworn off drink for the rest of the month, try again.

But I will say that IRS is thoroughly pummeled as arbitrary, capricious and unreasonable. The Comparable Uncontrolled Transaction (CUT) is extolled, the mysterious “Project Goldcrest” (see my blogpost “Carousel,” 6/9/14) is unveiled, obeisance is paid to Altera (see my blogpost “Sixteen Lawyers – Part Deux,” 7/27/15, for stock-based compensation, although that’s up on appeal to 9 Cir.), and $234 million in deficiencies is sent off for a Rule 155 beancount that should shrink the deficiencies like an icicle in a blast furnace.

Ya think Amazon will cut the cost of my Prime membership?

That’s the message Judge Paris has for Lindsay Manor Nursing Home, Inc., 148 T. C. 9, filed 3/23/17. LMNH claims late payments from Medicaid and Medicare forced it to use FICA/FUTA money to pay for its sick residents. Therefore the proposed levy would toss the old and sick in the street. Therefore, levy should be vacated because of “economic hardship,” per Section 6343.

Section 6343, which, per regulations, requires IRS to release liens for economic hardship. But does “economic hardship” mean economic hardship for nonindividuals?

Negatory, says Judge Paris, per regulations IRS has made clear that Section 6343 release is for individuals, not corporations.

The language of the statute itself uses the term “taxpayer” eight (count ‘em, eight) times, but inconsistently as to an individual or a nonindividual.

After tearing the stuffin’ out’n de dictionary (the abridged dictionary) and canvassing all the legislative history in sight, Judge Paris determines that the “taxpayer” to be benefitted by the Section 6343 deliening is ambiguous.

Thus Chevron. Chevron allows a permissible interpretation of the statutory language when Congress hasn’t made it clear enough. And restricting Section 6343 to individuals is certainly permissible.

Besides, the application of Section 6343 is directed at releasing a lien. But here Judge Paris is dealing with a NITL, a notice of intent. No levy yet.

LMNH claims nonindividuals can submit OICs, but Judge Paris says economic hardship isn’t available to nonindividuals in an OIC. The proposed OIC regs did have a business example, but that was discarded because IRS should not be deciding which businesses were viable or not.

Anyway, “…the foreclosure of nonindividuals from ‘economic hardship’ relief does not foreclose relief for reasons found in subparagraph (B) (release of the levy would facilitate collection of the liability), (C) (the taxpayer entered into an installment agreement), or (E) (the fair market value of the property exceeds the levy and release would not hinder collection of the liability) of section 6343(a)(1).” 148 T. C. 9, at p. 40.

Levy sustained.

Footnote: See Lindsay Manor Nursing Home, Inc., 2017 T. C. Memo. 50, filed 3/23/17. LMNH is a habitual nonfilter and nonpayer. “Petitioner has a long history of noncompliance with its Federal employment tax obligations dating back to the mid-2000s. On multiple prior occasions petitioner was given an installment agreement which the IRS revoked for noncompliance with either the terms of the agreement or its Federal tax filing and payment obligations.” 2017 T. C. Memo. 50, at p. 3 (Footnote omitted).

But then again, it’s another Sam Jewell enterprise. Remember Sam? No? Then see my blogpost “The Corporations Unveiled,” 12/29/16. Judge Paris is losing patience with Sam.

Or it might be her. In either case, Mr/Ms. Whistleblower, the anonymity Tax Court grants you today may be whisked away tomorrow.

It’s all about the public’s right to know who is using the courts…even at the risk of their lives. Remember my blogpost “The Whistleblower Blown Up,” 5/20/14; whistleblowing could be hazardous to your health, whatever the outcome of the current political struggle over healthcare.

Judge Halpern deals with this in Whistleblower 12568-16W, 148 T. C. 7, filed 3/22/17. I was so caught up with 2 Cir. putting Graev in the grave yesterday, and a routine medical checkup, that I missed this one.

The blower in question, hereinafter BIQ, claims he handed the Federales beaucoup good stuff about a billion-dollar tax dodge, but got nothing but an Ogden brush-off. He petitions, and at the same time moves for anonymity.

BIQ further claims as follows. “…if petitioner’s identity were disclosed, petitioner would be at risk of retaliation, physical harm, social and professional stigma, and economic distress.  Petitioner supported the motion with a declaration, in which, among other things, petitioner represents the following. Petitioner was previously employed by an entity related to the taxpayer.  Petitioner’s claims concern significant unlawful tax code violations by the taxpayer and affiliates.  Petitioner acquired knowledge about the violations in the normal course of petitioner’s employment.  Petitioner has a well-founded concern that disclosure of petitioner’s identity would cause the taxpayer to retaliate against petitioner and petitioner’s family, resulting in professional and personal ostracism, economic loss, and even threats to petitioner’s family’s safety.  Disclosing petitioner’s identity would also likely cause severe damage to petitioner’s standing in petitioner’s professional community, as well as embarrassment both professionally and personally.” 148 T. C. 7, at p. 3.

IRS is down with this, but Judge Halpern, mindful that the Great American Public is panting, breathless, to know BIQ’s identity, must needs resolve the competing social interests at stake.

It’s early times, so if BIQ gets blown off on summary J (IRS says “we got nuttin’”), no big public interest, so let BIQ stay behind the curtain. But if things heat up, Rule 345 might let Judge Halpern pull the veil; for example, if there’s a big award to BIQ, the public might really like to know. See the Committee comment to Rule 345, at 148 T. C. 7, at p. 6.

I point out that so would the blown like to know, and if they did, BIQ’s life and health insurers would do well to cancel him/her, likewise whatever the outcome of today’s political struggle.

“Given that the redaction of information identifying the nonparty taxpayer that is generally required by Rule 345(b) is only provisional, the discretionary protection that a whistleblower receives from the granting of a motion to proceed anonymously must, a fortiori, be provisional as well.  Although Rule 345(a) does not specifically contemplate revocation of anonymity initially granted, it must follow that the Court’s discretion to either grant or deny a motion to proceed anonymously also encompasses the authority to condition any relief granted on appropriate conditions.” 148 T. C. 7, at pp. 6-7.

And in each of the three previous cases Tax Court has decided (and I’ve blogged them), the blower’s identity was concealed pending further order of the Court.

But here’s the point, BIQ and other would-be blowers. “It is only fair that we inform petitioner that the balance that we now find to weigh in favor of anonymity may change, so that petitioner may take that risk into account in deciding whether to proceed with the action.” 148 T. C. 7, at p. 9.

So if you walk away and shut up, letting the crooks get away, you’re safe. But if you go ahead, connect the dots, blow the doors off the banditi, help out the honest taxpayers, at the risk of your life and your family’s lives, and prove you should get compensated for this, you’re at risk that your name gets plastered all over, with the results you predicted.

Great incentive, Judge.

A Taishoff “Great Job!” goes to that well-known and often-cited law firm, sometimes herein referred to as “The Jersey Boys,” who bail out Jason Chai (see my blogposts “The Silt We Stir,” 2/13/15, “The Front,” 3/12/15 and “Tell Me More,” 4/17/15) from his 20% chop, and incidentally vindicate that Obliging Jurist Judge David Gustafson by closing up the Graev (see my blogpost “A Non-Christmas Story,” 12/26/16, and my blogposts therein cited).

You remember accommodating Jason Chai, architect turned middleman, who signed away $3.2 billion of taxable gains for his shelter-flogging cousin-in-law A. Beer. Well, IRS tagged him for SE, but when A. Beer’s phony partnerships went flat, IRS hit Jason for a further $2 million of income. And hit him with a 20% chop.

Jason appealed to 2 Cir.

After a trek through the undergrowth of TEFRA, which I’ll spare you as it’s now obsolete for anything commenced this year, there comes the Section 6751(b) Boss Hoss question.

Tax Court refused to consider it for Jason, and ruled in Graev that the Boss Hoss could sign off at any time, even after trial. Ex-Ch J Michael B (“Iron Mike”) Thornton tore “de stuffin’ out’n de dictionary,” in O. Henry’s words, to get there.

Judge David Gustafson said that tore the usefulness out of the statute, and tore up Congress’ intent in passing it to begin with.

I, even I, said “If ever an opinion needed reargument, it’s 147 T. C. 16.” See my Non-Christmas Story abovecited.

Well, better than reargument, Jeremy Klausner, Esq., and colleagues get 2 Cir. to blow off the Graev majority.

“The report from the Senate Finance Committee on § 6751(b) states clearly the purpose of the provision and thus Congress’s intent: ‘The Committee believes that penalties should only be imposed where appropriate and not as a bargaining chip.’ S. Rep. No. 105-174, at 65 (1998). The statute was meant to prevent IRS agents from threatening unjustified penalties to encourage taxpayers to settle. IRS Restructuring: Hearings on H.R. 2676 Before the S. Comm. on Finance, 105th Cong. 92 (1998) (statement of Stefan F. Tucker, Chair-Elect, Section of Taxation, American Bar Association) (‘[T]he IRS will often say, if you don’t settle, we are going to assert the penalties.’). That history strongly rebuts the Graev majority’s view that written approval may be accomplished at any time prior to, even if just before, assessment. Allowing, as would the Graev majority, an unapproved initial determination of the penalty to proceed through administrative proceedings, settlement negotiations, and potential Tax Court proceedings, only to be approved sometime prior to assessment would do nothing to stem the abuses § 6751(b)(1) was meant to prevent. The Graev dissent put it succinctly:

“‘Th[e majority’s] construction is implausible in the extreme—especially in an instance in which a penalty assertion becomes the subject of Tax Court litigation. Once Chief Counsel had argued and the Tax Court had held that the taxpayer is liable for an assessment, the supervisor’s Johnny-come-lately approval of the ‘initial determination’ would add nothing to the process. And where the Tax Court had held the taxpayer not liable for the penalty, the supervisor’s consideration of the matter would then be completely moot.’” Chai v. Com’r., 15-1653, filed 3/20/17, at pp. 60-61.

IRS had burden of production to show the Boss Hoss signoff on the penalty and didn’t. Penalty tossed. And Graev overruled sub not-so-silentio.

On top of the latest, Tax Court got the word. Here’s Judge Cohen citing Chai and Graev in Chad Henderson and Sharon Henderson, Docket No. 14187-16L, filed 3/22/17.

“Although alleging compliance with requirements of law and administrative procedures in general terms, respondent does not specifically address all requirements that may appropriately be considered. See, e.g., Graev v. Commissioner, 147 T.C. No. 16 (Nov. 30, 2016); see also Chai v. Commissioner, F.3d _, 2017 WL 1046108 (2d Cir. Ct. App. Mar. 20, 2017), aff’a in part, rev’a in part T.C. Memo. 2015-42.” Order, at p. 1.

Judge Gustafson, take a bow.

Or at least at 400 Second Street, NW, amid the frost-bitten cherry blossoms. That’s what Herbert Heintz & Barbara Heintz, Docket No. 2731-17L, filed 3/21/17, want from Ch J L Paige (“Iron Fist”) Marvel.

Herb & Barb are upset about “…imposition of liens and executions upon the real property of the Petitioners and upon the refusal of the right to appeal the rejection of amended tax returns and later reneging of IRS credits which implied an acceptance of the amended returns.” Order, at p. 2.

Herb & Barb petitioned the foregoing. IRS said “No SNOD, no NOD, no jurisdiction.”

Herb & Barb say they want a declaratory judgment. “This appeal involves all of the elements of a declaratory judgment. A declaratory action seeks a ruling by the Court on of [sic] legal uncertainties. This Court deals with substance over form and it is unnecessary to specifically title a pleading a ‘Declaratory Judgment’. There is no magic in the nomenclature of a pleading and it should be construed to serve the best interests of the pleader, with technicalities of procedure set aside.” Order, at p. 2.

Sounds good, right?

Except there’s a Tax Court Rule 211. Tax Court hasn’t got the freewheeling jurisdiction of USDC to go whithersoever it listeth. There’s a laundry list of what Tax Court can “declare among the nations” or anywhere else.

So, Herb & Barb, time for a supplement wherein you shall “…set forth and discuss fully petitioners’ position as to (1) whether the purported declaratory judgment action petitioners seek is described in Tax Court Rule 211(b), and (2) “all applicable allegations, if any, described in paragraphs (c), (d), (e), or (f) of Rule 211 pertaining to such declaratory judgment action.” Order, at pp. 2-3.

Herb & Barb get a Taishoff “Good Try, third class” for that inventive, although likely unsuccessful, try.

Edited to add, 4/24/21: See orders 3/29/17, and 4/7/17. They lost.

That seems to be the takeaway from Patrick Bitter, Jr., 2017 T. C. Memo. 46, filed 3/20/17. Pat’s prof’l S Corp fell foul of Situation 2 in Rev. Rul. 2004-20, 2004-1 C.B. 546.

This dealt with the SDLIA, whereby the S Corp pays life insurance premiums on the key employee (the sole shareholder, officer, director, etc.) and deducts the same. The premiums supposedly fund the defined benefit pension plan, but the death benefit under said plan is a puny fraction of the death benefit of the life insurance policy.

This is a major no-no.  And Pat’s deliction was not disclosing same on his individual return, earning him a Section 6707A 75% no-tell chop. Pat claims he put it on the 1120S, but that doesn’t get it, according to Appeals.

He’s got two other beefs, that this really wasn’t a Situation 2 but a whole ‘nother situation, and even if he’s wrong all the way, IRS got the arithmetic wrong by a factor of 200%. Appeals doesn’t buy either.

The problem comes up when Appeals bounces Pat and he goes for a CDP. As the 6707A no-tell is an assessable penalty, IRS need send no SNOD, so Pat can’t petition.

If he has a beef, he must either wait for the NITL and file a 12153 or go to Appeals on a post-examination conference. Pat asked for the latter.

Judge Lauber: “As assessable penalties, section 6707A penalties are not subject to deficiency procedures.  See Smith v. Commissioner, 133 T.C. 424, 428-430 (2009).  Notwithstanding the absence of a notice of deficiency, a taxpayer may be able to dispute his liability for such penalties (without paying them first) by resisting IRS collection efforts through the CDP process and then seeking review in this Court.  See id. at 430 n.6 (citing Williams v. Commissioner, 131 T.C. 54, 58 n.4 (2008), ] and Callahan v. Commissioner, 130 T.C. 44, 48 (2008)); cf. Gardner v. Commissioner, 145 T.C. 161 (2015) (upholding Tax Court jurisdiction to review section 6700 penalties in the CDP context).  But this route to prepayment judicial review is available only if the taxpayer ‘did not otherwise have an opportunity to dispute such tax liability.’  Sec. 6330(c)(2)(B).

“For example, in Yari v. Commissioner, 143 T.C. 157 (2014), aff’d, __ F. App’x __, 2016 WL 5940054 (9th Cir. Oct. 13, 2016), the IRS assessed a section 6707A penalty against the taxpayer and issued him a notice of intent to levy. After receiving a notice of determination sustaining the levy, the taxpayer petitioned our Court.  There was no evidence in the record that the taxpayer had received notice of the assessment, that he had been offered the opportunity to protest the assessment, or (if so) that he had taken advantage of that opportunity. Under these circumstances, we allowed the taxpayer to contest the amount of the penalty because he had not had a prior opportunity to dispute it.  Id., 143 T.C. at 162.” 2017 T. C. Memo. 46, at pp. 9-10. (Footnote omitted).

I blogged Yari when it first came out. See my blogpost “The $100,000 Misunderstanding,” 9/15/14.

Pat’s conference gave him the opportunity to contest, and he did, but lost all the way.

But even if he hadn’t gone to Appeals and conferred, but waited for the NITL instead, if he got the assessment notice (unlike Steve Yari, who claims he didn’t and IRS didn’t prove that he did), he had the opportunity and didn’t avail himself thereof.

Either way, Pat, no second chance in Tax Court. Maybe not even a first chance.

Of course, all is not lost, Pat.

“Although petitioner cannot contest his liability for the penalties in this CDP case, he does have a judicial remedy.  As the IRS informed him when sustaining the penalties after the initial Appeals Office conference:  ‘If you want to appeal the penalty assessment, you must file a formal suit with either the United States District Court or the United States Court of Federal Claims’ after first paying the balance due on the assessed penalties and filing a refund claim with the IRS.” 2017 T. C. Memo. 46, at p 13, footnote 8.