I cannot stress often enough that a Power of Attorney, Form 2848, is a piece of paper whereby a taxpayer appoints an Agent to represent him/her/it/them before IRS.

But today The Judge with a Heart, STJ Armen, finds the “POA” might as well have been a piece of paper, in a designated hitter Charles E. Patrick, Docket 5259-16L, filed 2/9/17.

Although Charles was represented by counsel, when STJ Armen ordered him to respond to IRS’ motion for summary J sustaining the NOD that bounced Charles’ CDP, “…the Court attached to its… Order a copy of Q&As that the Court has prepared on the subject ‘What is a motion for summary judgment? How should I respond to one?’. Order, at p. 1.

Makes me wonder. I’d never suspect STJ Armen of being gratuitous, but doing that strikes me as belittling Charles’ lawyer. We all learned in Civil Procedure 101 to “marshal your evidence and lay bare your proofs, mere denials are worthless without corroborating facts, eschew conclusory affidavits by those without personal knowledge of the facts” and all that good stuff.

Maybe STJ Armen was right, because neither Charles nor his counsel responded.

Anyway, the HO’s declaration says the “POA” admitted at the CDP Charles got the SNOD, didn’t petition, but wanted to fight the underlying liability. The HO told him he couldn’t, but could try audit reconsideration (from which, of course, you can’t petition Tax Court).

Summary J for IRS.

Now maybe this all came about because the amount in dispute was $4K, so neither Charles nor counsel figured it was worth the trouble. But that’s sheer speculation on my part.

I remember Ch J L. Paige (“Iron Fist”) Marvel’s admonition to us at the last USTC Judicial Conference (and BTW, Ch J IF, when is the next one?) to “add a zero.” What might be small money to one person is blood money to another.

But it’s a warning to lawyers. Tax Court isn’t small claims court or village court or justice court. It has its statutes and its rules, and these are not to be ignored, however big-hearted the judge may be.

And please stop calling a person a piece of paper. Unless the person truly is a piece of paper.

That’s the good news Judge Morrison has for David W. Schieber and Janet L. Schieber, 2017 T. C. Memo. 32, filed 2/9/17.

Dave has a pension from CalPERS. Pursuant to the terms thereof, if Dave dies, Jan keeps getting the payments.

Dave and Jan get foreclosed on a property in which they do not reside, the knockdown price is less than the debt, and the lender doesn’t pursue.

Dave and Jan claim they were insolvent to the extent of part of the forgiven balance, so COD is off the table to that extent.

Dave’s lawyer says “(O)ther than the right to receive the monthly payments, the Schiebers could not access the value in the plan. They could not convert their interest in the plan to a lump-sum cash amount, sell the interest, assign the interest, borrow against the interest, or borrow from the plan.” 2017 T. C. Memo. 32, at p. 3.

IRS concedes this. Both sides stip that if pension is in, no insolvency, but if it’s out, Section 108 bails Dave and Jan.

However, IRS claims the pension is an asset, because even assets exempt from creditors can still be used to pay tax. See my blogpost “I’ve Been Workin’ on the Railroad,” 4/27/15, for an analogous situation.

Thus, says IRS, the pension is in.

But this isn’t collection alternative, where the big idea is the ability to pay over time from all sources.

Insolvency for Section 108 purposes is a snapshot, not a video.

The insolvency question is whether the asset can be realized on to pay, all by itself or in conjunction with all other assets, the amount of tax due all at once, immediately.

And here the pension cannot be turned into present cash. So Dave and Jan are off the hook for most of the COD, to the extent they were underwater.

Surely many of my readers, that small but mighty band, have been spending their leisure time agonizing over whether Elizabeth M. Jacobson can withdraw her petition from the NOD that scuttled her whistleblowing claim.

For any among you who had gotten a life instead, see my blogpost “A Blown Dismissal,” 11/29/16.

You now remember that Judge Lauber analogized whistleblowing to CDP-ing, and thought that since Wagner permitted lienees or levitated ones to withdraw their petitions, as there was no Section 7459 automatic decision for IRS except in a deficiency case, whistleblowers could do likewise.

But he wasn’t sure.

So, after having checked around with the Glasshouse Gang at 400 Second Street, NW, we get a unanimous full-dress T. C., namely and to wit, Elizabeth M. Jacobson, 148 T. C. 4, filed 2/8/17.

At Judge Lauber’s request, IRS filed a full response to Elizabeth’s motion. IRS had simply theretofore stated they didn’t object.

Surprise, surprise, IRS’ counsel finds the Wagner analogy apposite. And Judge Lauber does too.

“In the absence of any statutory requirement that we enter a decision consistent with an antecedent notice of deficiency, we looked to rule 41(a)(2) of the Federal Rules of Civil Procedure (Civil Rules), which permits dismissal in the sound discretion of the court.  The case law under Civil Rule 41(a)(2) indicated that a court should grant dismissal ‘unless the defendant will suffer clear legal prejudice.’  Wagner, 118 T.C. at 333 (quoting McCants v. Ford Motor Co., 781 F.2d 855, 856-857 (11th Cir. 1986)).” 148 T. C. 4, at p. 4.

So after all this wind-up, here comes the baseball.

“Section 7459(d), requiring entry of a decision in deficiency cases, likewise does not apply here.  Section 7623(b)(4), which grants this Court exclusive jurisdiction to review IRS determinations regarding whistleblower awards, provides that any appeal must be filed ‘within 30 days of such determination.’  Because the Office’s final determination on her claim was made 19 months ago, petitioner has no right to file another petition in our Court for review of that determination or ‘to file an appeal in the United States District Court or anywhere else.’  Dismissal of the instant case will thus leave binding on petitioner the IRS’…determination to deny her claim for an award.  ‘[I]n the exercise of the Court’s discretion, and after weighing the relevant equities including the lack of a clear legal prejudice to respondent,’ we will accordingly grant petitioner’s motion to dismiss.  Wagner, 118 T.C. at 334. “ 148 T. C. 4, at pp. 5-6.

No, not the feeling in Atlanta on Sunday night. This is the sad tale of patient Grisel A. Smyth, 2017 T. C. Memo. 29, filed 2/7/17.

Before getting to the upright and decent behavior of Grisel, and the scoundrelly behavior of her deadbeat drug-pushing son, I wish to quote Judge Holmes’ praise of Grisel’s pro bono calendar-call attorney, Ira A. Lipstet, Esq., of Austin, TX. “The Court notes that petitioner’s counsel volunteered to help generally at calendar call. He was moved by Ms. Smyth’s testimony and entered an appearance for her after trial. We are very grateful for his exceptional pro bono work on her case.” 2017 T. C. Memo. 29, at p. 1, footnote 1.

Grisel is a certified nursing assistant, working long hours for not a lot of money. She provided therewith a home for her two very young grandchildren and her stay-at-home daughter-in-law, who looked after them.

Grisel claimed the usual child credit and dependency for the infants, as she provided all their support and they lived with her the whole year.

Son (unnamed) doesn’t work and spent his time trafficking drugs. He told Grisel he wouldn’t claim the tax benefits, but of course he did, grabbed the refund and refundable credit, and spent it on dope.

I am reminded of Rudy Kipling’s story of an India long ago, where the hero handed the victim of an equally despicable fraud a horsewhip, and left the scene.

Son offers IRS’ counsel an amended return disclaiming the credit two weeks before trial. That doesn’t fly, of course, because it wasn’t filed with the proper service center, says Judge Holmes, but the real reason is that son already spent the refund. Judge Holmes doesn’t have to go there.

I would suggest to any such deadbeats who try this that it won’t work unless they fork over what they stole.

But in the end, the grandkids are the qualifying children of daughter-in-law and scoundrel, so Grisel gets nothing. IRS remits the substantial understatement penalty, but Grisel owes the money.

Judge Holmes: “We are sympathetic to Smyth’s position. She provided all of the financial support for J.H.K.S. and J.H.Y.S., had been told by her son that she should claim the children as her dependents, and is now stuck with a hefty tax bill. It is difficult for us to explain to a hardworking taxpayer like Smyth why this should be so, except to say that we are bound by the law. And it is impossible for us to convince ourselves that the result we reach today–that the IRS was right to send money meant to help those who care for small children to someone who spent it on drugs instead–is in any way just. Except for the theory of justice that requires a judge to follow the law as it is but explain his decision in writing so that those responsible for changing it might notice.” 2017 T. C. Memo. 29, at pp. 13-14.

I’m sure you all recollect the late Travis L. Sanders, who starred in my blogpost “He Married a Virgin,” 1/29/15. Well, Virgin (Islander) or not, the late Trav’s spouse does not avail him, as his estate is back in Tax Court for some findings of fact about when and how Trav obtained and maintained his Virginity and his business connections with Our Insolvent Islands in the Sun.

Eleventh Circuit said Tax Court was too hasty in agreeing to Trav’s bona fides as a Virgin (Islander) and his business connections. Here’s the story: Estate of Sanders, No. 15-12582, decided 8/24/16.

So Judge Kerrigan has the whole shootin’ match back in her courtroom, and asks the parties to write out their views. Estate of Travis L. Sanders, Deceased, Thomas S. Hogan, Jr., Personal Representative, Docket No. 4614-11, filed 2/7/17.

It’s often been a happy occasion for me to felicitate that Obliging Jurist, Judge David Gustafson, for his courteous and obliging treatment of litigants.

And today he has a practice hint for Costello Accountancy Corporation, et al., Docket No. 14544-15, filed 2/7/17, that the rest of us might find of use even when before a judge less obliging than he (if such there be on the Tax Court bench, which I by no means assert; I love everybody).

Costello and the et als were on for what was booked as a two-day trial, date and time certain, when IRS’ counsel suffered a medical emergency.

Clearly, this threw a big spanner in the cliché, making the Costellos, their attorneys, and their witnesses less than thrilled. So now they want date and time certain again, to make sure all the dogs and ponies are dress-right-dress for The Big Show, which is now on in the City by the Bay.

Judge Gustafson is his usual understanding self.

“We certainly approve of petitioners’ undertaking to make their arrangements for the trial in advance; we endorse their intention to economize on the cost of securing the attendance of witnesses; and we sympathize if they feel any frustration about, or suffered any expense in connection with, the prior continuance of the cases.” Order, at p. 1.

But Judge Gustafson won’t tie up his calendar with a definite maybe.

“However, it is the practice of the undersigned judge not to grant a time and date certain until the parties have completed the stipulation of facts required by Rule 91(a). The stipulation process often narrows issues in a case, sometimes reduces the estimated time of trial by eliminating the need for one or more witnesses, and not infrequently yields a settlement of an entire case. Until that stipulation process has been completed, the parties have not exhausted the reasonable prospects of simplifying or settling the case. If in these cases the Court were now to grant the time and date certain (and thus were to commit Tuesday and Wednesday of the five-day calendar to this case), then the Court would obviously not schedule other cases for those two days but would limit them to the remaining days; and if these cases then settled at the last minute, those two of the five days of the calendar would likely be wasted, at a probable cost of inconvenience to parties in other cases and at a likely cost to the Court in unnecessary lodging expenses of the judge and trial clerk.” Order, at pp. 1-2.

I don’t doubt Judge Gustafson, eager to save the fisc a few bucks, doesn’t put up at the Kimpton Sir Francis Drake (a/k/a The Klipton), the Axiom, or even my old favorite the Stanford Court. Probably he has said trial clerk use hotels.com or expedia.com, and shoot for The Deal of the Day. Or maybe he has the new Motel 6 My6 app.

Howbeit, let the parties stip away their cares and woes (even maybe to the extent of stipulating to what witnesses will say); let IRS’ counsel, who caused this fracas even if involuntarily, be super-obliging (even as Judge Gustafson is obliging); let the expert witness do the Rule 143 pas seul; and maybe if Costellos’ witnesses are extremely douce, subpoena them for opening day and have them on call for the date and time certain, if granted.

And Costellos’ counsel can always move again for date and time certain, even though this motion gets tossed.

Takeaway- A good checklist for a perfect world, and even for an imperfect one.

My colleague, Mr Peter Reilly, CPA, wondered up to what mischief Tax Court, unwatched, would get while I was sunning myself in tropical climes. Today’s ration of opinions and designated hitters shows little mischief, but two of last Thursday’s full-dress T. C.s deal with a couple protester threads (hi, Judge Holmes) that bear watching.

First up, Stanley Battat and Zmira Battat, 148 T. C. 2, filed 2/2/17.

Stan and Zmira want to toss all the Tax Court judges. They’re all conflicted out, because Section 7443(f), which permits the President to toss them, is an unconstitutional power grab that subjects the judiciary to the same executive will that enforces the IRC, thus violating separation of powers.

That doesn’t fly.

“The Rule of Necessity has been expressed through a maxim of law that where all are disqualified, none are disqualified. We conclude that under the Rule of Necessity we may properly act on petitioners’ motion. There is indeed a necessity that we do so. Every case before us involves the issue that petitioners here present, and either we must suspend our activity in every case (thereby effectively granting petitioners’ motion), or we must go about our business (thereby effectively denying it). We cannot avoid the question by the recusal of one Judge in the instant case.” 148 T. C. 2, at p. 33 (citation omitted).

And Tax Court is a court, not an executive agency, so the President’s removal power is no greater than in all Article I courts. Tax Court does not exercise the judicial power of the USA in respect of private rights (nongovernmental), only public ones (taxes), so it isn’t an Article III court.

I’ll spare you Judge Colvin’s law review article, wherein he quotes his own case.

“Tax Court Judges have immunity from liability for damages for acts committed within their judicial jurisdiction to the same extent as Article III judges and State court judges instead of the more narrow form of immunity provided for executive branch officials. Chisum v. Colvin, 276 F. Supp. 2d 1, 3 (D.D.C. 2003)….” 148 T. C. 2, at p. 27.

Jimmy Chisum claimed Judge Colvin was a racketeer when he nailed one of Jimmy’s dodger clients, thus putting Jimmy out of business.

Douglas M. Thompson and Lisa Mae Thompson, 148 T. C. 3, filed 2/2/17, also play the conflicted-out recusal card, and it fails as aforesaid.

But Doug and Lisa Mae have another card to play. They claim the 30% Section 6662A(c) and old Section 6664(d)(2) (now (d)(3)) undisclosed dodge chops are excessive fines and penalties, prohibited by the Eighth Amendment.

If this sounds familiar, Doug and Lisa Mae were fighting a DADS case, apparently one of Mr. Rogers’ well-blogged maneuvers. See my blogpost “I Owe Too Much Money – Part Deux,” 1/6/17, wherein the ol’ dodgemeister hisself tried this one on.

And it tanks for the same reason.

The punishment (or deterrent) must fit the offense. Tax shelters are a notorious evil, diminishing respect for the self-assessment system, which underlies our entire income tax structure.

“In many cases, tax shelters represent transactions generating tax losses without corresponding economic losses to investors. These tax losses can be carried back or forward to shield income from taxation over several years. Ironically, the facts of this case illustrate this concept very well. Petitioners entered into a listed transaction in 2005 and attempted to partially offset their income with fictitious losses over a span of five years, from 2003 to 2007. As a result, the potential harm to the fisc was spread over several years. Calculation of the section 6662A penalty is designed to quantify this harm by taking into account the full tax benefit a taxpayer may have obtained as a result of engaging in a listed or reportable transaction.” 148 T. C. 3, at pp. 13-14.

And required disclosure, with a substantial chop for those trying an under-the-radar flight plan, deters.

Dodgers, please copy.

No, Not British Army Taps

Don’t panic, faithful readers, I ain’t done yet. Just letting all y’all know I’m taking off for a couple weeks (bye bye, Judge Holmes) to paddle through that magnificent feat of the US Army Engineers (of which august body I am an humble alumnus), the Panama Canal.

I expect to be back and blogging around February 6.

No, not the engraftment of words by Jerry Livingston and Paul Francis Webster onto an old English folk tune. This is a designated hitter from the wordprocessor of Judge James S. (“Big Jim”) Halpern, retailing the plight of James L. (“Poor Jim”) McCarthy, Docket 21940-15L, filed 1/18/17.

Poor Jim was nailed for criminal restitution to the extent of about $1.2 million in USDC, and an order entered. Pursuant to the terms of said order, Poor Jim has to repay the whole thing in installments… of $1000 per month. While I am no Dr. Stephen Hawking, my mathematical skills tell me it will take poor Jim about 100 years to pay off the $1.2 mil.

IRS claims Poor Jim has assets held in trust, so bounces a proposed OIC and a proposed IA.

“As part of his CDP hearing, petitioner proposed an offer-in-compromise (OIC) under which he would pay $2,500 per month for 96 months in addition to the $1,000 monthly payments he was already required to make in satisfaction of his restitution obligation. Respondent’s Appeals office rejected petitioner’s OIC on the ground that it did not provide for full payment of petitioner’s court-ordered restitution within the 24-month period that respondent allows for periodic payment OICs. After the rejection of his OIC, petitioner proposed as a collection alternative an installment agreement under which he would make monthly payments of $3,000. Respondent’s Appeals office rejected that proposal as well, on the ground that it did not account for assets that, respondent alleges, are held by a trust as nominee for petitioner.” Order, at p. 2.

Both IRS and Poor Jim want partial summary J on abuse of discretion as regards the OIC.

Judge Big Jim has two problems wit’ that, as we say on my Lesser Outlying US Island. The lesser is the assets-in-trust, which is a question of fact.

The greater is whether it is an abuse of discretion when, having discretion, one can never exercise it. See my blogpost “Who Would These Burdens Bear,” 12/6/15, specifically the second part dealing with Quality Software Systems, discussed by Judge Big Jim.

“As we understand respondent’s position, no OIC that petitioner could have made would have been acceptable under the Internal Revenue Manual guidelines on which respondent relies. Petitioner could not have fully satisfied his restitution obligation within 24 months without substantially modifying the terms of the District Court’s restitution order. It thus seems that, under respondent’s position, no taxpayer who is obligated to pay tax-related criminal restitution over a period of more than 24 months can submit an acceptable offer to comprise that taxpayer’s non-restitution liability for the tax periods to which the restitution relates. We question how a policy allowing for the exercise of discretion that, as a practical matter, will never be exercised, regardless of the surrounding circumstances, can be other than arbitrary.” Order, at p. 2.

But neither IRS nor Poor Jim had read either Judge Big Jim’s explication of the conundrum aforesaid in the Quality Software case, nor my sermonette thereon. So they didn’t brief the issue.

Wherefore no summary J on that point.

And the fact question about assets-in-trust may moot the whole thing.

No, not Mary McCarthy’s 1963 succès de scandale. This is the prosaic story of Stephen P. Hardy and Angela M. Hardy, 2017 T.C. Memo. 16, filed 1/17/17, told by Judge Buch.

Steve (that’s Doc Steve) is a plastic surgeon who needs a quiet place to operate, so he buys a 12% interest an LLC that operates a facility wherein Doc Steve can surge when he needs to and can’t get time and space from a local hospital. Doc Steve also surges in his own office, which is off-campus from the facility. Doc Steve has a separate PLLC, which Angie runs, for his surgical practice.

Doc Steve has no say-so over hire-fire or operations of facility LLC.

Originally Doc Steve reported his earnings from both his practice PLLC and the facility LLC as active, because his trusty CPA with 40+ years of experience, believed the K-1, and Doc Steve paid SE.

But after quizzing Doc Steve, trusty CPA reports the next year as PLLC active, facility LLC passive, and deducts passive losses, including a passive loss carryforward from the years Doc Steve reported everything as active.

That last he can’t do, because had he reported those previous years as passive, the losses he would now carry forward would have absorbed his taxable income from that source. And it’s too late for equitable recoupment, because Doc Steve only raised it post-trial.

Steve does get credit for the SE he paid, because he was only a passive investor in the LLC.

IRS claimed Doc Steve grouped both PLLC and LLC, and therefore it’s all active. Except trusty accountant claimed he never grouped, and IRS needs an inference to dispel this, which they don’t get.

IRS says it can regroup, where grouping or non grouping does not reflect an reasonable economic situation or to correct a grouping or nongrouping is a tax dodge.

But nongrouping is reasonable here.

“While some facts support treating Dr. Hardy’s ownership interest in [LLC] and his medical practice as a single economic unit, the weight of the evidence supports treating them as separate economic units. Dr. Hardy is the sole owner of his medical practice and only a minority owner of [LLC]. Although he actively manages his medical practice, Dr. Hardy does not have any management responsibilities in [LLC]. His medical practice and [LLC] do not share any building space, employees, billing functions, or accounting services. Dr. Hardy performs services different from [LLC]’s: Dr. Hardy is a surgeon providing care, and [LLC] is a surgical center providing space and associated services. Dr. Hardy is limited in the care he can provide at his office. His office is equipped for procedures requiring local anesthesia whereas [LLC] is equipped for procedures requiring local or general anesthesia. When patients decide to have procedures performed at [LLC], they separately pay a surgical fee to Dr. Hardy and a facility fee to [LLC]. [LLC] then distributes earnings from those facility fees, but the distribution is unrelated to whether Dr. Hardy performs surgeries at [LLC]. In contrast, Dr. Hardy will receive income from his medical practice only if he performs procedures. Thus, the income Dr. Hardy receives from [LLC] is not linked to his medical practice. Accordingly, Dr. Hardy’s ownership interest in [LLC] and his medical practice may be treated as separate economic units.

“Additionally, the Hardys did not have a principal purpose of circumventing the underlying purposes of section 469 when they treated the activities as separate.” 2017 T. C. Memo. 17, at pp. 23-24. (Footnote omitted).

Doc Steve wins. His two deals aren’t a group.