But Not Here

Ex-Ch J Michael B (“Iron Mike”) Thornton welcomes us back from the three-day end-of-summer layoff with Elliot Herskowitz, Docket No. 21233-15L, filed 9/6/16. And no, he didn’t designate it. Apparently ex-Ch J Iron Mike feels I should work harder.

IRS liened on Elliot for some back taxes. Elliot told Appeals “…he has a ‘history of making excessive estimated payments, the liability…should be reversed, or, at a minimum, the interest and penalties should be reversed.’” Order, at p. 1.

He had a phone-a-thon CDP, and the liens got sustained.

Then IRS grabbed the “excessive payment” Elliot made for a subsequent tax year, applied it to the liabilities that gave rise to the NFTLs plus penalties, and gave Elliot a NOD.

The NOD said, “nothing due, no further action.”

Elliot petitions. “The sole assignment of error in the petition was: ‘Due to exigent circumstances the penalties and interest should be waived.’” Order, at p. 2.

Of course waiving interest is a nonstarter.

IRS answers: “(1) this case is moot because there remains no unpaid Federal income tax liabilities for the years at issue and the liens underlying the NFTLs have been released; and (2) the Court lacks jurisdiction to determine an overpayment or to order a refund or credit of taxes.” Order, at p. 2.

Elliot comes to the point. IRS consented to jurisdiction when they issued the NOD, which says I should go to Tax Court timely, which I did. Oh, and check out my prior liabilities and the penalties.

Ex-Ch J Iron Mike: “The Tax Court is a court of limited jurisdiction; we may exercise jurisdiction only to the extent expressly provided by statute, see, e.g., Henry Randolph Consulting v. Commissioner, 112 T.C. 1, 4 (1999), and the parties’ consent does not confer on this Court’s [sic] jurisdiction not otherwise so provided. High Adventure Ministries, Inc. v. Commissioner, 80 T.C. 292, 297 (1983).” Order, at p 2.

Judge, didn’t you mean “the parties’ consent does not confer on this Court jurisdiction not otherwise so provided”?

Howbeit, from a CDP all Tax Court can do is sustain or deny the lien or levy. If there is neither lien nor levy, game over at 400 Second Street, NW. And all of IRS’ piety and wit don’t mean a thing.

“Whatever other advice or instructions respondent might have given petitioner does not make it otherwise. If petitioner seeks a refund or overpayment credit, then any legal remedy would lie in the United States District Court or the United States Court of Federal Claims rather than in this Court.” Order, at p. 3.

And the offset per Section 6402 is not a levy per Section 6330. See my blogpost “An Offset Isn’t a Levy,” 2/21/12.

When IRS tries this Scriptural gambit, it doesn’t fly with The Great Dissenter, a/k/a The Judge Who Writes Like a Human Being, s/a/k/a The Incomparable, Incontrovertible, Irrefragable, Indomitable, Ineluctable, Ineffable, Illustrious and Indefatigable Foe of the Partitive Genitive, and Old China Hand, Judge Mark V. Holmes, in his second designated hitter of the day, Michael V. Shannon & Hope W. Shannon, Docket No. 16441-12, filed 9/2/16.

I’m ready for a dark rum and cola with a big chunk of lime just about now, but Judge Holmes has “a couple pretrial motions pending”, Order, p. 1 [sic], before sending IRS and Mike & Hope off to try their troubles in Birmingham.

Mike’s & Hope’s trusty lawyer, whom I’ll call Chris, hits IRS with some discovery demands, which Judge Holmes doesn’t even itemize as he grants them.

Then Chris throws a couple requests (hi, Judge Holmes) for admissions (RFAs) at IRS, which here in NY State we call notices to admit, and I love them. Very useful tool, cheap and easy.

IRS ripostes with the title of this blogpost.

“For RFAs 1, 6, and 7 respondent objected on the basis that the burden of proof is on petitioners. The Court agrees with petitioners that this is not a good ground for objection. These RFAs seek to show that respondent doesn’t know of facts to justify its litigating position on the issues described. Petitioners are not, by seeking this information, trying to shift the burden of proof; they are trying to find out if respondent has relevant information. We’ve said for forty years that this sort of simplification of pretrial preparation is one of the aims of the request-for-admissions tool. See Estate of Allensworth, 66 T.C. 33, 39 (1976).” Order, at p. 1.

But IRS may have a save. “In his answers to RFAs 9 and 10 respondent made the same objection but coupled it with a cross-reference to earlier denials that were sufficient. The Court will overrule the objection and require a better response to these, but recognizes that a denial-with-cross-reference might well suffice.” Order, at p. 2.

Chris wasn’t wrong to try those RFAs. The previous answers might not fly, when explicated.

Next, maybe Chris and Judge Holmes both read my blogpost “Stipulated but Irrelevant,” 8/30/16.

“Respondent also objected to RFA 11 on the additional ground that it concerned how respondent made a determination that was reflected in the notice of deficiency. This is generally a good objection…, but it is an objection as to relevance. Our Rule 90(c) is clear that such an objection should be noted but ‘is not to be regarded as just cause for refusal to admit or deny.’” Order, at p. 2.

It’s the old “past isn’t even prologue, never look behind the SNOD” defense, but that’s only relevance, not fact.

Chris gets a Taishoff “Good Job, First Class.”

The highly exalted source from which the title is taken once again proves how apposite that source can be.

This time the story proving the point is told by The Great Dissenter, a/k/a The Judge Who Writes Like a Human Being, s/a/k/a The Incomparable, Incontrovertible, Irrefragable, Indomitable, Ineluctable, Ineffable, Illustrious and Indefatigable Foe of the Partitive Genitive, and Old China Hand, Judge Mark V. Holmes.

Sir W. S. Gilbert to the contrary notwithstanding,  the Merriman is the maid, Merriman R. Mathewson, Docket No. 12087-10, filed 9/2/16.

As the old wedding ceremony had it, Merri’s husband endowed Merri with his worldly goods, but they included a pre-marital thwacking great deficiency from a listed transaction that he carried over onto their MFJ return, plus, at no extra charge, a 40% valuation chop.

Merri wants innocent spousery, but her problem is what she knew.

She tries the Lennon-McCartney 1966 gambit: “I said, even though you know what you know, I know that I’m ready to leave.”

That doesn’t get it with Judge Holmes. “Mathewson argues that whether she knew or had reason to know of her husband’s understatement is irrelevant because the loss carryforward was attributable to the …tax year, before they were married. We can assume that’s true — but the standard in section 6015(b) is whether the spouse requesting relief knew or had reason to know of an understatement of tax. I.R.C. § 6015(b)(1)(C).” Order, at p. 2 (Footnote omitted, but it says it doesn’t matter that Merri didn’t know about the chop; all she needed to know was the understatement of tax.)

Now generally (I love that word), innocent spousery is a question of facts and factors, with much marching and counter-marching around the Section 6015 prickly pear.

But Merri lets the feline poke its wee nose out of the cliché, and that’s the point of this blogpost (and I can hear my readers say, “There is one?”).

“Mathewson has not provided any facts necessary for a determination of her knowledge. Indeed, she concedes that she ‘might not be able to establish that she had no reason to know that Respondent might not assert a deficiency in tax . . . against [her husband]… based on the carryforward … of unused capital loss of[his] from his participation in… the…Tax Shelter.’” Order, at p. 2.

Tell it not in Gath.

See my blogpost “Take the Hint,” 11/25/15. I don’t know if Harjit Bhambra, Docket No. 1395-16L, filed 9/2/16, read it when it came out (or thereafter), but Judge James S. (“Big Jim”) Halpern echoes the words he spoke back then in this latest designated hitter.

IRS wants a remand, Harj objects, so Judge Big Jim runs a phone-a-thon.

He adjures Harj: “The Court pointed out to petitioner that, in general, the taxpayer bears the burden of proof, see Rule 142(a), Tax Court Rules of Practice and Procedure, and that he might benefit by a remand to clarify facts. We also pointed out that if defects in respondent’s determination procedures are proved at trial, the Court might at that time remand the case.” Order, at p. 1. (Emphasis by the Court).

Harj continues to object. So Judge Big Jim ships him and IRS off to trial, with a savings clause: “We believe that the case can proceed to trial without a remand.” Order, at p. 1.

So I’ll echo my words from last November:  “But when a Judge suggests you might think about a remand, do think, and think twice. You might reject the suggestion if you don’t want to give Appeals a second chance to sink your client. But you might take the hint if you think you have enough good stuff to win at Appeals.” Blogpost op. cit.

Bruce W. Peterson thought he was in good hands as a flogger of insurance and financial products for the aforesaid good-handers, until Allstate Insurance dropped him as an EE but engaged him as an IC. He took no part in the class action brought by the disgruntled ex-EEs, but he did take his Allstate pension payout and put it in a SEP-IRA.

He thereupon bought a single-payment annuity with the funds from said payout, which got properly placed in his SEP-IRA.

OK, you’ll say, so why are you blogging Bruce W. Peterson and Lisa A. Peterson, 2016 T. C. Sum. Op. 52, filed 9/1/16?

It’s not the variance between the 1099-R Bruce got when he cashed in the annuity and pocketed the proceeds and the letter he got from the issuer that stated a lesser amount, when Bruce put the greater amount on line 15a of his 1040 but left it out of line 15b. That set off bells for IRS, but not for me.

It’s about the Section 72 medical out.

Bruce claims he had heavy medical expenses. He drew down the entire annuity because, although the first medical bill was a lot less, he was told he might have further complications, as to which the trial record speaketh not.

Bruce trots out Publication 590, the IRA bible. Everyone agrees he was sick to the tune of a little less than 10% of what he took.

Judge Paris says Bruce got it wrong, and didn’t ask his accountant. Moreover, he got his authority from the wrong place.

“The flaw in petitioner’s argument is that the section on early distributions on which he relies concerns the 10% additional tax assessed on early distributions under section 72(t).  Petitioner was 60 years old when he received the [SEP-IRA] distribution; therefore, the additional tax under section 72(t) does not apply.

“Petitioner has confused an exception to the additional tax for an early distribution for unreimbursed medical expenses with the general rule that any distribution from an annuity contract will be includible in gross income.  The fact that petitioner used a portion of the distribution to pay medical expenses does not shield the distribution from taxation.” 2016 T. C. Memo. 52, at pp. 9-10. (Footnote omitted).

And he’s in for the full boat, because he paid for the annuity with pre-tax dollars from the good-handers, and put in no post-tax cash; therefore zero basis.

Finally, Bruce is in the accuracy-chop stakes. “Petitioner testified that he gave all of the pertinent documents to his accountant and that ‘it takes about 15 minutes to do his taxes’.  Petitioner did not review the return after his accountant prepared it and did not ask his accountant about the discrepancy between the amount on the Form 1099-R, which was attached to his return, and the amount in the [issuer’s] letter.  Taxpayers have a duty to review their tax returns before signing and filing them.” 2016 T. C. Sum. Op. 52, at p. 12.

Bruce also never asked his accountant about basis in his SEP-IRA annuity.

This doesn’t help Bruce. “Because of petitioner’s experience as a financial and retirement investment adviser, his failure to seek his accountant’s advice about his annuity contract and the cancellation of the contract and the distribution…, and his failure to review his…return, the Court finds that he failed to prove that he acted with reasonable cause and in good faith in his effort to assess his proper tax liability.  Therefore the Court will sustain respondent’s determination of an accuracy-related penalty for an underpayment due to a substantial understatement of income tax.” 2016 T. C. Sum. Op. 52, at p. 12-13.

It may take 15 minutes to do your taxes, but give it a few more minutes to review them once you’re done.

As background, see my blogpost “Slow Down, You Move Too Fast,” 9/24/13. The case of Tom Szekely, upon which I expatiated in the blogpost aforesaid, is the basis for Judge Buch bouncing IRS on summary J even when petitioner doesn’t respond to the motion.

The designated hitter is Yves Alexander Bergquist, Docket No. 20041-15L, filed 8/31/16.

But show up for trial, YA, the game isn’t over yet.

YA was trying for collection alternatives to an undisputed liability, but papers are going astray, there’s a mismatch in years under consideration, and the SO ignores the 4340 that says YA filed an extension when she claims that YA never filed.

And she gives YA three days to come up with an updated Form 433-A.

Even without YA on the field, it wasn’t going well for IRS.

“…Mr. Bergquist provided SO S a copy of the Form 4868 he filed for 2014. SO S rejected this document the same day Mr. Berquist submitted it and stated that ‘there was no valid extension to file’ in place. The question for SO S is not the quality of Mr. Berquist’s recordkeeping of his extension request or whether it is typewritten or handwritten. The question is whether there was an extension in place. SO S’s conclusion that no extension was in place is directly contradicted by the Commissioner’s own records.” Order, at p. 8. (Name omitted).

Judge Buch might have said “RYFF,” which means “Read Your File.” The “F” is for emphasis.

It gets worse for IRS.

“SO S made an initial request for an updated Form 433-A on June 16, 2015. Reviewing the evidence in a light most favorable to the nonmoving party, it wasn’t until ten days later, on June 26, 2015, that SO S explained the specific financial information she sought. She gave Mr. Bergquist only three days to submit it. Even if using the date of the initial request for an updated Form 433-A, SO S allowed only thirteen days to provide the financial information.” Order, at p. 8.

Judge Buch notes IRS’ manual. “The Commissioner’s own guidance instructs its employees to consider the circumstances of the taxpayer and the complexity and volume of information needed when setting deadlines to submit information. One such guideline states: ‘Allow at least 14 calendar days for a taxpayer to collect and provide information necessary for considering collection alternatives or issues of dispute.’ IRM pt. 8.22.5.8.1(2) (Nov. 8, 2013) (emphasis added).” Order, at p. 7.

So no summary J. Go to trial.

My takeaway- If Congress starves IRS of resources, it doesn’t hurt IRS. It hurts the taxpayers. This case should have been disposed of at Appeals.

The Great Dissenter, a/k/a The Judge Who Writes Like a Human Being, s/a/k/a The Incomparable, Incontrovertible, Illustrious, Irrefragable, Ineluctable, Ineffable, Indefatigable and Implacable Foe of the Partitive Genitive, and Old China Hand, Judge Mark V. Holmes, can choose between Dorothy L. Sayers and an even more exalted author for a title for today’s essay in Estate of Michael J. Jackson,  Deceased, John G. Branca, Co- Executor And John McClain, Co- Executor,  Docket No. 17152-13, filed 8/31/16.

This is the estate of that Michael Jackson, and this is the case anent which a certain self-styled maevin expatiated under the fetching title “Jackson Estate Says ‘Beat It, IRS.’” I suggested the maevin aforesaid spoke too soon; see my blogpost “Letter to the Editor,” 11/19/13.

Well, not only didn’t IRS “beat it,” as the maevin aforesaid so elegantly put it, but they’re trying to clamp down on the Jackson’s attempt at a full-court press.

A great fan of phone-a-thons, Judge Holmes gets ‘em on the blower.

“…the Court spoke with the parties on various questions of pretrial preparation. Respondent was concerned about the potential number of petitioner’s expert witnesses. His concerns about the contents of these reports can be dealt with through motions in limine, but after discussion we agreed to require petitioner to briefly summarize the subject matter each of its experts will testify about.” Order, at p. 1.

The old trick of lining up a bunch of people outside the courtroom to look like witnesses used to work in tort trials long ago, but doesn’t play today.

But IRS, too, is playing an old game.

“Petitioner was concerned that respondent has issued subpoenas duces tecum without notice. As this division of the Court has observed in the past, this is acceptable under an unintentional divergence between our Rules and the Federal Rules of Civil Procedure. As this division of the Court has also done in the past, it will exercise its discretion to eliminate this divergence and require both parties to notify the other of any such subpoenas.” Order, at p. 1.

Judge, why should playing fair be limited to “this division of the court”? Is everywhere else in Tax Court a free-fire zone? As you yourself pointed out in another context, this can be fixed by changing the Tax Court rule to comport with FRCP. There’s no reason why the rule should be different in Tax Court than in any other Federal Court.

I was going to title this blogpost with a pun from a much more exalted source than Tax Court, but “conscience doth make cowards of us all,” as a much better writer than I put it. So y’all will have to go without what Judge Posner of Seventh Circuit termed in another context “the loquacity of, and lame attempts of humor in,” this blogpost.

So, unembellished, here is Estate of Minnie Lynn Sower, Deceased, Frank W. Sower, Jr. and John R. Sower, Co-Executors, Docket No. 32361-15, filed 8/30/16, a designated hitter from Judge Buch.

Frankie and Johnny (you could write a song…enough already!) want a Rule 91(f) stip-in of a billet doux from an AO to their attorney.

IRS says it’s “’…merely the irrelevant legal opinions, conclusions, and analysis of the Appeals Officer’ and that ‘the content of such letter represents the items actually in dispute between the parties.’” Order, at p. 1.

Who cares what the AO thought or said?

Judge Buch agrees.  “Citing Greenberg’s Express v. Commissioner, 62 T.C. 324, 327 (1974), respondent correctly observes that ‘[t]he Court does not look behind the notice of deficiency’. ” Order, at p. 1.

The past ain’t even prologue. All that counts is the SNOD, the whole SNOD and nothing but the SNOD.

OK, but the time to toss the AO’s epistolary irrelevancies is not on a Rule 91(f).

Judge Buch: “All of this distills down to an argument about relevance.

“Relevance is not an appropriate objection to a stipulation. Rule 91 is explicit in this regard: ‘Where the truth or authenticity of facts or evidence claimed to be relevant by one party is not disputed, an objection on the ground of materiality or relevance may be noted by any other party but is not to be regarded as just cause for refusal to stipulate.’ So the proper course would be to admit to the paragraph and the document and reserve a relevance objection.” Order, at pp. 1-2.

A lot of things are real and true, but may have zero probative value as to matters in dispute. If it’s agreed to be real and true, and if one side says it’s relevant but the other says “no,” it goes in, but the objectant reserves all rights to challenge on relevance.

Tax Court is on the road in Atlanta, GA, and Sam Kilpatrick, 2016 T. C. Memo. 166, filed 8/29/16, wants to deduct as ordinary-and-necessary some antiques he claims he bought for his home office, wherein he practices as a CPA.

Even if they were for home office purposes only, Sam’s antique paintings, oak chair and desk, old school clock, Minton soup tureens and crystal chandelier weren’t deducted per Section 179 and weren’t depreciated.

“…Kilpatrick claimed on his returns that the full costs of the home-office furnishings should be deducted for the years in which he paid for them.  He did not elect on his returns to treat the costs of the furnishings under section 179, which permits a taxpayer to elect to deduct the cost of certain types of tangible property as an expense for the year in which the property is first used, up to specified dollar limits.  See sec. 179(b).  Nor did Kilpatrick claim depreciation deductions on the returns for the furnishings in any amounts.  Consistent with his return position, Kilpatrick’s brief contends he is entitled to a business-expense deduction for the full costs of the furnishings.  His brief does not assert entitlement to depreciation deductions.  The IRS contends that the costs of the furnishings are personal expenses and that even if they are not, they can be deducted only through depreciation.” 2016 T. C. Memo. 166, at p. 21 (Footnote omitted, but it says if you want Section 179 largesse, you have to claim it on your return; use it or lose it).

But even if Sam now wants depreciation for his Section 155 beancount, he’s out of luck.

“Prior versions of the Internal Revenue Code had been interpreted to preclude a depreciation deduction for an asset the value of which is not reduced by the passage of time or by use.  See, e.g., Hawkins v. Commissioner, 713 F.2d 347 (8th Cir. 1983), aff’g T.C. Memo. 1982-451. This interpretation appears to us to be equally valid under the provisions of the Internal Revenue Code in effect for the years at issue.  Thus, we put the furnishings in Kilpatrick’s home office to the test of whether they would be adversely affected by the passage of time or Kilpatrick’s use of them.” 2016 T. C. Memo. 166, at pp. 22-23. (Footnote omitted, but Judge Morrison quotes Bittker & Lokken that “…the property’s value will not be affected by the taxpayer’s use and is likely to equal or exceed the taxpayer’s original cost or basis.” 2016 T. C. Memo. 166, at p 23, footnote 8).

So for tax purposes antiques keep their value, notwithstanding Antiques Roadshow’s “Vintage” series that shows the often-substantial fluctuations in the prices of antiques with the passage of time.

And woe betide Sam if he polishes the desk or refinishes the chairs; how often have I seen Leigh and Leslie Keno and their PBS colleagues destroy the dreams of antique owners whose grandmother, or, even worse, they themselves, polished away three-quarters of the value of their 1760 Rhode Island highboy or 1905 Tiffany & Co. desk lamp?

No, this is not the old chicken-vs-egg puzzle. This is the case of Ramiro A. Garcia, Docket No. 17006-16, filed 8/29/16, although there are two docket no’s, and thereby hangs the cliché.

RAG got a SNOD, so he sends in an unsigned petition and pays the sixty bucks.

Ch J L. Paige (“Iron Fist”) Marvel pounces thereon, ordering RAG to sign a ratification of said petition.

RAG sends in a new petition, disputing the same SNOD as in the one he didn’t sign, minus the sixty bucks.

Oh yes, RAG is timely with both unsigned and signed. So there’s no gameplaying by IRS when they move to dismiss the second petition (whose docket no is hereinabove set forth, as my still-in-the-Hamptons colleagues would say), unlike the case of Barry Leonard Bulakites (see my blogpost “Another Taishoff ‘Oh Please,’” 9/24/14).

But Ch J Iron Fist doesn’t go for it.

“A review of the records in the cases at docket Nos. 16937-16S and 17006-16S discloses that those two cases are duplicative in that they involve the same… deficiency notice issued to petitioner…. Accordingly, we shall deny respondent’s Motion To Close on Ground of Duplication, filed at docket No. 17006-16S…. We, however, on our own motion, will close the case at docket No. 16937-16S on the ground it is duplicative of the case at docket No. 17006-16S.” Order, at p. 1.

Looks like the properly-signed petition comes first, before the filing fee, even though the filing fee came first. Unless there’s no properly-signed petition within the magic ninety days, in which case the filing fee is enough. See my blogpost “Show Me the Money,” 11/13/13.

Clear? Thought not.