Just the other day Genesis 2:24 featured in this my blog; see my blogpost “‘One Flesh,” Two Parties,” 3/18/25. And here it is again, Gina Jaha, T. C. Memo. 2025-26, filed 3/25/25, although the main event is hubby Bob Anderson’s trust-and-controlled-corporation cash siphon, which you can read for yourself.

Gina and Bob hadn’t filed for six (count ’em, six) years, of which five are at issue via SFRs. The SND resulting therefrom treated Bob and Gina as MFS. At Exam, their trusty CPA (more about him later) tendered the RA 1040 MFJs for three of said years at issue, but the RA never filed them with the Service Center.

Bob and Gina petition their MFS status, claiming they should be MFJ.

Judge Tamara W. Ashford: “Married taxpayers generally may elect to file a joint return for a taxable year although their right to do so may be limited after either spouse has filed a separate return. See §6013(a) and (b). After the filing of a separate return, a joint filing status election is generally prohibited if either spouse has timely filed a petition for redetermination of a deficiency. § 6013(b)(2)(B). Nevertheless, where, as here, the return electing separate filing status is an SFR filed by the IRS, the taxpayer may still elect joint filing status by filing a joint return with his or her spouse before the case is submitted for decision.” T. C. Memo. 2025-26, at p. 7.

Except.

“A return is deemed filed only if it has been submitted in the manner specified by regulation, or if it is at least eventually received by the appropriate person or office. Individual income tax returns generally must be filed with an assigned person in the taxpayer’s local IRS office or with a designated service center. Treas. Reg. § 1.6091-2(a)(1), (c), (d). Submitting a return to an IRS employee who has not been assigned to receive it, such as a revenue agent or respondent’s counsel, is generally insufficient.

“The record fails to establish that petitioners properly elected joint filing status. No party contends that petitioners filed their returns for the years at issue in the manner specified by regulation, that any of the IRS’s employees forwarded them to the appropriate person or office for filing, or that the IRS actually filed any of the returns.” T. C. Memo. 2025-26, at p. 8. (Citation omitted).

Bob’s and Gina’s trusty CPA may have been here before; see my blogpost “An Accurate Prediction,” 3/13/24.

Judge Nega assumes the mantle of Judge Robert (“TNP = Take No Prisoners”)* Goeke in Genie R. Jones, et al., T. C. Memo. 2025-25, filed 3/25/25. It’s another microcaptive insurance pool case, with the usual dodges (sketchy actuarial analysis, shoddily-drafted policies, nonexistent underwriting, circular flow of premium money, made-as-instructed premiums). Topping it off is an unsecured loan to principal of the insured, which doesn’t get paid back until years after due date and after principal has sold the insured but kept the microcaptive alive.

There’s fifty (count ’em, fifty) pages wherein Judge Nega massacres the captive; all the usual suspects are cited (Rent-A-Center, Syzygy, Keating, Avrahami, Caylor Land, Reserve Mech.). Even the headline first above set forth at the head hereof (as my expensive colleagues would say) gets used. T. C. Memo. 2025-25, at p. 31, footnote 18.

But it’s a footnote that takes this case out of the “much of a muchness” class. IRS wants nondisclosed want-of-economic-substance enhanced chop.

“The Court has yet to decide whether the transactions in a microcaptive case lacked economic substance within the meaning of section 7701(o)(1). Nor has the Court addressed whether a taxpayer ‘adequately disclosed’ a microcaptive transaction. In the recent microcaptive cases where these questions were unavoidable, the Court deferred ruling on the matter to request and duly consider additional briefing on the applicability of section 7701(o). See Patel v. Commissioner, T.C. Memo. 2024-34, at *3 n.5; see also Royalty Mgmt. Ins. Co. v. Commissioner, T.C. Memo. 2024-87, at *54. We will, therefore, address respondent’s penalty determinations in a separate opinion.” T. C. Memo. 2025-25, at p. 5, footnote 4 (carryover from p. 4).

I hope that gets a full-dress T. C. because the statutory reconstruction of the economic substance doctrine is a puzzlement.

* https://taishofflaw.com/2018/12/27/not-so-judge-robert-tnp-goeke/

Judge Ronald L. (“Ingenuity”) Buch holds in an off-the-bencher that William McGarvin, Docket No. 14615-22, filed 3/25/25, loses whether he is in default for nonappearance or on the merits.

But IRS doesn’t get decision in the amount of the SND because IRS can’t add.

“Mr. McGarvin’s failure to appear and failure to comply with the Court’s orders place him in default. The appropriate remedy is to enter a decision for the Commissioner. However, the Commissioner’s Notice of Deficiency contains a $418 error (treating a $209 capital loss as $209 of capital gain). Accordingly, a decision will be entered under Rule 155, so that the Commissioner may correct this error.” Transcript, at p. 12.

Same result on the merits.

That is, unless you sell books, magazines, or vinyl records; see Section 458. Louis F. Lentine & Kelli M. Lentine, Docket No. 12443-21, filed 3/25/25 sold “Night Stars, a contraption that projects patterns of light against a building (imagine a home decorated for Christmas at night with the projector out in front) that had been very popular during Christmas [previous to year at issue].” Order, at p. 4.

Unhappily, what Night Stars they sold in year at issue to a major retailer was sold on sale-or-return, that is, whatever the retailer couldn’t sell they could return for full credit. The item cratered in year at issue, Lou’s & Kelli’s Sub S had to book the huge sales price in year at issue, and the retailer demanded a huge discount on the bill or they’d send the unsolds back. The joust that followed over how big a discount went into the next year.

Judge Mark V. (“Vittorio Emanuele”) Holmes gives IRS summary J that Lou & Kelli must pay tax on the year at issue invoice price (“all events” test for accrued item), even though they won’t get a tithe thereof when the dust settles in the succeeding year. This notwithstanding that both retailer and Lou & Kelli had accounting software that showed exactly what the return hit would be.

“The key is that an adjustment to [Sub S]’s returns-and-allowances account would not accrue until the parties reached agreement on its size, and that there is no genuine dispute that the parties hadn’t reached agreement on that by the end of [year at issue].” Order, at p. 6. Somber reasoning and copious citation of precedent follows.

But Lou & Kelli stave off summary J on their yacht charter business. They trade up in year at issue and want bonus depreciation for that year. Though new yacht was delivered in mid-December, they didn’t sign a marketing agreement until January. Lou & Kelli did some work in late December and took the yacht out for a cruise that went OK.

IRS says yacht not placed in service before year’s-end. Judge Holmes says it’s a question of fact, after surveying a bunch regs and case law (it is, after all, Judge Holmes). Was the yacht in all respects ready for sea at end of year at issue?

“One can now see through the thinness of the Commissioner’s argument on this motion. It is certainly true that [Lou’s & Kelli’s pass-through LLC] did not use its new yacht in the chartering business until [next year]. But that’s not the right question. The right question is whether the yacht was in its ‘completed form’ for its ‘specifically assigned function.’ When [employee] emailed that ‘We are trying to get all our ducks in a row and get ready for charter’ was he referring to the nautical equivalent of having to rip out some of the interior to install a conference table and video screens, or something more like waiting for the boss to get home from vacation to negotiate and sign a contract?

“That is, at the very least, ambiguous.” Order, at p. 4.

Judge Holmes is a fine lawyer who can easily find an ambiguity.

Btw, the reference to conference tables and video screen is explained in my blogpost “Not Ready for Prime Time,” 3/12/13*, which case Judge Holmes cites.

* https://taishofflaw.com/2013/12/03/not-ready-for-prime-time/

Bear Creek LKB Holdings, LLC, Bear Creek Investors II, LLC, Tax Matters Partner, Docket No. 16378-21, filed 3/24/25, seeking to remove the Boss Hoss from Greenberg’s Express, encounter a most memorable phrase from a great phrasemaker.

The Bear Creeks want all communications, however preserved, between a couple RAs (hi, Judge Holmes) regarding the CPAF, and all thereof with OCC in connection with the CPAF.

Judge Christian N. (“Speedy”) Weiler rejects production of any IRS communications with OCC.

“In respondent’s response to these Requests, he objects since the Requests seek communications protected by attorney-client privilege or deliberative process. The Court agrees and finds respondent’s objection to Requests 2, 3, 4, and 5 to be well founded to the extent the Requests call for the disclosure of privileged communications. We do not see a need to create a privilege log of communication that occurred during the audit between IRS Counsel (and their client) since these communications are plainly covered by privilege. We will sustain respondent’s objections to the extent the Requests seek the disclosure of privileged communications.” Order, at p. 4.

So every communication with OCC, or wherein OCC takes part, is privileged. And that shield holds up even when IRS moves for summary J on Boss Hossery, because all that is required by law is a sign-off, however obtained and for whatever reason (or lack of reason).

Seems like only a couple of days ago taxpayers couldn’t tell their preparers what their lawyers told them without waiving privilege. See my blogpost “Holes in the Blanket,” 3/20/25.*

Was George Orwell right? Are some animals more equal than others?

* https://taishofflaw.com/2025/03/20/holes-in-the-blanket/

Back a couple weeks ago (hi, Judge Holmes) I sought help understanding why IRS was trying a third-party subpoena; see my blogpost “Help Me Understand This,” 3/3/25.* Turns out Judge Christian N. (“Speedy”) Weiler furnishes the answer in Rising Rock Partners, LLC, Robert Schill, LLC, Tax Matters Partner, et al., Docket No. 23614-21, filed 3/24/25.

Jerry Fitzgerald, unrelated to the Rising Rockers, tried to buy some property 18 (count ’em, 18) miles away from the property at issue from unrelated parties after the Rising Rockers had bought their property in order to mine granite aggregate. Jerry’s application to the land use authorities of Meriwether County was rejected.

IRS claims the Rising Rockers’ valuation of their SCE was based on getting mining OK, so they try to subpoena Jerry and get his paperwork.

“Recognizing that a nonconsensual deposition is an ‘extraordinary method of discovery’ that should be used in only the rarest of circumstances during a Tax Court proceeding, we do not believe respondent has met this burden. This Court has considered various factors in reaching our conclusion. Mr. Fitzgerald is not a party to these cases and has no connection to them other than the fact his LLC executed a purchase agreement for a different piece of property within the same county. Furthermore, Mr. Fitzgerald’s zoning requests and property negotiations occurred after the Rising Rock Transaction. Finally, Mr. Fitzgerald is not an expert on the subject matter and his testimony cannot be used to circumvent expert witness procedures. Therefore, the need to depose Mr. Fitzgerald does not rise to the level necessary to grant such extraordinary measures. For these reasons, we will deny the motion to compel deposition of Mr. Fitzgerald.” Order, at p. 3. (Citations omitted).

Jerry’s trusty attorney’s omnibus motion is denied without prejudice. There’s no subpoena in the record. IRS allegedly served Jerry an electronic deposition notice, but whether that’s any good is in dispute. Taishoff says even if it is good, Jerry doesn’t have to respond.

* https://taishofflaw.com/2025/03/03/help-me-understand-this/

No, not a newly-discovered Lamour-Hope-Crosby flick nor a new religious biopic. Rather, CSTJ Lewis (“Just Love That Name”) Carluzzo explicates a conversion from personal use to production of cincome (rental on the road to deductible depreciation.

Sherman Derell Smith, T. C. Memo. 2025-24, filed 5/24/25, was a mere five (count ’em, five) years late with his year at issue return. CSTJ Lew says “we suspect that if the return had been timely filed, then this case would not have materialized.” T. C. Memo. 2025-24, at p. 2. Sherman settled out everything with IRS pretrial, except depreciation on his brother’s house, in which Sherman bought a share. Sherman and Bro converted to rental, and Sherman claimed his share of depreciation.

For depreciation one heeds basis. “If, as in this case, property that was not originally held for the production of income is subsequently converted to such use, then the property’s basis for computing depreciation is the lesser of the fair market value or the adjusted basis on the date of such conversion. Treas. Reg. § 1.167(g)-1. Although we agree that petitioner did the best he could under the circumstances to estimate the rental property’s (1) fair market value and (2) adjusted basis at the time of conversion, the evidence he offered to establish those amounts for purposes of that comparison is lacking.” T. C. Memo. 2025-24, a p. 3.

Sherman used filing-year market numbers, not year at issue. Even if he got the FMV for year at issue right, he still can’t establish his basis at date of conversion. He took over Bro’s mortgage when he bought his share of the property, but though he honestly tried, he couldn’t reconstruct the numbers provably.

Had he filed timely, he might have made the cut.

Alder Properties, Inc., Docket No. 14805-23SL, filed 3/21/25, timely tried to e-file their 314 Forms 1099 for year at issue, but when stymied, snail-mailed them inside the due date. IRS hit the Alders with $25K for 250 ($100 each, per Section 6751(a)), and $150 each for the remaining 64. The cutoff for e-filing is over 250 forms.

The Alders went to Appeals, which abated the $25K, but kept in the $9600 ($100 each as aforesaid, and $50 each per Section 6723, the catch-all for reporting violations).

That’s enough for Judge Elizabeth A. (“Tex”) Copeland to deny review of underlying liability on “Inconsequential Errors or Omissions” grounds, or the Alders’ OIC for doubt as to liability. Even if no petition from Appeals pre-NOD, a conference is an opportunity to dispute.

“An opportunity to dispute the underlying liability includes a prior opportunity for a conference with Appeals that was offered either before or after assessment of the liability unless the opportunity was prior to the assessment of a tax subject to deficiency procedures. See Treas. Reg. § 301.6330-1(e)(3), Q&A-E2; see also Lewis v. Commissioner, 128 T.C. 48, 61–62 (2007).” Order, at p. 4.

But the double-dip saves the Alders from summary J.

“… at the hearing, Alder presented evidence that the penalty at issue comprises multiple penalties assessed for each of the 64 returns that should have been electronically filed. If accurate, such assessments would violate the mandates set forth in Treas. Reg. §301.6721-1 (which dictates that ‘[n]o more than one penalty will be imposed…with respect to a single information return even though there may be more than one failure with respect to such return.”). See also, Treas. Reg. § 301.6721-1(b)(5), Example 3, as it existed at the time of Alder’s paper return filing. On the record before the Court, we cannot determine that the assessment was properly made (it appears not to have been) and properly verified. We cannot conclude at this time that AO C verified that the penalty at issue was assessed in accordance applicable law. Thus, there remains a issue of material fact that would preclude summary judgment at this stage.” Order, at pp. 4-5. (Name omitted).

That’s Krishan K. Gossain & Kavita Gossain, Docket No. 21812-22, filed 3/21/25, making their fourth (count ’em, fourth) appearance on this my blog. From an off-the-bencher to a T. C. Memo., Krish & Kav are still in there pitching, despite an unbroken series of losses.

Now Judge Morrison, commendably patient, holds in abeyance Krish’s & Kav’s “Motion and Request for Permission to Answer to Respondent’s Responses to First Supplement to Objection for Case to be Reassigned to a New Judge and a Motion and Request for Permission to Answer to Respondent’s Responses to Objection to Motion to Reconsider Portions of its Memorandum Opinion.” Order, at p. 1.

For the memorandum decision story, see my blogpost “No Abate, No Debate – Part Deux,” 10/21/24.*

One thing about Tax Court self-representeds, they sure provide blogfodder.

* https://taishofflaw.com/2024/10/21/no-abate-no-debate-part-deux/

I’ve spent a lot of time and electrons (probably too much) on the Tax Court Bench’s variegated warnings of Section 6673 frivolity-and-delay chops. Uniformity is as far off as ever, even with maximum allowance for judicial discretion in administering their own courtrooms, personal or digital.

Here’s Todd O. Olson, Docket No. 28000-22L, filed 3/20/25. Todd got seven (count ’em, seven) Section 6702(a) frivolous return chops for five (count ’em, five) years, two of the seven returns being for 1040X amendeds that never made it into the administrative record. No summary J for IRS on those, but they get the rest.

Yes, reader with a long memory, Todd was here last June when Judge Travis A. (“Tag”) Greaves warned him about frivolity (Todd is an “all-zeros” return, wages aren’t income type). See my blogpost “Distant Early Warning,” 6/12/24.*

But Judge Cary Douglas Pugh gives Todd yet another bye. IRS is missing those 1040Xs, so back to Appeals on those, and maybe Todd was right to skip the February hearing on IRS’ summary J motion.

“Because remand is necessary here, we will not impose a section 6673 penalty at this time. We cannot foreclose the possibility that petitioner did not appear at our February 3, 2025, hearing because he had nothing that was not frivolous to add to his supplemented Response to Motion for Summary Judgment. We remind petitioner that we may impose the penalty if he persists in making frivolous arguments in any future filings in this case. And we also warn him that he risks default if he does not comply with this or other Orders we enter.” Order, at p. 6.

* https://taishofflaw.com/2024/06/12/distant-early-warning/