It Won’t Play in Peoria

John E. Rogers, Docket No. 27208-15L, filed 1/6/17, has provided me lots of blogfodder. In this designated hitter from The Judge With a Heart, STJ Armen, Mr Rogers is battling IRS about a NFTL for chops galore arising out of his DADS deals.

For Mr Rogers’s history, see Order, at pp. 1-2, footnote 2. For a schedule of chops, see Order, at pp. 5-6.

IRS concedes Mr Rogers can’t pay the chops themselves, so he gets CNC.

But he wants the liens lifted. And he went to Appeals in Peoria, IL, from which he was tossed. So he petitions.

There’s also a stack of penalties pending in Chicago, Il. Mr Rogers fought those, tooth and nail.

In the meantime, the Peoria liens stand.

Mr Rogers tries to re-fight the chops in his petition, but he had a full chance to fight at Appeals in Chicago.

His Eighth Amendment arguments fail, as the precedents show that the chops are fractions of the tax owed, and are not excessive.

“In the instant case, petitioner essentially relies on section 6323(j)(1)(C), which provides that the Secretary may withdraw a NFTL if the Secretary determines that withdrawal will facilitate the collection of the tax liability. In that regard, petitioner argues that ‘[t]he lien precludes petitioner from engaging funding necessary to finance his businesses going forward and earning the money necessary to satisfy the lien, earn a living in his profession, and provide for his retirement and medical care.’ But this argument is not meaningfully different from those rejected by the Court…, nor does the argument acknowledge that withdrawal of the NFTL would compromise the lien priority interests of the United States vis-a-vis petitioner’s other creditors, both present and future. Further, petitioner’s argument ignores the fact that a lien, which is a security device that assures the United States of its priority over other possible creditors, does not deprive a taxpayer of property, unlike a levy.” Order, at p. 21. (Citations omitted).

But this Order and Decision affects only Peoria. As to Chicago Appeals, Mr Rogers can carry out his stated intention that “…he will proceed all the way to the U.S. Supreme Court if necessary.” Order, at p. 11.

I confidently expect more blogfodder.

While cases for years prior to those beginning last Sunday will continue with FPAAs, tax matterers, partner-level and partnership-level adjustments, computationals and deficiency reviewables, I hope that the new partnership regime will simplify the current silt-stirrings swirling around the Glasshouse at 400 Second Street, NW.

Here’s Hubert Oxford, III & Cynthia Oxford, Docket No. 16916-15, filed 1/5/17, from Judge Goeke.

You remember HO3 and Cynthia, of course. What, no? Well, check out my blogpost “Inside, Outside – Part Deux,” 6/21/16.

HO3 and Cynthia want to enjoin and restrain IRS from assessing and collecting, or make IRS disgorge if they did, and IRS wants to dismiss the petition and strike the penalty.

The partnership here involved had a FPAA, litigated at partnership level, and the adjustments and chops IRS laid upon HO3 & Cynthia all arise therefrom.

HO3 & Cynthia say it’s premature to hit them with a deficiency; IRS doesn’t fight the adjustment issues, but claims Tax Court has no jurisdiction over the chop.

Judge Goeke: “The following quotation from Thompson v. Commissioner, T.C. Memo. 2014-154, at *3, aptly describes the law as it applies to this case:

“‘Our final decision in the partnership-level proceeding applied the gross valuation misstatement penalty. The penalty may be directly assessed as a computational adjustment, notwithstanding any need for [*9] partner-level determinations. Petitioners may raise partner-level defenses, if any, only in a postpayment refund suit. See sec.6230(c)(1)(C); sec.301.6221-1(c), Proced. & Admin. Regs.

“‘Any question as to the validity of this analysis has been settled by United States v. Woods, 571 U.S.__,134 S.Ct. 557(2013).’” Order, at pp. 1-2.

So no restraining the chop, although the adjustment impact on HO3 & Cynthia are put off for another day.

But as I said in my blogpost above referred to, “I have a feeling that these face-offs will be going on long after TEFRA is an unpleasant memory, when we’ll be grousing about PATH partnership audits.”

We all know the Section 6651(a)(2) addition to tax for failure to pay tax shown on return, 0.5% per month to a maximum of 25%.

Well, IRS apparently never issued a SFR, or didn’t get it into the trial notebook, in Brian E. Harriss, 2016 T. C. Memo. 5, filed 1/5/17.

Brian filed a return for the year at issue here, but all it showed was zero. Brian had salary and wages and an IRA distribution, but all his petition showed was the usual protester stuff, ending in zero.

IRS wants the aforesaid addition to tax, but Judge Vasquez finds IRS has a problem.

“The section 6651(a)(2) addition to tax applies only when an amount of tax is shown on a return filed by the taxpayer or prepared by the Secretary. Sec. 6651(a)(2), (g)(2); Cabirac v. Commissioner, 120 T.C. 163, 170 (2003), aff’d without published opinion, 94 A.F.T.R. 2d (RIA) 2004-5490 (3d Cir. 2004). Pursuant to section 7491(c), respondent has the burden of production with respect to this addition to tax. See Higbee v. Commissioner, 116 T.C. at 446.

“Respondent has not carried his burden here. Petitioner’s…return, which respondent received and processed, shows a tax of zero. There is nothing in the record to indicate that a substitute for return (SFR) meeting the requirements of section 6020(b) was ever prepared…. We therefore hold that petitioner is not liable for the section 6651(a)(2) addition to tax.” 2016 T. C. Memo. 5, at pp. 11-12. (Footnote omitted, but read it; IRS introduced a “literal transcript” over Brian’s objection, but it neither showed an SFR or any compliance with Section 6020(b)(1)).

Takeaway– If Section 6651(a)(2) is in play, get a copy of the return and any SFR and keep it handy. That goes both for petitioners and IRS.

Judge Chiechi wants Mr. Elieff, the petitioner in Taishan Investments, LLC, Bruce Elieff, Partner Other Than The Tax Matters Partner, Docket No. 8404-13, filed 1/5/17, to pick up the words from the 1959 Sid Wayne and Sherman Edwards standard, and report to her as follows.

“…petitioner shall file a status report in which he (1) shall inform the Court how many hours and minutes as of the date of the status report ordered herein he has spent reviewing the proposed closing agreement since it was sent to him a second time on December 2, 2016, and (2) shall explain in detail what his review entailed.” Order, at p. 1.

Bruce has a week. The date of the ordered status report was 12/27/16. I hope he saved his timeslips.

Eighth Circuit Will Join Together

See my blogpost “Whom the Preparer Puts Asunder,” 1/13/14.

Well, Eighth Circuit did buy the much-contemned Glaze decision, and reversed Judge Nega.

See Isaak Abdi Ibrahim v. Com’r, No. 14-2070, 6/10/15.

So in Eighth Circuit country filing HOH is not filing a “separate return” for Section 6013(b)(1) purposes.

Looks like my correspondent Kathryn Sedo, Esq., gets a belated Taishoff “Well Done.”

But I will reiterate my statement from my two-year-old blogpost: “Of course, a single Court of Tax Appeals, having national jurisdiction over a national tax, would eliminate these mental gyrations.”

In my youth, the bargains were found in January, when the bedclothing sales began. I remember hearing about these minutes after the cries of “Happy New Year!”

Well, apparently Judge Morrison continues the tradition in Amnesty National, Docket No. 13961-15L, filed 1/4/17.

Amnesty National was fighting a SNOD for one year, and a NOD for that year and another.

“Through an affidavit and attached documents, the IRS demonstrated that the notice of deficiency had been sent to Amnesty National. The IRS alleged that Amnesty National did not deny receiving the notice of deficiency. In Amnesty National’s response to the motion for summary judgment, Amnesty National did not claim to have received the notice of deficiency. We conclude that Amnesty National received the notice of deficiency. See Rule121(d). It is therefore barred from contesting the amount of its income tax liability for 2008. Sec.6330(c)(2)(B); Treas. Reg. sec. 301.6330-1(e)(3) Q&A-E2.” Order, at p. 4.

I thought that if the SNOD was sent to last known address, receipt by addressee was irrelevant. So whatever Amnesty National claimed about receipt was irrelevant, right, Judge?

Amnesty National got an equivalent hearing as to NFTLs, so those are off the Tax Court radar.

But the CDP for the NITLs are on, except Amnesty National had no collection alternatives. One NITL involved worker classification, Amnesty National got a chance to contest liability, and put in no relevant evidence.

Amnesty National did engage in this litigation, and thereby hangs the cliché.

Of course IRS wants summary J.

“Amnesty National’s response to the motion for summary judgment consists of meritless claims. For example, it asserts that the actions of the IRS are void because IRS employees are not licensed by the State of New Jersey. Amnesty National also claims that the IRS’s motion for summary judgment should be denied because the IRS did not respond to a court paper Amnesty National filed in this case entitled ‘Notice of Motion’. But the Court did not order the IRS to respond to the ‘Notice of Motion’, which consists of legalistic gibberish. Summary judgment in favor of the IRS is merited.” Order, at p. 4.

IRS also wanted a Section 6673 frivolity chop.

Judge Morrison finds Amnesty National both interposed frivolous arguments and prolonged the proceedings to delay payment of taxes, but makes no mention of any previous delictions of that kind. The usual treatment in such case is the yellow card warning that other or further frivolities will lead to the Section 6673 sin bin.

Although Judge Morrison didn’t mention it, Amnesty National had been in Tax Court twelve (count ‘em, twelve) years ago about a dubious refund claim that generated 2004 T. C. Memo. 221, filed 9/29/04, where Judge Chiechi likewise found irrelevant and incomprehensible arguments.

Maybe that was why he didn’t show the yellow card, but handed out a chop.

$200. A bargain.

I’ve often blogged the famous Chenery rule. The administrative record controls; what the agency did, not what the agency might have done, controls.

And Judge Holmes loves Chenery.

But in Richard Conant Giller, Docket No. 16755-14L, filed 1/3/17,  he delves more deeply into the record rule.

IRS wants summary J. But there’s a problem here. There’s a dispute whether a return was filed for the year at issue.

“For his part, respondent did not explain in the notice of determination either that Mr. Giller made this argument or why he was rejecting it. The Chenery rule– that a reviewing court reviews an agency’s action only on the ground the agency itself offers…would ordinarily require that we not uphold the notice of determination for this reason alone. The administrative record, however, makes the Commissioner’s reasoning clear — the settlement officer who conducted the hearing checked IRS records and learned that according to them there was no evidence that Mr. Giller had ever filed a…tax return. If a reviewing court can discern the agency’s reasoning even if it is not completely clear in the agency’s decision, that is good enough to allow that reasoning to be the basis for review.” Order, at p. 1 (Citations omitted).

So IRS claims there’s no evidence RCG filed a return for the year at issue. But RCG claims he did, and proffers evidence never produced at his CDP.

“This proof doesn’t include an actual copy of that return but features instead only a certified-mail receipt that shows he mailed something to the IRS at the time the return was due (although, as he admits, to the wrong IRS address); and a copy of a ‘certificate of electronic filing’ from Intuit tax-preparation software (although without any proof of acceptance of the return by the IRS which, as the Intuit form states, would be proof that the IRS had accepted the return).” Order, at pp. 1-2.

If this case was tried de novo, no summary J.

But it isn’t. This is abuse of discretion. IRS didn’t have this evidence before it when Appeals issued the NOD. Contrary to RCG’s argument, the record was closed.

Anyway, “In the notes from the CDP hearing, the settlement officer noted her disbelief in Mr. Giller’s story — why would someone both e-file and mail something too? And why was there no indication in the IRS’s records of any challenge by Mr. Giller to the substitute for return that the IRS prepared under IRC § 6020(b).” Order, at p. 2.

Takeaway– Put in everything you’ve got at the very beginning.

The “small court” is the home of many technicalities, anfractuosities, circumscribed jurisdiction and characterizations and recharacterizations, that befuddle, bemuse and bewilder even the experienced professional litigator, much less the individual seeking justice for the sixty buck door charge.

Truly, we need a new version of the Twelfth Century “Guide for the Perplexed” for the Tax Court self-represented. The Tax Court website hardly scratches the cliché.

Sometimes the complexities found in the Glasshouse at 400 Second Street, NW, drive even the obvious from minds of the self-represented who enter there.

Thus the title of this little tale, and the case of Peter Wang, 15147-16L, filed 12/30/16, come together.

Ch J L Paige (“Iron Fist”) Marvel has PW’s petition from a NOD, and it bears a USPS 6/25/16 postmark. The NOD was mailed by certified mail on 5/25/16.

IRS moves to dismiss, claiming PW is a day late and a lot more than a dollar short. PW says “No.”

“In petitioner’s opposition, he stated: ‘ The Notice of Determination was dated May 25, 2016 and said that “..you must file a petition with the United States Tax Court within a 30-day period beginning the day after the date of this letter.” Consequently, the 30 day period started on May 26, 2016 and the deadline for filing the petition was June 25, 2016 * * *.” Petitioner correctly understood that the 30-day period started to run on May 26, 2016, but his conclusion that the last date to timely file the petition was June 25 was in error. Because May has 31 days, petitioner’s calculation should have yielded a deadline of June 24, not June 25, 2016. June 25, 2016, yields a result of 31 days, rather than 30 days.” Order, at p. 2.

PW is out.

The official march of the United States Merchant Marine Academy mirrors the career of John Michael Gillespie, Docket No. 729-09L, filed 12/30/16, as IRS signs off for CY 2016 with a designated hitter from The Great Dissenter, f/k/a The Implacable, Indomitable, Indefatigable, Ineluctable, Incomparable, Incontrovertible and Imperturbable Foe of the Partitive Genitive, Old China Hand and Master Silt-Stirrer, Judge Mark V. Holmes.

John Michael is a commercial fisherman. When IRS hit him with a NFTL, John Michael was on the briny deep, so he couldn’t show for the CDP. When he reached dry land he petitioned, and Tax Court remanded his case to Appeals.

John Michael wanted an old overpayment applied to his self-reported but unpaid balance for the year at issue. But the return for the year of the claimed overpayment was filed six (count ‘em, six) years late.

John Michael tries an OIC, but his house and boat have enough equity to pay the tab in full. And the SOL has run, of course, on the year for which he claims the overpayment.

The IRS did send John Michael a letter while John Michael still had a couple months (Happy New Year, Judge Holmes) to file and get the refund before the SOL ran out. The letter said it looked like he had an overpayment, but they couldn’t find his return, and please send it within two weeks. The letter didn’t mention the SOL, but John Michael didn’t file the return until years later.

Section 6511(b)(1) has wrought some tough results, but that’s the law.

Anyway, says Judge Holmes, “Gillespie seems to focus his attention on the fairness aspect by repeatedly noting he overpaid his 1998 taxes. We can’t deny an element of unfairness here -both parties agree the United States Treasury received a little over $7000 more than it was supposed to from Gillespie and he never got it back. But we don’t find such a level of unfairness to find the IRS acted clearly erroneously. See Wai v. Commissioner, 92 T.C.M. (CCH) 181, 2006 WL 2482901, at *6 (upholding the IRS’s refusal of the taxpayer’s offer in compromise, despite acknowledging that the application of the AMT rules to this particular taxpayer may have produced an inequitable result); Murphy v. Commissioner, 469 F.3d 27, 32 (1st Cir. 2006) (noting that the court won’t disturb the IRS’s decision unless the rejection ‘represents a clear abuse of discretion in the sense of clear taxpayer abuse and unfairness by the IRS’). Nevertheless, we needn’t decide if this fact would “’undermine public confidence that the tax laws are being administered in a fair and equitable manner.’ We don’t because even if the IRS could’ve accepted an offer for less than full amount, Gillespie’s offer was for far less than his liability less the lost credit. In other words, Gillespie’s lost refund can’t fully justify the difference between his offer and his true liability, especially when he doesn’t disagree with the IRS’s position that he has sufficient equity to pay it in full.” Order, at p. 5.

IRS wins it.

We have a tale of two Sub S Corps today, one from Judge Paris and one from Judge Kerrigan.

Judge Paris leads off with Ryan M. Fleischer, 2016 T. C. Memo. 238, filed 12/29/16. Ryan’s an investment seller, and he creates a sub S called FWP. Ryan “…was the sole shareholder and the president, secretary, and treasurer of FWP.” Ryan also entered into an employment agreement with FWP a couple weeks (Happy New Year, Judge Holmes) after he incorporated FWP.

But before getting thus employed, Ryan enters into a deal with a financial services company to act as IC salesman. Personally. And a couple of weeks after entering the employ of FWP, Ryan makes a deal with Mass Mutual. Again personally, no mention of FWP.

Ryan filed returns for FWP, showing earnings from the financial services outfit and Mass Mutual, gave himself a salary but paid no SE (although he did claim self-employed health insurance).

IRS says the deals were with Ryan, not FWP, and Ryan should have filed a Schedule C for the whole shebang. And he owes SE.

We all know income is taxable to the one who earned it. But with corporations and other such entities, it’s not so simple.

Judge Paris: “Because it is impractical to apply a simplistic ‘who earned the income’ test when the Court’s choices are a corporation and its service-provider employee, the question has evolved to one of ‘who controls the earning of the income.’  For a corporation, not its service-provider employee, to be the controller of the income, two elements must be found:  (1) the individual providing the services must be an employee of the corporation whom the corporation can direct and control in a meaningful sense…; and (2) ‘there must exist between the corporation and the person or entity using the services a contract or similar indicium recognizing the corporation’s controlling position’…. These elements can be found in the employment tax regulations.  Sec. 31.3121(d)-1(c)(2), Employment Tax Regs. (‘Accordingly, within Regulation § 31.3121(d)-1(c)(2), two necessary elements must be met before the corporation * * * may be considered the true controller of the service-provider.’),  Because both elements must be met before the corporation will be considered to control the service-provider employee and because the Court finds that there is no contract or other indicium that FWP exhibited control over petitioner, the Court will discuss only the second element.” 2016 T. C. Memo. 238, at p. 11. (Citations omitted).

As a well-known on-line chess commentator says “And we can stop here.”

But Ryan didn’t. He says FWP wasn’t licensed as he is (and he has a World Series of licenses), and it would cost millions for FWP to get them.

So what, says Judge Paris. Ryan’s deals were all made by him alone, with no mention of FWP. You still can’t assign income that you earned to someone or something that didn’t. And FWP being duly incorporated doesn’t change that FWP didn’t earn income.

Next is Judge Kerrigan, dealing with an alleged $1.88 million in TFRPs owed by Sam T. Jewell, 2016 T. C. Memo. 239, filed 12/2916.

Sam is another Sub S specialist, but this time all the properties and everything else is properly titled to his Sub Ss, scattered all over the OK landscape.

IRS hits Sam with a bunch of NFTLs. Sam wants a CDP, but his only claim is that IRS filed liens against him where he did not own property.

Now we all know the one-CDP-per-liability rule.

“Section 6320(b)(2) imposes a qualification on subsection (b)(1) by providing:  ‘A person shall be entitled to only one hearing under this section with respect to the taxable period to which the unpaid tax specified in subsection (a)(3)(A) relates.’” 2016 T. C. Memo. 239, at p. 9.

The first NFTL was filed in TX. Sam had notice, but didn’t file a 12153 on that, so he has no chance to contest liability on the rest.

But is there abuse of discretion in filing a bunch of liens?

IRS wants record rule: only the administrative record is subject to review. Judge Kerrigan blows that off.

Judge Kerrigan: “The Court has previously held that it is not required to apply a limited standard of review and may accept evidence outside the administrative record in CDP cases.  See Robinette v. Commissioner, 123 T.C. 85,101 (2004), rev’d, 439 F.3d 455 (8th Cir. 2006); see also Murphy v. Commissioner, 125 T.C. at 313.  The broad scope of review in Robinette is not controlling in the First, Eighth, and Ninth Circuits.  See Dalton v. Commissioner, 682 F.3d 149 (1st Cir. 2012), rev’g 135 T.C. 393 (2010); Keller v. Commissioner, 568 F.3d 710, 718 (9th Cir. 2009), aff’g in part as to this issue T.C. Memo. 2006 166; Robinette v. Commissioner, 439 F.3d 455.” 2016 T. C. Memo. 239, at p. 12. I cite the cases so you can put them in your next memo of law.

But Sam’s from OK, OK is in Tenth Circuit, Tenth Circuit hasn’t ruled, the 2015 change in Section 7482(b)(1)(G) came after Sam’s petition and plays no part here, so Judge Kerrigan lets it all hang in.

Once again, arbitrary lines on a map decide issues of national import.

But once it all goes in, it doesn’t matter.

“Pursuant to section 301.6320-1(b)(1) and (2), Proced. & Admin. Regs., petitioner is entitled to a hearing with respect to the first NFTL that is filed regarding the unpaid tax for a particular period.  Section 6320 does not address explicitly whether the right to an administrative hearing and judicial review is tied to the first filed NFTL.  Where a statute is ambiguous or silent, we look to the legislative history to determine congressional intent.” 2016 T. C. Memo. 239, at p. 15.

The Conf. Report says Appeals can consider only NFTL One. And TX beat the OK barrage by one hour, CST.

So what, says Sam, I didn’t own no property in TX neither.

Judge Paris isn’t impressed: “During the administrative proceeding, in response to the settlement officer’s questions as to what property petitioner owned and where it was, including questions as to possible ‘nominee property, alter ego property or any other co-mingled [sic] property’, petitioner responded that the settlement officer was raising a ‘new issue’.  Hence, petitioner relies solely upon his lack of record title to any property, real or personal, in Garvin County, because he owned property in that county through his wholly owned S corporation.

“Petitioner is the sole shareholder of numerous S corporations which operate nursing home facilities throughout Oklahoma, including the nursing home facility business which petitioner and his S corporation…operate in Garvin County.  We conclude that it was not an abuse of discretion for respondent to sustain the Garvin County NFTL.  That NFTL was filed to protect the Government’s interests because petitioner operates a nursing home facility in that county through his S corporation.” 2016 T. C. Memo. 239, at p. 18.

And Sam’s representative at the hearing dodged whether Sam’s S Corp was a nominee or alter ego, both of which OK State law recognizes.

Sam claims the NFTLs wound up in the local paper and devastated his finances, but has no proof.

One strike and you’re out, Sam.