Operating Status–Washington, DC:

The United States Tax Court will be closed January 19 and 20, 2017.

eFiling and eAccess will be available. Taxpayers may comply with statutory deadlines for filing petitions or notices of appeal (both of which types of documents must be filed in paper) by timely mailing a petition or notice of appeal to the Court. Timeliness of mailing of the petition or notice of appeal is determined by the United States Postal Service’s postmark or the delivery certificate of a designated private delivery service.

George Bernard Shaw’s disparaging phrase doesn’t disparage me. I don’t write poetry. What I do is discuss the doings of the “small court,” the sixty-buck ticket-to-justice, the play-before-you-pay arena where all the world goes up, each from their own village, when they’ve been taxed and don’t like it.

I don’t write lengthy exegeses. I wasn’t on law review, so I can’t measure success by how much the number of footnotes exceeds the number of words in any piece of mine.

I’m strictly a Habakkuk 2:2 kind of guy.

Every so often someone reads this my blog.

Sometimes they like it. At even rarer whiles they may pass me a brief compliment. Even more rarely, they heave a metaphorical brick at my cyberwindow.

I’m told my pieces are even read within the sacred precincts of Tax Court itself…sometimes.

So you’ll excuse a very small cough when I get this e-mail from Twitter.

See my blogpost “Amen, Judge Posner,” 12/22/16.

Linda Lingo slides under the IRS tag in a designated hitter, with The Great Dissenter, a/k/a The Judge Who Writes Like a Human Being, s/a/k/a Reformed Foe of the Partitive Genitive, Old China Hand and Master Silt Stirrer, Judge Mark V. Holmes calling the play.

It’s Kristopher L. Lingo, et al., Docket No. 17356-12, filed 12/28/16. Linda’s one of the als. But Kris, Linda and son Matthew all had IRAs.

All three IRAs made loans. We call such people and entities “hard money lenders.” They don’t bother with paper, but love very low loan-to-value ratios and high interest rates. We’re concerned with Linda’s IRA here.

Former husband Kris “…owned a corporation called STDS. STDS found borrowers for would-be lenders, including the Lingos’ IRAs. Loans and interest would then pass through STDS between the Lingos’ IRAs and borrowers. The Commissioner thought all this added up to multiple prohibited transactions under IRC § 4975 and he sent the Lingos notices of deficiency for the tax years 2004-2008. This case is complicated by the Lingos’ divorce in February 2005, which affected whether Ms. Lingo was a disqualified person.” Order, at p. 1. (Contrary to my usual custom, I mention the dates because they’re crucial).

Linda claims she never did a prohibited before the divorce, even if she was a disqualified person for Section 4975 purposes, and couldn’t be afterwards, as she was no longer married to Kris.

She wants partial summary J. IRS has only the Michael Corleone gambit.

First, IRS claims her affidavits are self-serving. OK, so rebut them.

Then IRS claims that Linda had a piece of STDS. “But the Lingos point to Mr. Lingo’s affidavit that says he was the sole shareholder in 2004. There’s also a signed copy of the Lingos’ settlement agreement, where Ms. Lingo waived any interest after the divorce. Even if the affidavit and settlement agreement didn’t exist, this fact isn’t material because STDS already counted as a disqualified person for Ms. Lingo under the family attribution rules of section 4975. The Commissioner rests on his allegations and doesn’t produce evidence to dispute the affidavit or settlement agreement.” Order, at p. 2.

If STDS was a Corp, be it C or S, why didn’t IRS pull the 1120 whatever, and the K-1s if an S, and put all that in evidence? Would that evidence have sunk them?

Next, “The Commissioner also questions whether a trust fund that received payments from STDS and sent them to Ms. Lingo’s IRA existed. But there are documents showing the trust fund existed and the Commissioner doesn’t produce any documents disputing this. In fact, it seems the Commissioner knew about the trust fund since the original audit.” Order, at p. 2.

Two more tries, neither particularly successful.

“The Commissioner says the Lingos admitted STDS retained fees in Mr. Lingo’s affidavits. But that’s only partly true. Mr. Lingo acknowledges STDS retained fees, but not until two years after the Lingos’ divorce. That time line is important because the Commissioner’s argument here centers around 2004. The Commissioner hasn’t produced any conflicting evidence here either. He did produce documents suggesting STDS received compensation for some transactions, but these transactions also didn’t occur until after the divorce.

“The Commissioner’s last argument is that there’s a factual dispute about whether the Lingos received income from STDS. Again, Mr. Lingo’s affidavit says the STDS payments to the IRAs were only payments from borrowers passing through STDS. STDS acted only as a conduit. And again, the Commissioner doesn’t offer any evidence disputing the affidavit – he just says the Lingos should produce more documents to support their affidavit. That’s not enough to overcome the Lingos’ motion for partial-summary judgment.” Order, at p. 3

But the Lingos must still show they are entitled to a partial summary J.

“Section 4975(c)(1)(C) prohibits a disqualified person from furnishing ‘goods, services, or facilities’ to a plan. There’s no dispute that Ms. Lingo’s IRA counts as a plan under section 4975(e)(1)(B). The next question is who counts as a disqualified person? The answer is — at least before the divorce — a number of people. Ms. Lingo, as the IRA’s owner, is a fiduciary and disqualified person of her IRA because she controls it. Sec. 4975(e)(2)-(3); Ellis, 106 T.C.M. (CCH) 468, 2013 WL 5807593 at 5. Mr. Lingo — again, at least before the divorce — was a disqualified person for Ms. Lingo’s IRA since he was Ms. Lingo’s spouse. Sec. 4975(e)(2)(F), (6). And then there’s STDS. It’s a disqualified person because it’s owned by a disqualified person — Mr. Lingo. Sec. 4975(e)(2)(G).

“That brings us back to 4975(c)(1)(C). STDS — a disqualified person -provided services to Ms. Lingo’s IRA, which counts as a plan. STDS received money from borrowers and sent the money on to the IRA, which counts as a service as respondent argues.” Order, at p. 3.

OK, so Linda’s IRA is disqualified?

That’s a thwacking big negatory, good buddy. Even the Supremes agree that unless the service provider is compensated for said services, Section 4975 is off the table.

“The Supreme Court itself has held that a gratuitous transfer from a disqualified person to a plan is not a prohibited transaction. Commissioner v. Keystone Consolidated Indus., Inc., 508 U.S. 152, 161 n.2 (1993). And this is a solid textual basis for this commonsense result: The six types of prohibited transactions in § 4975(c)(1) are colored by the last two, which bar a fiduciary who deals with a plan’s property as his own, or who receives compensation in connection with a transaction involving a plan’s property. The seemingly more general language of§ 4975(c)(1) – (4) in no way shifts the focus of the prohibition away from a misbehaving ‘disqualified person.’ In the case of services, the more general language of ‘furnishing . . . between a plan and a disqualified person’ includes situations where such a person contracts with a plan to provide services or somehow has a plan provide services to him. In either scenario a plan’s property is at risk — is too much being charged to the plan? Is it given too little in exchange? — in a way that it isn’t with gratuitous services of the type STDS provided here.

“This becomes even more clear when one looks at § 4975(d)(2), which exempts from the prohibition services provided by a disqualified party to a plan so long as ‘no more than reasonable compensation is paid.’ The regulations then provide that a ‘disqualified person’ who provides services without consideration isn’t committing a prohibited transaction under § 4975(c)(1)(E) or (F). 26 CFR § 54.4975-6(a)(5)(ii) and (iii). We hold likewise that STDS’s minor services to Mrs. Lingo’s IRA were not prohibited transactions because zero compensation is ‘no more than reasonable compensation.’” Order, at p. 4 (Footnote omitted, but it says Section 4975(f)(4) measures damages for prohibited services transactions based on the amount of “excess compensation.”).

Now guys, says Judge Holmes, y’wanna get on the pretrial order track, or maybe so discuss settling?

And a tip of the battered Stetson to San Diego charger Mitchell Barry Dubick, Esq. A Taishoff “Good Job,” sir.

Back on 3/24/16 I said “I have no doubt STJ Leyden will give the taxpayers a fair shake in Tax Court.” See my blogpost “Straight from the Sidewalks of New York,” 3/24/16.

Well, making an offer of proof in support thereof, I give you Jack Dewain Burke, Docket No. 27301-15S, filed 12/27/16, an off-the-bencher, with IRS represented by a law student (under supervision, of course). Welcome to the real world, kid.

JD is “… a disabled veteran with physical and mental disabilities. These physical disabilities included a recurring hernia in his groin, spinal disease and damage, and full body osteoarthritis, which caused painful joints in his knees and pain in his back.” Order, at p. 6 (transcript).

JD also has ADD for which he is taking medication that contains amphetamines.

His employer Home Depot (remind me not to shop there and to discourage anyone I know from shopping there; I cannot well describe their management in a blog meant for family reading), to whom he had made full disclosure on first being hired,  fired him for failing a drug test after reassigning him from a job he could handle well to one he couldn’t, although they did increase his pay even after a bad report.

He told them that the drug was prescribed, but they refused to allow him a defense.

He sued. His lawyer amended the first complaint (how, JD doesn’t know, and he doesn’t have complaint number one).

Home Depot settled. JD’s lawyer told him he didn’t need to pay tax on the settlement, but IRS did.

Judge Di goes through the “what did they really settle, not what did they say they settled” catalogue.

“The payor’s intent can be ‘based on all the facts and  circumstances of the case, including the complaint that was filed and the details surrounding the litigation.’ See, e.g., Allum v. Commissioner, T.C  Memo. 2005-177, 2005 Tax Ct. Memo LEXIS 178, at *15, aff’d 231 Fed. Appx. 550 (9th Cir. 2007). Under California law, which governs the interpretation of petitioner’s settlement agreement with Home Depot, we must consider all credible evidence to determine whether the language of the agreement is fairly susceptible of more than on [sic] interpretation. If it is, we must consider extrinsic evidence relevant to prove which of these meanings reflects the intent of the contracting parties.” Order, at p. 16. (Transcript; Citation omitted).

Now any lawyer who can’t find an ambiguity should find another job, and Judge Di is on the case.

So let’s look at the settlement. There was a modest amount of lost wages, and JD paid tax on that. There were attorneys’ fees, and those get a Section 62(a)(20) above-the-line writeoff, as JD’s attorney pleaded the right kind of discrimination. Those aren’t excludable, but are deductible without phaseout or AMIT.

But in a neat piece of judicial cherrypicking, Judge Di gives JD a well-deserved break.

“Of the 11 causes of action, the last one was for punitive damages. Awards for punitive damages are not excludable from gross income under Section 104(a)(2). Of the remaining ten causes of action, six of them expressly refer to petitioner’s physical injuries or sickness and indicate that petitioner would be seeking damages for medical care by physicians, surgeons, and other health care advisors. Accordingly, the Court concludes that six-tenths of the $31,500 of the settlement payment, or $18,900, is excludable from petitioner’s gross income for 2013 under Section 104(a)(2).” Order, at pp. 18-19. (Transcript).

Plaintiffs’ attorneys, go and do thou likewise. Only you really shouldn’t give tax advice. Just send the client to Judge Di, the veterans’ friend.

OK, the halls were decked, the wassail has sailed away, and I’m back at the same old stand on Lower Broadway here on this US Minor Outlying Island.

I wish I had something novel, but Ch J L Paige (“Iron Fist”) Marvel insists upon admitting CPAs to practice in Tax Court (with or without POAs, which are of course worthless in Tax Court), notwithstanding the explcit provisions of Rule 24(a)(4).

“No entry of appearance by counsel not admitted to practice before this Court will be effective until counsel shall have been admitted, but counsel may be recognized as counsel in a pending case to the extent permitted by the Court and then only where it appears that counsel can and will be promptly admitted.”

We all know that fiduciaries of various kinds (personal representatives, trustees, ex’rs and administrators), next friends, corporate officers, partners and LLC managers (tax matterers until next week, and tax representatives after that) may appear, if either named in the document conferring jurisdiction on Tax Court or obtaining Tax Court approval if not so named.

But Ch J Iron Fist keeps letting ‘em all in, even none of the above, with special preference for CPAs.

Here’s another one welcoming me back, Marta Torre De Morimoto & Masayoshi Morimoto, Docket No. 25494-16S, filed 12/27/16.

Mart & Masa got a “no change” from IRS after they dropped their pro se petition back on December 1. And Ch J Iron Fist quite properly told them to sign same or get “…a representative with proper authorization and capacity pursuant to the Tax Court Rules of Practice and Procedure” to do it.

As Grandma would have said “Nu? Va’ denn?”

So now, instead of doing what Ch J Iron Fist told them to do, but apparently at their direction, into the mail slot at 400 Second Street, NW falls “…a Letter Dated December 12, 2016 by Richard E. Evans on Behalf of Petitioners. That letter states that: (1) petitioners have received a ‘no change’ letter from the IRS with respect to their 2013 tax year and (2) petitioners wish to withdraw their petition. A copy of the ‘no change’ letter was attached to that document.” Order, at p. 1.

Of course you can’t withdraw a petition from a SNOD, small-claimer or no small-claimer, once Tax Court has jurisdiction, without decision for IRS for the full boat of the SNOD.

Now who, saving his reverence, might Richard E. Evans be? According to Tax Court’s docket inquiry link, Mart & Masa are still pro se, so perchance Richard E. Evans is a Tax Court admittee who’s a wee bit slow filing Form 7, or maybe one awaiting prompt admission.

But my inquiring mind found that a certain Richard E. Evans is a partner in one of the seventy (count ‘em, seventy) largest firms of Certified Public Accountants in our country, with offices in San Diego, CA, where Mart & Masa want to try their case.

Now it may be that there’s more than one Richard E. Evans in SD CA, so I apologize in advance if I’ve named the wrong person.

And the true Richard E. Evans may not be a CPA. But I’m prepared to wager a couple ales at Jake’s Saloon on 23rd Street (hi Judge Holmes, sorry I can’t buy you a drink; no Judges can take this bet) that Richard E. Evans is neither an admittee nor leading the field down to the wire.

So Ch J Iron Fist one again crushes the Rules of Practice and Procedure.

“…the Letter Dated December 12, 2016 by Richard E. Evans on Behalf of Petitioners is recharacterized as a Motion for Entry of Decision by Richard E. Evans on Behalf of Petitioners.” Order, at p. 1.

And Mart & Masa have five weeks to get with IRS’ counsel, put in decision documents, or file a status report.

I know this is a small-claimer, and we don’t play strict rules of golf, but there are some vestigial rules. I also know Judges want to clear the docket like a goalie down 5 to 3 on a powerplay wants to clear pucks, and like said goalie is willing to risk taking a delay-of-the-game by throwing the puck into the stands.

But if the Rules need changing, change them. Don’t tiptoe around them.

Tax Court is shuttered today. According to a fictional colleague of my youth, everyone has been born again on a Monday, so neither opinion nor order issues forth to give me an excuse to blog.

So I go back to a troubling pair of blogposts that interrupted my somnolent holiday and drove me to the keyboard electric. Compare and contrast “Robosigner?” 12/23/16, with “Money-Back Guarantee meets The Boss Hoss,” 11/30/16.

If it turns out that Judge Gustafson has discovered that the famous Section 6751(b)(1) sign-off by “immediate supervisor” is actually done by some “Reviewer,” who may or may not be the “immediate supervisor” of the initial determinator, and moreover may be “personally approving” such determination by a robosignature, like papers in a phony subprime mortgage foreclosure, what price ex-Ch J Michael B. (“Iron Mike”) Thornton’s psycholinguistic hopscotch in the second of my blogposts aforementioned?

I went back to an old favorite Christmas story by O. Henry, wherein his antihero tramp berates a fellow roadster thus: “Chewin’ de stuffin’ out ‘n de dictionary, as usual, Boston.”

The answer isn’t in the dictionary, nor in The Oxford English Grammar.

Either Congress meant that someone, who has oversight responsibility for the IRS employee who chooses to impose a penalty, exercises, and documents the exercise of,  that responsibility before the taxpayer first gets hit with the chop, or they meant something unintelligible from the plain words (without philological gloss) that appear on the page.

As best I, a mere old-time, beaten-up, beaten-down, single-shingle dirt lawyer “of limited experience and mediocre qualifications” can discern, Congress proposed that IRS stop using penalties to bully taxpayers.

And the way to do it, said Congress, is to require a second look before dropping the bomb. And that’s a documented second look by a specific individual senior to the would-be bomber.

If the second look needn’t be given or documented until after a Tax Court litigation, wherein the taxpayer may have paid or incurred monumental legal fees, costs and disbursements, finally to be justified; or worse, where the taxpayer is unjustly mulcted but cannot afford even the “reasonable rates” of Eric William Johnson, Esq., what exactly is the point of the statute?

Moreover, if the famous “second look” can be accomplished by a robosigner with an illegible signature many years after said initial determination, the statute becomes positively farcical.

If ever an opinion needed reargument, it’s 147 T. C. 16.

Blogging is like eating Crackerjacks^©. I defy anyone to stop after the first one.

So notwithstanding the holiday signoff on the immediately preceding blogpost, I’m back, with a tip of the battered Stetson to the late Alvin Toffler, whose 1970 opus thus entitled delineated the social confusion and breakdown of former normality when change comes too fast in too many ways.

Ring any bells? Sorry about that; this is a nonpolitical blog. I’m talking about the latest IRS coruscation, the “Future State” Plan. See IR-2016-174, 12/21/16.

“In a survey, the IRS asked tax professionals what changes in the Future State could have the biggest impact on the experience taxpayers have with the IRS. More than 1,300 tax professionals responded to the question. More than 30 percent of respondents cited enhanced support and tools for taxpayers and overall more than 20 percent cited agile, efficient and effective operations as the areas of greatest impact.”

I’m all for agility, efficiency and effectiveness. Especially if it doesn’t cost money. But it always does.

Howbeit, after having called the Tax Professional helpline a couple days ago (Merry Christmas, Judge Holmes) and being told that yuge call volume prevents me from getting through or even leaving a message, the following leaves me more Scrooge than Tiny Tim.

“The Future State does not contemplate replacing current methods of customer service, such as phone assistance; rather it envisions finding alternative ways for people to receive the specific services they need.”

Well, if IRS is going to leave current methods of service in place, I expect a lot of future shock.

Especially when IRS gets its info from attendees at the Nationwide Tax Fora, which cost at least a grand to attend and three days out of a work-week if you don’t live next door.

I’m going to need a lot of runway to deal with the density altitude here, so the following is all subject to connection with Tax Court.

When the subprime mortgage debacle ceased to be “contained,” as a well-known financial expert put it, the cascading home mortgage foreclosure clouds opened, and pleadings rained from the skies.

Many of these mortgages were allegedly held by an electronic nominee, to avoid recording chains of mortgage assignments (and paying fees to local governments). It also kept the true holders well-shielded, as the mortgages were combined into syndicated portfolios, of which pieces were dumped on the fixed-income market.

Needless to say, accurate document preparation was the first casualty.

We then saw the flurry of “robosigners,” junior clerks given titles above their pay grades who signed affidavits and pleadings at the rate of ten a minute, with flailing notaries at their elbows stamping their nights away. None had any idea what they were signing or to what they were swearing.

When the defendants’ bar and the pro bono wolfpack descended and did the first depositions, the game was blown sky-high.

OK, here’s the connection. It’s that obliging jurist Judge David Gustafson, and he’s dealing with the Boss Hoss Section 6751 kerfuffle in Dean Matthew Vigon, Docket No. 28788-14L, filed 12/23/16, a designated hitter that’s a real holiday gift to a blogger.

IRS claims Dean is a frivolity merchant, and whacks him with nine (count ’em, nine) $5K Section 6702 frivolous return chops.

IRS has problems producing returns in question for their motion for summary J.  First they claim no returns were amended returns, although three were checked as amended returns. Next, they have only photocopies of parts of returns, some unsigned ones, and one faxed version.

But that’s not all.

Back in April, when he first got wind that IRS would go for summary J, Judge Gustafson told IRS to verify that it had gotten the Section 6751 Boss Hoss signoff before whacking Dean as aforesaid. IRS asked for a remand and Judge Gustafson, obliging as always, said OK. Counsel told Appeals to make sure that the supplemental NOD named both decider and Boss Hoss.

“In apparent response to this instruction, the Appeals settlement officer noted in her case activity report (Ex. X, p. 112) that the two Forms 8278 showing approval for 2007 were ‘signed’, but one with an ‘illegible signature’. For all of the 2008 and 2009 Forms 8278, the settlement officer noted: ‘Automated signed by auto signature’. The purported signatures that appear on the Forms 8278 do appear to be facsimile signatures.

“The Commissioner’s motion for summary judgment asserts that ‘before each of the I.R.C. section 6702 penalties was assessed, an immediate supervisor of the individual making the determination to assess the penalty approved that determination in writing’. The Forms 8278 do name an ‘Originator’ on line 10a and a ‘Reviewer’ on line 16. However, not in keeping with the remand memorandum, neither the motion nor any of its attachments (as far as we can tell) identify the person approving the penalty determination as being in fact the immediate supervisor of the individual making the initial determination of the penalty. (Rather, in an email to counsel (Ex. V), the settlement officer observed, ‘[T]he form 8278 shows a “Reviewer” signature which everyone seems to constitute as a manager signature but it would be better presented in a court situation if the form was changed to notate Manager or Supervisor as the actual person signing the form.’)” Order, at pp. 2-3. (Emphasis in original).

But Section 6751 calls for “immediate supervisor.” And exactly who this “Reviewer” might be is nowhere stated.

Nor whether there’s a difference for Section 6702 purposes if a return is original or amended. IRS counsel seems to think there is.

IRS’ summary J motion tanks. Trial in February.

Jersey Boys, this is my Christmas present to you. Please copy and enjoy.

Thanks, Judge, Merry Christmas to you and the whole corps de ballet at 400 Second Street, NW.

And best holiday wishes to all my readers.

What happens when Congress tells Treasury to make regulations, and Treasury doesn’t? What happens when Congress suggests Treasury make regulations, but Treasury doesn’t?

And specifically, what does Tax Court do when confronted with one or the other?

Well, here’s 15 West 17th Street LLC, Isaac Mishan, Tax Matters Partner, 147 T. C. 19, filed 12/22/16. And Judge Lauber is eager to tell us.

The Jersey Boys are at it again, fighting for 17th Street Band. And they’ve started a real Tax Court slugfest, with Judge Lauber dukeing it out with Judge Foley in one dissent and the obliging jurist Judge David Gustafson in another.

The Great Dissenter concurs, and, as is his wont, stirs the silt by threatening to bring the fight up again if ever it comes before him.

The Gordian knot is Section 170(f)(8)(D), where maybe so the donee of a charitable gift can provide substantiation of the gift otherwise than by the three part contemporaneous written acknowledgment we all know and loathe, “if the donee organization files a return, on such form and in accordance with such regulations as the Secretary may prescribe.”

Well, the 17th Street Band bought an old building and was going to demolish, when the Landmarkers came storming in and put paid to that. Enter our old chum the Trust for Architectural Easements, ex-National Architectural Trust.

You can guess the rest. But candor compels me to tell you.

The 17th Street Band gave an easement to the Trust.

“…the Trust sent the LLC a letter acknowledging receipt of the easement.  This letter did not state whether the Trust had provided any goods or services to the LLC, or whether the Trust had otherwise given the LLC anything of value, in exchange for the easement.

“The LLC secured an appraisal concluding that…the property had a fair market value of $69,230,000 before placement of the easement. The appraisal thus opined that the property–acquired for $10 million in September, 2005–had risen in value by almost 600% in 2-1/2 years.  Opining that the property was worth only $4,740,000 after the donation, the appraisal concluded that the easement had reduced the property’s value by $64,490,000.” 147 T. C. 19, at p. 6.

Take that, Landmarkers!

When the Trust filed its next Form 990 (the 501(c)(3) tell-all), it never mentioned the gift. But IRS did, and handed the 17th Street Band a FPAA.

Only three years after that, and seven years after the return for the year at issue, the Trust amends its 990 for the year at issue to show said gift, and the 17th Street Band claims that cures the contemporaneous written acknowledgment problem.

That earns them a Taishoff “Good Try, First Class.”

Unfortunately, Judge Lauber, ably assisted by Judges Gale, Thornton, Goeke, Holmes, Kerrigan, Buch, Nega, and Ashford, with Ch J Iron Fist and Pugh concurring in result only, gives the Band “yer out!”

While Treasury can’t nullify an act of Congress by doing nothing, the Courts must tread warily. The Courts can’t write regs when the executive agency charged with doing so didn’t; neither can the Court rewrite the enacted statute to suit themselves.

So there grew out of agency inaction (willful or distracted) two classes of statutes: self-executing and not.

When the statutes were deemed taxpayer-friendly, or where Congress said “may” but not “shall”, the Judges stretched the point for the taxpayer. But where Congress needed to plug gaps, and agency input was the method, the Courts would not tread.

The whole idea started with having the charitables collect info (name, rank and serial number) from the donors and report this to IRS, like son-of-1099. The small charitables screamed this would kill their contributions, and the donors screamed that this would open the door to identity theft, as many small charitables are ill-equipped to handle data security.

Judge Lauber writes a law review article on the history of the reporting scheme, which Judge Foley blows off as follows: “In a valiant attempt to legitimize a holding not supported by the statute, the majority is compelled to rely on regulatory history relating to regulations that were never promulgated and legislative history (i.e., pledges from Treasury officials who served in a previous Administration, a hearing statement from a congressman who retired before section 170(f)(8)(D) was enacted, etc.) relating to a bill vetoed during a previous Congress.” 147 T. C. 19, at  p. 60.

Judge Foley says the statute’s clear enough. File the form and you’re done. Or even amend the form seven years later and you’re done.

Judge Gustafson says the statute is crystalline. There is a form and there are regulations…the 990 and 1.6033-2, which covers the waterfront by requiring the charitable to give names and addresses (but not SSANs, TINs or ITINs) of everyone who gives more than $5K.

Besides, the contemporaneous written acknowledgement need not be signed, and need not even identify an authorized acknowledger. But failure to comply with any of the three (3) requirements torpedoes an otherwise valid gift. Letting the charitable remedy the defect with an amended 990 saves the day.

And the contemporaneous written acknowledgment is not rendered surplusage by this approach.

“This alternative substantiation must be made on the Form 990 return (not a mere receipt) and thus is potentially subject to civil penalties under section 6701 and, since the return is signed ‘[u]nder penalties of perjury’, the criminal penalties of section 7206(1) as well.  In addition, an organization that decided not to issue receipts would surely disappoint and confuse its donors–not a good thing for an organization that depends on donations.  It would therefore seem unlikely that an organization would elect not to issue receipts but instead to report its contributions on its return.” 147 T. C. 19, at p. 66, footnote 4.

I’ll bet this is going up on appeal to Second Circuit, but the tough part is the seven-year gap between 990 1 and 990 2.

If this weren’t one of those overblown façade farragoes, The Jersey Boys would stand a better chance.

Judge Posner of USCA 7 is a tough critic of Tax Court. All y’all (I’m going to Houston next week, so I’m warming up) will remember the drubbing he gave poor Judge Wherry for wisecracking.

If not, see my blogpost “There Goes the Neighborhood,” 9/3/13.

But Judge Ruwe is a diligent student of Judge Posner’s prose, and quotes him in Cecilia M. Hylton, 2016 T. C. Memo. 234, filed 12/22/16.

Cecilia is another horse fancier, and Judge Ruwe has 38 pages of her horsey lore. And Cecilia even outdoes the inventive counsel for Raymond Price, III. Counsel asserted “… the receipt of cooled stallion semen at the Honda dealership as evidence that a horse activity is conducted at that dealership.” See my blogpost “More Horseplay,” 12/16/14.

On her way to losing $17 million on her horse operation while earning $89 million from her father’s real estate business, Cecilia shows her dedication to her deceased world champion stallion Flashy Zipper by having  “…a veterinarian remove his testicles and ship them to Colorado State University to harvest and freeze his semen.” 2016 T. C. Memo. 234, at pp. 12-13.

By now you’ve sussed out that this is another Section 183 hobbyhorse.

Judge Ruwe goes through the nine-part checklist, which Judge Posner calls “a goofy regulation,” namely, Reg. 1.183-2.

Finally,  Judge Ruwe breaks down and quotes Judge Posner.

“…the Tax Court would be better off if rather than wading through the nine factors it said simply that a business that is in an industry known to attract hobbyists (and horse racing is that business par excellence), and that loses large sums of money year after year that the owner of the business deducts from a very large income that he derives from other (and genuine) businesses or from trusts or other conventional sources of income, is presumptively a hobby, though before deciding for sure the court must listen to the owner’s protestations of business motive.” 2016 T. C. Memo. 234, at p. 31, footnote 11.

This tired-out old-time single-shingle lawyer-blogger couldn’t agree more, Judge Posner!

And the case Judge Ruwe refers to is Roberts v. Com’r, 820 F. 3d 247, at p. 254, reversing Judge Paris in part.

Tax Court just can’t catch a break when Judge Posner is on the case.