You Sure, Judge Holmes?

See my blogpost “Without Prejudice = Extreme Prejudice,” 7/6/16.

Apparently, even though I have heretofore and oftentimes designated and styled him as The Great Dissenter, a/k/a The Judge Who Writes Like a Human Being, s/a/k/a The Implacable, Irrefragable, Ineluctable, Ineffable, Indefatigable, Illustrious and Incontrovertible Foe of the Partitive Genitive, and Old China Hand, Judge Mark V. Holmes does not read my blog.

Of course, he shouldn’t feel like The Lone Ranger. Some billions of people don’t read it either.

However, in the case of Hassel Family Chiropractic, DC, PC, Docket No. 21065-10L, filed 7/20/16, a day with neither opinion or designated hitter, Judge Holmes has left me perplexed.

Back on 6/3/16, Judge Holmes dismissed the Hassel Family’s case without prejudice, relying on our old pal Wagner.

I need not remind my readers that, unlike a case arising from a petition from a SNOD, a case arising from a petition from a NOD can be dismissed without entry of decision in favor of IRS for their entire demand.

It’s the “without prejudice” part that causes trouble.

The case was on for trial in Des Moines IA back in 2011. If in fact there was jurisdiction based on a timely petition at that time, and if the one-hearing-per-tax-year rules of Section 6330(c)(4)(A) apply, then any new petition from the Hassel Family must be time-barred, no?

Unless the Hassel Family can invoke the supplemental-hearing rule. But there’s no remand back to Appeals here that I can find, much less a supplementary NOD.

More puzzling is this language from the order: “On June 3, 2016 the Court granted the petitioner’s motion to dismiss the case, however that did not close the case.”

Why not? Isn’t a Wagner dismissal “game over”?

And if that dismissal didn’t close the case, how was it still alive?

And if it is, does the “motion to withdraw the petition” (presumably six years after it was filed) now “close the case”?

And even if it does, the NOD must now be at least six years old, and the time to petition a NOD is thirty (count ‘em, thirty) days after issuance. So how can the case be closed “without prejudice”?

Maybe the Hassel Family can pay, file for refund and sue in USDC or USCFC. But the order isn’t that explicit.

I’m confused.

That’s Jack R. Durland, Jr., 2016 T. C. Memo. 133, filed 7/19/16. Jack Jr., having looted the family trust and gotten disbarred in OK, turned to what my daughter the international tax expert calls “th’ awl bidniz.”

But the path to large payouts is strewn with obstacles like Federal income tax.  Jack Jr. reminisced to then-Mrs. Jack Jr. “about a case he handled where they never paid back the loans and the IRS never caught it.” 2016 T. C. Memo. 133, at p. 30. So Jack Jr. tries it on.

I’m sorry to reduce 102 (count ‘em, 102) pages of Ch J L. Paige (“Iron Fist”) Marvel’s lengthy exposition of Jack Jr.’s and partner’s phony loans to a few words, but it’s been a long day.

Jack Jr. took out a bunch of checks from various business by which he was employed, or in which he had equity, characterized these as “loans”, without contemporaneous promissory notes and on which no payments were ever made. And cashed the checks with a friendly check-cashing operation.

Jack Jr. goes down on Section 7201 filing false returns, via a plea bargain, with the usual “this doesn’t mean we can’t soak you civilly” language.

So he does get soaked. SOL doesn’t help with fraud. And Jack Jr. forgets the rule the abovequoted Texan has often cited: “Pigs git fed, hogs git et.”

Mrs. Jack Jr. wants innocent spousery, but her claims of abuse are unsubstantiated, and she was in on the skullduggery.

If it’s more, it’s the Feds; if it’s less, it’s the State’s. That’s how you figure out pre-notice interest in a Section 6901 transferee liability case, and at close of play Michael A. Tricarichi, Transferee, 2016 T. C. Memo. 132, filed 7/18/16, who was maybe a hundred grand over the $35 mil IRS claims he owes with pre-notice interest thrown in per Title 26 USC, not per OH (and OH would’ve been zero, he claims), so Mike really gets clobbered.

Judge Lauber goes through the precedents, which don’t make a lot of sense to me, so I won’t try to explain them. If all Section 6901 does is let IRS fast-track a State voidable-transfer claim, why bifurcate pre-notice interest based on whether the transferee got enough assets to pay IRS in full? If the transferee got less, then take it all and have done. Or file a NFTL for the shortfall. State law should hardly be relevant. The aim is to make the creditor whole, right?

It seems there was some contrary First Circuit learning years ago, but Judge Lauber blows it off.

If this is your kind of case, read it. Me, I’ve got a closing tomorrow.

Those of my readers who follow the political news will remember The Guardian (UK) newspaper, publisher of the Snowden story and target of the wrath of arch-Leaker Julian Assange. As this is a non-political blog, I’ll eschew any comments arising from or related to the foregoing.

But the Guardian wants in on the Amazon.Com, Inc. & Subsidiaries fistfight, and Judge Lauber holds off on letting them in until IRS and Jeff Bezos’ squadristi duke it out on what exhibits and trial testimony to seal from public view.

Read all about it in Amazon.Com, Inc. & Subsidiaries, 2016 T. C. Memo. 131, filed 7/18/16.

The Guardian wants to see everything, and IRS is just as glad to let them see it. Amazon and the Subs are yelling it’s trade secrets and will irremediably damage Amazon and its numerous shareholders.

Well, a lot of the stuff is public already. Half of what Amazon wants Judge Lauber to give them isn’t marked with the Scarlet “C” for “Confidential”, so they can mosey on down to 400 Second Street, NW, and ask the kindly clerks to let them check it out.

In fact, Judge Lauber claims a lot is out there already.

“The parties filed comprehensive pre-trial memoranda.  With minor redactions, those memoranda have been placed on the docket for public inspection. Trial testimony that did not elicit Confidential Information was heard in open court; transcripts of that testimony have been placed on the docket for public inspection.  Trial testimony that elicited Confidential Information was heard in closed court; the parties are working toward finalizing redacted versions of those transcripts to be submitted to the Court for approval.  If and when they are approved, these redacted transcripts will be placed on the docket for public inspection.

“Trial exhibits that Amazon did not designate as containing Confidential Information are currently available for public inspection upon request.  These exhibits include redacted versions of all expert witness reports (56 in toto).  Trial exhibits that Amazon designated as containing Confidential Information were given exhibit numbers with the prefix ‘C.’  Respondent [IRS] retains the right under the protective order to challenge petitioner’s classification of exhibits as containing Confidential Information.” Order, at p. 6.

Judge Lauber gets to the point: “The issue at hand is whether Guardian should be permitted to intervene in this case.  With limited exceptions inapplicable here, our Rules make no provision for third-party intervention.  In the absence of an express Rule, the Court ‘may prescribe the procedure, giving particular weight to the Federal Rules of Civil Procedure to the extent that they are suitably adaptable to govern the matter at hand.”  Rule 1(b); see Guralnik v. Commissioner, 146 T.C. __, __ (slip op. at 28-31) (June 2, 2016); Amazon.com, Inc. & Subs. v. Commissioner, T.C. Memo. 2014-245; Estate of Proctor v. Commissioner, T.C. Memo. 1994-208, 67 T.C.M. (CCH) 2943.” I blogged the earlier Amazon and Guralnik opinions; Tax Court can roll its own, but Judge Lauber isn’t quite ready yet.

The Guardian is of course wrapping itself in the First Amendment. But journalists have no greater rights than anybody else.

“The public interest that Guardian seeks to advance has been, and continues to be, powerfully represented by respondent.  Respondent has objected to the issuance of a protective order at every stage of this litigation.  When the Court indicated its intention to issue a protective order of some kind, respondent worked assiduously to narrow the scope of protection and to ensure himself the ability to challenge petitioner’s designation of information as ‘confidential.’” Order, at p. 12.

Still and all, the Guardian’s intervention is more than a wee bit off the beaten track.

“Guardian has not cited, and our own research has not discovered, any instance in which this Court, or any other court, has been asked to decide whether a media organization should be allowed to intervene in a pending Federal tax controversy. Guardian’s motion presents novel questions, both as to the proper standards for intervention in the absence of any Rule governing the subject, and as to whether the IRS, as an agency of the United States, adequately represents Guardian’s interest in public disclosure.  Cf. Prete v. Bradbury, 438 F.3d 949, 956-957 (9th Cir. 2006) (“[There is] an assumption of adequacy when the government is acting on behalf of a constituency that it represents.  In the absence of a very compelling showing to the contrary, it will be presumed that a state adequately represents its citizens when the [intervention] applicant shares the same interest.” (quoting Arakaki v. Cayetano, 324 F.3d 1078, 1086 (9th Cir. 2003))).” Order, at p. 13.

Guardian might have something to say about that assumption, but I leave it to their counsel to say whatever.

Howbeit, Judge Lauber doesn’t want to go there. “We are hesitant to address these questions until it is necessary to do so.” Order, at p. 13.

IRS and Amazon and the subs are busy redacting, and Judge Lauber will have the final word on what is walled in and what is walled out.

Until they finish, Guardian can scope out the bushelbasketsful of non ”C” memos, experts’ reports, trial testimony, orders and even this my humble blog.

If at the end of the foregoing, Guardian still wants more, then let them come back.

Ch J L. Paige (“Iron Fist”) Marvel takes her text from Genesis 6:4, especially the last clause “the same became mighty men, which were of old.” You’ll find it all in her eulogy of the late Senior Judge Howard A. Dawson, Jr.

Click to access 071816.pdf

Dr Heisenberg, thou shouldst be living at this hour. IRS hath need of thee, as a much finer writer than I put it.

Judge Wherry, nowise whimsical today, takes up the call in a designated hitter for a July Friday afternoon, Percy Squire Co., LLC, Docket No. 4812-16L, filed 7/15/16.

PSC is allegedly on the hook for four (count ‘em, four) years’ worth of FICA-FUTA nonfilings and nonpayments, with a Section 6673 frivolity chop for lagniappe.

In the NOD from which PSC petitions, IRS claims they sent NITLs, but the NITLs aren’t in the file. The mailing dates for PSC’s two CDP requests differ from the signature dates.

While we all know that a NOD from a CDP is the key to the Tax Court door, a Section 6330(f) disqualified jeopardy employment tax levy doesn’t need a NITL, and IRS did show up with Notices CP 297A, which are the disqualified jeopardy employment tax levy notices, and the dates on those tie in to the dates in the NOD, but not to the dates when PSC sent in their petition.

Clear? Thought not, and neither does Judge Wherry.

“The Court is uncertain whether: (i) the Commissioner determined to sustain, in the notice of determination, a proposed levy or a disqualified jeopardy employment tax levy; (ii) if the Commissioner determined to sustain a proposed levy, whether he properly mailed petitioner the pre-levy notice required under section 6330(a)(1) necessary for this Court to have jurisdiction under subsection (d)(1); and (iii) whether petitioner’s collection due process request with respect to its 2010 Form 940 liability was timely. Moreover, we remind respondent that we uphold the Appeals Office’s determination only on grounds upon which the Appeals Office actually relied in the notice of determination. See SEC v. Chenery Corp., 332 U.S. 194, 196 (1947); LG Kendrick, LLC v. Commissioner, 146 T.C. ___, (slip op. at 31) (Jan. 21, 2016).” Order, at p. 4.

I’ve blogged Chenery more than twice. For Kendrick, see my blogpost “Be Careful What You Ask For – Part Deux,” 1/21/16.

So, IRS, before you head for that Grey Goose Gibson up, file a supplement to your summary J motion in this case, with a lot of ‘splainin’. Produce all the paper as well. Finally, tell Judge Wherry what means “…the entries in petitioner’s Federal income tax transcripts that read ‘Module in Federal Payment Levy Program’ and ‘Module Reversed Out of Federal Payment Levy Program’.” Order, at pp. 4-5.

Gotta watch those modules.

I allude once more to Rob’t Allen Zimmerman’s 1966 extravaganza, but in the singular, to tell the conclusion (for now) of the tale of Christina A. Alphonso, 2016 T. C. Memo. 130, filed 7/14/16.

You do remember Christina A., do you not?  No? The see my blogpost “A New York Cooperative Conundrum,” 3/18/11, and “A New York Cooperative Conundrum – Part Deux,” 2/6/13.

There now.

Well, Second Circuit kept Christina A. in the hunt for the gold by cobbling together a rationale that shares in a New York cooperative housing C Corp, coupled with a New York cooperative apartment proprietary lease, gave the shareholder-tenant a claim for a casualty loss of the C Corp’s property. Except the claim falls because Section 216 only allows a deduction for real estate taxes and mortgage interest, and the deduction can’t be stretched to cover a casualty loss.

Except there isn’t even a casualty loss here.

Judge Chiechi tells us why, after fifty pages of engineering reportage.

“The initial dispute between the parties is over whether the collapse of the retaining wall in question is a casualty within the meaning of section 165(c)(3).  As pertinent here, section 165(a) and (c)(3) allows an individual taxpayer to deduct ‘losses of property not connected with a trade or business or a transaction entered into for profit, if such losses arise from fire, storm, shipwreck, or other casualty’.   A loss is treated as sustained during the taxable year in which the loss occurs, as evidenced by closed and completed transactions and as fixed by identifiable events occurring in such taxable year.  Sec. 1.165-1(d)(1), Income Tax Regs.

“The term ‘other casualty’ in section 165(c)(3) refers to an event that shares characteristics with a fire, storm, or shipwreck.  A casualty is an event which is due to a sudden, unexpected, or unusual cause.  The progressive deterioration of property though a steadily operating cause is not a casualty.” 2016 T. C. Memo. 130, at pp. 51-52. (Citations omitted).

Even a sudden catastrophic collapse is not a casualty if caused by progressive deterioration. And even if wind and rain accelerate the collapse, that isn’t a casualty if the structure at issue was progressively deteriorated over time.

Christina A. claims it was the heavy rainstorm that caused the collapse, hence casualty. But her expert gets shredded, and IRS’s expert gets the judicial nod.

If watching someone’s case go down the drain gives you your jollies, read pp. 57-61. I will refrain from extracting any portion thereof. We’ve all of us been there, and it isn’t fun.

The rain didn’t help, but the C Corp’s Board of Directors knew for twenty years that the retaining wall was a-moulderin’ in the ground. And had bushelbasketsful of reports from reputable engineers and architects that said so. I’ve dealt with a number of those named in the opinion, and they’re players, not amateurs.

I myself well remember the Christmas night collapse of a plaza built over the same highway as Christina A.’s ill-fated retaining wall. And I represented the sponsor of the cooperative offering. But there, if my aging memory serves, the insurance carrier paid the whole freight.

I’ve often lauded Judge David Gustafson as the epitome of The Obliging Jurist. See my blogpost “I’ll Help You Try Your Case,” 12/15/15, wherein I said: “I’ve told how he’ll visit you in the Stony Lonesome to hear your case, if need be. He designates his orders, making light the task of the hard-laboring blogger racing a deadline. He does everything but bring coffee and Krispy Kremes to calendar call, to help out hapless petitioners. As I said before, ‘He’ll tell you what you meant to allege, but didn’t, and let the other parties know as well.’ And he’ll let petitioners know that ex parte communications with the Court don’t cut it.”

And STJ Lewis (“Oh The Grandeur of that Name!”) Carluzzo’s obliging nature is well-known to my longer-suffering readers. See my blogpost “Tax Court As Preparer?”, 9/17/12.

Judge Gustafson’s helpful nature spread to other Judges. See my blogpost “Obliging May Be Contagious,” 4/7/16, where it looked like even then-Ch. J Michael B (“Iron Mike”) Thornton had caught the Gustafson obliging bug.

Well, I’m happy to report that the good spirit has reached even Ch. J L. Paige (“Iron Fist”) Marvel.

Here’s Ch. J. Iron Fist aiding Timothy J. McLaughlin & Tamara L. McLaughlin, Docket No. 27750-15, filed 7/14/16.

Tim and Tam were told to amend their petition, but sent a letter to Ch. J Iron Fist that bespoke confusion with Tax Court and conflation with IRS.

So in addition to attaching a second Form 2 to her order (apparently the first one sent to Tim and Tam back in June elicited the confusion and conflation elsewhere hereinabove referred to, as my high-priced colleagues would say), Ch. J Iron Fist shows the gentler side of her formidable persona.

“Please note that this Court is not part of the Internal Revenue Service (IRS) and has no information about petitioners’ case except the information which is provided by petitioners. (For this reason, the Court also has no information regarding account balances and payments, which are matters handled by the IRS, not the Court.) It is therefore suggested that petitioners attempt to fully complete each blank of the Amended Petition.” Order, at p. 1.

A good first mile, we’ll all of us agree, but Ch. J Iron Fist goes the twain.

“In paragraph 1, check the appropriate box for the type of IRS notice petitioners are disputing, which here would appear to be the notice of deficiency that comprises the earlier imperfect/incomplete petition. In paragraph 2, set forth the date of the notice from the IRS, as well as the city and State of the issuing IRS office. In paragraph 3, give the tax year for which the notice was issued. In paragraph 4, check the box for type of case procedures petitioners wish to have used for the case, either small tax case procedures or regular tax case procedures. (General information concerning deciding whether to elect regular or small case procedures is posted under the ‘Starting A Case’ tab in the Taxpayer Information section of the Court’s website at http://www.ustaxcourt.gov.) In paragraph 5, state the reasons why petitioners disagree with the IRS notice, and in paragraph 6, give the facts which support petitioners’ position. Be sure to sign and date the Amended Petition on the second page, with original signatures (preferably in blue ink) by both petitioners. Completion of the additional short forms (T.C. Forms 4 and 5)… in the petition packet would likewise assist the Court in processing the case.” Order, at pp. 1-2.

Short of filling out the Form 2 her own self, handing Tim and Tam a blue inkpen and pointing to the signature line while addressing and stamping the envelope directed to 400 Second Street, NW,  what more could Ch J Iron Fist do?

Judge Buch is playing myth-buster today in the ongoing Beekman Vista odyssey, Docket No. 8393-12, filed 7/13/16.

They’re still romping around with e-discovery, and IRS claims the Beeks haven’t come clean with all the goods, despite resuscitated tapes of quaint and curious volumes of forgotten lore, seed groups, and enough Boolean algebra to give even the nerdiest e-wonk indigestion. See my blogpost “Method to His Madness – Part Deux,” 9/17/14.

Two years into the program, and IRS is still claiming sandbagging.

IRS claims predictive coding didn’t predict what IRS wanted.

So we get the fight between precision (how many documents are scooped up by the coding, screening out “false positives”, that is, irrelevant stuff) and the extent of recall (the documents retrieved without “false negatives”, that is, leaving out relevant stuff).

IRS claims the Beeks didn’t get it perfect. The recall was too low, too much false negativity.

Yes, says Judge Buch, the predictive coding was flawed. So what?

There are two myths, as aforesaid.

First is human perfection. “Research shows that human review is far from perfect. Several studies are summarized in Nicholas M. Pace & Laura Zakaras, RAND Corp., Where the Money Goes: Understanding Litigant Expenditures for Producing Electronic Discovery (2012) at 55. To summarize even further, if two sets of human reviewers review the same set of documents to identify what is responsive, research shows that those reviewers will disagree with each on more than half of the responsiveness claims.” Order, at pp. 7-8.

Or, following the rule of KISS (Keep it Simple, Stupid), “In other words, people make mistakes, and, according to the evidence, they make them regularly when it comes to judging relevance and responsiveness.” Order, at p. 8.

Second is that the FRCP requires perfection in discovery responses.

“The second myth is the myth of a perfect response. The Commissioner is seeking a perfect response to his discovery request, but our Rules do not require a perfect response. Instead, the Tax Court Rules require that the responding party make a ‘reasonable inquiry’ before submitting the response. Specifically, Rule 70(f) requires the attorney to certify, to the best of their knowledge formed after a ‘reasonable inquiry,’ that the response is consistent with our Rules, not made for an improper purpose, and not unreasonable or unduly burdensome given the needs of the case. Rule 104(d) provides that ‘an evasive or incomplete * * * response is to be treated as a failure to * * * respond.’ But when the responding party is signing the response to a discovery demand, he is not certifying that he turned over everything, he is certifying that he made a reasonable inquiry and to the best of his knowledge, his response is complete.

“Likewise, ‘the Federal Rules of Civil Procedure do not require perfection.’ Like the Tax Court Rules, the Federal Rule of Civil Procedure 26(g) only requires a party to make a ‘reasonable inquiry’ when making discovery responses.” Order, at pp. 8-9. (Citation omitted).

And using electronic searching and predictive coding doesn’t impose a higher or different standard than old-fashioned eyeballing. If it did, no one would use it.

So Beeks, you’re cool. “Petitioners provided the Commissioner with seed sets of documents from the backup tapes, and the Commissioner determined which documents were relevant. That selection was used to develop the predictive coding algorithm. After the predictive coding algorithm was applied to the backup tapes, petitioners provided the Commissioner with the production set. Thus, it is clear that petitioners satisfied our Rules with their response. Petitioners made a reasonable inquiry in responding to the Commissioner’s discovery demands when they used predictive coding to produce any documents that the algorithm determined was responsive, and petitioners’ response was complete when they produced those documents.” Order, at p. 9.

So, chaps, want to try the case?

No, this is not a political blog. I too have had enough political blather about e-mails. I write here about tax, specifically United States Tax Court, the “sixty buck ticket to justice.”

But Judge Buch has a lot to say about confidential e-mails on a shared server in a designated hitter, Beekman Vista, Docket No. 8393-12, filed 7/12/16.

IRS claims a shared server waives client-attorney privilege, and cites six (count ‘em, six) cases IRS claims say so.

Negatory, good buddy, says Judge Buch.

“The Commissioner broadly argues that petitioners waived all claims of privilege because petitioners disclosed the documents to each other by merely sharing a computer system. The Commissioner does not argue that there was actual disclosure, but that the mere sharing of a computer system is enough to cause waiver.” Order, at pp. 3-4.

Judge Buch then blows off IRS’s carefully researched six cases, thereby doubtless wrecking a summer intern’s weekend.

“Waiver occurs when a privileged communication is disclosed. The mere act of sharing a computer system does not demonstrate that a privileged communication was disclosed. If we were dealing with paper, what we have here is akin to keeping documents in a basement full of file cabinets. That, alone, is not a waiver.” Order, at p. 4 (Citations omitted).

Though it causes me to grit my teeth, I will refrain from any political comment.