Innocent spousery is multiform. Today we deal with apportionment, or rather Judge Lauber, recovered from unscrambling defective lodgings and filings, takes up that task in Dwight McDonald and Donna McDonald, 2016 T. C. Sum. Op. 79, filed 12/1/16.

Apportionment falls under Section 6015(c). So let’s go down the checklist. Dwight and Donna filed jointly for years at issue. Check. Dwight and Donna are now divorced and living apart. Check. Donna seeks to bail not later than two (2) years after IRS starts to collect. Check.

So Donna’s cleared the bar.

Now what does she get?

Well, the State tax refunds (unreported) get split 50-50, as the returns that generated same were joint.

And Donna’s unreported wages are all hers.

The biggest items are current losses and carryforwards arising from Dwight’s real estate operation. Though Dwight had a full-time job in RI, both Dwight and Donna owned ten (count ‘em, ten) rental real estate parcels in FL and AL. And Donna did answer the phone when the managing agent called for Dwight’s decisions. She knew Dwight spent a lot of time on the real estate, but he kept all the records in a locked room, to which Donna did not have the key. Donna knows nothing of tax law and relied on Dwight and their CPA.

The CPA figured Dwight was a real estate pro, and told Donna so, but didn’t go over the tax returns with her.

IRS says Dwight “actually participated,” so he gets the $25K of losses, but did not “materially participate,” so loses the rest. Hence Dwight’s tears.

IRS says Donna is innocent, but Dwight disagrees.

Judge Lauber: “The statute does not address burden of proof in the situation we face here, where the IRS supports relief from joint and several liability and the nonrequesting spouse opposes it.  In such cases we ‘inquire whether actual knowledge has been established by a preponderance of the evidence’ presented by all three parties.

“’Actual knowledge’ means ‘an actual and clear awareness (as opposed to reason to know)’ about the item giving rise to the deficiency.  A taxpayer lacks actual knowledge if she ‘is unaware of the circumstances that give rise to error on the tax return.’  In the context of a disallowed deduction, the relevant question is whether the requesting spouse ‘had actual knowledge of the factual circumstances which made the item unallowable as a deduction.’”  2016 T. C. Sum. Op., 79, at pp. 9-10. (Citations omitted, but look them up for your next memo of law).

Quite Cartesian.

Dwight argues Donna knew about the real estate business, answered the phonecalls of the managing agent, and was told by the CPA that either she or Dwight or both were real estate pros. Therefore Donna knew about the dicey deductions.

No, says Judge Lauber. Yes, she knew about the real estate business. But that’s not enough.

Since the distinction between actually participating and materially participating means counting hours, knowing who did what and whether all activities were treated as a single activity (and appropriate election filed), and since Dwight called all the shots and kept the records locked away, no way could Donna know that Dwight was a short-timer. Especially when the CPA said he was the real deal.

The accuracy chops will follow the erroneous items.

I’m only an obscure old-time, beaten-down and beaten-up single-shingle, “with very limited experience and mediocre qualifications,” as a much finer writer than I put it.

But take a look at what an unkind Fate has bestowed upon that Phi Beta Kappa graduate of Yale University, M. A. Clare College Cambridge, and Note Editor of Yale Law Review, now Tax Court Judge Albert G. Lauber.

Here is but one instance wherein he employs his formidable talents and jurisprudential gravitas, namely, viz., and to wit Martha G. Smith & George S. Lakner, et al., 8847-12, filed 12/1/16*.

“…the parties filed a First Stipulation of Facts and exhibits. However, in accordance with the Court’s… Order this document should have been lodged, rather than filed. …the parties called the chambers of the undersigned and informed the chambers administrator that the First Stipulation of Facts and exhibits… had errors in the page numbering and the parties intended to lodge an amended copy. … the parties filed a First Amended Stipulation of Facts and exhibits. Again, this document should have been lodged. In consideration of the foregoing, it is

“ORDERED that the Clerk of the Court shall; (1) change the docket entry for the parties’ First Stipulation of Facts and exhibits to reflect that the First Stipulation of Facts and exhibits was lodged…; (2) add a cover sheet to the parties’ First Stipulation of Facts and exhibits that bears an eLodged stamp…; (3) change the docket entry for the parties’ First Amended Stipulation of Facts and exhibits to reflect that the First Amended Stipulation of Facts and exhibits was lodged…; (4) add a cover sheet to the parties’ First Amended Stipulation of Facts and exhibits that bears an eLodged stamp….” Order, at pp. 1-2.

Da capo al fin.

Edited to add, 8/30/21: Scholar Al did get a chance to show off his considerable judicial expertise in Martha G. Smith and George S. Lakner, et al, 2018 T. C. Memo. 127, filed 8/13/18**, which for some inexplicable reason I did not blog. The issue of Section 104(a)(2) physical injury is interesting here, as George did suffer physical injury, but that was in the year after the $328K settlement Col. Lakner got for employment discrimination. See  T. C. Memo. 2018-127, at pp. 15-19. And Judge Scholar Al was affirmed in USCADC.

*Smith Lakner 8847-12 12 1 16

**Smith Lakner 2018 T C Memo 127 8 13 18

Today I really need white trousers and a striped shirt, and a loud whistle, so that I might continuously rotate my forearms before me after having deafened all within earshot.

Once again IRS deploys the SNOD-after-petition formation. This deft but slimy move has IRS bombarding taxpayer with a bunch of form letters, which elicit a petition, and then claiming there never was a SNOD (notwithstanding that there is no standard form of SNOD, and don’t hang by anything tender until IRS promulgates such a form), moving successfully to dismiss the petition, and then dropping the real SNOD.

Usually by the time the taxpayer (pro se) gets word of the fake, the 90 days has run on the real SNOD.

See my blogposts “Fake Out,” 12/16/14, and “Fake Out – Part Deux,” 6/23/15.

Today’s victim is Gilson Alexander Tallentire, II, Docket No. 19435-16, filed 12/1/16.

Ch J L. Paige (“Iron Fist”) Marvel kicks Gil to the cliché, without mentioning that Gil has time to refile if he files anew at once, or even sends in a letter, which can be characterized as an imperfect petition from the “real” SNOD.

I call illegal procedure! Tweet!

Footnote- Ch J Iron Fist’s predecessor ex-Ch J Michael B. (“Iron Mike”) Thornton rightly tipped off the taxpayer in the second of my blogposts abovecited.

Is the failure to get the Boss Hoss Section 6751(b) sign-off fatal to a 20% substantial understatement penalty added to a revised SNOD? Tax Court spends 106 pages on this angelic tapdance, and ex-Ch J Michael B (“Iron Mike”) Thornton, writing for the majority, says it isn’t; Tax Court can fix it on the trial.

Negatory, says that Obliging Jurist Judge David  Gustafson, the majority just gutted Section 6751(b).

Not heeding USCADC’s throw of the dictionary at Judge Lauber (see my blogpost “Revenez, Enfants de la Patrie,” 9/21/16), ex-Ch J Iron Mike belabors the word “making” in a two-page, three-paragraph footnote to show that the Boss Hoss can sign off even after Tax Court’s opinion, because assessment is barred prior thereto.

Read all about it (if you suffer from terminal insomnia) in Lawrence G. Graev and Lorna Graev. 147 T. C. 16, filed 11/30/16.

And if you’re a total grammar-polizei type, try this for size: “(‘The present participle, infinitive, and gerund are not confined to reference to present time.’); Sidney Greenbaum, The Oxford English Grammar 277 (1996) (‘The time reference of the participle clause is inferred from the host clause’).  In sec. 6751(b)(1), ‘making’ functions without specific tense, much as it does in this statement:  ‘We should respect the individual making such an argument’.  This statement obviously does not mean, as the dissent’s analysis would suggest, that we should respect this type of individual only while such an argument is being made.  Rather, in this example, as in the statute, ‘making’ is part of a reduced adjectival clause modifying ‘individual’–it tells which ‘individual’ without indicating when exactly the ‘making’ occurred, occurs, or will occur.

“Furthermore, in sec. 6751(b)(1) the ‘making’ clause is itself part of a larger adjectival prepositional phrase, ‘of the individual making such determination’ modifying ‘supervisor’–it tells which supervisor, without indicating when the supervisor’s action of approving the initial determination occurs or will occur (although from the context we know that the supervisor’s approval must follow the subordinate’s determination, as explained in the text above).  At most, the verb form ‘making’ might suggest that the immediate supervisor giving the approval should be the same immediate supervisor who held that position at the time of the making of the initial determination, as opposed to someone who might have held that position at some other time.  And although the dissent initially refers to ‘making’ as an adjective, ultimately the dissent finds it necessary to assign it an adverbial function, paraphrasing the statute by using an adverbial ‘when’ clause not found in the statute and then for good measure inserting into the statute an extra word, so as to state:  ‘[T]he statute indicates that the supervisor must act when ‘the individual [is] making such determination.’  See dissenting op. p. 80. But that is not what the statute says, and that is not what it means.” 147 T. C. 16, at pp. 30-31, footnote 15 (in part only; there’s more, but you get the idea).

Judge Gustafson has the better argument. Before imposing a penalty, a RO has to get a sign-off from the Boss Hoss.  It is not “harmless error” if s/he doesn’t. It doesn’t matter if the petitioner isn’t ambushed. Before the hammer falls the shadow, ex-Ch J Iron Mike, and it’s the shadow Congress put there. And to wait until after the trial to get the sign-off makes the sign-off meaningless. A statute is not to be construed to create an absurd result.

Incidentally, I doubt one Senator or Representative in the whole 538, whether in 1998 or any time since, had or has the slightest idea what that footnote means, or even thought about it when this statute was enacted. They wanted to rein in the examination types by having someone with bars on their shoulders sign off before launching missiles.

The well-known firm of Tax Court practitioners sometimes herein and elsewhere referred to as The Jersey Boys lost this one, and they shouldn’t have. Does the client have enough left to appeal?

Of course, the Graevs went down on their historic façade easement with a money-back guarantee, with which the majority tosses their reasonable reliance and substantial authority arguments in sustaining the 20% substantial understatement chop, which is all that is at issue here.

For the backstory, see my blogposts “Money-Back Guarantee,” 6/24/13, and “Penalty Kick,” 4/17/14.

I don’t mean in Don McLean’s 1971 magnum opus; rather, this is to do with Judge Lauber’s ongoing quest for enlightenment in “quaint and curious volumes of forgotten” law.

It’s all about protection of trade secrets vs the public’s right to know, as played out in Amazon.com, Inc. & Subsidiaries, Docket No. 31197-12, filed 11/30/16.

And the resulting scoping, quick-peeking, invigilating, tweaking and poking of the “C” documents (those  designated as protected by Section 7461(b)(1) by Jeff Bezos’ minions) yields a list of what Non-Party Guardian News & Media, LLC, the US arm of Snowden, Assange & Co. (non-political; merely for identification) and the public at large may eyeball at 400 Second Street, NW, by appointment.

For background, see my blogpost “Snow(den) Job?” 7/18/16.

Many of Judge Lauber’s desired answers are unnecessary. Non-Party Guardian News & Media is denied intervention. 92% of the trial transcripts and 75% of the documents Guardian wanted are theirs to read, lightly redacted.

The Court’s mandate to let the public see it all (whether or not fit to print, as the Non-Party’s rival asserts) has been satisfied.

So let the Clerk send the gladsome news to Rue Darwin in Brussels, where the Non-Party hangs out.

As Old Pliny remarked, on which Karen Dinesen picked up, both in a different context “ex Africa semper aliquid novi.” But today it’s “Out of Tax Court always something new.”

Judge Lauber wants enlightenment, and so do I.

We all know that Section 7459 mandates that dismissal of a petition from a SNOD, otherwise than for want of jurisdiction (e.g., mailed to wrong address, invalid SNOD), mandates entry of decision for IRS in full amount stated in SNOD. We also know that, per Wagner, dismissal of a petition from a NOD does not mandate such an entry.  The petition is dismissed and life goes on (ob-la-di, ob-la-da being an optional extra).

But what happens with a motion to dismiss petition from a NOD pursuant to the provisions of Section 7623?

Perhaps we’ll get the answer from Elizabeth M. Jacobson, Docket No. 20577-15W, filed 11/29/16.

Ms J moves to dismiss her petition, and IRS shoots in a quick nihil obstat.

Today is Latin day on this blog, guys.

Well, Judge Lauber may be looking for guidance, but he doesn’t ask Ms J’s counsel, he asks IRS’ Ladd to enlighten him.

“…respondent shall file…a response to petitioner’s Motion to Dismiss. The Court requests that respondent address in his response the propriety of extending, to the whistleblower context, the principles of Wagner v. Commissioner, 118 T.C. 330 (2002), a case that arose under the Court’s collection due process jurisdiction.” Order, at p. 1.

Seems a somewhat under-the-radar approach to what could be a simple procedural question.

Though Section 7623 vests Tax Court with jurisdiction, the blower has only thirty days from the issuance of the NOD to invoke same. Thus, in almost all cases, dismissal without prejudice is clearly off the table by the time the motion is made.

And as petitioner’s unopposed motion for dismissal in a CDP NOD is the end of the Tax Court road for petitioner (again because of the thirty-day outdate), what is the issue here?

Although I was relegated to the store-bought stuff this past holiday weekend, the judicious addition of certain fluids from Kentucky or Hispaniola greatly improved the pedestrian quality thereof. How I remember with longing the magnificent elixir compounded by the Girl of My Dreams in former years.

Nevertheless, clear of eye and soberly disposed, today I note Tax Court seems still to have the holiday spirit.

Check out Sade Vonya Tidwell, Docket No. 23456-16S, filed 11/28/16.

I reprint same in its entirety, as it came from the wordprocessor of Ch J L Paige (“Iron Fist”) Marvel:

“Due to an inadvertent clerical error, it is

ORDERED that petitioner’s address is changed on the Court’s record to:….”

The rest is silence.

The Miccosukee Tribe is back, only the gravamen of their contest this time is Title A income, not Title B FICA-FUTA. For the latter, see my blogpost “Coulda Woulda Shoulda ,” 5/5/14.

So now the Miccosukees want to subpoena  Chairman of the National Indian Gaming Commission Jonodev O. Chaudhuri, Assistant Secretary of Indian Affairs Kevin Washburn and Acting Assistant Secretary of the Interior Lawrence Roberts to discourse anent  section 139E (the Tribal General Welfare Exclusion Act of 2014, Pub. L. No. 113-168, 128 Stat. 1883).

I was as innocent as you about the terms of this enactment until I read James Clay & Audrey Osceola, et al., Docket No. 13104-11, filed 11/28/16. So Judge Pugh will enlighten us, although I wish she had enlightened me by designating this order. The modesty shown by some of the Tax Court Judges is truly outstanding, but hiding one’s light under a cliché makes life tough for a blogger worn out with eggnog (and other liquids therein).

To begin with, IRS wants partial summary J to dispose of. “…the central issue in the case: whether certain distributions from the Miccosukee Tribe of Florida to petitioners are taxable. Respondent argues that we need not determine whether the distributions are of gaming revenue to conclude that they are taxable under section 61. Petitioners argue that the distributions are not taxable citing a number of statutes, including the exclusion from gross income provided under section 139E….” Order, at p. 2.

But there are too many loose factual ends. What is the source of funds – gambling or the land? And the Miccosukees’ arguments, though not in their amended petition, don’t ambush IRS; they knew the Miccosukees had that arrow in their quiver.

“Even were we to determine that the primary source of the distributions is gaming revenue and that the exclusion under section 139E does not apply, we nonetheless would require a trial to determine other sources of funding which might cause some portion of the distributions to be nontaxable. In addition, petitioners claim that part of the disputed deficiency relates to distributions attributable to other family members, not petitioners. Lastly, even were we to grant respondent’s motion, a trial would be necessary to determine whether penalties should be imposed. For these reasons we hold that summary judgment is not appropriate at this time.” Order, at p. 3. (Footnotes omitted, but read them; Judge Pugh didn’t rule on any argument, 11th Cir. hasn’t yet decided what it all means, and although USDCCDFL held for IRS, that doesn’t bind Tax Court).

Taishoff comment – Many times summary J for IRS still requires a trial for the chops, and that need alone shouldn’t preclude summary J, Judge.

As for the high-powered government witnesses, the fact that they took no enforcement action against the Miccosukees proves nothing. And Chevron deference only applies to regulations, of which none are present here.

The Miccosukees can make their legal arguments, and Judge Pugh will decide without the need for assistance from the Miccosukes’ cloud of witnesses.

Let us all observe, in the words of a much greater writer than I: “…a day of thanksgiving and praise to our beneficent Father who dwelleth in the heavens.”

I was busy blogging a big 1031 case when Eric Stephen Gerencser hit the big time back in August. It was another of those expat Section 911s, but Eric was really creative, taking not only the foreign earned income exclusion (to which he was entitled), but a foreign income tax credit as well, even though he never paid any foreign income tax.

Eric claimed he might have to pay such tax retroactively, and crafted his own solution “to cover the waterfront.” Well, Judge Buch didn’t buy it in 2016 T. C. Memo. 151, filed 8/10/16.

Now Eric wants to try it out on the Circuit, but there’s a hitch.

As there’s final Tax Court decision (that’s a judgment to us State courtiers), Eric needs a bond, lest IRS lien and levy while Eric trudges through the appeals process.

But bonds, unlike butterflies, aren’t free. And Eric wants a discount.

Eric moves the Court to fix the amount of the bond less than the full-boat required by Section 7485, which is not more than double the amount of the deficiency, plus the add-ons like chops and interest.

Judge Buch gives Eric no discount, but he does give a designated order. See Eric Stephen Gerencser, Docket No. 8381-14, filed 11/23/16.

No go, Eric. Your arguments are rehashes of what you argued and lost, and anyway, “…since the purpose of the appeal bond is to guarantee that the petitioner can and will pay any deficiency finally approved by the appellate courts, any alternative which justifies a reduction in the customary amount of an appeal bond must provide a means whereby the Internal Revenue Service is certain that it can collect the approved deficiency.” Order, at p. 1.

Eric can’t clear the bar. No discount.