STJ Daniel A. (“Yuda”) Guy is walking the trail of Robbie Robertson, whose 1987 song was promoted (or butchered, depending upon your point of view) by Rod Stewart, as he hands a broken arrow to an attorney I’ll call AA, who finally gets three (count ‘em, three) 8332s accepted by IRS (who claims they were forged) and gets the whole batch of parental tax benefits for Michael J. St. Claire, 2016 T. C. Memo. 192, filed 10/19/16.

IRS doesn’t cover itself with glory. We all know that, no matter what the noncustodial does or pays, if no 8332 signed by custodial, custodial is the tax beneficiary.

Unlike the usual situation, Michael J gets the forms. Ex-Mrs Michael J defaulted, custody was never determined by the court, and AA got the 8332s.

As aforementioned, IRS claims forgery. AA asks do how they know, and wants to go to Appeals. IRS says no, this is a correspondence examination. AA says “hit me with a SNOD.” That much IRS gets right, and IRS’ counsel caves at the answer stage.

AA goes for legal and administratives (Section 7430).

I’ll spare you the nitpick over when IRS was “substantially justified.” Somebody apparently tried to claim the tax breaks to which Michael J was entitled (who the record does not state), so IRS gets a bye from STJ Yuda.

AA wants 15.7 hours at $325 per, and IRS offers 10.6 at $200.

AA has evidence from another local tax practitioner that his fee is reasonable (and I’d concur with that).

“Section 7430(a)(1) and (2) limits the prevailing party to an award of ‘reasonable’ litigation and administrative costs.  In this regard, section 7430(c)(1)(B)(iii) (and its flush language) generally limits the hourly rate for attorney’s fees to $125 per hour, plus an adjustment for cost of living, unless the Court determines that a special factor such as the limited availability of qualified attorneys for the proceeding, the difficulty of the issues presented, or the local availability of tax expertise justifies a higher rate.  For purposes of this case, the statutory rate for attorney’s fees incurred in 2015 and 2016 was $200 per hour. See Rev. Proc. 2015-53, 2015-44 I.R.B. 615; Rev. Proc. 2014-61, 2014-47 I.R.B. 860.  Petitioner bears the burden of proving that the amount of costs he claimed is reasonable.  See Rule 232(e).

“[AA] submitted to the Court a declaration stating that his $325 hourly rate is reasonable ‘based on the prevailing community rate’ and his expertise in tax matters.  Mr. Gibson stated that petitioner could not find an attorney to represent him at less than $325 per hour and that it made practical sense for him to provide legal representation given that he had prepared petitioner’s tax return for [the year at issue] and was already familiar with the underlying facts of the case.” 2016 T. C. Memo. 192, at p. 20.

Not good enough, AA.

“General expertise in tax law in itself is not a special factor warranting a fee award in excess of the statutory rate under section 7430.  See Huffman v. Commissioner, 978 F.2d at 1150; Powers v. Commissioner, 100 T.C. 457, 489 (1993), aff’d in part, rev’d in part and remanded on another issue, 43 F.3d 172 (5^th Cir. 1995).  Moreover, there was nothing particularly unique or unusual about these proceedings (involving a simple question of substantiation) that presented extraordinary difficulty or required specialized expertise.  See Nguyen v. Commissioner, T.C. Memo. 2001-41.” 2016 T. C. Memo. 192, at p. 21.

So,  “(C)onsidering all the facts and circumstances, we conclude that petitioner has failed to establish any special factor that warrants attorney’s fees in excess of the statutory rate provided in section 7430(c)(1)(B)(iii).” 2016 T. C. Memo. 192, at p. 21.

AA gets $2,120. Don’t spend it all in one place, AA.

Thus the headline of this blogpost. Section 7430 is a broken arrow.

No, this is neither about tax forms nor about elections. Once again Ch J L. Paige (“Iron Fist”) Marvel enlightens us about returning the sixty buck ticket to justice when the petitioner sends money but no papers.

On a day with no opinions or designated orders, the resolute blogger is reduced to sifting through clerical busywork to find blogfodder.

So here’s Travis Strable & Elana Strable, Docket No. 24933-15, filed 10/18/16.

The Strables started with correspondence (minus check) from an unadmitted person. Ch J Iron Fist treated that as a defective petition, to keep the Strables in the hunt, but told them to put up and cough up.

They didn’t, so they got bounced.

Almost a month later, the Strables sent in their sixty bucks, but nothing else.

I’ll let Ch J Iron Fist take it from there.

“Accordingly, the Court by Order…filed the envelope in which petitioners’ check was received as a Motion To Vacate as of the…date of receipt, and afforded petitioners a final opportunity…to file an Amended Petition.” Order, at p.1.

Ch J Iron Fist also told the Strables if they didn’t file “hard copy” manually signed by them and not some unadmitted dude (whether said dude was attorney-in-fact or not, as Tax Court doesn’t take POAs) by the cutoff date, the bounce would not be vacated.

The Strables send nothing.

Ch J Iron Fist tells the Clerk of the Court to mail back the check (apparently sans envelope) to the Strables, with a copy of the order to the unadmitted.

I don’t know if this clarifies when you get your check back from Tax Court, but I’ll keep following this, when there’s nothing more interesting to follow.

I was up on The Hill Far Above last Saturday, and promised the Legal Information Institute of the Cornell University Law School I’d give them a plug on this blog. I did get a very good lunch, so I felt expansive. When I want a quick research tool for Code and Regs, it’s my go-to place. Take a quick peek, as the e-discoverers say, and send ‘em a few bucks.

If you steal but want to repent, hand back the boodle in the same tax year.

That’s the lesson for Mark H. Swartz & Karen M. Swartz, Docket No. 3583-10, filed 10/17/16. It’s really Mark’s lesson, as Karen’s only connection is the joint return she and CPA-hubby Mark filed for the year at issue. And Karen still has the innocent spousery bailout.

The teacher? Whom else but The Great Dissenter, a/k/a The Judge Who Writes Like a Human Being, s/a/k/a The Indefatigable, Illustrious, Incontrovertible, Ineffable, Ineluctable, Intrepid, Insuperable Foe of the Partitive Genitive, and Old China Hand, Judge Mark V. Holmes?

Mark, a CPA, left private practice to go in-house but wound up in the Big House.

Seduced by wealth and power, Mark became CFO of “…a large and diversified manufacturing and service company. It designs, manufactures, and installs undersea cable-communication systems, conducts auto redistribution services, maintains electronic security systems, and distributes flow-control products. During the year at issue, …did quite well: It had combined net sales of $22.5 billion, assets of $32.4 billion and employed almost 200,000 people worldwide.” Order, at p. 1, footnote 2.

In support of the redistribution activity (although not the one authorized by the company), Mark joined “…a Key Employee Loan Program (KELP) for its executive officers — Mr. Swartz participated in the program for many years, including the … tax year at issue. In [that year], a handwritten journal entry in [the Corp’s] accounting records mysteriously reduced Mr. Swartz’s outstanding loan balance by $12.5 million. Swartz did not make any payments on this loan… during the year at issue. He also did not include the $12.5 million on his Form 1040 (for example, as cancellation-of-debt income), and …did not include the amount on Mr. Swartz’s W-2.” Order, at p. 2.

So Mark redistributed corporate assets, and two years later, Mark joined the Board of Directors.

His fall from the pinnacle came swiftly.  The pinnacle was called Tyco, his überBoss Dennis Kozlowski got nailed for NYS sales tax shenanigans, and the rescue party found Mark’s little entry and made him pay back the $12.5 mil with interest.

As a reward for his belated repentance, Mark got indicted with Dennis, survived a hung jury but got nailed on the retrial and, appeals exhausted, went away for making away with the $12.5 mil.

On his return, IRS nails him for the COD.

Mark claims collateral estoppel (issue preclusion) doesn’t apply, because his payback erased the earlier erasure. Paying back what he took unstole the $12.5 mil, making it “null and void.”

“Mr. Swartz concedes that the Commissioner has shown that several of the requirements for collateral estoppel exist. He argues, however, that the elements of issue identity and actual litigation are not, because he never presented his ‘null and void’ theory in the criminal case.” Order, at p. 3.

But that doesn’t fly with The Great Dissenter.

“The first problem with this is that a party’s failure to make an argument about an issue in the first case doesn’t mean that he gets a do-over in the second. As the Restatement (Second) of Judgments, § 27 cmt. c (Am. Law Inst. 1982), concisely summarizes ‘if the party against whom preclusion is sought did in fact litigate an issue of ultimate fact and suffered an adverse determination, new evidentiary facts may not be brought forward to obtain a different determination of that ultimate fact. . . . And similarly if the issue was one of law, new arguments may not be presented to obtain a different determination of that issue.’

“We recognize the Mr. Swartz may be arguing a subtler point — that, although his distinction between a void theft and a voidable one might not have mattered as a matter of New York criminal law, it should matter under federal income tax law.” Order, at p. 3.

But subtlety fails when tax law is on the playlist, because the Supremes long ago said that Federal tax questions aren’t determined by “attenuated subtleties.”

The jury found Mark knocked the $12.5 mil in the year IRS is claiming he did. He didn’t pay it back that year, but finally disgorged when the forces of truth and righteousness held his paws to the proverbial two years later.

Of course, the tax effect of the belated payback is for another day.

Takeaway—If you grab it, give it back…prontito. sur le champ, mit schnell.

Robert Talbot, 2016 T. C. Memo. 191, filed 10/17/16, didn’t bother with tax returns for seven (count ‘em, seven) years. IRS helped Bob out with SFRs for all seven, and then gave him SNODs for the front four, and another batch for the back three.

Then came NITLs, first for the front four again, and later for the back three.

Bob petitions the lot, and loses on the front four. It’s the usual no-information-submitted for them.

The back three is another story, and Judge Kerrigan tells it.

“Petitioner resided at three different addresses within the same ZIP Code in Wasilla, Alaska.” 2016 T. C. Memo. 191, at p. 2.

IRS nailed the right address for the front four SNODs, and the NITLs that followed, so Bob is out on those. He had his chance to contest liability, had unfiled years and offered no collection alternative.

On the back three, IRS mailed the SNODs for those years to the right address, maybe, but inverted the street number on the USPS3877 Proof of Mailing. The same inversion shows up on the case activity report. The 3877 and the case activity report both show “425” when the right number is “452.” And thereby hangs the cliché.

None of the SNODs were returned. Bob, of course, claims he never got any of them, so never petitioned, and wants to fight about his liability.

Bob never put in any evidence at any time about his liabilities for any of the seven years at issue, even when he got the chance at Appeals. So liability is not at issue.

But IRS flunks the abuse-of-discretion test for the back three.

“Respondent [IRS] asserts that respondent may rely on a presumption of official regularity to verify that a notice of deficiency was duly mailed to petitioner’s last known address before assessment.  We have held that exact compliance with PS Form 3877 or equivalent mailing procedures raises a presumption of official regularity in favor of the Commissioner and is sufficient, absent evidence to the contrary, to establish that a notice of deficiency was properly mailed.” 2016 T. C. Memo. 191, at p. 15 (Citations omitted).

That doesn’t go for the back three.

“In the notice of determination the settlement officer noted that ‘Appeals has review[ed] the [IRS] [c]ertified mailing list to confirm’ that the notice of deficiency for tax years [back three] was sent by certified mail to petitioner’s last known address.  The IRS certified mailing list incorrectly lists petitioner’s address as 425…..  The defective IRS certified mailing list does not therefore entitle respondent to a presumption of mailing.” 2016 T. C. Memo. 191, at p. 20. (Citation omitted).

IRS goes down fighting. “Respondent argues that a typographical error should not invalidate the assessment.  Respondent contends that the IRS generally issues notices in windowed envelopes so that the address on a notice of deficiency is the address where the USPS would attempt to deliver the notice.  Specifically, an IRS field internal revenue agent group manager for Alaska and Tacoma, Washington, testified that ‘the window on the envelope is designed to fit where the address comes out on specific letters or on specific reports so that nobody has to retype an envelope.’” 2016 T. C. Memo. 191, at p. 20.

So the SNODs apparently got there despite the inverted numbers on the 3877 and the case activity report.

But that’s not good enough for Section 6330(c)(1) nor for Judge Kerrigan.

“At a CDP hearing, however, the settlement officer ‘shall’ verify that the requirements of all applicable law and administrative procedure have been followed.  Sec. 6330(c)(1).  One requirement of applicable law is the mandate of section 6213(a) that a notice of deficiency be duly mailed to the taxpayer’s last known address before a deficiency may be assessed.  If the Commissioner has not mailed a notice of deficiency, no collection of an assessment of the deficiency may proceed.” 2016 T. C. Memo. 191, at pp. 20-21.

“The settlement officer relied solely on the IRS certified mailing list to determine whether the notice was sent to petitioner’s last known address.  There is no evidence that the settlement officer reviewed any other documentation or information to verify the validity of the assessments.  The address on the certified mailing list is wrong.  It is therefore unclear whether a notice was sent to petitioner’s…address.  The incorrect address was also included in the IRS case activity report and several other places in the record, including the notices of determination.  If the settlement officer had reviewed a copy of the notice of deficiency, she might have noticed the address discrepancy.” 2106 T. C. Memo. 191, at p. 21.

No levy on Bob for the back three.

Anybody old enough to remember Justice Benjamin Nathan Cardozo’s remark that “the constable blundered”?

Maybe He Even Reads My Blog

I’m delighted to see that Judge Lauber decides that a Power of Attorney (POA) is a piece of paper. The party designated to act for the principal in most of the uniform POAs I’ve seen is called the “agent.”

So Judge Lauber uses the correct terminology in Vincent J. Fumo, Docket No. 17754-13, filed 10/14/16; and for that I’ll even forgive him for not designating this order.

Vincent J. is in the unhappy situation of being about to depart the free world for durance vile. So he opens a joint bank account with his son, who soon proves the truth of the old adage about “sharper than a serpent’s tooth.”

Vincent J. pours nearly $1 million of his money in, and goes off to spend 61 months as a guest of a certain State.

“The powers granted to petitioner’s son, referred to in the POA as his ‘agent,’ included the powers to ‘draw and sign checks for me and in my name, including any accounts opened by my agent in my name at any bank or banks’; and to ‘prepare, sign and file tax returns of all kinds.’ Petitioner explicitly stated in the POA that ‘[m]y agent does not have the authority to make gifts.’ In accepting these powers, petitioner’s son promised: ‘I shall exercise the powers for the benefit of the principal’ and “I shall keep the assets of the principal separate from my assets.’” Order, at pp. 2-3.

You can guess the rest; son transfers money from joint account to a different bank from where the joint account was held, and uses some of the cash to buy real estate in his own name.

When Vincent J. breathes free air again, he sues son and they settle.

IRS, with breath-bereaving coolness, claims gift tax on everything above the annual exclusion, and slams Vincent J with a $300K deficiency.

Now IRS wants summary J.

Might there be a question of fact or two? Judge Lauber thinks so.

“A gift is a transfer by a donor that is motivated by ‘a detached and disinterested generosity’ toward the donee. Commissioner v. Duberstein, 363 U.S. 278, 285 (1960). To determine whether a gift has been completed and is thus subject to gift tax, we must determine (among other things) whether the donor has parted with dominion and control over the property so as to leave him no power to change the disposition of the gift. Treas. Reg. § 25.2511-2(b).

“Several disputes of fact [sic; probably “several disputed facts”] must be resolved before we can determine whether the $920,000 transferred from [A] Bank account to the [B Bank] account constituted completed gifts from petitioner to his son. First, the record does not conclusively establish in whose name the [B Bank] account was titled. [Bank B] reported to petitioner the interest earned on that amount; this creates an inference that his name was listed on the account. As respondent recognizes, the transfer of money into a joint account does not, in and of itself, establish a completed gift to the other account-holder.

“Second, factual disputes exist as to whether petitioner intended to make a gift of $920,000 to his son. Petitioner’s son effected these transfers pursuant to the powers granted him by the POA. But the POA prohibited petitioner’s son, in his agency capacity, from making gifts. And petitioner’s son, in accepting his role as agent, pledged to keep petitioner’s assets separate from his own. By virtue of his imprisonment, petitioner lacked power to control the actions his son took pursuant to the POA. But the fact of imprisonment, without more, does not establish that petitioner made a gift to his son of the assets over which his son possessed fiduciary powers.” Order, at p. 3.(Names omitted).

The present uniform State law POA, which has a separate rider when gifts by the agent are to be permitted, owes much to New York’s Matter of Ferrara, 7 NY 3d 244 (2006).

Powers of Attorney may be only pieces of paper, but they can do a lot of damage.

It’s a refresher from Ch J L. Paige (“Iron Fist”) Marvel; sometimes an Appeals hearing yields jurisdiction at 400 Second Street, NW, and sometimes it doesn’t. The hapless pro se (that’s self-represented for you Anglophones) is often unaware of the difference. And that can get expensive.

Just ask Chris A. Changras, Docket No. 11994-16L, filed 10/14/16. And I wish Ch J Iron Fist would designate some orders. There were 150 on tap today, and digging for blogfodder is tough enough.

Anyway, Chris is hit with a bushelbasketful of TFRPs. She goes to Appeals, which gives her a NOD on all but two of the quarters at issue. For those two, she gets a decision letter.

Chris never picked up the certified letter with the NITL for the two outliers. She did pick up the one for the other eight or so, and there was some further epistolary back-and-forth, but finally Chris filed a 12153 for the whole shebang.

Chris was timely as to the eight, so she gets a NOD.

But all she gets is a decision letter for the outliers. “A decision letter was issued to petitioner with respect to the [outliers] levy notice because petitioner did not timely request a hearing within 30 days of the mailing of that notice….” Order, at p. 3.

Here’s the refresher from Ch J Iron Fist: “A late or untimely request for a hearing that is made within a one-year period calculated with reference to one of the notices of lien or levy just described results only in a so-called equivalent hearing and a corresponding decision letter, which is not a notice of determination sufficient to confer jurisdiction upon this Court under Internal Revenue Code section 6320 or 6330.” Order, at p. 2 (Citation omitted).

Chris didn’t know that (after all, why should she?).

“In her opposition to respondent’s motion to dismiss, petitioner does not directly address the jurisdictional issues with respect to the 2009 levy notice. Rather, petitioner suggests that there might be confusion over the issue of jurisdiction resulting from the manner in which she filed her petition. However, as discussed above, because a decision letter, rather than a notice of determination, was issued to petitioner with respect to the [outlier] levy notice, the Court has no jurisdiction to review that decision.” Order, at p. 3 (Citation omitted).

Pick up those letters from IRS, guys. And, of course, watch out for the latest scams; the crooks have started mailing phony letters.

Unfortunately for Harvey C. Hubbell Trust, Harry J. Finke, IV, Trustee, 2016 T. C. Sum. Op. 67, filed 10/13/16, for the year at issue Clarence E. Caesar and Frances Cleveland were, in the words Buck Ram’s ginormous 1956 hit for The Platters (of glorious memory), still around.

And they got a munificent $1500 between them for the year at issue from the trust aforesaid. The late Harve Hub left $2 million in 1960, when the $125 per month that was the aggregate limit the trustees could give Clarence and Frances could actually buy something. If I had $125 per month in 1960 I would have lived like a king.

Poor Finke IV gets nailed by IRS for making charitable contributions unauthorized by the will which created the trust.

The language that sinks Finke IV is the termination of the trust, Item V (the individual beneficiaries are dealt with in Item IV). The trust “…shall terminate upon the death of the last person receiving benefits therefrom, except that if in the judgment of the then Trustees it is advisable to continue the trust, it may be continued for not longer than ten (10) years after such death. All unused income and the remainder of the principal shall be used and distributed, in such proportion as the Trustees deem best, for such purpose or purposes, to be selected by them as the time of each distribution, as will make such uses and distributions exempt from Ohio inheritance and Federal estate taxes and for no other purpose.” 2016 T. C. Sum. Op. 67, at p. 4.

Finke IV says that for years his predecessor trustees made charitable gifts after they paid the individual beneficiaries what the late Harve Hub said to give them.

Judge Whelan says that isn’t good enough. Our old chum Section 642(c)(1) requires that a charitable donation made by a trust, to be tax deductible, must be made “pursuant to the terms of the governing instrument.” 2016 T. C. Sum. Op. 67, at p. 12.

Finke IV claims the will is ambiguous. And they have a State Court decision saying the will does authorize the charitables.

Not good enough for Judge Whelan, even though caselaw says that giving the trustee discretion doesn’t mean that a charitable isn’t made “pursuant to the governing document.”

“It is not until after the death of the last annuitant, when the trust terminates…, that the trustees are permitted to continue the trust, and to use and distribute unused income and the remainder of the principal for a purpose ‘exempt from Ohio inheritance and Federal estate taxes and for no other purpose’.  Thus, items IV and V conserve the assets of the trust by authorizing only the annual annuity payments required by item IV until after the annuities have been paid in full.

“This conservative approach is consistent with the fact that Mr. Hubbell’s will provides not only for the creation of the trust, but also for the creation of a marital trust for his wife, and directs in item II that the marital trust be given one half of his property after the payment of his debts.  If the marital trust had come into existence, then the trust would have received less than one-half of the amount it actually received.  Representatives of the trust fail to take the marital trust into consideration in their argument.  We also note that item IV provides that the trustees shall make the annual annuity payments ‘out of net income if available, otherwise out of principal’ and thereby suggests a concern about whether the assets of the trust would be sufficient to generate enough net income to pay the annual annuities.” 2016 T. C. Sum. Op. 67, at pp. 19-20.

If the late Harve Hub wanted the trustees to be charitable without impairing the payments to the individual beneficiaries, he could have said so, and there’s learning from the Supremes that tells the drafter of a will or trust instrument exactly how to do it.

The late Harve Hub didn’t. Finke IV wants Judge Whelan to rewrite the will. That’s a nonstarter, so IRS wins.

The problem, of course, is that the dollar caps for distributions to the individual beneficiaries became laughable. As inflation took over, the trust was rolling in taxable money. And the explicit dollar limits kept the individual beneficiaries from suing.

Goes to show that micromanaging from the grave doesn’t work, especially over decades. The micromanager is not “still around.”

You remember that Ch J L. Paige (“Iron Fist”) Marvel really wrong-footed me in Harold B. Rhoney, Docket No. 30518-15S. back on 9/27/16. You don’t remember? Well, check out my blog post “Now I’m Really Confused,” 9/27/16.

Ch J Iron Fist has now Judgesplained Harold’s situation, in Harold B. Rhoney, Docket No. 19150-16S, filed 10/13/16. Harold’s $60, which Ch J Iron Fist bagged for the Tax Court, got applied to the bounced 30518-15S case. But Harold filed a new petition, the 19150-16S case, duplicative of the 30518-15S case, without telling Ch J Iron Fist that it was a reprise of his earlier effort.

So, once clued-in, Ch J Iron Fist resuscitates the 30518-15S case, closes the 19150-16S case, applies the $60, and tells IRS to answer.

Now I’m only left wondering what would have happened to Harold’s $60 if he hadn’t filed the later petition.

I’ve said it before, but a certain attorney, whom I’ll hereinafter designate as DK, does it right.

The order is in Howard Lapensohn, Docket No. 30335-13, filed 10/13/16, but it’s DK’s story.

Late last August Judge Chiechi unsorted two petitions in this case, gave them different docket numbers, and bifurcated the two trials. Judge Chiechi told DK to file his Entry of Appearance in the case with a different docket number from that set forth hereinabove in the immediately preceding paragraph (as my high-priced colleagues would say).

DK does the ton. He files two Entries of Appearance in this case and one in the other.

Judge Chiechi strikes the two in this case.

This proves DK knows what every Little League catcher learns in her/his first game, and carries through life like a torch in flame: when you’re lying in the dirt at home plate, tag ‘em all; tag the runner, the batter, the umpire and yourself. That way you know you got ‘em.

The umpire (or the judge) is paid to sort it out.

Not in Tax Court

Rarely, I get an e-mail from someone who wants me to take down a post about their case. Mostly, I won’t do it.

Threats of fire and slaughter do not move me. I’ve been rocketed by the Viet Cong, fired on by the US Air Force (they were only having fun, but stopped when I threatened to shoot back), been bawled out by clients, adversaries, clerks and judges, threatened with disciplinary action (never happened), and sued more times than I can remember.

Nathan Detroit has nothing on me.

But before the next one who’s worried about their innermost legumes being distributed abroad wastes electrons howling at me, take a look at Anthony Caruso & Maria Caruso, Docket No. 20714-15, filed 10/13/16.

And have a word with Judge Nega. Anything you tell Tax Court not under seal (and the judge decides what’s sealed) is public record.