Y’all remember Diebold and Salus Mundi, the two leading trans-fat cats of the Section 6901 herd. I blogged the remand from Second and Ninth Circuits in passing (see my blogpost ‘Twice Burned,” 8/15/16), as I expected the trade press and blogosphere to be all over Judge Goeke’s August memo following the reverse-and-remand.

Maybe I missed the chatter, but this eight-year-old case isn’t over yet.

Instead of the Rule 155 beancount Judge Goeke ordered, Salus Mundi moves to dismiss for want of jurisdiction.

Huh?

Eight (count ‘em, eight) years ago next Sunday, SM filed its petition. While the SOL was on the table in both the reversed-and-remanded opinion and in this August’s follow-up, that’s an affirmative defense, right? It’s not a jurisdictional issue.

Unhappily, today’s order, Docket No. 24741-08, filed 10/5/16, only tells IRS to respond. I’d really like to know to what.

If there’s no jurisdiction, how is it that Tax Court (twice), Second Circuit and Ninth Circuit didn’t notice? And how come SM didn’t notice for eight years?

No, this is not about yellow buses and bulging backpacks. Judge Wells has a lesson for The American College of Tax Counsel (to which august body I do not belong), as they try to file amicus in John Finnegan & Joan Finnegan, Docket No. 8637-13, filed 10/4/16.

You remember John & Joan, of course. No? Then check out my blogposts “SOL On SOL? – Part Deux,” 7/24/16, and “The Fraudster’s Toolbox,” 6/17/16. Now that you’re off the “on” ramp and accelerating, John & Joan want Rule 161 reconsideration, and the American Collegiates are trying to get in to help.

But it’s a nonstarter.

John & Joan, and I presume the Collegiates, claim that BASR P’ship was a change in law that triggered a different result. Except IRS raised it first on post-trial brief and distinguished it, and John & Joan never appealed the decision. Moreover, John & Joan could have argued that the law was wrong, and made a good faith argument based on the USCFC case, which CCAFC affirmed. Except they didn’t.

And CCAFC wasn’t unanimous in its holding, with a concurrence and one affirmance, and a dissent, in a three-judge panel.  Besides, John & Joan aren’t Golsenized to CCAFC, so that decision doesn’t bind Tax Court anyhow, as the appeal was taken from USCFC.

In short, if the preparer committed fraud, the taxpayer is stuck.

Takeaway—Taxpayer, choose your preparer and trial counsel carefully.

Footnote- For more hints from the fraudster’s toolbox, see 2016 T. C. Memo. 185, filed 10/4/16, as Dr. Ramon Reynoso shows how to do it. But don’t try this at home (or anywhere else).

I’ve upended trillions of electrons on the history of Guidant LLC f.k.a. Guidant Corporation, and Subsidiaries, et al., Docket No. 5989-11, filed 10/3/16.

But I think I have to echo the words of Ian Tyson’s all-time greatest Canadian song: “But our good times are all gone/And I’m bound for movin’ on.”

After the drubbing Guidant’s hearty competitor Medtronic gave the IRS back in June, IRS and Guidant join in taking the case off the trial calendar.

For the drubbing, see my blogpost “This Is a Memo?” 6/10/16.

For the take-off, see the order above-cited.

This one settles, guys. IRS isn’t going to lose another big one. Publicly, that is.

Joining me in this thought is a certain principal in a major accounting firm, who took time from her very busy day to say “hi” to this old blogger, for which he is enormously grateful.

Flying out of the starting gate like a six-furlong stakes race, the IRS scammers jumped aboard John (“Kosy“) Koskinen’s recently-announced recruitment of publicans and sinners, as a much more exalted author than I put it.

See my blog post “Tax Collectors,” 9/30/16.

Incredibly, I, even I, got a robocall this morning from some dude calling himself “Kevin Mason,” whose accent one could cut with a blunt butterknife, threatening me with fire and slaughter from “US Treasury” if I ignored his call.

Not every one of “Kevin Mason’s” marks is an attorney and EA.

So John, as I said in my abovecited blogpost, y’all have a lot of ‘splainin’ to do.

Krishnaiah Janumpalli, Docket No. 31879-15SL, filed 10/3/16, wants to try to use some past losses to offset his unpaid, self-assessed tax. The Judge With a Heart, STJ Armen, can’t help him, and IRS gets summary J.

Kris got a NITL, fires off a 12153, saying he can’t pay and wants an OIC. The SO tells him to provide 433-A and 656 with $186 and first payment. He doesn’t, but sends in a 1040X, claiming his past losses offset current tax.

IRS sends him a SNOD. Kris petitions but doesn’t pay the sixty bucks (or ask for a waiver). So he gets tossed.

Kris appoints Jon as his POA. Judge Armen, as do many of his judicial colleagues, conflates a piece of paper with a human being (a human being is known as a “representative” per Form 2848, or as an “agent” under our State’s General Obligations Law, but you could also call Jon an “attorney in fact” and that would do as well; what he isn’t is a “power of attorney”). Once again, a power of attorney is a piece of paper.

If someone has a “power of appointment” in an estate tax case, do you call that person a “power of appointment”?

Well, that never stopped a judge yet.

“…, respondent’s SO contacted petitioner’s POA stating that the assessment…had posted and offered the option of an installment agreement.

“… petitioner’s POA faxed a Form 433-D, Installment Agreement, to respondent’s SO. Petitioner subsequently contacted respondent’s SO informing her that: (1) his POA was mistaken and that he did not want to enter into an installment agreement; and (2) he disputed the underlying liability.

“…petitioner’s POA left a message for respondent’s SO informing her that petitioner decided to file for audit reconsideration.” Order, at p. 3.

The SO confirms the NITL, and Kris petitions.

Kris wants to fight about his underlying liability, but he blew that when he didn’t pay the sixty bucks (or seek a waiver). And he didn’t give the SO the 433-A or the 656 or the $186 or the first payment.

“Here petitioner failed to provide a completed Form 433-A or Form 656. Furthermore, petitioner explicitly told respondent’s SO that he did not want to enter into an installment agreement. Under these circumstances it would not be an abuse of discretion to deny petitioner a collection alternative.” Order, at p. 4.

And audit reconsideration is as administrative matter within IRS, as to which Tax Court has no jurisdiction.

BTW, Kris, “Also, merely as an observation, the Court notes that in the case of an individual sec. 1211(b) generally limits the allowance of a capital loss to $3,000 per year.” Order, at p. 4, footnote 2.

Net operating losses are another story, Kris, but this is a nonpolitical blog. Therefore this will be the only tax blog not commenting upon the tax posture of a certain candidate for public office.

I note the IRS announcement earlier this week that, due to lack of resources, their so-far-unimpeached IRS boss John (”Kosy”) Koskinen has contracted out collection of “older, overdue tax accounts” among others.

The collectors must follow the Federal Fair Debt Collection Practices Act, and be courteous and respect taxpayer rights, unlike the strip-miners and bottom-fishers of distressed debt who try strong-arm tactics to collect their own debts.

IRS is aware that, having trumpeted to the skies warnings of phony scammer phonecalls pretending to be from the IRS, they will have a lot of ‘splainin’ to do.

The new tax collectors, I fear, will be about as popular as their predecessors, who appear in far more exalted documents than IRS press releases. And markedly less effective.

Here’s the story: https://www.irs.gov/uac/newsroom/new-private-debt-collection-program-to-begin-next-spring-irs-to-contract-with-four-agencies-taxpayer-rights-protected

Merrick Rayle, Docket No. 26253-14L, filed 9/30/16, is belting out the 1922 classic from the pen of Alfred Breitenbach. a/k/a Fred Fisher.

Merrick got a remand back to Appeals from Judge Paris, who told Appeals to give Merrick a supplemental hearing, after she bounced IRS’ summary J motion. The hearing was to take place at the Appeals office closest to Merrick’s abode, or such other place as agreed upon.

Merrick asked for Chicago. The assigned SO worked out of Holtsville, ignored Merrick’s written request, claimed he’d asked for a face-to-face (he didn’t), claimed he failed to send in a 433-A (not required for the supplemental CDP Judge Paris ordered) and sustained the collection action.

Judge Paris finds this less than amusing. “Petitioner requested, as the Court so ordered, that the supplemental CDP hearing be conducted at the Appeals Office located closest to his residence. SO S’s requirement that petitioner complete Form 433-A for a face-to-face hearing was premature, as he did not request a face-to-face hearing in his… letter, and her lack of acknowledging petitioner’s request for the location of the supplemental CDP hearing was a blatant disregard of the Court’s… Order. Additionally, SO S failed to follow the Court’s Order because she did not clarify for petitioner how she determined that his account for 2009 was not correctly in currently noncollectible (CNC) status.” Order, at pp. 2-3. (Name omitted).

This sounds bad, but Merrick (an attorney with a Big Firm background) is not necessarily faultless here. Take a look at the 6/16/16 order, referred to in Judge Paris’ order.

Anyway, Judge Paris orders a supplement to the supplement. “The Court finds that respondent failed to follow the Court’s… Order and, therefore, will again remand this case for a second supplemental CDP hearing. Upon remand an Appeals officer from respondent’s Chicago Appeals Office shall verify that all applicable laws and administrative procedures have been met—specifically as they pertain to the CNC status of petitioner’s account for 2009–and consider petitioner’s collection alternatives.” Order, at p. 3.

And Merrick, send in the 433-A this time.

BTW, Holtsville is a long way from Chicago. Holtsville is a hamlet in Suffolk  County, New York. Suffolk County is situated on the outlying island off the coast of North America, known as “Long Island.” The name thereof is pronounced hereabouts by anyone not wishing the oppobrious designation of “tourist” as “Lawn Guyland.”

Not If It Hasn’t Filed Form 8832

More of the blind-men-describe-elephant excursus around the limited liability company, the outfit with the invisible shield, is found in Heber E. Costello, LLC, Scott D. Costello, Single Member, 2016 T. C. Memo. 184, filed 9/29/16.

Leaving aside the puzzling joinder of member with LLC, more particularly bounded and described in my blogpost “An Answer You’ve All Been Waiting For,” 10/30/15, here we have unpaid FICA/FUTA.

The late Heber formed a C Corp, of which he was sole stockholder, and filed 1120s consistently. Scott D. inherited the stock, formed the LLC, merged the C Corp with the LLC, whereupon the C Corp disappeared.

This gives rise to some Section 368(a)(1)(F) reorg learning, whereby Scott D. claims the LLC is a C Corp, and therefore the LLC should pay the self-assessed but unpaid FICA/FUTA. And Scott D. kept on filing 1120s, with C Corp’s TIN, which IRS accepted every year, and never bounced. So Scott D. claims equitable estoppel.

OK, but all that misses the point.

Here’s Judge Nega to set Scott D. on the right path to liability.

“Regardless of whether the merger of [C Corp] and LLC qualified as a valid reorganization under section 368(a)(1)(F), LLC never filed Form 8832 electing its classification for Federal tax purposes as an association and thus is not a corporation but rather is disregarded as an entity separate from its owner.

“Second, an eligible entity may not elect its entity classification by filing any particular tax return it wishes; it must do so by filing Form 8832 and following the instructions within section 301.7701-3(c)(1)(i), Proced. & Admin. Regs. Thus, LLC could not elect to be treated as a corporation merely by filing corporate income tax returns.” 2016 T. C. Memo. 184, at p. 11.

Equitable estoppel against IRS is used with “utmost restraint.” And IRS needs to make a false statement of fact.

“Respondent [IRS] made no false statement to petitioner, and we do not agree that his lack of rejection of LLC’s filed Forms 1120 is a wrongful misleading silence. Moreover, Mr. Costello knew that LLC has never filed a Form 8832 to elect to be treated as anything other than a disregarded entity.” 2016 T. C. Memo. 184, at p. 12.

Now lest my ultra-sophisticated readers rise as one to shout that TFRPs are assessed and collected against LLCs as if they were corporations, Judge Nega points out that the TFRPs here involved are for tax years prior to 2009, when the current rules went into effect.

But the requirement to file Form 8832 didn’t change. And unless statute or reg otherwise provide, you don’t elect your form of business by your form of tax return.

The Section 2036(a) boobytrap (“you kept it when you claim you gave it away”) blows up on Estate of Edward G. Beyer, Deceased, Craig E. Plassmeyer, Executor, 2016 T. C. Memo. 182, filed 9/29/16.

I will not attempt to digest 157 pages of Judge Chiechi’s biographical essay. The internet was down at my office yesterday, stuff didn’t get done that needed to get done, and after I got home and did it, I fell asleep at 3:00 a.m. local time while reading the opinion. Monumental quotations from formbook trust agreements with enough boilerplate to power a 120,000-ton cruise ship do not get it for me.

OK, so the late Edward G., former CFO of Abbott Labs, played fast and loose with more than a couple trusts (hi, Judge Holmes) his legal team provided for him. There were at least three plus a FLP. And Craig E., his agent (that’s someone who acts pursuant to a power of attorney, which is a piece of paper) and later ex’r, is swapping stock, promissory notes and money among various trusts and brokerage accounts. In the end, it really needed a diagram.

Craig E. is unfortunate that there are no jury trials in Tax Court. He’d get off, because no jury in this solar system could possibly have the slightest ideas of what was going on here. As it is, Judge Chiechi nails him on all counts.

The point is (and I can hear the cheers of those who have read so far, hope springing eternal in their bosoms) Craig’s lament. “In an email … from Craig Plassmeyer to Monique T, an attorney…, Craig Plassmeyer stated in pertinent part: ‘[A]ll these trusts are getting confusing. Explain to me how to record this interest payment. Which specific accounts * * * [should] show the movement of cash[?]’” 2016 T. C. Memo. 182, at p. 84. (Name omitted).

Barely halfway through this morass, and Craig E. (himself with a bachelor’s in math and chem, and later an MBA in finance, running a healthcare operation) finds his head spinning.

These labyrinthine shuck-and-jive estate plans require the ex’r to have a back office staff employed full-time to make this stuff work. Even a sophisticated ex’r with enough education and background to begin to comprehend this stuff can’t cope, if s/he must at the same time run their own business.

True, the late Edward G. left an estate north of $20 million. So it needed astute planning. But planning isn’t enough. It’s really about execution. And here the plethora of moving parts drowns poor Craig E.

I lost count of how many lawyers and brokers were involved in this case, even before trial, after I reached five. No prize for whomever finally comes up with the total.

It matters when a late-filing chop is asserted. We all know the Supremes refused to let the late filer off the hook because reliance on accountant, attorney or other preparer to file timely is no excuse. See my blogpost “Wait Just a Minute, Mr Postman – Part Deux,” 9/11/12.

But what about an adviser getting a date wrong? Or giving erroneous legal advice?

Third Circuit says that’s two different stories, and that’s enough to stymie IRS’ shot at summary J in MW 2 INC., Docket No. 8646-16SL, filed 9/28/16, a designated hitter by The Judge With a Heart, STJ Armen.

No question the 1120S was late. But MW 2 is Golsenized to Third Circuit, and Third Circuit reads the Supremes’ exegesis in US v Boyle, 469 US 241 (1985), to say strictly “my accountant mailed it late” doesn’t get it.

This is as contrasted with “my accountant told me Tuesday would be OK” or “you can always get another extension under 6081” (you can’t; see my blogpost “The Phone Call,” 4/15/14).

BTW, Second Circuit apparently agrees; see my blogpost first above cited.

In any case, here there’s a question whether MW2 relied on advice of expert as to filing date.

STJ Armen: “Among other things, questions exist in the instant case whether petitioner had reasonable cause for failing to file timely its income tax returns (Forms 1120S, U.S. Income Tax Return for an S Corporation), sp sec. 6699, and thus as to petitioner’s entitlement to abatement of applicable penalties. Drawing all factual inferences against respondent as the moving party in the motion for summary judgment, respondent has failed to establish that there are no genuine issues of material fact in dispute nor that he is entitled to judgment as a matter of law.” Order, at p. 3.