And Substantial Compliance

 Although the appraisal their tandem appraisers put in didn’t match the literal terms of the regulations, it was close enough for The Great Dissenter, a/k/a The Judge Who Writes Like a Human Being, s/a/k/a The Irrefragable, Irrefutable, Ineluctable, Ineffable, Incomparable, Indefatigable, Incontrovertible and Illustrious Foe of the Partitive Genitive, Judge Mark V. Holmes.

You can see for yourselves in Cave Buttes, L.L.C., Michael Wolfe, Tax Matters Partner, 147 T. C. 10, filed 9/20/16.

The local flood controllers tried to bluff the Cave Butte gang into selling their property overlooking the city of Phoenix, AZ, so the Cave Butte gang did, but claimed the difference between what they got from the flood controllers and the true worth of the property was a charitable contribution.

Enter the Section 170 regulations.

The Cave Butte gang’s duo of appraisers were a wee bit casual, and IRS very carefully flyspecks their appraisal, picking every nit in sight.

Judge Holmes turns all objections aside. While piously disclaiming any intention to rewrite the regulations that Congress especially reserved to Treasury, Judge Holmes opens the hosepipe of substantial compliance on the smoky fire of IRS’s objections.

For the trial, the Cave Butte gang outsources the appraising, and the third appraiser brings them the win.

This is a must-read for all who deal with appraisals and appraisers.

No, not the 1939 Agatha Christie classic best-seller of all time. Rather, this is another of the multi-employer Section 419A(f)(6) scams, popular in the last decade.

And the only one standing as this one unravels is Jay D. Schechter, 2016 T.C. Memo. 174, filed 9/19/16, Judge Morrison completing my trifecta for today.

Jay D.’s “pension guy” suggests Jay D. sign up with an outfit called Nova Benefit Plans, LLC. So Jay D. signs a 21-page agreement that Nova never signs, hands Nova $450K via his Sub S, which takes a big deduction therefor and passes it through to Jay D. Jay D. supposedly is insured against most of the ills that flesh is heir to. He is the only employee of his Sub S.

“It is Schechter’s position that [Sub S’s] $450,000 payment was a contribution by an employer to a welfare-benefit fund that is part of a 10-or-more- employer plan which does not maintain experience-rating arrangements with respect to individual employers. Therefore, Schechter takes the position that under section 419A(f)(6) [Sub S’s] deduction for the payment is not limited by section 419(b). Schechter concedes on brief that if [Sub S’s] deduction were limited by section 419(b), then the fund’s qualified cost for the year would be zero. Therefore, if the deduction is limited by section 419(b) to the fund’s qualified cost, Schechter concedes that [Sub S] would not be entitled to any deduction.” 2016 T. C. Memo. 174, at p. 6. [Name omitted).

So if there are ten (count ‘em, ten) or more employers in the Nova deal, Jay D. gets his $450K write-off. If not, his deduction is toast.

IRS says there aren’t ten employers, and even if there are, this is a Section 404 deferred comp deal and carries a zero deductibility. Anyway, this isn’t a business expense under Section 162.

Judge Morrison doesn’t have to deal with all IRS’s argy-bargy.

Although the written plan looks good, the problem is the recordkeeping. The plan required Nova to maintain records for inspection by IRS and any employer in the deal, showing there were at least ten employers in the deal.

Jay D. says that since Nova was required to do the recordkeeping, that’s sufficient.

Judge Morrison: “The mere fact that a party was required to do something does not mean that the party did it. The question is not whether Nova Benefit Plans, LLC, was obligated to make sure there were 10 employers or more contributing to the plan but whether there actually were 10 employers or more contributing to the plan. The natural source of evidence as to the number of employers in the plan is the records of Nova Benefit Plans, LLC, the plan administrator. Schechter introduced none of these records. He admitted that he knew of no other employers enrolled in the plan. It appears that Schechter’s dealings with Nova Benefit Plans, LLC, were handled by [Pension Guy]. [Pension Guy] did not testify. Schechter did not explain [Pension Guy’s] failure to testify, other than to make the following stipulation: ‘On April 12, 2011, [Pension Guy] was permanently enjoined by order of the United States District Court for the Central District of California from, among other things, “[m]arketing, preparing, selling, organizing or administering any welfare-benefit plan” and from “[p]roviding any advice or assistance regarding the tax treatment of pension plans or welfare-benefit plans.’” 2016 T. C. Memo. 174, at p. 10. (Name omitted).

Judge Morrison is pardonably unimpressed with that one.

“Under these circumstances we cannot find that there were 10 or more employers contributing to the plan merely because the plan document said that Nova Benefits Plans, LLC, was obligated to keep 10 employers in the plan.” 2016 T. C. Memo. 174, at p. 10.

Besides, since the plan limits the amount of death benefit payout to the extent of any disability payout, that’s experience-rating, and that also torpedoes the deduction.

Jay D. has a letter from a lawyer, to whom I’ll refer as JR, that says the plan is not experience-rated, but the letter is contradicted by the literal terms of the plan.

So Judge Morrison goes to town on this blunder, in a footnote, yet.

“Either JR did not read the 21-page document when he wrote the letter, or his letter is a form letter that discusses some other plan or plans. JR’s letter is also potentially significant because it seems to contain information about the number of employers involved in [Sub S’s] plan. The letter states that the plan sponsor, Nova Benefit Plans, LLC, ‘represents that the Plan has over 60 participating as of the date of this letter.’ This alone does not persuade us that there were 60 employers in [Sub S’s] plan. We wonder how many plans Nova Benefits Plans, LLC, administered. Perhaps Nova Benefit Plans, LLC, aggregated the employers in several plans in calculating that the number of employers was 60. We also have questions about the role of JR.Who was his client? Was it Schechter? Was it Nova Benefit Plans, LLC? Why did JR choose to rely on the representations of Nova Benefit Plans, LLC, instead of reviewing its records? These and other questions about the letter were left unanswered at the end of trial. Schechter did not call JR to testify. Nor did he call anyone from Nova Benefit Plans, LLC, to testify. Schechter did not introduce any records kept by either JR or by Nova Benefits Plans, LLC. Under these circumstances we find that JR’s letter lacks credibility, and we accord it little weight. The letter does not alter our view that it is more likely than not that [Sub S] was the only employer in the relevant plan and that the relevant plan maintained experience-rating arrangements.” 2016 T. C. Memo. 174, at p. 13, footnote 3.

IRS didn’t object to the introduction of this letter, for obvious reasons.

Makes me wonder why anyone would introduce a document that (a) is hearsay, and (b) only makes your case look worse. But then again, remember Mory Bahar? No? Then see my blogpost “A Joy Forever? – Not Hardly,” 3/31/14.

No, not an arithmetic error in the 1930 Sellar and Yeatman classic. This is the unravelling of an unlike like-kind exchange, of the genus SILO (sale-in/lease-out), with a nine-figure deficiency plus fifteen years’ worth of interest. The case is Exelon Corporation, As Successor by Merger to Unicom Corporation and Subsidiaries, 147 T. C. 9, filed 9/19/16, Judge Laro for the Court and fourteen lawyers (seven each) for IRS and Exelon.

For some background, see my blogpost “Woodshedding Your Expert – Redivivus,” 8/6/13, the story of John Hancock Life, a case much-quoted in this opinion.

Exelon was the ultimate successor to Commonwealth Edison of Illinois. In response to deregulation, Exelon unloaded its fossil fuel plants for $4.8 billion. Exelon had a problem…a $1.6 billion taxable gain, with but a short time to bury it. As Grandma would have said “We should all have such problems!”

So Exelon QI’d the cash, picked out some tax-exempt utilities around and about in the safe-harbor timeframe, bought their fossils, and leased them back for a term beyond their remaining useful lives (thus a sale, on paper), and bought separately cancellation options. The only economic sense the deal made was to cancel before expiry.

Exelon hired a squadron of legal, engineering and accounting white-shoes to make sure the deal was papered and worked properly. And the rents and cancellation fees were escrowed up front.

One of the local utilities described the deal to its government owner as the sale of tax benefits. And one of Exelon’s ace accounting firms registered this stuff with IRS as a corporate tax shelter per Section 6111(d).

You can see where this is going.

SNODs descend when Exelon starts canceling.

IRS claims the leases are loans, OID applies, depreciation doesn’t, and Exelon owes the tax.

The result is a fact-driven benefit-and-burdens test. Because all the cash was escrowed, barring an upfront payment to the tax-exempts that came out of Exelon’s tax-deferred sales proceeds, and because the “buyers” were tax-exempt, this was a loan on which interest was paid from the public fisc via tax deferrals benefitting Exelon.

Exelon had no real economic risk.

And as for the white-shoes and extensive due diligence, “In most prior SILO/LILO cases taxpayers also engaged in extensive due diligence before to entering into the transactions, including hiring prominent law firms to draft documents, accounting firms to structure transactions and provide appraisals, and engineering firms to evaluate the properties.  That nonetheless did not prevent the courts in those cases from holding that the substance of such transactions was inconsistent with their form and that the taxpayers did not obtain genuine attributes of ownership.” 147 T. C. 9, at pp. 121-122. (Citations omitted).

Now how about good-faith Section 6664 reliance on experts? Exelon hired a squadron of them.

But the appraisal done by the Big Four accounting firm was flawed, and Exelon’s in-house team should have known that the assumptions upon which it was based were faulty. And the white-shoe lawyers told the accountants what to say.

“We cannot condone the procuring of a tax opinion as an insurance policy against penalties where the taxpayer knew or should have known that the opinion was flawed.  A wink-and-a-smile is no replacement for independence when it comes to professional tax opinions.” 147 T. C. 9, at p. 173-174.

Practitioners, please copy.

That’s the rule for the Cactus Flower Café, Inc., Docket No. 4501-16, filed 9/19/16, as Ch J L. Paige (“Iron Fist”) Marvel breaks up the joint amended petition of Cactus Flower, Alesia Kafeety and Joni DeRome.

Alesia is petitioning a SNOD and so is Joni, but they’re different SNODs (one for each, IRS also being into the separate-checks gig).

Alesia’s and Joni’s SNODs, though for the same year for each of them, are for a different year than Cactus Flower’s. Notwithstanding anything to the contrary in the foregoing set forth (as my high-priced colleagues put it), all three (count ‘em, three) SNODs are dated the same day.

Apparently the petition as filed was a dud round, so the amended version is filed by an attorney apparently admitted to Tax Court. But I suspect he doesn’t read my blog (and of course he shouldn’t feel like the Lone Ranger in that regard, as billions of his fellow human beings don’t read it either).

The amended petition also doesn’t get it.

First, though he signed the amended petition, he didn’t bother to enter his appearance, so Alesia and Joni are still pro sese.

Second, it’s not a great idea to join three parties together in a single petition, when they don’t have identical issues. Tax Court Rule 34(a)(1): “Ordinarily, a separate petition shall be filed with respect to each notice of deficiency or each notice of liability. However, a single petition may be filed seeking a redetermination with respect to all notices of deficiency or liability directed to one person alone or to such person and one or more other persons or to a husband and a wife individually, except that the Court may require a severance and a separate case to be maintained with respect to one or more of such notices.”

Third, corporations appear in Tax Court by authorized officer, and not by attorneys (unlike many State court and other Federal court regimes). See my blogpost “All Those Old Familiar Faces, Redivivus,” 4/8/14.

Since Cactus Flower was an automatic out for a different tax year, it makes sense to send each petitioner off on her own, especially since Tax Court can pick up two more filing fees. Hey, those sixty-buck-tickets can sure add up.

So Ch J Iron Fist requires Alesia and Joni to ratify separate petitions (each of which is just a copy of the original amended petition), pay the sixty bucks (separate checks), and file hard copy (not electronic). Ditto for Cactus Flower, bar the sixty bucks, signed by an authorized officer. Their attorney cannot sign any thereof.

He can always move for consolidation. Check out Rule 140.

And IRS Watch Your S’s

Ch J L. Paige (“Iron Fist”) Marvel is befuddled by the curious case of Lynette L. Lawrie, Docket No. 16198-15, filed 9/16/16.

First, Lynette sends in what appears to be a petition from a NOD after a CDP. My sharp-eyed readers doubtless noted that the letter “L” does not appear in the caption. There’s no NOD attached either, just “…a letter from Internal Revenue Service (IRS)…, which appeared to have been sent to petitioner in response to a request for 2014 wage and income forms and/or information.” Order, at p. 1.

Now IRS gets into the act.

“Subsequently…, respondent filed an answer to the petition. However, respondent failed to attach thereto any notice of deficiency or determination. Instead respondent merely denied that any notice conferring jurisdiction on the Court was issued…, without otherwise suggesting that any motion or other steps would follow to address the jurisdictional status of this case. Inexplicably, answer also closed with a prayer that ‘respondent’s determination, as set forth in the notice of deficiency, be in all respects approved’.” Order, at p. 1.

So poor Judge Iron Fist is asked to confirm a SNOD, when Lynette asked for review of a NOD, but there’s neither in the record. Because maybe there’s neither in existence.

Not to be outdone, Lynette wants to add an “S” to the caption, ignoring whether an “L” should be added as well.

OK, but Ch J Iron Fist has no idea whether she’s got a SNOD or a NOD, or maybe nothing, to deal with, and, if she has either, whether $50K is involved.

Would IRS please tell her.

And just in case Ch J Iron Fist, an honors graduate of the University of Maryland Law School, partner or shareholder in numerous white-shoe law firms, and member of numerous blue-ribbon panels, hasn’t enough clerical work to do, here’s Jallad Corporation, Docket No. 14097-16S, filed 9/16/16.

The Jallads amended their petition to add the missing “S”, as they want small-claimer treatment. IRS answered, but were a wee bit casual in their response.

Ch J Iron Fist: “…respondent filed an Answer To Amended Petition, in which the caption is incorrect in that the ‘S’ is not included in the docket number for this case. Accordingly, we will strike that document from the record.” Order, at p. 1.

Ch J Iron Fist orders IRS to file an amended answer to the amended petition with the right caption, including without limitation the correct docket number with the capital “S.”

That’ll show ‘em, Judge.

See my blogpost “Assigned Counsel? – Part Deux,” 1/28/16. Not to be outdone by ex-Ch J Michael B (“Iron Mike”) Thornton, who assigned IRS’ counsel to give legal advice to an unrepresented petitioner in a litigated matter (Rule 4.3 of the Rules of Professional Conduct, anyone?), Judge James S. (“Big Jim”) Halpern orders the attorney for the deceased petitioner, who only wants to bail, to “confer as to the status of this case.”

The case is Carl H. Freyer, Docket No. 25869-15, filed 9/15/16. And it’s a designated hitter.

Thanks, Judge, it’s been a long day.

Carl is gone, but spouse and adult son survive. Carl’s attorney, whom I’ll call Bill B, just wants out. Although Bill B thinks there may be a will naming spouse as executor, he thinks it hasn’t been offered for probate.

Judge Halpern says to Bill B, confer with IRS, spouse and son: “…at a reasonable date and time but no later than October 14, 2016, [spouse], [son], [Bill B], and respondent [IRS] shall confer at to the status of this case, including (1) whether decedent Carl H. Freyer’s estate has been or will be probated, (2) if decedent’s estate is being probated, whether an executor, administrator, or other duly appointed fiduciary has been appointed for decedent’s estate by a court of competent jurisdiction, (3) if so, the name and address of such duly appointed executor, administrator or other fiduciary for decedent’s estate, and (4) if decedent’s estate has not been or will not be probated, the names and addresses of decedent’s heirs at law.” Order, at p. 2.

And Bill B and IRS’ counsel to make report (preferably joint).

Now who is advising spouse and son? Because you know the first question spouse or son will ask is “Should we probate the will?” And the next is “Should we fight this case?”

Who answers these questions, thereby providing legal advice to wife or son or both?

Bill B? I suggest he can’t, as his deceased client’s interests may not be congruent with those of spouse or son or both of them. And Bill B may have client confidences he can’t reveal, and as to which his deceased client can no longer waive privilege. Moreover, neither spouse nor son has retained Bill B. Even if he could represent either, he cannot represent both.

IRS’ counsel? S/he has a worse conflict, as IRS, spouse and son are in an actually adversarial position.

And Judge Big Jim has nothing to say about letting Bill B out.

Takeaway—Counsel, my condolences if your client dies post-petition. For several reasons.

And this is what sinks the Barnhart guys when they claim they’re running the business just like they used to when they got a couple “no change” audits (hi, Judge Holmes).

This is Judge Cohen’s roundup, Barnhart Ranch, Co., et al., 2016 T. C. Memo. 170, filed 9/14/16.

Co was a C Corp that the Barnharts claimed was just an agent of theirs. So therefore there was no double taxation of their cattle-dealing profits. And they also claimed they kept on using their joint-interest accounting that carried over from their oil-drilling days.

Joint-interest billing is a method used on oil and gas exploration and production, but the Barnharts took Co out of everything but cattle.

Co ran the whole cattle operation, buying, selling, paying wages and payroll taxes. Co     “… bought and sold cattle under its own name during the years in issue. It also, in its own name and carrying out cattle operation business, held a bank account, purchased and held titles to vehicles, leased ranch property, and held ranch and workers’ compensation and employer’s liability insurance policies. [Co] paid for the services of a ranch manager and ranch hands, and it handled their employment tax and income tax documents.  Any control over these employees by the Barnhart brothers would presumably have been exercised by them not as individuals but in their roles as officers of [Co], and the record does not show otherwise.” 2016 T. C. Memo. 170, at p. 16.

And the Barnharts held out Co as an owner, despite claiming that everyone knew they were dealing with the Barnharts. OK, but if you choose an entity to conduct your business, you’re stuck with it.

The Barnharts want to avoid the chops by claiming they relied in good faith on the “no changes” of prior years. “A failure by the Commissioner to disallow similar deductions in a prior year’s audit of a taxpayer’s return may be a factor to be considered with respect to the imposition of the accuracy-related penalty.  See Stewart v. Commissioner, T.C. Memo. 2002-199, slip op. at 10; Sheehy v. Commissioner, T.C. Memo. 1996-334, slip op. at 6.  The 1995 audit of [Co’s] 1994 return, however, was conducted with respect to a taxpayer other than petitioners and included other businesses along with the cattle operation.  While the evidence suggests that the cattle operation was more or less run in a traditional manner over the years, they do not show that [Co’s predecessor]. and [Co] performed tax reporting in the same way.” 2016 T. C. Memo. 170, at p. 35.

Anyway, their accountant said she just took over the existing system. And the Barnharts are savvy businessmen, who could well have figured out that a Sub S would serve their turn better than a C Corp, or could have gone to competent professionals who would have told them so.

So Co is stuck with no hat and all cattle.

If You Have Equity in Assets, You Must Pay Your Taxes

Judge Nega is sustaining IRS’s NFTL on the home in the sylvan wilderness of Maine in Harry Keller Heyl, Jr., Docket No. 5280-15L, filed 9/13/16.

And this notwithstanding HKH’s plea that he wants “…to utilize the Maine property as a home in retirement and asserts that maintaining and keeping the property free from encumbrances will be ‘the difference between misery and subsistence’ in retirement.” Order, at p. 4.

So HKH wants a partial payment installment agreement (PPIA). But he doesn’t get it from Appeals, and Judge Nega isn’t giving it up either.

“The SO examined petitioner’s PPIA proposal in light of these concerns. The SO noted petitioner’s self-reported ownership of an asset–real property–with a fair market value sufficient to satisfy the liabilities at issue. The SO observed that petitioner lives in Minnesota, but the real property is an unoccupied home located in Maine that does not serve as petitioner’s primary residence. As a result, the IRM guided the SO to decline petitioner’s proposed PPIA, absent a showing of economic hardship. While petitioner presents a legitimate view of his possible future needs, he has failed to allege any fact indicative of economic hardship. See Dostal v. Commissioner, T.C. Memo. 2005-264 at 28 (a delay in retirement plans does not amount to economic hardship); McClanahan v. Commissioner, T.C. Memo. 2008-161 (surrender of life insurance policy for cash value did not amount to imposition of economic hardship upon petitioners ‘in their older years’).” Order, at pp. 7-8.

And HKH wasn’t telling a particularly compelling tale. “Petitioner failed to allege any specific fact suggesting the sale or leveraging of the unoccupied Maine home will alter his income expense estimates and render him unable to meet his current necessary living expenses. Instead petitioner solely expresses concern with his financial status upon entering retirement. Petitioner argued that his future retirement will bring a meager social security check, and that living rent or mortgage free upon retirement may make the difference between ‘misery and subsistence.’ We also note that petitioner’s filing status is single and he has no dependents. Petitioner is in his early sixties and operates a sole proprietorship. In addition, he does not allege any disability or extraordinary circumstance prevents him from working, or continuing to operate his business. Petitioner argued that the economic downturn impeded his earning potential, but expresses a belief that his ‘piece of the economy won’t be weak forever.’

“Petitioner has not set forth any specific fact, alerted the Court to any fact in the administrative record, nor advanced any argument that would allow us to conclude that the Appeals Office deviated from published guidelines or otherwise erred in its determination.” Order, at p. 8.

BTW, HKH has a string of seven (count ‘em, seven) years of unpaid taxes. Tax Court has many a time and oft rejected OIC’s from habitual nonpayers.

So the NOD is sustained, and “between misery and subsistence falls the shadow”.

Well, answering Scotland’s Greatest, Judge Paris says it’s not honest poverty, when confronting Ronald W. White, 2016 T. C. Memo 167, filed 9/12/16.

Rev Ron is founder and pastor of the World Evangelical Outreach Church (WEOC) in Defuniak Springs, FL, and has been these past thirty years. Rev Ron “…ministered from the pulpit and at nursing homes, helped build churches on foreign soil, established a feeding program for children, and supported widows and orphanages.” 2016 T. C. Memo. 167, at p. 3.

Rev Ron convinced his board of advisors to restructure the church as a corporation sole under the name and style of “The Office of Presiding Head Apostle, of Ronald Wayne White,” which claimed to be a domestic Nevada corporation, although all its operations were based in Florida.

And Rev Ron signed a Vow of Poverty. And didn’t file returns or pay tax on better than $300K he got over a four-year stretch.

If this sounds like a mail-order dodge from fifteen years ago, see my blogposts “Not Reasonable But Not Negligent,” 8/1/13, where Judge Paris dealt with the same scenario, and “The End of An Affair,” 8/26/15.

Same story here. “Petitioner acknowledges that WEOC or its related entities made payments on his behalf for his personal expenses. Petitioner’s primary contention is that his vow of poverty insulates him from being taxed on the compensation he received for his services to WEOC.” 2016 T. C. Memo. 167, at p. 6.

And even though all payments went through the church bank account, Rev Ron was sole signatory thereon.

But Rev Ron claims he got the money from the church, not from third parties, unlike all the cases that theretofore nailed these dodges.

Judge Paris: “Petitioner’s argument, however, is misguided. The Court has previously noted that cases in which a taxpayer receives money from a third party (a party other than the religious order) and remits that money to the religious order in accordance with his vow of poverty are factually distinguishable from cases in which a taxpayer executes a vow of poverty to a religious order and receives money directly from the religious order.” 2016 T. C. Memo. 167, at p. 8. (Emphasis by the Court) (Citations omitted).

Rev Ron wants to rely on a 1919 Treasury pronouncement, but that was superseded in 1977. The rule is that whatever the impoverished gets must be given back to the church, leaving the impoverished only the minimum necessary to survive.

Rev Ron kept it all.

And Rev Ron didn’t file a Section 1402(e)(3) exemption certificate, so he owes SE. The rule is strict; the clergyperson must file timely.

Looks like Scotland’s Greatest has the last word.

The first Friday after Labor Day appears to be a new Tax Court festival, as we have appearances by Alvin Sheldon Kanofsky (see my blogposts “Two Old Rounders,” 7/31/14, “Ten’ll Get Ya Twenty,” 2/26/15, and “Footnotes,” 6/10/16); Alfred Joe Izen, Jr., (see my blogposts “The $2000 Misunderstanding,” 6/12/12, and  “Try, Try Again,” 1/16/13);  and Carol Diane Gray (see my blogposts “Too Late But Still Timely,” 3/28/12, “Too Late and Not Timely,” 4/25/13, and “Fan Mail? – Not Exactly,” 6/27/14).

But here’s that Obliging Jurist, Judge David Gustafson, who watches, like Keats’s astronomer, new rounders swim into his (and my) ken.

Stand by for some “somber reasoning and copious citation of precedent” as Frances M. Scott and Galen L. Amerson, Docket No. 26717-14, filed 9/9/16, debut in a designated hitter.

Fran and Galen want a jury trial in Tax Court. Wrong, the US Constitution says only at common law, and suits against the sovereign, i.e., the U.S. of A., were barred at common law, and the Supremes so held in 1855. Nobody told you to sue in Tax Court, guys. If you want a jury trial, you can get a jury trial in USDC if you pay up, apply for a refund, don’t get it and sue timely.

Fran and Galen claim all judges have a conflict of interest, because the US pays them. Well, then, the Rule of Necessity says Judge Gustafson keeps the case.  Otherwise, both parties would have no place to try their case.

Next is the old Bill Benson number that Sixteenth Amendment wasn’t ratified.

Judge Gustafson: “Petitioners must have noticed that in the intervening 30 years, income tax returns have continued to be required and filed, and income taxes have continued to be paid by taxpayers, collected by the IRS, and enforced by the courts. In fact, litigation involving Mr. Benson himself has shown his theory to be without merit.” Order, at pp. 2-3.

Seventh Circuit bounced Bill’s criminal appeal, when he argued this one, back in 1991.

Fran and Galen aren’t done yet. They want their petition dismissed.

The problem with that, of course, is Section 7459(d) says OK, then you owe IRS whatever they demanded. Obliging Judge Gustafson isn’t that obliging. But he has some good advice for Fran and Galen.

“Petitioners are urged to forego the frivolous arguments advanced in their motion to dismiss and, instead, to prepare to litigate valid issues at the trial of this case.” Order, at p. 3.

Go try the case, guys.

Oh yes, don’t forget the Section 6673 $25K frivolity chop.

Judge Gustafson isn’t through for the day. He still has Rodney W. Gattie, Docket No. 7077-15, filed 9/9/16, which isn’t designated but still fits today’s bill. Rod did answer IRS’ Rule 91(f) motion, and Judge Gustafson lets Rod off the hook. “We use Rule 91(f) procedures not to adjudicate the reasonableness of the parties’ positions nor to prejudge their competing contentions, so we will discharge our order to show cause.” Order, at p. 1. Asked and answered, as I said in my blogpost of that name back on 12/24/13.

But Rod may be gameplaying. “However, we observe that Mr. Gattie seems to be contending that amounts he received as reported on Forms 1099 are not income to him because they were not received by him in connection with ‘the function of a public office’. His contention appears to rely on section 7701(a)(6) (providing that ‘[t]he term “trade or business” includes the performance of the functions of a public office’), and appears to assume that ‘includes’ means ‘includes only’–an assumption flatly contradicted by section 7701(c) (‘The terms “includes” and ”including” when used in a definition contained in this title shall not be deemed to exclude other things otherwise within the meaning of the term defined’). This contention is frivolous. If Mr. Gattie makes such a contention at trial in this case, he should not expect to receive from the Court a lengthy opinion refuting it.” Order, at pp. 2-3.

Expressio unius exclusio alterius, as those of us who attended high-priced law schools say, is off the table here.

Rod, Judge Morrison warned you a year ago in an off-the-bencher not to try this stuff.