It was Opening Day  yesterday in Our Nation’s Capital, and the Nationals lost. Time alone will tell whether this is a foretaste of things to come, but Tax Court seems to be taking it heavily today.

No opinions, no designated hitters (National League, y’know), and only one order worth mentioning.

Jefferey Geesey & Shirley A. Geesey, Docket No. 31786-15, filed 4/8/16, are caught up in the Tax Court procedural trawl, and I can’t help but feel for them.

Jefferey & Shirl attached to their timely, if imperfect, petition  “…IRS Form 5564, Notice of Deficiency – Waiver, signed and dated by petitioner and Shirley A. Geesey…, reflecting that Mr. and Mrs. Geesey consent to the immediate assessment of the proposed increase in tax asserted against them in the deficiency notice….” Order, at p. 1.

Urged to amend, Jefferey & Shirl poured out their story to Ch J Michael B (“Iron Mike”) Thornton thus: “I took the Letter that I got from IRS and my tax return back to H&R Block who done my tax return and they explained the letter from IRS that shows that I do owe the money to IRS. So I am making payment to pay the money. Thank you. I will not need to file Appeal.” Order, at p. 1.

IRS moves to dismiss for failure to state a claim. Maybe should move to treat the Letter as a motion for entry of decision.

Ch J Iron Mike feels the same way.

“An examination of the record discloses that petitioner and his wife apparently do not dispute their… tax liability. Accordingly, the Court will deny respondent’s motion, and direct the parties to confer as to whether they possibly might agree to submit proposed decision documents to the Court.” Order, at p. 1.

So Ch J Iron Mike wants IRS’ counsel and Jefferey & Shirl to talk it over, and either submit a stipulated decision or a status report.

Why the agony should be prolonged I cannot tell. But then again, the Nationals lost on Opening Day.

We all know how obliging Judge David Gustafson can be. Offer of proof is set forth in my blogpost “I’ll Help You Try Your Case,” 12/15/15.

Now we also know Ch J Michael B. (“Iron Mike”) Thornton is a short-timer, as we used to say when our wardrobe featured green. And short-timers sometimes get a wee bit testy. That even seemed to affect Ch J Iron Mike, as I pointed out recently.

But Ch J Iron Mike shows an obliging side to counsel in Larry S. Freedman & Sheri L. Freedman, Docket No. 23411-143, filed 4/7/16.

This is a TEFRA outside basis jumpball, of which we have seen many, although US v. Wood, 571 US 310 (2014) seems to have taken the sting out of the Petaluma-Tiger-Eye scramble of yesteryear.

IRS moves to toss Larry for lack of jurisdiction, because Larry’s squawk about his deficiency arises out of his outside basis, which IRS claims is a partnership-level item, not a partner-level (affected) item. And apparently the FPAA for the partnership is still in process.

Larry says IRS admitted that his outside basis is an affected item (partner-level) in the individual SNOD they gave him and from which he’s petitioning.

Ch J Iron Mike wants IRS to clarify its position. So IRS’ counsel should “…set forth and discuss fully respondent’s position as to whether the Court here in the instant case has jurisdiction to review the outside basis adjustments made in the deficiency notice…issued to petitioners.” Order, at p. 2.

And just in case IRS’ counsel needs some pointers, Ch J Iron Mike obliges.

“Outside basis may be an affected item required to be properly determined in a partner level deficiency proceeding. Thompson v. Commissioner, 729 F.3d 869, 873 (8th Cir. 2013); Jade Trading, LLC ex rel. Ervin v. United States, 598 F.3d 1372, 1380 (Fed. Cir. 2010); Petaluma FX Partners, LLC v. Commissioner, 591 F.3d 649, 655 (D.C. Cir. 2010); Greenwald v. Commissioner, 142 T.C. 308, 314-317 (2014); see I.R.C. secs. 6213(a), 6230(a)(2) (A)(i). Cf. United States v. Wood, 571 U.S. , 134 S.Ct. 557 (2013).” Order, at p. 2.

Just drag and drop to your reply papers, guys. If you need more help, I’ve blogged Thompson, Greenwald, and some iterations of Petaluma.

And aren’t you glad TEFRA sunsets at year’s end?

Sheri wants innocent spousery, so  her beef isn’t in play. Sheri stays in no matter what.

Long ago I learned a mantra that served me in good stead: “Salute whatever moves, paint whatever doesn’t, and never volunteer.”

Well, there are exceptions. And today I make another exception to that time-honored rule abovequoted.

As Ch J Michael B (“Iron Mike”) Thornton marks off the days on his short-timer’s calendar, Tax Court will need to start grooming someone to proofread the orders issuing therefrom.

I cannot think Judge Marvel looks forward with relish to that particular detail.

But something must be done when a sentence in an order from Judge Kerrigan reads thus: “It is not ground for objection that information sought will not be inadmissible at trial if the information appears reasonably calculated to lead to the discovery of admissible evidence.” VHC, Inc., and Subsidiaries, Docket No. 4756-15, filed 4/6/16, at p.1.

Judge, didn’t you mean “It is not ground for objection that information sought will be inadmissible at trial if the information appears reasonably calculated to lead to the discovery of admissible evidence.”?

I will not here repeat the story of the “conversation easement,” more particularly bounded and described in my blogpost “The Proofreader’s Reward,” 2/16/16.

As it seems I am proofreading unofficially, I volunteer to do so officially. And I will do so solely for the honor; no expense to the government.

It’s called Hubris and Nemesis, and they’ve been in business for millennia. But they don’t pay taxes. And many of their clients and followers don’t, either…until.

I don’t comment on what the trade press and the greater tax blogosphere is saying. This is a small, hyperspecialized blog for specialists.

But a reader telephoned me late this evening to ask why I hadn’t blogged the indictment of retired Tax Court Judge Kroupa for tax evasion and obstruction. And conspiracy, “the darling of the prosecutor’s nursery,” as the late W. D. Curtiss, Esq., put it on The Hill Far Above, so long ago.

I admit I hadn’t known. But even if I had, piling on after the whistle draws its own penalty.

I remember the comment on the Tax Court website when she retired, back on June 18, 2014, which I blogged that day: “The Court is deeply grateful for the excellent judicial service that Judge Kroupa has rendered in her eleven years on the Court.”

And if the US Attorney for the District of Minnesota has it right, she threw that away for “vacations to such destinations as the Bahamas, Greece and Thailand; jewelry and clothing; spa and massage fees; pilates classes; wine club fees; rent and utilities for a home they leased in Maryland; and similar costs for their principal residence in Minnesota.”

And she wrote that stuff off as business expense. That’s the kind of muck that the rounders pull.

Well, now she knows the fullness of her gain.

Actually, the title should be “Madness in Her Method,” as the issue in Walter J. Antonyshyn & Georgiana L. Antonyshyn, Docket No. 21526-14L, filed 4/6/16, is whether Georgi is a Section 469(c) real estate professional, and whether that is a change in accounting method.

I twisted the Bard’s famous line because Georgi is claiming that, even though she had two previous chances to establish her professionalism for two previously-disputed tax years [A and B], she gets another swing for two currently-disputed tax years [X and Y], because if she can prove her Section 469(c) pro-hood, Section 481 lets her revise the two barred years based on a change in accounting method.

I give Georgi’s attorney a Taishoff “Good Try, Second Class.”

Much less generously, Judge Morrison blows up that one.

“The Antonyshyns’ theory that Georgiana is a real estate professional in [X and Y] is on its face a challenge to the amount of their tax liabilities by (sic) [A and B] because, in their words, the theory ‘would reduce the liability to $0.’ The Antonyshyns’ theory is barred by section 6330(c)(2)(B). Even if section 481 could override section 6330(c)(2)(B) in this respect, we fail to see how the resolution of the deficiency case for [X and Y] would trigger a section-481 adjustment with regard to [A and B]. Section 481(a) requires an adjustment to the taxpayer’s taxable income for a taxable year if the taxable income in that taxable year is computed under a method of accounting different from that employed in the prior year. The Anthonyshyns seem to be contending that it would be a change in the method of accounting if Georgiana were treated as a real estate professional in [X and Y]. Even if contention is true, the resulting section-481(a) adjustment should be made in the year of the change [X], not in the prior years [A and B]. Furthermore, treating Georgiana as a real estate professional is not a change in a method of accounting. A change in the underlying facts is not a change in the method of accounting. See Treas. Reg. § 1.446-1(e)(2)(ii)(b) (‘A change in the method of accounting also does not include a change in treatment resulting from a change in underlying facts.’). The question of whether Georgiana is a real-estate professional is a factual issue that is determined on a year-by-year basis. If she is a real-estate professional for [X and Y], that would not affect the question of whether she is a real-estate professional for [A and B].” Order, at pp. 3-4.

I love this stuff, I really do.

Ch J Michael B (“Iron Mike”) Thornton has some advice for petitioners and practitioners along those lines in Stanley Weiss & Leah R. Weiss, Docket No. 7399-16, filed 4/6/16.

Stan and Le made the non-uncommon mistake of petitioning from a Form 4549 Income Tax Examination Changes, the thing you get when the Examination person bounces your alibis, insubstantiations, and all that jazz.

See my blogpost “Fake Out – Part Deux,” 6/23/15.

We all remember that there is no standard form of SNOD.  Year(s), amount(s), location and phone number of IRS office and options for paying or fighting are all that is required. The CP3219N isn’t necessarily the only way to skin the cliché.

So Stan and Le are offside, and IRS moves to dismiss.

But IRS jumped too soon as well. After getting the defective petition, IRS hits Stan and Le with a SNOD. And that saves Stan and Le.

After the usual canned paragraph about how the SNOD is the ticket to Tax Court, and “we have limited jurisdiction”, Ch J Iron Mike throws the rope to Stan and Le.

“Because the notice of deficiency for petitioners’ tax years [X and Y] was issued after the petition in this case was filed, the Court does not have jurisdiction over petitioners’ [X and Y] tax years under the petition was filed (sic). I.R.C. sec. 6213(a). However, inasmuch as petitioners’ Opposition to Motion To Dismiss for Lack of Jurisdiction was received within 90 days of… the date the notice of deficiency for tax years [X and Y] was sent to petitioners, a copy of the Opposition shall be filed as a petition….” Order, at p. 2.

So Stan and Le, having paid the sixty bucks, are in under a new docket number (the one set forth above), and only need to file an amended petition restating what they already said, plus embellishments, if any.

Takeaway—If you think you’re offside, it might be worth filing. IRS might just bail you out.

A further innocent spousery wrinkle for you Defenders of the Innocent today, straight from the Capitol Reporting Company’s archive (and the transcript is missing pages 1 and 2, although the opinion seems complete without them), as spoken by The Great Dissenter, a/k/a The Judge Who Writes (and Talks) Like a Human Being, s/a/k/a You Know What, and Old China Hand, Judge Mark V. Holmes.

Judge Holmes turned a sympathetic ear to Rosanna G. Viray, Docket No. 21479-13, filed 4/5/16, an off-the-bencher.

IRS and Rosanna agree that the Sched C of loved-once Angel Pascua is his and only his. The dubious disallowed deductions and their consequences are his.

But the fight is over the Sched A, plus a couple credits (hi, Judge Holmes) as to which, according to IRS, Angel continued in his somewhat casual ways.

IRS claims Rosanna is pari passù, as a former law partner of mine liked to say, with Angel. Wherefore, she gets hit for the five (count ‘em, five) phonies, three on the Sched A and two education tax credits, to all of which Rosanna and IRS agree she isn’t entitled.

It’s our old chums the Section 6015 innocents.

“Under section 15(d) (sic) for purposes of allocating a deficiency, erroneous items are generally allocated to the spouses as if separate returns were filed. Ms. Viray did, in fact, file her request for relief within two years of the IRS’s collection action against her, and indicated that she had been divorced….” Order, at p. 5.

But she wants apportioned relief, and apportionment isn’t defined in the IRC, only in the Regs.

There are pages and pages of Regs on how to divvy up the hits.

“However, under 26 CFR section 1.6015-3(d)(2) (iv), ‘Deduction items unrelated to a business or investment are also generally allocated 50 percent to each spouse unless the evidence shows that a different allocation is appropriate.’

“So the presumption is that Ms. Viray would be responsible for the proportion of the overall deficiency not already allocated to Mr. Pascua, determined by the total amount of the deficiency multiplied by a fraction, the numerator of which is the net amount of erroneous items allocable to her, over the denominator of which is the net amount of all erroneous items. The algebra is more conveniently shown in section 26 CFR 1.6015-3(d)(4) (i) (A), and I refer the Commissioner to that for the inevitable math in this exercise.” Order, at p. 6.

More like arithmetic than either algebra or mathematics, Judge, but that’s OK. IRS will understand.

But Rosanna is linguistically challenged, and Judge Holmes is sympathetic.

Joint liability is a presumption, and that can be overcome. Just because the phony deductions appear on a joint return doesn’t mean both spouses are pari passù. (That’s such a cool phrase, isn’t it?). IRS must show Rosanna had actual knowledge to stick her with the whole megilla. Rosanna’s English is poor, she’s a medical tech who makes $25K a year, and IRS neither pleaded nor proved that Rosanna had a clue what games Angel was playing. And it’s actual knowledge here, not that she should have known (constructive knowledge).

So it’s 50-50 on the contested items in the deficiency.

But there’s more.

Accuracy chops (and fraud chops, even though not in play here) don’t get allocated. “…the reason for that is found in 26 CFR section 1.6015-3(d) (4)(iv)(B) that tells me that the accuracy-related penalty under section 6662 should be allocated to the spouse’s item that generated the penalty.

“That’s a long, long way of saying that since the accuracy-related penalty is attributed to all of the inaccurate items, both Mr. Pascua’s business inaccurate items and the contested Schedule A items and the unjustified credits, that the accuracy-related penalty applies to Ms. Viray’s portion of the proportionate allocation of the  overall deficiency for which I am finding her responsible.” Order, at pp. 9-10.

So what does that mean in English?

“My conclusion, in other words, is that one half of these contested erroneous items are allocable to Ms. Viray, together with half of the accuracy-related penalty. The remaining half of those contested items, as well as all those already conceded by the IRS to be allocable to Mr. Pascua, are allocable to Mr. Pascua.” Order, at p. 11.

Judge Holmes finds this to be a math problem, so he send the parties off to a Rule 155.

Please pardon the Latin pun. Though it looks like I’m showing off my attendance at a high-priced law school, the pun is relevant, as Judge Morrison forces IRS, over much objection, to fork over a bunch of documents and tax returns in Gary A. Wolens, Docket No. 10853-15, filed 4/4/16.

It’s the usual property-settlement-vs-alimony pitchers’ duel. Gary paid his loved-once Roberta in excess of £1,250K over three tax years, causing IRS to head for the exchange rate button on their i-phones and sock Gary with a $650K deficiency for the year in question.

Gary wants IRS to unload a bunch of documents from those three years, during each of which Gary was losing pounds. Some of the docs are from Gary, but the rest are from Roberta for those years.

IRS says only one year is at issue, therefore the past years are irrelevant.

Wrong, says Judge Morrison. “Tax returns for successive years often involve the same or similar tax issues. Naturally, the IRS’s files for one year may contain information that is relevant to another year. This overlap is especially possible in this case, in which the petitioner made similar annual payments in the years [X, Y and Z, Z being the year at issue]. We therefore reject respondent’s categorical relevancy argument. Respondent made no other arguments regarding this request. Therefore we will order production of these documents.” Order, at p. 2.

Next at bat is the classic Section 6103 “tax return info” riposte. Roberta isn’t a party, and the docs at issue are clearly tax return info, thus confidential and privileged accordingly.

And Gary and Roberta are long since splitsville, so no “transactional” relationship. Generally (love that word!), if taxpayers are in some kind of give-and-take or back-and-forth, the return info of a nonparty might come in, if needed to establish a defense, thus “transactional”.

Judge Morrison is too polite to do what I will now do, namely, viz., and to wit, give IRS a Taishoff “Oh Please!”

Gary claims “…the documents are permitted to be disclosed under the § 6103(h)(4)(C) exception, which permits the IRS to disclose return or return information in a tax-related judicial proceeding “if such return or return information directly relates to a transactional relationship between a person who is a party to the proceeding and the taxpayer which directly affects the resolution of an issue in the proceeding”. Respondent’s [IRS’s] sole argument for why this exception is not applicable is that petitioner and Roberta did not have a ‘transactional relationship’. We disagree with respondent’s argument. Petitioner and Roberta were married and divorced. There were financial aspects to this relationship. We therefore consider the relationship ‘transactional’. See Whittington v. United States, 2014 U.S. Dist. LEXIS 133163, 2014-2 U.S. Tax Cas. (CCH) ¶ 50,455, 114 A.F.T.R.2d (RIA) 6092 (W.D. Wash. 2014); Tavery v. United States, 32 F.3d 1423 (10th Cir. 1994); Christoph v. United States, 1995 U.S. Dist. LEXIS 19977, 77 A.F.T.R.2d (RIA) 809 (S.D. Ga. 1995). Respondent made no other arguments against the application of the § 6103(h)(4)(C) exception. For example, respondent did not argue that the requested documents do not ‘directly relate’ to petitioner and Roberta’s marriage and divorce. Therefore we will order production of these documents.” Order, at pp. 2-3.

The citations are there for your next brief, but watch out for the “directly relates” gambit. Try for an in camera if IRS claims that the docs do not “directly relate.” Uncle Sam can make the pants too tight as well as too long.

Judge Morrison notes in passing an interesting coincidence.  “(We note that the [X] tax-year documents are in the possession of the Department of Justice. The Department of Justice is defending a Court of Federal Claims case brought by petitioner regarding his [X] tax year. The Department of Justice’s lawyer in that case is out of the country and will not return to work until April 4, 2016.).” Order, at p. 2.

Also out of the country but returning today, April 4, 2016, from her birthday present trip to Paris is the most wonderful four-year-old Texan, accompanied by her mother, Director at a Big Four accounting firm, who is also returning to work. Welcome home, ladies!

 Off-Topic

Despite the definitive headline statement from a much more exalted source, dear old wordpress.com, the publisher of this my blog (a poor thing, but mine own), confidently tells me that the “most popular day and hour” for viewing my blog is Wednesday at 5 p.m. (local time, I suppose).

I cannot imagine why viewers flock together on Wednesday at 5 p.m. (local time), much less why they do so here. I certainly put forth no extra effort to make Wednesday a special treat, or to scintillate more than usual. It is far beyond my powers to make Tax Court, the Internal Revenue Code, or the regulations promulgated thereunder, scintillate.

This must be the ultimate special-interest blog, with a minuscule readership of hyperspecialists. Hardly a venue for those seeking amusement.

But there it is. No prize for the correct answer.

I used this phrase about IRS’ counsel before now, in my blogpost “Another Taishoff ‘Oh Please’,” 9/24/14. But instead of the truly clever and novel gambit explicated in my aforementioned blogpost, IRS’ counsel is playing a familiar variation in KSB LP, f.k.a The Harbinder S. Brar FLP VIII, LP., BPMI, Tax Matters Partner, Docket No. 24480-14, filed 4/1/16. And it’s not an April Fools’ joke.

Y’all will remember the 25 interrogatories rule, embedded in Rule 71(a).

Well, IRS’ counsel tries to submarine Br’er Brar by subparting their Branerton wishlist.

And who better to depthcharge IRS’s submarining than The Great Dissenter, a/k/a The Judge Who Writes Like a Human Being, s/a/k/a The Implacable, Irrefragable, Illustrious, Industrious, Indefatigable, Incomparable, Incontrovertible, Ineluctable and Ineffable (but never Incomprehensible and always Intelligible), and Old China Hand, Judge Mark V. Holmes? And  Judge Holmes even designates this order, making life easy for your reporter.

Br’er Brar claims IRS is trying for formal discovery before informal, but that’s a nonstarter. IRS sent Br’er Brar “…a letter that looks pretty close to formal discovery to the untrained eye, but that serves as a guide to what the IRS is looking for and makes IRS counsel available for a discovery conference.” Order, at p. 1.

So obeisance has been paid to Branerton.

But IRS isn’t finished. “There are only 18 numbered interrogatories in respondent’s set, but the system is wise to the ploy of multiplying the subparts of an interrogatory to evade the limit.” Order, at pp. 1-2.

Judge Holmes cites the FRCP Rule 33 Advisory Committee report. “Parties cannot evade this presumptive limitation through the device of joining as ‘subparts’ questions that seek information about discrete separate subjects. However, a question asking about communications of a particular type should be treated as a single interrogatory even though it requests that the time, place, persons present, and contents be stated separately for each such communication.” Order, at p. 2.

Rule 71(d) saves the interrogs aimed at expert witnesses. And the FRCP Advisers seem to allow IRS to get another multiplex interrog through the door.

But Judge Holmes slams the door on one manifold interrog, and even invokes The Donald in the process.

“The real problem is number 17, a common form of interrogatory, which asks for ‘the true facts,’ identification of potential witnesses, and any relevant documents for each of the 21 requests for admission that respondent also served shortly before the discovery deadline. For the reasons that are comprehensively explained in Safeco of America v. Rawstron, 181 F.R.D. 441, 443-44 (C.D. Calif. 1998), see also Makaeff v. Trump University, LLC, 2014 WL 3490356 at *4 – *6 (S.D. Calif. 2014), this is an interrogatory that causes respondent’s total to exceed 25 by a considerable margin.” Order, at p. 2.

So the protective order Br’er Brar seeks is denied, except for the invidious Number 17, which is out.

Takeaway–Practitioner, watch out for those multifarious multiplex interrogatories. And tell IRS Judge Holmes sent you.