IRS, replete with the never-say-die spirit that made America great, once again claims that the computer-generated postage mark can satisfy Section 7502 (mailed-is-filed). This time it’s Matthew Eric Baham & Jennifer Michelle Baham, Docket No. 25666-14S, filed 6/17/16, but Judge Wherry isn’t having any.

IRS wants to lay Tilden’s ghost. Remember Tilden? Thought not, so check out my blogpost “Yes, We Have No Jurisdiction – Part Deux,” 12/3/15. Tilden went with Stamps.com, and IRS agreed Tilden beat the tag. But The Judge With a Heart, STJ Armen, checked out the USPS website and found the posties got their paws on Tilden’s petition a day late and much more than a dollar short.

Judge Wherry orders briefs, Matt & Jen stand mute, but IRS flings their brief into the fray.

“The brief states that respondent disagrees with this Court’s analysis and holding in Tilden v. Commissioner, T.C. Memo 2015-188 and Boutlbee v. Commissioner, T.C. Memo 2011-11.” Order, at p. 1.

Well, Judge Wherry, an internet whiz, takes judicial notice in a two-page prolegomena to a future exegesis anent USPS.com as a counter to the endicia.com gambit. Endicia.com looks like Stamps.com on steroids.

“After reviewing respondent’s brief, the Court tentatively disagrees that there is no indication that the petition was not timely deposited. The petition was sent via the U.S. Postal Service (USPS) by first-class mail. The envelope containing the petition bears a mailing label with a ‘postmark’ by ‘endicia.com’ of October 22, 2014. The envelope also bears a ‘certified mail’ sticker with the following 22-digittracking number: 9407110200881362698267. We take judicial notice of the USPS tracking information and Frequently Asked Questions on the USPS website. The tracking information obtained from the USPS indicated that “preshipment information” was sent to the USPS on October 23, 2014, but no time is listed. The USPS Frequently Asked Questions page titled “USPS.com Tracking Updates” indicates that pre-shipment displays when information about the package has been provided to USPS, but the package has not yet been processed through the USPS network. USPS.com Tracking Updates, U.S. Postal Serv., http://faq.usps.com/?articleId=220964 (last visited June 17, 2016). The petition’s tracking information further indicates that the petition was ‘accepted’ by USPS at 8:03 AM on October 23, 2014. USPS provides a status of accepted “when an item has been physically tendered to the Postal Service.” Id. (emphasis added).” Order, at pp. 2-4. (Footnotes omitted, but one is a two-page law review note on judicial notice, and the other debates whether the USPS time stamp is local time or one uniform time for all its timestamps. It’s Friday afternoon, and it’s all too long to quote here even if it weren’t Friday afternoon.)

Whatever, the parties can’t confer jurisdiction on Tax Court by agreement, or by not raising the issue. Only Congress can do that, and Congress…sorry, this is a non-political blog.

So, Matt & Jen, dish. What did you do and when did you do it?

And IRS, discuss whatever you know about USPS tracking, endicia.com’s methodology, and all that jazz.

Takeaway- Consider whether you want to use certified mail if you’re using non-USPS postage at the eleventh hour.

A meagre gleaning from the hundred or so orders thus far appearing on the Tax Court’s website is a reminder that, although the solstice is still some days away, it’s already summertime in The Glasshouse at 400 Second Street, NW.

So I’m thrown back to remembering a Disney summer catchpenny from 1989 to entitle the story of Chastity Kirven, Docket No. 30393-15W, filed 6/17/16.

Chastity is opposing summary J, but her Certificate of Service leaves off the address of IRS’s counsel (presumably that person listed on the Tax Court docket search, located at 1111 Constitution Avenue, NW), drawing an admonition from Ch J L. Paige (“Iron Fist”) Marvel.

This sort of thing I’d ordinarily let slide, but for something quite unusual.

I’ll let Ch J Iron Fist tell you all about it.

“…petitioner failed to explain the large discrepancy between the number of pages in the unredacted opposition (315) and the redacted opposition (122). Rule 27(e) provides that a person filing a redacted document may also file an unredacted copy under seal. A 315 page unredacted opposition is not a ‘copy’ of a 122 page redacted opposition.” Order, at p. 1. (Emphasis by the Court).

So, Chastity, file an unredacted 122 page opposition; if you can. See the title of the blogpost above.

Don’t Do It

 Incommunicado yesterday, but still got 132 views on my blog; go figure. To make up for missing my Palindrome Day blogpost, here’s Judge Wells discussing how a preparer can commit massive fraud. Don’t do it. The dude got the jail.

The fall-out nails John Finnegan and Joan Finnegan, 2016 T. C. Memo. 118, filed 6/16/16. John and Joan weren’t themselves fraudsters, but their preparer Howell was. He’d had his CPA license lifted for fraud years before, so he invented a platoon of phony preparer entities to sign his returns. Reminds me of ol’ ex-PFC Wintergreen.

IRS wants to nail the Finnegans for a bunch of years, open and closed, based on Howell’s delicitions. They can do this only by proving the Finnegans’ returns were fraudulent.

Our old pal “clear and convincing” is the standard, and IRS wants to use testimony from the IRS thiefcatchers to show the pattern of Howell’s thievery made manifest in the returns he filed for the Finnegans (and which they never read).

Howell used phony partnerships with phony Schedule Es, and moved them about the country, sending the 1065s to processing centers other than that to which his individual customers’ returns were sent, so as to fox IRS. Howell used the same numbers for every phony partnership’s non-deductions.

“These figures are described on the returns with vague terms such as “miscellaneous”, “other expenses”, “other income”, “cash contributions”, “supplies”, “purchases”, and more. The figure $4,896 appears in every partnership return…as “office supplies or expenses”. Finally, for every Form 1040, petitioners showed net income of $2 on Schedule C, Profit or Loss From Business.” 2016 T. C. Memo. 118, at p. 10.

And Howell used the same numbers again and again for the same phony expenses and income. Saves time when you’re cranking out upwards of 750 phony returns per year. A nice book of business.

Much argy-bargy about the FRE and the pre-PATH (Revenue Act of 2015) Tax Court Rules of Evidence, which I leave to the law review writers desperately seeking soporific copy. Bottom line- FRE 406 lets in evidence of routine practice. IRS made reasonable efforts to get Howell to testify (which he doesn’t), so in his absence the trial transcripts of himself and an associate who also goes down get in under FRE 804(b)(3).

Judge Wells makes much of the Eriksen case. See my blogpost “Too Much Truth,” 7/12/12, for the lowdown thereon.

“Petitioners contend that Eriksen stands for the proposition that, to establish fraud, the Commissioner must prove a ‘direct link’ between the commission of fraud and a taxpayer’s return. Petitioners strongly imply that the only way to establish such a direct link is through the preparer’s testimony. In Eriksen, the Commissioner established the existence of fraud by matching the incorrect information on the taxpayer’s return to the preparer’s modus operandi. In other words, even taking petitioners’ contention into account, there are ways of providing an evidentiary link that do not involve a preparer’s specific testimony as to a particular taxpayer.” 2016 T. C. Memo. 118, at p. 26.

Besides, in Eriksen, Jim and Curt, the rogues, testified that not every return they prepared was bogus, even though IRS trotted out 150 examples of Jim’s and Curt’s bogusity. Here, Howell had testified he never did any return that wasn’t “dirty.”

I might mention that, in Eriksen, five of the six taxpayers under the gun (read my blogpost to get this elaborate pun) survived a less-than-stellar IRS cross examination. The sixth stuck her head in the noose by admitting the phony deductions. Contrary to the old saw that “liars need good memories,” they don’t; they need bad memories. “I don’t remember” often works wonders. Here, the Finnegans admit they never heard of these partnerships Howell invented for them.

Of course, what nails the Finnegans for negligence chops (IRS didn’t seek fraud chops against them) is that they never read the returns, and the resulting major tax benefits they got were too good to be true. They hooked up with Howell when their old accountant retired and Howell got them much better results.

I had the contrary experience some years ago when, engaged to prepare a return for the first time, I discovered that the client’s retired accountant invented a massive unsubstantiated deduction in a prior year. When I pointed this out to the client, I got fired. What happened thereafter I know not.

Takeaway- Remember Howell. Don’t do it.

1600 blogposts, 198 followers, 135 countries. More to come, if time permits.

Conjoining those two sages Ralph Waldo Emerson and William James Basie, Judge Kerrigan deals with the old game of depositing December’s checks in January in Robert J. Squeri, et al.,  2016 T. C. Memo. 116, filed 6/15/16.

Rob and the et als are shareholders in a cash-basis S Corp that really cleaned up (they were in the full-service janitorial business).

For the open years, they held off the December checks to January. IRS hits them and makes them recognize the income when they got the checks each year, regardless of when they deposited them. And Rob and the et als lose that one.

However, IRS wants to hit them for a closed year, by making them pick up the January open-year deposits in the closed year, even though throwing them backward in the still-open years.

“The parties do not dispute that [Sub S] incorrectly computed its gross receipts by using bank account deposits.  Respondent contends that under the duty of consistency, petitioners should be required to include on their [open-year] returns amounts of [closed-year] income, as they originally reported.  Petitioners contend that gross receipts of $1,634,720 should be excluded from their [open-year] income because they were actually received in [closed-year] and that respondent does not have authority to make adjustments for petitioners’ [closed] tax year.  Petitioners further contend, and respondent does not dispute, that the Tax Court does not have jurisdiction to make adjustments for their [closed] tax year and that the period of limitations… is closed.  See secs. 6214(b), 6501(a).” 2016 T. C. Memo. 116, at p. 7.

So will Rob and the et als walk away with $1.6 million that will stay behind the closed-year door?

Not with Judge Kerrigan on the case.

“The duty of consistency, or quasi-estoppel, is an equitable doctrine which prevents a taxpayer from benefiting in a later year from an error or omission in an earlier year which cannot be corrected because the limitations period for the earlier year has expired.” 2016 T. C. Memo. 116, at p. 8.

Dig that quasi-estoppel (sorry, guys).

The following triggers the duty of consistency: “…(i) a representation or report by the taxpayer, (ii) reliance by the Commissioner, and (iii) an attempt by the taxpayer after the statute of limitations has run to change the previous representation or to recharacterize the situation in such a way as to harm the Commissioner. If all those elements are present, the Commissioner may act as if the previous representation, on which he relied, continues to be true, even if it is not.  The taxpayer is estopped to assert the contrary.” 2016 T. C. Memo. 116, at pp. 9-10. (Citations omitted).

In short, taxpayer, you broke it, you own it.

Report? The tax returns for all the years, open and closed.

Reliance? Although Rob and the et als claimed IRS knew their reporting was bogus because he nailed them for the open years, IRS never objected to the closed year. There is no necessity that IRS audit every return and give it a “no change” to show reliance.

Recharacterize? Here’s the whole point: “Petitioners admit that reporting the [closed-year] payments for [closed-year] rather than for [open-year] would be inconsistent with their previous reporting.  The period of limitations has expired on the [closed] tax year, and allowing petitioners to recharacterize their income as belonging in [closed-year] would harm the Commissioner; it would allow petitioners to avoid tax on $1,634,720.” 2016 T. C. Memo. 116, at p. 13.

It would also harm everyone who paid their taxes honestly.

Rob and the et als claim they made a mistake of law and not of fact. Whatever they made, it was a representation made and relied upon.

Takeaway- The SOL is not a plenary indulgence.

Unlike Lilian Chinedum Ajayi, who starred in my blogpost “Just Counting The Days,” 1/1/16, Christopher J. Ventura & Sara M. Ventura, Docket No. 28185-14S, filed 6/15/16 go down for the count in a designated hitter from STJ Daniel A (“Yuda”) Guy.

Chris & Sara file four (count ‘em, four) bankruptcy petitions, each of which gets bounced, although in one case Chris & Sara get an extension of the automatic stay.

Chris & Sara burned thirty of their ninety days after getting the SNOD before filing Bankruptcy One. So they had sixty days of their original ninety days, before the automatic stay stopped everything, and 60 days per Section 6213(f) after the end of their proceeding (discharge or bounce, whichever first occurs).

Chris & Sara filed Bankruptcy Two within thirty days after Bankruptcy One was bounced.

We know that while the automatic stay is in effect, no proceedings can take place in Tax Court.

But there is an exception for quick-kick refilers.

“Specifically, 11 U.S.C. section 362(c)(3)(A) and (B) provides in relevant part that, if the debtor had a single or joint bankruptcy case pending within the preceding one-year period, but that action was dismissed, the automatic stay under subsection (a) with respect to any action taken with respect to a debt shall terminate with respect to the debtor on the 30th day after the filing of the later case, unless the bankruptcy court grants the motion of a party in interest to extend the automatic stay. In Klein v. Commissioner, 135 T.C. 166 (2010), the Court interpreted the so-called exploding stay provisions of 11 U.S.C. section 362(c)(3) and concluded that they are applicable in deficiency proceedings brought in the Tax Court under section 6213(a).” Order, at p. 3.

So, when Chris & Sara filed Bankruptcy Two within a month after the first was bounced, they asked for, and got, an extension of the automatic stay. So everything was stayed again.

But after the Bankruptcy Two was bounced, the clock started again.

Chris & Sara didn’t petition Tax Court until seven months had passed since the second bankruptcy was bounced.

True, Chris & Sara filed bankruptcy twice after they petitioned, but that doesn’t help them. Their time to petition Tax Court ran before they filed Bankruptcy Three, and Bankruptcy Four, filed post-petition, is strictly a nonstarter.

So count those days, serial bankrupters, or you’re bounced from Tax Court too.

We’ve heard this Richard Lovelace classic before. See my blogpost “The Jolly Rounder,” 3/16/15. And now we hear it again from one now or formerly similarly situated, in Foundation for Harmony and Happiness, Inc., 17664-15X, filed 6/15/16.

We could all use a lot more harmony and happiness, even as I suggested to then-Ch J Michael B (“Iron Mike”) Thornton, as he wound down his Chieftainship. See my blogpost “Short!” 4/1/16.

Well, the Harmony & Happiness guy got tossed for lack of jurisdiction, and petitioned for vacation or reconsideration, as more particularly bounded and described in my last-mentioned blogpost.

Now the New Sheriff, Ch J L. Paige (“Iron Fist”) Marvel is heir-at-law to this one, and the Harmony & Happiness guy gets no joy from her.

“A motion to reconsider or to vacate typically is not granted in the absence of substantial error or unusual circumstances, such as mistake, inadvertence, surprise, excusable neglect, newly discovered evidence, or fraud. In petitioner’s motion, petitioner alleges no substantial error or unusual circumstances. Rather, petitioner asserts that the dismissal of this case was unfair because he was incarcerated when respondent filed the motion to dismiss for lack of jurisdiction. Petitioner further contends that this Court should either: (1) ‘make a decision to take jurisdiction by noticing that the corporation was in good standing for the subject years 1999 to 2002’, or (2) ‘allow the necessary time to fix the matter with the California Secretary of State’.” Order, at p. 1. (Citations omitted).

Well, Harmony & Happiness guy, whether or not your outfit was in good standing during the years at issue is nothing to the point. Your outfit has to be in good standing on the day you petition. In short, that was then and this is now. And tomorrow won’t help you.

Of course this is a CA case, and we get poor ol’ David Dung Le, M.D. dragged back in again. If Doc Dave could get royalties every time this case was cited, he’d have paid his back taxes ten times over. In any case, he must be second only to Neonatology Associates on the all-time medical list.

Ch J L. Paige Iron Fist doesn’t discuss the Harmony & Happiness guy’s absence from civil life, but one can conjecture he could have filed even from prison. Like the poetical Lovelace.

Ch J L. Paige (“Iron Fist”) Marvel swings into action as she begins her second week of Chieftainship, by complying with last year’s Congressional mandate, found in Section 431 of the Revenue Act of 2015, s/a/k/a Protecting Americans From Tax Hikes.

I propose a new enactment, to be entitled protecting Americans from cutesy acronyms. Good luck with that.

And she barely beats the 180-day deadline found in said statute.

I did mention the mandate in my blogpost “Cornpone – Redivivus,” 12/21/15.

The new Rules seem like a lot of wind-up for very little baseball. It’s not very likely we’ll see anything coming out of Tax Court’s special committees. Much of the new Rules are echoes of existing statutes and judicial codes generally.

Howbeit, here are rules for complaints about Judges and STJs.

http://ustaxcourt.gov/press/0614

No rounders need apply; if you lost, that’s no grounds for complaining under these Rules.

If I have a complaint about the stunning weekend just completed Far Above those “waves of blue” (which didn’t kick up much, notwithstanding dire warnings from National Weather Service), it’s the simultaneous scheduling of the Sherwoods with Cornelliana Night. C’mon, Alumni and Development, I couldn’t be in two places at once.

If all this is meaningless to you, my dear reader, I’m truly sorry. There are memories that are worth far more than the price of admission.

Anyway, I take the title of a record album (vinyl, so you know how long ago that was) by the Cornell a capellists The Sherwoods to revisit yet another Tax Court oldie-but-goody, Estate of Natale B. Giustina, Deceased, Laraway Michael Giustina, Executor, 2016 T. C. Memo. 114, filed 6/13/16.

Laraway escaped the chops, but got hit with a substantial deficiency on the valuation of his late parent’s 41.128% interest in the FLP, which held the Oregon timberland that comprised the family fortune.

For the skinny on that one, see my blogpost “Such Rarefied Heights of Pure Mathematics,” 6/25/11.

Well, Laraway wasn’t a happy woodsman after being administered the slug by Judge Morrison, so off to Ninth Circuit he ran.

The Ninth Circuiteers remanded Laraway, wanting Tax Court to elaborate on the single-asset risk premium and the going-concernedness of the FLP. See my blogpost “Such Rarefied Heights of Pure Mathematics – Part Deux,” 2/27/15, leaving Judge Morrison desperately seeking settlement.

The parties disoblige him.

Judge Morrison is clearly peeved; judges don’t like being reversed, especially in capital letters. “The Ninth Circuit’s opinion ended with the words ‘REVERSED and REMANDED for recalculation of valuation’.” 2016 T. C. Memo. 114, at p. 8.

OK, says Judge Morrison. First, any investor (our friend the hypothetical creature, see Reg. 20.2031-1(b)) will diversify. There shouldn’t be much premium on the price for the single-asset, because anyone buying in will have other assets elsewhere, so a collapse in the forest (whether or not anyone hears it) will be offset by gains in the ocean (or sky, or Cloud).

More elegantly, “Risk is not preferred by investors.  Richard A. Brealey, Stewart C. Myers, & Franklin Allen, Principles of Corporate Finance 182 (8th ed. 2006) (“Most investors dislike uncertainty”.).  They require a premium to bear it.  However, some of the risk associated with an asset (the “unique risk”) can be eliminated through diversification (1) if the owner of the asset also owns other assets, (2) if the risks of the other assets are not associated with the asset in question, and (3) if the other assets are great enough in value.” 2016 T. C. Memo. 114, at p. 10.

And the 25% possibility that the FLP would dissolve, itself dissolves when Judge Morrison examines Laraway’s and his kinfolks desire to keep their forests primeval and chop them down slowly, replanting as they go. Laraway and kinfolk must approve any buyer; any buyer who claims to love trees but wants to sell out the Giustina arboreal splendor would be shown to the door.

And Judge Morrison again quotes the experts on corporate finance above-cited.

“For 25 years, Larry [that’s Laraway to you] Giustina and James Giustina had run the partnership as an operating business.  The record suggests that these two men would refuse to permit someone who is not interested in having the partnership continue its business to become a limited partner.  Thus, we believe that they would not permit a multiple-owner investment entity to become a limited partner. Such an entity seeks to increase the returns on its investments.  Brealey, Myers, & Allen, supra, at 182 (“Most investors like high expected returns”.).  If such an entity owned the 41% limited-partner interest, it would attempt to have the partnership discontinue its operations and dissolve.  (At dissolution it would get 41% of the value of the partnership’s assets, or 41% of $150.68 million.  In contrast to the $150.68 million that would be received by all the partners from dissolving the partnership, the value of the cashflows from the partnership’s continued operations would be only $33.8 million (according to the estate’s expert), $51.7 million (according to our first opinion), or $65.76 million (according to the IRS’s expert).  These values are 22%, 34%, and 44%, respectively, of the $150.68 million that would be realized by dissolving the partnership.)” 2016 T. C. Memo. 114, at pp. 14-15.

Got a clue for you, Judge, and the Three Wise Men you quote. Investors don’t want high “expected” returns. They want high ACTUAL returns.

Anyway, why buy a lawsuit, except at a really steep discount?

So, after yet another mix-and-match, Judge Morrison’s rarefied mathematics yield good news for Laraway and Cousin Jim and the gang.

“In our first opinion we valued the 41% limited-partner interest at $27,454,115.  After making the two changes discussed in this supplemental opinion (eliminating any weight attributed to the value of the partnership’s assets and applying the 3.5% partnership-specific risk premium), our valuation changes to $13,954,730.” 2016 T. C. Memo. at p. 16.

Judge Morrison has a table to show the good news.

Keep it up, Laraway, and you’ll end up with IRS owing you money.

It sure does, and welcoming me back from the Big Five-O on The Hill Far Above is Norma L. Slone, Transfereee, et al., 2016 T. C. Memo. 115, filed 6/13/16. Y’all will recall Norma and the et als knocked it out of the park, as Judge Haines found the Slones hadn’t collaborated with the Mid-Coast nasties to grab the loot from Dad’s broadcast empire and rob poor ol’ IRS.

If you don’t so recall, check out my blogpost “Substance Matters,” 3/1/12.

IRS, not so easily daunted, ran to the Ninth Circuit, which bounced the Slone Rangers (sorry, guys, the devil made me do it) back to Tax Court for failure to double-stop their opinion. First, were the Sloners  “transferees” per Section 6901? Second, under State law (here AZ), were they liable for the transferor’s unpaid debts (namely the income taxes from the built-in gain on the sale of the C Corp assets)?

For more about Ninth Circuit’s diss of Judge Haines, see my blogpost “Spring Cleaning,” 5/11/16.

Well, Judge Haines was no wise loath to jump into the fray, and the Slone Squad wins again.

First, the Slones sold their C Corp stock to a third party for cash. And nothing in the record suggests that the Slones knew the sale was a put-up job. Their experts did proper due diligence. The third party thereafter looted the Slone C Corp, and shuffled off. Once Judge Haines accepted the sale transaction as a real sale, that puts paid to the notion that the Slones got anything from the corporation.

So they’re not ”transferees.”

Then, IRS has only AZ law. But AZ hasn’t ruled definitively. So Judge Haines finds IL has, and here comes Alterman. See my blogpost “It’s Not Fraud,” 12/1/15.

So Judge Haines trudges exhaustively (and exhaustingly) through the AZ UFTA, and, because the Slonies never touched the corporation’s assets, nor did they connive with the Mid-Coasters, nor did they even turn a blind eye toward the post-closing skullduggery, the Family Slone comes out clean.

Are we going back to Ninth Circuit? Stay tuned.