Rickey L. Drilling, 2016 T. C. Memo. 103, filed 5/25/16, has lots of troubles. Beside child support, criminal restitution to his ex-wife, and unapplied withholding that reduces his tax liability to what he said on his 1040-EZ for the year at issue, his OIC gets bounced because his RCP is enough to pay off his debt whatever time period (24 months, 60 months or 120 months) is used.

IRS wants to toss Rickey for various reasons, but I want to talk about IRS’s admission that Rickey doesn’t owe tax for the year at issue (and there’s no disagreement about what he owes for other years), so there will be no collection action taken, and therefore the much-cited Greene-Thapedi rule ousts Tax Court of jurisdiction.

No it doesn’t, says Judge Morrison, IRS hasn’t withdrawn the NFTL it filed. “Where, as here, the taxpayer seeks to withdraw a filed lien notice, and the notice has not been withdrawn nor the lien released, the case is not moot merely because the taxpayer has paid the related liability.  A lien-notice filing can cause injury to a taxpayer even after the underlying liability has been paid.  See William T. Plumb, Jr., ‘The Creation, Removal, and Impact of Tax Liens’, 20 Prac. Law. 75, 84-85 (1974)(‘Consummation of a transaction in which a taxpayer might desire to engage may be seriously impeded if notice of a general tax lien is on file in the appropriate public office, even if the taxpayer has actually paid the delinquency secured by the lien.’).” 2016 T. C. Memo. 103, at pp. 51-52.

The two cases IRS relies on didn’t involve withdrawing a NFTL. Greene-Thapedi wanted to argue underlying liability, but in a collection case that doesn’t work when there’s no collection, and the petitioner in the other case didn’t talk about withdrawal of the NFTL.

So although Rickey loses on his OIC, and loses on his claim that IRS misapplied his payments and miscalculated his tax, his case is not moot.

I can recommend Judge Morrison’s opinion, with its exhaustive (not to say exhausting) extracts from Appeals’ notes, to any sufferer from insomnia. Long before reaching page 71, you will nod out.

Most people writing fiction hope to make money. The allure of best-sellerdom, with attached international translation and film rights, motivates the eternally hopeful to put paw to wordprocessor and hammer out the successor to Fifty Shades of Whatever.

Well, there’s a downside if you write fiction on a 1040. Here’s the tale of Giliard Schwartz, Docket No. 11996-15S, filed 5/24/16.

This is a designated hitter from The Judge With a Heart, STJ Armen. But STJ Armen has no balm for Giliard (sorry, guys).

Giliard claimed $330K in moving expenses. Except her address never changed since she previously adjusted her gross income therefor a year earlier in a much smaller amount. Her boss sent W-2s to that address, the local taxing authority billed her for the taxes there, and she filed her return for the year at issue from that address.

“Not surprisingly, petitioner’s… income tax return was selected for examination. But, neither during the examination phase of this case, nor the administrative appeal phase of this case, nor the litigation phase of this case did petitioner ever respond to requests for substantiation of her alleged moving expenses, and petitioner essentially ignored respondent’s personnel during these three phases of the case. For example, respondent’s counsel found it necessary to file a Rule 91(f) motion when petitioner refused to stipulate facts or documents as required by the Court’s Rules of Practice and Procedure.” Order, at p. 2. (Footnote omitted, but it says IRS’s asserted facts deemed admitted).

Giliard ignored IRS’s requests as above-stated. So STJ Armen set IRS’s motion to dismiss for want of prosecution for a hearing, and added, at no extra charge, a Section 6673 warning to Giliard. If she was writing fiction, that’ll cost her.

Came the trial date, and STJ Armen throws a rope to Giliard.

“Petitioner was given the opportunity of consulting with a pro bono attorney from the Tax Section of the Texas State Bar Association who was in attendance at the session to assist pro se taxpayers such as petitioner. The matter was then recalled several times. Ultimately petitioner, with pro bono counsel present, stated that she did not wish to try her case, that she would not oppose the granting of respondent’s motion to dismiss, but that she would not concede the factual allegations made in the motion regarding the fictitious nature of the alleged moving expenses. Petitioner expressly acknowledged that she understood the consequences of the Court granting the motion, i.e., that she would be liable for the determined deficiency in tax and accuracy-related penalty, as well as statutory interest. The Court then stated at length that it would grant respondent’s motion and also issue an order for petitioner to show cause why a penalty under I.R.C. section 6673 should not also be imposed. In that regard the Court made clear that such penalty would not be imposed if petitioner were able to demonstrate that there was some plausibility or some rationality to the $330,000 moving expense deduction that she had claimed, but that if petitioner were not able to do so then the Court would impose a penalty under I.R.C. section 6673 in an amount not to exceed $25,000. Petitioner was expressly advised by the Court that if she failed to respond to the show cause order, a penalty under I.R.C. section 6673 would be imposed.” Order, at pp. 3-4.

Well, if I told you that STJ Armen hit Giliard with a $10K Section 6673 chop, could you guess whether or not Giliard replied effectively to the OSC?

Writing fiction can be expensive.

Not quite, says Judge Ruwe, and Section 6402 backs him up, the 1798 Episcopal Church Book of Common Prayer to the contrary notwithstanding. It’s Caesar’s coin, remember.

So Lynn Marie Domaschko, 2016 T. C. Sum. Op. 24, filed 5/23/16, is out the $4K IRS took from the refund on her MFJ return to pay off a previous year’s deficiency.

In the year at issue, Lynn Marie had only $5k of income, and didn’t have any tax withheld, nor did she pay estimateds. Loved-once Peter made $155K and paid a lot of tax.

IRS wanted summary J, Lynn Marie claimed innocent spousery but put in no opposition. Judge Ruwe didn’t have to go into Lynn Marie’s marital woes.

“Section 6402 allows the Internal Revenue Service to credit an overpayment to ‘the person who made the overpayment’.  In the case of married taxpayers filing jointly, ‘a joint income tax return does not create new property interests for the husband or the wife in each other’s income tax overpayment.  * * * [T]he * * * [spouse] having paid the entire amount of the tax is entitled to the entire amount of the overpayment.’  Rev. Rul 74-611, 1974-2 C.B. 399.” 2016 T. C. Sum. Op. 24, at p. 7.

You could also look up Rev. Proc. 2013-34, sec. 4.04, 2013, 43 I.R.B. 397, 403, for the take on innocent spousery. The spouse who paid gets the refund or credit.

Judge Ruwe doesn’t have to deal with Lynn Marie’s innocent spousery. Innocent she may well be, but she didn’t pay the overpaid taxes.

No, this is not a pitch for an over-the-counter purple pill.

Peter Reilly, CPA, Forbes’ man-on-the-spot, picked up on Third Circuit’s rescue of Giant Eagle’s “all events” accrual at the end of last month.

I had blogged the T. C. Memo. that disallowed Giant Eagle’s accrued deductions for gasoline discounts earned but not redeemed by big spenders in Giant Eagle’s food aisles. Here’s the story, “Ya Gotta Do It To Accrue It – Part Deux,” 7/23/14.

Third Circuit said Giant Eagle negotiated successfully the Reg. Section 1.451-4(a)(1) slalom.

Visit Mr Reilly’s blog for the skinny.

So Third Circuit, like a much more exalted source, satisfies appellant with good things, so thy youth is renewed like a Giant Eagle.

It’s that time again, Memorial Day at MeF.

“IRS will conduct its annual Memorial Day Systems Shutdown beginning Saturday, May 28 at 11:59 a.m. ET and ending Tuesday, May 31 at 6:00 a.m. ET. The Modernized e-File Systems (both Production and ATS) will not be operational during this timeframe. Please refrain from accessing the MeF Systems to transmit business, individual or state tax returns, retrieve acknowledgements or submit any other service requests.”

On a Friday we get a designated hitter from the blogger’s friend and obliging jurist, Judge David Gustafson. And again he parses for us the Section 6511 look back limitations, when overpayments are at issue.

Bradley Ronald Thompson & Beth Michelle Thompson, Docket No. 13012-15SL, filed 5/20/16, came up with the 1040 for the year at issue four years late. They claimed they had a refund coming, so paid nothing on the liability stated in said return. IRS obliged with a NITL; Brad and Beth riposted with a CDP request.

“During the CDP hearing the Appeals officer stated (see Ex. M): “Regarding the refund you were expecting for the 2008 tax year; you have 3 years from the return due date to file a claim for refund. Tax year 2008 was due on April 15, 2009; you had until April 15, 2012 to claim your refund. My research shows the IRS received your return on June 26, 2013. Therefore, you are not entitled to the refund.” Order, at p. 2.

Brad and Beth entered into an IA, so no levy, but Appeals denied the refund as above-stated. So Brad and Beth petition the denial, and IRS, admitting everything that Brad and Beth say, moves for summary J.

Judge Gustafson: “The amount of a credit or refund for an overpayment of income taxes for a taxable year is thus limited by two periods. The first is a period of limitation on filing the claim of refund and the second limitation is a ‘look-back’ period limiting the amount of tax that can be refunded if the claim is timely under the first rule.

“The first limitation requires that a claim for credit or refund of an overpayment of any tax shall be filed by the taxpayer either (1) within 3 years from the time the return was filed, or (2) within 2 years from the time the tax was paid, whichever of those periods expires later. Sec. 6511(a). Under the 3-year lookback period, if the claim was filed within 3 years of filing the return, then the taxpayer is entitled to a refund of taxes paid within 3 years immediately preceding the filing of the claim, plus the period of any extension of time for filing the return. Sec. 6511(b)(2)(A).” Order, at p. 4. (Citation omitted.)

So, when Brad and Beth filed their return, they were essentially claiming the refund to offset their admitted liability. And as they weren’t then subject to audit, they get the three-year lookback from filing, not due date. Appeals got it wrong, “strictly speaking.” Order, at p. 4.

But Brad and Beth can only get back whatever they paid in the three-year period before they actually filed the return.

IRS claimed the only payment Brad and Beth made was made a year before the farthest-back year of the lookback, so Brad and Beth are out of luck.

But IRS is once again playing the Michael Corleone gambit, with the usual results.

“However, in its motion the IRS failed to substantiate that assertion about the payments made on the Thompsons’ 2008 account. The IRS did not submit any transcript of the Thompsons’ 2008 income tax account or any other evidence. Statements of counsel in a brief do not properly support a factual assertion in a motion for summary judgment.” Order, at p. 5.

No summary J. So, Brad and Beth, come to trial with a check…a canceled check. Or equivalent.

But Make Sure It’s The Right Money

Harkening back to my blogpost “Show Me The Money – Part Deux,” 8/15/14, Ch J Michael B (“Iron Mike”) Thornton, in the waning days of his Chieftainship, has not forgotten what I called in the above-referred-to blogpost “Ch J Iron Mike’s cornerstone rule: Show Me The Money.”

But in trying to follow the rule, Joseph Anthony Steinbroner & Linette Leta Steinbroner, Docket No. 3467-16S, filed 5/19/16, come up with the wrong money.

It’s the usual no-jurisdiction face-off.

Linette and Joe agree that Linette is out on no-SNOD-or-NOD, and Joe is out as to one year, but Joe insists he’s in on the other.

His petition is received three weeks past the magic ninety days, and IRS, relying on USPS data, says the letter with the petition would have been received at the Glasshouse at 400 Second Street, NW, ten days before Joe’s got there.

There’s no legible postmark on the envelope, so we go to extrinsic evidence. And here’s where Joe gets creative.

“In support of their contention that the petition was timely mailed, petitioners attached to their objection to the motion to dismiss a copy of a receipt for a money order, bearing a date [within the 90-day limit], that was purchased from the U.S. Postal Service. Petitioners state that the money order was obtained to pay the filing fee for this case and was purchased at the same time the petition was mailed to the Court. However, this argument is contradicted by the Letter 555 (with an attached Form 886-A and Form 4549, explaining changes the IRS made in Mr. Steinbroner’s proposed tax increase), dated [outside the 90-day limit], that the IRS sent to Mr. Steinbroner and that petitioners attached to the petition filed in this case.” Order, at pp. 1-2.

So Joe can deal administratively with IRS, and good luck to him.

Takeaway – Make sure it’s the right money. And have a canceled check (see my blogpost “The Check’s The Thing,” 6/1/11). But whatever you do, make sure it’s the right money.

But It Doesn’t Go All That Well

Marlene D. Morten, Docket No. 2451-13, filed 5/18/16, finally gets the trial that Judge Gustafson has been after her to give her, and it doesn’t go terribly well for Marlene.

This is Marlene’s third appearance on taishofflaw.com, but Judge Gustafson gives the lie to the old phrase “third time lucky.”

For those who tuned in late, Marlene featured in “Good Nature, Poor Spelling,” 2/1/16, and “A Wee Bit Obliging,” 2/19/16.

But the latest is a designated hitter off-the-bencher from the King of the 7459s, that obliging jurist Judge David Gustafson.

Marlene’s business and legal lives were a trifle tangled. She was fighting the Feds on the contract termination of her father’s not-for-profit (part of which is still going on) and also winding up the trucking business wherein her husband and she were involved.

Oh, and she had a real estate operation as well. And didn’t file a return for the one year still on the table.

Marlene was running six (count ‘em, six) checking accounts, and monies from her various enterprises were scattered among them with no rationale discernible to IRS or Judge Gustafson.

“The most confusing feature of her finances was to use cashier’s checks to deposit, re-deposit, and transfer amounts between accounts. She testified that one purpose of this procedure was to leave a clear paper trail for the use of the money, but it had the opposite effect. She had [Dad’s NFP] procure a $110,000 check payable to herself and deposited it into her personal account. The same day she used those funds to purchase a cashier’s check for $105,000 payable to herself (evidently pocketing the $5,000 difference) and deposited it several days later it into the same account. Soon thereafter she used those funds to purchase a cashier’s check for $100,000 payable to herself (again evidently pocketing the $5,000 difference) and deposited it several days later it into the same account. We cannot tell why.” Transcript, at pp. 6-7.

Marlene finally wound up with a $225,000 bank check from the settlement of Dad’s NFP lawsuit. She told Judge Gustafson that “…one purpose of this arrangement was to enable her, during her extended stays in Zimbabwe to help her ailing father, to have access to funds in a form that foreign banks would honor; and for all we know the $225,000 ended up in a foreign bank.” Transcript, at p. 8.

Marlene did have some deductible expenses, and Judge Gustafson gives her those, but at close of play Marlene had $560K in her own bank accounts, under her complete control.

But Marlene gets off on one year, as her late-filed return for the year sat with IRS for four years before they issued a SNOD for that year. Since fraud is not on the table, nor apparently is substantial understatement for 6SOL, that year is out, as Tax Court has no jurisdiction.

Turning to the “in” year, Marlene’s records are insufficient, so IRS iuses the tried-and-true bank deposits method.

But Marlene wants to take a different tack.

“Ms. Morten in effect urges another method–i.e., that income be attributed to her only when her bank records show an affirmative personal expenditure on her behalf. Her theory seems to be that the money all belonged to [Dad’s NFP[ when received and deposited in whatever account and became compensation to Ms. Morten when [Dad’s NFP] (acting through her) determined to make an expenditure for the benefit of Ms. Morten. Her theory is at odds with the actual rule. But even if it were theoretically possible, it would be unworkable in this case, where she deems unexplained cash expenditures not to be income to herself, and where a $225,000 cashier’s check disappeared (into Zimbabwe?) but is supposedly not income unless and until the IRS can show an expenditure. We reject this method and look instead to the bank deposit analysis.” Transcript, at p. 15.

Marlene winds up with nonfiling and nonpaying chops, but not failure to pay estimateds because IRS doesn’t show her previous year’s liability.

As for “reasonable cause,” Marlene’s Dad may have been sick in Zimbabwe, “However, her financial records show that in that general time period she was handling other business for herself and [Dad’s NFP] –i.e., that she decided to handle other business but not taxes.” Transcript, at p. 21.

Not a good day for Marlene.

Funny, I was taught to regard it as a profession. But I’m old-fashioned that way.

Anyway, Emmanuel A. Santos, 2016 T. C. Memo. 100, filed 5/17/16, finds out from Judge Morrison that his law school tuition and fees aren’t deductible, because being a lawyer is a new trade or business.

EA was an EA, having started as an accountant, passed the SEE and then got a MST. Deciding to go for the full boat, he entered law school and ran up a $20K tuition and fees bill. His write-off thereof falls foul of Reg. Section 1.162-5(b)(3)(ii) Example 1:

“A, a self-employed individual practicing a profession other than law, for example, engineering, accounting, etc., attends law school at night and after completing his law school studies receives a bachelor of laws degree. The expenditures made by A in attending law school are nondeductible because this course of study qualifies him for a new trade or business.”

Well, EA went to law school, so what do you learn? When a Tax Reg is against you, play the Chevron-Mayo gambit, Altera variation.

Judge Morrison isn’t buying.

EA argues Treasury didn’t listen to the public comments when they published the Reg.

The Reg was published in 1967, and EA hasn’t got anything to show that Treasury didn’t listen to the comments. Besides, EA didn’t raise the commentary issue until his post-trial brief.

“As a result, neither the trial record nor the court papers in this case contain any information regarding the public’s comments to the regulation in question.  Without knowing what the public comments were, it seems difficult, if not impossible, for the Court to evaluate the adequacy of the Treasury Department’s response to the public comments when it promulgated section 1.162-5, Income Tax Regs.” 2016 T. C. Memo. 100, at p. 9.

Moreover, the Reg was sustained in Tax Court forty-five years ago, and Ninth Circuit just said it approved Tax Court’s decision, without going into the public comments. And EA is in CA, so he’s Golsenized.

As for Mayo and Altera, true, they came later, and also true, “(W)e recognize that the tests for determining whether a regulation is valid today are different….  And we recognize that precedent may lose its force when the underlying law upon which the precedent was based has changed. However, we see no such change that would justify deviating from…precedent.” 2016 T. C. Memo. 100, at p. 7. (Citations omitted.)

The Reg comported with the statute then and now. And Altera dealt with IRS wild-carding in a new test independent of statute, regulation or precedent. See my blogpost “Sixteen Lawyers – Part Deux,” 7/27/15.

I’ll give EA a Taishoff “good try, third class.”

Note this is not legal advice; see the link to The Fine Print on this site.

But Ch J Michael B (“Iron Mike”) Thornton, winding down his tenure as Ch J, shows us a very useful defense to IRS’ often-played SNOD-after-petition gambit in Clem Fleck Masonry, Inc., Docket No. 20506-14, filed 5/17/16.

Usual story: Clem petitions three tax years from a purported SNOD on Day 59; IRS answers at Day 112, saying that not only are those three years in play, but tacks on the next year also. But Clem didn’t attach a SNOD for any year, because IRS never issued one.

Remember, there is no required form for a SNOD. See my blogposts “Fake Out,” 12/16/14, and “Fake Out – Part Deux,” 6/23/15.

IRS plays the SNOD-after-petition gambit, and moves to dismiss after it dropped a SNOD the month before, well after the petition had been filed.

Ch J Iron Mike plays the sorry-but-no-jurisdiction variation, but saves the day.

“Under the circumstances, however, the Court will direct that a copy of petitioner’s Ownership Disclosure Statement filed at docket No. 20506-14…, be filed as of that date as the petition commencing a new case at docket No. 11435-16 for petitioner. All future communications relating to the notice of deficiency… issued to petitioner should be directed to docket No. 11435-16.” Order, at p. 2.

So? When in doubt whether a particular billet doux from IRS is, or can be deemed or construed to be, a SNOD, send in a petition and a check. If IRS moves to dismiss a couple months (hi, Judge Holmes) later, after dropping a real SNOD, send in a letter attaching the SNOD immediately, asking it be deemed an imperfect petition, and amend. It’s risky, but might work.

Edited to add, 10/1/21: Note that the operative word in the foregoing sentence is “amend.” It’s not enough to send in the letter and SNOD; get Form 2, style it an amended petition, and lay it on ’em.