Except There Was No Objection, So It Doesn’t

The self-representeds in Tax Court often remind me of the fish-in-a-barrel cliché. By the time there’s an order from the Court, it’s too late.

Here’s Walls Transportation, Inc., Docket No. 20019-15, filed 12/7/15, Ch J Michael B. (“Iron Mike”) Thornton ejecting Walls from the cab.

Walls filed its petition three (count ‘em, three) days prior to the issuance of the SNOD.

When IRS moved to dismiss (leg before wicket, to those of you who follow cricket), Walls doesn’t answer, even though Ch J Iron Mike told them to do so, before their ninety days had run out.

And remember, Ch J Iron Mike will take anything as a petition, however imperfect, if it restates the petitioner’s sad tale, is manually signed in blue ink, and is mailed before the ninety days runs out. In witness whereof, see my blogpost “The Objection Saves The Day,” 10/19/15.

I know, the people who need to see this won’t see it. But I will again, in keeping with the season, raise my voice, “the voice of him who crieth in the wilderness.”

An Alternative is an OK Initial Determination

The Boss Hoss Rule, embodied in Section 6751(b), states that “No penalty under this title shall be assessed unless the initial determination of such assessment is personally approved (in writing) by the immediate supervisor of the individual making such determination or such higher level official as the Secretary may designate.”

The gambit, as you may remember from my blogpost “Penalty Kick,” 7/17/14, is to object that the initial determination of the assessed penalty, here a 40% substantial overvaluation chop per Section 6662(h), wasn’t properly signed off by the right Boss Hoss.

But Judge Kerrigan decides the undervaluing conservation donors, Brett E. Legg and Cindy L. Legg, 145 T. C. 13, filed 12/7/15, don’t have a leg to stand on. (Sorry guys).

Here’s the back story: “Respondent’s [IRS’s] examiner determined that petitioners were liable for the 20% accuracy-related penalty under section 6662(a) or, alternatively, that petitioners were liable for the 40% accuracy-related penalty for a gross valuation misstatement under section 6662(h). The examination report concludes that petitioners are ‘subject to the Accuracy Related Penalty-Gross Valuation Misstatement pursuant to IRC Section 6662 for the tax year 2007′. The examination report, however, calculated the proposed penalties using the 20% rate.” 145 T. C. 13, at p. 5.

And the letter transmitting the report the report was signed by the examiner’s immediate supervisor, the director of Western Area Examination.

Brett and Cindy rush to Appeals, but get no joy. Appeals “…explained that imposing 40% gross valuation misstatement penalties should be respondent’s primary position because the value of the conservation easement reported on petitioners’ tax returns exceeded more than 200% of the correct value (zero) and the case is unagreed. The report further explained that imposing 20% accuracy-related penalties should be respondent’s alternative position.

“… the Appeals Officer’s immediate supervisor—the Appeals Team Manager–approved the report.” 145 T. C. 13, at p. 6.

Judge Kerrigan cuts to the cliché. “Petitioners believe that section 6751(b) must apply to the first notice that the IRS sends the taxpayer. Thus, petitioners argue that respondent’s examiner was the only person qualified to make an ‘initial determination’ of the appropriate penalties and the examiner determined a penalty of 20% pursuant to section 6662(a). Respondent contends that section 6751(b) applies only before the assessment of penalties, not before the determination of penalties in a notice of deficiency. We find it unnecessary to decide whether section 6751(b) applies only before the assessment of penalties or before the determination of penalties in a notice of deficiency since we conclude that respondent’s examiner made an ‘initial determination’ regarding the section 6662(h) 40% penalties.” 145 T. C. 13, at p. 8.

Now for the alternative. “Respondent’s examination report included the 40% gross valuation misstatement penalties analysis as an alternative position because of uncertainty as to whether such penalties could be imposed where an underpayment was the consequence of an adjustment not based on valuation. Specifically, respondent was uncertain whether he could impose gross valuation misstatement penalties on the theory that petitioners’ donation of the conservation easement did not meet the charitable contribution deduction requirements of section 170, an adjustment not based on valuation. This uncertainty has since been resolved. In the notice of deficiency respondent contended that petitioners failed to meet the legal requirements for a conservation easement charitable contribution deduction. We find that even though the gross valuation misstatement penalties were posed as an alternative position, the report made an ‘initial determination’ that petitioners were liable for the 40% penalties.” 145 T. C. 13, at pp. 10-11.

Congress wanted taxpayers to know the basis for each penalty. The examiner made it clear. The examiner’s boss signed off on it.

Note that Brett and Cindy, and IRS, stipped away a lot of issues. I thank them, and I’m sure my readers will as well, since this blogpost is much shorter therefor.

“After the issuance of the notice of deficiency, petitioner and respondent stipulated and agreed that the value of the conservation easement was $80,000 at the time of petitioners’ donation. The parties agreed that mathematically petitioners’ reported value of $1,418,500 was a gross valuation misstatement per section 6662(h)(2)(A)(i). The parties also agreed that petitioners cannot invoke a reasonable cause defense against the gross valuation misstatement penalties under section 6662(h) but that petitioners have satisfied the reasonable cause defense requirements for substantial valuation
misstatement penalties under section 6662(a) and (b)(3)..” 145 T. C. 13, at pp. 6-7.

Represented

Judge Gustafson, as obliging as always, bounces IRS’s motion for summary J a second time in a designated hitter, Cornelius L. Jones, Docket No. 5166-15L, filed 12/4/15. I didn’t blog the first bounce, which took place back on November 24, as I had other cases to deal with.

Howbeit, IRS’ counsel, apparently overstressed with the weight of work, once again fails to correct an important defect in previously-bounced papers. “…the factual assertions are not in a section distinct from the motion’s legal argument.” Order, at p. 2.

Remember Rule 121(d). Undisputed facts must be separately and clearly stated. Here, IRS’s counsel provides a “Factual Background,” but what is alleged there isn’t sufficient, and the remaining allegedly undisputed facts are sprinkled among the legal arguments.

Judge Gustafson hasn’t forgotten the in-the-trenches perspective he obviously had in his pre-elevation-to-the-bench days.

“We appreciate that respondent’s counsel must accomplish a significant volume of work to prepare for a calendar of cases, and that respondent must seek reasonable economies of scale in the handling of recurring and routine issues. However, a motion for summary judgment is not a routine experience for the typical self-represented petitioner but is instead a unique, first-time event. Experience teaches us that there is a risk that some petitioners may fundamentally misunderstand the nature of a motion for summary judgment (mistaking it for a pretrial memorandum that can be opposed at trial, or even for an order of the Court) and that many petitioners will find the task of responding to the motion to be very challenging. To maximize the chance that our cases will be resolved correctly on their actual merits, the Court must attempt to assure that, as much as possible, motions for summary judgment will be comprehensible to and susceptible of response by a non-expert petitioner of average intelligence.” Order, at pp. 2-3.

Practitioner, what is for you just another day in the office may well be maximum-trauma to the civilian.

So Judge Gustafson joins Judge Holmes in the K.I.S.S. club. See my blogpost “Write Like A Human Being,” 1/9/15.

The Judge With a Heart, STJ Armen, perplexed by IRS’s apparent walkaway from a winning case, won’t allow IRS to give up the win, in Robert H. Tilden, Docket 11089-15, filed 12/3/15.

You doubtless remember Robert H. Tilden. What, no? Well, check out my blogpost “Stamp Out Stamps.com – Part Deux,” 7/20/15.

Now, recollection refreshed, you recall that Bob’s petition got tossed on jurisdictional grounds, because his Stamps.com “postmark” was belied by the USPS track-and-confirm.

STJ Armen gave IRS the win in 2015 T. C. Memo. 188, filed 9/22/15, which I didn’t blog because it was so obvious. Or so I thought.

Now Bob moves for reconsideration per Rule 161. And IRS doesn’t object. What’s this?

STJ Armen traces this curious history in a footnote.

“Respondent’s [IRS’s] position has evolved over the course of this case. Thus, in his Motion To Dismiss For Lack Of Jurisdiction filed June 8, 2015, respondent argued that the petition was not timely filed, and he relied on USPS Tracking data to demonstrate that the petition was not timely mailed. Then, after petitioner objected to the granting of his motion, respondent argued in his Reply filed July 21, 2015, that the petition did not arrive at the Court in the usual mailing time and that petitioner failed to demonstrate when the petition was actually deposited in the mail, that the delay in the receipt of the petition was due to a delay in the transmission of the mail, and the cause of the delay. See 301.7502-1(c)(1)(iii)(B)(2), Proced. & Admin. Regs. Now, in response to petitioner’s motion for reconsideration, respondent reverses course and accepts petitioner’s view that the petition was timely mailed and was therefore timely filed.” Order, at p. 2, footnote 2.

As we all know, “The fact that respondent may now have lost confidence in his own motion is of no moment. After all, it is axiomatic that the Tax Court is a court of limited jurisdiction and that it may exercise jurisdiction only to the extent expressly authorized by statute. It is equally axiomatic that jurisdiction cannot be conferred on this Court by agreement of the parties. Indeed, the Court can — and should — question its jurisdiction when there is reason to do so. These principles are not new.” Order, at p. 3.

Even if IRS folds, if your petition is late, you’re out.

No, not a misspelling of the 1964 James Baldwin drama, rather this is the story of index-card records and all-night driving that gets more business miles deduction than IRS would allow to David L. Charley and Julia A. Charley, 2015 T. C. Memo. 232, filed 12/2/15.

Mister Charley owned an oil-purification business, which separated condensed water, particulates and acid from waste oil, preserving its lubricating qualities, and making it suitable for sale to plastic injection molders who use hydraulic oil.

Mister Charley roamed far and wide. But he never graced any motels with his presence. He would drive all day and all night to return to his home in the Show Me State, because “Mr. Charley testified that petitioners had spent $2,500 to rid their home of bed bugs after one hotel stay. Since then, he does not stay at hotels when he travels.” 2015 T. C. Memo. 232, at p. 4, footnote 6.

But the key to the case is Mister Charley’s index cards, which IRS tried to exclude on foundational grounds. But Judge Paris overrules IRS, lets Mr. Charley play the cards, and thereby hangs this tale.

“Mr. Charley recorded the point-of-contact, telephone number, date he visited the client, and the client’s business address on an index card. Each index card was created at the time of the travel to that client. Although the mileage from Mr. Charley’s home to each client was not included on the index cards, most of his client’s business addresses included the city and State where the client was located. Some of the index cards record visits to multiple clients in the same geographical area.” 2015 T. C. Memo. 232, at p. 4 (footnote omitted.)

There are mistakes and inconsistencies in the cards, but there’s enough stuff to satisfy the Section 274 extra-substantiation trap.

“While Mr. Charley cannot substantiate his business miles with a mere statement about his driving habits, he can substantiate them by ‘his own statement, whether written or oral, containing specific information in detail” about them and by ‘other corroborative evidence sufficient to establish’ them. Sec. 1.274-5T(c)(3)(i), Temporary Income Tax Regs., 50 Fed. Reg. 46020 (Nov. 6, 1985). The Court finds that Mr. Charley substantiated that he had business mileage expenses for 2010 through his index cards and testimony–although not the amount reported on petitioners’ return. See Smith v. Commissioner, 80 T.C. 1165 (1983) (taxpayer substantiated business mileage by producing schedule of his business travel that listed city and State he traveled to and from and dates of travel). While Mr. Charley’s travel schedule may have been extreme, such extremity is not a bar to deducting otherwise properly substantiated expenses. See Scully v. Commissioner, T.C. Memo. 2013-229, at *18.” 2015 T. C. Memo. 232, at p. 11.

Mr Charley gets less than what he claimed, and IRS drops the Section 6662(a) accuracy chop.

IRS allowed Mister Charley his legal fees deduction despite a missing witness. “Mr. Charley’s legal and professional services expenses were for the drafting of multiple business service agreements. The attorney who drafted the agreements passed away before trial.” 2015 T. C. Memo. 232, at p. 2, footnote 4.

Guys, I do not recommend this course of action to get your clients’ legal fees allowed.

If You Can’t Prove It

We have another replay of the fraudulent conveyance-transferee liability-Section 6901 drama in John M. Alterman Trust u/a/d May 9, 2000, Ronald Gordon and Donald Gavid, Trustees, Transferee, et al., 2015 T. C. Memo. 231, filed 12/1/15. IRS here has the burden of proof, and they can’t carry the weight.

This is yet another of MidCoast’s skulldugging. I’ve blogged these by the carload, so no citations. Judge Buch has all the cases in his opinion, anyway.

Here, MidCoast buys up the Alterman family trucking business, claiming they’ll reengineer the company into a bottom-fishing debt collector and lay off the built-in gain in the Alterman’s C Corp with bad debts.

Of course, they do nothing of the kind. Lying even to their own personnel, the MidCoast capos get short-term loans to fund the buyout, offshore the cash they get from the assets of the purchased Alterman C Corp, and do the phony currency option shellgame, buying major and selling minor, recognizing one but not the other. Then they collapse the vehicle they used.

Judge Buch is a-weary of this stuff.

“Courts, including this court, have been plagued by Midco cases. Rarely do these cases present themselves for a determination of the underlying liabilities. Instead, these cases are postured so that the courts are asked to determine whether someone other than the taxpayer should be on the hook for the taxpayer’s liability. They are transferee liability cases, and so are these cases.

“The fact patterns of these cases are similar. Someone sells an interest in a corporation for a good price; the corporation doesn’t pay its taxes; and the Internal Revenue Service (IRS) goes after the former shareholder for the taxes.

“The outcomes of these cases vary. Many taxpayers have prevailed at the trial court, but many of those taxpayers have seen their victories turned to defeat on appeal. The IRS has likewise prevailed at the trial court, and its victories have uniformly survived appeal. Rarest of all is the taxpayer victory that survives appeal.” 2015 T. C. Memo. 231, at pp. 2-3.

But this case is a taxpayer win. The Altermans had good attorneys and CPAs. They sussed out the deal, got reps and warranties in the contract of sale.

Read it, practitioner.

“The final share purchase agreement included the following promises by MidCoast:

– MidCoast would not allow AC to be dissolved or liquidated for at least four years and had no intention of allowing that after four years either.

MidCoast would reengineer AC into an asset recovery business.

– MidCoast would ensure that AC invested at least $1,450,000 into delinquent receivables and would reinvest the proceeds into more delinquent receivables for the next 10 years.

– MidCoast would ensure that AC maintained a net worth of at least $1.5 million for at least four years.

– MidCoast would ‘cause * * * [AC] to pay the Deferred Tax Liability to the extent that the Deferred Tax Liability is due given the Company’s post-closing business activities and shall file all federal and state income tax returns on a timely basis related thereto.’

– MidCoast would indemnify the former shareholders against any and all claims, including any damages, losses, deficiencies, liabilities, costs, and expenses resulting from and relating to any ‘misrepresentation, breach of warranty or nonfulfillment of any agreement or covenant on the part of any Purchaser under this Agreement’.

– MidCoast would represent that the ‘combined net worth of Purchasers exceeds $10,000,000 as of the date hereof and as of the Closing Date.’” 2015 T. C. Memo. 231, at pp. 37-38.

Of course, MidCoast did nothing of the kind.

IRS says there should have been a postclosing audit by the Altermans. Nonsense. No buyer lets the outgoing seller romp through her records. And, in my experience, most sellers never want to see the buyer again.

IRS ransacks the FUFTA (Florida Uniform Fraudulent Transfers Act), but the Altermans and Judge Buch show that MidCoast’s vehicle wasn’t insolvent as the time of transfer, and IRS can’t prove that the offshore to which cash was funneled was out of the control of MidCoast’s vehicle.

It’s a complicated web, as a weary Judge Buch agrees (see p. 86).

But the Altermans are innocent. And I bet this one stands up on appeal.

No, I’m not turning this blog into a chess discussion platform, rather I’m discussing a bushelbasketful of designated hitters from The Great Dissenter, a/k./a The Judge Who Writes Like a Human Being, s/a/k/a the Indomitable, Indefatigable, Illustrious, Implacable, Irrefutable and Indisputable Foe of the Partitive Genitive (although maybe he’s reformed a little lately), and Old China Hand, Judge Mark V. Holmes.

Now some of my readers, those “cool, clear-eyed seekers of wisdom and truth,” as Abe Burrows put it, might be wondering why I didn’t blog an opinion today, as there were four of them. Giving due heed to “the proper opinion of mankind,” I point out that one is the fact-specific tale of a would-be sandbagger, Ambawalage S. Silva, 2015 T. C. Memo. 229, filed 11/30/15, whom Judge Lauber excoriates in the following terms: “He appears to have intentionally filed imperfect petitions, in the form of letters dated December 15, 2006, and March 29, 2012, in order to lay the predicate for a subsequent motion to enjoin IRS collection activity as violative of an ongoing Tax Court proceeding. And his briefing tactics reveal a deliberate effort to sandbag respondent. Construing petitioner’s claims so liberally as to include a challenge to the timeliness of the notice of deficiency would reward these tactics and would not accomplish substantial justice.” 2015 T. C. Memo. 229, at p. 17, footnote 5. In short, Amba has concocted a rogue’s pot au feu. Practitioner, don’t do it.

And the story of Baudelio Lopez Ibarra, 2015 T. C. Sum. Op. 70, filed 11/30/15, would melt a heart of stone. The poor man has a friend in The Judge with a Heart, STJ Armen, who lets Baudelio off for everything but a $116 Section 6654(a) failure to pay estimateds chop, because there is no reasonable cause defense for that. Baudelio’s wife of more than 40 years, Cheryl, dies of pancreatic cancer, Baudelio lost his job, his health insurance is inadequate (I’ll make no political comments about this; I’ve made plenty elsewhere, and just spent a good chunk of my morning trying to get my wife properly enrolled. But this is nothing compared to Baudelio’s suffering), and in the midst of these he fails to pay $4100 in tax. IRS wanted to nail him for more, but admit he did have deductible mortgage interest; big of them.

Reinaldo Vargas, 2015 T. C. Sum. Op. 69, filed 11/30/15, is an example of the “gotcha” that is AMT. IRS agrees with Reinaldo’s T&E (mirabile dictu!), but the deduction is worthless for AMT, as are the personal exemptions for himself and his son. Reinaldo didn‘t have any Section 57 preference items, but that’s half the story. He filed MFS (why not explained; but this is a trap) so his reported income after the T&E and pers exempts go out put him in AMT. We’ve been yelling for years that the numbers from 1969, with the annual tweaks from Congress (when they remember to tweak), are a joke. Reinaldo is an airplane pilot who spends half the year living out of his Travelpro, but that doesn’t help. Be careful with MFS, practitioner; it’s a real boobytrap.

At last, Judge Holmes. And once again, it’s Caylor Land & Development, Inc., et al., Docket No. 17204-13, filed 11/30/15, the blogger’s pal. I won’t cite to the other posts this case has given me, but I hope for many more.

IRS claims three (count ‘em, three) pages out of the millions and thousands of e-discovered documents handed over by Artex Risk Solutions, Inc., are unprivileged, because they were prepared during, and therefore not in anticipation of, litigation. Wrong, says Judge Holmes. During means in anticipation of continuing litigation.

IRS next claims the dude at Artex who prepared the pages in question wasn’t an attorney getting ready for trial. So what, says Judge Holmes. “The plain language of Rule 70 and Federal Rule of Civil Procedure 26 — with their reference to “consultants” and “agents” who produce work product) refutes this.” Order, at p. 2.

Finally, IRS exasperates even the long-suffering Judge Holmes. Although there’s an exception for must-have documents without which the party seeking same can’t prepare without undue hardship (see Rule 70(c)(3)(A)(ii)), IRS doesn’t show anything close.

Worse, IRS claims because Artex turned the stuff over, they’ve waived privilege.

Judge Holmes: “These arguments are completely misguided after the promulgation of Federal Rule of Evidence 502 in 2007. The changes to that Rule eliminated the subject-matter waiver in most cases and created specific rules for inadvertent disclosure. Federal Rule of Evidence 502(b) now states that production is not a waiver if the disclosure is inadvertent; the holder of the privilege took reasonable steps to prevent disclosure; and the holder of the privilege took reasonable steps to rectify the error.

“And this is just what Artex has shown. Remember that Artex produced two of the documents in a massive production of millions of documents; the third was one page of thousands. That inadvertence, and not design, was the cause is confirmed by the inclusion of descriptions of two of the documents in a 1,400 page privilege log of documents that Artex stated it wasn’t producing.” Order, at p. 3.

Artex wants a FRE 502(d) general preclusion of waiver order, and gets it. “Such an order can reduce the costs of litigation by forestalling courts and litigants from scrambling into motions practice every time there is an inadvertent disclosure. That would seem to describe this case, in which not an enormous deficiency is at stake and yet one in which the Court has already described the parties as having ‘acted in ways that sometimes seem a parody of civil discovery.’ Caylor Land & Development, Inc., et al. v. Commissioner, T.C. Dkt. Nos. 17205-13 et al. (Aug. 13, 2014) (order denying petitioners’ motions for judgment on the pleadings, et al.). Order, at p. 5.

Here’s another example of How Not To Do It. IRS gets another Taishoff “Oh Please, First Class.”

I quote the translated words of Adrianus Valerius (1575 – 1620) from so long ago.

Of course, I bring y’all no case discussion today, and there will be none tomorrow as well, because Tax Court has announced that it will be closed Friday, November 27, 2015.

I hope the Judges and their law clerks will not be spending tonight in front of the big-boxes in the malls, trying to fight their way into the Black Friday sales.

It’s good that the hard-laboring intake clerks and the flailing date-stampers at 400 Second Street, NW, will be able to re-enact the celebrated words of Rudy the K: “Call a truce, then, to our labors/Let us feast with friends and neighbors/And be merry, as the custom of our caste.”

I hope all my readers are able to do likewise.

We all have so much to be thankful for.

I expect the practitioner representing petitioner in this designated hitter off the word processor of Judge James S. (“Big Jim”) Halpern doesn’t need the advice suggested by the title of this blogpost, but I put this here for the rest of us.

Judge Big Jim: “There is a genuine dispute as to material issues of fact, and, on that ground, we shall deny the motion for summary judgment. Perhaps on further consultation before trial, the parties will conclude that the record is inadequate to support the notice and that remand to Appeals is appropriate.” Order, at p. 4.

Perhaps the parties had best take Judge Big Jim’s advice, in the case of Lil Jon, or, as more particularly set forth in the subject Order, Jonathan Smith A.K.A. Lil Jon, Docket No. 23204-14 L, filed 11/25/15.

I had no idea why the petitioner was so designated (showing thereby perhaps my age) but I am informed as follows: “With his gleaming, bejeweled grill, dreadlocks, and growling, one-word party shouts, Lil’ Jon is one of the most recognizable figures in contemporary hip-hop.”

Notwithstanding the foregoing, Lil Jon seems to have problems with a CDP. The facts are a tangle, and I’ll let those of you who enjoy unraveling a chainstitch read the Order for yourselves. As for using anything therein contained in your own case, remember YMMV.

But when a Judge suggests you might think about a remand, do think, and think twice. You might reject the suggestion if you don’t want to give Appeals a second chance to sink your client. But you might take the hint if you think you have enough good stuff to win at Appeals.

So chew it over while you chew your turkey.

Words from a much more exalted personage even than Big Julie, His Honor Judge Julian I Jacobs, hereinafter HHBJJJIJ, are the keynote for Estate of Russell Badgett, Jr., Deceased, Bentley Badgett, Jr., Executor, 2015 T. C. Memo. 226, filed 11/24/15.

The late Russ died March 8. BB Jr., the fast-moving ex’r, filed an automatic extension and got the late Russ’ 1040 for the previous tax year filed in May. I have to say these dudes were organized.

The good news: the late Russ overpaid about $429K, of which $25K was to be applied to year of death and the balance refunded. Even better, the late Russ didn’t owe IRS anything from yesteryears.

The bad news: When the ex’r filed the 706 in December, he never mentioned the refund.

More good news: The late Russ’ short-year (year of death) 1040 showed a refund of $14K due the estate.

More bad news: the 706 didn’t show that either.

IRS wants a deficiency in estate tax, consisting entirely of the refunds.

The ex’r claims KY law (they’re all domiciliaries of The Bluegrass State) says that an expectancy isn’t property, and State law controls. After all, IRS could refuse the refund, even though it didn’t.

“The estate acknowledges that decedent overpaid his 2011 and 2012 income tax but posits that an ‘overpayment’ does not create a right to an income tax refund. The estate argues that there is no property interest until the refund has been declared by the Government. Continuing, the estate postulates that even if decedent had an expectancy to receive the income tax refunds, ‘under Kentucky state law, a mere expectancy is not the same as an interest in property.’” 2015 T. C. Memo. 226, at p. 5.

But in the cases the ex’r relies upon, there were unpaid tax liabilities. Here, there aren’t. Apparently the late Russ was up-to-date and upstanding, taxwise.

HHBJJJIJ cuts to the cliché: “Simply stated, if no offsetting liability exists, section 6402(a) is clear: The statute mandates that the IRS ‘shall’ refund any balance to the taxpayer. In the matter herein, there is no indication that decedent was subject to any liability or obligation against which the IRS could offset his overpayments. The status of the tax refund is more than a mere expectancy; the estate has the right to compel the IRS to issue a refund for the years for which decedent overpaid his tax. Thus, we hold that the overpayments in question attained the status of independent assets for estate tax purposes; they constitute decedent’s property for estate tax purposes.” 2015 T. C. Memo. 226, at pp. 8-9.

And it’s irrelevant whether the late Russ knew or didn’t know he was entitled to the refund, or when the ex’r (or the late Russ) could have sued for a refund.

The ultimate bad news: The estate owes the tax.