No, I’m neither being politically correct nor waging war on Christmas, I’m just echoing the sentiments of The Judge Who Writes Like a Human Being, a/k/a The Great Dissenter, s/a/k/a The Irrefragable, Irreplaceable, Illustrious, Indefatigable and Industrious Foe of the Partitive Genitive, Judge Mark V. Holmes.

Judge Holmes is concerned with the meaning of the word “seasonable,” and he resolves the parties’ concerns in Caylor Land & Development, Inc., Docket No. 17204-13, filed 11/24/15.

Surely you remember Caylor Land & Development, Inc., and its host of et als. No? Then check out my blogposts “Is You Is Or Is You Ain’t?” 3/27/15, and “Don’t Suppose You Can Depose – Part Deux,” 9/2/14.

Well, apparently Ch J Michael B. (“Iron Mike”) Thornton sorted out the matters I raised in my first-above-referred-to blogpost, and Judge Holmes has this case.

He gave IRS until November 6 to identify their expert who would testify as to actuarial sciences. And on that very day IRS named the chosen one, giving as their reason that they had to satisfy the various bureaucratic obstacles to getting their expert paid.

The Caylor clan objects. “Petitioners argue that Rule 102 says that this duty is to seasonably supplement, and that waiting till the deadline that the Court set in its pretrial order for just this kind of supplementary response is not good enough.” Order, at p. 2. (Emphasis by the Court).

But this fails to answer Judge Holmes’ perfectly reasonable question: “So how does meeting a deadline become missing a deadline?” Order, at p. 1.

So Judge Holmes will tell them. It doesn’t.

“‘Seasonably’ is just an old-fashioned synonym for ‘timely.’ See, e.g., Georgianna Nadeau Henault & Sun Trust Co. v Commissioner, B.T.A.M. (P-H) P 33681 (B.T.A. 1933); Egan v. Commissioner,41 B.T.A. 204, 205 (1940). Rule 102(3) allows the Court by order to impose a duty to supplement, which is what we did and we included a more precise deadline than ‘seasonably.’” Order, at p. 2.

Seasonable greetings.

The veteran may be disabled, but his (or her) disability pension counts for household income when reckoning ability to pay for installment agreement (and presumably other collection alternative) purposes.

In fact, IRS area counsel laid it out for the SO in Frank D. Mathews, Jr., 2015 T. C. Memo. 225, filed 11/23/15, and Judge Chiechi quotes it with approval.

The SO couldn’t find anything in the IRM or anywhere else about the status of veterans’ disability payments. Yes, they’re tax-exempt all right, but the vet still has the money to live on.

As a veteran I will not make a political comment, nor mention the words “Pfizer” and “inversion.” At least, not on this blog, which is avowedly non-political.

Here’s IRS’ stalwart area counsel, whom I will hereinafter designate as “Jody.”

Judge Chiechi quotes from the SO’s Case Activity Record: “Call from Jody. He told me he was not able to find anything that specifically states a taxpayer must include on his Form 433-A Collection Information Statement exempt income. However, it is his opinion exempt income must be included in any calculation of a taxpayer’s ability to pay. The taxpayer has the income to live on. I said I would like to tell the representative that I spoke to IRS Area Counsel and they confirmed exempt income must be included on the Form 433-A Collection Information Statement. He said I can mention his opinion because he is confident it will stand up in court.” 2015 T. C. Memo. 225, at p. 9.

And the SO offered Frank a streamlined installment agreement, including the disability number. Frank says no, and petitions.

The IRM and the Form 433-A are misleading, but that’s unfortunate, because determining ability to pay means including all income, taxable or not. IRS agrees that Frank’s veterans’ disability benefits aren’t taxable. But ability to pay means all income, whether or not taxable.

“Indeed, the Internal Revenue Manual identifies certain payments that a taxpayer receives which are required to be included in determining the amount that a taxpayer would be able to pay each month to the IRS with respect to an unpaid tax liability, even though those payments are excludible from gross income. By way of illustration, IRM pt. 5.15.1.11(2)(f) requires certain child support payments that a taxpayer receives to be included in determining the amount that a taxpayer would be able to pay each month to the IRS with respect to an unpaid tax liability, even though the taxpayer may exclude from gross income under section 71(c) child support payments described in that section.” 2015 T. C. Memo. 225, at p. 19.

And both IRM and Form 433-A allow deductions from monthly income that would not be deductible for income tax purposes, like cellphone, cable and trash removal.

Finally, that a payment is exempt from levy doesn’t exempt it from inclusion in ability-to-pay calculations. Judge Chiechi cites the Ligman case. For details of that imbroglio, see my blogpost “I’ve Been Working On The Railroad,” 4/27/15.

Here’s a designated hitter from The Judge Who Writes Like a Human Being, a/k/a The Great Dissenter, s/a/k/a The Implacable, Illustrious, Indefatigable, Irrepressible and Irreconcilable Foe of the Partitive Genitive, and Old China Hand, Judge Mark V. Holmes.

And there are no surprises, fair or unfair, here, but a good lesson on when Tax Court pleadings can be amended.

This is apparently a big-ticket case, Estate of Marion Levine, Deceased, Robert L. Larson, Personal Representative and Trustee, Robert H. Levine, Trustee and Nancy S. Saliterman, Trustee, Docket 9345-15, filed 11/20/15.

And it’s consolidated with another case so captioned at Docket No. 13370-13, which Judge Holmes says was on the 6/15/15 trial calendar in Minneapolis, MN, except the Tax Court docket search only shows the consolidation order on that date, and Judge Holmes’ order says there’s no trial date.

Be the procedural issue what it may, IRS wants to amend its answer to add Section 6501(c)(9) inadequate disclosure as a ground for blowing off the SOL altogether, in addition to the Section 6501(e) substantial omission IRS is using to try for 6SOL.

The Pers Rep and Trustees yell that they already moved for summary J so IRS is too late, IRS’ latest position contradicts their earlier position on SOL, and they’ve been ambushed (unfairly surprised).

First, the basics. “Whether a party may amend its answer lies within the sound discretion of the Court. In determining the justice of allowing a proposed amendment, the Court must examine the particular circumstances of the case, and consider, among other factors, (a) whether an excuse for the delay exists; and (b) whether the opposing party would suffer unfair surprise, disadvantage, or prejudice.” Order, at p. 2 (Citations omitted).

Next, delay. True, the answer was filed in June, but then there was informal discovery, followed by some stipulations. In a big-ticket, complex case, this isn’t unusual delay.

Now for contradictory pleading. “Petitioners objected, and argue that respondent wasn’t diligent in asserting this ground and that it’s inconsistent with the ground he’s already asserted in his answer. But, Tax Court Rule 31(c) allows for alternative arguments.” Order, at p. 1.

Or as the late great Gilda Radner was wont to remark: “If it’s not one thing, it’s another.”

Finally, unfair surprise. And I stress “unfair” because Judge Holmes does. “Unfair” doesn’t mean your adversary stumbles upon the theory that sinks your case without trace.

“The Court can see no unfair surprise, disadvantage, or prejudice to petitioners. There may well be prejudice or disadvantage in the sense of having to counter a new argument that might be difficult to argue against. But to justify not allowing an amendment, prejudice must be unfair, which in this context doesn’t mean lowering petitioners’ probability of success but rather means lowering the probability of reaching a just result in the case. This usually means an amendment filed so late that trial would be delayed… or the addition of a new theory of recovery. It doesn’t include circumstances where a summary-judgment motion prompts the Commissioner to come up with a new argument.” Order, at p. 2. (Citations omitted). (Emphasis by the Court).

And we’re not on the eve of trial, with discovery concluded, witnesses lined up and their stories tied down, exhibits at the ready and lawyers at the point of nervous collapse.

“There is no trial date, and the proposed amendment — if not quite purely legal (there must be proof of the return petitioners filed) isn’t a gateway to a vast new program of discovery.” Order, at pp. 2-3.

Go amend, IRS.

Another mix-and-match tax dodge of that accomplished immunologist Mr. Jim Haber gets unhorsed in AD Investment 2000 Fund LLC, Community Media, Inc., A Partner Other Than the Tax Matters Partner, 2015 T. C. Memo. 223, filed 10/19/15, Judge Halpern, who’s been there from the beginning, putting the hems on Jim’s inventiveness. I’ve blogged this case and its siblings, most of whom are quoted in Judge Halpern’s opinion, so I won’t reiterate them here.

Jim, of course, doesn’t testify, as his Fifth Amendment right had been earlier secured.

It’s the classic European digital option game, an offsetting gain being unrecognized while the guaranteed loss creates a bailout for corporations with big BICG. Jim Haber was flogging those deals even after IRS fired a warning shot in Notice 2000-44, 2000-2 C.B. 255, back in August, 2000. And misrepresenting facts to coax opinion letters out of various law firms upholding these shenanigans.

Even better was the way that Jim Haber guaranteed the options would never hit the “sweet spot,” whereat the heavy money would pour into the participants’ laps.

Lehman Bros., late but unlamented, was in on it. For a fee, Lehman acted as counterparty, calculation party, and execution party, resembling Poohbah of Mikado fame. And no, the execution party is not the firing squad, it’s the party who carried out the trades at the magic day when the options had to be exercised.

Lehman as calculation party could choose the strike price, and had a 3-pip leeway in making the election (which only had to be commercially reasonable, and everybody agrees 3-pips is reasonable). But the deal was structured so there was only a 1-pip leeway. And Lehman had no fiduciary duty to the “partners” in the deal. So Lehman could always be 1-pip high or 1-pip low.

This structure guaranteed this charade could never make money; in short, the perfect Bialystok (cf. Mel Brooks’ masterpiece The Producers).

Judge Halpern employs “somber reasoning and copious citation of precedent” to dash Mr. Haber’s brainchild to the ground.

IRS’s counsel fails to introduce evidence about $772 of interest deduction, so that gets allowed.

And as this is a FPAA, the impact on the “partners” themselves must abide further proceedings.

Of course, the 40% substantial undervaluation is in play, as is the 20% negligence chop.

Bruce Edward Haddix and Rae Ann Haddix, 2015 T. C. Memo. 220, filed 11/18/15, could sure use the Greek Deus ex Machina, but the machina they used, apparently a USPS self-service kiosk, dated their petition one day late (August 16 rather than, as Bruce and Rae Ann claimed, August 15, the last day of the thirty), and it arrived at 400 Second Ave in The City that L’Enfant Built eight days late. So Judge Vasquez must bounce Bruce’s and Rae Ann’s CDP review.

This is a variation on the Section 7502 mailed-is-filed gambit, and it’s warning to practitioners.

Just because the USPS owns and operates the postage meter, it’s still a postage meter, and you can’t control it. So the date that’s shown on the postage issued by USPS is the date you’re stuck with. And the date may change after the last minute that a piece of mail posted in the dropbox in the post office would be postmarked with the date you’re trying to establish. So remember, if the magic moment is 5 p.m., using the self-service kiosk at 5:01 p.m. may not help you. You’ll get the next day’s date on the machine-made postage.

Now Judge Vasquez is very careful. He’s not ruling on whether the self-service kiosk date is a Section 7502 qualifying postmark.

“We need not address whether the markings in question constitute a postmark for purposes of section 7502 because the existence (or nonexistence) of an August 16, 2013, postmark does not affect the outcome in this case. We must, in other words, dismiss the case for lack of jurisdiction under either scenario. For instance, if the markings constitute a postmark, section 7502 offers no comfort to petitioners because they failed to satisfy the threshold prerequisite to the application of section 7502—a timely postmark. If, on the other hand, the markings do not constitute a postmark, thereby opening the door for extrinsic proof by petitioners that their petition was mailed on or before August 15, 2013, petitioners have nevertheless failed to carry their burden of proving that the petition was timely mailed. Petitioners in fact chose not to attend the hearings or provide documentation from the U.S. Postal Service (i.e., certified mail receipt) or other persuasive evidence establishing that they mailed the petition on or before August 15, 2013. The only evidence of mailing that petitioners presented is a copy of a bank statement–attached to their response to respondent’s motion to dismiss–showing a credit card charge on ‘August 16, 2013 12:00 a.m.’ This evidence alone is clearly not sufficient to prove that they mailed the petition by the August 15, 2013, date.” 2015 T. C. Memo. 220, at p. 8. (Emphasis by the Court).

I need not elaborate. But if you’re really interested, see my blogpost “Stamp Out Stamps,” 10/23/14. Practitioner, read and heed.

Further to the foregoing, I received the following e-mail on 8/6/16, purportedly from Bruce Haddix, which I here reprint without comment:

Comment: You totally misrepresented the facts. The Petition was mailed within 30 days, the label was intentionally blacked out by a branch of the US Government. We now have 2 intentionally blacked out labels dated 2 years apart.

Judge Juan F. Vasquez cheated by ignoring the Order putting the MTD in Abeyance and for the case to be continued for trial.

Judge Juan F. Vasquez cheated by granting Motion(s) to Quash without affording the parties the right to challenge the truthfulness of the facts presented.

Judge Juan F. Vasquez cheated by denying Motions to Vacate Motions to Quash based on fact these motions were based upon bald face lies.

Have you ever heard of the right to a fair and speedy trial? This case is about exposing the corruption in Johnson County Texas. Watch Conan O’Brian gets Deputized.
You should have done a little more research before doing the story, we now have 2 blacked out mailing labels and 3 tax cases, with more added each year. Also civil case Jeremy Ryan Haddix v. State of Texas and the criminal conduct that occurred on that case.

Cheating is Cheating, get the story right!

Two little words spark a 108-page full-dress T. C. opinion from Judge Gale. The two little words? “Refers to.” The full-dress T. C. opinion? Loren E. Parks, 145 T. C. 12, filed 11/17/15.

And the two little words “refers to” refers to legislative proposals, as to which a private foundation attempts to influence legislation and/or the opinion of the general public, and thereby incurs sundry excise taxes. Of course, the degree of specificity of the reference is nowhere explicitly spelled out.

And the opinion spends a lot of time on one word: “educational.” What is “education” as opposed to advocacy?

Judge Gale is at pains to point out that this is not a Citizens United v. Fed. Elec. Comm., 558 U. S. 310 (2010) case, because the issue here is the excise tax payable by the tax-exempt private foundation and its manager, to discourage subsidies of political speech, rather than the outright prohibition thereof.

Specialists should read this case for Judge Gale’s lengthy exegesis of Rev. Proc. 86-43, 1986-2 C.B. 729. What is “educational,” rather than advocacy, gets a thorough going-over.

Finally, the Regs are not unconstitutionally vague. It’s true that the standard is somewhat looser than the strict scrutiny of Citizens United, but there direct regulation of speech and criminal penalties were involved. Here, only the excise taxes, and no subsidy for political speech.

Most of the private foundation’s radio blasts incur the excise tax, but three slip through the “educational” gate.

Me, I’m a simple guy, so I couldn’t tell the difference. Maybe that’s why I don’t give “a reasoned written legal opinion” to private foundations or their managers when these want to duck the excise taxes, per Reg. 53.4945-1(a)(2)(vi), of which sub-subsection’s existence and purport I was, until now, delightfully unaware.

But if you do give such opinions, practitioner, read this case. Mark, learn and inwardly digest it, because here be dragons.

That if gambling is what you do, you’re not tax-exempt. This is the lesson that Judge Pugh has for GameHearts, A Montana Nonprofit Corporation, 2015 T. C. Memo. 218, filed 11/16/15.

GH’s application for Section 501(c)(3) exemption gets tossed by IRS, and petitions.

GH’s story: “GameHearts is a public benefit nonprofit organization committed to providing alternative forms of entertainment to adult members of the Kalispell area for the purpose of promoting adult sobriety. The program achieves its directive by providing free and low cost tabletop gaming activities in a supervised[,] non-alcoholic, sober environment, along with access to gaming accessories that are provided without cost to the participants. In fact, beginning players can learn and obtain free gaming materials solely for playing.” 2015 T. C. Memo. 218, at p. 3.

Keeps them out of the bars, says GH.

But “Without an initial investment to begin playing, our participants have little obstacles in playing and interacting with other players. Since GameHearts is primarily an [sic] nonprofit, the bulk of participants eventually find they need to purchase materials we simply do not have, since we are not interested in maintaining a full service retail business. As such, GameHearts also helps boost the overall market shares of the industry by introducing new and motivated players into the environment.” 2015 T. CV. Memo. 218, at pp. 3-4.

Of course, record rule governs, so GH must show that record contains enough evidence to counter IRS’s determination. The test, of course, is “primary purpose.” Purpose and not the nature of the activity is what governs. And the purpose must fall into one of the hoppers of Section 501(a).

Here’s where GH fails to meet the test.

“We do not conclude that recreational therapy would not be an appropriate means of achieving a charitable purpose. We likewise do not conclude that the type of recreation–here gaming–should affect our analysis of GameHearts’ status. We also accept GameHearts’ argument that its offerings are less attractive to those gaming participants who could afford to pay to play.

“Nonetheless, we are unable to conclude on the administrative record that GameHearts is “operated exclusively” for one or more exempt purposes. Gaming in an alcohol-free environment may provide a therapeutic outlet to recovering addicts, and community-minded sobriety may benefit the community as a whole, but the question of tax exemption turns on whether there is a single substantial nonexempt purpose, notwithstanding the importance of the exempt purpose. While it may be laudable, in the light of the administrative record in this case promotion of sober recreation is insufficient justification here for tax-exempt status under a statute that must be construed strictly. The decisive factor here is that the form of recreation offered as therapy also is offered by for-profit entities, and GameHearts even emphasized, in its application for tax exemption, that it would introduce new participants to that for-profit recreational market and ‘boost the overall market shares of the industry’. We also note that GameHearts received contributions of surplus materials from the industry. While GameHearts itself does not profit from the recreation it offers and could not offer recreational gaming experiences that would compete in the for-profit recreational gaming markets, we conclude nonetheless… that recreation is a significant purpose, in addition to the therapy provided, because of the inherently commercial nature of the recreation and the ties to the for-profit recreational gaming industry recreation is a significant purpose, in addition to the therapy provided, because of the inherently commercial nature of the recreation and the ties to the for-profit recreational gaming industry.” 2015 T. C. Memo. 218, at pp. 15-16. (Citations omitted).

No exemption, GH. Game over.

On 11/20/15, I received the following e-mail: “You got your position grossly wrong – gambling is neither what GameHearts does, nor is this the decision of the tax court. It was decided that GH was not tax exempt because the games we use are also used by for profits, and that somehow this equates to a support of a non-exempt purpose. It would help if you did not libel our organization in this way, especially as we move for reconsideration.”

The entire opinion of the Tax Court is available by using the link in my blogpost, or separately by using Tax Court’s website.

Both IRS and Bohdan Senyszyn so request STJ Panuthos although not exactly in haec verba from Act IV, Scene 1 of The Merchant of Venice. But unlike the Duke in Shakespeare’s controversial masterpiece, STJ Panuthos doesn’t.

The story is in Bohdan Senyszyn, Docket No. 14372-11, filed 11/13/15.

You remember Bo. No? Then check out my blogpost “The All-Star Break,” 5/20/15, wherein I recounted Bo’s unsuccessful whistleblowing.

IRS bounced Bo’s initial effort with a “no dough, no go” letter, from which he petitioned. Then IRS sent him another letter, saying they were reopening Bo’s claim. This they followed with another bounce, so Bo petitioned again.

He and IRS agreed that the outcome from Petition No. 1 would govern Petition No. 2.

So now it’s all final, and Bo is getting nada.

So let’s end the misery, right?

Not so fast, says CSTJ Panuthos.

“The Court also notes that despite the parties’ agreement that this docket may be dismissed for lack of jurisdiction, the parties may not expand or contract the Court’s jurisdiction. Ringo v. Commissioner, 143 T.C. 297, 299 (2014). We are satisfied that we have jurisdiction in this docket since there was a determination and timely petition filed. Id. Accordingly, the Court will order the parties to show cause as to why this case should not be disposed of on the same basis and consistent with the Order and Decision entered in the case at Docket No. 14703-13W.” Order, at p. 3.

Typo, Judge? Don’t you mean 14706-13W? Docket No. 14703-13 isn’t a Section 7623 whistleblower.

The Ringo case involved a similar request, when both IRS and Ringo agreed that they would work out their salvation out of Court, but Judge Colvin stood on the dignity of the Court. See my blogpost “Let’s You and Him Fight,” 10/9/14.

Islander

Our beautiful but insolvent Islands in the Sun once again seize the spotlight, as that Obliging Jurist, Judge David Gustafson, grapples with the anfractuosities of Section 932(c)(4), but has to reprise the theme song from the 1962 shockumentary Mondo Cane: More.

Christopher Isa Muhammad, Docket No. 995-15, filed 11/12/15, has VI-sourced SE, but doesn’t bother responding to IRS’ motion for summary J. IRS wants SE tax plus interest plus nonfiling and nonpaying chops. IRS gave Chris an SFR. Chris reported his VI-sourced income to VIBIR, and everyone concedes that Chris is a Virgin Islander for the whole tax year. But he never paid SE tax.

When IRS first hits Chris up for the SE plus-plus-plus, he answers with some frivolities, which Judge Gustafson blows off. And the SNOD, which followed the SFR, never mentions interest or the chops, just the SE. But Chris’ petition does raise a question: is SE tax an income tax, and if so, is Chris exempt per Section 932 (c)(4) from telling IRS, if he told VIBIR?

Now Virgin Islanders and their mainland abettors well remember Artie Appleton, Jnr. What, you do not? Then scope out my blogpost “Farewell to the Virgin,” 5/22/13, and the blogposts therein cited.

If you’re a human-being Virgin (Islander), you file with VIBIR.

IRS says no.

Judge Gustafson: “The language of Appleton… tends against respondent’s position, but that case did not distinctly concern self-employment tax, so we now must address that specific issue.” Order, at p. 7.

And Judge Gustafson doesn’t warm to IRS’ view as he examines its underpinnings.

“Respondent’s motion stresses that the intended effect of section 932 is to govern income tax liability, not self-employment tax. However, since we observe that the self-employment tax is in fact a component of the income tax, this argument so far has little persuasive effect.

“Respondent describes the IRS’s forms, instructions, and manual, all of which, respondent says, show that a USVI resident like Mr. Muhammad owes U.S. self-employment tax even if he is exempt from Chapter 1 U.S. income tax. But respondent does not explain what level of deference should be given to these administrative materials, and by what authority. (Respondent also cites VIBIR practice but does not cite authority for deferring to that practice.)” Order, at pp. 7-8.

We report SE income on the same form as the rest of our income, and Section 932(c)(4) excludes bona fide VI residents’ gross income from US tax.

But, true to form, Judge Gustafson claims no omniscience. See my blogpost “Judge Gustafson’s Conundrums – Part Deux,” 11/10/15.

“The foregoing analysis is tentative only. We will benefit from further argument by the parties, including citations to regulations or case law addressing the application of self-employment tax to USVI residents.” Order, at p. 8.

Moreover, in a stunning example of judicial humility unparalleled in my experience, Judge Gustafson invites IRS and Chris to “address, criticize, and correct the foregoing tentative ‘Discussion’. Order, at p. 8.

Ya think Chris and IRS will take Judge Gustafson at his word, and pile on the criticism? If they do, the next order or opinion may be better than a Presidential debate.

With An Addition

The following is reprinted from my blogpost “Veterans’ Day,” 11/11/14.

Tax Court is closed, of course. So here are a few personal reflections. If you want some of my tax thoughts, skip to my next blogpost.

To my brothers and sisters on active duty, good luck, Godspeed and may you all arrive home safe, and all’s well.

To my brothers and sisters, fellow veterans, thank you again. It was an honor to be among you today.

It was great to see the turnout on Fifth Avenue and hear the cheers and thanks. I wish those not present could have heard them.

It’s all too easy for me to quote Kipling or Yeats and be cynical; it’s even easier to quote Shakespeare. Ol’ Will wrote a great speech that proves to me that he was a soldier, and not an officer.

It is the most condescending, patronizing effusion I can think of. And it’s just what one would expect from a higher-up who is sending other people to be maimed (in body, mind or spirit) or killed in a war that shouldn’t have been fought.

I’ll spare you what little erudition I have.

God bless America.

My granddaughter was with me today, so we rode on the American Legion float. She’s only three years old, so I can’t tell what she thought of it all. I hope happy thoughts.