The three-hour deadline appears to be the new flavor du jour in governmental operations. Back on August 24, our State’s Attorney General’s office give me a three-hour deadline, by e-mail, to file a non-substantive document where there was no particular urgency that I file it, and threatened to reject a major registration statement I’d been working on for months if I didn’t.

I did, of course, but when I remonstrated with the Chief of the Division, I got this reply: “I know this is tough, but we had to do something about the large number of incomplete submissions made to the office, and [the individual involved] is simply following office procedure.  Technically, [the individual] is not even supposed to give you an opportunity to cure.”

Why precisely this technical requirement is so exigent is a mystery to me, as the State agency charged with maintaining the record of these documents has until the fifteenth of the next month following each quarter to report the filing thereof, by law. In my case, they had more than thirty (30) days to go.

I wish I could have gone before Judge Gustafson with this one.

Philip Baumgarten & Esther Gomez Baumgarten, Docket No. 17205-14L, filed 9/17/15, had the benefit of that Obliging Jurist’s magnanimity in a like situation in this designated hitter.

Judge Gustafson allowed a bushelbasketful of deemed admissions from Phil & Esther, but found the NOD lacking in critical respects: it didn’t address the additions to tax (misnamed “penalties”), and the three-hour deadline Appeals gave Esther to file her Form 8857 by fax seems a bit rough (although maybe not per se arbitrary and capricious).

Judge Gustafson: “A taxpayer who, like the Baumgartens, does not check the ‘innocent spouse’ box on Form 12153, is nonetheless entitled to raise that issue at the CDP hearing (and respondent does not contend otherwise). The Baumgartens did raise this issue at their CDP hearing and were told, in a telephone conference that began at 2:00 p.m., that they must download Form 8857 from the Internet, fill it out, and submit it ‘today’. It therefore seems that they were given three hours to make this submission. (Other than the mention on Form 12153, our record does not show any prior reference to Form 8857 nor any request for it; and contrary to respondent’s motion at 6, para. 28, our record does not show any prior mention by Appeals of ‘spousal defenses.)” Order, at p. 6.

But it seems IRS thought that Phil was a sophisticate, and that excused their peremptory behavior.

“We have previously held that imposing a 2-week deadline may be a reasonable exercise of discretion by Appeals, see Shanley v. Commissioner, T.C. Memo. 2009-17; but a 3-hour deadline is very surprising. Perhaps anticipating this reaction, respondent argues (at 24, para. 84, 86):

‘Further, Petitioner Philip Baumgarten is a C.P.A. and tax attorney, specializing in tax for over 30 years. He is a sophisticated taxpayer who could have asked for more time to complete the necessary paperwork…. Petitioners did not request more time ….’

“Perhaps respondent is arguing that, if in a CDP hearing Appeals imposes an unreasonable 3-hour deadline, then the unreasonableness is cured (at least in the case of a sophisticated taxpayer) by Appeals’s supposed willingness to entertain the taxpayer’s request for more time. But respondent does not suggest that Appeals invited such a request; and on this record, we have to assume the apparent fact that, by imposing a 3-hour deadline, Appeals communicated to the taxpayer that the deadline was firm. We think an imminent deadline of this sort is normally used to communicate utter seriousness and to put fear in the heart of the hearer. One cannot make such a dramatic demand and then expect the hearer to suppose that the same stern authority who imposed that deadline will become a benign and flexible person. One settlement officer cannot serve both as Appeals’s bad cop and as its good cop.” Order, at pp. 6-7.

But IRS’ counsel sticks to whatever guns they have left.

“Respondent also argues that ‘Petitioners gave no indication that they intended to proceed with the innocent spouse claim.’ However, given the settlement officer’s treatment of the issue, one cannot read much into the fact that the Baumgartens did not then repeat ‘that they intended to proceed with the innocent spouse claim’. That claim had been batted down pretty flatly. The SO’s case record states, ‘I explained that I will issue the determination letter which gives him the right to petition the Court.’ On this record, we have to assume that the Baumgartens took the SO at her word and concluded that their only recourse was to bring this up with the Court (as they have done).” Order, at p. 7.

So batting down Esther’s claim with a three-hour deadline might just could be an abuse of discretion. Or at least it raises enough doubt to torpedo any summary judgment or deeming anything admitted on that account.

“For purposes of Rule 121 [the “pick the facts” rule], construing the facts in the Baumgartens’ favor, we hold that a genuine dispute of material fact exists on the question whether imposing a 3-hour deadline constituted an abuse of discretion. We do not hold that it necessarily was, but it seems highly possible that it was.” Order, at p. 7.

And while IRS’ account of Esther’s claim doesn’t make it look too hot, Esther gets trial de novo with the burden of proof.

And if anybody has a problem with that, let them move pre-trial and argue about it.

That’s what Susan, Bonnie, Carol and Lois did when they undertook the pay their Ma’s gift tax, and the estate tax if the gifts Ma was giving them was clawed back into Ma’s estate if Ma died within the three-year clawback rule.

If this sounds familiar, it is. See my blogpost “Don’t Assume?” 9/30/13. And the unanswered question at the end of said blogpost, namely, what was the worth of the assumed estate tax liability, is answered at last in Jean Steinberg, Donor, 145 T. C. 7, filed 9/16/15, Judge Kerrigan still with this case.

So we have a “net, net gift” as both gift tax and estate tax fell upon the four ladies aforesaid (hereinafter “The Four”).

Two years ago, Judge Kerrigan said a trial would be necessary to see what the value to the late Jean’s estate of the assumption by The Four in dollars and cents.

So we’re back to our old chums the hypothetical willing seller and willing buyer, neither of whom exists. “The ‘willing buyer/willing seller’ test is the bedrock of transfer tax valuation. It requires us to determine what property rights are being transferred and on what price a hypothetical willing buyer and willing seller would agree for those property rights.” 145 T. C. 7, at p. 15.

Judge Kerrigan analogizes the assumption of tax liabilities here to the buyer of a corporation whose big assets are subject to built-in gain. Clearly there would be a heavy-duty two-way tax on liquidation or sale, so the buyer would pay the seller less, since the buyer would have to deal with both tax consequences.

But the issue here is benefit to the donor’s estate. This means what is the cost of replenishing the estate with the amount of tax dollars (estate and gift) if The Four hadn’t agreed to pick up the taxes.

IRS’ argument that the deal between Jean and The Four merely duplicates New York law (our Estates, Powers and Trust Law Section 2.1-8, which provides for apportionment of tax on beneficiaries where testator so directs) founders on two points: Jean was alive when the assumption took place, so could change either or both of her will and her domicile. Once she made the deal with The Four, State law is off the table.

So the assumption is an asset that benefits Jean’s estate.

“Conceivably, the value of this new asset might not be precisely equal to the actuarial value of the contingent estate tax liability that the daughters assumed. But the record contains no expert testimony that would support a value lower than that. Nor does respondent contend that uncertainties surrounding the application of the New York apportionment statute render the value of the daughters’ contractual assumption ‘too speculative’ to be considered for Federal gift tax purposes. Quite the contrary: Respondent concedes that whether ‘the section 2035(b) estate tax liability is too speculative * * * is not an issue in this case.’” 145 T. C. 7, at p. 24.

IRS tries to rehash their losing intrafamily gift arguments from the September 2013 case they lost, but Judge Kerrigan blew that off then, and blows it off now. Even though not made in the ordinary course of business, the deal was negotiated extensively, the parties all had independent counsel, and no one claims the deal wasn’t bona fide or arms’-length.

Best of all, The Four have an expert, and IRS has only the Michael Corleone gambit.

The expert used the IRS’ Section 7520 mortality and interest rate tables.

“Respondent contends that Mr. [Ace Appraiser] should have also considered petitioner’s health and general medical prognosis. The Commissioner’s mortality tables necessarily take some account of a person’s health and general medical prognosis when arriving at a probability of death. Respondent has not pointed to any specific facts or circumstances that would justify special consideration of petitioner’s health or general medical prognosis beyond use of the mortality tables, and the evidence does not suggest that the tables produce an unreasonable result.” 145 T. C. 7, at p. 30. (Name omitted).

The IRS’ final card cannot trump The Four’s ace appraiser.

“…respondent contends that the section 7520 rates are not applicable here because they apply only to annuities, life interests, terms of years, remainders, and reversionary interests.

“Mr. [Ace Appraiser] calculated the present value (the value on the day that the parties signed the net gift agreement) of the daughters’ potential liability to make a payment to petitioner’s estate in one of the subsequent three years. The fact that the payment is contingent rather than certain does not preclude use of the section 7520 rates. It simply requires adjusting the value of the payment to take into account the likelihood of the contingency. Mr. [Ace Appraiser] did account for the contingency by using the Commissioner’s actuarial tables. Respondent has not persuaded us that there was a more appropriate method that should have been used. We conclude that the valuation was proper.” 145 T. C. 7, at p. 31. (Name omitted).

The Four have turned the tables on IRS.

Every record has two sides, says Judge Halpern, so Whistleblower One 10683-13W, Whistleblower Two 10683-13W, and Whistleblower Three 10683-13W, starring in 145 T. C. 8, filed 9/16/15, get to find out what should be in the record.

The Whistleblowers 1-2-3 want answers to interrogatories and production of documents.

“Respondent [IRS] has filed virtually identical responses (responses) to each motion, his sole objection being that the information requested is not contained within his Whistleblower Office’s case file (a purported ‘administrative record’) and, therefore, is beyond the scope of discovery.” 145 T. C. 8, at p. 2.

IRS agrees that the info supplied by Whistleblowers 1-2-3 led to recovery of tax money. Looks like IRS agrees that Whistleblowers 1-2-3 are in the money.

“Rule 70 governs discovery, and paragraph (b) thereof provides that the scope of discovery is ‘any matter not privileged and which is relevant to the subject matter involved in the pending case.’ The paragraph further provides: ‘It is not ground for objection that the information or response sought will be inadmissible at the trial, if that information or response appears reasonably calculated to lead to discovery of admissible evidence’. The standard of relevancy in a discovery action is liberal. The information and responses petitioners seek are clearly relevant to petitioners’ theory of their case: They are looking for evidence that will prove that one or more collections of proceeds from the target were attributable to the information petitioners provided.” 145 T.C. 8, at p. 5. (Citation omitted).

Nor does IRS claim the stuff sought by Whistleblowers 1-2-3 is irrelevant to whether IRS got money, and whether they got it as the result of the info that Whistleblowers 1-2-3 provided.

“Rather, his relevance objection is based solely on a generalized view that our scope of review should be limited to the ‘administrative record’ and the information petitioners seek is outside that record. Respondent’s argument is not a sufficient basis to deny petitioners’ discovery requests. Even were we to agree with respondent as to the scope of review, he cannot unilaterally decide what constitutes an administrative record. How could evidence related to whether there was a collection of proceeds and whether that collection was attributable to the whistleblower’s information not be part of any purported administrative record? Any such evidence goes to the very basic factual inquiries required by section 7623(b). Respondent’s lack of direct response to petitioners’ motions appears to indicate that the current ‘administrative record’ is incomplete.” 145 T.C. 8, at pp. 5-6. (Citations and footnote omitted).

The footnote is instructive, however, so here it is.

“Sec. 301.7623-3, Proced. & Admin. Regs., is entitled ‘Whistleblower administrative proceedings and appeals of award determinations.’ Para. (e) thereof is headed ‘Administrative record’ and states in pertinent part: ‘The administrative record comprises all information contained in the administrative claim file’. Para. (e)(2) thereof describes the content of the administrative claim file. Para. (f) thereof states that the ‘rule’ (section) is effective on August 12, 2014. Neither party mentions the section, and we assume that it is not in effect with respect to petitioners’ claim. In any event, we do not purport to interpret the term ‘administrative record’ as used in sec. 301.7623-3, Proced. & Admin. Regs.” 145 T. C. 8, at p. 6, footnote 2.

The Court can’t accept IRS’ “trust me, trust me” as to the scope of review. If Whistleblowers 1-2-3 claim that stuff is missing, let IRS show that everything relevant put before IRS has been included in the administrative record.

“We do not have before us a situation where petitioners want information or want us to review information that was not before the agency at the time it made its decision. Nor are we considering a situation where relevant evidence may still need to be developed by the agency. We believe that: (1) the information already exists, (2) is in the IRS’ hands, and (3) should be included in an administrative record compiled for purposes of making a determination of petitioners’ claim.” 145 T. C. 8, at p. 7. Citations omitted).

And Judge Halpern throws up the usual confidentiality barrage to protect both innocent and guilty.

So, IRS, hand it over.

That’s the question that perplexed Ch J. Michael B. (“Iron Mike”) Thornton is putting to IRS and Carolyn F. Biddix, Docket No. 15573-15, filed 9/16/15. I post these conundra for the information and possible edification of my readers, to illustrate the pitfalls and missteps one can encounter in the minefield.

Carolyn petitioned a SNOD in June, claiming she paid in March, and IRS’ answer agreed with Carolyn—she paid.

So SNOD no longer valid, right?

Except. “Thereafter, and unexpectedly given the state of the record, the parties on August 27, 2015, submitted a stipulated decision resolving the case and reflecting an income tax due from petition consistent with that stated in the notice of deficiency. The document further stipulated that the deficiency was calculated without consideration of the payment by petitioner on March 24, 2015.” Order, at p. 1.

Ch J Iron Mike is too polite to say “Huh?!” So he falls back on a truism from Tax Court Practice 101.

“…if the amount of an alleged deficiency has been paid prior to issuance of a statutory notice pertaining thereto, the determined amount fails to qualify as a deficiency within the meaning of the governing provisions of the Internal Revenue Code.” Order, at p. 1.

No deficiency means no valid SNOD.

So let Carolyn and IRS show cause in writing why their case should be dismissed for want of jurisdiction.

Takeaway—Jurisdiction before all.

For the backstory, see my blogpost “The Song the Old Cow Died On,” 7/15/14. Now Judge Gerber sings Appeals the same song with which Judge Haines serenaded them in the abovementioned blogpost.

This is the story of Lucrezia Iona Canaday, 2015 T. C. Sum. Op. 57, filed 9/15/15.

Lucrezia Iona wanted the celebrated First-Time Homebuyer Credit – Part Deux, but decided discretion was the better part of cliché, and dropped a Form 1040X wherein she omitted the FTHBC2 she had previously claimed.

IRS demanded additional tax because the credit was no longer in play. Lucrezia Iona asked for audit reconsideration, but IRS said no, and hit her with a NITL for the shortfall. Lucrezia Iona asked for a CDP, got one, but only tried to contest liability, not collection alternatives.

The AO claimed Lucrezia Iona had had a chance to contest at audit reconsideration, so gave her a NOD. Lucrezia Iona timely petitioned.

IRS moves for summary J, and loses.

Not because the facts are in dispute, because they aren’t, but because audit reconsideration didn’t give Lucrezia Iona the statutory chance to contest liability. Only Appeals can do that.

As Judge Holmes would say, now pay attention.

“Although petitioner did contest the merits of the underlying liability before the collection hearing, she was not allowed a prior opportunity to contest the liability before Appeals. In Lewis v. Commissioner, 128 T.C. 48, 61 n.9 (2007), this Court considered section 6330(c)(2)(B) and noted that we read section 6330(c)(2)(B) to allow ‘a taxpayer who has had neither a conference with Appeals nor an opportunity for a conference with Appeals to raise the underlying liability in a collection review proceeding before Appeals and this Court.’” 2015 T. C. Sum. Op. 57, at p. 7. (Emphasis in original).

So IRS’ summary J motion fails, and Lucrezia Iona gets to go back to Appeals and talk about liability.

No, not the opening track of Imagine Dragons’ 2012  debut studio album Night Visions; rather this is the tale of Tax Court’s guardians irradiating incoming mail and nuking the petitioners’ signatures in Isaiah Paden Exline & Corey Exline, Docket No. 20438-15S, filed 9/15/15.

Ch. J Michael B. (“Iron Mike”) Thornton has this hot potato, which he first wanted to bounce for want of original signatures. But, as usual, he has the Clerk at the Glasshouse on Second Street, NW, send Isaiah a ratification form.

Now the SNOD here was sent both to Isaiah and Corey. And Isaiah and Corey sign up and send back timely.

But their ratification is apparently radioactive.

Here’s Ch. J Iron Mike: “On September 9, 2015, the Court received a document filed as a letter from petitioner. The document attached a Ratification of Petition and contained a request from petitioner that his wife be added to the case. Although the signatures on the ratification are barely visible because they were apparently obliterated in the irradiation process, careful inspection discerns signatures by both Isaiah Paden Exline and Corey Exline, dated August 28, 2015.” Order, at p. 1.

So both Isaiah and Corey are in at Tax Court, radioactive or not.

Practice tip—Make sure your signatures are in blue ink, and dig hard into the paper.

IRS can’t muster clear and convincing proof that la famille Foote, hawkers of “…aircraft engines and engine parts for use in military vehicles, including helicopters, airplanes, and tanks,” were actual fraudsters.

The Footes ran an outfit called Transsuport, which “… primarily purchased surplus parts from the Government in bulk lots that contained parts having little value as well as parts that petitioner wanted for its business. Petitioner bought the lots to acquire items that it expected to sell but ended up with items that would not be sold. The costs of particular items were not specified as part of the purchase transactions.” 2015 T. C. Memo. 179, at p. 4.

Judge Cohen’s opinion may be found in Transupport, 2015 T. C. Memo. 179, filed 9/14/15.

A lot of what the Footes bought couldn’t be sold because obsolete or banged-up.

The Footes never bothered with inventory. IRS nailed the Footes for 10 years’ worth of deficiencies, but seven (count ‘em, seven) of those would be off the table because of SOL, unless fraud.

The Footes had their returns prepared by Elaine Thompson. “Thompson was a certified public accountant (C.P.A.), was a name partner in her firm, and was the first female president of the Connecticut Society of Certified Public Accountants.” 2015 T. C. Memo. 179, at p. 5.

Interesting that Ms. Thompson was a CT CPA when the Footes’ operations were in New Hampshire.

Anyway, her firm worked off the Footes’ handwritten summaries, audited nothing, and advised the Footes that inventory creates income. The Footes apparently took that to mean they shouldn’t do it.

And when the Footes wanted to flog their cash cow, they put out a private placement memo boasting of their huge profits, even when some of what they bought was unsaleable.

Nothing like buying stuff from the government at scrap prices and reselling it for a ton of money.

One of the flogees, apparently disgusted by this, dropped a Form 211 Whistleblower on the Ogden Sunseteers, and IRS descended upon the Footes.

IRS clearly and convincingly proves that the Footes overstated their cost of goods sold and understated their income and thus their taxes.

But where are the other badges of fraud, beloved the judges?

IRS responds with the Sierra Madre defense: “We don’t need no stinkin’ badges!”

“Respondent argues that fraud has been proven directly in this case and that, therefore, the Court need not rely upon the badges of fraud typically used to determine intent where direct proof of fraudulent intent is unavailable. See, e.g., Bradford v. Commissioner, 796 F.2d 303, 307 (9th Cir. 1986) (setting forth factors or “badges” of fraud), aff’g T.C. Memo. 1984-601. Respondent’s argument, however, rests on the assertion that petitioner realized a 75% gross profit on sales of surplus parts, as claimed by Foote who knowingly represented to petitioner’s tax preparer that the gross profit percentage was substantially less. Respondent relies heavily on the sales materials attributable to petitioner that boasted about the favorable tax results from writing off ‘the majority of inventory as purchased’. The Recast Financial Summary presented on petitioner’s behalf to prospective purchasers assumed a 75% profit on ‘general part sales’ and a nonobsolete inventory on hand exceeding $100 million cost.” 2015 T. C. Memo. 179, at pp. 18-19.

“The statements made orally and in writing to prospective purchasers of petitioner’s business by petitioner’s representatives are admissions of the taxpayer that may be considered as evidence. Such admissions are not conclusive, and they are not more likely to be truthful than any other uncorroborated statements of interested persons. In the context in which they were made, those boastful statements have no more guarantees of truthfulness than the tax return reporting. The attitude of petitioner’s officers was best expressed by W. Foote during his testimony about the Honeywell list: ‘Accuracy was not important. It’s a sales document. They can choose to accept it or not accept it, but it’s on them to come and actually verify what they think we have versus what we actually have.’” 2015 T. C. Memo. 179, at pp. 19-20.

“Although petitioner was required to and failed to keep inventory records, the nature of its business of acquiring surplus parts through bulk purchases and keeping them for years in the hope that many would ultimately be sold provides a plausible nonfraudulent explanation of those failures. Petitioner’s employees did not think that the effort to keep reliable inventories was worth the trouble. They were wrong, and this case should convince them otherwise. However, so far as the record reflects, neither the IRS agents conducting earlier exams nor petitioner’s accountant made clear the consequences of failing to do what they should have been doing. No adjustments were made or suggested during the early audits or the annual review by the accountant. So far as the record reflects, petitioner was not clearly advised to find a method to write off obsolete parts as a means of legitimately reducing the inventory value.” 2015 T. C. Memo. 179, at p. 21.

Besides, the Footes didn’t hide anything from IRS, contrary to what IRS’s counsel claims. They did come up with a lot of self-serving testimony. While the Court can kick self-serving testimony, to prove fraud, the testimony must be demonstrably false. And this wasn’t.

Not to forget there was their highly-credentialed accountant, who seems to have snowed the IRS examination team.

“Acquiescence in petitioner’s methodology by its well-credentialed C.P.A., which apparently satisfied successive IRS examiners, may well have lulled petitioner’s principals into thinking that what they were doing would pass muster for tax reporting purposes even if the economics of the business were better than reported. In this context, their open and puffing statements to prospective purchasers are reconcilable with their current explanations. There is no clear and convincing evidence to the contrary.” 2015 T. C. Memo. 179, at p. 23.

Though the evidence falls short of clear and convincing proof of fraud, the Footes are not exonerated thereby.

And IRS’s examination team gets a slap from Judge Cohen.

“The actions or inactions of petitioner’s accountants and the IRS auditors, however, included no clear warnings to petitioner that its conduct was illegal or fraudulent. To the extent that none of these professionals undertook the task of determining petitioner’s correct income, they were complicit in the duration of the improper reporting. This case is before the Court only because the IRS’ acquiescence in petitioner’s methodology ended when a whistleblower saw an opportunity for an informant’s reward.” 2015 T. C. Memo. 179, at p. 25.

Wanna bet what said whistleblower gets when the Ogden Sunseteers get through with him?

Anyway, the Footes are off the hook for the first seven years, but the next three are up for grabs.

But I Won’t Do That

And the reason why is that I don’t have jurisdiction. So like Meatloaf in Jim Steinman’s 1993 hit song (released just 22 years ago tomorrow), Judge Cohen must reject the plea of Annamalai Annamalai & Parvathi Siva Annamalai, Docket No. 15887-13, filed 9/14/15, although which of them is suffering in durance vile is not stated.

Here’s the Annamalai tale.

“On September 9, 2015, petitioners’ Emergency Motion to Request for an Order From the Court to Order the Detention Facility to Place Him Out of Segregation Hole was filed. This document is not an appropriate motion to file with this Court in that it seeks relief that is not available within the limited jurisdiction of this Court.” Order, at p. 1.

So whichever (or both) Annamalai is incarcerated in the “Segregation Hole,” Judge Cohen can’t help.

We all have heard in extenso the political debate about the free speech of corporations, whose personhood the Supremes blessed in 558 U.S. 310 (2010). Believe me, in this non-political blog I’m not crossing that Rubicon, whatever my off-the-blog opinions.

But The Judge with a Heart, STJ Armen, must grapple with the question whether a single-member LLC, disregarded though it may be for income tax purposes, is really a person. And he gets this conundrum in Car Werks LLC., David M. Palmer, Sole Member, Docket No. 12067-15L, 9/11/15.

Dave petitions a NOD, but it’s a NOD directed to his LLC, although IRS may want TFRPs from Dave for FICAs owing from the LLC.

The NOD is directed to the LLC and has the LLC’s TIN on it, but some other stuff as well. The NFTL is also directed to the LLC.

But Dave claims $350K in damages from IRS, who, his counsel claims, is trying to “extort him.”

STJ Armen: “In the instant case the nub of the complaint consistently voiced by counsel who subscribed the petition is that it was David M. Palmer in his individual capacity who was injured by the filing of the lien and that it is David M. Palmer in his individual capacity who is the petitioner seeking redress. But respondent maintains that no lien was ever filed against David M. Palmer in his individual capacity and that no notice of determination has been sent to him in his individual capacity. On the other hand, it is alleged in the petition that the IRS ‘filed a lien against Carwerks and taxpayer’s private property.’ (Emphasis added.).” Order, at pp. 5-6.

But it doesn’t get easier for STJ Armen.

“Complicating the matter further is the fact that the notice of Federal tax lien that was filed with the Secretary of State for the State of Montana in Helena, Montana was filed in the name of ‘Car Werks LLC, David Palmer, Sole MBR’, and reflects a ‘residence’ address on Brooks Street in Missoula, MT. In contrast, the April 16, 2015 Notice Of Determination was issued simply to ‘Car Werks LLC’ at a PO Box in Missoula, MT. As the Court understands the Commissioner’s regulations, a single-member LLC (such as Car Werks LLC) is treated as a corporation under the ‘check-the-box’ regulations for employment tax purposes for wages paid on or after September 14, 2009. See secs. 301.7701- 2(c)(2)(iv), 301.7701-2(e)(5)(ii), Proced. & Admin. Regs. If this is true, then it is not clear why respondent would have identified David M. Palmer in the notice of Federal tax lien when respondent did not do so in the Notice Of Determination and whether the inclusion of Mr. Palmer’s name on the notice of Federal tax lien was improper.” Order, at p. 6. (Footnote omitted).

How to decide whether the party liened on is Dave, the LLC, or both? Or whether Dave is the LLC and the LLC is Dave?

STJ Armen tells both sides to send in every piece of paper they’ve got (except what they’ve already filed) that bears upon the years at issue, to whomsoever the piece of paper was addressed. And the IRS has more homework.

“Further, respondent [IRS] shall state in his response whether (in respondent’s view) naming David M. Palmer on the notice of Federal tax lien and filing the notice of Federal tax lien in the name of ‘Car Werks LLC, David Palmer, Sole MBR’ was consistent with the regulations cited in the preamble to this Order and, regardless, whether such notice of Federal tax lien appropriately named ‘David Palmer, Sole MBR’ if the taxpayer against whom the lien was filed was Car Werks LLC; and if (in respondent’s view) the inclusion of Mr. Palmer’s name on the notice of Federal tax lien was appropriate, why it was so if the assessment giving rise to the lien was made against Car Werks LLC. Finally, respondent shall explain in his response the ‘residence’ address reference in such notice of Federal tax lien.” Order, at pp. 7-8.

Oh yes, here’s a practice tip for Dave’s counsel. “The parties are further advised that if the Court were to conclude that it has jurisdiction to proceed in this case on the merits, then the Court shall sua sponte strike from the petition the last sentence of paragraph 4 of the petition (‘Taxpayer seeks $350,000 in damages from IRS for malicious lien filing.’) as this Court lacks jurisdiction to award monetary damages in a collection action.” Order, at p. 8.

Doesn’t Cut It in Tax Court

That’s the bad news Judge Haines has for Ronald Craig Fish, 2015 T. C. Memo. 176, filed 9/10/15. Ron is a semi-retired patent attorney, so he tries the public policy gambit when IRS nails him for taking losses in his trad IRA against a distribution, without liquidating the entire IRA.

“Petitioner advances various tax policy arguments which he believes support this position. For example, he contends that restricting an IRA holder’s ability to deduct a loss that occurs when an investment held by the IRA is sold thwarts congressional intent to encourage individuals to save for retirement. He also claims that requiring retirees to completely liquidate their IRAs in order to recognize a deductible loss is ‘unreasonable, arbitrary, capricious and completely unworkable for savers dependent upon IRA/SEP income for their retirement.’

“While petitioner may not agree with the way the law is written and may have reasons that he believes support changing the law, we cannot do that for him. Tax policy is within Congress’ purview, not within this Court’s. We decide cases on the basis of the law enacted by Congress rather than a taxpayer’s policy arguments as to how the law should have been written.” 2015 T. C. Memo. 176, at pp. 4-5.

Take it up with Congress, Ron, and the best of luck to you.

Ron tries to equate a trad IRS with a passthrough, but that doesn’t pass. It’s a tax-exempt, not a passthrough (which is taxable).

Judge Haines: “Transactions occurring within the IRA do not result in taxable events which are reported on the holder’s individual income tax return. An IRA is a tax-exempt entity, not a passthrough entity. Sec. 408(e)(1). The law is clear that distributions from and payments out of an IRA trigger income tax consequences for the payee or distributee. Sec. 408(d).” 2015 T. C. Memo. 176, at p. 5.

And Ron can’t avoid the 20% five-and-ten chop, either. His arguments aren’t authority.

Another case of a lawyer enmeshed in the toils of Tax Court. The “small court” isn’t so easy.