Judge Holmes made it clear to me at last month’s US Tax Court Judicial Conference that all judges’ remarks were strictly off the record.

As a responsible journalist (and even more as an attorney), I am bound by that directive. It is disappointing, as I hoped for really good blogfodder.

But there is one comment, made at a public meeting, which I believe I can quote here, without attribution of course, as it sends us all a message.

“Add a zero,” said the judge.

The judge was speaking of the small-claimer, the Section 7463 Sum. Op. or the Section 7459 off-the-bencher, not precedential and certainly not headed for Circuit Court review.

This case means as much to the taxpayer-petitioner-pro se litigant as the full-dress T. C. with the last six digits omitted means to the multinational publicly-traded behemoth. If not more to the little guy or gal.

No compensation committee of the Board of Directors meets to determine their bonus, if any. And the little guy or gal, though they may be bought and sold, are not publicly-traded.

Now I’ll get off the soapbox, although I’ve been on it before. By way of illustration of the foregoing, as my already-out-on-the-golf-course colleagues would say, see my blogpost “A Rant,” 3/7/13.

So while we may wonder at the multi-year fight over a four-figure deficiency where even the pennies are not omitted, the judge got it right.

To the litigants it matters. It matters very much.

So add a zero to such as Stephanie Lynn Christie a.k.a. Stephanie Lynn Foran, Petitioner and Arthur J. Maurello f.k.a. John Foran, Intervenor, Docket No. 24515-12S, which took up four (count ‘em, four) blogposts over two years, and only ended yesterday (see my blogpost “Dénouement,” 6/25/15).

Not only were the legal points of intervention and summary judgment of interest to practitioners, but the two-grand-vs-four-grand deficiency tussle becomes much more real to us if we deem this dispute to be a fight over twenty grand.

So add a zero.

I feature an ending to each of two blogposts today.

Let’s take the older first, the ongoing Section 6015(b) saga of Stephanie Lynn Christie a.k.a. Stephanie Lynn Foran, Petitioner and Arthur J. Maurello f.k.a. John Foran, Intervenor, Docket No. 24515-12S, filed 6/25/15.

Steph and Arthur a.k.a John led poor Scholar John Schmittdiel, Esq., IRS’ doughty trial counsel, a merry chase through intervention and apportioned intraspousal liability, but the end is that Steph gets off the hook for $4K of tax.

To reprise the tale, see my blogposts “Tax Court Admission Exam,” 9/6/13, “He Passed the Exam,”1/9/14, and “Go To the Head of the Class,” 3/26/14.

Now Judge Buch delivers an off-the-bencher that wraps up the whole shootin’ match that took three years’ time and four orders, plus Scholar John’s post-graduate education.

“If a spouse has petitioned the Court for section 6015 relief, the non-requesting spouse has a right to intervene in the case under section 6015(e) (4). Corson v. Commissioner, 114 T.C. 354 (2000); Rule 325. By doing so, the Intervenor becomes a party. Tipton v. Commissioner, 127, T.C. 214, 217 (2006).” Order, at p. 3.

OK, Scholar John, you’re vindicated.

But via discovery, it turns out that Steph and Arthur a.k.a John had a joint brokerage account with TD Ameritrade, whence flowed Steph’s tears.

Arthur a.k.a John made a mistake when toting up the income from said account. And it was one of those finger-fehler that torpedoes the whole shebang.

Judge Buch explains: “When totaling the income from the TD Ameritrade account, Mr. Maurello made what the parties have characterized as mere mistake, understating the income by $121. Under the operation of the earned income tax credit rules, that $121 error resulted in a deficiency of over $4,000. The reason is that additional $121 of income resulted in the former couple’s having ‘excessive investment income’ as that phrase is used in section 32(i). And the result of that is the denial of their earned income tax credit.” Order, at p. 4.

Such a booboo gives rise to a thunderous exclamation, the first word of which is “Oh.” The second I cannot print in a blog meant for family reading.

So while the record is unclear, everyone seems to admit the account was a joint account, meaning the item isn’t Arthur a.k.a John’s alone, but Steph is right in there with him.

But all is not lost for Steph. Though the Section 6015(b) separation is lost, Section 6015(c) comes to the rescue.

“Ms. Christie is eligible for relief under section 6015(c). Under section 6015(c), a divorced or separated spouse may elect to limit liability for a deficiency on a joint return to the portion of the deficiency that is allocable to her under subsection (d). The election may be filed at any time after the deficiency is asserted but not later than two years after the Secretary has begun collection activities. Sec. 6015 (c) (3) (B).

“Additionally, the electing individual: (1) must no longer be married to or must be legally separated from the individual with whom the joint return was filed; or (2) must not have been a member of the same household with the individual with whom the joint return was filed during the 12-month period before the election was filed. Sec. 6015(c) (3) (A).” Order, at pp. 5-6.

Steph and Arthur a.k.a John met the 12-month cutoff, and, while Steph knew there was a joint account, she didn’t have actual knowledge (and Judge Buch stresses actual knowledge) that Arthur a.k.a John’s arithmetic was dodgy.

So Judge Buch cuts the deficiency in half, giving Steph gets half and Arthur a.k.a John the rest.

Now I don’t know what the famous divorce decree, which Arthur a.k.a John claims apportioned income tax liability but which Judge Halpern disregarded, said, but if the result is the same either way I wouldn’t be a bit surprised.

Next is my blogpost “The Right Stough?” 6/4/15. My colleague Joel E. Miller, Esq., unconfused me this morning as a New York State Bar Association Committee meeting.

What Judge Ruwe said was “cumulative” rent, in other words rent from inception of lease to end of tax year wherein the lump-sum tax payment was made. That amount is contrasted with the “cumulative” rent for the next tax year. If next year exceeds previous year, no prepaid rent. And next year must exceed previous year if even one dollar of rent was paid next year (and clearly more was paid).

Thanks, friend Joel. I am unconfused.

See my blogpost “Even More Impressive,” 1/5/15, wherein I expressed my admiration for the cursus honorum of Judge Tamara W. Ashford, when the 400 Second Street, NW, webmeister got around to posting the same.

Mighty impressive.

As I said at the time, “I look forward to posting many scintillating opinions from Judge Ashford.”

Well, this is what a talented jurist encounters amidst the sixty-buck seekers of justice.

“Upon due consideration of the record herein and for cause, it is hereby

ORDERED that respondent’s Motion to Dismiss for Lack of Prosecution, filed June 1, 2015, is granted, and this case is dismissed for lack of prosecution. It is further

ORDERED and DECIDED that there is due from petitioners a deficiency in income tax for the taxable year 2011 in the reduced amount of $8.00.”

Robert S. Heronimus & Tracy Heronimus, Docket No. 15245-14S, filed 6/24/15.

The immortal words of Robert Allan Zimmerman echo once again: “Twenty years of schooling and they put you on the day shift.”

No, not the Doc Pomus-Mort Shuman classic immortalized by Ben E. King and the Drifters (still going strong a year ago February on the Legend of the Seas).

Alas, this is the sad story of Charles D. Trainito, 2015 T.C. Sum Op. 37, filed 6/23/15.

Charlie had Type 2 diabetes, which ratted him out of the Boston Department of Environmental Health (DEH), where his job was to lift heavy manhole covers to deposit rat bait thereunder.

Charlie took a draw out of his City of Boston Retirement Account, claiming he was disabled. Six weeks thereafter, Charlie went into a diabetic coma, spent nine days in the hospital, and filed for disability.

But on the day he took the draw, was Charlie disabled?

Judge Nega says Charlie didn’t prove he was. Though Charlie and his two lawyers had 300 pages of medical records describing his coma and post-coma treatment (I’ll spare you the details, but Judge Nega goes through the whole list), on the day he drew, Charlie had nothing but his own testimony.

True, Section 72(t)(2)(A)(iii) gets you off the hook from the 10% youth chop if you take a draw from your retirement account while disabled, but Charlie needs more than his say-so.

“Petitioner testified at trial that, following his diagnosis with diabetes in 2005, he saw a primary care doctor twice per month until his resignation from his job with DEH in October 2010. However, despite receiving frequent treatment, petitioner did not produce any medical records relating to these visits, nor did his primary care doctor testify on his behalf. Nor did he produce any records that would corroborate his claims that he suffered from depression at any point before the distribution….

“Petitioner argues that he was disabled within the meaning of section 72(m)(7) because he suffered from diabetes, or alternatively, that he suffered from depression. However, notwithstanding the severe medical event petitioner experienced…, the relevant date we must consider is [date of distribution], because section 72(t)(2)(A)(iii) requires that the distribution be attributable to the taxpayer’s being disabled. A taxpayer may not escape the 10% early withdrawal penalty by suffering a disability at just any point during the tax year; rather the disability must be present at the time the distribution is made.” 2015 T. C. Sum. Op. 37, at pp. 7-8.

It’s this magic moment, when you’re both disabled and taking the draw, that counts.

No good, Charlie, 10% chop.

Or, Petition Early, Petition Often

See my blogpost, “Fake Out,” 12/16/14. IRS is at it again with another specimen from its cubby of happy tricks, feints and ruses.

Here’s the story of Bernard Hope, Docket No. 7198-15S, filed 6/23/15, told by Ch J Michael B. (“Iron Mike”) Thornton.

Bernie’s petition was postmarked 3/2/15 (dates are important here, although I usually omit them).

Annexed thereto were “(1) a Letter 525, dated April 22, 2014, proposing changes to petitioner’s 2012 return and attaching a Form 4549, Income Tax Examination Changes, and a Form 886-A, Explanation of Items, detailing those changes; (2) a Letter 692, dated October 6, 2014, affirming the prior proposals for 2012; (3) a Letter 525, dated October 6, 2014, proposing changes to petitioner’s 2013 return and attaching a Form 4549 and a Form 886-A detailing those changes; (4) a Letter 3501, dated January 20, 2015, advising that the IRS was still reviewing information sent by petitioner regarding 2013; and (5) a Letter 692, dated February 17, 2015, affirming the prior proposals for 2013.” Order, at p. 1.

What’s wrong with this picture? No prize for the correct answer, but we all shouted “No SNOD!”

So IRS plays the fake-out gambit, moving to dismiss because no SNOD. OK so far.

But wait, there’s more!

“Respondent [IRS] further explained that notices of deficiency for 2012 and 2013, copies of which were attached to the motion, had been issued to petitioner on March 10 and March 30, 2015, respectively.” Order, at p. 1.

Well-played, IRS, drop the bomb after Bernie filed.

Responding to the motion to dismiss, Bernie claims “…that reliance had been placed on a statement in the Form 886-A accompanying the Letter 525 dated October 6, 2014, and reading as follows: ‘Your time to petition the United States Tax Court will end on 03/02/2015. However you may continue to work with us to resolve your tax matter, but we cannot extend your time to petition the United States Tax Court beyond 03/02/2015.’ Petitioner additionally emphasized, and attached supporting documentation corroborating, that the petition had been mailed via the United States Postal Service on March 2, 2015. Given those circumstances, petitioner maintained that respondent’s attempts now to characterize the just-quoted statement as erroneous were irrelevant and disingenuous.” Order, at p. 2.

Yes, Bernie, but Tax Court has limited jurisdiction, and no SNOD, no jurisdiction, no matter what misinformation, disinformation or other claptrap IRS may have fed you.

So Bernie is out?

Not so fast.

Bernie is a counter-puncher, and nails IRS with a quick left hook.

“However, review of Court records reveals that an available remedy for petitioner has been preserved. Specifically, the Court on June 15, 2015, received from petitioner a new petition for 2012 and 2013, bearing a postmark dated June 8, 2015, and thereby timely within the period prescribed by section 6213(a) or 7502, I.R.C., as to the notices of deficiency for both years. That petition was filed to commence a new case at Docket No. 15321-15S.” Order, at p. 3.

Takeaway—File early, file often. If IRS gives you the wrong advice, file anyway. When they get around to sending the SNOD, file again and apply for a filing fee waiver based on earlier filing provoked by IRS misinformation. Maybe misleading info can’t confer jurisdiction, but it could save you sixty bucks, maybe. I can’t tell if Bernie asked for a waiver for Petition No. 2, but it’s worth a shot.

No, not a reprise of the 1992 Disney musical about the 1899 newsboys’ strike, rather I announce the arrival of the revised and expanded second edition of “The United States Tax Court – An Historical Analysis.”

Any book whose title contains “An Historical” anything obviously possesses the gravitas appropriate to a fanfare and drumroll.

So all you Tax Court groupies log on to http://ustaxcourt.gov/book/Dubroff_Hellwig.pdf, and revel in Hal’s and Brant’s pageturner.

Great beach reading.

Misquoting Scotland’s greatest, Judge Cohen decides that good faith, like love, has nothing to do with Sandra Shockley’s Section 6901 transference, in Sandra K. Shockley, Transferee, et al., 2015 T.C. Memo. 113, filed 6/22/15,  a “remand from the U.S. Court of Appeals for the Eleventh Circuit in Shockley v. Commissioner, 686 F.3d 1228 (11th Cir. 2012) (Shockley II), rev’g and remanding T.C. Memo. 2011-96 (Shockley I). The Court of Appeals in Shockley II reversed our decisions entered in accordance with Shockley I, in which we decided the period of limitations issue in favor of petitioners.” 2015 T. C. Memo. 113, at p. 2.

So Sandy and et als decide to go with the trial record from the original trial. Although Sandy lived in FL (which is how 11th Circuit got into the act), her company Shockley Holdings, was a WI LLC, so the Badger State’s version of the Uniform Fraudulent Transfer Act (WIUFTA) takes center stage, despite IRS’s attempt to deal with the definition of “transferee” first.

IRS is still looking to end-run State law, and failing. See my blogpost “The Rappers’ Tale,” 5/29/14.

Well, Judge Cohen finds that WI, though a trifle light on analysis, still comes up with the answer that good faith on the part of the transferee is nothing to the point.

WI wants to protect creditors from debtor razzmatazz, gives-and-goes, and sundry skullduggery.

“…any transfer must be viewed exclusively from the perspective of the creditor–the degree of knowledge or beliefs or good faith of the putative transferees regarding the nature of the transfer are not relevant to analysis. See Badger State Bank, 688 N.W.2d at 449 (“The transferee’s subjective state of mind does not play a role in resolving the present case under Wis. Stat. § 242.05(1).”). Thus, section 242.05(1) of the Wisconsin Statutes serves as a constructive fraud provision focusing on an objective result, meaning that there is no requirement that transferees be guilty of any fraud. Badger State Bank, 688 N.W.2d at 447.” 2015 T. C. Memo. 113, at p. 29.

But there has to be a transfer. Was there?

Well, this was one of the so-called Midco deals. These were the result of corporations with assets worth millions but with a basis of bupkis, whose stockholders want to unload but don’t want to pay tax (no capital gains at the corporate level). Enter the intermediary (like MidCoast; remember them?), who buys the stock in a shell-shill with a phony bank loan and sells the assets, pays off the loan, keeps a cut, and heads for the hills.

In this case, notwithstanding a plethora of shell-shills from every point of the compass and the Isle of Man, the whole romp through the Code goes down in three hours, under a barrage of lawyer-paper with no economic impact except tax savings.

In short, the corporation sold the assets and handed the cash to the stockholders via a series of handoffs worthy of John LeCarré.

Judge Cohen finds no economic substance and no business purpose (even though the latter might introduce concepts of good faith, Judge Cohen isn’t buying).

“Petitioners assert a few nontax business purposes for their having participated in the transaction, such as maximizing the return on their investment in [corporation] before retiring, avoiding the emotional difficulty involved in breaking up the company over time instead of all at once, and allegedly lacking any choice in the matter because the [corporation’s] board decided to pursue the stock sale. Again, petitioners’ purposes are immaterial because we are looking to the business purposes of the taxpayer. As the taxpayer is [corporation], the business purposes of the [corporation’s] board are determinative.” 2015 T. C. Memo. 113, at p. 45.

The issue is what happened to the corporation whose assets were stripped, and what economic benefits it might have obtained from the stripping. The transferees play no part in that.

And Judge Cohen leans over backwards to try to find a non-tax-driven business purpose, but comes up empty.

“Petitioners ascribe only one potential business purpose to the [corporation’s] board’s decision to enter into the transaction: its wanting to pursue a stock sale because of the greater return on investment to shareholders than that from an asset sale. The reason for the greater net after-tax proceeds from a stock sale, however, was essentially the avoided tax on the built-in gains of [corporation’s] appreciated assets. Thus, this business purpose is directly related to the tax-avoidance objective.

“Though not attributed to the [corporation’s] board, a possible business purpose could have been the effect on employee morale from the piecemeal selling of [corporation] to several different buyers over time. Petitioners describe a legitimate business concern of the impact on employee retention and possible decrease in productivity under these circumstances.

“If the [corporation’s] board was concerned about the ‘breaking up’ of [corporation], however, it nevertheless submitted to the overall transaction with the knowledge that this exact result would occur.” 2015 T. C. Memo. 113, at pp. 45-46.

Judge Cohen does concede that “While a business purpose may still be valid even if its desired result does not come to pass, in this instance the [corporation’s] board was not shown to have held this proposed purpose or to have made any attempt to achieve it.” 2015 T. C. Memo. 113, at p.46.

Anyway, consummation of this roundy-rounder required the corporation to be merged out of existence, so no “going concern” issues.

While there’s some jousting about when IRS’ claim accrued and therefore whether WIUFTA applies, Judge Cohen finds WIUFTA is broad enough to cover. The corporation owed tax the day it sold, not when it had to file its return.

And in exchange for its assets in the hundred-million range, it got Sandra’s and the et als’ worthless stock, and a seven-figure tax liability, plus additions, interest and penalties..

The Badger State loves creditors. The deal is a phony.

Sandra and the et als are transferees, gave nothing and got millions, and the Badger State doesn’t requires creditors to chase nonexistent or shell-shill transferors before nailing deep-pocket transferees.

My colleague Joel E. Miller, Esq., has an article soon to be published on the subject of Midco deals. It features “somber reasoning and copious citation of precedent.”

I, who am no scholar (and I can hear my readers saying, “and you can say that again, and a third time in Welsh”), have a simple takeaway.

Stockholder in corporation with assets in eight figures and basis of zippo, don’t be greedy. Remember the advice of that old Texas lawyer, Robert Thomas, Esq.: “pigs git fat, and hogs git et.” See my blogpost “Cullifer’s Travails,” 10/8/14.

Yet again I say that this is a non-political blog. While I indeed hold strong personal, partisan views, I try most earnestly not to let these obtrude here.

As practitioners we must be neutral, objective, analytical, unemotional.

But at intervals politicians of opposite parties, and nearly diametrically opposing views, speak with a certain resonance in my old heart, positively jagged with sophistication as it is.

Sen. Ron Wyden (D-OR), 2/10/14: “…a dysfunctional, rotting mess of a carcass that we call the tax code.” See my blogpost “Mighty Tough Language,” 8/4/14.

Sen. Rand Paul (R-KY), 6/17/15: “…the tax code has grown so corrupt, complicated, intrusive and antigrowth that I’ve concluded the system isn’t fixable.”

Now my readers, few but hardy, and I, all earn our cornpone from this dysfunctional, rotting, corrupt, complicated and intrusive, to say nothing of antigrowth, tax code. So guys, tread with caution, not with sound-bites.

But Judge Morrison, certainly no partisan, has a few words for IRS on the subject.

And we all, politicians and practitioners, might do well to read and heed.

IRS wants to dismiss the petition in Matthew Vincent Duckworth, Docket No. 24585-13, filed 6/17/15. IRS wants to say that there is neither tax due from Ducks, nor an overpayment by him, and proffers a decision document to that effect.

But Judge Morrison has some questions for IRS before signing off on the desired decision.

“I. Is the proposed decision document intended to reflect that the amount of the overpayment is $0?

“II. How did respondent calculate that the amount of the overpayment?

“III. (a) Did the respondent calculate the amount of the overpayment by reference to section 6401(b)(1)? (b) If so, what was ‘the amount allowable as credits under subpart C of part IV of subchapter A of chapter 1 (relating to refundable credits)’? (c) And what was ‘the tax imposed by subtitle A (reduced by the credits allowable under subparts A, B, D, G, H, I, and J of such part IV)’?

“IV. (a) Did the respondent calculate the amount of the overpayment by reference to the definition of overpayment in United States v. Dalm, 494 U.S. 596, 604 n. 6 (the overpayment amount is the amount by which taxpayer has overpaid tax) or a similar definition? (b) If so, what was the amount of tax and (c) what was the amount of payments?

“V. Should the Court require further written submissions from either party?” Order, at pp. 1-2.

Judge Morrison gives IRS a month to come up with the answers. Openbook, maybe so.

And the intent of this month-long march through the swamp is to get us to zero?

I suggest that both Sens. Wyden and Paul rest and cross-move for judgment.

Or, The Helping Hand Rejected

No, not a misspelled version of the 1967 Bobbie Gentry classic (#412 on the Rolling Stone’s top 500); rather, this is the end of the story begun in my blogpost “I Told Ya He’s a Human Being,” 5/19/15.

Upon re-reading the aforementioned blogpost, y’all will recollect that The Great Dissenter, a/k/a The Judge Who Writes Like a Human Being, s/a/k/a The Indomitable, Irrefragable, Indefatigable, Illustrious, Industrious and Insightful (but never Impetuous nor Irresponsible) Foe of the Partitive Genitive, and Old China Hand, His Honor Judge Mark V. Holmes, offered to share his immense knowledge of Tax Court procedure and the scope and standard of Tax Court review, with Billy Joe Shurden, who, Judge Holmes thought, might not be a lawyer.

This CLE course was on offer at calendar call, prior to Billy Joe’s trial on interest abatement, in Birmingham, AL.

Well, Billy Joe rejected the proffered helping hand. Unlike the storied Wabash Cannonball, Billy Joe did not come down to Birmingham just the other day.

Billy Joe is a no-show. He’s dismissed for lack of prosecution.

Billy Joe Shurden, Docket No. 28097-13, filed 6/19/15.

Rudy Kipling’s advice isn’t good advice only for those “marching on relief over Injia’s sunny plains, a little front o’ Christmas time and just be’ind the rains.”

Always put your best foot first. Facts, if you have them.

Dr. Ibeanyi Obiakor has suffered enough, and I’m sure his counsel have, or will, so I’ll follow the other old Army advice “no names, no pack drill.” Anyway, the case is 2015 T. C. Memo. 212, filed 6/18/15.

For reasons STJ Armen (The Judge With a Heart) found “inexplicable,” the properly-addressed and properly mailed Letter 1153, hitting up Ibe for the TFRPs his struggling state-of-the-art medical facility owed, was returned “undeliverable.”

Ibe got the NITL and timely petitioned, but the SO said he’d had his chance to contest the amount, but he blew it.

We all know that “A taxpayer may also challenge the existence or amount of the underlying tax liability but only if the taxpayer did not receive a statutory notice of deficiency with respect to the underlying tax liability or did not otherwise have an opportunity to dispute that liability. Sec. 6330(c)(2)(B).” 2015 T. C. Memo. 212, at p. 12.

Now mailing is sufficient to sustain the assessment of TFRPs; the assessment is good even if the responsible person didn’t receive the Letter 1153.

But right to contest depends upon receipt. “On the other hand, a Letter 1153 that was not received, but was not deliberately refused, by a taxpayer does not constitute an opportunity to dispute the taxpayer’s liability.” 2015 T. C. Memo. 212, at p. 16. (Citation omitted).

And no one claims Ibe ducked the Letter 1153 or refused to pick up his mail.

OK, but though Ibe raises the issue of computation, he never gives his side of the numbers. And he doesn’t give the SO numbers on his economic hardship, until he hands over some that show he can afford to pay a lot more than he first claimed he could.

So even though STJ Armen assumes the SO’s error of law (mailing is sufficient to bar dispute of the amount of TFRPs) prejudiced Ibe, and although Ibe claims there are substantial questions about the numbers, he never puts in any argument or evidence, and goes on a Rule 122 stipulated set of facts.

And loses.

Now lest you think that this is the typical unrepresented innocent playing the pearl fisher “going all naked to the hungry shark,” STJ Armen is at pains to note that “The Form 12153 was signed and submitted by petitioner’s authorized representative, an attorney, who continued to represent petitioner throughout the administrative phase of this case (and who, coincidentally, is also admitted to practice before this Court). A second attorney, but from the same law firm as the first, later subscribed the petition that commenced the judicial phase of this case, and that second attorney continues to represent petitioner. In short, petitioner has been represented by counsel at all relevant times.” 2015 T. C. Memo. 212, at p. 5, footnote 2.

Takeaway—If you have facts, use them. Anyway, put your best foot first.