Though I never saw him play (I was only four years old when he died, and he had long since left baseball), he was a legend. Babe Ruth called him the greatest pitcher he ever faced. The Babe also said he lost a heartbreaking number of games by one or two runs, because he played on a mediocre team for most of his twenty-one years as a pitcher.

I said today would blog a case lost by a colleague. He’s a good lawyer, and a good guy, who has lost some tough cases.

So here’s Jeremiah J. O’Connor and Mary K. O’Connor, 2015 T. C. Memo. 244, filed 12/16/15.

It’s a SDLIA (a Split-Dollar Life Insurance Arrangement, where an employer makes insurance premium payments on behalf of an employee, who seeks deferred income; see my blogpost “The Split,” 8/29/12 ) that comes unglued when they all come unglued in 2002.

Jere was a hardware dealer with a Sub S, and parked some cash with a trustee of what purported to be a 419 Plan. Except IRS issued proposed regs blowing up same, so word went out to the splitters to bail and pay tax on the accumulated cash values of the blown-up, rolled-out insurance policies.

Jere tried bailing in 2002 by shifting policy from one trust (blown up) to another (presumably not blown up) and calling it a Section 1035 policy swap. And also claiming he never got his hands on the policy, so he never had incidents of ownership sufficient to render the accumulated cash taxable to him. Or if he did, he argues, it was in another (now closed) year and not the year stated in the deficiency.

A good three-deep defense.

Doesn’t work. Judge Halpern: “Pursuant to section 402(b)(1), employer contributions to a nonexempt employee trust are included in the employee’s gross income to the extent that the employee’s interest in such contributions is substantially vested (within the meaning of section 1.83-3(b), Income Tax Regs.) at the time the contributions are made. See sec. 1.402(b)-1(a)(1), Income Tax Regs. If an employee’s rights under a nonexempt employee trust become substantially vested during a taxable year of the employee, and the taxable year of the trust ends with or within such year, the value of the employee’s interest in the trust on the date of such vesting is included in the employee’s gross income for that taxable year.” 2015 T. C. Memo. 244, at p. 21.

So it’s our old friend “substantial risk of forfeiture,” and here there isn’t, because at the roll-out Jere gets to choose where the policy is to go, including but not limited to himself, (via change-of-ownership forms in blank), and more than that, can change the beneficiary. Jere doesn’t need a duplicate original of the policy.

And the transfer didn’t take place in the closed year (which immediately preceded the year at issue), because the incoming trustee refused to indemnify the outgoing trustee for past shenanigans, and therefore didn’t accept the policy, until the year at issue. Jere twice had to try to get the policy moved to his chosen trustee.

Finally, there was no exchange of policies, so Section 1035 is out. There was no old policy and no new policy, it was the same old, same old. “Rather, the same policy was merely transferred from one owner to another, the only issue being whether Mr. O’Connor, who had a right to keep the policy instead of opting to have it transferred to the … Plan, had income arising out of that right. The foregoing transaction simply is not covered by section 1035, as there must be an actual or, at least, a constructive exchange of one policy for another.” 2015 T. C. Memo. 244, at p. 28. (Citation omitted).

Jere never told his CPA about the warnings he got from the roller-out trustee, so even though his CPA said do a trustee-to-trustee, there’s no evidence his CPA knew about the Section 83 or the Section 402(b)(1) implications. 20% chop, although IRS bases its chop on a lower number than the stipulated deficiency.

I can only suggest that my colleague may have been called into this mess long after the damage was done, and was down two runs in the top of the ninth. A scenario with which Walter Johnson must have been very familiar.

No, not a reproach, just an echo of my blogpost yesterday, anent the obliging nature of Judge David Gustafson. See my blogpost “I’ll Help You Try Your Case,” 12/15/15.

In that blogpost, I quoted my earlier blogpost “Beyond Obliging,” 1/31/14, wherein I said “He’ll tell you what you meant to allege, but didn’t, and let the other parties know as well. Can’t do more than that.”

Well today, Judge Gustafson is at it again, and designating to boot. What a pleasure, especially as I am saddened after reading an account of one of my colleagues going down in flames in what looks like a SDLIA case today, which I’ll blog presently.

Josue Guerra, Docket No. 342-15, filed 12/16/15, is fighting about three (count ‘em, three) tax years, but doesn’t bother attaching the deficiency notice to his voluminous petition. And in the text of his petition (self-represented, of course) he mentions only one of the years, three separate times.

IRS says OK, you waived two of those years, and moves to dismiss those years.

Judge Gustafson, never one to shrink from his duty as protector of the pro se, digs deep.

“The motion accurately describes the first page of the 279-page petition, which does refer to ‘Tax Year: 2013’. It is followed by a Form 886-A for 2013 and receipts dated 2013. However, the petition is evidently in three parts, and page 1 introduces only the first part.

“Part 2 of the petition begins at page 104. It is similar to page 1, but it refers to ‘Tax Year: 2012’ and is followed (at page 106) by a Form 886-A for 2012 and (beginning at page 109) receipts dated 2012.

Part 3 of the petition begins at page 173 and is followed (at page 175) by a Form 4549 for 2011 and (beginning at page 179) receipts dated 2011. Page 173 refers to ‘Tax Year: 2012’, but it is evident that this is a typo and that 2011 was intended, since the amounts on page 173 relate to the 2011 documents that follow.

“We thus conclude that the petition intended to put at issue all three years 2011, 2012, and 2013.” Order, at p. 2.

Now that’s meta-obliging.

I’ve said he’s obliging. I’ve told how he’ll visit you in the Stony Lonesome to hear your case, if need be. He designates his orders, making light the task of the hard-laboring blogger racing a deadline. He does everything but bring coffee and Krispy Kremes to calendar call, to help out hapless petitioners. As I said before, “He’ll tell you what you meant to allege, but didn’t, and let the other parties know as well.” And he’ll let petitioners know that ex parte communications with the Court don’t cut it.

That’s Judge David Gustafson, Jurist and mensch (if I may use an obscure vernacular term). And you can check out my multitudinous demonstrations of all the foregoing by reviewing the archives on my website.

Today Judge Gustafson again shows his sterling good nature in Stewart Bradley Scott, Docket No. 5403-15, filed 12/15/15.

Stew double-faulted, but claims unequal protection of the laws and the software did him in, respectively. Fault One: writing off his son’s tuition as a charitable deduction; claims the software put the right info on the wrong lines in each of the two years at issue.

Fault Two: Trying to claim at examination that he was entitled to take the educational expense deduction even though he filed MFS. But Section 222(d)(4) disallowed the deduction for MFS. PS- The deduction itself sunsetted at the end of 2014.

As to Fault Two, Judge Gustafson tells Stew to take it up with Congress. Check out my blogpost “Playing Favorites,” 4/18/13, where Ch J Michael B (“Iron Mike”) Thornton bestows the hammer on Nancy Louise Field’s attempt to play the Fifth Amendment gambit, Due Process variation.

But as to Fault One, Judge Gustafson says that while the numbers stand on the deficiency, paraphrasing Scotland’s greatest, “gude faith, he maunna fa’ that.” So IRS gets summary J on tax, but not penalties. Let Stew prove the software played him false. And here’s how to play it, Stew.

“Without prejudging the issue, we point out to Mr. Scott that defenses premised on allegedly faulty software are generally unsuccessful, and that if he intends to assert this defense, he should prepare to corroborate his testimony on the point by additional evidence of the actual operation of the software. That is, he should, if possible, be able to demonstrate at trial that the software yielded a charitable contribution when he entered an educational expense. If he is unable to bring to trial a computer on which the software is running, then he should consider obtaining screen shots or other evidence to show the facts that he alleges about the software. We also draw Mr. Scott’s attention to our standing pretrial order…, which requires him to share with the IRS in advance of trial …all the evidence he intends to offer at trial. If a pretrial telephone conference with the Court would facilitate the parties’ trial preparation, then either or both of them may initiate a telephone call to chambers… for the purpose of scheduling such a conference.” Order, at p. 3.

Short of lugging his trusty laptop over to Stew’s study, downloading Stew’s software, and hauling it over to the Quaker City (where trial is to take place), what more could Judge Gustafson do?

Happily, Tax Court blogging can be amusing as well as instructive. Blogging the 400 Second Street gang, and their colleagues at 1111 Constitution Ave, is more than plowing through pages of “long-winded arguments on law.” Though it’s often that, too.

But here’s a happy tale of a Mississippi lawyer who finds fulfillment and Section 469 deduction allowances, Clarence McDonald Leland, Jr., and Myna Green Leland, 2015 T. C. Memo. 240, filed 12/14/15.

I don’t know if Clarence McDonald is particularly old, but he does own a farm, in Turkey, Texas, wherever that is;  it’s many miles of hard travellin’ from Mac’s Jackson, MS law office. And Mac has to drive to and fro on the earth between farm and office.

Now for the years at issue, Mac had a tenant farmer on the place, Mr. Pigg. Mr. Pigg wasn’t the problem, although he lacked a certain work ethic when it came to plantin’ cotton. What the problem was, the problem was the hogs.

Mac had to drive the Bush Hog a lot. No, that’s neither a mammal nor a person (this is not a political blog). I’ll let Judge Nega explain.

“Petitioner visits the farm several times each year in order to perform necessary tasks, commuting approximately 13-16 hours each way, including the time it takes to load equipment onto his trailer. The farm has approximately 6-8 miles of perimeter roads and 18-20 miles of interior roads that must be bush hogged and disced regularly in order to remain passable. A Bush Hog is a device that is pulled behind a tractor to cut vegetation and clear land. Discing involves churning and plowing soil to uproot any existing vegetation. Trees and brush that grow near the roads must be controlled through spraying and chopping down limbs that protrude onto the roadways. Because high winds can erode soil on the roads, wheat must be planted each fall to prevent erosion on the roads and on acreage that is not part of the 130 acres planted and harvested by Mr. Pigg.” 2015 T. C. Memo. 240, at pp. 3-4.

But that’s not all. Although Mac has his son (unnamed) and his friend Mr. Coke to help out, he does most of the work. And a significant part of the work has Mac doing what I haven’t done for nearly fifty years, and earnestly pray no one ever has to do again, namely and to wit, hide out with a semiautomatic rifle.

“Wild hogs are a continuing problem at the farm. They dig underneath fences to get to edible crops and have dug up and broken water lines on the farm. In a year before the tax years 2009 and 2010, wild hogs ate 250,000 pounds of peanuts that petitioner and Mr. Pigg had grown on the farm. As a result, petitioner has to spend significant time controlling the wild hog population, which he accomplishes through hunting and trapping. Petitioner usually hunts hogs for three hours each morning and afternoon while at the farm, for a total of six hours per day. In addition, he spends time building traps and baiting them with corn millet and Kool-Aid to lure hogs to a specific area, where he waits in a tripod stand with semiautomatic weapons in order to eradicate them.” 2015 T. C. Memo. 240-, at p. 4.

It’s a break from practicing law, waiting in the tree for the makin’s of wildschweinbraten to drink the Kool-Aid and get blasted with a couple rounds of 7.62 ball. But the net result, with a couple steins Rude Pitter, (hi, Judge Holmes), is a bit of all right. Don’t forget the red cabbage. Oh, to be back at Frueh am Dom!

Anyway, the case goes off on Mac’s credit card receipts, reconstructed time slips (despite IRS’s unavailing objection that they’re not contemporaneous), farm invoices, and credible testimony. At close of play, Mac has 100 hours (more than) and no one else has more; apparently Mr. Pigg is not from the schwer arbeiters, to use a technical phrase.

See, Tax Court blogging can be fun. But legal research and the cost of publishing one’s results are certainly a necessary part of a lawyer’s profession, and therefore deductible. No one said one has to suffer to make money.

To a very special lady.

I need a real theater buff to correct me if I’m wrong, but my title for this blogpost comes from George Kelly’s 1924 play The Show-Off, which I remember vaguely from a Roundabout Theatre Company production many years ago. The lead character keeps using the phrase “sign on the dotted line,” with a rhetorical flourish of voice and a wave of a walking-stick.

Well, Daniel Lee Berglund wanted IRS to produce a signed Form 23C, Summary of Assessment. But in his FOIA request he asked for “…’Form 23C, if it has been entered into the IRS record keeping system as a Substitute for Return’. Berglund did not specifically ask for a signed copy of the Form 23C.” That’s Judge Morrison speaking, in Daniel Lee Berglund, 2015 T. C. Memo. 239, filed 12/14/15 at p. 3.

And thereby hangs the tale.

IRS responded to Dan’l Lee’s FOIA with 29 pages and a cover letter. “The letter stated that the IRS had found 29 pages of documents that were responsive to the request and that all 29 pages were enclosed with the letter. It further stated that both Form 23C and RACS 006 are valid summary records of assessment but that the RACS 006 is the computer-generated replacement for the Form 23C.” 2015 T. C. Memo. 239, at p. 5.

If you’re unfamiliar with RACS, with or without its James-Bond-like numerals, Judge Morrison explains: “The full name of RACS 006 appears to be Revenue Accounting Control System (RACS) Report 006”. Rev. Rul. 2007-21, 2007-1 C.B. 865.” 2015 T. C. 239, at p. 5, footnote 2.

Dan’l Lee claims if no signed summary record of assessment, then no assessment, no liability for tax, and no lien or levy, all of which he’s fighting.

Well, Dan’l Lee may have a point. “Section 301.6203-1, Proced. & Admin. Regs., specifies that an assessment is made ‘by an assessment officer signing the summary record of assessment’, which, ‘through supporting records’, must include the ‘identification of the taxpayer, the character of the liability assessed, the taxable period, if applicable, and the amount of the assessment.’ The date of the assessment is the date the summary record of assessment is signed. Id. Without a signed summary record of assessment, there is no valid assessment. See Brafman v. United States, 384 F.2d 863, 866-867 (5th Cir. 1967).” 2015 T. C. Memo. 239, at pp. 9-10.

Of course, in the CDP the AO used the Form 4340 computer printout, which is OK if the petitioner doesn’t raise irregularity. But Dan’l Lee claims he did, because the Form 23C wasn’t signed.

But Dan’l Lee didn’t ask for the signed Form 23C.

“We disagree that Berglund demonstrated an irregularity in the assessment process. In his FOIA request, Berglund had requested a Form 23C, which is a type of summary record of assessment. But he did not specify that he wanted the signed version of the Form 23C. Furthermore, section 6203, which governs the IRS’s responses to taxpayer requests for copies of records of assessments, did not require the IRS to provide a signed copy of a document in response to Berglund’s request. That he received an unsigned summary record of assessment does not mean that no signed summary record of assessment exists.” 2015 T. C. 239, at pp. 17-18. (Citations and footnotes omitted, but read them).

Maybe Section 6203 doesn’t require IRS to provide a copy of the signed Form 23C, even if Dan’l Lee had asked for it specifically; but if Dan’l Lee had specified the signed Form 23C, and IRS interposed that it wasn’t necessary to produce same, what is the significance of requiring the assessment officer to “sign on the dotted line,” if IRS is not required to produce the document? And was Fifth Circuit wrong in Brafman, supra?

Or, Doesn’t Anybody Read These Orders?

Really, it’s embarrassing. Here’s the latest blooper from the Glasshouse at 400 Second Street, NW, which eluded the eagle eyes of Ch J Michael B (“Iron Mike”) Thornton.

“Only cases conducted under the Court’s small tax case procedures may be tried in Tallahassee, New York.” Forget about small; they’d better be earth-moving.

Valerie Sheree Brooks, Docket No. 30436-15, filed 12/14/15, at p. 1.

Or, Tax Court As Copy Editor

It is my rule not to name attorneys in these posts, when they come under judicial criticism, however mild. There but for the grace of you-know-Whom goes any of us.

But today The Judge With the Wonderful Name, STJ Lewis (“Spell It Right”) Carluzzo, deals so gently with a certain attorney (hereinafter “Marky”) that I must salute STJ Lew’s patience.

The problem is the petition Marky filed in Byron S. Georgiou & Therese Collins-Georgiou, Docket No. 22316-15, filed 12/11/15, and not even the substance, but the form.

And STJ Lew designates this hitter, so that we may all read and heed.

“The allegations of fact and other statements contained in the paragraphs and pages of the petition following paragraph 3(d) are not set forth in ‘lettered statements’ as required in Rule 34(b)(5) and demonstrated in the sample petition depicted in Form 1. At the risk of appearing persnickety, we point out that we could excuse, and often do, the failure to strictly adhere to our pleading formatting Rules if only a few paragraphs in the petition are not properly numbered or lettered. But here, following paragraph 3(d) there are more than ten pages of improperly designated or undesignated separate paragraphs. This presents practical problems not only for respondent in preparing his answer (cumbersome references to specific allegations to which a response relates), but to the Court as well in reviewing the pleadings as necessary after the case is at issue.” Order, at p. 1.

I think what you meant to say, Judge, is “Lest anyone feel that we are persnickety, we point out that we could excuse, and often do, the failure to strictly adhere to our pleading formatting Rules if only a few paragraphs in the petition are not properly numbered or lettered.”

Howbeit, while IRS wants the petition stricken, or at least amended so as to be in a form that both IRS’s counsel and the Court can handle, STJ Lew has a better idea.

IRS’s counsel “…need only respond to the statements and allegations contained in the petition up to and including paragraph 3(d), and (2) may include, as appropriate, affirmative allegations….. [And] all allegations, statements, and/or representations, contained in the paragraphs of the petition following paragraph 3(d) are deemed denied.” Order, at p. 2.

And STJ Lew makes clear his liberality in allowing in this mélange: “Even though we agree to a certain extent with respondent [IRS] that much of that material might not be properly includable in a petition in a deficiency proceeding, none of it constitutes a ‘matter’ that is properly viewed as ‘impertinent, frivolous, or scandalous’. See Rule 52. Otherwise, we are reluctant to strike any portion of a party’s submission unless it is clear that the material stricken can have no possible bearing upon the subject matter of the litigation.” Order, at p. 2. (Citation omitted).

Still, if you really want to get on STJ Lew’s good side, and his colleagues’, write it right.

Judge Pugh takes the words out of poor Mercutio’s mouth and delivers them to Nonparty Witness James A. Robinson, CPA, delimiting the stretch of the Section 7525 confidentiality cloak.

Read all about it in Jerry L. Cypress & Diane T. Cypress, Docket No. 7939-12L, filed 12/11/15.

Jas. A CPA claims that what he told IRS is covered by the privilege, and his client hasn’t waived it, so he refuses to Branerton and clams up at the depo.

Judge Pugh says she’ll deal for now with a few of the questions Jas A CPA ducked, and will tackle the rest if, as and when further rulings are required.

But as for ducking whether he told an AO that his clients got the SNOD, and ducking whether or not he filed the Form 12153 which bears his signature as Agent, that’s not protected by anything.

“The communications between Mr. Robinson and the IRS, the adversary of his client in this proceeding, are not protected by this provision (or any other privilege of which we are aware). Privilege likewise does not attach to any documents or information provided to Mr. Robinson with the expectation that such information would be shared with the IRS as there is no expectation of confidentiality as to that information.” Order, at p. 2. (Citations omitted).

So, Jas A CPA, return to the depo and spill, consistent with this order.

Oh, and Clerk, send a copy of the order to Jas A CPA at the address shown on IRS’ motion papers. Keeping addresses from the prying public eye is a good idea.

I thought they were just run-of-the-mill orders. They came out daily, and mostly read “address changed to 1.14159 Pi R Square, Yennervelt, NY” or something like that.

But now, as a more exalted personage remarked long ago, “upon them hath the light shined.”

Today, for example, we see this in an order. “ORDERED that petitioner Hanna R. Raskin’s address of record is corrected to reflect the address as provided on the petition filed October 14, 2014.” Kenneth Lee Raskin & Hanna R. Raskin, Docket No. 24206-14S, filed 12/10/15.

Used to be easy for a disgruntled spouse to find the other, once the other had filed the change of address mandated by Rule 21(b)(4). Or anyone else trying to find a Tax Court litigant. But apparently Judge Pugh has taken a better approach.

Unfortunately, Judge Nega (or his clerks) haven’t gotten the word yet. Cf. Bethany L. Caudill, 18685-14S, filed 12/10/15.