Misquoting Shakespeare, Sivatharan Natkunanathan craves the bond he should have gotten, but didn’t, in the eponymous 2015 T. C. Memo. 106, filed 6/8/15. Judge Lauber admonishes Siv that, without a bond, IRS has a free-fire zone to lien and levy after Siv gets unhorsed in Tax Court, despite his numerous (and unavailing) appeals.

Siv loses in Tax Court on the SNOD for his various deficiencies, appeals to Ninth Circuit, but fares no better; Ninth Circuit affirms Tax Court.

In the meantime, IRS gives Siv a NITL. Siv files Form 12153, provides no collection alternative but claims “appeal pending.”

Siv is playing the Supremes variation on the appeal-and-stall gambit, petitioning for leave to file cert petition out of time. This, of course, is an old-time rounder manoeuvre. In fact, a lady I blogged sent me her petition to the Supremes to reconsider her own petition; I didn’t bother reading it. Her chances of success were slightly less than her chances of outrunning American Pharaoh barefoot in a five-furlong breeze.

Needless to say, Siv doesn’t bother with a bond. See Section 7485(a).

Appeals gives Siv a NOD, from which he petitions timely.

Judge Lauber: “The only question is whether petitioner at his CDP hearing raised any issue that has merit.

“The answer to that question is clearly ‘No.’ As his only basis for requesting a CDP hearing, petitioner stated that his 2003 tax liability was ‘on appeal in the United States Supreme Court.’ That statement was false. Petitioner did not file a timely petition for certiorari, and the Supreme Court denied his motions for leave to petition out of time.” 2015 T. C. Memo. 106, at pp. 6-7.

And Judge Lauber gives us the timetable: “When a taxpayer timely petitions this Court in response to a notice of deficiency, the IRS generally may not proceed to assess or collect the tax ‘until the decision of the Tax Court has become final.’ Sec. 6213(a). Where (as here) a decision of our Court has been affirmed on appeal, the decision becomes final ‘[u]pon the expiration of the time allowed for filing a petition for certiorari.’ Sec. 7481(a)(2)(A).” 2015 T. C. Memo. 106, at p. 7.

Siv’s first shot at the Supremes was nine months late, so the order of Ninth Circuit affirming Tax Court was long since final.

Anyway, Section 7485 (a)(1) is clear: “Section 7485 provides that, ‘[n]otwithstanding any provision of law imposing restrictions on the assessment and collection of deficiencies, * * * [appellate] review under section 7483 shall not operate as a stay of assessment or collection of any portion of * * * the deficiency determined by the Tax Court’ unless the taxpayer files a timely notice of appeal and, as relevant here, also posts a bond as provided in section 7485(a)(1). Petitioner did not post such a bond. If no bond is posted, the IRS may properly assess taxes and initiate collection during the pendency of the appeal.” 2015 T. C. Memo. 106, at pp. 7-8. (Citations omitted).

No bond, no stay, and Appeals is sustained if they give a NOD affirming IRS’s lien or levy.

So if you mean to appeal, crave the bond.

If you want the whole nine yards on collateral estoppel, nothing beats Judge Wherry’s lengthy footnotes, numbers 22 and 23, in 137 T. C. 1, Randall J. and Karen G. Thompson. See my blogpost “the Great Dissenter,” 12/28/11.

But if you want the quick-and-dirty, cheat-sheet, version, here’s The Great Dissenter, a/k/a The Judge Who Writes Like a Human Being (and even designates orders to help out the hard-laboring blogger), s/a/k/a The Inveterate, Implacable, Illustrious, Indisputable, Irrefragable, Indefatigable Foe of the Partitive Genitive, and Old China Hand, His Honor Judge Mark V. Holmes.

This is the story of Edward J. S. Picardi, Docket No. 5753-14, filed 6/9/15.

Edward J. S. has had a rocky time of it. Convicted of Section 7201 tax evasion, his appeal to Eighth Circuit gave him no joy. So IRS moves for partial summary judgment on the fraud chops appurtenant to Edward J. S.’s bushelbasketful of deficiencies.

The caselaw, of course, says that criminal conviction for tax evasion may establish fraudulent intent.

But to have collateral estoppel get IRS there:

“The issue in the two suits must be identical;

“there must be a final judgment rendered by a court of competent jurisdiction;

“the parties must be identical or in privity with each other;

“the parties must actually have litigated the issue and the resolution of the issue must have been essential to the prior judgment, and

“the controlling facts and law must have remained unchanged.” Order, at p.2.

Edward J. S. claims his trial counsel was ineffective, and “…many of the controlling facts in his criminal case were not properly presented and thus collateral estoppel cannot apply. He has alternative pigeonholes for this argument — he contends that this is a case where the facts or the law has changed, or that the ineffective assistance of counsel creates a ‘special circumstance’ warranting an exception to the application of collateral estoppel.” Order, at p. 2.

Facts or law can change where there is a great lapse of time between case 1 and case 2, or where law can change from year to year (and tax law does that annually nowadays).

But that’s not the case here, says Judge Holmes, whether or not Edward J. S.’s trial counsel blew it.

“We don’t think ineffective assistance of counsel has anything to do with the facts and law. The caselaw has long held proof of fraudulent intent under § 7201 is the same as the intent that the Commissioner has to prove under § 6663. And the facts here are precisely the same — Picardi’s intent in filing his returns from 1999 through 2003 — no matter how bad his first trial counsel was.” Order, at p. 2 (Citations omitted).

And argue ineffective assistance of counsel on appeal of your criminal case, not in Tax Court. That argument is a nonstarter.

How often have I lamented the modesty of Tax Court Judges who, fearing the notoriety of the designated order, repeatedly hide their light under the cliché.

And Judge Marvel does it again, in Marvel H. Cosner, Docket No. 1480-14L, filed 6/8/15.

This is the case of the missing petition, which the 400 Second Street, NW, gang turns up and which Judge Marvel files nunc pro tunc. That means “retroactive to Day One” for you human beings out there.

But in the meantime, IRS, who has opposed everything in sight, levies on Marv’s payments from his employer, so the liability (uncontested) is fully paid.

IRS claims they didn’t know about the retro petition, and the leading case (Greene-Thapedi v. Commissioner, 126 T.C. 1) says “once paid in full, no lien necessary and case dismissed as moot.”

OK, Greene-Thapedi is to CDP what Gregory v. Helvering is to deficiencies; the authors thereof should get royalties.

So even though Marv got his petition filed retroactively, presumptively triggering the Section 6330 stay on collection, IRS still got the money, no? So Tax Court has no general refund powers, and case dismissed, right?

Not quite.

“’A nunc pro tune order retroactively corrects an original record which is erroneous through inadvertence or mistake.’ Turkoglu v. Commissioner, 36 T.C. 552, 554 (1961). The Court’s July 22, 2014, Order found that petitioner had timely filed a petition with respect to the March 2, 2012, notice of determination and ordered that the petition be filed nunc pro tunc as of April 5, 2012. Accordingly, although he did not then know it, respondent [IRS] was prohibited from serving the December 6, 2013, levy. See sec. 6330(e)(1). Pursuant to section 6330(e)(1), the Court may enjoin an unlawful levy notwithstanding the general prohibition on such injunctions under section 7421.

“Greene-Thapedi v. Commissioner, 126 T.C. 1, which did not involve a premature levy, does not appear to preclude the Court from taking appropriate corrective action following a premature levy….” Order, at p. 2.

I depart from my usual practice of omitting dates, because here it really matters. And read the whole order. It’s really good.

But wait, there’s more!

“The reasoning of Greene-Thapedi implies that the Court may order respondent to retum the proceeds of an unlawful levy action even if the unlawful levy fully satisfied the taxpayer’s theretofore unpaid tax liability. Indeed, in Greene-Thapedi the Court expressly observed that it had previously ‘exercised its inherent equitable powers to order the Commissioner to return to the taxpayer property that was improperly levied upon’. Moreover, any other conclusion would allow the Commissioner to moot any case brought under section 6330(e) by unlawfully executing a premature levy.” Order, at p. 3 (Citations omitted, but save them for your memo of law).

But remember, Marv petitioned NOD off a CDP. So Judge Marvel has to sort that out before deciding whether to order IRS to give Marv what they grabbed.

Game on for Helena, MT, June 15.

And Judge Marvel, if you worked this hard on this order, designate it. Please. I wish I could bill for the time I spent digging this gem out.

No, not the Beatles’ fifty-year-old soundtrack single from their 331st of Rolling Stone’s top 500 of all times albums, so entitled.

Rather, this is the plea of a Tax Court Judge for an expert witness who can “…help the Court in understanding the evidence or deciding a fact at issue. See, e.g., Sunoco, Inc. & Subs. v. Commissioner, 118 T.C. 1 81, 1 83 (2002); Hosp. Corp. of Am. v. Commissioner, 109 T.C. 21, 59 (1997).”

But an ERISA attorney who only can opine that “…that “[t]o disallow the deductions because of how the Plan was initially set up would be patently unfair and inequitable to Mr. Burbach” doesn’t do that.

It’s “…at best a legal conclusion of the sort that we routinely exclude on the ground that it does not help the Court in understanding the evidence or deciding a fact at issue.”

The designated hitter whence flows this learning is David F. Burbach, et al., Docket No. 12021-12, filed 6/8/15.

So the ERISA attorney isn’t an expert, although maybe so he could testify as a fact witness. But if he prepared or reviewed the blown-up pension plan funded with fees Mr. Burbach’s company paid his client, cross might be a wee bit tough.

And the Judge? Why, it’s The Great Dissenter, a/k/a The Judge Who Writes Like a Human Being, s/a/k/a The Implacable, Irrefragable, Irrepressible, Illustrious, Indefatigable Foe of the Partitive Genitive, and Old China Hand, Judge Mark V. Holmes.

When I was a young man (and had, contrary to the late great Pete Seeger, been kissed), there were old-school judges, men (sorry ladies, this was in the Bad Old Days) who dragged into chambers and robing rooms recalcitrant litigants and badgered settlements out of them.

We called it “banging heads.”

And it saved a ton of time, money, vexation and effort, which otherwise would be wasted trying a case before a somnolent jury whose principal concerns were lunch and getting out of there.

Alas, Tax Court doesn’t do that.

Telling the sorry tale is The Great Dissenter, a/k/a The Judge Who Writes Like a Human Being, s/a/k/a The Inveterate, Implacable, Irrefragable, Illustrious, Incomparable, Indefatigable Foe of the Partitive Genitive, and Old China Hand, His Honor Judge Mark V. Holmes.

Here’s the long and short (mostly short) of it, Kumar Rajagopalan & Susamma Kumar, et al., Docket No. 21394-11, filed 6/5/15, a designated hitter, no less.

Kum and Sus and two of their buddies are looking at a 40% substantial undervaluation chop, but that’s not the issue I’m focusing on here.

On background, “…petitioners moved in limine for an order to ‘mandate enforcement of the parties’ prior stipulations that the only issues remaining for trial are (1) valuation and (2) penalties; and further direct the parties to engage in good faith settlement discussions in accordance with the Court’s prior instructions.’” Order, at p. 1.

OK, play nice.

Except Tax Court judges can’t make litigants do that.

“One problem with this is that our cases that wax rhapsodic on the importance of stipulations to the Court’s practice all involve actual stipulations — statements that both parties agree to as true for the purpose of deciding a case and have been properly submitted to the Court. See Tax Court Rule 91(b)-(c) (stipulations must be signed and filed with the Court). Proposed stipulations are not actual stipulations, and the Court can’t enforce them by pretending they are.” Order, at p. 1.

OK so far; if the stips Kum and Sus want enforced aren’t properly-filed stips, but wishlists, there’s nothing Judge Holmes can do about that.

“The more serious point that the Court thinks petitioners are trying to raise is unreasonable behavior by respondent in not settling these cases. The Court doesn’t force parties to settle; it may impose a sanction if a party litigates unreasonably, see §6673, or it may award costs and fees if the government loses and its position was not substantially justified, see § 7430. But now, before there is a prevailing party, such actions would be premature.” Order, at p. 1.

Maybe I’m an old State-court fogey; maybe I’m too much an in-the-trenches, old-time solo practitioner; perhaps I lack the refinement of the corner office in the glass-and-steel highrise overlooking the park, and the ineffable bliss of Savile Row three-piece suits and spit-shined Bruno Maglis. And however many Martini lunches my aging liver can handle.

But I don’t get it.

If a baserunner knows the outfielder won’t throw, why not score from first base on a blooper?

Yet another contribution to the Nth volume of the late Dr. Eric Berne’s 1964 five-million-seller classic comes today from that Obliging Jurist, Judge David Gustafson.

And it answers a query, under yesterday’s date, from a devoted follower of this, mine own humble effort, viz and to wit, “I’m surprised that the judge didn’t discipline the IRS attorneys who tried this.

“Is there no mechanism for doing this, or was the action not deserving of more than a strong rebuke?”

See the comments to my blogpost “The Slide,” 6/4/15.

Here’s John J. Hynes, Jr. & Eileen J. Hynes, Docket No. 19841-13, filed 6/5/15.

John and Eileen wanted a pretrial conference (I love those; a Taishoff “good move” goes to T. Burke, Esq., of Braintree, MA, counsel for petitioners), so the Obliging Jurist gave them one on the phone.

But IRS decides to try it on yet again.

“…the Court will hear no further argument on respondent’s motion for leave to file an amendment to his answer, and (2) that the motion is denied, since it was filed May 29, 2015–i.e., 10 calendar days before the calendar call–to the apparent prejudice of petitioners. (During the conference call, the Court proposed that it might grant the motion for leave if respondent consented to the continuance of the case, but respondent stated an objection to any continuance.)”

Calling audibles at the line of scrimmage might work on the Astroturf, but it doesn’t go in the courtroom.

And the judges need to blow the whistle more often.

No, this is not a misspelling of the 1979 Tom Wolfe docudrama about rocket flight. It may, however, be a mispronunciation of the surnames of Michael H. Stough and Barbara M. Stough, the stars of my blogpost “Another Good Dodge Gone Wrong,” 6/2/15. If so, I do apologize.

But Judge Ruwe’s arithmetic so befuddled me that I must shed my cloak of omniscience, albeit reluctantly, and call for help.

I tried speaking to the Stoughs’ counsel, Stanley L. Ruby, Esq., the highly-credentialed partner at Schwartz Manes Ruby & Slovin, of Cincinnati, OH who represented Mike and Barb, but he didn’t return my phonecall.

So I must send out the word into the blogosphere, begging for assistance.

What does this mean, in simple English?

“The lease entered into between T and [Owner] does not provide for prepaid rent. First, it is necessary to determine ‘the cumulative amount of rent payable as of the close of * * * [the] calendar year’. In 2008 T paid rent to [Owner] totaling $1,151,493.18 ($151,493.18 of monthly rent for the plasma collection center and a $1 million lump-sum payment pursuant to section 4.1(a)(v) of the lease). Therefore, the cumulative amount of rent payable by T as of the close of the 2008 calendar year is $1,151,493.18. Second, it is necessary to ascertain ‘the cumulative amount of rent allocated as of the close of the succeeding calendar year’ (i.e., 2009). As previously held, the lease at issue does not specifically allocate fixed rent to any rental period within the meaning of section 1.467-1(c)(2)(ii)(A), Income Tax Regs. In the absence of a specific allocation, the amount allocated to each year is the amount payable for each rental period. Sec. 1.467-1(c)(2)(ii)(B), Income Tax Regs. Although the record before us does not include the exact amount of rent payable by T for the 2009 calendar year, T did have rent payable during 2009 based on the mathematical formula contained in the lease. It follows logically that the cumulative amount of rent payable as of the close of 2008 ($1,151,493.18) will not exceed the cumulative amount of rent allocated as of the close of 2009 ($1,151,493.18 plus rent payable during 2009). Accordingly, the section 467 rental agreement does not have prepaid rent pursuant to section 1.467-1(c)(3)(ii), Income Tax Regs.” 144 T. C. 16, at pp. 23-24.

No prize for the correct answer.

IRS wants to slide some documents into the record post-trial, after Judge Cohen caught them submitting proposed findings of fact based on the sliders, which of course weren’t in the record to begin with.

The petitioner leaps into the fray, filing an objection to IRS’s motion to reopen the record to do the sliding.

Judge Cohen is definitely not amused by the shenanigans of both sides. She gets a wee bit waspish.

While this is technical, it can spare the USTCPs and lawyers among you a judicial smack, so read Transupport, Incorporated, Docket No. 12152-13, filed 6/4/15.

As to the petitioner’s unrequested leap, “Petitioner was not asked or entitled to file an unsolicited response to respondent’s motion”. Order, at p. 1.

Remember, Tax Court plays the Simon Says gambit, “Mother, may I?” variation.

As for IRS’s would-be sliding, they are rebuked by Judge Cohen.

“The remedy proposed by respondent’s motion is not the preferred remedy. Admitting hearsay documents would require further testimony. The Court always compares proposed findings with the record and evidence admitted in the case to confirm the accuracy and fairness of the proposed findings. The appropriate remedy is an objection to the proposed findings and/or a motion to strike them from the offending brief if calling attention to a violation of Rule 151(e)(3), Tax Court Rules of Practice and Procedure, is warranted.” Order, at p. 1.

So petitioner’s leap is stricken from the record.

And IRS’s would-be sliding in the documents avails them not. Any proposed findings based upon the unslidden is, sua sponte, stricken from the record.

A novel concept this, judges who actually read the papers.

That Obliging Jurist, Judge David Gustafson, invited Curtis Leyshon to come back with some reason why Judge Gustafson shouldn’t take judicial notice of the 2012 Tax Court proceedings. See my blogpost “Rounders’ Day,” 1/16/15.

I warned Curt at the time “Hint: Curt, don’t play the protester game.”

But “my words like silent raindrops fall,” as a much better writer put it.

So here’s Judge Gustafson reiterating his half-dozen warnings to Curt to eschew frivolity, and finally nailing Curt with a Section 6673 $2K chop. Curtis E. Leyshon, 2015 T. C. Memo. 104, filed 6/3/15.

I won’t go over Curt’s argument conflating tax on self-employment income (Title A) with Title B employment taxes, and his other protester jive. Judge Gustafson blows them all away.

Curt claims that, by taking judicial notice of his wife’s trial (whereat he assisted and participated and whereat she was nailed), Judge Gustafson is trying the case for the IRS.

No, Curt.

“The Commissioner did not move for a penalty or ask us to take notice of the prior case; and the gist of Mr. Leyshon’s contention seems to be that, by taking notice, the Court has in effect abandoned judicial independence and has taken sides with and done the job of one of the parties.

“In fact, the Court has explicit authority to ‘take judicial notice on its own’. Fed. R. Evid. 201(c)(1) (emphasis added). We do so in this case not to promote the Commissioner’s interests as a litigant but rather to pursue the Court’s own interest in managing its own business. The Tax Court exists to provide a forum for litigation of taxpayers’ bona fide disputes with the IRS. The Court’s ability to perform that function is impeded when a taxpayer files a petition for some other reason, such as to defy the law or to delay the inevitable. Therefore, quite apart from the Commissioner’s interest in the section 6673 penalty, the Court has its own legitimate interest in imposing the penalty, where appropriate. The statute does not by any means make the IRS the gatekeeper of this issue but rather authorizes the penalty ‘[w]henever it appears to the Tax Court that’ the litigation is frivolous or dilatory. Sec. 6673(a)(1) (emphasis added).” 2015 T. C. Memo. 104, at p. 15.

But then Judge Gustafson goes through a twelve-step checklist for imposing Section 6673 chops, with “somber reasoning and copious citation of precedents.”

But since Curt’s deficiency is small, he gets a $2K chop.

However, if he tries it again, he can go for the next level.

We used to play with front-loaded and back-loaded rent to get the tax result we wanted, skirting the Section 467 ratable-allocation-of-rent rules.

But Judge Ruwe is less than kind in Michael H. Stough and Barbara M. Stough, 144 T. C. 16, filed 6/2/15.

Mike and Barb built a commercial building and leased it for 10 years. Fixed minimum rent was based on cost of land acquisition and construction costs (presumably hard and soft). Tenant had a one-time option to pay down $1 million lump-sum, with a concomitant reduction in rent going forward. Mike and Barb claimed the $1 million was a “contribution to construct” expense, and deducted it on Schedule E.

Mike and Barb had a disregarded LLC holding the land and building, of course.

IRS blew off the deduction, and allowed Barb and Mike additional depreciation. But the $1 million was income in the year received, said IRS, not spread over the lease term. Mike and Barb claim the tenant was paying them back for leasehold improvements, but Reg. 1.61-8(c) eliminates the need to delve into owner’s and tenant’s subjective intents. What lessee paying lessor is rent, absent some real evidence otherwise.

“There may be situations where an improvement made by a lessee is not intended to compensate a lessor. Indeed, an improvement by a lessee might be worthless or even provide a detriment to the lessor. For example, the useful life of such an ‘improvement’ by the lessee may not extend beyond the term of the lease, in which case it has no value to the lessor and, in fact, may impose a financial detriment if the lessor is responsible for its removal upon termination of the lease. Here the lessee made no leasehold improvements. Rather, the lessee exercised its option to pay $1 million to petitioners in order to reduce the amount of ‘project costs’ for purposes of calculating annual rent.” 144 T. C. 16, at pp.13-14.

OK, it’s rent. Hardly surprising, but how is it to be taxed, ratably over the life of the lease or as a lump-sum payment in year received?

This is a case of first impression, so best pay attention.

“Congress enacted section 467 to prevent lessors and lessees from mismatching the reporting of rental income and expenses. Section 467 provides accrual methods for allocating rents pursuant to a ‘section 467 rental agreement’. In order to qualify as a section 467 rental agreement, an agreement must have: (1) increasing/decreasing rents or deferred/prepaid rents and (2) aggregate rental payments exceeding $250,000. Both parties agree that the lease in this case qualifies as a section 467 rental agreement.” 144 T. C. 16, at pp. 15-16. (Citations and footnote omitted).

The rule in a Section 467 rental agreement is to allocate rent per the agreement. But is there a specific allocation here?

No, says Judge Ruwe. All the lease says is that the lessee can make the $1 million lump-sum payment, but doesn’t allocate the payment to a specific portion of the lease term.

And the constant rental accrual method in Section 467(b)(2) only applies to long-term leases and sale-leaseback deals, and where IRS determines there is an abusive transaction, none of which apply here. And the $1 million is not “prepaid rent” because the formula goes on, and the rent at year end for the year in which the $1 million was paid does not exceed the rent payable for the next year.

I find Judge Ruwe’s arithmetic puzzling. Let’s see what Sixth Circuit does with this.

Anyway, Mike and Barb claimed they relied on their trusty CPA, but Mike only skimmed the return and didn’t check out the Schedule E legerdemain.

“Claiming reliance on [trusty CPA] and choosing to not adequately review the contents of a tax return is not reasonable reliance in good faith, and we will not permit petitioners to avoid an accuracy-related penalty for substantially understating their income tax liability. Accordingly, we hold that petitioners are liable for the accuracy-related penalty under section 6662(a).” 144 T.C. 16, at p. 29.