Yes, I know it’s way too early in the baseball season, so this is a different all-star break. The US Tax Court Judicial Conference opens tomorrow, and a star-studded cast of judicial talent is onboard to edify us groundlings, and lead us into the right pathways.

One of the lead-off batters tomorrow morning is CSTJ Peter Panuthos, who today unhorses Whistleblower Bohdan Senyszyn, Docket 14706-13W, filed 5/20/15, a designated vorspeise.

Bo is peeved his whistleblowing got the usual “we didn’t use your info and didn’t collect a dime” from the Ogden Sunseteers. Bo claims his erstwhile partner (hereinafter known as “5”) took bogus deductions, didn’t report income or pay over withholding trust funds.

IRS said they sent their sleuths, and 5 got a “no change.”

OK, no biggie.

But beware, oh wannabe whistleblower; make sure that the one you seek to torpedo can’t depthcharge you.

While checking out 5’s alleged delictions, “(T)he Agent learned that the taxpayer was working with CID agents and assisted in the incarceration of the whistleblower.” Order, at p. 2.

Y’all can see where this is going.

IRS’s SME (subject matter expert) memorializes his debriefing of Bo delicately but firmly. “…‘Subject has a substantial Net Operating Loss [NOL] Carry Forward to offset any proposed additional tax liability ….’ Regarding petitioner’s motives in pursuing his whistleblower claim, the SME wrote, ‘It appears that the WB [whistleblower) is trying to get the IRS involved in a personal matter that is best resolved by the court system. It also appears to the SME that the WB (a former IRS G/M in LB&I) is attempting to use his knowledge of the ‘system’ to have the resources of the ‘Service’ set upon his partner for his (WB) pleading guilty and serving time in prison. Therefore, as set forth in the above paragraphs, the SME recommends that no further actions be taken by the SB/SE Examination.” Order, at p. 2.

Note- G/M means “Group Manager” and LB&I is Large Business and International.

Oh, and the Revenue Agent on the audit concluded that 5 wasn’t savvy enough to concoct a good tax fiddle without Bo’s insider knowledge.

After Bo has offered himself up on toast, CSTJ Panuthos deconstructs all of Bo’s contentions thus: “As discussed above, collection of proceeds upon which an award can be based is a prerequisite for a whistleblower award. Respondent did not collect any proceeds, and petitioner’s disagreements do not dispute that fact.” Order, at p. 5.

Summary J for IRS.

Sorry Bo, I can’t give ya a Taishoff “good try;” you didn’t clear your flanks before you attacked. Bad strategy.

No, this is not a religious tract. No politicking or preaching on this blog. Today we discuss what it takes to convert one’s formerly personal residence to property held for production of income.

Or rather Judge Buch does, and he’s talking to Robert I. Redisch and Pamela A. Redisch, in 2015 T. C. Memo. 95, filed 5/19/15,

Rob and Pam had a FL on-the-beach condo they used in the summer, but vacated when their daughter died.

They did leave some furniture and stuff, so that the place would show decently, and hired some local brokers to rent the place before they sold it.

But no serious renters showed, and the brokers didn’t exactly slaughter themselves with their efforts to rent the place.

Finally, Rob and Pam took some business-type deductions and then sold at a loss (which they claimed was ordinary). IRS hit Rob and Pam with a SNOD.

Judge Buch takes it from there. “After concessions by both parties, the only issues remaining are whether the … property was converted to a property held for the production of income such that Schedule E deductions are allowable, whether the Redisches are entitled to an ordinary loss deduction on the sale of the … property, and whether the Redisches are liable for accuracy-related penalties under section 6662(a).” 2015 T. C. Memo. 95, at p. 7.

So let’s go down the checklist. “In the case of a converted residence, the Court often looks to five factors to determine the taxpayer’s intent: ‘(1) the length of time the house was occupied by the individual as his residence before placing it on the market for sale; (2) whether the individual permanently abandoned all further personal use of the house; (3) the character of the property (recreational or otherwise); (4) offers to rent; and (5) offers to sell.’ No one factor is determinative, and we consider all of the facts and circumstances.” 2015 T. C. Memo. 95, at pp. 9-10. (Footnotes omitted).

Rob and Pam don’t convert, on third down or otherwise.

Rob and Pam used the condo for personal use for four years before the claimed conversion. “Although Mr. Redisch testified that he signed a one-year agreement with a realty company to rent the … property, he did not provide any other evidence of such an agreement. Even if the Redisches had produced the contract, Mr. Redisch stated that the efforts of the realty company to rent out the … property were limited to featuring it in a portfolio kept in the [management] company’s office and telling prospective buyers that it was available when showing it as a model. It is unsurprising that this minimal effort yielded only minimal interest. Mr. Redisch did not testify regarding any other tactics that he attempted to employ to rent out the … property other than getting a new real estate agent. Mr. Redisch also did not provide any evidence, beyond a copy of a multiple listing service listing of the … property, of the actions taken by the second agent to rent out the home. Accordingly, we find that the Redisches did not make a bona fide attempt to rent out the … property and therefore did not convert it to one held for the production of income. Consequently, the Redisches are not entitled to deductions under section 212 or a loss deduction under section 165 relating to the … property. “ 2015 T. C. Memo. 95, at p. 11.

Rob and Pam claimed they used a paid preparer to do the returns in question, but what they told the preparer and the preparer’s credentials never make it into the record.

Looks like a substantial understatement chop is on the way.

And of whom else might I be speaking but The Great Dissenter, a/k/a The Judge Who Writes Like a Human Being, s/a/k/a The Illustrious, Irrepressible, Indefatigable, Industrious, Impressive and Invincible Foe of the Partitive Genitive, and Old China Hand, Judge Mark V. Holmes?

Here’s an example.

Billy Joe Shurden, Docket No. 28097-13, filed 5/19/15, presents a case that raises interesting legal issues for Judge Holmes.

“The Court has received a pretrial memorandum from the IRS, but it does not discuss the issues of the scope of review (this means what the Court should look at) or the standard of review (this means how the Court should look at what the IRS did).

“In collection due process cases, these issues have been the subject of debate.

“The Court will expect the IRS’s lawyer (and certainly invites Mr. Shurden) to discuss these issues at calendar call. It specifically asks him to be prepared to present the IRS’s position (i.e., he should consider seeking National Office advice) on the questions of whether the Court should examine the IRS’s determination in an interest-abatement case for abuse of discretion or de novo, and of whether the Court’s review should be limited to the adminstrative [sic] record or should be a trial de novo. If this case actually presents these issues, the Court will consider any suggestions for motion practice at calendar call.” Order, at pp. 1-2. (Citations omitted).

So, IRS, put the administrative record together, let Billy Joe check it out, and, if y’all agree that what should be there is there, then stip it in.

Does anyone seriously think self-represented Billy Joe understood Word One of the foregoing?

Now Judge Holmes shines forth.

“The Court suspects that Mr. Shurden is not a lawyer, and that this order may not be comprehensible to a nonlawyer. It promises to explain these unforeseen parts of the case to Mr. Shurden at calendar call in plain English. It encourages him to call the Court to arrange a phone call to discuss them even before calendar call if he wishes to do so.” Order, at p. 2.

I’d love to listen in on that phonecall.

And I’m sorry Judge Holmes won’t be at the Tax Court Judicial Conference tomorrow. He sounds like a great guy to have a drink with.

Follow-up: Judge Holmes was there, and while we didn’t have that drink, we had a great conversation–all off the record.

This political lament has been oftentimes moaned abroad, but today we see two examples of judicial activism that get the attorneys focused.

First up, Judge Laro, for the June 1 Calendar Call on that Outlying Island off the Coast of North America, whereon I reside and at which I will eagerly attend.

And Judge Laro wants to concentrate the minds of counsel wonderfully in Guidant LLC f. k. a. Guidant Corporation, and Subsidiaries, et al., filed 5/18/15, with a bushelbasketful of Docket Nos., but you can use 5989-11 for short.

Guidant claims IRS’s eight (count ‘em, eight) notices of deficiency are arbitrary, capricious and unreasonable.

Judge Laro encapsulates the various contentious contentions thus: “Petitioners assert that the applicable regulations require that respondent make specific adjustments to the income of each affected member of the controlled groups at hand and that the adjustments be made in accordance with each type of transaction. Respondent essentially asserts that the regulations require that he use the most reliable method under the facts of these cases and that a method, to be reliable, need not always be applied separately to each member or to each type of transaction.” Order, at p. 1.

In short, did IRS misapply Section 482 and the regulations in nailing Guidant, its family and friends for the deficiencies at issue?

Starting right after lunch, Guidant and IRS each have an hour to duke it out (45 minutes straight and 15 rebuttal).

And to help keep them focused, Judge Laro has given them seventeen (count ‘em, seventeen) paragraphs of questions, comments, citations to cases and regulations, and food for thought.

Here’s just a sample: “5. Petitioners are essentially asking the Court to construe the regulations as setting forth procedures that respondent must follow in every audit of a consolidated group. Respondent essentially argues that he must follow a reasonable approach in making adjustments to the group and that the reasonableness of respondent’s adjustments rest on the unique facts of each case. Should the Court be setting universal rules that respondent must follow in every audit, even an audit where the setting does not allow respondent to follow the rules with any certainty? Assuming that respondent’s argument is correct, is the question of reasonableness a question of fact which is inappropriate for summary judgment? Is it unreasonable for respondent to adjust the income of a parent corporation to account for intercompany transactions for which respondent knows that the subsidiaries were parties thereto but does not know to what extent they were parties? Is it unreasonable to determine adjustments in the aggregate where information to make more specific adjustments is not available?” Order, at p. 3.

Even better is this: “17. The parties have estimated their trial time to be about 9 weeks. If the Court were to grant petitioner’s motion, what impact will that ruling have on estimated trial time?” Order, at p. 5.

Sounds like a real fun afternoon, guys.

Next is Judge Cohen, a stickler for following the rules, in Cindy Lee, Petitioner and Jim Lee, Intervenor, Docket No. 10136-14, filed 5/18/15. Jim has his own case also, Docket No. 10177-14, but it gets the same treatment as Cindy’s, so no biggie. Apparently Cindy’s (and maybe Jim’s attorney too) is a scoche bit casual in Tax Court practice.

Judge Cohen is not amused.

A month and a day before trial date (which was set so all Jim’s and Cindy’s cases could be tried together), said attorney moves for continuance (that’s adjournment in State court lingo). Argue that before the trial on the trial date, says Judge Cohen.

And so counsel stays on message: “…at the hearing counsel for petitioner shall explain: (1) the misstatements in paragraphs 8 and 11 of the affidavit that cases are pending before another Division of the Court when in fact all of the cases are under the jurisdiction of the Division to which the June 15, 2015 calendar is assigned; (2) the inconsistency between the title of the affidavit and the signatory and whether any change of name has been submitted to the Admissions section of the Court; (3) whether petitioners Jim Lee and Cindy Lee have been advised of the conflict of interest when the same counsel represents a party claiming relief under Internal Revenue Code section 6015 and the party not claiming relief; and (4) any reason why the related cases should not be consolidated immediately if they are continued.” Order, at pp. 1-2.

Oh yes, guys, and file a stip of settled issues.

Oh, those activist judges!

No, this is not about a voyage back down the river of time, when Gael Greene’s Sex and the College Girl was hot stuff, around 1964.  Ah, the days of my wasted youth–but let’s get back to taxes.

And who else should be telling the college dating story (as it applies to income taxation) but STJ Lewis (“A Name That Will Live In My Heart Forever”) Carluzzo, in yet another of his inimitable designated off-the-benchers, Stanley V. McClain & Sonia N. McClain, Docket No. 4732-14S, filed 5/15/15.

I’m sorry that, early in this blog’s career, I slighted the small-claimers. Like the children in a much more exalted setting, of theirs is the kingdom.

Stan was a student at ITT Technical institute, and a beneficiary of the Section 25A education credit largesse by virtue of his studentry. Like so many now groaning under the burden of undischargeable student loan debt but receiving certain political solicitude, Stan borrowed the bucks for that first year of ITT tutelage.

But though his tuition was charged in Year One, the lender didn’t come across until Year Two.

Stan takes his 25A credit for Year One, but IRS claims “wrong year. The magic date is when the institution of higher whatever gets and books the diñero, not when y’all were charged for it.”

Trial techniques aren’t of the best, so STJ Lew makes do. “Petitioners’ … return has not been admitted into evidence but the parties proceeded at trial as though petitioners claimed an educational credit totaling $2,500 on that return, as we do likewise. According to the notice, a copy of which is attached to respondent’s answer, petitioners are not entitled to the credit because ITT ‘did not verify’ the education credit claimed on petitioners’ return.” Order, at pp. 4-5.

Although there is the usual bar protecting this particular tax giveaway, everyone agrees Stan jumped it cleanly. But for the Treas. Reg. 1.25A-5(e)(3) hurdle, he’d be good to go.

For those of us unfamiliar with this wrinkle, here it is. “An education tax credit may be claimed for qualified tuition and related expenses paid with the proceeds of a loan only in the taxable year in which the expenses are paid, and may not be claimed in the year the load is repaid. Loan proceeds disbursed directly to an eligible education institution will be treated as paid on the date the institution credits the proceeds to the student’s account.” Order, at pp. 5-6. (Should read “loan is repaid.”)

Stan’s loan certainly fits that box, so STJ Lew says “This portion of the regulation certainly supports the position that respondent has taken in this matter.” Order, at p. 6.

So it looks like Stan is SOL (and I don’t mean Statute of Limitations).

But don’t underestimate STJ Lew.

“The last sentence of the regulation, however, goes on to state, ‘If the taxpayer does not know the date the institution credits the student’s account, the taxpayer must treat the qualified tuition and related expense as paid on the last day for payment prescribed by the institution’. The use of the word ‘must’ in the last sentence of the regulation suggests that under the circumstances there described, the rule is mandatory and supercedes [sic] the disbursement rules stated earlier in the regulation. We think it reasonable to fix the time of the taxpayer’s ‘knowledge’, or lack thereof, as of the date the taxpayer’s return is filed.” Order, at pp. 6-7.

It gets better.

“The trial exhibits showing the date petitioner’s student loans were credited to his account is dated Apiol [sic] 30, 2015, which was the date this matter was tried. Apparently the document was faxed to respondent’s counsel by ITT shortly before the trial started. There is no showing that petitioner was previously aware of the date the loan proceeds were credited to his account, and from his presentation we are satisfied that he was not. In the words of the regulation we are satisfied that petitioner did not know the date that his student loan proceeds were credited to his account as of the date his return was filed. Petitioner credibly testified that the policy of ITT was that a student could not begin classes until the student’s tuition was paid.” Order, at p. 7.

Stan started classes in the year for which he took the credit. Stan wins.

So remember, preparers, college dating is important when your taxpayers want the Section 25A credit.

The ongoing discovery tug-of-war between IRS and Eaton Corporation and Subsidiaries, Docket No. 5576-12, filed palindromically on 5/15/15, goes on apace, and Judge Kerrigan is in the midst of it all.

Readers of this blog, if not long since bored with this ongoing bunfight, will recall my blogpost “The Forty Million,” 4/24/15, wherein Eaton’s counsel unloaded forty million (count ‘em, forty million) pages of documents via an e-dump of some 67,108,864 kilobytes.

Well, when you unencumber yourself in that fashion, some stuff slips through.

“Respondent’s [IRS’s] motion seeks a determination whether a two-page document that has been provided to respondent in the informal consultation process is protected by the attorney-client privilege. Upon review of the document, respondent notified petitioner of the potential disclosure of privileged information. In response, petitioner requested that respondent destroy the document. Petitioner inadvertently sent the document without making redactions. Respondent contends that the document does not contain privileged information and even if the document included privileged information, petitioner waived its privileges by making the reasonable cause, good faith, and reasonable reliance allegations in its petition.” Order, at p. 1.

For more about reasonable cause, good faith and all that Section 6664(c) jazz, see my blogpost “Everything Has An End,” 10/10/12.

Eaton claims that the two-pager has information about filing deadlines, and the author and recipient have the benefit of the Section 7525 umbrella that shades “any authorized federal tax practitioner” with client-attorney privilege.

Judge Kerrigan decides that somber reasoning and copious citation of precedent are unnecessary.

“The communication at issue is between two employees of petitioner’s accounting firm. Petitioner has not shown why this document should be treated as a document subject to the attorney-client privilege.” Order, at p. 2.

My readers, I am sure, as well as I, eagerly await the 8/5/15 commencement of trial. We can then put all this behind us.

Tax Court’s website is once again warbling with Walt today, 5/15/15 (and another Happy Palindrome Day to one and all).

Here’s the story.

“SITE OUTAGE NOTICE:

“The Tax Court’s Web site, including Petitioner Access and Practitioner Access, will be unavailable from 5:00 p.m. until 11:00 p.m. Eastern Time on Friday, May 15, 2015, to allow performance of emergency electrical work. No documents may be electronically filed (eFiled) during this time.

“We are sorry for any inconvenience this may cause. Thank you.”

Wilfredo A. Ruiz-Caban is singing Sammy Cahn’s and Jimmy Van Heusen’s 1960 hit with vigor, as STJ Lewis (“That Name Just Slays Me”) Carluzzo lets in Wilf’s petition after the second mailing from IRS.

Read all about it at Docket No. 20805-14, filed 5/14/15, another STJ Lew off-the-bencher, or, better still, read my blog now, as the Tax Court website will drop out at 5:00 p.m. Eastern today, for an emergency electrical fix.

Wilf’s petition is about 95 days late, if you take the first SNOD mailing as the determinative factor. Wilf was living at his current address, and claims he notified USPS of his changed address the year before, but IRS used his old address and got the mailing back undelivered.

IRS claimed Wilf never gave them the magic “clear and concise written notice.”

STJ Lew: “…he does not claim that he gave respondent clear and concise written notice of his current address before the notice was issued. Instead, petitioner argues that the change of address that he registered with the U.S. Postal Service operated to change his ‘last known address’ from his previous address to his current address. See section 301.6212-2(b) (2), 20 Proced. & Admin. Regs. Respondent argues that the record does not contain sufficient information to determine whether that regulation applies. If it does, then the notice is invalid and we lack jurisdiction on that ground. If the regulation does not apply, then the notice is valid and we lack jurisdiction because the petitioner was not filed within the period prescribed by section 6213(a), as pointed out in respondent’s motion. See Rule 13(a); Monge v. Commissioner, 93 T.C. 22, 27 (1989). Either way, we would be without jurisdiction and petitioner’s challenges to the deficiency would have to be, and could be made in a different Federal court (refund procedures) or a different proceeding in this Court (section 6330(d) proceeding).” Order, at pp. 5-6.

But Wilf is persistent; he wants to be in Tax Court, and he’ll fight to stay there.

“As it turned out, because of a contact made by petitioner to one of respondent’s service centers, a copy of the notice was mailed to petitioner at his current address… (remailed notice), and the petition could be treated as timely filed with respect to the remailed notice. See section 6213(a) and 7502. That being so, petitioner argues that the Court has jurisdiction.” Order, at5 p. 6.

Now maybe Wilf didn’t realize that, if he could prove the SNOD wasn’t mailed to his last known address, he could disregard the SNOD entirely, the SOL would run before IRS could get him a new SNOD, and he could walk away unscathed. Or maybe Wilf was concerned he couldn’t win that face-off, and by offering to stay onboard, he had a better chance of beating the SNOD.

Wilf is a self-represented, and he isn’t doing so bad.

IRS plays the usual counter-gambit. Second mailings don’t count. First in the mail is it, and there’s caselaw that says so.

Right, says STJ Lew, but in those cases no one claimed that the first mailing went to the wrong address. Here it’s not so clear that the first mailing went to the right address, namely, the “last known address.”

Anyway, why waste time?

“As noted above, resolving the dispute between the parties as to petitioner’s last known address would require the dismissal of this case on one ground or another only to have the case, in effect, resurface in a different case before us, or in a different Federal court. With that likelihood consequence in mind, proceeding in that manner makes little sense to us. Instead, we proceed, without finding, as though the notice was not sent to petitioner’s last known address, but acquire jurisdiction over the deficiency placed in dispute in the petition because the petition was timely filed in response to the remailed notice.” Order, at p. 7.

Judge, I think you meant “With that likely consequence.”

Anyway, “In closing we think it appropriate to note that proceeding in the manner we have is consistent with a liberal construction of section 6213(a) as applied in other circumstances by other Federal courts in order to preserve this Court’s jurisdiction in a case commenced under that section. See e.g. Tenzer v. Commissioner, 285 F.2d 956, 958 (9th Cir., 1960) ; Eppler v. Commissioner, 188 F.2d 95, 98 (7th Cir. 1951).” Order, at pp. 7-8.

So IRS, you lose. Wilf’s petition is timely.

Wilf gets a Taishoff “good going”, first class.

STJ Lewis (“The Name That Resounds”) Carluzzo reprises his 7/20/13 performance (“Yes, We Have No Jurisdiction”) in Charles R. Barrett, Docket No. 21310-14SL, filed 5/13/15.

Charlie paid (via levy and some cash he kicked in) what IRS claims is his outstanding debt to the Nation With Liberty and Justice For All. So STJ Lew has an off-the-bencher small-claimer to send Charlie on his way.

IRS dinged Charlie with a SNOD for one year, Charlie never petitioned, so IRS levied on his Social Security, but Charlie never petitioned that either.

So IRS dinged Charlie for the next year. Same story, but Charlie claims the NITL wasn’t sent to his last known address, though IRS stoutly maintains they mailed it there.

STJ Lew doesn’t have to go there.

Charlie went to Collection Appeals, which we all know is CDP ultra-light, because you can’t get to Tax Court from there. If not sure of this proposition, see my blogpost “An Appeal Is Not Due Process,” 9/16/13.

But Charlie got a closing letter, anyway, claims that’s a NOD, and petitions from that.

It’s not a NOD, says STJ Lew, wearily.

“As we have noted in countless opinions and orders too numerous to count, the Court is a court of limited jurisdiction, and we may exercise judgment only to the extent authorized by Congress. See Naftel v. Commissioner, 85 T.C. 527, 529 (1985).

“We are satisfied that the closing letter is not a sufficient determination to establish the Court’s jurisdiction over petitioner’s …liabilities under Section 6330(d), and in the absence of such a determination we are without jurisdiction in this case, which apparently was commenced under that section….. According to respondent, respondent has made no other determinations, or failed to take any action, that would otherwise support the Court’s jurisdiction over the matters contained in the petition. Because petitioner is not able to establish otherwise, we are further satisfied that we have no jurisdiction in this matter under any provision of the Internal Revenue Code.” Order, at pp. 6-7. (Citations omitted).

Now STJ Lew can toss the petition because there is no NOD, or he can toss it because IRS never sent the NITL to Charlie’s last known address.

And it does matter, because if not sent to last known address, as we have heard again and again, the NITL is a nullity and the levy is improper, so Charlie walks.

But Charlie, by virtue of the levy and some bucks he kicked in along the way, doesn’t owe IRS.

“Under the circumstances of this case, however, it matters not upon which ground the dismissal is based because the …liability has been paid. Even if the forced collection of petitioner’s … liability was inconsistent with the procedures contemplated in Sections 6320 and/or 6330, and we make no finding on the point, we would be powerless to provide petitioner with a remedy or the refund that he seeks. After all, if we have no authority to order a refund in a Section 6330(d) case over which we properly have jurisdiction, see Green-Thapedi v. Commissioner, 126 T.C. 1 (2006), then we most certainly have no such refund authority in a case such as this where we are without jurisdiction. Our lack of jurisdiction also renders moot petitioner’s request for injunctive relief. Our authority to enjoin the collection of a federal tax in a Section 6330(d) case arises only if the Court properly has jurisdiction in that case.” Order, at p. 8.

But Charlie, don’t lose hope. There might be another way.

“Lastly, we think it also appropriate to note that nothing in this bench opinion, or the order to be entered as a result, should be taken as a comment on whether petitioner is entitled to the relief he seeks here in proceedings, administrative or otherwise, available to him under other provisions of the Internal Revenue Code.” Order, at p. 9.

Go for it, Charlie.