I can hear the voice of the late great James Doohan calling out those fateful words in my memory, as Engineer Commander Montgomery Scott faces yet another crisis in the warp drive and thrusters of the Starship Enterprise (which will always be in my heart and Still On Patrol).

But today those words come from The Glasshouse at 400 Second Street, NW.

“The Court’s Web site is down due to a power issue affecting its main server room. A follow-up message will be posted once access has been restored.

“No documents may be eFiled until access has been restored. Petitions and Notices of Appeal must be filed in paper form; therefore, the outage does not affect filing of Petitions and Notices of Appeal.

No opinions will be released on May 12, 2015.”

Red alert! Red alert!

No, this is not a political discourse about proposed immigration legislation. I restrict myself to tax law, and here’s a good one, the story of a hotshot international M&A tax accountant partner in a Big Four firm (in which no relative of mine is employed, by the way) whose non-resident alien wife cannot afford him the tax goal he seeks.

Here now is the tale of Ian D. Hughes and Vanessa S. Hughes, as recounted by Judge Wherry, in 2015 T. C. Memo. 89, filed 5/11/15, the Day of the Palindrome.

Ian’s high-priced firm doubled-down on its consulting arm, spun it off and handed Ian some lovely shares in the spun-off for nothing. Ian, resident in the UK and recently divorced at substantial cost from Alleged Golddigger Brenda (AGB), was afeared that AGB would try to seize the shares, as they were earned while they were married but issued after.

Having some lunchtime gabfests with local UK tax folk, and talking to his UK lawyer (none of whom knew much about US tax or the treaty that separates these two countries with a common language), Ian deeds the shares to current wife Vanessa, abovementioned, she being a UK national and resident, and therefore NRA (non-resident alien).

Ian (or Vanessa) unloads the stock for big numbers, but reports nothing, neither gift, nor income.

Ian and Vanessa bounce from country to country in pursuit of the ultimate tax dodges for multinational corporations; Ian knows little of individual income or gift tax.

Finally returning to the Land of the Free, Vanessa achieves US residency.

Ian gets involved in one of the 2004 blown-up tax dodges. So he files a 1040 and a 709 three years late.

But when IRS issues a notice blowing up the dodge, he files a 1040-X, claiming the gift of the shares to Vanessa was taxable per Section 1041(a), as she was then a NRA and gifts to NRAs are taxable as transfers at FMV. So he owes tax on the sale, but Vanessa has basis in the shares.

The only issue is the 40% chop for substantial overvaluation. IRS claims basis zero, Ian claims then-FMV of shares.

IRS wins.

1041(d) says no recognition of gain or loss on interspousals, or upon divorce, unless another provision requires recognition. It has nothing to do with realization. You can have (realize) income; but must you recognize it?

And though other Code provisions keep transferors from sending assets overseas to escape US taxation, Section 1041(d) can’t be stretched that far.

The one case that talks about it involves a property transfer in settlement of an ongoing property obligation. Transferor husband got something of value from transferee wife: relinquishment of inchoate rights in husband’s property that were not liens but personal obligations. He bought his property out of her clutches.

Ian bought nothing from Vanessa, and Vanessa gave Ian nothing. True, Vanessa’s wealth increased, but Section 102 says a gift, though income, isn’t taxable.

Note Judge Wherry doesn’t talk about gift tax on the gift to Vanessa. IRS isn’t pressing it, and Ian is laying low.

But if Ian had paid gift tax, might the result have been different? Doesn’t the donee get basis based on gift tax donor paid?

Now Ian’s good faith arguments fall flat. He never asked the experts in his firm for a formal review, with all cards on the table. He checked the Master Tax Guide, and had some more gabfests and hallway consultations. But he relied on the wrong tax treaty (it took effect after his transaction), and in any event missed the standard we-tax-our-citizens-how-we-want clause.

Not so great.

40% chop.

Harold C. Johnston, Jr. and Lana S. Johnston don’t have COD on an old debt, even though they started paying after the audit began. So holds Judge Vasquez in 2015 T. C. Memo. 91, filed 5/11/15. And Happy Palindrome Day to all.

Hal got a loan from his boss and fellow kama‘āina Al Hee, to the tune of $450K, which Hal plowed into his telecom corp, while going to work in Al’s telecom corp. But if Hal wandered from Al’s fold, or was expelled therefrom, the loan would be due. The loan was made to Hal, not his telecom.

Though Hal bailed with Al’s consent, neither Al nor his telecom pressed Hal for the cash.

Hal’s telecom ultimately cratered, leaving Hal insolvent, so he re-entered Al’s telecom fold.

IRS audits Hal for another loan he never repaid, and Hal agreed he owed some tax for that loan’s cancellation.

Years later, back in Al’s fold, Al told Hal he was still on the hook for the remainder of the $450K, so Hal agreed to various payroll deductions to pay back Al’s telecom.

IRS then claimed Hal had COD in the audited year. Hal petitions.

IRS claims cancellation took place when Al and his telecom never pursued Hal for the money.

Hal says no, he’s still paying Al.

Formalities do not determine cancellation, facts and circumstances do. The issue is when is it clear the debt will not be repaid.

Hal and Al both testify, believably says Judge Vasquez. Al told Hal he wanted his telecom to be paid, and Hal agreed and did take payroll deductions to pay it. Moreover, it would be to Al’s advantage to treat the loan as a business bad debt and take the write-off.

IRS says the SOL has run, therefore the debt is discharged. No, says Judge Vasquez, all that means is that there is no remedy at law, assuming the debtor raises SOL as the affirmative defense which it is. If not pled and proven, no SOL.

IRS claims the payroll deal is a dodge, to enable Hal to avoid tax.

Judge Vasquez: “…a reasonable person in this case would not agree to pay an unenforceable debt to save a fraction of that debt on taxes. Repayment, in other words, is against Mr. Johnston’s economic interests. Furthermore, the testimony also suggests that respondent’s [IRS’s] examination merely prompted [Al’s telecom] and Mr. Johnston to address an overlooked matter. Mr. Johnston testified that he believed either that the… loan had been wiped out in [Hal’s telecom’s] bankruptcy or that repayment had been extended. However… after Respondent’s agent notified Mr. Johnston of the examination, Mr. Johnston met with [Al] and they agreed that the terms of the … loan were still in effect.” 2015 T. C. Memo. 91, at p. 11.

And any tax from the cancellation of that other loan, that Hal conceded in the earlier audit, is off the table, because Hal was insolvent that year, and no evidence was introduced to show the amount forgiven exceeded the amount by which Hal was under water.

So Hal gets no COD and no 20% chop.

Now I do have a comment (and I can hear my readers saying “must you? It’s such a pretty story”).

Hal is taking a $1K per month hit on his paycheck. Now I don’t know, and Judge Vasquez hasn’t told us, the outstanding loan balance, nor what concessions the parties made pre-trial. All we know is that the deficiency is $251,320 and the 20% chop is $50,264, 2015 T. C. Memo. 91, at pp. 1-2.

Now Hal had some argy-bargy about whether the $450K loan became worthless when his telecom cratered, but his evidence had to do with a year not under examination and involved a refund for that year. Thus, Tax Court has no jurisdiction. See Section 6214(b).

So I can’t tell what that bad debt number has to do with the $251K deficiency.

Howbeit, if Hal is paying back a couple hundred grand (hi, Judge Holmes) at the rate of a grand a month, by the grace of his good friend and fellow kama‘āina Al, which repayment could extend over decades, thereby saving himself a $301K immediate hit, and giving friend Al no negative tax hit (repayment of a loan isn’t income), that’s pretty good.

If I were IRS, I’d appeal.

Not quite like Leporello’s tally of Don Giovanni’s efforts in Espana, as more particularly bounded and described by Columbia Professor Lorenzo da Ponte, but for me, a more thrilling triumph.

In three and a half years of this blog’s short but merry life, today marks the fifty-thousand-third view on this blog. From viewers in more than 130 countries, states, provinces, trust territories, semi-autonomous regions. And I’ve picked up 142 followers on the way.

I’ve said before that the blogs of the prominent and famous get that many views in ten seconds every day, and have enough followers to form their own G20 country.

This blog, however, authored by an obscure lawyer, discusses hypertechnical issues in obscure corners of American tax law. Hardly compelling subject matter.

So I may be pardoned a wee gloat.

Now roll on 100,000!

It’s a new ballgame at 400 Second Street, NW, Glasshouse today. Or rather, on their website.

The Glasshouse Gang has gotten wider. No, Judge Holmes, they’re not stopping serving a slice pizza or a piece pie in the Judges’ cafeteria.

They’ve got more bandwidth. Since 2008, when the old “three strikes and yer out” rule went into effect, the Tax Court site has resolved that “wider still and wider, shall thy bounds be set,” as Artie Benson put it to Sir Eddie Elgar’s graduation march. At least on the internet, for e-files.

Clear? Thought not.

The old rule was that the electronically-enabled might view any given document in a Tax Court e-file not more than three (count ‘em, three) times, thereby preserving the then-limited bandwidth. Thus, parties and their attorneys or USTCPs might view any given document only three times, after which they would be locked out.

Effective today, the 70th anniversary of the Allied victory in Europe, viewings are unlimited, and they’re all free, as long as not sealed.

“There is no change in the types of documents which can be viewed electronically. For example, as before, parties may not view sealed documents electronically. Also as before, nonparties may continue to view orders, opinions, and decisions an unlimited number of times through the Docket Inquiry, Orders Search, or Opinions Search portions of the Court’s site.”

And those formerly locked out can return, and gaze once again upon that which was forbidden.

John (“Kosy”) Koskinen, the capo di tutti capi at 1111 Constitution Ave, NW, has once again released an oracular communication to a breathless audience of tax practitioners.

And this humble blogger is grateful, because Tax Court is positively somnolent today; not one decent bloggable order.

Howbeit, here’s the skinny. Y’all will recall that back in August, 2011, IRS issued the list of Private Delivery Services (PDS) that provide prima facie proof of mailing to Tax Court and IRS, to satisfy the Section 7502(f) “mailed is filed” rule. I, even I, noted this in my blogpost “Mail Call,” 9/16/11.

But though FedEx and UPS provide services that satisfy, as someone much more exalted remarked, “not all of you are clean.”

And there are a number of cases where the wrong checkmark on the FedEx or UPS label doomed the petition, irrespective of its merits.

Well, Kosy has added a few of the laundry list of services FedEx and UPS provide to his Hit Parade. Read all about it in IRS Notice 2015-38, 5/8/15.

Here’s the revised standard version of the “blest communion, fellowship divine”:

Effective May 6, 2015, the list of designated PDSs is as follows:

FedEx:

1. FedEx First Overnight

2. FedEx Priority Overnight

3. FedEx Standard Overnight

4. FedEx 2 Day

5. FedEx International Next Flight Out

6. FedEx International Priority

7. FedEx International First

8. FedEx International Economy

UPS:

1. UPS Next Day Air Early AM

2. UPS Next Day Air

3. UPS Next Day Air Saver

4. UPS 2nd Day Air

5. UPS 2nd Day Air A.M.

6. UPS Worldwide Express Plus

7. UPS Worldwide Express.

So, “if it’s not in here, it’s not out there.” No other FedEx or UPS service will suffice.

Takeaway- Practitioner, print the list from the IRS website, paste the list over every desk in your office, with a warning that use of any other PDS service is punishable by death, or such lesser penalty as the courtmartial may direct.

STJ Lewis (Oh, the grandeur of that name!) Carluzzo echoes the words of The Man From Bombay from the latter’s Boer War epic, as he regretfully dispatches Lowell William Fryman, Jr. & Elizabeth A. Fryman, Docket No. 15085-10S, an off-the-bencher filed 5/5/15, an unhappy Cinco de Mayo for Low Will and Elizabeth.

Low Will and Elizabeth, relying on legal advice, didn’t bother to put in evidence concerning the SNOD that got them before STJ Lewis. That’s because they expect their bankruptcy discharge makes whatever debt they owe IRS go away.

IRS says no, but that’s not the point.

“We find that petitioners maintained their bankruptcy argument in good faith, but they are mistaken with respect to their expectation that this Court in this proceeding would decide whether any tax liabilities assessed as a result of the decision to be entered in this case are subject to the relevant bankruptcy discharge order. See Neilson v. Commissioner, 94 T.C. 1 (1990). Our role in this proceeding is to redetermine the deficiencies determined in the notice. See Section 6213(a). We cannot in this case consider what effect, if any, the relevant bankruptcy discharge order has on those deficiencies or subsequent tax liabilities.” Order, at pp. 5-6.

Maybe a CDP might yield a different result (doubt as to collectibility?), assuming IRS’s doubts as to discharge can be dispelled. But that’s not the case here.

Low Will and Elizabeth have the burden of proof in a redetermination of deficiency case. They need evidence, whether or not they got “a discharge in this war.”

“That did not happen in this case. Instead, confident that their … federal income tax liabilities were, or would be discharged as a result of the bankruptcy proceeding, petitioners ‘put all of their eggs in one basket’, so to speak.” Order, at p. 7.

Even though Low Will and Elizabeth acted in good faith, that avails them not.

Deficiencies sustained.

Takeaway– Practitioners, beware. There is no discharge in this war. Tax Court has not the broad jurisdiction of Article III Courts.

Judge Nega has a quick refresher today on what is an equipment purchase (payments not deductible but capitalized) and what is an equipment lease (rent deductible if qualified under Section 162).

Here the equipment is a high-tech (but short-lived) CT scanner, acquired by Dr. Anil V. Shah and passed around to various entities under his control. Judge Nega sorts out the purchase-vs-lease issue (among others, principally the active-passive Section 469 miasma, with a constructive dividend thrown in), in Coastal Heart Medical Group, Inc., et al., 2015 T. C. Memo. 84, filed 5/4/15.

The CT scanner came from Siemens and had a five-year useful life (technology advancing at warp speed rendering old devices obsolete). The lease had a coequal term, and provided for purchase by the “lessee” at a price below FMV. One of Doc Shah’s entities deducted rent for the CT scanner, and the other deducted depreciation. And of course both flowed through to Doc Shah.

I give Doc Shah a Taishoff “good try.”

Judge Nega, on the other hand, gives Doc Shah a heart-stopping result (sorry, guys).

“Although there are no specific provisions in the U.S. tax laws governing the differentiation of true leases and conditional purchases, the substance of the transactions, not the form, will govern the nature of the lease. With respect to the transfer of equipment, courts have stated that factors indicating that a conditional purchase more likely exists include: (1) the lease term extends throughout the equipment’s entire useful life; (2) the sum of the rental payments approximately equals the cost of the equipment; and (3) the lessee has an option at the end of the agreement to purchase the equipment at a nominal or below-market price.” 2015 T. C. Memo. 84, at p. 14. (Citations omitted).

The Siemens lease is a purchase, guys, and there’s no deduction. 20% five-and-ten chop for Doc Shah.

Doesn’t work in Tax Court, especially if you sent the fax to the IRS and not to the Glasshouse at 400 Second Street, NW. And even if you did send a fax Glasshouse-ward, that’s no good. Only manually-signed “hard copy” need apply.

So Ch J Michael B. (“Iron Mike”) Thornton sends off Veronica Marcardo, Docket No. 26295-14, filed 5/4/15. And Ch J Iron Mike doesn’t even bother with the “pay the tax and sue” language.

Veronica sent a fax from the public library on day 90, and IRS graciously sent her a Letter 4313C, acknowledging receipt thereof.

That doesn’t get it. “She points out that she received a notice (Letter 4313C) … from the Internal Revenue Service thanking her for correspondence…. The Tax Court is separate and independent from the Internal Revenue Service. Thus, the fact that the IRS received correspondence from petitioner… does not establish that petitioner timely mailed her petition to the Tax Court. Also, petitioner’s motion for continuance is in fact a copy of a ‘successful fax transmission’ … purporting to show that 6 pages were sent by fax transmission to 1-877-477-9599…. Consistent with petitioner’s representations, the record reflects that the petition was initially faxed, although the number on the ‘successful fax transmission’ is a fax number for the IRS, not the Tax Court.” Order, at p. 2.

And of course there’s this: “The Court does not accept for filing petitions submitted by fax or other electronic means. Rather, a petition must be filed with the Court in paper form. See Rule 26(b)(1), Tax Court Rules of Practice and Procedure. Moreover, the petition was apparently faxed to the IRS, not the Tax Court.” Order, at p. 2.

It’s a many-times-told tale, and of course it’s usually told too late to those who need it, and uselessly to those who don’t.

As the old “tombstone” ads in the Wall Street Journal used to say, “This announcement appears as a matter of record.”