The title of this blogpost may be intelligible only to persons of a certain age, and then only to such as served in the United States military when much younger. It’s a corruption of the German “es machts nichts”, meaning “it makes no difference.”

That ultimately is the outcome of John C. Bedrosian and Judith D. Bedrosian, 144 T.C 10, filed 3/17/15, Judge Buch bringing to an end this long-running son-of-Son-of-Boss.

To mimic Charles Dickens, the deal was dead, to begin with. There was an examination, FPAA, and no petition from John or Judy. The deal was a sham, and that’s incontrovertible. So whatever partnership-level adjustments were made, and whatever non-factual partner-level incidents flow therefrom (mostly the math, where AGI changes as a result of the flowthroughs, like reducing deductions or making Social Security taxable) are set in stone, and no petition can succeed.

But John and Judy have one last round in the magazine. They took a deduction for “TAX ATTORNEY FEES” of $525,000.00. Their capitalization.

I don’t know about y’all, but I’d charge a lot less than whoever John and Judy paid to put them into this phony. I might even charge only a grand to say “don’t do it, kids, it’s too good to be true.”

Howbeit, John and Judy want reconsideration of the decision that tossed all their claimed losses but retained jurisdiction over the tax attorney fees issue.

Seeking reconsideration, “…the Bedrosians represent that respondent [IRS] has no objection to the granting of the motion [for leave to move for reconsideration untimely; in Tax Court, as in certain children’s games, you ask “may I” before doing anything]. With their motion for leave, the Bedrosians lodged their prospective motion for reconsideration wherein they ask that we reconsider T.C. Memo. 2007-375. And as with the motion for leave, the Bedrosians represent that respondent has no objection to the granting of the motion to reconsider. This is unsurprising, in that the position taken by the Bedrosians in their motion for reconsideration is the position taken by respondent in his earlier motion to dismiss.” 144 T. C. 10, at p. 5.

“Unlike the items we dismissed, the professional fees that the IRS disallowed did not represent a disallowance of a deduction at the partnership level, ‘nor is the legality of the deduction at the individual level necessarily affected by a determination at the partnership level.’ Bedrosian v. Commissioner, T.C. Memo. 2007-375, slip op. at 8 (citing Goldberg v. Commissioner, T.C. Memo. 2007-81).” 144 T. C. 10, at p. 6.

IRS disallowed the tax attorney fees deduction because they weren’t paid for any business purpose or for the production of income.

However, John and Judy are a wee bit late. Motions for reconsideration (Rule 161) are to be made within thirty days of the opinion, order or decision to be reconsidered. It’s only been eight years.

Judge Buch is generous; it must be the Saint Patrick’s Day Spirit. See my blogpost of even date herewith “Another Judge with a Heart”.

But in order to see whether there’s any point in granting leave and considering the motion if leave is granted, Tax Court can consider if movant (John and Judy) have a better chance than the snowball in cliché. No point in reconsidering a dead loser, but we have to see if the issue is a dead loser.

Even though the opinion is really interlocutory (doesn’t determine the ultimate outcome of the case), nothing in Rule 161 prevents reconsideration in the Court’s discretion. But as we all know, reconsideration is not a rehash of losing arguments or a chance to put in evidence you had all along. You need unusual circumstances or newly-discovered evidence or fraud.

John and Judy claim the law has changed since 2007, and Ninth Circuit agrees that a seismic shift in the law is good cause for reconsideration.

John and Judy claim a 2010 case refines what is a “factually-affected” item and what is merely computational (no SNOD and no petition) when it comes to deductible legal fees.

You’re right, says Judge Buch, but you stop too soon.

“…if the fees were related to a partnership that was determined in the TEFRA proceeding to be a sham, then the payment of the fees would have lacked the ‘business-related, profit, or income motive that served as a precondition to deducting the fees under section 162, 183, or 212, respectively, the only statutory provisions that would have permitted such a deduction…. In sum, if the fees relate to a partnership that is determined to be a sham, then the disallowance of a deduction for the fees is an affected item.” 2015 T. C. 10, at pp. 14-15. (Citation omitted).

The magic word, of course, is “if”. Were the fees in fact related to the sham?

IRS, and John and Judy, agree that the fees are an affected item. But are they factual or computational? If the latter, no jurisdiction, so go home; if the former, Judge Buch and his colleagues can deal with them.

“The deductibility of the professional fees is a factual affected item. The professional fees deducted by the Bedrosians were reported on their Schedule A as simply “TAX ATTORNEY FEES”; they were not reported as flowing from a TEFRA entity. A partner-level factual determination must be made as to whether those fees relate to the Bedrosians’ participation in the partnership that has been determined to be a sham. The answer to this question may be known to the parties; it may be a fact to which the parties are willing to stipulate. But a factual determination at the partner level over which there is no dispute nonetheless remains a factual determination at the partner level. Accordingly, the deductibility of the professional fees is a factual affected item subject to deficiency procedures and over which we have jurisdiction.” 144 T. C. 10, at p. 15.

So are John and Judy off the hook?

Alas, no.

“The Bedrosians ask us to grant leave for them to file an untimely motion for reconsideration. That motion for reconsideration would have us reconsider our opinion in which we held that we have jurisdiction over the deductibility of professional fees that the Bedrosians reported as deductions on their personal income tax return. Because the deductibility of those fees is a factual affected item, we have jurisdiction to determine the deductibility of those fees in this proceeding. In doing so, we are bound by prior partnership-level determinations, such as the determination that the partnership is a sham. Because the motion for reconsideration would not yield a different result, we will deny the motion for leave.” 144 T. C. 10, at p. 16.

Tax Court has jurisdiction, so John and Judy can try the case. And most likely lose.

PS- Judge Buch, filling in the blank at p. 2 of 144 T. C. 10, the most recent Bedrosian opinion is 143 T. C. 4, filed 8/13/14; see my blogpost “The Constable Blundered”, 8/13/14.

Today I’m glad to state that STJ Armen isn’t the only Judge With a Heart at the Glasshouse at 400 Second Street, NW.

In witness whereof, check out the story of Randy Jenkins, Docket No. 27139-11, filed 3/17/15.

I don’t know if it’s the Saint Patrick’s Day spirit, but His Honor Judge Mark V. Holmes, a/k/a The Judge Who Writes Like a Human Being, s/a/k/a The Implacable, Illustrious, Indefatigable, Irrefragible, Industrious, Incontestable (but never Incomprehensible or Inconsiderate) Foe of the Partitive Genitive, is in a generous mood.

Remember Randy? No? Well, scope out my blogpost “Psst – Y’Wanna Buy A Transcript Cheap?”, 1/14/15.

There now, y’all should be up to speed.

Randy was in the slammer, but nevertheless was “legally trained” (Order, at p. 1). His first shot at getting all nine volumes of his trial transcript was denied back in January because he hadn’t told a sufficient tale of woe and penury.

Randy tries again, and catches Judge Holmes in a melting moment: “He lacks the financial means to pay for a trial transcript and his motion is persuasive that he needs the transcript to prepare posttrial briefs. The Court concludes that under the circumstances present in this case it is appropriate to direct the payment by the Court of expenses for a transcript to be provided to petitioners.” Order, at p. 1.

So Randy and IRS can hammer out a new briefing schedule once Randy has read all nine volumes.

Might be a great name for a pub, if I ever open one (not likely).

But today’s T. C. Memos yield a good examplar of the jolly rounder: Michael Balice, 2015 T. C. Memo. 46, filed 3/16/15. Judge Lauber gets this one.

When Mike petitioned Tax Court, he resided at a Federal correction facility at Fort Dix, NJ. My patient readers will recall that I paid Fort Dix, NJ, a short visit in 1969, but it wasn’t to any correctional facility thereat; I emerged unscathed, with a DD214 in my hot little hand (and if you don’t know what a DD214 is, consider yourself lucky).

Back to business. Setting the stage, “Petitioner marketed … products that purported to enable individuals to avoid taxation of their income by use of sham ‘trusts.’ Practicing what he preached, petitioner employed these trusts himself. He reported no income from sale of his tax evasion products to others, and he did not file a Federal income tax return for either year. He was convicted of tax crimes and is currently incarcerated.” 2015 T. C. Memo. 46, at p. 2.

Is Mike dissuaded? No!

“The IRS reconstructed petitioner’s income on the basis of his bank deposits, pepared [sic] for each year a substitute for return (SFR) that met the requirements of Section 6020(b), and sent petitioner a notice of deficiency determining the deficiencies and additions to tax…. Respondent has moved for summary judgment under Rule 121, contending that there are no disputed issues of fact and that he is entitled to judgment as a matter of law. Petitioner has responded to this motion by contending (among other things) that he is not subject to IRS deficiency procedures and that wages are not ‘income’ because they result from the exercise of his ‘irrefutable right to work.’” 2015 T. C. Memo. 46, at pp. 2-3.

Mike is a true disciple of Richard Lovelace (1617-1657). “Stone walls do not a prison make, nor iron bars a cage”, especially when one can emit therefrom argy-bargy in the form of “…a 129-page ‘Memorandum at Law on Federal Income Taxation and the Personal Federal Income Tax.’ This document contains the usual gibberish embraced by tax protesters.” 2015 T. C. Memo. 46, at p. 7.

Surprise, surprise, summary J for IRS.

Of course Mike has been on the Tax Court pitch before. Back in 2005, he starred in 2005 T. C. Memo. 161, and got shown the Section 6673 yellow card.

This time, post-warning. post-conviction and post-further-protester-blather and discovery shenanigans, Judge Lauber has had it with Mike: He gives Mike a 25K Section 6673 frivolity chop.

Wanna bet Mike moves for reconsideration?

It’s a dull day in the Glasshouse (for you who haven’t crossed the sacred portals, the Glasshouse is 400 Second Street, NW, in Our Nation’s Capital); five (count ‘em, five) T. C. Memos today, but only one of interest, and him I’ll blog separately.

But Ch J Michael B. (“Iron Mike”) Thornton is again emulating Goeff Chaucer’s Clerke of Oxenford in M. W. Miozzi Homes, Inc., Docket No. 1136-15, filed 3/16/15.

Take it away, Geoffrey:

“Not one word spake he more than was need;
And that was said in form and reverence,
And short and quick, and full of high sentence.
Sounding in moral virtue was his speech,
And gladly would he learn, and gladly teach.”

And IRS’s counsel is on the receiving end of Ch. J Iron Mike’s gladly teaching.

IRS says the petition was signed by Michael Miozzi, who identifies himself as president of M. W. Homes, Inc. M. W. Miozzi Homes, Inc., was inc’ed in Ohio. Ohio law says a corporation must appear by a licensed attorney-at-law. But Mike isn’t an attorney. And Tax Court Rule 60(c) says the authority of a fiduciary or other litigant other than the party must be determined by State law.

So IRS wants the petition tossed because not properly signed.

Ch J Iron Mike to IRS: take up your little wordprocessor and answer the following midterm examination.

“In pertinent part, Tax Court Rule 24(b) provides that a corporation may be represented by an authorized officer of the corporation. See Asbury v. Commissioner, T.C. Memo. 2007-53, at *6 (noting that Rule 24(b) allows an authorized officer of a corporation to represent the corporation in this Court ‘without counsel’).” Order, at p. 1.

Here’s the exam question: “…on or before April 6, 2015, respondent shall… set forth and discuss fully his position as to whether Tax Court Rule 24(b) allows Michael Miozzi to represent M.W. Miozzi Homes, Inc., in this case.” Order, at pp. 1-2.

The IRS has a pilot program to test out letting whistleblowers know that their claims are still under consideration. The pilot letters are only going to whistleblowers whose claims are more than three years old, because any claim that has been paid in fewer than three years is “extremely rare”.

And, in the immortal words of the late Brendan Behan, “You can say that again, and a third time in Latin.”

So the first of the pilots should be landing any time now. And IRS is going to see if the cost of the letters is worth it.

Now, lest whistleblowers become too elated, the letters will only state the claim is open: no other or further information can or will be given, so don’t call the Ogden Sunseteers, because their lips are sealed.

Here’s a link to the story. http://www.irs.gov/uac/Whistleblower-Claim-Status-Letters.

That’s Judge David Gustafson’s suggestion to James F. Carroll, Docket No. 8484-13, filed 3/13/15, a designated hitter that I classify as a home run. I’ve said many times that Judge Gustafson is obliging. With this piece of advice I proclaim him “My Kind of Judge,” hereafter MKOJ.

James F. has been litigating for two years, and is still filing omnibus motions, playing around with discovery, claiming he’s sick without producing a doctor’s note, and getting extensions. Judge Gustafson has been patient, but James F. is getting one last extension to reply to IRS’s motions, and a reminder that hiring counsel to try his case after James F. has done all the discovery will doubtless lead to counsel wanting more discovery, but that won’t extend the trial date. See Rule 133.

Still, James F. gives Judge Gustafson a chance to warm my old, cold heart.

“Moreover, Mr. Carroll initially had counsel in this case; but… we granted that lawyer’s motion to withdraw on the grounds that Mr. Carroll had not responded to multiple telephone calls, emails, and letters sent by certified mail, and had not paid his bill. We learned in a telephone conference… that his alleged non-payment has impeded Mr. Carroll’s obtaining files from that prior counsel. If Mr. Carroll has funds that he would use to hire a new lawyer, we suggest he might first pay his previous lawyer. In any event, we regard the prospect of Mr. Carroll’s obtaining counsel to be problematic and unlikely, and we will not delay the scheduling of this case on the basis of a supposed future appearance of unnamed counsel. If Mr. Carroll does hire counsel, that lawyer should immediately file his appearance in this case.” Order, at pp. 3-4.

No, I’m not James F.’s former counsel. But I feel for him or her. And I’m sure Judge Gustafson does, too.

I am well aware that we all make mistakes, some really critical. A staple of every CLE ethics and avoiding professional liability course is the calendar warning–diary every critical date in two (or more) places.

The attorney in STJ Armen’s designated hitter Peter J. Leon a.k.a. Pierre Leon, Docket No. 2789-14S, filed 3/12/15, misdiaried the trial date.

Bad, but he has other problems.

Pete filed his own petition, never stated anything about having an attorney, and then did nothing: never sent in a change of address, never Branertoned, stipulated, filed a pretrial brief or showed up at the calendar call, even though given the usual bold-faced warning that failure to show means you lose and IRS wins, and a voicemail from IRS warning that IRS would be seeking to toss Pete for non-prosecution.

At no time did any attorney, Tax Court admittee or not, file an Entry of Appearance.

IRS moved for dismissal for want of prosecution, and got it.

Comes now Mr L (I will not name the attorney, as is my practice) and moves to reconsider. Mr L says he misdiaried the case for February 5, not February 2, and never got notice from IRS that the trial was February 2.

STJ Armen is usually The Judge With A Heart. Not today.

“Mr. L’s complaint that he did not receive ‘any reminder notice’ is unavailing . Respondent is under no obligation to remind an attorney to show up for trial. Further, Mr. L did not subscribe the petition, nor did he ever file an entry of appearance; accordingly, he was not served by the Court nor was respondent obliged under the Court’s Rules to serve him. Because Mr. L is not counsel of record in this case, the Court will strike his motion.

“But even if Mr. L’s motion were not stricken, the Court would deny it. Although it may be unfortunate if Mr. L ’inadvertently diaried the matter for February 5, 2015’ rather than February 2, 2015, the fact of the matter is that it was petitioner, and not Mr. L, who was required to appear in court on February 2, 2015. And petitioner was repeatedly advised by the Court, as well as by respondent, that the trial session was scheduled to begin on February 2, 2015, and that his case might be dismissed if he failed to appear at that time. Petitioner failed to act in a responsible manner, and he must now accept the consequences.” Order, at p.4.

No reconsideration, Pete. Further comment is superfluous.

Balsam Mountain Investments, LLC , Balsam Mountain Management Company, LLC, F.K.A. Balsam Mountain Company, LLC, Tax Matters Partner, finds itself Belked of its scenic easement writeoff in 2015 T. C. Memo. 43, filed 3/12/15.

Again we find a mix-and-match of the beauteous North Carolina landscape, but only a mere 5% of the 22 acres thereof can be mixmastered, and the total acreage must remain at 22 contiguous acres.

No good, says Judge Morrison. The magic Section 170(h)(2)(c) language requires the servient tenement (no, that’s the property encumbered by an easement, not a crash pad for extras from “Fifty Shares of Grey”) be “an identifiable, specific piece of real property.” And it must be so and remain so. Any change, large or small, defeats the explicit words of Section 170 and the Belk case.

And no, says Judge Morrison, we aren’t overruling Belk any time soon.

Remember the trials and tribulations of the famiglia Belk? No? See my blogpost “A Thing Of Beauty – Accept No Substitutes”, 1/28/13, and the Belks’ second swing at the baseball, “If At First You Don’t Succeed”, 6/20/13.

No, it’s nothing about tin whistles or foghorns; for that, see Lonnie Donegan’s 1959 cover of the 1924 Billy Rose, Ernest Breuer, and Marty Bloom chewing gum canzone.

Rather, this is a reprise of Ralim S. El, formerly just a request for enlightenment from Judge Marvel in an old order, more particularly bounded and described in my blogpost “Mein! Was Ist Das?”, 5/16/14.

Judge Marvel wanted to know upon whom descends the burden of proof for the Section 72(t) 10% chop for premature IRA withdrawals. She asked Ralim and IRS to enlighten her, because Section 7491(c) places the burden on IRS for “penalties, additions to tax, and additional amounts”, but on petitioners for “taxes”.

Now Section 72(t) calls the chop an “additional tax”, but does that make it a tax? And please don’t ask Chief Justice Roberts.

Well, it took almost a year, but we have an answer to this “hotly burning question”. And it’s inscribed in a full-dress T. C., 144 T. C. 9, filed 3/12/15.

Ralim is arguing that, since withholding was taken from his wages at the Manhattan Psychiatric Center (not to be confused with a structure at 60 Centre Street, despite certain resemblances), he needn’t file a return. Well, he loses, but since IRS can’t find an SFR, Ralim doesn’t get the failure to pay chop.

But his premature withdrawal (still no evidence of Ralim’s age in the year at issue) is subject to tax and additional tax.

Enlightened Judge Marvel: “Section 7491(c) provides as follows: ‘Penalties.–Notwithstanding any other provision of this title, the Secretary shall have the burden of production in any court proceeding with respect to the liability of any individual for any penalty, addition to tax, or additional amount imposed by this title.’ The terms ‘penalty, addition to tax, or additional amount’ mirror, in part, the title of chapter 68 of the Code: ‘Additions to the Tax, Additional Amounts, and Assessable Penalties’. What these terms have in common is that they refer to amounts that are assessed and collected as taxes but are not themselves taxes or surtaxes.” 144 T. C. 9, at pp. 12-13 (Citations and footnotes omitted).

And the Section 72(t) chop is called a tax elsewhere in the IRC: see Sections 26(b)(2), 401(k)(8)(D), (m)(7)(A), 414(w)(1)(B), and 877A(g)(6).

Finally, “…section 72(t) is in subtitle A, chapter 1 of the Code. Subtitle A bears the descriptive title “Income Taxes”, and chapter 1 bears the descriptive title ‘Normal Taxes and Surtaxes’. Chapter 1 provides for several income taxes, and additional income taxes are provided for elsewhere in subtitle A. By contrast, most penalties and additions to tax are in subtitle F, chapter 68 of the Code. In Ross v. Commissioner, T.C. Memo. 1995-599, 70 T.C.M. (CCH) 1596, 1600-1601 (1999), we relied on some of the same reasons in holding that the additional tax under section 72(t) is a tax and not a penalty for purposes of section 6013(d)(3) (relating to joint and several liability).” 144 T. C. 9, at p. 14. (Footnote omitted).

And that’s what Congress wanted. “The legislative history indicates that sec. 72(t) was enacted to ‘impose an additional income tax on early withdrawals’ to discourage early withdrawals from retirement accounts for nonretirement purposes and, in the event of such early withdrawals, to recapture a measure of the tax benefits provided. H.R. Rept. No. 99-426, at 729 (1985), 1986-3 C.B. (Vol. 2) 1, 729; S. Rept. No. 99-313, at 613 (1986), 1986-3 C.B. (Vol. 3) 1, 613; see Pulliam v. Commissioner, T.C. Memo. 1996-354.” 144 T. C. 9, at p. 14, footnote 13.

Self-represented Ralim didn’t put in any evidence that he wasn’t liable for the chop, so he gets it, with a Section 6673 frivolity warning thrown in at no extra charge.

Thanks, IRS and Judge Marvel. Now, if tin whistles are made out of tin, what do they make foghorns out of?

A smattering of knowledge doesn’t help in Tax Court.

We all know that every partnership (and pass-through taxed as a partnership) needs a designated tax matters partner. The tax matters partner is the boss of everything tax-oid, and no lesser mortal can do anything unless the tax matterer doesn’t do its job, dies, resigns or is in the slammer.

Judge Foley has a pair of claimjumpers throwing in petitions from FPAAs, Seaview Trading, LLC, Knights, LLC, Tax Matters Partner, Docket No. 1743-11, filed 3/11/15, and Seaview Trading, LLC, Robert A. Kotick, Tax Matters Partner, Docket No. 1744-11, filed 3/11/15.

Neither one is the tax matterer, and the real tax matterer already petitioned.

“Seaview, a Delaware limited liability company (LLC), was formed in November 2001. During the year in issue, the members of Seaview were AGK and KMC, both Delaware LLCs. AGK held a 99.15% membership interest in Seaview and KMC held a 0.85% membership interest. AGK was wholly owned by Robert Kotick and KMC was wholly owned by Charles Kotick.” Order in 1744-11, at p. 1.

Looks like a family affair.

And the family are in deep; Docket 1743-11 speaks of $390K of ordinary loss disallowed. Docket 1744-11 speaks of a $35 million loss disallowance.

Everybody petitions. Hey, if it were my money, I’d petition.

Except nonmatterers can’t, at least not until 90 days have gone by from the FPAA.

Knights and Rob filed before 90 days had expired.

Rob and Chick both claim their LLCs were single-member disregardeds, so that they are in fact the tax partners of Seaview. Besides, Seaview is a small partnership not subject to TEFRA.

No, says Judge Foley, disregarded they may be vis-á-vis Rob and Chick, but as to TEFRA all LLCs, regardless of number of members, are pass-throughs and throw any partnership-taxed entity in which they are members into TEFRA.

And despite the backing-and-forthing of Seaview’s correspondence with IRS, and Seaview never having formally designated a tax matterer, TEFRA’s default rules (Section 6231(a)(7)) make the general manager with the largest profits interest the tax matterer malgré lui. That means the member-manager of the LLC (Seaview) who has the biggest share, and that’s AGK, LLC, with a 99.15% share.

AGK was first to petition, so despite AGK’s status as a single-member LLC, Rob gets tossed and so does Chick. A disregarded LLC is a regarded tax matterer. Hopefully, though, not a tax smatterer.