When a Judge admits that he is not all-wise, all-knowing– moreover, when he does not lustily join in Sir W. S. Gilbert’s immortal words “The Law is the true embodiment. Of everything that’s excellent. It has no kind of fault or flaw, And I, my Lords, embody the Law,”– then he truly gets a tip of my battered old Stetson.

And who else should receives this accolade today, but that distinguished jurist, The Great Dissenter, a/k/a The Judge Who Writes Like a Human Being, s/a/k/a The Implacable, Inveterate, Indefatigable Foe of the Partitive Genitive, The Honorable Mark V. Holmes?

[Unhappily, Aaron Copland is not here to favor us with a Fanfare for the Uncommon Man].

Judge Holmes says he learned something both from IRS and from Brenda Bradsher & Kenneth McCormack, Docket No. 17773-13, filed 10/24/14. And a Taishoff  “good job” to counsel for both parties, Thomas F. Virr, Esq., for Bren & Ken, and Brooke S. Laurie, Esq., for IRS.

Judge Holmes explains his bemusement: “The petition that Ms. Bradsher and Mr. McCormack filed included as an attachment an IRS notice that is on a notice-of-deficiency form but plainly stated that it is a disallowance of a refund claim. This puzzled the Court because it had never before seen such a notice, and thinking this might not be a deficiency case at all it issued an order to the parties to show cause why the case shouldn’t be dismissed for lack of jurisdiction.” Order, at p. 1.

But IRS was right. Here’s the chronology. Bren & Ken file return in Year One and pay tax. Bren & Ken file for refund of tax paid in Year Two. IRS denies refund and assesses deficiency in one single notice in Year Three. Bren & Ken timely petition.

IRS can deal with both in one notice, and its manual says so. See IRM 4.8.9.15.2.

But wait, there’s more. “More importantly, as the parties patiently explained, IRC § 6512 contemplates treating the disallowed claim for a refund as a claim under our overpayment jurisdiction, so there is no problem with our jurisdiction. See IRC § 6512(b)(3)(C)(i). (There is even a somewhat similar case in which we’ve already explained why we have jurisdiction in these circumstance.)” Order, at p. 2. (Citation omitted, but note the case; it may come in handy).

“Having thus learned something new, there is nothing left for this division of the Court but to…” discharge the order to show cause. Order, at p. 2.

That’s what makes this so much fun–there’s always something to learn.

.com

 Those hardy persons still reading this blog may wonder why I devote so many blogposts to mailing misadventures. Exemplia gratia, as my classically-educated colleagues would say, “Bless ‘Em All”, 10/14/14.

Well, this is where a great number of Tax Court petitions run aground, relegating taxpayers with colorable claims from the free kick of USTC to the pay-to-play route at either USDC or USCFC. And it’s a danger point for the in-the-trenches preparer who must rely upon others to lug the magic envelope to the posties or the people in purple-and-black (or brown and brown, or yellow-and-red). Here be dragons, indeed.

Yet another case in point, this one from yesterday, 10/22/14. I must have fallen asleep as I prepared the blogpost yesterday night, because my literary effusion vanished into cyberspace. So here it is again.

The case is Joseph Sanchez, 2014 T. C. Memo. 223, filed 10/22/14, opinion by the Judge With A Heart, STJ Armen. But STJ Armen, bighearted as ever, cannot help Joe, who misplaced his trust upon an unnamed third party, and lost by one day his sixty-buck ticket to justice.

“Affixed to the envelope was a ‘stamp’ printed by a third party from her computer using software from Stamps.com and a certified mail sticker. The ‘stamp’ reflected the ‘stamps.com’ logo, ‘$4.70’ of ‘US Postage First-Class’, a five-digit number that presumably corresponds to the ZIP Code from which the ‘stamp’ was generated, and ‘MAR 03 2014’. The ‘stamp’ also includes a string of alphanumeric characters whose meaning is not disclosed in the record.” 2014 T. C. Memo. 223, at pp. 3-4. (Footnote omitted).

Of course, “MAR 3 2014” is the magic last day of the 90, mailing on which would get Joe out of the starting gate at Tax Court and into the race to fight off the $13K of tax and penalty in the SNOD. See again Section 7502.

Except it doesn’t. Joe’s trust in stamps.com, and worse, in his unnamed third-party helper, avails him not.

Joe’s correspondence doesn’t show up at 400 Second Street, NW for a week. It bears a USPS postmark, clearly legible, as follows: “Salt Lake City UT – TUE 04 MAR 2014 – 841 PM”. Joe is therefore a day late and much more than a dollar short.

Joe used certified mail, and that helps, but the date of mailing must be evidenced by a USPS postmark, and only if same be lacking or illegible may extrinsic evidence be introduced. See Section 301.7502-1(c)(1)(iii)(B)(3), Proced. & Admin. Regs. Where there are dueling postmarks, USPS wins.

Worse, Joe’s factotum sinks Joe’s boat.

“In support of his argument petitioner provided a statement by the third party who prepared the petition for mailing and then delivered it to the post office. In her statement the third party describes how on Monday, March 3, 2014, after being ‘given documents to mail’, she printed postage using Stamps.com software, added extra postage for certified mail, and then took the petition to the U.S. Post Office…for deposit into the mail. The third party candidly states that in order to ‘avoid[] the long lines’ at the post office, she dropped the petition off without having a certified mail receipt stamped by a Postal Service employee and that as a consequence ‘the sender has no documentation showing * * * [the post office] received the certified package’ on March 3, 2014.” 2014 T. C. Memo. 223, at p. 6.

I would point out that, in post offices where there are automated postal machines that dispense postage and receipts maintained by USPS, it might be tempting to rely on the machines. I myself have suggested that; see my blogpost “Going Postal”, 2/4/13. After Joe’s debacle, though, I’m not so sure. After all, the technophobes and Luddites still reign, and the posties may have the magic touch, after all.

And I also point out that maildrops inside post offices aren’t cleared as often as one might wish.

Finally, in my local post office there’s a sign on the maildrop as follows: “Items delivered after 5 p.m. will bear the next day’s postmark.” I wonder if such a sign appeared in Joe’s local post office.

Many years ago, in its pre-USPS incarnation, the post office had a slogan: “Mail early in the day, It’s the better way.”

Just ask Joe.

Not Hardly

Older readers of this chronicle may remember STJ Lewis (“The Right Spelling”) Carluzzo in his role as tax return preparer. For the newer among the faithful, check out my blogpost “Tax Court As Preparer?”, 9/17/12.

Well, STJ Lew bailed on the tax return preparation gig, but Duane Morley Cox & Jeanne Cox, Docket No. 26501-13S, filed 10/22/14, want Ch J Michael B. (“Iron Mike”) Thornton to copy edit their amended petition.

“…petitioners filed a Motion To Change or Correct Caption. In that motion petitioners seek to have the Court ‘correct’ various typographical error [sic] in the exhibits attached to petitioners’ amended petition….” Order, at p. 1.

After all, Ch J Iron Mike tells them “…we issued an order correcting the spelling of Mr. Cox’s middle name from Marley to Morley.” Order, at p. 1.

So maybe Duane Morley and Jeanne were confused, and thought that only Tax Court Judges could proofread papers.

They should read some Tax Court orders for a couple days, as Judge Holmes would say. That would disabuse them of the notion that anyone proofreads these orders.

Howbeit, Ch J Iron Mike isn’t a proofreader.

“Petitioners are advised that if they wish to correct various typographical errors in exhibits attached to their amended petition, petitioners should do so by filing a motion for leave to file an amendment to amended petition and lodging therewith, an appropriate amendment to amended petition containing such corrected exhibits.” Order, at p. 1.

We don’t do tax prep and we don’t do proofreading.

No, Judge Whelan won’t allow that. Take a look at a small-claimer, Nanette J. Martarano and David Martarano, 2014 T. C. Sum. Op. 101, filed 10./21/14.

It’s the usual non-substantiation, but with a double twist.

The only one to show up for trial is Nanette. Nanette is what she calls “a tax professional.” Judge Whelan elucidates: “She has worked for H&R Block for five years, and she is working to become an enrolled agent of the Internal Revenue Service.” 2014 T. C. Sum. Op. 101, at p. 3.

Leaving aside the fact that an “enrolled agent” is anything but an agent of IRS, Nanette is not off to a great start.

First, Nanette claims that IRS’ transcript of her and Dave’s return introduced by IRS is incorrect, and she said so at audit and at the trial, although she stipulated that the transcript was correct pre-trial. She never puts in at trial what she claims is the true return, but puts her numbers in her pre-trial memo.

And she’s been in Tax Court on similar issues before.

Next, “At the start of trial in this case petitioner admitted that, after filing her petition, she did not contact respondent’s attorney and she failed to respond to the numerous attempts of respondent’s attorney to contact her. In addition, petitioner did not respond to respondent’s so-called Branerton letter, in which respondent offered to begin informal discussions and discovery through a pretrial settlement conference.” 2014 T. C. Sum. Op. 101, at p.9. So she also violated the Standing Pre-Trial Order, the “play nice and make nice”.

But Nanette is not done. “It was not until three days before the calendar call that respondent’s attorney received a packet of documents from petitioner. At trial petitioner also sought to introduce other documents not included in the packet and not provided to respondent’s attorney before trial. In an attempt to assure the fairness of these proceedings, the Court did not accept into evidence any document that was not included in the packet of documents provided to respondent’s attorney before trial. Furthermore, the Court did not accept into evidence copies of petitioners’ personal bank statements that had been substantially altered by redaction. Petitioners had not shown the original statements to respondent’s attorney before trial, and she did not have them available for inspection in Court.” 2014 T. C. Sum. Op. 101, at p. 9.

OK, Nanette’s attempted ambush fails, and she gets nailed for the deficiency asserted. So IRS won it all, right?

Not quite. Maybe IRS’ counsel was a trifle peeved at Nanette’s gameplaying, so counsel tries one on Nanette.

IRS moves to conform the pleadings to the proof. This is the Rule 41 “if you agree to try it, it doesn’t matter that you didn’t plead it” provision.

IRS claims that Nanette’s proof bespeaks negligence, and wants a 20% chop.

Judge Whelan isn’t biting.

“Respondent’s motion does not mention the reasonable cause exception for underpayments provided by section 6664(c)(1). Under that exception, the section 6662 penalty is not imposed with respect to any portion of an underpayment if the taxpayer shows that there was reasonable cause for, and that the taxpayer acted in good faith with respect to, that portion.” 2014 T. C. Sum. Op. 101, at p. 16.

Of course, Nanette billed herself as a “tax professional”, so reliance on experts is a very thin twig on which to hang one’s good faith.

Still, Nanette was ambushed. “Respondent’s motion was made at the end of trial. Indeed, respondent’s attorney made the motion immediately before the case was adjourned. We do not quarrel with the timing of respondent’s motion. A motion under Rule 41(b)(1) may be made ‘at any time.’ Nevertheless, except for respondent’s oral motion, there was no mention of the accuracy-related penalty under section 6662(a) during these proceedings and, thus, nothing to suggest that petitioners had any reason to suspect that respondent planned to assert the penalty.” 2014 T. C. Sum. Op. 101, at p. 17 (Citation omitted).

So no go on the penalty.

But I suggest Nanette put in some extra studying time on penalties and additions to tax, and Tax Court procedure, before she takes the SEE to become “an enrolled agent of the Internal Revenue Service”.

No, it’s not Austin Powers.

Hearken back to my blogpost “The Carousel Is Closed”, 10/10/14. There, I wondered who the mystery witness might be, the subject of a Tax Court press release announcing the lockdown of the Special Trial Session on October 24.

Well, Judge Lauber tells us, in an eleven-page designated hitter in Amazon.com, Inc. & Subsidiaries, Docket No. 31197-12, filed 10/21/14.

It’s Mr. Brian Valentine, a fact witness, whose testimony will be heard only by the chosen few, designated in lists to be prepared by the Amazonians and by IRS, which lists were due to be handed in to Judge Lauber  yesterday.  See Order, at p. 8.

Just like a client (or a Judge) to order things done yesterday. And the order doesn’t require the litigants to exchange their lists, either.

But Judge Lauber is adamant. “Persons not on the parties’ lists (or persons not otherwise affiliated with the Court) shall not be permitted in the courtroom during fact testimony at trial unless otherwise directed by the Court. Petitioner shall have the primary responsibility to assure compliance with this paragraph.” Order, at p. 9. Even if they haven’t seen IRS’s list.

I can just see Jeff Bezos standing, with flaming sword in hand, at the door of Centre Court, 400 Second Street, NW, driving away eavesdroppers and the idly curious from the sacred precincts.

A dry spell in Tax Court sent me back two years for a headline (see my blogpost “Everything Has An End”, 10/10/12, although its relevance here is doubtful), and through seven (count ‘em, seven) pages of orders today, most of which concerned with the change of date for the Milwaukee trial session, not something of compelling interest to my readers, that stalwart band, who cannot plug taishofflaw.com into their URLs without, in Auden’s immortal words,  “a quickening of the heart, For who can bear to feel himself forgotten?”

Well, I felt myself forgotten on Friday, and so did my readers, based on the number of views my poor efforts have gotten. And there were two Memos today, neither of which brought any original message.

But The Great Dissenter, a/k/a The Judge Who Writes Like a Human Being, s/a/k/a The Inveterate, Implacable Foe of the Partitive Genitive, Hon. Mark V. Holmes, has come through, bringing with him The End.

No, not Apocalypse Now, but rather the end of the Tax Court story for Montgomery W. Seitz & Stephanie W. Seitz, Docket No. 21998-11, filed 10/20/14.

Monty’s tale is a sad one. His trial “…was continued a first time when Mr. Seitz promised in 2012 to file an offer in compromise. He didn’t do so, and when the case was set for trial, the parties again asked for a continuance to let him try again. Mr. Seitz was unsuccessful in connecting with the low-income taxpayer clinics that the Court referred him to, and he finally mailed in the offer in compromise himself. It lacked the financial information that the IRS requires, however, and was understandably rejected. The Court again gave him more time, but he has yet to submit the required form. He has also never met with the IRS lawyer handling his case to participate in informal discovery.” Order, at p. 1.

And Monty never responded when IRS, understandably peeved to “feel itself forgotten”, moved to dismiss for want of prosecution, and Monty didn’t respond when Judge Holmes ordered.

Judge Holmes: “What takes this case out of the routine is the [sic] Mr. Seitz has spoken with the Court and IRS counsel several times – the Court believes him when he describes the failure of his small business (the business that gave rise to the deficiency), and believes him when he describes the severe health problems that his wife has suffered. In a conference call on October 16, 2014 he again described his extreme hard luck in business and his family’s health.” Order, at pp. 1-2.

Now we know Judge Nega would kick Monty, and presumably Stephanie as well, to the nearest curb. See my blogpost “Is There a Doctor in the House?” 10/16/14.

Judge Holmes, however, shows some sympathy. Notwithstanding, Monty and Stephanie must find their balm, if any, in Gilead, because they’re through in Tax Court.

“But this case has to come to a close. As the Court explained to him, even when a tax debt is assessed, the part of the IRS that will try to collect it will consider a properly submitted offer to compromise or will record the debt as currently not collectible if a taxpayer can show his straitened circumstances. Another part of the IRS – called audit reconsideration – may even consider whether to reduce a tax debt if a taxpayer finally produces records after the normal time to do so has expired.” Order, at p. 2.

So Monty, keep trying.  Just not in Tax Court.

Takeaway– Ya gotta try.

Knowing that his analysis will be subject to Seventh Circuit’s scrutiny, including without in any way limiting the generality of the foregoing (as my high-priced colleagues say) the jaundiced eye of Judge Posner who previously rebuked his levity (see my blogpost “There Goes the Neighborhood”, 9/4/13), Judge Wherry spends 89 (count ‘em, 89) pages knocking out the Section 166 bad-debt claims of John E. Rogers, Frances Rogers, and the platoon of “deep-pocketed investors” who bought into Mr. Rogers’s neighborhood, and must now pay dearly for the privilege.

Well, you may ask, didn’t Seventh Circuit blow off Mr. Rogers last August in Superior Trading, et al. v. Com’r, referred to in my blogpost abovecited?

Yes, but here we deal with the Hydra-headed creations wherewith Mr. Rogers sought to profit from the shelter-seeking deep-pocketed. And a mere listing thereof occupy three of the aforementioned 89 pages.

Again we see the sham partnership and the phony trust exploded, the lack of economic substance exposed, the disguised sale and the artificially-enhanced basis in bad Brazilian debt again stripped bare.

I won’t reiterate the other blogposts that Mr. Rogers afforded me. I do thank him for some good copy.

Oh, by the way, today’s installment is Kenna Trading, LLC, Jetstream Business Limited, Tax Matters Partner, et al., 143 T. C. 18, filed 10/16/14.

No concurrences, no dissents.

Judge Wherry has built his record as solid as can be. Because Mr. Rogers will appeal.

The famille Jansson (Fred, Nik, Margareta, and Jan) are all lined up to try for summary judgment, and IRS’s defenders are on the field as well, hands upraised.

Remember the Janssons’ first try? No? Well, see my blogpost “A Trust is a Trust is a Trust”, 2/26/14. Back then, the Janssons and their partnership were arguing that Roth IRAs weren’t TEFRA pass-thru partners, so IRS had to give the Roth trustees NBAPs. But that stalwart, The Great Dissenter, a/k/a The Judge Who Writes Like a Human Being, s/a/k/a The Inveterate, Indefatigable, Implacable Foe of the Partitive Genitive, Mark V. Holmes, gave the Janssons the right-about-face. The Roth IRAs are pass-thrus, so the trustees and not IRS has to pass through the NBAPs. If they don’t the Janssons can’t uncouple from the FPAAs that rain upon the head of Block Developers, LLC.

Now for today’s story, Block Developers, LLC, William J. Maxam, APC, Tax Matters Partner, Et Al., Docket No. 3198-10, filed 10/16/14, a designated hitter from The Great Dissenter, etc.

Discovery happened, and now the fence whereat the Janssons fell last time out is removed. You remember that IRS has to know the “names, addresses and profits interests” of all the indirect partners, the passed-thru types, so as to send them NBAPs, failing which the indirects can opt out of TEFRA and go solo on what would have been partnership items, but now become non-partnerships by virtue of the opt-out provisions.

Well, that info wasn’t on any Form 1065 from Block, nor did the Block tax matterer furnish same per the 26 CFR §301.6223(c) route.

But the Janssons and their tax matterer claim IRS’s revenue agent, combing through Block’s records during audit, found out.

“Block, however, does argue that the Commissioner had the ‘names, addresses, and profits interests’ of its indirect partners in its own records – informally ‘furnished’ or figured out by IRS agents it doesn’t say – much more than 30 days before it mailed out the NBAP to Block’s TMP for either of the two tax years at issue here. It argues that subsection 301.6223(c)-1(f) is the key.” Order, at p. 3.

OK, so what? The IRS doesn’t have to search its records, does it? Or launch a detailed investigation into every piece of paper or whispered rumor that swims into its ken.

Right, says Judge Holmes, that’s what the reg says.

But willful blindness doesn’t cut it, either. And Judge Holmes is Tax Court’s resident mayvin on willful blindness. See my blogpost “Lawyers Can’t Add”, 1/17/13.

And caselaw bears him out. IRS knew something, and couldn’t ignore it. But did it know enough?

Before Judge Holmes rushes to (summary) judgment, he spies a question of fact in the road thereto.

Notwithstanding Block’s counsel’s winkling an admission out of IRS that they knew each Roth IRA had but one beneficiary (and a Taishoff “good job”, first class, to Bruce Michael O’Brien, Esq., and his team at Higgs, Fletcher & Mack in sunny San Diego, CA), that doesn’t mean that IRS knew the “profits interest” of each.

Before you say “Huh? One beneficiary means the whole enchilada, nicht wahr?”, let Judge Holmes explain.

“In these cases, that is a very contested ground. One of the Commissioner’s arguments is that Block was actually a scheme to undervalue a related firm named Soil Retention, Inc. that Block purchased in what was arguably a far-from-arms’-length transaction to transfer value from its owners (beneficiaries of two of the IRAs involved) to their children (beneficiaries of the other two IRAs involved). The FPAA lists several theories for why this violates the Code, and we have to agree with the Commissioner that one reason for his issuing the FPAA was that he did not know if the nominally equal beneficial interests of the indirect partners in fact was aimed at concealing what fundamental principles of tax law would show to be an unequal interest in the profits of the business that Block putatively owned. This is a genuine dispute about a material fact….” Order, at pp. 4-5. (Emphasis by the Court).

IRS blocks that motion. Just barely.

Maybe so Tax Court should have one or two MDs on call.

In furtherance and in explication of the foregoing, as my lamenting-the-collapse of -the-DJIA colleagues would put it, compare and contrast Ralph O. Lewis, Jr., Docket No. 16108-12S, filed 10/15/14, with Kenton Ridgeway Fleming, Docket No. 4925-12S, filed 10/16/14.

A brace of continuance motions in two-year-old small-claimers, so nothing very exciting, right?

Well, Ralph O., Jr., claims “…he has been hospitalized four times since January 2014, with the latest being on October 2, 2014, and is scheduled to have Bypass surgery. Attached to the motion, are Declarations of Tarciso C. Diaz, M.D., petitioner’s physician, and Tami Elan, petitioner’s former legal assistant.” Order, at p. 1.

The case, having been twice previously continued, is on for trial 10/27.

IRS apparently has a short fuse, and ripostes as follows: “(1) petitioner is an attorney and has failed to provide substantiation documents, (2) he has not communicated with respondent on the stipulation of facts and trial preparation, and (3) respondent objects to any further continuances in this case.” Order, at pp. 1-2.

Judge Nega: “The Court is sympathetic to petitioner’s situation. While such circumstances are sometimes a reason to continue a case, a continuance should be granted only if the passage of time will better enable the parties to try the case. In a circumstance like this, a continuance may have the disadvantage of making it only more difficult to assemble documents and witnesses to prove the facts pertinent to that year. Health problems is [sic] indeed an issue that the Court takes seriously, but of course it is not a reason to defer indefinitely the resolution of a case.” Order, at p. 2.

So, unless Judge Nega is as obliging as Judge Gustafson, and will try Ralph O., Jr.’s case in the recovery room, wheel ol’ Ralph O., Jr., in on a gurney, and let’s have a trial.

After all, who says attorneys have a heart, anyway?

But, for Judge Morrison at least, Kenton Ridgeway’s kidney trumps Ralph O., Jr.’s heart.

Judge Morrison: “Fleming informs the Court that since August 2014, he has been in considerable pain because of kidney stones. He also informs the Court that the medication prescribed by his doctor have [sic] created side effects that have made it impossible for him to go about his normal life. He further informs the Court that his mental faculties may be impaired. The circumstances warrant a continuance of the trial.” Order, at p. 1.

Now a Rule 91(f)(2) motion was granted, so there’s no jousting about facts here, a Standing Pretrial Order has been served, and there’s been one continuance already.

But this case is also on for trial next week.

To support his tale of woe, Kenton Ridgeway has no declarations from doctors, former legal assistants, or any one else. Moreover, IRS hasn’t tagged Kenton Ridgeway with the disparaging epithet of “attorney”.

So maybe there should be a doctor or two in the house at 400 Second Street, NW.

Footnote to the Foregoing

 Judge Nega is tougher at sick call than ol’ Sergeant Longry, late of dear old Tent City, Fort Jackson, South Carolina. Just as I was finishing the above, I stumbled upon Theodore L. Vallas & June D. Vallas, Docket No. 22105-12S, filed 10/16/14.

Here’s Ted’s story.

“Petitioners’ motion states that Mr. Vallas is involved in another legal matter, and that he is 93 years of age and only capable of focusing on only one of these matters at a time. Petitioners’ motion further states that respondent does not object to the granting of the motion.” Order, at p. 1.

Very politely, Judge Nega tells Ted to fall in and march. He omits certain colorful metaphors that ol’ Sarge would have bestowed.

“The Court is sympathetic to petitioners’ situation. While such circumstances are sometimes a reason to continue a case, a continuance should be granted only if the passage of time will better enable the parties to try the case. In a circumstance like this, a continuance may have the disadvantage of making it only more difficult to assemble documents and witnesses to prove the facts pertinent to that year.” Order, at p. 1.

Brings back memories.

“Baby, Let Your Hair Hang Down”

The words of Gus Cannon, songwriter and eponymous chief of the Cannon Jug Stompers, from back in 1929, echo in the order of Judge Kerrigan to the IRS’ obstructionist counsel in Eaton Corporation and Subsidiaries, Docket No. 5576-12, filed 10/15/14.

And the person directed to “walk right in and set right down” etc., is Patricia M. Lacey, the “primary author” of the 134-page document that IRS used to blow off the APA that Eaton had with IRS concerning its DomRep breaker-buddies.

Breaker breaker, good buddies. Do you remember Judge Kroupa’s opinion relegating Eaton to the burden of proof to show that IRS was arbitrary, capricious and acted without sound basis in fact or law? No? Well, click on my blogpost “Advance and Retreat”, 6/26/13, and refresh your recollections.

Thereafter, Judge Kroupa joined the ranks of the Retired Persons, so Judge Kerrigan came in from the bullpen.

Judge Kroupa had ordered IRS to produce for depositions one or more of their personnel with “firsthand, substantive knowledge of the specific ground(s) that respondent relied on in canceling the APAs and the specific facts supporting each ground.” Order, at p. 1.

IRS did, but IRS’ counsel interposed numerous objections, told witnesses not to answer questions, and prevented witnesses from testifying.

If you ever did a depo in the bad old days here in the Big Apple before Uniform Rule 221 was adopted, you’ll remember the speaking objections, the direction of witnesses not to answer based on flimsy excuses, the barely-surreptitious prompting of witnesses, and enough other maneuvers to give the late great Dr. Eric Berne material for a second volume of “Games People Play”. Well, the Uniform Rule put paid to most of that (although given we lawyers’ propensity for pushing the envelope, gameplaying still happens, albeit it less blatantly).

But Tax Court has no such rule  (and I hereby respectfully suggest the Tax Court adopt same).  Rule 85(d) with its “unless reasonable objection thereto is made at the taking of the deposition” is a featherduster where something stronger is wanted.

Eaton claims that, when they deposed Steve Musher, Associate Chief Counsel (International) and Chief APA Canceller, he didn’t know who said what or did what when Eaton’s APA was shot down at his deposition, except there was a lot of communicating. And IRS hands over Ms. Lacey’s 134-page megillah (I need not, of course, translate), which Eaton can read and weep.

“Petitioner [Eaton] contends that this document is not comprehensive. Petitioner further contends that Ms. Lacey, the primary author of the April 4th document, was not allowed to describe the specific justification for, and the factual support underlying, the cancellation of the APAs.” Order, at p. 2.

So Judge Kerrigan has had it with IRS counsel’s tactics, although they did bring back nostalgic recollections, like when I stormed out of a depo to find a judge for a ruling, watched hours of posturing, muttered imprecations, and grinned at wannabes slamming papers on tables.

“…petitioner’s motion to compel discovery is granted in that respondent [IRS] shall make available for deposition Ms. Lacey to provide substantial knowledge of the specific ground(s) that respondent relied on in canceling the APAs and the factual bases underlying the justifications therefor, including information from her December 5, 2011 memorandum on that addresses reasons for canceling the APAs on a date agreeable to both parties no later than November 5, 2014.” Order, at p. 2.

So Eaton’s counsel will be “listenin’ to Lacey”.

Oh yes, and report, guys.

Takeaway–This post is more for lawyers than preparer types, obviously, but if any preparers get caught in one of these, take this as a heads-up.

Reflection on the Foregoing

Perhaps I was a wee bit hard on IRS’s counsel. Now I’m not currying favor; if we get in a fight, we go at it, mindful always of the rules but hitting as hard as we can.

That said, there’s a difference between a singed earth defense and a scorched earth defense. Eaton’s counsel, having an uphill fight, as I pointed out in my blogpost abovecited, while carrying the burden of proof, must perforce prove their case out of their adversary’s mouth.

So Musher and Lacey are fair game. And Eaton’s counsel have to hit them hard. From Judge Kerrigan’s order, all I can gather is that Musher bobbed and weaved, while IRS’s counsel pulled what we called in my youth Court Street tactics. And it might be that Musher just signed off on whatever Lacey put before him.

But having bailed out Musher, apparently, IRS’s counsel went the one step beyond.

Lacey was clearly the point person in blowing off Eaton’s APAs; she has a tale to tell that’s harder to obscure, but obscure it they must.

So Lacey needs artillery, and IRS’s counsel opens up.

I’d have done the same. But it’s as well to remember that counterbattery fire comes quickly. And the line between singed and scorched is mighty fine.