Fifth Circuit reverses Tax Court, holding that Section 965 related-party indebtedness must exist before it can torpedo a Rev. Proc. 99-32 accounts receivable deal. And in this case, it didn’t. BMC Software Inc. v. Com’r., No. 13–60684, 3/15/15.

And thanks to a certain Director at a Big Four accounting firm for bringing this case to my attention; and even more thanks for the Laphroaig.

Confused? See my blogpost “Stipulate, Don’t Capitulate – Redivivus”, 9/19/13, the story of BMC Software Inc.

BMC settled a Section 482 transfer pricing jumpball with IRS, and agreed to a return of monies from its overseas tax-dodging subsidiary. But to square the books with the cash, BMC, relying on Rev. Proc. 99-32, treated the cash return to the Land of the Free as an account receivable from the sub, with interest payable, rather than as a capital contribution to the sub.

Came Section 965, whereby a beneficent Congress allowed repatriation free of charge to parkers of cash in tax havens.

BMC hauled back a large amount of offshore diñero, but IRS claimed the accounts receivable created per Rev. Proc. 99-32 was related-party indebtedness, and thus taboo.

The related-party indebtedness bar was enacted to prevent “round-tripping”, where the US parent lent the offshore sub the money to send back, effectively keeping the cash offshore.

BMC claimed they had no such intent, but IRS said that didn’t matter. Fifth Circuit doesn’t rule on this.

Fifth Circuit said that the indebtedness was entered into before the test period for round-tripping began, thus didn’t exist when the test was on.

Fifth Circuit: “In sum, the plain language of § 965(b)(3) does not ask, ‘To be or not to be?’ It instead asks, ‘To have been or not to have been?’ And the answer to this question is clear: ‘as of’ March 31, 2006, the accounts receivable did not exist. Therefore, § 965(b)(3), by its plain language, cannot sustain the judgment of the tax court.”

Likewise, the agreement between BMC and IRS dealt extensively with tax consequences, and all IRS has is the boilerplate in all its agreements “for federal income tax purposes”. On basic contract interpretation, Fifth Circuit makes short work of IRS’s argument. IRS’s boilerplate would render much of the agreement surplusage, and stating the specific trumps the general.

BMC wins.

Yet another T. C. Memo. today from that inveterate rounder, Alvin Sheldon Yanofsky, but I’m not wasting time on his latest $20K frivolity chop.

No, I’m remembering the winning sentence from the brief of my former law partner Woody: “It takes more than a New York State of mind” to establish New York primary residency.

And that comment furnishes my headline for today’s blogpost, Barry P. Cooper, Petitioner, and The Government Of The United States Virgin Islands, Intervenor, 2015 T. C. Memo. 72, filed 4/8/15, with Barry’s wife Sandra G. joining in the fun. This is another of the employee-leasing games played in the early years of this millennium. I’ve blogged a number of these and His Honor Big Julie, a/k/a Judge Julian I. Jacobs, hereinafter referred to as HHBJJJIJ, cites them all.

Barry and Sandy are targets of IRS’s claim that their VI residency is a hoax and that they’ve transgressed the strictures of Notice 2004-45, Meritless Position Based on Sections 932(c)(4) and 934(b), by pretending to reside in our Insolvent but Beautiful Islands in the Sun.

The status of the islands aforesaid is adumbrated by HHBJJJIJ as follows: “The Virgin Islands, although a part of the United States, are a separate and distinct taxing jurisdiction. The territory is classified as an unincorporated territory by 48 U.S.C. sec. 1541(a) (2006), is not part of one of the 50 States or the District of Columbia, and generally is not a part of the United States for tax purposes. See sec. 7701(a)(9).” 2105 T. C. Memo. 72, at p. 11.

To harmonize the taxation of said island paradise with the rest of us, Congress enacted statutes and IRS made deals, so we’re stuck with Section 932 et seq. and the regulations promulgated thereunder, and whatever agreements Treasury made with the Islanders.

Barry and Sandy claim they believed in good faith that they were Virgins (Islanders), and therefore filed with VIBIR (Virgin Islands Bureau of Internal Revenue) as good Virgins (Islanders) must do, long before IRS descended upon them, and therefore SOL has run. No one claims fraud, only nonfiling with IRS.

The VI Government, ever mindful of its privileged tax status and eager to grab whatever isn’t grappled to the USA with hoops of steel, avers thus: “Here, no specific facts demonstrate petitioners’ residency status in the Virgin Islands for 2002 and 2003. Rather, petitioners assert that we must accept as a matter of law that they were bona fide residents of the Virgin Islands during 2002 and 2003 because of their purported good faith belief. Intervenor expands on petitioners’ assertion, maintaining that section 932(c) requires every individual with Virgin Islands source income to make an initial determination as to whether he/she is a U.S. or Virgin Islands resident. Intervenor posits that if the individual determines that he/she is a Virgin Islands resident and in good faith files with the VIBIR, the IRS must either accept that determination or challenge it within the three-year period of limitations. Intervenor concludes that in these cases the IRS’ failure to challenge petitioners’ filing with the VIBIR within three years of the filing of the income tax returns time bars the IRS’ issuance of a notice of deficiency.” 2105 T. C. Memo. 72, at pp. 21-22.

“Not unexpectedly, the IRS disagrees.” 2105 T. C. Memo 72, at p. 22.

You can see where this is going, namely, viz., and to wit, to trial. The VI guvmit claims that to require Barry and Sandy to prove they’re bona fide Virgins (Islanders) means they have to win their case on trial, vitiating the SOL argument.

HHBJJJIJ says no, SOL is an affirmative defense that needs to be both pled and proven. If proven, nothing else to try. But if Barry and Sandy can’t satisfy the criteria set forth in la famille Vento, Appleton and the late Sanders, all of whose safaris through Tax Court and the CCA I have recounted, then no SOL.

So Barry and Sandy must defend their Virginities. And a Virgin (Islands) state of mind is insufficient.

I hesitated to blog Saad Al-Soufi and Samia Schreitah, 2015 T. C. Memo. 68, filed 4/7/15. It’s a totally unsubstantiated mortgage interest deduction. The excuse, though, is timely. And the grounds for Judge Lauber’s incredulity provides a warning to all who “seken straunge strondes, To ferne halwes couth in sondry londes”, as Geoff Chaucer put it in April, 1387.

Jumping ahead to 2009, Saad Al-Soufi (hereinafter sometimes referred to as “SAS”), an MBA who has lived thirty years in the USA but who has dual citizenship, buys (or maybe his kinfolk buy) a property overlooking the port of Latakia, Syria, SAS’s homeland.

I’ve never been to Latakia, but it holds memories. It is (or was) the home of the famous smoky black tobacco that gave a real kick to Balkan Sobranie pipe tobacco in my misspent youth. I can feel my lungs contract at the very mention of the place, and a hacking cough follow. Such is the power of memory.

Anyway, SAS supposedly acquires his kingdom-by-the-sea, and mortgages it with a local outfit, now out of business, to whom he allegedly pays $79K in deductible interest for the year at issue.

SAS visits the place a couple of times but can’t prove the 14-day cutoff of Section 280A, or what the mortgage terms were, or even show a deed. He never copied the papers while he was there; his sister kept them, and then came the ongoing civil war, of which we’ve read so much.

The papers, says SAS, was amongst the casualties.

You can guess the rest. SAS produces a letter, prepared after audit and before trial, by a purported officer of the out-of-business lender, that states the amount of interest paid in US dollars, not Syrian pounds. And nothing else.

This goes over like a lead cliché.

Judge Lauber notes in passing that Sharia law, presumably applicable in Syria, bars taking or paying of interest.

“Because the mortgage interest deduction was properly disallowed for lack of substantiation, we need not address questions that might arise concerning the general prohibition against the payment of interest under Sharia law, the extent to which this prohibition is operative in Syria (petitioner’s testimony was opaque on this point), or the relevance of these considerations to the proper Federal tax treatment. See In re Terrorist Attacks on September 11, 2001, 689 F. Supp. 2d 552, 557 (S.D.N.Y. 2010) (‘[T]he body of Islamic law known as Sharia * * * prohibits the payment or earning of interest[.]’).” 2015 T. C. Memo. 68, at p. 10, footnote 2.

I won’t speculate whether a form of evasive action, known to New York practitioners as a stare iska or heter iska, might have developed across an international and interreligious border or two.

The sting comes with the penalty.

“Petitioners had no credible evidence to support their claimed mortgage interest deduction. Petitioner has an M.B.A. in financial management and testified that he understood his tax filing requirements. But he failed to maintain in the United States any of the documents necessary to substantiate his claim to a deduction in excess of $70,000. He traveled to Syria twice but failed to make copies of the documents before they were allegedly destroyed. Even if the documents existed and were admitted into evidence, it is by no means clear that petitioners would be entitled to the deduction they claimed.” 2015 T. C. Memo. 68, at p. 11.

But still, it might have been better if SAS had them, or copies.

So remember, overseas homeowners, don’t leave home without them.

That’s Judge Swift’s take on a favorite tactic of mine, summary judgment; see my blogpost “Summary Judgment – a Causerie”, 3/13/14. Though I’m a fan, I agree that, where there’s a real issue of fact, summary J is not a substitute for a trial.

And Judge Swift has one in Barry Knudsen, 2015 T. C. Memo. 69, filed 4/7/15.

Barry, a longtime nonfiler, claimed he never got the SNODs for his two SFR years. IRS claims they went by certified mail, and at Appeals the SO found a USPS Track-and-Confirm for one, but the other is off the USPS system because of age. And the Track and Confirm the SO got only shows delivery in the town and zipcode, which is all Track and Confirm ever shows, but Judge Swift seems to think that is insufficient. He might want to discuss my blogpost “On The Right Track”, 12/31/14, with Judge Holmes.

The SO, an enterprising type, found PS3877s for both, but they suffer from the same problems endemic to that form. One didn’t have the USPS employee’s manual signature (only a stamp) and didn’t list the number of pieces actually received, only the number tendered. The other wasn’t stamped or signed by a USPS employee, and didn’t state they were SNODs or for what year.

Appeals gave Barry a hearing on underlying liability when he petitioned the NITL he got, conceding Barry didn’t have a prior chance. Barry did nothing, NOD issues, Barry petitions saying he never got the SNODs, so levy invalid.

Judge Swift says: “On remand respondent clearly gave petitioner an opportunity to challenge the amounts of his underlying tax liabilities as respondent had determined them. Petitioner repeatedly chose not to provide respondent with any income or expense information and not to submit to respondent tax returns …. If that were the question before us now, we would not hesitate to grant summary judgment in respondent’s favor.” 2105 T. C. Memo. 69, at pp. 12-13.

But it isn’t.

“However, the key issue before us at this stage, which has been repeatedly raised by petitioner, is whether respondent ever mailed to petitioner the notices of deficiency on which respondent’s tax assessments and proposed levy are based. This is a question that involves not the amounts of petitioner’s underlying tax liabilities but rather the legality of the assessments made against him. As explained, this issue has been repeatedly raised by petitioner and is inherent in the verification requirement of section 6330(c)(1); i.e., it is an issue raised by statute in every CDP case.” 2015 T. C. Memo. 69, at p. 13. (Citation omitted).

And defective PS3877s don’t cut it. There’s much caselaw to that effect, and I’ve gone over it elsewhere. If, however, you want material for a memo of law, here’s Judge Swift.

“The U.S. Court of Appeals for the Second Circuit has held that a failure to indicate the number of pieces of mail received by the U.S. Postal Service and the absence of a signature by the receiving U.S. Postal Service post office employee, both of which defects are present in this case, render a PS Form 3877 improperly completed. See O’Rourke v. United States, 587 F.3d 537, 541 (2d Cir. 2009). This holding is consistent with this Court’s holdings in similar instances. See, e.g., Coleman v. Commissioner, 94 T.C. at 92; Massie v. Commissioner, T.C. Memo. 1995-173, aff’d without published opinion, 82 F.3d 423 (9th Cir. 1996); Wheat v. Commissioner, T.C. Memo. 1992-268.” 2015 T. C. Memo. 69, at p. 16.

So is Barry off the hook, owing nothing for those years, as he claims?

Negatory, good buddy.

“Petitioner has raised a factual issue concerning respondent’s mailing to him of the notices of deficiency, and respondent has failed adequately to address this issue. Summary judgment is not a substitute for a trial and is not to be used to resolve disputes over factual issues. Viewing the alleged facts in the light most favorable to petitioner, we conclude respondent has not sufficiently established that summary judgment is warranted. A trial will be necessary concerning respondent’s alleged mailing of the notices of deficiency to petitioner.” 2015 T. C. Memo. 69, at pp. 16-17.

However, neither should IRS rend their garments in mourning.

“…at trial the defects in the PS Forms 3877 do not necessarily preclude a decision in favor of respondent with respect to the proper mailing of the notices of deficiency. Our ultimate decision on this issue will depend on the credibility and persuasiveness of what petitioner and respondent offer into evidence at trial.” 2015 T. C. Memo. 69, at p. 17. (Citation omitted).

Takeaway–I never trust PS3877s; most of them are worthless. Spend the extra, and mail certified with track-and-confirm, despite Judge Swift’s reservations.

I end my blogposting trifecta today with an account of an accumulation trust that deftly uses the annual gift tax exclusion (then $12K per donor per donee) for sixty (count ‘em, sixty) of the trustors’ nearest and dearest to dodge both GST and gift tax, in Israel Mikel, 2015 T. C. Memo. 64, filed 4/6/15.

Is and Mrs Is gifted $3,262,000 of property in trust, filed the Form 709 late (after IRS was on their trail), but claimed they were under the unified credit because each of Is and Mrs Is gave $12K to each of the sixty.

This they did by virtue of a 30-day grab clause in the trust instrument. Each of the sixty, adult or minor, gets an annual notice, saying the trustees must turn loose, in cash or property, the lesser of a mathematical formula or the annual exclusion then in effect upon mere request, if given within thirty days of the notice. And everybody gets the annual notice.

Otherwise, the trustees, in their sole, complete, exclusive, unfettered and unreviewable discretion, can pay principal, interest and whatever to any beneficiary for education, to start a trade or business, or to have a nice wedding.

There’s an in terrorem clause. Although not favored in Our Fair State, this one passes muster. Whosoever challenges the trustees’ largesse, brings lawsuits or otherwise behaves like a grubbe yung (an arcane technical term which I need not translate) will get nothing, nichts, nada, rien.

Anyone with a gripe must go to a Beit Din. This is a Jewish rabbinical court, which, at least in the Empire State, is recognized as an arbitral entity, whose awards may be entered as judgments and enforced under our Civil Practice Law and Rules.

IRS engages in some argy-bargy about whether New York State will enforce an arbitration provision on one who does not explicitly agree thereto, but backs off, and raises a valuation question that Judge Lauber blows off as beside the point in a partial summary judgment motion.

While the trust instrument isn’t a “paragon of draftsmanship” (2015 T. C. Memo. 64, at p. 18), Judge Lauber says the in terrorem clause doesn’t render the demand rights of the beneficiaries illusory.

The thrust of the opinion is the reaffirmance of Crummey v. Commissioner, 397 F.2d 82 (9th Cir. 1968), rev’g in part T.C. Memo. 1966-144.

This masterpiece of tax planning is “an ingenious device to obtain an [annual gift tax] exclusion for a discretionary accumulation trust by giving beneficiaries the right to demand immediate distribution of particular amounts.” Boris I. Bittker & Lawrence Lokken, Federal Taxation of Income, Estates, and Gifts, para. 124.3.3, at 124-13 (2d ed. 1993), quoted in 2015 T. C. Memo. 64, at p. 12.

IRS has acquiesced in Crummey for years, but now claims the in terrorem frustrates any demanding beneficiary from pursing their rights, so the demand right is illusory. No, says Judge Lauber, the Beit Din remains and isn’t covered by the in terrorem. Anyway, reading the in terrorem, it applies only when someone challenges the trustees when they give away, not when they refuse.

So the demand right is real, and Is and Mrs Is get partial summary judgment.

It’s only a small-claimer, so you can’t cite it as authority, but there’s good stuff for the family lawyer’s formbook in Joshua Henry Wish, 2015 T. C. Sum. Op. 25, filed 4/6/15. Although schoolteacher Josh gets nailed for a math error, it’s one of those rare cases where the taxpayer wins an alimony deficiency.

Josh and loved-once had one learning-disabled child, whom loved-once quit her job to homeschool. When their marriage expired, loved-once continued to homeschool, and wanted money to compensate her for lost earnings.

Without benefit of counsel, Josh and loved-once drafted their own stipulation, separately stating child support and spousal support, which stipulated provisions were incorporated in the divorce decree.

Child support had a phase-out provision, as did spousal support, both tied to a date certain. The spousal support also was cut if loved-once stopped homeschooling, and ceased altogether if loved-once remarried.

Judge Gerber: “The superior court ordered that the support payments be withheld from petitioner’s earnings. Under Federal law, generally, no more than a percentage of an employee’s disposable income may be withheld for support. Because of that limitation, petitioner made the remainder of the support payments by check or in cash.” 2015 T. C. Sum. Op. 25, at p. 4. Josh was able to substantiate what he claimed he paid.

Josh claims alimony (deductible), IRS claims child support (not), and Josh petitions.

The usual cases are clearly child-contingent (leaves school, reaches age 18, etc.). But here the issue is diminution of loved-once’s earning capacity.

“Petitioner and his former wife entered into the agreement that she would homeschool their child with the explicit understanding that their decision would cause financial hardship for her because she would not be able to work while performing the schooling. Under the terms of the written agreement and their understanding, it was solely within his former wife’s discretion as to whether she would go back to work or continue homeschooling their child. During the seventh month of the agreement under the divorce order, the former wife requested increased spousal support payments from petitioner, but he was unable or unwilling to pay more. Hence, petitioner’s former wife decided to return to work, and therefore the child was no longer homeschooled. That did not mean that the child was not schooled, because the child continued to be schooled, albeit at a different location, i.e., public school. Accordingly, the contingency was not whether the child discontinued school, but whether petitioner’s former wife was willing to make financial sacrifices by not working so as to provide the schooling.” 2015 T. C. Sum. Op. 25, at pp. 8-9.

Now, family lawyers, as Judge Holmes would say, pay attention.

“There is a clear and direct relationship between the amount of spousal support payments and his former wife’s choice to work. There was no contingency that depended on the child, who continued to go to school, albeit a different school. Under these circumstances the reduction in payments to his former wife was a reduction in alimony. We note that the child support remained at $1,200 both before and after the situs of the child’s school changed. We also note that the spousal support went from $3,800 to $1,900 after petitioners’ former wife went back to work. Finally, we note that respondent agrees that the $1,900 paid to petitioner’s former wife, both before and after the child changed schools was ‘alimony’”. 2015 T. C. Sum. Op. 25, at pp. 9-10.

Judge Gerber goes on to correct Josh’s arithmetic, as he took too many months’ worth of alimony in his numbers. But the one extra month he gets hit with is less than the five-and-ten chop IRS wants to hit him with, and much less than IRS’s somewhat idiosyncratic deficiency numbers. And Josh acted in good faith.

I might also add, Josh did better than a lot of lawyers.

No, not J. W. Howe’s seldom-sung fourth verse, from that November morning in 1861, when Julia sprang out of bed to write those famous words, lest she fall back asleep and forget them.

Rather, today we have an echo of my blogpost “Advance and Retreat”, 6/26/13. And it brings back Eaton Corporation and Subsidiaries, Docket No. 5576-12, filed 4/6/15, before STJ Daniel A. (“Yuda”) Guy, who is “sifting out the hearts of men before his judgment seat”, as Julia put it.

The sifting here involves whether Eaton and the gang relied reasonably and in good faith on the advice its platoon of tax advisers bestowed upon them. But in order to sift, it is necessary to know what such advice might have been.

Eaton and the gang claims it’s all client-attorney privileged, per Section 7525.

IRS, of course, demands discovery. STJ Yuda requires an in camera read-through, and demands of Eaton and the gang, in Julia’s words “Oh, be swift, my soul, to answer him! be jubilant, my feet.”

Eaton does, but how jubilant any portion of Eaton and the gang will be after reading Judge Yuda’s order remains to be seen.

STJ Yuda notes that the “material prepared in contemplation of litigation” privilege is a tent big enough to shelter Eaton, the gang and the advisers from “the morning dews and damps” the IRS seeks to inflict upon them.

“Considering all of the circumstances, we conclude that petitioner subjectively believed that litigation with the IRS regarding the appropriate TPM [Transfer Pricing Methodology] for its Puerto Rico operations was a real possibility at the time it requested and negotiated the APA [Advance Pricing Agreement; see Order, at pp. 2-3, and my blogpost abovecited for more]. Simply put, by early 2002 the parties had only recently settled a fairly long-running dispute regarding petitioner’s TPM for the taxable years 1994 to 1997. In that environment, although petitioner likely hoped that the APA process would prove effective and produce a lasting agreement, we understand how petitioner and its legal advisors remained concerned that the APA process could fail and that litigation with the IRS was likely to follow. As outlined above, the APA process is complex, it presents many pitfalls, and even an executed APA is subject to cancelation or revocation on various grounds. Although the APA process requires and is dependent upon the parties’ candor and cooperation, we believe that it would have been objectively reasonable for both parties to engage in the APA process while at the same time honing their arguments and strengthening their respective positions should litigation occur. On this record, we conclude that the documents under review that petitioner identified as work product were prepared because of the prospect of litigation and are otherwise protected from discovery.” Order, at p. 5.

And of course Section 7525(a)(3)(A) covers all us Circular 230 types as if we were attorneys.

So Eaton and the gang don’t have to tell IRS nuttin’, right?

Wrong!

Now comes the sifting.

“The documents under review show that petitioner relied heavily on its outside attorneys and tax practitioners in preparing its APA request and in the negotiations that led to the execution of the APA in April 2004. Recognizing that a reasonable cause/good faith defense under section 6664(c) is dependent upon a review of all the pertinent facts and circumstances, petitioner’s reliance on the reasonable cause/good faith defense in this case, and the averments in the petition related thereto, call into question a number of factual issues including (but not limited to) petitioner’s knowledge and understanding of the pertinent legal authorities governing APAs and the application of those legal authorities to the relevant facts, whether petitioner provided its attorneys and tax practitioners with accurate information and all of the facts material to its APA request and the negotiations related thereto, and whether petitioner abided by the advice that it received from its attorneys and tax practitioners. Petitioner’s communications with its attorneys and tax practitioners may be the only probative evidence of the state of mind or knowledge of the persons who acted on its behalf and those communications may tend to show, among other material facts, whether those persons in fact considered the APAs to be binding and valid in accordance with the provisions of Rev. Proc. 96-53, supra.

“In sum, petitioner’s reasonable cause/good faith defense puts into contention the subjective intent and state of mind of those who acted for petitioner and petitioner’s good-faith efforts to comply with the tax law. Assuming as we do at this time that petitioner persists in this defense, it would be unfair to deprive respondent of knowledge of the legal and tax advice that petitioner received in the course of requesting and negotiating the APA, and petitioner will forfeit the privilege to withhold the documents under review.” Order, at p. 10.

Hand it over, gang. Or take the risk on the penalties.

A reprise of my blogpost “Where Art Thou”, 5/21/12, but Marianne Pretscher-Johnson, Docket No. 14632-14L, filed 4/3/15, isn’t as lucky as Sean Devlin, the star of my 5/21/12 blogpost abovecited.

CSTJ Panuthos notes MPJ hasn’t filed returns for years, although she never claims she isn’t required to do so, and has left behind her a trail of SFRs.

This time, she admits she got an NFTL for one year at issue, and that went to the right address, but she never petitioned, so no NOD and no jurisdiction. So IRS has its lien perfected.

But MPJ claims as to the other two years at issue that she never got NFTLs, as whatever IRS sent went somewhere other than her last-known address.

Now on what ground a petition is dismissed for want of jurisdiction, as I’ve blogged before, matters. If petitioner never got the NFTL because it was misdirected, then no lien; but if mailed to last known address and petitioner missed the thirty-day cutoff to petition, the lien stands.

CSTJ Panuthos: “Respondent provided the Court with a certified copy of the Integrated Data Retrieval System, Command Code FINDS (Name Search Facility For An Individual, names and address information, using the Social Security Number) printout dated October 6, 2014 (FINDS report). The document reflects addresses used for petitioner by respondent during various periods from 1998 through 2013. Counsel for respondent explained that, since petitioner had not filed a tax return since 2001, the various addresses reflected for petitioner in this document after 2001 come from either the United States Postal Service National Change of Address database or from notice of a change of address provided to respondent by the taxpayer. The… address was petitioner’s address in the FINDS report from the third week of 2008 until the 37th week of 2013.

“Petitioner received a Letter No. 2797… requesting that petitioner update her address with respondent. Counsel for respondent explained that when respondent receives Forms 1099 or other third-party documents indicating an address different from the address in respondent’s database, respondent will send Letter No. 2797, because only direct notification to respondent or notification to the United States Postal Service is sufficient to cause respondent to change a taxpayer’s last known address in his database. When petitioner received Letter No. 2797, she did not provide a written change of address as requested in the letter. Petitioner asserts that…she called respondent at the toll-free number on the letter and confirmed that her address was X. Respondent has no record of this telephone call.” Order, at p. 2. (Address omitted).

Now comes facts and circumstances, and burden of proof is on petitioner to establish that she notified IRS of her change of address. Telephone calls don’t cut it. No proof of written notice knocks MPJ out of the box.

Takeaway–If you get a Letter 2797, reply by certified mail at once.

It makes a difference for Bernadette M. Greenwood, Docket No. 3731-15, filed 4/2/15, which I wish Ch J Michael B. (“Iron Mike”) Thornton had designated, as plowing through the 122 pages of Judge Wells’ exhaustive analysis of a VA tax credit disguised sale today nearly drained whatever little I have left in the tank. Don’t worry, I’ll spare you.

So going through five (count ‘em, five) pages of orders was tough duty.

Bernadette petitioned Bankruptcy Court and then petitioned Tax Court. We all know that’s a 11USC§362(a)(8) no-no, first class.

Bernadette wants Section 6015 innocent spousery. But she wants it for a year after the years covered by her Bankruptcy Court petition.

IRS isn’t buying. “…respondent [IRS] takes the position the automatic stay bars petitioner from filing her Tax Court case petition in this case, notwithstanding the amendment made to l1 U.S.C. section 362(a)(8) by the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, effective for bankruptcy petitions filed on or after October 17, 2005. Respondent asserts that a notice of determination concerning relief from joint and several liability under I.R.C. section 6015 should be treated the same as a notice of deficiency or notice of determination concerning collection action.” Order, at p. 1.

Not since 2005, says Ch J Iron Mike. “…pursuant to 11 U.S.C. section 362(a)(8), a bankruptcy petition ‘operates as a stay applicable to all entities, of * * * the commencement or continuation of a proceeding before the United States Tax Court * * * concerning the tax liability of a debtor who is an individual for a taxable period ending before the date of the order for relief under this title’.”  Order, at p. 1. (Citation omitted).

Bernadette wants to deal with a post-petition tax liability. So she stays in.

IRS, see my blogpost “Read The Law”, 9/12/11. A lot changed in 2005.

Henrik Ibsen’s words from An Enemy of the People apply to Lana Joan Davidson, who stars in 144 T. C. 13, filed 4/2/15, with Judge Ruwe finding Ibsen’s words apply to the woman who stands alone.

Lana brought a petition for Section 6015 liability, but she wasn’t petitioning from a SNOD or a NOD. No deficiency or determination sustaining a NITL or NFTL was involved. Lana just wanted innocent spousery.

This is what is called a “stand-alone” Section 6015.

Judge Ruwe explains: “Section 6015(e) allows a spouse who has requested relief to petition the Commissioner’s denial of relief. Such cases are referred to as ‘stand alone’ cases, in that they are independent of any deficiency proceeding.” 144 T. C. 13, at p. 3.

OK, Lana’s in, but now she wants out. And IRS will let her out, even without prejudice (although her time to re-petition is gone).

But can Tax Court echo the immortal words of the St. James Infirmary Blues (“let her go, let her go, God bless her”), without sticking Lana with some kind of decision?

Section 6213, the deficiency definer, when coupled with Section 7459(d), prevents a petitioner from doing a dump-and-run, withdrawing their petition from a SNOD without suffering the consequences of a decision giving IRS whatever it asked for in the SNOD. This prevents a give-and-go delaying tactic.

Here, though, no deficiency in sight, so the Wagner rule, which permits a free bailout from a petition of a NOD sustaining a NFTL or NITL, should apply.

And after a canter through FRCP 41(a), Judge Ruwe lets Lana out. Here, answer was filed, but the parties agree Lana can bail. And there is no issue-preclusion here, either, because the petition here, if dismissed, is not a “prior proceeding” as defined in Section 6015(g)(2).

“Petitioner invoked the Court’s jurisdiction under section 6015(e)(1) to review respondent’s final determination denying her section 6015 relief. That was the only issue in this ‘stand alone’ section 6015 case. Congress has not required the Court to enter a decision upon the dismissal of a case such as this. Dismissal of this case through withdrawal of the petition has the same result as if the case was never brought. This also means that section 6015(g)(2) will not apply in any later case that petitioner may commence as to section 6015 relief. Section 6015(g)(2) is operative only if there is a ‘prior proceeding’. Dismissal of this case pursuant to the principles of FRCP 41(a)(2) will serve to treat this case as never having been a ‘proceeding’.” 144 T. C. 13, at p.10 (Citations and footnote omitted).

Remember, the Section 6015(g)(2) stick-‘em applies where the party sought innocent spousery in the prior proceeding and “meaningfully participated” therein. Section 6015(g)(2) won’t hurt Lana, but as aforesaid, her time to re-petition is gone.

So Tax Court has jurisdiction and, in exercise of its discretion, will dismiss Lana’s petition.

She also stands strongest who stands alone.