No, not the “long and the short and the tall”, as credited to Fred Godfrey and sung by generations of UK servicepeople. Rather, this is a call to Treasury and IRS to update Notice 2004-83, 2004-2 C. B. 1030, 12/27/04, to expand the current list of blessed Private Delivery Services (PDS), whose receipts satisfy Section 7502’s “mailed is filed” rule.

To recap the blessed communion, fellowship divine:

“1. DHL Express (DHL): DHL Same Day Service; DHL Next Day 10:30 am; DHL Next Day 12:00 pm; DHL Next Day 3:00 pm; and DHL 2nd Day Service;

“2. Federal Express (FedEx): FedEx Priority Overnight, FedEx Standard Overnight, FedEx 2 Day, FedEx International Priority, and FedEx International First; and

“3. United Parcel Service (UPS): UPS Next Day Air, UPS Next Day Air Saver, UPS 2nd Day Air, UPS 2nd Day Air A.M., UPS Worldwide Express Plus, and UPS Worldwide Express.”

These, only these,  and no others need apply.

I’ve blogged again and again how any but the blessed come up short in the race to 400 Second Street, NW, in Our Nation’s Capital.

So, IRS and Treasury, why not list whatever FedEx, UPS and DHL have to offer? Why are these animals more equal than the others?

Now Ch Judge Michael B.  (“Iron Mike”) Thornton winds up and delivers a five-page strikeout to Tara E. Lewis, Docket No. 14393-14, filed 10/14/14.

Of course Tara E. sent the petition to IRS and not Tax Court, but that’s no biggie; IRS’s communications are licensed to mislead and confuse the taxpayer.

“Even confusing correspondence, written or verbal, during the administrative process cannot override the clearly stated deadline in the statutory notice of deficiency. Such confusion is not uncommon given that the IRS frequently treats as separate processes or proceedings what taxpayers view as a single dispute. Taxpayers not infrequently have also conflated this Court with an IRS unit, but the IRS is a completely separate and independent entity from the Tax Court.” Order, at p. 4.

Tara E. did, she says, send the petition on the last day of the Magic Ninety by FedEx, but she used FedEx Express Saver. Now check out the sacred scripture hereinabove set forth (as my high-billing colleagues say). Unlike old Abou Ben Adhem, FedEx Express Saver’s name doesn’t lead all the rest, it isn’t even there.

Worse, Tara E. got the purple-and-grey FedExer to write the date in pencil on the package, and Tara E. swears the dude told her that the package would be marked that date in the Book of Gold or wherever FedEx keeps its sacred writings.

Well, of course it doesn’t, the computer puts in the next day. And that’s what counts.

So Tara E. sent her petition to the wrong place, by the wrong means, relying on the wrong advice, and, as far as Ch J Iron Mike is concerned, a day late.

Ch J Iron Mike spends four pages discussing postmarks, mailed-is-filed rules, and what FedEx personnel mark on airbills. This doesn’t help Tara E., although practitioners and petitioners would do well to read and heed.

Now maybe Tax Court’s video about starting a case makes it clear that Tax Court isn’t IRS, but I don’t think so. I would propose a statement front and center on Tax Court’s website that Tax Court isn’t the IRS, it’s independent, and anything to do with Tax Court must go to 400 Second Street, NW, nowhere else. List the Magic Mailing Methods. And amend the list to include whatever services these PDS offer.

There follows the usual brush-off.

“Hence, while the Court is sympathetic to petitioner’s situation and understands the unintentional character of the inadvertence here, the serious health issues, and the good faith of petitioner’s efforts, the fundamental nature of the filing deadline precludes the case from going forward. As a Court of limited jurisdiction, the Court is unable to offer any remedy or assistance when a petition is filed late. Rather, the Court is barred from considering in anyway petitioner’s case or the correctness of her claims. Unfortunately, governing law recognizes no reasonable cause or other applicable exception to the statutory deadline.” Order, at pp. 4-5.

Here ends the lesson.

As Harry Golden, raconteur and essayist, put it more than fifty years ago, “The most famous expression among the immigrants on the East Side of New York was ‘A klug zu Columbus’n’ which, freely translated, meant that Columbus should have broken his head before he discovered it (America).  The expression was always used in good humor and often as a term of endearment, as we shall see.”

Mr Golden went on to describe Columbus as a folk-hero, a kind of mythic figure both praised and blamed, but ultimately the source of good-humored comment.

Howbeit, my readers, descendants of immigrants as we all are, whether our several ancestors crossed the Bering Strait coming from the Olduvai Gorge, or from the steppes of Central Asia, or even across the Atlantic or Pacific, I note that Tax Court is closed today, so I can bring y’all neither entertainment nor enlightenment.

Enjoy a day off, whether it be for you Indigenous Peoples’ Day or Columbus Day. And anyway, have a klug zu Columbus’n.

No, not the Central Park delight of my childrens’ earliest years, nor yet the Johnson-Ellicott-Binghamton collection, but rather the carousel stopped by Judge Lauber in my blogpost “Carousel”, 6/9/14.

Tax Court has issued a press release this date closing the carousel Jeff Holden wanted to get on to avoid testifying about Project Goldcrest in Amazon.Com, Inc & Subsidiaries, Docket No. 31197-12. My blogpost aforementioned tells the tale.

Here’s the press release: “The United States Tax Court announced that the hearing to be held in Amazon.Com, Inc. & Subsidiaries v. Commissioner of Internal Revenue, Docket No. 31197-12, during a Special Session of the Court in Washington, D.C., beginning at 1:00 p.m. on October 24, 2014, will be closed to the public. The Court will hear the testimony of one of petitioner’s witnesses who will be unavailable during the trial of the case scheduled to commence in Seattle, Washington, on November 3, 2014.”

I wonder what Jeff, or whoever the mystery witness may be, has to say that cannot be heard by all the world. And why Judge Lauber, or whichever power-that-be, thought it necessary to put out a press release.

The words of the late great Dr. Eric Berne echo through the ongoing saga of Mica Ringo, Docket No. 29562-12W. Mica’s and IRS’s dilemma continues to befuddle the parties, Tax Court and, last and certainly least, your most humble and obed’t servant. See my blogpost “Oh, Those Letters!”, 10/6/14.

IRS did make a determination on Mica’s Form 211, and Mica timely petitioned, but then IRS said “whoops, got it wrong, ignore previous transmission”, and moved to dismiss for want of jurisdiction. Judge Colvin said “tough table tennis, troops, it’s a determination and a timely petition and we got jurisdiction.”

Ms. Jennifer Cordaro over at CCH got some copy out of me on the subject, but I carefully refrained from giving legal advice either to Mica or IRS about what to do when they were in the ring but didn’t want to fight…yet.

And I’ll still refrain, but they have to do something, because Judge Colvin wants to push them to trial or settlement…even when they haven’t decided that they have a case or controversy, or anything to settle.

Here’s Judge Colvin: “ORDERED that the parties shall, by November 30, 2014, file a status report on this case, including actions needed to prepare this case for trial or to consider the possibility of settlement.” Mica Ringo, Docket No. 29562-12W, filed 10/9/14.

I’ll still refrain from giving legal advice to either party, but I suggest a conference call with Judge Colvin might be a good idea.

No, this is not another celebrity interview. This is the story of Applied Research Associates, Inc. and Affiliate, 143 T.C. 17, filed 10/9/14. Applied is a Personal Services Corporation. Check out Section 448(d)(2) for that, but in brief, it means a corporation providing personal services through its present, past and deceased officers and employees, and their heirs, distributees, etc.

Both sides agree Applied is one such. However, the Drs. Heathington (he an engineer, she an educator), bosses of Applied,  were also honchi (plural of “honcho”) of a cattle breeding outfit, also a C Corp, called Oak Crest. Even though Dr. Engineer went down to Texas to “rope ‘em and brand ‘em and bob off their tails”, Oak isn’t a PSC. Can’t get personal with cows, however up close you get.

Let’s forget that Applied compensated both Drs via 1099-MISC (nonemployee), even though they are officers working for Applied. And that Oak didn’t compensate Dr. Engineer while he was “ridin’, rockin’, ropin’, poundin’ leather all day long”.

What both Applied and Oak did was file a consolidated return. And use the graduated rates in Section 11(b)(1). No, that’s not a new MOS for grunts with M-16s; and if you don’t know what that means, consider yourself lucky.

IRS says Applied and Oak have to use the flat 35% Personal rate of Section 11(b)(2), although we’ll let Applied (which had a profit) net its taxable income against Oak (which, surprise, surprise, had a loss).

IRS argues that the Section 1.1502 regs let IRS break the two corporations’ incomes into separate baskets. And tax each basket accordingly.

Not so fast, says His Honor Big Julie, Judge Julian I. Jacobs (hereinafter “HHBJJJIJ”). While it’s true Section 11 creates two rates for corporations, Reg. Sec. 1502-2(a) doesn’t say that. All it says is that once you’ve netted out intercompany dealings and such, you apply the rate. It says nothing about “baskets”.

And you’ve had the regs that way since 1966, when there was only a single corporate rate (graduated). When Congress hit the Personal Servers in 1987 with a flat rate, Treasury never changed the regs.

IRS claims the regs let IRS treat insurance departments as basket cases, so why not PSCs?

“In his brief respondent [IRS] notes that sec. 1.1502-2(e), Income Tax Regs., imposes a tax on a life insurance department’s income without netting it against any losses of the consolidated group. Respondent asserts that this section grants him authority to impose the qualified personal service corporation’s tax rate on the entire amount of income attributable to the qualified personal service corporation member without taking into consideration losses suffered by other members of the affiliated group. However, respondent states he took a ‘more conservative approach in this case to allow the members to net their income before applying the qualified personal service corporation tax rate’. Because of respondent’s concession, we need not and do not consider netting losses against qualified personal service corporation income.” 143 T. C. 17, at p. 14, footnote 5.

Maybe so for insurance, but not for anything else.

HHBJJJIJ: “Respondent posits that just as insurance company income is taxed separately from the affiliated group’s consolidated taxable income, qualified personal service corporation income is to be taxed separately from the affiliated group’s consolidated taxable income. We disagree.

“Paragraphs (b) through (j) of section 1.1502-2, Income Tax Regs., enumerate taxes to be added to an affiliated group’s tax liability. Qualified personal service corporate income is not one of the enumerated special types of income. Indeed, far from providing qualified personal service corporations with special status, section 1.1502-2(a), Income Tax Regs., includes the income of qualified personal service corporations in the affiliated group’s consolidated taxable income.” 143 T. C. 17, at p. 17.

IRS claims that Applied and Oak are two separate corporations that have special permission to file a consolidated return. But the case IRS cites has to do with disallowance of a Section 162 deduction for preincorporation costs of parent to subsidiaries, which weren’t up and running when the costs were incurred; thus were nondeductible contributions to capital.

No one claims Applied and Oak weren’t doing business during the years at issue. And IRS’s concession that they could net their income and deductions confirms that they are actually doing business, else why allow them any business deductions at all?

Lest the Drs. Heathington exchange too many high-fives with their able counsel, HHBJJJIJ has a warning shot: “Petitioner’s primary argument is that there is no guidance in the Code, the regulations, or other authority regarding the method of establishing the proper rate or rates of tax on consolidated taxable income where one member, but not all members, of the affiliated group is a qualified personal service corporation. While petitioner is correct that there is no guidance with respect to such a situation, acceptance of petitioner’s position is fraught with danger. Section 11(b) was intended to deny the benefits of graduated corporate income tax rates to qualified personal service corporations. See RA 1987 sec. 10224(a); H.R. Rept. No. 100-391 (Part 2), at 1097 (1987). Although we can envision circumstances where this intent could be circumvented by petitioner’s position, we are nevertheless compelled to find in favor of petitioner.” 143 T. C. 17, at pp. 19-20.

And HHBJJJIJ drops a strong hint to Treasury via IRS that it’s time to amend the regs.

There’s been some back-and-forth in the trade press and even in mainstream media about art as a business, with some commentators averring that IRS was at war with the artists. I stated that wasn’t entirely the case. When someone has a source of income otherwise than from art (or any pleasurable activity), and yet claims one is in the art (or other) business for profit rather than solely for pleasure, while taking heavy duty deductions and losses from the pleasurable business, it does raise questions.

And Revenue Agents need not be art critics, or connoisseurs of these various activities, to start handing out deficiencies.

Case in point: Terry Gene Akey, 2014 T. C. Memo. 211, filed 10/8/14.

Judge Halpern deals with Terry Gene’s claimed losses in his sports memorabilia business based on Terry Gene’s unsubstantiated records (5,000 pages), with no tie-in in his post-trial brief as to what substantiates what.

Judge Halpern isn’t going to try: “Petitioner has in his briefs proposed findings of fact but has not accompanied those proposed findings by references to anything in the record. We have received into evidence eight binders of exhibits, consisting of over 5,000 pages provided by petitioner. Because petitioner has made it virtually impossible for the Court to verify any of his proposed findings that were objected to by respondent [IRS], and because he has violated Rule 151(e)(3), the Court, in making its findings, has disregarded all of petitioner’s proposed findings to which respondent has objected.” 2104 T. C. Memo. 211, at p. 4, footnote 1 (Citation omitted).

Terry Gene is also a periodic nonfiler and a habitual latefiler. This doesn’t help.

So even if you’re a serious devotee of your pleasurable craft, you need to keep records. And be prepared to substantiate deductions. If you want tax deductions, that is.

Gary R. Fears, that is, Docket No. 671-10, filed 10/8/14. Gary is apparently one of the Sugarloaf Fund, LLC, guys that got caught in John E. Rogers’s DADs web. For more about the web, see my blogpost “More Shell Games”, 9/2/11, and for more about Sugarloaf, see my blogpost “Honor Your Partner – Part Deux”, 9/5/13.

Gary, through Sugarloaf, wants Tax Court to tell IRS to reallocate income and deduction among the various players in Mr Rogers’s dodge-ball game.

But he does this as part of a double-barreled motion, both to reopen the record and to order the reallocation.

Judge Wherry is not amused, as he has to toss a couple dozen, as Judge Holmes would put it, motions by IRS to eject Mr Rogers as tax matterer for these multifarious malefactors.

“As an initial matter, Rule 50(a) requires that each motion filed with this Court ‘show that prior notice thereof has been given to each other party or counsel for each other party and * * * state whether there is any objection to the motion.’ The instant motion is silent on these subjects, and respondent represents that Sugarloaf failed to contact respondent concerning the motion before filing it. We could deny the motion on the basis of this foot-fault alone, but we also have more substantive grounds for doing so.” Order, at p. 2.

Moreover, you’re too late, Sugarloaf. “When Sugarloaf filed the instant motion, the Court had already advanced substantially in deciding these complex cases. We are thus able to state that the evidence Sugarloaf proffered would not materially change the outcome. “ Order, at p. 2.

As regards making IRS reallocate income and deductions, that’s a total nonstarter.

“…Sugarloaf identifies no basis for the Court to reallocate tax items among Sugarloaf and its asserted related parties, or to compel the Commissioner to do so. Indeed, ‘section 482 grants no * * * right to a taxpayer to apply the provisions of section 482 at will or to compel * * * [the Commissioner] to apply such provisions.’” Order, at pp. 2-3 (Citations omitted).

“…Congress enacted section 482 as a sword only for the Commissioner, not as a sword or a shield for the taxpayer. Accordingly, the Court lacks the authority to grant the requested section 482 relief Sugarloaf seeks.” Order, at p. 3.

“Pigs Git Fat, and Hogs Git Et”

No, this is not a further tale of Jonathan Swift’s peripatetic hero Lemuel, but rather a different wanderer in realms of gold. And the folk wisdom abovecited comes from the advice the battle-tested lawyer gives this blogpost’s subject, which he carefully ignores.

Come along with me, if you will, as an old professor of mine used to say, and follow the tangled trail of Richard H. Cullifer, Transferee, 2014 T. C. Memo. 208, filed 10/7/14, as untangled by Judge Laro.

Cullifer started as a banker, but discovered the joys of real estate development. His big strike came when he discovered ammonia. There was a shortage, so he bought a beat-up old chemical plant in Texas’ Pollution Belt, converted it, and started importing ammonia. His vehicle was a C Corp, of course.

So much did the business flourish that Cullifer switched to other chemicals as well, and finally looked to sell. However, his basis in his C Corp stock was, as we say in the real estate development trade, bupkis, and his gain heavy-duty, and trapped in the C Corp.

Enter an exec from a would-be acquirer who introduces Cullifer to (drumroll)–our old chum MidCoast Investments.

Judge Laro: “We observe that MidCoast has been involved in a number of transactions in cases that have come before us. See, e.g. Hawk v. Commissioner, T.C. Memo. 2012-259; Feldman v. Commissioner, T.C. Memo. 2011-297; Starnes v. Commissioner, T.C. Memo. 2011-63, aff’d, 680 F.3d 417 (4th Cir. 2012); Griffin v. Commissioner, T.C. Memo. 2011-61.” 2104 T. C. Memo. 208, at p. 8, footnote 6.

I will not cite to my blogposts covering most of these. By now, my readers, few in number but strong in stomach, must know the games MidCoast and its alter egos played.

Cullifer already sold all the assets, tangible and intangible, of his C Corp (and put $1 million of the proceeds in his personal bank account, but not on his Form 1040).

Now to unload the stock.

Well, the battle-tested lawyer abovecited, Robert Thomas, Esq., sounds the alarm. (“Mr. Thomas is certified by the Texas Board of Legal Specialization in estate planning, probate law, and tax law. Over the past 25 years, Mr. Thomas has represented clients in over 100 corporate purchase and sale transactions.” 2014 T. C. Memo. 208, at p. 6, footnote 4.)

“…I still have the same feeling that any buyer of the stock may not be able to get the tax benefits they think they will get if they ever get audited. But, that won’t be OUR issue as long as we carefully limit our reps and warranties in the sale agreement. * * *

“Mr. Thomas concluded:

“DO NOT SIGN ANY LETTER OF INTENT OR ANYTHING ELSE REGARDING A POTENTIAL … STOCK SALE UNTIL YOU LET ME REVIEW/BLESS IT FROM THE LEGAL END. WE DON’T WANT TO GET TRAPPED HERE.” 2014 T. C. Memo. 208, at p. 18.

So colleague Thomas asks the MidCoast people for representations, guarantees, warranties and indemnities. The go-between says no one will give them, and it’s a roadmap for IRS if they give them.

We’ve all heard that one before. Mr. Thomas gives the right answer, of course.

“Well, …actually it just amounts to me looking out for my client. I’m not trying to kill a deal, make a sale or make a commission here. Where I am from, there is a time-honored axiom of high finance which goes like this: pigs git fat, and hogs git et.” 2014 T. C. Memo. 208, at p. 19.

Need I say more? Well, you know I will.

Cullifer liked MidCoast because he would pass their building on I-95 in Florida. It looked solid.

Mr. Thomas wanted guarantees, etc., from MidCoast, but the final purchaser wasn’t MidCoast, of course, but one of its shell-shills. So Mr Thomas sounded the alarm again.

“One thing right off the top that should be a deal killer–where the hell did Midcoast go? …. The business risk to you without Midcoast or other party with money is that there is no one there to step up and honor the indemnity for tax liabilities fye [(for year ending)] 9/30/04 which would otherwise be due on corp asset sale … if IRS comes calling in 2005, or [the shell-shill] does something screwey post stock sale that gets us in trouble with IRS or whoever. Seems to me Midcoast must be a party or at least guarantee the performance of all obligations, etc of [shell-shill] under the agreement.” 2014 T. C. Memo. 208, at p. 26.

Of course, Cullifer signs on with the shell-shill.

And the shell-shill does the usual roundy-rounder, loading up yet another counterparty with some junk loans, claims a bad debt deduction to offset the gain from the asset sale and the stock sale, and disappears into the night.

Cullifer, true to form, never bothers to include the gain on the stock sale on his 1040.

Unsurprisingly, IRS blows this out of the water.

While Judge Laro blows off IRS’s expert on the subject of economic substance (that’s a mixed matter of fact and law, and the Court will decide that one), it’s clear the bad debt deduction is a joke, as the trash transferred to the counterparty had a basis near zero, not $17 million as claimed.

This is a “Midco” deal, as described in Notice 2001-16, 2001-1 C.B. 730, clarified by Notice 2008-111, 2008-51 I.R.B. 1299. The idea of having an intermediary buy the stock of a C Corp (without reduction for the tax liability of the built-in gain), sell the assets to a genuine buyer, and transfer the net proceeds of sale to the seller of the stock, is identified as a “listed transaction”. And because the intermediary is a judgment-proof shell-shill who tries to offset the taxable gain on the stock with shenanigans as described in the numerous MidCoast cases, the tax liability falls on the transferor (seller) of the stock.

OK, so it’s time to parse the Texas fraudulent transfer statute, and Cullifer falls right into it. He knowingly made this deal to delay, defeat and hinder IRS. I’ll spare you Judge Laro’s extensive analysis.

IRS wants to stick Cullifer with the money MidCoast pulled out of the deal, and concomitant tax, but Judge Laro says no, Cullifer didn’t get that money, so I’ll only nail him for what he did get. And though he got it as the transferee-of-a-transferee, because of MidCoast’s ballet with various shell-shills, that doesn’t matter.

And IRS did make reasonable efforts to collect. They filed liens and did searches against one shell-shill, and the other was hopelessly insolvent, so further efforts were a waste of time. While there might be other parties against whom IRS might go, the liability is joint and several, so IRS can smite one or any, as it chooses. Whereupon Cullifer the smitten can go smite the others by way of contribution, if he can find them.

Takeaway–See my blogpost “Listen to Your Lawyer”, 6/19/14.

Here’s the latest from the Tax Court website.

“The Court’s Web site will be unavailable from 6:00 p.m. to 11:00 p.m. Eastern time on Tuesday, October 7, 2014. No documents may be eFiled through Petitioner Access or Practitioner Access during this time. NOTE: Petitions and notices of appeal may NOT be eFiled and this does NOT apply to petitions and notices of appeal. We regret any inconvenience this may cause.”

Beware, you procrastinators and deadline-jumpers. And it really inconveniences us late-night bloggers.

Amazon.Com, Inc. and Subsidiaries has given me four good blogposts, but now they’ve hit the Big Time.

It’s all about The Big A’s profit-stashing deal with the Luxembourgeois, and whether the aforesaid Luxembourgeois were giving Amazon and its subsidiaries a special tax break to funnel cash to the stash. The EU’s tax hounds are hot on Amazon and subs’s trail.

You can get the AP’s take here. http://www.reuters.com/article/2014/10/07/us-eu-amazon-com-tax-idUSKCN0HW0PP20141007

Remember, you saw it here first.