I wanted to subtitle this blogpost “Until What Freezes Over?” for reasons that shall appear hereinafter. But first, the moving part.

Judge Morrison follows the trail of Jeffrey B. Palmer, in 2015 T. C. Memo. 30, filed 2/25/15, but Jeff fetches up fewer than fifty (50) miles from his old home base in search of employment.

Jeff wants to deduct expenses for moving his new wife (referred to in the opinion as “Palmer’s wife”, 2015 T. C. Memo. 30, at p. 4), plus her two children and her mother from South Carolina to Minnesota.

The nameless wife reminds me of a children’s book I used to read to a now-managing director in a Big Four accounting firm and a now-store manager for Starbuck’s. It featured Stephen of Blois, a Twelfth-Century King of England, also with a nameless wife. We had a lot of laughs about Stephen.

Anyway, Section 217 only refers to the employed, and mandates the over-fifty-mile limit. While Jeff does amble around the Great North Woods, from start to finish he’s fewer than fifty miles farther from work than he was at his old home. “No deduction is allowed under section 217 unless the taxpayer’s new principal place of work is at least 50 miles farther from the taxpayer’s old residence than was the taxpayer’s old principal place of work. Sec. 217(c)(1)(A).” 2015 T. C. Memo. 30, at p. 8.

Moreover, moving spouses count only when spouses shared old home; Jeff and Palmer’s wife (sorry, Ma’am) never lived together in South Carolina.

Simple enough case, with a textbook application of Section 217, but there is a delightful twist. And that sets up my subtitle “Until What Freezes Over?”. It’s the freeze that gives Jeff an entry in the maiden-claimer division of the Taishoff “no-prize good excuses” sweepstakes.

Jeff never bothered to file returns for the years at issue, although he did get extensions for both of them. Here’s his entry.

“Palmer alleges that he could not access his 2007 tax records and that these records were necessary for him to file his 2008 return. Palmer alleges that his 2007 records were in outside storage units and that the doors to these units were frozen over until the spring of 2009. However, because of an extension, Palmer’s 2008 return was not due until October 15, 2009. Any ice would have melted before October 15, 2009. Thus, the ice is not a reasonable cause for Palmer’s failure to file a tax return on or before October 15, 2009. See Stevens Bros. Found. v. Commissioner, 39 T.C. 93, 130 (1962) (‘[A]n acceptable reason for failure to file a return will excuse such failure only so long as the reason remains valid.’), aff’d in part, rev’d in part on another issue, 324 F.2d 633 (8th Cir. 1963).

Hey Judge, given the weather for the last couple weeks (hi, Judge Holmes), it isn’t a bad try.

The staple of many a CLE program has certainly made a mark on IRS’s counsel. Notwithstanding earlier ups and downs in pursuit of that goal (see, e.g., my blogpost “Win Your Case At Discovery”, 7/3/14) , the 1111 Constitution Ave NW guys are back at it in Eaton Corporation and Subsidiaries, Docket No. 5576-12, filed 2/24/15.

On a day with no designated hitters and only one unsubstantiated small-claimer, I have to write about something. But this is actually interesting. We have two orders with the same docket number, so, as Judge Holmes would say, now pay attention; follow the links: they’re leading in different directions.

In a three-day period earlier this month, IRS “… filed (1) a motion to compel production of documents (Index #0223), and (2) a motion to compel production of documents (Index #0224)” and a couple of days later … “(1) a motion to depose pursuant to Rule 74 (Index #0225), (2) a motion to depose pursuant to Rule 74 (Index #0226), (3) a motion to compel responses to interrogatories (Index #0227), (4) a motion to compel production of documents (Index #0234), and (5) a motion to compel production of documents (Index #0235).” Order, at p. 1.

The technical name for this is “flood the zone.” Not bad; keeps the adversary digging. Of course, Judge Kerrigan tells Eaton’s legal eagles to respond to all the foregoing, and get ‘er done by March 18.

Meanwhile Eaton’s legal eagles aforesaid haven’t been dozing on their eyries.

In a separate order, Judge Kerrigan notes that, at the same time IRS sprung their trap, Eaton “… filed (1) a motion to compel the taking of deposition (Index #0230), and (2) a motion to compel production of documents (Index #0232)” and also a day or two later …”filed a motion to compel production of documents (Index #0237).” Order, at p. 1

IRS must respond by March 18.

Looks like they all took the same CLE course. But what happens when both sides try the same tactic?

Sort of a coda to 44 USC§3501 et seq. today from STJ Lewis (“Champion Speller”) Carluzzo in a small-claimer, Gustavo E. Morles, 2015 T. C. Sum. Op. 13, filed 2/23/15.

Gus is younger than 59-1/2 years old, out of work and about to be evicted when he draws down his 401(k), his employee stock purchase plan, and Trad IRA (which he had funded with a non-deductible contribution) to preserve hearth and home. Of course, he loses when he claims drawdowns aren’t taxable, and he’s in line for the 10% chop as well.

“Although we sympathize with petitioner, we agree with respondent that the entire plan distribution is includable in petitioner’s 2010 income under section 72(a) and (e). Accordingly, respondent’s adjustment to that end is sustained.” 2014 T. C. Sum. Op. 13, at p. 5.

Now as to the Trad IRA, Gus’ investment in the contract is taken into account when reckoning what gain, if any, Gus got on the distribution. Investment in the contract is Section 72(c) language for basis. And nondeductible contributions to Trad IRAs are investment in the contract (or basis).

Now those of us with bases in Trad IRAs are now, or will soon be, struggling with this year’s Form 8606, after digging out Forms 8606 going back many years, and going through the convoluted hopscotch of said form, to extrapolate the miniscule allowable basis for the current year. And paid preparers will be asking for those forms from new clients.

But is this all necessary?

STJ Lew isn’t so sure: “Nondeductible contributions made to an individual retirement account must be reported annually on Form 8606, Nondeductible IRAs. See sec. 408(o)(4). The Form 8606 instructions state that a taxpayer must keep copies of records, including completed Forms 8606 for previous years, in order for the taxpayer to verify the nontaxable portion of the individual retirement account withdrawal or distribution. Although nothing in the record suggests that petitioner has complied with these reporting requirements, nothing in the statutory scheme suggests that a taxpayer who fails to satisfy these reporting requirements cannot include nondeductible individual retirement account contributions in the taxpayer’s investment in the contract. Taking into account the evidence that sufficiently shows the relevant transactional history of the IRA, we find that petitioner’s initial contribution to the IRA is taken into account in the computation of his investment in the contract for purposes of section 72.” 2015 T. C. Sum. Op. 13, at pp. 6-7.

Now Gus claims that, as he put in $1K nondeductible and nothing else,  and took out less than that, the whole distribution is nontaxable; IRS claims it all is. STJ Lew says there has to be an allocation, cites Section 72(e) and tells the parties to work it out in the Rule 155.

Now curb your enthusiasm, guys, before you start shredding those old Forms 8606, or leaving them off your current 1040. This is a small-claimer, can’t be cited as authority (Section 7463(b) says so), and STJ Lew cites no authority but his own peek at Section 408(o) and the Form 8606 instructions.

So if you go ahead and shred, don’t cite taishofflaw.com or Gustavo Morles when IRS comes to shred you.

I had commented some time ago about internet reportage of litigated matters. And so had Judge David Gustafson. See, e.g., my blogpost “Guess Who Reads My Blog? – Part Deux”, 8/11/14.

Well, now the New York Times has awakened to the e-filing barrage. And the consequences of unlimited access.

Here’s the link: http://www.msn.com/en-us/news/us/lawsuits%E2%80%99-lurid-details-draw-an-online-crowd/ar-BBhRzE7?ocid=mailsignout

I often see letters from self-representeds asking that their timely-filed petitions be withdrawn, as they elect to proceed administratively with IRS on the deficiency. This, of course, is a mistake, as once Tax Court has jurisdiction in a deficiency case, Section 7459(d) mandates decision (that is, judgment) in favor of IRS for the entire amount of the deficiency if the petition is tossed for anything other than want of jurisdiction. See my blogpost “Timing Is Everything”, 2/17/15.

So Ch J Michael B. (“Iron Mike”) Thornton puts Jamie Vorasai right, in Docket No. 30286-12S, filed 2/20/15.

Jamie asks to have his petition withdrawn, as he misunderstood the SNOD. He wants to work with IRS.

No, says Ch J Iron Mike, thereby saving Jamie’s right to Tax Court review. Jamie’s billet doux is recharacterized as a motion to dismiss, and is denied. So, “…the parties shall (1) either submit appropriate proposed decision documents, or (2) file written reports (preferably a joint report) with the Court concerning the then present status of this case.” Order, at p. 2.

And I often see timely petitions dismissed for failure to manually-sign or failure to pay the sixty bucks or seek a waiver.

Self-reps, once the magic 90 (or 150) days have run from date of SNOD, that’s it. Your right to petition Tax Court is gone. Worse, if you can’t make a deal and IRS gives you a NITL or a NFTL, you lost your chance to contest the underlying liability at a CDP, and “arbitrary and capricious” is an uphill battle.

If you want to work with IRS, that’s great. Pay the sixty bucks, or apply for the waiver, and sign the petition. If you make a deal, also great. If you can’t, you’ve preserved your rights. Including the collection stay.

No SNOD, no NOD, no go. That’s the story for Reginald Allen Porter, Docket No. 26218-14, filed 2/19/15.

RAP is two years late petitioning some SNODs he got, so that’s out. RAP wanted Section 6015 innocent spousery, but never filed joint returns for those years. Finally, RAP made an OIC that somehow, in a manner not clear to Ch J Michael B. (“Iron Mike”) Thornton, was related to his innocent spousery claim, but that IRS rejected, and RAP is petitioning that too.

It’s this last point that I want to consider here.

“Suffice it to say at this point that the various letters rejecting petitioner’s offer in compromise, and any potential claim for relief from spousal liability subsumed therein, do not constitute, and cannot substitute for, a notice of deficiency issued pursuant to section 6212, I.R.C., or a notice of determination issued pursuant to section 6320, 6330, and/or 6015, I.R.C. Only a narrow class of specified determinations by the IRS can open the door to the Tax Court. Although this Court has reviewed offers in compromise raised as a collection alternative in the context of a proceeding under sections 6320 and/or 6330, I.R.C., and as to which the disposition was incorporated in a formal notice of determination issued under those sections, the record does not show that to be the scenario here. Petitioner’s situation, in contrast, appears to concern a ‘stand alone’ offer in compromise solely under section 7122, I.R.C., outside the context of a section 6320 and/or 6330, I.R.C., collection case and over which no statute confers jurisdiction for review by this Court.” Order, at p. 3.

So unless one enters through the “narrow gate” of Sections 6015, 6212, 6230 and 6330, one must stand alone, and not in the precincts of 400 Second Street, NW, or wherever Tax Court comes to your neighborhood.

It’s an estate tax case, but the principle involved is our old friend from the façade wars, “so remote as to be negligible.” This is the test in Section 642(c)(2) for set-asides permitting an estate to take a charitable deduction even when it hasn’t actually spent the money.

The case is Estate of Eileen S. Belmont, Deceased, Diane Sater, Executrix, 144 T. C. 6, filed 2/19/15.

The late Eileen wanted the residuum of her estate to go to a genuine 501(c)(3), but the part of the cash therein included was income in respect of a decedent (a pension plan distribution), and wasn’t paid when the 1041 return was due, so the estate’s CPA, filing the 1041, took the deduction anyway, even though the cash was in an unsegregated checking account.

So the “permanently set aside for the purpose” is at issue, with the savings clause from the Regs: “…’unless under the terms of the governing instrument and the circumstances of the particular case the possibility that the amount set aside, or to be used, will not be devoted to such purpose or use is so remote as to be negligible.’ Sec. 1.642(c)-2(d), Income Tax Regs.” 144 T. C. 6, at p. 12.

There is no Tax Court learning on this point, but Judge Ruwe finds plenty from our old chum Larry Graev, Esq. Remember Larry and Lorna? No? Then check out my blogpost “Money-Back Guarantee”, 6/24/13.

The money for the charity has to come from gross income (OK, pension plan distribution is income), must be made pursuant to a governing instrument (Eileen had a will, duly probated, executor qualified), and must be set aside. Or maybe any chance that the gift would be defeated must be “so remote as to be negligible”.

Judge Ruwe draws on Larry’s case and cases therein cited.

When the 1041 was filed, unbeknownst to the CPA who filed it, there was protracted litigation in the offing. The late Eileen’s brother claimed a resulting trust, giving him a life estate in Eileen’s Santa Monica condo. He claims he took care of their mother until her death, and lived in the condo for a while. He wins in the CA courts ultimately, but the legal backing-and-filling depleted the estate’s cash, so the charitable donation never got paid.

I’ll spare you any mention of Dead Man’s Statutes; apparently it never got raised in the condo litigation, and maybe CA doesn’t have one or it is inoperative.

Howbeit, brother eventually wins. The estate claims “so remote as to be negligible”.

The test is “…‘a chance which persons generally would disregard as so highly improbable that it might be ignored with reasonable safety in undertaking a serious business transaction’. In Briggs v. Commissioner, 72 T.C. 646, 657 (1979), aff’d without published opinion, 665 F.2d 1051 (9th Cir. 1981), we construed the standard as being ‘a chance which every dictate of reason would justify an intelligent person in disregarding as so highly improbable and remote as to be lacking in reason and substance. With these interpretations in mind, we will consider the facts and circumstances of the matter sub judice to determine whether the possibility that the estate would invade the money set aside for the foundation was ‘so remote as to be negligible’.” 144 T. C. 6, at pp. 14-15. (Footnote omitted, but read it; the magic number for estates is a 95% win probability).

Judge Ruwe finds that brother’s claim was known to all hands, bar the CPA who filed it, before the 1041 was filed. Brother was represented pro bono by a CA lawyer of substantial credentials. When the executor tried to buy out brother, he refused. His attorney filed a Lis Pendens, started a lawsuit, and appeared ready for battle.

The executor never told the CPA all this.

So no non-negligible possibility of defeasance, so not permanently set aside, so no deduction.

Takeaway– Tell your preparer, please.

I thought at first glance that the tale of 436, Ltd., Robert Heitmeier, Tax Matters Partner, 2015 T. C. Memo. 28, filed 2/18/15, would provide some interest. After all, Judge Holmes (I’m leaving out the honorifics to save time) quoting Mark Twain on the antebellum joys of riverboat pilotage would certainly liven up this blog.

But alas, it’s just another son-of-BOSS phony foreign exchange dodge, the only twist being that outside basis isn’t brought into play in this TEFRA case. Nonetheless, Pilot Bob’s tax dodge gets blown up, with heavy-duty substantial undervaluation penalties.

Read the opinion for an update on Mark Twain’s Mississippi, but as for tax learning, it’s much of a muchness.

More interesting is Tim Sheridan, 2015 T. C. Memo. 25, filed 2/18/15. Tim says he’s going to claim his million-dollar theft loss annually until 2070, 2015 T. C. Memo. 25, at p. 10, but Judge Lauber isn’t buying it for 2009, 2010, or 2011, and the rest of the upcoming years don’t look so good neither.

Unusually for a guest on this blog, Tim is an inventor of something besides tax dodges. “He is the holder of U.S. patent No. 7,415,982, filed in 2001, for a ‘smokeless tobacco vaporizer.’ Certain other patents, which also involve a mechanism for heating materials so that they can be vaporized and inhaled through a tube, predate petitioner’s patent. His patent, like those other patents, precedes by almost a decade the recent rise to popularity of ‘e-cigarettes.’” 2015 T. C. Memo. 25, at p, 3.

Well, where there’s smoke there’s the cliché, but Tim’s device never caught fire (sorry, guys).

So Tim brooded. “He alleges (among other things) that Internet search engines have intentionally demoted his product; that social media platforms have conspired to diminish his product’s visibility; that the U.S. Postal Service has intentionally misspelled the name of his business; that a telecommunications firm has prevented him from sending crucial emails; that his computer has been continuously hacked to prevent him from retrieving important information; and that Wikipedia has improperly removed edits he sought to make to an Internet article discussing vaporizers. He contends that these perceived wrongs have enabled other companies to use his intellectual property and make vaporizer sales that his business would otherwise have made.” 2015 T. C. Memo. 25, at p. 3.

Like river pilot Heitmeir, Tim runs aground. Tim has no proof of anything. Instead “… he derives his damages by applying various formulas of his own creation, which apply estimates and randomly assigned multipliers to geographic populations, Internet traffic, total market, competitors’ sales, and other items.” 2015 T. C. Memo. 25, at p. 4.

Tim has been up to Fourth Circuit on his attempt to enjoin the collection of the deficiencies herein, but the Anti-Injunction Act (26USC§7421(a)) blew that away. Fourth Circuit was less than kind to Tim. “The Court of Appeals termed ‘nonsensical’ petitioner’s claim that he was entitled to a refund of $20 billion on account of losses he had suffered over the life of his patent.” 2015 T. C. Memo. 25, at p. 5.

Merely owning a patent doesn’t prove infringement. The theft loss in Section 165(e) requires criminal misappropriation, which Tim can’t prove.

Anyway, Tax Court isn’t the place to try a patent infringement case. “See 35 U.S.C. sec. 281 (2006) (‘A patentee shall have remedy by civil action for infringement of his patent.’); 28 U.S.C. sec. 1338(a) (2006) (‘The district courts shall have original jurisdiction of any civil action arising under any Act of Congress relating to patents[.]’).” 2015 T. C. Memo. 25, at p. 8.

“Petitioner clearly is not claiming a loss deduction for ‘theft’ but for alleged damage to his business from supposed anticompetitive behavior. Such damages, if they can be proved, are not deductible as ‘theft losses’ under section 165(e).” 2015 T. C. Memo. 25, at p. 10.

Inventive to the last, Tim “…contends that he is entitled to his $1 million deductions under section 186. Section 186(a) provides that, ‘[i]f a compensatory amount which is included in gross income’ is received for a ‘compensable injury,’ a deduction is allowed equal to the lesser of the ‘compensable amount’ or ‘the unrecovered losses sustained as a result of such compensable injury.’ Section 186(b)(1) defines a ‘compensable injury’ to include ‘injuries sustained as a result of an infringement of a patent issued by the United States.’ 2015 T. C. Memo. 25, at pp. 10-11.

I wanted to give Tim a Taishoff “Good Try, Second Class” for the last one, but Judge Lauber won’t let me.

“Even if petitioner could establish patent infringement, which he has not done, he has not alleged that he received, or included in gross income for 2009, 2010, or 2011, any ‘compensatory amount.’ See sec. 186(c) (defining ‘compensatory amount’ to mean an amount received ‘as damages as a result of an award in, or in settlement of, a civil action for recovery for a compensable injury’). Section 186 has no possible application here.” 2015 T. C. Memo. 25, at p. 11.

And Tim gets a penalty kick thrown in. He had no good-faith claim for a tax break. If he claims his patent was infringed, let him sue.

When it comes to deficiencies, there are two kinds of dismissals from Tax Court: want of jurisdiction, and everything else. Everything else includes, but is not to be deemed or construed in any way as limiting or abridging the generality of the foregoing (as my paid-by-the-word colleagues would say) lack or want of prosecution, or failure to state a claim.

See 26USC§7459(d): once Tax Court’s jurisdictional octopus has grasped the petition from a SNOD, the only way out is a win for the petitioner or a win for the IRS. No second-place winner.

So, on a day when teletubbying is the only show in snow-shrouded 400 Second Street, NW, Ch J Michael B. (“Iron Mike”) Thornton delivers the only order (!) on the Tax Court Board today; and it makes the distinction clear.

Even when the petitioner is dead, the basis of dismissal matters very much. See John L. Madden and Edna E. Madden, Deceased, John L. Madden, Surviving Spouse, 10989-14S, filed 2/17/15.

Edna, intestate, had gone to “a far, far better rest” when the SNOD arrived, but the SNOD was directed both to John L. and the late Edna. John L. timely sent in the petition. Unsigned. But he ratified it.

Ch J Thornton expatiates: “Hence, given that the death occurred prior to the filing of petition instituting this proceeding, and no fiduciary has been duly appointed by a court of competent jurisdiction, the record suggests that this case should be dismissed for lack of jurisdiction as to Edna E. Madden, Deceased. Conversely, the provisions of Nordstrom v. Commissioner, 50 T.C. 30 (1968), involving dismissals for lack of prosecution, would appear to be inapplicable.” Order, at p. 1.

So Ch J Thornton orders the parties to show cause why the petition should not be dismissed as to the late Edna.

As it is, John L. can fight on. And IRS can try to levy on whatever the late Edna left behind (which probably isn’t much, as there was no rush to appoint a personal rep).

But if the late Edna had died post-filing, and no personal rep continued the fight, then dismissal for want of prosecution would result in decision against the late Edna’s estate for the entire amount of the deficiency.

Takeaway– Might be a good idea to apply for letters, just in case, maybe to raise innocent spousery.