Much to remember. But here’s a link to a story, though off-topic, is worth reading.

http://www.dailykos.com/story/2014/09/10/1328813/-The-Astonishing-Story-of-the-Federal-Reserve-on-9-11?detail=email#

And Show You Dug

That’s Chief Judge Michael B. (“Iron Mike”) Thornton’s word to IRS’ counsel (nameless here forevermore, as a much better writer than I put it), in Maher M. Al-Tahan & Celia Al-Tahan, Docket No. 16651-14, filed 9/10/14, a day when nary an opinion nor a designated order was filed. Perhaps the distinguished judges were joining with me in protesting the FCC’s attempt to sell the Internet; I do hope so.

Even if they didn’t, you can. See my blogpost “An Even Slower Day”, 9/10./14.

Howbeit, IRS’ counsel needs time to find the administrative file; he claims he asked IRS for same, but same was not forthcoming. Apparently he did not described in copious detail his efforts to unearth same, with copies of correspondence, telephone loggings and the kind of substantiation one would expect.

At least, the kind of substantiation Ch J Iron Mike expects.

Ch J Iron Mike allows IRS’ counsel more time, with a caution: “…in prosecuting a motion for extension of time to file an answer the Commissioner normally must show that he acted with due diligence in attempting to file the answer within the applicable 60-day filing period. Although the Court will grant respondent’s motion, the Court is not inclined to grant any further extension of time to file the answer unless respondent’s motion includes a detailed description of the efforts respondent has undertaken to obtain the administrative file.” Order, at p. 1.

So if an IRS lawyer claims s/he can’t find the admin file, ask the Judge to make him/her provide pictures, descriptions and accounts.

The reason you’re reading this is that the Internet is, so far, neutral. Everyone has equal access. But the United States Federal Communications Commission wants to end that. In yet another assault on freedom of speech and freedom of the press, the Commissioners propose to sell the Internet to the highest bidder.

Small blogs like this one will be slowed down to extinction.

This is a non-political blog, and it will remain so. But it will be of no use nor serve any purpose if it cannot be read.

If this blog is of any use to you, either for instruction or amusement, please send a comment today, September 1o, urging that the Internet be kept free and neutral. Here are the addresses:

Chairman Tom Wheeler: Tom.Wheeler@fcc.gov
Commissioner Mignon Clyburn: Mignon.Clyburn@fcc.gov
Commissioner Jessica Rosenworcel: Jessica.Rosenworcel@fcc.gov
Commissioner Ajit Pai: Ajit.Pai@fcc.gov
Commissioner Michael O’Rielly: Mike.O’Rielly@fcc.gov

Thank you.

I had a meeting with the Board of Directors of a client today at 3 p.m., EDT, so Tax Court, obliging as ever, released no opinions today, assuring thereby that I would not have to hasten back to my computer to get y’all the latest.

Judge Holmes (I’ll skip the honorifics) has two designated hitters, but the only point is that being convicted of tax fraud and some amount of underpayment in consequence thereof does not estop the fraudster from fighting over the exact amount he owes Uncle Samuel. To the same effect see my blogpost “Orders in the Court”, 3/9/12, the story of Albert Bront, ex-Revenue Agent.

But Judge Laro, hiding his light under a bushel and sending me on a lengthy boustrephon through a field of uninteresting orders, has one about experts who stray from the straight-and-narrow, making conclusions of law and findings of fact, and advocating rather than enlightening the Court.

The case is James A. Survilla, Transferee, Docket No. 6332-12, filed 9/9/14, but Jim is a bystander. The heavy in this piece is J. T. Atkins, IRS’ witness, whose credentials Judge Laro addresses in a footnote.

“Mr. Atkins graduated from Harvard Law School in 1982, after which he practiced mergers and acquisitions law for 3 years and worked as an investment banker for 29 years.” Order, at p. 1, footnote 1.

I’ll spare you my snarky remarks about those who practice briefly and hie themselves off to other (presumably more lucrative) endeavors. And certainly I’ll avoid the t-shirt: “Harvard- because not everyone can go to Cornell.”

There, now we can get on with it. Judge Laro: “To be admissible, expert testimony must be both relevant and reliable. To be reliable, expert testimony must be based on sufficient facts or data and it must be the product of reliable principles and methods properly applied. To be relevant, expert testimony must ‘assist the trier of fact to understand the evidence or to determine a fact in issue.’ ‘Expert testimony is not relevant if the expert is offering a personal evaluation of* * * the motivations of the parties.’ ‘The proponent of expert testimony must establish its admissibility by a preponderance of the evidence.’” Order, at p. 2. (Citations omitted).

Judge Laro serves as gatekeeper, and J. T. is a gatecrasher.

J. T. has predominantly given only legal conclusions, or at best mixed conclusions of law and fact. He’s telling the Judge what to find, and Judge Laro isn’t buying it.

But J. T.’s opinion isn’t wholly worthless.

Judge Laro: “Nonetheless, Mr. Atkins does provide several opinions which are properly within the purview of an expert, including his opinions that: (1) it is ‘not normal’ for a C corporation without operating assets to be purchased for more than its book value; (2) discussions centered on taxes and the removal of noncash assets and liabilities from a corporation are not ‘typically topics of* * * [primary] focus’; (3) the wire transfer or escrow of an acquired corporation’s cash assets as part of a stock sale is ‘highly unusual’; and (4) indemnity clauses regarding postclosing tax liabilities are ‘highly unusual’.” Order, at p. 6.

So J. T. can get that much in. But the rest goes over the side. And if IRS still wants J. T.’s explications to go in evidence at trial, they must redact his written opinion.

It’s an unending mantra in denying one’s own (or granting one’s opponents’) motions for summary judgment: affidavits from attorneys without personal knowledge of the facts are worthless.

And The Great Dissenter, a/k/a The Judge Who Writes Like a Human Being, s/a/k/a The Implacable Foe of the Partitive Genitive, Mark V. Holmes, is nowise loath to recite the same. But for once, the old mantra doesn’t dispose of the affidavit.

It’s a designated hitter, Edward Anthony Purvis & Maureen Helena Purvis, Docket No. 18817-12, filed 9/8/14.

Ed and Mo want partial summary judgment, granting them the Section 6694 reliance defense to both fraud and accuracy penalties for two of the years at issue.

We all remember the Neonatology three-legged stool: qualified adviser, told all the facts, and relied on in good faith.

Judge Holmes: “This defense is usually fact-intensive, and this case is no exception. While petitioners presented affidavits that asserted all three elements (although on the first element all we have is the title CPA and the apparent recommendation of a friend who’d used the adviser), respondent [IRS] countered with an affidavit from counsel in which she swore that she’d asked for records relating to the preparation of the returns and received in return only a blank CD.

“An affidavit of counsel is usually inadequate to counter a summary judgment motion, because affidavits on such a motion must be ‘made on personal knowledge’ and ‘set forth such facts as would be admissible in evidence,’ Rule 121(d), and litigating lawyers don’t get to be witnesses in a case.” Order, at p. 2.

As for litigating lawyers not getting to be witnesses, take a look at my blogpost “A Non-Christmas Carol”, 12/23/13, wherein I point out that the ABA Model Rule 3.7(3), which by dint of Tax Court Rule 202(a)(3) applies here, excepts from its prohibition cases where disqualifying the litigator-witness would “work substantial hardship on the client”.

However, we need not get there by that route, because Judge Holmes has a simpler way.

“But Rule 121(e) does allow such affidavits to show why a party can’t respond with the usual evidence in opposition to the motion. And this is what happened here with the blank disk. Moreover, the skimpy, and sometimes conclusory allegations in the affidavits in support of the motion trigger application of the principle that all reasonable inferences have to be drawn against the movant. So, for example, while the adviser is sworn to be a CPA we can’t just assume his competence as an adviser.” Order, at p. 2.

Compare and contrast this with STJ Daniel A. (“Yuda”) Guy’s approach, in my blogpost “It Depends”, 10/23/13, where STJ Yuda stresses the point that Marc Anthony Rael can’t reply upon his preparer Charlene M., because she is not a certified public accountant. I left aside, at the time, the question whether the CPA qualification was the sole indicium of expertise in Federal income taxation.

It might be time for The Great Dissenter and STJ Yuda to discuss this divergence of views over a cup coffee and a piece pie in the Judges’ cafeteria at 400 Second Street, NW.

But until then, no summary judgment for Ed and Mo.

No, not another Section 104 physical injury case. This time,  Judge Kerrigan figures out how to get rid of a California LLC that got rid of itself, and doesn’t oppose IRS’ motion to get rid of it and its case.

Forma Pro Gym, LLC, Docket No. 15356-13SL, filed 9/5/14, was organized under the laws of the former Bear Republic, n/k/a California, back in 2010. With its case set for trial this Monday, IRS notices that Forma Pro is former indeed, as it canceled itself the week before last, dropping a Certificate of Cancellation upon the California Secretary of State.

OK, so does Forma Pro have any existence in Tax Court?

The answer isn’t easy.

Judge Kerrigan: “Rule 60(c) is silent as to what law to apply to determine the capacity of an LLC. Rule 17(b) Federal Rules of Civil Procedure has a catch-all provision that states for all parties that are not corporations or non representative individuals, capacity is determined based on the law of the state where the court is located with the exception that a partnership or unincorporated association lacking the capacity to sue or to be sued in the state may sue or be sued in order to enforce a substantive right under the United States Constitution or laws. In district courts, LLCs are covered by this catch all provision.” Order, at p. 1 (Citation omitted).

OK, so can Forma Pro continue its battle with IRS, even though it’s perfectly happy to go away?

Like love, Judge Kerrigan finds a way: “Where there is no applicable rule of procedure, the Court may prescribe the procedure, giving particular weight to the Federal Rules of Civil Procedure. Rule 1(b), Tax Court Rules of Practice and Procedure. Under the law of the District of Columbia, where the Tax Court is located, petitioner is a foreign LLC because is it an unincorporated association formed under the laws of a jurisdiction other than the District of Columbia that would be an LLC if it were organized under the laws of the District of Columbia. The courts of the District of Columbia have applied the law of the state of formation to determine the capacity of a foreign LLC to maintain a suit in D.C. courts.” Order, at pp. 1-2. (Citations omitted).

So, since canceling in California cancels Forma Pro everywhere, they’re auf’d.

I love this stuff. 

I got some sad news about a colleague who got her license suspended for nonpayment of two years’ worth of State income tax, while she had a six-figure income. The Court took pity, and only gigged her six months suspension, but her partner was devastated, as their firm had to tell all their clients the bad news.

Once again, the old story: there but for the grace of you-know-Whom goes any of us.

But at least she never hung up the phone on a judge. However desperate her circumstances, or whatever her delictions, she never crossed that brink.

Not so Chushanrishatham Jeconiah Golightly, Docket No. 11703-10L, filed 9/4/14. ChushJec, apparently impatient with what he conceives, and the Bard characterized, as “the law’s delay, The insolence of office, and the spurns That patient merit of th’ unworthy takes”, doesn’t bother with pretrial memoranda or status reports.

IRS does, however, and so Judge Nega decides to get ChushJec and IRS counsel on the horn and have a pleasant chat, with a view to talk about where the case is going.

Now we combat-hardened practitioners love a conference. We can invoke justice and mercy, walk humbly, ingratiate ourselves, and get a sense of how the judge will deal with us when the green light goes on.

ChushJec, however, is made of sterner stuff.

I’ll let Judge Nega take up the story. “During the telephone conference, Mr. Golightly stated that he did not want to speak with the undersigned judge, and further stated that the Court was part of the IRS. Petitioner abruptly ended the call by ‘hanging up’ the phone with the Court. The Court notes that petitioner appears to be confused about the role of the Tax Court and the Internal Revenue Service.” Order, at pp. 1-2.

That’s not the only thing ChushJec is confused about. Whence I come, it is considered highly unwise to diss someone who can hit you with a $25K penalty on top of whatever else you owe, and let IRS send the US marshals to seize everything but the clothes you stand in to pay the same.

But Judge Nega is forbearing. “We take this opportunity to inform petitioner that the IRS and Tax Court are two separate entities. The Tax Court is an independent Court that handles disputes between the IRS and taxpayers.

“The Court has concluded that the telephone conference was not the best circumstance for giving additional information and instructions that we often give during a telephone conference but that rather we should give that information in writing.” Order, at p. 2.

So Judge Nega tells ChushJec to show up ready to try his case, and exchange witness lists and documents with IRS forthwith.

It’s almost worth the trip to Lubbock, TX, on September 15 to watch this trial. Almost, but not quite.

So ends the saga of Robert Jacobson, Docket No. 8447-13W, filed 9/4/14, as CSTJ Peter Panuthos shows Robert to the door, as IRS claims they collected no money from the various skullduggers Robert claims to have unearthed.

Robert avers he attached a list of skullduggers, their aiders and abettors to various documents he furnished the Ogden, UT gang, but they claim they never got them. Interestingly, the Ogden Sunseteers never mentioned that lacuna when CSTJ Pete denied them summary judgment back on 3/13/14, as to which see my blogpost “Summary Judgment – A Causerie”, 3/13/14.

Remember what I said back then: “But, as usual, the motion cuts multiple ways. Uncle Bob has told IRS what his case consists of. CSTJ Panuthos has told IRS what they need to do to meet, and maybe beat, Uncle Bob’s case. And Uncle Bob now knows something of what CSTJ Panuthos thinks of the case, if CSTJ Panuthos gets to try it, of course; he was only assigned the case to deal with the IRS’ motion.”

And deal with it he does: IRS claims they never got the list of alternate or additional skullduggery (apparently forgetting to mention that fact when they moved for summary judgment back in the Spring), never got any money, so Section 7623 says, paraphrasing that Goddess of the Runway, “you’re auf’d”.

Summary judgment for IRS.

Torgeir Mantor and his business partner Alan Smith needed a cash transfusion into their start-up LLC, as the venture capitalists were threatening to pull the plug on Visionmonitor Software, LLC, Torgeir Mantor, Tax Matters Partner, the subject of 2014 T. C. Memo. 182, filed 9/3/14.

Unable themselves to pump the cash, Tor and Al signed various sloppy, unnotarized, internally-contradictory and otherwise potentially defective promissory notes in favor of the foundering LLC, claiming thereby to have guaranteed payment and performance of the obligations of same to the vendors and other creditors thereof.

The VC types (venture capital, not Viet Cong, although in these times, who knows?), satisfied that Tor and Al have placed their anatomies on the table, fund the LLC, so that it actually makes money, eventually.

But Tor and Al want to take losses personally for the lean years. For that, as the LLC is box-checked as a partnership, they need basis in their membership interests, and claim the promissory notes give them that.

IRS claims they had zero basis in the notes, because the notes weren’t guarantees of the LLC’s debts, such as would have given Tor and Al basis.

This is a FPAA, so these are partnership-level issues post-Woods, as are the 20% chops for understated tax.

And who better to explicate the truth that promissory notes to the partnership butter no basis, than The Great Dissenter, a/k/a The Judge Who Writes Like A Human Being, s/a/k/a The Relentless, Implacable Foe of the Partitive Genitive, Judge Mark V. Holmes?

Setting the stage: “The value of what a partner contributes to his partnership can be tricky when he contributes something other than cash–like the notes at issue here. VisionMonitor argues that the contribution of the promissory notes increased Mantor’s and Smith’s outside bases in amounts equivalent to their face value. But a partnership’s basis in property contributed by a partner is the adjusted basis of that property in the hands of the contributing partner at the time of the contribution. Sec. 723. The Commissioner argues that the company’s basis in the notes is zero because Mantor’s and Smith’s bases in them were each zero.” 2014 T. C. Memo. 182, at p. 10.

And the Commissioner wins. There’s much caselaw to back up the Commish, and Tor and Al’s one case has to do with a direct guarantee by the partner. The partner has to step up to the creditors directly, placing the aforementioned anatomy on the creditor’s table, not the partnership’s.

And the “at-risk” rules aren’t relevant here. Judge Holmes blows them off in a footnote.

“VisionMonitor argues that the notes should be included in outside basis because Mantor and Smith were ‘at risk’ under section 465. It argues that the substance of the transaction made Mantor and Smith ultimately responsible for a fixed and definite obligation, that nothing in the Code or caselaw makes any explicit preclusion of partnership debts made to the partners themselves, and that the promissory notes constituted ‘genuine indebtedness.’ The Commissioner retorts that the ‘at risk’ limitation isn’t a partnership-level determination, and isn’t something we can determine here. It’s also an issue that we don’t have to decide because the relevant question isn’t whether the notes were a debt owed by the partners to VisionMonitor but whether the partners had basis in the notes.” 2014 T. C. Memo.182, at p. 13, footnote 6.

But while the applicability of the Section 6662 accuracy penalties can be decided at partnership-level (with a tip of the hat to Judge Marvel, and although the partners may individually have a shot at fighting them in a CDP, which is another story), Tor and Al dodge the bullet, relying on their trusty tax lawyer, who, although he did a dodgy job here, still impresses with his credentials and the guys’ transparent good faith. They let it all hang out, and their expert had credentials.

Good stuff here, guys. Read and heed.

Now comes the defender of the taxpayers’ wallet at the sixty-buck-palace-of-justice, The Great Dissenter, a/k/a The Judge Who Writes Like a Human Being, s/a/k/a The Implacable Unrelenting Foe of the Partitive Genitive, Judge Mark V. Holmes, who strides into the breach and stifles IRS’ deposition demand in Caylor Land & Development, Inc., et al., Docket No.17204-13, filed 9/2/14.

There are Seven Little Caylors, but I’ll just deal with this one. First day back from a three-day weekend is tiring.

IRS wants to depose both Robert II and Paula. They both say “no.”

Judge Holmes: “The change to our Rules to allow depositions of parties is fairly recent, and we still treat them as ‘an extraordinary method of discovery.’ Rule 74(c)(1)(B). What this division of the Court looks for is the general state of informal discovery, the stakes involved, and whether the depositions would materially aid the trial and possible settlement of the cases.” Order, at p. 1.

While the course of discovery hasn’t been of the smoothest, the Caylors haven’t scorched the earth (yet).

And though the issue (captive insurer of private business meets estate planning) is an IRS hotpot, the money on the table in this case isn’t huge.

“But even though the issue may be large, the Court continues to be reluctant to have the major costs of extensive discovery and pretrial-motion practice borne by the petitioners in relatively small cases. See Rule 70(c)(1)(C). And because this type of case has not yet been settling, it seems likely that the Caylors’ depositions would only be a rehearsal for very similar trial testimony.” Order, at pp. 1-2.

No-go, IRS. Ya should’a read my blogpost “Don’t Suppose You Can Depose”, 12/2/13.