No, not the 1985 Michael J. Fox  – Christopher Lloyd American Film Institute’s tenth-best sci-fi film, but rather Judge Haines giving retroactive effect to the petition of US Loan Auditors, Inc., Docket No. 27157-13, filed 7/8/14.

There’s retroactivity all over the place in this Order, even without Chris Lloyd’s souped-up DeLorean. Try this: “On August 20, 2003, respondent [IRS] issued a Notice of Deficiency for the tax year that ended on December 31, 2010.” Order, at p. 1. Pretty cool for IRS to know that USLA’s return would be deficient seven years before the end of that tax year, eh? Doesn’t anybody proofread these orders?

It gets more retroactive.

“Petitioner filed the petition in this case on November 18, 2013. On January 10, 2014, respondent filed a Motion to Dismiss for Lack of Jurisdiction.

“Pursuant to petitioner’s motion, the United States Bankruptcy Court for the Eastern District of California issued a Civil Minute Order dated February 28, 2014 modifying the automatic stay ‘effective as of November 18, 2013, to allow United States Tax Court case number 27157-13 to proceed to a judgment or settlement.’ Petitioner and respondent have filed pleadings representing that, as a result of the United States Bankruptcy Court’s Civil Minute Order, the Tax Court has jurisdiction over this case.” Order, at p. 1.

Now of course there’s the automatic toll of the 90-day Section 6213(a) deadline in Section 6213(f), running from discharge or dismissal to Day 60 thereafter. But USLA either couldn’t wait, or didn’t know it had the toll, so it filed while the 11 USC §362 automatic stay was in effect.

So Judge Haines needs to know if he has jurisdiction. Golsen-izing, he finds Ninth Circuit says violations are void, not voidable, but Bankruptcy Courts have the power to lift the stay (and I’ve done it). And they can lift the stay retroactively (in extreme circumstances).

Howbeit, USLA was able to convince BCEDC to lift the stay retroactively. And USLA filed timely, given the retroactive lift-stay order, unlike another case where, although the stay was lifted, the petitioner filed late.

“Petitioner’s Motion to Annul the Automatic Stay filed with the United States Bankruptcy Court did not indicate that the 90 day period for filing a petition with the Tax Court was tolled by section 6213(f). Despite this defect in petitioner’s Motion to Annul the Automatic Stay, the United States Bankruptcy Court for the Eastern District of California has issued a Civil Minute Order retroactively lifting the automatic stay to allow this case to proceed.” Order, at p. 4.

So USLA is in, Tax Court has jurisdiction, and the Bankruptcy Court has gone back to the future.

This gem from Howell’s English Proverbs, 1659, is probably a lot older, for I once heard it ascribed, I expect incorrectly, to Niccolo Machiavelli, who lived more than a century earlier.

But whoever first said it, it remains a good rule, as counsel for Thomas J. Ratke & Bonnie F. Ratke, Docket No. 09641-01L, filed 7/7/14 finds out.

Said counsel, whom I’ll call Jacky, wanted STJ Lewis (“His Name Is His Fame”) Carluzzo to recuse himself from the case, and said so in a conference call.

“According to petitioners’ motion to recuse, the rulings embodied in the order are: (1) not based upon the record in this case; and (2) tainted on account of a ‘personal’ and/or ‘on going social’ relationship between the undersigned and respondent’s counsel. In response to a question from [Jacky] during a January 16, 2014, conference call (referenced in the order and petitioners’ motion to recuse) the parties were advised that the undersigned was familiar with Anne Durning and Ann Welhaf; the former as a student and the latter as a law clerk with the Tax Court. The parties were further advised that no other ‘personal’ or ‘social’ relationship exists between those individuals and the undersigned. During the conference call [Jacky] expressed an intention to make a motion to recuse the undersigned, now filed almost seven months later and following the order that embodies rulings adverse to petitioners.” Order, at p. 3.

And Jacky’s own file notes disclose that IRS’ counsel did not make “fabricated” or “misleading” statements to STJ Lew (“His Name Is His Fame”) Carluzzo.

You can guess the outcome of this one.

Takeaway- If you’re going to ask a Judge to recuse him/herself, (a) don’t wait until s/he rules against you, and (b) better have really good grounds. Really good. And read the headline of this blogpost before you make the motion.

But maybe you can get a bye, if you argue SOL. John Lewis Hill shows us how, in 2014 T. C. Memo. 134, filed 7/7/14.

John Lewis is an old Tax Court rounder. Here’s Judge Vasquez’s review of John Lewis’ rap sheet: “Respondent [IRS] has asked the Court to impose a sec. 6673 penalty on Mr. Hill on multiple occasions. In the case at docket no. 13267-09L, we warned Mr. Hill not to raise frivolous arguments again but declined to impose a sec. 6673 penalty. In the case at docket no. 15452-10L, we imposed a $5,000 penalty. In the case at docket no. 14625-12, we imposed a $10,000 penalty. And, in a consolidated proceeding under docket nos. 221-10 and 15501-10, we imposed $10,000 for each of the consolidated cases for total penalties of $20,000.” 2014 T. C. Memo. 134, at pp. 15-16 (Footnote 10).

John Lewis might qualify for Frequent Frivol points.

But this time John Lewis escapes the chop. As usual, for the year at issue he sent in an all-blank 1040, with just the standard deduction and the exemptions filled in. But IRS is a wee bit late, blowing the Section 6501(a) three-year deadline, in asserting the $5K Section 6702 frivolity chop.

John Lewis doesn’t raise this: IRS’ counsel does.

“However, during the summary judgment hearing, respondent’s counsel invited the Court’s attention to a potential statute of limitations issue.

“As respondent’s counsel explained, the section 6702 penalty was assessed…more than three years after Mr. Hill’s Form 1040 was filed.  Section 6501(a) establishes a general rule that taxes imposed under title 26 must be assessed within three years after a return is filed. If (1) the section 6702 penalty is considered a tax for purposes of section 6501 and (2) Mr. Hill’s Form 1040 does not fall within any of the exceptions to the general three-year rule, then assessment of the section 6702 penalty would be barred. The Court directed the parties to submit briefs on this issue.

“On brief, Mr. Hill adopts as his own argument the section 6501 statute of limitations issue raised by respondent’s counsel.” 2014 T. C. Memo. 134, at pp. 11-12.

And that saves John Lewis’ wallet this time.

Judge Vasquez easily disposes of the argument that a zero return is sufficient to start the SOL clock. It’s not a good-faith attempt to comply with law nor does it provide IRS with sufficient information to reckon John Lewis’ tax obligations.

It’s not a return, so whether the Section 6702 penalty is a tax or not for Section 6501(a) SOL reckoning is off the table. No return, no SOL.

But John Lewis’ lifting the IRS’ SOL argument isn’t frivolous; it’s an issue that might be worth considering in the right case. And even though this isn’t it, Judge Vasquez is letting John Lewis off this time.

“Mr. Hill’s checkered history notwithstanding, he has succeeded here in arguing an issue that merits consideration. While we hold that Mr. Hill’s Form 1040 was invalid and that the period of limitations is open, Mr. Hill made some arguments, on brief, that were not frivolous. Although a taxpayer who makes frivolous arguments is not immune from penalty just because some of his arguments are not frivolous, we decline to sanction Mr. Hill in this case. We do, however, strongly warn Mr. Hill, once again, that he may be subject to further section 6673 penalties in future cases if he persists in maintaining proceedings to delay or to advance frivolous arguments.” 2014 T. C. Memo. 134, at p. 16.

I do not indulge in schadenfreude; I find such stuff unworthy of discussion in a high-minded blog like mine. So today’s blogpost is not a gloat over others’ difficulties, but to point the way for my readers, or their respective counsel, to avoid the pitfalls hereinbelow set forth, as my already-on-their-second-bottle-of-2003-Château-Léoville-Poyferré colleagues say.

Welcome Steven T. Waltner back to my blog. Don’t remember Steven T. (s/a/k/a Steve)? See my blogpost “Cracking Up”, 2/27/14, wherein Judge Buch threw the book at Steve, in 62 pages full of well-chosen words.

Steve’s fighting over an $8800 deficiency and a $1760 penalty. But as you’ll see from my blogpost abovecited, Steve’s an old-time protester and frivolity merchant.

One must admit that Steve is a persistent type. His latest puts him before Judge Marvel in Steven T. Waltner and Sarah V. Waltner, 2014 T. C. Memo. 133, filed 7/3/14. Sarah lives in another State, but shows up when the case finally comes up for trial, which neither Steve nor their lawyer bothers to do. Her contribution at the trial is to recite frivolities.

Steve filed the usual zero-for-wages returns. IRS doesn’t give him the refund he claims; so he goes to Ct. Cl., gets tossed on the grounds he can’t claim anything because he never filed a return (his filing being a non-return as a matter of law), and therefore no Ct. Cl. jurisdiction; goes up to Fed Circuit, who boots him on the same grounds; and climaxes his campaign with a petition for certiorari to the Supremes.

Now when it comes to grants of such petition to taxpayers, one can’t say the petitioners have much success, even those with some dim chance. As for Steve, in a match race, my money is on the proverbial snowball in you-know-where.

The Supremes don’t bite, of course, so IRS gives Steve a deficiency, which he of course petitions.

Steve is toast on collateral estoppel (claim preclusion for you recent law school grads). Ct. Cl. and Fed Circuit had to decide whether Steve had filed a valid return to establish whether either of them had jurisdiction. Steve had a chance to claim he did, and lost; no second swing at the baseball.

But IRS claimed Steve had sold some stock and didn’t report the income therefrom. No dice, says Judge Marvel.

First of all, IRS raised the stock sale in an amended answer to an amended petition, so Rule 142(a)(1) puts the burden of proof on IRS.

Second (and here’s where IRS’ two lawyers fall down): “Gain from the sale or exchange of property must be recognized, unless the Code provides otherwise. Sec. 1001(c). Section 1001(a) defines gain from the sale or exchange of property as the excess of the amount realized on the sale of the property over the adjusted basis of the property sold or exchanged. See also sec. 1.61-6(a), Income Tax Regs. Respondent bears the burden of proof on this issue…. Respondent failed to introduce any evidence with respect to Mr. Waltner’s basis in the mutual fund shares that he sold through his Citigroup account. Accordingly, respondent has failed to prove that petitioners are liable for tax on the amount realized from that sale.” 2014 T. C. Memo. 133, at p. 19.

The gain-equals-sales-price-minus-basis is Tax 101, guys. Someone was seriously asleep at the whatever. If you found the item from Steve’s broker’s 1099-B, why not ask the broker for the basis information? If it came from elsewhere, still ask the broker.

And the Section 6662(a) accuracy penalty IRS seeks only applies when a valid return is filed. But here there was none.

So one side’s lawyers blew it. But lest Steve and Sarah feel neglected, Judge Marvel hands them a $10K Section 6673(a)(1) frivolity penalty.

Now for Steve’s side.

Steve is represented by counsel we’ll call Donny. Judge Marvel is not amused by what she considers Donny’s shenanigans.

“Under section 6673(a)(2) we may impose on any person admitted to practice before this Court who unreasonably and vexatiously multiplies the proceedings in any case the excessive costs reasonably incurred on account of such conduct. This Court may sua sponte impose such costs. Rule 33(b) sets standards in connection with counsel’s signature on a pleading and provides that upon our own motion we may sanction counsel for failure to meet those standards. Although we have found petitioners deserving of a section 6673(a)(1) penalty, we believe that petitioners’ counsel may also be deserving of a sanction for unreasonably and vexatiously prolonging these proceedings. We will therefore order petitioners’ counsel to show cause why we should not impose on him excessive costs pursuant to section 6673(a)(2) or sanction him pursuant to Rule 33(b). We will also order respondent to express his position on these issues and to provide us with his computations of the excess costs, expenses, and attorney’s fees reasonably incurred on account of petitioners’ counsel’s conduct in this case.” 2014 T. C. Memo. 133, at pp. 23-24. (Citations and footnote omitted).

Because it’s important, here’s the omitted footnote: “In computing the excessive costs respondent should not include costs incurred before petitioners’ counsel entered an appearance in this case or costs attributable to the issues of (1) whether the statute of limitations on assessment and collection applies in this case; (2) whether petitioners had unreported income from the sale of assets in Mr. Waltner’s Citigroup account; (3) whether petitioners are liable for an accuracy-related penalty under sec. 6662(a); and (4) whether petitioners are liable for an addition to tax under sec. 6651(a)(1).” 2014 T. C. Memo. 133, at p. 24, footnote 7.

So Donny and IRS’ lawyers, each of whom has his own problems, now has some homework to do.

Edited to add, 2/25/26: See Steven T. Waltner & Sarah V. Waltner, Docket No. 1729-13, filed 12/17/14. Ex-Ch J L. Paige (“Iron Fist”) Marvel hit Donny with $15,550 in sanctions per Section 6673(a)(2), while forbearing to deal with Rule 33(b), although ex-Ch J Iron Fist holds that in reserve as an alternative.

And, Use It or Lose It

IRS announced on Tuesday that beginning January 1, 2015, the IRS will limit to three the number of refunds being sent to any direct deposit bank account or issued as prepaid debit card.

IRS will send a billet doux to the over-the-limit taxpayer, telling him, her, it or they to expect a paper check for refund number four et seq., as my expensive colleagues say.

This will limit identity thieves to small-time thievery, it is hoped. In the meantime, the honest refundees should continue to use direct deposit…just take it easy.

The barn door is locked.

And on Monday, IRS announced that ITIN holders who stand mute for five years and don’t use their ITINs on a filed tax return will see them automatically expire. IRS found that barely five million of the roughly 21 million were being used on tax returns. You can imagine what has become of the others. So the clock starts in 2016, and the former automatic expiry of all ITINs is now off the table; now only the dormant will be put to sleep.

Here’s the story: http://www.irs.gov/uac/Newsroom/Unused-ITINS-to-Expire-After-Five-Years;-New-Uniform-Policy-Eases-Burden-on-Taxpayers,-Protects-ITIN-Integrity

Some purveyors of continuing legal education purport to deliver the magic formula for defeating one’s adversary without giving battle (that is, going to trial). “Win your case at discovery”, they proclaim.

That’s not a bad idea. The legendary Chinese general Sun Tzu remarked that “to win a hundred battles is not the acme of skill; to win without fighting is the acme of skill.” It’s hard to disagree; but pulling off that interesting trick is even harder.

I am not immune. See my blogpost “Win Your Case”, 2/11/14.

But IRS seems to have taken my advice a trifle too exuberantly.

Even after my blogpost “Related vs Responsive”, 6/26/14, wherein Judge Gale gave IRS a timeout for an overbroad discovery request, the 1111 Constitution Avenue gang are at it again, this time in Amazon.com, Inc. & Subsidiaries, Docket No. 31197-12, filed 7/2/14.

It’s a transfer pricing scrimmage with a Luxembourg affiliate, which immediately sets off bells. But IRS seeks documents from 32 (count ‘em, 32) cost centers dealing with “Technology and Content” (T&C) and intangible development costs (IDC); the Amazonians claim the demand is burdensome and overbroad, but offer to work with IRS to show them how reasonable the Amazonians and the Luxembourgers were in setting up their deal.

Judge Lauber agrees: “It is clear that respondent is entitled to discovery as to the facts underlying petitioner’s cost allocations, as to whether costs within the T&C category are ‘mixed’ as petitioner contends, and as to the appropriateness of the formula petitioner has used to allocate T&C category costs to IDC. However, the Court agrees with petitioner that the documents and information sought by respondent in his Requests… would be burdensome and expensive to produce, and that these requests are not calculated to lead in an efficient manner to the discovery of relevant evidence. Petitioner has offered to work with respondent to identify information pertaining to the reasonableness of its allocation method, and we will hold petitioner to that promise. We will therefore deny respondent’s motion as currently drafted, without prejudice to respondent’s ability to file a more narrowly-tailored motion to compel production of documents if informal discovery efforts prove unsatisfactory.” Order, at p. 3.

Win at discovery is a good gameplan, but if overused and overburdensome, it will backfire.

IRS, please copy.

We all know the benefits of the revocable lifetime trust as a tool for avoiding probate and its hurdles, delays and unending formalities. One need only title all one’s worldly goods into oneself as trustee, designate the chosen objects of one’s bounty as co-beneficiaries and one’s chosen few as successor trustees, and all one’s estate problems die with one.

If IRS is pursuing one as one departs this vale of tears, one’s successor trustees have a trip to probate court in their short-term future.

So Ch J Michael B. (“Iron Mike”) Thornton teaches Patricia Doepke. Don’t look for a Tax Court case with Pat’s name in the caption, because there isn’t any. Pat is apparently the successor trustee of the late Jennie Dudowicz, whose estate you will find in the caption of Ch J Iron Mike’s order, Docket No. 7480-14S, filed 7/1/14.

Here’s the story: “The petition filed to commence this case was ratified by Patricia Doepke as the purported executrix of the estate of decedent. By Order…, the Court directed Patricia Doepke to file a Response to that Order and attach thereto (1) a copy of petitioner’s death certificate, and (2) letters of administration or letters testamentary appointing her (or someone else) the executor, personal representative, or fiduciary for the estate of the decedent. Patricia Doepke filed a Response. Attached to that Response was a copy of petitioner’s death certificate and three documents purportedly showing Patricia Doepke as trustee of a revocable trust. None of the documents provided show that Patricia Doepke is authorized to represent the estate of the decedent in this proceeding.” Order, at p. 1.

Now we remember Jane Gudie. She starred, post-mortem, in my blogpost “The Case of the Reluctant Executor”, 12/1/11. Her co-star, the reluctant executor Mary Helen Nordberg, having actual or constructive possession of the late Jane’s worldlys, was her executor, like it or not; so she couldn’t bail out of the petition she signed.

But that case involved estate tax, and the IRC provision that locked in reluctant Mary Helen  is Section 2203.

Now I can’t tell from Ch J Iron Mike’s order what tax is involved here, but if it’s not estate tax, Pat gets no help from reluctant Mary Helen’s case, whatever assets of the late Jennie she may hold.

So Pat, having avoided probate, also avoids Tax Court. No jurisdiction.

Takeaway- Remember, successor trustees. If there’s a Tax Court case in this estate, there’s a trip to probate court in your immediate future.

Or, do as I say, not as I do. I love cutesy names for corporations, LLCs, partnerships and DBAs; sometimes clients even go along with my suggestions. And cutesys make great headlines for my tax blogposts.

But John J. Petito, or one of his connections (as we say around the track), got carried away when bestowing titles on the various petroleum-seeking entities under his tax command.

Doubtless you remember John J. You don’t? Well, cast your mind back to 8/26/13, and my blogpost of even date therewith, as my high-priced colleagues say, entitled “Honor Your Partner”, the stories of Jimastowlo Oil, LLC and Oil Comming We Are Humming, LLC, and their search for the source, accompanied by Judge Halpern.

It seems John J. was a busy fellow, tax-mattering a platoon of whimsically-named LLCs, all in search of black gold (or something oleagenous). And today, 7/1/14, Ch J Michael B. (“Iron Mike”) Thornton unloads a bushelbasketful of orders to John J. and IRS, directing them to come back after their summer vacations (and I assume Ch J Iron Mike’s as well) with either status reports or decision documents for each and every one.

We have such gems as Wyo-Big Oil We Dig LLC, Iluvoil LLC, Horny For Oil LLC, We Have Oil So Jump For Joy-il, LLC, Oil Is Our Ignition For Successful Pecuniary Fruition, LLC, and Oil For One & One for Oil LLC; there’s more, but I’ll spare you.

You don’t need either docket numbers or links. Each order is identical.

My point (and I can hear readers say “There is one? How nice.”) is think first, promoter/tax-matterer, had John J. named his several enterprises Oil Venture I, Oil Venture II, et seq., would IRS would have picked up on them so fast. Should not promoter/tax matterer types reflect before getting cutesy?

Combine a cutesy name with something that might be a tax dodge, and you might just maybe attract the attentions of the IRS.

Of course, you are free to name your enterprise what you will. And it will retain all its rights, even those we had no idea it had, no matter how cutesy the name–like Hobby Lobby.

But this is, of course, a non-political blog.

No, I’m not rehearsing the replacements for the original Florodora sextette, rather echoing Judge Dawson’s instructions to Thomas J. Hickman, in 2014 T.C. Memo. 131, filed 6/30/14.

Tom claims he told IRS he received a $137K ESOP distribution, but it was six years ago. So the SOL has run…but has it?

Tom rolled his ESOP money into his personal IRA, but never picked up the money on his 1040. And when IRS disqualified the ESOP retroactively to Day One, thereby blowing up his rollover to his IRA, the question was whether Tom satisfied the Sec. 6501(e)(1)(A)(ii) tell-me provision.

Surely you remember the Sec. 6501(e)(1)(A)(ii) tell-me provision. No? Well, Judge Dawson has it down pat.

“Section 6501(e)(1)(A) extends the three-year period of limitations to six years where the taxpayer ‘omits from gross income an amount properly includible therein which is in excess of 25 percent of the amount of gross income stated in the return’. In computing the amount of gross income omitted, any amounts ‘disclosed in the return, or in a statement attached to the return, in a manner adequate to apprise the Secretary of the nature and amount of such item’ are not taken into account. Sec. 6501(e)(1)(A)(ii).” 2014 T. C. Memo. 131, at p. 10. (Footnote omitted, but read it; Congress moved the provision later).

The taxpayer has to provide a clue to IRS to cut the SOL to three years, but it has to be sufficiently detailed to let IRS to decide to audit the return.

Tom fails the test. The statement has to be made on a return, or attached to a return, and Tom didn’t, exactly.

Tom claims a K-1, a Form SS-4, and Form 5498 (listing Tom as owner of a nominee account) are “adjuncts” to the return. But none of this was attached to Tom’s return, and it doesn’t prove more than Tom and his IRA were partners in a LLC.

No go.

Thus spake Captain Frederick Marryat, R. N., in his 1834 novel Jacob Faithful,  and no, I haven’t read it either. But IRS boss John Koskinen took the words out of Fred’s book, because he now proclaims a new volunteer tax prep course for the unregistered, now that D. C. Circuit disarmed his predecessor’s pressgang.

Here’s the scoop for you soon-to-be volunteers.

“About 60 percent of paid tax return preparers in the U.S. operate without regulation or oversight. Although many of them do a good job, we have found that others are poorly equipped to assist taxpayers in preparing returns.

“For that reason, the IRS had started a mandatory program of education and testing for unregulated tax return preparers who did not have professional credentials. But we had to suspend that program because the courts ruled that we didn’t have the legal authority to require education and testing. So we’re launching a voluntary program as a temporary substitute. It’s called the Annual Filing Season Program.

“I say ‘temporary’ because we have been urging Congress to enact a proposal in the President’s Fiscal Year 2015 Budget that would give us the authority for mandatory oversight of return preparers. This voluntary program is not the ideal solution. But until legislation is enacted, we still have a responsibility to taxpayers and to our tax system to keep moving forward with our efforts to improve service to taxpayers.”

The ganze geschichte, as my beloved Grandma would have said, can be found at:

http://www.irs.gov/uac/Newsroom/Commissioner-Koskinen-on-the-Voluntary-Return-Preparer-Education-Program

So come on, me bould volunteers!