The rebate debate continues, but this time the debate hits the road in YRC Regional Transport, Inc. and Subsidiaries, f.k.a. USF Corporation and Subsidiaries, 2014 T. C. Memo. 112, filed 6/10/14.

In its USF days, YRC had an NOL, for which it requested a refund in its YRC days as a carryforward. IRS sent two refund checks for the same refund.

When IRS discovered its mistake, it hit YRC with an increased deficiency. IRS had issued a SNOD for a much lower amount, which sparked the petition here, then amended their answer to try to recoup the overpayment, even though the Section 7405 SOL had run. IRS claimed it had recalculated YRC’s deficiency; YRC claimed that IRS was trying to recoup its own error too late, and moved for summary judgment.

Judge Kerrigan gives YRC summary judgment. The erroneous IRS payment is not a rebate; a rebate arises from an IRS recalculation of tax owed, when a taxpayer pays too much. A nonrebate is an IRS error, plain and simple. And this is one.

Judge Kerrigan: “Refunds issued by the Commissioner by accident are nonrebate refunds, while rebate refunds are issued because of the taxpayer’s tax liability.” 2014 T. C. Memo. 112, at p. 7.

Tax Court has jurisdiction to consider deficiencies, as defined by Section 6211(a), that is, the difference between tax actually imposed, and tax paid, tax previously assessed or collected without assessment, plus rebates. Here, no rebate, so the only deficiency for which IRS can go after YRC is what was underpaid by YRC.

As for the erroneous double payment, as Tax Court has no jurisdiction, IRS must, in the immortal words of the Bard, “seek him i’ th’ other place yourself.” Hamlet, Act IV, Sc. 3.

No, not the Rodgers and Hammerstein 1945 Maine seaside epic that gave birth to the classic “You’ll Never Walk Alone”.

Today, however, Jeffrey Holden takes up that canzone. Who is he? Jeff’s a reluctant witness in someone else’s Tax Court case. Whose case? Why, Amazon.Com Inc., & Subsidiaries, Docket No. 31197-12, filed 6/9/14.

The internet mega-emporium is apparently embattled over something called the Project Goldcrest transaction, and Mr. Holden, a former employee of The Big A, apparently has some discoverable information thereabout, or so IRS is able to convince Judge Lauber.

IRS asked Jeff for an informal chat, but Jeff said no. IRS then sent Jeff a formal notice, and Jeff again said no. So IRS moves for an order directing Jeff to show for a deposition, attaching a written response from Jeff’s attorney saying Jeff objects.

“Rule 74(c) provides that the taking of a deposition of a nonparty witness is an extraordinary method of discovery that may be utilized when the testimony sought is relevant and not privileged and ‘cannot be obtained through informal consultation or communication.’” Order, at p. 1.

Remember Rule 74? No? See my blogpost “Don’t Suppose You Can Depose”, 12/2/13. Jeff’s testimony must be extraordinary.

Jeff claims he isn’t the sole source of the information IRS wants. But that’s only one test.

Judge Lauber: “In a case as complex as this, it will rarely be true that a single individual is the sole repository of relevant, non-privileged information. Allowing a ‘sole source’ defense could lead to an endless carousel of objections in large, complex cases where no witness would ever have to be deposed.” Order, at p. 2.

And Judge Lauber isn’t buying Jeff’s claim that he’s too busy to talk.

“The Court is sympathetic to Mr. Holden’s busy schedule, but that alone cannot be a justification for preventing respondent from obtaining relevant, discoverable information; the other 11 witnesses to be deposed likely have busy schedules too. Acknowledging Mr. Holden’s busy schedule, respondent has promised to ‘make every effort to schedule Mr. Holden’s deposition at a place and time that will accommodate his other obligations.’ We will hold respondent to this promise.” Order, at p. 2.

So, though busy Jeff may not have walked alone through Project Goldcrest transaction, he’s got to tell IRS all about it.

Freedom is not free, and neither is US residency. That’s the lesson for Clifford A. Abrahamsen and Sole K. Abrahamsen, in 142 T. C. 22, filed 6/9/14, as taught by Judge Lauber.

It’s Sole’s sole responsibility, as she is a Finnish citizen who came to the USA to work for the Finnish UN Mission. She left the UN Mission to work for the New York branch of a Finnish bank, then went back to the Finnish UN Mission. When first with the Mission and for a time at the bank, she held nonimmigrant US visas. But while at the bank, she decided to apply for permanent US residence.

“As a condition of obtaining that status, she executed U.S. Citizenship and Immigration Services (USCIS) Form I-508, Waiver of Rights, Privileges, Exemptions and Immunities. By signing Form I-508, Ms. Abrahamsen acknowledged that she was then employed in an occupation under which she had nonimmigrant status and declared that she desired ‘to acquire and/or retain the status of an alien lawfully admitted for permanent residence.’ She affirmed by signing this form that she agreed to ‘waive all rights, privileges, exemptions and immunities which would otherwise accrue to [her] under any law or executive order by reason of [her] occupational status.’ 142 T. C. 22, at p. 4.

You can guess the rest. The UN never listed Sole as a diplomat, and neither did the US Mission to the UN. Not deterred, Sole never bothered to report her income from the Mission for six years, claiming Section 893.

But Section 893 only applies to noncitizens of the USA. And in any case, the benefits of Section 893 are waivable, and IRS produces the waiver Sole signed.

For more about Section 893, see my blogpost “IRS Justified”, 3/19/12.

Sole’s lawyers try the “I didn’t know” tactic, which is the usual dead loser. “Petitioners claim that English is Ms. Abrahamsen’s second language; that she signed the waiver more than 20 years ago; that Form I-508 was difficult to understand; and that she did not appreciate the long-term effects of signing the waiver. We expect that many foreign nationals seeking permanent resident status in the United States could advance similar arguments. If such arguments were sufficient to nullify the Forms I-508 they signed, the carefully constructed waiver procedure set forth in the regulations would become the exception rather than the rule.

“More importantly, petitioners cite no statute or judicial precedent to support their assertion that we can ignore a validly executed waiver.” 142 T. C. 22, at pp. 8-9.

The US-Finland tax treaty doesn’t help, because it expressly exempts from its scope residents of the US.

And the Vienna Convention on Diplomatic Relations doesn’t help, because Sole was never listed as a diplomat either by the UN or the US Mission. Nor does the International Organizations Immunity Act, again because Sole never had diplomatic status. And earning income in the US is not a diplomatic function.

Now this opinion is the result of cross-motions for summary judgment. The good-faith exemption from penalties is a fact question: what did Sole tell her preparers, if any, and what were the qualifications; or what did she do herself, to ascertain her correct liabilities?

So that has to be tried.

Don’t Step In It

IRS gets the word from Judge Kroupa in Docket No. 5576-12, filed 6/6/14, Eaton Corporation and Subsidiaries. Remember Eaton Corporation? Or its breaker subsidiaries? No? Then see my blogpost “Advance and Retreat”, 6/25/13, the story of Eaton’s revoked APAs and IRS’ moat around said revocations.

Now maybe we’ll have a trial, but IRS wants the trial bifurcated. First, says IRS, let’s see if IRS was arbitrary, capricious or manifestly disregard the law by revoking the Advance Pricing Agreements it made with Eaton. If IRS is sustained, all the rest will settle.

And if the other issues don’t settle, we can try them then. The proofs are different, so we can save time by trying arbitrary-and-capricious first and the arithmetic of the deficiencies later.

Judge Kroupa has discretion. And Eaton wants the whole enchilada tried at once.

IRS didn’t convince Judge Kroupa. And it’s basic Tax Court policy to try everything at once, to save time and effort. This is the sixty-buck-access-to-justice, remember, even though here the numbers run into hundreds of millions.

There are two other orders in Eaton from Judge Kroupa today. One has to do with summary judgment, and Judge Kroupa is sufficiently annoyed with all the summarizing, that she tells both Eaton and IRS no more without “good cause shown”. The other is a discovery jump-ball with interlocutory appeal thrown in, and is of interest only to the hypertechnically-inclined.

Takeaway: Unless you have a really good reason, don’t step in the bifurcation.

If the trustee of your IRA account doesn’t want to do a deal, don’t get creative: just find another trustee. That’s the moral Judge Vasquez has for Guy M. Dabney and Ann V. Dabney in 2014 T. C. Memo. 108, filed 6/5/14.

Guy had an IRA, and he moved it to Charles Schwab, who advises its clients to “Talk to us anytime”. Guy did just that, when he spotted a land deal with a good chance for a big scoop.

At first Guy’s accountant thought that IRAs couldn’t invest in land, but Guy did the research (with which Judge Vasquez agrees), convinces his accountant, and tells Schwab to buy the land.

Schwab says no, Schwab doesn’t do investments in land, its trustee agreements say it does financial instruments only, and thereby hangs the tale.

Guy gets creative, orders a cash withdrawal from his IRA, and checks the Code 1 box on the withdrawal slip (“early withdrawal, no known exception”). This, of course, gets sent to the IRS’ fish-flopping-in-the-water department.

In the meantime, Guy has the cash wired to buy the land, and wants title in himself and Schwab as trustees, but of course the escrow company puts title in Guy himself.

Guy ultimately unloads the land at a 25% profit, but IRS unloads on Guy for substantial understatement and mucho tax plus the 10% early withdrawal chop.

Judge Vasquez goes off on the powers of a trustee, and ultimately the trust instrument itself governs. If the trustee won’t do something, and says so in writing, then game over. The trustee isn’t the trustee for that purpose, and even if title had been placed as Guy directed (or if the escrow company’s scrivener’s error affidavit was acceptable), it wouldn’t help.

As far as the law is concerned, Guy bought the land himself with the cash he took from his IRA. The IRA trustee had nothing to do with it.

Judge Vasquez himself says that if Guy had done a trustee-to-trustee out of Schwab and into a trustee that did agree to hold land, and that trustee bought the land (and, I suppose, even if the escrow company made a mistake but later corrected it), the deal would have been good.

Takeaway: read the trustee agreement; and don’t get creative.

There’s a resounding “yes” from Judge Kroupa, in a full-dress T. C. and also in a T. C. Memo. These reprise the cases I cited in my blogpost “The Whistleblower Blown Up”, 5/20/14, about the two bullet-dodging whistleblowers who uncorked a tax evasion scheme that netted the Federals a cool $30 million.

The full-dress is Whistleblower 11332-13W, filed 6/4/14, and the T. C. Memo. is Whistleblower 10949-13W, 2014 T. C. Memo. 106, filed 6/4/14.

The story is almost identical for both, so I’ll cite to the full-dress.

Of course, the Whistleblowing Crew in Ogden, UT, generous to the last, gave the blower a discretionary award (amount not stated, but certainly less than the post-2006 15% to 30% payday), and now claims Tax Court has no jurisdiction, as the whistleblower began to blow pre-December 20, 2006, the magic day that the nondiscretionary award in Section 7623(b) descended from on high.

So Judge Kroupa begins the incantation: “The Tax Court is a court of limited jurisdiction and may exercise jurisdiction only to the extent authorized by Congress. The Tax Court is without authority to enlarge upon that statutory grant. We nevertheless have jurisdiction to determine whether we have jurisdiction.” 142 T. C. 21, at p. 7 (Citations omitted, but they’re the usual).

Now while this may be a case of first instance for Tax Court, Judge Kroupa, unlike Starship Captain James T. Kirk, isn’t going where no one has gone before.

As usual in motions to dismiss, the plaintiff (petitioner-whistleblower) gets the benefit of the doubt. The question is: did s/he state facts upon which relief can be granted? It’s not “can s/he prove it?” That’s why we have trials. Tax Court has no specific rule as to deciding motions to dismiss, but the Federal Rules of Civil Procedure fill the gap nicely.

Judge Kroupa turns up the case of John Dacosta and N. B. Salty Miller, 82 Fed. Cl. 549 (2008). John and Salty blew the tax whistle to the tune of $2 million, so the bighearted guys in Ogden UT gave them each less than $140K and the thanks of a grateful government. But John and N. B. Salty said they gave the Federales information both pre-and-post 12/20/2006.

Judge Miller (Not Christine Odell, but George) said the guys made a good case, but Tax Court has exclusive jurisdiction, and since Tax Court isn’t an enumerated Court whence Ct. Cl. can transfer cases, he must dismiss, even though justice would be served by the transfer.

But Judge Kroupa takes up the sword dropped by John and N. B. Salty, and whacks the Ogdenites good. “Nevertheless, the Dacosta court’s analysis and rationale are persuasive. In Dacosta, as here, the claimants provided the Commissioner with information both before and after the enactment of TRHCA [Tax Relief and Health Care Act of 2006, the bestower of the 15%-30% largesse]. The Government moved to dismiss for lack of subject matter jurisdiction and argued that the information submitted by the claimants in 2007 was identical to the information submitted in 2003. The Government further argued that, even if claimants provided new and different information, the Commissioner did not proceed using the later application and documents. The court rejected the Government’s arguments and determined that the claimants alleged sufficient facts to avail themselves of section 7623(b)(1) for jurisdictional purposes. The court concluded that the claimants’ alleged facts, if proven at trial, would establish that the Commissioner acted on information provided by the claimants after the amendments to section 7623.” 142 T. C. 21, at pp. 13-14.

Despite the Ogdenite Pooh-Bahs’ claim that the post 12/20/2006 information was, in the words of the Master Savoyard, “merely corroborative detail, intended to give artistic verisimilitude to an otherwise bald and unconvincing narrative”, Whistleblower 11332-13W claims he gave the IRS and DOJ bushelbasketsful of other and further information, of which they were theretofore unaware, and fed them more goods than Deep Throat.

That’s enough. “We hold that the whistleblower satisfied the whistleblower’s pleading burden by alleging facts that respondent proceeded with an action against the targets using information brought to respondent’s attention by the whistleblower both before and after December 20, 2006. This is consistent with TRHCA’s intent to provide whistleblowers with judicial review of award determinations.” 142 T. C 21, at p. 12.

So Tax Court has jurisdiction. IRS’ motion to dismiss is dismissed. And it’s time for a trial.

Justice is done, for a change.

It was on a June day some 32 years ago that I was standing in Covent Garden, watching my spellbound daughter at Percy Press, Jr.’s, Punch-and-Judy show. Junior was a son of Percy Press, Sr., who was one of the all-time masters of the ancient craft, revered in his day.

And as the time-honored puppets shouted “Oh no I didn’t!” “Oh yes you did!”, disputing an alleged theft of sausages, I remember the delighted yelps of the little children gathered round on that sunny afternoon. A happy memory, and I hope my daughter, the international transfer pricing expert at a Big Four accounting firm, remembers it as well.

Well, there aren’t any happy yelps, I imagine, from IRS, and I doubt there are too many from Chenery Management, Inc., even though their cry of “Oh yes, it is!” prevails, in Docket No. 23888-13L, filed 6/3/14, a designated hitter from CSTJ Panuthos.

IRS sent Chenery a letter stating “You are entitled to judicial review of my determination to sustain lien filing regarding all applicable periods raised in your Collection Due Process appeals . . . .” Order, at p. 1.

Chenery petitions at once, but IRS moves to dismiss, claiming that its letter wasn’t a NOD enabling Tax Court jurisdiction. IRS later does issue a NOD.

CSTJ Panuthos holds a hearing, at which IRS’ counsel unceasingly maintains that the letter wasn’t a determination.

However, discretion being the better part of the cliché, IRS’ counsel asks to submit a post-argument response.

Naturally, IRS folds (and they should be sanctioned for wasting scarce judicial resources). It takes IRS seven (count ‘em, seven) paragraphs to come to the point, but here it is:

“Respondent now asks the Court to deny respondent’s Motion. Respondent concedes the Court’s jurisdiction over the letter… because that correspondence resolved petitioner’s issues and stated that petitioner was entitled to judicial review, therefore, the letter should be treated as a notice of determination.” Order, at p. 1.

Oh yes, it is!

No, not a lyric from The Pied Piper, Steve Duboff’s and Artie Kornfeld’s one-off wonder that sparked the career of Crispian St. Peters in 1966, but rather STJ Lewis (“Oh, Can He Spell”) Carluzzo sending an Order to Garry Zephyr & Marthe R. Menard, Docket No. 22613-11S, filed 6/2/14.

Remember Garry & Marthe? No? Then take a quick peek at my blogpost “I Was Misinformed”, 1/6/14, when Garry & Marthe showed up at IRS counsel’s office for the trial that was to take place at the Courthouse.

But even though STJ Lew tossed Garry & Marthe at New Year’s, he lets them back in today. Garry & Marthe ask for a vacation, that is, STJ Lew should vacate the Order kicking them to the curb.

Being a big-hearted guy and having such a great first name, STJ Lew relents.

“Giving due regard to the representations contained in the affidavit filed in support of petitioners’ motion for reconsideration, because the address given for the place of trial contained in the first notice might have caused some of the confusion complained about by petitioners with respect to the location for trial, and because dismissal is a harsh remedy, we will give petitioners the benefit of the doubt and grant them the relief they now seek. We do so reservedly, however, because (1) we disagree with petitioners’ contention that correspondence received from respondent’s counsel directed or otherwise misled them to appear at the wrong address on October 28, 2013; and (2) petitioners’ apparently have thus far failed to communicate with respondent’s counsel to the extent necessary in order to prepare a stipulation of facts. See Rule 91.” (Footnote omiotted.) Order, at p. 2.

So STJ Lew tells Garry & Marthe where it’s at: “In due course, and unless the case is resolved sooner without the need for trial, the parties will be served with a third notice setting the case for trial. That notice will show the address where the trial will be conducted, and unless otherwise notified by the Court, that is the address where petitioners will be expected to appear at the designated time and date.” Order, at p. 2.

So, Garry & Marthe, get with the program, stipulate or capitulate, but above all, be there or beware.

No, not a story of the Big City apartment-dweller, but rather the saga of The Howard Hughes Company, LLC, f.k.a. The Howard Hughes Corporation, and Subsidiaries, 142 T. C. 20, filed 6/2/14, as unwhimsically told by Judge Wherry.

The late Howard Hughes owned a vast patch of Nevada desert next to Sin City. After Howard left this vale of tears, various successor entities put together a master plan for the soon-to-be planned development of Summerlin, named for the late Howard’s maternal grandmother. One of my old colleagues retired thereto, and it is nice…if you like that sort of thing.

Howbeit, The Howard Hughes Corporation (“THHC”) subdivided, sliced and diced said vast patch, and sold same off to homebuilders and individuals, all of whom were obligated to build dwellings thereon. THHC had to provide infrastructure, off-homestead amenities, stub in utilities both wet and dry, post bonds to secure same, comply with zoning, and cede land to city and county for firehouses, parks, trails, etc.

THHC sold land on bulk sales contracts, pad sales contracts (whence the title of this blogpost), finished lot sales and custom lot sales, all to those who would build homes, and were obligated so to do. Bottom line: although bulk sales and pad sales are pretty much the same, and finished lots aren’t custom lots, at the close of play THHC did a lot of site work and built a lot of infrastructure, but themselves built no homes.

And the homebuilders didn’t subcontract the build-out of the infrastructure and amenities to THHC, which would have enabled THHC to claim the completed contract method that electricians and other trades get. However, that argument earns a Taishoff “good try” for the five (count ‘em, five) lawyers representing THHC.

So THHC’s attempt to use completed contract accounting and reporting, with its deferral of recognition for tax purposes until 95% completion, trying to latch on to Shea Homes (see my blogpost “Medal Count”, 2/12/14), doesn’t connect.

While it’s true that the sales contracts, at least to the extent of the bulks and pads, and maybe some finished, cannot be completed within the same tax year as the binding contract is entered into, so that percentage of completion is available to THHC, completed contract isn’t.

Infrastructure and amenities without the sale of a completed and accepted home is just too much grin and not enough cat for Judge Wherry. The statute and regulations call for “dwellings”. The legislative history behind the complete contract method says it was designed for homebuilders, to make homes cheaper. And Chevron and Mayo say the regulations rule, which THHC doesn’t question.

The amenity packages that got Shea Homes home (sorry, guys) was part and parcel of the building and sale of homes.

And a pad is not a home.

No, not Michael Jackson’s 1971 debut single, that launched his meteoric career, but rather Judge Kroupa’s direction to IRS’ attorney in Anson D. Massey & Kersulyn D. Augillard, Docket No. 12410-13, filed 5/30/14.

IRS’ attorney (I won’t name names) says he can’t reach Anson or Kersulyn (great name!) to find out if they object to his motion to dismiss for lack of prosecution, and stick them with deficiencies, additions to tax and penalties, as demanded in the SNOD.

But Judge Kroupa should grant his motion anyway.

Not so fast, old lad. Be cool.

“The Court notes that motions to dismiss for lack of prosecution are generally handled at the calendar call on the first day of the session to give petitioners an opportunity to appear. Thus, this motion is premature.” Order, at p. 1.

So, IRS attorney, like Anson and Kersulyn, you “got to be there”. If you are there, whether or not Anson and Kersulyn, or either of them, or their counsel, if any, show up, you got another chance to make your motion.