“Pigs Git Fat, and Hogs Git Et”

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

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

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

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

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

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

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

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

Now to unload the stock.

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

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

“Mr. Thomas concluded:

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

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

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

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

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

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

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

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

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

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

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

Unsurprisingly, IRS blows this out of the water.

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

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

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

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

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

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

Here’s the latest from the Tax Court website.

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

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

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

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

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

Remember, you saw it here first.

No, not the Dumont-Vaucaire chanson immortalized by the great Edith Piaf. Rather, this is the story of a truly nothing Form 12153 that Tax Court tosses, while reserving the right to inspect others that IRS treats as no request at all.

Another short-and-sweet full-dress T. C., the story of Daniel Richard Buczek, 143 T. C. 16, filed 10/6/14, Judge Dawson writing for the unanimous court.

Dan has a checkered career, but the real fight is between IRS and Tax Court. Back in 2011, Tax Court decided Thornberry, 136 T. C. 536, which has been a thorn in IRS’s side ever since. Tax Court there decided that it had jurisdiction to review an IRS decision to toss a Form 12153 for complete frivolity, which IRS claimed Section 6330(g) prohibited.

For more about Thornberry, see my blogpost “You’ve Got to Be More Specific”, 4/19/11.

So IRS wants Tax Court to use Dan as the lever to overturn Thornberry, claiming Thornberry “eviscerates” Section 6330(g).

Judge Dawson declines.

“The administrative hearing requests that the taxpayers in Thornberry submitted are in stark contrast to petitioner’s request. A comparison of our review of the section 6330(g) determination with respect to the taxpayers’ hearing requests in Thornberry with our review of the determination with respect to petitioner’s request elucidates the standard we apply in making such a review.” 143 T. C. 16, at p. 4,

“In Thornberry v. Commissioner, 136 T.C. at 363-364, the Court held that the Appeals Office statement in the disregard letters that the IRS collection office could proceed with collection action is a determination for purposes of section 6330(d)(1). We observed that section 6703(a) clearly contemplates judicial review with respect to an Appeals Office determination that a request for an administrative hearing under sections 6320 and 6330 is a specified frivolous submission. The Appeals Office determination that a taxpayer’s entire hearing request is disregarded because his disagreement is frivolous is essentially a determination that the request is a specified frivolous submission. Indeed, the Appeals Office frequently imposes the civil penalty under section 6702(a) on a taxpayer whose hearing request was disregarded because the Appeals Office determined it was frivolous. Consequently, while section 6330(g) prohibits judicial review of the portion of a request for an administrative hearing that the Appeals Office determined is frivolous, it does not prohibit judicial review of the determination by the Appeals Office that the request is frivolous and is disregarded.” 143 T. C. 16, at pp. 10-11. (Citation omitted).

Thornberry did have a couple of valid points in their otherwise frivolous Form 12153, and IRS never stated why they were an attempt to delay, defeat, hinder or obstruct IRS from collecting the revenue. So Judge Dawson (yes, he decided Thornberry) decided Tax Court could review IRS’s tossing of Thornberry without a hearing.

But Dan’s petition “…does not challenge the appropriateness of the collection action, offer or request any collection alternatives, challenge the existence or amount of the underlying tax liability, or raise any spousal defenses. Nor does it make any assertions that would implicitly raise a legitimate issue; for example, it does not assert that the collection action would cause petitioner undue hardship or that he did not receive a notice of deficiency or otherwise have an opportunity to challenge the underlying tax liability.” 143 T. C. 16, at pp. 13-14.

So Dan’s petition is no petition, Tax Court has no jurisdiction, and IRS can go eviscerate Dan.

“In conclusion, the decision entered in Thornberry demonstrates the importance of this Court’s review of the Appeals Office’s determinations under section 6330(g) in protecting taxpayers from determinations that are arbitrary and capricious. Our Opinion today demonstrates that our review does not violate or eviscerate section 6330(g), and we therefore decline respondent’s invitation to overturn Thornberry. This case is distinguished from Thornberry, and we will grant respondent’s motion to dismiss for lack of jurisdiction on the facts presented here.” 143 T. C. 16, at pp. 14-15.

Takeaway- Judges rarely, rarely, rarely overrule their own decisions.

But thanks to a received comment, I have overruled my previous headline.

Once again the Ogden Sunseteers engage in the epistolary barrage that brought them to grief in Thomas M. Comparini and Vicki Comparini, 143 T. C. 14, filed 10/2/14; for more about the Incomparable Comparinis, see my blogpost “Contra Proferentem”, 10/2/14.

This time it’s a short-and-sweet 143 T. C. 15, filed 10/6/14, a unanimous nine-pager from Judge Colvin, possibly a record for brevity. It’s Mica Ringo, whistleblower.

Mica got a turn-down from the Ogden Sunseteers that read as follows: “We have considered your application for an award dated …. Under Internal Revenue Code Section 7623, an award may be paid only if the information provided results in the collection of additional tax, penalties, interest or other proceeds. In this case, the information you provided did not result in the collection of any proceeds. Therefore, you are not eligible for an award.” 143 T. C. 15, at p. 3.

Sounds like a determination, no? Well, it did to Judge Colvin and the 400 Second Street, NW gang. And it certainly did to Mica, who banged in a timely petition.

But the Ogden Sunseteers repented at leisure. Seven months after they turned down Mica, and six months after Mica’s timely petition, the Ogden Sunseteers hit Mica with the following: “The L-1010 letter… was sent to you in error. We are still considering your application for award F-211. We are sorry for this inconvenience.” 143 T. C. 15, at p. 4.

OK, so where does that leave Mica’s petition?

The Ogden Sunseteers and Mica agree: forget the petition, no jurisdiction, let the Sunseteers deal with Mica’s F-211 whenever. So IRS moves to dismiss for lack of jurisdiction, and Mica doesn’t object.

No, say Judge Colvin and the 400 Second Street gang, we object. “Respondent contends that the Court lacks jurisdiction in this case, and petitioner does not object to respondent’s assertion. However, our jurisdiction is not expanded or contracted by the positions of the parties. Thus, it is not dispositive that both parties claim that we lack jurisdiction.” 143 T. C. 15, at p. 5.

Judge Colvin will decide that his own self. And he does.

A Court gets jurisdiction based on the facts when its jurisdiction is first invoked. It retains jurisdiction until decision or other judicial determination.

And a whistleblower determination is no different than a SNOD, when it comes to Tax Court jurisdiction. “Thus, even if a determination in a notice of deficiency is erroneous or the Commissioner concedes the determination in full, the notice is generally not rendered void but continues to provide a basis for our jurisdiction.” 143 T. C. 15, at p. 8. (Citations omitted).

Moreover, a NOD is treated just the same. “Similarly, the Court does not lose jurisdiction when the Commissioner wishes to revoke or issues in error a notice of determination in a collection case.” 143 T. C. 15, at p, 8. (Citations omitted).

So motion to dismiss denied. There sure was a determination and a timely petition.

So now what? A motion to enter decision, stating that there’s no decision?

Yes, I’m paraphrasing Virgil. Mr Peter Reilly over at Forbes e-mailed me to inquire why I hadn’t anything to say about the interface between Section 183 and Section 162 in  Susan Crile, 2014 T. C. Memo. 214, 10/2/14. Well, I found nothing new in the 53 pages of Judge Lauber’s prose. The history of losses in an artist’s career I covered back in 2013 in my blogpost “And All that Jazz”, 8/14/13, and the ordinary-and-necessary in many places, but where it interfaces with Section 183, in my blogpost “I’ve Got the Horse Right Here”, 4/9/14.

So much of the opinion deals with Susan’s illustrious career and accomplishments, that I thought it better suited to the introduction to a catalogue raisonnée than to a blogpost on taxes.

And that art can be a “trade or business”, see Judge Kerrigan’s opinion cited in “And All That Jazz”, supra, as my high priced colleagues say.

So much for art. Now for the man.

And the man in this case is 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.

Only this time he’s concurring, not dissenting. I’m going back to Thomas M. Comparini and Vicki Comparini, 143 T. C. 14, filed 10/2/14.

The concurrers are afraid that the majority has opened the door to epistolary ping-pong, with the claimant able to pick which letter, of the back-and-forth letters is the “determination” from which to petition.

“The Court’s holding that a claimant may file a petition, at his option, in response to any of a series of letters referring to the denial of his claim is difficult to reconcile with the 30-day jurisdictional filing period that Congress placed in section 7623(b)(4). The Office has not hesitated to send multiple letters to claimants in an effort to demonstrate its good faith in acknowledging their queries and submissions. A claimant who has received a determination letter denying his claim and who has neglected to file a Tax Court petition within 30 days may have little difficulty stimulating the issuance by that Office of one or more additional letters reaffirming the previous letter(s). If each subsequent letter falls within the statutory phrase ‘any determination,’ claimants can end-run the 30-day jurisdictional filing period filing period with comparative impunity.” 143 T. C. 14, at pp. 35-36.

But Judge Holmes answered the question. See my blogpost “The Great Dissenter”, 12/28/11. “Once again, Judge Holmes says it in a footnote: IRS could clear this up in the abusive shelter area by creating a single-track deficiency procedure, where both partnership and partners are in it together. 137, T.C. 17, at p. 44, footnote 3.”

The Sunseteers can send any number of letters, as long as they put in the magic words that state unequivocally that claimant has reached the end of the trail in the letter that starts the Section 7623(b)(4) clock running. Like “determination” and “the file is closed.” and “file a petition with Tax Court”.

The old maxim from contracts (“documents are construed against the drafter”) applies to Whistleblower Office determinations, although Tax Court goes the long way round to get there, in Thomas M. Comparini and Vicki Comparini, 143 T. C. 14, filed 10//2/14.

Part of the difficulty is the two Murray S. Friedland cases. Remember Murray? Well, since his fifteen minutes of fame is long since over, check out my blogposts “Whistleblowers, Beware!”, 9/7/11 and “A Book and a Modest Proposal”, 5/22/12.

There’s much discussion in the concurring opinion about whether the majority has disapproved the results in the two Murrays, and whether the words “any determination” in Section 7623(b)(4) mean that a claimant can engage in continuous epistolary intercourse with the Ogden crew, and choose which letter they claim is a determination, and petition therefrom, defeating the 30-day SOL.

Of course, as Judge Colvin, writing for the majority, stresses (as if further stress were necessary) “It is well established that no particular words are required for our jurisdiction under sec. 7623(b)4). Cooper v. Commissioner, 135 T.C. 70, 75 (2010). … we do not mean to imply that any of the particular words in the … letter must be present in letters sent by the Whistleblower Office in other cases in order for this Court to have jurisdiction.” 143 T. C. 14, at p. 9, footnote 7.

Tom and Vicki sent IRS a Form 211. Ogden generously assigned four claim numbers, and sent Tom two letters and Vicki two letters. All four said “fuggedaboutit”, but also said if they had any questions, give us a call. And none ever used the magic word “determination”.

So Tom and Vicki sent some fresh documents, and IRS sent them one letter, relating to only one claim number, saying “our determination remains the same” and “we are closing our file”.

Tom and Vicki petition, timely for letter five, but too late for one through four. IRS moves to dismiss as untimely.

Well, letter five clearly states the administrative process is over, and Ogden made a determination.

What about letters one through four? In the first place, Tom and Vicki didn’t petition any one of the four, so whether or not they would have been determinations is not before the court.

But more to the point, “…we do not expect whistleblower award claimants to parse letters they receive from the Whistleblower Office to identify slight variations in those letters for clues as to whether the 30-day period to file a petition has commenced.” 143 T. C. 14, at p. 12.

So letter five is enough of “any determination” to confer jurisdiction on Tax Court. And the concurrers agree there’s jurisdiction, but try to keep the Friedland cases in the game.

I leave the jurisprudential argy-bargy to those turned on by that sort of thing.

But why get into the semantics of “any determination” in Section 7623(b)(4), or go into the Friedland morass? Both Friedland cases were Memos, not full-dress T.C.’s, so limit them to their specific facts. But the majority and the concurrers spend a lot of time deconstructing poor old Murray S.

Judge Colvin talks about how Ogden is trying to be nice to claimants, but that is a trap for the unwary.

While no specific form of determination is mandated by statute, or even that a determination need be written, shouldn’t whatever a notice says and however it may be given be unequivocal? Whistleblower notices of determination are rarely given to attorneys or USTCPs.

And Ogden drafted these letters. When I was studying law in the last millennium, I was taught that documents are construed against the drafter.

So I offer a humble suggestion to the Ogden Sunseteers: try this on for size.

“This letter is a determination as defined in 26USC§7623(b). This Office will not receive or consider any further communication from you, written, oral or electronic. If you disagree with this determination, your sole remedy is a petition to United States Tax Court as set forth in 26USC§7623(b)(4).”

Clear enough?

 Or, the $200,750 Misunderstanding

Maybe I’m slow-witted, but I thought motions for reconsideration or to vacate weren’t there to permit parties to undo arguments they’d made on the trial or in their motions, or reverse concessions, or undo stipulations.

Of course, that doesn’t go if there’s been fraud or a truly serious error.

But I can’t find fraud in the case I’m about to blog, and if IRS blew it on the law, why do they get a Mulligan? Would the same hold true for a taxpayer?

OK, here it is, a full-dress T. C. , Law Office of John H. Eggertsen P.C., 143 T. C. 13, filed 10/1/14, a unanimous opinion by Judge Chiechi.

Remember Lawyer John? No? Then see my blogpost “Medal Count”, 2/12/14, wherein Lawyer John was lead-off hitter, and he scored based upon Section 4979(a) and notification thereunder. It was a 3SOL case.

And IRS agreed that Section 4979(a) controlled.

Well, IRS says “whoops, we meant dear old Section 6501(c)(3), and Lawyer John never filed Form 5330 or any other return that would qualify.”

Judge Chiechi so holds, and gives IRS a decision of $200,750 (plus interest, of course) against Lawyer John.

Judge Chiechi: “…it was respondent’s [IRS’s] position that section 4979A(e)(2)(D), not section 6501, controls resolution of the statute of limitations issue.” 143 T. C. 13, at pp. 5-6. And she quotes a swath of IRS’s old brief, where IRS says exactly that, and expressly rules out Section 6501.

But now IRS changes their tune, and the words that go with it.

Now they argue: “[T]he limitations period under I.R.C. § 4979A(e)(2)(D) supplements but does not replace the general limitations period under I.R.C.§ 6501 or the specific limitations period under I.R.C. § 6501(c)(3). In this case, because the interaction between I.R.C. § 6501 and I.R.C. § 4979A was not discussed, the Opinion contains a substantial error of law when it implies that I.R.C. § 4979A replaces I.R.C. § 6501. Instead, because the limitations period under I.R.C. § 6501 is not superseded and has not expired, the period during which Respondent can assess the excise tax under I.R.C. § 4979A remains open.” 143 T. C. at p. 9.

Nostra culpa, says Judge Chiechi, we made a substantial error of law. Apparently the Court made the error because IRS argued it.

No matter. IRS wins.

I wonder if you or I had blown a concession like this, and came back with a Rule 160 or Rule 161 motion, what result we would get.

I hope Lawyer John has the cash left to bond this and appeal.

Edited to add, 8/24/21: He did, and lost, with a dissent.

No, not Humpty-Dumpty’s take on semantics. Rather, this is Judge Kerrigan’s brief lecture on 11USC§362(a)(8).

Didn’t we just discuss this, you will ask. Yes, we did, back on 9/26/14, in my blogpost of that date, “An Unromantic Judge”. But here’s a different take.

Sam T. Jewell, Docket No. 25467-12L, filed 9/30/14, wants to fight over the NFTL concerning his TFRPs. He petitioned timely, but then filed bankruptcy. IRS says “Stop! You’re stayed!””

Sam says the relief he’s seeking here wouldn’t increase or decrease his tax liability, and cites an innocent spouse case where spouse could proceed, as stayed-intervenor’s liability wasn’t at issue.

No, says Judge Kerrigan, doesn’t apply here. Stayed-intervenor hadn’t petitioned. Sam did, so Sam’s stayed. Remember, judges love the auto-stay. It makes the case before them someone else’s problem.

Takeaway–A bankruptcy petition bars or stays a Tax Court petition (and everything else).

No, not more protester stuff, but Judge Laro has a serious question to deal with in Charles L. Garavaglia, Docket No. 2500-07, filed 9/29/14.

It looks cut-and-dried at first. Chas got nailed for a deficiency back in 2011, and Sixth Circuit affirmed the nailing. But now Chas wants to move out of time to vacate the affirmed decision, claiming IRS defrauded him and Tax Court.

Chas claims IRS grabbed documents by the truckload from him and his partner George Rogers. Chas and George took a plea in their criminal cases, and George lost a civil case.

IRS asked George if he wanted his partnership papers back, and he said no, destroy them.

IRS claims they did, or that they didn’t exist, when Chas tried the deficiency case against him. Chas said he needed the papers to prove that what IRS claimed was income was really loans.

IRS said there was no reason to suppose that any documents existed that would exonerate Chas. Moreover, said IRS “but what he dreams is missing never existed in the first place. What are the specific missing documents? Cancelled checks and bankrecords showing his fictitious loans to Trans and Branch? Those never existed. You cannot go missing if you never existed. There is no missing evidence that would have helped Garavaglia.” Order, at p. 7.

So Chas lost at Tax Court, and Sixth Circuit affirmed.

Lo and behold, as a now-deceased colleague used to say, two-and-a-half years later, there turns up in the IRS CID evidence room several, disorganized boxes of documents with Chas’s name on them. Probably next to the Rose Law Firm billing records. But remember, this is a non-political blog.

IRS tells Chas, and Chas tells “foul”. He gets 5 boxes, but IRS says there are 30, and of the 17,384 documents IRS gives Chas, some are canceled checks.

Chas wants to vacate the earlier decision, claiming IRS defrauded the Court.

Now, as my younger daughter remarked when the Bible reading began with Genesis 1:1, “Settle down, we have a long way to go”.

Question one: has Tax Court authority to vacate the earlier decision, even if fraud could be proven?

Tax Court is an Article I court. That means it doesn’t have the full weaponry of the rest of the Federal judicial system (Article III). Tax Court has what Congress gave it. And that ain’t much, as readers of my blog have long since discovered.

Of course, any Court which hasn‘t authority to set aside its decisions when it has been defrauded is a place where fraud can flourish. After all, if a runner knows the pitcher and catcher can’t try a pickoff, why not steal a base? Or maybe two? And if the ref can’t send a player to the sin-bin, why not hook, trip or slash?

But Judge Laro plows through various Sixth Circuit cases and finds Tax Court has authority to vacate its orders, opinions and decisions when it has been defrauded, at least in the Sixth Circuit.

Question two: Why should a line on a map determine whether a court can set aside a decision, order, judgment or opinion when, in G. M. Fraser’s words, justice  “was not only blind, but had a bag over her head”? Or in Paul Simon’s words, why should a party, be it government or taxpayer, be able to defraud the Court when they’re “one step ahead of the shoe shine. Two steps away from the county line.” ?

I leave that question to Congress.

Question three: OK, so what’s the test for fraud?

Judge Laro turns to the case of John Demjanjuk. Demjanjuk was accused of being a Nazi death camp guard, stripped of his US citizenship and sent to Israel for a war crimes trial. Though convicted, his conviction was overturned on appeal. Sent to Germany, he was tried there, convicted again, but died before he could appeal, so the conviction was reversed.

The US prosecutors got nailed for defrauding the US court.

Here’s the test Sixth Circuit used: The fraud must be “1. On the part of an officer of the court; 2. That is directed to the ‘judicial machinery’ itself; 3. That is intentionally false, wilfully blind to the truth, or in reckless disregard for the truth; 4. That is a positive averment or is concealment when one is under a duty to disclose; 5. That deceives the court.” Order, at p. 12.

And the party seeking to vacate must prove all five elements by clear and convincing proof.

Now in this case Chas is alleging fraud, and the court is reviewing his pleadings, so his pleadings get the benefit of the doubt. He hasn’t got to prove any of this yet, but if he gets past the paper barrier, he gets his shot at proving what he alleges.

And Chas clears the barriers.

IRS counsel are officers of the court. Chas’s attorneys asked for the documents in discovery and were told they didn’t exist. Because Chas couldn’t present a defense, that subverts the judicial process, because the court can’t fairly decide. Likewise IRS’s attorneys acted with reckless disregard, as they never searched the evidence room, where thirty (count ‘em, thirty) boxes of documents reposed. They certainly had a duty to disclose, as Tax Court rules require disclosure. And the court was certainly deceived, if the judge believed there were no documents, when in fact there were.

OK, so Chas pled a case. Now what?

So far, only paper. Now it’s time to put witnesses on the stand, put papers and things in evidence, and subject all the witnesses to what Dean John Henry Wigmore called ““the greatest legal engine ever invented for the discovery of truth”–cross-examination.

Incidentally, Dean John Henry Wigmore was the greatest authority on the law of evidence in my young day. But his name is definitely his fame. I sometimes think if I had been named Lewis C Wigmore, I’d be on the Supreme Court handing down oracular pronouncements at least worthy of Olympus, if not Sinai, rather than grinding out blogposts as Taishoff the Obscure.

So Judge Laro wants the parties to prepare memoranda, with witness lists and gists, and show up for a hearing.

Should be a blast.

Edited to add, 5/12/26:It wasn’t.”At the request of counsel for petitioner, on October 6, 2014, a telephonic conference call took place with respondent and the Court. During the conference call, counsel for petitioner informed the Court that after having the opportunity to thoroughly review newly discovered documentation (approximately 17,384 pages), counsel for petitioner conveyed to respondent and the Court and provided in his Motion to Withdraw ‘the newly-discovered evidence was insufficient to show that there was both a fraud on the Court and that the Petitioner’s tax deficiency would change based upon such evidence;'”.Order, 10/6/14, at e. 1