A rare occurrence in ice hockey, when a player is deprived of a clear scoring opportunity, principally on a breakaway, where the player has eluded all opposing players and has a clear path to the opposing goal, but is thwarted by a foul committed by the opposing team (e.g., grabbing from behind or slashing with a stick).

Here, although IRS may be clear of opposition from Vernice B. Kuglin, Docket No. 14065-13L, filed 4/25/14, STJ Lewis (That Man Can Spell) Carluzzo won’t award IRS the penalty in this designated hitter.

IRS seeks dismissal for failure to state a claim, and throws in a request for the Section 6673 frivolity chop. To support its penalty seeking, IRS says Vernice has a track record of commencing cases and then conceding on the eve of trial, causing much waste of resources.

STJ Lew told Vernice either to amend her petition or oppose IRS’ motion. Of course she did neither.

STJ Lew: “We consider petitioner’s failure to reply to the above-referenced Order to reflect her concession that respondent’s motion is well-made as it relates to petitioner’s challenge to the determination made in the notice. Moreover, we view the allegations contained in the petition to be meritless challenges to respondent’s statutorily authorized procedures. Those allegations do not give rise to any justiciable issues.” Order, at p. 1.

Time for the Section 6673 chop?

No, STJ Lew is scrupulous. “Given the burden imposed upon respondent pursuant to section 7491(c), however, we do not consider petitioner’s failure to respond to the above-referenced Order to be a concession that she is liable for a section 6673(a) penalty. Furthermore, although positions advanced in the petition might suggest the imposition of a section 6673(a) penalty, we do not, under the circumstances, consider it appropriate to impose that penalty as part of this summary disposition.” Order, at p. 2.

Remember, Section 7491(c) provides: “Notwithstanding any other provision of this title, the Secretary shall have the burden of production in any court proceeding with respect to the liability of any individual for any penalty, addition to tax, or additional amount imposed by this title.”

All IRS has produced is that Vernice has a history of fooling around, and submitted a defective petition now. Not quite enough.

So Vernice’s petition is tossed, and IRS can go levy.

But STJ Lew doesn’t say Vernice is absolutely in the clear on the Section 6673 chop.

“Upon appropriate motion by respondent, the Court will vacate this Order of Dismissal and Decision in order to allow respondent to pursue his claim for the imposition of a section 6673(a) penalty.” Order, at p. 2.

Vernice, get those pads on and get into the goal crease.

In the immortal words of the late great Lorenz Milton Hart, master versifier, “I’ve seen a lot/I mean–a lot”. Hence the title of this blogpost.

But today, April 24, 2014, a day where nothing much is doing in US Tax Court (one small-claimer Section 152 jumpball, where Divorced Daddy can only prove half a year of quartering junior, when he needs more than one-half to get the credits, rebates, etc.; so at least theoretically Divorced Mommy can’t get the tax breaks either), there comes a one-paragraph order that makes me shake my balding head in wonderment.

Let us consider Enrique Rodriguez, Docket No. 30095-13, filed 4/24/14, from the word processor of Chief Judge Michael B. (“Iron Mike”) Thornton.

It’s a short story, and I’ll let Ch J Iron Mike tell it: On two separate occasions, “…the Court directed petitioner to file an Amended Petition and pay the Court’s $60.00 filing fee. Petitioner paid the Court’s filing fee, but failed to file an Amended Petition as directed.” Order, at p. 1.

Why one would pay the fee and not send in something, even a downloaded form with a halting narrative, does raise a question. There must be more to this story.

But Ch J Iron Mike has lost patience with Enrique, notwithstanding his unguided largesse directed at 400 Second Street, N.W.

“In view of the foregoing, it is ORDERED that, on the Court’s own motion, this case is dismissed for lack of jurisdiction on the ground that petitioner failed to file a proper Amended Petition.” Order, at p. 1.

And of course Tax Court will keep Enrique’s $60.00.

Enrique, time for a motion to set aside the order. And send in the Petition form with it.

That’s Judge Wherry’s answer to Bruce M. Kraft, in 142 T. C. 14, filed 4/23/14. Bruce was petitioning off a NOD in a levy CDP.

Bruce admitted he owed the taxes he reported for the year at issue, but claimed that invading his irrevocable grantor trust to pay the tax plus interest and penalties would cost him less in interest than IRS taking his distributions.

Now self-reported tax liabilities can be contested “generally” at a CDP, but Bruce didn’t raise that issue, so it’s off the table.

So are years which Bruce wants considered but for which SNODs or NODs haven’t yet been issued, and also whether Bruce wanted an installment agreement (although at the hearing before Judge Wherry he said he didn’t, he did check that box on his Form 12153), because that’s irrelevant now.

Bruce’s spendthrift trust is the issue. Applicable law (DC) says a creditor can reach the maximum amount the beneficiary-spendthrift could reach. Here, the trustee could give Bruce the entire trust corpus, so it’s all up for grabs.

Except IRS doesn’t have to grab it, and it isn’t an abuse of discretion for a SO not to try.

“Petitioner [Bruce] asserts that respondent [IRS] should levy the Kraft Trust because it is a quicker and a more efficient way to satisfy his tax deficiency; however even if respondent were to levy upon the Kraft Trust there is a very real possibility that the trustees of the Kraft Trust could feel that their fiduciary duties require them to oppose such a levy, which could cause even more litigation and additional delay.” 142 T. C. 14, at pp. 14-15, footnote 5.

“Even if the Commissioner was inclined to specifically levy on the Kraft Trust, there would first need to be a ‘thorough investigation’ into the status of the specific property. See sec. 6331(j)(1). There is no evidence in the record that a ‘thorough investigation’ of the Kraft Trust has occurred. Caselaw has made clear that while there must be an inquiry of whether, inter alia, there is enough equity in property owned by the taxpayer, such matters occur later in the collection process.” 142 T. C. 14, at p. 15 (Footnote omitted).

And there is no statutory requirement for IRS to make such an investigation. The statutory lien for taxes encompasses everything a taxpayer owns.

So Bruce’s distributions will be grabbed until he’s paid up in full.

Petitioning Tax Court can be hazardous–to your wallet if not to your health. And not just to attorneys, as to whom see my blogpost “Practicing In Tax Court Can Be Hazardous”, 1/28/14.

Case in point: Dwight A. Newby & Sally A. Newby, Docket No. 5153-14, filed 4/23/14. Yes they are, but I’ve forsworn the obvious pun. I’ve no desire to incur a judicial beat-down as a result of lame attempts at humor, such as Judge Posner laid on poor whimsical Judge Wherry in Superior Trading LLC in the Seventh Circuit. See my blogpost “There Goes The Neighborhood”, 9/3/13.

The point of all this? Oh yeah, the point; almost forgot.

Dwight and Sally A. sent in their petition and the requisite $60.00 check, which the clerks at 400 Second Street, N.W., fell upon and negotiated with their wonted celerity.

A month or so later, Dwight and Sally A. sent in an Application for Waiver of the filing fee, and affidavit in support thereof.

Even if said Application was meritorious (and Ch Judge Michael S. (“Iron Mike”) Thornton isn’t telling), “(U)nfortunately, however, Tax Court procedures and systems do not contemplate the issuance of refunds of filing fees once paid, thus rendering petitioners’ application moot.” Order, at p. 1.

As Judge Gustafson recently reminded us in one of the Joe Insigna episodes, Tax Court can’t cut checks or tell anyone else to do so. See my blogpost “We Don’t Need No Stinkin’ Badges”, 4/2/14.

So Dwight and Sally A. are out the $60.00.

Takeaway- When preparing petition, check out the form of Application for Waiver and Affidavit, at http://www.ustaxcourt.gov/forms/Application_for_Waiver_of_Filing_Fee.pdf

And if you qualify, you can save the $60.00.

Judge Laro should really designate some of his comprehensive orders, rather than waiting for me to sift through six pages of nothing-in-particular (barring Judge Goeke following Judge James S. (“Big Jim”) Halpern and giving another boot to James (“Little Jim”) Haber in a replay of my blogpost “Immunology”, 3/18/14; see Vance Finance and Holding Corporation and Subsidiaries, Docket No. 7245-08, filed 4/22/14*).

Judge Laro has another couple of Fifth Amendment immunologists on his hands in Jeffrey J. Manquen & Camille A. Manquen, Docket No. 26666-12, filed 4/22/14.**

IRS wants Jeff and Cam to tell them their educational and employment histories, and who set up a couple of LLCs, wherewith Jeff and Cam dealt with their IRAs (either trads or Roths), and provided tax and valuation advice in connection therewith. Sound like the old Notice 2004-8, 2004-1 C.B. 333, Abusive Roth IRA Transactions deals?

Howbeit, Jeff and Cam claim that to tell would set them up for a criminal tax case.

Judge Laro agrees to this extent: “Respondent argues that the possibility of criminal prosecution is too remote because he ‘neither has an open criminal case against petitioners nor contemplated a criminal tax prosecution against petitioners.’ A criminal case need not be pending to justify a claim of the Fifth Amendment privilege. Because a witness who fails to assert the privilege in a non-criminal case also forfeits the privilege in a subsequent criminal case, ‘it is necessary to allow assertion of the privilege prior to the commencement of a ‘criminal case’ to safeguard the core Fifth Amendment trial right.’ Chavez v. Martinez, 538 U.S. 760, 771 (2003). Moreover, it is likewise insufficient that respondent does not currently contemplate prosecuting a criminal tax case against petitioners. As long as there is a reasonable possibility of criminal prosecution, which petitioners have demonstrated, we must sustain petitioners’ Fifth Amendment claim.” Order, at p. 4.

However, that sustentation is good only as to Jeff’s and Cam’s assistants. Judge Laro doesn’t see how Jeff and Cam telling their work and school histories sets them up for anything. And he’s the Judge.

“It is the providence of the Court, not the witness, to determine whether a claim of the Fifth Amendment privilege is justified. Rechtzigel v. Commissioner, 79 T.C. 132, 137 (1982). ‘The trial judge in appraising the [Fifth Amendment] claim “must be governed as much by his personal perception of the peculiarities of the case as by the facts actually in evidence.”’ Hoffman v. United States, 341 U.S. 479, 487 (1951) (quoting Ex parte Irvine, 74 F. 954, 960 (C.C.S.D. Ohio 1896)). Order, at p. 3.

“Providence”, not province? Does anybody proofread these opinions?

But forcing Jeff and Cam to disclose their helpers, enablers, guides, philosophers and friends “could: (1) support a conviction that they conspired with their advisors to commit criminal tax fraud; or (2) lead to the discovery of evidence from their advisors that they committed tax fraud.” Order, at p. 4. So IRS, no go on that one.

That was the good news for Jeff and Cam. Now the bad news.

“Invoking the Fifth Amendment privilege is not, however, without consequence in a civil proceeding. The Supreme Court “has recognized ‘the prevailing rule that the Fifth Amendment does not forbid adverse inferences against parties to civil actions when they refuse to testify in response to probative evidence offered against them’. Mitchell v. United States, 526 U.S. 314, 328 (1999) (quoting Baxter v. Palmigiano, 425 U.S. 308, 318 (1976)); see also Sanders v. Commissioner, T.C. Memo. 1997-452. Moreover, we have held that where a party invokes the Fifth Amendment privilege in response to a request for interrogatories, we may place restrictions on the invoking party’s ability to introduce evidence with respect to matters over which he has asserted the privilege to assure fairness to the other party. See e.g. Traficant v. Commissioner, 89 T.C. 501, 502-504 (1987). Finally, the Fifth Amendment privilege may also be waived. Where a party voluntarily testifies in a case, ‘the Fifth Amendment does not allow him to refuse to answer related questions on cross-examination.’ Kansas v. Cheever, 134 S. Ct. 596, 601 (2013). This rule ensures that a party may not ‘set forth * * * all the facts which tend in his favor without laying himself open to a cross-examination upon those facts.’ Id. (quoting Fitzpatrick v. United States, 178 U.S. 304, 315 (1900)).” Order, at p. 3.

So Jeff and Cam, spill about your education and employment, but as for your coadjutors, your lips are sealed. Unless you want to testify on the trial, that is.

*Vance Finance 7245-089 4 22 14

**Manquen 26666-12 4 22 14

 Well, Sort Of

 Ashley Jeffrey Ponticello, Docket No. 15483-13S, filed 4/21/14, wasn’t doing so great. Judge Gale had warned Ashley last October to show up for trial or have her petition tossed. Ashley didn’t show, and she hadn’t responded to IRS’ attempts to get hold of Ashley by mail and by phone to get information about adjustments to the SNOD. Ashley stood mute throughout.

Judge Gale: “The Court may dismiss a case at any time and enter a decision against the taxpayer for failure properly to prosecute his case, failure to comply with the Rules of this Court or any order of the Court, or for any cause which the Court deems sufficient. In addition, the Court may dismiss a case for lack of prosecution if the taxpayer inexcusably fails to appear for trial and does not otherwise participate in the resolution of his claim.” Order, at p. 1 (Citations and footnote omitted).

So bye bye, Ashley. You never asked to shift the burden of proof, so you have the burden; and as you never showed up for trial, SNOD sustained.

So far run-of-the-mill. But not quite.

IRS hits Ashley with a Section 6662(a) 5-and-10 accuracy penalty, the substantial understatement variety. Now when IRS asserts a penalty, it has a burden of production of some evidence to sustain the imposition. Except here, of course, Ashley never expressly contested the penalty in her petition, or showed up to contest it on the trial.

So generally (I love that word) IRS isn’t required to produce anything, “at least where nothing in the record suggests the addition or penalty has been incorrectly computed.” Order, at p. 2.

But here it wasn’t correctly computed, because IRS did their numbers pre-Rand. Remember Yitz Rand and Shul Klugman? No? Then see my blogpost “The Rebate Debate – Part Deux”, 11/18/13.

This was the lead case in the child rebate series, when the rebates reduce taxes due below zero, so the deficiency was more than the tax shown on the return pre-rebate. But Tax Court, construing “underpayment” by the rule of lenity (penalties are strictly construed against the penalizer and in favor of the penalized), said the “underpayment” for penalty purposes was only so much of the deficiency that took the tax stated to zero, not below zero.

And that number in Ashley’s case is less than the greater of $5K or 10% of the tax due, so no Section 6662(a) understatement penalty, and IRS didn’t ask for negligence.

So Judge Gale doesn’t have to decide if the petition, alleging identity theft, somehow implicated a reasonable cause defense.

And even though Ashley never played show-and-tell, or showed up for the trial, still gets part of a win.

Mark A. Lovely, Docket No. 4855-14L, filed 4/17/14, gives me my text for today’s sermonette. Mark petitions and moves at once for summary judgment before IRS has answered.

I’ve already avowed my affection for summary judgment. See my blogpost “Summary Judgment – A Causerie”, 3/13/14. Where there are no disputed material facts to try, it’s a waste of time to go through pleadings, motions, discovery (formal and informal) and all that jazz, when by cutting to the chase, the outstanding legal issues can be addressed and adjudicated.

New York State recognizes this, but only in certain instances, and the Courts here are very strict in their arrest. The law says summary judgment motions instead of the usual complaints can only be used for  claims “based upon an instrument for the payment of money only”, and the Courts here take that to mean only promissory notes without concomitant security agreements, mortgages, et hoc genus omne.

But I would argue that, since a great number of Tax Court cases ultimately go to summary judgment, why not amend Rule 121(a) to let a petitioner ask for SJ off the bat? In the first place, the petitioner would have to lay out all the facts and attach all the papers.  In the second place, whatever petitioner says or attaches, she or he is stuck with it; no change of story afterwards, and no unsupported allegations allowed. Paper it or swear to it, but remember Tokarski; self-serving claptrap doesn’t count.  And unlike Hewlett-Packard and Consolidated Subsidiaries, Docket No. 10075-08, filed 4/17/14, we would have fewer motions for leave to file a fifth amended petition, and seven-page docket sheets. H-P seems to be averaging almost one amendment a year. Maybe they figure that eventually, by dint of the law of large numbers, they’ll get it right.

Oh yes, and in the third place, SJ narrows down whatever IRS has to deal with.

But Ch J Michael B. (“Iron Mike”) Thornton, correcter of sloppy paperwork, is constrained by the rules to bounce Mark’s lovely idea, as IRS hasn’t answered yet. Now all this required a reply from IRS to Mark’s motion for summary judgment. Would it not have been simpler for IRS to reply either (a) there are material facts in dispute, and these are they, or (b) there are no disputed facts, but the law is not what Mark claims it is? Under present Rule 121(a), there has to be an answer, which doubtless, when boiled down to essentials, will be one or both of the two foregoing alternatives. Then Mark can make his motion.

Time to amend Rule 121(a).

No, not Crimea-Ukraine. This is a non-political blog.

Comes now Judge James S. (“Big Jim”) Halpern to continue the tangled trail of James (“Little Jim”) Haber, the star of my blogposts “Ironbridge Over Troubled Waters”, 6/5/12, “Getting Shifty”, 9/20/13, and “Immunology”, 3/18/14. This time it’s a New York state of mind, but not the 1976 Billy Joel crowd-pleaser.

The story can be found in AD Investment 2000 Fund LLC, Community Media, Inc., a Partner Other Than the Tax Matters Partner, 142 T. C. 13, filed 4/16/14, and it’s an unlucky 13 for Little Jim and his partners.

The issue is whether AD and its various partners can duck the substantial understatement, gross overvaluation, and negligence chops that IRS is hurling at them, arising out of a Son-of-BOSS mix-and-match, a phony partnership intended to marry a big paper loss with a real big monetary gain.

Of course, the issue is the reasonable belief of the partnership (and this is a TEFRA partnership-level jump-ball) that they stood a better than 50-50 shot at a win if IRS blew up their little fandango.

AD and chums claim they reasonably believed, without stating they relied on anybody to help them believe. They went with Reg. 1-6662-4(g)(4)(i)(A), which says that if AD and chums did their own digging, they could rely on what they turned up themselves, unlike Reg. 1-6662-4(g)(4)(i)(B), which is the “we relied on experts” and believed.

So AD and chums claim good faith self-determination. And therefore the six opinion letters they got from the law firm of Brown & Wood are privileged, not discoverable, and anyway are irrelevant.

No, says Big Jim. Once you place your state of mind in controversy, whatever induced you to come to that state of mind is fair game, and there’s an implied waiver of client-attorney privilege.

Personal injury lawyers know well that when someone claims they’re sick, sore, lame or lazy, patient-physician privilege is out the window and all the medical records and conversations with the doctors go into evidence. And that’s true even if the plaintiff (or other party) feels, and is in fact, sick, sore, lame, etc.

The aim is to prevent the shield that protects client-attorney confidences from becoming a sword to stick your adversary.

“Respondent [IRS] concedes that petitioners’ averments raise only the first method (self-determination), and not the second method (reliance on professional advice), to show that the partnerships satisfy the belief requirement. Nevertheless, respondent argues, petitioners have placed the opinions into controversy by relying on a reasonable cause, good-faith defense and by putting the partnerships’ beliefs into issue. Respondent states: ‘Under the first method, * * * those tax opinions remain relevant to the subjective inquiries into reasonableness and good faith.’ He adds: ‘Putting reasonable belief in issue places the Partnership[‘s], and specifically James Haber’s, state of mind at issue.” He explains: ‘Mr. Haber [“de facto manager of the partnership vehicle[s]”] received the subject tax opinions before taking the questioned positions and presumably before making his alleged self-determination of authorities.’ The opinions are relevant, respondent argues, because, if they contradict Mr. Haber’s claimed self-determination, they may show that his self-determination was not reasonable, and, if consistent with his self-determination, they may show that he made no self-determination.” 142 T. C. 13, at pp. 6-7.

Nice, huh? A definite Taishoff “good hit” to IRS’ counsel.

But there’s a Golsen face-off here, because AD and chums, being New Yorkers, claim Second Circuit needs explicit reliance on the attorneys’ advice to waive the privilege, while IRS claims that the DC Circuit evidentiary rules apply. But in any case, Second Circuit has held that where one places one’s state of mind at issue, the implied waiver has to apply, in fairness, where facts and circumstances so dictate.

And good faith means you thought you were doing the right thing (or at least 50% of the right thing). And how you got there is everything to the point.

So even though Little Jim may not take the stand (and Judge Big Jim agreed that it would be a bad idea if he did; see my blogpost “Getting Shifty”, op. cit., as my expensive colleagues would say), Judge Big Jim wants to see all six of the Brown & Wood billets doux, with a hearing on whether to impose sanctions on AD and chums for non-production.

Maybe better not to get opinion letters sometimes. Mighty unhandy things.

This is a sequel to my blogposat “Practicing in Tax Court Can Be Hazardous”, 1/28/14, the saga of Alvan L. Bobrow and Elisa S. Bobrow.

The Bobrows come bobbing back to Tax Court, assisted by The American College of Tax Counsel, to which august body I do not belong. And although Judge Nega seems not disposed to grant Alvan’s sought-after Rule 161 reconsideration, there is a happy ending for Alvan and the collegiates in Alvan L. Bobrow & Elisa S. Bobrow, Docket No. 7022-11, filed 4/15/14.

Alvan and the collegiates were arguing that Pub 590 says you can do one rollover annually for each of your IRAs, although Judge Nega said in 2014 T. C. Memo. 21 that Section 408(d)(3)(b) lets you roll only one annually, however many you have.

The collegiates “…also noted that section 1.408-4(b)(4)(ii), Proposed Income Tax Regs., 46 Fed. Reg. 36206 (July 14, 1981) (the proposed regulation), served as the basis for the relevant portion of Publication 590. The College’s amicus brief argued that the Court should reconsider our holding to conform with Publication 590. Additionally, the College argued that section 1.6662-4(d)(3)(iii), Income Tax Regs., allows proposed regulations to serve as sources of substantial authority that would mitigate or negate a section 6662 accuracy-related penalty.” Order, at pp. 2-3.

But Judge Nega will have none of it. “Neither petitioners nor respondent raised Publication 590 or the proposed regulation in their opening briefs, reply briefs, or sur-reply briefs. Petitioners first discussed Publication 590 in their motion for reconsideration but did not discuss the proposed regulation. Petitioners assert in their motion for reconsideration that Publication 590 should inform our interpretation of section 408(d)(3)(B) and that, at a minimum, Publication 590 provides petitioners with reasonable cause for their position, sufficient to negate the section 6662 penalty.

“Respondent first discussed Publication 590 and the proposed regulation in the Notice of Objection. Respondent acknowledged that Publication 590 and the proposed regulation should have been addressed in respondent’s briefs.” Order, at p. 3.

And to drive home the point, Judge Nega turns waspish: “The Court was aware of the position taken in Publication 590 prior to the issuance of the opinion in this case. Since neither party discussed Publication 590 in their briefs, the Court did not address it in its holding. Regardless, respondent’s published guidance is not binding precedent.” Order, at p. 3.

However, IRS is swayed by the collegiates’ and Alvan’s collective tale of woe.

“On March 20, 2014, the IRS released Announcement 2014-15, Application of One-Per-Year Limit on IRA Rollovers. Announcement 2014-15 announced that the IRS will follow the Court’s decision in this case but will not enforce the section 408(d)(3)(B) limitation as applying to all of a taxpayer’s IRAs until January 1, 2015. Respondent’s Notice of Objection agrees to extend the approach set forth in Announcement 2014-15 to petitioners, thus reducing petitioners’ tax liability and the associated 6662 penalty.” Order, at p. 3.

So IRS and Alvan are going to settle. That means the motion for reconsideration is denied as moot, and everybody can roll all their IRAs for the next seven-and-a-half months with a light heart.

Laissez les IRAs roulez!!

Cautionary Tales for Lawyers

I would have posted this yesterday, 4/14/14, but I arrived home late last night from a family celebration (and I again thank my brother and sister-in-law for their overwhelming hospitality), so I deferred until now.

Every lawyer has received The Phone Call. It comes, for the most part, long after the case or matter is concluded, the file closed, and client forgotten (or nearly so). It comes, again for the most part, when one is finally packing up to go home after an exhausting day, and one dares to turn one’s mind to something cold, and clear, and containing an olive.

Then it comes. “I just got [whatever], and it’s all your fault”. The voice on the telephone is loud and grating, rather like the ice against the plates on the side of the Titanic at that moment, one hundred two years ago today.

First up, Allen H. Johnson, 2014 T. C. Memo. 67, filed 4/14/14. Allen was a man of good faith, who played, as he thought, according to the rules. He made his spousal maintenance payments in accordance with the terms, conditions and provisions of the divorce decree from the Family Court of the State of Minnesota, as the same were thereafter modified and amended.

Said divorce decree provided, in pertinent part: “A divorce decree…required Mr. Johnson to pay spousal maintenance of $6,068 per month. In addition to the spousal maintenance payments, the divorce decree also required Mr. Johnson to pay 40% of his gross bonus to his ex-wife. Both the periodic spousal maintenance payments and the additional payment terminate upon the occurrence of any one of the following events: (a) the graduation from high school of the youngest child; (b) the remarriage of Mr. Johnson’s ex-wife, or (c) the death of either Mr. Johnson or his ex-wife. The divorce decree states that the spousal maintenance should be deductible to Mr. Johnson under section 215 and includible in his ex-wife’s gross income under section 71.” 2014 T. C. Memo. 67, at pp. 2-3.

And there was a separate child support provision. And Mr. Johnson took the deduction, and ex-Mrs. Johnson took in the payments as gross income.

Sounds OK? Nope.

It does satisfy the Big Four of Section 71(b): part of a divorce decree, doesn’t state that it is not includible or allowable, spouses aren’t living in same household when payments made, and dies with payee spouse.

But it misses Section 71(c)(2). It is tied in to a “contingency involving a child”. And that derails the deduction. The legislative intent is obvious: to keep people from playing games by making child support payments (not deductible except as limited by Section 152) deductible without limit by labeling the payments as alimony and not child support.

OK, nothing novel here. See my blogpost “End of the Trail”, 9/5/12.

Allen’s divorce lawyer (or whoever provided the tax advice) blew it. Having the payments end with the graduation of the youngest child, or anything to do with any child, is the critical error.

As shown in my blogpost aforesaid, dear divorce lawyers, tie the end of payments to a date certain. If that date certain happens to coincide with someone’s eighteenth birthday, well, that’s a coincidence. Who knows when, whether or if anyone will attain to the age of eighteen years, graduate from high school, marry or join the circus?

Allen’s CPA followed the divorce decree when preparing Allen’s return, so Allen acted in good faith, thus no 20% substantial understatement chop. But he still owes tax and interest, and I doubt he’s a happy camper. His divorce lawyer (or whoever provided the tax advice) may already have received The Phone Call.

Next up, Estate of Wallace R. Woodbury, Deceased, Wallace Richards Woodbury, Jr., Executor, 2014 T. C. Memo. 66, filed 4/14/14. The Late Wally owned a lot of closely-held family businesses, said Wally Junior, so he needed more time to file the 706. He wanted the Section 6166(a) closely-held small business 10-year installment plan. So first he sought an extension of the nine-month basic filing period, filing Form 4768, and checking the Section 6166 installment box and the Section 6161 extension of time to pay box.

IRS gave him the maximum six months’ extension, but Wally Junior needed more, so he asked for more. Unfortunately, whoever was advising Wally Junior never looked at Section 6081(a); the maximum extension for anyone in-country to file anything is six months. So IRS told Wally Junior he couldn’t have any more time.

And whoever was advising Wally Junior didn’t list the small businesses and show they were 35% or more in value of the gross estate in the cover letter they sent with the Form 4768. And it took Wally Junior nearly three years to file the 706.

You can guess the rest: no extension, no installment plan (Section 6166 election must accompany timely-filed return, per regulations) and no extension of time to pay.

Wally Junior wants a declaratory judgment (that’s a DJ to us professionals) per Section 7479. That provision lets Tax Court rule on a Section 6166 installment election, but not Section 6161 pay election. “(…our jurisdiction in the instant case arises under sec. 7479, which confers jurisdiction on the Court to make a declaratory judgment regarding whether an election may be made under sec. 6166 or whether the extension of time for payment of tax provided in sec. 6166(a) has ceased to apply with respect to an estate. Accordingly, we do not consider sec. 6161.” 2014 T. C. Memo. 66, at p. 4, footnote 4.

He gets his DJ, though. And it isn’t great. You’re too late, baby. You didn’t make your election with a timely-filed return. Your substantial compliance argument is out, as you didn’t substantially comply. You didn’t timely tell IRS what your closely-helds were and how they amounted to 35% or more of the gross estate, which are among the essential elements of complying with Section 6166(a). And while you made payments as if you had made a proper Section 6166(a) election, that doesn’t help you.

Tax Court has no equitable jurisdiction, so they can’t let you pay the balance and interest over what would have been the remaining term of an installment agreement.

Statutes of limitations are harsh, but there has to be an end, even where it could hurt.

Now why is this a cautionary tale for lawyers? See 2014 T. C. Memo. 66, at p. 7, footnote 6. Conceding the Section 6081(a) outside limit for extensions to file, Wally Junior states in his petition: ““Petitioner, relying upon legal counsel’s erroneous advice that a second extension of time could be obtained to file the 706 return, sought to obtain a second extension of time, which was subsequently denied and which therefore resulted in Petitioner making an untimely filing of the Decedent’s 706 return”.

Leaving aside the fact that Wally Junior knew or should have known that, when IRS bounced his second extension request, he had to bestir himself vigorously, or at least go to the bullpen for other counsel, lawyers should be aware that, in tax law, here there be dragons.

And the first one hears that there are dragons may be The Phone Call.