Today’s T. C. involves the lineman leasing game. Remember that dodge? No? See my blogpost “The Wichita Linewoman”, 5/23/12, for the story of Kathleen Murray and her sidekick, Ernie The Cable Guy.

But now it’s the ostensible lessor who’s on the line, in SECC Corporation, 142 T. C. 12, filed 4/3/14, with Judge Colvin writing for a galaxy of Tax Court jurists: Ch J. Thornton, and JJ. Halpern, Foley, Vasquez, Gale, Wherry, Kroupa, Holmes, Gustafson, Paris, Morrison, Buch, Lauber, and Nega.

SECC claims their linebackers are ICs, but IRS says no, they’re EEs, so SECC owes FICA, FUTA, penalties and interest. However, IRS didn’t say “no” by certified or registered mail.

Both SECC and IRS claim Tax Court has no jurisdiction, but come to very different conclusions therefrom. “Respondent [IRS] contends that dismissal would deprive this Court of jurisdiction over this case, leave the assessment in place, and allow the IRS to proceed with collection.

“In contrast, petitioner contends that the failure to issue an NDWC means the assessment is invalid and the IRS may not collect the disputed employment taxes unless and until an NDWC is sent. Under petitioner’s theory, issuance of an NDWC would trigger the right to file a petition and seek our determination under section 7436.” 142 T. C. 12, at p. 8.

The problem with this, of course, is that if either side is right about no jurisdiction, Tax Court has no jurisdiction to decide anything, but must toss the case altogether.

By the way, a NDWC is a Notice of Determination of Worker Classification, Letter 3523 to you. And IRS never issued one, but Appeals sent a letter to SECC telling them they owed the FICA, etc. And that was enough for the Tax Court majority to find there was a determination, but to start the 90-day clock it had to go registered or certified, and it didn’t. But we’re getting ahead of ourselves here.

Tax Court of course has jurisdiction to decide if they have jurisdiction. And guess what? They decide they do, although Judges Kerrigan and Goeke wish they hadn’t, and dissent accordingly.

Section 7436 gives Tax Court jurisdiction over worker status claims. The key is whether there is a determination by IRS after audit one way or the other. Judge Colvin parses Appeals’ letter at length and says it is; the dissent disagrees, of course, but reading the letter it looks like one to me. How about this? “Unfortunately, we were unable to reach an agreement on your case. The employment tax liability as determined by Appeals will be assessed and you will receive a Notice and Demand for payment of the tax, penalty, and interest owed.

“If you would like to challenge our determination in court, you may file a complaint in the United States District Court or the United States Court of Federal Claims. If you decide to do this, you must first pay, at a minimum, the employment tax assessment attributable to one employee for any one quarter and file a claim for refund of the tax. Once the claim for refund is denied or 6 months elapse without any action by the Service, you may initiate suit.” 2014 T. C. 12, at p. 7.

Well, notwithstanding no NDWC was ever sent, and the petition came months too late if the ninety-day bar for SNOD and NOD reviews applied, and that an IRS Notice says the NDWC is a jurisdictional prerequisite to a Tax Court proceeding, Judge Colvin goes for the jugular in a footnote.

“We disregard the Commissioner’s statement in Notice 2002-5, 2002-1 C.B. 320, 321, that ‘[b]ecause the Notice of Determination constitutes the Service’s determination described in §7436(a), * * * [it] is a jurisdictional prerequisite for seeking Tax Court review of * * * determinations regarding worker classification, §530 treatment, and the proper amount of employment tax under those determinations.’ We owe no deference to what an administrative agency says about our jurisdictional bounds. See Fox Television Stations, Inc. v. FCC, 280 F.3d 1027, 1038-1039 (D.C. Cir. 2002). This is so even if an agency directly or indirectly interprets the bounds of our jurisdiction through the implementation of regulations construing a statute which it administers. See also Adams Fruit Co. v. Barrett, 494 U.S. 638, 650 (1990) (the delegation of power to an agency to administer a statute does not empower that agency to ‘regulate the scope of the judicial power vested by the statute’). The dissenting opinion argues that we lack jurisdiction because the IRS did not intend for us to have jurisdiction. See dissenting op. pp. 35-36. The concurring opinion, which is joined by 11 of the Judges who voted yes, makes a similar point, see concurring op. pp. 27-28; and we note that it is the statute, not the IRS, that grants us jurisdiction.” 2014 T. C. 12, at p.16, footnote 5.

The dissent is upset about the two-track SNOD-NOD vs. classification procedures the majority seems to be adopting, but the statute is clear. If not sent registered or certified, the clock hasn’t started.

And Judge James S. (“Big Jim”) Halpern, concurring, is even more emphatic about IRS game-playing if IRS could hold off sending a NDWC and relegate a taxpayer to the USDC or USCFC (requiring them to pay first, ask for a refund and sue later).

“Moreover, respondent’s position, reflected both in this case and in Notice 2002-5, 2002-1 C.B. 320, 321, that only his issuance of a notice of determination as described in Notice 2002-5 may confer jurisdiction on this Court to resolve a worker classification or RA ’78 sec. 530 issue would improperly permit the Commissioner to determine, in his sole discretion, whether a taxpayer shall have access to this Court in order to resolve any such issue raised on audit. Were we to adopt respondent’s position, the Commissioner, by refusing to issue a notice of determination, would be able to deny the taxpayer access to this Court, which he may be tempted to do whenever he feels his chance of success on a worker classification or RA ’78 sec. 530 issue is better in either the District Court or the Court of Federal Claims than in this Court.” 2014 T. C. Memo. 12, at p. 27.

Or when a taxpayer can’t afford to pay a monumental assessment of FICA, FUTA, penalties and interest without going out of business altogether.

Or, in high-school French, beat it, Franco-American taxpayers, some of your French social security taxes ain’t deductible or creditable.

Remember James Cecil & Anne-Marie Swank? No? Then see my blogpost “Don’t Sweat the Small Stuff”, 8/7/13. Jim and Anne-Marie were scrapping with IRS in a small-claimer over the creditability of the French la contribution sociale généralisée (general social contribution or CSG) and la contribution pour le remboursement de la dette sociale (contribution for the repayment of social debt or CRDS). But STJ Armen, the Judge With a Heart, sent Jim and Anne-Marie to cool their heels while IRS fought out their battle in a fully-briefed full-dress Tax Court T. C., because small-claimers aren’t precedential and can’t be appealed.

Well, Jim and Anne-Marie get their questions answered, and I’ll wager they’re no happier with Judge Lauber’s answer than the stars of the T. C. STJ Armen was talking about, Ory Eshel and Linda Coryell Eshel, 142 T. C. 11, filed 4/2/14.

If CSG and CRDS are taxes that would exempt Ory and Jim and Anne-Marie and Linda from paying US FICA or SE, then they’re not creditable under Section 901 because “section 317(b)(4) of the Social Security Amendments of 1977 (SSA), Pub. L. No. 95-216, 91 Stat. at 1540, nevertheless precludes credits for these taxes.” 142 T. C. 11, at p. 3.

Taking a leaf from Richard Wagner’s Die Meistersinger von Nurnberg, Act III, Scene V, you may ask “Mein! Was ist das?”

It’s the totalization agreement. No, it’s got nothing to do with pari-mutuel betting. It’s a US-France treaty that prevents double taxation for social security-type purposes and credits people who work for a time in each country, so they get full benefits. For an example of how totalization works, see 142 T. C. 11, at p. 11, footnote 3.

But experts aren’t in agreement that CSG and CRDS are social security taxes (not creditable) and not income taxes (creditable).

Judge Lauber: “The parties agree on all questions of basic fact and have expressed that consensus by filing cross-motions for summary judgment. The parties disagree on one point that may be relevant in interpreting the international agreement at issue–namely, how the French Government, at various times, has characterized CSG and CRDS for purposes of EU law and internal French law….. We conclude that this disagreement does not give rise to a material factual dispute that would prevent the Court from deciding this case on summary judgment.

“Under Rule 146, this Court’s determination of foreign law ‘shall be treated as a ruling on a question of law.’ As a result, disputes about the proper interpretation or characterization of a foreign law are not disputes of material fact that preclude summary judgment.” 142 T. C. 11, at pp. 5-6 (Footnote omitted).

It doesn’t matter how the French interpreted the laws, the European Court of Justice bounced them on their interpretations. Since the statutes creating CSG and CRDS were enacted post-totalization, the question is whether they “amend or supplement” the French social security system. If they do, then the Social Security Act precludes a credit for them against US income tax, as FICA and SE aren’t excluded from US income tax.

And Judge Lauber finds that, notwithstanding French waffling on the terms of the totalization agreement post-ratification (by which the US isn’t bound), the revenue from the taxes go to pay for shortfalls in French social security.

And that’s enough. No credit.

A misquotation, both from B. Traven’s novel and from the Humphrey Bogart classic movie, but even so, rated as American Film Institute’s 36th all-time greatest movie quote.

But two attorneys, having left one firm, continue to represent that firm in trying to secure a piece of Fighting Joe Insinga’s not-yet-and-maybe-never whistleblower recovery per Section 7430, while also purporting to represent Fighting Joe as he fights on toward that goal. And go charging into Tax Court, with or without any basis.

Whether or not representing Fighting Joe and his former firm (which seeks money from Fighting Joe’s recovery) is a conflict of interest, and whether or not waivable, I leave for the ethicists.

Suffice it to say, that Obliging Jurist, Judge Gustafson, is way less obliging than usual in Joseph A. Insinga, Docket No. 9011-13W, filed 4/2/14, a designated hitter.

The boys start out with an Entry of Appearance on behalf of Fighting Joe’s former law firm. That’s interesting, says Judge Gustafson, because the only parties are Fighting Joe and the IRS, and said law firm hasn’t moved to intervene.

Of course, it can so move, if it has standing, but that’s another story. Intervention in Tax Court is an obstacle course in itself. See my blogposts “Statute of Limitations? Maybe Not”, 12/28/10 and “Missed It, But Better Late Than Never”, 8/24/11, where Tax Court and Third Circuit wrestle with Tax Court intervention in the celebrated Virgin islands Appleton case.

Likewise, Fighting Joe hasn’t won anything yet (and the odds on him don’t look too good so far).

Nevertheless and notwithstanding anything otherwise or to the contrary elsewhere herein set forth, as my yacht-owning colleagues like to say, the boys want to assert an attorneys’ lien for their former firm on any recovery they might pry from the National Fisc on behalf of Fighting Joe.

For the civilians amongst you, if an attorney works on a case and is relieved (otherwise than for misconduct), the attorney has a lien on any recovery by the erstwhile client for the fair value of services rendered to date of discharge. This is to keep deadbeats from tossing hard-laboring peasants like Your Humble Servant under the proverbial on the eve of victory and scampering with the boodle.

There’s a couple problems here (if I may use Judge Holmes’ favorite grammatical form without approving of it, but rather as a tip of the old Stetson to a loyal reader).

Judge Gustafson: “If Mr. Insinga prevails, this Court’s work will culminate in its entry of a decision. This Court does not cut checks to successful petitioners, and the undersigned judge is unaware of any grant to the Tax Court of jurisdiction to compel any agency to cut a check or to give it directions in doing so. The Tax Court does not oversee the execution of its decisions, and if the responsible agency were to fail to pay an award that the Tax Court had determined, or were to pay the award to the wrong person, we know of no statute authorizing us to entertain any request for enforcement of a judgment.” Order, at p. 2.

In short, boys, we ain’t got no stinkin’ jurisdiction, and you ain’t got no justification for filing anything here, so show cause why Judge Gustafson shouldn’t trash your papers, and bid you the best of luck.

Footnote to the foregoing:  By Order dated 5/2/14, Judge Gustafson tossed the boys and their Notice of Appearance.

As it’s April Fools’ Day, let me once again quote the Sage of Concord: “A foolish consistency is the hobgoblin of little minds, adored by little statesmen and philosophers and divines.” Ralph Waldo Emerson, 1803-1882.

But consistency is foolish when an electing Section 927(f) foreign sales corporation meets the Section 4973 excise tax on Roth IRA contributions after it’s too late for IRS to reallocate the distributions from the FSC to the individual shareholders thereof (as their tax years have closed).

So says Judge Chiechi in Celia Mazzei, 2014 T. C. Memo. 55, filed 4/1/14 (happy palindrome day, by the way).

But some with long memories will cite my blogpost “Foolish Consistency”, 5/5/11, when Judge Nimms in Ohsman, 2011 T. C. Memo. 98, filed 5/3/11, gave IRS the right-about-face, when IRS treated the taxpayer one way for income tax purposes and another for excise tax (excessive Roth IRA contributions) purposes.

The game used to be (prior to 2004, when Notice 2004-08, 2004 IRB 4, 1/26/04*, the abusive IRA Notice, put paid to such shenanigans) that a business owned by the taxpayer would pay commissions or dividends to a C Corp, all the shares of which were owned by the taxpayer’s Roth IRA, getting around income tax (dividends or commissions actually property of taxpayer, not C Corp), and excise tax on excessive Roth contributions. And the C Corp would be a tax-favored vehicle, like a DISC or a FSC.

Well, IRS didn’t go after Celia’s income tax (because those years were closed, IRS didn’t pick up on the Roths, and fraud wasn’t alleged), so going after the excise tax is inconsistent, isn’t it?

No, says Judge Chiechi. IRS didn’t assess income tax against Celia because the years in question were closed years. Unlike Ohsman, IRS never tried to assess Celia’s additional income taxes, because if they had, it would have been futile.

But the Roths are still in play for excess contributions.

*IRB 2004-04 (Rev. January 26, 2004) – irb04-04

Here’s a designated hitter from one who reads my blog. The case is Nerida Patrica Lopez, Docket No. 2601-13, filed 4/1/14, and there’s no interesting point of law, or even interesting facts, but there is evidence that the exalted author thereof reads my blog.

Offer of proof in substantiation of the foregoing: “She produced a couple boxes, see nationalorganizationopposingforever.wordpress.com (regarding grammatical point), to prove that she has offsetting deductions, but these included nonsense like a brochure describing how to operate an alarm system and a photo of a house scattered among disorganized records.”Order, at p. 1.

Check out the URL cited; it’s interesting, but that doesn’t make it correct.

And guess who wrote the order? No prize for the correct answer.

This one is for the IRS, says Ch J Michael (“Iron Mike”) Thornton in Roosevelt Powell, Docket No. 26454-13S, filed 3/31/14. Note well that letter “S”, for thereby hangs the tale.

IRS wants a Rule 37(c) order that undenied allegations in their answer be deemed admitted, because Roosevelt didn’t serve and file a reply to IRS’ answer denying them.

But Ch J Iron Mike reminds IRS of Rule 173(c). In a small-claimer (“S”) like this, petitioner (taxpayer) Roosevelt is barred from serving and filing a reply unless the Judge tells him, failing which any affirmative allegations in the answer are deemed denied.

IRS never asked for a reply, Ch J Iron Mike never told Roosevelt to reply, so IRS’s desired admissions that Roosevelt committed fraud on his 2001 return (thus opening an otherwise closed SOL) are deemed denied.

Ordinarily I’d give IRS a Taishoff “good try, third class”, but this falls below even my minimal standard for crafty. More like desperation, when they haven’t got “clear and convincing” evidence.

Gordon Kaufman and Lorna Kaufman, Ph.D.s both, coming off a First Circuit win (see my blogpost “A Joy Forever? –Maybe Not”, 7/20/12), are back in front of Judge James S. (“Big Jim”) Halpern, playing five-on-two (five lawyers for Gordo and Lorna, and only two for IRS), in 2014 T. C. Memo. 52, filed 3/31/14, and Lorna’s Section 170 facade easement gets blown away to the tune of a 40% substantial understatement chop.

Gordo is “Morris A. Adelman Professor of Management Emeritus of the Sloan School of Management at the Massachusetts Institute of Technology. He specializes in statistical analysis.” 2014 T. C. Memo. 52, at p. 4. Spouse Lorna, a Ph.D. in psychology, has her own business and donated a facade easement on her historic Boston townhouse.

So maybe Gordo should be leery of the valuation of Timothy J. Hanlon, which claims the diminution of value of wife Lorna’s Boston townhouse is 12%, based on the ill-considered Primoli article and one Tax Court case that has no progeny, with some juggling and jiggling of Timothy J.’s own creation.

Gordo is appropriately concerned, and sends an e-mail to Mory Bahar, a representative of the National Architectural Trust, vendor of easement deductions and promoter of this deal. Gordo’s e-mail is distilled by Judge Big Jim: Gordo “expressed his concern that ‘the reduction in the resale value of the property due to the [facade] easement [is] so large as to overwhelm the tax savings that accrue from it.’ He asked Mr. Bahar: ‘[D]o you have statistical documentation that bears on how much of a reduction in resale value takes place for residential properties?’” 2014 T. C. memo. 52, at p. 10.

Although Judge Big Jim takes 86 pages to deconstruct Timothy J.’s appraisal, while lauding the efforts of IRS’s star witness John C. Bowman III, one paragraph of Mory Bahar’s reply e-mail is enough to tell you how this case is going to end.

“One of our directors, Steve McClain, owns fifteen or so historic properties and has taken advantage of this tax deduction himself. He would have never granted any easement if he thought there would be a risk or loss of value in his properties.” 2014 T. C. Memo. 52, at p. 11.

How do you spell “smoking gun”?

Now if a client shows you such an e-mail, what do you do? Well, Gordo’s team apparently introduced this gem into evidence, to show Gordo’s good faith attempt to verify Timothy J.’s appraisal. See 2014 T. C. Memo. 52, at p. 73.

Judge Big Jim: “Gordon Kaufman testified that he found the Bahar email only ‘mildly informative’ because he questioned the statistical basis of Mr. Bahar’s conclusions. It is somewhat odd, and not at all persuasive, that, in support of their argument that Gordon Kaufman verified that the $220,800 value for the facade reached by Mr. Hanlon was correct, petitioners bring to our attention Mr. Bahar’s email, in which, whether Gordon Kaufman accepted it or not, Mr. Bahar expressed his opinion that the conveyance of the facade easement to NAT had little or no effect on the value of the property. Petitioners have not convinced us that they made a good-faith investigation of the value of the facade easement by virtue of Gordon Kaufman’s email correspondence with Mr. Bahar.” 2014 T. C. Memo. 52, at pp. 73-74.

Kind of hard to rely on an appraisal when the promoter of the deal tells you that, no matter what the appraiser said, one of their own principals did this fifteen times and lost nothing. And you put this little gem into evidence.

How do you spell “own goal”?

Anyway, Judge Big Jim goes painstakingly through Timothy J.’s appraisal, notwithstanding his statement that: “(W)hether we exclude his testimony under Fed. R. Evid. 702(c) as not being the product of reliable principles and methods or consider it and give it no weight would seem to make little difference in this bench trial.” 2014 T. C. Memo. 52, at p. 54, footnote 12.

There’s a lot more, but you get the idea.

My sources tell me Luxembourg signed a FATCA Model 1 on Friday. Welcome, Luxembourg.

By Bitcoins

Yes, they’re property, and yes, they’re taxable. See Notice 2014-21. Here’s the link: http://www.irs.gov/pub/irs-drop/n-14-21.pdf

I’ve already blogged that practicing accounting can be hazardous to your health, and that practicing in Tax Court can be hazardous (to one’s wallet if not to one’s health), but a very sad story from Judge Elizabeth Crewson Paris shows that even mailing in a petition can be hazardous to your health.

It’s a truly pathetic tale, and shows the mutability of human existence, as same is played out in Tax Court.

Judge Paris: “This case is calendared for trial at the April 7, 2014, Kansas City, Missouri Trial Session of the Court. On February 25, 2014, respondent [IRS] filed a motion to dismiss for lack of prosecution. In respondent’s motion, he states that (1) petitioner died on the day the petition was filed, (2) no representative or fiduciary is currently authorized to act on behalf of petitioner, and (3) respondent is conceeding [sic] the deficiencies and penalties in this case.” Tyra Mae Cundiff, Docket No. 9058-13, filed 3/28/14, at p.1.