In our house, I predominantly do the cooking ( “if you can call it that”, as some might add; still, my cooking sustains life, if it doesn’t ennoble it). So very often when I return home after a hard day of blogging and doing as little as reasonably possible, I might reach into the fridge for remnants of a previous repast, mess with it some, and serve it out. With enough wine, it’s always good.

So today I do likewise in the blogosphere, although I do have a new T. C. Memo. to blog as well, under separate cover.

This is an opinion filed yesterday, 3/18/14, which I didn’t have time to get to. It’s the story of an ETA OIC. No, that has nothing to do with aircraft. It’s short for “Effective Tax Administration Offer in Compromise”. OICs are the delight of continuing ed. instructors and appellants.

The story told in Stacey L. Bogart and Timothy P. Bogart, 2014 T. C. Memo. 46, filed 3/18/14 is simple. I’ll let Judge Kroupa tell it: “Petitioners are a married couple with four children. They operated a construction business during the relevant times. Petitioners treated the construction business as an S corporation for Federal income tax purposes. Petitioners were not wealthy, but they had accumulated $225,478 in assets in the form of real property equity, personal property, retirement accounts and other investments.

“Before 2006 petitioners relied on Teresa Sanak to prepare Federal income tax returns on their behalf. Petitioners expanded Ms. Sanak’s role in 2006 to serve as the bookkeeper for the construction business. Unbeknownst to petitioners, Ms. Sanak was a gambling addict.” 2014 T. C. Memo. 46, at p. 3.

You can guess the rest. It would seem Ms. Sanak’s ponies did about as well as mine, but I at least didn’t have to steal $116K from people who trusted me to make up for their slowness of foot (or hoof). Ms. Sanak played the old game of running money through her employers’ various accounts and out onto the track.

IRS audits hapless Stace and Tim, and in doing so discovers Ms. Sanak’s defalcations. The forces of justice put Ms. Sanak away and order her to pay back what she stole. Good luck with that, Stace and Tim.

Meanwhile, back at the office, IRS hits Stace and Tim with a SNOD for $69K plus interest. Stace and Tim claim they can’t pay because Ms. Sanak’s ponies are Ken-L-Ration, the money is gone with them, and Ms. Sanak hasn’t paid them back yet.

IRS hits them with a NIL (Notice of Intent to Levy, etc.), and Stace and Tim ask for a CDP.

Now here’s something that shows why Doug Shulman and Dave Williams were right in spirit, although short on legal authority. “Petitioners at first were represented by so-called Tax Resolution Services, Co. [sic](TRS). TRS twice requested additional time for petitioners to provide information. It appears that TRS never submitted information on petitioners’ behalf. Petitioner wife then contacted the settlement officer. Petitioner wife indicated that she would provide the information that her representative did not provide. Petitioners then represented themselves until counsel from the tax clinic at the University of Washington School of Law appeared in this matter.” 2014 T. C. Memo. 46, at p. 4, Footnote 3.

Judge Kroupa doesn’t state what Stace and Tim paid TRS, or what TRS undertook to do on their behalf; and as I don’t know whether any principals of TRS were CPAs, attorneys or EAs, I can’t say that that specific organization requires other or further regulatory oversight. But the late-night television ads I see, which promise speedy and successful resolution of all fights with IRS, make me seriously advocate for expansion of Circular 230 (by Congressional enactment if necessary) and stronger enforcement of its disciplinary sanctions.

Howbeit, three (count ‘em, three) Appeals SOs look over Stace’s and Tim’s OIC and deposits (Stace and Tim offer $10K), and all the requested information that Stace, Tim and the Washington tax clinicians provide. And one of the SOs does not “perceive” (the SO’s word) that there’s a public policy effective tax administration issue. After all, Stace and Tim have that quarter-million in assets, so no economic hardship for them to produce the $69K plus interest.

So Appeals gives IRS the NOD, and the Washingtonians petition.

Now before Judge Kroupa knocks out the NOD and sends Stace, Tim and the Washingtonians back to Appeals, I’d like to say a word in defense of the SO. While the Washingtonians argue for equity (after all, Stace and Tim were robbed), so was Ray Fouche, in the same way and for plenty; see my blogposts “The Cover-Up”, 11/23/11, and “The Cover-up Uncovered”, 4/24/13. Second Circuit didn’t care that Ray was robbed.

And although Nina (“The Big O”) Olson, the Taxpayer Advocate, claims Appeals too rarely uses equity, the examples in the relevant regulation aren’t in point, and the IRM provides that the SO must ask him/herself whether other taxpayers would think the OIC fair and reasonable.

So the SO, with however many other cases s/he has, must play King Solomon. And if s/he gets it wrong, somebody else in Appeals gets the case back.

Now I’m not arguing the SO shouldn’t do his/her job, and follow the regulations and the IRM. But remember, Stace and Tim have more than enough assets to pay in full, and after hearing an endless number of hard-luck stories (and as lenders’ foreclosure counsel in a former lifetime I heard them all), it is rarely the wrong choice to twist blasphemously a famous statement: “Sell all thou hast, give it to the IRS, take up thy cross, and get out of here”.

Judge Kroupa, assisted by the zeal of the Washingtonians (a hearty Taishoff “good try”, guys!), remands. “But at the administrative level respondent did not consider whether the theft loss constituted exceptional circumstances–even though petitioners requested relief on public policy and equity grounds. The administrative record indicates that respondent did not consider those grounds but focused solely on economic hardship grounds. He merely concluded that the ETA OIC did not merit consideration under public policy or equity grounds. Respondent did not adequately consider this issue.” 2104 T. C. Memo. 46, at p. 11.

Of course, the Washingtonians want to score from first base on a bloop single. Why not? I would: “…petitioners claim that they satisfied the requirements as a matter of law for respondent to accept the ETA OIC. See IRM pt. 5.8.11.2.2. We disagree. It is undeniable that Ms. Sanak perpetrated a fraud against petitioners. The Commissioner maintains, however, wide discretion when evaluating an OIC and determining whether a taxpayer demonstrated exceptional circumstances. The record does not establish as a matter of law that respondent was obligated to accept the ETA OIC.” 2104 T. C. Memo. 46, at p. 12.

Neither was the SO obliged to send the OIC to the OIC-NEH (non-economic hardship) squad. That’s in the SO’s discretion.

But the SO didn’t consider equity and public policy, so Judge Kroupa bounces IRS’ and the Washingtonian’s requests for summary judgment (without prejudice, so they can try again) and remands to Appeals.

UPDATE

The following was received by e-mail 7/14/14:

“Name: Teresa Sanak Comment: I would like you to remove the post about me dated in March of this year. Your fact's are not correct and can cause personal harm to me. This is the post regarding The Bogart's. These are the incorrect facts. 1)The judge added and additional $10,000.00 to the judgment for their time and trouble, judgment amount incorrect. 2) I repaid over $7,000.00 to the Bogart's prior to going the prison. 3) I have made my monthly, court ordered restriction payment to them since I was released."

Doesn’t save James Haber from the 40% chop. James has been dodging this one for years; see my blogposts “Ironbridge Over Troubled Waters”, 6/5/12, and “Getting Shifty”, 9/20/13, while the US Attorney in the Big Apple havered over prosecuting James or granting him immunity.

But the day of reckoning comes, and Judge Goeke is the man to deliver the reckoning in Humboldt Shelby Holding Corporation and Subsidiaries, 2014 T. C. Memo. 47, filed 3/18/14.

Humboldt Shelby and its progeny figured in my blogpost “Everything Has An End”, 10/10/12, when it jousted with IRS about turning over some tax opinions from the well-known and well-respected NYC law firm Pryor, Cashman, Sherman, and Flynn, LLP. I have friends there, and they’re good guys.

Well, apparently some of James’ legal fees (maybe the ones James paid the Pryor Cashman guys) get disallowed, but that’s not the main story.

The main story is that, even though James doesn’t testify, Judge Goeke says the tussle over whether to shift the burden of proof or the burden of persuasion proved to be meaningless after trial.

“After careful consideration of Mr. Haber’s circumstances, we determined that he could invoke his Fifth Amendment right to avoid testifying, but we declined to shift the burden of persuasion. After trial it is apparent that the burden of persuasion has no bearing on the resolution of this case. The evidence in the record would support our conclusion even if we had shifted the burden and even if Mr. Haber had testified as petitioner claimed in its offer of proof. Considering the significant objective evidence of his intent here, we would have given little weight to his self-serving testimony.” 2014 T. C. Memo. 47, at pp. 12-13.

It’s all about economic substance.

Judge Goeke: “Any seeming business purpose that existed here was merely a facade. The options could have resulted in a $320,000 loss or a $510,000 profit. These economic effects are inconsequential compared to the $25 million tax benefit the options were guaranteed to generate. Although the transaction had some profit potential, that potential was not significant enough to persuade us that petitioner engaged in the transaction for any nontax business reason.” 2014 T. C. Memo. 47, at p. 16.

James peddled mix-and-match shelters, as to which I’ve blogged so many I won’t cite them here. Judge Goeke does give a good explanation of the mechanics, though; see pages 7 through 10. In short, James wanted to do an asset-strip of two corporations with large built-in capital gains. He bought the stock of both at a price such that paying tax would have left him no profit; so he created partnerships which contributed digital options, which almost offset each other, but as to which one option was recognized to build basis, and the other disregarded, based on some juggling with Section 752. Don’t forget the sweet spot, but these were true Bialystoks.

Thus, when the partnerships were unwound after the options expired (never hitting the “sweet spot”, of course, due to jiggery-pokery with Refco, the options vender that later came monumentally unglued amidst allegations of massive fraud), the assets could be stripped with a capital loss to offset the gains.

Too good to be true, and James is a veteran shelter peddler.

So Judge Goeke blows up the whole roundy-rounder, with or without James’ testimony, and gets James the 40% chop. And his deductions disallowed.

He may be immune from prosecution, but from little else.

Judge Gustafson, that obliging jurist, has finally had it with Henry J. Lazniarz & Gina M. Lazniarz, Docket No. 31002-09, filed 3/18/14. Apparently a day off on account of snow did not put Judge Gustafson in a better mood.

Remember Henry J.? No? Then refresh your recollection (as my high-priced colleagues say) with my blogpost “I Told You Once, I Told You Twice”, 11/14/13.

Henry J. had a trial, but trial counsel number one blew it, so Judge Gustafson let Henry J. have a substitution and a second chance, albeit that such beneficence is extraordinary.

Trial counsel number two was little better than number one, so Henry J. moved for another new trial. Judge Gustafson, apparently tired of Henry J.’s traveling circus, stamped the motion “denied”, with nothing more, so Henry J. (with trial counsel number three at his side, presumably) moves for reconsideration.

To explain the headline of this blogpost, Henry J. is apparently a disciple of the late great Gene (“Big Daddy”) Lipscomb, twice MVP lineman of the Super Bowl, in the glory days of the old Baltimore Colts. As Big Daddy used to say: “I just wrap my arms around the whole backfield and peel ’em one by one until I get to the ball carrier. Him I keep.”

Well, Henry J. is trying to wrap his arms around the whole Tax Court Bar until he finds a lawyer who can win his case, and him (or her) he’ll keep.

But Judge Gustafson calls the play dead.

A new trial is an extraordinary remedy, and rests within trial court’s discretion. It’s not automatic, and you’d better show the first trial was a disaster–or worse.

“The deductions that form the basis for this case are from tax year 2006, for which petitioners’ tax return was due in April 2007–six and a half years before their second trial. The IRS issued to petitioners the notice of deficiency on October 2, 2009–over four years before that trial. Thus, petitioners have long been on notice that they needed to assemble proof of their deductions.

“Moreover, at various stages in this litigation, petitioners have been allowed extra time to muster their evidence to substantiate their claimed deductions. When they first requested a continuance, it was granted; and when thereafter they moved for a new trial, that ‘extraordinary measure’ was allowed to them. A Tax Court litigant could hardly be entitled to more.” Order, at p. 3.

And save the Constitutional arguments for a criminal trial. “The Sixth Amendment to the U.S. Constitution provides that ‘[i]n all criminal prosecutions, the accused shall enjoy the right … to have the Assistance of Counsel for his defense’, and this provision provides the basis for a criminal defendant’s contention that he suffered from “ineffective assistance of counsel”. But this principle does not apply to civil proceedings. See Cupp v. Commissioner, 65 T.C 68, 85-86 (1975) (“The sixth amendment of the United States Constitution deals with criminal prosecution and is not applicable to a civil proceeding”). Tax Court petitioners are permitted but are not required to hire counsel to represent them, and most Tax Court petitioners are self-represented.” Order, at pp. 3-4.

Note that even gross negligence on the part of counsel isn’t enough to warrant a new trial in Tax Court.

Henry J. got the benefit of every break, and then some.

Besides, the “new evidence” Henry J. now produces is a bunch of papers, some new and some old, thrown together, without any explanation why they weren’t presented years ago.

So the party’s over. Judge Gustafson: “Especially since Mr. Lazniarz is a person of substantial intelligence with substantial expertise and acumen in financial business matters, petitioners must now be held responsible for their decision thereafter to hire their second lawyer and commit the matter to him. They are certainly not entitled to hire an indefinite series of lawyers and keep retrying the case until one of the lawyers finally performs to their liking.” Order, at p. 5.

Henry J., you aren’t Big Daddy.

Tax Court is closed in DC, and the calendar call in Baltimore, MD, is postponed to March 18, but neither honors St. Patrick’s Day.

No, Our Nation’s Capital is snowed under yet again. Teleworkers were told to get on the telestick, and tele onward and upward. The rest can join once again in a chorus of Sammy Cahn’s and Julie Styne’s 1945 all-time classic hit. See my blogpost “Let It Snow”, 1/21/14.

But all will be back in action tomorrow, when I hope to bring you the latest and hottest from The Peoples’ Court. In the meantime, Tax Court, I do hope my readers are not, in Longfellow’s immortal words, “hanging breathless on thy fate”.

No, I cannot retell the celebrated limerick concerning said Turkish cadet, at least, not in a blog meant for a family-valued audience. But the second line thereof, relating to the “darnedest one yet”, definitely comes to mind when reading the opinion of The Judge With a Heart, STJ Armen, in a designated hitter, Michael Coe Buchanan, Docket No. 14777-13 L, filed 3/14/14, another Friday, so no opinions out of 400 Second Street, NW.

Mike never disputed that he never filed for the year at issue, and that the SFR and SNOD were sent to his last known address, which is his current address. So he never disputed liability. But he did dispute the NIL (Final Notice of Intent to Levy) timely.

Mike asked for an installment agreement in his 12153, but sent in no 433-A nor was he currently compliant.

But Mike has an entry in the Taishoff no-prize excuses handicap that might just sweep the boards.

STJ Armen: “In addition, in a letter attached to the Form 12153 petitioner asserted that he had worked as a news reporter/anchor in Washington, D.C., for 40 years; that he had uncovered and developed a report regarding the planned scope of the 9/11 terrorist attacks; that he had been informed that publishing the story would endanger national security; that he had agreed to withhold the report; that in return for his forbearance an official in the Bush administration had granted him ‘tax immunity’; and that all of this could be confirmed by contacting Director Robert Mueller of the Federal Bureau of Investigation.” Order, at p. 2.

Mike gets a NOD denying his claims. He petitions timely.

STJ Armen again: “In his request for a hearing and in the petition, petitioner challenges the underlying Federal income tax liability on the ground that he was granted ‘tax-exempt’ status. Petitioner’s argument fails for any number of reasons, including: (1) exclusions from gross income must be narrowly construed, Commissioner v. Schleier, 515 U.S. 323, 328 (1995) (quoting United States v. Burke, 504 U.S. 229, 248 (1992)); (2) tax-exempt status is provided in section 501 and only specified organizations, and not individuals, may be tax exempt under section 501, see generally secs. 501-521; (3) no person in the White House, or in the Government in general, may confer tax-exempt status independent of the standards specified in the Internal Revenue Code, see sec. 501, allowing the Secretary to prescribe regulations and guidance necessary to carry out the provisions of the section, see also sec. 1.501(a)-1 et seq., Income Tax Regs.; and (4) and there is no provision in the Code or otherwise that supports petitioner’s theory. In short, petitioner has raised no justiciable challenge to the existence or amount of his outstanding liability. More fundamentally, petitioner is barred from challenging the existence or amount of his outstanding liability in the instant collection review action because he did not engage with SO … during the administrative hearing by failing to present any evidence to support his allegations. See Giamelli v. Commissioner, 129 T.C. 107, 115 (2007); sec. 301.6330-1(f)(2) Q&A-F3, Proced. & Admin. Regs.” Order, at p. 3-4. (Name omitted.)

Once again, “somber reasoning and copious citation of precedents” (see Crain v. Com’r, 737 F.2d 1417 (5th Cir., 1984) from Tax Court, proving once more that it’s so much better (and more fun) to blog than to opine.

Mike, great excuse. You’re in the lead in my no-prize handicap.

A lot of the Tax Court (and other) cases I blog involve summary judgment. Not surprising, because a lot of summary judgment motions get made. And I myself am a great fan of the summary judgment motion.

For those who tuned in late, summary judgment is judgment without a trial. The sides tell their stories on paper, back them up with affidavits, declarations, copies of documents, and hand them to the judge.

Now trials are for finding out facts. We need to find out facts when there is a dispute about facts: who did (or didn’t) do what to whom and when and where and how?

But if there’s no dispute about facts (say everyone agrees that, for example, in the words of Ellie Greenwich’s and Jeff Barry’s 1963 hit, “I met him on a Monday and my heart stood still”), then no need for witnesses to testify or things to be introduced into evidence, just apply the law.

It’s also triple discovery, without the need for depositions (expensive), interrogatories (time consuming) or notices to admit (excuses to quibble). I say “triple”, because it gives me discovery from three parties: my client, the opposing party, and most importantly, the judge.

If I’m representing the moving party, my client had better lay out the whole story, because he or she is going to swear to it, and the other side will have it. Same for the other side: “marshal and lay bare your proofs” cuts both ways. It’s all in writing and sworn to.

And if we have to go to trial, the affidavits and exhibits to the motion and replying papers are handy tools for impeaching witnesses and limiting the scope of what stories the parties can tell.

Most importantly, as I said, the judge, in deciding the motion, educates me (and of course my adversary) as to what the judge thinks of the case and what the judge sees as the factual issues to be determined on a trial.

And if I did it right, even if the judge rules against me, my side of the story might just get the judge to lean a little toward my side of the case.

Now I’ve won some and lost some (as all attorneys will agree), but I never regretted making the motion.

Now we have a designated hitter today involving my indefatigable correspondent Robert “Uncle Bob” Jacobson, Docket No. 8447-13W, filed 3/13/14, from the desk of CSTJ Panuthos. IRS wanted summary judgment, but didn’t get it.

Uncle Bob listed a bunch of malefactors in his whistleblowing Form 211, but IRS dealt with only the lead entity, a nonprofit corporation since dissolved, whose assets were allegedly distributed to other nonprofits.

No good, says CSTJ Panuthos. Though Uncle Bob’s papers may not have been of the best, “(W)e are unable to conclude as a matter of law at this juncture of the proceeding that the claim does not relate to related organizations identified in petitioner’s claim and that there was no collection of tax proceeds as a result of administrative or judicial action with respect to the related organizations.

“Drawing all factual inferences against respondent, as the moving party in this motion, respondent [IRS] has not established that there is no genuine dispute as to any material fact. Summary judgment is not appropriate under these circumstances.” Order, at p. 2.

So there is an issue of fact; who were those other guys and what did IRS do about them, if anything?

But, as usual, the motion cuts multiple ways. Uncle Bob has told IRS what his case consists of. CSTJ Panuthos has told IRS what they need to do to meet, and maybe beat, Uncle Bob’s case. And Uncle Bob now knows something of what CSTJ Panuthos thinks of the case, if CSTJ Panuthos gets to try it, of course; he was only assigned the case to deal with the IRS’ motion.

Takeaway- It’s worth considering summary judgment. Even if you lose, you win.

I didn’t read the petition in Dennis W. Gilbert. Docket No. 24455-13, filed 3/13/14*, as petitions aren’t available on-line, so I can’t say if STJ Daniel A. (“Yuda”) Guy was right when he quoted IRS’ answer to Dennis’ petition.

But IRS was colorful, whether or not accurate, and that earns them a mention on taishofflaw.com.

Judge Yuda: “Petitioner filed a timely petition for redetermination. The petition is limited to a series of questions related to the definitions of various statutory terms. Petitioner does not dispute that he received the items of income determined in the notice of deficiency.

“As indicated, respondent filed a motion to dismiss asserting that petitioner ‘makes no factual claims of error in the petition but argues only “’legalistic gibberish.'” We agree. Rule 34(b)(4) requires that a petition filed in this Court contain clear and concise assignments of each and every error that the taxpayer alleges to have been committed by the Commissioner in the determination of the deficiency and the additions to tax in dispute. Rule 34(b)(5) further requires that the petition contain clear and concise lettered statements of the facts upon which the assignments of error are based. The petition in this case does not satisfy the requirements of Rule 34(b)(4) and (5). There is neither assignment of error nor allegation of fact in support of any justiciable claim. Rather, the petition contains nothing but meaningless questions.” Order, at pp. 1-2.

That’s pretty tough language from Judge Yuda, though when it comes to legalistic gibberish I’d be careful about throwing stones. Even if Judge Yuda is waving the Section 6673 chopper at Dennis, I’ve encountered legalistic gibberish from more august sources than Dennis.

*Dennis W Gilbert 24455-13 3 13 14

Even if it doesn’t help you, the manual might have been amended after you started your case. That’s the story of Michael M. Kan, Docket No. 23678-12S L, filed 3/12/14.

But unlike The Judge Who Writes Like a Human Being, a/k/a The Great Dissenter, Judge Mark V. Holmes, Judge Whelan isn’t a fan of remands.

Mike claims he slipped below the low-income barrier between the time he submitted his OIC and personal 433-B, and the time Appeals confirmed IRS’ decision to deny. Mike hadn’t paid the $150 fee (now $185: see my blogpost “The Price of Peace”, 12/11/13) or the 20% deposit with his 656.

The SO wasn’t buying, and neither was Appeals. Mike claims he should have gotten a reconsideration, based on changed facts between the time he sent in the forms and the time the SO bounced them.

No, says Judge Whelan. When Appeals bounced Mike’s OIC, the IRS Manual said that the SO need consider only matters as they stood at date of submission.

Eight months after the NOD bouncing Mike’s submission, the Manual was amended to provide that the SO should check applicant’s income at time of submission and at “current time”, and take the lower amount in deciding whether to dispense with the fee and deposit.

Too late for Mike.

“Neither party called this change in the applicable provisions of the Internal Revenue Manual to the Court’s attention. This change–taking place well after the Office of Appeals had issued the subject notice of determination–does not affect our conclusion that the SO did not abuse her discretion in rejecting petitioner’s offer in compromise and approving the proposed levy. Furthermore, we do not consider this change–taking place after petitioner’s case was presented to the Court-to be an appropriate basis for remand of the case to the Appeals Office. See, e.g., Kehoe v. Commissioner, T.C. Memo. 2013-63, at *5-6 (‘the Court has also remanded where the law changed between the CDP hearing and the Tax Court trial if that may have affected a taxpayer’s presentation of his case.’); Churchill v. Commissioner, T.C. Memo. 2011-182, *5 (“we’ve also remanded where the law changed between the CDP hearing and the Tax Court trial if that may have affected a taxpayer’s presentation of his case.’). Order, at p. 11, footnote 1.

By the way, Mike’s equity in his home was enough to pay the tax in full. Even though he claimed he needed the home office for his business, he never put in a 433-B for the business.

Still, I bet Judge Holmes would have remanded.

Yes, it’s a tax protester case, but the above demand is not made by the protester herself, but by IRS and Appeals, who realizes that they blew a NOD and need to correct it.

And to whom do they turn but the Man for Remand, The Judge Who Writes Like a Human Being, a/k/a The Great Dissenter and foe of the partitive genitive, Mark V. Holmes?

See my blogpost “Back to the Future”, 8/1/11.

But this is the story of Judy Macdonald, 2014 T. C. Memo. 42, filed 3/11/14, completing my hat-trick of blogposts for today.

Judy is an old-time frivolity merchant. “Judy Macdonald has been filing frivolous tax returns or no returns at all since at least 1985. The Commissioner finally caught on and filed notices of federal tax lien (NFTLs) covering 18 years; he also assessed frivolous return penalties against her for 12 of them. Since then, Macdonald has only made more frivolous arguments. She demanded a collection due process (CDP) hearing and then failed to show up. She petitioned this Court, and then refused to engage in informal discovery, never signed a stipulation of facts, and didn’t appear at calendar call.” 2014 T. C. Memo. 42, at pp. 1-2.

This looks like a case for the remark Judge Holmes provided in the case of John Ryskamp, “Enough” See my blogpost thus entitled, 1/8/14. But not quite.

“What makes this case unusual is that the Appeals officer determined–at the CDP hearing that Macdonald skipped–several points in her favor. He then issued a notice of determination that concluded that tax assessments for six of the years were invalid. The Commissioner objected to this conclusion, and the Appeals officer then testified at an abbreviated trial. He said he was well and truly mistaken, and he even joined in the Commissioner’s request that he be found to have abused his discretion in ruling, even in part, in favor of the absent nontaxpayer.

“This was an odd request, oddly made, and we asked the parties to brief the question of what we should do.” 2014 T. C. Memo. 42, at p. 2.

So IRS put in a brief (Judy of course didn’t). “The Commissioner’s argument was simple: The Appeals officer had abused his discretion by applying the wrong rule of law when he mistakenly reasoned that he had to verify whether Macdonald had received the notices of deficiency sent to her for those tax years, and not simply whether the IRS had sent them to her last known address. See sec. 6212(b). He asks us to rely on the credible testimony at trial from the Appeals officer saying that he had made a mistake.” 2014 T. C. Memo. 42, at p. 6.

Apparently Judy sent IRS a letter with an address different to that which she used on the last (frivolous) return she filed. But that isn’t enough to give IRS notice, and a number of cases have so held.

“Simply putting a different return address on an envelope or letter mailed to the IRS is not enough. The Commissioner realizes this now, and asks that we decide that the supplemental notice of determination was invalid and that we uphold the NFTLs…. Unsure of exactly what to call this motion, he labeled it a motion to conform the pleadings with the proof.

“It is unclear if we can do anything about this ourselves.” 2014 T. C. Memo. 42, at p. 9.

Remember, Tax Court is a court of limited jurisdiction. Only the taxpayer can appeal a NOD. There’s also the question of standing.

“But the unusual position that the Commissioner finds himself in raises several intricate questions:

“What allows us to broaden the subject matter of our review from the portions of the determination that a petitioner challenges to portions that the Commissioner disagrees with?

“Does such a challenge by the Commissioner involve a jurisdictional problem of standing?–after all, the Code gives standing to appeal only to the taxpayer, not to “any aggrieved person” or similarly broader class.

“Would it matter that the Commissioner could not himself petition to challenge the determination?”

2014 T. C. Memo. 42, at pp. 10-11. (Footnotes omitted, but read footnote 3 at p. 11, where Judge Holmes talks about the government suing itself; Appeals is separate from IRS (it says), so can IRS petition to review Appeals?).

So what does Judge Holmes do? Well, he takes a leaf from one of his own opinions; see my blogpost “The Busted Stipulation”, 1/27/12. And punts.

“We think it best in such an uncertain situation to remand the case a second time: We’ve hinted in the past that we can remand if it would be ‘helpful’. Phrased another way, ‘we return a case to Appeals if we consider a rehearing “necessary or productive.”’

“And that is what we’ll do here.” 2014 T. C. Memo. 42, at pp. 11-12 (Citations and footnotes omitted).

But read footnote 4 at p. 12. If the remand results in a new NOD, only that NOD is up for review. The new NOD is a supplement to the old, not a new NOD. All previous NODs are gone, and Judge Holmes expects that principle will apply here.

IRS wants to give Judy a Section 6673 hit, but Judge Holmes says she’s a first-timer in Tax Court, and shows her the yellow card. Next time she should play nice.

I’m blogging Shiraz Noormohamed Lakhani, 142 T. C. 8, filed 3/11/14, because he’s a fellow horseplayer. And I’m giving him a Taishoff “good try”, even though Judge Halpern DQs him at the post.

Now Shiraz is a heavier bettor than I by orders of magnitude. So he wants NOLs for his losing years, and wants to take losses above his winnings.

He claims Section 165(d), the “no losses above winnings” provision, unconstitutionally discriminates against professional gamblers (and IRS apparently concedes Shiraz’s pro status, even though he’s a CPA with a tax prep practice), now that wagering on the ponies and playing poker for money are legal almost everywhere.

No go, says Judge Halpern. The argument “borders of the frivolous”, because other cases have held that there is a rational basis for Congress to distinguish between gambling for money and other trades or businesses, although I can’t see the difference in, for example, speculating on futures.

Shiraz also wants to deduct his share of the takeout. Now we horseplayers know the track (or the racing authority) takes a piece of the pool of money wagered on any race (whether at the track or via telephone or other legal means) for upkeep, maintenance, education, fees, and to pay a guaranteed minimum on every winning ticket sold, even if that would cost more than what remained in the pool. It’s called the “takeout”.

Shiraz says that’s like withholding on wages, but the obligation to pay the takeout is imposed on the track, not Shiraz. It doesn’t increase his winnings or add to his losings.

Judge Halpern has a lengthy explanation of the takeout and pari-mutuel betting in general, and that’s good for beginners, but for those of us who have torn up a few losing tickets, we know it already.

Shiraz gets the Section 6662(a) substantial understatement chop, although he claims he didn’t know about the Section 165(d) limitation.

But that’s a real nonstarter: “Moreover, petitioner, a certified public accountant with an active tax preparation practice, and admittedly aware of section 165 governing the deductibility of losses, should have been aware of the section 165(d) limitation on net gambling losses. Also, as a professional gambler who regularly bets on horse races and understands parimutuel betting, he must have known that takeout represents the track’s share of the betting pool and that the expenditures therefrom satisfy obligations of the track, not the bettors.” 142 T. C. 8, at pp. 22-23.

Shiraz, you can beat a race, but you can’t beat the races.