That’s Judge Wherry’s unwhimsical advice to David L. Carreon, et al. (the et als being David’s several alter ego corporations), in 2014 T. C. Memo. 6, filed 1/9/14. IRS wanted to nail Dave with the 75% fraud hit, but although Dave’s story’s rather dicey, IRS can’t muster clear and convincing proof.

It’s all about Dave’s QuickBooks accounts. Dave kept records of all his diversionary tactics, and only hid a little bit of his unreported income with purported charities, fetchingly named “Helping Hand, Jubilee, and Brother’s Keeper”, 2013 T. C. Memo. 6, at p. 13; Dave, of course, had signatory power over the account wherein such checks were deposited.

Dave blames the promoter of this swindle for his predicament. While that doesn’t cut it for negligence or substantial underreporting, it does help for fraud, provided one is as unsophisticated as Dave. Although Dave runs a credit-card processing outfit, he claims innocence as to tax, and Judge Wherry is buying it.

Background: “In 1999 Mr. Carreon and Ms. Portugal [Mrs. Dave] were introduced by a mutual friend to Clementine Estrada. Ms. Estrada provided advice to Mr. Carreon and Ms. Portugal on how to set up entities for their business. Ms. Estrada also gave them advice about asset management protection and a financial strategy referred to as the ‘agent-principal’ relationship. Mr. Carreon understood that the concept was set up to operate by taking the net gross receipts from their credit card processing business…after business expenses including their salaries and put those funds into other entities such as a trust. These other entities were to be designated as a business trust, a charitable trust, and a management trust. There was also to be a ‘living trust’ to hold and protect their property, such as their home, personal property, etc.

“Additionally, Ms. Estrada explained that the management trust would be managed by a company called Builders, which would charge a fee for services of 11% of the first $70,000 of credit card processing receipts and 6% for any excess money managed beyond $70,000. Ms. Estrada also referred Mr. Carreon and Ms. Portugal to Robert Holcomb in order to hear more about the ‘agent-principal’ relationship, since they were equal owner members of the business and Ms. Portugal was the managing member.” 2013 T. C. Memo. 6, at pp. 5-6.

Holcomb turns Dave and Ms. Portugal onto a CPA, who is ex-IRS but who knows about agent-principal from the travel agencies, where the move is legitimate.

There, the travel agent gets the money from the voyager, takes it in as gross receipts, but then pays most of it over to the hotel, airline, cruise ship operator, etc., for the benefit of the voyager. The payover then comes off the agent’s taxable income. For an analogous case, see my blogpost “Stamp Out Smoking”, 11/19/13.

But in Dave’s case, he was paying over the ostensible principal’s payover for himself, and that’s a no-no.

In short, an unprincipled principal.

Lucky for him, Dave kept good records, didn’t deal in cash, didn’t give far-fetched excuses, cooperated (mostly) with IRS when they blew the doors off his little fiddle, and said he relied on Holcomb and the CPA.

So Dave dodges the 75% fraud bullet.

As for Holcomb, Estrada and the CPA, Judge Wherry has nothing to say. But I would quote Abraham Lincoln anent all these wiseguys who arrange tax fraud for a piece of the action: “Must I shoot a simple-minded soldier boy who deserts, and not touch a hair of the wily agitator who induces him to desert? I think that in such a case, to silence the agitator and save the boy, is not only constitutional, but withal a great mercy.”

IRS please copy.

No, this is not a reprise of the 1886 hit song by Alfred Cellier and B. C. Stephenson, which featured in the long-running London hit musical Dorothy, subject of a celebrated critical pan from George Bernard Shaw.

Rather, this is a lesson that would have profited the late-filers, whose alchemistic manoeuvres, trying to turn ordinary income into capital gains, founder in Cordell D. Pool, et al, 2014 T. C. Memo. 3, filed 1/8/14.

Cordell and the et als bought some land in an LLC, created a corporation which they controlled, sold the land to the corporation on the installment plan, used the corporation to subdivide and develop the lots, and sell them. Of course, the sales price of the land from LLC to corporation was heavily marked up.

As usual in the dealership-vs-investment scenarios, it’s all about the evidence, and Cordell and the et als aren’t talking much, claiming the papers tell it all.

Not to Judge Goeke. He finds for IRS on burden of proof.

Now as this is purely a fact-driven case, I’m not dwelling on the evidence. Nor need I dwell upon the proposition that one can divide one’s holdings among controlled entities in order to minimize the liabilities of one from spilling over onto the others. Nor that one can acquire property with one purpose in mind, but then change one’s mind and devote the property (by some affirmative act) to another; acquisition intent is not an albatross around one’s neck.

But as Cordell and the et als flunk all the tests, and as I nevertheless found this opinion worthy of note, here’s the point (and I can hear my readers say “At last!”).

Cordell and the et als all filed their 1040s late. Cordell and one of the et als were seven and two days late, respectively. The remaining et al (MFJ filers), although they had filed the extension, didn’t file for eight months after that.

Think that could have awakened somebody? If you’re trying one, don’t stand out. If you’re going to be a wiseguy, be wise in time.

I once drafted an affidavit for a client suffering from prosecutorial excesses, and my ultimate paragraph read “Enough already.”

The judge agreed, and the excesses halted. Of course, the client didn’t pay my final bill, but that’s another story.

But I have to love that slangy, would-be folksy, jurist, The Judge Who Writes Like a Human Being, a/k/a The Great Dissenter, Mark V. Holmes. He has moments that make me forgive even his war on the partitive genitive.

Here’s a top-notch example, a designated hitter, John Ryskamp, Docket No. 13681-11L.

John is an old rounder. “There have been a great many motions from petitioner to what he calls ‘this idiot Court,’ Ptrs. Second Supp. Brf. at 2, or (less concisely), ‘a Court as flippant, stupid, ignorant and corrupt as this one,’ Ptrs. Brf. in Resp. to the Supp. Notice of Det’n at 3.” Order, at p. 1.

Clearly, John believes the old adage that flattery will get him nowhere.

However, Judge Holmes proves John wrong.

“The Court has already denied most of them in other orders, but in one sided with petitioner — this case began with respondent’s refusal to grant petitioner a collection due process hearing after he requested one.” Order, at p. 1.

Judge Holmes doesn’t care for Appeals’ cavalier treatment of John. He may be unpleasant, but he, even he, is entitled to the protection of the laws.

“It is (or was) apparently respondent’s practice when he concludes that a taxpayer hasn’t raised any nonfrivolous grounds in his request to try to make his conclusion unappealable by refusing to issue the allegedly offending taxpayer a notice of determination. Respondent thought this deprived the Court of jurisdiction to review his decision.

“The Court had held in another case that respondent is wrong.” Order, at p. 1. (Citation omitted).

Form letters denying CDP that don’t cite specific frivolous positions or obvious intentions to impede tax administration don’t cut it.

Of course, once he got his long-awaited CDP, John never provided financial information to support his requested withdrawal of the NFTL IRS had filed, nor showed that he was in current compliance.

IRS moved for summary judgment that this time they followed all the rules, and John replied in his wonted fashion.

“The Court notes that Mr. Ryskamp does not contest these underlying facts, but argues that the routine request for financial information was a Fifth Amendment violation, and argues that the Court ‘takes some bizarre pleasure in indulging its police state penchant for sophistry’ in denying this. See Fifth Supp. Br. at 2-3.” Order, at p. 3.

Judge Holmes has the last word: “Enough.” Order, at p. 3.

A classic scene from a classic movie, one of the all-time greats. I can hear the voices.

Captain Renault: What in heaven’s name brought you to Casablanca?

Rick: My health. I came to Casablanca for the waters.

Captain Renault: The waters? What waters? We’re in the desert.

Rick: I was misinformed.

It worked for Humphrey Bogart as he confronted Claude Rains, but Garry Zephyr & Marthe R. Menard don’t fare so well, in Docket No. 22613-11S, filed 1/6/14, a designated hitter from the desk of STJ Lew (Love That Name) Carluzzo.

Having been bounced for failure to prosecute back in November, Zeph and Marthe want a vacation (that is, they move to vacate the decision entered on their default).

Unhappily for them,  STJ Lew isn’t buying.

STJ Lew: “In a Notice Setting Case for Trial, served on petitioners by the Court on May 28, 2013 (notice), they were advised as to the time, date and location of trial. The information shown on that notice is straight forward, and the address of the court room where the trial was scheduled to take place is shown separately immediately following the caption of the case.

“According to petitioners’ motion, at the designated trial time, instead of appearing at the address for trial shown on the notice, they appeared at the offices of respondent’s counsel. According to petitioners, their error in this respect is attributable to misleading information contained in a letter they received from respondent’s counsel. A copy of the letter to which petitioners refer is attached to respondent’s response. Nothing in that letter suggests that the place of trial in this matter was at a location other than as shown in the notice.” Order, at p. 1.

This just might work once, but Zeph and Marthe are really trying it on.

Judge Lew: “Petitioners’ claim that they were confused as to the location of trial is not persuasive given that they used the same excuse for failing to appear at the designated trial location on a previously scheduled trial date.” Order, at pp. 1-2.

Not even a Taishoff “good try” for that one.

Is Better Than the Best Testimony

The old Chinese proverb I learned long ago was “the worst piece of paper is better than the best human memory”. Here, a variation on a theme from the first two small-claimers of the 2014 program; if the promissory notes you got in your IRA are worthless because the obligor real estate partnerships went bust, why not get a copy of the notes and a copy of any foreclosure judgments, bankruptcy filings, or correspondence?

Might help when the IRA trustee terminates your IRA and sends you a 1099-R claiming you got something, when in truth and in fact you got nothing.

Consolidated for trial only are Bernard L. Berks and Claire Berks, 2014 T. C. Sum. Op. 2, filed 1/6/14, and Steven C. Gist and Constance L. Gist, 2014 T. C. Sum. Op. 1, filed 1/6/14. So we get two opinions for the price of whatever.

Handling both cases is Special Trial Judge Daniel A. (“Yuda”) Guy, Jr.

Bernie and Claire and Steve and Connie handed over their self-directed IRAs to their old friend J. Richard Blazer, with instructions to invest in high-risk, high-reward real estate deals.

J. Richard does, giving the IRAs promissory notes from the various partnerships that he serves as general partner, but which go down in a blaze of anything but glory. J. Richard as 50% partner in one walks away from the deal, and the rest get foreclosed.

At the maturity of the promissory notes, the IRA trustee asks “what gives?”, and J. Richard does some epistolary jousting with the trustee. The trustee, losing patience, tells J. Richard and the gang that the notes are going back to them, along with 1099-Rs, stating the last known value of the notes. Needless to say, that “last known amount” wasn’t zero.

Claiming they got nothing, Bernie and Claire, and Steve and Connie, state the taxable portion of that IRA distribution was zero.

IRS is not amused.

STJ Yuda: “Mr. Blazer testified that all of the partnerships failed during the period 2001 to 2006 and that the promissory notes they issued to petitioners had become worthless. His testimony regarding the dates and circumstances related to the demise of the individual partnerships was vague and inconsistent. Remarkably, despite his central role in promoting the investments and his position as a general partner in the partnerships, he was unable to produce any documents or records to corroborate his own testimony.” 2014 T. C. Sum. Op. 1, at p. 12.

Of course, STJ Yuda is as careless with logical nomenclature as his colleagues Judges Holmes and Goeke are with the partitive genitive, although his point is valid. “Even accepting Mr. Blazer’s testimony that he did not retain any relevant partnership records, that circumstance begs the question why petitioners did not search public land records or similar sources in advance of trial in an attempt to unearth any documentation that might corroborate his testimony.” 2104 T. C. Sum. Op,. 1, at p. 12.

No, STJ Yuda, it does not “beg the question”. To “beg the question” is the English equivalent (mistranslated, of course) of the Latin petitio principi, meaning to assume the conclusion in the question, a form of circular reasoning. Here’s an example: “Your resume looks good but I require another reference.” “Joe will give me a reference.” “Yes, but how do I know Joe is reliable?” “I’ll vouch for him”.

What STJ Yuda means is that the lack of documentation raises or invokes the question why no search was made of the public records or elsewhere.

Trying a case means proving something. When all you have is somebody’s word, it might help if you have some corroboration as well.

And it wasn’t only the petitioners (who apparently knew nothing), nor even J. Richard, but the petitioners (in both cases) were represented by the same counsel, with the same result.

It’s not only the experts who have to go to the woodshed, nor even only the clients and their advisers, but counsel as well needs to prepare for trial; and if no woodshed is available, surely there are other places.

And the worst piece of paper still beats the best human memory–and testimony.

Nope, not the 1904 Kerry Mills and Andrew B. Sterling tune reprised by Judy Garland and Company in the 1944 MGM feel-good, but rather news of the cancellation of the Tax Court’s roadshow in St Louis, MO, on Monday, January 6, 2014.

It seems that the weather has turned nasty. Parties will be “renotified” of the new date(s) for their trials and tribulations.

For those who tuned in late, the partitive genitive is a grammatical form extruded into English from Latin, whereby that which is the part of a greater whole is indicated by the genitive declension, as in “a cup of coffee” or “filet of sole”.

The Great Dissenter, a/k/a The Judge Who Writes Like a Human Being, Judge Mark V. Holmes, has long been at war with the partitive genitive, being fond of such solecisms as “couple rounds of briefing”; see my blogpost “The $2000 Misunderstanding”, 6/12/12.

But he has enlisted a most unexpected ally in Judge Joseph Robert Goeke. In witness whereof, see Qinetiq U.S. Holdings, Inc. & Subsidiaries, Docket No. 14122-13, filed 1/3/14.

Remember that Judge Wherry laid a blast on Judge Holmes as a grammarian, as to which see my blogpost “The Great Dissenter – Part Deux”,  2/15/12. And Judge Goeke got all kinds of lexicographical when Judge Holmes went off on a rant; see my blogpost “Swift, Light and Unattached”, 12/19/12.

Anyway, Qineteq is about the irrelevance of the Administrative Procedures Act. Qineteq wants to strike the SNOD; no dice.

“Petitioner argues that the notice of deficiency was arbitrary and capricious because, despite the substantial sum involved, the notice consisted of only a couple sentences explaining the basis for the deficiency. However, the size of the deficiency is irrelevant to the size of the notice’s explanation of adjustments. We have procedures for analyzing the validity of notices of deficiency, but we do not hold a notice invalid just because it is succinct.”  Order, at p. 2 (Citations omitted).

“Ve haff our vays of givink you notice,” as the late great Conrad Veidt might have said.

Besides, the administrative record is not the only basis for review of a SNOD. Per Sections 6213 and 6214, Tax Court reviews the deficiency do novo, so Qineteq can duke it out with IRS and bring in whatever evidence it has.

But my point is found two paragraphs back. Judge Goeke, what is this “only a couple sentences”? Have you enlisted in Judge Holmes’ war on the partitive genitive? What is wrong with “only a couple of sentences”?

Will the luncheon menu in the Judges’ cafeteria at 400 Second Street, NW, now feature “soup day”, “filet sole”, “slice pizza” and “leg lamb”? How about “piece pie” and “cup coffee”?

No, not the 14-season television series rated number 43 on the all-time list by TV Guide, rather the extraordinary set of Orders out of Tax Court today, Friday, January 3, 2014.

Fridays are usually dull down at 400 Second Street, NW, and given the snowstorm and announcement that US gov’t workers could come in or stay home and work, as they chose, I expected little. I wasn’t surprised the designated hitters were rather poor, two stalls and another exegesis of Section 152 and related familial carryings-on.

But then I went a little farther on.  So here’s the potpurri of gems extracted from the dross by the unremitting toil of yours truly.

First up, Sumner Redstone, the Viacom king. Sumner was having a set-to with IRS over a 1972 gift of stock, as to which he never filed a 709. See my blogpost “The Flavor Du Jour”, 12/9/13. Judge Lauber blew off Sumner’s laches defense (delay of game doesn’t stop the US of A). So now IRS wants summary judgment. And Judge Lauber gives Sumner and his legal team until February 3 to find some material facts in dispute, and lay them bare. Read all about it in Sumner Redstone, Docket No. 8097-13, filed 1/3/14.

Next up, echoes of Jerry Rawls. Remember Jerry? No? Well, see my blogpost “Hail, All Hail Cornell”, 12/5/12. But this Order isn’t about Jerry’s case, only citing it for authority. This lofty Order (sorry, guys) can be found in Edge Lofts Master Tenant, L.P., A Missouri Limited Partnership, Edge Lofts MT GP, LLC, A Missouri Limited Liability Company, Tax Matters Partner, Docket No. 424-11, filed 1/31/4.

This was a Section 47 rehab credit case; that’s the historic structure thing. “Respondent had determined that petitioner improperly included more than $2 million in developer fees as qualified rehabilitation expenses for 2006. Respondent then mailed a Final Partnership Administrative Adjustment to petitioner (Limited FPAA). Respondent also mailed a Final Partnership Administrative Adjustment to Loft’s tax matters partner (Loft FPAA). The Limited FPAA purports to give effect to only the qualified rehabilitation expenditure adjustments respondent determined in the Loft FPAA. The Limited FPAA adjusted no independent partnership item of Limited for 2006.” Order, at p. 1 (Footnote omitted, but it’s important).

Here’s the omitted footnote: “The partnership-level proceeding involving the partners of Loft, Tax Court Docket Number 425-11, has not been completed.” Order, at p. 1, footnote 2.

So both IRS and Limited move to dismiss the petition, as the only result of the FPAA is a computational numbers shift. Judge Kroupa: “An FPAA containing solely computational adjustments of partnership items of a source partnership that respondent issues before completion of the source partnership-level proceeding is ineffective to confer jurisdiction on this Court. Rawls Trading, L.P. v. Commissioner, 138 T.C. 271 (2012).” Order, at p. 2.

But wait–there’s more. If I were doing a separate caption for this one, it would be “Do The Math Before You Send the Check”. This is Chief Judge Michael B. (“Iron Mike”) Thornton’s advice to Christopher Cruz, Docket No. 26650-13S, filed 1/3/14, but that “S” won’t be there long.

Chris was over the $50K brightline, so his “S” was in jeopardy. His attorney-in-fact, Allgood, sent in a check for $500, hoping to take Chris under the radar. Unfortunately, it wasn’t all good (sorry, guys).

Ch J Iron Mike: “John Allgood filed a Response on behalf of petitioner. Although this response was filed by the Court, petitioner should note that this Court does not recognize powers of attorney, and all filings should be made by petitioner or by a practitioner admitted to practice before this Court.” Order, at p. 1.

And see my blogpost “Powerless”, 9/14/12.

Anyway, even if John Allgood were a practitioner admitted to practice before Tax Court, he can’t add. “The Response to the Court’s Order To Show Cause states that petitioner paid $500.00 to respondent to bring the amount in dispute for tax year 2007 below the $50,000 jurisdictional maximum for small tax case procedures. For the small tax case election to be valid, the ‘amount of the deficiency placed in dispute’ may not exceed $50,000 for any one taxable year. I.R.C. sec. 7463(a), (e);  Kallich v. Commissioner, 89 T.C. 676, 679-680 (1987). The ‘amount of the deficiency placed in dispute’ includes the deficiency and any additions to tax and penalties determined by respondent in the notice of deficiency upon which the case is based, I.R.C. sec. 7463(e), less any concessions made by petitioner. The amount of deficiency (when including additions to tax and penalties) for tax year 2007 exceeds $50,000, even if petitioner’s $500.00 payment is viewed as a concession.” Order, at p. 1.

So Chris loses his “S”. For the right way to deal with the problem, see my blogpost “Who Says It’s a Small-Claimer?”, 8/1/13.

The next one deserves its own blogpost, as Judge Holmes finds an unlikely ally in his war on the partitive genitive. Stay tuned.

No, not Antoine Domino’s and Dave Bartholomew’s 1955 classic, or even Pat Boone’s cover thereof, but the sad tale of Onetha A. Gilliard, Docket No. 8620-13S, filed 1/2/14,  with STJ Lew (That Man Can Spell) Carluzzo stepping up to start the 2014 Tax Court season.

Onetha claims IRS credited to a prior year’s liability (which liability Onetha contests) certain refunds she was owed for subsequent years.

But even if everything Onetha says is true (which the Court doesn’t decide), STJ Lew can’t help Onetha out.

Back on 11/13/13, Tax Court issued an Order tossing Onetha’s petition for untimely filing, on the ground that she was two years too late. She now writes a letter asking for reconsideration.

“For what it is worth, we note that as a general matter, respondent [IRS] is authorized to deny a taxpayer’s claim for refund of overpaid Federal tax for one year and instead credit that overpayment against the taxpayer’s Federal tax liability owed for a different year. See §6402(a).  (Furthermore, this Court is without overpayment jurisdiction to review respondent’s actions in that regard. See sec. 6512(b)(4)). But more importantly, for the reasons explained in the Order, we are without jurisdiction over petitioner’s 2007 Federal income tax liability.” Order, at p. 1.

By “the Order”, STJ Lew means the 11/13/13 Order tossing Onetha’s petition. Onetha had her chance, and she missed it. Once past ninety days, game over.

“In her letter, petitioner describes the series of personal family misfortunes that she suffered during the relevant time that her 2007 liability was being examined by respondent, but nothing in her letter suggests that the ruling embodied in the Order is in anyway erroneous.” Order, at p. 1.

Of course, there’s the usual cold comfort; Onetha can file for a refund and sue in USDC or CFC, and best of luck with that. “We sympathize with petitioner, but as previously explained, have no jurisdiction in this proceeding over her 2007 Federal income tax liability. Petitioner, of course, is free to explore whatever remedies might be available to her administratively or judicially through the refund procedures. See §7422; McCormick v. Commissioner, 55 T.C. 138, 142 (1970).” Order, at p. 2.

No, I haven’t joined the Spanish Army; I gave at the office here, 47 years ago. And the title is slightly misleading, I confess.

It’s not that I don’t want to write, but that, if you want to write to me, or comment on a post of mine, you have to be registered with wordpress.com and logged in.

The reason for this stonewalling is that the Akismet spam filter that my publisher wordpress.com has provided me has been overwhelmed, so that I am being deluged with spam, that the filter isn’t catching. I’m not surprised; the hackers and spammers and internet criminals routinely outwit the guardians.

Sorry for the inconvenience.