Ch J Thornton is echoing Neil Diamond’s 1972 hit in Beata Kulish, Docket No. 13240-13S, filed 11/15/13.

It’s a run-of-the-papermill order. Beata filed a paper Amendment to Petition, but the eagle eyes at 400 Second Street, NW, noticed that the paper did not bear Beata’s original autograph. There are dozens of such orders coming out of Tax Court every day, telling the non-signers to sign on the dotted line.

But Ch J Thornton is unusually specific: “An Amendment to Petition, bearing an original signature (preferably in blue ink), must be submitted to the Court in paper form.” Order, at p. 1. (Emphasis added).

We all know that Rule 26(b)(1) prohibits e-filing of certain documents, as listed on the Tax Court website e-filing instructions link. And on page 25 of the e-filing instructions, Amendments to Petitions get a bold-faced “No”.

So it has to be paper; and make sure when the petitioner signs, they use blue ink.

And at that point, even so obliging a jurist as Judge David Gustafson (see my blogpost “We’ll Come to You”, 9/18/12) loses patience and delivers an off-the-bench designated hitter to Henry J. Lazniarz & Gina M. Lazniarz, Docket No. 31002-09, filed 11/14/13.

Henry J. is a real estatenik with a somewhat lackadaisical system of accounting for his business expenses. Henry J. had a trial last year, represented by his real estate development attorney (Lawyer No. 1), who put in minimal evidence. Henry J. saw that the trial did not go well, so he went to the bullpen.

Judge Gustafson: “New counsel for petitioner entered the case after the trial, filed petitioners’ post-trial brief, and moved for a new trial, arguing that ‘little evidence was adduced at trial. …the Court granted that motion on the grounds that petitioners’ prior counsel had not represented them adequately.” Transcript of opinion, at p. 4.

Judge Gustafson tells the parties “…the trial record would be made anew at the second trial, and that the parties should be careful to offer into evidence at the second trial all the evidence on which they intended to rely, whether or not it had been offered or received into evidence at the first trial.” Transcript of opinion, at pp. 5-6.

Judge Gustafson lets in whatever was stipulated in Trial No. 1, based on Rule 91(c), and asks what else Henry J.’s new lawyer wants. He puts in one carbon copy of a check and a summary of evidence (per FRE 1006), and tries to get in a billing summary prepared for Trial No. 2 by Lawyer No. 1, who doesn’t testify, so the billing summary gets tossed as hearsay.

Henry J.’s accountant does testify, but all he says is that he assumed everything he was told was authentic and he tried to allocate whatever was deductible.

You can read Judge Gustafson’s discussion of Henry J.’s testimony; I need not paraphrase.

Finally, the Obliging Judge admonishes Henry J. and Lawyer No. 2: “Thus, for most of the disputed deductions, no detailed testimony was given to corroborate the substantiating documents or to connect them to the business activity. When both parties had rested at the conclusion of trial, the Court pointed out to petitioner that he had not testified on most of the deductions, and petitioners’ counsel answered that petitioners had given the evidence that could be presented in the time available. Since it was late in the day, the Court asked whether petitioners wished to resume trial the next day and put on additional evidence, but they declined. Thus, although the petitioners were given a second trial, and although they were warned at that second trial that their proof might be lacking, they failed to put on evidence sufficient to carry their burden of proof.” Transcript of opinion, at p. 11.

Rule 155 beancount to follow. With the five-and-ten penalty.

There’s a limit even to the most obliging judge.

The 1913 Zo Elliott and Stoddard King classic is the story of  William C. Thompson, 2013 T. C. Memo. 260, filed 11/14/13, and STJ Daniel A. (“Yuda”) Guy trudges down every step of said long, long trail.

Willie C. didn’t bother filing returns for three years in the 90s; promptly, IRS gave him some SFRs, and then a SNOD around the turn of the millennium.  Willie C. never bothered to petition the SNOD, so IRS assessed and sent Willie C. a 3172 NFTL, filing the lien notice in Texas.

Four years later, IRS sent Willie C. another 3172, and filed liens in Oregon.

Willie C. never asked for a CDP for any of this.

However, “The Texas NFTL and the Oregon NFTL stated in pertinent part: ‘With respect to each assessment below [a reference to the assessments listed by the Court in the table above], unless notice of lien is refiled by the date in column (e) [May 17, 2010], this notice shall constitute the certificate of release of lien as defined in IRC 6325(a).’” 2013 T. C. Memo. 260, at p. 3 (Footnote omitted).

Three years later IRS made another assessment, this time of additions to the taxes previously assessed, and Willie C. finally files a petition two years after that. IRS moves to dismiss, claiming they never sent Willie C. a NOD as to their proposed levy. Willie C. goes to Ninth Circuit, where IRS finds they did in fact issue a NOD, but Willie C. is too late, and Ninth Circuit affirms on alternative grounds. But SOL is tolled while all this is going on.

Meanwhile back at the Texas and Oregon depots, IRS’ filed liens have lapsed, as IRS failed to renew within the thirty days after year ten; see Sec. 6323(g)(3)(A). So IRS invokes Section 6325(f)(2), the “oops!” clause, by filing “…Form 12474(A), Revocation of Certificate of Release of Federal Tax Lien, which stated in pertinent part: ‘I certify that we mistakenly allowed a Notice of Federal Tax Lien filed against * * * [petitioner] to operate as a Certificate of Release. I declare that the automatic release of the Notice of Federal Tax Lien is revoked and that the lien is reinstated as provided under Internal Revenue Code Section 6325(f)(2).’” 2013 T. C. Memo. 260, at pp. 5-6.

Apparently IRS filed these all around Oregon, but missed Texas.

So IRS sends off a fresh NFTL to Oregon’s Secretary of State, but Willie C. demands a CDP even before IRS sends him the CDP Notice.

But what can Willie C. bring up at the CDP? Appeals claims nothing, as he’s about seven years too late. And anyway the Appeals letter isn’t a NOD, so he can’t petition it.

Well, STJ Yuda says the Appeals letter is a NOD, but Willie C. can only have a CDP as to the second assessment. The Appeals letter is not a NOD as to the original NFTLs, because Willie’s chance to appeal and petition is long since gone.

But it is a NOD as to the additions to tax and the NFTLs filed in that respect.

STJ Yuda sums it all up: “To recapitulate, we hold that the Court lacks jurisdiction insofar as the petition seeks to challenge the tax, additions to tax, and interest that respondent assessed in April 2000. To that end, we will dismiss for lack of jurisdiction and strike so much of the petition as refers to those items. On the other hand, the Court has jurisdiction in this case insofar as the petition seeks review of the assessments entered against petitioner in October 2008. To provide for the orderly review and disposition of that matter, we will remand the case to the Appeals Office to conduct an administrative hearing and to issue a supplemental notice of determination.” 2013 T. C. Memo. 260, at p. 17.

The long, long trail goes on a-windin’.

And Chief Judge Thornton will treat your petition as filed.

Using the famous line from Cuba Gooding, Jr.’s, Academy-award-winning performance in the 1996 classic “Jerry Maguire”,  Chief Judge Thornton bails out Johnny Lawler, Docket No. 16712-13, filed 11/13/13.

IRS mailed Johnny’s SNOD April 10; Johnny’s last day to petition, therefore, is July 9. But Johnny’s imperfect petition doesn’t arrive at 400 Second Street, NW, until July 24, in an envelope postmarked July 17. Johnny subsequently amends September 23.

Johnny’s out on his proverbial, right? Ninety days means ninety days, only Congress can change it, and it doesn’t matter what hardship caused the delay. Even one day over ninety means game over.

No, Johnny used EasyMoney, and that saves the day.

Ch J Thornton: “Upon further review of the Court’s records, it appears that (1) on July 9, 2013, the Court received from petitioner EasyMoney money order #5401698 in the amount of $60, and (2) the Clerk of the Court returned the said money order to petitioner because it was not clear to which docket number the filing fee should have been applied. Because on July 9, 2013, the last day for timely filing a petition, the Court received from petitioner the filing fee for commencing a case in this Court, the Court shall file petitioner’s petition nunc pro tunc as of July 9, 2013.” Order, at p. 1.

If all else fails, show me the money.

That’s what George Gorra and Leila Gorra, canny New York real estate operator and tax attorney, respectively, did, and part of their façade easement deduction survives the Section 170 gauntlet administered by Judge Kerrigan, in 2013 T. C. Memo. 254, filed 11/12/13. But they get the 40% gross overvaluation chop for the rest.

It’s our old chum the National Architectural Trust, n/k/a the Trust for Architectural Easements, at it again. Having learned from their past delictions, which I’ve blogged in extenso so often that I need hardly repeat them here, the Trust throws a blanket easement on the Gorras’ high-priced, historically-certified townhouse, covering not just the façade, but the roof, open spaces and rear thereof.

This gets around New York City’s fabled Landmarks Preservation Commission, which by law can’t touch open space or rear. The Trust also inspects annually and confirms inspections in writing.

And when the Gorras ask to lift the easement so they can sell, the Trust says no; and the Trust has the power to say no, and the Trust need not be reasonable in saying no.

Now the Gorras had an appraisal from Eric Haims, a qualified appraiser. But IRS’ expert, high-priced broker Cushman & Wakefield’s Richard Marchitelli, says the easement is worth zero.

“Respondent [IRS] contends that petitioners’ easement has no value. Respondent compares it to the easements in Dunlap v. Commissioner, T.C. Memo. 2012-126, and Scheidelman v. Commissioner, T.C. Memo. 2013-18. As discussed above, in Dunlap the taxpayers donated a facade easement regarding a property in New York, New York, to the NAT that restricted the ability to alter, construct or remodel the facade without the NAT’s express written consent. The donation took place in 2003. We concluded that the value of the facade easement was zero because the it did not result in increased restrictions on that property above those required and enforced by the LPC on the date of the donation. In Scheidelman we held that the taxpayers’ facade easement was valued at zero because, among other things, the property was already restricted by the LPC.

“The facade easement was donated in 2004. Respondent argues that petitioners’ easement also mirrors the existing restrictions already in local law.” 2013 T. C. Memo. 254, at pp. 55-56.

Judge Kerrigan isn’t buying a zero diminution: “Ordinarily, any encumbrance on real property, however slight, would tend to have some negative effect on the property’s fair market value. Evans v. Commissioner, T.C. Memo. 2010-207, slip op. at 15. We do not find respondent’s expert report credible insofar as it maintained that an easement would have absolutely no effect on the fair market value of a valuable piece of real estate. Simmons v. Commissioner, slip op. at 26. In White House Hotel Ltd. P’ship v. Commissioner, 615 F.3d 321, 327 (5th Cir. 2010), vacating and remanding 131 T.C. 112 (2008), the Court of Appeals for the Fifth Circuit noted: ‘[R]ather extraordinarily, * * * [the Commissioner’s expert] assigned the easement a value of zero’. 2013 T. C. Memo. 254, at p. 57.

As I said, I’ve blogged most, if not all, of these cases.

And of course the Gorras’ easement covered more than the LPC, and the Trust did inspect.

So after the usual mix-and-match between experts, Judge Kerrigan decides the magic number is a 2% diminution of value, or about $104K. But since the Gorras claimed $605K, and since they took the charitable deduction in two different years (apparently having exhausted what they could take in year one), they get the Section 6662(h) 40% chop for both years.

Judge Kerrigan: “A penalty pursuant to section 6662(h) applies to any portion of an underpayment for the year to which a deduction is carried that is attributable to a gross valuation misstatement for the year in which the carryover of the deduction arises. See sec. 1.6662-5(c), Income Tax Regs. Petitioners therefore are liable for this penalty for both tax years 2006 and 2007.” 2013 T. C. Memo. 254, at p. 62.

And the Gorras’ Eighth Amendment excessive fines and penalties arguments get nowhere, as Judge Kerrigan cites a bushelbasketful of cases saying it’s all remedial, intended to spur taxpayers to do the right thing.

But at least covering your rear gets you something.

Thanksgiving came early for The Great Dissenter, Judge Mark V. Holmes, as Eighth Circuit, in the concurring opinion of Chief Judge Riley, exalts Judge Holmes’ great dissent in Randall J. & Karen G. Thompson, 137 T. C. 17, filed 12/27/11. See my blogpost “The Great Dissenter”, 12/28/11.

Chief Judge Riley, concurring: “I find myself in fundamental agreement with both of my colleagues in this complex case. As emphasized by Judge Wollman (and comprehensively explained in Judge Holmes’ dissenting Tax Court opinion), the partnership-level determination that Randall Thompson’s outside basis was overstated still requires partner-level computation and legal analysis to determine Thompson’s correct tax liability.” Randall J. Thompson; Karen G. Thompson v. Commissioner of Internal Revenue, No 12-1725, decided 9/9/13.

So Judge Wherry’s 36-page expatiation anent FPAA and partnership-level adjustments goes down; See Randall J. & Karen G. Thompson, Docket No. 30586-98, filed 11//12/13.

He may not know the partitive genitive, but Judge Holmes sure knows tax law.

To my fellow veterans: Thanks for your service. To our brothers and sisters on active duty: Thoughts and prayers with you every day.

Following on from Judge Mark V. Holmes, a/k/a The Judge Who Writes Like a Human Being, (see my blogpost “Trust, But Veriify”, 11/5/13), that obliging jurist Judge Gustafson admonishes Appeals to make sure that a SNOD was properly served (that is, mailed to taxpayer’s last known address) before concluding taxpayer had a prior opportunity to contest and blew it.

This time the putative precluded one is Albert Sofian, Docket No. 17960-12L, filed 11/8/13.

Remember Al? Not sure? Well, check out my blogpost “You Can’t Have One Without The Other”, 8/22/13, and you’ll doubtless repeat the immortal words of Jim Steinman, as sung by the Soul of French Canada, Céline Marie Claudette Dion, “It’s All Coming Back to Me Now”.

Al claims he had oodles of basis when he unloaded $114 million in stock, and never got a SNOD. But letters from Appeals told him he couldn’t contest liability at the CDP when IRS tried to collect, as he had the chance.

Of course, Al apparently has yet to lay bare his proofs of basis, so Judge Gustafson tells him to do it “immediately”, even though it was due last week.

But Judge Gustafson has some words for Appeals as well.

“…respondent [IRS], in preparing to show ‘verification’ under section 6330(c)(1) in view of Mr. Sofian’s position that he did not receive the notice of deficiency, shall note: (a) that the CDP settlement officer stated that Appeals ‘[m]ay not be able to verify SNOD as it was issued in 2004’ (Ex. V to respondent’s motion for summary judgment; underlining added); (b) that the discussion of ‘Verification’ in the attachment to the notice of determination (Ex. A) describes verification only very summarily and makes no mention of the issuance or receipt of the statutory notice; and (c) that in the absence of the taxpayer’s admission of receipt, the Settlement Officer ‘must review (or attempt to review) the underlying pre-assessment documents that show that the notice was issued and was sent to the taxpayer’s last known address. This means in addition to transcripts, you should review or attempt to review the following documents, if possible: A. a copy of the SNOD and B. the certified mailing list for the SNOD to verify whether the SNOD was properly mailed to the taxpayer’s last known address.’ IRM pt. 8.22.2.2.4.7.1(4) (emphasis added)”. Order, at p. 2.

Hmmm…is Tax Court starting to check whether IRS engages in what we used to call in New York City landlord-tenant cases “sewer service”?

Stay tuned.

While I was sad to see Ronald Isley, rock ‘n’ roll icon of my youth, star in 141 T. C. 11, filed 11/6/13, the case is too much fact-driven for me to blog here. But Buyuk LLC, Boyalik LLC, A Partner Other Than The Tax Matters Partner, and Beyazit, LLC, RP Capital Partners LLC, A Partner Other Than The Tax Matters Partner, conjoined in 2013 T. C. Memo. 253, filed 11/6/13, with its alliterative tax dodgers and reminiscences of the highly-credentialed but larcenously-inclined John E. Rogers of Superior Trading, LLC, fame, fits the bill. See my blogposts “More Shell Games”, 9/2/11, and “OPIS Finis”, 1/18/12.

As I said in “OPIS Finis”, “New verb: to ‘Bialystok’ is to guarantee that a transaction is an economic disaster on paper, generates huge tax loss for little cash, and provides the promoters thereof with a ‘get into jail free’ card.”

To begin with, two executives from a bought-out corporation, each with heavy-duty capital gains, seek to minimize their tax bite. They find the well-known accounting firm BDO with tax solutions for sale. The price? A piece of the action.

“BDO Seidman LLP (BDO) is an accounting firm which from at least 2000 through 2003 promoted and sold a number of ‘tax solutions’ products through its Tax Solutions Group (TSG). BDO’s management marketed these tax solutions within the firm by providing incentives to its employees and partners for participating in the sales of these tax solutions. These incentives included bonuses and firmwide recognition. One form of recognition was a firmwide email with the subject line ‘Tax $ell$’ announcing the sale of a tax solution, the employee who generated the sale, and the fee arising from the sale. The amount of any bonus paid to an employee was tied to the net fee BDO was able to earn from selling a tax solution.” 2013 T. C. Memo. 253, at p. 6.

Full disclosure: some thirty years ago, a predecessor firm of BDO Seidman did income tax planning for me; needless to say, I engaged in no shenanigans.

BDO hooked up with Gramercy, a sovereign-debt hedge fund. But instead of dealing with distressed sovereign or major foreign corporate debt, where buying the debt cheap and hoping for an IMF or ECB bailout brought big returns, Gramercy found a Russian utility that got hammered when the ruble became rubble, bought its worthless receivables, and matched them up with BDO’s solution customers in a series of tiered LLCs. There were tiny actual currency gains, and massive paper losses, when the partnerships (LLCs) unwound.

Judge Laro unpacks: “The BDO distressed debt structure involved an investment in foreign consumer receivables with high cost basis and low fair market value. BDO required the consumer receivables be overdue and denominated in a foreign currency that had suffered significant devaluation relative to the U.S. dollar. Under the BDO distressed debt structure, the foreign owner of the receivables would transfer and assign the receivables to a U.S. limited liability company (LLC) under a contribution agreement in exchange for a membership interest in a ‘master’ LLC solely managed by a Gramercy entity. The master LLC would then contribute the consumer receivables to a second LLC (level A LLC) in exchange for a membership interest in the level A LLC; a Gramercy entity would also acquire and maintain a 1% interest in the same LLC. The client would then acquire approximately 90% of the master LLC’s membership interest in the level A LLC in exchange for cash. After the client’s cash purchase of the membership interest in the level A LLC, the foreign company would redeem its membership interest in the master LLC for cash. The client would become the sole manager of the level A LLC and contribute securities or additional cash to the level A LLC. The level A LLC would then contribute the consumer receivables to a second LLC (level AA LLC) in exchange for a membership interest in the level AA LLC. The level A LLC would own 99% of the level AA LLC, and a Gramercy entity would be the manager and own 1% of the level AA LLC. Following this contribution, the consumer receivables would be swapped for assets of another Gramercy LLC to achieve the desired tax effect of recognizing the inherent loss in the consumer receivables.” 2013 T. C. Memo. 253, at pp. 6-7.

Clear? Thought not.

Of course, the deals were perfect Bialystoks (noun form of verb): couldn’t possibly make more than a pittance, and throws off a huge paper loss. Needless to say, step transaction, disguised sale, no economic substance, and no real partnership activity torpedo the ship.

Much expert testimony about Russian currency and corporate restrictions later, Judge Laro surfaces: “At the end, the transactions here yielded only nominal economic gains, and thus the claimed tax losses bore no relationship to the economic reality of the transactions. There was never a legitimate or reasonable expectation of pretax profits in these cases. We thus find that the transactions lacked objective economic substance.” 2013 T. C. Memo. 253, at p. 82.

So the deals are unwound, with the 40% overvaluation chop thrown in.

 Though channeling the Great Communicator, the Great Dissenter, a/k/a The Judge Who Writes Like a Human Being, Mark V. Holmes, shows his wonted disrespect for the partitive genitive (again) in Bryan Rowder, Docket No. 21724-12L, filed 11/5/13, today’s designated hitter, as no orders are issued today.

Rowdy Bryan twice skips a correspondence show-and-tell with Appeals, and doesn’t show for calendar call on IRS’ motion for summary judgment. Bryan’s tactic is to ask for a continuance at the last minute, or as Judge Holmes ungrammatically puts it “Mr. Rowder did not appear at the hearing but sent a letter a couple business days before asking for more time and including none of the information the settlement officer had asked for. He simply reiterated that he wanted to challenge his underlying tax liability. She sent him another letter giving him another couple weeks to send in information; he ignored that as well.” Order, at p. 1.

C’mon Judge, you’re a graduate of both Harvard University and University of Chicago (“where joy goes to die”). Do you ask for “a piece pie and a cup coffee” in the Judges’ cafeteria at 400 Second Street, NW?

Now lest the sins of Rand Paul (Republican Senator from Kentucky, for anyone from Mars reading this) descend upon my balding head, I quote from the about.com article on the partitive genitive: “The Partitive Genitive in Latin is a type of Genitive that is used to show the relationship of part to whole. (Reminder: The Genitive is a case used for nouns, pronouns, and adjectives. It frequently shows possession between two things.) If you have a part of something, the substance that is the whole is in the Genitive Case.” http://ancienthistory.about.com/od/genitives/qt/032909partitivegen.htm

A couple of all the weeks that are, Judge Holmes, is how you’re supposed to write it; and a cup of all the coffee in the cafeteria.

Back to Rowdy Bryan.

The facts so far look like a slam dunk for IRS. Bryan was given a chance to contest his underlying liability for tax, stalled, provided no evidence…should be game over, right?

Yes, says Judge Holmes. But not quite. He admonishes IRS counsel at the calendar call that, in the words of my blogpost 8/20/13, “You Have To Fulfill The Requirements”.

“However, as the Court explained to respondent’s [IRS’] counsel, Code section 6330(c)(1) requires the IRS officer conducting the hearing to ‘obtain verification from the Secretary that the requirements of any applicable law or administrative procedure have been met.’ One of these requirements is that any notice of deficiency be mailed to the taxpayer’s last known address. Sec. 6212(b). If that didn’t happen here, the consequence would not be that Mr. Rowder gets to contest his underlying liability, it would be an abatement of the assessment of the deficiency.” Order, at p. 2. (Citation omitted).

Bryan had his chance to contest his liability, and blew it, so that’s done. But the SNOD’s the thing. If it wasn’t mailed to Bryan at his last known address, or if he otherwise didn’t get wind of it in time to petition, then there’s no deficiency and no case.

Apparently Appeals never made sure the SNOD and proof of mailing thereof got into the SO’s hands, and the SO said nothing about the SNOD in the NOD.

And Bryan didn’t have to raise this issue before the CDP or at the CDP.

Judge Holmes: “Mr. Rowder asked for a remand; we have to conclude that he’s entitled to one. On remand, he cannot challenge the amount of his underlying tax liability — he’s had his chance to do that. But the settlement officer must make a reasoned determination on the issue of whether the IRS followed its administrative procedures in assessing the deficiency — Did it send a notice of deficiency to Mr. Rowder’s last known address? Did he otherwise receive it with enough time to petition in Tax Court? But — we stress again — if that notice was sent to his last known address and he did not receive it, he has missed his opportunity to contest the ‘existence and amount of his underlying tax liability’.” Order, at p. 2.

So, IRS, give Judge Holmes a supplemental NOD that fulfills the requirements, and then let him have a status report responding to the supplemented NOD.