But if you don’t come back to us, game over. That obliging jurist, Judge David Gustafson, once again shows his obliging ways to Sean Richards, in 2013 T. C. Memo. 171, filed 7/24/13. But Sean does not respond to Judge Gustafson’s generosity.

Sean, like John Carter, the star of my blogpost “We’ll Come To You”, 9/18/12, is in the Stony Lonesome, the duration of his stay therein being indefinite.

Sean got a distribution from a qualified retirement plan, but wasn’t yet past the magic 59-1/2 year milestone, so he’s looking at the 10% excise tax. And he has no back-up for his claimed lifetime learning credit. And he claims he never got his refund (but that went for child support).

Well, IRS wanted to toss Sean for non-prosecution when he didn’t reply to their Branerton show-and-tell letter. But Judge Gustafson refused, saying that Sean’s situation as a prisoner makes it hard to participate in a show-and-tell, but likewise IRS needn’t wait until Sean rejoins the Land of the Free.

Maybe this case is ripe for a Rule 121 summary judgment. Maybe there are no disputed facts. So Judge Gustafson suggested IRS move for summary judgment, and instructed Sean on summary judgment and where to look on the Tax Court website to find out what to do.

IRS did; Sean didn’t.

Still, Sean as non-movant gets every reasonable doubt and benefit of every inference. “However, the non-moving party may not sit on his hands. He is required by Rule 121(d) to ‘set forth specific facts showing that there is a genuine dispute for trial. If the adverse party does not so respond, then a decision, if appropriate, may be entered against such party.’ Despite having this requirement called to his attention, Mr. Richards failed to make any response to the IRS’s motion for summary judgment.

“As a general rule, a petitioner like Mr. Richards bears the burden of proof at his trial in a deficiency case. See Rule 142(a)(1). The Supreme Court has held that where the party who does not have the burden of proof (the Commissioner) has attempted discovery, but the party with the burden of proof (Mr. Richards) has not responded with evidence sufficient to carry his burden of proof, summary judgment may be granted in favor of the party who shows that discovery yielded no evidence. Celotex Corp. v. Catrett, 477 U.S. 317, 323-324 (1986).” 2013 T. C. Memo. 171, at p. 8.

So Sean is out on the 10% hit, and out on the lifetime learning credit (although give Judge Gustafson credit, he taught Sean plenty).

As for the refund Sean didn’t get, “(F)irst, section 6402(c) provides that ‘[t]he amount of any overpayment to be refunded * * * shall be reduced by the amount of any past-due support’ (emphasis added), see also 42 U.S.C. sec. 664(a)(1) (2006); and section 6402(g) provides that ‘[n]o court of the United States shall have jurisdiction to hear any action, whether legal or equitable, brought to restrain or review a reduction authorized by subsection (c)’. This bars us from reviewing the reduction of Mr. Richards’s 2009 overpayment to pay his child-support debt.” 2013 T. C. Memo. 171, at p. 10.

In fact, the Supremes have held that to get a refund one must sue in USDC or CFC, as Congress didn’t let Tax Court go there. See United States v. Clintwood Elkhorn Min. Co., 553 U.S. 1, 11 (2008).

Takeaway–If an obliging Tax Court Judge offers to come to you, be prepared to come back. And if you want tax money back, don’t waste time in Tax Court.

Or, Don’t Dismiss Yourself

 The Judge With a Heart, Special Trial Judge Robert N. Armen, Jr., has a rescue in hand today for Peter Dand Prescott & Rita Da Silva Vint, Docket No. 6648-13S, filed 7/23/13, a small-claimer with only about $2K in tax on the line.

The problem started when the Defense Finance and Accounting Service sent Pete a W-2 for wages; Pete said he got neither wages nor a W-2, because he was retired.

You remember that DFAS wasn’t the swiftest off the mark; see my blogpost “Sunk By The Navy?”, 9/28/11, starring Farmer Monica Kleber and her paper chase with DFAS.

So Pete claims IRS has the burden of proof, hasn’t borne it (even though there’s been no Branerton show-and-tell or anything else), and moves to dismiss.

Now it’s true that where an information return (like a W-2, 1098, or any of the 1099 progeny) is prepared by a third party, the taxpayer can challenge and the IRS has the burden of proof. See Section 6201(d).

But it’s early times yet.

STJ Armen: “Petitioners’ motion, however, suggests a possible misunderstanding of the nature and implications of a dismissal in Tax Court practice. The dismissal of a Tax Court case is not the equivalent of ‘dismissal’ of the underlying notice of deficiency or the determined deficiency in tax.” Order, at p. 1.

In fact, a dismissal of a Tax Court petition, otherwise than for want of jurisdiction, requires entry of decision in favor of IRS. Pete was timely, so if he dismisses, he’s lost.

See my blogpost “Dismissed!”, 5/8/12, in which I discuss the Settles case, which case STJ Armen quotes at length. Section 7459(d) “generally” (don’t you just love “generally”, the ultimate tax weasel-word?) requires that IRS wins when a petition is dismissed if Tax Court had jurisdiction.

So, says STJ Armen: “Here, the early stage of the litigation means that the record at present consists of little more the pleadings and the motion and response now before the Court. As a consequence, petitioners have not yet had an opportunity to appear at trial or otherwise to submit evidence that all prerequisites for a shift of burden under either section 7491(a) or 6201(d), I.R.C., have been met.” Order, at p. 1.

And as Pete didn’t bring a petition in order to lose his case on his own motion, the motion is denied.

Pete, time for show-and-tell.

It’s that simple to form a partnership for Federal income tax purposes, whatever State law may say. That’s the story from The Great Dissenter, a/k/a The Judge Who Writes Like a Human Being (and this time doesn’t mess up the partitive genitive), His Honor Mark V. Holmes.

Oh yes, the case in point is Abdolreza T. Azimzadeh and Zohra Ehsan, 2013 T. C. Memo. 169, filed 7/23/13. The partnership story is all about Ab; Zohra is in it only for some W-2 wages she never bothered to report.

Ab isn’t big on recordkeeping, and that sinks a lot of his used-car dealings, with Judge Holmes preparing his usual tables.

Ab claims he was partners with Ray Barghi, or maybe Ray’s car business Luxury For Less.  If Ab was partners with Ray or LFL, his tax bite would be less, as Ray would be in it with him.

IRS says State law (California) should decide the partnership question.

“The Commissioner doesn’t think that Azimzadeh and Barghi were partners, and asked us to look at California law to see if they were. But federal tax law, and only federal tax law, controls the classification of  ‘partners’ and ‘partnerships’ for federal tax purposes.” 2013 T. C. Memo. 169, at p. 5. (Citations omitted.)

Judge Holmes goes on: “A partnership is a business entity with two or more owners. The business entity requirement doesn’t mean that the partnership needs to exist separately from its owners or otherwise be recognized under state law…, so it’s not fatal that Azimzadeh and Barghi didn’t form a separate state-law entity to do business. Rather, the hallmark of a partnership is that ‘the participants carry on a trade, business, financial operation, or venture and divide the profits therefrom.’” 2013 T. C. Memo. 169, at pp. 5-6 (Citations omitted).

Well, Ray could sign the business checks and did write himself a bunch of checks, some of which he labeled “Draw”, and he was around, but Barghi never shows up to testify. And there’s no written agreement, and Ab’s recordkeeping, as aforesaid, is almost non-existent. And of course Ab never filed a Form 1065 or issued K-1s. So Judge Holmes can’t tell what Ray contributed, or what he did, and Ab’s testimony doesn’t help.

In fact, Ab has “dented” his credibility generally. “Azimzadeh actually admitted at trial that he had changed the dates on numerous receipts that he had given to the Commissioner. We find this admission credible, and its natural effect is to reduce the weight we give his testimony on this and other issues.” 2013 T. C. Memo. 169, at p. 22, footnote 6.

Remember the Luna factors? If not, see my blogpost “Substance Over Form”, 2/11/11, where Judge Haines “distills” the Luna factors for deciding who is a partner and what is a partnership.

Burden of proof  is on Ab, and he flunks. No partnership.

No, not the 2009 Faith Anthony and Jill Wesolik opus, but rather a look at Section 107, of which I was only dimly aware but on which a close relative of mine was at one time an expert. Case in point– Ricky R. Williams and Pamela D. Williams, 2013 T. C. Sum. Op. 60, filed 7/22/13, a “not for nuthin’” Section 7463 small-claimer.

Ricky was a duly ordained Baptist minister and was employed under the terms of a written agreement at the St. Johns Missionary Baptist Church.

The employment agreement was the problem. It set forth Ricky’s wages, but specified a $500 monthly housing allowance for the first six months of Ricky’s employment. The payment could be extended by vote of the Church’s Deacon Ministry, but the agreement said nothing else, and apparently neither Ricky nor the Deacons did anything else.

Ricky and the Deacons tried to amend the agreement retroactively seven years after the fact, and after IRS audited Ricky and Pam and blew away most of their Schedule A and Schedule C deductions, and nailed them for unreported Schedule C income.

No go, says CSTJ Panuthos.

“Section 107(2) provides that the gross income of a minister does not include ‘the rental allowance paid to him as part of his compensation, to the extent used by him to rent or provide a home and to the extent such allowance does not exceed the fair rental value of the home, including furnishings and appurtenances such as a garage, plus the cost of utilities.’ As a prerequisite for this exclusion, the taxpayer must establish that there was a designation of the rental allowance pursuant to official church action before payment. Sec. 1.107-1(b), Income Tax Regs. The regulations state in pertinent part:

The term ‘rental allowance’ means an amount paid to a minister to rent or otherwise provide a home if such amount is designated as rental allowance pursuant to official action taken * * * in advance of  such payment by the employing church or other qualified organization when paid after December 31, 1957. The designation of an amount as rental allowance may be evidenced in an employment contract, in minutes of or in a resolution by a church or other qualified organization or in its budget, or in any other appropriate instrument evidencing such official action. The designation referred to in this paragraph is a sufficient designation if it permits a payment or a part thereof to be identified as a payment of rental allowance as distinguished from salary or other remuneration.” 2013 T. C. Sum. Op. 60, at p. 6.

The second agreement (or the amended agreement, whichever it is) was not executed before Ricky got the alleged payment. Therefore no exclusion and the deficiency stands.

“We understand that petitioners are not tax experts, but we conclude that they did not act with reasonable cause and in good faith and that they are liable for the accuracy-related penalty under section 6662(a)….” 2013 T. C. Sum. Op. 60, at pp. 9-10.

Parson, get it in writing and get it in advance, lest, like an exalted predecessor, you find you have not where to lay your head.

And No, That’s Not A Typo

 Our latest case of going postal involves Mr. Richard Postma of Grand Rappids (sic), MI, who claims he’s a notice partner but not a tax matters partner in Taurus FX Partners, LLC, Richard Postma, A Partner Other Than The Tax Matters Partner, 2013 T. C. Memo. 168, filed 7/22/13.

Richard was the sole member of FX Trading, LLC, which in turn was a partner in Taurus. Bricolage Capital, LLC was both managing partner and tax matters partner of Taurus, but FX was notice partner.

Then FX sold its interest to Littlefield, a Sub S of which Richard was sole shareholder.

When IRS began looking at Taurus’ return for the years in issue, they sent a Notice of Beginning of Administrative Proceeding (NBAP) to FX care of Bricolage, and to FX and to Richard at the Grand Rappids (sic), MI, address.

IRS dealt directly with Richard, asking him to send documents concerning his investment in Taurus and also asking him to sign a Form 872-P SOL extender, which he signed both as Authorized Signer and as TMP. His representative stated in a covering letter that Richard never was formally designated as TMP.

Bricolage, true to its name as something thrown together out of whatever came to hand, apparently did nothing while this was going on, but did file bankruptcy, thus disqualifying itself as TMP and turning all its partnership items into nonpartnership items.

IRS got around to sending the FPAA to Bricolage and some other investors, and also to FX at another Grand Rapids address (this time getting the spelling right).

Richard claims the FPAA was invalid because not sent to the proper partner, namely, him, as IRS knew all about him. And his petition was filed after the 150-day window had closed.

No, says Judge Buch, you’re too late, Richard.

Since partners come and go, and adjusted items may spread over years, “(T)he last known address rules applicable to notices of deficiency do not apply to FPAAs. Section 6223(c)(1) instructs that the partnership return is the starting point for identifying where to mail notices. The IRS must update that information only to the extent the updated information is provided in accordance with the regulations. The regulations require that updates be made by submitting a written statement, generally to the service center where the partnership return was filed….” 2013 T. C. Memo. 168, at pp. 8-9 (footnotes omitted, but you can tell Judge Buch was on law review, because he loves footnotes).

There’s a five-part test for what has to go into the notice, and nothing that Richard can produce shows he ever sent the relevant service center anything that comes close.

If you’re interested, the required notice has to (a) identify the partnership, each partner for whom information is supplied, and the person supplying the information by name, address, and taxpayer identification number; (b) explain that the statement is furnished to correct or supplement earlier information with respect to the partners in the partnership;(c) specify the taxable year to which the information relates; (d) set out the corrected or additional information; and (c) be signed by the person supplying the information.

And IRS can mail a generic NBAP or FPAA addressed to “Tax Matters Partner” at the partnership’s address as shown on the Form 1065 for the year at issue, without filling in the TMP’s name.

Richard says his prior dealings with IRS show IRS knew right well who and where he was. Says Judge Buch, while IRS “may” use whatever information they have to send you notices, that’s permissive and not prescriptive. See my blogpost “A Busy Day”, 9/10/12, which quotes one of the regs Judge Buch quotes here in Taurus.

IRS can send you notices if they know where you are, even if you haven’t told them per the regs, but they are not required to, and you have no beef if they don’t.

So Richard, you’re late and you’re out.

Tax Court echoes the Frank Silver and Irving Cohn 1922 opus (but they were concerned with bananas) in a rash of designated hitters and one plain-vanilla order.

First up, with a solid half-dozen designated hitters, all involving la famille Zerjav, and all being dealt with by Special Trial Judge Lewis (“His Name Is His Fame”) R. Carluzzo. They involve the Section 6707A penalty for failing to report reportable transactions, with a special extra hit for not reporting a listed transaction.

Tax Court has no jurisdiction over those. Congress has left review to the US District Courts (even the Court of Federal Claims can’t go there). See Smith v. Com’r, 133 T. C. 18, filed 12/21/09.

On to the next case. Section 7428 Tax Court reviews of Section 501(c)(3) tax exemption disallowances do not permit Tax Court to enjoin IRS from yanking the exemption while the review is ongoing. Special Trial Judge John F. Dean refuses to enjoin IRS from yanking the exemption, and trumpeting same to all and sundry, in Consumer Education Services, Inc., Docket No. 6281-13X, filed 7/19/13.

Apparently IRS audited the educated consumers, yanked their 501(c)(3) letter retroactive to Day One, and then, when the consumers went to Appeals, confirmed the yank, but then rescinded the yank.

Consumers wanted the retroactive yank and its attendant publicity enjoined.

Now notwithstanding Tax Court’s limited general jurisdiction, and complete lack of equitable jurisdiction to give injunctive relief far and wide, there are exceptions, and STJ Dean lists them all. But Section 7428 isn’t one of them.

Even so, Consumers’ attorneys come up with a Taishoff “good try”. They agree that Tax Court’s jurisdiction in a Section 7428 is limited to declaring whether an entity does or does not qualify for Section 501(c)(3), as a special exception to the Declaratory Judgment Act, and they also agree the Anti-Injunction Act, Section 7421, bars enjoining collection of any tax.

“Petitioner argues, however, that notwithstanding the Declaratory Judgment Act’s general prohibition on declaratory judgments in tax cases, section 7428 actions are excepted from the prohibition. Petitioner posits the proposition that the Declaratory Judgment act is ‘coextensive and coterminous’ with the Anti-injunction Act. Because the two acts are coextensive and coterminous, according to petitioner, ‘an action allowed under one will not preclude relief afforded by the other’ and, therefore, the Court may, despite the prohibition of the Anti-injunction act, enjoin respondent’s actions pursuant to 5 U.S.C. sections 701 – 706 (2012), the Administrative Procedure Act (APA).” Order, at p. 4. (footnote and citations omitted).

Nice, but even if Consumers’ lawyers have it right, Tax Court’s jurisdiction is limited, its injunctive powers are confined to the specific instances that Congress has expressly granted, so no injunction from Tax Court.

Yes, we have no jurisdiction.

Announcing that it has found and implemented certain unspecified “cost cutting” measures, IRS has withdrawn its notice of furlough for July 22 (Monday), although certain local offices may nevertheless be closed.

Check your local listings.

Hamlet, Act I, Scene V

Judge Gustafson takes on the role of Hamlet’s Ghost in the latest iteration of Swanson-Flosystems Co., Docket No. 27975-11, and orders IRS to “swear”, in a designated hitter filed 7/18/13.

See my blogpost “Adelbert, Thou Should’st Be Living At This Hour”, 4/5/13. Swanflo’s original counsel, overmatched, begged Judge Buch for time to go to the bullpen for relief, and Judge Buch took pity.

As he and I said at the time: ‘(T)he hiring of additional counsel, however, provides some assurance to the Court that, if a continuance were to be granted, this case would be adequately prepared.’ Order, p. 2, footnote 2.

“Hope springs eternal, eh Judge?”

Having done his best, Judge Buch bailed out of the case in May, and in from the bullpen comes the ever-obliging Judge David Gustafson.

As we hoped, Swanflo’s new counsel are on the ball. IRS signs off on its responses to Swanflo’s interrogatories thus: “11. Pursuant to T.C. Rule 71 all of the above answers are made in good faith and are as complete as possible after a reasonable inquiry of the readily obtainable information.

“Paragraph 11 is followed by a conventional signature block. Respondent asserts that the interrogatory responses ‘are signed in conformance with T.C. Rules 71(a) and (c)’.” Order, p. 1.

Nope, says Judge Gustafson, that’s not sworn, as Rule 71 requires answers under oath, nor is it an unsworn declaration made under penalty of perjury (see 28 USC sec. 1746). The emphasis is by Judge Gustafson.

So weasel-wording doesn’t get it, IRS. As the Ghost said, “Swear!”

Look at the sad story of Amin Juma Abd, as told by Judge Kerrigan in a designated hitter, Docket No. 9592-12. Ami is late with his petition. No biggie, that’s gotten battalions of petitioners tossed before now.

But Ami’s case is unusual. As Ami puts it “Petitioner wants to bring to this honorable court attention, that he is detained by the Homeland Security at this time, awaiting the determination of his removal. Petitioner, humbly request from this court, to put aside this case until petitioner be released so he can litigate his case with full accesses of his file and discovery from Respondent.” Order, p. 1.

Too bad, Ami, IRS mailed your SNOD to your last-known address, Fort Dix, New Jersey, a location where I once was an overnight guest, but, unlike you, I was promptly released the next day.

Ami claims he was ordered by a US District Court to attend an Inmate Skills Development Plan in Chicago, and thus was away when the SNOD arrived at Fort Dix.

Too bad, says Judge Kerrigan, you should have told IRS where you were.

Unanswered in all this is Ami’s claim that as he’s been in detention since 2006 and the SNOD covers 2008, he can’t have taxable income.

So Judge Kerrigan falls back on the “we are a Court of limited jurisdiction” patter.

Ami, you’re out.

Today’s story is from the courtroom of the obliging Judge David Gustafson, who has a designated hitter for us in the case of Gregory Scott Savoy, Docket No. 12316-12L, filed 7/16/13.

No one disputes “(1) that Mr. Savoy, who has suffered from a long-term illness, may not have been given an adequate opportunity to challenge his 2007 liability, (2) that Mr. Savoy may not have been given adequate time, in view of his illness, to submit tax returns for 2003 to 2010 (the submission of which was a prerequisite to his eligibility for certain collection alternatives), and (3) that there may also be a defect of ‘verification’ under section 6330(c)(1), involving the notice of deficiency underlying the 2007 liability.” Order, at pp. 1-2.

So IRS asks Judge Gustafson to send Greg back to Appeals, so he can get a fair shake all around on the numerous defects from his prior visit to Appeals. And Judge Gustafson did.

Is Greg happy? No. He wants Judge Gustafson to certify, per Section 7482(a)(2)(A), whether the Americans With Disabilities Act (the ADA) applies to IRS, so he can take an interlocutory appeal.

You’ll remember that taxpayers’ batting averages with interlocutory appeals are hardly what will qualify one for the All-Star Game. See my blogpost “Too Late And Not Timely”, 4/25/13. And Greg fares no better than Carol Diane Gray did back in April.

For an interlocutory appeal (an appeal from an order that does not finally determine the case or controversy; that’s an order where neither side has won or lost–yet), you need two things: first, a controlling question of law is involved where there is a substantial ground for a difference of opinion, and second, that the appeal may materially advance the termination of the litigation.

Well, by its terms the ADA doesn’t apply to the Federal government, leaving aside Jimmy Madison’s famous comment from The Federalist No. 57: “I will add, as a fifth circumstance in the situation of the House of Representatives, restraining them from oppressive measures, that they can make no law which will not have its full operation on themselves and their friends, as well as on the great mass of the society. This has always been deemed one of the strongest bonds by which human policy can connect the rulers and the people together. It creates between them that communion of interests and sympathy of sentiments, of which few governments have furnished examples; but without which every government degenerates into tyranny. If it be asked, what is to restrain the House of Representatives from making legal discriminations in favor of themselves and a particular class of the society? I answer: the genius of the whole system; the nature of just and constitutional laws; and above all, the vigilant and manly spirit which actuates the people of America—a spirit which nourishes freedom, and in return is nourished by it.”

But this is a non-political blog, right?

However, the Rehabilitation Act of 1973, which does apply to the Federal government, has the standards of the ADA engrafted thereon. “In sum, the ADA does not apply to Federal agencies; but the Rehabilitation Act of 1973, employing the ADA’s definition of ‘disability’, does apply to the Federal agencies. If this is Mr. Savoy’s position, then he is correct. If he disputes this proposition, there is no substantial ground for difference of opinion.” Order, at p. 4.

So Greg, what’s the difference of opinion? ADA standards apply.

IRS will put Greg in CNC (currently not collectible status) and review his case. “It is therefore not clear whether there will actually be any dispute that would implicating [sic] the provisions of the Rehabilitation Act (or, if it were applicable, the ADA). We therefore cannot say that an immediate appeal of any legal question about the applicability of the ADA would ‘materially advance the ultimate termination of this litigation’, for purposes of section 7482(a)(2)(A). “ Order, at pp. 4-5.

So Greg loses, and goes back to Appeals.

And doesn’t anybody proofread these orders?