As we reach the midsummer All-Star break, I am reminded of an axiom every batter learns in his or her earliest hour: make the pitcher throw pitches. If she or he throws enough of them, one of them will be the pitch you want.

The corollary extends to Tax Court, as Judge Chiechi teaches in John D. Nye and Rose M. Nye, 2013 T. C. Memo. 166, filed 7/15/13.

Raise every issue you possibly can in your petition, and argue it in your brief, even if your case is as thin as a spider’s web (just don’t be frivolous). Make IRS, and Tax Court, deal with every issue. Make ‘em throw pitches.

The case itself is another of the alimony night-of-the-living-dead cases. John settles with ex-spouse Alice for a $350K lump-sum payout, but the question is what would happen if Alice dies after the revised judgment of divorce is entered in FL county court, but before the payout actually happens?

It’s the old Section 71(b)(1)(D) problem, and Judge Chiechi grants IRS summary judgment.

I’m finding fault with the Court’s rationale, as it’s based upon an intermediate FL appellate court case. Judge Chiechi relied on dictum, as the court in that case didn’t need to reach the conclusion that the obligation to pay survived, in denying the deceased spouse’s executor’s petition to modify that divorce decree. In fact Judge Chiechi admits that the intermediate appellate court said several times it wasn’t going there. See 2013 T. C. Memo. 166, at p. 17, footnote 15.

So Judge Chiechi falls back on general contract law statements. But as we learned in James F. Moore, 2011 T. C. Memo. 200, filed 8/16/11, “(I)f State law is ambiguous in this regard, however, a ‘federal court will not engage in complex, subjective inquiries under state law; rather, the court will read the divorce instrument and make its own determination based on the language of the document.’ Hoover v. Commissioner, 102 F.3d 842, 846 (6th Cir. 1996), affg. T.C. Memo. 1995-183.” 2011 T. C. Memo. 200, at p. 6. And see my blogpost “Essmiss Essmoore, Essmiss Essmoore,” 8/16/11.

I submit State law was ambiguous on the specific point, the State’s highest court not having ruled on the point.

Howbeit, that’s for John and his lawyer to sort out, if they appeal.

What I want to stress, though, is that John’s lawyer never contested the Section 6662 accuracy penalty, even though Judge Chiechi asked for supplements to the parties’ papers. “In fact, petitioners alleged in the petition that ‘[t]he only issue is the deductibility of the $350,000 as alimony.’” 2013 T. C. Memo. 266, at p. 8, footnote 6.

So when she ruled against John on the deduction, the penalty was automatically included. See my blogpost “An Interest(ing) Question – or Two”, 6/11/13, wherein I said “And their lawyers should write on the blackboard 100 times: I will raise every error I can possibly conceive of in every petition I file.”

In fact, in James F. Moore, which I cited supra, as the high priced lawyers say, IRS conceded the penalty. But James’ lawyer obviously contested the penalty. Here, John’s lawyer (who also represented him in the divorce) didn’t.

As I’ve suggested in the analogical child-support Section 152 situation, some lawyer will get in trouble if his/her client doesn’t get what they expected. See my blogpost “Moody Blues”, 9/19/12.

It’s a game that two can play. First, Notice 2013-43, published 7/12/13, delays implementation of FATCA withholding for six months, so as to permit FFIs, PFFIs and QIs to get their acts together, and IRS to get the website up and running. Here’s the link.

And now for a really cool taxpayer tactic. You really wouldn’t notice it if you didn’t read between the lines of a couple of recent Tax Court orders.

I call it the “Lost in the Woods” variant on delay of the game. First up, Mordechai Yosef & Esther Gottfried, Docket No. 21322-12S, filed 7/10/13. Looks like a run-of-the-mill motion to dismiss for want of prosecution, and motion by petitioners to vacate denied. Petitioners never claim they didn’t get the notice of trial or the pretrial order, or give any adequate reason why they were no-shows. Dismissal stands.

Simple, right? Except Mordy and Esther live in Israel; and they requested trial in Aberdeen, South Dakota. Now a quick search on the internet finds that only airline that flies between Israel and Aberdeen, SD, lists the cheapest round-trip flight from Israel to Aberdeen, SD, at twice the cost of a flight from Israel to New York City. So why Aberdeen, SD?

Might be a one-off, maybe.

Or maybe not. See Ayala Misheli & Udi Jarlip, Docket No. 17656-12S, filed 7/12/13. Ayala & Udi coincidentally live in Israel, and promised to send settlement documents to IRS, but requested more time because of the difficulty of intercontinental transmission.

Time granted, but then the lines of communication went dead, and no further words or papers from Ayala & Udi.

Judge Goeke gives Ayala & Udi one last chance, but then will grant a motion by IRS to dismiss for want of prosecution.

Oh, I almost forgot. Place of trial is Billings, Montana. A quick internet search shows tickets just as expensive as Aberdeen, SD, and a 22 hour travel time.

Lost in the woods? Or delay of the game? In both cases petitioners were pro se, but someone was thinking.

Maybe Tax Court needs a rule that those seeking to lay venue need to show some nexus to the desired place of trial.

 My long-suffering readers may remember my essays on the shrink-wrapped guru; see my blogposts “Real Estate Professional Revisited”, 3/24/11, “Basis for Dummies”, 11/24/11, and “The Shrink-Wrapped Guru”, 9/4/12.

Well, here’s the sad story of a guru who failed, incidentally giving the disciple a Section 6673 hit, John B. Rice, Docket No. 21676-12L, an Order in place of any T.C. or T. C. Memo., as none were issued today, and the one Sum. Op. was another alimony case with nothing new in it.

John’s story is quickly told, and STJ Armen, The Judge With a Heart, tells it.

Back on June 12, STJ Armen hit John with summary judgment in favor of IRS and a Section 6673 frivolity delay-of the-game penalty, after reviewing what John put in, and failed to put in, to oppose IRS’ motion for summary judgment.

John being nowise deterred, “…the Court received from petitioner a document entitled “Rebutal [sic] And Motion For Respondent’s Motion For Summary Judgement [sic] And To Impose A Penalty Under I.R.S. Sec. 6673 Not To Be Granted And That All Issures [sic] By Respondent Be Rejected By The Court, And That A Summary Adjudication Be Ruled In Favor Of The Petitioner”, which document has been filed (as of the date of its receipt) as petitioner’s Motion To Vacate Order And Decision Entered June 12, 2013.” Order, at p. 1.

John claims he’s sick, cognitively impaired and lacks good recall capabilities. Aside from having raised these before in a 2010 proceeding where Judge Wherry blew them off, John produces no medical evidence of the foregoing. And he is a perennial litigant in Tax Court, who has raised the usual spurious arguments before now, and lost, and been warned about Section 6673.

Now for the basis of the title of this little essay. “Also in his motion to vacate, petitioner invokes ‘my mentor’, Robert Clarkson. However, in matters touching on Federal taxation, Mr. Clarkson may not be a worthy mentor. See http://e.wikipedia.or/wiki/Robert _Clarkson”. Order, at p. 2.

Old Clarkie was a staunch tax protester, disbarred in South Carolina, jailed more than once and enjoined several times from promoting phony tax evasion schemes, before he died in 2010.

John, better trust the shrink-wrapped guru.

And Play the Game

Those of us who have a sentimental turn of mind (even though we can laugh at sentiment) remember, and grin, at Sir Henry Bolton’s famous line (which I for one had misattributed to Kipling for years): “Play up, play up and play the game”.

Well, every working day there appear on the Tax Court docket dozens of unsigned petitions with unpaid filing fees, which, though timely filed, are jurisdictionally defective. And Ch J Colvin issues bushelbasketsful of orders chucking these into Outer Darkness, usually after giving the petitioners a second, and sometimes even a third, chance, to send in the $60 (or an Application for Waiver of Filing Fee) and sign the petition.

Well, there’s some good news even for the dilatory whose petitions wound up in Milton’s “Stygian caves forlorn”. It’s James Edward Orr, Docket No. 29053-12S, filed 7/10/13, with Ch J Colvin telling the story.

Jimbo filed a petition timely, and apparently even signed it, but didn’t pay. Almost three months later, Jimbo filed an amended petition, again apparently signed but again without the $60 or an Application for Waiver.

Ch J Colvin twice ordered Jimbo to pay up or apply, but he didn’t. Finally, Ch J Colvin tossed Jimbo’s petition and amended petition for want of jurisdiction.

But Jimbo rallied, like the young man in Sir Henry’s ballad. Almost two months after his petition, as amended, was booted, he came up with the $60, and so Ch J Colvin vacates and sets aside his earlier order of dismissal.

Practitioners, if a client wanders in with a home-made petition and an order of dismissal for want of paying the $60, remind the client to “pay up, pay up, and play the game”.

The 1931 Florence Reece coalminers’ song is sung on two successive days by Tax Court, and only one side comes up with the right answer.

Both times it’s a Section 6015 innocent spouser, and the interrogated party is the attorney for both spouses.

First up is Ovadia Meron & Galit Meron, Docket No. 9172-11, filed 7/8/13. Galit claims she got no benefit from whatever Ovadia’s delictions might have been, but IRS claims she never prosecuted her claim to innocent spousehood.

The ever-obliging Judge Gustafson gives Galit a couple of weeks to come up with a reason why her claim shouldn’t be dismissed for want of prosecution, but throws in an admonition to her counsel: “Petitioners’ response shall also show why petitioners’ counsel does not have a conflict of interest when representing both spouses in this case.” Order, p. 1.

In short, bail, baby, bail.

Next up, doing the right thing, is the attorney for the former spouse of Cindy Palmieri, Docket No. 26110-10, filed 7/9/13. Judge Gale gets this one.

“…petitioner’s counsel, Mr X, filed a Motion to Withdraw as Counsel (Motion), citing a conflict of interest in representing petitioner with respect to any claim for section 6015 relief in this case while simultaneously representing petitioner’s former spouse, Michael Palmieri, in Docket No. 26796-10. The Motion further states that petitioner does not object and that respondent’s position was unknown.” Order, p. 1. (Name omitted).

Judge Gale lets Mr. X out, being satisfied that withdrawal is appropriate.

Takeaway- See Circular 230, Section 10.29. See also Rule 1.7 of the ABA Model Rules of Professional Conduct, which applies to Tax Court practitioners (see Tax Court Rule 201(a)).

Back to taxes.

Judge Kerrigan has a lesson for practitioners today (and incidentally for Ohan Karagozian, the taxpayer who stars in 2013 T.C. Memo. 164, filed 7/8/13).

Ohan was a computer geek for Coty, the parfumier. The parfumier called him an IC, and gave him 1099-MISCs. So Ohan filed Schedule Cs and Schedule SEs, and thereby overpaid his FICA for numerous years before the year at issue.

In that year, Coty fired Ohan, so he claimed he was an employee all along, and NYS Department of Labor bought his story, whereupon he dropped Form SS-8, Determination of Worker Status for Purposes of Federal Employment Taxes and Income Tax Withholding, on IRS, who also bought his story.

Ohan claimed his overpaid FICA from yesteryear should give him a bye on his income tax for the year at issue.

Of course, his FICA wasn’t overpaid. His employer was supposed to withhold their part from his pay, and remit it to IRS (trust funds, y’know). But if the employer didn’t withhold and pay, Ohan was on the hook. See my blogpost “Catch Me If You Can”, 1/4/12.

And the doctrine of equitable recoupment doesn’t help Ohan.

First, some background. Judge Kerrigan: “In order to establish that equitable recoupment applies, a party must prove the following elements: (1) the overpayment or deficiency for which recoupment is sought by way of offset is barred by an expired period of limitation; (2) the time barred overpayment or deficiency arose out of the same transaction, item, or taxable event as the overpayment or deficiency before the Court; (3) the transaction, item, or taxable event has been inconsistently subjected to two taxes; and (4) if the transaction, item, or taxable event involves two or more taxpayers, there is sufficient identity of interest between the taxpayers subject to the two taxes that the taxpayers should be treated as one.” 2013 T. C. Memo. 164, at p. 11 (Citations omitted).

Ohan claims his overpayments of FICA in years gone by (now closed years) should offset the current deficiency.

No, because the transaction, item or taxable event did not arise out of one single transaction.

Ohan claims the entire series of misclassifications was a single item; IRS says there was a separate misclassification for each tax year, and each was a separate item. Although each year’s misclassification was the same type of item, each year was a different item. And those are time-barred.

“Although the taxes petitioner paid in the time-barred years were paid on the same type of transaction (i.e., compensation petitioner received from Coty) as in 2008, we follow the Supreme Court’s reasoning in Elec. Storage Battery Co. and find that the overpaid FICA taxes from 2002 through 2007 are separate transactions, separate items, and separate taxable events from petitioner’s 2008 tax deficiency. Income taxes are levied on an annual basis. Each year is the origin of a new liability and of a separate course of action.” 2013 T. C. Memo. 164, at p. 13.

The case cited is Rothensies v. Elec. Storage Battery Co., 329 U. S. 296(1946). And I take it Judge Kerrigan meant “cause of action”, rather than “course of action”; gotta watch those stenographers, Judge.

And Ohan properly filed a Form 1040X, showing the right amounts of income tax and FICA for the year at issue. That the same determination may affect the taxes on two transactions does not make the two transactions into one transaction.

So no equitable recoupment for Ohan.

And a Sequel

I promised no personal comments; this is a blog designed for the in-the-trenches tax preparer, and they have little time for “True Confessions”.

But I have to celebrate the rebirth of my old computer, Sir Andrew (I’ll explain the name infra, as the law review writers say).

In my most recent blogpost “A Sad Goodbye”, 7/5/13, I lamented his passing. Happily, like Mark Twain, the report of his death was an exaggeration. I removed the defective battery, pounded his back with my fists (CPR to the rescue!), and howled imprecations and invocations.

Sir Andrew returned to life. I backed up his innards, and here he is.

As the old Scots ballad put it:

“‘Fight on, my men,’ says Sir Andrew Barton,
‘I am hurt, but I am not slain;
I’ll lay me down and bleed a while,
And then I’ll rise and fight again.’”

Sir Andrew’s fighting again. Just in time for my 500th blogpost.

And now the sequel. I do get feedback from practitioners, and their replies wind up in the “Responses” to the blogpost at issue.

Very rarely do I get feedback from the taxpayer him/herself. And those I don’t post, as almost invariably they add nothing to the principles discussed.

But here’s a comment from the taxpayer’s spouse, a co-petitioner, that rounds out the facts of the case. See my blogpost “No Good Deed”, 4/18/13, for background.

“There’s a postscript to this story and it goes something like this — karma is a harsh mistress . . . Ruth died in April 2012, and the IRS chief Steven Miller was ousted in May 2013. To paraphrase Hamlet, “There are more things in heaven and earth, Mr. Taishoff, than are dreamt of in your philosophy.”  P.S.   Haven’t yet heard about the US Tax Court, but won’t be surprised when I do.” –Christina Martin

Ms. Martin, there are those who would agree with you. As for me, I need material for this blog.

I do not interject personal notes here, but I must make an exception just this once.

Today I bade farewell to my trusty MacBook 13.3, vintage 2007. His hard drive crashed catastrophically. The repairers at the shop I’ve used since 1993 informed me that, while they could install a replacement for not very much, all my data was recoverable only at ruinous cost.

I remember reading Ernie Pyle’s lament when his typewriter broke while he was covering the Italian campaign. While my writing isn’t within a mile of the finest reporter to come out of World War II (although Ernie didn’t; he was killed on Ie Shima in the Ryukyus, during the Okinawa campaign), I felt his pain.

What to do? I could have installed a “new” hard drive (which Apple Corp hasn’t made in years, but apparently my repairers have a few hidden beneath old pizza boxes) at a nominal cost, and recover my data on the “old” hard drive for the aforesaid ruinous cost, and have a rebuilt and restored, but still obsolete, device, for half the cost of the latest product of The House That Jobs Built, or spring for a new friend with the latest and greatest.

Helps to have a family member who works for The Real Big Apple. Looks like I’m going to acquire a new friend.

Rest in peace, old buddy: it’s been a great trip, lots of laughs. I hope when I go, I go as fast and with few regrets.

Oh yes, I’m writing this blogpost on a computer at work; it’s an HP tower, but it works.

I spent yesterday on my computer (of which more in a subsequent blogpost) and at the television screen, watching the racing at Beautiful Belmont Park. Of course there was mention of a horse named Read the Footnotes; but I’d like to suggest a name for a potential Triple Crown winner – Read The Rules.

Ch J Colvin has that lesson for an attorney who shall remain nameless in Howard E. & Judith A. May, Docket No. 14545-12L, filed 7/5/13.

Howdy and Judy file a motion for leave to amend their petition, embodying in the motion their proposed amended petition. This is the way we do things in State court (or at least in the State where I practice), but the problem here is that the motion, with the amended petition therein embodied, was e-filed.

First, per Rule 41, amended petitions cannot be embodied in a motion to amend, but must be separately filed. And, per Rule 26(b), all petitions and amendments thereto must be paper-filed and manually-signed by the petitioner or their USTC-admitted representative.

So Howdy’s and Judy’s motion for leave is denied, even though IRS doesn’t object to the amendment.

Judge Colvin does object, so go back and do it right.

I’ve often praised Judge Gustafson’s solicitude for the petitioners-taxpayers who find themselves in, or approaching, or unable to reach, his courtroom. See my blogpost “We’ll Come To You”, 9/18/12, for example, where he offers to visit John Carter in the Stony Lonesome to hear John’s case. And he gives free lessons on the law; see my blogpost “We’ll Help You”, 3/20/13, where he helps out George and Rosalie Lovell who ran into the 90-day SNOD barrier.

So it’s no surprise that, fresh from the Independence Day barbecue and fireworks, Judge Gustafson is on the case of Eugene M. & Mary K. Bond, Docket No. 29706-11, filed 7/5/13.

Message to IRS: don’t ambush the energetic.

The issue here is the $1500 residential energy credit under Section 25D. Euge and Mary K claimed it, but IRS merely put “0” in the SNOD, and the explanation of the changes to Euge’s and Mary K’s MFJ 1040 said nothing about energy.

Judge Gustafson sustained IRS’ numbers over those of Euge and Mary K on everything but the energy credit.

Euge and Mary K claim they were ambushed, as the IRS didn’t properly raise the disallowance until computation time. IRS says “if you didn’t litigate it, you waived it.”

Judge Gustafson: “The disallowance of the credit appears at page 4 of the NOD–but it does so simply as a zero entry on line 8a in a computation. As far as we can tell, no other reference to or comment on the energy credit is made in the notice. For example, the ‘Explanation of Items’ (pages 12-13) explains the other adjustments but not the disallowance of the energy credit. Petitioners attached to their petition some of their pre-NOD correspondence with the IRS, but as far as we can tell none of it mentioned the residential energy credit. It appears that the IRS’s examiners never addressed the residential energy credit.” Order, at p. 1.

Note that when Judge Gustafson uses the abbreviation “NOD”, he means Notice of Deficiency. To prevent confusion with Notice of Determination, I use the abbreviation “SNOD” for Statutory Notice of Deficiency, the so-called 90-day letter, reserving the abbreviation “NOD” for Notice of Determination at Appeals.

Anyway, Judge Gustafson is troubled by IRS’ card-up-the-sleeve approach to Euge’s and Mary K’s energy credit.

“Thus, we are not completely certain that the isolated and unexplained zero entry in the NOD actually reflects a determination to disallow the claimed energy credit. Moreover, assuming that it does, it appears that the petitioners did not realize that the energy credit had been disallowed but believed instead that the deficiency determined by the IRS resulted entirely from the explained adjustments. It appears that respondent’s counsel believed the same, since the pretrial memorandum filed October 2, 2012, stated (at 4), ‘The deficiency was based on adjustments to medical and dental expenses, charitable contributions, and miscellaneous itemized deductions in the amounts of $13,929.00, $3,057.00, and $11,630.00.’ Our review of the file in this case seems to show that neither petitioner nor respondent ever made any reference to the energy credit in any filing nor in any oral statement at trial or elsewhere. The Court has sympathy for petitioners’ manifestly genuine surprise on this issue and is concerned that an injustice may be done if decision is entered on the current record.” Order, at p. 2.

But stay cool, Euge and Mary K; you still have a ways to go. First, confer with IRS, do a show-and-tell and play nice. If you can settle the credit issue among yourselves, go to it, but keep Judge Gustafson in the status report loop.

If you can’t, here’s Judge Gustafson’s solution: “Petitioners may file a motion for reconsideration and for a further trial, to which they shall attach as exhibits the documents on which they rely to show their entitlement to the residential energy credit, and in which they shall make any argument that they intend to rely on to the effect that no determination was made as to the disallowance of the energy credit. Petitioners should note that the extraordinary remedy of a further trial will not be granted if petitioners fail to show that they have evidence sufficient to make a showing of their entitlement, since the Court will not reconsider the opinion and address this credit issue if petitioners have no documentary evidence that might carry their burden of proof; in that event, a further trial would apparently be futile.” Order, at p. 2.

In other words, Euge and Mary K, Judge Gustafson will help you if you help yourselves; but he’s not spinning wheels.

That’s Judge Gustafson – obliging and energetic.