Ch J Kathleen (“TBS = The Big Shillelagh”) Kerrigan is compelled to deal with a statutory imposition in Estate of Faiya R. Fredman, Deceased, Docket No. 11397-24, filed 10/25/24, because none of IRS counsel, the co-trustee of the late Faiya’s “properly executed trust document,” Order, at p. 1, or petitioner Stephen A. Fredman, seems to understand that Section 2203 makes executor “any person in actual or constructive possession of any property of the decedent.”

Ch J TBS first ordered IRS to state whether they hit the co-trustee with the SND for the estate tax. IRS said they hit Steve, who has standing to represent the estate, and anyway the estate was not going to be probated.

Taishoff says, more correctly, no probate proceedings were going to be commenced. Wills get probated, estates get administered, either by executors or administrators, will or no will. The IRC, disregarding all these State anfractuosities, takes the view we expressed at schoolyard tag so long ago: “anyone around my base is it.”

So Ch J TBS, like frustrated counsel at a deposition facing a recalcitrant witness, orders IRS’ counsel to file written response and “state therein whether the notice of deficiency upon which this case is based was issued to Stephen A. Fredman as the statutory executor of the decedent’s estate within the meaning of I.R.C. section 2203.” Order, at pp. 1-2.

For a full takeout on statutory executorship, see my blogpost “The Case of the Reluctant Executor,” 12/1/11.*

* https://taishofflaw.com/2011/12/01/the-case-of-the-reluctant-executor/

Judge Alina I. (“AIM”) Marshall has an abbreviated abbreviation for the Section 6213(a) Statutory Notice of Deficiency, namely, SND, with which I will henceforth use to replace my previous SNOD, thereby saving me a keystroke. Thanks, Judge; at my age, every little bit helps.

But this avails not the trusty attorney and trusty CPA for Scott Hampton Cumbee and Sharalene R. Cumbee, Docket No. 17312-22L, filed 10/25/24. S&S never petitioned the SND, so their professionals’ nonreceipt of the SND and failure to get the exam file (though trusty attorney got the CDP admin file from Appeals) avails them not.

Trusty attorney does get a Taishoff “Good Try, Forlorn Hope Class” for the argy-bargy about the exam file. When your client can’t swear they didn’t get the SND and their last known address hasn’t changed for a decade, you’ve got to try anything not actually frivolous. And IRS issued a dubious 30-day letter, later corrected.

The Taxpayer First Act gets an airing here, but as with such enactments, IRS complies at the barest minimum “for the benefit of customer service.” Order, at p. 5.

Blowing the 90-day cutoff on a SND is always fatal outside 3 Cir. How long that gap will last is anybody’s guess.

The lawyers’ ideal is not having to try a case. Paradoxical as it sounds, winning fast is better than winning slow. Deft, economical, and fast wins clients’ hearts., Doing it isn’t easy, but even failing at a fast win can shorten the path to victory.

Two examples.

Amgen Inc. & Subsidiaries, Docket No. 16017- 21, filed 10/24/24, a patience-testing, long-running discovery joust, narrows the trial spectrum further with a failed Rule 91(f) deemed admitted ploy. Judge Christian N. {“Speedy”) Weiler discharges the OSC to admit, finding IRS’ expert shortchanged the Court by failing “to discuss the methodology he used to prepare the segmented financial statements. Additionally, the validity and reliability of Mr. [Expert]’s methodology is legitimately in dispute. Respondent has expressed his intention to call Mr. [Expert] as a fact witness, and we believe this presentation at trial is the best mechanism to resolve the ongoing disputes over the segmented financial statements.” Order, at pp. 2-3. Classic case of “sweat your witnesses before trial, and your adversary’s witnesses on the trial.” Does help if you know where the witness should be sweated.

Carl B. Barney, Docket No. 5310-22, filed 10/24/24, is back for the fourth (count ’em, fourth) time on the pretrial trail. Modifying, amending, and supplementing my previous comments, the Rules should allow omnibus motions in complex cases, so all these contentions can get sorted out once for all. This one-issue-per-motion Rule 54(b) approach is a timewaster in complex cases, with sophisticated counsel and judges. And discovery disputes should be handled by law secretaries (as in our NY State courts) or US Magistrates (as in USDCs), without tying up STJ and Judges. We might need fewer judges if they didn’t need to do busywork.

Carl counterpunched when his trusty advisers blew the opt-out from Section 453 installment treatment (didn’t get Com’r’s consent) by entering into a deal with his controlled Sub S Corps to cut the price of the for-profit colleges they sold his self-settled trust, which then sold them on to a genuine 501(c(3) giving Carl a big bargain-sale write-off. Carl cut the price by wiping out one promissory note and eviscerating the other, after IRS started auditing the deal.

Carl claims the notes are contingent payment debt obligations, hence reduction in purchase price and not cancellation of debt. IRS says not, because fixed interest rate. Carl says interest rate can vary if CPI-U fluctuates over a trigger, but IRS says it hasn’t for thirty (count ’em, thirty) years prior to execution of Notes, thus “so remote as to be negligible.” Carl says it has, and cites examples.

Judge Christian N. (“Speedy”) Weiler again finds more disputes. IRS says seller was insolvent, hence Section 108(e)(5)(B)(ii) precludes reduction in purchase price treatment. Judge Speedy Weiler says that’s a question of fact, and even if seller was solvent, IRS still argues that the reduction can’t be carried back to date of sale. Likewise, the terms of the purchase price reduction need to be established. And there remains the question of the FMV of the sold colleges: IRS claims the appraisal upon which Carl bases his bargain-sale charitable donation is excessive.

So the parties get a shopping list.

Brian Dean Swanson, Docket No. 4812-22L, filed 10/23/24, the GA schoolteacher with a rounder’s heart (see my blogpost “Rounders’ Day, Again, 4/22/24*) is back, and Judge Alina I. (“AIM”) Marshall has to deal with Brian Dean’s withdrawal or non-withdrawal of his wages aren’t income 1040.

“The penalty against petitioner was not assessed under section 6702(b), but rather under section 6702(a) for having filed a frivolous tax return for [year at issue]. Petitioner never made a ‘specified frivolous submission’ as that term is defined in section 6702(b)(2)(B). Thus, the withdrawal mechanism of section 6702(b)(3) has no application here.” Order, at p. 8.

Brian Dean sent in a 1040 showing zero wages, asking for a refund of the withholding, based on a frivolous position.

There are three (count ’em, three) tests for a frivolous filing, and Brian Dean checks all the boxes.

“If a taxpayer submits a Form 1040 in an effort to obtain a refund, the document necessarily ‘purports to be a return.’ By claiming a refund due for [year at issue], the Form 1040 petitioner submitted therefore satisfies the first requirement. By reporting none of his teaching wages as taxable income and attempting to ‘correct’ a Form W–2 to do so, while simultaneously reporting thousands of dollars of corresponding income tax withholding, the return also satisfies the second requirement, in that it ‘contains information that on its face indicates that the self-assessment is substantially incorrect.’ Finally, such reporting is based on at least two positions that the Secretary has identified as frivolous—that a taxpayer may file a return reporting zero income and zero tax liability even if the taxpayer received income during the period for which the return is filed and that wages and other compensation received for the performance of personal services are not taxable income—such that the third requirement is also satisfied.” Order, at p. 7. (Citations omitted).

He later claimed to withdraw the position. But his attempted withdrawal is of no effect, because it is the filing, not the assertion of the position therein, that is penalized.

Brian Dean says the IRM lets a frivolite withdraw, even when he doesn’t file a proper return.

“Petitioner’s reliance on the Internal Revenue Manual (IRM) is also to no avail. It is true, as petitioner points out, that IRM 5.20.10.4.3(a) (May 20, 2014) states that if the IRS determines that a taxpayer has submitted a tax return subject to a section 6702(a) penalty but the taxpayer timely responds to a Letter 3176C by filing a valid return withdrawing the frivolous argument ‘or withdraw[ing] the frivolous argument without filing a valid return,’ the section 6702 penalty will not be assessed. But, as petitioner fails to acknowledge, the IRM also states that the required response to remedy a frivolous return—be it a corrected return, a statement withdrawing the frivolous position, or otherwise—is to be ‘determined on a case by case basis.’ IRM 25.25.10.6 (Sept. 15, 2017). Despite what petitioner would lead us to believe, the IRM does not unequivocally provide for the withdrawal of a frivolous return. And even if it did, it is a well-settled principle that the IRM does not have the force of law, is not binding on the IRS, and confers no rights on taxpayers.” Order, at p. 8. (Citations omitted).

Judge AIM Marshall has an interesting footnote, Order, at p. 8, footnote 7. Even if Section 6702(a) did let Brian Dean withdraw his frivolity without filing a proper return, he sued for a refund in USDCSDGA and, when tossed for frivolity, appealed to the Elevenses, who affirmed the toss and hit Brian Dean with $8K in sanctions.**

So much for his “withdrawal.” But could a repentant frivolite withdraw, not file, and duck the Section 6702 chops? Judge AIM Marshall needn’t decide that here, so she doesn’t.

* https://taishofflaw.com/2024/04/22/rounders-day-again/

** https://law.justia.com/cases/federal/appellate-courts/ca11/23-11739/23-11739-2023-08-30.html

My heart sinks when I see that heading on the Tax Court homepage. Too often it means a metaphorical “‘ollow square” in which “they’ve taken of his buttons off and cut his stripes away,” as the Man from Mumbai said.

But today brings cause for a Luke 15:7* as Charles E. Hammond III, Esq., is back.

Welcome.

* https://www.biblegateway.com/passage/?search=Luke%2015%3A7&version=NIV

** https://ustaxcourt.gov/resources/press/10222024.pdf

Proponents of dubious expense deductions cling to the man who gave his regards to Broadway. They seek thereby to turn the merest crowd-scene walk-on into a star turn. This gimmick was part-way closed by Section 274 and the “temporary” regs, soon to become Medicare-eligible. And while not outright repudiated, 5 Cir and 7 Cir, among others, have themselves clung to Judge Learned Hand’s famous qualification: Georgie didn’t keep records, and “probably could not have done so,” 39 F.2d at p. 543. Se my blogpost “A Rarity,” 5/19/20*, for more.

But in these cyberomniscient times, when everyone has “all ye know, and all ye need to know” in his/her back pocket, the all-seeing, all-knowing application (“app”) puts in the hands of even the most technophobic the means to chronicle, characterize, and spread  forth every expenditure, so that “the proofs, the figures, were ranged in columns before me.”

And that is the undoing of Gary Thomas, Docket No. 10795-22, filed 10/23/24. Gary carts around golf carts for a national trucking firm. Though an EE and not an IC, Gary incurs expenses, like tolls, scale fees, layovers, delays, and overnight lodging, in addition to those more particularly bounded and described in Dave Dudley’s 1980 classic exposition of “this truckin’ life I lead.”

Gary wants to take these as unreimbursed business expenses. But Judge Ronald L. (“Ingenuity”) Buch stomps on the brakes. Turns out the national trucker kept track of what Gary was up to, and laid out what reimbursements he received. So when Gary sent in the two (count ’em, two) years of missing 1040s claiming same, he’s trapped by the app.

“Mr. Thomas manually maintained a log of his expenses. He maintained this log because the information was reported to him using a mobile application and not in hard copy. His manual log bears a striking similarity to what [employer] ultimately reported in its payroll system.” Transcript, at p. 4.

Gary didn’t provide any evidence of employer’s reimbursement policy. Nor did he show he had expenses beyond those in his handwritten copy of what employer’s app sent him, which employer’s payroll records confirm. Deductions disallowed.

Taishoff says, is the smartphone the end of Cohan?

* https://taishofflaw.com/2020/05/19/a-rarity/

Once again, nonreporteurs are balked from The Glasshouse in the City of the Unrepresented Taxed. Ex-Ch J Maurice B (“Mighty Mo”) Foley lays the bad news on Stephen C. Jenner and Judy A. Jenner, 163 T. C. 7, filed 10/22/24. Steve and Judy have their Social Security yanked to cover their nonreportage.

Their trusty attorney is in there pitching, but ex-Ch J Mighty Mo sends him to the clubhouse.

“Petitioners contend that the letter they received from the IRS notifying them that they did not qualify for a CDP hearing provided the requisite determination pursuant to section 6330(d)(1) to invoke this Court’s jurisdiction; ‘nothing in I.R.C. § 6330 limits the CDP procedures to Title 26 liabilities;’ the administrative offsets on their Social Security benefits are ‘levies by the Secretary’ that entitled them to a CDP hearing; and there is no ‘rational distinction’ between levies by the Secretary to collect Title 26 liabilities and levies to collect FBAR penalties. They conclude that ‘the CDP procedures in I.R.C. § 6330 apply to any type of liability . . . to the extent the Secretary files a lien or intends to levy.’

“These contentions are specious.” `163 T. C. 7, at p. 4.

The magic words in Section 6330(a) are “unpaid tax.” FBAR penalties aren’t a tax; they aren’t even found in 26 USC, but in 31 USC.

“In short, Title 31 expressly provides the assessment and collection procedures for FBAR penalties, and there is no statutory, regulatory, or judicial authority providing that these penalties are subject to sections 6320 and 6330.” 163 T. C. 7, at p. 5.

No tax, no CDP.

Aventis, Inc. and Subsidiaries, Docket No. 11832-20, filed 10/22/24, are inventive. Aware that their Section 860L FASIT (Financial Asset Securitization Investment Trust) may be cratering, they added the claim that, if they flunked the FASIT test, they could take interest deductions for payments made by a counterparty. For backstory, see my blogpost “Playing FASTIS and Loose,” 7/5/24.*

Now Aventis wants to claim client-attorney privilege on some documents they exchanged with their high-priced transactional attorneys. This notwithstanding they handed over opinion letters from said attorneys to a would-be outside purchaser and to IRS.

IRS claims subject-matter waiver. Once client hands over otherwise privileged material, whatever else they may have on that subject has lost privilege. Aventis says that’s true only if extreme disadvantage to adversary results from keeping the other stuff under wraps.

Maybe so it might could be that these documents throw shade on the debt-vs-equity arguments Aventis wants to raise on the trial. Howbeit, Judge David Gustafson says put all the cards on the table.

“We do not think that subject-matter waiver requires an extreme disadvantage. It is enough that Aventis has at its disposal all the unvarnished information about the parties’ intent as revealed in their consultations with counsel, but Aventis has selected a portion that is useful to itself and resists disclosure of the rest. We think it is fair to say that Aventis is using the privilege not just as a shield but as a sword, and in that circumstance we will not sustain its claim of privilege.” Order, at pp. 4-5.

* https://taishofflaw.com/2024/07/05/playing-fastis-and-loose/

Krishan K. Gossain and Kavita Gossain, T. C. Memo. 2024-97, filed 10/21/24, wanted IRS’ first-time abate administrative waiver. But they got chopped for misclaiming real estate pro (short the 750 hours and more-than-half test) and omitting some dividend income on a 1040, so the Section 6662(a) chops that Krish and Kav got aren’t on IRS’ waiver list. Besides, Krish and Kav are asking too late. Taishoff says, equitable tolling, anyone?

Yes, I know, the IRS’ website is no substitute for statute and regs, but for the record: https://www.irs.gov/payments/penalty-relief-due-to-first-time-abate-or-other-administrative-waiver

Then Krish and Kav claim Appeals failed to consider their case, so they should win. Judge Morrison says no.

“The remedy for any such failure is petitioners’ right to seek Tax Court redetermination of the deficiencies, a right that petitioners have exercised. The Tax Court is not authorized to resolve issues in favor of petitioners as a remedy for any prior failure by the Appeals Division to resolve their case.” T. C. Memo. 2024-97, at pp. 10-11.

Sharp-eyed readers of this my blog will recollect I blogged an off-the-bencher on this very case. Both sides moved for reconsideration thereafter, which Judge Morrison granted out of time. I commented at the time how unusual this was, and wondered why. See my blogpost “Off-the-Bench, On-the-Bench,” 5/29/24.*

Now I got my answer.

Edited to add, 10/22/24: Note administrative waiver provided in Section 6654(e)(3). But I doubt Krish and Kav qualify.

* https://taishofflaw.com/2024/05/29/off-the-bench-on-the-bench/

Judge Morrison neatly and effectively lays out the statutory gravesite of the 24 (count ’em, 24) State-legal potteries in the Patients Mutual Assistance Collective Corporation, Inc., T. C. Memo. 2024-98, filed 10/21/24.

The Patients want summary J that the traffic-stop in Section 280E is unconstitutional. They don’t get it, of course;  but one has to think, with north of $4 million in deficiency on the table, this is a prelude to an appeal. The Patients argue Eighth Amendment excessive fines and Tenth Amendment States’ rights.

Judge Morrison cites the usual Tax Court precedents, blowing off the Patients in four (count ’em, four) pages.

“Neither of PMACC’s arguments has merit. Section 280E is constitutional under our precedent. N. Cal. Small Bus. Assistants Inc. v. Commissioner, 153 T.C. 65 (2019); see also Today’s Health Care II LLC v. Commissioner, T.C. Memo. 2021-96, at *7. The Controlled Substances Act is constitutional under Supreme Court precedent. Gonzales v. Raich, 545 U.S. 1 (2005). Therefore, we will grant respondent’s Motion for Summary Judgment and deny petitioner’s Motion for Summary Judgment.” T. C. Memo. 2024-98, at p. 3.