An Authority even more exalted than the IRS or even the United States Tax Court used the above-set-forth phrase to describe a choice taken.

A couple months back (hi, Judge Holmes), I mentioned a brief exchange with my colleague Peter Reilly, CPA, concerning IRS’ offer to nonpetitioning Dixieland Boondockers to come out with hands up and buy peace. Each of us had his own take on whether or not the IRS schema was overly sweet, or thorns lurked among the roses. See my blogpost “VRBO? – Not Quite,” 7/15/24.*

I await the exact terms of any effected settlement. Perhaps Mr. Reilly or another member of the trade press or blogosphere will pull a couple Forms 7249 Offer Acceptance Report, so those terms will be made public.

Meantime, petitioned cases are settling out. So, by way of comparison when we get the terms of nonpetitioners’ settlements, here’s Wisawee Partners II, LLC, E. Ronald Martin, Jr., Tax Matters Partner, Docket No. 6015-18, filed 10/18/24.

50% charitable claimed for year at issue $4,332,000. Allowed $0. Other deduction (K-1, line 13d) claimed $300,911. Allowed $1,373,421. So got about 30% at close of play.

Can’t wait to see if a nonpetitioner chose the better part in their deal with Danny Werfel.

And I lose some more blogfodder. The summary J the Wisawees were seeking back in ’22 is mooted out. See my blogpost “Another Silt-Stir,” 1/7/22.**

* https://taishofflaw.com/2024/07/15/vrbo-not-quite/

** https://taishofflaw.com/2022/01/07/another-silt-stir/

I rarely neglect an opportunity to give the Whistleblower Office, s/a/k/a The Ogden Sunseteers, the Psalm 141:5* treatment when I perceive a misstep. But in fairness, I hereby acknowledge they got it right, as did Judge Vasquez, in Bruce Edward Johnson, T. C. Memo. 2024-94, filed 10/17/24.

Now lest I be misunderstood, I think that Bruce Edward blew rightly on the dubious 501(c)(whatever), that was running a hospitality and entertainment venue, thereby raking in the moolah to the tune of a $1.4 million UBIT deficiency. And the RA at Exam thought so, relying on Bruce Edward’s blowing wherewith to chop said 501(c)(whatever).

But said 501(c)(whatever) hied themselves off to Appeals, where the AO found that “the revenue streams from the entertainment and hospitality facilities ‘contribute[] importantly to the achievement of that exempt purpose by improving the services available to patrons visiting the facilities, raising additional revenue, and supplying more jobs for the economy.’” T. C. Memo. 2024-94, at p. 3, and tossed deficiency and chops.

Cynical old me, I can’t help but wonder if local politicos came to the aid of the 501(c)(whatever), extolling its attempts to aid the hard-laboring peasantry (and voters) of their constituency.

Howbeit, the golden shower turned to drought, and the Ogden Sunseteers booted Bruce Edward with the “no dough, you go” blow-off.

Of course, Bruce Edward wants Judge Vasquez to reverse Appeals’ “erroneous view of the law.” T. C. Memo. 2024-94, at pp. 6-7.

Best o’ luck wi’ that one, Squire.

Judge Vasquez’s hands are thoroughly tied. “(W)e do not have authority to ‘review the Commissioner’s determinations of the alleged tax liability to which the claim pertains.’ Nor do we have authority ‘to direct the Secretary to proceed with an administrative or judicial action.’ While petitioner’s concerns about the charitable function of the target may be sincere, we cannot grant him the relief he seeks.” T. C. Memo. 2024-94, at p. 7. (Citations omitted, but they’re the usual).

Taishoff says both the Ogden Sunseteers and Judge Vasquez got it right, despite Bruce Edward’s views (and mine). Of course, he knows the facts and I don’t. So, per contra, if someone from the 501(c)(whatever) or IRS or Appeals wants to give me the Psalm 141:5* treatment with proofs in hand, I won’t “grouse, nor crack on, nor blind,” as the Man from Mumbai said.

* http://bible.oremus.org/?passage=Psalm%20141&version=cw

It might be asserted that I am singularly fit to lecture upon this topic, but I shall forbear to do so. Rather, I defer to Patricia Marcello Anderson, T. C. Memo. 2024-95, filed 10/17/24. Having failed to file for five (count ’em, five) years, and having received SFRs for all, Pat and spouse file 1040s MFJ, which IRS doesn’t process but parts of which IRS concedes. I’ll let judge James S. (“Big Jim”) Halpern fill in that one, T. C. Memo. 2024-95, at pp. 3, 7, 11. and 12.

Up for grabs are Scheds C and E, and an NOL. Pat and spouse have a document “218 pages long…, and the pages are labeled: ‘For Tax Purposes Only.’ Petitioners claim on brief: ‘This binder of accounting ledgers . . . is the road maps [sic] for this Court to rely on concerning’ substantiation of the reported expenses. The exhibit is divided into seven sections, one for each of seven entities.” T. C. Memo. 2024-95, at p. 8. Pat and spouse were running a multi-tier LLC chain. Judge Big Jim disregards the whole chain, and slides under TEFRA in a footnote. T. C. Memo. 2024-95, at pp. 5-6, footnote 4.

Spoiler alert: Pat and spouse claim documentation substantiating their disputed deductions are “in ‘so many boxes’ that he ‘wouldn’t be able to bring [them] into th[e] courtroom.'” T. C. Memo. 2024-95, at p. 10. For the same reason, I won’t quote or paraphrase Judge Big Jim’s voluminous footnoted disquisition on TEFRA involvement. Read it, if necrology is where you’re at.

Pat’s and spouse’s ledgers and journals are insufficient to establish their deductions. Although some proffered bank statements might furnish a lead, Judge Big Jim eschews ex post facto tax prep. ” On our own, we discovered some bank statement entries supporting entries in the Register. It is not our duty, however, to undertake the laborious task of combing the various bank statements for information to support entries in the Journals and Registers. To give petitioners a chance to cure their failure to direct us to page references in the bank statements to support Register or Journal entries, we ordered them to file a supplemental brief proposing findings of fact in tabular form identifying those expenses reported on any of the Schedules C or E that are traceable to bank statements in the record and to identify the page in the record of the bank statement entry.”  T. C. Memo. 2024-95, at p. 11.

They don’t, of course.

“Later in the trial he [spouse] claimed that petitioners’ bank statements and records that would substantiate the expenditures recorded in the Cash Disbursements Journal were in storage, and he added: ‘I have no access to them . . . . [I]t’s the subject of another pending legal matter.’” T. C. Memo. 2024-95, at p. 10. But spouse provides no further details.

Pat’s and spouse’s attempt to join the Cohanim founders upon Judge Hand’s often-overlooked qualification in Cohan: “As the U.S. Court of Appeals for the Second Circuit observed in Cohan v. Commissioner, 39 F.2d at 543,* not only did the taxpayer in that case fail to keep account of his travel expenses; he ‘probably could not have done so.’ ‘That observation,’ we have said, ‘suggests a limit on Cohan’s scope, under which estimating unsubstantiated expenses would be inappropriate when proper recordkeeping is feasible and can reasonably be expected.’ Joseph v. Commissioner, T.C. Memo. 2020-65, at 40–41.” T. C. Memo. 2024-95, at p. 18.

For the backstory on Doc Joseph, see my blogpost “A Rarity,” 5/19/20.**

Journalism fails when you don’t have the backups.

* https://case-law.vlex.com/vid/cohan-v-commissioner-of-893019323

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

Cases like Whistleblower 20442-18W, filed 10/16/24, make we wonder if there’s a bonus pool for the Ogden Sunseteers, John (“Hoppin’ John”) Hinman’s hardlaboring crew. Memories of days long gone, when I sat in partners’ meetings debating how much guided largesse to strew among the Cratchits who billed the hours that made the year a banner year, brought that question to mind.

Perhaps there’s a category in this imaginary pool for “Best Award Recommendation” memorandum weasel-wording. 20442-18W offers this gem: “the exam teams made adjustments to several issues related to the whistleblower allegations.” Order, at p. 5. But none of those allegations were substantial contributions to IRS’ efforts; IRS had identified the issues already.

So no award.

OK, identifying issues is necessary, but it isn’t sufficient. Once identified, what specific items give rise to a deficiency? Example, with imaginary facts unrelated to this case: IRS suspects unreported income, identifies issue. Reviews bank accounts, brokerage accounts, bitcoin, nominee accounts, office petty cash drawer, all yield nothing. Everything there reported. Whistleblower says “bags of cash in corporate secretary’s basement behind the hot water heater.” Adjustments made.

OK, we haven’t the facts in this case. The order deals with a discovery demand that has largely been satisfied last year, says Judge Albert G. (“Scholar Al”) Lauber. The rest is silence.

But still, I wonder if there’s a bonus pool.

Rapidly filling the depleted ranks of the United States Tax Court Bench, Ch J Kathleen (“TBS = The Big Shillelagh”) Kerrigan announces the onboarding of Judge Rose E. (“Cracklin'”) Jenkins, holder of no less than an Executive LL.M. degree from New York University’s highly esteemed School of Law, among many other heavy-duty credentials, academic and real-world.

I anticipate C-Suite level opinions from Judge Rose E. (“Cracklin'”) Jenkins.

Here’s the skinny: https://ustaxcourt.gov/resources/press/10162024.pdf

I have long been an advocate of summary judgment (summary J), Rule 121, as the best tool for discovery. not only of your adversary’s story, but of your client’s story and of the judge’s take on the whole thing. But while booming the benefits, I haven’t mentioned a concomitant burden: you educate your adversary.

IRS learns this in Kathryn L. Anderton & G. Douglas Anderton, Docket No. 17705-23L, filed 10/15/24. On its face, a run of the mine petition from a CDP NOD, a rejected IA (not eligible for streamlining, and no Form 433-A) and a general request for “abatement of penalties,” without specifics. Order, at p. 2.

IRS’ counsel seem to take this as a walk in the park and move for summary J. And STJ Diana L. (“Sidewalks of New York”) Leyden OKs the IA shootdown; no IA without Form 433-A. Kathryn’s & GDoug’s trusty attorneys got that one wrong, and STJ Di has copious citation of precedent to prove it. Order, at p. 5.

But the AO left the barn door unlocked. The Boss Hoss is on the loose.

“However, the record shows that the Appeals Office did not properly verify that the requirements of all applicable laws and administrative procedures were met in the processing of petitioners’ case.

“The IRS cannot assert a penalty under section 6662 unless it is approved by a supervising manager in writing. I.R.C. § 6751(b). Respondent bears the burden of production with respect to the required managerial approval.” Order, at pp. 5-6.

The AO never checked the administrative record to make sure the magic hoofprint was there. Just relying on the general objection by Kathryn’s and GDoug’s trusty attorneys to bounce the CDP isn’t enough; IRS has to establish they touched all the bases.

So STJ Di sends Kathryn &GDoug back to Appeals for a supplemental hearing. Now both sides know what they need (or what the judge told them they need).

Practitioner, beware. Summary J may teach you more than you wanted to know.

Once again, as the three-day weekend has been a national habit for fifty (count ’em, fifty) years and more, the District of Columbia has observed the second Monday in October as a holiday, under the name and style Columbus Day.

Wherefore, per Rules 10(d) and 25(a)(5). United States Tax Court has the day off.

And so do I.

Judge Mark V. (Vittorio Emanuele”) Holmes is a truly human judge. He has sympathy for a couple industry-standards fact witnesses who, he rightly finds, have suffered enough, collateral casualties of the Dixieland Boondockery wars.

“Each has already testified before in more than one conservation-easement trial. Their testimony is always about their own experience in the quarrying industry. Their testimony is remarkably the same from case to case. And they are all fact witnesses – not adequately compensated for the time and expense of repeatedly getting subpoenaed to testify in other peoples’ cases.” Order, at p. 1.

These poor dudes are first-round draft picks in Wilkes Rock North LLC, Wilkes Investments North LLC, Tax Matters Partner, et al., Docket No. 10736-20, filed 10/11/24. The Wilkes Rockstars are one of nine (count ’em, nine) conjoined alleged dodges, all to be found in the vicinity of Gretsch Stone. I haven’t blogged Gretsch because nothing noteworthy has yet happened therein; Gretsch is one of the aforementioned nine.

But, like brave fighters in the past, the fact witnesses are ready to go again. “(t)hey “will assuredly cooperate if subpoenaed.” Order, at p. 1.

The Wilkes Rockstars move in limine to let in transcripts of their testimony from two (count ’em, two) previous trials.

The Wilkes Rockstars obviously want that testimony to prove the truth thereof. The transcripts, of course, are hearsay (declarant not in the courtroom or on the Zoom); can’t cross-examine a piece of paper or a bunch electrons (this is Judge Holmes, after all).

The Wilkes Rockstars want FRE 807(a)(2) to bail them out. Even if neither FRE 803 nor 804 lets the transcripts in, FRE 8078(a)(2) lets into evidence hearsay “more probative on the point for which it is offered than any other evidence that the proponent can obtain through reasonable efforts.” Order, at p. 2. (Emphasis by the Court).

No go, says Judge Holmes.

“As sympathetic as we are with the witnesses, our analysis begins and ends with the italicized parts of the quoted Rule. Transcripts on paper are not more probative than live testimony. And witnesses who can and will appear if subpoenaed yet again are witnesses whose live testimony can be obtained through reasonable efforts.” Order, at p. 2.

Rule 807(a)(2) is far more honored in the breach than in th’ cliché. Most courts reject attempts to slide hearsay unshriven by FRE 803 or 804 under the tag. But Judge Holmes quarries deeper than most.

“We did find one case that did admit prior testimony of a witness under Rule 807. In State v. Hamilton, 308 Ga. 116, 126-128 (2020)*, the Georgia Supreme Court reasoned that the phrase ‘reasonable efforts’ did not require a party to resubpoena nearly 30 fact witnesses who had already testified before the same judge in the same criminal matter about the same facts when more than eight years had passed between a criminal trial and a hearing.

“But though our conservation-easement cases are approaching this odyssey-like journey through the trial system, they are not there yet.” Order, at p. 2.

Taishoff says, they’re gettin’ there. These dodges are going to keep this blogger going into his golden years, ya betcha!

* https://casetext.com/case/state-v-hamilton-102745

Ninth Circuit and Daniel S. Jacobs, Docket No.7118-19, filed 10/10/24, want Judge Emin (“Eminent”) Toro to “consider the merits of Jacobs’ claim that, in light of the information the CIR had received in the administrative proceedings, the CIR’s litigation position was unreasonable.” Jacobs v. CIR, No. 21-71211, 11/4/22, at p. 5.*

Judge Eminent is happy to respond, giving even Judge David Gustafson a run for his cliché in the Obliging Stakes. He has sixty-four (count ’em, sixty-four) pages, wherein he reviews “Attorney/Professor/Author” Dan’s submissions and IRS’ responses thereto from audit to Appeals to Tax Court to 9 Cir and back again.

No stone, nay, no pebble nor grain of sand, is left unturned. Dan loses. Again.

And note Judge Eminent’s gloss on ABA Model Rule of Professional Conduct 3.7, Attorney as Witness.

“[N]umerous courts and commentators have recognized [that] the only justification for the attorney testimony rule that might be viewed as affecting the rights of the opposing party is that derived from the fear that the jury will either accord such testimony undue weight, or will be unable to distinguish between the attorney’s testimony, offered under oath, and his legal argument, offered in rhetorical support of his client’s case. [T]he majority of these courts have also recognized [that] this justification is inapplicable where, as here, the testimony is made to a judge, not a jury.” Order, at pp. 61-62. (Citations omitted).

For my previous takes on “Attorney/Professor/Author” Dan’s battles with CIR and his minions, see my blogpost “Depositions? Bah!” 11/9/23**, and “Do Be Do Be Do Be Do,” 12/18/23***.

* https://casetext.com/case/jacobs-v-commr-of-internal-revenue-39#p2

** https://taishofflaw.com/2023/11/09/depositions-bah/

*** https://taishofflaw.com/2023/12/18/do-be-do-be-do-be-do/

I’m not picking on Judge Adam B. (“Sport”) Landy for ducking the perennial high-hanging fruit on the BoP tree. The last place to decide a major trial issue is in a small-claimer like Carl David Lucas and Jasmine Lucas, T. C. Sum. Op-. 2024-22, filed 10/9/24.

It’s easier to go with preponderance-of-evidence, and slide around Section 7491, when one spouse and IRS agree on innocent spousery, but the nonrequesting spouse won’t play.

“While a requesting spouse generally bears the burden of proving she is entitled to relief, it is an open question whether the nonrequesting spouse now bears the burden of proof when the Commissioner and the requesting spouse are aligned on the decision to grant relief. See Kraszewska v. Commissioner, T.C. Memo. 2024-26, at *6–7 (citing Stergios v. Commissioner, T.C. Memo. 2009-15, 2009 WL 151485, at *4). We decline to answer this question, and instead, we decide the issue of whether Ms. Lucas is entitled to innocent spouse relief by a preponderance of the evidence. See id.” T. C. Sum. Op. 2024-24, at p. 7.

Judge Sport Landy finds that Jasmine knew all about the unreported income, as she prepared the 1040 and Carl gave her all his info. No innocence for her. So ultimately, does BoP matter in innocent spousery?