No statute of limitations to update a previous posting, but Tax Court has to reconsider letting the Virgin Islands Government intervene in Arthur I Appleton, Jr. So said the Third Circuit on June 10, 2011.

The decision is available online sub. nom.,  as the high-priced law school graduates say, Arthur I. Appleton, Jr. v. Commissioner of Internal Revenue; Government of the United States Virgin Islands, Appellant.

So is my earlier posting dated 12/28/10, entitled “Statute of Limitations? Maybe Not”. I said I’d follow the case. Took me a wee while, but here is the follow-up.

Briefly, Third Circuit remands, saying Tax Court misstated the standard for permissive intervention by a government. I leave the Fed.  R. Civ. P. 24 technical exegesis to the technicians.

The rest of us now await what Tax Court will do. But for the moment, the statute of limitations issue is still up in the air.

As Otis Blackwell wrote, and Elvis Presley sang in 1957, 400 2nd Street, N.W., in colorful downtown Washington (Our Nation’s Capital), D.C., home of the United States Tax Court, is “All Shook Up”, apparently.

The following appeared on the Court’s homepage 8/24/11:

“THE TAX COURT HEADQUARTERS BUILDING IN WASHINGTON, DC, IS CLOSED.

“Employees should not report to work until the building is deemed safe by the structural engineer. Updates will be posted to this Web site as information becomes available.

“eFiling is not affected by the closure of the Tax Court Building, although there may be some delay in processing eFiled documents.

“Hand-delivery to the Courthouse is not available during the period the Tax Court Building is closed. Taxpayers must comply with deadlines established by statute or Court rule or order by timely mailing to the Court or by timely eFiling. Timeliness of mailing is determined by the United States Postal Service’s postmark or the delivery certificate of an approved private express delivery company.”

So, though the governmental servants of tax justice are hors de combat by virtue of the trembling earth, taxpayers and their professionals must still file and serve as if, to quote another old song, “the earth stood still.”

I’ll post more as it becomes available. Meantime, friends, keep those petitions, briefs, motions and cross-motions comin’.

Fortuitously, I’m hors de combat un peu my own self next week, as I’m off to beautiful National Harbor, Maryland on Monday to absorb knowledge at the IRS Nationwide Tax Forum.

Cain’t hardly wait.

In the immortal words of Dave “Curlee” Williams and James Faye “Roy” Hall, as sung by Jerry Lee Lewis. In fact, school is out at the United States Tax Court, and the website is bereft of cases. Instead of the usual “no cases today” tagline, there now appears “we post Monday through Friday at 3:30 p.m.”, even after 3:30 p.m., EDST.

I must therefore assume that new filings take a backseat to Mother Nature and the subterraneans.

And yesterday’s cases were hardly a treasure trove, just a musician writing off his vacation with his wife as a business expense (Section 274a really put paid to all sorts of shenanigans) and a spouse seeking 6015(f) relief with as near to no basis as one could imagine. Nothing worth commenting on.

So I will rant anent the IRS Nationwide Tax Forum. I attend this, as it’s usually good CPE, and when it was held in New York City it couldn’t have been more convenient.

But this year, the Powers-That-Be decided to eschew my native heath in favor of National Harbor, Maryland. Aside from sticking me with car rental, hotel bill (forget the Gaylord National Harbor, that’s theft; they want $19/day for self-service parking, for Pete’s sake! Even the Days Inn at Alexandria, VA is no bargain) and two very long drives, the scheduling always has a conflict in the courses I want to take. So after this year’s safari, it’s aloha on the steel guitar, lads and lasses.

Or, What Price Exclusivity?

Yesterday I noted the case of Luis Bulas, 2011 T.C. Mem. 201, filed 8/17/11, for Judge Haines’ exegesis of Rule 41(b)(1), the “unfair surprise at trial” rule. But as is almost always the case, there were other issues raised and decided in Judge Haines’ decision. Thinking over one of them, I concluded it was worth a few words.

In my post, I stated that Lulu got a partial win on his home office deduction. Lulu had added a bathroom to his home, across the hallway from the bedroom he had asserted he had converted to use as his office, where he carried on his tax preparation business. There was no question that he had no other place of business, or that he met with his clients , or that any personal use was made of the bedroom.

The problem was the hallway and bathroom, both of which Lulu claimed was for the use of his clients. He took a deduction in respect of the hallway and bathroom, as well as the bedroom. IRS disallowed the entire deduction.

Lulu gets to keep the bedroom, but the hallway and the bathroom go down the drain.

Judge Haines shows how IRS proves at least part of its case from Lulu’s own mouth: “Because there are business and personal motives for the expenses related to petitioner’s residence, we must determine what portion of the residence was used regularly and exclusively for petitioner’s business. See Intl. Trading Co. v. Commissioner, 275 F.2d 578, 584-587 (7th Cir. 1960), affg. T.C. Memo. 1958-104; Deihl v. Commissioner, T.C. Memo. 2005-287. Combined personal and business use of a section of the residence precludes deductibility. See generally Sam Goldberger, Inc. v. Commissioner, 88 T.C. 1532, 1557 (1987).

“Petitioner used one of the bedrooms of his residence exclusively as his office for his accounting business. Petitioner argued that he also used the hallway and the bathroom adjacent to this bedroom exclusively for his accounting business. Petitioner testified, however, that his children and other personal guests occasionally used the bathroom. Accordingly, the hallway and the bathroom were not used exclusively for business purposes.” 2011 T.C. Mem. 201, at p. 6.

Lulu tried to claim his children as employees, which might have saved the hallway and bathroom deduction if they were in fact employees, but Lulu couldn’t prove they were, and in any event they weren’t the only non-business users.

No exclusive business use, no deduction. The occasional non-business uses to which Lulu testified cost him money.

Takeaway- Either keep a journal of use of space claimed for home-office use, showing name of user, date, time and business purpose for each use of the space, or lock the space so that entry and use is confined to business visitors. And tell your family and friends to go elsewhere.

That’s the message Judge Haines delivers to the IRS, via a footnote, in Luis Bulas, 2011 T.C. Memo. 201, released 8/18/11.

My readers (bless you all) will remember my posting of 4/7/11, fetchingly entitled “Don’t Ambush the Indians”, where I discussed Judge Morrison’s rebuke to IRS, when IRS first raised an issue in its pre-trial memorandum. There, IRS didn’t give fair notice to the taxpayer via pleadings, so Judge Morrison, citing Rule 31(a), refused to let IRS try the issue. Judge Morrison had no occasion to invoke Rule 41(b)(1), the “implied consent” rule, that states whenever an issue is raised, even at trial, it can be tried by the parties if there is no unfair surprise, or if no party objects to trying the issue then and there.

But Lulu does object when IRS claims he double-counted his insurance deductions. The case arises out of disallowed business deductions, home office being the lead (and Lulu gets a partial win here); but IRS claims at trial that Lulu’s Schedule C deductions for insurance also appear in his deductions for car and truck expenses.

No fair, says Judge Haines, but in more refined language, and in a footnote. Footnotes are worth reading.

Judge Haines: “At trial respondent alleged that petitioner had double-counted car insurance expenses on Schedule C by including them in both car and truck expenses and insurance expenses. This issue was not raised in the pleadings. Rule 41(b)(1) provides that in appropriate circumstances, an issue that was not expressly pleaded but was tried by express or implied consent of the parties may be treated in all respects as if raised in the pleadings. LeFever v. Commissioner, 103 T.C. 525, 538-539 (1994), affd. 100 F.3d 778 (10th Cir. 1996). This Court, in deciding whether to apply the principle of implied consent, has considered whether the consent results in unfair surprise or prejudice to the consenting party and prevents that party from presenting evidence that might have been introduced if the issue had been timely raised. See WB Acquisition, Inc. & Subs. v. Commissioner, T.C. Memo. 2011-36; Krist v. Commissioner, T.C. Memo. 2001-140; McGee v. Commissioner, T.C. Memo. 2000-308.

“Petitioner testified that he did not know whether the insurance expense claimed for his accounting business was for car insurance or another form of insurance and that he needed time to investigate. Because respondent raised this issue for the first time at trial, we find that petitioner would be unfairly prejudiced if we were to consider this issue without petitioner’s having the opportunity to conduct an investigation of his 2007 insurance records. Accordingly, we do not find implied consent pursuant to Rule 41(b)(1), and the Court will not consider whether petitioner double-counted car insurance expenses.” 2011 T.C. Mem. 201, at p. 2, footnote 2.

Lulu is an ex-IRS employee, both as a revenue agent and as an Appeals Officer, now self-employed as an accountant and tax preparer (although apparently neither a CPA nor an EA). He wins this skirmish with his old employer, but only in part. His other deductions take a beating.

But the principle is the same–don’t ambush the Indians–or the accountants.

Readers of E. M. Forster’s 1924 classic novel “A Passage to India” will remember the chant of the Indians outside the courtroom, where Dr. Aziz’s trial for attempted assault on Miss Quested proceeds, without what they believe is the ultimately exculpatory evidence. They are certain that the testimony of Mrs. Moore, mother of Magistrate Heaslop, would clear their beloved compatriot of this cruel and baseless charge. But Mrs. Moore lies dead at sea, having died on her passage back to England.

So they chant “Esmiss Essmoore, Essmiss Essmoore,” invoking the spirit of the one they believe will bring the truth and justice to light.

Now Judge Vasquez finds that another Essmiss Essmoore, this time a divorced and living spouse, got a final payment from her former husband that was not alimony; but IRS magnanimously concedes the Section 6662(a) accuracy penalty, in James F. Moore, 2011 T.C. Memo. 200, filed 8/16/11.

Jim and Mrs Moore split in 1996. The divorce decree provided that Jim would make all mortgage payments on the marital residence back home in Indiana, possession of which was awarded to Mrs Moore. Jim got the deductions for the periodic payments of interest and taxes. If, as and when Mrs Moore sold, she would pay off the mortgage and Jim would pay her back whatever principal and accrued interest she paid to the lender. The decree said Jim would hold Mrs Moore harmless from any tax consequences. Most importantly, the decree said nothing about payments ceasing with the death of Mrs Moore.

Mrs Moore sold and paid off the mortgage, but Jim appealed (grounds not stated; probably meant petitioned the Court to amend the earlier decree and had to appeal the denial below). He settled with Mrs Moore, only having to pay her $20K and not the $74K she paid to the mortgagee on the sale.

Jim claims alimony and takes a Section 215 deduction. IRS says no; in the first place, the decree states that Mrs Moore has no income tax obligations with respect to any payments. Jim argues that means only periodic installments of principal, interest and taxes, not the final payoff, but Judge Vasquez doesn’t rule on the point.

The IRS’s second “no” is what decides the case; Section 71(b)(1)(D), the “no payment after death of payee” provision, sinks Jim. No use in chanting “Essmiss Essmoore”.

Here’s Judge Vasquez’s unpacking of the law: “If the divorce instrument is silent as to the existence of a postdeath obligation, the requirements of section 71(b)(1)(D) may still be satisfied if the payments terminate upon the payee spouse’s death by operation of State law. If 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.’

“The divorce decree is silent as to whether petitioner’s obligation to reimburse Ms. Moore terminates in the event of Ms. Moore’s death. Thus, we consider whether the obligation to make payments terminates upon Ms. Moore’s death by operation of Indiana law.

“Indiana statutory law is silent as to whether the obligation to make maintenance payments terminates on the death of the payee spouse. The parties point us to no caselaw, and we have discovered none, that expressly states whether the obligation of maintenance terminates upon the death of the payee spouse. Therefore, we conclude that Indiana law is ambiguous.

“Finally, faced with a silent divorce decree and no State law resolution of the question, we independently review the decree to make our own determination as to the satisfaction of the section 71(b)(1)(D) requirement. We do not read the decree as requiring the termination of payments in the event of Ms. Moore’s death. Under the decree, petitioner’s obligation is terminated only by satisfaction of the mortgage or reimbursement to Ms. Moore of the mortgage payoff amount. In fact petitioner stated that the termination of the payments was tied to the mortgage payoff period and not a particular need of Ms. Moore.” 2011 T.C. Mem. 200, at pp. 5-8. [citations and footnotes omitted.]

So no deduction for Jim.

Note to matrimonial lawyers: unless there’s a reason to continue payments after death of payee spouse, state that all payments to payee spouse cease upon death of said spouse. Otherwise you’ll be standing outside Tax Court, disconsolately chanting “Esmiss Essmoore, Esmiss Essmoore”.

Edited to add, 9/11/21: Jim sought rearugment, and lost, in 2011 T.C. Memo. 265, 11/8/11. See also my blogpost “Same Again?” 11/8/11.

If You Do It, Do It Right

That’s the lesson Judge Foley has for Peter J. Van Wickler and Laurie E. Janak, 2011 T.C. Memo. 196, filed 8/15/11. Rip Van Wickler had just been taken to the cleaners by the outgoing Mrs. Rip, who walked away with most of Rip’s stock options from his cell tower construction business. Needing to resuscitate his bank account, Rip turned to a co-worker, who sent him to an outfit called ClassicStar.

ClassicStar claimed to have “the ultimate tax solution.” Borrow the money from us, and lease championship racehorses for breeding. You get the foal, which you can sell, or race yourself. In the meantime, you get monumental current expense write-offs, which you can carry back to recoup some tax you paid before. Sounds too good to be true, right?

Rip needed someone with a tax background to look this gift horse in the appropriate orifices. Judge Foley takes up the story:  “Mr. Van Wickler believed that he could make a profit through his investment in the mare lease program. He researched ClassicStar and engaged Doug Page, a certified public accountant (CPA), to review the ClassicStar materials. Mr. Page then discussed with Mr. Van Wickler the need for further assurances that the mare lease program could withstand Internal Revenue Service (IRS) scrutiny, and, after speaking with Terry Green, Mr. Page was convinced that it could. At the time, Mr. Page believed that Mr. Green, a CPA, was independent of ClassicStar.” 2011 T.C. Mem. 196, at pp. 3-4.

CPA Page has a meeting with the ClassicStar brass, and is convinced the deal will work if Rip materially participates in the activity.  In jumps Rip, borrowing the money. But of course Rip never materially participates in horse breeding.

ClassicStar has one or two real throughbreds, and the rest are quarter horses or extras from a Budwieser commercial. ClassicStar generates all manner of expense statements, no two of which are consistent. ClassicStar lists all sorts of horses being leased to Rip, no two such lists being consistent. Rip files returns, takes losses, carries them back, and IRS disallows the whole thing.

Rip is not in the trade or business of breeding horses. He doesn’t visit the horses, make contracts for breeding them, and didn’t even know which horses he had under lease at any time. But he could be in a Section 212 activity for the production of income; for that he doesn’t have to know which end of the horse is which.

Unfortunately for Rip, if you’re producing income and want deductions, the deductions “must be reasonable in amount and must bear a reasonable and proximate relation to the production or collection of taxable income”.  Section 212.

Judge Foley unhorses Rip’s deductions in one sweep of the lance. “To determine whether an expense is reasonable in amount, we must first determine the amount of the expense. Neither Mr. Van Wickler, nor we, could ascertain which horses Mr. Van Wickler leased. … ClassicStar provided Mr. Van Wickler with a summary of expenses which he reported on his 2002 return. In 2004, ClassicStar provided Mr. Van Wickler with more detailed expense reports which were vastly different from the previous year’s summary. The expense reports set forth a myriad of expenses but were inconsistent and contradictory and did more to obfuscate than to clarify. We cannot conclude that the amounts paid for various services were reasonable if neither we, nor Mr. Van Wickler, know the amounts of those expenses. A deduction cannot stand on so flimsy a foundation. Luman v. Commissioner, 79 T.C. 846, 859 (1982). Even if we concluded that a portion of Mr. Van Wickler’s payments was made, pursuant to section 212, for allowable ordinary and necessary expenses, the record fails to provide a rational basis by which we could allocate deductible and nondeductible expenses. See Epp v. Commissioner, 78 T.C. 801, 806 (1982). An allocation of a portion of the payment would be “speculative, amounting to ‘unguided largesse.’” Luman v. Commissioner, supra at 859 (quoting Williams v. United States, 245 F.2d 559, 560 (5th Cir.1957)). Accordingly, Mr. Van Wickler is not entitled to deduct expenses relating to the horse breeding activity.” 2011 T.C. Mem. 196, at p. 10.

Bonnie Laurie Janak, of course, knew nothing of this, 2011 T.C. Mem. 196, at p. 8, footnote 4.

Now for our old friend Section 6662, negligence. Here Rip wins in a photo finish. Judge Foley again: “Mr. Van Wickler recognized his unfamiliarity with tax law and approached Mr. Page, a CPA, to analyze the tax aspects of the mare lease program. Mr. Page reviewed the ClassicStar materials including the tax opinions, attended a presentation with ClassicStar executives, spoke with another tax professional about the ClassicStar program, and prepared the tax returns at issue. Mr. Van Wickler lacked experience and knowledge of tax law, and sought advice from Mr. Page, who was duped by ClassicStar’s materials and representatives. We conclude that Mr. Van Wickler in good faith took reasonable efforts to assess his proper tax liability and reasonably relied on Mr. Page’s expertise. See Freytag v. Commissioner, 89 T.C. 849, 888 (1987), affd. 904 F.2d 1011 (5th Cir. 1990), affd. 501 U.S. 868 (1991); sec. 1.6664-4(b)(1), Income Tax Regs.

“Accordingly, he is not liable for the section 6662(a) accuracy-related penalties.” 2011 T.C. Mem. 196, at pp. 11-12.

Footnote- Terry Green, the C.P.A. Mr. Page believed was independent of ClassicStar, pled guilty to tax fraud. The plea capped what was at the time (2009) the largest tax fraud case ever brought in the State of Oregon.

But You Might Have Offsetting Expenses

Did Armando and Yadira make money? Yes. Did they report what they made? No, says IRS, but it doesn’t matter, says Judge Vasquez in Armando Sandoval Lua and Yadira A. Sandoval, 2011 T.C. Mem. 192, filed 8/11/11.

The issue is $19K that Sandy gave back to his independent contractor installers for extra work they did installing the satellite dishes Sandy was in the business of selling. Sandy sold the dishes and subscription services. He hired independent contractors to put in the dishes. He paid them for the base installation, but when the customer wanted extras, Sandy would split the override with the installers. Mrs. Sandy kept the books, noted the bank deposits for the sales commissions from the satellite content providers and the base charges for installation and extras, but didn’t note the overrides the installers either kept or were given by Sandy.

Sandy and Mrs. Sandy got nailed for unreported rental income and exaggerated deductions on their real estate rental operations, but that they conceded. They fought the revenue agent’s assertion they had unreported income to the extent of what they gave the installers.

Judge Vasquez explains the deal with the installers: “Future Satellite [Sandy’s d/b/a] also received compensation from its customers when the installers performed certain installation services (additional services). The installers collected the fees for the additional services from the customers upon completion of the work. If the customers paid for the additional services in cash, Future Satellite allowed the installer who performed the additional services to keep the cash (up to the amount Future Satellite compensated the installer for the job), as his compensation for services rendered. If the customers paid for the additional services by check or the installer received cash in excess of his compensation, the installer brought the checks and/or excess cash to Future Satellite’s office. Petitioners [Sandy and Mrs. Sandy] then deposited the checks and/or cash into one of their bank accounts and issued the installer a check in the amount of his or her remaining compensation.” 2011 T.C. Mem 192, at pp. 4-5 (footnotes omitted).

So while Sandy didn’t treat the installers’ overrides as income, he didn’t deduct what he gave, or let the installers keep, either. The revenue agent who audited Sandy’s and Mrs. Sandy’s return noted that Sandy confessed to not reporting as income what he had given, or the installers kept, and only took a cursory look at Sandy’s bank statements before noting unreported income.

As to unreported income, the ordinary presumption in favor of an IRS determination doesn’t hold. IRS must show taxpayer’s connection to some income-producing activity, and then the burden shifts to the taxpayer to show that all income was reported. Here Sandy definitely had income-producing activity. And Sandy didn’t report the installers’ overrides that were kept or given back.

However, the overrides that were kept or given back would have been deductible offsets against the unreported income, so “no hurt, no foul”; or as Judge Vasquez put it more elegantly: “Petitioners admit that they did not report as income the cash portion of the $19,207 that Future Satellite earned for the additional services and allowed the installers to keep as their compensation. They argue, however, that they did not deduct as compensation paid the amounts of cash the installers kept as their compensation, and therefore any increase in income should be offset by the unclaimed deduction for compensation paid. Respondent counters that petitioners cannot substantiate the exact amount of the cash the installers kept as their compensation for services rendered.” 2011 T.C. Mem. 192, at pp. 10-11.

While giving deference to the old rule that where taxpayer incurs deductible expenses in an unspecific amount, Tax Court can estimate them, bearing heavily against the taxpayer whose inexactitude is of his own making, Judge Vasquez finds that the $19K is the right offsetting amount. “Petitioners have established that the cash Future Satellite earned and allowed the installers to keep constituted the installers’ compensation for additional services rendered and therefore was an ordinary and necessary trade or business expense deductible under section 162(a)(1). Respondent is correct that petitioners cannot determine exactly how much of the $19,207 they allowed the installers to keep as their compensation for services rendered; however, based on the record petitioners have proved that they would be entitled to an offsetting deduction in the exact amount of the portion of the $19,207 kept by the installers as their compensation. Accordingly, petitioners have shown that they incurred unclaimed offsetting deductible expenses in the exact amounts of the income they failed to report and therefore owe no tax on the unreported income.” 2011 T.C.. Mem 192, at pp. 11-12. (footnotes omitted).

Oh, by the way, the footnote number 17, which I omitted, makes an interesting arithmetic error. Footnote number 17 states “We note that $19,207 is less than 1 percent of Future Satellite’s reported gross income of $995,438.” 2011 T.C. Mem 192, at p. 12.  Sorry, Judge Vasquez, it’s less than two percent. One percent is $9954.38. Do we need a Rule 155 computation here?

If You Stole It, You Owe Tax

That’s the lesson Judge Goeke has for William Bradley Wood and Nancy Lynn Wood, in 2011 T.C. Mem. 190, filed 8/10/11.

Woodie was general manager of a door store and had signatory power over the bank account. He was running a grocery store on the side that wasn’t doing too well, so he helped himself to nearly half a million of the door store’s dollars, to keep himself and Nancy Lynn in the style to which they were rapidly becoming accustomed, and keep the bacon and beans flowing at Woodie’s, his eponymous grocery store.

Woodie gets busted and does three years hard, plus owes the door store $200K restitution. IRS gets into the act and assesses Woodie and Nancy Lynn (she was treasurer of the grocery store and beneficiary of the lifestyle) for taxes on the stolen money, which they neither reported nor ever paid tax.

Judge Goeke takes up the story:  “Mr. Wood used the misappropriated money to cover personal expenses, pay credit card bills, and support Woodie’s.  The Woods were unable to produce at trial any books or records of Woodie’s’ finances. The Woods failed to report any of the misappropriated funds on their joint income tax returns….

“The Woods have conceded taxes and accuracy-related penalties are owed on the funds used for personal expenses and credit card bills. However, the disposition of the money put directly into the Woodie’s account remains in dispute.” 2011 T.C. Mem. 190, at p. 3.

Woodie’s attorney, who got fired between trial and judgment (I hope he got paid up front), argues that since Woodie’s the grocery store got some of the stolen loot, the grocery store owes tax on that money, not Woodie himself nor sweet Nancy Lynn.

No, says Judge Goeke. What you do with what you stole is nothing to the point. The point is, you stole. As the underwear ad used to say, what goes on after that is up to you. But you got the money, so you owe the tax, whatever you did later.

Or in legalese, “The parties dispute the proper treatment of the money Mr. Wood misappropriated from … and used in the Woodie’s business. The Woods claim Mr. Wood acted as the president of Woodie’s, not in an individual capacity, when he wrote checks from … to Woodie’s and thus the money should be counted as income to Woodie’s, not to the Woods. Respondent argues that Mr. Wood, as an employee of …, misappropriated funds and determined whether to use them for personal expenses, credit card bills, or to support Woodie’s. Therefore, respondent asserts that how the misappropriated funds were put to use is of no consequence to this matter because Mr. Wood’s control over the funds requires inclusion in the Woods’ income. We agree with respondent. The Woods are confusing how the money was used with how the money was acquired. Mr. Wood misused his position at … to misappropriate the funds and used the money in whatever manner he chose. Because he had dominion over the misappropriated funds from …, all of the misappropriated funds became part of the Woods’ gross income.” 2011 T.C. Mem. 190, at p. 4.

In a marvelous example of chutzpah, Woodie’s attorney argues that since the grocery store got the disputed monies and didn’t treat them as income on the grocery store’s income tax return, they were a contribution to capital and not taxable either to Woodie or to the grocery store. You really have to hope he got paid up front. To use the vernacular, ya gotta love Woodie’s attorney.

Of course, as aforesaid, Woodie never put any financial records from the grocery store in evidence on the trial. Judge Goeke misses a really great opportunity for an ironic blast at Woodie’s attorney, when he writes drily, “Using the stolen funds as a contribution to capital does not relieve the Woods of their responsibility to report the funds as income, and Woodie’s is not a party to this case.” 2011 T.C. Mem. 190, at p. 5.

So Woodie and sweet Nancy Lynn lose.

In short, if you got it, it’s yours, whatever you did with it later.

Thomas Bridgman, EA,  noted some changes that the new Circular 230,  effective July 26, 2011, makes to what constitutes “disreputable conduct”, that is, grounds for OPR discipline. These are (with citations to Circular 230):

10.51(a)(16): willful failure to electronically file returns that are required to be so filed

10.51(a)(17): willfully preparing all (or substantially all) or signing as paid preparer a return when the preparer does not possess a valid PTIN

10.51(a)(18) willfully representing a taxpayer before an IRS officer or employee unless authorized to do so by Circular 230

These seem to go to the Registered (or unregistered, as the case may be) Preparers, the latest category of persons subject to Circular 230.

Thanks, Mr Bridgman. Now let’s see how this plays out in practice–hopefully not involving anyone we know!