Or, Taxes Are Forever

The battling Kaufmans are back, the First Circuit Court of Appeals weighing in on the façade on Rutland Square (see my blogpost “A Joy Forever”, 4/4/11). This is the ongoing saga of Gordo and Lorna. You can read all about it in Kaufman v. Commissioner, Case 11-2017, 7/19/12.

You’ll remember IRS got summary judgment because Lorna’s mortgagee insisted upon getting first dibs on casualty insurance proceeds and condemnation (eminent domain) awards. Gordo and Lorna yell “foul!”, and run up to Boston, where Judge Boudin, assisted by Judges Lipiz and Chief Lynch, lend a sympathetic ear.

Now judicial gymnastics are always fun, and Judge Boudin has a really good one here (I wonder what The Judge Who Writes Like a Human Being, The Great Dissenter in Tax Court, Judge Holmes, would call this contortion).

First, the offending language from the subordination agreement: “The Mortgagee/Lender and its assignees shall have a prior claim to all insurance proceeds as a result of any casualty, hazard or accident occurring to or about the Property and all proceeds of condemnation, and shall be entitled to same in preference to Grantee until the Mortgage is paid off and discharged, notwithstanding that the Mortgage is subordinate in priority to the [Preservation Restriction] Agreement.” Decision, at p. 6.

Now Judge Boudin: “Certainly the IRS has good reason to assure that the Kaufmans could not recapture the value of what they gave up by granting the easement in order to get the deduction; but the Kaufmans had no power to make the mortgage-holding bank give up its own protection against fire or condemnation and, more striking, no power to defeat tax liens that the city might use to reach the same insurance proceeds–tax liens being superior to most prior claims, including in Massachusetts the claims of the mortgage holder.” Decision, at pp. 11-12. (Citations and footnote omitted.)

Therefore, says Judge Boudin (and presumably his two non-dissenting colleagues), the essential paragraph g(6) “entitlement” language (26 C.F.R. § 1.170A-14(g)(6)(ii) should be limited to the grantor (taxpayer) getting money ahead of the 501(c)(3) grantee, not a mortgagee or anyone else.

So summary judgment is off the table. The appraisal and the Form 8283 are not “doomed”, although IRS would have it so; they substantially comply. Thus, back to Tax Court for a trial on the true diminution of value of the Rutland Square townhouse caused by the granting of the easement.

Lest Gordo and Lorna get too elated, Judge Boudin gives them a thorn: “When the Kaufmans donated the easement, their home was already subject to South End Landmark District rules that severely restrict the alterations that property owners can make to the exteriors of historic buildings in the neighborhood. These rules provide that ‘[a]ll proposed changes or alterations’ to ‘all elements of [the] facade, . . . the front yard . . . and the portions of roofs that are visible from public streets’ will be ‘subject to review by the local landmark district commission. S. End Landmark Dist., Standards and Criteria 2 (rev. Apr. 27, 1999).

“Under the Standards and Criteria, property owners of South End buildings have an obligation to retain and repair the original steps, stairs, railings, balustrades, balconies, entryways, transoms, sidelights, exterior walls, windows, roofs, and front-yard fences (along with certain ‘other features’); and, when the damaged elements are beyond repair, property owners may only replace them with elements that look like the originals. Id. at 2-6. Given these pre-existing legal obligations the Tax Court might well find on remand that the Kaufmans’ easement was worth little or nothing.” Decision, at pp. 21-22.

And the substantial understatement due to overvaluation penalties remain, says Judge Boudin, “(I)f taxpayers still do not get the message….” Decision, at p. 25.

 And You Can Get a Bigger Deduction

That’s the story of David Brian Smith, T.C. Sum. Op. 2012-71, filed 7/18/12, “just sayin’”.

Dave invented an electric back-washer that attached by suction to shower stall walls, for the benefit of  “only the lonely” who had no one to wash their backs for them. These unfortunates were at risk of dislocating shoulders, etc., in the pursuit of cleanliness. Dave diligently pursued his invention, working in his friend’s workshop and driving his own truck only on business. But Dave was stymied twice by the weight of the necessary electric motor, which made his device more useful for scrubbing ankles as it crashed to the shower stall floor.

Finally, like Dustin Hoffman, in the classic “The Graduate”, he found the magic word–“Plastics”. He hired an expert and paid his expenses to check out plastic injection moldings for a lightweight version of his idea.

Dave was diligent and active and tried hard. Finally, he discovered that, while an all-plastic version would do the job, he hadn’t the capital to bring his dream to fruition, and so the Great Unwashed must remain so–at least as to their backs.

IRS nails Dave for a couple of non-reportings, not at issue here, that result in $2700 in additional tax. IRS doesn’t question Dave’s $5600 Schedule C manufacturing loss and neither does Tax Court.

But post-petition (Tax Court petition, that is), Dave files a 1040X claiming additional Schedule C manufacturing deductions, and proffers documents to substantiate same. IRS tells Dave to go scrub his back, they won’t wash, and they’re not buying his documents.

But Judge Gerber decides Dave’s documents will wash. “Respondent (IRS) did not question whether petitioner (Dave) was engaged in a business activity or whether he was entitled to a loss. We therefore limit our inquiry to whether petitioner has shown entitlement to deduct amounts in excess of those he originally reported. After reviewing petitioner’s documentary evidence and testimony we have concluded that petitioner is entitled to deduct amounts in excess of those originally claimed. At trial petitioner provided documentation and testimony that supported amounts in excess of the amounts respondent permitted. The documents presented in Court were likely the same as or similar to those presented during the administrative process. The difference is that petitioner was able to provide documentation for expenses which, in the aggregate, exceeded the amounts respondent allowed.” T.C. Sum. Op. 2012-71, at pp. 5-6. (Footnote omitted).

Dave doesn’t get the Section 179 deduction he claims, and his cellphone documentation fails the Section 274 test. So he only gets another $2900 of deductions, rather than the $7900 he was claiming.

But he did get something, so it’s off to a Rule 155 powwow for Dave.

Takeaway–Even if you can’t substantiate at audit, keep looking for paper. It might turn up in the wash.

Another scenic easement case, not involving a façade but rather woodland wild, Gayle O. Averyt and Margaret F. Averyt, et al., T. C. Memo. 2012-198, filed 7/16/12.

Gayle and Maggie and the “al”s, via their LLC, gave about 1070 acres of wet South Carolina to the Wetlands America Trust,  Inc., a wholly-owned 501(c)(3) sub of Ducks Unlimited, Inc., via an easement to keep same forever wild and ducky.

The deed of gift (or easement) was drafted by someone who bothered to read Section 170(f)(8), the $250 misunderstanding provision. Here’s how a habendum clause should be drafted: “NOW, THEREFORE, the Grantor, in consideration of the foregoing recitations and of the mutual covenants, terms, conditions and restrictions hereinunder set forth and as an absolute and unconditional gift, subject to all matters of record, does hereby freely give, grant, bargain, donate and convey unto the Grantee, and its successors and assigns, the Easement over the Protected Property subject to the covenants, conditions and restrictions hereinafter set forth which will run with the land and burden the Protected Property in perpetuity.” T. C. Memo. 2012-198, at p. 4. And both the LLC and Wetlands signed the deed.

Of course, neither Wetlands nor Ducks give any of the LLC, or Gayle, or Maggie, or any of the “al”s the usual “no goods or services furnished in exchange” letter required by Section 170(f)(8)(a). The LLC passed the deduction for the easement on to Gayle, Maggie and the “al”s, and avoided TEFRA since the LLC was treated as a small partnership (under ten members, no pass-through members). And the FMV of the easement doesn’t seem to be an issue in this Rule 121 summary judgment case.

The letters Wetlands sent are indeed held defective, but Gayle and Maggie argue that the deed does the deed, and they don’t need no stinkin’ letters.

Judge Wells: “Respondent (IRS) contends that the instant case is more analogous to Schrimsher v. Commissioner, T.C. Memo. 2011-71, in which the Court held that the taxpayers’ contribution of a conservation easement was not deductible because the taxpayers did not receive a contemporaneous written acknowledgment from the donee organization. In Schrimsher, the deed recited as consideration ‘the sum of TEN DOLLARS, plus other good and valuable consideration’. Because that deed included no description and good faith estimate of the value of the ‘other good and valuable consideration’, the Court concluded that it failed to satisfy section 170(f)(8)(B)(ii) and (iii). However, we conclude that the instant case is distinguishable from Schrimsher because the conservation deed in the instant case states that the contribution of the conservation easement is made “in consideration of the foregoing recitations and of the mutual covenants, terms, conditions, and restrictions hereinunder set forth”, which include recitations of the property’s conservation value but include no consideration of any value besides the preservation of the property, states that the easement is an “absolute and unconditional gift”, and provides that the conservation deed constitutes the entire agreement between the parties regarding the contribution of the conservation easement. Accordingly, we reject respondent’s argument.” T. C. Memo. 2012-198, at pp. 13-14.

Barring the neologism “hereinunder”, an obvious conflation (or should I say “smoosh”?) of the words “herein” and “hereunder”, this is how to draft a deed.

Note to dirt lawyers: Please don’t use boilerplate printed real estate forms for making a conservation easement. The old “ten dollars and other good and valuable consideration” bargain and sale deed form, available at dime-store prices, might be good enough for a routine single-family house sale, but not for a big-time transaction with heavy-duty tax deductions on the table. Read the IRC; draft your language with great care. Have both grantor and grantee sign the deed. Use a proper integration clause. And remember Schrimsher, where somebody’s lawyer used a dime-store form and blew up their client.

One law dictionary defines “cumulative evidence” as “(F)acts or information that proves what has previously been established by other information concerning the same issue.” Another equates cumulative evidence with corroborative evidence, but the term “cumulative evidence” more commonly, and more properly, means unnecessary evidence, proffered to prove what is already adequately established.

So maybe Larry J. Roberts, T. C. Memo. 2012-197, filed 7/16/12, is cumulative evidence for my oft-reiterated point that merely being admitted to practice as an attorney is an insufficient qualification for admission to practice before Tax Court. See my blogposts “A Book and a Modest Proposal”, 5/22/12, and “Another Argument”, 6/7/12.

Larry represents himself, and Judge Wherry writes the opinion. “Petitioner is an appellate lawyer who failed to file Federal income tax returns for the 2004 through 2007 tax years.” T. C Memo. 2012-197, at p 3. Not an encouraging start, and it doesn’t get better.

Judge Wherry says IRS “audited” those returns, but how IRS could do so if they were never filed eludes me. Shouldn’t IRS have issued SFRs? Howbeit, deficiencies are issued, Larry petitions Tax Court, and the trial gets continued when Larry does file the missing returns in 2011 (so what did IRS audit, Judge Wherry?).

Apparently IRS buys Larry’s belated returns for 2004 and 2006, but 2005 and 2007 are still disputed.

Larry leads with his chin. “Petitioner seems to argue that he believes the period of limitations for assessment for each of the tax years at issue has expired. He did not file his tax returns until after the initiation of the case before the Court, on the eve of the first calendaring of trial. ‘In the case of failure to file a return, the tax may be assessed, or a proceeding in court for the collection of such tax may be begun without assessment, at any time.’ Sec. 6501(c)(3). The statute of limitations does not bar this case.” 2012 T. C. Memo. 197, at p. 6. Yet ol’ Larry could be automatically admitted to practice before Tax Court, right?

IRS and Larry have the usual Schedule C deductions jump-ball, but Larry submits neither receipts, nor account ledgers, nor travel logs, so what IRS allows him is all he gets. Plus, at no extra cost, he gets from Judge Wherry the usual INDOPCO-Section 274 lecture. Larry testifies on the trial: “I prepared my claimed deductions by going and finding my check registers for those years, going through the check registers where I routinely note what the check was for and make a check mark on it if I think that it’s possibly a business expenses.” T. C. Memo. 2012-197, at p. 11.

But Judge Wherry will have none of it. “Petitioner did not present the check registers at trial, nor did he present any documentary evidence to substantiate any of the claimed expense deductions.” T. C. Memo. 2012-197, at pp. 11-12 (Footnote omitted).

Finally, Larry is fighting over his cost basis for a property he sold in 2005. Give him credit for ingenuity, if not a clear and distinct perception of the IRC. “Petitioner also made a novel argument not based in the Internal Revenue Code, that the basis should be the fair market value on the date that he converted it to a rental property. Although property that has been converted from personal use to an income-producing use and sold for a loss will have the basis of the lesser of the fair market value at the time of conversion or the adjusted cost basis, sec. 1.165- 9(b), Income Tax Regs., there is no corresponding regulation for a property sold at a gain; and even if this regulation applied to the property, the lesser basis amount is petitioner’s adjusted cost basis.” T.C. Memo. 2012-197, at p. 8, footnote 3.

Sorry, Judge Whelan. I told you that attorneys should take the Tax Court admissions exam like everybody else. This is an idea whose time has come years ago.

“He who tells too much truth is sure to be hanged.” G. B. Shaw

This is the lesson taught to Deputy Tina Aginaga of the Oakland County (MI) Sheriff’s Department by Judge Laro in Scott M. Eriksen, et al., T.C. Memo. 2012-194, filed 7/12/12. Tina is one of the “al”s.

Tina was one of a group of deputies, hereinafter the “al”s, all of whom had their tax returns prepared by Jim Kern or his successor Curt Redinger. Jim was an EA and Curt was a CPA, and both of them were rogues. They specialized in preparing tax returns for officers of the law, inventing deductions and ignoring unsubstantiated expenses. They also failed to find out if any of the deductible expenses they claimed for their clients were non-deductible because reimbursable.

Ultimately the forces of righteousness catch up with Jim and Curt, and CID nails them both for Section 7206(2) aiding and abetting false returns.

Judge Laro: “During his plea allocution Mr. Kern stated that not all returns he prepared were fraudulent. Upon further questioning from the District Court on that point, Mr. Kern represented that of the 1,900 or so tax returns that he prepared annually, between 30 and 40 were false. He also maintained that the IRS was, in some instances, challenging legitimate deductions.

“As part of his criminal plea agreement, Mr. Redinger agreed to disclose to the IRS false and fraudulent Federal tax returns that he and Mr. Kern prepared. In furtherance thereof, on November 25, 2008, Mr. Redinger submitted to a revenue agent in respondent’s civil division a partial list of clients for whom he and Mr. Kern prepared false tax returns for 1999, 2000, and/or 2001. Petitioners were not included in that summary, and the record is not clear as to whether Mr. Kern or Mr. Redinger provided a more comprehensive list to CID at another time. Nor is the record clear as to whether Mr. Kern agreed to cooperate with the IRS or whether he participated in preparing Mr. Redinger’s list.” T.C. Memo. 2012-194, at pp. 11-12.

IRS gets Jim and Curt’s client list and starts pulling returns for audit. But the three-year statute of limitations has run, so IRS claims fraud. But the “al”s claim no fraud, so the statute has run.

There are two elements to establishing fraud: first, an understatement of tax, and second, an intent to deceive. “Clear and convincing” is the degree of proof, and the burden is on the IRS.

All the “al”s, Tina included, stipulated that, if the statute of limitations wasn’t a bar, they agree to the deficiencies IRS asserted in the returns Jim and Curt prepared. But IRS can’t bootstrap that stipulation into an admission of fraud; IRS still has to show clear and convincing evidence of an intent to deceive.

IRS is prepared to trot out 150 guardians of the peace to prove that Jim and Curt were rogues and plunderers of the fisc. OK, says Judge Laro, but that doesn’t mean that the “al”s in this case had fraudulent intent.

All the “al”s testified on the trial. Judge Laro said this about the testimony of all the “al”s, except  Tina: “We found this testimony general, vague, and perhaps coordinated, yet respondent did not examine Deputy Eriksen, Hardin, or Kesselring to such a degree as to destroy his credibility. As to claimed deductions for weapons, ammunition, protective equipment, and professional subscriptions, respondent did not offer evidence that Deputies Eriksen, Hardin, and Kesselring did not purchase such items. Such an allegation might have been easily proven by, for example, introducing bank records, credit card statements, and/or gun records as to whether each deputy petitioner purchased the claimed items. See 18 U.S.C. sec. 923(g)(1)(A) (2012) (requiring firearms dealers to maintain records of firearms sales ). Respondent introduced no such evidence.” T.C. Memo. 2012-194, at p. 29.

Merely because the “al”s didn’t contest the deficiencies doesn’t mean they committed fraud. All that does is raise a suspicion, and that doesn’t get it. So IRS’ trial counsel didn’t net all the fish they sought, but Tina was out there alone.

“Respondent [IRS] asserts, and we agree, that Deputy Aginaga testified honestly and credibly. Her testimony, however, serves as the direct evidence that each of her returns for 1999 through 2002 was false and fraudulent. Deputy Aginaga’s trial testimony establishes that she ‘never’ purchased a gun or ammunition during any year at issue and that she explained as much to Mr. Kern. Deputy Aginaga’s statements on brief are consistent on this point in that she stated that ‘she did not actually purchase a gun or ammunition during the years at issue.’ Yet each return claimed as an unreimbursed employee expense deduction amounts for weapons and ammunition. By Deputy Aginaga’s admission, therefore, each of her returns at issue contained false or fraudulent deductions for a weapon and ammunition. We regard Deputy Aginaga’s admissions as direct evidence of Mr. Kern’s willingness to commit fraud with intent to evade tax as it relates to each of her returns.

“When viewed against the other indicia of fraud exhibited by Mr. Kern, the preparer who prepared each of Deputy Aginaga’s returns, we are convinced that each of Deputy Aginaga’s returns at issue was false or fraudulent.” T. C. Memo. 2012-194, at pp. 31-32.

Of course, if IRS establishes one part of one return was fraudulent, then they’re all fraudulent, and the statute of limitations is open indefinitely. So Tina’s stipulation that if fraud is shown, the deficiencies are valid notwithstanding the statute of limitations, gets her hooked. And of course she gets the accuracy penalties, as she credibly testifies she didn’t review her return before signing and filing.

No need to cross-examine a witness skillfully when she sticks her head in the noose for you.

That’s Judge Kroupa’s lesson for Brookie Ashland, CEO of Cutler & Co., LLC, which checked the box as a partnership. The case is Stephan F. Brennan and Beth A. Brennan, T. C. Memo. 2012-187, filed 7/9/12, but Steph and Beth are consolidated with Brookie and Melvin W.

Cutler ran stock portfolios, and allegedly made a huge guaranteed payment to Melvin W. and another to Furey (a partner who bailed out and settled with IRS pre-trial), which resulted in a big loss pass-through to the Cutler partners. Meanwhile, Brookie and Melvin W. had created Airport Plaza, a partnership, to which Brookie and Steph contributed their membership interests in Cutler. So Airport Plaza was a partner of Cutler for tax purposes.

Brookie and Melvin W. take big loss carryforwards and carrybacks, as do Steph and Beth, but IRS blows up the whole deal. Brookie, Melvin W., Steph and Beth all petition, but admit that neither Melvin W. nor Furey ever got the guaranteed payments.

IRS moves in mid-trial to dismiss for lack of jurisdiction, as the issue of the pass-through loss from Cutler to Airport Plaza to Steph and Brookie are TEFRA (partnership) items, not individual items, and that the statute of limitations has run on TEFRA adjustments to Cutler for both IRS and Brookie.

After briefing and trial, Judge Kroupa bounces the whole case.

Subject-matter jurisdiction is critical, and can be raised at any time by any party or by the Court itself; it cannot be waived, because it goes to the heart of whether the Court has the right to decide anything.

And here, says Judge Kroupa, there is no right. Brookie claims that Cutler is exempt from TEFRA as a small partnership. “The parties’ dispute over Cutler’s TEFRA status centers around whether Cutler qualified for the small partnership exception to TEFRA. See sec. 6231(a)(1)(B). The small partnership exception exempts certain partnerships with 10 or fewer partners from the provisions of TEFRA on an annual basis. Id. The small partnership exception does not apply to a partnership for a taxable year if any partner in the partnership during that taxable year is a ‘pass-thru’ partner as defined in section 6231(a)(9). A ‘pass-thru partner’ means a partnership, estate, trust, S corporation, nominee or other similar person through whom other persons hold an interest in the partnership. Sec. 6231(a)(9).” T.C. Memo. 2012-187, at pp. 8-9.

So we come to Airport Plaza (AP). Was AP a partner in Cutler? If so, no small partnership exception to TEFRA, and Brookie is out.

AP was supposed to dissolve by its own terms the year before the big loss, except it didn’t. It was still executing documents during the year at issue. Even if it was winding down in that year, it was still a partnership until all assets were distributed and all activity ended.

Brookie claims AP wasn’t a real partnership, but that gets nowhere. She created AP, and signed AP’s tax return (a Form 1065). Judge Kroupa: “A taxpayer is free to conduct business through a variety of business organizations. Once a business form is chosen and reported on a return, however, the taxpayer bears the risk that its chosen form is valid for Federal tax purposes. The Court of Appeals for the Ninth Circuit has held the Commissioner may bind a taxpayer to an adopted business form that the taxpayer represents as valid. This rule holds true even if the adopted business form in substance is invalid for tax purposes. The rule exists because to permit taxpayers to challenge at will their own adopted form in favor of what they assert is actually the true substance would encourage post-transactional planning, promote unwarranted litigation by taxpayers, and raise a heavy administrative burden on the Government, including substantial problems of proof.

“We shall not allow the Ashlands to disavow Airport Plaza’s validity as a partnership for tax purposes under the circumstances.” T. C. Memo. 2012-187, at pp. 11-12 (Citations omitted.)

Takeaway–You choose it, you’re stuck with it.

Or At Least No More Than 25 Questions

So says IRS, unless it’s to do with the deficiency specifically or to advance the Tax Court case. General objections to taxing authority do neither. So STJ Panuthos issues a protective order in favor of IRS in Nia Karan Young, Docket No. 1284-12. You can’t quote this, of course, but it’s an example of how interrogatories and requests for admission should be served and filed. And there were no decisions out of Tax Court today.

Nia’s request for admissions, she said,  “focused on the legitimate legal issue of how the statutes of the IRC actually make an identifiable declaration that a specific person or group of persons are plainly and clearly made LIABILE [sic] for the payment of the tax at issue”. Order, at p. 1. She also asked that she be permitted to reduce her list of interrogatories.

Take it away, STJ Panuthos: “Rule 90(b), Tax Court Rules of Practice and Procedure, requires that a party making a request for admissions ‘shall simultaneously serve a copy thereof on the other party and file the original with proof of service with the Court.’ Petitioner in this case has failed to file her original request for admissions with the Court as of the date of this order. Furthermore, the requests are generally directed at the Federal government’s authority to tax and do not appear to advance the development of the case.

“Petitioner’s interrogatories to respondent exceed 25 questions according to Rule 71(a), Tax Court Rules of Practice and Procedure. Additionally, pursuant to Rule 70(a)(2), petitioner served petitioner’s interrogatories to respondent before the expiration of 30 days after joinder of issue. See Rule 38, Tax Court Rules of Practice and Procedure. Furthermore, the interrogatories are not simple questions such as those contemplated by Rule 71 and are generally directed at the Federal Government’s taxing authority. See, e.g., Roat v. Commissioner, 847 F.2d 1379, 1382-1383 (9th Cir. 1988) (upholding this Court’s granting of a protective order against discovery where the taxpayers propounded interrogatories, dealing mainly with the Government’s authority to tax, to which a response would have been ‘onerous and pointless’, and made no effort to consult informally).” Order, at p. 1.

STJ Panuthos warns Nia than any more of these shenanigans will result in a Section 6673(a)(1) hit to her wallet.

Takeaway- If questions arise, try informally. And if all else fails, follow the rules.

It’s a many-times-told tale for the tax practitioners, but it’s news to Yoron D. Israel, in the eponymous T. C. Memo. 2012-185, filed 7/5/12.

Yoron and Mrs. Yoron parted ways, with Yoron getting the dependents’ exemptions for their three kids in odd-numbered years for the child support he paid–and paid–and paid. But what didn’t Yoron get (no prize for the correct answer)?

A properly completed and signed Form 8332; or a written declaration with the necessary information (wife’s SSAN, agreement not to claim dependents’ exemptions, and specific years to which the foregoing applies), that’s what.

Yoron attaches a copy of the divorce decree to his return for the year at issue, but it’s unsigned by the former Mrs. Yoron, and even though Yoron pursues her through the courts of Massachusetts (his home) and Arizona (whither she flees), he gets nada, as they say in Arizona.

Yoron tells his sad tale at a CDP, because he doesn’t file a petition when he gets the SNOD. He has entered into an installment agreement, but wants to contest his liability.

Judge Cohen could blow Yoron off with a simple “you’re too late to contest your liability, IRS wasn’t arbitrary or capricious, so have a nice day”.

But Judge Cohen is a softie, and anyway “(B)ecause petitioner’s efforts have been consistent and in good faith, we believe he is entitled to an explanation of why those exemptions were disallowed. So far as the record reflects, he has not been given an adequate explanation.”  T. C. Mem. 2012-185, at pp. 4-5.

Of course we know the answer. No Form 8332 or equivalent means no exemption, where taxpayer can’t establish child(ren) lived with taxpayer more than half the year. And Yoron admits they didn’t.

So Judge Cohen gives Yoron the bad news: “As unfair as it may seem to petitioner, the statute, regulations, and numerous cases subsequent to Miller v. Commissioner, 114 T.C. at 187-189, compel the conclusion that his former wife’s failure to execute the required declaration defeats his claim to the exemptions for 2007. See Santana v. Commissioner, T.C. Memo. 2012-49; Nixon v. Commissioner, T.C. Memo. 2011-249; Briscoe v. Commissioner, T.C. Memo. 2011-165; Himes v. Commissioner, T.C. Memo. 2010-97; Gessic v. Commissioner, T.C. Memo. 2010-88; Thomas v. Commissioner, T.C. Memo. 2010-11. T.C. Memo. 2012-185, at p. 8.

I blogposted Nixon, “Kicking Richard Nixon,” 10/5/11, and Briscoe, “Supported Child, Unsupported Exemption” , 7/11/11. And Judge Holmes’ goalline save in Gary L. Scalone and Sandra Vieira Scalone, 2012 T. C. Sum. Op. 40, filed 5/2/12, a Section 7463 “don’t quote me” (see my blogpost “Get the Years Right”, 5/2/12) doesn’t help, because there the wife signed Gary’s decree, and Mrs. Yoron didn’t.

Bottom line–Divorce lawyers, one of these cases is going to result in a professional liability claim if you don’t get duplicate original Forms 8332, filled in and signed by adversary spouse, before you enter the final decree, and make sure your client attaches one to the first return where the client claims the exemptions. Keep the duplicate originals in case IRS loses one. Or if the adversary spouse refuses to provide signed Form 8332, warn your client in writing.

So that taxpayers might be more completely confused and misled. Or perhaps I missed something: is it not the aim of our system of taxation to confuse and mislead taxpayers so as to deprive them of whatever rights Chief Justice Roberts will still allow to them?

No decisions out of Tax Court today, so here’s an order from Chief Judge Thornton, Michele A. & Ray V. Vunovich, Docket No. 6493-12, filed 7/3/12.

Mich and Ray got a SNOD, and filed their petition with Tax Court 100 days later; of course that’s a no-no, as the magic number is ninety (90) days, per statute. The section 7502 savings clause says timely mailed is timely filed, but must be properly addressed.

Here’s Mich and Ray’s story, as told by Chief Judge Thornton: “’The paperwork sent to us by the IRS included a self addressed envelope with the IRS address on it. Since the paperwork was a notice to us about our right to appeal their determination, it seemed obvious that any response we had was to be directed to the address on the envelope.

“’That is why we sent our appeal to that address. And when we were notified that we sent it to the wrong address, we promptly forwarded it to the proper address.’

“Consistent with petitioners’ representations, the record herein reflects that the petition was initially addressed and sent by certified mail to the ‘Internal Revenue Service, Kansas City Appeals Office’ in Kansas City, Missouri, on February 28, 2012. The materials likewise show that the petition was received by that office on February 29, 2012. It was then returned to petitioners and resent by them to the Tax Court, with the original envelope included.

“Thus, petitioners’ objection and other documents in the record show that, after receiving the notice of deficiency, petitioners continued to communicate with the IRS.” Order, at p. 2.

Doesn’t help; Chief Judge Thornton again: “Even confusing IRS responses or correspondence during the administrative process cannot override the clearly stated deadline in the statutory notice of deficiency. Such confusion is not uncommon given that the IRS frequently treats as separate processes or proceedings what taxpayers view as a single dispute. Here, it appears that petitioners may have conflated this Court with an IRS unit, but the IRS is a completely separate and independent entity from the Tax Court. Similarly, the inclusion of an pre-addressed envelope directed to the IRS, while understandably confusing, is likely explained by the fact that a notice of deficiency provides taxpayers with several options, some of which occur administratively between the taxpayer and the IRS (such as submitting a waiver rather than contesting the deficiency before the Tax Court).” Order, at p. 2.

How unrepresented, pro se litigants are supposed to know this, when I am prepared to wager that a large proportion of the attorneys admitted to practice law  in any jurisdiction wherein the Tax Court sits (and who are presumably eligible for automatic admission to Tax Court) haven’t a clue, is nowhere explained.

Short answer: Mich and Ray are out, their petition is filed too late, misleading information from IRS to the contrary notwithstanding. But if the correspondence from IRS contains numerous options, might it not be well to state in plain English: “If you want to go to Tax Court, which is not part of the IRS so don’t write to us, file your petition with them at 400 Second St NW Washington DC, nowhere else, within 90 days. If you don’t, you’re out!”?

National Taxpayer Advocate Olson, please copy.

In the modification of a divorce decree, that’s where, according to Judge Marvel, in a Section 7463 “don’t quote me”, James P. Chiavacci and Joyce L. Chiavacci, 2012 T.C. Sum. Op. 63, filed 7/2/12.

Jim and Leigh parted ways years ago. Jim asked for a modification of alimony awarded in the judgment of divorce (which expressly stated alimony ended with death or remarriage). Leigh said no, but the divorce court judge said “talk among yourselves”, so they negotiated a $20,000 buyout.

Unfortunately, Jim’s lawyer just sent Leigh’s lawyer the bank check from Jim, and asked Leigh’s lawyer to draft up something for the divorce court that the alimony portion of the judgment of divorce was modified. Jim’s lawyer also represented Jim in Tax Court.

Judge Marvel: “…the district court entered an order amending the divorce judgment (amending order). The amending order contains the following statement: ‘By agreement of the parties, Spousal Support is terminated effective September 2, 2007. In all other respects, the Divorce Judgment dated January 10, 1994, as amended on August 31, 2001, remains in full force and effect.’ The amending order makes no reference to Mr. Chiavacci’s $20,000 payment to Ms. Charles.” 2012 T.C. Sum. Op. 63, at p. 5.

That sinks Jim. The $20,000 payment is a debt from Jim to Leigh, not alimony any more. By terminating the entire alimony obligation, the “death or remarriage” clause was also terminated, and under State law (Maine in this case), while alimony terminates with death, debts don’t. That Leigh was alive when she got the check “mox nix”, as we old Army types say, “don’t matter”.

Divorce lawyers, please don’t forget to add the words “this obligation terminates with death” to every document, every letter, every modification. I don’t name Jim’s lawyer, because I’m sure Jim will make him suffer enough.