Paul M. Daugerdas, Docket No. 7350-20L, filed 10/9/24, is back, still broke and fighting IRS’ NFTL and NITL for the multi-hundred million in criminal restitution USDCSDNY handed him. For the backstory, see my blogpost “Restitution Meets Destitution,” 1/10/22.*

Appeals muddled the supplemental CDP, issuing two (count ’em, two) NODs, one sustaining the levy and the other rejecting it. Judge Goeke is positively kind to Appeals, given that the SO misrepresented facts to OCC. Transcript, at p. 12.

Howbeit, OCC’s response to the SO’s request for guidance contains almost no factual analysis and provides almost no advice of a factual nature. Transcript, at p.13.

Paul wants summary J, and he goes one for three. The NFTL protects the fisc in case Paul strikes it rich, despite his presently alleged indigency.

The levy goes down, because all IRS is seeking is to grab the house Paul deeded to his spouse before he went down in USDCSDNY. Judge Goeke teaches IRS a lesson in nominee liens. If IRS claims that the spouse is a mere nominee because Paul runs the whole show, it’s basically a rerun of the voidable transaction rules: transfer for little or no consideration, possibility of heavy-duty liabilities of transferor, close relationship of transferor-transferee, and unrecorded conveyance (but recordation counts for little, because the parties can easily manipulate that).

OK, suppose Paul and spouse check all the boxes. Judge Goeke says to IRS, serve spouse with NITL; serving Paul with an NITL serves no purpose, as he is not in title. Go duke it out with spouse, who deserves a chance to assert whatever rights she may have.

As for Paul’s desire for an IA that tracks the USDCSDNY restitution payout order, IRS isn’t bound by the USDCSDNY order. Moreover, in this case all Paul has is Social Security, and there’s no evidence in the record of his living expenses, so there’s nothing on which to base an installment payout.

* https://taishofflaw.com/2022/01/10/restitution-meets-destitution/

I was about to skip Monique E. Franco, T.C. Sum. Op. 2024-21, filed 10/8/24, exhausted by Judge Patrick J. (“Scholar Pat”) Urda’s monumental opinion in Beasley this date. But in the interest of completeness, I thought I’d mention Monique’s case as an example of a two-time loser in the innocent spousery stakes becoming a three-time loser.

So I could take a flippant, cheap shot, and close out my blogging day.

In fairness, though, I have to consider another angle, although Monique’s trusty attorney had to play the Michael Corleone gambit, classical variation. Almost no substantiation, and contradictory testimony from Monique on the trial.

If in fact there is a codependent abusive relationship here, Monique may well be unable to act in her own behalf, and is seeking help, not playing games. Unhappily, Tax Court is not the place to solve that problem.

If the title first hereinabove set forth at the head hereof (as my paid-by-the-word colleagues would say) are incomprehensible gibberish to you, just read Judge Patrick J. (“Scholar Pat”) Urda’s disquisition on kaolin mining in J L Minerals, LLC, Beasley Timber Management, LLC, Tax Matters Partner, T. C. Memo. 2024-93, filed 10/8/24.

You will learn much about the mining, processing, buying, leasing, selling, and blunging of that useful clay, the greatest source of which is found in that very same GA Dixieland Boondockery which in turn is the launchpad of “a cover to fleece the public fisc” (T. C. Memo. 2024-93, at p. 69), the Section 170(h) conservation easement.

Judge Scholar Pat notes the parties have rounded up “some of the usual suspects in this Court: (1) whether JL Minerals had donative intent; (2) whether the contribution was made “exclusively for conservation purposes,” see I.R.C. § 170(h)(1)(C), (4), (5)(A);1 and (3) whether JL Minerals obtained a qualified appraisal by a qualified appraiser, see I.R.C. § 170(f)(11)(D) and (E). Although JL Minerals scrapes by each of these requirements, we find that the deduction amount was an outrageous overstatement. Given that the value claimed on JL Minerals’s tax return ($16,745,000) exceeded the correct amount ($93,690) by more than 200%, JL Minerals is also liable for the 40% gross misstatement penalty, see I.R.C. § 6662(a) and (h).” T. C. Memo. 2024-93, at p.3.

Y’all will find Judge Scholar Pat cites all the cases I’ve blogged over the years in extenso, and then some. Out trot our old chums the willing buyer and willing seller, each armed cap-à-pié with all information and free of all compulsion, to establish that none would make a deal on the terms posited by Beasley and their cottage-industry experts.

Finally, industry experts put paid to the whole show, but Scholar Pat has to seal some of their trade secret testimony.

You will definitely learn more about kaolin than you wanted to know from this opinion, including but not in any way in limitation of the generality of the foregoing that “blunging” is the process of liquefying clay into a slurry that can by pumped through a pipeline to a processing plant.

As to farblundgeit, it is an arcane technical term meaning utterly confused, disoriented. As I was when I finished reading.

Candidates for the next Slaughter of the Innocents, s/a/k/a The US Tax Court Admission Examination, should take heed of Judge Christian N. (“Speedy”) Weiler’s exegesis anent FRE 801(d)(2), statements of opposing party. We classically trained types call those “admissions against interest.”

Remember, hearsay is inadmissible. Hearsay is a statement offered for the truth thereof in support of a party’s position, made by someone not present in the courtroom (hence not subject to cross-examination, the “greatest legal engine ever invented for the discovery of truth.”). But FRE 801 has some exceptions. Oh, where would we lawyers be without exceptions?

“Statements made by an opposing party are not hearsay. Fed. R. Evid. 801(d)(2).

“As relevant here, Fed. R. Evid. 801(d)(2)(A) provides that a party’s own statement (made in an individual or representative capacity) is not hearsay if offered against that person by the opposing party.” Order, at pp. 1-2.

The case is Otay Project LP, Oriole Management LLC, Tax Matters Partner, Docket No. 6819-20, filed 10/7/24, and of course it’s a tiered-partnerships TEFRA special.

Are the people at the bottom (or top) of the tiers opposing parties?

Under the now-superseded TEFRA régime, “Section 6231(a)(2) defined ‘partner’ to include direct partners in the partnership and ‘any other person whose income tax liability under subtitle A is determined in whole or in part by taking into account directly or indirectly partnership items of the partnership.’ The term ‘indirect partner’ means a person holding interest in a partnership through one or more passthrough partners. I.R.C. § 6231(a)(10). Therefore, both direct and indirect partners of the partnership are considered ‘parties’ in a TEFRA case.” Order, at p. 2. (Footnote omitted but read it; it’s a quick-take on what is an opposing party’s statement.)

So any partner of a partner is an opposing party when the IRS comes calling. Remember, you can be a partner without knowing you are a partner; see Section 7701(a)(2): if you’re doing business with anyone else, for tax purposes you’re their partner, whatever your local laws may say.

Taishoff says, while Judge Speedy Weiler adverts to local (CA) law to check the authority of partners to represent the partnership (Order, at pp. 2-3), don’t count on State law when you want a box-checked LLC to give you cover when non-managing members shoot their mouths off, even under post-TEFRA learning (of which there isn’t any). Of course, argue the point if your local LLC law restricts authority to bind the LLC to the managers, but even then the individual members are on their own.

Here, the Otays are left to argue relevancy or materiality. While their trusty attorneys have done well so far, they face an uphill here.

As always, loose lips sink ships.

Man the rail and summon the band and sideboys! Let the boatswains sound their calls! Ch J Kathleen (“TBS = The Big Shillelagh”) Kerrigan receives on the Tax Court Bench two (count ’em, two) new Judges, impressively credentialed and sure to strew before us somber reasoning and copious citation of precedent for all occasions.

So let’s welcome Judge Jeffrey S. (“Schwer”) Arbeit and Judge Benjamin A. (“Trey”) Guider III.*

*https://ustaxcourt.gov/resources/press/10042024.pdf

Cold print, especially word-processor-generated print, cannot begin to express the depth of contempt and summary dismissal conveyed by the somewhat-arcane phrase first set forth at the head hereof (as my expensive colleagues would say). It was Grandma’s way of blowing off one who held himself (it was always “himself” in those days) out as an expert, but was in fact a poseur, a mere smatterer, unworthy of the slightest consideration.

Andrew P. Mattson & Lindsey J. Mattson, Docket No, 6501-20, filed 10/4/24, were caught up in the Pine Ridge hush-hush Aussie outback kerfuffle. For the backstory, see my blogpost “Pine Ridge – Case Closed,” 11/20/23*. Among the cases therein cited is that of Cory Smith, who appealed the toss of his case to DC Cir.

That appeal caused Judge Ronald L. (“Ingenuity”) Buch to put Andy’s & Lindsey’s motion for reconsideration on hold, pending outcome of said appeal. But Cory’s former attorney pulled out, and his successor moved to withdraw the appeal.

Judge Ingenuity Buch tells us why, and why the other outback spies-in-the-sky might wish to bail.

“Counsel confirmed that the positions argued in Smith’s briefing, which are also advanced in several cases pending before the Tax Court, were proposed to Smith by John Anthony Castro, a tax preparer recently convicted of 33 counts of federal tax fraud.” Order, at p. 1.

Looks like Mr. Castro “marketed himself to U.S. taxpayers around the world, including by ‘claiming to be an expert on certain tax issues related to Australian ex-pats,’ and advised clients to take nonexistent exclusions based on his interpretation of tax treaties between the United States and Australia).” Order, at p. 2.

Cory Smith disavows the bogus assertions he got from Mr. Castro, and says he only appealed because he promised to pay Mr. Castro half the refund he got from the US fisc if he won. Looks like Mr. Castro didn’t care much for the law or regulations.

Motion for reconsideration denied.

* https://taishofflaw.com/2023/11/20/pine-ridge-case-closed/

We’ve all been there, shivering bleary-eyed through the big test after the all-nighter. James Michael Warren, T. C. Sum. Op. 2024-20, filed 10/3/24, must know the feeling. He set up what was to be a group home. I’ll defer to Judge Adam B. (“Sport”) Landy to recount the story.

John, an engineer with Lockheed Martin, set up “an assisted living facility to provide professional caregiver services. To that end, Mr. Warren purchased a single-family home (group home),,, near his residence….” T. C. Sum. Op. 2024-20, at p. 2. John didn’t include the $6K in rent he got, but did take a $41K deduction, claiming to be a Section 469(c)(7) real estate professional.

John didn’t have contemporaneous records.

“In preparation for trial, Mr. Warren created—and presented—two time logs. The first log maintained that Mr. Warren worked 1,421 hours at the group home; it was created one week before trial. The second log maintained that Mr. Warren worked 1,628 hours at the group home; it was created the night before trial. Mr. Warren testified that the second log contained corrected information derived from emails and other records he maintained. Some of the hours listed on Mr. Warren’s logs are supported by reference to emails, work permits, and invoices, but most remained unsupported beyond Mr. Warren’s testimony.”  T. C. Sum Op. 2024-20, at pp. 2-3.

Unfortunately, “Mr. Warren does not qualify as a real estate professional under section 469(c)(7)(B) because he worked fewer hours at the group home than he did at Lockheed. Mr. Warren’s employee status at Lockheed was personal service in a trade or business. Mr. Warren worked 1,913 hours at Lockheed, and his job duties did not involve real property activities. To meet the first requirement of the section 469(c)(7)(B) test, Mr. Warren needed to spend more than 1,900 hours working at the group home. Even if we accepted Mr. Warren’s second log as accurate, the total time spent on the group home totaled only 1,628 hours.” T. C. Sum. Op. 2024-20, at p. 4.

And the $25K active participation deduction phases out south of James’ AGI, per Section 469(i)(3).

Pulling an all-nighter only works if you pass the test.

Going for the record for the shortest full-dress T. C., Judge Goeke expends but five (count ’em, five) pages on John F. Carter, 163 T. C. 6, filed 10/3/24. John blew, got denied by the Ogden Sunseteers (“no dough, you go”), and then filed Chapter. IRS filed a claim for pre=Petition taxes in the bankruptcy proceeding, but John and IRS waited some fourteen (count ’em, fourteen) months to tell Tax Court.

John’s trusty attorney wants to invoke 11 USC §362(a)(8) to stay the review of the Section 7623 shootdown. While ordinarily one would ask what John’s back taxes had to do with his blowing, John blew on the counterparty to a deal he did, claiming the counterparty misreported the deal. So he claims IRS may have setoff of the ultimate reward against John’s taxes.

Judge Goeke says he don’t need no 11 USC 362(a)(8) stay, because 11 USC 362(a)(7) takes care of it.

The 2005 amendment to 11 USC 362(a)(8) expressly limits the automatic stay to matters “concerning the tax liability of a debtor who is an individual for a taxable period ending before the date of the order for relief.” 163 T. C. 6, at p. 3. That both John’s tax liability and his blowing claim arise out of the same deal doesn’t extend the stay, even if the record supported John’s assertions, which in this case it doesn’t. Anyway, pre-amendment Tax Court opinions said the same thing as the amendment.

Of course, Tax Court has no jurisdiction under Section 7623 to determine the blower’s own tax liability.

IRS also tried to stay the blow review pending the outcome of Lissack in DC Cir, but that was denied as moot.

Still and all, I’ll award a Taishoff “Good Try, Second Class” to John’s trusty attorney, Paul Michael Spizzirri, Esq.

STJ Peter J. (“HB”) Panuthos has six decades of top-class experience as attorney and STJ. But when I find STJ Panuthos confronted by such as Tonia L. Hartman, Docket 1713-24, filed 10/2/24, I am reminded of a line from Nobel Laureate R. A. Zimmerman: “Twenty years of schoolin’ and they put you on the day shift.”

It’s another all-zeros Form 1040. I understand the frustrations and anger; the present system is deeply flawed. But the cure is not effected by making a fruitless protest that only worsens your situation by invoking Section 6673, although STJ Panuthos spares the rod this time.

So STJ Panuthos, ostensibly avoiding “somber reasoning and copious citation of precedent” does exactly that. And at close of play, “… here the record demonstrates that, whether focusing on the invalidity of petitioner’s return reflecting zero income… or the computational amount of income omitted, the statute of limitations does not bar assessment of petitioner’s [year at issue] taxes.” Order, at p. 4. (Citations omitted).

Plus five-and-ten chop, of course.

But is a law review article by a distinguished attorney going to convince such as Tonia?

Ruben T. Varela, T. C. Memo. 2024-92, filed 10/1/24, filed an all-zeros return for year at issue, and settled with IRS for no tax due and no refund due. IRS did go for a $5K Section 6702 frivolous return penalty and seeks to levy to collect. Ruben petitions, and IRS seeks a Section 6673 frivolity penalty for that.

Judge Cary Douglas Pugh decides that Ruben filed a frivolous return, even if he didn’t owe anything. He did seek a refund of his FICA withholding, to which he stipulated he wasn’t entitled. He did avoid a Section 6702 chop for another year, which IRS had tacked on.

Judge Pugh holds that even though Ruben owes nothing, his all-zeros return is frivolous. Somber reasoning and copious citation of precedent supports her view. Ruben’s 1040-EZ was all-zeros, accompanied by the usual Forms 4852 purported correcters; it purports to be a return, didn’t contain information sufficient to show how to calculate tax due; and it shows a position identified as frivolous by IRS in Notice 2010-33, 2010-17 I.R.B. at 609, 611.*

So IRS can levy for the $5K.

But the Section 6673 chop doesn’t happen.

“We have seen no other case in which petitioner was warned against pursuing these types of arguments (nor did we warn him in this case before respondent’s Motion was filed). We decline to impose a section 6673 penalty at this time. We caution petitioner that a penalty may be imposed in future cases before this Court should he continue to pursue these misguided positions.” T. C. Memo. 2024-92, at p. 7.

Taishoff says a quick docket search shows that IRS sought a Section 6673 chop against Ruben T. Varela, Docket No. 16694-18L, 7/29/19, which ex-Ch J Michael B. (“Iron Mike”) Thornton denied as moot; the order doesn’t state that Ruben was warned.

* https://www.irs.gov/pub/irs-irbs/irb10-17.pdf