Sam Goldwyn said that of oral agreements, but it holds true for written agreements the party to be charged therewith never signed. So says Judge Elizabeth A. (“Tex”) Copeland to IRS in Tibor Gyarmati, Docket No. 33671-21, filed 6/7/24.

IRS thought they had a deal, and. moves for entry of decision. Tibor claims he can prove a higher basis for the property he sold, which is a heavy feature of the deficiency at issue. Tibor is a wee bit tardy coming up with the documents he claims supports his position, which IRS says they don’t.

Tibor won’t sign the proposed stipulated decision document (PSDD).

“The PSDD Respondent emailed to Mr. Gyarmati … can only be viewed as an offer of settlement. The parties never signed a settlement stipulation or other such document delineating the terms of the settlement. Respondent never received a signed executed copy of the PSDD and no such document was filed with this Court. There is not enough in the record indicating the accepted terms of settlement that Respondent wishes for us to enforce. While we do not condone Mr. Gyarmati’s late delivery of the Exhibits to Respondent and believe such documents require significant clarification by Mr. Gyarmati, we cannot enforce a settlement in this case. We will therefore deny Respondent’s Motion and allow the parties to provide evidence of the remaining issues for decision at the scheduled remote trial setting for this case.” Order, at p. 3.

Taishoff says the best way to effectuate a settlement is to tell the parties to go try the case. A review of the procedural history, for which read the order, shows that Judge Tex Copeland wisely eschews head-banging here; that train left. If petitioner won’t sign, let petitioner try the case. And IRS again finds that short-circuitry is not a cure-all.

Oleg Kolomiyets, T. C. Sum. Op. 2024-8, filed 6/6/24, gets reminded of the above-captioned truism by STJ Zachary S. (“Highrise”) Fried. While pulling down six figures as a full-time, commission-based loan processor, Oleg also ran Millhouse Advisors, a sole proprietorship engaged in real estate advisory services (nature of which unexplained).

Millhouse hemorrhaged cash, losing over $100K via Section 162 ordinarys-and-necessarys, according to Oleg’s Sched C. And Oleg has bank and credit card statements.

He doesn’t have “…separate books of account for Millhouse, nor did he maintain a bank account in the name of the business. Petitioner maintained a personal checking account with USAA Federal Savings Bank (USAA) and two credit card accounts with USAA.” T. C. Sum. Op. 2024-8, at p.2.

Unhappily, “According to petitioner, he is entitled to a deduction for one-half of the expenditures shown on the bank and credit card account statements. However, petitioner did not connect the expenditures shown on the bank and credit card statements to deductions for business expenses claimed on his return. Moreover, petitioner failed to explain how the items purchased related to, let alone were ordinary and necessary business expenses of, Millhouse or any other trade or business. Finally, petitioner presented no evidence that would satisfy the section 274(d) substantiation requirements for expenses related to car and truck expenses. It follows that petitioner is not entitled to deduct these expenses.” T. C. Sum. Op. 2024-8, at p. 4.

The Section 6662 five-and-ten understatement chop applies.

Takeaway- You won’t get a toaster any more, but some banks offer cash for a new business account if you use it. A good idea. And keep those books and records. A little time with elementary accounting software will save much grief. And tell ’em Oleg sent ya.

Laura Elizabeth Mann, Docket No. 9643-23S, filed 6/5/24, tells a tale of a series of fraudulent returns filed in her name by an accountant to STJ Peter (“HB”) Panuthos, but only one of those returns is at issue, and Ms. Mann filed no other for that year.

STJ Panuthos tells us nothing about the source of the deficiency, but I cannot think it can be anything but third-party reporting.

Howbeit, Ms. Mann admits the deficiency.

“In her pleadings as well as at trial, petitioner acknowledged that the omitted income determined by respondent was not reported on her [year at issue] tax return. Further, petitioner indicated that the deficiency of $5,508 for [year at issue] was correct. However, petitioner contends that the filed [year at issue] return was not authorized to be filed by her, and that an accountant improperly and ‘fraudulently’ filed a return on her behalf. Petitioner also contends that the situation was similar for tax years [Year Minus Six] through [Year Minus One], in that returns were ‘fraudulently’ filed on her behalf.” Transcript, at p. 4.

IRS points out that none of the other “fraudulent” returns resulted in a deficiency.

It’s a most puzzling tale, but STJ Panuthos tells us nothing more, except that the out years are beyond his jurisdiction.

Deficiency confirmed, chops conceded.

We’ve all gotten the e-mails, ostensibly from a friend: “it’s my son’s/daughter’s birthday, and I need to buy him/her something and I’ve lost my wallet. Buy a $100 gift card from X retailer and send me the numbers. I’ll pay you back.” Of course, your friend’s e-mail addressbook has been hacked, and this is a scam: you’ll never see the money again.

Ian D. Smith, T. C. Memo. 2024-65, filed 6/4/24, blows the whistle on corporate skullduggery of this type. Target furnishes services to customers, who pay with “gift certificates” (this is an old case); target pays employees therewith, reporting neither income from said certificates nor paying FICA/FUTA/ITW thereon. What employees report is nowhere stated.

Ian has been here before, of course; see my blogposts “What Price Glory?” 6/7/17, and  “The Blower Remanded,” 4/23/20.

We know from the first of the cited blogposts that the “amount in dispute” is everything IRS claims from target, from whatever source derived, not just what the blower provided. This to clear the Section 7623(b) $2 million threshold for mandatory 15% – 30% award. But the blower’s payout is limited to IRS’ take from what the blower provided, not from what IRS otherwise turned up.

Judge Morrison reviews the administrative record line by line, and at close of play, Ian’s information only gets him 15% thereof, of which 5.7% is sequestered.

True, IRS already had target in crosshairs, but hadn’t yet pulled the trigger.

Taishoff says Congress needs to fix this. Blowers put lives, fortunes, and sacred honor on the line when they blow, and that’s no exaggeration, as caselaw has shown. Congress howls about government spending and wasted taxpayer money, but when it comes to collecting the revenue to pay for this, they’re parsimonious with resources and rewards. Time to reward people whose efforts yield big paydays adequately.

Alan Hamel and Estate of Suzanne Hamel, Deceased, Alan Hamel, Special Administrator, T. C. Memo. 2024-62, filed 6/3/24, are caught in two time warps, and neither one helps. Judge Christian N. (“Speedy”) Weiler explains.

Alan and the late Suzanne (before she became the late Suzanne) were caught up in a son-of-BOSS digital option dodge, Palm Canyon X, years ago. After Alan and Suzanne got a SNOD, IRS gave the partnership an FPAA which featured a bunch chops (hi, Judge Holmes). These were litigated in Tax Court fifteen (count ’em, fifteen) years ago and affirmed in DC Cir.

Judge Speedy Weiler determined that the 1997 amendments to Section 6221 made chops a partnership-level matter in FPAAs, whether same were merely computational or required individual fact-finding at partner level. No SNOD required, and no separate partner-level proceeding required. All this of course is pre-Bipartisan Budget Act of 2015, which leveled the levels post-1/1/18. Alan and the late Suzanne are bound by the old decision, which Tax Court cannot now alter.

But what about 3SOL? The SNOD here is well beyond, but IRS claims Alan and the late Suzanne were unidentified partners. They hadn’t furnished IRS with information required by Reg. Section 301.6229(e)-1T, and no incorporation by reference of other documents has any effect.  That IRS sent Alan and Suzanne an NBAP doesn’t mean they satisfied the identification requirements of the aforementioned Reg.

Alan’s and the late Suzanne’s arguments that IRS knew all along were defeated in Gaughf Props., LP. See my blogpost “A Busy Day,” 9/10/12.

So chops are off the menu, but deficiencies are definitely on.

Not Joseph Spiezio’s and Louise Spiezio’s, says Judge Christian N. (“Speedy”) Weiler, in the eponymous  T. C. Memo. 2024-64, filed 6/3/24. Joe’s LLC elected Sub S treatment, and later merged with another. While this was happening, Joe’s LLC acquired another outfit. That outfit was embroiled in a dispute with a multi-employer pension fund, which ended up in USDCSDNY. When the dust cleared, Joe’s LLC (of whose membership interests he was 100% owner) was hit with about $3.9 million in liabilities to the pension fund along with other players. Joe’s LLC alone was hit with $325K in addition, but Joe was not held individually liable. Subsequently, the pension fund went after Joe and others, but not his LLC, for unpaid liabilities in excess of $3 million; this they settled out for $2.8 million, and Joe personally signed confession of judgment for that.

Of course, Joe promptly filed Ch 11, and merged his LLC as aforementioned. The Bankruptcy Court let Joe and the merged entity off the pension fund hook for $2.3 million, which the merged entity raised by selling its assets and paying the $2.3 million out of proceeds.

Whether or not Joe’s LLC is disregarded for tax purposes, it still has an independent existence for everything else. Joe never claims NOL for the pension fund payout until he amends his returns for years at issue to carry back $3 million (or something, T. C. Memo. 2024-64, at p. 2).

IRS claims all-events test not satisfied in year for which NOL claimed, that the merged entity paid and not Joe or his now-non-existent LLC, and that Joe is estopped to argue that he was personally on the pension fund hook, as he argued otherwise in USDC and Bankruptcy Court.

Judge Speedy Weiler finds the survivor of the merger existed pre-merger and made all the payments. Whether Joe’s LLC was a disregarded or not, it paid nothing, and Joe’s confession of judgment means nothing because Joe paid nothing.

And even if Joe were entitled to an NOL, the payment giving rise thereto was established on the trial to have been after the year where a pension find payment could have been deducted. See Section 404(a)(6).

IRS has Boss Hossery buttoned up, but Joe claims good faith. IRS says Joe’s preparer was a disbarred attorney; so what, says Judge Speedy Weiler. That doesn’t make the preparer incompetent, and IRS didn’t prove he was. But Joe and Louise “are not permitted to ignore their obligation to ensure that their tax returns accurately reflected their income for the 2015 and 2016 tax years. Considering Mr. Spiezio’s legal education and business experience, coupled with the Spiezios’ knowledge of the prior IRS audits disallowing their earlier NOL carryforward, we cannot conclude that they relied on their tax preparer in good faith and that the incorrect returns resulted solely from their adviser’s own errors.” T. C. Memo. 2024-64, at p. 11. Joe was a St. John’s (Queens County) graduate and a graduate of City University of New York law school, and ran a couple businesses (hi, Judge Holmes).

Leave to amend is liberally granted, provided no prejudice or unfair surprise. But when IRS seeks to amend its amended answer to inject the anti-abuse provisions of Reg. Section 1.460-4(k)(4) into the scrimmage over their completed construction method of accounting, Otay Project LP, Oriole Management LLC, Tax Matters Partner, Docket No. 6819-20, filed 5/31/24, cries foul.

Otay has been here before, of course. They’ve got tiered partnerships and a huge (like $867 million) basis step-up; for backstory, see my blogposts “Speedy Is As Speedy Does,” 5/14/21, and “The Best Discovery,” 11/1/21. Otay’s trusty attorneys have given IRS a lot of trouble when they’ve sought to amend.

IRS was arguing economic substance, but wants to insert the anti-abuse provisions of Reg. Section 1.460-4(k)(4). Otay’s trusty attorneys yell IRS is wild-carding “a brand-new matter into this case more than three years since filing his amended answer by now challenging the CCM [Completed Contract Method] of tax accounting used by petitioner since its inception in year 1999, and only some five months prior to trial.” Order, at p. 4.

Judge Christian N. (“Speedy”) Weiler doesn’t care for IRS’ belated timing, but if five (count ’em, five) months before trial doesn’t give the Otays enough time for discovery, he’ll maybe give more.

“While not ideal timing, we cannot say that the First Amendment to the Amended Answer will create unfair surprise or prejudice to petitioner, should the Court grant respondent’s Motion for Leave to Amend. The issue seems to be a legal dispute, relating the application of the anti-abuse rule of Treas. Reg. § 1.460-4(k)(4) and the Partnership’s use of the CCM accounting method. We also accept respondent’s premise that evidence required to invoke the CCM anti-abuse rule is coextensive with the evidence required to test the economic substance of petitioner’s restructuring and/or the partnership anti-abuse rule of Treas. Reg. § 1.701-2(a). See Treas. Reg. §1.701-2(b)(3).” Order, at p. 4.

Note that in the second of my two above-referred-to blogposts, the Section 701 anti-abuse argument was raised.

Howbeit, “to negate the potential for prejudice – should petitioner need additional time to conduct discovery or a delay (in completion) of trial in light of respondent’s First Amendment, the Court is inclined to grant such a request, if made, by petitioner.” Order, at p. 5.

No, I’m not reporting on highly-publicized trials involving political figures. Today we get to the nitty-gritty, sand-and-gravel mining non-operations of Excelsior Aggregates, LLC, Big Escambia Ventures, LLC, Tax Matters Partner, et al., T. C. Memo. 2024-60, filed 5/30/24.

Dixieland Boondockery, of course, but here we have donations of the fee in the same year as deduction claimed, not merely an easement, so Judge Albert G. (“Scholar Al”) Lauber is able to adopt “(A) less nuanced analysis,” T. C. Memo. 2024-60, at p. 5, as the 501(c)(3) got the whole enchilada. 

To spare you suspense, in all three (count ’em, three) of these consolidated cases (by which the others in this 14-ring circus agreed to be bound), the appraisals were prepared by CW. But Judge Scholar Al had to try these cases in part because CW was unavailable. CW remains unavailable, because “the parties informed the Court that, if Mr. CW were called as a witness, he ‘is currently expected to invoke his Fifth Amendment privilege in these consolidated cases with respect to all matters.’ In a joint status report filed April 4, 2024, the parties represented that, ‘absent a grant of immunity, Mr. CW remains unavailable to testify.'” T. C. Memo. 2024-60, at p.4, footnote 4. (Name omitted). 

And the rest of the Big Scambies’ witnesses have a few wee problems.

“Some of petitioner’s fact witnesses were important players in the ‘syndicated conservation easement space,’ including the promoters who organized the transactions and helped market the deals to investors. Other witnesses had invested in easement deals or acted as professional advisers to the promoters. Many of these witnesses had a direct or indirect stake in the outcome of these cases. While generally showing good recall of many facts from the [relevant] period, they sometimes expressed inability to recall certain facts about matters that might be regarded as unhelpful to petitioner’s position. Because of these witnesses’ interest in the outcome and selective inability to recall pertinent facts, the Court has been required to make credibility determinations.” T. C. Memo. 2024-60, at pp. 5-6. (Footnote omitted, but it says that since the word “promoter” evokes Section 6700(a) dodgeflogger chops, Judge Scholar Al makes no determination thereof, as that isn’t before the Court).

If you’re interested in how to set up and flog a conservation easement dodge on Dixieland Boondocks, read T. C. Memo. 2024-60 from page 6 through page 16.

Then read this gem of trial testimony from a true promoter, a prime example of the mach gresser, mach veyniger school, not your father’s MAI.

“When asked at trial how he could have posited in advance a deduction-to-investment ratio of $4.389 to $1, before any appraisals had been performed, Mr. S said that appraisals were basically irrelevant to the tax write-off they were offering. The promised ratio of 4.389 to 1, he explained, was driven by ‘the market,’ that is, by the magnitude of the tax deductions being offered by other promoters of conservation easements.” T. C. Memo. 2024-60, at pp. 15-16. (Name omitted). And to get their numbers, the land would have to yield sand and gravel equal to the State’s entire production, so they subdivided the land and sold pieces to different syndicates of fewer sophisticates so as to conceal that their numbers were dodgy, duck SEC registration airspace, and make participation “more affordable.” T. C. Memo. 2024-60, at pp. 16-17.

So what the promoters bought for $9.5 million they claim was worth $177 million 13 months later. Yet CW’s numbers came out $4 million better.

IRS wheels out its experts. I won’t bore you with boreholes, burden you with overburden, discounted cash flow, preponderance-vs-BoP, willing buyer willing-seller, and the rest. And the claim that subdividing increased value, which might be true for residential development, is sunk by the above-referred-to trial testimony. The old-time Dixie mining fraternity testified this was true boondocks.

One of the Big Scambies’ experts did get the FMV of one property higher than IRS’ expert, so they get that one.

A colleague was one of counsel to the petitioners. Better luck next time.

Judge Emin (“Eminent”) Toro decides that whether the straight Rule 121 summary J review or the Van Bemmelen APA abuse-of-discretion standard applies, Suzanne Jean McCrory, T. C. Memo. 2024-61, filed 5/30/24 still loses, because her information didn’t help IRS clear the $200K/$2 million oxer.

The backstory is in my blogpost “Perseverance Furthers,” 8/1/23.

IRS does answer and raise the Section 7623(b)(5) jurisdictional defense to Suzanne’s mandatory award claim. Suzanne’s arguments are of no avail. IRS did get almost $180K from the last of the seven-claim torpedo-spread Suzanne sent in. One was examined with no change. IRS claims the information she provided on five was the usual “not specific, were not credible, or were speculative.” T. C. Memo. 2024-61, at p. 3.

The last hit whatever jackpot there was.

Since the administrative record supports the result, method of review doesn’t matter. Taishoff says since the test is what the IRS documented as doing, the nomenclature is unhelpful. Was money collected? Was the whistleblower’s information the procuring cause? Any no-proceeds case should be dealt with on a jurisdictional motion, post-Li. Mandatory cases likewise, if the $200K/$2 million issue is in play. And few, if any, cases go beyond that to abuse-of-discretion, whatever it’s called.

Here, Suzanne’s information was the procuring cause of the collection. But Section 7623(a)’s nonmonetary cutoff means any award is nonmandatory and nonreviewable. To get a mandatory 15% or better, you need $200K gross income for individuals and $2 million in dispute for all targets. And “in dispute” means what IRS asserted against target, not what blower claimed the target owes.

But Suzanne remains the leading contender for the first Fighting Joe Insinga Memorial Award.

Just hand it over and mark it for identification. That’s Judge Ronald L. (“Ingenuity”) Buch sorting out a Rule 91(f) joust between IRS and Intermountain Electronics, Inc., Docket No. 11019-19, filed 5/30/24.

The Electronics have 35 (count ’em, 35) stipulations of fact. Now we all know stipulations are “the bedrock of Tax Court practice,” in the sacred words of Branerton. IRS’ beef with 14 of them is that they mention exhibits not attached to said stips. IRS doesn’t claim the facts aren’t true, nor that they never saw what purports to be said exhibits (unattached).

Judge Ingenuity Buch heretofore told the parties to play nice, but it looks like Judge Buch was “unduly optimistic”, Order, at p. 3.

Briefly, IRS’ proposed text edits to the stips are rejected, because IRS didn’t cite “sources, reasons, or basis” for same, per Rule 91(f)(2).  And Rule 91(f)(1)(B) is disjunctive: either attach exhibits or make same available to the Court and other parties. “According to Intermountain, the Commissioner has had access to the referenced documents, and the Commissioner does not dispute having access. We will allow Intermountain to make the exhibits available to the Court.” Order, at p. 10. And let the Electronics mark same appropriately. Finally, IRS refuses to stipulate to headings. But headings are specifically stated in the stips to be for general identification, and to have no legal effect.

Now remember, kiddies, “(T)he stipulation process is intended to encourage the parties to voluntarily provide each other with information relevant to the case and to not cause extraordinary expenses, gamesmanship, or injustices.” Order, at p. 10. (Citations omitted.)

Stipulate, don’t prevaricate.