Long-time readers of this my blog will recollect that I have often in the past exulted or lamented about readership in “strands afar remote.” Cases in point: long-running pleas for Bolivian recognition, and delight when Eswatini swam into my ken.

So when no fewer than five (count ’em, five) readers from Laos, the first from that country, showed up one day last week I was readying a celebratory post.

Until.

Watching YouTube videos randomly for my weekend amusement, I struck another ad for a VPN service, which I routinely ignore. My ultra-hip readers know these are Virtual Private Networks, that hide and disguise the user’s location and data by means of intricate server jiggery-pokery, so that one sitting at one’s computer in Brooklyn, New York, appears to the world at large as if ensconced in a cave in Waziristan.

Whereupon, the penny dropped. At last.

I have no way of knowing how many of the hits I’ve enjoyed are utterly bogus. At least some, probably many, conceivably most.

So much for WordPress’ vaunted “Countries” list, and my “frantic boast and foolish word,” as the Man from Mumbai put it. Goodbye to all that.

Estate of Sally J. Anenberg, Donor, Deceased, Steven B. Anenberg, Executor and Special Administrator, 162 T.C. 9, filed 5/20/24, plays a variation on the Unsinkable Virginia V. Kite. For the story of Virginia V., see my blogpost “Transferred Part Means Transferred All,” 10/25/13.

Before Sally became the late Sally, the canny trustee of her late husband’s QTIPs, stepson Steve, got Sally and the remaindermen to agree to terminate the trusts under CA law, whereby vesting in Sally all the shares of the C Corp she and late husband owned. Then Sally sold said shares to the remaindermen in exchange for nine-year, AFR-interest bearing, secured and partly-guaranteed promissory notes with face value equal to FMV of shares.

IRS wants summary J that termination of trust was a transfer by Sally without consideration, therefore gift taxable, per Section 2519.

No, says Judge Emin (“Eminent”) Toro, and so say all the Tax Court bench.

QTIPs are an exception to an exception to an exception, 162 T. C. 9, at p. 9. For the marital estate tax deduction, property must vest in surviving spouse on death of first to die. If less than 100% vests, deduction limited to what does vest. But if a qualified terminable income interest in property (QTIP) vests in survivor, entire worth of property is deductible if executor so elects, even if remainder goes to others. See Section 2056(b)(7)(B). The idea is that the married individuals are a unit, so estate tax falls upon second to die. And any disposition of the QTIP income interest by survivor is a disposition of the entire QTIP property, thus triggering potential gift tax. Estate tax and gift tax are pari materia, operating together.

IRS claims Sally made a gift of the property, either when she consented to termination of the QTIP trusts and got the C Corp stock, or when she sold the stock for the notes.

“In the Estate’s view, the … transactions, taken together, amount to no more than a permissible conversion of Sally’s qualifying income interest for life in the QTIP into an equivalent interest in other property. Under the applicable regulations, the Estate says, such conversions are not a disposition under section 2519. And in the alternative, the Estate argues, even if there was a disposition when Sally received the Trust’s assets or later sold the shares, no gift tax is due because Sally did not make a gift. Instead, Sally received full and adequate consideration for the property she was deemed to transfer.” 162 T. C. 9, at p. 13.

Judge Eminent agrees with the Estate.

The termination wasn’t a gift, as Sally swapped her interest in the trusts for the stock itself. Thus no diminution of Sally’s taxable estate. There was no remainder, and no control over the stock, that she gave away.

As for the sale of the stock for the notes, that happened after the QTIP trusts terminated, hence Section 2519, which sank the Unsinkable Virginia V., was no longer in play.

“It is axiomatic that a surviving spouse must hold a qualifying income interest for life to implicate section 2519. Such a property interest is defined by the Code and exists only when the surviving spouse is entitled to all income from the property, payable annually or more frequently, or has a usufruct interest for life in the property, and no person (including the surviving spouse) has the power to appoint any part of the property to any person other than the surviving spouse (unless such power is exercisable only after the death of the surviving spouse). See I.R.C. § 2056(b)(7)(B)(ii); Treas. Reg. § 20.2056(b)-7(d)(1). When the [CA] Superior Court terminated the Marital Trusts, the property interest Sally received was outright ownership of the [C Corp] shares, not an income interest. And because the Marital Trusts terminated, the property interest Sally received was unencumbered by any restrictions that were placed on it while it was in the Trusts, including restrictions that would have limited distributions to individuals other than Sally. For these reasons, Sally no longer held a qualifying income interest for life as defined by section 2056(b)(7)(B)(ii). Consequently, her sale of the Al-Sal shares for promissory notes could not trigger section 2519.” 162 T. C. 9, at p. 19. (Footnotes omitted).

The Unsinkable Virginia V.’s advisers were trying too hard. The annuity deal she got was a real Bialystok (named after the famous Producer), guaranteed to crater, so Virginia V.’s estate would get nothing. Here, however, IRS did not urge form-over-substance, because Sally got the stock.

All IRS’ arguments depended upon the trust property leaving the surviving spouse’s hands. Here it didn’t.

Taishoff says, note this is partial summary J for stepson Steve. The worth of the notes Sally owned at date of her death remains to be determined.

But however this ultimately plays out, a Taishoff “Good Job, First Class,” goes to the late Sally’s trusty attorneys.

Douglas D. McGinty, Docket No. 25152-21L, filed 5/17/24, reprises the  classic advertising jingle of America’s first consumer installment lender, but Judge Cary Douglas Pugh finds Douglas has missed the mark, Order, at p. 3. footnote 3.

Douglas first suggested an OIC or IA in his Form 12153, but never ponied up the Form 433-A and back-ups. My sophisticated readers have already moved on; failure to paper your CDP is a dead loser.

And so it is here. Douglas claims he needs more time to get a loan to pay off his tax bill in full, as COVID and Hurricane Ida have hampered his efforts. Judge Pugh says mox nix; no papers means NOD is sustained.

The Order doesn’t specify what sort of loan Douglas was seeking, as it’s immaterial in this context, but I note that AFR may be cheaper than HFC or its brethren.

Translated from the language of textonics, shaking my head yet again. Mark G. Strom, T. C. Memo. 2024-58, filed 5/16/24, MD and MBA, with an illustrious resumé and eight-figure net worth, laments that he has run up an 83 (or maybe 84) million dollar tax bill (chops and interest included) fighting over wife Bernee’s $100 million stock options that went poof with dot.com. T. C. Memo. 2024-58, at p. 61.

Tough, says Judge Gale. “It may be the case that the Stroms do not have the means to pay the entire tax liability. However, that is not the proper inquiry. Rather, the question before the Court is whether, after paying his reasonable living expenses, Dr. Strom can pay any portion of the joint tax liability for 2000.” T. C. Memo. 2024-58, at p. 62.

Dr. Strom wants innocent spousery. But he knew all about the stock options (ignorance of tax consequences doesn’t count, as that would be ignorance of the law, the ultimate nonstarter) and the warnings from high-priced counsel that, at best, he had “reasonable basis” for the position he and Bernee reported on their 8275 (the “please audit me” form). “Reasonable basis” may spare some chops, at best.

But the e-mails, the draft documents, the proceedings in USDCWDWA and appeal to 9 Cir (who really socked it to Dr. Strom), the untangling of bank statements, the catalogue of Saint Lucia international business corporations and AK asset-protection trusts, all set forth in extenso by Judge Gale in 75 (count ’em, 75) pages, makes me wonder why Dr. Strom kept fighting for 20 years while the interest clock kept ticking.

Even his own experts told him it was an uphill fight.

Every strategy but an exit strategy.

I’ve heretofore acknowledged the brilliant job the trusty attorney for Sarah S. O’Nan, T. C. Memo. 2024-57, filed 5/15/24, whom I’ll call Louie, did for his young, widowed and broke client, getting her back the $123K IRS took from the proceeds of sale of the OH marital domicile. See my blogpost “Relief = Refund,” 9/18/23.

IRS did beat Louie when STJ Peter (“HB”) Panuthos determined the date whereon arose the lien for late spouse’s unpaid taxes, from which Sarah got innocent spousery. See my blogpost “Love Is Strong As Death,” 6/18/20.

But Louie’s settlement offers omitted the magic number Section 7430, and the magic words “qualified offer.” Even worse, the tax liability at issue wasn’t Sarah’s (she was innocent), so Section 7430(c)(4)(E) says no legals or admins for Louie or Sarah. Even were that not so, Louie’s brilliant equitable argument was a case of first impression, so IRS was justified because Louie was the first to raise the point that, when innocent spousery prevails after a lien arises, the lien secures only what the innocent spouse owes.

Judge Elizabeth A. (“Tex”) Copeland has the bad news for Louie and Sarah, which you’ll have to read for yourself, since the Genius Baristas posted it in a PDF which prohibits dragging-and-dropping.

You can win a case with brilliant strategy (not putting in the mortgage note where it might hurt your client) and a winning original argument (innocent spousery after the lien arises means only what the innocent owes is subject to the lien), and IRS still wins.

Bummer.

I had thought Rule 41(a) prohibited embedding a proposed amendment to a pleading within the motion for leave to amend. But here is Ch J Kathleen (“TBS = The Big Shillelagh”) Kerrigan apparently hewing an exception for the trusty attorney for Frederick W. Gruber & Ellen N. Gruber, Docket No. 3891-24, filed 5/14/24, whom I’ll call AJ.

AJ filed an amended petition today, approximately three (count ’em, three) weeks after IRS answered. As we all know, Rule 41 (a) says once a responsive pleading has been filed, amendment of one’s previous pleading is permissive, not as-of-right. Moreover, AJ didn’t move separately, but just filed his amendment.

Ch J TBS, generous, gives AJ same-day service.

“…petitioner’s First Amendment to Petition is recharacterized as petitioner’s Motion for Leave to File First Amendment to Petition (Embodying First Amendment to Petition).” Order, at p. 1.

Even better, “…petitioner’s just-referenced Motion for Leave is granted nunc pro tunc as of May 14, 2024, and the First Amendment to Petition is hereby filed as of such date.” Order, at p. 1. Apparently IRS doesn’t care.

Except.

When IRS does, Judge Travis A. (“Tag”) Greaves is willing to listen. See Amgen Inc. & Subsidiaries, Docket No. 15631-22, filed 5/14/24.

“Respondent does not allege that the amendment will cause unfair surprise or prejudice. Instead, he argues that the amendment does not sufficiently set forth the grounds on which petitioner disputes the alternative penalties. Petitioner’s amendment provides fair notice that it plans to contest all of the penalties and the basis for the challenge. Thus, we are satisfied that petitioner’s amendment sufficiently complies with our Rules. Therefore, we will grant petitioner’s Motion for Leave to File First Amendment to Petition.” Order, at p. 1.

And Amgen’s trusty attorneys, all 20 (count ’em, 20) of them, followed the Rule, and lodged their proposed amendment simultaneously with filing their motion.

Taishoff says isn’t it time for Ch J TBS to adopt our NY system, where we embed our proposed amended pleadings within our motions for leave, at least where we have sophisticated litigants and attorneys? I can see not snow-blinding the hapless self-represented with embedded motions for leave, but I can’t think either OCC or Amgen’s trusty and blindingly white-shod attorneys, much less Judge Tag Greaves or Ch J TBS, are unable to deal with the motion as embedded with their exemplary ability.

Delta Investments, Inc., Docket No. 15731-23L, filed 5/13/24, avoids summary J sustaining a NOD on the NFTL IRS slapped it with for five (count ’em, five) years’ worth of FICA/FUTA.

Judge Elizabeth A. (“Tex”) Copeland isn’t convinced that DI’s in-house counsel (who didn’t enter appearance in this case, a good strategic move; he can then testify without the automatic exclusion Tax Court applies to attorneys for parties, despite the explicit language of ABA Model Rule 3.7(a)(3)).

IRS claims in-house counsel folded contesting liability at the CDP, after having raised it in the petition.

“In its Petition DI contends that ‘[a]t the time of the appeal’ it believed that certain of its tax liabilities had been paid. Respondent interprets DI’s statement to refer only to its request for a CDP hearing. We do not agree with Respondent’s interpretation. Claims in a petition ‘should be broadly construed so as to do substantial justice’ and a petition filed by a pro se litigant, as is the case here, ‘should be liberally construed.’ We interpret DI’s statement to mean that it challenged the underlying liability not only in the CDP hearing request but during the hearing itself. The administrative record does not support AO C’s assertion in the notice of determination that DI abandoned its challenge to the underlying liability. We conclude, based on discrepancies in the administrative record, that there is a genuine dispute as to whether DI properly challenged the underlying liability during the CDP hearing and whether AO C improperly refused to consider the issue. Summary judgment is therefore not appropriate in this case.” Order, at p. 7. (Name and citation omitted).

There’s also an apparent mix-up on the date the lien was filed and the date notice thereof was given.

And DI’s sole stockholder signed the petition as president of DI.

Takeaway- If counsel is going to be involved, note DI’s in-house counsel’s strategic move, for which he gets a Taishoff “Good Job, First Class, with Oak Leaf Cluster”. Maybe best for another officer of a corporation to appear and sign pleadings. And maybe consider this for other types of Tax Court litigation.

On the desk of Judge Joseph Robert (“JR”) Goeke stops the bucks sired by Heart Attack, “the biggest buck they [Dr. Gary M. Schwarz, co-star of Gary M. Schwarz and Marlee Schwarz, T. C. Memo. 2024-55, filed 5/13/24] had ever seen,” T. C. Memo. 2024-55, at p. 12.  Also nilgai, oryxes, and blackbuck, bass (both Florida and hybrid), and crested cormorants.

Dr. Gary ran a bunch ecotourism and hunt-for-fee operations, as well as real estate wheeling-dealing. So this is a goofy regulation case, except here the goofy regulation is Reg. Section 1.183-1(d)(1).

Dr. Gary can’t prove that the real estate appreciation he hopes will offset the seven-figure operating losses generated by his self-leasing operation. Hyping the lease rent makes ordinary losses in one entity out of passive gains to another.

His trusty CPA never asked for, nor saw, the leases, and, when he was showed them on the trial, claimed the appreciation should have been shown as gain each year, rather than at termination, when the improvements paid for by Dr. Gary’s operation belonged to the landlord. But the trusty CPA is good enough to get Dr., Gary off the 20% five-and-ten chops.

If you want to know how to run a TX ranch ecotourism business, Judge JR will tell you in exhaustive (if not exhausting) detail, 117 (count ’em, 117) pages’ worth, just as Judge Ruwe told us about how the Boston Bruins do a road trip (see my blogpost “Feed Those Bears,” 6/26/17), but looking at how the Bruins are doing just now, they would have better stayed at home). Who says tax law is dull?

Those my nearest and dearest (hi, Judge Holmes) who actually own a TX ranch should take a look.

But don’t do it like Dr. Gary.

“Many facts stipulated, alleged, argued, testified about, and otherwise presented to the Court in this case are, or appear to be, incorrect or misleading. The parties’ work occasionally reflected an uninspired attitude toward developing, trying, and briefing this case. As a result, many potentially relevant facts and arguments were undeveloped, ignored, misrepresented, and/or missed.” T. C. Memo. 2024-55, at p. 7.

And Judge JR is not about to seek Judge David Gustafson’s title as Obliging Jurist by trying their case for them.

“High up in the North in the land called Svithjod, there stands a rock. It is a hundred miles high and a hundred miles wide. Once every thousand years a little bird comes to this rock to sharpen its beak.

“When the rock has thus been worn away, then a single day of eternity will have gone by.” Hendrik van Loon, The Story of Mankind, 1921.

So one more little beak-slap at the side of The Rock of Svithjod at 400 Second Street, NW.

I have wearied my readers (these few, these happy few) before now with my reiterated recommendations for the improvement of the United States Tax Court, its operations and practices. I have regretted, and still regret, the necessity, but when I encounter such as Richard W. Medley, Docket No. 13611-22, filed 5/10/24, I again must suggest that Tax Court needs, and must have, some form of aid for the self-represented, whether an office for the self-represented, like the USDCs, or clerks or law secretaries deployed therefor.

I don’t have the latest statistics on the proportion of self-represented Tax Court petitioners, and I don’t know that Ch. Clk. Jeane and his subordinates keep any.* But a quick scan of any day’s docket shows a larger percentage of Tax Court pro ses than most, if not all, other Federal courts.

Mr. Medley wants STJ Adam B. (“Sport”) Landy to order IRS counsel and his own ex-counsel (who apparently bailed last year) to turn over files. Except ex-counsel “… stated to the Court that he returned to Mr. Medley ‘all materials (both hard copy and digital) Mr. Medley provided to Barnes Law at the outset of representation.’ Mr. Medley has not disputed receipt of these materials.” Order, at p. 2, footnote 2. So, since Mr. Medley tried neither informal nor formal discovery requests, his motion for discovery is tossed.

Mr. Medley also wants STJ Sport Landy to let him onto DAWSON to amend his petition and his reply to IRS’ answer, for which he’s already late. You can read STJ Sport Landy’s response for yourself at Order, p. 2. Spoiler alert- It’s strictly DIY.

Why judges and STJs need to be bothered with such stuff eludes me.

Now I know the urge to help is strong in Tax Court Judges and STJs. By way of illustration of the foregoing (as my high-priced colleagues would say), here’s Judge Christian N. (“Speedy”) Weiler testifying before the Senate Finance Committee in support of his appointment to the Tax Court Bench: “By my father’s example, he has shown me how to treat others with respect and kindness in all matters. My father has also shown me the importance of listening to my clients’ problems and how to work alongside them to help guide them to a resolution of their legal issue.” Opening Statement of Christian Weiler Nominee to be a Judge of the United States Tax Court, Senate Committee on Finance, July 21, 2020.

Far be it from me to disparage in the slightest Judge Speedy Weiler’s ideals, which all judges should embrace, or the assiduous practice thereof.

But might not a wise old clerk, or the equivalent of one of our State judges’ law secretaries, serve the same administrative function, guiding the perplexed and sparing both litigant and judge from the delay inherent in an overloaded docket? There are thousands of unnecessary orders issued to resolve problems that a phonecall (not The Phone Call), or a quick exchange of e-mails, with such a non-judicial assistant could solve. And expanding the Tax Court law secretaries’ role in this way could make that position even better training for whatever future path they follow.

I submit that at least part of the purported leisurely Tax Court atmosphere is caused by the dissipation of scarce judicial resources in administration. And it can be solved.

*Edited to add, 5/10/24: In point of fact, the hard laboring intake clerks and flailing date stampers in the fifty-year-old House That Vic Built do keep such statistics, among their other arduous labors. A tip of my battered Stetson to Sarah Silfies Finken, Esq., Administrative and Case Services Counsel, now serving as what we used to call an “acting jack”, an appointment without a rank, in Public Affairs, for turning me onto Page 21 of the FY2025 Congressional Budget Justification, wherein it is written “(I)n FY2023, taxpayers were self-represented (pro se) in 77 percent of the cases filed.” Jibes completely with what I thought; I doubt the number has changed since I started this blog. 

Once again, Judge Christian N. (“Speedy”) Weiler referees a discovery face-off between IRS and Carl B. Barney, Docket No. 5310-22, filed 5/8/24, with IRS looking for privilege wherever they can find it. You’ll find some backstory in my blogpost “A Retrieved Deposition,” 3/5/24. And if you’re a fan of unscrambling frittatas, Judge Speedy Weiler reprises Carl’s give-and-go with his for-profit colleges, and why Carl wants to bail from his Section 453 installment sale election, Order, at pp. 2-3.

As part of the bail, Carl filed three (count ’em, three) 1040-Xs, one for each year at issue. But before IRS could bounce them and hit Carl with a SNOD, IRS had to get an OK from the Joint Committee on Taxation (JCT), Congress’ uber-guru on taxation.

Much of the Order deals with IRS’ responses to Carl’s trusty attorneys’ last round of objections to what IRS claimed was privileged, which is the deliberative privilege of the Executive Branch and the client-attorney commonlaw privilege. Judge Speedy Weiler has the Cliff Notes in the Order, at p. 5.

But of course Carl’s trusty attorneys demand production of the Joint Committee stuff, to which IRS ripostes with US Const. Art. I, §6, cl. 1: “[F]or any Speech or Debate in either House [Senators and Representatives] shall not be questioned in any other Place.”

“The privilege is rooted in the separation-of-powers doctrine. Its ‘”central role” . . . is to “prevent intimidation of legislators by the Executive and accountability before a hostile judiciary.’” Eastland v. United States Servicemen’s Fund, 421 U.S. 491, 502 (1975). The Supreme Court has held that the Speech and Debate Clause provides ‘protection against civil as well as criminal actions, and against actions brought by private individuals as well as those initiated by the Executive Branch.’ Id. Legislators acting within the sphere of legitimate legislative activity ‘should be protected not only from the consequences of litigation’s results but also from the burden of defending themselves.’ Dombrowski v. Eastland, 387 U.S. 82, 85 (1967).

“In determining whether particular activities other than literal speech or debate fall within the ‘legitimate legislative sphere’ we are to look at whether the activities took place ‘in a session of the House by one of its members in relation to the business before it.’ See Kilbourn v. Thompson, 103 U.S. 168, 204 (1880). To that end, we must determine whether the activities are ‘an integral part of the deliberative and communicative processes by which Members participate in committee and House proceedings with respect to the consideration and passage or rejection of proposed legislation or with respect to other matters which the Constitution places within the jurisdiction of either House.’ Gravel v. United States, 408 U.S. 606, 625 (1972).” Order, at p. 6.

Judge Speedy Weiler’s biographical sketch doesn’t state whether he was on law review at Loyola of New Orleans, but if he wasn’t, he should have been. 

IRS flunks most of the privilege claims.

“There also remains the significant issue of whether the asserted speech and debate privilege extends beyond members of Congress or delegated congressional staff to include staff of the JCT. While we refrain from deciding the issue (which appears to be one of first impression), we are not inclined to extend the privilege beyond a member of Congress or his or her delegated congressional staff. Gravel, 408 U.S. at 625–28. In any event, respondent’s possession of the JCT documents may constitute a waiver of the congressional privilege. For example, while respondent has withheld a letter from JCT Chief of Staff Thomas Barthold to former IRS Commissioner Charles Rettig, it is unclear whether Mr. Barthold sent the letter at the behest of a committee member and why this letter remains privileged as it was sent to a member of the executive branch.” Order, at p. 8.

Anyway, IRS’ privilege log is “…incomplete or at a minimum too vague to determine whether a privilege applies. We do not accept respondent’s contention that ‘providing any additional information about the documents would reveal information subject to the asserted privilege;’ since we fail to see how disclosing the sender, recipient, date, or subject matter would otherwise disclose the underlying information within the document.” Order, at p. 8.

So Carl’s motion is granted in part, denied in part, and anyway without prejudice. Emphasis by the Court, and cheers from discovery geeks everywhere.