Ch J Kathleen (“TBS = The Big Shillelagh”) signed off 3/20/23 on ex-Ch J Maurice B. (“Mighty Mo”) Foley’s proposed Tax Court Rules amendments; included therein was new Rule 151.1, “Brief of an Amicus Curiae.” Said amended Rule, however, took effect only from and after 3/20/23. Wherefore, given the leisurely pace of Tax Court litigation, no post-Amendment exemplar has yet swum into our ken, to give practitioners a view of how the Tax Court Bench deals therewith.

But the fierce fighters of the Federal Tax Clinic at the Legal Services Center of Harvard Law School, ably captained by T. Keith Fogg, Esq., come charging in to assist Catherine L. LaRosa, Docket No. 10164-20, filed 3/26/24, proffering a pre-Amendment brief amicus. Judge Ronald L. (“Ingenuity”) Buch rejects same, and better yet, tells us why, setting forth the criteria that (I hope) will continue to apply when post-Amendment amici deglie amici offer to do judges favors.

Briefly, “(U)nder Fed. R. App. P. 29(b), an amicus must demonstrate ‘why an amicus brief is desirable and why the matters asserted are relevant to the disposition of the case.’ Under the D.C. District Court’s Local Rule 7(o), an amicus must demonstrate ‘why an amicus brief is desirable, why the movant’s position is not adequately represented by a party, and why the matters asserted are relevant to the disposition of the case.’” Order, at p. 2.

Except.

Neither of the rules cited are Tax Court Rules.

Except.

Pore l’il ol’ Tax Court didn’t have no Rule about briefs amicus before 3/20/23, and Cathy’s trusty attorneys (and man, are they trusty! See infra, as my expensive colleagues say) petitioned years before.

Except, when the Glasshouse cupboard is bare, Tax Court Judges shop locally.

“Where we don’t have rules of our own, we look to the Federal Rules of Civil Procedure and adapt them as appropriate. But the Federal Rules of Civil Procedure do not have a rule specific to the allowance of amicus briefs  In Erwin v. Commissioner, T.C. Memo. 1986-474, we noted our (then) absence of a rule regarding amicus briefs, and consistent with our Rule 1, we looked to the rules of other courts to fill the gap. We noted that amicus briefs are welcomed when they provide information and assistance to the Court beyond what the parties can provide. This may be for the purpose of making points a party is unable or unwilling to make or where the amicus is more knowledgeable than the parties.” Order, at p. 2. (Citation omitted).

And the comment to Rule 151.1 notes it is drawn from the two (count ’em, two) abovecited FRAP and USDCDC local rule.

Bottom line, “Although new Rule 151.1 is effective March 20, 2023, the standard articulated in that Rule is consistent with the Court’s precedent setting forth standards for when amicus briefs are desirable.” Order, at p. 2.

OK, so does the Fogg come in, whether or not on little cat feet?

Negatory, says Judge Ingenuity Buch.

“The issues presented by the Amicus are not helpful to the Court in resolving the narrow issue presented. The Amicus’s primary argument seems to rely on some sort of stare decisis by silence, implying that the Court should be controlled by its failure to address an issue that was not raised in a previous case. But principles such as stare decisis apply to issues actually presented and decided, and ‘drive-by jurisdictional rulings … have no precedential effect.’ The Amicus’s second argument merely posits a counterfactual where innocent spouse relief was sought before the chain of events that actually transpired occurred. But those are not the facts before us. Lastly, the Amicus quibbles with a statement in the Commissioner’s Memorandum, yet misses the point of the statement. The statement with which the Amicus takes issue is, ‘the Code did not permit respondent to assess the amount petitioner and Mr. LaRosa were ordered to repay, because that amount is not a tax liability.’ From this, the Amicus argues that the manner of collection is irrelevant. But that is not the Commissioner’s point. The Commissioner observes that the manner of collection sheds light on the question of whether the erroneous refund in this case is or is not a ‘tax liability.’” Order, at p. 2. (Citation omitted).

OK, but does Cathy need help? That’s a thrashing great negatory, good buddy, says Judge Buch, albeit a lot more elegantly than I.

“…Ms. LaRosa is ably represented in her case. The petition in this case was filed by Paul Butler and Caroline Ciraolo. Mr. Butler has gone on to become the Associate Chief Counsel (Procedure & Administration), heading up one of the largest divisions within the IRS Office of Chief Counsel. But Ms. Ciraolo continues to represent Ms. LaRosa. Ms. Ciraolo is a former Acting Assistant Attorney General of the U.S. Department of Justice’s Tax Division, an adjunct professor in the tax LL.M. program at Georgetown Law, a member and former President of the American College of Tax Counsel, and a former committee chair within the American Bar Association’s Section of Taxation. She has received innumerable accolades for her work and is well known within the tax profession.” Order, at pp. 2-3.

Although neither Mr. Butler nor Ms. Ciraolo went to Harvard, they are indeed trusty attorneys. The IRS OCC types definitely have a foe worthy of their steel.

That’s the story Rodney A. Taylor, T. C. Memo. 2024-23, filed 3/25/24, tells CSTJ Lewis (“Quite A Name”) Carluzzo. “According to petitioner, his successes in management consulting and other professional endeavors are attributable to his interpersonal skills. He claims to suffer from a learning disability with respect to mathematics, but he is otherwise competent to conduct his personal and business affairs. Throughout his professional career he delegated many business and sometimes personal financial responsibilities to employees and accountants….” T. C. Memo. 2024-23, at p. 2.

Despite this handicap, Rod runs a multimillion-dollar management consulting and executive search outfit (Company), of which he is CEO and sole shareholder. Unhappily, his less-than-trusty CPA takes a couple million (hi, Judge Holmes) from Company’s cookie jar without paying the FICA/FUTA/ITW Company owes. You can guess the rest.

Rod claims his mathematical ineptitude renders him an irresponsible person or officer for Section 6672 TFRPs. Notwithstanding, Rod keeps Company running while suing insurers and the defaulting CPA, collecting cash and not paying the FICA etc. Rod also claims IRS sent the notice of TFRPs to the wrong address.

“The essential question is whether the person had sufficient control over a taxpayer’s affairs to ensure the payment of the taxpayer’s employment taxes. The indicia of that control held by a responsible person include ‘the holding of corporate office, control over financial affairs, the authority to disburse corporate funds, stock ownership, and the ability to hire and fire employees.’ In considering an individual’s status, duty, and authority, the test is one of substance, and the focus of the inquiry does not involve a mechanical application of any particular list of factors. The inquiry must focus on actual authority to control, not on trivial duties.” T. C. Memo. 20240-23, at pp. 5-6. (Citations omitted).

It’s what could you do, not what did you do. Rod was the boss. He ran the show. He claims it’s the CPA’s fault, not his innumerate self. CSTJ Lew won’t wear it. “The focus, however, is on his authority to control Company’s obligations to pay its employment taxes, not on whether he personally took responsibility for that duty. Considering his position with Company and taking into account his decisions to disburse Company funds to pay for items other than Company’s employment tax liabilities, we find that petitioner was a person described in section 6672(a) for purposes of Company’s outstanding employment tax liabilities.” T. C. Memo. 2024-23, at p. 6. (Citation omitted).

As for the last-known address, that was the one on the updated Form 433-A Rod furnished to a RO. T. C. Memo. 2024-23, at p. 8.

Btw, Rod paid himself a $77K bonus from the settlement he got out of the defaulting CPA, while not paying the FICA etc. Bad idea.

OTOH, Kathleen M. Stegman, T. C. Memo. 2024-24, filed 3/25/24, certainly could handle numbers. Her problem is, she couldn’t bring herself to pay taxes on the numbers she and her corporation got. Kathleen went down in USDCDKS for tax fraud. It’s the usual fact-driven corporation-pays-personal-expenses, phony invoices, cash dealings, stiff-arming IRS at Exam, so I’ll spare you and me. The issue here is that the AUSA blew it, trying to pin the corporation’s taxes on Kathleen.

Judge Elizabeth Crewson Paris judge-‘splains: “… the federal district court acquitted Ms. Stegman of evasion of corporate tax on the grounds that the indictment and the jury instructions were flawed in attributing to Ms. Stegman the loss due and owing by the corporation. The prosecutors did not put on evidence to pierce the corporate veil, so the indictment and the jury instructions attributed the tax to the wrong legal person.” T. C. Memo. 2024-24, at p. 4.

No doubt that there was proof of tax evasion beyond a reasonable doubt on the trial; but the wrong person was charged in the indictment, raising Fifth Amendment issues. On appeal, 10 Cir. went over that in extenso.

So Kathleen gets hit only for her own stuff. I doubt the IRS will get much joy from the corp. Maybe try Section 6901 transferee?

Judge Patrick J. (“Scholar Pat”) Urda isn’t sure, so he won’t grant a Rule 103 protective order, stopping IRS from making informal discovery moves (demands? requests?) of various members (partners other than TMP) of Pauls Farm Properties, LLC, Eco Terra 2016 Fund, LLC, Tax Matters Partner, et al., Docket No. 7519-20, filed 3/25/24.

“We start with some skepticism whether the Commissioner’s informal discovery requests are subject to Rule 103(a) at all. See Fu Inv. Co. v. Commissioner, 104 T.C. 408, 410 (1995) (‘Arguably, [informal discovery requests] do not fall within our discovery procedures and, thus, are not subject to restriction under Rule 103.’). Even putting that concern to the side, petitioners have not shown any harm from the Commissioner’s informal discovery—either to petitioners or the members. Nor have they established that the discovery represents undue burden or expense. And we are not convinced that the information sought from the members is either irrelevant or duplicative, as might raise concerns about annoyance or proportionality.” Order, at pp. 1-2.

OK, so informal discovery may be unrecognized discovery. Except.

Rule 70(a)(1): “However, the Court expects the parties to attempt to attain the objectives of discovery through informal consultation or communication before utilizing the discovery procedures provided in these Rules.” It would be easy enough to amend the Rule to rule out protective orders in informal discovery altogether.

Except.

In Fu Inv., abovecited, then-CSTJ Peter (“HB”) Panuthos went on to say: “Nonetheless, it is well settled that courts have inherent powers not derived from any statute to, inter alia, control the conduct of attorneys practicing before them and to regulate their own processes to prevent injustice.” 108 T. C., at pp. 410-411. (Citations omitted).

So may be some “informal” isn’t quite as informal as other informals.

Back in December, 2021, I pointed out that Tax Court Administrative Order 2020-02, 5/29/20, which required all documents filed at The Glasshouse on Second Street, NW, to be written in the English language, or to be accompanied by a certified English translation, was superseded by Tax Court Administrative Order 2021-01, 8/27/01, which omitted any such requirement. See my blogpost “No Hablamos Espanol,” 12/3/21.

There is no Tax Court Rule requiring the use of the English language; Rule 143(f) refers to the use of interpreters at trial, but the greatest part of Tax Court cases are disposed of without trial.

The website’s Guidance for Practitioners states: “All proceedings in the Tax Court are in English.” But this is based neither on statute nor Rule.

I am not trying to start a debate (more likely in these times a fistfight) over whether the US of A should adopt a national language by law. But as Tax Court has enough problems, why not make a Rule that documents and proceedings must either be in English, or, if a party requires translation of speech or documents, that party must provide a certified English translation of documents, and court-certified interpreters for oral communications?

It would save Ch J Kathleen (“TBS = The Big Shillelagh”) Kerrigan the trouble of telling Jose M. Reyes Reyes, Docket No. 4441-24, filed 3/22/24, to “file a proper Amended Petition, written in English only, setting forth (1) clear and concise statements of each and every error that petitioner allege was committed by the Commissioner in the determination of deficiency for 2020, and (2) clear and concise lettered statements of the facts on which petitioner base those assignments of error.” Order, at p. 1.

The surest way to sink a document without trace is to fail to scrub the metadata before sending. An extremely common wordprocessing software program saves dates, times, edits, authors, and probably several more things I haven’t mentioned, all invisible to the naked eye but easily accessible to the non-technophobic.

Ilana Jivago, Docket No. 5411-21, filed 3/21/24, finds that the management agreement and a rental agreement she submits in that format give Judge Mark V. (“Vittorio Emanuele”) Holmes some problems, in that both show metadata that states they were prepared well after the events they describe.

Ilana has a sad tale about reverse engineering pirates blowing up her perfumery business, so Judge Holmes gives her a bye on Section 6662 five-and-ten chops on COD from when her home mortgage was foreclosed. The mortgage in question wasn’t acquisition or improvement money (and the appraisal in support thereof proves it wasn’t improvement money), so qualified principal (not “principle,” as at Transcript, p. 9, line 12) residence indebtedness, per Section 163(h)(3)(B), is off the table. But Ilana never got the 1099-C, which the foreclosing mortgagee mailed to an address whereat she had not resided for four (count ’em, four) years.

In this age of securitization, where lenders rarely hold onto mortgages but sell them into the secondary market, where they’re sliced, diced, and pooled, servicing agents sometimes get things wrong. Their mistake might save the mortgagor.

Unhappily, the Genius Baristas have scrubbed the transcript of Judge Holmes’ off-the-bencher, so I cannot drag-and-drop any of his inimitable prose.

Now water cooler and scuttlebutt have been succeeded by that which began as servants, became the masters, and are now the enemy: the internet and the chat.

Judge Elizabeth Crewson Paris tells us all about it in Econfina Resources, LLC, Econfina Corporation, Tax Matters Partner Docket, No. 12980-22, filed 3/21/24. This is but one of six (count ’em, six; see Order, at p. 1, footnote 1) cases sprung from the subdivision of a parcel of Dixieland Boondocks, whereon are found, to judge from the valuations thereunto ascribed, some or all of the Fountain of Youth (sorry, Ponce de Leon, ya blew it), the Philosopher’s Stone, and dilithium crystals.

Judge Elizabeth Crewson Paris has to deal with an attempted IRS OCC clawback of an offhand chat remark by a Chief Counselor to a suggestion by the Group Captain to hit all Dixieland Boondockers with Section 6663 fraud chops. As is not infrequent, the chatgroup inadvertently included “a former partner of petitioner’s counsel’s firm.” Order, at p. 2.

“Can you claim fraud without the classic badges?” asked the Counselor. “Ha ha and ho ho,” yell the Econfinas, “bad faith! Scrap the fraud chops!” IRS ripostes with “deliberative privilege, seal it all.”

Judge Elizabeth Crewson Paris tells both sides she isn’t having it.

“Nothing in the group chat for which respondent asserts the deliberative process privilege reveals information of the kind the privilege was meant to protect. Those messages reveal no policy deliberations and, by respondent’s own admission, are an informal discussion among Chief Counsel attorneys. There are no modes ‘of formulating or exercising policy-implicating judgment,’…, nor do the messages ‘directly contribute to the formulation of important public policy,.” Order, at p. 3 (Citations omitted).

IRS initially suggested attorney work product, but abandoned that claim.

The Econfinas want Judge Elizabeth Crewson Paris to reconsider her order allowing IRS to amend the answer to assert the Section 6663 chops, claiming the chatting is new evidence.

“The group chat may be evidence relating to an alleged fact that must be proven or disproven at trial, namely, whether respondent obtained the supervisory approval necessary to satisfy section 6751(b), but it does not constitute ‘new evidence.’” Order, at p. 4.

Nothing is sealed, everything goes in.

Taishoff says that while Judge Elizabeth Crewson Paris is constrained by copious citation of precedent to restrict deliberative privilege to the most formal, high-level, appropriately labeled and protected Sinaiatical conclaves, that isn’t the only way policy is formulated. Apparently unbeknownst to the judiciary at the highest level, the internet exists, and people use it for everything. It has abolished time and space, to the extent that the world has shrunk from a village to the size of an iPad. That’s how we roll in the Twenty-First Century. Time for the higher courts to recognize this.

As for the “seal everything” approach, it’s time to put that gambit away. The ancient Japanese saying is right: “A word spoken, even the Emperor’s horsemen cannot bring it back.”

When you’ve blown a Rule 90 Request for Admissions and want to get out of what you’ve been deemed to admit, you’ve got to clear two (count ’em, two) bars.

Judge Elizabeth A. (“Tex”) Copeland will show you how, as she lets Cindat Manhattan Hotel Portfolio LLC, Docket No. 12905-20-, filed 3/20/24, out of at least some of theirs. Cindat missed three (count ’em, three) Requests, but woke up a couple weeks (hi, Judge Holmes) after the last was deemed, and wanted out. Cindat claimed “additional facts and items of proposed evidence have come about, and therefore Petitioner should not be subject to deemed admitted Admissions that are inconsistent with the evidence.” Order, at p. 1.

Looks like Cindat either changed counsel or retained counsel; good move.

First bar. Show facts that refute the deemed admissions. Merely claiming IRS can’t prove what you are deemed to have admitted isn’t enough. Show what you will prove (and can prove) on the trial. And DKI (deny knowledge or information sufficient to form a belief as to the truth of the deemed) is also a nonstarter. “We may deny a taxpayer’s motion to withdraw deemed admissions when it claims it has insufficient information to admit or deny facts of which it has personal knowledge.” Order, at p. 2. (Citation omitted). In short, you have enough to go to trial.

Second bar. Prejudice to IRS. “We should not lightly weigh the burdens of establishing admissions for a party who properly uses Rule 90 to advance litigation initiated by the opposing party. But neither should we find prejudice merely because the party who obtained the admissions would need to pursue its case on the merits.” Order, at p. 2. (Citations omitted). For example, a witness formerly available is now unavailable, documents formerly existing destroyed (e-mails purged), or last-minute attempts to disrupt trial strategy (ambush). In short, unfair surprise.

Cindat finds fault with IRS’ requests; claims they’re ambiguous. Judge Tex Copeland agrees, and lets Cindat clear up the ambiguities on the trial. Of course, any lawyer who can’t find an ambiguity should find another way to make a living. And IRS knew these objections to admissions were on the table, because Cindat had earlier moved to withdraw the admissions (denied without prejudice).

Admissions calling for legal conclusions going to the matters at the heart of the controversy are of course subject to withdrawal.

But the Request for Admissions remains a useful tool for pinning down an adversary. Draft carefully.

Just when you thought the Dixieland Boondockers were in the lead with cookiecutter cases of dubious merit, here’s Australia coming up on the outside. Judge David Gustafson has “about twenty similar cases involving issues related to the effect of closing agreements on the availability of the foreign earned income exclusion for income earned in Australia,” on the radar as he considers Alejandro Nunez & Amy Nunez, Docket No. 6500-20, filed 3/19/24, at p. 1.

Apparently the leader of the pack is Cory H. Smith, who figured in my blogpost “Unclosed?” 8/25/22. Check it out.

Anyway, Cory is in a hold at DC Cir, and Judge David Gustafson is in no immoderate haste to deal with Al’s & Amy’s cookiecutter summary J motion. IRS and Al & Amy want to go on briefing, but DC Cir, a great fan of going early to the bullpen (cf. Mandy Mobley Li), had an amicus come in to deal with the Section 7121 closeouts The amicus said DC Cir should affirm Tax Court.

Whereupon IRS broke out the ice bucket and the Veuve Cliquot, but Cory filed a brief in opposition.

Al & Amy claim residence in Australia at material time, so any appeal goes to DC Cir, per Section 7482(b)(1) (flush language).

“Although both parties suggest that we should proceed with briefing this case, any appeal from this case would be to the D.C. Circuit, in which Smith remains pending.” Order, at p. 2.

In the interest of judicial economy, therefore, keep filing status reports, guys.

Translated from judgespeak, this means “Give me a break, guys, I don’t need drafting exercises, you admit there are no factual issues here so the law is whatever DC Cir says (or whatever their outside expert says) it is. Wake me up when they’ve told you.”

Twenty (count ’em, twenty) cases from the original Outback? Advance, Australia fair!

When Tax Court documents can be sealed has been a good source of blogfodder for ten (count ’em, ten) years, especially when other sources fall fallow. For example, see my blogpost “Guess Who Reads My Blog? – Part Deux,” 8/11/14.

Cora J. Herron, Taji Rayshard Jacobs, Next Friend, Docket No. 1363-24, filed 3/18/24, shows how working with IRS’ counsel can protect personal information. IRS moves to change parties and amend caption, a standard motion. Ch J Kathleen (“TBS = The Big Shillelagh”) Kerrigan tells the story.

“…respondent advised that the petition herein on behalf of Cora J. Herron was filed, and signed, by her nephew Taji Rayshard Jacobs. The motion further explained that petitioner was 89 years old and under full-time care, as well as that Taji Rayshard Jacobs had been appointed as her attorney-in-fact via a power of attorney. A copy of the power of attorney was attached to the motion. Given those circumstances, respondent requested that Taji Rayshard Jacobs be recognized as next friend of petitioner for purposes this case, and respondent noted that, per Taji Rayshard Jacobs, there was no objection to thegranting of the motion.

“Subsequently… respondent filed a Motion for Leave To File First Supplement to Motion to Substitute Parties and Change Caption Under Seal … and simultaneously lodged therewith the corresponding First Supplement to Motion to Substitute Parties and Change Caption. Attached to the supplement was documentation establishing petitioner’s medical condition and resultant incompetence independently to pursue this case.” Order, at p. 1.

Medical information is sealed, of course, to protect privacy, as required by law.

And a Taishoff “Good Job” to IRS’ counsel AMB and JLL.

Tax Court Judges and STJs have to din it into the ears of practitioners used to the automatic deposition notices in other Federal Courts (and most State courts): “Nonconsensual depositions are an extraordinary method of discovery that can only be taken pursuant to an order from our Court. These depositions are available only where a party or nonparty witness can give testimony that is discoverable within the meaning of Rule 70(b) and where such testimony practicably cannot be obtained through informal consultation or communication under Rule 70(a)(1), interrogatories under Rule 71, requests for production of documents under Rule 72, or consensual depositions under Rule 74(b).” This is taken from Carl B. Barney, Docket No. 5310-22, filed 3/15/24.

But Carl gets to depose Mr. Z, the RA Carl claims done him wrong. Carl claims Mr. Z arbitrarily, capriciously, and with malice aforethought refused to let Carl bail from his installment sale election, thereby costing Carl tax on $400 million. IRS claims privilege, but produces no privilege log or specific allegations. IRS claims record rule (it’s all in the administrative record, “all ye know on earth and all ye need to know”), and Greenberg’s Express (“the door is shut, we may not look behind.”).

But Judge Christian N. (“Speedy”) Weiler isn’t having any.

Yes, Carl can’t ask about the appraisal of some of Carl’s Sub Ss, as that goes behind the numbers in the SNOD, thus trenching on Greenberg’s Express and the deficiency trial de novo exam-is-irrelevant.

But here abuse of discretion is the issue, and the administrative record needs filling out.

“… we reject respondent’s contention that the administrative record contains all relevant facts; since at this stage in the case, we cannot accept that respondent’s potential abuse of discretion arises solely out of the administrative record. As such, the deposition of Mr. Z appears, at least in part, reasonably calculated to lead to the discovery of admissible evidence and fit within the scope of discovery as prescribed by Rule 70(b).” Order, at p. 4.

Besides, IRS has stonewalled Carl.

“Both parties agree that an issue for trial is whether respondent properly exercised his discretion in denying petitioner’s request to revoke his election out of the installment method. Relying on Mr. Z’s contemporaneous written explanation denying petitioner’s request, respondent contends how Mr. Z (some six years later) ‘cannot provide any additional information’ to help determine whether respondent’s actions were in fact an abuse of discretion. Similar to our finding above, we are not prepared to predetermine the relevance or usefulness of Mr. Z’s testimony and rely solely on his written explanation at this point in the proceedings. Ultimately, the deposition may (or may not) bear fruit for petitioner in his inquiry.” Order, at p. 5. (Name omitted).

Carl has checked all the boxes: can’t get the evidence any other way, this is not a substitute for cross-examination (Mr Z has direct knowledge of materials facts needed to decide the claim), and Carl has had no prior opportunity to get Mr. Z’s story.

Carl can’t ask about the Sub Ss, but he can ask “whether respondent properly exercised discretion in denying petitioner’s request to revoke the election out of the installment method.” Order, at p. 6.

Whistleblowers, innocent spousers, and record-rulers, please copy. While orders have no precedential value, this line of reasoning might get you some yardage.

Edited to add, 3/16/24: A Taishoff “Good Job, First Class” goes to Carl’s trusty attorneys, who “enjoy an unparalleled reputation for excellence and integrity in the tax community,” if they do say so themselves.