Section 86(d)(3) is Congress’ attempt to “equalize the treatment of taxpayers in petitioners’ position with taxpayers residing in ‘reverse offset’ jurisdictions, i.e., States where the receipt of Social Security benefits reduces workers’ compensation benefits. See Charles T. Hall, Social Security Disability Practice § 5:19 (2023).” Section 86(d)(3) makes workers’ comp benefits reduce Social Security benefits in States which don’t cut Comp for Social Security. The bad news is that the cut to Social Security benefit is still taxable.

Juist ask Donald Ecret and Kristen Ecret, T. C. Memo. 2024-23, filed 2/14/24. Kris is a disabled nurse getting NY comp payments when she applied for Social Security. She got both for a couple years (hi, Judge Holmes), and IRS even conceded the year before the year at issue despite Kris’ late filed petition for that year. And IRS concedes the chops.

But IRS does go for the tax for year at issue, and gets it.

Judge Albert G. (“Scholar Al”) Lauber obviously isn’t happy with the result (Kris is obviously disabled, and did pay into Social Security).

“Section 86(d)(3) compels us to agree with respondent. Petitioner wife had $X in Social Security benefits attributable to[year at issue]. Of this amount the SSA disbursed $Y to her as a cash payment after withholding $Z of Federal income tax, which it paid to the IRS on her behalf. The SSA did not disburse the remaining $AA on account of the workers’ compensation offset. But under section 86(d) petitioners are nonetheless required to treat this sum as Social Security benefits for Federal income tax purposes.” T. C. Memo. 2024-22, at p. 7. (Amounts omitted).

The quotation at the head hereof is from T. C. Memo. 2024-22, at p. 6.

Hurts the people in generous States to make up for those in cheapskate States.

These are properly excluded from discovery and the administrative record; also excluded from analysis of what the Whistleblower Office did or did not do is what other branches of IRS did or did not do. So Whistleblower 14376-16W, T. C. Memo. 2024-22, filed 2/14/24, get neither summary J in his/her favor, nor discovery of the 36 (count ’em, 36) categories of documents demanded.  But ex-Ch J. Michael B (“Iron Mike”) Thornton does give IRS summary J tossing 14376-16W’s petition, at no extra charge.

14376-16W is back from remand. The backstory is in my blogpost “Voluntary Malgré Lui,” 9/16/17.  It doesn’t end well.

That IRS field (not the Ogden Sunseteers) improperly tipped off Target that the whistle had been blown doesn’t change the result, nor that SB/SE let Target into the OVDP despite the whistle having been blown (although ex-Ch J Iron Mike agrees with IRS that Target asked in long before IRS told them about 14376-16W). IRS claims the only changes they made, and cash they collected, came from the returns and amended returns Target filed, not from 14376-16W.

Not every piece of paper or concatenation of electrons agency staff mentions or had around was necessarily considered by them in reaching their result. Discovery geeks and record-rule fans will find plenty of somber reasoning and copious citation of precedent in T. C. Memo. 2024-22, at pp. 31-40.

Some key takeaways: what field operators did or didn’t do is irrelevant; what was relied on by the Ogden Sunseteers is the point. Post-Barenblatt, blower discovery is an uphill fight at best. Post-Lissack, the blow had better be right on small-T target; not merely who, but precisely what, were the delictions.

Most essentially, neither the Ogden Sunseteers, nor IRS field, nor Tax Court, nor DC Circuit, loves whistleblowers. The old Italian proverb remains true: “Who draws his sword upon the prince had better throw away the scabbard.”

Econfina Resources, LLC, Econfina Corporation, Tax Matters Partner, Docket No. 12980-22, filed 2/14/24, playing the Dixieland Boondockery gambit, Mining variation, escapes getting entangled in the hand-off from syndicator to syndicatees.

The usual deal is that syndicator sets up an LLC to buy the land, sells off membership interests in the LLC, records the conservation easement, and hands out the tax deductions to the members. The members claim a tack-on of the syndicator’s holding period. IRS counters with Situation 1 of Revenue Ruling 99-5, 1999-1 C.B. 427, 434–35, claiming the syndicator was a single-member LLC when the land was acquired, hence disregarded, so the transfer of membership interests was a sale of the real estate.

Judge Elizabeth Crewson Paris has this on a motion for partial summary J (what else?). So here the seller claims it laid off its  1% membership interest in a Section 351 to a controlled C Corp before it sold the remaining 99% to the syndicator. The  syndicator’s trusty attorneys carefully papered the deal. “At the least, these documents raise a factual dispute as to the order of the transactions.”  Order, at p. 5.

IRS’ fallback, substance over form, gets the usual “(T)he application of the substance over form doctrine is inherently factual and generally not appropriate for summary judgment.” Order, at p. 5.

The trusty attorneys, whose leader I’ll call The Birmingham Baron, get a Taishoff “Good Job.”

Edited to add: Step transaction, maybe so?

Longtime (and I mean longtime) readers of this my blog will remember my ten-year-old pilgrimage through the vagaries of Tax Court filing fee refunds. There are orders that say you can’t get the sixty Georges back no matter what, and others that send the money back without explanation. These have included orders from past Ch Js, and other Judges as well.

Here’s a sample: “You Pay, You’re Stuck,” 4/23/14; “Now I’m Really Confused,” 9/27/16; “Worth A Try,” 10/21/16; and “Out of Date Slang – Part Deux,” 10/2/18. I’m sure I’ve done more.

But perhaps enlightenment has finally arrived, via Section 7430 legals and admins.

Jeffrey I. Zuckerman & Miriam E. Zuckerman, Docket No. 3964-23, filed 2/14/24, get a Valentine’s Day present from IRS and Judge Albert G. (“Scholar Al”) Lauber.

“…respondent filed a Motion to Dismiss for Lack of Jurisdiction. Petitioners responded, opposing dismissal and requesting an award of $60 (corresponding to their Tax Court filing fee) as litigation costs. See § 7430. … we explained that we lack jurisdiction in this case because there was no valid notice of deficiency.” Order, at p. 1 (Footnote and citations omitted).

Now this won’t work for late-filed petitions, but it’s sure worth a try for invalid SNODs and NODs, or mailings other than to last-known address or otherwise defective.

Here’s why.

“…we also directed respondent to file a reply addressing whether petitioners are entitled to the $60 they seek in litigation costs. Respondent immediately filed a Reply, that same day, conceding that petitioners are entitled to this sum.” Order, at p. 1.

So Judge Scholar Al awards Jeff & Miri the sixty bucks.

Faithful readers of this my blog will not be surprised that Judge Alina I. (“AIM”) Marshall isn’t buying any of the Settlement Stock that Acqis Technology, Inc. and Consolidated Subsidiary, T. C. Memo. 2024-21, filed 2/13/24, foisted on Big Techies who allegedly infringed on Acqis’ patents. The Big Techies supposedly bought stock in Acqis and acquired perpetual no-fee licenses to use the IP to settle the infringement cases.

You can find the backstory in my blogpost “Haven’t A Clue – Part Deux,” 3/26/20. Interestingly, neither Judge AIM nor the parties cite Judge Ruwe’s earlier opinion. They really should read this my blog.

Anyway, the stock, purchase of which is supposedly a capital contribution and therefore tax-free, is worthless. It can’t be sold until fully SEC registered, which Acqis’ management, frugal with legal fees, had no intention of doing. Moreover, the stock was non-voting, last in line at liquidation (after the insiders got theirs), and holders thereof couldn’t force redemption. In fact, two of the settling Biggies promptly gave the stock to charity and didn’t take a deduction, expensing the settlement payout as a business expense. As I said in my blogpost abovequoted, “one could relieve oneself of a shortage of an extremely necessary domestic article” with the stock certificates.

Whatever reservations Judge Ruwe had back in 2020 about the applicability of 6SOL, the trial dispelled them. Acqis’ tax reporting didn’t disclose what really happened. Acqis had neither expert reliance (told CPA nothing) nor good faith. And Acqis flunks the five-and-ten text for substantial understatement.

I remember trying the cash-for-stock move in a sale years ago, when I was seeking a PLR. IRS told me to drop it quick. Glad I did.

Charles Dickens’ 1852-3 Bleak House serial gave us the celebrated Jarndyce case, but, as his preface shows, there were real cases that lasted as long and cost as much. “There is another well-known suit in Chancery, not yet decided, which was commenced before the close of the last century and in which more than double the amount of seventy thousand pounds has been swallowed up in costs.”

I’m a newcomer to Scott A. Blum & Audrey R. Blum, Docket No. 5313-16, filed 2/13/24. I did blog its predecessor 12 years ago. See my blogpost “OPIS Finis,” 1/18/12. But as Judge Goeke points out today, we’re talking about Scott’s & Audrey’s 1999 tax return. That’s before the close of the last millennium. How many pounds have been spent I cannot tell.

And Scott is fighting about whether the NBAP and FPAA were mailed to his last-known address (Scott’s disregarded was a notice partner) a mere twenty-two (count ’em, twenty-two) years ago.

IRS wants summary J, but doesn’t get it. The Certified Mailing List (CML) for the NBAP, which if complete raises a rebuttable presumption of proper mailing, here is a wee bit sketchy. “The USPS employee did not enter the number of pieces that the USPS received for mailing on the CML. Nor does the CML state the number of pieces of mail that is listed on the CML. Because the CML is missing this information, it is incomplete and does not create a presumption of mailing.” Order, at p. 4. (Footnote omitted; it’s argy-bargy about the postmark on the CML being square and not round; mox nix). But IRS can use the CML and try to cobble together enough other evidence to prove mailing.

The CML for Scott’s counterpart of the FPAA looks good, but since Scott claims he hasn’t completed discovery, no summary J for IRS on that score.

As for last-known address, despite Scott having given the RA another address (but not by means prescribed in Reg. Section 301.6223(c)-1(b)), which the RA used for correspondence but from which USPS returned mail as undeliverable, as long as the FPAA went to the address on Scott’s K-1, that’s OK.

Btw, Judge Goeke says there’s an issue of material fact on the mailing of the notice partner FPAA (Order, at p. 8). But the Order, at p. 5,  says the issue is proper mailing of notice partner NBAP.  I don’t fault Judge Goeke for being a bit confused. So was I.

 Taishoff says that though the whole TEFRA schemozzle that gave rise to this farce was repealed a mere eight (count ’em, eight) years ago, this dinosaur lumbers on. The word of Charlie Dickens is again justified: “The little plaintiff or defendant who was promised a new rocking-horse when Jarndyce and Jarndyce should be settled has grown up, possessed himself of a real horse, and trotted away into the other world.”

In the presentt saga, the deficiencies were determined in June, 2012, at Docket No. 2679-06, at $9.5 million in the aggregate. Twelve years later, they haven’t been collected. Don’t ask about the interest.

I’ve said it before: Tax Court needs an administrative judge, as we have in State court, to crack the whip and move these cases. If Tax Court can’t or won’t do it, Congress should, or they should stop prating about deficits and national debts.

Paul Williams’ and Roger Nichols’ 1971 hit for the Carpenters about sums up today, as we await rain and snow on this Minor Outlying Island off the Coast of North America. Judge David Gustafson must again brush off the frivolities of Jack Donald Supinger, Docket No. 4810-23, filed 2/12/24.

Jack Donald claims he’s not a citizen because DHS has no record of him, but the Fourteenth Amendment puts paid to that; his claim he’s not resident is belied by his SC address. And his claim he has no “equitable contract” with the US of A is also off target. Resident aliens are taxed here, nonresident aliens are taxed on US-sourced and effectively-connected income, and Congress has the Sixteenth Amendment, hence they don’t need no contract. So Judge Gustafson gives Jack Donald the Section 6673 frivolity yellow card at no extra charge.

Ch J Kathleen (“TBS = The Big Shillelagh”) Kerrigan has to deal with a Genius Barista-generated non-sealing of a bushelbasketful of documents that should have been sealed, in Cory Lynn Rensmon, Docket No. 8871-21, filed 2/12/24. This is an example to those who want records and dockets sealed that, even when you get an order sealing the stuff, maybe it doesn’t always get sealed or stay sealed. Going to Tax Court may be dangerous to your privacy health.

Phoebe Jonas, Docket No. 575-22S, filed 2/9/24, certainly worked as a performing artist. But Phoebe applied her performing skills, not to Shakespeare, Ibsen, and Sophocles, but to the more remunerative “appearing in commercials and doing voiceover work.” Order, at p. 1.

To get work, Phoebe needed a talent agent, who in turn dealt with a payment agent. The last-named extracted Phoebe’s bucks from the ad agency or commercial production company, passed same to the talent agency, who paid the payroll taxes, took their cut, and paid Phoebe the balance, with a W-2 at no extra charge. Phoebe deducted the talent agent’s fees (she used more than one in year at issue) as an employee business expense, as it certainly was, until.

Until TCJA put Section 67(g) in the cooler.

STJ Jennifer E. (“Publius”) Siegel takes up the story. “Because of this change, petitioner sought to deduct the expenses pursuant to other statutory authority.

“Section 62(a)(2)(B) allows a deduction for ‘expenses paid or incurred by a qualified performing artist in connection with the performances by him of services in the performing arts as an employee.’ Among other things, to be considered a ‘qualified performing artist,’ a taxpayer’s gross income may not exceed $16,000. See § 62(b)(1)(C).” Order, at p. 2.

Phoebe lived in NY when she petitioned, and presumably did so during year at issue. Most commercials and the like are filmed in NYC Metro. $16K doesn’t go far there.

“Petitioner reported adjusted gross income of $135,215 in [year at issue], exceeding the income limit.” Order, at p. 2. That’s bare survival for any free-market renter on this Minor Outlying Island off the Coast of North America, who also wants to eat occasionally.

Phoebe claims the $16K cutoff is unfair, and disproportionately affects certain classes of performers. STJ Publius: “The Tax Court cannot evaluate the law’s fairness, however, and must apply it as it is written.” Order, at pp. 2-3. Pore l’il ol’ Tax Court has no equitable jurisdiction, so it is up to Congress “to address questions of fairness and to make any improvements to the law.” Order, at p. 3.

I cannot comment in a blog intended for reading round the family dinner table on the possibility of any useful action of Congress.

And it doesn’t matter that Phoebe never got her hands on the cash the agent(s) took; that’s not relevant to whether she is a qualified performing artist.

Although CSTJ Lewis (“Quel Nom!”) Carluzzo doesn’t say it in Susan D. Turner, T. C. Memo. 2024-20, filed 2/8/24, when he sends Susan and IRS off for a Rule 155 beancount, I hope Susan doesn’t get tagged with the 20% Section 6662(a) chop.

No mention of chops in this four (count ’em, four) page opinion, but Susan is back to single, not the HOH she claimed, and no EITC.

Yes, her minor grandchild did not provide more than half his/her support during year at issue, and Susan “helped [grandchild] pay for rent, phone bills, clothing, food, transportation, and other personal expenses. ” T. C. Memo. 2024-20, at p. 2.

But (you guessed it) grandchild did not live under Susan’s roof for more than half the year; Susan could only establish 60 days. Even though State court named Susan as grandchild’s guardian for years, including year at issue, that’s a nonstarter in the qualifying child stakes.

Sympathetic CSTJ Lew goes the extra: “From what has been submitted, it does not appear that petitioner is entitled to an earned income credit applicable to an eligible individual without a qualifying child, but we make no finding on the point. If the parties agree that she is, then they can reflect that allowance in their Rule 155 computations.” T. C. Memo. 2024-20, at p. 3, footnote 2.

Tate A. Hohnstein & Alexandra T. Faretra, Docket No. 3547-22S, filed 2/8/24, looks like a straight underpayment, with deficiency and 20% negligence chop thrown in at no extra charge stiped out. So why an off-the-bencher from Judge Goeke?

Alexandra was seeking divorce from Tate during year at issue, but that didn’t become final for more than a year thereafter. So Alex filed MFJ for year at issue, getting Tate’s info from him to prepare same, per deal between their respective counsel. Only for whatever reason Tate didn’t give her a W-2 showing an extra $30K of income, hence the SNOD, which they petition.

Or maybe not, since Alexandra claims she never signed the petition.

Except.

Alexandra fully participates in this case, with her own trusty attorneys, and signs the stip agreeing to the deficiency and chop. So the case is over, right?

No, because said trusty attorneys want, and get, Section 6015(b) apportioned innocent spousery.

Tate says Alexandra got the benefit of the $30K. So what? says Judge Goeke.

“…it would appear that had he submitted this W-2 to Ms. Faretra’s counsel in the divorce proceedings, he may have been subject to paying additional amounts to her in the divorce proceeding, as this amount was far in excess of his normal income in prior years.

“This failure to include the W-2 has been the subject of a stipulation and agreement by the parties and is no longer in dispute.” Transcript at p. 5.

Alexandra says she didn’t know about the $30K or the W-2 disclosing same. Judge Goeke says there’s no evidence she did know, and besides, it was in her interest to let the divorce court know, so she could get more out of Tate, as she had custody of their children.

So Judge Goeke gives Alexandra innocent spousery on the deficiency and chop. And Taishoff gives her trusty attorneys a “Good job.”

I wonder if Alexandra and trusty attorneys are now on their way back to divorce court.