When Dixieland Boondockery is the “nôtre chef propose” plat on the prix fixe menu, you may be sure that expert testimony is heading up the hors d’oeuvres. And so it is with Ranch Springs, LLC, Ranch Springs Investors, LLC, Tax Matters Partner, Docket No. 11794-21, filed 6/13/24. Judge Albert G. (“Scholar Al”) Lauber digs right in.

To begin with, if you’ll pardon an arcane technical term, the fier kashes of expertise: (1) will the expert’s specialized knowledge will help the trier of fact to understand the evidence or to determine a fact in issue; (2) is the testimony based on sufficient facts or data; (3) is the testimony the product of reliable principles and methods; and (4) does the expert’s opinion reflect a reliable application of the principles and methods to the facts of the case.

Sufficient facts and date means more than an expert’s say-so. An expert’s experience certainly counts, but her/his report must be more than the two pages TL (name omitted), a member of Ranch Springs, proffers.

OTOH, the report of JS (name omitted) might pass muster, but it was wild-carded in after the Scheduling Order cut-off.

“The [JS] report was not exchanged with respondent and lodged with the Court by the deadline established by the Pretrial Scheduling Order. The Court may exclude an expert report where the opposing party is denied a reasonable opportunity to tender its own expert report in response. See Rule 143(g)(2). Untimeliness apart, the [JS] report in several respects fails to comply with the requirements of Rule 143(g) governing expert witness reports. For both reasons we will exclude his testimony from the forthcoming trial.” Order, at p. 4. (Footnote omitted).

The missing footnote says JS is not a percipient witness, that is, one who was on the scene when the deal went down, but one brought in after the fact to bolster one party’s position. Allowing JS in would let him make an end-run around the Scheduling Order, ambushing IRS.

Expert TF’s addendum (name omitted) might make the cut, if petitioner’s witness B (name omitted) will swear that he relied upon the stuff in TF’s addendum to reach his own conclusions. But TF can’t testify his own self, nor add to what B attached to his own report.

But wait, there’s more, as the midnight telehucksters say.

TF has a rebuttal report to counter IRS’ expert. But much of it is a direct report, which mostly ignores IRS’ expert, despite the requirement that rebuttal is limited to rebutting the opponent’s expert, point by point, not raising new or different matters.

Judge Scholar Al properly leaves disposition to trial, where it belongs.

“The Court is currently inclined to strike some, but not all, of [TF]’s proposed rebuttal report as a disguised affirmative opening report that was untimely filed. We will hear argument at trial regarding the portions of his report that are properly regarded as providing true rebuttal, either at the start of trial or when [TF] is called as a witness, as the parties prefer.” Order, at p. 7.

Finally, Judge Scholar Al has to deal with who are party opponents per FRE 801(d)(2), to allow in admissions against interest by direct and indirect parties, who are roped in by old Section 6231(a)(2). Judge Scholar Al lists those who IRS claims are roped in, but the Ranch Springs can contest that at trial.

Which is where most of this argy-bargy belongs.

No, not a bulletin about US military aid in a foreign war. IRS seems to have a new weapon in its fight against syndicated dodges. Judge Elizabeth Crewson Paris judge-‘splains in Albero Holdings, LLC, Albero Investors, LLC, Tax Matters Partner, Docket No. 16284-21, filed 6/13/24.

“According to petitioner, respondent has inappropriately informally contacted seventy-five Members by letter or telephone. Petitioner asserts that ‘respondent’s phone call and letter campaign needlessly caused confusion, stress, and anxiety among Members.’ Petitioner argues respondent failed to identify his role in this proceeding, threatened to issue subpoenas for trial or depositions should Members not comply with respondent’s requests, and requested information that was not relevant to this case or might be privileged.” Order, at p. 2.

Without more details as to Albero’s operations, I can’t tell if Albero is a dodge, but I can reasonably surmise that the Members are investors in whatever Albero does. I can guess, perhaps inaccurately in this case, that said Members are highrollers with big gains to be offset with whatever losses, deductions, or credits Albero generates. And whatever the underlying facts, no doubt the Members are flustered and stressed by IRS’ bombardment of what they supposed to be the rear areas. Promoters and advisers are doubtless receiving a bombardment of their own, whatever warnings and disclaimers they issued when the Members joined up. In my experience, investors read offering memoranda only when preparing to sue; see infra, as my expensive colleagues would say.

Here, Judge Paris refuses a Rule 103 protective order, without prejudice.

“Petitioner does not explain why the documents and information respondent seeks are not relevant to this case, but merely makes this conclusory statement. Yet, petitioner also states that respondent’s requests ‘overlap significantly with data already provided by petitioner or additional data to be provided by petitioner.’ Assuming petitioner is not providing or planning to provide respondent with irrelevant information, this would suggest that the documents and information respondent seeks are relevant. In any case, petitioner provides no specific explanation as to why the documents and information respondent seeks are not relevant to this case.” Order, at p. 2.

Petitioner also asserts privilege, but isn’t specific as to whom or what.

“Petitioner argues that it is inappropriate for respondent to contact third parties, including Members, and that respondent must send all requests for information from third parties through petitioner. Petitioner provides no authority for its position. Additionally, it is not clear to the Court why it would be any less burdensome for the third parties should petitioner’s counsel be the one to set up the informal meetings or gather information rather than respondent’s counsel.” Order, at p. 3.

Oh, btw, “(P)etitioner’s counsel does not represent the third-party Members, and respondent has indicated that petitioner’s counsel is also likely adverse to the Members because certain Members have filed a class action lawsuit against petitioner.” Order, at p. 3.

Taishoff says he would not be surprised, even in cases where all is harmony between Member/investors and TMP/representative, that a barrage such as IRS unleashed in Albero doesn’t cause said harmonious Member/investors to ask for recommendations for class-action counsel.

I’ve often discoursed here concerning the imposition of the Section 6673 frivolity or delay-of-the-game chop. There’s a great divergence on the Tax Court bench as to when and how much to mulct the frivolite/delayer. It seems the consensus is to give a warning before slugging.

But when to warn? From the bench at argument or on trial, in an order, or in the opinion denying the frivolous/delaying maneuver?

Once again, lest I be misunderstood, I firmly believe that trial court judges need the very broadest latitude to control proceedings in their courtrooms, whether personal or digital. No administrative judge or appellate panel can hear a sneer or see a tear, and videotape replays belong in the arena, not the courtroom.

Judge Travis A. (“Tag”) Greaves has a gambit that is worth playing in Todd O. Olson, Docket No. 28000-22L, filed 6/12/24.

Denying Todd’s motion to dismiss, and apparently ignoring IRS’ subsequent motion to dismiss, Judge Tag Greaves throws this case into the general docket.

But on the way out the door, Judge Tag Greaves delivers the following: “Petitioner is warned that any future submissions or statements advancing a frivolous or groundless position may result in the imposition of a penalty under section 6673 in an amount up to $25,000.” Order, at p. 1.

Any successor jurist will, I trust, take notice that the warning has been given, and keep it handy. Just in case. And use this method elsewhere, if required.

However white your shoes (and those of the trusty attorneys for Ranch Springs, LLC, Ranch Springs Investors, LLC, Tax Matters Partner, Docket No. 11794-21, filed 6/11/24, couldn’t be whiter), the basics still apply when you’re moving to exclude proffered evidence.

First, they seek to preclude any evidence “relating to the activities ‘of non-Petitioner entities and other conservation-easement donations.’” Order, at p. 1.

Like what? asks Judge Albert G. (“Scholar Al”) Lauber. Movant has to identify what documents they want out. Failing which, they have objections at trial on whatever grounds the law permits to stifle any irrelevant or impermissibly injurious evidence.

Next, the trusty attorneys want to preclude the expert’s report of IRS’ employed expert. We’ve seen before that this doesn’t work, if the expert is an expert and the report meets the Rule 143(g) checklist. IRS’ expert has been recognized before, and has stated his credentials per Rule 143(g)(1)(D), so the report goes in, but the expert is subject to cross-examination. That entails all the “hired-gun” and “Made As Instructed” lines of attack on credibility and weight of the expert’s report and testimony.

Basics, basics. All of us, novice and old-greyback-from-Wayback, need to remember.

I’ve recently chronicled the mishaps of petitioners with too little paper to substantiate their claimed deductions, adjustments, and credits. But too much paper is as bad. Just ask Carol A. Wright, et al. , T. C. Sum. Op. 2024-9, filed 6/10/24. The als are her ex-Steve, and his current Tami. Among them are a real estate construction entity and a café, fetchingly named Love At First Bite. These generate many and diverse deductions and adjustments (COGS).

The problem is substantiation. IRS concedes chops and some items, but Judge James S. (“Big Jim”) Halpern, confronted with the shoebox gambit (masses of credit card receipts, bank statements, restaurant meal check stubs. etc., “wretched, crinkled, scrawled over, blotched, frowsy”) has had enough.

“We need not (and will not) undertake the task of sorting through the voluminous Exhibits petitioners have provided in an attempt to see whether they have provided adequate substantiation to counter respondent’s adjustments.” T. C. Sum. Op. 2024-9, at p. 14.

Judge Big Jim asked Carol, Tami, and Steve at trial to give him a spreadsheet with items described. They gave him 34 (count ’em, 34) pages showing 278 (count ’em, 278) items, but the descriptions don’t pass Judge Bug Jim’s smell test.

“For many of the entries, the spreadsheet does not merely reproduce the annotations of the purpose handwritten on meal checks and credit card receipts but elaborates on those annotations or supplies text that is illegible on the original receipt.” T. C. Sum. Op. 2024-09, at p. 13.

“They offer a hodgepodge of receipts that left respondent unconvinced. They ask us to accept the receipts, bundled into separate exhibits for each disallowed expense, as substantiation that they spent some stated amount for the disallowed expense and that the expenditure constituted an ordinary and necessary business expense for the related activity (i.e., either [real estate] on [sic; probably “or”] one of the Schedule C activities). Petitioners’ approach brings to mind the shoebox method of presenting evidence.” T. C. Sum. Op. 2024-9, at p. 13 (Citations omitted).

Entrepreneurs are not CPAs, and should not be held to their standards. I once told a RA at Exam that I did not intend to be a bookkeeper, and if I had wanted to be I would have been. All that said, clear, easily decipherable records are the gold standard. Shoebox or RedWeld if you will (see my blogpost “The Shoebox RedWeld System,” 12/8/21), but be prepared to defend your recordkeeping with something better than “here’s a bunch paper.” (Hi, Judge Holmes).

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.