He wasn’t Michael, but he’ll always live in memory as Sonny. Unhappily, once again the Corleone gambit is played out, with a $1.5 million unrollable IRA distribution from one of the two (count ’em, two) IRAs which held what Judge Elizabeth A. (“Tex”) Copeland discreetly calls “a portion of the late actor’s wealth”. Estate of James E. Caan, Deceased, Jacaan Administrative Trust, Scott Caan, Trustee, Special Administrator, 161 T. C. 6,  filed 10/18/23, at p. 3.

The IRA trustee was UBS, s/a/k/a Banco Unione Svizzera, and the IRA included membership in a hedge fund.

Judge Tex Copeland judge-‘splains: “IRAs are not limited to holding traditional assets such as cash, bonds, and publicly traded securities; they can still qualify for tax advantages while holding alternative assets, such as non-publicly traded partnership interests like the [hedge fund interest]. However, in that case the Internal Revenue Service (IRS) requires that the IRA’s trustee or custodian report the fair market value of the alternative assets yearly, valued as of December 31 of the preceding year (yearend fair market value).” 161 T. C. 6, at p. 3.

Naturally, neither UBS nor any trustee with a brain will take the risk of guessing what a hedge fund interest is worth, so their deal with the late Sonny required him to tell them. Except he didn’t, so UBS, after a barrage of notices, bailed as trustee and sent the not-then-late Sonny a notice that they bailed, plus a 1099-R, stating FMV of the hedge fund interest based on the prior year’s number, at no extra charge.  UBS claims Treasury regs require this, but Judge Tex Copeland says they don’t, 161 T. C. 6, at p. 9, and gives a run-down on what the IRC and regs do require.

Meantime, the not-yet-late Sonny’s adviser at UBS bailed and went to Merrill Lynch, so the IRAs followed him there. Said adviser cashed out the hedge fund interest, because Merrill’s computer gets indigestion from hedge fund transfers, and deposited the proceeds in the IRA. The then-not-late Sonny seeks a PLR per Section 408(d)(3)(I), extending his 60-day rollover grace period, but only after his return for year at issue is filed and IRS gives him a SNOD.

Judge Tex Copeland says the record does not reflect the late Sonny’s date of death nor domicile, but my sources tell me 7/6/22, in LA CA. And she appoints the trustee of Sonny’s administrative trust as Special Administrator for this case. Might be a good tactic to try for Special Administrator status where State probate is tough and expensive.

IRS bounced the waiver because the hedge fund interest and the cash were not “same property” per Reg section 408(d)(3)(A)(I) and (D).

Special Administrator (SA) wants a BoP shift for unreported income, except UBS issued a 1099-R and the late Sonny’s return for year at issue reported the distribution as nontaxable. And IRS reasonably relies on the 1099-R, so Section 6201(d) is satisfied.

There are trust IRAs (with the financial institution acting as trustee with fiduciary duties to beneficiary) and custodial (hold the loot but the beneficiary decides what to do with it). The parties are free to contract how they want within broad limits. Sonny’s was custodial.

But here it appears to Judge Tex Copeland that the professionals managing Sonny’s affairs miscommunicated, and their testimony they never got UBS’ letters falls flat.

The rollover argument fails because the hedge fund portion (a partial rollover) was done more than a year after the hedge fund interest was constructively received (a notice from UBS that Sonny could do whatever he wanted with the interest). And there were three (count ’em, three) wire transfers of the net hedge fund proceeds. And the transfer was cash, not the interest itself. Only rollovers from 401s (like 401ks) can do a sell-and-fund.

There’s a jumpball over the value of the distributed interest, but IRS took the number from the hedge fund’s K-1 capital account, and the trustee said nothing.

OK, so why a full-dress T. C.?

Well, does Tax Court have jurisdiction to review IRS’ denial of a Section 408(d)(3)(I) waiver? Yes, we do, says Judge Tex Copeland. See my blogpost “The Guys from the Hood,” 4/20/17 for more.

Scope? Abuse of discretion. Result? “Same property” requirement not waivable, and appeals to do equity go nowhere in pore l’il ol’ Tax Court.

I get the feeling some of the late Sonny’s advisers will be getting The Phone Call.

Full disclosure- Merrill Lynch is custodian of my IRA. Needless to say, it holds ever so much less than the late Sonny’s, and no interests in hedge funds.

Abdul Khaliq Mustafa Muhammad, T. C. Memo. 2023-124, filed 10/17/23, “…previously worked as a tax return preparer. He holds five educational degrees, including a master’s in business administration and a Juris Doctor with an alleged specialty in international taxation.” T. C. Memo. 2023-124, at p 2.

Impressive. And Abdul also has fifteen (count ’em, fifteen) years in as an employee of IRS.

Trouble is, Abdul also has heavy-duty Schedule C losses with no substantiating documentation. He claims water damage and computer crashes wiped them out, but Judge Albert G (“Scholar Al”) Lauber, though he has only three (count ’em, three) educational degrees, isn’t buying any of Abdul’s stories why the Rule 37(a) deemed-admitted order should be set aside, or that the unreported income IRS alleges he got was not taxable.

But although Abdul has accumulated some demerit badges of fraud, they’re not enough for Judge Scholar Al to award IRS summary J on the Section 6663 chops.

“We have deemed petitioner to have admitted certain affirmative allegations relating to possible ‘badges of fraud,’ e.g., that he was uncooperative with the RA during the examination, that he failed to supply accurate books and records of his Schedule C business, and that (as an IRS employee and former return preparer) he was aware of the requirement that he keep books and records. However, we do not think that these admissions alone are sufficient to satisfy respondent’s burden of proving fraud by clear and convincing evidence. Petitioner alleges (for example) that he was unable to supply books and records to the RA because those records had been destroyed by water damage. Such a fact, if true, could tend to support petitioner’s contention that he lacked the subjective intent to commit fraud.” T. C. Memo. 2023-124, at p. 8.

But before Abdul puts the appropriate beverage on ice, “(T)hose penalties remain for trial, as do respondent’s disallowance of Schedule C and other deductions and his alternative assertion of accuracy-related penalties under section 6662(a).” T. C. Memo. 2023-124, at pp. 8-9.

Btw, Abdul, allegations that what the RA did at exam invalidates the SNOD don’t fly in a de novo deficiency trial. T. C. Memo. 2023-124, at p. 9, footnote 2.

Edited to add, 7/15/25: Abdul goes down for Section 6663 fraud chops for two (count ’em, two years at issue, T. C. Memo. 2025-77, 7/15/25.

Whistleblower 8391-18W, 161 T. C. 5, filed 10/16/23, claims the Ogden Sunseteers short-changed him on one of his blows. 1-18W got 30% on a couple blows (hi, Judge Holmes), wherein he blew up US institutions for dodging withholding on dividends from onshore corporations to offshore shareholders. But on his latest blow, he only got 22%. He claims these were all the same offense.

The OS say yes, but that’s not enough. The Preliminary Award Recommendation Letter (PARL) didn’t identify why they were cutting 1-18W’s take, but the DARL (Detailed Award Recommendation Letter) Sunset-‘splained.

“The [IRS] field team had already identified REDACTED 2’s withholding tax issues prior to receiving the PSI/whistleblower information for consideration. They had opened the taxpayers 200312-200512 F-1042 withholding tax returns for exam and they had identified the TRS-dividend withholding issue prior to receiving the information. However, the PSI/whistleblower information did assist the field team in developing the withholding tax issues. The information helped the team identify connections between the lending and swap transactions which enabled them to better understand the withholding tax implications. The field team used thePSI/whistleblower information to request information from REDACTED 2 through IDRs. Therefore, the award amount is increased to 22%.” 161 T. C. 5, at p. 10.

That’s enough for Judge Nega. After plowing through (and plowing under) Reg. Section 301.7623-4 and its plethora of factors positive and negative (nonexclusive, none weightier than any other, although one may outweigh all the others, and no mere numerical weigh-up), he finds the Ogden Sunseteers did not abuse their discretion. In this case, IRS was already looking at this stuff.

Taishoff asks if they were already looking because 1-18W had told them years before what kind of game these dudes were playing, and the US Senate Permanent Subcommittee on Investigations had been nosing around this dodge based on what 1-18W had told them. Nudge nudge, wink wink, say no more.

Likewise, IRS doesn’t have to pay up until either the blower has accepted the offer and waived all appeals rights, or final order disposing of any appeals is entered. Here, 1-18W petitioned, so 1-18W can wait.

1-18W objects to the sequester take-out, but that was a lost cause long ago.

Finally, 1-18W gets no interest on his/her award, and neither will anyone else. Sovereign immunity bars interest on awards and judgments, unless specifically waived by statute, and here Section 7623 is silent.

If you want to know why whistleblower awards take so long, read this opinion.

Edited to add, 11/19/25 Looks like DC Circuit asked the same questions Taishoff did.

But Take the Reasoning

Maureen Robinson, Docket No.12800-22L, filed 10/16/23, deals with the remand from 3 Cir of the  9/22/22 order tossing Maureen’s petition from the NOD in her CDP.

I don’t cover the Article III courts, for want of resources. Anyway, 3 Cir’s non-precedential order got a full airing in the trade press, and I didn’t blog the 9/22/22 Tax Court toss, as it was in line with the previous leg-before-wicket cases where petitions were served post-CDP but before the NOD issued. 3 Cir waxed rapturous about Tax Court’s “leaning backwards” to  dig up jurisdiction to bail out hapless self-representeds, drowning in the ripcurrents of Tax Court law and  practice.

3 Cir said nothing about equitable tolling, but the doctrine hovers over every petition from a CDP.

Howbeit,  Ch J Kathleen (“TBS = The Big Shillelagh”) Kerrigan shows us how Maureen gets back on track, as 3 Cir suggested. Treat objection as petition.

The old petition at Docket No. 12800-22L is dismissed as jurisdictionally defective. A new docket, No. 28077-22L, is opened as of date of Maureen’s objection to IRS’ motion to dismiss 12800-22L, her objection becomes the petition therein, she is free to raise anything else she could have raised in 12800-22L, IRS need file no answer as Ch J TBS Kerrigan deems all assignments of error, statements of fact, and any allegations Maureen raises in 28077-22L, denied by IRS.

Now go try the case on Our Outlying Island off the coast of North America.

Takeaway- Even on non-CDPs, 3 Cir’s nonprecedential discourse can be cut-and-pasted into your memo of law (without citation, of course, as direct citation is barred) when jurisdiction is sketchy but your client is sympatico. And Ch J TBS Kerrigan’s procedural solution is a template.

I can’t conclude without a Taishoff award. I can’t find any attorney listed for Maureen; if she was represented, her trusty attorney gets a Taishoff “Good Job, First Class.” If Maureen was self-represented throughout, she gets a Taishoff “Good Job, First Class, with Diamonds.”

Unhappily, this situation cannot invoke the unexpansive jurisdiction of US Tax Court. This Paul James Kline, Docket No. 27241-22, filed 10/13/23 discovers, as Ch J Kathleen (“TBS = The Big Shilleagh”) Kerrigan provides the boilerplate recitation of what limits Congress has set upon Tax Court.

Needless to say, ordering IRS to issue PJ a stimulus check doesn’t fall thereunder, despite the fact that PJ’s” (R)epresentations in the petition also emphasized petitioner’s incarcerated status.” Order, at p. 1.

It was a long time until I could remember the analog to PJ’s difficulties in getting stimulus in his situation, but memory and a prolonged search of old files brought Kevin DeWitt Skaggs back. If you don’t remember Kevin DeWitt Skaggs, don’t feel alone. Rather, see my blogpost “Oversoon,” 4/26/17. Kevin DeWitt’s bœuf involved EITC for his paid work in the prison hospital.

PJ meets the same fate.

“Suffice it to say that no IRS communication supplied or referenced by petitioner to date constitutes, or can substitute for, a notice of deficiency issued pursuant to 6212, I.R.C., a notice of determination issued pursuant to sections 6320 and/or 6330, I.R.C., or any other of the narrow class of specified determinations by the IRS that can open the door to the Tax Court for purposes of this case. To the contrary, petitioner’s apparently expansive view of the Court’s authority fails to comport with the limited nature of the jurisdiction set forth in the statutory parameters set forth above. Stated otherwise, the Tax Court has no role or authority in the administration of the so-called economic stimulus payments.” Order, at p. 3.

PJ, like me, is a fan of summary J, but to get it, you need a court with subject matter jurisdiction.

I must again thank Judge David Gustafson for giving me copy on a day when the rest of Tax Court has nothing but procedure to satisfy my readers. Even though it’s the much-contemned Affordable Care Act that’s before us, and an attempt to avoid the post -2017 $0 penalty, Richard Goodman & Amy Goodman, Docket No. 2528-21, filed 10/12/23 (a happy date in our family) try a novel approach.

Enrolling directly in a health insurance plan they claim is a Section § 36B(c)(2)(A)(i) qualified silver plan, Rich & Amt want the Section 36B Premium Tax Credit to the tune of $14K. As IRS wants summary J they don’t get it, but Judge Gustafson takes Rich & Amy at their word; nonmovants gets every favorable inference. IRS never claims the plan Rich & Amy chose is not so qualified, nor that they didn’t pay what they claimed, nor that they missed the 400% of poverty cutoff.

No, they bought directly from the insurer, not through the MD Exchange. And, as Bob Frost put it, “that has made all the difference.”

“As we have previously held, see Sek v. Commissioner, T.C. Memo. 2022-87, at *7, and as we have already discussed in this order, section 36B(c)(2)(A) plainly requires that the plan must also have been ‘enrolled in [by the taxpayer] through an Exchange’. Because the Goodmans did not enroll through an Exchange, the fact (if it is a fact) that their plan was a ‘qualified health plan’ does not alter the outcome.” Order, at p. 4.

For the Sek story, see my blogpost “The COBRA Bite,” 8/29/22.

You gotta buy through the Exchange.

Politics and policy playing no role on this my blog,  I will not comment upon the statute, nor the policy upon which it was based. I will most definitely not give my view, albeit it that such is the majority view in many countries, and, for all I know, in this one as well. Everything in its place.

I’ve often discoursed about the obliging nature of Judge David Gustafson.  I’ve said before, “(H)e’ll try your case in the slammer; he’ll draft your pleadings; he’ll do everything but bring doughnuts and coffee to calendar call and feed the parking meter while you wait.” See my blogpost “Obliging? This Beats All,” 3/6/19.

But Arthur Bialer, Docket No. 6983-16W, filed 10/11/23, finally crosses the red line.

Arthur tried twice for reconsideration. He lost those, but now wants to compel IRS to produce documents on all of the dodges Arthur denounced with respect to Target. No. All that is relevant is what pertains to Arthur’s claim about Target, not everyone else who tried the same move. And everyone else would involve taxpayer information beyond what Section 6103(h)(4)(A) allows; that section only lets in taxpayer information relevant to parties to the proceeding.

He does get to expand the time period for which IRS must produce pre-claim correspondence.

Judge Gustafson chose an arbitrary six-month window because the parties didn’t specify any. IRS claims this is yet another motion to reconsider and it’s outside the thirty-day Rule 161 cutoff.

“We acknowledge that this 6-month period was not based on any mandatory principle, and that the timeframe Mr. Bialer proposes … is reasonable. Furthermore, as to the procedural defects of Mr. Bialer’s motion raised by the Commissioner, we agree to entertain Mr. Bialer’s motion and reconsider the timeframe stated in our order … because our … cut-off was new matter, and we are reconsidering it now for the first time.” Order, at p. 5.

But that’s it for Arthur.

“From the Court’s perspective, we have bent over backwards to be sure that we have given him the opportunity to clarify (and even repeat) his contentions and that we have fairly entertained those contentions. The window for reconsideration is now slammed shut, and we do not expect to entertain (but rather to summarily deny) any further motion to compel or to reconsider.” Order, at p. 6.

Readers, let’s all join in welcoming to the bench of United States Tax Court Special Trial Judge Zachary S. (“Highrise”) Fried, a fellow dirt lawyer and a grand addition to a distinguished panel.

I look forward to many interesting opinions.

I can do no better today than to refer you to my blogpost “A Klug Zu Columbus’n,” 10/13/14.

Judge David Gustafson really needed to apostrophize the best-selling author of “Games People Play,” as IRS has joined the party in full swing with gusto. Discovery is the subject, and games abound, in St. Andrews Plantation, LLC, Joseph N. McDonough, Tax Matters Partner, Docket No. 20849-17, filed 10/6/23. IRS hasn’t been doing all that great against the St. Andys; see my blogpost “Contesting the Unimprovable,” 3/4/21.

The FPAA said that the St Andys’ conservation easement violated Section 170, tout court. Naturally, the St. Andys want IRS to tell them exactly what part of Section 170 is the gravamen of the FPAA.

Judge Gustafson: “The FPAA cites section 170, which is well over 10,000 words long, to say nothing of the regulations promulgated thereunder; and the FPAA raises the issue of valuation.” Order, at p. 2.

IRS did list four (count ’em, four) bases for denying the $27 million Dixieland Boondockery deduction, but didn’t mention valuation or chops. The improvement bits, referred to in my above-recited blogpost, didn’t survive Hewitt, of course. IRS, nothing daunted, claimed “the right to raise additional positions depending on discovery.” Order, at p. 3.

Cute, but don’t try that in Judge Gustafson’s courtroom. He’d set a discovery schedule.

“…we deny the Commissioner’s claimed general ‘right to raise additional positions depending on discovery’. After the deadline we imposed, he has no such right. We will grant petitioner’s motion and will preclude the Commissioner from raising (or conducting discovery on) issues other than valuation, penalties, and the four contentions listed in his interrogatory response….” Order, at p. 5.

Now IRS didn’t raise valuation and chops in their Four Points, but Judge Gustafson finds the FPAA gave adequate notice to the St. Andys that these were on the menu.

Bottom line: “To prepare for trial, the petitioner—who will generally bear the burden of proof—is entitled to know what is in dispute, and the Court is obliged and empowered to assure that the parties disclose their contentions on a reasonable schedule.” Order, at p. 4.

Wits, wags, and wiseacres, at whichever table you sit, be advised: Discovery means discovery. Leave the games at home.

Footnote: Monday, 10/9/23, is a Rule 25(a)(5)(A) Legal Holiday, so Tax Court will be closed. Enjoy your holiday, whatever you call it.