STJ Diana L. (“Sidewalks of New York”) Leyden, erstwhile Taxpayer Advocate for Our Fair City, presided over a distinguished Zoomiegram panel of LITC and pro bono attorneys, bringing to the fore the need for volunteers and the valuable training this provides practitioners.

Of course, those who read this my blog know all that. I am sure many of you are calendar call commandos and helpers of the helpless.

I did find interesting reference to Rule 151.1, Brief of An Amicus Curiæ. It seems that, when a novel legal question of far-reaching impact may arise in a self-represented case, Tax Court will reach out to ABA Tax Section, and even various organs of the blogosphere, to solicit motions for leave to file briefs amicus. Shares of Mandy Mobley Li! Of course, those not deemed sufficiently important will hear nothing. I suggest the Tax Court Bar generally should be notified; if we are not sufficiently important to be notified and perhaps allowed to seek leave (which is not automatic, of course), why are we allowed inside the Glasshouse at all?

If any suspect I have a pony in this horserace, they’re quite right. Who else has covered USTC on a daily basis for twelve (count ’em, twelve) years?

I do want to thank the LITCs for pairing rookies with established players in pro bono teams. The only way to learn one’s craft is on the job with those who know. Young lawyers too often are out on their own with no role models.

Judge Morrison’s exposition in John Peter Zaimes, T. C. Memo. 2023-118, filed 9/26/23, is more formal than the title first set forth at the head hereof would imply. But I recommend it as a comprehensive essay on reasonable cause for failure to file and pay timely, a drilldown into Section 6651 and Section 7502.

Judge Morrison believes JP when he says he mailed his return and a check for part (but not all) of the tax he owed. JP was rushing to the airport, and his trusty CPA gave him the return, but did not e-file it until a year later, after JP discovered his mailed return was never received nor his check cashed.

Tax owed is not an issue; JP concedes. The issue is the late-filing and late-paying add-ons.

Section 7502, and its regs, get a workout. Judge Morrison prints it in extenso at pp. 12-20. JP fails to prove he put adequate postage on the envelope, or that he properly addressed the envelope. And IRS says they never got it; getting it within the time when mail ordinarily gets from sender to proper IRS processing office is also required. Nonreceipt nullifies JP’s credible testimony that he put a private postage meter mark with the magic date on the envelope. And 9 Cir, whence JP is Golsenized, says extrinsic evidence can’t prove timely mailing if the return was never received.

And reliance on CPA doesn’t work, unless advice given was legal advice, but all JP has it that his CPA never told him to file certified. Relying on the instructions to Form 1040 doesn’t work, especially if you can’t testify that you read said instructions. If JP could prove USPS lost the return, he might have reasonable cause, but he can’t prove that.

As for failure to pay, reasonable cause must exist at due date without regard to extensions. Reasonable cause that arises later, say at a subsequent month, does not excuse the 0.5% add on for that month. And partial payment doesn’t excuse, only reduce the amount of tax due on which the add-on is computed. IRS gave JP credit for his partial payments when they computed the add-on.

In short, file certified, registered or IRS-approved PDS if filing paper. Otherwise, e-file. And tell ’em JP sent ya.

Turns out that Joseph Michael Balint, T. C. Memo. 2023-118, filed 9/25/23, was grousing about someone grabbing his IRA and other stuff, as I surmised back in 2019; see my blogpost “Common Sense in Tax Court,” 10/2/19. Likewise turns out that it was his loved-once Jacqueline, to whom Joe gave POA whilst in the FL slammer. Jacqueline proceeded to grab north of $130K therewith, and skedaddle for KY, filing for divorce as she went.

Joe didn’t know that Jacqueline grabbed his gelt and scarpered until he got served with divorce papers while he was still in jail.

Judge Gale recollects the sad tale of Andy Roberts, referred to in the aforementioned blogpost, and lets Joe off the hook for whatever didn’t benefit him. Now this comes up in a CDP, so before y’all yell “prior opportunity to contest,” Joe self-reported the income even though he claimed he never got it, as he was scared that, if he didn’t, the FL authorities would revoke his parole. Hence self-reported. So he gets a chance to contest, and does.

Joe sued for divorce his own self after Jacqueline’s case didn’t result in judgment. FL State court found Joe didn’t owe tax on what Jacqueline took, but no issue preclusion, as IRS wasn’t a party to State court proceeding. And nonmutual preclusion generally only bars a claim defensively. Nonmutual offensive collateral estoppel doesn’t apply against the government.

Joe wasn’t the distributee of Joe’s IRA money per Section 408(d)(1), as Jacqueline took same in breach of her fiduciary duty under the POA.

“… although a taxpayer is generally treated as the recipient of any income received by his or her agent, that rule does not apply ‘where the agent receives and misappropriates funds for his own use, where the principal had no knowledge of such misappropriation, and where the principal received no economic benefit from the misappropriated funds.’” T. C. Memo 2023-118, at p. 12.

True, the POA provided for dispositions of property and giving of gifts, which might otherwise be adverse to principal’s interest, but only for tax, estate, and public assistance planning purposes, to benefit Joe. It wasn’t an open-ended license to grab. Judge Gale has plenty of FL somber reasoning and copious citation of precedent for that. And Joe had made it clear to Jacqueline while he was in jail what he wanted…protection of his assets.

Joe’s off the hook.

Ain’t Nobody Happy

This was my lodestar from childhood’s earliest hour, and remains so. And it clearly obtains forcefully in Judge Ronald L. (“Ingenuity”) Buch’s court, as he denies summary J to IRS in Jeffrey D. Hoyal and Lori D. Hoyal, Docket No. 6791-20, filed 9/25/23.

Jeff and Lori ran their businesses through various vehicles, but we’re concerned with Crater Lake Trust, an irrevocable. During years at issue, Jeff was trustee, and beneficiary was Jeff’s Momma, Dawna. IRS wants to collapse the trust and send all tax incidents though to Jeff per Section 671, on an assignment of income theory: the trust really belonged to Jeff. IRS claims, per Section 674, Jeff could do what he wanted with trust corpus and income, there being no party adverse to Jeff or any nonadverse party.

IRS relies on the provisions of the trust instrument. Jeff and Lori claim questions of fact: was Momma Dawna an adverse party; did she provide “approval or consent” to what Jeff did or didn’t do, per Section 674(a); did Jeff part with command and control over the trust property or income; and was Momma Dawna the sole beneficiary of the trust?

“The Hoyals and Crater Lake Trust argue that Dawna Hoyal is an adverse party that had approval power and used that power. They contend that she is an adverse party because she was the beneficiary of Crater Lake Trust during the years in issue. And they contend that she had approval power because she approved all major decisions about Crater Lake Trust’s investments and sale of property, and she reviewed and signed its tax returns. The Hoyals and Crater Lake Trust rely on the deposition of Dawna Hoyal…. and the deposition of Jeffrey Hoyal… as support for their argument that Dawna Hoyal had approval power.” Order, at pp. 3-4.

That’s enough for Judge Ingenuity Buch. Just relying on the written word of the trust instrument isn’t enough.

No summary J.

I was surprised when Judge Patrick J. (“Scholar Pat”) Urda cited, apparently as authority, two (count ’em, two) orders from wholly-unrelated cases in Beaverdam Creek Holdings, LLC, Beaverdam Creek Investors, LLC, Tax Matters Partner, Docket No. 12362-21, filed 9/22/23.

Before going off to celebrate this date, I gave one last look for blogfodder to close out the rather slim pickings this week afforded. Here’s IRS playing the Boss Hoss summary J gambit with extra caution after the Lakepoint drubbing. Order, at p. 4, footnote 4.

The Dammed were fighting over whether the declarations by supervisor and supervised were inadmissible hearsay, but Judge Scholar Pat gave that short shrift. Hearsay that can be reduced to admissible evidence on the trial can be used to support summary J in 11 Cir; supervisor and supervised could both testify under oath on a trial, and the Dammed are in 11 Cir.

“These declarations, together with RA S’s declaration, confirm SRA P’s explicit statement on the penalty lead sheet that she was RA S’s immediate supervisor at the time she approved the penalties. See e.g., Order, Elbow Creek Aggregates, LLC v. Commissioner, No. 14702-21 (T.C. Mar. 21, 2023) (‘[a]ll three individuals ha[d] supplied Declarations confirming that Messrs. V and S supervised Ms. G during the Elbow Creek assignment.’); Order, Sunfish Cove, LLC v. Commissioner, No. 14163-21 (T.C. Mar. 23, 2023) (‘RA P and Mr. G ha[d] submitted Declarations . . . averring Mr. G was RA P’s immediate supervisor).’ Order, at p. 5. (Names omitted).

I didn’t blog Elbow Creek because Judge Albert G (“Scholar Al”) Lauber gave a beautiful and much more blogworthy dissection of Section 86 Social Security taxation that day in Lin, T. C. Memo. 2023-37. Anyway, Elbow Creek is just a rehash of Kroner any-time-before-assessment Boss Hossery. I did blog Sunfish Cove (see my blogpost “That’s the Word – Part Deux,” 3/23/23).

But the point of all this (OK, y’all can yell “There is?” I can take it) is that Judge Scholar Pat, who has tried some eighty Tax Court cases before ascending the bench, forgot Rule 50(f): “Orders shall not be treated as precedent, except as may be relevant for purposes of establishing the law of the case, res judicata, collateral estoppel, or other similar doctrine.” None of those are in play here, as I can find no connection among the Dammed, the Sunfish, or the Elbows, such as would invoke law of the case, issue preclusion, claim preclusion, “or other similar doctrine.”

This merits a Taishoff “Huh?”

In Mikel P. Kunza & Tanya R. Kunza, Docket No. 15726-21S, filed 9/22/23 (a very special day in my house), Judge Ingenuity Buch revives Judge David Gustafson’s answer to my long-expressed need for a structure for judges and STJs to follow, and guide for petitioners and practitioners, in dealing with the Section 6673 delay-of-game chops. In parsing past orders and opinions, with unexplained or semi-explained variations in whether to impose, and how much to impose, I suggested that the process was arbitrary, and that thereby contumacious litigants might contest or avoid impositions on reconsideration or at USCCA. I won’t try to collate all my blogposts; this would only weary me and my readers. But Judge Gustafson had the answer back in 2015; see my blogpost “Another Rounders’ Day,” 6/3/15.

Mik & Tan are long-time rounders, going back fourteen (count ’em, fourteen) years. IRS moves to toss their latest visit to The Glasshouse on Second Street, NW, for lack of prosecution. Judge Buch, sua sponte (that means on his own, for you who didn’t go to expensive law schools), tells Mik & Tan that Section 6673 is in play.

First, Judge Ingenuity Buch goes through IRS’ and his attempts to move the case. It’s a third-party reporting joust, so Mik’s & Tan’s claim they didn’t get the cash isn’t per se frivolous. But Mik’s & Tan’s interactions with IRS were less than cooperative.

“While the Court perhaps does not have the full array of communications between the parties, the Commissioner provided email correspondence between his counsel and Mr. Kunza. Those communications show polite inquiries, suggestions, and overtures from the Commissioner’s counsel. They also show profanity-laced tirades directed at the Commissioner’s counsel, his paralegal, government lawyers in general, and the Court. Mr. Kunza raises issues of race, politics, and COVID vaccines, none of which bear on the tax issues in this case.” Order, at p. 2.

Now under the usual procedure, that would be enough to qualify Mik & Tan for the Section 6673 finals, and assure them a place on the chopping block. But this is Judge Ingenuity Buch; remember his often-quoted 63 (count ’em, 63) page takedown of Stephen T. Waltner. Well, if you don’t, see my blogpost “Cracking Up,” 2/27/14.

So Judge Ingenuity Buch gives Mik & Tan the Waltner treatment, first itemizing every attempt to get this case moving. Next, he goes back to 2009 and gives a précis of each of Mik’s & Tan’s four (count ’em, four) previous visits to Tax Court (and, in fairness, one of them did settle out) and whether a Section 6673 chop or warning followed.

But the tour de force comes at pp. 3-4, as Judge Ingenuity Buch revives Judge David Gustafson’s twelve-point checklist from Leyshon and runs it, item by item, with citations to specific supporting incidents.

It doesn’t matter that the deficiency is $1100; a $500 chop is a stinger.

If making imposition of Section 6673 chops appeal-proof is your aim, Judges Gustafson and Buch will show you how.

Third time is distinctly unlucky for Clair R. Couturier, Jr., Docket No. 19714-16, filed 9/21/23, as Judge Albert G. (“Scholar Al”) Lauber kicks Clair’s expert witness SJS into touch. You’ll remember that Clair was fighting over a busted IRA (ten years’ worth of 6% per annum Section 4973(a) excess contributions tax).

Clair and an outfit called The Employee Ownership Holding Company, Inc. (TEOHC) did a give-and-go rollover, and canceled a bunch agreements (hi, Judge Holmes), which gave rise to some $26 million of cash and a note. But no separate allocation between rolled and canceled (unrolled) was made at the time, so it remains to do so now, so that the worth of the unrolled can be determined, and the 6% excise tax applied (plus chops).

This is Clair’s third appearance in this my blog. See my blogpost “Foolish Consistency – One Mo’ Time,” 7/6/22 for the rest.

SJS opines that the canceled agreements violate ERISA, so they’re worthless. Yes, don’t yell, it’s a conclusion of law, which is the province of the judge, so whatever SJS has to say about that is out.

Next, “…he opines that their value should be capped at 15% of ‘the total equity value of the company [i.e., TEOHC].’ He bases this opinion on a ‘rule of thumb that many ESOP trustees use when negotiating executive compensation agreements that dilute the ownership rights of the ESOP.’ This supposed ‘rule of thumb’ is that ‘no more than 15% of the equity value can be used for executive compensation.’ His report supplies no facts or data to support this statement; it is simply an assertion discussed in a single paragraph on page 14 of his report. He acknowledges that his supposed rule of thumb ‘is not a hard rule’ and that he has ‘seen ESOP-owned companies with more . . . equity compensation to management than 15%.’” Order, at p. 2.

Do you hear echoes of the infamous “Primoli memo,” which birthed the much-derided 15% diminution for façade easements? Judge Scholar Al hears echoes of vitamin pill scion Mitch Skolnick, whose unhorsing I chronicled in my blogpost “Horsefeathers,” 6/3/19.

“SJS’s second opinion must be excluded because he supplies absolutely no facts or data to support his 15% number, but only his bare assertion that this is a ‘rule of thumb that many ESOP trustees use.’ In Skolnick v. Commissioner, T.C. Memo. 2019-64, 117 T.C.M. (CCH) 1319, 1322, we rejected expert testimony from an appraiser for similar reasons, ruling that an expert must ‘explain how he got to his results, which requires that he show the data he considered, the methodology he applied, and the manner in which he applied his methodology.’ ‘Without that information,’ we noted, ‘the Court has no means of examining whether the report ‘rests on a reliable foundation and is relevant to the task at hand.’ Id.” Order, at p. 2. (Citation omitted).

Besides, the issue is not what a hypothetical ESOP trustee may have done, but what the parties to the deal (Clair and TEOHC) agreed was the value of what Clair got.

So Judge Scholar Al gives “thumbs down” to SJS’ report and his rule of thumb.

While I have often railed against TEFRA’s complexities and boobytraps, here’s a couple cases (hi, Judge Holmes) where perhaps the single-track approach of the Bipartisan Budget Act of 2015 (was it that recently we had bipartisanship? Seems like a lot longer…but this is a nonpolitical blog) doesn’t suit as well.

First, Silver Moss Properties, LLC, Silas Mine Investments, LLC, Tax Matters Partner, Docket No. 10646-21, filed 9/20/23. The Mosstroopers gave IRS a document dump, whereupon IRS moves to amend to add Section 6663 fraud chops to the FPAA.

The Mosstroopers claim bad faith, prejudice, and futility, so Rule 41 and its cognate, FRCP 15(a) don’t serve to permit this late amendment.

Judge Pugh: “Petitioner takes issue with respondent not explaining which specific documents provide the factual basis for his Motion. Petitioner believes that respondent needs to supplement his Motion with citations to documents so that it can determine whether respondent based his Motion on documents discovered years ago (which might support an argument of undue delay) or produced in [the recent dump].

“We do not think respondent has to supplement his Motion with citations to specific documents as that would go against Rule 41(a)’s liberal standard …  that leave be given freely.” Order, at p. 3.

As for prejudice, “(T)he standard is not whether the addition of the civil fraud penalty would make the case harder or more expensive for petitioner, but whether petitioner would suffer an unfair disadvantage because of the addition of the civil fraud penalty. See Ax v. Commissioner, 146 T.C. 153, 168–69 (2016). Here, respondent bears the burden of proving the alleged fraud by clear and convincing evidence.  And this case has been continued only once before, is not calendared for trial, and discovery is ongoing. Petitioner will have ample time to respond to the amended Answer, conduct further discovery, and prepare a defense.” Order, at p. 3.

For the Ax case, see my blogpost “A Retrieved Reformation,” 4/11/16.

Finally, futility is a nonstarter, because IRS’ amended answer pleads enough facts to sink the Mosstroopers, if IRS can prove them all by clear and convincing evidence. An amendment is futile only if, were the proponent to establish everything pled therein, the proponent still loses.

But here’s the parties of the second part, Robert T. Ervin, IV & Sandra Landry Ervin, Docket No. 14500-19, filed 9/20/23. Rob & Sandra are partners of the Mosstroopers, fighting a SNOD that includes some spillover from the Mosstrooper fight above set forth, but also includes some non-Mosstrooper stuff, that Rob & Sandra settled out last year.

IRS moves to strike the partnership stuff, and Rob & Sandra are down with that. Judge Goeke agrees, and suggests a stipulated decision dealing with the non-TEFRA stuff. He even will help the parties draft their stiped decision. “The Court suggests that the parties add the following sentence to the decision: The parties stipulate that the issues arising from Silver Moss Properties, LLC v. Commissioner including additions to tax are not at issue in this docket.” Order, at p. 1. I’d suggest “not at issue in this case,” rather than “docket”.

But the point (and I can hear my readers, those that are still here, saying “There’s a point? How quaint!”) is that in a post-BBA 2015 one-size-fits-all environment, with multiple partners fighting multiple SNODs, each perhaps involving different years for different non-partnership items, with multiple stipulations and multiplicitous decisions as to each partner but with the partnership-level issues pertaining to all, it will become almost impossible to sort out what pertains to whom. While separating partnership items from partner items in different cases often ambushed the unwary partner, who discovered too late in their individual case that they should have been watching the FPAA case, it let the diligent and savvy partner work out their individual deal without the clutter of the FPAA.

Once again, the Law of Unintended Consequences stirs the silt.

It was either a sorority famed on The Hill Far Above in my youth for its parties (ah, my misspent youth! I spent it studying law), or my shorthand for subpoena duces tecum (which I called by a rude, schoolboy name). But it was well to know that discovery device, and Judge Christian N. (“Speedy”) Weiler has a short course in how to respond, and what happens if you don’t.

Of course, Green Valley Investors, LLC, Bobby A. Branch, Tax Matters Partner, et. al., Docket No. 17379-19, filed 9/19/23, are back to illustrate, bringing with them those well-known appraisers V and W (names omitted), who’ve often appeared in this my blog when Dixieland Boondockery is on the menu.

V and W each was served with a SDT, and neither moved to quash nor asserted defenses. But IRS claims they didn’t cough up. So Judge Speedy Weiler lays down the law.

Let each provide “proof that he has produced the documents requested by respondent in accordance with the subpoena… or with an explanation for why he has failed to respond or otherwise does not have possession, custody, or control of the requested documents.” Order, at p. 2.

But if contumacious, “failure to adequately respond to this order may cause the Court to exercise its power to compel his deposition or hold him in contempt of court. See I.R.C. § 7456(c).” Order, at p. 2.

Now both Messrs. V and W are represented by counsel, upon whom Judge Speedy Weiler directs service of this order.

And whom else would you want when confronted with “ten runs to make and a match to win, a bumping pitch and a blinding light, an hour to play and the last man in”? The Jersey Boys, of course. And Frantic Frank Agostino, Esq., the last man in.

Just his kind of case.

Sarah S. O’Nan, T. C. Memo. 2023-117, filed 9/18/23, was denied a refund of the $123K net proceeds from the non-short sale of the house she and deceased spouse held in a OH “survivorship tenancy.” For non-dirt lawyers, that means survivor takes all. But there was a NFTL for the $123K in unpaid taxes. Sarah filed innocent spousery, got Section 6015(f) equitable partial relief for Year One and total relief for Year Two, but IRS held on to the $123K that came out of the sale (obviously to release the lien).

I want to start with a Taishoff “Good Job, First Class,” to Sarah’s trusty attorney, whom I’ll call Louie.

Sarah was widowed when spouse died suddenly at age 43, leaving her broke and owing taxes. There were two (count ’em, two) mortgages on their home, on which Sarah stopped paying. Sarah signed both mortgage deeds (OH is apparently a conveyance state), but deceased spouse only signed the senior mortgage note; unclear whether Sarah signed the junior mortgage note. While the senior mortgagee was foreclosing, Sarah sold, paid off both mortgages, and the tax lien.

When the dust cleared, Sarah owed IRS $3340 for Year One, and zero for Year Two. IRS would not give back the $123K, claiming Sarah flunks the Section 6015(g)(1) payment-from-own-funds test. While there can be a refund for an innocent spouse to the extent the relieved liability arises from nonrequestor, the innocent spouse must have paid the tax from which s/he is now relieved.

Review in this case is de novo. Before every reader yells “Section 6015(e)(7),” Sarah petitioned before the Taxpayer First Act came into effect, so she gets a real trial, but with BoP attached. She’s already innocent, which nobody denies.

State law determines whether the NFTL attaches to the interest she automatically inherited at her late spouse’s death; and there’s caselaw that says it does.

Comes Section 6015(f) to the rescue. Judge Elizabeth A. (“Tax”) Copeland judge-‘splains.

“…when a requesting spouse is granted section 6015(f) relief, we recalculate her federal tax liability as if she and her spouse (or deceased spouse) had filed married-filing-separately returns for the relevant years. If Mr. and Mrs. O’Nan had filed married-filing-separately returns for the years in issue, then for [Year One] Mrs. O’Nan would have had a liability of $3,340 (the amount for which she was denied section 6015(f) relief) and for [Year Two] she would have had no liability (as she was granted full relief for that year). We therefore hold that although the IRS retained a lien on the family home in the full amount of the liabilities for the years in issue, that lien did not encumber Mrs. O’Nan’s original one-half interest except to the extent of $3,340 plus interest.” T. C. Memo. 2023-117, at p. 8.

Judge Tex Copeland whacks up the sales proceeds from deceased spouse’s half first. Closing costs come out off the top; most of that is State and local tax, she assumes without deciding (as those total only $14K, it probably doesn’t matter). Only deceased spouse signed the first mortgage note; Sarah signing the mortgage is at best a surety, and since deceased spouse’s share of the proceeds is more than enough to pay off the first mortgage, Sarah’s share is untouched; likewise, the first mortgage was perfected before the NFTL, so it has Section 6323  priority.

As for the junior mortgage, the record doesn’t show who signed the mortgage note, but deceased spouse was primary breadwinner and junior mortgage was made only about a year after the first. Howbeit, that mortgage was senior to the NFTL also. And whatever was left of deceased spouse’s half of the proceeds went to pay the junior mortgage.

So as IRS is low totem on the pole, and as Sarah is adjudicated innocent except for the $3340, and there’s nothing left of deceased spouse’s half, whatever paid off the lien must have come from Sarah’s half, hence her money.

IRS argues deceased spouse’s death has nothing to do with the lien. True, but Sarah was given innocent spousery for all but $3340. Sarah wants back the whole $123K, but IRS gets to keep the $3340.

Going for innocent spousery first with a young, broke, sympathetic widow was a good move. Not putting in the second mortgage note was brilliant; well done, Louie. I’m surprised the lenders didn’t insist on both parties signing both note and mortgage; I always did when I represented lenders. The Little League catchers’ rule: Tag ’em all, baserunner, batter, umpire and yourself.

Takeaway: Post Section 6015(e)(7), when you have a stand-alone innocent spousery, Appeals is your trial. Put everything in the administrative record. You won’t get a second chance. And tell ’em Louie sent ya.