Source: https://taishofflaw.com/2019/02/
Timestamp: 2019-04-25 23:49:06+00:00

Document:
The Palmolives really have taken a licking, and Judge David Gustafson won’t let up. Having toasted their façade write-off (see my blogpost “No Joy Forever – Because Golsen,” 10/11/17), and thrown shade on their good-faith reliance on Mike Ehrmann’s dodgy appraisal (see my blogpost “Gude Faith, He Maunna Fa’ That,” 12/14/18), today he sustains alternative 40% substantial overvaluation penalty and 20% chops for negligence or disregard of rules, understatement of tax, or substantial valuation misstatement, even though awarded six (count ‘em, six) years apart, at Examination and at Appeals, and on different forms.
You can read all about it in Palmolive Building Investors, LLC, DK Palmolive Building Investors Participants, LLC, Tax Matters Partner, 152 T. C. 4, filed 2/28/19.
To begin with, nobody mentioned chops to the Palmolives before the Boss Hosses had signed something. “Section 6751(b)(1) includes no requirement that all potential penalties be initially determined by the same individual nor at the same time. “ 152 T. C. 4, at p. 16. And the Palmolives’ reliance on IRM §20.1 gives them no rights.
“On the issue of section 6751(b) compliance, the IRS’s use of a form other than the one prescribed by internal administrative regulations does not preclude a finding that the supervisory approval requirement has been satisfied. See PBBM- Rose Hill, Ltd. v. Commissioner, 900 F.3d 193, 213 (5th Cir. 2018) (‘The plain language of § 6751(b) mandates only that the approval of the penalty assessment be “in writing” and by a manager’). Section 6751(b) does not require written supervisory approval on any particular form.” 152 T. C. 4, at p. 17. For a glimpse of PBBM pre-5 Cir, see my blogpost “Thanks A Lot, Judge,” 10/11/16, where Judge Morrison piles it on.
And who cares if the RO or the AO didn’t sign the right paper? “What must be ‘in writing’ to satisfy section 6751(b)(1) is the supervisor’s approval. The statute does not require any particular writing by the individual making the penalty determination, nor any signature or written name of that individual.” 152 T. C. 4, at p. 17.
And as long as the Boss Hoss signed something to which the initial determination was manifested, that’s A-OK with Judge Gustafson.
The Palmolives claim that negligence and disregard are two separate penalties, but even if they are, the Exam Boss Hoss signed off on one and the Appeals Boss Hoss signed off on the other.
For the Judge who kicked off the epic Boss Hoss silt-stir with his famous dissent (see my blogpost “The Money Back Guarantee Meets The Boss Hoss,” 11/30/16), Judge Gustafson cuts the IRS plenty of slack in the Boss Hoss corral.
The Section 170(h) regs, specifically Reg. 1.170A-14(g)(6)(ii), the split-the-proceeds-if-the-easement-craters variation on the “joy forever” rule, is getting hammered in Oakbrook Land Holdings, LLC, William Duane Horton, Tax Matters Partner, 5444-13, filed 23/27/19.
It seems Billy D and the Oakbrooks claim the reg is invalid, because apparently IRS skipped a couple steps (note this is Judge Holmes’ order, so a dissed partitive genitive or two is de rigueur) when first they put it forth.
But first there’s the Case of the Missing Comments.
“It appears to be the first case in which there is a possible challenge to the validity of 26 C.F.R. §1.170A-14(g)(6)(ii). The Court has recently become aware that there may have been comments submitted to the Treasury Department during the course of considering this regulation, but its attempts to find the text of those comments using normal legal research resources have failed.” Order, at p. 1.
It seems that the Notice of Proposed Rulemaking that kicked off this reg, found in 48 Fed. Reg. 22940-01 (May 23, 1983), can’t be found online, not from Cornell, the Federal Register site, nor yet from Library of Congress’ website. And where these public comments might be, and what they might say, if anything to the point, can only be produced by IRS.
So IRS, go fetch, and when produced, both sides write fifteen (count ‘em, fifteen) but no more, pages saying what they have to do with this case.
In any case, thereafter the parties each have a shot at a twenty (count ‘em, twenty) page memo “to analyze whether the donor’s reserved right to make improvements in the conservation area created by the deed in this case is distinguishable from the similar rights reserved in the deeds at issue in Pine Mountain Preserve, LLLP v. Commissioner, 151 T.C. No. 14 (Dec. 27, 2018).” Order, at p. 2.
Y’all remember Pine Mountain, no? If not, check out my blogpost “Perpetually Swiss,” 12/27/18 BS (Before Shutdown).
Sounds like whether the divvy of the boodle at crater regs are valid won’t decide the case if Judge Holmes decides the Oakbrooks cut the cheese.
You’ll remember back last May the question of dodging the Boss Hoss sign-off by calculating the penalty on the computer came up, and STJ Diana L (“The Taxpayer’s Friend”) Leyden suggested a reopener. See my blogpost “I Sing the Penalty Electronic,” 5/16/18.
Turns out the reopener was unnecessary, because on the trial (which I did not blog) the petitioner showed good faith, so the Section 6662 chops were off the table.
So we still didn’t know the answer on the electronic Section 6662 chops.
But today we have a clear-cut case and a full-dress T. C., Craig S. Walquist and Maria L. Walquist, 152 T. C. 3, filed 2/25/19.
Craig and Maria are frivols, who got ACEd (Automatic Correspondence Examination, via the Correspondence Examination Automated Support software, untouched by human hands) with substantially understated tax. The software sent a 30-day letter to Craig and Maria, which they ignored. The electrons then fired off a Letter 3219 SNOD.
It was only when Craig and Maria petitioned that human beings got involved, and Craig and Maria got inventive. “Petitioners appended various documents containing assertions commonly advanced by tax protesters, including assertions that U.S. currency is not ‘lawful money’ and that they ‘have no obligations or liability to even file a return’ because they ‘intend to only handle legal money.’ Petitioners also advanced the more novel (but equally frivolous) argument that this Court should garnish the wages of the Secretary of the Treasury for an amount equal to petitioners’ outstanding tax liability.” 152 T. C. 3, at pp. 5-6.
Craig and Maria were told to amend, and they did, but it was still frivolous and they were still after Steve Mnuchin’s paycheck.
Craig and Maria next went to USDCMN, who tossed them as frivols.
Then, when Judge Scholar Al told them to play nice or get tossed, they went on a tear.
“Any and all utterances by ‘Judge’ Lauber are Refused for Cause timely as expressed herein with the first pages of [this Court’s orders marked] ‘Refusal for Cause’ conspicuously across their face. Mr. Lauber is no judicial officer and the US Tax Court * * * is not a court of record and therefore not a court of competent jurisdiction. * * * [Petitioner husband] is excused from tax liability through law about his redemption and the redemption of lawful money. All agents and Principal Steven Terner Mnuchin as US Governor of the International Monetary Fund are notified. * * * Therefore the US Tax Court is notified there will be no trial. Thank you for your testimony, everybody.’” 152 T. C. 3, at pp. 9-10.
There was no trial, of course; Craig and Maria got tossed, and Judge Scholar Al gives us the answer we’ve all been waiting for.
“For individual taxpayers, the substantial understatement penalty applies if the understatement of income tax for a particular year ‘exceeds the greater of- (i) 10 percent of the tax required to be shown on the return * * * , or (ii) $5,000.’ Sec. 6662(d)(1)(A). The penalty (as relevant here) is calculated at a flat rate of 20% of the ‘underpayment of tax required to be shown on * * * [the] return.’ See sec. 6662(a). This penalty is thus calculated mathematically, both in terms of whether it applies and the rate at which it is imposed.
“The IRS processed the examination of petitioners’ … return through its ACE system, employing its CEAS software program. This software program ascertained through third-party document matching that petitioners had total income of $95,327. The program computed a tax liability of $13,832 and calculated a penalty equal to 20% of that sum ($13,832 × 20% = $2,766.40). When petitioners failed to respond to the computer-generated 30-day letter, the CEAS program automatically generated a notice of deficiency setting forth a deficiency and penalty in these amounts. Because the penalty was determined mathematically by a computer software program without the involvement of a human IRS examiner, we conclude that the penalty was ‘automatically calculated through electronic means,” sec. 6751(b)(2)(B), as the plain text of the statutory exception requires.” 152 T. C. 3, at pp. 14-15 (Footnote omitted, but it just explains that Craig and Maria made a rounding error on their return).
An automatic machine-generated chop is not the “bargaining chip” Section 6751(b) was designed to take from the hands of over-zealous examiners.
And there is no Boss Hoss for a computer running standardized software. If this needs a Boss Hoss sign-off, then there can’t be any exceptions, and that makes hash of the statute.
Judge Scholar Al gives Craig and Maria a $12,500 Section 6673 chop at no extra charge.
Rarely do I get personal on this site. I save my personal thoughts (as opposed to strategic, tactical or policy comments) for another place.
The event (or nonevent) of Sunday, February 24, 2019, gave me reason to take an exception. This my blog got exactly three (count ’em, three) views that day. Only three; the fewest for any day since February, 2011. I did better even when Tax Court was shut down (both times) or I was in the hospital.
Hence the title of this blogpost.
I proffer the title hereof to Ch J Maurice B (”Mighty Mo”) Foley, to use if he needs again address the various missteps and miscues that bedevil the IRS staffer in Jeffrey M. Devries & Debra R. Kirshner Devries, Docket No. 21822-18S, filed 2/22/19.
It’s a run-of-the-mill motion to toss for want of jurisdiction, the stuff Ch J Mighty Mo handles by the ton. IRS’ problem is certifying they served Jeff. I’ll let Ch J Mighty Mo tell the tale in propria persona, as my expensive colleagues say.
“…respondent filed a Motion To Dismiss for Lack of Jurisdiction. Respondent did not attach to that motion a certificate of service for petitioner Jeffrey M. Devries. The Court issued a Notice of Docket Change…stating: ‘No certificate of service for Jeffrey M. Devries. You must file a Certificate of Service for Jeffrey M. Devries.’ Rather than filing only the certificate of service for Mr. Devries, as directed by the Court, respondent filed a second Motion To Dismiss for Lack of Jurisdiction, with a certificate of service for Mr. Devries attached.
“…the Court struck the second Motion To Dismiss for Lack of Jurisdiction from the Court’s record in this case and directed respondent to file a certificate of service for petitioner Jeffrey M. Devries, demonstrating that the first Motion To Dismiss for Lack of Jurisdiction was properly served on Mr. Devries. … respondent filed a Certificate of Service Motion To Dismiss for Lack of Jurisdiction demonstrating that the first Motion To Dismiss for Lack of Jurisdiction was properly served on petitioner Debra R. Kirshner Devries. … the Court struck respondent’s Certificate to Service…and directed respondent to file a certificate of service for petitioner Jeffrey M. Devries, demonstrating that the first Motion To Dismiss for Lack of Jurisdiction was properly served on Mr. Devries. Respondent failed to do so. … respondent filed a status report in which he incorrectly asserts that respondent filed a certificated [sic] of service as to Mr. Devries [for the second motion]….” Order, at p. 1.
I have served in offices where such a performance would earn a sulfurous rebuke from the high command.
Ch J Mighty Mo, exhibiting extraordinary patience and limitless forbearance, merely orders IRS to serve a certificate of service on Mr Jeffrey M. Devries of the first motion, the one they filed “November 27, 2018, at 8:11 a.m.” Order, at p. 2.
No, not cookery. I’ve been following Tax Court extra-territoriality lately, and today Judge Albert G (“Scholar Al”) Lauber is dealing with the deposition of a citizen of the Peoples’ Republic of China. Said citizen is not likely to show for trial in WT Art Partnership LP, Lonicera, LLC, Tax Matters Partner, Docket No. 19604-16, filed 2/22/19.
Without ruling whether any or all of the testimony thus elicited might be admissible on the trial, Judge Scholar Al lets the deposition go forward on Monday.
Rather a quick kick, as the order granting the deposition is to be sent to Mr. Guanghua Yin, apparently at his office in Wangfujing Street, Dongcheng District, Beijing.
He is directed to appear on Rhode Island Street in The City By the Bay, and tell his tale to a Certified Shorthand Reporter and Registered Professional Reporter. Oh, and the parties better have a translator on hand.
How exactly Mr. Yin is to be compelled to attend is not addressed. Tax Court’s mandate may run “from sea to shining sea,” but Beijing seems a stretch.
If you are going thus to describe the USDCJ who presided over your (losing) trial, whereat you went down for fraud per Section 7206(1) and Section 7206(2), please allow me to suggest that you (a) don’t do it in writing, (b) don’t send that writing to IRS Appeals as a prelude to your supplemental CDP hearing on the NFTL IRS laid upon you for the Section 6663 fraud chops, (c) don’t attach the writing to a status report you file with Tax Court, and (d) especially don’t do it with Judge James S. (“Big Jim”) Halpern.
Read and heed Harjit Bhambra, Docket No. 1395-16L, filed 2/22/19. Judge Big Jim has obligingly laid out the whole nine yards in a designated hitter.
IRS already won summary J for the court-ordered restitution. The only thing left is the Section 6663 fraud chops. Bham hadn’t a chance to contest these, so he gets a supplemental CDP to try.
But instead of offering evidence when Appeals offered Bham a telephone hearing, he “…responded by letter…, in which he demanded an in-person hearing that he would record and made inflammatory statements; e.g., ‘that the IRS agents are well qualified liars and cannot be trusted for any reason’ and the District Court judge in his criminal trial is a ‘reckless buffoon.’ Order, at p. 2.
Well, Bham got no in-person, but he did get a supplemental NOD saying that Bham had proffered no evidence to rebut Appeals’ determination.
Judge Big Jim, desirous of doing justice, tries to get Bham and IRS on the blower to discern a path to resolution.
“Following receipt of the supplemental determination, we reached out to the parties to discuss how to proceed. We were unsuccessful in our attempts in December 2018 and, following the government shutdown, in February 2019, in arranging a conference call with petitioner. For example, on February 11, 2019, petitioner did not answer at the time he had previously agreed to. In response to our attempts to reschedule the call at 5:00 P.M. on February 13, 2019, petitioner responded: ‘I’m working on February 13, 2019, and vacationing from 2-14-19 to March 8, 2019, please send me in writing whatever the [judge] has for this case.’” Order, at p. 3.
I do not recommend this as a response to a judge who is trying to find some way to help you. I also remind you to be very careful of what you ask for; you might just get it.
“We will take petitioner up on his invitation. We assume that, in asking for us to send whatever we have in writing, petitioner seeks no further hearing and has no argument to make. Considering the supplemental determination, [the SO’s] narrative, and the…letter, we do not think that Appeals erred in sustaining the NFTL and the assessment of civil fraud penalties. [The SO] reports that, during his September 11, 2018, telephone conference with petitioner, petitioner did not address the civil fraud penalties. Generally, we may not consider issues or arguments that a taxpayer does not raise as part of a section 6330 hearing.“ Order, at p. 3.
Even The Judge With a Heart, STJ Rob’t N Armen, can’t find sympathy for Jeffrey P. Heist, Docket No. 8724-18L, filed 2/22/19.
Jeff ran a burglar alarm company and filed three (count ‘em, three) years’ worth of what appeared to be straight returns, reporting tax and underwithholding (Jeff never paid ES), but paying nought. IRS assessed and filed NFTLs and NITLs, to which Jeff riposted with 1040-Xs showing zeros. IRS countered with the Section 6702 frivolous return chops.
Except of course it doesn’t.
“Subsec. (a)(26) defines ‘trade or business’ to include the performance of the functions of a public office. The argument that a ‘trade or business’ includes only a public office is baseless and frivolous. Eg.,[sic] Hill v. Commissioner, T.C. Memo. 2013-265 and T.C. Memo. 2013-264; Slingsby v. Commissioner, T.C. Memo. 2011-3.” Order, at p. 3.
STJ Armen proceeds with “somber reasoning and copious citation of precedent,” including without limitation “…Notice 2010-33, 2010-17 I.R.B. 609, at part (III)(1)(e), listing as frivolous the position that a taxpayer has the option under law to file a document or set of documents in lieu of a return or elect to file a return reporting zero taxable income and zero tax liability even if the taxpayer received taxable income during the taxable period for which the return is filed, or similar arguments described as frivolous in Rev. Proc. 2004-34, 2004-1 C.B. 619, discussing the ‘zero return position’.” Order, at p. 8.
He also shows Jeff the Section 6673 yellow card, at no extra charge.
Don’t try this at home (or anywhere else).

References: §20
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