Source: https://procedurallytaxing.com/author/samanthagalvin/
Timestamp: 2019-04-19 08:32:48+00:00

Document:
During the week of February 11, 2019, Judge Buch designated a bench opinion in an innocent spouse case that highlights some lesser known nuances of the conditions and factors analyzed (Docket No. 24737-17L, Traci Newburn v. C.I.R (order here)).
These nuances are likely not new to more seasoned practitioners but may be helpful for those starting out or those who have not handled many innocent spouse cases.
The case itself involves a petitioner, the requesting spouse, who is a widow. Her late husband had a schedule C business that fixed and maintained the fire repression systems in commercial kitchen hoods and filters. Petitioner was not meaningfully involved in the operation of the business. The returns showed balances which were never paid, so petitioner requested equitable relief under section 6015(f).
Section 6015(f) requires the analysis of threshold conditions, and then a decision is made after analyzing the factors found in either the streamlined conditions or facts and circumstances test. The list of factors is found in Rev. Proc. 2013-34, but the Court routinely points out that it is not bound by the factors, only considers them to be guidelines and makes its decision based on the totality of the facts and circumstances. I won’t go on and reiterate all there is to know about innocent spouse relief, but instead focus on a few lesser known considerations addressed in the bench opinion.
The nuances are found in the “enumerated exceptions.” While the record supports the fact that petitioner was not involved in the operation of the business, it is less clear whether petitioner had an ownership interest in the business because she was listed as a 50% owner on some of the tax returns. The Court points out that a requesting spouse may still meet the threshold condition if the ownership interest is solely due to the operation of community property law or was nominal. Petitioner and her late husband resided in a community property state, so the Court thinks that may be the reason for 50/50 ownership delineation listed on the returns. The Court also relies on petitioner’s testimony that she was not aware she owned an interest and was not involved in the business’s operations to decide that her ownership was nominal, and she satisfies this condition.
The Court here notes that the estate did not have sufficient assets to pay the liability, and therefore, petitioner is treated as not being married for purposes of the marital status factor.
The Court moves on to analyze the knowledge factor (which is also a factor found in the streamlined conditions and in the facts and circumstances test.) The knowledge factor is applied differently depending on whether the case involves an understatement or an underpayment. There can be cases where both an understatement and an underpayment are at issue, and in such cases both knowledge tests must be applied. In addition, the knowledge factor can be satisfied either with actual knowledge or a reason to know.
This case is an underpayment case, so the analysis is whether petitioner had knowledge or reason to know the balance would not be paid. The Court finds that petitioner did not have actual knowledge about whether the balance would be paid but did have reason to know it would not be paid. She had reason to know because she knew that she and her husband were experiencing financial difficulties around the time the returns were filed. They had recently sold their house in a short-sale and cut back on household expenditures.
The final nuance is found in compliance (which is only a factor in the facts and circumstances test). Compliance isn’t simply filing all required tax returns, but the compliance must also be in good faith. Filing several years’ worth of returns right before the trial, like petitioner did, is not complying in good faith.
After reviewing the above-mentioned factors, their lesser known nuances and examining the totality of the facts and circumstances, the Court denies petitioner relief in the designated bench opinion.
The last time we saw Mr. Rufus was in July of 2018 (see my previous post on this case here), when the Court granted summary judgment to the IRS. But the ever-persistent petitioner and his counsel are back with a motion to reconsider part of his case related to his supplemental claim.
The supplemental claim was about amended returns that the target filed, on which the target claimed bad debt deductions. With respect to this claim, the IRS’s position was that they “had not proceeded with an administrative or judicial action based on petitioner’s information.” This was determined by the administrative record and found not to be an abuse of discretion in the original opinion.
In support of his motion for reconsideration, petitioner argues several things, including that the Court made a substantial factual error, petitioner did not have enough opportunity to engage in discovery and that the information he provided was not tainted.
While petitioner argues he was still in the process of discovery when summary judgment was granted, he does not argue that he has newly discovered evidence – which would have potentially helped his motion for reconsideration. The Court takes issues with the fact that petitioner (who is, again, represented by counsel) did not raise this issue when responding to the IRS’s motion for summary judgment, so it finds he cannot raise it now.
The Court finds petitioner’s second referenced argument to be irrelevant. The revenue officer mistakenly thought the information petitioner provided was tainted so she documented the fact that she did not audit the return based on that information. The Court finds that this supports IRS’s argument, and does not support granting a motion for reconsideration – which puts an end to petitioner’s hope for a whistleblower award in this case.
The three remaining orders designated during the week of February 11 were all designated by Judge Carluzzo. In one order he denies the IRS’s motion to compel the production of documents because he surmises that petitioners’ failure to respond means they don’t have the substantiation required for their case, so compelling them to produce it will not change anything (here). In another order (here) he reinforces the Court’s arguably incorrect stance that a notice of determination is jurisdictional and not subject to equitable tolling (see my previous post on this topic here). And in the final designated order, Judge Carluzzo grants the IRS’s motion to dismiss for lack of jurisdiction in a case where the petition was filed three years late with audit reconsideration documents attached (here).
Only four orders were designated during the week of Thanksgiving. I discuss one in detail and summarize the others below.
This first order and decision was issued in a case involving the premium tax credit (“PTC”) under section 36B. Christine Speidel and I authored the Affordable Care Act (“ACA”) chapter in the most recent edition of Effectively Representing Your Client before IRS and it was my introduction to all things ACA.
A search of Tax Court opinions reveals that only ten cases, so far, mention the PTC. I anticipate that we will see more PTC related cases as time goes on, but it is still very much a developing area and this decision seems consistent with the others. Two early cases were discussed on PT here.
For those of you who may not know, the PTC is a credit available to taxpayers to whose incomes fall between 100% – 400% of the federal poverty line. It is intended to offset the cost of insurance premiums and make health insurance more affordable for middle and low-income taxpayers. The credit can be paid, either in part or in full, to the insurance company in advance and then taxpayers must reconcile the advance payments on form 8962 when they file their tax returns. Depending on the amount of credit received and the taxpayer’s modified adjusted gross income, the reconciliation may result in a refund if taxpayers were entitled to a larger credit than they received, or a balance due if taxpayers were entitled to a smaller credit or not entitled to any credit. I’ll avoid going into any further detail about the mechanics of the PTC, but for those looking for more information I encourage you to check out Chapter 29 in the 7th Edition of Effectively Representing.
This order itself is somewhat unexciting; respondent moves for summary judgment and petitioners do not respond. The Court goes on to provide some background information: petitioners received the PTC in 2015, but only reported half of their advance credits on form 8962. Worse, the form’s reconciliation calculation showed that their income was higher than 400% of the federal poverty line rendering them ineligible for any credit. In their petition the taxpayers did not dispute the material facts (the total PTC amount and their modified adjusted gross income) but expressed frustration with the application process and confusing correspondence from the insurance company, the health insurance marketplace, and the IRS.
The order does not provide any information about whether the taxpayers correctly reported their anticipated income to the marketplace, or if they earned more income than expected – but these facts wouldn’t change the outcome of the case because the taxpayers are still responsible for repaying any excess credit in those situations. See McGuire v. C.I.R, 149 T.C. No. 9.
Taxpayer frustration in this area is sadly a common occurrence. We have had two Tax Court cases dealing with the PTC in my clinic. One case involved an incorrect form 1095-A which the marketplace refused to correct, but we were successful because the clients had documentation and receipts which allowed us to prove to the IRS what a correct form 1095-A would have looked like. The case was conceded by the IRS after we submitted this documentation to Appeals.
The other case involved advance PTC that was paid for a married couple; however, the insurer only effectuated a policy for the husband. The wife’s policy was never effectuated as evidenced by documentation provided to us, somewhat surprisingly, by the (now defunct) health insurance company. In other words, the Treasury was paying a credit to an insurer for a policy that did not exist, and as a result, the taxpayer never received any benefit. We were successful at the Appeals stage in the Tax Court process in this case as well.
We will see what happens in this area as it continues to develop, but it seems that success may be possible in cases where a taxpayer proves that the marketplace or insurance company made a mistake and the taxpayer did not benefit from the mistake.
Napoleon v. Irabago & Zosima Irabagon v. C.I.R., Docket No. 1594-16L (here): This order and decision involves a sad instance of petitioners failing to understand their obligations in the Tax Court process and losing the opportunity to present evidence to reduce their liability. Petitioners initially petitioned the Tax Court on a notice of deficiency for 2010 and 2011. The petition was timely received but petitioners failed to pay the $60 filing fee despite being ordered to do so, and their case was ultimately dismissed. The IRS collection process proceeded, and eventually the taxpayers requested a collection due process hearing and then petitioned the Court on the notice of determination attempting to maintain their original argument (that they have proof of their expenses). Unfortunately, the Court no longer has jurisdiction to hear it.
Marvel Thompson v. CIR, Docket No. 29498-12 (here): This order grants respondent’s motion for summary judgment after the petitioner failed to respond. Although the Court said it could grant the motion without further analysis, it proceeds to discuss the merits of the case. Petitioner earned rents and royalties but didn’t file a return for tax years 2007 and 2008. I thought the case might take an interesting turn when petitioner stated that he had been incarcerated since 2004, so he could not have earned income, but in the end the Court finds that he has not met the burden of proving he did not earn the rent and royalty income while incarcerated.
Sue Hawkins v. CIR, Docket No. 19223-17 (here): After a decision was rendered in her case, petitioner wrote a letter to the Court which was accepted as a motion for reconsideration. The Court orders the IRS to respond and include information about how much of petitioner’s liability has been paid thus far. The Court also specifically orders petitioner to communicate and cooperate with the IRS as they prepare to respond to her motion and goes even further ordering that she answer their calls and letters. If she fails to do so, the initial decision will stand.
During the week of October 25, 2018 there were four orders designated. Three are discussed below. The only order not discussed (here) addresses a trial transcript that was incorrectly attached to a joint status report.
First is the most substantive of the orders designated during my week. This case is about the value of life insurance policies that were distributed to petitioners in 2004. Petitioners and respondent agree the distribution created taxable income, but the amount is in dispute. The Court analyzes whether respondent is entitled to summary judgment as a matter of law.
Petitioners were shareholders and employees of an S corporation that had a benefit plan and trust agreement paid for by the corporation which provided life insurance for petitioners. The corporation took deductions for the cost of the two policies, which were owned by a non-exempt trust. The IRS began scrutinizing plans like this because they often consisted of multiple single-employer plans dressed up as a single multiple-employer plan and used to obtain tax advantages under sections 419 and 491A.
In the present case, petitioners’ corporation wound down its involvement in this plan in 2004 and petitioners were entitled to receive a share of the plan’s assets. The plan administrator transferred ownership of the life insurance policies from the plan’s trustee to the individual petitioners. Petitioners reported the plan’s fair market value at distribution as $160,000 (this is the net value after subtracting the policies’ surrender charges) and a severance cash distribution of $30,000, but the IRS argues that the total amount should be closer to $550,000.
Because the policies were owned by a non-exempt trust, section 402(b) is used to determine the value of the policies, but the statutory cross references are particularly important. Section 402(b)(1) governs the value of an employee’s rights to assets still held in trust at the time those rights become vested, and cross references section 83, which states the value is the fair market value of such property determined without regard to any lapse restrictions.
Whereas section 402(b)(2) governs the value of assets that are distributed and not still held in trust, and cross references section 72, which states the value is the “amount actually distributed.” This was defined in Schwab v. Commissioner, 136 T.C. 120 (2011), aff’d, 715 F.3d 1169, 1179 (9th Cir. 2013) as the fair market value of what was actually distributed (taking into account the taxpayer’s initial investment, insurance rates, and the dates covered after the distribution).
In other words, the amount included in petitioners’ table income should either be the vested value or the distributed value. Respondent argues that both sections of 402(b) should apply and petitioners should include the higher vested value as income, because once the corporation notified the plan of the withdrawal the petitioners became beneficial owners which created a vesting event that was later followed by a distribution event.
Court says this is counterintuitive because the same property cannot be both distributed and be owned by a trustee for the benefit of the person to whom it is distributed. Respondent’s logic would also make section 402(b)(2) superfluous because it would make all distributions of pension assets taxable in a two-step process: first, taxable as vested when the plan cuts the check (which make it transferable and not subject to a substantial risk of forfeiture) and then, taxable as distributed when the taxpayer actually receives the payment.
The Court identifies four relevant cases on this issue and determines that section 402(b)(2) should apply because the policies were distributed to and owned by the individual taxpayers. This means that the amount included in petitioners’ income should be the fair market value of what was actually distributed.
The Court denies respondent’s motion for summary judgment and order the parties to file a status report about whether the parties will settle or go to trial.
In this order the Court clarifies the proper procedure to be used when a petitioner is not responsive after the IRS submits computations. The Court released its opinion in this case but was waiting on the computations before it could enter the final decision. Petitioner has not approved the computations but it is unclear whether petitioner’s lack of approval is intentional, if he is simply nonresponsive, or if there is some misunderstanding.
Respondent moves for an entry of decision, but that is not actually the proper procedure to use in this situation. Computations are governed by Tax Court rule 155. Rule 155(b) states that when there is an absence of agreement between the parties the clerk will serve upon the opposite party a notice of the filing of computations and if the opposite party fails to object or submit alternative computations, then the Court may enter a decision in accordance with the computations already submitted.
In this case, the petitioner was never given notice so the Court recharacterizes IRS’s motion, orders the clerk to serve the petitioner with notice, and will enter a decision in accordance to the computations if petitioner fails to respond.
Next the Court evaluates the undisputed facts to determine whether to grant respondent’s motion for summary judgment in a collection due process case.
The petitioner filed two CDP hearing requests one in response to an intent to levy, and another in response to the intent to file a notice of federal tax lien. The IRS only responded to and issued a notice of determination for the levy CDP request, but did not respond to nor issue a notice of determination on the lien filing.
The Court finds that the lack of information about the lien CDP request is a genuine issue of material fact that could result in a remand to appeals. As a result, summary judgment is not appropriate under these circumstances and the Court denies respondent’s motion.
During the week of September 24, 2018, the Court designated four orders: two for cases previously covered in Caleb Smith’s October 3rd post, and two for cases where petitioners offered no evidence to support their positions. First, as a very quick follow up – the Court denied the remaining portion of Tribune Media Company’s motion to compel the production documents (order here). If you are interested, see Caleb’s post (here) for the background and more information on this order and the first order discussed below.
When we last saw this case, Caleb explained that notes in the administrative file suggested that petitioners had not received a SNOD, and as a result, a remand to Appeals seemed imminent. The IRS does not object to a remand, but petitioners do object, so the case is set for trial during the week of October 15th. In its designated order of September 29, the Court takes steps to ensure that petitioners understand the consequences of objecting to a remand. The Court explains that many petitioners benefit from remands, and that any supplemental determination is eligible for judicial review. In the alternate scenario, if there is no remand and the Court decides that Appeals’ determination cannot be sustained- that finding of abuse of discretion alone does not bar the IRS from future collection activity.
There is a misconception among some taxpayers who believe if they can prove that IRS made a mistake, they’ll be absolved of their tax liability – we all know this is not the case. Although not receiving the SNOD allows petitioners to raise issues related to the underlying liability, a reduction or elimination of that liability is not guaranteed. In the present case, petitioners will have the burden of proving their charitable contributions, medical expenses, and business expenses claimed as miscellaneous deductions.
This first instance of a petitioner without proof is in Court after a CDP hearing for unpaid employment taxes. This case also has another common designated orders’ theme, which is “neither the IRS, nor the Court, can help the taxpayer who fails to do what they’re asked to do.” I assume here (and have assumed in previous posts) that these types of orders are frequently designated to provide guidance to taxpayers about their responsibilities in a CDP hearing and the Court’s jurisdiction over CDP hearings, which makes me think CDP hearings would run more smoothly if the IRS would instruct taxpayers to read Procedurally Taxing as a part of the process (ha ha).
In this case the IRS requests a collection information statement, unfiled returns, and proof of quarterly tax deposits. Petitioner provided one of the three unfiled returns, copies of two previously filed (but not requested) returns, and nothing more. The new return showed a balance which the settlement officer said would need to be paid before an installment agreement could be considered; although, I don’t understand why this balance couldn’t be included in any proposed agreement.
The levy is sustained, and petitioner explains in its petition (in all capital letters, presumably to convey anger and frustration) that all documents were faxed, they were never told how to make a payment arrangement, and thus were unable to make it.
Despite the explanation, petitioner does not offer any evidence to prove that it faxed all of the documents and the administrative record supports the IRS’s position that only one of the requested documents was received. As a result, the Court finds there is no abuse of discretion, grants the IRS’s motion for summary judgment and sustains the levy determination.
This order involves petitioners’ motion for reconsideration. The crux of petitioners’ argument is that the Court lacks jurisdiction because the ASED had already expired when the parties executed an agreement to extend it, but again, petitioners did not offer any evidence to support this. Whereas the IRS refers to exhibits that show the ASED had been extended until ten months after the notice of deficiency was issued.
As a reminder, or for those of you who don’t know, a motion for reconsideration is generally only granted when there is a substantial error or unusual circumstances, so without evidence from petitioners it’s no surprise the Court denies their motion.
Designated Orders for the week of August 27, 2018: A Pause for Coffey, a New Flavor of Chai, and the Court and Technology.
The week of August 27th was light, in typical pre-holiday week fashion, with a total of five orders designated. The two orders not discussed involve: 1) the final decision on a petitioner’s request to dismiss his case without prejudice (a case Patrick Thomas previously blogged about) (here), and 2) an order to show cause for the non-imposition of a section 6673(a)(1) penalty (here).
The Tax Court’s opinion in Coffey v. Commissioner issued earlier this year held that U.S. Virgin Island (“USVI”) territorial income tax returns submitted to an IRS office constitute the filing of a federal income tax return and start the clock on the assessment statute under section 6051(a). Patrick Thomas also blogged about two orders that were recently designated as part of the Coffey case here and here and the Coffey case was covered by Kandyce Korotky and Joe DiRuzzo (if interested, see links in Patrick’s first post).
In this designated order the Court contemplates granting respondent’s Motion for Leave to File Out of Time First Amendment to Answer in a case involving USVI returns. The case itself involves a question of whether petitioner’s 2002 and 2003 USVI territorial tax returns should be treated as filed with the IRS. Petitioner had initially alleged that his USVI territorial tax returns should be treated as federal income tax returns for purpose of the assessment statute but did not allege that he had actually filed the returns at issue with the IRS. Petitioner later admitted in a reply to respondent’s answer that he did not file the returns at issue with the IRS.
In response to petitioner’s statements and the decision in Coffey, respondent wants to amend his answer to clarify that if the returns are treated as filed with the IRS, then the January 2014 notice of deficiency was sent before the expiration of the assessment statute under section 6501(a) and the parties executed agreements to extend the assessment statute under section 6501(c)(4). It is a little difficult to discern from the order itself but it appears the reason for this is that even though petitioner admitted to not filing a return with the IRS, if his filing with the Virgin Islands Bureau of Internal Revenue (“VIBIR”) is somehow treated as a filing with the IRS then respondent wants to make it clear that the ASED did not expire before the notice of deficiency was issued.
Pursuant to Rule 41(a) a party can amend a pleading only by leave of Court or by written consent of the adverse party, and leave shall be given freely when justice so requires. The Court looks to the underlying circumstances including whether there is a reason for the delay and whether the opposing party would be harmed if the motion to amend was granted.
Here the Court looks to petitioner’s statements and its recent decision in Coffey and finds that respondent’s delay in seeking to amend his answer is understandable. Petitioner’s counsel also concedes that since the case has not been set for trial, allowing respondent to amend his answer will not prejudice petitioner so the Court grants respondent’s motion.
“This species [of Chai ghoul] involves documentation that we have not seen the Commissioner offer in any other case,” states Judge Holmes in this designated order. I wrote on this case in my April 5, 2018 designated order post and another designated order for this case (which I did not write about) was issued during my last “on” week, but this order deserves some attention.
The cases were tried in two special trial sessions in 2016 and involve all sorts of taxpayers: C Corporations, a TEFRA partnership, and individuals. In all but two of the cases, the IRS asserted accuracy-related and/or fraud penalties.
The parties are now in the briefing process, but respondent has moved for the Court to reopen the record to allow in evidence that shows compliance with section 6751(b)(1) for some of the penalties. Petitioners object to this motion.
The motion is only for penalties asserted against the Ryders individually because respondent’s position is that he doesn’t have the burden to show compliance with section 6751(b)(1) for penalties asserted against a C Corporations and TEFRA partnerships.
The Court outlines the timeline in which that IRS proposed deficiencies and accuracy-related penalties in three separate deficiency notices issued to the Ryders for tax years 2002-2010. The IRS did not propose any section 6663 fraud penalties in any of the deficiency notices but raised the fraud penalties for all years in amended answers on March 21, 2016.
At trial in July and August of 2016, no evidence was raised as to respondent’s compliance with section 6751(b)(1) for the accuracy-related or fraud penalties and the parties did not stipulate to compliance. Then came Graev II and Chai and respondent still did not mention compliance with section 6751(b)(1) in his opening seriatim brief nor amended opening seriatim brief. Then the Court adopted Chai as its own in Graev III.
Due to the complexity of the cases and respondent’s very long opening brief, the Court granted petitioners more time to file their answering brief on three separate occasions, and during this time, the respondent moved to reopen the record.
The Court ponders whether it should reopen the record to admit respondent’s evidence against petitioner’s objection. Petitioner argues that respondent cannot use ignorance of the law as a defense and respondent was aware that section 6751(b)(1) would be an issue, so failure to introduce evidence beforehand shows a lack of diligence. Petitioners also argue that reopening the record would cause them prejudice because do not have a chance to cross-examine the IRS employees who made declarations about the evidence respondent now seeks to admit.
The decision to reopen the record is within the Court’s discretion, but that discretion is not limitless, so the Court evaluates each item.
First is an examination case processing sheet. Respondent has sought to admit penalty approval forms in other post-Graev III cases, and some have been admitted under the business records exception or as a verbal act to show a supervisor approved the penalty (and specifically not used to determine whether the penalty was justified or what the supervisor was thinking when it was approved). The Court does not think the business record or verbal-act analysis applies to the examination case processing sheet because the document itself does not indicate that a supervisor approved the initial determination of penalties. The case processing sheet needs an accompanying declaration from revenue agent, Ms. Phan, (which respondent also seeks to admit, but the Court finds is inadmissible hearsay) to make sense of it.
Second is several documents that allegedly support the section 6663 fraud penalty, the documents consists of: an email with an attached amendment to answer raising fraud, a redacted Significant Case Report, a 2016 employee evaluation, and a declaration from a different IRS employee explaining the significance of these documents.
The Court finds these documents are also inadmissible because they mean nothing without an explanation, and again, finds the IRS employee’s declaration to be inadmissible hearsay.
The Court declines to evaluate whether respondent was diligent or whether admitting the evidence would prejudice the petitioners because it finds that IRS has not shown that admitting this evidence would change the outcome of the case and denies respondent’s amended motion to reopen the record.
The Court has been slow to adopt technological advances and highlights the helpfulness of petitioner providing the cutting-edge technology (sarcasm intended) of a thumb drive containing his brief and exhibits in this designated order.
Petitioner filed a seriatim brief with the Court along with five files containing exhibits, but also mailed the Court a thumb drive containing an electronic version of his brief with hyperlinks to the exhibit files. The Court finds the thumb drive and hyperlinks to be helpful to all involved, but respondent has some objections. Some of the exhibits on the thumb drive are not in the record of the case and other exhibits (which are in the record of the case) contain notations that are not on the original exhibits.
The Court allows petitioner leave to file an amended brief without exhibits and provide a thumb drive with the exhibits that were actually received into evidence. It orders, among other things, that the files not received into evidence be deemed stricken from the case and that the thumb drive be returned to petitioner.
There were a good number of designated orders the week of July 30, most were unremarkable, but for those interested they can be found: here, here, here, here, here and here.
And of course, Chai/Graev was back but in a slightly different context this time being used as a defense to penalties in a case where (consolidated) petitioners do not want the record to be reopened. The order (here) includes an analysis of the penalty rules applicable to C Corporations, individuals and a TEFRA partnerships.
My lecture on the assignment of income doctrine typically begins with me stating that it’s an antiquated concern that is rarely at issue in today’s electronic, information reporting world. Aside from genuine identity theft cases, it’s difficult for taxpayers to argue that someone else should pay tax on income earned by them and reported to the IRS in their name – so I was delighted to see this order be designated during the week of July 30.
Before getting into the details of the order, this petitioner’s background is worth mentioning. He is a monologist whose most famous work to date is a show called “Man 1, Bank 0” which details his successful attempt at cashing a non-negotiable, fake advertisement check for nearly $100,000 and the aftermath that followed when the bank realized its error. It’s worth a Google search.
Unlike writing him off as just another tax protestor, I can’t ignore the fact that his arguments (which are almost performance-like) in Tax Court may evolve into yet another successful comedy show.
So why is he in Tax Court? Petitioner failed to report income he earned as a monologist and from rental real estate that he owned in San Diego. At the time of this order, the Court had provided petitioner with many opportunities to reach a settlement and went as far as issuing a preclusion order, which barred petitioner from introducing at trial any records he failed to disclose to the IRS by a December deadline.
Petitioner met this deadline and the documents he provided included a written statement on the theory (or the “epiphany”) of his case. His theory involves another taxpayer, Mr. Holcomb (“Mr. H.”) and while the exact nature of their relationship is not disclosed, petitioner states that he is a penniless artist entirely dependent on Mr. H. to whom he has signed over (either via trust or agency agreements) all his income and property.
As a result, petitioner does not understand how he could be liable for any tax because if there are any taxes due they are due strictly from Mr. H. and the Court should address the issue with Mr. H.
Even if the Court had a reason to address anything with Mr. H, it would be difficult to do so. Mr. H. has his own interesting background and was recently found guilty by a jury of four counts of making a false statement to a financial institution.
The “trust arrangement” that petitioner has with Mr. H. calls Mr. H. the “director” of petitioner’s future income and property, and in return, Mr. H. agrees petitioner is the “manager” or “general manager” of such income and property and is free to do whatever petitioner wants to do with it.
The Court calls it an anticipatory assignment of income and warns petitioner that a 6673 penalty may be in his future if he continues with his theory.
The Court grants summary judgment in part for petitioner’s failure to report income, orders the parties to submit settlement documents with respect to other issues and if no settlement is reached expects the parties to appear at trial – where I’d expect there to be an inspired performance by petitioner.
Next before the Court is petitioners (in a consolidated docket) motion to quash two subpoenas duces tecum, which the Court grants in part.
The case involves a property appraiser that petitioners retained as a consulting expert, and specifically not as an expert witness, to assist them in preparing their case. Before the case commenced, the appraiser had also been hired by prospective lenders to appraise the properties involved in the case.
Respondent had requested appraisals of the properties from petitioners, but petitioners said appraisals did not exist.
Respondent issued a subpoena to the appraiser requesting documents beginning when he had become petitioners’ consulting expert. Without looking at the details of the subpoena, the appraiser stated aloud that he was not surprised by the subpoena because he had done appraisals of the properties.
This prompted IRS to issue another subpoena to the appraiser for records and correspondence from the last 23 years. The subpoena also requests that the appraiser testify at trial about facts, but not as an expert witness.
Petitioner argues the first subpoena should be quashed because the documents beginning at the time the appraiser became a consulting expert are protected work product, and the Court grants this motion to quash.
Regarding the second subpoena, petitioner argues that requiring the appraiser to produce records or correspondence that pre-date 2010 (the year of the first property appraisal related to this case) is unreasonable and oppressive. The Court agrees and limits the scope of the subpoena to the appraiser’s non-work product records and correspondence beginning in 2010.
With respect with whether the appraiser will need to testify at trial, the Court will hold judgement on the matter until trial, but if IRS intends to call the appraiser it will determine whether it is as a fact or expert witness, rule on the propriety of his being called, and then determine what fee amount (either the regular or expert witness fee) the IRS should pay to him.
Here is another whistleblower case where the IRS is arguing that petitioner’s submission did not lead to the collection of any tax, but in this case, the administrative record does not clearly demonstrate that.
Petitioner filed motion to compel production of documents and respondent filed a motion for summary judgment.
In opposition to respondent’s motion, petitioner is (as construed by the Court) challenging the sufficiency of the administrative record. Pursuant to Kasper v. Commissioner, 150 T.C. No. 2, the Court limits the scope of its review in whistleblower cases to the administrative record, but the administrative record can be supplemented if it is incomplete or when an agency action is not adequately explained in the record.
Respondent’s position is that the returns were already selected for exam at time petitioner’s information was received as supported by declaration from IRS employees, however, the administrative record does not contain the declarations that respondent relies upon. It also appears that employees beyond the ones identified by respondent were involved in reviewing petitioner’s submission.
Petitioner’s motion to compel is broad and requests information about all of the target taxpayers in his whistleblower submission (referred to a Corporate D, Related A and Related B by the Court). There are section 6103 disclosure concerns that come with petitioner’s motion to compel. Section 6103 generally prohibits disclosure of returns or return information, but there is an exception under 6103(h)(4)(B) that return information can be disclosed in a judicial proceeding pertaining to tax administration if treatment of an item reflected on a return is directly related to resolution of an issue in the proceeding.
Without ruling on petitioner’s motion (holding it in abeyance), the Court orders respondent to file petitioner’s Form 211 (the whistleblower application) and its attachments with the Court to enable it to review petitioner’s claims. It also orders respondent to respond to petitioner’s challenge to the sufficiency of the administrative record, and denies respondent’s motion for summary judgment.

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