Source: https://taishofflaw.com/2015/05/
Timestamp: 2019-04-26 00:29:39+00:00

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WordPress.com, my publisher, informs me that now I have 153 followers. What a hoot!
And Judge Halpern proves me right in Milton B. Blouke & Christine H. Blouke, Docket No. 29267-13S, filed 5/29/15.
Milt is playing the delay-of-the-game gambit, which has furnished me much blogfodder; here, it’s the Honolulu variation.
I’ll let Judge Halpern tell the tale.
“Petitioner has moved for a continuance. He states as a principal reason travel to Austin, Texas in June, to assist his daughter to renovate a house. We held a teleconference with the parties today, during which respondent objected to our granting the motion, principally on the ground that, with place of trial in Honolulu, Hawaii, which the Court only visits once a year, a continuance would postpone trial for a year. The petition in this case was filed in December 2013, and has been before the Court for 17 months. The amount of the deficiency in tax in issue is $653. We agree that a delay of another year would not serve the interests of justice.” Order, at p. 1.
I’d have given Milt a Taishoff “good try, third class,” if he’d played the Honolulu variation a year ago.
But by now it’s a cliché.
No, not the Bill LaBounty – Cliff Downs 2009 truckdriving ballade.
This is the story of California’s somewhat idiosyncratic corporate revival statute, and how it deals with corporations “recalled to life,” as Charlie Dickens would say, after they underwent the California Franchise Tax Board’s guillotine, but rose to new life after coming clean with CFTB.
Judge Morrison has this one, and his designated hitter stars San Jose Forest Products, Inc., Docket No. 12866-14, filed 5/29/15.
CFTB nailed the Foresters and shut them down for about ten months. Immediately prior thereto, IRS piled on some seven-figure deficiencies and six-figure penalties. The Foresters sent in what would have been a timely petition, but for the fact that CFTB had guillotined the Foresters two months before they mailed the petition.
Not for Tax Court purposes, says Judge Morrison.
Remember poor old David Dung Lee, M.D., Inc., 22 Fed. App. 837 (9th Cir., 2001)? Ninth Circuit affirmed Tax Court, holding that petition filed while California corporation was among the dead is not revivified when the corporation is recalled to life.
Although Rule 60(c) says corporate power to litigate in Tax Court is determined by State law, “Jurisdictional statutes such as section 6213(a) are conditions on the waiver of the Federal Government’s sovereign immunity and must be strictly construed. See Bowen v. City of New York, 476 U.S. 467, 479 (1986). Section 6213(a) provides that a petition may be filed by the taxpayer during the 90-day period. * * * [The taxpayer’s] suspension under Cal. Rev. & Tax Code sec. 23301 deprived it of the capacity to sue under section 6213(a) and prevents its corporate revival from prejudicing * * * [the Commissioner’s] defense of lack of subject matter jurisdiction.” Order, at p. 3, citing Med. Weight Control Specialist v. Commissioner, T.C. Memo. 2015-52, at *7.
No, I didn’t blog it, because I thought it was just a rehash of a number of other CA turnarounds I had blogged.
But the Foresters have one last twig to which to cling, the CA “procedural vs substantive” faceoff, whereunder most litigation acts are deemed procedural, and therefore retroactively validated when the corporation comes clean.
OK, says Judge Morrison, but SOLs are substantive under CA law, and in our CA turnaround cases we treated the 90-day rule in Section 6213 as substantive.
Yes, Tax Court didn’t use the exact words “substantive vs procedural.” He didn’t add “so sue us,” but he must have thought it very loudly.
Section 6213 is substantive, so the California Turnaround doesn’t help.
Correction, 5/30/15 – Should be the Red Simpson California Turnarounds song.
In the words of Jessie J, Dr. Luke, Claude Kelly and B.o.B. from their 2011 hit “Price Tag,” this blog is not about the money money money. Yes, it’s advertising for me, but contrary to the anonymous e-suggestion I just received, I will not be putting up a PayPal button here or start accepting credit cards any time soon.
I receive considerable satisfaction from the effort I put in here, but no, IRS, this is not a Section 183 hobby operation. I intend to make a profit from my practice.
That said, if anyone wants to mail a check to me (please, no cash), I won’t say no.
But no client-attorney relationship is created until we exchange fully-executed duplicate original counterparts of a retainer agreement.
James H. Hawse and Cynthia L. Hawse, 2015 T. C. Memo. 99, filed 5/27/15, involves a failed automatic shift, but it’s not in the cars, new and used, that Jim was flogging.
No, Jim switched his inventory from LIFO to specific identification, except he didn’t, or maybe he did. Jim and IRS get tripped up on the various Rev. Procs that switched back and forth in the late Nineties, but Judge Wherry puts them right, and Jim is told he switched twice, neither time with IRS consent, automatic or otherwise.
Jim thought that his LIFO inventorying, though it cut his current taxes, built up a huge LIFO reserve on his balance sheet that a purchaser of his dealership would have to pay as deferred tax.
So Jim filed Form 3115, imperfectly, and claims automatic IRS agreement to the shift. Except Jim didn’t follow the Rev. Proc. All his inventory, new and used, cars and parts, have to go to specific identification, and it didn’t.
Jim claimed he’d pay down the LIFO reserve in four installments, and he did.
Jim’s tax gurus caught the error of Jim’s ways, and advised him to file amended returns, going back to LIFO. And clawing back the reserve formerly paid to IRS.
Jim needs consent, whether automatic or upon granted application. It’s not up to the taxpayer to apply for automatic and then not follow the relevant Rev. Procs, thereby telling IRS he changed, and then go off, do what he pleases and claim he didn’t change.
Jim changed when he went to specific identification, even if he messed up the implementation.
So Jim’s amended returns are properly rejected, says Judge Wherry, because he didn’t get IRS consent to drop specific identification and go back to LIFO.
If reading about accounting methods stirs your soul, read Judge Wherry’s accounting textbook at 2015 T. C. Memo. 99, at pp. 5-6.
As for me, after a hard day in State court, I want a drink.
I was unsure whether to blog Kathy L. Riggs, 2015 T. C. Memo. 98, filed 5/26/15, yesterday. I thought Pacific Management Group was more interesting and of wider application.
Kathy’s CDP seeking CNC status runs aground because her equity in half a boat and a whole office building would pay off the TFRPs at issue, and then some, to say nothing of her joint tenancy interest in her parents’ home, which Kathy claims is just a probate-avoider. So nothing new here.
What might be of interest is a series of partial payments of the theretofore unwithheld withholdings from Kathy’s successor Sub S. Kathy’s first corporation didn’t bother paying over withholdings, so Kathy formed a successor, but FL, unlike TX (see my blogpost “Nothing Succeeds,” 2/26/15, for the TX story), nails dodgers who fold and reincorporate, so IRS gets a USDC decision accordingly.
IRS liens both Kathy and the successor. Successor files Ch XI, but doesn’t mention realty as an asset.
The bankruptcy literate among my readers will remember that certain creditors can get 11 USC §361 “adequate protection” for debtor’s realty interests, and that’s the deal that Kathy cuts with IRS on behalf of successor corporation, and some payments are made.
Kathy wants those credited to her TFRPs. No dice, says Judge Goeke.
The automatic stay in 11 USC §362 doesn’t help Kathy, because there’s no showing her successor S Corp has to indemnify her for the TFRPs, and Eleventh Circuit (where this case is Golsenized) says TFRPs are separate from withholdings.
Now nondebtors can be shielded under 11 USC §105, which gives Bankruptcy Court power to do what it has to do to keep the process going, but Kathy never got a 105 order protecting her.
So Kathy is out there, with assets sufficient to pay off the TFRPs if she sells the boat and the office building, and the existence of IRS liens on both isn’t an excuse why they can’t be sold or hocked.
And her protection payments were for the successor corporation’s benefit. Kathy’s attempt to designate these for her benefit loses.
“In United States v. Energy Res. Co., 495 U.S. 545, 551 (1990), the Supreme Court held ‘that * * * [a bankruptcy court] may order the IRS to apply tax payments to offset trust fund obligations [rather than the non-trust-fund tax liabilities] where it concludes that this action is necessary for a reorganization’s success.’ Respondent rightfully distinguishes Energy Resources by noting that the bankruptcy court never ordered that [successor corporation’s] adequate protection payments be applied towards petitioner’s penalty liability. Therefore, respondent argues the payments made by [successor corporation] were properly applied against the company’s tax liability.” 2015 T. C. Memo. 98, at p. 15.
Kathy claims she noted on her checks that they adequate protection payments were for her TFRPs, and IRS agrees taxpayer can designate voluntary payments.
Except these payments weren’t voluntary.
“The adequate protection payments were directed by the bankruptcy court, and those payments were made with respect to [successor corporation’s] liabilities, not petitioner’s. Therefore, neither petitioner nor [successor corporation], without permission from the bankruptcy court, would have the right to allocate the payments between [successor corporation’s] tax liability and any residual liability she had individually for the trust fund recovery penalty.” 2015 T. C. Memo. 98, at p. 16 (Footnote omitted, but it cites the Dixon case, the subject of my blogpost “The Great Dissenter – Redivivus,” 9/3/13. And I got to express my Taishoff “good try” to Larry Campagna, Esq., personally at the Judicial Conference last week, over a well-made Manhattan).
So following Dixon, IRS can apply as it likes. Kathy is unprotected.
Following up on his order of 5/21/15, more particularly described in my blogpost “Privileged Characters,” 5/21/15, Judge Lauber proceeds with the deconstruction of the claims of client-attorney privilege in Pacific Management Group, BSC Leasing, Inc., Tax Matters Partner, et al, 2015 T. C. Memo. 97, filed 5/26/15.
In the aforementioned order, Judge Lauber disposed of the privilege claims of Ernest S. Ryder, Esq., alleged crafter of the insubstantial tax dodge at the heart of the forty (count ‘em, forty) cases at bar.
Now he turns to Steven Dunning, Esq., attorney, guide, philosopher and friend. IRS subpoenas Steve, and he hands some stuff over. But not all, not by a long chalk.
Judge Lauber: “Mr. Dunning supplied a privilege log titled ‘Attorney Client Privileged E-mail Log.’ This log consists of a table with four columns. Column 1, captioned ‘From,’ lists the name of the person who sent the email. Column 2, captioned ‘To,’ lists the name or email address of the person or persons to whom the email was addressed. Column 3, captioned ‘CC,’ lists the name or email address of the person or persons who were copied on the email. Column 4, captioned ‘Email Date Sent,’ indicates the date and time when the email was sent. The log is 55 pages long and covers about 2,000 emails.
“The privilege log contains no other information.” 2015 T. C. Memo. 97, at p. 3.
A wee bit slim, no?
Well, the evidentiary rules of the USDCDC for non-jury trials seem to say so. “The attorney-client privilege applies to communications made in confidence (1) by a client to an attorney for the purpose of obtaining legal advice and (2) by an attorney to a client, where the communication contains legal advice or reveals confidential information regarding the client’s request for advice.” 2015 T. C. Memo. 97, at p. 4 (Citations omitted).
Burden is on the party asserting privilege, and blanket assertions don’t cut it. Party asserting privilege must establish each element for each privileged item. And while the Tax Court rules have no specific provisions, the FRE have plenty.
And Judge Lauber canvasses the FRE extensively, but Steve’s log doesn’t make the grade.
“The log Mr. Dunning supplied does not state the subject of any email; it does not describe the contents of any email; it does not indicate whether documents were attached to any email or what the contents of any such documents were; it does not describe the purpose for which any email or attached document was created; and it includes no facts indicating that any particular communication was intended to be confidential. It thus fails to establish each element of the attorney-client privilege.” 2015 T. C. Memo. 97, at pp. 7-8.
While the logger must steer between the Scylla of insufficient specificity, and the Charybdis of blowing the privilege altogether by telling too much truth, the Court can view the log in the light of the specific facts of the case.
When a lawyer serves as guide, philosopher and friend, but does not give specifically legal advice, that does not create client-attorney privilege.
Judge Lauber even gave Steve a second chance to fill out his log at oral argument, but Steve forwent the chance.
Or, the game goes on. See my blogpost “Delay of the Game,” 7/12/13, and its successor, “Delay of the Game – Tweet!”, 9/11/14.
Today we have Chana R. Kobernick & Yishai Kassel, Docket No. 12863-15, filed 5/26/15.
Chan and Yish ask for trial in Wichita, KS, but that’s for small-claimers only, and Chan and Yish didn’t designate their case for small claims. So Ch J. Michael B. (“Iron Mike”) Thornton gives them the form order to pick a different venue or designate for small claims treatment, if they can.
OK, run of the mine order, so why do I blog it?
Well, something struck a chord, so I did a docket search on Yish.
Lo and behold, as a late lamented colleague used to exclaim, I found an order from last month under Docket No. 13406-14, filed 4/27/15, wherein Chan and Yish stipulated to a decision, entered by our own Ch J Iron Mike.
But the place of trial there was New York, New York (“The Town So Nice They Named It Twice”). And the docket page lists no home state for Chan and Yish in either case, unlike most petitioners.
So did Chan and Yish move to Kansas? Or is this the latest version of the previous gambit? The suspense is killing me.
Repeating my earlier suggestion, which Judge Gale appears to have taken in my “Delay of the Game – Tweet!” blogpost hereinabove cited, perhaps Tax Court should require the petitioners show some nexus between the place of trial on the one hand, and their residence, principal place of business, location of counsel, evidence or witnesses on the other, before setting the place of trial.
That hackneyed phrase describing a Johannes fac totum is surely far from the dignity one would ascribe to the Chief Judge of the United States Tax Court.
Indeed, Ch J Michael B. (“Iron Mike”) Thornton is a pleasant-spoken gentleman of unquestionable judicial demeanor, who kept both presenters and audience up to the mark these last few days. Although far from the mental picture I had formed of the external man, he certainly fills the role.
And it must be a grand thing to be chief among all the extraordinarily-qualified jurists who make up that distinguished bench.
How hard it must be to “waste his sweetness on the desert air” on the hundred-or-so “pay the sixty bucks or seek a waiver” orders, directed to the battalions of self-representeds blundering about the thicket of Tax Court practice.
And it’s worse when he must admonish IRS’s counsel.
Here’s a sample: Louis M. Gachette, 17178-12SL, filed 5/22/15.
I’d meant to blog this yesterday, but after flying into JFK from the conference, I ignored the advice of my former neighbor, the late great Duke Ellington, and took the E train. I finally got home two-and-a-half hours later, and after a restorative Martinez at a local rest stop, I was in no shape for anything but unconsciousness.
So here’s Louis (hereinafter “TWW”, meaning The Wrong Way).
TWW attached to his petition “a Form 668-W(c), Notice of Levy on Wages, Salary, and Other Income.” Order at p. 1.
Such an attachment should provoke at least a modest “huh?” from IRS’s counsel in their answer.
Except their answer didn’t, so Ch J Iron Mike, rather than grappling with Eaton discovery and Amazon multiplexity, is reduced to the following.
“However, respondent failed to attach thereto any notice of deficiency or determination, instead merely denying that any Notice of Determination Concerning Collection Action was attached to the petition and emphasizing that the attached document was a notice of levy. Respondent did not, however, otherwise address the jurisdictional status of this case.” Order, at p. 1.
Necessary perhaps, but not sufficient, so Ch J Iron Mike must teach IRS’s counsel Tax Court practice and procedure, as well as enlighten the aforesaid benighted pro se battalions.
“Respondent shall file either: (1) An appropriate jurisdictional motion; or (2) a report addressing the basis or bases for the Court’s jurisdiction and attaching thereto a copy of any further supporting documentation.” Order, at p. 1.
I don’t think I’d want that job.

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