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Tuesday, January 28, 2003


Kenneth A. Schrems is a nut-case tax protester contesting the collection of his taxes.


Paul F. and Eleanore M. Nichols tried to avoid tax liability from their business by placing their assets in a series of trusts, whose documentation they never introduced as evidence, and relying on nut-case tax protester style interpretations of federal tax laws. Tax Court disregarded the trusts as shams and allowed accuracy-related penalties. Robert Hogue was involved, claiming to be a trustee.


Kolotolu V. and Seini Liti were back at the Tax Court on remand from the 9th Circuit. They had been charged with fraud by the IRS for failing to report substantial amounts of income in several years, but Tax Court found that the underreporting was due to negligence, not intentional fraud. The Litis then moved for litigation costs and award of sanctions. Tax Court denied the motion. On appeal, the 9th circuit slammed Tax Court for not providing reasons for their decision that could allow them to rule on the appeal. Tax Court explained that the fact of the underreporting was well documented and provided reasonable evidence to believe that the Litis were intentionally attempting to defraud the IRS. Tax Court ruled against the IRS based on the lack of intent to defraud, which they determined from the credibility of testimony offered by both sides at trial. The IRS was wrong, but their position was substantially justified, so there was no bases for award of costs or sanctions. This case makes one wonder whether litigation costs can ever be awarded where intent is the issue, since, if the facts are consistent with the IRS�s position, the IRS can always assume whatever intent they wish.


The decision in the case of Charlie Daniel Turner, Jr. and Sandra Lovell Turner turned on a fact-based analysis of whether or not Mr. Turner's activity of promoting and participating in open-road racing was a business or a hobby. In finding it to be hobby, Tax Court listed the none factors listed in the regs to be considered, and then declined to discuss them, simply attaching as an appendix to the opinion a magazine article about Mr. Turner's activity that Mr. Turner had submitted as evidence. Tax Court cites no case that allows them to punt like this and not actually discuss the factors that the regs claim must be considered. The fact that Mr. Turner considered this evidence to be in his favor indicates that Tax Court should at least discuss why it works against him, regardless of how obvious Tax Court considers this to be. Tax Court also listed several facts in the case summary that support its opinion, but did not bother to discuss those either. All-in-all a correct but sloppy opinion. Tax Court also allowed some late filing penalties to stand despite severe medical problems of both taxpayers, because the taxpayers eventually went back to work before filing their taxes. unduly harsh, in my opinion, but at least they bothered to cite cases supporting this judgement.

Friday, January 24, 2003


4th test.


Another test.


I am testing adding links.




I do not have time to write a full explaination right now, but I have read the summary opinion in the case of Charlie Daniel Turner, Jr. and Sandra Lovell Turner, and while I think the outcome was mostly correct, I am upset by the way Tax Court analyzed it. Let me dwell on my thoughts and I will post a full explaination this weekend.

Thursday, January 23, 2003


Evelyn B. Block has a timely filed petition contesting the IRS's denial of relief from joint and several liability. This was a "stand alone" petition under section 6015 regarding an already assessed liability. Block moved the Tax Court to allow her to amend the petition to claim that the assessment of the underlying tax liability for the years at issue, 1983 and 1984, is barred by the statute of limitations. TC held that its jurisdiction to hear a challenge of denial of relief from joint and several liability under section 6015(e) does not grant it jurisdiction to rule on challenges to assessment of the underlying liability. The mistake Block made here is the same that many of the protesters make: At a Tax Court hearing on the appropriateness of IRS collection actions, the Tax Court does not have jurisdiction to rule on the underlying liability.

However, TC specifically stated that they were not asked and were therefore not ruling as to whether the alleged expiration of the period of limitations on the assessment of the underlying liability might be a �factor� in determining whether it would be inequitable under section 6015(f) to deny Ms. Block relief. TC then invited Ms. Block to move to amend her petition to assert that specific allegation.

Wednesday, January 22, 2003


Rand Simberg responded to my comments to Matt Welch. I replied:
Rand -
I agree that the mere number of people who believe something does not make it right. But it does make it a position that should be taken seriously, and I did not see anyone doing so.
Also I agree that the U.N. is somewhat anachronistic, although probably not as much as you. What should change about the U.N. however, depends on what direction you believe globalization should take. It seems to me that there are three possible options:
1. Stop it. That is what the anti-globalization folks want.
2. Subject all international organizations to the beneficial guidance of the U.S. The "American Empire" option.
3. Work toward the eventual creation of a democratic world government. Americanize planet Earth.
I am guessing you prefer option 2. Options 1 & 2 both tend to see the U.N. as meaningless.
I support option 3. Obviously strong steps can not be taken toward this goal until China falls to democracy on its own. In the meantime we have to put up with the U.N. as the voice of international law just because it is what is there, just as the world currently has to put up with America as world cop because were are the only ones who can be.
A lot of thoughtful people support eventual world democracy, but to not speak up too loudly because the other voices are so loud, and frankly, it is not currently a viable option. What the poll I cited shows is that many more American support international law than most people might suspect, and when the time comes for us to make our case (ie. China becomes democratic), we might have more support than those of you on either extreme expect.


Miriam-Majadillas Eiselstein is a nut-case tax protester challenging liability for taxes at hearing on collection. Tax Court allowed the collection and imposed a $5,000 fine.


Augustin Bolsover Jombo is not a tax protester, but he makes a similar mistake: At a Tax Court hearing on the appropriateness of IRS collection actions, the Tax Court does not have jurisdiction to rule on the underlying liability.


Charlie Laws learned that (1) disability retirement benefits are not excludable from income unless the premiums were paid by the taxpayer with post-tax income, and (2) if you have modified adjusted gross income over $25,000, a portion of your Social Security benefits will be taxable.

Tuesday, January 21, 2003


Burying the Lead

Via Tom Tomorrow I read this Knight Ridder poll showing that 83 percent of Americans would support going to war with Iraq if the U.N. backed the attack, but only "about a third" support a unilateral U.S. attack. Quick 3rd grade math shows that about half of Americans think that the U.S. should follow the will of the U.N. Two thoughts:

1. From a long-term perspective, this is the real story. Half of Americans do not support American empire, but they do support international law. And they believe that the U.S. should be as subject to it as anyone.

2. The entire pundacracy, including in the blogisphere, is seriously out of touch with mainstream opinion. Every pundit I have read so far is either for an attack on Iraq regardless of the U.N., or against an attack on Iraq, regardless of the U.N. Has any opinion-giver out there come out in favor of an attack only if the U.N. approves? Like, apparently, half the American population?

It's too bad Matt Welch has gone AWOL on us...


Patricia Barranco sought relief from joint and several liability for nine years in which her husband, an orthopedic surgeon, was engaged in a tax evasion scheme for which he eventually served 18 months in prison. Tax Court accepted, for purposes of the opinion, that Ms. Barranco did not know of the evasion scheme and did not review the tax returns before signing them. Tax Court held that she was not eligible for relief because: (1) She had constructive knowledge of the evasion scheme. Family expenditures she was aware of greatly exceeded the adjusted gross income on the returns, and no spousal abuse or coercion was alleged. She therefore had a duty to look over the tax returns before signing them, and if she had, the circumstances should have lead her make an inquiry as to why the AGI was so low. (2) She benefitted from the evasion scheme by living a lifestyle and owning property that was financed by the undisclosed income, and therefore holding her liable was not inequitable.

Tax Court is right about the equity requirement for spousal relief. But I am unconvinced by their constructive knowledge argument. Many highly paid professionals report AGIs that are otherwise suspiciously low because they hire smart accountants who get them to invest in perfectly legal tax shelters or tax avoidance schemes. It is not clear to me that Tax Court should hold her to constructive knowledge that her husband was evading taxes rather than avoiding them.

I am tempted to comment on what this case teaches tax evaders to tell their spouses, but I will refrain from giving such illegal advice.


"The cobbler's children go without shoes." The existence of this proverb is no excuse. James Joseph, Jr. was a tax preparer who made some money from tax return preparation fees, and even more money in kickbacks from the banks through which he arranged Refund Anticipation Loans for his "clients". (The case does not mention this, by the way, but the vast majority of his "clients" were poor. Rich people owe taxes. Only poor people pay usury rates for loans based on refunds of money that they loaned to the government interest-free.) He failed to keep records of his earnings in 1992, 1993, and 1994, and failed to timely file his 1992 and 1993 tax returns. When contacted by the IRS, he claimed to have prepared fewer than 395 returns for each of the years in question. IRS computers, however, showed that his preparer number was on over 700 returns each year. Tax Court determined Mr. Joseph's liability based on the IRS's data and research, although they did not accept the IRS's calculations and made their own.

Mr. Joseph claimed his Social Security payments for the years in question were not taxable because they were disability benefits. No, disability benefits are as taxable as any other Social Security benefits.

As to a failure to file penalty: "... petitioner contends that he filed his returns late because he was ill. We disagree. Petitioner was well enough to prepare and file hundreds of tax returns for each of the years in issue." Ouch.

Finally, Mr. Joseph failed to address the accuracy-related penalty in his brief, and Tax Court therefore considered it conceded.


Jan Lister is either an atypical nut case tax protester who petitioned to stop collection of her taxes owed, or simply a poor person who really needed help from an LITC or the Taxpayer Advocate. She contested liability because she recieved illegal gambling winnings in Federal Reserve Notes rather than "cash, property, or assets" and she contested collection because she had no money. Tax Court granted IRS summary judgement to continue collection, but denied a section 6330 penalty because the woman seemed to confused to be intentionally attempting delay with frivolous arguments.


Benjamin B. and Carolyn M. Haines are typical nut case tax protesters who petitioned to stop collection of thier taxes owed. IRS filed for summary judgement to allow them to collect and to impose a section 6330 penalty for unreasonable delay based on frivolous arguments. Tax Court granted both motions. What I don't get is why these protesters do not file in Tax Court to contest the notice of deficiency. If the Tax Court is an illigetimate place to contest liability, why is it a legitimate place to contest collection? If nothing else, contesting the liability in Tax Court would further delay eventual collection. But again, I am expecting logic from a tax protester.


Does Merrill Lynch have a person on staff whose sole job is to think up names for their new subsidiaries? Or do they just have a long computer generated list of thousands, and just pick the next one off the top when the need arises?

As quick as I can make it: In each year of 1986 and 1987, Merrill Lynch sold wholly-owned subsidiaries in the leasing business to outside companies. In each case, there were assets in the subsidiaries that ML wanted to keep. All of these assets were, naturally, held in the form of wholly-owned subsidiaries of the companies being sold. So, before selling the leasing companies, the assets were sold to, naturally, sibling corporations (other wholly-owned subsidiaries of ML). The parties agreed that section 304 applies to these "cross-chain" sales and that section 304 treats these sales as redemptions. IRS argued the sales were redemptions in complete termination of the shareholder's interests under section 302(b)(3) and that therefore the sales should be taxed as distributions in exchange for stock under section 302(a). ML argued otherwise, claiming that the sales should be treated as distributions of property under section 301. IRS's arguments were barely hinted at and mostly ignored. IRS said the step transaction doctrine should apply and apparently tried to claim that this doctrine could apply simply by looking at the results: ML's entire interest in the leasing companies was terminated. ML's arguments were explained and refuted in great detail, presumably in anticipation of the inevitable appeal. They argued that the step transaction doctrine only applied if there was a firm and fixed plan for terminating their ownership in the companies, and that there was not a binding agreement to sell the leasing companies at the time of the cross-chain sales. The contingent nature of the arrangement precluded any plan from being "firm and fixed".

Tax Court held for IRS. They agreed with ML that the results alone do not activate the step transaction doctrine, and that there must be a firm and fixed plan to apply it. But Tax Court said that the determination of whether or not there was such a plan is a fact based analysis consisting of several factors, and that the existence of a binding agreement is only one factor to consider, and not a necessary one. The facts in this case clearly showed the existence of a firm and fixed plan to sell the leasing companies. Tax Court reviewed previous case holdings on this issue at great length, and examined the facts in this case in great detail. Anyone wanting to learn how the step transaction doctrine applies to section 302(b)(3) is well advised to read this case.

What Tax Court failed to mention in the opinion is the policy rationale for their holding. The step transaction doctrine exists to allow the IRS to tax the substance of a transaction without letting the taxpayer determine the taxation based on how they structure the form of the transaction. If binding agreements were necessary to apply the step transaction doctrine, then taxpayers could thwart the step transaction doctrine by structuring when they signed such agreements. Thus they could chronologically cut many steps out of the step transaction doctrine regardless of how important they are to the substance of the transaction.

If this seems pretty basic, it is. ML knew they would lose. They knew it back in 1986 and 1987 when they set up "tax reserves" to cover the amounts owed whenever the government is finally able to make them pay. This case raises interesting questions about such tax reserves. First, are they a good idea for a company to set up? You want to be able to take risky positions that you are entitled to take, and you should also be protected from the uncertainties of the tax law. Yet in this case, the existence of the tax reserve was used as evidence of the existence of a "firm and fixed" plan. So trying to protect yourself from the uncertainties of the tax law can be used as evidence of a sort of "guilty conscience" in cases where the taxpayer's intent is important. Second, should companies be allowed to create these tax reserves? Yes, I know I just made ML look like a victim for having the tax reserve used against them. But the most likely reason ML is making the public spend all of this time and money to collect taxes due based on a position that any first-year tax student can tell them is wrong is that this giant financial services company thinks it can make more money from their investments from the tax reserve then they will eventually owe in interest, penalties, costs, and legal fees. ML is screwing the public with the time value of money in case that has taken 13 years so far and will undoubtedly be appealed until SCOTUS denies certiori.

In fact, everything about this case is a nightmare example of business being conducted for tax advantages rather than any underlying business rationale. The reason ML wanted to sell the leasing companies to begin with is that the assets being leased had "turned around" for tax purposes and were no longer generating tax loses. The leasing companies were then marketed and sold to other companies with huge NOLs, thus allowing ML to charge a premium of profit that essentially allowed them to split the expected tax advantage to the buyer.

All of this from a company that makes its millions selling financial advice that, under efficient market theory, is self-defeating. Is the public getting *ANY* benefit from authorizing the existence of ML's corporate charter? Excuse me, charters?

Friday, January 17, 2003


Matt Welch posted to his blog about the fight in the California Republican party over the Civil War. I responded:

Has anybody noticed that the South *DID* win the civil war? Sure, it took twenty or thirty years after the fighting ended, but the results are undeniable. Consider the flack over the Confederate flag in South Carolina and Georgia. Forget racism, since when does the LOSING side get fly its flag over the capital?

The last three Democratic presidents and the current Republican President have all been from the South. Democratic members of congress like Zell Miller are to the right of northeastern Republicans. Is there any doubt that we would have national health care but for the Congressional and Electorial College votes of the South? Southerners claim to be for state's rights, but would the Feds be stopping us from allowing medical pot but for the South's Congressional and Electorial College votes? Or Death with Dignity in Oregon? Would a U.S. freed from the South have passed a national DOMA?

I am glad the South lost the fighting in order to end slavery, but if they want to leave now, I say the rest of the country should help them pack. And if white Republicans don't like it here in California, then they can just all go back where they came from.

Thursday, January 16, 2003


Richard E. Devine, Sr., and Richard E. Devine, Jr., were the sole shareholders of Devine Brothers, Inc. Sr. was the president and board chairman, and Jr. was the vice-president and a board member. For the fiscal year ending in 1994, Devine paid Sr. $51,663 and Jr. $66,897 in salary. For fiscal year ending in 1995, Devine paid Sr. $260,378 and Jr. $112,599 in salary. Devine began business in 1918, and by 1961 the stock was 100% owned by Sr., who later began slowly transferring the stock to Jr. Devine never paid dividends from its inception through 1995. IRS deemed $65,000 of Sr.'s 1995 salary to be a dividend, disallowing the deduction for that for that amount, and assessed a $25,086 deficiency. As this was a 1995 case, the burden of proof was on the taxpayer.

Tax Court ruled in favor of Devine. I am beginning to wonder whether the Tax Court is leaving out crucial information from the opinions that make the IRS's positions seem slightly more reasonable than they appear in the Court�s opinions. Tax Court states regarding the $65,000 disallowance, "Respondent gives no reasoning for his calculation of the "excessive" compensation." Really? The IRS just picked $65,000 out of the air? Either Tax Court is leaving out something, or this is a shockingly arbitrary exercise of power.

The sad thing here is that I read the facts, I was actually sympathizing with the IRS. A company manages to stay in business for 77 years without ever paying dividends? The sole shareholders pay themselves wildly varying amounts of "salary" year to year? Sure sounds to me like their giving themselves investor profit and calling it employee compensation. But somehow IRS failed to put together an actual case. Devine met their burden by bringing witnesses who testified that Sr.'s salary in 1995 was comparable to other similarly situated executives, while his 1994 salary was significantly below that of similarly situated executives. This created the inference that the bonuses paid in 1995 were meant to compensate for underpayment in 1994. This sounds weak to me, but it does present a prima facia case. According to Tax Court, IRS responded by offering no justification of its $65,000 disallowance and stipulating that Sr.'s salary was within the range of salaries paid to similarly situated executives. Thus, it was a weak case from the taxpayer versus no case from the IRS.

Again, is the IRS really this stupid and arbitrary, or is Tax Court merely making them look this way by mischaracterizing their arguments?

Wednesday, January 15, 2003


I just started reading the Merrill Lynch case, and the first thing question I have is, why did it take this long to get a Tax Court decision regarding the years of 1986-1988? Undoubtedly Merrill Lynch will appeal and add even more years to this. If it takes two decades to get a corporation to pay the $32 million they owe the people, there are serious flaws in our system. I will be interested to see if any Tax Court case filed by an individual dates back 13 years.


I hereby make a public committment to read and blog about the Merrill Lynch decision by the beginning of next week.
81 pages. Sheesh.


Matthew Yglesias wrote in favor of universal education standards. I reponded:

"In the ideal, the quality of education a student receives should not be impacted by who his parents are or where he lives." This is exactly right. But your prescription, universal standards, is exactly wrong. There is no variety, dynamism, or competition need to improve or suvive changing conditions. Further, everyone wants to teach values to children, which leads to an argument over WHOSE vales get taught- those of the leftist ideologues in the teacher's unions, or the funimentalist Christians who periodically try to take over school boards.

Rather the solution is to give every parent the power to choose how their child will be educated. Well, I see here I am contradicting myself somewhat. If the parents had that power, the quality of the child's education obviously would depend on who their parents are, but only in a cognitive sense, not on their parents income, race, or location. The parents could chose the school that teaches their kids what and how they want their kids taught, and indoctrinates values the parents support. Every parent will want the best, and this competition will create universal improvement and diversity of approaches.

BTW: While I *respect* voucher programs as the only conservative intiative that is actually directly aimed at helping the poor, my favored method of parental choice is charter schools.

Tuesday, January 14, 2003


Earl R. and Mary A. Palmer tried to exclude from income Mary's half the retirement pension she received from the U.S. military pursuant to the divorce decree from her previous husband. At an appeal from an audit of prior year taxes, the IRS had allowed the exclusion, and the Palmers argued that the IRS was now estopped from claiming that the income could be taxable. Tax Court said that the IRS is not bound or estopped by prior errors. "Prior administrative determinations that involve the same or related taxpayers do not preclude the Internal Revenue Service from making a contrary determination for a different year." This seems inherently unfair because, once again, citizens can not rely on what the IRS tells them about taxes, but it is probably a good idea. Otherwise it would give the IRS even more of a reason to constantly rule against the taxpayer, for fear of making an erroneous determination that could not be corrected later.

The Palmers then argue that if the income is includible, they should be credited with half of the withheld taxes. Tax Court said no, Mary is entitled to half the net pension after deductions which include withheld taxes, and therefor that is her income to be included in her tax return. This is unfair. The net pension is by definition after-tax. The amount of the pension Mary received was included in calculations to determine how much taxes were to be withheld, and now she must pay tax on that income again, without being credited for the prior taxes withheld. Thus this amount is being taxed twice. A note indicates that the ex-husband included the entire amount of the pension in his income, and then took an adjustment of half the pension as alimony. This was originally denied by the IRS (who apparently wanted both ex-spouses to pay taxes on that half of the pension!), but was later allowed by stipulation. There is no indication whether or not he took credit for the total withheld taxes. If so, it would mean that Mary's half was not double-taxed, but that the credit she deserved for taxes withheld on her income was given by the IRS to someone without a right to the income. Tax Court does not comment on the unfairness of this result, but does note that the law has been changed for divorces effective on or after February 3, 1991. Federal, state, and local taxes are no longer excluded from the total monthly retired pay when determining the disposable retired pay.


I did not even know the U.S. had a possession called Johnston Island, but according to the Tax Court in the case of Stephen Jones, before 1987 income earned there was exempt from federal taxes under section 931. After 1986, however, the exclusion only applies to Guam, American Samoa, and the Northern Mariana Islands. The fact that the IRS has not updated its Regulations in the past decade and a half does mean the Regulations are superior to the Statute. None of the earnings are excludible under section 911 either, as that section refers to the exclusion of foreign income, and Johnston Island is a U.S. possession, not a foreign country.

I don't know, but I have a suspicion that Mr. Jones got screwed because some legislators were as ignorant of the existence of Johnston Island as I, and simply forgot to write it in the statute when they re-wrote the tax code in 1986.


Ronald McLean Eastern Video considered as independent contractors people hired to collect late fees. They were required to clock in and out and use a dedicated work station. They also used equipment supplied by McLean, and were paid by the hour. McLean claimed that his employees could use their own suplies and utilities if they wanted, and the employees agreed to "pay their own taxes" Held: These are employees, and McLean is required to pay FICA and FUTA taxes. McLean was also unable to avoid liability under section 530.


Acme Equipment Trust, Robert Hogue, Trustee, and Deschutes Road Trust, Robert Hogue, Trustee are two more instances of Mr. Hogue claiming to be the trustee of a trust and submitting contradictory trust instuments naming different people as trustees. All og Mr. Hogue's cases are clones of one another, with only the name of the trusts different.

Monday, January 13, 2003


Apparently, the theme of today�s Tax Court opinions is �Why we need an independent judiciary.� If the legislature codifies some well-meaning exceptions to certain rules, for example for people suffering from a disability, inevitably some nut-case will come along and try to abuse the system. That was Mr. Bosi, whose case was blogged below, and who claimed to be suffering from the disability of being a well-paid professional. (Please note that I am not using the colloquial term �nut-case� to imply that Mr. Bosi has a diagnosable mental illness. If he did, he would be entitled to claim the status of being �disabled�, and would ironically then not be a �nut-case�.)
And just as inevitably if some people can be denied the exception by being labeled a nut-case abuser, the bureaucracy that administers the law will claim that everyone who claims the exception is a nut-case abuser. The IRS assessed additional taxes on Richard J Meyer III for an early distribution from a retirement plan, failure to file timely, and failure to pay estimated income tax, all of which have an exception for disability. Mr. Meyer had AIDS and suffered a nervous breakdown that forced him to take time off of work. Tax Court, unlike the IRS, can tell the difference between a well-paid professional and an AIDS patient suffering a mental breakdown.
Mr. Meyer lost a disagreement over payments to a separate spouse without a written agreement, as well as the dependency exemption and child care credit where he failed to get a signed release from the custodial parent. An issue not raised by Tax Court was that it is not clear to me that either parent was entitled to the exemption. The Tax Court found that during the years in question, the mid-nineties, the custodial parent lived rent-free with her parents in a condo in Hawaii. It does not say where in Hawaii, but some locations in Honolulu at that time may have had rents greater the amounts that Mr. Meyer was paying for support. If so, the grandparents may actually have been the ones entitled to the exemption.


The Tax Court�s opinion in Bruce L. Brosi is quite sensible, but the official summary at the beginning mangles the law. The summary states, �Because P did not file his 1996 income tax return prior to the notice of deficiency and did not pay his 1996 income taxes within 2 years of the mailing of the notice of deficiency, this Court lacks jurisdiction to award a refund or credit.� This makes no sense on its face. The summary states that the deficiency notice was issued on Fed. 26, 2001, and this decision was issued on January 13, 2003. Tax Court cannot possibly know if the tax was paid �within 2 years of the mailing of the notice of deficiency,� as it has not been 2 years.
The phrase should read, �within 2 years prior to the mailing of the notice of deficiency�. Tax Court notes that this has since been extended to 3 years prior to the mailing of the notice of deficiency, but that extension does not apply to Brosi�s tax year, and would still not have helped him, as the notice of deficiency came more than 3 years after the tax in question was paid. The government writes the rules, and their rules state that you have a three year deadline, and they can take all the time they damn well please.
This case is also significant for determining that in order to claim that the running of the statute of limitations has been suspended due to a disability, you must actually claim to suffer from a physical or mental impairment. The burden of caring for your invalid mother combined with the burden of working three days a week and earning a six figure salary is not a �disability�.

Sunday, January 12, 2003


I just finished reading The New Dialectic: Conversational Contexts of Argument by Douglas Walton. This book presents the modern (or post-modern) �dialectical� theory of informal logic.
Traditionally, informal logic and critical thinking have been taught only in terms of building arguments through inductive and deductive reasoning, and analyzing arguments by recognizing many of a long list of �fallacies�, or incorrect arguments. Although these subjects are still being taught this way, recent scholarship has introduced many new ideas that have demolished the traditional approach. This new scholarship was well summarized in an earlier book by Walton, Informal Logic: A Handbook for Critical Argumentation. This previous book describes plausible arguments, burden of proof, and the idea of evaluating arguments not as stand-alone monologues, but as part of a dialogue between two or more participants. Most arguments previously called fallacies were portrayed as legitimate but weak plausibistic arguments whose primary purpose is to shift the burden of proof. Whether or not they were fallacies had to be determined on a case-by-case basis.
The theoretical advance introduced in The New Dialectic is the conversational context of argument. The New Dialectic posits that there are different types of normative models of dialogue. Each type has its own goals, structure, and rules. While Informal Logic was convincing in its thesis that charges of fallacy had to judged on a case-by-case basis, it gave little guidance as to how such a judgment is to be made. The New Dialectic provides this guidance, and establishes a pragmatic definition of a fallacy. A fallacy is an argument that blocks the obtainment of the goal of the dialogue, or that illicitly shifts the dialogue from one type to another. Thus, in a late-night dorm room political discussion, the use of a question-begging argument could fallaciously block the goal of the dialogue by claiming to have already arrived at it without actually putting forward any proofs, while the use of an ad baculum argument could illicitly shift the dialogue to a negotiation.
One advantage to providing such a definition of a fallacy is that it makes it possible to contrast the fallacy with a mere argumentative blunder, which is an argument that fails to advance the dialogue to its goal, but does not illicitly block or shift the dialogue. For example, in the political discussion just hypothesized, one party could make an appeal to an expert that the other does not respect. This argument would a blunder in the sense of not being effective, but it would not be a fallacy, as the dialogue can still continue to its goal unimpeded.
The New Dialectic describes six types of dialogue models, and has a chapter on each. There are also chapters on dialectical shifts, mixed dialogues, and a dialectical method of evaluating arguments. The six types of dialogues are the persuasion dialogue, the inquiry, information-seeking dialogue, negotiation, deliberation, and eristic.
The first of these, the persuasion dialogue, is the dialogue model that most closely corresponds to the context most people traditionally imagine when they think of analyzing arguments in the discipline of informal logic or the study of fallacies. The chapter makes clear that this is in fact the dialogue context implicitly or explicitly studied by the recent informal logic scholars who have ventured away from the study of informal logic only as the study of fallacies. Indeed the rules of this dialogue context, where each participant attempts to persuade the other of their position using commitments of the other as their premises, is essentially the context presented in Informal Logic.
The inclusion of negotiation and deliberation comes as great relief. Negotiation and decision-making have been studied in great detail by communication, business, and psychology scholars, but study of the arguments advanced from a philosophic, critical thinking point of view is sorely lacking. The �how do� and �how to� of deliberation and negotiation are now known in great detail. It is long past time for study on the �how should� of these two subjects. These chapters do not give the answers, but a framework for the beginning of such studies has been established.
The development of normative rules for information-seeking dialogue is as overdue as for negotiation and deliberation, and also has the same strange feel, for someone used to 20th century philosophy, of philosophy entering into areas of life that have practical applications for average people. The difference with information-seeking dialogue is that it is as untouched by other areas of scholarship as it is by philosophy. For a cultural tradition that places such value an questioning, this is probably the most important overlooked area of study breached by The New Dialectic.
Investigating the inquiry as a normative model of dialogue could turn out to be extremely important for the status of informal logic within philosophy itself. The inquiry is a method of reasoning that begins with premises that must be established as true to a reasonable degree of certainty, and then advances to conclusions based o those premises, branching out like a tree. This model of dialogue is rarely practiced as modeled, but the model usually describes how the results are presented. The chapter on the inquiry focuses on public empirical inquiries, such as inquiries into disasters, and on the extent to which science can be claimed to be an inquiry. While Walton does not discuss the implications for informal logic to study the inquiry, they are fascinating to contemplate. First, the methodology of science has generally been considered the proper study of analytic philosophy, which has tended to consider informal logic to be a mushier, less prestigious field of study. Giving informal logic a rationale for entering the study of science�s methodology could help put it on an equal footing within philosophy. An even more exciting possibility not explored by Walton in this chapter is to investigate how analytic philosophy itself may be considered an inquiry. (Or, as Walton suggests of science, is practiced as a persuasion dialogue and presented as an inquiry.) Subjecting analytic philosophy to the microscope of informal logic would have the result of actually making informal logic prior and therefore superior to analytic philosophy.
The most intriguing type of dialogue that Walton attempted to create a normative model of is eristic. In eristic dialogue, the participants are opponents and their goal is to win a victory by any (verbal) means possible. The two primary sub-types of eristic discussed were the quarrel, where the opponents attempt to �hit out� at and hurt each other verbally, and sophistical discourse, where each opponent tries to appear more wise than the other, usually to some third party (the audience). Eristic dialogue is characterized by a closed attitude, failures of relevance, and a chaotic skipping around from topic to topic. The big question about eristic that Walton raises is whether or not there can be a normative model of eristic. (or perhaps, what does a �normative model� really mean?) Is eristic simply a bad example to be avoided by logical analysis, or does it serve some useful purpose for logic? Walton seems to try to have it both ways, or rather three ways. He notes approvingly Plato�s characterization of eristic as the opposite of dialectic, and states that the properties of eristic stand in contrast to the properties of the other five types of dialogue outlined, and to persuasion dialogue especially. He also makes the claim that eristic has its useful functions, such as bringing out strong hidden feelings. This may be true, but it does not mean it is of any use for logical argumentation. Plenty of human activities, such as sports, war, sex, dancing, music, eating, etc. all have their useful functions, but are of no value in the study of logical argumentation. Walton ends the chapter by stating that logical analysis can gain by studying a normative model of eristic by noting how many fallacies consist of illicit shifts from or to eristic dialogue. This seems to essentially say to me that eristic should be studied as a bad example.
The worst chapter in the book is the chapter on licit and illicit dialectical shifts. This is unfortunate, as illicit dialectical shifts are the book�s definition of a fallacy, and since some shifts are licit, differentiating the two is extremely important for the new dialectic. But Walton spends half to two-thirds of the chapter discussing infomercials. While the infomercial is a good example of an illicit shift from an information-seeking dialogue to a negotiation, infomercials are not the most important or the most illuminating example of illicit dialectical shifts in general. The end notes state that most of the material for the chapter appeared in a previous article by Walton. Writing an article on the infomercial may have been an amusing exercise for Walton, but he should not have used it to paste into this book in lieu of writing the chapter the topic deserved.
The last chapter gives a four step process for the dialectical evaluation of arguments. First, identify the argument. Second, determine the context of the dialogue. Third, determine the burden of proof. Fourth, evaluate any possible criticisms of the argument. These steps sound right to me, but the first two are in the wrong order. You have to look outside of the argument itself to determine the dialogue context, but the type and goal of dialogue will determine the argument�s structure. Thus context is prior and should therefore be determined first.
I have further quibbles. This book consisted of ten chapters, and each chapter was divided into ten sections. But why? There was no uniformity to the topics of the sections, and I could discern no reason for ten being the appropriate number of sections per chapter. It seems suspiciously unlikely that this was a coincidence. This leads to the further suspicion that some chapters may have been cut, padded, or modified to adhere to a needless consistency. Also, better proofreading was necessary. For example, in the fifth section of chapter six, Walton states that there are eleven dynamic aspects of the argumentation used in the normative structure of deliberation. He then describes the first, second, third, etc. This numbering is very helpful and logical. It also highlights that aspects number six and ten are missing entirely. Finally, the frequency with which he switched from the first person plural to the first person singular throughout the book was confusing. While he carefully attributed all specific ideas to their appropriate specific sources, it was not always clear where Walton was summarizing what he believes to be the consensus in the field of informal logic, and where he was advocating his own contributions. As a non-scholar reading one of my first books in the subject, this makes it difficult for me to guess what ideas in The New Dialectic are well established, and which are still controversial among scholars.
The list of books and articles on Walton�s website show him to be as prolific as Stephen King, and I suspect this speed in writing is the cause of what faults there are with this book. But this book has a logical structure, is an easy read, and covers an important subject in a revolutionary manner. The New Dialectic should be considered the new paradigm for informal logic and critical thinking.

Friday, January 10, 2003




I'm trying this again.


I tried to paste HTML for the Blawg ring. I hope this works


Dennis J. Kraus, a bakery deliveryman who was provided a uniform, truck, gasoline, and route by his principle and was paid based on a salary plus a commission on goods delivered, whether or not paid for, thought he was an independent contractor. He listed his income on a Schedule C, and took deductions for goods returned and a home office, keeping records on Quicken but not saving receipts. IRS said he was an employee, disallowed all the deductions, and charged a negligence penalty.
Held: Kraus is wrong about being an employee, and his deductions for goods returned and for the home office are disallowed. Kraus was also wrong about not needing to keep receipts. But he still gets the deductions he would have been allowed from Schedule A, and the penalty was disallowed. The IRS continually claims that citizens are negligent just to be wrong, but that they can not be wrong unless they are intentionally malicious, but fortunately the Tax Court usually sees through this.
The Tax Court here declined to rule on the burden of proof issue because they claimed they decided all issues base on a preponderance of the evidence. This renders the burden of proof statutes superfluous as a practicality. Maybe I am wrong, for I just started this project, but my guess is that Tax Court will always claim to have decided based on a preponderance of the evidence. As I read these cases, I will be interested to see how many times Tax Court admits they can not decide between the IRS and the taxpayer and rules based on the burden of proof.


Oh, Boy. I can tell bloging these tax protester cases is going to get extremely monotous. I will probably at some point in the near future just stop reading them after I have read several in a row without learning anything new.
I did learn something new from Robert Gunselmen. He was presented with a copy of Pierson v. Commissioner, 115 TC 576 (2000), which I have not read, but which apparently addresses these protester issues. But if it does, why doesn't the Tax Court just paste in cited quotes from that case, rather than cases saying that they do not have to address the issues? But the Tax Court did address many of the issues Gunselman raised, and I learned a good bit.
Gunselmen responded to Pierson by saying, "I don't have to abide by any Tax Court decision, and you know that." So then why did he even bother filing this petition? Oh, I'm expecting logic from a tax protester. Sorry.

Thursday, January 09, 2003


H&H Trim did not pay quarterly employment taxes timely in 1993. In January 1997, the H&H calls the IRS to ask how much is owed. IRS employee quotes a figure that does not include all accrued interest. H&H pays the amount quoted. In June of 1998, H&H becomes aware that there is unpaid interest, and it is still accruing. H&H requests abatement of unpaid interest. IRS denies abatement. H&H appeals, leading eventually to this case before the Tax Court. The law is that the IRS is authorized to abate interest that is excessive, beyond the period of limitations, erroneous or illegal. The IRS argued that "excessive" means "beyond the period of limitations, erroneous or illegal". H&H argued that "excessive" means "unfair".
Tax Court agreed with H&H for exactly the right reason: since "beyond the period of limitations, erroneous or illegal" is already in the statute, if that is what "excessive" meant then "excessive would be superfluous, and statutes should not be interpreted to make words superfluous. Tax Court then divides interest into three periods. As to interest prior to Jan. 1997, it held that H&H still owes that, since it was their fault it accrued and they would have paid it if the employee had informed them of it. The employee's error does not relieve them of past interest accrued. Good for the Tax Court. As for interest from Jan 1997 to June 1998, H&H is not responsible, since they would not have accrued that interest if the IRS employee had given them correct information. Therefore it was unfair. Good for Tax Court. The IRS is responsible for misinformation they directly tell you, even if they can publish misinformation with no consequences. As for June 1998 forward, Tax Court says the accrual of interest is fair, because H&H admits that they knew that owed interest on their 1993 taxes. Here Tax Court is off-base. The interest since June 1998 resulted from a controversy that arose because the IRS's fail to grant an abatement that Tax Court says they were wrong not to grant under an abuse of discretion standard. If the IRS had granted the partial abatement that Tax Court claims was justified, we do not actually know if H&H would have continued to appeal, but my suspicion is that H&H would have not appealed paid the previous interest, forestalling future interest. Thus the interest from June 1998 forward was also probably caused by another IRS mistake - not granting the partial abatement - and should therefore have also been adjudicated "unreasonable."


Frank E. and Gail L. Dunda and William R. and Deborah L. Cramer both claimed as dependents in 1998 Frank and Deborah's two kids from a previous marriage. The Cramers had custody, but the 1988 divorce decree required Deborah to sign papers giving the exemptions to Frank, as is allowed by the Code. Deborah believed Frank had not properly paid child support, and refused to sign away the exemptions. Relying on an IRS publication, Dunda attached a copy of the divorce decree to their tax return. The IRS denied the claims to both couples, and both ended up in Tax Court, which consolidated the cases.
It seems to me that the only party that is obviously wrong here is the IRS. Somebody gets the exemptions, but they denied both claims. But when you're the government, you do not have to be fair, or logical, or even pick a side. You get to just let the little people fight it out for you.
Held: Cramer gets the exemption because she has custody and she did not sign the release. If she was wrong, take it in a state court, because that is not the Fed's problem.
As for Dunda's reliance on an IRS publication: Ha, ha! You actually believed something the IRS said about Federal taxes? And you were foolish enough to rely on it? Don't you silly laypeople know that the law can only be found in statutes, regulations, and judicial decisions, and caselaw has consistently held that the IRS has no responsibility for what they write about federal taxes in mass-produced publications? Silly citizen, taxes are for professionals.

Wednesday, January 08, 2003


John J. Green is also painted by the Tax Court as a protester nutcase trying to use the Court to delay his collection action, although he does not seem quite as nutty as Mr. Young mentioned below.


Jeffrey M. Young presented the Tax Court with a number of tax-protester arguments for avoiding and delaying collection of his taxes. The Tax Court dismissed his arguments and assessed a $500.00 penalty. The only thing that bothered me about the case was the way the Tax Court dismissed his protester arguments that there is no statute that requires him to pay taxes. The Tax Court stated, "...we percieve no reason, nor are we required, to address such contentions." Why not? Surely the Tax Court is right that these are frivolous contentions, but how hard would it be to have a quote from another case at hand to paste into a decision whenever some nutcase makes one these arguments that explains why he (they are always hes) is wrong? For the government to refuse to bother to explain why it is right only feeds the lunatic's belief that he is right. It also just seems profoundly unfair, even to a lunatic. Most of these types of lunitics probably have personality disorders, and refusing to give explainations could been as discrimination against the mentally disabled in violation of the Rehabilitation Act.


Apparently, there is some guy out here in California named Robert Hogue who keeps filing petitions with the Tax Court on behalf of health care trusts of which he has only very questionable documentation of being the trustee.



When you recieve a notice of deficiency, quit putzing around with the IRS and file a petition with the Tax Court within 90 days. Carol Lee Moore did not do this, which means she probably did not read her notice very well. She also seems to have not recieved much help from the Taxpayer Advocate Office on this proceedural matter, although they did help her substantively with the EIC.


Pilot Thomas D. Tuka tried to claim that the $83,046.54(!) he recieved in disability benefits for carpal tunnel syndrome(!) should not be taxable. Disability benefits are taxable if they are paid by the employer or if they are attributable to contributions by the employer that are not included in gross income. Tuka claimed that he had actually paid for the benefit plan through wage concessions made by the pilot's union in exchange for the disability plan in contract negotiations. The Tax Court didn't buy it. They wisely pointed out that concept here is that disability benefits are excludable if they were paid for by the employee with after-tax dollars, and the pilots never paid taxes on the phantom dollars they were demanding at the bargaining table before lowering their demand in exchange for disability benefits.

Somehow Tuka's accounting reminds me of President Bush's claim that Democrats who want to lower the scheduled tax cuts are trying to "raise" taxes by reducing a cut that has not gone into effect, but the analogy is far from perfect.


I just posted the following reply in response to this post from Matthew Yglesias:

I believe that both the relativists and the dogmatists get too carried away over the supposed implications of something being "real" or not. McDonald�s, the State of Virginia, and the Catholic Church are all social constructs. They are also very "real" and it would be very foolish to relativistically deny or ignore their existence.
However, the dogmatists want to believe that if something is "real", we just have to accept its existence as The Way Things Are. Also not true. Piedmont Airlines, the Soviet Union, and the cult of Dionysus were all very real, and have now all ceased to exist because people decided to cease accepting their existence.
I believe race is very real and very important in people's lives, and that it is foolish to deny its impact. I also believe that the impact is primarily negative and the concept should be abolished. These are not contradictory.

Tuesday, January 07, 2003


Learn from Morris Tabak: If you owe the IRS a lot of money, and you know it, contact them ASAP (preferably through a representative) to set up a payment plan.


What Jennifer L. Rusley teaches us by unfortunate bad example is when the IRS comes calling, get your shit, uh case together as quickly as possible. The sooner you document that the IRS is unreasonable, the better your odds of getting administrative costs and attorney's fees when the IRS continues to be unreasonable.


The Tax Court amended Janice Bullock's petition to dismiss the years 1991 and 1992 from the complaint. Ms. Bullock had included them because the IRS had filed levies for taxes from those years. The Tax Court dismissed them because Congress apparently did not give them the jurisdiction to hear cases unless the IRS had sent a notice of determination of tax, and in this case the IRS was filing levies over years for which they had not issued notices of determination of tax. If this sounds unfair to you, well, it appears that TPTB agree with you, and the Tax Court noted that this law has been changed. But only for collection actions intiated after January 19, 1999. For those of you screwed by unfair IRS collection practices before that date, tough.

Incidentally, it seems that pro se petitioner Ms. Bullock, who did once attend an administrative hearing in Philadelphia, PA, was not responsible enough to attend the hearing on this motion in Washington, D.C. Shame on her!


In Richard M. Brockman's case, the Tax Court cited previous cases that establish that you can be at a "temporary" job location for at least up to a year if the circumstances are right, and the wording does not seem to indicate that this is an upper limit. Too bad Mr. Brockman did not keep all of his receipts.


Wow, I am impressed with what Nell B. Newell got away with from the Tax Court today in this opinion. She is recieving $1,017.00 per month in payments from her ex-husband's military pension as part of her divorce settlement, which she did not include in her taxes. The IRS argued that she had a property right to these payments and that therefor they are income from property, which is taxable. In the alternative, the IRS said they should be included as taxable alimony. The Tax Court said that they are not income from a property right because, under Virginia law, a spouse does not have a property interest in these types of pensions. The Tax Court then said that the payments are not alimony because the state divorce decree lables them as part of the property settlement. No, the ball isn't under cup A. And no, its not under cup B because it is under cup A.

Too bad this is not precedent.

Saturday, January 04, 2003


Future socialism must define riches and poverty objectively and not relatively. The goal of socialism should be to eliminate poverty and increase riches by raising the income level of the poorest members of society. The goal of socialism should be to raise the floor, not to worry about the ceiling. The socialist should concern himself with the wealth of the rich only so far as that wealth impoverishes others. Beyond that, the wealth of the rich, like the health of the athlete, the intellect of the wise, the skill of the juggler, or the humor of the comic, becomes merely a goal that others can achieve.

Friday, January 03, 2003


Glenn Reynolds linked approvingly to this article on federalism by Marci Hamilton. What I would like to respond to:

First, for federalism purposes, John Ashcroft would have been better off leaving Oregon to enforce its liberal assisted suicide law. Instead, he insisted that the federal government intervene.

In debate after debate, I have heard critics of federalism claim, based on Ashcroft's decision, that the Bush Administration is only committed to States' rights when it serves a conservative agenda - not as a fundamental constitutional principle.

Ashcroft should not have provided them with grist for this mill. But of course, the politicians are doing what politicians do--turn everything into politics. A liberal Administration would doubtless have decried federalism and at the same time, deferred to Oregon - in a different kind of hypocrisy. Again, though, the problem is the hypocrisy - not States' rights as a general principle.

Hamilton neglected to mention the little problem we here in California have had trying to get the Feds to go along with our allowing doctors to prescribe pot for pain. Or the Republican-backed Federal DOMA. What part of conservative theory makes family law a federal concern? In response to her "alternative hypocrisy" argument, Hamilton is wrong on simple logical grounds. For a conservative administration to exercise a power they claim they do not or should not have is hypocrisy. For a liberal administration to choose not to exercise a power that they claim to have is not hypocrisy. Wrong, maybe, but not hypocritical.

But in theory, Hamilton's basic point is valid. We here in California put Democrats in overwhelming control of our government, but our options are limited by a federal government run by Republicans elected primarily by decedents of people who tried to break off from the U.S. government. True Federalism sounds great to me. So Hamilton has convinced me, a liberal, that I should support judicial candidates who believe in True Federalism. Good for her.

But there is still a practical problem. The point of her article was that we should support Bush's judicial nominees, because they support federalism. Then she admits to a valid criticism that the Bush administration has hypocritically used federalism to support only conservative policies. In response to this criticism, she offers only a hypothetical Tu Quoque argument that a liberal administration would commit an opposite but equal hypocrisy. I have refuted that argument above, but assume it is accurate. So what? I am still a liberal, and the Bush administration still hypocritically uses federalism to push a conservative agenda. So why should I support Bush's judicial nominees?

Thursday, January 02, 2003


It is immoral to consider the economic effects of a war against Iraq in deliberations as to whether or not to engage in such a war. If there is no other good reason to start a war that will lead inevitably to the deaths of many American servicemen, scores of Iraqi servicemen, and scores of innocent Iraqis, doing so to enrich our pockets is pure evil. If this war, with all of the inevitable deaths, is necessary to secure liberty for the Iraqis and safety for Americans, avoiding it due to the cost is cowardly evil.

Wednesday, January 01, 2003


The base instict at the heart of socialism is envy. The socialism of the past has demanded equality of out come, regardless of where that equality lies. Equal poverty is as good an outcome for past socialism as equal riches. This must end.


I have learned from Aristotle the difference between envy and emulation. Both are feelings of pain aroused by seeing another who has that which you do not. Envy is a petty feeling that causes the envious person to desire that the other person lose that which the envious person does not possess. Emulation is a noble feeling that causes the emulative person to desire that they gain that which the other person possesses. An envious person with one cow desires that his neighbor with two cows lose one cow. An emulative person with one cow whose nieghbor has two cows desires to gain a cow.


Libertarians believe that economic interactions are positive sum, but that political interations are necessarily zero-sum. Socialists believe that political interactions are positive sum, but that economic interactions are necessarily zero-sum.

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