1gucci
Spottswood William Robinson 360x1000
1albion
lifeinmiddlemarch1
1paradide
199
Brendan Beehan 360x1000
Lafayette and Jefferson 360x1000
1jesusandjohnwayne
AlexRosenberg
1trap
Learned Hand 360x1000
Edmund Burke 360x1000
Anthony McCann2 360x1000
2albion
Margaret Fuller5 360x1000
1lauber
1confidencegames
1falsewitness
14albion
6albion
George F Wil...360x1000
Office of Chief Counsel 360x1000
2confidencegames
George M Cohan and Lerarned Hand 360x1000
3confidencegames
LillianFaderman
Ruth Bader Ginsburg 360x1000
3theleastofus
Tad Friend 360x1000
8albion'
1transcendentalist
1empireofpain
Mary Ann Evans 360x1000
Margaret Fuller 360x1000
3albion
Margaret Fuller 2 360x1000
1lafayette
1defense
Storyparadox1
4albion
Margaret Fuller4 360x1000
Susie King Taylor2 360x1000
3defense
Thomas Piketty2 360x1000
Thomas Piketty3 360x1000
Gilgamesh 360x1000
Richard Posner 360x1000
Betty Friedan 360x1000
10abion
2lafayette
Mark V Holmes 360x1000
11632
1lookingforthegoodwar
Maria Popova 360x1000
2trap
11albion
Maurice B Foley 360x1000
Anthony McCann1 360x1000
Susie King Taylor 360x1000
2lookingforthegoodwar
499
2paradise
13albion
1theleasofus
9albion
3paradise
Stormy Daniels 360x1000
2defense
5confidencegames
2transadentilist
Margaret Fuller1 360x1000
399
Samuel Johnson 360x1000
5albion
storyparadox3
Margaret Fuller2 360x1000
7albion
2falsewitness
2theleastofus
James Gould Cozzens 360x1000
Thomas Piketty1 360x1000
2jesusandjohnwayne
12albion
storyparadox2
2gucci
1madoff
Margaret Fuller3 360x1000
6confidencegames
299
7confidencegames
Adam Gopnik 360x1000
4confidencegames
lifeinmiddlemarch2
Originally Published on forbes.com on April 5th, 2012
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Some cases seem destined to excite the imagination of the tax blogosphere.  TV news anchor Anietra Hamper was a good example.  She went to Tax Court because she thought she should be able to deduct the clothing she bought to wear on air.  She was defeated by the rule that clothing suitable for ordinary wear is not deductible and the Women’s Wardrobe Guideline she was subject to indicated that she should be wearing clothing suitable for working in an office.  TV anchors are supposed to dress like CPAs – Who knew ?
What caught the mature attention of tax bloggers was that included in the detailed list of purportedly deductible items of apparel were things that only the anchors on the Naked News ever display.  I joined in the fun rather late in the game with a post titled Neither Mentionable Nor Deductible and rated her argument number 1 amoung the 10 lamest taxpayer arguments of 2011.  That particular story burst out of the tax blogosphere into the mainstream.
The great F. Lee Bailey trying his hand at tax litigation did make quite an impression among tax bloggers, as I expected it would.  This time, thanks to the astuteness of my esteemed editor  Janet Novack and my willingness to burn the midnight oil on the 143 page decision, I was first.  Others were not far behind.  Since the case had so many angles, we collectively may seem a bit like the blind men and the elephant.
Paul L. Caron at TaxProf blog emphasized the penalty aspect quoting from the decision:
If Mr. Bailey had disclosed to a tax professional the facts underlying the adjustments we have sustained, and if the professional had advised him to report the items as he did, then he might have a colorable claim of reasonable cause based on reliance on advice. However, Mr. Bailey offered no evidence of such informed advice, nor of any other claim of reasonable cause and good faith. This defense is therefore unavailing to Mr. Bailey.
Joe Kristan at the Tax Update Blog in F. Lee Bailey, tax litigator emphasized the yacht disallowance quoting:
While it may be true that Mr. Bailey did not enjoy piloting the yacht, the record belies the claim that he derived no personal pleasure from it. First, the Spellbound was built to Mr. Bailey’s specifications, and he testified that it was beautiful. Second, the record does not show that Mr. Bailey always took on the job of piloting the Spellbound. PBR hired a captain and crew to sail and maintain the Spellbound, and Mr. Bailey could have used their services to pilot the yacht any number of times. Even assuming arguendo that Mr. Bailey piloted the Spellbound on every personal trip–and that he disliked the task–we find that he derived pleasure from sharing the yacht with his family and friends and that he anticipated doing so when he purchased the yacht in 1989.
Tony Nitti at Double Taxation in F. Lee Bailey Makes a Guest Appearance In Tax Court, As Both Attorney and Petitioner compared Bailey’s career to that of Lionel Hutz of the Simpsons.

Tony nicely summarizes the various aspect of the advance of Biochem stock, which was the largest issue in the case. Bailey mostly won on that issue.

Caleb Newquist at Going Concern reminisced about Bailey’s defense of Patty Hearst whose recruitment into the Symbionese Liberation Army was attributed to Stockholm Syndrome.  He picked up on Joe Kristan’s story about the yacht.
Lew Taishoff in A Victim of His Own Success comments on the extraordinary deal that Bailey had made with the US Attorney, that was the source of the bulk of the IRS notice of deficiency.

I was surprised at the DOJ lawyers, who entrusted Mr. Bailey with $5.9 million worth of publicly-traded stock belonging to his incarcerated client, and allowed Mr. Bailey to deal with the stock in an account he controlled in a Swiss bank, with no requirement to account periodically (only at the end), pay at stated intervals, and with no written agreement embodying this extraordinary deal.
Obviously the AUSA was star-struck by the extraordinary undertakings of this famous lawyer. The AUSA never thought to question the great man, much less dare to require him to put in writing these incredible terms. The AUSA was not alone; many were spellbound. And remarkably, the great man delivered.
Mr. Bailey obviously believed himself to be everything his reputation said he was. A Tax Court trial should be a stroll on the boardwalk for him. It wasn’t.
Mr. Taishoff’s had a comment on my piece:
Mr. Reilly thinks Mr. Bailey had a fool for a client, as he tried the case himself, with apparently no idea of burdens of proof or recordkeeping requirements. Mr. Bailey seems to have thought it was a criminal trial.
As I noted in my piece I knew that I would not be able to do the decision full justice.  I did indicate, though, that Bailey actually won the largest issue and that a tax litigator might have not been able to help all that much with the rest of the mess, which Bailey had created by trying to be his own accountant.  I’ve been reflecting on Bailey’s argument that the IRS was persecuting him.  I think  there actually may be something to it even though as it turns out he deserved a little persecution.  Trying to tax him on the 5.6 million in stock that he accepted in a trustee type role and ultimately was briefly jailed for not paying back quickly enough was a gross overreach by the Service.  That transaction though was likely why they looked at the rest of his stuff, which was a mess.
Bailey was audited for 9 years (1993 to 2001) apparently in a fairly meticulous manner.  He had several ventures going on.  He used Quicken, which is a single entry system that clients loved because it is so easy and accountants hated.  It was soon succeeded in most businesses by Quickbooks, which gives the benefits of double entry to people who cannot understand it.  Double entry apparently is not something the great F. Lee Bailey thought he needed. I shudder at the thought of having to prepare his return.
The case could be divided into three major components. There were the issues surrounding Bailey’s handling of client funds, where the Service was definitely overreaching.  Then there was the question of whether the two side businesses were entered into for profit.  That was split with Bailey winning on the aviation remanufacturing and losing on the yacht.  Then there was the accounting mess.  That part of the case compares quite well with those of attorneys Thomas Hale and Dean Pace who went into Tax Court to engage in a war of words when what they need was some schedules supported by receipts which ticked and tied to the returns.  Don’t bring a knife to a gun fight.  That was the part of the case that Bailey lost almost totally.  Anybody with sloppy records and loose accounting whose business affairs have more than a few moving parts will have significant adjustments, going both ways, if they have 9 years worth of returns audited.
An example of the type of thing, that the agent found was a deduction of $215,612 expenses for Mr. Bailey’s West Palm Beach Office that were claimed on his Schedule C. Mr. Bailey was a 50% partner with another attorney in the West Palm office and reported a small loss from the partnership.  Those same expenses had been claimed by that partnership.  That’s the type of mistake that gets made when the records come to the tax return preparer in the proverbial brown paper bag.  Mr. Bailey had a grocery cart full of brown paper bags.  What is a sign of IRS animus is their going through nine years worth.  I don’t recall ever seeing a case like this covering that many years.
The other thing that is interesting, to me anyway, is why this story has not broken out of the tax blogosphere.  It could well be that it is because Mr. Bailey’s fame is largely pre-internet.  His last hurrah in the public eye was at the OJ trial when he discredited Detective Mark Fuhrman, who lied about how frequently he used the “N word”.  Bailey was only part of the team there and it was one instance where he was working for a client at least as famous as he was.  You probably have to be over 40 to remember the Symbionese Liberation Army and Patty Hearst.  His rise to prominence from the Sam Sheppard acquittal was in 1966. When I mentioned that I was surprised that the story hadn’t generated more interest, I was told that most twitter users might not recognize his name and it was too bad that the story wasn’t about Justin Bieber, whoever he is.
You can follow me on twitter @peterreillycpa.