Nick and Vinny come out winners, as their option, split-the-sales-proceeds, and 1031, turn out winners, even as their percipient expert witness fails to slip her non-Rule-143-compliant report past Ch J Kathleen (“TBS = The Big Shillelagh”) Kerrigan, in Parkway Gravel, Inc. & Subsidiaries, T. C. Memo. 2024-59, filed 5/21/24.

For the backstory, see my blogpost “Both Sides Now,” 11/1/22.

Even though Nick and Vinny are on both sides, both Parkway, a C Corp their fathers started, and V&N, their own partnership, followed the advice of my esteemed colleague Peter Reilly, CPA: if you set it up, follow it.

V&N took the laboring oar in rezoning and implementing. Their pre-existing option to buy Parkway’s gravel pit passed State law muster. They had multiple entities, but always kept them separate enough, billing and cross-billing when workers and materials were exchanged, and separating operations.

If IRS’ attempt to stick Parkway with the whole gain via sham transaction or assignment of income had been what Vinny and Nick intended, their tax posture would have been better, since the replacement property in the 1031 of Parkway’s share of the land sales proceeds  cost enough so V&N’s piece could have been deferred in the 1031 as well, and the mortgage interest for the replacement property would have been less.

Ch J TBS has a review of DE contract law, and a thorough discussion of sham transaction, both factual sham and legal (economic) sham. Factuals never happened as described; legals did, but didn’t move the economic needle. Nick’s and Vinny’s both happened as described, and did move the needle.

Being on both sides doesn’t wreck a well-documented, carefully-executed deal. A Taishoff “Good Job,” to Vinny’s and Nick’s advisors.