In Uncategorized on 02/08/2023 at 16:07

Though Judge Emin (“Eminent”) Toro concurred in result in Green Valley, 159 T. C. 5, based on his reading of Section 6707A, he still likes the majority opinion enough to grant partial summary J to Seabrook Property, LLC, Seabrook Manager, LLC, Tax Matters Partner, Docket No. 5071-21, filed 2/8/23, knocking out Section 6707A chops because IRS flunked APA 5 USC §§ 551–559, 701–706 notice-and-comment for Notice 2017-10, wherein IRS tagged the Seabrooks’ dodge as a syndicated conservation easement dodge, a Dixieland boondockery, setting up enhanced nondisclosure chops.

For the Green Valley histoire, see my blogpost “Listing Is Legislating,” 11/9/22.

Seabrook and IRS agree that the donation was qualified: it was a real estate interest given to a 501(c)(3) per Section 170(h)(1). So far summary J to Seabrook.

But IRS claims Green Valley was wrongly decided. The kerfuffle here involves IRS’ listing of pre-American Jobs Creation Act of 2004 (AJCA) dodges. Did Green Valley knock out those? If so, what about retroactivity of Section 6501(c)(10) SOL, and 6404(g)(2)(E) excluding suspension of interest that would otherwise apply under section 6404(g)?

Judge Eminent says, negatory, we never said pre-AJCA chops were out. We only held that Notice 2017-10 was legislative and therefore needed notice-and-comment.

“… the Court’s analysis in Green Valley was premised on our determination that Notice 2017-10 was a legislative rule. See Green Valley, 159 T.C. slip op. at 8–15. (Legislative rules, unlike interpretive rules, are subject to the APA’s notice and comment procedures.) This conclusion in turn relied on provisions (like section 6662A) that changed the import of designating a  transaction as reportable or listed, imposing significant consequences based on that designation. See, e.g., id. at 5 (summarizing penalties under section 6662A). Many of these provisions were enacted or modified by the AJCA and did not previously appear in the Code. See id.  at 9–10 n.8; see also id. at 36 (Toro, J., concurring in the result) (“When it adopted the AJCA in 2004, Congress established new penalties . . . .”). As a result, although the Court has not had occasion to decide this point, the notices issued to identify reportable and listed transactions before the AJCA might be viewed as interpretive rules not subject to the APA’s notice and comment procedures.” Order, at pp. 3-4.

Taishoff says I ain’t so sure about that one, Judge. And Judge Eminent eases sheets a wee bit.

“… regardless of whether pre-AJCA notices are considered legislative or interpretive, when Congress enacted section 6707A(c) (the AJCA provision that defines reportable and listed transactions), it specifically referred to determinations made ‘under regulations prescribed under section 6011,’ I.R.C. § 6707A(c)(1), and ‘transaction[s] specifically identified by the Secretary as . . . tax avoidance transaction[s] for purposes of section 6011,’ I.R.C. § 6707A(c)(2). The IRS’s pre-AJCA notices identifying reportable and listed transactions generally were issued pursuant to regulations under section 6011. See, e.g., I.R.S. Notice 2000-60, 2000-49 I.R.B. 569 (citing Temp. Treas. Reg. § 1.6011–4T(b)(2)). And so, while the Court has not had reason to rule on this issue, one could interpret the statutory references and the AJCA provisions as a whole as blessing and incorporating the notices the IRS had already issued before the effective date of the AJCA. This reading of the statute would give full effect to the effective date provisions the Commissioner cites, while still requiring the Commissioner to comply with the APA after the effective date of the AJCA, as the Court concluded in Green Valley.” Order, at p. 4.

Oh, what a jolly silt-stir that would be, to knock out every IRS dodge-tag for the last 23 (count ’em, 23) years. Every dodger and dodgeflogger would be yelling for a refund. A blogger’s dream.

Oh yeah, Seabrook wins.

Nothing like judges trying to “bring some discipline” to the wrinkled skin of tax law.



In Uncategorized on 02/07/2023 at 16:02

No, That’s Not a Typo

Indu Rawat is back. IRS has folded her non-inventory gain when she unloaded her US partnership interest, but Judge David Gustafson has held that the Form 870-LT she and IRS signed did not preclude her fighting whether she was an NRA (not a gunslinger, a Non Resident Alien) or wasn’t taxable on inventory gain per Sections 741 and 751. See my blogpost “Maybe Not So Perduto,” 7/28/22, and the blogposts therein cited.

Now, Indu wants summary J she’s not taxable on inventory gain. She sold out years before the enactment of Section 864(c)(8), so that’s not in play; Grecian Magnesite still is. Sale of a partnership is a sale of a business, not each asset separately, for this case. With the usual exceptions, of course; whatever would we lawyers do without exceptions?

Indu says neither Section 741 nor Section 751 is a sourcing section, and Judge Gustafson buys that. “Admittedly, section 751 and Treasury Regulation § 1.751-1(a)(1) do not tell us the source of the proceeds nor their effective connection to a U.S. business; rather, they tell us the nature of the property considered to have been sold and the nature of the income that is to be taxed (or not). To find the sourcing rules and their effect on the nonresident alien’s liability, we look elsewhere.” T. C. Memo. 2023-14, filed 2/7/23.

The problem is, Section 751 and the Regs. treat inventory gain and receivables gain different to other gain on sale of a partnership interest. And Section 751 explicitly overrides Section 741. Inventory gain is gain other than gain on sale of a capital asset.

Once again, IRS doesn’t cross-move for summary J, but turns to the sourcing rules. Judge Gustafson finds those help IRS. “Consequently, since Ms. Rawat’s motion is based on her contention, which we reject, that the sourcing rule for the Inventory Gain is the general rule of section 865(a)(2), we will deny her motion.” T. C. Memo. 2023-14, at p. 20.

So Indu is out, indubitably, right?

Not on Judge David Gustafson’s obliging watch. He’ll tell your trusty attorneys, however white-shoe their affiliations, how to maybe win their case. Like maybe actually read the law…all of the law.

“Despite our rejection of Ms. Rawat’s principal contention about the effects of sections 741 and 751 and her reliance on the default sourcing rule of section 865(a), she might nonetheless prevail in whole or in part by showing, pursuant to section 865(b), that the source of the Inventory Gain was ‘without the United States’ under sections 861(a)(6), 862(a)(6), and 863. In the pending motion, however, she has not attempted to make that showing.” T. C. Memo. 2023-14, at p. 20.

Obliging? Just file your petition, ask to be assigned to Judge David Gustafson, and sit back. He’ll try your case for you.


In Uncategorized on 02/06/2023 at 12:08

Judge Goecke won’t stir it just yet, but the Boechler, P. C., equitable tolling silt is a definite maybe. Island Shoals Henry 430, LLC, Island Shoals Investments, LLC, A Partner Other Than the Tax Matters Partner. Docket No. 31759-21, filed 2/6/23, is nowise behindhand in slipping the Boechler gambit into IRS’ motion to toss the notice partner for late filing in this TEFRA hangover.

TEFRA may be long gone, but the memory (and the cases) linger on. IRS has eight (count ’em, eight) attorneys deployed, against Island Shoals’ three, and it looks like they’ll need every one of them.

Island Shoals claims the FPAA was sent to the wrong address for the TMP, and the Section 6223(d)(2) notice partner mailing wasn’t timely mailed. So Judge Goecke orders an evidentiary hearing on dates and places (what was sent, when and where).

Though Island Shoals’ trusty attorneys are onto something, Judge Goecke thinks they missed the remedy. “Petitioner has not filed a cross-motion to dismiss, but a decision in its favor on either of the arguments it advances appears to require dismissal. See I.R.C. § 6223(e).” Order, at p. 1. (Citation omitted).

But said trusty attorneys have a backstop, in case they lose the evidentiary hearing; and that’s maybe why they didn’t move to dismiss. Judge Goecke deals with the backstop in a footnote.

“Alternatively, petitioner argues that the deadlines to file a petition in I.R.C. § 6226 are nonjurisdictional and subject to equitable tolling. We understand that we must address this argument only if we decide that the FPAA issued to the tax matter partner was valid and the FPAA was timely mailed to petitioner. Accordingly, we will not address it at this time.” Order, at p. 1, footnote 1.

I am even-handed, favoring neither taxpayer nor IRS. But this time I’m rooting for IRS. I’d love a chance to blog Boechler and Section 6226.

A Taishoff “Thanks, Guys” to the team at Asbury for providing the opportunity..