In Uncategorized on 11/29/2022 at 18:06

Entia non sunt multiplicanda sine necessitate” or “keep it simple, stupid” is a good rule to follow, especially when creating business entities. Today’s Tax Court release features two (count ’em, two) such.

First up, Heather P. Dunn and Edison Dunn, T. C. Memo. 2022-112, filed 11/29/22. Heather and Edison each separately run one real estate operation, and also formed an LLC, which they owned together, to acquire and manage another. But they both have full-time non-real estate jobs, and dodgy time logs for their material participation in the real estate. The LLC had first an on-site agent (Heather and Ed lived 150 miles away) and then a managing agency. What they didn’t have was a Section 469(c)(7)(A) coverall, grouping all their real estate into one activity. This might have saved their real estate pro status. Heather tried to write off her individually owned automobile on the LLC’s return; “Petitioners failed to explain why [LLC] should be entitled to deductions for property it did not own.” T. C. Memo. 2022-112, at p.4.

It doesn’t get better.

Next, Intan N. Ismail & Mohd Razi Abd Rahim, T. C. Memo. 2022-113, filed 11/29/22, claim passthrough deductions from Daddy’s RNR Sendirian Berhad, which is Malaysian for LLC. Except they never showed they owned any interest in said LLC, until in response to an IRS challenge, they produced a “share-swap” agreement that said that In & Mohd would acquire the shares some time after the years at issue. And they backed that up with more paper.

Judge Paris: “During the course of the litigation, Dr. Rahim provided a revised directors’ report for fiscal [Year One] that listed him as owning half the shares of RNR and a directors’ report for the previous fiscal year purporting to reflect his purchase of 250,000 shares of RNR. Given Dr. Rahim’s easy access to the directors’ reports, and ability to influence the contents thereof, and without other evidence to support his purported ownership of RNR, we do not find the revised directors’ report to be credible.

“Neither have petitioners provided any evidence that Dr. Rahim and Mr. Nordin exercised the share swap agreement before the relinquishment date set forth by the express terms of the contract.” T. C. Memo. 2022-113, at p. 8.

And RNR never filed Form 8832, Entity Classification Election, the famous “check-the-box”, electing passthrough status, or Form 8858, Information Return of U.S. Persons With Respect to Foreign Disregarded Entities (FDEs) and Foreign Branches (FBs). In and Mohd listed RNR’s address as Overland Park, KS, and not Malaysia, on the Schedule Cs they filed whereon they reported the losses from RNR.

Watch those entia.



In Uncategorized on 11/29/2022 at 17:21

“Bringing Some Discipline”

Boechler, P.C., 142 S. Ct. 1493 (2022), you’ll remember, grafted equitable tolling onto CDP petitions. Now Hallmark Research Collective, 159 T. C. 6, filed 11/29/22, whose motion to vacate the one-day-late based toss of their petition from a SNOD then-Ch J Maurice B (“Mighty Mo”) Foley bucked over to Judge David Gustafson, get their 57 (count ’em, 57) page response.

And it’s a beauty.

The Supremes said equitable tolling was non-jurisdictional in Section 6330 cases, as there was no long line of settled law on CDP petitions. Quite right, says Judge Gustafson; Congress first added CDP petitions to Tax Court jurisprudence in 1998; only 24 (count ’em, 24) years ago. By Tax Court standards, that’s last week.

But the petitioning a SNOD goes back to 1924. For a blow-by-blow enumeration, see 159 T. C. 6, at pp.43-57. Judges Gustafson catalogues every amendment and enactment of Section 6213 and its ancestors. Nowhere was it ever suggested that the 90-day cutoff was anything but jurisdictional.

Section 7459(d) gets a play. Barring Tax Court from entering decision in the amount sought by IRS when a petition is tossed for want of jurisdiction prevents both an IRS walkover for one day late petition, and a petitioner from withdrawing a timely petition, thus preventing Tax Court from entering decision in the amount sought.

The Hallmarks try claiming that Section 6214, and not Section 6213 confers jurisdiction. Judge Gustafson says no,. all Section 6214 does is prevent a multiplicity of proceedings, by letting IRS assert a greater deficiency than stated in the SNOD, rather than serving a second SNOD.

You have to read this opinion. If you want someone to dam the silt, buck the case over to Judge David Gustafson.


In Uncategorized on 11/28/2022 at 16:39

As there is neither opinion nor order from United States Tax Court worthy of comment today, I withdraw my pass from a request from my colleague Peter Reilly, CPA. Mr. Reilly, as always manifests “the cool clear eyes of a seeker of wisdom and truth,” as Mr. Frank Loesser put it. During this Thanksgiving weekend, Mr. Reilly suggested that it would “(B)e great if you give the Taishoff treatment to that opinion.  It has a lot of interesting elements to it.”

“That opinion” is, of course, the hallowed Cohan v. Com’r, 11 B.T.A. 743 (1928), re’d in part 39 F. 2d 540 (2 Cir, 1930).. George M., theatrical legend whose graven image overlooks the cut-rate ticket outlet at 48th & Broadway on this Minor Outlying Island off the Coast of North America, starred in this epic. Judge Learned Hand’s famous suggestion, which later grew into a mandate less variable than the laws of the Medes and the Persians, in Cohan v. Com’r, 39 F. 2d 540 (2 Cir, 1930), at pp. 543-544 is, my sources tell me, one of the ten most-cited decisions.

“Absolute certainty in such matters is usually impossible and is not necessary; the Board should make as close an approximation as it can, bearing heavily if it chooses upon the taxpayer whose inexactitude is of his own making.”

OK, Mr. Reilly, my unhallowed hands shall now disturb the sacred Sinaiatical pronouncement; the country’s probably done for anyway.

Judge Arundell at the Board (of Tax Appeals, Tax Court’s forebear) found some seven (count ’em, seven) issues upon which to rule. T&E, advertising, and excise taxes, which George M.’s inexactitude gave rise to the famous formula hereinabove set forth, is only one.

There was the famous family partnership between George and Mom, which both Judges Arundell and Hand blew off as an assignment of income. George’s attempt to characterize a gift of the cash generated from certain royalties as an assignment of the right to receive the royalties failed at least as to a one-third share.

George dropped some annuities, and the losses he took survived. George’s short year manoeuver worked. A loan to George M’s former business partner was just that, and not deductible.

But what about the remand? What did the Board allow George M. on the T&E, advertising and excise taxes? Mr. Reilly would like to know. But Google is silent.

The answer lies, I suspect, in the archives of the old B.T.A. But how to access them? Can the Tax Court Copycats work their three-buck magic?

Suggestions welcome.