Attorney-at-Law

YA GOTTA WIN IT TO BE IN IT

In Uncategorized on 03/23/2012 at 14:16

Give-Ups Don’t Count

That’s Judge Chiechi’s bad news for Vinny Nardone and Pilar Puerto, two hardworking Esq.’s who got Marc and Miriam off a huge tax hook in Marc A. Trzeciak and Miriam Trzeciak, 2012 T.C. Mem. 83, filed 3/22/12 (and if you wondered why I didn’t post this yesterday, I was at a meeting with the IRS; don’t ask.).

Miriam was a real estate pro (an actual real-live one), who owned and ran 14 single-family houses in the Greater Columbus, Ohio, metro area, that she rented out. Miriam lived in Dayton, and traveled from house to house, showing houses to prospective tenants, dealing with their complaints, engaging contractors, and doing all the admin and paperwork.

It’s a mighty long road from Dayton to Columbus, and Miriam spent a lot of time going to and fro on the earth and walking up and down on it. That travel time counts toward my pro-qualifying 750 hours and lets me take all the depreciation, said Miriam. Not on your pickup truck, said IRS; that’s home to work commuting and you’re numerous days late and a lot of dollars short. You got the $3K gimme, and owe tax by the bushel-basket.

Miriam’s accountant claimed that the travel was part of the activity because of the time and distance. He claimed that travel is inherent in real estate activities and can’t be commuting. IRS tells him, politely, to take a walk in the country.

He never said the magic words “home office”. That would have let Miriam claim she went from one job site (home office) to the others (the 14 houses); ergo, no commuting from home. So the revenue agent who audited Miriam put it this way: “The taxpayer [Ms. Trzeciak] does not employ anyone to handle the management of the properties, and handles bookkeeping, advertising ** *, paying bills, collecting and depositing rent, scheduling major maintenance, and performing minor maintenance, and tenant relations, mostly performed from her [petitioners’] residence. No mention was made of a space [in petitioners’ residence] that was used regularly and exclusively for the taxpayer’s rental activities.” 2012 T. C. Mem. 83, at p. 4.

Maybe if she hauled goods for her operations that might count, but Miriam never said she did. After much palaver, little of it to the point, Miriam gets hammered, plus a substantial understatement penalty (the revenue agent ignoring “reasonable cause”, like reliance upon said accountant, which Judge Chiechi does not like. See 2012 T.C. Mem. 83, at p. 12.).

Comes now Vinny and Pilar. At first they, too, blew past the “home office” argument, leaving it out of the petition. IRS denies everything in its answer. Vinny and Pilar counter with a Section 7430(c)(4)(E) qualified offer, to which IRS doesn’t respond.

After the pretrial order is served on both sides, Pilar e-mails IRS’ counsel, stating the magic language. IRS’ counsel demanded proofs, Pilar sent them along, and before pretrial memoranda were due, the parties had a settlement giving Miriam everything she asked for.

When Vinny and Pilar moved for entry of judgment based on the settlement, they attached an affidavit from the accountant claiming he told IRS about the home office from the get-go. Miriam had filed documents that varied from the accountant’s tale. The Court didn’t hold a hearing because the parties never asked for one.

Now Vinny and Pilar want Section 7430  money. Once again the magic words are “substantially justified”.

Judge Chiechi: “A significant factor in determining whether the Commissioner’s position is substantially justified as of a given date is whether, on or before that date, the taxpayer has presented all relevant information under the taxpayer’s control and relevant legal arguments supporting the taxpayer’s position.

“The Commissioner’s concession of an issue is not conclusive as to whether the Commissioner’s position with respect to that issue was substantially justified.” 2012 T. C. Mem. 83, at p. 30.

The magic date for substantial justification is the petition date, at which point neither Miriam nor anyone else had suggested that Miriam had a home office. Vinny and Pilar argued that IRS should have asked.

Judge Chichi says “no”, or more precisely: “With respect to petitioners’ contention that, because petitioners presented information to respondent during the administrative proceedings that Ms. Trzeciak did work relating to her rental properties in petitioners’ residence, respondent had an obligation during those proceedings, which respondent failed to satisfy, to ask petitioners to provide respondent with documentation or other substantiation establishing that Ms. Trzeciak maintained a work area or an office in petitioners’ residence that qualified as Ms. Trzeciak’s section 280A principal place of business and thus her tax home office, we disagree. We do not believe that respondent’s knowledge during the administrative proceedings that Ms. Trzeciak did work relating to her rental properties in petitioners’ residence imposed an obligation on respondent to ask petitioners to provide respondent with documentation or other substantiation establishing that Ms. Trzeciak maintained a work area or an office in that residence that qualified under section 280A as her principal place of business and thus her tax home office. It was petitioners’ obligation, and not respondent’s obligation, to provide documentation or other substantiation establishing that Ms. Trzeciak maintained a work area or an office in that residence that qualified under section 280A as her principal place of business and thus her tax home office to respondent.” 2012 T. C. Mem. 83, at pp. 35-36.

Although the revenue agent mentioned at the audit stage working at home in a space regularly and exclusively, the accountant never followed up. In short, petitioners, “don’t ask, don’t tell” is not the rule.

“We find that, in the light of the facts available to respondent at the time the answer was filed and existing legal precedent, respondent’s position in this case had a reasonable basis in both fact and law.” 2012 T. C. Mem. 83, at p. 39.

But what about the qualified offer? Vinny and Pilar are out of luck again, as Section 7430(c)(4)(E)(ii)(I) does not permit counsel fees where the matter is settled, not tried to judgment.

I hate it when the lawyers don’t get paid.

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