And Don’t Sweat the Numbers

Here’s good news for supporting parents, whose divorced or separated partners welsh on the deal to sign a Form 8332, delivered by none other than the Judge who writes like a human being, the Great Dissenter Judge Holmes. The case is Gary L. Scalone and Sandra Vieira Scalone, 2012 T. C. Sum. Op. 40, filed 5/2/12.

Unfortunately this is a Section 7463 “not-for-nuthin’”, so it’s useless as precedent. But read and heed, matrimonial lawyers; use the reasoning, and especially use the language. And please, even if it’s not necessary, get the SSANs.

Usual story. Gary and former spouse Denise have minor child N. S., who lives with mother, but Gary furnishes more than half of support. The separation agreement says “Gary ‘shall be entitled to claim’ N.S. as a dependent for tax purposes ‘[f]or calendar year 2000 and for any taxable years henceforth.’ And Denise promised to sign a declaration ‘on forms acceptable to the Internal Revenue Service’ that she would not claim N.S. as a dependent if Gary kept current on his child support.” Gary did, but Denise didn’t.

Incidentally, Gary and current spouse Sandra have a child who lives with them; IRS denied exemption and credit for both children, but conceded Gary and Sandra’s child, earning a wry compliment from Judge Holmes.

As to N.S., no Form 8332 or equivalent means no exemption and no credit; see my blogposts “Supported Child; Unsupported Exemption”, posted 7/11/11, and “Kicking Richard Nixon”, posted 11/25/11.

But Judge Holmes rides to the rescue, with a pardonable understatement: “What makes this part of tax law complicated is that some of the information that’s listed on the Form 8332 is absolutely required, and some is just helpful to the IRS in processing the return.” 2012 T. C. Sum. Op. 40, at p. 6.

Having no fully-executed Form 8332 from the welshing Denise, Gary and Sandra attached a signed copy of the separation agreement to their return for the year at issue. Both Denise and Gary signed. This gets past the critical hurdle: the custodial parent and the non-custodial parent must manually sign whatever document substitutes for the Form 8332. The cases say that the signatures are the “controlling factor.” 2012 T.C. Sum. Op. 40, at p.6.

Moreover, “…Gary correctly points out that almost all the information on a Form 8332 is in that agreement–the only things missing are his and Denise’s Social Security numbers. That Gary’s number isn’t in the agreement isn’t a problem–his number is elsewhere on the return–but the absence of his ex’s number may be a problem.” 2012 T.C. Sum. Op. 40, at p. 6.

Except it isn’t. IRS cites Richard A. Nixon, 2011 T.C. Mem. 249, but in that case there was nothing signed by Richard’s ex. Then  IRS cites Gessic, 2010 T.C. Mem. 88, but there taxpayer attached one initialed page from the separation agreement, and even that did not adequately specify to what years it applied. Even though Gessic produced a complete copy at the trial, it may not have been signed by the custodial spouse.

Gary had the magic language  “calendar year 2000 and for any taxable years henceforth.” That’s enough, says Judge Holmes.

“This turns out to be very important. The separation agreement here states that Gary ‘shall’ receive the dependency exemption ‘[f]or calendar year 2000 and for any taxable years henceforth.’ With this language, Denise was giving Gary the right to claim N.S. as a dependent for all years from 2000 into the future. The applicable regulations specifically allow this kind of general release. See sec. 1.152-4T, Q&A-4, Temporary Income Tax Regs., supra (release may be ‘for all future years’). We also specifically find that this phrase is Denise’s unconditional promise not to claim N.S. as a dependent.” 2012 T. C. Sum. Op. 40, at p. 9.

Moreover, the fact that the separation agreement was not incorporated in the divorce decree doesn’t matter, nor the fact that Denise’s declaration relinquishing exemption and credit is dependent upon Gary being current with this child support.

“The Commissioner has a second argument, though. He argues that even if the absence of the parents’ Social Security numbers doesn’t sink the Scalones, ‘conditional’ language in the separation agreement should. There is conditional language, kind of. But we disagree that it’s important. The language the Commissioner points to states that

‘Wife agrees to sign a written declaration on forms acceptable to the Internal Revenue Service that she will not claim the child as an income tax dependent exemption for any taxable year commencing calendar year 2000, provided that for the applicable calendar year she continues to receive child support payments as agreed from the Husband and such payments are current as of December 31 of the applicable tax year. The Wife further agrees to attach the declaration form required by the applicable rules and regulations of the Internal Revenue Code to her income tax return.'[Emphasis added.]

“This provision mentions a ‘written declaration’–clearly a Form 8332. And the Commissioner is correct that it has a quid pro quo. But it’s a very odd one: if Gary is current with support, Denise promises to complete a Form 8332 and attach it to her tax return–something that would have no effect on Gary’s right to claim N.S. as a dependent on his tax return, which she gave away in the preceding sentence of the agreement. It would sure have been a lot easier for Gary if Denise had given him a signed Form 8332, but as we pointed out earlier, the Code doesn’t require it.” 2012 T. C. Sum. Op. 40, at pp. 11-12.

Gary gets the exemption and the credit, and justice is done. Way to go, Judge Holmes.

Takeaway- Matrimonial lawyers, go and do thou likewise.

Or, Answering to a Higher Authority

Judge Goeke takes a look at a historic facade easement in Loren Dunlap and Nancy Dunlap, et al., 2012 T.C. Mem. 126, filed 5/1/12. And the easement is worth–nothing. That’s because their high-priced New York City condominium must, like a famous New York City hot dog, answer to a higher authority.

Loren and Nancy and their fellow unit owners in the chi-chi Cobblestone Loft Condominium, located in New York City’s Tribeca North Historic District, were sold the facade easement deduction by their managing agent. See my blogposts “Skimp on the Form but Attach the Appraisal”, 10/3/11, and “A Joy Forever”, 4/4/11.

Briefly, the National Architectural Trust (NAT), a Section 501(c)(3) not-for-profit, shepherded the Cobblestoners’ application through National Parks Service, got the condo designated as historic, and recommended a law firm (which had represented NAT and its for-profit affiliate SMS) to take care of drafting and recording the easement. A well-known appraisal firm (which had done other work for NAT) prepared an appraisal of the facade, which was distributed to all the Cobblestoners.

The appraiser never testified at the trial, however, and his report was thrown out as evidence. But it was good enough to let the Cobblestoners escape Section 6662 penalties.

The Cobblestoners took charitable deductions for their proportionate shares of the appraised worth of the easement.

The Cobblestoners had to make cash contributions to NAT, which IRS claimed was payment for services and not a Section 170 contribution. This doesn’t convince Judge Goeke, who finds the “services” to be minimal, and he allows the cash. But the facade deduction collapses.

Judge Goeke carefully deconstructs the appraisal and the expert testimony at trial, finding them deficient, but the point of the case is that the facade was already protected, and better protected, before NAT came on the scene, by the New York City Landmarks Preservation Commission (LPC), the governmental guardian of New York City’s architectural heritage.

Cobblestone was one of the very few buildings to achieve the LPC’s coveted “sound, first-class condition” status. As a result, Cobblestone entered into a continuing maintenance agreement with LPC.  Judge Goeke: “Under the continuing maintenance agreement, Cobblestone was required to have Cobblestone inspected every five years by a ‘Preservation Architect’ (to be selected from a list provided by the LPC) to make sure the building remained in sound, first class condition. The inspection was to cover various elements of both the interior and the exterior of the building. The preservation architect was required to prepare a report 45 days after each inspection which detailed work which should be completed to maintain the building in sound, first-class condition. Within nine months from the report date Cobblestone was required to either complete the work detailed in the report or else contest the required work with the LPC. The inspection, the report, and the work were all to be completed at Cobblestone’s expense. Other provisions of the continuing maintenance agreement imposed reporting obligations on Cobblestone in case of fire or other damage to the property.” 2012 T.C. Mem. 126, at p. 44, footnote 17.

This was far more than NAT ever did.

Judge Goeke again: “…we do not believe that the facade easement restrictions and enforcement were any more stringent than the LPC regulations and enforcement as of the date for which … valued the easement (December 29, 2003). The LPC is a well-staffed organization which works with community groups and preservation activists to enforce its regulations applicable to historic structures such as Cobblestone. Although the LPC’s regulations are slightly less rigorous than those promulgated by the Secretary of the Interior (which are the regulations purportedly enforced by NAT), Cobblestone had a special ‘sound, first- class condition’ designation with the LPC which caused it to be subject to a higher standard of preservation than most other historic structures in New York City. Only 150 of the 26,000 structures covered by LPC regulations had this special designation.” 2012 T.C. Mem. 126, at pp. 49-50.

Judge Goeke blasts NAT, finding its monitoring efforts to be poor or non-existent at the time the easement was granted, and that NAT was “…an organization more concerned with making money for SMS (a for-profit entity which employed many of the people who were held out to third parties as working for NAT and which was owned by the same two people who founded NAT and worked as directors and presidents of NAT) than monitoring and enforcing the terms of the facade easements it held.” 2012 T.C. Mem. 126, at p. 51.

So the easement was worth nothing. So no deductions.

Finally, the Cobblestoners acted reasonably and in good faith, so no penalties. The disregarded appraisal was attached to their tax returns, and they substantially complied with the requirements of the Form 8283 attached to their returns.

Nothing interesting out of Tax Court on April 30,2012, so here’s an Order from April 27.

You won, so go away. That’s the lesson Judge Kroupa teaches Frederick M. & Delores R. Nerlinger, Docket No. 27972-09 L, issued 4/27/12.

IRS made a full concession and asked that the case be dismissed. Fred and Del are completely off the tax hook.

But Fred and Del weren’t happy. When Judge Kroupa entered an order and decision in favor of Fred and Del, dismissing IRS’ claims entirely, Fred and Del moved to set the order and decision aside. They wanted a decision stating IRS abused its discretion.

No, says Judge Kroupa. “The Court finds that petitioners are abusing the purposes for which the collection review statutes, section 6320 and 6330, were adopted. Respondent fully conceded this case. Respondent acknowledged that petitioners did not receive the statutory deficiency notice. Respondent also abated (or would soon abate) the liabilities for 2001 and 2002 and the liens released. In addition, no levy action would occur for these years. Petitioners want respondent to admit he abused his discretion. This we cannot do nor, even if we could, the result remains the same. Respondent has made a full concession. There is no issue before us to decide.” Order, p. 1.

Leaving aside the grammatical lapses (the Court cannot admit the respondent abused his discretion; the Court can so find, but only respondent can so admit; and the word “nor” should be “and”), if you get a win, that’s all, folks.