And Great Will Be The Fall Thereof

Somebody at 1111 Constitution Ave NW must have known last month that Judge Goeke was going to overrule Tax Court’s long-time aversion to the 40% substantial valuation misstatement penalty (a/k/a The Big Chop) in AHG Investments, LLC, Alan Ginsburg, A Partner Other Than the Tax Matters Partner, 140 T. C. 7, filed 3/14/13; see my blogpost “Slam The Sham”, 3/14/13.

In witness whereof, comes Special Trial Judge Peter J. Panuthos with a designated hitter, Stephen T. & Louis R. Kunian, Docket No. 1736-11, filed 3/15/13 (beware the Ides of March). Steve & Lou are façaders, awaiting the outcome of some appeals by other façaders.

If you tuned in late, see my blogposts “Chipping Away The Façade”, 5/2/12, “Chipping Away The Façade–Part Deux”, 10/14/12, and “Method To His Madness?”, 6/24/12. This is the historic façade easement charitable contribution.

Well now, post-AHG, The Big Chop is in play, no matter what other reasons there may be to impose a 20% substantial understatement penalty, disallow the deduction or do anything else.

By motion made February 7, IRS wants to amend its answer out of time to add The Big Chop, and Steve & Lou oppose, saying too late. The trial was supposed to happen March 26, but IRS and Steve & Lou agreed to hold off until two Tax Court cases, now on appeal to various CCAs, are decided.

But Tax Court Rule 41(a) is liberally construed “when justice so requires”. And discovery hasn’t begun yet (interesting that, although the petition was filed in January, 2011, the parties didn’t even do a Branerton show-and-tell).

So the only issue is unfair surprise or prejudice to Steve & Lou by the late answer.

Judge Panuthos: “Such surprise or prejudice, in turn, rests largely on evidentiary and other considerations bearing on the nonmovant’s opportunity to respond. For instance, the Court may take into account whether the nonmovant would be prevented from presenting evidence that might have been introduced if the matter had been raised earlier and whether the movant delayed unduly in raising the matter.” Order, p. 2. (Citations omitted).

But with no discovery yet, where’s the surprise? Steve & Lou can discover far and wide, informally.

Run of the mill procedural motion, right?

Except this is a Taishoff Red Alert: Façaders, prepare to meet thy doom. The IRS is going headhunting, and Steve & Lou are first in line for The Big Chop.