Archive for March, 2013|Monthly archive page


In Uncategorized on 03/19/2013 at 16:29

When it comes to holding the basketball in the backcourt (sorry guys, it’s that time of year again), when procrastinator meets procrastinator neither gets a free throw.

The backdrop here is a designated hitter from STJ Lewis (The Right Speller) Carluzzo, Loretta Lee Wanat, Docket No. 19944-07S et seq. Fans of will remember the highflying Loretta Lee from my blogpost “Tax Court As Preparer?”, 9/17/12.

Loretta Lee didn’t bother filing three years’ worth of 1040s, while bedding down the dogs (she manufactured and sold dog’s beds; I’ll spare you the “gets up with” part). Of course, she flunked Substantiation 101, so Judge Lew sends her off to a Rule 155 faceoff with IRS.

Now comes Loretta Lee and protesteth as follows: IRS claims I’m in married filing separately status, but I’m single. Moreover, IRS delayed starting the Rule 155 beyond the time specified in Rule 155(b), when parties disagree on the computation. To review the time frame “A party shall file such party’s computation within 90 days of service of the opinion or order, unless otherwise directed by the Court.”

Yes, says Judge Lew, IRS was late, but so were you. “Because Rule 155 has equal application to both parties, and because both parties failed to proceed in the manner contemplated by Rule 155(b), petitioner’s complaint will not be addressed.” Order. p. 1.

But Judge Lew does give Loretta Lee a minor bye: “ORDERED that on or before April 15, 2013, respondent respond to petitioner’s claim with respect to her proper filing status.” Order, p. 1.



In Uncategorized on 03/18/2013 at 17:46

One unsubstantiated deductions opinion (involving a lawyer, of course) and one protester out of Tax Court today (3/18/13), and no designated hitters, so off to the orders.

You can’t cite them as precedent, and most are “filers” (file a response, file a signed petition, file a status report, etc.), but every so often there’s an ace that you can keep, as Don Schlitz wrote it and Kenny Rogers sang it.

Today’s ace is found in Leona B. Giltner, Docket No. 29506-12S, filed 3/18/13, Chief Judge Colvin dealing the cards.

Leona is dead: to begin with. There is no doubt whatever about that. There’s a motion from Alan E. Giltner to testify to that sad fact, nemo contradicto. But Al claims he’s the executor of Leona’s estate, Ch. J. Colvin asks for a copy of the letters testamentary or order of the relevant probate court, and Al says “sorry, there is no estate in Leona’s name, and she has five children.”

Judge Colvin: “…it is well settled that the Court’s jurisdiction over a case continues unimpaired by the death of a petitioner, and even if there has been no administration of that deceased petitioner’s estate, this Court may formulate an appropriate procedure to bring such a case to a close, including affording a decedent’s heirs at law an opportunity to take whatever action may be necessary to protect their interests.” Order, p. 1.

Sound familiar? See my blogpost “We’ll Come To You – Yet Again”, 1/5/13, when Judge Gale hunted down the heirs of the late Gordo McCaleb. But Gordo’s heirs bailed; see my blogpost “Again And Again”, 3/1/13.

What if the heirs might want to come and play? Here’s a checklist, courtesy of the Chief Judge: “[the movant] shall file a Response to this Order. In that Response [the movant] shall set forth and discuss fully (a) whether decedent’s estate will be probated, (b) whether a State probate court will appoint a personal representative, executor, or other fiduciary for decedent’s estate, and (c) whether there are any heirs at law of decedent who possibly may desire to prosecute this case on behalf of decedent. [Movant] in his Response shall further include the name(s) and address(es) of all heirs at law of decedent.” Order, p. 2. (Name omitted).

By the way, Chief Judge, a will gets “probated” or admitted to probate, and an estate gets administered.

Still, when confronted by a deceased taxpayer post-petition, the checklist is useful.


In Uncategorized on 03/17/2013 at 07:53

The fetchingly-named Fiona Le Poidevin, Chief Executive of Guernsey Finance, the promotional agency for Guernsey’s finance industry internationally, is pleased to announce that the Bailiwick, which takes in a number of those right little, tight little islands in the fog of the Channel and fastens them to the British Crown, has decided to enter into a FATCA-style IGA with the UK, and likewise is pursuing negotiations with Brother Wolin and the gang at US Treasury towards the real thing.

Ms. Fiona lauds the goals of certainty and transparency in a press statement dated 3/15/13. Now I ask yet again, will the dodgers be voted off the islands?




In Uncategorized on 03/15/2013 at 18:43

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.


In Uncategorized on 03/15/2013 at 01:15

The “icon” is “El Niño”, who’s “notable for his charismatic and fiery personality which differentiates him from most others who play ‘the gentleman’s game’ for a living.” 140 T.C. 6, at p. 4, Sergio Garcia, filed 3/14/13. The “gentleman’s game”, ladies, is golf. What the LPGA thinks of that moniker I leave to your discretion.

Howbeit, Judge Goeke tries to contrast Sergio’s charisma and fire with the “cool, iceman demeanor” of Retief Goosen. See my blogpost “Name and Number”, 6/9/11, for more about Goose and his tax problems.

So the issue is the same as in Goose’s case: what part of the loot he got is royalty (for use of his name and image), and what compensation for personal services (showing up at tournaments and winning, while wearing the sponsor’s goods from head to toe)?

Even though Goose had a higher ranking than Sergio, and even won a “Major” tournament, which Sergio never did, Sergio got paid more for his likeness and endorsements than Goose. Sergio was a “Global Icon.”

Ol’ Goose was just a “brand ambassador” (lower case), and that ranks lower than a Global Icon.

Royalty is not US taxable (Sergio lives in Switzerland and there’s a treaty), but personal services is. Sergio wanted to sell the Court a 85-15 split (guess which part was taxable; no prize for the correct answer), with the usual battle-of-the-experts.

Judge Goeke: “Considering the facts and prior caselaw, we do not believe a 50-50 split between royalty and personal service payments is appropriate in petitioner’s case. Petitioner was TaylorMade’s only Global Icon during the years at issue; he was the centerpiece of TaylorMade’s marketing efforts and the golfer around whom TaylorMade sought to build its brand. The same cannot be said of Mr. Goosen. We find that petitioner’s status as a TaylorMade Global Icon, especially the extent to which Taylor Made used his image rights to sell its products, is strong evidence that his TaylorMade endorsement agreement was more heavily weighted toward image rights than Mr. Goosen’s.” 140 T. C. 6, at p. 24.

So Sergio gets a 65-35 break from Judge Goeke, who’s apparently enthralled by these big-ticket golfers.

If I write enough of these blogposts, maybe I can get to be a Tax Global Icon.


In Uncategorized on 03/14/2013 at 17:51

 The 40-Percenters

If you concede something besides a gross valuation misstatement in a 40-percenter (gross valuation misstatement) penalty case, you’re no longer off the hook in Tax Court.

Alan Ginsburg, though not the similarly-named poet, has a good reason to howl, in AHG Investments, LLC, Alan Ginsburg, A Partner Other Than the Tax Matters Partner, 140 T. C. 7, filed 3/14/13.

It’s another FPAA with fourteen (count ‘em, fourteen) grounds for torpedoing Alan’s deal, among them gross valuation misstatement, but plenty of others, like sham transaction, no economic substance, not at risk per Section 465 and the rest.

Alan concedes not-at-risk, takes the 20% hit but moves for partial summary judgment (judgment on the papers with no trial) knocking out the 40-percenter.

Judge Goeke speaks for the Tax Court, and overrules previous learning: “We have previously held that when the Commissioner asserts a ground unrelated to value or basis of property for totally disallowing a deduction or credit and a taxpayer concedes the deduction or credit on that ground, any underpayment resulting from the concession is not attributable to a gross valuation misstatement. Today we depart from this holding, instead ruling that a taxpayer may not avoid the gross valuation misstatement penalty merely by conceding a deduction or credit on a ground unrelated to value or basis of property.” 140 T. C. 7, at pp. 5-6.

Judge Goeke goes back through some old cases, even our old chum BLAK Investments (see my blogpost “It’s A Sham”, 9/25/12), exhaustively reviews facts, and says Tax Court misread ERTA (Economic Recovery Tax Act of 1981). Judge Goeke says, following Fifth Circuit, that Tax Court should read the ‘“blue book’ prepared by the staff of the Joint Committee on Taxation. Though not technically legislative history, the Supreme Court relied on a similar blue book in construing part of the Tax Reform Act of 1969, calling the document a ‘compelling contemporary indication’ of the intended effect of the statute’.” 140 T. C. 7, at p. 7.

So you look first at what the liability would have been without the gross valuation misstatement, and then look at what it was stated to be by the taxpayer with the misstatement. If the before-and-after test puts you in the penalty zone, you get hit. Or, more elegantly, “‘The portion of a tax underpayment that is attributable to a valuation overstatement will be determined after taking into account any other proper adjustments to tax liability. Thus, the underpayment resulting from a valuation overstatement will be determined by comparing the taxpayer’s (1) actual tax liability (i.e., the tax liability that results from a proper valuation and which takes into account any other proper adjustments) with (2) actual tax liability as reduced by taking into account the valuation overstatement. The difference between these two amounts will be the underpayment that is attributable to the valuation overstatement.’” 140 T. C. 7, at p. 8.

Apparently, the First, Second, Third, Fourth, Sixth and Eighth Circuits all agree that letting shamsters cop to something besides gross valuation misstatements, to wipe out the 40% hit, is a perverse incentive to do utterly phony deals, overvalue everything, and when caught, cop to economic substance. And the Fifth and Ninth Circuits don’t like letting the shamsters cop to drop, but ol’ stare decisis keeps them from doing anything about it.

Federal Appeals Circuit: “The Blue Book, in sum, offers the unremarkable proposition that, when the IRS disallows two different deductions, but only one disallowance is based on a valuation misstatement, the valuation misstatement penalty should apply only to the deduction taken on the valuation misstatement, not the other deduction, which is unrelated to valuation misstatement.” 140 T. C. 7, at p. 12 (Citation omitted).

After a quick bow in the direction of stare decisis (“do what you did the last time”), Judge Goeke reverses course: “Today we depart from our precedent following the minority rule and side with the majority rule. By doing so we recognize that an underpayment of tax may be attributable to a valuation misstatement even when the Commissioner’s determination of an underpayment of tax may also be sustained on a ground unrelated to basis or valuation. We agree with Judge Prado of the Court of Appeals for the Fifth Circuit that the Blue Book’s formula and example merely express ‘a straightforward principle in mathematical terms: Do not apply the valuation overstatement penalty to a tax infraction, such as an improper charitable deduction, that is unrelated to (i.e., incapable of being attributed to) the valuation overstatement’.” 140 T. C. Memo. 7, at pp. 18-19 (Footnote and citation omitted).

Even though Tax Court recognizes this might mean that there will be more valuation trials (bring on those expert witnesses, guys), Tax Court won’t combine any more.


In Uncategorized on 03/13/2013 at 16:52

And So Didn’t IRS

By now everyone knows that Dave Gustafson (His Honor Judge David Gustafson) and The Great Dissenter, a/k/a The Judge Who Writes Like A Human Being, His Honor Mark V. Holmes, are two of my Tax Court faves.

So on another Palindrome Day (3/13/13), we have a designated hitter from Judge Dave that’s much more interesting than the three run-of-the-mill T. C. Memos with which the sages and sachems at 400 Second St NW have favored us this date.

I take my text from Sherlock Holmes at the racetrack: “Is there any point to which you would wish to draw my attention?”

“To the curious incident of the dog in the night-time.”

“The dog did nothing in the night-time.”

“That was the curious incident,” remarked Sherlock Holmes.

Well, neither did IRS do anything, whether by day or by night, according to Joseph A. Insinga, Docket No. 4609-12W, filed 3/13/13, a whistleblower wannabe who got neither a form letter, nor a check, nor anything else but the sound of silence.

Joe petitions Tax Court, saying he deems his Form 211 denied, as IRS has sat on it. IRS says “no determination, no jurisdiction”. Joe replies that “’his claims have, as a practical matter, been denied, and that he has therefore received a defacto rejection’.” Order, p. 1.

Joe has some firepower on call, as the National Whistleblower Center, “a non-profit, non-partisan organization dedicated to protecting employees’ lawful disclosure of waste, fraud, and abuse” (according to their website), files a brief amicus, claiming that “the Tax Court has jurisdiction–in light of §7623(b)(4) and under § 706(1) of the Administrative Procedures Act (“APA”), 5 U.S.C. § 551 et seq.–to “compel agency action unlawfully withheld or unreasonably delayed”. Order, p.1.

IRS ripostes that APA confers no jurisdiction, and the Mandamus Act (28 USC §1361) gives jurisdiction only to the USDCs, not Tax Court, and Dave agrees on both counts.

But, says Judge Dave, “the ‘All Writs Act’ (28 U.S.C. § 1651) applies to ‘all courts established by Act of Congress’ (cf 26 U.S.C. § 7441, establishing the U.S. Tax Court); and the U.S. Court of Appeals for the D.C. Circuit has held in Telecommunications Research and Action Center v. FCC, 750 F.2d 70, 75 (D.C. Cir. 1984) (“TRAC”), that, in view of the APA and the All Writs Act, ‘it is clear–and no party disputes this point–that’ if a statute (there, 28 U.S.C. § 23421(1)) confers on a court exclusive jurisdiction to review a final agency order, then even before the final order has been issued, the court has ‘jurisdiction over claims of unreasonable [agency] delay’. (The D.C. Circuit would appear to be the default venue for any appeal in this case; see 26 U.S.C. § 7482(b)(1).).” Order, p. 2.

That’s tellin’ ‘em, Judge Dave.

But (yes, there’s another “but”) Tax Court never decided if TRAC applies to Tax Court; nor has Tax Court ever decided if they can “borrow” APA judicial review principles, and Judge Dave won’t do it here.

He rightly decides we don’t know enough. “…we ought first to determine whether petitioner may have in fact received a determination, as he contends he has. As we explained in Cooper v. Commissioner, 135 T.C. 70, 75 (2010), ‘the labeling [is] not dispositive’. Rather, what confers jurisdiction on this Court under section 7623(b) is a ‘determination regarding an award’. The statute does not explicitly require a ‘notice’ of a determination, nor a written determination, nor even any communication of a determination. Rather, we have jurisdiction if there has been ‘[a]ny determination regarding an award’. If the IRS has in fact finished its consideration of an award claim and has not made an award, then evidently it has ‘determined’ to conclude the matter administratively without granting an award. In order for us to decide whether (as petitioner contends) the IRS has made such a de facto determination, we may need to learn: whether the IRS has completed its consideration of petitioner’s claim; what, if anything, the IRS is still doing with regard to petitioner’s claim; and whether the IRS expects to do anything in the future with regard to petitioner’s claim. If there has been a cessation of administrative action, then a reviewable determination may have been effectively made thereby. Such questions can be explored at the hearing we will conduct.” Order, p. 2.

So let’s get everybody onto a phonecon, let them all tell Judge Dave their respective tales, and see if we can get everybody down to 400 Second St NW in June for a hearing.

Way to go, Judge Dave.





In Uncategorized on 03/12/2013 at 21:56

No, not Mr.Keen, the hero of the eponymous radio (and later television) detective series of the late 1930s through the 1950s, but Judge David Gustafson, the Obliging Judge.

See my blogposts “We’ll Come To You”, 9/18/12, “We’ll Come To You–Part Deux”, 10/22/12, and “A Solicitous Judge”, 11/8/12.

Today (3/12/13), we have another illustration of Judge Gustafson’s unending quest for missing petitioners, Satyendra K. & Madhu K. Singh, Docket No. 7386-12, filed 3/12/13.

In fact, to track down SatMad, Judge Gustafson takes his cue from Fred and Ginger’s 1936 classic Follow the Fleet.

SatMad petition from a SNOD dated September 2 with a petition postmarked the following February 16, or 167 days after. Now SatMad’s only mailing address is an FPO number, which means United States Navy, and that’s outside the US of A, so the magic 150-day outside date would prevail, except SatMad is still late.

But Judge Gustafson sets date for trial, and makes signal to the Fleet, telling SatMad to shape up or ship out. But Judge Gustafson’s letter comes back “undeliverable”.

No way dismayed, IRS moves to dismiss. “The motion shows that an identical NOD was sent to each of the Singhs, that they received the NODs at a post office in Bahrain, and that in September 2011 they each signed a postal receipt for the NOD.” Order, p. 1 (Note- Judge Gustafson means “SNOD” when he says “NOD”).

So Judge Gustafson orders SatMad to respond, reply or haul down the ensign.

Alas, “(T)he Court received no response. Rather, the copy of the order served on the Singhs (at their FPO address) was returned by the U.S. Postal Service, apparently after an attempt to forward it to an address in Hawaii. By order dated February 11, 2013 (and served on the Singhs at their FPO address and at the Hawaii address), the Court ordered that it would hear argument on respondent’s motion to dismiss at or soon after the time this case was called from the calendar on March 4, 2013, in Washington, D.C. On March 4,2013, there was no appearance by or on behalf of the Singhs.” Order, p. 2.

Bereft of petitioners, notwithstanding his epistolary voyaging worthy of Sinbad or the Flying Dutchman, Judge Gustafson reluctantly abandons the stern chase after the elusive SatMad. “It is most unfortunate that the Court must enter decision in this case without any response or input from the Singhs. However, a petitioner is required to keep the Court informed of any change in his address, see Rule 21(b)(4); and the Singhs have not done so. A petitioner may not, by withholding contact information, delay indefinitely the redetermination and assessment of a deficiency against him. Rather, we must resolve the case.” Order, p. 2.

So Judge Gustafson, with a heavy heart, deep-sixes SatMad’s petition.

There was a bunch of T. C. Memos today (3/12/13), but only one worth noting. A reprise of my blogpost “The $250 Misunderstanding”, 6/3/11, this one involved ferrets and not feral cats. But the lady doing the ferreting fails the Section 170(f)(8)(A) test, even though she is the sole operating officer of the ferret rescuers and has bank statements to show what and when she gave. Her argument that she gave herself nothing fails for want of contemporaneous documentation, just like Jan Elizabeth Van Dusen, the feral catwoman.

So catpeople and ferreters (and others charitably inclined), take a hint from Joe Young and Fred E. Ahlert’s 1935 hit, and sit right down and write yourself a letter.

Oh yes, the case is Jolene M. Villareale, 2013 T. C. Memo. 74, filed 3/12/13, Judge Vasquez.


In Uncategorized on 03/11/2013 at 19:38

Administered by Judge James Halpern, both to IRS and to Estate of James A. Elkins, Jr., Deceased, Margaret Elise Joseph and Leslie Keith Sasser, Independent Executors, 2013 T. C. 5, filed 3/11/13.

The late James was a heavy hitter, Senior Chairman of First City National Bank and descendant of the founding partner of Vinson & Elkins, Houston, TX powerhouse law firm (some six of whose attorneys are in there fighting for the estate), and monumental art collector.

A not insubstantial portion of the late James’ estate consisted of around $24,500,000 worth of daubs and sculps by, among others, Jasper Johns, Jackson Pollock, Picasso, Henry Moore and Robert Motherwell. Definitely a collection to die for.

The late James and Mrs James, assisted by the V&E gunners, set up a Grantor Retained Income Trust, which metamorphosed into a lease on the death of Mrs late James for three pieces, and went to their kids on a disclaimer by the late James.

The late James dies, with a fractional interest. Who would buy it and at what price?

The lease has all kinds of restrictions, and the kids have a co-tenancy agreement in what was left of the GRIT art that might (or might not) constitute a valid waiver of partition. I’ve litigated those, but not in the estate tax context, and they’re not laydown winners. But don’t get me started.

So it all comes down to our friends, the willing buyer and willing seller (see my blogpost “The Man Who Never Was”, 1/25/13), and whether an appropriate discount has been made for the late James’ fractional interest.

First off, Section 2703(a)(2) says that in valuing property for estate or gift tax purposes, restrictions on sale or use don’t count. So the famous lease and the co-tenancy agreement among the kids don’t impact the worth of the late James’ property right in the paintings.

Now for the experts and their role. Judge Halpern: “In deciding valuation cases, courts often look to the opinions of expert witnesses. Nonetheless, we are not bound by the opinion of any expert witness, and we may accept or reject expert testimony in the exercise of our sound judgment. Although we may largely accept the opinion of one party’s expert over that of the other party’s expert, we may be selective in determining what portions of each expert’s opinion, if any, to accept. Finally, because valuation necessarily involves an approximation, the figure at which we arrive need not be directly traceable to specific testimony if it is within the range of values that may be properly derived from consideration of all the evidence.” 140 T.C. 5, at p. 38.

So out come the experts, including IRS’ artistic whiz, the poetically-named Ms. Karen Hanus-McManus. The experts on both sides agree that sales of fractional interests in artwork don’t happen, either by collectors (who are in it only partly for the money but also for psychic satisfaction) and speculators (who are in it for the cash).

IRS wants to leave out of consideration the late James’ kids objections to any sale and litigation over partition, but Judge Halpern says that’s not a restriction on the late James’ right to sell; that’s a factor any buyer would have to consider. So after much parsing of cases, Judge Halpern decides that he can award a discount to the late James’ share of the pretties.

IRS wants no discount, the late James’ crew from V&E want a big markdown.

Judge Halpern: “The overriding flaw in [the estate’s experts] analyses is their failure to consider not only the Elkins children’s opposition to selling any of the art but also their ownership position vis-a-vis that of the hypothetical willing buyer and the impact that the 73.055-26.945 or 50-50 ownership split would have on the negotiations between seller and buyer. Both experts should have considered the fact that the Elkins children, cumulatively, were entitled to possession of 61 works of cotenant art for a little over three months each year, and to possession of the three works of GRIT art for six months of each year. The relatively brief period of annual possession and the expense and inconvenience of annually moving the art from the hypothetical buyer’s premises back to Houston most likely would have caused the Elkins children to reassess their professed desire to cling, at all costs, to the ownership status quo existing after decedent’s death. Thus, the hypothetical buyer would be in an excellent position to persuade the Elkins children, who, together, had the financial wherewithal to do so, to buy the buyer’s interest in any or all of the works, thereby enabling them to continue to maintain absolute ownership and possession of the art.” 140 T. C. 5, at pp. 68-69 (Footnotes omitted).

And the estate’s star witness, Ms. Leslie Keith Sasser, independent executor, torpedoes the V&E convoy. “Ms. Sasser testified that, in the light of a relatively short period of possession of the art to which she and her siblings would be entitled vis-a-vis a hypothetical buyer, and considering that the buyer would, most likely, not reside in the Houston area, she ‘would be willing to pay * * * a fair price’ to purchase the hypothetical buyer’s 73.055% or 50% interests in the art. Her testimony confirms what both the hypothetical willing buyer and seller would reasonably suspect during their negotiations: that the Elkins children’s strong desire to retain possession of the art in place would motivate them to purchase the hypothetical buyer’s interests, most likely in each case for an amount equal or close to the undiscounted fair market value of the interest. It defies logic to assume that, as 27% or 50% owners and possessors of the art, the Elkins children would spend millions of dollars to retain their status as such, perhaps as defendants in multiple partition actions that could drag on for many years, when they would be able to acquire 100% ownership and possession of the art, which, after all, is what they really want.” 140 T. C. 5, at pp. 69-70.

Ms. Sasser is the IRS’ best friend: “Ms. Sasser’s testimony confirms that the Elkins children would be willing to purchase the hypothetical buyer’s interests in the art at a much higher prices than a disinterested buyer would be willing to pay for the same interests because of the children’s added motivation of keeping the art within the family as, in petitioners’ words, ‘a memorial to their parents rather than [as] an investment’. That motivation is reflected in the following exchange:

“Q: All right. So, most of the attachment to the art is as a memorial to your parents, and it means more to you than money in this instance?

“A: Yes, it does.” 140 T. C. 5, at p. 71.

Judge Halpern: “In short, we find petitioners’ experts’ analyses and conclusions to be unreliable because they are based, in large part, on the false or at least highly dubious assumption that the Elkins children would mount an unrelenting defense of the status quo, ignoring the very high probability that, instead, the children would seek to purchase the hypothetical buyer’s interests in the art.” 140 T. C. 5, at p. 78. “In short”, Judge?

So the Man Who Never Was meets the Kids That Are, and Judge Halpern hands the kids a 10% discount.

Great witness, right?


In Uncategorized on 03/11/2013 at 17:50

So the Alimony Deduction Stands

Back after “Snowquester”, Tax Court is busy today (3/11/13; happy palindrome day) with four T. C. Memos and a full-dress T.C. opinion. Two of the Memos are protesters, and one is the last chapter in a twenty-year running battle, finally put to bed by STJ Lew Carluzzo; I leave these for your light reading. I’ll get to the T. C. in a separate posting.

But for now, let’s look at Brendon James DeLong, 2013 T. C. Memo. 70, filed 3/11/13, Judge Kroupa on the case.

BJ’s loved-once, Tamsin, gives him the shove, keeps the kids, and he moves out. The California divorce court gives Tamsin $3K per month “family support”, per court order. The court order did not distinguish between alimony and child support, so BJ takes the whole thing as alimony, and IRS says no.

Unlike Indiana (see my blogpost “Esmiss Esmoore, Esmiss Esmoore”, 8/16/11), California law does provide that family support terminates on death of the supported one, so IRS’ boilerplate Section 71(b)(1)(D) argument bites the dust.

But IRS has one remaining argument. The court order doesn’t say what’s alimony and what’s child support. And child support is separate from alimony and not deductible under Section 215, nor is it income to the recipient under Section 71(a).

Now the magic word for child support is “fix”. Section 71(c)(1): “Subsection (a) [the taxable subsection] shall not apply to that part of any payment which the terms of the divorce or separation instrument fix (in terms of an amount of money or a part of the payment) as a sum which is payable for the support of children of the payor spouse.” (Emphasis added).

Judge Kroupa: “The statutory directive that child support payments be ‘fixed’ is generally taken literally and child support cannot be inferred from intent, surrounding circumstances or other subjective criteria.” 2013 T. C. Memo. 70, at p. 9 (Citations omitted).

“The support orders make an unallocated award of spousal and child support. Consequently, they do not ‘fix’ any portion of the family support payments as a sum that is payable for the support of petitioner’s children for purposes of section 71(c)(1).” 2013 T. C. Memo. 70, at p. 9.

IRS wants an accuracy penalty, but that goes by the boards as BJ was completely accurate.

Bottom line, divorce lawyers: Make sure that the fix is in–or not.