The saga of Philip D. Long, A.K.A Phil Long, continues, in 2013 T. C. Memo. 233, filed 10/21/13. For those who tuned in late, see my blogpost “Honor Your Partner – Part Deux”, 9/5/13, where Judge Morrison turned back a late claim by IRS that Phil had been relieved of indebtedness when his alleged partner-co-venturer, an entity fetchingly named Steelervest, took $800K for an $875K loan. But the issue of a joint venture remained, and that one Phil loses.

Though Phil had a joint venture with Steelervest in another deal, here the Luna factors (see my blogpost “Substance Over Form”, 2/11/11) militate against Phil’s supposed joint venture.

Judge Morrison: “1. The August 2006 agreement provided only that Steelervest would receive a share of Long’s profits from LOT. Neither this agreement nor any prior agreements purported to create a joint venture.

“2. Steelervest did contribute money.

“3. Besides its profit share, Steelervest had no right to control LOT’s assets or to receive money from LOT.

“4. Steelervest’s interest in LOT’s profits was capped at $875,000 and it had no liability for LOT’s losses.

“5. Neither Long’s ownership of LOT nor LOT’s operations were conducted in Steelervest’s name.

“6. Long and Steelervest did not file partnership returns or otherwise represent to the IRS or others that there was a joint venture.

“7. No evidence shows that separate books of account of any joint venture were maintained.

“8. Long possessed all control over his ownership interest in LOT and over LOT’s operations; there was no control by Steelervest.” 2013 T. C. Memo. 233, at p. 18.

It turns out, contrary to my query in my earlier blogpost “Honor Your Partner – Part Deux” abovecited (as the high-priced lawyers say), Phil did sell a lawsuit for $5.75 million. And he claims capital gains, at least on the portion of gain he did report.

No, says Judge Morrison, ordinary income. The lawsuit arose out of a busted condominium development deal, and Phil is in the condominium development business. IRS says Phil was going to build and sell condominium units, and had gotten zoning approvals, prepared sales literature, hired architects, and gotten deposits for 20% of the putative units from purchasers.

This is a business, and that the lawsuit caused Phil (he says) to change his mind and try to sell the land to a developer to build out the job doesn’t change the fact that Phil is a real estate developer.

No capital gains, Phil.

This is a far easier scenario than that appearing in my blogpost “Deal(er) Or No Deal(er)”, 8/28/12.