No, not Lenny Kravitz nor Marlo Thomas, nor even that philosopher of the diamond Lawrence Peter Berra, but rather STJ Daniel A. (“Yuda”) Guy, who tells that to Alexander Herwig and Jennifer K. Herwig in 2014 T. C. Memo. 95, filed 5/20/14.

Alex and Jenn were investors in the Great Florida Real Estate Boom that so thoroughly disintegrated in the mid-2000s. Their LLC borrowed from the strangely-named Cincinnati bank known as Fifth Third (“The Curious Bank”), a lender whose name apparently arises from a merger of the Fifth National Bank with the Third National Bank, with spouse and spouse taking both names.

Howbeit, Fifth Third forecloses upon Alex’s and Jenn’s LLC. But Alex and Jenn put in counterclaims (alleging exactly what is unclear), despite which Fifth Third gets its foreclosure sale and takes back the property (dropping a 1099-A, Acquisition or Abandonment of Secured Property, on the LLC, which passes right through to Alex and Jenn).

Alex and Jenn say that the foreclosure sale is the end of the (now admitted, but formerly disputed) passive activity of renting the now-foreclosed real estate. And if it wasn’t, two years later the LLC filed a 1065 marked “Final Return”, so that was the date the activity ended.

Nope, says IRS, you carried the real estate on your next two years’ tax returns, so the foreclosure sale didn’t end the activity, and besides, you didn’t settle the ongoing litigation with Fifth Third (your counterclaim, whatever it was, and Fifth Third’s claim for a deficiency judgment) for another year.

At best, you weren’t finished until then. Likewise, no triggering of suspended passive losses against the cancellation of debt income from the foreclosure. And STJ Yuda agrees.

Although a foreclosure sale is generally (love that word) a disposition, or the end of the activity, except it isn’t when the foreclosed-upon taxpayer is appealing the judgment of foreclosure, and a final determination from the appellate court hasn’t happened. And the end for Alex and Jenn wasn’t until the settlement.

Saying something on a return is a statement of claim only, and doesn’t preclude IRS from challenging anything in any return.

Alex and Jenn didn’t themselves testify on the trial, and the only evidence they put in was an exhibit (particulars not stated). Their attorney tries to claim on the trial that Alex and Jenn never deeded the real estate into the LLC, but as they hadn’t raised that in their petition, or any amendment, or pretrial memo, that’s a loser.

And by not testifying or putting in reliance or good-faith-investigation evidence, Alex and Jenn are sitting fowl for the 20% negligence chop.

They might have a loss carryforward from the year they settled with Fifth Third, but that’s not before the Court.