The famille Jansson (Fred, Nik, Margareta, and Jan) are all lined up to try for summary judgment, and IRS’s defenders are on the field as well, hands upraised.

Remember the Janssons’ first try? No? Well, see my blogpost “A Trust is a Trust is a Trust”, 2/26/14. Back then, the Janssons and their partnership were arguing that Roth IRAs weren’t TEFRA pass-thru partners, so IRS had to give the Roth trustees NBAPs. But that stalwart, The Great Dissenter, a/k/a The Judge Who Writes Like a Human Being, s/a/k/a The Inveterate, Indefatigable, Implacable Foe of the Partitive Genitive, Mark V. Holmes, gave the Janssons the right-about-face. The Roth IRAs are pass-thrus, so the trustees and not IRS has to pass through the NBAPs. If they don’t the Janssons can’t uncouple from the FPAAs that rain upon the head of Block Developers, LLC.

Now for today’s story, Block Developers, LLC, William J. Maxam, APC, Tax Matters Partner, Et Al., Docket No. 3198-10, filed 10/16/14, a designated hitter from The Great Dissenter, etc.

Discovery happened, and now the fence whereat the Janssons fell last time out is removed. You remember that IRS has to know the “names, addresses and profits interests” of all the indirect partners, the passed-thru types, so as to send them NBAPs, failing which the indirects can opt out of TEFRA and go solo on what would have been partnership items, but now become non-partnerships by virtue of the opt-out provisions.

Well, that info wasn’t on any Form 1065 from Block, nor did the Block tax matterer furnish same per the 26 CFR §301.6223(c) route.

But the Janssons and their tax matterer claim IRS’s revenue agent, combing through Block’s records during audit, found out.

“Block, however, does argue that the Commissioner had the ‘names, addresses, and profits interests’ of its indirect partners in its own records – informally ‘furnished’ or figured out by IRS agents it doesn’t say – much more than 30 days before it mailed out the NBAP to Block’s TMP for either of the two tax years at issue here. It argues that subsection 301.6223(c)-1(f) is the key.” Order, at p. 3.

OK, so what? The IRS doesn’t have to search its records, does it? Or launch a detailed investigation into every piece of paper or whispered rumor that swims into its ken.

Right, says Judge Holmes, that’s what the reg says.

But willful blindness doesn’t cut it, either. And Judge Holmes is Tax Court’s resident mayvin on willful blindness. See my blogpost “Lawyers Can’t Add”, 1/17/13.

And caselaw bears him out. IRS knew something, and couldn’t ignore it. But did it know enough?

Before Judge Holmes rushes to (summary) judgment, he spies a question of fact in the road thereto.

Notwithstanding Block’s counsel’s winkling an admission out of IRS that they knew each Roth IRA had but one beneficiary (and a Taishoff “good job”, first class, to Bruce Michael O’Brien, Esq., and his team at Higgs, Fletcher & Mack in sunny San Diego, CA), that doesn’t mean that IRS knew the “profits interest” of each.

Before you say “Huh? One beneficiary means the whole enchilada, nicht wahr?”, let Judge Holmes explain.

“In these cases, that is a very contested ground. One of the Commissioner’s arguments is that Block was actually a scheme to undervalue a related firm named Soil Retention, Inc. that Block purchased in what was arguably a far-from-arms’-length transaction to transfer value from its owners (beneficiaries of two of the IRAs involved) to their children (beneficiaries of the other two IRAs involved). The FPAA lists several theories for why this violates the Code, and we have to agree with the Commissioner that one reason for his issuing the FPAA was that he did not know if the nominally equal beneficial interests of the indirect partners in fact was aimed at concealing what fundamental principles of tax law would show to be an unequal interest in the profits of the business that Block putatively owned. This is a genuine dispute about a material fact….” Order, at pp. 4-5. (Emphasis by the Court).

IRS blocks that motion. Just barely.