In Uncategorized on 08/03/2015 at 17:38

No one denies that Henry J. Haff and Diane M. Lis Haff wuz robbed. The only question Judge Pugh has to answer is “how much”? And the answer, “Not as much as you claimed,” is found in 2015 T. C. Memo. 138, filed 8/3/15.

Henry J. got involved in a real estate deal that turned out to be another descendant of the 1920 pyramid scheme of the late Carlo Pietro Giovanni Guglielmo Tebaldo Ponzi.

Henry J. and Diane M. Lis claimed the benefit of Rev. Proc. 2009-20, 2009-14 I.R.B. 749, to deduct services Henry J. rendered to the Ponzists, over and above the actual cash he handed over. IRS allowed Henry J. and Diane M. Lis theft loss treatment for all the cash, but denied the $730K in services Henry J. claimed, because he never reported any of these services as income, and thus had no basis in the phony partnership above the actual cash he put in.

Judge Pugh sorts it out: “Petitioners do not argue that the additional $730,786 should be deductible under the plain text of section 165. Rather, petitioners assert that Rev. Proc. 2009-20, supra, allows a loss deduction for amounts not previously included in income under a safe harbor and that the safe harbor applies to the amounts that [the phony] owed them. Even if the revenue procedure applies, it would not permit petitioners to deduct the additional $730,786 on their 2009 tax return. The safe harbor provision of Rev. Proc. 2009-20, supra, permits deductions only to the extent of a ‘qualified investment’. A qualified investment is defined as the taxpayer’s total amount of cash, or the basis of property, invested plus ‘[t]he total amount of net income with respect to the specified fraudulent arrangement that, consistent with information received from the specified fraudulent arrangement, the qualified investor included in income for federal tax purposes for all taxable years prior to the discovery year, including taxable years for which a refund is barred by the statute of limitations’, minus the total cash or property that the taxpayer withdrew in all years. Rev. Proc. 2009-20, sec. 4.06(1)(a) and (b), 2009-14 I.R.B. at 750 (emphasis added).

“Petitioners did not include the $730,786, or any portion thereof, as income for prior years. To constitute basis, for purposes of section 165 or Rev. Proc. 2009-20, supra, the amounts owed must have been included in income for tax purposes previously.” 2015 T. C. Memo. 138, at pp. 6-7.

The bad guys stiffed Henry J. for fees he said were owing him for development, sales, marketing and construction.

Welcome to the International Confraternity of the Stiffed, Brother Henry J. I know the feeling well.

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