In Uncategorized on 12/29/2015 at 16:38

But Then What?

Juan Herrera lost a Tax Court case over his bad debt deduction for 2006, and his partial carryforward thereof in 2007, back in 2012 (and no, I didn’t blog it, too fact-specific). Juan does no better with his 2008 carryforward of a portion thereof in Juan M. Herrera and Susana M. Herrera, 2015 T. C. Memo. 251, filed 12/29/15, Judge Swift deciding that Juan had his chance and blew it.

The issue is identical for the 2008 carryforward; if the bad debt wasn’t Juan’s, there’s nothing to carry forward.

The bank statement Juan claims is new evidence that his disregarded LLC was liable for the debt of his consulting company, which the LLC paid, only shows the LLC and his consulting company had the same office address. And Juan offers no reason why this bank statement, in existence at time of trial, wasn’t put in evidence. Probably it wasn’t introduced because Judge Swift found it proved nothing, and so would Judge Wherry have done back in 2012.

So why am I blogging this routine T. C. Memo.?

It’s the chops.

IRS wants summary J on the chop as well as the deficiency. After all, the five-and-ten substantial understatement is a slam dunk, and Juan is out on his bad debt.

But Juan claims reasonable cause for the understatement, and Judge Swift buys it.

“On the penalty issue for 2008 and in opposition to respondent’s motion for summary judgment thereon petitioners assert a reasonable basis for claiming the carryover bad debt deduction and the resulting understatement of income tax. See sec. 6662(d)(2)(B)(ii)(II). Petitioners correctly note that respondent never determined a section 6662 penalty against them relating to the tax deficiencies for 2006 and 2007, even though the facts relating to those claimed bad debt deductions were essentially the same as they are for 2008. Additionally, petitioners note that their 2008 Federal income tax return was filed before the Tax Court’s prior opinion was filed on November 5, 2012.

“Petitioners argue that respondent’s failure to determine section 6662 penalties for 2006 and 2007 establishes, or at the least provides significant support for, the reasonableness of their claim of essentially the same bad debt deductions for 2008.” 2015 T. C. Memo. 251, at pp. 7-8.

OK, no summary J. But is there to be a trial? Is there a fact question about the 2006 or 2007 chops, or lack thereof? And if there isn’t, is there a question about Juan’s (and maybe Susana’s) level of sophistication, so they might deduce that their claim wasn’t totally out to lunch? Or is there a question about Juan’s tax advisers? In either such case, as my high-priced colleagues would say, when Juan opposed summary J on his reasonable basis, why didn’t IRS ask to provide a reply, even though it’s unlikely they’d get it. Rule 50(b)(3) gives a motion judge latitude to “…take such action as the Court in its discretion deems appropriate, on such prior notice, if any, which the Court may consider reasonable.”

So does there need to be a trial?

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