In Uncategorized on 05/02/2016 at 16:09

Pardon my French, but this is the last act of the Alterman saga, which tale has already enlivened one meeting of the Bloomberg BNA Tax Advisory Committee and will doubtless spawn much comment in the trade press and blogosphere.

And it’s a full-dress T. C., Bryan S. Alterman Trust U/A/D May 9, 2000, Bryan S. Alterman, Trustee, Transferee, 141 T. C. 14, filed 5/2/16.

Both the Altermen and I are embarrassed by the riches in this case, them for money and me for blogfodder, virtue being its own reward.

The Altermen are trying for legals and admins, after their big win over IRS. See my blogpost “It’s Not Fraud,” 12/1/15.

But the Altermen have one last obstacle: the $2 million tanktrap. You only get legals and admins if your net worth is less than $2 million.

Though IRS argues “substantially prevailed,” as usual (echoing the remarks of a much more exalted author about an earlier tax collector who, notwithstanding unspecified but obviously substantial sins, “went down justified”), and “the costs are too dam’ high,” another boilerplate defense, Judge Buch and the rest of the bench don’t need to go into either.

The key is when the Alterman trust hit the magic $2 million figure.

The Altermen argue “…without support that its net worth should be determined as of one of three possible dates:  (1) the date the petition was filed…; (2) the administrative proceeding date when the Commissioner issued the notice of liability…; or (3) the last day of the taxable year when the Commissioner issued petitioner the notice of liability…..” 146 T. C. 14, at pp. 5-6.

But their premise is faulty. The Altermen claim no tax year was involved, and therefore the special rule in Section 7430(c)(4)(D)(i)(II) doesn’t apply.

Judge Buch says there was such a year.

“The statute is clear, and it requires the net worth of the trust ‘shall be determined as of the last day of the taxable year involved in the proceeding’.  Sec. 7430(c)(4)(D)(i)(II).  The notice of liability and its accompanying documents all identify December 31, 2003, as the end of the taxable year involved in the proceeding.  The notice of liability is explicit that the liability is ‘for the taxable year ended December 31, 2003’.  The accompanying waiver of restrictions on assessment identifies the ‘Tax year ended’ as December 31, 2003.  The notice of liability statement states that it is for the ‘Tax Liability for the taxable year ended December 31, 2003’.  The statute requires that we look to the net worth of the trust as of the last day of the taxable year involved in the proceeding.  And there is no support for the argument that there is no taxable year involved in the proceeding.” 141 T. C. 14, at pp. 6-7.

The Altermen concede that, as at 12/31/03, the trust had $2 million-plus. No need to check justification or reasonableness of claimed costs. Game over.

But why pick that year?

“One can easily posit a rationale for this rule.  Oftentimes, a trust’s assets can easily be depleted, thus enabling a trust to manipulate whether it meets the net worth requirements by the time a notice is issued at the end of a protracted proceeding.  By looking retrospectively to the taxable year involved in the proceeding, the statute limits or eliminates gamesmanship that might be used to fit within the net worth requirements.” 141 T. C. 14, at pp. 6-7. Footnote 3.

In fairness to the Altermen, Judge Buch admits “There is no evidence of any such gamesmanship in this case.” Id.

The Altermen were good guys who did their homework but were thoroughly swindled by some bad dudes.


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