Attorney-at-Law

SCHOOLED AND UNSCHOOLED

In Uncategorized on 06/20/2016 at 18:02

George Tzivleris, 2016 T. C. Sum. Op. 26, filed 6/20/16, didn’t bother to report $117K of canceled debt when his FL rental condo went down the drain in the 2009 real estate bath. His recordkeeping wasn’t much, either, although The Judge With a Heart, STJ Armen, does allow George a few bucks more of nontaxable income via George’s line of credit with a local credit union than the IRS bank-deposits crew. And since the condo was rented, STJ Armen allows George a Section 1231 write-off for the fixtures and improvements George put into the place.

IRS wants accuracy chops, but doesn’t get them.

STJ Armen: “…it is clear from the record that petitioner is neither ‘educated school-wise’ nor at all experienced in tax matters.  It is equally clear from the record that petitioner relied reasonably and in good faith on his accountant and commercial return preparer (whose competency was worthy of petitioner’s reliance, see Neonatology Assocs., P.A. v. Commissioner, 115 T.C. 43, 99 (2000), aff’d, 299 F.3d 221 (3d Cir. 2002)) to determine and report his tax liability for each of the years in issue and that, in so doing, he provided information and documents as requested by them.  Admittedly, for 2009 it is troubling that petitioner’s return did not reflect income from cancellation of indebtedness by Bank of America nor otherwise report all of his income.  However, petitioner’s tax professional took the position that the insolvency exception negated the inclusion of the canceled debt in gross income, a factual matter which, although ultimately unproven at trial, was not unreasonable. Further, the canceled debt was virtually offset by the section 1231 loss deduction, which went unclaimed on the return.  Finally, the unreported income for 2009, as well as for 2010 and 2011, was determined by an indirect method of income reconstruction, was modest in amount, and might have been de minimis (or eliminated in its entirety) if petitioner had been more successful in adducing evidence at trial regarding nontaxable deposits.  Thus, under these circumstances we do not think that imposition of the accuracy-related penalty is warranted, and we therefore do not sustain respondent’s determination of the penalty for the years remaining in issue.” 2016 T. C. Sum. Op., 20, at pp.15-16.

I have had a client or two not “educated school-wise” who did pretty well.

But when your attorneys and your Big Four CPA firm tell you that your tax dodge is a landmine, and decorate your 1040 with Form 8886, Reportable Transaction Disclosure Statement, and those of your nearest and dearest with Form 8271, Investor Reporting of Tax Shelter Registration Number, as your trusty accountants registered your little fiddle as a shelter, it might be well to pay the tax.

Not so Estate of Richard L. Marshall, Deceased, Patsy L. Marshall, Personal Representative, and Patsy L. Marshall, Transferees, et al, 2016 T. C. Memo. 119, filed 6/20/16.

Now when we see “transferee” in a caption, what do we think? No prize if you yelled “Midco” or “MidCoast.” Because that’s exactly what this case is about.

It’s the usual. Founder’s C Corp has basis of bupkis in assets worth telephone numbers, creating huge tax bill on disposition, and when the competent advisers tell the heirs the tax bite, the heirs run to the first promising crooks they can find.

Next up is the usual roundy-round with day loan from Rabobank, 100% collateralized with cash and twenty-four hour payback. And the usual squad of shell-shills with the mix-and-match T-bill game. And the busted shell-shill, followed by Section 6901 and the Oregon Fraudulent Transfer Act.

As the chess guru from Adelaide says “we can stop here.”

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