Attorney-at-Law

“CONSISTENTLY”

In Uncategorized on 09/21/2016 at 16:09

It’s an adverb, showing that whatever agent is doing whatever the verb says, the agent is always doing it, right?

Well, The Great Dissenter, a/k/a The Judge Who Writes Like a Human Being, s/a/k/a The Implacable, Ineffable, Ineluctable, Indefatigable, Incontrovertible, Invigilant and Illustrious Foe of the Partitive Genitive, and Old China Hand, Judge Mark V. Holmes, thinks there may be more to it than that.

So much more, that he denies summary J, and designates the order so doing, in Michael V. Shannon & Hope W. Shannon, Docket No. 16441-12, filed 9/21/16.

Speaking of consistency, I wonder why Judge Homes designates this order, but not the off-the-bencher I just blogged, “The Dope on COGS,” 9/21/16. Some Judges designate everything, and some nothing. Really annoying to the blogger fighting a deadline.

Anyway, the ongoing saga of Mike & Hope goes on.

Mike & Hope claim aggregating their real estate activities makes them pros. And they claim they so elected, although IRS says their election wasn’t attached to their original return for the year at issue, as required by Reg. 1.469-9(g)(3).

Mike & Hope, apparently hip to the problem, try a Rev. Proc. 2011-34 retrofit.

“In this election, the Shannons sought to use the procedure that the IRS has created to retroactively treat all of a taxpayer’s rental real-estate interests as one activity. The Shannons wanted this election to be effective for all tax years from 2003 forward. Under that revenue procedure, the effectiveness of the election depends among other things on the taxpayers’ having filed consistently on any return that would have been affected. In this case that would be all returns from 2003 onward. These returns were not attached to the Shannons’ motion so they have not proven that part of the ‘consistency requirement.’

“The Court acknowledges a lurking issue here–namely, what does “consistently” mean? Does it mean that a taxpayer in the real-estate business can simply choose to aggregate all his properties even if there are changes in his portfolio from year to year? If so, what happens if his return omits a property (e.g. one that produced no income or deductions during that return year)–does it render the election invalid for all properties or simply throw the excluded property back into the passive-activity rules?

“This more interesting question is not one that has an obvious answer from the brief time in research the Court has had or in the Shannons’ motion papers. Without a clear answer the Court is loath to hold that they have shown entitlement to judgment as a matter of law on this key issue.” Order, at p. 2.

I submit the consistency requirement can’t mean that a real estate pro can’t buy or sell for every year for which a Rev Proc 2011-34 retrofit applies. If that’s what the retrofit means, it’s totally worthless. Every operator has to respond to market conditions: cut losses and seek profit, not embalm defeats and forego victories. Between 2003 and now there have been at least two boom-and-bust cycles; requiring a real estate pro to do nothing, in order to aggregate activities, is ridiculous.

The only questions are whether, when all real estate activities are combined, there’s sufficient engagement by the pros to prove that the pros are pros, and whether they have a good excuse for using the retrofit.

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