In Uncategorized on 10/11/2016 at 15:24

I expect that will be the response of counsel for PBBM-Rose Hill, Ltd., PBBM Corporation, Tax Matters Partner, Docket No. 26096-14, filed 10/11/16.

Judge Morrison comes off the bench to sustain compliance with the Section 170 regs of PBBM’s somewhat casually-assembled appraisal of the $15 million claimed scenic and environmental giveaway of their bankrupt golf course that PBBM handed out after it emerged from Ch 11.

And though theoretically the Bankruptcy Court (or bankruptcy trustee) could have thrown the easement out, or maybe it was an invalid encroachment upon the bankruptcy estate, Judge Morrison needn’t go there, because the easement craters on shortchanging the environmental beneficiary in case of extinguishment and also on public benefit. Since most of the servient tenement (that’s the land subject to the easement) is off-limits to the public (they must go through a gatehouse, and have to play golf or tennis, not wander lonely as a cloud through the aforesaid servient tenement), that also kills the deduction.

IRS’s expert ecologist and appraiser shred PBBM’s. The worth of the easement is not $15 million, or even the $13 million that PBBM’s trial expert trotted out.

Judge Morrison finds that, even if the easement were sustained under Section 170, which it isn’t, the worth of the easement is a mere $100K.

As the 40% undervaluation chop is in play, PBBM plays the Section 6751 Boss Hoss gambit. But IRS, schooled by the adroit employment thereof by The Jersey Boys (see my blogpost “Back from the Graev – Part Deux,” 7/9/15), makes sure that both pre-and post-audit recommendations for the 40% chop were signed off by the appropriate supervisor. So IRS’ claim that the 40% chop can only be imposed after the FPAA is finally determined, though it may be valid, still depends upon a valid initial determination, whenever the 40% chop is imposed. Whichever was the initial determination, pre or post, it was signed off by the right Boss Hoss.

So the 40% chop is in the cards, and IRS pled the 20% substantial understatement as well.

So Judge Morrison applies both.

“The amounts of these underpayments are of two types. First, there are the amounts of underpayments resulting from PBBM’s  reporting of a $15,160,000 deduction instead of a $100,000 deduction. Second, there are additional amounts of underpayments that correspond to the difference between a $100,000 deduction and a $0 deduction. The amounts corresponding to the first type of underpayment are attributable to a gross valuation misstatement. These amounts are subject to the 40 percent penalty. The amounts corresponding to the second type of underpayment, the IRS concedes, are not subject to the 40 percent penalty. Respondent contends that the amounts corresponding to the second type of underpayment are subject to the 20 percent penalty.” Order, at pp. 27-28.

But Judge Morrison lets PBBM off the 20% chop on the difference between $100K and zero. PBBM’s guy Brad Ayres really tried. The extinguishment formula might work in some circumstances, so it was a good faith try. It’s a toss-up whether the bankruptcy trustee could have avoided the easement post-plan confirmation, thus blowing up the easement, so Brad didn’t show bad faith by disregarding the possibility. And though the easement failed to meet the conservation standard, Brad tried in good faith.

Great. So instead of at best a multi-million dollar plus $20K chop, it’s only a multimillion dollar chop.

See the title of this blogpost.

And I’ll doubledown on it. Judge Morrison wrote 30 pages, well worth reading, and didn’t bother to designate the order. Today’s T. C. Memo. is another unsubstantiated Form 2106  unreimbursed employee expenses, and the two designated orders are trivial. His Honor Big Julie, Judge Julian I Jacobs, s/a/k/a HHBJJJIJ, designates everything. Most judges designate nothing.

C’mon, Judges, if it’s worth a few pages of substance, it’s worth designating.

Leave a Reply

Please log in using one of these methods to post your comment: Logo

You are commenting using your account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

This site uses Akismet to reduce spam. Learn how your comment data is processed.

%d bloggers like this: