In Uncategorized on 12/19/2016 at 16:17

No, not a Dash Riprock “Liars’ Poker” ploy from Michael Lewis’classic.

Today we look at Silver Medical, Inc., 148 T. C. 18, filed 12/19/16. Silver wanted a triple-dip on some unguided Congressional largesse to inventors of therapeutic devices from Section 48D, a section added by  Affordable Care Act of 2010 (which itself needs some therapeutic devices, but this is a non-political blog).

If the device made the cut with Treasury and HHS, one got either cash or credit to the extent of 50% of allowable expenditures in each of 2009 and 2010. There were clawbacks if too many applicants asked for the goodies, or if there were disallowances of goodies previously granted because applications were due and had to be processed before end of 2010, so no one knew final numbers. The clawbacks were treated as tax.

Silver was cute. They took a short year in 2010, so that they had three tax years in 2009 and 2010; 2009 was one year; 2010 short and 2010 long were the others, and the magic language in Section 48D(b)(5) talks of tax years beginning in 2009 and 2010. Thus, by shorting 2010, Silver had two years beginning in 2010, so they could use almost all of 2011 to grab more.

Aside from being a case of first impression as to a statute that has timed out, this is an example of gameplaying that doesn’t get it with Judge Vasquez.

Silver got certified for its expenditures before choosing to go short. When it got its short approved, it tried to get recertified. IRS didn’t certify. Instead, it hit Silver with a SNOD.

Silver claims “tax years beginning” means “tax years beginning.” Plain language, giving effect to every word, and all that jazz.

Judge Vasquez cuts to the chase. “We need not and will not address petitioner’s argument in resolving the instant case.  We focus on respondent’s alternative argument and recognize that even if Congress did intend to allow taxpayers like petitioner to make qualified investments over three tax years (an issue we decline to decide), petitioner did not actually receive certification to do so.” 147 T. C. 18, at p. 10.

Administrative nullification? IRS can thwart what seems to be someone taking advantage of sloppy language in the famous 3200-page enactment by doing nothing.

Judge Vasquez is down with that.

Now as for when the clawback of overpaid largesse happens, that happens immediately after the grant was made, as if it had never been made.

OK, says Silver, the grant was made in 2010, therefore the clawback applies to that year.

No, says Judge Vasquez.

“In determining that the grants were made on separate dates, we focus primarily on the fact that the grant funds attributable to each year were paid on separate dates.  The terms of the QTDP program provide that grants for tax years beginning in 2009 will generally be paid no later than October 29, 2010, and that grants for tax years beginning in 2010 will generally be paid within 30 days of the last day of the 2010 taxable year.  See Notice 2010-45, sec. 8.02(6) and (7), 2010 23 I.R.B. at 738.  We believe that the payments for each tax year are sufficiently distinct to warrant a finding that the underlying grants are separately ‘made’ in each year when paid.” 147 T. C. 18, at p.13.

The letter granting certification mentioned the clawback, so nothing was final until after year-end. Applications were due in July, 2010 and IRS had to accept or reject by October. Approving the grant did not result in an unrestricted right to a fixed grant amount. So the final grant became effective at the beginning of 2010, and the 2011 items are off the table.

I give Silver a Taishoff “Good try, First Class.”

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