In Uncategorized on 12/22/2016 at 18:13

What happens when Congress tells Treasury to make regulations, and Treasury doesn’t? What happens when Congress suggests Treasury make regulations, but Treasury doesn’t?

And specifically, what does Tax Court do when confronted with one or the other?

Well, here’s 15 West 17th Street LLC, Isaac Mishan, Tax Matters Partner, 147 T. C. 19, filed 12/22/16. And Judge Lauber is eager to tell us.

The Jersey Boys are at it again, fighting for 17th Street Band. And they’ve started a real Tax Court slugfest, with Judge Lauber dukeing it out with Judge Foley in one dissent and the obliging jurist Judge David Gustafson in another.

The Great Dissenter concurs, and, as is his wont, stirs the silt by threatening to bring the fight up again if ever it comes before him.

The Gordian knot is Section 170(f)(8)(D), where maybe so the donee of a charitable gift can provide substantiation of the gift otherwise than by the three part contemporaneous written acknowledgment we all know and loathe, “if the donee organization files a return, on such form and in accordance with such regulations as the Secretary may prescribe.”

Well, the 17th Street Band bought an old building and was going to demolish, when the Landmarkers came storming in and put paid to that. Enter our old chum the Trust for Architectural Easements, ex-National Architectural Trust.

You can guess the rest. But candor compels me to tell you.

The 17th Street Band gave an easement to the Trust.

“…the Trust sent the LLC a letter acknowledging receipt of the easement.  This letter did not state whether the Trust had provided any goods or services to the LLC, or whether the Trust had otherwise given the LLC anything of value, in exchange for the easement.

“The LLC secured an appraisal concluding that…the property had a fair market value of $69,230,000 before placement of the easement. The appraisal thus opined that the property–acquired for $10 million in September, 2005–had risen in value by almost 600% in 2-1/2 years.  Opining that the property was worth only $4,740,000 after the donation, the appraisal concluded that the easement had reduced the property’s value by $64,490,000.” 147 T. C. 19, at p. 6.

Take that, Landmarkers!

When the Trust filed its next Form 990 (the 501(c)(3) tell-all), it never mentioned the gift. But IRS did, and handed the 17th Street Band a FPAA.

Only three years after that, and seven years after the return for the year at issue, the Trust amends its 990 for the year at issue to show said gift, and the 17th Street Band claims that cures the contemporaneous written acknowledgment problem.

That earns them a Taishoff “Good Try, First Class.”

Unfortunately, Judge Lauber, ably assisted by Judges Gale, Thornton, Goeke, Holmes, Kerrigan, Buch, Nega, and Ashford, with Ch J Iron Fist and Pugh concurring in result only, gives the Band “yer out!”

While Treasury can’t nullify an act of Congress by doing nothing, the Courts must tread warily. The Courts can’t write regs when the executive agency charged with doing so didn’t; neither can the Court rewrite the enacted statute to suit themselves.

So there grew out of agency inaction (willful or distracted) two classes of statutes: self-executing and not.

When the statutes were deemed taxpayer-friendly, or where Congress said “may” but not “shall”, the Judges stretched the point for the taxpayer. But where Congress needed to plug gaps, and agency input was the method, the Courts would not tread.

The whole idea started with having the charitables collect info (name, rank and serial number) from the donors and report this to IRS, like son-of-1099. The small charitables screamed this would kill their contributions, and the donors screamed that this would open the door to identity theft, as many small charitables are ill-equipped to handle data security.

Judge Lauber writes a law review article on the history of the reporting scheme, which Judge Foley blows off as follows: “In a valiant attempt to legitimize a holding not supported by the statute, the majority is compelled to rely on regulatory history relating to regulations that were never promulgated and legislative history (i.e., pledges from Treasury officials who served in a previous Administration, a hearing statement from a congressman who retired before section 170(f)(8)(D) was enacted, etc.) relating to a bill vetoed during a previous Congress.” 147 T. C. 19, at  p. 60.

Judge Foley says the statute’s clear enough. File the form and you’re done. Or even amend the form seven years later and you’re done.

Judge Gustafson says the statute is crystalline. There is a form and there are regulations…the 990 and 1.6033-2, which covers the waterfront by requiring the charitable to give names and addresses (but not SSANs, TINs or ITINs) of everyone who gives more than $5K.

Besides, the contemporaneous written acknowledgement need not be signed, and need not even identify an authorized acknowledger. But failure to comply with any of the three (3) requirements torpedoes an otherwise valid gift. Letting the charitable remedy the defect with an amended 990 saves the day.

And the contemporaneous written acknowledgment is not rendered surplusage by this approach.

“This alternative substantiation must be made on the Form 990 return (not a mere receipt) and thus is potentially subject to civil penalties under section 6701 and, since the return is signed ‘[u]nder penalties of perjury’, the criminal penalties of section 7206(1) as well.  In addition, an organization that decided not to issue receipts would surely disappoint and confuse its donors–not a good thing for an organization that depends on donations.  It would therefore seem unlikely that an organization would elect not to issue receipts but instead to report its contributions on its return.” 147 T. C. 19, at p. 66, footnote 4.

I’ll bet this is going up on appeal to Second Circuit, but the tough part is the seven-year gap between 990 1 and 990 2.

If this weren’t one of those overblown façade farragoes, The Jersey Boys would stand a better chance.



  2. While grateful for the plug, I am perplexed. The trade press and blogosphere will be all over this opinion as soon as the eggnog is finished. But my following post “Robosigner?” attracted no readers at all. And that is a far more interesting story.


  3. […] As any tax blog aficionado would know, there is no way that Lew Taishoff, whose coverage of the Tax Court is extremely thorough, is going to pass on a multi-million dollar regular decision in his general neighborhood.  His post is titled Executive Nullification. […]


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