In Uncategorized on 02/28/2017 at 16:09

I’m going all the way back to my blogpost “The Check’s The Thing,” 6/1/11, to make the point here.

His Honor Big Julie, better known as His Honor Judge Julian I Jacobs, hereinafter HHBJJJIJ finds that the check outweighs whatever the bank thought, especially when the right evidence never gets in. Here’s the story of William H. Tinsley and Amaryllis E. Tinsley, 2017 T. C. Sum. Op. 9, filed 2/28/17.

It’s Bill’s story. Bill liquidated his S Corp computer operation while the S Corp owed the local lender $110K, which Bill guaranteed and which he claimed on his personal return as an ordinary loss even though he had no cash or debt basis in his S Corp stock.

Bill kept the business going under the same name as the S Corp, even though legally there no longer was an S corp. And the bank renewed the original loan in a reduced principal balance with the same named S Corp as obligor, attaching the old note to the renewal note with a handwritten notation “Sec by—Inv & Equipment.”

Bill made all the payments on the renewed note, but the checks wherewith he did so never got into the record.

HHBJJJIJ: “We acknowledge that the stipulation of facts in this case states that ‘[t]he petitioner continues to make payments on the loan’, but there is no indication that the loan payments were made from Mr. Tinsley’s personal funds rather than [S Corp’s] funds with Mr. Tinsley signing payment checks as president.  Moreover, we are mindful that under the terms of the renewal note, the renewed loan was to [S Corp] and that Mr. Tinsley’s obligation was that of a guarantor, not the maker of the loan.  Further, we are mindful that the promissory note for the [old] loan, which was appended to the… renewal note, included a notation that the loan was secured by [S Corp’s] inventory and agreement [sic: I think you meant “equipment,” Judge]. Thus, we believe that (1) even after its liquidation [Sub S] continued to operate, and (2) the Bank continued to look to [Sub S] as the primary obligor on the loan and expected it to make the loan repayments.” 2017 T. C. Sum. Op. 9, at pp. 9-10.

Bill and Amaryllis are Golsenized to 11 Cir., even though they can’t appeal this Sum. Op. 11 Cir. seems to say that, where a Sub S stockholder becomes primary obligor in substance, even though only guarantor in form and even without an economic outlay, the stockholder gets basis thereby in the Sub S stock.

OK, but without more proof (and Bill has the burden of proof), Bill is out.

Note that Bill claims the IRS examiner received a letter from the lending bank stating they looked to Bill and not the Sub S, and the AO also got a letter from lending bank to the same effect. But the claims don’t work when the documents, and especially the checks, don’t get into the record.

“Despite their importance, none of these documents was entered into the record.  We therefore do not consider them in deciding this case.” 2017 T. C. Sum. Op. 9, at p. 9, footnote 4 (cont’d).

Bill and Amaryllis were self-represented. Maybe time to reopen the record, even though this was a Rule 122 all-in? Or have a Lew post-trial conference?

  1. I am very much behind in readings (being tax season and all that), but a question: If the client entered into the appeals process the checks written, it may have produced a different outcome? It seems that at various times, USTC (and may be circuit court), going before a judge is very much unlike the argument for instant replay – where the argument for it was “get the call right”. It seems that even though the judge (sort of) admits that things could have been different (evidence in or out, jurisdiction), it is not about getting the right result, but following procedure. Not saying that is not the way it should be, but maybe there are better alternatives (this from a non-USTCP)


  2. Not sure what this means: ” If the client entered into the appeals process the checks written….” If you read the opinion, the checks (or rather, the lack thereof) make the difference. If you’re trying a case, or taking an appeal, the record is everything. You must put in competent evidence to prove the points you need to win. I’ve said it many times: the record is the contrapositive of the old Yellow Pages commercial. “If it’s not in here, it’s not out there.” Tinsley never put the bank letters in evidence, nor his bank statements and checks that would have shown he paid the loan with his own funds and not S Corp funds. He didn’t get a bank officer to testify. Maybe he didn’t want to spend the money for a lawyer.


  3. […] Taishoff, the early bird of Tax Court coverage, posted something yesterday.  Mr. Taishoff suggest that there might be a way to reopen the record on the […]


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