Archive for March, 2017|Monthly archive page


In Uncategorized on 03/31/2017 at 16:06

Maybe this case should have gone to Appeals again to begin with. It certainly went nowhere since January.

What case is that, you may ask. Well, you came to the right place, because, as a much better writer than I put it, “I’m willing to tell you. I’m wanting to tell you. I’m waiting to tell you.”

It’s James L. McCarthy, Docket No. 21940-15L, filed 3/31/17, today’s designated hitter. Remember James L. (“Poor Jim”) McCarthy? What, you don’t? Well, check out my blogpost “The Twelfth of Never,” 1/18/17.

Now you recall that Judge James S. (“Big Jim”) Halpern blew off cross-motions for summary J.

So they went to trial. I did not attend, being out of the country. Even if I had attended, it was a game that ended in a scoreless tie. That helped neither side.  So Judge Big Jim suggested the parties go back to Appeals, so Appeals could consider Poor Jim’s alleged assets-in-trust, with whatever benefit the trial testimony might furnish, and also ponder the discretion question Judge Big Jim first posed back in January.

So Judge Big Jim, Poor Jim and IRS all agreed to put the following conundra to Appeals. Y’all can try to craft your own answers, but no prize for the correct answers.

“Does the IRM foreclose Appeals from accepting an OIC from petitioner that leaves in place the terms of the District Court’s restitution order requiring periodic restitution payments over a term in excess of 24 months?

“If so, how can a policy allowing for the exercise of discretion that, as a practical matter, will never be exercised, regardless of the surrounding circumstances, be other than arbitrary? Cf Quality Software Sys., Inc. v. Commissioner, T.C. Memo. 2015-107 at *21 (‘By having discretion to reinstate OIC agreements, but choosing never to exercise that discretion, without providing any sort of justification, Appeals may be abusing its discretion.’).

“If Appeals does have discretion to accept an OIC that leaves in place the terms of the District Court’s restitution order, did (or does) Appeals have any valid grounds on which to reject petitioner’s OIC other than those described in the attachment to Appeals’ Notice of Determination (i.e. ‘Attachment to Letter 3193’).

“If Appeals does have that discretion, and considering the evidence that petitioner previously presented to Appeals, the evidence received at trial, and any other evidence petitioner presents to Appeals on remand, does Appeals accept an OIC presented by petitioner or a partial payment installment agreement?

“If so, why?” Order, at pp. 2-3.

Of course I blogged Quality Software, supra, as my high-priced colleagues would say. See my blogpost “Who Would These Burdens Bear,” 6/12/15.

BTW, Quality Software went back to Appeals and Judge Big Jim entered a stipulated decision 1/21/16. While the decision states Appeals’ supplemental NOD is sustained, the decision doesn’t state what the supplemental NOD determined.



In Uncategorized on 03/31/2017 at 09:29

No, not the things you got from the Dep’t of Health at age 16 to try to get a summer job. This is a dispute about producing the documents an expert witness reviewed in arriving at his appraisal, before exchange of experts’ reports.

If you’re a discovery wonk, which title I must assume fits at least some of my readers, that small but mighty band, this is your kind of case.

I didn’t blog MCM Investment Management, LLC, Mark & C’ann McMillin Family Trust Dated 04/09/1990, Tax Matters Partner, Docket No. 13550-15, filed 3/30/17, when it hit Tax Court’s website yesterday, because I was enjoying the hospitality, generosity and antipasto of a longtime friend and colleague; thanks again, Larry D, and best of luck in your new offices.

Back to work. IRS wants MCM to hand over the documents.

Judge Pugh defines the terms. “Respondent’s motion seeks ‘the workpapers/files of FMV Opinions, Inc. (FMVO) relating to the appraisal’ provided by FMVO to petitioner dated June 9, 2010 (FMVO Appraisal). The workpapers/file sought are defined as ‘the collection of documents, acquired, considered, or used by FMVO in preparing the [FMVO] Appraisal.’ Thus, the request necessarily is limited to those documents in existence on the date the FMVO Appraisal was provided to petitioner.” Order, at p. 1.

MCM claims IRS is jumping the gun. Per Rule 143(g)(2), as we all know, all that stuff gets handed over “…not later than 30 days before the call of the trial calendar on which the case shall appear….” As the calendar call in SF CA is set for 6/19/17, IRS will get the stuff on 4/20/17, the date set for experts’ reports exchange and submission to the Court.

OK? says MCM. No, because although the appraiser who prepared the FMVO Appraisal is retained as an expert witness, the documents are what they are, unprivileged.

We lawyers know that when a client hands us unprivileged documents, the handing over does not confer privilege on the documents. Possession is not nine points of anything.

And Judge Pugh reprises that refrain.

“The documents used or consulted to prepare the FMVO Appraisal are discoverable irrespective of whether they are provided to an expert witness. Petitioner does not argue otherwise. Providing them to an expert witness cannot convert them into expert witness workpapers shielded from discovery prior to the deadline for exchanging workpapers. Therefore, they are subject to discovery regardless of whether the expert witness is the same individual who prepared the original appraisal. Further, because petitioner intends to produce the documents on April 20, 2017, we do not view requiring their production on a short deadline to be unduly burdensome. We further believe that production on a short timeframe is necessary so that expert witnesses for both parties have the same information relating to the FMVO Appraisal.” Order, at p. 2.

No cases cited here, and I wish that Judge Pugh had done. It would make memo of law writing that much easier.


In Uncategorized on 03/30/2017 at 16:52

Nicola Francesco Haym’s words echo in Judge Cohen’s court, unfortunately without G. F. Handel’s wonderful music, in Albert Okorogu and Rita Okorogu, 2017 T. C. Memo. 53, filed 3/30/17.

Al’s a real bad dude, landing Dr Rita in the emergency room on one occasion when he broke her back, and frequently beating her up in front of their kids, for which he did time for misdemeanor battery.

He’s lucky I wasn’t the judge.

He’s also a creative writer on tax returns, two of which (for the years at issue) are electronically filed MFJ. Dr Rita claims Al never showed her family finances, she never signed the returns,  and Al forged her name on a deed quitclaiming her share in their house to some kind of trust.

Dr Rita did work, but got laid off. Al worked, and also got laid off. Al collected unemployment insurance, which he didn’t report. Dr Rita claims she didn’t know she had to pay income tax.

I’m not so sure as Judge Cohen about that last one, but we’ll let that pass.

IRS slugs Al and Dr Rita with a SNOD, but he’s out of the country (although Dr Rita claims he comes back from time to time). They both petition the SNOD with same counsel, but Dr Rita ultimately gets her own lawyer, and claims innocent spousery. IRS agrees; no one contradicts her tale of abuse.

Of course, Dr Rita has no info as to the contents of said returns, and Al is AWOL, so Judge Cohen finds for IRS on the deficiencies and the chops. Dr Rita admits to $16 of interest on which she owes tax, so she can’t get full remission of joint-and-several. Section 6015(b) and Section 6015(c) are therefore both off the table. Dr Rita does want Section 6015(f), but there’s a problem.

Al’s counsel claims Dr Rita’s testimony shows no intent to file MFJ, therefore Section 6015(f) is also off the table. I will give counsel a Taishoff “good try” third class; he’s representing a nasty character, but he has to try, even though it’s a slimy move.

“W [Dr Rita] asserts, and respondent [IRS] concedes, that she meets the criteria for relief outlined by Rev. Proc. 2013-34, supra, and that she should be granted full relief from the liabilities determined in the notice.  However, before we render a determination on the merits of W’s claim for equitable relief, we must determine whether the returns filed for petitioners…were valid joint returns. Equitable relief can be granted only for an individual who ‘has made a joint return’.  Sec. 6015(a)(1); see also Rev. Proc. 2013-34, sec. 4.01(1), 2013-43 I.R.B. at 399.  H opposes our granting of equitable relief for W on the ground that the returns that he caused to be filed for himself and W for the years in issue were not valid joint returns.” 2017 T. C. Memo. 53, at p.18.

And Dr Rita’s 8857 request says that she never signed the 1040s at issue, therefore, says Al’s counsel, their real status is MFS, and the tax burdens must be apportioned as if they filed MFS.

“W and respondent argue that although W did not sign and did not expressly agree to H’s filing of the returns for 2011 and 2012, the returns were valid joint returns because W tacitly consented to the filing of joint returns by H.” 2017 T. C. Memo. 53, at pp. 18-19.

Tacit consent? See my blogpost “The Scarlet Letter,” 10/13/15. Didn’t Judge Laro blow up the idea of tacit consent as undermining the whole tax structure? Wouldn’t IRS be involved in a wilderness of facts-and-circumstances, and wouldn’t spouses who never knew what return was filed find themselves under the gun years later, trying to prove who intended what when?

Yes, but. As Judge Laro said, when joint and several liability is concerned, tacit consent does go back on the table

And Dr Rita has it.

“The ‘tacit consent rule’ holds that the intent to file a joint return may be inferred from facts demonstrating that a nonsigning spouse tacitly approved or acquiesced in the other spouse’s filing of the joint return. This Court has considered a variety of factors in evaluating the issue of tacit consent, especially whether the nonsigning spouse filed a separate return, whether the nonsigning spouse objected to the other spouse’s joint filing, and whether the couple’s prior filing history indicates the intent to file jointly.  Thus, a history of reliance by the nonsigning spouse on the other spouse with respect to family financial matters, including the preparation of tax returns, suggests that the nonsigning spouse consented to the other spouse’s filing of the return in question.  Furthermore, the inclusion of income and deductions attributable to the nonsigning spouse on the return generally will be taken as proof of the intent to file a joint return, even where the nonsigning spouse failed to give his or her express consent to the filing.” 2017 T. C. Memo. 53, at pp. 19-20. (Citations omitted, but get them for your next memo of law).

But remember my blogpost abovecited; this only works in a joint-and-several innocent spousery, where equitable considerations can outweigh the plain facts. This may be the only place where Tax Court has explicit statutory equitable jurisdiction.

Judge Cohen knows this is an off-the-wall case, and stretches to find any guidance.

But ultimately, this case is decided on the proposition that Al is a noxious individual, and Judge Cohen hasn’t got Rudy Kipling’s horsewhip.

“W’s testimony and supporting documentation that she provided establishes that she suffered from near constant emotional and physical abuse during the time that H lived with her and the children in California.  H strictly and secretively controlled the family’s finances, and W reasonably feared his retaliation for any attempt to question or challenge his decisions.  After H moved to Nigeria…, he continued to instill fear in and exercise control over W and the children.  We accept W’s testimony that she remains fearful of his retaliation to this day.  H’s counsel’s attempts to discredit W’s testimony to this effect, arguing that H was physically removed from the household and that W had control over her own bank account…, ignore the realities of an abusive relationship and the fact that H returned to California multiple times during this period.  There is no evidence supporting H’s arguments or contradicting W’s testimony.  His position in this case appears simply vindictive.” 2017 T. C. Memo. 53, at pp. 24-25.

Though consent was given silently and stealthily, it was still consent. Judge Cohen plays “l’astuto cacciator’.”


In Uncategorized on 03/29/2017 at 17:27

Alex, let’s take jurisdiction for $13 million. Our lead contestant is George B. Dengin, Docket No. 5822-17, filed 3/29/17.

IRS claims Geo owes about $13 million in tax for five (count ‘em, five) tax years, for which he neither timely filed nor paid. Geo is a dual US-Canadian national, and apparently lives in Vancouver, in the Terre de nos aïeux. Geo and counsel went to Appeals on the jeopardy assessment, but Appeals sustained.

Now Geo and counsel want Tax Court to review, but Ch J L Paige (“Iron Fist”) Marvel says “no can do.”

“Section 7429 deals with review of jeopardy assessment and jeopardy levy procedures. Subsection (a) provides for administrative review, and subsection (b) provides for judicial review. As a general rule, section 7429(b)(2)(A) vests the district courts of the United States with exclusive jurisdiction over civil actions for review of jeopardy assessments and levies. However, there is an exception to the general rule applicable to the Tax Court, but the exception applies only if (among other requirements) the commencement of a redetermination action under section 6213(a) in the Tax Court occurs before the making of the jeopardy assessment or levy. Sec. 7429(b)(2)(B).” Order, at p. 3. (Emphasis by the Court).

But here the jeopardy assessment came first, so Tax Court is ousted of its standard deficiency jurisdiction. Apparently Congress doesn’t trust the “small court” when it comes to skipping dodgers.

So the hard-laboring Clerk of Tax Court must overnight the file to USDCCDCA (where Geo and counsel want to try the case), and send an electronic smoke signal to the clerk of that court and her assistant, telling them to stand by.

Interestingly, Ch J Iron Fist doesn’t require the Tax Court clerk to use one of the overnight services blessed by Com’r John (“Kosy”) Koskinen.


In Uncategorized on 03/29/2017 at 17:04

It’s been a while since a restitution and assessment opinion came down the pike, but Judge Goeke has one for us today. It’s Leif D. Rozin, 2017 T. C. Memo. 52, filed 3/29/17.

Leif got nailed for filing a false return, and the nailing included a restitution order for $775K. Leif and co-defendants paid this off within a year.

Fast forward a year, and IRS Examination reports Leif owes a total of $686K of tax plus penalty. It takes IRS another nine months to send Leif a SNOD, from which Leif petitions, claiming he never got credit for the money he already paid as restitution. But Leif never filed Form 4089-B, Notice of Deficiency–Waiver, for the year at issue.

And petitioning the SNOD holds up assessment until Tax Court decides whether or not to uphold the deficiency as determined by Exam.

“The parties agree that there is a deficiency of $392,083 and a section 6663 penalty of $294,062 for tax year….  The parties, however, disagree about the treatment and characterization of petitioner’s restitution payments.  This dispute boils down to an issue of timing.  Petitioner requests that we treat the restitution payments as payment in satisfaction of his deficiency and section 6663 penalty for tax year….  Respondent, however, is statutorily prohibited from crediting petitioner’s account until the deficiency and the section 6663 penalty are assessed.  See secs. 6201(a)(4), 6213(a), (b)(5); see also Schwartz v. Commissioner, T.C. Memo. 2016-144.” 2017 T. C. Memo. 52, at p. 5.

Tax Court’s jurisdiction to review a deficiency depends upon there being a deficiency. Section 6211(a) defines a deficiency as the difference between tax actually due, minus tax shown on return, minus prior deficiency assessments (or collections if no assessment), plus rebates.

Restitution orders are estimates of damages to the fisc, but aren’t assessments. It’s a classic YMMV (your mileage may vary).

The restitution wasn’t shown on Leif’s original return, there were no prior deficiency assessments or rebates, and IRS can’t assess the amount of the deficiency even though both IRS and Leif agree how much that is, and Leif’s restitution covers it.

“By failing to waive restrictions on assessment and filing a petition in this Court, petitioner has effectively prevented respondent from doing exactly what he is requesting respondent to do–reduce the amount due by amounts remitted before petitioner received the notice.  See sec. 6213(a).  After the amount of petitioner’s restitution order was summarily assessed, respondent determined an income tax deficiency for petitioner’s tax year….  Upon making that determination, respondent was statutorily obligated to send petitioner a notice of deficiency before assessing the deficiency and the section 6663 penalty.  See sec. 6212(a).  Respondent has stipulated that following entry of a final decision in this proceeding, he will assess the income tax deficiency…, the penalty pursuant to section 6663…, and interest as provided by law for tax year….  And respondent will credit petitioner’s account with the restitution payments, as of the date of those payments, against those civil tax assessments.” 2017 T. C. Memo. 52, at pp. 11-12.

As for interest in these restitution-assessment jumpballs, see my blogpost “Als Ob,” 11/22/16.

I don’t fault Leif’s attorney for shooting in a petition. Given the Draconian 90-day cutoff, I submit one has no choice.  As for not filing the 4089-B, it’s easy to play Monday morning quarterback. So I’ll let it go at that.



In Uncategorized on 03/28/2017 at 16:44

Those words from much more exalted sources than Congress, Treasury, or even Tax Court will never be questioned by me, but today Judge Gerber finds some who claim to be laborers aren’t, so it’s profit they got, and not their hire.

Here’s Home Team Transition Management, 2017 T. C. Memo. 51, filed 3/28/17.

HTTM is a for-profit MO C corp. “Petitioner provides at-home aid services to assist clients in their daily living tasks such as bathing, eating, cooking, and grocery shopping.  Petitioner also offers brief visits from a nurse to set out regular medications, monitor vital statistics, and conduct a range of body exercises with a client.” 2017 T. C. Memo. 51, at p. 3.

Judge Gerber points out, without elaboration, that “(D)uring the years at issue petitioner’s clientele was 65%-70% Medicaid funded, 10% Veterans Affairs funded, and 20%-25% privately funded.” 2017 T. C. Memo. 51, at p. 3.

It seems that the four shareholders in the C corp holding company that owned HTTM took out hefty loans from the holding company, which was paid management fees by HTTM, but those loans were transmuted into management fees paid to the shareholders.

You can read for yourself the corporate finagling, somewhat less than adroitly carried on.

Judge Gerber blows it up.

“In this case, we have four individuals who were equal corporate shareholders in a home care business, petitioner….During [year at issue] the same four shareholders incorporated another corporation, [holding corp], in which they were equal shareholders, and [holding corp] acquired ownership of petitioner, the existing home healthcare business.  Two of the shareholders were employees of petitioner, and they were paid for their services, which included day to-day operation of petitioner.  The other two shareholders were not employees of petitioner.  None of the four shareholders were employees of [holding corp], and no one, including the four shareholders, was paid a salary for any services rendered to or on behalf of [holding corp].  Periodically, the four shareholders of [holding corp] were paid equal amounts as director’s fees.  There is no credible evidence showing that any management services were performed by the shareholders or other employees of [holding corp] for petitioner.” 2017 T. C. Memo. 51, at p. 10.

It gets better (or worse, depending upon your point of view). “Exacerbating those circumstances are the facts that the alleged management fees were originally booked as loan payments and that the amounts corresponded to petitioner’s ability to pay; i.e., they varied depending on petitioner’s revenues.  We accordingly hold that respondent’s disallowance of the management fee deductions that petitioner claimed…is not in error and is sustained.” 2017 T. C. Memo. 51, at p. 11.

Maybe so the Medicaid IG and the VA IG might want to check these dudes out.


In Uncategorized on 03/28/2017 at 16:11

Yes, this is a sea story, as the title (cribbed from the 1910 Joseph Conrad classic) indicates, but it’s a tax story as well, and moreover, it’s a full-dress T. C., as told by Judge Chiechi in Good Fortune Shipping, SA, 148 T. C. 1, filed 3/28/17.

The fight is about the Section 887(a) 4% tax on a foreign corporation’s US source gross transportation income, which would make a dandy question for the EA exam.

Here’s the skinny for the year at issue (subsequent amendments changed this, natch).

“Section 883(a)(1) excludes from the gross income of a foreign corporation and exempts from U.S. taxation gross income from the international operation of ships derived by the foreign corporation if the foreign country in which the corporation is organized grants an equivalent exemption to corporations organized in the United States (U.S. corporations).  Section 883(c)(1) provides that the exclusion from gross income and the exemption from U.S. taxation that section 883(a)(1) allows will not apply to a foreign corporation that derives gross income from the international operation of ships if 50% or more of the value of its stock is owned, directly or indirectly through the application of certain attribution rules in section 883(c)(4), by individuals who are not residents of a foreign country that grants an equivalent exemption to U.S. corporations.” 148 T. C. 10, at pp. 5-6.

So if your foreign shipping corporation is 50% or more owned by nationals of a country that exempts US shipping corporations from an equivalent tax, you’re cool.

Good Fortune owned Good Luck Shipping, and they hang out in the Republic of the Marshall Islands. So if you see a vessel home-ported in Majuro, as we did going through the Panama Canal two months ago, good luck and good fortune to you.

So why is this an issue? Apparently the Marshall Islands give the requisite exemption.

But all of Good Fortune’s shares were issued in bearer form. That means that whoever has the certificates owns the shares. Good Fortune had no share ledger, whether paper or on-line, and had no idea who owned what. Good Fortune did submit written statements from persons claiming to be officers, and persons claiming to be owners, all from the right nations.

But Reg. 1.883-4(b)(1)(ii), (c)(1), (d)(1), and (4)(i)(E), as in effect for the year at issue, say bearer shares disqualifies the corporation from the exemption.

Good Fortune says good luck with that, y’all flunk the Chevron test. The statute is plain: “owned” means “owned.” Whether ownership is by registered shares or bearer shares, mox nix.

The Regs mean Good Fortune can’t prove it’s more than 50% owned by the proper foreigners.

Chevron question 1 is ambiguity in the statute. Good Fortune claims IRS conflates ownership with proof of ownership. The statute says “owned,” it doesn’t talk about how ownership is to be proven. So, using the ordinary and usual meaning of the word “owned,” as long as you hold those share certificates in your hot little paws, you own them.

But just like in Mayo, which is Chevron meets the Internal Revenue Code, a case-by-case and lengthy facts-and-circumstances approach short-circuits Congress’ intent completely.

“The words ‘owned by individuals’ in section 883(c)(1) do not, as petitioner appears to acknowledge, explain or otherwise address how to establish ownership by individuals for purposes of section 883(c)(1), let alone how to establish ownership where the shares of the foreign corporation are owned in bearer form.  The dictionary definitions of the word ‘own’ on which petitioner relies, which petitioner claims are unambiguous definitions, do not address the problem under section 883(c) of determining how to establish ownership by individuals for purposes of section 883(c)(1) that the Internal Revenue Service (IRS) confronts when it examines a return of a foreign corporation seeking the benefits of section 883(a)(1) for a prior taxable year.  In any such examination, the IRS must determine after the fact whether during at least one-half of the total number of days in that prior taxable year 50% or more of the value of the stock of that corporation was owned by individuals who were not residents of a foreign country that granted an equivalent exemption to U.S. corporations.  In that event, section 883(c)(1) would preclude that foreign corporation for that prior taxable year from excluding from gross income and exempting from U.S. taxation under section 883(a)(1) the income described in section 883(a)(1).

“We conclude that ‘Congress has [not] directly spoken to the precise question at issue’, Chevron, 467 U.S. at 842, of how ownership by individuals may be established for purposes of section 883(c)(1) by a foreign corporation seeking the benefits of section 883(a)(1), including such a foreign corporation the shares of which were issued in bearer form.  We also conclude that section 883(c)(1) as well as its legislative history is silent–there is a gap in that section as well as its legislative history–as to how ownership by individuals may be established for purposes of section 883(c)(1) by a foreign corporation seeking the benefits of section 883(a)(1), including such a foreign corporation the shares of which were issued in bearer form.  We hold that the Treasury Secretary was authorized under Chevron to fill that gap by promulgating regulations.  See Chevron, 467 U.S. at 842-843.” 148 T. C. 10, at pp. 32-33. (Footnote omitted).

Treasury could promulgate regulations, and Judge Chiechi (and every other Tax Court judge) finds these are a reasonable construction of the statute.

And OECD recognized that bearer shares are a great way to disguise ownership and pull off tax dodges.

So, just as in Józef Teodor Konrad Korzeniowski’s story, the secret sharers go overboard.


In Uncategorized on 03/28/2017 at 14:13

STJ Diana L. Leyden accepts silence as consent, but IRS was perplexed by Wesley Ira Lane & Jessica Lynn Lane, Docket No. 23805-14, filed 3/28/17.

IRS filed Motion for Entry of Decision (hereinafter “MEOD”). This means that the parties stipulate and agree to the amount of tax, refund, adjustments, penalties and additions for the year or years at issue, and that same may be entered as an Order and Decision; what we State courtiers call a “judgment.”

Sort of like a plea bargain, or a “so-ordered” stipulation of settlement.

In so moving, IRS must state whether Wes & Jes agree with the proposed Order and Decision, a copy of which IRS thoughtfully attached to the MEOD.

Wes & Jes responded by e-mail. “Great. Thanks.”

Consent? Maybe so; might could be. Maybe Wes & Jes were on the hook for beaucoup, and the $8K tax and $1K Section 6662(a) chop was a cheap out. Interestingly, the chop is less than the mandated 20%, so maybe not all the tax was understated for the reasons set forth in Section 6662(b), or maybe Wes & Jes had substantial authority for some of it.

Perhaps, in the alternative, Wes & Jes were being ironic, sardonic or sarcastic.

Howbeit, IRS wasn’t sure if Wes & Jes agreed, and they said so in the MEOD.

STJ Di asked Wes & Jes what they meant, but Wes & Jes stood mute.

So STJ Di enters decision as aforesaid.

Takeaway- I don’t think my readers need this, but if some do, permit me to suggest gently that “Great. Thanks.” is not how you show consent to a MEOD. Or anything else.


In Uncategorized on 03/27/2017 at 16:40

In More Ways Than One

Despite her middle name, Janice Luck O’Connor, Docket No. 2472-11, filed 3/27/17, doesn’t have any in her motion for reconsideration of the order giving IRS summary J, knocking out Janice Luck’s charitable contribution.

Back in January, while I was packing up and getting ready to sail the ocean blue, Judge Holmes granted summary J to IRS as aforesaid, because Janice Luck’s appraiser failed to consider the restrictive covenants in Janice Luck’s gift of 145 acres of farmland to a 501(c)(3). Note this wasn’t a conservation easement or scenic easement; this was a deed of gift of the whole enchilada.

And as Judge Holmes said back on 1/18/17, he cut Janice Luck a bunch of slack. “We can and have forgiven a number of the shortcomings that are indisputably present in Ms. O’Connor’s qualified appraisal. Using a substantial compliance standard, we have found that an appraisal was qualified even though the partnership obtained it more than sixty days before the contribution, even though the appraisal failed to state that it was prepared for income-tax purposes, and even though the appraisal estimated the fair market value on the date of appraisal instead of on the date of the expected contribution.“ Order, Docket No. 2472-11, filed 1/18/17, at p. 3.

Substantial compliance means “close enough for jazz.” But the appraiser admits he didn’t consider the restrictive covenants, and Janice Luck claims they were inserted at the behest, instance and insistence of the 501(c)(3).

Mox nix, says Judge Holmes.

“See 26 C.F.R. § 1.170A13(c)(3)(ii)(D) (appraisal must include an ‘agreement or understanding entered into . . . by or on behalf of the donor or the donee that relates to the use, sale, or other disposition of the property contributed, including, for example, the terms of any agreement . . . that restricts temporarily or permanently a donee’s right to use or dispose of the donated property.”) (Emphasis added.)

“The appraiser here was similarly required to consider the restrictions placed in the deed, regardless of which party wanted them. The appraiser failed to do so.” Order, Docket No. 2472-11, 3/27/17, at p. 2.

And that’s not a minor fault.

Takeaway- Don’t let your client’s generosity give away the tax deduction while your client is giving away the ranch.

Footnote to Mr. Peter Reilly, CPA: Yes sir, you were right. Judge Holmes was getting up to all kinds of stuff while I was away.


In Uncategorized on 03/27/2017 at 08:26

Today is the fiftieth anniversary of my admission to the Bar of Our Fair State. Some friends are buying me lunch.

To clients, friends, colleagues, adversaries, judges, administrative agents, but most of all, to my family, thanks, guys.

It’s been a blast.