In Uncategorized on 08/02/2017 at 17:09

That small but mighty band, the readers of this my blog, are thoroughly conversant with the CARDS dodge, flogged by that leading dodge-flogger Chenery. But for those who tune in late, check out my blogposts “House of CARDS,” 3/8/11, and “It Ain’t What You Do With What You Got – Part Deux,” 11/1/12, and get to V2.

Today we have Curtis Investment Company, LLC, Henry J. Bird, A Partner Other Than the Tax Matters Partner, 2017 T. C. Memo. 150, filed 8/2/17, no less than Ch J L Paige (“Iron Fist”) Marvel bringing down the House of CARDS on Henry J, when bro R. Alan, the TMP, elected to sit this dance out, and incidentally Momma Lonnie C. Baxter, who is conjoined in this family affair.

The Birds had holdings in a family C Corp in the nine-figure range, basis the usual. They wanted a ten-year sell-and-diversify plan, but got a tender offer they couldn’t refuse, so were looking at a heavy capital gains tax.

If you read my previously-abovecited blogposts, and if I may quote the best online chess commentator, we can stop here.

The Birds and Momma claim they wanted money to play the market and didn’t consider taxes. They testify they never spoke of it. But the cash outlay for the cash they got was 44%. A loan origination fee of 44%? Maybe on the waterfront when Marlon Brando was there.

It was the usual phony loan from a German bank, 100% collateralized with the same cash, a phony mix-and-match with UK indifferents and assumption of the entire liability by sensitives, the loan unwound in one year, generating an offsetting loss to the big capital gain.

Economic substance? Yeah, roger that. Ch J Iron Fist isn’t buying.

“This Court has examined other CARDS transactions promoted by Chenery. We have held that the CARDS transaction lacked economic substance on each occasion.” 2017 T. C. Memo. 150, at pp. 26-27. (Citations omitted, but I blogged most of them).

Borrowing money to play the stock market has economic substance, but that’s not the droid Ch J Iron Fist is looking for. It’s not the legitimate deal married to the fraud that saves the fraud. The fraud collapses on its own.

And the Birds don’t proffer any expert testimony dealing with the CARDS deal, only with what they might make on the investment, which is beside the point. And the Birds tweeting about how they never discussed tax benefits does not go over big.

But this is a TEFRA FPAA case. So what about good faith reliance on expert advice?

“Partner-level defenses, including reasonable cause and good faith, may not be asserted in a partnership-level TEFRA proceeding such as the one we have  here.  See New Millennium Trading, L.L.C. v. Commissioner, 131 T.C. 275, 288-289 (2008).  But when the reasonable cause defense rests on the partnership’s actions, such as in the cases here, we may entertain the defense at the partnership level, ‘taking into account the state of mind of the general partner.’  Superior Trading, LLC v. Commissioner, 137 T.C. 70, 91 (2011), aff’d, 728 F.3d 676 (7th Cir. 2013).” 2017 T. C. Memo., 150, at pp. 38-39.

You remember Superior Trading, where Judge Posner laid a whuppin’ on poor Judge Wherry, no? No? See my blogpost “There Goes the Neighborhood,” 9/3/13.

Well, the states of mind of Henry J and Momma Lonnie were somewhat less than optimal. The only tax opinion they got was the boilerplate fill-in-the-blanks from a certain NYC law firm, who got paid by Chenery out of the money that Henry J and Momma Lonnie paid Chenery.

BTW, see ABA Model Rule 1.8, Comment 11: “Because third-party payers frequently have interests that differ from those of the client, including interests in minimizing the amount spent on the representation and in learning how the representation is progressing, lawyers are prohibited from accepting or continuing such representations unless the lawyer determines that there will be no interference with the lawyer’s independent professional judgment and there is informed consent from the client. See also Rule 5.4(c) (prohibiting interference with a lawyer’s professional judgment by one who recommends, employs or pays the lawyer to render legal services for another).”

The Birds and Momma Lonnie were sophisticated high-rollers, unlike poor Charlie Carroll, the gravedigger who strutted and fretted his hour upon the stage in my blogpost “Woods, Concrete & Sham,”3/23/15, under whose mantle the Birds want to hide.

Give ‘em the 40% chop.

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