In Uncategorized on 08/17/2017 at 18:15

I must again apologize for loquacity and lame attempts at humor today. I throw myself on the mercy of the Court, and hope Judge Posner will forgive me.

As promised, here’s Kurt Hickam and Michelle Hickam, 2017 T. C. Sum. Op. 66, filed 8/17/17, a small-claimer from STJ Diana L. (“Sidewalks of New York”) Leyden. It’s another real estate pro with dodgy substantiation, so nothing novel about that. And Kurt is the only one playing this hand.

The interesting part is that Kurt wants to add in his mortgage brokering hours on top of his running three (count ‘em, three) rental properties for self and family, for which he did everything but keep good time records.

Kurt claims his mortgage brokering is enough of  a real estate activity to qualify within Section 469(c)(7)(C).

“Real property trade or business.–For purposes of this paragraph, the term ‘real property trade or business’ means any real property development, redevelopment, construction, reconstruction, acquisition, conversion, rental, operation, management, leasing, or brokerage trade or business.” 2017 T. C. Sum. Op. 676, at p. 13.  (Emphasis by the Court.)

“Mr. Hickam focuses on the word ‘operation’ and argues that his mortgage brokerage services and his loan origination services are performed in trades or businesses in real property operation because the underlying assets in both services are real property.” 2017 T. C. Sum. Op. 66, at p. 13.

Kurt also gripes that IRS retroactively applied CCA 201504010 (Dec. 17, 2014), which said mortgage brokerage wasn’t real estate activity. But that’s nothing new, says STJ Di.

“The legislative history of the statute supports the consequence of this distinction.  Congress considered including ‘finance operations’ in the activities listed in section 469(c)(7)(C) but specifically did not do so.  See H.R. 2264, 103d Cong., sec. 13143 (1993); H.R. 1414, 102d Cong. (1991); S. 1257, 102d Cong. (1991); H.R. 3732, 101st Cong. (1989); S. 2384, 101st Cong. (1989).” 2017 T. C. Memo. 66, at p. 16.

Mortgage brokering, however much time Kurt put in, doesn’t get into the equation.

Kurt relies on a case where a real estate and mortgage broker got treated as a real estate pro, but IRS and broker stipulated she was a pro as to three rental properties she owned, without taking any brokerage time into account. Apparently her timesheets were better than Kurt’s.

But STJ Di gives Kurt a bye from the 20% chop IRS is holding over him.

“The question of whether Mr. Hickam was a real estate professional was partially resolved on technical grounds—whether his mortgage brokerage services and loan origination services constituted real property trades or businesses under section 469(c)(7)(C).  Although the Court found that neither service constituted a real property trade or business and notwithstanding his failure to maintain adequate records, the Court finds that Mr. Hickam acted reasonably and in good faith in taking that position for the years at issue.  Petitioners are therefore not liable for a section 6662(a) accuracy-related penalty….” 2017 T. C. Memo. 66, at pp. 25-26.

The taxpayer’s friend – that’s STJ Di.



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