In Uncategorized on 10/19/2017 at 01:43

Now don’t get me wrong; I like accountants, generally, I really do. I’ll stop at that, lest someone claim that the laddie doth protest too much.

But a well-known accounting firm, in extricating itself from the rubble of a client’s shot-down dodge, really showed a want of stand-up.

Remember Corbin A. McNeill and Dorice S. McNeill? No? See my blogpost “Searchin’, Searchin’,” 6/19/17. Now the sequel, wherein Corb and Dori get chopped with the 40% substantial overstatement, is to be found in 2017 T. C. Memo. 206, filed 10/18/17.

This is a tale of two accounting firms, one which promoted the DAD dodge (and which firm actually did work for me years ago, but promoted no dodges) and the other which prepared Corb’s and Dori’s returns for the years at issue.

It’s the latter to which I direct your attention.

The second of the years at issue was the first when T.D. 9046, 2003-1 C.B. 614, classified Corb’s and Dori’s dodge as reportable. When it came time to file Corb’s and Dori’s return, “X concluded that Mr. McNeill should file a Form 8886, Reportable Transaction Disclosure Statement, and that X should not be listed as a material adviser because it had not provided any tax advice with respect to the 2003 DAD transaction. A ‘Loss transaction’ was indicated as the reportable transaction on petitioners’ Form 8886.” 2017 T. C. Memo. 205, at p. 35. (Name omitted).

For those unacquainted with this particular dodge, a DAD married distressed assets or debt with high cost basis but market value of bortscht, to use a technical term, to big-ticket capital gains in a tiered LLC set up, generating big tax loss with no balance sheet impact. No business purpose, no economic substance.

You’ll recall from my above-cited blogpost that Corb and Dori conceded the deficiency, but contested the chop after Judge Paris found jurisdiction.

Corb and Dori claim they relied on X, not the other accounting firm that promoted and sold the dodge. But it’s not enough that X prepared the return; X has to have given Corb and Dori advice.

“X prepared and signed petitioners’ 2003 tax return but did not give petitioners advice on the loss attributable to the 2003 DAD transaction. For both 2002 and 2003 X prepared internal memorandums that briefly analyzed Mr. McNeill’s DAD transactions. In the memorandums X looked at the transactions for a ‘realistic possibility of success’. This standard, derived from section 6694(a)(1), relates to imposing penalties on tax return preparers for understating a taxpayer’s liability. X’s memoranda reflected the standard of review to ensure it would not be penalized for the positions taken on petitioners’ returns–not that they were providing return position advice to petitioners on the DAD transactions.” 2017 T. C. Memo. 205, at p. 29.

Likewise, X did not appear on the Form 8886 report of dubious dealings, as an adviser, preparer, guide, philosopher or friend.

Now, to be fair, Corb and Dori claim they also replied upon the advice of counsel, legal-type counsel. But the lawyers in question were one of two firms hand-picked by the dodgeflogger accountants who put Corb and Dori in the DAD deal, and who churned out opinions for a piece of the action. That clearly doesn’t get it.

So if you get a memo from a lawyer or accountant with the words “realistic possibility of success” therein, ask them to keep the ripcord as a souvenir. And don’t get on that plane.

Before you weep for Corb and Dori, note that Corb was chairman and co-CEO of Exelon, another dodger. See my blogpost “1031 and All That,” 9/19/16.

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