In Uncategorized on 12/19/2017 at 16:10

The complexities and anfractuosities, to say nothing of the “jumbled and wrinkled topography” (see my blogpost “Well-Settled – No Deduction – Part Deux,” 11/27/12) of tax law sometimes leads astray even The Great Dissenter, a/k/a The Judge Who Writes Like a Human Being, s/a/k/a The Implacable, Inveterate, Incontrovertible, Ineluctable, Ineffable, Indefatigable, Incomparable and Illustrious Foe of the Partitive Genitive, Old China Hand and Master Silt Stirrer, Judge Mark V. Holmes.

Two designated hitters to set things right today.

First, our old chum Steven M. Gaggero, he of my blogpost “It Was a Real Sale,” 11/29/12. But it turns out Judge Holmes’ prosy but carefully-crafted analysis with tables got the math wrong.

Steve’s basis for the $3 million he paid his controlled C Corp BCC for the improvements they made, when he sold BCC its 30% interest, doesn’t get credited to Steve on the disposition of the partial interest to BCC, but does get credited on the sale to the Belgian chemist.

Steve, ever clever, wanted a double dip. You remember Steve’s profound knowledge of tax law, and how he fed his attorney questions on the trial. No go, Steve, but a Taishoff “Good Try” for your Christmas stocking.

So Judge Holmes has to re-do the arithmetic, which he does. And then he has to send Steve and IRS back to do yet another Rule 155 beancount.

Basis wonks, you’ll love Steven M. Gaggero, Docket No. 21378-03, filed 12/19/17.

Next edit job is James E. Houston & Donna C.  Houston, Docket No. 1445-06L, filed 12/19/17. There was an order and decision back in April that I didn’t blog, but it was another phony partnership that didn’t rate a T. C. Memo.

Judge Holmes got the tax-motivated interest rate wrong. …the punitive interest as 120% instead of what the Code itself said; i.e., 120% ‘of the underpayment rate,” I.R.C. § 6621(c)(1) (repealed 1989).” Order, at p. 1.

It must have been a bad day, because Judge Holmes also spoke of “references to ‘sham partnership’ instead of ‘sham partnership transactions.’” Order, at p. 1.

Judge Holmes graciously acknowledges the corrections. “The Court is grateful for the parties’ noticing this failure of quality control in its proofreading and will make these corrections.” Order, at p. 1.

But of course Jim and Donna want more.

“Petitioners’ more substantive argument is that the Court overlooked a distinction between transactions that lack economic substance and those that both lack economic substance and are shams. (And by ‘shams’ petitioners mean have a ‘lack of profit motive or business purpose.’) Petitioners then argue that a consequence of this is that it is impossible to conclude that the partnership-level decisions that triggered these partner-level proceedings contained definitive determinations that the challenged partnership transactions were tax motivated and thus subject to the punitive interest rate.” Order, at pp. 1-2.

Jim and Donna claim there’s a difference, that lack of business purpose doesn’t necessarily mean the transaction is a sham. Every sham transaction lacks business purpose, but not every transaction lacking business purpose is a sham.

“The problem for the Houstons is that their case remains indistinguishable from Duffle v. United States, 600 F.3d 362 (5th Cir. 2010), and the Fifth Circuit in Duffle held that the same language in the decision documents in that case amounted to a determination that the challenged transactions described in those decisions were tax-motivated transactions subject to I.R.C. § 6621(c). Underlying their argument, by contrast, is the Houstons’ insistence that there is a difference between a statement that ‘the transaction lacks economic substance’ and a statement that ‘the transaction is a sham. The Houstons then extend their argument into one about whether the absence of impure thoughts (i.e., a subjective intent to avoid tax) is enough to avoid a transaction’s characterization as a sham.” Order, at p. 2.

But 5 Cir has held since Duffie that motivation plays no part, and Judge Holmes sees “no daylight” between the two.

Another Taishoff “Good Try.”



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