In Uncategorized on 01/22/2018 at 22:51

No Section 6662(a) chop for Barry G. Conner and Bridget H. Conner, 2018 T. C. Memo. 8, filed 1/22/18, because they were unsophisticated, and told everything to their CPA (34 years’ experience and numerous real estate clients).

It’s Barry G’s story. Barry G was a homebuilder who came a cropper in the Meltdown of ’08. He hung onto his multifarious raw lands, unloading one to an unsolicited bidder, giving another to a church, refinancing and riding with the rest. He did have some plans drawn and permits pulled, but dug not one shovelful of earth.

Now all my super-sophisticated readers know preliminaries aren’t the “rill estet bidniz,” whether by classic factors or facts-and-circumstances. Even though Barry G. lumped them all, throwing in a Sub S with a bunch of LLCs is a nonstarter (disregarded cannot merge with pass-through), and no business activity for years is enough to bury Barry G.’s pro status. And of course Barry G. can’t establish his hours for pro status by any test.

Judge Kerrigan allows Barry G. ordinary losses for sales of 1231 property (model homes and sales centers). Barry G.’s trusty CPA showed depreciation schedules and testified how the returns were prepared.

And trusty CPA spares Barry G. the Section 662(a) chop.

“Mr. M was in charge of preparing petitioners’ income tax returns and [Sub S]’s income tax returns. He testified that petitioners were relying upon him to prepare an accurate return and he decided which forms should be used for the reporting of various entities. Mr. M was a competent professional who had sufficient expertise to justify reliance.

“Petitioners provided complete and accurate records to [Mr. M’s firm] and relied on [Mr. M.’s firm] to properly prepare their returns. Mr. M testified that he had all the necessary information to prepare petitioners’ income tax returns. Petitioners relied on [Mr. M.’s firm]’s advice and took positions on their returns consistent with its advice. Because of the complexity of petitioners’ income tax returns and the experience of Mr. M and [Mr. M’s firm], it was reasonable for petitioners to rely upon their advice. We find that petitioners are not liable for the accuracy-related penalties under section 6662(a).” 2018 T. C. Memo. 8, at p. 47. (Names omitted.)

Mr. M and his firm pushed the envelope a little too hard. But that’s one of the risks we advisers run in this tough calling.

Nice to see stand-up advisers, after a day of CLE at opening day of the New York State Bar Association annual meeting.

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