In Uncategorized on 01/30/2018 at 17:42

Post-event statements may save your deficiency, but won’t get you section 7430 admins and legals. David L. Bruner, 2018 T. C. Memo. 10, filed 1/30/18, has his 50% partner come in with an affidavit confirming the oral special allocation that got Dave a bigger split of the pension plan deduction in their LLC.

But when IRS audited the LLC, Dave handed over the operating agreement and five (count ‘em, five) amendments. None thereof spoke to the special allocations for the years at issue. It was only post-SNOD, post-petition and post-answer that Dave proffered the affidavit of his 50% partner, affirming Dave’ story that they had an oral agreement.

IRS bought it, but claimed the earned income limitation in Section 404(a)(8)(C), and bounced part of Dave’s specially allocated deduction for one year at issue.

Dave and IRS stiped out all the issues except admins and legals.

Now all readers of this my blog know very well that “substantially justified” means based on what was known to IRS at certain times in the proceedings.

Judge Lauber instructs: “For purposes of the administrative proceeding, the IRS’ position is that taken at the earlier of: (1) the date the taxpayer receives the determination of the IRS Appeals Office or (2) the date of the notice of deficiency.  Sec. 7430(c)(7)(B). For purposes of a Tax Court proceeding, the IRS’ position generally is that taken at the time the Commissioner files his answer.” 2018 T. C. Memo. 10, at p. 11.

Dave waited five (count ‘em, five) months after the last of said dates to proffer his partner’s affidavit. No admins or legals for Dave.

This is pretty cut-and-dried, but what is interesting is what Judge Lauber doesn’t decide.

For admins and legals there is the $2 million net worth tripwire. If net worth jumps that hurdle, no admins and legals for the “prevailing party,” however far out to lunch IRS might have been.

But whose net worth? We have here an LLC and an individual member (partner).

The magic language is not found in the IRC, but in 28 USC §2412(d)(2)(B). “‘(P)arty’ means (i) an individual whose net worth did not exceed $2,000,000 at the time the civil action was filed, or (ii) any owner of an unincorporated business, or any partnership, corporation, association, unit of local government, or organization, the net worth of which did not exceed $7,000,000 at the time the civil action was filed….”

Dave says “yeah, my net worth was greater than $7 million at the material time, but the LLC’s wasn’t.” IRS says, “OK, Dave, but you were an owner of the LLC at those times.”

So what price the comma after the word “business” and the relative pronoun “of which?” Should be time for a great dictionary chaw and psycholinguistic foxtrot through Grammerly, Strunk & White, the Chicago Manual and the U.S. Gov’t style manual.

But Judge Lauber punts. Even assuming Dave’s argument is correct, his belated affidavit from his partner came too late.

“Given our disposition, we need not decide this threshold question.” 2018 T. C. Memo. 10, at p. 9.

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