In Uncategorized on 03/20/2018 at 17:24


Y’all will remember Judge Hardiman in 3 Cir confirming the insular virginity of Richard Vento back in 2013. Virgin islander, that is, recipient of the now-extinguished unguided largesse to those who settled in our Insolvent Islands in the Sun by tax-year’s end long ago. If not, see my blogpost “Catching Up,” 9/30/13.

So Richard’s 1040 directed to VIBIR (Virgin islands Bureau of Internal Revenue) for the year he sold a bushelbasket of appreciated stock, with a sideways hand-off to a Cayman Islands insurance peddler’s sub to bury a few millions in taxable gain, kicked off the 3SOL, and IRS can’t prove the 25% substantial understatement to pin the 6SOL appropriately on Richard.

The assignment of interest in the LLC Richard set up (the DTDV, LLC in the case) wasn’t a sham, and if it was an assignment of income, it wasn’t 25%. Richard gets there with some help from his trusty tax counsel and Judge James S. (“Big Jim”) Halpern, in DTDV, LLC, Richard G. Vento, Tax Matters Partner, 2018 T. C. Memo. 32, filed 3/20/18.

As Richard’s C Corp was about to be acquired, he set up the LLC, assigned a piece of his interest to an outfit fetchingly called Square Leg for a price pre-announcement in exchange for an annuity give-and-go with Square Leg, upon which Square Leg defaulted within six months.

BTW, “square leg” is a mid-fielder’s position at cricket. Oh to be in England in June, watching a match on Hampstead Heath!

Anyway, State law says that Square Leg got a capital interest even if strict formalities weren’t observed in the assignment process. The short life of the annuity doesn’t mean it was a sham; Richard went to arbitration and was awarded money damages (how much he collected is unstated). And estate planning isn’t necessarily a non-business purpose, although that may not be as clear as Richard claims.

Basis-building via Section 754, with an assist from Section 743, is a big help to Square Leg. As Square Leg isn’t a sham, and isn’t part of a step transaction (not preconcerted from the getgo, says Judge Big Jim; or at least not proven by IRS, who has the burden to get 6SOL), it’s a partner and can build basis thus by buying into a partnership with appreciated assets (the stock that was worth thirteen bucks on Friday and seventeen bucks the following Tuesday, after the buy-out was announced).

IRS should have gone after Richard directly, and not the LLC on an FPAA. The LLC was real enough, and its numbers hold up. Now it’s too late to go after Richard.

IRS was too slow off the mark and is out to Square Leg. I’ll have some tea with milk and sugar, and scones…with strawberry jam, please.

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