Attorney-at-Law

MISCUES

In Uncategorized on 04/04/2018 at 16:48

Not a great day for IRS, as their appraiser misses the point that sinks Wendell Falls Development, LLC, Gregory Alan Ferguson, Tax Matters Partner, 2018 T. C. Memo. 45, filed 4/4/18, when Wendell Falls goes for a conservation easement (disallowed, but IRS’ appraiser’s miscue lets Wendell Falls off the chops).

Then it’s a small-claimer, Alan A. Vest, 2018 T. C. Sum. Op., 18, filed 4/4/18, where IRS blew the Section 6402(g) mandated payment to the Small Business Administration for Alan’s defaulted loan, and applied Alan’s refund to his subsequent tax year. Doesn’t end well for Alan, though, as the Section 6402(g) grabs aren’t reviewable by any Federal court.

Wendell Falls’ conservation easement is worth nothing, because the Town of Wendell (NC) bought the adjoining land whereon Wendell Falls was going to build its tract housing for a good number to use as a public park, and Wendell Falls would get more for its houses with a 125-acre public park next door.

“The conservation easement therefore did not diminish the value of the 125 acres because it did not prevent it from being put to its best use.  The value of the easement is therefore zero.  Our answer does not change if the land valued before and after the easement is the entire 1,280 acres rather than the 125 acres.  See sec. 1.170A-14(h)(3)(i), Income Tax Regs. (fourth sentence).  We believe, as Wendell Falls did, that using the 125 acres as a park would make the master-planned community more desirable and therefore increase the value of the residential and commercial lots that Wendell Falls eventually intended to sell.  Taking this enhancement into account, the total value of the 1,280 acres would be undiminished by the easement, and this undiminished value leads to the conclusion that the value of the easement is zero.” 2018 Tc. C. Memo. 45, at pp. 14-15 (Citation and footnotes omitted, but read the footnotes; footnote no. 4 says Town of Wendell bought to property cum easement for the same price as they would have paid ex-easement.)

So Wendell Falls’ $1.7 million deduction fails. But the penalties? See the second of the two footnotes aforesaid, footnote no. 5.

“Neither valuation expert witness accounted for the enhancement to the surrounding land created by access to the park.  The IRS’s expert’s failure to consider the enhancement is inconsistent with the evidence in this case, which, as the IRS points out, includes a PUD showing that the park was linked to the residential units.  A court is not required to accept an opinion of an expert witness that is contrary to the evidence.” 2018 T. C. Memo. 45, at p. 15, footnote 5.

Judge Morrison: “Our determinations regarding substantial benefit depend on the resolution of tests for which the factfinder has broad discretion–(1) whether there was a substantial expected benefit to Wendell Falls, and if so, (2) whether the benefit was incidental.  We do not think that Wendell Falls’ failure to anticipate the adverse resolution of these tests shows that it did not make sufficient effort to assess the proper tax treatment of the easement. As to the value of the easement, Wendell Falls retained two different state certified real estate appraisers… to appraise the easement.  Although neither appraiser correctly accounted for the enhancement conferred by the easement on the unencumbered property, neither did the IRS’s trial expert.” 2018 T. C. Memo. 45, at pp. 16-17.

As Scotland’s greatest said, “Gude faith, he mauna’ fau’ that.” No penalty.

As for Alan A., IRS’ miscue doesn’t help. He owes the tax, because IRS erred in following his direction rather than Section 6402(g).

Judge Nega: “Section 6402(d), the Treasury offset program, requires the Commissioner, upon receiving notice from any Federal agency that a taxpayer owes a past-due legally enforceable debt to that agency, to reduce the amount of any overpayment due that taxpayer by the amount of such debt and remit that amount to the notifying Federal agency.

“This duty is mandatory upon the Commissioner and overrides any request by the taxpayer that an overpayment be credited or refunded otherwise.  Sec. 301.6402-6(g)(3), Proced. & Admin. Regs. In this regard, the terms of the Treasury offset program place the Commissioner in the limited and purely ministerial role of collecting those debts referred to him by other Federal agencies.” 2018 T. C. Sum. Op. 18, at pp. 7-8 (Citations omitted).

Better IRS training would save the money expended on these cases.

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