In Uncategorized on 06/05/2018 at 16:31

Most attempts at the Section 7491 burden of proof shift founder, either on failure to play sufficiently nice with IRS, or on the “preponderance of the evidence” dodge. But today Judge Vasquez lets the shift go through, in Donald R. Golan and Sheila E. Golan, 2018 T. C. 76, filed 6/5/18.

IRS didn’t help its cause with a SNOD that claimed Section 179 was at issue (it wasn’t) and that Don and Sheila weren’t entitled to the rehab credit on their Form 3468 because Section 47 (but Section 47 wasn’t in play either).

When we get to trial, IRS claims no basis in the solar panels and submetering equipment Don and Sheila are depreciating, they’re not materially participating (the promoter is doing the billing and collecting) and they’re not at-risk per Section 465.

But none of this showed up in the SNOD, and all of this requires different proofs than what the SNOD says.

It’s the particle physicist’s delight, new matter.

The Golans are in one of those solar electricity deals. See my blogpost “Sittin’ in the Mornin’ Sun,” 4/10/12.

But IRS can’t show that the $152K promissory note Don gave the promoter to pay for the solar stuff is a sham, even though the $90K downpayment Don supposedly made for the stuff wasn’t paid. And Don was an original user; he placed the stuff in service at the right time, and the promoter from whom he bought it was a dealer and so couldn’t depreciate it. And unlike Mike Brown’s highflying airplane (see my blogpost “Not Ready for Prime Time,” 12/3/13), it was ready for full use.

Don claims he put in the magic hours for material participation. Rental activity, thus passive, y’know. But Don doesn’t have to prove he did, IRS has to prove he didn’t. And IRS can’t.

That the promoter got paid via the gross proceeds of the electricity sales doesn’t constitute a prohibited continuing interest in the property Don bought.

“Section 465(b)(3) contemplates fixed and definite rights or interests that realistically may cause creditors to act contrary to how independent creditors would act with respect to their rights under the debt obligations in question. That a creditor was a promoter with respect to a particular transaction does not necessarily mean that he has a prohibited continuing interest in the transaction.” 2018 T. C. Memo. 76, at pp. 29-30. (Citations and footnote omitted.) The promoter had no interest in the capital upon liquidation and got paid from gross proceeds, not net income.

Finally, Don and Sheila met four times with their trusty CPA, whom IRS’ counsel acknowledged on the trial was a “qualified professional.” 2018 T. C. Memo. 76, at p. 36. So the chops are gone. Rule 155 beancount to follow.

Some of this got tried on consent (Rule 41(b)).

A Taishoff  “good job” goes to Walter D. Channels, Esq., attorney for Don and Sheila.

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