In Uncategorized on 11/27/2018 at 15:55

That’s Judge Ashford’s admonition to Glenn Cunningham Ballard and Yu-Yuan Pu, 2018 T. C. Sum. Op. 53, filed 11/27/18, but it especially goes for Glenn. It seems he’s a pro, but the wrong kind.

Glenn “…was a certified public accountant (C.P.A.).  He earned a bachelor’s degree in business administration with a concentration in accounting, and a master’s degree in taxation.  During the years at issue Mr. Ballard attended part time (Saturdays from August to May with a brief break in December) the University of California, Berkeley, for a master’s degree in business administration (M.B.A.).” 2018 T. C. Sum. Op. 53, at pp. 3-4.

Glenn also ran seven (count ‘em, seven) rental properties, but only two were in his home State of CA; the remainder were across the continent in GA. Yu-Yuan claimed she helped, but she was raising three small children at the time, and whatever she did was investor stuff, not operator stuff.

Glenn’s substantiation of hours spent real estating fell short. He had logs, but they weren’t contemporaneous.

“These logs were not kept contemporaneously; Mr. Ballard created them from his recollection of activities in conjunction with reviewing emails, phone records, receipts, rental applications, and rental agreements.  With respect to Ms. Pu’s hours in particular, many of them were for nonmanagerial activities, i.e, investor-type activities.  Petitioners did not provide time logs for [two of the three years at issue] but provided to respondent on the day of trial copies of documents consisting of invoices, receipts, checks, rental applications, rental agreements, and letters.  Except to the extent allowed by application of section 469(i), respondent disallowed petitioners’ claimed loss deductions for the years at issue because their residential rental activities were passive activities in the context of section 469.” 2018 T. C. Sum. Op. 53, at pp. 5-6.

Even allowing (without deciding) that Glenn and Yu-Yuan were in a real estate trade or business, and that they both materially participated, they didn’t substantiate the hours.

And that’s where the chops come in. IRS wins the reopener to let in the Section 6751(b) Boss Hoss signoff, so Glenn must show good faith.

“Given Mr. Ballard’s experience, knowledge, and education, there is no justification for his misunderstanding of the law.  He testified that he has never dealt with tax preparation in his work experience although he is a C.P.A. with a professional degree in taxation.  Mr. Ballard has owned residential rental properties for over 10 years.  His professional background and real estate experience make it unreasonable for him to conduct these activities and not properly document the time that was invested into petitioners’ residential rental properties.  Accordingly, we sustain respondent’s determination regarding the accuracy-related penalties….” 2018 T. C. Sum. Op. 53, at pp. 19-20.

Glenn may not have been a real estate pro, but he was enough of a tax pro to know.

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