Attorney-at-Law

“IN THE MIDST OF LIFE WE ARE IN DEATH”

In Uncategorized on 11/28/2018 at 17:02

I do not know if Judge Holmes ever heard these words at a funeral service, but he certainly reflects on that seventeenth-century sentiment in Estate of Lydia Ramirez, Deceased, Rowena L. Ramirez, Special Administrator, 2018 T. C. Memo. 196, filed 11/28/18.

The late Lydia was a busy entrepreneur until illness caught up with her. She ran businesses that she reported as active, and ran a bunch of rental real estate she reported as passive, but never elected aggregation directly, by PLR or by Rev. Proc. 2011-34, 2011-24 I.R.B. 875. Nor had she logs, timesheets or GPS readouts to establish professionalism when daughter Rowena had to deal with the two years at issue.

IRS disallowed the late Lydia’s pro status, thus preventing her passive losses from offsetting active gains. And Judge Holmes agrees.

It’s the usual fact-bound Section 469 mélange. Rowena’s claim that she often visited her late mother collides with Judge Holmes’ arithmetic and Rowena’s day job. And her mother’s many illnesses (“She was suffering from hypertension, diabetes, emphysema, subclinical congestive heart failure, and diffuse microvascular disease.” 2018 T. C. Memo. 196, at p. 9) may have hindered her work activity, despite Rowena’s claim otherwise.

So why am I telling you all this? And why the quote from a burial service?

Well, IRS gave the late Lydia a SNOD before she became the late Lydia. And Lydia petitioned. But prior to trial, the late Lydia succumbed, so Sp’l Adm’r Rowena took up the fight.

And on said trial IRS failed to put in evidence the Boss Hoss Section 6751(b) sign-off to sustain the five-and-ten chop that would clearly ensue.

So we’re standing at the Graev.

But who has the burden of production, the late Lydia (an individual), the estate of the late Lydia (a “taxpayer” but not an individual), or the IRS (the usual suspect)?

When the tax liability is that of the estate, Tax Court has treated the estate as an individual for Section 7491(c) production purposes. But in all the cases Judge Holmes can find, IRS had the Boss Hoss sign-off and got it into evidence. So the distinction made no difference.

Here it does. And they key is the nature of the proceeding wherein the chops are in play.

Judge Holmes: “We need to focus…on the nature of the proceeding.  Is this case a proceeding with respect to the liability of Ramirez as an individual or of her estate?  We think the answer is that it is a proceeding to determine the liability of an individual.  Even though Ramirez’s additional tax liability had not been assessed at the time of her death, it was established and constituted a debt due the United States while she was still alive.” 2018 T. C. Memo. 196, at p. 33 (Footnotes and citations omitted, but read them for your next memo of law).

Remember, the Section 6662 chops IRS wants are treated and assessed as tax.

Burden of production on IRS, so without the Boss Hoss sign-off, Sp’l Adm’r Rowena wins on the chops.

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