In Uncategorized on 12/14/2018 at 17:18

Maybe Not, But You Have To Prove It

Judge David Gustafson is down with Scotland’s Greatest. He won’t fault good faith, but he needs to see facts that manifest the good faith of Palmolive Building Investors, LLC, DK Palmolive Building Investors Participants, LLC, Tax Matters Partner, Docket No. 23444-14, filed 12/14/18, a special day at our house.

The Palmolives want partial summary J that they took the $33 million façade deduction that got blown away back in October of 2017 (see my blogpost “No Joy Forever – Because Golsen,” 10/10/17, a/k/a Palmolive I) in good faith and with reasonable cause, per Section 6664, to prevent substantial overvaluation chops. Judge Gustafson, smarting from 1 Cir’s shootdown of Tax Court in Gordo and Lorna Kaufman, refused to apply 1 Cir to the Palmolives, who are 7 Cir domiciliaries. But there was no other appellate learning.

Tax Court generally doesn’t hand out chops on first-impression cases, but good faith and reasonable cause are matters of fact. True, since 1 Cir reversed Tax Court, there is room for good-faith dispute, but what did the Palmolives do besides cite 1 Cir?

“Palmolive contends that it has a reasonable cause and good faith defense for the portion of underpayment attributable to its failure to comply with this regulation. Though this contention is insufficient to entitle Palmolive to partial summary judgment on ‘reasonable cause’, we do accept Palmolive’s argument that our analysis of its non-compliance with section 1.170A-14(g)(2) was an issue of first impression in Palmolive I. However, that alone does not result in our holding that Palmolive had reasonable cause and acted in good faith. See sec. 1.6664-4(b)(1), Income Tax Regs. Deciding whether Palmolive had reasonable cause and good faith for its understatement based, in part, on an alleged honest misunderstanding of law, will require the Court to determine whether that misunderstanding was ‘reasonable in light of all of the facts and circumstances, including the experience, knowledge, and education of the taxpayer.’ Some of those facts and circumstances are disputed by the parties.” Order, at p. 6. (Citations omitted).

Even though Mike Ehrmann’s appraisal was stipulated in as a qualified appraisal for Reg. § 1.170A-13(c)(3) purposes, there remains the fact question whether it was too good to be true, and what the Palmolives did to confirm it. They didn’t claim to have consulted other authorities; did they do anything else?

Lest we think Judge Gustafson is whistling past the Graevyard, he notes that the cross-motions regarding the Section 6751(b) Boss Hoss sign-offs for the chops remain pending.

But Palmolives, don’t get your hopes up. The Boss Hosses won’t be the subject of a trial.


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