In Uncategorized on 03/05/2019 at 16:29

Judge Mark V Holmes wields a mean hose. Confronted with conflicting statutes, regs both current and presumptively overruled by said statutes, and caselaw perhaps resolving part of same, he relegates cleaning up this “exceptionally mucky corner in the stable of tax procedure” to “…any tax proceduralists whose interest in the field is strong enough to impel them to read our nonprecedential orders. But we need do only a quick hosedown.”

The foregoing is excerpted from Henry J. Metz & Christie M. Metz, et al., Docket No. 10346-10, filed 3/5/19. Stables are an appropriate venue, because the Metzes were horsey folk. The backstory is found in my blogpost “Stock or Land,” 4/29/16.

At issue for Section 7430 admins & legals are two of the years for which the Metzes made a qualified offer, coming in above what IRS could establish on the trial, which IRS is stuck with, and whether IRS was justified for the rest. But common to all of the six (count ‘em, six) years’ legals & admins at issue is the net worth of the Metzes. Do they limbo under the $2 million cutoff?

Henry J seems to establish that he individually beats the bar. But Chris claims the net worth of her Sub S is under $7 million, the corporate cut-off. No dice; the words “or any” in the Equal Access to Justice Act (EAJA) sever corporations from their owners.

But can Henry J and Chris each take $2 million, or is the limit $2 million for joint filers? Those “tax proceduralists,” whosoever and wheresoever they be, can plow through Judge Holmes’ four-page exegesis. But it ends up that old Tax Court opinions say each half of a MFJ return gets his or her own $2 million cap. “We follow division opinions as binding precedent, see Sec. State Bank v. Commissioner, 111 T.C. 210, 213 (1998), aff’d, 214 F.3d 1254 (10th Cir. 2000)…. This all means that a possibly contrary statement in subsequent legislative history doesn’t overturn it.” Order, at p. 9 (misnumbered “4” in original; citations omitted). A division opinion means a one-judge T. C. Memo., rather than a full-dress all-hands review (full-dress T.C.). Each Tax Court Judge has his or her own division.

And those say each joint filer gets his or her own $2 million. So Congress and Treasury can say otherwise, if they will.

Next comes unpiecing the net worth of the Metzes when factoring in the net worth of Chris’ Sub S. I leave this to the CPAs. Judge Holmes remarks on the anomaly of acquisition-less-depreciation (as required by EAJA) for computation, as opposed to FMV at time of bringing the cases.

“We are left with the settled impression that if we used fair market values nearer the time the Metzes began these cases…these calculations of net worth would be considerably lower, and quite probably below the $2 million threshold. One might ponder whether it makes sense for the law to benefit those with low bases and giant unrecognized gains compared to those, like the Metzes, whose misfortunes led them to very large unrecognized losses — losses that in all likelihood triggered the audit and litigation whose costs they seek to recover, and which they had to incur to fend off a disastrously high tax bill.

“There’s an old proof in statistics called the Condorcet Jury Theorem which posits that if the members of a group are all better than random at selecting the correct answer to a question, the likelihood that the group will select the correct answer approaches certainty as the size of the group increases. This theorem may give support to a view of stare decisis as reflecting the wisdom of crowds, and should soothe any individual decisionmaker that his decision in accord with precedent is one that is wiser than if he were plowing a virgin field. See Aaron Andrew P. Bruhl, Following Lower-Court Precedent, 81 U. Chi. L. Rev. 851, 863 (2014). There is also an old saw uncertainly attributed to Ambrose Bierce that defines stare decisis as ‘a legal doctrine according to which a mistake once committed must be repeated until the end of time.’” Order, at p. 15 (misnumbered as “11” in original).

Using the EAJA’s acquisition-less-depreciation calculations, both Henry J and Chris are over the line. No admins or legals.

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