No, I didn’t have him in the ’92 Travers, nor the Derby (fortunately). But although he went to The Great Track in the Sky two years ago, he does give me my title for this late blogpost. The principles that justified IRS grabbing him in Toga Town justify IRS nailing the Larchmont homestead of Norman Hinerfeld, 2019 T. C. Memo. 47, filed 5/2/19, notwithstanding title thereof was transferred by an erronseously-styled “quitclaim” deed to Mrs. Norm in exchange for some payments of his debts (the amounts and debts were subject to change without notice, so Judge James S (“Big Jim”) Halpern dumps the lot.).

All y’all will remember Norm. No? See my blogpost “Breaching the Wall,” 9/27/12. Norm was a dab hand at OICs and laying off assets to duck TFRPs of $300K at trial.

First issue: The AO gave a super-skimpy explanation why she included the Larchmont residence of Norm and Mrs. Norm in Norm’s RCP. The $1.1 million of variable debt Mrs. Norm claims to have paid to acquire and shield the property from Norm’s creditors (she admits this at trial) is sketchy, but husbands and wives do live together. Norm wants this factor neutral, but Judge Big Jim says that’s grounds for additional scrutiny. So Chenery.

But does the record rule rule? Will Tax Court finally abandon Robinette? Not today. “As with the issue regarding the standard of our review, we need not resolve the question of the scope of our review. Whether or not we limit our review to the administrative record, we would conclude that SO X correctly took into account the value of the Larchmont residence in evaluating petitioner’s OIC.” 2019 T. C. Memo. 47, at p. 19. (Name omitted).

Second, the LiButti standard. Devil His Due was swapped to duck taxes, and USDCNDNY found six (count ‘em, six) factors to evaluate a swap-to-duck: “(1) whether inadequate or no consideration was paid by the nominee; (2) whether the property was placed in the nominee’s name in anticipation of a lawsuit or other liability while the transferor remains in control of the property; (3) whether there is a close relationship between the nominee and transferor; (4) whether the * * * [parties] failed to record the conveyance; (5) whether the transferor retains possession; and (6) whether the transferor continues to enjoy the benefits of the transferred property. * * * “ 2019 T. C. Memo. 47, at pp. 29-30.

Norm flunks.

True, the SO was wrong about the law. The deed whereby Norm devised to Mrs. Norm recited the usual ten buck consideration. The SO said that was a quitclaim, and the parties so stipulated, but it turns out the form (see NYRPL§243) was a bargain-and-sale. Mox nix. Courts may be Chenery-limited by what is in IRS’ administrative record, but errors of law are something else.

And going through the factors, the consideration was indefinite (too many stories about what Mrs. Norm paid and when she paid it), no written contract of sale (see NYGOL§5-703), the debts of Norm’s old company were growing, the close relationship certainly was there and not a neutral factor, and Norm stayed in the Larchmont house and enjoyed the benefits thereof.

Yes, the deed got recorded, or at least IRS didn’t claim otherwise. I’m surprised IRS’ counsel didn’t ask for copies of the NYS real estate transfer tax return; you can’t record a deed in Westchester County (or anywhere else in Excelsiorland) without filing one. I wonder what consideration, if any, was stated in the return. And the amount paid on real estate transfers is a public record as well. If my shaky arithmetic is right, Mrs. Norm owed NYS about $15,400 if the consideration paid or required to be paid was $1,100,000 between RET and the “Mansion Tax” (don’t ask). I’d not be surprised if those trying to paper a shady transaction balk at forking over such a sum. I hasten to add I have not done any such transactions myself.

Howbeit, Norm’s OIC is toast. Now let’s see if IRS grabs the Larchmont house.

The morning line on admins & legals in USTC cases of first impression is definitely in longshot country. Jason Bontrager, 2019 T. C. Memo. 45, filed 5/1/19, is willing to try a bet, and his trusty attorney Holly C. Henson, Esq., already a recipient of a Taishoff “Good Try, First Class,” for trying to get Jason out of $72K worth of restitution, and getting IRS to fold on the Section 6601(a) underpayment interest, is in there pitching.

For Holly’s story, see my blogpost “One Man’s Tax,” 12/12/18.

But Judge Albert G (“Scholar Al”) Lauber will have none of it.

Justification is measured at different dates for admins & legals.

“For purposes of the administrative proceeding, the IRS’ position is that taken at the earlier of: (1) the date the taxpayer receives the decision of the IRS Appeals Office or (2) the date of the notice of deficiency.  Sec. 7430(c)(7)(B).  For purposes of a Tax Court proceeding, the IRS’ position generally is that taken when the Commissioner files his answer.

“As of both dates identified above, there existed no Court of Appeals precedent addressing whether the Commissioner was authorized to assess underpayment interest on restitution-based assessments.” 2019 T. C. Memo 45, at p. 7.

Tax Court hadn’t yet issued its full-dress T. C. saying “nuthin’ doin’ on the underpayment front, IRS”; for more on this, see my blogpost “IRS Gets Zip,” 10/3/17.

On both magic dates, “… what guidance was available supported the Commissioner’s view.  Respondent cites three opinions from other Federal trial courts adopting his earlier position that the IRS can assess underpayment interest on restitution-based assessments.  The IRS itself had consistently interpreted section 6201(a)(4) to authorize the assessment of underpayment interest in these circumstances.” 2019 T. C. Memo. 45, at p. 8. (Footnotes omitted).

So that IRS folded after Zip Klein called them on the river doesn’t help Jason, and doesn’t help Holly either. IRS concessions don’t equal want of justification.

I hope Holly’s other clients are paying her.