Attorney-at-Law

“WE DON’T NEED NO INSTALLMENT METHOD”

In Uncategorized on 12/11/2019 at 18:09

Though it’s not a business model any of my developer clients would use, and I certainly would not recommend it, Joyner Family Limited Partnership, Gary Joyner Revocable Trust, A Partner Other Than The Tax Matters Partner, Janel Joyner Revocable Trust, A Partner Other Than The Tax Matters Partner, And Joyner Investment Company, Inc., Tax Matters Partner, 2019 T. C. Memo. 159, filed 12/11/19, can continue using cash method accounting even though they are dealers and thus precluded from using Section 453 installment method reporting.

IRS wants to slug the Joyners with $8 million in tax, claiming the notes the Joyners took from their down-and-out customers in payment for marked-up land and mobile homes were worth face. Except. Six years into the program, 92% of the notes were in default, and the Joyners’ expert witnesses testified no bank would buy them.

“Typically, JFLP’s customers had not previously owned homes.  They were primarily low income, had poor credit histories and unstable employment histories, and could not obtain traditional financing to purchase homes.  JFLP offered affordable housing.  Mr. Joyner determined the amount of the monthly payment on the basis of what the customer could afford.  Monthly payments ranged from $100 to $700.“  2019 T. C. Memo. 159, at pp. 7-8.

Judge Goeke has this one.

“The Joyners are well respected in the community.  They rarely declined to sell to a prospective buyer except if they suspected the buyer was involved with drugs.  Their philosophy was to give people a chance.  For some buyers JFLP obtained the necessary information to perform credit checks, but the Joyners did not perform credit checks because of the costs of running credit checks and because Mr. Joyner believed that the buyers’ poor financial situation made the credit checks pointless.  Mr. Joyner would ask prospective buyers whether they had jobs, but he did not request any documentation, such as pay stubs, or otherwise verify their employment or income.” 2019 T. C. Memo. 159, at p. 8.

The Joyners let defaulting purchaser/borrowers transition to renters, and waited until several note payments were in default before trying to collect. They used their trusty CPA who had advised other developers similarly situated. They bought their land sale agreements, notes, and landlord-tenant documents from an office supply store. I hope it was the one with which one of my nearest and dearest is associated.

By now my developer clients have stopped reading, and reached for an Anacin.

IRS wins on the Section 453 closeout. No question the Joyners are dealers.

But IRS goes full-throttle Michael Corleone on everything else.

They raise the accounting stuff post-trial, so that’s out. No Section 446 change in accounting method; IRS is too late in asserting right to change method, and their method is no better than the Joyners’ cash basis. The Joyners’ bookkeeping flaws don’t disturb Judge Goeke’s result. IRS claims Section 1038 bars the Joyners from bad debt treatment on defaulted notes when they took back the mobile homes, but when they claimed  bad debt deduction the IRS first allowed it on the FPAA, and then disallowed it in the amendment to the answer. “Further, respondent makes the nonsensical argument that JFLP should be taxed on the notes’ face values but denied a worthless debt deduction because petitioners have not established the notes had value when executed, a requirement for a worthless debt deduction.” 159 T. C. Memo. 159, at p. 47, footnote 11 (Citation omitted).

I’ll spare you the rest. There’s a Rule 155 beancount, of course, but the Joyners should congratulate their able counsel, Juan F. Vasquez., Jr., Esq., Jaime Vasquez, Esq., A. Leonides Unzeitig, Esq., and Adrian Ochoa, Esq.

  1. […] Taishoff has We Don’t Need No Installment Method. He beautifully caps the discussion of the accounting methods and operations of […]

    Like

  2. […] Taishoff has We Don’t Need No Installment Method. He beautifully caps the discussion of the accounting methods and operations of […]

    Like

  3. […] Taishoff has We Don’t Need No Installment Method. He beautifully caps the discussion of the accounting methods and operations of […]

    Like

Leave a Reply

Please log in using one of these methods to post your comment:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

This site uses Akismet to reduce spam. Learn how your comment data is processed.

%d bloggers like this: