In Uncategorized on 05/26/2020 at 17:13

It’s a beautiful Spring day here on this US Minor Outlying Island off the coast of North America, but my mind is going back fifty-plus (don’t bother counting ‘em) years to the smoke-filled cardroom in Myron Taylor Hall. Around a battered table sat four young men, and as I look over their shoulders in memory I see Joel, and Barry, and Jersey Ed, and Slater. I see one of them (doesn’t matter which) slap down his cards on the table and ask “who dealt this mess?” Even if he himself had dealt it.

Oh, my misspent youth! And what wouldn’t I give to have it back and do it right this time!

But today that phrase comes back, as I behold Laurence Gluck and Sandra Prusock, 2020 T. C. Memo. 66, filed 5/26/20. I never ran across Mr Gluck, but he is a high-roller in the NY real estate business. And this is the story of a busted 1031 that never should have happened. Mr Gluck picked up a heavy chunk of change when he unloaded a high-priced condo on the “cultured, elegant” Upper West Side.

Now even the stones in the street know you do a 180-45 (unless your tax year ends sooner, in which case the time frames collapse), and 1031 into like-kind. But Mr Gluck hasn’t got enough cash to buy the kind of quality bricks to which he is accustomed. So he’s set up the condo sale with a QI (qualified intermediary, and I’ll tell you the backstory on that and the 1986 Tax Code if you’ll buy me a drink when the world is free). He gets a 25% tenant-in-common interest across town, which he has the QI put in a single-member LLC (disregarded). That’s what the deeds show. And that’s copasetic, right?


Some partnership, which according to the online records of the Register of the City of New York, County of New York, which keeps the land records of Our Fair City, was not in title when Mr Gluck bought in, filed a 1065, which claimed it owned the building. This partnership did give Mr Gluck some financial statements about the building claiming they owned it since 1962 during due diligence. Whether Mr Gluck got title insurance and what the title insurer insured I cannot tell.

“These returns list the name of the partnership as ‘G&P, c/o EMG & Co.,’ with an address at XYZ Park Avenue in Manhattan. The returns state that G&P was engaged in a rental real estate business and that this business began operations on February 1, 1962. It appears that G&P was originally formed as a family partnership and that, over successive generations, interests were divided and subdivided among family members and their heirs.” 202 T. C. Memo. 66, at p. 6. (Names and address omitted).

These characters gave Mr Gluck a K-1.

Why this didn’t set off bells, whistles, and sirens I do not know. Howbeit, Mr Gluck never filed Form 8082, stating he disagreed with the treatment of his interest as a partnership interest (ineligible for 1031 nonrecogition), and not as a tenancy-in-common (which is eligible).

Of course, all these ownership questions are partnership items, the partnership doesn’t qualify as a small partnership (which would duck TEFRA) because of Mr Gluck’s LLC, there never was a FPAA whereat Mr Gluck could assert his tenancy-in-common, so all of Mr Gluck’s items are individual computationals, wherefore he can’t contest the mischaracterization that blows up his 1031.

Judge Albert G (“Scholar Al”) Lauber has to toss so much of Mr Gluck’s petition as alleges qualification with 1031.

“The partnership reported on its [year at issue] tax return that it owned the apartment building and that petitioners acquired during [year at issue] a 50% interest in the partnership. The partnership was subject to the unified audit and litigation procedures of the Tax Equity and Fiscal Responsibility Act of 1982 (TEFRA). See secs. 6221- 6234 (as in effect for years before 2018). Respondent contends that his adjustment disallowing like-kind exchange treatment was necessary to conform petitioners tax treatment to the treatment shown on the partnership’s return and was thus a ‘computational adjustment’ within the meaning of section 6231(a)(6). Deficiency procedures generally do not apply ‘to the assessment or collection of any computational adjustment.’ Sec. 6230(a)(1). Respondent thus urges that we lack jurisdiction to address petitioners’ entitlement to like-kind exchange treatment.

“We conclude that we lack jurisdiction to redetermine the deficiency but that we have jurisdiction with respect to the penalty. We will therefore grant in part respondent’s motion to dismiss. Because we lack jurisdiction to address the merits of respondent’s adjustment, we will deny petitioners’ summary judgment motion.” 2020 T. C. Memo. 66, at pp. 2-3.

Of course, putting in the deeds to which I have referred at the summary J hearing is too little, too late. Absence of Form 8082 sinks Mr Gluck before he weighs anchor, no matter what arguments counsel makes. Computational adjustments stretch beyond arithmetic to tax treatment of an item, and IRS can go by the partnership return, absent a FPAA.

But penalties are still on the table.

Edited to add, 3/28/22: My colleague Peter Reilly, CPA, backed with all the resources of Forbes and his own extensive knowledge, informs me that the Glucks appealed to 2 Cir, and got the “pore l’il ole Tax Court” treatment. I won’t comment, here, as I did to Mr Reilly just now, about my view of the quality of advice Mr Gluck got in this deal.

The case is GLUCK v. COMM., 129 AFTR 2d 2022-XXXX, (CA2), 03/17/2022

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