No, not the 82nd Airborne Division’s unit so purposed. I have written elsewhere of my introduction to that outfit many years ago and far away.

Today Judge Vasquez gives the chronology of the rapid responses by a law firm, in William M. Dearman, III, Docket No. 5439-18, filed 6/5/20.

I know nothing of the facts of Bill3’s case, whether simple or complex, big-ticket syndicated easement or simple indocumentado, or why an attorney not a member of the team is listed in the docket search as attorney of record. So I’ll stick to Judge Vasquez’s narration.

“On February 11, 2020, respondent filed a first request for admissions. On March 20, 2020, respondent filed motions to compel production of documents and responses to interrogatories. That same day counsel for petitioner filed an entry of appearance.” Order, at p. 1.

The docket search on the Tax Court’s website states both notice of trial and standing pre-trial order had issued the previous December. I can’t tell if there was a Branerton play-nice before the discovery barrage above set forth then or thereafter.

Howbeit, when the Entry of Appearance was filed, the team also filed objections to both motions to compel. Of course, within a couple days (hi, Judge Holmes) the trial date was canceled due to COVID-19. But no virus stopped the team.

Trial or no trial, less than three weeks after coming on board, the team produced the response to the request for admissions, and within another two weeks a response to the request for responses to interrogatories. It did take the team another three weeks to respond to the documents request.

Two weeks later came the first status report. “Therein they state that petitioner has responded to respondent’s initial discovery requests and that the parties anticipate further discussions over the next 60 days.” Order, at p. 1.

Judge Vasquez, unlike Judge David Gustafson who is wont to praise and encourage parties who move promptly, is laconic but helpful today.

“…on or before August 4, 2020, the parties shall file a joint status report setting forth the then present status of this case. The report should address whether respondent’s motions to compel are moot. The report should also address whether petitioner’s deemed admissions should be withdrawn or modified to reflect the filing of petitioner’s response to respondent’s first request for admissions on April 8, 2020. See Rule 90(c), (f), Tax Court Rules of Practice and Procedure.” Order, at p. 1.

A Taishoff “Good Job” goes to Simpson Gray Edmondson, Esq., Joshua W. Sage, Esq., and Charles J. Allen, Esq., Bill3’s hard-laboring counsel.

Judge Mary Ann (“S.E.C.” = She Eschews Cognomens) Cohen also eschews trying to turn a dubious (to be generous) expert’s report into a proper valuation. Especially of water storage rights. I blogged the prelude to this back in February, in my blogpost “The Counter to the Valuation Blocker,” 2/7/20.

Brannan Sand & Gravel Co., LLC, J. Curtis Marvel, Tax Matters Partner, 2020 T. C. Memo. 76, filed 6/5/20, is fighting over a $200K charitable deduction for some pits they were giving to a local water district in a convoluted three-way swapmeet, which would have gotten them inside Section 170. They claim they were giving 5000 acre-feet of storage.

The 8283 that accompanied Brannan’s 1065 was remarkably scanty.

“Form 8283, Noncash Charitable Contributions, was attached without ‘Page 1’ but included two ‘Page 2’ pages. The second ‘Page 2’ includes a handwritten note to ‘see attached appraisal’ under part III, declaration of appraiser, and an undated donee signature under part IV, donee acknowledgment. The two copies of ‘Page 2’ are otherwise identical. Brannan Sand claimed a $200,000 charitable contribution deduction. The Form 8283 reported that the ‘[d]onor’s cost or adjusted basis’ was ‘None’, that $200,000 was the appraised fair market value, and that the donor purchased the property. The reported ‘[d]escription of donated property’ was “Silver Peaks Property”. The Form 8283 reported ‘VAR’ for the date acquired and left blank whether the charitable contribution was made by means of a bargain sale.

“In part III, declaration of appraiser, the signature, title, date, identifying number, city, State, and ZIP Code spaces were left blank, but ‘See attached appraisal’ was inserted under the business address section. In part IV, donee acknowledgment, the employer identification number, authorized signature, and date spaces were left blank. However, there is a signature in the ‘[t]itle’ space.” 2020 T. C. Memo. 76, at p. 8.

Attached to this form is a two-page letter from one who admits that he has no appraisal qualifications, but has acted as a litigator in some similar transactions, which he does not enumerate. “Missing from the … letter was the method of valuation or the specific basis for determining the fair market value of the property, the physical condition of the property, or a statement that the purported appraisal was prepared for Federal income tax purposes. There was no explanation comparing the transactions that he observed with the property in the Brannan Sands transactions. [He] gave no indication that he was familiar with the terms of the purchase agreement, the contribution agreement, or the MOU entered into by the donor, the donee, and [third-party] B relating to the conveyance of the property contributed. There was no comparison to the alleged comparables or explanation of whether they involved a willing buyer and a willing seller or were simply a way to resolve litigated disputes. There was no justification for choosing the high end of the range that [he] identified.” 2020 T. C. Memo, 76, at p. 10. (Names omitted).

Judge S.E.C. is pardonably not amused.

“Brannan Sands does not dispute that it has the burden of proof but ignores the absence of expert testimony in the record. Instead, it argues that the ‘comparable sale’ of an additional undivided interest in the water storage easement that entitled B to store an additional 250 acre-feet of water in the North Cell when completed for $480,000, or $1,920 per acre-foot, justifies, at a minimum, a value of $96,000. Of course there is no explanation of the discrepancy between this amount and the amount claimed on the… partnership return. That discrepancy highlights the lack of credibility of the claimed deduction.” 2020 T. C. Memo. 76, at p. 12.

Maybe if the author of the letter “…had explained how his experience in litigation related to agreed values between a willing buyer and a willing seller and compared the three-party circumstances under which the transfer to the District occurred in this case, but he did not. He described asking prices but did not describe completed transactions. The purported appraisal is not qualified regardless of [his] qualifications.” 2020 T. C. Memo.76, at p. 16. (Name omitted).

But there’s just too much missing here even to characterize the letter as substantial compliance.

No evidence of value, no deduction.

Judge Travis A. Greaves is dealing with another Graev matter in Choong H. Koh, 2020 T. C. Memo. 77, filed 6/4/20. Opposing IRS in this fight over $16K in chops is the grandpappy of all the Graevdiggers, Frank Agostino, Esq., the man who made Graev a household word.

In the SNOD, IRS stung Choong with $43K in deficiencies for two years, with chops per Section 6662(j), the offshore 40%. Judge Greaves doesn’t tell us if there was Boss Hossery in respect thereof pre-SNOD, unlike Whimsical Judge Wherry in the Roth case, cited by Judge Greaves. Judge Wherry catalogued every Boss Hoss who laid hoof to recommendation. See my blogpost “Tag ‘Em All – Part Deux,” 12/28/17.

Here, the answer switched the chops to Section 6662(b)(1) or (2), negligence, disregard or understatement, basically 20-percenters. The chops per-SNOD still look like 40% to my imperfect math, and the deficiency numbers don’t seem to justify the 40% substantial undervaluation or overstatement add-on, but maybe the trial or the  Rule 155 beancount will clear that up.

Anyway, since Judge Wherry in Roth said mox nix what happened before IRS counsel and Associate Area Counsel signed off on the answer, and 10 Cir affirmed, Judge Greaves says who cares?

Mr A wants partial judgment on the pleadings that counsel hadn’t authority to shift the basis for the penalties, and Judge Greaves is willing as far as the question whether IRS’ counsel could make the switch.

“In his reply to respondent’s answer, petitioner challenges not only respondent’s counsel’s authority to assert penalties, but also whether respondent’s counsel followed the proper procedure under sec. 6751(b)(1). This second issue may involve factual considerations, and therefore we do not decide it today. We note that the Court has found that an IRS Chief Counsel attorney satisfies the supervisory approval requirement under sec. 6751(b) where the attorney’s immediate supervisor personally approved in writing the assertion of a penalty that was first raised in the answer, as evidenced by the signature of respondent’s associate area counsel on the pleading. See Roth v. Commissioner, T.C. Memo. 2017-248, at *11, aff’d, 922 F.3d 1126 (10th Cir. 2019).” 2020 T. C. Memo. 77, at p. 4, footnote 3.

I point out that Roth, both below and above, was pre-Clay. 10 Cir’s affirmation is dated 4/29/19. Clay was filed 4/24/19. No way 10 Cir could have considered Clay, which is not cited in their decision. Choong is Third Circuit (NJ) anyway.

Unless it can be shown that the Boss Hossery happened before 30-day letter (or equivalent) was issued, even for an erroneously-designated chop, I question whether IRS counsel, associated or not, can wild-card in a different chop at the answer.

All yours, Mr A.

That’s the lesson Judge Goeke teaches Joyner Family Limited Partnership, Gary Joyner Revocable Trust, A Partner Other Than The Tax Matters Partner, et al, Docket No. 24704-15, filed 6/4/20.

You’ll doubtless remember that the Joyners, who I hope bought their documents from the office supplies company where one of my nearest and nearest is employed, won their case. If you don’t, see my blogpost “We Don’t Need No Installment Method,” 12/11/19. Now their able counsel want legal and admins.

No dice, says Judge Goeke. During exam, the Joyners’ accountant and their “power of attorney” (I think you mean “representative,” Judge, a Power of Attorney is a piece of paper or maybe a bunch of conjoined electrons) didn’t get back to the RA timely. So she bounced them.

And when the RA sent the 30-day letter, which didn’t mention any appeal rights, she did enclose Publication 3498, which does, extensively. That’s enough for Judge Goeke.

“We find the lack of a 60-day letter does not excuse petitioners’ failure to request an Appeals conference. First, respondent is not required by statute to issue a 60-dayletter. Second, petitioners were informed of their Appeal rights in the 30- day letter. It is immaterial that the 30-day letter did not explicitly state JFLP had a right to Appeals because the enclosures provided that information.” Order, at p. 3.

Of course, Publication 3498 says “If you do not want to appeal your case within the IRS, you may take your case directly to tax court.” Publication 3498, at p. 6. What Publication 3498 doesn’t say is that, if you don’t appeal, you haven’t exhausted your administrative remedies and are precluded from getting Section 7430 legals and admins.

So Appeal. Whatever IRS sends you, appeal.

Judge Goeke rehashes the qualified offer issue in the FPAA context. Fortunately the PATH Act renders this obsolete, as there will be no FPAAs post-effectiveness. How the qualified offer will play out under the new régime is unclear. I see the same objection in the new partnership setting as Judge Goeke finds in the old; subchapter K is still there. Barring FICA/FUTA/ITW, partnerships aren’t taxpayers, partners are.

“…the offer tries to settle the effect of the TEFRA proceeding on the liability of the individual partners. The offer is unclear as to how it would resolve the tax liabilities of the individual partners. It listed the docket number and stated the offer is to resolve all outstanding issues’ and later states it ‘relates to tax years 2010-2012’ and is ‘to settle all issues and claims with finality by payment of a sum equal to $100,000’. We can assume that the partners sought to resolve their collective tax liabilities for $100,000. However, the offer is not clearly worded as to the adjustments it seeks to resolve with respect to each partner.” Order, at p. 10.

And there’s another thing; IRS’ newly-beloved amendment gambit. The qualified offer “… does not address how the offer would treat the losses that the FPAA computed for 2011 and 2012; the offer date is before the amendment to the answer that disallowed the losses.” Order, at p. 10.

So if IRS amends, must you make a new offer? Assuming, of course, that IRS doesn’t get leave to amend after the first date for trial is set, because the qualified offer period closes 30 days before the case is “first set for trial,” Section 7430(g)(2)(b). PATH changed none of this. And cases rarely get tried on the date first set for trial.

The Joyners lose, through no fault of their able counsel, although Judge Goeke finds the Joyners didn’t establish how able they were. “However, they have not identified any unique skills required, and we find the accounting method issues did not require distinctive knowledge or a unique and specialized skills that would constitute a special factor. We find that the issues were not of such difficulty to warrant any increase in the rates sought.” Order, at p. 11. But as he wasn’t awarding legals anyway, able counsel have only their labors for their pains.

How many times have I said it: “stipulate, don’t capitulate”? Too many. Here’s one follow-up, Vishal Mishra & Ritu Mishra, Docket No. 16492-18, filed 6/3/20. I’m sure all y’all will remember Vishal & Ritu; no?

Dig my blogpost “Backing Out,” 4/28/20.

Judge Albert G (“Scholar Al”) Lauber told Vishal & Ritu to dish why they should be let out of their stip to the Section 6662(a) chops.

“The stipulation reflected major concessions by both parties: Respondent conceded more than half of the deficiencies, and petitioners agreed that they were liable for the balance of the deficiencies and ’for accuracy- related penalties pursuant to I.R.C. §6662(a) for the 2014 and 2015 taxable years.’” Order, at pp. 1-2.

Judge Scholar Al asked Vishal & Ritu for their story back in April.

“petitioners filed a response to respondent’s motion stating that they did ‘not wish to concede that they are liable for an accuracy-related penalty.’

“Contrary to the plain language of the stipulation that they signed, they assert that ‘there was no mention of a 20% penalty being added to the agreed upon numbers.”” Order, at p. 2.

Judge Scholar Al holds them to the deal.

“Paragraph 5 of the stipulation of settled issues plainly states that ‘the parties stipulate and agree that petitioners are liable for accuracy-related penalties pursuant to I.R.C. § 6662(a) for the 2014 and 2015 taxable years.’ That concession is utterly unambiguous.” Order, at p. 3.

Judge, I most respectfully submit it is ambiguous.

Not to you, or to me, or to Vishal’s & Mitu’s able counsel.

Maybe so we’ve all of us been doing this too long, or maybe too often we’ve represented sophisticated clients who know as much as we do, if not more.

But I’ll wager a few quid that Vishal & Mitu don’t deal with IRC Sections every day. We know what the Section 6662 accuracy, negligence, and five-and-ten substantial understatement of tax 20-percenters are.

They don’t. A Code Section in the middle of a lengthy stip is gibberish to the unsophisticated. So maybe IRS, and certainly we practitioners, should put the precise dollar amount of the chops in our stips.

Lest anyone jumps on me for claiming unilateral mistake of law or fact voids a contract, take it slow. I know that they don’t. I know a stip is a contract.

Likewise before claiming I’m playing Monday-morning quarterback with Vishal’s & Mitu’s able counsel, I’ll confess that, under time pressure, I’ve also overestimated clients’ comprehension as I’ve read a document to them, and didn’t check for the deer-in-the headlights look.

Yes, I know interest is another story, and we can’t know precisely how much that will be.

But guys, I’m only giving a practice hint here.

Thomas M. McCarthy, 2020 T. C. Memo. 74, filed 6/3/20, receives a lecture from ex-Ch J Michael B (“Iron Mike”) Thornton in the above-entitled course. Only the tuition isn’t cheap; Tom gets a $7K deficiency confirmed.

Tom is a CPA with an MBA. His chum JQ is also a CPA, plus an attorney and tax preparer. Tom claims he bought a stake in JQ’s CA MacMansion, which he paid for with a note and deed of trust (unrecorded). Instead of paying cash, he claims JQ owed him money, so he forgave the debt. He also claims he lived there some time during year at issue. Except both his return for year at issue and his petition show a MN address, which he says is a rental where he lived with his parents.

It gets better. Tom owned a NYC co-op apartment, which he rented to an unrelated for the entire year at issue, yet took his mortgage interest deduction on Sched A, not Sched E. My ultra-sophisticated readers will no doubt exclaim “rental real estate equals passive deduction against passive income, not ordinary deduction against ordinary income!”

Tom tries the Section 163(h)(4)(A)(i) two residence gambit. “On his [year at issue] Federal income tax return petitioner did not ‘select’ either the New York City property or the [CA] property as his second residence, nor did he indicate on his return which of these properties he regarded as his principal residence. Neither the Code nor the regulations fix the time or manner by which a taxpayer makes a selection of the ‘1 other residence’ under section 163(h)(4)(A)(i)(II). Accordingly, making the selection in litigation is acceptable.” 2020 T. C. Memo. 74, at p. 7. (Citations omitted).

So Tom is cool when he claims NYC coop as principal residence on trial, right?

Wrong. Tom filed MFS. “Pursuant to section 163(h)(4)(A)(ii)(II), if a married couple does not file a joint return for the taxable year, each of them ‘shall be entitled to take into account 1 residence unless both individuals consent in writing to 1 individual taking into account the principal residence and 1 other residence.’ The record does not reflect that petitioner and his wife both consented in writing to petitioner’s taking mortgage interest deductions with respect to more than one residence. Consequently, petitioner is precluded from claiming mortgage interest deductions with respect to both the New York City property and the [CA] property. The Code does not make clear, however, in these circumstances which of these properties, if either, should be considered the ‘1 residence’ that petitioner may take into account pursuant to section 163(h)(4)(A)(iii). “ 2020 T. C. Memo. 74, at p.8. As Ben Franklin put it, “He that would thrive, must ask his wife.”

Anyway, Tom is out because he can’t prove he ever lived in the NYC coop during year at issue. While Tom claims there is a saver per Section 121 (using a carryover from old Section 1034, which it replaced), he can’t show that he moved and rented because he couldn’t sell.

“The lack of a ready market for selling a property may be taken into account in determining whether the property remained the taxpayer’s principal residence after he moved out; if the taxpayer’s efforts to sell the property demonstrate that his dominant motive was to sell the property at the earliest possible date instead of holding it for rental income, the property would not necessarily cease to qualify as the taxpayer’s principal residence.

“Petitioner asserts that renting his New York City property was a financial necessity for him in [year at issue] because a downturn in the real estate market during the 2008 financial crisis had caused the New York City property to be worth significantly less than he had paid for it. He asserts that he sold the property in [year at issue plus one]. Petitioner has offered no evidence, however, as to what he paid for the New York City property (or exactly when he bought it), what he sold it for, what efforts he made to sell the property after he moved out…, or to what extent market conditions might have created a bar to his selling the New York City property when he moved out of it….” 2020 T. C. Memo. 74, at pp. 10-11. (Citations omitted).

And Tom flunks the driver’s license, employment, mailing address, voter registration, motor vehicle registration, religious institution and civic activities tests for residence. It’s MN all the way.

The CA MacMansion fares no better.

Tom has a note and a deed of trust (that’s a CA mortgage), and a document supposedly tying them together, that he says shows the debt for which he claims his CA interest deduction. “The aforementioned deed of trust includes an acknowledgment form indicating that the document was notarized on December 16, 2004, and that the notary’s commission expired January 28, 2007. At trial neither petitioner nor Mr. Rodgers, who testified as petitioner’s witness, was able to explain why the purported deed of trust shows that they both signed it January 13, 2010, but that it was notarized in 2004 by a notary whose commission expired in 2007. Furthermore, neither petitioner nor Mr. Rodgers was able to explain adequately the provenance of any of these documents. The unexplained inclusion of an obviously fictitious acknowledgment form as part of the deed of trust, as well as the lack of a clear explanation as to where these photocopied documents even came from, calls into question the genuineness and trustworthiness of these three interrelated documents.” 2020 T. C. Memo. 74, at p. 15-16. Anyway, even if this stuff got into evidence, which it didn’t of course, no showing the deed of trust was recorded, so the debt is unsecured under CA law. See Reg. Section 1.163-10T(o)(1)(ii).

Ex-Ch J Iron Mike says JQ was an attorney. If I saw a client trying to put this stuff in evidence, I’d ask for an in-chambers and wouldn’t even keep the ripcord.

There’s more, but we can stop here, unless you enjoy watching a case go down in flames.

But IRS has their own problems. Note the dates, because they’re relevant.

“…respondent relies exclusively on a notation in a one-page stipulated exhibit captioned ‘Correspondence Examination Automation Support’, dated April 25, 2018. On this document in a single line entry dated September 6, 2017, with an indication that it was ‘Submitted by’ an otherwise unidentified ‘Brodnax Felicia L’ and with an indication that the ‘Action Type’ is (mysteriously) ‘Non Action’, the ‘Note’ states in its entirety: ‘6662 penalty approved’. Without any other supporting evidence or explanation or elaboration, on brief respondent argues that this document “reflects the timely managerial approval of the accuracy-related penalty.’ Respondent’s position is problematic for a variety of reasons.” 2020 T. C. Memo. 73, at p. 28.

I’ll leave it to my ultra-sophisticates to enumerate the reasons. Or they can read for themselves, to check their answers.

This blogpost is long enough.

Jason B. Sage, 154 T. C. 12, filed 6/2/20, was a real estate type caught in the Black ’08. He had three deals in hock to two banks, so he put them, via the standard S Corp – LLC daisychain, into liquidating trusts, with one of his management outfits as trustee and the lenders as beneficiaries. The initial draft of the trust instruments had the usual wordprocessing hangovers and technical delicts, showing the drafter took the last deal they did and doctored same, without “search and replace.” 154 T. C. 12, at p. 8. No, I’m not gloating; I’ve done that too, but the errors got caught before they got to court.

The trust instruments did track the language of Reg. Section 301.7701-4(d). JB structured the paperwork so that he assigned the membership interests in the LLCs that had the parcels to the lenders, and they in turn simultaneously transferred the interests to the respective trusts in exchange for beneficial interests therein. And JB would take a Section 165 loss for the difference between debts and FMV of his subaqueous realty, using carryback and carryforwards thereof.

He only told the lenders after the fact.

And he told the county transfer tax authorities that the property was “not being sold, but simply transferred to another wholly owned entity” with “no transfer of debt”, in order to “create a liability protection entity.” 154 T. C. 12, at p. 10. I’ve seen people play fast-and-loose with local transfer taxes, playing for pennies when telling the truth and paying up would help secure the deal. Head-shake.

IRS changed their trial theory from those of the SNODs they gave JB, so they do have BoP. But I’m sure my hip readers, whether or not under curfew, have already shouted “closed and completed!”

So did Judge Patrick J (“Scholar Pat”) Urda. The key is whether or not JB was no longer owner of the trust in year at issue; see Reg. Section 1.677(a)-1(d). Since each trust’s sole function was to pay off JB’s debts, the trusts weren’t separate from JB’s passthough. So no “closed and completed” transaction in year for which loss was asserted. No loss in year at issue, no carryback, no carryforwards.

Judge Scholar Pat puts it simply. “The [year at issue] transfers accordingly did not accomplish bona fide dispositions of the property evidenced by closed and completed transactions as necessary to support the losses ultimately reported by [passthrough] and passed on to Mr. Sage.” 154 T. C. 12, at pp. 24-25. (Footnote omitted, but I’ll summarize in the next succeeding paragraph hereinbelow, as my high-priced colleagues would say.)

The footnote says JB’s argument that lenders weren’t legally obligated to take whatever cash the trusts threw off to pay down the debt doesn’t matter. Even though Reg. Section 1.677(a)-1(d) speaks of nonadverse parties: says money may (emphasis by the Court) be applied to debts of the grantor-owner; and trust beneficiaries are usually adverse parties, no one is an adverse party if you give them money. Anyway, legally obligated or not, the lenders took the money.

I’m sure my readers, whether they first saw Snuffy as parents or children, recall Big Bird’s BFF Mr. Snuffleupagus, whom no adult could ever see, despite Big Bird’s assiduous efforts. 

Well, today Bert Kroner, 2020 T. C. Memo. 73, filed 6/1/20, finds himself situated as did Big Bird before the celebrated Episode 2096. And alas, ex-Ch J L Paige (“Iron Fist”) Marvel has not the imagination to conceive that Mr H (name omitted, but the latter-day counterpart of Will Shakespeare’s “onlie begetter”) could have gifted Bert with $24.775 million as soon as Mr H bailed out of some cashflow-financing deals.

For the latecomers, cashflow-financing means buying up structured settlements, lottery winning payouts, and similar payment-over-time deals by paying recipients spot cash and taking assignments of the remaining income stream. Sort of OID-on-steroids.

Bert and Mr H, who was a UK US-indifferent, did some deals together, and according to Bert and Mr H’s attorney (whom I’ll call Bob and who later became Bert’s attorney as well), became real chummy.

So chummy, in fact, that whenever Mr H cashed out heavy-duty on a cashflow financing deal, he gave his buddy Burt seven figures. Bert split the beneficence among some entities, on and off shore, that Bob set up for him aided by Mr H’s associate, whom I’ll call Mr M.

Bert claimed these were all motivated by “detached and disinterested generosity, out of affection, respect, admiration, charity or like impulses.” 2020 T. C. Memo. 73, at p. 8, and so neither reported nor paid tax on any thereof, per Section 102, as advised by Bob.

We should all have such friends.

Of course, the one who can best explain this munificence is Mr H. Except Mr H never shows for the trial, and Bert has no idea where he lives or even what his phone number is. 2020 T. C. Memo. 73, at p. 17, footnote 8.

“The intention with which Mr. H made the transfers is the most critical factor. Although the Court granted petitioner’s motion in limine to preclude the drawing of any adverse inference from Mr. H’s absence at trial, the Court also warned the parties on multiple occasions of the importance of hearing Mr. H’s testimony. The Court’s ruling on the motion in no way relieved petitioner of his burden of proving Mr. H’s intention by a preponderance of credible evidence.” 2020 T. C. Memo. 73, at p. 9.

So it’s time for the trier-of-fact to sort through the evidence.

The only paper is a one-page note drafted by Bob and Mr M, who also authenticate Mr H’s signature. It gets into evidence, over IRS’ objection, per FRE 803(3). “Rule 803(3) of the Federal Rules of Evidence excludes from the rule against hearsay statements that describe a declarant’s then- existing state of mind (such as motive, intent, or plan). Because we find that rule 803(3) applies, we admit the note over respondent’s objection.” 2020 T. C. Memo. 73, at p. 20. But ex-Ch J Iron Fist says it’s not credible evidence.

Neither is Bert’s trial testimony. In fact, since on one deal Bert was barred by a noncompete from being in the business, it looked like Mr H was Bert’s nominee. And Bert allegedly acted as nominee for Mr H on another deal.

Before we leave Bert and his deficiencies, remember I said in my immediately previous blogpost this date that the only time IRS loses on BoP is Graev defects in Boss Hossery? Well, here IRS does it again. The RA hits Bert with a Letter 915 and then a Letter 950, each time attaching Form 4549. What IRS didn’t have was a CPAF signed off by Boss Hoss before either.

IRS’ claim that the Letter 915 was merely a request for information and not a 30-day letter goes the way of Bert’s testimony. Titles mean nothing; substance means everything.

$1.7 million in chops vanish with Mr H.

Perhaps Estate of Mary P. Bolles, Deceased, John T. Bolles, Executor, 2020 T.C. Memo. 71, filed 6/12/20, might have been assigned to Judge Patrick J. (“Scholar Pat”) Urda, or his equally scholarly colleague Judge Albert G (“Scholar Al”) Lauber, but now the mantle of Publius Ovidius Naso (to say nothing of the carapace of Franz Kafka) falls upon Judge Goeke.

The late Mary wanted to split the not-inconsiderable loot she and late husband (“late” as in both divorced and dead) accumulated among their five (count ‘em, five) offpsring. So the late Mary, before she became the late Mary, created a loan structure, with advances and repayments within the annual exclusion and lifetime exemption limitations.

We’ve all worked on those; rarely is it rocket science. Except Pete.

Pete was Number One Son. He inherited late father’s architectural talents but not his business acumen. So Mary transferred from the family trust she controlled better than $1 million to Pete over a 22-year span. Pete did make some repayments the first couple years (hi, Judge Holmes), but never thereafter.

Mary next created a self-settled trust, cutting Pete out of everything, and then engaged Karen Hawkins, Esq., to straighten matters out with Pete, and recast the loan-gift situation. I wonder if this was the same Karen Hawkins who later became chief of OPR while Chair-Elect of the ABA Tax Section (to which august body I do not belong), and as OPR chief ran the revision of Circular 230. She had practiced on the Left Coast when Mary was dealing with Pete. Since Judge Goeke names her specifically, that’s strong evidence.

She amended Mary’s trust to recharacterize the advances to Pete as loans, and papered accordingly. But being a good lawyer, she left herself a out, namely, that if IRS held the note Pete gave was adjudged worthless, they were all gifts. IRS drops the worthless note argument.

The ex’r claims loans, IRS claims gifts, and Judge Goeke decides metamorphoses.

First, IRS drops interest on the gifts; it was never in the SNOD or the Answer, nor did IRS amend. Second, BoP. The ex’r claims IRS has it.

“While petitioner’s position has merit, we do not need to resolve the issue because the evidence in this case permits a resolution on the record of trial, and we do not rely on the burden of proof to decide this case.” 2020 T. C. Memo. 71, at p. 9.

If anyone remembers the last time IRS lost on BoP, other than a Graev lapse in Boss Hossery, please raise your hand. You’re better than I.

But, spoiler alert, the loans are gifts. At least mostly.

“While Mary recorded the advances to Peter as loans and kept track of interest, there were no loan agreements or attempts to force repayment. Respondent focuses on the lack of security for the loans to Peter. We agree that the reasonable possibility of repayment is an objective measure of Mary’s intent. The estate maintains that during her life Mary always considered these advances as loans. We cannot reconcile this argument with the deterioration of Peter’s financial situation and the ultimate failure of his practice in San Francisco and later in Las Vegas.” 2020 T. C. Memo. 71, at p. 10.

So there came a metamorphosis.

“Peter’s creativity as an architect and his ability to attract clients likely impressed Mary. We find she expected him to make a success of the practice as his father had, and she was slow to lose that expectation. However, it is clear she realized he was very unlikely to repay her loans by October 27, 1989, when her trust provided for a specific block of Peter’s receipt of assets at the time of her death. Accordingly, in 1990 the ‘loans’ lost that characterization for tax purposes and became advances on Peter’s inheritance from Mary. In conclusion, we find the advances to Peter were loans through 1989 but after that were gifts. We have considered whether she forgave any of the prior loans in 1989, but we find that she did not forgive the loans but rather accepted they could not be repaid on the basis of Peter’s financial distress.” 2020 T. C. Memo. 71, at pp. 10-11.

In intrafamily loans, reasonable possibility of repayment is a big deal.

If you want to spring for the “fitty cent a throw, three George cap” on USTC documents of record, the hard-laboring clerks afar remote from the Glasshouse are ready to serve them up. Just call them and they’ll e-mail you the papers.

Here’s the official word: https://ustaxcourt.gov/press/05292020_copies.pdf

Note they don’t tell you how to pay, so have your credit card and bank routing/account numbers handy.

Edited to add: As before, you may use pay.gov to make payment.