Only yesterday I praised a pair of attorneys, to whom I’d given a Taishoff “good try, third class” a month ago, saying their never-say-die attitude deserves a better cause. See my blogpost “$7 Million, $3.3 Million, Who Cares?” 7/15/20.

I say that again today, as The Jersey Boys go down fighting for Robert Elkins, 2020 T. C. Memo. 110, filed 7/16/20. Bob (that’s Doc Bob) got his OIC bounced, despite being 71 years old, recently and expensively divorced, and having only rapidly declining current income.

Except ex-wife was supporting him handsomely, he kept upping the ante on his OIC, and the SO happened to see the nasty Wall Street Journal.  That alleged dispenser of “fake news” (a nonpolitical comment not found in the record) “…recounted that [Doc Bob’s now-bankrupt but formerly largest nursing home chain in the country] executives had received loans of ‘nearly $60 million–most of it going to Dr. Elkins himself’ that they were never required to pay back. The article further stated that Dr. Elkins used ‘company * * * [i.e., nursing home giant] money contributed to a retirement plan set up for him’ to amass an art collection worth more than $8 million, with pieces being displayed at Dr. Elkins’ home despite being booked as company assets.” 2020 T. C. Memo. 110, at p. 11.

Now I’m sure my hip readers, echoing The Jersey Boys, have yelled “Hearsay! Inadmissible! Declarant not in court! No exception in FRE!” Ah, but trust Judge Patrick J. (“Scholar Pat”) Urda. A CDP is informal, and FRE don’t apply.

“Of course, our Rules provide that a declaration in support of summary judgment ‘shall set forth such facts as would be admissible in evidence’. Rule 121(d). But the Wall Street Journal article, which was attached as an exhibit to the settlement officer’s declaration, does not constitute inadmissible hearsay. Hearsay is a statement offered in evidence to prove the truth of the matter asserted. Fed. R. Evid. 801(c). The article is part of the administrative record, which was submitted to this Court not for the truth of the matters asserted but to show the documents that the settlement officer relied upon in making her decision to sustain the rejection of the OIC (and the NFTL filing). The article thus would be admissible at trial or hearing for that purpose. See Fed. R. Evid. 105 (use of evidence admitted for limited purpose must be restricted to that purpose)….” 2020 T. C. Memo. 110, at pp. 27-28. (Citation omitted).

Trier of fact, just disregard that elephant in the courtroom. It’s only there to prove there are such things as elephants.

But interest of the government wins the day. Doc Bob was in with the Delta Trading crowd (the same outfit that figured in the Billyhawk debacle (see my blogpost “The Hawklings Come Home to Roost,” 11/6/17), and the pure-at-heart Alterman escape (see my blogpost “It’s Not Fraud,” 12/1/15). Delta as TMP in the phony LLC hung Doc Bob out to dry in the FPAA, even though he participated, by extending the SOL. So Doc Bob got hit with $10 million in tax, interest, additions and chops.

The fight is over a NFTL. The SO had reason to bounce Doc Bob’s OIC: he was doing unpaid work for his wife’s nursing homes she got in the divorce, and Doc Bob was still living the good life.

It’s a mark of the high regard in which the Jersey Boys are held that they get tough cases like this one. So I say again the title of this blogpost.

The GA syndicated conservation easements are the blogger’s delight. Always there’s good blogfodder as IRS marches through GA, making Crazy Billy Sherman look like an amateur. Today’s designated hitter from Judge Albert G (“Scholar Al”) Lauber dunks Oakhill in Oakbrook. Here’s Oakhill Woods, LLC, Effingham Managers, LLC, Tax Matters Partner, Docket No. 26557-17, filed 7/15/20.

Judge Scholar Al recapitulates 2020 T. C. Memo. 24, but you can read it all in my blogpost “We Don’t Need No Basis Disclosure,” 2/13/20. But having made low the Oakhills, IRS wants the remaining rough places made plain. And Judge Scholar Al is the man for the job.

The Oakhills went down back in February without a test of the validity of Reg. Section 1.170A-14(g)(6), the extinguishment split-of-proceeds rule. At the time Oakhill was decided, Oakbrook hadn’t been, so ruling was deferred. Well, the time has come.

“If the regulation is interpreted, as we have interpreted it, to make Oakhill ineligible for a charitable contribution deduction, Oakhill contends that the regulation is invalid. It urges that section 1.170A-14(g)(6), Income Tax Regs., is an ‘arbitrary and capricious’ rule promulgated in violation of the Administrative Procedure Act. And it contends that the regulation is substantively invalid under the test set forth in Chevron, U.S.A., Inc. v. Nat. Res. Def. Council, Inc., 467 U.S. 837 (1984). We comprehensively addressed and rejected both of these arguments in a recent Court-reviewed Opinion. See Oakbrook Land Holdings,154 T.C.at ____ (slip op. at 15-33). We need not repeat that analysis here.

“Finally, petitioner draws our attention to Priv. Ltr. Rul. 200836014 (Sept. 5, 2008) (PLR), in which the IRS found unobjectionable an easement deed with a judicial extinguishment clause resembling that here. Petitioner contends that respondent’s interpretation of the regulation as set forth in that PLR is binding on respondent under Auer v. Robbins, 519 U.S. 452, 461 (1997). Petitioner’s argument ignores the fact that determinations embodied in a PLR ‘may not be used or cited as precedent.’ Sec. 6110(k)(3). The taxpayer in PBBM-Rose Hill brought the same PLR to the Court of Appeals’ attention, but that court paid no heed to it, finding the regulation unambiguous on its face. See PBBM-Rose Hill, Ltd.v. Commissioner, 900 F.3d 195, 207-208 (5th Cir. 2018). We have done the same. See Coal Prop. Holdings, 153 T.C. at 144. In Oakbrook Land Holdings, LLC v. Commissioner, T.C. Memo. 2020-54, we dismissed reliance on Auer deference because ‘the “traditional tools of construction” le[d] us to hold that the Commissioner’s construction of the regulation is correct even if we look at the question de novo.’ Id. at *25 (quoting Kisor v. Wilkie, 588 U.S. __, __, 139 S. Ct. 2400, 2415 (2019)).” Order, at pp. 4.

Now, guys, where do we go from here?

I know $3.7 million ain’t hay, but Judge Albert G. (“Scholar Al”) Lauber doesn’t think it’s worth a Rule 161 reconsideration.

Alexander Strashny & Laura Strashny, Docket No. 13836-19L, filed 7/15/20, claim IRS got the numbers wrong on their cryptocurrency account.

Y’all remember Alex & Laura, of course. No? Then see my blogpost “The 24-Hour Rule,” 6/11/20. I gave their trusty attorneys a Taishoff “good try, third class”, last month, and I see they’re still in there pitching. Their “never say die” attitude deserves a better cause.

Judge Scholar Al, shuffling through the usual bases for reconsideration and finding none, discourses thus.

“The Form 433-A, Collection Information Statement for Wage Earners and Self-Employed Individuals, that petitioners submitted to the SO showed cryptocurrency valued at $3.3 million. Petitioners later submitted investment statements, which the SO interpreted as showing cryptocurrency valued at $7 million. Petitioners assert that the SO misinterpreted the financial statements and that they never had more than $3.3 million of cryptocurrency at any one point in time.

“To the extent the SO committed any error, it was harmless. At the time of the CDP hearing, petitioners’ outstanding tax liability was approximately $1.1 million. As petitioners acknowledge, whatever the exact amount of their cryptocurrency, they had assets sufficient to pay their tax liability in full, as the SO properly concluded.” Order, at p. 2.

When the Black ’08 spread its shadow across the land, Congress sought to bail out the underwater home-mortgagors who jingle-mailed or otherwise had their indebtedness forgiven or extinguished, via now-extinct Section 108(a)(1)(E), which untaxed COI on Section 163 qualified principal residence debt.

Unhappily, either the debt was unsecured, or was not used for acquisition, construction, or improvement, in the case of Mark Weiderman and Jennifer Weiderman, 2020 T. C. Memo, 109, filed 7/15/20.

The debt starts with a signing bonus to Jennifer, who gets a no-interest loan to buy a new house in CA when she relocates from MA to become a heavy-hitter at a shoe company. The loan was due in 10 years, or if Jennifer left voluntarily or otherwise. The shoe company gave Jennifer the boot in less than a year. Jennifer couldn’t pay, so there were various modifications of the payout terms. The original note was unsecured, but a subsequent novation note was. Eventually Jennifer got out of some of the shoe company debt by selling the CA house, but the shoe company forgave the rest.

Judge Ashford: “Section 108(a)(1)(E) provides that gross income does not include amounts which would be includible as COD income if ‘the indebtedness discharged is qualified principal residence indebtedness’. The term ‘qualified principal residence indebtedness’ is defined as acquisition indebtedness (within the meaning of section 163(h)(3)(B)) with respect to the taxpayer’s principal residence. Sec. 108(h)(2), (5). Section 163(h)(3)(B)(i) provides that acquisition indebtedness is any indebtedness which is (1) incurred in acquiring, constructing, or substantially improving any qualified residence of the taxpayer and (2) secured by that residence. For these purposes, secured debt is any debt that is on the security of any instrument (such as a mortgage, deed of trust, or land contract) that makes the debtor’s interest in the qualified residence specific security for the payment of the debt (1) under which, in the event of default, the residence could be subjected to the same priority as a mortgage or deed of trust in the jurisdiction in which the property is situated and (2) is recorded or otherwise perfected in accordance with the applicable State law. Sec. 1.163-10T(o)(1), Temporary Income Tax Regs., 52 Fed. Reg. 48417 (Dec. 22, 1987).” 2020 T. C. Memo. 109, at pp. 24-25.

The problem for Jennifer is that the secured debt on the principal residence wasn’t qualified.

“Although [shoe company] recorded the deed of trust with the Los Angeles County, California, Registrar-Recorder, the $280,000 debt was not “incurred in acquiring, constructing, or substantially improving” the [residence] property. Indeed, the … promissory note conditioned repayment of the $280,000 upon the sale of the [residence] property. Like the indebtedness of $500,000, the indebtedness of $280,000 was therefore not acquisition indebtedness, and thus [shoe company]’s cancellation of $35,000 of that indebtedness… shortly before the sale of the [residence] property was not cancellation of qualified principal residence indebtedness.” 2020 T. C. Memo. 109, at p. 27.

There’s the usual unsubstantiated business deductions, but there’s nothing to spend time on.

There’s also a reopener joust for Boss Hossery, as this case was tried pre-Graev, but Jennifer and Mark lose that one. And they didn’t tell their preparers the whole story.

No, not a call to war. Just a reminder that today is the day the COVID-19 standstill from Notice 2020-23 runs out.

So when you run to the post office or the PDS (Blessed Communion, Fellowship Divine division) with your 1040, take along your Tax Court petitions, amendments, and other required snail-mailia, get the postmarks, and save all the receipts. Get it done before 5 p.m., local time.

And tell ’em Lew sent ya.

I’m used to plain speaking from Texas; my nearest and dearest Texans never fail to express themselves candidly and plainly.

Today Judge Elizabeth A. (“Tex”) Copeland has a designated hitter wherein she provides a vignette of plain speaking. Here’s Perimeter Protective Systems, Inc., Docket No, 255-18SL, filed 7/14/20.

Perimeter’s story revolves around its boss, Mr. Ken Hantman. Perimeter is an S Corp of many names. Its name changes, all in accordance with PA law, caused much confusion within IRS. At the same time, Perimeter was late with a couple 1065s (hi, Judge Holmes). IRS laid on the penalties, but partially abated them. Ken had signed returns earlier than IRS claimed they got them, so “risk of litigation” carried the day. He also claimed his bookkeeper robbed him, causing health and stress issues, and the name changes baffled IRS.

Ken got a NITL for the $800 remaining penalties, and he petitions the NOD affirming. He wants $9K from IRS (later reduced to $5K) for the time he spent straightening out this rommeltje. That’s one of the six words of Dutch I know.

Judge Tex Copeland gives the usual “pore li’l ole Tax Court” has no jurisdiction. If Ken claims tort, or wrongful collection of income tax or penalty, he needs to go to USDC or USCFC, per FTCA (26 USC §1346).  And Tax Court has no general equitable jurisdiction, only the shreds and shards Congress has grudgingly given.

Section 7430 legals-and-admins don’t apply to pro ses, however much they have “borne the burden of the day and the scorching heat,” as a much more exalted Authority put it. Judge Tex Copeland goes so far as to search the PA online Bar directory and can find no Hantman.

But finally comes the plain speaking.

“Perimeter nevertheless protests. Its petition claims that the penalties at issue here were ‘reduced to about $850 which was the correct penalty or interest for 2010 and 2012 returns [sic] slight lateness on my part in filing.’ It continues: ‘the whole year and a half involving a hundred or more hours of my [Mr. Hantman’s] time and many hours of my accountants, were simply taken in trespass due to IRS negligence * * * at the very least, full abatement, and properly entitled to compensation for not less than five thousand dollars.’ There is no legal basis for Perimeter’s restitution claim, and we doubt it intends to compensate the IRS, this Court, or the American taxpayer for the time and expenses we have incurred as a result of its President’s slight lateness in filing its 2010 and 2012 returns.” Order, at p. 8.

Judge, this American taxpayer respectfully thanks you.

Tax Court remote trials are coming soon to a jurisdiction near you. These will be conducted using the Zoom software, enabling the participants to see and hear each other in real time. Participants will need the free software, but it’s easily downloaded (if I could do it, anyone could do it).

Parties without computer access need to call chambers of the assigned Judge or STJ at once, to sort out a solution.

There’s a link on the Tax Court homepage with rudimentary questions and answers.

Of course, Taishoff has a bœuf with this technological wizardry. In a courtroom trial, the public can see and hear as well as the participants. But there is no provision in these Zoomietrials for the public to see and hear.

What price Section 7458: “Hearings before the Tax Court and its divisions shall be open to the public, and the testimony, and, if the Tax Court so requires, the argument, shall be stenographically reported.”

I note that CLEs and panel discussions are routinely presented using Zoom software, permitting the panelists/participants to see and hear each other, but other attendees/viewers can be neither seen nor heard. Why is this not available for these hearings?

Maybe that’s how the 21.89 acres Dave Hewitt and Mrs. Dave bought in 2008 on Lewis Smith Lake (love the spelling, Dave!) in Winston Co., AL for $200K, actually became worth north of $6,524,000 in 2013.

The $6,524,000 is what Smith Lake, LLC, David Hewitt, Tax Matters Partner, 2020 T. C. Memo. 107, filed 7/13/20, claimed as a conservation easement deduction in 2013. And of course they reserved value of improvements from the extinguishment split with the 501(c)(3) defender of the faith.

We got the usual extinguishment (with a merger clause thrown in), and an AL condemnation law argument.

Y’all will recollect that Dave (and Mrs Dave) escaped overvaluation and negligence chops on the family farm easement a month ago. See my blogpost “‘Gude Faith, He Maunna’ Fa’ That’ – Part Deux,” 6/17/20. But thereafter he started dubious syndicates. Judge Goeke let him off back in June; Judge Kerrigan takes only fifteen (count ’em, fifteen) pages to send off Dave in the usual fashion on this later escapade.

A concession in a settlement doesn’t set up judicial estoppel (no judgment or decree). Reg. Section 1.170A-14(g)(6) is valid, per Oakbrook. And improvements get split.

The Smith Lakers may have struck a vein of dilithium crystals and told Starfleet Command. Who knows, if there are dilithium crystals there, The Federation of Planets may condemn the place.

This is the kind of conundrum within a puzzle that Judge James S. (“Big Jim”) Halpern loves. Edward J. Duffy and Shannon L. Duffy, 2020 T. C. Memo. 108, filed 7/13/20 are underwater on two OR properties. They short-sold the investment property, which they had converted from their getaway to rental for friends and family, and got Wells Fargo to forgive the home equity line of credit on their principal residence.

The question is COI: Cancellation of Indebtedness.

” When a creditor forgives debt in connection with the sale or exchange of property that secures the debt, the discharge of debt can either result in cancellation of indebtedness income or instead be included in the taxpayer’s amount realized from the sale, thereby increasing the taxpayer’s gain or reducing the taxpayer’s loss on the sale. The varying treatment of the debt discharge turns on whether the indebtedness was recourse or nonrecourse–that is, whether the creditor’s remedies were limited to the transferred property. Section 1.1001- 2(a)(1), Income Tax Regs., provides as a general rule that ‘the amount realized from a sale or other disposition of property includes the amount of liabilities from which the transferor is discharged as a result of the sale or disposition.’ Section 1.1001-2(a)(2), Income Tax Regs., however, provides: ‘The amount realized on a sale or other disposition of property that secures a recourse liability does not include amounts that are (or would be if realized and recognized) income from the discharge of indebtedness under section 61(a)(12).'” 2020 T. C. Memo. 108, at pp. 21-22.

IRS’ claim that the forgiven debt was recourse gets torpedoed by OR’s anti-deficiency statute (that’s not tax, that’s going after the mortgagor when the property isn’t worth the balance of the mortgage). OR law says that an administrative foreclosure (that is, nonjudicial), whether residential property or nonresidential,  bars the mortgagee from pursuing the mortgagor for the shortfall.

As for your jurisdiction’s anfractuosities, YMMV.

The principal residence COI goes off on Section 108(a)(1)(B) and (3), insolvency. The only COI income from Wells’ generosity is the difference between how much Wells forgave, and how much Ed’s and Shannon’s liabilities exceeded assets. Judge Halpern has a soft spot for a lady in distress, and Shannon tells a sorrowful tale, despite private schools for her children and Ed’s country club dues. Her lost wedding ring features prominently. Who says Tax Court Judges have no heart?

Finally, IRS ignores a Taishoff maxim: stipulate, don’t capitulate.

“The civil penalty approval form included in the record establishes that Ms. C approved the penalties for some of the years in issue, but respondent has not established that Ms. C is ‘the immediate supervisor of the individual’ who made the determination to assess penalties. See sec. 6751(b)(1). To establish that Ms. C’s approval complied with section 6751(b)(1), respondent relies on the parties’ stipulation that she ‘was the manager or supervisor of one or more of the auditing revenue agents’. The stipulation thus does not establish that Ms. C was the immediate supervisor of the person who made the initial determination to assess the penalties in issue (whether that person was Ms. K or someone else). According to the stipulation, Ms. C supervised some of the agents involved in the audit but not necessarily all of them. Thus, the record does not demonstrate that Ms. C was the immediate supervisor of the individual who made the initial determination to assess the penalties respondent seeks to impose with section 6751(b)(1), petitioners are not subject to an accuracy-related penalty under section 6662 for any of the years in issue.” 2020 T. C. Memo. 108, at pp. 58-59. (Names and footnote omitted).

The omitted footnote says IRS was trying to include a couple other years (hi, Judge Holmes) in Ms. C’s single-year sign-off. Judge Halpern isn’t going there, but you should.

I give a Taishoff “good job” on the Boss Hoss to the Duffys’ counsel.

Note- There’s a bunch of partnership stuff here, with guaranteed payments and SE tax on same, because Ed teamed up with a doctor to sell medical equipment, but this blogpost is long enough.

This maneuver, to remedy defective pleadings, evidence, and trial strategy, is not exclusive to IRS. I first blogged it back in 2017; see my blogpost “Chai, Chai, V’Kayom,” 4/18/17, when an esteemed colleague tried it on, to wild-card in Boss Hossery post-trial.

Today IRS tries it on, in Glade Creek Partners, LLC, Sequatchie Holdings, LLC, Tax Matters Partner, Docket No. 22272-17, filed 7/13/20.

I’ll leave it to Judge Gale to tell the story.

“…respondent filed a Motion for Leave to File Status Report and lodged a status report thereto. … petitioner filed a Motion for Leave to File Objection to Motion for Leave to File Status Report and lodged an objection thereto. The parties are advised that the Court will grant the parties’ pending motions but respondent should be aware we are not allowing them to withdraw exhibit 75-R and we are not going to allow them to belatedly modify their briefs because it is prejudicial to petitioner and the record of this case is closed.” Order, at p. 1.

“Find and replace” only works on the wordprocessor before trial. At the status report stage, it’s a loser.