My professional career has been a search for enlightenment. In my first five minutes on The Hill Far Above, I learned that answering a hypothetical with “Plaintiff wins” earns a failing grade. The right answer is why plaintiff wins. Now, fifty-seven (count ’em, fifty-seven) years after that memorable occasion, the search (and the adventure) continues.

Just last week I asked what purpose Form 6 served. See my blogpost “A Bad Day for Lawyers – Part Deux,” 10/30/20. For those new to the game, Form 6 is the Ownership Disclosure Form for nongovernmental corporations, large partnerships or large LLCs, wherein the entity must state that it is parentless or parented, and whether or not fewer than 10 percent of its shares are held by a publicly-held. For a large partnership or large LLC, any publicly-held ownership must be disclosed. A PDF online fillable version of the form is available on the Tax Court website.

Today Arkanada Corporation, Docket No. 19153-19, filed 11/3/20, is on the verge of an eve-of-trial stipulated decision. Trial was set for 11/9/20 when two weeks ago IRS reported the settlement.

Ch J Maurice B (“Mighty Mo”) Foley orders either a stiped decision or a status report by 1/19/20, a special date in our family.

But Arkanada still hasn’t filed Form 6, although Ch J Mighty Mo twice told Arkanada to file before now. And even gave them a form to fill out. So now let them do it.

Arkanada is pro se, of course. And even if they had an attorney, the odds on Arkanada getting the form right, or even filing it at all, are by no means a laydown. And even if Arkanada files and gets it right, who is enlightened thereby?

BTW, a quick-peek Google search shows Arkanada dissolved in 2018 because of some default in franchise tax. An equally quick-peek docket search shows petition filed 10/24/19. Wouldn’t the Internet solve the problem without the form?

Judge David Gustafson might well be thinking of the 1971 Carole King hit, as he tries to explain how to establish the last-known address of Brenda Reddix-Smalls, 17975-18L, filed 11/2/20. And this is a designated hitter, so as to let everybody know not to change your address at Appeals.

Brenda is up for four (count ’em, four) years’ worth of assessed but unpaid, with a NITL. She went to Appeals, but there the story becomes fuzzy. Brenda says that during her phonecon “… she orally informed the Appeals Settlement Officer (“ASO”) that her address had changed to the address in Durham and (b) that the ASO stated that she must file a notice of change of address. (The Commissioner disputes this account, pointing to the contemporaneous notes of the ASO from the CDP hearing and the summary and recommendation attached to the notice of determination, which both repeatedly state that petitioner ‘declined’ to provide her new address when prompted by the ASO. There was no trial in which we could resolve this dispute of fact, but even in the absence of an agreement about what petitioner told the ASO–and assuming the accuracy of petitioner’s account–we are able to rule on the Commissioner’s motion.)” Order, at p. 2.

Brenda had filed a change of address with USPS in February, 2017, giving an address in Durham, NC. But in April, 2018, she and her husband filed MFJ, showing an address in Columbia, SC. Brenda’s phonecon with Appeals, when she says she told the ASO she was back in Durham, NC, took place in July, 2018.

ASO affirms the NITL Brenda was contesting, but Brenda is one day late mailing in her petition.

Brenda claims the affirmance wasn’t sent to last known address. IRS says whatever Brenda told (or didn’t tell) the ASO, “… the ASO does ‘not have access to IDRS, the program that manages the information in the Service Master File, and cannot change a taxpayer’s address’ unless the ASO follows a certain procedure by which the ASO fills out a Form 2363 and sends it to Account and Processing Support (Doc. 22, paras. 4-7). (Emphasis added). The Commissioner showed that the ASO in petitioner’s case did not have access to the service master file and that the ASO did not attempt to utilize the procedure to change petitioner’s address by sending a Form 2363 to APS.” Order, at pp. 2-3)(Footnote omitted, but apparently only Appeals Technical Employees can prepare Form 2363, Master File Entity Change, and send it to Account and Processing Support, which alone can lay its hallowed hands upon the Service Master File).

“Petitioner disputes neither of these contentions.” Order, at p. 3.

I doubt that there exists any sane human being outside the guarded domain of the Master Service File who has the foggiest idea what this means, much less how to dispute it.

And here’s the formal statement.

“Clear and concise oral notification is a statement made by a taxpayer in person or directly via telephone to a Service employee who has access to the Service Master File informing the Service employee of the address change. In addition to the new address, the taxpayer must provide the taxpayer’s full name and old address as well as the taxpayer’s social security number, individual taxpayer identification number, or employer identification number. The Service employee must follow established procedures to verify the taxpayer’s identity. The Service employee also will inform the taxpayer that the new address, and not the former address, will be used by the Service for all purposes.

“Rev. Proc. 2010-16, 2010-19 I.R.B.664. (Emphasis added).” Order, at p. 4.

Brenda is out for lack of jurisdiction.

Exactly how anyone is supposed to know this is nowhere stated. So it’s up to you, practitioner.

Ya Still Gotta Do an Appraisal Joust

It’s been suggested that the extinguishment torpedo sinks the overvalued conservation easement without the need for “lengthy and expensive trials,” and therefore IRS should use same liberally (in a non-political sense, of course).

Well, that doesn’t happen in Glade Creek Partners, LLC, Sequatchie Holdings, LLC, Tax Matters Partner, 2020 T. C. Memo. 148, filed 11/2/20. Yes, the fixed-price ex-value of improvements clause in the deed sinks Glade Creek crew; the Coalholders, PBBM-Rose Hill, and Oakbrook are all in on the play. If you don’t know who they are, you’ve come late to the party, so check out the cites Judge Goeke gives you as set forth at 2020 T. C. Memo. 148, at p. 25, in the paragraph immediately preceding the following.

“The deed improperly subtracts any value attributable to posteasement improvements from the extinguishment proceeds before determining the Conservancy’s share. It does not properly allocate extinguishment proceeds to the Conservancy in accordance with the proceeds regulation. The proceeds regulation is not satisfied, and the easement’s conservation purposes are not protected in perpetuity. Glade Creek is not entitled to the easement deduction.”  2020 T.C. Memo. 148, at p. 25.

OK, so march out the Glade Creek crew, right? Except.

IRS wants the 40% excessive overvaluation chop. The Glade Creek crew syndicated a $17.5 million conservation easement deduction, plus a $35K charitable to the 501(c)(3) protector, preserver and defender of same. IRS nixes the whole, but the IRS appraiser gets shredded on the stand.

His appraisal “was nothin’ much before, an’ rather less than ’arf o’ that be’ind,” as a much finer writer than I put it. IRS’ appraiser’s “after” value uses a 10-yr old CA article. His “before” used a couple logging sites (hi, Judge Holmes), not homes, such as the predecessors to the Glade Creek crew were building before The Black ’08.

The Glade Creek crew had two (count ’em, two) appraisers, who both did a much better job, but still came in north of $16 million. Judge Goeke decides that residential development is the highest and best use. So he does a cost-benefit analysis that shows if he retires from Tax Court, he has a great future as cost estimator for a national homebuilder. He does an analysis of builder’s profit margin worth reading, 2020 T. C. Memo. 148, at pp. 49-52.

Judge Goeke concludes the easement, if properly drafted (which it wasn’t), would be worth north of $8 million. So the Glade Creek crew only gets the 20% overvaluation chop, not 40%. And IRS conceded any misstatement chop, so the 20% only applies to the overstatement above $8 million.

But they do get the $35K charitable to the 501(c)(3). That got paid in escrow at closing, but only got to the 501(c)(3) the next January. IRS says there must be unconditional delivery for a deduction to be taken. “Ordinarily, a charitable contribution is made when its delivery is effected. Sec. 1.170A-1(b), Income Tax Regs. When delivery is effected through an agent acting on behalf of the donee or donor, the critical question is whether the donor has relinquished dominion and control.” 2020 T. C. Memo. 148, at p. 26 (Citation omitted).

Enter our old chum, Reg. Sec. 1.170A-1(e), “so remote as to be negligible.” But IRS says the escrow agreement never got into the record, so must infer that it would show there were conditions.

“Under the circumstances of this case, we find such an inference unwarranted. Ministerial escrow tasks are generally not considered substantial limitations or restrictions on a taxpayer’s receipt of funds and are not conditions precedent of the type that precludes the transfer of control. The chance that the settlement agent would not pay the escrowed funds to the Conservancy was so remote as to be negligible. Once the funds were deposited into escrow, they were not under Glade Creek’s control. Glade Creek had directed their payment to the Conservancy and could no longer use or redirect the funds. We find that Glade Creek is entitled to deduct the $35,077 donation for [year at issue].” 2020 T. C. Memo. 148, at p. 28.

Judge, I’ve been escrowee enough times to know that no condition is “so remote as to be negligible,” especially where I would be liable for any erroneous payment. I once had to track some beneficiary down years after the closing to get fifteen grand out of my former firm’s escrow account, so we could settle up what was due to each of us when I left. They weren’t wrong, and neither was I.