Unlike the glass through which a much more exalted personage even than Judge Albert G (“Scholar Al”) Lauber looked, this is the story of the solar lenses at the base of the tax scam known as RaPower3. RaP3 was based on energy production credits for the employment of Fresnel lenses (plastic, not glass), supposed to enhance electricity production.

Except the lenses only generated write-offs, not electricity.

Preston Olsen and Elizabeth Olsen, 2021 T. C. Memo. 41, filed 4/6/21, were but one of the more than 200 (count ’em, 200) cases breathlessly awaiting the outcome of the two conjoined Olsen cases.

The Olsens were investors in the scheme propounded by Mr. Neldon Johnson. I’m sure my readers will be glad I eschewed any Olsen & Johnson references, though great was the temptation.

The lenses never worked, at least on a commercial scale. Many broke, and others lay in warehouses, untouched. The Johnson family and friends reaped a bountiful harvest of investor dollars. Check out 2021 T.C. Memo. 41, at pp. 4-7. Finally, the Feds stepped in, and USDCDUT shut down Ra3 and its siblings, and caused the Johnsons to disgorge. 10 Cir was down with that.

The deal was strictly a passive investment with a minimal downpayment and a nonrecourse note (which was never enforced), papered to look like an active trade or business. Preston was “was supposedly “’free to work as little * * * as he would like in his solar business.’” 2021 T. C. Memo. 41, at p. 9.

And Preston didn’t have to pay the note “until after you get your money back from the Dept. of Treasury.” 2021 T. C. Memo. 41, at p. 10. And if the tax law changed, Preston could bail on the any excess he owed. 2021 T. C. Memo. 41, at p. 11. There was a supposed bonus deal if the generated electricity sales exceeded a European telephone number with country code, but that was strictly so that it “’shoots down the IRS theory that you became involved only for the tax benefits. Needless to say, petitioner received no bonus payments.” 2021 T. C. Memo. 41, at p. 12.

Preston actually visited the site, but just saw what he called “looks a little like junk,” 2021 T. C. Memo. 41, at p. 14.

Judge Scholar Al blows off Preston’s claimed travel expenses to scope out the junk.

I should point out that Preston was a partner, specializing in municipal finance, in a Salt Lake City white-shoe. He first thought the deal too good to be true, but went in anyway when he discovered he owed a lot of tax. 2021 T. C. Memo, 41, at pp. 8, 11. I am amazed that he thought this would fly.

Preston and Elizabeth used a CPA who prepared returns for other dodgers…I mean investors, but who bailed after two years’ worth, as IRS was on the case. His recommended successor held on for a year, handed off to a successor who suggested trying an equipment leasing dodge, until IRS handed Preston and Elizabeth the SNODs at issue here.

IRS’ expert visited the site, and found it was a junkyard.

The Johnsons produced their own expert, who “… opined that Mr. Johnson’s system was ‘technically viable to generate electricity,’ but he acknowledged that he did not actually observe any electricity being produced. He testified that Mr. Johnson ‘activated the system’ for a 30-minute period, but the system ‘wasn’t connected to anything’ and ‘wasn’t putting anything on the [electric] grid.’ However, he said he was impressed by Mr. Johnson’s ‘creativity.’” 2021 T. C. Memo. 41, at p. 21.

So am I. Great creativity, but us taxpayers aren’t paying for creative swindles. [Editorial comment.]

OK, no trade or business. No business activity. Preston was strictly passive. And no income produced. Judge Scholar Al does the trudge through the “goofy regulation,” Reg. Section 1.183-2(b) and finds a short circuit. Preston never showed that the lenses he bought, or leased, or whatever, were ever placed in service, that is, set up and ready to go do what they were supposed to do. They don’t have to do it, just be ready to do it. Here, there was no testing, no permitting, no documentation.

And the passive losses, against which there was no passive income, were disallowed for the energy credits in the years at issue.

But the Boss Hoss gallops to the rescue. IRS got no Section 6751(b) Boss Hoss sign-off before whanging Preston and Elizabeth with chops.