By Judge Mark V. Holmes

Our story starts with a pleasant man, talented cowboy, and skilled horsethief Dutch Henry (and skilled horsethieves ran in my family; just ask the Girl of My Dreams). Dutch Henry turned a chuckwagon cook onto a MT creekside where he would find “plenty wood.” And that was the start of Plentywood Drug, Inc., at. al., 2021 T. C. Memo. 45, filed 4/26/21.*

It’s a true Western. Plentywood Drug is a true frontier pharmacy, as that term is defined in the much-controverted Affordable Care Act. It serves a 7200 sq. mi. area, population density 2/sq. mi. Judge Holmes reminds us that The Wannabe State has 11,500/sq. mi. Plentywood Drug, Inc., is owned by two families; Plentywood Drug, Inc., rents its premises from said families.

IRS claims the families overpay themselves rent, deductible from store taxes, rather than properly paying themselves double-taxed dividends. IRS doesn’t raise the issue of salaries (FICA/FUTA/ITW), so I won’t either.

Appraisals and expert testimony are hard to come by.

“The parties in these cases quickly realized that finding comparable properties in a town of 1,700 people in frontier Montana and then using them to come up with a fair market rent would be difficult. One problem right out of the chute is that Montana is a nondisclosure state. This means that real-estate data such as sales prices that appraisers can typically find in other states is legally confidential and simply not available. This issue is magnified in a town the size of Plentywood, which already has a limited number of even potentially comparable buildings. We heard entirely credible testimony that Montanans–perhaps especially Montanans in small communities–don’t commonly share details of their financial lives very readily with strangers. The Commissioner’s expert was particularly credible in his statement that when he tried to find information in Plentywood he did not identify himself as an IRS agent.” 2021 T. C. Memo. 45, at p. 9.

The nearest larger town was in the ND oil belt, with prices to match. After fighting over the Plentywoods’ appraiser’s failure to use USPAP (Uniform Standards of Professional Appraisal Practice), which Judge Holmes says goes to weight and not admissibility, and much argy-bargy over IRS’ expert’s power to add or detract based on differences between comparables that aren’t comparable (government-subsidized housing projects are not comparable to the only drugstore in 7,200 sq. mi.), Judge Holmes does a classic mix-and-match.

The Plentywoods’ rent number is OK. IRS misses the Boss Hoss on the families, but Plentywood Drug, Inc., is a corporation, hence Boss Hoss not necessary. And Plentywood Drug, Inc.,’s number is so OK that it misses the five-and-ten understatement chop.

Best of all, Judge Holmes waits until page 25 to make sure I’ve read his every golden word.  “That also leaves Plentywood Drug to argue its way out of a penalty on the merits, which it can do in a couple ways.” 2021 T. C. Memo. 45, at p. 25.

*Plentywood Drug T C Memo 2021-45 4 26 21