New Capital Fire, Inc., 2021 T. C. Memo. 67, filed 6/2/21, is back, trying to undo the win it got four years back. You doubtless remember how the Newbies ditched the SNOD with which IRS wanted to hit them for heavy-duty built-in capital gains on the stock portfolio they cashed out in one of James (“Little Jim”) Haber’s phony digital options non-partnerships.

What, no? Then see my blogpost “The Long and the Short – Part Deux,” 9/11/17. And see 2021 T. C. Memo. 67, at pp. 43-44 for more of Little Jim’s maneuvers. OK, welcome aboard.

The Newbies, having won, thereupon filed an amended petition. Judge Goeke explains.

“In the amended petition, petitioner alleged that respondent erred in determining that petitioner had realized the capital gains of approximately $7.8 million that petitioner had reported on its 2002 return. In a stipulation of settled issues…petitioner conceded that respondent did not adjust petitioner’s reported capital gains in the notice of deficiency. The notice of deficiency reflected an adjustment to income of $7.8 million on the basis of respondent’s determination to disallow the capital loss deductions from the [digital] options.” 2021 T. C. Memo. 67, at p. 22.

IRS says the Newbies can’t go back there.

“Respondent argues that petitioner is estopped under the duty of consistency or the doctrine of equitable estoppel from changing its reporting of the capital gains after the period of limitations expired for Old Capital’s 2002 tax year. He argues that we should not permit petitioner to treat the merger of petitioner and Old Capital as a taxable event. Had petitioner treated the merger as taxable, it would have reported the bases in the Old Capital securities equal to their fair market values on the merger date, at or near their sale prices, and would have had minimal or no capital gains on the sales. Therefore, respondent argues that we should not allow petitioner to argue that Old Capital should have recognized capital gains on the deemed sale of the securities on the merger date and that petitioner had bases in the securities equal to their fair market values on the merger date.” 2021 T. C. Memo. 67, at p. 22. (Footnote omitted, but read it. The Newbies claim unfair surprise, but this is a Rule 122 fully-stiped. No new evidence or discovery needed).

There’s much argy-bargy about 2 Cir’s refusal to accept the doctrine of consistency (the Newbies are Golsenized to 2 Cir), but that applies only to innocent mistakes, and the return for the year at issue was carefully crafted to mislead IRS.

Moreover, the Newbies stonewalled IRS on the audit. Bad idea.

So the Newbies can’t change their story. They had capital gains, and their phony digital options losses can’t shelter them.