No, this is not a new flick, coming soon to the never-ending stream. This is the end of the story of Taryn L. Dodd, 2021 T. C. Memo. 118, filed 10/5/21.*

Of a surety y’all recollect Taryn? No? Then see my blogpost “Two Good Ones,” 8/22/19; IRS put four (count ’em, four) lawyers on a dead-loser summary J, when they should have put one SO who actually read the file on the CDP.

Well, Taryn got her shot, but loses.

Judge Albert G. (“Scholar Al”) Lauber man-‘splains.

Taryn was the office manager in a DC law firm specializing in real estate and construction (my kind of guys). Taryn and a name partner were members, and Taryn was the managing member, of an LLC that owned and operated rental real estate. Taryn’s stake was 33.5% of the capital account. Not bad for an office manager; in my checkered career I never saw an office manager get that kind of a piece of the action. And it was a mighty sweet piece, as you’ll see infra (as my expensive colleagues with a piece of the action would say).

As managing member, Taryn “…regularly signed agreements, tax returns, and other documents on [LLC]’s behalf. “2021 T. C. Memo. 118, at p. 3.

Taryn signed the loan agreement with the bank that provided financing for the LLC’s various properties. In year at issue, the LLC unloaded property to the tune of $4 million gross, net $3.203 million. The property secured the bank loan, so the bank had a due-on-sale in the agreement, and took a check at the closing. No bank I ever saw let the borrower walk from a sale with the scratch without taking a pound of cliché.

My jaggedly-sophisticated readers have already said “Phantom income,” without needing to see the title of this blogpost.

Taryn says she never got nuthin’ because the money paid off the law firm’s credit line. And the accountant who did her return (and the LLC’s box-checked 1065 and Taryn’s K-1) mistakenly gave Taryn $169K of tax. Except Taryn signed the line of credit (LOC) documents as “co-borrower and guarantor.” 2021 T. C. Memo. 118, at pp. 8-9.

“During the supplemental CDP hearing petitioner contended that the proceeds of [LLC]’s 2013 sale were used to pay off, not only LLC’s $1,843,758 loan from [bank], but also [law firm]’s $1.5 million LOC. But she offered no documentary evidence to substantiate the latter contention. The AO ultimately informed SO2 of her conclusion that petitioner ‘constructively received’ the $1,073,312 gain reported on her return and ‘will be taxed on it.’ Petitioner supplied SO2 with Form 433-A, Collection Information Statement for Wage Earners and Self-Employed Individuals. That form reported assets in excess of $300,000 but did not include as an asset her 33.5% membership interest in LLC. Upon review of petitioner’s financial information SO2 concluded that she could fully pay her… liability. ” 2021 T. C. Memo. 118, at p. 9.

Whatever the story with law firm’s LOC, Taryn’s claim (accommodation party? contribution? constructive trust? Good bar exam question) is a State law claim that Tax Court can’t consider.

Section 702 is clear: a partner owes the partner’s share of gain, whether they got cash or not. And Taryn apparently got $210K out of the sales proceeds, enough to pay the tax in full. 2021 T. C. Memo. 118, at p. 14.  Doubtless the LLC operating agreement contained an anti-freeze clause (see my blogpost “Anti-Freeze,” 3/13/17).

Taryn could’a paid up. Appeals offered her an IA, but she said nothing for months, so Appeals kicked her yet again, and Judge Scholar Al is down with that.

*Taryn l Dodd 2021 T C Memo 118 10 5 21