While I’ve often derided the CLE merchants who tout magic formulæ for winning your case at discovery, I am no foe of discovery. At its worst, it’s just another form of legalized harassment; at its best, it gets to the core of the case and renders the judge’s (and jury’s, if applicable) job easier.

Better yet, it’s how you get discovery of the judge: what does s/he think is important? Where does s/he see you as strong or weak?

I want to give a Taishoff “Good Job, First Class, Discovery Division,” to the trusty attorney for Otay Project LP, Oriole Management LLC, Tax Matters Partner, Petitioner, Docket No. 6819-20, filed 11/1/21*, whom I’ll call Geo. In his words, “I have the good fortune to lead a group of tax lawyers who not only enjoy mastering the intricacies of the tax code, but who also communicate in plain English and look for practical ways to help clients achieve their objectives.” And with only one associate with him, he ties up nine (count ’em, nine) attorneys from OCC.

The fact pattern is a dazzler, with thirty-four (count ’em, thirty-four) LLCs (Order, at p. 3), and an FPAA where Section 754 election meets Section 743(b) basis step-up, with Section 752 liabilities hovering just outside the face-off circle. Geo. wants summary J on 15 (count ’em, 15) issues. IRS has economic substance both commonlaw and codified, anti-abuse (Section 701), and the math computation of the step-up and who gets it.

And of course Boss Hossery, Clay type, is also in play.

Judge Christian N. (“Speedy”) Weiler has this trick-or-treat basket well in hand.

Geo.’s attack on the anti-abuse regs goes down before CCA learning that courts will deal with Chevron challenges only when all else fails, and Judge Speedy Weiler has plenty else. Order, at p. 10.

The real issues is where the liabilities of Otay went when the partners “turned every one to his own way.” Upon whom was laid “the iniquity of us all”?

“… we find that respondent’s alternative theories as to the Partnership’s additional liabilities and how these additional liabilities resulted in a deemed distribution… involve mixed questions of fact and law that cannot be resolved by summary judgment at this time. We agree with respondent that considerable factual development is needed to understand these partnership liabilities stemming from the land sale transactions and the validity of respondent’s position. Only after developing these facts will the Court be able to determine whether the regulations under section 752 have been properly applied. In addition, further factual development is necessary to establish whether the Partnership resulted in a deemed distribution in the amount of its liabilities as originally claimed, and whether these liabilities were assumed by petitioner or [another LLC]. As such, ruling on petitioner’s motion for summary judgment is premature as to these two alternative theories as well.” Order, at p. 11.

Get out the chart and timeline, and get ’em stiped in. Or if IRS won’t stip, get out the documents and prep the witnesses.

And although Tax Court has jurisdiction over the FPAA’s determination that the partners’ outside basis is in play, since that what their Section 754 election does, all Judge Speedy Weiler decides is jurisdiction. “We do not decide here whether respondent’s adjustment at issue is proper but only that the adjustment to [year at issue] gross income made in the FPAA is properly classified as a partnership item of the Partnership.” Order, at p. 15, footnote 12. (Emphasis by the Court).

Time to run the numbers and prepare a chart. And prepare to fight over getting the chart into evidence. I’m sure Geo. knows all about FRE 1006.

The Boss Hoss issues are full of factual disputes: who did what when and how. Does the codified economic substance provision in Section 7701(o), which underpins the Section 6662(b)(6) chop asserted, apply if what would be the triggering events occurred pre-3/30/2010?

Geo. got plenty of insight into Judge Speedy Weiler’s take on the case. He’s also got a good look at IRS’ battleplan. Best of all, so far as I can tell, he hasn’t entirely tipped his own hand.

Otay Project, LP Docket No 6819-20 11 1 21