Attorney-at-Law

TWO VARIETIES OF “GOOFY”

In Uncategorized on 04/04/2022 at 19:25

First is the new favorite, the “goofy regulation,” the Perpetuity Rule, Reg. Section .170A-14(g)(6), beloved in 6 Cir but condemned in 11 Cir. And Judge Travis A. (“Tag”) Greaves, the master of fancy footwork, does a Highland Fling in Briarcreek Preserve, LLC, LDHL Investments, LLC, Tax Matters Partner, Docket No. 1547-18, filed 4/4/22.

For those who tuned in late, a major subset of the Perpetuity Rule is improvements-out-at-extinguishment. Judge Tag Graves has a really good explanation, so I’ll let him give it.

“To illustrate, assume a taxpayer donates a conservation easement worth $30 on unimproved property with an unencumbered value of $100. The judicial extinguishment regulation mandates that the donee receive at least 30% of total sale proceeds ($30 ÷ $100 = 0.3). Assume further that the taxpayer later adds improvements worth $50, and sells the property for $150 following judicial extinguishment of the easement. Briarcreek’s deed would allocate the donee $30, which is 30% of $100, the difference between the $150 of sale proceeds and the $50 value of the improvements. But $30 is only 20% of the $150 total sale proceeds. The regulation requires that the donee receive at least 30% of $150, or $45.” Order, at p. 5.

Now before you give me the Matthew 25:24 sobstory, the tax break isn’t free; Congress had a purpose, the preservation of that which without its intervention via IRC would be lost. It wasn’t to give the beneficiary of the tax break the deal they wished they had. And the donor can always not make any improvements: forever wild, right?

The Briarcreeks had an improvements-out deal on their Burke County, GA scrub. They want summary J that the Perpetuity Rule, a/k/a the “Goofy Regulation,” is out, per Hewitt, and they’re Golsenized to 11 Cir, so that should be a slam-dunk.

But Judge Tag Greaves is dancing.

“Although the Golsen rule prevents this Court from denying petitioner’s deduction on this ground, we will hold petitioner’s motion in abeyance pending further appellate developments on the validity of Treasury Regulation § 1.170A-14(g)(6). Cf. Montgomery-Ala. River, LLC v. Commissioner, T.C. Dkt. No. 9254-19 (Feb. 25, 2022) (order taking a similar approach).” Order, at p. 5.

See my blogpost “And Quiet Flows the Silt,” 2/25/22 for the Montgomery story.

But the Briarcreeks aren’t through; it’s open season on the conservation easement regulations. Now they’re attacking the spill-your-basis regulation, Reg. Section 170A-13(c). They don’t know what basis to use, and cite to the wrong part of the instructions for Form 8283. They say the statute requires the disclosure in the return, but IRS has it in the Form 8283. But a “return” includes all schedules and attachments required. And the statute (the Deficit Reduction Act of 1984 (DEFRA)) is broad enough to encompass whatever IRS did.

Of course, the Briarcreeks claim reasonable reliance, but that’s a fact question, so IRS doesn’t get summary J.

Summary J to IRS sustaining the spill-your-basis regulation but keeping reasonable reliance open for trial; and on summary J to IRS on the Perpetuity Rule, held in abeyance pending “further appellate developments.” Taishoff translation “pending what the Supremes do with this.”

Next goofy development. STJ Peter Panuthos shows remarkable sang froid in dealing with the good-faith reliance argument of Suzanne M. Scholz, T. C. Sum. Op. 2022-5, filed 4/4/22.

“Although petitioner hired H&R Block to prepare her tax return, the Court is not convinced that she provided necessary and accurate information to her return preparer and that she actually relied in good faith on the return preparer’s judgment. Petitioner failed to keep adequate records of her reported business expenses and charitable contributions. Furthermore, she testified at trial that she included certain expenses on her tax return against the advice of her paid tax preparer.” T. C. Sum. Op. 2022-5, at p. 14.

Ms. Scholz was self-represented. So no counsel was present to follow the advice of the late great Henry G. Miller, Esq., to smile the sweetest smile, as if that testimony was exactly what one wanted to hear, then walk out into the hallway and sob.

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