In Uncategorized on 12/20/2022 at 16:12

No, not the one who takes back your car; this is Robert Lewis Starer and Merle Ann Starer, T. C. Memo. 2022-124, filed 12/20/22. Robert Lewis transferred parcels of land owned by his Sub S corp. to various business associates subject to repurchase agreements, whereby the purchaser could compel the Sub S to repurchase the property at the original price. Robert Lewis claims these were loans, to allow the associates to mortgage the properties for cash, but IRS changes the deals to sales per Section 481.

Judge Wells isn’t buying the loan story.  And the IRS change affects timing, not ultimate receipt, so it involves a material item, not an overall change to the Sub S’s accounting method. While Robert Lewis and Merle Ann transferred much of their shareholdings in the Sub S into a couple grantor trusts (hi, Judge Holmes), they never elected electing small business trust treatment per Section 1361(c)(2)(A)(v), so there’s no showing that any tax incidents flow to the trusts.

The Sub S owned the house where Robert Lewis and Merle Ann lived rent-free, so constructive dividend. Likewise the transfer of one plot of land to son-in-law, the claim of joint venture failing for want of Luna principles. And a transfer for no consideration to a long-term business associate, who promptly mortgaged it and used the proceeds for other ventures (although transfer tax was paid on a marked-up value) fails as a loan for want of documentation, so is a gift of appreciated property taxable to Robert Lewis and Merle Ann, per Section 1386(b).

And a bad debt claim from an advance to a controlled entity fails for want of documentation, and some wonderful trial testimony. “According to petitioners, [related] never formally requested a loan from [Sub S]. Instead, Mr. Starer described how [controlled] would request a loan from {Sub S] by testifying that ‘Bob Starer, CEO of [controlled], would say to Bob Starer as CEO of [Sub S], “let me have some money.” Petitioners cannot create a deduction simply by deciding to record an intercompany debt without formalities and then canceling it.” T. C. Memo. 2022-124, at pp. 26-27.

But IRS matches Robert Lewis and Merle Ann, by playing the Michael Corleone gambit, main line Boss Hoss variation.

“In the instant case, respondent did not file a motion to supplement the record addressing the effect of section 6751(b) on this case. Neither did he direct the Court on brief or otherwise to any evidence of section 6751(b) supervisory approval in the record.  Consequently, respondent has failed to satisfy his burden of production to establish compliance with section 6751(b); therefore, petitioners are not liable for accuracy-related penalties under section 6662.” T. C. Memo. 2022-124, at p. 28.


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