My readers will doubtless recollect that Judge Mark V Holmes went easy on the daughter of Ernesto P. Patacsil and Marilyn E. Patacsil, T. C. Memo. 2023-8, filed 1/17/23, a year ago December, when she used her Mom’s recordkeeping described at the head hereof. If not, see my blogpost “The Shoebox – RedWeld System,”12/8/21.

Unhappily, Mom and Dad had previously suffered an audit and a Tax Court defeat affirmed by 9 Cir, and another visit for another year, in all of which they came unglued by virtue of the recordkeeping system (or lack thereof) which saved daughter Maryann from the chops.

The Patascils put in none of the envelopes nor their enclosures for any year at issue, and so got no more than whatever IRS gave them.

IRS did get it wrong on a claimed loss from a foreclosure sale of some investment property. CA’s anti-deficiency statute (that’s personal liability of the mortgagor when the foreclosure sale nets less than the indebtedness) makes the debt nonrecourse, so must be added to sales price, which might yield taxable gain. IRS only disallows the claimed loss, and Judge Holmes sticks them with that. Moreover, for another year and another property, the third-party reporting evidence IRS put in utterly failed to substantiate the claimed COI in the SNOD. The Patascils failed to raise the issue at trial but Judge Holmes helps them out with “tried by consent.”

They didn’t give their new accountant all the info to calculate their insolvency defense to the COI income, so whatever IRS substantiated stands. Likewise their claimed NOL fails for want of election not to carryback, but since the Patascils aren’t tax experts they could reasonably rely upon their CPA preparer’s advice to take the carryforward (which under current law they could do, but not for the years at issue).  

Of course, I can’t let Judge Holmes off without a rebuke for “a couple unusual issues.” T. C. Memo. 2023-8, at p. 4. The partitive genitive must be preserved.