When Congress shunts the duty to make legislation definite and certain off to administrative agencies charged with enforcing the latest legislation coruscation, the result is usually notices or other forms of off-the-cuff hints and hacks, notwithstanding the legislative invocation of the regulatory function. So it falls to Judge Nega to parse IRS Notice 2008-40, 2008-1 C.B. 72 that tries to paper over the gaps, in Michael Johnson and Cynthia Johnson, et al., 160 T. C. 2, filed 1/25/23. The als each get their own T. C. in idem verba.

IRS claims Mike’s and Cindy’s (and the als’) Sub S fails to get any Section 179D energy efficient commercial building property deduction for the HVAC upgrade of a VA hospital. If you’re claiming any EECBP deductions, read this. Judge Nega blows off each and every IRS quibble about the plain language of Notice 2008-40.

Mike and Cindy and their six (count ’em, six) trusty attorneys are finally brought down with victory in sight, as their claimed $1.073 million deduction shrinks to $304,640, Judge Nega running Mike’s and Cindy’s numbers through the Glasshouse laundromat.

“…VA allocated to [Sub S] the full amount of the section 179D deduction with respect to the EECBP installed in Building 200.  Edwards claimed a section 179D deduction of $1,073,237… which is equal to the product of $1.80 and 596,243, the square footage of Building 200. There is no indication in the record that any section 179D deductions have been taken with respect to Building 200 for any prior taxable years.

“Respondent contends that Edwards overstated the amount of the section 179D deduction because the cost of property does not exceed $304,640, the total amount [Sub S] billed to Hines VA for Building 200.” 160 T. C. 2, at p. 30.

Mike and Cindy and trusty attorneys claim Sub S stands in the shoes of VA and can claim the cost of any qualifying work Sub S did on the VA hospital, whenever done, if no deduction therefor was previously taken; and they did a bunch before year at issue. That qualifies them for a Taishoff “Good Try, Chutzpahdik Class.”

“We need not decide what the term ‘cost’ means generally for purposes of section 179D. Whatever the meaning of that term more broadly, under section 179D(a), the amount of the deduction allowed for a given taxable year is equal to the ‘cost of [EECBP] placed in service during the taxable year.’ Petitioners do not allege, and the record does not indicate, that any of the property installed in Building 200 as part of the original HVAC upgrade work was placed in service during [year at issue].” 160 T. C. 2, at p. 31.

Taishoff says if IRS tries to put out a new Notice raising the bar, might be worth trying the APA gambit; when is a Notice a regulation is disguise, with no public comment?