IRS’ salami-slice tactic, going for partial Boss Hossery summary J, goes on apace. The discovery counter-gambit, alleging the real Boss Hosses are OCC attorneys who masterminded the Notice 2017-10 shot-across-the-bows of the Dixieland Boondockers, isn’t faring so well.

Judge Patrick J. (“Scholar Pat”) Urda gives the right-about-face to Lake Jordan Holdings, LLC, Lake Jordan Partners, LLC, Tax Matters Partner, Docket No. 16532-21, filed 4/28/23, when they try this on. IRS makes the usual move for partial Boss Hossery, with affidavits from RA and immediate supe. The Lakers want discovery; wasn’t the real decider of overvaluation chops the overbosses at OCC?

“Lake Jordan questions whether RA C actually made the initial determination to assert penalties. In raising this issue, it points to the IRS’s enforcement push in the conservation easement context and evidence that RA C was working hand-in-glove with lawyers from the IRS Office of Chief Counsel with respect to this case. Following Lake Jordan’s line of thinking, if one of these lawyers (or higher-level officials) made the initial determination to assert penalties, that person’s supervisor, not SRA B, would have been the right person to consider penalty approval. Lake Jordan seeks additional discovery to prove its theories.” Order, at pp. 3-4. (Names omitted).

Now Judge Scholar Pat is hip that summary J shouldn’t be granted if there’s outstanding discovery; summary J finds factual issues, doesn’t dispose of them.

Except the key is that there was proper supervisory approval before first communication to taxpayer that chops were on the menu.

“Whether RA C or SRA B received direction or advice from IRS higher-ups or lawyers before the formal communication of penalties to Lake Jordan is of no moment. ‘We do not second-guess the extent of the RA’s or the supervisor’s deliberations about whether penalties should be imposed,’ but instead ‘confine our search to seeking evidence of written supervisory approval.’ Cattail Holdings, T.C. Memo. 2023-17, at *11; accord Raifman v. Commissioner, T.C. Memo. 2018-101, at *61; Belair Woods, 154 T.C. at 17. There is no dispute that RA C recommended the penalties asserted in the FPAA and that her immediate supervisor SRA B approved them in writing. The Commissioner has established compliance with section 6751, and any further discovery on this general topic is unnecessary and irrelevant.” Order, at p. 4. (Names omitted).

For the backstory on Cattail, see my blogpost “Highly Contestable – Redivivus,” 2/14/23. I blogged both Raifman and Belair, but I’m on deadline with no time to look them up.

Howbeit, I expect to see the counter-gambit played in 11 Cir, if the case gets there.

I add Judge Christian N (“Speedy”) Weiler’s admonition to Timothy Hildebrand, Docket No. 3791-21, filed 4/27/23, to my overflowing list of “Those who need it won’t read it, and those who read it don’t need it” items. Two (count ’em, two) years after petitioning, all the while making motions and entering into a stiped decision and order, Tim moves to seal the entire docket, although his original petition neither disclosed his SSAN nor his income.

“Generally, official records of all courts are open and available to the public for inspection and copying. As a general rule the official records of the Tax Court are open and available to the public for inspection and copying. Thus, when one files a lawsuit, one generally steps into the light.” Order, at p. 2 (Citations omitted). Or, as the hockey players say, “You step on the ice, you gonna get hit.”

Tim has concerns, and they aren’t frivolous. “Petitioner’s concerns about identity theft are not by any means frivolous. All litigants, including the roughly 30,000 taxpayers who file petitions in this Court every year, share those concerns.” Order, at p. 2.

But Rule 27(a), with which Tim complied and which he never suggests has been violated in his case, provides what protection Tax Court can give him.

“Petitioner has not demonstrated that the presumption in favor of access to the Court’s records is overcome. In filing his Petition more than two years ago, petitioner did not keep confidential his information and other facts reflected in his Petition or the record. While he alleges the risk of economic harm, petitioner fails to state any exceptional circumstances that exist in his own case. We therefore hold that he has not made a showing that the sealing of the record in his case is warranted.” Order, at p. 3.

Takeaway (unnecessary for my readers, but for the record): If you want sealing, request at petition. Tell your story and make it good.

I agree with the old Midwesternism “I don’t chew my cabbage twicet.” But for me, that means “twicet in the same place.” So here is an echo of my very brief spiel last evening to the Joint ABA/NYSBA Subcommittee on Taxation of Cooperatives and Condominiums.

This is of interest to tax advisers to sponsor/developers of phased or larger-scale Homeowners’ Association or Condominium projects. These are also part of the communities we serve, although our primary focus is on individual owners, sellers and buyers, and lenders, and Boards of Managers or Directors.

The materials on which I base these remarks are found in my blogpost “Rev. Proc. 2023-9,” 4/25/23. You can read these for yourself. My pet peeve is those CLE presenters who drone on, reading their written materials to us attendees, as if we were functionally illiterate. Presumably we attorneys and CPAs can read English, and maybe even understand what they read. Tell me what’s written between the lines.

There was a lot wrong with old Rev. Proc. 92-29; the intro to Rev. Proc. 2023-9 lists them in extenso. The two I focus on are the burdensome reporting and recordkeeping requirements, but worse is the mandatory extension of SOL, which is not limited to matters concerning the amenities, but to the entire project and the operations of the taxpayer generally. I know of no developer who availed themselves of this farrago. In fact, neither Tax Court nor 9 Cir mentions this Rev. Proc. in Shea Homes. I wonder if IRS’ counsel even mentioned it in their pleadings.

I note that, at page 9 of Rev. Proc. 2023-9, IRS speaks of any reasonable method of defining the project. Is IRS tacitly abandoning its fight against Shea Homes, notwithstanding AOD 2017-03?

Howbeit, I suggest you analyze Rev. Proc. 2023-9, if your practice involves sponsor/developers. I’d be interested to hear what that advisory community has to say, specifically, how many developers are likely to avail themselves of the safe harbor offered thereby.

Finally, a morning-after thought. Maybe IRS will keep AOD 2017-03 alive as a weapon against the envelope-pushers who try to abuse Shea Homes.

Hi, Judge Holmes

First, Judge Elizabeth A. (“Tex”) Copeland gives IRS’ counsel and us a brief lecture on how to seal filed but unredacted exhibits. Here’s Andre Temnorod & Brianna Temnorod, et al., Docket No. 5114-19, filed 4/26/23.

IRS’ counsel phoned Judge Tex Copeland to tell her about the unredacteds. Exactly what the Judge was to do was not specified, but Judge Tex Copeland rose to the occasion as follows.

“The Court informed respondent that a temporary seal could be placed on the filing, but that a Motion would be necessary to permanently seal the documents. As such, the Court placed a temporary seal on the affected filing.” Order, at p. 1.

Leaving aside the split infinitive, both IRS’ counsel and the Temnorods’ trusty attorneys banged in a joint motion the next day, specifying which docs were to be sealed. They seem to have prepared a table showing what and where in each of the five (count ’em, five) consolidated cases the docs sought to be sealed were to be found.

The table is found at p. 1 of the Order. Check it out; it’s a good template if you’re stuck in a like situation.

The lesson is obvious: if you want someone to do something, make it easy for them to do it. With the table, the Judge can order the Clerk to follow the road map.

Second, my colleague Peter Reilly, CPA, informs me that last week 9 Cir affirmed Amr H. Mohsen, T. C. Memo. 2021-99, filed 8/11/21. I’d thoroughly forgotten Amr, as I expect all but readers with the prodigious memory of Mr. Reilly had likewise done, but the backstory is in my blogpost “Look Back? Look Out,” 8/11/21.

I can’t say I’m surprised. But I want to use this opportunity to remind my readers that I do not routinely follow Tax Court orders or opinions beyond their first appearance. Draw no inference or presumption that I will do so in any case. Mr. Reilly and his colleagues in the blogosphere and trade press have time and resources far beyond mine; Mr. Reilly, for example, has the resources of forbes.com, which are far beyond my poor power to add or detract.

If you want to quote an opinion, assuming it’s available as precedent (orders, off-the-benchers, and Sum. Op.s aren’t, but you can try to lift the reasoning and cases therein cited that are precedential), first do a docket search for further developments. If an appeal is taken to the CCA, go to PACER and see what you can find, or if you don’t want to spend the money but can live dangerously, try Google searching. But I won’t do any of that as a rule.

For the benefit of my fellow members of the ABA/NYSBA Joint Subcommittee on Taxation of Cooperatives and Condominiums who will have heard my presentation on the referenced Revenue Procedure tomorrow evening, here are some links to relevant documents. For the backstory, see my blogpost “Medal Count,” 2/12/14.

1) Shea Homes Inc. v. CIR, 142 T. C. 60, 2/12/14, Wherry, J.

https://casetext.com/case/shea-homes-inc-v-commr-1

2) Affirmed, Shea Homes, Inc. v. CIR., 834 F. 3d 1061, (9 Cir., 2016, Fernandez, CJ)

https://law.justia.com/cases/federal/appellate-courts/ca9/14-72161/14-72161-2016-08-24.html

(3) IRS AOD 2017-03; 2017-15 IRB 1072, 4/10/17

https://www.taxnotes.com/research/federal/irs-guidance/actions-on-decisions/irs-won%27t-acquiesce-in-shea-homes-holding-on-completed-contracts/mb8y

4) Rev. Proc. 92-29

Click to access RP92-29.pdf

5) Rev. Proc. 2023-9, 1/27/23

Click to access rp-23-09.pdf

This member of the famous trio (could’a, should’a, would’a) is no help to Cynthia L. Hailstone and John Linford, T. C. Sum. Op. 17, filed 4/24/23. It’s John’s story, as Cynthia is innocent spoused out; IRS can’t prove Cynthia has actual knowledge that John received unreported disability insurance proceeds, and John doesn’t contest Cynthia’s Section 6015(c)(3)(C) exit.

John was an ex-insurance salesman during year at issue. While he was an insurance salesman, his employer provided disability insurance for its employees; John was one such. Although the insurance policy allowed the employer to require participating employees to pay up to 25% of the premiums, the employer elected not to.

You’ve probably already guessed the rest. John got disabled, and got $105K from the disability insurer, which he did not report. John did get a W-2 showing the payment.

STJ Diana L (“Sidewalks of New York”) Leyden has this one, and she gets to the point fast.

“Section 105 governs amounts received under accident and health plans. While the statutory framework is admittedly confusing, section 105 works as follows. First, section 105(a) provides a more specific rule than the general income inclusion rule under section 61 for when amounts received by an employee through accident or health insurance for personal injuries or sickness are excludable from income. If a disability payment under a disability insurance policy is not attributable to contributions by an employer or paid by the employer and the payment meets the requirement of section 105(c), then it is excludable from gross income.” T. C. Sum. Op. 17, at pp. 4-5. (Citation and footnote omitted).

As for contributions by the employer, that means contributions not included in employee’s gross income. If employee paid tax on the employer’s contributions, the proceeds are excludable.

“While petitioner argues that the policy allowed the company to choose an option to permit an employee to pay part of the premiums, the record is clear that the company did not choose that option and did not allow employees to pay any amount of the premiums. Rather, the record shows that the policy premiums were paid by the company. Therefore, under section 105(a) the amounts of the disability payments were paid under a policy for which the contributions (premiums) were paid by the company, and the exclusion under section 105(c) does not apply. Rather,  under section 61 the disability payments petitioner husband received… are includible in his gross income.” T. C. Sum. Op[. 2023-17, at p. 5.

Unfortunately for John, the “confusing statutory framework” doesn’t prevent a Section 6662(a) five-and-ten understatement chop if the Rule 155 beancount breaks bad.

“Petitioner husband asserts that he should not be liable for the penalty because he ‘did not feel that taxes were due on that disability amount.’ However, petitioner husband does not dispute that he received the disability payments nor that he received the Form W–2 that reported them. Petitioner husband did not rely upon a tax adviser or accountant to prepare petitioners’ tax return. Rather, he used a commercial tax return preparation software program. He testified that he did not see a prompt for reporting the disability payments, and thus, he did not report them.” T. C. Sum. Op. 17, at p. 6.

I will refrain from commenting upon a tax system that requires disabled persons to engage tax advisers or accountants. Some of my best friends are tax advisers or accountants.

We bloggers dread above all else running out of blogfodder. Taxes, supposedly one of only two sure things in this world, give me hope, which is why I’m here. But though the ground is unchanging, the landscape is undergoing constant change. Petitioners who once served up banquets now only provide the funeral baked meats to coldly furnish forth the table.

So once again Judge Albert G (“Scholar Al”) Lauber turns to the Grim Reaper of Serial Blowerdom, Mandy Mobley Li, 22 F. 4th 1014 (DC Cir, 2022). And under the sickle, if not the hammer, falls Suzanne Jean McCrory, Docket No. 15366-20W, filed 4/21/23.

It seems like yesterday that Judge Scholar Al shot down a couple Suzanne Jean’s claims for reward (hi, Judge Holmes). In fact it was yesterday; see my blogpost “Fighting Joe’s Spirit,” 4/20/23. Y’all will recall Suzanne Jean claimed she had 60 (count ’em, 60) Forms 211 sitting with the Ogden Sunseteers. Well, she lost two yesterday, and today another three are goners.

“This case is on all fours with Li. IRS classifiers recommended that petitioner’s claims be rejected because her ‘allegations are not specific, credible, or are speculative.’ Accepting the classifiers’ recommendations, the WBO decided not to forward petitioner’s information to an IRS examination team, and no action was taken against any Target on the basis of information that petitioner submitted. Because the IRS did not ‘proceed[] with any administrative or judicial action,’ the D.C. Circuit’s decision in Li dictates that we grant respondent’s Motion to Dismiss for Lack of Jurisdiction.” Order, at p. 3.

Fifty-five claims to go. The outlook isn’t bright for Suzanne Jean, nor for any aspiring serial blower.

I lamented the death of Whistleblower Indomitable, Fighting Joe Insinga; see my blogpost “Death of a Star,” 10/27/21. Here is his successor, Suzanne Jean McCrory, T. C. Memo. 2023-51, filed 4/20/23. Suzanne has been here before, of course, many a time and oft. Suzanne Jean stripmines the public record, overhauling the same to stir up litigation, and seeking the bubble 30% in the teeth of Mandy Mobley Li.

This time Judge Albert G (“Scholar Al”) Lauber, specialist in the realms of unsuccessful blowerdom, sends off Suzanne Jean because the Ogden Sunseteers decided to “‘Reject the Claim: Allegations are not specific, credible, or are speculative.” As to Target 1, ‘[r]eview of [IRS databases] appear[ed] to show all income [was] reported’ on information returns for tax years 2019 and 2018. As to Target 2, the classifier found that tax may not have been paid on a ‘small portion of interest for the 2019 tax year,’ but that this amount was de minimis and ‘would be below tolerance to pursue.’ Petitioner’s claims as to both Targets were thus ‘[r]ecommended for rejection by classification.” T. C. Memo. 2023-51, at p. 2.

Suzanne Jean’s fishing grounds are tort judgments against tobacco companies, specifically the punitive damage components and interest. Suzanne Jean herself claims 60 (count ’em, 60) Forms 211, and counting.

Suzanne Jean claims she has other claims of like tenor, so it’s premature to dismiss these two. So what, says Judge Scholar Al. Whatever the OS do or don’t do with the others, these are toast.

Judge Scholar Al is probably grateful to DC Cir, and Mandy Mobley Li, for setting up the master toss of all serial blowers.

But Suzanne Jean will soldier on, in the spirit of Fighting Joe.

No, that’s not a misprint, rather it is the intro to Judge Emin (“Eminent”) Toro’s send-off of the trusty tax advisers of Gladys L. Gerhardt, et al., 160 T. C. 9, filed 4/20/23. Gladys is lead-off for la famille Gerhardt, who contribute low-basis, high-FMV property to a charitable remainder annuity trust (CRAT), which promptly cashes out, buying with said cash single payment immediate annuities, payable over a five-year term, the payout of which Gladys and la famille claim is exempt from income tax, bar some small amount of interest.

Judge Eminent refers us back to Furrer, for which see my blogpost “From Boondocks to Cornfields,” 9/28/22. The CRAT may be exempt, but payouts to nonexempts are taxable at highest rate. And said trusty tax advisers also advised the Furrers, 160 T. C. 9, at p. 4, footnote 5; the too-successful dodgeflogger paints a target on every floggee.

The sale of the appreciated properties by the CRAT triggered gain to the CRAT, although nontaxable to the CRAT per Section 664. The CRAT got Gladys’ carryover basis, so sale generated gain; and Section 1245(a) makes that gain ordinary income when distributed.

“The Gerhardts resist the straightforward analysis set out above. In their telling, the Code does a lot more than exempt the CRATs from paying tax on built-in gains realized when contributed property is sold. According to the Gerhardts, the Code also relieves them from paying tax on the distributions that were made possible by the CRATs’ realization of the built-in gains. As they put it, ‘all taxable gains (on the sale of the asset[s contributed to the CRATs]) disappear and the full amount of the proceeds [is] converted to principal to be invested by the CRAT.’ Pet’rs’ Opening Br. 6–7 (emphasis added). In the Gerhardts’ view, ‘[i]t becomes obvious that Congress intended [this treatment] to promote charitable giving while offering large tax benefits as incentives.” Id. at 7. The gain disappearing act the Gerhardts attribute to the CRATs is worthy of a Penn and Teller magic show. But it finds no support in the Code, regulations, or caselaw.” 160 T. C. 9, at p. 26.

Judge Eminent gave Gladys’ trusty counsel a chance to distinguish their case from Furrer. I’ll let Judge Eminent tell what happened.

“But, tellingly, their briefs fail to mention the case at all. Their silence confirms our view that the reasoning in Furrer applies with equal force here.” 160 T. C. 9, at pp. 26-27. (Footnote omitted, but, as usual, the footnote tells the whole story.)

“This is particularly notable given that the Gerhardts’ counsel in these cases also represented the Furrers. Moreover, neither the Gerhardts’ Opening Brief nor their Reply to Respondent’s Opening Brief cites a single case in support of their position. As we have already explained, no such support exists.” 160 T. C. 9, at p. 27, footnote 36.

Besides this, a couple of the Gerhardts swapped some hog buildings and related property in a 1031 like-kind exchange. That was valid, but rather than deferring gain, IRS claims Section 1245 turns depreciable “a single-purpose agricultural or horticultural structure,” per Section 1245(a)(3)(A), (D) into ordinary income. And the couple can’t prove otherwise.

Two other Gerhardts faced five-and-ten Section 6662 understatement of tax chops. They never put in evidence as to their preparer’s qualifications.

I can see these Midwestern CRAT games next on IRS’ list of reportables, right below the Dixieland Boondockery.

No, not the 1960 Peter Sellers jailbreak Britcom; rather, Judge Colvin confronts again the problem of the wannabe real estate pro who has a day job,  and therefore must show that his real estate stretch for year at issue is greater than his day-job stretch. It’s a small claimer, Gregory F. Teague and Rachel S. Teague, T.C. Sum. Op. 2023-16, filed 4/19/23. IRS needs four (count ’em, four) attorneys to fight over a $6800 deficiency from their rehab-and-flipping of three ME cabins.

It’s Greg’s story, as Rachel doesn’t make the cut, and spouses can’t tack on time. “Petitioners appear to contend that they qualify as real estate professionals if we count the total time they both spent working on the cabins. However, in the case of a joint return, the requirements for qualification as a real estate professional are satisfied only if either spouse separately meets the requirements. §469(c)(7)(B). Petitioners do not contend that Mrs. Teague separately qualifies as a real estate professional, and so we do not further consider time she spent in these activities.” T. C. Sum. Op. 2023-16, at p. 5.

Greg’s day job is selling cable tv subscriptions in 60 housing developments. He could work remotely. How much of his time was taken up thereby in year at issue is, in the absence of any logs or contemporaneous records, a wee bit unclear. “At trial Mr. Teague gave several inconsistent estimates of the amount of time he worked for [cable tv company]… including: 40 hours per week (two times), more than 30 hours per week  (two times), 20 to 40 hours per week (three times), and 1,840 hours per year (once). He also varyingly [sic] testified that he took almost six weeks (once) and 29 days (once) of vacation in [year at issue]. Because Mr. Teague held a full-time position… and testified twice that he worked 40 hours per week and once that he worked 1,840 hours per year for [cable tv company] (40 hours per 52 weeks less six weeks of vacation), we find that he worked for [cable tv company] 40 hours per week for 46 weeks (1,840 hours) in [year at issue].” T. C. Sum. Op. 2023-16, at p. 5.

Great witness. I wonder how Greg’s trusty attorney felt as he listened to the foregoing. The rest of Greg’s testimony fares little better.

“We accept Mr. Teague’s testimony that he was at the cabins 102 days in [year at issue]. This claim is consistent with the number of days stated in petitioners’ counsel’s pretrial email…. However, we do not accept petitioners’ claim that Mr. Teague averaged 12 hours of work per day for those 102 days. Petitioners’ claim fails to take into account time he spent eating and participating in recreation activities with his family and friends or [cable tv company] work interruptions.” T. C.  Sum. Op. 2023-16, at p. 6. Judge Colvin lists all the recreational activities in which Greg participated, including without in any way limiting the generality of the foregoing (as my on-their-second-Hanger-10-Gibson colleagues would say) taking “a few minutes to jump in the lake and cool off for a few minutes.” T. C. Sum. Op. 2023-16, at p. 7.

Judge Colvin allows Greg 304 of the 1224 hours he claims. As for Greg’s claim he could multi-task, taking cable tv phonecalls while beavering away on the cabins, he provided no reliable way to divide the time thus spent.

IRS folds the chops, but Greg loses the deficiency.

Takeaway- Buy the timekeeping software if you’re trying for real estate pro.