The words of Judge Mark V. (“Vittorio Emanuele”) Holmes, concurring in Oakbrook, are borne out as that Obliging Jurist David Gustafson renders a daily double of T. C. Memo.s, beginning with Murfam Enterprises LLC, Wendell Murphy, Jr., Tax Matters Partner, T. C. 2023-73, filed 6/15/23. Hard to believe that it’s two weeks shy of five (count ’em, five) years since I posted the first of the eventual six (count ’em, six) blogposts on this case.

Thanks, Junior and Wendy, Dell and Linda. Great blogfodder.

Spoiler alert. It’s all about the appraisals, as IRS folds almost all the Section 170 jive. But IRS was slow with the chops, which never featured in the FPAA, so IRS has “new matter” BoP.

“In this case, the FPAA included no penalty determination. Rather, the Commissioner first asserted penalties in an amended answer to the petition that pleaded liability for gross valuation misstatement penalties under section 6662(e) and (h), or in the alternative, accuracy-related penalties under section 6662(a). Because the penalties asserted by the Commissioner in his amended answer would increase the liability determined in the FPAA issued to Murfam, they are ‘new matter’ for which the Commissioner bears the overall burden of proof. That burden includes the burden to prove the absence of ‘reasonable cause’.” T. C. Memo. 2023-73, at pp. 12-13.

IRS comes cropper on Section 6664.

“The straightforward and unchallenged trial testimony of R  (the D CPA who prepared Murfam’s Form 1065) established that D was a well-known firm with a good reputation in North Carolina, that Murfam retained D to prepare all of its returns during a three-year period and relied on it to do so, that D requested all the information it thought necessary for preparing Murfam’s returns, that D received all the information that it had requested from Murfam, that D prepared the returns in accordance with that information, and that Murfam filed the returns as they had been prepared by D.” T. C. Memo. 2023-73, at pp. 21-22. (Names omitted).

Checked all the Neonatology boxes. But that’s not good enough. Reg. Section 1.6664-4(b)(1) requires no unreasonable assumptions, no reliance on invalidity of any Reg. Section, and the usual facts-and-circumstances.

IRS’ only argument is that Murfam willfully withheld the essential statement of donor’s basis. But IRS has only the Michael Corleone classical gambit for this.

“The cited evidence does not make this showing. There is simply no evidence as to whether the advisors asked for basis information. There is no evidence as to whether Murfam provided basis information. To the extent there was basis information not provided by Murfam, there is no evidence to show why it was not provided. The reason that there is no such evidence is that the Commissioner did not cross-examine the witnesses on the point.” T. C. Memo. 2023-73, at pp. 23-24.

The valuation issue goes off on swine breeding. If you care how your bacon and Black Forest-style got from NC to your plate, read pp. 26-31.

The impact of the undervaluation is taken up in Wendell H. Murphy, Jr. and Wendy F. Murphy, T. C. 2023-72, filed 6/15/23, at pp. 63-69. They’re up for the Section 6662 gross overvaluation chop.