Dixieland Boondockery is giving partial summary J a real workout, as IRS and the Dixie Boondockers both want partial summary J every chance they get. Today, it’s the turn of Lake Jordan Holdings, LLC, Lake Jordan Partners, LLC, Tax Matters Partner, Docket No. 16532-21, filed 7/14/23. But the mutual storming of the partial summary J Bastille is less successful than the one France celebrates today.

Judge Patrick J. (“Scholar Pat”) Urda succeeds where the French guards failed, and refuses partial summary J to the Lakers and IRS. Y’all will recollect IRS did the Boss Hoss partial summary J slice back in April; if you don’t, see my blogpost “Wagging the Cattail,” 4/28/23. Maybe so it might could be that maneuver tipped off the Lakers; as my late law partner Sid used to say “Win the motion, educate your adversary.”

Now the issue is the tax year in which the Lakers claimed the $12.7 million conservation easement deduction for the land it bought the month before for $583K; oh, those dilithium crystals!

The original owners formed Holdings box-checked as a partnership and contributed the land in November; they unloaded 96% to Partners on December 29, 2017 and the same day recorded the easement in gross to the 501(c)(3).

Now all my jagged sophisticated readers will yell “TEFRA version of Section 708(b)(1)(B) termination! Holdings ceased to exist at transfer, so they couldn’t record anything!”

Except.

“Lake Jordan filed two short-year tax returns. The first covered the period from September 25, 2017 through December 28, 2017 (12/28 tax year). The second spanned the three days from December 29, 2017 through December 31, 2017 (12/31 tax year). Lake Jordan claimed a charitable contribution deduction of $12,740,000 for its donation of the easement on the 12/31 tax year return.” Order, at p. 2. (Citations omitted).  The FPAA covered the 12/31 year.

IRS claims the 12/31 year began 12/30, not 12/29.”He [Com’r] points out that Lake Jordan’s initial 2017 short tax year closes on the date that the partnership underwent the technical termination, i.e., December 29, 2017, and contends that its tax reporting encompasses all events that occur on that date. Drawing on Treas. Reg. §§ 1.708-1(d)(2)(i) and 1.443-1(a)(1), the Commissioner posits that the new post-termination partnership does not open its books for tax reporting purposes until the following day, i.e., December 30, 2017. The Commissioner concludes that the claim of the charitable contribution deduction on Lake Jordan’s 12/31 tax year return thus was claimed in the wrong tax year under section 170(a)(1) and must be disallowed.” Order, at p. 3. (Citations omitted).

The Lakers counter with creation of a new partnership immediately after the technical termination, emphasizing that this new entity donated the conservation easement. Their reporting reflected reality, and nothing in IRC or Regs  prohibits such treatment in the context of technical terminations.

Judge Scholar Pat, living up to his cognomen, is unimpressed by both sides’ reasoning.

“Neither party has provided a convincing explanation of the statutory and regulatory scheme that governs tax reporting in the context of technical terminations. To the contrary, each party has focused on one aspect of technical terminations (for the Commissioner, the close of the terminated partnership’s taxable year on December 29; for Lake Jordan, the existence of the new partnership immediately after the technical termination), while failing to demonstrate that those aspects dictate their preferred answers with respect to proper tax reporting. We will not render a decision on this point absent a more solid understanding of tax reporting in this context, which we trust the parties will provide in their posttrial briefing.” Order, at pp. 3-4. (Footnote omitted).

The omitted footnote abovementioned says that summary J doesn’t prevent the need for a trial, as chops (presumably enhanced overvaluation and understatement) and defenses thereto are still on the table.

Note the dates: The Lakers got in on 12/31/17, the last day of TEFRA (BBA 2015 repealed TEFRA effective years beginning 1/1/18). Did the Lakers get the Job 5:12 treatment?