No, not CA, LA. William E. Frazier and Mary A. Frazier, et al., T. C. Memo. 2024-3, filed 1/8/24, own LHDC, a C Corp that administered for years at issue the Federal Section 8 rent subsidy program for Shreveport and Jefferson Parish. One of its ex-employees opened her own operation in Plaquemines Parish, but needed back-office back-up, and would pay to use LHDC’s employees and knowhow.

Problem was Gary Lala. When LHDC’s contract with Jefferson Parish was up for renewal, Lala, former chair of the Public Housing Agency that oversaw the operation,  threatened to call his friend, the current chair, and get the contract unless paid off. William and Mary did, making Lala a no-show VP of LHDC. When the ex-employee asked to pay LHDC for the aforesaid back-up, William and Mary tried to cut out Lala (the “leech,” T.C. Memo. 2024-3, at p. 19) from his piece of that action. The deal was LHDC was to acquire 50% of the ex-employee’s operation in exchange for services, but the partnership interest was put in William’s name.

So for years at issue William reported the income from the partnership, with a “dummy deduction,” as all the cash went to LHDC. IRS claims substantial underreporting.

Judge Morrison gets this mess, and unscrambles it in 173 (count ’em, 173) pages. IRS leans on the late-filed returns claiming ownership in William, but William and Mary have enough evidence to get around Danielson. William and Mary aren’t disavowing the deal they made with ex-employee. And tax reporting isn’t dispositive of the real deal.

LHDC has some heavy unreported income, William and Mary don’t.

There’s also 1030 stock trades, with short-term and long-term capital gains to unscramble, and partnership taxation of cash distributions in excess of outside basis. And both sides’ trial prep isn’t of the highest order, as copies of 1040s as filed never make it into the record.

William and Mary dodge a big bullet, and William’s dementia helps knock out some add-ons.

LA skullduggery is no worse than in Excelsiorland.