Leave to amend is liberally granted, provided no prejudice or unfair surprise. But when IRS seeks to amend its amended answer to inject the anti-abuse provisions of Reg. Section 1.460-4(k)(4) into the scrimmage over their completed construction method of accounting, Otay Project LP, Oriole Management LLC, Tax Matters Partner, Docket No. 6819-20, filed 5/31/24, cries foul.

Otay has been here before, of course. They’ve got tiered partnerships and a huge (like $867 million) basis step-up; for backstory, see my blogposts “Speedy Is As Speedy Does,” 5/14/21, and “The Best Discovery,” 11/1/21. Otay’s trusty attorneys have given IRS a lot of trouble when they’ve sought to amend.

IRS was arguing economic substance, but wants to insert the anti-abuse provisions of Reg. Section 1.460-4(k)(4). Otay’s trusty attorneys yell IRS is wild-carding “a brand-new matter into this case more than three years since filing his amended answer by now challenging the CCM [Completed Contract Method] of tax accounting used by petitioner since its inception in year 1999, and only some five months prior to trial.” Order, at p. 4.

Judge Christian N. (“Speedy”) Weiler doesn’t care for IRS’ belated timing, but if five (count ’em, five) months before trial doesn’t give the Otays enough time for discovery, he’ll maybe give more.

“While not ideal timing, we cannot say that the First Amendment to the Amended Answer will create unfair surprise or prejudice to petitioner, should the Court grant respondent’s Motion for Leave to Amend. The issue seems to be a legal dispute, relating the application of the anti-abuse rule of Treas. Reg. § 1.460-4(k)(4) and the Partnership’s use of the CCM accounting method. We also accept respondent’s premise that evidence required to invoke the CCM anti-abuse rule is coextensive with the evidence required to test the economic substance of petitioner’s restructuring and/or the partnership anti-abuse rule of Treas. Reg. § 1.701-2(a). See Treas. Reg. §1.701-2(b)(3).” Order, at p. 4.

Note that in the second of my two above-referred-to blogposts, the Section 701 anti-abuse argument was raised.

Howbeit, “to negate the potential for prejudice – should petitioner need additional time to conduct discovery or a delay (in completion) of trial in light of respondent’s First Amendment, the Court is inclined to grant such a request, if made, by petitioner.” Order, at p. 5.

No, I’m not reporting on highly-publicized trials involving political figures. Today we get to the nitty-gritty, sand-and-gravel mining non-operations of Excelsior Aggregates, LLC, Big Escambia Ventures, LLC, Tax Matters Partner, et al., T. C. Memo. 2024-60, filed 5/30/24.

Dixieland Boondockery, of course, but here we have donations of the fee in the same year as deduction claimed, not merely an easement, so Judge Albert G. (“Scholar Al”) Lauber is able to adopt “(A) less nuanced analysis,” T. C. Memo. 2024-60, at p. 5, as the 501(c)(3) got the whole enchilada. 

To spare you suspense, in all three (count ’em, three) of these consolidated cases (by which the others in this 14-ring circus agreed to be bound), the appraisals were prepared by CW. But Judge Scholar Al had to try these cases in part because CW was unavailable. CW remains unavailable, because “the parties informed the Court that, if Mr. CW were called as a witness, he ‘is currently expected to invoke his Fifth Amendment privilege in these consolidated cases with respect to all matters.’ In a joint status report filed April 4, 2024, the parties represented that, ‘absent a grant of immunity, Mr. CW remains unavailable to testify.'” T. C. Memo. 2024-60, at p.4, footnote 4. (Name omitted). 

And the rest of the Big Scambies’ witnesses have a few wee problems.

“Some of petitioner’s fact witnesses were important players in the ‘syndicated conservation easement space,’ including the promoters who organized the transactions and helped market the deals to investors. Other witnesses had invested in easement deals or acted as professional advisers to the promoters. Many of these witnesses had a direct or indirect stake in the outcome of these cases. While generally showing good recall of many facts from the [relevant] period, they sometimes expressed inability to recall certain facts about matters that might be regarded as unhelpful to petitioner’s position. Because of these witnesses’ interest in the outcome and selective inability to recall pertinent facts, the Court has been required to make credibility determinations.” T. C. Memo. 2024-60, at pp. 5-6. (Footnote omitted, but it says that since the word “promoter” evokes Section 6700(a) dodgeflogger chops, Judge Scholar Al makes no determination thereof, as that isn’t before the Court).

If you’re interested in how to set up and flog a conservation easement dodge on Dixieland Boondocks, read T. C. Memo. 2024-60 from page 6 through page 16.

Then read this gem of trial testimony from a true promoter, a prime example of the mach gresser, mach veyniger school, not your father’s MAI.

“When asked at trial how he could have posited in advance a deduction-to-investment ratio of $4.389 to $1, before any appraisals had been performed, Mr. S said that appraisals were basically irrelevant to the tax write-off they were offering. The promised ratio of 4.389 to 1, he explained, was driven by ‘the market,’ that is, by the magnitude of the tax deductions being offered by other promoters of conservation easements.” T. C. Memo. 2024-60, at pp. 15-16. (Name omitted). And to get their numbers, the land would have to yield sand and gravel equal to the State’s entire production, so they subdivided the land and sold pieces to different syndicates of fewer sophisticates so as to conceal that their numbers were dodgy, duck SEC registration airspace, and make participation “more affordable.” T. C. Memo. 2024-60, at pp. 16-17.

So what the promoters bought for $9.5 million they claim was worth $177 million 13 months later. Yet CW’s numbers came out $4 million better.

IRS wheels out its experts. I won’t bore you with boreholes, burden you with overburden, discounted cash flow, preponderance-vs-BoP, willing buyer willing-seller, and the rest. And the claim that subdividing increased value, which might be true for residential development, is sunk by the above-referred-to trial testimony. The old-time Dixie mining fraternity testified this was true boondocks.

One of the Big Scambies’ experts did get the FMV of one property higher than IRS’ expert, so they get that one.

A colleague was one of counsel to the petitioners. Better luck next time.

Judge Emin (“Eminent”) Toro decides that whether the straight Rule 121 summary J review or the Van Bemmelen APA abuse-of-discretion standard applies, Suzanne Jean McCrory, T. C. Memo. 2024-61, filed 5/30/24 still loses, because her information didn’t help IRS clear the $200K/$2 million oxer.

The backstory is in my blogpost “Perseverance Furthers,” 8/1/23.

IRS does answer and raise the Section 7623(b)(5) jurisdictional defense to Suzanne’s mandatory award claim. Suzanne’s arguments are of no avail. IRS did get almost $180K from the last of the seven-claim torpedo-spread Suzanne sent in. One was examined with no change. IRS claims the information she provided on five was the usual “not specific, were not credible, or were speculative.” T. C. Memo. 2024-61, at p. 3.

The last hit whatever jackpot there was.

Since the administrative record supports the result, method of review doesn’t matter. Taishoff says since the test is what the IRS documented as doing, the nomenclature is unhelpful. Was money collected? Was the whistleblower’s information the procuring cause? Any no-proceeds case should be dealt with on a jurisdictional motion, post-Li. Mandatory cases likewise, if the $200K/$2 million issue is in play. And few, if any, cases go beyond that to abuse-of-discretion, whatever it’s called.

Here, Suzanne’s information was the procuring cause of the collection. But Section 7623(a)’s nonmonetary cutoff means any award is nonmandatory and nonreviewable. To get a mandatory 15% or better, you need $200K gross income for individuals and $2 million in dispute for all targets. And “in dispute” means what IRS asserted against target, not what blower claimed the target owes.

But Suzanne remains the leading contender for the first Fighting Joe Insinga Memorial Award.

Just hand it over and mark it for identification. That’s Judge Ronald L. (“Ingenuity”) Buch sorting out a Rule 91(f) joust between IRS and Intermountain Electronics, Inc., Docket No. 11019-19, filed 5/30/24.

The Electronics have 35 (count ’em, 35) stipulations of fact. Now we all know stipulations are “the bedrock of Tax Court practice,” in the sacred words of Branerton. IRS’ beef with 14 of them is that they mention exhibits not attached to said stips. IRS doesn’t claim the facts aren’t true, nor that they never saw what purports to be said exhibits (unattached).

Judge Ingenuity Buch heretofore told the parties to play nice, but it looks like Judge Buch was “unduly optimistic”, Order, at p. 3.

Briefly, IRS’ proposed text edits to the stips are rejected, because IRS didn’t cite “sources, reasons, or basis” for same, per Rule 91(f)(2).  And Rule 91(f)(1)(B) is disjunctive: either attach exhibits or make same available to the Court and other parties. “According to Intermountain, the Commissioner has had access to the referenced documents, and the Commissioner does not dispute having access. We will allow Intermountain to make the exhibits available to the Court.” Order, at p. 10. And let the Electronics mark same appropriately. Finally, IRS refuses to stipulate to headings. But headings are specifically stated in the stips to be for general identification, and to have no legal effect.

Now remember, kiddies, “(T)he stipulation process is intended to encourage the parties to voluntarily provide each other with information relevant to the case and to not cause extraordinary expenses, gamesmanship, or injustices.” Order, at p. 10. (Citations omitted.)

Stipulate, don’t prevaricate.

The usual Section 7459(b) off-the-bencher rarely sees reconsideration. The last one I remember was six (count ’em, six) years ago: see my blogpost “Correction and a Rant,” 8/24/18. And that was a howler.

Today Judge Morrison grants reconsideration out of time (that is, past the 30-day cutoff of Rule 161) in Krishan K. Gossain & Kavita Gossain, Docket No. 21812-22, filed 5/29/24, and I wish he’d told us why, besides that both parties consented.

The off-the-bencher here was issued back in January; see my blogpost “Till Section 469(c)(7)(b) Does Us Part,” 1/16/24.

The opinion seemed clear enough, a 750-hour count for real estate pro status.

I’d like an example of what circumstances justify out-of-time reconsideration of an off-the-bencher, other than the kind of blunder described in my first-above-mentioned blogpost. Practitioners need all the guidance they can get.

Employee plan declaratory judgment cases are rare, so I won’t amplify STJ Jennifer E. (“Publius”) Siegel’s send-off to the trusty attorney for Solid Ground Transportation, Inc. & Solid Ground Transportation, Inc. Employee Stock Ownership and Profit-Sharing Plan, Docket No. 8843-23R, filed 5/28/24. I’ll call said trusty attorney JJ.

JJ sent in two (count ’em, two) petitions. IRS moves to toss the first for lack of jurisdiction, so STJ Publius stayed this one while she found jurisdiction, but bounced that one for duplication, stating that “both cases related to the same plan and period and were therefore duplicates,” Order, at p. 1. JJ asked for reconsideration, didn’t get it, and filed an appeal with 7 Cir. He doesn’t want a stay of this case while the appeal wends its way, rather wants to certify the lifting of the stay for appeal per Section 7482.

STJ Publius says no.

“The Court may certify an order for interlocutory appeal where it (1) involves a controlling question of law (2) about which there is a substantial ground for difference of opinion and (3) an immediate appeal from the order may materially advance the ultimate termination of the litigation.

“Petitioners fail to satisfy any of these requirements.” Order, at p. 2. (Citations omitted, but get them for your memo of law file).

First, wanting to have a stay is not a controlling question of law.

Next, JJ’s “assertion that the Tax Court’s ‘arriv[al] at a legal conclusion’ in the other case establishes the existence of substantial grounds for difference of opinion in this case only demonstrates petitioners’ misunderstanding. Generally, the ‘substantial ground for difference of opinion’ test is interpreted to involve questions that present serious and unsettled legal issues. There are no unsettled legal issues pertaining to the Order lifting the stay in this case. Petitioners suggest that the parties’ disagreement about jurisdiction in the other case satisfies this test. This suggestion, aside from being related to the wrong case, is incorrect.

“We note, too, that, under the circumstances presented, an interlocutory appeal of the Court’s …. Order lifting the stay would not materially advance the litigation. It would instead cause further delay: petitioners indicated in their most recent Status Report that they were unwilling to stipulate the certified administrative record while the appellate case is pending.” Order, at pp. 2-3.

Anyway, DJs are based on the administrative record, so JJ’s motion for discovery to supplement the administrative record is denied, as he’s not shown good cause therefor.

And STJ Publius already extended the time for filing the administrative record, so JJ’s motion to extend the time is moot.

Takeaway: As with most NOD cases, the time to build your record is at Exam and Appeals. The greatest number of NOD cases (CDP, DJ, IC-vs-EE, 501(c)(3), passport grabs, innocent spousery, oiffshore assets) were won or lost long before the petition hit the Glasshouse.

Today being what in my youth was called Decoration Day, but is now reconstituted as another three-day weekend, United States Tax Court is closed.

The original intent of this holiday being largely ignored, I will eschew further commentary beyond saying that some gave little, some gave much, and some gave all, but no one has the right to give nothing.

No, not music criticism; I didn’t see the Met’s Blanchard-Lemmons production. The title, though, and the verse of which it’s a part, state the matter well.

I’m tired of being silent. I’ve said before that I don’t, and won’t, traffic in conspiracy theories. And most mysteries properly belong on bookshelves or Kindles.

But the reason for the disappearance of ex-STJ Eunkyong (“N’Yawk”) Choi must be simple and obvious. It’s getting on for a year since her departure, but when I inquire no one knows anything. There was a suggestion in the trade press (Tax Notes), for which see my blogpost “Omertà at the Glasshouse?” 1/18/24. The Tax Notes item was simplicity itself. All it needed was an off-the-record statement confirming that an obvious blunder was hushed up to save her reputation. That would silence me without the need for anything more.

I have heard, from a source I deem reliable, that ex-STJ Choi is in Korea.

So let one who knows provide the simple, obvious answer, and put out the fire. Then I’ll stop asking.

I have not calculated, and have no present intention of calculating, the amount of scarce judicial resources wasted in preparing and serving such orders as Vyacheslav Senchenko & Lyudmila Senchenko, Docket No. 6901-24S, filed 5/24/24.

It’s the usual case, an unadmitted CPA with a Form 2848 acting as counsel. Ch J Kathleen (“TBS = The Big Shillelagh”) Kerrigan sends him off with the usual boilerplate.

“The Tax Court, unlike the Internal Revenue Service, does not recognize powers of attorney. See Rules 24(a), 200; see also Ruggere v. Commissioner, 78 T.C. 979, 989 (1982). At this juncture and upon review of the entire record, the email address XXXCPA.com used to electronically file the petition will be disabled from the record in this case.” Order, at p. 1. (Name omitted).

At least Vy and Ly personally signed the petition, so they’re in.

But we get cases like this every day.

Taishoff says why not take the handout entitled “REPRESENTING A TAXPAYER BEFORE THE U.S. TAX COURT” Version 03/27/2022, and make it part of Form 2, the “simplified” petition?

And add to the Form 2 instructions a simple statement that Form 2848 or any State-sanctioned form of power of attorney DOES NOT entitle the representative or agent named in any thereof to represent petitioners in U. S. Tax Court. See Representing etc. for persons allowed to sign Tax Court petitions; no others need apply.

The stuff of this blog is controversy, specifically tax controversy. United States Tax Court is one great squared circle, where IRS and petitioners (and some bystanders, innocent or not) batter away at each other. The judges and STJs referee, as the Ch J disqualifies whichever petitioner fails to make weight.

Peering into this scrum are we of the blogosphere, the trade press, and solos, even such as I, a “general practitioner of very limited experience and mediocre qualifications.” Our quarry is the interesting, novel, offbeat beating-up or beating-down of one side or the other.

But so rare as to be unaccountable is a case like Deborah Gail Martin, Docket No. 7429-22, filed 5/23/24. Deborah has a Section 170 SNOD, but she isn’t a Dixieland Boondocker or a false façader. Deborah is a loyal congregant of “United House of Prayer for All People, a church described in section 170(c).” Transcript, at p. 4.

Judge Albert G. (“Scholar Al”) Lauber says she “has contributed extremely generously to the Church for many years, making gifts that represent a very substantial portion of her relatively modest income.” Idem, as my highly-experienced, highly-qualified, and expensive colleagues say.

Deborah has CWAs for better than $17K of the $36K she claimed on her 1040 for year at issue. Besides, she has bank statements for cash contributions less than $250 for another $600. The SNOD she got acknowledged $19K, but disallowed the rest. Apparently Deborah’s AGI was below the phase-out for Sched As.

Time for trial testimony.

“Petitioner originally believed that her bank records would show contributions to the Church for [year at issue] that were larger than this amount. However, when the case was called for trial… petitioner agreed that she had made some mistakes in calculating her deduction, and that her bank records did not in fact support a deduction larger than the IRS had allowed. She confirmed her agreement that the amount allowed by the IRS was correct and that she had no evidence to substantiate a larger deduction.” Transcript, at p. 7.

IRS never imposed chops.

Brings a smile to my wrinkled old face to see a Psalm 133:1 finish to a Tax Court off-the-bencher.