Judge Elizabeth A. (“Tex”) Copeland has to deal with unsalable, untransportable, irreparable, and unrecyclable WD-40 cans in IQ Holdings, Inc., T. C. Memo. 2024-104, filed 11/7/24. IQ set up a 501(c)(3) to research medical aerosols, and gave it land and building, a bunch equipment (hi, Judge Holmes), some inventory (aerosol cans and raw packaging materials), and cash. While waiting for TE/GE to bless said 501(c)(3), the cans went bad. USDOT told IQ they couldn’t ship them, WD-40 became immoveable and rejected the stuff, and IQ concluded it would cost more to recycle them than they were worth. So IQ wrote the stuff off. IRS wants to fight about the calculation of the amount of loss.

Reg. Section 1.471-2(c) provides guidance, based upon bona fide sales price. IQ never offered the stuff for sale, claiming no one would buy the junk. IRS wants summary J, but won’t get it from Judge Tex Copeland.

“We agree with IQH that Treasury Regulation § 1.471-2(c) cannot be read to require a taxpayer to offer for sale items that, in their current condition, would be tortious or illegal to sell. Moreover, solely for purposes of ruling on the Commissioner’s Motion for Summary Judgment, we construe the record in the light most favorable to IQH. Consequently, we must assume that both the IQ-branded aerosol products and the WD–40 cans were tortious or illegal to sell in [year at issue], precluding us from resolving the issue summarily on the basis that the goods were not actually held out for sale.” T. C. Memo. 2024-104, at p. 9. (Citation omitted).

And there’s also the issue in what year the junk became junk. IRS says IQ knew two (count ’em, two) years earlier the cans were junk. But IQ’s good faith is a fact question.

Summary J is fact-finding, not fact-determining, but there are two (count ’em, two) facts not in dispute. The Contemporaneous Written Acknowledgement from the 5012(c)(3) doesn’t have the magic “no goods or service were provided” wording, so that sinks the charitable side. Substantial compliance can’t o’ercrow explicit statutory requirement.

Likewise, IQ’s claimed NOL founders for year at issue because of failure to check the box on line 11 of the 1120 IQ filed (IQ is a C Corp), thereby failing irrevocably to renounce timely carrying back its NOL. That’s necessary to prevent free-riding by taxpayers, who could claim a “whoops” later on, depending on what income they subsequently had or didn’t have.

There’s argy-bargy about Section 1314 mitigation, but the year for which IQ should get a refund because its NOL needed to be carried back two years is not before the Court.

Finally, the Section 6662(a) chops might be avoided if IQ can put in its accountants and “various corporate representatives” (T. C. Memo. 2024-104, at p. 20) on the stand to testify to IQ’s good faith, so no summary J on that.

Once again, summary J affords discovery of everybody’s case, and what the judge thinks of them.