In real estate generally, the three key items are location, location, and location. In Dixieland Boondockery, s/a/k/a syndicated conservation easements, the three keys are “valuation, valuation, and valuation.” So said Judge Mark V. Holmes all the way back on 5/12/20: “Conservation-easement cases might have been more reasonably resolved case-by-case in contests of valuation. The syndicated conservation-easement deals with wildly inflated deductions on land bought at much lower prices would seem perfectly fine fodder for feeding into a valuation grinder. Valuation law is reasonably well known, and valuation cases are exceptionally capable of settlement.” See my blogpost “They Always Must Be With Us,” 5/12/20.*

Judge Emin (“Eminent”) Toro couldn’t agree more. He kicks to the curb IRS’ donative intent quid pro quo argument; the benefit comes from the IRC, not the donee. The usual IRS sniping at the documentation underlying the donation, the text of the appraisal, and the qualifications of the appraiser all  founder on extensive somber reasoning and copious citation of accumulated precedent, so that Judge Eminent Toro’s opinion in Seabrook Property, LLC, Seabrook Manager, LLC, Tax Matters Partner, Petitioner, T. C. Memo.  2025-6, filed 1/21/25, is like Old Home Week through page thirty-four.

So, thirty-five (count ’em, thirty-five) pages into the seventy-eight pages of Judge Eminent Toro’s prose, we come to valuation. And it’s the standard mix-and-match: Seabrook’s claimed easement valuation of $32,581,443 at p. 1 shrinks to $4,718,000 by p. 76. With a 40% Section 6662(h) chop for dessert.

Btw, note T. C. 2025-6, at p. 4. If ever Judge Toro retires from the Bench, he has a great future as a real estate broker.

* https://wp.me/p1eNMc-4lG

Today is the celebration of Dr. Martin Luther King, Jr., and the inauguration of President Donald John Trump. This being a nonpolitical blog, I have commented elsewhere.

Btw, Tax Court is closed.

Judge Elizabeth A. (“Tex”) Copeland has another Fidelity Charitable eve-of-sale offload of appreciated interests in David Hazan and Grace Hazan, Docket No. 35190-21, filed 1/17/25. For background on this dodge, see my blogpost “A Real Gift,” 3/15/23.*

IRS claims “the Hazans anticipatorily assigned expected income from the sale of [their LLC’s] assets to Fidelity Charitable (Fidelity) and thus failed to report the income from the subsequent sale of [their LLC’s] assets.” Order, at p. 2.

IRS also claims that the Hazens’ failure to object to IRS’ Rule 90(c) Request For Admissions, wherein IRS asserted that the sale of the LLC interests that the Hazens claimed they donated was a done deal prior to donation means they’ve given up the issue.

No, says Judge Tex Copeland.

“During the hearing on this matter, Mr. Hazan argued that he had contacted the attorneys that handled the… transaction, and they indicated that the [Asset Purchase Agreement] was signed after the charitable donation was made and that the closing of the transaction did not occur ‘until over 30 days later.’ Such attorneys could be called as witnesses at trial. Furthermore, if such statements are true, Mr. Hazan is effectively denying deemed admissions 20 and 21. While Respondent’s proposed stipulations have previously been deemed admitted, see Rule 90(c), withdrawal or modification may be permitted if the presentation of the merits of the case will be promoted thereby. See Rule 90(f). Here, in the interest of justice, we will deem the Hazans to have made an oral motion to withdraw these two admissions and will deem them denied.” Order, at p. 5. (Footnote omitted).

OK, so maybe there was a pre-sale donation, if the facts adduced at trial show the sale of the LLC’s assets wasn’t a done deal when Dave uploaded to Fidelity. If the facts don’t match, then there was a taxable sale and a post-sale contribution, which might or might not be deductible.

But Judge Tex Copeland erases the question of whether the contribution was deductible, whenever it happened. Check out Order at p. 2 for the appraisal story.

Now Judge Tex Copeland’s take. She finds the appraisal the Hazens attached to their Form 8283 didn’t strictly comply with Section 170. But of course Section 170 in that regard is directory, not mandatory, so substantial compliance can save the day.

Unhappily, “(S)ubstantial compliance can save a taxpayer from minor or technical defects, but not from errors that go to the heart of the statute. The Hazans’ appraisal is riddled with flaws: The property valued is not the same as the property donated, see Treas. Reg. 1.170A-13(c)(3)(ii)(A); the appraisal summary is not signed by appraisers who contributed to the appraisal, see Treas. Reg. § 1.170A-13(c)(4)(i)(C); the appraisal does not provide a valuation as of the date of contribution, see Treas. Reg. § 1.170A-13(c)(3)(ii)(I); and the appraisal does not list the actual or expected date of contribution, see Treas. Reg. 1.170A-13(c)(3)(ii)(I). Taken together, the sum of these flaws in the appraisal amount to substantial noncompliance with section 170.” Order, at p. 4. (Citation omitted).

The appraisal values the entire LLC’s interest, but the Hazens only contributed 5.75%.

Thus “the value of the contributed 5.75% of the equity interests cannot be derived using a straight percentage because it represents a minority, rather than a controlling, interest in HSA.” Order, at p. 4. (Citation omitted).

If the appraisal is toast, doesn’t much matter when the contribution was made.

Taishoff thinks this one settles.

* https://taishofflaw.com/2023/03/15/a-real-gift/

Roger M. Fredenberg and Kimberly D. Fredenberg, T. C. Sum. Op. 2025-1, filed 1/16/25, is just another rental real estate and unreimbursed employee expenses indocumentado. But CSTJ Lewis (“I’ve Heard That Name Before”) Carluzzo examines IRS’ claim that the rental gig is a Section 183 hobby loss.

“During each year in issue, both apartments were rented to a carpenter/roofer tenant unrelated to petitioners. The tenant performed various repairs and renovations in return for reduced rent, and each year the reduced rent was less than the deductions claimed, resulting in substantial losses for both years.

“According to respondent, petitioners’ arrangement with the tenant allows for deductions only as permitted by section 183 because petitioners did not rent out the property with the intent to make a profit.” T. C. Sum. Op. 2025-1, at p. 3.

Nope, says CSTJ Lew. Although he says it more elegantly than that.

“We disagree. Considering reasonable expectations that the property would appreciate after being repaired and/or renovated, we find that for both years petitioners had the requisite profit motive for otherwise allowable and substantiated deductions even if the total of the deductions exceeds the rental income from the property, subject of course to the limitations on losses from rental activities in section 469.” Idem., as my expensive colleagues would say.

Taishoff says, great, profit motive, but isn’t the worth of those repairs and improvements income to Rog and Kim? And shouldn’t they be capitalized? And isn’t the reduced rent in payment for labor income to the carpenter/roofer?

A shout-out to my colleague Peter Reilly, CPA, a snapper-up of this kind of unconsidered trifles.

What keeps this aged blogger young is the unwithered by age variety of tax court petitioners’ maneuvers. Here’s two of them.

First, Judge Kashi Way encounters Debra Reed and Timothy Reed, T. C. Memo. 2025-4, filed 1/16/25. Deb had her identity stolen a dozen years ago, which DOJ affirmed. She and Tim claim that’s why it took them four (count ’em, four) years to petition the NOD from their CDP. Of course, Boechler, P. C., opens the doors of The Glasshouse in the City Soon to Experience Governmental Efficiency to belated NOD petitions.

Except here it doesn’t.

“Although not stated succinctly, petitioners’ position is essentially that they were prevented from making a timely Petition because they were victims of identity theft. However, the identity theft occurred in 2012, the DOJ notified petitioners in 2016, and Appeals considered and verified the identity theft in its CDP hearing in 2018 before issuing a Notice of Determination in 2019. Thus, the critical facts which might provide a basis for tolling the limitations period occurred many years before respondent issued the Notice of Determination. Furthermore, the timing of these events does not lend support or provide a basis for the four-year delay between the date of the Notice of Determination and the date petitioners decided to petition this Court.” T. C. Memo.2025-4, at p. 4. (Footnote omitted, but it says pleadings of pro ses like Deb and Tim get liberally construed.).

Next, I want to give some kind of Taishoff award to Cassandra Allen, T. C. Memo. 2025-5, filed 1/16/25. Cassandra has really slipped the surly bonds of the usual. She admits omitting $18K of income from her return, submits another return showing the omitted income but not computing tax due, and finally comes up with a copy of a 1040X amended return showing the $18K as income, but computing the same tax due as shown on the erroneous return that omitted the $18K. When asked why, Cassandra tells Judge Albert G. (“Scholar Al”) Lauber that she paid the extra tax by filing Form 709. Yes, that’s a gift tax return.

IRS wants summary J. “… respondent points out correctly that petitioner has conceded the only remaining issue in this case by submitting a Form 1040–X that reported additional wage income of $18,713 for [year at issue]. That sum matches precisely the $18,713 reported on the Form W–2 supplied by the D.C. Government. Petitioner does not dispute receiving this income, and her concession supplies a factual foundation linking her to the income-producing activity.  Instead, petitioner asserts that her ‘tax liability still remains zero’ because she allegedly reported the additional $18,713 on a Form 709, an assertion we find difficult to understand.” T. C. Memo. 2025-5, at p. 4.

May I suggest that Cassandra may think that reporting the income, in whatever form one does it, is enough, while paying tax on that income is strictly for little people?

IRS gets summary J but is enjoined by Judge Scholar Al to “carefully search petitioner’s accounts for any tax payments she has made toward her [year at issue] income tax liability.” T. C. Memo. 2025-05, at p. 5, while preparing the numbers for the Rule 155 bean count.

Finally, I want to give Roger M. Fredenberg and Kimberly D. Fredenberg, T. C. Sum. Op. 2025-1, filed 1/16/25 a separate entry because of CSTJ Lewis (“It’s That Name Again”) Carluzzo’s observations on reduced rent, repairs, and the “goofy regulation.”

When a taxpayer says that to a RA at Exam in answer to a question why a certain bank account therefore extensively used by his family’s business ceased to be used midyear, then you know ex-Ch J L. Paige (“Iron Fist”) Marvel will be expending somber reasoning and copious citation of precedent to lay fraud penalties on some (but not all) of the family, in the process of hitting them with generous helpings of deficiencies for unreported income, playing put-and-take with multiple (undisclosed) bank accounts, sloppy recordkeeping and shady NOLs, with negligence chops for dessert.

For a tale worthy of Scheherazade, check out Yosef Sehati a.k.a. Joseph Sehati and Lilly Kohanim-Sehati, et al., 2025 T. C. Memo. 3, filed 1/15/25.

There’s Momma’s little box with millions of gemstones unopened for decades, a logbook without an author, disappearing tags on jewelry, and floating bank accounts. See 2025 T.C. Memo. 3, at p. 15, for the title first written at the head hereof.

One point: to show spousal fraud, IRS must show level of sophistication, involvement in business and financial dealings, and lifestyle, preferably of the rich and famous. Here IRS missed building a sufficient record on two spouses.

Euripides. Haste to sustain the assault!

Dionysus. Great gods, what a number of assaults!

Tanyard Farms, LLC, Tanyard Investors, LLC, Tax Matters Partner, Docket No. 11216-21, filed 1/14/25 echoes Euripides’ immortal words, as IRS echoes those of Dionysus, from Aristophanes’ 405 BC smash hit The Frogs. But the target of the assaults isn’t the plays of Aeschylus, rather 11 Cir’s resuscitation of the old “Boss Hoss any time before assessment” dictionary chaw that ex-Ch J Michael D (“Iron Mike”) Thornton first bit off. See my blogpost “Money-Back Guarantee Meets the Boss Hoss,”11/30/16*.

Even though Tax Court subsequently dissed that rationale, 11 Cir enshrined same in Kroner.**

Tanyard is Golsenized to 11 Cir, and concedes IRS’s motion for Boss Hoss partial summary J, while reserving its right to appeal. Of course IRS wants to protect Kroner as a goalmouth save in case they find out they’d blown the Boss Hossery in the middle of trial. For like reason Tanyard wants to demolish it.

The assault fails, says Judge Elizabeth Crewson Paris.

IRS coppered its bets by getting Boss Hoss signoffs before each of the two (count ’em, two) penalty forms were displayed to Tanyard. So, even under Tanyard’s desired reading of Section 6751(b), the supe had oversight over the RAs on the case when signoff occurred. Only thereafter was each penalty first announced to Tanyard.

* https://taishofflaw.com/2016/11/30/money-back-guarantee-meets-the-boss-hoss/

** https://law.justia.com/cases/federal/appellate-courts/ca11/20-13902/20-13902-2022-09-13.html

I think it was George Bernard Shaw who said that it was difficult to garner even a small success. Karen Lee Shuster, Docket No. 27575-22, filed 1/13/25, has done that, avoiding the Section 6673 frivolity chop by virtue of an IRS miscue.

Karen Lee filed a W-4 claiming exemption from Federal income tax, filed a zero wages 1040, and sought a refund of FICA/FUTA/ITW. IRS refused refund, but gave Karen Lee a SND at no extra charge. IRS asserted the five-and-ten substantial understatement add-on, and Section 6651(a)(2) late payment chop.

Karen Lee petitions, but it’s the usual protester jive, on which Judge Ronald L. (“Ingenuity”) Buch wastes little time and less ingenuity. The substantial understatement is a walkover, but failure to pay is where Karen Lee gains her small success.

IRS has BoP on failure to pay, and drops the ball.

“Section 6651(a)(2) applies when someone fails ‘to pay the amount shown as tax on any return.’ The amount shown as tax on Ms. Shuster’s return was zero. The Commissioner accepted Ms. Shuster’s return, and she paid the amount reported, zero.” Transcript, at   p. 9.

And while Karen Lee made no nonfrivolous arguments, and persisted even when warned by Judge Buch, she did prevail on the Section 6651(a)(2) failure to pay, so no Section 6673 chop.

I’ve often before now questioned why a line on a map should affect the application of a statute of national application. Especially is this so when it comes to the IRC, which affects more Americans than any other Federal enactment, even those who need not pay taxes or file returns.

But today STJ Diana L. (“Sidewalks of New York”) Leyden finds that the lordly Hudson is the moat behind which Zia H. Shaikh, Docket No. 10493-24L, filed 1/13/25, is protected from Hallmark Collective‘s ban on equitable tolling in Section 6213(a) SND cases. Zia petitioned when he resided in NJ, thus invoking Culp, 3 Cir’s gift to the tax controversy commiunity. See my blogpost “‘Rare Noodle’ – On Steroids,” 11/2/23* for the Culp story.

Unhappily for him, Zia, a/k/a Zis, flunks the “diligent pursuit of his rights and extraordinary circumstances” tests for equitable tolling. Like those seeking a temporary restraining order, those who seek equity must do equity. Zia a/k/a Zis didn’t.

“He filed amended returns … (20 days before the IRS issued petitioner notices of deficiency for those years), claiming zero income in those years and that he was entitled to refunds. The IRS did not accept petitioner’s amended returns. Petitioner also claims that he had medical and mental health issues that impacted his ability to meet deadlines. But both before and after the notices of deficiency were issued to petitioner, he continued to engage with the IRS, and later this Court, making arguments to both that the Court recognizes as frivolous tax protester arguments. Despite this engagement, petitioner did not file a petition with this Court to contest the notices of deficiency… until nearly three years after the 90-day deadline to do so expired. Petitioner’s other arguments, including purported hardships that should entitle him to equitable tolling such as restrictions to his professional license and the subsequent loss to his income are consequences of his own design. Petitioner owed taxes…, and instead of paying what he owed or contesting the deficiency in a timely manner he chose to continuously hide behind delay tactics and frivolous arguments to avoid payment. Under these circumstances there is not any need to catalog petitioner’s arguments and painstakingly address them.” Order, at p. 3.

In short, Culp won’t help you, even in 3 Cir, if you’re culpable. (Sorry, guys, the devil made me do it.)

* https://taishofflaw.com/2023/11/02/rare-noodle-on-steroids/

It’s long been a motto in Twelve Step circles, and many other places, that “you have to show up.” Far be it from me to belittle or denigrate a true piece of folk wisdom, but sometimes showing up isn’t by itself enough.

Just ask Judge Ronald L. (“Ingenuity”) Buch or the president of KRV Construction Inc., Docket No. 26712-22L, filed 1/10/25, whom I’ll call K.

While K provided Appeals with neither FICA returns, FUTA returns, nor 1120s for a bunch years (hi, Judge Holmes), nor did he contest liability, he did show up for the hearing on his petition from the NOD Appeals gave him sustaining the NITL.

K claims at the Tax Court hearing that KRV “did not receive a phone call from the Commissioner on the date of the hearing, never received a letter for a face-to-face conference, did not receive responses from the Commissioner to its phone calls, and requested a payment plan for the taxes owed.” Order, at p. 2.

IRS claims Appeals never got the tax returns after they asked for them, nor was KRV current with required filings as at date of hearing. And K never attended the telephone hearing.

Judge Buch: “Even if KRV attended the hearing, the appeals officer would not have abused her discretion in rejecting collection alternatives. This Court has consistently held that appeals officers do not abuse their discretion in rejecting collection alternatives if they find that the taxpayer is not in current compliance with tax laws. KRV was not in filing compliance at the time of the hearing, and the record is clear that it is not in compliance with its tax return filing obligations. On those grounds alone it would have been sufficient to justify the appeals officer’s rejecting of collection alternatives.” Order, at p. 3. (Citations omitted).

And when K showed up at the petition hearing, K “did not provide any additional information or arguments in response to the Commissioner’s Motion.” Order, at p. 2.

If you show up with nothing useful, better save the fare.