That is, unless you sell books, magazines, or vinyl records; see Section 458. Louis F. Lentine & Kelli M. Lentine, Docket No. 12443-21, filed 3/25/25 sold “Night Stars, a contraption that projects patterns of light against a building (imagine a home decorated for Christmas at night with the projector out in front) that had been very popular during Christmas [previous to year at issue].” Order, at p. 4.

Unhappily, what Night Stars they sold in year at issue to a major retailer was sold on sale-or-return, that is, whatever the retailer couldn’t sell they could return for full credit. The item cratered in year at issue, Lou’s & Kelli’s Sub S had to book the huge sales price in year at issue, and the retailer demanded a huge discount on the bill or they’d send the unsolds back. The joust that followed over how big a discount went into the next year.

Judge Mark V. (“Vittorio Emanuele”) Holmes gives IRS summary J that Lou & Kelli must pay tax on the year at issue invoice price (“all events” test for accrued item), even though they won’t get a tithe thereof when the dust settles in the succeeding year. This notwithstanding that both retailer and Lou & Kelli had accounting software that showed exactly what the return hit would be.

“The key is that an adjustment to [Sub S]’s returns-and-allowances account would not accrue until the parties reached agreement on its size, and that there is no genuine dispute that the parties hadn’t reached agreement on that by the end of [year at issue].” Order, at p. 6. Somber reasoning and copious citation of precedent follows.

But Lou & Kelli stave off summary J on their yacht charter business. They trade up in year at issue and want bonus depreciation for that year. Though new yacht was delivered in mid-December, they didn’t sign a marketing agreement until January. Lou & Kelli did some work in late December and took the yacht out for a cruise that went OK.

IRS says yacht not placed in service before year’s-end. Judge Holmes says it’s a question of fact, after surveying a bunch regs and case law (it is, after all, Judge Holmes). Was the yacht in all respects ready for sea at end of year at issue?

“One can now see through the thinness of the Commissioner’s argument on this motion. It is certainly true that [Lou’s & Kelli’s pass-through LLC] did not use its new yacht in the chartering business until [next year]. But that’s not the right question. The right question is whether the yacht was in its ‘completed form’ for its ‘specifically assigned function.’ When [employee] emailed that ‘We are trying to get all our ducks in a row and get ready for charter’ was he referring to the nautical equivalent of having to rip out some of the interior to install a conference table and video screens, or something more like waiting for the boss to get home from vacation to negotiate and sign a contract?

“That is, at the very least, ambiguous.” Order, at p. 4.

Judge Holmes is a fine lawyer who can easily find an ambiguity.

Btw, the reference to conference tables and video screen is explained in my blogpost “Not Ready for Prime Time,” 3/12/13*, which case Judge Holmes cites.

* https://taishofflaw.com/2013/12/03/not-ready-for-prime-time/