Kelly M. Strieby bought into Solar Farm, a box-checked LL run by Charles (“Good-Time Charlie”) Kirkland. IRS wants to introduce the plea Charlie took in USDCWDWA in January, 2023, that got him nine (count ’em, nine) years hard. Kelly’s trusty attorney says unfair prejudice, but Judge Rose E. (“Cracklin'”) Jenkins says probative value outweighs prejudice, as no jury to mislead, and maybe she won’t give too much weight to IRS’ press releases.

The Solar Farm deal was a first-class roundy-round. Charlie claimed Section 48 credits that he sold to highrollers, except the highrollers had to give back to Charlie whatever credits exceeded their taxable income. Problem was, Kelly didn’t materially participate, so Section 469(d)(2) relegates the write-offs Charlie sold him to offset passive income, except Kelly didn’t have any.

Kelly’s trusty attorney, whom I’ll call John L. and to whom I’ll give a Taishoff “Good Try, third class” claims Section 48 credits aren’t part of the Section 469 passivities.

“…respondent argues that section 469 precludes Petitioners from claiming credits determined under section 48 with respect to Solar Farm. Petitioners counter that section 469 does not apply with respect to section 48 credits. According to Petitioners, because the definition of passive activity credit references credits allowable under subpart B or subpart D of part IV of subchapter A, see § 469(d)(2), the fact that section 48 appears in subpart E of part IV of subchapter A means that section 48 credits are not subject to section 469. However…, the energy credit determined under section 48 is a component of the investment credit under section 46, which is itself a component of the general business credit under section 38. Section 48 sets forth rules for determining the energy credit, but, contrary to Petitioners’ argument, does not itself allow any credit. Rather, the amount determined under section 48 and included in the amounts under section 46, and thus section 38, is allowable only under section 38. Because section 38 is in subpart D of part IV of subchapter A, the section 48 energy credit is a credit allowable under that subpart, and, accordingly, potentially, a passive activity credit. See § 469(d)(2)(A)(i).” T. C. Memo. 2025-28, at pp. 8-9.

For background, see my blogpost “Sittin’ in the Mornin’ Sun,” 4/10/12.”

John L. tries Rev. Rul. 2010-16, 2010-26 I.R.B. 769, but that only applies to Section 45D.

“…the focus in the Revenue Ruling is driven by the particular provisions of section 45D, which determines a credit for a taxpayer’s qualified equity investment in a qualified community development entity (CDE). Because the section 45D credit relates to an investment in a CDE, an entity which might itself be engaged in a trade or business, Revenue Ruling 2010-16 indicates that the trade or business of the CDE is irrelevant. It further explains that the inquiry under section 469 relates to whether the taxpayer investing in the CDE does so in connection with a trade or business.” T. C. Memo. 2025-28, at p, 10.

Solar Farm’s premise is that it is an activity engaged in sale of solar products. Kelly didn’t participate in that. Investment is passive, and so are the tax credits he bought from Good-Time Charlie.

And there are chops, the 20% five-and-dime variety.

The case is Kelly M. Strieby and Jan E. Sharon-Strieby, T. C. Memo. 2025-28, filed 4/3/25.