Or, The $24 Million Misunderstanding

The now-extinct game show is revived in Arden Row Assets, LLC, Natural Aggregates Partners, LLC, Partnership Representative, T. C. Memo. 2025-71, filed 7/8/25. ARA claims they have a deal with IRS based on an exchange of letters, but IRS claims no, and Judge Goeke buys it.

Under the post-2017 partnership régime, only the partnership representative (hereinafter and generally, the “Rep”) can make deals. Reg. Section § 301.6223-1(b)(3) requires a partnership to have a designated individual where the partnership representative is an entity. Here the Rep, Kaynard (misdescribed as “Maynard” at p. 24; time for another corrected T.C. Memo.?), played no part in the exchange of letters that supposedly settled this nonsyndicated conservation easement. Individual partners can no longer settle out with IRS as they could under now-superseded TEFRA.

Nobody raised whether IRS trial counsel had authority to bind IRS via letter, T. C. Memo. 2025-71, at p. 23, footnote 13.

The IRS universal settlement deal for phony easements was announced in ‘I.R.S. News Release IR-2020-130 (June 25, 2020). On October 1, 2020, the IRS issued guidance setting forth the terms of the initiative. I.R.S. Chief Counsel Notice CC-2021-001 (Oct. 1, 2020). The IRS offered settlements that disallowed the easement deductions in their entirety and allowed deductions of out-of-pocket costs that investors incurred to participate in the easement transactions (investor out-of-pocket costs).” T. C. Memo. 2025-71, at p. 4.

Problem here was, the easement wasn’t syndicated. The promoters held all of it, and their LLC had done 15 deals; the LLC’s M-2 showed a combined capital contribution for all their unsyndicated deals of $24 million, but real out-of-pocket for this deal was $110K.

IRS mistook this unsyndicated for a syndicated, where the syndicatees put in real cash. When IRS offered to take the M-2 number in lieu of the syndicatees each proving their actual out-of-pockets as in syndicated deals, they mistakenly offered the same deal to this unsyndicated, who jumped on it. If taken, the promoters would have lost a $57 million deduction, but gotten a $24 million deduction.

Judge Goeke does some drilldowns into contract law to let IRS off the hook. True, the unsyndicated’s lawyer sailed a wee bit too close to the wind.

Chops go by the board, as this case is related to LakePoint, for which see my blogpost “‘Bad Faith, He Maun Definitely Fa’ That’ – Redivivus,” 8/29/23.

Taishoff says nobody comes away looking good here, except maybe IRS Oversight Committee member Kimberly Mattonen, Esq., who caught the strange disparity in numbers. She gets a Taishoff “Good Move.”

Takeaway- When offbeat numbers jump off the page, jump on them.