It’s an interesting argument, so I give the trusty attorneys for Ronald W. Howland, Jr. and Marilee R. Howland, T. C. Memo. 2022-60, filed 6/13/22, a Taishoff “good try.” Ron and Marilee had a pair of mortgages on their principal residence, which were both within the Section 163(h) Qualified Residence Interest cutoffs for year at issue. Ron and Marilee got foreclosed by both mortgagees, but the junior mortgagee was first past the post.

Judge Christian N. (“Speedy”) Weiler unpacks the timeline, but at close of play it’s how to whack up the $321K net that the junior received out of the foreclosure sale. Ron and Marilee argue that the mortgage foreclosure concluded in a sale of the residence for the amount realized by the foreclosing mortgagee; the note, which the mortgage secured, provides that payments are applied first to interest, then to principal; that the amount of interest computed in the foreclosure proceeding was $100K; and therefore they have a $100K interest deduction.

There’s case law that says no, but those cases apply where the debtor is insolvent, and there’s no showing Ron and Marilee were insolvent at the time.

The case goes up on stipulated facts (Rule 122). No trial.

Judge Speedy Weiler: “The record before us is silent as to how [junior] applied the funds received and whether petitioners owe any remaining principal balance. These facts (if favorable) could support a finding that petitioners in fact paid home mortgage interest (in some amount)— rather than repaying principal balance. However, statements in briefs do not constitute evidence. Pertinent facts missing from the stipulation merely mean that the party bearing the burden of proof has failed to sustain the burden of showing them.

“Petitioners bear the burden of proof and must show, by a preponderance of the evidence, that they are entitled to a home mortgage interest deduction of $103,498, or some other amount. For the reasons discussed above, we conclude that petitioners have failed to meet their burden.” T. C. Memo. 2022-60, at pp. 7-8. (Citations omitted).

Taishoff says, excuse me, Judge, but you have the judgment of foreclosure and sale. A Court of unchallenged jurisdiction has computed and characterized the numbers. The junior mortgagee and Ron and Marilee have a written agreement which tells the junior mortgagee how to apply them. After interest, whatever is left is principal. What the junior mortgagee writes in their books is nothing to the point. Whether the junior mortgagee seeks a judgment against Ron and Marilee for any shortfall, or even whether or not a shortfall is due and owing, is likewise nothing to the point. A contract is a contract.

Word to trusty attorneys: Reargue, then appeal.

Oh, and Ron and Marilee avoid chops on good-faith reliance.

William R. Rohlf and Kristin A. Rohlf, et al., Docket No. 7395-22, filed 6/10/22, find themselves confronted with an old gambit I thought had long since been discredited.

Bill and Kris timely file two (count ’em, two) petitions for the same SNOD. One was signed, the other wasn’t, but neither was accompanied by the sixty George big blind. IRS, maybe playing an old gambit (see my blogpost “Another Taishoff ‘Oh, Please,’ 9/24/14)  tried to close the signed petition file on grounds of duplication, setting up a quick toss for unsigned petition, but Ch J Kathleen (“TBS = The Big Shillelagh”) Kerrigan straightens it out, and closes the unsigned.

IRS has of course filed motion for leave to file an answer out of time (that’s late in FedCourtspeak) and lodged (that’s filed but not filed, ditto) an answer in both.

Since Bill and Kris petitioned 3/21/22, they still have a couple days (hi, Judge Holmes) to ante up the sixty Georges before the Section 6213(a) 90-day cutoff (assuming the Supremes haven’t monkeyed with that also). So what about Ch J TBS’ sixty days for sixty Georges (see my blogpost thus entitled).

Ch J TBS gives Bill and Kris until 7/5/22 to ante up or plead poverty.

Since it’s apparently open season on all Tax Court time limits, how about equitable tolling for the sixty Georges?

The Tax Court playing field shifts ever so slightly with every new Chief Judge. Ex-Ch J Maurice B (“Mighty Mo”) Foley was known for tossing nonpaying petitioners in as little as a fortnight; see my blogpost “Out-of-Date Slang – Part Deux,” 10/2/18.

But now Ch J Kathleen (“TBS = The Big Shillelagh”) Kerrigan cuts plenty slack (hi, Judge Holmes) for the limpers-in and hangers-out.

Here’s Patricia Wiggen a.k.a. Tricia A. Wiggen, Docket No. 13004-22, filed 6/8/22. Tricia has neither anted nor pled poverty.

So Ch J TBS orders “…on or before August 8, 2022, petitioner(s) shall pay the Court’s filing fee of $60.00, or this case may be dismissed. Waiver of the filing fee requires an affidavit or declaration containing specific financial information regarding the inability to make such payment.” Order, at p. 1.

To Georgia

IRS violated a basic Taishoff tenet: IRS stipulated and capitulated. IRS and North By Northwest III, LLC, Bryan Kelley, Tax Matters Partner, Docket No. 12105-19, filed 6/8/22 stipulated “… that the partnership at issue, North by Northwest III, LLC, has a principal place of business in the state of Georgia….” Order, at p. 3. And Section 7482(b)(1) sends appeals from Tax Court to circuit wherein entity has principal place of business.

OK, say my grizzled readers; leaving aside that an LLC is not a partnership, but only an entity created by State law that is taxed as a partnership for Federal tax purposes unless it otherwise elects, so what?

So this is another conservation boondockery. But these boondocks are lying, being and situated in wild, wonderful West Virginia. And, says Judge Elizabeth Crewson Paris, “…significant state property law questions may exist.” Order, at p. 3.

By now said readers are waiving their hands high in the air. They figure this is an improvements-out-at-extinguishment Reg. Section 1.170A-14(g)(6)(ii) “highly contestable reading of what it means to be perpetual.” And GA is 11 Cir, where Hewitt reigns supreme.

WV is 4 Cir, and that’s the New Frontier when it comes to boondockery. Maybe 4 Cir will buy 6 Cir’s Oakbrook deconstruction of boondockery. It’s a better shot than the dead loser in 11 Cir.

IRS folds, filing a Notice of Supplemental Authority describing 11 Cir’s giving Reg. Section 1.170A-14(g)(6(ii) the works.

“Respondent recognizes in the above-described Notice of Supplemental Authority, however, that, under the Golsen rule, this Court will now apply the Eleventh Circuit’s holding in Hewitt that Treasury Regulation § 1.170A-14(g)(6)(ii),  alone, does not operate to disallow a charitable contribution deduction in cases in which the easement deed subtracts the value of post-donation improvements to the easement property from the proceeds allocated to the donor and donee in the event of judicial extinguishment. See Golsen v. Commissioner, 54 T.C. 742, 757 (1970), aff’d, 445 F.2d 985 (10th Cir. 1971).” Order, at p. 4.

Stipulations are the bedrock of Tax Court practice. That said, stipulate, don’t capitulate.

Ch J Kathleen (“TBS = The Big Shillelagh”) Kerrigan certainly takes at least one-half of President Theodore Roosevelt’s advice. As we see today, the Chief does speak softly. And Deborah Lynn Johnson, Docket No. 13860-20L, filed 6/8/22, despite her fears, will not encounter any big stick.

Deborah Lynn “… checked boxes on the petition form indicating dispute of multiple types of Internal Revenue Service (IRS) notice….” Order, at p. 1. But all Deborah Lynn attached to her petition was a NOD from a CDP and from her request for Section 6015 innocent spousery for one (count it, one) year.

Now checking all the boxes on the Form 2 sounds like a rounder move to me. Especially when IRS moves to toss and strike “… so much of this case as purported to request redetermination of deficiency, redetermination of determination not to abate interest, redetermination of worker classification, redetermination of certification of seriously delinquent Federal tax debt, and redetermination of whistleblower action, on the grounds that no Notice of Deficiency, Notice of Final Determination for Disallowance of Internet Abatement Claim, Notice of Determination of Worker Classification, Notice of Certification of Your Seriously Delinquent Federal Tax Debt to the Department of State, or Notice of Determination Under Section 7623 Concerning Whistleblower Action, had been issued to petitioner with respect to the taxable year [at issue] that would confer jurisdiction on this Court.” Order, at p. 1.

So Ch J TBS spends a page-and-a-half scheduling the jurisdictional bases for all the checked boxes, for none of which does Deborah Lynn qualify.

Responding to IRS’ avalanche, Deborah Lynn begs to be heard. She says she never was into anything but the CDP and innocent spousery.

“… petitioner seemed to suggest that confusion and a neurological disability may have led her to check boxes on the petition form that were not necessarily germane to instant case. Her overarching concern appeared to be that her disability and the harassment she has suffered be recognized and that she be heard. The Court would therefore reassure petitioner that, despite the technical matters being address [sic; should be “addressed”] by the respondent’s motions, petitioner’s case will remain before the Court, and she will have an opportunity to present her position as to her entitlement to relief under section 6015, I.R.C.” Order, at p. 3.

I could see IRS’ counsel assuming that this was a trial balloon for a new rounder tactic, like the old petition twenty years, and make IRS search for nonexistent SNODs and NODs in years long closed. Without more than the bare petition, I would have done as IRS did, and unloaded accordingly.

Anyway, Deborah Lynn will get her chance.

This phrase guarantees the removal of all persons within earshot of the speaker at a speed that exceeds any theoretical maximum calculated by Albert Einstein or Max Planck. Lest my diminishing circle of readers be further diminished, I hasten to state that I will not do so. It was only the mention of the homeplace of William E. Musselwhite, Jr. and Melissa Musselwhite, T. C. Memo. 2022-57, filed 6/8/22, that brought back memories of Lumberton, NC, the local hospital and its doctor transplanted from Brooklyn, Medevac Barbie and her coadjutors, the dash through the night with sirens wailing, and the holdover eviction petition I drafted in the recovery room at Duke University Hospital.

Bill’s story is much less instructive or amusing. Bill was doing great in his dad’s law office, so he branched out into real estate. Like ever so many of his contemporaries and mine, Bill got hit in The Black ’08.

Judge Tamara Ashford finds Bill was not in the business of real estate development, so his million-dollar ordinary loss claim transmutes into the capital loss IRS says it is.

Judge Ashford does the obligatory factorial trudge through the eight (count ’em, eight) essentials 4 Cir has decreed are needed to winnow the capital from the ordinary. Bill loses one through six, both inclusive, but scores on seven and eight (brokers and advertising).

That doesn’t help, though, as Bill performs a classic own-goal. “Mr. Musselwhite testified that all the things he and Mr. S were doing through DS & EM Investments were ‘really investment’ and that specifically with respect to DS & EM Investments’ acquisition of the four lots, it was an opportunity to invest in a subdivision that Mr. L (who was an established developer) was already developing (as the owner of the other five lots in the subdivision). His testimony is consistent with the representations made on (1) DS & EM Investments’ 2005–12 Forms 1065 that its principal business activity was ‘INVESTMENT’ and (2) DS & EM Investments’ 2005–12 LLC reports that its business was real estate investment.” T. C. Memo. 2022-57, at p. 12. (Names omitted).

With that testimony, I am sure Bill’s trusty attorney followed the advice of that great trial lawyer, the late Henry Miller, and smiled her sweetest smile (and her LinkedIn profile shows she has a very sweet smile), as if that was exactly what she wanted to hear, and went out into the hallway and sobbed.

I note in passing a T. C. Memo. and a Sum. Op., neither of which contains any noteworthy development.

Innocent O. Chinweze, T. C. Memo. 2022-56, filed 6/7/22, is a tax attorney and an admittee to the Tax Court Bar. I leave it to you to assess his litigating skills. Judge Patrick J (“Scholar Pat”) Urda makes no comment, and neither do I.

Brandon Paul Spencer, T. C. Sum. Op. 2022-8, of even date, testifies broadly as to his car service expenses, but Judge Alina I (“AIM”) Marshall prefers a wee bit more precision than Brandon Paul has to offer. It’s another Section 274-beats-Cohan, proving again that the worst piece of contemporaneous paper beats the most candid and broad post-event testimony.

This will put you out on the diamond, but in Tax Court it will defeat summary J. Long Branch Investments, LLC,  Greencone Investments, LLC, Tax Matters Partner, Docket No. 12249-20, filed 6/7/22, are GA boondockers claiming a $13.83 million conservation easement, which draws a FPAA.

IRS plays the “perpetuity” gambit, baseline variation. IRS says “…because the condition of a natural resource (at or near the time of conveyance), with regard to which the deed of easement contained express restrictions, was not established through baseline documentation as required under Treasury Regulation §1.170A-14(g)(5)(i); consequently… the conservation purpose of the contribution was not ‘protected in perpetuity’ under section 170(h)(5)(A).” Order, at p. 1.

The Longbranchs play the Hewitt countergambit. “… Treasury Regulation § 1.170A-14(g)(5)(i) does not apply to the contribution at issue, and that even assuming arguendo that it did, Long Branch satisfied the regulation nonetheless. Greencone also challenged the substantive and procedural validity of Treasury Regulation § 1.170A-14(g)(5)(i) under Chevron, U.S.A., Inc. v. Nat. Res. Def. Council,  Inc., 467 U.S. 837 (1984), and the Administrative Procedure Act (APA), respectively.” Order, at pp. 1-2 (Footnote omitted, but it’s the Hewitt you-didn’t-address-the-comments mainline play.)

The resource to be protected is the water on the property, which cannot be defiled, diverted, or discombobulated. Except “(T)he deed also reserves certain rights to Long Branch, including inter alia: (1) vegetation management, which includes planting and removing vegetation and prescribed burning; (2) forest management, which includes herbicide application and prescribed burning; (3) maintenance of existing roads and construction of new roads under certain conditions; (4) building and maintenance of a residential dwelling and associated structures, such as garages, sheds, pools, and gardens; and (5) construction, maintenance, and replacement of utilities, including power, water, and septic systems to support approved structures or uses on the Property.” Order, at p. 2.

Of course, the 501(c)(3) protector and defender must be notified of all, and approve of some, proposed exercises of the Longbranchs’ rights.

Reg § 1.170A-14(g)(5)(i) requires baseline documentation where reserved activities may impair the conservation of interests associated with the property. But could these reserved activities do so?

Judge Courtney D (“CD”) Jones isn’t sure, so let’s have a trial. And let’s duck the Hewitt counterattack while we’re at it.

“We conclude that this issue is not appropriate for summary adjudication.  Although respondent appropriately points to the deed’s express restrictions with respect to the Property’s water resources, his argument rests on the assumption that the exercise of Long Branch’s reserved rights ‘may impair the conservation interests associated with the property.’ See Treas. Reg. § 1.170A-14(g)(5)(i). Whether the exercise of any reserved right could impair the easement’s conservation purposes is a disputed question of fact. Because resolution of this question—which the parties are free to otherwise resolve via stipulation—will determine whether the baseline documentation requirements apply to the contribution at issue, we also conclude that it is inappropriate to consider at this time Greencone’s challenge to the substantive and procedural validity of Treasury Regulation § 1.170A-14(g)(5)(i) under Chevron and the APA, respectively.” Order, at p. 4.

Stipulate, don’t capitulate.

Who’d Ha’ Thunk It?

Mongolia?? Seriously chaps, Mongolia?!

It’s well-known I spent years chasing after a single reader in Bolivia, and finally got one this year. But I never wasted time or electrons trying to find a reader in Mongolia; while I could find that country on a map, I could never imagine any resident or denizen thereof, or even a sojourner, having the slightest interest in this my blog.

But someone there did. Today. She or he boldly went where no one has gone before.

Beam ’em up, Scotty.

Judge Vasquez affords Section 6015(f) innocent spousery (pre-6015(e)(7) stick-to-the-admin-recorditis) to Jan E. Pocock, T. C. Memo. 2022-55, filed 6/6/22.

But it’s a close call. Judge Vasquez has to go through 40-plus years of family history, bringing to mind Tolstoy’s famous opening: “Happy families are all alike; every unhappy family is unhappy in its own way.”

I urge all y’all to read the whole opinion, all twenty-seven (count ’em, twenty-seven) pages. We have the Vietnam veteran with PTSD, his wife who won’t seek divorce on religious grounds, her ailing mother, her abused children (now adults), and her borderline awareness of her husband’s taxdodging (and he looted his mother’ estate, from which he was removed as personal representative).

IRS has an interesting gambit that they play too late, trying to use the State fraudulent conveyances law to get back money and the family home that the husband gave the wife pre-audit; Judge Vasquez blows it off when it comes up on Simultaneously Answering Brief.

Anyway, by the time the CDP is decided both Jan and husband are in CNC. And he’s in counseling, and they’re both broke.

Judge Vasquez has a full-dress trial, with Jan and children testifying, and IRS Special Agent testifying for IRS. Jan is listed as pro se, but it sure looks like she was well-coached.

Now my astute readers will shoot out their lips and wag their heads, saying. “Yeah, but Section 6015(e)(7) does away with innocent spousery trials; whatever Jan produced on the trial wasn’t newly-discovered or previously unavailable, and since it wasn’t in the admin record (else why produce it at trial?), why do we care about this today?”

Because both Judge Vasquez and Count Tolstoy have a practice tip for y’all.

Whatever you’d produce on a trial like this, produce it at the CDP. CDP is the new trial. If the SO or AO refuses to let in your evidence, note your proffer and their refusal with particularity and include your statement of objections in the admin record; and at Tax Court, demand that the admin record be resettled to put in what was excluded by the SO or AO. And if that happens to be testimony, well, let’s take it now.

Remember, “every unhappy family is unhappy in its own way.” Just make sure the unhappy family isn’t unhappy with your representation.

Edited to add, 6/7/22: If the same astute readers object that all that will happen, if the admin record is successfully challenged,  is a remand, then the issue of witness credibility must be determined by the Judge. The SO or AO should not be the sole trier of fact. Remember Judge Vasquez’s famous dictum:”‘As a trier of fact, it is our duty to listen to the testimony, observe the demeanor of the witnesses, weigh the evidence, and determine what we believe.’ Kropp v. Commissioner, T.C. Memo. 2000-148, 2000 Tax Ct. Memo LEXIS 178, at *9. In Diaz v.Commissioner, 58 T.C. 560, 564 (1972), we observed that the process of distilling truth from the testimony of witnesses, whose demeanor we observe and whose credibility we evaluate, ‘is the daily grist of judicial life.’” T. C. Memo. 2022-55, at p. 15.

Everybody’s testimony looks like everybody else’s on paper; nobody’s testimony looks the same as anybody else’s on the stand.