Post-Hewitt-Oakbrook, maybe Judge Courtney D (“CD”) Jones is as confused as the rest of us. Reg. Section 1.170A-14(g)(6), the famous Extinguishment clause, caused Valley Park Ranch, LLC,  Reed Oppenheimer, Tax Matters Partner, Docket No. 12384-230, filed 3/17/22, to file a DJ in OK State Court to declare their 2016 conservation easement deed ambiguous and that their 2020 amended deed satisfied Federal and State law.

The Rogers County jurists found the amendment did the trick. Of course, as I’ve said many times, any lawyer who can’t find an ambiguity should find another way to make a living.

My readers will note IRS wasn’t a party to the OK DJ; so did IRS, and claims it isn’t bound. Due process 101 says you’re not bound by a judicial or administrative proceeding where you weren’t a party.

Judge CD Jones likes Judge Emin (“Eminent”) Toro’s well-reasoned Oakbrook concurrence as much as Judge Guy did in his concurrence in Oakbrook. That’s not Tax Court’s STJ Daniel (“Yuda”) Guy, btw, that’s 6 Cir’s Senior Judge Ralph B. (“Him Too”) Guy.

This deed had the prior-claims-out language, as well as proceeds-split-on-extinguishment-per-appraisal provision, not fixed-ratio-at-inception. It does not have in either iteration the much-contemned improvements-out language.

Howbeit, Judge CD Jones wonders if what was conveyed was an interest in real property (Section 170(h)(2)) and whether the deed satisfied the statutory (not regulatory) requirement of Section 170(h)(5) perpetuity.

Because of the Circuitry split, Judge Guy’s 6 Cir concurrence, Judge Toro’s Tax Court concurrence, and the fact that this case is appealable to 10 Cir,  Judge DC Jones says let’s forget the goofy regulation and brief the statute.

“After careful consideration of the parties’ motion papers, and in light of the uncertainty of the validity of Treas. Reg. §1.170A-14(g)(6)(ii), the Court finds that additional briefing is necessary, to address the deed’s satisfaction of the statutory requirements without regard to the regulation.” Order, at p. 9. (Emphasis by the Court).

Judge CD Jones should have ordered the parties each to buy an ale for Judge Holmes at Jake’s Saloon: “highly contestable readings of what it means to be perpetual”?  He got that right.

Judge Courtney (“CD”) Jones doesn’t express it quite that way, but the meaning is clear for IRS’ counsel. You blew it once; trying again won’t help.

My readers may not all of them recall Julian Wolpert and Estate of Eileen Wolpert, Deceased, Julian Wolpert, Executor, Docket No. 3182-20, filed 3/16/22, and their law school counsel. If you’re one such, check out my blogpost “Another Taishoff ‘Oh Please’,” 4/22/21.

Post-trial, IRS’ counsel try to insert the “goofy regulation” hobby-loss argument (Reg. Section 1.183-2(b)), and want to try to resuscitate the Boss Hossery they didn’t think they had last year by arguing electronics.

“With respect to the first category of disputed content concerning whether petitioners engaged in the Schedule C activity with a profit motive, we conclude that such material is improperly raised in respondent’s seriatim answering brief. Respondent previously attempted to raise this issue when he moved for leave to amend his answer at the eleventh hour prior to trial. The Court denied that motion in an order issued on April 22, 2021, because permitting amendment would have denied petitioners fair notice and an opportunity to prepare. Consequently, the profit motive issue addressed in respondent’s seriatim answering brief has already been foreclosed, and we will not entertain respondent’s attempt to undermine our previous order.” Order, at p. 2.

As the late Bankruptcy Judge Adlai Stevenson Hardin wearily counseled my co-counsel before sinking our case without a trace, “Counsel, I gave an order, not a suggestion.”

Electronics to avoid Boss Hossery fares no better.

“Although there is some language to weakly support respondent’s contention (in his seriatim answering brief) that the section 6751(b)(2)(B) issue was raised in his pretrial memorandum (concerning taxable year 2017), respondent also stated therein that he would concede the section 6662(a) penalty for taxable year 2017 if he could not ascertain whether SB was the immediate supervisor for purposes of section 6751(b)(1). Such a statement leads us to conclude that respondent  (1) did not contemplate the applicability of section 6751(b)(2)(B), and (2) intended to sustain the penalty determination at trial solely by proving that written supervisory approval was timely obtained pursuant to section 6751(b)(1). We further note that the language respondent points to purportedly raising the issue in his pretrial memorandum has no basis in the statutory text of section 6751(b)(2)(B) (i.e., whether the penalty was ‘asserted computationally’ versus ‘automatically calculated through electronic means).” Order, at p. 2 (Footnote and name omitted).

As for Rule 41(b) tried-by-consent, as to the goofy part, trial took place five (count ’em, five) days after Judge CD Jones had taken Reg. Section 1.183-2(b) off the table. The law students rightly relied on Judge CD Jones’ order, so where was the consent? Not in this record.

Rule 41(b)(2) allows the Judge to let in evidence, even if objected to, in the interests of justice. I cannot very well characterize IRS counsel’s argument on that point in language proper for a blogpost meant to be read in the family circle. So I defer to Judge CD Jones.

“Respondent argues that ‘[g]ranting [r]espondent’s motion will serve the interests of justice by conforming [r]espondent’s answer to the evidence adduced at trial.’ To the extent respondent intended for this language to communicate why justice requires our grant of leave under Rule 41(b)(2), we disagree. To hold such reasoning sufficient would render superfluous Rule 41(b)(2)’s justice requirement.  Moreover, as previously elaborated upon, granting leave would unduly disadvantage and prejudice petitioners’ case given their reliance at trial on our April 22, 2021 order.  Consequently, we hold that justice does not require our grant of leave for respondent to amend his answer; we will not grant respondent leave to amend his answer under Rule 41(b)(2).” Order, at p. 4.

“Oh please” is too mild an expression.

Remember Emerson’s denunciation of “foolish consistency” as “the hobgoblin of small minds”? Well, today Judge Nega finds the consistency rule of Temp. Reg. Section 1.861-12T supplements but does not override Temp. Reg. Sec. 1.861-9T. So he’s all for consistency, as is the rest of the Tax Court bench in Aptargroup, Inc., 158 T. C. 4, filed 3/16/22.

Agroup owns a Luxembourg CFC that owns or controls, directly or indirectly, 32 (count ’em, 32) CFCs. They all pay a lot interest and foreign taxes (hi, Judge Holmes), for which taxes the Agroup wants Foreign Tax Credit. But Section 904(a) limits the credit to “…’the same proportion of the tax against which such credit is taken which the taxpayer’s taxable income from sources without the United States . . . bears to his entire taxable income for the same taxable year,’ and the FTC limitation is computed by multiplying total U.S. tax on worldwide income by a fraction with a numerator of foreign source taxable income and a denominator of worldwide taxable income. Generally, in the case of an affiliated group of corporations, the foreign tax credit is determined on a consolidated basis. Treas. Reg. § 1.1502-4(c).” 158 T. C. 4, at p. 4.

Matching categories of deductible items to income is easy, but interest expense is special.

“Special rules exist for allocation and apportionment of interest expense in Temporary Treasury Regulation § 1.861-9T (section -9T). In general, interest expense is treated as related to all income-producing activities and assets regardless of the specific purpose for the borrowing, on the general principle that money is fungible, borrowing frees up other funds for other purposes, and management has flexibility as to the source and use of funds. Id. para. (a). Thus, interest expense must be ratably allocated to all gross income. Allocation is not at issue. Petitioner must allocate its interest expense to all its income-producing assets and activities. The parties disagree over the apportionment of the interest expense.” 158 T. C. 4, at p. 5. (Footnote omitted, but it says the Regs were of limited duration, and those cited affect the year at issue here. YMMV).

Agroup wants a mismatch between how its consolidated CFCs apportion interest expense (modified gross income) and how its onshore owner apportions same (assets). The difference is $3 million foreign tax credit. Agroup says the right to elect the modified gross income option is an exception to the consistency rule.

No go, says Judge Nega. “…the consistency requirement is a condition of the election. The modified gross income method is an exception to the general rule of the asset method and is the reason for the consistency requirement. The consistency requirement is imposed because an election is provided.” 158 T. C. 4, at p. 8.

If you go with modified gross income offshore, you have to go with it onshore. Same with assets.

I will say again that this is a non-political blog. If you want vitriol and self-righteousness, you’re on the wrong page. But we see today what happens when Congress gets it wrong: when Congress starves the IRS, it isn’t the IRS that is hurt, it is the honest taxpayers.

Here’s Thomas Rhea Hamilton and Edith Marie Palmer Hamilton, T. C. Memo. 2022-21, filed 3/15/22. Judge Patrick J (“Scholar Pat”) Urda has to deal with a SO who just wants to get rid of a burdensome file.

Tom was a lawyer and Edith Marie a chaplain with a ne’er-do-well bookkeeper who didn’t keep books or records, or file stuff. Thus Tom and Edith Marie were in the hole $70K for the year at issue, inclusive of add-ons and interest. They filed late, didn’t pay, IRS assessed self-reporteds and gave Tom and Edith Marie a NFTL. Tom and Edith Marie asked for a CDP.

The SO asked for bushelbasketsful of paper. Tom and Edith Marie brought in Patricia Tokar Canton, CPA, who did a praiseworthy rescue job, faxing documents at a furious rate. The SO did not “…do any work on the case between October 1, 2018, when she spent an hour and a half reviewing the file and drafting the initial letters, and November 15, 2018, when she spent an hour preparing for the hearing scheduled for that day.” T. C. Memo. 2022-21, at p. 4.

You know the rest. The SO claims she never got what she got, and closes the case with a NOD confirming. Scholar Pat unpacks this. IRS wants a motion in limine to rule out Tom’s and Edith Marie’s testimony; record rule, y’know. But Judge Scholar Pat denies that. And the admin record only has a fax transmittal from Patricia Tokar Canton, CPA, sending eleven (count ’em, eleven) pages, but none of them are in the admin record, T. C. Memo. 2022-21, at p. 8.

IRS should have folded.

Tom and Edith Marie played fair and tried. Patricia Tokar Canton, CPA, was throwing paper with the best. This wasn’t the run-of-the-rejection-mill case where the nontaxpayer sends in nothing and waltzes around.

Remanded.

OK, the SO abused her discretion. And Judge Scholar Pat has made it clear that Tom and Edith Marie should get a proper review, rather than a breeze-through-the-file the night before.

But Tom and Edith Marie spent money, and time, and effort. Patricia Tokar Canton, CPA, may offer all the “friendly, professional service” her Facebook page says and then some (earning thereby a Taishoff “Good Job, First Class”), but I doubt she did it for free. Yes, maybe Tom and Edith Marie’ll finally get the fair shake they should have gotten three (count ’em, three) years ago.

I don’t know if that SO is still around. In any event, she won’t be getting the remand. So she won’t have to go through all those papers; in the end, she got them off her desk without having to look at them.

And before my readers cry out with one voice “But what makes you think more money for IRS would cure a lazy person?” I can only say that Patricia Tokar Canton, CPA, is willing to work hard for proper compensation. Maybe for the right price IRS might find someone like her. If they had the right price.

Nothing personal here, strictly business. To bring Tax Court into line with FRAP as currently amended, Form 17, Notice of Appeal to Court of Appeals, f/k/a Notice of Appeal in its now-superseded iteration, is available on the Tax Court website. Instructions included; assembly required. Not suitable for small children.

My colleague Peter Reilly, CPA, dropped a bomb on me this evening. 6 Cir affirmed Tax Court in Oakbrook, and upheld Reg. Section 1.170A-14(g)(6)(ii), despite Hewitt. 6 Cir was unanimous in result, although Judge Guy upheld based on the statute; he didn’t like the Reg.

Here’s Oakbrook Land Holdings, LLC, William Duane Horton, Tax Matters Partner v CIR, 20-2117, 3/14/22.

Judge Karen Nelson Moore sends off 11 Cir.

“The petitioners also direct us to a recent decision by the Eleventh Circuit that held the proceeds regulation to be procedurally invalid under the APA. See Hewitt v. Comm’r, 21 F.4th.1336, 1339 (11th Cir. 2021). Unlike the concurrence, we find that decision’s reasoning to be unpersuasive. In concluding that the New York Landmarks Conservancy’s comment raised significant concerns about possible deterrent effects that the proceeds regulation could have on donations, the Eleventh Circuit stressed that one of I.R.C. § 170’s aims is ‘to allow deductions for the donation of conservation easements to encourage donation for such easements.’ Id. at 1352. Although encouraging the donation of conservation easements is undeniably a goal of the statute, highlighting this point overlooks a crucial condition that Congress demanded be met by donors seeking deductions: an easement’s conservation purpose must be ‘protected in perpetuity.’ I.R.C. § 170(h)(5)(A).” Opinion, at p. 19. (Footnote omitted).

So “highly contestable readings of what it means to be perpetual” are still in play, in 6 Cir. anyway.

The comments of the New York Landmarks Conservancy, now directed by my friend Peg Breen, get a heavy airing.

Man, I’ll be double dipped. The bookies must have slaughtered us punters on this one. See my blogpost “Taking the Bookies’ Money,” 1/3/22, for which I hereby heartily and humbly apologize.

But maybe so it might could be this is going to the Supremes.

And Don’t Disqualify

That’s Judge Patrick J (“Scholar Pat”) Urda’s advice to Jerry J Sun and Sun N. Sun, Docket No. 14749-17L, filed 3/14/22, and IRS. Seems the SO on their CDP overlooked the fact that he had discretion per IRM part 5.14.1.4(5) to let Jerry and Sun keep their multimillion dollar home unencumbered and unliquidated; sure, the SO should consider whether to tell Jerry and Sun to encumber or liquidate their MacMansion to pay off their multimillion dollar deficiencies, add-ons, and chops, but not be more intrusive than necessary.

This case is back to Tax Court on a supplemental CDP, which IRS asked for. The “liquidate or encumber” issue arose out of the supplemental CDP, whereat three (count ’em, three) of Jerry’s and Sun’s “representatives” participated. I use the inverted commas, because only one of the three is shown as attorney for Jerry and Sun in the online docket. Except that the other two “representatives” are name partners in the attorney’s law firm.

OK, fair enough. But now comes one of my pet peeves.

After the trial started on the supplemental CDP, IRS said they might want the attorney for Jerry and Sun to testify. Judge Scholar Pat stopped the trial so the parties could brief the issue. Then IRS moved for summary J.

Judge Scholar Pat denies summary J. It’s a question of fact what the SO thought were the limits of his discretion to order liquidation.

Asking to have trial counsel testify in midtrial is dirty deck tennis, but Judge Scholar Pat is too much of a gentleman (and a scholar) to say so.

“We do not believe that current trial counsel is likely to be a necessary witness.  Three attorneys appeared on the Suns’ behalf at the CDP hearing, two of whom are available to testify and were listed as potential witnesses in the Suns’ pretrial memorandum. Even if we were to conclude that the Suns’ trial counsel was likely to be a necessary witness after the settlement officer’s testimony at trial, we would nonetheless permit continued representation given that disqualification in the middle of trial would work substantial hardship on the Suns (especially since their other representatives have not participated in the trial so that they might be available to testify).” Order, at pp. 3-4. (Footnote omitted, but it says IRS didn’t put the attorneys on their witness list).

I’m glad Judge Scholar Pat reads ABA Model Rule 3.7 and Rule 24(g)(2)(A) beyond just a knee-jerk disqualification when anyone suggests a party’s attorney might have to testify. The idea behind attorney-as-witness disqualification is that the attorney should not argue his or her own credibility; this confounds the disparate roles of attorney and witness.

This confoundment misleads a trier of fact into placing excessive weight upon what a witness-attorney says when not testifying; and the trier of fact who most needs this protection is a jury, composed of nonprofessional triers of fact. In US Tax Court there is no jury to be confounded or misled. As Judge Vasquez said many years ago “(S)ee Diaz v. Commissioner, 58 T.C. 560, 564 (1972) (stating 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).” See my blogpost “Practicing Accountancy Can Be Hazardous to Your Health,” 12/26/12.

I’m sure Judge Scholar Pat can distill with the best of them.

IRS does make a last-ditch try by claiming some shady numbers in Jerry’s and Sun’s 433-A would justify the SO telling them to liquidate or encumber, but those who move for summary J give the other side the benefit of the doubt, and Jerry and Sun get it.

I’ve proclaimed far and wide that I’m a great fan of summary J. It rivals the Swiss Army knife as a multipurpose tool. You can win all or part of your case; you can get testimonial and documentary discovery without the scrimmaging of face-to-face or Zoomie Q&As (or the cost of hiring a high-priced stenotypist who’ll get things wrong anyway); and best of all, you can see what the judge thinks of your case.

IRS must think so too, because summary J is one of IRS’ most made motions. Tax Court’s website devotes a bunch Q&As (hi, Judge Holmes) to the subject on its information for petitioners pages.

Today Judge Nega shows how to go around from a missed approach when you blow the sixty-day cutoff in Rule 121(a). Motions for summary J must be made so as not to delay trial, and in no event later than sixty (count ’em, sixty) days before the first day of the trial session wherein your case is calendared, even if you’re not going to trial that day.

In John Joseph Bauche, Docket Number: 12241-20L, filed 3/11/22, IRS moved for summary J last July, but that motion was dismissed without prejudice last August. So IRS tried again a week ago. Problem was, the IRS was a day late, as trial was noticed for the 5/2/22 session; IRS moved 2/4/22, but last day was 2/3/22.

Apparently IRS’ counsel caught the glitch just as they hit the “send” button for the motion, so they immediately followed with a motion for leave to file out of time.

Judge Nega: “In respondent’s motion for leave, respondent states that the filing of his Motion for Summary Judgment was delayed due to clerical error. Respondent further that petitioner will not be prejudiced by the delay given that the motion for summary judgment contains only minor updates to the motion for summary judgment respondent filed in this case [last July], and given that respondent informed petitioner on February 25 and March 3, 2022, that he would be filing a motion for summary judgment with respect to the May 2, 2022, trial session. Respondent represents that petitioner objects to the granting of respondent’s motion for leave. We find that respondent’s short delay in filing his motion for summary judgment has not prejudiced petitioner. Accordingly, in light of our discretion under Rule 25(c), we will grant respondent’s motion for leave.” Order, at pp. 1-2.

So here’s the missed-approach go-around checklist. When you first decide to go for summary J, tell the adversary. Calendar the due date. Remind yourself and adversary. Have a form of motion for leave to file out of time handy in the wordprocessor. Make sure your new motion for summary J, to file which you’re requesting leave, has only minor tweaks to the rejected motion, and so represent to the Court.

Fly runway heading, climb to pattern altitude, and hopefully the Judge will let you reenter the traffic pattern.

It is, of course, extremely unlikely that any jurisdiction would consider me for such an exalted post. Still, I’m glad I don’t have to wade through such stuff as Judge Morrison encounters in the daily grist that comes to his judicial mill. By way of illustration, here’s Brian K. Bunton and Karen A. Bunton, T. C. Memo. 2022-20, filed 3/10/22.

I’ll be brief, as I’m meeting some old friends shortly.

Reviewing the admin record (the Buntons resided in CA when they petitioned, hence 9 Cir record rule), Judge Morrison finds the SO in the Buntons’ CDP got “…undated correspondence from the Buntons. It was filled with frivolous arguments, including that the Buntons were not ‘citizens of the United States Corporation.’ The letter referred to Mr. Bunton as a ‘Trust and a Vessel in Commerce,’ and threatened a ‘lawsuit and a penalty of $2 million against each government officer or agent.’” T. C. Memo. 2022-20, at p. 7.

I was going to comment on the originality of the above-set-forth protester jive, but it’s probably on some protester site.

If, to qualify to deal with this sort of thing, one had to obtain degrees from each of the Universities of Kansas and Chicago, clerk for a CCA Judge, practice in two (count ’em, two) white shoe law firms, and serve as Deputy AAG for appeals and review in DOJ Tax Division, you can see why I’m glad I never did.

My colleague Mr Press notified me Sunday morning about the death of Judge Gerber. I replied that judges don’t seem to survive retirement very long. Perhaps it’s the never-ending parade of humanity in all its forms, and the role of judge as Flaubert, in an ongoing search for the right solution or le mot juste that keeps them (and us) going.

Howbeit, here’s the press release.