Amazing how ancient concepts, now much derided and discarded in many jurisdictions, swim back into memory from a most distant cue, a mere soupçon. Marcel Proust’s madeleine hasn’t anything on United States Tax Court’s Public Affairs Officer, as today she recalls part of The Rule Against Perpetuities, the long-range suspension of the power to sell or encumber. Rather like the ultimate forward pass.

Tax Court’s trial sessions are going remote again, just when you thought it was safe to show up, sit right down at counsel table, give your adversary a steely glance, and lay it on ’em.

Here’s the skinny: https://www.ustaxcourt.gov/resources/press/01122022.pdf

I’ll quote Oscar Wilde’s famous jibe about the cynic who “knows the price of everything and the value of nothing,” as I’m sure Judge Albert G (“Scholar Al”) Lauber, though himself no cynic, is fully familiar therewith. He shows just how familiar in Hancock County Land Acquisitions, LLC, Southeastern Argive Investments, LLC, Tax Matters Partner, Docket No. 12385-20, filed 1/12/21.

And, dear reader, before you groan “Oh no, not another GA boondockery,” know I said it first. But I have to blog it; you can stop reading now and ignore it.

Anyway, the Hancocks are a MS LLC box-checked as a partnership (natch) with HQ in GA (natch), which wound up with 236.12 acres of strip-mined scrub, which they had syndicated for $18 million to a bunch investors (hi, Judge Holmes) who took a $180 million Section 170 conservation easement write-off. Btw, the 8283 showed original purchase price as $166,551.00.

There’s much argy-bargy about from whom the Hancocks bought (or acquired) the property, whether they bought it or was it a capital contribution, but you can read for yourselves, Order, at pp. 6-7, and Judge Scholar Al wisely ducks the “substantial compliance” issue. Summary J is the game, and reasonable cause for any miscue is fact-driven.

Improvements in-or-out is the lead issue. The paperwork says improvements out; if extinguished, whatever award encompasses the improvements goes to the Hancocks.

Well, what are the improvements? “First, Hancock may maintain, enlarge, or replace the main access road and secondary access roads in ‘Acceptable Development Areas.’ Second, Hancock may construct new fences, and it may maintain, enlarge, and/or replace existing fences , for the purpose of preventing trespassing on the Property. Third, Hancock may maintain, enlarge, or replace certain ‘rustic structures,’ so long as the structures ‘blend with natural surrounding and complement the natural and scenic features of the landscape.” Finally, Hancock may establish and maintain hunting stands and platforms so long as such accessories ‘minimize[] damage to the Property, and so long as these activities preserve the value of the Open Area as wildlife habitat.’” Order, at pp. 2-3.

The Hancocks say the improvements are worthless. OK, cue Oconee and Wisawee. See my blogpost “Preserving the Preservation Easement,” 8/18/20.

But there’s a twist: although the worth or value of the improvements is a question of fact for the trial, the improvements are worthless because rocket science.

“This tract lies within a 125,000-acre ‘acoustical buffer zone’ surrounding the Stennis Space Center,  a rocket propulsion test facility operated by the National Aeronautics and Space Administration (NASA). Cognizant of the risks surrounding tests of rocket engines, the United States for decades has held a ‘perpetual and assignable easement’ over this buffer zone (NASA easement). The NASA easement grants the United States the right, within the buffer zone, ‘to prohibit human habitation or human occupancy of dwellings and other buildings, and the right to prohibit the construction of dwellings and other buildings susceptible of being used for human habitation or human occupancy.’” Order, at p. 2.

I suppose I shouldn’t revisit the façade cases, where the local laws already preserved the wannabes to a fare-thee-well. On the trial, NASA can sink the Hancocks.

But maybe the land itself has value, well above $180 million. Not for nuthin’, but what would Xi Jinping, Vladimir Putin, Kim Jong-Un, or Ali Khamenei, individually or collectively, pay for some “hunting stands and platforms so long as such accessories ‘minimize[] damage to the Property, and so long as these activities preserve the value of the Open Area as wildlife habitat,” that maybe might could be have a ringside view of the USA’s latest devices for putting a couple dozen kilotons (hi again, Judge Holmes) in their individual or collective hip pockets?

I won’t go into his multiple indocumentados. Judge Wells got paid to do that, and he did. One indocumentado is much like all the others. Wherefore, I’m blogging the first T. C. Memo. of the current year, Mohamed H. Elbasha, T.C. Memo. 2022-1, filed 1/12/21, because of his shifting status in the two (count ’em, two) years at issue.

Mo (that’s Doc Mo, emergency room physician in GA) was married in both years to the same lady, but Mrs. Doc Mo lived throughout in her “‘ome in the Soudan.” She was an NRA (that’s a Non-Resident Alien, not a pistol-packin’ Mama). Apparently they had no children in Year One, but in Year Two “(T)hey welcomed a daughter.” 2022 T. C. Memo. 1, at p. 3.

Doc Mo filed Single for Year one, and HOH in Year Two (apparently the daughter’s qualifications in support thereof never got contested). IRS never raised filing status in the SNOD, upping the ante on the trial, so IRS gets BoP at no extra charge.

Doc Mo goes one for two.

“Petitioner was married at the close of [Year One]  but contends he is entitled to the single filing status because his wife lived abroad. Simply having a spouse living apart or abroad is insufficient for a person to be considered not married. Respondent’s motion is therefore granted as to petitioner’s increased deficiency due to a change in filing status for tax year [One].” 2022 T. C. Memo. 1, at pp. 9-10.

As daughter was not welcomed until Year Two, he had no dependent that would have let him in under Section 7703(b). But as Bob Frost put it, “(A)nd that has made all the difference.”

“A person may file as a head of household only if the individual is not married at the close of the taxable year. Sec. 2(b)(1). For purposes of the head of household filing status, a taxpayer is not considered married at the close of the taxable year if that person’s spouse is a nonresident alien. Sec. 2(b)(2)(B). Petitioner testified that at the end of [Year Two] he was married but his wife, an alien, was not present in the United States.  Respondent provided no evidence to refute petitioner’s testimony. Respondent has not met his burden of proof, and the motion is therefore denied as to petitioner’s increased deficiency due to a filing status change for [Year Two].” 2022 T. C. Mewmo0. 1, at p. 10.

So we’ve seen the hidden spouse trick and the open spouse trick. Now we have the offshore spouse trick.

I can’t think any compendium of great political cartoons would be complete without Sir John Tenniel’s 1890 classic of the “Iron Chancellor” von Bismarck departing the bridge of the German ship of state he had so brilliantly steered into existence.

Today Judge Courtney D (“CD”) Jones, though no cartoonist, draws us a picture of how to replace a TMP. And that outgoing TMP is the Master Pilot of the GA boondock conservation easement dodge, Dave (“Homestead”) Hewitt, he who saved Daddy’s homeplace from the mobile homebodies, and fired the torpedo that 11 Cir used to sink IRS’ “highly contestable readings of what it means to be perpetual.” You’ll recall after Dave donated his properly valued conservation easement, he turned to the dark side and started flogging dubious deals. See my blogpost “Gude Faith, He Maunna’ Fa’ That – Part Deux,” 6/17/20.

Today, Dave is leaving one of his productions, Collinsville Land, LLC, Collinsville Land Partners, Tax Matters Partner, Docket No. 12022-20, filed 1/11/21. Dave was TMP when IRS pulled its return for examination (audit). Naturally, when IRS saw Dave’s name on a return, they reacted like Snoopy to The Red Baron.

While the exam was going on, Land Partners faxed a document to the RA on the exam signed by Dave and a partner of Land Partners removing Dave and subbing in Land Partners as TMP. Of course a FPAA followed. The Land Partners petitioned both as notice partner, and separately as TMP.

Judge CD eulogizes the now-extinct TMP. “We are mindful that a TMP is essential to the operation of TEFRA partnership proceedings. The TMP helps to ensure the fair, efficient, and consistent disposition of a partnership proceeding before this Court.” Order, at pp. 2-3. What the new “representative” created under the current régime will do is at best unclear.

The Land Partners want summary J that they are the TMP,. and they’ll move to toss the notice partner petition if they get it.

“Section 6626(a) provides that within 90 days after the day on which an FPAA is mailed to the TMP, the TMP may file with the Tax Court, a petition for readjustment of the partnership items for the taxable year. Section 6626(b) provides that if the TMP does not file a readjustment petition under subsection (a) with respect to any FPAA, any notice partner (and any 5-percent group) may, within 60 days after the close of the 90 -day period set forth in subsection (a), file with the Tax Court a petition for a readjustment of the partnership items for the taxable year. Section 6226(b)(5) provide that if a notice partner files a petition during the 90-day window for TMP petitions (commonly referred to as a ‘premature petition’), the premature petition is deemed to be filed on the last day of the 60-day notice partner window.”

Reg. Section 301.6231(a)(7)-1(d) says if the present TMP certifies that somebody else is TMP, the new TMP is subbed in. “The regulations further provide that the current TMP shall make the certification by filing with the service center with which the partnership return is filed a statement that includes information about the partnership; the partner filing the statement; the taxable year to which the designation relates; and other pertinent information. The statement must be signed by the partner filing the statement. See sec. 301.6231(a)(7)-1(d)(1) – (5), Proced. & Admin. Regs.” Order, at p. 2.

I’m sure my ultra-hip readers will cry with one voice “Hold on! The Land Partners faxed something to the RA at Exam. Nobody din’t say nuthin’ ’bout no service center!”

Judge CD Jones is on the case, chaps. “Respondent does not suggest that the filing requirement was not satisfied.” Order, at p. 3, footnote 5. If IRS don’t care, she don’t.

Judge CD Jones says the Land Partners are in fact the TMP, the notice partners petition unnecessarily complicates things, so let the Land Partners move to toss it.

Takeaway- In case it needs to be said again, read the Regs.

In a busy blogger’s day, one spends almost as much time deciding whether to blog a case as one spends actually blogging it. Lafayette Lorenzo Nelson, III, Docket No. 892-19, filed 1/10/21 is one such. Plus side, Judge David Gustafson. Minus side, another Section 274 indocumentado with tax home obbligato, as fact-specific as it gets. Plus side, LLN3’s work as product manager for Egyptian Magic Skin Cream, an outfit his uncle founded, with side-hustle in the music biz. And the decider, an interesting wrinkle on hotel travel deductions.

“Swagg Money is a record label responsible for signing artists, recording, and marketing their music, booking their concerts, and planning logistics for their tours. Mr. Nelson tries to identify promising new artists, invest in them, build their success, and profit from them in the long term.  Although Swagg Money maintained a Texas business address, its principal place of business was Atlanta, Georgia.” Transcript, at p. 6.

LLN3 has deductions from both. He shuttles from DC (corporate HQ for the Egyptians) to Dallas (bottling and distribution center). He lives in MD, commutable to DC. And travels all over on the music bit.

He gets some travel deductions from the Swagg gig, even though it loses money, because IRS folds on hobby loss. LLN3’s check register and credit card slips are enough. Likewise, LLN3 is in DC much more than in Big D, so that’s his tax home; thus trips to Dallas can be written off as uncompensated employee business deductions (now extinct).

The interesting part: “Given that Mr. Nelson’s tax home in [year at issue] was Washington, D.C., it follows that he was ‘away from home in the pursuit of a trade or business’ while in Dallas, and that he should therefore be allowed deductions for air travel between Dallas and Washington, D.C., as well as for the cost of his lodging and car rentals while in Dallas. See sec. 162(a)(2). Mr. Nelson had a business purpose to reserve his hotel room in Dallas for an extended period, because of the indeterminate yet frequent nature of his travel to Dallas for his work with Egyptian Magic, and because of the preferential nightly rate that the hotel offered for extended rentals.” Transcript, at p. 18.

While this is a non-precedential off-the-bencher, the argument that a cheaper extended stay rate might obviate the need to prove what nights you slept where could be useful for business travel by unreimbursed non-employees.

Judge Goeke takes us through the lien-levy compare-and-contrast when criminal restitution is on the menu, in Paul M. Daugerdas, Docket No. 7350-20L, filed 1/10/21. Paul, ex-attorney, took some heavy-duty falls in USDCSDNY for dodgeflogging, good for 15 (count ’em, 15) years in the slammer, plus around $371 million in criminal restitution.

Section 6201(a)(4), the “as if” provision allowing collection of criminal restitution as a tax, is the key. Title 26 doesn’t create the lien, Title 18 does. Paul tries to distinguish between loss of tax and failure to pay, but that doesn’t fly. “Petitioner seeks to distinguish a tax loss from a failure to pay any tax. For purposes of section 6201(a)(4), we find no distinction in the light of the plain language of the statute and the legislative history that establish that Congress intended to extend respondent’s section 6201(a)(4) authority to tax-related title 18 offenses.” Order, at p. 5.

It was Paul’s clients who didn’t pay, but that’s a mox nix under Bontrager. See my blogpost “One Man’s Tax,” 12/12/18.

Levy depends upon what the District Court ordered. Judge Goeke sends IRS and Paul back to Appeals, so the SO can apply 2 Cir learning, even though Paul is in IL, thus Golsenized to 7 Cir. The question is whether District Court ordered immediate payment (hence levy) or not, and whether or not Paul is destitute, even if it did.

As for the lien, that’s automatic. “The plain text of section 3613, title 18 makes clear that the lien is automatic upon the entry of the judgment and is for the full amount of the restitution. The statute does not require that that the criminal defendant have a current payment obligation under the restitution order. Thus, the lien automatically arises upon entry of the judgment under section 3613(c), title 18, irrespective of how the criminal restitution order is interpreted.” Order, at p. 6.

Split decision on summary J. Lien stays, levy awaiting remand.

That’s Judge David Gustafson’s word to IRS, when they conspicuously failed to do so in Wendell C. Robinson & May T. Jung-Robinson, Docket No. 6446-19L, filed 1/10/21. But don’t fault IRS too badly; true, they issued an erroneous CP22A, and CP24, and blew the abatement on a CP11, but Wendell’s & May’s returns for the two (count ’em, two) years at issue were proof of my oft-repeated statement that lawyers can’t add. Wendell can’t even follow instructions, although he is admitted to practice in United States Tax Court, Transcript, at p. 5.

I’m sure my fellow-admittees will howl if I even suggest it, but maybe Tax Court should require CLE.

Yes, I’ve yelled long and loud about the CLE racket, and I abate not one jot or cliché thereof. And yes, I once made the same mistake as Wendell, putting my 1040-es on the wrong line of our 1040 one year, which took months to straighten out. But just read Judge Gustafson’s opinion; Wendell & May cooked up quite a frittata, aided by IRS’ miscues.

My takeaway today centers upon Section 6213(b)(2)(A). In a math or clerical error automatic, IRS must give notice to the taxpayer of the amount of the mistake, and the reason why it is a mistake. The taxpayer then has sixty (count ’em, sixty) days to give IRS “… a request for an abatement of any assessment specified in such notice, and upon receipt of such request, the Secretary shall abate the assessment. Any reassessment of the tax with respect to which an abatement is made under this subparagraph shall be subject to the deficiency procedures prescribed by this subchapter.” Transcript, at p. 24. Judge Gustafson stresses the “shall.”

Though Wendell & May sent written notice to IRS nine (count ’em, nine) days after the CP11, IRS never abated the assessed error amounts. On the trial, “(T)he Commissioner contends that the Robinsons’ letter was not a request for abatement because it did not expressly (in the language of the statute) ‘request’ an ‘abatement.’ However, we are satisfied that, even without the statutory terminology, their letter qualifies as a request for abatement. The Robinsons plainly indicated their lack of acquiescence, requested information substantiating the IRS’s assertions, demanded to know why their own calculations were not correct, and asked that the related interest and additions to tax be ‘stayed.'” Transcript, at p. 33.

After going through the legislative history and the IRS Manuals, both for the year at issue and the present, Judge Gustafson delivers a comment worthy of a Taishoff “Standing Ovation.”

“The constituency for section 6213(b)(2) is not the Section of Taxation of the American Bar Association;  it is the taxpayer who has made an arguable mathematical or clerical error on his return. When the IRS notifies a taxpayer of such an error, it does not provide him with a form or publication telling him how to ‘request an abatement.’ That being so, the IRS sensibly advises its employees that it will abate tax even in response to an oral request. Much more should it abate when a taxpayer returns the math error notification and objects in writing.” Transcript, at pp. 35-36. (Emphasis by the Court).

I am sure my ultra-sophisticated, battle-hardened readers will not be convulsed with shock when they read Judge Albert G (“Scholar Al”) Lauber’s flooring of the brake pedal in Wisawee Partners II, LLC, E. Ronald Martin, Jr., Tax Matters Partner, Petitioner, Docket No. 6105-18, filed 2/7/21.

E-Ron and IRS cross-moved for partial summary J over the latest “goofy regulation,” Reg. Section 1.170A-14(g)(6). Of course, this is a conservation easement of GA boondock; Judge Scholar Al says nothing about overvaluation, but goes into the deed and amendments thereto concerning improvements in or out on extinguishment.

Scholar Al, Oakbrook clutched in his hand, with the Coalholders and TOT in reserve, was ready to smite E-Ron therewith otherwise than in friendly rebuke. I’ve blogged all this stuff in extenso.

But then 11 Cir came down with Hewitt.

“Petitioner contends that the ‘judicial extinguishment’ regulation is substantively invalid under Chevron, U.S.A., Inc. v. Nat. Res. Def. Council, Inc., 467 U.S. 837 (1984), and constitutes ‘arbitrary and capricious’ rulemaking in violation of the Administrative Procedure Act (APA). We rejected these arguments in a recent Court-reviewed Opinion. See Oakbrook Land Holdings, LLC v. Commissioner, 154 T.C. 180, 189-200 (2020). However, on December 29, 2021, the Eleventh Circuit held that ‘the Commissioner’s interpretation of § 1.170A-14(g)(6)(ii), to disallow the subtraction of the value of post-donation improvements … is arbitrary and capricious and therefore invalid under the APA’s procedural requirements.” Hewitt v. Commissioner, __ F.4th __, __ (slip op. at 36) (11th Cir. Dec. 29, 2021), rev’g and remanding T.C. Memo. 2020-89 (applying Oakbrook). In light of the Eleventh Circuit’s opinion, we will hold petitioner’s motion for partial summary judgment in abeyance pending further developments.” Order, at p.  6.

Like what, Judge? An appeal to the Supremes? Maybe IRS conceding the paperwork and going to valuation? An act of Congress amending Section 170 (best of luck)?

Judge Mark V Holmes’ dissent in Oakbrook, although glossed over by 11 Cir, carries the day, and again The Great Dissenter has gifted us with a massive silt-stir.

When it comes to so-called “apportioned” innocent spousery, the 6015(b) type, actual knowledge of the unreported or underreported ex’s income means just that – actual, not constructive.

Today Judge Buch absolves Catherine M. Blappert of the $108K unreported income from spouse Bradley M. Blappert (that’s Doc Blappert, M.D.) because she played no material role in Peak Medical Partners, LLC (the “operation”). You’ll find the whole story in Bradley M. Blappert & Catherine M. Blappert, Docket No. 10417-18, filed  2/7/21.

Doc Blappert’s operation employed an office manager and engaged a CPA to do the returns; return prep involved three-way meetings with Doc Blappert, manager, and CPA. Though Catherine got paid $36K in year at issue by the operation, she mostly did some sales rep work, and stayed home with their four (count ’em,, four) children. IRS let Catherine off the hook, but Doc Blappert wants her on.

I note that the operation, though styled “partners,” was a single member LLC (Transcript, at p. 5) reporting as sole proprietorship. As I am not admitted in LA where all this took place, I cannot comment upon LA’s view of those who use the term “partners” for a sole proprietorship.

Howbeit, Doc Blappert claims Catherine was a partner, took a “significant” part of the operation’s profits as wages. She did draw some money from the operation’s business accounts, but that was when Doc Blappert was shutting it down. Doc Blappert claims Catherine was in on the tax meetings, but there’s no evidence other than his testimony.

Their lifestyle wasn’t extravagant, the biggest expense being the kids’ parochial school expenses, and the $276K net profit the operation showed would have covered everything. Catherine admits she glanced at page one of their MFJ, and it looked OK. Besides, she knew nothing of the operation’s finances, Transcript, at p. 7. And $36K is less than 15% of $276.

Only actual knowledge is in dispute. Judge Buch sets out the checklist.

“Actual knowledge requires knowledge of the receipt of the income; knowledge of the source alone is not sufficient. Sec. 1.6015-3(c)(2)(i)(A) and  (iii), Income Tax Regs. It also requires knowledge of the amount received. See sec. 1.6015-3(c)(2)(ii) and (c)(4)(example 4), Income Tax Regs. Ms. Blappert believed that Dr. Blappert properly reported his income. She did not participate in bookkeeping for Peak Medical. Peak Medical’s office manager handled insurance payments and co-payments processed through Square. Moreover, Peak Medical maintained a separate business account that Ms.  Blappert did not access while Peak Medical was in operation. Ms. Blappert did not actually know about the source, receipt, or amount of the omitted income.  Ms. Blappert also did not have reason to know about the omitted income. She would have reason to know of the understatement if a reasonable person in similar circumstances would have known of the understatement. Sec. 1.6015-2(c), Income Tax Regs.; Cheshire v.  Commissioner, 115 T.C. 183, 192-93 (2000), aff’d, 282 F.3d 326, 332-34 (5th Cir. 2002).” Transcript, at p. 11.

Of course, we need facts and circumstances (I really miss Sir Eddie Elgar).

“We consider all the facts and circumstances, including: the nature of the erroneous item and its amount relative to other items; the requesting spouse’s education and business experience; the extent that the requesting spouse participated in the activity producing the erroneous item; whether the erroneous item departed from a pattern reflected in prior returns; and whether the requesting spouse failed to ask about erroneous or omitted items that a reasonable person would question. Sec. 1.6015-2(c), Income Tax Regs.” Transcript, at pp. 11-12.

Catherine was no partner.

Judge James S (“Big Jim”) Halpern amends his order and decision sending off 901 South Broadway Limited Partnership, Standard Development, LLC, Tax Matters Partner, Docket No. 14179-17, filed 1/6/21. IRS asked for vacation, but if vacated, how can an order be amended? But Judge Big Jim denies IRS’ motion to vacate, and orders an amendment to reflect IRS’ concession of the Section 6662a chops.

Now y’all will remember that Judge Big Jim brushed off 1 Cir’s Kaufman decision, because the 901s are Golsenized to 9 Cir. If not, see 2021 T. C. Memo. 132, filed 11/23/21, at p. 28.

But after Hewitt in 11 Cir, is IRS (or anyone else) so sanguine that 1 Cir’s renunciation of a “highly contestable reading of what it means to be perpetual” will remain a lone outlier?