Once again, Scotland’s Greatest comes to the fore, in David F. Hewitt and Tammy K. Hewitt, 2020 T.C. Memo. 89, filed 6/17/20. Even though Dave’s conservation easement craters for tax purposes, he has saved his daddy’s farm from the mobile homesters. And his subsequent fall from grace doesn’t change that.

Dave’s problem (Tammy never had title, and AL isn’t a community property State) is that he saved five homesteads for his and Tammy’s babies, in locations to be determined. Judge Goeke may or may not like Swiss cheese on rye, but Swiss cheese in a conservation easement doesn’t get it. See my blogposts “Perpetually Swiss,” 12/27/18, and “Swiss Cheese,” 2/3/20.

IRS blew Year One of Dave’s deduction when they left it off the SNOD, but the two-year big carryforwards are toast. There’s an extinguishment problem (the 501(c)(3) gets short-sheeted), but the Swiss cheese is enough for Judge Goeke.

Happily for him, good faith saves Dave the 40% overvaluation chop.

A business acquaintance turned Dave on to a knowledgeable CPA firm, who in turn set Dave up with a 501(c)(3). The CEO thereof, a Ph.D. conservation biologist, scoped out Dave’s domain and did baseline reports. Dave put the easement on the part of his farm most likely to be used as a mobile home park: near the highway to Atlanta and Birmingham, flat and accessible, unlike the back acreages, hilly and wooded.

There’s the usual argy-bargy about Reg. 1.170A-14(g)(6), but that has yet to be overturned on appeal.

The new wrinkle concerns PLR200836014 (June 3, 2008). Dave claims IRS switched its position, and that ambushed him. “Petitioners further argue that we should consider the 2008 private letter ruling because the Court of Appeals for the Eleventh Circuit, to which this case is appealable, has recognized that while not binding precedent under section 6110(k)(3) courts may treat private letter rulings as ‘persuasive authority because they ‘do reveal the interpretation put upon the statute by the agency charged with the responsibility of administering the revenue laws.’ Davis v. Commissioner, 716 F.3d 560, 569 n.26 (11th Cir. 2013) (quoting Hanover Bank v. Commissioner, 369 U.S. at 687), aff’g T.C. Memo. 2011-286; see sec. 6110(k)(3) (providing that written determinations such as private letter rulings cannot be cited as precedent).” 2020 T. C. Memo. 89, at p. 21.

Judge Goeke tosses that, saying the PLR didn’t analyze Section 170(h)(5), so it isn’t “the agency’s fair and considered judgment on the matter in question.” 2020 T. C. Memo. 89, at pp. 21-22. (Citation omitted).

Practice tip: Get the citations and argument here. Someday might want to wildcard in some PLRs that look good for you.

Howbeit, Dave’s valuers beat IRS’. Dave bought other land near his farm, and the prices he paid are in line. His valuers delivered the goods, while IRS’ seems to be a professional lowballer.

“We find that petitioners did not grossly misstate the value of the easement by claiming a deduction of $2,788,000. Mr. [IRS’ valuer] was unduly pessimistic in his valuation and incorrectly applied a uniform value to the entire Hewitt property. Our decision not to impose the gross valuation misstatement penalty does not depend solely on expert valuations. Mr. Hewitt gave credible testimony that the easement property was the most valuable part of the Hewitt property, confirming Mr. B’s and Mr. V’s opinions. Mr. Hewitt believed that the easement property was the portion of his family’s land that most needed protection from development. He has lived in Randolph County his entire life and has experience in land acquisition. We find his testimony helpful and reliable.” 2020 T. C. Memo. 89, at p. 35. (Names omitted).

And Dave ducks the 20% chops as well. Although the 8283 didn’t have disclosure of basis, that doesn’t vitiate good faith, and the easement was dead on other grounds. Dave really wanted to save the old homestead.

Now Dave wasn’t just a pore ol’ dirt farmer. “However, after [granting the easement] Mr. Hewitt began a troubling practice of purchasing rural, undeveloped land and selling interests in pass-through entities that he created to hold the land. Numerous entities associated with Mr. Hewitt granted conservation easements on the recently purchased land, and the investors, including Mr. Hewitt, claimed charitable contribution deductions for the easement donations far in excess of the original purchase prices for the recently purchased, underlying properties. Respondent asserts that Mr. Hewitt has realized over $3.5 million in gain from these transactions and the investors claimed millions of dollars of improper charitable contribution deductions. Petitioners claimed the carryover deductions at issue here for years during which Mr. Hewitt was engaging in this activity.” 2020 T. C. Memo. 89, at pp. 40-41.

But Dave’s fall from grace post-granting this easement doesn’t mean hitting him with chops for this easement.

“Mr. Hewitt’s activities of land purchases and conservation easements after [granting easement] are problematic. However, we find that under the circumstances of the easement donation of his family’s farm land Mr. Hewitt reasonably and in good faith relied on [CPA]’s experienced advice. We have weighed Mr. Hewitt’s post-[granting easement] activities against his sincere intent to preserve his family’s farm land for his father and children. The reasonable cause defense depends on the particular facts and circumstances of each case. Petitioners claimed a deduction for the easement that aligned with Mr. Hewitt’s opinion of the easement property’s fair market value. We disallowed the easement deduction because the deed did not satisfy technical requirements for a conservation easement deduction. We do not expect petitioners to understand these technical requirements. They made a sufficient good-faith effort to assess their tax liability and reasonably relied on professional advice when claiming the easement deduction.” 2020 T. C. Memo. 89, at p. 42.

Leticia C. Santos, 2020 T. C. Memo. 88, filed 6/17/20, runs an apartment and office cleaning service, using persons recruited “…through advertisements she posted in Brazilian hair salons and other businesses in Allston, Massachusetts.” 2020 T. C. Memo. 88, at p. 5.

I bet you didn’t know you could recruit apartment and office cleaners in Allston, MA, in Brazilian hair salons, either. And neither you nor I could, unless you speak Spanish or Portuguese. I don’t; Leticia does.

Howbeit, IRS wants to whang Leticia’s pate to the tune of $125K unpaid FICA/FUTA for the 50-some workers she paid over four (count ‘em, four) years at issue. Leticia had an accountant who provided 1099-MISCs to at least some of Leticia’s crew, but it’s unclear if any made their way to IRS as well.

Judge Ashford has all the factors, with the appropriate 1st Cir gloss thereon (see 2020 T. C. Memo. 88, pp. 11-12, footnote 9 for the ganze myceh, if I may use an arcane technical phrase). Leticia makes the cut.

“Petitioner’s role was more that of a dispatcher, acting as a financial and linguistic bridge or intermediary between her workers and the apartment complexes (and the property managers at those complexes). Petitioner directed her workers as to the result to be accomplished and expected the result to be done in accordance with the contracts’ specifications and in turn to the satisfaction of the property managers, but she otherwise allowed her workers to use their discretion as to the means and methods of accomplishing this result. Petitioner credibly testified that her workers (all of whom were experienced cleaners in their own right and thus needed no training) did not have to take any cleaning job she offered them; and when they did take such a job, they by and large traveled to the apartment complexes using their own or public transportation and performed the job at their own pace using their own cleaning supplies that they brought with them. Additionally, petitioner credibly testified that her workers were free to hire their own assistants and that they (not she) were responsible for paying these assistants. Petitioner also credibly testified that she would relay to her workers any special instructions with respect to a cleaning job from an apartment complex’s property manager because they by and large spoke only Portuguese or Spanish, languages that she also spoke, and she would rarely go to a property and supervise the cleaning or do a postcleaning inspection; the only “quality control” that she exercised was directing a worker after a cleaning job was finished and the worker had already left the property to return to the property if the property manager contacted her indicating that the cleaning was deficient in some respect.” 2020 T. C. Memo. 88, at pp. 13-14 (footnote omitted).

Leticia had to carry general liability and workers’ comp, because no property owner or manager in their right mind would let anyone go cleaning on their premises without. But that is a relationship between Leticia and her employers, not between Leticia and her non-employees.

Leticia’s crew were free to take other jobs. They had no guaranteed minimum pay or number of jobs, and since they could take other jobs, Leticia never had to fire any of them. Like certain dinner guests, if they didn’t suit, they didn’t get invited back.

Leticia wins.

COVID-19 has made my idle hands idler than ever. In consequence whereof, I am starting an occasional feature on this my blog, which may or may not become a recurring one. We’ll see.

It will feature bits and pieces, none worth a whole blogpost itself.

Here are a couple random items (hi, Judge Holmes) from today’s budget of orders from The Glasshouse in Exile.

First,Champions Retreat Golf Founders, LLC., Riverwood Land, LLC., Tax Matters Partner, Docket No. 4868-15, filed 6/17/20. The Champions, hot off their recent 11 Cir win (see my blogpost “A Great Golf Fixed,” 5/15/20 for the scoop), want to get rolling with the trial, so they try a First Request for Admissions. SOP in an ordinary litigation, but Ch J Maurice B (“Mighty Mo”) Foley is a stalwart defender of “the small court.” There are no ordinary litigations there; and nothing happens until the formal remand from the Elevenses is borne into the loading dock at 400 Second Street, NW. So the First Request gets bounced. Stay on side, chaps.

Next, Karen A. Baumwoll, Docket No. 5142-19, filed 6/15/20. I would think this sort of thing happens more often, given the number of Form 6 Ownership Disclosure Statements that get filed, but this is the first Form 10 I’ve seen of that type. I’ll let Ch J Mighty Mo tell the story. “On June 17, 2020, petitioner filed a Notice of Change of Address, which is blank.” Order, at p. 1.

The self-employed health insurance deduction provides the 2% solution for Nelson G. Abrego and Reina E. Abrego, 2020 T. C. Memo. 87, filed 6/16/20. It’s Nelson’s $662 of self-employment income that saves the day.

Although eligible for Medicare, Nelson chose to go for the Affordable Care Act premium tax credit and signed up for private insurance. And even though he had run a small tax prep business for twenty (count ‘em, twenty) years and testified he knew when returns were due, his MFJ return for the year at issue was almost a year late, with no explanation therefor.

Nelson’s and Reina’s MAGI put them just over the 400% Federal poverty line, so their APTC (the advance funding of their tax credit, paid to their insurer) got clawed back, plus late filing and substantial underpayment add-ons, in the SNOD.

Judge Elizabeth A (“Tex”) Copeland takes up the tale.

“The Commissioner has since conceded that the Abregos are entitled to a self-employed health insurance deduction of $662, which lowers their actual [year at issue] HHI to $62,670, or 398% of the FPL.” 2020 T. C. Memo. 87, at p. 6. “HHI” is household income, as computed per the Affordable Care Act. And FPL is the Federal Poverty Level, likewise defined.

But there will be excess credit to be clawed back, so Nelson and Reina won’t get off paying nothing but the monthly excess they’d already paid during the year. Judge Tex Copeland lays out in copious detail the method of calculation, which I cannot paraphrase better than she does her own self.

“In plain English, the amount of PTC a taxpayer is entitled to is calculated by comparing the premium for the plan the taxpayer selected to a PTC amount calculated against a benchmark plan premium. If the actual plan premium is less than the calculated PTC amount, then the PTC will cover the entire plan premium.” 2020 T. C. Memo. 87, at p. 12.

But the exact arithmetic I leave to Judge Tex Copeland and to you. In the end, the clawback is the $2500 maximum in Section 36B(f)(2)(B)(i) for those who slide under the 400% tag.

While I take no political position here regarding the Affordable Care Act (on which more than enough electrons have been seriously inconvenienced), the statute proves that a camel is a horse designed by Congress.

Variation on a Theme

As I want to hear the rest of the Symphony Space reading of Ulysses this Bloomsday, I’ll refer the reader to my blogpost “Vot Did She Set?” 6/25/13, for the explication of the title hereof.

Judge David Gustafson has need of patience to tell IRS that he has already answered their request that he clarify his order of May 18 and the elements of the record in Richard E. Lacey II, 9761-16W, filed 6/16/20.

I didn’t blog the May 18 order when it was published, because it was allegedly uncontested, and seemed simple enough: put the court record into the administrative file.

But somehow IRS’ counsel managed to get confused.

“Respondent asks us to ‘clarify the Order dated May 18, 2020, and corresponding record’, but does not state what in our order he would like us to clarify.

“Respondent’s filing explains that in many cases the Court’s order would not be helpful (but we issued an order, not a rule for all cases) and that some sorts of filings should not be required to be sent (but the motion does not explain which ones). Respondent then reports that he did send to the WO the documents that it did not already have. We appreciate this compliance, but it leaves us not knowing what aspect of our order needs clarification. We conclude that what respondent wants is the opportunity for himself to correct errors in petitioner’s status report. Presumably he has done so in his motion. “ Order, at pp. 1-2 (Emphasis in the original).

But wait, as the midnight telehucksters say, there’s more!

“Respondent’s motion concludes: ‘Respondent contacted petitioner … to ask whether he objects to the granting of this motion. The parties engaged in a discussion to clarify any misunderstanding. Petitioner does not object to the granting of this motion.’ However, petitioner’s response…states that he ‘most strenuously does object to the granting of said motion”. Petitioner then gives his own account of the parties’ communications. Thus, both parties have now put into the record the information that they wanted to appear in the record.” Order, at p. 2.

Motion for clarification denied as moot, but the parties should continue sending status reports. Maybe Judge Gustafson needs more amusing reading. And I need more amusing blogfodder.

All y’all will indubitably recall Fritz Steven Schwager, 2020 T. C. Memo. 83, filed 6/15/20. You don’t? How fleeting is fame. Well, to refresh your recollection, see my blogpost “End Taxation Without Representation,” 5/31/19, wherein Judge Patrick J. (“Scholar Pat”) Urda gave the right-about-face-and-march-out to Fritz’s wannabe advocate Eddie, who was neither a Tax Court admittee nor on the short list therefor. But Scholar Pat did promise Fritz that which the title hereof asserts.

Fritz got it. Having unloaded several bushelbasketsful of protester jive (the payroll tax gambit, the Form 23-C, Assessment Certificate–Summary Record of Assessments ploy, the Paperwork Reduction Act fiddle, the jailhouse lawyer narrow readings of “person,” individual,” and “taxpayer,” and assorted frivolities), Judge Scholar Pat warns Fritz that Section 6673 is alive and well, and that frivolity chops await the wits, wags and wiseacres who tread the paths of frivolity.

“We will not painstakingly document every groundless argument advanced by Mr. Schwager, or dignify them with reasoned analysis, for doing so might be misinterpreted as suggesting that they have some colorable merit. See Crain v. Commissioner, 737 F.2d 1417, 1417 (5th Cir. 1984); Grunsted v. Commissioner, 136 T.C. 455, 460 (2011); see also Wnuck v. Commissioner, 136 T.C. 498, 510- 513 (2011) (explaining that addressing frivolous arguments wastes time and resources and delays the assessment of tax). They do not.” 2020 T. C. Memo. 83, at p. 14.

Apparently in Fritz’s earlier appearance, which I blogged heretofore, Judge Scholar Pat warned Fritz about frivolity. I omitted the warning. But Judge Scholar Pat reiterates same, throwing in threats of the “hefty fines authorized by section 6673.” 2020 T. C. Memo. 83, at p. 16.

Judge Albert G (“Scholar Al”) Lauber seems to be inviting this response from Coal Property Holdings, LLC, Coal Land Manager, LLC, Tax Matters Partner, Docket No. 27778-16, filed 6/15/20.

You’ll doubtless recall that the Coalholders got left in the Extinguishment Stakes when they tried to cash out their improvements ahead of the 501(c)(3). What, no? Then see my blogpost “Diamonds Are Forever,” 10/28/19.

We all know Judge Holmes’ love for appraisals, manifested in his celebrated Oakbrook dissent, for which see my blogpost “They Always Must Be With Us,” 5/12/20. I’m sure he was disappointed that the Coalholders’ 3,713 strip-mined TN acres, which they claim went from $32.5 million to $155.5 million in three (count ‘em, three) days, didn’t get a full-dress mix-and-match with dueling experts, willing buyers and willing sellers, and the whole corps de ballet.

But Judge Scholar Al is ready to give Judge Mark V Holmes his heart’s desire in this designated hitter.

“The remaining issue in this case appears to be whether petitioner is liable for a 40% accuracy-related penalty for a ‘gross valuation misstatement’ (or a 20% accuracy-related penalty in the alternative). See I.R.C.§6662(a), (b)(3), (e)(1), (h)(2). … respondent filed a second motion for summary judgment contending that there are no genuine disputes of material fact with respect to that issue. We will direct petitioner to respond to that motion.” Order, at p. 1.

IRS claims that the Coalholders’ before-and-after valuations ($160.5 before, $5 after) are bogus, because the highest-and-best use is as a coal mine both before and after. The easement prohibits surface mining, but reserves subsurface mining rights.

“Urging that the easement thus imposes no meaningful restriction on use of the Property, respondent contends that the value of the easement is zero. If that is true, petitioner would obviously be liable for the ‘gross valuation misstatement’ penalty.” Order, at p. 2.

So to avoid the 40% chop (valuing the easement for taxes at 200% of its proven value), the Coalholders have to prove that what they bought for $32.5 million was worth at least $77.75 million three (count ‘em, three) days later. Unless what they bought wasn’t bought at arms’-length.

So let the Coalholders show facts to prove that what they bought wasn’t at arms’-length; or if it was, how the FMV wasn’t $32.5 million; and show facts to prove how the value went up north of $77 million in three days.

Time for the Coalholders to echo the title of this blogpost.

The golfing term, when one player’s ball lies directly in the way of another’s, has migrated into any situation where a person’s performance is thwarted, whether or not another person has any part in thwarting.

I’ve commented extensively about how the COVID-19 lockdown at the Glasshouse has thwarted paper filers. True, the internet remains for filings other than petitions and amendments thereto. But not everyone has internet connectivity to hand; even if the public libraries and cybercafes were open and providing low-cost or no-cost internet service, I’d worry about putting Section 6103 info into a public router of dubious security, even using VPN software. And I’d never use a public computer; who knows what spyware got emplaced thereon?

Hence I’m puzzled by ex-Ch J Michael B (“Iron Mike”) Thornton’s order to IRS to move for summary J in Dardanius Anderson, Docket No. 231-19L, filed 6/15/20.

True, Dardanius lost partial summary J for a bunch of years before the lockdown. Here’s that order, which I didn’t blog. But IRS had problems with the Section 6330(c)(1) checklist for compliance with law and procedure for the most recent four (count ‘em, four) years at issue. So Dardanius is down five for nine. Ex-Ch J Iron Mike ordered IRS to supplement their answer with a SNOD or showing why a SNOD was unnecessary for those years, plus any Boss Hossery for the chops.

IRS filed something in March, and ex-Ch J Iron Mike then ordered Dardanius to respond by April, but by that time the Glasshouse doors were locked up tight. And all ex-Ch J Iron Mike has to say about the internet is the boilerplate encouragement to register for eAccess.

So neither ex-Ch J Iron Mike nor I know whether Dardanius snail-mailed a response, and if he did, what happened to it.

Nevertheless, ex-Ch J Iron Mike tells IRS they “…file a motion for summary judgment or any other appropriate dispositive motion.” Order, at p. 1.

Maybe if Dardanius snail-mailed his response to IRS as well as to ex-Ch J Iron Mike, IRS can attach same to such motion, if they got it.

I know judges want to move their dockets along, and that they’re just as frustrated and stymied as the rest of us who are locked down. But if IRS moves, gets summary J, and Dardanius in fact snail-mailed a response timely, then there’ll be a vacation motion, and the work to do all over again.

I didn’t want to waste much time on Judge Elizabeth A (“Tex”) Copeland’s designated hitter today.  I have a minor jollification on the program this evening, and blogging another busted Rule 155 rehash is way down the list.

Mark Alan Staples, Docket No. 6560-18, filed 6/12/20, wants a new trial. He didn’t do so well on the first one; see my blogpost “You Can’t Lose,” 3/11/20. Judge Tex Copeland retitles this as a motion to reconsider per Rule 161. Mark Alan is 29 days late, and could get bounced for that, but Judge Tex Copeland plows through Mark Alan’s objections anyway.

“Mr. Staples sets forth a litany of dubious grievances. In brief, Mr. Staples main allegations are that the Court made errors of fact relating to realized and unrealized income; violated its jurisdiction regarding employee benefit entitlement issues; violated his 1st, 5th, and 14th Amendment rights; and is prejudiced against him as a pro se petitioner.” Order, at p. 2.

“As to his curt references to Constitutional free speech and due process violations, they are belied by the protections set forth in our Rules 155 and 161, allowing Mr. Staples an avenue for contesting our findings of facts and opinion and allowing him to present his computations of the proper tax deficiency to this Court. The remainder of Mr. Staple’s [sic] motion discusses a mathematical formula for calculating the previously disallowed loss and rehashes previously rejected legal arguments. As such, we will not revisit this.” Order, at p. 3.

Mark Alan also wants to wild-card in three (count ‘em, three) years not before the Court.

Mark Alan’s Rule 155 numbers repeat the losing argument. But IRS’ numbers sum the whole thing up.

“Respondent’s computations have as their starting point the concessions by petitioner that he received $10 in taxable interest and $4,648 from an IRA distribution. The remaining computations are mathematical, based on the increased taxable income conceded. Respondent’s computations calculate a deficiency of $1,635; they highlight underreported withholding of $929 and an advance payment of $742 (treated as a deposit), which amounts will offset the deficiency amount and any interest due on the deficiency. According to respondent, the offsets leave Mr. Staples owing 28 cents after application of interest. We find respondent’s [year at issue] deficiency computations to be consistent with our Memorandum Findings of Fact and Opinion.” Order, at p. 5.

Twenty-eight cents? Don’t spend it all in one place.

Though attributed to Ben Franklin, the hundred-dollar man, the famous quotation is said to be older by at least 70 (count ‘em, 70) years. But the short version leaves out the most important part: “Our new Constitution is now established, and has an appearance that promises permanency; but in this world nothing can be said to be certain, except death and taxes.” Letter to J-B Leroy, 1789.

That obliging jurist, Judge David Gustafson, grappled with the famous dictum yesterday.

I missed blogging it because, septuagenarian that I am, I was untimely ripp’d from my beloved, deceased flip-phone, and thrust into the current century. One of my nearest and dearest, taking pity on an old man. bestowed upon me her old iPhone 8+.

The complications, anfractuosities, labyrinthine and Byzantine turning and turning in the widening gyres of the mind of Steve Jobs embodied in this rosegold colored device has made the simple act of dialing the telephone rather more complicated than the first Lunar landing and the rescue of Apollo 13 combined. And I know this Pandora’s Box has more computing power than every computer in America combined had in 1962, when I first studied computers.

Howbeit, at long last, here is the sad story of Alan Rainwater and Susan Rainwater, Deceased, Docket No. 4277-19, filed 6/11/19.

I’ll let Judge Gustafson tell it in his own plain way.

“The Court has received the parties joint status report…which describes the progress in the case. The Court appreciates the parties’ work so far in developing the case. The Court acknowledges the importance of the wrongful-death suit that petitioner Alan Rainwater is undertaking, but asks that Mr. Rainwater not let that undertaking halt the progress of this case.” Order, at p. 1.

Although Judge Gustafson appreciates your efforts so far, report every 60 days how you’re doing.

For even the most obliging jurist at the Glasshouse, though both are certain, don’t forget the taxes.