Once again I refer to an old Texas maxim, that derails the conservation easement of Railroad Holdings, LLC, Railroad Land Manager, LLC, Tax Matters Partner, 2020 T. C. Memo. 22, filed 2/5/20. More about that maxim later.

And that Obliging Jurist, Judge David Gustafson, decides that the Railroaders break down where the Coalholders did. See my blogpost “Diamonds Are Forever,” 10/28/19.

The Railroaders’ extinguishment clause, the track on which these syndicated piracies derail, provides in this case that the 501(c)(3) protector gets only the FMV of the easement as of the date of granting, not the proportionate share of the proceeds at the date of extinguishment. It’s a fixed ceiling, not a moveable one.

Judge Gustafson: “Though the deed incorporates from the regulation the phrase ‘proportionate value’, the deed does not create a proportion or fraction that represents the donee’s share of the property right, and hence a corresponding fraction of proceeds to which the donee is perpetually entitled.  See PBBM-Rose Hill, Ltd. v. Commissioner, 900 F.3d 193, 205-206 (5th Cir. 2018).  Rather, the deed determines instead a ‘proportionate value * * * at the time of the gift’- meaning a dollar value that ‘shall remain constant’– and guarantees only that ‘constant’ amount (i.e., that fixed dollar amount) for the donee.  The defect can be illustrated as follows:

“If the easement contributed by Railroad Holdings’ deed were, at the time of the contribution, worth 10% of the value of a $10 million property, then the ‘proportionate value’ of the easement (as the deed uses that term) would be $1 million, and that dollar value–rather than the fraction of value it did represent- ‘shall remain constant’.  Thus, if a court extinguished the easement many years later after the property had appreciated to $20 million, the donee’s share of extinguishment proceeds would be not 10% of $20 million (i.e., the fractional share represented by $2 million) but rather the ‘constant’ $1 million.  The regulation requires that the donee ‘must be entitled to a portion of the proceeds at least equal to that proportionate value” (in this example, 10% of $20 million, or $2 million), 26 C.F.R. sec. 1.170A-14(g)(6)(ii), but Railroad Holdings’ deed would give the donee only ‘at least’ a constant 10% of the $10 million value ‘as of the date of’ the contribution, or $1 million.” 2020 T. C. Memo. 22, at pp. 11-12.

As for Rose Hill, see my blogposts “Thanks a Lot, Judge,” 10/11/16, and “Chop Early, Chop Often,” 2/28/19.

The “at least” language in the easement deed is no saver, because the “at least” amount is constant, and ignores future appreciation.

And what the 501(c)(3) says was intended is irrelevant, because it’s what the donor said that counts, not what the donee thought.

The “broad construction” clause relates to conservation purpose, not conservation protection.

Finally, and here’s the core: “A donor cannot reserve in an easement deed a right that section 170(h) does not permit (such as a right to more than his share of extinguishment proceeds) but then save his charitable contribution by mentioning the rule he has violated and calling for that rule to kick in and save the day if his violation subsequently comes to light.” 2020 T. C. Memo. 22, at p. 18.

Now for the old Texas maxim. All these cases come unglued over an event that is singularly unlikely to arise, at least during the relevant tax years, if not the lifetimes, of the taxpayers, namely and to wit, extinguishment.

The most likely of the unlikely chances of extinguishment is exercise of eminent domain. But the chances of any governmental authority spending tax dollars to buy up the servient boondocks is minimal to the point of extinction. Even if it happens, the donors are still in the game for fighting over the whack-up of the condemnation proceeds.

So why try to grab more, if all that does is take off the table the one issue that summary J can’t resolve? I mean the valuation question, the dueling appraisals. There’s always a chance to settle when numbers are at issue, or to get a mix-and-match between your appraisers and IRS’ on the trial. But fiddle with fancy extinguishment language, and IRS has summary J, so you never get to argue valuation.

Taishoff says invoking savings clauses and fancy-pants arithmetical lawyerbabble to try grabbing a few utterly hypothetical, speculative bucks is nonsense.

The maxim: “Pigs git fat, hogs git et.” See my blogpost “Cullifer’s Travails,” 10/8/14.

I have a regular (but not labeled as such) subset of this my blog, entitled “those who need it won’t read it, and those who read it don’t need it.” I just found a perfect example to add in Ginell Turner, Docket No. 19191-19, filed 2/5/20.

Ginell petitioned her SNOD three (count ‘em, three) months late, claiming she petitioned as soon as she got the SNOD. She claims she changed her address from DC to IL a year before IRS sent the SNOD, notifying her DC landlord, her DC school, and the DC post office.

IRS claims the last address they had was the DC address on Ginell’s previous tax return. She filed her next return timely with the new IL address, but it wasn’t processed until two weeks after they’d sent the SNOD, so the address on her previous return was the last known address.

Ch J Maurice B (“Mighty Mo”) Foley: “Generally, change of address information that a taxpayer provides to a third party, such as a payor or another government agency, is not clear and concise notification of a different address for purposes of determining that taxpayer’s last known address. Sec. 301.6212-2(b)(1) of the regulations. However, section 62122(b)(2)(I) of the regulations provides that the IRS will update taxpayer addresses maintained in IRS records by referring to data accumulated and maintained in the United States Postal Service National Change of Address (USPS NCOA) database. Section 301.6212-2(b)(2)(I) of the regulations then elaborates that a taxpayer’s address on IRS records will be updated to reflect the information in the NCOA database only if the taxpayer’s name and last known address in IRS records match the taxpayer’s name and old mailing address contained in the NCOA database. If the address maintained in IRS records is updated based on information obtained from the NCOA database, that address will be the taxpayer’s last known address until the taxpayer files a return with a different address or the taxpayer provides the IRS with clear and concise notification of a change of address. Sec. 301. 62122(b)(2)(ii) of the regulations. The taxpayer has the burden of proving that the notice of deficiency was not sent to her or his last known address.” Order, at p. 2.

So, how does the petitioner carry that burden?

I submit by producing a copy (or an acknowledgement from USPS of receipt) of USPS Form 3575, “Official Mail Forwarding Change of Address Form.” Hopefully it has the right date. I have the acknowledgement from my last change of address almost two years ago.

Had Ginell saved the slip, she might have saved the day.

No opinions or designated hitters issued today from The Glasshouse on Second Street, N.W. Rather, we have 300+ plus orders.

But I do see that Ch J Maurice B (“Mighty Mo”) Foley is giving the recalcitrant nonpayers and defective petitioners two tries at complying with the law and rules in most of the 200+ want-of-jurisdiction tosses he’s dishing out today.

I’m pleased to note that the quick kicks, which I formerly lamented in my blogpost “Four Days in October,” 10/26/18, are a thing of the past.

But No Boss Hoss

Nathaniel A. Carter and Stella C. Carter, 2020 T. C. Memo. 21, filed 2/3/20, had a “Swiss cheese” conservation easement permitting the building of eleven (count ‘em, eleven) homes at various undisclosed locations on the old plantation in Glynn County, GA. While the 501(c)(3) beneficiary of this easement in gross is OK, the Swiss cheesery fails the Pine Mountain test, for which see my blogpost “Perpetually Swiss,” 12/27/18.

“Regardless of whether building houses on each of 11 two-acre lots would impair conservation purposes in the easement area as a whole, it would impede the achievement of those purposes within each building area.  Pine Mountain establishes that the building of a single family home on a given site does not preserve the site itself as an open space or protect natural habitats or similar ecosystems within the site.  Petitioners’ argument might establish their easement’s compliance with section 170(h)(5)’s perpetual protection requirement; it does not establish compliance with section 170(h)(2)’s perpetual restriction requirement, as interpreted by Pine Mountain.” 2020 T. C. Memo. 21, at p. 21.

And Judge James S (“Big Jim”) Halpern says mox nix that the Carters and their partner Ralph claim the homesites will be developed only for them and their families, not for commercial sale. The deed of easement doesn’t say that, and anyway, a home is a home, regardless who lives there.

And even though 5 Cir shot down Tax Court in Bosque, (see my blogpost above-cited), the Carters are Golsenized to 11 Cir.

But the RA on this case fired off Letters 5153 and his Revenue Agent’s Report (RAR) before getting the Boss Hoss Section 6751(b) sign-off.

“That the RARs were sent with Letters 5153 rather than 30-day letters appears to have been attributable solely to petitioners’ unwillingness to provide Appeals sufficient time to consider their cases.  Under the circumstances, the absence of 30-day letters did not indicate a lack of formality or finality in Agent Dickerson’s determination.” 2020 T. C. Memo. 21, at p. 30.

A Letter 5153 is a transmittal for the RAR, telling the addressee to pay up, talk about payment plans, or extend IRS’ time to assess tax to let Appeals have a whack; but if the addressee does nothing by a date certain, IRS will give them a SNOD at no extra charge.

That’s enough for Judge Big Jim. That the Boss Hoss signed off eleven (count ‘em, eleven) days later doesn’t help. So substantial valuation misstatement chops go by the board.

A Rule 155 beancount is just that: an arithmetic show-and-tell where IRS and petitioner each do the numbers, proffer the correct arithmetical solution, and nothing else.

Judge Pugh holds the parties to their stipulated issues, and refuses to consider anything not pled, proven or stiped, in Manatt’s Enterprises, Ltd., Docket No. 17908-17, filed 2/3/20.

Manatt petitioned the SNOD denying their NOL carryforward and certain management fees they paid and received.

Now Manatt want to throw in a Section 199 DPAD, an increased State tax deduction, and a dividends received deduction (which depends upon the outcome of another case).

As for wild-carding in matters in a Rule 155, see my blogpost “Non-Virgin and Non-Deductible,” 2/4/19. There is no after-party in Tax Court, just a clean-up.

IRS and Manatt stiped to “…all correlative adjustments that arise from the other adjustments set forth herein.” Order, at p. 2. And they also agreed that the stip settled everything in the SNOD and the petition.

Judge Pugh: “Petitioner does not ask us to set aside or modify the stipulation. Rather, petitioner asks us to interpret the word ‘correlative’ in the stipulation to include the additional adjustments it asserts are appropriate. Respondent counters that none of the additional adjustments petitioner requests are correlative, but instead are new issues that were never raised in the petition or at any point in this proceeding until respondent sent petitioner the proposed decision. Consequently, respondent argues, these issues are deemed conceded.” Order, at p. 3.

And because Manatt may have mentioned DPAD in an attachment to its return doesn’t matter if they never stated it in the return proper nor petitioned disallowance. “The fact that petitioner may have included information on a form attached to its tax returns that respondent could use to determine the section 199 deduction petitioner now is asserting does not make the section 199 deduction purely computational. Petitioner never claimed a section 199 deduction in either tax year so there is no indication respondent accepted or scrutinized the information on those forms. Moreover, petitioner’s tax returns are merely statements of its position; they do not constitute substantiation.” Order, at p. 5.

And the dividends received deduction depends upon whether the payout in the other case came from E&P. Judge Pugh isn’t going to wait for that omelet to heat up.

Once again there falls the shadow of my mantra: Stipulate, Don’t Capitulate.

Off-Topic, but Unique

Today, February 2, 2020, is absolutely unique. Its like will not appear for another thousand and ten (count ‘em, one thousand and ten) years, wherefore I salute it with an invocation from my long-gone youth.

Today is 02/02/2020, a perfect palindrome. Moreover, it remains a perfect palindrome whether one writes this date American-style (month first, date second, as February 2) or Continental-style (date first, month second, as 2 February). It’s 02/02/2020, either way.

The last such date was January 1, 1010, 01/01/1010.

The next will occur (assuming anyone is here to note the date) on March 3 (or 3 March), 3030.

Judge Pugh goes public with a form of Rule 103 protective order for computer software and proprietary business info in Facebook Inc. & Subsidiaries, Docket No. 21959-16, filed 1/31/20.

There’s thirteen (count ‘em, thirteen) pages of order, with form of Acknowledgement and Agreement to be Bound by same.

Copy, drag and drop to your form file as a template for what a major player and IRS can agree.

I don’t boost other peoples’ blogs. I have been known to recognize a colleague who feeds me good copy (hi, Mr Reilly), but the attribution is there every time. But today I break with precedent, because the topic is important and close to home.

One of my nearest and dearest is on leave from a Big Four and in a tough fight. Depression and mental health are topics we avoid, lest anyone should doubt our omniscience and have-it-all image. After all, we are the tax gurus, right? We are the ones who deal with The Phone Call, the three a.m. OMG did I (do)(not do) thats, the clients facing disaster (losing their heads and blaming it on you), and all that jazz.

Except.

As I said in my blogpost “NOL A Nullity,” 2/27/12, “I can understand anyone being acutely anxious about taxes, even a CPA like J.” (Name omitted). Especially.

I can’t think anyone reading this my blog is reading it for fun. It’s not written to amuse or divert. I am writing for the in-the-trenches practitioner who needs to know what is going on, the grunt about to deploy from the chopper into what may be a firefight and needs some idea about what is going down at the Glasshouse on Second Street, N.W.

Fast.

And s/he can’t show indecision, fear, or the slightest doubt that, whatever the problem, s/he’ll fix it fast and cheap.

I submit, with all due deference and respect, that ain’t the way it is. The great French actress Sarah Bernhardt put it best: When a young actress joined the Comédie Francaise and boasted that she didn’t know what stage fright was, Bernhardt shot back “Wait until you get to be good, my girl, then you’ll know.”

I further submit that the best way to deal with the killer stress we all face is to talk about. Honestly.

My baby is trying. Follow her blog “Seriously, Jerkbrain?” on WordPress.

While it looked like out-of-hand tosses by the Ogden Sunseteers would hit the Lacey wall, the Obliging Jurist Judge David Gustafson, obliges the OS crew when the Form 211 is clearly off-the-wall. Case in point: Christian Bernd Alber, 2020 T. C. Memo. 20, filed 1/30/20.

This furnishes a counterpoint to Lacey, for which see my blogpost “The Whistleblower Office – Blown,” 11/25/19.

Chris’ bœuf reminds me of my youthful days in Our State’s Attorney General’s Office, where such complaints as his were routine. “His Form 211 alleges violations of the income tax laws of Germany, as well as ‘identity theft, tax theft, suppression and destruction of * * * [his] life through fake statements’ and generally alludes to rights under the United States and German Constitutions that afford ‘right[s] for * * * [his] property.’  In the attachments to his Form 211, Mr. Alber identified 17 discrete persons or entities as the perpetrators of his alleged grievances, but he asserted no facts that would connect any of these alleged bad actors to a specific violation of an internal revenue law of the United States.” 2020 T. C. Memo. 20, at p. 3.

Chris also has problems with his divorce, child custody, a hotel in Thuringia, and “a ‘highly criminal “psychological assessment” by a German doctor “even though * * * [he is] totally healthy’….” 2020 T. C. Memo. 20, at p. 3.

True, the OS’ toss letter used the contemned “and/or” conjunction, but that’s no obstacle.

“The Commissioner’s form letter contained the same ‘and/or’ conjunction that led to unclarity in Lacey v. Commissioner, 153 T.C. __, __ (slip op. at 39-40) (Nov. 25, 2019).  But on the record of this case, with the benefit of the detail in the ARM [award recommendation memorandum, the toss note prepared by the tax analyst at Ogden], all of the listed reasons for the rejection are warranted, so we need not pick and choose.  However, we continue to be concerned that, in a closer case, this form text may create confusion when we review a summary rejection of a whistleblower claim.” 2020 T. C. Memo. 20, at pp. 8-9, footnote 5.

No credible evidence of an IRC violation, and nothing that might lead to recovery of money. So the issue isn’t no action and no proceeds, but rather no action could go anywhere based on what was submitted.

In short, when there’s no allegation of an IRC violation, we don’t need Lacey.

The traditional “mailbox rule” states that, absent direct evidence of receipt, proof of mailing presumes official regularity and delivery.

But proof of mailing is not so easy, when jurisdiction requires a timely-mailed Form 12153 as foundation for a CDP and petition therefrom.

Just ask Hubert W. Chang, 2020 T. C. Memo. 19, filed 1/29/20. Or better, don’t ask him, as he lost; ask Judge Gerber.

“Petitioner contends that he did mail two letters within 30 days of a lien notice and a levy notice, requesting CDP hearings. Respondent counters that both of petitioner’s letters were received after the 30-day period allowed and that neither of the envelopes containing petitioner’s letters was postmarked. The sole question presented for our consideration is whether petitioner’s letters were mailed within the 30-day period.” 2020 T. C. Memo. 19, at p. 2.

Hubert has a problem with some of the years he’s petitioning, as he’d petitioned a bunch of them twelve (count ‘em, twelve) years ago. And he doesn’t do much better with the ones he’s now disputing.

The envelopes were properly addressed and postpaid. Judge Gerber finds they were mailed a day late and a lot more than a dollar short.

Hubert’s trial testimony wasn’t the best. At first he testified he mailed the envelopes a day late, then backtracked and claimed mailing on the last day at the local mailbox. The local mailbox is found on that lovely island Oahu, and the local USPS manager and postal expert, Mr. Ikaika Bright, deciphering the barcode printed on the envelopes by USPS machinery, testifies they were most likely mailed one day late.

Hubert did get an equivalent hearing, at which he raised all his objections to the proposed collection activities, to no avail. And of course you can’t petition an equivalent hearing.

Hubert goes down swinging.

“On brief petitioner argued that it is possible that his requests were mailed on [Day 30], and that there could have been delays. He suggests that the USPS could have misplaced the requests or that they were delayed in the process of pickup from his local post office to the main processing facility in Honolulu. There have been instances where delay or other infirmities in the mail service have been shown, but in this instance it is purely speculation on petitioner’s part. To his detriment petitioner testified that he mailed the requests on [Day 30 + 1], one day late. Petitioner laments that it was only one day late and that the Court should take the initiative to provide him with a hearing. Sadly, we are unable to grant petitioner’s wish under these circumstances.” 2020 T. C. Memo. 19, at p. 8.

Now for Taishoff’s Mailbox Rule: Don’t use a mailbox. Get the envelope(s) hand-canceled by the clerk at the window.