IRS, in its never-ending battle to shoot down Dixieland Boondockerys without the expense of witnesses and trials, for which I as a taxpayer applaud them (governmental efficiency transcends politics), is again on the trail of Desoto Holdings LLC, Desoto Investors LLC, Tax Matters Partner, Docket No. 13013-20, filed 1/24/25.

This time the claim is that, by subdividing the boondocks whereupon the Desotos placed the easements in question, the Desotos violated the zoning laws of the Town of Harpersville in Shelby County, Alabama (and no, I don’t know where that is, either).

Judge Elizabeth Crewson Paris hikes through the land transfers that landed the Desotos in this “Heart of Dixie,” and parses the relevant Harpersville enactments.

“Harpersville Subdivision Regulations § 1:05. A violation ‘shall be punishable by a fine of one hundred dollars ($100) for each lot or parcel of land so transferred sold or agreed or negotiated sold,’ and the Town of Harpersville “may enjoin such transfer or sale or agreement by a civil action for injunction brought in any court of competent jurisdiction.” Id.(emphasis added).” Order, at p. 6.

Except Harpersville didn’t enjoin. And the AL zoning cases involve disputes between vendor and purchaser, not at issue here.

Besides, “… the conveyance of property in this case has already occurred. The Town of Harpersville did not enjoin the transfer of property from [vendor] to DeSoto. Neither Alabama law nor the Harpersville Subdivision Regulations give the Town of Harpersville the right to void a completed transfer of property from [vendor] to DeSoto.” Order, at p. 7.

But whether the zoning violation would have prohibited the Desotos from engaging in the limestone mining they claim was worth the millions and billions which they forwent for the noble and Congressionally-endorsed purpose of sparing the precious wilderness from the cutter’s blade is a question of fact. And the Desotos can still apply to the Town of Harpersville for subdivision approval, even if maybe the subdivision law is only intended to control sales and development.

Summary J denied: the deed is not void for violation of the zoning law, and because a question of fact exists about whether the violation prevents the mining, and thus the “before”  valuation of the property in the Desotos’ hands.

Word to the dodgefloggers: Hire competent local counsel to do the due diligence on your boondocks. Or pay them when the slipshod work of those you did hire causes this kind of schemozzle. The former is probably cheaper.

Thomas G. Ogg, Docket No. 19454-24S, filed 1/24/25, had become the late Thomas G. Ogg before the petition was filed by the successor trustee to his lifetime trust. Successor trustee, Mr. Carr, moves to change caption and sub in as petitioner.

Of course, Mr. Carr has commenced no probate proceeding. Ever since Norm Dacey first started pushing the revocable grantor trust as “How To Avoid Probate”, residents of jurisdictions where the process is “an impenetrable morass, unintelligible alike to laymen and lawyers,” have fled to the trust as the hart panteth after the water brooks.

Doesn’t help you get into the Glasshouse in the Pity City. Rule 60 is an immovable barrier, says Ch J Kathleen (“TBS = The Big Shillelagh”) Kerrigan.

“… the record in this case indicates that the decedent died before the filing of the Petition, and that to date no fiduciary or other representative has been appointed by a state court of competent jurisdiction to represent the decedent’s estate. Consequently, at this time the Court does not appear to have jurisdiction over this case. To the extent Mr. Carr seeks, in his capacity as successor trustee, to represent the decedent’s estate, we must deny his Motion, as we have held that the successor trustee of a trust established during a decedent’s lifetime is not legally authorized to represent a decedent’s estate before this Court. See Sander v. Commissioner, T.C. Memo. 2022-103.” Order, at p. 2.

For Sandra Sander’s sad story, see my blogpost “Unavoiding Probate,” 10/6/22.*

Nothing new here, so why do I note it?

Well, Judge Morrison gave Leda Sander, successor trustee to Momma Sandra, six (count ’em, six) months to explain whether a personal representative (ex’r/adm’r) was appointed for Momma Sandra, T. C. Memo. 2022-103, at p. 18. Ch J Kerrigan has given Mr. Carr 45 days to “advise the Court whether a probate proceeding has been commenced for the estate of the decedent Thomas G. Ogg and, if not, whether there are any plans to commence such a proceeding.” Order, at p. 2.

And, while he’s at it, “Petitioner shall attach to the response a copy of the decedent’s death certificate.” Ibid., as my high-priced colleagues would say.

Taishoff says that these trusts are designed to avoid probate, as aforesaid. Clearly, if probate is such an expensive and time-consuming process, more than 45 days should be allowed for the trustee to engage counsel and petition for letters.

* https://wp.me/p1eNMc-5KE

I’ve chronicled before IRS’ buckshot motions in limine to knock out every one of a petitioner’s experts. I won’t waste time now citing to these blogposts. Really, it’s time for a judge to put a stop to this tomfoolery. Judge Elizabeth Crewson Paris had the chance in Desoto Holdings LLC, Desoto Investors LLC, Tax Matters Partner, Docket No. 13013-20, filed 1/23/25, but forbore to do so.

I know, experts have long since ceased to serve the function envisioned by FRE 702, to be employed if “the expert’s scientific, technical, or other specialized knowledge will help the trier of fact to understand the evidence or determine a fact in issue.” Order, at p. 2. Rather, they have become professional witnesses, “hired guns,” whose functions are to attack, belittle, befog, and obfuscate, rather than to instruct or assist.

But is throwing them out altogether a better response? IRS seems to think so, and the Desotos counterattack with a motion to toss IRS’ expert.

Enough already.

Judge Paris clears the board of these motions with a simple: “The Court is not persuaded that the proposed reports are irrelevant, unhelpful to the trier of fact, or otherwise defective under Rule 143(g) or FRE 702. Any remaining concerns may be raised during voir dire or cross-examination during trial.” Order, at p. 2.

Maybe a judicial reprimand is in order when such motions are clearly intended to vex, harass, and waste the resources of the nonmovant.

This was the downfall of Ana M. Franklin, T. C. Memo. 2025-8, filed 1/22/25. That’s Sheriff Ana M., as she was Sheriff of Morgan County, AL during the years at issue. Among Sheriff Ana M.’s responsibilities was the feeding of prisoners housed in the County slammer, most of whom were awaiting trial. Sheriff Ana M.’s predecessor fed said prisoners on corn dogs from a truckload which he bought cheap, and pocketed the rest of the meal money the State and Feds paid him. This led to a class action and consent decree.

Sheriff Ana M. had problems making the money she got stretch to feed the large number of incarcerateds. So she raided the food money to invest in a Ponzi scheme her boyfriend guaranteed. Of course the money was lost, the boyfriend made good, but Sheriff Ana got 24 months probation for willful nonfiling, and a $1K fine.

IRS claims the $150K Sheriff Ana M. grabbed was embezzlement proceeds, and taxable.

No, says Judge Elizabeth Crewson Paris. It was a loan repaid, even without all the usual loan papering.

“Petitioner maintains that she did not embezzle the funds, but that they were a loan from the jail food money account, which she withdrew with the intention of repaying them with interest when she herself was repaid by [Ponzis]. Petitioner points to the fact that, as signatory authority on the jail food money account, she always had dominion and control over the funds in the account, and that she received no accession to wealth when she withdrew the funds because she created a corresponding obligation to repay the funds and that she ultimately did repay them.

“While it is true that, under the terms of Amended Paragraph 22 of the Consent Decree, petitioner was not authorized to use the funds in the manner that she did, the Court has long distinguished between unauthorized loans and embezzlement. A taxpayer has income when she ‘acquires earnings, lawfully or unlawfully, without the consensual recognition, express or implied, of an obligation to repay and without restriction as to their disposition.’ In circumstances where misappropriations do not enrich or benefit the misappropriator, and there is a consensual recognition of an obligation to repay the funds, income does not arise.” T. C. Memo. 2025-8, at p. 12. (Citations omitted).

Thus, no unreported income or SE tax, but no NOL, and no business deductions for the money Sheriff Ana M. spent trying to defend herself. Sheriff Ana M. was not in the prisoner-feeding business, except as she was obligated as Sheriff to do so, and unreimbursed employee business expenses were scuppered by TCJA.

Sheriff Ana M.’s trusty attorneys reduced the deficiency from $46K to $15K. They get a Taishoff “Good Job.”

In real estate generally, the three key items are location, location, and location. In Dixieland Boondockery, s/a/k/a syndicated conservation easements, the three keys are “valuation, valuation, and valuation.” So said Judge Mark V. Holmes all the way back on 5/12/20: “Conservation-easement cases might have been more reasonably resolved case-by-case in contests of valuation. The syndicated conservation-easement deals with wildly inflated deductions on land bought at much lower prices would seem perfectly fine fodder for feeding into a valuation grinder. Valuation law is reasonably well known, and valuation cases are exceptionally capable of settlement.” See my blogpost “They Always Must Be With Us,” 5/12/20.*

Judge Emin (“Eminent”) Toro couldn’t agree more. He kicks to the curb IRS’ donative intent quid pro quo argument; the benefit comes from the IRC, not the donee. The usual IRS sniping at the documentation underlying the donation, the text of the appraisal, and the qualifications of the appraiser all  founder on extensive somber reasoning and copious citation of accumulated precedent, so that Judge Eminent Toro’s opinion in Seabrook Property, LLC, Seabrook Manager, LLC, Tax Matters Partner, Petitioner, T. C. Memo.  2025-6, filed 1/21/25, is like Old Home Week through page thirty-four.

So, thirty-five (count ’em, thirty-five) pages into the seventy-eight pages of Judge Eminent Toro’s prose, we come to valuation. And it’s the standard mix-and-match: Seabrook’s claimed easement valuation of $32,581,443 at p. 1 shrinks to $4,718,000 by p. 76. With a 40% Section 6662(h) chop for dessert.

Btw, note T. C. 2025-6, at p. 4. If ever Judge Toro retires from the Bench, he has a great future as a real estate broker.

* https://wp.me/p1eNMc-4lG

Today is the celebration of Dr. Martin Luther King, Jr., and the inauguration of President Donald John Trump. This being a nonpolitical blog, I have commented elsewhere.

Btw, Tax Court is closed.

Judge Elizabeth A. (“Tex”) Copeland has another Fidelity Charitable eve-of-sale offload of appreciated interests in David Hazan and Grace Hazan, Docket No. 35190-21, filed 1/17/25. For background on this dodge, see my blogpost “A Real Gift,” 3/15/23.*

IRS claims “the Hazans anticipatorily assigned expected income from the sale of [their LLC’s] assets to Fidelity Charitable (Fidelity) and thus failed to report the income from the subsequent sale of [their LLC’s] assets.” Order, at p. 2.

IRS also claims that the Hazens’ failure to object to IRS’ Rule 90(c) Request For Admissions, wherein IRS asserted that the sale of the LLC interests that the Hazens claimed they donated was a done deal prior to donation means they’ve given up the issue.

No, says Judge Tex Copeland.

“During the hearing on this matter, Mr. Hazan argued that he had contacted the attorneys that handled the… transaction, and they indicated that the [Asset Purchase Agreement] was signed after the charitable donation was made and that the closing of the transaction did not occur ‘until over 30 days later.’ Such attorneys could be called as witnesses at trial. Furthermore, if such statements are true, Mr. Hazan is effectively denying deemed admissions 20 and 21. While Respondent’s proposed stipulations have previously been deemed admitted, see Rule 90(c), withdrawal or modification may be permitted if the presentation of the merits of the case will be promoted thereby. See Rule 90(f). Here, in the interest of justice, we will deem the Hazans to have made an oral motion to withdraw these two admissions and will deem them denied.” Order, at p. 5. (Footnote omitted).

OK, so maybe there was a pre-sale donation, if the facts adduced at trial show the sale of the LLC’s assets wasn’t a done deal when Dave uploaded to Fidelity. If the facts don’t match, then there was a taxable sale and a post-sale contribution, which might or might not be deductible.

But Judge Tex Copeland erases the question of whether the contribution was deductible, whenever it happened. Check out Order at p. 2 for the appraisal story.

Now Judge Tex Copeland’s take. She finds the appraisal the Hazens attached to their Form 8283 didn’t strictly comply with Section 170. But of course Section 170 in that regard is directory, not mandatory, so substantial compliance can save the day.

Unhappily, “(S)ubstantial compliance can save a taxpayer from minor or technical defects, but not from errors that go to the heart of the statute. The Hazans’ appraisal is riddled with flaws: The property valued is not the same as the property donated, see Treas. Reg. 1.170A-13(c)(3)(ii)(A); the appraisal summary is not signed by appraisers who contributed to the appraisal, see Treas. Reg. § 1.170A-13(c)(4)(i)(C); the appraisal does not provide a valuation as of the date of contribution, see Treas. Reg. § 1.170A-13(c)(3)(ii)(I); and the appraisal does not list the actual or expected date of contribution, see Treas. Reg. 1.170A-13(c)(3)(ii)(I). Taken together, the sum of these flaws in the appraisal amount to substantial noncompliance with section 170.” Order, at p. 4. (Citation omitted).

The appraisal values the entire LLC’s interest, but the Hazens only contributed 5.75%.

Thus “the value of the contributed 5.75% of the equity interests cannot be derived using a straight percentage because it represents a minority, rather than a controlling, interest in HSA.” Order, at p. 4. (Citation omitted).

If the appraisal is toast, doesn’t much matter when the contribution was made.

Taishoff thinks this one settles.

* https://taishofflaw.com/2023/03/15/a-real-gift/

Roger M. Fredenberg and Kimberly D. Fredenberg, T. C. Sum. Op. 2025-1, filed 1/16/25, is just another rental real estate and unreimbursed employee expenses indocumentado. But CSTJ Lewis (“I’ve Heard That Name Before”) Carluzzo examines IRS’ claim that the rental gig is a Section 183 hobby loss.

“During each year in issue, both apartments were rented to a carpenter/roofer tenant unrelated to petitioners. The tenant performed various repairs and renovations in return for reduced rent, and each year the reduced rent was less than the deductions claimed, resulting in substantial losses for both years.

“According to respondent, petitioners’ arrangement with the tenant allows for deductions only as permitted by section 183 because petitioners did not rent out the property with the intent to make a profit.” T. C. Sum. Op. 2025-1, at p. 3.

Nope, says CSTJ Lew. Although he says it more elegantly than that.

“We disagree. Considering reasonable expectations that the property would appreciate after being repaired and/or renovated, we find that for both years petitioners had the requisite profit motive for otherwise allowable and substantiated deductions even if the total of the deductions exceeds the rental income from the property, subject of course to the limitations on losses from rental activities in section 469.” Idem., as my expensive colleagues would say.

Taishoff says, great, profit motive, but isn’t the worth of those repairs and improvements income to Rog and Kim? And shouldn’t they be capitalized? And isn’t the reduced rent in payment for labor income to the carpenter/roofer?

A shout-out to my colleague Peter Reilly, CPA, a snapper-up of this kind of unconsidered trifles.

What keeps this aged blogger young is the unwithered by age variety of tax court petitioners’ maneuvers. Here’s two of them.

First, Judge Kashi Way encounters Debra Reed and Timothy Reed, T. C. Memo. 2025-4, filed 1/16/25. Deb had her identity stolen a dozen years ago, which DOJ affirmed. She and Tim claim that’s why it took them four (count ’em, four) years to petition the NOD from their CDP. Of course, Boechler, P. C., opens the doors of The Glasshouse in the City Soon to Experience Governmental Efficiency to belated NOD petitions.

Except here it doesn’t.

“Although not stated succinctly, petitioners’ position is essentially that they were prevented from making a timely Petition because they were victims of identity theft. However, the identity theft occurred in 2012, the DOJ notified petitioners in 2016, and Appeals considered and verified the identity theft in its CDP hearing in 2018 before issuing a Notice of Determination in 2019. Thus, the critical facts which might provide a basis for tolling the limitations period occurred many years before respondent issued the Notice of Determination. Furthermore, the timing of these events does not lend support or provide a basis for the four-year delay between the date of the Notice of Determination and the date petitioners decided to petition this Court.” T. C. Memo.2025-4, at p. 4. (Footnote omitted, but it says pleadings of pro ses like Deb and Tim get liberally construed.).

Next, I want to give some kind of Taishoff award to Cassandra Allen, T. C. Memo. 2025-5, filed 1/16/25. Cassandra has really slipped the surly bonds of the usual. She admits omitting $18K of income from her return, submits another return showing the omitted income but not computing tax due, and finally comes up with a copy of a 1040X amended return showing the $18K as income, but computing the same tax due as shown on the erroneous return that omitted the $18K. When asked why, Cassandra tells Judge Albert G. (“Scholar Al”) Lauber that she paid the extra tax by filing Form 709. Yes, that’s a gift tax return.

IRS wants summary J. “… respondent points out correctly that petitioner has conceded the only remaining issue in this case by submitting a Form 1040–X that reported additional wage income of $18,713 for [year at issue]. That sum matches precisely the $18,713 reported on the Form W–2 supplied by the D.C. Government. Petitioner does not dispute receiving this income, and her concession supplies a factual foundation linking her to the income-producing activity.  Instead, petitioner asserts that her ‘tax liability still remains zero’ because she allegedly reported the additional $18,713 on a Form 709, an assertion we find difficult to understand.” T. C. Memo. 2025-5, at p. 4.

May I suggest that Cassandra may think that reporting the income, in whatever form one does it, is enough, while paying tax on that income is strictly for little people?

IRS gets summary J but is enjoined by Judge Scholar Al to “carefully search petitioner’s accounts for any tax payments she has made toward her [year at issue] income tax liability.” T. C. Memo. 2025-05, at p. 5, while preparing the numbers for the Rule 155 bean count.

Finally, I want to give Roger M. Fredenberg and Kimberly D. Fredenberg, T. C. Sum. Op. 2025-1, filed 1/16/25 a separate entry because of CSTJ Lewis (“It’s That Name Again”) Carluzzo’s observations on reduced rent, repairs, and the “goofy regulation.”

When a taxpayer says that to a RA at Exam in answer to a question why a certain bank account therefore extensively used by his family’s business ceased to be used midyear, then you know ex-Ch J L. Paige (“Iron Fist”) Marvel will be expending somber reasoning and copious citation of precedent to lay fraud penalties on some (but not all) of the family, in the process of hitting them with generous helpings of deficiencies for unreported income, playing put-and-take with multiple (undisclosed) bank accounts, sloppy recordkeeping and shady NOLs, with negligence chops for dessert.

For a tale worthy of Scheherazade, check out Yosef Sehati a.k.a. Joseph Sehati and Lilly Kohanim-Sehati, et al., 2025 T. C. Memo. 3, filed 1/15/25.

There’s Momma’s little box with millions of gemstones unopened for decades, a logbook without an author, disappearing tags on jewelry, and floating bank accounts. See 2025 T.C. Memo. 3, at p. 15, for the title first written at the head hereof.

One point: to show spousal fraud, IRS must show level of sophistication, involvement in business and financial dealings, and lifestyle, preferably of the rich and famous. Here IRS missed building a sufficient record on two spouses.