Lucius Annaeus Seneca

Judge Mark V. Holmes is quoting Letters from a Stoic, and he sure needs a stoical disposition to deal with the discovery antics of both sides in Ardan Holdings, LLC, Ardan Investors, LLC, Tax Matters Partner. Docket No. 17483-21, filed 1/26/24. This is a highest-and-best-use scrap in a Dixieland Boondockery, mining variation.

Case is on for trial next month in Columbia, SC, the parties having taken Judge Holmes’s suggestion from my blogpost “Endangered Species,” 9/6/23.

I’m not going to paraphrase or digest the thirteen (count ’em, thirteen) pages Judge Holmes needs to deal with the barrage and counterbattery fire of admissions, documents, insufficiencies, sufficiencies, and sanctions.

I’ll just observe that discovery has gotten completely out of hand; from the play-nice described in my blogpost above-cited, the parties have gotten “crabbed,” “persnickety,” “evasive under the circumstances,” and have engaged in piling on in interrogatories to dodge the 25-question limit of Rule 71(a). Courts have had problems trying to find a formula to decide what is a discrete subpart of an interrogatory, so Judge Holmes has to parse each one, and toss whatever he finds over the limit.

I’ll further observe that just because one partner in the deal has separate counsel from counsel to the (box-checked) partnership, that’s no excuse for counsel for the partnership not to make reasonable inquiry of that partner as to what they did with the realty before they contributed  it to the partnership.

True discovery geeks can read the rest for themselves.

Judge Holmes finally calls a halt to these shenanigans.

“Petitioner filed another pretrial motion this Tuesday to argue some more about its Rule 91(f) motion. The Court must observe that the parties in this case have not been litigating the pretrial phase of this case entirely in the informal, reasonable, and cost-efficient way our rules and customs encourage. We can rule on this motion by observing that it is not provided for in the pretrial order that set deadlines in this case with an eye to making sure it can be tried on time late next month. ‘When you are travelling on a road, there must be an end; but when astray, your wanderings are limitless.’ Lucius Annaeus Seneca, Letters from a Stoic 37 (Richard Mott Gummere trans., 2016).” Order, at p. 12.

Judge Holmes’ famous dictum in Oakbrook is really getting a workout. IRS is seeking summary J knocking out charitable land deals with “very contestable readings” (Oakbrook Land Holdings, LLC v. Comm’r, 154 T.C. No. 10 (U.S.T.C. May. 12, 2020), at p. 127) of the Section 170 Regulations. And Judge Emin (“Eminent”) Toro is not buying IRS’ grasping at straws in Elgin 78, LLC, Suzanne Foster 2004 Revocable Trust, Tax Matters Partner, Docket No. 26892-21, filed 1/26/24.

It’s an outright fee donation, not an easement, but IRS’ attack is straight out of the conservation dodge playbook.

First, the description of the property donated. “Respondent points out that a letter from the Lutheran Church-Missouri Synod Foundation to Elgin 78 acknowledging receipt of the donated property appears to describe the property differently from the appraisal. Specifically, respondent highlights that the letter explicitly excludes from the donated property a 70 by 130 feet parcel of land at the southwest corner of Lot 8, while the Appraisal does not make clear whether that parcel is part of the donated property.” Order, at p. 2. But the maps attached to the appraisal seem to show the excluded property was excluded, and the Elgins get the favorable inference.

Second, the appraisal doesn’t state the expected date of the donation. So what, says Judge Eminent; the Form 8283 states the actual date, and the appraisal is no older than 30 (count ’em, 30) days before, so Reg. Section § l.170A-13(c)(3)(ii)(C) is satisfied thereby. Substantial compliance, y’know.

Third is because 1 and 2 above, the appraisal doesn’t state FMV of donated property.  Because 1 and 2 above, IRS loses.

Finally, all three (count ’em, three) appraisers didn’t sign the Form 8283. Reg. Section § 1.170A-13(c)(5)(iii) requires all appraisers to sign, and they all signed the appraisal itself. IRS doesn’t say how that doesn’t satisfy the Reg.

Was it Einstein who said that doing the same thing and expecting a different result is insanity?

Judge Courtney D (“CD”) Jones, responding to an IRS motion to clarify her order in William J. Cade and Mary E. Cade, Docket No. 7723-23L, filed 1/25/24, discusses the engrafting of Section 6330(c) (NITL) procedure onto Section 6320 (NFTL) practice.

Judge CD Jones does so in the context of an IRS motion to clarify her remand to Appeals.

IRS repeats essayist and raconteur Harry Golden’s anecdote, manty-times-told in this my blog, but always worthy of repetition.

Here it is from its first iteration, “Vot Did She Set?” 6/25/13:

“The late essayist and raconteur Harry Golden told the story of an immigrant who, after many years, finally attained US citizenship. Triumphantly forsaking his native tongue, he spoke only broken English thereafter, affecting to understand no other. Even when his wife would address him in their native tongue, he would turn to his US-born children and ask them “Vot did she set?” Thereupon his wife would bombard him with choice language.”

No rude language from Judge CD Jones, of course, but Her Honor thought her order was clear enough. She’d ordered a remand per both Section 6320 and Section 6330. IRS says this is a petition from a NFTL CDP; there never was a Section 6330 NITL.

“The Court is troubled by the lack of a clear record in this case, including whether petitioners received a notice of deficiency for the tax years at issue. The Court also notes that section 6320 incorporates portions of section 6330 with respect to the conduct of hearings. See § 6320(c) (incorporating certain procedural provisions of section 6330); see also Katz v. Commissioner, 115 T.C. 329, 334 (2000) (observing that section 6320(c) incorporates certain procedural rules set forth in section 6330). Thus, it is not evident that clarification of the Court’s Order is necessary.” Order, at p. 2.

But just in case IRS is still befuddled, “… the Court agrees that jurisdiction in this case is based, in part,  on a Notice of Determination that sustains a Notice of Federal Tax Lien under section 6320. As a result, it appears that the Court would lack jurisdiction to order Appeals to hold a section 6330 hearing. See Ramey v. Commissioner, 156 T.C. 1, 11 (2021) (observing that the Tax Court’s jurisdiction under section 6330(d)(1) depends on the issuance of a valid notice of determination and a timely petition). Thus, to the extent clarification is necessary, the Court will grant respondent’s motion.” Order, at p. 2.

For Wiley Ramey’s story, see my blogpost “We Don’t Need No Authority,” 1/14/21.

So this is a Section 6320 case.

Once again, the Jersey Boys’ alumni association is trying to get taxpayers off the fraud hook when their bent-penny preparers did the nasty, unbeknownst to their taxpayer-clients. Front and center is BASR and the USCAFC, with its tripartite view of the SOL as it affects the innocent.

Judge Patrick J. (“Scholar Pat”) Urda is just the judge for this one, Stephanie Murrin, T. C. Memo. 2024-10, filed 1/24/24. The usual sad tale: many years ago, Steph (and apparently spouse, although spouse is now former spouse and doesn’t appear in this case; 6015?) fell in among a thief, apparently none other than Duane (“The Pain”) Howell. For the backstory on Duane (“The Pain”), see my blogpost “The Fraudster’s Toolbox,” 6/17/16.

One of Duane (“The Pain”)’s clients were the Finnegans, who got nailed for deficiencies arising from Duane (“The Pain)’s fraudulent returns (but not fraud chops), long after 3SOL had run.

This case is largely a replay of my above-cited blogpost, except  for Judge Scholar Pat’s evisceration of BASR.

“We have previously declined to revisit our precedent in light of the Federal Circuit’s opinion, noting that each of the judges on the panel wrote separately and that ‘it is unclear . . . which interpretation of sect[ion] 6501(c)(1) would prevail.” Finnegan, T.C. Memo. 2016-118, at *18 n.6. Laying out the scorecard: (1) the author of the majority opinion concluded that section 6501(c)(1) ‘suspends the three-year limitations period only when the IRS establishes that the taxpayer acted with the intent to evade tax,’ BASR, 795 F.3d at 1342; (2) the author of the concurring opinion reasoned that ‘it is the taxpayer (or possibly his authorized agent) who must have the requisite “intent to evade tax,”’ id. at 1351 (O’Malley, J., concurring); and (3) the author of the dissenting opinion agreed with our holding in Allen, id. at 1357–61. (Prost, C.J., dissenting).

“The Federal Circuit’s position on the precise point before us is not clear. We further note that ‘there is no jurisdiction for appeal of any decision of the Tax Court to the [Federal Circuit]’ in any event. Finnegan, T.C. Memo. 2016-118, at *18 n.6; see I.R.C. § 7482(a)(1).” T. C. Memo. 2024-10, at p. 4.

So Golsen is off the boards.

Too bad, and I mean it. Steph gets hit, notwithstanding that she didn’t intend to defraud, and no one said she did.

Tax prep is, as I have said too often, the Wild West. Absent cover from Congress (best of British luck wi’ that, Squire), IRS is helpless. Every attempt to impose discipline (hey, Supremes) on the tax prep rodeo gets shot down in court. And I can’t say no, because it’s for Congress to prescribe the reach and grasp of every Federal agency; a society as complex as ours can’t be governed by gunfights at the OK Corral. Time, and past time, for Congress to act.

It’s the famous 11 (count ’em, 11) factor test, wherein most taxpayers want debt (to sustain interest deductions). But Estate of Thomas H. Fry, Deceased, Ruth M. Fry, Personal Representative, and Ruth M. Fry, T. C. Memo. 2024-8, filed 1/23 /24, want equity, and they get it.

Unusually, IRS wants debt, although IRS is usually fighting for equity.

Why the reversal?

Well, the late Tom (before he became the late Tom) had two Sub S Corps, one that collected garbage and the other that processed it. They worked together; worked from the same location with the same personnel, accountant, etc. But the processing Sub S lost its biggest contract, so Tom infused cash from the collector to the processor by having collector do bank-to-bank transfers to processor.

But when a white knight bought out the whole operation, Tom had a bunch accumulated losses (hi, Judge Holmes) from the processor that he wanted to deduct. IRS said he had insufficient basis in the processor stock, and Section 385, duty of consistency, and doctrine of election, prevent Tom from claiming that the infusions were capital contributions (building basis via deemed distributions from collector).

Judge Christian N. (“Speedy”) Weiler blows off Section 385, at least for Sub S Corps.

“We agree with petitioners’ primary position that section 385(c) does not apply to the facts herein as there was no formal issuance of any instrument evidencing the creation of an interest in stock or equity. The issuance of an interest in debt is typically contained in a promissory note and an equity interest is typically contained in a stock certificate. No such issuance of a promissory note or a stock certificate occurred here. Thus, on the basis of a plain reading of the statute, we hold section 385(c) inapplicable.” T. C. Memo. 2024-8, at p. 12. (Footnote omitted, but it says no court ever held Section 385 bound anybody to an initial characterization.).

The paperwork is nonexistent to prove debt.

Consistency and election go by the board, as Tom’s brilliant accountant shows he corrected the books before audit, and rebuts IRS’ computations of Tom’s basis in processor stock. But Judge Speedy Weiler, like all judges, won’t add, so the actual computation must abide the Rule 155 beancount, as must the impact of the deemed distributions to Tom that went to fund the processor.

A Taishoff “good job, first class,” goes to the late Tom’s (and Ruth’s) trusty attorneys, and accountant.

Note (off-topic): This post is late due to the opening of the New York City Ballet’s Winter season (75th year), with an all-Robbins program, featuring the music of L. (“Maestro”) Bernstein, F. Chopin, and G. Verdi. Of course, also included was “no’ bad jigging,” as they say in the Highlands. And a very touching speech by the winner of the 2024 Janice Levin Prize for promising member of the corps de ballet, Naomi Corti, a young woman from Luxembourg, from whom we’ll see a lot in years to come.

Sure beat writing about Tax Court.

Not syndicated conservation easements, just another case of the Raytheonista sig ints trying to wriggle out of the Section 7121s they signed, giving up their Foreign Earned Income exclusions. These were the experts stationed at Pine Gap, in the Far Outback.

Michael W. Aubin and Kerry A. Aubin, T. C. Memo. 2024-9, filed 1/23/24, features Mike trying to toss the agreement he signed. Judge James S (“Big Jim”) Halpern isn’t buying.

“…petitioners submitted a Motion in Limine, asking that we ‘exclude the Closing Agreement from evidence for the time being.’ Petitioners appeared to argue that the closing agreement was not subject to the business records exception to the hearsay rule, Rule 803(6) of the Federal Rules of Evidence, because ‘the source of the Closing Agreement and circumstances surrounding it lack trustworthiness.’ In support of that argument, petitioners referred to testimony in another case before the Court that, by their description, raised the possibility of forgery of signatures of Pine Gap employees on closing agreements such as Mr. Aubin’s. ‘Based on these circumstances suggesting fraud and criminality regarding signatures on the purported Closing Agreements,’ petitioners advised us, Mr. Aubin ‘no longer stipulates that he signed the purported Closing Agreement.'” T. C. Memo. 2024-9, at p. 6.

Except.

Rule 91(e) only lets you out of a stip if the parties agree, or if the Judge allows it “if justice requires.”

“We are unpersuaded that, if allegations of forgery have been made in another case, ‘manifest injustice” would result from holding petitioners to their stipulation that Mr. Aubin signed Exhibit 3-J. Forgery sometimes occurs. That prospect is not new information. But Mr. Aubin knows—or certainly should know—whether he signed Exhibit 3-J. Petitioners stipulated that he did. Tellingly, in seeking to withdraw that stipulation, petitioners do not deny that Mr. Aubin signed the agreement. They seem to want to use the allegations of forgery in another case as an excuse to place on respondent the burden of establishing Exhibit 3-J’s authenticity. Requiring respondent to prove facts within petitioners’ knowledge would be contrary to Rule 91(a)’s mandate that parties stipulate relevant matters ‘to the fullest extent to which complete or qualified agreement can or fairly should be reached.’ Justice thus does not require putting respondent to the task of establishing what petitioners have already stipulated—particularly when they make no claim that the stipulation is incorrect. Simply put, that forgery may have occurred in another case does not justify relieving petitioners of their stipulation that it did not occur in this case.” T. C. Memo. 2023-9, at pp. 7-8. (Footnote omitted.)

And that the agreement covers years beyond the year in which it was signed is irrelevant, as Section 7121(a) says the agreement may address “any taxable period,” past, passing, or to come.

And the signoff for the IRS came from the officer designated to administering the US-Australian tax treaty. He don’t need no delegation order. And his assistant has a file memo and e-mail confirmation of authority to sign for her boss.

Taishoff says it’s about time to retire this old protester argument. Maybe a couple Section 6673 chops (hi, Judge Holmes) might do the trick.

IRS gets partial summary J.

Well, at least it’s a change from the Dixieland variety.

Ch J Kathleen (“TBS = The Big Shillelagh”) Kerrigan proposes to amend the Tax Court Rules of Practice and Procedure to codify Boechler, P. C., the case that gave Tax Court the Galatians 3:23 treatment. In short, FRCP 82 is the touchstone of the new regimen.

You can read all about the law as custodian here.

Clair R. Couturier, Jr., Docket No. 19714-16, filed 1/22/24, shows Clair’s trusty attorneys arguing that all of the $26 million Clair got was sales proceeds from his ESOP-qualified stock. IRS claims that the ESOP-qualified was worth $650K at best, and the remaining $25 million-plus for was his two unqualified ESOP plans.

No question there was a rollover of $26 million into Clair’s own IRA when he split from his employer, but unqualified stock (or anything else unqualified, like proceeds from disposition of unqualified) raises the 6% Section 4973 excess IRA contribution tax. So Clair could roll, but not income tax-free or excessive IRA contribution tax-free.

But the worth of the qualified stock is a question of fact (apparently not publicly-traded, and even then, blockage might be a fact question).  No summary J for Clair.

Sydney Roads, LLC, Sydney Roads Investments, LLC, Tax Matters Partner, Docket No. 302878-21, filed 1/22/24, shows IRS again hitting the wall with its favorite tactic in the war on Dixieland Boondockery. Relying on Rev. Rul. 99-5, 1999-1 C.B. 427, 434–35, IRS claims Sydney’s holding period was short of one year when its acquisition of membership interests in a disregarded LLC turned the LLC into a partnership, thus summary J for IRS limiting the worth of the conservation easement.

Except.

Judge Pugh finds the documents submitted by Sydney scupper Rev. Rul. 99-5, or at least raise a fact question as to which flip of interests came before the other. Maybe you can follow the three-card monte hand-offs of membership interests; I can’t. If they run something like this at the Superbowl, there’ll be a lot of flying popcorn.

So IRS falls back on form-over-substance: the deal really was a land sale. The LLC stuff was window-dressing.

Except.

“The application of the substance over form doctrine is inherently factual and generally not appropriate for summary judgment.” Order, at p. 5.

I’m a great fan of summary J, but, as with many things in life, law, and football,  “ya win some and ya lose some.”

Saul Bradley, T. C. Memo. 2023-7, filed 1/22/24, has not only had to face divorce and a death in his family, but two (count ’em, two) years’ worth of deficiencies and chops; and he hadn’t fIled for four successive years thereafter.

But IRS has problems, too. Saul claims he never got the SNOD, so IRS proffers a copy (redacted) of the USPS Form 3877 Proof of Mailing that causes Judge Travis A. (“Tag”) Greaves to admonish IRS as first set forth at the head hereof.

“First, as redacted by respondent, we cannot discern whether Form 3877 was signed by the USPS employee who accepted delivery of the notice. A Form 3877 is not properly completed when a USPS employee does not sign the form. Thus, because the Form 3877 does not contain a visible signature of a USPS employee, it is not properly completed. We have previously held that this omission, together with other omissions, renders the presumption of proper mailing inapplicable.

“The other error on Form 3877 relates to the name stamp appearing on the form. This stamp appears to be the name of the IRS employee who issued the notice of deficiency. Form 3877 must be signed or initialed by the IRS agent who issued the notice. We previously held that a stamp signature from a receiving USPS employee was a defect on Form 3877, sufficient when combined with other omissions to prevent application of the presumption of proper mailing. Knudsen v. Commissioner, T.C. Memo. 2015-69, at *6–7, *14–16. Because both the IRS agent and the USPS employee are required by IRS procedure to sign Form 3877, we see no reason why we should treat the stamped signature of the IRS agent in this case differently from the stamped signature of the USPS employee in Knudsen. Therefore, the stamped signature of the IRS agent is a defect on Form 3877. These two errors render the presumption of proper mailing inapplicable.” T. C. Memo. 2023-7, at pp. 6-7. (Citations omitted, but get them for your memo of law file; for the Knudsen story, see my blogpost “Great, But No Substitute,” 4/7/15).

But all is not lost for IRS, although it is for Saul.

“While this evidence is not sufficient to create a presumption of proper mailing, respondent may still satisfy his burden to show proper mailing of the notice of deficiency if the evidence of mailing is otherwise sufficient. An incomplete certified mailing list may serve as evidence that the notice of deficiency was properly mailed to a taxpayer. Here, the possible defects in Form 3877 are minor. Form 3877 bears the USPS stamp, specifies the number of articles received, and lists petitioner’s name and address. Respondent also introduced a copy of the notice of deficiency, which bears the same mailing date and mailing address as the corresponding Form 3877. Petitioner does not contest that the address listed on Form 3877 and the copy of the notice of deficiency was not [sic] his last known address. The preponderance of the evidence supports a finding that respondent mailed the notice of deficiency to petitioner at his last known address.” T. C. Memo. 2023-7, at p. 7 (Citations and footnote omitted). I think you meant “Petitioner does not contest that the address listed on Form 3877 and the copy of the notice of deficiency was his last known address,” Judge.

IRS, better stamp out stamps, lest the next time you may not be so lucky.

Jackson Crossroads LLC, Greencone Investments LLC,Tax Matters Partner, et. al., Docket No. 12235-20, filed 1/19/24 (a very special date in our family), ably represented by trusty (and I’m sure by their clients well-belovèd) attorneys, snipe away carefully at IRS’ wildcard reinforcements. Judge Christian N. (“Speedy”) Weiler is a great one for cutting down post-pleading attempts to wrongfoot adversaries.

In this latest installment, he reminds us of the parties’ previous attempt to tilt the playing field; see my blogpost “Why I Love Summary J – Part Deux,” 12/8/23.

Now the Jacksons claim IRS’ latest wildcards are (a) donative intent, (b) whether the syndicated members of the LLCs are really partners, and (c) whether or not the swath of Dixieland Boondocks at issue is inventory per Section 1221, and thus ineligible for Section 170 Dixieland Boondockery.

First, the obligatory procedural sparring. The Jacksons moved to strike those parts of IRS’ Pre-trial Memo which raised (for the first time) these issues.

“Respondent asserts that petitioner’s Motion to Strike is disguised as a motion in limine, since it is a pre-trial motion that seeks to exclude specific evidence or arguments from being presented during trial and the motion is untimely because it was not filed before the deadline for motions in limine, as set in the … scheduling order. We do find it is appropriate to treat petitioner’s Motion to Strike as a motion in limine. However, we find that the Motion to Strike was filed promptly in response to Respondent’s Pretrial Memorandum which for the first time, raised these two Issues with the Court.” Order, at p. 2. (Footnote omitted, but it says the Jacksons moved to strike within a week after getting IRS’ Pre-trial Memo.). Note “two issues,” because Judge Speedy Weiler says donative intent was disposed of in the above- referenced 12/8/23 order.

As to the remaining issues (Partnership and Inventory), they’re mixed law-and-fact, so arguing they involve a different legal theory alone (which doesn’t require additional or other evidence) won’t save IRS.

“We find the Partnership Issue (Issue 7) and Inventory Issue (Issue 8) to be mixed issues of fact and law. As such, these issues were required to have been pled under our Rules. Because the issues are not contained in any pleadings, and respondent did not seek leave to amend the pleadings prior to trial, permitting respondent to present evidence on these issues at trial will unfairly prejudice petitioner. Therefore, the Court will not consider the Partnership Issue (Issue 7) and Inventory Issue (Issue 8) at trial and on brief.” Order, at pp. 2-3.

At the risk of yet again wearying my readers with a repetition (not to say regurgitation) of Judge Holmes’ observation in Oakbrook, Dixieland Boondockery cases are well-suited to valuation resolution. Thomistical-Talmudical torturing of the language of Section 170 is time-wasting tohubohu. Go try the case.