Too much of a good thing is bad. That’s the lesson Judge Travis A. (“Tag”) Greaves has for IRS in Ivey Branch Holdings, LLC, Ivey Branch Investors, LLC, Tax Matters Partner, Docket No. 19189-19, filed 3/30/23. IRS files for summary J twice, and comes up empty.

Need I say this is another Dixieland boondockery? Guess not.

IRS wants summary J tossing the Iveys for want of compliance with the improvements-in requirements of Reg. Section 1.170A-14(g)(6). This they don’t get because of the Hewitt-Oakbrook jumpball: did 11 Cir invalidate the Reg entirely, or only so much as pertained to condemnation awards for post-donation improvements going to donor-grantor?

“In Oakbrook Land Holdings, LLC v. Commissioner, 154 T.C. 180 (2020), and Hewitt v. Commissioner, T.C. Memo. 2020-89, this Court upheld and applied Treasury Regulation § 1.170A-14(g)(6). However, the U.S. Court of Appeals for the Eleventh Circuit, in which venue would lie for an appeal in this case, reversed Hewitt and held that ‘the Commissioner’s interpretation of § 1.170A-14(g)(6)(ii), to disallow the subtraction of the value of post-donation improvements … is arbitrary and capricious and therefore invalid under the APA’s procedural requirements.” Hewitt v. Commissioner, 21 F.4th 1336 (11th Cir. 2021), rev’g and remanding T.C. Memo. 2020-89. A few months after the Eleventh Circuit’s reversal in Hewitt, the Court of Appeals for the Sixth Circuit affirmed the Tax Court’s view of the regulation in Oakbrook Land Holdings, LLC v. Commissioner, 28 F.4th 700 (6th Cir. 2022), aff’g 154 T.C. 180, 189-200 (2020), causing a “split” in the Circuits. Petitioner in Oakbrook filed a petition for writ of certiorari with the Supreme Court, which the Supreme Court denied on January 9, 2023. No. 22-323, 2023 WL 124412 (Jan. 9, 2023).

“In light of the Supreme Court’s denial of certiorari, we will follow Eleventh Circuit precedent with respect to the issue of the validity of Treasury Regulation § 1.170A-14(g)(6). See Golsen v. Commissioner, 54 T.C. 742, 756–57 (1970), aff’d, 445 F.2d 985 (10th Cir. 1971). Accordingly, respondent is not entitled to judgment as a matter of law based on his interpretation of § 1.170A-14(g)(6)(ii), i.e., prohibiting the subtraction of the value of post-donation improvements to the property on which a conservation easement exists from the proceeds in the event of judicial extinguishment. See Hewitt 21 F.4th at 1339.” Order, at pp. 7-8.

IRS also wanted summary J because the Iveys deed wants prior claims satisfied out of condemnation proceeds, but that founders on the same Hewitt-Oakbrook reef.

The Iveys reserved the right to build one structure within a defined two-acre piece of the property. IRS claims this doesn’t protect the property in perpetuity (see Section 170(h)(5)()A)), as these are “moveable rights.” Except Judge Tag Traves says the Iveys get only one shot at doing this, and if the donee 501(c)(3) shoots it down, they’re done. And IRS’ argument over forestry rights also fails, as there is enough protection provided by donee and State authorities.

Of course, IRS can try all this again at trial and in post-trial briefing.

In the second summary J motion, IRS sought gross valuation misstatement and reportable transaction underpayment chops if the Court invalidated the deductibility of the easement. But since they don’t get summary J on the first motion, they lose this one, but can try again.

Taishoff says this points up the need for the same kind of limitations our New York Civil Practice Law and Rules imposes on summary J motions. This salami-slice tactic is a waste of resources. I’m a great fan of summary J, as I’ve often said, but one size should fit all, and only come after discovery is complete. Ch J Kathleen (“TBS = The Big Shillelagh”) Kerrigan, respectfully submitted.

Judge David Gustafson is up against The System, namely DAWSON, the new, improved (???), jim-handy electronic Czar of The Glasshouse That Vic Lundy Built. And he’s got thirteen (count ’em, thirteen) syndicated conservation easement cases lined up and waiting to do their “pretrial activity.”

The captions for Judge Gustafson’s order take up more than four pages of this six page order, so I’ll just cite to the first in numerical order of docket entry, Walker Drive Development Partners LLC, Walker Drive Manager, LLC, Tax Matters Partner, Docket No. 10748-20, filed 3/30/23.

There are enough differences among the properties and personnel involved to prevent consolidation for briefing and trial. But Judge Gustafson thinks that consolidating the cases for pretrial activity (I suppose that includes but is not limited to discovery, pretrial motions, and scheduling thereof) would be orderly.

The reason for the headline first written at the head hereof (as my looking-forward-to-the-two-Martini-lunch colleagues would say) is designating the place for trial.

“Atlanta is the requested place of trial for a five-case plurality of the thirteen cases, with Knoxville requested for three, Jacksonville for two, and one each for Birmingham, Nashville, and Tampa. Under the current configuration of the Court’s  “Dawson” case management program, cases with different requested places of trial cannot be consolidated. We will therefore make a nominal change to the requested places of trial so that all are designated for Atlanta. This change does not reflect an actual decision to try the cases in any particular location. When it is time to set the cases for trial, the Court will entertain a motion to change the place for trial.” Order, at p. 5.

Note that a principal difference between these cases is that different appraisers were used in some, although in all, counsel are the same, the properties are all in the same county, the pre-contribution highest-and-best-use is the same, “etc.” Order, at p. 5.

This situation calls for a Zoomietrial of whatever cases can be consolidated for trial and briefing. Have Zoomietrials been so flawed that only in-person trials will do? I’ve yet to see a Zoomietried decision being tossed on grounds other than those which would invalidate the decision an in-person trial.

Kenneth S. Ingber & Karol H. Ingber, Docket No. 20904-22L, filed 3/29/23 (last Palindrome Day this year) had me scratching my head. Judge Mark V Holmes was waking the echoes of my blogpost “Without Prejudice?” 7/20/16.

Ken & Karol want to dismiss their petition from a NOD, and IRS says OK.

Judge Holmes dismisses, but states “without prejudice.”

As I said in my above-cited blogpost “If in fact there was jurisdiction based on a timely petition at that time, and if the one-hearing-per-tax-year rules of Section 6330(c)(4)(A) apply, then any new petition…must be time-barred, no?”

Well, yes and no.

Yes, Ken & Karol can’t go back to Tax Court; even with post-Boechler equitable tolling, they only get one hearing per tax year.

But perhaps like Richard T. Wagner and Margie Wagner, 118 T. C. 330, filed 4/15/2002, the lead case on motions for dismissal from lien/levy cases, they don’t want to be in Tax Court. The late Judge Laro dismissed Richard’s and Margie’s petition without prejudice to their right to go to USDC to fight over their NOL carryforward.

As Ken & Karol are represented by counsel, I must conclude there is a strategic retreat here.

So dismissal of a lien/levy petition is without prejudice both to petitioner and IRS. Judge Laro noted in Wagner that FRCP 41(a)(2) allowed dismissal unless there was prejudice (other than the prospect of another proceeding) to the other side (IRS); here, there isn’t. IRS can proceed with collection as soon as the petition is dismissed, unless Ken & Karol post bond or pay up and seek refund in USDC. And no prejudice to petitioner going to try their luck there; no issue or claim preclusion from Tax Court.

Takeaway- After 56 (count ’em, 56, and I have) years of practicing law, I should know by now that you have to read the cases.

I’ll use this heading from time to time to note in brief Tax Court opinions and orders that don’t merit a complete entry on their own account

First up, Robert A. Di Giorgio, Sr., T. C. Memo. 2023-44, filed 3/29/23. Rob is a mortgage and real estate wheeler-dealer, whose underreporting gets him deficiencies and chops north of $10 million, but get the second Ms. Di Giorgio, a Philippine national with minimal education, innocent spousery. Nothing novel here.

Next, John Landis Heinaman, Docket No. 11263-21L, filed 3/29/23. John is nailed for TFRPs for Heinaman Contract Glazing, Inc., for which he is a responsible person.

The only interesting thing in this off-the-bencher from Judge Goeke is that, notwithstanding telling John he has already had his chance at Appeals to contest liability and lost, thus taking liability off the menu, Judge Goeke lets him testify about liability on the trial. He admits paying creditors before paying IRS, Transcript, at p. 14.

“So despite the fact that the underlying liability is not before this Court, we note that petitioner’s position regarding the underlying liability is flawed.” Transcript, at p. 14.

And John was less than candid about his available assets when he applied for an OIC.

Unfortunately this objection to an offside call doesn’t apply when a would-be insured applies to one of the insurance exchanges established pursuant to the Affordable Care Act of 2010, is told they qualify for PTC, get APTC, and breach the 400% MAGI cutoff.

That statute has received so much criticism (not to say condemnation) from the entire political spectrum that I merely report Chalaundra Edjewel Sneed, T. C. Sum. Op. 11, filed 3/29/23, as another example of the failure of the exchanges scheme. A complicated system is inadequately explained, and operating personnel cannot always correctly advise applicants.

Chalaundra’s year-at-issue MAGI is over the 400% poverty level cutoff, so owes the $7K APTC she received. She didn’t attach her Form 8952 reconciliation to her 1040, but mailed it later.

Judge Elizabeth Crewson Paris: “Petitioner does not appear to dispute respondent’s determination on technical grounds but instead seeks a collection alternative because of financial hardship. In this proceeding to redetermine a deficiency under section 6213(a), the collectibility of the tax liability is not at issue before the Court. The Court notes, however, that the Oklahoma Marketplace informed petitioner that she was eligible for the APTC for 2018 because of an apparent misunderstanding of the application instructions on her part. The Court is not unsympathetic to petitioner’s plight. Nevertheless, the Court is bound by the statute as written and the accompanying regulations when consistent therewith. The simple facts are that petitioner’s MAGI exceeded eligibility levels and that she must repay the APTC payments made on her behalf. Accordingly, the Court sustains respondent’s determination.” T. C. Sum. Op. 11, at p. 5 (Citations omitted).

I must leave discussion of the other deficiencies in the present system to another place. This is, as always, a nonpolitical blog.

That’s Judge Mark V (“Vittorio Emanuele”) Holmes. I’ve given him this sobriquet, as he follows the famous unifier of Italy, who vowed to impose on the Italian nation even his errors of grammar.

Today he takes an ordinary indocumentado Section 165 nonbusiness casualty loss case, Thomas Richey and Maureen Cleary, T. C. Memo. 2023-43, filed 3/28/23, and elevates it with a footnote describing petitioners’ attempt to use real estate brokers’ Multiple Listing Service screenshots as a rationalization of their guess about the before-and-after valuation of their vacation home.

“In other words, the MLS printouts are akin to the rational tail of the intuitive dog that is the couple’s initial valuation of their home. See Jonathan Haidt, The Emotional Dog and Its Rational Tail: A Social Intuitionist Approach to Moral Judgment, 108 Psychol. Rev. 814, 822–23 (2001). It was not derived from those MLS printouts (in fact it resembles more of an intuitive evaluation); those printouts serve as a post hoc rationalization of their evaluation.” T. C. Memo. 2023-41, at p. 9, footnote 6.

“The rational tail of the intuitive dog.”

There is a painstaking trudge through all the elements of a casualty loss: proximate cause, actual physical damage, sudden and externally-caused (not natural deterioration), damage in excess of basis, cost of restoration (not improvement), before-and-after appraisal, uninsured loss or mandated insurance claim, $100 and 10% of AGI exclusions, and documentation of each element.

But the intuitive dog with its rational tail is the best part.

Three years back, STJ Peter Panuthos gave William French Anderson and Kathryn D. Anderson, T. C. Memo. 2023-42, filed 3/28/23, a shot at establishing that the six-figure legal fees they ran up were Section 162 ordinaries-and-necessaries to save Wm’s biomedical business.

And they do, to the extent of $13K. Wm and Kathryn can’t prove the remaining $347K was spent for anything but trying to get Wm out of the fourteen-year stretch he got for child molestation. See my blogpost “Mother and Child Reunion – Part Deux,” 4/29/20, for the backstory.

The key is the usual…the criminal acts did not take place on business premises nor in connection with business activity. Wm’s claim that he was set up by a business associate to steal his business was auf’d by an order in limine in 2021 (which I didn’t blog).

Wm, however, persisted, and that didn’t make Judge Elizabeth Crewson Paris more sympathetic to Wm.

“In the Court’s Order dated September 28, 2021, the Court granted respondent’s Motion in Limine to preclude any evidence or arguments that Dr.  Anderson was framed on false charges. In contravention of that Order, petitioners continue to argue in their Opening Brief that Dr. Anderson was falsely accused of the criminal charges for which he was convicted and that these accusations were part of the corporate sabotage and intellectual property theft scheme. Dr. Anderson was convicted by a jury of the charges brought against him, and the California Court of Appeal upheld that conviction. Anderson, 144 Cal. Rptr. 3d at 640. The Court will not further address this argument.” T. C. Memo. 2023-42, at p. 10, footnote 11.

Btw, the 2021 order did allow Wm and Kathryn to show expenses were incurred to investigate, prevent, or combat corporate sabotage, intellectual property theft, or other corporate malfeasance or potential threat thereof.

“Only the $3,000 paid to Mr. H, as evidenced by the invoice dated September 18, 2014, relates to Dr. Anderson’s gene therapy business. That invoice shows that Mr. H performed IT services for Dr. Anderson’s website under the instruction of Mr. O, including legal advocacy and promotion of Dr. Anderson’s business image. While the invoice contains no reference to the alleged wrongdoing by Dr.  Anderson’s former colleague, the work detailed in the invoice is clearly a business expense, and the Court will allow a deduction in that amount. Similarly, the two additional 2014 invoices from Mr. H, for $5,000 each, do detail work performed in the course of his investigation. Those invoices were paid by Dr. Kathryn Anderson in December 2014. The Court finds that these invoices represent additional business expenses and will allow a further deduction of $10,000.” T. C. Memo. 2023-42, at p. 12. (Names omitted).

Fascinating footnote: Among the attorneys representing the State in the appeal in the criminal case (146 Cal. Rptr. 606 (2012) was Kamala D. Harris, Esq.

An unpermitted change of accounting method implicates Section 481, and even closed years open to IRS. So discovers Conmac Investments Inc., T. C. Memo. 2023-40, filed 3/27/23. Conmac owned AR farmland, rented to tenants for 25% of gross income. That included various Federal farm subsidies, kaleidoscopically variegated, so I’ll defer to agricultural expert Judge Elizabeth Crewson Paris to explain it all, T. C. Memo. 2023-41, at p. 3.

Conmac hadn’t amortized or depreciated the base acres (apparently those plots, parcels, and portions of land favored for receipt of our tax dollars) until a year now closed. Conmac started to do so without filing Form 3115 or otherwise soliciting the Secretary or Commissioner for consent.

Conmac claimed change in facts dispensed with need for IRS signoff.

“Petitioner maintains that its change in tax reporting was based on a change in underlying facts. However, petitioner never identifies what facts changed despite having ample opportunity to do so. Instead, petitioner contends that existing federal tax law allegedly allowed it to allocate and deduct a portion of the purchase price of tillable farmland using the present value of future farm program subsidy payments, and therefore that the company did not change its accounting method.” T. C. Memo. 2023-41, at p. 7.

True, the Regs do  allow an unpermitted change due to change in facts. But Reg Section 1.446-1(e)(2)(ii)(b) provides also that for …changes involving depreciable or amortizable assets, see paragraph (e)(2)(ii)(d) of this section and § 1.1016-3(h).”

There is caselaw that would permit the change Conmac wants, but in that casee amended returns were filed for all open years with explanatory statements, and this ruled out Section 481; but Conmac never did that.

And as for SOL locking out years at issue, that also fails.

“… importantly for our purposes, a section 481 adjustment may include amounts attributable to otherwise time-barred tax years. See Huffman v. Commissioner, 126 T.C. 322 (2006), aff’d, 518 F.3d 357 (6th Cir. 2008); Rev. Proc. 2015-13, § 2.06(1), 2015-5 I.R.B. 419, 425. In fact, ‘[t]he only limitation on § 481(a) adjustments is that no pre-1954 adjustments shall be made.’ Mingo v.
Commissioner, 773 F.3d 629, 636 (5th Cir. 2014) (alteration in original omitted) (quoting Commissioner v. Welch, 345 F.2d 939, 950 (5th Cir. 1965), rev’g T.C. Memo. 1963-38), aff’g T.C. Memo. 2013-149. ‘[O]nce there has been a change in the method of accounting, no statute of limitations applies to the Commissioner’s ability to correct errors on old tax returns.” Id.” T. C. Memo. 2023-41, at p. 11.

The Section 481 change IRS wants only restores Conmac to its old accounting method and prevents omission of income, so is not unfair.

Yes and no; yes, it’s about a charitable deduction in the South (NC), but no, it’s not a syndicated conservation easement deduction involving scrub with rocks underneath. Rather, Duncan Bass, T. C. Memo. 2023-41, filed 3/27/23, made a bunch charitable contributions (hi, Judge Holmes) of clothing and nonclothing items, but the greatest of these was his clothing contributions.

Judge Tamara Ashford explains.

“… petitioner donated men’s, women’s, and children’s clothing and various nonclothing items to Goodwill and the Salvation Army. He acquired these donated items at no charge as they had been given to him by [his landscaping outfit]’s residential clients. He made 173 separate trips to Goodwill and the Salvation Army, often making multiple trips on the same day to avoid in his view the need to have the items appraised. For each trip, a Goodwill or Salvation Army worker as the case may be provided petitioner with a donation acknowledgment receipt, which he in turn filled out, listing the items donated and their fair market values. Petitioner’s Goodwill receipts reflect donated items totaling $18,837, consisting of clothing totaling $13,852….” Tc> C. Memo. 2023-41, at p. 4.

Sort of a variation on the $9K cash bank deposits to get under the $10K suspicious activity reporting requirements. And it meets with the same fate.

“Relying on the fact that he made 173 separate trips to Goodwill and the Salvation Army and received a donation acknowledgment receipt for each trip (all of which are in the record), at trial petitioner testified that because the donated items reflected on each receipt had a fair market value of less than $250, he did not need to have any of the items appraised. Petitioner, however, misapprehends the applicable law. … for purposes of determining the $5,000 threshold and accordingly whether the ‘appraisal’ requirements are applicable, section 170(f)(11)(F) and Treasuary [sic] Regulation § 1.170A-13(c)(1)(i) mandate aggregating similar items of property donated to one or more charitable organizations. Petitioner’s Goodwill and Salvation Army receipts reflect donations of men’s, women’s, and children’s clothing, as well as various nonclothing items. Pursuant to section 170(f)(11)(F) and Treasuary Regualtion [sic] § 1.170A-13(c)(1)(i), all the clothing donations must be aggregated. The aggregate of these donations is $25,446 (i.e., $13,852 (the total amount of the clothing donations to Goodwill) plus $11,594 (the total amount of the clothing donations to the Salvation Army)), which is over five times the $5,000 threshold and thus necessitates that they be appraised. Since there was no such appraisal, petitioner is not entitled to the deductions claimed on his 2017 Schedule A for noncash charitable gifts of clothing to Goodwill and the Salvation Army.” T. C. Memo. 2023-41, at p. 17.

Duncan does get the nonclothings, as they are sufficiently various to be nonaggregatable, and thus slip under the radar.

But Treasuary gets the most of the deficiency.

This could happen to any one of us (and, if we’re candid, it probably has). But for both sides to miss a critical point is less common (although, again, in a long enough run of play, it probably has). Both IRS’ counsel (both of them) and his trusty attorney missed the Letter 1153 opportunity in David A. Garrett, Docket No. 14206-22L, filed 3/27/23.

Judge Courtney D. (“CD”) Jones denies summary J to IRS in this TFRP for want of verification at Appeals. The NOD says the SO verified that applicable legal and admin requirements were. satisfied, any issues raised by Garrett were considered, and collection no more intrusive than necessary. Trusty attorney apparently didn’t reply to summary J motion; neither did Garrett.

There were interim payments made by the corporation reducing the amount of unpaid trust funds, but that doesn’t affect the Section 6672 chop. The problem arises from a statement in IRS’ moving papers. IRS claims the SO properly verified the assessed TFRP.

Judge C D Jones: ” However, in light of the foregoing assertion that the penalty assessment was properly verified, the Court is perplexed by respondent counsel’s statement that “[p]etitioner did not have a prior opportunity to dispute the underlying liabilities.” (docket entry no. 9, pg. 11). A TFRP assessment is valid if the IRS issues Letter 1153 to the taxpayer’s last known address, assesses the penalty more than 60 days after the mailing of that letter, and the penalty was assessed within the time permitted by law. Generally, receipt of Letter 1153 constitutes the taxpayer’s opportunity to dispute their underlying liability. Thus, respondent’s simultaneous assertions that the penalty assessment was properly verified, which contemplates that Mr. Garrett received a letter 1153 and had a chance to contest his underlying liability,  and that Mr. Garrett has not had a chance to challenge his underlying liability, which contemplates that Mr. Garrett did not receive a letter 1153 and that the penalty was not properly assessed, seem irreconcilable. In light of these contradictory statements,  and given the limited administrative record, the Court is unable to conclude that the verification requirement was properly satisfied, absent some alternative explanation.” Order, at p. 6. (Citations omitted).

I may venture a wild guess that IRS’ counsel used a form declaration, or maybe one from a previous case, and didn’t do enough custom tailoring. Howbeit, no summary J.

Takeaway- When both sides miss it, very often the judge won’t.