The method-vs-madness joust in determining whether an appraisal qualifies under the various rubrics of Section 170 (façade, scenic, conservation, artistic) has furnished forth blogfodder for more than ten (count ’em, ten) years. Solely by way of illustration of the foregoing, see my blogpost “Method to His Madness,” 6/18/12. That was when the famous 1994 IRS Audit Techniques Guide first assumed prominence.

Today, Michael Davis & Amy L. Davis, et al., Docket No. 14870-20, filed 8/8/23, brandish its successor the Conservation Easement Audit Techniques Guide to defeat IRS’ motion for summary J knocking out the appraisal in support of of Mike’s & Amy’s (and the al’s) Dixieland Boondockery.

IRS, perennially short-stacked, uses summary J as a panacea. I’m a great fan of summary J, but it can’t cure all ills.

IRS claims Mike’s & Amy’s appraisal “was riddled with errors that constituted gross negligence and was not prepared in accordance with generally accepted appraisal standards, as required under section 170(f). The appraisal purports to adhere to the Uniform Standards of Professional Appraisal Practice (USPAP), but respondent argues that the appraisal ‘flouts’ these standards.” Order, at p. 2. IRS wants the appraisal and the deduction tossed, and a finding that Mike & Amy did not act with reasonable cause.

Judge Christian N. (“Speedy”) Weiler finds that Mike’s & Amy’s appraiser did follow the Guide.

“To the extent respondent believes that the appraiser’s method was ‘sloppy or inaccurate, or haphazardly applied,’ that ‘is irrelevant.’ Id. (quoting Schiedelman v. Commissioner, 682 F.3d 189, 197 (2d Cir. 2012)). The appraiser is required to identify the method used under the regulations, not demonstrate that the method used was reliable or probative.” Order, at p. 3.

For the backstory on Scheidelman, see my blogpost above referred to. Anyway, the reliability and accuracy of the methodology and specific basis of valuation isn’t appropriate for summary J. If there’s method, then madness is for trials. Generally Accepted Appraisal Standards aren’t the only game in town.

Reasonable cause likewise is facts-and-circumstances. See Reg. Section §1.6664-4(b)(1). That means trials.

IRS’ counsel are a couple yards (hi, Judge Holmes) short of a “Good Try.” But I love the “flout.”

Marisol Severance, T. C. Memo. 2023-101, filed 8/8/23, owned her house in common with her husband, and they had a joint bank account. So when nonrequesting husband filed Ch 13, and IRS put in a tax claim, that started the two-year Section 6015(b)(1)(E) collection clock for Section 6015(b) innocent spousery. Marisol filed too late; in addition, neither she nor husband petitioned the SNOD that gave rise to the deficiency at issue.

Marisol does no better with Section 6015(f) equity. Judge Tamara Ashford finds Marisol had enough education to figure out husband’s foreign earned income exclusion failed the 330-day barrier. The test is constructive knowledge for Section 6015(f), not actual knowledge. Neither economic hardship nor illness are in play.

As both Marisol and her husband are both war veterans, I will keep my sympathies under control here, simply remarking that few war veterans I have encountered have degrees in taxation.

Marisol’s trusty attorney played a tough lie as well as can be played.

I note that Judge Ashford seems to read the record-rule amendment to Section 6015(e)(7) to provide that, although limited to the admin record and fresh evidence (none here) as to facts, whatever Appeals did is nothing to the point. Abuse of discretion has no part. The SO may not have abused their discretion, but Tax Court can reach a different conclusion. That makes sense to me.

The tax aspects of Joseph G. Bucci & Elaine T. Bucci, Docket No. 29127-21, filed 8/7/23, are ordinary hobby-loss operations. The farm earns nothing, and exists so that Joe B’s neighbors bale the hay, keep half, and give Joe the rest for his horseracing operation. Joe B. was once a broker and appraiser in his hometown of Retsof, NY, but now runs an investment operation with his son that makes nothing. And the horseracing makes money, but loses much more.

Judge Mark V. Holmes feels obliged, as Joe B. is Golsenized to 2 Cir, to trudge through the “goofy regulation,” Reg. Section 1.183-2(a), for each, with identical results.

Joe B. loses on all counts, except Judge Holmes is sentimental about octogenarian Joe B’s desire to own a Kentucky Derby winner. So am I, as long as Joe B. doesn’t insist upon us taxpayers paying for it. Joe B earns $8 million per year; he can afford his dream.

There isn’t enough here for me to shout it out to my colleague Peter Reilly, CPA, snapper-up of unconsidered hobby-loss trifles.

And the Genius Baristas have again put the text of Judge Holmes’ off-the-bencher in undragable format, so I can’t cut-and-paste the tale of how Joe B. and partners saved his home town from the briny deep, sealed off the flood, and operated the largest salt mine in America.

That’s the best part of the story.

Joe B. and partners became the best friends the automobile companies ever had, because their salt is strewn each snowy winter on every highway and byway in the Northern Tier of these Estados Unidos, to turn vehicles into rustbuckets.

When We File an OIC

True, just Form 656-L will suffice, when compromising based upon doubt as to liability. But if Appeals asks for a Form 433-A as well, that’s not abuse of discretion if no OIC is proffered. Nuntiya Sripa, T. C. Sum. Op. 2023-26, filed 8/7/23 is an object lesson for Representatives (designees under Form 2848).

Nuntiya’s Rep managed to work with TAS to knock out a couple years (hi, Judge Holmes), but IRS wouldn’t fold another, and gave Nuntiya a SNOD. For whatever reason, she never petitioned the SNOD, so ACSU sent Nuntiya a CP90, which got a Letter 12153 from Nuntiya.

Nuntiya’s Rep claimed Nuntiya never got the SNOD, but a copy was attached to the 12153, and IRS had the proof of mailing (USPS Form 3877) with matching address.

All the Rep did at Appeals was contest liability. Too late. Judge Christian N. (“Speedy”) Weiler finds the request for the 433-A is harmless error, as neither Nuntiya nor her Rep submitted a 656, and never requested any collection alternative at the CDP. Had they submitted a 656-L without the Form 433-A, and had the SO bounced the OIC on that ground only, maybe they’d have had a case.

“An Appeals officer does not abuse her discretion when moving forward with the case after a taxpayer has been given an adequate amount of time to submit requested documents. Here, SO M granted petitioner a reasonable amount of time to submit Form 656, but petitioner elected to not pursue an offer-in-compromise. Petitioner has not asserted, nor is there any basis in the record for the Court to conclude, that SO M abused her discretion in sustaining the collection action.” T. C. Sum. Op. 2023-26, at p. 8.

Reps, warn your taxpayers: any piece of paper they get from IRS goes to you immediately. And if you’re fighting liability, a Form 656-L with a nominal offer might give you a better shot than TAS.

Nice work of you can get it, but Thomas D. Conrad and Margaret Joan Conrad, T. C. Memo. 2023-100, filed 8/7/23, get to deduct the costs of storing, repairing, and maintaining their airplane and yacht, which though owned by the Sub S of which they are 51.25% owners,  flow through to them. Judge Morrison denies them a cut of the depreciation, partly because Tom (he’s a Ph.D., so I’ll deny him the “Doc”) concedes the deduction, but also because the airplane was never placed in service “in a condition or state of readiness and availability for a specifically assigned function.” T. C. Memo. 2023-100, at p. 39. See my blogpost for the story of Mike Brown, “Not Ready For Prime Time,” 12/3/13, which story Judge Morrison quotes extensively. IRS also blows all the Section 274 strict substantiation requirements by not arguing same.

The CPAF and SNOD are not models of clarity, and the Boss Hossery is a wee bit slipshod, but gets by. IRS doesn’t dispute that the storing, repairing, and maintaining costs for plane and boat were paid in years claimed, and they were intended for use in trade or business (Tom’s investment advisory) to woo highrollers. Problem was Tom couldn’t fly the plane (although his flying lessons are deductible) and there aren’t enough pilots certified on this type to get one for gigs. And the yacht had been used once to woo the highrollers, although it was laid up for years at issue.

Their deductions for business use of their condo and home get honed down, although some carryforwards are allowed and some gets shunted to Sched A itemization, if they survive the AGI cutoff.

IRS appears to have waived the Section 6662(a) negligence chop, but preserved the five-and-ten substantial understatement chop. The depreciation deductions aren’t part of that count, as Judge Morrison finds good faith misunderstanding of the law on Tom’s part (Margaret sits this one out). But Tom’s omission of $260K of retirement drawdown income and some other shenanigans (see T. C. 2023-100, at pp. 85-86) mean everything else is in play for the Rule 155 beancount. If Tom’s delictions break that 10% or $5K barrier, the 20% chop is in play.

In short, Judge Morrison has to cite Feigh 11 (count ’em 11) times. “Our job is to consider the issues advanced by the parties, not to craft alternative arguments never raised.” T. C. 2023-100, at p. 34. For the backstory on Feigh, see my blogpost “The Golden Gophers vs Scholar John – Part Deux,” 5/15/19.

Judge Morrison does a heavy-duty tailoring and patching job on a really botched trial record. At one stage Tom appears to have had counsel, but is pro se on the trial; as for IRS and counsel…well,  least said, soonest mended.

The unveiling has begun, perhaps. Dropping the anonymity that suppressed his name on his SPTOs (small-claimers), STJ Adam B. (“Sport”) Landy appears in propria persona on no fewer than 125 (count ’em, 125) SPTOs this morning, 8/7/23. For STJ Sport Landy’s backstory, see my blogpost “The STJ Who Dare Not Speak His Name,” 6/28/23.

But the veil still hangs over the SPTOs (regulars) of Judge Elizabeth Crewson Paris. There are only seven (count ’em, seven) such on the order board so far today, but none lists Judge Paris. For more, see my blogpost “The Contagion of Anonymity,” 7/12/23.

Are the Genius Baristas in a playful mood?

My usual Sunday readership comprises perhaps 30 views by perhaps 25 viewers. That number hasn’t varied materially for some years, and is generally the fewest views-viewers numbers of the week.

The greatest number of views (400) on a single day took place September 27, 2016, for no discernable reason, and has never approached that number since.

Today, Sunday, August 6, 2023, the statistics page of this my site recorded 611 views by 609 visitors. I rarely get 600 views in a week.

I ask again, an obvious spoof?

Del Monte LLC, Dev X Investment 2015, LLC, Tax Matters Partner, Docket No. 3411-21, filed 8/4/23, has Judge Patrick J. (“Scholar Pat”) Urda humming the 1958 Chordettes’ cover of Ronald & Ruby’s performance of Julius Dixson’s and Beverly Ross’ hit. The Montes have a historic façade easement case. As usual, IRS is trying to avoid a laborious and expensive valuation trial by attacking perpetuity, and here attacking whether the donation comprises real property.

The easement in gross to the 501(c)(3) included “‘Development Rights,’ which referred to ‘the right to develop the air space above and adjacent to the Building, encompassing all such air space of the Property.’” Order, at p. 2.

There is a companion case, Continental Downtown Properties, LLC, Historic Preservation Fund 2016 LLC, Tax Matters Partner, Docket No. 6084-21, filed 5/31/23, which I did not blog, as Salacoa Stone Quarry brought IRS’ summary J for chops into high relief that date. Scope out Continental Downtown for some further observations by Judge Scholar Pat.

But IRS has a twist that they didn’t assert against the Continentals.

“The Commissioner offers one argument that we did not consider in the related case, arguing that Del Monte’s donation of development rights is not a donation of a qualified real property interest.  The Commissioner contends that the development rights were encompassed in the definition of the façade relating to ‘height’ and thus were redundant. The Commissioner further argues that, to the extent that the development rights were not redundant, the restrictions on them ‘represent the contribution of a property interest which is far less than the entirety of the property, as required by Section 170(h)(2)(A).’ And the Commissioner asserts that Del Monte failed to satisfy various requirements (i.e., a contemporaneous written acknowledgement and qualified appraisal) for the development rights to be considered under section 170(h)(2)(C).” Order, at pp. 4-5.

And this very much matters, because the Montes’ appraisal of the worth of the development rights far o’ercrowed the worth of the restrictions on the façade.

“The [Montes’] appraisal determined that $52,000 of the diminution in value was attributable to the restrictions on the building façade, leaving $18,750,000 attributable to restrictions on development.” Order, at p. 3. So if the donation of the development rights was defective, the donation of the façade was worth bortscht. (Please pardon an arcane technical phrase).

Hence the title hereof. Development rights above the existing structure, where zoning and building codes would allow a vertical extension of the existing structure, can have great value. On this Minor Outlying Island off the Coast of North America, where I reside, we have the Villard Houses (landmarks) and the Palace Hotel, and Citicorp Center and St. Peter’s Lutheran Church (not landmarked, but the Church’s footprint allowed a skyscraper, with the Church below grade). Structures built over existing structures are known as “lollipops,” from their obvious resemblance. The right to erect a lollipop can have substantial value.

I award IRS’ trusty counsel a Taishoff “Good Move.” I don’t know which of the five (count ’em, five) IRS attorneys named in the docket search came up with this, but I know their adversary, The Great Chieftain of The Jersey Boys, will have a stunning response.

Because IRS doesn’t get summary J. “If we resolve doubts in favor of the non-movant (as Rule 121 requires), we must conclude that the deed contains considerable ambiguity with respect to the development rights (particularly in light of the reference to ‘height’ in the definition of the façade), which may necessitate a factual inquiry into the parties’ intent. That inquiry will also inform our consideration of the scope and applicability of the appraisal and contemporaneous written acknowledgement obtained by Del Monte. These issues are thus not amenable to summary adjudication.” Order, at p. 5.

Adam Sowards, T. C. Memo. 2023-99, filed 8/3/23, loses both Child Tax Credit and Additional Child Tax Credit for his numberless children, even though everyone agrees he has four (count ’em, four) who might qualify. Ditto for his EITC and recovery rebate credit, for his non-US citizen wife. Problem is, for years at issue, they had no SSNs.

Judge Gale judge-‘splains: “Petitioner’s spouse (whom he married in 2003) did not have an SSN because she was not a citizen of the United States. Petitioner also had not obtained SSNs for his children because he had intended (consistent with his religious beliefs, which include conscientious objection to public insurance and reliance on government benefits) to allow his children to decide at an appropriate age whether they wished to participate in the Social Security system.” T. C. Memo. 2023-99, at p. 3.

Adam had a back-and-forth with IRS (corroboration scarce) over getting ITINs, but we all know you can’t get an ITIN if you can get an SSN. So Adam’s claims for CTC and ACTC get bounced for Section 6213(b)(1), (g)(2) math or clericals, hence no SNOD, so Adam can contest at CDP (no prior opportunity). In the meantime, the argy-bargy over ITINs drags on until the PATH Act ups the ante for the credits, so when Adam finally caves, gets the SSNs for the kiddies, and files amended returns claiming the credits, Section 24(e) as amended by the PATH Act says he’s too late with the SSNs.

Adam also loses EITC and recovery rebate credit because Mrs. Adam had no SSN, as she was not a US citizen.

Adam turns to Chris Bourell, Esq., and his trusty Rocketguys at the University of Toledo Tax Controversy Clinic.

The Rocketguys claim unconstitutional retroactivity of the Section 24(e) amendment, but Judge Gale isn’t having it. “…the PATH Act’s amendments to the section 24(e) identification number requirements expressly apply to returns, and amendments and supplements to returns, filed after the date of its enactment. See PATH Act § 205(c)(1), 129 Stat. at 3081. Thus, by its terms, the amended version of section 24(e) applies only prospectively, to documents (like petitioner’s amended returns) filed after enactment of the PATH Act.” T. C. Memo. 2023-99, at p. 14. That it changed Adam’s expectation of what the law would continue to be doesn’t make it retroactive.

No one’s life, liberty, property, or sanity is safe while Congress…but this is a nonpolitical blog.

And of course any mistaken advice on the law from IRS’ agents doesn’t create estoppel.

Free exercise of religion doesn’t get it, either. See Miller v. Com’r, 114 T. C. 511, 6/23/00, at pp. 516-518.

Adam loses.

No, once again it’s nothing about tin whistles or foghorns; for that, see Lonnie Donegan’s 1959 cover of the 1924 Billy Rose, Ernest Breuer, and Marty Bloom chewing gum canzone.

Once again, Tax Court needs to unleash a full-dress T. C. because ex-Ch J Maurice B (“Mighty Mo”) Foley omitted from his last updating of Tax Court Rules of Procedure and Practice the equivalent of FRCP 41, allowing a petitioner to dismiss non-6213 deficiency petitions.

We all know that, in a Section 6213 deficiency case, once Tax Court has jurisdiction dismissal must simultaneously result in entry of decision for IRS in the full amount of the SNOD, per Section 7459(d).

Ex-Ch J Mighty Mo has the full list of Tax Court cases where a voluntary dismissal of the petition is permitted without entry of decision in Joseph E. Abe, DDS, Inc., 161 T. C. 1, filed 8/3/23, at p. 3.

“In nondeficiency cases filed pursuant to Code sections other than section 6213, this Court has previously granted taxpayers’ motions to dismiss or withdraw petitions. See generally Stein v. Commissioner, 156 T.C. 167 (2021) (administrative costs pursuant to section 7430(f)(2)); Mainstay, 156 T.C. at 100 (failure to abate interest pursuant to section 6404(h)); Jacobson v. Commissioner, 148 T.C. 68 (2017) (whistleblower awards pursuant to section 7623(b)(4)); Davidson v. Commissioner, 144 T.C. 273 (2015) (innocent spouse determinations pursuant to section 6015(e)); Wagner v. Commissioner, 118 T.C. 330 (2002) (collection actions pursuant to sections 6320(c) and 6330(d)). Section 6213 was not applicable to these nondeficiency cases and therefore section 7459(d) did not mandate entry of decisions in the Commissioner’s favor upon the dismissals. See, e.g., Stein, 156 T.C. at 169.”

Joseph D. Abe, DDS, is a CA corp which petitioned a revocation of its pension plan qualification per Section 7476, seeking a declaration that the plan was OK. Now they want to dismiss their petition. No background facts are given, so we are left unenlightened as to why they petitioned and why they want to dismiss.

Regardless, ex-Ch J Mighty Mo, seeing IRS doesn’t object to dismissal, tosses the petition.