Fernando Ponce and Natalie Ponce, T. C. Sum. Op. 2023-23, filed 7/18/23, show the burden of leadership as well as its reward. Fernando was a lead plaintiff in a wages-and-hours class action. These are a specialty du jour in service industries, where workers work off-the-clock to dodge Fair Labor Standards Act and State law analogs. Fernando got $15K for his trouble, and a 1099-MISC nonemployee compensation at no extra charge. The $15K never made it onto his and Nat’s 1040 MFJ.

Problem is that, though Fernando “traveled, took time off work, and regularly communicated with law firms in pursuing the litigation,” T. C. Sum. Op. 2023-23, at p. 4, he has no substantiation of any expenses to offset the $15K pickup.

STJ Peter (“HB”) Panuthos: “While we recognize that petitioner may have expended time and money to pursue his claim, from the record before us we are unable to conclude that the service award was a reimbursement for expenses incurred in pursuing the lawsuit or that it is excludable from petitioners’ income. Even if we were to find that the service award represented reimbursement for expenses, the record is vague and insufficient as to the nature of expenditures petitioner made in support of the lawsuit.” T. C. Sum. Op. 2023-23, at p. 4.

Fernando’s claim that IRS treated another lead differently founders.

“While we may give the Commissioner’s determinations involving another taxpayer some consideration, we are not bound by them. Even if we were to consider the documents concerning another taxpayer, the record does not support petitioners’ assertion that the service award is nontaxable. The documents concerning another taxpayer simply demonstrate the Commissioner had proposed changes to his tax return…and that a discrepancy had been resolved.” T. C. Sum. Op. 2023-23, at p. 4.

Takeaway- Leaders, keep good records.

I’ve said it often, any lawyer who can’t find an ambiguity should find another way to make a living. Happily, once again, that Obliging Jurist Judge David Gustafson proves beyond mayhap or peradventure that he has found the right way.

See Denise Celess Garris, Docket No. 22405-19L, filed 7/18/23. Of course, Judge Gustafson has a major assist from IRS and Appeals, who seem unable to decide if they gave Denise Celess a NITL or a NFTL or both, and what happened at Appeals; on a remand, Appeals sustained the NFTL but held the NITL “not now sustained.” Order, at p. 3.

Appeals’ one-size-fits-all NITL-NFTL NOD brings to Judge Gustafson’s memory his famous “and/or”. rant about the Ogden Sunseteers’ use of the ambiguous locution, Order, at p. 2, footnote 1.

Denise Celess wants a vacation of an agreed decision from sixteen (count ’em, sixteen) months ago. The agreed decision confirmed a stipulated installment agreement that Denise Celess claims IRS breached.

The record, however, is a wee bit scanty. “If … the IRS did issue (as it alleges) both a notice of lien filing and a notice of proposed levy, and if (as the IRS seems to assume) Ms. Garris requested a CDP hearing as to both lien and levy, then IRS Appeals’ … determination apparently addressed (and sustained) only the notice of lien filing, and did not constitute a determination as to the levy notice. Thus, Ms. Garris was granted a CDP hearing as to the lien; but as to the levy, the CDP process has not yet been completed.

“Therefore, on these assumptions, Ms. Garris did not have the predicate for filing a Tax Court petition as to any proposed levy. Rather, when she filed her petition, we acquired jurisdiction to review only the lien-based determinations in the… notice.” Order, at p. 5.

My readers will cry out with one voice “30-day SOL on vacations!” Yes, but there’s an exception where Tax Court never had jurisdiction to render the order or decision at issue. And here the supplemental NOD appears to deal with a NITL that never was before the Court. Maybe Boechler, P. C. tolls this mess. Or maybe so there is still a pending NITL CDP that neither Denise Celess nor Appeals knows about.

In any case, let IRS bukh about “…what a taxpayer’s remedy is when, after a CDP case sustaining a notice of determination after the taxpayer and IRS Appeals reached an agreement, the IRS fails (more than 30 days after decision is entered) to honor that agreement.” Order, at p. 6.

But this is Judge Gustafson. He’s a master of the “nudge nudge, wink wink.”

“The Tax Court operates under Congressionally mandated strictures that define what we can and cannot address. The parties sometimes have liberty to go beyond those strictures. This might be a case in which the parties can resolve any disputes more efficiently and justly than the courts can. We encourage them to attempt to do so.” Order, at p. 6.

Settle the case, guys. Before Judge Gustafson finds more ambiguities.

As IRS’ “highly contestable readings of what it means to be perpetual,” its dubious readings of odds and ends of TEFRA, and the APA battering at its Regs, goes on apace, IRS is thrown back on the appraisal joust as its point d’appui in the Dixieland Boondockery wars.

And the never-say-die approach of the trusty attorneys for Lake Jordan Holdings, LLC, Lake Jordan Partners, LLC, Tax Matters Partner, Docket No. 16532-21, filed 7/17/23, keeps both Judge Patrick J (“Scholar Pat”) Urda and this hardlaboring blogger hard at it.

IRS, fresh from last week’s no-score scuffle over the Laker’s TEFRA Section 708 termination (see my blogpost “No Storming This Bastille,” 7/14/23), is trying to insert the testimony of Kelli Friday, Chief Appraiser of Elmore County, whereat lies the Lakers’ dilithium-crystal-laden boondocks with its $12.74 million conservation easement deduction.

The Lakers yell “Foul!” claiming Kelli is playing the expert without complying with Rule 143(g).

Kelli will bukh about “1) the price-per-acre value of land in Elmore County as determined by the county’s Revenue Commissioner and (2) the valuation methodology the county used for tax assessments.” Order, at p. 1.

Now we all know the relevance of the tax assessments to the actual value of the land varies widely. See my blogposts “Quanto? Lo Prezzo,” 7/24/12, and “From Coast to Coast,” 5/8/17.

Judge Scholar Pat is willing to listen to Kelli, so he won’t now bar her testimony (as the Lakers want), but if she steps over the line and tries to value the Lakers’ property, she’s out.

“From our current distance, it appears that the established price-per-acre value of land in Elmore County (as determined by the Revenue Commissioner) and a description of the county’s valuation methodology would constitute permissible lay testimony – assuming arguendo that the Commissioner could establish the relevance of this information. If Ms. Friday’s testimony strays into expert opinion as to valuation of the property at issue in this case, we would expect to sustain an objection as improper expert testimony in contravention of Rule 143(g).” Order, at pp. 1-2.

Cash-strapped IRS wants to avoid expensive experts. Watch for similar moves.

Cassandra Tucker and Edward Brodie, T. C. Memo. 2023-87, filed 7/17/23, have plenty of problems, but most arise from Cassandra’s want of records for her fashion lifestyle business, and that’s just more indocumentado.

Judge Tamara Ashford does allow Cassandra the $25K deduction for the extended visit she paid (with goods and models) to a limited access TV channel. Infomercials are advertising. See T. C. Memo. 2023-87, at p. 14.

“Nowadays, advertising through media comes in many different forms, from traditional forms, such as broadcast (i.e., television and radio) and print (i.e., newspapers, magazines, signs, and billboards), to new forms, such as websites, apps, emails, podcasts, blogs, and social networks. We view Ms. Tucker’s appearance promoting [business] on the Hidden Gemz television show as the equivalent of an extended, live television commercial, more along the lines of a traditional form of advertising through media. Furthermore, it is apparent that Ms. Tucker’s primary motive or purpose in appearing on the show was to increase [business]’s visibility and in turn generate sales of [business] products. Thus, on the basis of the record before us, we conclude that the expenses Ms. Tucker incurred by appearing on the show had a reasonably proximate relationship to [business] and Ms. Tucker’s primary motive or purpose for incurring the expenses…; thus, petitioners are entitled to deduct advertising expenses….” (Citations omitted).

Ed ran a rental realty operation with his friend Nassy, and they paid deductible mortgage interest. Problem was, Ed couldn’t prove what he paid. While they were tenants-in-common (presumably fifty-fifty), and while Ed claimed he ran and paid everything, and Nassy was passive, Ed had neither checks nor receipts for what was paid.

“Where a mortgaged property is jointly owned and the co-owners are jointly liable on the mortgage, each owner is entitled to a deduction for the mortgage interest that he or she actually pays out of his own funds.” T. C. Memo. 2023-87, at p. 21. (Citations omitted).

When you’re a partner, be you active or passive, nothing succeeds like paper.

United States Tax Court electronicutes the Biennial Slaughter of the Innocents, s/a/k/a the written examination for applicants other than attorneys at law (nonattorney applicants) for admission to practice before the United States Tax Court. Applications opened today; check out the (amended) press release.

Note the exam is scheduled for November 8, 2023, and is online only, using the ExamSoft platform. The Tax Court exam casualty list proves that this exam is anything but soft.

Dixieland Boondockery is giving partial summary J a real workout, as IRS and the Dixie Boondockers both want partial summary J every chance they get. Today, it’s the turn of Lake Jordan Holdings, LLC, Lake Jordan Partners, LLC, Tax Matters Partner, Docket No. 16532-21, filed 7/14/23. But the mutual storming of the partial summary J Bastille is less successful than the one France celebrates today.

Judge Patrick J. (“Scholar Pat”) Urda succeeds where the French guards failed, and refuses partial summary J to the Lakers and IRS. Y’all will recollect IRS did the Boss Hoss partial summary J slice back in April; if you don’t, see my blogpost “Wagging the Cattail,” 4/28/23. Maybe so it might could be that maneuver tipped off the Lakers; as my late law partner Sid used to say “Win the motion, educate your adversary.”

Now the issue is the tax year in which the Lakers claimed the $12.7 million conservation easement deduction for the land it bought the month before for $583K; oh, those dilithium crystals!

The original owners formed Holdings box-checked as a partnership and contributed the land in November; they unloaded 96% to Partners on December 29, 2017 and the same day recorded the easement in gross to the 501(c)(3).

Now all my jagged sophisticated readers will yell “TEFRA version of Section 708(b)(1)(B) termination! Holdings ceased to exist at transfer, so they couldn’t record anything!”

Except.

“Lake Jordan filed two short-year tax returns. The first covered the period from September 25, 2017 through December 28, 2017 (12/28 tax year). The second spanned the three days from December 29, 2017 through December 31, 2017 (12/31 tax year). Lake Jordan claimed a charitable contribution deduction of $12,740,000 for its donation of the easement on the 12/31 tax year return.” Order, at p. 2. (Citations omitted).  The FPAA covered the 12/31 year.

IRS claims the 12/31 year began 12/30, not 12/29.”He [Com’r] points out that Lake Jordan’s initial 2017 short tax year closes on the date that the partnership underwent the technical termination, i.e., December 29, 2017, and contends that its tax reporting encompasses all events that occur on that date. Drawing on Treas. Reg. §§ 1.708-1(d)(2)(i) and 1.443-1(a)(1), the Commissioner posits that the new post-termination partnership does not open its books for tax reporting purposes until the following day, i.e., December 30, 2017. The Commissioner concludes that the claim of the charitable contribution deduction on Lake Jordan’s 12/31 tax year return thus was claimed in the wrong tax year under section 170(a)(1) and must be disallowed.” Order, at p. 3. (Citations omitted).

The Lakers counter with creation of a new partnership immediately after the technical termination, emphasizing that this new entity donated the conservation easement. Their reporting reflected reality, and nothing in IRC or Regs  prohibits such treatment in the context of technical terminations.

Judge Scholar Pat, living up to his cognomen, is unimpressed by both sides’ reasoning.

“Neither party has provided a convincing explanation of the statutory and regulatory scheme that governs tax reporting in the context of technical terminations. To the contrary, each party has focused on one aspect of technical terminations (for the Commissioner, the close of the terminated partnership’s taxable year on December 29; for Lake Jordan, the existence of the new partnership immediately after the technical termination), while failing to demonstrate that those aspects dictate their preferred answers with respect to proper tax reporting. We will not render a decision on this point absent a more solid understanding of tax reporting in this context, which we trust the parties will provide in their posttrial briefing.” Order, at pp. 3-4. (Footnote omitted).

The omitted footnote abovementioned says that summary J doesn’t prevent the need for a trial, as chops (presumably enhanced overvaluation and understatement) and defenses thereto are still on the table.

Note the dates: The Lakers got in on 12/31/17, the last day of TEFRA (BBA 2015 repealed TEFRA effective years beginning 1/1/18). Did the Lakers get the Job 5:12 treatment?

Poker aficionados, of the type who watch endless youtube hours of the exploits of Messrs. Negreanu, Hellmuth, Ivey, et al., doubtless would be invoking the headline hereof long before Judge David Gustafson does so.

Briefly to explain, at tournament hold ’em one has thirty (count ’em, thirty) seconds within which to fold, call or raise, at every turn. One has a limited number of cards, wherewith to buy a thirty-second extension. Players, of course, try to husband these, and stall until another player “calls the clock,” invoking the tournament staff to commence a final non-extendable thirty second extension.

Judge Gustafson finds that such a rule might be well-suited to the Ogden Sunseteers, whose lethargic ways have become commonplace. Here again is blower Richard E. Lacey II, Docket No. 9761-16W, filed 7/13/23.

Back in 2020, Judge Gustafson remanded Rich back to Ogden. The Sunseteers were careful as always not to strain themselves.

“In the more than three years since then, the WBO has been reviewing Mr. Lacey’s claim. On May 4, 2023, the WBO issued to Mr. Lacey a Preliminary Denial Letter. Mr. Lacey provided comments dated May 31, 2023. Given the age of this case, we expect that the WBO is giving prompt consideration to Mr. Lacey’s comments.” Order, at p. 1.

“Prompt consideration” in Judge Gustafson’s courtroom means the sooner of “(a) 30 days after the date on which the WBO issues a final ruling on Mr. Lacey’s claim, or (b) October 5, 2023.” Order, at p. 1.

I am surprised the Ogden Sunseteers didn’t invoke Mandy Mobley Li, the gift that keeps on giving, and claim “got nuttin’, go ‘way.”

But as Rich is hanging in there, it is as well that someone calls the clock.

It seems Judge Elizabeth Crewson Paris has joined STJ Adam B. (“Sport”) Landy on the Tax Court order board anonymous squad. Their SPTOs now appear without their names. Are there more to come?

Janet R. Braen, et al., T.C. Memo. 2023-85, filed 7/11/23 had her hash and the als’ hash settled long before Judge Patrick J. (“Scholar Pat”) Urda got this case. Janet and the family Sub S were trying to add some granite to their quarrying empire in Rockland County, NY. They spent $3.4 million buying the land, but found out that NYs NIMBY crowd were a lot harder to deal with than granite.

After knocking heads with town and village, Our Fair State’s Department of Environmental Conservation saw Janet and the als off conclusively. So Janet and the als sued the town to undo a particularly comprehensive zoning plan that would have shredded whatever was left of their equity. To settle, the town dropped the zoning, and Janet and the als sold most of the land to the town in what they claimed was a bargain sale, and claimed a hefty Section 170 charitable.

I won’t go into the battling appraisals, except to state that Excelsiorland boondockery takes second place to no one, certainly not Dixieland boondockery.

Of course, notwithstanding a couple CPAs in attendance (hi, Judge Holmes), Janet and the als get the Form 8283 wrong, and the post-event Contemporaneous Written Acknowledgement from the town attorney spills the beans on the settlement.

Quid pro quo means no deduction. See my blogpost “Listen to Your Lawyer,” 6/19/14, for a case that Judge Scholar Pat quotes in extenso.

So the deduction being toast, the boondockery mix-and-match only serves to hand Janet and the als the substantial valuation misstatements chop.

They settled, and that settled their hash.

Edited to add, 7/15/23: Maybe this case isn’t a one-off.

https://www.msn.com/en-us/news/crime/ramapo-settles-civil-rights-lawsuit-with-developer-claiming-corruption-for-3m/ar-AA1dSqTl?ocid=mailsignout&pc=U591&cvid=fa8ae608826844369b9d117ef37455c4&ei=11

Judge Tamara Ashford has to slalom through two Circuits (11 and 4), as the real estate development and sales operations of William G. Allen, T. C. Memo. 2023-86, filed 7/11/23, span NC, FL, SC, and TX. And Mr. A has split up his operations among S Corps, LLCs, LPs, and trusts, so as to effect what old sailors called “waterpart contankments.”

“He testified that his goal was to limit liability, and he did that by creating many different legal entities which held few assets that judgment creditors could go after.” T. C. Memo. 2023-86, at p. 23. Judge Ashford cannot tell how well said unrelated creditors may have fared, but when Mr. A. claimed telephone numbers in bad debts when the cash he funneled to these multifarious outfits vaporized, their thin capitalization, interrelatedness, and inability to raise funds from any conventional lender sinks the whole bunch.

Judge Ashford compares and contrasts 4 Cir’s and 11 Cir’s debt-vs-equity approach, and chooses 11 Cir as more comprehensive (13 categories, while 4 Cir has only 11).

While Mr A wins three categories (there are notes, they had fixed maturities although some of these were subsequently amended,  the “debt” did not give rise to enhanced control over debtors as Mr. A. controlled them all to begin with, and there was some marginal priority over other creditors), there were none of the usual lender safeguards (no effort to enforce, and no real right to enforce, no interest payments and only spotty principal repayments), thin capitalization (Mr. A’s sterling reputation. and business acumen are too intangible, and every business should have those), repayment contingent upon success and not operations, no outside lender would lend on these terms, and the rest are neutral.

Mr. A. never consulted anyone before he prepared the relevant tax returns, so no good faith reliance.

Takeaway- Pretty paper doesn’t go very far.