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.

All my faithful readers will doubtless recall S. Rep. No. 105-174, at 65 (1998). This document denounced the rogue IRS examiners who brandished heavy-duty penalties wherewith to bludgeon settlements out of terrified taxpayers with meritorious ciaims but without cash to pay high-priced counsel.  There resulted Section 6751(b), the Boss Hoss sign-off.

Of course, this was diluted to the point where a random chickenscratch was sufficient, whether the chickenscratcher so much as looked at the CPAF before e-signing.

Formerly, the joust concerning the date of the chickenscratch and the first intimation of chops to petitioner took place toward the end of trial. But necessity is the mother of cliché. Confronted with the syndicated conservation easement tsunami, and witnessing the short-Circuiting of IRS’ carefully-constructed “highly contestable readings of what it means to be perpetual,” IRS pulled the hysteron proteron.

IRS moves for partial summary J that the Boss Hossery is A-OK.

Rock Cliff Reserve, LLC, Five Rivers Conservation Group, LLC, Tax Matters Partner, et al., Docket No. 12482-20, filed 7/10/23, is part of a consolidated group facing “(1) a section 6662(h) gross valuation misstatement penalty; (2) a section 6662A accuracy-related penalty on understatements with respect to reportable transactions; (3) a section 6662(e) substantial valuation misstatement penalty; (4) a section 6662(d) substantial understatement penalty; and (5) a section 6662(c) negligence penalty. These penalties corresponded to the downwards adjustment of the amount of charitable contribution deductions claimed by petitioners.” Order, at p. 2.

There followed “a second set of penalty approval forms, which listed a section 6662(a) accuracy-related penalty on the basis of both negligence or disregard of rules or regulations and substantial understatement of income tax. These penalties corresponded to the downward adjustment of the amount of other deductions claimed by petitioners.” Idem, as my expensive colleagues would say.

Despite the Five River gang’s defense, IRS prevails, and the chops stick.

“Both penalty approval forms were electronically signed by Ms. S before the issuance of the FPAAs to the TMP of petitioners, at a time when Ms. S still possessed the discretion to withhold approval. See Kroner v. Commissioner, 48 F.4th at 1279 n.1; Laidlaw’s Harley Davidson Sales, Inc. v. Commissioner, 29 F.4th 1066, 1071 (9th Cir. 2022), rev’g and remanding 154 T.C. 68 (2020). As this Court has repeatedly held, ‘a manager’s signature on a civil penalty approval form, without more, is sufficient to satisfy the statutory requirements’ of section 6751(b)(1). See Salacoa Stone Quarry, LLC v. Commissioner, T.C. Memo. 2023-68, at *6.” Order, at p. 4. (Name omitted). I have blogged all, or almost all, of these.

The Five River gang’s attempt to gin up a fact question based on want of a PDF-generated datestamp on the e-signed CPAFs founder upon the “general working principle” of presumed official regularity. Order, at p. 4, footnote 8.

So now the highrollers who bought into this consolidated dodge can contemplate the gargantuan gazumph into which the Five River syndicators have led them.

Nice bludgeoning, IRS.

I can’t quote the exact language from Judge James S (“Big Jim”) Halpern’s off-the-bencher in Kenneth G. Kozimer, Docket No. 13547-20S, filed 7/10/23, because the Genius Baristas have again issued the transcript in uncuttable format.

Briefly, Judge Big Jim disallows Ken’s pre-TCJA Section 212 deduction of $22K for custodial fees charged against his IRA. Judge Big Jim says Ken didn’t prove that he, rather than the custodian of the IRA, paid the fees from the IRA.

I think Judge Big Jim got it wrong: if Ken wants the deduction from this tax-favored vehicle, he has to take a distribution in that amount and then pay the fees himself. But if Ken is neither older than 59-1/2 years of age, nor a beneficiary of The Law of Fifty and Five, he’s got the 10% whatever-it-is, so he’s worse off claiming the deduction than letting it ride and hoping either he earns it back or his MRDs are lower whenever he has to take them because his balance is lower.

In any event, the rationale that the custodian paid the fees from Ken’s balance is no different than when I write a check and my bank, as custodian of my money, pays the check. If the issue is the tax-favored status of IRAs, then deemed distribution defeats the deduction.