Well, maybe counsel sneakier than I could, or even better, a top-fuel unmodified Class-A rounder. And get a full-dress T. C. out of it. Take a quick peek at Charles J. Weiss, 147 T. C. 6, filed 8/17/16.

For Chas’ rounderhood qualifications, see 147 T. C. 6, at p. 4, footnote 2.

Chas got a NITL for his six-year dodging, aggregating better than $550K.

Chas plays a stormer. “R [IRS] attempted to hand-deliver the levy notice during a field call on February 11 but was deterred by P’s [Chas’] dog.  Two days later R initiated the mailing of the levy notice by certified mail to P’s last known address.  R did not generate a new levy notice dated February 13; he enclosed in the envelope the original levy notice dated February 11.  P received the levy notice on February 17.  P completed Form 12153 requesting a collection due process (CDP) hearing for the tax years at issue and mailed it to R on either March 13 or 14.  R received it on March 16, which was a Monday.” 147 T. C. 6, at p. 1.

Note the dates. They are critical.

Chas claims he intentionally mailed the Form 12153 requesting a CDP one day late, viz., beyond the thirty-day cutoff, so he only should get an equivalent hearing, not a CDP. And that doesn’t stay collection while he’s being equivalented, nor does equivalenting stay the SOL on collections, so IRS is SOL.

“Respondent [IRS] contends that petitioner’s request for a CDP hearing was in fact timely because it was filed within 30 days of the date on which the IRS mailed him the notice of levy.  See sec. 6330(a)(3)(B).  Respondent acknowledges that the date appearing on the levy notice was at least two days earlier than the mailing date but argues that the mailing date dictates the start of the 30-day period where (as here) it is the later of the two dates.  Cf. Bongam v. Commissioner, 146 T.C. __, __ (slip op. at 11-12) (Feb. 11, 2016).  On this point we agree with respondent. Because petitioner has raised no other meaningful challenge to the settlement officer’s determination, we will sustain the proposed collection action.” 147 T. C. 6, at pp. 3-4.

Chas never did anything on the CDP, nor did his attorney (whom I’ll refer to hereinafter as “DP”), so the SO gave Chas the NOD.

For the story of Isaiah Bongam above-cited, see my blogpost “Getting the Nod,” 2/11/16.

If the SOL did run, then review for abuse or de novo doesn’t matter.

Asking for a CDP is enough to stay both SOL and collection, even if CDP is denied.

“’A taxpayer who fails to make a timely request for a CDP hearing is not entitled to a CDP hearing,’ but he may be afforded an ‘equivalent hearing.’  Sec. 301.6330-1(i)(1), Proced. & Admin. Regs.  Any relief afforded in an equivalent hearing is discretionary with the IRS; the ‘decision letter’ issued after such a hearing is not subject to judicial review.  Id. para. (i)(2), Q&A-16.  The collection period of limitations is not suspended during an equivalent hearing, and the IRS may thus proceed to collect the taxpayer’s liabilities.” 147 T. C. 6, at p. 16 (Citations omitted).

But no one has yet raised the question of the intentionally late Form 12153. I want to give Chas and DP (both of them attorneys, BTW) a Taishoff “Good Try, Hors Classe.”

“Although we have found no precedent that addresses the precise question involved here, a modest body of case law has developed on closely analogous questions.  When considering the timeliness of notices of deficiency under section 6213, we have encountered situations where the date on the notice did not match the date on which the notice was successfully mailed to the taxpayer.  Where the date on the notice was earlier than the date of mailing, we have held that ‘[t]he critical date is the date the deficiency notice was ‘mailed.’” 147 T. C. 6, at pp. 18-19 (Citations omitted).

But Judge Lauber leans heavily on Bongam above-cited. And that means the date of mailing, not the date of the NITL, controls.

“In so ruling, we are guided by the proposition that, in determining whether we have jurisdiction over a given matter, this Court and the Courts of Appeals have given our jurisdictional provisions a broad, practical construction rather than a narrow, technical one.  Acceptance of petitioner’s submission would disserve the interests of most taxpayers by converting the CDP hearing, in the scenario presented here, into an ‘equivalent hearing’ immune from judicial review.  When a statutory provision is capable of two interpretations, ‘we are inclined to adopt a construction which will permit us to retain jurisdiction without doing violence to the statutory language.’  Traxler v. Commissioner, 61 T.C. 97, 100 (1973).” 147 T. C. 6, at p. 21. (Footnote omitted).

Finally, DP tries to claim that the date of the notice is the same thing as the date on the notice, but Judge Lauber decries that as the Regs speak of mailing, whatever the date may be on whatever is in the letter.

IRS can’t prove the exact mailing date of the NITL, but here it doesn’t matter, because “the second month alone” had only 28 days that year, and the Form 12153 was stamped in by the flailing date-stampers at 400 Second Street, NW, on the morning of Day Thirty. So whenever the NITL was mailed, the Form 12153 got there on time.

DP and Chas don’t quit. They claim the NITL flunked the “simple and nontechnical language” provision of Section 6330(a)(3). But even if it does (a) there’s no statutory penalty for that, (b) the SO isn’t required to determine if the NITL is simple and nontechnical, and (c) even if the SO didn’t so find, Chas still sent in a Form 12153 and got his CDP. No hurt, no foul.

Though the IRM states the NITL must be mailed the same day as dated, that hasn’t the force of law or regulation.

Chas claims he was misled by IRS. Chas is an attorney. Estoppel against IRS is applied very sparingly.

As for prejudice, Mrs Chas threw away the envelope in which the NITL came. We attorneys know you never throw away envelopes; they can be invaluable evidence. Anyway, “Petitioner is an attorney; he studied the IRS publications he received; and he understood the difference between a CDP hearing and an ‘equivalent hearing.’  His testimony that he actually sought an ‘equivalent hearing’ was implausible for at least four reasons: (1) he did not check the box for ‘Equivalent Hearing’ despite two opportunities to do so; (2) the IRS during the pendency of an ‘equivalent hearing’ could begin immediate collection action, which was the last thing petitioner wanted; (3) any relief afforded by the IRS in an ‘equivalent hearing’ would be purely discretionary and not subject to judicial review; and (4) the CDP hearing that he requested would entitle him to judicial review and defer IRS collection action indefinitely, thus achieving the goals he expressed in his hearing request.  For all these reasons, we find no credible evidence to support his claim of prejudice.” 2016 T. C. 6, at p. 30.

Chas and DP go down swinging for the fences.

Ya really can’t make this stuff up.

No, says Judge Buch, IRS didn’t violate Section 7605 when they asked to reopen the audit of foreign withholding tax in the context of an income tax audit, in Dynamo Holdings Limited Partnership, Dynamo, GP, Inc., Tax Matters Partner, et al., Docket No. 8393-12, filed 8/16/16.

This case has provided much material for the discovery junkies. I’ve blogged a few orders, but I’m sure the “win your case at discovery” dudes will find a lot more.

I only wish Judge Buch would designate these orders. It’s ridiculous that I should have to be digging for this stuff at 8:30 p.m. on an August evening in a rainstorm. Oh well, that’s the price of leading the internet league, Tax Court division.

“Section 7605(b) provides that a taxpayer must not be ‘subjected to unnecessary examination or investigations, and only one inspection of a taxpayer’s books of account shall be made for each taxable year unless the taxpayer requests otherwise or unless the Secretary, after investigation, notifies the taxpayer in writing that an additional inspection is necessary.’ The purpose of section 7605(b) is to require revenue ‘agents to clear any repetitive examination with a superior’ to ensure that the agents ‘exercise prudent judgment in wielding the extensive powers granted to them by the [Code].’ United States v. Powell, 379 U.S. 48, 56 (1964).” Order, at p. 4.

IRS had closed the withholding audit and were working on the income tax audit when they dropped two IDRs on Dynamo, who told IRS to chase themselves.

“We have explained that the Commissioner does not conduct a second examination when he does not obtain any new information. Indeed, we have held that section 7605(b) ‘has no relationship to a redetermination of a taxpayer’s tax liability from the information procured by an agent of respondent on his initial inspection of a taxpayer’s books.’” Order, at pp. 12-13 (Citations omitted, but read them; essentially Section 7605(b) is meaningless).

So there was no second (or “secret”) examination, because Dynamo refused the IDRs. And IRS had whatever they needed anyway (or so they say). And IRS can make requests do double, or even triple, duty. So the IDRs can serve both withholding and income tax examinations.

Dynamo complained that the two RAs, the withholder and the income taxer, were consulting, but that’s not illegal.

The point apparently is that when Dynamo told IRS to take a hike, IRS got no new information, so there was no new examination. So exactly what purpose does Section 7605(b) serve?

Dynamo claims IRS didn’t follow Revenue Procedure 2005-32, sec. 5.01, 2005-1 C.B. 1206 and that the Territory Manager (who signed off on the IDRs) was biased. That cuts zero ice with Judge Buch. “Because we find that the Commissioner did not conduct a second examination, we do not need to reach these arguments. However, we note the well established rule that Revenue Procedures are directory and not mandatary [sic].” Order, at p. 7, footnote 4 (and I think you meant “mandatory,” Judge, not “mandatary”).

Dynamo wants the whole deficiency dropped because of the alleged IRS blooper, and there’s Seventh Circuit learning that says OK, but Dynamo is Golsenized elsewhere and Tax Court doesn’t like that Seventh Circuit case anyhow.

Summary J to IRS tossing Dynamo’s motions to produce documents and take testimony.

Maybe my old memory is slipping, but didn’t somebody in Philly on a hot July day comment that “he hath erected a multitude of new offices, and hath sent hither swarms of officers, to harass our people and eat out their substance”?

Among my other tasks on this blog is to try, in my own humble way, to make a wee bit of sense out of what comes from the judicial gristmill; speaking of gristmills, I’ll spare you W. H. Auden’s classic limerick.

However, when it comes to innocent spousery, I must throw up my hands.

Between threshold, streamline and the Big Seven Factors, falls a shadow. Here we go ‘round the lot, and come up guessing. The cases seem to be all over the lot.

But every so often the light of reason breaks through.

Case in point. Melissa A. Sermonetta, 2016 T. C. Sum. Op. 43, filed 8/16/16.

Mel and loved-once Chris are divorced. Mel was always salaried when she worked at all, and Chris ran a business close to his vest. Chris never let Mel see the real numbers, but she wasn’t forced into signing the MFJs for the years at issue.

And more than once Judge Chiechi notes that Mel would suffer no economic hardship if she didn’t get 6015(f) equity.

No abuse, no illness. Although their kids were sick “at least” during the years at issue, that doesn’t seem to enter into the calculus.

And though Mel’s parents had to bail out Chris and Mel twice when facing foreclosure, Judge Chiechi finds that Mel could have reasonably believed that Chris would stump up the $33K or so that they owed IRS.

And Mel had satisfied her tax obligations thereafter. Judge Chiechi points out that Mel was earning $64K per year after the trial at a Big Four accounting firm.

Mel gets innocent spousery.

I was looking at the facts and trying to figure out how that could happen. Joint return, no abuse, no duress, no hardship, no health issues for Mel, kids’ health issues apparently not that bad…but then I found the answer.

Judge Chiechi: “It is respondent’s position that Ms. Simonetta is not entitled to the relief under section 6015(f) that she is seeking.  In support of that position, respondent called Mr. Simonetta as respondent’s witness at the trial in this case.  We did not find Mr. Simonetta to be credible.  We shall not rely on his testimony in order to establish respondent’s position (and his) that Ms. Simonetta is not entitled to relief under section 6015(f) with respect to each of the Simonettas’ taxable years….” 2016 T. C. Sum. Op. 43, at p. 12.

Forget factors. If IRS puts on the ex, and the ex doesn’t wow the judge, fuggedaboutit.

Mark L. Nebeker, 2016 T. C. Memo. 155, filed 8/16/16, is singing that old gospel song Pete Seeger and the Weavers sang sixty years ago at Carnegie Hall (and no, I wasn’t there, but I had rich friends who had the record).

Relying on his trusty CPA, Marty de K (name disguised), Mark tried to match his income with expenses, but as he reported it all on the Sched C as “cash basis,” that doesn’t fly.

Mark was a consultant; I’ll spare you the joke about the cat in the nighttime. Mark was a successful consultant, helping out some very heavy-hitting aerospace outfits. Mark had a bunch of subcontractors he had to pay whether or not the customers forked over. And sometimes the customers held off paying for 90 days or more. Or even into the next tax year.

Tell me about it.

Mark had to code his receipts and expenses very carefully, to match same with clients, because he might get a heavy-duty audit at any time from the Big Four beancounters who service the heavy hitters aforesaid.

So Marty de K, seeing Mark way behind in Year One of his one-man show, asked why Mark was sticking with the big cash loser. Mark showed what the heavies owed him.

Marty de K, who had credentials, set up the matching game for Mark.

So Mark deducted expenses in the tax year when he got paid, even though he’d paid those expenses in a previous tax year.

IRS says no. Mark and Marty de K say “any method that accurately states income.”

Judge Goeke has little to guide him, but goes with IRS.

“The parties give us little in the way of authority to address their disagreement, but section 1.446-1(c)(1)(iv)(a), Income Tax Regs., convinces us that respondent was correct to adjust the method the [Mark] used.  The more difficult question is whether respondent’s change requires the application of section 481.” 2016 T. C. Memo. 155, at p. 12 (Footnote omitted, but it’s coming).

Section 481 is the you-gotta-adjust-when-you-change-method-without-IRS-blessing.

Here’s the footnote: “Any combination of the methods of accounting set out in sec. 446 is permitted in connection with a trade or business if the combination clearly reflects income and is consistently used.  Sec. 1.446-1(c)(1)(iv)(a), Income Tax Regs. Here, use of the cash method in computing gross income from a trade or business necessitates use of the cash method in computing expenses of the trade or business.  Petitioner failed to clearly reflect income because he applied a method of deducting subcontractor expenses that was inconsistent with the cash method of accounting.  See, e.g., Grider v. Commissioner, T.C. Memo. 1999-417 (holding that a taxpayer’s method of accounting that is plainly contrary to the regulations does not clearly reflect income).” 2016 T. C. Memo. 155, at p. 12, footnote 3.

So it looks like Mark will have to get adjusted.

“Section 446(e) provides authority for respondent’s adjustment of [Mark’s]  method of accounting.  Section 446(e) provides that a taxpayer who changes the method of accounting on the basis of which he regularly computes his income in keeping his books shall, before computing his taxable income under the new method, secure the consent of the Secretary.  Petitioner never filed an application to change the method of accounting, nor did he follow the procedure for automatic consent laid out in Rev. Proc. 97-27, 1997-1 C.B. 680.  Under section 446(e) respondent can require [Mark] to abandon the new method of accounting and to report taxable income using the old method of accounting.” 2016 T. C. Memo. 155, at p. 13.

Section 446(e) precludes Mark from changing even if he asked for permission.

So Mark has to get adjusted, and IRS will help with a Section 155 beancount.

Mark also had a problem with advertising expenses he tried to take for some bike tours in Europe.

But Marty de K has enough credentials, and Mark enough innocence and straightforwardness, for Judge Goeke to give Mark a free ride on the chops.

I expect the trade press and blogosphere will pick up today’s opinion on the remands from Second and Ninth Circuits to Tax Court of Diebold and Salus Mundi, two of the early trans-fat cats in the Section 6901 transferee liability herd. It was another roundy-rounder liquidating distribution, with the only argument being the short-year as a cutoff for liability. Tax Court didn’t buy it, as it was all of a piece with the main dodge.

I was more interested in twice-burned Carolyn Rogers, 2016 T. C. Memo. 152, filed 8/15/16, a real hard-luck story.

Carolyn got burned out of her New York City coop apartment twice, had to flee the “dehumanizing” YWCA to go couch-surfing, and finally fell off a subway platform and fractured her skull.

She’d always filed timely and paid up before. In the year at issue, when all these various calamities had peaked, she thought that she could take the casualty loss from the second burn-out in the year she got the short payment from her long-suffering insurer.

Liberty Mutual, you did good.

But IRS wants to nail Carolyn for Section 6651(a)(1) late filing and Section 6651(a)(2) late paying.

And who better to bring justice to poor Carolyn but that eminent law firm, to which I refer as The Jersey Boys? They settle out the unpaid tax, leaving only the two additions aforesaid.

Judge Colvin is persuaded.

“Petitioner correctly handled her tax filings and payments before [the year at issue]. Petitioner testified that her losses from the [second] fire exceeded $150,000. She also testified that she believed her loss was deductible for the year she settled the insurance claim and that her casualty loss (to the extent not compensated by insurance) more than offset her [year at issue] income, obviating the requirement that she file a…return.” 2016 T. C. Memo. 152, at p. 8.

The usual late-filer, late-payers targets are high-level business types or chronic non-filer, non-payers. Carolyn was neither.

Carolyn was mistaken, but honestly mistaken. She got hit because there was no reasonable chance of recovery for the greatest part of the second-fire loss. Therefore that loss had to be recognized in the year of the fire, not year of settlement with insurer, hence the deficiency. Trying that issue was dicey at best, so settling was wise.

Carolyn’s conditions, catalogued by Judge Colvin, give ample facts and circumstances to conclude that nonfiling wasn’t a result of “conscious, intentional failure or reckless indifference to her tax filing obligations.” 2016 T. C. Memo. 152, at p. 11.

And the language of Section 6651(a)(2) late-payment is identical to the Section 6651(a)(1) nonfiling, so Carolyn is off the hook on that one, too.

I can’t think the deficiency here warranted a big fee, and the petitioner certainly wasn’t a last-three-digits highroller.

So a Taishoff “good job, first class” to The Jersey Boys.

Please pardon the feeble pun, but here’s an order from the formerly whimsical Judge Wherry (whimsical until Judge Posner in Seventh Circuit walloped him; see my blogpost “There Goes the Neighborhood,” 9/3/13) that brings me joy.

It’s Estate of Jane H. Gudie, Deceased Trust, Mary Helen Norberg, Trustee, Docket No. 19422-13L, filed 8/12/16, a day when I need some happy news.

I’m bouncing on the Amtrak Adirondack, late as usual, returning from a delightful Tale of Three Mountains, the Berkshires, the Green Mountains and the White Mountains, visiting family and touring beautiful country. Coming home after a great vacation is the worst, even with tickets to Yankee Stadium awaiting me.

When I first blogged this case, it looked like Mary Helen was bound for a bad day in Tax Court. The annuity-for-assets setup crafted by Mr Robert P. Hess of unstated qualifications looked like a sitting cliché.

But now the dénoument looks happier. Judge Wherry: “…the parties filed a Motion to Dismiss on the Grounds of Mootness stating that the gift tax at issue in this case for the year 1992 has been abated in full, including all penalties and interest.” Order, at p. 1.

And they get it.

And I said back in December, 2011, “Don’t expect surprises at trial or in the decision.” See my blogpost “The Case of the Reluctant Administrator,” 12/1/11.

I’m glad I was wrong, and I’d love to know more, but on a summer Friday with nothing simmering on the 400 Second Street, NW, burner, I’m glad to have it.

Jeffrey A. Wolf, Docket No. 23980-13 L, filed 8/11/16, has a really tough situation. He’s been badly injured. His petition from a NOD off a CDP has been adjourned three times. IRS wants an order to show cause why Jeff shouldn’t accept IRS’ 24 pages of stipulated facts. Pretrial briefs are due September 6. Trial is set for September 19.

And Jeff’s attorney moves for another adjournment to September 9 to respond to the OSC motion because “…’I will be out of the country and not returning to New York City until August 31, 2016’. The motion does not explain the reason counsel must be out of the country, nor whether that absence was scheduled before or after we issued our standing pretrial order. The motion does not attempt to reconcile his requested September 9 extension with the parties’ current September 6 pretrial deadlines.” Order, at p. 2.

In State Court, this would draw judicial lightning like Benny Franklin’s kite.

But Jeff has drawn that Obliging Jurist, Judge David Gustafson.

“The Court assumes the accuracy of petitioner’s counsel’s statements about his client’s condition, and the circumstances he describes are worthy of great sympathy.” Order, at p. 2.

He’s obliging, sympathetic–a real mensch, if I may use a technical term.

But I’m sure Ch J. L. Paige (“Iron Fist”) Marvel is looking over his shoulder.

“However, petitioner’s medical difficulties do not render the case moot nor, as far as we can tell, form a basis for resolving the case. One way or another, the Tax Court must decide the issues committed to its jurisdiction. If petitioner’s condition will not improve on a foreseeable schedule, then the case must be resolved in the best way possible.” Order, at p. 2.

And it doesn’t look like Jeff’s medical problems will go away any time soon.

So no continuance for absentee counsel.

“While counsel did not receive the Rule 91(f) motion until August 5, he has known since April 2016 that the parties must file a stipulation of facts at the beginning of trial, and he should have been working on that important task in any event. A review of respondent’s proposed stipulations shows that many of the assertions are of such a nature that petitioner’s counsel surely knows already what petitioner’s position is. If there are particular assertions therein for which a substantive response by August 26 is truly impossible, then petitioner’s response to the order to show cause can explain that. (This would presumably not include facts as to which the parties’ positions have been well ventilated in the briefing of the previous motions.) But petitioner’s response is needed by August 26 in order to maximize the possibility that the case can proceed on its current schedule.” Order, at p. 2 (Emphasis by the Court).

I’m out of town, too, but I keep blogging. And I did so while out of the country last fall. And incidentally practicing law as well. So do most of my colleagues; nothing special.

Judge Gale almost quotes The Bard in Estate Of George H. Bartell, Jr. Deceased, George David Bartell and Jean Louise Bartell Barber, Co-Personal Representatives and Estate Of Elizabeth Bartell, Deceased, George David Bartell and Jean Louise Bartell Barber, Co-Personal Representatives, et al., 147 T. C. 5, filed 8/10/16.

The Bartells ran a drugstore chain in Washington State for 100 years, but Walgreens and Rite-Aid were closing in, and the supermarkets in the strip malls wherein the Bartells flogged their medicaments were also getting in on the action, so the Bartells decided to go free-standing and ditch the strippers.

But this meant big capital gains. Jean Louise’s spouse was a broker and he told her the magic numbers: 1031. Real property swapped for real property is tax-free for income tax purposes.

See my blogpost “Form Matters – Part Deux,” 2/15/11, for the importance of magic language in such a deal.

The Bartells were doing a reverse 1031. They would buy the new before selling the old. They found a QI who knew how to paper the transaction.

The Bartells bankrolled the QI’s subsidiary AT (Accommodation Titleholder), which was a LLC shell with a loan from KeyBank (I represented them years ago) the Bartells guaranteed. Then the Bartells acted as construction manager for building their new store on the acquired land, negotiated easements and building permits, and triple-net-leased it from the AT until they could dump the old property.

This they did, using the proceeds from the dumped property to pay off KeyBank and get the new store from the AT.

IRS said taxable sale. Bartells said 1031.

There’s no question what happened. But did the Bartells do a deal with themselves?

“It has been observed that the ‘very essence of an exchange is the transfer of property between owners, while the mark of a sale is the receipt of cash for the property’. Carlton v. United States, 385 F.2d 238, 242 (5th Cir. 1967). A corollary of the requirement of a reciprocal transfer of property between owners is that the taxpayer not have owned the property purportedly received in the exchange before the exchange occurs; if he has, he has engaged in a nonreciprocal exchange with himself. ‘A taxpayer cannot engage in an exchange with himself; an exchange ordinarily requires a “reciprocal transfer of property, as distinguished from a transfer of property for money consideration”.’ DeCleene v. Commissioner, 115 T.C. 457, 469 (2000) (citation omitted).” 147 T. C. 5, at p. 32.

Note that the Bartells’ deals went down prior to Rev. Proc. 2000-37, 2000-40 I.R.B. 308, which gave us the 45 days to identify, 180 days to close rules. And their timing wouldn’t fly under today’s rules.

IRS wants benefits-and-burdens to determine ownership, and certainly the AT had none, as the Bartells indemnified them from all the ills that flesh is heir to. And indemnified KeyBank from jibsail to taffrail.

But the Bartells are Golsenized to Ninth Circuit, and Ninth Circuit expressly rejected benefits-and-burdens in the 1031 context.

The whole point of 1031, says Judge Gale, is form. As my abovecited blogpost noted.

In fact, there are Tax Court cases (see 147 T. C. 5, at p. 44) that permit the transferor to choose both relinquished and replacement properties, negotiate the deals, do the construction, and advance the money.

1031ers have much latitude. In the one benefits-and-burdens case that got the Tax Court nod, the transferor never used a QI. His deal was a give-and-go with the transferee, where the transferee got title subject to a buyback but never really had any skin in the game.

When the QI business got started with the 1986 Code, I wrote a comment to IRS that all Congress had done was create a new industry. And how!

“…where a section 1031 exchange is contemplated from the outset and a third-party exchange facilitator, rather than the taxpayer, takes title to the replacement property before the exchange, the exchange facilitator need not assume the benefits and burdens of ownership of the replacement property in order to be treated as its owner for section 1031 purposes before the exchange.” 147 T. C. 5, at pp. 58-59 (Footnote omitted).

And IRS’ argument that the cases involve reverse 1031s (old first, new second) and not forward 1031s (new first, old second), meets with a mox nix from Judge Gale.

And remember that broad latitude.

Now the Bartells did net-lease and run the replacement property before taking title and before selling the relinquished property, which no reported case ever dealt with, but broad latitude wins again.

There’s a lot of good language in this case for those fighting 1031s. Read it, and add the right quotes to your memo of law database.

Karen Kaplan, 2016 T. C. Memo. 149, filed 8/9/16, is an artist, art teacher and investor. She is also a habitual late-filer, but that isn’t the point. It’s also beside the point that Section 6214(b) bars Karen’s claim that her prior years’ overpayments should offset her tax year’s liability for the year at issue.

What is the point (and I can hear my readers saying “At last!”) is that an artist who contributes her own works to a charity, and can substantiate the contribution sufficiently for Section 170 and Reg. 1.170A-13(b)(1), is limited to a deduction not for the retail or fair market value of the contributed artwork, but only for what would amount to cost of goods sold.

Judge Vasquez: “…if the contributed property would produce ordinary income to the donor if sold at its fair market value, then the amount allowed as a deduction is limited to the donor’s cost or basis in the contributed property. Sec. 170(e)(1)(A); Chronicle Publ’g Co. v. Commissioner, 97 T.C. 445, 447-448 (1991). Such ordinary income property includes artwork created by the donor and property held by the donor primarily for sale to customers in the ordinary course of the donor’s trade or business. Sec. 1.170A-4(b)(1), Income Tax Regs.” 2016 T. C. Memo. 149, at pp. 12-13.

Karen can’t substantiate the cost of the materials needed for her hand-painted postcards, and Judge Vasquez can’t find enough in the record to Cohanize her into a Rule 155 beancount on that score.

“Considering that petitioner is an artist, that she created the postcards, and that she included her printed name on the reverse side with a copyright symbol, we believe that the postcards are similar to inventory and therefore ordinary income property limited to a cost or basis deduction. See sec. 170(e)(1)(A). Unfortunately for petitioner, we are unable to determine from the record her cost or basis in the postcards. Despite being given the opportunity at trial to provide such information, petitioner did not provide any relevant testimony or other evidence on this issue. Accordingly, petitioner is not entitled to deductions for her postcard contributions.” 2016 T. C. Memo. 149, at p. 13.

Takeaway for artists- Save the receipts for any materials you use. Could be very handy.

A strong entry in the Taishoff Best Excuse sweepstakes comes from Little Mountain Corporation, 2016 T. C. Memo. 147, filed 8/8/16.

When Judge Kerrigan is confronted with a $896K deduction for “consulting expenses,” paid by a corporation with no employees (so no W-2s), and which issued no 1099s, and which paid no dividends, she naturally asks “whassup wit’ that?” Especially since the corporation had over $1 million in gross profits.

So she gets minutes of a special meeting of directors (all family members), whereat it is agreed that another family member is to be paid as a consultant on a “by-the-job” basis, and to receive a bonus based upon stated gross income.

None of the invoices for the “consulting expenses” itemize what services were performed, nor could either the officer who made the payments nor the family member who received them testify with specificity what was done.

All the invoices for consulting fees requested checks in payment be written for less than $10K each. And be payable to “cash.” And were cashed by various individuals who had no apparent relationship to the corporation.

Would it surprise you to learn that the consultant didn’t bother to file a tax return for the years at issue because he “wouldn’t call it compensation.” 2016 T. C. Memo.147, at p. 9. (Name omitted.) (Footnote omitted, but it’s too good to skip, so here it is: “Mr. S’ testimony concerning his failure to have filed Federal income tax returns for the relevant periods is certainly consistent with the position he has taken on this point.” 2016 T. C. Memo. 147, at p. 9, footnote 3).(Name omitted).

You can see where this is going, so you might well wonder why I’m blogging this after a day of driving through the White Mountains, at peace with the world.

Well, I’m blogging this because of the title, derived from the testimony of the family member who wrote those checks.

“Petitioner provided no consulting fee schedule, hourly rate, or specific breakdown of Mr. S’ tasks. No written contract existed between petitioner and AFC or Mr. S. Mrs. S testified that there was only an oral agreement because ‘that’s how it’s done a lot of times in the South’.” 2016 T. C. Memo. 147, at p. 5. (Names omitted).

In the North, too. Sometimes.