For the uninitiated, this was a variant on the advertising slogan of a well-known, now defunct, local clothier: it meant, settle the case or pick a jury, I’m through with this.

In memory’s ear I hear again those words in the disgusted grunt of a judge’s law secretary, fed up with attorneys’ morning-of-trial gameplaying and motion-jousting, in the courtrooms of 60 Centre in my young day so long ago. State Court Judges never bothered with this stuff; they had crowded dockets and an administrative judge who bashed the indolent, so they sent their law secretaries to deal with this.

I remember one such moment thirty (count ’em, thirty) years ago, with a judge’s law secretary, now a distinguished jurist who recently presided over an ultra-high-profile case. He threw us out; we went to trial.

STJ Jennifer E. (“Publius”) Siegel is too young to remember this, or possibly never did much State court work on this Minor Outlying Island off the Coast of North America. See my blogpost “Everything That’s Wrong,” 2/21/24.

Likewise Judge Mark V. (“Vittorio Emanuele”) Holmes’ illustrious career took him to Federal court even in his young days. But after reading Ardan Holdings, LLC, Ardan Investors, LLC, Tax Matters Partner, Docket No.: 17483-21, filed 2/23/24, may I respectfully offer that which is first written at the head hereof for His Honor’s consideration?

The jousting and gameplaying go on unabated, with a bunch motions (hi, Judge Holmes).

IRS wants to toss one of the Ardans’ experts, an appraiser and instructor who has issues with USPAP (Uniform Standards of Professional Appraisal Practice, Congressional touchstone for appraisers) “before” standards, specifically whether to weigh potential HBU (Highest and Best Use) competitors. Said expert, who is also an attorney, wants to beat up on Reg Section 1.170A-14(h)(3)(i). IRS claims his report violates Rule 143 and Fed. R. Evid. 702, being improper legal conclusions. Judge Holmes is down with tossing the legalities, but the expert is qualified, so when he sticks to appraisal, he’s in.

So is Ardans’ other mayvinn (please pardon arcane technical term). It’s a two-handed report, but one of the hands is unavailable to testify. That can DQ the experts’ report, as one of the witnesses is unavailable for cross, and the one available can’t testify s/he wrote every word. But Tax Court has awakened (I daren’t say “awoke” in a nonpolitical blog) to the fact that there are firms of appraisers, experts working together, such as is the case here.

As Judge Halpern said in Carter, “Requiring every word in an expert report to be identified with an individual author who is available to testify would greatly hinder our ability to rely on experts who work in firms. The larger and more complex the matter, and the more participants needed to prepare a report, the less likely its admission into evidence would be.” Order, at p. 3. For the backstory on Carter, see my blogpost “Judge Holmes Got It Right,” 11/6/23.

And IRS’ counsel can sweat the available expert on cross-examination.

IRS wants to toss Ardans’ trusty attorneys’ testimony about good-faith reliance, because said attorneys invoked client-attorney privilege in discovery. But good-faith reliance was always on the menu, the attorneys were listed in IDRs, and Ardans’ invocation of their trusty attorneys’ advice makes the whole thing free-fire on the trial.

IRS filed a motion to amend the answer to raise its latest let’s-avoid-trial menu, namely, chain-of-title, disguised sale, and non-bona fide partnership.  See my blogpost “When Fact Met Law,” 1/19/24 for more.

Judge Holmes: “We’re not persuaded that these issues require new evidence. While disguised sale, chain of title, and bona fide partnership may be, as petitioner argues, mixed issues of law and fact, we think that they’re just components of the valuation issue because they are logically related to petitioner’s basis in the property. They have also been the subject of extensive discovery, so we don’t find that petitioner has been surprised or put at a substantial disadvantage.” Order, at p. 5.

Note that this fandango is scheduled for trial in Columbia, SC, on Monday (2/26/24). So all this jive got dumped on Judges Holmes and STJ Siegel fourteen (count ’em, fourteen) days before trial, in a case commenced two-and-a-half years ago.

Had enough? But, as the telehucksters say at 3 a.m., wait, there’s more!

The Ardans moves to toss some witnesses IRS wants to wild-card in via a motion to amend its witness list.

“Three days after petitioner filed its motion [filed 2/12/24], respondent moved for leave to supplement his witness list. We’ll rule on both in a later order.” Order, at p. 5.

When?

Taishoff most respectfully suggests that the words first written at the head hereof be repeated, long and loud.

A couple hints (hi, Judge Holmes) from today’s Orders pile.

Judge Patrick J. (“Scholar Pat”) Urda turns over the other side of the “win-your-case-at-discovery” coin in Lontrac Enterprises, LLC, Lontrac Investors, LLC, Tax Matters Partner, Docket No. 272-18, filed 2/22/24. Lontrac’s  trusty attorneys get run over by Greenberg’s Express as they attempt to go into what happened at audit. Whether their client cooperated at exam sufficiently to shift BoP per Section 7491 is best left for trial. True, IRS was parsimonious with reasons why the “Examination Plan Issue Leadsheet” is privileged, so they can explain that. But the free-swinging demands for. depositions of IRS personnel and production of their employment files are out. Reminder: Tax Court is neither Judge Judy nor does it try PI cases.

Btw, Lontrac’s trusty attorneys are recognized by national publications as “Ones to Watch.” Definitely.

Judge Tamara Ashford calls Cassandra Tucker & Edward Brodie, Docket No. 7896-19, filed 2/22/24, offside, when they seek to have her determine the amount of an appeal bond after they filed their notice of appeal. Cass & Ed wanted the bond to be no greater than IRS’ computations at the Rule 155 beancount.

“Section 7485(a)(1) provides that the taxpayer must file with the Court ‘a bond in a sum fixed by the Tax Court not exceeding double the amount of the portion of the deficiency in respect of which the notice of appeal is filed, and with surety approved by the Tax Court, conditioned upon the payment of the deficiency as finally determined, together with any interest, additional amounts, or additions to tax provided for by law.’ Similar to Rule 192, section 7485(a)(1) further provides that the bond must be filed ‘on or before the time [the] notice of appeal is filed’ with the Court.” Order, at p. 1.

Cass & Ed are too late with their motion, so no bond. Now IRS can go levy, right? Yes, but Cass & Ed can buy some time if they go to Appeals on the NITL and petition the NOD affirming. What about a lien? The lien remains, because there’s no stay on assessment of the tax as decided in the Rule 155 without a bond, per Section 7485.

Edited to add, 2/22/24: I’d almost forgotten Cass’ & Ed’s prior appearance in this my blog back in 2023.

No, not my recipe for a vodka Gibson; rather, this is the tax deduction promised to the syndicatees in Oconee Landing Property, LLC, Oconee Landing Investors, LLC, Tax Matters Partner, T.C. Memo. 2024-25, filed 2/21/24, for their investment. Judge Albert G. (“Scholar Al”) Lauber dissects this raid on the fisc in 78 (count ’em, 78) pages.

The deal does feature the usual suspects, appraisers W and VS, the law firm Morris, Manning & Martin, LLP, and some Dixieland Boondocks valued at 400.99% of the value Judge Scholar Al extracts at the trial. With enough somber reasoning and copious citation of precedent to satisfy even the most captious.

The promotional literature spoke of investment potential, but Judge Scholar Al can’t find any.

“The transaction at issue was persistently marketed to investors as a ‘conservation tax mitigation strategy.’ From beginning to end, it was priced as a multiple of the promised tax deduction. Mr. F acknowledged that the $49,000 offering price for class A interests in petitioner was derived directly from the four-to-one tax write-off promised to investors. That offering price bore no relationship whatsoever to the financial projections for the purported ‘investment strategy.’ The Court finds as a fact that the purported ‘investment strategy’ was not a viable business proposition, that it was never intended to be implemented, and that it was included as ‘window dressing’ in an effort to obscure the character of the transaction as a tax shelter.” T. C. Memo. 2024-25, at p. 28. (Name omitted).

There’s a lot more, but it comes down to the anatomy of a tax dodge.

Maybe it’s time for IRS to bar some practitioners, as they did when the façade easement dodge collapsed.

I’m sure my readers (those I have left) have had it with the “win your case at discovery” CLEfloggers. Those who’ve actually taken the courses and put into practice the principles thus hard-paid-for have led to gamesmanship at super-Olympic heights.

A perfect example of everything that’s wrong with the time-wasting, gameplaying, roundy-rounding that has effectively demolished the noble aim of Rule 70(a)(1), that the parties first “attempt to attain the objectives of discovery through informal consultation or communication before utilizing the discovery procedures provided in these Rules,” may be found in the nineteen (count ’em, nineteen) pages that STJ Jennifer E. (“Publius”) Siegel wastes in Ardan Holdings, LLC, Ardan Investors, LLC, Tax Matters Partner, Docket No. 17483-21, filed 2/21/24.

STJ Publius was handed this morass by none other than Judge Mark V. (“Vittorio Emanuel”) Holmes, to do an in camera on what IRS was holding back.

A few of her comments.

“Respondent made only a few types of privilege claims on the log provided. One claim was that some of the redacted information would have disclosed ‘other taxpayer information.’ This was not always accurate. To the extent a redaction was protecting another taxpayer’s information or identity, we will allow those redactions to stand. To the extent it was an inaccurate claim, we will direct disclosure.” Order, at p. 2.

“The attorney-client privilege ‘applies to communications made in confidence by a client to an attorney for the purpose of obtaining legal advice, and also to confidential communications made by the attorney to the client if such communications contain legal advice or reveal confidential information on which the client seeks advice.’

“For many of the documents, other than boilerplate signature blocks automatically applied to all of the sender’s email communications, there was nothing obvious to indicate that redacted material might be protected. Respondent made no effort to justify the redactions, and thus the Court is ordering much of the material disclosed.” Order, at p. 3. (Citations omitted.)

But, to be fair, we all bestrew our e-mail stationery with clawbacks and other FRE §502(b) and (c) jive. Like the cigarette pack warnings, they’re so common they’ve become meaningless.

And of course the flavor du jour, deliberative privilege, gets a good run. The communications have to be pre-decisional, that is, before the government has decided on its position. Moreover, the communications must be critical and analytical, make recommendations or express legal or policy opinions.

“In other words, not all government communications are protected. Many of the emails provided for the Court’s in camera review contained factual information, chitchat, vacation coverage planning, and comments like ‘see attached’ and ‘FYI.’ These are not deliberative communications. Blanket assertions of deliberative process privilege are not favored, and the privilege should be narrowly construed.” Order, at p. 4. (Copious citation of precedent omitted).

And stuff claimed privileged in one place was disclosed in another, invoking waiver. If one legume escapes otherwise than inadvertently (here no such claim), ya can’t unspill the beans.

I met STJ Publius before she was exalted to the Tax Court Bench. A more pleasant-spoken person would be hard to find. But one can imagine the steam from her ears in the following.

“Additionally, in more than one instance, respondent claimed a privilege (e.g., confidentiality of information belonging to a different taxpayer) that did not apply (it was not, in fact, information for a different taxpayer). Even if the document might have been considered privileged under a different theory, it is not the Court’s job to police a party’s documents for them. We considered only the privilege claims as made. If the claim does not obviously apply, the Court will direct respondent to disclose the document or portion thereof.” Order, at p. 4.

Finally, Judge Holmes ordered all documents produced for the in camera, but IRS produced only some pages, which STJ Publius chronicles at Order, at p. 5.

So that’s it? Not on your Nellie it isn’t! STJ Publius produces a fourteen (count ’em, fourteen) page spreadsheet itemizing in exhaustive (and exhausting) detail what is to be done.

Now lest my readers think I’m unloading solely on IRS, unloved, unstaffed, and unfunded as it is, allow me to state that the Ardens, another Dixieland Boondockery, whose discovery demands are not noted in this Order, may well be playing games.

The only issue in all these dodges, as Judge Holmes pointed out so long ago, is what was this scrubland worth when the easement was granted? Get the experts on the stand, and let’s get cracking.

As I was in the local post office, doing the Section 7502 number with our 2023 1040 MFJ, I saw an empty box, apparently discarded, next the wastebasket.

I can’t resist.

IMG_0627.HEIC

My fellow NYC dirt lawyers will recognize the colophon of a highrolling organization in 23rd Chelsea Associates, L.L.C., Related 23rd Chelsea Associates, L.L.C., Tax Matters Partner, 162 T.C. 3, filed 2/20/24. For more, see my blogpost “Don’t Give a Sham – Part Deux,” 8/11/14.

And unsurprisingly the highrollers looked southward to find The Right Dawson, their trusty attorney.

Were the Relateds baseless when they included in their Section 42(d) eligible basis for low income housing credits some of the financing costs incurred by their lender, the New York State Housing Finance Agency, in issuing the tax-exempt bonds whose proceeds funded the mortgage loan, and placing the loans itself?

IRS says yes, but Judge Elizabeth A. (“Tex”) Copeland says no, IRS is off-base.

The Relateds carefully allocated expenses between construction and post-construction costs, and between residential and non-residential spaces in the buildout. Judge Tex Copeland has a schedule, 162 T. C. 3,  at pp. 5-6. Note what’s missing (I’ll tell you below if you missed it).

IRS at first disallowed the union pension and welfare contributions paid by the Relateds on behalf of a subcontractor, but folded. IRS did insist that $1.2 million in HFA’s financing cost pass-alongs should be excluded.

“…the Commissioner has offered two arguments to support his determination that the financing costs (including bond fees) were not includible in eligible basis: one relevant to all the costs and one limited to those costs allocable to the tax-exempt bonds. Our ultimate holding does not rest on the distinction between taxable and tax-exempt bonds.” 162 T. C. 3, at p. 8.

If you’re interested in computing the eligible basis for LIHCs, see 162 T. C.3, at pp. 9-11.

Section 42(d)(1) says the credit is computed on the “adjusted basis as of the close of the 1st taxable year of the credit period.” Great, except that the only “adjustment” specified in Section 42(d) is to exclude the adjusted basis of any nonresidential property. The Relateds did that.

Judge Tex Copeland turns to Sections 1011, 1012, and 1016. These are the income-tax-wide rules of general application. And Section 263A requires capitalization of direct and indirect costs of producing real property.

“It follows from these provisions, taken together, that the adjusted basis of taxpayer-produced real property (before any reduction for depreciation) typically equals the sum of the property’s direct costs and its properly allocable share of indirect costs. We reach this conclusion as follows: (1) the direct costs and properly allocable share of indirect costs must be capitalized to the property; (2) ‘capitalize’ means to charge to a capital account or basis; and (3) basis is adjusted for any expenditures charged to the capital account. See I.R.C. § 1016(a)(1). Therefore, the [buildout]’s eligible basis was the sum of 23rd Chelsea’s direct construction costs and a properly allocable share of the indirect construction costs, minus costs allocable to portions of the building that were not ‘residential rental property’ at the end of the first year of the credit period. See I.R.C. § 42(d)(4)(A).” 162 T. C. 3, at p. 12. (Footnote omitted).

In 2 Cir, indirect costs are included in basis only if they are but-for costs, that is, but for not paying these costs the construction wouldn’t have happened.

“Treasury Regulation § 1.263A-1(e)(3)(i) acknowledges that certain indirect costs may be allocable to both production activities and activities not subject to section 263A, in which case taxpayers must make a ‘reasonable allocation of indirect costs’ between the former and the latter. However, nothing in this regulation indicates that the costs of obtaining financing for production activities are necessarily allocable to a separate ‘financing’ activity not subject to section 263A. In fact, we note that section 263A(f)(1) confirms that interest on loans used to finance the production of property generally must be capitalized under the rule of section 263A(a), although Congress has provided that the latter rule applies only to interest ‘paid or incurred during the production period’ and allocable to property with ‘a long useful life,’ such as residential property…. Section 263A(f) thus indicates that financing costs allocable to the production period are not per se allocable to a ‘financing’ activity separate and apart from production.” 162 T. C. 3, at pp. 13-14.

We dirt lawyers all know that the most important part of any building is money.

IRS says the financing is separate, and the costs thereof should be dealt with per Section 167, hence they aren’t subject to MACRS, which all LIHC projects must be. Judge Tex Copeland says Section 263A supersedes that. And that financing costs are intangible is irrelevant; there’s a laundry list of intangible costs that Section 263A requires be capitalized in a real estate construction deal, that is, added to basis. 162 T. C.3, at pp. 16-17.

IRS claims legislative history shows Congress didn’t want tax-exempt bond costs included in LIHC adjusted basis. But Section 42 already reduces the LIHC to the extent tax-exempt bond proceeds were used in construction; if Congress wanted a tighter rein, they could have said so.

Of course you’ll find this opinion in extenso on The Other DAWSON.

A Taishoff “Good Job, First Class” to The Right Dawson.

Oh, before I forget: the item missing on the schedule at pp. 5-6? Legal fees. I hope the lawyers got paid.

In a smoosh of which only the United States Congress could be capable, that august assemblage managed to combine celebration of the birthdays of our first and sixteenth Presidents into a single day and translate same unto a February Monday, the which is a public holiday in The City Without a State.

Wherefore, United States Tax Court being closed per Rules 10 and 25(a)(5), I have nothing to report.

I wonder what ex-STJ Eunkyoung (“N’Yawk”) Choi is doing today ?

The Frank Sinatra trademark is played again at The Glasshouse Up Dawson’s Creek, as Ch J Kathleen (“TBS = The Big Shillelagh”) Kerrigan is elected to a second term as Ch J.

Let us all congratulate the Ch J.

I was oversoon indeed back in April, 2022, when I predicted a deluge of Tax Court petitions in the wake of Boechler, P. C. In my blogpost “Ya Can’t Make This Stuff Up – Part Deux,” 4/29/22, I foresaw Boechler inspiring “petitioners who got tossed two, three, or even ten years ago, come running back, claiming they were wrongfully tossed, and demanding return of property seized and sold a decade ago, and demanding trillions in damages.”

It didn’t happen. And Judge Tamara Ashford tells us why, in Mark Leonard & Dawn Leonard, Docket No. 26819-22L, filed 2/16/24.

Mark & Dawn were a couple weeks late (hi, Judge Holmes) with the petition from the NOD affirming IRS’ collection action. Although the envelope containing their petition was postmarked only a day past the 30-day deadline, it was addressed to Appeals, not Tax Court. Appeals forwarded the petition to The Glasshouse.

IRS made a Rule 37(c) deemed-admitted motion confirming those facts, to which Mark & Dawn did not respond. So IRS moved for a Rule 120(a) judgment-on the -pleadings. Again, no response.

But was an equitable tolling argument available?

“The section 6330(d)(1) 30-day filing deadline is not jurisdictional, which means this Court has authority to consider late-filed petitions, and the Court may accept a tardy filing by applying the doctrine of equitable tolling. Boechler, P.C. v. Commissioner, 142 S. Ct. 1493, 1496 (2022). A litigant is entitled to equitable tolling of a statute of limitations only if the litigant establishes that he or she has been pursuing his or her rights diligently and that some extraordinary circumstances prevented him or her from timely filing. Menominee Indian Tribe of Wisc. v. United States, 577 U.S. 250, 255–77 (2016). Petitioners have not asserted that they satisfy this test, so the Court may not accept their Petition by equitable tolling.” Order, at p. 2.

Time for a Rule 161 motion to reconsider?

Self-representeds like Mark & Dawn may not be aware of Boechler, hence the non-deluge.

The immortal words of B. Traven, spoken iconically and cinematographically by Alfonso Badoya, have created a whole department of my blogposts. Solely by way of illustration of the foregoing, as my high-priced colleagues would say, see my blogposts “We Don’t Need No Stinkin’ Factors, 5/15/12, “We Don’t Need No Stinkin’ Badges,” 4/2/14, “We Don’t Need No Value,” 11/19/20, “We Don’t Need No Authority,” 1/14/21, and “We Don’t Need No Form 433-A,” 8/7/23. There now.

Today Ch J Kathleen (“TBS = The Big Shillelagh”) Kerrigan adds another, viz., namely, and to wit, “We Don’t Need No Office for the Self-Represented.”

I’d venture a wild guess that Walter D. Kowalok & Wei Li, Docket No. 18795-23S, filed 2/15/24, are self-represented. My sources for this assertion are (a) a docket search showing no EoA, and (b) Ch J TBS’ statement that “… petitioners electronically filed the following improperly titled documents: (1) Reply to Answer (Docket Index No.7); (2) five documents with the designation of Memorandum in Support of Reply to Answer (Docket Index Nos. 8, 9, 10, 11, and 12); (3) another Reply to Answer (Docket Index No. 13); and (4) three additional documents with the designation of Memorandum in Support of Reply to Answer (Docket Index Nos. 14, 15, and 16).” Order, at p. 1.

Clearly, Walt & Wei need some help getting organized. In the past, I’ve suggested an office for the self-represented, such as have been established in any number of State and Federal Courts, as a Guide for the Perplexed. Of course, as with most of my suggestions, this perfectly rational proposal has been ignored. I repeat it today, however, in almost the same way as I did a three-and-a-half years ago; see my blogpost “Office for the Self-Represented,,” 8/10/20.

But perhaps the omission is well-founded after all, as Ch J TBS (as has her predecessors, and I do not doubt her successors) has chosen yet again to fill that rôle in propria persona, as said high-priced colleagues would say; that means her own self, as those who never went to law school would say.

“Petitioners are advised that none of the just-referenced documents have been received into evidence by the Court at this time and that, unless otherwise directed by the Court, the appropriate time to present documentary evidence for inclusion in the Court’s record is at the trial of this matter.

“Petitioners are further advised that, unless otherwise directed, in the future if they seek to have the Commissioner (respondent) review and consider documents in an effort to reach a settlement before any trial in this case, petitioners should provide those documents directly to respondent’s counsel. The contact information for respondent’s counsel was included in respondent’s Answer, which was filed January 17, 2024. For more information, petitioners’ attention is invited to ‘Guidance for Petitioners’ under “Rules & Guidance” on the Court’s website, http://www.ustaxcourt.gov.” Order, at p. 1.

I am sure this department will see ever more growth in future.