The Tax Court in Brief June 22 – 26, 2020

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The Tax Court in Brief June 22nd – 26th, 2020 

Freeman Law’sThe Tax Court in Brief” covers every substantive Tax Court opinion, providing a weekly brief of its decisions in clear, concise prose.

For a link to our podcast covering the Tax Court in Brief, download here or check out other episodes of The Freeman Law Project.

The Week of June 22 – 26, 2020


Lloyd v. Comm’r, T.C. Memo. 2020-92 

June 22, 2020 | Halpern, J. | Dkt. No. 12309-17

Short Summary:   From 2005 through 2010, Mr. Lloyd operated several religious-focused websites and internet-based radio stations (collectively, Christian Media Network).  Christian Media Network sold religious products, such as DVDs, books, Bibles, health and survival products, and videos.  In addition, Christian Media Network charged subscribers for DVDs of videos or for hard copies of written materials.  Mr. Lloyd did not file any income tax returns for 2005 through 2010 reporting the income from Christian Media Network.

The IRS summonsed Mr. Lloyd’s bank records and determined he had sales related to his operations of Christian Media Network for the 2005 through 2010.  On the basis of those records, the IRS prepared a substitute-for-return (SFR) for each of those years proposing assessments of income tax against Mr. Lloyd.  In addition, the IRS imposed the failure-to-file penalty, or alternatively, the penalty for fraudulent failure to file.  At trial, the IRS conceded the fraudulent failure to file penalty.

During trial, Mr. Lloyd argued that he is not subject to income tax because the income tax laws are “null and void.” Alternatively, Mr. Lloyd argued that he was not subject to income tax because he was functioning as a church and subject to a religious exemption.

Key Issue:  Whether Mr. Lloyd is:  (1) subject to income tax on proceeds he received from Christian Media Network sales; (2) liable for self-employment tax; and (3) liable for the failure-to-file and pay penalties under Section 6651(a).  In addition, on the Court’s own motion, whether Mr. Lloyd is subject to Section 6673 penalties for frivolous or baseless positions.

Primary Holdings

Key Points of Law:

InsightThis is the second week in a row that the Tax Court had to resolve a “tax protestor” argument.  As Lloyd shows, the Tax Court generally has little patience with taxpayers who make arguments that have been found baseless and meritless.


Plateau Holdings, LLC, Waterfall Development Manager, LLC, TMP v. Comm’r, T.C. Memo. 2020-93 

June 23, 2020 | Lauber, J. | Dkt. No. 12519-16

Short SummaryPlateau Holdings, LLC (Plateau), a partnership for federal tax purposes, donated conservation easements related to two parcels of real property in Tennessee to Foothills Land Conservancy (Conservancy), a tax-exempt organization.  However, eight days before Plateau made this donation, an investor acquired, in an arm’s length transaction, a 98.99% indirect ownership interest in Plateau for less than $6 million.  On its 2012 federal income tax return (Form 1065), Plateau claimed a roughly $25.5 million charitable contribution deduction for the donation.

After audit, the IRS issued Plateau’s TMP a notice of final partnership administrative adjustment (FPAA) that disallowed the charitable contribution for donation of real property and determined a 40% gross valuation misstatement penalty under Section 6662(e) and (h).

Key Issue:  Whether Plateau:  (1) may claim a charitable contribution deduction for the conservation easements; and (2) is liable for the gross valuation misstatement penalty.

Primary Holdings

Key Points of Law:

InsightThe IRS has targeted syndicated contribution easements such as the one in Plateau.  However, on June 25, 2020, the IRS offered a settlement for those taxpayers with pending docketed Tax Court cases involving syndicated conservation easement transactions.  See IR-2020-130 (June 25, 2020).  The settlement, if accepted by the taxpayer, would require a concession of the income tax benefits the taxpayer received from the charitable contribution deduction.  In addition, the following requirements would have to be met:  (1) all partners must agree to settle and the partnership must pay the full amount of tax, penalties and interest before settlement; (2) partners may deduct the cost of acquiring their partnership interests and pay a reduced penalty of 10% to 20% depending on the ratio of the deduction claimed to partnership investment; and (3) partners who provided services in connection with any syndicated conservation easement transaction must pay the maximum penalty asserted by IRS (typically 40%) with no deduction for costs.  Taxpayers eligible for this offer will be notified by letter.


Lumpkin HC, LLC v. Comm’r, T.C. Memo. 2020-95 

June 23, 2020 | Kerrigan, J. | Dkt. No. 192-18

Short Summary

Lumpkin HC, LLC (Lumpkin HC) conveyed a deed of easement on most of the property to the Atlantic Coast Conservancy, Inc. (ACC), a Georgia nonprofit corporation. ACC was a “qualified organization” for purposes of section 170(h)(3). Lumpkin HC claimed an $8,242,000 charitable contribution deduction for its contribution of the conservation easement to ACC on its 2012 Form 1065, U.S. Return of Partnership Income. Lumpkin HC attached Form 8283, Noncash Charitable Contributions, to its partnership return and stated that its adjusted tax basis in the property at the time of donation was $458,502.

The IRS issued a notice of final partnership administrative adjustment (FPAA) for tax year 2012 to Hurricane Creek Partners, LLC, as tax matters partner for Lumpkin HC.  In the FPAA, respondent disallowed a $8,242,000 deduction for a noncash charitable contribution and asserted a gross valuation misstatement penalty pursuant to section 6662(h), or in the alternative, a penalty pursuant to section 6662(h).

Key Issues:

Primary Holdings

Key Points of Law:

InsightLumpkin serves as yet another Tax Court case holding taxpayers to the letter of the law in the context of charitable deductions for conservation easement contributions.  The case also illustrates the so-called Chevron doctrine—the two-step process through which courts analyze the validity of administrative regulations.  That doctrine tends to be deferential to the federal agency.


Lumpkin One Five Six, LLC v. Comm’r, T.C. Memo. 2020-94 

June 23, 2020 | Kerrigan, J. | Dkt. No. 191-18

Short Summary

Lumpkin One Five Six, LLC (Lumpkin) conveyed a deed of easement to the Atlantic Coast Conservancy, Inc. (ACC), a Georgia nonprofit corporation. ACC was a “qualified organization” for purposes of section 170(h)(3).

Lumpkin claimed a $2,483,000 charitable contribution deduction for its contribution of the conservation easement to ACC on its 2012 Form 1065. Lumpkin attached to its partnership return Form 8283, Noncash Charitable Contributions, which included a supplemental statement that listed the appraised fair market value (FMV) of the unencumbered property as $2,711,000.

The IRS issued a notice of final partnership administrative adjustment (FPAA) for tax year 2012 to 156 Partners, LLC, as tax matters partner for Lumpkin. In the FPAA respondent disallowed a $2,483,000 deduction for a noncash charitable contribution and asserted a gross valuation misstatement penalty pursuant to section 6662(h)

The IRS contends that the extinguishment clause in Lumpkin’s deed of conservation easement violates the requirements of section 1.170A-14(g)(6)(ii), Income Tax Regs. It further contends that the deed’s inclusion of a right to designate an acceptable development-area homesite violates section 170(h)(2)(C) and section 1.170A-14(g)(1), Income Tax Regs.

Key Issues:

Primary Holdings

Key Points of Law:

InsightLumpkin One Five Six, LLC essentially presents a carbon copy of the issues raised in Lumpkin above. 


Vivian Ruesch v. Comm’r, 154 T.C. No. 13 

June 25, 2020 | Lauber, J. | Dkt. No. 6188-19P

Short SummaryThe IRS assessed penalties of $160,000 against the petitioner under I.R.C. section 6038.  The IRS certified her liability for those penalties to the Secretary of State as a “seriously delinquent tax debt” within the meaning of I.R.C. sec. 7345(b). The taxpayer filed a petition seeking three forms of relief: (1) redetermination of the penalties assessed against her, which she contends were illegally assessed; (2) a determination that the Commissioner erred in certifying her as a person having a seriously delinquent tax debt; and (3) a determination that the Commissioner erred in failing to reverse the certification.

The IRS subsequently discovered that the taxpayer had timely requested a collection due process hearing with respect to the I.R.C. sec. 6038 penalties. That request suspended collection of her tax debt so that it was no longer “seriously delinquent.” See I.R.C. sec. 7345(b)(2)(B)(i). The IRS accordingly reversed its certification as erroneous and so notified the Secretary of State.

The IRS then filed a motion to dismiss for lack of jurisdiction insofar as the taxpayer sought to challenge in this case her underlying liability for the penalties. Because the certification that the taxpayer disputed has been reversed, the IRS filed a separate motion to dismiss on the ground of mootness.

Key IssueWhether the Tax Court is authorized to predetermine the penalties assessed under section 6038 or to determine that the IRS erred in certifying the petitioner as a person having a seriously delinquent tax debt within the meaning of I.R.C. sec. 7345(b).

Primary Holdings

Key Points of Law:

InsightThe case demonstrates the jurisdictional limitations of Tax Court review, as well as the nuanced statutory grants of review with respect to IRS determinations under Section 7345, which was enacted in 2015 and is captioned “Revocation or Denial of Passport in Case of Certain Tax Delinquencies.”


For other Tax Court in Brief posts, see some of our prior posts:

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