So here we go trying to finish up reviewing June developments before July is over.
Playing Ball With Dixieland Boondockery
Rising Rock Partners LLC is pretty typical conservation easement opinion. The role in it of a baseball celebrity allowed Judge Greaves to sprinkle the opinion with baseball puns. Here is the story.
Edgar F Yost III (Ned Yost) has a great baseball career as a player and a manager, mainly as a manager. In 2014 and 2015 he led the Kansas City Royals to the American league pennant, winning the World Series in 2015. Starting in 2008, he and his wife assembled 670 acres of rural Georgia land spending nearly $3 million. Planning for retirement in 2016 they had the property appraised and it came in at just over $2.3 million. They decided to list a portion of the property, which they christened Rising Rock, for sale for just under $1 million.
The only people interested were a couple of syndicators who saw potential in the rising rocks i.e. granite outcroppings which created the prospect of a fantasy gravel mine that could generate a charitable contribution, in this case, thirteen times what the property cost them. Ned Yost was so impressed by this that he paid the promoters $200,000 to create an easement donation on the remaining property for his own tax advantage. He was also audited and filed a Tax Court petition. To make life simpler the result in Rising Rock formulaically is binding on him. Judge Greaves cut the Rising Rock deduction from $12,765,000 to $649,955. So Yost’s $12,715,000 deduction will take a similar haircut. The Yosts used nearly half the deduction in 2017, 2018, and 2019. He retired as a manager in 2019. They were using roughly $150,000 per year after that.
Judge Greaves gave a nice summary of the fundamental flaw that inspired me to refer to syndicated conservation easements as an industry based on nonsense.
“Before considering the valuation approaches advanced by the parties, we begin with the most probative evidence of fair market value: The price at which it changed hands in an arm’s-length sale occurring reasonably close to the valuation date.”
That would be the approximately million bucks they paid the Yosts.
After citing numerous cases that illustrate the principle, he adds:
“We also consider the subsequent sale of partnership interests in RRP as a corroborating measure of market value. Six days before the easement donation, Rising Investments purchased a 96% interest in RRP for $1,802,160. At the time, the partnership’s sole asset was the Rising Rock property. The transaction therefore provides additional evidence of what investors were willing to pay for indirect ownership of the property.
While the purchase price exceeded the earlier acquisition price paid for the property, that increase may reflect some combination of modest appreciation and the anticipated tax benefits associated with the conservation easement transaction. Even so, the implied value remains far closer to the arm’s-length sale price than to petitioner’s substantially higher valuation derived from income-based projections.”
Lew Taishoff gave a nice summary in Rocking The Boondocks.
“But the granite-mining discounted cash flow appraisals crater, as the locals in Meriwether County, Jawjuh, don’t want granite mines in their rural hideaway. Anyway, forecasting the results of a successful operation over 17 (count ’em, 17) years, even if the zoning objections could be met, is too speculative. The comparable sales (including Ned Yost’s own sale to the syndicators) set up a 40% gross overvaluation chop.”
Know Your Statutory Authority Or Else
Ronald Beaver was in the US District Court for the Western District of Washington suing two accountants for preparing income tax returns for him without identifying the statutory authority that made him subject to the income tax. If he asked me I would have had an answer for him Sections 1, 61 and 6012 of Title 26 of the United States Code, but I suspect that would not have satisfied him. You can check out his complaint here. Judge Kymberly K. Evanson, possibly with a straight face, ruled, on June 8, 2026 that there was not sufficient factual content and dismissed the complaint, but allowed Beaver to filed an amended complaint. He did file one which you can read here. And here is the answer. This is the sort of thing that I like to have Grok help me with. Here is what Grok has to say about the amended complaint in brief.
“The complaint is a sophisticated, heavily researched, and meticulously structured effort by a pro se litigant to convert ordinary CPA tax-return preparation into a multi-year RICO enterprise. Its core premise—that asserting a Form 1040 liability without a special “predicate identification” step is fraudulent—is legally untenable. The detailed factual cycle, professional-standards citations, and careful pleading language do not cure the fundamental defect. Courts have seen and rejected closely analogous attempts to litigate the validity or applicability of the income tax through collateral attacks on preparers, advisors, or the government. Absent a dramatic shift in controlling law (which is not on the horizon), this complaint is unlikely to proceed past the pleading stage.”
It is one thing to bring these arguments against the government, but going after CPAs who think they are following the law when they are reading the instructions is well, not nice.
Horses Of Courses
Keith and Rhonda Schumacher have a pretty run of the mill Section 183 hobby loss case. It’s about horses of course. This brings my 183 spreadsheet to 749 determinations (sometimes cases are about more than one activity). Nothing unusual here. The score was 6 to 3 on the factors. Factor 4 about appreciation was in favor of the IRS. Conceptually I think that should be either for the taxpayer or neutral. They lost on being businesslike, which statistically is the overwhelmingly determinative factor. They got out of the accuracy penalty by relying on their tax adviser. Clearly the adviser has not been reading my posts.
Lew Taishoff in Another Goofy Horse Tale has an interesting observation about the tax pro advice.
“Taishoff says note that trusty EA preparer also did the accounting work for Doc Keith’s heavy-duty veterinarian practice, T. C. Memo. 2026-47, at p. 7. I’ve noted that when one provides professional services both to a substantial business client and to one of its top brass personally, one is hesitant to pass personal-side bad news to brasshat, lest brasshat seek a more sympathetic and flexible pro, taking the substantial client with her/him. Just sayin’.”
The opinion caught the attention of Laura Saunders of the Wall Street Journal with Why a Couple Lost a $200,000 Tax Battle Over Their Horses.
Ms. Saunders pretty well marches through the factors putting emphasis on the 9th – “Moral: If you want to deduct losses from your hobby, don’t enjoy it too much.” I guess she hasn’t been reading my stuff either.
ERC Stop The Madness
One of the more beautiful things in the One Big Beautiful Bill was putting a stop to ERC claims. Bogus ERC claims became something of a mini-industry. ERC is of course the Employee Retention Credit was a credit for employers based on their COVID payrolls and meeting certain conditions. Big Beautiful retroactively disallowed claims for the third quarter of 2021 filed after January 31, 2024. Key Meetings Inc was pursuing its claim in the District Court for the Northern District of California. Here is their complaint if you feel like really digging into it and the government motion to dismiss. They are using Holland & Knight which is pretty high end for a $175,000 claim. They are arguing that the retroactive disallowance is unconstitutional. Judge Orrick was not buying it.
“Section 70605(d)’s retroactive bar on ERC claims rationally implements the legitimate legislative purpose of combating fraud and does not violate the Due Process Clause. Key Meetings submitted its third quarter ERC claim after the statutory deadline. Section 70605(d) bars recovery. Therefore, I GRANT the government’s motion and Count 3 of the Amended Complaint is DISMISSED”
Ed Zollars does a really deep dive on this and another similar Court of Claims opinion in Retroactive Retention Credit Deadlines and the Fifth Amendment: An Analysis of Key Meetings, Inc. V United Stats and Juggler Dave and Friends LLC in Current Federal Tax Developments. Here is a link to the Juggler Dave opinion which came out on March 25, 2026 and somehow escaped my notice.
Ed’s takeaway is:
“Practitioners must counsel clients that tax-credit programs remain “administratively active” and subject to retroactive legislative amendment until cases are fully resolved. Ultimately, both the Northern District of California and the Court of Federal Claims have solidified that “the retroactive application of section 70605(d) does not violate due process, and the plaintiff’s claim, filed after the statutory deadline, must be dismissed.””
My main thought on the ERC is that it is a really bad idea to invent a totally new tax incentive in the face of a crisis.
Sometimes Attorney Is Not A Big Help
I found Leslie Siebert Terner’s appeal of a Tax Court ruling to Fourth Circuit curious enough to get me to run up my PACER bill and download the brief. The Fourth Circuit, unsurprisingly, sustained the Tax Court. Essentially this is a refund claim having to do with misapplied payments. The way to handle that is to file Form 843 and if the IRS does not cough it up, you bring a suit in US District Court or the Court of Claims. For some reason her attorney went to Tax Court. A little over a year later the petition was dismissed for lack of jurisdiction. As you and I both know the Tax Court is a court of limited jurisdiction. The most common ticket to Tax Court is called a ninety day letter, a statutory notice of deficiency which was not attached to Ms. Terner’s petition because she didn’t have one. There are a couple of other ways in, which are not relevant here. I asked the Lew Taishoff, the most diligent follower of the Tax Court, what he thought about the whole thing. He wrote me:
“Mr Reilly, Counsel s making Constitutional arguments to a Court that has no jurisdiction to hear them. I hope he isn’t charging Ms. Terner a fee for this.”
That’s It For June
As usual there were a few items that intrigued me that I could not make anything out of. As it turns out I got close to my goal of being done with June in July as I am posting this on the first business day of August. I’d really appreciate some comments, just so I know somebody out there is listening.
For great value in continuing professional education check out the Boston Tax Institute.
If you would like to do business with Your Tax Matters Partner email yourtaxmatterspartner@gmail.com.