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PARTNERS & PARTNERSHIPS

the existing criminal referral for its sole Keefer,53 for instance, the taxpayers losses in excess of basis are disallowed
agent should be treated as a referral for purported to assign a partial interest in and carried forward until the partner’s
the LLC as well. The court denied the a partnership that held hotel property basis is restored.
taxpayer’s request and allowed the IRS to a foundation, the purpose of which In a case54 where the taxpayers de-
to enforce the summons. After the initial was to establish a donor-advised fund. ducted losses from both the husband’s
court ruling, the LLC’s sole agent was At the time of the assignment, the sale and the wife’s partnership interests, the
indicted, and the LLC appealed the of the hotel was pending. The taxpayers IRS disallowed the losses for the wife’s
original ruling. The appeals court upheld took a charitable contribution deduction interest because she could not document
the trial court’s decision because it deter- on their personal tax return for the as- either a loan or capital contribution she
mined that a business entity is a distinct signment. On audit, the IRS disallowed supposedly made to the partnership. The
person from its agents.49 Since the LLC the deduction because the taxpayers did couple claimed that the wife had loaned
itself did not have a criminal referral in not have a contemporaneous written $200,000 to the partnership. The part-
effect, the LLC was required to comply acknowledgment from the charitable nership included the loan on its balance
with the IRS summons. organization showing that the donor- sheet, but the liability was not allocated
In a related case,50 a group of ap- advised fund had exclusive legal control to any of the partners on the Schedules
praisers filed a suit against the IRS, over the assets contributed and the K-1, Partner’s Share of Income, Deduc-
seeking to challenge the IRS’s increased appraisal did not include the appraiser’s tions, Credits, etc. The only documenta-
scrutiny of syndicated conservation identifying number. tion the couple produced to substantiate
easement transactions as tax schemes. The district court agreed with the the loan was a promissory note bearing
Unfortunately for the appraisers, the IRS because the donation was an an- someone else’s name. The capital con-
court dismissed their case because the ticipatory assignment of income. The tribution documentation also indicated
summons was not served in a timely court noted that it was not the pending that the contribution came from a dif-
manner. It should be interesting to see if sale of the hotel itself that created the ferent source than the wife. Thus, the
other parties attempt to sue the IRS on assignment of income. Rather, the as- court ruled that the wife did not have
this matter in the future. It appears that signment of income arose because the adequate basis to deduct the loss.
the charitable contribution deduction of assignment agreement carved out a por- However, it was not a total win for
conservation easements will be an issue tion of the partnership interest before it the IRS. The IRS tried to disallow a
that taxpayers and the IRS will be liti- was donated. In addition, the taxpayers’ loss for an additional year by raising as
gating for the foreseeable future. deduction failed under Sec. 170(f) an issue for the first time at trial of the
However, in late 2022, the Tax Court because the taxpayers did not obtain a partnership’s opening tax-basis capital
held that Notice 2017-10, which is the contemporaneous written acknowledg- account balances that were reported for
notice that identifies syndicated conser- ment of the contribution. Although they that year. The court rejected the Service’s
vation easement transactions as listed subsequently obtained a letter properly attempt to raise the issue as untimely
transactions, is invalid because the IRS acknowledging the donation, the letter and outside the jurisdiction of the case.
issued it without following the notice- did not state that the foundation had The court also noted that even if the
and-comment procedures required by exclusive legal control of the contributed issue had been raised timely, the IRS’s
the Administrative Procedure Act.51 In assets, as is required in Sec. 170(f)(18)(B). argument failed on the merits, as it was
response, the IRS issued proposed regu- predicated on the apparent conflation of
lations in December identifying certain Losses allowed a partner’s tax-basis capital account with
syndicated conservation easement trans- Other recent litigation has concerned a partner’s outside basis in a partnership.
actions as listed transactions.52 deductions for losses, including whether Likewise, in Kohout,55 married tax-
a partner had adequate basis in the payers engaged in medical funding and
Other charitable contributions partnership interest to take the loss. Sec. real estate business ventures through the
Beyond conservation easements, other 704(d) allows a taxpayer to deduct losses husband’s wholly owned S corporation.
types of charitable contribution deduc- from a partnership interest as long as the The S corporation in turn owned 99%
tions have led to disputes as well. In taxpayer has basis in the interest. Any of another medical funding business

49. Equity Investments Associates, LLC, 40 F.4th 156 (4th Cir. 2022). 53. Keefer, No. 3:20-CV-836-B (N.D. Texas 7/6/22).
50. Benson, No. 2:21-CV-74-SCJ (N.D. Ga. 6/6/22). 54. Genecure, LLC, T.C. Memo. 2022-52.
51. Green Valley Investors, LLC, 159 T.C. No. 5 (2022). 55. Kohout, T.C. Memo. 2022-37.
52. REG-106134-22.

38 February 2023 The Tax Adviser