Beggs & Lane is pleased to announce that Partner John H. Adams, with the assistance of Partner Robert L. Jones, III, recently received a favorable ruling from the United States Tax Court.  In the case of Breland v. Commissioner, TC Memo 2019-59 (May 29, 2019) the Internal Revenue Service sought to assess in excess of $2,000,000 in taxes, penalties and interest against the Firm’s client.  The main dispute at issue in the proceeding concerned the amount of gain to be recognized by the Firm’s client as a result the foreclosure of two parcels of property the Firm’s client owned.  These properties were subject to a large recourse mortgage.

At trial, the Internal Revenue Service argued that the Firm’s client had not established the his basis of the two parcels.  The Internal Revenue Service also argued that the Firm’s Client had not established the fair market value of the two parcels at the time of the foreclosure of the parcels, and as such, the Firm’s client recognized a gain on the transaction in excess of $11,000,000 the amount of the recourse indebtedness secured by the properties.  The Tax Court disagreed with the Internal Revenue Service explaining that, under Reg. §1.166-6(b)(2), the bid price at a foreclosure sale is presumed to be the fair market value of the property foreclosed absent clear and convincing evidence to the contrary.  The Tax Court pointed out that nonexistence of an appraisal was fatal to the position asserted by the Internal Revenue Service in the proceeding.  As a result of the lack of such an appraisal there was no clear and convincing evidence supporting the position of Internal Revenue Service that the fair market value of the parcels exceeded the Lender’s bid price at the foreclose sale.  As a result, the Tax Court ruled that the firm’s client had no gain on the foreclosure of the properties but rather had a capital loss in excess of $4,500,000.

Counsel at Beggs & Lane routinely handle tax litigation and other commercial litigation matters in state and Federal Courts.