Adel v. Commissioner

[erchess]

For those of you who care the case that gives rise to these questions is Samra and Shah Adel v. Commissioner, TC Summary Opinion 2008-65. I have read only a summary and I do plan to ask these questions of the magazine where I read about the case. But i thought I would raise them here as well.

Let me put the case in a nut shell. In 1979 the Soviet Army invaded Afghanistan, where the Adels lived, and in 1980 they decided to get out of the country. The Soviet regime wanted them and people like them to stay, so it was made illegal to sell a vehicle or a home to an unrelated party. That much it seems to me should be independently verifiable, and if true, it makes very believable to me their claim that they traded a Mercedes Benz worth $25K to an Uncle for $12,500 in cash and some gold and emerald jewelry without getting any documentation. By 2002 the family was in the US and the Jewelry was stolen. On their tax return the family attempted to base their casualty deduction on the FMV of the jewelry and of course that was incorrect since their basis was lower. What I don't understand is why the Tax Court estimated their basis at $5,000. I realize that had the trade taken place in this country there would have been documentation in most cases such as a sales contract. But does the law not allow exceptions to the general rule that documentation is necessary? In my view the facts that the Adels came from Afghanistan and the conditions there at the time should be verifiable and if true they certainly explain the lack of paperwork on the sale. What can anyone tell me that would make sense of the Court's decision in this case?

[David1980]

In my view the facts that the Adels came from Afghanistan and the conditions there at the time should be verifiable and if true they certainly explain the lack of paperwork on the sale. What can anyone tell me that would make sense of the Court's decision in this case?

I didn't do any research, but I would agree with you that it seems fair that special circumstances should exist for situations like that.

Of course we all know about taxes and fair...

[ChEAr$]

As for the valuation

of $5,000 coming out of tax court, sometimes that court has to come up with some value,
and allow something; sort of a compromise you know.

Or as my friend Jerry over in Danville, VA would say "sometimes it's an art and not
a science."

[erchess]

I guess I don't see the value of a compromise-

of $5,000 coming out of tax court, sometimes that court has to come up with some value,
and allow something; sort of a compromise you know.

Or as my friend Jerry over in Danville, VA would say "sometimes it's an art and not
a science."

My first step would be lo look at whether either side needs to be adjusted just on its face or due to what the other side proposed. If I still had two alternatives that seemed equally valid I would toss a coin before I compromised. That may be another very valid reason why I am not and never will be a Judge.

[New York Enrolled Agent]

Erchess

To go to your original post - it was evident that the Tax Court determined there was SOME basis in the jewelry. The taxpayer had no credible evidence to determine the true value but the Court (correctly IMO) felt that it was inappropriate to say there was NO basis. Thus, the Court made an estimate as to what the basis was. The Tax Court will make an estimate based on the Cohan rule when there is evidence that there is some basis (or expense depending on the facts of the case) but the taxpayer cannot fully document the basis or expense. The Court will NOT do this for expenses covered under §274(d) as Congress specifically required those expenses to be documented after the Cohan decision.

Judge Learned Hand wrote the following snip in Cohan (CA2 - 1930) and the Courts still follow this today.

[start] Absolute certainty in such matters is usually impossible and is not necessary; the Board should make as close an approximation as it can, bearing heavily if it chooses upon the taxpayer whose inexactitude is of his own making. But to allow nothing at all appears to us inconsistent with saying that something was spent. True, we do not know how many trips Cohan made, nor how large his entertainments were; yet there was obviously some basis for computation, if necessary by drawing upon the Board's personal estimates of the minimum of such expenses. The amount may be trivial and unsatisfactory, but there was basis for some allowance, and it was wrong to refuse any, even though it were the traveling expenses of a single trip. It is not fatal that the result will inevitably be speculative; many important decisions must be such. We think that the Board was in error as to this and must reconsider the evidence. [start]

BTW, the Board = Board of Tax Appeals (the precursor of the Tax Court)

[erchess]

Ty Nyea

What I am hearing is that the rules require the court to "lowball" the client by choosing a number that seems to the court "surely it was at least this much". I think the rule should require them to accept the taxpayer's estimate unless it seems clearly out of all reason but of course the tax court does and should abide by what it receives from the Congress and higher courts.