I have an older sister. No other siblings. My sister is only 16 months older than me, so we spent significant time with each other as children.
My sister is extremely laid back. But when we were young she would take no quarter in asserting the role as the older sibling.
This included teaching me about the world. One day, this meant explaining that my friend Bob was actually named Bobert. I knew this was not true, so I strenuously objected.
She countered. We call you Jim, but your name is James, she said. If someone is named Rob, what is their real name?
Robert, of course, I replied. Well, if Rob is really Robert, then Bob, she calmly said, is really Bobert.
The calm was the worst of it. The louder I argued back, the calmer she restated the “rule.” Rob, Robert, Bob, Bobert.
Her claim resembles what is called a “colorable claim” in legal circles. If one accepts the facts, and the legal reasoning is reasonable, the claim is at least plausible. Not right perhaps, but plausible.
The facts: Rob is a name; Bob is a name. The reasoning. Rob is short for Robert. Plausibly, Bob could then be short for Bobert.
The tax law once required that professionals assert plausible claims. The standard was called “reasonable basis,” generally thought to be about 20% chance of success if challenged.
Bad behavior, oh perhaps intentionally scarring your younger brother with absurd permutations of names, led to needed changes.
The standard was raised in three stages, and then lowered one, to what is now substantial authority. This is just below 50% chance of success and is more than a colorable claim.
I return now to last week’s column. News outlets have asked professional tax advisers for their views on what has been reported about former President Trump’s tax filings.
The response that I have repeatedly seen is, these are all things that are allowed — and even normal — in the real estate industry.
The takeaway? Nothing to see here folks, just keep moving. But what are “these things” that are “normal” in the industry? What are these experts really saying?
Tax losses on real estate projects are normal. Deferral cancellation of debt income is normal. Family loans are normal. Conservation easement deductions are normal.
It is important to know what something means. It is equally important to know what it does not mean.
Let’s say your older sister tells you that her friend’s ball python swallowed a Toyota Camry yesterday. Impossible, you reply.
Your sister returns with a statement from a herpetologist: “A snake is capable of eating something larger than itself.”
Well, she’s done her research, you think. An expert on snakes says it is not unusual for a snake to eat something larger than itself.
But what the expert was seemingly not asked, and clearly did not address, is could a ball python consume a Toyota Camry? That’s what the facts were presented as.
An expert on names may state that it is common for names to be shortened. That does not mean the expert said Bob is a shortened version of Bobert.
Real estate loss carryforwards of $105 million are not “common.” Deferred debt cancellation income of $141 million is not “common.”
The tax experts commenting on Trump’s returns are either wrong or they were misquoted. They may have been asked, “are these items common?” rather than the real question, “are numbers of this magnitude common?”
In 2018 it was reported that a 32-pound burmese python swallowed a 35-pound white tail deer. This is the largest recorded prey-to-predator weight ratio.
A claim that a ball python swallowed a Toyota Camry cannot be evaluated with an expert response that a snake can eat something larger than itself. That was not the issue raised.
Tax claims of the magnitude shown on the Trump returns cannot be evaluated with an expert response that it is common to see deductions of this, that, and the other thing on real estate investor returns.
Real estate people swallowing rats? Believable. But mid-sized cars? That’s a little hard to swallow. If you think Trump’s filings are “normal,” let me introduce you to my friend Bobert.
James R. Hamill is the director of tax practice at Reynolds, Hix & Co. in Albuquerque. He can be reached at firstname.lastname@example.org.