THE VIRGINIAN-PILOT
Copyright (c) 1996, Landmark Communications, Inc.
DATE: Tuesday, June 11, 1996 TAG: 9606110431
SECTION: BUSINESS PAGE: D1 EDITION: FINAL
SOURCE: BY MARC DAVIS, STAFF WRITER
DATELINE: NORFOLK LENGTH: 72 lines
In a tax dispute with the Internal Revenue Service, developer R.G. Moore has won one and lost one.
That means Moore won't get the $47,477 tax refund he had demanded. But he also won't have to pay $290,763 in back taxes.
U.S. District Judge John A. MacKenzie ruled last week that Moore and the IRS are wrong in their demands against each other.
MacKenzie ruled that Moore was wrong to claim that the government ``took'' 60 acres in Chesapeake by changing federal wetland rules, making the land undevelopable. Moore took a tax break - and demanded a refund - because of that.
But MacKenzie also ruled that Moore was correct in deducting a lavish $347,000 Christmas party for real estate agents in 1989 as a business expense.
He also ruled that Moore was correct to deduct a $698,503 bad debt to business partner Nancy Creech, and to deduct losses from his home-rental business.
Moore is the most prolific developer ever in Virginia Beach. Over the past 40 years he has developed more than 19,000 lots and built more than 14,000 homes, mostly in Virginia Beach.
But as business has soured in recent years, Moore has suffered some foreclosures and money problems. His 1,200-acre Lake Ridge project, the biggest ever proposed in Virginia Beach, recently went through bankruptcy. It was never built.
The tax case arose from the proposed Elbow Road Estates, which also was never built. It included 60 acres known as the Boy Scout tract.
The case could have set a national precedent on the wetlands issue. Moore asked the court to rule that 1989 wetlands regulations were tantamount to ``taking'' his property because they made it virtually impossible to get a development permit.
In a 44-page ruling, MacKenzie said he was sympathetic to Moore and found the developer's experts convincing. But he ducked the issue and said it will have to go to a higher court.
``This Court would not be the forum for as drastic and far-reaching a pronouncement as that which (R.G. Moore and his wife Frances) seek in this lawsuit,'' MacKenzie wrote.
The judge ruled that no other federal court has even hinted that the 1989 wetland permit process ``was so flawed that its mere enactment could rise to the level of a taking.''
On that basis, MacKenzie denied Moore's request for a tax refund.
Because the case was so fact-specific to Moore, it probably does not set a precedent, said Moore's attorney, Douglas E. Kahle.
In the same opinion, MacKenzie ruled in Moore's favor - and against the IRS - on three other issues. The judge ruled that:
Moore's 1989 Christmas party at the Omni Waterside Hotel in Norfolk, a $347,000 affair featuring singer Barbara Mandrell, was a deductible business expense.
Moore said the annual party helped him sell houses. It was open only to real-estate agents who had sold at least two R.G. Moore houses. The IRS said the party was a nondeductible goodwill expense.
The judge agreed with Moore, citing two factors. First, he ruled, everyone attending the party knew it was thrown ``only to further the Moores' business.'' One real-estate agent testified that she and other agents worked extra hard to sell at least two R.G. Moore houses by the end of the year so they could be invited to the party.
Second, MacKenzie ruled, Moore and his wife proved that ``there was no meaningful personal or social relationship between the Moores and the recipients of the entertainment.''
Moore properly wrote off a $698,503 loan to Creech, a former Virginia Beach city councilwoman. The unsecured loan stemmed from the Lake Ridge project. MacKenzie ruled that the debt was indeed worthless at the end of 1989.
Moore properly grouped losses from renting homes in eight subdivisions. This contributed to Moore's 1989 net operating loss.
KEYWORDS: TAX IRS RULING by CNB