Donating Cryptocurrency

 

I was reading something recently, and it reminded me how muddled our tax Code is.

Let’s talk about cryptocurrency. I know that there is bad odor to this topic after Sam Bankman-Fried and FTX, but cryptocurrencies and their exchanges are likely a permanent fixture in the financial landscape.

I admit that I think of cryptos – at least the main ones such as Bitcoin, Ethereum or Binance Coin – as akin to publicly traded stock. You go to www.finance.yahoo.com , enter the ticker symbol and see Bitcoin’s trading price. If you want to buy Bitcoin, you will need around $23 grand as I write this.

Sounds a lot like buying stock to me.   

The IRS reinforced that perspective in 2014 when it explained that virtual currency is to be treated as property for federal income tax purposes. The key here is that crypto is NOT considered a currency. If you buy something at Lululemon, you do not have gain or loss from the transaction. Both parties are transacting in American dollars, and there is no gain or loss from exchanging the same currency.

COMMENT: Mind you, this is different from a business transaction involving different currencies. Say that my business buys from a Norwegian supplier, and the terms require payment in krone within 20 days. Next say that the dollar appreciates against the krone (meaning that it takes fewer dollars to purchase the same amount of krone). I bought something costing XX dollars. Had I paid for it then and there, the conversation is done. But I did not. I am paying 20 days later, and I pay XX minus Y dollars. That “Y” is a currency gain, and it is taxable.

So, what happens if crypto is considered property rather than currency?

It would be like selling Proctor and Gamble stock (or a piece of P&G stock) when I pay my Norwegian supplier. I would have gain or loss. The tax Code is not concerned with the use of cash from the sale.

Let’s substitute Bitcoin for P&G. You have a Bitcoin-denominated wallet. On your way to work you pick-up and pay for dry cleaning, a cup of coffee and donuts for the office. What have you done? You just racked up more taxable trades before 9 a.m. than most people will all day, that is what you have done.

Got it. We can analogize using crypto to trading stock.

Let’s set up a tax trap involving crypto.

I donate Bitcoin.

The tax Code requires a qualified appraisal when donating property worth over $5,000.

I go to www.marketwatch.com.

I enter BTC-USD.

I see that it closed at $22,987 on January 27, 2023. I print out the screen shot and attach it to my tax return as substantiation for my donation.

Where is the trap?

The IRS has previously said crypto is property, not cash.

A donation of property worth over $5 grand generally requires an appraisal. Not all property, though. Publicly-traded securities do not require an appraisal.

So is Bitcoin a publicly-traded security?

Let’s see. It trades. There is an organized market. We can look up daily prices and volumes.

Sounds publicly-traded.

Let’s look at Section 165(g)(2), however:

    (2)  Security defined.

For purposes of this subsection, the term "security" means-

(A)  a share of stock in a corporation;

(B)  a right to subscribe for, or to receive, a share of stock in a corporation; or

(C)  a bond, debenture, note, or certificate, or other evidence of indebtedness, issued by a corporation or by a government or political subdivision thereof, with interest coupons or in registered form.

The IRS Office of Chief Counsel looked at this and concluded that it could not see crypto fitting the above categories.

Crypto could therefore not be considered a security.

As property not a security, any donation over $5 grand would require a qualified appraisal.

There was no qualified appraisal in our example. All I did was take a screen shot and include it with the return.

That means no charitable deduction.

I have not done a historical dive on Section 165(g)(2), but I know top-of-mind that it has been in the Code since at least 1986.

Do you know what did not exist in 1986?

The obvious.

Time to update the law, me thinks.

This time we were discussing CCA 202302012.

Abandoning A Partnership Interest

I suspect that most taxpayers know that there is a difference between long-term capital gains and ordinary income. Long-term capital gains receive a lower tax rate, incentivizing one to prefer long-terms gains, if at all possible.

Capital losses are not as useful. Capital losses offset capital gains, whether short-term or long-term. If one has net capital losses left over, then one can claim up to $3,000 of such losses to offset non-capital gain income (think your W-2).

That $3,000 number has not changed since I was in school.

And there is an example of a back-door tax increase. Congress has imposed an effective tax increase by not pegging the $3,000 to (at least) the rate of inflation for the last how-many decades. It is the same thing they have done with the threshold amount for the net investment income or the additional Medicare tax. It is an easy way to raise taxes without publicly raising taxes.

I am looking at a case where two brothers owned Edwin Watts Golf. Most of the stores were located on real estate also owned by the brothers, so the brothers owned two things: a golf supply business and the real estate it was housed in.

In 2003 a private equity firm (Wellspring) offered the brothers $93 million for the business. The brothers took the money (so would I), kept the real estate and agreed to certain terms, such as Wellspring having control over any sale of the business. The brothers also received a small partnership position with Wellspring.

Why did they keep the real estate? Because the golf businesses were paying rent, meaning that even more money went their way.

The day eventually came when Wellspring wanted out; that is what private equity does, after all. It was looking at two offers: one was with Dick’s Sporting Goods and the other with Sun Capital.  Dick’s Sporting already had its own stores and would have no need for the existing golf shop locations. The brothers realized that would be catastrophic for the easy-peasy rental income that was coming in, so they threw their weight behind the offer by Sun Capital.

Now, one does not own a private equity firm by being a dummy, so Wellspring wanted something in return for choosing Sun Capital over Dick’s Sporting.

Fine, said the brothers: you can keep our share of the sales proceeds.

The brothers did not run the proposed transaction past their tax advisor. This was unfortunate, as there was a tax trap waiting to spring.  

Generally speaking, the sale or exchange of a partnership interest results in capital gain or loss. The partners received no cash from the sale. Assuming they had basis (that is, money invested) in the partnership, the sale or exchange would have resulted in a capital loss.

Granted, one can use capital losses against capital gains, but that means one needs capital gains.   What if you do not have enough gains? Any gains? We then get back to an obsolete $3,000 per year allowance. Have a big enough loss and one would need the lifespan of a Tolkien elf to use-up the loss.

The brothers’ accountant found out what happened during tax season and well after the fact. He too knew the issue with capital losses. He played a card, in truth the only card he had. Could what happened be reinterpreted as the abandonment of a partnership interest?

There is something you don’t see every day.

Let’s talk about it.

This talk gets us into Code sections, as the reasoning is that one does not have a “sale or exchange” of a partnership interest if one abandons the interest. This gets the tax nerd away from the capital gain/loss requirement of Section 741 and into the more temperate climes of Section 165. One would plan the transaction to get to a more favorable Code section (165) and avoid a less favorable one (741). 

There are hurdles here, though. The first two are generally not a problem, but the third can be brutal.

The first two are as follows:

(1) The taxpayer must show an intent to abandon the interest; and

(2)  The taxpayer must show an affirmative act of abandonment.

This is not particularly hard to do, methinks. I would send a letter to the tax matters or general partner indicating my intent to abandon the interest, and then I would send (to all partners, if possible) a letter that I have in fact abandoned my interest and relinquished all rights and benefits thereunder. This assumes there is no partners’ meeting. If there was a meeting, I would do it there. Heck, I might do both to avoid all doubt.

What is the third hurdle?

There can be no “consideration” on the way out.

Consideration in tax means more than just receiving money. It also includes someone assuming debt you were previously responsible for.

The rule-of-thumb in a general partnership is that the partners are responsible for their allocable share of partnership debt. This is a problem, especially if one is not interested in being liable for any share of any debt. This is how we got to limited partnerships, where the general partner is responsible for the debts and the limited partners are not.

Extrapolating the above, a general partner in a general partnership is going to have issues abandoning a partnership interest if the partnership has debt. The partnership would have to pay-off that debt, refinance the debt from recourse to nonrecourse, or perhaps a partner or group of partners could assume the debt, excluding the partner who wants to abandon.

Yea, the planning can be messy for a general partnership.

It would be less messy for a limited partner in a limited partnership.

Then we have the limited liability companies. (LLCs). Those bad boys have a splash of general partnership, a sprinkling of limited partnership, and they can result in a stew of both rules.

The third plank to the abandonment of a partnership interest can be formidable, depending on how the entity is organized and how the debts are structured. If a partner wants an abandonment, it is more likely than not that pieces on the board have to be moved in order to get there.   

The brothers’ accountant however had no chance to move pieces before Wellspring sold Edwin Watts Golf. He held his breath and prepared tax returns showing the brothers as abandoning their partnership interests. This gave them ordinary losses, meaning that the losses were immediately useful on their tax returns.

The IRS caught it and said “no way.”

There were multiple chapters in the telling of this story, but in the end the Court decided for the IRS.

Why?

Because the brothers had the option of structuring the transaction to obtain the tax result they desired. If they wanted an abandonment, then they should have taken the steps necessary for an abandonment. They did not. There is a long-standing doctrine in the Code that a taxpayer is allowed to structure a transaction anyway he/she wishes, but once structured the taxpayer has to live with the consequences. This doctrine is not tolerant of taxpayer do-overs.

The brothers had a capital and not an ordinary loss. They were limited to capital gains plus $3 grand per year. Yay.

Our case this time for the home gamers was Watts, T.C. Memo 2017-114.

It’s A Cliff, Not A Slope

It is one of my least favorite areas of individual tax practice.

We are talking about health insurance. More specifically, health insurance purchased through the exchanges, coupled with advance payment of the premiums.

Why?

Because there is a nasty tax trap in there, and I saw the trap again the other day. It caught a client who gets by, but who is hardly in a position to service heavy tax debt.

Let’s set it up.

You can purchase health insurance in the private market or from government-sponsored marketplaces – also called exchanges. The exchanges were created under the Affordable Care Act, more colloquially known as Obamacare.

If you purchase health insurance through the exchange and your income is below a certain level, you can receive government assistance in paying the insurance premiums. Make very little income, for example, and it is possible that the insurance will be free to you. Make a little more and you will be expected to contribute to your own upkeep. Make too much and you are eliminated from the discussion altogether.

The trap has to do with the dividing line of “too much.”

Let’s look at the Abrego case.

Mr and Mrs Abrego lived in California. For 2015 he was a driver for disabled individuals, and he also prepared a few tax returns (between 20 and 30) every year. Mrs Abrego was a housekeeper.

They enrolled in the California exchange. They also did the following:

(1)  They provided an estimate of their income for 2015. Remember, the final subsidy is ultimately based on their 2015 income, which will not be known until 2016. While it is possible that someone would purchase health insurance, pay for it out-of-pocket and eventually get reimbursed by the IRS when filing their 2015 tax return in 2016, it is far more likely that someone will estimate their 2015 income to then estimate their subsidy. One would use the estimated subsidy to offset the very real monthly premiums. Makes sense, as long as all those estimated numbers come in as expected.

(2)  They picked a policy. The monthly premiums were $1,029.

(3)  The exchange cranked their expected 2015 numbers and determined that they could personally pay $108 per month.

(4)  The difference - $ 1,029 minus $108 = $921– was their monthly subsidy.

The Abregos kept this up for 10 months. Their total 2015 subsidy was $9,210 ($921 times 12).

Since the Abregos received a subsidy, they had to file a tax return. One reason is to compare actual numbers to the estimated numbers. If they guessed low on income, they would have to pay back some of the subsidy. If they guessed high, the government would owe them for underestimating the subsidy.

The Abregos filed their 2015 return.

They reported $63,332 of household income.

How much subsidy should they have received?

There is the rub.

The subsidy changes as income climbs. The subsidy gets to zero when one hits 400% of the poverty line.

What was the poverty line in California for 2015?

$15,730 for a married couple.

Four times the poverty line was $62,920.

They reported $63,332.

Which is more than $62,920.

By $412.

They have to pay back the subsidy.

How much do they have to pay back?

All of it - $9,210.

Folks, the tax rate on that last $412 is astronomical.

It is frustrating to see this fact pattern play out. The odds of a heads-up from the client while someone can still do something are – by the way – zero. That leaves retroactive tax planning, whose success rate is also pretty close to zero.

Our client left no room to maneuver. Why did her income go up? Because she sold something. Why did she not call CTG galactic command before selling – you know: just in case? What would we have done? Probably advised her to NOT SELL in the same year she is receiving a government subsidy.

How did it turn out for the Abregos?

They should have been toast, except for one thing.

Remember that he prepared tax returns. He did that on the side, meaning that he had a gig going. He was self-employed.

He got to claim business deductions.

And he had forgotten one.

How much was it?

$662.

It got their income below the magic $69,920 level.

They were on the sliding scale to pay back some of that subsidy. Some - not all.

It was a rare victory in this area.

Our case for the homegamers was Abrego v Commissioner.

Like-Kind Exchange? Bulk Up Your Files

I met with a client a couple of weeks ago. He owns undeveloped land that someone has taken an interest in. He initially dismissed their overtures, saying that the land was not for sale or – if it were – it would require a higher price than the potential buyer would be interested in paying.

Turns out they are interested.

The client and I met. We cranked a few numbers to see what the projected taxes would be. Then we talked about like-kind exchanges.

It used to be that one could do a like-kind exchange with both real property and personal property. The tax law changed recently and personal property no longer qualifies. This doesn’t sound like much, but consider that the trade-in of a car is technically a like-kind exchange. The tax change defused that issue by allowing 100% depreciation (hopefully) on a business vehicle in the year of purchase. Eventually Congress will again change the depreciation rules, and trade-ins of business vehicles will present a tax issue.

There are big-picture issues with a like-kind exchange:

(1)  Trade-down, for example, and you will have income.

(2)  Walk away with cash and you will have income.

(3)  Reduce the size of the loan and (without additional planning) you will have income.

I was looking at a case that presented another potential trap.

The Brelands owned a shopping center in Alabama.

In 2003 they sold the shopping center. They rolled-over the proceeds in a like-kind exchange involving 3 replacement properties. One of those properties was in Pensacola and becomes important to our story.

In 2004 they sold Pensacola. Again using a like-kind, they rolled-over the proceeds into 2 properties in Alabama. One of those properties was on Dauphin Island.

They must have liked Dauphin Island, as they bought a second property there.

Then they refinanced the two Dauphin Island properties together.

Fast forward to 2009 and they defaulted on the Dauphin Island loan. The bank foreclosed. The two properties were sold to repay the bank

This can create a tax issue, depending on whether one is personally liable for the loan. Our taxpayers were. When this happens, the tax Code sees two related but separate transactions:

(1) One sells the property. There could be gain, calculated as:

Sales price – cost (that is, basis) in the property

(2) There is cancellation of indebtedness income, calculated as:

Loan amount – sales price

There are tax breaks for transaction (2) – such as bankruptcy or insolvency – but there is no break for transaction (1). However, if one is being foreclosed, how often will the fair market value (that is, sales price) be greater than cost? If that were the case, wouldn’t one just sell the property oneself and repay the bank, skipping the foreclosure?

Now think about the effect of a like-kind exchange and one’s cost or basis in the property. If you keep exchanging and the properties keep appreciating, there will come a point where the relationship between the price and the cost/basis will become laughingly dated. You are going to have something priced in 2019 dollars but having basis from …. well, whenever you did the like-kind exchange.

Heck, that could be decades ago.

For the Brelands, there was a 2009 sales price and cost or basis from … whenever they acquired the shopping center that started their string of like-kind exchanges.

The IRS challenged their basis.

Let’s talk about it.

The Brelands would have basis in Dauphin Island as follows:

(1)  Whatever they paid in cash

(2)  Plus whatever they paid via a mortgage

(3)  Plus whatever basis they rolled over from the shopping center back in 2003

(4)  Less whatever depreciation they took over the years

The IRS challenged (3).  Show us proof of the rolled-over basis, they demanded.

The taxpayers provided a depreciation schedule from 2003. They had nothing else.

That was a problem. You see, a depreciation schedule is a taxpayer-created (truthfully, more like a taxpayer’s-accountant-created) document. It is considered self-serving and would not constitute documentation for this purpose.

The Tax Court bounced item (3) for that reason.

What would have constituted documentation?

How about the closing statement from the sale of the shopping center?

As well as the closing statement when they bought the shopping center.

And maybe the depreciation schedules for the years in between, as depreciation reduces one’s basis in the property.

You are keeping a lot of paperwork for Dauphin Island.

You should also do the same for any and all other properties you acquired using a like-kind exchange.

And there is your trap. Do enough of these exchanges and you are going to have to rent a self-storage place just to house your paperwork.

Our case this time was Breland v Commissioner, T.C. Memo 2019-59.

Getting Married And ObamaCare Subsidies

I am reading a case that reminds me of a return from last year’s filing season. I had an accountant who became upset, arguing that the result was unfair.

I agree, but this is tax.

I started practice in the eighties, and a significant portion of my tax education was at a law school.  Tax accounting classes tended to be staccato-like:  issue-driven, procedural and reliably arithmetic. Tax law classes were case and doctrine-focused: what is income, for example, and we would study the concept of income as it evolved over the decades.

It seemed to me that tax law early in my career followed – as a generalization - more of that law school feel: corporate liquidations and the General Utilities doctrine; the claim of right doctrine and North American Oil; business purpose and Helvering v Gregory. There were strong Ways and Means and Finance Committee chairs with some understanding of the issues (and precedent) their committees were addressing.  

But those were different politicians. Both they and taxes have gotten progressively weirder.

Congress went on to introduce something called uniform capitalization, arguing that accountants did not know how to absorb costs into inventory; tax items – personal exemptions or itemized deductions, for example – that would evaporate like a Thanos movie moment; an alternative minimum tax that would tax something that ultimately went down in value; the increasing refundability of tax credits, meaning that those at the low end of the income scale had as much if not more opportunity to game the system than any big-baddy McMoneybags did.

Let’s look at the Fisher case.

Christina Fisher began the year as a single mom. She married Timothy in November. Christina was struggling, and she received Obamacare subsidies.

You may recall that there are two relevant aspects to Obamacare that will come into play in this case:

(1)  If you are below a certain income level, you might be entitled to some – or even full – subsidy of your health insurance premiums.

(2)  You can use that subsidy to pay your premiums immediately rather than wait to the end of the year and receive the subsidy via a tax refund.

There was no question that Christina was entitled to a subsidy for more than 10 months. Her circumstances changed when she married; she no longer qualified.

Time to prepare her taxes.

One is supposed to attach a reconciliation of projected income when receiving the subsidy to actual income ultimately reported on the tax return. The Fishers did not.

The IRS did it for them. They also wanted approximately $4,500, saying she was not entitled to the subsidy.

A rational mind would expect that the tax law would go to a month-by-month calculation. There was no doubt that she qualified for 10 months. Let’s allow for some doubt in the month of marriage. Let’s also disqualify the last month of the year because of Timothy’s income.

At worst she would have to pay back 2 months, right?

Nah.

She has to use her household income for the year – including Timothy’s income.

Then she takes half of that amount for her monthly testing.

Not her OWN income, mind you, but one-half of combined income for the year.

Who came up with this?

Not the best and brightest exercising due deliberation, clearly.

Well, using even one-half of the combined household income, Christina failed all 10 months one would have expected her to pass. She owed almost $4,500 to the IRS.

And that is why my accountant lost his mind last year. He could not believe that what he was reading is really what was meant. It made no sense! Surely there is an alternative calculation? Does the tax Code allow a facts and circumstances …?

Ahh, he is still young. He will learn.

Fewer Like-Kind Exchanges in 2018

The new tax bill changed like-kind exchanges.

This is Section 1031, which was and is a tax provision that allows one to defer taxes on a property sale - if one follows the rules.

I suspect that almost every practicing tax accountant has met with a client who said the following:

·      I sold property last year,

·      I hear that there is a tax break if I buy another piece of property

Well, yes there MIGHT be a tax break, but you have to follow the rules from the beginning, not just months later when you meet with your accountant.

The normal sequence is to sell the property first. It doesn’t have to be that way – you can start with the buy – but that is unusual. The tax nerds refer to that as a “reverse.”

There are ropes:

(1)  You want the money held by a third party, such as an attorney or title company;

(2)  You have to identify the replacement property within 45 days (there is some latitude in identifying replacement properties); and

(3)  You have to complete the whole transaction – sell and buy – within 180 days.

(4) Anticipate that you will be buying-up: buy more than what you sold.

(5)  Debt is tricky. To be safe, increase your debt, at least a little bit.  

(6)  You never want to receive cash from the deal. Cash is income – period.

If you wait to until you meet with your accountant, then you have probably blown requirement (1).

The most common like-kind that I see – I kid you not – is vehicle trade-ins. They happen every day, to the point that we do not even pay them attention. In the tax world, however, trade-ins are like-kind exchanges.

The next most common are real estate exchanges. I have probably seen at least one a year for the last couple of decades. Those usually go through a title company or attorney, and I have the pleasure of looking over a binder of paperwork that would weigh down a Clydesdale.

There are others. One can like-kind exchange personal property, for example. The rules are stricter than the rules for real estate, and for the most part I have not seen a lot of those.

The new tax bill made a big change to like-kind exchanges.

How?

Because personal property no longer qualifies for like-kind treatment.

So much for trade-ins.

But there is another kind that I thought of recently.

Think sports.

Yep, back in 1966 the IRS considered player contracts – if done correctly – to be property qualifying for like-kind.

I am unsure how professional sports will work-around this change. It is not an area I practice, although I would have loved to.

Why did Congress mess with this?

It wasn’t about player contracts. It rather had to do with art and collectibles. It had become de rigueur to like-kind exchange in the art world, as buyers had come to view art as just another tradable commodity. Think stocks, but with the option of delaying taxes until the end of time. This reached the attention of the Obama administration, which began the push to eliminate them.

It took another White House, but it finally got done.

TomatoCare And The Supreme Court

Let’s play make believe.

Late on a dark and stormy Saturday night, the Congressional Spartans - urged on by Poppa John's and the National Tomato Growers Association – passed a sweeping vegetable care bill by a vote of 220-215.

The bill went to the Senate, where its fate was sadly in doubt. The fearless majority leader Harry Leonidas negotiated agreements with several recalcitrant senators, including the slabjacking of New Orleans, an ongoing automatic bid for the Nebraska Cornhuskers to the college Bowl Championship Series and the relocation of Vermont to somewhere between North Carolina and Florida. After passage, the bill was signed by the president while on the back nine at Porcupine Creek in Rancho Mirage, California.

As a consequence of this visionary act, Americans now had access to affordable tomatoes, thanks to market reforms and consumer protections put into place by this law. The law had also begun to curb rising tomato prices across the system by cracking down on waste and fraud and creating powerful incentives for grocery chains to spend their resources more wisely. Americans were now protected from some of the worst industry abuses like out-of-season shortages that could cut off tomato supply when people needed them the most.

California, Vermont and Massachusetts established state exchanges to provide tomato subsidies to individuals whose household income levels were below the threshold triggering the maximum federal individual income tax rate (presently 39.6 percent). The remaining states had refused to establish their own exchanges, prompting the federal government to intervene. The Tax Exempt Organization Division at the IRS, recognized for their expertise in technology integration, data development and retention, was tasked to oversee the installation of federal exchanges in those backwater baronies. IRS Commissioner Koskinen stated that this would require a reallocation of existing budgetary funding and – as a consequence - the IRS would not be collecting taxes from anyone in the Central time zone during the forthcoming year.

The 54 states that did not establish their own exchanges filed a lawsuit (Bling v Ne’er-Do-Well) challenging a key part of the TomatoCare law, which read as follows:

The premium assistance amount determined under this subsection with respect to any vegetable coverage amount is the amount equal to the lesser of the greater…”

These benighted states pointed out that, botanically, a tomato was a fruit. A fruit was defined as a seed-bearing vessel developed from the ovary of a flowering plant. A vegetable, on the other hand, was any other part of the plant. By this standard, seedy growth such as bananas, apples and, yes, tomatoes, were all fruits.

There was great fear upon the land when the Supreme Court decided to hear the case.

Depending upon how the Supreme Court decided, there might be no tomato subsidies because tomatoes were not vegetables, a result clearly, unambiguously and irretrievably-beyond-dispute not the intent of Congress on that dark, hot, stormy, wintery Saturday night as they debated the merits of quitclaiming California to Mexico.

The case began under great susurration. The plaintiffs (the 54 moon landings) read into evidence definitions of the words “fruit” and “vegetables” from Webster’s Dictionary, Worcester’s Dictionary, the Imperial Dictionary and Snoop Dogg’s album “Paid tha Cost to Be da Bo$$.”

The Court acknowledged that the words “fruit” and “vegetable” were indeed words in the English language. As such, the Court was bound to take judicial notice, as it did in regard to all words in its own tongue, especially “oocephalus” and “bumfuzzle.” The Court agreed that a dictionary could be admitted in Court only as an aid to the memory and understanding of the Court and not as evidence of the meaning of words.

The Court went on:

Botanically speaking, tomatoes are the fruit of the vine. But in the common language of the 202 area code, all these are vegetables which are grown in kitchen gardens and, whether eaten cooked, steamed, boiled, roasted or raw, are like potatoes, carrots, turnips and cauliflower, usually served at dinner with, or after, the soup, fish, fowl or beef which constitutes the principal part of the repast.”

The Court decided:

            But it is not served, like fruits generally, as a dessert.”

With that, the Court decided that tomatoes were vegetables and not fruit. The challenge to TomatoCare was courageously halted, and the liberal wing of the Court – in a show of their fierce independence and tenacity of intellect – posed for a selfie and went to Georgetown to get matching tattoos.

Thus ends our make believe.

There was no TomatoCare law, of course, but there WAS an actual Supreme Court decision concerning tomatoes. Oh, you didn’t know?

Back in the 1880s the Port of New York was taxing tomatoes as vegetables. The Nix family, which imported tons of tomatoes, sued. They thought they had the law – and common sense – on their side. After all, science said that tomatoes were fruit. The only party who disagreed was the Collector of the Port of New York, hardly an objective juror.

The tax law in question was The Tariff of 1883, a historical curiosity now long gone, and the case was Nix v Hedden. 

And that is how we came to think of tomatoes as vegetables.

Brilliant legal minds, right?