Tax Court on Default Rules in Statutory Interpretation-Herein Also of Chevron, Loper Bright and APA § 706(2(A) (11/14/25)

In Apache Corp. v. Commissioner, 165 T.C. ___ No. 11 (11/1325), reviewed opinion, the Court addressed the momentous (to some) issue of whether a taxpayer electing not to carryback some categories of net operating losses (NOLs) can reserve in the election to carryback other categories of NOLs. The opinions in Appache may be viewed on the Tax Court Docket Sheet for Case # 25984-22, here, at #56, on my Google Drive here, on GS here, and on TN here.  I must say that I have neither worried nor lost sleep over that issue, either before or after this opinion. As respects the issue actually decided in Apache, I am agnostic which may be an admission that I have not really dug deeply into the issue. So, I don’t propose here to deal with the merits of the issue decided.

I want to address the methodology in reaching the majority opinion and Judge Buch’s concurring opinion.

Judge Buch’s concurring opinion (Slip Op. 22-23) is very short. If I may summarize a very short opinion:

(i)          the statutory text is inconclusive on the competing interpretations which are equally plausible, phenomenon I describe as statutory ambiguity where a best interpretation cannot be made; and

(ii)        where the statute is ambiguous, courts are “inclined to rely on the traditional canon that construes revenue-raising laws against their drafter.”

The majority determines that the statutory text is not ambiguous but then says (Slip Op. 18-19) that the default rule Judge Buch relies on should carry the day even if the text were ambiguous (calling it a “tiebreaking principle"). As stated, this supposed principle, sometimes stated as a canon or maxim of interpretation, operates like the rule of lenity that construes criminal statutes in favor of a defendant, which is a default rule in cases of ambiguity. See e.g., Ryan D. Doerfler, The "Ambiguity" Fallacy, 88 Geo. Wash. L. Rev. 1110, 1116 (2020) (referring to Chevron and lenity as default rules); Intisar A. Rabb, The Appellate Rule of Lenity: Responding to Abbe R. Gluck & Richard A. Posner, Statutory Interpretation on the Bench: A Survey of Forty-Two Judges on the Federal Courts of Appeals, 131 Harv. L. Rev. 179, 194 N. 77 (2018) (Same re lenity).

That interpretive methodology in ambiguity is a default rule similar to the Chevron default rule prior to Chevron’s demise in Loper Bright. As readers of this blog and observers in general know, Loper Bright overruled Chevron and thus the Chevron default rule does not apply in a state of ambiguity as between two or more interpretations, one of which is an agency interpretation qualifying for Chevron deference (generally notice and comment interpretive regulations).

Tax Court in Unanimous Reviewed Opinion Interprets and Applies the Accuracy-Related Economic Substance Penalty (11/12/25)

In Patel v. Commissioner, 165 T.C. ___, No. 10 (11/12/25) (unanimous reviewed opinion), the Tax Court (Judge Jones) applied the interpreted the requirements of the accuracy-related penalty for transactions that lack economic substance, § 6662(b)(6), which applies the economic substance doctrine as codified under I.R.C. § 7701(o). The Opinion (for which there is yet no Tax Court permalink, may be reviewed in the Tax Court docket entries for the lead case, here at # 421, dated 11/12/25, on my Google Drive here, on TN here, and on GS here. The transaction at issue was yet another captive insurance case, but addressed for the first time the economic substance accuracy-related penalty.

The Tax Court earlier had shot down the particular captive insurance on the substantive tax merits in Patel v. Commissioner (Patel I), T.C. Memo. 2020-133, here, and Patel v. Commissioner (Patel II), T.C. Memo. 2024-34, here. The new Patel opinion addresses penalty issues not resolved in the prior opinions.

The new Patel opinion offers a relatively straightforward application of the statutory text to a transaction that, in my opinion from the prior Patel opinions, lacked economic substance and was the type of transaction to which the penalty should apply. Indeed, I think the Court’s application of the principles of statutory interpretation, although I think wooden, are what the current judicial environment requires (including a bow to legislative history “For those who consider legislative history relevant.” (Slip Op. 18-19); as phrased, it is not clear whether Judge Jones for the Court felt legislative history was relevant).

Readers of this blog entry are directed to the opinion for the Court’s reasoning and steps.

JAT Comments/Musings:

I offer just the following comments that caught my specific attention as I wandered through the Opinion (in order as they arise in the opinion and not necessarily in order of importance):

1. A host of amici briefs were filed; they are identified at Slip Op. 2 n. 2. The Opinion identifies the amici briefs in the footnote but otherwise does not refer to them. The footnote does add: 

At respondent’s request, we ordered the parties to file briefs in response to the amicus briefs. At the parties’ request, we held oral argument on the issues raised by the briefs.

I have not seen the amici briefs but, since the Court does not refer otherwise to them, I am not going to speculate what effect amici briefs had to the outcome. I will say that I have known the Patels’ lead counsel for some time, he is a very good tax litigator, and assume that he covered the bases in the briefs on which his name appears.

2. The Opinion says (Slip Op. 3 n. 5): “We understand the interaction of section 6662(a) and (b)(6) to impose a single penalty. Because the Commissioner determined that penalty for multiple years (each of the tax years at issue), we will refer to it in the plural (penalties).” Think about that unexplained comment.

Tax Court Yet Again Finds Bullshit Conservation Easement Grossly Overvalued (11/4/25; 11/16/25)

In Paul Adams Quarrry Trust v. Commissioner, T.C. Memo. 2025-112, GS here and TN here, the Tax Court (Judge Toro) shot down another bullshit conservation easement gambit (this time not a syndicated one, but following the same game plan). As common in such cases, the Court found that the claimed value of the easement was grossly excessive, resulting in denial of most of the amount claimed and imposition of the gross valuation misstatement penalty under I.R.C. § 6662(a) and (h).

Worthy of note is the Court’s opening paragraph:

This case concerns the contribution of a conservation easement by Paul-Adams Quarry Trust, LLC (PaulAdams), in 2017. Petitioner is Francis L. (Rusty) Adams, Paul-Adams’s tax matters partner.1 Petitioner’s heightened rhetoric aside, this is not a difficult case. The principal question before the Court is the value of the easement Paul-Adams granted to the Oconee River Land Trust (Oconee Trust) in December 2017 over approximately 207 acres in Elberton, Georgia (Paul-Adams property). The easement restricted what Paul-Adams [*7] could do in the future with those 207 acres. Paul-Adams claimed in its return that the restriction reduced the value of the Paul-Adams property by $10,234,108. This claim has no basis in reality, and we therefore reject it.

The Court repeats this theme throughout the 100+ pages of the opinion.

Tax Court Warns Counsel in Advance of Trial in Syndicated Conservation Easement Case (10/31/25)

In Cottonpatch Timber Company, LLC v. Commissioner (T.C. No. 26103-22, here, at #54 Order dtd 10/29/25), TN here, Judge Gustafson sent warnings to counsel in a syndicated conservation easement case in advance of the trial setting currently for December 15, 2025. Specifically, he cautioned:

As to valuation, the Tax Court has criticized overvaluation of conservation easements in Mill Road, at *48-53, and in a number of recent opinions in other cases. Petitioner’s counsel should be able, in due course, to explain why its position this case is materially different from the strongly criticized positions in those cases, since a position that ignores those opinions and reflects the gross fallacies in those previous positions might be frivolous, see sec. 6673(a)(2), and trial time spent in disregard of those opinions would likely be a waste.

The Mill Road opinion is here.

In addition, Judge Gustafson closed with this cautionary advice:

          The judge stated to counsel that he is considering the possibility of issuing, at the conclusion of the trial in this case, a bench opinion pursuant to Rule 152. The parties should keep that possibility in mind as they prepare their pretrial memoranda, since in that event there would be no post-trial briefing.

These cautions to counsel echo Judge Buch’s Order with attached extensive bench opinion in a conservation easement shelter. Tax Court Rejects a Bullshit Tax Shelter False Valuation Claim with Warning of Sanctions for Taxpayers, their Counsel, and Expert Witness Proffering the Bullshit (Federal Tax Procedure Blog 7/16/25; 9/10/25), here. I think Tax Court judges are getting less tolerant, rightfully so, considering the massive waste of time for trials to claim grossly inflated valuations for conservation easements.

Tax Court in Reviewed Opinion Holds TEFRA Litigation Time Limits Jurisdictional (10/25/25)

I am late to post on North Wall Holdings, LLC v. Commissioner, 165 T.C. ___, No. 9 (10/21/25) (reviewed opinion, T.C. Case No. 27773-21, here, at # 50 and  GS here). North Wall is the latest on the tax saga starting with Boechler, P.C. v. Commissioner, 596 U.S. 199 (2022), holding that the time limit for instituting CDP Tax Court proceedings is not jurisdictional, meaning that equitable tolling for late filing may apply. In recent Supreme Court jurisprudence, many time limits have been held to be not jurisdictional. The key tax exception is United States v. Brockamp, 519 U.S. 347 (1997), holding that the refund time limits are jurisdictional.

Notwithstanding the general trend, the Tax Court has held § 6213(a)'s time limits for petitions for redeterminations of deficiencies are jurisdictional. Hallmark Research Collective v. Commissioner, 159 T.C. 126 (2022) (unanimous reviewed opinion). Three Courts of Appeals have now held the § 6213(a) time limits are not jurisdictional, thus permitting equitable tolling. See 6th Circuit Joins 2nd and 3rd Circuits in Holding § 6213(a)’s 90--day Petition-Filing Deadline is Not Jurisdictional (8/25/25; 9/8/25), here.

In North Wall, the opinion for the Court finds the TEFRA time limits jurisdictional. The opinion’s detailed discussion of the TEFRA interrelated time frames is quite excellent. I highly recommend. For purposes of this blog entry, the headnotes are sufficient:

          R mailed a Notice of Final Partnership Administrative Adjustment (FPAA) to the tax matters partner (TMP) of PS, a limited liability company treated as a partnership for federal income tax purposes and subject to the TEFRA unified audit and litigation procedures. P, a notice partner, filed a Petition for readjustment of partnership items 168 days after R mailed the FPAA to the TMP. R moved to dismiss P’s Petition for lack of jurisdiction. P objects.

          A TMP may file a petition for readjustment within 90 days of R’s mailing of an FPAA to the TMP. I.R.C. § 6226(a). A partner or group of partners entitled to notice may file a petition within 60 days after the close of the 90- day TMP petition period. I.R.C. § 6226(b)(1); see also I.R.C. § 6231(a)(8) (defining “notice partner”), (11) (defining “5-percent group”).

          The text, context, and relevant historical treatment of the TEFRA petition period establish that the period within which to file a petition is a jurisdictional limit. The text places the petition period within the jurisdictional grant. I.R.C. § 6226(b)(1), (f). In the context of the broader TEFRA provisions, allowing equitable tolling would render [*2] the TEFRA statutory scheme unworkable. Historically, courts have treated the TEFRA petition deadlines as jurisdictional, and Congress has amended TEFRA to specifically account for the effect of the petition deadlines’ being jurisdictional.

          Even setting aside the jurisdictional question, the complex TEFRA statutory scheme indicates that Congress did not intend for the equitable tolling doctrine to apply to untimely TEFRA petitions.

          Held: P’s Petition was untimely.

          Held, further, equitable tolling does not apply to hold open the prescribed periods set forth in I.R.C. § 6226(a) or (b) for filing a TEFRA petition.

Interest in DOJ Tax Reunion/Wake for DOJ Tax Alumni (10/17/25)

I am trying to assess interest among DOJ Tax Alumni for a Reunion/Wake for the Tax Division. Since some DOJ Tax Alumni read this blog, I offer this link to the blog post on the DOJ Tax Alumni Blog I maintain: Fillable On-Line Form to Assess Interest in DOJ Tax Alumni Reunion/Wake (10/7/25), here.

Tax Court Rejects Various Hail Mary Claim, Including APA Claims, to Get Out of Penalty Free (10/8/25)

In Computer Sciences Corp. v. Commissioner, 165 T.C. ___, No. 8 (2025), TC Case No. 4823-21, here, at entry 305 dated 10/6/25*, GS here**, and TN here, the Court (Judge Lauber) issued yet another § 6751(b), here, written supervisor approval opinion where, as in other cases, the taxpayer seeks to avoid an IRS penalty because of a supposed IRS footfault in the penalty assertion process. In addition to the usual § 6751(b) hail mary claims for a get out of penalty free escape, the taxpayer raises Administrative Procedure Act (“APA”) Claims which, I presume, are the reason the opinion was designated for T.C. reporting (as opposed to T.C. Memo or simply an Order).

For persons wanting a preliminary look at the underlying issues of what the case is all about, go to the docket entries linked above at entry 42 Order dated 7/24/23.

I report here on the APA claims, and will then cover its reference to the § 6751(b) regulations adopted in final in December 2024.

I start my discussion with a quote from Bryan Camp’s iconic post The APA Is Not A Hammer (Procedurally Taxing Blog 6/24/22), here, which opens:

Kristin Hickman loves the APA. To channel Jed Rakoff, it’s her Stradivarius, her Colt 45, her Louisville Slugger, her Cuisinart, and her True Love. It’s her Hammer, her righteous Mjölnir.

And when you have a hammer, everything looks like a nail. Including ALL Treasury regulations.

Although Computer Sciences is not directly attacking regulations, the same comment is appropriate here. With the modern claims about the APA, everything begins to look like a nail, so taxpayers unleash the APA to attack IRS action regardless of how far-fetched the attack is.

In Computer Sciences, I introduce the Court’s holdings from the opening relevant headnotes that, while not technically part of the opinion, for present purposes fairly summarize the opinion (after each holding, I provide brief comment for context):

Eighth Circuit Applies First Sec. Bank Limitation to § 482 Intangibles Allocation Despite the Commensurate with Income Standard Enacted in 1986 (10/2/25)

I recently wrote on the 3M case pending in the 8^th Circuit involving the issue of whether the commensurate with income standard in § 482 enacted in 1986 permits the IRS to use § 482 to allocate royalty income to 3M for intangibles it transferred to a Brazilian affiliate in excess of the amount of royalty income permitted by Brazilian law. The full text of the commensurate with income standard  enacted in 1986 is: “In the case of any transfer (or license) of intangible property (within the meaning of section 367(d)(4)), the income with respect to such transfer or license shall be commensurate with the income attributable to the intangible.” See Loper Bright’s Motivated Mistreatment of Statutory Ambiguity and Best Interpretations (Federal Tax Procedure Blog 8/28/25), here.

In 3M Company v. Commissioner, ___ F.4th ___ (8th Cir. 10/1/25), here, the Court held that the IRS could not use § 482's commensurate with income standard to tax a related party affiliate's (3M's)  income on the transfer of intangibles in excess of legal limits permitted by law applying to the party receiving and exploiting the intangibles transferred to it.

I think it might be helpful to illustrate the issue in a simple examples. I start with an example where no legal prohibition is involved: Suppose intangible property in an open market would have commanded a royalty of 10% in an unrelated party transaction (which I will call the fair market value (“FMV”) royalty). But, in a related party transaction, the U.S. party transferring intangibles to the foreign affiliate charged the foreign affiliate a royalty of 5%. The foreign affiliate earns extra income over what it would have earned if it paid the FMV 10% royalty. This example is a classic instance where the commensurate with income standard enacted in 1986 applies to permit the IRS to tax the U.S. affiliate on an additional 5% royalty.

The next example is the same, except the law where the foreign affiliate earns the extra income limits royalty payments to 5%. The foreign affiliate earns extra income by paying 5% rather than the 10% , FMV royalty. The 5% royalty rate is not commensurate with the income. The question in 3M is whether the IRS can apply the FMV commensurate with income royalty rate despite the local law prohibition?

In Commissioner v. First Sec. Bank of Utah, N.A., 405 U.S. 394 (1972), the Court held that pre-amendment § 482 did not permit an allocation where the recipient was not lawfully entitled to receive the income. In 3M, the taxpayer argued and the Eighth Circuit held that the commensurate with income standard did not apply because Brazilian law limited the royalty the 3M affiliate could pay 3M. The IRS argued that the 1986 commensurate with income amendment to § 482 permitted the allocation. I repeat the text of the commensurate with income standard: “ In the case of any transfer (or license) of intangible property (within the meaning of section 367(d)(4)), the income with respect to such transfer or license shall be commensurate with the income attributable to the intangible.” (Emphasis supplied.)

District Court Holds the FBAR Willful Penalty Requires Opportunity for Pre-Assessment Jury Trial (9/24/25; 10/1/25)

I have updated this blog in paragaph 5 below with an analogous case, HDH Group, involving the § 6700 penalty that has similar features to the FBAR willful penalty involved in the main case discussed, Sagoo. I have also updated this blog in paragraph 6 below to provide a link to a good discussion of these cases.

I have written before on SEC v. Jarkesy, 603 U.S. 109 (2024), Preliminary Print here, in§ which the Court held that the Constitution’s Seventh Amendment guaranteeing a jury trial in some cases applied to processes where the Government (SEC there) imposed civil fraud-type penalties (there securities fraud). That is a high-level summary of a fairly complex Supreme Court opinion. Thus, for example, the Tax Court recently held that Jarkesy did not require a right to jury trial before the IRS determined a civil fraud penalty in a partnership equivalent of a notice of deficiency, permitting the partnership to contest in the Tax Court where no jury trial is permitted. Silver Moss Properties, LLC v. Commissioner, 165 T.C. ___, No. 3 (2025) (Reviewed Opinion) (T.C. Dkt. No. 10646-21, here, at Entry # 109, GS here), discussed in Tax Court Rejects SCE’s Hail Mary Jarkesy Pass (Federal Tax Procedure Blog 8/21/25), here.

In United States v. Sagoo (N.D. Tex No. 24-CV-01159-0 Memo Opinion & Order dtd 9/23/25), CL here and GS here, the Court dismissed the Government’s FBAR willful penalty collection suit because the Government assessed the FBAR penalty without affording the penalized party (Sagoo) a pre-assessment jury trial on liability. The opinion is relatively short (8 pages) and rather cryptic in its legal analysis (pp. 4-7). So, I will leave it to readers of this blog to read and consider the legal analysis for whatever it is worth.

JAT Comments:

1. I say that the legal analysis is “rather cryptic.” Of course, as the Sagoo Court develops its legal analysis, the law is straightforward and easily applied to the simple relevant facts. If that were true, then calling the legal analysis rather cryptic is not suggesting a criticism. I question, though, where the legal analysis is as straightforward as the Sagoo presents it. For example, in Silver Moss Properties, LLC, discussing the same issue for the civil fraud penalty where the facts are also cryptic (one page), the Court’s legal discussion (pp. 7-16) covers 9 pages. This suggests that the legal analysis may not be as straightforward as the Sagoo Court presents it, even though Silver Moss Properties, LLC involved the civil fraud rather than the FBAR willful penalty involved in Sagoo.

Tax Court Holds that Partners Unwilling to Settle on Terms Offered Partners Willing to Settle TEFRA Litigation Cannot Intervene if Untimely and No Acceptable Reason for Untimely Intervention (9/19/25)

In Blomquist Holdings, LLC v. Commissioner, 165 T.C. ___, No. 6 (9/1725), TC here at # 364 [Full TC cite and link to come when available], GS here, and TN here, the Tax Matters Partner and some (but not all) wished to participate in one of the IRS settlement initiatives for docketed syndication easement (“SCE”) cases. The particular settlement initiative required all LLC partners to agree to the settlement, meaning that the IRS could assess the settlement tax, penalty, and resulting interest consequences without much further ado. (LLC owners are not technically partners but a treated as partners for most substantive tax purposes and under the TEFRA audit procedures.) For those who are not familiar with the IRS settlement initiatives for SCE cases, an excellent introduction may be found at Hale E. Sheppard, Settling Syndicated Conservation Easement Cases With the IRS, 186 Tax Notes Federal 851 (2/3/26), here. Mr. Sheppard is an excellent tax litigator and is counsel in a number of the SCE cases in the Tax Court, but was not counsel in Blomquist (where the indicated counsel for the petitioner are from the international firm Dentons, here, which has a substantial US presence; those counsel are identified in the Blomquist opinion and may be further identified by searching on the Dentons’ site here).

This opinion in Blomquist rejects an attempt by some but not all partners to avoid the settlement agreement under the procedures in the statute and Tax Court rules for them to do so. In most litigation contexts, this attempt is called a motion to intervene, but the statute and Tax Court rules deal with the partnership version for an unwilling partner specifically. (I use the term unwilling partners; the opinions in the cases use other terms such as nonparticipating partners; the statutory provision is § 6226(c)(2); the Tax Court Rule is 248(b)(4).) The Tax Court (Judge Paris) does an excellent job of going through the rules to show why a timely request to participate in the proceedings is generally required and a late request will be permitted only in circumstances where the tardy request is justifiable. Blomquist holds that the partners trying to avoid the settlement (the unwilling partners) had not shown that the late request was justifiable. (Note that the Blomquist litigation (but not the T.C. opinion) is discussed in Hale Sheppard’s article linked above at pp. 855-856 and p. 857).

Based on Blomquist and other SCE cases where, post-Blomquist, Orders have been entered, I infer the following:

1. Based on recent litigated outcomes, the settlement offer is very good. Which is, of course, why the partners willing to accept the offer appear to have made a good decision, far better than they can hope to achieve in full trial of the matter (which would also require further wasted litigation costs and wasted time from the participants (even with the private attorneys being more than happy to waste time at their exorbitant billing rates), including judges, staff and witnesses). That, however, is just my inference from the cases I have read. In any event, it is clear that there were partners wanting to settle who were motivated, I infer, by the tax outcome (tax and penalties, with interest consequences as well) which is far better than had they litigated.