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.

Do Mixed Questions of Fact and Law Have Component Facts and Law for § 7491(a) Purposes? (9/11/25)

I address today what may seem to be a fairly mundane issue, but in some contexts might be important. Readers may already be familiar with § 7491(a), here, titled “Burden shifts where taxpayer produces credible evidence.” The “burden” referred to is the burden of proof and specifically the burden of persuasion. The burden of persuasion is not technically relevant until the end of trial when it determines which party loses in the event the trier of fact is in factual equipoise as to some key fact. From a practical perspective, it is important to keep in mind the conventional trial wisdom that triers of fact are rarely in equipoise, so that ultimately the assignment of the burden of persuasion is meaningless in most cases. Setting that aside and accepting the possibility that the burden of persuasion may be outcome-determinative in some cases, parties will often want to know before the beginning of trial which party has the burden of persuasion so that it can prove its case accordingly.

That is what happened in FBA St. Clair Property C, LLC v. Commissioner (T.C. Case 14406-23, here, at docket # 176 9/11/25), where the petitioner in a syndicated conservation easement case filed a motion in limine for the Court to hold that the conditions in § 7491(a) assigned the burden of persuasion to the IRS. The Court denied the motion, reasoning (Slip Op. 3-4):

          Section 7491(a) states that if a taxpayer produces credible evidence with respect to one or more factual issues relevant to the taxpayer’s tax liability, the burden of proof may shift to the Commissioner as to that issue or issues, as long as the taxpayer complies with certain additional requirements. Section 7491(a) only applies if the issue is factual and not “a mixed question of fact and law” which is “primarily a legal question.” Williams v. Commissioner, 120 F.App’x 289, 293 (10th Cir. 2005) (denying that § 7491(a) applies to the issue of whether a payment was a gift for purposes of § 102(a) or instead a bonus), aff’g T.C. Memo. 2003-97. Here, the issue is whether the transaction was a contribution or gift for purposes of Section 170(c), and we hold that this issue is a mixed question of fact and law, and so Section 7491(a) does not shift the burden to the Commissioner. 

Loper Bright’s Motivated Mistreatment of Statutory Ambiguity and Best Interpretations (8/28/25)

On August 26, 2025, I gave a talk to a Houston tax group, the Wednesday Tax Forum. The paper I circulated was a high-level summary of a longer article that I have submitted for publication in the ABA Tax Lawyer in Spring 2024; the submitted article addresses the tax implications of Loper Bright Enterprises v. Raimondo, 603 U.S. 369, 377-378 (2024), see Preliminary Print here. I link that summary here so that readers may download if they wish. Note that the linked summary is redlined to show changes that I made shortly after giving the talk. I will not attempt to further summarize the arguments.

I address in this blog entry the overarching claim that I make. The domain of Chevron was a state of ambiguity where the court was not able to determine whether the agency interpretation or an opposing interpretation was the best interpretation. I call that state interpretive equipoise to relate it to the more familiar concept of factual equipoise where a factfinder is unable to determine whether a critical fact exists or not. In a state of factual equipoise, the factfinder resolves the issue by holding against the party bearing the burden of persuasion on that fact. In a state of interpretive equipoise, the court cannot find that either the agency interpretation or the opposing interpretation is the best interpretation. Chevron resolved the case in that state of interpretive equipoise, effectively placing on the opponent of the agency interpretation a burden to persuade the court that its opposing interpretation was “best.”

Why did Chevron tilt in favor of the agency interpretation in a state of interpretive equipoise? First consider the alternatives. Would it be acceptable for courts to decide in equipoise by flipping a coin, consulting a ouija board or soothsayer, or some other unprincipled way of resolving the ambiguity? Of course, that would not be acceptable. Still, courts must resolve interpretive issues in equipoise in some way. Chevron offered that way. I will address below why that is a principled resolution based on the APA, but I ask first what Loper Bright offered in lieu of Chevron to resolve cases of interpretive equipoise?

Loper Bright offers nothing for interpretive equipoise other than the ill-considered notion that courts can always interpret out all ambiguity to derive the single best interpretation. That would be nice if it made logical sense or experiential sense. Courts have the same interpretive skills after Loper Bright that they had under Chevron where they were admonished by Chevron’s famous footnote 9 to use those skills to avoid ambiguity where possible. Nevertheless, in some cases, ambiguity remained. I submit that cases of ambiguity—interpretive equipoise—will remain under Loper Bright. Loper Bright offers no guidance on what a court does where, using its best interpretive skills in de novo review, ambiguity exists.

Traditional Skidmore will not solve the problem of interpretive equipoise. Traditional Skidmore simply requires courts to respect agency interpretations in determining the best interpretations. The phenomenon I address here is where, after using all of those tools of interpretation (including Skidmore), the court cannot determine, as between the agency interpretation and the opposing interpretation, which is the best interpretation. Both interpretations must be in play—that is reasonable within the scope of the statutory ambiguity—but neither is the best interpretation. In that state of play, Loper Bright offers no way to resolve the case.

Of course, I say traditional Skidmore. Skidmore has traditionally been called Skidmore deference even though it was not deference but simply a consideration in reaching the best interpretation. See Really, Skidmore "Deference?" (Federal Tax Procedure Blog 5/31/20; 2/14/21), here. It is possible that, post-Loper Bright, courts may reimagine Skidmore to fill some of the conceptual space on the spectrum between respect and deference, sort of more than respect but less than deference, if that is a possible thing, say deference “light.” I can’t offer anything meaningful on that possibility.

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)

In Oquendo v. Commissioner, ___ F.4th ___ (6th Cir. 8/25/25) (CA6 here, TN here, and GS here), the panel held unanimously that § 6213(a)’s 90-day petition-filing deadline was not jurisdictional and is thus subject to equitable tolling; so finding the panel remanded to the Tax Court to consider Oquendo’s entitlement to equitable tolling. The holding is consistent with prior decisions by the Second Circuit and the Third Circuit. Buller v. Commissioner, ___ F.4th ___ (2d Cir. 8/13/25); and Culp v. Commissioner,  75 F.4th 196 (3rd Cir. 2023), cert. den. ___ U.S. ___, ___ S.Ct. ___, 2024 U.S. LEXIS 2725 (Federal Tax Procedure Blog 2024). See Second Circuit Allows Possible Equitable Tolling for 90-day Petition for Redetermination of Deficiency (Federal Tax Procedure Blog 8/14/25), here (discussing Buller and Culp). The Supreme Court denied the Commissioner’s petition for cert in Culp; as I said in the blog on Buller, I doubt that the Government would file a petition for cert with two losses and no wins in the Courts of Appeals; now there is three losses and no wins.

JAT Comments: 

1. I suspect that the issue will not go to the Supreme Court before an actual conflict develops in the Courts of Appeals and then, of course, it would be the taxpayer petitioning for cert.

2. More likely, now with three losses, I suspect that the Tax Court will reconsider its position that § 6213(a)’s 90-day petition-filing deadline is jurisdictional. There should be cases in the pipeline that will permit the Tax Court to do that expeditiously if it wants to act expeditiously.

3. Moreover, I suspect that the Tax Court may relax its sparing approach to finding a taxpayer can satisfy the requirements for equitable tolling; if the Tax Court does not, the Courts of Appeals may intervene as these cases are appealed. On the Tax Court’s sparing approach to finding equitable tolling, see the blog cited above, quoting from the Federal Tax Procedure Book Editions.

4. (Added 9/8/25 @ 2:15pm): I note to readers an excellent article on the Buller and Oquendo appellate decisions. Robert S. Horwitz, With Strikes in the Third and Now the Second and Sixth Circuits, Will the Commissioner Admit He Is Out on the Claim that the 90-Day Deadline for Filing a Tax Court Petition Is Jurisdictional? (Tax Litigator 9/8/25), here. (Note that there are references to §6713(a) that should be to §6713(a), but readers can quickly adjust to that and read the excellent article.)

Correction to Federal Tax Procedure Editions on the Late/Former Commissioner Billy Long's Credible Experience--Actually None (8/22/25)

A friend pointed out that, in my Federal Tax Procedure Book Editions, I misdescribed Billy Long, the recently departed Commissioner of Internal Revenue, as having “credible experience in either tax or management experience.” (See Student Ed., pp. 26-27; Practitioner Ed. p. 45.) I left out “no” before “credible.” So, with apologies to the readers of the editions, I have revised the paragraph in the 2026 Working Draft as follows (with changes in redline; text only).

          On June 12, 2025, the Senate confirmed Billy Long, President Trump’s choice, for Commissioner of Internal Revenue. The nomination and confirmation were controversial because (i) the confirmation was preceded by chaos among the acting IRS leadership, and (ii) more importantly, Long had no credible experience in either tax or management experience. Apparently, for that reason and probably also other disqualifying factors, President Trump removed Commissioner Long, dressing up that removal as a move to permit him to serve as Ambassador to Iceland (rather than a mistake in the first place). Treasury Secretary Scott Bessent is now Acting Commissioner.

 I also note that I did get it right in a footnote which ends as follows:

JAT Editorial Comment: Long appears to have no relevant qualifications to be Commissioner of Internal Revenue other than sycophancy to President Trump which is the only credential he needed to be approved by the Senate on a party-line vote.

Tax Court Rejects SCE’s Hail Mary Jarkesy Pass (8/21/25)

In Silver Moss Properties, LLC v. Commissioner, 165 T.C. ___, No. 3 (2025) (T.C. Dkt. No. 10646-21, here, at Entry # 109, GS here)), the Court acting as referee called out that Taxpayer’s Hail Mary pass* to avoid the civil fraud penalty. Since the Tax Court (or someone for it) has already stated the essence of the case in a Headnote, I just copy and paste it here:

           A partnership subject to the audit and litigation procedures of the Tax Equity and Fiscal Responsibility Act of 1982 (TEFRA), Pub. L. No. 97-248, 96 Stat. 324, donated a conservation easement and claimed a charitable contribution deduction under I.R.C. § 170. P, the tax matters partner, timely petitioned this Court challenging the IRS’s Notice of Final Partnership Administrative Adjustment. R later amended his Answer to assert a civil fraud penalty against the partnership under I.R.C. § 6663(a).

          P filed a Motion for Partial Summary Judgment, citing SEC v. Jarkesy, 144 S. Ct. 2117 (2024), and contending that this Court is barred from adjudicating the civil fraud penalty because U.S. Const. amend. VII guarantees a right to trial by jury in such actions, which is not an option in this Court.

          Held: U.S. Const. amend. VII does not apply to suits against the sovereign, and Congress has not otherwise consented to trial by jury in TEFRA partnership-level actions.

          Held, further, the “public rights” exception to U.S. Const. amend. VII applies to a civil fraud penalty under I.R.C. § 6663(a).

          Held, further, this Court may adjudicate an I.R.C. § 6663(a) civil fraud penalty.

This plaintiff in the case appears to be a Tax Matters Partner for an LLC taxed as a partnership, which appears to be the favored format for the flurry of bullshit Syndication Conservation Easement ("SCE") tax shelter cases plaguing the Tax Court now with wholly inappropriate drains on the Tax Court's , the IRS’s and the public fisc resources. I don't know if this particular case involves an abusive tax shelter, but it seems to have the same earmarks, including the same lawyers involved in some of the abusive shelter cases. 

 JAT Comments:

1. (Warning, this is a multi-paragraph comment #1): In this case, the IRS did not originally assert the civil fraud penalty, §6663, in its FPAA. The Court granted the IRS motion for leave to file the amended answer asserting the fraud penalty based on discovery from the petitioner. (See Docket entry # 37.) I presume that the FPAA originally asserted the 40%  gross overvaluation penalty. §6662(h), a penalty that is almost always finally applied by the Tax Court in these  SCE cases, if properly asserted, because well simple mathematics shows a gross overvaluation. So, the difference is 25% (which, like civil penalties, generally accrues interest from the date the return was due). Which means that the cost of playing the audit lottery can be more than the taxpayers (encouraged by the promoters who promoted bogus valuations and bogus legal opinions) counted on.

Third Circuit Holds Taxpayer Fraud is not Required for 6501(c)(1) Unlimited Statute of Limitations, Creating Conflict (8/18/25)

In Murrin v. Commissioner, ___ F.4th ___ (3rd Cir. 8/18/25), CA3 here,TN here, and GS here, the Court held that the §6501(c)(1), here, unlimited statute of limitations applying "In the case of a false or fraudulent return with the intent to evade tax" applies even without the taxpayer's personal fraud. The opinion is a straightforward textualist interpretation of the governing statute. Since the opinion is relatively short, I am not sure my nitpicking (aka pontificating) over the reasoning and specific text would be helpful to readers of this Blog, most of whom are already familiar with the issue.

In the event my thoughts may be helpful, I link here first my prior blogs generated by the search terms "allen fraud limitations" which picks up the blogs that discussed the issue. (If you click that link, the returns are first in some relevance scoring of the content order for the terms but there is a link to put them in reverse date order.) The more recent blog discussions that I think may be most helpful to readers wanting more than offered in Murrin are:

• On the Tax Court decision in Murrin: Tax Court Again Declines to Reconsider Its Holding that the Preparer's Fraud without the Taxpayer's Fraud Invokes Unlimited Statute of Limitations (Federal Tax Procedure Blog 1/25/24; 2/5/24), here (where I discuss and link Professor Bryan Camp's discussion of the Tax Court opinion in Murrin) (those reading the Third Circuit opinion in Murrin will see that Professor Camp filed an amicus in favor of the taxpayer's position).
• On BASR P’ship v. United States, 795 F.3d 1338 (Fed. Cir. 2015), which Murrin conflicts (Murrin substantially adopts the dissenting opinion in BASR), I did not write a separate blog on the BASR opinion, but I wrote one on the court awarding attorneys fees under § 7430: Major Attorneys Fee Award for BASR Partnership Prevailing on the Allen Issue in Federal Circuit (Federal Tax Procedure Blog 2/11/17), here. This conflict certainly insures a petition for cert by Murrin. I suspect that there may be a flurry of amicus briefs on the petition and, if cert is granted, on the merits briefing because a lot of wealthy taxpayers investing in fraudulent taxpayers have a dog in the hunt, so to speak.
• On City Wide Transit, Inc. v. Commissioner,  709 F.3d 102 (2d Cir. 2013) discussed in Murrin: Second Circuit Holds That Fraud on the Return -- Even If Not the Taxpayer's -- Causes an Unlimited Civil Assessment Statute of Limitations to Apply (Federal Tax Procedure Blog 2/4/13), here.
• My early venture into the subject discussing an important extension of a holding that the taxpayer's fraud is not required if the return is fraudulent: Civil Tax Statute of Limitations for Fraudulent Tax Shelters (Federal Tax Procedure Blog 12/19/09), here.

 This blog entry is cross-posted on the Federal Tax Crimes Blog, here.