Re-Working the Chevron/Loper Bright Discussion in the FTP Books (Student and Practitioner Editions) (5/25/26)

I recently spent some time and mental energy on an article on Chevron and Loper Bright. Incident to rethinking the issues, I have decided to substantially reduce the space I devote to Chevron and Loper Bright in my Federal Tax Procedure Book working draft for the 2026 editions (due in early August on SSRN). I will first excerpt the current discussion offering more (particularly with footnotes) and print that discussion separately for publication on SSRN. I will then re-work the discussion to provide more compact summaries of the key points, hopefully keeping the discussion to 5 pages with footnotes in the Practitioner Edition of the book (the 2025 presented it as 9+ pages).

I thought I would use this effort to test some AI Tools on a short portion of the discussion that I am deleting from the FTP book. I took a portion of the introduction to the Chevron/Loper Bright issues (about 2+ pages in the Student Edition (pp.59-61) without footnotes. The 2026 working edition made some significant changes, so I used that for the AI tests. The draft that I asked the AI Tools for assistance may be viewed here. I tried it on several AI tools, but chose to work with the MS Copilot versions. I present Copilot’s reworking of that text here (various offerings). Probably the best choice is the following which Co-Pilot said was a “High-Impact” version (I have lightly edited the Co-Pilot version (my edits are marked in red):

For decades, Chevron stood at the center of administrative law—criticized, caricatured, and often misunderstood. In Loper Bright, the Supreme Court finally swept it aside. But the Court’s account of what Chevron was, how it functioned, and what the APA demands is not a restoration of interpretive purity. It is a reconstruction built on selective memory and an unwillingness to confront the APA text Congress actually wrote.

Chevron never required courts to embrace an agency’s inferior reading of a statute. Its reach was far narrower. Chevron operated only when a court, after exhausting the traditional tools of interpretation, reached a point of genuine ambiguity—a state of interpretive equipoise where the evidence did not permit a principled choice between competing readings. In that narrow space, Chevron supplied a tie‑breaker, not a theory of agency supremacy. The agency prevailed not because its interpretation was “better,” but because the court could not say that any interpretation was.

The APA itself contains the same tie‑breaking logic. Section 706(2)(A) authorizes courts to set aside agency action only when it is “not in accordance with law.” That language places the burden of persuasion on the challenger. If the interpretive evidence is evenly balanced, the challenger loses. The agency’s interpretation stands. This is not judicial invention; it is the statute’s own allocation of interpretive risk. Indeed, in Dobson (a unanimous 1943 Supreme Court opinion), interpreted “not in accordance with law” as a standard of review of statutory interpretation to require deference.

Loper Bright avoids this textual reality. It asserts that courts can always identify a single “best” interpretation, as though ambiguity were a judicial failure rather than an inherent feature of statutory language. Yet the Court simultaneously preserves Skidmore respect—a doctrine that presupposes ambiguity. The opinion cannot eliminate ambiguity and preserve Skidmore at the same time.

This chapter begins from a simple but unavoidable truth: ambiguity exists, and when it does, the APA—not Chevron—provides the tie‑breaker. Loper Bright may have the authority to overrule Chevron. What it lacks is the authority to rewrite the APA or to pretend that interpretive uncertainty can be willed away. The real work of statutory interpretation lies in confronting ambiguity honestly, not denying its existence.

Fourth Circuit Holds that § 6015(f)(1) Innocent Spouse Equitable Relief Can Apply to Erroneous Refund Interest (5/22/26)

I write what I call a notice blog today on a case involving the innocent spouse equitable relief provision, § 6015(f)(1), as applicable to erroneous refund interest. The case reverses and remands a Tax Court "T.C." decision on an issue that is, I think, not commonly encountered. So most practitioners should just know the bottom-line holding and then can pursue it further if they ever encounter it. I do think students should be concerned with the case.

In LaRosa v. Commissioner, ___ F.4th ___ (4th Cir. 2026), 4^th Cir. here and GS here, the Court provides this good summary at the beginning:

A provision of the tax code gives the Internal Revenue Service discretion to “relieve” a taxpayer of “liability” for “any unpaid tax or any deficiency.” 26 U.S.C. § 6015(f)(1). Sometimes, the IRS refunds money to a taxpayer but later concludes it erred in doing so. Our sole question in this appeal: When the IRS mistakenly refunds interest payments a taxpayer made on previously underpaid taxes, does the taxpayer have a “liability” for “unpaid tax” that is eligible for discretionary relief under Section 6015(f)(1)? Because we conclude the answer is yes, we vacate the tax court’s judgment and remand for further proceedings.

I have summarized the holding of the case in a footnote in my working draft for the 2026 Federal Tax Procedure (Practitioner Edition) as follows:

In LaRosa v. Commissioner, ___ F.4th ___ (4th Cir. 2026), the Court held in an esoteric application of § 6015(f) that the IRS could grant equitable relief for interest (as opposed to tax) erroneously refunded to the taxpayer. I won’t discuss LaRosa further because I don’t see it as a situation that will be encountered often.

Update on Murrin Petition for Cert re Unlimited Civil Statute of Limitations for Non-Taxpayer Fraud Reported on Tax Return (5/19/26)

I provide an update on the Murrin petition for certiorari. The Supreme Court’s docket sheet is here. On May 15, 2026, the Government filed its brief in opposition here. I have recently addressed some points on the Murrin petition before the Government’s Brief in Opp. Further on Murrin and Allen and the Unlimited Statute of Limitations for Fraud on the Return (Federal Tax Procedure Blog 4/30/26), here.

The Government distinguishes (Brief in Opp. 13-15) the principal case indicating a possible conflict (a key factor in the Supreme Court accepting cert). That case is BASR Partnership v. United States, 795 F.3d 1338 (Fed. Cir. 2015), GS here. The Government asserts that Murrin involves fraud by the tax return preparer whereas BASR did not involve fraud by the tax return preparer (the fraud was by others in the bullshit shelter feeding chain, such as promoter and lawyers issuing bullshit opinions). That distinction strikes me as irrelevant to a textual reading of § 6501(c)(1).

The text is:

In the case of a false or fraudulent return with the intent to evade tax, the tax may be assessed, or a proceeding in court for collection of such tax may be begun without assessment, at any time.

Once you say that fraud by someone other than the taxpayer that resulted in fraudulent reporting on a false return is sufficient, the text does not limit it to the taxpayer and the tax return preparer.

IRS Makes Generous Offer to Settle Many Bullshit Conservation Easement Cases (5/18/26)

In IR-2026-65 (5/12/26), here, the IRS announced a new time-limited settlement initiative for bullshit conservation easements with bullshit (maybe redundant) claims for charitable deductions. Given that the claimed deductions were always bullshit, those at risk should (in my opinion) take the offer if they are otherwise eligible to do so. I won’t go through the eligibility requirements; those interested in those requirements should consult with counsel who, if competent, should be capable of assessing the high risk of not accepting. I will say that, for the taxpayers targeted, this is an extremely generous offer.

That is to say that, if I had been a Government (IRS or DOJ) attorney litigating one of these cases, there is no way the taxpayers in those cases would have gotten such a settlement offer from me; my opposing counsel when I was a DOJ Tax litigator knew that I did not make settlement offers (I told opposing counsel early on just to be sure they were aware); I recommended acceptance of taxpayer settlement offers only rarely (including one that conceded everything, including a civil fraud penalty that I caused the IRS to assert, but wanted the concession styled as a settlement; I even balked at the description of a complete concession as a “settlement” but finally recommended acceptance of the full concession “settlement” offer). In some rare cases, I did dicker with opposing counsel regard their offers, but we just did not have the same view of the taxpayer winning the case. Even in those cases I lost after receiving a settlement offer I rejected (or DOJ Tax rejected based on my recommendation), I never thought that in retrospect I should have recommended acceptance of the offer. You win some; you lose some.

Federal Circuit Rejects Taxpayers' Arguments about Midco Transaction (5/17/26)

In Dillon Trust Co. LLC v. United States, ___ F.4th ___ (Fed. Cir. 2026), CAFC here and GS here, the Court in 50 pages rejects Dillon Trust’s bullshit claims in a bullshit “midco” transaction tax shelter. I wrote on one aspect of the case below. Court of Federal Claims Rejects Defective § 6603 Strategy for Multiple Transferee Liabilities (11/21/22), here (discussing one aspect of the Federal Circuit opinion).

The Federal Circuit offers a reasonable description of midco transactions (Slip Op. 10 n. 5):

5 A “midco transaction” or intermediary transaction is structured to allow a seller to engage in a stock sale and a buyer to engage in an asset purchase. Shareholders sell their C corporation stock to an intermediary (or midco) at a purchase price that does not discount for the built-in gain tax liability, as a stock sale to the ultimate purchaser would. The midco then sells the assets of the C corporation to the buyer, who gets a purchase price basis in the assets. The midco’s willingness to allow both buyer and seller to avoid the tax consequences inherent in holding appreciated assets in a C corporation is based on supposed tax attributes, like losses, that allow it to absorb the built-in gain tax liability. But, if these tax attributes of the midco prove to be artificial, then the tax liability created by the built-in gains on the sold assets still needs to be paid. In many instances, the midco is a newly formed entity created for the sole purpose of facilitating such a transaction, without other income or assets. It is thus likely to be judgment-proof, and the IRS will need to seek payment from the other parties involved in the transaction to satisfy any unpaid tax liability. 

That definition is antiseptic, eliminating details of the high- or low-drama presented in the rest of the opinion where the players on the taxpayer side unsuccessfully claimed a type of willful ignorance about the transaction to justify their participation and, they hoped, avoid the transferee tax liability involved. They failed.

The Court affirmed that the involved parties had at least constructive knowledge of the bullshit gambit and therefore could be liable under New York’s Uniform Fraudulent Conveyance Act (see Slip Op. 21-26). Based on the players involved (see Slip Op. 3 nn. 1-3), some of whom testified, this was ““[a] deal done by very smart people that, absent tax considerations, would be very stupid.” Michael Graetz statement, oft quoted, see e.g., Lynnley Browning, How to Know When a Tax Deal Isn’t a Good Deal (New York Times 10/10/08).

On what these taxpayers (including the company whose stock was purchased), their transferees, their advisors, and other players in the “deal” knew or should have known, the Federal Circuit affirmed the CFC holding of constructive fraud. (In my mind, the facts affirmed by the Federal Circuit might have even permitted a reasonable inference of actual fraud in the sense that the selling shareholders in the midco transaction knew enough to also know that the taxes were going to be avoided/evaded.) Readers might want to read through the opinion to appreciate the high- or low-drama.

Key bullet points of the holding are:

• Transferee liability under § 6901 applies and invokes the NY UFCA. (Slip Op. 20-39.)
• The amount of liability included the transferor corporation’s tax, penalties, and interest. On including the penalty, the Federal Circuit noted that there “appears to be a circuit split” on including penalties. (Slip Op. 42) The Court of Appeals adopted the majority of Circuits inclusion of penalties (Slip Op. 42-44.)
• The § 6603 deposit made by the Dillon Trust could not avoid interest on other taxpayers’ liabilities. Slip Op. 44-50.)

As I view it, the parties knew or should have known that, if the IRS spotted the transaction and spent the resources to "unpeal the onion," it would likely assert transferee liability. So, it seems that they rolled the dice on the audit lottery. These taxpayers lost that roll of the dice. But there are many others who have won that gamble.

District Court Sustains IRS Assessment Authority for § 6039F penalty on D.C. Circuit Analysis in Farhy II (5/12/26)

In Zhang v. IRS, (N.D. Cal. No.3:24-cv-08210 Order Granting Partial Motion to Dismiss dtd.5/4/26), CL here and GS here, the Court held that the IRS had authority to assess the § 6039F penalty for failing to file Form 3520 reporting foreign gifts. The Court’s analysis is similar to the D.C. Circuit holding in Farhy v. Commissioner (Farhy II), 100 F.4th 223 (D.C. Cir. 2024) that the IRS had authority to assess the § 6038(b) penalty. In doing so, the Court rejected the Tax Court’s contrary holdings in Farhy v. Commissioner (Farhy I), 160 T.C. 399 (2023) and Mukhi v. Commissioner, 163 T.C. ___, No. 8 (11/18/24) (reviewed opinion confirming Farhy I).

Interestingly, the Court does not mention Safdieh v. Commissioner, 169 F. 4th 102 (2d Cir. 2/27/26), which agreed with the D.C. Circuit holding in Farhy II. I discuss Safdieh in Second Circuit Rejects Tax Court's Farhy Holding That IRS Can't Assess and Collect the § 6038(b) Penalty (Federal Tax Procedure Blog 2/27/26), here.

The Court also rejected Zhang’s APA and Eighth Amendment arguments.

I have written on the issue before in discussing Farhy and other cases. The prior postings sorted by date are here. I see no need to write further in this blog on that issue.

Another Gross Overvaluation Conservation Easement Claim Fails (5/6/26)

In Kimberly Road Fulton 25, LLC v. Commissioner, T.C. Memo. 2026-36 (5/4/26), Case # 2026-36 here at #178 and GS here, the Court (Judge Holmes) shot down another bullshit syndicated conservation easement (“SCE”). As is common, the bullshit was in the gross overvaluation. So, not only do the partnerships (and their partners) in the consolidated cases lose, but they suffer the 40% 6662(h) gross valuation misstatement penalties. On the penalties, the Court’s analysis driven by its holding of a gross overvaluation is short (p.39, footnote omitted):

VI. Penalties

          The FPAAs determined the applicability of section 6662(h) gross-valuation misstatement penalties. This penalty applies if the value of property claimed on a return is 200% or more of the amount determined to be the correct value. It’s a 40% penalty, and there’s no reasonable cause defense. I.R.C. § 6664(c)(3). This is a math question, and it is a math question that we must find the Commissioner got right. The parties stipulated that the Commissioner complied with the supervisory-approval requirement of section 6751(b)(1) in asserting these penalties, and we therefore uphold them. 

Because its material facts are many and duplicative of patterns in earlier bullshit SCE cases, the only thing that makes this opinion worth reading is its opening (Slip Op. 1-2) which anticipates the conclusions I summarized above:

Jeffrey Grant’s grandfather taught him a saying that has stuck with him all his life: “Sometimes, a fast nickel is worth more than a slow dime.” A self-identified “land man,” Grant has [*2] made a career of buying vacant land in Georgia and quickly turning it into enough “fast nickels” to make a good living.

More on the Economic Substance Doctrine (ESD) and Relevancy in § 7701(o) (5/5/26)

In Kadau v. Commissioner, T.C. Memo. 2026-37 (5/5/26), referred to as Kadau II, TC Case # 286-21 here at #216; GS here, the Court held that the taxpayer’s microcaptive insurance arrangement failed under the Economic Substance Doctrine (“ESD”) in § 7701(o) and was subject to the 40% penalty in § 6662(b)(6) and (i). Given the facts in Kadau II and its earlier opinion in Kadau v. Commissioner, T.C. Memo. 2025-81 (referred to as Kadau I), at # 198 and GS here, the result is not surprising. The arrangement was smoke and mirrors to appear as a transaction with magic tax benefits.

Kadau II drew my attention because of its discussion of § 7701(o)’s requirement that the common law ESD be “relevant.” § 7701(o)(1) & (o)(5)(C). I have written on this issue before. See Liberty Global's Tax Scam Fails in Tenth Circuit (Federal Tax Procedure Blog 4/30/26), here; The Economic Substance Doctrine ("ESD")--the Common Law and § 7701(o) (Federal Tax Procedure Blog 3/31/26; 4/8/26), here; and Tax Court in Unanimous Reviewed Opinion Interprets and Applies the Accuracy-Related Economic Substance Penalty (Federal Tax Procedure Blog 11/12/25), here. I thought this might be a good point to offer further thoughts on § 7701(o) and the requirement that the common law ESD be “relevant.” (Actually, anticipating a theme below, my thoughts today may be a clarification of my earlier thoughts.)

Section § 7701(o), titled “Clarification,” states the general prongs of the common law ESD requirement—meaningful economic position effect and substantial nontax purpose. § 7701(o)(1). Then, in the balance of § 7701(o), some specific rules for applying the ESD are provided, such as that the nontax profit potential “be substantial in relation to the expected value of the net tax benefits that would be allowed if the transaction were respected.” § 7701(o)(2)(A). Those in the tax world for some time know precisely why that “clarification” was there—to foreclose taxpayer arguments that remote, unlikely profit potentials could still meet that prong of the common law ESD.

Kadau II addresses the term “relevant” in § 7701(o). Kadau II accepted the holding in Patel v. Commissioner, 165 T.C. ___, No. 10 (11/12/25) (reviewed unanimous) that § 7701(o) requires that the common law ESD must be “relevant” before § 7701(o) can apply. The Court in Kadau II did not need to address that predicate requirement because petitioners in briefing said (p. 4, emphasis supplied):

As the Court held in Patel III, a threshold determination must be made as to whether the economic substance doctrine is relevant. Because Petitioners formed a small captive insurance company, Petitioners acknowledge that section 7701(o) is applicable. The dispositive question is whether Petitioners’ transactions satisfy its requirements. Accordingly, we refrain from addressing any threshold determination issues and proceed directly to examination of the transaction by applying the foregoing elements outlined in section 7701(o)(1).

Judge in Trump Return Disclosure Damages Mega-Suit Appoints Amicus to Assist the Court on Jurisdictional Issue as to Party Adversity (4/30/26;5/1/26)

I recently wrote on Trump’s suit against the IRS for damages for tax return disclosures. See Could the District Court Invite or Appoint an Amicus to Present the U.S. Position in Trump v. IRS? (2/7/26; 2/12/26), here. The district court (Judge Williams) has appointed amicus curiae to “assist the Court in identifying the applicable law governing an analysis” of the issue she identifies—subject matter jurisdiction where because the parties may not be opposed there may be no case or controversy required for jurisdiction. See order of 4/29/26, CL here (document 43 on the docket sheet, CL here).

In an earlier order on the same day, Judge Williams said “it is unclear to this Court whether the Parties are sufficiently adverse to each other so as to satisfy Article III’s case or controversy  requirement.” Order dated 4/29/26, here (document 41 on the docket sheet), at p. 3. Based on that concern, the Order asks the “the Parties to address the question of subject matter jurisdiction before addressing the relief requested in the Motion.” Order at p.. 4. The Order appointing amicus curiae is apparently based on that concern as to which the response the nominal parties may give could be suspect.

The Order for Amicus assistance is more limited than I suggested in my original blog posting. However, the same concerns could prompt Judge Williams to appoint amicus (either sua sponte or on motion) for other aspects of the case where party adversity may be questionable.

Added 5/1/26 11:30am: The New York Times has this article on these events: Andrew Duehren, Judge Asks Justice Department: Will You Oppose Trump? (NYT 4/29/26), here.

Liberty Global's Tax Scam Fails in Tenth Circuit (4/30/26)

In Liberty Global, Inc. v. United States, ___ F.4th ___ (10th Cir. 2026), CA10 here, GS here, and CL here, using tax lingo and analysis, rejected Liberty Global’s tax scam. The panel majority correctly holds that Liberty Global’s farcical multiple steps did not pass economic substance doctrine (“ESD”) scrutiny.

The key issue upon which the majority of the panel and the dissenting judge differ is over what role, if any, § 7701(o)’s requirement that whether the ESD is “relevant.” § 7701(o)(1) & (o)(5)(C). So that readers can understand the statute’s textual context, I offer it here (with key word in red):

(o) Clarification of economic substance doctrine
    (1) Application of doctrine. In the case of any transaction to which the economic substance doctrine is relevant, such transaction shall be treated as having economic substance only if—
        (A) the transaction changes in a meaningful way (apart from Federal income tax effects) the taxpayer’s economic position, and
        (B) the taxpayer has a substantial purpose (apart from Federal income tax effects) for entering into such transaction.
* * * *
    (5) Definitions and special rules
    For purposes of this subsection—
    * * * *
        (C) Determination of application of doctrine not affected. The determination of whether the economic substance doctrine is relevant to a transaction shall be made in the same manner as if this subsection had never been enacted.

I have written previously on the issue of the term “relevant” in § 7701(o). The Economic Substance Doctrine ("ESD")--the Common Law and § 7701(o) (Federal Tax Procedure Blog 3/31/26; 4/8/26), here. I believe that ESD as the term is used both in the common law and in § 7701(o) means the same thing, except that § 7701(o) adds some specific rules that apply in applying certain features of the ESD. These specific rules address some taxpayer claims about how those features of the common law ESD work. For example, § 7701(o)(2) & (4) provide rules for applying the ESD requirement that a taxpayer have a non-tax profit potential. Section § 7701(o) rejects certain claims that taxpayers made in prior cases to avoid the ESD. Thus, I think that the threshold inquiry is whether the common law ESD applies (not that it is just relevant, but certainly, if ESD applies, it is relevant for purposes of § 7701(o) because the special rules of § 7701(o) may then apply).

Basically, what I am saying is that the panel majority gets it right and the dissent gets it wrong.