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 [to come] 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.

2. If par. 1 is a fair inference, the question then is why the partners not willing to be bound by the settlement the IRS offered wanted to gum up the works by refusing to settle and insisting on trying the case over the objection of their partners willing to settle? This question has various subquestions, some of which are:

• Do those unwilling partners really think or fantasize they can litigate to achieve a better result?
• Do those unwilling partners think or fantasize that the IRS may sweeten the deal for all partners or at least for them (if that were even possible)?
• Do those unwilling partners think or fantasize that the willing partners may contribute to the unwilling partners costs of the settlement? (That would function like extortion.)
• Or is there something else going on, real or imagined, that does not warrant further speculation?

Readers might consider Hale Sheppard’s listing of reasons partners unwilling to settle may behave as they do for the IRS third program which I think except for (2) applies to the second program involved in Blomquist (p. 856):

Resolving matters under the third settlement program can be challenging, if not downright unfeasible, when partners (1) are unwilling to concede anything to the IRS without first having an opportunity to present their side of things to the Tax Court, (2) do not have the necessary cash, (3) have individual legal counsel advising them to strategically abstain from approving any settlement whatsoever, (4) rely on insurance obtained by the partnerships to cover litigation costs or post-litigation liabilities, (5) are awaiting decisions from the courts of appeal regarding appropriate valuation methods in easement cases, and (6) are hoping for positive changes to the resolution of easement disputes as a result of recent changes in the president and Congress.

Of course, readers steeped in SCE litigation will know that some of these "Sheppard" factors were not practically viable all along and, in any event, are no longer practically viable (particularly (5) where courts have uniformly discredited the valuation methodology needed to come even extravagantly-imagined close to justifying the valuation used). (In this regard, since I have been observing bullshit tax shelters since the late 1970s, they almost always involved valuations which lacked any credibility at all, as well as often extravagant legal claims as to the state of the law.)

3, Reading behind the analysis offered by the Court, it seems clear that the Court may have questioned whether the unwilling partners really could have met their assertion that “they stand ready and financially able to litigate this case on the merits” (Slip Op. 22, Conclusion.) In this regard, full-bore SCE case litigation requires a lot pretrial and trial commotion (such as major attorneys fees for the private attorneys) and include such time-wasters (aka fee-generator activity) (i) as “Hale Mary” pretrial activity to find some procedural footfault in the IRS’s case (see e.g., Tax Court Rejects SCE’s Hail Mary Jarkesy Pass (Federal Tax Procedure Blog 8/21/25), here, and (ii) the repeated desperate attempts of SCE petitioners to look for a written supervisor approval footfault under § 6751(b) to avoid the accuracy-related penalties (but not the fraud penalties where they may be asserted by the IRS). See e.g. Tax Court Judge Lauber Denies Petitioner Motion for Summary Judgment Rejecting Fraud Penalties in Allegedly Abusive SCE Case; Some Background (Federal Tax Procedure Blog 4/14/24), here.

For example, in Southland Aggregate, LLC v. Commissioner (Order in T.C. 2148-24 9/18/25), TC here at #56, the Court (Judge Landy) had the following discussion (Slip Order pp. 6-7):

          When questioned by the Court about the timing of a trial on the merits in this case, counsel for the Objecting Nonparticipating Partners indicated they would be ready for trial in January 2026. Upon further questioning, however, counsel for the Objecting Nonparticipating Partners became noncommittal on timing, stating that once this case is calendared for trial “[they] can hit the ground running and proceed with the case, [they] would have a better idea of what would – what’s needed to get to trial. So I don’t want to say conclusively that January [2026] [they]’d be ready.” Counsel for the Objecting Nonparticipating Partners indicated during the hearing that they understood the risks of litigating this case on the merits and were prepared to see it through to any potential appeals. However, they admitted that they had not read several recent Court decisions that are relevant to many of the issues in this case. We also note that counsel for the Objecting Nonparticipating Partners acknowledged that they have never tried a conservation easement case. Given that the Objecting Nonparticipating Partners have not conducted any independent discovery or engaged any expert witnesses, read any of the pleadings in the case, or taken any steps to review the 2017 Form 1065 return and its accompanying appraisal, we determine that the Objecting Nonparticipating Partners would not be ready for trial by January 2026. While the Objecting Nonparticipating Partners may be willing to proceed to a trial on the merits in this case, they failed to demonstrate their readiness and ability to do so.

           We conclude, as we did in both Blomquist and Chimney Rock, that the Objecting Nonparticipating Partners failed to take advantage of the participation opportunity afforded to them by complying with the procedures stated in Rule 245. The Objecting Nonparticipating Partners provided no reason for their delay in pursuing their right to participate. The Objecting Nonparticipating Partners are required to make a substantial showing under Rule 248(b), and we determine that they have not done so. Blomquist Holdings, 165 T.C., slip. op. at 16; Chimney Rock Holdings, T.C. Memo. 2025-39, at *14. “[The Objecting Nonparticipating Partners] have no one to blame but themselves for their inability to participate at this stage of the case.” Chimney Rock Holdings, T.C. Memo. 2025-39, at *12. Therefore, we will deny the Motion to Participate.

By the way, if any readers are curious as to who the unwilling partners’ counsel in Southland Aggregate were, they are identified in the concluding paragraph (p 8, apparently identified in the order because they had not entered a formal appearance in the case):

          ORDERED that, in addition to regular service, the Clerk of Court shall serve this Order on: (1) Rodney C. Atherton, AEGIS Law, LLC, 6870 W. 52nd Avenue, Suite 203, Arvada, Colorado 80002, (2) Robert L. Devereux, AEGIS Law, LLC, 601 S. Lindbergh Boulevard, Saint Louis, Missouri 63131, and (3) Mary C. Devereux, AEGIS Law, LLC, 601 S. Lindbergh Boulevard, Saint Louis, Missouri 63131.

The AEGIS Law, LLC web site is here; the particular attorneys mentioned in the quote may be found on their people locator here which permits search by attorney name. The firm web pages for the above-named attorneys are:

• Atherton here.
• Robert Devereux here.
• Mary Devereux here.

In Blomquist (the case involved in this blog), the Court did not raise such concerns with the unwilling partners’ counsel. That counsel is apparently Ryan Pulver. (See docket entries here at ## 365 & 366.) Pulver's web page is here.