Tax Court Holds that IRS Must Prove Return Fraud After a Convicted Spouse is Convicted for Tax Evasion (5/30/26)

In Li v. Commissioner, T.C. Memo. 2026-42 (T.C. Case 12133-23 at #35, here, at #35, and GS here [to come], the Court addressed proof issues for applying the unlimited statute of limitations for a joint return spouse (“unconvicted spouse”) after the other spouse was convicted of tax evasion (“the convicted spouse”). Of course, as to the convicted spouse, collateral estoppel will apply to establish fraud for the unlimited statute of limitations (§ 6501(c)(1)) and the civil fraud penalty (§ 6663). Li addresses the issue of the effect of the convicted spouse’s conviction on the unconvicted spouse’s statute of limitations (§ 6501(c)(1)),

The background is the Allen issue. In Allen v. Commissioner, 128 T.C. 37 (2007), the Court held that fraud on a return by a return preparer without the taxpayer’s personal fraud invoked the unlimited statute of limitations in § 6501(c)(1). The issues Allen raises are discussed in several blog entries over the years, but I think they are presented in my most recent blogs: Update on Murrin Petition for Cert re Unlimited Civil Statute of Limitations for Non-Taxpayer Fraud Reported on Tax Return (Federal Tax Procedure Blog 5/19/26), here; and Further on Murrin and Allen and the Unlimited Statute of Limitations for Fraud on the Return (Federal Tax Procedure Blog 4/30/26), here.

Stripped down to basics, the current status of the Allen issue is as follows:

• for courts applying the Allen holding (that the preparer’s fraud alone will suffice to the unlimited statute of limitations; the taxpayer’s fraud is not required). This includes all courts addressing the issue except the Federal Circuit.
• the Federal Circuit held that the taxpayer’s fraud is required, at least in a context where the fraud on the return was not the preparer’s fraud (although the Federal Circuit did not intimate that preparer fraud would suffice).

Li dealt with the unlimited statute of limitations for the unconvicted spouse after the convicted spouse’s tax evasion conviction. The holding was that, as to the unconvicted spouse, the IRS must prove fraud on the return by clear and convincing evidence of fraud on the return (which need not necessarily be the unconvicted spouse’s personal fraud). In the Li facts, that means that the unconvicted spouse is not subject to collateral estoppel for the convicted spouse's conviction. Li does not address the issue I discuss in the first blog above as to whether fraud on the return committed by others than the tax return preparer (e.g., tax shelter promoters) will suffice.

I have synthesized the Li Opinion in my working draft for the Federal Tax Procedure Editions for 2026 (to be published in early August). I offer that synthesis here in the paragraph after discussing the Allen issue (note that the footnotes are presented after the text; the numbering on the footnotes will not be the same in the working draft or the final 2026 Practitioner Edition):

Interesting Concurring Opinion on Canons (or Maxims) of Statutory Interpretation (5/29/26)

In Flight Options LLC v. United States, ___ F.4th ___ (6th Cir. 2026), CA6 here and GS here [to come], the Court reversed a district court holding that Flight Options, a fractional-share jet company, was liable for withholding tax in the amount of $39 million on fixed fees it charged to pay for the overhead and management of its clients' private jets. The tax involved was the

7.5% excise tax on the “amount paid for” domestic “transportation by air,” 26 U.S.C. §§4261(a), 4262(a)(1), what the statute called a “ticket tax” at all relevant times of this dispute, id. §4261(e)(1)(C), (e)(5) (2012).

Although I do not plan to deal with the substantive merits of the withholding tax in issue, basically a high-level overview is that the tax is easily calculated, collected, and paid over for the travel that most of us experience on commercial airlines where the price of the ticket is all in for cover all associated costs to the airline of providing the air transportation (included quite indirect costs of management and even paying lawyers). Private-jet companies operate differently, not including all costs in a single fare but separately calculating and charging for its costs and profit. So, Flight Options, calculated, collected, and paid over only that ticket tax related to “usage charges for each flight a client takes, not to fixed fees it charges its clients for overhead and management of its fractional jet business.” The latter charges are the types of charges that commercial airliners build into the ticket fare and thus are, for commercial travel, subject to the ticket tax. In effect, the IRS attempted to require private-jet providers to include some of those charges in the base to which the ticket tax, and thus withholding obligation, applied, thus making the ticket tax more comparable in impact between commercial providers and private-jet providers. (Added 4:50 pm: To put that another way, for a pro rata tax, private-jet flyers pay less than commercial-jet flyers. Think about that.)

The Court of Appeals (Judge Sutton for a unanimous panel) rejects the IRS position the district court sustained. Of course, the issue is to apply the ticket tax designed with the commercial-jet model where all-in costs are included in the ticket price subject to the tax. As noted above, the private-jet providers separately state their costs (with separately stated costs including profit). The effect of the Court’s holding is that private-jet providers get a competitive advantage relative to commercial-jet providers. The Court confers that competitive advantage by deploying the favorite interpretive tool of literalist textualists—Dictionaries. Using those vaunted tools, the Court’s parsing of the tax indicated to the Court that the text was uncertain as to the liability—ambiguous, if you will—and thus it is improper to hold a third-party withholder for a liability that is uncertain. In the process the Court deployed two canons, called “relevant taxpayer canons”: (i) the Pro-Taxpayer Canon, called a general canon, that interprets uncertainty in tax liability in favor of the taxpayer and against the IRS; and (ii) a related canon, called a "specific canon," that to hold a party charged with collecting the tax for the IRS must have “precise and not speculative” instructions in the statute (meaning in his telling that ambiguity is resolved in favor of the putative withholder).

Adding to my FTPB Discussion of Civil Suits for Disclosure of Return Information for the Trump "Settlement" (5/26/26; 5/29/26)

Added 5/27/26 7:00pm and 5/28/26 3:30pm: I have added new matters at the end of this blogging. Since the issue is developing, I may update on the developments by additions below or by separate blog.

I have just finished a first draft of the portion of the working draft of my Federal Tax Procedure book 2026 discussing the civil remedy for improper disclosures of tax return information under § 7431. In the 2025 version, I have a paragraph discussing the settlement with Ken Griffin regarding disclosures of prominent (meaning wealthy) taxpayers' return information. I have not changed that paragraph, but have added immediately after it a discussion of the Trump v. IRS § 7431 suit and the settlement of Trump’s suit that has been so much in the news recently. I suspect most, perhaps all, the readers will already know the basics of the settlement that I offer. I link here a pdf with redline of the new discussion with footnotes. I copy and paste below the discussion (text only) with the new material after the Griffin paragraph (which I do not redline here).

           A prominent example of this remedy is a suit brought by a Kenneth Griffin, reputedly a hedge fund billionaire. An employee of a third party contractor to the IRS, Booz Allen Hamilton, Inc., illegally accessed and disclosed the tax return information of Griffin and others to a news organization, ProPublica, which in turn published some of the tax return information. Griffin sued the IRS under (i) § 7431, alleging violation of § 6103, and (ii) the Privacy Act. The employee was prosecuted and pled guilty, receiving a five-year sentence. Griffin and the IRS settled the civil action resulting in a dismissal with prejudice. All of the terms of the settlement are not available, but the IRS agreed to and did issue a public apology. Another reputed billionaire brought related action against the employee’s employer, Booz Allen Hamilton, Inc.

           An even more prominent example arising from the same mass disclosures is a 2026 suit Donald J. Trump filed in his personal (rather than Presidential) capacity for $10 billion damages (asserting both the minimum $1,000 per disclosure with disclosures at $1,000 justifying $10 billion or actual damages of $10 billion) and for punitive damages in an amount not stated. The parties plaintiff also included Trump related persons and entities. The Judge in the case asked the parties to brief whether, given Trump’s control over the Government parties (IRS and DOJ) and personal interest as Plaintiff, the case met the required Article III case or controversy requirement. The Court also appointed distinguished amicus to provide here independent briefing on that issue. Before the parties presented their briefing but after the amicus provided its initial briefing, the Trump parties moved to dismiss requiring the Court to dismiss with prejudice under FRCP Rule 41(a)(1)(A)(i); as required by that Rule, on 5/18/26, the Court dismissed with prejudice, the Court noted:

           Because the Notice does not reference any settlement or include a stipulation of settlement, there is no settlement of record. Additionally, Defendants—federal agencies represented by the Department of Justice, which has an independent obligation to uphold the “public’s strong interest in knowing about the conduct of its Government and expenditure of its resources” and the “fair administration of justice,” 28 C.F.R. §§ 50.9, 50.23—neither submitted any settlement documents nor filed any documents ensuring that settlement was appropriate where there was an outstanding question as to whether an actual case or controversy existed.

In short, the Court smelled a rat but under the Rule was required to dismiss with prejudice.

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.

Further on Murrin and Allen and the Unlimited Statute of Limitations for Fraud on the Return (4/30/26)

I read earlier this week an excellent article on Murrin v. Commissioner, 158 F.4th 527 (3d Cir. 2025), here, cert petition pending (see here). Bryan Camp, The New Forever Rule for Record Retention (Tax Notes March 3/25/26), here. Professor Camp is concerned, as he was in filing an amicus brief in Murrin, with the potential application to innocent taxpayers of § 6201(c)(1)’s unlimited statute of limitations for a “false or fraudulent return with the intent to evade tax.” Murrin held that the taxpayer’s fraud is not required and that a return preparer’s fraud would suffice to apply the unlimited statute of limitations for fraud. For further on Murrin, see my post Third Circuit Holds Taxpayer Fraud is not Required for 6501(c)(1) Unlimited Statute of Limitations, Creating Conflict (Federal Tax Procedure Blog 8/18/25; 10/17/25).

In an alarmist mode, Professor Camp concludes his article by stating that, unless the problem of § 6201(c)(1) applying to innocent taxpayers is fixed, “I think we must all advise our clients to keep their records . . . forever.” (Emphasis supplied.) What does forever mean in this context? That's a quibble. Professor Camp is not just content to provide that bottom line from Murrin but repeats his arguments in his amicus brief as to error in Murrin and the predicate tax court opinion in Allen v. Commissioner, 128 T.C. 37 (2007), here.

I encourage those interested in the issue (which I call the Allen issue) to read Professor Camp’s article. I have not recently stepped through the legislative and statutory history he discusses in support of his claims, but my recollection is that I was not then sure that they support his claims. In any event, I am sure that for a long period of time since the early tax law, practitioners, including me, assumed that § 6201(c)(1) required taxpayer fraud. Allen appeared out of the blue, so to speak. But now that, in Justice Kagan's words “we are all textualists now,” if we focus on the text of § 6201(c)(1), there is no textual reading that would limit its scope to taxpayer fraud if the fraud is on the return. In other words, at best regarding Professor Camp's claims, the actual text is ambiguous as to whether the text of § 6201(c)(1) requires the taxpayer's fraud.

Further, on the purpose of § 6201(c)(1), I do not conceive it is as a punishment provision but a recognition that fraud on the return makes discovery by the IRS more difficult. After all, the consequence of the unlimited statute of limitations is that the taxpayer pays the tax the taxpayer owed ab initio. True, the taxpayer may have to pay interest, but tax and interest are not penalties. The taxpayer Professor Camp is concerned about is the truly innocent taxpayer relying on a fraudulent preparer; for such a taxpayer there will be no penalty because (i) § 6662 civil penalty which does not apply with taxpayer reasonable cause (unless, for some § 6662 civil penalties, the reasonable cause exception does not apply which is not likely in an innocent taxpayer context) and (ii) § 6663 civil fraud penalty does not apply unless taxpayer fraud is involved. So, from that perspective, the truly innocent taxpayer suffers no penalty with respect to the fraud on the return; rather, he would just pay the tax and interest that are in the helpful metaphor, his dues for a civilized society.

That’s all I have on the merits of Murrin and Allen. Just a few more comments:

Interesting points from ABA Tax Online Presentation on Loper Bright (4/29/26)

I just attended online an ABA Tax Section Program titled: “Navigating Tax Guidance in a Post-Loper Bright World.” The ABA page on the program is here. The panel participants were very knowledgeable.

Early in the program, I asked the following question via the Q&A tool:

Under Loper Bright, if, after using all the tools of statutory interpretation, a judge still cannot determine whether the IRS interpretation or the opposing interpretation is the best interpretation (a state of equipoise on the interpretation), what does the judge do? Should the judge flip a coin, consult, his ouija board, follow his own preferred outcome, etc.?

I have asked a similar question in previous ABA programs, but the question was never answered. In today’s program, the question was answered—that is, at least an answer was proffered. I am not sure it is the right answer but it certainly echoed Loper Bright’s reasoning, such as it is.

So what was the answer? Basically, the answer given by the judge on the panel was that, with good statutory interpretation, the judge will always have something to tilt the judge to the best interpretation. (That is my paraphrasing and advanced apologies if I did not get it exactly right.) Actually, as the question was answered, I think the answer was hedged saying that he did not think it would happen very often (although that is from memory, I may be misremembering, and my notes don’t confirm that).

I think the essence of the answer was an echo of Loper Bright which is just flat-out wrong on the point of continuing possibility of ambiguity (equipoise). Loper Bright claimed by fiat that a judge should always be able to reach a single best interpretation with no need for a default rule such as Chevron deference to the agency interpretation. (For this, one must remember that a condition of Chevron deference was that the statute be ambiguous, meaning that the judge could not determine whether the agency interpretation or an opposing interpretation was the single best interpretation; if the court could determine the best interpretation, Chevron required the court to stop at Step One without any deference.)

District Court Invalidates and Vacates Listed Transaction Reporting Regulation (4/18/26)

In Drake Plastics Ltd. Co. v. IRS, ___ F. Supp. 3d ___ (S.D. Tex. 4/15/26), CL here, and GS here [to come], the court (Judge Lee Rosenthal) considered APA claims of invalidity of the regulations determinations of “transactions of interest” and “listed transactions” for micro-captive insurance companies (from the conclusion):

          The court grants in part the plaintiffs’ motion for summary judgment and a permanent injunction, (Docket Entry No. 58), and grants in part the defendants’ cross-motion for summary judgment, (Docket Entry No. 63). The defendants (1) appropriately designated micro-captive transactions as transactions of interest through 26 C.F.R. § 1.6011-11; but (2) exceeded their statutory authority in designating micro-captive transactions as listed transactions through 26 C.F.R. § 1.6011-10. The court declares unlawful 26 C.F.R. § 1.6011-10 and vacates it. The case is remanded to the Department of the Treasury and the Internal Revenue Service for further agency action consistent with this opinion.

          The vacatur is stayed until May 1, 2026, to avoid taxpayer confusion on Tax Day. Cf. Purcell v. Gonzalez, 549 U.S. 1, 4–5 (2006) (“Court orders . . . can themselves result in . . . confusion . . . .”). Final judgment is entered separately.

I am not sure what the last paragraph stay is about, but I do understand the holdings in the first paragraph.

The court’s holding turns upon interpretation of the statutory requirement that "transactions of interest" have the “potential” for tax avoidance but that “listed transactions” that have tax avoidance, at least presumptive tax avoidance, rather than just the potential for tax avoidance. The court reasoned that the IRS did not adequately explain microcaptive arrangements identified in the "listed transaction" regulation.

Judge Rosenthal is a very good judge, so I respect her analysis, even though I am not convinced that it is correct.

Microsoft Copilot AI Hallucinates on Chevron Deference (4/12/26)

I have previously written on artificial intelligence (“AI”) related to tax procedure issues. I write today to address AI hallucinations of the type that have been incorporated into briefs and, more rarely, even court opinions. By hallucinations, I mean (from Wikipedia, here): “a response generated by AI that contains false or misleading information presented as fact.” The specific instance I address here is false readings of judicial opinions in the context of Chevron deference.

Readers will recall that I have previously discussed the issue of Chevron deference and the demise of Chevron deference in Loper Bright. One of the issues I addressed but return to today is whether courts determined the best interpretation was an interpretation other than an agency interpretation but nevertheless deferred under Chevron to the agency not-best interpretation. My claim was that Chevron required statutory ambiguity which meant that the court could not determine the best interpretation; only when ambiguity existed could the court defer to (apply) the agency interpretation. Stated otherwise, if a court could determine the best interpretation, the statute was not ambiguous and the best interpretation applied at Chevron Step One (i.e., no deference to the agency interpretation). Extended, the claim is that courts did not defer to an agency interpretation when it was not the best interpretation; rather, courts only deferred when they could not determine the best interpretation. At least that is how Chevron should have worked.

Yesterday, I returned to AI, specifically MS Copilot, to address this issue. I link here for download an pdf from an MS Word file with my prompts (4 prompts with prompts 2-4 following through on the first prompt). I provide here prompts 1-4 which refine the inquiry and provide the Copilot response only to the final prompt:

PROMPT #1: can you please identify cases decided under Chevron in which a court explicitly stated its best interpretation and said that it was nevertheless deferring to a not-best agency interpretation?

PROMPT #2 Please provide direct quotations from each case.

PROMPT #3: Please provide pinpoint citations for each case. [JAT Note: pinpoint citations are local page cites.]

PROMPT #4: Please provide cases and quotes from cases where judges criticized Chevron for forcing them to accept worse interpretations.

I will copy and paste the answer to Prompt #4, but first a big red flag was presented in the response to PROMPT #2 when I asked for direct quotes. The response started with the following:

I can absolutely give you direct quotations, but there’s one important constraint: I can only quote one or two lines verbatim from each case, because judicial opinions are copyrighted. 

That claim is patently wrong. Case opinions are not copyrighted.

The following is Copilot's response to PROMPT #4 (I add some of my analysis in CAPS and RED TYPE with links to the cases):

COPILOT RESPONSE TO PROMPT #4:

Tax Court Sustains Deficiencies Equaling Restitution with No RBA (4/4/26)

In Thody v. Commissioner, T.C. Memo. 2026-30, the Court sustained the deficiencies asserted against Thody with respect to the tax loss that had been subject to a restitution order against Thody in an earlier criminal tax prosecution. The Thody opinion can be viewed at TC No. 27415-21, here, at #50 dated 3/30/26 and GS here. Actually, the original notices of deficiency exceeded the amount in the restitution order, but the IRS conceded (pp.. 4-5) the excess deficiencies asserted in the notice of deficiency, so that with that concession, the amounts of deficiencies the IRS asserted in the case equaled the amounts in the criminal restitution order. The Court then sustained the deficiencies based on the evidence.

One unexplained apparent oddity is that the IRS did not make a restitution-based assessment (“RBA”) allowed by § 6201(a)(4). The Court offers no explanation and treats the case as a straight-forward deficiency case permitting Thody to contest the amounts. If the IRS had made the RBA in the same amounts, Thody could not have contested the amounts of the RBA. In that regard, the IRS can assert deficiencies in amounts exceeding the amounts of restitution, whether or not asserted in an RBA. I don’t know why the IRS conceded the excess amounts. The IRS may have known or believed that it could not sustain that excess, so that this would be a normal concession in a deficiency case. But, if as a straight deficiency case, the IRS could have sustained the excess deficiency amounts, there was no reason to concede them. The IRS may have conceded just to move the case to a prompt decision with less hassle. A related question is whether, once the IRS decided to concede the excess before the trial level consideration was concluded, the IRS could have made an immediate RBA which would preclude Thody from contesting the amounts. I am not sure that there is a statute of limitations on RBAs because I have not researched that issue. And I am not sure that the Court would have treated such a belated RBA as mooting the deficiencies case.

Moreover, the Court seems not to have not the distinction between a tax deficiency and restitution. Thus, at p. 3, the Court says that the Government reduced the restitution (not the RBA) to judgment. In doing so, the Court cites in fn. 4 the IRM for the purpose of suits to reduce tax claims to judgment is to extend the statute of limitations. The IRM provision, I think, relates to tax assessments rather than criminal restitution. Of course, if there is a statute of limitations on restitution (likely), the reason to reduce restitution to judgment may be for the same.

Thody made the argument that the payments he had made for restitution should reduce the amount of the deficiencies. The Court (pp. 7-8) did correctly find that Thody’s argument was incorrect. The Court notes that, although in collecting on any resulting deficiencies approved by the Tax Court, the IRS would have to credit the restitution payments against the tax liabilities.

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

Court Denies Charity's Motion to Dismiss a Suit to Judicially Extinguish a Conservation Easement Deduction Failing to Achieve a Tax Deduction (4/2/26)

Today’s entry arises from an order in a case where the Petitioner, as successor in interest to three LLCs that made so-called charitable contributions of conservation easements that failed to sustain the tax benefits the predecessors claimed on the partnership tax returns, seeks a “judicial extinguishment” of the original contribution on the notion that the parties made a critical mutual mistake regarding the easement contributions as qualifying for the federal income tax deduction. If achieved that would mean that the conservation easement goes back to the successor in interest, making its fee simple interest more valuable because not subject to the conservation easement. The nondispositive order is McLaws Bay LLC v. National Wild Turkey Federation (S.D. Ga. No. 4:25-cv-00128 (CL here and GS here) Dkt. #24 (CL here) dated 3/30/26). The Respondents filed a motion to dismiss. The order grants and denies in part the motion on the basis that the record is not sufficient to assess the merits of the defense; the case proceeds at this time.

A key paragraph in the order is (bold-face supplied by JAT):

          Petitioner claims that Grantors (Petitioner’s predecessors in interest) and NWTF intended for the conservation easements to qualify as "conservation contributions" under Section 170 of the IRS code, entitling Grantors to tax benefits. (Id. at pp. 34-35; see 26 U.S.C. §170(h)(1).) Each grant references the tax code and provides that the easements are "intended to constitute (i) a ‘qualified conservation contribution’ as that term is defined in Section 170(h)(1) of the Internal Revenue Code." (Doc. 1-2, pp. 34, 52, 89, 126.) Section 5.24 of each easement states that "Grantor represents that he has consulted with an attorney [and] an accountant . . . familiar with Section 170 of the Internal Revenue [Code] for advice related to this Conservation Easement and any potential tax benefits" and that "Grantor warrants and represents that Grantee has made no warranty or representation relating to . . . any entitlement to tax benefits. . . ." (Id. at pp. 35, 80, 117, 154.)

As best I see the case, in broad overview, the Grantors (the predecessor LLCs to the Petitioner, screwed up the contribution and thus failed to meet the tax requirements (probably including a gross overvaluation).

The opinion identifies the predecessor partnerships making the contribution and claiming the deductions as “Dasher’s Bay at Effingham, LLC, River Pointe at Ogeechee, LLC, and River’s Edge Landing, LLC.” The DAWSON information on the LLCs thus named is:

• Dasher’s Bay at Effingham, LLC: T.C. No. 4078-18, here. The decision at Dkt # 52 dated 1/11/23 denies a charitable deduction of $8,619,000
• River Pointe at Ogeechee, LLC: No case with this name found on DAWSON.
• River’s Edge Landing, LLC: No case with this name found on DAWSON.

In any event, the amounts of the disallowed deductions are relevant only, in the one case, to permit a fair inference of at least the possibility of a gross overvaluation.

My reaction—really a guess without digging into the merits—is that, in the final analysis, the court in McLaws will treat McLaws’ claims as bullshit.

Prominent Convicted Tax Shelter Lawyer Fails on Appeal in CDP Case Involving Restitution Based Assessments (4/1/26)

 I start with a caveat: although this posting is on April 1, sometimes called April Fools Day, this is intended as a serious discussion.

In Daugerdas v. Commissioner, ___ F.4th ___ (7th Cir. 2026), CA7 here and GS here, the Court held that § 6201(a)(4)(A), which authorizes the IRS  to assess and collect restitution awarded in a criminal proceeding for unpaid tax, was a stand-alone collection authority unaffected by the payment schedule the district court imposed for the restitution behind the tax assessment. The assessment is sometimes called “restitution based assessment,” and acronymed to RBA which I use here. The holding seems like a straight-forward holding. But there are some issues lurking in the case that tax procedure enthusiasts may enjoy or at least understand.

First, I offer background worthy of note:

1. Daugerdas, a lawyer, is a notorious promoter of bogus tax shelters who was convicted. The Court says (pp. 2-3, emphasis supplied by JAT):

          In 2013 a federal jury in Manhattan found Daugerdas guilty of one count of conspiracy to defraud the IRS (18 U.S.C. § 371), one count of mail fraud (18 U.S.C. § 1341), four counts of client tax evasion (26 U.S.C. § 7201), and one count of obstructing the internal revenue laws (26 U.S.C. § 7212(a)). His sentence brought with it an obligation to pay restitution of $371,006,397 jointly and severally with his co-conspirators for the tax losses resulting from the fraud perpetrated on the U.S. Treasury. The district court established a schedule of payments requiring Daugerdas to pay 10% of his gross monthly [*3] income starting 30 days after his release from prison. The Second Circuit affirmed Daugerdas’s convictions and sentence. See United States v. Daugerdas, 837 F.3d 212 (2d Cir. 2016).

I have not tried to break down the components of the restitution amount. Specifically, I have not tried to determine whether the restitution relates to Daugerdas’ tax liabilities (he did make a whopping amount of gross income that he likely attempted to shelter with similar bullshit strategies) or includes in whole or in part the liabilities of other persons reporting on the basis of bullshit tax shelters he promoted with legal opinions and related services. I don’t know that the difference makes a difference in terms of the RBA.

I have written on Daugerdas several times on my Federal Tax Crimes Blog, here (the results are initially by relevance but may be sorted by date).

The Economic Substance Doctrine ("ESD")--the Common Law and § 7701(o) (3/31/26; 4/8/26)

In Royalty Management Ins. Co., Ltd. v. Commissioner, T.C. Memo. 2026-26 (T.C. No. 3823-19, here, at #338 and GS here), Judge Lauber smacked down another bullshit tax shelter of the microcaptive insurance genre. This opinion is a follow-through from a prior opinion, Royalty Management Ins. Co. v. Commissioner, T.C. Memo. 2024-87 (GS here). I refer to the prior case as Royalty Mgmt 1 and the current case as Royalty Mgmt 2.

Royalty Mgmt 2 was required because Judge Lauber deferred resolving in Royalty Mgmt 1 the economic substance doctrine (“ESD”) issues (including the codified ESD in § 7701(o) and the accuracy-related penalty for shelters running afoul of the codified ESD in § 6662(b)(6), (i)). In the meantime, the Tax Court had decided Patel v. Commissioner, 165 T.C. ___, No. 10 (11/12/25), GS here, which I discussed Tax Court in Unanimous Reviewed Opinion Interprets and Applies the Accuracy-Related Economic Substance Penalty (11/12/25), here. In material part, Patel held that the codified ESD doctrine in § 7701(o) has a predicate “relevance” requirement. So, Judge Lauber in Royalty Mgmt 2 applied that requirement as a predicate for finding the petitioner liable for the accuracy-related penalty for lack of economic substance. The kerfuffle over whether § 7701(o) has a predicate requirement and precisely what the requirement is and how it may be applied is not relevant to the main body of this blog, so I will defer here and discuss that alleged predicate requirement in my comments below. I do point persons interested in the issue at Royalty Mgmt 2 at pp. 3-4.

Judge Lauber goes through (pp. 5-9) the standard ESD requirements—objective and subjective tests, both of which on the facts found, the petitioner flunked.

Having flunked the ESD test, petitioner drew the increased accuracy-related penalty in § 6662(b)(6), (i). (See pp. 9-11.)

JAT Comments:

Tax Court (Judge Lauber) Strikes Down Another Bullshit Tax Shelter Not Defending It's Return Reporting Valuation (3/30/26; 4/2/26)

In Hancock County Land Acquisitions, LLC v. Commissioner, T.C. Memo. 2026-28, TC here at # 232 and GS here, Judge Lauber shot down another bullshit SCE shelter. Judge Lauber explains in summary in the introduction (pp. 1-3 of the opinion) in a straight-forward way, so I will just cut and paste that portion of the opinion (providing my own bold-face of key parts, with one footnote omitted) and will thereafter make some comments:

LAUBER, Judge: This is a syndicated conservation easement (SCE) case with a familiar fact pattern. In August 2016 Hancock County Land Acquisitions, LLC (HCLA), granted a conservation easement over a 236-acre parcel of land in rural Mississippi. This parcel was part of a 1,698-acre tract that had changed hands three times during the previous 13 years for prices as low as $895 and $2,356 per acre.1 On its 2016 Form 1065, U.S. Return of Partnership Income, HCLA claimed a charitable contribution deduction for the easement on the theory that the [*2] “before value” of the 236-acre parcel—that is, its value before being encumbered by the easement—was $180,177,000, or $763,462 per acre. That figure was calculated as the discounted cashflow (DCF) that supposedly could be derived from constructing and operating a hypothetical sand and gravel (S&G) mining business on the property.

          To its credit, Southeastern Argive Investments, LLC (Argive), petitioner in this case, did not seek to defend that outlandish valuation at trial. Rather, petitioner sought to derive a “before value” for the 236-acre parcel from the amount investors paid to acquire a 97% interest in Argive, or from the amount Argive paid to acquire a 97% interest in HCLA, which owned the land. The “total capital raise” from the investor offering was $23,374,575, and roughly 78% of that amount, or $18,247,575, was paid to the owner of the 236-acre parcel. Petitioner contends that the offering was an arm’s-length transaction close in time to—indeed, just six weeks before—the date the easement was granted (valuation date), and that this transaction constitutes the best evidence of the fair market value (FMV) of the land. While not disclaiming a higher value, petitioner contends that the “before value” of the land (making adjustments for minority interests) was at least $18,634,933, or $78,962 per acre.

          We reject this argument. The investors were not purchasing land; in substance, they were purchasing tax deductions. Each investor was promised a charitable contribution tax deduction of $7,477 for every $1,000 invested. As a result, the amount they paid for their partnership interests was (roughly speaking) the aggregate amount of the promised tax deduction divided by 7.477. Neither the investors nor Argive negotiated at arm’s length over the value of the land; the offering was not priced by reference to the value of the land; and the amount the investors paid had nothing to do with the value of the land. Petitioner produced no credible evidence that the investors expressed any view about what percentage of the offering proceeds should be paid to the land-owner under arm’s-length standards. We find that the sole focus of their concern was the magnitude of the tax deduction. That number would be the same regardless of how much the landowner was paid for the land.

Déjà vu All Over Again-Non SCE Tax Shelter with Alleged Bullshit SCE Features (3/23/26)

Bloomberg has this article: Michael J. Bologna, Whistleblower Targets Tax Shelter Promoting Do-Good Technology (Bloomberg Tax 3/23/26), here. The only thing I know about the strategy is from the article. I therefore cannot speak to whether it is in fact a bullshit tax shelter. However, if the article accurately describes the strategy, it has the earmarks of bullshit tax shelters—likely gross overvaluation of charitable noncash donations—from  Jackie Fine Arts in the 1970s and early 1980s, through a cousin, Barrister, then going through the Syndicated Conservation Easements.

The article appears to be well researched and has some comments by prominent attorneys in this area. Some excerpts:

          Working off a playbook refined over several years, Solidaris and its partners in 2025 proposed four separate plans, each investing in 45 shell companies, and each looking to raise $90 million from wealthy investors.

          In one plan, the investors could vote to donate license rights to a technology designed to help blind people navigate in urban environments. In the second, they could vote to distribute digital coloring books to pediatric cancer patients. And in the two others, they could choose to donate crime-fighting artificial intelligence technology to local police departments. All four plans were described in private placement documents as Regulation D private offerings, allowing the promoters and sponsors to raise capital without registering the investments with the Securities and Exchange Commission.

          Elements of the strategy including outsized charitable deductions, complex procedures, and unusually high fees, warrant government scrutiny, according to former Internal Revenue Service, SEC, and Department of Justice officials who reviewed the documents for Bloomberg Tax.

          “It undermines fundamental economics and human behavior,” said Miles Fuller, a former senior counsel at the IRS Office of Chief Counsel. “One dollar does not turn into five dollars overnight. And if it did, it is unlikely the beneficial party would then donate the five dollars to charity rather than sell and pocket the profit.”

          The Solidaris-led strategy to collect $360 million total from investors last year could generate charitable deductions of $1.8 billion this tax season, assuming high-wealth investors vote to donate the technology and then claim a deduction worth five times their investments. That would cut an estimated $667 million from their federal returns and $90 million from state returns for tax year 2025.

          Solidaris says its investments “multiply good on a local, state, and national scale.” It also said it plays no role in whether investors vote to donate the technology. The company has not been charged with any wrongdoing.

          Under the Internal Revenue Code, whether a tax shelter is allowed or not can be an open question until the government weighs in. And that can take years, especially when the shelter is novel or complicated.

Just a few comments:

Update on FTPB Discussion of Legislative History (3/18/26)

I have substantially revised the legislative history discussion in my Federal Tax Procedure Working Draft for the 2026 editions (Student and Practitioner) to be published on SSRN in early August 2026. As currently revised, the text (without footnotes as it will appear in the Student Edition, although those wanting the draft with footnotes in the Practitioner Edition may view it here):

                                      (5)    On Legislative History.

          I noted above the controversy between textualists and purposivists over the role that legislative history should play in statutory interpretation. Legislative history is the course of congressional consideration in identifying the need for legislation, drafting or revising the bills (the “drafting history” for enacted statutory text), expressions by persons involved in the process as to how they understood the text of the bills, and the final statutory text. The principal sources of legislative history for statutes are the drafting history and the committee reports which I discuss below. (For tax legislation, the legislative history may also include proposals from Treasury (analogous to drafting history) and Treasury’s explanation of the proposals, most commonly along with Treasury’s annual budget request with tax proposals referred to as the Green Book.) Other sources include committee hearings, statements made on the floor of Congress in debating the legislation, and submissions to Congress by the executive branch. There is a long and substantial history of judicial use of legislative history in statutory interpretation, particularly in the tax area.

          Legislative history is a broad term, with some legislative history more persuasive than others (at least for those willing to consider legislative history). In terms of the legislative process and reliable indicators of the meaning of statutory text, the committee reports accompanying legislation are generally viewed as a reliable form of legislative history (eclipsed only by conference committee reports discussed below). In both houses, proposed legislation is generally first considered substantively in committees which generally give the most detailed consideration of proposed statutory text; those committees often hold hearings to discuss legislative proposals and then prepare reports explaining the proposed statutory text that they send to the floors of their respective Houses. The meaning of particular statutory text that is then enacted may be discussed in those hearings or in the committee reports.

          For tax legislation, because of the historic influence of the tax writing committees and their staffs and the assistance of the Joint Committee on Taxation (“JCT”), the committee reports of the House Ways and Means Committee and the Senate Finance Committee have been the most frequently used legislative history guide to interpreting the statutory text. Often said to rank even higher than committee reports in authoritativeness is the particular form of legislative history accompanying and explaining statutory text produced in a Conference Committee to work out differences in legislation between the two Houses of Congress. In considering legislative history in a particular case, it is important to understand the legislative processes that produced the legislative history and whether those processes make the legislative history a reliable indicator of the actual or deemed meaning of the statutory text.

Comments on Highly Recommended Article Extending Skidmore "Deference" Approved in Loper Bright (3/7/26; 3/8/26)

I have just read a great article: Mitchell Zaic, Note: The Skidmore Compromise: Interpreting Skidmore as a Tiebreaker to Preserve Judicial Wisdom in the Era of Loper Bright, 110 Minn. L. Rev. 1535 (2026), here, and post some thoughts on the article and on Skidmore (Skidmore v. Swift & Co., 323 US 134 (1944), here).

First, I acknowledge Mr. Zaic has published an exceptional work with substantial research and creative thought after Loper Bright Ent. v. Raimondo, 603 U.S. 369 (2024), SC here (Preliminary Print), which overruled so-called Chevron deference. Chevron U.S.A. Inc. v. Nat. Res. Def. Council, Inc., 467 U.S. 837 (1984), GS here. Mr. Zaic says in the asterisk for his name: “Writing this piece has been one of the great privileges of my life.” He has also privileged readers of the article.

Mr. Zaic states his thesis in these two excerpts (pp. 1356 and 1569):

This interpretation of Skidmore would only be used by interpreters when judges are faced with interpretive ties that have no other method of resolution. Only then can judges resort to applying the agency's interpretation. This method of interpreting Skidmore ensures that agency interpretations never overrule the best meaning of the statute, instead facilitating the judge in his or her interpretive quest. In addition, the tiebreaker continues the long tradition of respect for agency interpretations beyond that of the typical litigant.

* * * *

Where competing interpretations are at equipoise to an interpreter, courts should resolve conflicts in the agency's favor so long as the agency's reasoning is valid, thorough and its interpretation arises from experience and informed judgment.

Bottom line, Mr. Zaic argues that, in a state of statutory interpretive equipoise, a court needs—indeed, must—apply a default rule to decide the case. The default rule in a case where a regulated party opposes an agency interpretation is that the court should default to the agency interpretation. Mr. Zaic gets to his conclusion through a process of reasoning.

My previous Chevron research indicates that Chevron worked in equipoise (without necessarily the qualifiers at the end of Mr. Zic's last sentence). Chevron was supposed to apply only where, after vigorous statutory interpretation (Chevron fn. 9), the statutory text was still ambiguous—in equipoise—where the court could not determine which of two or more interpretations within the zone of ambiguity was the best interpretation.

Second Circuit Rejects Tax Court's Farhy Holding That IRS Can't Assess and Collect the § 6038(b) Penalty (2/27/26)

I have written on the issue of whether the § 6038(b) penalty can be assessed (with the assessment collection tools available) or must be collected by a collection suit in the district court. See posts here. The Tax Court held in  Farhy v. Commissioner, 160 T.C. 399 (2023), GS here, that the IRS could not assess and collect but rather must sue and collect. The D.C. Circuit reversed. Farhy v. Commissioner, 100 F.4th 223 (D.C. Cir. 2024), CADC here**, and GS here. The Tax Court stuck to its Farhy holding in cases appealable to Circuits other than the D.C. Circuit under its Golsen rule, feeling that its original Farhy holding was correct.

Today, the Second Circuit has now aligned with the D.C. Circuit, saying that the IRS can assess and collect the § 6038(b) penalty.  Safdieh v. Commissioner, 169 F. 4th 102 (2d Cir. 2/27/26), CA 2 here, TN here, and GS here. Other than to say that I think the D.C. Circuit and the Second Circuit are correct, I can’t add any discussion not evident from my earlier posts linked above. Thus, this is a notice-only blog.

This post is cross-posted in my Federal Tax Crimes Blog, here.

Tax Court Calls Out Yet Another Bullshit Tax Shelter But Relieves Taxpayer of 6662 Penalties (2/24/26 as corrected; 2/27/26)

Major Correction: I made an error in the original blog post, by misreading the court's application of the 40% Substantial Valuation Misstatement and Gross Valuation Misstatement Penalties in § 6662(e)(1)(A) and I.R.C. § 6662(h) but not picking up that the reasonable cause defense it sustained effectively wiped out all 6662 penalties.

Yesterday, the Tax Court (Judge Weiler) decided Otay Project LP v. Commissioner, T.C. Memo. 2026-21, TC Dkt here at # 349, TN here, and GS here, tanking another bullshit tax shelter. There is no indication that this is a syndicated shelter creating basis and thus deductions out of thin air in complex structures taxed as partnership; as presented it seems like “one-off” imagined by creative minds and blessed by firms that have played prominently in tax sheltering—E&Y and McKee Nelson LLP; moreover, I suspect (suspicion only) that variations on the shelter were promoted on and opined upon on other occasions.

I find it a bit odd that, although Judge Weiler says he read the those firms’ opinions (Slip Op. 45), but he does not identify the persons signing the opinions. Oh well, let’s move on to the main points for tax procedure enthusiasts.

On the Merits of the Complex Machinations:

The actual bottom-line tax costs of the shelter failing must await the Rule 155 computation, but the Court concludes on the merits (other than penalties) (Slip Op. 31):

In sum, we determine petitioner has not met its burden here and has failed to correctly establish the Basis Deduction under section 743(b), as claimed on OPLP’s 2012 Form 1065. Accordingly, we will sustain respondent’s disallowance of $713,759,615 of a more than $743 million claimed Basis Deduction reported on OPLP’s 2012 Form 1065 for the 2012 tax period. 

I believe it would not be helpful to most tax procedure enthusiasts to wade into the complex facts and partnership tax law discussed in the opinion. Although this appeared not to be one of the abusive shelters of the late 1990s and early 2000s (e.g., BLIPS or variants used by different accounting and law firms), I suspect that some of the fanciful notions asserted in those earlier versions were deployed here in a more complex and “engineered” (Slip Op. 30-32) journey through esoteric partnership tax provisions.

Suffice it to say that the Court rejected that “engineered” journey on the merits of the partnership tax law and also based on economic substance doctrine. In this regard, because it preceded the effective date, the transaction was not subject to the codified economic substance doctrine in § 7771(o) or the penalty in § 6662(b)(6). (See Slip Op 2 n. 2.)

 The Penalties: