Tax Court Rejects Bullshit SCE Valuations; Applies Penalties; and Rejects Hail Mary Arguments in Footnotes (11/10/26)

Yet another. Riddle Aggregates, LLC v. Commissioner, T.C. Memo. 2026-117 (11/10/26), T.C. No. 31104-21 at # 315, TN here, and GS here [to come].

The Court goes with the IRS valuation expert, mimicking baseball arbitration. Since the shelter’s lawyers abandoned the reasonable valuation field, leaving the IRS with the only reasonable valuations, naturally the Court went with the IRS. (This differs from baseball arbitration where the arbitrator accepts the most reasonable valuation; here the shelter offered only bullshit valuations.)

I don’t think readers will benefit from my digging into and regurgitating the opinion; nor do I think they will be enlightened on tax procedure by reading the opinion on their own. It is the same old bullshit, although Judge Kerrigan skillfully shows she can dig into the bullshit to see if there is a pony underneath (there is not). And she does it in 34 pages which, from my nonempirical memory, is less than most judges spend on this genre of bullshit case.

I think the two last footnotes—11 and 12—in the opinion are worth copying and pasting (my experience is that in otherwise unexceptional (or even exceptional) cases there are some jewels in the footnotes, including here addressing some of the shelter's "hail Mary" ruses:

n11 Petitioner also raised the argument that the Supreme Court’s decision in Trump v. Slaughter, 146 S. Ct. 2283 (2026), undermines this Court’s earlier decision in Riddle Aggregates, LLC v. Commissioner (Riddle I), No. 31104-21, 165 T.C. (Dec. 15, 2025), denying petitioner’s Motion for Partial Summary Judgment that the Seventh Amendment to the U.S. Constitution guarantees a jury trial before respondent can assess penalties. Petitioner argues that after Slaughter failure to adjudicate penalties in accordance with the president’s political goals could be valid grounds for the removal of a Tax Court judge. The Supreme Court did not address the removal of a Tax Court Judge. Slaughter, 146 S. Ct. at 2306 (“Nor do we determine the fate of officials not before us. . . . [T]he permissibility of tenure protections for the judges of non-Article III courts, such as the Tax Court and the Court of Federal Claims, is not presented or briefed in this case and poses a different set of questions.” (citation modified)). Accordingly, Slaughter does not affect our analysis in Riddle I.

n12 Petitioner raised the argument that Treasury Regulation § 1.6662-5(a) is invalid. While the provision addresses the issue in dispute, respondent relies upon the statute to support his position. We reached our conclusion by relying upon the statutory text.

Finally, I am amazed that the Tax Court continues to put up with plainly bullshit valuations proffered in litigation by shelters and their counsel who should have realized that they were serving up bullshit to the Court and wasting time and resources. There has to be some trial techniques that could put both the parties and counsel and their experts on notice that bullshit evidence will not be tolerated. See Tax Court Rejects a Bullshit Tax Shelter False Valuation Claim with Warning of Sanctions for Taxpayers, their Counsel, and Expert Witness Proffering the Bullshit (7/16/25; 9/10/25), here.

Moreover, I think Congress should enact a provision like the gross valuation misstatement penalty that imposes a no-fault penalty in litigation on valuations without reasonable cause alleged defenses.

Such trial management techniques either in the Court’s toolbox or in a new statute would make litigants get real and tailor their claimed valuations closer to reality. This could permit more settlements as the parties get closer within the range of reasonableness and might even encourage more baseball arbitration to avoid trial altogether. This could save all taxpayers money. A clear example of waste, fraud and abuse.