Tax Court Decides 2 Bullshit SCE Tax Shelter Cases and, in One, Judge Lauber Calls Out Petitioner's Counsel's Theatrics (10/19/26)

The Tax Court decided two syndicated conservation easement (“SCE”) cases today (presented in order of most pages):

• Del Monte, LLC v. Commissioner, T.C. Memo. 2026-107 (67 pages; Docket ## 3411-21 at 381 & 6084-21 at #372, GS here [to come] authored by Judge Urda).
• Watson Lake Investments, LLC v. Commissioner, T.C. Memo. 2026-106 (53 pages; Docket ## 13696-20 at 165 & 24239-22 at 132; GS here [to come], authored by Judge Lauber).

Both of these are standard fare bullshit SCE gross overvaluation cases. I could just let it go at that because readers will already infer correctly that the partnerships presented bullshit valuations on the returns and with so-called expert testimony at trial.

But Judge Lauber’s opinion in Watson Lake deserves a special mention. First, Judge Lauber calls out one of the petitioner’s (Watson Lake’s) reliance on an obviously forged letter. (See Slip Op. 11 & 31-32.). Second and more importantly, Judge Lauber addresses in some detail the petitioners’ counsel’s theatrics (also properly characterized as bullshit in the extreme) to avoid the foregone conclusion that his knowledge of the case should have told him his clients would and should lose.

On counsel’s bullshit arguments, Judge Lauber first handily rejects the constitutional claims. (Slip Op. 43-44.) Nothing worthy of comment.

On counsel’s bullshit theatrics (Slip Op. 44-53), Judge Lauber provides the detail ad nauseum to show many footfaults (a euphemism in this context) by petitioner’s counsel. I copy and paste Judge Lauber’s introduction (Slip Op. 44-45):

ChatGPT and Loper Bright Misread Chevron Footnote 11 to Have Permitted Chevron Deference Over an Opposing Best Interpretation (10/7/26; 10/8/26)

Yesterday, I posted on Loper Bright’s Cryptic Statement of Statutory Stare Decisis for Chevron Precedents – And Giving Chevron a Bad Rap (Procedurally Taxing Blog 10/6/26), here. After I posted, I asked ChatGPT Plus (hereafter just ChatGPT) the following:

This is a blog entry that I wrote today. Please re-write it to make it tighter and cite appropriate authority. [I copied and pasted the blog entry]

Yesterday evening I posted at the bottom of the blog a link to a pdf of the ChatGPT comments and re-write along with some of my comments to ChatGPT’s response. I also offer that pdf link here and the ChatGPT link is here (omitting my comments). I think one of ChatGPT’s critiques of my blog should be elevated to a separate blog because it is so important. Here is the key critique having to do with Chevron footnote 11 (note ChatGPT is speaking in the first person).

I would revise the final argument about Chevron. Chevron itself, especially footnote 11, expressly contemplated upholding an agency interpretation even when it was not the interpretation the court independently would have selected. Your stronger empirical point is that this theoretical feature of Chevron should not be confused with proof that courts actually and frequently rejected what they regarded as the best interpretation in favor of an inferior agency interpretation. Barnett and Walker do not establish that proposition.

Back to JAT speaking for myself in the first person:

1. The key point I [JAT] was making was that Chevron required ambiguity where a court could determine only that competing interpretations were in the zone of ambiguity of the statutory text but could not determine which interpretation is best. So, with that point (which really when carefully considered covers the rest of my analysis), here is the rest:

2. ChatGPT Plus rightly points out that Chevron footnote 11 said: “The court need not conclude that the agency construction was the only one it permissibly could have adopted to uphold the construction, or even the reading the court would have reached if the question initially had arisen in a judicial proceeding.” (467 U.S., at 843 n. 11.) My problem is that, in the Chevron text to which that footnote applies, the Court says and I repeat the text and footnote to contextualize (I bold-face key words)

Loper Bright’s Cryptic Statement of Statutory Stare Decisis for Chevron Precedents – And Giving Chevron a Bad Rap (10/6/26)

I have just reviewed Eli Nachmany, Deference Undisturbed, 101 Notre Dame L. Rev. 985 (2026), on SSRN here. The author focuses on the rather cryptic discussion of statutory stare decisis in the Opinion of the Court (C.J. Roberts) in Loper Bright Enterprises v. Raimondo, 603 U.S. 369 , 412 (2024), here [Preliminary Print]:

By doing so [leaving deference behind in Loper Bright], we do not call into question prior cases that relied on the Chevron framework. The holdings of those cases that specific agency actions are lawful—including the Clean Air Act holding of Chevron itself—are still subject to statutory stare decisis despite our change in interpretive methodology.

The actual holding of Loper Bright was that, going forward, courts must interpret statutes in agency interpretation cases de novo rather than deferring to agency interpretations as Chevron (and, really, Chevron predecessors dating to before the APA) allegedly allowed. Loper Bright's cryptic discussion of statutory stare decisis is dictum rather than a holding and seems to be something textualists often claim to avoid—permitting consequences of the interpretation to affect the interpretation of the text that, under their claimed textual preference looks only to the text, the whole text, and nothing but the text. (As Justice Kagan famously noted, textualists find a way to avoid text when they choose to, using the Major Questions Doctrine, for example, as a “get out of text free” card. West Virginia v. EPA, 597 U.S. 697, 779 (2022) (Kagan, J., dissenting).)

No one can doubt the disruption to a host of precedential statutory interpretations that would occur if Chevron deference could be litigated anew based on Loper Bright. As Nachmany discusses in the article (p. 1010), that cryptic statement was to stem the tide of the disruptive possibility.

Of course, the statement in Loper Bright is cryptic, offering nothing that helps courts in the future decide which precedents are entitled to statutory stare decisis and which are not. Perhaps it may be like pornography: courts will know it when they see it. See Jacobellis v. Ohio, 378 U.S. 184, 197 n. 2  (1964) (J. Stewart, concurring).

I discuss statutory stare decisis in my article. John A. Townsend, Loper Bright Flip Flops on Chevron Deference: A Tax Lawyer's Perspective, 79 Tax Law. 323, 391-397 (2026), SSRN here. In this posting, I offer some discussion that is in more cryptic in my article but inspired now by Nachmany’s article.

The issue that concerns me is to identify the holding of the opinion a court would use for precedent. I do not address the issue of what levels of precedent Loper Bright means its statement to apply (e.g., Supreme Court, Circuit Courts, or trial courts). At a minimum, everyone should recognize that Supreme Court adoption of agency interpretations under Chevron are precedential opinions for all judges to which the cryptic statement in Loper Bright might apply.

One thing that is certain is that the Loper Bright cryptic statement requires that the precedent in question have applied Chevron deference. I illustrate with two examples.

Example 1. The prior opinion noised about Chevron but when read fairly applied the agency interpretation as the best interpretation rather than deferring to it over an opposing best interpretation. This is a Chevron Step One case. Sometimes teasing out from the prior opinions the real basis for the holding can be difficult, but courts having the claimed facility for statutory interpretation should have some skills for interpreting potentially precedential opinions. (In this context the prior opinion is the law requiring interpretation.) As I discuss in my article, many opinions, perhaps a majority, that some view as Chevron cases really are not when analyzed closely because they found the agency interpretation the best. (See discussion in the article at 339-341, particularly at nn. 62-63.) Also, I have previously reported on significant data sets of Courts of Appeals “Chevron” holdings identified by others and found that clear Chevron holdings were rare and some likely approved best agency interpretations even though they noised about Chevron. Chevron Step Two Reasonableness and Agency Best Interpretations in Courts of Appeals (Federal Tax Procedure Blog 2/9/23), here; and Is Chevron on Life Support; Does It Matter? (Federal Tax Procedure Blog 4/2/22; 4/3/22), here. (Focus in each blog on Category 5.) This type of precedent should clearly qualify for statutory stare decisis as to the holdings that (i) the statute is not ambiguous and (ii) the agency interpretation is the best interpretation. These cases are not Chevron cases.

Adventures in AI and Federal Tax Procedure on § 7434 (10/3/26)

Today, I was reviewing a recent decision from the Seventh Circuit: Jacoby v. Idlewild Country Club, No. 25-1608 (7th Cir. Oct. 2, 2026) (nonprecedential disposition), CA7 here and TN here, and added it to a footnote in the § 7434 discussion in my working draft for the 2027 edition (to be published in early August 2027). Since I am trying to develop some skills in AI (even though I have not mastered my own intelligence, if any), I decided to use the § 7434 discussion with revisions to date to test what AI has to offer. I used ChatGPT Plus (a paid version). The results offered may be viewed here. I then took the version as ChatGPT rewrote it, pasted it into WordPerfect (my word processor of choice because I am an old lawyer who has not learned MS tricks), and then refined ChatGPT Plus’s offering. So, the files relevant to this exercise are:

1. The version submitted to ChatGPT Plus from the working draft for 2026. Here. This version has 4,750 words (per WP word count). The red font text indicate revisions in the working draft from the 2026 editions.
2. The version ChatGPT Plus offered (with the proposed footnotes as endnotes). Here. This version has 6,079 words (per WP word count).
3. My changes to the ChatGPT Plus that I have not decided whether to replace in the 2027 edition. Here. This version has 6,757 words (per WP word count).

I think each version has the same information as presented in the original from the 2027 working draft (¶ 1).

I would appreciate those having the interest to give me feedback as to which versions are better and more specifically if the two revised versions (¶ 2 and 3 above) are better in the sense of how they better convey the information in the original version (¶ 1) and are worth the additional words to convey the information.

Tax Court Issues a Precedential Opinion (T.C.) Holding that Form 872-T Does Not Revoke a Proper Form 872 Consent to Extend the Statute of Limitations; Well, Duh! (9/30/26; 10/6/26)

The Tax Court today issued a regular opinion in Fine v. Commissioner, 167 T.C. ___, No. 13 (2026) (T.C. # 24390-21 at #43 and GS here. The issue was, to use tax jargon, whether a taxpayer can use Form 872-T to terminate a Form 872 consent to extend the statute of limitations. OK, to be more precise, Form 872 is a Consent to Extend the Time to Assess Tax; Form 872-T is Notice of Termination of Special Consent to Extend the Time to Assess Tax. (Bold-face supplied by JAT.) On its face the name alone should tip one-off that it may not apply to Form 872, because Form 872 is not nominated a “Special” Consent. Reading Form 872-T, one can quickly determine that it applies to the Form 872-A, nominated Special Consent to Extend the Time to Assess Tax (bold-face supplied by JAT).

I dare say that only the most unaware tax practitioner would have known that a Form 872-T cannot revoke the date certain in a Form 872. But apparently such an unaware tax practitioner was the Fines' lawyer (both with respect to deploying / filing the Form 872-T (5 times) and making the argument in the Tax Court case (see Slip Op. 4 n. 5 identifying the person submitting the form as “individual is also counsel of record for petitioners in this case.”).

So, why would the Tax Court use a regular precedential opinion to state a truism known to all minimally competent tax lawyers? In my mind, this opinion should have been issued as an order and not even elevated to T.C. Memo. status. (But they are Tax Court Judges, and I am not.)

 For readers’ further consideration, I offer the following:

TFRP Cannot Exceed the Employer's Compromised Trust Fund Tax Liability On A Record That Does Not Explain the Compromise (9/28/26; 9/29/26)

In Amodio v. Commissioner, T.C. Memo. 2026-96, T.C. Dkt. 9959-22L at # 50 9/28/26 and GS here [to come], the Court held that, on the facts, the IRS cannot collect more on the Trust Fund Recovery Penalty  ("TFRP") in § 6672 than the employer and the IRS had compromised the underlying liability for. The Court reasoned that the TFRP is derivative of the employer’s liability, so that, absent some special consideration, the TFRP cannot exceed the employer's compromised liability.

On the facts presented in the opinion, that holding seems correct.

However, what is missing is why the employer’s liability was compromised. Generally, the IRS compromises tax liabilities based upon doubt as to liability and doubt as to collectibility. If the compromise had been based on doubt as to liability, Amodio seems right to me. If, however, the compromise had been based upon doubt as to collectibility, Amodio seems wrong to me. 

The problem in Amodio was that nobody explained the basis for the compromise. The IRS just failed to put on the evidence uniquely within its control and thus Amodio is correct on the record as described in the opinion.

Added 9/29/26 9:00am:

I asked ChatGPT Plus to critique the portion of the Amodio opinion dealing with the issue discussed above. For those interested in ChatGPT Plus's critique, see here and here I gave ChatGPT Plus two prompts, the second following through on the first. ChatGPT Plus's responses are lengthy but seem to me to add nuance beyond the cryptic discussion in the opinion.

Article on Using Machine Learning for Predicting Tax Ownership (9/27/26)

I spent more time than I should have reading Young Ran (Christine) Kim and Dmitry Erokhin, Algorithmic Tax Ownership, 51 BYU L. Rev. 1437 (2026), here. Don’t get me wrong, I think the article’s discussion of its premises is quite good. What threw me off was the discussion of the “Algorithmic” part of the article. The authors deploy math and computer modeling to predict tax ownership by digesting a large dataset of cases that have dealt with tax ownership.

Of course, the authors mention prominently the iconic case from my time at DOJ Tax: Frank Lyon Co. v. United States, 435 U.S. 561, 582–83 (1978), GS here. I had an indirect role in Frank Lyon (which I’ll tell in the digression below).

Frank Lyon is the classic Supreme Court screw-up in tax law. For further discussions of the screw-up, see the citations in the article. (p. 1446 n. 22 and 1447 n. 32). One of my favorite articles is Charles I. Kingson, The Confusion over Tax Ownership, 93 TAX NOTES 409, 410 (2001), SSRN here (criticizing Frank Lyon as “nobody knows what it means”). Shortly after leaving DOJ Tax for private practice in 1997, I advised a bank wanting to do for a lead shareholder essentially the same deal as Worthen Bank did for Frank Lyon through his corporation. My advice was essentially that it’d be a crap shoot because nobody knew what Frank Lyon meant, but that we could clone the documents in Frank Lyon to recreate the exactly same structure and to be even more sure the bank should change the bank's name to Worthen Bank and his corporation's name to Frank Lyon Corp. Of course, that was hyperbole, but not much because the multi-factor test of tax ownership that Frank Lyon deployed is less than clear in their application in other cases.

Back to the article, it concludes as follows (p. 1494):

To refine tax ownership analysis, this Article applies machine learning, specifically focusing on repo transactions. It identifies economic benefits and burdens  Factor 1) as the most decisive factor in classifying transactions as either sales or loans, with 94.6% accuracy. Additional factors, while sometimes helpful, do not significantly impact classification outcomes.

Earlier (p. 1484):

Nevertheless, the proposed model undeniably reshapes the current tax ownership analysis by showing the decisive factor of the analysis is who bears the economic benefits and burdens of the underlying asset. The clarity this model brings to tax ownership analysis is applicable in a wide array of contexts including repo transactions, sales and leasebacks, litigation financing, and more.

ChatGPT Plus on Loper Bright's Superficial Claim of Court's Ability to Determine a Single Best Reading in State of Ambiguity (9/24/26; 9/25/26)

In my recent article, John A. Townsend, Loper Bright Flip Flops on Chevron Deference: A Tax Lawyer's Perspective, 79 Tax Law. 323 (2026), on SSRN here, I critiqued the Court’s opinion in Loper Bright Enterprises v. Raimondo, 603 U.S. 369 (2024) (C.J. Roberts), here [Preliminary Print]. One of the points I made was that the Court’s claim that “statutes, no matter how impenetrable, do— in fact, must—have a single, best meaning.” (603 U.S., at 400.) The Court also claimed that courts could and must discern that single best meaning without a default rule to decide the case—such as Chevron and, presumably, some substantive canons that require ambiguity. In Loper Bright’s sweeping claims, no room seemed to be left for statutory ambiguity. However, statutory ambiguity was a common phenomenon before Loper Bright; Loper Bright cannot by fiat eliminate statutory ambiguity.

Added 9/24/26 8:00pm: In my Federal Tax Procedure Book 2026 (Practitioner Ed. p. 91; Student Ed. p. 58) this issue is the first issue I raise about Loper Bright:

1. What does a court do when, after it applies Loper Bright’s exhortations to determine the “best” interpretation, the court still finds statutory ambiguity (interpretive equipoise)? Ambiguity (interpretive equipoise) existed before Loper Bright and exists after Loper Bright. Remember the lesson of lenity–ambiguity (interpretive equipoise) requires a default rule to resolve the case.

I decided to use ChatGPT Plus to further explore the phenomenon of statutory ambiguity. That AI tool gave surprisingly cogent answers and step by step reasoning that highlight the lapse in logic of Loper Bright. I wish I had the responses in preparing the article cited above. I offer below the last two prompts and response (after refining earlier prompts and responses). I have left the bold-face and italics as ChatGPT had them; also, ChatGPT sometimes refers to Loper Bright as Loper and does not italicize Loper or Chevron. I have not changed that. Remember these are the final prompts and responses after earlier prompts drilled down to these final two prompt. Those interested in seeing the entire discussion with ChatGPT Plus may do so here.

I am impressed with how ChatGPT responds in an analytically meaningful way to step through  the issues and reach its conclusions. To readers interested in this stuff, ENJOY!

Two points about the Responses: 

1. The first response below refers to my article above without citing the article or otherwise attributing it to me. See par. 4 below. I do not know if ChatGPT Plus recognized that the article that it cited was written by the person with whom it was "chatting." I infer that it did not recognize me as the author of the article.
2. The first response (par. 5) refers to the Flight Options case which it discussed in earlier responses and which I discuss in Interesting Concurring Opinion on Canons (or Maxims) of Statutory Interpretation (Federal Tax Procedure Blog 5/29/26; 8/21/26), here.

JAT Prompt #1: 

In the foregoing discussion, you used 50-50 as the state of interpretive equipoise. Can interpretive equipoise be encountered in a range--say of 45-50 or even 40-60. (These numbers are in percentages.)

ChatGPT Response to Prompt # 1:

Yes—but I would refine the terminology. Interpretive equipoise need not mean a mathematically exact 50–50 tie. It can sensibly describe a zone of interpretive uncertainty within which a court cannot determine, with sufficient confidence, that one interpretation is genuinely “better” than the other. There is, however, no judicially established numerical range such as 45–55 or 40–60.

That distinction becomes important under Loper Bright.

District Court Sustains IRS Summons at Treaty Partner's Request, Requesting Third-Party Contact Requirement (9/19/26)

In United States v. Yoon (N.D. Cal. No.26-cv-01423-VC  Order dtd 9/17/26 at # 34), CL here and GS here, the Court enforced an IRS summons issued in response to a request by a treaty partner, South Korea. The significant issues addressed are:

1. The Government need only satisfy the four-part Powell test. United States v. Powell, 379 U.S. 48, 57–58 (1964). (Slip Op. 3.)

2 In applying Powell, only the IRS’s good faith is in issue, not the treaty partner’s good faith. Id.

3 Relevance of the summons to a legitimate tax investigation of the treaty partner is not in issue. (Slip Op. 4-5.) South Korea’s request to the IRS “said that all that information was relevant, and it only sought records from the years that match its investigation;” the “request seems sensible on its face.” There is no requirement that the IRS go behind the treaty partner’s statement of relevance.

4. The Court rejected Yoon’s argument that § 7602(c) requires 45-day notice which was not given here. (Slip Op. 5-7.) The notice period, although stated without limitation in the statutory text, is properly read in context not to apply to a summons issued at a treaty partner’s request. The Court concluded (Slip Op. 7) that “there is no ambiguity” as to that reading of the statute.

5. With regard to this interpretation of the statute, the Court acknowledged the IRS’s long-time consistent interpretation to that effect in Regulation § 301.7602-2(c)(3)(C), noting that the interpretation might in a state of ambiguity be useful in statutory interpretation (absent here), this consideration (Slip Op. 7-8):

          For what it’s worth, another consideration works against Yoon here: the IRS’s own longstanding interpretation that section 7602(c) does not apply to foreign tax liabilities. 66 Fed. Reg. 77 (Jan. 2, 2001) (codified at 26 C.F.R. § 301.7602-2(c)(3)(C)). After considering the ordinary meaning of statutory language, a court may look to the interpretation of the agency responsible for implementing the statute. Leon-Vriviesca, 179 F.4th at 1191. Such agency interpretations receive “‘due respect,’ but not binding deference.” Lopez v. Garland, 116 F.4th 1032, 1039 (9th Cir. 2024) (quoting Loper Bright Enterprises v. Raimondo, 603 U.S. 369, 403 (2024)). The IRS’s regulation was issued in 2001, just a few years after the codification of section 7602(c) in 1998, and has remained consistent since then. Therefore, even if the statutory text were ambiguous, the IRS’s interpretation would be “especially useful in determining the statute’s meaning”—and that might cut against Yoon’s legislative purpose argument. Loper Bright, 603 U.S. at 394 (citing Skidmore v. Swift & Co., 323 U.S. 134, 140 (1944)).n5
   n5 The government makes an alternative argument that the general grant of rulemaking authority to the IRS in 26 U.S.C. § 7805(a) empowers the agency to “fill up details” in the statutory scheme; i.e., that section 7805(a) explicitly authorizes the agency to define the phrase “tax liability” in section 7602(c). But the best reading of the statutory text, informed by due respect to the IRS’s regulation, is that section 7602(c) does not apply to foreign tax liabilities. It is therefore not necessary to consider whether section 7805(a) can bear the weight that the government says it does.

JAT Comment:

District Court Sustains IRS Summons at Treaty Partner's Request, Requesting Third-Party Contact Requirement (9/19/26)

In United States v. Yoon (N.D. Cal. No.26-cv-01423-VC  Order dtd 9/17/26 at # 34), CL here and GS here [to come], the Court enforced an IRS summons issued in response to a request by a treaty partner, South Korea. The significant issues addressed are:

1. The Government need only satisfy the four-part Powell test. United States v. Powell, 379 U.S. 48, 57–58 (1964). (Slip Op. 3.)

2. In applying Powell, only the IRS’s good faith is in issue, not the treaty partner’s good faith. Id.

3. Relevance of the summons to a legitimate tax investigation of the treaty partner is not in issue. (Slip Op. 4-5.) South Korea’s request to the IRS “said that all that information was relevant, and it only sought records from the years that match its investigation;” the “request seems sensible on its face.” There is no requirement to test the treaty partner’s statement of relevance.

4. The Court rejected Yoon’s argument that § 7602(c) requires 45-day notice which was not given here. (Slip Op. 5-7.) The notice period, although stated without limitation in the statutory text, is properly read in context not to apply to a summons issued at a treaty partner’s request. The Court concluded (Slip Op. 7) that “there is no ambiguity” as to that reading of the statute.

5. With regard to this interpretation of the statute, the Court acknowledged the IRS’s long-time consistent interpretation to that effect in Regulation § 301.7602-2(c)(3)(C), noting that the interpretation might in a state of ambiguity be useful in statutory interpretation (absent here), this consideration (Slip Op. 7-8): 

          For what it’s worth, another consideration works against Yoon here: the IRS’s own longstanding interpretation that section 7602(c) does not apply to foreign tax liabilities. 66 Fed. Reg. 77 (Jan. 2, 2001) (codified at 26 C.F.R. § 301.7602-2(c)(3)(C)). After considering the ordinary meaning of statutory language, a court may look to the interpretation of the agency responsible for implementing the statute. Leon-Vriviesca, 179 F.4th at 1191. Such agency interpretations receive “‘due respect,’ but not binding deference.” Lopez v. Garland, 116 F.4th 1032, 1039 (9th Cir. 2024) (quoting Loper Bright Enterprises v. Raimondo, 603 U.S. 369, 403 (2024)). The IRS’s regulation was issued in 2001, just a few years after the codification of section 7602(c) in 1998, and has remained consistent since then. Therefore, even if the statutory text were ambiguous, the IRS’s interpretation would be “especially useful in determining the statute’s meaning”—and that might cut against Yoon’s legislative purpose argument. Loper Bright, 603 U.S. at 394 (citing Skidmore v. Swift & Co., 323 U.S. 134, 140 (1944)).n5
   n5 The government makes an alternative argument that the general grant of rulemaking authority to the IRS in 26 U.S.C. § 7805(a) empowers the agency to “fill up details” in the statutory scheme; i.e., that section 7805(a) explicitly authorizes the agency to define the phrase “tax liability” in section 7602(c). But the best reading of the statutory text, informed by due respect to the IRS’s regulation, is that section 7602(c) does not apply to foreign tax liabilities. It is therefore not necessary to consider whether section 7805(a) can bear the weight that the government says it does.

 JAT Comments:

D.C. District Court Rejects Tax Analyst's FOIA Request For Background File on TAM That Might Identify Taxpayer Among the Taxpayers that Littlejohn Disclosed (9/18/26)

In Tax Analysts v. IRS (D.D.C. No. 1:24-cv-03257 at # 32 Memo Opinion & Order dtd 9/9/26) CL here, Tax Analysts sought disclosure of the background file for Technical Advice Memorandum TAM 201929019, TN here, on basis shifting strategy. In its order, the Court did not identify the TAM, but the TAM is identified in the Complaint here, Answer here, and Government  Motion for Summary Judgment here. The Court’s order is short, so I just quote it:

          The parties have agreed that this case can easily be resolved once the identity of the subject taxpayer is known. See Pl. Resp. at 1; Reply at 1. Plaintiff does not have this information and, for reasons to be explained, the IRS refuses to make it available to the plaintiff. Instead, the parties agree that the case could move forward if this Court reviewed the disputed material in camera. See Pl. Resp. at 2; Reply at 1-2. At the Court's request, the IRS delivered the relevant materials to the Court on September 4, 2026, and the Court has now reviewed them.

          The parties agree that former IRS contractor Charles Littlejohn publicly disclosed tax return information of "some prominent Americans," including Donald Trump, Warren Buffett, Bill Gates, Rupert Murdoch, Mark Zuckerberg, Jeff Bezos, Elon Musk, and others. The parties now also agree that if the taxpayer here is a person of such prominence, he or she could easily be identified with the Littlejohn disclosure and related news reporting. See Pl. Resp. at 2; Reply at 1-2.Any member of the public would be able to identify the subject taxpayer. If that is the case, the parties agree, the Court necessarily would conclude that the withheld documents are exempt from disclosure. See id. (citing 26 U.S.C. §6110(c)(1) and (c)(5)). The Court, having now reviewed the documents in camera, concludes that the subject is a person of such prominence that disclosure would be tantamount to identifying the taxpayer. Therefore, the records may be withheld. Accordingly, it is hereby

          ORDERED that on or before September 23,2026, the parties shall meet and confer and file a joint status report suggesting appropriate next steps in this case.

As presented, the Memo and Order raises the question as to which taxpayer the TAM relates to—"Donald Trump, Warren Buffett, Bill Gates, Rupert Murdoch, Mark Zuckerberg, Jeff Bezos, Elon Musk, and others.”

Second Circuit Affirms the Tax Court in Holding Limited Partners Must Really Be Limited Partners (9/17/26)

In Soroban Capital Partners LP v. Commissioner, ___ F.4th ___ (2d Cir. 9/17/26), CA2 here, CL here, and GS here, the Panel (Judges Calebresi, Chin , and Merriam, with opinion by Chin) affirmed the Tax Court’s decision holding that persons nominated as limited partners who exercised managerial control did not qualify for the limited partner exception to the Medicare tax. Specifically, the opinion states its holding (Slip Op. 30):

We hold that "limited partner," as used in § 1402(a)(13), means a partner who, in addition to having limited liability, does not run, manage, or control the partnership's business.10 We arrive at this conclusion based on three sources that provide guidance as to the meaning of the term as used here: (1) the text of the statute and its ordinary meaning in 1977, when § 1402(a)(13) was enacted; (2) the statute's surrounding text and structure; and (3) the statute's legislative history and historical context.

This is a major opinion simply because the scam it shoots down was so egregious. I don’t feel that I can add anything meaningful to the substantive opinion. To the extent readers may be interested in my opinion, I think it is correct. I will make some comments that, like many of my blogs, will address picky issues in the opinion.

JAT Comments:

Tax Court Deploys Interpretive Tools to Resolve Complex Transaction/Scheme to Exploit Statutory Glitch (9/17/26)

In Sysco Corp. v. Commissioner, T.C. Memo. 2026-84, TC here at # 108 dtd 9/14/26 & GS here, the Court rejects Sysco’s attempts to avoid the result of prior T.C. decisions resolving the issue in Sysco. Varian Medical Systems, Inc. & Subs. v. Commissioner (Varian I), 163 T.C. 76 (2024) (reviewed), and Varian Medical Systems, Inc. & Subs. v. Commissioner (Varian II), No. 8435- 23, 166 T.C. (Apr. 8, 2026).

In this blog, I do not address the substantive issue that the parties fussed about. Rather, I address the tools of statutory interpretation the Court claimed to deploy in resolving the interpretive issue.

My basic theory of statutory interpretation is that it is in many ways similar to factfinding—it is lawfinding. In factfinding, relevant evidence generally should be considered for what it is worth. See FRE 401 and 402. So, too, in statutory interpretation relevant evidence as to the meaning of the statutory text should be considered for what it is worth. My main beef in the current statutory interpretation milieu is the notion that interpreters should categorically reject legislative history (other than statutory history). 

Let’s walk through how the court deploys the tools of statutory interpretation:

1. the Court “begin[s] with the [statutory] text.” (*7.) I fully agree with that and cannot imagine anyone who would disagree. Indeed, on this point, I agree with Justice Kagan’s famous statement that “We’re all textualists now.)

2. Immediately after stating the obvious starting point (#1), the Court jumps into quicksand: “when the statute does not define a term, “we ask what that term’s ‘ordinary, contemporary, common meaning’ was when Congress enacted” the relevant text. The court correctly cites cases that do stand for the proposition and, I suppose, the proposition is correct, provided that there is more nuance. How does one determine the statutory term’s “ordinary, contemporary, common meaning” relevant to its meaning in a complex tax statute?

Tax Court on Murky Facts Affirms Deficiency on Net Amount Taxpayer Retained from Flow of Funds (9/15/26)

In Tunkl v. Commissioner, T.C. Memo. 2026-83, Tunkl was an art dealer for the wealthy (at least some of the wealthy). He managed to arrange a flow of funds from one other wealthy art dealer, initially to finance his acquisition for a particular painting but not actually used for the painting. The precise nature of that flow of funds is murky because people in such wealthy circles in art may not fully document flows of funds, but when the smoke cleared Tunkl ended up with $16.5 million net. The IRS determined a deficiency for tax on that amount. (I did not read closely enough to determine whether the deficiency asserted the tax to Tunkl directly or through his subchapter S corporation; the bottom-line is that the deficiency was Tunkl’s in either event.)

In getting past the murkiness in the facts, the Court concluded (*10).

          Finally, and most importantly, Mr. Tunkl has been permitted to keep the entire amount he received from Mr. Mnuchin. Mr. Tunkl repaid only $2.5 million of the total $44 million owed to Mr. Mnuchin. Pursuant to the Addendum, the $16.5 million owed from the Picasso painting deal was severed from the Note into its own smaller note. Mr. Tunkl has provided no evidence demonstrating that the $2.5 million was partial repayment of this smaller note. Therefore, Mr. Tunkl has failed to demonstrate that he was not permitted to keep the entire $16.5 million.

JAT Comments:

1. It seems to me that taxing the net benefit to Tunkl is the right answer. My only thought/concern was that, given the murkiness in the facts, it is at least possible that the income may not have arisen in 2018 the year for which the notice of deficiency was issued. I suppose, however, that if Tunkl had fought the timing battle, he may have still lost for the tax via the mitigation provisions of the Code, but possibly might have achieved an interest benefit if a later year were the proper year.

D.C. District Court Case Dismisses Refund Suit Where IRS Made an Allegedly Erroneous Refund and Transfers the Government's Erroneous Refund Suit to Another Venue (9/15/26)

In Fuentes v. United States (D. D.C. 9/4/26), CL here and GS here, Fuentes was a foreign resident with no U.S. residence at all relevant times. He brought a refund suit in the Western District of Texas. After finding proper venue in the D.C. District Court, the refund suit was moved to the D.C. District Court. At some point, the IRS refunded the tax that was the basis of the refund suit. The United States then moved by counterclaim to seek recovery of the refunds allegedly erroneously made. Fuentes then moved to dismiss his refund suit. The Government moved to transfer the erroneous refund suit to the Western District of Texas finding that, although the Government could have brought the erroneous in other venues, the Western District of Texas was the most appropriate venue (see point # 4 below).

I point out some aspects of the opinion I found interesting:

1. The amount sought in the refund suit was for penalties paid after the IRS assessed the Form 3520 penalties.

2. As noted, the IRS refunded the tax in issue. The Government argued that the reason the refund was erroneous is that the refund case had been referred to DOJ which should have legally prohibited the IRS from making the refund. This is because the original referral gave DOJ exclusive authority to settle the liability. § 7122(a). Of course, the issue of whether the refund was erroneous will be litigated in the transferred venue.

3. Fuentes argued that the IRS, presumably intentionally, made the refund and its determination should mean that the refund and its predicate abatement were not erroneous, invoking the standard notion that the client (DOJ’s client, the IRS) should control this type of decision and that the IRS’s decision should be given collateral estoppel effect making the refund and abatement issue “prudentially moot.” (Slip Op. 7 & 14-15.) The Court rejected those arguments.

ChatGPT on Picking Evidence in Statutory (and Constitutional) Interpretation (9/13/26)

Today, I was reworking the part of my 2027 Working Draft for my Federal Tax Procedure Editions on the problem of cherry-picking or selecting evidence used in constitutional and statutory interpretation. The issue is presented anecdotally by conservative judges trotting out Judge Leventhal’s famous remark that using legislative history is like looking over the crowd and picking your friends. There is a similar phenomenon with so-called “law office history” deployed to support arguments made by advocates and judges in their opinions. Even broader, the same phenomenon is presented for the entire body of law that advocates and judges deploy—such as cases, scholarly treatises, law review articles, etc. The risk is always present that we as lawyers (or judges) pick our friends rather than make a neutral assessment of the evidence.

Continuing my experimentation with AI, I asked ChatGPT Plus about the issue and got what I think are pretty good responses. I presented the issue in two prompts (the second asking for more than the first) noted below in red. The bold face was from the original responses. I checked the citations to the two Supreme Court cases and they are correct (i.e., no hallucinations). I will use the responses in re-working my discussion in the Federal Tax Procedure Editions (not verbatim but to inspire how I state the concepts in my own words which I hope are at least as good as ChatGPT's).

As an introduction, I use the term "law office history." That term commonly describes the phenomenon of lawyers and judges evaluating history as a process of cherry-picking to support arguments. Of course, selecting the evidence is what we all do when making arguments or taking positions; lawyers do that in briefs and oral arguments; judges do that in opinions; we all do that in our daily discourse. Even when a person--say a judge--sees his or her duty to make an objective or fair assessment of the evidence, personal prejudices or preferences may influence the evidence used. I wanted to explore what that may mean.

One caveat: The same phenomenon occurs in factfinding where a judge selects from a body of factual evidence the evidence that he or she finds persuasive to determine facts relevant to the outcome of the case. I don't think factfinding is materially different from lawfinding--selecting among the relevant evidence to reach the outcome.

Prompt #1

Please write a short discussion of the features of "law office history" and "legislative history" that permit a judge or lawyer to cherry pick (or as one judge called it to look over a crowd and pick your friends).

Response to Prompt #1

Here is a short version in a law-review style that emphasizes the structural similarity between the two problems:

Law-Office History and Legislative History

Both “law-office history” and legislative history present a similar danger: they often supply the interpreter with a large and heterogeneous body of material from which supporting evidence can be selected without any obvious neutral rule for determining what evidence should receive the greatest weight. Alfred H. Kelly coined “law-office history” to describe the lawyerly practice of selecting historical data favorable to a position while failing adequately to confront contrary evidence or evaluate its significance in historical context. The problem is partly inherent in advocacy. The historical record is usually extensive, incomplete, and capable of supporting competing narratives; choices must be made about the relevant period, the appropriate level of generality, which practices are representative, and which sources deserve weight. Those choices can permit the advocate—or judge—to begin with a desired conclusion and assemble a plausible historical narrative supporting it.

Legislative history presents much the same problem, perhaps in an even more concentrated form. A statute may generate committee reports, sponsor statements, floor debates, hearing testimony, rejected amendments, conference materials, and statements by legislators who supported or opposed the final bill. These materials may point in different directions, and statements by particular legislators do not necessarily represent the understanding of the legislative body that enacted the statute. Moreover, participants aware that courts consult legislative history may have incentives to place favorable statements in the record. The resulting abundance of potentially conflicting material makes selective quotation unusually easy. The Supreme Court has accordingly repeated Judge Harold Leventhal's famous description of using legislative history as akin to “looking over a crowd and picking out your friends.” Exxon Mobil Corp. v. Allapattah Services, Inc., 545 U.S. 546, 568 (2005).

Judge Holmes Decides on Burden of Proof (Persuasion) (9/3/26)

In Risan v. Commissioner, T.C. Memo. 2026-78, TC here at #93, TN here, and GS here [to come], Judge Holmes decided significant factual issues on burden of proof. The key reason I thought this case interesting is that Tax Court Judges often, after noising about burden of proof, will just hold that, in effect, burden of proof is irrelevant to the outcome because the Judge in the particular case has resolved those factual issues by a preponderance of the evidence. That is simply to say that, in the normal case where the preponderance of the evidence standard applies, burden of proof is relevant only if the Judge is in factual equipoise unable to determine whether or not a critical fact is more likely than not. In that state of equipoise, the party with the burden of persuasion loses.

Judge Holmes sets up the discussion at the beginning of the Opinion section (starting at *17, footnote omitted):

          We begin with a number of issues for which Mr. Risan presented no evidence or argument, or about which he included only an underdeveloped argument in his brief. Taxpayers usually bear the burden of proof in cases before us. Rule 142(a). The Code does sometimes shift this burden to the Commissioner. See § 7491(a). But when neither party presented evidence in these cases, we simply find that Mr. Risan did not comply with the Code’s recordkeeping requirements and did not cooperate with the Commissioner’s reasonable requests for information. This means that, for a great many issues, we find against Mr. Risan and for the Commissioner.

 Other JAT comments:

1. Judge Holmes also addressed the statute of limitations. Judge Holmes found (i) there was a 25% omission in the years involved invoking the six-year statute of limitations and (ii) for some of the years during the six-year period, the taxpayer timely signed consents to extend. Judge Holmes said that, although the taxpayer testified that he did not sign the forms, visual review of the forms permitted him to “find it more likely than not that he did sign them.” (*19.) Although Judge Holmes did not say it directly, that finding means that it is more like than not that the taxpayer testified untruthfully (whether or not the taxpayer intended to deceive is a different issue).

Townsend ABA Tax Lawyer Article Titled Loper Bright Flip Flops on Chevron Deference: A Tax Lawyer's Perspective (8/28/26)

I have posted to SSRN my recent article in the ABA Tax Lawyer: John A. Townsend, Loper Bright Flip Flops on Chevron Deference: A Tax Lawyer's Perspective, 79 Tax Law. 323 (2026). The SSRN citation and link is: Townsend, John A, Loper Bright Flip Flops on Chevron Deference: A Tax Lawyer's Perspective (January 01, 2026), SSRN at: https://ssrn.com/abstract=7360440 [Note: I have slightly changed the SSRN "suggested citation" to eliminate duplicating my name (don't know why that happens) and shortened the reference to SSRN.]

One of the themes I develop in the article is that Chevron was not about deferring to an agency interpretation that was not the best interpretation. Rather, Chevron was about “deferring” to an agency interpretation when the court found the statute ambiguous, meaning that the court was in equipoise as to the best interpretation. Loper Bright flogged the false notion that Chevron permitted/required courts to defer to the agency "not best" interpretation over the competing "best" interpretation. Courts, particularly judges of Federalist Society bent, also flog that false notion ad nauseum. E.g., yesterday, I read Piedra v. Blanche, ___ F.4^th ___ (4^th Cir. 8/24/26), CA4 here and GS here, which starts off (Slip Op. 3):

For decades, Chevron deference restricted courts from exercising their duty "to say what the law is." Marbury v. Madison, 5 U.S. (1 Cranch) 137, 177 (1803). Newly freed from that restraint, courts now exercise their independent judgment about the best meaning of statutes.

To repeat, Chevron required courts to apply the best interpretation at Step One; if, after rigorous interpretation (Chevron footnote 9) the statute was still ambiguous, only then did courts “default” in equipoise to the agency interpretation. But that default was not applying the "not best" interpretation. Of course, I flog my criticism of Loper Bright in the article, pp. 339-341.

So, after Loper Bright, the problem for which Chevron applied a default rule still exists when a court, being honest with itself, cannot determine whether the agency interpretation or the (or any) competing interpretation is the best—a state of ambiguity (or equipoise). In the article, I develop this issue in a footnote (p. 346 n. 87 emphasis supplied):

CFC Adopts U.S. Interpretation of U.S.-Canada Tax Treaty Over Canadian Interpretation (8/27/26)

In The South Saskatchewan Comm. Fdn., Inc. v. United States, ___ Fed. Cl. ___  (8/25/26) (“South Saskatchewan”), CFC here, TN here, and GS here [to come], the Court rejected a Canadian charity’s attempt to apply an exemption in the United States-Canada Convention with Respect to Taxes on Income and on Capital (including a key Protocol). I found South Saskatchewan interesting because of the CFC’s application of interpretive techniques to resolve the treaty dispute between the parties in a situation where the Canadian tax authority and the U.S. did not agree on the interpretation as applied to the facts.

South Saskatchewan starts with the goal of treaty interpretation being to effectuate the shared understanding of the parties to the treaty. This is the contract model of interpretation. But, in this case, Canada’s understanding of the treaty is not the U.S.’s understanding. I infer that, assuming Canada’s current interpretation was taken in good faith, Canada did not have a shared understanding with the U.S. What does a court do when it cannot discern a shared understanding?

South Saskatchewan says (Slip Op. 6) after citing Loper Bright:

The meaning of both U.S. and Canadian laws, as well as that of the Tax Treaty, is susceptible to being construed, interpreted, and applied using traditional methods of statutory interpretation.

I am not sure how traditional methods of statutory interpretation flange with the goal of interpreting treaties to apply the shared understanding of the parties. Since, for U.S. purposes, the treaty is the law of the land and the treaty is text, I guess it is close enough to written law (statutes) that the interpretive model for statutes can apply. Maybe.

The Court adopts the U.S. interpretation based on a textualist reading of the Treaty Protocol. The Court finds helpful “extrinsic evidence” in the “legislative history” [caveat, legislative history is my term not the Court’s] of the Senate’s ratification of the Protocol. This legislative history is (i) the Treasury Technical Explanation accompanying the submission of the Protocol to the Senate for approval and (ii) the Joint Committee on Taxation (“JCT”) Report which “reflects the contemporaneous understanding of the Senate that ratified the Fifth Protocol.” (Slip Op. 9.) Both documents informed the Senate of the meaning of the Protocol.

Recommended Article on Constitutional Interpretation Applicable to Statutory Interpretation and Loper Bright (8/22/26)

Yesterday and today, I have been thinking about an article that implicates some of the interpretive issues I have been writing on post-Loper Bright. The article is: John O. McGinnis & Mike Rappaport, Originalism’s Better Meaning (Law & Liberty 8/13/26), here. Although developed in the context of constitutional interpretation and originalism, the article makes some points that seem to me applicable to statutory interpretation more broadly than the originalism spin.

First, the authors define the difference between interpretation and construction:

Interpretation is the process of determining the meaning of a constitutional provision. Construction begins only when that meaning is deemed indeterminate—that is, when it is thought to run out—and the decision must be made on grounds other than the provision’s original meaning.

I would restate that for statutory interpretation as follows (with changes in bold):

Statutory interpretation is the process of determining the meaning of a statutory provision. Statutory construction begins only when that meaning is deemed indeterminate—that is, when it is thought to run out—and the decision must be made on grounds other than the provision’s meaning as determined by statutory interpretation.

In these constructs, Chevron deference was construction rather than interpretation because it applied only when the meaning could not be determined and applied as a default rule to resolve cases before the courts without regard to the indeterminate meaning of the statute.

One interesting construct the authors deploy in the article is the “51-49 rule” which permits the “best” interpretation to be determined by the preponderance of the evidence standard (applying fact-finding concepts to a state of statutory interpretive ambiguity). In this construct, interpretation of a constitution (or statute) requires a confidence level for an interpretation to be at least 51%. The construction zone is between 50.9999% and 49.0001% where some default rule is required to resolve cases.

(Caveat: I don’t think that is a realistic range in statutory interpretation (or fact-finding for that matter); can anyone meaningfully distinguish between an interpretation that is 49.9% and one that is 50.1%?; but let’s just accept that construct for now; for my discussion of such ranges in valuation context, see John A. Townsend, Burden of Proof in Tax Cases: Valuation and Ranges—An Update, 73 Tax Lawyer 389 (2020).)