The old saw that shoemakers’ children never have shoes may finally meet its match when David E. Du Val & Jane T. Smith, et al., Docket No. 22079-22, filed 8/7/26, comes to trial in October. Dave and Jane, and their fellow tax controversialists Mark Olander and Nancy Farwell-Olander (Olanders, collectively) are or were stockholders in Tax Resources, Inc. (TRI), a C corp that offered tax audit defense services. Order, at p.1.

Swapping their shares in TRI among a couple trusts (hi, Judge Holmes), moving TRI from C to Sub S, running the shares through an ESOP and finally parking them in LLCs, whose membership interests they unload to a 501(c)(3) in advance of a corporate redemption (sound familiar? Judge Cary Douglas (“C-Doug”) Pugh probably sighed as she read the dueling summary J motions) sets up both the reasonable cause defense if this charitable donation mix-and-match craters, and the how-much-control-did Dave-and-Jane-retain which would invoke such cratering. 

Davd and Jane and the Oleanders were managers of said LLCs. So what, reply Dave’s & Jane’s trusty attorneys. Members could amend the op agreement, and even if they didn’t IN (governing State law) reins in overeager managers who stray from straight and narrow.

All hands want summary J. Judge C-Doug Pugh punts.

“The parties’ cross Motions have not convinced us that we can resolve their dispute over control without resolving disputes of material fact. If we construe the facts in the light most favorable to petitioners, then we might conclude they did relinquish sufficient control over the LLC interests. Therefore respondent’s Motion must fail. Conversely, construing the facts in the light most favorable to respondent suggests that petitioners retained too much control over the LLCs’ assets, so petitioners’ Motion must fail. These arguments are best addressed in briefing in the context of a factual record developed at trial.6 Respondent’s claim that the transaction represented the anticipatory assignment of income similarly requires factual determinations regarding the substance of the transactions and the various steps. See Chrem v. Commissioner, T.C. Memo. 2018-164, at *14–15.” Order, at p. 4.

For the backstory on Chrem, see my blogpost “Fair is Foul – Maybe,” 9/26/28.

There’s the usual IRS Section170(f)(8) CWA nitpick, going even to the salutation in the CWA letter. And naturally IRS is all over the appraisal of the stock as being unqualified, but that’s certainly for trial. Judge C-Doug Pugh is too well-bred to give this nonsense a Taishoff “Oh, please!”

IRS’ clichéd Boss Hoss piscine Hoss barrelshoot gets summary J, but that’s all Judge C-Doug Pugh wrote.

Not quite, says Judge Christian N. (“Speedy”) Weiler, SIH Partners LLLP, Explorer Partner Corp., Tax Matters Partner, 167 T. C. 8, filed 8/6/26, could make $2.4 million on their portfolio swap with their Firm Hedge against downside markets and a bunch Swiss equities (hi, Judge Holmes). These dudes are macro highrollers. Judge Speedy Weiler tracks their machinations through Section 246 and regs stock marketry with Morgan Stanley, to try to get a reduced 15% tax rate out of the Swiss taxing authorities, 15% US Qualified Dividend treatment, and a heavy-duty foreign tax credit.

Turns out SIHP beats IRS’ form-over-substance argument. The deal survives Section 246(c)(4)(C) diminished risk of loss, due to IRS’ experts’ less than stellar testimony. Techies, see 167 T. C. 8, at pp. 20-25. And SIHP dodges the Reg. Section 1.246-5(c)(1)(iii) substantial overlap test. The Hedge and the Swiss aren’t substantially similar or related property. So far.

Now I’ve no doubt my jaggedly-sophisticated readers are yelling with one voice “Hang on, Squire, what about Reg. Section 1.246-5(c)(1)(vi), the Anti-Abuse Reg?”

No fear, chaps, Judge Speedy Weiler is all over that one.

“The Anti-Abuse Rule comprises three elements: (i) the taxpayer has eliminated his economic risk of his stock holdings by holding a position that ‘virtually track[s]’ its stock holdings, (ii) that position is held ‘as part of a plan a principal purpose of which is to obtain tax savings,’ and (iii) the tax savings obtained by the taxpayer are ‘significantly in excess of the expected pre-tax economic profits’ of holding the position.” 167 T. C. 8, at p. 30. (Footnote omitted, but it says all three are essential, and “significantly in excess” is a quantifying aspect; just saving tax doesn’t invoke the Rule). And virtual tracking doesn’t slow SIHP down either. “… the Virtual Tracking Test acts as a check to determine whether there is any hidden (or virtual) overlap between the entirety of a position, or the entirety of stocks reflected in the position, and a taxpayer’s stock holdings, or a portion of the taxpayer’s stock holdings and other positions of the taxpayer.” 167 T. C. 8, at p. 32. But SIHP’s expert’s attempt to hold that to a strict numerical formula craters; Judge Speedy Weiler finds “…the regulation to be broad in application and determine Treasury intended for it to serve as a catch-all for potential abuse. If petitioner’s arguments were correct, the Anti- Abuse Rule would seem to never apply in circumstances where a taxpayer has passed the Substantial Overlap Test. The preamble to the final regulations makes it clear that this is not the case. If the Anti-Abuse Rule applies, a position that reflects the value of two or more stocks (including a portfolio) is treated as SSRP even if those stocks and the taxpayer’s stock holdings do not substantially overlap. See T.D. 8590, 1995-1 C.B. at 16. Considering SIHP also held short positions in the Swiss Equities under the Transaction, we determine these two positions are reasonably expected to virtually track under the Anti- Abuse Rule. See Treas. Reg. § 1.246-5(c)(1)(vi)(A).” 167 T. C. 8, at p. 32.

 But that profit is what ultimately torpedoes SIH. After an extensive mix-and-match of dueling experts, Judge Speedy Weiler delivers the bad news.

“Having determined that the expected pretax profit ranges between $0 and $2.4 million, while the corresponding estimated tax savings are some $25 million, we determine that the value of the tax savings is significantly in excess of the expected pre-tax economic profits. See Treas. Reg. § 1.246-5(c)(1)(vi)(B). We therefore determine the Anti-Abuse Rule of Treasury Regulation § 1.246-5(c)(1) is applicable to the Transaction and that, on the basis of the evidence presented, the Transaction fails to comply with the Anti-Abuse Rule. We hold that SIHP’s position in the Swiss Equities is SSRP.” 167 T. C. 8, at p. 40. Hence no US 15% QDI tax, and the foreign tax credit founders on Section 910(a) and (k)(1) because the Swiss stuff is SSRP.

Note: A “Bialystok” is a deal that creates a tax loss with minuscule or no economic effect, named after the hero of “The Producers.”

Or maybe “Don’t Stipulate, Expostulate” better sums up Judge Cary Douglas (“C-Doug”) Pugh’s take on the Rule 91(f) motion for OSC to accept proposed facts and evidence launched by Meta Platforms, Inc. & Subsidiaries, Docket No. 16081-25, filed 8/6/25. Said motion was the preliminary bombardment by Meta & Subs before sending its motion to preclude IRS from making periodic adjustments under section 482 for the years at issue in this case over the top.

IRS followed up on Judge C-Doug Pugh’s opinion a year ago, more particularly bounded and described in my blogpost “Facebook Faceoff – Draw (Sort Of),” 5/22/25, by bringing in some more years, even while the Rule 155 beancount had not yet concluded.

Judge C-Doug Pugh spends a lot of time finding fault with the Meta & Subs’ edited version of facts and documents. “Selective quotes and summaries are not consistent with the spirit of Rule 91.” Order, at p. 2. But in the meantime and without waiting, Meta & Subs moved to preclude, And IRS responds.

True, 9 Cir (where Meta & Subs are Golsenized) requires citations to the admin record to “pinpoint” what the parties contend, but the Court doesn’t need a stip to figure that out if the parties cite to the record in their preclusion motions.

And they did.

“The parties could and indeed did cite [Judge Pugh’s 2025 opinion] and incorporate documents relevant to their respective legal arguments by attaching them as exhibits to their Preclusion Motions. Because the stated purpose of the proposed stipulation was to facilitate judicial consideration of the Preclusion Motions, and the parties have proceeded without one, petitioner’s Motion effectively is moot.” Order, at p. 3.

And of course the parties can try, or agree, to put in the whole record of the case including the 2025 opinion. Judge C-Doug Pugh won’t require it. And they can even agree to put in documents not part of that record or move to include such as they do not agree. But no summaries; let it all hang out.

Thirteen (count ’em, thirteen) lawyers for Meta & Subs, twelve (count ’em, twelve) for IRS, and this is the result. SMH.