Three for the scrapbook, all filed today.

Morgan Run Partners, LLC, Overflow Marketing, LLC, Tax Matters Partner, Docket No. 8669-20, is an eve of trial attempt to wildcard into evidence a bunch screenshots of engineering drawings (hi, Judge Holmes) of a proposed distribution center that maybe so might could have been erected on the boondocks at issue in the year at issue. No go, says Judge Albert G. (“Scholar Al”) Lauber. “The report must therefore be complete in itself; the expert cannot provide explanatory testimony from the witness stand to supply analysis that is missing from the report. In other words, the expert ‘must show his work’ in the text of the report in order to satisfy these requirements. Skolnick, 117 T.C.M. (CCH) at 1322; ibid. (‘Rule 143(g) expressly requires that the report itself include the facts and/or data considered by the witness in forming his opinions.’) (emphasis added). The Court must exclude a witness’s testimony altogether if the report fails to comply with these requirements. See Rule 143(g)(2).” Order, at p. 2. For Skolnick, see my blogpost “Horsefeathers,” 6/3/19. And though engineers might present their conclusions with drawings, Rule 143(g) requires more; show your work and bases for conclusions, and make it plain for nonengineers.

Chad Burris & Julie Burris, et al., Docket No. 18712-22, for once isn’t about Dixieland Boondockery; it’s mobile solar generators. Chad’s & Julie’s trusty attorneys are slow-playing discovery via Rule 102(3) supplementation. Judge Cary Douglas (“C-Doug”) Pugh is unhappy and threatens to bar from evidence on the trial any documents not timely produced per IRS’ demands. Taishoff says it’s more likely that said trusty attorneys aren’t slow-playing documents that help their side but documents that sink them. Maybe a better remedy is needed.

Potts Mountain Investors, LLC, Potts Mountain Reserve IP, LLC, Tax Matters Partner, Docket No. 8731-23. Sorry, guys, I hoped for one day clear of Dixieland Boondockery but it’s like Charles Dickens’ King Charles’ head in David Copperfield. This is a rehash of every shotdown argument against the 40% enhanced understated-overvalued chops. Reading it saves wasted motions.

The leftover from yesterday. Tibor Gyarmati, T. C. Memo. 2026-27, filed 3/26/26, gets hit for overstating basis when he can’t establish that the furniture he included in the sale of his condo was actually there, not destroyed by Hurricane Andrew, and cost what he claimed. The worst piece of paper…but you know the rest.

For the backstory on Royalty Management Insurance Co., T.C. Memo. 2026-26, filed 3//26/26, see my blogpost “Capturing Captivity,” 9/16/24. 

But Judge Albert G. (“Scholar Al”) Lauber left himself some mopping-up, as he must consider “… whether we should sustain the 40% accuracy-related penalty that applies in the case of a tax underpayment attributable to a ‘nondisclosed noneconomic substance transaction.’ See §§ 6662(b)(6), (i), 7701(o); Royalty Mgmt., T.C. Memo. 2024-87, at *53–54.” T. C. Memo. 2026-26, at p.2.

The issue here is “adequate disclosure.” Did the return for year at issue let enough cat out of the bag?

” Section 7701(o) codifies the ‘economic substance’ doctrine. That provision, applicable to ‘any transaction to which the economic substance doctrine is relevant,’ provides a conjunctive test whereby a transaction is treated as having economic substance only if (1) the transaction changes in a meaningful way (apart from Federal income tax effects) the taxpayer’s economic position and (2) the taxpayer has a substantial purpose (apart from Federal income tax effects) for entering into the transaction. § 7701(o)(1). ‘The determination of whether the economic substance doctrine is relevant . . . shall be made in the same manner as if [section 7701(o)] had never been enacted.’ § 7701(o)(5)(C).” T. C. Memo. 2026-26, at p. 3.

Section 831(b) treatment isn’t a Congressional incentive to permit microcaptives to deduct insurance premiums that don’t provide insurance. Relevance of economic substance analysis isn’t forestalled by favorable treatment of real expenses that provide real insurance; nowhere does the IRC allow deduction of phony expenses.

And the “insureds” had no interest except tax dodging. 

As for disclosure, “Sheperd Royalty filed a return on Form 1120S, U.S. Income Tax Return for an S Corporation, for [year at issue]. In computing its net income, it claimed a deduction of $1,110,206 for ‘insurance’ expenses. That figure included the $1,099,900 of premiums at issue here, but those premiums were not broken out separately as a distinct item. Apart from listing a deduction for ‘insurance,’ Sheperd Royalty’s return disclosed no facts whatever—either in the return or in an attached statement—about the microcaptive insurance arrangement. Because Sheperd Royalty was a passthrough entity, the Sheperds reported their distributive shares of its income and deductions on Schedule E, Supplemental Income and Loss, included in their [year at issue] joint return. But their individual return likewise disclosed no facts about the microcaptive insurance arrangement.” T. C. Memo. 2026-26, at p. 10. There wasn’t an iota of specific information about the microcaptive. 

Section 6662(i) enhanced chop sustained.

I said it back in 2022: “…dear reader, before you groan ‘Oh no, not another GA boondockery,’ know I said it first. But I have to blog it; you can stop reading now and ignore it.” See my blogpost “Price and Value,” 1/12/22.

Judge Albert G. (“Scholar Al”) Lauber is in the same unhappy boat as I. Making its third appearance in this my blog is Hancock County Land Acquisitions, LLC, Southeastern Argive Investments, LLC, Tax Matters Partner, T. C. Memo. 2026-28, filed 3/26/26. 

The Hancocks fold the discounted cash flow method of valuation when their appraiser who furnished the Form 8283 backup appraisal fails to testify on the trial. The sales-comparison method doesn’t help, as their argument that their land is too unique craters. There are 10 (count ’em, 10) sales close enough for Judge Scholar Al to find their $763K per acre valuation of these boondocks “an order of magnitude that is light years away” from any rational number. T. C. Memo. 2026-28, at p. 29. And the investor testimony the Hancocks proffered only proved the investors were buying tax write-offs.

The tax loss insurance the Hancocks bought was for their investors’ benefit, hence not a partnership expense and not deductible by the partnership. The Hancocks do get a $25K appraisal fee deduction, despite the appraiser having been retained by the promoter; the Hancocks were the beneficiary. They also get some additional title expenses. The rest of the claimed Section 162 partnership deductions are indocumentados. 

And as their trusty accountant also had a piece of the deal, reasonable reliance doesn’t offset the substantial understatement 20% chop Judge Scholar Al lays on whatever the gross valuation misstatement chop (no reasonable reliance offset for that) didn’t cover.