Faithful readers of this my blog will not be surprised that Judge Alina I. (“AIM”) Marshall isn’t buying any of the Settlement Stock that Acqis Technology, Inc. and Consolidated Subsidiary, T. C. Memo. 2024-21, filed 2/13/24, foisted on Big Techies who allegedly infringed on Acqis’ patents. The Big Techies supposedly bought stock in Acqis and acquired perpetual no-fee licenses to use the IP to settle the infringement cases.

You can find the backstory in my blogpost “Haven’t A Clue – Part Deux,” 3/26/20. Interestingly, neither Judge AIM nor the parties cite Judge Ruwe’s earlier opinion. They really should read this my blog.

Anyway, the stock, purchase of which is supposedly a capital contribution and therefore tax-free, is worthless. It can’t be sold until fully SEC registered, which Acqis’ management, frugal with legal fees, had no intention of doing. Moreover, the stock was non-voting, last in line at liquidation (after the insiders got theirs), and holders thereof couldn’t force redemption. In fact, two of the settling Biggies promptly gave the stock to charity and didn’t take a deduction, expensing the settlement payout as a business expense. As I said in my blogpost abovequoted, “one could relieve oneself of a shortage of an extremely necessary domestic article” with the stock certificates.

Whatever reservations Judge Ruwe had back in 2020 about the applicability of 6SOL, the trial dispelled them. Acqis’ tax reporting didn’t disclose what really happened. Acqis had neither expert reliance (told CPA nothing) nor good faith. And Acqis flunks the five-and-ten text for substantial understatement.

I remember trying the cash-for-stock move in a sale years ago, when I was seeking a PLR. IRS told me to drop it quick. Glad I did.