I won’t miss Section 199, the Domestic Production Activities Deduction, perhaps better characterized as the Domestic Headache Production Act. Though repealed some eight (count ’em, eight) years ago, Judge Goeke must still wrestle with questions of software as product in the hands of a user or a service provided by the developer-owner and delivered by use of the software.

We saw some of the wrestling in Bloomberg, L. P., and BATS, for which see my blogposts “The $6 Billion Misunderstanding,” 12/11/24, and “Making a Big Production,” 3/31/22. Judge Goeke compares and contrasts these with J2 Global, Inc., fka J2 Global Holdings, Inc., as agent for J2 Global, Inc. and Subsidiaries, Docket No. 8392-21, filed 7/29/25.

It’s got much to do with the third-party comparable exception in former Reg. Section § 1.199-3(i)(6)(iii)(B), to which the J2s pin their hopes and IRS ignores.

The result is a Mexican (sorry, American) standoff,. whereby each side seeks summary J, but neither gets it.

Even Judge Goeke finally punts. “…we believe that the trial should focus on the extent to which, if any, the software qualifies for the third-party comparable exception. If the third-party comparable exception is satisfied, petitioner would be entitled to some deduction. The evidence currently before us on summary judgment leads us to believe that petitioner provided services in conjunction with access to software.

“The parties should also present evidence at trial relating to whether there was a software license. That fact is relevant to petitioner’s statutory argument. But it is also relevant to the third-party comparable exception. Evidence that establishes that there was a license would demonstrate what customers were paying for. The parties should present evidence to explain the subscription, usage, and other fees and to ascertain the value of the software.” Order, at p. 11.

If divining the number of cherubim who can do a breakdance on the head of a Higgs boson floats your boat, read Judge Goeke’s disquisition. And take along a wee Tylenol…you’ll need it.