When IRS wants to toss the SND because it names the disregarded LLC, rather than the trust which owns this microcaptive that allegedly insures the trust’s business operation, Judge Rose E. (“Cracklin'”) Jenkins strikes up the 101-year-old Isham Jones-Gus Kahn classic, a special request from the trusty attorney for Series JU of Oxford Insurance Company LLC, Docket No. 743-24, filed 8/19/25.

The SND names JU, claiming it isn’t an insurance company, so the reinsurance premium roundy-round cash stash is taxable. But JU’s trusty attorney, whom I’ll call Davy, says Reg. Section 301.7701-2(b) makes an insurance company a per se a corporation, however organized, hence not disregarded. OTOH, if it isn’t an insurance company, then IRS’ claim that it improperly applied Section 831 is inapplicable, and Reg. Section 301.7701-3(b) makes it disregarded, hence wrong party named.

So we need to find out if JU was or was not an insurance company to find out if the SND is valid. Clear? Thought not.

Judge Cracklin’ Jenkins says IRS put the cart before the horse. The questions are, did the SND evince determination of a deficiency, and if it did, would a reasonable taxpayer deduce that they were the taxpayer against whom said determination was made? These tests Tax Court propounded in U. S. Auto Sales, which Judge Cracklin’ Jenkins extensively cites and which I blogged sub nomine “Petition Everything,” 10/28/19.

“Contrary to respondent’s assertion, relying on U.S. Auto Sales, the Court’s caselaw addressing the validity of notices of deficiency leads to the conclusion that the notice of deficiency is valid. The notice of deficiency in that case identified one taxpayer in portions and a related but separate entity in other portions. 153 T.C. at 99. The Court concluded that although the notice made clear that a determination of deficiency had been made, it was not possible to determine from the notice which entity would owe the determined deficiencies. Id. Accordingly, the Court went on to consider whether the taxpayer had proven that there was a determination with respect to it. Id. Respondent introduced tax returns indicating that the determinations were with respect to the related entity, and the taxpayer admitted that the notice reflected as much but argued that errors in the notice did not invalidate it. Id. at 101. Because the notice did not reflect that the IRS had made determinations with respect to the taxpayer, the Court held that the notice of deficiency was not valid. See id. at 104.

“By contrast, the Notice of Deficiency reflects determinations only with respect to petitioner, the entity that received and reported the insurance premiums with respect to which the notice made the adjustments, making it internally consistent. Accordingly, a reasonable taxpayer would, and petitioner did, understand that the IRS had determined a deficiency with respect to it.” Order, at pp. 3-4.