I cannot think many, if any, of my readers are hanging breathless on the outcome of the trial in Lola Marie Hussey, Docket No. 5981-24L, filed 2/11/26. Few, again if any, will remember STJ Lewis (“Whatever Shall I Do When He Retires?”) Carluzzo’s rejection of IRS’ summary J motion for confirmation of Appeals’ NOD, so, if you care, check out my blogpost “Milk Run,” 11/26/25 for the scanty backstory.

STJ Lew has two (count ’em, two) questions to resolve, even though Lola Marie thoroughly defaulted (no briefs, no appearance). Was what Lola Marie filed a “return” within the meaning of Section 6702? And was the issuance of the NOD ustaining the collection process an abuse of discretion? Yes and no.

Yes, it was a return, but it was an “all-seros.” She also claims Section 6702 is unconstitutional, but provides no argument in support.

Yes, the chops were Boss Hossed, and Lola Marie’s insistence at the CDP that only liability should be considered is a nonstarter. Anyway, “(B)ecause petitioner refused to have such issues considered at the administrative hearing, we will not consider her challenge to the process here. But if we did, we would find that respondent’s evidence shows that in all respects respondent proceeded as required by section 6320 and section 6330.” Transcript, at p. 8.

This blogpost appears as a matter of record. I can find better subjects for this blog; I don’t want to be accused of milking the milk run.

Juliet R. El, T. C. Memo. 2026-17, filed 2/10/26, got her year-at-issue 1040 right, thanks to her trusty electronic preparer. She claimed an Additional Child Tax Credit of $4K, to which she was indisputably entitled. Whereupon IRS’  creaky hardware gave her a $15K refund because it transposed her earnings as reported on her Schedule 8812 to the credit due line. IRS woke up before the SOL and gave Juliet a $15K deficiency.

Juliet’s trusty attorney claims this is a nonrefundable rebate because IRS didn’t recalculate Juliet’s tax due, hence Section 6212 is out and IRS must sue in USDC per Section 7405. IRS says yes we did recalculate.

Judge Nega says that’s not the issue.

“Respondent and petitioner both make a fundamental error in analyzing whether a ‘substantive recalculation’ occurred in this case. Both incorrectly direct their attention to whether the error (substituting $17,164 for the ACTC) was a ‘substantive recalculation’ instead of whether the error led to a substantive recalculation of petitioner’s tax imposed. Petitioner argues that a simple substitution error does not involve calculation at all and cannot be a ‘substantive recalculation.’ Respondent defends his mistake as a recalculation without offering any explanation more plausible than its being a mistaken transposition of numbers on the return (the $17,164 being listed elsewhere by petitioner as her earned income).

“Without reaching the question of whether a transposition or substitution error is a ‘substantive recalculation,’ the record amply supports the position that respondent substantively recalculated petitioner’s overall tax imposed. And this is the only correct place to direct the analysis: whether the taxpayer’s tax imposed was recalculated.  A refund is a rebate refund if it is based on a ‘substantive recalculation’ of the tax imposed that shows the taxpayer owes less tax than the amount shown on the taxpayer’s return. In this case, the refund is a rebate refund because the rebate was based on a substantive recalculation of petitioner’s tax imposed.” T. C. Memo. 2026-17, at p. 7. (Citations and footnote omitted).

The issue isn’t how the mistake occurred, it’s what impact the error had on tax due. Now Juliet admittedly owed nothing on her return. But Section 6211(b)(4) was amended in 1988 to deal with refundable credits when tax due was zero, so taxpayers could challenge erroneous disallowances in Tax Court. Hence this is a deficiency case, and Juliet owes the incorrect overpayment.

If this sounds familiar, see my blogpost “The Rebate Debate – Innocent Spousery,” 7/17/24.

It never fails. Just as I’m leaving the party, the host brings out the good stuff. I’m at the elevator door, or down the stairs, or standing in the street, whereupon out comes the tiramisù or profiteroles or the Cuvée Elisabeth Salmon Rosé or the Louis XIII. So it is that the IRS Nationwide Tax Forum announces its return to this Minor Outlying Island off the Coast of North America this August, after I retire. Ya can’t win.

Ingrid Maria Persson, T. C. Sum. Op. 2026-2, filed 2/9/26, furnishes another example of the traps laid in the path of the unwary by the Affordable Care Act, officially the Patient Protection and Affordable Care Act together with amendments made thereto by the Health Care and Education Reconciliation Act of 2010. It’s the usual over-400% of poverty, to which is added Ingrid Maria’s failure to file 1040 MFJ with spouse.

There’s a wrinkle. Ingrid Maria entered into an IA for a math error covering the year at issue, before the SND for the APTC, so not covering it.

“Petitioner acknowledges there were issues with her tax return. Petitioner suggests that the review of the return which disclosed a math error before the installment agreement should have resulted in the correction of all issues in her tax return. She contends that the installment agreement should cover all amounts for the tax years listed on the agreement, including the deficiency stemming from the APTC. Petitioner contends that determination of a deficiency for [year at issue] outside of the installment agreement is a breach of contract. Petitioner also claims she was informed by Ms. F that the installment agreement considered all adjustments for the listed years and was a final agreement.

“Respondent asserts that while the installment agreement included [year at issue], it included only the adjustment related to the math error and did not include the deficiency determined by adjustment to the APTC. Respondent asserts that the deficiency stemming from the APTC was not yet determined when the installment agreement was processed.

“Respondent asserts that an installment agreement allows a taxpayer to satisfy a preexisting liability over time; consequently, it lacks consideration on the part of a taxpayer and, therefore, does not give rise to contract formation.” T. C. Sum. Op. 2, at p. 6. (Citation and name omitted).

STJ Peter “HB”) Panuthos is sympathetic, but IRS didn’t breach the IA per Section 6159.

Whenever I see these ACA cases, I want to jump in with a political comment. But in these times, when feelings run high and AI-generated social media stokes the ring of fire around rational comment, I can only say that I know how Jeremiah felt.

As AI is supposed to make legal research by humans obsolete, we see the Phantom Citation swimming into memos of law like a destructive invasive species. The critter has gotten into Tax Court, as Judge Mark V, (“Vittorio Emanuele”) Holmes judge-‘splains in Peter L. Clinco, Deceased, C. M. Barone-Clinco, Successor in Interest, and C. M. Barone-Clinco, T. C. Memo. 2026-16, filed 2/9/26.

It’s an unreported income and unsubstantiated deductions case, the usual bank deposits reconstruction after discrepancies with 1099s, plus depreciation deductions unsupported with dates placed in service and purchase price (with adjustments to basis). And that IRS didn’t challenge depreciation in subsequent (out) years doesn’t validate them for year at issue.

But the big story is the made-up citations.

“Mr. Wagner, Clinco’s attorney, cites four cases in support. Three appear to be hallucinations generated by a large language model AI.” T. C. Memo. 2026-16, at p. 6.  Judge Holmes says these are unacceptable.

And even after IRS’ counsel blows the whistle on these inventions, Wagner continued to cite them, T.C. Memo. 2026-16, at p. 7.

Judge Holmes lets Wagner off with a warning in a footnote.

“It is not absolutely clear from the record whether Mr. Wagner used generative AI to secure legal precedent for his arguments. A bit of embarrassment for failure to citecheck, failure to ‘fess up, and (if it occurred) use of AI to write a section of the brief is enough for now.” T. C. Memo. 2026-16, at p. 8, footnote 8.

Judge Holmes catalogues these machine-made monstrosities in T. C. Memo. 2026-16, at p.7, footnote 6.

Taishoff says these are a fraud on the Court, and per se professional misconduct.

It’s another taxpayer win over the goofy regulation (Reg. Section 1.183-2(b)) for Kenward F. Kolar, Jr., T. C. Memo. 2026-15, filed 2/9/26, although it’s closer than most. Of the 9 I(count ’em, 9) factors therein, Ken got 4 (count ’em, 4), IRS got 3 (count ’em, 3), with 2 (count ’em, 2) stuck in neutral.

Ken was a multi-generational TX rancher, but the ranch was in bad shape when he got it, and he had to work long and hard to try to get profitable cattlebreeding. Judge Kashi (“My or the High”) Way doesn’t let Ken conjoin his oil royalty income with the ranch, finding them too dissimilar, as is land appreciation, forcing Ken to pay tax on the oil royalties without the offsetting ranching deductions. But his wife’s separate bank account for the business and her careful recordkeeping make IRS concede the amounts of Ken’s deductions on the trial. Ken concedes the 6651(a)(1) and (2) late file and pay, and 6654 no estimated add-ons.

Ken’s a good witness on the trial. 

But I want to point out again that a separate bank account and good bookkeeping are keys. It’s the first thing Judge Way mentions that bear on the goofy regulation.

“During this period, Mrs. Kolar served as the bookkeeper for the Kolar ranch and kept records that the couple would report to their certified public accountant. The Kolar ranch had a checking account for ranch operations that was separate from the account used by Mr. and Mrs. Kolar for their household expenses. Mrs. Kolar had a multistep recordkeeping process. She maintained a check register along with a ‘category’ book for recording daily income and expenses. She also had a ‘weekly book’ which she would prepare and use to go over the numbers with Mr. Kolar. She then prepared a monthly Excel spreadsheet and a final yearend spreadsheet documenting Kolar ranch income and expenses.” T. C. Memo. 2026-15, at p. 4.

I note IRS claims that Ken got personal pleasure in teaching his son how to be a cowboy. Judge Way blows that away.

“Respondent also argues that Mr. Kolar’s son participates in ranching activity and that Mr. Kolar derives pleasure from being able to bond with his son in this way. We do not find this argument compelling. Mr. Kolar’s son was two years old during the year at issue, so it is unlikely that he participated in ranching activity in any meaningful way during that year. Moreover, we do not view training one’s children to farm and ranch in the hope that they will one day take over the family business as inconsistent with a profit motive. Indeed, it is often the case that family members, including older minor children, participate in the running of profitable small businesses. Viewed in this light, Mr. Kolar’s decision to have his son participate in ranching activities supports a profit motive.” T. C. Memo. 2026-15, at pp. 15-16.

Perhaps the young man, like Johnny Mercer’s “old cowhand from the Rio Grande,” learned to ride ‘fore he learned to stand.

No, not more Jarkesy motions. This blogpost concerns the buckshot pretrial motions in limine with which the parties bestrew the judge’s path immediately prior to trial, like those lovely flowerchildren preceding the bride at fancy weddings. Only this process is much less attractive to eye and ear. I’ll come to Jarkesy shortly.

Judge Christian N. (“Speedy”) Weiler is the recipient (or should I say victim?) of eleven (count ’em, eleven) such motions in Habitat Green Investments, LLC, MM Bulldawg Manager, LLC, Tax Matters Partner, et al., Docket No. 14433-17, filed 2/6//26. I’ve been blogging this vintage Dixieland Boondockery since 2020.  I’ve paid good money for rum younger than this case.

Now all y’all can read the eight (count ’em, eight) pages of Judge Speedy Weiler’s well-wrought prose your own selves. Perhaps you’ll then come to the same conclusion I did. If not, favor me with an explanatory comment. In either case, spoiler alert.

Judge Speedy Weiler denies six (count ’em, six) motions with prejudice, four (count ’em, four) without prejudice, plus one split-decision (can testify as to fact but not opinion, and Judge Speedy Weiler will sort it out on the trial).      

This is where Jarkesy comes in. Until the Supremes say otherwise (or the CCAs play mix-and-match), there are no jury trials in Tax Court. Hence no juries to be misled by “those whose beard and paunch are great of size” pontificating at length, unchecked by fact. The judge’s daily grist is sorting out such as these, and Judge Speedy Weiler wants his whack at them.

My good friend Peter Reilly, CPA, will want to add James D. Sullivan and Colleen M. Sullivan, T. C. Memo. 2026-13, filed 2/5/26, to his collection of successful Section 183 taxpayer wins.

True, Colleen’s mulching operation fails for want of documentation and for evidence that she abandoned the business when her mulching machine proved unsafe.

“With respect to Leaf-Cutter, Ms. Sullivan’s mulching business, we readily find that the Sullivans have failed to carry their burden of establishing that the activity was engaged in for profit. The Sullivans testified that the business was both established and terminated because of safety concerns….” T. C. Memo. 2026-13, at p. 14.

But their real estate development business and JD’s software operation survive.

JD had plenty of software development experience, spent his own money developing it (even dipping into his retirement money), kept a separate bank account, studied literature on the area he was working, cut expenses when revenue didn’t come in, and hired experts. Though the work satisfied his intellectual curiosity, his testimonial candor carried the day.

He and Colleen also had plenty of real estate development experience. They built and rehabbed homes in MN and MT  and MA, mostly with their own labor, and sold them. They lived in a tent for years in ME while trying to build a housing development and a new personal residence, showering at the YMCA until they got the water put in.

Judge Courtney D. (“CD”) Jones gigs them for poor bookkeeping, allocating too many expenses to the housing development and not enough to the lot where they intended to build their personal residence, but she Cohans that out.

Interestingly, IRS never challenged the amounts of their claimed deductions, only the profit motive. So they mostly win the software and real estate developing, and only get mulcted for mulch.

Another attack on the routine IRS Section 6751(b) summary J motion fails in Mossy Flats Property, LLC, Otemanu Land Holdings, LLC, Partnership Representative, T. C. Memo. 2026-14, filed 2/5/26. The Mossy Flatsers claim the supe who signed the RA’s Penalty Lead Sheet wasn’t his direct supe that day. 

Judge Jeffrey S. (“Schwer”) Arbeit won’t buy it.

“The record shows that SRA B was RA M’s immediate supervisor on April 2, 2023, when she approved his initial determination to assert penalties against Mossy Flats. SRA B’s signature appears on the penalty approval form, where her title is listed as ‘Team Manager– Group 1244.’ And both RA M and SRA B averred under penalty of perjury that SRA B was RA M’s immediate supervisor. Petitioner has failed to show there is a genuine dispute for trial.” T. C. Memo. 2026-14, at p. 6. (Citations omitted).

Merely claiming that the declarations of SRA B and RA M in support of IRS’ motion are “self-serving” doesn’t raise a question of fact. “…petitioner provides no explanation for its assertion that the declarations are inadmissible under Rules 121(c)(4) and 143(a). In fact the declarations appear entirely consistent with Rule 121(c)(4), which provides that declarations used to support a summary judgment motion must (1) be made on personal knowledge, (2) set out facts that would be admissible in evidence, and (3) show that the declarant is competent to testify on the matters stated. (Rule 143(a) simply provides that trials before the Court are conducted in accordance with the Federal Rules of Evidence.).” T. C. Memo. 2026-14, at p. 7. Taishoff says see also Section 7453.

Supervisors routinely move in and out. But there’s no evidence SRA B didn’t supervise RA M when he pulled the trigger on the Mossy Flatsers.

For the backstory on the remand that triggered Vitaly Nikolaevich Baturin, T. C. Memo. 2026-12, see my blogpost “A Bad Day for the Russians,” 4/8/22.

Once 4 Cir shipped VitNik’s case back to Judge David Gustafson, there were three (count ’em, three) more stips of fact, after which Judge Gustafson decided he didn’t need no trial (Judge Gustafson is too well-bred to apply the opprobrious adjective that Alfonso Bedoya y Díaz de Guzmán^[ never said).

VitNik never raised his Section 1441 withholding argument in Tax Court nor at 4 Cir, and anyway withholding doesn’t equal liability.  VitNik was supervised and subject to evaluation. Had the laboratory not hired him, they would have hired someone else. Any IP or product he generated belonged to the laboratory, not him. The project started before he was hired and continued after he left. Nonresidency doesn’t provide nontaxability. And VitNik signed an employment agreement explicitly subject to the terms of the laboratory’s administrative manual, pursuant to which his employment was contingent upon results.

But the ultimate question is “Did the grantor receive a substantial quid pro quo from the grantee’s work?”

“Revenue Ruling 80-36, 1980-1 C.B. at 368, states the general principle that tax exemption ‘does not extend to professional researchers receiving compensation for performing research services,’ a generality that includes Dr. Baturin. The Revenue Ruling explains that a researcher may be exempt from tax where he is paid for effort ‘in the pursuit of a specific research goal,’ where his ‘work is not subject to direction or supervision by any other person, and [he] is entitled, but not required to publish the results of the research,’ and where ‘[n]o other person has any right to the product of [his] research,’ id., but none of that describes Dr. Baturin. Rather, in the words of the Revenue Ruling, we hold that Dr. Baturin was ‘performing valuable research services under the supervision of the grantor [i.e., Jefferson Lab] that are primarily for the benefit of the grantor of the payments,’ a circumstance in which the payments are subject to tax.’ id.” T. C. Memo. 2026-12, at p. 17.