The old wheeze says “When the law is against you, pound the facts; when the facts are against you, pound the law. When both facts and law are against you, pound the table.”

Taishoff says, when the numbers are against you, smile your sweetest, go into the hallway and sob.

Christopher B. Epps, T. C. Memo. 2025-85, filed 8/7/25, neither makes an offer for an IA or PPIA, nor for CNC. So Ch J Patrick J. (“Scholar Pat”) grants IRS summary J sustaining the NITL gave him.

See T. C. Memo. 2025-85, at p.5, final paragraph, for the real story.

Chris’ trusty attorney deserved better.

That’s what Judge Kashi (“My or the High”) Way tells Tisha S. Hillman, T. C. Memo. 2025-84, filed 8/6/25. She wants to fight over the amounts she self-reported, and didn’t file amended returns when she was offered the chance by the AO at her CDP.

Tisha wants a hearing before IRS filed a NFTL. That’s a nonstarter.

“… it is important to note that the Code does not even afford a taxpayer a right to a CDP hearing to contest an NFTL until after the government has in fact filed the NFTL. See § 6320(a) (describing the manner in which a taxpayer is notified of an NFTL filing under section 6323 and the period during which that taxpayer may request a CDP hearing). This is in contrast to requesting a CDP hearing to contest a levy under section 6330, which explicitly forbids the IRS from levying on a taxpayer’s property before notifying the taxpayer in writing of the right to a CDP hearing and permitting the hearing to occur. § 6330(a)(1). Thus, petitioner’s argument that her CDP rights were violated because an NFTL was filed before she had a hearing is without merit.” T. C. Memo. 2025-84, at p. 8.

But wait, there’s more!

Judge Way blows off “… petitioner’s argument concerning the application of the Thirteenth Amendment and her demand for the Court to order $48 million in sanctions against respondent. Petitioner, who the record indicates has a legal education, is warned that the Court is authorized under section 6673(a)(1) to impose a penalty not exceeding $25,000 whenever a taxpayer’s position in a proceeding is frivolous or groundless. Petitioner is therefore cautioned that a penalty may be imposed in any future case before this Court should she continue to pursue frivolous positions. The Court declines to impose sanctions against respondent.” T. C. Memo. 2025-84, at pp. 9-10, footnote 4.

Note that Ms. Hillman is a SuperLawyer.

Judge Dawson said it fifty-one (count ’em, fifty-one) years ago: “The discovery procedures should be used only after the parties have made reasonable informal efforts to obtain needed information voluntarily. For many years the bedrock of Tax Court practice has been the stipulation process, now embodied in Rule 91. Essential to that process is the voluntary exchange of necessary facts, documents, and other data between the parties as an aid to the more expeditious trial of cases as well as for settlement purposes. The recently adopted discovery procedures were not intended in any way to weaken the stipulation process. See Rule 91(a) (2).” (Citation superfluous).

So now the Tax Court bench need to sort out what was informally answered and what not, in laborious detail, in such six-page novellas as Carters Lake Land, LLC, f.k.a. Sassafras Point II, LLC, Piedmont Private Equity Manager, LLC, Tax Matters Partner, et al., Docket No. 1034-21, filed 8/5/25. It’s IRS’ motion to compel responses to interrogatories. And Judge Travis A. (“Tag”) Greaves has to sort out each and every one.

Nothing has changed in fifty-one years. Judge Dawson might have written these words.

“Before analyzing each interrogatory individually, the Court addresses the expectation regarding a satisfactory informal discovery process. In many of petitioner’s responses to Respondent’s First Formal Interrogatories to Petitioner, petitioner objects that respondent did not first seek specific requests informally. Respondent asserts that he has satisfied informal discovery requirements because the parties have been informally exchanging documents and information since at least June 2022. Petitioner, however, maintains that the Rules require greater specificity in informal discovery, beyond general discussions or broad exchanges. Petitioner argues that respondent is not free to raise entirely new questions in formal discovery without first seeking the answers informally because he ‘engaged in informal consultation and exchange of information’ generally.

“A principal purpose of the requirement for informal discovery is to save the Court’s and parties’ time and resources in the development of relevant and undisputed facts. See Schneider Interests, L.P. v. Commissioner, 119 TC 151, 154 (2002). In International Air Conditioning Corp. v. Commissioner, 67 T.C. 89 (1976), the Court held that Rule 70(a)(1) contemplates ‘consultation or communication,’ words that connote discussion, deliberation, and an interchange of ideas, thoughts, and opinions between the parties, and a mere letter from one party to the other does not constitute a good faith effort to comply with Rule 70(a)(1).” Order, at pp. 2-3.

But the game continues.

Sohail S. Hussaini, T. C. Memo. 2025-82, filed 8/4/25, is a computer engineer who  says he ran up $46K in travel expenses between his home in IA and the top-secret military contractors’ hangouts in MD and NJ where he worked. (because he couldn’t teletubby).

Although Sohail had logs (which IRS disputes as unsubstantiated, includes out years, and fails Section 274 tests), Judge Rose E. (“Cracklin'”) Jenkins “concludes that the logs are not relevant evidence given the holding, discussed herein, that there is no statutory authorization for petitioner’s deduction of any travel expenses related to his employment during the [year at issue]. T. C. Memo. 2025-82, at p. 2, footnote 3.

Even if he had adequate proof, Sohail was a W-2 EE with no employer expense plan, hence Section 62(a)(1) put all unreimbursed employee expense deduction for year at issue on ice until 1/1/2026.

Except.

Section 62(a)(2)(A)–(C), (E), gives a deduction for government officials, performing artists, employer reimbursement plans, and military reservists.

Except.

“Petitioner suggested that he is entitled to the deduction allowed to Reservists. However, given that an employee of a company consulting on a military contract is not, by reason thereof, a Reservist, and petitioner has never been a Reservist, petitioner is not entitled to a deduction under section 62(a)(2)(E) for [year at issue]].” T. C. 2025-82, at pp. 3-4.

So Sohail joins Phoebe Jonas, for whom see my blogpost “Unqualified Performer,” 2/9/24, in the ranks of those cut by the Jobs Cut and Tax Act of 2017.

That’s the conclusion at which Judge Mark V. (“Vittorio Emanuele”) Holmes arrives in Robertino Presta and Antonella Presta, T. C. Memo. 2025-83, filed 8/4/25. After all, Rob was president of CFM Insurance, Inc., the microcaptive of the grocery empire into which he came by marrying the boss’ daughter (his prom date), except he testified he didn’t know he was president, T. C. Memo. 2025-83, at p. 62.

“He testified at trial that he knew little of the operations—he even forgot that he had appointed himself as CFM’s president. We don’t think that outsourcing the operation of a captive undercuts in all cases the characterization of a company as an insurance company, but when the president of the company doesn’t even know that he is the president, something is off.”

There’s a lot more about defining insurance and generally-accepted insurance company operations, with a detour around the McCarran-Ferguson Act, 15 U.S.C. § 1012. And Judge Holmes allows that CFM may be different from most of the microcaptives I’ve blogged before, T. C. Memo. 2025-83, at p. 4.

Alas, at close of play, it’s another failure of execution, even though onshore-incorporated and UT-law compliant. despite IRS trial miscues.

“We find that CFM engaged in adequate due diligence in creating the captive. But we also do find that the ambiguities and inconsistencies in the policies are quite problematic. Overall, we think that CFM was organized and regulated as an insurance company and was adequately capitalized. On the basis of the extremely unusual battle of the experts in which the Commissioner’s did not take up arms on the issue, we also find that CFM charged reasonable premiums. But these factors don’t outweigh the other facts that show CFM failed to operate as an insurance company normally would. It did not regularly issue valid and binding policies or collect premiums in a timely way for most of the years and policies at issue. The haphazard handling of the few claims that CFM received is a particularly strong sign that it did not operate the way an insurer would.

“It’s a much closer call than is usual in microcaptive cases, but in the end we find by a preponderance of the evidence that CFM was not offering something that would be commonly accepted as insurance.” T. C. Memo. 2025-83, at p. 63.

OK, no premium deduction for Rob and Antonella. But what about CFM?

The contribution-to-capital argument fails on want of proof of any intent to capitalize CFM beyond statutory minimum, which was already met. As for setting up a nondeductible loss reserve out of income, all the evidence points to tax motivation above all. “There is no evidence in the record to indicate that the Prestas structured the payments as captive insurance instead of a loss reserve for any reason other than the additional tax benefits that a captive would have provided. H’s testimony makes it more likely than not that the Prestas were at a minimum informed that choosing to create a captive-insurance company instead of a loss reserve was a better option specifically because of the greater tax benefits it provided.” T. C. Memo. 2025-83, at p. 65. (Name omitted).

The good news. Rob, “…a man of humble beginnings—having worked at the Elmwood Park store from the age of thirteen—and has received no classroom education beyond high school. Other than dutifully paying his taxes and buying insurance coverage, he has no experience in the tax or insurance industries,…” T. C., Memo. 2025-83, at p. 69,  relied on his trusty CPA, who did all reasonably required.

No chops.

And no disrespected partitive genitives, either.

From Chief Whistler John W. (“Hoppin’ John”) Hinman’s IRS Whistleblower Office Fiscal Year 2024 Annual Report, at p. 15:

“Significant administrative resources must be allocated to claims

involving information not used by the IRS

“The Whistleblower Office and IRS use significant resources to address repeat claim filings from the same individuals, who continue to submit information to the IRS after being informed that the agency is unable to pursue their information. The administrative burdens of these repeat claims far outweigh any benefit of the information to the IRS.

“The Whistleblower Office must expend resources responding to these claimants (often repeatedly), maintaining records, and engaging in litigation to defend an administrative, enforcement decision not to pursue the information provided. The Tax Court’s review of any dispositive communication issued by the Whistleblower Office compounds the administrative burden of these claims on the agency.”

Although the foregoing appears in the “Legislative and Administrative Recommendations” section of the Report, I can find no specific recommendation. Does Hoppin’ John want to throw more bodies and money at the serial blowers? Of course, any suggested crackdown on serial blowing will bring the blower advocates out, hollering about how blowers risk life, fortune, and sacred honor to unearth the dodgers. Unhappily, those who do aren’t the serials who stripmine publicly available information, looking for easy money.

I only wish it were true, that headline first above written at the head hereof (as my expensive colleagues would say). So much Crain-Wnuck-Waltner stuff is “weary, stale, flat, and unprofitable” dredgings from the internet. Gwen Kestin was original, but she was a one-off. See my blogpost “What More Can I Say?” 6/7/18 for Gwen’s story.

Zachary Mark Arnold, Docket No. 10106-25, filed 8/1/25, although less inventive as far as I can tell, is trying. I won’t waste three bucks paying the Glasshouse Copycats for a download of Zach’s “Consent Decree.” STJ Lewis (“A Name to Acclaim”) Carluzzo got it for free (and was even paid to read it), but tosses it. Well, at least it was something other than the usual.

“… the document: (1) was not submitted in response to an order of the Court; (2) is not otherwise contemplated by the Tax Court Rules of Practice and Procedure; (3) plays no role in the processing or disposition of\ this case; and (4) more likely than not was submitted by petitioner in furtherance of an ill-advised tax protestor scheme….” Order, at p. 1. I guess STJ Lew forgot that he tossed Zach’s petition for failure to state a claim on 7/15/25.

But amusement value aside, I mean what I said about tax protesters years ago: “they got all the benefits of living and working here; they could’ve left at any time on complying with Section 877 and gone wherever would take them (and the US defense umbrella would cover a lot of those wherevers); wherefore, their dodging and legalistic blather is unworthy of serious consideration.” See my blogpost “Crito in Tax Court,” 12/30/21.

Curtis K. Kadau and Lori A. Kadau, Deceased, Curtis K. Kadau, Personal Representative, T. C. Memo. 2025-81, filed 7/31/25 had a successful industrial Sub S, but needed a cash stash. Enter a couple promoters (hi, Judge Holmes) who sold them a Nevis (that’s another Island in the Sun) insurance company.

It’s the usual shaky underwriting, excessive premiums, minimally capitalized, insurance-reinsurance roundy-round. Cash goes in a circle, invested in a single premium life insurance policy that benefitted Curtis. It’s the same old story for 39 (count ’em, 39) pages of Judge Christian N. (“Speedy”) Weiler’s deconstruction of this dodge, until we get to the Section 6662(h)(6) and (i) 40% enhanced chops for undisclosed economic insubstance. Enter Section 7701(o)(i), added by the Health Care and Education Reconciliation Act of 2010. Though Section 7701(o)(i) talks of meaningful economic change other than tax, some commentators weren’t sure if this meant sham transaction as well as want of economic substance. And how do we find out if Sectio0n 7701(o)(i) applies?

In short, though the deal must move the nontax economic needle, did the Act move the commonlaw needle?

“The Act also added a new subsection (o) to section 7701 of the Code, codifying the “economic substance” doctrine. That subsection 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 such transaction.’ I.R.C. § 7701(o)(1). The codified economic substance doctrine applies ‘[i]n the case of any transaction to which the economic substance doctrine is relevant.’ Id. And the determination of whether the economic substance doctrine ‘is relevant’ must be made in the same manner as if section 7701(o) had never been enacted. I.R.C. § 7701(o)(5)(C).

“To date, there has been minimal caselaw addressing these provisions. In none of the microcaptive insurance cases decided to date did this Court address whether the transactions lacked economic substance within the meaning of section 7701(o)(1). Nor did those opinions consider what constitutes ‘adequate disclosure’ of a microcaptive transaction under section 6662(i)(2). The Court has withheld ruling on these questions and ordered additional briefing on the ‘relevancy’ question.” T. C. Memo. 2025-81, at p. 40.

Judge Speedy Weiler does likewise.

“We will accordingly defer ruling on the applicability of the 40% penalty in this report, which will be addressed in a subsequent ruling.” Order, at p. 41.

But the 20% 6662(a)s are in; Curtis’ reasonable reliance and substantial authority arguments fail.

IRS tries to wildcard in a $131K increased deficiency to Curtis’ micro via an out-of-time amendment to the answer, earning IRS BoP on that point, which it doesn’t sustain. IRS says since the micro isn’t an insurance company, its Section 953(d) election fails so the premiums Curtis’ Sub S paid to the micro don’t get Section 831(b) shelter, thus taxable. Curtis’ trusty attorneys say it’s a nontaxable contribution to capital, and Judge Speedy Weiler buys it.

“Here, the objective reality is that [Sub S]} and [micro] entered into contracts that required [micro] to pay if it suffered losses covered by the contracts. We find those contracts are not insurance contracts and that the policies, with their unreasonable premiums, had no legitimate business purpose. Therefore, the premiums are not deductible. These conclusions, however, do not mean that the transfer of funds from [Sub S] to [micro] could not serve an otherwise legitimate business purpose such as the contribution of capital. See Rsrv. Mech. Corp. v. Commissioner, 43 F.4th at 918 (analyzing Rev. Rul. 2005-40). Respondent bears the burden here, and we find he has not otherwise established that the transfer of funds from [Sub S] to [micro] should not be classified as nontaxable contributions of capital.” T. C. Memo. 2025-81, at pp. 38-39. (Citation omitted).

The order in Lucille Pilibos, Docket No.19245-24S, filed 7/30/25, gives only the scantiest recitation of facts, as is usual. Nor does STJ Diana L. (“Sidewalks of New York”) Leyden provide any commentary in granting the motion to appoint petitioner’s daughter as a Rule 60(d) next friend.

Daughter says Luncile is 104 years old and lacks mental capacity to handle her taxes. Daughter holds durable power of attorney for Lucile.

Routine, “garden variety” situation, right?

Except.

Both Lucile and daughter are pro se, and neither is movant. Daughter furnishes a declaration in support of the motion, but movant is stated to be “Respondent.”

Is IRS counsel furnishing legal advice to daughter and drafting her motion papers? Is this the new normal?

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.