No, that’s not the math problem Judge Cary Douglas (“C-Dough”) Pugh has to solve in Facebook, Inc. and Subsidiaries, 167 T. C. 12, filed 9/29/26. That’s the twenty (count ’em, twenty) lawyers for Facebook and Subs and thirteen (ditto) for IRS, to ascertain the correct calculation of a sixteen year old Cost Sharing Arrangement per Reg. Section 1.482-7T.

For the backstory, see my blogpost “Facebook Faceoff Draw – (Sort Of),” 5/22/25.

Sent to the Rule 155 beancount, the 33 (count ’em, 33) lawyers couldn’t agree how to do it. I’m shocked…shocked. Aren’t you? And of course they don’t agree with Judge C-Doug Pugh’s opinion; this fight is only about how to compute the number in the decision from which one or both are going to appeal. So Judge C-Doug Pugh scraps the Rule 155 beancount and, contrary to my oft-repeated jibes, does the work and shows she can add.

The deal was the swap of Facebook’s IP for everywhere in the world but US and Canada to its Irish sub. What the Irish paid Facebook for these goodies (and what Facebook had to recognize as income therefrom) is the name of this tune. The good news is that the record is sufficient for the purpose; no more dueling experts.

“The largest issue separating the parties is the structure of the contingent annual royalty payments from Facebook Ireland to Facebook US. As we observed in Facebook I, respondent does not dispute that the royalty payments should be contingent and annual. But the parties disagree over whether respondent’s aggregate 6.29-year flat-rate royalty should be considered reasonable or instead we should leave undisturbed the form adopted by petitioner in the PCT [Platform Contribution Transaction] report, that is, multiple royalties over different periods (or instead adopt a proportionate increase as petitioner proposed). This dispute is legal in that the parties disagree over what the regulations require and factual in that respondent argues that Facebook did not satisfy those requirements.” 167 T. C. 12, at p. 11.

The parties do agree that contingent annual royalty payments should be the form the PCT takes.

“To compute the royalty percentage respondent divided his PCT Payment by the sum of the NPVs of the ROW revenue he projected over his proposed royalty period (2010 to 2016).12 Petitioner argued that we should respect the separate royalties over different periods in the PCT report which formed the basis for its tax return position. And petitioner challenged respondent’s aggregate value and urged us to adopt the separate valuations that Dr. Unni offered. The focus was on aggregation and valuation rather than payment structure, but the royalty payment structure and period were disputed at least implicitly.” 167T. C. 12, at p. 12. (Footnote omitted, but it says the disagreement is what are the variables and whether separate royalties are appropriate).

“…the better reading of the regulation is that, at a minimum, the form of payment must be adopted in the CSA agreement, but the base and structure may be left to CSA documentation that satisfies the requirements of paragraph (h)(2)(iii). This gives effect to the requirement of paragraph (k)(1) that the taxpayer must specify the form of payment in the CSA agreement and accommodates the timing rules in paragraph (h).” 167 T.C. 12, at p. 16. IRS’ reading of the Reg is too narrow.

Of course it’s never that simple.

“The regulation does not answer the question of the appropriate structure or period for royalty payments. It only requires the taxpayer to choose before outcomes are known. This, of course, is because the timing of the payments affects the allocation of risks between payor and payee. Dr. Newlon expressly recognized this too. In his rebuttal expert report he pointed out that the income method was simply a method for determining the arm’s-length compensation to Facebook US, expressed in present value terms, for its contribution. He explained that converting from an upfront lump-sum payment to a royalty rate means that ‘Facebook Ireland and Facebook US to some extent share the impact of deviations of actual revenue from forecast revenue over the period during which royalties are paid to Facebook US.’” 167 T. C. 12, at p. 19. (Footnote omitted).  And there is no arm’s-length analogy.

If actual revenue differs materially from the estimates, YMMV puts it mildly.  That’s why the Reg eliminates hindsight; both parent and sub are sitting big blind. And so, to some extent, is Judge C-Doug Pugh.

Getting to the bottom of this rabbithole, Judge C-Doug Pugh opts for the PCT report.

“The variable royalty rates for the PCT contributions reflect a specific allocation of outcome risks between the CSA participants and can be replicated following the methodology in the PCT report. Of the options presented by the parties for conversion of the PCT Payment to contingent annual royalties, the PCT report methodology is the closest to the economic substance of the transaction. It is the most faithful to the agreement between the CSA participants, the actual allocation of risks between them before the outcome of the CSA is known, and their actual conduct. It therefore is the method that should be applied to convert the PCT Payment into contingent annual royalty payments for purposes of computing petitioner’s corrected tax liability.” 167 T. C. 12, at p. 24.

So maybe so might could be hindsight isn’t entirely out of the picture. 

As for reductions in Other Revenue, the Long Range Plan is the only guideline.

“The record includes no other basis for reducing the projected expenses in the LRP… beyond the credit card processing fees expressly associated with Other Revenue. Consistent with the LRP, we likewise find that those expenses should be the only ones excluded.” 167 T. C. 12, at p. 26.

And finally, the magic number: the WorldWide Discount Rate.

“… in Facebook I after considering all of the discount rates in the record and the flaws in each, we selected a 17.7% discount rate for valuing the cost sharing alternative because it fell within the range we considered reasonable and could be considered a concession by petitioner that the rate should be no higher than that. (Petitioner argued for a higher rate and respondent for a lower one.) That rate applied to ROW revenue; we did not adopt a rate for worldwide revenue.

“At the hearing on the Rule 155 computations, petitioner stated that a lower worldwide discount rate favored it. We construe this as acceptance of respondent’s position. We also note that 17% is the rate that EY also used in the transfer pricing documentation that computed Facebook Ireland’s RAB share and corresponding CST payments. Therefore we adopt a worldwide discount rate of 17% as a concession—in effect—by petitioner.” 167 T. C. 12, at p. 26.

And to help all y’all sort through this abbreviation salad, Judge C-Doug Pugh has annexed a schedule of Defined Terms.

There’s also an exhibit in reply to computation from Facebook’s twenty that ascends to such rarefied heights of pure mathematics that it is said that there is no woman or man in the scientific press capable of criticizing it.

Judge Joseph Nega concludes the Genie Jones story in Genie R. Jones, et al., T. C., Memo. 2026-99, filed 9/29/26. Jones I was subsumed in my blogpost “Take No Prisoners,” 3/25/25; I covered Jones II in “Unpuzzlement Deferred,” 7/21/25. Now Judge Nega concludes with the chops.

“Respondent has conceded that [Genie’s microcaptive] is not liable for the penalty rate enhancement pursuant to section 6662(i). Finding the remaining petitioners failed to adequately disclose the disputed transaction, we conclude they are each liable for the 40% enhanced penalty pursuant to section 6662(a), (b)(6), and (i).” T. C. Memo.2026-99, at p. 2.

One of the als gets nailed for a straight Section 6662(b)(i) with a beancount five-and-ten.

None of Genie, the als, or IRS, does a spectacular job of briefing, T. C. Memo. 2026-99, at p. 4. Judge Nega flatly refuses to do their work for them.

The microcaptivity job fails both the objective (did it shift the money?) test and the subjectivity (any business reason excapt taxes?) test. The microcaptive was the usual roundy-round, to dodge taxes while preparing to sell the insured business. The al repaid the “loan” only when under Examination.  

Every Section 7701(o) test flunked. The coverage shifts were purely windowdressing. The premiums were designed to hit a target, not manage economic risk.

Merely taking a deduction for “insurance” doesn’t tell IRS about microcaptivity, so the enhancement chop is sustained.

It often seems like I’m writing into a void; I do get a few “like”s, but they seem random, like doglovers who reach out to pat any canine in sight. Comments are few, e-mails nonexistent (although I do acknowledge that I actively discourage them because of multinational data protection laws and governmental snooping).

But the last couple days (hi, Judge Holmes) have awakened a certain Rock of Svithjod feeling (see my blogpost thus entitled).

A great eruption of Tax Court opinions has just taken place. A former colleague remarked just now how busy I’ve become. I answered that it was fortunate I had retired from active law practice and had been terminated from my paid-for writing gig, so that I could provide coverage of this tsunami from DAWSON’s creek.

Then it occurred to me. Is it possible my many-times-suggested reform, that the Ch J or his delegate began to review dockets and direct the collective Bench to give it all the old Amos 5:24 treatment, was actually taking place?

And worse, that I was getting what I asked for.

And Chenery attends the funeral. That’s the story of Estate of Jacqueline R. Farwell, Deceased, Bruce Farwell, Personal Representative, T. C. Memo. 2025-95, filed 9/28/26. The late Jacquline (that’s Doc Jacqueline), before she became the late Doc Jacqueline, worked out an OIC with the aid of her trusty attorney. Before IRS could issue the acceptance letter, Doc Jacqueline died. IRS discovered her death and revoked the OIC. Trusty attorney, having been automatically discharged by his client’s death, asked for time to be retained by the PersRep, got retained, and sought reinstatement. Much back-and-forth followed, which Judge Vasquez chronicles.

IRS relies on IRM 5.8.7.5 (Oct. 7, 2016), which says OIC dies with taxpayer. Trusty attorney interposes Reg. Section 301.7122-1(e)(5). This, claims trusty attorney “expressly prohibits the IRS from reopening an accepted OIC unless one of three exceptions applies: (1) false information; (2) concealment; or (3) mutual mistake.” T. C. Memo. 2026-95, at p. 5. Moreover, “(T)he Estate emphasized that COIC’s termination letter was invalid as it focused only on Dr. Farwell’s death and failed to invoke any of the three reopening exceptions as the basis for terminating consideration of the offer.” Idem.

Judge Vasquez doesn’t buy it.

“Section 7122 and its accompanying regulations do not expressly address the administrative treatment of an OIC when the taxpayer dies before written acceptance. The IRM addresses that circumstance. IRM 5.8.7.5(1) states that ‘[c]onsideration of an offer must be terminated upon the death of a single proponent.’

“Although the IRM does not have the force of law, this provision is consistent with and complements section 7122 and its accompanying regulations by prescribing administrative procedures for circumstances like those presented here. Applying the IRM guidance, Appeals determined that as of… the date of Dr. Farwell’s death, COIC no longer had authority to accept Dr. Farwell’s OIC. Accordingly, COIC’s … notification of acceptance could not and did not create a valid and binding compromise. Appeals does not abuse its discretion when it adheres to applicable IRM guidelines in evaluating a collection alternative.” T. C. Memo. 2026-95, at pp. 10-11.

But trusty attorney has another argument. When he raised mutual mistake (the fact that Doc Jacqueline had died), Appeals went back and forth with him before denying mutual mistake. Hence Chenery binds them to that, and the IRM is out of the picture.

No, says Judge Vasquez, “The COIC letter makes no mention of the reopening exceptions or mutual mistake. It was only after the Estate raised the reopening exceptions that Appeals asserted that this was a situation of mutual mistake. While Appeals did discuss mutual mistake, it was alongside its consistent position that the IRS lacked authority to accept an offer from a deceased taxpayer. The administrative record contains consistent references to IRM 5.8.7.5. Most significantly, the Notice of Determination, while mentioning mutual mistake in the context of administrative history, does not reference it at all in the summary of its rationale. Instead, the Notice of Determination states that ‘[t]he Offer was initially accepted; however, it was rescinded once it was realized that the taxpayer had died prior to the acceptance of the offer. Appeals is in agreement with that determination.'” T. C. Memo. 2026-95, at p. 12.

Trusty attorney raises dispute as to underlying liability, but proffered no evidence at the CDP, so deemed waived.

But he does claim prohibited communications between Appeals and Collections. No go. 

“The governing revenue procedure is clear that making inquiries to ensure all legal requirements are met is the Appeals officer’s responsibility in a CDP hearing and that all communications made for this purpose are permissible. Rev. Proc. 2012-18, § 2.03(10)(b), 2012-10 I.R.B. at 460. Asking Collections for guidance and informing COIC of Dr. Farwell’s death did not compromise Appeals’ independence or violate the ex parte rules. To the contrary, the actions of Program Analyst Hallman and SO Patterson exemplify Appeals’ independence. Their actions demonstrate active verification of legal compliance rather than a mere rubberstamping of COIC’s acceptance. Accordingly, we find that Appeals did not engage in any prohibited ex parte communications.” T. C. Memo. 2026-95, at p. 13.

The OIC is out, but trusty attorney gets a Taishoff “Good Try, First Class,” going down with all guns firing and the battle flag nailed to the topmast.

Innocent spousery is unavailable where no joint return filed is hornbook law. And the attempt of Intervenor Stephen B. Daidone to conjure jointure out of a paper trail fizzles in Joanne Daidone, Petitioner, and Stephen B. Daidone, Intervenor, T. C. Memo. 2026-98, filed 9/28/26.

Joanne and Steve were calling it quits but hadn’t gotten a final judgment when Steve’s divorce lawyer asked Joanne to join him on a 1040 MFJ, but Joanne’s divorce lawyer told her to reject and file MFS. Joanne filed a stand-alone innocent spousery, but Steve counters with “we need a trial because tacit consent.”

Judge Benjamin A. (“Trey”) Guider, III, says Tax Court can’t help.

“In intervenor’s Opposition to petitioner’s Motion for Summary Judgment, he specifically admitted that he ‘placed his initials on the spouse line to reflect on her refusal’ and that petitioner ‘refused to sign’ the Joint Return. Therefore, we find that petitioner did not tacitly consent to the filing of the Joint Return. We accordingly conclude that petitioner did not file or tacitly consent to file, and she could not have filed, a valid joint Form 1040 with intervenor for [year at issue]. See Treas. Reg. § 1.6013-1(a)(2).

“On that basis petitioner argues that she is not liable for the tax reported on the Joint Return. Respondent does not dispute this and agrees that petitioner is not liable for the tax reported on the Joint Return. However, even though petitioner and respondent agree that the Joint Return was invalid and that petitioner is not liable for the tax reported on the Joint Return, we must affirm respondent’s denial of petitioner’s request for relief under section 6015.” T. C. Memo. 2026-98, at pp. 4-5.

A 1040 MFJ is a condition for innocent spousery, but not for review of denial of an innocent spousery claim. Here Judge Trey Guider is without jurisdiction, “no matter how unfair the circumstances may seem.” T. C. Memo. 2026-98, at p. 5.

I guess Prof. Elizabeth A. Maresca, Joanne’s trusty attorney from Fordham University Law School’s LITC will go for a Section 7121 closing agreement (cheaper than an OIC).

That’s where Judge Joseph Nega leaves Andre Jackson, T. C. Memo. 2026-97, filed 9/28/26, after Andre drops his “quintessential tax protester arguments” before trial and tries a Section 7491(a) BoP shift. This is a lough lie in any case, and Andre is in a sandtrap.

“Petitioner produced (1) a Freedom of Information Act (FOIA) request he made to respondent … requesting a plethora of documents relating to tax year 2019; (2) a fax transmission report… indicating the FOIA request made on the same date was faxed from petitioner to respondent’s disclosure office; and (3) a response to petitioner’s request from respondent… with 74 pages of records enclosed. Petitioner contends that he reasonably disputed the Form 1099–R by requesting records from IRS disclosure and [his pension plan trustee] and requesting a review by respondent’s Independent Office of Appeals, and he asserts that he fully cooperated with respondent by trying to identify and obtain underlying records.

“We are not convinced. Petitioner’s mere suggestion that some portion of the distribution may be nontaxable, without more, does not reasonably dispute the information return. Petitioner’s FOIA request does not amount to an actual reasonable dispute of the taxable amount reported on the information return, and he never suggests what the correct amount should be…. No documentary evidence exists in the record or was presented at trial that contradicts the full taxability of the … distribution reported on Form 1099–R. Petitioner’s uncorroborated and vague suggestion that some unspecified amounts of the retirement account distribution may be nontaxable is insufficient to constitute a reasonable dispute…. 

“Further, petitioner did not fully cooperate with respondent because he neither filed federal income tax returns for [years at issue] nor provided respondent with any additional records.” T. C. Memo. 2026-97, at p. 4. (Citations omitted).

Not only has Andre not shifted the BoP, he has retained the burden of the failure to file, failure to pay tax, and failure to pay estimateds add-ons.

A regarded business entity gets an accepted OIC for FICA/FUTA/ITW, but a responsible person gets tagged for the full TFRPs. That’s the plight of Thomas Amodio, T. C. Memo. 2026-96, filed 9/28/26.

But to the rescue comes STJ Lewis (“Oh That Name”) Carluzzo, who employs “common sense and the general principles that govern joint and several federal tax liabilities,” T. C. Memo. 2026-96, at p. 6, to bail out Amodio.

Amodio’s closely-held C Corp did high-class carpentry and was a union shop. Between slowpaying customers and union contracts, Amodio’s office manager and third-party payroll processor paid the union and workers first, and Amodio knew it. Noble motive, but the gov’t comes first. Amodio’s willfulness argument craters.

IRS says C Corp’s OIC has nothing to do with Amodio’s liability.

“IRM 5.8.4.22.1(2) (May 10, 2013) states that the settlement of an outstanding liability by an offer-in-compromise with a corporation does not eliminate the TFRP liability of a responsible person and may still be collected from the responsible person.” T. C. Memo. 2026-96, at pp. 5-6. (Footnote omitted, but it says the current version of that IRM is IRM 5.8.4.21.1(2) (Apr. 25, 2025)). And IRM is cited as “policy,” not law or reg.

After copious citation of what limited precedent there is, STJ Lew finds Amodio’s rescue in one word.

“There might be circumstances that ‘may’ support respondent’s decision to collect from a responsible person a TFRP liability that exceeds a corporation’s related employment tax liability that has been adjusted by an offer-in-compromise, but in the absence of a specific reason for doing so in this case we are more persuaded to proceed by applying common sense and the general principles that govern joint and several federal tax liabilities.

“In so doing, it follows and we hold that respondent may proceed with collection as determined in the Notice but only in amounts that do not exceed the amount of [C Corp]’s employment tax liability for each period in dispute, as adjusted by the offer-in-compromise.” T. C. Memo. 2026-96, at p. 6.

Here’s the follow-on to my blogpost a couple months ago (hi, Judge Holmes), the subpoena scrap with the Virgin Island Bureau of Internal Revenue in Harvey Birdman and Diane Birdman, et al., Docket No. 28897-10, filed 9/28/26.

Harv’s and Di’s trusty attorneys are again trying to befog and befuddle their adversary with discovery doodads, but Judge Cary Douglas (“C-Doug”) Pugh isn’t wearing it.

Did VIBIR deep-six Harv’s and Di’s 2003 and 2004 tax records when they should have put on a litigation hold?

No, says Judge C-Doug Pugh: “…because petitioners did not provide adequate notice to VIBIR to do so. The joint audit program and VIBIR’s request to participate in other Tax Court cases was not sufficient notice to VIBIR that petitioners in these cases anticipated or were involved in litigation. And the statement attached to petitioners’ 2005 Form 1040X filed April 4, 2011, makes no mention of a dispute about petitioners’ 2003 and 2004 tax years.” Order, at p. 4. (Emphasis by the Court).

VIBIR also claims Section 6103 protection. Taishoff says that’s a weak latch, because Section 6103(h)(4) opens a pretty wide door in this case. But nobody seems to want to look through, much less walk through, that door.

Trusty attorneys seek VIBIR’s US claims logbook, which supposedly lists a record of all transmittals to the IRS with respect to the 2003, 2004, and 2005, tax years for the Birdmans and the als. But VIBIR says they don’t have that, because the requested items exceed VIBIR’s record retention period of 10 years. Order, at p. 3.

Judsgew C-Dopugh Pugh ois down with that. “Petitioners issued the first set of subpoenas in 2018, approximately seven years after litigation for the 2003–05 tax years began, and years after VIBIR’s document retention policy required destruction of the requested records. VIBIR should not be faulted for following its retention policy. Had petitioners sought the records when this litigation began in 2011, which was before VIBIR’s policy required destruction, VIBIR could have preserved them (or be faulted had it failed to do so).” Order, at p. 4.

VIBIR’s responses to petitioners’ motions are not models of clarity or consistency, and Judge C-Doug Pugh points out a bunch thereof. Even the closest trusty attorneys come to a valid claim, that notice of intent to litigate tax year 2005 in a Form 1040X filed in 2011, seeking to amend the 2005 1040, might constitute notice to hold onto 2003 and 2004, fails for want of evidence of bad faith.

Spoliation means destruction in bad faith.

 “Even if we consider the statement sufficient to require VIBIR to place a litigation hold on tax year 2005, petitioners still have not provided any evidence of VIBIR’s bad faith in destroying the records. See Bashir v. Amtrak, 119 F.3d 929, 931 (11th Cir. 1997) (‘[A]n adverse inference is drawn from a party’s failure to preserve evidence only when the absence of that evidence is predicated on bad faith.’) (citing Vick v. Tex. Emp. Comm’n, 514 F.2d 734, 737 (5th Cir. 1975)). Accordingly, we will deny all three of petitioners’ Motions as no adverse inference is warranted and we cannot compel the production of documents that no longer exist.” Order, at p. 5.

As rare as a double eagle on a par 4, Andrew Gross & Angela Gross, Docket No. 2467-25S, filed 9/25/26, survive the Section 274 enhanced substantiation motor vehicle requirements, with Angela’s handwritten logs, her automobiles’ service records, and her MapQuest screenshots saving the 60,500 driven miles she reported.

Angela was a drive-by specialist. Don’t worry, no person or animal was harmed in the making of this blogpost.

Judge Ronald L. (“Ingenuity”) Buch tells the story. “Angela Gross conducted property inspections as a subcontractor for several different companies, mostly banks and insurance companies. The companies for which Ms. Gross was a subcontractor would provide a list of properties for her to visit on any given day. She would then drive to each of the properties on the list and check on them. For example, if a bank-owned property was supposed to be vacant, her drive-by inspection might be to simply verify that the property looks vacant. In contrast, if a bank made a loan on a property that was supposed to be used as a residence, Ms. Gross might need to confirm that it was, in fact, occupied. These cursory inspections didn’t take much time, but they involved a lot of driving.” Transcript, at pp. 3-4.

Angela’s handwritten log listed date, street address, miles driven, sometimes type of inspection. Angelka used the applicable Federal mileage rate to figure her car and truck expenses for her Schedule C. IRS conceded 30K of Angela’s claimed 60.5K. Angela conceded $7K of travel expenses.

Angela put in the log at trial, and the service records for her five-year-old Subaru that she traded in in year at issue for a three-year-old Ford, whose records she also tendered. The Suby showed 20K miles in four months, and the Ford showed $43K for that year, both on the odometers.

The MapQuest readouts varied from Angela’s claimed mileage, but not by a lot. Actual over-the-road involves shortcuts and detours, finding refueling stops or places for lunch breaks.

IRS says the logs don’t have the odometer reading, the addresses do not contain a city or state, and the log does not identify the business purpose.

Judge Ingenuity Buch: “… taxpayers may satisfy the substantiation requirements by providing a contemporaneous log along with other corroborating evidence, including the taxpayer’s own statements. This is what Ms. Gross has done. We have her logs in evidence. In addition, she testified as to the purpose of those travels, how those logs were created, and the meanings of her notations. The logs Ms. Gross provided were written contemporaneously and documented the total miles she drove each day. She supplemented them with her testimony.” Transcript, at p. 10.

Though her return showed a loss, if only accounting for fuel, she made money. And she testified she found the work profitable. Taishoff says I find it hard to believe someone drove 60K miles per year in a beat-up five-year-old Subaru with 215K miles on the clock, and a three-year-old Ford Focus starting with 43K on the clock for another 43K miles, except for money.

Anyway, Angela’s logs, maintenance records, and testimony carry the day. As for chops, let’s see what the Rule 155 beancount shows after concessions are taken into account.

It’s off-the-bench day in The Glasshouse in the City of the Fortified Ballroom, but that doesn’t mean the Judges aren’t working. Judge Emin (“Eminent”) Toro deconstructs Section 6211(b)(2) and accompanying Regs in Brendan Bettis, Docket No. 6560-25S, filed 9/25/26. The Rebate Debate goes on apace.

BB had his identity stolen by an unlicensed, unregistered preparer, to whom he entrusted all his PII and data for year at issue. Said preparer generated a phony return, which BB never saw, signed, nor for which he ever signed Form 8879 e-file authorization. Preparer then stole the refund the fictional “return” generated.

BB and IRS agree his real tax is $1263. But IRS claims he owes $23K, being the phony fuel tax credit the phony was allowed for the equally phony landscaping business BB never owned, operated, or ever heard of. The phony got the refund, less what BB owed for AL unpaid child support.

In this deficiency case, IRS claims Section 6211(b)(2) includes “rebates” and the fuel tax credit is a “rebate.” This is the famous “Deficiency = correct tax – (tax on return + prior assessments – rebates) = correct tax – tax on return – prior assessments + rebates,” to support Tax Court Section 6213 jurisdiction

Except.

“For a credit or refund to come within the scope of the term ‘rebate’ under section 6211(b)(2) on the facts before us, the statutory text requires the Commissioner to determine that the correct tax under the Code was less than the ‘amount specified in’ section 6211(a)(1). As relevant for our purposes, section 6211(a)(1) in turn requires consideration of ‘the amount shown as the tax by the taxpayer upon his return, if a return was made by the taxpayer and an amount was shown as the tax by the taxpayer thereon.’ See also Treas. Reg. § 301.6211-1(f) (‘As used in section 6211, the term ‘rebate’ means so much of an abatement, credit, refund, or other repayment as is made on the ground that the income tax imposed by subtitle A . . . is less than the excess of (1) the amount shown as the tax by the taxpayer upon the return increased by the amount previously assessed (or collected without assessment) as a deficiency over (2) the amount of rebates previously made.’ (emphasis added)).” Transcript, at p. 12.

Section 6211 requires IRS to compare the actual tax due to the tax shown on the taxpayer’s return. But BB never filed a return; the return filed here was a phony.

Judge Eminent Toro cuts to the cliché. “Whatever else the Commissioner may have done when he applied the credits to Mr. Bettis’s [year at issue] liabilities and sent money to the State of Alabama, he did not make the determination required by section 6211(b)(2).” Transcript, at p. 14.

The Regs don’t help.

“The regulations do not change this conclusion. Treasury Regulation § 301.6211-1(a) provides that ‘If no return is made, or if the return . . . does not show any tax, for the purpose of the definition ‘the amount shown as the tax by the taxpayer upon his return’ shall be considered as zero.’ But the regulations cannot save the Commissioner’s position.

“As we have discussed, on the fact pattern before us, a rebate exists only if the Commissioner compares the correct tax due under the Code with that reported by the taxpayer on his return and issues a repayment ‘on the ground that’ the former is less than the latter. See I.R.C. § 6211(b)(2). If no return is filed and the tax shown on the return is simply assumed to be zero for purposes of the deficiency computation (as the regulation contemplates), the Commissioner has no ground on which to make that determination.” Transcript, at pp. 14-15.

Section 6211(b)(4) is no better for IRS. The refundable fuel tax credit only gets included if shown on BB’s return. But BB filed no return.

Reg. Section 301.6211-1(f) is scraping the barrel, because it requires a return filed by the taxpayer to support IRS’ determination, and here there was none.

No Tax Court jurisdiction, because no deficiency.

Of course, IRS (and the rest of us taxpayers) are not without a remedy, but Judge Eminent Toro is not teaching a law school class. While a Section 6213 deficiency case fails for want of jurisdiction (parties stipulated actual tax due), 7 Cir suggested unjust enrichment in a civil recovery suit. See USA v.  Frontone, 383 F.3d 656 (7 Cir, 2004), at pp. 660-661 (citations omitted). Opinion by Judge Posner (whom else?).

BB was pro se, and did as good a job as many a practitioner.