Judge Cary Douglas (“C-Doug”) Pugh has perused and passed what reads like the title first set forth hereinabove at the head hereof, as my expensive colleagues would say. Although on the retired list, I am still technically a member of the NYS Bar; see 22NYCRR§118.1(g). You’ll find the memo clips (and they repays reading) in William Stockton & Jessie Lovelace, Docket No. 3202-25, filed 7/31/26.

First, deficiencies in the mailing of the SND and proof thereof. “… petitioners attempted to identify infirmities in the Certified Mail List; they failed to do so. Some of petitioners’ alleged flaws (e.g., the identity of the initials appearing on the Certified Mailing List, the listing of the relevant tax year, and the letters’ purported weight) are contradicted by the record. Others, such as the absence of a formal U.S. Postal Service Form 3877, are present but do not negate the validity of the Notices of Deficiency. See Bobbs v. Commissioner, T.C. Memo. 2005-272, 2005 WL 3157919, at *2–3.” Order, at pp. 1-2.

Next, the left-out Rep.

“Petitioners also note that the IRS failed to mail copies of the Notices of Deficiency to petitioners’ representatives, despite their submission of Forms 2848, Power of Attorney and Declaration of Representative… requesting that courtesy copies be sent. A notice of deficiency is valid if it is mailed directly to the taxpayer at the taxpayer’s last known address, even though a copy is not sent to the taxpayer’s representative as requested. McDonald v. Commissioner, 76 T.C. 750, 752–53 (1981); Allen v. Commissioner, 29 T.C. 113, 117 (1957). Sending copies of the statutory notice to representatives named on a Form 2848 is a courtesy to the taxpayer, not an obligation of the IRS, and is not among the mailing requirements in section 6212. See Bond v. Commissioner, T.C. Memo. 2007-240, 2007 WL 2389081, at *3.” Order, at p. 2.

Next, the Boechler gambit, which has become routine. Bill & Jessie are Golsenized to 5 Cir, whose last encounter with the Section 6213(a) 90-day petition cutoff was Rochelle back in 2002. But Jim Rochelle was only half as late as Bill & Jessie (143 days compared to 286), and Judge Vazquez’s excellent opinion carried the day. See my blogpost “Excellent and Concurred,” 6/5/26. Judge C-Doug Pugh: “We are bound by Rochelle unless and until the Fifth Circuit revisits the issue, and it is not our place to overturn its holding.” Order, at p. 3. And that 5 Cir might reconsider Rochelle, Bill & Jessie cite no active appeal, so there is no reason to stall this case.

But I must give Bill’s & Jessie’s trusty attorneys, who state online that they are “Texas grown, nationally known,” a Taishoff “Good Try, Third Class.” Congress might amend Section 6213(a), so the case should wait until they do. Judge C-Dough Pugh is almost douce with her reply: “The possibility that Congress may (or may not) amend section 6213 does not warrant an indefinite delay in this case.” Order, at p. 4.

Taishoff says, chaps, you’d do better to play the Joshua 10:12-13 gambit than to expect Congress…but this is a non-political blog.

It’s an old pro’s mantra: “Whatever arguments you got, raise ’em at the CDP; use ’em or lose ’em.” Sidney L. Matthew, P.A., Docket No. 416-23L, filed 7/30/26, furnishes yet another example.

First, even a sole-shareholder corporation is a legal entity separate from sole shareholder. Sid mixes them up, but Judge Kashi (“My or the High”) Way keeps the distinction clear. Shareholder Sid claims he transferred his principal residence, so its worth shouldn’t have been included in the worth of the PA’s receivable for the loan the PA made to Sid. But he does that post-petition after asserting at the CDP that he tried to get a mortgage to pay the taxes at issue. Judge Way is perplexed in a footnote.

“Petitioner provided documentation to Appeals showing that Mr. Matthew had attempted to secure a loan on his personal residence. But petitioner is now asserting that Mr. Matthew no longer owned that residence at the time of the CDP hearing. These directly inconsistent statements are hard to reconcile.” Order, at p. 4, footnote 3.

Except.

Taishoff says the two statements are inconsistent only if chronology is compressed. Maybe Sid should have said at the CDP that, after failing to secure a mortgage and being financially pressed, he thereafter sold at a ruinous loss just to pay for rent and groceries. If such were the case (and it’s not inconceivable in a depressed market; Sid petitioned from FL (Order, at p. 1), a locale notorious for real estate booms and busts), it might tip the scales.

Except.

First, it has to be true. And provably true. Next, it must be raised at the CDP. Tax Court CDP review is strictly record-rule. As I’ve said many times before, record-rule is the contrapositive of the old Yellow Pages slogan. The old Yellow Pages claimed “If it’s out there, it’s in here.” At a Tax Court CDP, if it’s not in there, it’s not out there.

I have often written of Mr. Jeane’s flailing datestampers and hardlaboring clerks, taking arms against a sea of paper and electrons, mostly pro se generated and fatally flawed. I sympathize; I really do. Those who understand the limitations of “the small court” are few. Most petitioners fall for the Congressional promise of a “play before you pay” free-kick forum, which in practice has more restrictions than the Strait of Hormuz, and blame you.

But Mr. Jeane, save some fellow-feeling for the poor blogger. You unload a couple massive opinions (hi, Judge Holmes) on a single day at 3 p.m. Eastern. The poor blogger has to juggle and jive to plow through them and put up blogposts with enough detail, yet not so long as to look like a law review article that a busy practitioner hasn’t time to read. And I must do this at speed so my European and African readers haven’t already gone to bed by the time I post. Then the next day there’s nothing but mine-run orders: “pay the sixty Georges,” “amend to state something with which we can deal,” “straighten out the caption or document title” (nobody gets these right), and boilerplate jurisdictional essays like Richard James Steeno & Kimberly Ann Steeno, Docket No. 15316-25S, filed 7/29/26.

I know the parties are hanging breathless on the fate of their motion, order, or decision. But would holding off a day, or stringing out a bunch Sum. Op.s, Memos., or even a full-dress T. C., even one day, so I have something of substance to blog the day after the deluge, spoil some vast eternal plan?

Walter D. Prezioso and Kimberly J. Prezioso, T. C. Memo. 2026-63, filed 7/28/26, provide an illustration of a definition of the term “partnership” I’ve long favored; “a partnership is where two or more people engage in business activities to steal from one another.” It’s Walt’s story; he succeeds to operating control of the business Dad and partner built, turns it around as it’s about to crater, and compensates himself by keeping two sets of books, one to allegedly defraud Dad’s partner and the other to defraud IRS, both of which contained bogus payees and omitted money Walt took. 

Walt claims he needed to disguise his payments for his own expenses to stave off disgruntled employees. “Walter maintained that he disguised his personal expenses because there was ‘a lot of talk, a lot of envy’ among GSP employees, and that, upon seeing GSP’s payment of his personal expenses, they might request a raise.” T. C. Memo. 2026-63, at p. 10.

Judge Cary Douglas (“C-Doug”) Pugh won’t wear it. “Walter asks us to accept that he laboriously recoded hundreds of expenses, often multiple times, to avoid discovery by a few employees. This explanation falls apart with the slightest scrutiny. Walter assigned his personal expenses to a different payee even when [business] incurred business expenses in the same month from the same vendor. When asked how a [business] employee could identify certain expenses as personal when the payee for his personal expenses also was an existing vendor for [business], Walter only offered that he tried to keep his practices consistent.” Ibid., at pp. 10-11.

Taishoff says, I’ve never seen a non-publicly-owned business that let any random employee look at the books. 

Besides his partner launching a shareholders’ derivative against Walt when partner’s son was turned down for a job and managed to get a sneak-peek at the books, Walt pulled the ultimate head-shaker.

“The record demonstrates that the expense arrangement represented more than a genuine attempt at tax minimization. On a credit application for a Ferrari lease, Walter understood his actual income to be far greater than that reported to the IRS; he listed both his ‘Verifiable’ income of $52,950, and his ‘Actual’ income of $275,000.” Ibid., at p. 14.

Section 6663 75% fraud chop for Walt.

Judge Rose E. (“Cracklin'”) Jenkins gives the Separate Returns Limitation Year (SRLY) rules, with their lonely parent exception and their application to an F reorg where a Section 382 loss corporation is brought onboard and then Section 332-liquidated into a directly wholly-owned subsidiary S Corp of a later-unelected consolidated group a thorough workout in HBM Holdings Company, 167 T. C. 6, filed 7/27/26.

The consols want to take the losses of the loser into the consolidated returns for the three (count ’em, three) years at issue. IRS says the SRLY rules keep the losses with the loser.

Here’s the plan.  “Effective July 1, 2018, HBM ceased to be an S corporation pursuant to a revocation of its S corporation election filed pursuant to section 1362(d)(1)(A). Accordingly, the QSSS status of four of its subsidiaries—MLCO, Aerofil Technologies (Aerofil), FLCO, Inc. (FLCO), and Schafer Industries, Inc. (Schafer)[Founding Members]—ceased, effective July 1, 2018. In addition, Delavau [loser] filed an entity classification election pursuant to Treasury Regulation § 301.7701-3(c) to be disregarded as separate from HBM, effective July 1, 2018. Under Treasury Regulation § 301.7701-3(g)(1)(iii), this election caused Delavau to be deemed to liquidate into HBM at the close of business on June 30, 2018. The parties agree that sections 332 and 381 apply with respect to this deemed liquidation. Under section 381, HBM succeeded to, and was required to take into account, Delavau’s NOL carryovers, which amounted to $108 million at the time of liquidation. The parties agree that the deemed liquidation was not a reverse acquisition within the meaning of Treasury Regulation § 1.1502-1(f)(3).” 167 T. C. 6, at p. 3.

To keep a consolidated group from roping in a loser and using those NOLs to write off their own income, the NOLs are available only for years the loser is in the group; the old stuff are SRLYs (Separate Return Limitation Years). There can be subgroups, some but not all of the members of the consol, and they can use the NOLs. “However, under the ‘lonely parent rule,’ an SRY [Separate Return Year]  of ‘the corporation which is the common parent for the consolidated return year to which the tax attribute is to be carried’ is not an SRLY. There are two exceptions to the lonely parent rule, which respondent acknowledges are not relevant here. The lonely parent rule allows the common parent to apply NOL carrybacks or carryovers from its SRYs without regard to the SRLY NOL limitation.” 167 T. C. 6, at p. 5. (Citation omitted).

One exception, irrelevant here, is detailed at 167 T. C. 6, at p. 5, footnote 4, but I’ll spare you. 

Clear? Thought not. But Judge Jenkins knocks out the NOL carryforward anyway. Delavau is a predecessor of HBM, as HBM says, but that doesn’t help them.

” The Delavau NOLs all arose in tax years of Delavau for which it filed a separate return, i.e., its SRYs. See Treas. Reg. § 1.1502-1(e). Because it is a predecessor of HBM, its SRYs constitute SRLYs under the general SRLY definition. See id. para. (f)(1). None of the three SRLY exceptions applies with respect to the Delavau SRYs because Delavau is a predecessor that was never a member of the group. See id. subpara. (2). Accordingly, the Delavau SRYs are SRLYs.” 167 T. C. 6, at p. 10. (Footnote omitted).

And subgrouping doesn’t help either.

“…petitioner misunderstands the purpose of the SRLY subgroup rules. Their purpose is not to aggregate income from ‘related’ entities in general; it is to preserve aggregation for continuously affiliated corporations. The SRLY subgroup rules provide a narrow exception to the SRLY limitation designed to preserve ‘single entity’ treatment for members that move together from one affiliated group to another. See Consolidated Returns—Limitations on the Use of Certain Losses, Deductions and Credits, 56 Fed. Reg. 4228, 4229–30 (Feb. 4, 1991). If not for the SRLY subgroup rules, an NOL carryover carried from the former group by one member would no longer be permitted to offset the income of the other member, even though the two members had been continuously affiliated with each other. Id. at 4229. However, continuous affiliation is a key requirement.” 167 T. C. 6, at p. 12.

So HBM can’t hang on to Delavau’s losses, because HBM had no separate-entity income during years at issue and the others in this conglomerate weren’t there with Delavau.

“…,a consolidated group is generally permitted CNOL [Consolidated NOL] deductions on the basis of NOL carryovers of a member (including potentially the member’s predecessors and successors) arising in an SRLY only to the extent of the group’s consolidated taxable income attributable to that member. See Treas. Reg. § 1.1502-21(a)(1), (c)(1)(i), (f)(1). Because HBM had no taxable income on a separate entity basis for its short tax year ending December 31, 2018, through the 2021 tax year, its NOL carryovers arising in an SRLY cannot be taken into account in the HBM group’s CNOL deductions for the years at issue. And because the Founding Members  do not constitute an SRLY subgroup, their taxable income cannot be taken into account in determining the amount of NOL carryovers included in the CNOL deduction. Accordingly, because the Delavau NOL carryovers arose in an SRLY, they cannot be included in the HBM group’s CNOL deductions for the years at issue. Therefore, the CNOL deductions claimed by the HBM group for the years at issue are not allowed.” 167 T. C. 6, at pp. 12-13.

As Mark Twain remarked “Well you’ve got to admire men that deal in ideas of that size and can tote them around without crutches.” Judge Rose E. (“Cracklin'”) Jenkins is the equal of all of them.

The old Social Security double taxation argument (“my wages were taxed with my FICA contributions, and now I’m taxed on my SS distribution”) gets shot down yet again in Charmaine A. Gray, T. C. Memo. 2026-61, filed 7/27/26. In a footnote, yet. 

Judge Jeffrey S. (“Schwer”) Arbeit: “Petitioner’s argument that the taxation of SS benefits constitutes “double taxation” because she previously paid Social Security taxes on her wages is unavailing. Congress expressly provided in section 86 that SS benefits may be subject to incometax when a taxpayer’s income exceeds certain thresholds. Moreover, petitioner’s assertion that taxing SS benefits is unconstitutional has long been rejected by numerous courts. See, e.g., McAdams v. Commissioner, 118 T.C. 373, 379 (2002) (“We have repeatedly held that section 86 does not suffer any constitutional infirmities.”); Clark v. Commissioner, T.C. Memo. 1998-280, slip op. at 5, aff’d, 187 F.3d 641 (8th Cir. 1999) (unpublished table decision); Roberts v. Commissioner, T.C. Memo. 1998-172, slip op. at 6, aff’d, 182 F.3d 927 (9th Cir. 1999) (unpublished table decision); see also Kelley, T.C. Memo. 2021-2, at *8–10 (rejecting constitutional challenge to section 86(c) and concluding that Congress had a rational basis for filing status distinction, even if the resulting tax treatment may appear inequitable).” T. C. Memo. 2026-61, at p. 4, footnote 4. For the backstory on Kelley, see my blogpost “Constitutionally Speaking,” 1/11/21.

And Judge Arbeit obliges with an example of how to compute taxable Social Security benefits at pp. 4-5, much better than IRS’ infernal Social Security Benefits  Worksheet – Lines 6a and 6b. See T. C. Memo. 2026-61, at pp. 4-5.

Lawrence Hubbard, T. C. Memo. 2026-62, filed 7/27/26, is a versatile fellow, “sometimes self-employed working as a barber, a musician, and a chef.” T. C. Memo. 2026-62, at p. 2. But his claimed business income and deductions lack substantiation, he fails to report unemployment compensation (though he claims to be victim of a fraud, he notified his bank but did not show he notified CA EDD of any fraud. STJ Peter (“HB”) Panuthos recognizes the difficulty of a taxpayer proving s/he did not receive income, but Hubbard didn’t show what happened to his fraud claim. “Information as to the outcome of the claim would have been useful for the Court to make a finding based on conclusions reached by the payor of the unemployment benefit. Petitioner did not provide any other relevant documentation for the year in issue and, instead, provided evidence of unemployment compensation received for a different tax year. Taken on their own, petitioner’s assertions substantiate only that he made a fraud claim.” T. C. Memo. 2026-62, at p. 5.

A new Tax Court look is Hubbard’s claim for refundable credits per Families First Coronavirus Response Act (FFRCA) and American Rescue Plan Act (ARPA), for leave taken during the COVID lockdowns. STJ Panuthos goes through the substantiation requirements exhaustively, T. C. Memo. 2026-62, at pp. 6-8.

Leaving aside Hubbard’s self-employment, want of substantiation denies the credits. “Even were we to consider that petitioner was engaged in a trade or business for the year in issue, petitioner failed to substantiate eligibility for these credits. Petitioner did not include with his tax return Form 7202 to support his claimed refundable COVID–19-related sick and family leave credits. While petitioner testified that he was sick at some point during the year in issue, he failed to specify the dates of his sickness. Further, he failed to provide any documentation related to the ‘need for leave’ criteria and his inability to work. Therefore, petitioner is not entitled to any COVID–19-related sick and family leave credits for the year in issue. ” T. C. Memo. 2026=62, at p. 8.

IRS concedes the Section 6676 erroneous claim for refund or credit chop, T. C. Memo. 2026-62, at p. 1, footnote 2.

It’s been a long time since I beat my tin drum for lawyers to be required to pass the Tax Court admission exam, s/a/k/a The Slaughter of the Innocents. And now I’m a retired lawyer, it can well be objected that it’s none of my business. But it is the nature of the journalist that everything is our business. So I’m using  Eric Deters & Mary Deters, Docket No. 19882-24, filed 7/27/26, to illustrate my pioint yet again, although petitioners are not represented by counsel.

According to Judge Eliabeth A. (“Tex”) Copeland, “(T)he record does not clearly state Eric Deters’s relationship with Deters Law, but he was previously a practicing attorney, and the law firm may be associated with that prior occupation.” Order, at p. 3, footnote 3. Hence Eric could formerly, had he so chosen, been automatically admitted to practice in US Tax Court. 

Judge Tex Copeland’s Order is fact-bound and offers no new insights. It does thoroughly canvass Tax Court precedent on “reasonable possibility of recovery” as a criterion for fixing the date of a theft loss, an essential of establishing the deduction. And her opinion details almost every nail in the Section 6751(b) Boss Hoss discovery coffin (which by now is more nail than coffin). 

Moreover, Eric settles his theft lawsuit with a Joint Stipulation of Dismissal with Prejudice, under which he receives a very substantial payout, just four (count ’em, four) months before he files the 1040MFJ for the previous year, in which he claims the loss.

AFAIK, this is Eric’s sole appearance in Tax Court, he represented himself, and no longer practices law. So this is not about Eric. It’s about why Tax Court practice isn’t like the litigation we’re all accustomed to. It’s about why a level of competence other than our general level is needed, and should be demonstrated, to protect the public. 

The English Lord Chief Justice Campbell wrote in 1850: “There is nothing so dangerous as for one not of the craft to tamper with our freemasonry.” 

Ferroglobe USA, Inc., and Subsidiaries, Docket No.6259-25, filed 7/24/26, is another Section 41 increased research activities credit case. Here IRS applies the standard counterattack, the Section 41(b)(2)(A)(i) “wages paid or incurred to an employee for qualified services performed by such employee.” IRS says “show which employee, what services, and how much”; the magic phrase is “how much for qualified services.”

The Ferroglobers, like all or almost all employers, never had employees keep timesheets on what they were doing specifically, hence only had gross wages. Hence they replied to IRS’ interrogs (after sidestepping Branerton) with “no timesheets.” Judge Ingenuity Buch holds that to be a Rule 71(b) “not reasonably ascertainable” response. So the Ferroglobers can’t introduce post event, ballpark estimates of who did what and were paid how much for what on the trial.

“According to petitioner, its own records would not allow it to dissect the wages as requested. Therefore, if the Court would prohibit it from introducing at trial any evidence showing such a dissection, it would not be a burden on petitioner. Thus, we will grant the Commissioner’s Motion in that, if petitioner attempts to introduce at trial information showing that this response was incomplete or evasive, we will exclude such information. Petitioner should have no quarrel with this because according to petitioner, it did not maintain records from which to ascertain this information.” Order, at p. 3.

But the Ferroglobers did have some employee wage records, by job title.

“…petitioner’s own response belies, at least in part, its contention that it ‘did not maintain timekeeping records showing exactly which employee worked on each project nor the amount of time those employees spent performing services on each project. Petitioner states that it maintained records by job title. Petitioner further states that some job titles only had one employee. But nowhere in the information provided to the Court did petitioner identify those job titles for which there was only one employee. Providing this information would be at least partially responsive to the Commissioner’s interrogatory. We will order petitioner to supplement its response.” Order, at p. 3.

Taishoff says, is IRS sure it wants that information? BoP is on the Ferroglobers. Anything that proves amount of wages paid for qualified work only substantiates the amount of the credit, or at least opens a Cohan door. Isn’t it better to let the denial of substantiation stand?

Maybe IRS should call time out.

Well, practitioner, you’ve come to the right place, because Judge Travis A. (“Tag”) Greaves can give you one prêt à porter if you intone or inscribe the magic language indited by Amy Sanders, Esq., Senior Vice President, General Counsel, and Secretary of Avient Corporation and Subsidiaries, Docket No. 2890-25, filed 7/23/26.

And to save y’all the trouble of looking it up and typing, here it is to cut-and-paste at no extra charge.

“Ms. Sanders avers that petitioner maintains stringent protections for confidential information and has undertaken significant efforts to prevent the disclosure of competitive information, trade secrets, and proprietary information. The declaration further states that records relating to the activities of petitioner’s Board of Directors are strictly confidential and are subject to multiple layers of safeguards to prevent disclosure. Finally, the declaration explains that disclosure of petitioner’s board materials, strategic business information, merger and acquisition analyses, financial and market analyses, trade secrets, third-party agreements, and confidential human resources data would provide competitors with a competitive advantage and would cause irreparable harm to petitioner.” Order, at p. 1. 

Judge Tag Greaves, ever mindful of his Senate confirmation promise to “make every effort to balance the need to help these taxpayers understand the court’s rules and procedures with my duty to remain independent and impartial,” gives Amy and the Avients the green light.

“After careful review of the declaration submitted in support of petitioner’s motion, we conclude that petitioner has established good cause for protecting the categories of information identified in the proposed discovery protective order. Petitioner has established through competent declaration testimony that disclosure of its proprietary information could result in competitive and economic harm.” Order, at p. 2. Good job, Amy.

There follows seven (count ’em, seven) pages of a total Rule 103 blitz.

Hallemeier. It was a great thing to be a man.  There was something immense about it. R.U.R., Act Three

I got an email this morning from a former colleague, an attorney at one of the big-league tax controversy litigation firms. He announced the start of an online subscription service, to which he offered me access at no charge. This service electronically scans each day’s Tax Court grist, separating wheat from cliché, and delivering a digest thereof.

All I need do is distill same, and the day’s blogpost(s) are done, untouched by human hands, much less by human mind.

I declined. “As for subscription services, I am retired and don’t mind looking through orders and opinions. And writing my own commentary. I am sure AI will render me, and you, obsolete and redundant, but while I can, I will continue my own way. Thanks anyway.”

See supra as doubtless data centers say.