Morgan Run Partners, LLC, Overflow Marketing, LLC, Tax Matters Partner, T. C. Memo. 2026-112, filed 11/3/26, having had their approach clearance canceled by Judge Albert G. (“Scholar Al”) Lauber in my blogpost “More Air Than Port,” 4/1/26, comes around to try again.

Airport extension being off the table, and the Black ’08 having wiped out the proposed single family-mansion development for which the grantors had secured zoning approval, the property was sold to SCE dodgefloggers, who ginned up a set of numbers (see T. C. Memo. 2026-112, at p. 12, footnote 4) based on the collapsed single-family-mansion HBU, claiming a six-for-one writeoff.

Then they decided a distribution center would be better, so at trial they shifted strategy and claimed the distribution center was HBU. Even though the shift came six (count ’em, six) weeks before trial, Judge Scholar Al let the Morgan Runners try it.

IRS’ experts focused on single family because they prepared their reports pre-shift. Judge Lauber finds their reports and testimony on the money. The reason the prior developers cratered was the poor reputation of the local schools, which discouraged families.

All petitioners’ experts had checkered reputations in Tax Court, which Judge Scholar Al enumerates. The distribution center fails for inadequate local infrastructure. The enhanced single-family sales prices crater for the same reason as the prior developers’ efforts.

“The value that Morgan Run claimed for the easement on its … tax return was $26 million. We have determined that the FMV of the easement on the valuation date was $1,165,000. The claimed value thus exceeded the correct value by more than 2,000%. The valuation misstatement was thus ‘gross.’” T. C. Memo. 2p026-112, at p. 43. And there is no reasonable cause excuse for a gross valuation misstatement.

Taishoff says this case proves that the HBU of this property is as a Dixieland Boondockery tax dodge.

Though I very much doubt they read this my blog, I do hope Neuse River Council of Governments, Docket No. 8194-25L, filed 11/3/26, followed my advice in my blogpost “Wagner Boechlerized,” 1/7/26.

Back then I counseled petitioners “if seeking withdrawal without prejudice in a CDP, take a good hard look before relying on Dunn.”

The Neuse Councilors do seek to withdraw, claiming that “they reached an agreement with the Internal Revenue Service –  Internal Revenue Service Independent Office of Appeals.” Order, at p. 1.

And IRS certainly agrees.

Now I don’t want to play the part of the 2% indirect partner in a Dixieland Boondockery who tries to blow up a settlement with an after-the-whistle intervention attempt.

But I do hope the Neuse Councilors did take that good hard look. And if they did and are still happy, why not move for Entry of Stipulated Decision.

Lance Stevens, T. C. Sum. Op. 2026-10, filed 11/2/26, “…focused on asserting, without elaboration, that his rights were violated, that he was never notified that he needed to provide documentation about his expenses, and that he never received any letters or notices from the IRS asking for substantiating documentation. Although the Court understands petitioner’s frustration with the process involved in the audit for his [year at issue] federal income tax return and his case before the Court, he did not meet his burden of proof with respect to his claimed deductions under either rule; therefore, the Court finds for respondent on this issue.” T. C. Sum. Op. 2026-10, at p. 8.

Worse, by establishing the gross receipts of his business were greater than what IRS claimed in the SND, Mr. Stevens gave IRS a free kick to increase the deficiency.

STJ Diana L. (“Sidewalks of New York”) Leyden doesn’t mention whether  anyone sought the assistance of a calendar call commando, but this seems like a perfect opportunity for an intervention.

Glass Warehouse, Inc., T. C. Memo. 2026-111, filed 11/2/26, wanted to deduct the payments it made to its subcontractors, who just happened to be its sole shareholders (who were also on the payroll as employees).

True, the subcontractors managed every aspect of the business, except groundskeeping and maintenance, T. C. Memo. 2026-111, at p. 6. And the shareholder-subcontractors did report their subcontractor income on their individual returns and paid employment taxes thereon. Judge Cathy (“NCY = No Cognomen Yet”) Fung observes that “(H)ow a shareholder reports an item on a personal tax return does not control how the corporation reports that same item on its own tax return because a corporation is generally recognized as a tax entity separate from its shareholders.” T. C. Memo. 2026-111, at p. 7.

Glass Warehouse has another problem. ” Petitioner presented no testimony or other evidence regarding the nature, contractual agreement, amount, or provider of the purported subcontractor services. It failed to produce any business records, payroll records, contracts, invoices, Forms 1099, or other reliable documents in support of its position.” T. C. Memo. 2026-111, at p. 7.

Glass Warehouse’s trusty attorneys try the reclassification move, to no avail.

“Petitioner’s counsel argued that the reporting of subcontractor expenses was a case of worker misclassification and that section 3509 provides a remedy such that there is no loss to the Treasury for an employer’s failure to pay withholding taxes. Section 3509 determines an employer’s liability for its failure to withhold employment taxes ‘by reason of treating [an] employee as not being an employee.’ When that happens, the employer is liable for an increased percentage of the withholding taxes and Social Security taxes required to be deducted or imposed. I.R.C. § 3509(a). Section 3509 does not turn amounts that would otherwise not be subject to withholding tax, such as contractor expenses, into deductible Form W–2 wages just because the Code provides a mechanism to hold an employer liable in an actual worker misclassification situation.” T. C. Memo. 2026-111, at p. 7, footnote 8.

And hiring a separate CPA firm to do one’s taxes is insufficient by itself to constitute good faith reliance. No evidence what the CPAs were told.

IRS was unhappy with the nonjurisdictionality of the 90-day cutoff in BBA, which I more particularly bounded and described in my blogpost “Bring That Discipline,” 8/5/26. So they chose to send three (count ’em, three) attorneys to refry the beans in Kings Road Property, LLC, Kings Road Manager, LLC, Partnership Representative, 167 T. C. 14, filed 11/2/26.

The Kings Roadsters need ten (count ’em, ten) trusty attorneys, but Judge Ronald L. (“Ingenuity”) Buch needs only five (count ’em five) pages to send off the Kings Roadsters.

“In recent cases, we have been called upon to bring some discipline to our jurisdictional rulings in partnership cases. In North Wall Holdings, LLC v. Commissioner, 165 T.C. 143, 168 (2025), we held that the TEFRA petition deadline was jurisdictional. We went one step further and held that, even if not jurisdictional, the TEFRA petition deadline was not subject to equitable tolling. Id. In contrast, in Big Apple Tompkins Realty LLC v. Commissioner, No. 19040-23, 167 T.C. (Aug. 5, 2026), we held that the BBA petition deadline was not jurisdictional. We left open the question of whether the BBA petition deadline could be subject to equitable tolling.

“That brings us to this case and the pending Motion. In Kings Road Property, LLC v. Commissioner, No. 10272-25, 167 T.C. (Sep. 21, 2026), we held that the BBA petition deadline can be subject to equitable tolling.” 167 T. C. 14, at p. 3.

For North Wall, see my blogpost “Boechler, Meet TEFRA,” 10/21/25; for Kings Road, see my blogpost “Brought That Discipline,” 9/21/26.

Bottom lione: IRS wants to advance new theories why the BBA cutoff was jurisdictional, but Judge Ingenuity Buch needs no ingenuity to squelch this rehash.

” In North Wall, we held that the TEFRA petition deadline was jurisdictional, and even if not jurisdictional, not subject to equitable tolling. In Big Apple, we held that the BBA petition deadline is not jurisdictional, and we reconciled our conclusion with North Wall. And in this case, we held that the BBA petition deadline is subject to equitable tolling, and we again reconciled our conclusion with North Wall. We have addressed and rejected the Commissioner’s arguments, including those belatedly raised. Accordingly, we will deny the Commissioner’s Motion for Reconsideration.” 167 T. C. 14, at p. 5.

I must respectfully express sympathy with Judge Rose E. (“Cracklin'”) Jenkins, as she tries to unscramble the documentary frittata concocted by the wily rep of Richard A. Davanzo, Docket No. 7248-24L, filed 10/30/26. And thanks, Judge, for not calling the rep a “POA.”

This CDP comes from a rejected IA and is the second in a series of Davanzo cases, on the first of which Judge Jenkins casts judicial notice with a lengthy explanation of the bases therefor.

The administrative record, the lodestone and beacon star of all CDPs (except maybe in 8 Cir, although this is a Golsenized 3 Cir case; see Order, at p. 2, footnote 2), must allow Judge Jenkins to sort out what Appeals did (or didn’t), so after a ten (count ’em, ten) page trek through a paper-and-electron barrage, interspersed with referrals to ARI (Appeals Referral Investigation) and Collection interjections, a NOD, a remand, and a supplemental NOD, it turns out (spoiler alert) that Judge Jenkins can’t figure out whether Appeals leaned too heavily on what Collections told them.

“The Administrative Record in this case suggests some confusing handling by the IRS of petitioner’s many unpaid tax liabilities. Petitioner compounded the problems by consistently failing to timely provide complete current financial information and, it seems, not communicating particularly effectively with the appropriate arm of the IRS at the appropriate juncture. And if this Court could determine that Appeals had reasonably fulfilled its obligations in evaluating petitioner’s IA request, petitioner’s efforts to browbeat IRS personnel and belabor his case would have been in vain. However, given the significant holes and inconsistencies in the Administrative Record, this Court cannot, at this juncture, conclude that Appeals did not abuse its discretion.” Order, at p. 16.

“Browbeat and belabor,” Judge? When does effective advocacy cross the line?

Anyway, back again to Appeals, with a heartfelt admonition from Judge Jenkins, who must feel that she has been browbeaten and belabored.

“Accordingly, this Court will remand this case for yet another supplemental CDP hearing, in which this Court can only hope both petitioner and Appeals will endeavor to ameliorate their past failures.” Order, at pp. 16-17.

The record ruler, which is supposed to “expedite litigation and avoid unnecessary and expensive trials,” can turn out to be as bad a tyrant as the one it supposedly supplants.

Judge David Gustafson has given me the sad news that Arthur M. Bialer, T. C. Memo. 2026-110, filed 10/29/26, has been turned down for his whistleblower award because another blower beat him to IRS and the Senate Permanent Subcommittee on Investigations.

I got seven (count ’em, seven) blogposts out of Arthur’s jousts with the Ogden Sunseteers. Even though Judge Gustafson has to remind Arthur that the OS decide who gets an award and how much, Arthur wants to blame the courts for the shortcomings of Section 7623. He claims the grunts at LB&I made the determination, even though the instruction sheet from the OS says they make the call.

Still, Arthur was in the great tradition of my former client Mike Lissack, Suzanne Jean McCrory, that hardy perennial, and the late, great Fighting Joe Insinga, happy warriors who threw themselves headlong against the iron gates of Ogden, even to the Chief Whistler.

Art’s term is over, I fear.

Thus my native-born Texan descendants describe the activity that o’ercrowed the “pleasure, recreation, and other nonprofitable purposes” that gave Section 501(c)(7) exemption to Consolidated Sportsmen of Lycoming County, T. C. Memo. 2026-109, filed 10/2/26.

The Consols own 230 acres of meadowland and forests in the county aforesaid, whereon “members meet and conduct the club’s activities on this property. Facilities for member activities include rifle ranges, shotgun areas for trap and skeet shooting, ball fields, camping sites, picnic areas, and playground areas for children. Activities also include hunting, raising game, fishing, canoeing, kayaking, and swimming. Members also use the club for Civil Air Patrol training and participate in free safety training for police and environmental protection groups.” T. C. Memo. 2026-109, at pp. 3-4. Everybody agrees the members spend the great majority of their time leading that sportin’ life.

Except.

That meadowland and forest sit atop the Marcellus Shale. This is a natural gas tank that covers parts of NY, PA, and a couple other States (hi, Judge Holmes). So the Consols entered into an oil and gas lease, which over the seven (count ’em, seven) years at issue yielded better than $300K per annum on average.

Judge David Gustafson takes the practical approach.

“In these years CSLC’s members spent virtually zero hours on mineral activities, and CSLC’s officers spent de minimis hours. But minerals do not extract themselves, and in the absence of evidence about the amount of time spent by [lessee’s] personnel (and in view of CSLC’s burden of proof), we must assume that [lessee’s] personnel spent substantial amounts of time each year on the mineral extraction activity.” T. C. Memo. 2026-109, at p. 6.

Exemption revocations are record-rulers only if the parties agree, and here they do, so Rule 217(a) sends the Consols to a Rule 121 stipulated facts review. Going back to 1916 for the ancestor of the social club exemption now embodied in Section 501(c)(7), Judge Gustafson examines the key issue.

“Not at issue in this case is the amount of CSLC’s tax liability on the mineral royalties, or whether those royalties are taxed as UBTI (either passive investment income or business income) if CSLC qualifies as an otherwise tax-exempt social club or instead are taxed as regular income if CSLC reverts to taxable status. We therefore need not resolve here an amount of tax liability. For present purposes, it is sufficient to observe that, one way or another, CSLC owes tax on its mineral royalties. The question pending in this case is whether those royalties affect CSLC’s entitlement to tax-exempt status.” T. C. Memo. 2026-109, at p. 11.

The 1976 amendment to the IRC that removed exclusivity of exempt activities and substituted “substantially all” didn’t define “substantially all” and IRS never issued regs; they used a 35% outside unrelated income allowance as a guideline, like the infamous Primoli Rule of façade easements, with no basis in law or reg.

First, the statute considers what the club does, not the members. Restricting the test, whatever the percentage of whatever is tested, is too restrictive. The club is the exempt entity.

Second, using an unrelated party to perform activities generating money for the club is an activity of the club. Hiring an outside fundraiser, for example, has been held to be an activity of the club.

Third, BoP is on petitioner even in a record-ruler. If hours are the test, the Consols never showed how many hours the lessee put in on the drillsite as against how many hours the Consols put in on the sportin’ life. And if dollars are the test, the Consols never showed how much they collected from membership as against how much they got from th’ awl bidniz.

“To argue that ‘substantially all’ its activities were recreation, CSLC made a showing of its members’ recreation hours in a virtual vacuum, with no comparison to mineral extraction hours, and with the insistence that the Court ignore the mineral extraction dollars.” T. C. Memo. 2026-109, at p. 16.

As for the 35% free kick, Judge Gustafson needn’t go there, because more than half the Consols’ take comes from th’ awl bidniz. Anyway, the legislative history indicates that a club might be exempt even above the 35% barrier given facts and circumstances. But all the Consols offer on that point is the harm loss of exemption would do. Not enough.

But IRS generously concedes all but the last year at issue.

Judge Alina I. (“AIM”) Marshall rebuffs IFRS’ belated attempt to shift from straight individual taxation to the anfractuosities of Subpart F in Richard M. Rund, Docket No. 869-22, filed 10/28/26. As Richard’s trusty attorneys point out, “…this case was investigated and litigated for years as a bank deposit and foreign account reconstruction case and that respondent’s proposed Subpart F allegations introduce materially different factual issues involving foreign corporations and manufacturing activities occurring approximately two decades ago.” Order, at p.1.

True, Richard’s bookkeeping was near to nonexistent. But Richard claims his cancer treatment has debilitated him, his longtime CPA died and workpapers cannot be found, and the years at issue go back more than twenty (count ’em, twenty) years.

Even if IRS raised the Subpart F (foreign corporations) issues two years ago, they didn’t come up with numbers for another year.

IRS now want to amend its answer for a second time, after nearly five (count ’em, five) years since the original SNDs were issued. And there’s $30 million on the table now, five trial continuances already granted, and trial less than three (count ’em, three) weeks away.

And a general throwaway reference to Subpart F in the original SNDs was insufficient to alert Richard’s trusty attorneys to the rabbithole at their feet.

Trusty attorney boasts over thirty (count ’em, thirty) years of experience navigating unique challenges. Good job.

Judge Rose E. (“Cracklin'”) Jenkins directs Angela Stern to file a “protective” Form 8857 Request for Innocent Spouse Relief, with all documentation supporting her claim for relief under I.R.C. § 6015. For the rest, Michael Stern & Angela Stern, Docket No. 11100-23, filed 10/17/2, want either summary J and a one-day trial, or not and a two-day trial. Oh yes, and dismiss Angela for want of jurisdiction, and while you’re at it, Judge, reconsider and cabin the caselaw. There’s more, but that will do for these purposes.

Such a procedural smorgasbord could only have been prepared by The Great Chieftain of the Jersey Boys. Judge Jenkins kicks the case off the November trial calendar and tells the parties to stipulate whatever they can and work out a scheduling order.

But the “protective” filing and concomitant evidentiary proffer raise the conflict question. Can the present counsel lineup remain? Judge Jenkins orders the “protective” filing after a phonathon, so clearly this wasn’t sought at the outset.

The docket shows the Great Chieftain only made a limited appearance. Does conflict of interest arise from the protective filing, as clearly the petitioners’ interests do not mesh? And how far does the conflict extend? Are separate counsel required henceforward for everything?