Yeah, I know Ch J Patrick J. (“Scholar Pat”) Urda has to send off Parliament House of Augusta, Inc,, Docket No. 6410-26S, filed 10/2/26, notwithstanding its pathetic plea that IRS has thoroughly scrambled its Section 941s and garnished its account because IRS can’t read or add. And Letter 4384C isn’t a NOD or SND, so pore l’il ol’ Tax Court, trammeled in Congressional swaddling clothes and leading strings, can only help in a matter bounded and described in the boilerplate laundry list in the hereinabove aforesaid order set forth, as my expensive unretired colleagues would say.

But please permit this beaten-up, beaten-down, battered single-shingle oldtimer the dubious luxury of second-guessxing the august Chief Judge of the equally august Unitd States Tax Court.

Instead of just suggesting the Parliament work with IRS, why not suggest a wee word with Erin M. (“Erinys”) Collins or one of her trusty minions at the Taxpayer Advocate Service? 

Even if the path less traveled guides not to salvation, it might afford Parliament a glimmer of hope.

William M. Scott, T. C. Memo. 2026-104, filed 10/1/26, claims a Section 7623(b) blow award because he tipped off IRS that a private prison company’s tax-exempt bonds were bogus. IRS checked out the bonds, concluded they weren’t properly tax-exempt, and settled.

Company paid nothing but called in the bonds and issued replacements that were taxable. IRS agreed not to look for back taxes for the eleven (count ’em, eleven) years the dubious bonds had paid out. The Ogden Sunseteers bounced William’s claim, saying the collected nothing. William says IRS will collect a bundle going forward, wants discovery, and claims Ogden’s bounce constitutes a new issue shifting BoP.

Nope, says Judge Benjamin A. (“Trey”) Guider, III, only much more elegantly.

The “new” explanation only fleshes out the expressed rationale. The bondholders got the tax break; the Target was the prison company, which got none. Collecting from the Bondholders going forward would require monitoring a large, shifting population for many years, some of whom might be tax-exempt or have offsets like NOLs themselves, obviously infeasible.

Shands and Lissack say merely pointing out a Target isn’t enough, even if IRS collects. Blower must home in on the specific grounds whereunder IRS collects. And Targets who straighten up and fly right before IRS takes enforcement action don’t entitle blowers to an award. 

Going against the Bondholders isn’t a “related action” within the meaning of Reg. Section 301.7623-2(c)(1)(ii) and (iii); “Even assuming an IRS Operating Division were to investigate and discover the identity of the Bondholders and determine the taxes they have paid or will pay, the identities of the Bondholders would not be found without the Operating Division’s having to independently obtain additional information beyond that provided by petitioner.” T. C. Memo. 2026-104, at p. 16. Taishoff says that assumes the deal between IRS and Bondholders exonerating previous years doesn’t include the Bondholders as third-party beneficiaries to that extent.

Mr. Scott wants to see the trust indenture for the new bonds because IRS mentioned it. Not enough, says Judge Try Guider. The Administrative Record need include only what IRS relied upon, not something mentioned for its mere existence and no more. 

No payout for Mr. Scott as the company slipped its surly bonds.

Allen Shay, T. C. Memo. 2026-103, filed 9/30/26, moved $24K from “Other Income” on his year-at-issue return to Sched E Rents Received on his 1040X, claiming a RA told him to do it. So when IRS claims a deficiency of $24K unreported income, Allen says he’s being taxed twice.

Except.

IRS proves to Judge Cathy (“NCY =. No Cognomen Yet”) Fung’s satisfaction that there’s 24K unreported per bank deposits analysis. See table at p. 4.

“Petitioner stipulated that his taxable income was $187,301. Respondent’s bank deposits analysis showed that petitioner’s taxable deposits were $212,401, which is $25,100 more than petitioner’s stipulated taxable income. Respondent conceded $1,100 in taxable income and now requires petitioner to include the remaining $24,000 in taxable income. This $24,000 reflects the amount that petitioner reported as ‘Other income’ on Line 21 of his original return and subsequently omitted from his amended return. In conducting his bank deposits analysis, respondent considered all known nontaxable sources of income, specifically deposits from petitioner’s Ameritrade and Bank of America accounts. Therefore, it is petitioner’s burden to prove respondent’s bank deposits analysis was unfair or inaccurate. See Price, 335 F.2d at 677 (‘If taxpayer felt that the Government’s [bank deposit method] was unfair or inaccurate, the burden was on him to show such unfairness or inaccuracy.’). Petitioner did not prove respondent’s reconstruction was in error and therefore did not carry his burden.” T. C. Memo. 2026-103, at p. 10.

Here’s the real problem.

” The Court recognizes that the similarity in numbers may be confusing. Simply stated, petitioner contends that the disputed $24,000 results from his moving approximately $24,000 of Property C rental income from Line 21 of his original return to Schedule E on his amended return as $24,420. Respondent conducted a bank deposits analysis, showing $25,100 of unreported income. And, after conceding $1,100, respondent correctly determined that petitioner still failed to report $24,000 of income. The similarity in amounts does not establish that they are the same income. Accordingly, we hold petitioner is liable for tax on $24,000 of income….” T. C. Memo. 2026-103, at p. 13.

No, not Jesse Mitchell III and Darrilyn W. Mitchell, T. C. Memo. 2026-102, filed 9/30/26. And ex-Ch J Kathleen (“TBS- The Big Shillelagh”) Kerrigan is far too well-bred to say what Alfonso Bedoya did say in the 1948 John Huston classic “We ain’t got no badges.” The most-quoted version conflates two separate lines.

But it turns out IRS ain’t got no badges. Of fraud, that is, so 3SOL puts paid to Jesse’s SND.

Jesse fell into the clutches of a dodgeflogger who peddled phony deductions, but escaped. His return for year at issue did have some dodgy deductions, but he concealed nothing, filed returns, didn’t have a pattern of understating income or overstating deductions, he made no inconsistent explanations, he and his preparer testified honestly opn the trial, didn’t deal in cash, and didn’t conceal assets. The only neutral badge is the phony deductions taken at the advice of the dodgeflogger, but “(P)etitioner relied upon the advice of others. He testified that he was ‘impressed by [flogger].’ Petitioner probably should have known the [flogger’s] Marketing Plan was too good to be true. From his testimony we conclude that petitioner did not have scienter and that his actions were not sinister.” T. C. Memo. 2026-102, at pp. 17-18.

True, Jesse did get an A in the income tax course he took at Ole Miss Law School. But his practice was plaintiffs’ PI, and he never prepared returns or gave tax advice. Taishoff says I’ve seen enough plaintiffs’ PI lawyers get Section 104 wrong, to say nothing of the rest of the IRC and Regs. Even one as famous as F. Lee Bailey. An A in a law school course years ago doesn’t qualify an attorney to discuss taxes. I was lucky to get a hook minoo sixty-plus years ago and swore at the time I’d never do taxes. Look at me now. 

No, Barry Holmes Fine and Monica Dias, 167 T. C. 13, filed 9/30/26, are neither of them the intrepid gearjammers of the arctic lakes whose adventures delight the couch cable crowd. It’s their trusty attorney, to whom I award a Taishoff “Good Try, First Class.” Even though said trusty attorney is not a Jersey Boy, he is of the same breed: be the sun high and the ice creaking, he triple-clutches his rig and dashes across the ice, flames shooting three feet high from the stack. “No guts, no glory” is engraved on his front bumper.

Said trusty attorney claims the Form 872-T Notice of Termination of Special Consent to Extend the Time to Assess Tax, his client sent terminated the last of the three (count ’em, three) Forms 872 theretofore exchanged with IRS. Hence, because the SNDs at issue here were issued more than 90 days after IRS got the 872-T, 3SOL had run.

Except.

Judge Tamara Ashford says true, 11 Cir didn’t comment on that when they affirmed Coggin v. Commissioner, T.C. Memo. 1993-209, 1993 Tax Ct. Memo LEXIS 215, at *51–52, aff’d, 71 F.3d 855 (11th Cir. 1996) on other grounds. And Barry and Monica are Golsenized to 11 Cir. Wherefore Kelley v. Commissioner, 45 F.3d 348 (9th Cir. 1995), aff’g T.C. Memo. 1990-15 which mentioned a Form 872-T knocking out a Form 872 doesn’t apply. Anyway, 9 Cir “merely recited the specific facts of that case, not opining as to the legal effect of using Form 872–T to terminate Form 872. Even if the Ninth Circuit did opine as to whether Form 872–T could be used to terminate Form 872, such a holding would be persuasive at best and would have no binding effect on this case, which is appealable to the Eleventh Circuit.” 167 T. C. 13, at p. 9, footnote 6.

The key is the difference between Form 872 Consent to Extend the Time to Assess Tax, and Form 872-A Special Consent to Extend the Time to Assess Tax. Special means special. Form 872-A is an open-ended extension. Form 872 is a fixed-date deal. Even though SOL extensions are waivers and not contracts, Judge Ashford allows contract principles to play a role here.

Open-end contracts are cancelable on reasonable notice. Fixed performance limits are just that…fixed.

Even Form 872-A is clear. “Form 872–A explicitly states that it can be terminated by signing and remitting to the IRS Form 872–T. Likewise, Form 872–T requires a taxpayer to check a box indicating that he or she is using the form to terminate Form 872–A. Indeed, both the IRS and numerous courts have stated that Form 872–T was designed to terminate Form 872–A.” 167 T. C. 13, at p. 8. Copious citation of precedent follows. And the Form 872-T that Barry and Monica submitted checked the Form 872-A box, because there is no Form 872 box. Forms don’t govern statute and regs, but the logic is clear.

Practitioner, negotiate those 872s (if you can).

Except Sometimes

Summer H. El Deeb, T. C. Memo. 2026-101, filed 9/29/26, claimed in her petition that she is “entitled to a $3,000 credit for an estimated tax payment for taxable year 2021 or an amount applied from taxable year 2020.” T. C. Memo. 2026-101, at p. 1.

Before my ultrasophisticated readers cry out with one voice “So what? Sections 6211(b)(1), 6402(b), and 6513(d),” that’s what Judge Courtney D. (“CD”) Jones says.”Furthermore, even if we had jurisdiction to consider this issue, Ms. El Deeb has conceded that she is not entitled to the $3,000 claimed credit for either an estimated tax payment or an amount carried over from a prior-year return.” T. C. Memo. 2026-101, at p. 7.

I know I’ve pointed out flaws in their approaches before, but never with an intent to show anyone up. I’m trying to teach, however imperfectly, so maybe someone else doesn’t make the same miscue. Emese Hasznos, T. C. Memo. 2026-100, filed 9/29/26, is out $311K because her divorce lawyer didn’t require her loved-once to transfer title to the real estate that was her share of the divorce split to her.

Judge C-Doug Pugh does a deep-dive into FL divorce and real estate law. I never had a FL ticket, so I leave her disquisition to FL lawyers to scope out.

At close of play, Emese gets innocent spousery and 50% of the net proceeds of sale. The divorce judgment provided for sale of the real estate, but Judge C-Doug Pugh found sufficient indicia of ownership remained in loved-once that he had an interest therein, encumbered by the IRS NFTL, such that, although Emese was entitled both to innocent spousery (uncontested) and to 100% of net proceeds of sale, 50% thereof had to go to IRS.

And this, notwithstanding “…petitioner’s anticipated difficulties in obtaining relief from Mr. Munro, but Mr. Munro’s indemnification is her only avenue for payment.” T. C. Memo. 2026-100, at p. 11. (Footnotes omitted, but they say loved-once left the US of A and cannot be found, and all Emese gets is what the law allows; pore l’il ol’ Tax Court has no equitable powers).Takeaway- If one spouse is out of the real estate, do a title search for IEDs, and get him or her out of title.

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.