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.

Judge Emin (“Eminent) Toro has no present but only sympathy and bad news off the bench for Terry D. Predmore & Theresa A. Predmore, Docket No. 9391-25S, filed 9/25/26. They owe Section 6662(a) accuracy chops with a five-and-ten on the deficiency.

Fire destroyed a substantial portion of the Predmores’ domicile only two days before Christmas in year at issue. They filed their return for year at issue as Terry “always filed his own taxes and in the past did so by obtaining the Internal Revenue Service’s forms and instructions at public libraries.” Transcript, at p. 5. He claimed $315K as a Section 165 casualty loss.

Except.

The year at issue was post-TCJA. Terry’s claim he was going to use part of the house for a dogbreeding business fails because the business hadn’t started, and he was only going to use part of the house anyway. Personal Section 165s are out.

And his insurance company had paid loss of use and personal property cover. Terry claimed he wasn’t sure that the insurance would cover the house itself.

Except.

“Six weeks before they filed their return, the Predmores signed a contract indicating that insurance would be paying for the reconstruction of their home. About a month before they filed their return, the insurance company told the Predmores that the calculations for their dwelling coverage were complete and that actual cash value computations would be completed in about a week. Statements show that the insurance company paid the Predmores $258,332 either 17 days before or 4 days after they filed their return. Three days after they filed their return, the insurance company sent the Predmores a letter confirming that the company had paid out $333,689 on their claim to date.” Transcript, at p. 18.

And yes, ultrasophisicated readers, before you cry out “Section 165(h)(5)),” there were two (count ’em, two) Federally declared disasters in the Predmore’s home State (IN), but they were COVID-related.

While the Predmores may have been unsure about insurance (I always am before the check clears and the SOL runs out), Judge Eminent Toro finds that sincere, “we do not find that belief reasonable in light of all of the circumstances here.” Transcript, at p. 19.

Chop appropriately Boss Hossed.

This time it’s IRS, not Kenton R. Bowen, et. al., Docket No. 2215-24, filed 9/25/26, that’s party to a divorce. Judge Ronald L. (“Ingenuity”) Buch goes off the bench finding IRS proposed “recharacterization would result in tax consequences that are divorced from the economics.” Transcript, at p. 18.

Ken and buddy Scott ran a concert promo outfit fittingly named PromoWest. In case they sold PromoWest to nonpromoters, they created SSKB, LLC, a passthrough to provide management services to PromoWest. PromoWest paid management fees to SSKB when it had cash. PromoWest was promoting and seeking new venues in the Midwest, but like all promoters it was chronically short of cash. Ken and Scott landed a deal with a bank, which loaned money to SSKB but required SSKB to make distributions to Ken and Scott, who of course personally guaranteed payment and performance of the loan terms.

PromoWest, SSKB, and Ken and Scott all reported as written.

“Everyone treated this series of transactions consistently for tax purposes. PromoWest deducted the management fees it paid to SSKB. SSKB reported the management fees it received as income, including those management fees that were redirected to loan repayments. SSKB treated the loan as a loan, in other words, it did not take the loan proceeds into income and it did not deduct any repayments of principal. [Scott and Ken] reported their shares of income from SSKB, which included the management fees paid by PromoWest.” Transcript, at pp. 8-9.

Finally, Ken and Scott sold PromoWest to another promoter who didn’t need a management arm, so SSKB was dissolved and paid off the loan in the same year.

IRS gets creative. “Taken together, the gist of the Commissioner’s adjustments is that he recharacterizes $6 million of the loans to SSKB as a dividend from PromoWest to [Scott and Ken]. The Commissioner treats the dividend as taxable to [Scott and Ken] and non- deductible to PromoWest. If loan proceeds distributed to [Scott and Ken] were actually a dividend from PromoWest, then the loan must have really been made to PromoWest. So the Commissioner’s notices determine that PromoWest ‘was in substance the true debtor with respect to [the] Loans.’ And if the loans were in substance made to PromoWest, then the loan repayments must have come from PromoWest. To reach this result, the Commissioner disallows the management fee deduction claimed by PromoWest, but instead, allows an interest expense deduction to PromoWest. For consistency, the Commissioner reduces SSKB’s income for the now-disallowed management fee.” Transcript, at p. 10. And at trial, IRS claims the management fees paid to SSKB weren’t ordinary and necessary, so no Section 162 treatment for those.

IRS says substance over form. Ken and Scott say they can structure their business however they want, but must stick to the structure, and they did.

As for the management fees, SSKB provided them. IRS says Ken and Scott should have been deemed to have provided them directly. OK, says Judge Ingenuity Buch, that might support recharacterizing, but not deductibility.

Substance over form means sussing out the economics.  Cherchez les bucks. Here there were management fees, loans, and loan repayments. On all counts, Ken’s and Scott’s reporting more closely aligned with what they did rather than IRS’ convoluted ballet.

“PromoWest paid for the services of {Ken and Scott]. It received a deduction for the payments made for those services. Whether paid as a salary or a management fee, the consequences would have been the same to PromoWest, a deduction. And the consequence was the same to [Ken and Scott]. Whether received as a salary or as a share of partnership income, it would have been ordinary income to each of them. And this is how they reported it on each of their returns. Petitioners’ form, economics, and tax treatment all aligned.” Transcript, at p. 15.

IRS’ “dividends” argument founders on E&P. Dividends come out of E&P and are paid for specific years, not all in a lump, and here there’s no such link. “The Commissioner’s proposed recharacterization makes no economic sense.” Transcript, at p. 15.

IRS’ treatment of the loan and repayment thereof earns them a Taishoff “Oh Please, First Class.” And a blow-off from Judge Ingenuity Buch.

“The Commissioner’s recharacterization would treat the loan as being a loan to PromoWest, with $6 million of the proceeds deemed to be a dividend to [Ken and Scott]. But SSKB was liable for the loan, and SSKB’s owners are [Ken and Scott]. Under the Commissioner’s recharacterization, [Ken and Scott] would be taxed on the loan proceeds for which they remain liable. This is contrary to the principle that loan proceeds arenot taxable. The Commissioner’s recharacterization would result in tax consequences that are divorced from the economics.” Transcript, at pp. 17-18.

As for repayments, IRS fumbles that one, too.

“Petitioners’ form is consistent with the economics of a loan repayment. In form, SSKB paid interest and repaid the loans from its income and assets. What appears to concern the Commissioner is that the income used to make the loan repayments came from PromoWest. Indeed, PromoWest made the loan repayments on behalf of SSKB. But both economically and for tax purposes, PromoWest treated the loan repayments as amounts paid to SSKB in satisfaction of PromoWest’s obligation to pay management fees. Consistent with that treatment, SSKB took those payments into income. The Supreme Court acknowledged the economic effect of an arrangement such as this nearly a century ago. ‘The discharge by a third person of an obligation to him is equivalent to receipt by the person taxed.’ Old Colony Tr. Co. v. Commissioner, 279 U.S. 716, 729 (1929). Petitioners’ form, economics, and tax treatment are consistent.” Transcript, at pp. 18-19.

True, IRS’ recharacterization is streamlined, but more divorced.

“The Commissioner would treat the loan repayments as loan repayments by PromoWest, without the added step of deeming these to be management fees to SSKB. As loan repayments, the Commissioner would neither tax nor allow deductions for the repayments. But the loan repayments satisfy a loan to SSKB, which is owed by [Scott and Ken]. Because a third party (PromoWest) is reducing SSKB’s liability on those loans, the loan repayments are income to SSKB, and ultimately to [Scott and Ken]. Id. Thus, while streamlined, the Commissioner’s recharacterization would divorce the economics of what occurred from the tax consequences.” Transcript, at p. 19.

Judges always have the last word. Here’s Judge Ingenuity Buch. “Substance over form is a doctrine designed to cause the tax consequences to be aligned with the economic reality of what occurred. The Commissioner seeks to use it to do the opposite.” Transcript, at p. 20.

C. S. Lewis, thou should’st be living at this hour.

I am sure I need not ask whether Ken’s and Scott’s trusty attorneys, John, Harlan, and Nic, to whom I award a Taishoff “Good Job, First Class,” have already started on the Section 7430 admins-and-legals motion.

Edited to add, 9/25/26: Before my ultrasophisticated readers berate me for having forgotten the 18 USC §2412(d)(2)(B) net worth cutoff engrafted onto Section 7430(c)(4)(D), I have left a v/m with one of Ken’s and Scott’s trusty attorneys enquiring, and will publish any reply.

Valarie Lindsey, T. C. Memo. 2026-94, filed 9/24/26, completes the four-opinion superfecta the hardlaboring clerks in The Glasshouse on Second Street unleashed upon this blogger who never did them any harm.

Valerie’s trusty attorneys have dissected, sliced, and diced every step of the process from Examination to Appeals to Appeals Processing Support to USPS to prove not only that the SNOD wasn’t mailed, but that it didn’t even exist. I give this dynamic duo a Taishoff “Good Try, Second Class” in the Lost Causes Division.

Judge Courtney D. (“CD”) Jones finds that, despite IRS’ botched record and file keeping, it was and it did.

Cobbling together IRS records (which slide under the hearsay tag via FRE 803(6) business records) there was a SNOD, and the reprint IRS tenders will serve to show it. As for mailing, the PS3817 is admittedly defective, but IRS personnel testimony and certified mail receipt, taken together, establish mailing.

I am reminded of Mark Twain’s famous story of how he and Professor Henry Fairfield Osborn built a brontosaur for New York City’s  Museum of Natural History with nine dinosaur bones and bags of plaster of paris.