Judge Emin (“Eminent”) Toro, having disposed of deemed distributions, now ascends to the heights hereinabove set forth at the head hereof, as my Grey-Goose-guzzling former colleagues might say, as he does the numbers for Varian Medical Systems, Inc. And Subsidiaries, 166 T. C. 8, filed 4/8/26.

For the mise-en-scène, see my blogpost “We Don’t Need No Stinkin’ Distributions,” 8/26/24. This was an unscramble of the gyrations which TCJA imposed to try to territorialize our worldwide tax system for CFCs by imposing modest tax on stashes of post-1986 offshore E&P, both cash and noncash varieties.

But now the numbers, brushing aside both parties’ arguments that their calculations raise issues conceded because never before raised. 

“In particular, the parties agree that the Deemed Paid Foreign Tax Credits should be the amount of Varian’s deemed paid foreign taxes after reduction by section 965(g)(1)—i.e., after the reduction that corresponds to the section 965(c) deduction. Similarly, the parties agree that the section 78 gross-up should be the amount of Varian’s gross-up under section 78 after reduction by section 965(g)(4)—again after the reduction that corresponds to the section 965(c) deduction.

“The parties disagree, however, on the meaning of the ‘net section 965 inclusion.’ Varian argues that it should equate to the section 965(a) inclusion amount (the earnings determined under section 965(a) less the E&P deficits determined under section 965(b)).

“The Commissioner contends that, consistent with the other amounts in the formula, the net section 965 inclusion should take into account the section 965(c) deduction. In other words, the Commissioner argues that the net section 965 inclusion should equal the section 965(a) inclusion amount reduced by the section 965(c) deduction.

“The Commissioner is correct.

“Returning to the text of the statute, the point of the formula is to identify ‘taxes paid or accrued (or treated as paid or accrued) with respect to any dividend for which a deduction is allowed under [section 245A].” I.R.C. § 245A(d)(1). In other words, the point of the formula is to allocate foreign taxes to the underlying earnings that were subject to foreign tax and identify the portion of those taxes that were attributable to a deductible dividend (here, the section 78 dividend).” 166 T. C. 8, at p. 28. (Footnotes omitted).

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.”

Continuing this series, and again acknowledging that master communicator Art Linkletter, I proffer Matthew Bruns, Docket No. 15540-24, filed 4/7/26. 

Matthew and IRS stip this case out, with a huge deficiency offset by withholding and payment, but that’s not the point.

Before the stiped decision of even date herewith is entered by Judge Kashi (“My or the High”) Way, there is an Order, wherein is stated: “… the Proposed Stipulated Decision contains an evident typographical error.” Order, at p. 1.

Often happens, when parties are beaten down by prolonged negotiations and just want the pain to end. Just strike the proposed stip and have the parties try again.

Instead, Judge Way orders thus: “…the above-referenced proposed stipulated decision is hereby deemed stricken from the Court’s record in this case and shall be sealed from the public and the parties in this case.” Order, at p. 1.

From the parties? Didn’t they see this before they sent it to the Judge?

Judge Adam B.(“Sport”) Landy gives the Ogden Sunseteers another win (I wonder if the WBO is getting tired of winning) in William Pratt, T. C. Memo. 2026-31, filed 4/6/26. The OS sent William’s claim to SB/SE classifier, who brushed it off as too small ($10K in dispute) to pursue. In a five-page rehash of Li, Lissack, Meidinger/Kennedy, all of which I’ve blogged, Judge Sport Landy finds no jurisdiction. I suppose this merits a T. C. Memo. to show whistleblowers are taken seriously, despite their minimal success rate. But why IRS had to put three (count ’em, three) lawyers on this case, when a first-year law student could have won this, eludes me.

A couple years ago (hi, Judge Holmes), a pro se inspired me to revisit The Rock of Svithjod; see my blogpost “Svithjod Revisited,” 5/10/24. I lamented yet again the waste of scarce Tax Court judicial resources in busywork orders, which any judge’s clerk could handle, freeing the judges to cut down the dockets. The protagonist of that blogpost has departed this vale of tears, so we get Richard W. Medley, Docket No. 13611-22, filed 4/6/26. Judge James S. (“Big Jim”) Halpern, hearing from IRS’ counsel that neither spouse nor child of the late Richard could be found to take up his quarrel with the foe, invites them in.

Freya Pearson, Docket No. 4536-21, filed 4/6/26, ties my personal record for stalling a case that I had to lose on the law, but I was in State court and so actually had to oppose summary J and take an appeal to do it. Freya just stalled for five (count ’em, five) years, with continuance after continuance.  Exasperated, Judge Rose E. (“Cracklin”’) Jenkins fires an eight-page barrage of somber reasoning and copious citation of precedent, tossing the petition and excoriating Freya for repeated disregard of this Court’s orders, so that another continuance would simply reward her for her conduct, such that any sanction short of dismissal would be insufficient, and would simply reward her for her conduct.

I said it long ago: “I wouldn’t be so presumptuous as to claim succession to the role of the late and much-lamented A. G. Linkletter, a hero of my childhood so long ago. But reviewing the activities of the self-representeds as they navigate the straits of The Glasshouse in the City of the Ongoing Purges is a strong temptation.”

Mark Barry Zemanek, Dockets No. 8984-25, filed 4/3/26, has Ch J Patrick J. (“Scholar Pat”) Urda trying to decipher a next-friendship bid from one not conspicuously disabled or incompetent, who is seeking unorthodox representation.

“…a motion to be recognized as next friend, as contemplated by Rule 60(d), is appropriate where a taxpayer cannot prosecute his or her Tax Court case without assistance due to incompetency or incapacitation and does not have a duly appointed fiduciary under state law.

“Petitioner does not appear to allege in his Motion to Be Recognized as Next Friend that he is incompetent or incapacitated, nor has he attached a current statement from his personal physician (or other medical documentation) supporting such a conclusion. Rather, to the extent the Court understands petitioner’s Motion to Be Recognized as Next Friend, he is asking the Court to allow him to represented by an attorney who is currently in inactive admissions status. This is not the nature of representation contemplated by Rule 60(d).” Order, at p. 1.

To the extent Taishoff understands it, “inactive admission” means an attorney admitted in a jurisdiction which would allow said attorney to seek admission to Tax Court via Rule 200 but who has not currently applied or, if having applied, cannot satisfy Rule 24(a)(3). But I do crave enlightenment, as in fifteen (count ’em, fifteen) years of covering Tax Court, this is the first time I have met with that phrase.

Meantime, Judge Scholar Pat sends Mr. Zemanek either to try again, showing he is in fact incapacitated or disabled, or to contact the LITC nearest him.

Who are these afecionados is the issue before Judge Jeffrey S. (“Schwer”) Arbeit, but it’s not so hard that summary J can’t resolve it in Blair A. Battersby, et al., Docket No. 1356-23, filed 4/2/26. It’s a chicken farm LLC box-checked to Sub S taxation that turns into Dixieland Boondockery. In year at issue original owners Phil and Teresa swap some stock, so the 10 (count ’em, 10) syndicatees who get 97.5% of the stock claim Section 1377(a)(2) termination affected shareholder status lets them split tax years and make special allocations of the $6.1 million claimed conservation easement deduction.

“Section 1377(a)(1) provides that each shareholder’s pro rata share of any S corporation item described in section 1366(a) for any taxable year is the sum of the amounts determined with respect to the shareholder by assigning an equal portion of the item to each day of the S corporation’s taxable year, and then by dividing that portion pro rata among the shares outstanding on that day (that is, a per-share, per-day basis). See also Treas. Reg. § 1.1377-1(a)(1). Section 1377(a)(2) provides an exception to this per-share, per-day rule if a shareholder’s interest in the S corporation terminates during the taxable year: the S corporation, with the consent of all ‘affected shareholders,’ is permitted to elect to compute pro rata shares of ‘affected shareholders’ as if the taxable year consisted of two separate taxable years. See § 1377(a)(2)(A); Treas. Reg. § 1.1377-1(b)(1). The election under section 1377(a)(2) has no effect on shareholders that are not ‘affected shareholders.’ See §1377(a)(2); Treas. Reg. § 1.1377-1(b). The “affected shareholders” are those shareholders whose interests terminate and all shareholders to whom those shareholders transferred shares during the taxable year. See § 1377(a)(2)(B); Treas. Reg. § 1.1377-1(b)(2). If, however, the S corporation redeems a shareholder’s interest, all the shareholders during the entire taxable year are treated as affected shareholders. See id. 

“The parties share the same understanding of the law. Accordingly both parties acknowledge that unless a shareholder’s interest is terminated because of a redemption by an S corporation, the affected shareholders are limited to the transferors and transferees of the ownership interest.” Order, at pp. 4-5.

Judge Schwer Arbeit finds the paperwork shows the swap was between Phil and Teresa, not a corporate redemption of their stock. Hence only they are “affected shareholders.” Wherefore the syndicatees have only a single tax year and are relegated to per-share-per day straight allocation, no mix-and-match with the claimed deduction.

Of course, there remains the question of the valuation of the easement remains for trial. Order, at p. 1.

Mr. W (name omitted) is, and was during and before the year at issue, Executive Director of the Bessemer Airport Authority, which runs Echo Kilo Yankee, a public-use, business friendly airport with a sincere dedication to serving the entire General Aviation community.  The trusty attorneys for Morgan Run Partners, LLC, Overflow Marketing, LLC, Tax Matters Partner, Docket No. 8669-20, filed 4/1/26, want to put in evidence some of Mr. W’s drafts and e-mails about capital improvements to that striving, thriving installation and testify that maybe so might could be acquiring part of the nearby Dixieland Boondockery at issue here.

Judge Albert G. (“Scholar Al”) Lauber cancels the trusty attorneys’ takeoff clearance and sends them back to the ramp.

“…the trial session beginning April 6, 2026, is limited to deciding a single issue—the FMV of the easement––which will require the Court to determine the FMV of the Morgan Run Property before placement of the easement. In determining the ‘before value,’ we must decide ‘the price at which the [Morgan Run] property would change hands between a willing buyer and a willing seller, neither being under any compulsion to buy or sell and both having reasonable knowledge of relevant facts.” Treas. Reg. § 1.170A-1(c)(2). Whether a nearby property owner, such as the airport, considered ‘pursuing’ the Property, at an undisclosed purchase price, without ever communicating any purchase offer to anyone, is not information to which other market participants would be privy. Because this information, even if true, would not be available to a hypothetical buyer with reasonable knowledge of the relevant facts, it is simply not relevant in determining the FMV of the Morgan Run Property.” Order, at p. 3.

Besides, the whole thing is speculative. The drafts are just that, drafts; no showing they ever went beyond that, or if they did, how they ended up. Moreover, throughout discovery IRS asked for “(1) any correspondence with persons interested in acquiring the Morgan Run Property; (2) any offers to purchase the Property; and (3) documentation of any activities with respect to possible industrial development of the Property, including any plans, studies, conceptual designs, permits, permit applications, cost estimates, and/or correspondence with Jefferson County, the State of Alabama, or their respective agencies.” Order, at p. 2. IRS got nothing. The prior owners had Morgan Run zoned residential estate, and the appraisal attached to the Form 8283 stated HBU was residential.

An offer, unaccepted, does not indicate value. Here, there isn’t even an offer.

Discovery closed two (count ’em, two) months ago. This stuff came up in the middle of last month. Judge Scholar Al says this is an ambush and tosses the documents. Mr. W can testify as to facts, and if IRS’ expert spoke to him as petitioners claim, he can testify about that.

Judge Elizabeth A. (“Tex”) Copeland sings out a variant of that old cadence I (and a generation now thinning out) remember so well. Judge Tex Copeland is telling Peter E. Barker-Homek, half of Peter E. Barker-Homek & Shay Serdy, Docket No. 2172-17, filed 3/31/26, that he must sort out his bankruptcy dischargeability issues elsewhere than at The Glasshouse in the City of the Partial Shutdown. 

Peter wants an order clarified, but exactly which order and how it is unclear are themselves unclear. Order, at p. 2. Judge Copeland surmises Peter means whether she or the BJ in whichever of the three (count ’em, three) bankruptcy cases he and Ms. Serdy filed can decide which, if any, of the deficiencies he’s now petitioning are discharged or dischargeable. The last of the bankruptcy cases resulted in an order returning the deficiency case to Tax Court to decide whether there are deficiencies at all, and if so, how much is owed.

Tax Court decides deficiencies, Bankruptcy Court decides dischargeability.

“On this point, we refer the parties to our holding in Neilson v. Commissioner, 94 T.C. 1, 9 (1990), where we clarified that ‘we are without subject matter jurisdiction [to determine dischargeability] and petitioners, if they want a ruling on their dischargeability position, would be required to seek the jurisdiction of the bankruptcy court.’ What this means for Mr. Barker-Homek in this case is that we must conclude our deficiency determination before such deficiency can be discharged in bankruptcy.” Order, at pp. 2-3.

Judge Copeland lays out two (count ’em, two) scenarios this case might follow, but refrains from any more, and strongly suggests the parties settle the numbers.

Peter is rebuked for failing to serve Ms. Serdy (who is mail only, not electronic), leaving the burden on Mr. Jeane and his faithful few.

Oh yes, Peter also moves to reopen the record and recuse Judge Copeland, but those will have to await IRS’ replies. Cain’t hardly wait.

Daniel Isaiah Thody, T. C. Memo. 2026-30, filed 3/30/26, need not worry that he might be twice mulcted for the tax he never paid, as shown on the SFRs he got for the five (count ’em, five) years he never filed. Daniel Isaiah’s business, which his father started, sold airplane parts to DOD. Daniel Isaiah was in jail when he petitioned the deficiencies; his father was in jail during the years at issue, T. C. Memo. 2026-30, at p. 2.

Judge Elizabeth A. (“Tex”) Copeland thinks so little of Daniel Isaiah’s arguments on his own behalf as to give him a Section 6673 frivolity yellow card, T. C. Memo. 2026-30, at pp. 10-11. 

Since Daniel Isaiah did pay the criminal restitution amerced by USDSWDTX, he needn’t pay the $162K twice.

“Although the IRS may have previously collected without assessment or even summarily assessed the restitution liability, it neither assessed nor collected such restitution as a deficiency.  This does not necessarily mean that the IRS is not required to later credit its deficiency assessments for the years in issue with amounts (if any) collected on the restitution. Mr. Thody’s payments on the restitution liability, if any, do not affect the existence of deficiencies for the years in issue; but rather such payments will apply after assessment to satisfy that deficiency or a portion thereof.” T. C. Memo. 2026-30, at pp. 7-8. (Citations omitted; emphasis by the Court).

Restitution is estimated loss to the guvmint; deficiency is adjudicated tax due. Latter may be greater or less, so sort it out in the Rule 155 beancount.

That’s what Judge Ronald L. (“Ingenuity”) Buch finds Barrett Business Services, Inc., 166 T. C. 7, filed 3/30/26, to be when BBS seeks to take the  “Work Opportunity Tax Credit (WOTC) and the Empowerment Zone Employment Credit (EZEC) with respect to its clients’ worksite employees for… (years in issue).” 166 T. C. 7, at p. 2.

Judge Buch finds sufficient Congressional guidance to keep the largesse bestowed on commonlaw employees (the hands-on, tell-the-workers what-and-how-to-do, fire-and-hire types) out of the hands of the backoffice payroll bookkeeper types like BBS.

Backstory: ” The WOTC allows employers to claim a tax credit for a percentage of wages paid to individuals of a ‘targeted group.’ See I.R.C. §§ 38(a), (b)(2), 51(a) and (b)(1). individuals of a ‘targeted group’ include certain veterans, ex-felons, individuals with disabilities, or long-term unemployment recipients. I.R.C. § 51(d)(1). The EZEC allows employers to claim a tax credit for a percentage of qualified zone wages paid for services performed by qualified zone employees who both live and work in an empowerment zone. See I.R.C. §§ 38(a), (b)(9), 1396(a), (c)(1), (d)(1). An empowerment zone is an area suffering from high poverty and unemployment in an urban or rural area designated under section 1391(a) by either the Secretary of Housing and Urban Development or he Secretary of Agriculture. See Rev. Proc. 2021-18, § 2.01, 2021-15 I.R.B. 1007, 1007; H.R. Rep. No. 103-111, at 792 (1993), as reprinted in 1993-3 C.B. 167, 368; see also I.R.C. § 1393.” 166 T. C. 7, at pp. 3-4.

While the statutes don’t define “employer,” commonlaw is the rule. BBS’ try to use Section 3401(d)(1) statutory employer cover falls short. Section 3401 is specifically limited to Title C employment taxes. Employment taxes aren’t income taxes.

And for those who care about legislative intent, Judge Buch has the following: “Congress enacted these credits to encourage employers to hire disadvantaged individuals who live and provide services in economically distressed areas. Congress intended the credit to help these disadvantaged individuals and to revitalize these economically distressed areas. Barrett provides employment-related services to its clients, which include payroll services. Barrett is not the entity that is providing the work opportunity for disadvantaged individuals or in distressed economic areas. A statutory employer who pays wages for services provided to another person is not Congress’s intended beneficiary of these credits.” 166 T. C. 7, at p. 10. My kind of judge.

Section 3504 agency only subjects agents of employers to the same liabilities as employers, not the same benefits. And as these are cross-motions for summary J, and the agency relationship is a fact question, Judge Buch can’t tell if BBS is an agent of the various employers who retain their services. 

That’s what British-American Tobacco wanted Anthony A. Klein and Barbara N. Klein, T. C. Memo. 2026-29, filed 3/30/26, to help their customers do. AA was sole shareholder of a C Corp that made the foil elements that power the “heat not burn tobacco” market. Lacking the plant to deliver what BAT needed, yet diffident about committing to one big customer and borrowing to upgrade, AA got BAT to give the C Corp $4.3 million, which no one disputes went into the upgrade.

Judge Elizabeth A. (“Tex”) Copeland, ever a stickler, finds the papering of the deal a wee bit sketchy, so when the C Corp claims BAT made a nontaxable nonshareholder contribution to capital per Section 118(a), she goes with IRS’ claim that Section 118(b) blows away the smoke.

“The parties do not contest that the $4.3 million was bargained for, that it benefited C Corp. in an amount commensurate with its value, or that it contributed to the production of additional income.” T. C. Memo. 2026-29, at p. 9.

The problem is Section 118(b).

“In particular, section 118(b)(1) excepts from contributions to capital contributions ‘in aid of construction or those made by ‘a customer or potential customer.’ The parties do not dispute that BAT’s funds were used to construct the leasehold addition or that, at the time BAT provided the $4.3 million, BAT bought foil heaters in significant quantities from Thermal and intended to continue doing so. Thus, the $4.3 million NVT provided was both ‘in aid of construction’ and made by a ‘customer or potential customer’ of C Corp. Accordingly, section 118(b)(1) excepts the funds from being nonshareholder contributions to capital excludable from gross income under section 118(a) and requires their inclusion in income.” T. C. Memo. 2026-29, at p. 11. (Footnote omitted, but it says that alone is enough to torpedo C Corp.’s argument.)

But though AA loses, he avoids chops. C Corp. could reasonably have believed that the dodgy deal papering really vested title to the improvements in BAT. “Moreover, both [C Corp.] and [BAT] acted relatively consistently in implementing these provisions throughout their relationship. [C Corp.] used the [improvements] and the leasehold addition only to make foil heaters for [BAT]. When [BAT] instructed [C Corp.] to destroy the [improvements] it had bought to produce [BAT]’s heaters, [C Corp.] did so despite misgivings. {C Corp.] likewise sought written permission from [BAT] to use the leasehold addition; but having received no response, left the leasehold addition empty and unused.” T. C. Memo. 2026-29, at p.11.

Most importantly, C Corp. never took depreciation on the improvements.

A Taishoff “Good Try, Second Class,” to AA’s trusty attorney.