Image by Grok
I’m doing some spring cleaning here. My problem is that I review original source material and find things that I think are interesting and open a file on them, but consistently start more stories than I finish. In the unlikely event that you are curious what my files look like, I am giving you a sample from a recently finished piece.. It is labelled 260126 Dean Allen Steeves Brothers Keeper. The number is the date that I opened it in YYMMDD format so that is easy to sort things by when I started them. There is a lot more in that folder than in most others, which accounts for why it took almost two months to finish. There are over twenty files this year that I have put some work into with higher numbers and I am kicking myself for not having reviewed opinions and the like for a while. So here is some of the stuff that I will probably never give the full treatment to. My version of spring cleaning.
South Dakota Trusts
This was not a development. It was a Wall Street Journal Article by Miriam Gottfried – Why Private-Equity Millionaires Love South Dakota Trust. Here is how it opens:
“A decade ago, a successful private-equity dealmaker left his firm to start a new one. He asked his financial adviser to help him structure the endeavor in a tax-efficient way.
The executive lived in California, but his adviser recommended that he open a South Dakota trust and give it his share of the profits from his fund’s future deals. The trust has since received over $100 million in distributions, and the executive hasn’t paid a dime in state taxes.
In total, he has saved over $10 million.”
Of course the trusts have other important uses besides chiseling on state income taxes.
I found an older article (November 14, 2019) by Oliver Bullough in the Guardian – The great American tax haven: why the super-rich love South Dakota. It gets into the attraction South Dakota has for the mega-wealthy from all over the world.
“A South Dakotan trust changes all that: it protects assets from claims from ex-spouses, disgruntled business partners, creditors, litigious clients and pretty much anyone else. It won’t protect you from criminal prosecution, but it does prevent information on your assets from leaking out in a way that might spark interest from the police. And it shields your wealth from the government, since South Dakota has no income tax, no inheritance tax and no capital gains tax.”
It is intriguing, but I haven’t gotten any further with it. I did do a deep dive into how trusts can be used to avoid state income tax around the time the Guardian so I will refer you to that with this link.
Freedom Path Inc
I pretty much despaired of there being any useful information in Judge Jia M. Cobb’s ruling in Freedom Path, Inc v. IRS. I was intrigued though because it seemed that it was about the memorable IRS scandal and actually it is at the very heart of it. Freedom Path Inc had its 501(c)(4) status denied because of political activity. The ruling which resolves nothing shows the continuing effect of the scandal narrative.
“The Court agrees with Freedom Path to a point. The Treasury regulation and IRS Revenue Ruling that the IRS applied in denying Freedom Path’s application transgress the heightened vagueness standard applicable to civil regulations, including tax-exemption regulations, that affect speech covered by the First Amendment. On that threshold question, the Court finds that Freedom Path is right and the IRS is wrong. Unfortunately, neither the IRS nor Freedom Path offers an alternative standard for deciding the ultimate question of Freedom Path’s exemption eligibility that is both constitutionally permissible and appropriately grounded in the statutory and regulatory scheme.”
The Court has problems with the IRS regulations, but notes that IRS cannot fix the regulation because of a 2015 budget rider that is still i effect that forbids IRS from doing anything about the regulations. None of this really has anything to do with taxes. It is just that 501(c)(4) “social welfare” organization don’t have to report their donors unlike political organizations exempt under 527. The scandal initially was about IRS leaning harder on conservative organizations i.e. Tea Party groups about these rules.
For what it is worth Campaign Legal Center and Citizens for Responsibility and Ethics in Washington (CREW) filed an amicus brief in the case to highlight the importance of the issue.
“This lawsuit raises questions about whether the Internal Revenue Code must be interpreted to permit nonprofits organized “exclusively for the promotions of social welfare” to spend millions of dollars in “dark money” to influence elections, infringing the right of U.S. voters to know who is behind big money efforts to influence their votes.”
Interestingly, referring to Loper Bright, insist that the Court needs to go to the statutory text which forbids any political activity. The IRS scandal was a major preoccupation of mine. Here is a lookback piece as it was tapering off in 2017.
Peter David Schiff
There was a lawsuit that Peter Schiff had going against the IRS and a number of others. Peter is the son of the late Irwin Schiff, father or possibly grandfather of the contemporary tax protester movement, who died in prison. I picked it up when there was a ruling on a request for more time to serve Jim Lee who had been Chief of Criminal Investigations for IRS. The ruling was negative and the suit against Lee in his individual capacity was dismissed. I looked back as I wrote this and saw that the whole case has been dismissed.
The case arose from the closure of Euro Pacific International Bank. The bank was scrutinized by IRS and the Puerto Rico Commissioner of Financial Institutions. It was part of a joint investigation by the Joint Chiefs of Global Tax Enforcement (J5). Schiff had planned to sell the bank to a company called Qenta for $17.5 million. The sale was blocked and turned into an asset sale to Qenta for $1.25 million. Jim Lee made statements during a press conference to announce the investigation.
There was a bevy of defendants but apparently on March 12, 2026 Judge Camille Velez-Rive dismissed them all with prejudice. There is a seemingly related FOIA case against IRS that is still open. Sorting through all of this would run up my PACER bill way too much. For what it is worth here is Peter Schiff’s side of the story.
Hallucinations
Peter and C.M. Barone-Clinco TCM 2026-16 was not all that interesting in itself. The main issues were gross receipts and depreciation. There was also a procedural issue about whether a notice of deficiency has to be signed in ink. Here was the intriguing part:
“The persuasiveness of Clinco’s argument collapses like an overmixed soufflé when one looks at the citations used to prop it up. Mr. Wagner, Clinco’s attorney, cites four cases in support. Three appear to be hallucinations generated by a large language model AI.
He cites “Cacchillo v. Commissioner, 130 T.C. 132 (2008),” as a case where a taxpayer challenged the validity of the notice of deficiency because it lacked an official signature. He claims we held that the IRS’s failure to issue a valid signed notice of deficiency ousted us of jurisdiction. “Cacchillo v. Commissioner” does not, however, exist. Page 132 in volume 130 of the Tax Court Reports is within Porter v. Commissioner, 130 T.C. 115 (2008), and that page discusses the standard of review for section 6015(f) claims for relief—completely unrelated to the case before us.”
“Submitting a brief with fictitious caselaw is a recipe for sanctions and a clear violation of Rule 11(b) of the Federal Rules of Civil 8*8 [*8] Procedure.[7] We reiterate Chief Justice Roberts’s advice to lawyers who write briefs with citations of nonexistent cases: “Always a bad idea.” 2023 Year-End Report on the Federal Judiciary 6 (Dec. 31, 2023). That is certainly true in this case.”
There was a good amount of coverage most notably Lew Taishoff, which is how I picked it up.
“Judge Holmes catalogues these machine-made monstrosities in T. C. Memo. 2026-16, at p.7, footnote 6.
Taishoff says these are a fraud on the Court, and per se professional misconduct.”I
I have had my own experience with hallucinations. When I, in my standard self-absorption, asked Grok to evaluate my standing as a tax blogger, it hallucinated a controversial article that it attributed to me. The whole experience was pretty entertaining.
I have more spring cleaning to do, but that is enough for now.
For great value in continuing professional education check out the Boston Tax Institute.
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