Tax law doesn’t care what you call your side hustle. This week proved it.
A sportsmen's club lost its exemption after striking oil (literally). Pitney Bowes found out that spreading the payments over eight years doesn't in any way mean you can keep the overpayments. Brookfield is now in a staring down the barrel situation with the IRS over some Lehman-era tax losses.
Sportsmen’s club loses tax exemption
Consolidated Sportsmen of Lycoming County v. Commissioner, T.C. Memo. 2026-109
The Tax Court agreed with the IRS and revoked the Pennsylvania sportsmen's club's tax exempt status as of Jan 2023. $2.19m in mineral royalties (with $1.18m in one year alone) is not something you can easily justify as a hobby. The club contended that the members were still there primarily to fish and shoot but the Court found the drilling to be far too much of a 'thing' to be a hobby. The fact that they'd outsourced the actual work didn't help the club in the slightest. The IRS still counted it.
Why It Matters:
Non member revenue can be a threat to a social club's exempt status.
Activities carried out by the contractor count when you're looking at the organisation's operations.
Paying unrelated business income tax will not in itself guarantee that the exemption will continue.
Outsourcing your cash cow won't fool the IRS. Nice try though.
Court rules IRS properly applied Pitney Bowes overpayments to repatriation tax
Pitney Bowes Inc. v. United States, No. 1:25-cv-00639 (Fed. Cl. Oct. 26, 2026)
The Court of Federal Claims agreed with the IRS that they were correct to take $21.4m of the extra payments made by Pitney Bowes and apply it to their repatriation tax bill. Pitney Bowes had attempted to spread their $24.4m liability over 8 years and had sought $3.12m in overpayment interest. The Court wasn't having any of that. Choosing to pay in instalments merely changes when you pay it, it doesn't change when you owe it. The IRS already had sufficient funds so there was no interest for Pitney.
Why It Matters:
A §965(h) election defers the payment without apportioning the underlying liability into separate tax years.
Overpayment calculations must take into account the full repatriation tax liability.
The decision resolves a question of first impression relating to §965(h) and overpayment interest.
Stretching the payments out over eight years? That doesn't mean you get a refund if the IRS is already got your money sitting in their hands.
Brookfield challenges IRS reduction of $20.5 million in Lehman bankruptcy losses
Brookfield US Inc. & Subsidiaries v. Commissioner, Docket No. 10640-26
Brookfield is in a fight with the IRS over a $20.5m haircut to its 2018 net operating loss deduction. The story is that Brookfield acquired some of the Lehman Brothers 'leftovers' via a fairly complex two-step process involving minority stakes, debt arrangements and a bit of bankruptcy wizardry. Brookfield's position is that the entire transaction is entitled to the bankruptcy exception and they want to keep the losses. The IRS are not convinced and are seeking $4.3m plus a penalty. The Tax Court has not yet ruled.
Why It Matters:
The dispute is about the application of §382 ownership change limitations in a bankruptcy acquisition.
Constructive ownership rules and §269 may impact the availability of acquired tax losses.
Commercial purpose and the sequence of transactions will be at the heart of the litigation.
Takeaway: acquiring the company's assets and acquiring its tax losses are not necessarily the same transaction under the Code.
Overall Takeaway
Tax planning is all about finding the loopholes and the benefits in the Code. This week was a good reminder of what happens after you've done the big moves, signed the deals and built your entire operation around a particular exemption.
A club can lose its exemption even if everyone's still fishing. A company can choose the payment plan and still not get the refund they wanted. Those bankruptcy losses can easily become a multi-year legal battle.