Tax Coda Weekly Digest — November 16, 2025
This week showed how unforgiving tax rules can be when structure or purpose slips.
Courts kept pressing for real substance, clean records, and honest financial capability. Treasury laid out narrow lanes for staking activity that only work if taxpayers follow every condition.
It was a reminder that the system rewards discipline and punishes shortcuts, and that staying ahead means understanding what the government actually respects.
1. Revenue Procedure 2025-31: Safe Harbor for Investment Trusts and Grantor Trusts Engaging in Digital Asset Staking
Treasury released a safe harbor that lets certain digital asset investment trusts stake proof-of-stake tokens without losing their investment trust or grantor trust classification. The rules apply to trusts that meet strict conditions on custody, liquidity, and limited activities. Existing trusts have nine months to amend their governing documents to qualify.
Why It Matters:
Creates a defined pathway for staking activity without entity reclassification.
Reduces uncertainty for exchange-traded digital asset products.
Aligns federal tax treatment with recent market and regulatory developments.
Takeaway:
Trusts can stake tokens if they adhere to strict operational requirements and update their governing documents on time.
2. Patel et al. v. Commissioner, 165 T.C. No. 10 (Nov. 12, 2025)
The Tax Court held that a doctor’s captive insurance arrangement had no real business purpose and lacked economic substance.
The court said payments labeled as “premiums” were not insurance for federal tax purposes. Accuracy-related penalties under §6662, including economic substance penalties under §6662(b)(6), applied.
Why It Matters:
Reinforces the court’s scrutiny of micro-captive structures.
Shows continued willingness to apply codified economic substance doctrine under §7701(o).
Signals ongoing penalty exposure for taxpayers using captive arrangements without genuine risk transfer.
Takeaway:
Captive insurance deductions must reflect real insurance activity supported by evidence.
3. United States v. James L. Barribeau, No. 1:25-cv-03888 (D.D.C.)
The United States sued a New Zealand-based couple to collect roughly $3.6 million in willful FBAR penalties under 31 U.S.C. §5321(a)(5).
The government alleges they failed to report foreign financial accounts for tax years 2005 through 2012. The complaint seeks judgment for the assessments plus interest and costs.
Why It Matters:
Shows continued federal enforcement of willful FBAR violations.
Highlights that long-standing offshore accounts remain subject to collection actions.
Demonstrates that living abroad does not prevent civil FBAR litigation in U.S. courts.
Takeaway:
Willful FBAR penalties remain aggressively pursued, even when taxpayers reside overseas.
4. Joanne G. Rosso v. Commissioner, T.C. Memo. 2025-115 (Nov. 6, 2025)
The Tax Court denied a taxpayer’s deduction for legal fees tied to defending personal malpractice lawsuits.
The court found that the litigation arose from personal conduct, not from a profit-motivated or business activity under §162 or §212. The expenses remained nondeductible personal costs.
Why It Matters:
Confirms the narrow path for deducting legal fees related to personal conduct.
Reinforces that a connection to income-producing activity must be direct and objective.
Clarifies that malpractice defense fees tied to personal acts fall outside §162.
Takeaway:
Legal fees from personal malpractice suits generally do not qualify as business deductions.
5. Crawford Pile Driving, LLC v. Commissioner (U.S. Tax Court 2025)
In a Collection Due Process review, the Tax Court upheld the IRS’s decision to reject an Offer in Compromise. The court agreed that the taxpayer’s ability to pay exceeded the offer amount and that the IRS could require payment in full. The determination stood because the administrative record supported the financial analysis.
Why It Matters:
Confirms that the ability to pay remains the central factor in Offer in Compromise evaluations.
Shows courts defer to administrative calculations when the record is complete.
Emphasizes the need for accurate financial disclosures during CDP hearings.
Takeaway:
Offers in Compromise fail when the taxpayer can afford to pay the full liability.
Overall Takeaway
Economic substance, accurate financial disclosures, and proper classification rules shaped the week. Courts and Treasury signaled that technical compliance and documented purpose matter across enforcement, trust structures, and collection actions.