This week, the United States Tax Court made a significant ruling on the Economic Substance Doctrine (ESD), unanimously deciding that a threshold relevancy determination must be made before applying the doctrine. The case in question is Patel v. Commissioner.  

Although the court upheld the decision to hold the Patels, a married couple from Texas, liable for substantial penalties, the unanimous rejection of the ESD marks a clear victory. The court emphasized that the IRS cannot simply impose this doctrine on any deal it dislikes. Instead, it must demonstrate that the rule even applies in the first place, serving as a basic fairness check to prevent the agency from abusing its power against ordinary taxpayers.   

For years, particularly under the Biden administration, the IRS has leveraged the ESD—especially via Revenue Ruling 2024-14—as a tool for politically motivated overreach against conservative-led enterprises and partnerships, including those funding right-leaning causes.  

This selective enforcement is politically motivated and underscores the political weaponization that has become ingrained in the IRS. The IRS has used this vague standard to hammer hardworking small-business owners, family partnerships, and conservative donors with crushing penalties and endless audits, often for legitimate transactions. 

It’s time that the IRS eliminates Revenue Ruling 2024-14 once and for all. 

Read the full court case here. 

If you, or someone you know, has experienced a specific IRS abuse and wish to flag the instance for potential inclusion in future Abuses of the Week, contact us with the details at: info@irsaccountability.org.