Shady Tax Shelter Promoters: The Ballad of Mr. Combs

It is helpful to remind taxpayers now and then that there do exist plenty of bad-apple advisors out there. Quite often, we at ESA find ourselves helping our clients wind-down, mitigate, and stop erroneous positions and planning put into by place by such bad-apple advisors. Our firm has even assisted in defending audits and tax casesbrought by the IRS. It never fails. There is always someone out there who, for some reason, thinks he or she is superior in substantive tax knowledge and is able to convince someone to buy into their “plan.” 1 Sometimes, plans consist of multiple transactions each of which, on their face, seems plausible or reasonable. There are some that seem crazy, but work, even with a strong court blessing.2 I am a fan of creative planning, especially when the planning has already been blessed by the courts. Some plans, such as an old and cold, tried and true plan, like using an S-corporation for employment tax (and more recently QBI) planning can work, but must be properly administered and utilize reasonableness.3 It simply is important to be sure that tax planning transactions are evaluated by a professional, independent tax advisor. Doing so can keep clients out of trouble be avoiding bad planning while also allowing clients to feel comfortable proceeding with plans that may seem too good to be true, but work.

Then, you have the shams. Couple a sham with a free man of the land, sovereign citizen, part of the upper caste, or whatever Mr. Combs claimed to be and you have a humorous case. As funny as it may be, it serves as a reminder to research advisors, especially those that hold themselves out as “tax advisors” with seemingly too good to be true plans. First, if you have another advisor such as a CPA or attorney, ask them for an opinion. Second, perform a simple Google search. Third, consider requesting a second opinion from a separate advisor, but remember, reasonable minds can differ.


Mr. Combs, pro se petitioner and taxpayer in question, was an author, performer, and motivational speaker.4 Hoping to reduce his tax liabilities, Mr. Combs consulted with a Mr. Robert Holcomb, of San Marcos, California, a self-proclaimed “asset protection” specialist. Mr. Holcomb is now in jail (DOJ Press Release – Mr. Combs caused fees he received from his speaking engagements to be paid to his corporation, Good Thinking Co., Inc. (“Good Thinking”). Thinking then deducted these expenses on its return thus removing what would be taxable income from Mr. Combs while Mr. Combs still received benefit of the use of the pre-tax funds. Mr. Holcomb also consulted with Mr. Combs to participate in the tax avoidance scheme dubbed the Private Tax Excepted Self-Supporting Ministry (“PTESSM”). The general concept of the PTESSM strategy was to shift business income to various entities which would then use those funds to pay personal expenses including groceries, child care, video rentals, and other expenses. By shifting income and assets into and through a web of entities and trusts where Mr. Combs acted as officer or cotrustee with Mr. Holcomb, Mr. Combs more or less, by the advice of Mr. Holcomb, wanted to more or less wave a magic wand and say “abracadabra” and magically have the income not be taxable. This did not work.

To add insult to injury, in addition to the unfavorable ruling for Mr. Combs, the Court also upheld a failure to file penalty for the 2011 tax year, accuracy related penalties, and a sanction under Section 6673(a) of $2,500 for wasting the time of the Court and chief counsel’s office even arguing this frivilous case. Footnote 13 of the opinion helps put into perspective the grounds for the sanctions (and laughs).

Petitioner’s various filings include arguments that: as a result of the PTESSM he is a “kept Man” benefiting from the “Artistic Patronage” of Mr. Holcomb; any taxes due are the sole responsibility of Mr. Holcomb; petitioner is not a “U.S. franchised 14th [A]mendment citizen” or a “U.S. resident” or a “person” within the meaning of Federal statutes; and this Court and its officers are “benefiting financially” from a “securitized document package” listed under petitioner’s name and case number. At trial petitioner repeatedly invoked his reliance on the PTESSM strategy and offered into evidence a letter from Mr. Holcomb espousing frivolous and groundless claims; petitioner testified that the letter “mirrors my mindset of exactly what my situation is and my relationship with Mr. Holcomb and the PTESSM.”

Legal Analysis

Section 301 – Constructive Dividend

Payment of personal expenses by Good Thinking should either be a dividend under or compensation. In the case at hand, the Internal Revenue Service determined that payment of the personal expenses of Mr. Combs’ by Good Thinking was a constructive dividend (which yielded a similar total tax result because the deductions were denied for Good Thinking in a separate matter).

Section 6651 – Failure to File Penalty

A failure to file penalty applies for each month or partial month for which a return is due, but not filed. The penalty is assessed at a rate of 5% of the tax required to be shown on the return per month (or partial month) up to a maximum of 25%. Mr. Combs’ 2011 return, due April 17, 2012, was filed June 24, 2013. Therefore, a 25% penalty for failure to file applied with respect to the 2011 tax year.

Section 6662(a) – Accuracy Related Penalty

A 20% penalty of the tax required to be shown on the return may be applied under Section 6662(a) as a result of negligence or disregard of rules or regulations. Negligence includes the failure to make reasonable attempt to comply with the provisions of the Internal Revenue Code. It also includes any failure to keep adequate books and records or to substantiate items properly. In the case of Mr. Combs, the 20% penalty applied because the Court found that Mr. Combs purposefully participated in a scheme to reduce income tax by improperly treating personal living expenses as business deductions and upheld the determination of liability for accuracy related penalties based on negligence.

Section 6673 – Sanctions

Section 6673(a)(1) authorizes the Tax Court to sanction a taxpayer up to $25,000 when it appears a taxpayer instituted or maintained proceedings primarily for delay, that the taxpayer’s position in such proceedings is frivolous or groundless, or that the taxpayer unreasonably failed to pursue available administrative remedies.5 The Court found that Mr. Combs’ position was frivolous and that his action was maintained primarily for delay.


This is not intended to be a substantive article. Instead, it is a reminder to be wary and watch out for promoters pushing a tax plan that seems too good to be true. In most situations, things are what they are and one simply cannot construct a structure as a façade merely to achieve different tax results. If Mr. Combs had consulted with a qualified, independent tax advisor before engaging in the plan, it is likely he would have likely avoided penalties and sanctions. Failure to do so, as we see in many cases, cost him.


  1. See Joshua W. Sage, J.D., LL.M., Playing with a Loaded Deck: CARDS and the Economic Substance Doctrine, ESA Law (July 18, 2018), and Joshua W. Sage, J.D., LL.M., Sixth Circuit Clarifies Substance over Form Doctrine in “MidCo” Case, ESA Law (May 29, 2019),
  2. Summa Holdings, Inc. v. Comm’r, 848 F.3d 779 (6th Cir. 2017)
  3. See Tony Nitti, CPA, MST, S Corporation Shareholder Compensation: How Much is Enough, THE TAX ADVISER (August 1, 2011),
  4. See Combs v. Comm’r, T.C. Memo 2019-96
  5. Burke v. Comm’r, 124 T.C. 189, 197 (2005).


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