On August 31, 2020, the Tax Court issued a Memorandum Opinion in the case of Daichman v. Commissioner (T.C. Memo. 2020-126). The primary issue before the court in Daichman v. Commissioner was whether the petitioners are entitled to a short-term capital loss deduction of $2.1 million in connection with the dissolution of their S corporation or whether their tax transactions lacked economic substance. Brief Background to the Shenanigans in Daichman v. Commissioner During 2009 the petitioners transferred personal assets of cash and marketable securities to a wholly owned S corporation, which in turn immediately transferred those assets to a family limited partnership. A few weeks later, the petitioners dissolved the S corporation and received the partnership interest as a liquidating distribution. In connection with the liquidation, the petitioners claimed a nonpassive loss deduction on Schedule E, Supplemental Income and Loss. The claimed nonpassive loss deduction reflected a substantially discounted value…