Jasper L. Cummings, Jr. (Alston & Bird, Atlanta) has published IRS Tries to Apply DRD Limits to the King — And Fails, 109 Tax Notes 1191 (Nov. 28, 2005), also available on the Tax Analysts web site as Doc 2005-23263, 2005 TNT 228-21.  Here is the Introduction:

Ralph Waldo Emerson said, "When you strike at a king, you must kill him." What was the IRS thinking when it decided to pursue a high-profile taxpayer (Warren Buffett’s Berkshire Hathaway) regarding a transaction that was central to its basic, continuing business operations (that is, not a one-shot tax shelter)?

Of course the IRS was thinking it was doing its job, and rightly so. Perhaps the IRS also was thinking, "If § 246A does not apply to this case, it will apply only to the clueless taxpayer." Again the IRS would have been right, at least according to a federal district judge in Nebraska.

Maybe the IRS should have been thinking, "§ 246A really can’t be made to apply to ‘normal’ attempts to avoid it, and so we won’t try to make the shoe fit, but rather we will change shoes." But the IRS doesn’t think that way, because it is an enforcement agency. It applies the laws as written, assumes Congress wrote the laws to accomplish reasonable purposes, and has no means to improve the law. Treasury can choose to improve the law within certain limits through regulations, but the need for regulations is much greater than the government’s capacity to supply them. Unlike Honda, there is surprisingly little opportunity for the guys on the assembly line at the IRS to stop the line and get a correction made to the process.

Therefore, what in hindsight seems like a very difficult case against a taxpayer-king was allowed to proceed from 1991 until 2005, when it was lost (subject to appeal). OBH, Inc. v. United States, 2005 U.S. Dist. LEXIS 29382 (D. Neb. 2005). Maybe the IRS thought Berkshire Hathaway would be a poster child for the § 246A issue. It will be, but the poster now carries the wrong message from an enforcement perspective.