This one is of interest to lawyers, but I’ll try to make it intelligible to human beings as well. This is Jeffrey Wycoff & Merrie Pisanno-Wycoff, Docket No. 24158-09, filed 1/13/14, from the pen of Judge Marvel.

Merrie claims innocence, but also claims her lawyer had an undisclosed conflict (he was representing her and Jeff, and moreover had been in the same firm as the lawyer who put her and Jeff in the deal IRS is trying to blow up). See my blogpost “Which Side Are You On?” 7/9/13.

Well,  IRS knew, and Jeff’s and Merrie’s attorney knew, there was a conflict, but nobody bothered to tell Judge Marvel until after the trial was over and she found out for herself.

Now what? Merrie refuses to waive the conflict, and wants to reopen the trial record to put in evidence of her innocence, and IRS has no problem with that. Jeff wants to put in evidence to show cooperation with IRS and try a Section 7491 burden shift, but that train left, says Judge Marvel.

First, the easy one. “Petitioner Merrie Pisanno-Wycoff alleges that petitioners’ former counsel failed to discuss with her whether she may be eligible for relief under section 6015. Because respondent does not oppose petitioner Merrie Pisanno-Wycoff’s request to partially reopen the record to submit evidence regarding her eligibility for relief under section 6015, we will reopen the record for this purpose.” Order, at p. 3.

Next, what to do with the rest of Jeff’s request? After a thorough reading of ABA Model Rule 1.7 (the conflicts rule, and Tax Court is bound by the ABA Model; see Tax Court Rule 201(a) and my blogpost “A Non-Christmas Carol”, 12/23/13), Judge Marvel tosses Jeff’s and Merrie’s trial counsel. Incidentally, she finds that, while IRS and Jeff’s and Merrie’s trial counsel knew about the conflict well before trial but said nothing, they did not intentionally mislead the Court, Order, at p. 8 (emphasis by the Court). Thus, reopening for fraud is not on the table.

So now that he’s tossed, how much reopening of the record is allowed or allowable? That’s of course up to the Court; the prevailing interests are economy, substantial justice and no ambushes.

Judge Marvel won’t follow either IRS’ take or Jeff’s and Merrie’s new counsel’s view. The post-opinion rules (vacating or renewing) don’t apply.

On the substantial justice (fairness) front, Judge Marvel buys new counsel’s argument that conflicted counsel failed to introduce evidence that would have conflicted with what advice his old buddy gave Jeff and Merrie. So, having shown with some particularity what they wanted to put in, and how it would change things, new counsel gets a shot.

But new counsel doesn’t get all they wish for. Here’s the anti-ambush part. “Petitioners also seek to introduce evidence regarding their cooperation with respondent [IRS] during the examination and to conduct further briefing on burden of proof issues under section 7491 and otherwise. However, petitioners concede that they do not know why Mr. X failed to raise these issues earlier, and they do not explain how Mr. X’s conflict could have caused him to fail to properly address these issues. We therefore conclude that reopening the record with respect to these issues is unnecessary and would be unfair to respondent.” Order, at p. 11 (Footnote and name omitted; I suspect the lawyer in question has troubles enough).

Anyway, Jeff and Merrie aren’t hot dogs. “Although this case is now ripe for opinion and decision, we do not think that petitioners’ failure to raise Mr. X’s conflict earlier precludes a limited reopening of the record in this case. Counsel for both parties apparently failed to recognize Mr. X’s conflict, and it would be unfair to hold petitioners to a higher standard.” Order, at p. 11. (Name omitted).

And IRS’ counsel knew about the conflict three months before the trial, so they shouldn’t be surprised either, given the expressly limited scope for which the record is reopened.

Takeaway–This is fortunately a very rare occurrence, but if you have to reopen, have a solid laundry list of what should have gone in at the trial, show why IRS isn’t ambushed, and have a sympathetic client.