I was seriously of two minds about blogging William Cavallaro, Donor, 2014 T. C. Memo. 189, filed 9/17/14.

I’d had a lot to say lately about tax advisers getting it wrong. I didn’t want to appear to be engaging in schadenfreude, or calling penalties from the bleachers. Still less did I want to seem to be encouraging the disappointed taxpayer to sue their advisers when the metaphorical pot of gold turns out to be a pot of something much less desirable. And, worst of all, I do not want to seem to be claiming some kind of Olympian omniscience, when all I am doing is playing Monday morning quarterback.

And I’ll recite the clichés yet again: There but for the grace of you-know-Whom go any of us. Bad pilots don’t crack up jumbo jets; only good pilots do, because bad pilots never get to fly them. And all of us have awakened in the dark night of the soul at 3 a.m. thinking “OMG, did I do (or fail to do) that?”

OK, self-exculpatory patter done with.

The case is fact-specific. It’s a Pop-and-Mom business that starts at the dinner table. Mom and Pop barely made it through high school, but they build a multi-million dollar business. Their three sons are bright kids. The eldest devises a really good machine, and Pop-and-Mom’s corporation develops and manufactures it. But it never gets patented, and Pop-and-Mom took the R&D credits.

The sons’ corporation sells the device to various users, but never formally gets the IP that’s the valuable asset, and when the corporations merge, Pop-and-Mom get way less stock than their share of the assets.

Why? Because a Big Four accounting firm with two names, and a major league Boston law firm also with two names, advising Pop-and-Mom as to estate planning, decide, in the words of one of the attorneys “With regard to the ownership of the ‘technology,’ I am going to be guided by the history which comes out of [the] interviews with the key players. In any history there are a few events which do not fit the picture which the historian sees as ‘what happened.’ History does not formulate itself, the historian has to give it form without being discouraged by having to squeeze a few embarrassing facts into the suitcase by force.” 2104 T. C. Memo. 189, at p. 29.

The accountants objected, simply because the “squeeze” was directly contrary to reality. But the lawyers prevailed. I wonder what they told the clients while this jumpball was going on. In any case, much of the correspondence between lawyers and accountants get into the record (as the clients are trying to avoid substantial understatement and allied penalties, which they do).

Cutting the story short, IRS blows up the deal, hits Pop-and-Mom with having made a gift to their sons of $29.6 million by giving them too much stock, having filed no return and paid no tax. And after various appraisals, which Judge Gustafson mostly tosses, Pop-and-Mom have to cough up the tax and interest.

I’m quoting Judge Gustafson’s comment on all this, because I suspect it’s the prelude to The Phone Call. “The fault in the positions the Cavallaros took was attributable not to them but to the professionals who advised them. (Since those professionals are not parties here and have not had a full opportunity to explain or defend themselves, we refrain from further comment on them.)” 2014 T. C. Memo. 189, at p. 70.

It hurts to blog this, but it might warn some practitioner, advising an unsophisticated client, to have what we call a CTJ (a heart-to-heart discussion) with the client, warn them that the brilliant idea might not work, and let them sleep on the proposition, before leaping into print and winning an argument that will cost the clients plenty.