It’s never happened that I horse I backed was elevated on account of a DQ, nor had any horse I backed been itself DQ’d. But I’ve seen it happen, and the objurgations, imprecations, expostulations, ejaculations, and anathemizations of those whose horse was thus cast out by the stewards were worthy of utterance by my old outfit in Vietnam.

It’s a shame that the examination for admission to the Bar of the United States Tax Court took place last week, because today Judge Alina I (“AIM”) Marshal has a survey of grounds for disqualifying counsel for conflict of interest that would be a good review for candidates for the Biennial Slaughter of the Innocents.

Here’s Pecan Ranch Family Trust, et al., Docket No. 21716-18, filed 11/24/21*. It’s another Section 6901 transferee liability case, with a twist. No MidCos or shell-shills to buy gain-laden C Corps; a now-deceased accountant cooked up a bunch phony Sub Ss (hi, Judge Holmes) to shelter income from a couple doctors and pay the Docs’ personal expenses.

The Pecans got the Sub S stock for a $100K purchase price. IRS claims either the S Corps are a sham and assignees of income, or the Pecans are transferees of the tax liabilities of the now-deceased accountant who should have paid tax on the pass-through doctors’ income he sheltered. The Pecans are represented by two attorneys from a firm, and IRS claims they’re promoters, and thus flunk Rule 24(g)(1).

The Pecans provide a written waiver of the conflict that passes muster.

“Respondent has not shown that Mr. Y was involved in planning a transaction that is connected to any issue in these consolidated cases. Conversely, respondent has shown Mr. H to have been involved in: (1) the formation of the Trust; (2) the sale of the S Corporations to the Trust; and (3) the money transfers of $625,000. Messrs. Y and H obtained from petitioners a broad written consent, which includes statements that petitioners read documentation from respondent asserting conflicts of interest under Rule 24(g)(1). Further, respondent has not established any other concurrent conflict of interest under Rule 1.7 or Rule 1.10, ABA Model Rules. On the basis of the arguments and documents before us, we conclude that petitioners’ written consent is sufficient to obviate the conflicts of interest with respect to Mr. H and Mr. Y under Rule 24(g)(1).” Order, at pp. 4-5. (Names omitted).

But will Mr. H have to testify on the trial? Judges take a real close look at that, because it’s a good tactic to knock out counsel by claiming you’ll call her/him as a witness.

Mr Y is clearly in; he hadn’t anything to do with the S Corp stock sale to the Pecans. But Mr H is another story.

“Respondent has shown that Mr. H advised petitioners on various transactions related to the S Corporations and the Trust. The advice that [the doctors] received when the Trust purchased the S Corporations is relevant and material to the application of section 6901 and determination of a fraudulent or constructively fraudulent transfer under TUFTA. See Cullifer v. Commissioner, T.C. Memo. 2014-208, at *18-*19. Petitioners argue that Mr. H is not a necessary witness because the relevant and material evidence is obtainable from other sources. This argument, however, is undercut by the following considerations: (1) Mr. [deceased accountant] passed away on November 21, 2014; (2) Dr. B and his colleague… have indicated a lack of knowledge or understanding of the various transactions related to the S Corporations and the Trust; and (3) Mr. H was a principal tax advisor to petitioners and their related entities when the transactions related to the S Corporations and the Trust occurred. Accordingly, Mr. H’s testimony is uniquely valuable in these consolidated cases and is unattainable elsewhere.” Order, at p. 6. I think you meant “unobtainable,” Judge.

For the backstory on Cullifer, see my blogpost “Cullifer’s Travails,” 10/8/14.

But remember the “bedrock of Tax Court practice.” The stip. And Judge AIM brings it to the front in the stretch. Only before you cash those tickets, remember Taishoff’s Rule: Stipulate, Don’t Capitulate.

“We are unable to determine at this time, however, whether Mr. H is likely to be a necessary witness. It is also unclear at this time whether the parties can agree to facts that would render Mr. H’s testimony duplicative or related to an uncontested issue (i.e., for purposes of Rule 24(g)(2)(A)(i)). The determination of whether Mr. H is likely to be a necessary witness will be made following submission to the Court of an executed stipulation of facts and the parties’ pretrial memoranda. Because we cannot yet determine whether Mr. H is likely to be a necessary witness, we need not consider at this time whether Mr. H’s testimony would be protected by attorney-client privilege.” Order, at pp. 6-7.

*Pecan Ranch Family Trust 21716-18 11 24 21