Judge Travis A. (“Tag”) Greaves gives us a quick tour through client-attorney privilege, as extended to preparers by Section 7525, in Estate of Mary K. Sakioka, Deceased, Jeremy T. Sakioka and Traci Kiyama, Executors and Co-Trustees, Docket No. 7132-19, filed 2/2/22.

It’s the usual post-mortem family trust/flp stash for the family’s cash, securities and income-producing realty, the good old “never sell nothing never,” of grandma/dad’s last words.  IRS wants the family’s lawyers and advisers to bukh, as good-faith reliance is clearly the plat du jour.

IRS serves up the usual waiver, with a chaser of business-advice-not-legal-advice, and sword-shield at no extra charge.

“A party impliedly waives the attorney-client privilege when it makes an argument the opposing party can refute only by reference to the privileged communications.” Order, at p. 6. OK, good-faith reliance can go off on what your lawyer told you. But the magic word is “only.” ” However, privileged communications do not become discoverable where they simply are relevant to issues raised in the litigation or where they are only one of several forms of indirect evidence about an issue.” Idem., as my expensive colleagues say. There’s more than one way to skin a cliché, and only if the Sakiokas can adduce no plausible alternative source to their good faith other than the advice of the 7525 brigade, the 7525s stand mute.

Some stuff claimed to be privileged was already turned over to IRS. Judge Tag Graves passes on that, until he can figure out whether the documents were shared with family and employees, such that they were so broadly disseminated to nonparties as to lose privilege. On that score, Judge Tag Graves will do an in camera on that issue, and the fairness doctrine issue.

Fairness says a party can’t disclose what part of privileged matter they like, and suppress that which they don’t like. This is son-of-completeness; refer to a document, and the whole thing goes in, not just the parts you like.

While Judge Tag Greaves doesn’t decide a lot here, he lays out the groundwork. So this is a good cheat-sheet for basic preparer-privilege issues.

John M. Larson, 2022-3 T. C. Memo., filed 2/2/22, was unaware that, as trustee of the ESOP of the Sub S he and his two buddies set up to stash the proceeds of their phony shelterflogging, he had to get the consent of the employees to lift the earn-out restrictions on the Sub S stock that he and they parked in the ESOP, terminate the ESOP and cash out.

Although a CPA and an attorney,”… Mr. Larson testified that he was unaware of his duties as a fiduciary of the … ESOP. We do not find his testimony credible on these points.” 2022-3 T. C. Memo., at p. 14.

Back in the day, it was OK to stash your Sub S corp’s stock in an ESOP to defer gain. But Congress killed that. An illustration of the right way to do it, quoted by Judge Courtney D (“CD”) Jones in this case, is found in my blogpost “Unvested Stock, Vested,” 4/24/17. In the end, petitioners there went a bridge too far.

John M. and his confrères self-dealt, and used the ESOP as their cookiejar. Judge CD Jones has the story, but it’s the same old. Stay at the table while the dice are hot, get up and go when they cool, hanging your employees out to dry. Btw, John M. got 121 (count ’em, 121) months hard for tax evasion. 2022-3 T. C. Memo., at p. 8.

Those of us who took Part Deux of The Great Chieftain of the Jersey Boys’ seminar on criminal tax defense last night couldn’t help.

The trusty attorney for Estate of Anthony K. Washington, Deceased, Lenda Washington, Personal Representative, T.C. Memo. 2022-4, filed 2/22/22 (eleven, count ’em, eleven, years before we get a date like this one again), is definitely in the running for a Taishoff Metallurgy Award.

Lenda is divorced spouse of the late Anthony K, but also his personal representative, and not so incidentally was supposed to be the beneficiary of the $100K life policy the Late Anthony K.’s employer maintained while the late Anthony K. was so employed. “Was supposed” because, though their divorce agreement said so, and provided it was an irrevocable designation, the named beneficiary remained their son, who glommed the proceeds when the late Anthony K. became the late Anthony K.

And their divorce agreement was explicitly not incorporated in the divorce judgment. Nonetheless, trusty attorney claims Lenda has a judgment against the estate for $100K, reducing RCP, so that the $10K OIC for the $183K the late Anthony K. owed in income tax makes the doubt-as-to-collectability cut, or maybe the Effective Tax Administration/Special Circumstances cut.

Well, Appeals didn’t have to send that OIC to the Austin OIC Special Victims Unit, because collectability had to be resolved first, and it was. The SO never reckoned the $100K into RCP, because the beneficiary change never happened, and Lenda could have taken the divorce agreement to the late Anthony K.’s employer and had them make the change. And Lenda’s claim that the divorce judgment gave her a lien on the insurance policy was thus irrelevant, as was her claimed judgment lien on the proceeds.

Trusty attorney objects to including the late Anthony K.’s 401(k) in RCP, but Lenda waived all that in the divorce agreement, even agreeing to give it to the estate if she got it by mistake.

Judge Emin (“Eminent”) Toro further justifies that sobriquet with this summation.

“When boiled down to their essence, the Estate’s arguments amount to a plea (1) that Mr. and Ms. Washington’s son be permitted to retain $100,000 in life insurance proceeds paid to him under the policy maintained by Mr. Washington’s employer, (2) that Ms. Washington (who, under the [divorce agreement], was supposed to have received the life insurance proceeds) be permitted to recover instead $100,000 from a retirement account to which she had disclaimed all rights, and  (3) that the United States be required to compromise its claim for tax due on the substantial income that Mr. Washington earned during the Relevant Tax Years. We do not see how effective tax administration could possibly support such a result. See Treas. Reg. § 301.7122-1(b)(3)(iii).” 2022-4 T. C. Memo., at p. 28.

I don’t see how either, Judge.

Technical takeaway: Ever wonder where you are Golsenized when you’re dead? See 2022-4 T. C. Memo., at p. 2, footnote 2, and be grateful it won’t be your problem.

Abe Lincoln was quite a phrasemaker. As I read the Tax Court outpouring every working day, I often find the “mystic chords of memory” plucked, strummed, and sometimes even slammed. Today, William A. Hammond & Irma Hammond, Docket No. 20860-18, filed 2/1/22, and Judge Travis A. (“Tag”) Greaves, are playing dueling dulcimers. It’s the old cash-for-stock-hedgeroo I’ve blogged so often, but this version comes with a twist.

Longtime readers of this my blog will recall the game. Petitioner has stock with ginormus FMV, basis bupkis (please excuse arcane technical term). If sells, gets 80% of gain, post-tax at capital gains rates. So petitioner borrows 90% of FMV from hedger with interest accruing, repayment due in three years with no permitted prepayment, nonrecourse. As Judge Tag Greaves says “(U)se of terms like ‘loan’, ‘collateral’, ‘lend’, ‘hedge’, ‘principal’, ‘interest’, ‘maturity’, etc., are for convenience only. We do not intend for our use of those terms to imply that [the transactions at issue] constituted loans for Federal tax purposes.” Order, at p. 1, footnote 3.

At maturity, Petitioner can elect to (a) get the stock back upon paying principal and interest, or (b) walk away and owe nothing, the hedger keeping the stock. The hedger was supposed to be hedging, but had the right to sell. Of course, the hedger sold, gave petitioner the 90%, Ponzi’d some of the rest, kept the balance, and jumped the hedge.

OK, an old story. See my blogpost “Expedite Litigation and Avoid Unnecessary Trials,” 9/25/20 (and note the Loomis case is on appeal to 9 Cir).

So where’s the aforementioned twist?

“Petitioners’ argue, however, that respondent has improperly applied this doctrine [substance-over-form] with respect to the [year at issue] transactions. Petitioners contend that this doctrine applies only if both of the following requirements are met: (1) the form adopted in a transaction differs from its economic substance; and (2) that form results in a measurable tax benefit that would not otherwise be allowed to the taxpayer if the transaction were characterized according to that substance. Petitioners further posit that this second condition was not met in that ‘they did not receive a tax benefit’ by entering into the [year at issue] transactions because if the [year at issue] transactions are respected according to their alleged form, then the master agreements would ‘give rise to the exact same tax consequences’ in that both characterizations—either a sale or loan—would result in taxable long-term capital gains.

“In an attempt to support their allegations, petitioners specifically claim that if the [year at issue] transactions are respected according to their form then they would have had to recognize capital gain income on their[maturity] return in the form of discharge of indebtedness and that respondent ‘should have assessed tax against [p]etitioner in year [maturity] (not in [year at issue]) when [p]etitioner earned capital gains by voluntarily surrendering the … [s]tock in satisfaction of the [l]oan[s].’” Order, at p. 6. (Footnote omitted, but it says that having 90% of the FMV in cash for three years tax-and-interest-free isn’t too shabby).

OK, but.

Bill & Irma didn’t allege or prove that they picked up the gain on the stock sale in the maturity year either.

And none of the prior cases followed the argument that Bill’s & Irma’s trusty attorney makes now, so Judge Tag Greaves isn’t overturning them.

But said trusty attorney gets a Taishoff “Good try.”

I just blogged the Genius Baristas’ boast of their numerous accomplishments, past, present, and to come, in what has been called my “sardonic” style. See my blogposts “Guess Who Reads My Blog – Part Deux,” 8/11/14, and  “Sisyphus Would Giggle,” 2/1/22.

But one true accomplishment is the implementation, after many long years, of the Rule 34(a) all-electronic filing of petitions, amendments, and ratifications.

Finally, the wet-and-blue ink requirement has earned its well-deserved retirement. For the historical background, see my blogpost “Song Sung Blue,” 11/15/13.

Wet-and-blue has been superseded by “an actual signature on a PDF or a signature using an authentication program (e.g., Adobe or DocuSign).” Tonetta Renee Louie & Timothy Jermayne Louis, Docket No. 35275-21S, filed 2/1/22, Order, at p. 1..

Well done, Genius Baristas and Ch J Maurice B (“Mighty Mo”) Foley. Can links to orders, opinions and decisions be far behind? Or even (gasp!) online dockets like PACER?

The Genius Baristas are being dragged upward by popular demand, though their leaden-footed pace is nowise increased.

Today, however, they boast of their accomplishments, past, present, and to come, including without in any way limiting the generality of the foregoing (as my high-priced colleagues would say),”(T)he ability to view unsealed documents in cases where some, but not all, documents have been sealed.” Not now, of course; this, they promise, “will be implemented in the coming months.”

Why hurry, chaps? It’s only been since last July, when one off-the-bench ruling (with no written order) on one proffer of evidence sealed a 191-page T. C. Memo. on DAWSON. The Memo was immediately splayed all over every other part of the internet, of course. See my blogposts “A Seal Upon Your Arm,” 7/15/21, and “Further to the Foregoing,” of even date therewith, as the aforesaid colleagues would say.

Really, Sisyphus would get a giggle out of my efforts to chip a millimeter off the Rock of Svithjod. But like him, I persevere, alone.