Fallout continues from the demolished two-stage structure that was TEFRA. Whether IRS properly mailed the FPAA to a notice partner, when said partner was an indirect partner, is yet another chapter in the Scott Blum saga.

Scott is trying to get Judge Goeke to reconsider his decision, which tagged Scott with a massive whack from a collapsed tax shelter. The basic story can be found in my blogpost “Thirteen Years,” 2/18/25.

I’ll repeat what I said then: “I’ve paid good money for whiskey younger than this case.”

Once again, Rule 161 reconsideration is a broken reed.

“The U.S. Court of Appeals for the Tenth Circuit, to which this case is appealable unless stipulated to the contrary, has identified the following grounds for granting of a motion of reconsideration: (1) an intervening change in the controlling law, (2) new evidence previously unavailable, and (3) the need to correct clear error or prevent manifest injustice.” Order, at p. 1.

Here, Scott has none of the above. The case is Scott A. Blum and Audrey R. Blum, Docket No. 5313-16, filed 4/30/25.

No, not political commentary; I’ve spoken my piece here and will not now inflict more upon my readers. I just want to show how a Big Law alum who moved up to the Tax Court Bench esteems his successors.

Judge Albert G. (“Scholar Al”) Lauber’s bio mentions his prior career as a partner in a whiteshoe firm. No fewer than five (count ’em, five) trusty attorneys from a different firm, with shoes no less dazzling, feature in Computer Sciences Corporation, Docket No. 4823-21, filed 4/29/25.

The trusty attorneys want “analyses prepared by the IRS Independent Office of Appeals [Appeals] regarding the Capital Loss Issue.” Order, at p. 1. It’s a rather hefty issue, as the claimed capital loss is $651 million.

IRS objects on FRE 408 grounds: statements made in the course of settlement negotiations are not discoverable. The trusty attorneys claim the documents are “’relevant to [its] defense against the accuracy-related penalty.’ That is supposedly so because the documents in question ‘appear to discuss authorities and outline analytical constructs’ that ‘may inform the parties’ positions and arguments . . . as to whether the position taken [on petitioner’s tax] return is supported by substantial authority or a reasonable basis.’” Order, at p. 2.

Judge Scholar Al says Appeals is a settlement enabler in thousands of cases, in many of which IRS concedes certain points to avoid litigation. “Appeals created the documents petitioner seeks in the context of settlement negotiations while discharging its duty to evaluate the ‘hazards of litigation’ the IRS might face in court. Evidence implicating settlement discussions is inadmissible.” Order, at p. 2.

But those legal authorities.

Judge Scholar Al nails that one.

“We are confident that petitioner’s able counsel has the capacity to perform the legal research necessary to uncover any relevant authority that may exist.” Order, at p. 2. (Footnote omitted).

No, not a tale of golfing misadventures, Dealers Auto Auction of Southwest LLC, T. C. Memo. 2025-38, filed 4/28/25 claims their software played them false, so they missed filing and providing the payors with 266 (count ’em, 266) Forms 8300 Report of Cash Payments Over $10,000 Received in a Trade or Business.

IRS wants a nonassessible chop of $118K, so no opportunity to contest liability prior to CDP.

IRS has gigged DAAS once before year at issue for nonfilings and nonproviding, so they invested in some software. Their argument is reasonable cause, but as they’re an LLC, Section 7491(c) BoProd doesn’t help (individuals only).

DAAS seems to think the software filed the 8300s with IRS, but it turns out it just printed them, even though the developer claims they subsequently improved the system; exactly how never gets into the record.

While software failure isn’t a cure-all for failed reporting, Judge Ronald L. (“Ingenuity”) Buch doesn’t rule it out. True, accuracy chops are only avoided when petitioner proves a programming fault, but “Treasury Regulation § 301.6724-1(c)(1) does not preclude a finding that a software malfunction could be a failure beyond the filer’s control. The regulation’s only mention of technology-related failures is ‘filing on magnetic media.’ Treas. Reg. §301.6724-1(c)(1)(ii). While magnetic media is not involved here, this regulation makes clear that a technological failure may be sufficient to give rise to reasonable cause. The Commissioner acknowledges in his internal guidance that failures related to software and hardware can be failures beyond the filer’s control for purposes of the reasonable cause defense. See, e.g., Internal Revenue Manual 20.1.7.12.1(24) (Dec. 16, 2022). The Commissioner’s Internal Revenue Manual lists ‘relied upon an internal computer system that encountered major hardware and/or software problems’ amongst failures beyond the filer’s control for purposes of the reasonable cause defense to failure to file an information return. Id.” T. C. Memo. 2025-38, at pp. 8-9.

Given the use of e-filing, the reference to “magnetic media” is quaint.

IRS also argues that the duty to file and provide is nondelegable, but DAAS isn’t claiming they delegated the duty to file and provide. They say they have to file, but the software played them false by misleading them that the software filed.

There’s no evidence from DAAS of how the software failed. The software instructions say it will print the 8300s, not that it will file them as well.  And the later improvements to the software don’t state that they rectified any failure.

“Even assuming Dealers Auto met its burden to show a failure beyond the filer’s control, the record does not support a finding that Dealers Auto acted reasonably before or after the failure. For example, Dealers Auto did not establish that it was correctly using the software or that data was being entered correctly into the system. While it is not necessary to show that Dealers Auto made every data entry correctly, the record offers the Court no insight as to Dealers Auto’s installation, training, or use of the software.

“Similarly, Dealers Auto did not establish that it took reasonable steps to foster compliance. Dealers Auto argues that it reasonably believed the software was working as intended because it was generating some information returns. But the record shows that Dealers Auto software prepared only 116 Forms 8300 in [year at issue]. The record also shows that Dealers Auto was required to file at least 212 Forms 8300 in [year they were gigged]. That reduction in the number of forms should have placed Dealers Auto on notice that its software was not performing as intended. And Dealers Auto offers no explanation as to why the reduction in the number of forms would have appeared reasonable. Absent any explanation, we are not persuaded that Dealers Auto reasonably relied on its software.” T. C. Memo. 2025-38, at p. 10.

Judge Ingenuity Buch has provided a checklist for proving a software fault defense. Read and heed.

Back last September, when discussing the guided largesse of Bruce MacDougall’s kids Peter and Linda, I said that working out what was worth how much, as between remainder interests and promissory notes, is for another day. See my blogpost “No Commuter Tax,” 9/17/24.

Well, Judge James S. (“Big Jim”) Halpern brings us closer to the answer in Linda M. Lewis, Donor, et al., Docket No. 2459-22, filed 4/25/25.

The latest argy-bargy concerns whether relinquishing the remainder interests Peter and Linda had in Mama Clotilde’s testamentary trust was a gift to Papa Bruce of the assets themselves, or of the right to receive distributions therefrom.

IRS says each donor transferred his or her right to receive outright and free of trust a one-half share of the Residuary Trust assets allocable to the remainder interest, as opposed to a one-half share of the remainder interest itself. Order, at p. 1. Apparently IRS thought (or thinks) the assets themselves are worth more than the right to receive distributions thereof.

Judge Big Jim isn’t so sure. “…if Linda and Peter had not agreed, in a Nonjudicial Agreement entered into with Bruce…, that ‘the entire remaining balance of the Trust shall be  distributed outright and free of trust to Bruce,’ the distribution of trust assets among the beneficiaries would have been governed by section 12.8 of Clotilde’s will. That provision allowed the trustee to make either pro rata or non-pro rata distributions ‘so long as the distributees receive assets of a value equal to the value of their respective interest[s] in the trust at the time of distribution.’

“Therefore, if Linda and Peter had not acquiesced in the distribution all trust assets to Bruce, each would have received a share of trust assets with a value equal to the value of his or her remainder interest in the trust. Linda’s and Peter’s gifts would apparently have the same value whether we viewed the transferred property as rights to distributions or as remainder interests. Either way, the value of the gifts would equal the value of the remainder interests when the trust was terminated.” Order, at pp. 1-2. (Footnote omitted.)

Howbeit, neither side has explained what difference it makes in the value of what Peter and Linda gave Papa Bruce. All the above-cited case last September decided was that there was a taxable gift.  Peter and Linda argue there were various contingencies that would have affected the value of what they got if they hadn’t terminated the trust.

Except they did. So the contingencies don’t affect the worth of what they gave away.

So for the moment, all Judge Big Jim decides is that the worth of what Peter and Linda gave away was the right to receive distributions of what was in the trust at termination thereof.  And the value of Linda’s and Peter’s remainder interests in the Residuary Trust when the trust was terminated definitely has bearing of the value of the gifts they made to their father. Order, at p. 5.

Clear? Thought not.

Ch J Kathleen (“TBS = The Big Shillelagh”) Kerrigan deals with the Tax Court consequences of Norm Dacey’s blockbuster, the inter vivos self-settled probate-dodger.

Verlyn L’Heureux, Docket No. 10086-20, filed 4/25/25 (him/he) is no longer around when his ex’r moves to sub in for the deceased. Though the ex’r is designated in the late Verlyn’s will, he will not seek to probate same.

Taishoff says the will was doubtless a pourover, designed to catch any goodies that the late Verlyn couldn’t title into the trust before he became the late Verlyn, and pour same into the trust. If all the goodies got titled into the trust in time, no need to probate the will.

Except.

“To the extent Mr. K seeks, in his capacity as successor trustee, to represent the decedent’s estate, we must deny his motion, as we have held that the successor trustee of a trust established during a decedent’s lifetime is not legally authorized to represent a decedent’s estate before this Court. See Sander v. Commissioner, T.C. Memo. 2022-103.” Order, at p. 1. (Name omitted).

For the story of Leda Sander, see my blogpost “Unavoiding Probate,” 10/6/22.

The problem is State law. Rule.60(c) says the capacity of a fiduciary or other representative to litigate in Tax Court shall be determined in accordance with the law of the jurisdiction from which such person’s authority is derived. State law determines rights, Federal law determines how same shall be treated for tax purposes.

Ch J Kerrigan tells ex’r-designate and IRS to discuss whether the will is going to be probated after all, or an adm’r appointed, or whether the heirs at law will take up the quarrel.

A docket search shows the late Verlyn sought trial in ID, so it’s a reasonable inference he was domiciled there. What ID law provides in this case I have no idea. But I would not be surprised, if State law is ambiguous in this regard, a Federal court will not engage in complex, subjective inquiries under State law. Wherefore, successor trustees must be prepared to deal with probate after all.

And their estate planning attorneys should so advise them.

Tax Court discovery often can thus be summarized. Judge Ronald L. (“Ingenuity”) Buch takes us down that road more traveled by in Paul Kempin, Docket No. 2352-20, filed 4/24/25.

“How much” comes in two flavors, one acceptable and one unacceptable. Paul claims IRS’ demand for his “sources of income and interest in real property for the years at issue” goes outside the scope of the SND he got for the five (count ’em, five) years at issue.

“Our jurisdiction in a deficiency case is to determine the liability for the year in issue and can take into account facts affecting that liability, even including information relating to years not before the Court to the extent they affect the liability for the years before the Court. See I.R.C. § 6214(a). The Notice of Deficiency issued to Mr. Kempin determined deficiencies in income for the years at issue. The information sought by the Commissioner is relevant to determine Mr. Kempin’s income and sources of income for the years at issue.” Order, at p. 3.

The other “how much” demand fails.

“Request 15 seeks information showing Mr. Kempin’s assets and liabilities for the years at issue. Mr. Kempin raised multiple objections including that the request was overbroad and unduly burdensome. That request seeks, without limitation, a list of ‘Petitioner’s assets and liabilities for each taxable year…..’ As drafted, this would include every asset from real property to a thimble in a sewing kit and every liability from a mortgage backed real estate loan to an amount owed for a past due library book. We agree with Mr. Kempin that the request is overbroad. We therefore deny the Commissioner’s Motion to Compel as to request 15.” Order, at p. 3.

“Who” means a claim of client-attorney privilege, but that doesn’t protect.

“The attorney-client privilege applies only to communications made to an attorney for the purpose of obtaining legal advice. This privilege does not protect the disclosure of the name and contact information for the individual who gave any such advice. Further, as written the request does not ask who provided legal advice regarding worthlessness, but rather, who informed Mr. Kempin that the property was worthless, as a fact. Mr. Kempin argues that his interest in a partnership became worthless. Therefore, disclosing the name of the individual who provided that information is relevant because it would assist the Commissioner in determining Mr. Kempin’s income for that year.” Order, at pp. 3-4.

Just ask Albertina Camaclang d.b.a. Europa Guest Home, Docket No. 15761-23L, filed 4/23/25, and her trusty attorney, whom I’ll call Chris. Albertina and Chris lose a Section 7340 admins and legals, after IRS folds a $602K Form 941 claim.

It all began when Albertina failed to check the “I’m Out O’ Here”  box on the last Form 941 she filed before unloading the Europa Guest Home. IRS thought she’d not bothered filing. Albertina claims she never got the 30-day Letter 1085 proposing the tax, and IRS can’t prove they sent it.

There’s the usual argy-bargy between trusty attorney and the SO at Appeals. And while IRS didn’t exactly cover itself with glory, I’m going to cut Appeals a wee bit slack this time (hi, Judge Holmes). The unchecked box on the Form 941 opened the Pandora’s Box here. I wasn’t there, so I can’t say who started the scrum at the CDP.  Judge Travis A. (“Tag”) Greaves, as always, a model of discretion, merely tells us that “there was a ‘breakdown’ in communication between petitioner’s counsel and the settlement officer. This resulted in the termination of the conference.” Order, at p. 3. The SO must deal with wits, wags, and wiseacres by the dozen, as well as good-faith deer in the headlights, and more than a few belligerent moose in the headlights also. Plus some lawyers who think that “My Cousin Vinny” is a role model. So maybe there was some excess tension here. The SO sustains the NFTLs here.

When Albertina petitions and shows she sold out before quarters at issue, IRS folds and wants to dismiss as moot. Trusty attorney holds out for a “dission.” Then she files for admins & legals.

“Reasonable administrative costs are limited to those costs incurred by the taxpayer on or after the earliest of: (1) the date of the receipt by the taxpayer of the notice of determination, (2) the date of the notice of deficiency, or (3) the date of the first letter of proposed deficiency that allows the taxpayer to appeal a decision to the IRS Office of Appeals. § 7430(c)(2). Petitioner did not receive a notice of deficiency, and petitioner does not point to any “first letter of proposed deficiency” allowing her an opportunity to go to the IRS Office of Appeals. Consequently, the administrative proceeding date with respect to petitioner’s claim was… the date the settlement officer issued the notice of determination.” Order, at p. 5. But Albertina doesn’t claim any admins thereafter, only prior.

As for legals, IRS was justified.

“Respondent’s litigation position was established on… the date he filed an answer and motion to dismiss. In the answer, respondent asked this Court to uphold the notice of determination. Respondent also denied many of petitioner’s claims based on lack of sufficient knowledge and information. While we think it was questionable that respondent denied some of these claims based on lack of information, it does not change our conclusion.

“Respondent’s motion to dismiss states that ‘subsequent to the filing of the petition, he was determined that Petitioner did not have a tax liability.’ It goes on to provide that for all periods at issue, the liens were released ‘while the interest charged and any penalties imposed were also removed’. By filing a motion to dismiss at the time respondent filed his answer, we find that these documents, when read together, established respondent’s litigation position. Ultimately, respondent took the position that the case was no longer justiciable and all disputes had been resolved. Petitioner did not object to the Court granting this motion. Thus, respondent was substantially justified in his litigation position, and thus, petitioner is not treated as a prevailing party in the litigation proceeding.” Order, at p. 6.

So failing to check a box on a return when she was winding up her business costs Albertina the $49K in admins and legals she claims. And IRS wastes a bunch resources it claims it doesn’t have, which costs all us taxpayers.

Nobody won this case.

Joanne Salvi Vanover is a human resources specialist with a masters’ degree.  She is able to claim Section 6015(c) apportioned innocent spousery, but only to the extent IRS allowed relief at Exam. As to those items, Joanne did not have actual (as opposed to constructive) knowledge. The greater standard for apportionment saves part of the day.

The problem, as usual, is the stipulations. Joanne, pro se, is up against IRS’ two lawyers and her ex’s lawyer plus student. A review of Judge Courtney D. (“CD”) Jones’ opinion shows numerous instances where Joanne tries to contradict her stipulations, without success.

While Judge CD Jones is sympathetic to Joanne’s claims of abuse, and takes them seriously, her criminal conviction for domestic violence and disorderly conduct doesn’t help. T. C. Memo. 2025-37, at p. 7. Her ex’s testimony is credible.

Ultimately, it hurts to be educated. “Ms. Salvi is highly educated, with both a bachelor’s and a master’s degree. Ms. Salvi is currently employed as a human resource professional and owns her home. These facts do not support a finding that it would be inequitable to impose joint and several liability based on Ms. Salvi’s economic position.” T. C. Memo. 2025-37, at p. 27.

The case is Joanne Salvi Vanover, Petitioner, and Michael D. Vanover, Intervenor, T. C. Memo. 2025-37, filed 4/22/25.

Judge Adam B. (“Sport”) Landy gives that directive to Tarek Koussayer & Azza Husseini, Docket No. 1611-23, filed 4/21/25. This is a many-times-told tale, but it needs to be told periodically.

The envelope wherein the petition was mailed in this deficiency case had a Pitney-Bowes meter mark within the 90-day cutoff, but a USPS postmark two (count ’em, two) days late.

“Petitioners maintain that this Court should consider the extrinsic evidence contained in their Response to the Order to Show Cause in determining that the Petition was timely filed. Although extrinsic evidence is allowed to prove the date of mailing where an envelope containing a Tax Court petition lacks a postmark or the postmark is illegible, such evidence is irrelevant where the envelope bears a legible USPS postmark dated after the 90th day prescribed for filing a timely petition.” Order, at p. 2. (Citations omitted).

Even with the USPS postmark date, the petition didn’t get logged in to The Glasshouse in the City of Efficient Government for more than a month later.

Procrastination in the face of unalterable deadlines is never a good policy.

The trusty attorneys for Estate of Sharon F. Galliani, Deceased, Raymond A. Galliani, Successor In Interest and Raymond A. Galliani, Docket No. 17626-23, filed 4/18/25, get a Taishoff “Good Move, First Class,” when they “conceded on the record the affirmative defense of reliance on the advice of a professional tax advisor and the reasonable-cause exception under section 6662.” Order, at p. 3.

Thereby, they save attorney-client and a piece of Section 7525 preparer privileges.

In finding privilege, Judge Kashi Way finds “(T)he fact that Mr. Galliani, who is of advanced age, did not recall the names of his lawyers from decades ago does not annul that privilege.” Order, at p. 5. Taishoff says given the leisurely nature of Tax Court practice, this is a gratifying result.

As for trusty accountants, “…no privilege existed with respect to the professional tax advice they received from their accountants prior to July 22, 1998, the effective date of section 7525. Therefore, the multiple references to advice from accountants during this period cannot give rise to a waiver of privilege. Moreover, once petitioners abandoned their defenses of reliance on professional tax advice and reasonable cause, they were no longer putting ‘protected information at issue by making it relevant to the case,’ and the application of privilege does not deny the opposing party ‘access to information vital to his defense.’ Respondent argues that petitioners are using privilege as both a sword and a shield. But at least for the period before the effective date of section 7525, there is no sword being used by petitioners, and therefore they may rightly continue to shield their attorney-client communications.” Order, at p. 5. (Citation omitted).

But post 7/22/98 communication is a different story.

“To the extent petitioners have introduced into the record privileged communications during this period, there is the potential for a waiver of that privilege. Petitioners argue that any services received from their accountants after the effective date of section 7525 did not constitute tax advice but was merely tax return preparation. In the Court’s view, the advice petitioners received from Ms. S with respect to their FBAR obligations rose to the level of tax advice and thus established a privileged communication under section 7525. Ms. S’s advice to petitioners each year that they were not required to file an FBAR because petitioners only owned receivables under the private annuity arrangements goes beyond tax return preparation.” Order, at pp. 5-6. So any FBAR stuff has to be produced, but anything else can be redacted.

This is apparently an offshore (Cayman and Guernsey) trust case, where offshore bank involvement is key.

It’s a cautious calculus that needs to be applied when balancing possible waiver of Section 7525 cover with giving up reasonable-reliance-on-experts defenses. But as we’ve seen from recent cases, Section 7525 and client-attorney look a lot more robust on the statute book than in the courtroom.