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.

Clark J. Gebman and Rebecca Gebman, T. C. Memo. 2025-36, filed 4/17/25, scarcely merit the seven (count ’em, seven) pages of text, to say nothing of legal acumen, Judge Albert G. (“Scholar Al”) Lauber expends sending them off and sustaining Appeals’ NOD.

Clark and Rebecca have one merit: they’ve furnished me with beaucoup blogfodder. See my blogposts “No Good Deed,” 5/5/17; “No Good Deed – Redux,” 9/18/17; “Can’t Help Lovin’ That Man,” 9/6/18; and “We’ve All Had Clients,” 1/2/20.

But though Rebecca is still a lawyer in Our Fair State, her drafting skills are somewhat less than perfect.

“Petitioners’ pleadings are not a model of clarity, and it is unclear whether they continue to advance a claim to “innocent spouse” relief. In our 2020 opinion we held that Mrs. Gebman was not entitled to such relief for any of the tax years at issue. See Gebman, 119 T.C.M. (CCH) at 1004–05. In any event, the SO repeatedly told petitioners that they needed to submit Form 8857 if they requested such relief, but they never submitted that Form. See Treas. Reg. § 301.6330-1(f)(2), Q&A-F3 (‘An issue is not properly raised . . . if consideration is requested but the taxpayer fails to present to Appeals any evidence with respect to that issue after being given a reasonable opportunity to [do so].’). As a result, no ‘innocent spouse’ claim is properly before us.” T. C. Memo 2025-36, at p. 3, footnote 2.

IRS moves for, and gets, summary J. No Form 8857, no Form 433-A, no Form 656 with deposit, despite SO asking for all thereof.

“In their Response to the Motion for Summary Judgment, petitioners appear to make an offer to compromise the tax liabilities at issue. Any such offer must be submitted to the IRS, not to this Court.” T. C. Memo. 2025-36, at p. 7.

I expect they’ll appeal to 2 Cir, but it’s probably the end of the road. And after they caused a lot of grief for my esteemed colleague The Great Chieftain of the Jersey Boys, I can’t say I’m sorry to see them go.

I’ve done that, but not on the scale of Mark P. Himmel and Deborah W. Himmel, T. C. Memo. 2025-35, filed 4/17/25. Over six (count ’em, six) years at issue, Mark and Deb dropped $867K in their Arabian horsebreeding and training operation.

That earns Judge Tamara Ashford a trudge through the nine factors of the “goofy regulation” (Reg. 1.183-2(b)). And though Hurricane Katrina did damage their operation, and Mark got enmeshed in a cheating scandal while judging the National Championship, that’s not enough to show that externals torpedoed an otherwise thriving business. Mark’s $225K settlement of his lawsuit against the Nationals isn’t business profit.

Too much fun, not enough paper (no written business plan, insufficient careful recordkeeping), not enough experts (spoke to them, but didn’t hire them to guide Mark and Deb to success), and while they advertised and showed up at shows, and certainly put in time on the horse ranch, that’s not enough.

More horseplayers win at the track than in Tax Court.

No, I don’t know what that is, either, but Judge Albert G. (“Scholar Al”) Lauber will tell you in GWA, LLC, George A. Weiss, Tax Matters Partner, T. C. Memo. 2025-34, filed 4/16/25, at p. 73.

Here’s the backstory; see my blogpost “Expertizing,” 5/6/22.

The option scheme gets blown away. The optionor (Deutsche Bank) had neither risk of loss nor hope of appreciation, and served merely as custodian of a basket of publicly tradeds and some exotics, the optionee (GWA and its wholly-owned unrecognized) are the real owners. Worse, Sections 446 and 481 give them a real downer, to the tune of about $337 million. At best, Deutsche Bank ran  a margin-lending operation, and GWA and subsidiaries ran the show.

“Because Deutsche Bank could not profit from appreciation in the value of the basket securities—by retention of the ‘premium’ or otherwise—the Barrier Contracts offered it no opportunity for investment gain. Instead, its compensation consisted solely of the leverage fees it received for supplying financing to GWA, the ticket charges it received for trades executed in the securities basket, and the opportunity to earn interest on the $10X of collateral GWA supplied. These forms of profit do not constitute ‘investment gain’ realized by the owner of securities. Rather, they constitute ordinary business income of a prime broker that lends money to a customer who holds and trades securities in a margin account.” at p. 75.

There’s discussion about whether an unrecognized-boxchecked LLC can make a separate mark-to-market Section 475 election (no, it can’t), but anyway the one GWA made is defective because it covers some but not all of its securities, and the statute requires all, lest parties load up current losses and hide current gains.

If options are your thing, with “Greeks” and European-vs-American varieties on your radar, and heteroskedastics are your 23-skidoo, read the opinion, all 139 (count ’em, 139, and I have) pages.

Bottom line: GWA owes ordinary rates, not capital gains. It’s a securities trader that can’t mark to market. Plus chops, of course.

CSTJ Lewis (“His Name Is My Name Too”) Carluzzo has done the 1 Kings 19:19 number on STJ Zachary S. (“High-Rise”) Fried, his erstwhile Attorney-Advisor prior to his own elevation to the Tax Court Bench.

“High-Rise” indeed. STJ Fried goes from newby to Chief in less than a year-and-a-half. But of course CSTJ-designate Fried has much Tax Court creds.

As we say this time of year, here’s the ganze had gadyah.