STJ Diana L. (“Sidewalks of New York”) Leyden reaches back to Han Suyin’s 1952 novel in a broad-spectrum overview of privilege in its many-splendored forms. Marc Worrall & Sue J. Worrall, Docket No. 14734-23, filed 4/14/25, have ten (count ’em, ten) trusty attorneys, all burning and churning by day and night through every form of privilege (except only intraspousal, clergy-penitent, and patient-physician), but STJ Di stays with them and their ten (count ’em, ten) IRS adversaries for seventeen (count ’em, seventeen) pages.

STJ Di invokes a wide view of Section 7525 qualifying tax advice, so check out Order, at pp. 8-12. Mere filing instructions and statements of the law and regs unrelated to specifics don’t get it, likewise business advice isn’t enough.

A sculpted conflict waiver can earn work product privilege if tied in to reasonably anticipated litigation.

Attorney-client, of course, is the main course, so if you need apposite somber reasoning and copious citation of precedent for your next brief, STJ Di and the 20 trusty attorneys lay it all on you in the Order, at pp. 3-8.

This is a microcaptive case, featuring exotic coverages for Marc’s & Sue’s lobstering company. Should make for a fascinating opinion, when all the discovery is over.

The Branerton ideal, that “(T)he discovery procedures should be used only after the parties have made reasonable informal efforts to obtain needed information voluntarily,” has been so thoroughly ignored, and when not ignored abused, that it might as well be put to rest.

Judge Travis A. (“Tag”) Greaves finds himself refereeing yet another interrogatories-vs- documents jumpball in J.G. Boswell Company & Subsidiaries, Docket No. 2408-19, filed 4/11/25.

The Boswells want IRS’ legal research, which is a nonstarter, but they do get all the facts upon which IRS relies. Research notes are attorney work product. Judge Tag Greaves finds a lot of IRS’ responses are sufficient.

But IRS is offside in demanding documents, which the Boswells are hunting up and turning over as found. Judge Tag Greaves lets them hunt.

“Respondent’s motion is premature at this point. We expect the parties to work cooperatively in preparing this case for trial. Respondent’s requests call for the production of a voluminous set of documents. Petitioner has indicated its willingness to produce the requested documents and represents that it has produced the relevant documents that it has located. Rather than working collaboratively with petitioner\ to establish a schedule for a rolling production, respondent filed the motion to compel. Given petitioner’s representation and willingness to produce the documents, we will deny respondent’s motion and order the parties to work cooperatively on setting a production schedule for these documents.” Oder, at p. 5.

Play nice, kids; but Judge Tag Greaves won’t countenance stalling.

“We note that petitioner may not delay production of these documents until the production date set forth in the pretrial scheduling order for the exchange of exhibits. That deadline relates to the exchange of documents for trial and not the exchange of discovery. Petitioner need not however produce documents related to expert reports until the deadlines set forth in the pretrial scheduling order.” Order, at pp. 5-6.

This blogpost is, as all my blogposts are, an abbreviation. Those interested should read the whole order.

As I read the order, I marveled at this sentence in the “Background.” “The parties have been engaging in informal discovery for several years.” Order, at p.1. As I read what the parties are seeking now, after “several years” of informal discovery, I was reminded of the famous question Sherlock Holmes asked the young Police Inspector Stanley Hopkins: “What did you do, Hopkins, after you had made certain that you had made certain of nothing?”

Hopkins didn’t answer “Why, make a motion in Tax Court, of course.”

Neither Frigyes Karinthy nor John Guare could rescue Douglas E. Hampton, T. C. Memo, 2025-32, filed 4/10/25, when he tries to take an $855K passthrough deduction from his Sub S for the cash that the Feds seized as part of a criminal forfeiture when Doug himself pled to bribery, fraud, and money laundering in USDCWDOH.

True, Doug’s Sub S, of which he was sole shareholder, was never indicted or convicted of anything anywhere. Judge Elizabeth A. (“Tex”) Copeland won’t permit Doug to avoid the sting of the forfeiture by interposing his Sub S, finding that it wasn’t a person “other than the defendant” for purposes of 21 U.S.C. § 853(n)(2), which allows certain persons who assert a legal interest in property subject to forfeiture to petition the court for a hearing.” T. C. Memo. 2025-32, at p. 13. And the Sub S never petitioned in USDCWDOH.

“Even if we assume that [Sub S] was entitled to claim a deduction for the asset seizures (a question we need not decide here), Mr. Hampton is barred by the public policy doctrine from reporting his 100% passthrough share of [Sub S]’s resulting loss. To hold otherwise would be to frustrate the sharply defined policy against conspiring to commit offenses against the United States (including federal program bribery, honest services fraud, and money laundering), as reflected in 18 U.S.C. § 371 (conspiracy), 18 U.S.C. § 666 (federal program bribery), 18 U.S.C. §§ 1343 and 1346 (honest services fraud), and 18 U.S.C. § 1956 (money laundering). Mr. Hampton was the wrongdoer, and HCM’s assets were seized as part of the penalty for his wrongdoing. The seized and forfeited assets were clearly ‘property constituting, or derived from, proceeds obtained, directly or indirectly, as a result of the violations in Count One of the Information.’ Allowing him a deduction on account of [Sub S]’s loss would unquestionably reduce the ‘sting’ of the penalty for him.” T. C. Memo, 2025-32, at p. 13.

I must give Doug’s trusty attorneys a Taishoff “Good Try, Second Class.”

Joseph J. Zajac, III, T. C. Memo. 2025-33, filed 4/10/25, making his fourth appearance in this my blog, got his second trial (see my blogpost “Second Time Lucky,” 12/26/18). He did eke out a $17.5K Section 104 exclusion for physical injury and mental distress damages arising therefrom when some MA police allegedly roughed him up.  Ch J Kathleen (“TBS = The Big Shillelagh”) Kerrigan could Cohan half the amount JJZIII got in settlement.

The rest of his deductions didn’t do so well. JJZIII was definitely in five-and-ten 20% territory going into the Rule 155 beancount.

But what about the online Section 6751(b) Boss Hossery?

“Petitioner argues that because the supervising agent did not sign the Civil Penalty Approval Form until September 3, 2014, section 6751(b) was not satisfied. We disagree. The record reflects that the revenue agent assigned to petitioner’s case obtained supervisory approval by email before sending petitioner Letter 5153 and the Examination Report. This was noted by the supervising agent on the Civil Penalty Approval Form, where he left a handwritten notation that the penalties had already been ‘approved by email to RA.’ Since the method of approving penalties need not take a particular form… the revenue agent timely obtained approval….” T. C. Memo. 2025-33, at p. 22. (Citations omitted).

Likewise the enhanced chops asserted in the amended answer, approval of which is shown by immediate supe’s initials on the motion to amend (filed) and amendment (lodged) prior to service thereof on JJZIII. So what remains of the bulwark supposedly erected by Congress in Section 6751(b) to shield the innocent taxpayer from RA bludgeoning?

I note the passing of His Honor Big Julie Judge Julian I. Jacobs on 4/5/25.

As Tax Court Public Affairs noted in its press release “He particularly enjoyed challenging cases, and even as a senior judge he authored important precedential opinions in the whistleblower context.”

He provided much blogfodder.

I’ve blogged Section 152 custodial parent cases for a decade, but the family law bar and the divorce courts either don’t care or don’t know. If any reader knows of a malpractice claim arising from a divorce dependency deduction split, I’d like to know about it. I can’t think there hasn’t been any.

STJ Jennifer E. (“Publius”) Siegel has Melissa Correll, T. C. Memo. 2025-31, filed 4/9/25, and it’s same old, same old.

“Petitioner and her ex-husband are the parents of petitioner’s older two children. Pursuant to their separation and divorce, petitioner and her ex-husband executed a settlement agreement that included arrangements for claiming their children as dependents. Under the original agreement, petitioner was entitled to claim Child No. 2 as her dependent for income tax purposes, and the father was entitled to claim Child No. 1. The agreement was updated in 2015 to reverse this arrangement: Petitioner was entitled to claim Child No. 1 as a dependent, and the father was entitled to claim Child No. 2.

“Despite the revised agreement and the fact that both children lived with their father full time, for many years the parents’ practice had been to follow the original agreement. For the year at issue, however, both parents claimed Child No. 2. Unbeknownst to petitioner, her ex-husband claimed Child No. 2 instead of Child No. 1 because Child No. 1 was no longer a minor.” Order, at p. 2.

My ultrasophisticated readers have doubtless tuned out long since, so I alone must cry out “Section 152(c)(1)(B); see also Section 152(c)(1)–(3).”

Takes STJ Publius Siegel four (count ’em, four) pages to dispose of Melissa’s deduction. But it takes four (count ’em, four) IRS attorneys to get there. With the Service reeling from budget cuts, Section 6103 violations, and senior resignations, is there no more efficient use to be made of remaining personnel?

Judge Albert G. (“Scholar Al”) Lauber is a jurist of many attainments, from his days as a star cadet at a prestigious NYC prep school (as recounted by his schoolmate and my colleague Peter Reilly, CPA) to unraveller of Dixieland Boondockeries. Today his long arm extends to valuing Chinese art in WT Art Partnership LP, Lonicera LLC, Tax Matters Partner, T.C. Memo. 2025-30, filed 4/9/25. Yes, I’ve been following this case for five (count ’em, five) years.

Oscar Liu-Chen Tang is a prominent Chinese-born American businessman, investor, and philanthropist and a major contributor to the Metropolitan Museum of Art, to which illustrious institution I am a vastly smaller contributor. Mr. Tang gave the Met a mouthwatering collection of antique masterpieces, most of which pass IRS muster on the valuation side, when Oscar Liu-Chen was seeking Section 170 write-offs.

But when a major Chinese auction house comes up with a nosebleed-inducing price on a painting admittedly a rarity, Oscar Liu-Chen’s past experiences with the auction house’s numbers when confronted with IRS audits (and non-audits) saves him all but the 40% gross overvaluation chop.

“Generally, an accuracy-related penalty is not imposed if the taxpayer demonstrates “reasonable cause” and shows that he ‘acted in good faith with respect to [the underpayment].’ § 6664(c)(1). This defense may be available where a taxpayer makes a substantial valuation overstatement with respect to charitable contribution property. See §6664(c)(3) (second sentence). But this defense is not available where the overstatement is “gross.” See id. (first sentence). The 40% penalty thus applies to the portion of WT Art’s underpayment attributable to claiming a value for Palace Banquet in excess of $12 million. T. C. Memo. 2025-30, at pp. 39-40.

Take a look at p. 10 if you want to see this painting, or better yet, come to the Met, and tell ’em Lew Taishoff sent ya.

The auction house was recommended by an acknowledged expert. Even though it flunks the Section 170(f)(11)(E)(ii)(I) tests for qualification as an appraiser (not an individual, and no individual from auction house testifies on the trial that they have the requisite qualifications), Oscar Liu-Chen showed good faith in relying on them, so the reasonable reliance test of Section 170(f)(11)(A)(ii)(II) saves the deduction.

Judge Scholar Al also explores the worth of a non-deaccessioning agreement, whereby a museum agrees not to sell, trade, or dispose of a donated work, and whether same devalues a donated work. It really doesn’t. This isn’t an investment like stock, where values constantly change (and you can say that again!).

I wonder what Lark Mason would make of all this.

Judge Christian N. (“Speedy”) Weiler looks to the somewhat controversial opinion of Judge Courtney D (“CD”) Jones in Valley Park Ranch (for which see my blogpost “‘Highly Contestable’ Gets Brushhogged,” 3/28/24), and lets Green Valley Invs., LLC, Docket No. 17379-19, filed 4/8/25, claim a deduction for a qualified charitable easement for year at issue. The Proceeds Regulation is indeed in violation of the APA.

As for the amount of said deduction, Judge Speedy Weiler sticks by his valuation numbers when he computed the penalties.

IRS’ claim that the Green Valleys and their appraisers colluded, thereby disqualifying their appraisal, fares no better. “We acknowledge there was a prior appraisal performed on the 607-acre parcel before it was subdivided into four smaller parcels, and the values for each parcel remained essentially the same, after subdivision. However, we cannot conclude that this fact establishes collusion between these parties. We have previously considered, and rejected, respondent’s argument in our Memorandum Findings of Fact and Opinion.” Order, at p. 4.

When Judge Travis A. (“Tag”) Greaves tells us that these words apply to the business situation he confronts in Kaleb J. Pierce, T.C. Memo. 2025-29, filed 4/7/25, I expect something more than the usual valuation joust.

But that’s what we get. Kaleb and spouse ran a cut-rate baby supply Sub S with a dubious business model, until Kaleb’s affair with a former employee set him up for blackmail. Whereupon he called in the FBI. So he and soon-to-be-ex-spouse had to split the Sub S and gift away substantial pieces.

Judge Tag Greaves goes for Kaleb’s expert’s valuation, ignoring an earlier valuation not because it was offered in settlement (FRE 408) but because the later version was better. IRS’ expert gets NPV discounts for present ops and terminal value; Kaleb’s expert didn’t substantiate company-specific risk adjustment to weighted cost of capital.

Tax-affected discount is back, but only just. Both sides’ experts agree that a willing buyer would take tax affect as a factor in pricing the deal, and that the Delaware Chancery is the right method to compute it.  All they disagree about is the number, and even then, they differ in assumed tax rate by a big 0.4%. “We emphasize that while we apply tax affecting here, given the unique setting at hand, we are not necessarily holding that tax affecting is always, or even often, a proper consideration for valuing an S corporation.” T. C. Memo. 2025-29, at p. 37.

At the end, nothing beyond a review of business valuation here.

A phrase grown popular in political circles gives me a headline for yet another discovery dispute. Judge James S. (“Big Jim”) Halpern takes on that role in Beveled Edge Insurance Company, Inc., et al., Docket No. 19821-16, filed 4/4/25, when dealing with “Petitioners’ Motion for Fair Trial Via Due Process Equal Application of Tax Court Rules (Motion).” Order, at p. 1.

Petitioners were represented by an attorney who went private from OCC, where he had contact with  this case, and was thus conflicted out.  IRS sought to toss his firm as well, but Judge Big Jim wasn’t buying. He granted a protective order, letting IRS refuse to respond to 204 (count ’em, 204) informal discovery requests said attorney made before his prior involvement was noted.

The Beveleds said they were going to the bullpen, but new counsel would need to explore some of the 204 to prep. Judge Big Jim said all he ordered was that the parties follow Rule 70(a), ask whatever they wanted, and object if they had valid grounds.

In from the bullpen comes a well-known firm, and unleashes said Motion, arguing: ” [A]s the most fundamental U.S. CONST. amend. V due process, both parties are entitled to a fair trial and a fair trial requires equal treatment of both parties on a level playing field. And that includes equal access by both parties to the discovery protections and other due process prescribed by the TAX COURT RULES.” Order, at p. 3.

I can’t say this drafting covers the firm in glory, but Judge Big Jim lets that pass. IRS offers only the administrative record, but that isn’t good enough.

“We believe that respondent’s concerns of taint from Mr, K’s unfortunate involvement in these cases can be addressed by respondent’s making known to the Court his taint-based objections to any enforcement action brought by petitioners with respect to discovery.” Order, at p. 4. (Name omitted).

So go do discovery, subject to IRS’ objections based on taint.

Takeaway 1- Conflicts checks are not just matters of form. Lateral hires carry extra risks.

Takeaway 2- “Win your case at discovery” CLEs need pull-dates, like groceries.