Opinion
1128-21 1129-21 1130-21
08-13-2024
CHRISTINA CAVALLARO, TRANSFEREE, ET AL, Petitioners v. COMMISSIONER OF INTERNAL REVENUE, Respondent
ORDER
David Gustafson Judge
We will deny without prejudice the Commissioner's motion for summary judgment and will order the filing of a status report.
Background
Previous gift tax cases
These consolidated transferee liability cases are related to the previous gift tax cases of Cavallaro v. Commissioner, T.C. Memo. 2019-144, on remand from 842 F.3d 16 (1st Cir. 2016), rev'g in part and aff'g in part T.C Memo. 2014-189.
In 1995 William and Patricia Cavallaro entered into transactions that the Internal Revenue Service (AIRS") determined gave rise to gift tax liabilities for deemed gifts to their three children. The Cavallaros challenged those determinations in this Court. See Docket Nos. 3300-11, 3354-11. We released our first opinion in those cases-T.C. Memo. 2014-144-in September 2014.
In November 2014 the Cavallaros (parents and children) filed a malpractice suit in Massachusetts State court-i.e., as Civil Action No. SUCV2014-03598 in Superior Court in Suffolk County-against the tax professionals who had given them advice in connection with those transactions.
The Cavallaros also appealed the Tax Court's decisions. The U.S. Court of Appeals for the First Circuit reversed in part and remanded the Tax Court's decisions. In January 2020 revised decisions were entered, again determining 1995 gift tax liabilities of Mr. and Mrs. Cavallaro for deemed gifts made to their children.
These transferee liability cases
The IRS thereafter determined that the three children bear liability as transferees of their parents' assets, and in December 2020 the IRS issued to each of the three children a notice of liability. The children challenged those determinations by filing their petitions in these consolidated cases in March 2021, and attorneys from the IRS's Office of Chief Counsel ("Chief Counsel") entered their appearances to represent the Commissioner in these cases.
Settlement vs. summary judgment
Responsibility to litigate Tax Court cases is given to the Chief Counsel attorneys, see sec. 7452; but for some purposes the IRS's division of labor allocates settlement responsibility, even in litigated cases, to the IRS's Independent Office of Appeals (“Appeals"). In August 2021 Chief Counsel followed normal procedure and transmitted the cases to Appeals for consideration of settlement.
However, in October 2021-before settlement possibilities had been ventilated-the Commissioner filed a motion (Doc. 17) for summary judgment. Petitioners filed a motion (Doc. 20) asking the Court to stay proceedings on the motion until settlement of the cases could be attempted by petitioners and Appeals. The Court neither ruled on the motion to stay nor ordered briefing of the motion for summary judgment. One would think this would have left the parties free to consider settlement, but no such action was thereafter reported in the case.
Eventually in July 2022 the Court ordered (see Doc. 21) the filing of a status report. The parties reported (see Doc. 22, para. 5) that Appeals “had placed the cases 'in suspense' upon learning of the filing of respondent's motion for summary judgment". Appeals seemed to follow a policy to pause consideration of a docketed case when there is a pending dispositive motion. Consequently, for a period of months, no effort had been made on the subject of settlement. The Court ordered (see Doc. 23) that filings be made on the two pending motions, but petitioners filed a motion (Doc. 24) for reconsideration as to the briefing of summary judgment, asking that such briefing be deferred until settlement had been attempted between petitioners and Appeals.
At a hearing in November 2022, “the Court questioned respondent as to why these cases were forwarded to Appeals, when only a short time later he filed a motion for summary judgment, which caused that office to conclude that they could not move forward with a settlement conference. Counsel for respondent did not provide a satisfactory answer to the Court. Despite this apparent inconsistent activity by respondent's counsel, the Court is not prepared to order Appeals to conduct settlement negotiations with petitioners” (Doc. 34). The Court denied petitioner's request to stay the briefing of summary judgment and instead ordered (see Doc. 34) that petitioners file a responsive brief (Doc. 36), and later ordered (see Doc. 39) that the Commissioner file a reply on July 11, 2024 (Doc. 43), and later allowed (see Doc. 46) petitioners to file a sur-reply on August 6, 2024 (see Doc. 47). On August 6, 2024, these cases were assigned to the judge signing this order.
Malpractice suit
The malpractice suit that the Cavallaros filed in 2014 sought, from the tax professionals, damages arising from their gift tax liabilities and transferee liabilities. Such damages would help the Cavallaros to pay those liabilities. We take notice of the online records of the Suffolk County Superior Court showing that the malpractice case was dismissed by stipulation (presumably pursuant to an agreed settlement) on July 24, 2024.
Discussion
The pendency of the Commissioner's premature motion for summary judgment prevented the parties from normal attempts at settling this case, because of an Appeals “policy". In November 2022 we were “not prepared to order Appeals to conduct settlement negotiations with petitioners” (Doc. 34), but two material developments have occurred: first, the parties have briefed the case, and their positions are therefore well known to each other; and second, the malpractice case has settled. We do not know (and presumably are not entitled to know) the terms of that apparently confidential settlement; and we assume that the outcome of the malpractice claim is irrelevant to the legal issues we must decide in this case. However, we think it is entirely possible that that outcome would have a practical effect on the possibility of settlement.
We think that the delay that will result from ordering a settlement attempt need not be lengthy. If the attempt fails, then the Commissioner could renew his motion, which has already been fully briefed, and the Court could address its merits.
It is
ORDERED that the Commissioner's motion for summary judgment is denied without prejudice. It is further
ORDERED that the Commissioner shall take whatever action is necessary to facilitate the prompt consideration of this case by Appeals. It is further
ORDERED that, no later than September 20, 2024, the parties shall file a joint status report (or, if that is not expedient, then separate reports) that shall include a proposed schedule for further proceedings in this case.