# UNITED STATES TAX COURT

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## Record

- **Collection:** Agency decision
- **Document type:** Agency decision

## Text

DRC

T.C. Memo. 2016-193

UNITED STATES TAX COURT

MICHAEL SHAMROCK AND VICTORIA BIGG, Petitioners v.
COMMISSIONER OF INTERNAL REVENUE, Respondent

Docket No. 28725-11.

Filed October 20, 2016.

Sheldon Drobny, for petitioners.
Michael T. Shelton, for respondent.

MEMORANDUM FINDINGS OF FACT AND OPINION
CHIECHI, Judge: This case is before the Court on remand from the U.S.
Court of Appeals for the Seventh Circuit (Court of Appeals). On November 17,
2014, the Court of Appeals issued a mandate in accordance with its order filed on

September 22, 2014, and its judgment filed on September 23, 2014. In its order

SERVED Oct 20 2016

-2[*2] and its judgment, the Court of Appeals vacated the Court's Order and Decision entered on January 27, 2014,¹ and remanded this case for further proceedings
in accordance with that order and that judgment.
In its Order dated January 15, 2015 (January 15, 2015 Order), the Court set
this case for an evidentiary hearing at a special session that was to, and did, take
place on March 30, 2015 (March 30, 2015 evidentiary hearing), in Chicago,
Illinois (Chicago). In its Order dated January 20, 2015, the Court established a
schedule for certain prehearing activity. Thereafter, there was extensive
prehearing motion activity principally because of the questionable tactics that
Sheldon Drobny (Mr. Drobny),2 petitioners' representative in this case, decided to
pursue.

¹In its Order and Decision entered on January 27, 2014, the Court granted
respondent's motion for entry of decision and entered a decision that reflected the
stipulation of settled issues and the supplemental stipulation of settled issues
which the parties had signed and which they had filed with the Court on February
28 and October 28, 2013, respectively (collectively sometimes, stipulations of
settled issues).
2Mr. Drobny first entered an appearance in this case on December 17, 2013,
the date on which respondent filed a motion for entry of decision reflecting the
parties' stipulations of settled issues. See supra note 1. Mr. Drobny is not an
attorney. He was admitted to practice before the Court on March 26, 1993,
pursuant to the Court's Rules of Practice and Procedure then, but no longer, in
effect that governed the admission of nonattorneys to practice before the Court.
S_e_e sec. 7452 ("No qualified person shall be denied admission to practice before
the Tax Court because of his failure to be a member of any profession or calling.")

-3[*3] As stated in the Court's January 15, 2015 Order, the March 30, 2015
evidentiary hearing was set for the purpose of giving the parties the opportunity to
present evidence as to whether the parties' stipulations of settled issues should be
set aside. On March 13, 2015, petitioners filed a second supplement to the
prehearing memorandum that they had filed on January 21, 2015. In that second
supplement, petitioners narrowed the scope of the hearing to whether only paragraph 22 of the parties' supplemental stipulation of settled issues should be set
aside.3
The issues for decision are:
(1) Will the Court set aside paragraph 22 of the parties' supplemental
stipulation of settled issues? The Court holds that it will not.
(2) Will the Court grant respondent's motion to impose sanctions under

section 6673(a)(2)4 on Mr. Drobny? The Court holds that it will not.

3Paragraph 22 of the parties' supplemental stipulation of settled issues
pertains to a certain loss that petitioners claimed in this case as an affirmative
issue for the taxable year 2009.
4All section references are to the Internal Revenue Code in effect at all
relevant times. Unless otherwise indicated, all Rule references are to the Tax
Court Rules of Practice and Procedure.

-4[*4]

FINDINGS OF FACT
Some of the facts have been stipulated and are so found.
Petitioners resided in Illinois at the time they filed the petition.
Petitioner Michael Shamrock (Mr. Shamrock) filed a Federal individual

income tax (tax) return (return) for his taxable year 2007 (2007 return), in which

he claimed a filing status of married filing separately. Mr. Shamrock and petitioner Victoria Bigg (Ms. Bigg) jointly filed a tax return for each of their taxable

years 2008 (2008 return) and 2009 (2009 return). (The Court will sometimes refer
collectively to the 2007 return, the 2008 return, and the 2009 return as the returns

in question.) John A. Hauter (Mr. Hauter), a certified public accountant (C.P.A.)
and an attorney, had prepared each of the returns in question.
Early in 2011, the Internal Revenue Service (IRS) began an examination
(IRS examination) of Mr. Shamrock's taxable year 2007 and Mr. Shamrock's and
Ms. Bigg's taxable years 2008 and 2009. They authorized Mr. Hauter to represent
them with respect to that examination. (The Court will sometimes refer to Mr.
Hauter as petitioners' prior representative.) During the course of the IRS examination, Mr. Hauter provided the revenue agent that the IRS had assigned to
conduct that examination (revenue agent) an amended return for Mr. Shamrock's
and Ms. Bigg's taxable year 2009 (first amended 2009 return). Thereafter, Mr.

-5[*5] Hauter provided the IRS with a second amended return for that taxable year
(second amended 2009 return).
In the second amended 2009 return, Mr. Shamrock and Ms. Bigg claimed
for the first time in Form 4797, Sales of Business Property, a loss of $435,751
(claimed Elm Court loss) from the sale of certain real property at 1249 Elm Court
(Elm Court), Glenview, Illinois (Elm Court property).5 Included as part of the
second amended 2009 return was a worksheet that explained, inter alia, that

"developer expenses" of $162,898 had been "TRANSFERRED TO FROM [sic]
4797". Mr. Shamrock and Ms. Bigg had originally claimed "developer expenses"
of $162,898 in Schedule C, Profit or Loss From Business (Schedule C), that they
had included as part of their 2009 return and that related to what was described in

that schedule as Ms. Bigg's "DENTAL PRACTICE & DEVELOPER".
Around early June 2011, Mr. Shamrock and Ms. Bigg wanted to terminate
their relationship with Mr. Hauter because they were dissatisfied with the services
that he had been providing them with respect to the IRS examination of taxable
years 2007, 2008, and 2009. One of Ms. Bigg's patients6 recommended to Ms.

5Paragraph 22 of the supplemental stipulation of settled issues sets forth the
agreement of the parties with respect to the claimed Elm Court loss.
6At all relevant times, Ms. Bigg was a dentist.

-6[*6] Bigg that she consider retaining her son, Grant Niehus (Mr. Niehus), who
specialized in tax matters.
Mr. Niehus had been admitted to the bar of the Supreme Court of Illinois
(Illinois State bar) on May 1, 1980, and was thereby authorized to practice law in
that State. From the time he was admitted to the Illinois State bar to the time of
the March 30, 2015 evidentiary hearing in this case, Mr. Niehus had never been
disciplined or disbarred.7 The Illinois State bar requires that its members periodically register with it, pay dues to it, and satisfy certain continuing legal education
(CLE) requirements. (The Court will sometimes refer collectively to the requirements of the Illinois State bar that its members periodically register with it, pay
dues to it, and satisfy certain CLE requirements as the Illinois State bar attorney
status requirements.) In the event that a member of the Illinois State bar fails to

7The Attorney Registration and Disciplinary Commission of the Supreme
Court of Illinois showed in its Web site as of February 9, 2015, which was
approximately a month and a half before the March 30, 2015 evidentiary hearing
took place, that Mr. Niehus had no record of discipline by, or disciplinary
proceedings pending before, that court. However, as discussed below, that Web
site also showed that Mr. Niehus was not authorized to practice law in Illinois
because after 2009 he had not registered annually and paid annual dues to the
Illinois State bar; nor had he satisfied the Illinois State bar CLE requirements. See
discussion inka of Ill. Sup. Ct. Rules 756 and 796 addressing the Illinois State bar
attorney status requirements.

-7[*7] comply with any of the Illinois State bar attorney status requirements, that
member will no longer be authorized to practice law in Illinois.
Ms. Bigg contacted Mr. Niehus after her patient had recommended him and
arranged a meeting with him (first meeting or initial meeting) that took place in
early June 2011. Mr. Shamrock and Ms. Bigg met with Mr. Niehus for about two
hours during that first meeting. They explained to him that the IRS was examining
taxable years 2007, 2008, and 2009 and that there were approximately 50 issues
that the IRS had raised during that examination (IRS examination issues) and one
affirmative issue (namely, the claimed Elm Court loss) that they had raised during
that examination in their second amended 2009 return. (The Court will sometimes
refer collectively to the IRS examination issues and the affirmative issue relating
to the claimed Elm Court loss that Mr. Shamrock and Ms. Bigg raised in the
second 2009 amended return as the examination issues.) Mr. Shamrock and Ms.
Bigg also explained to Mr. Niehus during their initial meeting with him that they
were dissatisfied with the individual who had been representing them before the
IRS with respect to that examination. Mr. Shamrock and Ms. Bigg knew when
they had their first meeting with Mr. Niehus that Mr. Niehus would be starting at a
disadvantage if they were to retain him to represent them with respect to the IRS
examination. In fact, during their initial meeting with Mr. Niehus, Mr. Shamrock

-8[*8] and Ms. Bigg characterized the then-current situation with respect to the IRS
examination of the taxable years 2007, 2008, and 2009 as a "mess", an assessment
with which Mr. Niehus agreed after he learned more about the IRS examination,
the events that occurred during that examination, and how it had been handled by
petitioners' prior representative.
Mr. Shamrock and Ms. Bigg knew before their initial meeting with Mr.
Niehus that a resolution of the claimed Elm Court loss that was favorable to them
depended in large part on how Mr. Shamrock intended to, and did, use the Elm
Court property and on their tax basis in that property. Mr. Shamrock and Ms.
Bigg also knew that establishing those factual matters in turn depended on the
willingness of the IRS to accept what they contended were the salient facts about
those matters. Mr. Shamrock and Ms. Bigg understood before they had their first
meeting with Mr. Niehus that convincing the IRS to accept what they contended
were the salient facts with respect to the claimed Elm Court loss would be difficult
for them and for anyone, such as Mr. Niehus, whom they decided to retain to
represent them. That was because Mr. Shamrock and Ms. Bigg knew before that
initial meeting took place that, as a result of certain events that had occurred
during the IRS examination, certain representatives of the IRS who were involved
in that examination already had grown suspicious of, and had trust and credibility

-9[*9] issues with, them and their claims regarding at least some of the examination
issues. As a result, Mr. Shamrock and Ms. Bigg understood fully when they
retained Mr. Niehus at their first meeting with him in early June 2011 that Mr.

Niehus was being placed in the difficult situation of persuading the IRS to trust
and accept what Mr. Shamrock and Ms. Bigg maintained were the salient facts
regarding the claimed Elm Court loss, in the face of and despite the trust and
credibility issues that certain IRS representatives already had with them as of the
time of that meeting.
Mr. Niehus asked Mr. Shamrock and Ms. Bigg a lot of questions during
their initial meeting about the examination issues. Mr. Niehus' numerous questions regarding those issues during their first meeting caused Ms. Bigg to comment to Mr. Niehus that Mr. Shamrock and she had not previously been asked any
questions about the examination issues.
Toward the conclusion of the initial meeting with Mr. Shamrock and Ms.
Bigg, Mr. Niehus advised them that they and he, as their representative, needed to
address with the IRS the examination issues with a goal of resolving all of them
and avoiding litigating any of them. Mr. Niehus made it clear to Mr. Shamrock
and Ms. Bigg that although he was willing to represent them in attempting to
resolve with the IRS all of the examination issues for taxable years 2007, 2008,

- 10 [*10] and 2009, he was unwilling to represent them in the event that they and the
IRS were unable to reach a mutually satisfactory resolution of all of those examination issues and they wanted to litigate the unresolved issues. That was because,
as he told Mr. Shamrock and Ms. Bigg at their first meeting, he was not a trial
lawyer. However, Mr. Niehus indicated to them that in the event that they wanted
a trial with respect to any unresolved examination issues, he would recommend a
trial lawyer to represent them.
Mr. Shamrock and Ms. Bigg retained Mr. Niehus at their initial meeting to
represent them before the IRS with respect to taxable years 2007, 2008, and 2009.
During his representation of Mr. Shamrock and Ms. Bigg from early June 2011
until December 2013, Mr. Niehus provided to them competent, valuable, diligent,
and effective assistance in (1) advancing arguments to certain IRS representatives
explaining how and why the documents that Mr. Shamrock and Ms. Bigg provided
to the IRS and the applicable tax law supported each of their positions with respect
to each of the examination issues for each of the taxable years 2007, 2008, and
2009, including the claimed Elm Court loss that they had raised in their second
amended 2009 return, and (2) advocating acceptance by those IRS representatives
of each of those positions. During that representation which ended in December
2013, petitioners never asked Mr. Niehus to recommend a trial lawyer to them.

- 11 [*11] In order to authorize the IRS to deal with Mr. Niehus and to stop dealing
with petitioners' prior representative with respect to the examination issues for

taxable years 2007, 2008, and 2009, on June 17, 2011, Mr. Shamrock and Ms.
Bigg submitted to the IRS Form 2848, Power of Attorney and Declaration of
Representative (Form 2848). In Part I, Power of Attorney, of Form 2848, which
Mr. Shamrock and Ms. Bigg signed on June 1, 2011, they authorized Mr. Niehus
to represent them before the IRS with respect to tax matters for taxable years 2007,
2008, and 2009. In Part II, Declaration of Representative, of Form 2848, which
Mr. Niehus signed on the same date, he represented that he was a member in good
standing of the Illinois State bar.8 Although Mr. Niehus did not intend to misstate
his status with the Illinois State bar or to deceive the IRS or petitioners when he
signed part II of Form 2848, his representation in that part that he was a member in
good standing of the Illinois State bar was not accurate. Mr. Niehus simply did
not have in mind, and may not even have been aware, when he signed part II of
Form 2848 that after 2009 he no longer was authorized to practice law in the State
of Illinois on account of his failure to comply with certain Illinois State bar
attorney status requirements. That was because Mr. Niehus had been under
8Mr. Niehus did not represent in part II of Form 2848 or at any other time
that he was a certified public accountant, an enrolled agent, or any other category
of representative authorized to practice before the IRS that was listed in that part.

- 12 [*12] intense pressures and stresses for a number of years both before and after
2009 that were attributable to the critical illness of his spouse and her death in
February 2008 from that illness as well as his dealing for over three years after her
death with resolving the problems associated with a franchise business that his
spouse and he had operated.
In furtherance of the goal (discussed above) that Mr. Niehus recommended
to Mr. Shamrock and Ms. Bigg during their initial meeting of settling all, and
litigating none, of the examination issues for each of the taxable years 2007, 2008,
and 2009, Mr. Niehus performed as part of his representation of them before the
IRS, inter alia, the following services, some of which the Court will discuss in
more detail below. Mr. Niehus assisted Mr. Shamrock and Ms. Bigg in identifying, locating, and gathering the documents that they needed to present to the IRS
in order to substantiate the position that they had taken with respect each of the
examination issues for each of those years, including the claimed Elm Court loss
that they had raised in their second amended 2009 return. Mr. Niehus also
prepared and sent letters to the IRS in which he advanced arguments explaining
how and why the documents that Mr. Shamrock and Ms. Bigg provided to the IRS
and the applicable tax law supported each of those positions and advocated
acceptance of each of those positions. In addition, Mr. Niehus, accompanied by

- 13 [*13] Mr. Shamrock and Ms. Bigg, had a number of meetings with representatives
of the Appeals Office of the IRS (Appeals Office) as well as with representatives
of the Office of Chief Counsel of the IRS (Chief Counsel's office) that took place
both before and after they filed the petition commencing this case. During those
various meetings, Mr. Niehus continued to (1) advance arguments explaining how
and why the documents that Mr. Shamrock and Ms. Bigg provided to the IRS and
the applicable tax law supported each of their positions with respect to each of the
examination issues for each of the taxable years 2007, 2008, and 2009, including
the claimed Elm Court loss that they had raised in their second amended 2009
return, and (2) advocate acceptance of each of those positions. During those
meetings, Mr. Niehus was proactive in protecting the interests of his clients, Mr.
Shamrock and Ms. Bigg. To illustrate, during a meeting with a counsel for
respondent that took place in February 2013 after Mr. Shamrock and Ms. Bigg had
filed the petition and respondent had filed the answer in this case, Mr. Niehus
successfully prevented Mr. Shamrock from saying something inculpatory in
response to certain questions of that counsel with respect to matters that she had
raised at that meeting but that were unrelated to and outside the scope of the
examination issues for the taxable years 2007 through 2009.

- 14 [*14] Although Mr. Niehus attempted during the several months after he was
retained in June 2011 to resolve all of the examination issues, no resolution of
those issues was reached. That was because many of the examination issues
involved expenses that Mr. Shamrock and Ms. Bigg had claimed but were unable
to substantiate with appropriate documentation. In addition, other examination
issues involved unreported income that they were unable to refute. Nonetheless,
before respondent issued the respective notices of deficiency for taxable years
2007, 2008, and 2009 on which this case is based, Mr. Shamrock and Ms. Bigg
were not willing to concede those issues.
On November 7, 2011, respondent issued a notice of deficiency (notice) to
Mr. Shamrock for the taxable year 2007 (2007 notice), a notice to Ms. Bigg and
him for the taxable year 2008 (2008 notice), and a notice to them for the taxable

year 2009 (2009 notice). The 2009 notice did not allow Mr. Shamrock and Ms.
Bigg the claimed Elm Court loss that they had claimed for the first time in their
second amended 2009 return.
After respondent issued the 2007 notice, the 2008 notice, and the 2009
notice, petitioners filed the petition and thereby commenced this case.9 After
9Mr. Niehus did not sign the petition in this case. Nor did he submit an
entry of appearance form in this case until, as discussed below, the Court ordered
(continued...)

- 15 [*15] respondent filed the answer, respondent's counsel referred the case to the
Appeals Office for further settlement discussions. Mr. Shamrock and Ms. Bigg
understood that Mr. Niehus intended to focus, and they wanted him to focus, his
efforts during those settlement discussions on persuading the IRS to accept their
position with respect to certain examination issues that were of particular and
major importance to them because of the respective amounts involved, namely, the
claimed Elm Court loss for the taxable year 2009 and another claimed loss from a
certain partnership for petitioners' taxable year 2008 (claimed 2008 partnership
loss).
On June 19, 2012, the Appeals officer whom the Appeals Office had
assigned to petitioners' case sent petitioners a letter that referred to a telephone
discussion that he had had with Mr. Shamrock on March 9, 2012, during which
Mr. Shamrock had asked the Appeals officer to consider additional information
that the revenue agent who conducted the IRS examination had not reviewed. In
his letter, the Appeals officer asked petitioners to provide that additional informa-

tion to him by July 9, 2012.

°(...continued)
him to do so on October 28, 2013, when he first appeared before the Court on
behalf of petitioners at the call of this case from the calendar for the Court's trial
session in Chicago that commenced on that date.

- 16 [*16] On July 11, 2012, Mr. Niehus sent a letter and certain documents to the
Appeals officer that related to certain examination issues other than the claimed
Elm Court loss.

On August 29, 2012, the Appeals officer held a meeting with petitioners and
Mr. Niehus. The revenue agent was also present at that meeting.
As far as the Appeals officer was concerned, not only was the nature (i.e.,
ordinary vs. capital) of the claimed Elm Court loss still in dispute, but the claimed
tax basis of petitioners in the Elm Court property and thus the amount, if any, of
the claimed Elm Court loss on the disposition of that property also were in dispute.
By facsimile (fax) dated November 20, 2012 (Mr. Niehus' November 20,
2012 fax), Mr. Niehus sent the Appeals officer a draft of a letter dated November
20, 2012 (draft November 20, 2012 letter) and certain documents that related to
the claimed Elm Court loss. In Mr. Niehus' November 20, 2012 fax, he indicated
that the enclosed letter was "a draft copy (preliminary) to the final letter forthcoming the week of Nov. 26, 2012." Mr. Niehus explained in that fax that the letter
was a draft because "the final #'s are still being finalized, but #'s noted are close."
In his draft November 20, 2012 letter, Mr. Niehus summarized what he believed
were the pertinent facts relating to the claimed Elm Court loss. He also set forth in
that letter relevant tax authority and analyzed why the application of that authority

- 17 [*17] to those facts supported petitioners' position that they are entitled to that
claimed loss and advocated acceptance of that position. Included in the tax
authority that Mr. Niehus discussed and analyzed in his draft November 20, 2012
letter was section 165(a), which he described in that draft letter as "[t]he starting
point" in analyzing whether petitioners are entitled to the claimed Elm Court loss
and which he quoted as follows: "[T]here shall be allowed as a deduction any loss
sustained during the taxable year and not compensated by insurance or otherwise."
Mr. Niehus then pointed out in his draft November 20, 2012 letter that "IRC

[section] 165(c) limits the deduction for losses for individuals * * * to those who
[sic] are: (1) incurred in a trade or business [or] (2) losses incurred in any transaction entered into [for] profit, though not connected with a trade or business."
Thereafter in his draft November 20, 2012 letter, Mr. Niehus discussed and
analyzed the relevant regulations promulgated under section 165(c) and certain
caselaw decided under that section and applied those authorities to what Mr.
Shamrock and Ms. Bigg had led him to believe were the pertinent facts relating to
the claimed Elm Court loss, which he set forth in that letter. Mr. Niehus concluded his draft November 20, 2012 letter as follows: "The taxpayer[s] ha[ve]
demonstrated by their actions and prior professional experience that they did
convert a residence into a business venture which unfortunately did not result in a

- 18 [*18] profit for the taxpayers due to the extreme downturn in the real estate market
in 2008 thru today. Thus their 2009 tax return should reflect a section 1231 loss in
the amount of".¹°

By fax dated December 5, 2012, Mr. Niehus sent to the Appeals officer a
letter dated December 6, 2012, and certain documents that related to the claimed
Elm Court loss. In that letter, Mr. Niehus stated: "Please note that we have
enclosed final numbers regarding the sale of 1249 Elm [Court] for Bigg[], Shamrock. Please review and advise if you need any additional information. My client
and I are available to meet with you in person or by phone at your earliest convenience to resolve this [claimed Elm Court loss] matter."
By fax dated January 9, 2013, Mr. Niehus sent to the Appeals officer a letter
and certain documents that related to certain examination issues other than the
claimed Elm Court loss.
On January 16, 2013, the Appeals officer held a second meeting with
petitioners and Mr. Niehus.

¹°Mr. Niehus did not provide the amount of the claimed Elm Court loss in
Mr. Niehus' draft November 20, 2012 letter. That is because, as noted previously,
Mr. Niehus had pointed out in Mr. Niehus' November 20, 2012 fax that the
numbers "are still being finalized".

- 19 [*19] On January 25, 2013, Mr. Niehus sent to the Appeals officer a letter (January 25, 2013 letter) and certain documents that related to the claimed Elm Court
loss. In that letter, Mr. Niehus stated in pertinent part: "[W]e would like to
provide further documentation regarding the * * * property at 1249 Elm Court".

In his January 25, 2013 letter, Mr. Niehus described the documents that he
enclosed with that letter as follows:
042 Detailed expenses totaling $168,312 which my clients spent on
the 1249 Elm Court property.
042 Several comparable real estate listings in reference to the
property at 1249 Elm Court to establish property value.
042 Letter from Kim Benjamin, Principal of The Lord Companies,
LLC, dated January 23, 2013 to establish land/property value.
042 Detailed Disbursement listing from bank.
Mr. Niehus closed his January 25, 2013 letter to the Appeals officer as
follows: "Please review and advise if you need additional information. My client
and I are available to meet with you in person or by phone at your earliest convenience to resolve this matter expeditiously."
By fax dated February 4, 2013, Mr. Niehus sent the Appeals officer a letter
dated February 6, 2013, and certain documents that related to the claimed Elm
Court loss. In that letter, Mr. Niehus stated in pertinent part: "Attached are copies

- 20 [*20] of checks from Libertyville Land Partners regarding the property at 1249
Elm Court in Glenview, Illinois. If possible, we would like to meet with you as
soon as possible to reconcile [sic] this pending real estate issue. Please review and
advise if you need any additional information."
At a time not established by the record, Mr. Niehus provided the Appeals
officer with a written timeline of events relating to the claimed Elm Court loss.
At a time not established by the record around February 2013, the Appeals
officer ultimately offered to settle the claimed Elm Court loss by allowing petitioners a loss of $50,000 with respect to the Elm Court property ($50,000 IRS
Appeals Office settlement offer). That settlement offer amounted to a concession
by respondent of only approximately 11 percent of the $435,751 loss that petitioners had claimed with respect to that property in their second amended 2009 return.
Mr. Niehus informed the Appeals officer that he believed that petitioners had a
better than 50-50 chance of prevailing in court on the claimed Elm Court loss.
The Appeals officer was unwilling to increase the $50,000 IRS Appeals Office
settlement offer. Mr. Niehus advised petitioners to reject that offer, and they did.
By February 2013, the Appeals officer and Mr. Niehus had been able to
reach a basis of settlement at the IRS Appeals Office as to each of the examination
issues except the claimed Elm Court loss and the claimed 2008 partnership loss.

- 21 [*21] Subsequently, the IRS Appeals Office returned the case to the Chief Counsel's office for trial preparation. That was because the Court had set this case for
trial at its trial session in Chicago that was to commence on March 11, 2013
(March 11, 2013 Chicago trial session).
On February 13, 2013, counsel for respondent to whom the Chief Counsel's
office had assigned this case calendared for trial at the Court's March 11, 2013
Chicago trial session (first counsel for respondent) held a so-called Branerton
conference (Branerton conference)" with petitioners and Mr. Niehus. They
agreed at that conference that the only issues in the case that remained in dispute
were the claimed Elm Court loss and the claimed 2008 partnership loss. The
parties discussed those two remaining issues at the Branerton conference.¹² In
"See Branerton Corp. v. Commissioner, 61 T.C. 691 (1974).
¹²Mr. Niehus also advanced arguments at the Branerton conference with the
first counsel for respondent that petitioners should not be liable for the accuracyrelated penalties under sec. 6662(a) that respondent had determined in the
respective notices to impose for the taxable years 2007, 2008, and 2009. It is not
clear from the record whether Mr. Niehus and petitioners had reached a final
resolution with the IRS Appeals Office of the respective accuracy-related penalty
issues for the taxable years 2007 and 2009 when they met with the first counsel for
respondent on February 13, 2013. Regardless of whether they had, Mr. Niehus
was still advocating for them that they should not be liable for those penalties. As
discussed below, the stipulation of settled issues which petitioners and respondent
signed, which resolved certain issues for only taxable years 2007 and 2009 (not
for taxable year 2008), and which they filed with the Court on February 28, 2013,
(continued...)

- 22 [*22] those discussions, Mr. Niehus continued to advocate on petitioners' behalf,
inter alia, that petitioners were entitled to ordinary loss treatment for the entire
amount of the claimed Elm Court loss. He continued to advise petitioners that he
believed that they had a better than 50-50 chance of prevailing in court on the
claimed Elm Court loss.
Not only was the nature (i.e., ordinary vs. capital) of the claimed Elm Court
loss still in dispute at the Branerton conference with the first counsel for respondent, but the claimed tax basis of petitioners in the Elm Court property and thus
the amount, if any, of the claimed loss on the disposition of that property also were
in dispute.

On February 22, 2013, the first counsel for respondent sent a letter to
petitioners (February 22, 2013 letter), who were pro sese in this case, and sent a
copy of that letter to Mr. Niehus. In that letter, the first counsel for respondent
summarized the then status of the case in pertinent part as follows:
You agreed that the only remaining issues in your case were 1) the
Libertyville partnership losses claimed on your 2008 income tax
¹²(...continued)
reflected their agreement that Mr. Shamrock is liable for the taxable year 2007 and
that Ms. Bigg and he are liable for the taxable year 2009 for the accuracy-related
penalty. None of the examination issues for petitioners' taxable year 2008 (i.e.,
the claimed 2008 partnership loss, certain claimed itemized deductions, and the
accuracy-related penalty issue) was settled in that stipulation of settled issues.

- 23 [*23] return[] [claimed 2008 partnership loss] and 2) whether, and/or to
what extent you are entitled to claim a loss from the sale of the property located at 1249 Elm Court.031 We also discussed that we would
need additional documentation in order to resolve the remaining
issues. Due to your case being on the [Court's] March 11, 2013 Trial
Calendar, we agreed that it would be best to file a motion for continuance on your case in order to allow you additional time to provide the
additional documentation.
Accordingly, I have prepared a stipulation of settled issues and joint
motion for continuance of trial. The stipulation of settled issues
reflects the issues that were agreed to at Appeals. Please sign in blue
ink the original and three copies of the stipulation of settled issues
and the joint motion for continuance of trial. * * *
On February 28, 2013, the parties filed with the Court a stipulation of
settled issues (February 28, 2013 stipulation of settled issues) that petitioners, not
Mr. Niehus,¹4 and the first counsel for respondent on behalf of respondent had
signed. That stipulation of settled issues resolved each of the examination issues
for taxable years 2007 and 2009 except the claimed Elm Court loss and none of
the examination issues for taxable year 2008, including the claimed 2008 partnership loss.
On March 11, 2013, the Court called this case from the calendar for its
March 11, 2013 Chicago trial session. Pursuant to the parties' agreement set forth

¹³See supra note 12.
¹4See supra note 9.

- 24 [*24] in the first counsel for respondent's February 22, 2013 letter, the parties
filed with the Court at that calendar call a joint motion for continuance of trial.
The Court granted that motion.

At the end of May 2013, the Court set this case for trial at its trial session in
Chicago that was to commence on October 28, 2013 (October 28, 2013 Chicago
trial session). Sometime during the summer of 2013, Mr. Niehus and petitioners
met (summer 2013 meeting) with the counsel for respondent to whom the Chief
Counsel's office had assigned this case calendared for that trial session (second
counsel for respondent).¹5 At that meeting, Mr. Niehus discussed the two major
issues that remained unresolved, namely, petitioners' claimed Elm Court loss and
their claimed 2008 partnership loss.¹6 Mr. Niehus advocated to that counsel that
petitioners are entitled to the entire amount of each of those claimed losses. He
continued to advise petitioners that he believed that they had a better than 50-50
chance of prevailing in court on the claimed Elm Court loss.

¹5The second counsel for respondent was not the first counsel for respondent.

¹6The accuracy-related penalty for the taxable year 2008 that respondent had
determined in the notice for that year also remained at issue as well as an adjustment of under $1,000 relating to claimed itemized deductions for that year.

- 25 [*25] With respect to the claimed Elm Court loss, in addition to advocating to the
second counsel for respondent that petitioners' basis in the Elm Court property
was significantly less than the amount that they had received when they disposed
of that property and that therefore petitioners had incurred a loss for tax purposes
in the amount that they claimed in their second amended 2009 return, Mr. Niehus

also advocated to that counsel during the summer 2013 meeting, as he had
advocated when he was dealing with the IRS Appeals officer and the first counsel
for respondent, that the claimed Elm Court loss was an ordinary, not a capital,
loss. Mr. Niehus knew, and advised petitioners, that, given their tax situation for
the taxable years 2007, 2008, and 2009 (and their anticipated tax situation thereafter),¹7 a capital loss for taxable year 2009 with respect to the Elm Court property
would have been of virtually no tax benefit to them. Mr. Niehus also advised
petitioners that, even if the IRS were willing to concede the entire amount (i.e.,
$435,751) of the claimed Elm Court loss as a capital, not an ordinary, loss, any
such concession, given petitioners' tax situation, would have been of virtually no
tax benefit to them for the taxable year 2009 or for any other taxable year. That

¹7Petitioners did not have capital gain for any of the years at issue (and did
not anticipate having any substantial capital gain for subsequent taxable years)
that would have been reduced by the claimed Elm Court loss if that loss had been
treated as a capital loss.

- 26 [*26] was because, Mr. Niehus told petitioners, under the relevant tax law the
maximum amount of capital loss (in excess of capital gain) that is allowable each
year to an individual is $3,000. He also told them that, in contrast to that capital
loss tax treatment, under the relevant tax law there is no similar limitation on the
use of an ordinary loss to reduce ordinary income. Mr. Niehus further informed
petitioners that consequently a concession by the IRS of an ordinary loss with
respect to the Elm Court property in an amount that was significantly smaller than
a capital loss for the entire amount of the loss that petitioners claimed in their
second amended return with respect to that property would be significantly more
beneficial for tax purposes to petitioners. In this regard, petitioners made concessions, as reflected in the stipulations of settled issues, of many IRS determinations
that would have resulted in a substantial increase in their ordinary income for each
of the taxable years 2007, 2008, and 2009. Mr. Niehus advised petitioners that if
the IRS were to agree to allow an ordinary loss for taxable year 2009 with respect
to the Elm Court property, even in an amount that was significantly less that the
entire amount of the claimed Elm Court loss, any such ordinary loss, in contrast to
treating the claimed Elm Court loss as a capital loss, would have benefited
petitioners dollar for dollar in reducing the additional amount of ordinary income
for each of those years that they would have as a result of those concessions.

- 27 [*27] At the conclusion of the summer 2013 meeting, the second counsel for
respondent was very skeptical of petitioners' position that their claimed Elm Court
loss was an ordinary loss, not a capital loss. In fact, that counsel offered to resolve
the claimed Elm Court loss issue by allowing petitioners a capital loss with respect
to the Elm Court property for the taxable year 2009.¹8 Mr. Niehus rejected that
offer on behalf of petitioners, and he proceeded to advocate again to the second
counsel for respondent why the full amount of the claimed Elm Court loss should
be allowed as an ordinary loss for petitioners' taxable year 2009. He also continued to advise petitioners that he believed that they had a better than 50-50 chance
of prevailing in court on the claimed Elm Court loss.
The second counsel for respondent was skeptical not only of the ordinary
nature of the claimed Elm Court loss but also of the basis that petitioners were
claiming with respect to the Elm Court property and that they used in determining
the amount of the loss that they had claimed with respect to that property in the
second amended 2009 return. In an effort to address the concerns of the second
counsel for respondent regarding the basis of petitioners in the Elm Court property, on August 22, 2013, Mr. Niehus sent to that counsel a letter and certain
¹ªThe record does not establish the amount of capital loss that the second
counsel for respondent offered to allow petitioners in an effort to resolve the
claimed Elm Court loss.

- 28 [*28] documents that related to the claimed Elm Court loss. In that letter, Mr.
Niehus stated in pertinent part:

This letter is being sent to you to follow-up on the pending issues
regarding the Bigg/Shamrock case for [sic] which you are handling.
Attached are expense ledgers pertaining to the property at 1249 Elm
Court in Glenview, Illinois. These ledgers and receipts [that] substantiate $140K of the $168K of expenses regarding the above property. The remaining $28K of expenses was expensed in other months
and this documentation is forthcoming and will be mailed to you
under separate cover. However, this documentation solidifies the
majority of the $168K in expenses.
We will also be forwarding you more documentation on these expenses that is forthcoming from the bank the [sic] further substantiates these expenditures.
If possible, we would like to meet with you as soon as possible to
reconcile this pending real estate issue.
In a continuing effort to address the concerns of the second counsel for
respondent regarding the basis of petitioners in the Elm Court property, by fax
dated September 23, 2013, Mr. Niehus sent to that counsel a letter dated September 20, 2013 (September 20, 2013 letter) and certain documents that related to the
claimed Elm Court loss. In that letter, Mr. Niehus stated in pertinent part:

This letter is being sent to you to follow-up on the pending issues
regarding the Bigg/Shamrock case for [sic] which you are handling.
As my client has been attempting to gather all needed information
you requested, there has been material changes in the proper calculation of the 1249 Elm [Court] tax basis.

- 29 [*29] Thus the correct basis is as follows:
1.)

Land does not change $468,500.

2.)

The original loan authorized was $781,221, per closing statement, Item "A". The Taxpayer wrote 3 checks $45,000,
$40,000 and $30,000 totaling $115,000. Per attachment "C"
final. The total amount invested is $897,221. Per Bank statement total is $895,779 with the difference being accrued interest.

3.)

The taxpayer's out of pocket was $168,000 but must be reduced by the $115,000 of checks written to Bank--thus total
* * * out of pocket paid by taxpayer is $53,000.

4.)

Lastly, per the closing statement, "B" $200,000 was paid as a
final draw to pay various subcontractors. These payments
originated from the seller's funds at closing, and were the last
payments to complete the project.
In summary, total Basis is calculated as follows:

Land

$468,500

Bank

$895,000

Taxpayer Funds

$ 53,000

Closing

$200,000

Total

$1,616,500

In his September 20, 2013 letter, Mr. Niehus further stated in pertinent part:

"I do know this may be confusing, therefore, the taxpayer and I can meet ASAP in

- 30 [*30] order to more easily track the flow of cash investments and basis. Also,
enclosed is a history of Mr. Shamrock's real estate development projects over the
last 20 plus years."
As is apparent from Mr. Niehus' September 20, 2013 letter, as late as the
date of that letter, which was more than two years after petitioners had retained
him, they were sending documents to him that they had not previously given him
(new documents) or the IRS, some of which contradicted certain documents that
they had previously given him (old documents) and the IRS. They wanted and
expected Mr. Niehus to present those new documents that contradicted certain old
documents (new and contradictory documents) to the second counsel for respondent and to continue to advance and advocate their position that they were entitled
to ordinary loss treatment for the entire amount of the claimed Elm Court loss.
Mr. Niehus did what petitioners wanted and expected and continued to advocate
acceptance by the IRS of petitioners' position with respect to that loss. Petitioners
and Mr. Niehus knew, or should have known, that presenting those new and
contradictory documents to the second counsel for respondent would likely cause
that counsel and other representatives of the IRS involved in this case to continue
to be suspicious of, and to have trust and credibility issues with, petitioners and
their claims, as certain IRS representatives previously had because of events that

- 31 [*31] had occurred during the IRS examination and before they had retained Mr.
Niehus to represent them with respect to the IRS examination.
On October 1, 2013, a week after Mr. Niehus had faxed to the second
counsel for respondent on September 23, 2013, his September 20, 2013 letter and
certain documents that related to the claimed Elm Court loss, the Federal Government closed because of certain funding issues that had arisen in Congress. The
Federal Government reopened on October 17, 2013.
After the Federal Government reopened, Mr. Niehus on behalf of petitioners and the second counsel for respondent resumed their settlement discussions
with respect to, inter alia, the claimed Elm Court loss. Shortly before the October
28, 2013 Chicago trial session commenced, the second counsel for respondent
informed Mr. Niehus and petitioners that he would be willing to settle that major
issue as well as the second unresolved major issue, i.e., the claimed 2008 partnership loss, as follows: Petitioners (1) would be entitled for taxable year 2009 to an
ordinary loss of $217,728 with respect to the claimed Elm Court loss that they had
reported as an ordinary loss deduction in petitioners' second amended 2009 return
and would concede the balance (i.e., $218,023) of that claimed loss" and (2)
"In offering to allow petitioners for the taxable year 2009 an ordinary loss
of $217,728 with respect to the claimed Elm Court loss, the second counsel for
(continued...)

- 32 [*32] would concede in full the IRS determination in the notice to disallow their
claimed 2008 partnership loss.2°
Mr. Niehus recommended to petitioners that they accept the respective bases
on which the second counsel for respondent had offered to resolve the claimed
Elm Court loss and (for reasons set forth in note 20) the claimed 2008 partnership
loss. Mr. Niehus gave a detailed explanation to petitioners as to why he recom-

"(...continued)
respondent was willing to allow them approximately one-half of the total claimed
Elm Court loss of $435,751 that they had reported as an ordinary loss in
petitioners' second amended 2009 return.

2°Petitioners were willing to concede in full the claimed 2008 partnership
loss because they were unable to provide documentation to the IRS establishing
that Mr. Shamrock had incurred that loss as they and Mr. Niehus on their behalf
had previously contended before the IRS. That was because the documents that
petitioners ultimately were able to find at the request of the IRS showed that it was
not Mr. Shamrock who had made capital contributions to the partnership with
respect to which petitioners were claiming the claimed 2008 partnership loss.
Instead, it was a company that Mr. Shamrock owned which had made capital
contributions to that partnership. When Mr. Niehus was advocating at several
meetings with certain IRS representatives at which petitioners were present
petitioners' position that they were entitled to the claimed 2008 partnership loss,
he was not aware that Mr. Shamrock had not in or before taxable year 2008 made
capital contributions to the partnership with respect to which petitioners were
claiming that loss. Mr. Niehus became aware of that fact when Mr. Shamrock told
him that the documents that Mr. Shamrock had found showed that a company that
Mr. Shamrock owned had made capital contributions to that partnership. Before
and at the time petitioners decided to concede in full the claimed 2008 partnership
loss, Mr. Shamrock had no problem with the way in which Mr. Niehus had
advocated petitioners' position to the IRS that they were entitled to that loss.

- 33 [*33] mended that they accept the basis of settling the claimed Elm Court loss that
the second counsel for respondent had proposed. Consequently, Mr. Shamrock
and Ms. Bigg understood very well the consequences of their accepting that
proposed basis of settlement as well as the consequences of rejecting it.
Mr. Niehus based his recommendation with respect to the offer of the
second counsel for respondent regarding the claimed Elm Court loss on a number
of factors that he discussed with petitioners. He first advised petitioners that he
believed that the second counsel for respondent would be unwilling to offer to
concede an amount of the claimed Elm Court loss of $435,751 that was larger than
the $217,728 that he had indicated he was willing to concede.
Mr. Niehus next explained to petitioners that, because the second counsel
for respondent was adamant about not allowing petitioners a larger amount of the
claimed Elm Court loss, the only two avenues available to them would be to
accept the settlement that that counsel had proposed or to litigate that loss. Mr.
Niehus further explained to petitioners that if they decided to litigate the claimed
Elm Court loss, they would be litigating the entire amount of that loss, not just the
portion of that loss that the second counsel for respondent was unwilling to allow.
Mr. Niehus also described for petitioners what he believed to be the socalled hazards of litigating the claimed Elm Court loss, which he told them they

- 34 [*34] should take into account in deciding whether to litigate the claimed Elm
Court loss. Mr. Niehus informed petitioners that the principal hazard of litigating
that issue was that the Court might reject their position that they are entitled to the
entire amount of the claimed Elm Court loss as an ordinary loss for the taxable
year 2009--a result that would provide them no tax benefit from that claimed loss
and that obviously would be worse than the result if they had accepted the settlement offer of the second counsel for respondent. Another litigating hazard about
which Mr. Niehus advised petitioners was that the Court might hold that although
petitioners had incurred a loss from the disposition of the Elm Court property, that
loss was a capital loss, and not an ordinary loss--a result that would provide them
virtually no tax benefit2¹ from that claimed loss and that obviously would be worse
than the result if they had accepted the settlement offer of the second counsel for
respondent. Another hazard of litigation was that the Court might find that
petitioners failed to establish their tax basis in the Elm Court property and thus
had failed to establish that there was any loss on the disposition of that property.
Mr. Niehus also informed petitioners that another factor that they should
consider in deciding whether to accept the settlement with respect to the claimed
2¹As discussed above, Mr. Niehus had previously advised petitioners that
treating the claimed Elm Court loss as a capital loss would provide them with only
a $3,000 annual tax benefit over a period of many years. M supra note 17.

- 35 [*35] Elm Court loss that the second counsel for respondent had proposed or to
reject it and to litigate that issue was the cost of litigation. Mr. Niehus told
petitioners that it would be expensive to litigate the claimed Elm Court loss.
After Mr. Niehus explained to petitioners why he was recommending that
they accept the settlement offer of the second counsel for respondent with respect
to the claimed Elm Court loss, Ms. Bigg told him and Mr. Shamrock that she
wanted to accept that offer and thereby put the case pending in the Court behind
her.

On October 28, 2013, this case was called from the trial calendar for the
Court's October 28, 2013 Chicago trial session (calendar call). The second
counsel for respondent appeared on behalf of respondent. Although Mr. Niehus
had not entered an appearance in the case and petitioners were acting pro sese, Mr.
Niehus appeared at the calendar call on their behalf. The Court asked Mr. Niehus
whether he had entered an appearance in the case on behalf of petitioners, to
which he responded that he had not. The Court then asked Mr. Niehus whether he
had a completed an entry of appearance form to file with the Court, to which he
responded that he had not. The Court asked him to explain why he did not have
such a completed form to file with the Court. Mr. Niehus replied that he did not
expect to be appearing in Court on behalf of petitioners because the second

- 36 [*36] counsel for respondent and he expected as late as a few days before the
commencement of the Court's October 28, 2013 Chicago trial session that the case
would be settled. Under the circumstances, the Court recognized Mr. Niehus pro
hac vice.
Thereafter at the calendar call, the second counsel for respondent informed
the Court that both he and Mr. Niehus believed that they had agreed on a basis on
which to settle the issues that remained in the case after the parties had filed the
February 28, 2013 stipulation of settled issues. The second counsel for respondent
explained that a supplemental stipulation of facts had been prepared but that the
parties had not yet signed it. He added that he believed that there was "no disagreement as to the contents of the [supplemental] stip". Instead, according to the
second counsel for respondent, "[p]etitioners had some concerns about signing it
[supplemental stipulation of settled issues] prior to receiving a computation" that
showed the tax that they would owe for each of the years at issue pursuant to the
filed February 28, 2013 stipulation of settled issues and the unsigned and unfiled
supplemental stipulation of settled issues.
The Court asked Mr. Niehus at the calendar call to elaborate on what the
second counsel for respondent had informed the Court regarding the status of the
case. The following exchange took place between Mr. Niehus and the Court:

- 37 [*37] Mr. Niehus:

[T]here is [sic] about 50 issues that were originally
under audit, 48 were agreed upon. The last two
are large and material in nature, and before the
Petitioners wanted to know, they wanted to know
what the net liability would be, because the last
issue took about a year to settle or come to an
agreement to. And they'd like to know what the
bottom line is before they would settle. We understand in 30 to 60 days that final number will be
then reviewed, sent to us, we'd like to review it
and then sign off and the matter will be settled.
[Emphasis added.]

The Court:

Then you don't have a settlement and we'll go to
trial.

Mr. Niehus:

I'd rather not go because all we're doing is lookmg to review a computation.

*

*

*

*

*

*

*

The Court:

* * * if you sign the supplement[al] * * *
stipulat[ion of settled] issues and your clients
don't like the bottom line number.

Mr. Niehus:

Oh, no, they just want to know what it is.

The Court:

Okay, they'll know what it is before you submit
the decision documents reflect[ing] * * * the supplemental stipulation of settled issues.

Mr. Niehus:

Okay, then that's what we'll need.

The Court:

* * * I thought you were saying you weren't going
to sign the supplemental stipulation of settled
issues until you knew and however long it takes

- 38 [*38]

you to do the computations [of] what the [tax]
number is.
Mr. Niehus:

Well, we prefer to do that. If that is not possible
then we would sign it today.

The Court:

That's not possible.

Mr. Niehus:

Then we'll sign it today.

The Court:

Okay, do you have it with you?

Mr. Shelton:

We do.

The Court:

Let's sign it right now, but I want your entry of
appearance first.

Mr. Shelton:

Judge, the [supplemental] stipulation [of settled
issues is] * * * actually made out for Petitioner's
[sic] pro se signatures. If we could have, or if the
Court could recall us at the end of the call we
could probably get these signed.

Mr. Niehus:

They're right here to sign it now.

The Court:

Oh, so you're--

Mr. Niehus:

My client, the client, the taxpayers are here right
now.

The Court:

But you're going to enter an appearance, too?

Mr. Niehus:

Yes.

The Court:

Your signature would have to be on it, too. Okay,
why don't I recall this case at the end of the calendar call. Will that give you enough time?

- 39 [*39] Mr. Shelton:

It will give us enough time to get Petitioners' signature, if not to reprint new one for Petitioners'
counsel's signature, Your Honor.

The Court:

He can just add his signature at the bottom of the
page, put his name, put his, but I want it, I don't
want it without your entry of appearance.

Mr. Niehus:

Yes.

The Court:

Okay? And if you're not ready at the end of the
calendar call then we'll call it later today.

On October 28, 2013, this case was recalled from the trial calendar for the
Court's October 28, 2013 Chicago trial session (recall). The second counsel for
respondent appeared at the recall on behalf of respondent. Mr. Niehus appeared at
the recall on behalf of petitioners. At that recall, the second counsel for respondent informed the Court that the parties wanted to file with the Court a supplemen-

tal stipulation of settled issues.
The Court asked Mr. Niehus whether he had an entry of appearance form to
file with the Court, to which he replied that he did. The Court asked Mr. Niehus to
provide that form to the trial clerk and instructed the trial clerk to "make sure it's
in proper order." The Court asked the trial clerk whether the entry of appearance
form that Mr. Niehus had provided to her was in proper order, to which she replied
that it was. The trial clerk was wrong in her response, but the Court did not know

- 40 [*40] that she was wrong at that time. The entry of appearance form that Mr.
Niehus had provided to the trial clerk did not show a "Tax Court Bar Number" in
the appropriate place in that entry of appearance form that requires such a number
to be shown. That was because Mr. Niehus had not applied to be, and consequently was not, admitted to practice before the Court before the October 28, 2013
Chicago trial session commenced. As a result, the Court had not assigned a Tax
Court bar number to him.22

After the trial clerk informed the Court at the recall, albeit erroneously, that
the entry of appearance form that Mr. Niehus had given to her was in proper order,
the Court proceeded to discuss with respective counsel for the parties the status of
the case. The following exchange between the Court and counsel took place:
The Court:

[Y]ou have a supplemental stipulation of settled
issues that's been signed?

Mr. Niehus:

Yes, Your Honor.

The Court:

Which, together with the stipulation of settled
issues you said was filed some months ago, settles
all issues in the case, is that right?

22Because Mr. Niehus had not applied to be, and consequently was not,
admitted to practice before the Court before the October 28, 2013 Chicago trial
session commenced, the entry of appearance form that Mr. Niehus had provided to
the trial clerk was not filed with the Court and consequently is not part of the
official record in this case. That entry of appearance form is, however, preserved
with that record.

- 41 [*41] Mr. Shelton:

It does, Your Honor.

The Court:

Is that right?

Mr. Niehus:

I agree.

The Court:

Okay, you may approach with the supplemental
stipulation of settled issues that will be filed. And
how much time do you need for the stipulated
decision document?

Mr. Shelton:

We'd ask for 30 days, Judge.

*
The Clerk:

*

*

*

*

*

*

30 days is November 27th.

At the Court's direction at the calendar call of this case on October 28,
2013, the supplemental stipulation of settled issues (October 28, 2013 supplemental stipulation of settled issues), which the second counsel for respondent had
signed on behalf of respondent and that the parties filed with the Court at the
recall of this case on that date, was signed by each petitioner and by Mr. Niehus on
behalf of petitioners. Paragraph 22 of that supplemental stipulation of settled
issues, which pertained to the claimed Elm Court loss for petitioners' taxable year
2009,23 set forth the agreement of respondent and petitioners that "[p]etitioners are
23Paragraphs 19 through 21 of the October 28, 2013 supplemental
stipulation of facts also set forth the agreement of respondent and petitioners that
petitioners conceded the three determinations that respondent had made in the
(continued...)

- 42 [*42] entitled to claim an ordinary loss in the amount of $217,728 that was not
claimed on their 2009 individual income tax return."24 The following agreement
of respondent and petitioners appeared immediately below paragraph 22 of the
October 28, 2013 supplemental stipulation of settled issues and immediately above
the respective signatures of Mr. Shamrock and Ms. Bigg on behalf of themselves
and the signature of the second counsel for respondent on behalf of respondent:25
"The parties hereby agree to this supplemental stipulation of settlement."
At the recall of this case at the Court's October 28, 2013 Chicago trial
session, the Court ordered the parties to submit to the Court on or before November 27, 2013, a date that the second counsel for respondent had requested, stipulated decision documents reflecting the stipulations of settled issues.
After the Court's October 28, 2013 Chicago trial session, the second
counsel for respondent had computations (tax computations) undertaken of any

23(...continued)
2008 notice with respect to the taxable year 2008, including the agreement that
petitioners conceded the claimed 2008 partnership loss. See supra note 20.

24See supra note 19.
25As stated above, at the direction of the Court at the calendar call on
October 28, 2013, Mr. Niehus also signed the October 28, 2013 supplemental
stipulation of settled issues. His signature appeared below the respective
signatures of petitioners and the second counsel for respondent.

- 43 [*43] deficiency, any addition to tax, and any accuracy-related penalty for which
Mr. Shamrock for the taxable year 2007 was and Mr. Shamrock and Ms. Bigg for
each of the taxable years 2008 and 2009 were liable pursuant to the February 28,
2013 stipulation of settled issues and the October 28, 2013 supplemental stipulation of settled issues that they had signed and filed with the Court. After those tax
computations had been completed, the second counsel for respondent sent a letter
dated November 20, 2013 (November 20, 2013 letter) to petitioners and enclosed
those tax computations. He also sent copies of that letter and those tax computations to Mr. Niehus. In the November 20, 2013 letter, the second counsel for
respondent stated in pertinent part:

The IRS has computed the amounts of taxes and penalties that result
from our settlement in your Tax Court case. To conclude the case, we
must file a decision with the court. Please review the enclosed decision and the accompanying computation and if you agree that the
computation properly reflects our settlement, please sign the original
and one copy of the decision and return them to my office. * * *
After Mr. Niehus received from the second counsel for respondent and
reviewed the copies of the November 20, 2013 letter and the tax computations,
Mr. Niehus contacted that counsel and pointed out to him a computational error in
respondent's favor with respect to certain itemized deductions that appeared in
those tax computations. The second counsel for respondent agreed with Mr.

- 44 [*44] Niehus that the tax computations did include the error that Mr. Niehus had
pointed out. Thereafter, the second counsel for respondent requested that the tax
computations be revised to correct that error. He also obtained from the Court an
extension of time until December 26, 2013, within which the parties were to
submit stipulated decision documents reflecting the parties' stipulations of settled
issues.
After the tax computations had been revised to correct the error that Mr.
Niehus had pointed out (revised tax computations), the second counsel for respondent sent to Mr. Niehus by fax dated November 25, 2013, a copy of the revised tax
computations with a note on the fax transmission sheet that stated in pertinent
part: "I reran the numbers * * * to include the adjustments to Itemized Deductions
in 2009. Here is the revised computation. I've reviewed the executed stipulations
of settled issues and the notices of deficiency and I believe that everything we
agreed to in writing comports with this revised computation." The revised tax
computations also were sent to Mr. Shamrock and Ms. Bigg on November 25,

2013.
After Mr. Shamrock reviewed the tax computations and thereafter the
revised tax computations that the second counsel for respondent had provided to
petitioners and Mr. Niehus, he was not pleased with what the revised tax computa-

- 45 [*45] tions showed he and Ms. Bigg were required to pay to the IRS for the years
at issue. If Mr. Shamrock had been pleased with what the revised tax computations showed he and Ms. Bigg were required to pay to the IRS for the years at
issue, he would not have objected to, but would have signed, the decision documents that respondent had prepared for this case and that reflected those revised
tax computations, which in turn reflected the February 28, 2013 stipulation of
settled issues and the October 28, 2013 supplemental stipulation of settled issues.
That is to say, if Mr. Shamrock had been pleased with what the revised tax
computations showed he and Ms. Bigg were required to pay to the IRS for the
years at issue, Mr. Shamrock would not have contested the settlement with respect
to their claimed Elm Court loss to which he and Ms. Bigg had agreed, as reflected
in paragraph 22 of the October 28, 2013 supplemental stipulation of settled issues,
and he would not have refused to sign the decision documents that reflected the
agreements of the parties set forth in that stipulation of settled issues as well as in
the February 28, 2013 stipulation of settled issues.
Because of his displeasure with what he and Ms. Bigg were required to pay
to the IRS for the years at issue, as shown in the revised tax computations, Mr.
Shamrock decided to consult, on the same day on which he was provided those
revised computations, Mr. Drobny, who had represented him on certain tax

- 46 [*46] matters. If Mr. Shamrock had been pleased with what the revised tax
computations showed he and Ms. Bigg were required to pay to the IRS for the
years at issue, he would not have consulted Mr. Drobny. When Mr. Shamrock
spoke with Mr. Drobny about taxable years 2007, 2008, and 2009, Mr. Drobny
checked on Mr. Niehus' professional background and learned that after 2009 Mr.
Niehus no longer was authorized to practice law in Illinois. Mr. Drobny informed
Mr. Shamrock about what he had learned regarding Mr. Niehus' status with the
Illinois State bar, about which Mr. Shamrock had been unaware.
When Mr. Shamrock spoke with Mr. Drobny about his displeasure with
what the revised tax computations showed he and Ms. Bigg were required to pay
to the IRS for the years at issue, Mr. Drobny also informed Mr. Shamrock about,
and gave him a copy of, the Opinion in Gates v. Commissioner, 135 T.C. 1 (2010),
(sometimes, Gates Opinion). Mr. Drobny told Mr. Shamrock that he believed that
Mr. Niehus had erred in recommending to petitioners that they accept respondent's
proposal to settle the claimed Elm Court loss by treating approximately 50 percent
of that claimed loss as a deductible ordinary loss, instead of treating 100 percent of
that claimed loss as a deductible ordinary loss. Mr. Drobny held that belief
because, in his opinion, the Gates Opinion required resolution of the Elm Court
loss entirely in petitioners' favor by treating it as a deductible ordinary loss. Mr.

- 47 [*47] Drobny did not understand why Mr. Niehus had not brought the Gates
Opinion to the attention of any representative of respondent with whom Mr.
Niehus and petitioners had dealt during the period they had been negotiating with
them in an attempt to resolve, inter alia, the claimed Elm Court loss.
On November 25, 2013, the same day on which Mr. Shamrock was provided
the revised tax computations and on which Mr. Shamrock consulted Mr. Drobny
about his displeasure with what he and Ms. Bigg were required to pay to the IRS
for the years at issue, as shown in those revised tax computations, Mr. Drobny
contacted the second counsel for respondent and gave him Form 2848. In that
form, Mr. Shamrock, but not Ms. Bigg, authorized Mr. Drobny to represent him

before the IRS with respect to tax matters for Mr. Shamrock's taxable years 2004
through 2012.26 In Form 2848, part II, that Mr. Drobny signed, Mr. Drobny

indicated that he was a C.P.A. who was authorized to practice as such in the State

26As expressly stated in preprinted Form 2828 authorizing Mr. Drobny to
represent Mr. Shamrock, the filing of that form with the IRS "automatically
revoke[d] all earlier power(s) of attorney on file with the Internal Revenue Service
for the same tax matters and years or periods covered by" that form. Consequently, the filing of that form automatically revoked as to Mr. Shamrock Form

2848 that Mr. Shamrock (and Ms. Bigg) had filed with the IRS authorizing Mr.
Niehus to represent Mr. Shamrock (and Ms. Bigg) with respect to tax matters for

the taxable years 2007, 2008, and 2009.

- 48 [*48] of Illinois. On December 2, 2013, Mr. Drobny filed with the Court an entry
of appearance form with respect to Mr. Shamrock.
Ms. Bigg was unwilling to retain Mr. Drobny when Mr. Shamrock first
retained him with respect to this case, even though Mr. Drobny and/or Mr.
Shamrock had informed her that Mr. Niehus was no longer authorized to practice
law in Illinois. That was because Ms. Bigg wanted to put this case behind her.
Shortly thereafter, Ms. Bigg changed her mind and decided to retain Mr. Drobny
to represent her with respect to this case. The reason that Ms. Bigg changed her
mind was that Mr. Drobny, who represented to her that he was a tax attorney when
he was not, had also represented to her, as he had represented to Mr. Shamrock,
that if Mr. Niehus had brought the Gates Opinion to the attention of the representatives of respondent with whom he and petitioners had been dealing, respondent
would have conceded as a deductible ordinary loss the entire claimed Elm Court
loss, not just 50 percent of that claimed loss as reflected in paragraph 22 of the
October 28, 2013 supplemental stipulation of settled issues. Ms. Bigg relied on
Mr. Drobny's representations to her and concluded that he was more knowledgeable than Mr. Niehus in that Mr. Drobny was aware of the Gates Opinion about
which Mr. Niehus was apparently unaware and which Mr. Drobny represented to
her controlled resolution of that claimed loss entirely in petitioners' favor as a

- 49 [*49] deductible ordinary loss. Consequently, Ms. Bigg retained Mr. Drobny to
represent her with respect to this case. Mr. Drobny did not disclose to Ms. Bigg
when she retained him or at any time thereafter that in Drobny v. Commissioner,

86 T.C. 1326 (1986), the Court had found him liable for so-called civil fraud under
then section 6653(b).27 On December 17, 2013, Mr. Drobny filed with the Court
an entry of appearance form with respect to Ms. Bigg.
In reliance upon the advice and the representations of Mr. Drobny regarding
the Gates Opinion, petitioners refused to sign the decision documents that the
second counsel for respondent had prepared reflecting the February 28, 2013
stipulation of settled issues and the October 28, 2013 stipulation of settled issues.
Consequently, on December 17, 2013, respondent filed a motion for entry of
decision in which respondent asked the Court to enter a decision in the case that
reflected the agreement of the parties as set forth in those stipulations of settled
issues.
On December 26, 2013, Mr. Drobny filed on behalf of petitioners a response
to respondent's motion for entry of decision. In that response, Mr. Drobny
opposed that motion on behalf of petitioners on essentially two grounds. The first
27Sec. 6653(b) is the predecessor of sec. 6663 that Congress enacted to be
effective for tax returns, the due date for which (determined without regard to
extensions) was after December 31, 1989.

- 50 [*50] ground was that Mr. Niehus was no longer an active member of the Illinois
State bar when petitioners had authorized him, by signing part I of Form 2848 on
June 1, 2011, to represent them with respect to tax matters for the taxable years
2007, 2008, and 2009. Mr. Drobny further indicated in petitioners' response to

respondent's motion for entry of decision that Mr. Shamrock and Ms. Bigg were
not aware that after 2009 Mr. Niehus no longer was an active member of the
Illinois State bar when petitioners had authorized him, by signing part I of Form
2848 on June 1, 2011, to represent them with respect to tax matters for the taxable
years 2007, 2008, and 2009. Mr. Drobny claimed on behalf of petitioners in their
response to respondent's motion for entry of decision that consequently Mr.
Niehus "should not have been allowed to represent petitioners during their audit of

2007-2009."
The second ground that Mr. Drobny advanced on behalf of petitioners in
their response to respondent's motion for entry of decision was that "Mr. Niehus
improperly handled the issue [claimed Elm Court loss]". That was because,
according to Mr. Drobny,
in Gates v. Comm'r, 135 T.C. 1 (July 1, 2010), this court ruled that
the teardown of a former principle [sic] residence and rebuilding the
house without occupying it would disqualify the home from the
exclusion of gain under Section 121 as a principle [sic] residence.
The former principle [sic] residence did not exist according to this

- 51 [*51] court and it denied the exclusion. The fact that the Petitioners house
was not a principle [sic] residence and they lost $435,751 on the sale
should make that deductible because the IRS cannot have it both
ways. The aforementioned case was identified easily and should have
been presented to the IRS before settling on 1/2 of a deduction that
should have been allowed if the Petitioners had adequate representation.
Mr. Niehus' not informing petitioners that after 2009 he no longer was
authorized to practice law in Illinois because of his failure to satisfy certain
Illinois State bar attorney status requirements and not bringing the Gates Opinion
to the attention of respondent's representatives with whom he was dealing on
behalf of petitioners did not result in their suffering any prejudice, let alone any
injustice, when they agreed to settle the claimed Elm Court loss as set forth in
paragraph 22 of the October 28, 2013 supplemental stipulation of settled issues.
The Court granted respondent's motion for entry of decision and entered a
decision on January 27, 2014, that reflected the parties' February 28, 2013
stipulation of settled issues and the parties' October 28, 2013 supplemental
stipulation of settled issues.

On February 5, 2014, Mr. Drobny filed on behalf of petitioners a motion to
vacate or revise pursuant to Rule 162 (motion to vacate). In support of that
motion, petitioners advanced the following two grounds: "'fraud on this Court'

- 52 [*52] and breach of contract by respondent." The Court denied petitioners'
motion to vacate on February 19, 2014.
On March 12, 2014, Mr. Drobny filed on behalf of petitioners a motion for
reconsideration of findings or opinion pursuant to Rule 161. In that motion, Mr.

Drobny asked again on behalf of petitioners that the Court vacate the decision
entered in this case on January 27, 2014. In support of that motion, Mr. Drobny
alleged that respondent had a duty to disclose to petitioners that Mr. Niehus "did
not qualify to represent them." On March 18, 2014, the Court denied petitioners'

motion for reconsideration of findings or opinion pursuant to Rule 161.
On March 31, 2014, Mr. Drobny filed on behalf of petitioners another
motion to vacate or revise pursuant to Rule 162. That motion was not filed within
the time prescribed by Rule 162. On April 2, 2014, the Court denied that motion.

Petitioners timely appealed the Court's decision in this case to the Court of
Appeals. The Court of Appeals vacated the Court's Order and Decision entered
on January 27, 2014, and remanded this case "for further proceedings, in accordance with the decision of this court entered on September 22, 2014." In the order
of the Court of Appeals filed on September 22, 2014, the Court of Appeals stated
m pertment part:

- 53 [*53] Although the couple [petitioners] filed their petition pro se, they had
hired Grant Niehus, who told them he is a lawyer and CPA, to represent them before the IRS and the Tax Court. Niehus has a law degree
but hasn't been authorized to practice law since 2009 and he is not a
CPA.[281

*

*

*

*

*

*

*

The Tax Court's rules require that the parties stipulate to relevant
issues whenever possible; generally these stipulations are binding but
may be altered or withdrawn when "justice requires." TAX CT. R.
91(a), (e). The rules give the Tax Court discretion to relieve a party
of a stipulation. * * * The Commissioner likened the petitioners'
stipulations to "settlement agreements" that are "governed by general
principals of contract law." But the petitioners signed pretrial stipulations, which did not reflect the computation of the deficiency and
penalties or purport to resolve conclusively the petitioners' liability.

S_e_e Lovenguth v. C.I.R., 93 T.C.M. (CCH) 1040, at *3-*4 (2007)
280n the record before the Court that was established at the March 30, 2015
evidentiary hearing that it held on remand from the Court of Appeals, the Court is
unable to find that Mr. Niehus told petitioners that he was a C.P.A. Nor is the
Court able to find on that record that petitioners had hired Mr. Niehus to represent
them before this Court. In fact, we have found that Mr. Niehus made it clear to
Mr. Shamrock and Ms. Bigg when they first retained him that although he was
willing to represent them in attempting to resolve with the IRS all of the
examination issues for taxable years 2007, 2008, and 2009, he was unwilling to
represent them in the event that they and the IRS were unable to reach a mutually
satisfactory resolution of all of those examination issues and they wanted to
litigate the unresolved issues. That was because, as he told Mr. Shamrock and Ms.
Bigg at their first meeting, he was not a trial lawyer. We have also found that Mr.
Niehus indicated to petitioners that in the event that they wanted a trial with
respect to any unresolved examination issues, he would recommend a trial lawyer
to represent them. We have further found that during Mr. Niehus' representation
of petitioners, which ended in December 2013, they never asked him to
recommend a trial lawyer to them.

- 54 [*54] (distinguishing stipulations under Rule 91 from "settlement stipulations" and stating that Rule 91 "allows us to consider factors that
might not be sufficient to upset a contract"). The Tax Court, by
enforcing the petitioners' stipulations solely for the "reasons stated"
by the Commissioner, likewise failed to consider the petitioners'
asserted justification for setting aside those stipulations.

*

*

*

*

*

*

*

The Commissioner insisted that the parties had "settled the issue
50/50 because the outcome was uncertain" for both sides, not "because Mr. Niehus 'improperly handled the issue.'" But that's the
Commissioner's view, not a determination made by the Tax Court.
The court's decision is silent about Niehus's deceit, and that decision
does not show that the judge exercised any discretion when accepting
the Commissioner's request that the petitioners' stipulations be
enforced.
The Commissioner makes much of the fact that the petitioners
did not have a right to effective assistance of a lawyer in their civil
tax case. * * * As we understand the Commissioner's argument, a
taxpayer should be bound by any stipulation induced by his representative's deceit so long as the Commissioner was unaware of the fraud.
That contention * * * does not resolve whether these petitioners have
articulated a valid reason to set aside the stipulation relating to the
2009 [claimed Elm Court] loss. Even though the petitioners had no
right to an effective lawyer, the petitioners and even the Commissioner's counsel all believed they were dealing with an attorney
authorized to represent taxpayers before the IRS and the Tax Court.
The Commissioner minimizes that deception, but the Tax Court
should have evaluated whether it provided good cause to set aside the
petitioners' stipulations.
The Court of Appeals issued a mandate on November 17, 2014, in accordance with its order filed on September 22, 2014, and its judgment filed on

- 55 [*55] September 23, 2014, and, as discussed above, remanded this case for further
proceedings in accordance with that order and decision.
On November 25, 2014, this Court issued an Order in which it ordered the
parties to "file a joint report in which they * * * [were to] indicate what they
believe should be done in this Court on remand in order to comply with the order
and judgment of the U.S. Court of Appeals for the Seventh Circuit."
On December 11, 2014, the parties filed a joint status report (parties' joint
status report). In that report, the parties set forth their respective views regarding
further proceedings in this Court. The view of petitioners, as set forth by Mr.
Drobny in the parties' joint status report, was that
based upon the facts [alleged in the parties' joint status report by Mr.
Drobny on behalf of petitioners] and law cited by the Court of Appeals, a hearing on this matter is unnecessary because the facts in this
case are self evident. Asking the taxpayers [petitioners] or Mr.
Niehus about this matter in a hearing does not change the fact that
Niehus falsely represented to taxpayers, the Commissioner, and this
Court that he was unqualified [sic] to practice and indeed gave the
taxpayers clearly erroneous advice.
The view of respondent, as set forth in the parties' joint report, was that the
Court should "set this case for an evidentiary hearing". According to respondent,
"[p]etitioners should be put to their proof at an evidentiary hearing where a record
can be built and, after cross-examination, petitioners' credibility can be gauged by

- 56 [*56] the Court." Respondent then proffered in the parties' joint status report that
the following facts would be established at an evidentiary hearing:
(1) petitioners were full participants in the events leading to their
stipulations; (2) petitioners caused their predicament and tied Niehus'
hands by failing to provide Niehus the documents necessary to substantiate their positions; (3) petitioners went to Sheldon Drobny after
they received respondent's final settlement computations but before
they learned that Niehus was not licensed to practice law, i.e., their
dissatisfaction with the settlement had nothing to do with Niehus'
licensure [sic] and everything to do with the amount of money they
owed; and (4) petitioners did not, as the Seventh Circuit believed,
sign mere pretrial stipulations (or, in Tax Court parlance, stipulations
of fact) but rather settlement stipulations, which are held to a higher
standard.
In its January 15, 2015 Order, the Court set this case for an evidentiary
hearing at a special session that was to, and did, take place on March 30, 2015, in
Chicago. As stated in that Order, the March 30, 2015 evidentiary hearing was set
for the purpose of giving the parties the opportunity to present evidence as to
whether the parties' February 28, 2013 stipulation of settled issues and the parties'
October 28, 2013 supplemental stipulation of settled issues should be set aside.
On March 13, 2015, petitioners filed a second supplement to the prehearing
memorandum that they had filed on January 21, 2015. In that second supplement,
petitioners narrowed the scope of the March 30, 2015 evidentiary hearing to

- 57 [*57] whether only paragraph 22 of the parties' October 28, 2013 supplemental
stipulation of settled issues should be set aside.29

OPINION
It is petitioners' position that the Court should set aside paragraph 22.
Respondent disagrees.
Before addressing the parties' respective positions, the Court summarizes its
evaluation of the following witnesses whom respondent called as witnesses at the
March 30, 2015 evidentiary hearing:3° Mr. Shamrock, Ms. Bigg, Mr. Niehus,

2°Paragraph 22 of the parties' supplemental stipulation of settled issues
pertains to the claimed Elm Court loss that petitioners had raised as an affirmative
issue in their second amended 2009 return. Although Mr. Shamrock took the
position during his testimony at the March 30, 2015 evidentiary hearing that the
entire February 28, 2013 stipulation of settled issues and the entire October 28,
2013 supplemental stipulation of settled issues should be set aside, he changed his
mind upon prodding by Mr. Drobny at that hearing. (For convenience, the Court
will sometimes refer to paragraph 22 of the October 28, 2013 supplemental
stipulation of settled issues as paragraph 22.)
3°Petitioners did not call any witnesses at the March 30, 2015 evidentiary
hearing. Instead, they chose to have Mr. Drobny cross-examine respondent's
witnesses at that hearing.

- 58 [*58] Terrence Brennan,3¹ and Lauren May.32 Except for the testimony of Mr.
Shamrock, the Court found the respective testimonies of respondent's witnesses to
be credible. With respect to Mr. Shamrock, the Court did not find his testimony to
be credible in certain material respects. In addition, the Court found that he had a
selective memory during the second counsel for respondent's examination of him
at the March 30, 2015 evidentiary hearing. The Court finds that Mr. Shamrock's
selective memory in responding to the second counsel for respondent's questions
was nothing more than an attempt on his part to evade answering certain of those
questions that he wanted to avoid answering because he believed that those
answers, if truthful, would have not have supported petitioners' position that
paragraph 22 should be set aside. The Court will not rely on Mr. Shamrock's
testimony to establish petitioners' position that the Court should set aside para-

graph 22. See, e.g., Tokarski v. Commissioner, 87 T.C. 74, 77 (1986).
3¹Terrance Brennan is the Appeals officer who met with petitioners and Mr.
Niehus after petitioners filed the petition in an attempt to settle some or all of the
exammation issues.
32Lauren May is the first counsel for respondent who met with petitioners
and Mr. Niehus after the petition was filed and after petitioners and Mr. Niehus
had met with the Appeals officer. It was she who signed the February 28, 2013
stipulation of settled issues on behalf of respondent and who discussed with
petitioners and Mr. Niehus possible settlement of petitioners' claimed Elm Court
loss. They were unable to reach a basis on which to settle the claimed Elm Court
loss issue.

- 59 [*59] The Court turns now to the mandate of the Court of Appeals. As the Court
understands the Court of Appeals' order filed on September 22, 2014, which is
part of that mandate, the Court of Appeals concluded that the February 28, 2013
stipulation of settled issues and the October 28, 2013 supplemental stipulation of
settled issues are not stipulations of settlement because those stipulations of settled
issues "did not reflect the computation of the deficiency and penalties or purport to
resolve conclusively the petitioners' liability." Shamrock v. Commissioner, No.

14-1916, order at 3 (7th Cir. Sept. 22, 2014); see Shah v. Commissioner, 790 F.3d
767, 771 (7th Cir. 2015). Instead, according to the Court of Appeals, the February
28, 2013 stipulation of settled issues and the October 28, 2013 supplemental
stipulation of settled issues are governed by Rule 91.

Rule 91 governs "STIPULATIONS FOR TRIAL". In the case of stipulations of settlement or stipulations of settled issues, such as the February 28, 2013
stipulation of settled issues and the October 28, 2013 supplemental stipulation of
settled issues, the Court has held that that type of stipulation will not be set aside
unless there is a showing of a "lack of formal consent, fraud, mistake, or some
similar ground". Dorchester Indus., Inc. v. Commissioner, 108 T.C. 320, 335

(1997), aff'd without published opinion, 208 F.3d 205 (3d Cir. 2000).

- 60 [*60] The Court of Appeals itself has held that courts should be hesitant to set
aside agreements of settlement that the parties reached knowingly and voluntarily.

See, e.g., Billhartz v. Commissioner, 794 F.3d 794, 799 (7th Cir. 2015) (treating a
settlement agreement that did not set forth the deficiency in Federal estate tax to
be paid as a result of the settlement agreement and that consequently did not
resolve definitively the amount of the estate's liability as a contract, not as a
stipulation subject to Rule 91).
Assuming arguendo, as the Court of Appeals concluded, that the February
28, 2013 stipulation of settled issues and the October 28, 2013 supplemental
stipulation of settled issues are governed by Rule 91, we consider Rule 91(e),
which addresses the binding effect of a stipulation governed by Rule 91. That
Rule provides that a stipulation is to be treated, to the extent of its terms, as a
conclusive admission by the parties to the stipulation, unless otherwise permitted
by the Court or agreed upon by those parties. Rule 91(e) further provides that the
Court will not permit a party to a stipulation to qualify, change, or contradict a
stipulation in whole or in part, except that it may do so where justice requires.
The Court has concluded that, "[w]ith 'justice' as our standard, we do have
broad discretion to determine [under Rule 91(e)] when it is appropriate to set aside
a stipulation." Lovenguth v. Commissioner, T.C. Memo. 2007-70, 2007 WL

- 61 [*61] 922231, at *3. However, the Court has also concluded that its discretion in
setting aside a stipulation under Rule 91(e) "is tempered by the importance of
making stipulations stick--we enforce stipulations unless not just 'injustice,' but
'manifest injustice' would result." R In exercising its discretion under Rule
91(e), the Court may "consider factors that might not be sufficient to upset a
contract." R at *4. That is to say, "something less than a contractual defense is a
permissible ground for letting one party to a pretrial stipulation out of his agreement." Id.

As we understand petitioners' position, they maintain that paragraph 22
must be set aside because when they signed the stipulations of settled issues they
relied on Mr. Niehus's representation that he was authorized to practice law in
Illinois when in fact he was not. According to petitioners, those facts, standing
alone, "denied [p]etitioners adequate representation" and show that they were not
well represented by Mr. Niehus and had suffered injustice and prejudice. The
Court agrees with respondent that "[p]etitioners are essentially arguing per se
injustice" is present in this case for purposes of Rule 91(e) (petitioners' per se
injustice argument).

Before considering the merits of petitioners' per se injustice argument, the
Court notes that under that argument petitioners logically should be asking the

- 62 [*62] Court to set aside not only paragraph 22 of the October 28, 2013 supplemental stipulation of settled issues but also that entire supplemental stipulation of
settled issues and the entire February 28, 2013 stipulation of settled issues.33
The Court considers now petitioners' per se injustice argument. The Court
rejects that argument because it is legally flawed and factually flawed. The Court
addresses first why petitioners' per se injustice argument is legally flawed. The
Court has not applied, and will not apply here, any kind of per se rule in determining whether under Rule 91(e) "justice requires" the Court to exercise its discretion
to "permit a party to a stipulation [governed by Rule 91] to qualify, change, or
contradict a stipulation". See, e.g., Lovenguth v. Commissioner, 2007 WL

922231, at *3 (quoting Rule 91(e)). The Court has applied, and will apply here, a
facts and circumstances test in determining whether to exercise its discretion under
Rule 91(e). See, e.g., id.

33The Court believes that the reason petitioners are asking the Court to set
aside only paragraph 22, which is illogical and inconsistent with the reasons they
advance for asking the Court to do so, is that they believe on the basis of Mr.
Drobny's advice that this Court will set aside that paragraph or the Court of
Appeals will if this Court does not. In that event, the other IRS examination issues
that petitioners conceded in the parties' stipulations of settled issues and that
resulted in a substantial increase in their ordinary income for each of the taxable

years 2007, 2008, and 2009 would be offset dollar for dollar, thereby reducing the
amount of tax that petitioners would otherwise have been required to pay for each
of those years because of their concessions.

- 63 [*63] In addition, certain caselaw of the Court of Appeals and the State of Illinois,
as well as certain rules of the Supreme Court of Illinois (Illinois Supreme Court),
highlights the legal flaws in petitioners' per se injustice argument. In considering
that argument as it relates to Mr. Niehus' no longer being authorized to practice
law in Illinois after 2009 because he failed to pay required dues after that year,

Reese v. Peters, 926 F.2d 668, 669 (7th Cir. 1991), provides helpful insight. In
that case, a defendant in a criminal case claimed that his representation at his
criminal trial by a lawyer who had been suspended from the Illinois State bar for
failing to pay required dues was an "automatic" violation of his right to counsel
under the Sixth amendment of the U.S. Constitution (Sixth Amendment). Accord-

ing to the defendant, "a lawyer who has been suspended from the bar is always
ineffective assistance of counsel" for purposes of the Sixth Amendment. Id.
Although in considering the defendant's position in Reese the Court of Appeals
was addressing the meaning of the word "counsel" in the Sixth Amendment, the
Court finds the reasoning of that court in rejecting that position to be instructive in
considering petitioners' per se injustice argument. In Reese, the Court of Appeals,
which was willing to proceed on the assumption that the lawyer who had represented the defendant at his criminal trial "could have been imprisoned for unauthorized practice of law", 4, examined the history of the adoption of the Sixth

- 64 [*64] Amendment. The Court of Appeals concluded on the basis of that examination that the "constitutional question" under the Sixth Amendment was "whether
the court has satisfied itself of the advocate's competence and authorized him to
practice law." R at 670. According to the Court of Appeals,
persons who obtain [legal] credentials by fraud * * * are classes apart
from persons who satisfied the court of their legal skills but later ran
afoul of some technical rule. Lawyers who do not pay their dues
violate a legal norm, but not one established for the protection of
clients; suspensions used to wring money from lawyers' pockets do
not stem from any doubt about their ability to furnish zealous and
effective assistance.

Id.
The Court of Appeals ended its discussion of the defendant's Sixth Amendment argument by observing:
Illinois may if it wishes annul the convictions of persons represented
by lawyers whose licenses have been suspended for financial reasons.
But the unpublished decision in Reese's case, together with People v.
Elvart, 189 Ill. App. 3d 524, 136 Ill. Dec. 807, 545 N.E.2d 331 (1st
Dist. 1989), shows that Illinois does not doubt the ability of lawyers
suspended for nonpayment of dues to furnish effective assistance.
I1; see Ill. Sup. Ct. R. 756(i) (attorney who fails to pay dues may be reinstated as
a matter of course upon paying the dues and certain fees).
In Reese, the focus of the Court of Appeals in rejecting the defendant's
Sixth Amendment argument was on whether a court was satisfied that the lawyer

- 65 [*65] was competent to practice law and had in fact authorized the lawyer to do
so. The Illinois Supreme Court had authorized Mr. Niehus to practice law in
Illinois on May 1, 1980, and he was authorized to do so for approximately three
decades thereafter. Since he was first admitted to practice law in Illinois in 1980,
Mr. Niehus has never been disciplined or disbarred. There is nothing in the record
to support any finding that after 2009, when Mr. Niehus failed to pay periodic
dues to the Illinois State bar, he was stripped of his years of technical knowledge,
training, and experience and was no longer competent to practice law merely
because he failed to pay those required dues. See Reese, 926 F.2d 668. Indeed,
the record rejects any such finding.
The Court considers next the legal flaws in petitioners' per se injustice
argument as it relates to Mr. Niehus' no longer being authorized to practice law in
Illinois after 2009 because he did not satisfy certain CLE requirements after that
year. The Court notes initially that the Illinois State bar did not have CLE requirements until September 29, 2005, and that the first period with respect to which Mr.
Niehus was required to file a report with the Illinois State bar regarding his
compliance with those CLE requirements did not end until June 30, 2009. See Ill.

Sup. Ct. R. 790, 794(a) and (b), 796.

- 66 [*66] Ill. Sup. Ct. Rule 796(e) specifies that the consequence of the removal from
the so-called master roll of attorneys authorized to practice law in Illinois of an
attorney who has failed to satisfy the Illinois State bar's CLE requirements "is not
a disciplinary sanction." Indeed, Ill. Sup. Ct. Rule 796(h) provides that such an
attorney may be reinstated as an attorney authorized to practice law in Illinois by
paying a fee and showing proof that the attorney has sufficient CLE credits for the
periods during which the attorney had failed to comply with the Illinois State bar
CLE requirements. Similarly, Ill. Sup. Ct. Rule 756(i) provides that an attorney
who no longer is authorized to practice law in Illinois because the attorney failed
to pay required annual dues (so-called annual registration fee) to the Illinois State
bar may be reinstated as an attorney authorized to practice law in Illinois by
registering and paying prescribed fees for each of the periods during which the
annual fee was not paid. Illinois thus treats in essentially the same manner
reinstatement to practice law after a failure to satisfy periodically certain CLE
requirements and reinstatement to practice law after a failure to pay required dues.
The Court believes that the reasoning of the Court of Appeals in Reese as to why
there was not an "automatic" violation of a criminal defendant's Sixth Amendment
right to counsel where the defendant was represented at his criminal trial by an
attorney who no longer was authorized to practice law in Illinois for failure to pay

- 67 [*67] required dues to the Illinois State bar would apply where the defendant was
represented at his criminal trial by an attorney who no longer is authorized to
practice law in Illinois for failure to satisfy certain CLE requirements of the
Illinois State bar. As the Court found above with respect to Mr. Niehus' failure
after 2009 to pay required dues to the Illinois State bar, there is nothing in the
record to support any finding that after 2009, when Mr. Niehus failed to satisfy
certain CLE requirements, he was stripped of his years of technical knowledge,
training, and experience and was no longer competent to practice law merely
because he failed to satisfy those requirements. C[ Reese, 926 F.2d 668. Indeed,
the record rejects any such finding.
The Court turns now to why petitioners' per se injustice argument is
factually flawed. The short answer is that the facts that the Court has found belie
that argument. Contrary to petitioners' unfounded contentions, the Court has

found that Mr. Shamrock refused to sign the decision documents because (1) he
was not pleased with what the revised tax computations showed he and Ms. Bigg
were required to pay to the IRS for the years at issue and (2) Mr. Drobny made a
representation to him, and shortly thereafter to Ms. Bigg,34 that if Mr. Niehus had
34Ms. Bigg was willing to sign the decision documents that the second
counsel for respondent had had prepared in order to put this case behind her. Ms.
(continued...)

- 68 [*68] brought Gates v. Commissioner, 135 T.C. 1, to the attention of respondent's
representatives, respondent would have conceded as a deductible ordinary loss the
entire claimed Elm Court loss, not just 50 percent of that claimed loss as reflected
in paragraph 22 of the October 28, 2013 supplemental stipulation of settled issues.
The Court also has found that if Mr. Shamrock had been pleased with what the
revised tax computations showed he and Ms. Bigg were required to pay to the IRS
for the years at issue, he would have signed the decision documents that respondent had prepared and that reflected the February 28, 2013 stipulation of settled
issues and the October 28, 2013 supplemental stipulation of settled issues. The
Court also believes that if Mr. Shamrock had been pleased with what the revised
tax computations showed he and Ms. Bigg were required to pay to the IRS for the
years at issue, he would not have consulted and retained Mr. Drobny to represent
petitioners in this case. If Mr. Shamrock had not consulted and retained Mr.
34(...continued)
Bigg changed her mind because Mr. Drobny, who represented to her that he was a
tax attorney when he was not, had also represented to her, as he had represented to
Mr. Shamrock, that if Mr. Niehus had brought Gates v. Commissioner, 135 T.C. 1
(2010), to the attention of respondent's representatives, respondent would have
conceded as a deductible ordinary loss under sec. 165 the entire claimed Elm
Court loss, not just 50 percent of that claimed loss as reflected in paragraph 22.
Ms. Bigg relied on Mr. Drobny's representations to her, as did Mr. Shamrock, and
concluded that Mr. Drobny was more knowledgeable than Mr. Niehus in that Mr.
Drobny was aware of the Gates Opinion about which Mr. Niehus was apparently
unaware.

- 69 [*69] Drobny, Mr. Drobny would not have made representations to him, and
shortly thereafter to Ms. Bigg, about the Gates Opinion, which, as discussed
below, the Court concludes are erroneous.
In the Gates Opinion, the taxpayers razed their principal residence on
certain real property that they owned. Thereafter, they constructed a new residence on the same real property, sold the real property before occupying the new
residence, and realized a gain from that sale that exceeded $500,000. See 4 at 23. The taxpayers in Gates claimed that $500,000 of that gain was excludible from
their income under section 121, which provides that gross income does not include
certain amounts of gain from the sale of property if a taxpayer used the property as
a principal residence for at least two of the five years immediately preceding the
sale. See 4 at 5-6. The Court held in Gates that the taxpayers were not entitled
to exclude any gain from the sale of the property in question. That was because,
after they razed their principal residence on the property and built a new residence
thereon, they did not reside in the new residence for at least two years before
selling that property. See 4 at 13.
The Gates Opinion is inapposite to the resolution of whether petitioners are
entitled under section 165 to deduct as an ordinary loss the claimed Elm Court
loss. At best, the Gates Opinion arguably might provide some support for a

- 70 [*70] contention by petitioners that, because they never occupied the new house
that they had built on the Elm Court property before they sold it, the new house
was not their residence at the time of that sale and thus was not used by them for a
personal use at that time.35 See sec. 1.165-9(b), Income Tax Regs.
Mr. Droby seems to believe, and he evidently represented to petitioners, that
under the Gates Opinion if the new house on the Elm Court property was not their
principal residence when they sold it in 2009, petitioners are automatically entitled
to deduct under section 165 the claimed Elm Court loss as an ordinary loss. Mr.
Drobny's belief and representations to petitioners are wrong.
The Gates Opinion addressed only whether $500,000 of the gain that the
taxpayers there realized on the sale of a new house that they had built on the real
property where their personal residence had been located was to be excluded under
section 121. The Gates Opinion did not address the deductibility of a loss under
section 165, which is the issue presented by the claimed Elm Court loss. Indeed,
the taxpayers in the Gates Opinion did not even have a loss that they wanted to

35Respondent conceded at the March 30, 2015 evidentiary hearing that the
new house on the Elm Court property was no longer petitioners' principal
residence when they sold it in 2009. However, respondent made no other concessions regarding that property at that hearing.

- 71 [*71] deduct. They had a gain that they wanted to exclude from their income
under section 121.
It is section 165, not section 121, that governs whether petitioners are
entitled to deduct the claimed Elm Court loss as an ordinary loss. Under section
165(c)(1) and (2), taxpayers, like petitioners, who are individuals are not entitled
to deduct under section 165(a) as an ordinary loss a loss from the sale of property
unless the loss was incurred in a trade or business or in a transaction entered into
for profit. The Gates Opinion does not even mention section 165, let alone control
or resolve questions, including the following legal and factual questions, that must
be considered in determining whether petitioners are entitled to ordinary loss
deduction treatment under that section: (1) What is petitioners' basis in the Elm
Court property in question? See secs. 165(b), 1011. (2) Was the loss from the
sale of the Elm Court property incurred in a trade or business? See secs.
165(c)(1), 162. (3) Was the loss from the sale of the Elm Court property incurred
in an activity in which Mr. Shamrock engaged with the intent of making a profit?
S_e_e secs. 165(c)(2), 183. (4) Was the Elm Court property a capital asset? h

secs. 165(f), 1221.
The Gates Opinion has nothing to do with, does not discuss, and does not
govern whether property is used in a trade or business, see sec. 165(c)(1), or

- 72 [*72] whether property is used in a transaction entered into for profit, see sec.
165(c)(2). The Gates Opinion simply does not control, as Mr. Drobny erroneously
believes and as he erroneously represented to petitioners, resolution of the claimed
Elm Court loss, let alone a resolution of that issue that would allow them to deduct
under section 165 as an ordinary loss the entire amount (i.e., $435,751) of that
claimed loss.
Petitioners' per se injustice argument is also factually flawed because that
argument appears to proceed on the factual assumption that, because after 2009
Mr. Niehus no longer was authorized to practice law in Illinois on account of his
failure to satisfy certain Illinois State bar attorney status requirements and because
he had failed to bring the Gates Opinion to the attention of respondent's representatives with whom he was dealing on petitioners' behalf, petitioners were not well
represented by him and consequently they suffered prejudice when they agreed to
settle the claimed Elm Court loss as set forth in paragraph 22 of the October 28,
2013 supplemental stipulation of settled issues. The Court's findings belie those
contentions. The Court has found that Mr. Niehus' not informing petitioners that

after 2009 he no longer was authorized to practice law in Illinois on account of his
failure to satisfy certain Illinois State bar attorney status requirements and not
bringing the Gates Opinion to the attention of respondent's representatives with

- 73 [*73] whom he was dealing on behalf of petitioners did not result in their suffering
any prejudice, let alone any injustice, when they agreed to settle the claimed Elm
Court loss as set forth in paragraph 22 of the October 28, 2013 supplemental
stipulation of settled issues.
Not only did petitioners not suffer any prejudice, let alone injustice, when
they agreed to settle the claimed Elm Court loss as set forth in paragraph 22, but,
contrary to the suggestion of petitioners in their posthearing memorandum, the
Court has found that they were well represented by Mr. Niehus. See Reese, 926

F.2d at 668-670; Lovenguth v. Commissioner, 2007 WL 922231, at *4 (citing
Associated Beverages Co. v. P. Ballantine & Sons, 287 F.2d 261, 263 (5th Cir.

1961)); see also Ill. Sup. Ct. R. 756(i), 796(e), (h). In short, the Court has found
that throughout his representation of Mr. Shamrock and Ms. Bigg from early June
2011 until December 2013 Mr. Niehus provided to them competent, valuable,
diligent, and effective assistance. He did so in the face of and despite petitioners'
acknowledgement at their first meeting with him that he would be starting at a
disadvantage if they were to retain him to represent them with respect to the IRS
examination. In fact, during their initial meeting with Mr. Niehus, Mr. Shamrock

and Ms. Bigg characterized the then-current situation with respect to the IRS
examination of the taxable years 2007, 2008, and 2009 as a "mess", an assessment

- 74 [*74] with which Mr. Niehus agreed after he learned more about the IRS examination, the events that occurred during that examination, how it had been handled by
petitioners' prior representative, and the trust and credibility issues that certain
IRS representatives had had with petitioners before they retained him. Mr.
Shamrock and Ms. Bigg understood fully when they had their first meeting with
Mr. Niehus in June 2011 that Mr. Niehus was being placed in the difficult situation of persuading the IRS to trust and accept what Mr. Shamrock and Ms. Bigg
maintained were the salient facts regarding the examination issues, including the
claimed Elm Court loss. That was because Mr. Shamrock and Ms. Bigg knew
before that initial meeting took place that, as a result of certain events that had
occurred during the IRS examination, certain representatives of the IRS who were
involved in that examination already had grown suspicious of, and had trust and
credibility issues with, them and their claims regarding at least some of the
exammation issues.
Mr. Niehus set a goal for himself and petitioners when he agreed to represent them at the end of the initial meeting that he had with them in June 2011. Mr.

Niehus advised petitioners that they and he, as their representative, needed to
address with the IRS the examination issues with a goal of resolving all of them
and avoiding litigating any of them. In furtherance of that goal, Mr. Niehus

- 75 [*75] engaged in considerable negotiations with various IRS representatives. In
particular, the agreement of the parties with respect to the claimed Elm Court loss
as set forth in paragraph 22 was the result of considerable negotiations and
bargaining by Mr. Niehus on behalf of petitioners. See Lovenguth v. Commissioner, 2007 WL 922231, at *4 (citing Associated Beverages Co. v. P. Ballantine

& Sons, 287 F.2d at 263); Markin v. Commissioner, T.C. Memo. 1989-665, 58
T.C.M. (CCH) 994, 996 (1989). Those negotiations proved to be difficult not only
because of the reasons discussed previously but also because petitioners had not
even raised the claimed Elm Court loss until they filed their second amended 2009
return. Petitioners did not claim that loss in their 2009 return or in their first

amended 2009 return. In fact, Mr. Shamrock and Ms. Bigg had originally claimed
"developer expenses" of $162,898 in Schedule C, that they had included as part of
their 2009 return and that related to what was described in that schedule as Ms.

Bigg's "DENTAL PRACTICE & DEVELOPER". However, in the worksheet
relating to the claimed Elm Court loss that they included as part of the second
amended 2009 return, petitioners explained, inter alia, that "developer expenses"

of $162,898 had been "TRANSFERRED TO FROM [sic] 4797", which was from
the form titled "SALES OF BUSINESS PROPERTY" in which they reported that
claimed loss for the first time.

- 76 [*76] The Court now highlights some of the competent, valuable, diligent, and
effective assistance that Mr. Niehus provided petitioners with respect to the IRS
examination issues. Mr. Niehus assisted Mr. Shamrock and Ms. Bigg in identifying, locating, and gathering the documents that they needed to present to the IRS
in order to substantiate the position that they had taken with respect to each of the
examination issues for each of the taxable years 2007, 2008, and 2009, including
the claimed Elm Court loss that they had raised in their second amended 2009
return. Mr. Niehus also prepared and sent to the IRS letters in which he advanced
arguments explaining how and why the documents that Mr. Shamrock and Ms.
Bigg provided to the IRS and the applicable tax law supported each of those
positions and advocated acceptance of each of those positions. In addition, Mr.
Niehus, accompanied by Mr. Shamrock and Ms. Bigg, had a number of meetings
with representatives of the Appeals Office as well as with representatives of the
Chief Counsel's office that took place both before and after they filed the petition
commencing this case. During those various meetings, Mr. Niehus continued to
(1) advance arguments explaining how and why the documents that Mr. Shamrock
and Ms. Bigg provided to the IRS and the applicable tax law supported each of
their positions with respect to each of the examination issues for each of the
taxable years 2007, 2008, and 2009, including the claimed Elm Court loss that

- 77 [*77] they had raised in their second amended 2009 return and (2) advocate
acceptance of each of those positions. During those meetings, Mr. Niehus was
proactive in protecting the interests of his clients.
Mr. Niehus' competent, valuable, diligent, and effective representation of
petitioners continued after petitioners filed the petition, thereby commencing this
case. As detailed in the Court's findings of fact Mr. Niehus corresponded and
met, along with petitioners, at various times with the Appeals officer in an attempt
to negotiate a settlement of all of the examination issues, including the Elm Court
loss. With respect to the claimed Elm Court loss, around February 2013 the
Appeals officer ultimately offered to settle that issue by allowing petitioners a loss
of $50,000 with respect to the Elm Court property. That settlement offer amounted to a concession by respondent of only approximately 11 percent of the
$435,751 loss that petitioners had claimed with respect to that property in their
second amended 2009 return. Mr. Niehus informed the Appeals officer that he
believed that petitioners had a better than 50-50 chance of prevailing in court on
the claimed Elm Court loss. The Appeals officer was unwilling to increase the
$50,000 IRS Appeals Office settlement offer. Mr. Niehus advised petitioners to
reject that offer, and they did.

- 78 [*78] By February 2013, the Appeals officer and Mr. Niehus had been able to
reach a basis of settlement at the IRS Appeals Office as to each of the examination
issues except the claimed Elm Court loss and the claimed 2008 partnership loss.
Subsequently, the IRS Appeals Office returned the case to the first counsel for
respondent for preparation for trial at the Court's March 11, 2013 Chicago trial
session. Mr. Niehus' competent, valuable, diligent, and effective representation of
petitioners continued after the Appeals officer returned the case to that counsel for
trial preparation. Mr. Niehus and the first counsel for respondent discussed the
two remaining major issues at the Branerton conference.36 In those discussions,
Mr. Niehus continued to advocate on petitioners' behalf, inter alia, that petitioners
were entitled to ordinary loss treatment for the entire amount of the claimed Elm
Court loss. He continued to advise petitioners that he believed that they had a
better than 50-50 chance of prevailing in court on the claimed Elm Court loss.
Not only was the nature (i.e., ordinary vs. capital) of the claimed Elm Court
loss still in dispute at the Branerton conference with the first counsel for respondent, but the claimed tax basis of petitioners in the Elm Court property and thus
36Mr. Niehus also advanced arguments at the Branerton conference with the
first counsel for respondent that petitioners should not be liable for the accuracyrelated penalties under sec. 6662(a) that respondent had determined in the
respective notices to impose for the taxable years 2007, 2008, and 2009. See
supra note 12.

- 79 [*79] the amount, if any, of the claimed loss on the disposition of that property
also were in dispute.
On February 22, 2013, the first counsel for respondent sent to petitioners,
who were pro sese in this case,37 the February 22, 2013 letter and sent a copy of
that letter to Mr. Niehus. In that letter, the first counsel for respondent summa-

rized the then status of the case in pertinent part as follows:
You agreed that the only remaining issues in your case were 1) the
Libertyville partnership losses claimed on your 2008 income tax
return[] [claimed 2008 partnership loss] and 2) whether, and/or to
what extent you are entitled to claim a loss from the sale of the property located at 1249 Elm Court. We also discussed that we would
need additional documentation in order to resolve the remaining
issues. Due to your case being on the [Court's] March 11, 2013 Trial
Calendar, we agreed that it would be best to file a motion for continuance on your case in order to allow you additional time to provide the
additional documentation.
Accordingly, I have prepared a stipulation of settled issues and joint
motion for continuance of trial. The stipulation of settled issues
reflects the issues that were agreed to at Appeals. Please sign in blue
ink the original and three copies of the stipulation of settled issues
and the joint motion for continuance of trial. * * *
On February 28, 2013, petitioners, not Mr. Niehus, and the first counsel for
respondent on behalf of respondent signed a stipulation of settled issues (i. e.,
February 28, 2013 stipulation of settled issues) and filed that stipulation with the

37See supra note 9.

- 80 [*80] Court. The February 28, 2013 stipulation of settled issues resolved each of
the examination issues for taxable years 2007 and 2009 except the claimed Elm
Court loss and none of the examination issues for taxable year 2008, including the
claimed 2008 partnership loss.
Mr. Niehus' competent, valuable, diligent, and effective representation of
petitioners continued after the parties filed with the Court the February 28, 2013
stipulation of settled issues. Mr. Niehus continued settlement discussions with a
different counsel for respondent, namely, the second counsel for respondent, with
respect to the two major issues that remained unresolved in the case, i.e., the
claimed Elm Court loss and the claimed 2008 partnership loss. Mr. Niehus
advocated to the second counsel for respondent that petitioners are entitled to the
entire amount of each of those claimed losses. He continued to advise petitioners
that he believed that they had a better than 50-50 chance of prevailing in court on
the claimed Elm Court loss.
In addition to advocating to the second counsel for respondent that petitioners' basis in the Elm Court property was significantly less than the amount that
they had received when they disposed of that property and that therefore petitioners had incurred a loss for tax purposes in the amount that they claimed in their
second amended 2009 return, Mr. Niehus also advocated to that counsel at a

- 81 [*81] meeting in the summer of 2013 (i.e., the summer 2013 meeting), as he had
advocated when he was dealing with the Appeals officer and the first counsel for
respondent, that the claimed Elm Court loss was an ordinary loss, not a capital
loss. Mr. Niehus knew, and advised petitioners, that, given their tax situation for
the taxable years 2007

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Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/agency%3Atax-court%3A66da4a99cfb268fc. Public record. Not legal advice.