T.C. Memo. 2017-184
UNITED STATES TAX COURT
CLARK J. GEBMAN AND REBECCA GEBMAN, Petitioners v. COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 15941-12. Filed September 18, 2017.
Ps made joint returns of income for the four years in issue. R determined deficiencies in tax and penalties for all years. Ps assigned error. In the morning of the day on which this case was called for trial, Ps met with volunteer counsel. At the recall of the case for trial that afternoon, P-H conceded all adjustments and penalties and P-W, represented at trial by volunteer counsel, moved to continue the case to give P-W time to file a motion for leave to amend petition to raise an innocent spouse defense. We granted the motion to continue. Subsequently, P-H moved to withdraw his concession, and P-W moved for leave to amend the petition. We issued an order to show cause why, among other things, volunteer counsel, appearing in this case as a representative of P-W, whose interests appeared materially adverse to those of P-H, did not have a conflict of interest. Volunteer counsel responded, stating, among other things, that the interests of P-W and P-H were not materially adverse but that P-H would not sign a waiver consenting to volunteer counsel's representation of P-W. -2-
[*2] Held: Volunteer counsel is now representing P-W in a matter in which, previously, he represented P-H, whose interests are materially adverse to those of P-W, without having obtained P-H's informed consent in writing. See Model Rules of Prof'l Conduct r. 1.9 (Am. Bar Ass'n 2016).
Held, further, to obviate a conflict of interest, volunteer counsel must either withdraw as P-W's counsel or take other steps to obviate that conflict. See Rule 24(g).
Clark J. Gebman, pro se.
Frank Agostino and Eugene Kirman, for petitioner Rebecca Gebman.
Alex Shlivko, for respondent.
MEMORANDUM OPINION
HALPERN, Judge: We decide in this report that attorney Frank Agostino's
representation of petitioner wife (Mrs. Gebman) presents a conflict of interest that
requires that he either withdraw as her counsel or take other steps to obviate that
conflict. Unless otherwise indicated, all section references are to the Internal
Revenue Code of 1986, as amended, all Rule references are to the Tax Court Rules
of Practice and Procedure, and all Model Rule references are to the Model Rules
of Professional Conduct (Model Rules) (Am. Bar Ass'n 2016). -3-
[*3] Background
This case is before the Court to redetermine deficiencies in, and accuracy-
related penalties with respect to, petitioners' Federal income tax liabilities for their
2007 through 2010 taxable (calendar) years. Respondent's principal adjustments
giving rise to the deficiencies are (1) adjustments disallowing substantial (on
average, in excess of $1 million) deductions for net operating loss carryovers
(NOLs) to each year and (2) an adjustment increasing petitioners' 2007 gross
income on account of distributions during that year totaling $210,423 from
numerous individual retirement accounts (IRAs) owned by Mrs. Gebman.
Petitioners assign error to respondent's determination, making a "general denial on
all findings". Respondent denies any error.
Calendar Call
We set this case for trial at the trial session of the Court beginning at 10 a.m.
on Monday, January 30, 2017 (sometimes, just January 30), in Room 206, Jacob
K. Javits Federal Building, 26 Federal Plaza, New York, N.Y. Petitioners did not
appear when we first called the case from the calendar, but petitioner husband
(Mr. Gebman) did appear later that morning, unaccompanied by Mrs. Gebman,
and we recalled the case. Mr. Gebman explained that Mrs. Gebman was parking
the car. Mr. Gebman moved for us to continue the case, a motion we denied. We -4-
[*4] set the case for trial at 1 p.m. that afternoon. Earlier, at the beginning of the
trial session, we had announced the presence in the courtroom of volunteer
lawyers participating in the New York County Lawyers' Association (NYCLA)
Pro Bono Calendar Call Program. We offered Mr. Gebman the opportunity to
speak with a volunteer lawyer, and Mr. Agostino, a participant in the calendar call
program, introduced himself to Mr. Gebman. Mr. Gebman agreed to meet with
Mr. Agostino but stated that he wanted Mrs. Gebman to attend the meeting (she
had not yet appeared). Shortly thereafter, Messrs. Gebman and Agostino left the
courtroom together.
We recalled the case at 1 p.m., at which time Mr. Gebman again introduced
himself, and Mr. Agostino stated that he would be entering an appearance for Mrs.
Gebman. We asked whether there was anything preliminary to discuss. Mr.
Agostino stated: "Yes. Your Honor. With respect to Clark Gebman, Mr. Gebman
will be conceding the deficiency in full." We inquired: "Are you representing
him?" Mr. Agostino said that Mr. Gebman would get up. Mr. Gebman arose and
said: "I would do as John was saying." We assume that he meant "Frank" (i.e.,
Mr. Agostino), and Mr. Agostino agrees. We then asked: "Okay. So a concession
to the deficiency in full by petitioner husband?" Mr. Agostino replied: "Yes."
Respondent's counsel then asked about the penalty, and Mr. Agostino added: -5-
[*5] "And penalty." We inquired of Mr. Gebman as to the penalty. He responded:
"I'm going to do what's best for my family, your Honor. And I've been counseled
that I've made a mistake, and I need to be accountable to the Government. And I
am fully prepared to, whatever I can within my means to do so." He agreed to
concede the penalty.
Discussion then turned to Mrs. Gebman, whom Mr. Agostino said wished to
raise an innocent spouse defense. He recognized that Mrs. Gebman required leave
of the Court to amend the petition in order to raise the defense. Following
additional discussion, the Court agreed to continue the case to give Mrs. Gebman
time to move for leave to amend the petition to raise an innocent spouse defense.
Mr. Agostino represented that Mrs. Gebman would stipulate the correctness of all
of respondent's adjustments and penalties, relying only on the innocent spouse
defense that she hoped to raise. The Court asked Mr. Gebman whether he agreed
to that, and he responded that he did. By order dated January 30, we continued the
case and gave Mrs. Gebman until March 1, 2017, to move for leave to amend
petition. On January 30, we filed Mr. Agostino's appearance on behalf of Mrs.
Gebman. -6-
[*6] Mr. Gebman's Motions
On March 1, 2017, we filed as Mr. Gebman's motion to be relieved of
concession a document that he had styled: Motion to Rescind Plea of Settlement.
We denied the motion. On April 18, 2017, we filed Mr. Gebman's Motion to
Reconsider: The Motion To Be Relieved of Concession (motion to reconsider).
Together, those documents total 50 pages and contain much rambling, extraneous
matter presented to show the injustice Mr. Gebman is claiming to be fighting.
Nevertheless, they do evidence his either continuing (or revived) belief that
petitioners have grounds for their assignments of error, particularly with respect to
the NOLs (to wit, "NOL carry forward based on hybrid Casualty Loss") and the
omitted IRA distributions from Mrs. Gebman's accounts (to wit, "use of retirement
funds being of the genre of permissible withdrawal without penalty"). He asks to
be relieved of his concession because he feels that he was misinformed by counsel,
who led him to make the concession. He also states: "[I] was under the
impression I would be represented by Counsel when I left the room and returned
without Counsel at my side and this was not my choice".
Mrs. Gebman's Motion
On March 1, 2017, we filed Mrs. Gebman's motion for leave to file an
amended petition (motion for leave), declaration in support thereof (declaration), -7-
[*7] and memorandum in support of the motion for leave (memorandum). We
lodged her amended petition and ordered respondent to respond to the motion for
leave.
On April 3, 2017, we filed respondent's objection to the motion for leave, in
which, among other objections, he argued that, on the basis of the allegations in
her lodged amended complaint, Mrs. Gebman was unlikely to prevail on the merits
of her innocent spouse claim.
Telephone Conference
On April 28, 2017, we held a telephone conference with the parties to
discuss Mrs. Gebman's motion for leave and Mr. Gebman's motion to reconsider.
With respect to the motion for leave, we expressed our concern, as respondent had
in his objection, that Mrs. Gebman had not by either the motion for leave or the
declaration, or in the lodged amended petition, averred facts that would justify
relief under section 6015 (i.e., so-called innocent spouse relief). The discussion
focused on the 2007 distributions from Mrs. Gebman's numerous IRAs, which she
does not deny. Mr. Agostino spoke for Mrs. Gebman and argued, on the authority
of Roberts v. Commissioner, 141 T.C. 569 (2013), a case not cited in the
memorandum, that the distributions should not be includible in her separately
calculated gross income but, instead, should be includible in Mr. Gebman's -8-
[*8] separately calculated gross income because he had wrongfully converted the
distributions to his own use. That, Mr. Agostino argued, would provide Mrs.
Gebman the grounds for innocent spouse relief. Mr. Gebman asked us to grant the
motion to reconsider. We said that we would consider the motions and ended the
telephone conference.
Joint Return Liability; Practitioners' Ethical Responsibilities
Before we continue our narrative, it will be helpful if we set forth some of
the law governing joint return liability and also describe some of the ethical
responsibilities of practitioners appearing before the Court.
In general, if a husband and a wife make a joint return of income, the tax is
computed on the aggregate income and the liability for tax is joint and several.
See sec. 6013(d)(3). Section 6015 provides relief from the joint and several
liability imposed by section 6013(d)(3) in three situations, only two of which
appear to have any application here with respect to protecting Mrs. Gebman from
the tax liability attaching to the unreported distributions from her IRAs. To
qualify for relief under section 6015(b)(1), she would have to show, among other
things, that the resulting understatement of income was attributable to an
erroneous item of Mr. Gebman's. See sec. 6015(b)(1)(B). To qualify for equitable
relief under section 6015(f), she would likely have to show that Mr. Gebman's -9-
[*9] fraud was responsible for the erroneous item. See Rev. Proc. 2013-34, sec.
4.01(7)(e), 2013-43 I.R.B. 397, 400. Mrs. Gebman's necessary averments that
either the unreported IRA distributions were an erroneous item of Mr. Gebman's
or he fraudulently converted the IRAs are inconsistent with, and appear adverse to,
at least his present position that respondent erred in including the IRA
distributions in petitioners' gross income.1
The ethical responsibilities of practitioners are addressed in two places in
our Rules. Rule 24(g) addresses in part the duty of a counsel of record
representing more than one person with differing interests. Rule 201(a) provides
that practitioners before the Court shall carry on their practice in accordance with
the letter and spirit of the Model Rules. Mr. Agostino is counsel of record for
Mrs. Gebman only. Nevertheless, even if Mr. Gebman had never formed a client-
lawyer relationship with Mr. Agostino, and Mr. Gebman was no more than a
prospective client of his, Mr. Agostino would owe him certain duties under Model
Rule 1.18, Duties to Prospective Client.
1 As to Mr. Gebman's prior position, on January 30 Mr. Gebman stated to the Court that he wished to concede the deficiency in full and the penalties and he did not object to Mrs. Gebman's motion for leave. The motion for leave, however, put Mr. Gebman in jeopardy that, if we granted the motion for leave and Mrs. Gebman succeeded in her innocent spouse defense, respondent would look only to him and his assets to collect any unpaid liability, a result financially adverse to him. -10-
[*10] Order To Show Cause
On May 5, 2017, in the light of our concern about Mr. and Mrs. Gebman's
differing interests, we served on Mr. Agostino an order to show cause in writing
why he had not violated Model Rule 1.18 and should not be relieved of
representing Mrs. Gebman. We propounded numerous questions. Mr. Agostino
promptly responded to the order. We set forth selected responses.
He acted as both an adviser and an evaluator to Mr. Gebman, which,
referencing the Model Rules, he defines to mean that he provided Mr. Gebman
with an informed understanding of his rights and obligations and explained the
practical implications of his actions. Indeed, with respect to petitioners'
assignments of error, he told Mr. Gebman during their January 30 meeting that
petitioners' assignments were frivolous (i.e., in Mr. Agostino's words: "not well
grounded in fact or warranted by existing law or a good faith argument for the
extension, modification, or reversal of existing law"). See Goff v. Commissioner,
135 T.C. 231, 237 (2010) (similarly defining "frivolous"); Model Rule 3.1
(similar). He told Mr. Gebman that prosecution of his claims could "(a) result in
the imposition of sanctions pursuant to IRC sec. 6673; and (b) have collateral
consequences to Mrs. Gebman." He also told him that he would not represent him
in challenging the notice of deficiency or in asking the Court to reconsider its -11-
[*11] denial of his request for a continuance. He did, however, offer "to represent
Mr. Gebman, and/or supervise the representation of Mr. Gebman, with respect to
the prosecution of the post-assessment collection alternatives available to him
under IRC sec. 6330" ("Notice and Opportunity for Hearing Before Levy."). He
states that, shortly before recall of the case, "Mr. Gebman told me that he would
concede the deficiencies in tax and the penalties after I refused to enter an
appearance on his behalf."
With respect to Mrs. Gebman, Mr. Agostino states that he acted as both an
advocate and negotiator, which, again referencing the Model Rules, he defines to
mean that he zealously asserted her position and sought a result advantageous to
her. He decided that, to zealously assert her interests, it was necessary for him to
enter an appearance in the case.
We asked Mr. Agostino: "Did you after recall of the case at 1:00 P.M. on
January 30, 2017, communicate with * * * [Mr. Gebman] again?" Mr. Agostino
responded: "After the calendar call, and out of an abundance of caution, my office
requested that Mr. and Mrs. Gebman execute a conflict waiver that would
memorialize their informed consent to the course of action recommended by me at
the calendar call." Later in his response, Mr. Agostino expands on his answer,
stating that he had requested of Mr. Gebman that he meet with him to, among -12-
[*12] other things, "execute a pro bono retainer agreement and conflict waiver"
and "discuss Mr. Gebman's right to intervene in Mrs. Gebman's Innocent Spouse
case".2 Mr. Agostino did meet with Mr. Gebman (but not with Mrs. Gebman) on
February 10, 2017, in his office, in New Jersey. Mr. Gebman communicated to
Mr. Agostino, among other things, the procedural history of the case, his objection
to the Court's refusal on January 30 not to continue the case, and his mental state
following that ruling. At the conclusion of the meeting, when asked to sign a
conflict waiver prepared by Mr. Agostino, Mr. Gebman refused. He told Mr.
Agostino that, while he supported Mrs. Gebman's innocent spouse defense, he was
unwilling to sign the waiver. He said that he felt that he did not want to concede
his case. He also told Mr. Agostino that his services would no longer be needed.
Mr. Agostino specifically addresses the question of whether Mrs. Gebman's
interests in this case are materially adverse to Mr. Gebman's interests. He
advances two reasons Mrs. Gebman's interests are not materially adverse to Mr.
Gebman's. First, "both Mr. and Mrs. Gebman contend that Mrs. Gebman is
2 Mr. Agostino's reference to an innocent spouse case is unclear. During the recall of this case at 1 p.m. on January 30, Mr. Agostino informed the Court: "Petitioner wife has an innocent spouse case, innocent spouse claim, pending with the Internal Revenue Service that, I believe, has not been acted upon yet." Mr. Agostino may have been referring to that administrative proceeding, or he may have been referring to this case, were we to give Mrs. Gebman leave to raise an innocent spouse defense. -13-
[*13] entitled to the relief set forth by IRC sec. 6015." His second reason is that
he believes that Mr. Gebman would suffer no financial detriment should Mrs.
Gebman succeed in her innocent spouse defense, notwithstanding that respondent
as a result would look only to Mr. Gebman to pay the lion's share of the resulting
tax liability:
[A]ccording to Mrs. Gebman and Respondent's filings, Mr. Gebman has not had a paying job since 2007. Public record searches suggest that he has no assets from which to collect any of the deficiencies here at issue. Even if he became the target of Respondent's collection action, the most likely outcome is Respondent's classification of his account as "currently not collectible".
That justification appears to agree with Mr. Gebman's claim in his motion to be
relieved of concession that, during their January 30 meeting, he was counseled to
concede and accept an innocent spouse defense for Mrs. Gebman: "Lead Counsel
[we assume, Mr. Agostino] * * * suggested in two years declare Bankruptcy and it
will be over".
Notwithstanding Mr. Gebman's unwillingness to sign the waiver prepared
by Mr. Agostino, Mr. Agostino claims that, from Mr. Gebman's filings (his motion
to be relieved of concession and the motion to reconsider), the Court "can infer
that Mr. Gebman knows that the undersigned is assisting Mrs. Gebman in -14-
[*14] prosecuting her Innocent Spouse Claim and that he consents to * * * [Mr.
Agostino's] actions on Mrs. Gebman's behalf."
Discussion
I. Introduction
It is well known that counsel may face a conflict of interest when a joint
return is filed, a controversy arises, and both spouses speak with the attorney about
the matter. As described in the American Bar Association publication Effectively
Representing Your Client Before the IRS, ch. 2, app. D (Am. Bar Ass'n, 6th ed.
2015): "It must be recognized from the outset of representation that each spouse is
a separate client even if, for example, a joint return is involved." Moreover: "[I]f
one spouse needs to assert the innocent spouse defense, a waivable conflict
arises." Id. As we said in Dorchester Indus. Inc. v. Commissioner, 108 T.C. 320,
339 (1997), aff'd, 208 F.3d 205 (3d Cir. 2000): "Certainly, one spouse's claim that
she (he) is an innocent spouse can present a conflict of interest to counsel trying to
represent both spouses."
On January 30, 2017, Mr. Gebman sought assistance from Mr. Agostino, a
volunteer lawyer assisting unrepresented persons as part of the NYCLA Pro Bono
Calendar Call Program. And while, initially, Mr. Gebman may have been only a
prospective client of Mr. Agostino's, during their interview a client-lawyer -15-
[*15] relationship was established. Mr. Agostino informed Mr. Gebman of his
rights and explained the implications of his actions (i.e., Mr. Agostino's opinion
that Mr. Gebman's claims were frivolous and, if he persisted, he could attract a
sanction that would have collateral consequences to his wife). It is of no moment
to the question of whether a client-lawyer relationship resulted that Mr. Agostino
may have been volunteering his services to Mr. Gebman on what he expected to be
a short-term basis. Model Rule 6.5 addresses nonprofit and court-annexed limited
legal services programs. Model Rule 6.5 cmt. [1] makes clear that, with respect to
such programs, notwithstanding that there is no expectation of continuing
representation, "a client-lawyer relationship is established." Mr. Agostino's client-
lawyer relationship with Mr. Gebman began on January 30, and, we assume, lasted
until February 10, 2017, when Mr. Agostino invited Mr. Gebman to his office to
execute a pro bono retainer agreement and a conflict waiver and to discuss Mr.
Gebman's right to intervene in Mrs. Gebman's innocent spouse case. Mr. Gebman
told Mr. Agostino that he no longer needed his services. Mr. Agostino established
a client-lawyer relationship with Mrs. Gebman on January 30, which continues
still. -16-
[*16] II. Ethical Rules
Rule 24(g) is entitled "Conflict of Interest". In pertinent part it provides:
If any counsel of record * * * represents more than one person with differing interests with respect to any issue in a case, * * * then such counsel must either secure the informed consent of the client * * *; withdraw from the case; or take whatever other steps are necessary to obviate a conflict of interest or other violation of the ABA Model Rules of Professional Conduct, and particularly rules 1.7, 1.8, and 3.7 thereof. * * *
The Rule further provides that we may inquire into the circumstances of counsel's
employment in order to deter such a violation. As stated supra p. 9, Rule 201(a)
provides that practitioners before the Court shall carry on their practice in
accordance with the letter and spirit of the Model Rules. We have the power to
compel withdrawal of a taxpayer's counsel if his or her representation would
violate the Model Rules. See Rule 24(g); Para Techs. Tr. v. Commissioner, T.C.
Memo. 1992-575, 1992 WL 237247, at *3.
Model Rule 1.7 is entitled "Conflict of Interest: Current Clients". It
prohibits a lawyer from representing a client if the representation involves a
current conflict of interest. A representation involves a concurrent conflict of
interest if "the representation of one client will be directly adverse to another
client". Model Rule 1.7(a)(1). Under certain conditions, including obtaining -17-
[*17] informed written consent from both clients, a lawyer may represent a client
notwithstanding a current conflict of interest. See Model Rule 1.7(b)(4).3
Model Rule 1.9 is entitled "Duties to Former Clients". In pertinent part, it
provides:
(a) A lawyer who has formerly represented a client in a matter shall not thereafter represent another person in the same or a substantially related matter in which that person's interests are materially adverse to the interests of the former client unless the former client gives informed consent, confirmed in writing.
Model Rule 1.18 is entitled "Duties to Prospective Clients". It addresses the
duties of a lawyer to a person who consults with the lawyer about the possibility of
3 Model Rule 1.7(b) provides in full:
(b) Notwithstanding the existence of a concurrent conflict of interest under paragraph (a), a lawyer may represent a client if:
(1) the lawyer reasonably believes that the lawyer will be able to provide competent and diligent representation to each affected client;
(2) the representation is not prohibited by law;
(3) the representation does not involve the assertion of a claim by one client against another client represented by the lawyer in the same litigation or other proceeding before a tribunal; and
(4) each affected client gives informed consent, confirmed in writing. -18-
[*18] forming a client-lawyer relationship. If the prospective client does not
become a client, the lawyer, in general, may not represent a new client "with
interests materially adverse to those of a prospective client in the same or
substantially related matter if the lawyer received information from the
prospective client that could be substantially harmful to the person in the matter."
Id. 1.18(c). When the lawyer has received disqualifying information,
representation is permissible, however, if, among other possibilities, "both the
affected client and the prospective client have given informed consent, confirmed
in writing". Id. 1.18(d)(1).
III. Discussion
A. Introduction
"Loyalty and independent judgment are essential elements in the lawyer's
relationship to a client." Model Rule 1.7 cmt. [1]. The competing interests of
clients (or of a client and a former client or of a client and a prospective client)
may place the lawyer's duties to one client in conflict with his duties to another.
See id. With respect to a former client: "The underlying question is whether the
lawyer was so involved in the matter that the subsequent representation can be
justly regarded as a changing of sides." Model Rule 1.9 cmt. [2]. In some
circumstances a client (or a former or a prospective client) can consent to the -19-
[*19] lawyer's representing another person whose interests conflict with those of
the client (or former or prospective client). See, e.g., Rule 24(g); Model Rules
1.7(b), 1.9(b)(2), 1.18(d)(1). Some conflicts, however, are not consentable. See,
e.g., Model Rule 1.7 cmt. [17] ("when the clients are aligned directly against each
other in the same litigation"). If the conflict is consentable, then, under the Model
Rules, the lawyer may continue to represent a person conflicted in interest with
another client (or former or prospective client) if, among other things, he secures
informed written consent of both clients, in the case of concurrent clients, see
Model Rule 1.7(b)(4), the former client, see Model Rule 1.9(a), or both the former
prospective client and the affected client, see Model Rule 1.18(d)(1). Rule 24(g)
allows a lawyer to represent persons with differing interests with respect to any
issue in a case if he secures the informed consent of the client. In Harbin v.
Commissioner, 137 T.C. 93, 99 (2011), we held that Rule 24(g) requires "informed
written consent". (Emphasis added.)
While Mr. Gebman and, indeed, Mrs. Gebman may for a short time on
January 30 have been no more than prospective clients of Mr. Agostino, beginning
at some time on January 30 and ending on February 10, 2017, both Mr. and Mrs.
Gebman enjoyed a client-lawyer relationship with Mr. Agostino. Any conflict of
interest during that period would be governed by Rule 24(g) and Model Rule 1.7. -20-
[*20] Mr. Gebman is now a former client of Mr. Agostino's, which implicates
Model Rule 1.9. Because he is a former client, we will limit our consideration to
the application of Rule 24(g) and Model Rule 1.9. As discussed, Rule 24(g)
addresses counsel of record representing two or more persons with differing
interests with respect to any issue in a case and, in lieu of withdrawing from the
case, requires such counsel to secure the informed written consent of the client or
take whatever steps are necessary to obviate a conflict of interest. The rule is
somewhat ambiguous with respect to the situation before us, because Mr.
Agostino is not, nor was he ever, counsel of record in this case for Mr. Gebman,
nor is Mr. Gebman now a client of his. Model Rule 1.9 seems a better fit, and,
indeed, Rule 24(g) contemplates compliance with the Model Rules to obviate a
conflict of interest.
While Mr. Agostino was not counsel of record for Mr. Gebman, he formerly
represented Mr. Gebman in connection with the tax dispute before us. As used in
the Model Rules, the verb "represent" is a term of art. The preamble to the Model
Rules, in discussing a lawyer's responsibilities, describes a lawyer, as among other
things, "a representative of clients" and further states that, "[a]s a representative
* * * a lawyer performs various functions", including, among others, "advisor",
"advocate", "negotiator", and "evaluator". Model Rules, preamble, r. 1.8(a) cmts. -21-
[*21] [1] and [2]. Mr. Agostino concedes that he acted both as an adviser and as
an evaluator to Mr. Gebman and as an advocate and negotiator to Mrs. Gebman.
We now consider whether Mr. Agostino is representing Mrs. Gebman in the same,
or substantially the same, matter as that in which he represented Mr. Gebman,
whether Mrs. Gebman's interests in the matter are materially adverse to Mr.
Gebman's interests, and (since we find that her interests are materially adverse to
his interests) whether Mr. Agostino obtained from Mr. Gebman informed consent
in writing. Because the elements necessary to find a breach of duty to a former
client under Model Rule 1.9 (identity or similarity of matter, material adversity,
and lack of informed consent in writing) are the same as elements necessary to
find a breach of duty to a prospective client under Model Rule 1.18, we have not
asked Mr. Agostino to again address those elements for purpose of determining his
duty to Mr. Gebman under Model Rule 1.9.
B. The Same or Substantially the Same Matter
Model Rule 1.9 cmt. [2] states in part: "The scope of a 'matter' for purposes
of this Rule depends on the facts of a particular situation or transaction. * * * The
underlying question is whether the lawyer was so involved in the matter that the
subsequent representation can be justly regarded as a changing of sides in the -22-
[*22] matter in question." Model Rule 1.9 cmt. [3] states in part: "Matters are
'substantially related' * * * if they involve the same transaction or legal dispute".
Petitioners jointly petitioned for redetermination of the deficiencies in tax
and penalties, assigning error to all of respondent's adjustments and penalties. As
framed by the notice of deficiency and the petition, the legal dispute before us is
whether respondent may assess against petitioners some or all of the deficiencies
and penalties that he determined. Mrs. Gebman has agreed to concede that the
adjustments and penalties are correct, but she would like to be relieved of liability
for the tax and penalties with respect to at least the IRA distributions on the
grounds that, with respect to the resulting tax liabilities and penalties, she is an
innocent spouse, or, to put it another way, that omission of the IRA distributions
from petitioners' joint income was an erroneous item of Mr. Gebman's or that he
fraudulently converted the IRA distributions to his own use and should have
reported the resulting income. Facts concerning the IRAs are central to her
innocent spouse defense. Mr. Gebman may dispute the facts as Mrs. Gebman
construes them, or he may construe them differently. In any event, his defense of
their joint return position and her innocent spouse claim involve the same
transactions (IRA distributions) and a dispute as to their tax consequences. Mr.
Gebman's intent to defend their return position (if allowed to) puts Mr. Agostino -23-
[*23] (in representing Mrs. Gebman) on the other side from Mr. Gebman (he says
that the IRA distributions were not includible in their gross income, she would
concede that they were, and, moreover, she wants to claim that it was his (and not
her) income). The matter in which Mr. Agostino now represents Mrs. Gebman is
the same, or at least substantially the same, matter in which he formerly
represented Mr. Gebman.
C. Adversity of Interests
Harbin is an unusual case involving a taxpayer's claim for relief from joint
and several liability made two years after the taxpayer and his former wife
(intervenor) had in a prior Tax Court proceeding conceded the deficiencies and
penalties from which the taxpayer was claiming relief. Respondent opposed the
taxpayer's claim for relief on the ground that he should have raised it in the prior
proceeding. We held that the taxpayer was not barred from seeking relief because
he had not participated meaningfully in the prior proceeding. See sec. 6015(g)(2).
We found that he had participated in the prior proceeding through counsel
representing both him and the intervenor, and his "opportunity to raise a claim for
relief from joint and several liability * * * was obscured and obstructed by * * *
[his attorney's] concurrent representation of * * * [the taxpayer] and intervenor,
whose interests were adverse." Harbin v. Commissioner, 137 T.C. at 99. We said -24-
[*24] that the attorney's joint representation of the taxpayer and the intervenor
"involved an actual conflict of interest" because the taxpayer "had a viable claim
for relief from joint and several liability under section 6015(b) with respect to the
deficiencies at issue * * * [and his] claim was directly adverse to the interest of
intervenor, who was contesting the deficiencies at issue." Id. We explained that
the taxpayer's claim for relief from joint and several liability under section 6015(b)
was adverse to the intervenor's interest in contesting the deficiencies at issue
because it required the taxpayer to prove that the deficiencies were attributable to
"erroneous items" of the intervenor. Id. n.2. Petitioners' positions are reversed
here from those of the taxpayer and the intervenor in Harbin because Mr. Gebman
is making no claim that he is an innocent spouse; but the point to be drawn from
Harbin is that, if Mr. Gebman is contesting the deficiencies at issue, Mrs.
Gebman's claim for innocent spouse relief is directly adverse to his interest in
contesting the deficiencies. And while Mr. Gebman may have told Mr. Agostino
at their February 10, 2017, meeting that he supported Mrs. Gebman's innocent
spouse defense, he refused at the meeting to sign the proffered waiver and said
that he did not want to concede the case. That decision became certain, and
known to Mr. Agostino, on March 1, 2017, when Mr. Gebman filed the motion for
leave. Whatever Mr. Gebman may believe with respect to his wife's innocent -25-
[*25] spouse defense, so long as he challenges respondent's adjustment including
in petitioners' 2007 gross income the distributions from Mrs. Gebman's IRAs, her
defense is adverse to his challenge.
Mr. Agostino has not distinguished Harbin. Perhaps that is because he
believes that, notwithstanding that Mrs. Gebman may succeed in her innocent
spouse defense, Mr. and Mrs. Gebman are not on that account economically
adverse because Mr. Gebman is, in effect, judgment proof and would suffer no
financial detriment should Mrs. Gebman succeed in that defense. As we report
supra p. 13, Mr. Agostino believes: "[A]ccording to Mrs. Gebman and
Respondent's filings, Mr. Gebman has not had a paying job since 2007. Public
record searches suggest that he has no assets from which to collect any of the
deficiencies here at issue."
The financial interests of a spouse not relieved from joint and several
liability are normally adverse to the financial interests of the spouse so relieved
because, as we pointed out supra note 1, the Commissioner could look only to the
first spouse to collect the tax from which the second spouse was relieved. Mr.
Agostino does not address the fact that during the normal 10-year collection
period applicable to unpaid taxes, see sec. 6502(a), Mr. Gebman's fortunes may
change. Mr. and Mrs. Gebman's interests are therefore not only adverse because -26-
[*26] Mr. Gebman wishes to contest the liability from which Mrs. Gebman seeks
relief but also because her success in seeking that relief would be financially
adverse to him. Those are both disabilities that might well have been cured had
Mr. Gebman signed the waiver proferred by Mr. Agostino, which Mr. Gebman
refused to do.
We conclude and find that Mr. and Mrs. Gebman's interests are materially
adverse within the meaning of Model Rule 1.9 and Mr. Agostino has a conflict of
interest.
D. Informed Consent
Mrs. Gebman's interests are materially adverse to Mr. Gebman's interests in
the same matter, and, to represent Mrs. Gebman, Mr. Agostino must obtain from
Mr. Gebman informed consent in writing. See Model Rule 1.9(a). He has not
done so. The need for him to obtain such consent from Mr. Gebman was apparent
no later than February 10, 2017, when Mr. Gebman refused to sign the waiver
prepared by Mr. Agostino, terminated Mr. Agostino's services, and told him that
he did not want to concede his case.4
4 We do not address the application of Rule 24(g) and Model Rule 1.7 to the period beginning on January 30, when Mrs. Gebman decided to pursue an innocent spouse defense, and ending on February 10, 2017, when Mr. Agostino no longer represented both Gebmans. -27-
[*27] IV. Conclusion
As stated, Mr. Agostino has a conflict of interest. To obviate that conflict,
he must either withdraw as Mrs. Gebman's counsel or take other steps to obviate
that conflict. See Rule 24(g). If he does not obviate the conflict within 10 days of
this report, we will order him removed as Mrs. Gebman's counsel.
We will grant the motion to reconsider and, further, we will relieve Mr.
Gebman of his concession, allowing him to proceed with challenging the
deficiencies and penalties in question.
An appropriate order will be issued.