## Facts

- Maria Cole, widow of Nat King Cole, had long used attorney Harry Margolis for personal and financial matters; after Nat King Cole’s death, Margolis continued to represent Maria.
- Maria married Gary Devore in 1969. During the marriage, they filed joint federal income tax returns for all but one year.
- The couple separated in 1976 and divorced in 1978, but they remained jointly represented in tax deficiency litigation.
- The IRS asserted deficiencies for tax years 1970–1975, and proceedings went forward in the United States Tax Court.
- Margolis represented both Maria and Devore in the Tax Court matter; after Margolis died, attorney Leo Branton, Jr. continued the joint representation.
- After a four-day trial, the Tax Court entered a decision holding Devore individually liable for a deficiency of $135,302 and a negligence penalty of $6,765; the deficiency was tied in significant part to the Tax Court’s treatment of two checks totaling $210,000 that Devore received and endorsed over to Margolis.
- In a separate Tax Court decision (based on settlements for later years), Devore and Maria were held jointly and severally liable for additional deficiencies exceeding $300,000 for tax years 1971–1975.
- Represented by new counsel, Devore moved to vacate the Tax Court’s decisions, claiming the joint representation created a conflict of interest that kept counsel from raising defenses that could have reduced Devore’s liability (including “innocent spouse” and agency-type defenses).
- Devore asserted he had far fewer assets than Maria, was unsophisticated in tax matters, and was excluded from Maria’s financial affairs—circumstances he argued contributed both to his exposure to conflicted representation and to his failure to obtain separate counsel earlier.
- The Tax Court denied Devore’s motions without conducting an evidentiary hearing.

## Issues

1. Whether the Tax Court abused its discretion by denying Devore’s motions to vacate final deficiency decisions without an evidentiary hearing when Devore alleged that joint representation with his ex-wife created a conflict of interest that affected the conduct of the case.
2. Whether Devore’s allegations and supporting circumstances amounted to “extraordinary circumstances” sufficient to require a hearing on (a) prejudice from the alleged conflict and (b) Devore’s reasons for not seeking independent counsel sooner.

## Decision

- The Ninth Circuit reversed the Tax Court’s orders denying Devore’s motions to vacate.
- The court remanded for an evidentiary hearing to determine (1) whether Devore was prejudiced by former counsel’s conflict of interest and (2) whether Devore had reasonable grounds for failing to seek independent counsel earlier.
- The Ninth Circuit did not set aside the deficiency determinations on the merits; it required factual development before the Tax Court decided whether post-decision relief was warranted.

## Legal Principles

- A Tax Court decision denying a motion to vacate or to reopen proceedings is reviewed for abuse of discretion; reversal generally requires “extraordinary circumstances” showing a clear abuse of that discretion.
- Allegations that joint counsel represented parties with materially divergent interests, combined with record-supported facts suggesting one party was at a substantial disadvantage, can constitute “extraordinary circumstances” requiring further inquiry.
- Joint representation in tax deficiency litigation may pose a conflict when one spouse (or former spouse) could benefit from defenses that would shift or limit liability in a way harmful to the other spouse.
- When a taxpayer plausibly alleges that a conflict prevented counsel from asserting available defenses, the Tax Court should not deny relief without an evidentiary hearing to test whether the conflict caused actual prejudice and whether delay in obtaining separate counsel was reasonably explained.

## Conclusion

Devore v. Commissioner holds that where a taxpayer presents substantial allegations that conflicted joint representation may have affected the presentation of defenses in Tax Court, the Tax Court abuses its discretion by denying motions to vacate without an evidentiary hearing; the Ninth Circuit therefore reversed and remanded for findings on prejudice and on the taxpayer’s reasons for not securing independent counsel sooner.


Devore v. Commissioner, 963 F.2d 280 (1992)