On June 8, 2026, the Fifth Circuit Court of Appeals issued its decision in the Estate of Fields case, affirming the Tax Court across the board. As reported when this case first came out in 2024, the plethora of bad facts made this case a poster case for an IRS victory under section 2036(a). The next chapter has now been written on this case by the Fifth Circuit.

On appeal, the Estate narrowed the fight to two questions: (a) whether the transfers served a non-tax purpose, so that the bona fide sale exception to §2036(a) would apply and (b) whether the penalty should have been excused because the Estate hired professionals to value the assets.

Non-Tax Purpose Under §2036(a)

The Court of Appeals reviewed the Tax Court’s non-tax purpose finding for clear error and found none. The bona fide sale inquiry is purely objective: the transfer must serve a substantial business or other non-tax purpose that was an actual motivation, not a theoretical justification crafted after the fact.

The Estate advanced three non-tax reasons: fixing limitations in Fields’s power of attorney, consolidating and streamlining management of her assets, and protecting against fraud and elder abuse. The Court rejected each.

The POA argument was undercut by the fact that Milner moved $17 million in a single month using only his authority as agent, and the partnership’s governing documents would not have solved the succession concern anyway. The consolidation argument failed because none of the assets were working interests requiring active management; they were disparate holdings with no obvious synergies. And the elder-abuse rationale was implausible given that the only two incidents had occurred years earlier, in 2011 and 2013, with no explanation for the delay.

The Court also endorsed the Tax Court’s five additional “troublesome” facts, which included:

• The compressed timeline (partnership formed in late May, funded by mid-June, death ten days later)
• The absence of any discussion of a partnership until Fields’ health collapsed
• The attorney’s email to an appraiser seeking a “deeper discount”
• Milner appearing on both sides of every transaction while Fields was incapacitated
• The depletion of liquid assets to the point the Estate could not pay her bequests

Together these confirmed that the proffered purposes were after-the-fact justifications. Section 2036(a) therefore pulled the full asset value back into the gross estate.

Penalties Despite Professional Engagement

Section 6662 imposes a 20% penalty on the underpayment of taxes due to negligence or disregard of rules or regulations. The Estate argued the penalty should not apply because Milner hired professionals so that he would not have to act as his own tax expert. The Court was unpersuaded. Negligence is strongly indicated where a taxpayer fails to question an entire planning process that results in what the Court felt was a “too good to be true” outcome of reducing the tax obligation.

On the reasonable cause and good faith defense, the Court held that merely engaging tax and legal professionals does not, by itself, establish reliance. The defense turns on the quality and objectivity of the advice and the taxpayer’s own effort to assess the reasonableness of that advice. The Court felt that only the tax benefit was explained to the Estate by the legal counsel, but not the legitimacy of the planning. The Court questioned if the Estate properly explored and understood the nuanced difference between valuing the underlying assets outright or valuing a partnership interest with the according discounts.

One of the takeaways is that hiring professionals, by itself, may not be enough to escape a penalty. The reasonable cause defense has two requirements, and the Estate failed both. First, the advice must actually cover the position taken, and here no professional ever opined that the reporting was proper. Second, and most important, the taxpayer cannot simply outsource the question and abandon common sense.

In short, sound professional advice and the taxpayer’s own diligence are both necessary, and the penalty surfaced here because, as before, every other red flag was already waving.