If someone had created an album with some pictures in it, then marked it as favorite, and afterwards removed all the items from it, the album will still show up in Favorites. It shouldn't.

This is because our inner SELECT looks like this:
SELECT ?urn rdf:type (?urn) AS ?type COUNT (?item) AS ?count
WHERE {
  ?urn nao:hasTag nao:predefined-tag-favorite
}
GROUP BY (?urn)

Since ?item is undefined, COUNT(?item) comes out as COUNT(?urn), which is going to be greater than zero since the empty album has nao:predefined-tag-favorite attached to it.

This beats the FILTER(?count > 0) in the outer SELECT and shows the empty album.

Instead, our inner SELECT should be:
SELECT ?urn rdf:type (?urn) AS ?type COUNT (?item) AS ?count
WHERE {
  ?urn a rdfs:Resource; nao:hasTag nao:predefined-tag-favorite.
  OPTIONAL {?item a nie:InformationElement; nie:isPartOf ?urn}
}
GROUP BY (?urn)