Getting Suspended From a Practice That Did Not Exist

In the case of Bowman v. Iddon, No. 15-7118 (D.C. Cir. 2017), Mr. Bowman seeks to recover damages based on a wrongful suspension from practice in a situation in which he never had authority to engage in that practice before the suspension.  The D.C. Circuit decided that appellant was not entitled to damages for reasons that made good sense to me.  The case leaves you scratching your head at how it could come to exist.  The post will discuss Bivens actions against government employees, something I have posted on before, and the suspension from practice mechanism of the Office of Professional Responsibility (OPR).  Read this post for amusement and not enlightenment.

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The underlying suit seeks damages from five IRS employees who allegedly barred Mr. Bowman from representing taxpayers before the IRS without due process of law.  That premise for the suit and a several page opinion enticed me to read further.  The problem with Mr. Bowman’s theory of the case stems from the fact that before he was allegedly suspended from practice without due process he did not have the authority to engage in practice before the IRS anyway because he had never become an attorney, CPA or enrolled agent.  He was a return preparer.

It is easy to poke holes in Mr. Bowman’s theory of the case but it makes you wonder why the IRS, or at least 5 employees alleged to have taken this action, suspended him from a practice in which he was not authorized to engage.  It seems that while Mr. Bowman was working as a return preparer in 2005, he pled guilty to mail fraud, wire fraud and money laundering.  He received a sentence of 57 months and began to serve in August 2005.  I did not go and look for details of his criminal activity beyond those described in the opinion but his return prep business must have been an interesting one.

Shortly after Mr. Bowman went to the big house, Revenue Agent Iddon sent OPR a report of Mr. Bowman’s misconduct.  The form she used required her to check a box indicting that he was an attorney, CPA, enrolled agent or enrolled actuary.  She checked the box for enrolled agent citing personal knowledge as her basis for knowing this and attaching articles about his prosecution.  Unfortunately, or maybe fortunately for those of us who like to believe the 4th Estate is mostly trustworthy, the articles did not state that he was an enrolled agent and she never searched the IRS records to confirm his status.

After receipt of this report, OPR began disciplinary proceedings against Mr. Bowman to suspend him from practicing as an enrolled agent.  Apparently, part of the investigation did not involve double checking to make sure he was an enrolled agent.  Additionally, although it was clear from the newspaper articles attached to the initiating document that he now resided at the big house, apparently no one looked to correct his address from the business address he used as a return preparer.  This caused the correspondence about the proposed disciplinary action to go unanswered since it did not make its way to Mr. Bowman.

Because he did not answer the charges against him, OPR issued a decision by default suspending him from practicing as an enrolled agent and OPR published this decision in the quarterly bulletin identifying practitioners with disciplinary problems.  One of the defendants, an OPR manager, also emailed the announcement to 20 people asking them to further disseminate the information.

When Mr. Bowman left prison in 2011, he did what every prisoner does (?), he sent a FOIA request to the IRS and through that request learned for the first time that he was suspended from practice as an enrolled agent.  This is where the facts get a little crazy, because those of you who are tax history buffs will remember that shortly before Mr. Bowman’s release, the IRS had promulgated the rule extended Circular 230 to tax preparers.  So, now the mistaken suspension may have actually become a suspension that mattered to Mr. Bowman vis a vis his livelihood as a tax preparer.  So, in November of 2012, he filed a petition for reinstatement with OPR.

Fast forward a couple of years and the D.C. Circuit strikes down the rule extending Circular 230 coverage over return preparers.  After that decision, the IRS writes to Mr. Bowman recognizing that he was never an enrolled agent and informing him that he may not practice as an enrolled agent.  It also restored his “ability to engage in limited practice before the IRS, as defined in section 10.7 of Circular 230, by removing [his] name from the list of individuals currently barred from practice before the IRS.”  Just when it seemed normalcy might return to the practice world, Mr. Bowman decided to further complicate matters by suing the IRS officials he identified as causing his wrongful suspension.  The mechanism he chose for bringing the suit was a Bivens action.

He argued that the named IRS employees violated the 5th Amendment by “harming his reputation and business without due process.”  The defendants moved to dismiss the complaint and the District Court granted the motion concluding that the remedial scheme under Circular 230 precluded any Bivens remedy even though some mistakes occurred here.  Mr. Bowman brought the matter pro se.  On Appeal the court appointed an amicus to assist it in understanding the issues.

The D.C. Circuit decided that it did not need to reach the issue of whether a Bivens action could succeed under these circumstances because the complaint failed to state a claim on which relief could be granted.  It stated that accepting all of the factual statements as true he must lose because “he identifies no constitutionally protected interest lost through Defendants’ actions.”  Since he was never an enrolled agent the misguided actions of the IRS employees suspending him from a status he never held had no impact on his property rights.

Amicus brought up that although misguided in suspending him as an enrolled agent, the actions had an impact on him for the period of time the IRS sought to regulate mere preparers.  The Court pointed out that although this was possible, it was not what he alleged in his complaint.  Two judges wrote separately to explain that if he had alleged “that Defendants barred him from preparing taxes, I would have concluded that he was entitled to pursue his claim against Defendants.”  The concurring opinion concluded by saying that “had Bowman alleged that Defendants disciplined him without authority and barred him from preparing taxes, I would have concluded that Circular 230’s remedial scheme presents no bar to a Bivens claim in the narrow and unique circumstances of this case.”  So, it looks like the IRS employees dodged a bullet because Mr. Bowman did not plead correctly.

We do not often focus on pleadings but they do matter as this case points out.  I see it often in Tax Court cases because we regularly come into cases after the taxpayer has filed a pro se petition.  Taxpayers will fail to contest penalties or other matters in the notice of deficiency.  If we are actually going to take the case to trial, we must seek permission from the court and file amended pleadings alleging all of the matters in the notice of deficiency with which the taxpayer has a dispute.

Mr. Bowman’s case is unusual.  I suspect it has led to some procedural changes in OPR regarding double checks concerning the status of alleged wrongdoers and addresses of wrongdoers brought to its attention who are incarcerated.  If it has not brought about those changes, perhaps we will see a successful Bivens suit at some point in the future.

Successfully Bringing a Bivens Case is Not Easy

In Bivens, the Supreme Court created a small window by which an individual harmed by the action of a federal agent could personally sue the agent and get past a motion to dismiss based upon the immunities which protect government agents. Only a small number of Bivens cases get filed against IRS employees.  A much smaller number make it to trial.  On October 29, 2014, the District Court for the Southern District of West Virginia, in Brodnik v. Lanham struck down an attempt to hold an IRS special agent personally liable under the basic theory that the agent had wrongfully pursued prosecution of Mr. Brodnik.

The case caught my eye because the background facts stated that the criminal investigation of Mr. Brodnik went on for six years. Criminal cases move slowly but six years stretched those time frames well beyond the norm.  That time period stretches the investigation beyond the statute of limitations for prosecution normally applicable.  The opinion does not provide an answer to that riddle but does make clear that Mr. Brodnik was acquitted on all counts.  After the acquittal, Mr. Brodnik’s dissatisfaction with the IRS turned into this suit against the special agent and the IRS.  While the now dismissed Bivens count will receive attention here, the case lives on as a wrongful disclosure case.

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Mr. Brodnik alleged that the special agent testified at trial that “it was debatable that Brodnik had broken the law.” Wow.  I never worked with a special agent who had much doubt that the taxpayer under investigation broke the law.  I have not seen the transcript but wonder if that quote is similar to the quotes on all of the campaign ads on TV one must endure if trying to watch a TV in the weeks before an election.

In addition Mr. Brodnik alleged that the special agent sent in a third party to illegally access Brodnik’s electronic mail and give it to him. Mr. Brodnik alleged that Ms. Beck illegally accessed Mr. Brodnik’s email and sent print outs of the messages to Mr. Lanham.

Mr. Lanham discussed one such email in his conversation with Mr. Brodnik’s wife, where he told her “that a letter was found in the search warrant records where a client of [Mr. Brodnik’s business partner] had stated he got into the employee leasing program to save taxes through loans. [Mr. Lanham] said the client wrote in the letter that there would be no record of the letter on his computer or in his files.  The client also wrote that he was mailing the letter to avoid any electronic trail of it.  [Mr. Lanham] explained that an e-mail from the Blenheim Group outlined how the AEL loans worked.  [Mr. Lanham] told [Mrs. Brodnik] that the e-mail started out that they usually did not discuss this, but went on in detail using the names of a trust and the name of a client to explain how it was done.”

At issue in the opinion is whether these allegations allow Mr. Brodnik to personally sue a government employee despite the shield of absolute or qualified immunity that exits for such employees. When I worked for Chief Counsel, IRS, I was personally sued a few times.  When the plaintiff included federal district court judges as co-defendants with me, I felt especially comfortable with the likely outcome.  The plaintiffs in my cases were always individuals who would have been called tax protestors by the IRS prior to 1998.

Special Agent Lanham, however, was not sued by a tax protestor but by an angry defendant who had specific allegations of Mr. Lanham’s wrongdoings. Before getting to the issue of whether these alleged wrongdoings actually occurred, Mr. Brodnik first has to survive a motion to dismiss for failure to state a claim.  Because of the immunities given to federal employees, Mr. Brodnik faced a very difficult task.

The District Court states that “a Bivens action is a judicially created damages remedy which is designed to vindicate violations of constitutional rights by federal actors.” The person seeking to recover in a Bivens case must show the “violation of a valid constitutional right by a person acting under color of federal law.”  In Saucier v. Katz the Supreme Court mandated a two-step sequence for resolving the qualified immunity claim in these cases.  First, do the plaintiff’s claims make out the violation of a constitution right and second, was the right alleged “clearly established” at time of misconduct.  The federal official must have violated a clearly established constitutional right.

The Supreme Court looked at the issue again in 2009 in the case of Pearson v. Callahan in which it stated that lower courts have discretion to decide which of the two Saucier prongs to address first.  The plaintiff must show that the unlawfulness of the conduct was apparent “in light of preexisting law.”  The plaintiff must also show that an objective reasonable federal official in circumstances similar to those facing the defendant in a Bivens case would have known that the conduct violated the law.  This knowledge must exist with respect to the specific conduct alleged and not in some abstract way.  The District Court found that the actions Brodnik alleged that the special agent committed could have violated several different constitutional rights and it listed several possibilities; however, it determined that Brodnik did not nail down the specific right violated.

The Court declined to speculate on the right Brodnik felt the special agent violated and without knowing that right it could not apply the specific conduct alleged to a right to determine if a Bivens action existed. Still, in dismissing the claim, it gave Brodnik the opportunity to amend the claim.  If Brodnik does not take the court up on that opportunity, it will surprise me.  Nonetheless, he has a difficult road to success.

IRS agents regularly make mistakes in carrying out their duties as do employees at other federal agencies and in private industry. When an IRS special agent has an individual under investigation for six years, if that allegation proves correct, it would put a serious strain on the individual under investigation.  During that period the agent will generally make contact with numerous third parties and will leave the impression that the individual has done something wrong just by virtue of the questions asked.  These impressions not only create personal stress but can also have a very negative impact on the individual’s business or employment.  In the First Amended Complaint, Mr. Brodnik sets forth the names of at least twenty-three individuals, including Mr. Brodnik’s family, friends, and professional associates, all of whom Mr. Lanham contacted and disclosed that Mr. Brodnik was under investigation.  Mr. Brodnik asserted that he suffered a foreclosure of his primary residence, loss of personal income, attorney fees, failure of his enterprise Mountain Haven Skin Center, additional cost for malpractice insurance, consultation fees, and other financial losses.

While Mr. Brodnik was the one who alleged injury from the IRS criminal investigation, Mrs. Brodnik also appears to have suffered from the lengthy investigation. During the investigation, it seems that Mr. and Mrs. Brodnik’s marriage fell apart and Mr. Brodnik requested a divorce.  Mrs. Brodnik was also wrapped up in the investigation, although from her conversation with Mr. Lanham, it appears that she had very little, if any, working knowledge of what her husband was doing.  Mr. Lanham’s report stated that “[s]he believes now that things may have intentionally been kept from her because of her husband wanting a divorce now.”  Mrs. Brodnik repeated several times during her conversation with Mr. Lanham that “her sister’s death had been very hard on her” and she was emotionally overwhelmed after the IRS searched her home.  Additionally, after the search, she noticed a pair of diamond and sapphire earrings were missing and she filed a report with the Bluefield Police Department, but she was afraid to contact anyone involved with the investigations because of her fear of retribution.  Mrs. Brodnik referred to the situation as “being up to your ass in alligators so you don’t worry about draining the swamp.”

Allegations of loss of business, dissolution of marriage, destruction of business reputation are common themes of those investigated by special agents.  Those types of allegations will not form the basis of a successful Bivens action since nothing sounds in constitutional deprivation.  I have included more details here than you may want or need to show the types of allegations made and the difficulty an individual will have in holding an IRS official personally liable even where the severe consequences of an investigation resulting in a not guilty determination gravely impact a person’s life.  The law must protect agents who make a wrong judgment on the legal consequences of a taxpayer’s actions as long as the agent’s actions do not cross the boundaries of appropriate investigative actions.

Here the special agent, or perhaps the agency, may have a ways to go to get out of the woods. The disclosure violation alleged to have occurred during the investigation appears headed to trial and could result in monetary relief for Mr. Brodnik.  This case demonstrates the difficulty in getting past the door with a Bivens case.  Getting past the door needs to be difficult.  At the same time, if the agent has made mistakes that cry for a remedy, a pathway for relief must exist.  This case does not raise significant issues but the outcome of the alleged disclosure violation may bear watching.