Current status of Rand cases and Praise for Tax Court Search Feature

This is the second installment of a post I began yesterday on Rand and the benefit of requesting the Small Tax Case procedure (S procedure) if your client has the penalty issue raised in that case.  I finished yesterday’s post talking about the effort by the IRS to remove cases from the S Procedure in Lantz after the Tax Court struck down a regulation impacting innocent spouse cases and about the case and legislative history of this issue.

I looked unsuccessfully for a reported case resulting from CC-2010-011, the Chief Counsel Notice in which it told its field attorneys to file motions to remove the S procedure if taxpayers with the Lantz issue had requested it.  I blogged in November about the Tax Court’s electronic access and complained about it because I want more access than is current available.   Today, I write to praise a really nice feature of the Tax Court’s electronic system, which is the ability to search for orders.  This is a remarkable feature of the Tax Court electronic system unlike search capabilities in other electronic court databases and deserves high praise.  It can be accessed from the home page of the Tax Court web site.  So, I went there looking for orders in Lantz cases where the Government sought to remove the Small Tax Case status in cases with the 6015(f) issue because of CC-2010-011.

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The search feature for orders was adopted by the Tax Court in June 2011 about six weeks before the IRS conceded the Lantz issue.  During the time period when the Court made the orders available in this searchable format and the time of the concession, I could not find any orders addressing the specific issue of removal based on a desire by the IRS for a chance to go to an appellate court.  Others may be able to fill this gap in my research with personal case stories.  Based on my research, I do not know what the Tax Court will do if the IRS decides to try to remove the S procedure in Rand cases similar to the decision it made to remove the S procedure in the Lantz cases.

Assuming that the IRS is unable to persuade the Tax Court to remove the S procedure in Rand type cases in order to preserve the issue for appeal, any taxpayer with this issue who makes the election and whose case is decided prior to a circuit decision in the circuit to which their case would be appealed, should succeed in having the penalty removed.  I strongly recommend reviewing any Tax Court cases already pending which contain the Rand issue to make consider whether a request to proceed under the S procedure should be made.

Current status of Rand and similar cases in the system

Carl Smith has alerted me to other cases pending or previously decided that have the Rand issue.  In the Rand case the parties have filed an agreed Rule 155 calculation.  The IRS has not made any public pronunciations about its view of the Tax Court’s decision and may not determine for some time whether it will acquiesce in that decision.

Some cases in the Tax Court involving the Rand issue have been resolved favorably to the taxpayer applying Rand.  See Li v Commissioner, T.C. Summary Opinion 2013-97.  One case was decided unfavorably to the taxpayer shortly before the publication of Rand and is now on appeal to the 9th Circuit.  Here is a run down of the situation according to Carl:

I am representing, pro bono, a couple named Morales who had the 6662 penalty imposed on their disallowed FTHBC by Judge Kroupa in December 2012 (before the Rand opinion was issued and when the couple was pro se) without any discussion of whether there was an “underpayment”.  See Morales v. Commissioner, T.C. Memo. 2012-341.  I then entered an appearance for them after reading the opinion and moved for reconsideration on the ground that the judge should have imposed on the IRS the burden under 7491(c) of showing there was an “underpayment”, even though the taxpayers — like every pro se taxpayer — would never have thought to specifically have raised the lack of “underpayment” issue.  In August 2013 (also before the Rand opinion was issued), Judge Kroupa refused the motion for reconsideration — saying that I was raising a newly-minted issue.  See Morales v. Commissioner, T.C. Memo. 2013-192.  Last month, I appealed the Morales cases to the 9th Cir., where my opening brief is due on March 3 and probably my reply brief will be due in mid-April — still before the IRS decides on what to do about Rand.  The DOJ attorney in my case has said that because he has no instructions from the IRS on what to do about Rand penalties, he plans to oppose my effort to remove the penalties — both on the ground that Rand was wrongly decided and on the ground that my clients waived the right to have the IRS have to prove an “underpayment” by not specifically raising the issue in their pleadings.  I just wanted to keep you updated on developments in the Morales cases, as they may result in the litigation of the Rand issue in the 9th Cir.  Rand itself is appealable to the 7th Cir.

In Weisinger v. Commissioner, T.C. Docket No. 15555-11S, Judge Gale on Nov. 22, 2103 dismissed a case for failure to properly prosecute pursuant to a motion made by the IRS in Feb. 2013.  In March 2013, the judge ordered the taxpayer to respond (she didn’t) and ordered the IRS to show there was an “underpayment” — this indicating that Judge Gale knew as early as Feb. 2013 that the Rand issue was before the Court.  In the Nov. 22 order, the judge cited Rand and sua sponte reduced the 6662 penalty to the extent that it violated Rand.  See https://www.ustaxcourt.gov/UstcDockInq/DocumentViewer.aspx?IndexID=6149897.

In Faecher v. Commissioner, T.C. Docket No. 16049-12 (a regular case that could be an appellate vehicle for a Rand issue in the D.C. Cir., since I think the taxpayer was not a US resident), the taxpayer and New York counsel attorneys submitted a stipulated decision agreeing to deficiencies and 6662 penalties to Judge Gale at his September 30, 2013 NY calendar.  The Judge, sua sponte, sat on the stipulated decision and did not enter it.  Then, on Nov. 21, 2013 (a few days after Rand was decided), Judge Gale issued an order to the IRS to either concede the 6662 penalty or show cause why there was an “underpayment” on which the penalty could apply in light of the court’s holding in Rand.  See https://www.ustaxcourt.gov/UstcDockInq/DocumentViewer.aspx?IndexID=6149886.  On Jan. 2, 2014, the IRS filed a response to the Judge’s order.  The number of pages in the IRS response, seven, suggests that the IRS is opposing rather than conceding.  This response might be the first indication of whether the IRS will fight Rand in the appellate courts — though the IRS might just give up the penalty in this case so the court doesn’t formally rule against it.

There were 3 S case opinion issued in the ’00s in which three separate STJs, each, apparently sua sponte, raised the Rand issue and decided it against the IRS.  In the first two of these cases, the Tax Court no longer has the petition.  I got from the Tax Court a copy of the petition in the third case, and the taxpayer (no surprise) did not raise the Rand issue.  The opinions are:  Solomon v. Commissioner, http://www.ustaxcourt.gov/InOpHistoric/Sol7omon.SUM.WPD.pdf, Quintero v. Commissioner http://www.ustaxcourt.gov/InOpHistoric/Quintero.SUM.WPD.pdf, and Akhter v. Commissioner, http://www.ustaxcourt.gov/InOpHistoric/Akhter.SUM.WPD.pdf.

 

Removal of Penalty in Frozen Refund cases

 

Even before the Rand decision, the IRS had announced that it was conceding the penalty issue in these type cases where the IRS froze the refund.  So, while it continued to litigate that refundable credit cases resulted in an underpayment of tax in those situations in which the refund was issued to taxpayers, it acknowledged that when no refund went out to the taxpayers, no underpayment existed upon which it could base the accuracy related penalty.  The National Taxpayer Advocate has been tracking and commenting on this issue for some time and pushed for the IRS to identify in its system the taxpayers penalized in this situation and abate the penalties for the cases in which it conceded the issue.  Because a high percentage of refundable credit cases involve low income taxpayers, a low percentage of cases result in litigation and most default into assessment and a low percentage of low income taxpayers would know to track this issue, affirmative action by the IRS to remove the penalty in this situation is necessary to keep many individuals from having penalties which were automatically assessed by the IRS based on a misguided view of the law from continuing to haunt these taxpayers.  The National Taxpayer Advocate’s recent annual report devotes a sizeable section to this issue.  See http://www.taxpayeradvocate.irs.gov/userfiles/file/2013FullReport/ACCURACY-RELATED-PENALTIES-The-IRS-Assessed-Penalties-Improperly%2C-Refused-to-Abate-Them%2C-and-Still-Assesses-Penalties-Automatically.pdf at page 187.

If the IRS decides to concede the Rand case, many of the most vulnerable taxpayers will have this penalty assessed against them and probably not know that they could move to have it abated.  One can only hope that the IRS has begun the programming to identify them in order to abate their penalties without request.

 

 

 

 

Forum Shopping in the Tax Court – Small Tax Case Procedure and the Rand Decision

The recent decision in Rand v. Commissioner blogged here raises the issue of what to do if you represent someone currently in Tax Court litigating over penalties imposed on refundable credits.  This issue prominently presented itself a couple of years ago in the innocent spouse litigation concerning the regulations issued under IRC 6015(f) after the Tax Court’s decision in Lantz that the regulations were invalid.

In November I wrote about the Byers case and the Golson rule.  Under the Golson rule, the Tax Court will apply the rule of law of the Circuit to which the case is appealable in deciding a case before the Tax Court even if the Circuit authority conflicts with decisional authority of the Tax Court.

IRC 7463(a) creates a special procedure for cases in which less than $50,000 is in dispute for each taxable period, the Small Tax Case procedure (S procedure – so named because of the S that appears after the Tax Court docket number of these cases.)  To qualify for the S procedure the taxpayer must make an election to use this procedure and the Tax Court must concur.  The election usually occurs at the time the petition is filed but may be made at any time prior to the trial of the case pursuant to the statute and Tax Court Rule 171(b).  If the taxpayer elects the S procedure and if neither the taxpayer nor the Government requests the discontinuation of such procedure prior to the entry of the case as permitted by IRC 7463(d), then the decision of the Tax Court is the final decision of the case pursuant to IRC 7463(b) and is not subject to appeal. There are two excellent articles exploring the issue of the Golson rule and the S procedure.  Carl Smith, Does the Tax Court’s Use of its Golsen rule in Unappealable Small Tax Cases Hurt the Poor?, 11 J. Tax Prac. & Proc. 35 (2009-2010) and Saul Mezei and Joseph Judkins, “A Square Peg in a Round Hole: The Golsen Rule in S Cases” Tax Notes Today, January 8, 2012.  While it is unclear why the Tax Court decided to apply the Golson rule to cases that cannot receive appellate review, it is clear that it does so and has consistently done so for over 40 years.

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When you have a Tax Court decision like Rand that will almost exclusively impact low dollar disputes, taxpayers should strongly consider electing the S procedure when they file their Tax Court petition or should request a switch to the S procedure if they did not initially elect that procedure.  Taxpayers should make this forum shopping decision within the Tax Court because the decision of the Tax Court in S cases is final and the Tax Court has already signaled how it will decide the issue.  In situations like Rand with no Circuit authority, it is easy to predict the outcome in the Tax Court and the outcome for taxpayers similarly situated to Rand is a good outcome.  Even if adverse Circuit authority exists, as long as the Circuit to which your client’s case will be appealed has not ruled, the taxpayer will win in the Tax Court.

After the Tax Court decision in Lantz, clinicians began to request the S procedure in order to “lock in” the benefits of that decision to clients seeking to obtain IRC 6015(f) relief more than two years after the beginning of collection activity.  While the 7th Circuit ultimately reversed Lantz and the Third and Fourth Circuits ultimately upheld the regulation at issue, those litigating in other circuits whose cases had no controlling precedent had a clear path to certain victory through the S procedure.  Like almost all taxpayers impacted by the Rand case, almost all taxpayer fighting the IRC 6015(f) regulations had less than $50,000 at issue for each period.

The Government knew what would happen in Lantz type cases where the petitioners elected the S procedure in a Circuit with no precedent and issued a notice advising its lawyers to file a motion to remove the S procedure in the Lantz type cases. Chief Counsel Notice 2010-011 (June 18, 2010) Although this notice has been removed from the IRS website, it was eventually revoked when the IRS conceded the Lantz issue.  Chief Counsel Notice 2011-17 (July 25, 2011) The Government has not yet issued a similar notice for Rand cases.  I do not know if its failure to try to block the S procedure in Rand cases stems from a view that this was a failed strategy in Lantz, if it is too soon to worry about it or some other reason.

 

Attempts by IRS to Remove Cases from S Procedure – Case Precedent and Legislative History

Case precedent suggests that removing the small case designation requested by a taxpayer does not come automatically or easily.  One of the earliest cases in which the IRS filed such a motion was Dressler v. Commissioner, 56 T.C. 210 (1971).  The taxpayer, a Methodist choir director, wanted the benefit of the minister’s housing allowance.  The IRS argued that the issue was novel and continuing as a basis for removing the S procedure.  The Tax Court declined the invitation to remove the S procedure saying that the issue was primarily factual and the fact that the issue would continue to exist for this taxpayer was insufficient to support granting the motion.  Subsequent cases have not signaled a great willingness by the Tax Court to remove the S procedure.  See Kallich v. Commissioner, 89 T.C. 676 (1987) in which Chief Judge Sterrett stated:

Petitioners’ option to elect the small tax case procedure is not unlimited, even when the jurisdictional maximum for a small tax case has not been exceeded, as the election must be concurred in by the Court. Page v. Commissioner, 86 T.C. 1, 13 (1986). Respondent therefore could attempt to show the Court that the case should not be tried as a small tax case due to the importance of the issue to be determined, Earl v. Commissioner, 78 T.C. 1014, 1020 (1982); or because the issue is common to other cases before the Court, Page v. Commissioner, supra at 13; or because determination of the issue will establish a principle of law applicable to other cases, Dressler v. Commissioner, 56 T.C. 210, 212 (1971). See also H. Rept. 95-1800 (1978), 1978-3 C.B. (Vol. 1) 521, 612. Respondent has not made such argument here.

The Senate Finance Committee Report on IRC 7463 when it originally passed provided:

If it becomes evident to the Court during, or at the end of, the trial of a small claim case that the deficiency or overpayment should be increased by more than $1,000 (the then-applicable limit), then the Court has discretion to shift the case to the procedures for regular Tax Court cases. This discretion is expected to be exercised only in unusual cases, where the Court deems it appropriate, taking into account all considerations bearing on the fairness of the change, including the costs involved for all parties. (S. Rept. 91-552 (1969), 1969-3 C.B. 423, 615.)

In the Revenue Reform Act of 1998 Congress increased the dollar limit for qualification of the S procedure from $10,000 to $50,000 in Section 3103 of the House Bill.  In doing so, it made the following statement about removal of a case from the S procedure:

 

Present Law

 Taxpayers may choose to contest many tax disputes in the Tax Court. Special small case procedures apply to disputes involving $10,000 or less, if the taxpayer chooses to utilize these procedures (and the Tax Court concurs) (sec. 7463). The IRS cannot require the taxpayer to use the small case procedures. The Tax Court generally concurs with the taxpayer’s request to use the small case procedures, unless it decides that the case involves an issue that should be heard under the normal procedures. After the case has commenced, the Tax Court may order that the small case procedures should be discontinued only if (1) there is reason to believe that the amount in controversy will exceed $10,000 or (2) justice would require the change in procedure.

Small tax cases are conducted as informally as possible. Neither briefs nor oral arguments are required and strict rules of evidence are not applied. Most taxpayers represent themselves in small tax cases, although they may be represented by anyone admitted to practice before the Tax Court. Decisions in a case conducted under small case procedures are neither precedent for future cases nor reviewable upon appeal by either the government or the taxpayer.

 

Reasons for Change

 The Committee believes that use of the small case procedures should be expanded.

 

Explanation of Provision

The provision increases the cap for small case treatment from $10,000 to $50,000. The Committee recognizes that an increase of this size may encompass a small number of cases of significant precedential value. Accordingly, the Committee anticipates that the Tax Court will carefully consider IRS objections to small case treatment, such as objections based upon the potential precedential value of the case. (Emphasis added)

For a discussion of the workings of the S procedures within the Tax Court as well as the collateral estoppel effect of decisions under that procedure see Judge Holmes concurring opinion in Mitchell v. Commissioner, 131 T.C. 215.

Tomorrow I will continue this post with a discussion of my research into the cases attempting to follow Chief Counsel Notice 2010-011 and the current state of the Rand issue.

Mr. (Carlton) Smith Goes to Washington…on Appellate Venue and Review Standard in CDP

Earlier today, Keith posted regarding appellate venue in Tax Court cases, and at the end of his post indicated that Carlton Smith had recently sent a letter to Congress regarding venue and its impact on low income taxpayers.  Mr. Smith’s letter, although discussing venue, comes down to appropriate review in CDP cases, and whether it should be de novo or limited only to the administrative record.

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We’ve recreated Carlton’s letter below.  Any errors are undoubtedly ours and not his.

Re:       Comment on sec. 63 of the Discussion Draft Of Provisions To Reform Tax Administration
Dear Sir or Madam,

I am the former director of the Cardozo School of Law Tax Clinic.  I served in that capacity for over ten years until I retired this past summer.  Even though I retired, I am continuing to represent low-income taxpayers pro bono whose cases had started at the clinic.  And I am also keeping involved with a number of cases where I filed an amicus brief to aid low-income taxpayers.

One of the cases in which I submitted an amicus brief is Byers v. Commissioner, D.C. Cir. Docket No. 12-1351.  A copy of my amicus brief in that case is attached — the version that Tax Notes Today thought was significant enough to publish at 2013 TNT 63-18.  Byers presents in litigation the issue that section 63 of your discussion draft is directed at prospectively resolving against the position for which Mr. Byers and I argued current law should be interpreted.  The issue is the proper venue on appeal from Tax Court Collection Due Process decisions.

I can’t speak for Mr. Byers, but the reason that I supported him on his venue argument that the correct venue under current law is the D.C. Circuit was not out of real belief that the D.C. Circuit was the best venue as a policy matter.  Rather, my argument on venue was made to accomplish an unrelated change in the law.  I am concerned that you may have been informed by the IRS that the amendment proposed by section 63 to IRC section 7482(b)(1) to place all CDP appeals from the Tax Court into the regional Circuits of residence is only for the convenience of the taxpayers.  In fact, as the DOJ attorney argued to the D.C. Circuit in the Byers oral argument on October 25, what is really at stake is something else:  the record rule in Tax Court CDP proceedings.  My venue argument was made because I wanted to retain the Tax Court’s view of what a CDP proceeding in the Tax Court should encompass, while the IRS and DOJ are trying to retain the benefit of contrary rulings made by three regional Circuit Courts of Appeals.

Below, I will explain the record rule issue that section 63 is designed by the IRS to affect.  I will also point out a number of other areas of jurisdiction given to the Tax Court over the last 40 years that section 63 does not address, but the Committee should consider adding or not adding to section 63.  Finally, I note that I do not object to section 63 so long as a new provision is added to section 6330(d)(1) enshrining the Tax Court’s current view of its proceedings in CDP cases, so that all taxpayers living countrywide get treated the same with respect to the record rule issue that is really at stake when CDP venue on appeal is decided in Byers.

Before describing the record rule, I wanted to remind you that venue on appeal can have effects on how the Tax Court rules in all of its cases.  In Lawrence v. Commissioner, 27 T.C. 713 (1957), the Tax Court held that it was created as a national court and had its own precedent that it would follow regardless of where a case was likely to be appealed.  Only 13 years later, after much criticism of Lawrence, the Tax Court modified that holding to state that where a court of appeals to which a case was appealable under section 7482(b) had ruled on a particular issue opposite from the Tax Court’s existing precedent on the issue, the Tax Court would enforce the law in the manner of the Court of Appeals’ interpretation (even though the Tax Court still thought the Court of Appeals wrong).  Golsen v. Commissioner, 54 T.C. 742, 756-757 (1970), affd. on other issue 445 F.2d 985 (10th Cir. 1971).  The Golsen rule is the nub of the issue that I am writing you about.

Now, the record rule issue:  In Robinette v. Commissioner, 123 T.C. 85 (2004), the Tax Court held that a CDP appeal in the Tax Court under section 6330(d)(1) is not limited to the administrative record created by the taxpayer with the IRS Appeals Office conducting the CDP hearing, but is a trial de novo as to evidence (though, in another case, the Tax Court has stated that the issues in the Tax Court proceeding are limited to only those previously raised to Appeals.  Giamelli v. Commissioner, 129 T.C. 107 (2007)).  This de novo Tax Court CDP proceeding as to evidence is true even though as to all issues other than underlying liability, the Committee reports accompanying the enactment of CDP have directed the Tax Court to apply a standard of review of abuse of discretion.  So, the Tax Court applies a scope of proceeding that is de novo, though the standard of review in most cases is abuse of discretion.  (By the way, that split between scope and standard is not unprecedented in the Tax Court’s deficiency jurisdiction, as the author of the Robinette opinion pointed out.)

In my experience, most taxpayers in CDP hearings at Appeals are pro se.  Since they are already in debt to the IRS, they can’t afford representation, and many of their matters are too small to merit the expenditure of professional fees, even if the taxpayers could afford representation.  They often do inadequate jobs of creating a record about their financial situation.  Then, when the Appeals employee issues the notice of determination upholding either the levy or lien filing, the taxpayers read the notice and see that there were issues of interest to the Appeals employee that the taxpayers were not aware of and that they could have responded to with documents or testimony had they realized these were important.  The taxpayers need a second chance to make that response in a Tax Court proceeding.  This is the same dynamic that for years has applied to low-income taxpayers under audit and why the Tax Court, under its deficiency jurisdiction at section 6213(a), holds a trial de novo as to evidence.  So, I strongly support, as a policy matter, the Tax Court’s Robinette holding that its CDP proceedings, as well, are de novo as to evidence.

Unfortunately, since CDP was enacted in 1998, nearly all taxpayers and the IRS, rather uncritically, have treated the regional Circuits as the venue on appeal from Tax Court CDP decisions.  After the Tax Court ruled in Robinette, it was reversed by the Eighth Circuit, which held that, since abuse of discretion was the standard of review, under the Administrative Procedures Act and ordinary principles of administrative law, the standard of review dictates the scope of the review proceeding, which should be limited to the administrative record.  439 F.3d 455 (8th Cir. 2006).  The Eighth Circuit’s rule of limiting a litigant to the administrative record makes a lot of sense when, say, a large, represented corporation is challenging the outcome of a regulatory administrative hearing.  But, it makes little sense in the world of mostly unrepresented, unsophisticated taxpayers and the informal record created in the typical IRS CDP hearing.  Indeed, for similar reasons, the Ninth Circuit earlier this year ruled that section 6015(e) innocent spouse cases in the Tax Court where the issue is requested equitable relief under section 6015(f) are not limited to the administrative record.  As the Ninth Circuit stated, “Many of the taxpayers who seek innocent spouse relief share Wilson’s limited educational background, lack of access to essential documents, and inability to hire counsel. Taxpayers in Wilson’s position may have understandable trouble comprehending, and thus fully complying with, the IRS’s process in considering requests for equitable spouse relief or establishing a complete record with the agency. Allowing the Tax Court to review a supplemented and up-to-date record under these circumstances is entirely consistent with the statutory structure of sec. 6015 and Congress’s direction that the Tax Court determine the appropriate relief.” Wilson v. Commissioner,705 F.3d 980, 992 (9th Cir. 2013) (footnote omitted). (In Wilson, the Ninth Circuit also held that a de novo standard of review should apply to 6015(f) cases.  The IRS has since decided to acquiesce in the rulings in Wilson going forward;  Chief Counsel Notice CC-2013-011 (Jun. 7, 2013); but not on the similar record rule issues in CDP.)

After the Eighth Circuit overruled the Tax Court in Robinette, the First and Ninth Circuits also ruled on the record rule issue — agreeing with the Eighth Circuit that Tax Court CDP proceedings are limited to the administrative record. Murphy v. Commissioner, 469 F.3d 27, 31 (1st Cir. 2006); Keller v. Commissioner, 568 F.3d 710, 718 (9th Cir. 2009).  No other Circuit — including the D.C. Circuit — has ruled either way on this Tax Court CDP record rule issue.

Like the IRS and most litigants, the Tax Court over the years has rather uncritically assumed that CDP venue on appeal tracks that of venue on appeal of its deficiency cases — i.e., venue on appeal is to the regional Circuit in which the individual petitioner resided when the Tax Court petition was filed.  Of course, this is the issue now being litigated in Byers v. Commissioner.  And, at oral argument in Byers on October 25, 2013, it seemed pretty clear that the D.C. Circuit judges could not square this assumption with the literal language of the venue statute.  But, because the Tax Court has maintained this venue on appeal assumption, it has applied its Lawrence/Golsen rule such that in CDP proceedings where the individual taxpayer lives in the First, Eighth, and Ninth Circuits, the Tax Court limits the taxpayer to the administrative record.  See, e.g., Klingenberg v. Commissioner, T.C. Memo. 2012-292.  In the CDP proceedings of individual taxpayers living in all other Circuits, the Tax Court follows its own precedent and holds a trial de novo as to evidence.  See, e.g., Murphy v. Commissioner, 125 T.C. 301, 313 n. 6 (2005).

My goal in trying to get the D.C. Circuit in Byers to hold that only the D.C. Circuit is the correct venue on appeal for CDP cases from the Tax Court is to make the situation such that the Tax Court applies its Lawrence/Golsen rule on this CDP record rule issue as stated in Robinette (i.e., trial de novo) for individuals living throughout the country, since the D.C. Circuit has not yet ruled on the issue.  At least this gives a temporary taxpayer-friendly ruling countrywide application until, perhaps, the D.C. Circuit finally decides to rule on the record rule issue.

Section 63, if enacted, would essentially confirm that a minority of the country must have its Tax Court CDP proceedings limited to the administrative record, while a majority of the country can have a de novo Tax Court CDP proceeding.  I am not sure whether the IRS made this record rule outcome clear to you as its major goal when it asked for you to consider enacting section 63.

I do not, in fact, object to the enactment of section 63 with respect to CDP and 6015(e) cases of the Tax Court.  I am happy to have such cases decided by the regional Circuits.  However, my lack of objection is conditioned on Congress amending section 6330(d)(1) to clarify that the Tax Court’s holding in Robinette is the appropriate one for taxpayers countrywide.  So, in addition to section 63, I would urge an amendment that adds a sentence to the end of section 6330(d)(1) reading as follows:  “In any proceeding by the Tax Court under this paragraph, the Tax Court shall allow into evidence both such administrative record created at the Office of Appeals’ hearing and such additional evidence on the issues raised at the hearing as the Tax Court deems relevant.”

The second issue I wanted to raise has to do with the fact that, while section 63 addresses venue on appeal former Tax Court CDP and 6015(e) proceedings, it does not address a number of other jurisdictions given to the Tax Court over the last 40 years for which section 7482(b)(1) provides no specific rule.  Many of these unnamed jurisdictions may not fairly be described as involving a “petitioner seeking redetermination of tax liability” (within the meaning of the exceptions at subparagraphs (A) and (B) that direct such cases’ appeals to the regional Circuit courts), so, arguably, the flush language at the end of section 7482(b)(1) directs appeals of these Tax Court jurisdictions (absent stipulation to the contrary) only to the D.C. Circuit.

The following jurisdictions of the Tax Court do not have any specific subparagraph in section 7482(b)(1), so Tax Court decisions in these cases are arguably all appealable only to the D.C. Circuit under the flush language at the end of that paragraph:

1.  Section 7430(f) proceedings to review the IRS’ grant or denial (in whole or in part) of an award of reasonable administrative costs where there was no underlying Tax Court proceeding;

2.  Section 7479 Tax Court declaratory judgment actions relating to eligibility of estates to make installment payment of estate taxes under section 6166;

3. Section 6404(h) Tax Court actions to review the IRS failure to abate interest attributable to unreasonable errors or delays;

4.  Section 7436 Tax Court proceedings for determination of employment status;

5. Section 7623(b)(4) Tax Court proceedings to consider petitions from whistleblowers who complain of insufficient IRS award; and

6. Section 6110(d)(3), (f)(3)(A), (f)(4)(A), and (h)(4) disclosure actions.

Congress should consider whether any of these six jurisdictions should be specifically named in the venue statute and that appeals be directed to courts other than the D.C. Circuit.

In fact, in 1976, Congress specifically discussed in the Committee reports accompanying the creation of the disclosure actions that Congress expected the D.C Circuit (under the flush language of section 7482(b)(1)) to be the sole venue on appeal, absent stipulation to the contrary.  H.R. Rep. 94-658 at 324-325, 1976-3 (Vol. 2) C.B. 697, 1016-1017; S. Rep. 94-938 at 313-314, 1976-3 (Vol. 3) C.B. 49, 351-352.

There was no discussion in any of the Committee reports with respect to any of the other five jurisdictions as to where Congress expected venue on appeal to go from the Tax Court.

So far, only one jurisdiction, section 7623(b)(4), has generated any comment as to the proper venue on appeal:  In Whistleblower 14106-10W v. Commissioner, 137 T.C. 183, 193 n. 12, the Tax Court wrote: “Any appeal of this case would likely lie with the Court of Appeals for the D.C. Circuit.  See sec. 7482(b)(1) (flush language).”  And the Department of Justice recently forced a whistleblower who appealed the loss of his Tax Court case to the Eighth Circuit, where he lived, to be transferred to the D.C. Circuit under a similar statutory reading.  A copy of the government’s motion to transfer in the Cohen case is attached.  The motion was unopposed, so the case was transferred and is presently pending before the D.C. Circuit.  Congress should consider whether centralizing all whistleblower award cases in the D.C. Circuit makes sense.

Since all of these Tax Court jurisdictions (including whistleblower) are infrequently the subject of petitions, it may make sense to have only one court be the sole location of appellate litigation so that a body of consistent precedent can be created that applies countrywide.  On the other hand, in some of these cases, like the administrative fees cases, there likely would be little money at stake in any case so that taxpayer convenience might dictate they be directed to the regional Circuits. I don’t have a strong opinion about any of these jurisdictions, but think that Congress should discuss them — at least in the Committee reports — if it is making the decision not to specifically name them because it prefers that all of their appeals be made to the D.C. Circuit.

I would be happy to speak to anyone at the Committee to discuss the issues presented in this e-mail.

Carlton M. Smith, Esq.

 

Appellate Venue in Tax Court cases – Taking Care in Applying Golsen in non-deficiency cases

For many years the Tax Court or its predecessor, the Board of Tax Appeals, did not look to the Circuit where venue for an appeal of the Tax Court’s decision would lie in deciding the outcome of a case before it.  Unlike a District Court with a specific circuit to which it felt bound by Circuit Court authority in the circuit in which they sat, the Tax Court focused on reaching the correct outcome of the case unfettered by the controlling precedent that applied in the circuit to which an appeal of the case would lie.  The Tax Court’s failure to recognize the controlling authority of the circuit which had venue for the appeal caused taxpayers or the government to appeal in order to obtain a favorable result in those situations where the Tax Court’s view of the law differed from circuit precedent.

In 1970, a year after becoming an Article I Court, the Tax Court changed its practice and announced in Golsen v. Commissioner, 54 T.C. 742 (1970), aff’d on other issues, 445 F.2d 985 (10th Cir. 1971), that it would follow the precedent of the Circuit Court to which the appeal of the Tax Court case would lie.  Most cases do not involve a split of authority among the circuits and the Golsen rule does not have significant meaning in the outcome of the case.  Occasionally however, a major split develops among the circuits and the application of the Golsen rule becomes critical to the outcome of the case.  Of course, a predicate to the application of the Golsen rule is the determination of appellate venue.  In some of the newer areas of Tax Court jurisdiction, and perhaps some that are not so new, that question is now up in the air.

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The Tax Court has traditionally served as the location for litigating whether a taxpayer owes the tax proposed by the IRS in a notice of deficiency.  IRC 7482, the controlling statute for appellate venue in Tax Court cases, was built with the traditional role of the Tax Court in mind.  In recent decades Congress has demonstrated its confidence in the Tax Court by making it the court for several proceedings beyond the straight forward determination of taxes based on a notice of deficiency including – collection due process, innocent spouse, employment status, exempt status and whistleblower awards.  The appellate venue for these less traditional cases is not described in IRC 7482 leaving the flush language of IRC 7482(b)(1) as the likely controlling direction from Congress.  The flush language provides “If for any reason no subparagraph of the preceding sentence applies, then such decisions may be reviewed by the Court of Appeals for the District of Columbia.”

Then law student James Bamberg seems to have been the first to notice what no one else had seen.  In 2008 he wrote the winning article for the Tannenwald Competition entitled “A Different Point of Venue: The Plainer Meaning of Section 7482(b)(1).” In the article, he identified the disconnect between the appellate venue statute and the newly created areas of Tax Court jurisdiction.  He wrote:

Congress intentionally designated the types of Tax Court proceedings that are to be appealed in the regional circuit courts by enumerating them. Correspondingly, it chose not to include proceedings that rise from “newer” areas of Tax Court subject matter jurisdiction. Seven of these more recent jurisdictional grants, not specifically listed, are: (1) in 1976, the right to review disclosure actions; (2) in 1988, the right to review Service denials of reasonable administrative costs; (3) in 1996, the right to review Service denials of requests for interest abatement; (4) in 1997, the right to review worker classification disputes; (5) in 1998, the right to hear appeals of Service determinations in “collection due process” proceedings; (6) in 1998, the right to review Service denials of relief from joint and several liability for income taxes; and (7) in 2006, the right to review Service awards to whistleblowers. Consequently, because Congress chose not to list these seven jurisdictional grants within section 7482(b)(1), the Tax Court decisions that spring from these jurisdictions fall squarely in the D.C. Circuit Court for review.

After the publication of this article, which points out that the D.C. Circuit essentially became the National Court of Tax Appeals for the cases not enumerated in section 7482, some practitioners, the Tax Court and the government eventually began to take notice.  We wrote about the Byers case, in which the taxpayer is currently arguing, inter alia, that the D.C. Circuit is the court where appellate venue lies in CDP cases.

The Tax Court wrote about the venue issue in Whistleblower 14106-10W v. Commissioner, 137 T.C. 183, 193 n. 12 (2011) in which it said “Any appeal of this case would likely lie with the Court of Appeals for the D.C. Circuit.  See Sec. 7482(b)(1)(flush language).”

The Department of Justice Appellate Section filed Commissioner’s Motion to Transfer Appeal to the United States Court of Appeals for the District of Columbia Circuit” on December 27, 2012, in the whistleblower case Cohen v. Commissioner, 139 T.C. No. 12 (2012). Mr. Cohen, who lived in New Jersey at the time of filing his Tax Court petition, lost in the Tax Court and filed an appeal in the Third Circuit.  The Department of Justice quoted the language of IRC 7482(b)(1) in its motion and then stated “Cohen’s appeal does not fit within any of the six subparagraphs listed in Section 7482(b)(1).  Accordingly, venue lies in the United States Court of Appeals for the District of Columbia Circuit under the flush language at the end of Section 7482(b)(1).”  In a footnote the motion notes that Section 7482(b)(2) permits a Tax Court decision to be reviewed by any Circuit Court upon stipulation of the parties.  The motion further noted that when appeal is taken to the wrong Circuit Court that court “may transfer the appeal to the proper court in lieu of dismissing the appeal.”

While it is not clear yet that the D.C. Circuit agrees with the Bamberg interpretation of appellate venue and, if it does, whether it agrees with respect to all seven of the case types identified by Mr. Bamberg, the implications here are significant for the application of the Golsen rule and for the creation of a de facto National Court of Tax Appeals for many of the cases which the Tax Court decides.  The Byers case deserves close observation since where your Tax Court case heads on appeal can have an important role in the outcome of the case at the Tax Court.  The D.C. Circuit may soon take on a much more prominent role in the federal tax area.

This issue is addressed in one of the legislative proposals Les wrote about last week. Now Carlton Smith has written a letter to Congress on this issue discussing the legislative proposal and particularly the impact it will have in the Collection Due Process issue where Circuit Court authority exists outside of the D.C. Circuit for limiting the record before the Tax Court.  Such a limitation hurts low income taxpayers who frequently start these cases unrepresented.  We will post more on that letter shortly.

***update – Carlton Smith’s letter can be found here***