Notes and Handouts from the Tax Court Judicial Conference

At the Tax Court Judicial Conference last month, there were several breakout sessions and plenary sessions – many of which provided handouts that some of you might find useful. In this post, I will talk about several of the sessions and attach the documents from the section discussed.

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Future State of the Tax Court

Les wrote a post that covered some of this session. Because there was more and there were several documents, I am going to expand on his post.

The first concern the panel addressed was access to Court records. The outline does an excellent job of laying out the Court’s concerns about making its records as open as the records of other federal courts using the PACER system. The material cites to a couple of administrative courts, social security and immigration, that do not use the PACER system. I do not find those administrative courts to provide a perfect template for the Tax Court but appreciate the Court’s concern about the privacy of taxpayer information since most of the people the Court protects are low-income taxpayers filing pro se. In the recent submission to Congress, the tax clinic at Harvard made proposals on this issue seeking to open up the records to greater electronic access. The clinic’s proposal puts the burden on the IRS to redact. Making public documents submitted by the IRS was proposed by Judge Buch to the panel as Les mentioned in his post. It sounds as if the Canadian Tax Court, which has no electronic access today, plans to put everything online within three years.

The panel next turned to the Tax Court’s Rules. The question before the panel was whether it was time for the Tax Court to reissue its rules, which would allow it to reorder them and to make other logical changes. Since the rules were last created, Congress has added numerous types of jurisdiction to the Court. The press release when the rules were last changed can be found here, and the general categories here. Other events have caused changes to the rules that have resulted in the rules growing in a way that might not create the most orderly statement of what parties practicing before the Court might expect in researching the rules. A proposed topical grouping of Tax Court rules can be found here and guidelines for drafting and editing court rules here. One example given of a needed rule change/addition is the lack of any mention in the Tax Court’s rules of amicus briefs. A couple of years ago, the Court sent out requests for comments on its rules after Chief Counsel’s office wrote to the Court requesting certain rules changes. We discussed the request here. The Court promulgated rules without comment after a recent legislative burst and we wrote about it here. The tax clinic at Harvard has not experienced any difficulty filing amicus briefs in the Tax Court but having a rule laying out the expectations would be a great idea. My takeaway from the discussion is that we should expect an overhaul of the rules in the not too distant future. This endeavor will keep some people at the Court very busy.

The third issue presented by the panel involved reducing the cost of litigation. The panel discussed increased use of the electronic courtroom to reduce travel costs. It also discussed changing the expert witness rules. Because the Chief Judge of the Tax Court of Canada was on the panel, it was interesting to hear the perspective of that court on many issues, including experts and his views on the use of hot tubbing. I did not come away with a feeling of what changes are coming but I expect that changes may come.

The fourth issue concerned the impact of IRS actions on the Court. Attached to the report is a group of related documents among which is the National Taxpayer Advocate’s report on ETIC cases in Tax Court. The IRS puts very little time and effort into auditing cases through its correspondence process, which in turn puts cases into the Tax Court that have not been properly developed. The report details outcomes.

The final issue discussed concerned the impact of globalization on the Tax Court. Because of time, the discussion on the final two issues was relatively short.

Ethics

The panel on ethics gave attendees a PowerPoint presentation attached here. The PowerPoint contains 10 hypotheticals which the panel worked through during this session. The panel also provided the group with authorities for resolving each of the hypotheticals which are attached here, here, here, here, here, and here. If you have to teach tax ethics, this is a great set of materials. If you practice and want to review very relevant problems, these are worth the time. The most interesting and scary set of facts is found in hypothetical #9 and involves the representation of someone who is not the person they purported to be.

Litigation of Individual Tax Issues and TBOR

This session had two panels. Les and I were on the TBOR panel with Special Trial Judge Panuthos and Nina Olson. This session had a PowerPoint presentation, found here. Other materials from this session were a Decision Document Guide; Schedule C examples; an Annotated AUR Notice; a PowerPoint presentation entitled “Effectively Representing the Taxpayer in a Substantiation and Penalty Case”; a Model Stip Decision; and a Bibliography.

Exotic Jurisdictions

Les discussed this session in a previous post found here. This presentation involved a PowerPoint, found here.

Discovery and Stipulation Process

This presentation had a relatively short PowerPoint, found here. It was an excellent session although it is one that is difficult to recapture. The judges and the participants engaged in a good review of the discovery rules and how to put them to best use.

Mediation

This session had a relatively short PowerPoint, found here, and materials, found here. The stories from this panel were good. The Court seems genuinely interested in assisting parties through providing a mediation option. Although I do not see this as a likely avenue for the types of cases I litigate in the Tax Court with the clinic, I came away from the session with a better appreciation of mediation as a viable option. The panelists who had served as mediators spent time describing their special role in that context and how they thought they could best assist the parties in reaching an agreement. Because mediators get to hear both sides in a way that judges do not, this would seem to be a good break for the judges participating from the formal presentation of cases they hear routinely.

 

Changes Coming on the Tax Court and at Chief Counsel

Congress has under consideration the nominations of three new Tax Court judges: Elizabeth Copeland, Patrick Urda, and Courtney Dunbar Jones for a few months.  This week a fourth new judge, Emin Toro, was nominated. Two of the nominees are graduates of Harvard Law School. I am not sure if this is a court packing scheme on the part of the administration in an effort to help the tax clinic at Harvard which has had its troubles convincing the Tax Court of the correctness of many of its arguments, but the clinic appreciates the efforts of the administration to provide whatever assistance it can.  In addition to the four judicial nominees described below, the administration has nominated a new Chief Counsel, IRS, Michael Desmond, who is also discussed.

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Elizabeth Copeland has the distinction of having been nominated to the Tax Court by both President Obama and President Trump. I suspect she may be the only nominee by these two presidents since their appointments do not ordinarily seem to coincide. Both Presidents made a good choice, which may be why she was renominated by the current administration when her previous nomination lapsed. She has practiced in San Antonio for many years and was named the city’s top tax lawyer in 2017. She is active in the ABA Tax Section and a prior winner of the Janet Spragens Pro Bono award for her work in organizing the Texas Bar to attend and assist at Tax Court calendar calls. Through her practice and her volunteer work, she has a great deal of background in Tax Court issues which will assist her as she assumes her new role. She is the only one of the judicial nominees I personally know, allowing me to attest that the administration has made a great choice. The Committee on Finance unanimously approved her previous nomination, but the nomination was never voted on by the full Senate. Her previous nomination expired with the conclusion of the 114th Congress in January 2017. Copeland is a partner at the law firm Strasburger & Price, LLP. She is a graduate of the University of Texas for both her B.A. and J.D. She worked as an attorney advisor at the Tax Court early in her career.

Courtney Dunbar Jones serves as a senior attorney in the Tax-Exempt and Government Entities division in the Office of Chief Counsel of the Internal Revenue Service. Prior to joining the Chief Counsel’s office six years ago, Ms. Jones practiced for three years in the exempt organizations and intellectual property practice groups of the Washington, D.C.-based firm Caplin & Drysdale. Before relocating to the Washington area, she practiced for four years at Bird, Loechl, Brittain & McCants, a boutique law firm in Atlanta. Since 2015, Ms. Jones has served on the Board of Trustees of Hampton University, where she earned her B.S., magna cum laude, and was the recipient of the President’s Award for Exceptional Achievement. Ms. Jones then earned her J.D. from Harvard Law School, where she served for two years as the editor-in-chief of the Harvard BlackLetter Law Journal, (which has since been renamed the Harvard Journal on Racial & Ethnic Justice). During law school, Ms. Jones was recognized for a variety of achievements; she was named a scholar in the Earl Warren Legal Training Program sponsored by the NAACP Legal Defense and Education Fund, and received the National Bar Institute African American Law Student Fellowship. If confirmed, she will assume the position left vacant by the 2016 retirement of Judge John O. Colvin. Judge Colvin still performs judicial duties as a Senior Judge on recall.

Patrick Urda, serves as counsel to the Deputy Assistant Attorney General in the United States Department of Justice’s Tax Division. Urda received his Bachelor of Arts degree in classics, summa cum laude, from the University of Notre Dame, where he was inducted into Phi Beta Kappa. He received his J.D. from Harvard Law School. At the start of his legal career, Urda spent three years in private practice and served as a law clerk to Judge Daniel A. Manion of the United States Court of Appeals for the Seventh Circuit. In his position as counsel to the Deputy Assistant Attorney General in the U.S. Department of Justice’s Tax Division, Urda advised the Deputy Assistant Attorney General and Tax Division front office on legal and administrative issues facing the Division, particularly regarding appellate and settlement matters. In addition to acting as counsel, he was a member of the Tax Division’s Appellate Section, which he joined in 2006.

While working in the Appellate Section, he has litigated more than eighty appeals from the United States Tax Court and the United States District Courts, and has presented oral argument on behalf of the United States in more than forty-five appeals, including arguments in each of the United States Courts of Appeals. He was also one of the principal drafters of the United States’ successful brief in Hall v. United States, 566 U.S. 506 (2012). Urda is a five-time recipient of the Tax Division’s Outstanding Attorney Award, and has received the IRS’s Mitchell Rogovin Award.

A fourth judge has recently been nominated to fill the seat being vacated by Judge Goeke, whose term expires on April 21. Because the statute requires Tax Court judges to assume senior status at age 70 and because Judge Goeke, like many of us who are baby boomers, is not too far from that age, he may not have sought to go through the nomination process and instead can assume senior status at the end of his appointment. Moving to senior status means that a judge no longer participates in court conferences to decide those cases in which the full court participates; however, it still allows the judge to hear as many cases as he or she may want. The new nominee is Emin Toro. The nomination states the following about Mr. Toro:

Emin Toro is a partner in the Washington, D.C., office of Covington & Burling LLP, where he represents and counsels multinational companies in tax controversies. Mr. Toro’s tax controversy experience includes audits, administrative appeals, litigation, as well as advance pricing agreement and competent authority proceedings. He is also a Fellow of the American College of Tax Counsel. Upon graduation from law school, Mr. Toro served as a law clerk to Judge Karen LeCraft Henderson of the U.S. Court of Appeals for the District of Columbia Circuit and to Justice Clarence Thomas of the Supreme Court of the United States. Mr. Toro earned his B.A., summa cum laude, from Palm Beach Atlantic University and his J.D., with highest honors, from the University of North Carolina School of Law, where he was inducted into the Order of the Coif and served as an articles editor of the North Carolina Law Review.

Adding four judges at once changes the face of the Tax Court in a relatively major way. Other changes to the Court may be coming before long as additional vacancies may be on the horizon.

In addition to the changes at the Tax Court, the President has nominated Michael Desmond for the position of Chief Counsel. No doubt the selection was heavily influenced by the fact that he has been a guest blogger on PT, with posts found here, here and here. Other factors that may have influenced his selection could have been his wide ranging litigation experience at the Department of Justice and private practice, and his additional government experience in the Treasury Department. Like Elizabeth Copeland, he has been active in the Tax Division of the ABA. I am jealous of the fact that he bicycled across the United States a few years ago with Tax Court Judge Buch.  He will form a team with Chuck Rettig, the nominee for IRS Commissioner. As we featured prominently in discussing the nomination of Mr. Rettig, Mr. Desmond has extensive tax procedure experience. Just as previous tax lawyers who have served as Commissioner have not always come with extensive tax litigation and tax procedure experience, the same can be said of prior Chief Counsels. Having two individuals at the top of the IRS with this much practical tax procedure experience should be a good thing for improving processes at the IRS. The most recent Chief Counsel formed a band, The Traveling Helverings, which we have featured before in a post. If the new Chief Counsel and Commissioner, both of whom are coming from the Los Angeles area, decide to form a band maybe it will be known as the Beach Boys if that name is still available.

 

 

 

Designated Orders: 3/26/2018 – 3/30/2018

Guest blogger Caleb Smith of the University of Minnesota bring us the designated orders from the last week of March. These orders do not offer unique insights but Caleb does a nice job of categorizing them and providing useful insights. With a minor exception, this week is surprisingly light on cases with the Graev issue. Keith

There were six designated orders during the final week of March, none of which were particularly consequential. There is, however, a common thread that runs through them all: the extra work that the Tax Court puts in with pro se parties. The orders (all of which involve pro se taxpayers) can be categorized as follows:

  • Where the Petitioner “Files and Forgets”

Anderson v. C.I.R., Dkt. No. 30766-15L

Hoffer v. C.I.R., Dkt. No. 17545-15L

In two of the designated orders, the petitioner appears to have filed in court and then washed their hands of having to deal with what comes thereafter. As Judge Gustafson notes in Anderson v. C.I.R., it is the petitioner’s duty to prosecute the case after filing the petition, and failure to do so can result in dismissal. But the Court does not dismiss such cases without giving quite a few opportunities to the petitioner, and generally requires the IRS to give a fairly detailed account of their attempts to reach the individual.

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Judge Gustafson stops short of dismissing the case because of their own concern that the taxpayer may have changed addresses (without notifying the Court, as they are required to do under Rule 24(b)). Judge Gustafson even goes the extra mile in providing numerous addresses the taxpayer may be found, and ordering the Tax Court Clerk to send standing pretrial orders to each of them. Kudos to Judge Gustafson.

Similarly, Judge Leyden gives more than a fair shake to the petitioners in Hoffer v. C.I.R. Though the petitioners appear to occasionally send (some) information to the IRS during the CDP process, they never quite give what is asked, and they never really participate in the CDP hearings. When it is docketed in court, the IRS files a motion for summary judgment which Judge Leyden sets for hearing in Indiana. The petitioner does not show up (usually, a bad sign for your prospects, but in this case perhaps excusably because of medical problems). Judge Leyden still does not grant summary judgment because there was, nonetheless, a dispute on material facts (apparently, the IRS acknowledged that it had made some computational errors, but insisted that they were non-material). The case is remanded to Appeals to work out the issues at a supplemental CDP hearing. The IRS tries multiple times to set a supplemental hearing and to receive supplemental information… but the petitioners seem to place it on the back-burner.

It is something of an open question as to whether Judge Leyden goes the extra mile, or simply as far as the law requires, in her final decision. Clearly, Judge Leyden gives the petitioners more than enough of their opportunity to be heard in court. But Judge Leyden also affirmatively required that the IRS show proof that it complied with IRC § 6751(b) for the accuracy penalty without it appearing as if the petitioners raised the issue (the CDP hearing was solely on collection grounds). As noted before here, it is unclear if every judge would go this far with 6751. Nonetheless, for Judge Leyden when the IRS failed to show this the taxpayer was due a limited win: relief from the IRC 6662 penalty that had been applied against them.

  • Where the Petitioner Files… But Really Shouldn’t Have

Graham v. C.I.R., Dkt. No. 9815-17SL

Wendt et al v. C.I.R., Dkt No. 11366-17S

Then there are the cases where the petitioners are engaged, but really should have left things alone. Sometimes, the IRS can make quick work of the case through summary judgment. In Graham v. C.I.R., the taxpayer seems unwilling to do much of anything (file back year tax returns, submit financial statements) except combat the IRS, in this case by filing a “Motion to Deny Summary Judgment.” Judge Armen has little trouble finding for the IRS in this case, but just to be sure that the petitioner gets the picture (that this is over and done with) adds a provision at the end of the order advising the petitioner not to show up in court on April 30 (the original calendar call). Kudos to Judge Armen in making that clear to the taxpayer.

Wendt et al v. C.I.R. is another instance where the petitioner really should have left things alone, but decided to keep fighting. This order also comes to us on a summary judgment motion, but this time through a bench opinion rendered after a hearing on that motion.

The facts (and law) are simple enough. Taxpayers claimed two education benefits (American Opportunity Credit as well as tuition and fees deduction) for the same student and the same expenses. For those keeping track, this is a “no-no” sometimes given the vaguely disgusting label of “double-dipping.” Also for those keeping track, arguing that you didn’t elect to take a credit when your tax return shows that you did is unlikely to carry the day. Convoluted legal arguments that you didn’t elect the credit “under the Internal Revenue Code” (even if you admit you took the credit on the tax return) are also unlikely to meet welcoming arms of the Court.

Judge Carluzzo notes that the petitioner’s testimony (and legal argument) could result in a worse outcome for the taxpayer: a higher deficiency, because the American Opportunity Credit is more valuable than the tuition and fees deduction. In essence, a hardnosed IRS attorney (or possibly the Court) could have held the petitioners’ feet to the fire on their own testimony. Kudos to Judge Carluzzo (and the IRS) for not pushing for that result, tempting though it may have been.

  • Where the Petitioner Files… And it is Unclear if They Should Have

Bell v. C.I.R., Dkt. No. 1973-10L

Saustegui v. C.I.R., Dkt. No. 20674-17

Finally, the last two designated orders involve taxpayers that clearly could use assistance from counsel in getting to the correct outcome, whatever that may be. In Bell v. C.I.R. Judge Gustafson explicitly puts out the bat-signal for LITCs in North Carolina to assist with one petitioner in a case that has apparently been dragging for eight years. In Saustegui v. C.I.R. Judge Guy does not advise the pro se party to request LITC assistance, but from the looks of it such counsel may be helpful (though one is never sure the party will be receptive). Instead, in denying the petitioner’s motion for summary judgment where evidentiary issues clearly persist, Judge Armen strongly encourages the petitioner to meet with IRS counsel and try to work things out. Perhaps an enterprising LITC or pro bono practitioner in the Miami area may nonetheless be willing to lend a hand.

 

Designated Orders: 3/5 – 3/9/2018

We welcome guest blogger Patrick Thomas of Notre Dame with the designated order post. These orders are about a month old; however, in drafting this post we needed to consult with someone at the IRS to understand the activity on one of the orders and it took a little time to nail down the answer.  The usual Graev orders exist. At the recent Tax Court Judicial Conference, the Court did not schedule any sessions regarding this issue. I suspect the judges were glad to take a few days away from thinking about the many ways that Graev can arise and complicate a case. The two orders that Professor Thomas discusses at length do involve penalties. One of the orders features the 6673 penalty and another its return filing cousin, the frivolous return penalty. Keith 

The orders from last week raised more Graev concerns, featured three orders from Judge Gustafson, and handled an interesting CDP issue from a tax protestor. Another order granted partial relief in an innocent spouse case where the requesting spouse still lived with the non-requesting spouse.

First, three orders from Judge Gustafson. One order focused on an issue raised in Caleb Smith’s post from the previous week—don’t ask for extensions of time in status reports. Ask for them through a motion. Another dealt with a motion to compel discovery and for sanctions, made very close to trial. Finally, a third granted summary judgment to the Service in a CDP case, largely because a taxpayer didn’t show up to trial (or appropriately designate a next-friend under Rule 60(d) to appear for him).

Next, two cases force the Court, as Judge Holmes describes it, “to hunt down yet another Chai ghoul….” I suppose that “Graev ghoul” would have been just too much, but I defer to Judge Holmes on all matters of colorful opinion writing. In any case, he found, deferring to a prior case, that the penalty for fraudulent failure to file a tax return under section 6651(f) does not require compliance with section 6751(b), because the penalty is calculated through automatic means. As such, Judge Holmes denies the Service’s request to reopen the record to demonstrate 6751(b) compliance.

The second case is also a motion to reopen for a substantial understatement penalty under section 6662(a). (The Service does not argue here, as it had argued in a prior case, that the penalty was calculated through automatic means.) Judge Halpern found, as in many other post-Graev III cases, that the record ought to be reopened, notably because the 6751 issue was not previously raised.

The remaining cases deserve more extension discussion:

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Docket No. 18225-16L, Griggs v. C.I.R. (Order Here)

This brief order is interesting not for its disposition of the underlying CDP case (Judge Guy granted the Service’s motion for summary judgment because the petitioners did not provide financial information), but rather for its treatment of the Service’s request to impose the section 6673 penalty and to permit a levy.

This was the petitioners’ second time in Tax Court in this CDP matter. The first time, the Service actually filed a motion to remand to Appeals to consider whether to grant Currently Not Collectible status to the petitioner (something that I’ve not seen before in my practice—though admittedly, we don’t know much about the underlying issues here). After the petitioners failed to provide financials in that second hearing, Appeals sustained the levy and the Court granted the Service’s summary judgment motion on that basis.

The Service also wanted to impose the section 6673 penalty for filing a Tax Court petition merely for purposes of delay. However, the petitioners didn’t respond to the motion for summary judgment at all—and as such, did not defend themselves against the 6673 penalty. The Court, however, “considering all the facts and circumstances” (though without any more explanation), declines to impose the penalty. Judge Guy does so notwithstanding his notation that “without an explanation from petitioners, the record suggests that they instituted this proceeding primarily for purposes of delay.”

Without more facts, it’s tough to judge the penalty’s propriety in Griggs. I could certainly foresee a pro se taxpayer who—not understanding the limitations of the Tax Court’s standard of review—would desire to explain their financial circumstances to the Court. And further—not understanding the formalities of motion practice—would fail to properly respond to the motion (though here, there is no response at all).

Indeed, from having examined section 6673 penalties in prior cases, it seems that the Court is wary of imposing these penalties except in the most egregious of cases—usually involving tax protestors.

One other notable item: the Court also granted the respondent’s motion to permit levy. I was originally unsure why this was necessary, given that granting the motion for summary judgment resolved the case (and thus, permits the Service to levy). However, under section 6330(e)(2), the Service is ordinarily prohibited from levying during an appeal of a CDP case from the Tax Court, unless (1) the underlying liability is not at issue, and (2) the Service shows good cause not to suspend the levy. Thus, if petitioners appeal Judge Guy’s order, the Service may still levy while that appeal is pending. A good catch by IRS counsel, as I’ve not seen many CDP cases disposed in this manner.

Docket No. 17789-16SL, Luniw v. C.I.R. (Order Here) 

Certainly the longest order of the week, Judge Leyden analyzes this fairly unique issue in commendable depth—especially given the nature of the returns and the petitioner in question.

Quickly stated, this taxpayer took a page from Beard v. Commissioner. He worked for two employers and received two Form W-2s during 2012. He also timely filed a 2012 Form 1040, but listed his total income as $0 on Line 22, and thus requested all of his income tax withholdings as a refund. One-upping Mr. Beard, he also claimed his Social Security and Medicare tax withholding as a credit and requested a refund of those amounts as well.

The Service responded with two notices, dated June 17, 2013: a CP11, math error assessment notice, and a CP72, notifying Mr. Luniw that his return was frivolous, and requesting that he filed a non-frivolous Form 1040 within 30 days to avoid assessment of a penalty under section 6702(a).

On June 25, 2013, Mr. Luniw responded to the CP11 with tax protestor arguments (noting that because he worked for entities incorporated in states, his income was not “federally connected”, and therefore not subject to any federal tax). He included a Form 4852, Substitute W-2 (alleging that the employer’s W-2 was incorrect in including any taxable income), along with a “copy” of a Form 1040 he purportedly sent to the Service on April 25. He also noted that he had sent an original Form 1040 on April 8. 

A day prior, Mr. Luniw responded to the CP72 with a Form 1040 that he stated he mailed on April 24, again to correct his April 8 return. 

On March 31, 2014, the Service assessed three penalties, totaling $15,000, under section 6702, believing that Mr. Luniw submitted three frivolous returns. The IRS assessment form indicated the penalties were assessed for frivolous submissions dated “4/15/2013, 06/27/2013, and 6/28, 2013”. This appears to relate to the April 9 submission, along with the two responses Mr. Luniw sent on June 24 and 25.

Judge Leyden noted that each Form 1040 contained the same information—except the IRS receipt stamps.

  • One return bore a stamp of June 28, 2013 at Ogden, along with a second stamp of July 3, 2013 from the Frivolous Return Penalty unit.
  • One return bore only one stamp of July 10, 2013 from the Frivolous Return Penalty unit. It also had a number at the top of the first page (0921111186222-3).
  • The final return bore four IRS stamps: June 27, 2013; July 1, 2013; August 5, 2013 at the Ogden Campus, and August 8, 2013 from the Frivolous Return Penalty unit. The first two stamps also noted “ATSC IRS #7576” and “AT-CT #31”, respectively.

There is a very lengthy history of how the CDP case arose; in sum, this case involved a Notice of Intent to Levy regarding both the 6702 and underlying income tax assessments. Somehow, the Service did not properly assess the income tax for this year and blew its statute of limitations. Additionally, Mr. Luniw didn’t timely file a petition regarding the NFTL issued for the same assessments. So this CDP case before Judge Leyden dealt only with the levy notices for the 6702 penalties, and whether those penalties were properly assessed.

Mr. Luniw could challenge the underlying liability, having received no prior opportunity to do so. He also requested Currently Not Collectible status but, unsurprisingly, provided no financial information to IRS Appeals.

Finally, he also made various arguments during the CDP hearing that the Settlement Officer determined to be frivolous. During the hearing, he submitted a Form 1040X, which contained essentially the same information as the previous Form 1040s. I wonder if there is yet another section 6702 penalty in the works for Mr. Luniw?

After winding up in the Tax Court after a supplemental hearing, respondent and Mr. Luniw moved for summary judgment. Judge Leyden denied both motions; while the reasons for denying Mr. Luniw’s motion are apparent, genuine issues of material fact existed on whether the 6702 penalties were properly assessed.

Specifically, section 6702 applies where (1) a taxpayer files a document purporting to be a tax return; (2) the return “does not contain information on which the substantial correctness of the self-assessment may be judged” or “contains information that on its face indicates that the self-assessment is substantially incorrect”; and (3) the taxpayer’s conduct must either be based on an identified frivolous position or reflect a desire to delay or impede the administration of federal tax laws.

Elements two and three were easily satisfied. But Judge Leyden was concerned that the record did not reflect, to-date, that Mr. Luniw filed “three separate and different” tax returns for 2012. Mr. Luniw maintained in the summary judgment hearing that he only filed one original return for 2012. Further, Judge Leyden was troubled that the dates of the returns in respondent’s motion didn’t correspond to the dates on the IRS assessment notice. With regard to the first filing, Mr. Luniw noted that he filed a return on April 8, and then a subsequent “corrected” return later in April. Respondent apparently didn’t clearly link up the first 6702 assessment to either return.

So, this case will proceed to trial. While one might presume that the Service will at least get one $5,000 penalty out of this case, they appear to need to more clearly establish the filing date of the first return, as it relates to the Service’s subsequent assessment for that “original” return. Otherwise, this may indeed be a case in which a tax protestor gets away with their frivolous positions.

 

 

 

All for One, and Five for Sixteen? When the Tax Court’s “Majority” Opinion Isn’t

We welcome first time guest blogger Kandyce Korotky.  Kandyce is an associate at the Washington, D.C. law firm of Covington and Burling, where she works with occasional guest blogger Sean Akins.  Prior to joining Covington and Burling, Kandyce obtained her LLM in Taxation at Georgetown and then clerked at the Tax Court first for Judge Paris and then for Chief Judge Marvel.  She now teaches at Georgetown as an adjunct professor.  She writes today about the case of Coffey v. Commissioner and wrestles with the issue of significantly split Tax Court fully-reviewed opinions.  In an earlier post, guest blogger Joe Diruzzo also looked at Coffey but from a different angle.  For those interested in how to interpret a decision such as Coffey, the insights provided by Kandyce nicely complement the earlier post by Joe, though the definitive answer may be yet to come.  -Keith 

As a general rule, the Tax Court speaks with one voice. That is, unlike most federal courts which speak en banc only occasionally, the Tax Court’s default is that, unless a case has gone through Court Conference and is published with side opinions, each opinion is issued as the opinion of the Court. In other words: All for one and one for all.

This unique characteristic has, like the existence of the Tax Court itself, a statutory foundation. To begin at the beginning, each judge is required to author opinions in the cases before him or her—or, in statutory-speak, each division “shall make a report” of its determination of the proceedings before it. [*1] The judges submit their opinions to the Chief Judge for review. Unless the Chief Judge, within 30 days, sends an opinion back to the authoring judge without action or earmarks it for Court Conference, it “become[s] the report of the Tax Court.” [*2] Therefore, in the majority of cases, the opinion of the trial judge becomes the opinion of the Court.

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This statutory scheme is not just a curious bit of Tax Court history. It has real logistical and legal implications. On the logistical side, it means the Chief Judge reads every report and has the option of offering comments to the authoring judge before publication. After that review process, every Tax Court judge also has the opportunity to read every report before issuance. Moreover, the Court has a powerhouse staff whose job is to review everything from inconsistencies with previous opinions to grammar and citation format. Each opinion truly is a team effort. On the legal side, speaking with one voice imbues each opinion with a certain gravitas. A Court Conference case that is published with one unanimous opinion, for example, sends a strong message to the tax community and can influence a decision to appeal, settlement negotiations in future cases, and the like. Such uniformity is also a possible explanation why Tax Court memoranda, which are non-precedential, are often viewed as persuasive by the tax community.

Of course, sixteen judges (the current number of Presidentially-appointed Tax Court judges on the bench) don’t always agree with each other. When this happens, Court Conference offers a vehicle for differing points of view. It provides a formal venue for the judges to discuss a case amongst themselves through the Court Conference process. Most of the time, even with respect to a report published with side opinions, there is no question which is the majority (read: binding) opinion. This means that, absent distinguishable facts or successfully going through the lengthy process to overturn an opinion (which requires Court Conference approval), a dissenting judge is bound to follow the majority opinion in subsequent cases.

But what happens when the opinion of the Court isn’t the majority opinion—when more judges have signed a side opinion than have signed what is published as the opinion of the Court? This curious phenomenon is exactly what happened in the recent Coffey v. Commissioner, 150 T.C. No. 4 (Jan. 29, 2018). Substantively, the consolidated cases (collectively, the “case”) raised the issue whether an income tax return is considered filed with the IRS where the taxpayer files the return with the Virgin Islands’ taxing authority (known as the “VIBIR”) and the VIBIR sends the return to the IRS.

The case was before Judge Holmes and, after Court Conference, his report was ultimately published as the opinion of the Court. It held that the return filed with the VIBIR constituted a return filed with the IRS (such that the period of limitations had begun to run). But here’s the curious part: Only four other judges signed the opinion of the Court. Judge Thornton authored a side opinion that concurred in result only, which was joined by seven other judges. (Judge Gustafson, who also joined Judge Holmes’ opinion, joined the concurring opinion except for certain phrases.) Judge Marvel dissented and was joined by three judges. Put simply, the opinion of five judges became the opinion of the Court, even though eleven judges disagreed with the reasoning.

Remember that the judge who has a case is required by statute to write a report (opinion). When an opinion is designated for Court Conference, the judge who authored the opinion presents it to the Court Conference. If the report is approved, it is released as the opinion of the Court (with or without side opinions). Alternatively, if the report is not approved, the authoring judge may keep the case and rewrite the report or request that the case be reassigned to another judge. See, e.g., Dixon v. Commissioner, 141 T.C. 173 (2013) (trial judge authored dissenting opinion).

When a judge agrees with the trial judge’s result but not his or her reasoning, the judge may concur and write a concurring opinion. Other judges who agree with the concurring opinion may join it (whether or not they also join the trial judge’s opinion). This can result in a situation where a concurring opinion has more judges joining it than the opinion of the judge who authored the lead opinion. [*3] There is no rule which, in this situation, would designate the concurring opinion as the opinion of the Court. Rather, joining a concurring opinion is deemed a vote in favor of the authoring judge’s opinion, and the opinion that is released as the opinion of the Court flows from the results of this vote.

Coffey is not the first time more judges have signed a concurring opinion than have joined the opinion of the Court. [*4] What’s more, because a concurring vote counts toward the adoption of the report, it’s possible to have more judges signing the dissent than the opinion of the Court—so long as the concurrences tip the balance in favor of adoption. [*5] There are also cases where the same number of judges signed the opinion of the Court as dissented. [*6] Accordingly, it is more appropriate to think of Tax Court opinions not in terms of majority and minority opinions, but rather as the opinion of the Court and side opinions.

These types of situations are not governed by statute but rather are left to the administration of the Court itself. Certainly, in cases where the number of judges supporting the lead opinion and the dissenting opinion is equal, it makes sense to view the opinion with concurrences as the opinion of the Court. However, the footing is not as firm where a majority of the judges has signed a concurrence in result only, as in Coffey.

What does this mean in terms of precedence? Once again, we are left without a statutory answer. On the one hand, there is still an opinion of the Court in Coffey, and the opinions of the Court in reviewed cases are precedential. Judge Holmes’ opinion would be the opinion subject to appellate review. On the other hand, a reviewed opinion where the reasoning is supported by only five judges does not seem to be the product of a Court speaking with a uniform or at least a clear majority voice, which is the hallmark of many Court-reviewed opinions. Such cases seem especially ripe for circuit splits, which could also send the issue back to Court Conference. If I were trying a similar case and relying on Coffey, I certainly wouldn’t feel like I had a slam dunk.

So, as is quickly becoming the catch phrase of the post-reform tax community: Stay tuned.

FOOTNOTES:

[*1]      Section 7460(a); see also Section 7444(c) (permitting the Chief Judge to assign the Tax Court judges to “divisions”); Section 7459(a) & (b) (“A report upon any proceeding instituted before the Tax Court and a decision thereon shall be made as quickly as practicable.”).

[*2]     Section 7460(b); see also Section 7459 (“The decision shall be made by a judge in accordance with the report of the Tax Court, and such decision so made shall, when entered, be the decision of the Tax Court.”).

[*3]     This approach does not parallel the Supreme Court’s approach when it issues a splintered opinion: “When a fragmented Court decides a case and no single rationale explaining the result enjoys the assent of five Justices, the holding of the Court may be viewed as that position taken by those members who concurred in the judgment on the narrowest grounds.” Marks v. United States, 430 U.S. 188 (1977). In fact, the concurring opinion in Coffey is the narrower of the two opinions holding that the taxpayers’ Forms 1040 constituted “returns.” For further discussion, see Joseph A. DiRuzzo, III, “Fractured Tax Court Opinions – Which Opinion Controls and Does the Supreme Court’s Marks Decision Apply?” (March 7, 2018), http://procedurallytaxing.com/fractured-tax-court-opinions-which-opinion-controls-and-does-the-supreme-courts-marks-decision-apply/.

[*4]     See Carpenter Family Investments v. Commissioner, 136 T.C. 373 (2011) (4 judges signing opinion of the Court, 5 judge concurring, 1 judge concurring in result only).

[*5]     See, e.g., Driscoll v. Commissioner, 135 T.C. 557 (2010) (5 judge signing opinion of the Court, 1 judge concurring, 1 judge concurring in result only, 6 judges dissenting), rev’d and remanded, 669 F.3d 1309 (11th Cir. 2012); Rowe v. Commissioner, 128 T.C. 13 (2007) (5 judges signing opinion of the Court, 5 judges concurring, 6 judges dissenting); Billings v. Commissioner, 127 T.C. 7 (2006) (4 judges signing opinion of the Court, 5 judges concurring, 8 judges dissenting with 2 dissenting opinions (7-1)).

[*6]     See Dees v. Commissioner, 148 T.C. No. 1 (2017) (7 judges signing opinion of the Court, 2 judges concurring, 1 judge concurring in result only, 7 judges dissenting); Tigers Eye Trading, LLC v. Commissioner, 138 T.C. 67 (2012) (5 judges signing opinion of the Court, 2 judges concurring, 2 judges concurring in result only, 5 judges dissenting with 2 dissenting opinions), aff’d in part, rev’d in part, and remanded in part sub. nom. Logan Trust v. Commissioner, 616 Fed. App’x 426 (D.C. Cir. 2015); Wadlow v. Commissioner, 112 T.C. 247 (1999) (9 judges signing the opinion of the Court, 1 judge concurring, 9 judges dissenting).

The Taxpayer First Act

On March 26, 2018, the House of Representatives Committee on Ways and Means Subcommittee on Oversight published a discussion draft entitled “The Taxpayer First Act.” Unlike the recent tax reform legislation, the Act was jointly released by Chairman Lynn Jenkins and Ranking Member John Lewis of this subcommittee in a bipartisan effort to reform tax procedure. It’s nice to see that tax procedure can bring the parties together. The publication of the draft came with an invitation to submit comments and a statement that “Comments would be most helpful if received by April 6, 2018.” That’s a pretty short turnaround time; however the legislation came out just as my clinic class turned to policy. Each semester I try to end with a focus on the policy issues raised by the individual cases on which the students have worked. Writing proposed legislative solutions to policy issues we had encountered seemed like a good way to focus on policy given the invitation from the subcommittee. So, we tried our hand at commenting on the legislation and offering legislative proposals in the tax procedure area that might create a better tax system for the low-income taxpayers we represent. Thanks to Toby Merrill, Sean Akins and Carl Smith who assisted on this project.  On April 6, 2018, the clinic submitted comments to the subcommittee.

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The proposed Act has six parts roughly described as: 1) Independent Appeals; 2) Improved Service; 3) Sensible Enforcement; 4) Cyber Security; 5) Modernization and 6) Tax Court. The Clinic did not comment on all of the proposals. You can read the 49-page document submitted by the Clinic if you want the details, but I will give you a thumbnail sketch here.

Appeals

The subcommittee was concerned about the independence of Appeals. It almost seemed as if much of the concern stemmed from the issues raised in the ongoing Facebook litigation, about which we have blogged before here and here. Low-income taxpayers do not face the same issues of Appeals independence that large corporate taxpayers face. No one in IRS compliance or in Chief Counsel attempts to influence Appeals on an individual case involving a low-income taxpayer because no one at the IRS has worked their case. Their cases are worked in a group setting at correspondence exam. So, the concerns about the independence of Appeals expressed by the subcommittee’s proposal are not concerns that relate to the issues facing low-income taxpayers.

Low-income taxpayers would, however, like the same opportunity as their higher end counterparts to meet with an Appeals officer to discuss their case when a face-to-face meeting would be appropriate. The Appeals employees who work in local offices typically have worked with the IRS for some time and have achieved high grade levels. Appeals does not want these highly-graded employees to spend time working on cases involving low-income taxpayers. Appeals employees with the lower grades generally reside in the work ghettos generally known as service centers. Because of their location, these employees are not accessible to taxpayers. As a result, low-income taxpayers who do not have an individual assigned to their case as they go through the examination process get assigned to someone they never meet face to face and who may work in a community that is across the country creating time zone and community understanding issues. The Clinic suggested that the concerns of low-income taxpayers with Appeals will not be resolved by creating a more independent Appeals but a more accessible one.

Customer Service

Similar to the problem with Appeals, one of the big issues for low-income taxpayers is access to service. We know that Service is the last name of the IRS but it does not have to be the last aspect of focus. The Clinic identified issues that could improve the ability of taxpayers to deal with tax problems. It praised the subcommittee suggestion allowing IRS employees to make referrals to clinics rather than simply passing out a publication. It suggested making eligibility for clinics indexed to local cost of living so that clinics servicing high cost of living areas did not need to turn away individuals living a marginal lifestyle but one slightly above the national average for qualification. Specifically, the Clinic suggested changing the criteria for requiring entities forgiving debt to allow the non-issuance of Form 1099-C in instances of disputed debt. Sending out tens of thousands of Form 1099-C to individuals, usually low-income individuals, relieved of debt in the settlement of a lawsuit disputing that debt causes havoc for the individuals and for the system. This issue is currently playing out in the for-profit school industry where numerous state attorney generals and private parties have challenged the business model and practices of this industry to assist individuals with high debt and little meaningful education to show for it.

The Clinic also suggested changing the litigation path of assessable penalties so that taxpayers do not face insurmountable obstacles in seeking to litigate their dispute with the IRS because of the Flora rule. It suggested changing and clarifying the operation of the I.R.C. section 32(k) penalty for wrongfully claiming the earned income tax credit, arguing that the current penalty operates more like a penalty imposed in the welfare context rather than one imposed by the tax code which causes the IRS trouble is properly administering the penalty. The Clinic also suggested clarification of the provisions regarding taxation of attorney’s fees so that the fees do not create a barrier for low-income individuals seeking remedies for consumer law violations and other similar provisions where the statutory remedy provides a small recovery amount for the individual coupled with statutory attorney’s fees that could trigger tax to the individual in excess of the award amount, that can trigger loss of other public benefits because of the phantom income, and that creates a system of double taxation of the individual and the attorney.

Tax Court

The subcommittee proposals would rename court orders and rename the special trial judges to bring the names more into line with other federal courts. The Clinic made proposals seeking to open up the Tax Court both from a jurisdictional and information perspective. Consistent with the litigation the Clinic has pursued regarding the jurisdiction of the Tax Court, the Clinic suggests that Congress make clear it did not intend the time periods for filing a petition in Tax Court to be jurisdictional. Regarding information availability, the Clinic proposes that all notices giving a taxpayer the right to petition the Tax Court contain the last date for filing the petition, as the notices of deficiency do after the 1998 amendment regarding those notices. Additionally, the Clinic has some suggestions on accessing the Tax Court’s records and other matters.

Conclusion

Although it is now past the requested deadline set by the subcommittee for comments on its legislation, if you agree with any of the proposals of the Clinic, you might consider submitting comments yourself. The portal for sending comments is irsreform@mail.house.gov. Happy commenting.

Designated Orders: 3/19/18 to 3/23/18

Guest blogger William Schmidt from Legal Services of Kansas brings us the designated order post from two weeks ago as we catch up on this feature. The Tax Court designated a high number of order during this week including a couple concerning an individual on whom we have posted previously with respect to the frivolous return penalty. The Kestin case demonstrates the lengths to which the Court goes to try to protect pro se petitioners and assist them in understanding the process. Keith

For the week of March 19 to 23, there were 10 designated orders from the Tax Court. The first order lifted temporary seals and denied petitioner’s motion for protective order in order to seal public records (order here). In the second, petitioner’s protests, including that parts of Pennsylvania were declared a federal disaster area, were in vain (order here). The third order details fallout from the Affordable Care Act – how a woman’s marriage took her over income for the premium tax credit and thus she had to repay it (order and decision here).

Miscellaneous Short Items

  • Numbered Paragraphs from IRS – Docket No. 18254-17 L, Gwendolyn L. Kestin v. C.I.R. (Order here). In this order, the IRS filed a motion for summary judgment with a supporting memorandum that has a 9-page statement of facts consisting of unnumbered paragraphs. To assist the unrepresented petitioner, the Tax Court ordered the IRS to supplement the motion with a statement of facts with numbered paragraphs. The Court instructed Ms. Kestin on responding to the IRS motion for summary judgment and attached a copy of the Tax Court webite’s Q&A on “What is a summary judgment? How should I respond to one?”
  • Three Year Time Limit – Docket No. 23113-12, Frank W. Dollarhide & Michelle D. Dollarhide v. C.I.R. (Order and Decision here). This order is an illustration of the 3-year limitation on refunds. While the Dollarhides addressed their tax liability when they filed their 2006 tax return in 2011, they were outside the three-year time limit to receive the tax refund they would have been due had they filed a timely tax return.
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Correct Petition Filing Brings Tax Court Jurisdiction

  • Docket No. 380-18, John Henry Ryskamp v. C.I.R. (Order of Dismissal for Lack of Jurisdiction here). Mr. Ryskamp’s 2018 case is dismissed because he filed the petition based on an IRS Letter 2802C where the petitioner wrote “Notice of Determination” rather than an official IRS Notice of Determination. Mr. Ryskamp cites his own 2015 case before the U.S. Court of Appeals for the D.C. Circuit to no avail. In fact, the Court notes his 2016 case (7383-16) was also a petition based on a Letter 2802C. While referencing the ability to penalize him a penalty up to $25,000, the Court does not impose a penalty but warns that the Court will strongly consider imposing a penalty if he returns with similar arguments.
  • Docket No. 23808-17 L, John Henry Ryskamp v. C.I.R. (Order and Order of Dismissal for Lack of Jurisdiction here). In the same week, there is a designated order for Mr. Ryskamp’s 2017 Tax Court case. In the background, the Court elaborates on the 2015 case before the U.S. Court of Appeals for the D.C. Circuit, which was an affirmation of a 2011 Tax Court order and decision which granted summary judgment for the IRS on a notice of deficiency for tax years 2003 to 2006, 2008, and 2009. By the way, Mr. Ryskamp’s petition for writ of certiorari was denied by the U.S. Supreme Court, making the Tax Court decision in that matter final. For this case, Mr. Ryskamp filed a petition based off a Letter 4473C again concerning the 2003 tax year. Since the petition was not based off a proper notice of deficiency, the Court granted the IRS motion to dismiss for lack of jurisdiction. This time, there was no mention of a penalty for the litigious Mr. Ryskamp.
  • Docket No. 9417-17, Fletcher Hyler v. C.I.R. (Order of Dismissal for Lack of Jurisdiction here). In a similar vein, this designated order tells how petitioner filed a petition based on a math error notice for 2015. Since it was not based off a notice of deficiency, the Court granted the IRS motion to dismiss for lack of jurisdiction.

Takeaway: It is necessary for a petitioner to file the petition based off a valid notice of deficiency or based on another valid issue. A petitioner cannot pick a random mailing from the IRS and file a petition with Tax Court. When a petitioner does, the Tax Court will not have jurisdiction and shall have to dismiss the case (with potential penalties for petitioners like Mr. Ryskamp).

Social Security Hardship for Petitioner

Docket No. 16269-16SL, Bonnie Lou Black v. C.I.R. (Order and Decision here).

In this case, the procedural issues are straightforward. Ms. Black sought review of a notice of intent to levy for her 2012 tax deficiency. Ms. Black did not submit financial information, offer any collection alternatives or agree to a payment plan. Since that was the case, the Tax Court granted the IRS motion for summary judgment.

An issue in the case, though, is that the IRS issued an erroneous CP-22A balance due notice for 2011 stating that $8,384.18 was due to them. The next month, the IRS corrected the error by issuing a CP-21C notice stating there was no balance due for 2011.

Ms. Black stated that the Social Security Administration reduced her benefits based on this IRS error. Since the government agencies share income information, she believes that the Social Security Administration thought she had increased income in 2011 and reduced her benefits. She requested relief in Tax Court but they note in this order’s second footnote they were unable to assist her because they “do not have jurisdiction to determine Social Security benefits, just tax deficiencies.”

Takeaway: IRS actions can affect taxpayers in a variety of ways, sometimes for the worse. It may be necessary to find creative ways to find clients relief. Unfortunately for Ms. Black, Tax Court is not the answer for assisting with her Social Security issues. Hopefully she can find help elsewhere.

How Long Does Petitioner Need to Prepare for Trial?

Docket No. 23475-15, William Budell Markolf v. C.I.R. (Order here).

This case is based on tax liabilities for 2008 through 2011. The IRS issued a notice of deficiency June 16, 2015 and petitioner filed with Tax Court September 15, 2015. The case was set for trial in Columbia, South Carolina, beginning October 17, 2016, with a pretrial order issued May 16, 2016 with a standard notice to exchange trial documents no later than two weeks before the trial session. On September 26, 2016, petitioner’s counsel filed a motion for continuance, explaining the need for additional time to secure documents, estimating three weeks would be necessary (which would be October 17, 2016). Petitioner was to file a supplement describing work toward preparation, which was filed October 3, 2016.

By notice filed April 11, 2017, the trial was rescheduled in Columbia for the session beginning September 11, 2017 with a new pretrial order. On August 8, 2017, respondent mailed a 65 paragraph stipulation of facts and 49 exhibits planned for trial. While there were several phone conferences the Court held, petitioner’s counsel did not respond to respondent’s stipulation or submit exhibits, which were not prepared as of a week before trial.

Then Hurricane Irma was expected to arrive in Columbia, South Carolina on September 11, 2017, prompting the Court to continue the case. The order stated that petitioner had “the unintended consequence” of continuance and he was given more time “which we think he does not deserve.” The court stressed he should not delay and should “complete that work while the iron is hot,” stating he should expect no further continuance or latitude regarding the pretrial order.

On September 15, 2017, respondent sent petitioner two copies of a revised stipulation of facts (now 73 paragraphs) and 49 exhibits. In correspondence sent in September, November, December, and January, respondent requested petitioner to sign and return the revised stipulation, but that did not happen.

By notice December 4, 2017, the Court set the trial in Columbia for April 30, 2018 with the standard pretrial order. On February 21, 2018, the IRS filed a motion for an order to show cause. On February 23, the Court held a phone conference where petitioner’s counsel stated petitioner hired an independent contractor to assist with document preparation and cited a difficulty was petitioner’s recent surgery. The Court granted the motion by ordering that petitioner had to document on or before March 15, 2018, why the IRS stipulation and exhibits should not be deemed admitted for the case.

On March 2, the IRS filed a motion to compel production of documents, which the Court granted in part on March 7, 2018. On March 16, petitioner filed a one-page answer twice with two different cover sheets, one being “Petitioner’s Response to Motion to Compel Production of Documents” and the other “Petitioner’s Reply to Answer.” Despite the second title, the document does not refer to the order to show cause or the motion it granted. It also does not refer by number to the stipulation or to any exhibits. Two documents are attached to the memoranda that are not sworn affidavits or signed under penalty of perjury.   One is a purported letter from a physician stating petitioner had surgery on December 6, 2017, and was “released to full-time work” on January 7, 2018. The other details the medical issues of the accountant hired to assist the petitioner. From January through March 2018, the accountant had the flu for two weeks, broke his right ankle, had surgery February 12, and was in physical rehabilitation from February 15 until discharged March 8, returning to work for petitioner on March 13. The accountant cites those issues as reasons for delay in assisting petitioner with the trial document preparation.

The Court reviews these delays, citing that the case was filed 2 and a half years ago and involves tax returns due 6 or more years ago. The petitioner received 2 continuances with admonishments not to delay further the production of documents. The Court notes that the petitioner waited until December to hire an assistant for the document production and not times such as when the returns were prepared, when the IRS examined them, when he received the notice of deficiency, filed the petition, received the first notice of trial with standing pretrial order, the time of the second notice, or when warned there would be no further continuances granted. The Court notes that allowing for the difficulties arising in recent months, those were “long after petitioner’s work on this case should have been largely finished.” The late-occurring mishaps do not explain why petitioner did not cooperate in the stipulation process and did not make an actual response to the order to show cause. The Court ordered that the Order to Show Cause is made absolute and respondent’s proposed stipulation is deemed stipulated for purposes of the pending case.

Takeaway: This case is an illustration on what not to do for a pending Tax Court trial. Basically, read the pretrial order and follow its instructions. Respond to opposing counsel’s stipulations and exhibits. As you need to, provide your own stipulations and exhibits on time. When the judge says to do any of those tasks and that there will be no more continuances, take that seriously and respond accordingly.

 

 

Designated Orders for week of 3-12-2018

Guest blogger Samantha Galvin from University of Denver brings us up to date on the designated orders this week.  (We are a bit behind on publishing these but will catch up soon.)  I had the chance to see Samantha recently at the Tax Court Judicial Conference and to hear comments from many readers of this feature. As always in 2018 there are orders on issues concerning the Graev case. Michael Jackson’s estate continues to provide fodder as well. Perhaps the most interesting case is the first one she discusses. The issue of obtaining a refund in a CDP case is one we thought was settled with the answer being that it was not possible to obtain a refund in that forum. Perhaps the Tax Court has decided to revisit the area. See here and here for prior discussion of that issue. There is also a lengthy discussion of the issue in the Collection Due Process chapter of Saltzman and Book. Keith

The Tax Court designated seven orders the week of March 12, 2018. Three are discussed below, the orders not discussed are: 1) an order ruling on a motion for continuance and motion to dismiss involving the Court’s discretion to grant a continuance shortly before trial (here); 2) a ruling on evidentiary matters in the Michael Jackson Estate case (here); 3) an order involving partnership issues where petitioner filed a motion in limine and motion to dismiss for lack of jurisdiction (here); and 4) an order reopening the trial record in a case involving a Graev III analysis (here).

A Novel Jurisdictional Question – Can the Court Order Refund in a CDP Case?

Docket No. 20317-13, Brian H. McClane v. C.I.R. (Order here)

In this designated order the Tax Court directs the pro se petitioner to contact LITCs in the Baltimore area because it confronts a novel issue, which is whether the Court has jurisdiction to determine and order the credit or refund of an overpayment in a CDP case. The case is before the Court to review a determination sustaining an NFTL for tax years 2006 and 2008.

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It is important to note that the parties dispute whether respondent properly mailed a notice of deficiency (“NOD”) for the years at issue, but both parties agree that the petitioner did not receive a notice of deficiency.

During and after trial, respondent accepted petitioner’s substantiation of deductions for 2008 which results in petitioner’s tax liability being less than the amount reported on his return and eliminates the need for the Court to sustain the NFTL for that year. As a result, the Court asks if the parties object to a decision upholding respondent’s determination for 2006 only, and petitioner objects because he believes he is due a refund for 2008.

Petitioner did not claim a refund in his petition, but that does not preclude him from pursuing a refund claim now because Rule 41(b)(1) requires that any issues tried by express or implied consent are treated as if they were raised in the initial pleadings. The Court views respondent’s concessions as implied consent to the issue of whether petitioner is entitled to a refund. The fact that the issue is raised, however, does not establish the Court’s jurisdiction over the issue. This bring us to the focus of the designated order – does the Court have jurisdiction to order a refund here?

The Court requests that the parties submit supplemental briefs on this issue before the Court resolves it but provides guidance in the form of observations and questions.

Sections 6330(d)(1) and 6512(b)(1) are relevant to the issue of the Court’s jurisdiction to determine and order the refund or credit of an overpayment in a CDP case. Section 6330(d)(1) is the principal, and perhaps the only, basis for jurisdiction and allows the Court to review a determination made by Appeals. The authority is generally regarded as limited to matters within scope of Appeals’ determination. This permits the Court to decline to uphold the determination to sustain the NFTL for 2008, but can they go further and order a refund? Did Appeals have the authority to order a refund and does that matter?

The Court asks petitioner to advise the Court on whether he views the Court’s ability to order a refund within the jurisdiction of 6330(d)(1) and what analysis or authorities support that view. The Court similarly asks respondent to advise the Court on whether the Court’s jurisdiction is limited under section 6330(d)(1) and whether Appeals has the authority to order a refund.

Section 6512(b)(1) gives the Court jurisdiction to determine and order the refund or credit of an overpayment in deficiency cases, but this is not a deficiency case.

Section 6512(b)(3) limits the Court’s ability to order a credit or refund to only that portion of tax paid after the mailing of a NOD or the amount which a timely claim for refund was pending (or could have been filed) on the date of mailing of the NOD. Is this limitation a further indication that overpayment jurisdiction by section 6512(b)(1) is ancillary to deficiency jurisdiction under section 6214(a)?

Respondent’ efforts to collect a deficiency that petitioner did not previously have an opportunity to contest puts into play the amount of his tax liability for that year under section 6330(c)(2)(B), but it is not clear that respondent’s efforts had any effect on petitioner’s ability to pursue a refund claim in other ways (by filing an amended return or responding to the NOD). The Court is not aware of any reason why petitioner could not have pursued his refund claim independently of respondent’s collection action and the section 6330 petition.

Petitioner filed the return at issue in 2009 but made payments from 2009 and 2012 meaning that the latest he could have claimed a refund for some of the amount paid was 2014, so the Court wonders to what extent petitioner’s claim is timely. Did respondent’s issuance of NFTL or any other event that occurred as part of the CDP case suspend the section 6511(a) period of limitations? Or any action on part of petitioner? If respondent’s issuance of the NFTL did not affect petitioner’s ability to pursue a refund claim that has since become time-barred, then petitioner has no ground to complain about the Court’s inability to entertain a belated refund claim as part of the present case.

Supplemental briefs on the issue are due on or before April 30, 2018.

Simple, Concise and Direct

Docket No. 14619-10, 14687-10, 7527-12, 9921-12, 9922-12, 9977-12, 30196-14, 31483-15, Ernest S. Ryder & Associates, Inc., APLC, et al. v. C.I.R. (Order here)

This designated order is somewhat unique because it contains a lesson for Respondent.

These consolidated docket cases had been tried in two special sessions in 2016. During trial, Respondent made an oral motion to conform the pleadings to proof (which means that the Court treats the issues tried by the parties’ express or implied consent as if they were raised in the initial pleadings) pursuant to Rule 41(b) and the Court directs respondent to put his motion in writing so it can serve as an amended pleading. Rule 41(d) requires that amended pleadings to relate back to the original pleading.

The motion filed by respondent has two attachments (issues raised in the NOD and issues raised at trial) which contain over 100 different numbered items which are duplicative to some extent. Despite the voluminous nature of the attachments, respondent also states that the lists are not exhaustive. The Court finds deciphering the issues raised by respondent to be confusing and since the Court is confused, it understands that the petitioner may also be confused.

Petitioner argues that respondent’s evolving theories prejudice him by making it difficult to know which theories warrant a response. Rule 31(b) requires that pleadings be simple, concise and direct. The Court has discretion to allow amended pleadings but denies respondent’s motion because it violates Rule 31. The Court directs respondent to make his motion describe the issues more clearly if he plans to resubmit it.

Three Attorneys and Levy Still Sustained

Docket No. 26364-16, Patricia Guzik v. C.I.R. (Order here)

 

The petitioner is in Tax Court on a determination to sustain a levy on income tax and section 6672 trust fund recovery penalties. Respondent moves for summary judgment and argues that the settlement officer did not abuse her discretion since petitioner’s offer in compromise could not be processed due to an open examination and petitioner could not establish an installment agreement because she failed to propose a specific monthly payment amount. The Court grants respondent’s motion.

Petitioner is very sympathetic. She was diagnosed with Multiple Sclerosis, pregnant and on bed rest when she first began working with Appeals in her collection due process hearing. Her attorney, the first of three over 14 months, requests an extension to submit a collection statement and an offer in compromise, which the settlement officer grants. Because petitioner’s 2011 return was being audited, the settlement officer informed the attorney that an offer would not be processable unless the audit was closed by the time the offer was considered, but an installment agreement may be an option.

The first attorney faxes over a collection information statement and requests another extension to submit an offer in compromise which the settlement officer grants, but this deadline is ultimately missed.

Petitioner hires new representation in the meantime and the second attorney requests an extension which, again, the settlement office grants. This time the offer is submitted, but it is not processable due to the still open audit. While the offer is being considered, petitioner hires new representation for the third time. The newest attorney informs the settlement officer that because the offer is not processable, petitioner wants to propose an installment agreement. Petitioner’s counsel asks if the settlement officer has an amount in mind and the settlement officer states that proposing an amount is not her role, it is petitioner’s. The settlement officer also states that petitioner’s assets may need to be liquidated before the installment agreement can be considered. At this point, petitioner has not paid her 2015 liability and has not made estimated tax payments for 2016.

Petitioner pays nearly all her trust fund recovery penalties, which she argues is a material change in circumstances, and because of that change the Court should remand her case back to Appeals for review.

The Court can remand cases back to Appeals but typically does so if a taxpayer’s ability to repay has diminished and does not necessarily do so when a taxpayer’s ability to pay has improved – so the Court chooses not to remand the case.

Petitioner’s health issues are very unfortunate, but she had three attorneys in 14 months all of whom requested extensions which the settlement officer allowed. Even with the additional time, petitioner never submits an installment agreement proposal, so the Court sustains the levy finding that the settlement office did not abuse her discretion.