Designated Orders: 6/12/2017 – 6/16/2017

From 7 designated orders last week, this post focuses on 3 orders of interest.  One may need to address a split of authority, one may need jurisdiction to revise a decision for an agreement between the parties, and a third deals with the death of a nonrequesting spouse in an Innocent Spouse case.

A Jackson Split?

Docket # 17152-13, Estate of Michael J. Jackson, Deceased, John G. Branca, Co-Executor and John McClain, Co-Executor v. C.I.R. (Order Here)

Slotted in the middle of a designated order that also deals with a joint stipulation of facts and whether specific information or exhibits needs to be sealed is an issue that could have greater implications.  In the case dealing with the tax liability of Michael Jackson’s estate, the Tax Court addressed implications of the recent Second Circuit opinion of Chai v. Commissioner, 851 F.3d 190 (2d Cir. 2017).

To summarize, there are disputes about the fallout from the Second Court opinion in Chai and whether that will triumph over the Tax Court opinion in Graev v. Commissioner, 147 T.C._ (Nov. 30, 2016).  The designated order in Estate of Michael R. Jackson cites the two cases concerning a difference of opinion regarding whether certain requirements are imposed on the IRS under IRC 6751.

The Graev conclusion was “that the statute [IRC 6751] imposes no particular deadline for the IRS to secure the required written approval before a penalty is assessed.”

In preparing for the trial in the Estate of Michael R. Jackson case, the Commissioner potentially provided a copy of the administrative approval of valuation penalties to the Petitioners.  However, no copy of the form made it into the record at trial.


Following trial, the Second Circuit rejected the conclusion in Graev.  They replaced it in Chai with a holding that “compliance with IRC 6751(b) is part of the Commissioner’s burden of production and proof in a deficiency case in which a penalty is asserted.”

At this point in the Jackson case, the Commissioner certainly wants the approval form in the record and the P objects.  Unless the parties agree before the time the third stipulation is due (on or before 6/30/17), a motion would be necessary to reopen the record.  The Court will want the motion briefed and it would likely lead to an opinion.

The Court ordered that on or before 7/13/17 the Commissioner shall file any motion to reopen the record to include evidence relevant to their compliance with IRC 6751.  Petitioners shall file a response to that motion on or before 8/3/17.  Then, the Commissioner shall file a reply to that response on or before 8/17/17.

It thus looks like Michael Jackson’s estate may lead to something more than celebrity gossip.  The Tax Court case may be the next judicial step regarding a split of opinion regarding the burden of proof on the IRS under IRC 6751.

Jurisdiction Needed?  Just Add Rogers

Docket # 7390-10, John E. Rogers & Frances L. Rogers v. C.I.R. (Order Here)

While a decision in Rogers was finalized on April 3, 2017, that decision may not be so final.

The IRS brief to the Court of Appeals stated that computational errors resulted in a $134,000 overstatement of Rogers’s taxable income, deficiency and penalties.  While the IRS recommended remanding the case to correct that overstatement, the Court of Appeals affirmed instead of remanding.

The Tax Court ordered the parties submit a joint status report regarding further proceedings.  In their 2/15/17 joint status report, it states that the IRS is recomputing the deficiency and that the Rogers spouses will review the computations.  A joint status report filed on 6/13/17 stated that the IRS recomputed the deficiency and the petitioners agreed with the new computations.

However, no motion to vacate or revise the decision was filed under Rule 162 by 4/3/17.  Since the decision became final on 4/3/17, it is unclear to the Tax Court what their jurisdiction is for revising the decision.

Since the IRS will process the credits to the account for the petitioners for tax year 2004 in order to effectuate the corrections, that potentially makes the jurisdictional issue moot.

The Tax Court ordered that if either party wishes to file a Rule 162 motion to vacate or revise the decision, that the party should do so (with a motion for leave to file out of time) no later than July 14, 2017.  The motion for leave should explain how the Tax Court has jurisdiction to revise the decision.  If neither party files such a motion, the case will remain closed.

While the parties are in agreement, the Tax Court finds that their hands may be tied.  While they want the record to reflect the agreement of the parties, it is interesting that the Tax Court looks to the parties for jurisdictional help on how to revise their decision since time likely ran out.

Don’t Forget the Heirs and Beneficiaries

Docket # 19277-16, Alison Turen v. C.I.R. (Order Here)

Normally in an Innocent Spouse case, the IRS files a copy of the notice of the filing of the petition that they served on the other individual that the Petitioner filed joint returns with for the tax years before the Tax Court.  In other words, the Petitioner files a petition with Tax Court regarding an Innocent Spouse case and the IRS is to send a copy of the notice of the filing of the petition with the other spouse from the joint tax returns in order to give that spouse the right to intervene in the Tax Court case.  What happens then when the other spouse has died?

In the Turen case, the IRS did not file the notice since the petition states that the other spouse is deceased.  The Tax Court stated in their designated order that the death of that spouse does not relieve the IRS of their responsibility for providing notice.  Fain v. Commissioner, 129 T.C. 89 (2007) provides that the right of intervention belongs to the decedent’s heirs or beneficiaries, based on procedures outlined in Nordstrom v. Commissioner, 50 T.C. 30, 32 (1968) to ascertain the heirs at law of a deceased non-petitioning spouse.

The Tax Court order was that the parties are to identify on or before June 30, 2017 the heirs at law of the decedent nonrequesting spouse and on the same day to provide a joint status report to the Court of the heirs at law identified.  They are also ordered that on or before July 14, 2017, the IRS shall submit a Notice of Filing of Petition and Right to Intervene served on the heirs at law or file a response stating the reasons for not doing so.

Designated Orders: 6/5/2017 – 6/9/2017

The Tax Court designated four orders last week, three of which are discussed in this post. Two of the orders discussed here deal with deemed stipulations pursuant to Rule 91(f), which that allows the Court to order that parties stipulate to facts and evidence that are not in dispute prior to trial. Another order, discussed here, deals with the authority of the Tax Court to grant a protective order when some of the evidence is legally protected information.

The Danger of Deemed Stipulations

Docket # 23219-15, Edward Francis Bachner, IV & Rebecca Gay Bachner v. C.I.R. (Order Here)

As a means of promoting efficiency, Tax Court Rule 91 requires parties to stipulate, or agree to, in advance of trial to the fullest extent possible all matters relevant to the case that are not in dispute, including facts, documents, papers and evidence. To further the goal of efficiency, Rule 91(f)(1) allows the party proposing to stipulate to file a motion to order the other party (the “non-proposing party”) to show cause as to why the matters should not be deemed (or treated as) stipulated. Once this motion has been filed, Rule 91(f)(2) permits the Court to grant the order to show cause and require the non-proposing party to respond and show why the matters should not be deemed stipulated. This allows the Court to essentially compel stipulation of certain matters when it determines a genuine dispute does not exist.


If the non-proposing party does not respond in the specified period, or if the response is evasive or not fairly directed to the proposed stipulation, then the Court can also order that the matter is deemed stipulated. This rule gives the Court great power, but does not allow either party, or the Court, to determine genuinely controverted or doubtful issues of fact prior to trial.

This particular case deals with allegedly fraudulent Forms W-2 that were used by petitioner husband to generate large refunds. The Service filed a motion that petitioners show cause as to why 62 different proposed stipulations of facts and evidence should not be accepted as established.

Prior to this order being issued, petitioners tried to invoke their right against self-incrimination but the Court held a hearing and issued a different order stating petitioners had no privilege against self-incrimination in this, the Rule 91(f), matter.

In response to the Court’s order under Rule 91(f)(2), petitioners raised general objections that were not related to the proposed stipulation of facts and also filed a motion that the Court vacate its Order to Show Cause. The Court found that petitioners’ general objections and motion to vacate lacked merit.

Petitioners addressed 61 of the 62 proposed stipulations and the Court determined whether or not each was stipulated or deemed stipulated; of the 62 total stipulations, the Court only determined four items were not stipulated or deemed stipulated.

Petitioners did not dispute eight of the stipulations, and challenged the legal validity of certain documents and other matters, but indicated (as determined by the Court) that they did not dispute the documents themselves. The Court allowed the questions of legal validity to remain unanswered.

Additionally, the Court found that petitioners’ response to seven stipulations were “evasive and not fairly directed to the statement in the paragraph” and those items were deemed stipulated as well.

Many of stipulations were addressed by petitioners in a boiler-plate type fashion using alternating language depending on the nature of the item. Arguably, had petitioners followed the Rule 91(f)(2), which requires petitioners to show the “sources, reasons and basis on which they rely,” more closely they may have convinced the Court to treat more matters as not deemed stipulated.

Take-away point and additional information:

  • Practitioners, should be aware of the significance Rule 91(f) as failure to respond or not responding with enough specificity can cause matters to be deemed stipulated which may impact the practitioner’s trial strategy and chances of success.
  • Although not particularly relevant to this order, petitioner wife was granted innocent spouse relief at a point in the Tax Court proceeding prior to the stipulation process. The IRS repeatedly referred to its concession of the case with respect to her. It is unclear whether or not petitioner wife actively participated in this case.

Respondent Refusing to Stipulate

Docket # 28897-10, 5816-11, and 5817-11, Harvey Birdman & Diane Birdman, et al. v. C.I.R. (Order Here)

This designated order applies to three dockets that were consolidated and also deals with Rule 91(f), but this time it is the petitioners who filed a Motion for an Order to Show Cause Why Proposed Facts and Evidence Should Not Be Accepted as Established pursuant to the rule. An identical, but separate order was issued for all three docket numbers.

In their motion, petitioners stated that respondent’s Counsel indicated she will not stipulate to any of the factual assertions contained in their draft stipulation. The Court granted the motion and ordered respondent to show why the facts and evidence set forth by petitioners should not be deemed stipulated and why referenced exhibits should not be accepted as admissible without reservation for purposes of the case.

Take-away points:

  • Petitioners can also utilize Rule 91(f) in the (perhaps, unusual) scenario when respondent is unwilling to stipulate to undisputed facts and evidence.
  • The Court reviewed the proposed stipulation before ordering respondent to respond which suggests the Court did not find that the petitioner’s proposed stipulation lacked merit. In situations where the Court finds a proposed stipulation lacks merit, the result may be different.
  • If you seek enforcement of a Rule 91(f) motion, it is generally helpful to provide the Court with details of your unsuccessful efforts to engage the other party in the stipulation process. Perhaps as funding of the IRS continues to decline the Chief Counsel attorneys will lack resources to promptly and adequately respond to informal discovery requests and requests to stipulate.  Although a high percentage of these types of cases involve unresponsive petitioners, this case serves as a good reminder that the government sometimes fails to respond as well.


Protecting Private Information in Tax Court

Docket # 4806-15, Continuing Life Communities Thousand Oaks LLC, Spieker CLC, LLC, Tax Matters Partner v. C.I.R. (Order Here)

Generally, all evidence received by the Tax Court is a matter of public record, however, there are certain circumstances where information relevant to a case can be protected and not publicly disclosed. Individual private health information protected by the Health Insurance Portability and Accountability Act of 1996 (better known as HIPAA), or protected by other state and federal laws, is one such circumstance.

In this case, respondent made informal discovery requests and planned to issue a subpoena duces tecum compelling petitioner trustee (hereafter, “petitioner”) to disclose information needed to allow respondent to prepare for trial. The main issue in the case, and reason the information was needed, involves evaluating petitioner’s method of accounting.

Petitioner, mindful of his fiduciary duties, was concerned the information was protected by HIPAA and other state and federal laws. Petitioner agreed to disclose the information in response to the subpoena, but also requested that the information be protected.

The parties jointly moved for a protective order under Tax Court Rule 103, which allows either party, or other affected person, to move the Court to issue a protective order when justice requires it “to protect a party or other person from annoyance, embarrassment, oppression, or undue burden or expense.”

Judge Holmes granted the parties’ joint motion for a protective order and described the terms that governed the disclosure of the confidential information.

The terms themselves cover a range of details, including the manner in which the protected information should be designated, the remedies available if there is a failure to designate it, the limited purpose for which the information can be used, the other parties to whom the information can be disclosed and the responsibilities of those parties, and how the information will be protected during and after depositions and trial. The terms also outline respondent’s responsibilities for keeping track of the information and the steps required before respondent can contact any of the individuals whose information is protected, in addition to other details governing respondent’s, petitioner’s and other parties’ duties with respect to the information.

The Court also retained jurisdiction over the parties and recipients of the information even after the trial concludes and the decision of the Tax Court becomes final.

In a separate, unopposed motion respondent had moved the court to set the case for trial on a special trial session in San Francisco to enable respondent to issue the subpoena duces tecum to the petitioner. The Court granted that motion in this order, but also mentioned that it expected all records to be produced before the special trial session.

Take-away points:

  • If the Service’s informal discovery requests are ignored, IRS counsel will normally turn the informal request into a formal request and seek to enforce the discovery; however, they can issue a subpoena duces tecum to command the production of the evidence before the Court at the time of trial. The disadvantage to the IRS (or any party using a subpoena duces tecum) is that the information arrives at a time when the attorney receiving the information has little opportunity to react to it.
  • Fiduciary responsibilities should not be disregarded even when the government is compelling the production of information. Tax Court Rule 103 balances the need to comply with fiduciary duties while allowing the requested information to be produced.
  • As mentioned above, Tax Court Rule 103 can be used to “protect a party or other person from annoyance, embarrassment, oppression, or undue burden or expense,” so there may be other circumstances in which this rule can be utilized even when the information is not protected by law.
  • Always check your citations. In this order the Court gently reminded the parties that their protected health information citations were incorrect, but such reminders may not always be as gentle.


Seventh Circuit Sustains Tax Court Decision Enforcing Stipulation

In Shamrock v. Commissioner, No. 16-3811 (7th Cir. Mar. 14, 2017), the Seventh Circuit affirmed the decision of the Tax Court in T.C. Memo. 2016-193. The case has an interesting history because of the representative chosen by petitioners.  Petitioners filed their Tax Court petition pro se but were assisted in their case by Grant Niehus.  Mr. Niehus is a lawyer, and was at all relevant time, but is not licensed to practice in Illinois.  I note that it is likely that although this is a case set for trial in Chicago, it would not surprise me to learn that the lawyer representing the IRS in the Chicago office of Chief Counsel is also not licensed to practice in Illinois.  Because federal tax practice is a federal practice, lawyers can represent taxpayers nationwide on federal tax issues in the U.S. Tax Court and are not limited to practicing in states in which they are licensed.  Working for Chief Counsel, attorneys must be licensed in one state, a member in good standing, and an active member of the bar but Chief Counsel attorneys need not be a member of the bar of the state in which they are practicing.  So, I do not find that statement that Mr. Niehus is not licensed to practice in Illinois to be especially important.  He did, however, have another problem and that caused the Tax Court to do a lot more work in this case.


It is important that a lawyer properly hold himself out to his clients.  There were concerns that Mr. Niehus did not properly explain his status to his clients.  The Circuit Court opinion states that Mr. Niehus, in addition to not having a license to practice in Illinois, was not admitted before the Tax Court.  It is his inability to practice before the Tax Court that greatly concerned the 7th Circuit when it looked at the first appeal. It should be noted that getting admitted to practice before the Tax Court generally takes little effort if you are admitted and in good standing before the highest bar of one state.

He advised the taxpayers to stipulate that only half of the relief they sought in the Tax Court was appropriate.  They did that and the Tax Court accepted their stipulation.  After entering into that stipulation, the taxpayers discovered that Mr. Niehus was not licensed to practice in Illinois and requested that the Tax Court set aside their stipulation.  The Tax Court refused to set aside the stipulation – a decision consistent with its general treatment of such requests – and the taxpayers appealed.  On appeal, the 7th Circuit reversed and remanded the case.  The 7th Circuit criticized the Tax Court for enforcing the stipulation without considering the possible deceit of Mr. Niehus.

On remand the taxpayers chose another somewhat non-traditional representative.  They chose a CPA authorized to practice before the Tax Court.  I have written before about the ability of non-attorneys to practice before the Tax Court and if you go back to 1924 when the Board of Tax Appeals was created, CPAs were authorized to represent clients before Board.  Their ability to do so based on the professional designation continued into the 1940s when it was removed and a successful passage of a test was required for non-attorneys to represent clients before the Tax court.  The taxpayers’ new representative, Sheldon Drobny, was one of the small percentage of individuals who passed this test.

After a hearing, the Tax Court issued a brief 99 page opinion explaining that the advice the taxpayers received from their original representative was good advice.  The taxpayers did not agree with the Tax Court and went for a second round before the 7th Circuit.  Now in possession of a detailed explanation of tax issues and how the advice of Mr. Niehus lined up with the correct tax result, the 7th Circuit agreed with the Tax Court.  The 7th Circuit notes that the taxpayers did not accuse Mr. Niehus of malpractice, that the Tax Court found he provided “competent, valuable, diligent and effective” assistance.  It holds the “dispositive principle is ‘no harm no foul.’”

The case deserves some attention because of the tension between stipulations and effective representation.  The Tax Court relies heavily on the stipulation process.  Tax Court Rule 91 requires the parties to stipulate to the fullest extent possible.  When the parties submit a stipulation, the Court does not easily allow one party to back out of it after submission.  See, e.g., Muldavin v. Commissioner, T.C. Memo 1997-531  It does not want to look behind each stipulation to determine if the facts are correct or what motivated the stipulation of the facts.

However, when a taxpayer’s representative has not accurately represented himself to the taxpayer in terms of his capacity competing concerns arise which cause the Court to need to look into the statements by the representative as they impact the integrity of the system.  The system relies on appropriate representation and if a taxpayer is duped or inappropriately represented the Court must step in to rectify the situation.  The recent case of Liu v. Commissioner  presented this issue to the 5th Circuit which refused to set aside a stipulated decision based on the alleged bias of petitioners’ former attorney because it found the attorney did not cause the stipulation.  This is also why the removal of a representation from the ability to practice before the Court is important as discussed in an earlier post which case was affirmed on appeal by the D.C. Circuit.

The 7th Circuit’s concerns were legitimate and caused the Tax Court to go behind the stipulation in great depth.  In the end, the Tax Court’s lengthy opinion essentially proves that Mr. Niehus gave proper advice and gets the parties back to where they were at the time of the original stipulation but now without concerns that the integrity of the system was impugned.  This case shows how much additional work can result when accusations of attorney or judicial misconduct arise.




Designated Orders: 5/30/2017 – 6/2/2017

Today we welcome Professor Patrick Thomas.  He is the last of the gang of four who bring to us each week a look into the orders that the Tax Court judges have designated.  Professor Thomas has just completed his first year teaching and directing the tax clinic at Notre Dame.  Keith

Last week was a Judge Carluzzo-heavy week in the designated orders arena, as the Judge issued four of the five designated orders written. All dealt with taxpayers who either did not respond to IRS requests for information or were teetering on the edge of section 6673 penalties for frivolous submission to the Tax Court. Judge Armen addresses a Petitioner who moved to strike statements in the Service’s amended answer on the authority of Scar v. Commissioner.  Because the Scar case is an important one to know and has not been discussed much in this blog, we will start with a discussion of that order.


Dkt. # 16792-16, Avrahami v. C.I.R. (Order Here)

The substance of Judge Armen’s order in Avrahami is, admittedly, a little dense for yours truly. Not very often do my low income taxpayer clients come into my office with a dispute over Subpart F income, non-TEFRA partnerships, or multi-million dollar notices of deficiency. Fortunately, the procedural matter relates to a case I regularly teach: Scar v. Commissioner, 814 F.2d. 1363 (9th Cir. 1987).

In Scar, the taxpayers received a Notice of Deficiency, and with good reason: the taxpayer’s had invested in a videotape tax shelter and thereby understated their federal income tax by approximately $16,000. But the Notice of Deficiency the Scars received referred to an adjustment to income of $138,000 from the “Nevada Mining Project”, with a deficiency of $96,600 ($138,000 multiplied by the then-top marginal tax rate of 70%). The Notice stated that “[i]n order to protect the government’s interest and since your original income tax return is unavailable at this time, the income tax is being assessed at the maximum tax rate of 70%.” IRS counsel at trial explained that an IRS employee had accidentally entered the wrong code number, thus causing the wrong tax shelter item to be inserted into the Notice. However, no one testified to this fact at the hearing.

The Scars challenged the Notice in a motion to dismiss for lack of jurisdiction on the basis that the IRS failed to “determine” a deficiency as to them under section 6212(a), and that therefore the Tax Court had no jurisdiction under section 6213(a). While the Tax Court upheld the Notice, the Ninth Circuit disagreed. Essentially, because the evidence showed that the IRS did not (1) review the taxpayer’s tax return in preparing the Notice or (2) connect the taxpayer with the Nevada Mining Project, no “determination” was made as to the particular taxpayer; thus, the Notice was invalid.

In subsequent cases, Scar has been limited to its facts: i.e., as Judge Armen notes, where the Notice “on its face reveals that [the IRS] failed to make a determination, thereby invalidating the notice and thus depriving [the Tax] Court of jurisdiction to proceed on the Merits.”

In Avrahami, Petitioners filed a Motion to Strike portions of an IRS amended Answer, which alleged unreported income—above the amounts indicated on the Notice—from various entities owned by Petitioners during 2012 and 2013. The Petitioners relied on Scar for the proposition that, in the Notice itself, the IRS did not rely on any information relating to these entities.

Judge Armen dismisses this claim. While the Notice did not list any information regarding these entities, the Petitioners did not challenge the Notice’s validity as such. Rather, the Tax Court has jurisdiction under section 6214(a) to consider and assess an additional deficiency, beyond that asserted in the Notice. And the IRS has the authority to bring such a claim, also under section 6214(a). Judge Armen goes on to note that even if Scar applied here, it’s clear that the IRS considered the information on the Petitioner’s tax returns and connected the relevant entities to the Petitioners; the Petitioners did not contest the latter point.

Finally, the standard Judge Armen articulates for granting a motion to strike is if it has “no possible bearing upon the subject matter of the litigation” and “there is a showing of prejudice to the moving party.” Because the case is not scheduled for trial and given that the IRS bears the burden of proof under section 6214(a) and Rule 142, there is no prejudice to the Petitioners. Considering the above, Judge Armen denies the motion.

The takeaway point here is that unless the Notice of Deficiency is entirely out of left field, Scar is unlikely to save the day. While it’s strong medicine, the Tax Court administers it only in very particular cases.

Dkt. # 19076-16SL, Higgs v. C.I.R. (Order Here)

The first order last week came from Judge Carluzzo on an IRS Motion for Summary Judgment in a Collection Due Process case. The facts are typical for a pro se litigant: the taxpayer failed to file his 2008 tax return. The IRS audited the taxpayer, who did not respond to the Notice of Deficiency. For 2009, the taxpayer filed a tax return, but did not pay the tax due.

The IRS filed a Notice of Federal Tax Lien regarding 2008, which the taxpayer did respond to and eventually petitioned the resulting Notice of Determination to the Tax Court in a prior proceeding (#24213-12), to no avail. It seems that collection efforts remained fruitless, and the Service finally issued a Notice of Intent to Levy for both years, which again caught the taxpayer’s interest.

Mr. Higgs’s Appeals hearing did not go well. He made two arguments: (1) that he had paid much of the liability previously and (2) that he qualified for a collection alternative. Yet, he did not provide any evidence supporting the requests he made at the hearing.

While the taxpayer didn’t raise the issue of the SO’s failure to accept the collection alternative in his Petition, Judge Carluzzo cited Mahlum v. Commissioner, T.C. Memo. 2010-212, for the proposition that, if the taxpayer doesn’t provide any information to support a collection alternative, the Settlement Officer is authorized to reject that collection alternative.

In the Petition, the taxpayer did raise the issue of having paid funds towards the liability, for which the IRS gave him no credit. Judge Carluzzo reframed this argument as alleging an abuse of discretion for failure to investigate under section 6330(c)(1). Responding to this reframed argument, Judge Carluzzo says only that this position “must be rejected because the materials submitted by respondent in support of his motion show that the [SO] proceeded as required under the statutory scheme,” based on Petitioner’s lack of evidence establishing any additional payments.

Perhaps the Petitioner had a valid argument. To be sure, the Service has wrongly applied some of my client’s properly designated payments to the wrong tax period. However, where the Petitioner makes no reply to the Motion for Summary Judgment, the facts relied on by the IRS are deemed to be undisputed. While it’s a bit of circular reasoning for granting the Motion for Summary Judgment (isn’t their purpose, after all, to establish whether there are disputed facts?), it’s certainly a powerful incentive to respond to the Motion. That means there’s no luck at the end of the day for Mr. Higgs.

Dkt. # 27516-15L, Gross v. C.I.R. (Order Here)

A very similar case to Higgs, Judge Carluzzo grants another IRS Motion for Summary Judgment as to a nonresponsive taxpayer with liabilities for tax years 2008 and 2009. Unlike in Higgs, Gross was precluded from challenging the underlying merits in this matter, as he had previously litigated them in a deficiency case (#22766-12).

Unfortunately, Judge Carluzzo hides the ball a bit, noting only:

Petitioner’s request for a collection alternative to the proposed levy was properly rejected by respondent for the reasons set forth in respondent’s motion. Respondent’s motion shows that respondent has proceeded as required under section 6330, and nothing submitted by petitioner suggests otherwise.

What were the reasons set forth in respondent’s motion? How did respondent proceed as required under section 6330? Perhaps an enterprising reader in D.C. may enlighten us. The story for both of these cases is simple: petitioners must respond to the Motion for Summary Judgment in a CDP case, lest all of the facts stated in that motion be deemed as true. Barring any sloppy workmanship on the part of IRS attorneys, the petitioner’s case will otherwise end there.

Dkt. # 21799-16, McRae v. C.I.R. (Order Here)

Carl Smith wrote earlier this week on Judge Carluzzo’s order the McRae case, which dealt with an IRS motion to dismiss for failure to state a claim on which relief can be granted. Carl described at length the Court’s failure to identify whether, in the Tax Court, the plausibility pleading standard identified in Bell Atlantic Corp. v. Twombly, 550 U.S 544 (2007) and Ashcroft v. Iqbal, 556 U.S. 662 (2009) now replaces the notice pleading standard of Conley v. Gibson, 355 U.S. 41 (1957).

Dkt. # 14865-16, Lorenz v. C.I.R. (Order Here)

Here, like in the McRae order, the IRS filed a motion to dismiss for failure to state a claim upon which relief can be granted. Unlike in McRae, Petitioners did reply to the motion—largely with frivolous arguments. In McRae, the frivolity was restricted to the Petition, whereas here, it appeared in the Petition, an attachment to the petition, and in the Petitioners’ reply to the motion to dismiss.

Judge Carluzzo did not mention any of the pleading standards cases here, but very well could have. The taxpayers again raised mostly frivolous arguments (which the Court struck from the Petition, attachment, and the reply to the motion to dismiss) but alleged that they and the IRS had reached an agreement before the Notice of Deficiency was issued. Judge Carluzzo viewed this allegation with skepticism:

We have our suspicions with respect to the nature of the letter that petitioners claim embodies [their] agreement, and whether the parties have, in fact, agreed to petitioners’ Federal income tax liability….

I think it’s plausible that in McRae, Judge Carluzzo merely cited Twombly for its admonition that, in the motion to dismiss context, all facts must be construed in favor of the non-moving party—true under either Twombly/Iqbal or Conley. Twombly then is cited merely because it is (one of) the most recent Supreme Court case on motions to dismiss for failure to state a claim. Judge Carluzzo could have inserted the same language in Lorenz, given that he seems to disbelieve the Petitioners; under either standard, the judge’s disbelief in the pleaded facts does not matter.  As such, Judge Carluzzo denies the motion to dismiss and orders an Answer from the Service.

What is the Legal Standard that the Tax Court Applies for Motions to Dismiss for Failure to State a Claim?

We welcome back frequent guest blogger, Carl Smith.  Carl’s post today focuses on the correct standard for dismissing a case for failure to state a claim.  Back in the late 1970s I worked in the Portland office of Chief Counsel, IRS and our office had a decent number of cases involving petitioners who we then called tax protestors.  I sent a motion to dismiss for failure to state a claim to the Tax Court.  Not too long thereafter the National Office contacted me and my manager to let us know that the office did not file this type of motion.  Times have changed.  Chief Counsel’s office now files this type of motion regularly and the Court grants them.  Carl’s concern focuses on the reason for granting the motion and the proper standard.  Keith 

I clearly have a pet peeve about this, but for years, I have been complaining that the Tax Court has not been clear about the legal standard that it is imposing when ruling on motions to dismiss for failure to state a claim on which relief could be granted.  This is a topic that has never come up before on PT, and would never come up in a case where a lawyer represented the taxpayer, since the lawyer would never (I hope) draft a pleading that would fail to meet any Tax Court pleading standard.  (And the Tax Court typically first orders the taxpayer to perfect or correct incomprehensible pleadings before ruling on any such motion to dismiss.)  But, an unpublished designated order by Judge Carluzzo issued in McRae v. Commissioner, Docket No. 21799-16, on June 1, once again presents the issue of the standard that the court applies when deciding such motions.  The choices for the standard are:  (1) the notice pleadings standard of Conley v. Gibson, 355 U.S. 41 (1957), or (2) the plausibility pleading standard that replaced Conley in Bell Atlantic Corp. v. Twombly, 550 U.S 544 (2007), and Ashcroft v. Iqbal, 556 U.S. 662 (2009).  In his order, Judge Carluzzo cited Twombly, but did not mention its standard.  Anything that would pass the Twombly standard would pass the Conley standard, as well, so one can’t take this as a clarification by the Tax Court of which standard it applies.


I first wrote about this topic in a 2012 article in Tax Notes Today entitled, “The Tax Court Should Reject Twombly/Iqbal Plausibility Pleading”, 2012 TNT 159-4.  Updating my article, I took the same position in a letter that I wrote to the Tax Court in 2015 as a topic to address in the next set of rules changes issued by the court (for which we are still awaiting issuance).  For those interested in greater detail, here’s a link to my letter.

To summarize, in Conley, the Supreme Court adopted what in law school most of us knew as the notice pleading regime.  Conley stated:

[T]he Federal Rules of Civil Procedure do not require a claimant to set out in detail the facts upon which he bases his claim.  To the contrary, all the Rules require is “a short and plain statement of the claim” that will give the defendant fair notice of what the plaintiff’s claim is and the grounds upon which it rests.  The illustrative forms appended to the Rules plainly demonstrate this.  Such simplified “notice pleading” is made possible by the liberal opportunity for discovery and the other pretrial procedures established by the Rules to disclose more precisely the basis of both claim and defense and to define more narrowly the disputed facts and issues.

355 U.S. 47-48 (footnotes omitted).  Conley also famously stated that “a complaint should not be dismissed for failure to state a claim [under FRCP Rule 12(b)(6)] unless it appears beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief”. Id., at 45-46.

By 2007, the Supreme Court was fed up with discovery abuses and nuisance settlements generated by the notice pleading standard and, in Twombly (an antitrust case), “retired” the famous statement from Conley in favor of a new standard:  Even though the courts should assume for purposes of such a motion that all facts stated in a complaint are true, there should be enough facts stated to plausibly infer that a cause of action could be proved after discovery.  No more simply stating legal conclusions as facts.  In 2009, in Iqbal, the Supreme Court clarified that this new plausibility pleading standard did not just apply to antitrust suits, but applied to all civil suits brought in federal district court.

As my letter to the Tax Court details, all pleadings in civil tax suits in district courts since 2009 have been governed by the plausibility standard, and the Court of Federal Claims has adopted it, as well.  But, most state courts to have faced the question since 2009 have resisted abandoning notice pleading, and there is considerable academic debate about the wisdom of the new plausibility standard.

In my letter to the Tax Court, I noted that, while the Tax Court has decided motions to dismiss for failure to state a claim in published opinions that cited Conley’s notice pleading standard, the last published opinion on such a motion was in 2003, in Carskadon v. Commissioner, T.C. Memo. 2003-237.  Since then, the Tax Court has only ruled on such motions in unpublished orders.  Since 2011, all such orders have become searchable, yet only cite Conley and/or its progeny.  Before June 1, there were two exceptions to the prior sentence:  Judge Carluzzo cited Twombly in two orders in 2012 and 2013, but not in any way that indicated that he thought he was applying a different standard.  Most orders these days still cite Conley and/or its progeny as the standard the Tax Court is applying to these motions.

In his June 1 order in McRae, Judge Carluzzo cited Twombly again.  But, he did not say that the new standard for Tax Court pleading was plausibility instead of notice.  Further, since he ruled for the taxpayer that the petition, at least in part, satisfied the relevant pleading standard, it is clear that he would have reached the same result under Conley.

In McRae, Judge Carluzzo wrote, in part:

According to respondent’s motion, petitioner “makes no factual claims of error in the petition but argues only law and legal conclusions therein.” This is true for most of the statements contained in the section of the petition entitled “IV Allegations/Assignments of Error”, but in the last full paragraph on page 5 of part A of that section of the petition, petitioner alleges, in part, that “on information and belief” the notice of deficiency (notice) that forms the basis of this case “was issued on the basis of inaccurate and unreliable records”.

According to the notice, petitioner failed to file a Federal income tax return for the year here in issue, so respondent “used Information Return Documents filed by payers as reported under * * * [petitioner’s] Social Security Number to determine * * * [his] income.”  The details of the information reported on the “Information Return Documents”, however, are not set forth in the copy of the notice attached to respondent’s motion, which is the only copy of the notice currently in the record. That being so, and giving petitioner the benefit of every doubt as we are required to do in our consideration of respondent’s motion, see Bell Atlantic Corp. v. Twombly, 550 U.S. 544 (2007), the above-referenced allegation gives rise to a justiciable issue, that is, whether the information return reports relied upon by respondent are accurate and reliable. Consequently, resolving this case in summary fashion, as respondent’s motion would have us do, is inappropriate at this stage of the proceedings.

Nevertheless, respondent’s motion calls to the Court’s attention much of the impertinent, if not frivolous matter contained in the petition, and that matter will be stricken.

In my letter to the Tax Court I urged it to stick with the Conley notice pleading standard for several reasons, among them:  (1) the difficulty in figuring out how to apply the plausibility standard to the Tax Court, where a petition is more like an answer to a notice of deficiency than a district court complaint stating a cause of action, (2) the lack of discovery abuses in the Tax Court or instances where the IRS is forced to engage in nuisance settlements in response to a petition, and (3) the many unrepresented people who file petitions in the Tax Court who barely write a few sentences on the simplified petition (Form 2) in the limited space provided.  For other reasons, please read my letter.

I still wish the Tax Court would either say something about which standard it applies (notice or plausibility) when it next revises its rules or, better yet, issue a T.C. opinion addressing this matter the next time it has to rule on a motion to dismiss a petition for failure to state a claim on which relief can be granted under Tax Court Rule 40.

Designated Orders: 5/22/2017 – 5/26/2017

Today we welcome back Caleb Smith who has prepared this week’s analysis of designated orders and it has been an interesting week at the Court.  Today is also Caleb’s last day at the Harvard Tax Clinic.  He leaves tomorrow to return home and direct the tax clinic at the University of Minnesota.  We wish him well as he transitions and look forward to continuing to see his input in the blog.  Keith

A Font of Discord

Dkt. #s 2685-11 and 8393-12, Dynamo Holdings Limited Partnership, Dynamo, GP. Inc. Tax Matters Partner, et al. v. C.I.R. (Order Here)

We begin with a designated order from a case that began way back in 2011. The online docket shows roughly 250 filings and proceedings entered with the Tax Court since then. The trial itself, occurring just this year, took essentially two weeks from January 23 – February 3 and February 13. With a designated order arising from a case of this size and duration, one may fairly speculate that something big is at play.

And that “something big” is (allegedly) the font of petitioner’s post-trial opening brief.


Yes, today’s headlining designated order from Judge Buch is a battle over a post-trial brief potentially circumventing page limitations by using a smaller font size than is allowed. The eagle-eyed IRS attorneys are having none of it. There are, after all, very specific rules that dictate the size of font and style of briefs with the Tax Court (specifically, Tax Court Rule 23). Those rules provide, among other things, that the size of the font should be no smaller than either 12 point or 14 point depending on if it is “nonproportional” or “proportional” print font (the larger, 14 point mandated for the latter). Times New Roman (being a proportional print font) may be no smaller than 14 point. And this is where the IRS believes they caught petitioner trying to pull a quick one: submitting a post-trial brief that runs right up against the allotted 120 page limit in Times New Roman, but possibly smaller than 14 point font.

The Court does not take this potential infraction lightly (and after 6 years and roughly 250 filings, one can sympathize with insisting on strict page limits). In the Court’s view it is not immediately clear that petitioner did skirt the rules, but there at least seems to be good reason to believe it a possibility (the brief comes in at exactly the allowed 120 pages, so there is little margin of error in any case). In the end, rather than risk the “back-and forth of motion practice” taking up still more of the Court’s time, Judge Buch provides a sensible ultimatum to petitioner:

  • Certify that you followed the rules while providing an ELECTRONIC COPY of the brief, (should put the questions to rest, right?), or
  • Admit you made a mistake, and deal with fix it by amending the brief through deleting text.

This seems to be a fair and efficient way to call the bluff of the petitioner. With an electronic copy on hand, I would imagine it not particularly difficult to determine if the font and other formatting rules were followed: petitioner should have no worries certifying to that if they did in fact follow the rules. On the other hand, it is entirely possible that petitioner either tried to pull a quick one or made an honest mistake. Sorting that out could take a lot of the court’s time, and devoting too much time to that flies in the face of one reason for the page limitation to begin with.

And so, petitioner has the option to simply fix the mistake… with one rather large constraint. Changing the arguments to make them more concise, it appears, is not allowed: only deletions. The Court requires a “redline” copy of the amended brief, presumably to help demonstrate that the only edits were deletions and not reworded arguments. Presumably, the authors of the brief believed that every sentence was necessary (or played some necessary role). If the font was in fact too large, they may have to eliminate entire PAGES of their arguments. A quick, extraordinarily unscientific experiment on Microsoft Word leads me to estimate that one page of 12 point Times New Roman print is equal to about one and quarter page of 14 point Times New Roman print… without doing the math I’d say that having to cut that much of an argument is not an enviable position to be in.

A Couple Observations

  • Formatting Matters

For those that do not frequently practice before the Tax Court (or any court, for that matter) the fact that there are specific rules on formatting of briefs (and that the Court really cares about them) may be somewhat surprising. It may look like yet another example of the legal profession trying to render itself inaccessible to the public through formalisms. And, in some instances, I sympathize (I cannot for the life of me figure out the rationale behind some of the local rules of appellate courts). Fairly or not, however, the format of your brief may be seen as a reflection of your sophistication. Consciously or otherwise, people do judge books by their covers. It is probably a better position to have the reader begin with the impression that you are an authority on the subject, who has submitted briefs before.

  • Keep it BRIEF

When I was in law school, Chief Justice Roberts made a surprise visit to my 1L legal writing class. We were writing appellate briefs at the time and he was gracious enough to answer our questions about what makes them (and oral argument) effective. More than anything, I remember one piece of advice that I have since heard echoed from various corners: focus on your main point. Remember that Judges (and even Justices) are human. (I have it on good authority that at least one judge prefers 14 point font for the simple fact that it is easier to read.) You can potentially cause your argument harm by going into too great detail on issues that aren’t really paramount: namely, by losing the audience’s attention. I have not looked into the substance of this case, and it is entirely possible that all 120 pages (and more) are needed even to concisely address each issue. But even so, Judge Buch notes that the parties could have, by motion, asked for additional space at an earlier time. It is worth noting that the Tax Court does NOT have a general page limit rule on briefs: to the extent that there is one, it is set by the judge hearing the case. That said if the Judge initially thinks 120 pages is enough it probably is.

Undoing an Intervention

Dkt. # 17166-16, Dennis v. C.I.R. (Order Here)

There has been a string of interesting cases involving Innocent Spouse relief lately (here, here, and here). This designated order touches on an apparently infrequently raised aspect: the ability of an intervening party to get out of the case after they have decided to intervene.

Innocent spouse cases tend to create an interested party apart from the IRS or petitioner: namely, the (usually ex) spouse that is going to be left holding the tax bill. In such a case, the jointly liable party has the right to file as an intervening party, usually to question the petitioner and prove that they knew (or should have known) about everything going into the tax return or failure to pay. The Court automatically notifies the other liable party on the filing of an innocent spouse case in court (see Rule 325 here).

This “third-party” interest can lead to trials where there otherwise wouldn’t be one. I have witnessed a Tax Court case where the IRS conceded that the petitioner should get innocent spouse relief, but the case went to trial solely because of the intervening ex. This makes legal sense, but nonetheless provides a somewhat awkward courtroom dynamic, where IRS counsel is basically sitting silent at their desk, watching acrimony unfold before them where they no longer have much of a dog in the fight. More commonly, I have seen interveners simply fail to show up or make any effort to comply with the Tax Court beyond filing their appearance. This case has the much rarer breed of intervener: the one that no longer cares about the case, but actively wants to be removed from it.

The ex-husband intervener has a couple good reasons to not want to remain on the case: (1) the IRS already gave him the relief he wants from the underlying liability, and (2) the case will be tried in Virginia, whereas he lives in New York. There is nothing to gain, and only money (in travel costs) to lose by coming to court. I think that most interveners, reaching that conclusion, would simply begin to ignore the Court and impending trial date.

But the ex, to his credit, wants to make it official with the Court that he will not be intervening. This, apparently, is so rare that the Tax Court has no rule governing how an intervener withdraws. Thus Special Trial Judge Carluzzo looks to the Federal Rules of Civil Procedure for guidance. The rule on point is FRCP R. 21, which gives discretion to courts to remove dispensable parties. The first step is determining that the party is, in fact, dispensable.

Luckily for Mr. Wilcox, the Court has no trouble reaching that conclusion. Yes, he might be called as a witness, but apparently the issues at play in this particular case (largely stipulated, or on the verge of being stipulated) don’t render Mr. Wilcox indispensable to the proceeding. Accordingly, he is allowed to withdraw.

A Parting Thought

The implication and involvement of the other party begins even at the administrative stage: the “non-requesting” spouse is notified of the Innocent Spouse Request and sent a questionnaire. While there is no evidence of any bad behavior in this case, because innocent spouse often involves abusive exes at the administrative stage it can be important to let the requesting spouse (i.e. your client) know that the IRS will contact the other party and “is required to do so by law” (as it says in the third bullet point of Form 8857). The IRS won’t disclose the address or contact information of the requesting spouse at the administrative level. However, since Tax Court information is generally public the petitioner would have to ask the Court to withhold or seal such information.

Summarily Denying Summary Judgment

Dkt. # 3106-16 L, Flannery v. C.I.R. (Order Here)

In a roughly one-page order, soon-to-be-Chief Special Trial Judge Carluzzo is assigned to a case solely for the purpose of making short work of an IRS motion for summary judgment. The order almost reads as a black-letter flashcard for students trying to memorize the summary judgment standard. The Court quickly explains when summary judgment is appropriate (“only if there are no genuine issues of material fact and the moving party is entitled to decision as a matter of law”). The Court just as quickly explains why this is not the case, “Questions as to petitioners’ beneficial ownership interest in certain real properties, […], are raised in this matter. The resolution of the factual dispute between the parties on the point is material in the determination of which party is entitled to decision.”

From the publicly available documents in the docket it is somewhat surprising that the IRS sought summary judgment at all since the issues (revolving around petitioner’s ownership interest in property) seem to be very factual, and very much in dispute. Nevertheless, the IRS filed a motion for summary judgment asserting that the case could be decided without trial because “there are no genuine issues for trial/no material facts in dispute.”

The IRS’s occasional woes with summary judgment have been well documented on Procedurally Taxing (here and here). In the cases highlighted in previous posts, the IRS motion generally fails because it does not introduce sufficient facts to support the motion. This case, at least based on the order dismissing the motion, seems somewhat different: maybe the IRS did introduce sufficient facts, but they are plainly disputed by petitioner. Perhaps the motion served to narrow down exactly what issues are in play… but one would think that could have been worked through Appeals by now (it should also be noted that petitioners are represented by counsel).

More charitably, it is possible that Petitioner did not provide much of a factual basis for why they disagreed with the IRS and why it was an abuse of discretion until they replied to the motion for summary judgment. On the record available to me I can do little more than speculate. Still, one wonders how these issues couldn’t have been apparent (i.e. if there was a factual dispute or not) without having the Court weigh in on a motion for summary judgment, especially since the case had already been remanded to Appeals once.


Top of the Order: Designated Orders: 5/15/2017 – 5/19/2017

We welcome guest blogger William Schmidt, one of the four new low income tax clinicians working on our designated order project.  William is Clinic Director of the LITC at Kansas Legal Services, a clinic begun in 2015 that is the only LITC for the state of Kansas.  William also co-authored the chapter “Securing Information From the IRS by Taxpayers” with Megan Brackney for the upcoming 7th edition of Effectively Representing Your Client Before the IRS. Keith

In both designated orders last week, the Tax Court granted motions for the IRS.  One was a motion to dismiss for lack of jurisdiction and the other was a motion for summary judgment.  In each case, greater attention to detail from the petitioner(s) could have preserved their cases.

File Your Petition on Time

Docket # 23648-16, Franklin v. C.I.R. (Order and Decision Here)

Our first case involves the Franklins, a married couple, filing their Tax Court petition pro se.  Their case will remind you of the mailbox rule from Contracts class as their delay in sending the petition led to dismissal of their case.

The IRS sent a statutory Notice of Deficiency (NOD) to the Franklins on July 25, 2016, by certified mail.  The NOD gave a Tax Court petition deadline of October 24, 2016.  The response envelope sent by the Franklins that included the petition had a postage meter date of October 19, 2016.  The petition had signature dates of October 24, 2016.  The United States Postal Service postmark was dated October 28, 2016.  The Tax Court received the petition on November 2, 2016.  The IRS filed a motion to dismiss for lack of jurisdiction on April 20, 2017, on the grounds that the Franklins did not timely file their petition.

The Court’s analysis takes note that the Franklins delayed several days in the time of signing the petition, metering the envelope and mailing the petition to the Tax Court.  They state that the deadline will not be satisfied by printing off the postage before the deadline’s expiration date when they are going to hold on to the petition further before mailing.  The rule for Tax Court petitions is that the United States Postal Service postmark date stamped on the envelope (or other delivery mechanism) will count as the date of delivery to the Tax Court.

Take-away points:

  • A timely filed petition is necessary to continue in Tax Court or there will be a motion to dismiss for lack of jurisdiction in your future. Waiting until the final days of the Tax Court deadline means playing with the fire of a dismissed case.
  • The United States Postal Service postmark stamp on the envelope delivered to the Tax Court will be what counts as the delivery date. The postage meter stamp and the signature dates on the petition do not count.

Not Enough Responsive Paperwork

Docket # 15186-16L, Shoreman v. C.I.R. (Order and Decision Here)

The other case was filed by Mr. Shoreman pro se in response to an IRS notice of federal tax lien for tax years 2003 and 2008 through 2012.  The IRS issued a Notice of Determination on June 2, 2016.  Following the petition filed July 5, 2016, the IRS filed a motion for summary judgment on April 11, 2017 and the Petitioner filed a response to the motion May 5, 2017.

Within Mr. Shoreman’s response, he refers to a letter from the settlement officer dated March 24, 2016.  He also states, “…I do not believe that I was advised that any information beyond Forms 1040 for the years 2013, 2014 and 2015 was required to be submitted prior to the issuance of the Notice of Determination of June 2, 2016.”

Mr. Shoreman originally stated he was not liable for all or part of the tax liability.  One instruction in the March 24 letter is that because his tax returns were self-assessed, any incorrect tax liability means he would need to amend for each tax year in question.

Another instruction in the March 24 letter is that collection alternatives such as an installment agreement or offer in compromise may be discussed.  In order to discuss those alternatives, he would need to provide a completed Form 433-A (Collection Information Statement), proof that estimated tax payments are paid in full, and current documentation for the past 3 months.  That documentation includes earning statements, pay stubs, other income statements, bank statements, and billing statements for utilities, rent, insurance, court orders, etc.  As he stated he paid a portion of the taxes owed, there was also a request for both sides of cancelled checks to be provided.

Mr. Shoreman responded by providing a form 1040 for tax years 2013 and 2014.  He did not include Schedule C even though business income was his only source of reported income.

In the Court’s analysis, the burden is generally on the taxpayer to provide requested financial information to the IRS to facilitate evaluation for any collection alternatives.  For collection alternatives to be considered, the taxpayer must also be current on estimated tax payments.

Because Mr. Shoreman did not amend the tax returns in question or submit any other supporting documentation, he did not provide proof the existing liability was overstated.  While the standard to remove the tax lien is discretionary rather than mandatory, Mr. Shoreman did not present anything to prove that withdrawal was appropriate.

The Court sustained the IRS determination that the filing of the tax lien was not an abuse of discretion.  The next conclusion was that there were not genuine issues of material fact so the IRS was entitled to judgment as a matter of law.  The motion for summary judgment was granted for the IRS and the Court decided the IRS could proceed with the lien filing with respect to the six tax years.

Take-away points:

  • A self-assessed tax return is a tax return where the taxpayer is responsible for correctly reporting his or her liability to a revenue collection agency. In this instance, the advice to Mr. Shoreman was that an amended return may be necessary to address any of his liability issues.  It should be noted that it may not be necessary in everyone’s circumstances to file an amended return.  What the taxpayer must do is raise the issues (such as income, credits, or deductions) that give rise to increasing or decreasing the liability reported on the tax return during the Collection Due Process hearing.  While an amended return may be helpful, it is not an absolute requirement.
  • When the IRS provides a list of supporting documentation in order to discuss collection alternatives, it is best to provide those documents. While the list may be substantial, there needs to be a response that matches.  Otherwise, it will likely not be abuse of discretion for a tax lien to be filed rather than to qualify for a collection alternative.


Changing of the (Special Trial Judge) Guard

At the recent meeting of the ABA Tax Section, Chief Judge Marvel announced that Chief Special Trial Judge Peter Panuthos is stepping down from his position as Chief of the special trial judges and returning to the ranks of “regular” Special Trial Judge.  The Tax Court also posted an announcement of this on its web site.

Replacing Judge Panuthos as Chief Special Trial Judge is Judge Carluzzo.  By chance, both judges, along with former Chief Judge Colvin, were on a panel at the Pro Bono and Low Income Tax Clinics Committee to celebrate 25 years of service by Judge Panuthos in the role of Chief Special Trial Judge.  I want to take this opportunity to join in the celebration of his service and also to look forward to the tenure of Judge Carluzzo as he assumes that role.


Judge Panuthos worked for Chief Counsel, IRS before he was selected as a Special Trial Judge in 1983.  Although he is from New York, he worked in the Boston office and became an assistant district counsel in that office before departing for the bench.  At the time he started in Chief Counsel’s Office, the office had a “home state rule” that prevented attorneys from working in an office located in their home state.  Although I do not remember speaking to him about it, I am almost certain he ended up in Boston because of that rule.

Today, there are five special trial judges.  At the time Judge Panuthos became the Chief Special Trial Judge in 1992 there were almost three times that number.  It is easy to forget today how much TEFRA has changed the Tax Court’s docket.  The tax shelter wars of the 1980s coupled with the need to send a notice of deficiency to each individual partner caused the Tax Court’s docket in the 1980s to balloon to almost three times its current size.  The Court used special trial judges to deal with the expanded docket and has watched their ranks diminish as the number of cases has declined and as the number of senior judges has expanded.

At the ABA meeting, Judge Marvel also noted that Court receipts are down this year and that the Court is closing cases at a faster clip than it receives them.  Since IRS activity drives receipts and since the IRS budget may cause a reduced number of notices of deficiency and determination for the foreseeable future, it seems unlikely that the number of special trial judges will expand unless the Congressional inability to approve judges causes their ranks to swell.  Unlike “regular” Tax Court judges who must go through the Presidential appointment and the Senate approval process, Special Trial Judges are hired by the Tax Court which allows the Court, assuming its budget permits, to fill necessary vacancies as case receipts dictate.

Judge Panuthos has a well-deserved reputation as someone who has championed the cause of the unrepresented.  He has played a giant sized role in making the Tax Court a model among federal courts (and all courts) for its treatment of pro se litigants and for creating an atmosphere of access to justice for unrepresented individuals filing petitions without representation.  His tenure matches almost exactly with the expansion of the earned income credit (EIC) in the mid-1990s with the creation of the welfare to work laws and with the expansion of small case jurisdiction to $50,000 in 1998.  The EIC expansion changed the IRS audit focus and consequently changed the Tax Court’s docket.  With approximately 70% of its petitioners coming into the door unrepresented, the Tax Court more than most federal courts has had to adjust to working with unrepresented individuals and trying to get them positioned to adequately present their cases.

Judge Panuthos has worked closely with low income tax clinics during his tenure as they expanded from about a dozen when he became Chief Special Trial Judge to over 140.  He worked to build the Court’s web site with FAQs and a video to explain what happens during a Tax Court proceeding.  He worked to create the “stuffer” notice alerting unrepresented taxpayers to the clinic resources in their locality.  For this work he has been recognized by the ABA Tax Section as the only judge to receive the Janet Spragens award for Pro Bono Service and by the Tax Court itself with the J. Edgar Murdock award.  Because of the length of his tenure as Chief Special Trial Judge, the significant changes happening to the Court’s docket during that tenure and his remarkable and compassionate response to those changes, he has transformed the position.

Judge Carluzzo will follow Judge Panuthos as the Chief Special Trial Judge.  Those who have heard him speak and who have practiced before him know that he also shares a passion of access to justice.  Judge Carluzzo also worked in Chief Counsel, IRS before moving to the Tax Court.  Because he worked in District of Columbia field office of Chief Counsel which was a neighboring office to the Richmond office where I worked, I knew him as one of the top trial lawyers in the office.  He joined the Tax Court in 1994 so he brings plenty of experience to the position.  In 2008, I started a Tax Court Litigation class at Villanova primarily to teach clinicians working at low income taxpayer clinics who try cases in Tax Court.  Judge Carluzzo has volunteered his time for every class to assist in training clinicians to practice before the Court.  He is a marvelous teacher.  He wants low income taxpayers to be represented, and well represented.  He will continue to tradition that Judge Panuthos has started and will keep the Tax Court in the forefront of access to justice.  We are fortunate that Chief Judge Marvel had the opportunity to fill the position of Chief Special Trial Judge with someone who shares the passion that Judge Panuthos brought for unrepresented petitioners.