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.



Submitting a Tax Court Case Fully Stipulated

A recent order issued by Judge Nega in the case of Low v. Commissioner points to the perils of submitting a case fully stipulated under Tax Court Rule 122.  Rule 122 allows the parties in a Tax Court case to fully stipulate a case and avoid the messy issues that can arise at trial.  When done correctly, fully stipulating a case provides a simple and easy method for submitting a case to the Tax Court.  When done poorly, a party can learn to its detriment that it has made an incomplete stipulation leading to an avoidable loss.

A typical case in which the parties use Rule 122 involves a case in which the parties dispute one or more discreet legal principles but have no disagreement on the facts.  Of course, it is possible to go to trial and neglect to put on necessary facts, but submitting a case fully stipulated may make it easier to overlook necessary facts.  The Low case involves a Collection Due Process (CDP) determination.  Here, respondent overlooked including the administrative record in making the Rule 122 submission and the court finds that oversight troublesome.

I submitted a case fully stipulated once when working for Chief Counsel, IRS and the case included the negligence penalty.  The case arose before 1998 and the change in the burden of persuasion on penalty issues.  Petitioner’s counsel did not request that we stipulate to any facts that would support a basis for the court to find reasonable cause or another basis for striking the penalty.  Several weeks after the case was submitted fully stipulated, he realized that he needed more facts in order to give the court a basis for finding in his favor.  The additional facts he wanted to stipulate were, after some discussion and narrowing, facts with which I agreed.  We submitted a supplemental stipulation.  In the Low case, however, the parties never realized that their stipulated facts did not fully present the issue.  This caused a problem for Judge Nega.  He resolved it by remanding the case which he could do because it was a Collection Due Process (CDP) case.  I do not recall a previous case which the Court remanded due to an incomplete stipulation.  So, I thought I would write about this non-precedential order.


As mentioned above, the Low case involves CDP.  CDP cases do not naturally lend themselves to submission under Rule 122 and I do not remember seeing a fully stipulated CDP case previously much less one that was remanded.  The fact that CDP cases do not regularly use Rule 122 does not mean that its use here was inappropriate.  The factual nature of CDP cases usually involves a petitioner who wants or needs to testify – assuming they get past the now routine motion for summary judgment.  A CDP case contesting the merits of the liability could easily qualify for Rule 122 treatment.

The failure to submit the administrative record as part of the Rule 122 submission leaves the judge less than satisfied with the record he must work with to make a decision.  He states:

In the notice of determination, the AO provides a perfunctory statement asserting she verified respondent’s compliance with the “requirements of any applicable law or administrative procedure” by reviewing petitioner’s account transcripts. Petitioner’s transcripts are not included in the record before us. In fact, we were not provided any of the documents that ordinarily comprise the administrative record, that corroborate and support an appeals officer’s findings and determinations. See IRM pt. (Sept. 18, 2012)(when litigating a CDP action respondent ought to provide the Court with a substantive and authenticated copy of the administrative record as described in IRM pt. (July 25, 2012)(e.g.: Forms 4340, Case Activity Record Prints)). The stipulated record is astonishingly thin, composed of only four exhibits: two letters from petitioner, the levy notice, and the notice of determination. A clear record is necessary for review of any administrative proceeding. Here, the paucity of the record before the Court provides anything but clarity. It is within the Court’s discretion to remand cases to respondent’s Office of Appeals for clarification and supplementation of the administrative record as appropriate. See Wadleigh v. Commissioner, 134 T.C. 280, 299 (2010); Hoyle v. Commissioner, 131 T.C. 197 (2008); see also Gurule v. Commissioner, T.C. Memo. 2015-61 (remand is appropriate when the appeals officer failed to develop an administrative record sufficient for judicial review). Because the administrative record is insufficient, and we are unable to properly evaluate whether the AO abused her discretion, we will remand this case.

The quoted material contained two footnotes.  The first footnote addressed the material the IRM suggests should be made part of the record and provides the following:

IRM pt. directs respondent’s counsel, when attempting to dispose of a CDP case by means of summary judgment, to provide this Court with supporting declarations and an authenticated copy of the comprehensive administrative record. See also Rule 121(d). It would seem appropriate to expect the same when a case is similarly submitted for disposition without trial under Rule 122.

The second footnote addressed the failure of respondent to discuss the proof issue raised in Chai v. Commissioner regarding the authorization of the penalty asserted by the IRS.

It is clear that the IRS attorney has work to do here.  We have addressed in several posts the additional work needed by the IRS in its summary judgment motions under Rule 121 as pointed out by several orders issued by Judge Gustafson.  Now, Judge Nega points out the many missing pieces when the IRS seeks instead to use the fully stipulated Rule 122 procedure.  The regularity of these orders suggests that Chief Counsel attorneys may need to step back and think more deeply about what they must prove in submitting cases.

The decision in Chai changes the game somewhat but the problems go deeper.  Here, the Court allows/orders the parties to resubmit a fully stipulated case.  In some ways this is like having a trial and then getting a do over.  It does not reflect well on the IRS that it cannot identify the facts necessary to prove its case and that it has submitted a case fully stipulated which falls so far short of the necessary proof.

Rule 122, when used properly, allows the parties to save time and money by not having to go through a trial.  When submitting a case fully stipulated, however, you must go through all of the same steps regarding proof that you would do if you had a trial.  You must carefully analyze each issue in the case and make sure that you have put in evidence that will support your position on the issue.  The failure to do so creates a disaster.  Having a Rule 122 case returned as an inadequate submission is not something I remember seeing before.  The IRS looks really bad here.

The taxpayer represented himself and made frivolous arguments.  The Court admonishes him to stop making such arguments or face a penalty.  The Court remands the case to Appeals.  I am sure the IRS will do a better job when/if the case comes back to the Court but surprised that it missed the mark so widely in this first attempt.

Bias Creating Remand


I wrote last August about the first case in the Tax Court involving a motion for reconsideration based on a decision by former Judge Kroupa alleging that the petitioner lost the case due to bias because at the time of the issuance of the opinion the IRS had begun its investigation.  The docket sheet suggests that the case is moving toward a new trial.   Occasional guest blogger Andy Roberson of McDermott Will and Emery posted on his law firm blog another case in which the petitioner sought remand due to the alleged bias of former Judge Kroupa.  The party argued that a decision by former Judge Kroupa in a different case with a similar issue should not be followed because of her bias which impacted the outcome of her opinion, making her opinion one on which the 1st Circuit should not rely in reaching its decision in the Santander case.  Despite seeking to have former Judge Kroupa’s bias somehow impact the outcome of a case with a related issue, the effort to argue her bias did not stop the 1st Circuit from reversing the decision of the district court.

Andy also blogged about the Tax Court’s new rules for judicial conduct adopted in 2016 after the indictment of former Judge Kroupa.  My research assistant looked for other cases in which parties had alleged bias by former Judge Kroupa should result in a reversal of the initial opinion.  She did not find any other cases raising this issue.


On March 6, 2017, the Supreme Court issued a per curiam order in the case of Rippo v. Baker in which it reversed the decision of the Supreme Court of Nevada on the basis that the judge presiding over the state court trial of Mr. Rippo was the target of a federal bribery probe at the time of his case.  Mr. Rippo argued that, even though he was being tried in the state system and his judge was being investigated by the feds, the local DA’s office was playing a role in the federal investigation and that connection prevented the judge from acting impartially.  The judge declined to recuse himself.  After the judge’s indictment, a different judge denied Rippo’s motion for a new trial.  The Nevada Supreme Court affirmed the denial of a new trial.  Mr. Rippo continued to advance his argument in seeking post-conviction relief.  The state courts continued to deny him relief and likened his defense to the ‘camouflaging bias’ theory discussed in Bracy v. Gramley, 520 U.S. 899 (1997) where the Court stated:

The Bracy petitioner argued that a judge who accepts bribes to rule in favor of some defendants would seek to disguise that favorable treatment by ruling against defendants who did not bribe him.  Id., at 905.  We explained that despite the ‘speculative’ nature of that theory, the petitioner was entitled to discovery because he had also alleged specific facts suggesting that the judge may have colluded with defense counsel to rush the petitioner’s case to trial.  See id., at 905-909.  The Nevada Supreme Court reasoned that, in contrast, Rippo was not entitled to discovery or an evidentiary hearing because his allegations ‘did not support the assertion that the trial judge was actually biased in this case’  132 Nev., at __, 368 P. 3d, at 744.

Bracy is a criminal case and we could not find where the rule in Bracy had been applied in a civil proceeding.

The Supreme Court vacated the decision of the Nevada Supreme Court because it applied the wrong standard, stating that “the Due Process Clause may sometimes demand recusal even when a judge ‘has no actual bias.’” Citing to Aetna Life Ins. Co. v. Lavoie, 475 U.S. 813, 825 (1986) the Court went on to state that “[r]ecusal is required when, objectively speaking, ‘the probability of actual bias on the part of the judge or decisionmaker is too high to be constitutionally tolerable.’”  Aetna Life was a civil proceeding in which one of the judges had a significant personal interest in a class action against Blue Cross and decided against the insurance company.  Interestingly, the other judges in the case also had some interest because they were connected or covered by Blue Cross but it was determined that their connection was remote and minimal so it did not reach the bias threshold.

The Court went on to talk about the risk being too high that bias might exist to be constitutionally tolerable as it remanded the case for further proceedings.  The Rippo case differs from the cases alleging bias by former Judge Kroupa both because it involves a criminal matter and the person claiming bias did so at the outset of the proceeding.  Still, Rippo shows the struggles that occur when sorting out possible motives for a judge to rule in a case where objectivity comes into question.  The fallout from former Judge Kroupa’s actions may now be limited to the Eaton case.  Other petitioners in the cases she decided and the IRS do not seem to have brought any cases alleging bias and enough time has now passed that it seems unlikely that additional parties will allege bias because of the criminal investigation.  The Tax Court showed its willingness in Eaton to give the taxpayers a second chance with a new judge.  Rippo demonstrates that the Supreme Court has little tolerance for biased judges, but that case involves criminal liability.  It will be hard to demonstrate that former Judge Kroupa’s decisions resulted from bias because of the criminal investigation.  Maybe this chapter of troubles for the Tax Court resulting from former Judge Kroupa’s action will end with Eaton.



Representing Your Client in Tax Court with a Power of Attorney

In the tax clinic, we file very few Tax Court petitions because our clients do not come to us at the stage of receiving a notice of deficiency.  When we do file a Tax Court petition in response to a notice of deficiency, we sign the petition unless the taxpayer comes to us at the last second, preventing us from verifying the information in the petition.  In cases where the taxpayer shows up at the last second, we will assist the taxpayer in preparing a petition, have the taxpayer file the petition pro se, and obtain a power of attorney.  In most Tax Court cases worked by the clinic, the taxpayer comes to us because of the stuffer notice issued by the Tax Court after the individual has filed their petition.  In those cases, we do not typically enter an appearance but rather obtain a power of attorney.  I use the power of attorney rather than entering an appearance because I want the taxpayer to demonstrate to me that they will work with me to resolve the case and also because I want time to verify the information the taxpayer brings to the initial meeting before I jump in with an entry of appearance that requires court permission to undo.  For a cautionary tale on entering an appearance in a Tax Court case before you know your client see the post by guest blogger Scott Schumacher.

Chief Counsel’s office has struggled over the past decade in which I have worked in tax clinics about what to do with practitioners who obtain a power of attorney but do not enter an appearance in the Tax Court case.  On April 18, 2017, it issued Notice CC-2017-006 which is the latest, and the best, statement about how it will deal with practitioners like me who seek to represent clients in Tax Court cases using a power of attorney.  The latest notice supplements Chief Counsel Notice CC-2014-003 which replaced Chief Counsel Notice CC-2013-005.  I blogged about the 2013 notice here.  The latest notice amends prior notices based on the American Bar Association (ABA) Committee on Ethics and Professional Responsibility Formal Opinion 472 which provides guidance with respect to communication to persons receiving limited scope legal services.

For those of you following changes in the leadership of Chief Counsel’s Office, Notice CC-2017-006 is signed by Kathy Zuba as the Acting Associate Chief Counsel (Procedure & Administration).  Kathy replaces Drita Tonuzi who has become the Deputy Chief Counsel (Operations) following the retirement of Debra Moe.


Tax Court Rule 201(a) tells practitioners before the Court to practice in accordance with the ABA Model Rules of Professional conduct making the opinions of the ABA Ethics committee more important in Tax Court practice than they might be elsewhere.  ABA Model Rule 4.2 provides that, “in representing a client, a lawyer shall not communicate about the subject of the representation with a person the lawyer knows to be represented in the matter, unless the lawyer has the consent of the other lawyer or is authorized to do so by law or a court order.”  The requirement that a lawyer (government or private) communicate with a party’s representative only applies to communications covered by the scope of the representation and only where “the lawyers knows that the person is in fact represented in the matter to be discussed.”

ABA Formal Opinion 472 gives guidance in situations in which the represented party has an attorney for some but not all aspects of the matter.  The Opinion requires the attorney to communicate with the opponent’s attorney if the communication concerns “an issue, decision, or action” covered by the limited representation.  If the matter is outside the scope of the limited representation then Model Rule 4.3, not 4.2, governs the communication.  The Opinion provides that when an attorney has “reason to know” the other party “may be represented with respect to some portion of a matter” the attorney should inquire about the nature and scope of the representation and not close their eyes to the obvious.

ABA Model Rule 4.2 must be read in conjunction with the Tax Court rules on representation in a Tax Court proceeding.  Tax Court Rule 24(b) provides that a petitioner who has not had counsel enter an appearance is deemed to be appearing “on the party’s own behalf.”  This rule limits what a representative with only a POA can do in Tax Court.  Such a representative cannot sign documents filed with the court such as a stipulation of fact or a decision document.  Such a representative also cannot stand up in court and speak on behalf of the client.

The Notice concludes, that despite the limitations placed on a representative operating only with a POA in the Tax Court case, Opinion 472 requires Chief Counsel attorneys to communicate with the limited scope representative “when the communication concerns an issue, decision, or action that is within the scope of the limited representation.”  The Notices also directs Chief Counsel attorneys to ask the taxpayer if he or she is represented “in some or all aspects of the Tax Court case” and further directs them to contact the limited scope representative if the taxpayer’s response does not make the scope clear.

Most Chief Counsel offices have probably already been operating more or less as the Notice provides.  For the offices that have not treated the POA as something requiring  recognition in a Tax Court case, the new Notice will make it easier for the POA to handle the case.  Working with a POA should generally make it easier for the Chief Counsel attorney.  I have experienced very little difficulty working with Chief Counsel’s office with a POA and hope the attorneys there with whom I have worked feel the same in working with the clinic.  We understand the limitations and regularly enter an appearance at some point after starting out with a POA.  The POA gives flexibility in situations in which the client needs immediate assistance but you are trying to come to an understanding of the case and sometimes an understanding of the client.  It allows you to give and get information from Chief Counsel and Appeals as you make a decision concerning whether to enter an appearance and provide full scope representation.  The Notice may not change the practice in many places but does provide a good statement of how the parties can work together in a Tax Court case even without an entry of appearance.

Multiple Appellate Courts Again to Weigh in on Meaning of Freytag

We welcome back frequent guest blogger, Carl Smith.  Carl writes about the ongoing litigation seeking an answer to the status of the Tax Court within our constitutional framework and other issues spun out by Freytag.  Keith 

In Freytag v. Commissioner, 501 U.S. 868 (1991), the Supreme Court held that the Appointments Clause did not prohibit the Tax Court’s Chief Judge from appointing Special Trial Judges because the Tax Court was one of the “Courts of Law” mentioned in the Clause and because the Chief Judge could act for the Tax Court.  In reaching these rulings, the Supreme Court made subsidiary holdings that have puzzled the lower courts.  Two subsidiary holdings in particular are being disputed currently in the Courts of Appeals:

First:  Did the Supreme Court’s observation that Tax Court Special Trial  Judges can enter final decisions in some cases under what is today § 7443A(b)(7) mean that, in order to be an “Officer” of the United States subject to the Appointments Clause procedures (as opposed to being a mere employee), a government worker must have the power to enter final rulings on behalf of the government?

Second:  Subsidiary to its holding that the Tax Court was one of the Courts of Law, in which, if any, Branch of the federal government did the Supreme Court place the Tax Court?

This brief post tells the reader where and when the Freytag subsidiary holdings are currently being litigated in the Courts of Appeals.


Who is an Officer?

As to the first subsidiary issue – the finality of rulings to be an Officer – in 2000, the D.C. Circuit in Landry v. FDIC, 204 F.3d 1125, held that Freytag required that Officers have final ruling authority, and since FDIC ALJs did not have such authority, FDIC ALJs need not be appointed under the Appointments Clause.  Relying on Landry, the Tax Court in Tucker v. Commissioner, 135 T.C. 114, 165 (2010), affd. on different reasoning 676 F.3d 1129 (D.C. Cir. 2012), held that because rulings by Appeals in CDP are not “final” (according to the Tax Court), Appeals Team Managers and Settlement Officers conducting CDP hearings need not be appointed, either.  Also relying on Landry, the D.C. Circuit last year in Raymond J. Lucia Cos., Inc. v. SEC, 832 F.3d 277, held that because SEC ALJs do not exercise final authority (the SEC does), SEC ALJs do not need to be appointed.

I have reported on the fight over the constitutionality of the lack of appointment of SEC ALJs and its possible impact on whether ALJs borrowed by the Treasury to hold Circular 230 sanctions hearings need to be appointed, as well, in several blog posts (here, here, here, and here).  In my most recent post, I noted that the Tenth Circuit in Bandimere v. SEC, 844 F.3d 1168 (Dec. 27, 2016), rejected Landry and held that Freytag does not require that a federal worker exercise final ruling authority before having to be appointed under the Appointments Clause, and so SEC ALJs, because of their extensive judge-like powers on important topics, needed to be appointed.  I predicted that this Circuit split over SEC ALJs would shorty end up before the Supreme Court.

Well, I was at least premature.  The D.C. Circuit is trying to avoid the Circuit split.  Instead, on May 24, it will rehear Lucia en banc over the issues of whether Landry misinterpreted Freytag and whether the D.C. Circuit should overrule Landry in favor of the Bandimere holding.

As an aside for those interested in separation of powers issues, the D.C. Circuit that day will also rehear en banc the earlier panel holding that the Consumer Financial Protection Bureau is not constitutionally formed because the Bureau is headed only by a single Director.  PHH Corp. v. CFPB, 839 F.3d 1 (Oct. 11, 2016) and 2017 U.S. App. LEXIS 2733 (Feb. 16, 2017) (“If the en banc court, which has today separately ordered en banc consideration of Lucia v. SEC, 832 F.3d 277 (D.C. Cir. 2016), concludes in that case that the administrative law judge who handled that case was an inferior officer rather than an employee, what is the appropriate disposition of this case?”).

In Which Branch is the Tax Court Located?

As to the issue in Freytag about the Branch in which the Tax Court is located, this issue has come up in litigation over the validity of the President having a removal power over Tax Court judges in § 7443(f).  In Kuretski v. Commissioner, 755 F.3d 929 (D.C. Cir. 2014), cert denied 135 S. Ct. 2309 (2015) (on PT last blogged here and here, the D.C. Circuit found that there was no interbranch removal separation of powers issue because the Tax Court, like the President, was located in the Executive Branch – and Freytag’s language was not to the contrary.  In Battat v. Commissioner, 148 T.C. No. 2 (Feb. 2, 2017), the Tax Court recently rejected Kuretski’s holding that the Tax Court per Freytag was part of the Executive Branch and instead held that per Freytag the Tax Court was located somewhere else (though the Tax Court wouldn’t say exactly where).  Still, the Tax Court in Battat felt that the removal power, even though interbranch, did not run afoul of the separation of powers doctrine because the Tax Court doesn’t decide cases that could be heard by courts at common law.

In a recent post, I noted that Joe DiRuzzo and his firm had a number of cases in which the removal power issue was challenged pre-trial (as in their Battat case).  Joe had sought permission from the Tax Court for interlocutory appeals under § 7482(a)(2)(A), but the Tax Court had refused to authorize interlocutory appeals.  Well, Joe doesn’t easily take “no” for an answer.  And in light of the fact that the Tax Court said it only could decide the removal power issue under the rule of necessity – since all of its judges were inherently implicated and biased by the potential validity of the removal power – I don’t blame Joe for not taking a “no” from the Tax Court this time.  He has in fact appealed four of his firm’s cases that present the Battat issue, on an interlocutory basis, to three different Courts of Appeals:  Teffeau v. Commissioner, Tax Court Docket No. 27904-10, Fourth Cir. Docket No. 17-1463 (opening brief due May 22); Elmes v. Commissioner, Tax Court Docket No. 22003-11, Eleventh Cir. Docket No. 17-11648 (opening brief due May 22); Thompson v. Commissioner, Tax Court Docket No. 6613-13, Ninth Cir. Docket No. 17-71027 (opening brief due June 29); and Battat v. Commissioner, Tax Court Docket No. 17784-13, appealed to the Eleventh Circuit, but no docket number yet available from the Eleventh Circuit.  Interestingly, Joe had moved to invalidate the notice of deficiency in Elmes under the reasoning of Scar v. Commissioner, 814 F.2d 1363 (9th Cir. 1987), but that motion was denied in an order (found here: issued on April 17, 2017 – several days after Joe appealed the case to the Eleventh Circuit.

We will keep you updated on developments in all of these Freytag-related appeals.


Tax Court Won’t Certify Battat for Interlocutory Appeal

We welcome back frequent guest blogger Carl Smith who writes today in continuation of coverage concerning the status of the Tax Court within the constitutional framework.  We especially thank Carl for his timely guest post as Les presents on taxpayer rights in Vienna, Steve shovels out in Philadelphia, and I visit warmer climes for spring break.  Keith

In Battat v. Commissioner, 148 T.C. No. 2 (Feb. 2, 2017), on which we blogged here and here, the Tax Court (Judge Colvin) held that there is no constitutional separation of powers problem in the President’s holding a removal power under section 7443(f) with respect to its judges.  Battat holds that the Tax Court is not a part of the Executive Branch — unlike the D.C. Circuit in Kuretski v. Commissioner, 755 F.3d 929 (D.C. Cir. 2014), which held that the Tax Court was still an Executive Branch entity.

Joe DiRuzzo is the lawyer for the Battats and several additional clients in whose cases he raised the same constitutional argument.  He has cases that could be appealed to several different Circuits.  His cases are before Judges Colvin, Jacobs, and Wherry, and Chief Judge Marvel.  After the Battat opinion, Joe moved for permission to file an interlocutory appeal on this separation of powers issue in the cases that are before Judges Colvin, Jacobs, and Wherry.  Interlocutory appeal orders are not granted automatically, and must be issued under section 7482(a)(2)(A).  The court should grant an interlocutory appeal motion if (1) a controlling question of law is involved, (2) substantial grounds for a difference of opinion are present, and (3) an immediate appeal may materially advance the ultimate termination of the litigation.

In First Western Government Securities v. Commissioner, 94 T.C. 549 (1990), affd. sub nom. Samuels, Kramer & Co. v. Commissioner, 930 F.2d 975 (2d Cir. 1991), the Tax Court had held, unanimously and en banc, that it is a Court of Law for purposes of the Appointments Clause, so there is no problem with the Chief Judge’s appointment of its Special Trial Judges.  Despite the absence of any contrary holding at the time, the Tax Court in First Western certified an interlocutory appeal of its holding because of the importance of the issue — eventually leading to the Supreme Court’s opinion in Freytag v. Commissioner, 501 U.S. 868 (1991). See 94 T.C. at 569 (Appendix E) for the interlocutory certification.

On March 14, Judges Colvin, Jacobs, and Wherry each denied Joe DiRuzzo’s motions to certify the Kuretski/Battat issues in his cases for immediate interlocutory appeal.  Here’s a link to the order in Battat, though the orders are identical in each case.  The orders admit that there is a divergence in the reasoning between the Tax Court and D.C. Circuit as to how both courts get to the conclusion that there is no constitutional problem in the removal power.  But, the Tax Court judges do not think that divergence enough to warrant interlocutory appeals.  The orders simply state:

The Court of Appeals in Kuretski applied a different analysis, but it rejected, as did this Court, the contention that Presidential removal authority is unconstitutional. Petitioners cite, and we are aware, of no legal authority supporting petitioners’ contention regarding the controlling issue of law in this case. Thus, we conclude that the second requirement of section 7482(a)(2), the presence of “substantial grounds for a difference of opinion”, is not met.

I beg to differ, and so, doubtless, would the late Justice Scalia.  He wrote in his concurrence in Freytag:

When the Tax Court was statutorily denominated an “Article I Court” in 1969, its judges did not magically acquire the judicial power. They still lack life tenure; their salaries may still be diminished; they are still removable by the President for “inefficiency, neglect of duty, or malfeasance in office.” 26 U.S.C. § 7443(f).   (In Bowsher v. Synar, supra, [478 U.S. 714] at 729 [(1986)], we held that these latter terms are “very broad” and “could sustain removal . . . for any number of actual or perceived transgressions.”) How anyone with these characteristics can exercise judicial power “independent . . . [of] the Executive Branch” is a complete mystery. It seems to me entirely obvious that the Tax Court, like the Internal Revenue Service, the FCC, and the NLRB, exercises executive power.

501 U.S. at 912 (emphasis in original; some citations omitted).

I am surprised that the orders make no mention of the interlocutory appeal certification granted in First Western.  I think that this, at the very least, is inconsistent behavior by the Tax Court as to allowing interlocutory appeals.


Tax Court Calendar Call Program

At the recent ABA Tax Section meeting in Orlando, the Pro Bono and Tax Clinic Committee had a panel on the Tax Court calendar call program to celebrate the 25th anniversary of the program.  The twenty five year celebration was a little squishy in terms of a precise time frame because of the informality with which the program began but it allowed the panelist to talk about an action begun by one person that has turned into an opportunity for pro se litigants that no other federal court offers.  The panel showcased again how pro se friendly the Tax Court is to the 70% of its petitioners who enter its doors with no representative but also how the Court, before embracing this program, took slow steps at first out of concerns for those taxpayers.


Karen Hawkins, who is the chair elect of the Tax Section, got the calendar call program started in the early 1990s in San Francisco.  She had a tax controversy practice in that area that regularly brought her to Tax Court calendar calls.  At those calendar calls she observed that unrepresented taxpayers appeared who had no idea what to do.  So, she began trying to assist them by giving them advice on a quick, informal and pro bono basis.  The problem she observed in San Francisco was occurring throughout the United States.  I noted in a prior post that one Tax Court judge’s solution in a case in which the petitioners were particularly clueless was to have me as Government’s counsel waiting to try the next case sit with petitioners at their table and explain what was happening in the case.

Karen not only identified the problem faced by pro se petitioners at calendar call but she brought it to the attention of the Tax Section of the California Bar.  Representing the California Bar, she approached then Chief Judge Hamblin and asked him for permission to have the program of assisting pro se petitioners at calendar call recognized by the Tax Court.  He said no.   In the panel discussion Karen mentioned an incident that occurred before Judge Cohen in which an attorney came to a calendar call ostensibly to assist a pro se petitioner and ended up charging a fee.  This type of anecdotal experience would naturally have a dampening impact on the interest of the Court in such a program.

Chief Judge Hamblin’s concerns would have been similar to the concerns of the Tax Court judges when the first low income taxpayer clinics were established 15 years earlier.  I wrote about those concerns in an article on the history of the clinics.  The concerns arise from the cautious nature of a body like the Court and the need to protect the litigants before it as well as the institution of the Court itself.  Fortunately, Judge Swift, who came from California, stepped up and said that he would conduct a pilot to allow the Court to determine if providing some assistance to pro se petitioners at calendar call would benefit the petitioners and the proceeding.  For the first few calendar calls Karen was person who came and who met with taxpayers.  She did not have a group of volunteers with her.  She gave only her first name and did not give out a business card because one of the concerns centered on the possible use of the calendar call program as a business building exercise.  Pete Bakutes, the District Counsel for the IRS in San Francisco, was very supportive of the effort and that made a difference.  Before the Court arrived in San Francisco, Karen, Pete and Judge Swift had a conference call to discuss who the judge would announce the availability of Karen to unrepresented petitioners.

Judge Swift reported back to the Court that the assistance at calendar call was a success.  Not too long thereafter, Judge Nims visited San Francisco.  On his calendar was a taxpayer who, at that time, would have been called a tax protestor.  Having seen a few trials involving tax protestors, I am sure that Tax Court judges do not look forward to them.  One of the volunteer attorneys who came to that calendar convinced the tax protestor to concede (something I have had almost no success in doing in that same roll.)  The actions of that volunteer at the calendar call convinced Judge Nims on the benefits of the program, and he returned to DC to tell others on the Court.

Karen brought the idea of the calendar call program to the ABA Tax Section to try to get it to adopt the program as a section activity, but the Tax Section was not ready.  The program continued to evolve in San Francisco and in pockets around the country but did not have broad institutional support.  In Richmond in the mid-1990s Nina Olson participated in calendar call with the Community Tax Law Project.  She and I would call each judge coming for a calendar call in Richmond and most were receptive to announcing the presence of attorneys to assist pro se taxpayers.  Like the Court and the ABA Tax Section, Chief Counsel’s office did not wholeheartedly embrace the idea of the calendar call in the early years.  Part of the success of the program in San Francisco would have been due to the forward looking vision of Pete Bakutes who headed the Chief Counsel office there.  The struggle to get it going and accepted by the institutional players followed a similar path to the struggle to get the low income tax clinics going as discussed above.  Chief Special Trial Judge Panuthos was an early supporter on the Court for this and most programs to assist pro se petitioners.

The program got its institutional boost when Judge Colvin became the Chief Judge.  He saw, in many ways, the benefits to the Court and to the system of representation for the pro se petitioners.  He institutionalized the program at the Court in a way the Court had recently institutionalized its relationship with clinics.  At almost the same time that the Court embraced the calendar call program in a formal manner, the Tax Section of the Texas Bar stepped up and decided that it wanted to adopt this as a formal program of its Section.  Elizabeth Copeland was persuaded to spearhead that effort and she did a great job in organizing attorneys across a state that has the most Tax Court places of trial of any state.  During the panel discussion Elizabeth described all of the steps she took to get that program off of the ground which included attending all of the calendar calls held in the state for the first couple of years.  The organization and efficiency of the program in Texas remains a model for other programs.  The success of program in Texas and in New York City under the guidance of Frank Agostino spurred the creation of programs elsewhere.  The Low Income Taxpayer Committee of the Tax Section began to work with tax clinics and bar programs around the country to insure 100% coverage for Tax Court calendars.  Former committee chair Andy Roberson, who played a role in the effort to get 100% coverage even in cities with no local bar or LITC calendar call program, continues to update the coverage list for all 74 cities and the committee works to make sure that full participation exists.

Now that calendar call programs exist throughout the country in every Tax Court place of trial, and now that the Tax Court, the ABA Tax Section and Chief Counsel, IRS agree that the program provides a benefit to the petitioners and the system, the challenge centers on improving the program rather than building it.  Chief Judge Marvel spoke during the panel about a study conducted in the early 1980s which looked at why cases went to trial.  She spoke of ways the groups involved can continue to study the system looking for improvements.  Chief Special Trial Judge Panuthos, who was also on the panel, reminded the clinicians attending the program of their opportunity each year in their participation letters to provide ideas for improvement of the program.  Of course, the Tax Court does not limit its receipt of ideas and suggestions to that group or to that submission.

Bruce Meneely, who heads the Chief Counsel’s SBSE division, spoke on the panel about changes his office seeks to make in an effort to better engage with pro se taxpayers.  His office is going to call petitioners immediately after the filing of the petition to engage the petitioners.  His office is working with Appeals to determine why Counsel ends up settling some cases instead of Appeals and how the process could change to achieve settlement at an earlier stage.  Chief Counsel’s SBSE division just hired 30 paralegals to assist with small cases which he hopes will also lead to earlier resolution before the need to involve attorneys.  He solicited ideas on how to reach pro se petitioners prior to calendar call because everyone has an interest in resolving the cases as early in the process as possible.  He spoke of the possibility of a status conference with the Court prior to calendar call which some Tax Court judges have adopted as another way to foster resolution before calendar call.

Many tax lawyers around the country now attend calendar call when the Tax Court comes to their city.  The program does a good job of assisting those who come to Court unrepresented and still needing to resolve their case.  As the panel discussed, even better results for everyone can occur if pro se taxpayers can be linked to legal advice earlier in the process in a setting that does not put the pressure of an almost immediate trial on the parties.  As the Court, the bar and Chief Counsel’s office continue to evolve in their efforts to create a more perfect union of taxpayers and representatives, the calendar call program continues to stand out as a significant effort which distinguishes both the Tax Court and the members of its bar for their service to otherwise unrepresented individuals caught up in a process that can overwhelm those individuals.  It is interesting to see how the vision of Karen Hawkins in starting this program, like the vision of Stuart Filler who started the first low income taxpayer clinic at Hofstra Law School in 1974, has created a better environment for taxpayers trying to resolve a dispute with the IRS.