Designated Orders: July 17 – 21 or What’s Happening with 6751?

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For those concerned that the summer doldrums are set to descend upon the United States Tax Court, take comfort in knowing that there were six designated orders issued last week. Nevertheless, this post will be fairly short: four of the designated orders will be given no scrutiny (caption change here, motion to withdraw here, correction of a division opinion typo here, and request for legal memorandum here). Only passing mention will be given to one other: the bulk will be devoted to one potentially consequential order dealing with supervisory approval of penalties post-Chai.

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After beginning the post by saying that I will essentially ignore five of six designated orders last week, it may be appropriate to explain why designated orders remain an important source of information. To quote a designated order that was issued just last week (found here), it is wise to keep on top of the orders because even though they are not precedential they “may be helpful to the parties in showing the […] judge’s thinking[.]” I couldn’t help but feel validated by Judge Gustafson as he suggested that counsel review past orders on the subject at hand…

A Ripple in Chai… Can the IRS (Still) Just Go Through the Motions?Jaggers v. C.I.R., Dk. # 21873-16 L (found here)

This is a pro se case with what may well involve tax-protester type arguments (it arises from penalties pertaining to frivolous tax submissions). But if there is one thing I have seen again and again in the designated orders I’ve reviewed, it is that the IRS just “goes through the motions” (especially in a CDP context and especially on a motion for summary judgment) the Court is asking questions. The Court takes review of the record seriously: when the IRS says “trust us,” the Court responds “show me.” See, for example, last month’s post designated orders on prior mailing dates and assessment issues here. The following designated order follows this trend, but more importantly brings the requirements of supervisory approval of penalties post-Chai into focus.

Much has been said about how the Tax Court has responded to Chai (see here, here and here). Here, we have an order that provides yet another glimpse into how the emerging importance of IRC 6751 interfaces with somewhat perfunctory IRS procedures. After a CDP hearing, the IRS routinely issues a Notice of Determination containing the boilerplate that Appeals “has verified that the requirements of any applicable law or administrative procedure have been met.” Usually this “verification” statement isn’t different from a conclusory statement of law, and essentially tracks the statutory language verbatim (see IRC 6330(c)(1)). A question may arise as to whether that statement is good enough, or if something more (say, for instance, providing specific facts) that they took the necessary steps to verify needed? When IRC 6751 is at play, even without the petitioner challenging the statement the answer may be “we need more.”

Judge Gustafson notes that the IRS does not specifically mention or reference the supervisory approval needed under IRC 6751 for the penalties at hand anywhere in the Notice of Determination or the motion for summary judgment. This is troubling to Judge Gustafson, and he further notes that the IRS has the burden of production on penalties (IRC 7491(c)). Thus, Judge Gustafson orders that the IRS address that issue by either (1) remanding to Appeals to get verification needed on the approval of the penalties, (2) providing greater detail on why it doesn’t need to get verification to prevail with the facts it currently has, or (3) conceding the penalties. Since the order was issued, the IRS appears to have gone the route of trying to get verification of approval of the penalties: the case has been remanded to Appeals (order here).

As mentioned in the intro to this week’s post, designated orders (and orders in general) are important for providing a glimpse into the judge’s way of thinking. For an emerging issue like supervisory approval post-Chai, this is doubly important because different judges seem to have very different approaches. (A very grateful “tip of the hat” to frequent guest blogger Carl Smith for providing insight on this issue.) Some appear to have no problem with the IRS failing to verify the supervisory approval if the taxpayer did not specifically bring it up, as the issue is then deemed conceded. These judges would appear to include Panuthos (case here) and Lauber (case here). Others, however, put the onus on the IRS to show that IRC 6330(c)(3) was followed by showing supervisory approval (see order from Judge Leyden here). Note that Judge Lauber’s decision also arises in the CDP context such that IRC 6330(c)(3) would apply. There may well be another designated order issued just this week (to be blogged on next week) that could provide more insight on a developing split, if there is one…

Lastly, it is also important to note that this designated order is helpful for practitioners in that it references the governing IRM (IRM 25.25.10.8.1 for frivolous submission penalties) and IRS form that supervisory approval should be found (i.e. Form 8278). Knowing the IRS Form that is at issue is extremely helpful when making both FOIA and informal requests for documents from the IRS.

 

 

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