Designated Orders Post: Week of 2/26 – 3/2 Estate of Michael Jackson, A New Graev Issue and More

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Caleb Smith who teaches and directs the clinic at University of Minnesota bring us this weeks designated order post. He starts with the now obligatory designated order concerning yet another aspect of Graev and ends with orders from two frequently recurring judges in the designated order post, Judges Holmes and Gustafson. Judge Holmes puts up another other in the ever popular Estate of Michael Jackson case. It is a “Thriller.” Keith

There were quite a few designated orders last week, but most warrant only a passing mention. Those that will not be discussed include involve motions for summary judgment, granted in full here and here and in part here and here. Of course, we start our substantive discussion with an order continuing the clean-up of Graev III.

Giving the IRS a Chance: Hendrickson v. C.I.R., Dkt. No. 6863-14 (order here)

It seems fairly clear at this point when the IRS does and does not need supervisory approval for a penalty. I believe there may be a future, litigable question as to when the IRS can bypass the supervisory approval issue by relying on computers instead of humans for the determination, but when fraud is alleged (as it was in this case) it is pretty clear that approval will be needed.

Here, trial took place a week after Chai reversed Graev (but ONLY for the 2nd circuit, which this case would not be appealable to). Later, after the Tax Court reversed itself (Graev III) the court ordered the parties to address what effect that reversal had on their present case. The IRS, quite sensibly, took it to mean “Graev III means we need to introduce evidence of supervisory approval in a deficiency proceeding. So… we need to make a motion reopen the record and introduce that evidence.” The IRS then, quite sensibly, made that motion.

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Which brings us the present order…

To some (including a few of my students), insisting on compliance with IRC 6751(b) sometimes looks like a technicality that “bad-actor” taxpayers are trying to take advantage of. In some instances, that may well be so.

Here, with a civil fraud penalty at play, one gets a sense of the “technicality” argument in full force. Judge Buch has little trouble finding that it is within his discretion to open the record in this case (Judge Holmes dealt with a slightly less clear case weeks ago, here). The IRS was playing by the rules that bound the Tax Court at the time of the Hendrickson trial: that is to say, the rules of Graev I and II. Those rules did not require producing evidence of supervisory approval prior to assessment in any case other than those appealable to the 2nd Circuit. When it appears, as is suggested here, that the IRS actually had supervisory approval but failed to introduce it into evidence (in accordance with the Tax Court interpretation of the law, at the time), there isn’t much beyond a technical argument to be made as to why they shouldn’t be allowed to introduce that into evidence now. Kudos to the taxpayers (pro se) in their zealous self-representation… but I surmise they are just accumulating interest on their tax bill at this point.

Volume 36: Estate of Michael Jackson v. C.I.R., Dkt. No. 17152-13 (order here)

We return to another Designated Order favorite: the never-ending saga of Michael Jackson’s estate. Here, after years of motion practice, a trial that produced 36 volumes of transcript, and no less than three separate stipulations of fact, we arrive at the initial stages of post-trial briefing. When you have this voluminous of a record, with evidence so frequently objected to, it is obviously difficult to know what you can (and can’t) rely on as in the record for the brief you are working on. Judge Holmes kindly takes on the task of sorting out one evidentiary issue confronting the parties: resolving the hearsay objections reserved throughout the stipulations.

For practitioners that want an in-depth analysis of numerous hearsay exceptions, I strongly recommend a close reading of Judge Holmes’ order. For tax practitioners generally, I think another aspect is worth highlighting.

And that aspect is the nature of stipulations. This order highlights the proper method of objecting to stipulations on most evidentiary grounds: you note (thereby reserving) your objection, you don’t fail to stipulate. We have seen instances where the two parties fail to get along, and then fail to stipulate, with the Court generally taking a dim view of that approach. Tax Court Rule 91(a) specifically states that an objection may be noted (to relevance or materiality), but that such objection is not, in itself, is not a reason to fail to stipulate.

Stipulations of fact are extremely important in Tax Court cases, and should not be taken lightly in preparing for trial. You should obviously be sure that you’ve stipulated absolutely everything that you need to (if you are submitting fully stipulated), but you also should consider objections and, even then, what your objections have the effect of doing. In this order, with very sophisticated parties (including the newly nominated Commissioner’s firm) it is informative how the taxpayer phrased some of the objections: not that the exhibits were admissible, but only that they could not be cited to as evidence of “truth of the matter asserted.” That is a nuance that often goes missed (but was stressed by the federal district judge that taught my evidence class): the reason you introduce the evidence is critical to whether (and to what extent) it is admissible.

Going Through the Motions: Langdon & Fuller v. C.I.R. (Dkt. No. 22414-15) and York v. C.I.R. (Dkt. No. 2122-17)

Another set of nearly identical orders provide a quick lesson for tax practitioner. As a change to the usual guidance the Tax Court provides to pro se taxpayers, the orders actually give a lesson to IRS counsel. And that lesson is that when you want the court to “do something,” you generally ask through a motion.

Here, a joint status report was given to the court that likely reflected both parties’ near imminent settlement. All that is left is to draft and file a decision document, so the IRS asks for more time to do so in the joint status report. Pretty uncontroversial… but denied, because the request for additional time was not made in a motion.

I tell my students that there aren’t usually “magic words” you need to know when asking the Tax Court to do something: students pull templates off of the internet with archaic “Here comes taxpayer John Smith by his representative Caleb Smith” and worry that if they omit that line the court won’t have any clue what to do with their document. At the same time, though there aren’t magic words, I tell my students to look to the US Tax Court rules to see what, if anything, the Court would want covered in the motion. As an unfortunate example we’ve had to deal with, there are specific things the Court wants in a motion to withdraw (see Rule 24(c)). A quick search of orders citing to that rule shows order after order denying the motion for failure to address something mentioned in the rule. Where there is a specific rule on point, use it as your lodestar.

These orders, denying a request for more time because it was not made in the form of a motion, may seem formulaic (and thus give rise to a “magic word” worry), but Judge Gustafson does a good job of explaining why it isn’t just insistence on form. For one, it makes the job of the judge easier to ask via motion. By using a motion, you also indicate to the court whether the opposing side has an objection (or is aware of the request at all). But perhaps most importantly, by asking the court to do something via motion you ensure that your request is actually seen and heard… With roughly 22,000 cases pending at the end of October, 2017, one can only imagine the amount of paper that accumulates on any given judge’s desk. As Judge Gustafson seems to hint, judges are people too, and if you want to make sure a request isn’t overlooked, you have to give it the bold heading of a request: in other words, a motion.

 

 

Comments

  1. Norman Diamond says:

    “I believe there may be a future, litigable question as to when the IRS can bypass the supervisory approval issue by relying on computers instead of humans for the determination, but when fraud is alleged (as it was in this case) it is pretty clear that approval will be needed.”

    It should never be allowed to rely on computers. TIGTA reported numerous instances of IRS employees being arrested for illicit accesses to IRS databases.

    I think only one IRS employee was arrested in my cases but the problems never end. An IRS database showed an IRS employee that I declared large foreign tax credits which have no basis, when I actually declared $0.00 of foreign tax credits. IRS databases showed that I filed returns which later were no longer on file, but later IRS databases did not show the filing and subsequent unfiling, but later IRS databases showed them again, but later IRS databases didn’t show them again. IRS databases showed that my wife filed returns but later IRS databases showed that she didn’t.

    Things get more complicated in courts where the IRS doesn’t represent itself. The DOJ doesn’t represent the IRS, the DOJ represents the DOJ. The DOJ’s records conflict with the IRS’s records too.

    When fraud is alleged, and the IRS threatens criminal prosecution, the person should be given legal representation. A lawyer would have known to summon a witness from Ameritrade who would testify that my declarations of withholdings were correct. A lawyer also could have told me to sign the preprinted jurat no matter how false I know it to be (e.g. knowing that an attached W-2 is not true and correct, believing that an estimate of interest income is not likely correct, believing that an estimate of another country’s tax is not likely correct, etc.). My honesty was illegal but I think the reason for alleging fraud was the embezzlement of withholding and the coverup of embezzlement. My cases would have been over in weeks instead of still ongoing after decades.

    The only thing less reliable than an IRS employee is an IRS database.

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