We welcome back today frequent guest blogger Carl Smith. Carl writes about seemingly inconsistent positions taken within the Government between the Department of Justice and Chief Counsel, IRS regarding the use of unpublished orders of the Tax Court. The Tax Court made its orders more accessible a few years ago and even has a mechanism for the judges to identify orders of some significance. I suspect that how and when to use the orders as part of an argument will continue to fuel debates among practitioners for some time – particularly if the Government is divided or inconsistent in its own view of their usage. Keith
Keith did a recent post on a novel issue discussed in an unpublished order in the Tax Court in Laidlaw’s Harley Davidson Sales, Inc. v. Commissioner. In his post, he wrote: “The fact that this novel issue comes up in an order again points to the difficulty in following Tax Court rulings since these orders, though public and beautifully indexed and freely searchable, do not make their way to the reporting services and carry no precedential value.” Recently, the Tax Court in Riefler v. Commissioner, T.C. Memo. 2015-199 at *16 n. 10, stated (and not for the first time) that, although, under section 7463(b), summary opinions in electing small tax cases are not precedential, they may be cited to the Tax Court for their persuasive power. What about citing unpublished orders in unrelated cases to the Tax Court? Is that also now OK? Well, I think so, but the government, at present, is of two minds on the subject, since the government is currently citing unpublished orders in unrelated Tax Court cases to the Tax Court in a pending Tax Court case while the DOJ is currently opposing my attempt to do the same in a pending Ninth Circuit case. I hope that the government does not believe that the rule is that unpublished Tax Court orders can only be cited in courts in unrelated cases if the orders favor the government. I’m more a believer in “what’s good for the goose is good for the gander”.read more...
Tax Court Rule 50(f) provides: “Orders shall not be treated as precedent, except as may be relevant for purposes of establishing the law of the case, res judicata, collateral estoppel, or other similar doctrine.”
Rule 50(f) is similar to the shorter section 7463(b), which states: “A decision entered in any case in which the proceedings are conducted under this section [electing small tax cases] shall not be reviewed in any other court and shall not be treated as a precedent for any other case.”
These are both similar to section 6110(k)(3), which provides, as to IRS technical advice memoranda, determination letters, and private letter rulings, that “[u]nless the Secretary otherwise establishes by regulation, a written determination may not be used or cited as precedent”. However, note that only this latter provision also prohibits the citation of the document.
I don’t know who punishes offenders who cite, say, private letter rulings, but I don’t envy them their task, since private letter rulings have often been cited by the courts, at least to give a history of IRS positions. Who is going to punish the Supreme Court justices who, after acknowledging private letter rulings are not precedential, cited a number of them for the IRS’ changing interpretations of a statute in Rowan Cos. v. United States, 452 U.S. 247, 261 n.17 (1981)? Who is going to sanction Chief Justice Roberts for citing PLR 9332005 in Mayo Foundation v. United States, 562 U.S. 44, 59 (2011)? Don’t ask me to refer him to the OPR for disciplinary sanctions.
In a filing it made on October 7, 2015, in the Tax Court case of Guralnik v. Commissioner, Docket No. 4358-15L, where the issue involved is whether a snow day that closed the Tax Court was a legal holiday for purposes of the filing extension provided by section 7503 (see the earlier post by Keith on Guralnik), the IRS argued that the recommended opinion of Special Trial Judge Armen conflicted with three unpublished orders issued in the last two years by Chief Judge Thornton in unrelated Tax Court cases. The IRS extensively discussed and quoted from these unpublished orders, which can be found at Fitzpatrick v. Commissioner, Docket No. 4416-15S (Apr. 28, 2015) (involving the exact same snow day as was involved in Guralnik); Colabella v. Commissioner, Docket No. 1034-14S (Apr. 15, 2014) (snow day); and McCoy v. Commissioner, Docket No. 2591-13S (Feb. 3, 2014) (day the Tax Court was closed because of government shutdown). How did the IRS justify discussing these unpublished orders for 7 pages? I quote from the IRS filing:
94. Neither small tax cases nor Tax Court orders are to be treated as precedent. I.R.C. § 7463(b); T.C. Rule 50(f). However, they are illustrative with respect to how the Court has handled identical and similar cases in the past.
95. In this case, the Court’s Order [attaching a recommended opinion holding 7503 to include snow days] is in direct conflict with its past procedure and orders on jurisdictional matters in substantially similar cases . . . .
99. The Court’s Order in this case is in direct conflict with the order in Fitzpatrick. In both cases, the petitions arrived at the Court on February 18, 2015 (Fitzpatrick’s due to hand delivery; Petitioner’s due to the use of an undesignated private delivery service), one day after the expiration of each respective statutory time period for filing a Tax Court petition. The Court should be consistent in its treatment of one-day-late petitions that were filed on February 18, 2015 . . . .
103. Considering the similarity between Colabella and the present case, the result should be the same. Dismissal of the taxpayer’s case in Colabella for lack of jurisdiction while allowing Petitioner’s case to go forward on the grounds that the snow day was a “holiday” or that the Court was inaccessible leads to inconsistent results . . . .
109. The Court’s Order in this case is wholly inconsistent with its position regarding the filing of petitions during the 2013 federal government shutdown and the outcome of McCoy.
So, apparently, the IRS thinks unpublished unrelated-case Tax Court orders can be cited to the Tax Court for the purpose of urging the court to be consistent.
As some of you may recall, the IRS lost the case of Rand v. Commissioner, 141 T.C. 376 (2013), where the Tax Court, en banc, held that disallowed refundable tax credits in most cases are not part of the section 6664(a) “underpayment” on which a 20% section 6662 penalty may be imposed. The IRS abandoned its initial appeal of Rand and now agrees with the Tax Court. But, this left the issue of what to do in Tax Court cases where the lack of “underpayment” issue was present, but the cases had not yet been decided or become final. In some cases, IRS attorneys fixed the calculation of the underpayment without prompting from judges. But, in other cases, Tax Court judges themselves fixed the underpayment calculation, even though taxpayers in those cases either pleaded nothing in their petitions about penalties or failed to mention the issue of the penalty’s miscomputation. Judges did these fixes notwithstanding Tax Court precedents holding that a failure by a taxpayer to plead anything about penalties deems the penalties conceded as proposed. Judges did these fixes sometimes over the objection of IRS attorneys that the taxpayers, having not pleaded anything about penalties, conceded them. I have blogged before about the summary opinions and unpublished orders in which the judges did this, and I have also pointed out that former Judge Kroupa refused to recompute the penalties to be consistent with Rand in companion cases named Morales v. Commissioner, T.C. Memo. 2013-192. See my posts here and here. The Morales cases are on appeal in the Ninth Circuit, and the oral argument is scheduled to be done – on behalf of the taxpayers, pro bono, by yours truly – on December 9.
The DOJ in Morales is still trying to keep two section 6662 penalties of $1,600 each, even though, as properly computed under Rand, the DOJ concedes that the penalties would be $0. I have made various arguments, including that the Circuit court on its own should recompute the penalties and that the Tax Court pleading rules are inconsistent with section 7491(c), which places the burden of production on penalties assessed against individuals on the IRS. But, I have also asked the Ninth Circuit to take judicial notice of the various summary opinions and unpublished orders of the Tax Court in unrelated cases where the judges, sua sponte, recomputed the penalties to conform to Rand – sometimes even over the objection of the IRS attorneys. I have argued that one question might be whether Judge Kroupa abused her discretion in not recomputing the penalties in the Morales cases, since apparently every other judge did so in his or her Rand-type cases – even though in none of those cases did the pro se taxpayer ever raise an issue with the amount of the “underpayment”. Abuse of discretion is one of the questions in the case, as I asked Judge Kroupa to recompute the penalties in a motion for reconsideration of her previous opinion in the case that held the taxpayers negligent, T.C. Memo. 2012-341.
What has been the DOJ’s response to my motion for judicial notice of these summary opinions and unpublished orders? Let me quote from the April 15, 2014 DOJ response to my motion in Morales:
§ 7463(b) provides that decisions in small tax cases are not to be treated as precedent. Tax Ct. R. 50(f) provides a like rule regarding orders of that court. Judicial notice should not be granted where, as here, the documents in question are ones on which the proponent “was not entitled to rely.” Lucky Stores, Inc. & Subs. v. Commissioner, 153 F.3d 964, 967 (9th Cir. 1998). In Lucky Stores, this Court upheld the Tax Court’s denial of judicial notice of “private letter rulings and technical advice memoranda upon which Lucky was not entitled to rely.” Id. Here, taxpayers similarly seek to use judicial notice as a means of avoiding the limitations on citation of nonprecedential summary opinions and orders. . . .
Indeed, taxpayers admit that summary opinions may not be cited as precedent under § 7463. (Br. 37 n.13.) But they pay no more than lip service to that critical point. The main thrust of their submission is to treat the decisions in those cases as precedent for this case.
The remaining items (and related pleadings) all address orders from the Tax Court. (Mot. 8-10 (identifying orders).) As noted above, Tax Court Rule 50(f) provides that “[o]rders shall not be treated as precedent, except as may be relevant for purposes of establishing the law of the case, res judicata, collateral estoppel, or other similar doctrine.” Taxpayers are flouting this limitation as well. [DOJ response, pages 14-16]
I can’t square the government’s citation of unpublished Tax Court orders in unrelated cases in Guralnik with its objection to citation of unpublished Tax Court orders in unrelated cases in Morales. As I see it, it is fair game to cite unpublished Tax Court orders in any case, so long as one is citing them only for ruling patterns or their persuasive value. After all, no district court opinion is ever precedential, yet Circuit courts allow their citation (including for weight of the authority). But, we’ll see. Maybe the Ninth Circuit will agree with the DOJ. If the Ninth Circuit does, who will sanction the IRS attorneys in Guralnik and will anyone sanction me? Stay tuned.