How Not to Get Out of a Tax Court Case

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We welcome back guest blogger Scott Schumacher.  Scott teaches at University of Washington where he is a fellow low income tax clinic director but he also finds time to direct the graduate tax program.  Because he previously worked in the Department of Justice Tax Division Criminal Section, he frequently writes on criminal tax matters and co-authors the chapter on Criminal Tax in the 6th Edition of “Effectively Representing Your Client before the IRS.”  In addition, however, he regularly writes on ethical issues.  When I saw the case he discusses below in the advance sheets, I asked him to write a post on it. 

I have had the good fortune never to observe from close quarters or participate in a disciplinary hearing, but I have had some tangential dealings with them.  Tax Court Rule 202 sets out the bases for attorney discipline in the Tax Court.  Many of the attorneys disciplined by the Tax Court have a sanction imposed because they have first received some sanction from the state court bar to which they belong.  Scott discusses a case in which the attorney’s sanction arises from his behavior before the Tax Court.  Because we have not posted on this issue previously, it seemed like a worthy subject for a post.  Keith

I have two recurring nightmares.  The first is that I miss a court date or other important appointment.  While I religiously calendar each appointment, the fear that a court clerk will contact me about a missed hearing nevertheless remains.  A different kind of nightmare, experienced by many attorneys, especially directors of low-income taxpayer clinics, is representing an uncooperative or non-responsive client.  Many low-income taxpayers are in tax trouble because they simply cannot seem to meet deadlines and provide appropriate documentation.  That doesn’t always change when they retain a lawyer.  As a result, I usually wait to enter an appearance on behalf of the client in Tax Court until I have developed a good, or at least decent, working relationship with client.  Otherwise, I may be forced to file a motion to withdraw as counsel, which can require saying some not-so-nice things about my client.

In a recent case in the United States Tax Court, an attorney visited a nightmare upon himself by both not showing up to court and failing to move to withdraw in the case.  His justifications only made matters worse. As a result, he was suspended from practice before the Court.

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The rather convoluted facts of the case can be summarized as follows:  Charles Hammond entered an appearance on behalf of the petitioners Richard & Kay Ohendalski.  The deficiency in the case was substantial – approximately $2.9 million, including tax and penalties.  The case was set to be tried before Judge Goeke in Houston, and the parties had requested a date and time certain for the trial on the second Monday of the trial session.  When the case was called, Mr. and Ms. Ohendalski were present, but their attorney, Mr. Hammond, was not.  When Judge Goeke stated to Mr. Ohendalski that he did not seem surprised that his attorney was not in the courtroom, the petitioner responded that he was not surprised and that his attorney’s absence was part of a “strategy.”  When pressed, Mr. Ohendalski said that his attorney “is not here because he felt like putting me on the stand as a witness would be bad for our case, because of the criminal investigation at the same time.”  Ohendalski apparently had been under criminal investigation by the IRS and Department of Justice Tax Division for the years at issue before the Tax Court, as well as other years.

The possibility that Mr. Ohendalski was under criminal investigation first arose during a conference call with Judge Goeke the week before the start of trial.  During that call, Hammond asked the Court to continue the case based upon the criminal tax investigation of  Ohendalski. The IRS attorney on the call responded that there was no ongoing criminal tax investigation.  This was confirmed when the case was called for trial, and IRS counsel provided a letter from the IRS Special Agent in Charge stating that the criminal investigation had been terminated and that the IRS was now seeking “appropriate civil action.”

Without Hammond present, the trial could not continue as scheduled.  Judge Goeke ordered the IRS to put on its civil fraud evidence without calling Mr. Ohendalski as a witness.  Mr. Ohendalski proceeded to file a total of nine motions and other documents, all of which had been prepared by Hammond.  The Ohendalskis then brought in their criminal tax attorney to assist them with their case.  Eventually, a basis for settlement was reached.

After the Ohendalskis’ case was resolved, the Tax Court issued an Order to Show Cause that gave Hammond the opportunity to show cause why he should not be suspended or disbarred from practice before the Court.  In his response, Hammond admitted that he had intentionally failed to appear for trial. In his defense, he asserted two reasons for his failure to appear: First, he pointed to the “ongoing corresponding criminal tax investigation” of Mr. Ohendalski “for the identical years” pending before the Tax Court, which “rendered effective representation at the civil tax trial impossible.” The Court rejected that assertion.  The Court noted that the IRS had terminated its criminal investigation months prior to the Tax Court trial, and that Hammond was told of that.  Indeed, it would be highly unusual for the IRS to be pursuing a civil tax case in the Tax Court while simultaneously continuing a criminal tax investigation.

The second reason Hammond gave for his failure to appear at trial was a “complete and abject failure in the Attorney/Client relationship” caused by the actions of his client. He stated he notified the Ohendalskis the day before trial that he “would no longer represent them, at trial or on any other matter” and that he “would not appear before the trial Court to explain why or otherwise withdraw from the case” so that he would not “poison” his clients before the Court.  The Court rejected that contention as well.

The Court held that if, as Hammond alleged, there was a complete breakdown of the attorney-client relationship, Hammond had a duty under ABA Model Rule 1.16 to withdraw as counsel.  (The ABA Model Rules of Professional Conduct apply to lawyer’s conduct in proceedings before the Tax Court.) Hammond did not file a motion to withdraw prior to trial and instead chose not to show up for the trial.  The Court found that Hammond’s strategy was to force the Court to continue the case by failing to appear.  The Court also noted that the alleged actions of Mr. Ohendalski occurred well before the trial date and there was no excuse for Hammond’s failure to appear at trial, particularly when the date and time certain for the trial was set at Hammond’s request.

Finally, the Court had “more than a little difficulty” reconciling the statements of Hammond that he ceased representing the Ohendalskis on the eve of trial with the actions of his clients.  The Court found that Mr. Ohendalski gave no indication at the start of trial that Hammond had terminated his representation, and he suggested that Hammond had not appeared as part of a “strategy.”  Mr. Ohendalski also filed a series of motions, that had been prepared in advance by Mr. Hammond, with the objective of forcing the Court to continue the trial of the case.  These motions appear to confirm that Hammond continued to represent the Ohendalskis and that his absence was indeed strategic.

After making these findings, the Court, more specifically, the Committee on Admissions, Ethics, and Discipline, found that by failing to appear for trial Hammond intentionally interfered with the trial proceeding and that he should be suspended for his conduct.

Jim Eustice once said that a corporation, at least from a tax perspective, is like a lobster pot: it is easy to enter, difficult to live in, and painful to get out of.   That metaphor can apply equally to the attorney-client relationship.  The most difficult part of many cases is not the law, or the facts, or opposing counsel, but the client.  Dealing with difficult clients and tough cases is part of being a lawyer.  Sometimes, the painful step of moving to withdraw is the only course of action. Another quote, this one from Woody Allen, is “eighty percent of success in life is just showing up.” While that may or may not be the case, Hammond has shown us that not showing up is guaranteed to result in failure.

Comments

  1. Excellent summary of how an attorney should not handle a Tax Court case or a difficult client. I have file a few Motions To withdraw well in advance of the Calendar Call and have never had a problem being allowed to do so by The Court.
    Trying to contradict the IRS Criminal SAC Letter that the case is no longer a criminal tax matter is unheard of and usually a road map to resolve the civil case.
    I agree that most of that “success in life is just showing up” and facing the consequences. Usually, as competent lawyers we will be able to go forward and complete the cases from that point !

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