All for One, and Five for Sixteen? When the Tax Court’s “Majority” Opinion Isn’t

We welcome first time guest blogger Kandyce Korotky.  Kandyce is an associate at the Washington, D.C. law firm of Covington and Burling, where she works with occasional guest blogger Sean Akins.  Prior to joining Covington and Burling, Kandyce obtained her LLM in Taxation at Georgetown and then clerked at the Tax Court first for Judge Paris and then for Chief Judge Marvel.  She now teaches at Georgetown as an adjunct professor.  She writes today about the case of Coffey v. Commissioner and wrestles with the issue of significantly split Tax Court fully-reviewed opinions.  In an earlier post, guest blogger Joe Diruzzo also looked at Coffey but from a different angle.  For those interested in how to interpret a decision such as Coffey, the insights provided by Kandyce nicely complement the earlier post by Joe, though the definitive answer may be yet to come.  -Keith 

As a general rule, the Tax Court speaks with one voice. That is, unlike most federal courts which speak en banc only occasionally, the Tax Court’s default is that, unless a case has gone through Court Conference and is published with side opinions, each opinion is issued as the opinion of the Court. In other words: All for one and one for all.

This unique characteristic has, like the existence of the Tax Court itself, a statutory foundation. To begin at the beginning, each judge is required to author opinions in the cases before him or her—or, in statutory-speak, each division “shall make a report” of its determination of the proceedings before it. [*1] The judges submit their opinions to the Chief Judge for review. Unless the Chief Judge, within 30 days, sends an opinion back to the authoring judge without action or earmarks it for Court Conference, it “become[s] the report of the Tax Court.” [*2] Therefore, in the majority of cases, the opinion of the trial judge becomes the opinion of the Court.

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This statutory scheme is not just a curious bit of Tax Court history. It has real logistical and legal implications. On the logistical side, it means the Chief Judge reads every report and has the option of offering comments to the authoring judge before publication. After that review process, every Tax Court judge also has the opportunity to read every report before issuance. Moreover, the Court has a powerhouse staff whose job is to review everything from inconsistencies with previous opinions to grammar and citation format. Each opinion truly is a team effort. On the legal side, speaking with one voice imbues each opinion with a certain gravitas. A Court Conference case that is published with one unanimous opinion, for example, sends a strong message to the tax community and can influence a decision to appeal, settlement negotiations in future cases, and the like. Such uniformity is also a possible explanation why Tax Court memoranda, which are non-precedential, are often viewed as persuasive by the tax community.

Of course, sixteen judges (the current number of Presidentially-appointed Tax Court judges on the bench) don’t always agree with each other. When this happens, Court Conference offers a vehicle for differing points of view. It provides a formal venue for the judges to discuss a case amongst themselves through the Court Conference process. Most of the time, even with respect to a report published with side opinions, there is no question which is the majority (read: binding) opinion. This means that, absent distinguishable facts or successfully going through the lengthy process to overturn an opinion (which requires Court Conference approval), a dissenting judge is bound to follow the majority opinion in subsequent cases.

But what happens when the opinion of the Court isn’t the majority opinion—when more judges have signed a side opinion than have signed what is published as the opinion of the Court? This curious phenomenon is exactly what happened in the recent Coffey v. Commissioner, 150 T.C. No. 4 (Jan. 29, 2018). Substantively, the consolidated cases (collectively, the “case”) raised the issue whether an income tax return is considered filed with the IRS where the taxpayer files the return with the Virgin Islands’ taxing authority (known as the “VIBIR”) and the VIBIR sends the return to the IRS.

The case was before Judge Holmes and, after Court Conference, his report was ultimately published as the opinion of the Court. It held that the return filed with the VIBIR constituted a return filed with the IRS (such that the period of limitations had begun to run). But here’s the curious part: Only four other judges signed the opinion of the Court. Judge Thornton authored a side opinion that concurred in result only, which was joined by seven other judges. (Judge Gustafson, who also joined Judge Holmes’ opinion, joined the concurring opinion except for certain phrases.) Judge Marvel dissented and was joined by three judges. Put simply, the opinion of five judges became the opinion of the Court, even though eleven judges disagreed with the reasoning.

Remember that the judge who has a case is required by statute to write a report (opinion). When an opinion is designated for Court Conference, the judge who authored the opinion presents it to the Court Conference. If the report is approved, it is released as the opinion of the Court (with or without side opinions). Alternatively, if the report is not approved, the authoring judge may keep the case and rewrite the report or request that the case be reassigned to another judge. See, e.g., Dixon v. Commissioner, 141 T.C. 173 (2013) (trial judge authored dissenting opinion).

When a judge agrees with the trial judge’s result but not his or her reasoning, the judge may concur and write a concurring opinion. Other judges who agree with the concurring opinion may join it (whether or not they also join the trial judge’s opinion). This can result in a situation where a concurring opinion has more judges joining it than the opinion of the judge who authored the lead opinion. [*3] There is no rule which, in this situation, would designate the concurring opinion as the opinion of the Court. Rather, joining a concurring opinion is deemed a vote in favor of the authoring judge’s opinion, and the opinion that is released as the opinion of the Court flows from the results of this vote.

Coffey is not the first time more judges have signed a concurring opinion than have joined the opinion of the Court. [*4] What’s more, because a concurring vote counts toward the adoption of the report, it’s possible to have more judges signing the dissent than the opinion of the Court—so long as the concurrences tip the balance in favor of adoption. [*5] There are also cases where the same number of judges signed the opinion of the Court as dissented. [*6] Accordingly, it is more appropriate to think of Tax Court opinions not in terms of majority and minority opinions, but rather as the opinion of the Court and side opinions.

These types of situations are not governed by statute but rather are left to the administration of the Court itself. Certainly, in cases where the number of judges supporting the lead opinion and the dissenting opinion is equal, it makes sense to view the opinion with concurrences as the opinion of the Court. However, the footing is not as firm where a majority of the judges has signed a concurrence in result only, as in Coffey.

What does this mean in terms of precedence? Once again, we are left without a statutory answer. On the one hand, there is still an opinion of the Court in Coffey, and the opinions of the Court in reviewed cases are precedential. Judge Holmes’ opinion would be the opinion subject to appellate review. On the other hand, a reviewed opinion where the reasoning is supported by only five judges does not seem to be the product of a Court speaking with a uniform or at least a clear majority voice, which is the hallmark of many Court-reviewed opinions. Such cases seem especially ripe for circuit splits, which could also send the issue back to Court Conference. If I were trying a similar case and relying on Coffey, I certainly wouldn’t feel like I had a slam dunk.

So, as is quickly becoming the catch phrase of the post-reform tax community: Stay tuned.

FOOTNOTES:

[*1]      Section 7460(a); see also Section 7444(c) (permitting the Chief Judge to assign the Tax Court judges to “divisions”); Section 7459(a) & (b) (“A report upon any proceeding instituted before the Tax Court and a decision thereon shall be made as quickly as practicable.”).

[*2]     Section 7460(b); see also Section 7459 (“The decision shall be made by a judge in accordance with the report of the Tax Court, and such decision so made shall, when entered, be the decision of the Tax Court.”).

[*3]     This approach does not parallel the Supreme Court’s approach when it issues a splintered opinion: “When a fragmented Court decides a case and no single rationale explaining the result enjoys the assent of five Justices, the holding of the Court may be viewed as that position taken by those members who concurred in the judgment on the narrowest grounds.” Marks v. United States, 430 U.S. 188 (1977). In fact, the concurring opinion in Coffey is the narrower of the two opinions holding that the taxpayers’ Forms 1040 constituted “returns.” For further discussion, see Joseph A. DiRuzzo, III, “Fractured Tax Court Opinions – Which Opinion Controls and Does the Supreme Court’s Marks Decision Apply?” (March 7, 2018), http://procedurallytaxing.com/fractured-tax-court-opinions-which-opinion-controls-and-does-the-supreme-courts-marks-decision-apply/.

[*4]     See Carpenter Family Investments v. Commissioner, 136 T.C. 373 (2011) (4 judges signing opinion of the Court, 5 judge concurring, 1 judge concurring in result only).

[*5]     See, e.g., Driscoll v. Commissioner, 135 T.C. 557 (2010) (5 judge signing opinion of the Court, 1 judge concurring, 1 judge concurring in result only, 6 judges dissenting), rev’d and remanded, 669 F.3d 1309 (11th Cir. 2012); Rowe v. Commissioner, 128 T.C. 13 (2007) (5 judges signing opinion of the Court, 5 judges concurring, 6 judges dissenting); Billings v. Commissioner, 127 T.C. 7 (2006) (4 judges signing opinion of the Court, 5 judges concurring, 8 judges dissenting with 2 dissenting opinions (7-1)).

[*6]     See Dees v. Commissioner, 148 T.C. No. 1 (2017) (7 judges signing opinion of the Court, 2 judges concurring, 1 judge concurring in result only, 7 judges dissenting); Tigers Eye Trading, LLC v. Commissioner, 138 T.C. 67 (2012) (5 judges signing opinion of the Court, 2 judges concurring, 2 judges concurring in result only, 5 judges dissenting with 2 dissenting opinions), aff’d in part, rev’d in part, and remanded in part sub. nom. Logan Trust v. Commissioner, 616 Fed. App’x 426 (D.C. Cir. 2015); Wadlow v. Commissioner, 112 T.C. 247 (1999) (9 judges signing the opinion of the Court, 1 judge concurring, 9 judges dissenting).

The Taxpayer First Act

On March 26, 2018, the House of Representatives Committee on Ways and Means Subcommittee on Oversight published a discussion draft entitled “The Taxpayer First Act.” Unlike the recent tax reform legislation, the Act was jointly released by Chairman Lynn Jenkins and Ranking Member John Lewis of this subcommittee in a bipartisan effort to reform tax procedure. It’s nice to see that tax procedure can bring the parties together. The publication of the draft came with an invitation to submit comments and a statement that “Comments would be most helpful if received by April 6, 2018.” That’s a pretty short turnaround time; however the legislation came out just as my clinic class turned to policy. Each semester I try to end with a focus on the policy issues raised by the individual cases on which the students have worked. Writing proposed legislative solutions to policy issues we had encountered seemed like a good way to focus on policy given the invitation from the subcommittee. So, we tried our hand at commenting on the legislation and offering legislative proposals in the tax procedure area that might create a better tax system for the low-income taxpayers we represent. Thanks to Toby Merrill, Sean Akins and Carl Smith who assisted on this project.  On April 6, 2018, the clinic submitted comments to the subcommittee.

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The proposed Act has six parts roughly described as: 1) Independent Appeals; 2) Improved Service; 3) Sensible Enforcement; 4) Cyber Security; 5) Modernization and 6) Tax Court. The Clinic did not comment on all of the proposals. You can read the 49-page document submitted by the Clinic if you want the details, but I will give you a thumbnail sketch here.

Appeals

The subcommittee was concerned about the independence of Appeals. It almost seemed as if much of the concern stemmed from the issues raised in the ongoing Facebook litigation, about which we have blogged before here and here. Low-income taxpayers do not face the same issues of Appeals independence that large corporate taxpayers face. No one in IRS compliance or in Chief Counsel attempts to influence Appeals on an individual case involving a low-income taxpayer because no one at the IRS has worked their case. Their cases are worked in a group setting at correspondence exam. So, the concerns about the independence of Appeals expressed by the subcommittee’s proposal are not concerns that relate to the issues facing low-income taxpayers.

Low-income taxpayers would, however, like the same opportunity as their higher end counterparts to meet with an Appeals officer to discuss their case when a face-to-face meeting would be appropriate. The Appeals employees who work in local offices typically have worked with the IRS for some time and have achieved high grade levels. Appeals does not want these highly-graded employees to spend time working on cases involving low-income taxpayers. Appeals employees with the lower grades generally reside in the work ghettos generally known as service centers. Because of their location, these employees are not accessible to taxpayers. As a result, low-income taxpayers who do not have an individual assigned to their case as they go through the examination process get assigned to someone they never meet face to face and who may work in a community that is across the country creating time zone and community understanding issues. The Clinic suggested that the concerns of low-income taxpayers with Appeals will not be resolved by creating a more independent Appeals but a more accessible one.

Customer Service

Similar to the problem with Appeals, one of the big issues for low-income taxpayers is access to service. We know that Service is the last name of the IRS but it does not have to be the last aspect of focus. The Clinic identified issues that could improve the ability of taxpayers to deal with tax problems. It praised the subcommittee suggestion allowing IRS employees to make referrals to clinics rather than simply passing out a publication. It suggested making eligibility for clinics indexed to local cost of living so that clinics servicing high cost of living areas did not need to turn away individuals living a marginal lifestyle but one slightly above the national average for qualification. Specifically, the Clinic suggested changing the criteria for requiring entities forgiving debt to allow the non-issuance of Form 1099-C in instances of disputed debt. Sending out tens of thousands of Form 1099-C to individuals, usually low-income individuals, relieved of debt in the settlement of a lawsuit disputing that debt causes havoc for the individuals and for the system. This issue is currently playing out in the for-profit school industry where numerous state attorney generals and private parties have challenged the business model and practices of this industry to assist individuals with high debt and little meaningful education to show for it.

The Clinic also suggested changing the litigation path of assessable penalties so that taxpayers do not face insurmountable obstacles in seeking to litigate their dispute with the IRS because of the Flora rule. It suggested changing and clarifying the operation of the I.R.C. section 32(k) penalty for wrongfully claiming the earned income tax credit, arguing that the current penalty operates more like a penalty imposed in the welfare context rather than one imposed by the tax code which causes the IRS trouble is properly administering the penalty. The Clinic also suggested clarification of the provisions regarding taxation of attorney’s fees so that the fees do not create a barrier for low-income individuals seeking remedies for consumer law violations and other similar provisions where the statutory remedy provides a small recovery amount for the individual coupled with statutory attorney’s fees that could trigger tax to the individual in excess of the award amount, that can trigger loss of other public benefits because of the phantom income, and that creates a system of double taxation of the individual and the attorney.

Tax Court

The subcommittee proposals would rename court orders and rename the special trial judges to bring the names more into line with other federal courts. The Clinic made proposals seeking to open up the Tax Court both from a jurisdictional and information perspective. Consistent with the litigation the Clinic has pursued regarding the jurisdiction of the Tax Court, the Clinic suggests that Congress make clear it did not intend the time periods for filing a petition in Tax Court to be jurisdictional. Regarding information availability, the Clinic proposes that all notices giving a taxpayer the right to petition the Tax Court contain the last date for filing the petition, as the notices of deficiency do after the 1998 amendment regarding those notices. Additionally, the Clinic has some suggestions on accessing the Tax Court’s records and other matters.

Conclusion

Although it is now past the requested deadline set by the subcommittee for comments on its legislation, if you agree with any of the proposals of the Clinic, you might consider submitting comments yourself. The portal for sending comments is irsreform@mail.house.gov. Happy commenting.

Designated Orders: 3/19/18 to 3/23/18

Guest blogger William Schmidt from Legal Services of Kansas brings us the designated order post from two weeks ago as we catch up on this feature. The Tax Court designated a high number of order during this week including a couple concerning an individual on whom we have posted previously with respect to the frivolous return penalty. The Kestin case demonstrates the lengths to which the Court goes to try to protect pro se petitioners and assist them in understanding the process. Keith

For the week of March 19 to 23, there were 10 designated orders from the Tax Court. The first order lifted temporary seals and denied petitioner’s motion for protective order in order to seal public records (order here). In the second, petitioner’s protests, including that parts of Pennsylvania were declared a federal disaster area, were in vain (order here). The third order details fallout from the Affordable Care Act – how a woman’s marriage took her over income for the premium tax credit and thus she had to repay it (order and decision here).

Miscellaneous Short Items

  • Numbered Paragraphs from IRS – Docket No. 18254-17 L, Gwendolyn L. Kestin v. C.I.R. (Order here). In this order, the IRS filed a motion for summary judgment with a supporting memorandum that has a 9-page statement of facts consisting of unnumbered paragraphs. To assist the unrepresented petitioner, the Tax Court ordered the IRS to supplement the motion with a statement of facts with numbered paragraphs. The Court instructed Ms. Kestin on responding to the IRS motion for summary judgment and attached a copy of the Tax Court webite’s Q&A on “What is a summary judgment? How should I respond to one?”
  • Three Year Time Limit – Docket No. 23113-12, Frank W. Dollarhide & Michelle D. Dollarhide v. C.I.R. (Order and Decision here). This order is an illustration of the 3-year limitation on refunds. While the Dollarhides addressed their tax liability when they filed their 2006 tax return in 2011, they were outside the three-year time limit to receive the tax refund they would have been due had they filed a timely tax return.
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Correct Petition Filing Brings Tax Court Jurisdiction

  • Docket No. 380-18, John Henry Ryskamp v. C.I.R. (Order of Dismissal for Lack of Jurisdiction here). Mr. Ryskamp’s 2018 case is dismissed because he filed the petition based on an IRS Letter 2802C where the petitioner wrote “Notice of Determination” rather than an official IRS Notice of Determination. Mr. Ryskamp cites his own 2015 case before the U.S. Court of Appeals for the D.C. Circuit to no avail. In fact, the Court notes his 2016 case (7383-16) was also a petition based on a Letter 2802C. While referencing the ability to penalize him a penalty up to $25,000, the Court does not impose a penalty but warns that the Court will strongly consider imposing a penalty if he returns with similar arguments.
  • Docket No. 23808-17 L, John Henry Ryskamp v. C.I.R. (Order and Order of Dismissal for Lack of Jurisdiction here). In the same week, there is a designated order for Mr. Ryskamp’s 2017 Tax Court case. In the background, the Court elaborates on the 2015 case before the U.S. Court of Appeals for the D.C. Circuit, which was an affirmation of a 2011 Tax Court order and decision which granted summary judgment for the IRS on a notice of deficiency for tax years 2003 to 2006, 2008, and 2009. By the way, Mr. Ryskamp’s petition for writ of certiorari was denied by the U.S. Supreme Court, making the Tax Court decision in that matter final. For this case, Mr. Ryskamp filed a petition based off a Letter 4473C again concerning the 2003 tax year. Since the petition was not based off a proper notice of deficiency, the Court granted the IRS motion to dismiss for lack of jurisdiction. This time, there was no mention of a penalty for the litigious Mr. Ryskamp.
  • Docket No. 9417-17, Fletcher Hyler v. C.I.R. (Order of Dismissal for Lack of Jurisdiction here). In a similar vein, this designated order tells how petitioner filed a petition based on a math error notice for 2015. Since it was not based off a notice of deficiency, the Court granted the IRS motion to dismiss for lack of jurisdiction.

Takeaway: It is necessary for a petitioner to file the petition based off a valid notice of deficiency or based on another valid issue. A petitioner cannot pick a random mailing from the IRS and file a petition with Tax Court. When a petitioner does, the Tax Court will not have jurisdiction and shall have to dismiss the case (with potential penalties for petitioners like Mr. Ryskamp).

Social Security Hardship for Petitioner

Docket No. 16269-16SL, Bonnie Lou Black v. C.I.R. (Order and Decision here).

In this case, the procedural issues are straightforward. Ms. Black sought review of a notice of intent to levy for her 2012 tax deficiency. Ms. Black did not submit financial information, offer any collection alternatives or agree to a payment plan. Since that was the case, the Tax Court granted the IRS motion for summary judgment.

An issue in the case, though, is that the IRS issued an erroneous CP-22A balance due notice for 2011 stating that $8,384.18 was due to them. The next month, the IRS corrected the error by issuing a CP-21C notice stating there was no balance due for 2011.

Ms. Black stated that the Social Security Administration reduced her benefits based on this IRS error. Since the government agencies share income information, she believes that the Social Security Administration thought she had increased income in 2011 and reduced her benefits. She requested relief in Tax Court but they note in this order’s second footnote they were unable to assist her because they “do not have jurisdiction to determine Social Security benefits, just tax deficiencies.”

Takeaway: IRS actions can affect taxpayers in a variety of ways, sometimes for the worse. It may be necessary to find creative ways to find clients relief. Unfortunately for Ms. Black, Tax Court is not the answer for assisting with her Social Security issues. Hopefully she can find help elsewhere.

How Long Does Petitioner Need to Prepare for Trial?

Docket No. 23475-15, William Budell Markolf v. C.I.R. (Order here).

This case is based on tax liabilities for 2008 through 2011. The IRS issued a notice of deficiency June 16, 2015 and petitioner filed with Tax Court September 15, 2015. The case was set for trial in Columbia, South Carolina, beginning October 17, 2016, with a pretrial order issued May 16, 2016 with a standard notice to exchange trial documents no later than two weeks before the trial session. On September 26, 2016, petitioner’s counsel filed a motion for continuance, explaining the need for additional time to secure documents, estimating three weeks would be necessary (which would be October 17, 2016). Petitioner was to file a supplement describing work toward preparation, which was filed October 3, 2016.

By notice filed April 11, 2017, the trial was rescheduled in Columbia for the session beginning September 11, 2017 with a new pretrial order. On August 8, 2017, respondent mailed a 65 paragraph stipulation of facts and 49 exhibits planned for trial. While there were several phone conferences the Court held, petitioner’s counsel did not respond to respondent’s stipulation or submit exhibits, which were not prepared as of a week before trial.

Then Hurricane Irma was expected to arrive in Columbia, South Carolina on September 11, 2017, prompting the Court to continue the case. The order stated that petitioner had “the unintended consequence” of continuance and he was given more time “which we think he does not deserve.” The court stressed he should not delay and should “complete that work while the iron is hot,” stating he should expect no further continuance or latitude regarding the pretrial order.

On September 15, 2017, respondent sent petitioner two copies of a revised stipulation of facts (now 73 paragraphs) and 49 exhibits. In correspondence sent in September, November, December, and January, respondent requested petitioner to sign and return the revised stipulation, but that did not happen.

By notice December 4, 2017, the Court set the trial in Columbia for April 30, 2018 with the standard pretrial order. On February 21, 2018, the IRS filed a motion for an order to show cause. On February 23, the Court held a phone conference where petitioner’s counsel stated petitioner hired an independent contractor to assist with document preparation and cited a difficulty was petitioner’s recent surgery. The Court granted the motion by ordering that petitioner had to document on or before March 15, 2018, why the IRS stipulation and exhibits should not be deemed admitted for the case.

On March 2, the IRS filed a motion to compel production of documents, which the Court granted in part on March 7, 2018. On March 16, petitioner filed a one-page answer twice with two different cover sheets, one being “Petitioner’s Response to Motion to Compel Production of Documents” and the other “Petitioner’s Reply to Answer.” Despite the second title, the document does not refer to the order to show cause or the motion it granted. It also does not refer by number to the stipulation or to any exhibits. Two documents are attached to the memoranda that are not sworn affidavits or signed under penalty of perjury.   One is a purported letter from a physician stating petitioner had surgery on December 6, 2017, and was “released to full-time work” on January 7, 2018. The other details the medical issues of the accountant hired to assist the petitioner. From January through March 2018, the accountant had the flu for two weeks, broke his right ankle, had surgery February 12, and was in physical rehabilitation from February 15 until discharged March 8, returning to work for petitioner on March 13. The accountant cites those issues as reasons for delay in assisting petitioner with the trial document preparation.

The Court reviews these delays, citing that the case was filed 2 and a half years ago and involves tax returns due 6 or more years ago. The petitioner received 2 continuances with admonishments not to delay further the production of documents. The Court notes that the petitioner waited until December to hire an assistant for the document production and not times such as when the returns were prepared, when the IRS examined them, when he received the notice of deficiency, filed the petition, received the first notice of trial with standing pretrial order, the time of the second notice, or when warned there would be no further continuances granted. The Court notes that allowing for the difficulties arising in recent months, those were “long after petitioner’s work on this case should have been largely finished.” The late-occurring mishaps do not explain why petitioner did not cooperate in the stipulation process and did not make an actual response to the order to show cause. The Court ordered that the Order to Show Cause is made absolute and respondent’s proposed stipulation is deemed stipulated for purposes of the pending case.

Takeaway: This case is an illustration on what not to do for a pending Tax Court trial. Basically, read the pretrial order and follow its instructions. Respond to opposing counsel’s stipulations and exhibits. As you need to, provide your own stipulations and exhibits on time. When the judge says to do any of those tasks and that there will be no more continuances, take that seriously and respond accordingly.

 

 

Designated Orders for week of 3-12-2018

Guest blogger Samantha Galvin from University of Denver brings us up to date on the designated orders this week.  (We are a bit behind on publishing these but will catch up soon.)  I had the chance to see Samantha recently at the Tax Court Judicial Conference and to hear comments from many readers of this feature. As always in 2018 there are orders on issues concerning the Graev case. Michael Jackson’s estate continues to provide fodder as well. Perhaps the most interesting case is the first one she discusses. The issue of obtaining a refund in a CDP case is one we thought was settled with the answer being that it was not possible to obtain a refund in that forum. Perhaps the Tax Court has decided to revisit the area. See here and here for prior discussion of that issue. There is also a lengthy discussion of the issue in the Collection Due Process chapter of Saltzman and Book. Keith

The Tax Court designated seven orders the week of March 12, 2018. Three are discussed below, the orders not discussed are: 1) an order ruling on a motion for continuance and motion to dismiss involving the Court’s discretion to grant a continuance shortly before trial (here); 2) a ruling on evidentiary matters in the Michael Jackson Estate case (here); 3) an order involving partnership issues where petitioner filed a motion in limine and motion to dismiss for lack of jurisdiction (here); and 4) an order reopening the trial record in a case involving a Graev III analysis (here).

A Novel Jurisdictional Question – Can the Court Order Refund in a CDP Case?

Docket No. 20317-13, Brian H. McClane v. C.I.R. (Order here)

In this designated order the Tax Court directs the pro se petitioner to contact LITCs in the Baltimore area because it confronts a novel issue, which is whether the Court has jurisdiction to determine and order the credit or refund of an overpayment in a CDP case. The case is before the Court to review a determination sustaining an NFTL for tax years 2006 and 2008.

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It is important to note that the parties dispute whether respondent properly mailed a notice of deficiency (“NOD”) for the years at issue, but both parties agree that the petitioner did not receive a notice of deficiency.

During and after trial, respondent accepted petitioner’s substantiation of deductions for 2008 which results in petitioner’s tax liability being less than the amount reported on his return and eliminates the need for the Court to sustain the NFTL for that year. As a result, the Court asks if the parties object to a decision upholding respondent’s determination for 2006 only, and petitioner objects because he believes he is due a refund for 2008.

Petitioner did not claim a refund in his petition, but that does not preclude him from pursuing a refund claim now because Rule 41(b)(1) requires that any issues tried by express or implied consent are treated as if they were raised in the initial pleadings. The Court views respondent’s concessions as implied consent to the issue of whether petitioner is entitled to a refund. The fact that the issue is raised, however, does not establish the Court’s jurisdiction over the issue. This bring us to the focus of the designated order – does the Court have jurisdiction to order a refund here?

The Court requests that the parties submit supplemental briefs on this issue before the Court resolves it but provides guidance in the form of observations and questions.

Sections 6330(d)(1) and 6512(b)(1) are relevant to the issue of the Court’s jurisdiction to determine and order the refund or credit of an overpayment in a CDP case. Section 6330(d)(1) is the principal, and perhaps the only, basis for jurisdiction and allows the Court to review a determination made by Appeals. The authority is generally regarded as limited to matters within scope of Appeals’ determination. This permits the Court to decline to uphold the determination to sustain the NFTL for 2008, but can they go further and order a refund? Did Appeals have the authority to order a refund and does that matter?

The Court asks petitioner to advise the Court on whether he views the Court’s ability to order a refund within the jurisdiction of 6330(d)(1) and what analysis or authorities support that view. The Court similarly asks respondent to advise the Court on whether the Court’s jurisdiction is limited under section 6330(d)(1) and whether Appeals has the authority to order a refund.

Section 6512(b)(1) gives the Court jurisdiction to determine and order the refund or credit of an overpayment in deficiency cases, but this is not a deficiency case.

Section 6512(b)(3) limits the Court’s ability to order a credit or refund to only that portion of tax paid after the mailing of a NOD or the amount which a timely claim for refund was pending (or could have been filed) on the date of mailing of the NOD. Is this limitation a further indication that overpayment jurisdiction by section 6512(b)(1) is ancillary to deficiency jurisdiction under section 6214(a)?

Respondent’ efforts to collect a deficiency that petitioner did not previously have an opportunity to contest puts into play the amount of his tax liability for that year under section 6330(c)(2)(B), but it is not clear that respondent’s efforts had any effect on petitioner’s ability to pursue a refund claim in other ways (by filing an amended return or responding to the NOD). The Court is not aware of any reason why petitioner could not have pursued his refund claim independently of respondent’s collection action and the section 6330 petition.

Petitioner filed the return at issue in 2009 but made payments from 2009 and 2012 meaning that the latest he could have claimed a refund for some of the amount paid was 2014, so the Court wonders to what extent petitioner’s claim is timely. Did respondent’s issuance of NFTL or any other event that occurred as part of the CDP case suspend the section 6511(a) period of limitations? Or any action on part of petitioner? If respondent’s issuance of the NFTL did not affect petitioner’s ability to pursue a refund claim that has since become time-barred, then petitioner has no ground to complain about the Court’s inability to entertain a belated refund claim as part of the present case.

Supplemental briefs on the issue are due on or before April 30, 2018.

Simple, Concise and Direct

Docket No. 14619-10, 14687-10, 7527-12, 9921-12, 9922-12, 9977-12, 30196-14, 31483-15, Ernest S. Ryder & Associates, Inc., APLC, et al. v. C.I.R. (Order here)

This designated order is somewhat unique because it contains a lesson for Respondent.

These consolidated docket cases had been tried in two special sessions in 2016. During trial, Respondent made an oral motion to conform the pleadings to proof (which means that the Court treats the issues tried by the parties’ express or implied consent as if they were raised in the initial pleadings) pursuant to Rule 41(b) and the Court directs respondent to put his motion in writing so it can serve as an amended pleading. Rule 41(d) requires that amended pleadings to relate back to the original pleading.

The motion filed by respondent has two attachments (issues raised in the NOD and issues raised at trial) which contain over 100 different numbered items which are duplicative to some extent. Despite the voluminous nature of the attachments, respondent also states that the lists are not exhaustive. The Court finds deciphering the issues raised by respondent to be confusing and since the Court is confused, it understands that the petitioner may also be confused.

Petitioner argues that respondent’s evolving theories prejudice him by making it difficult to know which theories warrant a response. Rule 31(b) requires that pleadings be simple, concise and direct. The Court has discretion to allow amended pleadings but denies respondent’s motion because it violates Rule 31. The Court directs respondent to make his motion describe the issues more clearly if he plans to resubmit it.

Three Attorneys and Levy Still Sustained

Docket No. 26364-16, Patricia Guzik v. C.I.R. (Order here)

 

The petitioner is in Tax Court on a determination to sustain a levy on income tax and section 6672 trust fund recovery penalties. Respondent moves for summary judgment and argues that the settlement officer did not abuse her discretion since petitioner’s offer in compromise could not be processed due to an open examination and petitioner could not establish an installment agreement because she failed to propose a specific monthly payment amount. The Court grants respondent’s motion.

Petitioner is very sympathetic. She was diagnosed with Multiple Sclerosis, pregnant and on bed rest when she first began working with Appeals in her collection due process hearing. Her attorney, the first of three over 14 months, requests an extension to submit a collection statement and an offer in compromise, which the settlement officer grants. Because petitioner’s 2011 return was being audited, the settlement officer informed the attorney that an offer would not be processable unless the audit was closed by the time the offer was considered, but an installment agreement may be an option.

The first attorney faxes over a collection information statement and requests another extension to submit an offer in compromise which the settlement officer grants, but this deadline is ultimately missed.

Petitioner hires new representation in the meantime and the second attorney requests an extension which, again, the settlement office grants. This time the offer is submitted, but it is not processable due to the still open audit. While the offer is being considered, petitioner hires new representation for the third time. The newest attorney informs the settlement officer that because the offer is not processable, petitioner wants to propose an installment agreement. Petitioner’s counsel asks if the settlement officer has an amount in mind and the settlement officer states that proposing an amount is not her role, it is petitioner’s. The settlement officer also states that petitioner’s assets may need to be liquidated before the installment agreement can be considered. At this point, petitioner has not paid her 2015 liability and has not made estimated tax payments for 2016.

Petitioner pays nearly all her trust fund recovery penalties, which she argues is a material change in circumstances, and because of that change the Court should remand her case back to Appeals for review.

The Court can remand cases back to Appeals but typically does so if a taxpayer’s ability to repay has diminished and does not necessarily do so when a taxpayer’s ability to pay has improved – so the Court chooses not to remand the case.

Petitioner’s health issues are very unfortunate, but she had three attorneys in 14 months all of whom requested extensions which the settlement officer allowed. Even with the additional time, petitioner never submits an installment agreement proposal, so the Court sustains the levy finding that the settlement office did not abuse her discretion.

 

D.C. Circuit Asked to Agree With Second Circuit and Tax Court About Application of Section 6751(b)

We welcome back frequent guest blogger Carl Smith who brings us up to date on a Graev case headed to the DC Circuit. So far, only the Second Circuit has had the chance to write an opinion on this issue. This will be an important case to watch. Keith

In RERI Holdings I, LLC v. Commissioner, 149 T.C. 1 (2017), the Tax Court disallowed a TEFRA partnership’s $33 million charitable contribution deduction because RERI failed to show on its Form 8283 its cost basis in the property (only $3 million).  The Tax Court also imposed a substantial valuation misstatement penalty under section 6662(h).  In the notice of final partnership administrative adjustment, the IRS had determined a regular valuation misstatement penalty under section 6662(e).  By amended answer, the IRS increased the penalty to a substantial valuation misstatement penalty under section 6662(h).  The case was tried and briefed in 2015 — long before the Tax Court in Graev III (Graev v. Commissioner, 149 T.C. No. 23 (Dec. 20, 2017)) and the Second Circuit in Chai v. Commissioner, 851 F.3d 190 (2d Cir. 2017), held that, in a deficiency case involving an individual, section 7491(c) imposed the burden of production on the IRS to demonstrate compliance with the managerial approval requirement in section 6751(b) for imposing penalties.  The IRS in RERI had not introduced any evidence that a manager approved either of the penalties under section 6662.

The partnership has appealed both the disallowance of the charitable deduction and the imposition of the penalties to the D.C. Circuit (Docket No. 17-1266).  In its opening brief filed on April 2, 2018, among other arguments, the partnership has for the first time argued that the IRS had an obligation under sections 6751(b) and 7491(c) to introduce in the Tax Court evidence of managerial approval of the penalties.  The IRS having not done so, the partnership seeks to be relieved of any penalties — citing ChaiRERI may thus present the first time after Chai that an appellate court deals with section 6751(b)’s requirements.

Since the DOJ hasn’t yet filed its brief, it is unknown whether the government will agree that it had the burden of production on this approval issue or whether the approval issue can even be considered in a case prior to the assessment of the penalty.  Note, however, that there are two large issues lurking in the case now:  First, do Chai and Graev III, which involved deficiency cases, also extend to TEFRA partnership cases?  Second, does section 7491(c)’s shift in the burden of production extend to TEFRA partnership cases, since that section nominally applies only to cases of an individual?  The tax matters partner of RERI who brought the Tax Court case is an individual.  Does that affect the analysis under section 7491(c)?  These are issues that Judge Holmes recently invited the parties to brief in a designated order he issued on January 5, 2018 in a TEFRA partnership case named Oakbrook Land Holdings, LLC v. Commissioner, Docket No. 5444-13.  Caleb Smith blogged on this designated order in a post on January 17, 2018.  In its opening brief in the D.C. Circuit, RERI does not discuss these two potential issues.  Wisely, RERI is leaving it to the government to raise these issues, if it wants, in its answering brief.

CP 504

I do not often write an introduction to my own blog post but am making an exception today. Today’s post is short and it is about a taxpayer right’s victory. I want to use the extra space to celebrate some other victories. Of course at PT we are excited about Villanova’s basketball victory for any of you who missed the game. Basketball is a unifying force at the school and a great source of pride. I miss going to the campus gym every morning and walking through the lobby which is a museum of their victories. Villanova had another great victory announcing the selection of Christine Speidel as its new tax clinic director. In addition to joining Villanova to run its tax clinic, Christine is joining procedurallytaxing as a member of our blogging team. She has written several guest posts over the years. Look for many posts by her in the future. As a law student she worked in the Consumer Law Clinic of the Legal Services Center where I now teach. She will bring a lot of new energy to the blog.

Another matter to celebrate is the annual publication of the low income taxpayer report. The report catalogs the work of these clinics and may be of interest to those of you with interest in the tax issues facing individuals. Volume 8 of recent journal article looks at the students who work in clinics and reports on how that work encourages (and discourages) future pro bono efforts of the students exposed to representation during school. Keith

On December 2, 2016, I wrote a strongly worded post about the inappropriate language in Letter CP 504. The CP 504 letter the IRS was sending at the time said that the if the taxpayer did not pay the tax listed on the form the IRS could levy on their property and listed a litany of types of property on which the IRS could levy. The problem with the letter was that the CP 504 letter does not give the IRS that right. The statements made in the letter were legally wrong and could have inappropriately led taxpayers to the wrong conclusion about the action the IRS could take to collect the unpaid assessment of taxes.

In addition to blogging the issue, I had discussions with the appropriate persons at the IRS explaining why I thought the letter was wrong and should be changed to eliminate the language stating that the IRS could levy on a taxpayer’s property. The IRS listened and it made a commitment that it would change the letter to make it accurate. The persons with whom I spoke indicated that the change would not occur until January 2018 – a period approximately one year after committing to the change. I knew that changing an important letter in the collection notice stream would take time and waited.

Recently, one of my clients received the new and improved CP 504 letter. The IRS made the promised changes and no longer tells taxpayers that it can levy on their property in the manner stated in the prior version of this letter. You can see a redacted version of the new letter here. You can find a copy of the prior letter in the earlier post if you want to compare the letters and note the changes.

The IRS deserves credit for changing the letter and appropriately responding to criticism. The collection notice stream is an important part of the collection process. Getting the language in the letters sent during that stream to be accurate as well as persuasive is an important part of the collection function at the IRS.

Proposed Regulations Narrow Ability of Private Attorneys to Participate on Behalf of IRS in Exams

A few years ago we discussed litigation involving Microsoft (see, eg., Keith’s Enforcing the Summons Against Microsoft), which implicated Treasury regulations that allowed private lawyers to participate in exams. While the litigation did not strike down that practice, it was heavily criticized, and Treasury now proposes to scale back the practice significantly.

Last week Treasury has proposed to “significantly narrow the scope of the current regulations by excluding non-government attorneys from receiving summoned books, papers, records, or other data or from participating in the interview of a witness summoned by the IRS to provide testimony under oath, with a limited exception.”

The exception relates to lawyers who have expertise in issues other than federal tax law, such as state, local or other countries’ tax laws, or in other substantive areas, like patent law. The exception does not extent to nonsubstantive specialized knowledge (like litigation skills).

Treasury regulations still permit other outside specialists like economists to “receive and review summoned information and fully participate in the summons interview, including questioning witnesses.” The proposed regs also allow for lawyers who are not acting as lawyers but who are performing services associated with outside permitted specialists to participate.

The proposed regs attempt to restrike the balance between the need for outside assistance to help administer the tax laws with the “perceived risk that the IRS may not be able to maintain full control over the actions of a non-government attorney hired by the IRS when such an attorney, with the limited exception described below, questions witnesses.”

Perhaps the rebalancing of these interests will inspire a fresh look at the private debt collection issue, an area that likewise has raised questions about risks associated with non-government employees performing essential IRS functions.

4/3 Update: Title Changed to clarify we are talking about IRS limitations!

Pecker Buys Procedurally Taxing For Undisclosed Sum

David Pecker, whose company owns the National Enquirer, purchased all rights to the name and likeness and prior posts of Procedurally Taxing for an undisclosed sum. Pecker, whose National Enquirer has been in the news of late due to its cozy relationship with President Trump, has long felt the need to enter the nascent world of legal blogging, especially tax, with its cross over to and connection with the world of entertainment.

In commenting on the purchase, Pecker noted that just in the last few weeks we have seen Cardi B talk about tax policy, rapper DMX get sentenced to jail for tax evasion, an innocent taxpayer sue Howard Stern and the IRS for an employee talking about her tax account on the shock jock’s radio show, and John Oliver sing the praises of tax exemptions as he discusses prosperity gospel.

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Noting the extensive reach that PT has in the bar, the bench and in government, Pecker hopes to leverage his company’s marketing and publicity to expand the blog’s footprint.

“Tax is everywhere,” said Pecker. “Outlets like Procedurally Taxing do not have a clue about the real world.”

While we are working out the final details, it appears that Keith, Stephen, and I, the founding bloggers, will remain affiliated with the blog in some capacity, though it is expected that we will significantly reduce time spent on the blog to allow well known celebrity authors to post.

The first post, due to be published Monday is entitled “Frequent Contributor Carl Smith Abducted by Aliens Claiming to Know Precise Constitutional Status of Tax Court.” Written by Fogg’s Harvard Law School colleague Steve Shay, who specializes in international and intergalactic transactions, the post hopes to explore issues that have long troubled not only the tax bar but also the public at large.

Pecker has released Monday’s post in preview form to a number of tax celebrities. Frank Agostino commented:  “The aliens have made a Graev mistake.  There is no evidence that the initial determination to abduct was personally approved in writing by the immediate supervisor of the alien making the abduction.  I plan to appeal this matter to the Court of Appeals for the Milky Way Circuit.  Or, at least go out and buy a Milky Way bar.”

Nina Olson thought:  “Carl Smith’s abduction no doubt violates a number of provisions of the Taxpayer Bill of Rights that I recently got Congress to incorporate into section 7803.  I won’t help Carl, but I will closely monitor any litigation in this area.”

Tax Court Chief Judge L. Paige Marvel expressed surprise that PT was aware of the abduction. “Information about the abduction,” she said, “is contained within the Tax Court files of a case Smith brought, but the information is not available on line.  To get this information, someone had to go to the Tax Court Public Files Office in D.C. or pay 50 cents a page for it to get it mailed out.  Who would do that?”

Pat Smith of Ivins Philips argued that Carl Smith’s abduction was invalid as a violation of the Administrative Procedure Act and looked forward to any court case that might overcome the limits of the Galactic Anti-Abduction Injunction Act.”

President Trump tweeted that “Regardless, the Trump campaign and Trump Administration did not speak to any of the aliens who abducted Smith.  There was NO COLLUSION.  Covfefe.”

Hillary Clinton noted that Carl Smith was a resident of Manhattan, a locale that voted overwhelmingly for her in 2016.  “Obviously, the aliens wanted someone smarter to probe.”