Property Tax Strict Foreclosure – A Final Update

Guest blogger Anna Gooch of the Center for Taxpayer Rights follows up on prior posts and discusses the Supreme Court’s decision in Tyler v Henepin County. Anna was an early and prescient commentator on how a state’s use of strict foreclosure raises significant constitutional issues. Les

I have twice written (here and here) on strict foreclosure by state and local governments. Strict foreclosure allows the creditor to obtain both the legal and equitable title to the property upon foreclosure, meaning that the owner-debtor never receives any amount received in excess of the amount of debt owed. In my last post, I wrote about several cases, including Tyler v. Hennepin County. On Thursday, May 25, the Supreme Court rendered its decision in Tyler. In a unanimous opinion, the Court delivered a victory for property owners and for taxpayer rights.


A summary of the facts and lower court proceedings is necessary before delving into the Supreme Court’s opinion. Geraldine Tyler, who is currently 94 years old, purchased a condo unit in 1999 in Hennepin County, Minnesota. She lived there by herself until 2010, when she and her family agreed that it would be best for her to move into a senior living community. She retained ownership of her condo, but neither she nor anyone in her family made any property tax payments once she moved out.  By 2015, the amount of unpaid property tax, including penalties and interest, was about $15,000. In that year, pursuant to both Minnesota and Hennepin County law, the county began foreclosure proceedings against Ms. Tyler’s condo to recover the unpaid balance. The county sold the condo for about $40,000. Ms. Tyler never received the difference between the sale proceeds and the unpaid debt, nor did she have an opportunity to request that it be returned to her.


Minnesota, along with several other states, authorizes counties to pursue strict foreclosure to recover unpaid property tax. This means that in the event of default, the county can take both legal and equitable title to the property. There is no opportunity for the property owner to recover the equity that remained after the sale. Strict foreclosure transfers to the creditor any property interest that the owner had in the property before the foreclosure.

Ms. Tyler sued the county, arguing that strict foreclosure violates both the state and federal constitutions. Specifically, she argued that the practice violated the Fifth Amendment’s Takings Clause and the Eighth Amendment’s Excessive Fines Clause. The District Court and the Court of Appeals both agreed with the county. The Eighth Circuit Court of Appeals affirmed the District Court’s holding that Ms. Tyler failed to state a claim upon which relief could be granted. They agreed that Ms. Tyler no longer had a property interest that could be protected by the Takings Clause. Neither court discussed the Eighth Amendment issue. Ms. Tyler, the named plaintiff in this class action, then appealed to the Supreme Court.

The Supreme Court Opinions – Standing

The unanimous opinion, written by Chief Justice Roberts, first addresses the threshold question of standing and whether Ms. Tyler plausibly stated a claim. The Court quite plainly states that Hennepin County’s refusal to refund to Ms. Tyler the equity that remained after the satisfaction of her property debt “is a classic pocketbook injury sufficient to give her standing.” The Court also addresses a new claim from the County that had not been raised previously. The County now argues that there was a mortgage remaining on the condo, so even if it wanted to, the County could not return the excess proceeds to Ms. Tyler because it would be required to apply those proceeds to the mortgage. The Court rejects this argument on two grounds. First, the County never provided any evidence of any encumbrances to any Court. Second, Minnesota law extinguishes any encumbrances after a tax sale.

The Supreme Court Opinion – Takings Clause

Having determined that Ms. Tyler had standing and that she properly stated a claim, the Court discusses whether the harm that Ms. Tyler suffered was a result of Hennepin County’s violation of the Takings Clause.

Just as the court did in a similar case called Hall, which I blogged about in February, the Supreme Court here focuses on the history of the concept of property and of takings. The Fifth Amendment and the Takings Clause do not define “property.” However, centuries of English and American support the position that an equity interest in property cannot be extinguished without compensation. Indeed, many states have taken affirmative steps to overturn historical practices of strict foreclosure. States cannot legislate around this history, and many have not. Over thirty states and the federal government do not permit strict foreclosure. Similarly, the Court’s precedent indicates that even in extreme circumstances, excess proceeds from tax sales must be returned to the owner. The Court has long held that even when a statute governing tax sales is silent as to the requirement of the return of excess proceeds, it is assumed that proceeds should be returned to the owner, absent an opportunity to request that the proceeds be returned.

The Court also discusses the fact that Minnesota law only allows for strict foreclosure when the government is the creditor; no other creditor is permitted to retain equity remaining after a sale. The Court rejects this exceptionalism, stating, “Minnesota may not extinguish a property interest that it recognizes everywhere else to avoid paying just compensation when it is the one doing the taking.”

Finally, the Court addresses the County’s allegation that even if a property owner does not lose their ownership in the equity of the property by the initiation of a foreclosure, Ms. Tyler had long abandoned her interest by not paying property tax. Consequently, the County argues, Ms. Tyler had lost her property interest before the County initiated any proceeding against her. The Court readily rejects this proposition, stating that “the County cites no case suggesting that failing to pay property taxes is itself sufficient for abandonment.” Moreover, “Minnesota’s forfeiture scheme is not about abandonment at all. It gives no weight to the taxpayer’s use of the property.”

The Court easily concludes that Ms. Tyler retained an equity interest in her home when Hennepin County began foreclosure proceedings – the County was not permitted to destroy it by legislation, to alter it by excepting itself, or to deem it abandoned.

The Gorsuch/Jackson Concurrence

Just as we saw in Bittner, Justices Gorsuch and Jackson joined together. Their concurrence addressed Ms. Tyler’s 8th Amendment Excessive Fines claim, which had been addressed by neither the lower courts nor the Supreme Court’s majority. The County argued and the District Court agreed that its strict foreclosure practice did not violate the Excessive Fines Clause because the practice was not punitive. They provided three justifications for this position, all of which the concurrence rejects. First, they asserted that the “primary purpose” of the strict foreclosure law was remedial rather than punitive. The concurrence emphatically responds, “This primary-purpose test finds no support in our law.” Second, the County argued that the law is not punitive because a property owner might end up in a positive position if the County is only able to recover less than the amount of tax owed at the foreclosure sale. The Court responds, “Not has this Court ever held that a scheme producing fines that punishes some individ­uals can escape constitutional scrutiny merely because it does not punish others.” Finally, the District Court held that the law was not punitive because it did not turn on the property owner’s culpability, but rather serves as a deterrent to property owners. The Court responds that it has “never endorsed” such an interpretation. Though merely informative, this concurrence serves as a signal to the state courts that they “should not be quick to emulate” the analysis of the District Court in Tyler.


As the Court points out, strict foreclosure is not common. Neither the federal government nor a majority of states allow the practice. However, the fact that 14 states that did authorize strict foreclosure (before this opinion) is not insignificant. The Court’s unanimous decision in Tyler not only effectively ends the practice of strict foreclosure for unpaid property tax, but it also suggests that the Court is dedicating itself to the protection of taxpayer rights, at the federal, state, and local levels.

DC Circuit Issues Awaited Whistleblower Opinion in Lissack v Commissioner

Lissack v Commissioner is an important DC Circuit whistleblower opinion that clarifies the extent to which Whistleblower Office (WBO) decisions are subject to court review. Lissack also upholds under Chevron review the regulations’ approach to limiting awards to situations when the information provided is substantively connected to an eventual adjustment, even if the IRS would not have examined the taxpayer but for the informant identifying the targeted taxpayer.


In Lissack, which a guest post prior to this opinion discussed here, a whistleblower submitted information to the WBO about a condominium development group that allegedly evaded taxes due to its treatment of golf club membership deposits. The WBO investigated and found the claim credible, but the IRS found that the condo group’s income tax treatment of the deposits was correct. In examining the group, the IRS did discover an unrelated issue: it had taken an erroneous $60 million intercompany bad debt deduction.

About eight years after Lissack submitted his application for award, the WBO denied his claim, stating that the information that he submitted about the tax treatment of the deposits was not relevant for the bad debt deduction. While there was no dispute that the IRS’s investigation into the taxpayer was attributable to Lissack’s application to the WBO, the information was substantively unrelated to the IRS’s eventual bad debt adjustment and ultimate tax collection.

The Tax Court granted summary judgment to the IRS, holding that even though the IRS “did initiate an action” based on Lissack’s information he was ineligible for an award because “the IRS did not collect any proceeds as a result of…” an action or related action, as those terms are defined in the 7623 regs.

On appeal the government argued that the Tax Court did not have jurisdiction to review the IRS’s award denial. On appeal, the government also defended the validity of regulations that effectively denied awards when an informant’s information about an identified taxpayer is substantively unconnected to the issue that the IRS finds to be improper.

In Lissack, the DC Circuit Court of Appeals held that (1) the Tax Court had jurisdiction to consider the IRS’s denial of a whistleblower claim, (2) regulations under Section 7623 are valid under the still (for now) relevant Chevron two-step framework and (3) under those regulations it was proper for the IRS to deny Lissack any award.

The Tax Court Had Properly Exercised Jurisdiction

The government’s threshold argument was that its decision to deny the claim was unreviewable. In arguing that the WBO’s decision was not subject to review, the government relied on Li v Commissioner, where, as Keith discussed here, the DC Circuit held that a rejection of an application for a mandatory award on  Form 211 was not a reviewable award determination.

In Li, the DC Circuit held that a “threshold rejection of a Form 211 by nature means the IRS is not proceeding with an action against the target taxpayer,” and that “[t]herefore, there is no award determination, negative or otherwise, and no jurisdiction for the Tax Court.” 

Distinguishing Li, the DC Circuit in Lissack held that even though no award was given there was in fact a determination that triggered court review:

The fact that the IRS conducted an examination here suffices to distinguish Lissack’s case from Li.  Li never claimed that the IRS proceeded with any administrative or judicial action against the target taxpayer based on her submission…Here, by contrast, there is no dispute that the Whistleblower Office referred Lissack’s submission to the IRS, and an IRS revenue agent initiated an examination of the membership-deposits issue that Lissack identified.  That referral and examination count as the IRS “proceed[ing] with” an “administrative action” that was “based on” the information Lissack brought to the Secretary’s attention.  I.R.C. § 7623(b)(1).  And the “determination regarding an award” was the Whistleblower Office letter to Lissack informing him that the examination it initiated based on the information he provided did not result in the collection of any proceeds, so he was not entitled to an award.  

In arguing that Li applied to this case, the government was effectively arguing that judicial review of a WBO action was predicated on its finding that a whistleblower had made a meritorious claim. In Lissack the DC Circuit has limited the reach of Li, and while under Li judicial review requires that the IRS proceed with a claim there is no jurisdictional requirement that the IRS have “collected proceeds” based on the whistleblower’s information.

The DC Circuit Upholds the Regs

After finding against the government on the question of reviewability, on the merits, the DC Circuit looked to the regulatory requirements. Lissack argued essentially that under the plain language of the statute he was entitled to an award because but for the information he supplied the IRS would not have proceeded with an examination against the condo group.

The opinion frames the challenge, starting with the relevant statutory hook:

He challenges the regulatory provisions that control the IRS’s determinations whether any proceeds were “collected as a result of” an IRS “administrative action” to which a whistleblower “substantially contributed.”  I.R.C. § 7623(b)(1). 

First, he challenges the provision of the Rule defining an “administrative action” that the IRS treats as “based on” a whistleblower submission under subsection (b)(1) to be “all or a portion of” a proceeding that may yield collected proceeds.  26 C.F.R. § 301.7623-2(a)(2). 

Second, he challenges an example (Example Two) that illustrates how, when the IRS discovers “additional facts that are unrelated to the activities described in the information provided by the whistleblower” and accordingly expands the scope of the examination, the investigation into those unrelated facts “are not actions with which the IRS proceeds based on the information provided by the whistleblower.”  26 C.F.R. § 301.7623-2(b)(2) (Example 2).  

The parties both agreed that Chevron applied, and identified two key Step 1 questions:

First, whether the tax whistleblower statute requires the IRS to consider the “whole action”—in this case, all its examination activity—regarding one taxpayer as a single administrative action….

[Second,] whether the statute mandates an award whenever the whistleblower’s information was the but-for cause to initiate an investigation of the taxpayer, even if the ultimate basis for the IRS’s collection of proceeds found no factual support in the information the whistleblower provided.

The opinion finds under Chevron Step 1 that the statute does not require the IRS to consider the whole action nor mandate a but for causation approach to determining whether there is a collection of proceeds.

In the absence of the statute speaking directly to those issues, the DC Circuit finds that the regulatory approach was reasonable:

The ordinary meaning of “administrative action”—activities by executive agencies— may in this context sensibly be limited to action on the discrete tax issue or issues the whistleblower’s information identifies.

Further buttressing its Step 2 conclusion, the opinion discounts Lissack’s policy-based argument that he “provided ‘valuable information’ by informing the IRS that the development group taxpayers ‘are the type of taxpayers to misstate their tax liability generally, and debt in particular’”:

[T]here is ample reason to doubt that Congress meant to entitle whistleblowers to substantial awards just for raising plausible but meritless concerns about taxpayers who, on investigation by the IRS, turn out to be noncompliant in some other, unrelated way.  Such a regime likely would encourage whistleblowers to flyspeck major taxpayers, identifying any plausible underpayment in the hope of triggering an examination yielding some other, major adjustment.  The IRS approach, in contrast, calibrates mandatory awards to the fruits of the particular IRS actions that the whistleblower’s information substantially assists.


While the opinion on the merits is a victory for the government, the threshold jurisdictional question is a victory for the whistleblower bar.

The opinion is also significant for what it declined to consider, including whether the Tax Court must conduct a trial de novo on an appeal of a WBO determination and the standard of review that applies to a challenge to the scope of the record the IRS submitted to the Tax Court.

In declining to entertain those issues, the DC Circuit noted that Lissack failed to request that the Tax Court “expand the administrative record or create a new one”, issues that spin off the Administrative Procedure Act and the Kasper decision that I discussed a few years ago here and more recently here.  

While noting that Lissack effectively waived these issues by failing to act below, the DC Circuit acknowledged (as has the Tax Court) that some whistleblower cases will warrant discovery and exceptions to the record rule. By failing to see how the exceptions or the need for new evidence might have benefitted Lissack, the DC Circuit was able to sidestep those issues.

While those issues await another case, the proposed Whistleblower Program Improvement Act that Senators Grassley, Wyden, Wicker, and Cardin introduced earlier this year  would provide for a de novo standard of review and “allow for new evidence to be admitted to the record based on the administrative record established at the time of the original determination and any additional newly discovered or previously unavailable evidence.”  Readers of PT know that the “newly discovered” or “previously unavailable” framework are also part of the Taxpayer First Act amendments to innocent spouse cases. Let’s hope that if legislation progresses, Congressional staff take a hard look at this standard, and consider how those terms are far from self-defining.

DOJ Wins One Case and Loses Motions in Another Where POAs Signed First Refund Claims for Taxpayers, Part II

We have run a number of posts involving refund suits where (1) the taxpayer’s representative signed the predicate refund claim on the taxpayer’s signature line, and (2) the Form 2848 power of attorney did not expressly authorize the representative to sign returns.  This is part II of a two-part post on two recent cases presenting this fact pattern, decided one day apart, Dixon v. United States, 2023 U.S. App. LEXIS 11422 (Fed. Cir., May 10, 2023) (Dixon 3), and Cooper v. United States, 2023 U.S. Claims LEXIS (Ct. Cl., May 9, 2023).  The DOJ’s motion to dismiss was successful in Dixon and unsuccessful in Cooper.  So, it may be worthwhile to explain how the courts reached different rulings on such similar fact patterns.  Today’s post discusses Cooper.  You can find part I of this post here.


Cooper Facts

Mr. Cooper filed his 2014 income tax return late (in June 2016), even after having obtained a 6-month extension to file.  Just before the extended due date, his CPA told Mr. Cooper that there would not be any late-filing penalty anyway, since a large payment made with the extension request had overpaid the taxes.  In the end, the preparer was wrong that the taxes had been overpaid, and the IRS assessed about $95,000 in late-filing penalties as it processed the return. 

Mr. Cooper paid the $95,000 and hired a tax attorney (who was not Mr. Castro of Dixon) to try to get the penalty refunded.  The attorney had the taxpayer execute a Form 2848 in his favor, though, just like in the Brown and Dixon 1 cases in part I of this post, box 5a of the form authorizing the attorney to sign tax returns was not checked.

Refund claims for penalties are not made on amended returns (Forms1040X), but via Form 843 refund claims.  The attorney prepared and filed a Form 843, signing the form both on the line for where the taxpayer should sign (under penalties of perjury) and where the preparer should sign.

The IRS denied the claim, and in 2019, Mr. Cooper brought a timely suit in the Court of Federal Claims under IRC § 6532(a).

After the parties filed the complaint and answer and completed discovery, in May 2022, the DOJ moved to dismiss the case under RCFC 12(b)(6) for failure to state a claim on which relief could be granted.  The DOJ cited two reasons:  (1) the Form 2848 had not been attached to the refund claim when the Form 843 was filed (as required), and (2) the attorney was not authorized by the Form 2848 to sign a Form 843 refund claim for the taxpayer.

The timing of the DOJ’s Cooper motion under RCFC 12(b)(6) is important, since it was filed a few months after the Federal Circuit issued its opinion in Brown v. United States, 22 F.4th 1008 (Fed. Cir. 2022) (on which Keith blogged here.  In Brown, the Federal Circuit held that, under recent Supreme Court case law, certain requirements of a proper refund claim under IRC § 7422(a) are no longer jurisdictional to a refund suit, even though the predicate requirement to file a refund claim at all is still jurisdictional.  Brown held that what it called the “duly filed” requirements of the statute (which the court said covered the IRC §§ 6061 and 6065 requirements for a taxpayer to sign a return and under penalties of perjury) are not jurisdictional, but nevertheless are still statutory, so cannot be waived.  Thus, Brown dismissed the suit for failure to state a claim under RCFC 12(b)(6), not for lack of jurisdiction under RCFC 12(b)(1).

Before the CFC ruled on the DOJ’s motion in Cooper, in July 2022, the DOJ withdrew it and filed a new motion to dismiss, this one predicated on lack of jurisdiction under RCFC 12(b)(1).  As the court wore in Cooper:

The motion raises the same grounds for dismissal—i.e., that Mr. Cooper’s refund claim was not “duly filed” due to his failure to comply with the signature verification requirements—but, contrary to its initial motion, the Government relies on circuit precedent preceding Brown to support a jurisdictional argument.  Id. at 1, 12-15.  The Government now contends that Brown is not binding because the Brown panel could not overrule prior panel decisions finding that § 7422(a) sets forth jurisdictional prerequisites to filing suit. Id. at 18-21.

Slip op. at 5.

The DOJ is obviously still smarting from the holding in Brown that the “duly filed” requirement in IRC § 7422(a) is no longer jurisdictional.  That holding was prompted in part by the amicus brief that Keith and I filed in Brown on behalf of The Center for Taxpayer Rights in which we argued that no requirement of IRC § 7422(a) is jurisdictional anymore.  That is, we argued that, even the requirement to file a refund claim at all before bringing suit is no longer jurisdictional.  Since the DOJ won Brown (though not on the ground it wanted), it could not seek cert.  It has apparently decided to keep making the argument rejected in Brown to the CFC, hoping that the jurisdictional question will be revisited in the Federal Circuit again soon.

Cooper Holding

The Cooper court rejected the DOJ argument that the 3-judge Brown panel had no authority to ignore prior Federal Circuit precedent, writing:

Although the Government takes issue with whether Lexmark [International, Inc. v. Static Control Components, Inc., 572 U.S. 118, 128 (2014) (cited by the Brown panel)] expressly or implicitly overruled the Federal Circuit’s prior decisions on the jurisdictional nature of § 7422(a), this Court is not in a position to ignore Brown‘s conclusion that the two are irreconcilable.  See ECF No. 25 at 23 n.23 (noting that Lexmark is not a tax case, nor a case involving the United States’ waiver of sovereign immunity).  Moreover, the Federal Circuit has held that a panel is empowered to overrule a prior panel decision “without en banc action” based on intervening authority, even where such authority does not explicitly overrule the prior decision or address the precise issue.

Slip op. at 11 (citation omitted). 

I am surprised that the DOJ tried to distinguish Lexmark in July 2022 as not being a tax case, since in April 2022, the Supreme Court applied its non-tax precedent restricting the use of the word “jurisdiction” to the Tax Court petition filing deadline in IRC § 6330(d)(1) in Boechler, P.C., v. Commissioner, 142 S. Ct. 1493.

The Cooper court could have stopped there, but it noted that

in a final footnote at the end of its reply the Government posits an alternative ground for dismissal.  If it finds Brown controlling, the Government requests that the Court dismiss the Complaint with prejudice for failure to state a claim.  Def.’s Reply at 18 n.7, ECF No. 27.  Because the pleadings are closed, such request could be raised only by a motion for judgment on the pleadings under RCFC 12(c). 

Slip op. at 12 (citation omitted).

The court decided to consider whether the DOJ was entitled to judgment on the pleadings.

The court held that a factual dispute over whether the Form 2848 was attached to the Form 843 when filed (as required) precluded granting judgment on the pleadings on that ground.

With respect to the ground of failure to properly sign and verify under penalties of perjury, the court looks closely at regulations under the refund claim provisions and the power of attorney provision, Form 843 instructions, and a Technical Advice Memorandum and concludes that, unlike in the case of a Form 1040X (which is a return), a Form 843 is not a return and can be signed by a representative on the line for the signature of the taxpayer, even if box 5a on Form 2848 does not authorize signing returns. 

[T]the regulations do not require specific authorization for non-return refund claims.  Compare Treas. Reg. § 1.6012-1(b)(3)(ii) with id. § 301.6402-2(e).  If that is an inconsistent policy, it is incumbent on the IRS to amend its regulations and forms.

Slip op. at 25 n.6.

Further, the court finds that the language of the Form 2848 authorizing the IRS to deal with the representative provides enough authority for the representative to sign on behalf of the taxpayer.  The court also rejects the DOJ argument that the Form 2848 was required to specifically list “late-filing penalties for 2014” to be valid.  The court finds it enough that the 2014 income taxes were named on the Form 2848.

This being an interlocutory ruling, the DOJ cannot immediately appeal it to the Federal Circuit.  It will be interesting to watch how this case progresses.

DOJ Wins One Case and Loses Motions in Another Where POAs Signed First Refund Claims for Taxpayers, Part I

We have run a number of posts involving refund suits where (1) the taxpayer’s representative signed the predicate refund claim on the taxpayer’s signature line, and (2) the Form 2848 power of attorney did not expressly authorize the representative to sign returns.  This is part I of a two-part post on two recent cases presenting this fact pattern, decided one day apart, Dixon v. United States, 2023 U.S. App. LEXIS 11422 (Fed. Cir., May 10, 2023) (Dixon 3), and Cooper v. United States, 2023 U.S. Claims LEXIS (Ct. Cl., May 9, 2023).  The DOJ’s motion to dismiss was successful in Dixon and unsuccessful in Cooper.  So, it may be worthwhile to explain how the courts reached different rulings on such similar fact patterns.  Today’s post discusses Dixon and its predecessor cases generated by representative John Castro (the original signer in all the cases leading up to Dixon).


Background on Castro Cases

There is a tax attorney/CPA named John Castro, who represents a lot of United States citizens living abroad.  Mr. Castro filed refund claims for them for various issues, frequently the foreign income exclusion of IRC § 911.  Mr. Castro knew it was a big burden to send refund claims to his overseas clients to have the clients sign and return the claims.  So, he obtained powers of attorney (Forms 2848) from them, and Mr. Castro signed the refund claims (Forms 1040X) on the line for the taxpayer’s signature (i.e., the line which contains the affirmation under penalties of perjury).

Line 3 of Form 2848 (rev. 1/2021) states:  “I authorize my representative(s) to receive and inspect my confidential tax information and to perform acts I can perform with respect to the tax matters described below. For example, my representative(s) shall have the authority to sign any agreements, consents, or similar documents (see instructions for line 5a for authorizing a representative to sign a return).”  Line 5a allows taxpayers to give the representative certain further powers, including, “Sign a return”.  Unfortunately, Mr. Castro left that box on line 5a unchecked. 

The IRS audited all the claims and rejected the claims on the merits.  In response, Mr. Castro arranged for counsel he hired to file suits in the Court of Federal Claims (CFC) seeking refunds. 

Mr. Castro’s signature is messy, and so it was not until the suits had commenced that the DOJ discovered that the purported taxpayer signatures on the Forms 1040X were those of Mr. Castro and not the taxpayers.  Thereafter, the DOJ filed motions to dismiss for lack of jurisdiction under RCFC 12(b)(1).  The taxpayers claimed the IRS had waived any defect in the form of the claims by rejecting the claims on the merits, citing Angelus Milling Co. v. Commissioner, 325 U.S. 293 (1945).  In Angelus, the Supreme Court held that the IRS waives the regulatory specificity requirement of a refund claim when the IRS denies the claim on the merits.  But, the Angelus Court stated that, by contrast, statutory refund claim requirements may never be waived.

Keith first did a post ­­on one of the Castro-case opinions in which the CFC granted the IRS’ motion, Gregory v. United States, 149 Fed. Cl. 719 (2020).  Gregory held jurisdictional to a refund suit compliance with the refund claim signature requirement of IRC § 6061 and the verification under penalties of perjury requirement of IRC § 6065.  Jurisdictional requirements can never be waived.  Since Castro did not have authority to sign Forms 1040X, the CFC dismissed Gregory’s suit for lack of jurisdiction. 

Mr. Dixon and Mr. Brown had similar CFC cases dismissed for lack of jurisdiction.  See Dixon v. United States, 147 Fed. Cl. 469 (2020) (Dixon 1); Brown v. United States, 151 Fed. Cl. 530 (2020).  Mr. Dixon and Mr. Brown appealed the dismissals of their CFC cases to the Federal Circuit. 

In Brown v. United States, 22 F.4th 1008 (Fed. Cir. 2022) (on which Keith blogged here), the Federal Circuit affirmed the CFC, but on different reasoning.  Brown held that, under recent Supreme Court case law, certain requirements of a proper refund claim under IRC § 7422(a) are no longer jurisdictional to a refund suit, even though the predicate requirement to file a refund claim at all is still jurisdictional.  Brown held that what it called the “duly filed” requirement of the statute (which the court said covered the IRC §§ 6061 and 6065 requirements) are not jurisdictional, but nevertheless are still statutory, so cannot be waived.  Thus, Brown dismissed the suit for failure to state a claim under RCFC 12(b)(6), not for lack of jurisdiction under RCFC 12(b)(1). (Parenthetically, I question whether any requirement to file a refund claim is still jurisdictional, and I think the comment in Angelus that statutory requirements cannot be waived is also no longer good law and should not have been followed in Brown.)

Dixon 2 and 3 Opinions

Mr. Dixon dropped his appeal of Dixon 1 when Mr. Castro got a bright idea:  Mr. Castro had Mr. Dixon sign and file new Forms 1040X identical to the first set.  This occurred after the IRS had denied the first set of Forms 1040X on the merits.  The new claims were submitted to the IRS after the IRC § 6511 statute of limitations for refund claims had expired.  The IRS denied the claims, and Mr. Dixon filed a new refund suit in the CFC.  The DOJ moved to dismiss the case for lack of jurisdiction on the ground that the prior claims could not be treated as timely informal claims under the doctrine of United States v. Kales, 314 U.S. 186 (1941), arguing that informal claims need properly to be signed under penalties of perjury, as well.  In Dixon v. United States, 158 Fed. Cl. 69 (2022) (Dixon 2) (on which I blogged here, the CFC dismissed the suit for lack of jurisdiction on the grounds sought by the DOJ. 

In Dixon 3, the Federal Circuit recently affirmed the CFC’s dismissal of the case for lack of jurisdiction for late claim filing, but again on different grounds than those stated by the CFC.  The Federal Circuit was concerned about the possible differences between the waiver doctrine cases (Angelus and its progeny, including Brown) and the informal claim doctrine cases (Kales and its progeny).  The court was doubtful that to be a valid informal claim filed before the IRC § 6511 statute expired, all procedural requirements of claims must have been met, such as the signature and verification requirements.  The court wrote:

The government’s argument, at least on its face, is in tension with decisions of both the Supreme Court and this court.  See Kales, 314 U.S. at 194 (“This Court, applying the statute and regulations, has often held that a notice fairly advising the Commissioner of the nature of the taxpayer’s claim, which the Commissioner could reject because too general or because it does not comply with formal requirements of the statute and regulations, will nevertheless be treated as a claim where formal defects and lack of specificity have been remedied by amendment filed after the lapse of the statutory period.” (citations omitted)); Computervision, 445 F.3d at 1364 (“First, formal compliance with the statute and regulations is excused when the informal claim doctrine is applicable.”).  And it is in tension with the above-described case law, see supra pp. 15-18, which has applied the informal-claim doctrine in the absence of writings, signatures, and verification under penalty of perjury.

Slip op. at 22-23.

All that is clear under Kales is that a perfected claim filed after the statute of limitations expires is deemed to be filed on the date the informal claim was filed.

The court pointed out the tension between the waiver and informal claim cases, but declined to resolve the issue of whether all informal claims must be signed by taxpayers under penalties of perjury.  It left that question to another panel in a later case.  “We flag these issues without prejudging the result of a full consideration of these and other issues in a case where deciding the question is necessary to the outcome.”  Slip op. at 24.

The court could dodge the sticky issue because it found another ground for finding the refund suit to lack jurisdiction.  Although the DOJ had not meaningfully presented the argument to the CFC, before the Fed. Cir. the DOJ argued that once an informal claim has been rejected on the merits, and the taxpayer brings suit on it, the ability of the IRS to rule on the claim lapses (authority passes to the DOJ), so the claim cannot be an informal claim for a later, perfected claim.  The Federal Circuit agreed, writing:

On the merits, the Supreme Court in [United States v.] Memphis Cotton [Oil Co., 288 U.S. 62 (1933)], in articulating the informal-claim doctrine, stressed the importance of any amendment to a deficient refund claim being filed while the original claim remains before the IRS.  288 U.S. at 72.  Only when the IRS “holds [a deficient claim] without action until the form has been corrected” is it true that “what is before [the IRS] is not a double claim, but a claim single and indivisible, the new indissolubly welded into the structure of the old.”  Id. at 71.  But “[w]hen correction is . . . postponed, there is no longer anything to amend, any more than in a lawsuit after the complaint has been dismissed.”  Id. at 72.  This court reiterated that principle in Computervision, where we noted that the IRS loses jurisdiction over—and a taxpayer loses the ability to amend—any refund claim that is allowed, disallowed, or the subject of a suit for refund.  445 F.3d at 1371-73.

Slip op. at 25-26.


When Dixon 2 came down, Keith was worried that the Federal Circuit might affirm the CFC on the ground that a valid informal claim must be signed by the taxpayer under penalties of perjury.  That would seem to go against precedent of the Federal Circuit and many other courts.  Accordingly, the Center for Taxpayer Rights (represented by Keith and Professor Andrew Weiner of Temple) filed an amicus brief pointing out that precedent.  A copy of the amicus brief can be found here.

Remand of a CDP Case

In Whittaker v. Commissioner, T.C. Memo 2023-59 the Tax Court remanded the Collection Due Process (CDP) back to Appeals because it found that the Settlement Officer (SO) abused her discretion in rejecting the couple’s offer. In reaching this conclusion it found clear error in the SOs analysis. Cases get remanded to Appeals occasionally. When they do they offer a glimpse at how the judicial process can shape the administrative process. The Whittaker case also provides a reminder of the value of bringing an offer case to the Court in the context of a CDP hearing since the taxpayer would otherwise have no path to judicial review of a rejected offer.


The Whittakers owe about $33,000 and offer to pay $1,629 to resolve their liability.

They could hardly ask for a better start to the opinion: “The Whittakers are hardworking people…” Seeking an offer, you worry that the applicants come across as deadbeats or people trying to gain an unfair advantage on the system. Those type applicants certainly exist. When the Court starts off the opinion with this statement, it bodes well for the Whittakers because it means they have crossed an important threshold in making their case. Just because they are hardworking does not mean they deserve the offer in compromise they have requested but this finding definitely moves their case forward in a positive way.

The Whittakers are in their mid-60s. The opinion says that Ms. Whittaker is only one year away from retirement as a family and community-empowerment specialist for a local school district. Mr. Whittaker is a veteran and a self- employed personal trainer. The opinion does not discuss how long he intends to continue working. The length of future employment can be a sticking point. I recently had a client in his mid-70s and the offer examiner projected his income for the next 10 years. President Biden may have moved the bar on expectations of how long someone will/should work but for many individuals working after full Social Security retirement age should not be something that the IRS expects in my opinion.

The CDP case only involves the tax year 2015. So, that is the only year before the Tax Court. The offer, however, covers 2004-2006, 2015 and 2018. While the Court only addresses 2015, the decision regarding the offer necessarily implicates the whole offer and not just one of the years in the offer. So, the taxpayers get the benefit of a decision covering their whole liability even though it nominally relates just to one year.

The Whittakers submitted a doubt as to collectability offer saying, in effect, that they had no ability to fully pay the debt owed to the IRS. The IRS responded that based on its calculation of their assets they had the ability to fully pay the outstanding liabilities. The IRS could still accept the offer even if the Whittakers had the ability to full pay, but the IRS offer examiner and Appeals employee did not want to accept the offer. The value of the house, the ability of the Whittakers to pull money out of the equity in the house, the value of retirement accounts, the need to use the money in those accounts to pay basic living expenses and the change in their circumstances due to the pandemic were the source of the dispute on how to calculate the correct offer amount.

Because the Whittakers live in Minnesota, the Eighth Circuit decision in Robinette v. Commissioner, 439 F.3d at 459 controls the Tax Court’s actions with respect to scope of review. The Robinette case held that the Tax Court must limit what it considers to the administrative record and not take new evidence.

The Court looked at each of the disputed issues in turn. With respect to the retirement account it stated:

The Whittakers argue that, because they are nearing retirement, the money in those accounts should be viewed as generating income over time, not as an asset to be liquidated to pay their tax debt….

They specifically cite IRM (Mar. 23, 2018), which states that a taxpayer within one year of retirement may have his retirement accounts treated as income; and IRM (Sept. 30, 2013), which states that taxpayers who are retiring may have their future income and expenses adjusted in calculating their RCP. They think these parts of the IRM should have made the IRS increase their projected income a bit, but taken the value of the accounts entirely off the asset-side of the RCP computation — changes that they also say would make their OIC more reasonable. They also point to an authority higher than the IRM that both the IRS and we have to follow — there’s a Treasury Regulation that says that the IRS may compromise a tax debt if a taxpayer has a retirement account with sufficient funds to fully pay his liability, but who would be unable to pay for basic living expenses afterwards if he did so. Treas. Reg. § 301.7122-1(c)(3)(iii) (example 2)

The IRS counters that neither the IRM nor the regulation requires the IRS to treat the retirement account strictly as a source of income. In a situation in which the taxpayers argue for special circumstances, the IRS should consider additional factors such as age, employment status, medical issues, number and health of dependents and ability to earn a living. The Settlement Officer in Appeals states in her report that the special circumstances were considered but did not provide a basis for accepting the offer since the Whittakers had no long-term illnesses and were not living on a fixed income.

The Court acknowledges that reasoning does not create an erroneous view of the law or facts but also notes a problem for the IRS:

this reasoning [the information in the report] didn’t make it into the notice of determination, no matter that it is reasonably clear in the administrative record as a whole. There is some ambiguity in the law here — we typically say that we confine our review to the reasoning in the notice of determination, but administrative-law cases more generally do let a reviewing court “uphold a decision of less than ideal clarity if the agency’s path may reasonably be discerned.”

The Court then moves on to look at the home equity situation.

The [OIC] Unit adopted the county’s assessed value of the Whittakers’ home in its analysis of the OIC. It figured that the quick sale value12 of the home was $194,400. The Whittakers had a mortgage for $85,237, and so a net equity of $109,163. This analysis, however, ignored the Whittakers’ contention that the home was worth less than its assessed value due to its condition as well as their contention that they are unable to tap that equity because of the restrictive terms of their mortgage. The settlement officer did not address these arguments, but disregarded them and adopted the Unit’s valuation.

The Whittakers argue that the home was not worth its assessed amount because it was in bad shape. They further argue that they cannot borrow against the home both because they lack the ability to make the loan payments that would result and because the existing loan documents prohibit such a borrowing. The Court takes the IRS to task for not following up on the Whittakers claims regarding their inability to refinance the house:

The IRS does need to take problems with possible refinancing a home seriously. For example, in Antioco, 105 T.C.M. (CCH) at 1236, [see post here and prior posts] the taxpayer submitted proof of her attempts to refinance after the settlement officer asked for such documents to help the officer make her determination. Here, although the Whittakers didn’t submit such proof, [*12] they said that they would and could if the settlement officer had only asked. The Whittakers have a point — there’s nothing in the administrative record that states or even suggests that the examiner at the Unit or the settlement officer during the CDP hearing asked for any information in addition to the appraised value. The settlement officer noted that she “advised [the Whittakers’ lawyer] that the special circumstances were considered; but did not warrant acceptance of the offer” and that she “was not going to remove the equity for the investment because the taxpayers can fully pay with one of the retirement accounts; plus, the taxpayers have over $100,000 in equity in the home.” There’s no evidence in the record of any consideration of the Whittakers’ arguments on this point.

This is where the CDP process provides a very tangible benefit to all taxpayers because it interjects a judicial overview on a process otherwise completely within the control of the IRS, as Les discussed recently in the Pitt Tax Review.  This does not mean the taxpayer will always win, see e.g. this post discussing a loss by the taxpayer, but it does mean that all taxpayers win by getting a window into the thinking about what is appropriate.

The Court finds that the Settlement Officer’s conclusion regarding the equity in the home and the Whittakers ability to tap into that equity was clearly erroneous. Because of that finding the SOs use of that equity in calculating their reasonable collection potential was an abuse of discretion.

The Court then moved on to the impact of the pandemic. The pandemic impacted many taxpayers. Many had offers pending based on one set of projections only to have those projects smashed by the economic disruption caused by the pandemic. Of course, the disruption impacted taxpayers in different ways depending on their circumstances. It’s easy to image that a self-employed person engaged in personal training would have had little or no work for a significant period of time and then would almost need to start the business from scratch. Given his age, this disruption caused Mr. Whittaker to leave the workforce. The pandemic also caused a major downward shift in the amount of work Mrs. Whittaker had. The SO’s response to this significant change in circumstances was not to recalculate the offer but rather to offer a hold on collection.

The SO also miscalculated Mr. Whittaker’s military pension by almost $1,000 a month. The IRS argues the error is harmless because enough equity still existed to satisfy the liability. The IRS attempted to put in the record at trial information not in the administrative file in order to support its conclusion. The Court rejected this attempt stating:

Upholding the rejection of the Whittakers’ offer because Mrs. Whittaker’s mall job may have resumed or Mr. Whittaker might be able to run a training business using potential clients’ possible pandemic purchases is entirely speculative. These post hoc rationalizations are precisely what Chenery bars. See Antioco, 105 T.C.M. (CCH) at 1240.

The Court notes that the Whittakers lost their jobs in the middle of the CDP hearing. This materially changed their circumstances since their income was critical to the calculation regarding their ability to pay. Rather than compel the IRS to accept the offer that the Whitakers made, the Court sends the case back to Appeals to consider their updated information. This limited remedy does not guarantee the Whittakers will receive the offer in compromise they seek but does give them a good chance for a favorable outcome. Unlike most tax cases, CDP cases provide a moving target. Income and expenses are dynamic. This case demonstrates how their dynamic nature can change outcomes and show how the IRS must be flexible during the CDP process to adapt to changes in a taxpayer’s financial circumstances. One wonders whether the absence of judicial review that accompanies IRS consideration of most collection alternatives reinforces a decision-making process that fails to consider taxpayers’ changing financial circumstances and encourages a more generic IRS approach to evaluating a taxpayer’s true ability to pay. CDP, while not without some problems, injects a needed judicial check on the IRS’s still considerable collection powers.

Where Have All the Judges Gone (and Other Information from the ABA May Meeting) Part 1

At the Court Procedure and Practice Committee of the ABA Tax Section Tax Court Chief Judge Kerrigan presented as part of the panel and provided information about the Tax Court.  One of the first things she mentioned concerned judicial staffing at the Court.  At present, the Court is operating with 16 Presidentially appointed judges out of a possible 19 due to judges in need of reappointment, such as Judge Holmes, and judges who have reached the age of 70 when they age out of being “regular” Tax Court judges and have the opportunity to move into senior status.


Judges Lauber and Marvel moved to senior status recently.  This doesn’t mean judges who turn 70 immediately stop trying cases if they are willing to continue working which they seem to be, but it does exclude them from Court conference on cases of importance and it does open up slots for further Presidentially appointed judges who can help with the overall workload of the Court.

Chief Judge Kerrigan stated that three more vacancies will occur by the end of the summer – two because judges, Judge Morrison and Judge Paris, will come to the end of their terms and one because a judge, Judge Gale, will reach age 70.  The two judges who will reach the end of their terms can be reappointed.  Most Presidents seem to do that although not all.  Even if reappointed, the process seems to move quite slowly rather than seamlessly creating a gap in the time the judges can act as regular judges forcing them to go onto senior status for the period of the gap.  Once their term ends, judges under 70 who have not been reconfirmed by the Senate move to senior status until the reconfirmation occurs.  Judge Holmes has now been in this status since 2018 though readers of Tax Court opinions know that he is still very active.

The backed up judicial appointments because of the health of Senator Feinstein on the Judiciary Committee has been much in the news; however, that should not be a barrier to appointing new Tax Court judges and having them confirmed.  Unlike Article III judges, the appointment of Tax Court judges goes through the Finance Committee where Chairman Wyden seems to be active and well.  But the Finance Committee can’t act if the President doesn’t send up any names.  I don’t know why the President wouldn’t send up names for appointment or reappointment so the Tax Court can operate at full strength.  There are a number of time-consuming cases on the Court’s docket.  From what I can tell, it could use the extra members.

The Tax Court could expand the current number of special trial judges in an effort to process more cases.  Once upon a time special trial judges (STJs) got assigned to large trials.  When an STJ was assigned to a large case, the STJ would handle everything and issue a preliminary opinion.  Because STJs cannot issue opinions in regular cases, to become final the opinion would be adopted by a Presidentially appointed judge.  That process generally seemed to work well.  Over the years many STJs had as much or more trial experience as Presidentially appointed judges and did a nice job of conducting large trials as well as trials in small tax cases.  In the 1980s when the Tax Court’s inventory was high, there were 10 STJs for much of the decade.  The practice of assigning STJs to handle large trials of regular cases went into disfavor after the Supreme Court’s decision in Ballard v. Commissioner, 544 US 40 (2005).  The unwanted exposure created by the decision seems to have stopped the practice of assigning STJs to help with the large case workload of the Court.

STJs should or could operate in the Tax Court much like magistrate judges in the District Courts and there have been legislative proposals to rename the STJs in the past to align the name with the title in District Court.  In District Court cases the parties can elect to have their case heard by a magistrate judge with the ability for the magistrate judge to issue the final decision without review by a District Court judge.  Perhaps Congress could consider amending the Code to give greater power to STJs or more flexibility to the Chief Judge to use them to the Court’s highest advantage.  IRC 7443A(b)(4) and (6) gives STJs the ability to hear any CDP or whistleblower case.  These cases could all be moved to small tax calendars though the volume, and type, of these cases may not provide much relief.

The Court does seem to be making a move to use the STJs to greater advantage as it sets up the calendars for the fall.  Chief Judge Kerrigan said that regular judges will be holding more special sessions in the coming year and that STJs will handle calendars with cases involving more than $50,000 at issue for one period.  I expect this reflects the large number of big cases sitting on the Court’s docket. 

At the May meeting of the ABA Tax Section, I participated for the first time on the committee which the Tax Section has to vet judicial appointments to the Tax Court.  For those readers older enough to remember commercials by Maytag from 50 years ago, members of this committee are like the Maytag repairman in those commercials – they have nothing to do.  Perhaps I should be happy to be on a committee that has nothing to do.  What I noticed about the committee was that it contained a number of individuals who would make excellent Tax Court judges.  Since I am over 70, I don’t have to worry about being appointed, but I note for whoever is on President Biden’s judicial appointment staff that looking at the members of this committee could provide a ready source of well qualified appointees in addition to the judges available for reappointment.

In Part Two I will talk about some of the case and other statistics provided during the committee meeting.

Supreme Court Finds For Government in Polselli Summons Litigation

Last week, in Polseilli v IRS the Supreme Court held for the government, finding that the IRS need not notify third parties when it issues a summons in the aid of collecting some other person’s tax liability.

Why is notice important? Under the statutory scheme set out in Section 7609, the entitlement to notice is the ticket to a waiver of the government’s sovereign immunity. Without the right to notice, there is no clear path to a federal district court. The opinion brings into sharp relief how the government’s power to gather information that may help it collect taxes trumps a third party’s privacy interest in sensitive and personal information.

While Polselli is a resounding government victory, it does leave the window open ever so slightly to push back against the IRS’s broad summons’ powers, even in collection cases. And when the government is seeking information about anyone identified in a summons for the purposes of determining a liability, Polselli does not disrupt the IRS’s requirement to notify anyone identified in the summons.


There are two opinions in Polselli, a unanimous opinion by Chief Justice Roberts and a concurrence by Justice Jackson that Justice Gorsuch joined. I will briefly summarize them and offer some observations below.

The main opinion mostly walks through the statutory analysis of Section 7609(c)(2)(D). That section provides that the IRS need not provide notice to a person “who is identified in the summons,” …(1), if the summons is: “issued in aid of the collection of— “(i) an assessment made or judgment rendered against the person with respect to whose liability the summons is issued; or “(ii) the liability at law or in equity of any transferee or fiduciary of any person referred to in clause (i).”

As Chief Justice Roberts explains, to fit within the language in (i), a summons must satisfy three conditions:

  • First, a summons must be issued in aid of collection;
  • Second, it must aid the collection of an assessment made or judgment rendered; and
  • Third, a summons must aid the collection of assessments or judgments against the person with respect to whose liability the summons is issued.

What led the Court to accept cert was that the Ninth Circuit in the Ip case added some gloss to the statute, effectively limiting the circumstances when no notice would be required to situations when the taxpayer has a legal interest in accounts or records summoned by the IRS. When the Sixth Circuit declined to follow Ip, there was a clear circuit split.

The Supreme Court did not embrace the Ninth Circuit’s approach:

None of the three components for excusing notice in §7609(c)(2)(D)(i) mentions a taxpayer’s legal interest in records sought by the IRS, much less requires that a taxpayer maintain such an interest for the exception to apply.

The opinion goes deeper into the statutory analysis, but the main takeaway is that the Court declined to read an exception that Congress did not clearly add, emphasizing that the statutory term “in aid of collection” is broad, with “aid” meaning to help or assist.

The opinion applies these broad terms to the case at hand, noting that the IRS had a reasonable belief that Polselli was shielding assets in other entities and perhaps had effective control over bank accounts which he had no legal interest. And for good measure the opinion details how clause (ii) in Section 7609(c)(2)(D), which provides another exception to notice when pursuing a summons to aid in collecting the delinquent taxpayer’s tax debt from transferees or fiduciaries, is not superfluous in light of how clause (ii) may apply when the IRS is attempting to collect taxes from those third parties in the absence of an assessment, a rare but not impossible scenario (see slip opinion, p. 10).

What of the slight window to challenges to collection summonses that I referred to earlier in this post? At oral argument, as the opinion noted, the government conceded that its power to summons is not limitless, and proposed the following test:

So long as a summons is “reasonably calculated to assisting in collection,” it can fairly be characterized as being issued “in aid of ” that collection. Adding some more detail, at oral argument it stated  that the “third party should have some financial ties or ha[ve] engaged in financial transactions with the delinquent taxpayer.”

But the Court declined to adopt this test, as neither party briefed it and it was “not the case to try to define the precise bounds of the phrase ‘in aid of the collection.’”

This is the kind of case that rightfully raises privacy concerns. When, as in Polselli, the government seeks records from the taxpayer’s wife and a law firm and can do so without telling anyone other than the summoned party it disrupts a reasonable expectation in the privacy around one’s sensitive records and information. To be sure, Polselli himself put the third parties in harm’s way by not paying his taxes, and the government is prohibited from disclosing this information to other third parties, but that is unlikely to satisfy someone whose records are released to the IRS without their knowledge.

As the government noted in briefing (see p. 46), some cases such as the Second Circuit’s 2016 Haber v US have entertained limited discovery following a summons issued to aid in collection. Haber involved a summons to a bank purportedly to aid in collection of an assessed liability, and following the taxpayer’s petition to quash, the district court required the government to prove that its summons was in aid of collection.

For litigants interested in the contours of future challenges, Justice Jackson’s concurrence provides a possible roadmap. After recounting how the government’s interest in collection generally trumps the right to notice, the concurrence notes that the government’s right to pursue this information without informing affected parties should yield in certain circumstances:

But, depending on whose information the summons seeks (for example, an innocent third party’s), or the nature of the requested records, it might not be reasonable to conclude that providing notice would frustrate the IRS’s tax-collection goal. And when that is the case, it might unjustifiably tip the scales in the other direction (i.e., entirely in the IRS’s favor) to allow the IRS to proceed without notice just because its delinquency resolution process has entered the collection phase.

Justice Jackson continues, emphasizing that “the statute’s balancing of interests indicates that Congress did not give the IRS a blank check…” Justice Jackson expresses disbelief that the 7609(c)(2)(D)(i) exception could “so dramatically” upset Congress’ objective of allowing courts to check the IRS’s efforts to obtain information “no matter how broad the summons is or how potentially intrusive that records request might be, so long as the agency thinks doing so would provide a clue to the location of a delinquent taxpayer’s assets.”

The concurring opinion expresses reservations about the IRS having a blank check “any time a tax-delinquency matter enters the collection phase.” Noting that this type of inquiry is likely fact specific, she urges courts, and the IRS, to be “ever vigilant” in determining when notice is not required. 

I suspect that the next step will be litigation attempting to cabin precisely when a summons is issued “in aid of collection”, though that litigation is likely dependent on third parties, rather than the IRS, telling interested parties of the summons. Balancing the government’s interest in searching for assets from recalcitrant taxpayers without tipping their hand with the legitimate privacy interest in sensitive information also lends itself to a legislative fix.

Despite a unanimous opinion, this is likely not the last chapter in this story.

IRS Loses Injunction Case Against Mother After Raising Its Eyebrow

This time of year, we honor mothers.  Perhaps the IRS should have brought this case earlier or later in the year.  In an opinion issued just two days after Mother’s Day adopting the Magistrate’s Report and Recommendation issued 11 days before Mother’s Day, the district court in United States v. DuBois, No. 9:23-cv-80279 (S.D. Fla. 2023) decided not to enjoin a mother from using proceeds from a settlement.  For different reasons prior posts have noted Mother’s Day here and here

The issue in the DuBois case turns on the interest of her son in the settlement which in turn depends on the proof the IRS can put forward.  This case serves as a good one for explaining the tactic of relying on cross rather than positive evidence and why that tactic fails here.


Robert DuBois and his mother are beneficiaries of a trust.  In 2016 they brought an action against the trustee for breach of fiduciary duty.  While that suit was pending, the IRS brought suit against Mr. DuBois in 2021 for failure to pay income and other taxes.  The suit against Mr. DuBois resulted in a judgment for the IRS of almost $1.3 million.

On January 18, 2022, the IRS (or DOJ) met with Mr. DuBois to discuss payment of the judgment including his interest in the lawsuit initiated in 2016; however, the discussion did not result in an agreement.  The following day, Mr. DuBois and his mom met with their adversary in the suit against the trustee and that discussion led shortly thereafter to a global agreement to settle for $665,000.

After the agreement, Mr. DuBois’ attorney advised the opposing party that Mr. DuBois would not be a party to the settlement as he had previously assigned his interest in the action to his mother.  Although the opinion does not say this, it appears that he failed to mention that assignment during his discussion of the case with the IRS on January 18.

Mr. DuBois’ attempt to back out of signing the settlement agreement led the fiduciary to file a Motion to Enforce Settlement Agreement.  This reminded me of cases in which taxpayers sought to back out of settlements with the IRS which we have discussed previously here.  The court told Mr. DuBois he had to sign because the settlement was an enforceable agreement.  He signed as ordered and the defendant paid over the settlement amount to the attorney for Mr. DuBois and his mother.

Before signing the settlement agreement, however, Mr. DuBois also signed an assignment agreement assigning all of “his right, title, and interest in any settlement proceeds arising” from the suit to his mom.  The assignment called for no consideration other than her agreement to indemnify him from any claims arising out of his share of the proceeds.  It’s easy to see why the IRS would seek a fraudulent conveyance under these circumstances.  The facts are classic.  Despite a son’s natural affection for his mother and despite need to give her something for Mother’s Day, this gift struck the IRS as a bit much.

But, this is a story about the failure of the IRS to obtain an injunction so the story does not end here with what looks like a clear winner for the IRS.

The IRS brings a motion for preliminary injunction seeking to keep the mother from dissipating the proceeds of the settlement.  In a hearing on that motion, Peter Feaman, the attorney for the mother and son in the suit against the fiduciary, was called to testify.  He says that the son had verbally agreed to assign his interest at an earlier point and that he had advised the son to do so because the son’s claim against the fiduciary lacked merit.  The IRS’s unstated response is “Yeah, sure.”

The court notes that:

To prevail on a fraudulent transfer claim under 28 U.S.C. §3304(a)(1), the Government must show: (1) the transfer was made after the Government’s claim arose; (2) the debtor did not receive reasonably equivalent value in exchange for the transfer; and (3) the debtor was insolvent at the time of the transfer. United States v. Andrews, No. 1:09-CV-112 (HL), 2011 WL 13323634, at *2 (M.D. Ga. July 13, 2011) (discussing the elements of a fraudulent transfer claim).

The IRS argues Mr. DuBois should have received half of the settlement (less attorney’s fees – for those of you wondering about whether the attorney could take his fee before the IRS receives all of the proceeds based on its lien against Mr. DuBois see the superpriority provision of 6323(b)(6) allowing attorneys a superpriority in this situation even against a filed federal tax lien for creating the fund except in situations where the defendant is the federal government.)

The court cites again to the testimony of Peter Feaman who explained that during discovery in the case facts developed showing the son had lost his beneficial interest in the trust.  Mr. Feaman said that he decided to keep Mr. DuBois as a party because he felt this would help with negotiations.  He further said that he would have dropped the son if the case had gone to trial.  Other than cross-examining Mr. Feaman the IRS put on no affirmative evidence regarding the value of Mr. DuBois interest in the settlement.  I don’t consider the failure of the IRS to put on affirmative evidence to be a knock on the IRS or the DOJ attorney representing them in this case.  In a high percentage of cases the taxpayer controls the information and the government’s case is based on puncturing holes in the credibility of the taxpayer or the taxpayer’s witness.  My former colleague, Jan Pierce, described the government’s typical trial actions in these cases as “the raised eyebrow.”  Certainly, the facts here do merit a raised eyebrow; however, this is also a case in which the IRS is seeking an injunction and that raises the bar a bit.

The court’s take on the raised eyebrow here is

The Court finds Attorney Feaman’s testimony to be credible. As the moving party, the Government bears the burden of showing its entitlement to the “extraordinary and drastic remedy” of a preliminary injunction. All Care Nursing Serv., Inc., 887 F.2d at 1537. This is especially true where the Government essentially seeks a pre-judgment freeze of assets in the possession of a third party by way of an injunction. The Court finds the Government has not met this burden. This does not preclude a different result at trial, where the Government might come forward with different evidence to rebut Attorney Feaman’s opinion as to the value of Son’s interest in the settlement proceeds.

So, the IRS will have a second chance to win the case but at this stage the raised eyebrow does not work to win the issue.

The court notes that three other elements exist in order for the IRS to win, says that they don’t matter since the IRS must win all four elements and then proceeds to go through the other elements anyway.  It finds the other three elements would not keep it from issuing the injunction had the government prevailed on the first element.

The IRS does not bring many injunction cases of this type.  Perhaps the problem here is one reason.  In order to win it needed positive evidence and not just the unstated assumption that this smells to high heaven.  It could have hired another lawyer as an expert witness to evaluate the case and challenge the testimony of Mr. Feaman.  It made a tactical decision not to do so.  Maybe it would change tactics in a future case, but my guess is that it will most often continue to rely on the raised eyebrow.