Search Results for: byers

Chief Counsel Rejects Byers v. Comm’r D.C. Circuit Collection Due Process Appellate Venue Ruling

We welcome back frequent guest blogger Carl Smith to discuss the recently announced IRS position on the appellate venue of Tax Court cases.  Keith

Last year, I did a post on Byers v. Commissioner, 740 F.3d 668(D.C. Cir. 2014).  In that case, the D.C. Circuit held that appeals of Tax Court Collection Due Process (CDP) proceedings that did not involve challenges to the underlying tax liability only have proper venue in the D.C. Circuit.  Prior to Byers, the IRS and almost all taxpayers had brought such appeals in the Circuit in which the taxpayer resided when the taxpayer filed the Tax Court petition – i.e., in the “regional” Circuits of residence.  Since Byers was decided, the Tax Court has studiously avoided discussing whether it agrees with the D.C. Circuit’s contrary ruling – an issue that is of relevance to the Tax Court in applying its Golsen rule.  The IRS, as well, has been silent as to whether or not it will accept the D.C. Circuit’s interpretation of the venue statute.  As Keith discussed in a previous post, section 103 of S. 903 (which was passed by the Senate Finance Committee earlier this year) would prospectively overrule Byers and clearly require that appeals of CDP and section 6015(e) stand-alone innocent spouse cases go from the Tax Court to the regional Circuits of residence. This post is to report that, finally, on June 30, 2015, Chief Counsel issued Notice CC-2015-006, in which the office takes the position that it thinks Byers was wrongly decided.  Below, I will point out the highlights of the Notice – including both what it covered and what it did not.

read more...

As the Notice points out, unless the parties stipulate to a different Circuit under section 7482(b)(2), venue on appeal from Tax Court cases under section 7482(b)(1) is to the D.C. Circuit, unless one of six subparagraphs applies.  Subparagraph (A) provides that a non-corporate petitioner should appeal to the Circuit where he or she lived when he or she filed a Tax Court petition seeking “redetermination of tax liability”.  Deficiency cases and transferee cases were the only two types of cases that were heard by the Tax Court in 1966, when the current version of section 7482(b)(1) was enacted.  Clearly, subparagraph (A) was drafted to cover deficiency and transferee liability cases.  Subparagraph (B) generally provides a principal place of business Circuit for corporate petitioners in cases of petitions seeking “redetermination of tax liability” (also, clearly including deficiency and transferee liability cases).

After 1966, Congress gave the Tax Court over a dozen new jurisdictions, but only added references to those new jurisdictions in 4 more subparagraphs (from (C) to (F)).  The following jurisdictions are not mentioned by Code section in section 7482(b)(1): (1) section 6330(d)(1)

CDP cases , (2) section 6015(e) stand-alone innocent spouse cases, (3) section 6110 disclosure cases, (4) section 7623(b)(4) whistleblower award cases, (5) section 6404(h) interest abatement cases, (6) section 7436 proceedings for determination of employment status, (7) section 7430(f) proceedings to review the IRS’ grant or denial of an award for reasonable administrative costs where there was no underlying Tax Court proceeding, and (8) section 7479 Tax Court declaratory judgment actions relating to eligibility of estates to make installment payments of estate taxes under section 6166.  For these 8 jurisdictions, the IRS and most taxpayers have tried to shoehorn as many as possible into the language of subparagraph (A), so that the cases can be appealed to the Circuits of residence.

In Byers, the D.C. Circuit held that CDP cases that do not involve challenges to underlying tax liability are not described in the plain language of subparagraph (A), so are appealable only to the D.C. Circuit under the flush language at the end of section 7482(b)(1).

The Chief Counsel Notice addresses some of these 8 unnamed jurisdictions.

Whistleblower Award and Disclosure Cases

For two jurisdictions, the Notice concedes that appeals only go to the D.C. Circuit, since these jurisdictions cannot possibly be described as involving “redetermination of tax liability” under subparagraph (A) and (B).  These two jurisdictions are section 7623(b)(4) whistleblower award cases and section 6110 disclosure cases.

The Tax Court has already stated, in dicta, that whistleblower award cases are only appealable to the D.C. Circuit.  See Whistleblower 14106-10W v. Commissioner, 137 T.C. 183, 193 n. 12 (2011) (“Any appeal of this case would likely lie with the Court of Appeals for the D.C. Circuit.  See sec. 7482(b)(1) (flush language).” ).

And the legislative history of the disclosure provisions makes it clear that Congress was counting on subparagraph (A) not applying to appeals of these cases. In two places in each of the House Ways and Means Committee Report and the Senate Finance Committee Report, one can find the sentence:  “A decision of the Tax Court in such a [section 6110 disclosure] case could be appealed only to the United States Court of Appeals for the District of Columbia Circuit unless the Secretary agrees with the person involved to review by another court of appeals (sec. 7482(b)).”  H.R. Rep. 94-658 at 324-325, 1976-3 (Vol. 2) C.B. 697, 1016-1017 (emphasis added); S. Rep. 94-938 at 313-314, 1976-3 (Vol. 3) C.B. 49, 351-352 (emphasis added).

CDP, Innocent Spouse, and Interest Abatement Cases

The Notice takes the position that CDP, innocent spouse, and interest abatement cases fit within subparagraphs (A) or (B), even though the Notice concedes: “Innocent spouse and interest abatement cases involve relief from liability and so arguably should not be categorized as redeterminations of liability.”  However, the Notice states:

[I]t has been the longstanding practice of taxpayers and the government to appeal CDP, innocent spouse, and interest abatement cases to the circuit of the petitioner’s legal residence, principal place of business, or principal office or agency. The government has taken the position that Congress intended the same venue rules that apply to deficiency and transferee cases to apply to these newer categories of cases. Additionally, these cases generally involve the taxpayer’s obligation to pay the underlying tax liability.

The Notice also points out that the Tax Court has also historically followed this approach for purposes of applying its Golsen rule.  (By the way, contrary to what the IRS says, there is nothing in any legislative history to support the IRS’ statement of what Congress intended — either way — as to venue on appeal for any of these 3 jurisdictions.)

Accordingly, the IRS gives the following operative guidance to Chief Counsel attorneys:

The D.C. Circuit is the only court of appeals to have held that the proper venue for an appeal of a non-liability CDP case that is not enumerated in section 7482(b) is the D.C. Circuit. In litigating Tax Court cases, Chief Counsel attorneys should continue to assert the Office’s longstanding position that, for purposes of the Golsen rule, venue generally lies in the circuit of the taxpayer’s legal residence, principal place of business, or principal office or agency, regardless of whether the issues in the case involve liability.2/ In CDP cases in which liability is at issue, Chief Counsel attorneys should also argue, in the alternative, that under the rationale of Byers, venue lies in the regional circuit.

When evaluating appellate venue after a taxpayer files a notice of appeal, if the taxpayer appeals a non-liability case to the D.C. Circuit, and the case is not enumerated in section 7482(b), Chief Counsel attorneys should not recommend objecting to venue since Byers is controlling in the D.C. Circuit. If a taxpayer appeals a non-liability case to the proper regional circuit, Chief Counsel attorneys should likewise not object to venue as the taxpayer’s choice of venue is consistent with our position.

____________

  1. Note that our Office’s position is that issues raised in a CDP case concerning the validity of an assessment, the assessment or collection statutes of limitation, or other procedural requirements for administrative collection do not involve liability. See CC-2014-002, Proper Standard of Review for Collection Due Process Determinations (2014).

 

Final Observations

The Notice does not address all of the jurisdictions that are not specifically cited in the subparagraphs under section 7482(b)(1).  Apparently, the IRS, for now, only wanted to address 5 of the 8 such jurisdictions.

Finally, the Notice effectively allows a taxpayer who wants to appeal a CDP case loss – where the case did not involve a challenge to the underlying liability – to either the Circuit of residence or the D.C. Circuit.  Thus, to the extent that there are differences in precedent between the two Circuits, taxpayers are afforded a chance to do some forum shopping.

 

 

 

 

 

 

 

DC Circuit Decides Byers: Venue in Appeal of CDP Cases Upended

We have previously written about the case of Byers v Commissioner, a collection due process (CDP) case on appeal at the DC Circuit.  The case considers what is the proper venue for appeals challenging Tax Court CDP decisions. Guest blogger Carlton Smith wrote a detailed post discussing the case, and Keith wrote a piece discussing appellate venue in nondeficiency Tax Court cases.  The DC circuit decided the case today. The court agreed with the taxpayer that the proper venue was the DC Circuit Court of Appeals, but found for the IRS on the merits and sustained the determination of the Tax Court. The case is of great significance, as it will channel non-liability CDP cases exclusively to the DC Circuit and free the Tax Court to apply its rules allowing parties to supplement the record in CDP cases.

I will focus on the court’s analysis of venue under Section 7482.

read more...

Byers essentially held that in CDP cases where there is no challenge to the underlying liability, venue for an appeal is the DC Circuit Court of Appeals, unless the parties stipulate otherwise. For CDP cases where there is a mixed question of liability and collection matters, or a CDP case where there is solely a question as to the amount or existence of an underlying liability, venue for individuals would likely be tied to the legal residence of the taxpayer at the time of filing the petition, or, if a corporation, the principal place of business or principal office or agency of the corporation.

Here is how the court framed the venue issue:

 The Internal Revenue Manual clearly states that “none of subparagraphs (A)-(F) [in 26 U.S.C. § 7482(b)(1)] expressly mentions a decision in a CDP case.” IRM 36.2.5.8(1). We agree with this characterization of the statute, which makes the Commissioner’s motion to transfer all the more puzzling. The statute’s plain language says that, “[i]f for any reason no subparagraph of the preceding sentence applies, then [Tax Court] decisions may be reviewed by the Court of Appeals for the District of Columbia.” 26 U.S.C. § 7482(b)(1). Because none of the subparagraphs expressly mentions a decision in a CDP case, this catch-all provision applies, and venue lies in this court. As such, venue cannot be proper in the Eighth Circuit unless the parties so stipulate in writing. Id. § 7482(b)(2). Appellant timely filed his appeal in this court and he has not acceded to the IRS’s request to transfer the case. Therefore, venue in this court is proper.

The court rejected the government’s arguments, mainly on the basis that they conflicted with the plain language of 7482.  On the impracticality of the rule given that CDP cases often involve both questions of liability and collection matters, the court stated that

[i]n such cases, venue may not be proper in the D.C. Circuit. But this possibility does not justify shoehorning all CDP cases into the redetermination venue provision. Just as we see in this case, it normally will be obvious from the taxpayer’s statement of the issues whether an appeal involves a challenge to a redetermination decision, a CDP decision on a collection method, or both. Therefore, it will not be difficult for this court to distinguish between the two types of cases to determine whether venue is proper in the D.C. Circuit.

I suspect that the bifurcating of CDP appeals along this line will lead to some complexity for the Tax Court, especially when it may not be so clear whether the taxpayer has the right to challenge the liability in the CDP proceeding. I note—as we previously blogged, there is proposed legislation in Senator Baucus’s administrative reforms  that would clarify that venue for appeals involving CDP and spousal relief would follow the general residency rules applicable to appeals involving redetermination of tax liabilities. There may be some momentum for a congressional fix, as in Byers the DC Circuit told the IRS that its views were better told to the legislature:

Excluding a few exceptions that are not relevant here, the plain text of § 7482(b)(1) says that the proper venue to seek review of a Tax Court decision lies in the D.C. Circuit unless one of the circumstances enumerated in subparagraphs (A)-(F) applies. If the IRS believes that compliance with the statute as written will result in “undesirable consequences,” then it must “take its concerns to Congress.”

The DC Circuit seemed to recognize that taxpayers may improperly file appeals to the wrong circuit, though it declined to express a view as to whether an appeal would effectively serve as a stipulation, stating that it has “no occasion to decide in this case whether a taxpayer who is seeking review of a CDP decision on a collection method may file in a court of appeals other than the D.C. Circuit if the parties have not stipulated to venue in another circuit.”

Some Parting Thoughts

As Carl observed in his post, the short-term importance of the decision is that in collection CDP cases, the Tax Court in CDP cases can follow its rule in Robinette, essentially allowing in appropriate circumstances the taxpayer to supplement the record. I suspect there will be some messy cases where it is unclear if the CDP case properly raises liability issues, leaving the Tax Court in a difficult situation as it tries to determine which circuit’s law controls.

As to the Tax Court being free to follow its approach in Robinette, as I have previously stated I am not sure that the Tax Court approach is best as a policy matter. Yet Byers certainly opens the door to greater opportunity for court decisions that will take into account individual circumstances notwithstanding the limited nature of CDP court review. I believe that the case is of broader significance. Channeling CDP appeals to the DC Circuit is consistent with court review of federal agency actions generally. The DC Circuit is the court most used to providing oversight over federal agencies. As we move away from tax exceptionalism, shouldn’t the IRS be subjected court review in a manner consistent with most other federal agencies? Given the importance of CDP—and other nonliability matters that are now likely to have appellate venue in the DC Circuit– the Byers approach is likely to lead to greater uniformity and consistency. As Jack Townsend stated in a recent post here

where the appeal must be taken under the default provision to the Court of Appeals for the District of Columbia, a uniform rule will apply.  For example, if the taxpayer pursues a CDP remedy in the Tax Court, the Golsen result for the Court of Appeals for the District of Columbia will apply to all – taxpayers and the Government alike.  In some ways, on this issue, the Court of Appeals for the District of Columbia will become the court of tax appeals that various practitioners and scholars have argued for and against over many years.

I do think, however, that CDP cases that mix challenges to collection procedures or considerations of collection alternatives and questions of liability  will create additional complexity and confusion for the Tax Court. As I state above, Senator Baucus’ reform proposals from last year would treat CDP and spousal relief cases as subject to the general venue rules that apply to appeals involving redeterminations of tax.  I think a better fix would be to give the DC Circuit exclusive jurisdiction over most nondeficiency Tax Court determinations. At a minimum, there should be an informed and reasoned debate about the merits of the venue rules. Our tax system has changed considerably over the years, with many more rights given to taxpayers, additional responsibilities for the Tax Court, and a growing awareness that the IRS is not so different from other federal agencies. Perhaps Byers will trigger a review of which court should as a policy matter hear appeals in many of the types of cases the Tax Court considers.

 

 

 

 

 

Byers v Comm’r – CDP Venue In Courts Of Appeals May Be Upended

The following post is by Carlton Smith, Guest Blogger.

There is an interesting case in the D.C. Circuit that gives the impression of a game of three dimensional chess.  On the top board, the case is to decide only the issue of the correct venue on appeal from Tax Court cases involving the Tax Court’s Collection Due Process (CDP) jurisdiction under section 6330(d)(1).  That seems an important enough issue.  But, on a lower, more important level, the outcome of the case impacts the Robinette issue – i.e., the so-called “record rule” in CDP Tax Court cases.  If the recent oral argument in Byers v. Commissioner, D.C. Cir. Docket No. 12-1351, in the D.C. Circuit (Oct. 25, 2013) is any guide, it looks like the IRS and DOJ are about to lose a number of pieces on both levels of the chess board – including three Circuit Court opinions (bishops?). Below, I will first discuss the Robinette issue.  Then, I will discuss the venue facts and argument in the Byers case.  Oddly enough, his case is not one where the Robinette issue is being contested.  Full disclosure:  I submitted an amicus brief on the venue issue in support of Mr. Byers’ venue argument.

 read more...

 In Robinette v. Commissioner, 123 T.C. 85 (2004), the Tax Court held that a CDP proceeding in the Tax Court is a trial de novo as to evidence (though limited to the issues raised at the Appeals Office CDP hearing).  However, the Eight Circuit reversed the Tax Court in Robinette, holding that a Tax Court CDP proceeding is generally limited to the administrative record. 439 F.3d 459 (8th Cir. 2006).  Two other Circuits have agreed with the Eighth Circuit.  See Murphy v. Commissioner, 469 F.3d 27, 31 (1st Cir. 2006), and Keller v. Commissioner, 568 F.3d 710, 718 (9th Cir. 2009).  None of the other regional Circuits or the D.C. Circuit has ruled one way or the other on this Tax Court CDP “record rule” issue.

Under its Golsen doctrine (Golsen v. Commissioner, 54 T.C. 742, 757 (1970), affd. on other issue, 445 F.2d 985 (10th Cir. 1971)), the Tax Court follows its own precedent — except in the case where a court of appeals to which the Tax Court case is appealable has ruled to the contrary.  Ever since it decided Robinette, the Tax Court has applied its Golsen rule such that it follows its own precedent (i.e., trial de novo) in CDP proceedings where the taxpayer lives in the D.C. Circuit or the eight other regional Circuits that have not decided the issue and follows the rule limiting its CDP proceedings to the administrative record for taxpayers who reside in the First, Eighth, and Ninth Circuits.  The Tax Court has done so under the undiscussed assumption that venue on appeal from one of its CDP decisions is to the regional Circuit in which the taxpayer lives.  The regional Circuits are where, since 1999, nearly every one of the 600-plus CDP appeals has been taken.  The Byers case challenges the assumption that regional Circuits are the correct Circuits for CDP appeals.

Byers argues that the correct venue on appeal from Tax Court CDP decisions is only in the D.C. Circuit (at least, absent the parties stipulating to another Circuit under section 7482(b)(2)).  Thus, even though he lives in the Eighth Circuit, he appealed his Tax Court loss in T.C. Memo. 2012-27 to the D.C. Circuit.  The DOJ moved to transfer the appeal to the Eight Circuit, arguing that CDP appeals only go to the regional Circuit of residence.

Byers’ facts are as follows:  He got notices of deficiency for the years 1999-2002, which he litigated and lost in the Tax Court at T.C. Memo. 2007-331 under the Tax Court’s deficiency jurisdiction at section 6213(a).  As a result, the taxes in the notices were assessed — even though Byers appealed the deficiency case loss to the Eighth Circuit.  Before the Eighth Circuit deficiency case appeal was decided, the IRS issued a notice of intention to levy to him for the 1999-2002 taxes plus an assessment for 2003.

Byers timely filed a CDP hearing request, asking that no levy be done because he expected to win the Eight Circuit appeal and because, he argued, the IRS had committed a procedural failure with respect to the 2003 year – i.e., it had never issued a notice of deficiency for that year, though one was required to precede the assessment that was made.  Before he asked for a collection alternative or submitted information as to his current financial status, the Eighth Circuit affirmed the Tax Court, and the hearing officer promptly thereafter issued a notice of determination saying that levy could go forward for all four years.  At this point, Byers “appealed” the determination to the Tax Court under section 6330(d)(1), commencing a new Tax Court case.  In the new case, he argued that no notice of deficiency had been issued for 2003.  The IRS attorney agreed and successfully moved to strike the 2003 year from the case as moot because the IRS was eliminating the erroneous assessment.  Byers also argued that he hadn’t been given enough time to request and prove his entitlement to a collection alternative and that the Appeals Settlement Officer engaged in prohibited ex parte communications with the IRS lawyer who had handled his deficiency case.

The IRS successfully moved for summary judgment, which was granted by Senior Status Judge Swift of the Tax Court. Byers timely moved that Judge Swift vacate his decision — requesting that another, regular Tax Court Judge decide the issue of whether Judge Swift’s performance of the role of Tax Court Senior Status Judge violated the Constitution’s Appointments Clause (Art. II, sec. 2, cl. 2) because Judge Swift had not been presidentially appointed to what Byers argued was a new position of Senior Status Judge.  Judge Swift denied the motion.  Then, Byers took a timely appeal to the D.C. Circuit.

The D.C. Circuit did not grant or deny the DOJ’s motion to transfer the case, but told the parties to put the issue in their main briefs.  The DOJ requested oral argument on this venue issue and requested that the D.C. Circuit issue a precedential opinion, since Byers was not the first to make this venue argument.  Others, like me, seemed to be interested in making it.  The DOJ wanted to put a stop to the argument.

The reason that Byers wanted to go to the D.C. Circuit was his belief that it is a court that, because it reviews more agency actions than the usual Circuit, would give him a better shot at success on the merits of his case.  But, the IRS and DOJ quickly recognized that a victory by Byers on the venue issue could undo its three court of appeals victories on the “record rule”, since, if the D.C. Circuit was the correct venue for all CDP appeals from the Tax Court, then, since the D.C. Circuit had not decided the record rule issue, the Tax Court – in future case, and citing Golsen – would simply follow its own precedent for people living anywhere in the U.S.  The three Circuit Court opinions in the First, Eighth, and Ninth Circuits – having been decided by courts that were not the normally-correct venue – would never bind the Tax Court under Golsen.  In effect, these would be treated as cases where the parties had stipulated a different venue than was required by the venue statute.

So, what is the problem in the venue statute that gives rise to Byers’ argument?  Well, section 7482(b)(1) has flush language at its end that says that, absent a stipulation to the contrary under section 7482(b)(2), all appeals from the Tax Court are to be brought in the D.C. Circuit unless one of six lettered subparagraphs applies.  The vast bulk of Tax Court decisions are in deficiency jurisdiction cases.  Section 7482(b)(1)(A) says that for Tax Court cases involving petitions by individuals for “redetermination of tax liability”, appeals go to the Circuit in which the taxpayer resided when he or she filed the Tax Court petition.  Subparagraph (A) (drafted in 1966 – long before CDP was enacted) clearly covers deficiency cases.  But does it also cover CDP cases?  The IRS concedes that no other subparagraph directly discusses CDP petitions.  At oral argument, the DOJ attorney’s argument was that, since CDP cases in the Tax Court can sometimes involve “challenges” to underlying tax liability (under section 6330(c)(2)(B)), all CDP cases should be treated as subsumed within the language “redetermination of tax liability”.  The DOJ also argued that “liability” in subparagraph (A) should be read expansively to include not just the amount of the tax, but which items of property the tax could be collected from.  (I find this last argument a bit curious, since CDP does not involve litigation of the attachment of any particular levy or lien to any particular property – just the general authority of the IRS to go start levying or to file a public notice of the existence of a tax lien on all the taxpayer’s property.)

Both the DOJ and I (as an amicus) urged in our briefs that the D.C. Circuit decide the venue issue such that all CDP cases either go to the D.C. Circuit or go to the regional Circuits.  We thought it impractical to have a rule that if a particular CDP proceeding in the Tax Court involves a challenge to the underlying liability, then it should go to the regional Circuit, but if not, the appeal should go to the D.C. Circuit.  We wanted to spare the appellate courts motions to transfer because taxpayers were confused about whether or not there was an underlying liability challenge in their case – often a difficult issue to decide.

At oral argument, it appeared that the DOJ lawyer was on the ropes.  Two of the D.C Circuit judges repeatedly asked her, “Where was the challenge to the underlying liability in Byers’ cases, since that challenge was precluded both by section 6330(c)(2)(B) (because he had received a notice of deficiency) and by res judicata or collateral estoppel?”  They appeared to be strongly leaning toward allowing appeals in the D.C. Circuit at least in CDP cases like Byers’ that did not present a challenge to the underlying liability.

This fascinating case bears watching.  Of course, if Byers wins, then at least some CDP cases will go to the D.C. Circuit on appeal.  And, until the D.C. Circuit issues its own ruling on the Robinette issue, taxpayers countrywide (at least where they don’t raise an underlying tax liability issue) will now get a trial de novo as to evidence on all issues raised in a CDP hearing.  Continuing the analogy to a game of chess, even if the DOJ loses its venue argument, it can still get out of check by raising and winning the Robinette issue eventually in the D.C. Circuit.  Whoever wins that issue in a later case has checkmated the losing party.

And, oh, by the way:  For those of you who say, “But, I don’t want to appeal my CDP loss in Tax Court to the D.C. Circuit, since I live far away (i.e., it is inconvenient)”, my answer is that you should ask the DOJ to stipulate venue in your local Circuit.  Indeed, that is current policy in the Manual.  I.R.M §36.2.5.8(6) (rev. 5-2-12), states:  “Although none of subparagraphs (A)-(F) expressly mentions a decision in a CDP case, the Department of Justice should not be asked to object to venue when a taxpayer appeals a CDP decision to the court of appeals of the taxpayer’s residence or principal place of business, which is the rule for deficiency cases. . . .”  So long as the IRS and DOJ don’t change that policy, one can still appeal a CDP case to one’s regional Circuit – particularly one can ask for a stipulation of venue there under section 7482(b)(2).

The final thing of interest in the Byers case is the Senior Status Judge issue.  If the appeal goes forward in the D.C. Circuit and Byers loses on all of the CDP issues (i.e., the court feels it must affirm the Tax Court’s rulings), then it will likely decide the constitutional Appointments Clause issue, even though it was raised after Judge Swift ruled.  In Freytag v. Commissioner, 501 U.S. 868 (1991) — recently discussed under posts about the Kuretski case — the Supreme Court considered an Appointments Clause issue first raised at the court of appeals level, since Appointments Clause issues (as separation of powers issues) are so important to the structure of government that they are not automatically waived if not made before trial.

 

Bankruptcy Filing Deadlines and Jurisdiction

Regular readers of this blog know that we write regularly, and some would say too often, on the issue of filing deadlines and jurisdiction.  Hat tip to PT reader Ronald Byers and to Carl Smith for alerting me to this case.  Because of a series of Supreme Court cases over the past 15+ years, a number of courts have shifted their views on what makes a time frame jurisdictional.  The most recent court to weigh in on this issue occurred on October 28, 2020, in the case of Tennial v. REI Nation, LLC (6th Cir.)

In this case the Sixth Circuit overturns the decision of the lower courts regarding the jurisdictional nature of the time frame to file an appeal from a bankruptcy court decision holding that the time frame, created by a Bankruptcy Rule, does not create a jurisdictional period.  Nonetheless, it finds the time period mandatory and the debtor lacking in a basis for equitable tolling.  So, it affirms the decision of the lower court that her time to appeal passed before she acted cutting off her opportunity to appeal. 

The outcome parallels the outcome in the CDP case of Cunningham v. Commissioner, 716 Fed. Appx. 182 (4th Cir. 2018) where the Fourth Circuit declined to even get to the jurisdictional issue because it found her excuse lacking under the Supreme Court’s decision in Irwin v Veterans Administration, 498 U.S. 89 (1990).  Having a time period declared non-jurisdictional will not get a late litigant into court without a good reason for being late.  I also wrote specifically about the jurisdictional issues regarding the timing of an appeal from the Tax Court to a circuit court here.

read more...

Ms. Tennial filed bankruptcy to stop the foreclosure of her home.  After she entered bankruptcy her lender sold the mortgage to REI Nation, which moved the lift the automatic stay in order that it could move forward and complete foreclosure on her home.  The bankruptcy court granted the motion to lift the stay.  Bankruptcy Rule 8002(a)(1) proves a 14-day time period to appeal an order of this type.

The order terminating the stay was entered on September 12, 2019.  Her attorney received electronic notice of the order that day.  On September 14, 2019 a copy of the order was mailed to her.  She did not file notice of appeal until October 9, 2019.  In her notice of appeal, she stated that she did not receive the mailed copy of the order until September 26, 2019 – the day on which the appeal needed to be filed.  She did not explain what happened to the electronic notice sent to her attorney on the day of the order.

The district court determined that it lacked jurisdiction because of the late filing of the appeal.  It cited to 28 U.S.C. 158(c)(2) which provides that bankruptcy appeals “shall be taken in the same manner as appeals in civil proceedings generally are taken to the courts of appeals from the district courts and in the time provided by Rule 8002 of the Bankruptcy Rules.”

The Sixth Circuit noted that it had treated this deadline as jurisdictional in prior opinions, which would have bound the district court.  One of the prior opinions issued in 2017; however, the court noted that it had not looked at the question of jurisdiction in light of the recent Supreme Court guidance.  Looking at it in that light, it determined that a time frame created by a rule and not by a statute could not impose a jurisdictional limit on the federal courts.

The Sixth Circuit analyzed some of the same Supreme Court jurisprudence that we have written about in prior posts here and here.  It found that its prior decisions on this subject failed to take into account the jurisprudence coming from the Supreme Court noting:

the Supreme Court has been rigorous and vigorous in distinguishing between requirements that go to the subject matter jurisdiction of the federal courts and requirements that are merely mandatory. To the end of simplifying and clarifying the issue, Justice Ginsburg wrote a trailblazing unanimous decision for the Court that created a clear-statement rule for the daunting array of settings in which the question arises. Congress must “clearly state[]” that the requirement implicates the judiciary’s subject matter jurisdiction—its “statutory or constitutional power to adjudicate the case”—before the federal courts will treat the requirement as a non-waivable and non-forfeitable jurisdictional imperative. Arbaugh v. Y&H Corp., 546 U.S. 500, 515 (2006) … Consistent with that goal and consistent with the clear-statement rule, the Court has treated most of the procedural requirements that have come before it since then as not being jurisdictional in the constitutional sense of the term. See, e.g., Reed Elsevier, Inc. v. Muchnick, 559 U.S. 154 (2010); United States v. Kwai Fun Wong, 575 U.S. 402 (2015); Musacchio v. United States, 136 S. Ct. 709 (2016).    

The Sixth Circuit says the rule is not hard to apply in this situation because nothing in the statute establishes the bankruptcy appeal deadline as a jurisdictional prerequisite much less a clearly stated one.  It goes on to find as a second prong for its decision that four of the jurisdictional cases decided by the Supreme Court in its spate of cases about jurisdiction deal with time frames established by rule rather than by statute.  It finds that the four cases addressing time frames set by rules establish a precedent that rule based time frames do not create a jurisdictional issue.  It lists the four cases and then draws from them a general principle:

How did the Court resolve these cases? Based on this straightforward principle: Rule-based deadlines are jurisdictional when they implement an appeal deadline created by Congress. Otherwise, they are not.

In explaining this principle it states further that:

No less significantly, if deadlines established by the rules process alone created jurisdictional limits, that would mean the rules committee could change the scope of federal court subject matter jurisdiction on its own. That’s good work if you can get it, to be sure. But the Constitution gives that power to Congress alone.

The Court notes that its decision here runs contrary not only to its own prior decisions but to the of other circuit courts.  This statement reminded me of advice of my dean, John Manning, who assisted in the moot of the argument our clinic made in a case before the Second Circuit four years ago.  Dean Manning had been asked by the Supreme Court to participate as an amicus in a jurisdictional case to argue the court lacked jurisdiction.  After inviting him to make the argument, the Supreme Court ruled that the timing issue was not jurisdictional – as it has done in all of the cases post 2004 not covered by prior Supreme Court precedent.  He told the student and me that we would lose our case in the Second Circuit but if we could get to the Supreme Court we would win. 

Just as the circuit courts are almost uniformly rejecting our arguments in tax cases, they have done so in bankruptcy cases.  The Sixth Circuit makes a break from precedent here.  It will be interesting to watch if this changes the situation in the bankruptcy area and has any impact on non-bankruptcy jurisdictional cases.  I am inspired to find a jurisdictional case in the Sixth Circuit, which has not faced the issue in a tax case.

Postscript

I recently discussed the two pending jurisdictional cases involving the Tax Court here.  Both are CDP cases.  There is a small update in one of the two cases.  The taxpayer has now filed its brief with the Second Circuit in the Castillo case.  That brief can be found here.  The IRS response is not yet due.  In the Boechler case pending in the 8th Circuit, the IRS response to the motion for rehearing en banc was filed on October 16th and can be found here. The en banc 8th Circuit has not yet ruled on the motion.

Tax Protesting and 6673 Penalties: Designated Orders 9/2/19 to 9/6/19

There was one sole designated order for the week I monitored the Tax Court in September. It deals with a tax protestor who is a frequent flier with the Tax Court. How did he fare? Find out below. Following that, we provide a survey of section 6673 penalty cases in the Tax Court.

Tax Protesting
Docket No. 17872-18L, Alexander H. Hyatt v. C.I.R., Order and Decision available here.

The petition filed concerns a notice of determination sustaining a proposed levy to collect on unpaid tax liability for 2012. The IRS filed a motion for summary judgment with a declaration in support. The Court ordered Mr. Hyatt to file a response to the motion on the same day. In the Court’s order, they cautioned Mr. Hyatt that his frivolous arguments raised in the petition could be subject to the imposition of a section 6673 penalty of up to $25,000.

Previously, Mr. Hyatt had filed a petition with the Tax Court concerning the notice of deficiency of $39,414 on the 2012 tax year. He filed an imperfect petition and the Court ordered him to file an amended petition and pay the filing fee. Since he failed to do that, the petition was dismissed for lack of jurisdiction.

read more...

In response to a notice of intent to levy the unpaid 2012 tax liability, Mr. Hyatt filed for a collection due process hearing. However, his arguments were that no contract exists between the parties, the tax was fraudulently assessed, he objects to the United States financial system, objects to his status as a citizen of the United States, objects to the Social Security system, and desires to rescind his signature on all IRS Forms 1040 he filed because he believes he is no longer legally required to file such forms.

In the collection due process hearing, the settlement officer verified that all procedural and administrative requirements were met. Mr. Hyatt could not challenge the underlying tax liability because of his previous failed petition to the Tax Court. He informed the settlement officer he was not seeking a collection alternative. The settlement officer determined that the proposed levy was appropriate and the IRS issued the notice of determination.

With the current petition, Mr. Hyatt asserts there is no legal authority (statutory, regulatory, or otherwise) that authorizes the notice of deficiency, the IRS fraudulently manipulated its internal systems, and no regulation imposes a tax liability on wages. He also made the other arguments listed above. He did not respond to the IRS motion for summary judgment.

As an aside, I recommend reading (or skimming) the IRS statements regarding tax protesters. The official title is “The Truth About Frivolous Tax Arguments”, available starting here, or in a 73-page PDF here. It is fascinating reading into the world of tax protests. Truly, this group has come up with creative arguments regarding why the federal tax system does not apply to them and why they should not pay their share of taxes.

The official IRS position is that these are frivolous tax arguments. Accordingly, those frivolous tax arguments can lead to hefty penalties. By the way, that sentence is what is known as foreshadowing.

Back to the Tax Court – the Court analyzes the collection due process hearing. Looking at the facts above concerning the settlement officer’s actions, the Court finds there was no abuse of discretion for sustaining the proposed levy.

The Court reviewed Mr. Hyatt’s arguments and concludes they are frivolous and without any basis in law or fact. As a result, the Court determines that summary judgment is appropriate and grants the IRS motion.

Finally, the Court reviews the authority to impose a penalty not exceeding $25,000 under IRC section 6673(a)(1). Now, until this point, I was thinking that this was an average tax protestor case and it would not necessarily be worth reporting on.

However, Mr. Hyatt is a repeat offender at the Tax Court. You can see how each judge leaves hints for the next judge regarding future treatment of such an offender:

• In docket # 7221-07L, the Tax Court imposed a $5,000 penalty – Judge Kroupa first states, “Petitioner deserves a penalty under section 6673(a)(1), and that penalty should be substantial, if it is to have the desired deterrent effect.” Later, “We are also convinced that petitioner is aware of the warnings this Court has given to taxpayers who provide the type of arguments petitioner provided in this case yet petitioner persisted and wasted this Court’s limited time and resources.” After applying the penalty – “In addition, we take this opportunity to admonish petitioner that the Court will consider imposing a larger penalty if petitioner returns to the Court and advances similar arguments in the future.”

• In docket # 26157-08, a $7,500 penalty – From the bench opinion transcript of the hearing (where Mr. Hyatt did not appear) with Special Trial Judge Armen: “The record in this case convinces us that petitioner was not interested in disputing the merits of the deficiency in income tax determined by respondent in the notice of deficiency. Rather, the record demonstrates that petitioner regards this case as a vehicle to protest the tax laws of this country and espouse his own misguided views. We are also convinced that petitioner instituted and maintained this proceeding primarily, if not exclusively, for purposes of delay. Having to deal with this matter wasted the Court’s time, as well as respondent’s. Moveover, taxpayers with genuine controversies may have been delayed. Many years ago, Supreme Court Justice Oliver Wendell Holmes said: ‘Taxes are what we pay for civilized society.’ Petitioner undoubtedly feels himself to be entitled to every benefit that civilized society has to offer; unfortunately, he feels no obligation to pay his fair share. [Regarding the previous penalty,] Petitioner remains undeterred.”

• In docket # 8771-08L, a $10,000 penalty – Mr. Hyatt is before Special Trial Judge Armen again, this time appearing with the same Respondent’s counsel from the last case. Judge Armen reuses a good amount of the language above in another bench opinion transcript. “In view of the foregoing, and as Petitioner remains undeterred, he deserves a significant penalty under section 6673(a). Accordingly, we shall grant that part of Respondent’s motion requesting a sanction and impose a penalty on Petitioner in the amount of $10,000.”

• In docket # 22711-09L, a maximum penalty of $25,000 – This time, it is a bench opinion transcript from a trial before Judge Halpern. “We are convinced that Petitioner has no legitimate grounds for challenging the notice. Rather, Petitioner’s arguments in this case and Petitioner’s previous appearances before this Court demonstrate that Petitioner regards this case as a vehicle to protest the tax laws of this country and espouse his own misguided views. Based on well-established law, Petitioner’s position is frivolous and groundless. We are also convinced that Petitioner instituted and maintained this proceeding primarily, if not exclusively, for purposes of delay. Having to deal with this matter wasted the Court’s tie, as well as Respondent’s.” Regarding the prior penalties – “Petitioner has not been deterred, and we think it appropriate to penalize him to the maximum extent possible. We therefore shall impose on him a 6673(a)(1) penalty of $25,000.”

In this case, the Court states that Mr. Hyatt has not been deterred from maintaining frivolous positions. He advanced frivolous arguments that serve no purpose other than to protest the tax system and delay the collection of his owed taxes, wasting resources of the Court and the IRS. Because of those reasons, the Court again imposed the maximum penalty of $25,000.

Takeaway: See a pattern? Tax protesting is not profitable in Tax Court. I do not advise it. Find better creative outlets than upsetting the Tax Court.

We may never know how many fees the IRS collects from Mr. Hyatt. Keith mentioned that it would be an interesting CDP case in Tax Court regarding the collection of 6673 fines.

§ 6673 Penalty Tax Court Cases

  • 2011: 13 cases
    • Carluzzo—1 case
    • Cohen – 1 case
    • Colvin – 1 case
    • Gale – 1 case
    • Gustafson – 1 case
    • Holmes – 1 case
    • Marvel – 1 case
    • Morrison – 2 cases
    • Ruwe – 1 case
    • Thornton – 1 case
    • Wells – 2 cases
  • 2012: 20 cases
    • Carluzzo – 1 case
    • Cohen – 1 case
    • Gale – 1 case
    • Gustafson—3 case
    • Halpern – 2 cases
    • Marvel – 3 cases
    • Morrison – 3 cases
    • Panuthos – 1 case
    • Ruwe – 1 case
    • Thornton—3 cases
    • Vazquez – 1 case
  • 2013: 17 cases
    • Buch – 2 cases
    • Carluzzo—3 cases
    • Cohen – 1 case
    • Goeke – 1 case
    • Gustafson—1 case
    • Halpern – 1 case
    • Lauber – 1 case
    • Marvel—3 cases
    • Ruwe – 2 cases
    • Thornton – 1 case
    • Wells – 1 case
  • 2014: 15 cases
    • Buch – 2 cases
    • Colvin – 1 case
    • Foley – 1 case
    • Gerber – 1 case
    • Goeke – 1 case
    • Guy—1 case
    • Halpern – 3 cases
    • Holmes – 1 case
    • Marvel—3 cases
    • Morrison – 1 case
    • Nega – 1 case
  • 2015: 18 cases
    • Buch—1 case
    • Carluzzo—3 cases
    • Cohen – 2 cases
    • Gustafson – 2 cases
    • Guy – 1 case
    • Halpern – 1 case
    • Holmes—1 case
    • Lauber – 3 cases
    • Marvel – 1 case
    • Pugh—2 cases
    • Ruwe – 1 case
  • 2016: 18 cases
    • Buch – 1 case
    • Carluzzo – 2 cases
    • Cohen – 1 case
    • Gustafson – 2 cases
    • Halpern – 1 case
    • Holmes – 1 case
    • Lauber – 3 cases
    • Marvel – 1 case
    • Morrison—2 cases
    • Nega—1 case
    • Pugh – 2 cases
    • Thornton – 1 case
  • 2017: 13 cases
    • Buch – 1 case
    • Cohen – 1 case
    • Foley – 1 case
    • Halpern—1 case
    • Lauber – 2 cases
    • Marvel – 1 case
    • Morrison—1 case
    • Nega—2 cases
    • Pugh – 1 case
    • Thornton – 1 case
    • Vazquez – 1 case
  • 2018: 13 cases
    • Buch – 3 cases
    • Guy—3cases
    • Halpern – 2 cases
    • Leyden – 1 case
    • Marvel – 1 case
    • Panuthos—1 case
    • Pugh—1 case
    • Ruwe – 1 case
  • 2019: 21 cases
    • Carluzzo – 3 cases
    • Colvin – 1 case
    • Foley—2 cases
    • Gale—1 case
    • Guy – 1 case
    • Halpern – 2 cases
    • Lauber – 2 cases
    • Marvel – 2 cases
    • Panuthos – 1 case
    • Paris—1 case
    • Pugh—4 cases
    • Thornton – 1 case
  • TOTAL: 148 cases w/ penalties imposed by 24 judges from January 1, 2011 – December 31, 2019

Cases by Judge

  • Judge Buch – 10 cases
    • Polk v. Commissioner – Docket No. 7946-12L (2013)
      • $1,000 penalty
    • Byers v. Commissioner – Docket No. 15841-11 (2013)
      • $5,000 penalty
    • Waltner v. Commissioner – Docket No. 21953-12L (2014)
      • $2,500 penalty
    • Sykes v. Commissioner – Docket No. 20594-13 (2014)
      • $5,000 penalty
    • Briggs v. Commissioner – Docket No. 11940-12 (2015)
      • $500 penalty
    • Blair v. Commissioner – Docket No. 17636-14 (2016)
      • $10,000 penalty (via opinion)
    • Jagos v. Commissioner – Docket No. 476-16 (2017)
      • $1,000 penalty
    • Norris v. Commissioner – Docket Nos. 6997-15, 7032-15, 7033-15 (2018)
      • $5,000 penalty
    • Ebanks v. Commissioner – Docket No. 15605-14 (2018)
      • $5,000 penalty
    • Meintz v. Commissioner – Docket No. 25321-16 (2018)
      • $1,000 penalty
  • Judge Carluzzo – 13 cases
    • Toussaint v. Commissioner – Docket No. 18914-10S (2011)
      • $1,000 penalty
    • Herriman v. Commissioner – Docket No. 25048-11 (2012)
      • $2,500 penalty
    • Osterbur v. Commissioner – Docket No. 11108-12 L (2013)
      • $1,000 penalty
    • Mills v. Commissioner – Docket No. 20500-11 (2013)
      • $5,000 penalty
    • Reyes v. Commissioner – Docket No. 5881-13L (2013)
      • $2,500 penalty
    • Nelson v. Commissioner – Docket No. 26547-12 (2015)
      • $10,000 penalty
    • Ramalho v. Commissioner – Docket No. 24511-15 (2015)
      • $7,500 penalty
    • McGhan v. Commissioner – Docket No. 10989-14 (2015)
      • $6,000 penalty
    • Boysen v. Commissioner – Docket No. 24330-15 (2016)
      • $2,500 penalty
    • Leyshon v. Commissioner – Docket No. 24310-15 (2016)
      • $2,500 penalty
    • Nitschke v. Commissioner – Docket No. 11246-18 (2019)
      • $2,500 penalty
    • Fujita v. Commissioner – Docket No. 296-19 (2019)
      • $1,500 penalty
    • Brown v. Commissioner – Docket No. 12646-19 (2019)
      • $500 penalty
  • Judge Cohen – 7 cases
    • Hewko v. Commissioner – Docket No. 13274-10L (2011)
      • $10,000 penalty
    • Reno v. Commissioner – Docket No. 4147-11 (2012)
      • $10,000 penalty
    • Spahr v. Commissioner – Docket No. 25095-11L (2013)
      • $10,000 penalty
    • Banister v. Commissioner – Docket No. 30500-12 (2015)
      • $25,000 penalty
    • Bennett v. Commissioner – Docket No. 15929-10 (2015)
      • $25,000 penalty
    • Foryan v. Commissioner – Docket No. 848-15 (2016)
      • $10,000 penalty
    • Ferguson v. Commissioner – Docket No. 11004-16 (2017)
      • $5,000 penalty
  • Judge Colvin – 3 cases
    • Ramalho v. Commissioner– Docket No. 10927-11 (2011)
      • $5,000 penalty
    • Sykes v. Commissioner – Docket No. 9793-13 (2014)
      • $25,000 penalty
    • Worsham v. Commissioner – Docket No. 26210-16 (2019)
      • $3,000 penalty (via opinion)
  • Judge Foley – 4 cases
    • Winterroth v. Commissioner – Docket No. 13833-12 (2014)
      • $10,000 penalty (via opinion)
    • Blair v. Commissioner – Docket No. 21728-14 (2017)
      • $5,000 penalty
    • Ramer & Ramer v. Commissioner – Docket No. 22587-18 (2019)
      • $10,000 penalty
    • Nabaya v. Commissioner – Docket No. 7207-19 (2019)
      • $1,000 penalty
  • Judge Gale – 3 cases
    • Klein v. Commissioner – Docket No. 1382-10 (2011)
      • $1,000 penalty
    • Wolfe v. Commissioner – Docket No. 6915-02 (2012)
      • $5,000 penalty
    • Hyatt v. Commissioner – Docket No. 17872-18L (2019)
      • $25,000 penalty
  • Judge Gerber – 1 case
    • Duggan v. Commissioner – Docket No. 3771-12 (2014)
      • $5,000 penalty
  • Judge Goeke – 2 cases
    • Riezinger-Von Reitz v. Commissioner – Docket No. 1984-12 (2013)
      • $15,000 penalty
    • Gieser v. Commissioner – Docket No. 9863-13 (2014)
      • $5,000 penalty
  • Judge Gustafson – 9 cases
    • Wnuck v. Commissioner – Docket No. 26068-09 (2011)
      • $5,000 penalty (via opinion)
    • Smalley v. Commissioner – Docket No. 13625-11 (2012)
      • $2,500 penalty
    • Skarbinski v. Commissioner – Docket No. 18189-11 (2012)
      • $1,000 penalty
    • Ali v. Commissioner – Docket No. 11866-11 (2012)
      • $2,228 penalty
    • Roe v. Commissioner – Docket No. 19423-12 (2013)
      • $40,000 penalty (two of $20,000 for each petitioner)
    • Ramalho v. Commissioner – Docket Nos. 18058-14L, 18987-14 (2015)
      • $10,000 ($5,000 for each case)
    • Leyshon v. Commissioner – Docket No. 20983-13 (2015)
      • $2,000 penalty (via opinion)
    • Scott v. Commissioner – Docket No. 26717-14 (2016)
      • $6,000 penalty
    • Gattie v. Commissioner – Docket No. 7077-15 (2016)
      • $12,500 penalty
  • Judge Guy – 6 cases
    • Leyva v. Commissioner – Docket No. 3223-13 (2014)
      • $15,000 penalty
    • Sykes v. Commissioner – Docket No. 24394-15 (2015)
      • $15,000 penalty
    • Chapman v. Commissioner – Docket No. 3007-18 (2018)
      • $3,000 penalty
    • Ryskamp v. Commissioner – Docket No. 3899-18 (2018)
      • $1,000 penalty
    • Marvin v. Commissioner – Docket No. 23092-17 L (2018)
      • $500 penalty
    • Walquist v. Commissioner – Docket No. 12890-19S (2019)
      • $5,000 penalty
  • Judge Halpern – 13 cases
    • Roye v. Commissioner – Docket No. 9913-10 (2012)
      • $15,000 penalty
    • Winslow v. Commissioner – Docket No. 18177-11 (2012)
      • $2,500 penalty
    • Gieser v. Commissioner – Docket No. 10961-12L (2013)
      • $5,000 penalty
    • Rader v. Commissioner – Docket No. 11409-11, 11476-11, 27722-11 (2014)
      • $10,000 penalty (via opinion)
    • Jones v. Commissioner – Docket No. 29579-09, 23503-10 (2014)
      • $50,000 penalty ($25,000 each)
    • Davis v. Commissioner – Docket No. 2257-13 (2014)
      • $2,500 penalty
    • Wesley v. Commissioner – Docket No. 6560-14L (2015)
      • $7,500 penalty
    • Best v. Commissioner – Docket No. 26662-10L (2016)
      • $5,000 penalty
      • $19,837.50 penalty against petitioners’ counsel
    • Gardner v. Commissioner – Docket No. 22795-16 L (2017)
      • $25,000 penalty
    • Lange v. Commissioner – Docket No. 11492-17L (2018)
      • $2,500 penalty
    • Walker v. Commissioner – Docket Nos. 16108-14L, 9435-15L (2018)
      • $10,000 penalty ($5,000 for each case)
    • Harris v. Commissioner – Docket No. 3596-18L (2019)
      • $15,000 penalty
    • Smith v. Commissioner – Docket No. 6105-16 (2019)
      • $2,500 penalty (via opinion)
  • Judge Holmes – 4 cases
    • Macdougall v. Commissioner – Docket No. 1754-11 (2011)
      • $500 penalty
    • Gieser v. Commissioner – Docket No. 1697-13 (2014)
      • $5,000 penalty
    • Klingenberg v. Commissioner – Docket No. 17632-13L (2015)
      • $10,000 penalty
    • Wright v. Commissioner – Docket No. 18508-14 (2016)
      • $100 penalty
  • Judge Lauber – 11 cases
    • Golub v. Commissioner – Docket No. 8431-12L (2013)
      • $10,000 penalty (note: opinion originally assessed $15k but order reduced to $10k)
    • Balice v. Commissioner – Docket No. 22235-13 (2015)
      • $25,000 penalty
    • Kanofsky v. Commissioner – Docket No. 21821-13L (2015)
      • $20,000 penalty
    • Patton v. Commissioner – Docket No. 16365-12L (2015)
      • $3,500 penalty
    • May v. Commissioner – Docket No. 14545-12L (2016)
      • $500 penalty
      • $7,188 penalty for petitioners’ counsel
    • Briggs v. Commissioner – Docket No. 3845-14 (2016)
      • $3,000 penalty
    • Bruhwiler v. Commissioner – Docket No. 26467-14 (2016)
      • $3,500 penalty
    • Gardner v. Commissioner – Docket No. 11669-16L (2017)
      • $10,000 penalty
    • Murray v. Commissioner – Docket No. 23464-15 (2017)
      • $1,500 penalty
    • Wesley v. Commissioner – Docket No. 18174-17L (2019)
      • $10,000 penalty
    • Walquist v. Commissioner – Docket No. 25257-17 (2019)
      • $12,500 penalty
  • Judge Leyden – 1 case
    • Herndon v. Commissioner – Docket No. 21071-17L (2018)
      • $1,000 penalty
  • Judge Marvel – 15 cases
    • Holmes v. Commissioner – Docket Nos. 10381-09, 14995-09, 17840-09 (2011)
      • $75,000 ($25,000 for each case, via opinion)
    • Barash v. Commissioner – Docket Nos. 25606-10, 11176-11 (2012)
      • $5,000 penalty ($2,500 for each case)
    • Southwell v. Commissioner – Docket No. 21117-11 (2012)
      • $3,000 penalty
    • Nelson v. Commissioner – Docket No. 21102-10 (2012)
      • $2,000 penalty (via opinion)
    • Hill v. Commissioner – Docket No. 15452-10 L (2013)
      • $5,000 penalty
    • Hill v. Commissioner – Docket Nos. 221-10 ,15501-10 (2013)
      • $20,000 penalty ($10,000 for each case, via opinion)
    • Hill v. Commissioner – Docket No. 1465-12 (2013)
      • $10,000 penalty (via opinion)
    • Bigley v. Commissioner – Docket Nos. 17747-12 L, 17529-12L, 17600-12L (2014)
      • $10,000 penalty imposed
    • Jutkowitz v. Commissioner – Docket No. 9897-13 (2014)
      • $10,000 penalty
    • Taylor v. Commissioner – Docket No. 10253-13 (2014)
      • $10,000 penalty
    • Mangan v. Commissioner – Docket No. 19000-13 (2014)
      • $5,600 penalty for petitioners’ counsel
    • Norris v. Commissioner – Docket No. 7682-14L (2015)
      • $1,000 penalty
    • Foryan v. Commissioner – Docket No. 14909-14 (2016)
      • $10,000 penalty
    • Waltner v. Commissioner – Docket No. 1729-13 (2017)
      • $10,000 penalty
      • $15,500 penalty for petitioners’ counsel
    • Schneider v. Commissioner – Docket No. 10660-17L (2018)
      • $15,000 penalty
    • Eldridge v. Commissioner – Docket No. 14744-18 (2019)
      • $3,000 penalty
    • Gilmore v. Commissioner – Docket No. 6341-18 (2019)
      • $5,000 penalty
  • Judge Morrison – 9 cases
    • Burchfield v. Commissioner – Docket No. 16676-09 (2011)
      • $5,000 penalty (via opinion)
    • Covington v. Commissioner – Docket No. 17624-09L (2011)
      • $5,000 penalty (via opinion)
    • Fleming v. Commissioner – Docket No. 14357-10L (2012)
      • $1,500 penalty
    • Buchanan v. Commissioner – Docket No. 11735-11L (2012)
      • $5,000 penalty
    • Alderman v. Commissioner – Docket No. 28696-10 (2012)
      • $4,000 penalty
    • Streiffert v. Commissioner – Docket No. 24162-10L (2014)
      • $15,000 penalty
    • Lovely v. Commissioner – Docket No. 6570-15 L (2016)
      • $1,000 penalty
    • Schneider v. Commissioner – Docket Nos. 17566-14, 29122-14 (2016)
      • $5,000 penalty ($2,500 each)
    • Amnesty National v. Commissioner – Docket No. 13961-15 L (2017)
      • $200 penalty
  • Judge Nega – 4 cases
    • Bowers v. Commissioner – Docket No. 10137-13 (2014)
      • $2,500 penalty
    • Berglund v. Commissioner – Docket No. 20782-15 L (2016)
      • $2,500 penalty
    • McBride v. Commissioner – Docket No. 15477-15 (2017)
      • $3,000 penalty
    • Byers v. Commissioner – Docket No. 24354-14L (2017)
      • $10,000 penalty (via opinion)
  • Judge Panuthos – 3 cases
    • Steele v. Commissioner – Docket No. 17903-11 (2012)
      • $2,000 penalty
    • Rader v. Commissioner – Docket No. 12507-17 L (2018)
      • $5,000 penalty
    • Ryskamp v. Commissioner – Docket No. 6595-19 (2019)
      • $2,000 penalty
  • Judge Paris – 1 case
    • Schneider v. Commissioner – Docket No. 15652-17 (2019)
      • $5,849 penalty
  • Judge Pugh – 10 cases
    • Myers v. Commissioner – Docket No. 30321-13L (2015)
      • $5,000 penalty
    • Foryan v. Commissioner – Docket No. 10732-13 (2015)
      • $1,000 penalty
    • Stanley v. Commissioner – Docket No. 7238-13L (2016)
      • $10,000 penalty
    • Nitschke v. Commissioner – Docket No. 23164-14 (2016)
      • $10,000 penalty
    • Fleming v. Commissioner – Docket No. 4925-12L (2017)
      • $5,000 penalty
    • MacDonald v. Commissioner – Docket Nos. 5503-16, 17660-16. (2018)
      • $20,000 penalty imposed ($10,000 each)
    • Sykes v. Commissioner – Docket No. 19706-17 L (2019)
      • $25,000 penalty
    • Staples v. Commissioner – Docket No. 24524-15 (2019)
      • $1,000 penalty
    • Gonsoulin v. Commissioner – Docket No. 18395-17L (2019)
      • $5,000 penalty
    • Wells v. Commissioner – Docket No. 22852-17 (2019)
      • $10,000 penalty (via opinion)
  • Judge Ruwe – 6 cases
    • Byrd v. Commissioner – Docket No. 12885-09L (2011)
      • 2,000 penalty (via opinion)
    • Garber v. Commissioner – Docket No. 2863-11 (2012)
      • $1,000 penalty
    • Snow v. Commissioner – Docket No. 24783-09 (2013)
      • $8,000 penalty
    • Zook v. Commissioner – Docket No. 9773-12L (2013)
      • $2,000 penalty (via opinion)
    • Kanofsky v. Commissioner – Docket No. 22008-13L (2015)
      • $20,000 penalty
    • Williams v. Commissioner – Docket No. 30487-15 (2018)
      • $2,000 penalty
  • Judge Thornton – 8 cases
    • Pappert v. Commissioner – Docket No. 18010-10 (2011)
      • $3,000 penalty
    • McGhan v. Commissioner – Docket No. 22880-11 (2012)
      • $25,000 penalty imposed
    • Jackson v. Commissioner – Docket No. 17268-08L (2012)
      • $15,000 penalty (via opinion)
    • Parker v. Commissioner – Docket No. 3743-10 (2012)
      • $3,000 penalty (via opinion)
    • Curtis v. Commissioner – Docket No. 5657-10 (2013)
      • $25,000 penalty
    • Kanofsky v. Commissioner – Docket Nos. 18182-15, 18162-15, 18163-15 (2016)
      • $24,000 penalty ($8,000 each)
    • Ertelt v. Commissioner – Docket No. 10739-14L (2017)
      • $1,000 penalty
    • Combs v. Commissioner – Docket No. 22748-14 (2019)
      • $2,500 penalty
  • Judge Vazquez – 2 cases
    • Caton v. Commissioner – Docket No. 5071-10 (2012)
      • $5,000 penalty
    • Williams v. Commissioner – Docket No. 13829-15L (2017)
      • $5,000 penalty
  • Judge Wells – 3 cases
    • Mooney v. Commissioner – Docket No. 8128-09 (2011)
      • $2,000 penalty (via opinion)
    • Barry v. Commissioner – Docket No. 4754-07L, 25882-08L, 5026-07L (2011)
      • $40,000 penalty ($20k & then $10k each, respectively)
    • Campbell v. Commissioner – Docket No. 13687-11L (2013)
      • $10,000 penalty

Storm at SEC Over Appointments Clause Violations Concerning Its ALJs and Possible Implications at to Circular 230 ALJs, Part IV

Frequent guest blogger Carl Smith brings us up to date with what has been happening in the litigation concerning administrative law judges (ALJs) and whether their selection meets the requirements of the Appointments Clause of the Constitution.  Although tax practitioners do not routinely encounter ALJs in their practice and probably hope never to encounter them because such encounters usually occur in disciplinary proceedings, these decisions do have meaning in the tax area and deserve attention.  Keith

In three prior posts beginning in September 2015, which can be found here, here, and here, I have reported on challenges brought under the Constitution’s Appointments Clause to SEC ALJs.  This is to report that on December 27, in a case named Bandimere v. SEC, a divided panel of the Tenth Circuit held that SEC ALJs are inferior officers who need to be (but are not currently) appointed under the Constitution’s Appointments Clause.  This creates a direct Circuit split with the D.C. Circuit, which held last August that SEC ALJs are not inferior officers needing appointment.  Raymond J. Lucia Cos., Inc. v. SEC, 832 F.3d 277, 283-89 (D.C. Cir. 2016).  Thus, the issue of which, if any, of the nearly 2,000 federal government ALJs need to be appointed under the Appointments Clause appears headed to the Supreme Court.

The IRS uses ALJs to hold hearings on Circular 230 violations.  Anyone representing a person in such a Circular 230 proceeding should probably forthwith do some discovery to get into the record how, if at all, those ALJs were appointed or hired.  The resolution of the issue for SEC ALJs may dictate a similar resolution for IRS ALJs, though, in my second post, I explained why there might be some differences.

read more...

Dodd-Frank created the system of having SEC ALJs decide many SEC sanctions cases in the first instance, rather than having the SEC sue in the district courts to impose sanctions.  If an SEC ALJ’s ruling is appealed to the full SEC, the full SEC reviews the ALJ de novo, though giving some deference to the ALJ on factual findings.   Review of the SEC’s rulings can be had directly in the Circuit courts of appeals.

In my first two posts, I reported that in the summer of 2015, two district courts held the ALJs to be inferior officers of the United States who need to be appointed under the Appointments Clause.  The SEC concedes that its judges were not so appointed.

Much of the time between my first two posts and my third post was taken up by Circuit court opinions holding that district courts in these and in other collateral proceedings lacked jurisdiction to decide the constitutional issue.  Hill v. SEC, 825 F.3d 1236 (11th Cir. 2016); Tilton v. SEC, 824 F.3d 276 (2d Cir. 2016); Jarkesy v. SEC, 803 F.3d 9 (D.C. Cir. 2015); Bebo v. SEC, 799 F.3d 765 (7th Cir. 2015). (Hill was issued two days after my last post.)

But, in August of 2016 (also after my last post), the D.C. Circuit, in a case on direct review of an SEC order affirming the sanctions imposed by an SEC ALJ, held that under the Supreme Court’s “significant authority” standard used in Freytag v. Commissioner, 501 U.S. 868 (1991), SEC ALJs were not inferior officers because they could not render final decisions in their cases.  Raymond J. Lucia Cos., Inc. v. SEC, 832 F.3d 277, 283-89 (D.C. Cir. 2016).  In Freytag, the Supreme Court held that Tax Court Special Trial Judges (STJs) were inferior officers exercising significant authority on behalf of the United States because of the many judge-like powers they possessed, including their wide discretion to issue rulings.

The Freytag opinion was admittedly less than clear in whether, to be an inferior officer, a person needed the ability to render final decisions binding the government.  In 2000, a divided panel of the D.C. Circuit in Landry v. FDIC, 204 F.3d 1125 (D.C. Cir. 2000), had held that FDIC ALJs did not need to be appointed – based on the panel’s interpretation of Freytag to require final decision-making authority in a person to render that person an officer of the United States.

In an opinion issued by a divided panel of the Tenth Circuit on December 27, in Bandimere v. SEC, the Tenth Circuit rejected Landry’s holding and held that Freytag did not require that inferior officers need the power to render final decisions.  Rather, the Bandimere majority said that, in Freytag, the Supreme Court discussed the finality of STJ rulings under what is now section 7443A(b)(7) only in response to a government concession – and not as part of the Supreme Court’s actual holding in the case.  (I agree.)  Thus, while having the ability to enter final, binding orders was one factor that could lead to a finding that a person was an officer, it was not a “but for” requirement, according to Bandimere.  And, in any event, even though the SEC had the authority to do de novo review, Bandimere pointed out that in about 90% of cases either there was no SEC review of the ALJ or the SEC review resulted in upholding the ALJ verbatim, so it is really the ALJ who effectively binds the government in the vast majority of SEC cases.  Further, even the de novo review of the ALJ that the SEC gives is one in which the SEC in fact gives deferential review of facts found by the ALJ.  This is similar to the deferential review on factual issues of STJs by Tax Court judges.

The dissenting judge in Bandimere worried that the ruling of the majority would lead to all ALJs in the federal government needing to be appointed.  This particularly would affect the Social Security Administration, where over 1,500 such ALJs are located.  (The SEC only has 5 ALJs at present.)  I am not so sure other ALJs lack proper appointment under the Appointments Clause.  5 USC § 3105 authorizes agencies to appoint ALJs.  Systems of hiring or appointment may vary by agency.  Moreover, I don’t think the result worried about by the dissent would surprise the Supreme Court.  Even Justice Scalia, in his Freytag concurrence (joined by three other Justices), noted:  “Today, the Federal Government has a corps of administrative law judges numbering more than 1,000, whose principal statutory function is the conduct of adjudication under the Administrative Procedure Act (APA), see 5 U.S.C. §§ 554, 3105. They are all executive officers.”  Freytag, 501 U.S. at 910 (emphasis in original).

Observations

While the holding of Bandimere primarily impacts, for tax practitioners, only the IRS ALJs who try Circular 230 violations, the Tax Court’s ruling in Tucker v. Commissioner, 135 T.C. 114 (2010), affd. 676 F.3d 1129 (D.C. Cir. 2012) (in which I represented the taxpayer), is now called somewhat into question.  In Tucker, the Tax Court refused to hold that the IRS Settlement Officers and their Appeals Team Managers who hold CDP hearings and render determinations therein were individuals needing to be appointed under the Appointments Clause.  The Tax Court’s reasoning, in part, was that these IRS employees do not render final rulings, but Landry v. FDIC held that the ability to enter final orders was a necessary requirement for a person to be an inferior officer.  See 135 T.C. at 162-165.  “Since we find persuasive the reasoning of the Court of Appeals for the District of Columbia Circuit in its determination that ALJs for the FDIC do not exercise ‘significant authority’, we hold that the lesser position of CDP ‘appeals officer’ (‘or employee’) within the Office of Appeals likewise does not exercise ‘significant authority’”.  Id. at 165.

In the D.C. Circuit’s affirmance of the Tucker opinion, however, the D.C. Circuit disagreed with the Tax Court and held that such Appeals personnel did have final authority, just that the authority was on issues (1) not of constitutional significance (collection) or (2) where their discretion was too circumscribed by IRS Counsel’s potential involvement (liability determinations).  “[W]e conclude that the lack of discretion is determinative, offsetting the effective finality of Appeals employees’ decisions within the executive branch.”  676 F.3d at 1134.

The Supreme Court denied cert. in Tucker, and no taxpayer has again made the same argument that I made therein.  But, the intrepid pro se taxpayer Ronald Byers has a CDP case in the Tax Court (not the same one that he took to the D.C. Circuit), in which he tells me that he plans to raise the same Appointments Clause argument that I raised in Tucker with respect to CDP Appeals Office personnel.  He will appeal this case to the Eight Circuit (where he lives).  He may try to create a Circuit split.  He may get the Tax Court to address the effect of Bandimere on his argument, as well.

District Court Holds Tax Court Exempt From FOIA as a “Court of the United States”

We welcome back frequent guest blogger Carl Smith.  Today Carl writes about a recent case looking at whether FOIA applies to the Tax Court.  Les

In June 2015, I did a post warning readers that the litigious Mr. Ronald Byers was about to bring a FOIA suit against the Tax Court. Previously, Mr. Byers had gotten a ruling from the D.C. Circuit in a Collection Due Process (CDP) levy case allowing all CDP cases not involving challenges to underlying tax liability to be appealed from the Tax Court to the D.C. Circuit. See Byers v. Commissioner, 740 F.3d 668 (D.C. Cir. 2014) (venue ruling legislatively overruled going forward in December 2015). Mr. Byers is currently in the midst of a CDP lien case in the Tax Court. In 2015, he made a FOIA request to the Tax Court for various unpublished documents. The Tax Court refused the request, saying that it was exempt from FOIA because it was one of the “courts of the United States”, within the meaning of 5 U.S.C. § 551(1)(B).

Mr. Byers had a hard time intellectually reconciling (1) the holding in Kuretski v. Commissioner, 755 F.3d 929 (D.C. Cir. 2014), that the Tax Court, for constitutional purposes, is located in the Executive Branch with (2) the idea that the Tax Court is one of the “courts of the United States” for purposes of the FOIA exemption. So, he brought suit against the Tax Court in the district court for the District of Columbia, arguing that the Tax Court is an Executive agency or other entity covered by FOIA and is not described in the exemption to FOIA for “courts of the United States”. In an opinion from the district court issued on September 30, the court agrees with the Tax Court that FOIA doesn’t apply to the Tax Court. Byers v. United States Tax Court.

read more...

5 U.S.C. sec. 552(a) requires that “[e]ach agency shall make available to the public information . . . .”   An “agency,” for purposes of FOIA, “as defined in section 551(1) of this title includes any executive department, military department, Government corporation, Government controlled corporation, or other establishment in the executive branch of the Government (including the Executive Office of the President), or any independent regulatory agency.”  5 U.S.C. sec. 552(f)(1).  5 U.S.C. sec. 551(1), in relevant part, states that “‘agency’ means each authority of the Government of the United States, whether or not it is within or subject to review by another agency, but does not include– . . . (B)  the courts of the United States”.  IRC sec. 7441 establishes the Tax Court as a “court of record” under Article I.

Byers argued that the Tax Court – per Kuretski – was either an agency or “other establishment in the executive branch of the Government”. Essentially, the district court agreed with Byers on this point, but it noted that the D.C. Circuit in Kuretski speculated that the Tax Court might be one thing for constitutional purposes, yet another thing for statutory purposes, and left open that question.  This district court opinion decided the question left open in Kuretski.

However, the district court held that the Tax Court was exempt from FOIA, holding that it is one of the “courts of the United States”. Byers argued that the phrase “courts of the United States” was a term of art in several places of the United States Code that limited the phrase to Article III courts.

The opinion correctly notes that two courts in other Circuits have previously decided that the Tax Court is exempt from FOIA as one of the “courts of the United States”.   Megibow v. Clerk of the United States Tax Court, 432 F.3d 387 (2d Cir. 2005), aff’g 94 AFTR 2d 5804 (S.D.N.Y. 2004 (holding that the Tax Court is not an “agency” for purposes of FOIA); Ostheimer v. Chumbley, 498 F.Supp. 890,892 (D. Mont. 1980) (same), aff’d, 746 F.2d 1487 (9th Cir. 1984). Thus, the D.C. district court Byers opinion does not break new ground in its holding. No court has held otherwise. At least one of those courts relied, in part, for its holding that the Tax Court was a “court”, on the functional analysis that the Supreme Court did of the Tax Court for constitutional purposes in Freytag v. Commissioner, 501 U.S. 868 (1991). In Freytag, the Supreme Court held that the Tax Court, despite not being an Article III court, held a portion of the judicial power of the United States. The district court in Byers supported its holding, as well, in part by the Freytag functional analysis of the Tax Court.

However, unlike the prior court opinions on this FOIA issue, the D.C. district court in Byers had to deal with the December 2015 amendment to IRC § 7441 that added the following sentence to respond to the Kuretski opinion:  “The Tax Court is not an agency of, and shall be independent of, the executive branch of the Government.”  Of course, the D.C. Circuit in Kuretski held that the Tax Court was part of the Executive Branch for constitutional purposes.  The Byers district court agreed with the Tax Court’s argument that this added sentence did nothing to change existing law or overrule Kuretski.  Interesting for the Tax Court to make that argument, since it must have been the Tax Court that asked Congress to amend § 7441.  Why make a pointless amendment?  I think the answer may be for public perception – i.e., individuals reading the Code should learn of the Tax Court’s independence from the Executive Branch (i.e., independence from the IRS) not by having to read and parse Freytag and Kuretski (which only lawyers would do).

The Byers district court also rejected applying to FOIA the definition of “the courts of the United States” in 28 U.S.C. § 451 – one that limits that phrase only to Article III courts. The district court noted that the § 451 definition is explicitly limited in effect to Title 28, so does not apply to Title 5, where FOIA is located.

The Byers district court still had to deal with two provisions of the IRC that also seem to use the phrase “courts of the United States” to refer only to Article III courts:

In footnote 6, the district court wrote:

Section 7457 provides for witness fees and mileage in the Tax Court that are the same as those provided for “witnesses in courts of the United States.” 26 U.S.C. § 7457(a). Mr. Byers argues that this statute shows that the Tax Court is not one of the “courts of the United States.” See Compl. Ex. C at 27. But the Court is persuaded by the Tax Court’s argument that this provision was enacted when the precursor to the Tax Court was still an “independent agency,” thus requiring the comparison to existing courts. See Def.’s Mem. At 16–17; see also Internal Revenue Code of 1954, Pub. L. No. 83-591, § 7457, 68A Stat. 730, 886 (1954); supra Part II.B (explaining that the Tax Court was not “established” as an Article I court until 1969).

Of course, the response to the district court’s statement is that Congress continued the language in § 7457 after it adopted the 1969 amendments, thus suggesting that, after 1969, Congress still did not feel that the Tax Court was one of the “courts of the United States” for Title 5 FOIA exemption purposes.

On page 17, the Byers court noted “possible contradictions in the recent legislation”, since in December, Congress newly adopted § 7470, which provides:

Notwithstanding any other provision of law, the Tax Court may exercise, for purposes of management, administration, and expenditure of funds of the Court, the authorities provided for such purposes by any provision of law (including any limitation with respect to such provision of law) applicable to a court of the United States (as that term is defined in section 451 of title 28, United States Code), except to the extent that such provision of law is inconsistent with a provision of this subchapter.

The court thinks the amendment of § 7441 essentially trumps the implication of § 7470 that the Tax Court is an agency of the United States that did not already have the powers of management give in § 7470 because the Tax Court isn’t a court of the United States.

Mr. Byers tells me that he plans to appeal the district court’s ruling to the D.C. Circuit, perhaps after filing a motion for reconsideration.

 

 

Venue on Appeals from Tax Court Attorney Sanctions

Frequent guest blogger Carl Smith writes about appellate venue in a yet unsettled corner of tax litigation.  Congress cleaned up some ambiguities last year but did not address the issue of appellate venue where the Tax Court sanctions the taxpayer’s counsel for frivolous actions in the Tax Court.  Keith

Hopefully, readers of PT will never have to consider this issue, but what is the proper venue on appeal from sanctions imposed by the Tax Court on attorneys under IRC sec. 6673(a)(2)?  The answer is not clear.  But recent appeals of the rulings in Best v. Commissioner, T.C. Memo. 2014-72 and T.C. Memo. 2016-32, and May v. Commissioner, T.C. Memo. 2014-194 and T.C. Memo. 2016-43, will try to dodge the issue, since both the taxpayers and the same counsel in each case (all of whom were sanctioned) have protectively appealed to the Ninth Circuit (Docket Nos. 16-71777(Best) and 16-71795(May)) and the D.C. Circuit (Docket Nos. 16-1188(Best) and [not yet assigned](May)).

Compounding the venue confusion is that both the Best and May cases are Collection Due Process (CDP) cases filed in the Tax Court prior to December 2015, when section 7482(b)(1) was amended to prospectively overrule the holding of Byers v. Commissioner, 740 F.3d 668 (D.C. Cir. 2014), for petitions filed thereafter.  In Byers, the D.C. Circuit held that, absent stipulation otherwise, only the D.C. Circuit was the proper venue on appeal from Tax Court CDP cases that did not include challenges to the underlying liability.  For Les’ post on Byers when it came out, see here.  For Les’ post on the overruling of Byers by the PATH Act, see here.  To quote Les from the latter post:

“The upshot of the PATH legislation with respect to CDP appeals is to push CDP and innocent spouse appeals into the same general rule as deficiency cases, that is the venue on appeal is tied to an individual’s residence (or principal place of business for other taxpayers) of the petitioner at the time of petition filing unless the parties stipulate otherwise.”

But, that legislation, sadly, did not resolve the issue of the proper venue on appeal from Tax Court attorney sanctions under section 6673(a)(2).

read more...

The taxpayers in Best and May all lived in the Ninth Circuit when they filed their Tax Court petitions in 2010 and 2012, respectively.  In neither case were the taxpayers contesting the amount of underlying liability.  In both cases, the taxpayers were represented by a Phoenix attorney named Donald MacPherson.  In the Tax Court, MacPherson’s arguments were only [21]  that (1) the Appeals Settlement Officer abused her discretion in relying only on computer transcripts to verify that the taxpayers’ unpaid tax had been properly assessed and (2) collection could not proceed because the IRS had failed to furnish the taxpayers with Form 23C or RACS 006 (including the name and signature of the assessment officer and the date of the assessment), rather than the Form 4340 transcripts that the IRS had furnished the taxpayers.

The judges in the Best and May cases (Halpern and Lauber, respectively) rejected these arguments as so frivolous at this point that the judges considered the cases to have been filed by the taxpayers primarily for delay.  Section 6673(a)(1) allows the court to sanction taxpayers who bring or maintain suits primarily for delay or who maintain frivolous or groundless positions in their cases.  In their initial opinions in the cases, the judges both held that collection could proceed and the taxpayers were subject to penalties under section 6673(a)(1) of $5,000 and $500, respectively.

In follow-up opinions in both cases issued earlier this year, the judges decided to impose penalties on MacPherson under section 6673(a)(2) of $19,837.50 and $7,188, respectively.  That section provides that “[w]henever it appears to the Tax Court that any attorney . . . has multiplied the proceedings in any case unreasonably and vexatiously,” the court may require that the attorney “pay personally the excess costs, expenses, and attorneys’ fees reasonably incurred because of such conduct.” The judges computed the excess costs using a well-settled “lodestar” amount for the work of IRS attorneys and law clerks.

In the second Best opinion, the court applied a rule of the Ninth Circuit and most appeals courts that bad faith is needed to impose sanctions, even though not all courts of appeal require this. In part, the Tax Court did this to make the split irrelevant by holding that the IRS passed the higher test (bad faith), writing:

Moreover, appellate venue regarding section 6673(a)(2) is uncertain.  Venue for appeal of Tax Court decisions is governed by section 7482(b). The venue for appeal is likely either the Court of Appeals for the Ninth Circuit (because of the legal residence of petitioners), see sec. 7482(b)(1)(A), or the Court of Appeals for the District of Columbia Circuit, see sec. 7482(b)(1) (flush language). . . .  Because we are unsure of appellate venue, and because we find that Mr. MacPherson’s conduct would constitute bad faith under the Court of Appeals for the Ninth Circuit’s test for bad faith, we will for purposes of this case (and without deciding the standard in this Court), adopt that standard.

T.C. Memo. 2016-32, slip op. at *11- *12.

In the second May opinion, the Court stated that it was following the reasoning of the second Best opinion and cited opinions on sanction standards both from the Ninth Circuit and D.C. Circuit, as follows:

We find that Mr. MacPherson knowingly or recklessly advanced arguments that he knew were frivolous and lacking in any legal basis. Because his actions thus manifested subjective bad faith, they are deserving of sanction under section 6673(a)(2). See Moore v. Keegan Mgmt. Co. (In re Keegan Mgmt. Co., Sec. Litig.), 78 F.3d 431, 436 (9th Cir. 1996); Reliance Ins. Co. v. Sweeney Corp., 792 F.2d 1137, 1138 (D.C. Cir. 1986); Takaba v. Commissioner, 119 T.C. 285, 296-297 (2002).

T.C. Memo. 2016-43, slip op. at *15 (footnote omitted).

In early June, notices of appeal were filed in both cases in the Ninth and D.C. Circuits. All four of the notices attach the rulings of the Tax Court in the opinions that sanctioned MacPherson, but not the earlier opinions concerning the taxpayers. All notices of appeal nominally are in the names of the taxpayers, but are signed only by MacPherson. While the notices of appeal are a bit confusing (and may not be jurisdictionally-sufficient for all of the parties desiring to appeal), it appears that the appeals are intended to be both on behalf of the taxpayers and MacPherson, even though MacPherson has not put his name in the captions of the appeals as an appellant.

In the notices of appeal to the D.C. Circuit, MacPherson explains (without citing Byers) that venue on appeal of CDP cases such as Best and May is unclear, and so the filings in the D.C. Circuit are essentially protective. He states that the appellants prefer that the appeals be heard by the Ninth Circuit and that he has asked counsel for the government to stipulate to the Ninth Circuit as the proper venue.

I expect that the government will agree to the requested stipulation – both for the taxpayers and MacPherson’s penalty appeals.

First, in Notice CC-2015-006 (issued before Byers was legislatively repealed), and on which I blogged here, Chief Counsel expressed its disagreement with the D.C. Circuit’s venue holding in Byers that, absent a stipulation otherwise, CDP cases not involving underlying liability issues are appealable only to the D.C. Circuit, writing:

When evaluating appellate venue after a taxpayer files a notice of appeal, if the taxpayer appeals a non-liability case to the D.C. Circuit, and the case is not enumerated in section 7482(b), Chief Counsel attorneys should not recommend objecting to venue since Byers is controlling in the D.C. Circuit. If a taxpayer appeals a non-liability case to the proper regional circuit, Chief Counsel attorneys should likewise not object to venue as the taxpayer’s choice of venue is consistent with our position.

(Emphasis added.)  It is thus the IRS preference to litigate CDP cases in the regional Circuits of the taxpayers’ residence.

Second, I don’t expect the IRS to object to venue of MacPherson’s penalty appeals in the Ninth Circuit, either, since judicial economy (and government briefing expenses) would be served by hearing the taxpayers’ and their lawyer’s appeals together.

But, I do want to discuss the open question as to the proper venue for an attorney who is appealing penalties imposed by the Tax Court under section 6673(a)(2).

Recall that section 7482(b)(1)’s flush language provides a general rule that appeals from the Tax Court go to the D.C. Circuit, unless one of a series of lettered subparagraphs applies.  Subparagraph (A) directs appeals by individuals from rulings involving petitions seeking redetermination of tax liability to the Circuit of the individual’s residence.  Just as in Byers, where the D.C. Circuit held CDP petitions not to fall within subparagraph (A), in Dornbusch v. Commissioner, 860 F.2d 611 (5th Cir. 1988), the Fifth Circuit held that an appeal from a Tax Court criminal contempt order against a third-party witness could not be heard by the Circuit of the petitioner’s residence but had to be heard by the D.C. Circuit under the flush language of section 7482(b)(1).  In that case, the Fifth Circuit transferred the criminal contempt appeal to the D.C. Circuit.

More recently and to the point, the Tax Court has speculated that appeals of its section 6673(a)(2) penalties on attorneys also probably don’t fall within subparagraph (A) of section 7482(b)(1) or any other subparagraph, so, absent stipulation otherwise,  should go only to the D.C. Circuit. Takaba v. Commissioner, 119 T.C. 285, 297 (2002); Edwards v. Commissioner, T.C. Memo. 2003-149, aff’d, 119 Fed. Appx. 293 (D.C. Cir. 2005) (D.C. Cir. opinion lacks any discussion of venue); Davis v. Commissioner, T.C. Memo. 2007-201, taxpayer’s appeal only aff’d, 301 Fed. Appx. 389 (6th Cir. 2008) (attorney’s appeal dismissed because notice of appeal did not make clear that attorney was appealing).

The issue of venue for appeals of section 6673(a)(2) penalties once came up in a D.C. Circuit opinion.  The taxpayer had appealed his case, Powell v. Commissioner, T.C. Memo. 2009-174, to the Sixth Circuit, where the appeal was pending when the taxpayer’s attorney appealed his section 6673(a)(2) sanctions in the case to the D.C. Circuit.  The DOJ apparently moved to transfer the attorney’s appeal to the Sixth Circuit, but the D.C. Circuit directed briefing on the entire case (including the transfer issue), and when the D.C. Circuit issued its opinion in Barringer v. U.S. Tax Court, 408 Fed. Appx. 381 (D.C Cir. 2010)[free copy unavailable], it affirmed the Tax Court without transferring the case, writing:  “Because the appeal has been fully briefed and argued, the judicial economy rationale of the Tax Court’s suggestion this appeal be transferred to the Sixth Circuit where the taxpayer’s appeal is pending, no longer exists.” Thus, the Barringer opinion also does not decide the normally-correct venue on appeal for a section 6673(a)(2) penalty case.

In hunting around for other venue rulings on section 6673(a)(2) penalties, I found one opinion from a regional Circuit, Johnson v. Commissioner, 289 F.3d 452 (7th Cir. 2002). In the Tax Court case related thereto, the taxpayer, Johnson, lived in Indiana (within the Seventh Circuit). Johnson v. Commissioner, 116 T.C. 111, 112 (2001). After ruling against the taxpayer, the Tax Court also sanctioned her attorney, Joe Izen, under section 6673(a)(2). Izen was from Texas. Apparently, only Izen appealed the case to the Seventh Circuit to contest his penalties. The Seventh Circuit held that the penalties were warranted, but did not discuss the venue on appeal – leading me to assume the DOJ did not raise the issue of possible improper venue.

In sum, there are no appellate court opinions – precedential or otherwise – on the correct venue on appeal from attorney penalties imposed by the Tax Court under section 6673(a)(2), just Tax Court speculation that proper appellate venue, absent stipulation otherwise, probably is only the D.C. Circuit.

May readers never have to be involved in a case where this issue has to be resolved.