Tax Court Urged to Permit Limited Scope Appearances by Counsel

We welcome first-time guest blogger James Creech to Procedurally Taxing. James is a tax controversy attorney in solo practice in San Francisco and Chicago. He currently chairs the Individual and Family Tax Committee of the ABA Section of Taxation. Here James discusses comments submitted by the ABA Tax Section urging the adoption of a limited appearance rule in Tax Court, and he explains his support for the proposal from the perspective of a pro bono calendar call attorney. As one of the authors of the comments I hope the Court agrees with James. Christine

On October 3rd, the ABA Section of Taxation submitted comments to the Tax Court urging the court to amend Tax Court Rule 24 in order to create a new limited scope appearance. The comments are primarily aimed at allowing pro-bono volunteers to speak on the record during a calendar call without having to worry about broader ethical issues and without worrying about assuming responsibility beyond a solitary appearance. Importantly, while calendar calls are the primary focus, the Tax Section recommendation does not restrict the use of limited scope appearances to only calendar calls. The comments urge permission for limited scope representation in any situation where 1. the limitation is reasonable given the circumstances; 2. the limitation does not preclude competent representation or violate other rules; and 3. the client gives informed consent. This broader request would allow pro-bono volunteers to not only assist during the trial setting session but would open the door to assisting during trial itself, or during appeals hearings in docketed tax court matters.

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A limited scope representation rule could help a large number of taxpayers. According to the comment 69% of all petitioners are unrepresented. When looking only at S cases that number jumps to 91%. Currently during the typical calendar call session there is a limited amount of time where petitioners can meet with a pro-bono attorney and often they are overwhelmed with the process. Allowing limited scope representations would allow pro-bono volunteers to increase their assistance and reduce the burden on both petitioners and the Court.

Under the Tax Section’s proposal, beginning a limited scope representation would require the pro-bono volunteer to complete a Tax Court form that clearly identified the date, the time period of the representation, the activity, and the subject matter. On the sample forms attached to the comments, these lines are prominently displayed and are likely to reduce much of the client’s uncertainty the limited representation. This form would then be signed by the pro-bono attorney and served on both the Court and opposing counsel. For representations that are part of the calendar call program, the ABA Tax Section comment language specifically states that the representation ends at the conclusion of the calendar call. If a practitioner wishes to extend the representation through trial a separate notice of completion must be filed with the Court and served upon respondent.

As a frequent calendar call volunteer, the recommendations made in the ABA Tax Section comment are welcome and frankly overdue. One of the biggest frustrations of a calendar call pro-bono attorney is the inability to speak to the court on behalf of a pro-se litigant even when it comes to something as simple as requesting a continuance. Calendar Call volunteers often spend a significant amount of time with a pro-se litigant teaching them the basics of Tax Court procedure, what facts are relevant, and what the roles of Chief Counsel attorneys and the Court are. At the conclusion of the meeting it is not unusual to wait in the back of the courtroom only to watch them step up to the podium and start rehashing irrelevant facts that are unhelpful to the Court. It then takes time for the Judge to give the opportunity for the litigant to speak, inform them why they are in court today, and to ask questions about what their goals are. Often what should be a two minute request for a specific trial day or a continuance can turn in to ten minutes of the Judge trying to get a sense of the evidentiary issues and if trial is the fairest way to resolve the case. Allowing a pro-bono attorney to approach the podium with the petitioner would eliminate these issues. I believe a limited scope rule would give petitioners a better sense that they were able to communicate their needs and that they had a fair opportunity to be heard both of which are essential to due process.

Enacting the ABA Tax Section’s proposal for limited scope representation would benefit volunteers, pro-se taxpayers, chief counsel, as well as the Court. Volunteers would more certainty that their time would be put to good use. Pro se litigants would get a fairer outcome because they would be able to better communicate their needs to the Court and explain the relevant facts in their case. Finally, the Court would benefit from increased efficiency and a trial record that better reflected what the parties believed the facts to be.

Overall the Tax Section comment does a great job of striking a balance between the needs of volunteer attorneys ethical compliance and workload considerations with their desire to help pro-se petitioners. The inclusion of clear sample forms gives the Court and pro-bono volunteers a better idea of how this rule could be implemented and what pro-se litigants might expect should this proposal be adopted. In my opinion the Tax Court should implement a limited scope rule that is substantially similar to what the ABA Tax Section proposes.

Designated Orders 9/24/2018 – 9/28/2018: Understand the Remand; No Proof, No Relief

This week’s designated orders are brought to us by Samantha Galvin of the University of Denver. The last case Samantha mentions involves an unsuccessful motion for reconsideration under Tax Court rule 161. Keith previously covered motions for reconsideration on PT here. Christine

During the week of September 24, 2018, the Court designated four orders: two for cases previously covered in Caleb Smith’s October 3rd post, and two for cases where petitioners offered no evidence to support their positions. First, as a very quick follow up – the Court denied the remaining portion of Tribune Media Company’s motion to compel the production documents (order here). If you are interested, see Caleb’s post (here) for the background and more information on this order and the first order discussed below.

Understand the Remand

Docket No. 22224-17, Johnson and Roberson v. C.I.R. (designated order of 9/29/18 here; most recent order here)

When we last saw this case, Caleb explained that notes in the administrative file suggested that petitioners had not received a SNOD, and as a result, a remand to Appeals seemed imminent. The IRS does not object to a remand, but petitioners do object, so the case is set for trial during the week of October 15th. In its designated order of September 29, the Court takes steps to ensure that petitioners understand the consequences of objecting to a remand. The Court explains that many petitioners benefit from remands, and that any supplemental determination is eligible for judicial review. In the alternate scenario, if there is no remand and the Court decides that Appeals’ determination cannot be sustained- that finding of abuse of discretion alone does not bar the IRS from future collection activity.

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There is a misconception among some taxpayers who believe if they can prove that IRS made a mistake, they’ll be absolved of their tax liability – we all know this is not the case. Although not receiving the SNOD allows petitioners to raise issues related to the underlying liability, a reduction or elimination of that liability is not guaranteed. In the present case, petitioners will have the burden of proving their charitable contributions, medical expenses, and business expenses claimed as miscellaneous deductions.

The next two orders share a common designated orders’ theme, which is “petitioners who do not provide evidence to support their claims.”

No Proof, No Levy Release

Docket No. 25627-17SL, Hommertzheim Enterprises, Inc. v. C.I.R (Order and Decision here)

This first instance of a petitioner without proof is in Court after a CDP hearing for unpaid employment taxes. This case also has another common designated orders’ theme, which is “neither the IRS, nor the Court, can help the taxpayer who fails to do what they’re asked to do.” I assume here (and have assumed in previous posts) that these types of orders are frequently designated to provide guidance to taxpayers about their responsibilities in a CDP hearing and the Court’s jurisdiction over CDP hearings, which makes me think CDP hearings would run more smoothly if the IRS would instruct taxpayers to read Procedurally Taxing as a part of the process (ha ha).

In this case the IRS requests a collection information statement, unfiled returns, and proof of quarterly tax deposits. Petitioner provided one of the three unfiled returns, copies of two previously filed (but not requested) returns, and nothing more. The new return showed a balance which the settlement officer said would need to be paid before an installment agreement could be considered; although, I don’t understand why this balance couldn’t be included in any proposed agreement.

The levy is sustained, and petitioner explains in its petition (in all capital letters, presumably to convey anger and frustration) that all documents were faxed, they were never told how to make a payment arrangement, and thus were unable to make it.

Despite the explanation, petitioner does not offer any evidence to prove that it faxed all of the documents and the administrative record supports the IRS’s position that only one of the requested documents was received. As a result, the Court finds there is no abuse of discretion, grants the IRS’s motion for summary judgment and sustains the levy determination.

No Proof, No Reconsideration

Docket No. 25105-12L, Robinson and Jung-Robinson v. C.IR. (order here)

This order involves petitioners’ motion for reconsideration. The crux of petitioners’ argument is that the Court lacks jurisdiction because the ASED had already expired when the parties executed an agreement to extend it, but again, petitioners did not offer any evidence to support this. Whereas the IRS refers to exhibits that show the ASED had been extended until ten months after the notice of deficiency was issued.

As a reminder, or for those of you who don’t know, a motion for reconsideration is generally only granted when there is a substantial error or unusual circumstances, so without evidence from petitioners it’s no surprise the Court denies their motion.

Designated Orders: One-Two Punch for Respondent in CDP Disputes before Judge Gustafson

This week Patrick Thomas who teaches and runs the low income taxpayer clinic at Notre Dame Law School brings us the designated orders. I have written before about the lessons in making motions for summary judgment that Judge Gustafson provides to Chief Counsel attorneys. Like the wonderful blog series written by Bryan Camp entitled Lessons from the Tax Court (samples here and here), Judge Gustafson provides his own lessons from the Tax Court to the attorneys in Chief Counsel’s Office who file summary judgment motions with him without carefully preparing their motions. At some point we hope the Chief Counsel attorneys will read our blog posts (not to mention his prior orders) and realize that they need to spend some time with these motions and especially when they know the motion will go to Judge Gustafson’s chambers. Professor Thomas writes about the Judge’s most recent lessons below. Keith 

Designated Orders: 9/17 – 9/21/2018

There were only three orders this week, two of which will be discussed here. Not discussed is a routine scheduling order from Judge Jacobs. The two others are both from Judge Gustafson and involve an IRS motion for summary judgment in collection due process cases. Judge Gustafson denies both motions—the first because material facts remained in dispute, and the second because the motion mischaracterized facts elsewhere in the record (and omitted other facts that might have saved the motion). More below.

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Docket No. 26438-17L, Schumacher v. C.I.R. (Order Here)

This CDP case stems from a Notice of Federal Tax Lien filed against Mr. Schumacher for multiple tax years. After Petitioner timely requesting a hearing, the Settlement Officer (SO) sent an initial contact letter to Petitioner and his authorized representative—at least, to what the IRS computers thought was his authorized representative. On the hearing date, the SO called petitioner; the order states “[Petitioner] was not available and his telephone message stated that he did not accept blocked calls.” I’m assuming that the SO was therefore unable to leave a message on Petitioner’s voicemail.

Undeterred, the SO attempted to call the authorized representative on file with the IRS CAF Unit. The representative’s office informed the SO that they no longer represented Petitioner. The SO called the next listed authorized representative and left a message, but didn’t receive a response.

So, on that day, the SO sent a letter to Petitioner, noting these attempts. It further stated that if Petitioner didn’t contact the SO within 14 days, she would issue a Notice of Determination sustaining the lien. 14 days came and went, and the SO did just that.

In the motion, Respondent argues that the SO was justified in issuing the NOD, because neither Petitioner nor his authorized representative responded during the CDP hearing. In opposition, the Petitioner notes that (1) he didn’t receive any phone calls from the IRS and (2) he didn’t have any authorized IRS representative at that time. Judge Gustafson finds the latter plausible, given there’s no indication on the Form 12153 that Petitioner had representation. Good for Petitioner, as the Tax Court will ordinarily sustain a NOD if a truly authorized representative fails to respond.

Judge Gustafson denies the motion because, in his view, there appears to be a dispute as to whether Petitioner had a reasonable opportunity to challenge the NFTL. Specifically, Judge Gustafson finds troubling that there were no attempts to phone Petitioner a second time and no attempt to “unblock” the SO’s phone, such that Petitioner could receive its calls or a message. Further, he takes issue with the language in the 14-day letter sent to Petitioner; it included language noting that “your account has been closed” and might reasonably suggest to a taxpayer without CDP experience that the SO had already made her decision. Accordingly, Judge Gustafson denies the motion and sets the case for trial in Baltimore on November 5.

Takeaways: First, at the end of representation, practitioners should remember to withdraw their Forms 2848. Some portion of the confusion could have been avoided here.

Second, I didn’t know there was a mechanism that could block voicemails or calls from blocked numbers. To the extent our clients have such a mechanism, I might advise them to disable this feature until their tax controversy is resolved. As an aside, to the extent this seeks to reduce spam calls, it appears ill suited to the task. From my own experience, I don’t think I’ve ever received a spam call from a blocked number; rather, it’s usually an IRS employee calling. The spam calls tend instead to come from unblocked numbers.

Docket No. 1117-18L, Northside Carting, Inc. v. C.I.R. (Order Here)

This combined NFTL and levy case involves Petitioner’s unpaid employment taxes. Here, Petitioner does itself no favors in not responding to the motion for summary judgment. Nonetheless, Judge Gustafson finds that Respondent fails to carry own their burden on the motion because of other record evidence.

Respondent argues that Petitioner asked for an OIC or installment agreement in the CDP request, failed to provide the information and documentation necessary to consider an installment agreement. Specifically, Respondent notes that when Petitioner’s authorized representative informed the SO on July 13, 2017 of their desire to renegotiate a collection alternative, the SO asked for additional documentation. That documentation not being forthcoming, the motion states, the SO justifiably upheld the levy and NFTL filing.

Not so fast, says Judge Gustafson. The administrative record shows that the representative submitted some portion of the requested information on two occasions after July 13. Ultimately, the SO still wanted more; after a final deadline of November 16, the SO issued the Notice of Determination.

Judge Gustafson finds the motion’s failure to recite this information problematic. It doesn’t say what was requested or given—only that the SO requested something, part of which was provided and part of which was not. This is a material difference; if the SO receives no information at all, and issues a NOD on that basis, that’s understandable. But here the Court must at least understand the information that was provided; perhaps the SO required a piece of meaningless or trivial information, and on that basis upheld the NFTL and levy. Probably not, but without the specific information, the Court is left without any idea.

The motion could probably have been saved for another reason: when the NOD was issued, Petitioner wasn’t in filing compliance, a necessary requirement for any collection alternative. While the declaration underlying the motion mentions this, the motion itself fails to do so. Judge Gustafson seems unwilling to entertain an argument not presented to the Court, and so ultimately denies the motion, setting the case for trial in Boston on October 15. He suggests that an ultimate outcome may be remand to Appeals for further development of the record, or simply that the NFTL cannot be sustained.

So, good news for Petitioner. Hopefully Petitioner realizes its good fortune, and begins to participate in this case.

 

DOJ Argues that 28 U.S.C. § 2401(a) Doesn’t Bar Altera’s APA Challenge to a Tax Regulation Made More Than 6 Years After Adoption

We welcome frequent guest blogger Carl Smith with breaking news about the Altera appeal pending in the 9th Circuit. Today’s news is not dispositive but does provide interesting insight on the Government’s view of a new issue raised by the 9th Circuit as the new panel reviewed the case. Keith

PT readers are no doubt aware of Altera v. Commissioner, 145 T.C. 91 (2015). In the case, the Tax Court invalidated a regulation under § 482 concerning the inclusion of stock option compensation in related-party cost-sharing arrangements. The two Tax Court dockets involved in the case were under the Tax Court’s deficiency jurisdiction in 2012. In those cases, Altera sought to invalidate a 2003 regulation both under the Chevron standard (i.e., not reasonable) and under the Administrative Procedure Act (APA). The Tax Court invalidated the regulation under both theories. The Tax Court found APA violations including the IRS’ (1) failure to respond to significant comments submitted by taxpayers and (2) in light of the administrative record showing otherwise, the IRS’ failure to support its belief that unrelated parties entering into cost sharing arrangement would allocate stock-based compensation costs.

As we blogged here, on July 24, 2018, the Ninth Circuit issued an opinion upholding the regulation. But that opinion was later withdrawn because one of the judges in the majority had died before the opinion was issued. After a new judge was assigned to rehear the case, the parties were invited to (and did) submit supplemental briefs. (Four supplemental amicus briefs were also submitted.) On the day all of these supplemental briefs were submitted, September 28, 2018, the Ninth Circuit panel issued an order inviting further briefing from the parties by October 9 on an issue that had never before been argued in the case. The case is set for reargument before the new Ninth Circuit panel on October 16.

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The recent order stated concerning this additional briefing issue:

The parties should be prepared to discuss at oral argument the question as to whether the six-year statute of limitations applicable to procedural challenges under the Administrative Procedure Act, 28 U.S.C. § 2401(a), applies to this case and, if it does, what the implications are for this appeal. Perez-Guzman v. Lynch, 835 F.3d 1066, 1077-79 (9th Cir. 2016), cert. denied, 138 S. Ct. 737 (2018).

In Perez-Guzman, the Ninth Circuit had held that procedural challenges to regulatory authority (unlike Chevron substantive challenges) must be raised in a court suit within the 6-year catch-all federal statute of limitations at 28 U.S.C. § 2401(a). Since the Altera deficiency cases had been brought more than six years after the pertinent regulation was adopted, the Ninth Circuit was, in effect, wondering whether all APA arguments in the case were time barred.

On October 9, however, the DOJ, rather than file a supplemental brief, filed a 5-page letter disclaiming any reliance on the statute of limitations under 28 U.S.C. § 2401(a). The letter states, in part:

It is the Commissioner’s position that any pre-enforcement challenge to the regulations at issue here – including a purely procedural challenge under the APA, cf. Perez-Guzman, 835 F.3d at 1077-79 – would have been barred by the Anti-Injunction Act. See 26 U.S.C. (“I.R.C.” or “Code”) § 7421(a) (stating that, “[e]xcept as provided in” various Code sections (the most significant of which, I.R.C. § 6213(a), allows the pre-payment filing of a Tax Court petition in response to a statutory notice of deficiency), “no suit for the purpose of restraining the assessment or collection of any tax shall be maintained in any court by any person”) . . . . Thus, Altera properly asserted its challenge to the regulations in two Tax Court actions contesting notices of deficiency that reflected the enforcement of the regulations against it. See Redhouse v. Commissioner, 728 F.2d 1249, 1253 (9th Cir. 1984).

If Altera’s procedural APA challenge to the regulations were nonetheless subject to the six-year statute of limitations set forth in 28 U.S.C. § 2401(a) (which would have started running on the date of issuance of the final regulation, see Perez-Guzman, 835 F.3d at 1077), then Altera would have had to pay the tax and file a refund claim within the six-year window – thereby forfeiting the opportunity to contest the enforcement of the regulations against it in the pre-payment forum of the Tax Court – in order to comply with that time limit. Because the Commissioner has never expressed the view that the six-year statute of limitations applies to a procedural APA challenge to a tax regulation in the context of a Tax Court deficiency proceeding, and because the IRS issued the notices of deficiency in this case outside the six-year APA window, it would have been unfair to argue below that Altera’s procedural APA claims are time-barred. And, given this Court’s holding that the six-year statute of limitations set forth in 28 U.S.C. § 2401(a) is not jurisdictional, Cedars-Sinai Med. Ctr. v. Shalala, 125 F.3d 765, 770 (9th Cir. 1997), the Commissioner waived any defense under that provision by not raising it in the Tax Court.

In sum, it is the Commissioner’s position that the six-year statute of limitations that is generally applicable to procedural challenges to regulations under the APA, see 28 U.S.C. § 2401(a), does not apply to this case.

Observation

Some people wonder why I litigate so much over whether or not filing deadlines are jurisdictional. The Altera case demonstrates again why this can often be a critical issue, since only nonjurisdictional filing deadlines are subject to waiver, forfeiture, estoppel, and equitable tolling.

 

For IRS Appeals Office, An Epidemic of Remands

We welcome back frequent commentor and occasional guest blogger Bob Kamman. As usual, Bob digs into a topic that the rest of us may have overlooked. Today, he writes, and primarily reports, about remands from the Tax Court. Remands in Tax Court cases most frequently occur in the Collection Due Process (CDP) setting in which the Appeals employee reviewing the CDP case fails to properly review some aspect of the case. When Chief Counsel’s office or the Tax Court notices the failure, the case gets sent back to Appeals to fix the problem. In most CDP cases a remand serves as the best result a taxpayer can hope for in the case. It does represent an opportunity for the Appeals to agree with the taxpayer’s position after initially disagreeing but a remand does not necessarily mean the taxpayer will succeed. It generally does, however, signal some failure at Appeals. To that extent, Bob’s research shows that Appeals appears to fail often. Remands can occur after a failed motion for summary judgment by Chief Counsel’s office and we have written often about failures of those motions and particularly the observations of Judge Gustafson. Remands also delay the process. Bryan Camp recently wrote about a case that serves as a reminder of the slow movement of CDP cases which is something Carl Smith and I wrote about in an article in 2011. Today’s post is long which speaks to the problem. Keith

The New York Mets once again have avoided the World Series, but we still recall their first manager Casey Stengel and his immortal question, “Can’t anybody here play this game?”

The same question might now be asked about the IRS Appeals Office. It seems that Chief Counsel is batting clean-up – that is, cleaning up the cases that end up in Tax Court and must be sent back down to the minors for the administrative equivalent of a not-so-instant replay “further review.”

I did a search for the word “remand” in Tax Court orders for the period September 4 through October 4, 2018.   How many motions to remand would you expect IRS lawyers to file in a month? Would twenty seem to be a high number?

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Here is the list, along with excerpts from the orders. Most of these are CDP cases, although one “whistleblower” case appears. Another case came back up a year after a remand, and there were still problems that resulted in an IRS motion for summary judgment being denied.

For many of these cases, a trial date had already been set, some of them within the following month. For one, the IRS asked for the remand at the Tax Court calendar call.

1) Murphy, Docket No. 10992‑18SL. Chief Judge Foley.

ORDERED that the above‑referenced motion to remand is granted, and this case is remanded to respondent’s Office of Appeals for the purpose of affording petitioner an administrative hearing pursuant to I.R.C. section 6320 and/or 6330. It is further

ORDERED that respondent shall offer petitioners an administrative hearing at respondent’s Appeals Office located closest to petitioners’ residence (or at such other place as may be mutually agreed upon) at a reasonable and mutually agreed upon date and time, but no later than December 13, 2018.

2) Morring, Docket No. 13226‑18 L. Chief Judge Foley.

On September 5, 2018, respondent filed a Motion To Remand. Upon due consideration, it is

ORDERED that, on or before October 1, 2018, petitioners shall file an Objection, if any, to the above‑described motion to remand. Failure to comply with this Order may result in the granting of the motion to remand.

3) Ferrie, Docket No. 17979‑17 L. Judge Kerrigan order dated September 12.

This case is scheduled to be tried at the Court’s session in Los Angeles, California beginning September 24, 2018. On September 11, 2018, respondent filed a motion to remand in which it asks the Court to remand this Collection Due Process case to respondent’s Office of Appeals for further consideration. The motion further indicates that petitioner does not object to granting of the motion. Upon due consideration, it is

ORDERED that respondent’s motion to remand is granted and this case is remanded to respondent’s Office of Appeals for purposes of affording petitioner an administrative hearing pursuant to I.R.C. section 6330.

4) Harropson, Docket No. 16313‑17 L. Judge Kerrigan order dated September 19.

This case is calendared for trial at the Court’s session in Los Angeles, California beginning September 24, 2018. On September 18, 2018, respondent filed a motion to remand in which it asks the Court to remand this Collection Due Process case to respondent’s Office of Appeals for further consideration. The motion further indicates that petitioner does not object to the granting of the motion. Upon due consideration, it is

ORDERED that respondent’s motion to remand is granted and this case is remanded to respondent’s Office of Appeals for the purposes of affording petitioner an administrative hearing pursuant to I.R.C. section 6330. It is further

ORDERED that this case is stricken for trial from the Court’s September 24, 2018, trial session in Los Angeles, California, and that the undersigned judge retains jurisdiction. . . .

ORDERED that on or before December 18, 2018, the parties shall file with the Court a joint status report regarding the then‑present status of this case.

5) East Bank Center LLC, Docket No. 7194‑17L. Judge Gale.

On September 15, 2017, the parties, concluding that the foregoing findings in the notice of determination were contradictory, jointly moved for a remand of the case for a supplemental hearing. On September 19, 2017, the Court granted the motion and the case was remanded to Appeals for a supplemental hearing.

The record as currently developed does not demonstrate to our satisfaction that respondent is entitled to a decision in his favor as a matter of law. It is undisputed that SO Kammers, in connection with the supplemental hearing, reviewed petitioner’s 2016 Form 1065 and used the financial information therein as her basis to determine petitioner’s ability to pay. An Appeals officer’s use of a tax return in this manner would appear to contravene Internal Revenue Manual (IRM) pts. 8.23.3.3(5) and (6) (Aug. 18, 2017). In these circumstances, we conclude that summary adjudication is not appropriate. Accordingly, we shall deny respondent’s Motion.

6) Lewis, Docket No. 14911‑17W. Judge Goeke order dated September 26.

This case is calendared for trial at the Session of the Court commencing November 5, 2018, in St. Louis, Missouri.

Upon due consideration of respondent’s Motion to Remand, filed September 26, 2018, it is

ORDERED that petitioner is directed on or before October 15, 2018, to file with the Court a response to respondent’s above‑referenced motion.

7) Barragan, Docket No. 18245‑17L, Judge Kerrigan.

On September 24, 2018, this case was called from the calendar for the Trial Session of the Court at Los Angeles, California, at which time a Joint Motion to Remand was filed. Upon due consideration, and for cause more fully appearing in the transcript of the proceeding, it is

ORDERED that the joint motion is granted and this case is remanded to respondent’s Office of Appeals for the purpose of affording petitioner an administrative hearing pursuant to I.R.C. § 6330.

8) Dennis, Docket No. 398‑18 L. Chief Judge Foley.

Upon due consideration of respondent’s Motion To Remand, filed in the above‑docketed proceeding on August 20, 2018, and first supplement thereto clarifying the Court’s jurisdiction in this matter, filed August 31, 2018, it is

ORDERED that the above‑referenced motion to remand, as supplemented, is granted, and this case is remanded to respondent’s Office of Appeals for the purpose of affording petitioners an administrative hearing pursuant to I.R.C. section 6320 and/or 6330.

9) Akins, Docket No. 22097‑17L. Judge Gale.

This case is calendared for trial at the Los Angeles, California, trial session commencing November 26, 2018. On July 19, 2018, respondent filed a Motion for Continuance and a Motion to Remand therein requesting that the Court continue this case for purposes of remanding it to respondent’s Office of Appeals for a supplemental hearing. By Order dated July 23, 2018, the Court directed petitioner to file responses stating his position regarding respondent’s Motions by August 13, 2018. To date, petitioner has not filed a response to either Motion. The foregoing considered, it is

ORDERED that respondent’s Motion for Continuance, filed July 19, 2018, is granted and this case is stricken from the calendar of the November 26, 2018, Los Angeles, California, trial session, and continued. It is further

ORDERED that respondent’s Motion to Remand, filed July 19, 2018, is granted and this case is remanded to respondent’s Office of Appeals for purposes of affording petitioner a supplemental collection due process hearing under I.R.C. section 6330.

10) Billing Enterprise, Inc., Docket No. 20540‑17 L. Judge Paris.

This case is calendared for the trial at the November 5, 2018, Dallas, Texas Trial Session of the Court. On September 4, 2018, respondent filed a Motion to Remand. After due consideration, it is

ORDERED that jurisdiction in this case is retained by this Division of the Court. It is further

ORDERED that this case is continued from the November 5, 2018, Dallas, Texas Trial Session of the Court until further direction by this Division of the Court. It is further

ORDERED that respondent’s Motion for Remand is granted, IN THAT this case is remanded to respondent’s Appeals Office for reconsideration of petitioner’s request for a collection alternative and to allow respondent to subsequently issue a supplemental notice of determination or other appropriate notice.

11) Horner, Docket No. 15601‑17 L. Chief Judge Foley.

On July 27, 2018, respondent filed a Motion To Remand. Although the Court directed petitioner to file an Objection, if any, to respondent’s motion, petitioner failed to do so. Upon due consideration, it is

ORDERED that respondent’s Motion To Remand is granted and this case is remanded to respondent’s Appeals Office for further administrative hearing pursuant to I.R.C. section 6330.

12) Ceneviva, Docket No. 19445‑17 L. Chief Judge Foley.

On August 28, 2018, respondent filed a Motion To Remand. In it, respondent states that petitioner has no objection to the granting of the motion. Upon due consideration, it is

ORDERED that respondent’s Motion To Remand is granted and this case is remanded to respondent’s Appeals Office for further administrative hearing pursuant to I.R.C. section 6330 wherein the assigned appeals officer shall consider collection alternatives proposed by petitioner as well as any other issue appropriately raised by petitioner.

13) Jenkins, Docket No. 25422‑17 L. Judge Lauber order of September 10, 2018.

This collection due process (CDP) case is calendared on the Court’s October 22, 2018, Washington, D.C., trial session. On November 8, 2017, the IRS sent petitioner a Final Notice of Intent to Levy and Your Right to a Hearing and petitioner timely requested a CDP hearing. On September 7, 2018, the parties filed a Joint Motion to Remand asking that the case be sent back to the IRS Office of Appeals for a supplemental CDP hearing. Upon due consideration, it is

ORDERED that the parties’ Joint Motion to Remand, filed September 7, 2018, is granted, and this case is remanded to the IRS Office of Appeals for a supplemental CDP hearing.

14) McNeil, Docket No. 19965‑17 L. Judge Thornton.

This case is calendared for trial during the Court’s October 1, 2018, Dallas, Texas, trial session. On September 7, 2018, respondent filed a motion to remand stating therein that petitioners have no objection to the granting of said motion. Upon due consideration, it is

ORDERED: That this case is stricken for trial from the Court’s October 1, 2018, Dallas, Texas, trial session and jurisdiction is retained by the undersigned. It is further

ORDERED: That respondent’s above‑referenced motion to remand is granted and this case is remanded to respondent’s Appeals Office for a supplemental collection due process hearing with a new settlement officer for further consideration.

15) Hodges Legends Café LLC, Docket No. 18317‑16SL. Judge Panuthos.

This case is presently calendared for trial at the Trial Session of the Court scheduled to commence on December 3, 2018, at Atlanta, Georgia. On September 13, 2018, respondent filed a Motion to Remand this case to respondent’s Appeals Office. Premises considered, it is

ORDERED that respondent’s motion to remand is granted and this case is remanded to respondent’s Appeals Office for the purpose of affording petitioner an administrative hearing pursuant to I.R.C. section 6330.

16) Whitesides, Docket No. 17752‑17 L. Judge Kerrigan.

This case is scheduled to be tried at the Court’s session in San Francisco, California, beginning October 29, 2018. On September 28, 2018, respondent filed a motion for continuance and a motion to remand in which it asks the Court to remand this Collection Due Process case to respondent’s Office of Appeals for further consideration. The motions indicate that petitioners do not object to the granting of the motions. Upon due consideration, it is

ORDERED that respondent’s motion for continuance is granted in that this case is stricken for trial from the Court’s trial session beginning October 29, 2018, in San Francisco, California, and that the undersigned judge retains jurisdiction. It is further

ORDERED that respondent’s motion to remand is granted and this case is remanded to respondent’s Office of Appeals for the purposes of affording petitioners an administrative hearing pursuant to I.R.C. section 6330.

17) Russell, Docket No. 7757‑18 L. Judge Vasquez.

Upon due consideration of respondent’s motion to remand, filed September 13, 2018, and respondent’s motion for continuance, filed September 13, 2018, it is

ORDERED that respondent’s motion for continuance is granted in that this case is stricken for trial from the Court’s November 26, 2018, Tampa, Florida, trial session. It is further

ORDERED that respondent’s motion for remand to respondent’s Appeals Office is granted and this case is remanded to respondent’s Appeals Office for further consideration. It is further

ORDERED that respondent shall offer petitioner an administrative hearing at respondent’s Appeals Office located closest to petitioner’s residence (or at such other place as may be mutually agreed upon) at a reasonable and mutually agreed upon date and time, but no later than December 17, 2018.

18) Baxter, Docket No. 950‑18L. Judge Lauber.

This collection due process (CDP) case is calendared on the Court’s October 22, 2018, Washington, D.C. trial session. On September 17, 2018, respondent filed a Motion to Remand asking that the case be sent back to the IRS Office of Appeals for a supplemental CDP hearing. Petitioner does not oppose the motion and we shall grant it. Upon due consideration, it is

ORDERED that the respondent’s Motion to Remand, filed September 17, 2018, is granted, and this case is remanded to the IRS Office of Appeals for a supplemental CDP hearing.

19) Lucas, Docket No. 24611‑17 L. Judge Thornton.

This case is calendared for trial during the Court’s November 26, 2018, New York, New York, trial session. On September 21, 2018, respondent filed a motion to remand and stated therein that petitioner has no objection to the granting of said motion. Upon due consideration, it is

ORDERED: That this case is stricken for trial from the Court’s November 26, 2018, New York, New York, trial session and jurisdiction is retained by the undersigned. It is further

ORDERED: That respondent’s above‑referenced motion to remand is granted and this case is remanded to respondent’s Appeals Office for a supplemental collection due process hearing with a new settlement officer for further consideration.

20) Gibson, Docket No. 20421‑17 L. Judge Halpern.

This case is calendared for trial at the Court’s December 3, 2018, Las Vegas, Nevada trial session. On September 26, 2018, respondent filed a motion to remand. Respondent’s motion advises that petitioner has no objection to the granting of this motion. Upon due consideration, it is

ORDERED that respondent’s motion to remand is granted, and this case is remanded to respondent’s Office of Appeals, at respondent’s Appeals Office located closest to petitioner’s residence (or at such other place as may be mutually agreed upon) at a reasonable and mutually agreed upon date and time, but no later than December 27, 2018, for a supplemental CDP hearing with an appeals settlement officer, for the purpose of considering an offer in compromise or other alternative to collection of petitioner’s unpaid taxes.

21) Monaco, Docket No. 25731‑17 L. Chief Judge Foley.

On August 16, 2018, respondent filed a Motion To Remand. Although the Court directed petitioner to file an Objection, if any, to respondent’s motion, petitioner failed to do so. Upon due consideration, it is

ORDERED that respondent’s Motion To Remand is granted and this case is remanded to respondent’s Appeals Office for further administrative hearing pursuant to I.R.C. section 6330. It is further

ORDERED that the above‑referenced hearing shall take place at a reasonable and mutually agreed upon date and time, but no later than November 28, 2018.

22) Maddox, Docket No. 15184‑17 L. Judge Lauber.

This collection due process (CDP) case is calendared on the Court’s October 22, 2018, Washington, D.C., trial session. On August 20, 2018, respondent filed a Motion to Remand asking that the case be sent back to the IRS Office of Appeals for further consideration. By order dated August 24, 2018, petitioners were directed to file a response to respondent’s motion on or before September 17, 2018.

Petitioners did not respond to that order. Upon due consideration, it is

ORDERED that respondent’s Motion to Remand, filed August 20, 2018, is granted, and this case is remanded to the IRS Office of Appeals for further consideration.

23) Kelly, Docket No. 26941‑17SL. Judge Armen.

This case was called from the calendar for the Trial Session of the Court on September 24, 2018 at Chicago, Illinois. Both parties appeared and filed with the Court a joint Motion For Remand. After due consideration, and for cause more fully appearing in the transcript of the proceedings, it is

ORDERED that the parties’ joint Motion For Remand, filed September 24, 2018, is granted and this case is remanded to respondent’s Office of Appeals in order to conduct a supplemental hearing consistent with the aforementioned motion.

24) And finally there is the case of Johnson and Roberson, Docket No. 22224‑17 L, which was discussed here in the text and comments of the blog post for Designated Orders on October 3, 2018. Judge Gustafson suggested a remand, but petitioners declined, doubting that they would get to first base with the Appeals Office.

 

 

 

 

 

 

 

 

Putting IRS Records at Issue: Proving Supervisory Approval and Receipt of Notice of Deficiency. Designated Orders 9/10/28 – 9/14/18

We welcome designated order blogger Caleb Smith from the University of Minnesota with this week’s discussion of the orders the Tax Court has deemed important. Keith

Taxpayers routinely get into problems when they don’t keep good records. At least in part because of the information imbalance between the IRS and taxpayer, when the IRS reviews a return and says “prove it” the burden is (generally) on the taxpayer to do so. Attempts by the taxpayer to turn the tables on the IRS (“prove you, the IRS, have good reason to challenge my credit, etc.”) are unlikely to succeed.

However, there are areas where demanding the IRS “prove it” can be a winning argument. Not unsurprisingly, these are areas where the information imbalance tips to the IRS -in other words, procedural areas where the IRS would have better knowledge of whether they met their obligations than the taxpayer would. We will dive into two designated orders that deal with these common areas: (1) proving supervisory approval under IRC § 6751, and (2) proving mailing in Collection Due Process (CDP) cases. Because it gives a better glimpse into the horrors of IRS recordkeeping, we’ll start with the CDP case.

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Summary Judgment Haunts the IRS Once More: Johnson & Roberson v. C.I.R., Dkt. # 22224-17L (order here)

Judge Gustafson has tried on numerous occasions to explain what is required for a motion for summary judgment to succeed. Those lessons generally involved motions that failed to fully address relevant legal questions or put forth necessary facts through affidavits, exhibits, and the like.

The IRS motion for summary judgment in this case goes, perhaps, one step further: claiming that facts aren’t “subject to genuine dispute” and, as evidence, attaching documents that seem to prove only that the facts ARE subject to genuine dispute. More on the nature of those documents (and what they say about IRS recordkeeping) in a second. But first, for those keeping score at home, this order also provides a new addition to the list of “signs the judge is not going to rule in your favor”: when the judge finds it necessary to remind a party that they are “responsible for what is asserted in a motion that he signs and files.”

Law students are taught about the potential horrors and responsibilities of FRCP Rule 11. The idea is to imprint upon their mind the responsibilities in making representations to the court, such that Rule 11 will not become something they will need to be reminded of later in practice. A Tax Court judge referencing Rule 33(b) in response to your motion is fairly close to a reminder of that 1L Civil Procedures lecture, and may on its own trigger some unwanted flashbacks.

So what went so horribly wrong in this motion for summary judgment that the IRS needed to be reminded of the “effect of their signature” on that motion? To understand that, we need to first understand what is at issue.

The pro se petitioners in this case wanted to argue their underlying tax liability in the CDP hearing, but were denied the opportunity to do so by Appeals. For present purposes, if the petitioners could show they “did not receive any statutory notice of deficiency (SNOD)” then they can raise the underlying tax as an issue in the CDP hearing. See IRC § 6330(c)(2)(B). Also for present purposes, receiving a SNOD means actual receipt, not just that it was mailed to the last known address.

When a petitioner puts actual receipt of an SNOD at issue in a CDP hearing, the typical song-and-dance is for the IRS to offer evidence that the SNOD was properly mailed to the actual residence of the taxpayer at the time. Since there is a presumption that the USPS does its job (that is, properly delivers the mail), it is usually an uphill battle for the taxpayer to argue “yes, I lived there, but no, I never got that piece of mail” -especially since SNODs are sent certified and refusing to accept the mail is just as good as receiving it. See Sego v. C.I.R., 114 T.C. 604 (2000).

So for this summary judgment motion the IRS basically needs to put out evidence showing that the SNOD was mailed and received by the petitioners, and that the fact of receipt is not subject to genuine dispute. The evidence the IRS puts forth on that point is, shall we say, lacking.

Judge Gustafson immediately finds some issues with the IRS records that, while not proving a lack of mailing, “does not inspire confidence.” First is a dating issue: the SNOD is dated 3/28/2016, but the mailing record only shows a letter (not necessarily the SNOD) going out 3/24/2016 (that is, four days earlier than the SNOD is dated). I don’t put much faith in the dates printed on IRS letters, so this is not particularly surprising to me, but the inconsistency does throw a little doubt on the credibility of the IRS records. Further, Judge Gustafson notes that there is no “certified mail green card bearing a signature of either petitioner” that the IRS can point to.

It seems pretty obvious from the outset that the actual receipt of the SNOD is a fact “subject to genuine dispute.” First, the taxpayers request for a CDP hearing (Form 12153) appears to reflect ignorance of any SNOD being sent. But far, far, more damning are the IRS Appeals CDP records on that point. The “Case Activity Record” speaks for itself:

Dated March 30, 2017: “Tracked certified mail number and found that as of April 16, 2016, the status of the SNOD is still in transit for both taxpayers, therefore, it is determine[d] that the taxpayers did not receive the SNOD.”

There you have it. IRS Appeals has found that there was no receipt of SNOD. The taxpayer is also arguing there was no receipt of SNOD. IRS Counsel is arguing that “petitioners had a prior opportunity to dispute their underlying liability pursuant to the notice of deficiency” and therefore are precluded from raising it in the CDP hearing. With utmost charity, the IRS argument could potentially be saved if it was arguing that there was another opportunity to argue the tax (which, of course, would require other facts). But that is not what is happening.

The IRS motion explicitly asserts (as a fact) receipt of the SNOD by petitioners on March 28. 2016. As evidence of that fact, the IRS attaches “Exhibit 1” and “Rubilotta Declaration, Exhibit D.”

Unfortunately, “Exhibit 1” is just the mailing list (which simply shows a letter being sent four days before the SNOD date, and says nothing about receipt), while “Exhibit D” is apparently just the SNOD itself. Basically, the IRS is trying to get summary judgment against pro se taxpayers based on evidence that, at best, shows that the only thing certain in the matter is that there is a big, genuine issue of material fact. Judge Gustafson is not impressed, finds against the IRS on every point, casually mentions Counsel’s responsibilities vis a vis Rule 33(b), and appears on the verge of remanding to Appeals.

One may read this order as a FRCP Rule 11/Tax Court Rule 33(b) lesson, and the importance of due diligence before the court. It definitely provides a lot to think about on those points. But I would note that IRS Counsel’s follies in this case did not go unassisted. Specifically, IRS Appeals did not do their job. Although the settlement officer (SO) specifically found that the SNOD was not received by the taxpayers, the SO also determined “the taxpayer is precluded from raising the tax liability due to prior opportunity” to argue the tax. That is arguably what led to the taxpayer bringing this petition in the first place. Without SNOD receipt this outcome could conceivably be correct, but it would take more explanation from the SO as to what the prior opportunity was. Instead, the poor record-keeping and poor file review was preserved from Appeals to Counsel, culminating in the rather embarrassing order being issued.

Chai/Graev Ghouls and Recordkeeping: Tribune Media Company v. C.I.R., Dkt. # 20940-16 (order here)

Analysis of the IRS burden of proof in penalty cases, and specifically in proving compliance with IRC § 6751 need not be rehashed here (but can be reviewed here among many other places, for those that need a refresher).  Tribune Media Company doesn’t break any new ground on the issue, but it does provide some practical lessons for both the IRS and private practitioners in litigating IRC § 6751 issues.

The first lesson is one that I suspect the IRS already is in the process of correcting, post-Graev. That lesson is on the value of standardizing penalty approval procedures. The IRS loves standardized forms. This isn’t an arbitrary love: the constraints of the IRS budget and the sheer volume of work that goes into administering the IRC pretty much requires a heavy reliance on standardized forms.

The IRS already has standardized forms that it can and does use for penalty approval, but the Service was likely far more lax in tracking (or actually using) those forms pre-Graev. And although Graev/IRC § 6751 does not require a specific “form” as proof of supervisory approval (it simply must be written approval), things can get needlessly complicated if you draw outside the lines. Tribune Media Company demonstrates this well.

As a (presumably) complicated partnership case, there were numerous IRS employees assigned to Tribune Media Company at the audit stage. At the outset there was both a revenue agent and an attorney from local IRS counsel assigned to assist the revenue agent. Both of these parties, apparently, came to the determination that a penalty should be applied, and both received oral approval from their separate immediate supervisors before issuing the notice of proposed adjustment.

Of course, oral approval of the penalty is not enough. So the IRS has to provide something more… What would usually, or hopefully, be a readily available and standardized penalty approval form. Only that form does not appear to exist in this case. The IRS tries to comply with Tribune Media Company requests for documents showing supervisory approval largely through memoranda of the supervisor, email chains and handwritten notes (pertaining to the penalties, one assumes). But these “irregular approvals” aren’t good enough for Tribune Media Company… so formal discovery requests ensue.

Which leads to the second lesson: don’t expect success when you ask the Court to “look behind” IRS documents.

Judge Buch’s order does a good job of detailing the standards of discovery in tax court litigation. Generally, the scope of discoverable information in Tax Court Rule 70(b) is not significantly different from the Rules of Federal Civil Procedure. However, because the Tax Court will not examine “the propriety of the Commissioner’s administrative policy or procedure underlying his penalty determinations” (see Raifman v. C.I.R., T.C. Memo. 2018-101), any discovery requests that could only be used to “look behind” the IRS determination will be shot down.

So when Tribune Media Company requests documents (1) “related to the Commissioner’s consideration, determination, or approval of penalties” and (2) “all forms, checklists, or other documents” the IRS generally uses for memorializing penalty approval they are going a step too far. The IRS has to provide proof of written supervisory approval for the penalties. Full stop. They do not have to provide any detail on the reasoning that went into the penalties, or (arguably) what the typical approval documents would be in this sort of case. (I wonder about this latter issue, as it seems to me it could properly be used by Tribune Media Company for impeachment purposes).

In the end, there appears to me some irony to the Tribune Media Company case. It seems highly likely that there was supervisory penalty approval, or at least a reasoned process leading to the penalty determination. The IRS is better off from a litigating perspective, however, streamlining penalty determination with rubber stamp (or worse, “automated”) approval on standardized forms.

I understand the Congressional desire to keep the IRS from using penalties as “bargaining chips,” but am not convinced that “written supervisory approval” really does much to advance that goal. What I am more worried about, especially in working with low-income taxpayers, is when accuracy penalties are more-or-less arbitrarily tacked on to liabilities in ways that do nothing to help compliance. In those cases, at least with the proper training, I think that supervisory approval could actually result in reducing the number of ill-advised penalties -they aren’t really being proposed as “bargaining chips” in the first place. Instead you have what increasingly looks like a bad-actor loophole -one which may, depending on how things develop with IRC § 6751(b)(2)(B) as applied to AUR, not even be available for the most vulnerable and least culpable taxpayers.

Odds and Ends: Other Designated Orders.

Two other designated orders were issued which will not be discussed. One fits the usual narrative of taxpayers losing in CDP when they do not participate in the CDP hearing, or do much of anything other than file a timely tax court petition (found here). The other provides a quick-and-dirty primer on IRC 351 transfers, and easily disposes the matter in favor of the IRS (found here).

 

 

Designated Orders 9/3/18 to 9/7/18: A Plea Agreement, a Follow-up, and More Graev

We welcome designated order guest blogger William Schmidt from the Legal Aid Society of Kansas who writes on this week’s designated orders. In the first case petitioners make an argument that has been made before and failed. It fails again because their agreement in the criminal case about the scope of prosecution does not prohibit the IRS from pursuing them to determine their correct civil tax liability. Keith

For the week of September 3 to 7, there were 6 designated orders from the Tax Court. The first two are regarding two separate petitioners requesting to consolidate their cases and filing motions for summary judgment based on a plea agreement from prior litigation. The next 2 are a pair of orders that follow up from a previous posting (March). There is another Graev follow-up case. The final order, here, deals with a Collection Due Process hearing where petitioners question why they were audited for a home office expense when they were not audited in prior years.

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The Plea Agreement Does Not Cover Tax Court

Docket No. 22616-17, Krystina L. Szabo v. C.I.R., available here.

Docket No. 22560-17, Michael P. Martin v. C.I.R., available here.

This pair of Tax Court designated orders for a married couple are very similar, but distinct. In fact, the cases have so much in common, the couple filed motions to consolidate their cases, but those motions are denied.

Both petitioners were responsible for the daily activities of Pony Express Services, LLC. The company provided foster care and related services to persons with mental handicaps in western Virginia and maintained and operated three group homes there. Mr. Martin was the owner while Ms. Szabo was an employee and program manager.

In December 2006, the U.S. Attorney for the Western District of Virginia filed charges against the couple for conspiracy to defraud Medicare, Medicaid and the IRS. Among the charges were that the object of the conspiracy was to enrich the couple by falsely and fraudulently billing Medicaid for residential services not rendered and services not provided in the manner envisioned and required by Medicaid, plus maximizing the couple’s proceeds by utilizing what is called the foster home tax credit [actually referring to IRC section 131] when falsely informing their accountant they resided separately in two of the residential facilities.

The couple filed a plea agreement, acknowledged by the assistant U.S. attorney, in the U.S. District Court for the Western District of Virginia. Within the plea agreement, it states there will be no further prosecution regarding the couple in the Western District of Virginia. The plea agreement is limited to the Western District of Virginia. The plea agreement does not address potential civil tax liabilities or agreements regarding those liabilities. Ms. Szabo and Mr. Martin were each sentenced to 27 months imprisonment and three years of supervised release and paid a joint and several restitution to the U.S. Department of Medical Assistance Services of $173,174.65. They satisfied the judgment.

In separate notices of deficiency to Ms. Szabo and Mr. Martin, dated August 2, 2017, the IRS determined separate liabilities and penalties for each of them regarding tax years 2003 and 2004. The parties timely filed their separate petitions with Tax Court.

Each party filed a separate motion for summary judgment, contending that the plea agreement prevents the IRS from civilly determining, assessing or collecting the deficiencies in income tax or penalties for 2003 and 2004. They also contend that the government did not preserve its rights to pursue the criminal defendants for tax assessments and penalties after the entry of criminal judgment. Even though Mr. Martin’s motion was filed prematurely, the Court determined that it would be refiled anyway so chose to proceed on a substantive basis on his motion.

The Court determined that the plea agreement did not address the civil assessment and collection of taxes and does not bar the IRS from proceeding civilly. The plea agreement does not prevent the IRS from its determination, assessment or collection of tax, penalties, and additions to tax for the years at issue. The Court denied the motions for summary judgment of both petitioners.

Regarding the motions to consolidate, the Court admits the cases have much in common. The Court states the decision for consolidation is best left to the discretion of the trial judge. The Court denied the motions to consolidate without prejudice to the petitioners, allowing them the chance to refile the motions when calendared for trial.

Takeaway: I am not sure whether the petitioners believed their plea agreement would apply to the IRS or United States Tax Court or they were taking a chance on that legal argument, but I would suggest being more familiar with documents like the plea agreement in question before arguing that it is a document controlling for the IRS or the United States Tax Court.

Followup for Ms. March

Docket No. 6161-17 L, Debra L. March v. C.I.R.

I previously wrote about Ms. March regarding Tax Court designated orders here. While the first order there had the issue of how the IRS could reinstate an assessment after potentially being abated, the other order concerned a motion to show cause. Both of the orders this week follow up on that order on the motion to show cause.

Ms. March did not file her tax returns for 2009 and 2010. The IRS audited her for not reporting her income, assessed tax and filed notices of lien against her. She requested a collection due process hearing before IRS Appeals. Appeals issued a notice of determination sustaining the lien filings. Ms. March petitioned Tax Court and the IRS proposed facts and evidence be established as provided in Rule 91(f). They filed a motion for an order to show cause on August 8, 2018. The Tax Court granted the motion by an order on August 10, 2018.

As of this order, Ms. March did not file a response in compliance with the Court’s August 10 order. Instead, she mailed to the Court a document entitled “Amended Petition,” received August 29, 2018. The document does not respond or refer to the proposed stipulation, but alleges defects in how the IRS handled her case.

Since an amended petition cannot be filed as a matter of course, but only by order of the Court in response to a motion for leave in Rule 41(a) (which Ms. March did not file), the Court ordered that it was to be filed as a response to the order to show cause.

The Court orders that the order to show cause is absolute, deeming the facts stipulated regarding her receipt of income and non-filing of the tax returns. She does have the ability to move to be relieved from the deemed stipulations at trial, but would need to present proof of contrary facts.

Her filing stated, “The IRS did not read or address the issues I brought up in my letters about IRS’ failure to issue and mail valid Notices of Deficiency to me.” The Court is unsure whether this statement means that she believes the IRS did not issue valid notices of deficiency or whether she did not receive those notices. As stated above, she would be able to make these arguments at trial but would need to show evidence.

In the Court’s order, it provides that Ms. March is welcome to contact the Chambers Administrator to schedule a telephone conference with the Court and the IRS.

The Court received filings from Ms. March on September 4, 2018, deemed to be a motion for reconsideration of the order above (dated August 31), making absolute the August 10 order to show cause, and a declaration in support of that motion.

Even though Ms. March was a day late in her response, the Court exercised its discretion to treat it as a motion for reconsideration under Rule 161 and addressed its merits. She does not address the issues of her receipt of income or non-filing of returns. Instead, she criticizes how the IRS handled her case and argues that the Tax Court review is limited to the administrative record in a collection due process case (citing Robinette v. Commissioner, an 8th Circuit case).

The Court’s view is that it is not confined to the administrative record in collection due process cases, especially when the case involves a challenge to the underlying liability, pursuant to IRC section 6330(c)(2)(B), resembling a more typical deficiency case. In this instance, the Court of Appeals for the 10th Circuit is the appellate court with jurisdiction (not the 8th Circuit), but the 10th Circuit has not spoken on the issue. Ms. March citied Olenhouse v. Commodity Credit Corp., which is a 10th Circuit case, but it is not a collection due process case, does not relate to tax, and was decided before IRC section 6330 was enacted.

While the Court does not address whether 6330(c)(2)(B) prevents Ms. March from challenging her underlying liability as the IRS states she had a prior “opportunity to dispute such tax liability,” the Court states both parties are permitted to provide evidence outside the administrative record.

As Ms. March did not respond to the proposed stipulations from the IRS, the Court did not vacate the order making the order to show cause absolute and the deemed stipulations still stand.

Additionally, Ms. March explains that she has health problems that would make it difficult for her to appear at trial. She would like the case to be fully stipulated and decided pursuant to Rule 122. She also suggests that the contents of the administrative record be stipulated. The Court does not agree the stipulation should be limited to the administrative record, but encourages the parties to attempt a comprehensive stipulation for the case under Rule 122. That is not an order as the case was not submitted that way yet, but will be addressed if presented that way later. Again, the Court encourages the parties to schedule a telephone conference.

Takeaway: Ms. March has some sophistication as a litigation since she is citing case law. However, her lack of responsiveness to the IRS and the Court do not help her case. Perhaps she was able to address these issues or deal with the stipulations under Rule 122 in time before her September trial date.

More Graev Fallout

Docket Nos. 23621-15 and 23647-15, Nathaniel A. Carter & Stella C. Carter, et al., v. C.I.R., (consolidated cases) available here.

Here are more cases affected by Graev v. Commissioner. The Carters have deficiencies and penalties for 2011 through 2013 while Mr. Evans has deficiencies and penalties for 2011 and 2012.

The Graev decision allowed for Court interpretation of IRC section 6751(b)(1). Specifically, the case held the IRS has a burden of production under section 7491(c) showing compliance with supervisory approval as required under 6751(b). Since the petitioners in these cases would be affected by section 6662 accuracy-related penalties, the IRS filed its motion to reopen the record to admit evidence to establish that the 6751(b)(1) requirements for supervisory approval have been met.

The factors the Court has to examine to determine whether to reopen a record are the timeliness of the motion, the character of the testimony to be offered, the effect of granting the motion, and the reasonableness of the request. The third factor, the effect of granting the motion, is the most relevant.

The IRS seeks to reopen the record to admit declarations of Donald Maclennan, a Supervisory Internal Revenue Agent, and a separate Civil Penalty Approval Form in each case. The petitioners object, stating the exhibits contain inadmissible hearsay. Additionally, one Civil Penalty Approval Form shows a printed date in April 2014, more than a year earlier than Mr. Maclennan’s signature block in May 2015. The two forms call for a signature but show only his printed name. Each of the forms lack justification for his approval.

The Court finds that the forms fall under the exception to the hearsay rule for records of a regularly conducted activity and the declarations fit into evidence that is self-authenticating. The Court admits that the lack of signatures on the forms will go to the weight of the evidence, but are not part of the hearsay evaluation. They show approval by a “Group Manager” and do not explicitly indicate the manager was an “immediate supervisor,” as required under 6751(b)(1). The forms lack evidence of facts necessary for the IRS to meet the required burden. The declarations are meant to bolster the forms but the Court determines that the IRS cannot rely on the declarations for purposes of meeting the burden of production to show the “immediate supervisor” approved the penalty determinations.

Having determined to open the record to allow the IRS to offer evidence that the 6751(b)(1) requirements are satisfied, the Court is allowing the IRS the opportunity to offer admissible evidence or make argument to show the requisite managerial approval. The petitioners have 30 days to conduct discovery regarding whether Mr. Maclennan was Mr. Dickerson’s immediate supervisor (as part of meeting the requirements). The parties may stipulate if they agree by filing a supplemental stipulation of facts. If they do not, either party may move for a supplementary evidentiary hearing to introduce evidence. The IRS may make further argument there are grounds sufficient for the Court to infer Mr. Maclennan’s supervisory status.

The Court grants the IRS motion and received the forms into evidence and the declarations are received into evidence as supporting documents for the forms. The petitioners are ordered to have 30 days to conduct discovery. Either party may move for a supplemental hearing on or before October 9. If neither party requests that hearing, petitioners have until October 19 to notify the court regarding their argument as to Mr. Maclennan’s supervisory role. If notifying the Court, they have until November 9 to file a memorandum of law making that argument.

Takeaway: From my observation, the IRS seemed to be broadly winning the arguments that they met the factors needed to reopen the record to admit evidence in prior cases. In this case, both parties are providing evidence that the Court will evaluate. I think this a balanced approach to weighing the factors regarding reopening the record in a Tax Court case affected by Graev.

 

 

Designated Orders for the week of August 27, 2018: A Pause for Coffey, a New Flavor of Chai, and the Court and Technology.

Professor Samantha Galvin from University of Denver’s Sturm School of Law brings us this week’s designated orders.  Keith

The week of August 27th was light, in typical pre-holiday week fashion, with a total of five orders designated. The two orders not discussed involve: 1) the final decision on a petitioner’s request to dismiss his case without prejudice (a case Patrick Thomas previously blogged about) (here), and 2) an order to show cause for the non-imposition of a section 6673(a)(1) penalty (here).

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A Pause for Coffey

Docket No: 7976-14, Bradley A. Hite v. C.I.R. (Order here)

The Tax Court’s opinion in Coffey v. Commissioner issued earlier this year held that U.S. Virgin Island (“USVI”) territorial income tax returns submitted to an IRS office constitute the filing of a federal income tax return and start the clock on the assessment statute under section 6051(a). Patrick Thomas also blogged about two orders that were recently designated as part of the Coffey case here and here and the Coffey case was covered by Kandyce Korotky and Joe DiRuzzo (if interested, see links in Patrick’s first post).

In this designated order the Court contemplates granting respondent’s Motion for Leave to File Out of Time First Amendment to Answer in a case involving USVI returns. The case itself involves a question of whether petitioner’s 2002 and 2003 USVI territorial tax returns should be treated as filed with the IRS.  Petitioner had initially alleged that his USVI territorial tax returns should be treated as federal income tax returns for purpose of the assessment statute but did not allege that he had actually filed the returns at issue with the IRS. Petitioner later admitted in a reply to respondent’s answer that he did not file the returns at issue with the IRS.

In response to petitioner’s statements and the decision in Coffey, respondent wants to amend his answer to clarify that if the returns are treated as filed with the IRS, then the January 2014 notice of deficiency was sent before the expiration of the assessment statute under section 6501(a) and the parties executed agreements to extend the assessment statute under section 6501(c)(4). It is a little difficult to discern from the order itself but it appears the reason for this is that even though petitioner admitted to not filing a return with the IRS, if his filing with the Virgin Islands Bureau of Internal Revenue (“VIBIR”) is somehow treated as a filing with the IRS then respondent wants to make it clear that the ASED did not expire before the notice of deficiency was issued.

Pursuant to Rule 41(a) a party can amend a pleading only by leave of Court or by written consent of the adverse party, and leave shall be given freely when justice so requires. The Court looks to the underlying circumstances including whether there is a reason for the delay and whether the opposing party would be harmed if the motion to amend was granted.

Here the Court looks to petitioner’s statements and its recent decision in Coffey and finds that respondent’s delay in seeking to amend his answer is understandable. Petitioner’s counsel also concedes that since the case has not been set for trial, allowing respondent to amend his answer will not prejudice petitioner so the Court grants respondent’s motion.

A New Flavor of Chai

Docket Nos: 14619-10, 14687-10, 7527-12, 9921-12, 9922-12, 9977-12, 30196-14, 31483-15, Ernest S. Ryder & Associates, Inc., APLC, et al. v. C.I.R. (Order here) 

“This species [of Chai ghoul] involves documentation that we have not seen the Commissioner offer in any other case,” states Judge Holmes in this designated order. I wrote on this case in my April 5, 2018 designated order post and another designated order for this case (which I did not write about) was issued during my last “on” week, but this order deserves some attention.

The cases were tried in two special trial sessions in 2016 and involve all sorts of taxpayers: C Corporations, a TEFRA partnership, and individuals. In all but two of the cases, the IRS asserted accuracy-related and/or fraud penalties.

The parties are now in the briefing process, but respondent has moved for the Court to reopen the record to allow in evidence that shows compliance with section 6751(b)(1) for some of the penalties. Petitioners object to this motion.

The motion is only for penalties asserted against the Ryders individually because respondent’s position is that he doesn’t have the burden to show compliance with section 6751(b)(1) for penalties asserted against a C Corporations and TEFRA partnerships.

The Court outlines the timeline in which that IRS proposed deficiencies and accuracy-related penalties in three separate deficiency notices issued to the Ryders for tax years 2002-2010. The IRS did not propose any section 6663 fraud penalties in any of the deficiency notices but raised the fraud penalties for all years in amended answers on March 21, 2016.

At trial in July and August of 2016, no evidence was raised as to respondent’s compliance with section 6751(b)(1) for the accuracy-related or fraud penalties and the parties did not stipulate to compliance. Then came Graev II and Chai and respondent still did not mention compliance with section 6751(b)(1) in his opening seriatim brief nor amended opening seriatim brief. Then the Court adopted Chai as its own in Graev III.

Due to the complexity of the cases and respondent’s very long opening brief, the Court granted petitioners more time to file their answering brief on three separate occasions, and during this time, the respondent moved to reopen the record.

The Court ponders whether it should reopen the record to admit respondent’s evidence against petitioner’s objection. Petitioner argues that respondent cannot use ignorance of the law as a defense and respondent was aware that section 6751(b)(1) would be an issue, so failure to introduce evidence beforehand shows a lack of diligence. Petitioners also argue that reopening the record would cause them prejudice because do not have a chance to cross-examine the IRS employees who made declarations about the evidence respondent now seeks to admit.

The decision to reopen the record is within the Court’s discretion, but that discretion is not limitless, so the Court evaluates each item.

First is an examination case processing sheet. Respondent has sought to admit penalty approval forms in other post-Graev III cases, and some have been admitted under the business records exception or as a verbal act to show a supervisor approved the penalty (and specifically not used to determine whether the penalty was justified or what the supervisor was thinking when it was approved). The Court does not think the business record or verbal-act analysis applies to the examination case processing sheet because the document itself does not indicate that a supervisor approved the initial determination of penalties. The case processing sheet needs an accompanying declaration from revenue agent, Ms. Phan, (which respondent also seeks to admit, but the Court finds is inadmissible hearsay) to make sense of it.

Second is several documents that allegedly support the section 6663 fraud penalty, the documents consists of: an email with an attached amendment to answer raising fraud, a redacted Significant Case Report, a 2016 employee evaluation, and a declaration from a different IRS employee explaining the significance of these documents.

The Court finds these documents are also inadmissible because they mean nothing without an explanation, and again, finds the IRS employee’s declaration to be inadmissible hearsay.

The Court declines to evaluate whether respondent was diligent or whether admitting the evidence would prejudice the petitioners because it finds that IRS has not shown that admitting this evidence would change the outcome of the case and denies respondent’s amended motion to reopen the record.

Technology Helps the Court

Docket No. 27759-15, George E. Joseph v. C.I.R. (Order here)

The Court has been slow to adopt technological advances and highlights the helpfulness of petitioner providing the cutting-edge technology (sarcasm intended) of a thumb drive containing his brief and exhibits in this designated order.

Petitioner filed a seriatim brief with the Court along with five files containing exhibits, but also mailed the Court a thumb drive containing an electronic version of his brief with hyperlinks to the exhibit files. The Court finds the thumb drive and hyperlinks to be helpful to all involved, but respondent has some objections. Some of the exhibits on the thumb drive are not in the record of the case and other exhibits (which are in the record of the case) contain notations that are not on the original exhibits.

The Court allows petitioner leave to file an amended brief without exhibits and provide a thumb drive with the exhibits that were actually received into evidence. It orders, among other things, that the files not received into evidence be deemed stricken from the case and that the thumb drive be returned to petitioner.