A Procedural Goldmine

Every once in a while a case comes along with a host of procedural issues.  Of course when the case has been open in the Tax Court for more than a decade, it has better chances for this to happen.  In the consolidated cases of Dollarhide Enterprises, Inc. v. Commissioner, Dk. Nos. 23113-12, 23139-12 & 21366-14, Judge Holmes brings us this procedural feast in an order.  Here is his description:

But we write at greater length because of the unusual circumstances that have caused the oldest of these cases to enter its second decade of litigation without there ever having been a trial. Along the way, these cases have brought to light potentially important circuit splits on a couple questions of great significance to those who follow tax procedure: (1) under what conditions can parties to a Tax Court proceeding make a binding settlement of the issues in the case without agreeing on the computations needed to enter a final determination and (2) what it means to file a return.

We have written before on the issue of when parties in a Tax Court case have entered into a binding settlement (here – discussing the 9th Circuit decision in Dollarhide, here, here and here) and on the issue of what is a properly filed return – here.  Dollarhide provides an opportunity to visit both issues again.


As Judge Holmes explains in the opinion, the first two dockets were scheduled for trial in 2014 – a normal time frame for the first scheduled trial.  Due to the filing of the third petition, the cases were continued with required status reports.  In 2016 the parties reported that they had reached a settlement.

Their settlement did not take the form of an agreed decision for each of the three cases, but instead a “stipulation of settled issues.” This is an exceptionally common way for parties to wind down litigation in the Court. Because tax returns and notices of deficiency can include so many disputed items, settlements often consist of lists of issues in which the parties make mutual concessions or compromises. A taxpayer’s final bill — the amount he has to write a check for — is usually harder to figure out. The calculation often includes a computation of interest, arithmetic adjustments to other items (e.g. limits on deductibility computed by reference to a percentage of adjusted gross income), and a summing of penalties and additions to tax computed as a percentage of the resulting deficiency, reduced by any allowable credits.

The problem in this case arose because the agreement between the IRS and the Dollarhides had a different meaning for each party.  The Court’s description of the agreement states:

the Commissioner and the Dollarhides agreed to accept the “income, deductions, exemptions, and credits” on returns that the Dollarhides submitted in 2011 during the course of their audit for their 2006 and 2007 tax years. The Commission[er] also conceded that Dollarhide Enterprises had no tax deficiency at all.

To the IRS this agreement meant the Dollarhides would receive the credits they reported on their late filed 2006 return as the IRS computed the liability.  The IRS, however, did not view this settlement as a concession on the timeliness of the claim for the credits. To the Dollarhides this language meant they would actually receive the refunds their returns generated.  While it’s not necessary in a stipulation of settled issues to discuss statute of limitations issues, the failure to do so here created a huge chasm in the understanding of the agreement.  Once it became clear to the Dollarhides that the agreement they thought they reached with the IRS did not include the IRS actually paying them a refund, they balked on following through.  As is normal anytime there is a stipulation of settled issues and one party tries to back out, the other party usually moves forward to ask the Court to enforce the agreement.  The Court notes:

The Commissioner finally moved in December 2017 for entry of decision. This is, again, an extremely common motion in our Court that parties use to set up for decision disputes about the computation of a final deficiency once they’ve agreed on settlement of all the individual issues.

The Court ruled for the IRS on its Rule 162 motion.  The Dollarhides were unhappy with this result and said they would never have agreed if they had understood that it meant they did not receive their refunds.  Judge Holmes quoted from the Court’s earlier opinion:

In ruling on Rule 162 motions, we look to Federal Rule of Civil Procedure 60. See, e.g., Etter v. Commissioner, 61 TCM 1772, 1773 (1991). FRCP Rule 60(b) is the rule that’s applicable here, and the Dollarhides point us to FRCP 60(b)(3) which requires a showing of “fraud (whether previously called intrinsic or extrinsic), misrepresentation, or misconduct by an opposing party.” The fraud or other misconduct that the Dollarhides argue the Commissioner engaged in is not telling them about the legal requirement that they had only three years from the due date of their 2006 tax return to file a claim for refund of any overpayment.

The Court notes that the Dollarhides could have done the research to figure out that their late filing would result in the loss of the refund based on withholding credits; however, that’s when the second procedural issue in the case enters the scene.  Judge Holmes again quoted from the earlier opinion:

The Dollarhides do also complain that the only reason that they didn’t file their 2006 tax return within three years of its due date is that the revenue agent examining that year insisted that they submit it to her.

The plot thickens.  Now petitioners have linked their understanding of the settlement to another procedural issue recently exposed in the 9th Circuit’s decision in Seaview Trading discussed here.  In Seaview Trading the 9th Circuit held that giving a tax return to an IRS agent who requested the return constituted the filing of the return.  The Dollarhides claim they also gave their return for the year at issue to someone at the IRS within three years of the due date of the return.  If giving the return to a person at the IRS happened within that time period and if that act constituted the filing of their return, then they had a reason for expecting a refund based on the terms of the stipulation of settled issues.

The Court also pointed out that the 9th Circuit failed to address a number of issues present in the appeal leaving the Tax Court to wonder what the appeals court intended with respect to issues not addressed.  With this background of an incomplete stipulation of settled issues, an unclear filing of the return and unanswered questions from the appeal, the Tax Court proceeds to discuss and decide the case.

Partial Stipulation

The Tax Court notes that it has dealt with partial stipulations previously and held that they create a binding agreement.

The first problem that these cases present then is whether our Court can continue to maintain its longstanding custom of enforcing partial settlements, disposing of any remaining disputes about computations with Rule 155 submissions, and then entering final decisions.

Is a stipulation of settled issues in the absence of a stipulation of decision enforceable?

We ourselves have held for many years that it is. Our leading case on the subject is from 1988, Stamm International Corp. v. Commissioner, 90 T.C. 315. In that case, as in the Dollarhides’ cases, the parties settled on an issue-by-issue basis. When they couldn’t agree on the final, bottom-line amount, the Commissioner tried to get out of the settlement on the ground that he thought the bottom-line amount should be much higher and when agreeing to the offer, neither he, nor the IRS’s lawyer had contemplated a Code section that the taxpayer established, would result in a much lower settlement. Stamm Int’l, 90 T.C. at 319.

Judge Holmes points out that Stamm is not the only case where the parties reached a partial settlement that had a different tax result than anticipated yet the Tax Court found the settlement binding.  The Fourth Circuit endorsed this practice in Korangyi v. Comm’r, 893 F.2d 69, 72 (4th Cir. 1990).

The first crack in this consensus came only in 2015. In a per curiam opinion from the Seventh Circuit, that court held that it was error for us to grant the Commissioner’s motion for entry of decision when the parties had settled all the individual issues but disagreed about the bottom-line number: “The Stipulation of Settled Issues . . . says nothing about the key issue in the case: the deficiency amounts for the tax years in question. Indeed, the Stipulation of Settled Issues does not even specify a method for determining the deficiency amounts.” Shah v. Comm’r, 790 F.3d 767, 770 (7th Cir. 2015).   

So, now there is a circuit split with the 7th and 9th Circuit declining to uphold stipulations of settled issues that do not lay out the final consequences of the settlement while the Tax Court and the 4th Circuit would enforce settlements on the issues without a discussion of the bottom line impact.

Return Filing

Judge Holmes notes that the issue of return filing was well settled before the recent 9th Circuit decision in Seaview Trading.

A return was “filed” only if it was delivered to the specific individuals identified by the Code or regulations. Allnutt v. Comm’r, 523 F.3d 406, 412-13 (4th Cir. 2008); see e.g. Coffey v. Comm’r, 987 F.3d 808, 812 (8th Cir. 2021) (quoting Comm’r v. Estate of Sanders, 834 F.3d 1269, 1274 (11th Cir. 2016)) (holding that for a return to be filled, it must be delivered to the individual specified in the Code or Regulations); Heard v. Comm’r, 269 F.2d 911, 913 (3d Cir. 1959) (holding that filing only occurs when the paper is received by the proper official). Thus, a taxpayer who sent his return to the wrong IRS service center would not have “filed” his return until it showed up at the right service center. Winnett v. Comm’r, 96 T.C. 802, 808 (1991).

He calls this an area ripe for much additional litigation.  He does not mention that the IRS was so unhappy with the decision in Seaview Trading that it has requested en banc review in the 9th Circuit which request is still pending.

Meaning of 9th Circuit Decision

Judge Holmes notes that the 9th Circuit did not address all of the issues in the case.  Specifically, it did not mention the 2007 individual case.  Because the Tax Court’s decision in that case occurred years ago, Judge Holmes questions whether he can vacate the earlier decision even though both parties urge that result.  He decides that

There is no statute, regulation, or useful precedent that either the parties or we can find. It is, however, the general rule that “an inferior court has no power or authority to deviate from the mandate issued by an appellate court.” Briggs v. Pa. R. Co., 334 U.S. 304, 306 (1948). We will therefore assume that we do have the power to vacate a prior decision and enter a new one in accord with the parties’ agreement in this situation. To do so doesn’t deviate from the mandate in these cases. And it will, one hopes, bring these cases to an end. Or at least allow the entry of decisions that neither party will have standing to appeal.

After making this decision he enters a series of orders and a decision.  Maybe this is the end of the case or maybe the Dollarhides will continue to provide a basis for those interested in tax procedure to learn.

Things are Different at the Government

Everyone graduating from law school these days must take a course in legal ethics aka professional responsibility.  State bars also require persons seeking admittance to take a standardized test designed to ensure that those entering the profession have the requisite knowledge of the ethical rules that govern legal practice. 

In 2007 when I was retiring from the Office of Chief Counsel, IRS and beginning to teach at Villanova, the law school wanted me to become a member of the Pennsylvania bar.  Thankfully, Pennsylvania allowed members of the Virginia bar with the requisite number of years of practice to waive into the bar; however, they stopped my application because I had not passed the ethics exam.  I pointed out to them that when I joined the bar in 1977 there was no ethics exam.  I politely inquired if, given my age and length of service, I might be grandfathered in without need to take this standardized test.  The bar examiners politely let me know I needed to take the test.  So, shortly before retiring from federal service, I sat in a room filled with people 30 years younger than me who no doubt wondered what ethical lapses had caused this very old person to take the test.  Thankfully, I passed.

One of the ethical rules, Rule 1.4(2) of the ABA model rules, concerns settlement and the requirement that an attorney must bring a settlement offer to the client.  The ethical rules prevent the attorney from simply rejecting the settlement because the attorney does not like it.  In Delponte v. Commissioner, 158 T.C. No. 7 (2022), the Tax Court explains how that rule does not apply to the attorneys in the Office of Chief Counsel handling an innocent spouse case.  Taking it from the innocent spouse issue to the broader issue of cases handled by Chief Counsel, the rule does not apply to any of the cases in Tax Court nor does it apply to the Department of Justice Tax Division attorneys.  Once a case moves into the office of Chief Counsel or DOJ Tax Division, the attorneys are in the driver’s seat in deciding when to settle.   While they may consult with their client at the IRS, the relationship of the government attorney to its client differs dramatically from the relationship of the attorney in private practice to the client.  This proves unfortunate for Ms. Delponte.


The case goes back to years from two decades ago.  The Tax Court docket numbers, of which there are five, go back to 2005.  Way back when, Ms. Delponte was married to Mr. Goddard who the Court described as “a lawyer who sold exceptionally aggressive tax-avoidance strategies with his business
partner David Greenberg and became very wealthy in the process.”  Mr. Goddard not only sold aggressive tax shelters, he also invested in them.  The IRS examined his returns, which were joint returns with Ms. Delponte, and proposed huge liabilities.

Ms. Delponte’s involvement in the Tax Court cases provides an interesting procedural sidelight.  The notices of deficiency were sent to Mr. Goddard’s law office years after the parties had split.  Mr. Goddard filed several Tax Court petitions as joint petitions without consulting or notifying Ms. Delponte.  Even though he filed the petitions in years 2005 through 2009, she did not become aware of the petitions until November of 2010.  At that  point she ratified the petitions.  Allowing her to ratify the petitions and be treated as if she timely filed them is an interesting feature of Tax Court jurisdiction.

The Tax Court, and the IRS, would not have known that she did not agree to the filing of the joint petition.  The IRS would have held off making an assessment against her, thinking that doing so would violate IRC 6213.  By putting her name on the petition even without her permission, Mr. Goddard not only suspended the statute of limitations on assessment for her liability but also preserved for her the opportunity to accept or reject the Tax Court case over five years after its filing.  You can see the awkward position this puts everyone in.  Yet, in many ways this works to the unknowing spouse’s advantage since it preserves the right to litigate in a prepayment forum.  The suspension of the statute of limitations on assessment is the downside of this action on the unwitting spouse.

Mr. Goddard not only filed joint petitions but he also listed her as an innocent spouse.  I do not know why in the five years between 2005 and 2010 the case had not progressed to a point that someone at Chief Counsel had pressed on the innocent spouse issue in a Branerton conference or otherwise, but at the point when she came fully into the case nothing seemed to have occurred regarding the innocent spouse defense. 

When you raise an innocent spouse defense in a deficiency case, the Chief Counsel attorneys ask that you complete a Form 8857, the innocent spouse relief form, and they send the form off for review by the innocent spouse unit of the IRS located in Covington, Kentucky.  This finally happened in Ms. Delponte’s case in April of 2011 only six years after the filing of the first petition in the case.

The Court points out that when Chief Counsel refers the case to the innocent spouse unit it requests that the unit not issue a determination letter as it would do if the request had arrived outside of a Tax Court deficiency proceeding but rather that the innocent spouse unit simply provide the results of its review to the attorney handling the deficiency case.  Here the innocent spouse unit reviewed the submission and determined that Ms. Delponte met the criteria for relief.

At the Harvard Tax Clinic we handle quite a few innocent spouse cases.  We submit what we believe are good applications but receive a favorable determination from the innocent spouse unit on a distinct minority of cases.  We usually gain relief from Appeals or from Chief Counsel. So, the fact that this unit granted Ms. Delponte relief in no way reflects that her success at this stage was routine.  Nonetheless, the Chief Counsel attorney did not accept the advice of its client and pressed forward with the innocent spouse case.

So, unlike an attorney in private practice who would be bound by the decision of its client, the government attorney is not so bound.  Ms. Delponte disagreed with the refusal of Chief Counsel to accept the decision made by its client that she met the criteria for relief.  She refused to meet with the Chief Counsel attorney to discuss the case, arguing that the additional information it sought “would be superfluous because CCISO (the innocent spouse unit) had already decided she was entitled to relief and its decision was binding on Chief Counsel.”

Because she would not meet, her innocent spouse status remained unresolved while the deficiency case moved forward, ultimately resulting in a large deficiency determination that was upheld on appeal.  Once the underlying tax issue was complete, the Court turned back to her innocent spouse request. The next post on this case will discuss how the Tax Court came to the conclusion that Chief Counsel’s office could ignore the decision of its client and what happened on the merits of the innocent spouse relief request.

Who Settles Cases – Appeals or Counsel (and Why?)

One of the many interesting charts in the National Taxpayer Advocate’s 2021 annual report displays who settled the case before Tax Court trial, Appeals or Counsel.  The trends are not good for Appeals.  They show that more and more settlements occur at Counsel.  What the chart does not show is why.  I would be very interested in a study of the cases that settled at Counsel and why they settled there instead of Appeals.  I suspect the Chief Counsel would be interested in this as well as it reflects resource shifting.


At page 196 of the NTA’s annual report it states that 82% of petitioned cases settled in FY 2021.  That’s a little higher than the average of cases in the prior decade because the percentage of dismissals was down in FY 2021 (something I will address in a subsequent post) but not far outside the norm.  This post is not about the overall percentage of settled cases but the breakdown of where the cases settled between Counsel and Appeals.  The report has a nice graph for that which you can see here:

Notice that starting in 2018, a pre-pandemic year, the percentage began to shift with more cases being settled at Counsel as a percentage of the total.  In each of the past 10 years Appeals has settled the most cases, but why is it settling less cases in recent years as a percentage of the total?  Is it resources?  Is it training? Is it a change in culture? Did more cases go through Appeals pre-petition?  Are taxpayers less willing to work with Appeals?  Is it some other factor or a combination of factors?  The NTA’s report does not discuss the why question.  It only addresses the who.

The obvious consequence within the IRS is that having more cases settle at Counsel puts more pressure on the resources at Counsel and probably a little more pressure on the resources at the Tax Court since settlement at Counsel usually, but not always, means a settlement closer to trial with more opportunity for some interaction with the Court.  To understand the why question, it would be logical to do a study of the cases settled at Counsel after going to Appeals and learn what caused the taxpayer to forego the opportunity to settle with Appeals and wait to settle with Counsel.  I have not seen such a study.  It seems it would be useful to appeals because it would allow Appeals to learn why Appeals Officers failed to settle cases that ultimately settled without trial.  In learning the answer, Appeals would then be better equipped to evaluate the litigation hazards of the next case.

I complained about the ability of the Appeals Officers I encountered to judge the hazards of litigation in a blog post several years ago.  The thesis behind my complaint with Appeals Officers was that most did not have a good grasp of evidence and litigation hazards.  I could supply a number of anecdotal stories on that point where an Appeals Officer declined to settle because my client could not produce some written proof of a point the AO thought needed to be proved by a piece of paper, but anecdotes are not what is needed to understand if Appeals is functioning optimally.  I had a case last year where the AO totally misunderstood the statute regarding dependency exemptions.  After a failed attempt to explain it to her, I gave up and sent her a qualified offer which she also did not understand.  The case settled immediately upon arrival in the Counsel office.  Everyone who handles a decent volume of Tax Court cases has some story of the misguided AO but the trends in the NTA report show that something is happening beyond just the complaints of a grumpy old man.

Shelly Kay, a former colleague of mine at Chief Counsel who went on to become the head of Appeals, wrote a rejoinder to my 2015 post pointing out that Appeals did properly train its employees on litigation hazards and that actually going to court was not important to understanding how to settle a case.  [One of my complaints was that AOs located in Service Centers had no idea about the dynamics of a Tax Court case and some who worked in field offices had also never seen or closely followed a case in the Tax Court process after it left their hands.] 

I certainly don’t dismiss Shelly’s response, but I continue to feel that Appeals officers need to build a system that tracks what happens to docketed cases after it leaves their hands unsettled in order to learn about the case and build on that knowledge for future cases.  In my prior post I referenced the movie Groundhog Day because of my concern that by not learning what happened to their case after it went to Counsel, AOs were destined to repeat the same mistakes.  If they followed the cases and learned why Counsel settled each case that Appeals did not, they could better handle the next case.

I recognize that some petitioners do not work with AOs just as they did not work with the examiner and that only the imminent threat of trial brings the necessary focus.  I do not mean to suggest that AOs as a group or individually don’t do their job, but I find more often than I feel I should that AOs do not understand the dynamics of what will happen to a case if it goes to trial and therefore cannot properly assess the settlement hazards.  The chart from the NTA report suggests a trend in pushing settlements downstream from Appeals.  It would be nice to have a report from TIGTA or GAO or Appeals and Counsel that took a hard look at settlement trends and how settlement could be accomplished more often and more efficiently at Appeals.

Keep in mind that I am representing low income taxpayers who make up the bulk of the taxpayers the IRS audits but that I have no recent experience with AOs handling large and mid-size cases.

Setting Aside a Settlement

Several years ago, a settlement reached by the Villanova clinic with an Appeals Officer was set aside when the AO’s manager would not accept the settlement recommendation.  Every settlement with an AO or a Chief Counsel docket attorney must receive approval from their manager.  Usually, the AO or the Chief Counsel attorney makes explicit statements about the limitations of their authority.  However, when time permits, these individuals also usually discuss a proposed settlement with their manager so that the formal submission of the settlement does not result in a surprise to the taxpayer and the employee.

Following the unpleasant surprise created by the rejection of a settlement that resulted from months of discussion with the AO, the clinic researched when a settlement could bind the government.  The research did not lead us to the conclusion that we could bind the government in this instance, despite the fact that the AO had led us on for some time.  I wrote a three part blog post series, linked here, here, and here, about our case and an article on the binding nature of settlements in general.  Les wrote a subsequent post involving a different case that also raised the binding nature of a settlement.

The recent 9th Circuit decision in Dollarhide v. Commissioner, 18-71722 (9th Cir. 2021) raises this issue in the context of a stipulation of settled issues.  It is a case worth noting.


In the Tax Court it regularly occurs that the parties reach a settlement at the last minute.  Certainly the Tax Court is not unique in having parties reach a last minute settlement.  What does create more tension in Tax Court settlements is the circuit riding nature of the court.  It only comes to one of the 74 cities in which it sits every few months or every six months or once a year.  Continuing a case to allow the parties to wrap up a settlement could throw the case back on the general docket.  It could also allow the unscrupulous petitioner or representative to appear to settle only to back out when the court leaves town, not to return for quite some time.

To prevent parties from backing out and to cause them to show that they really did have a settlement, the court regularly requests parties to last minute settlements to file with the court a stipulation of settled issues.  Aside from the fact that the Tax Court travels, settlements can take some time because the issues need to be turned into tax computations.  By filing with the court a stipulation of settled issues, the parties essentially leave open the possibility of a Rule 155 argument on the consequence of the computation of the issues but otherwise commit themselves to a settlement.  The trial judge on the calendar typically retains jurisdiction over the case.  In the routine case in which a stipulation of settled issues is filed, the computation occurs within a relatively short time and a decision document is submitted to the court shortly thereafter.  Judges typically give about 30 days from the time of filing the stipulation of settled issues for this to occur, though continuances sometimes occur when something causes a delay.

The Dollarhides entered into a stipulation of settled issues in their Tax Court case.  After doing so, they declined to sign a decision document.  This sounds similar to what happened in the Dorchester Industries case, the seminal Tax Court case regarding the binding nature of certain agreements.  When the Dollarhides declined to sign the decision document, the IRS moved to enforce the settlement agreement and the Tax Court agreed with the IRS.

The Dollarhides appealed the enforcement and the 9th Circuit reviewed the decision for abuse of discretion.  The 9th Circuit found:

The Stipulation of Settled Issues, on which the Tax Court’s order granting the IRS’s motion for entry of decision is premised, says nothing about the key issue in this case: whether the Dollarhides were barred by the statute of limitations set out in 26 U.S.C. § 6511(b)(2) from receiving a refund for tax year 2006. The Dollarhides contested application of the statute of limitations bar in the Tax Court and continue to do so on appeal.

The Commissioner now concedes that there was no conclusive settlement agreement between the parties with respect to whether the Dollarhides were due a refund for tax year 2006. Because there was no settlement agreement between the parties with respect to this disputed issue, it was an abuse of discretion for the Tax Court to grant the Commissioner’s motion and enter a judgment enforcing the parties’ purported settlement of this issue. See Bail Bonds, 820 F.2d at 1547. We thus vacate and remand on this ground and do not reach the Dollarhides’ remaining arguments on appeal.

This is a somewhat shocking result that both the IRS and the Tax Court would miss the fact that a major piece of the settlement of the case was missing.  Since the IRS conceded that this piece was missing, we do not get an opinion from the 9th Circuit that parses the language of the settlement. 

While it’s possible to give the Tax Court a stipulation of settled issues that does not settle all of the issues in a case, when the parties do that they usually make it clear that the stipulation is in partial settlement of the case and does not resolve all issues.  I would have expected the parties to do that here and cannot say why the stipulation would have left the IRS and the Court with the impression that everything was settled.

Certainly, one lesson here is to make clear in submitting the stipulation of settled issues what issues, if any, are reserved by the parties.  Here, the Dollarhides avoid having the settlement foreclose them from making the refund argument but on appeal they faced the daunting task of overcoming an abuse of discretion standard.  Another lesson is that the possibility exists to challenge a decision based on a stipulation of settled issues.  In most cases taxpayers will lose, but the Dollarhide case shows that success is possible.

Policing the Settlement; Policing the Case

A recent order in the case of Englemann v. Commissioner, Dk. No. 10528-20 shows the role Tax Court judges play in reviewing settlements.  This case was brought to my attention by the ever observant Bob Kamman who laments the loss of the designated order practice of the Tax Court where we might have seen this order and might have gotten some further insight into what happened here.

The taxpayer and the IRS have reached a settlement regarding the amount of the deficiency.  Ordinarily when that happens a grateful Tax Court receives the decision document signed by the parties and the judge assigned to the case, or the Chief Judge if no specific judge is assigned, signs the decision document thus ending the case.  This seems like a routine way to resolve a case.  Everyone agrees and everyone goes home happy (well maybe not exactly happy but satisfied with the outcome’s correctness.)

Here, the Tax Court rejects the settlement between the parties.  The brief order from the Chief Judge states:

On April 27, 2021, the Court received from the parties in the above-docketed matter a Proposed Stipulated Decision purporting to resolve this litigation. However, review shows that the decision provides for a deficiency amount in excess of that set forth in the underlying notice of deficiency for the 2016 taxable year. Conversely, an increased deficiency does not appear to have been pled or otherwise stipulated in the record herein.

The premises considered, and for cause, it is

ORDERED that the Proposed Stipulated Decision, filed April 27, 2021, is hereby deemed stricken from the Court’s record in this case.

This may seem to the parties as a harsh rebuke but it is part of the Court’s role in a case.  I am unsure if the order here qualifies as a “bounce” but Chief Counsel’s Office used to keep records of the number of bounces an office received – bounces being documents rejected by the court because something was wrong.  Having a high bounce rate was not a good thing.


We don’t know why the taxpayer has agreed to a deficiency in an amount greater than the liability listed in the notice of deficiency.  One assumes that the taxpayer could agree to a greater amount for many good reasons but the Tax Court will not allow this to happen until the parties, or presumably the IRS, files a formal motion with the Court seeking an increased deficiency in an amount equal to or greater than the amount in the stipulated decision and the Tax Court decides that it is okay for the IRS to seek an increased deficiency.  This seems like a bit of overkill given that the parties have already signaled their agreement to the amount but this is the way the Tax Court plays it.  Here, the Court appears to serve the role of officious policeman but most petitioners are pro se and perhaps the Court wants to make sure that the IRS is not taking petitioner for a ride and the action here keeps the signature of the judge in line with the governing statute.

The first sentence of section 6214(a) provides: 

Jurisdiction as to increase of deficiency, additional amounts, or additions to the tax

Except as provided by section 7463, the Tax Court shall have jurisdiction to redetermine the correct amount of the deficiency even if the amount so redetermined is greater than the amount of the deficiency, notice of which has been mailed to the taxpayer, and to determine whether any additional amount, or any addition to the tax should be assessed, if claim therefor is asserted by the Secretary at or before the hearing or a rehearing.

While it may seem harsh to police the case in this way, the court is right in policing the settlement as a jurisdictional issue in the absence of a motion by the IRS to amend its answer and seek a larger deficiency.

The Tax Court has also policed a settlement where the court thought that the petition was filed late, but the IRS hadn’t mentioned the late filing.  One case where that happened was Williams v. Commissioner, Docket No. 24954-17 (dated Jan. 26, 2018)   In Williams, the IRS responded to the order by filing a motion to dismiss, which the Tax Court granted.

The Tax Court plays a similar role in many cases in which the IRS does not act but the Court decides on its own what must occur.  The most common occurrence of the Court acting in this manner exists in cases in which the Court polices its jurisdiction.  In briefs filed regarding the litigation over the jurisdictional nature of the statutes providing entry into the Tax Court, the Tax Clinic at the Legal Services Center at Harvard has commented on the role the Tax Court plays in deficiency cases and whether this is how we want to use judicial resources.  In the amicus brief supporting the recently failed cert petition in the case of Northern California Small Business Assistants, Inc. v. Commissioner, cert denied May 6, 2021, the clinic wrote:

The Tax Court Needlessly Expends Considerable Judicial Resources Each Month Incorrectly Policing the Filing Deadline as a Jurisdictional Issue.

Many taxpayers might be affected by a ruling that the Tax Court’s deficiency jurisdiction filing deadline is not jurisdictional (whether or not the filing deadline is also subject to equitable tolling). In the fiscal year ended September 30, 2018, taxpayers filed 24,463 Tax Court petitions. IRS Data Book, 2018 at 62 (Table 27), available at www.irs.gov. These petitions were under about 20 different jurisdictions of the Tax Court. The Tax Court’s position is that the filing deadline of any petition in the Tax Court, under any of its jurisdictions, is a jurisdictional issue for the court. Tax Court Rule 13(c) (“In all cases, the jurisdiction of the Court also depends on the timely filing of a petition.”). (Parenthetically, the D.C. Circuit, which hears all appeals of Tax Court whistleblower actions under § 7623(b)(4), has overruled the Tax Court and held that the filing deadline for such an action is not jurisdictional and is subject to equitable tolling under current Supreme Court authority. Myers v. Commissioner, 928 F.3d 1025 (D.C. Cir. 2019).)

Three jurisdictions of the Tax Court comprise the vast bulk of its petitions (deficiency, CDP, and innocent spouse), but it has long been the case that deficiency petitions make up the overwhelming majority of all petitions filed. Harold Dubroff & Brant Hellwig, “The United States Tax Court: An Historical Analysis” (2d Ed. 2014) at 909 (Appendix B). The Dubroff & Hellwig book is the semi-official history of the Tax Court, available at a link on the “History” page of the court’s website. “Over 75 percent of the petitioners who file with the Court are self-represented (pro se).” U.S. Tax Court Congressional Budget Justification Fiscal Year 2021 (Feb. 10, 2020) at 22, also available at a link on that “History” page.

Because the Tax Court does not publish statistics breaking down filings under each of its jurisdictions, and because that court also does not separately identify in statistics cases dismissed for lack of jurisdiction, in order to get a sense of how many cases in the court each year might be affected by a ruling on whether the deficiency petition filing deadline is jurisdictional, the Center reviewed, using the Tax Court’s DAWSON online system (available on the Tax Court’s website), 1% of a randomly-chosen sample of dockets filed during the fiscal year ended September 30, 2018. The year ended September 30, 2018 was chosen simply to allow likely enough time for jurisdictional issues to be raised and disposed of in all cases. The 245 dockets reviewed were numbers 10001-18 through 10245-18 (as to which petitions were filed between May 21 and 24, 2018, inclusive). Of those 245 dockets, 24 were not deficiency cases.3 Of the remaining 221 dockets that comprised deficiency cases, 38 (17% – i.e., 38/221) were dismissed for lack of jurisdiction. However, there were multiple grounds for the 38 dismissals for lack of jurisdiction:

Number of CasesDismissal Reason
25Failure to pay filing fee
10Late filing
1Failure to file proper amended petition
1No original signature on petition
1Tax paid before notice of deficiency issued

In only one of the 10 dockets where the case was dismissed for late filing was there any suggestion of facts which might give rise to equitable tolling. In Lavery v. Commissioner, Docket No. 10026-18 (order dated Jul. 18, 2018), it appears that there may have been a timely filing in the wrong forum (i.e., a timely mailing to the IRS, instead of the Tax Court).

This review shows that floodgates would not open if equitable tolling were allowed to excuse the late filing of a modest number of deficiency petitions each year.

The greater practical effect of a ruling that the Tax Court’s deficiency suit filing deadline is not jurisdictional would be to benefit taxpayers where the IRS attorneys in the case either had omitted to notice the possible late filing of a petition or had deliberately decided not to argue that a petition was late and so forfeited or sought to waive the late filing argument. As this Court has noted, “[t]he expiration of a ‘jurisdictional’ deadline prevents the court from permitting or taking the action to which the statute attached the deadline. The prohibition is absolute. The parties cannot waive it, nor can a court extend that deadline for equitable reasons.” Dolan v. United States, 560 U.S. 605, 610 (2010) (citation omitted). In contrast, if a filing deadline is not jurisdictional, it is subject to forfeiture and waiver (whether or not it is subject to equitable tolling or estoppel).

Every month, the Tax Court dismisses multiple deficiency cases only because the filing deadline is currently treated as jurisdictional and so the Tax Court judges, sua sponte, police late filing. The court’s position that the filing deadline is jurisdictional necessitates that judges examine the files in every case for late filing – the judges not being able merely to rely on the IRS to raise all late filing issues. When a judge suspects that a petition in a particular case was filed late, but the IRS attorneys have made no argument to that effect, the judge issues an order to show cause why the case should not be dismissed for lack of jurisdiction. In November and December 2019 (typical recent pre-COVID-19 months), the Tax Court issued orders to show cause to dismiss deficiency petitions for untimely filing four and eight times, respectively.4 All 12 such taxpayers lost their chance to have their deficiencies litigated in the Tax Court only because the judges treated the filing deadline as jurisdictional. If, as the Center believes, the filing deadline is not jurisdictional, judges have been investing considerable resources over the years engaging in needless policing.

Judges do not merely police jurisdiction in the middle of a case, but also when a case settles. About once a month, some taxpayer and the IRS settle a case on the merits and submit to the Tax Court a proposed stipulated decision setting forth the amount of the deficiency, but the Tax Court judge refuses to sign the decision until the parties show cause why the case should not instead be dismissed for lack of jurisdiction on account of a late filing of the petition that the IRS had not noticed. (The decision in the Tax Court is analogous to the judgment in a district court case.) An example of a show cause order issued in this situation is that in Williams v. Commissioner, Docket No. 24954-17 (dated Jan. 26, 2018).

A further example of overuse of judicial resources is where the IRS agrees with the taxpayer that a petition was timely filed, but the Tax Court takes the time to conclude that the petition was not timely filed. For example, in Tilden v. Commissioner, 846 F.3d 882 (7th Cir. 2017), rev’g T.C. Memo. 2015-188, the parties were initially in disagreement over whether a deficiency petition had been timely filed under the rules of § 7502. Section 7502 provides a timely-mailing-is-timely-filing rule applicable to Tax Court petitions. The initial dispute was about which provision of regulations under the Code section applied to the case. By the time the Tax Court wrote its opinion, however, the parties agreed that the petition was timely filed. However, the Tax Court disagreed and dismissed the petition for lack of jurisdiction as untimely. The Tax Court could not merely accept the IRS’ concession that the filing was timely because of the Tax Court’s position that the deficiency suit filing deadline is a jurisdictional issue.

In the Seventh Circuit, both parties again argued that the filing was timely. This led the judges at oral argument, sua sponte, to wonder whether they had to decide the § 7502 issue, since, if the filing deadline at § 6213(a) was not jurisdictional, the government was waiving any untimeliness argument, which was the government’s prerogative. The judges asked the attorneys for each side whether the filing deadline in § 6213(a) is jurisdictional under recent Supreme Court case law, but the attorneys did not know about such case law. Then, two of the judges gave their tentative views that the § 6213(a) filing deadline appeared not to be jurisdictional. See Marie Sapirie, “News Analysis: Will the Seventh Circuit Unsettle Tax Court Timing Rules?”, Tax Notes Today (Oct. 24, 2016) (“ ‘This appears to be a timing rule, but timing rules aren’t jurisdictional,’ [Judge] Easterbrook said. [Chief Judge] Wood observed that for at least the last decade, the Supreme Court has been telling courts not to ‘put everything in the jurisdictional box’ because many rules that may have previously been carelessly referred to as jurisdictional are really claims processing rules. ‘If it’s a claims processing rule, it’s just a fact. You can concede it. The world doesn’t come to an end, and the case goes on,’ Wood said.”). After the oral argument, the parties in Tilden submitted supplementary briefs on the issue of whether the § 6213(a) filing deadline is jurisdictional under current Supreme Court case law. The judges then changed their minds and, in their opinion, held the filing deadline jurisdictional and then proceeded to reverse the Tax Court on the § 7502 issue.

In sum, too much judicial time is being needlessly spent in policing late filing only because of the lower courts’ misunderstanding of how this Court’s presumption that filing deadlines are no longer jurisdictional applies to the deficiency filing deadline.

Of course, what the tax clinic describes as incorrect policing is not incorrect in the eyes of the Tax Court and other courts that have determined certain entry statutes to be jurisdictional in nature.  Whether correct or incorrect, the Tax Court does look at documents in several settings to make sure those documents do what the Court thinks is allowed.  When it views a document as going too far, it steps in even where the parties have not acted or have acted contrary to the “correct” action.

When is a Case Settled? When a Taxpayer Sends a Check (No) And When a Taxpayer Sends a Letter Reflecting Agreement With US Attorney (Yes)

Disputes with the IRS often involve negotiations and correspondence regarding settlement. Two recent cases involving unrepresented taxpayers demonstrate that at times the taxpayers may not fully understand the consequences of corresponding with the government. In many instances courts will turn to contract principles to examine whether the correspondence can demonstrate that the parties have a binding settlement agreement.


In Longino v Commissioner a taxpayer sent a check and cover letter to the IRS essentially saying that if IRS cashed the check it agreed with him that he owed no additional money to the IRS. IRS cashed the check but also sought to collect on an assessment that stemmed from a case that the taxpayer lost in Tax Court. In this post I will explain how the taxpayer’s unilateral actions did not constitute a settlement, even when the IRS cashed the check.

In this case, Mr. Longino filed two tax returns for 2006, a 1040 and an amended return on October 17, 2007, a few days after filing the original return. IRS processed the returns separately. The amended return requested a refund of approximately $1,396, which the IRS sent to Mr. Longino, who cashed the check. IRS also examined Mr. Longino’s original 2006 tax return and proposed a deficiency of about $39,000, as well as an accuracy-related penalty.

Years later, in 2013, after Longino had filed a petition challenging the proposed deficiency but prior to the Tax Court rendering a decision, IRS also sent a letter to Mr. Longino informing him that he was not entitled to the $1,396 refund he claimed on the 1040X. Mr. Longino responded with a letter and included a check to the IRS for the $1,396. The letter also asked the IRS to “confirm…that we are now concluded on this tax return issue and we won’t have any more issues with IRS on that year.”  He asked the IRS to return the check to him uncashed if the IRS disagreed with him.

IRS ignored the letter, assessed the tax (it can do so when there is a Tax Court petition filed under Section 6213(b)(4)), and cashed the check. The deficiency case proceeded to trial. Mr. Longino lost. IRS attempted to collect on the unpaid assessed deficiency and filed a notice of federal tax lien. Longino filed a CDP request claiming that his letter and the IRS cashing of the $1396 check meant that he no longer had a liability for 2006. He argued that the cashing of the check in light of his letter demonstrated that the matter was resolved. He raised no other issues in the CDP request. Appeals disagreed and Mr. Longino petitioned the Tax Court again, essentially asking that the collection action was unwarranted because there was no liability.

The Tax Court disagreed, noting that he tried his deficiency case in Tax Court and lost; while there may be settlement of a Tax Court case through offer and acceptance, that was not present here. In addition, notwithstanding his letter to the IRS, and the IRS’s cashing of the check, the Tax Court held that there was no settlement as a result of his unilateral correspondence with the IRS Service Center:

Nor did petitioner reach a settlement with the IRS employee with whom he exchanged correspondence in May 2013. That correspondence occurred after we had issued our opinion in his deficiency case but before we entered our decision. The IRS service center employee with whom he corresponded did not offer to settle any tax liability. The IRS simply sent him a bill for $1,396, and he paid that bill.

The opinion cites a line of cases that establishes that submission of a check to the IRS and IRS cashing of the check is not enough to show that there was assent to the offer to settle the matter.

For good measure, the opinion notes that even if the IRS employee who reviewed the letter and authorized cashing the check were attempting to settle the case on behalf of the IRS, that employee lacked the authority to do so.

Taxpayers in Bauer Do Not Want Correspondence to Be Treated as a Settlement

The Longino case is to be contrasted with the Bauer case  out of the district court in Arizona, also decided last month. In this case the taxpayers owed over $800,000 to the IRS, and the government brought a collection suit. Federal liens attached to the property of the husband and wife; the main property was a principal residence owned by the husband but which the wife had some interest in due to her funding some of the renovations on the house.

The US attorney assigned to the case and the taxpayers themselves spoke directly after the government filed its complaint. They began settlement negotiations and the US attorney sent a letter with a proposed deal essentially requiring the Bauers to get a $250,000 home equity loan and pay that money to the government within 6 months. In exchange the government would withdraw its order of foreclosure and foreclosure claim and subordinate its liens. In addition, the letter set forth the understanding that after the payment of the $250,000 the parties would be free to negotiate the payment of the balance that was owed.

The US attorney asked the Bauers to review the letter, sign the letter and return it to him. By the terms of the letter, the letter stated that it was not an offer or acceptance of an offer; instead, by signing the letter and returning it to the government it would constitute an offer from the taxpayers, which the government would then “consider and act on the settlement offer once it has received [their] signature making the offer.”

The letter also spelled out that the Bauers did not have to agree to return the letter but if they did not do so the government would pursue summary judgment.The Bauers returned the letter and also forwarded a copy of the letter to the US attorney with the subject matter of the email noted as “agreement.”

Unfortunately for the Bauers they had a change of heart and shortly after sought to renege on the deal. In part, it appeared that they were unable to secure a $250,000 loan, and were only able to get a commitment for about half of that.  The Bauers sent an email saying they were not honoring the deal. The US filed a motion seeking to enforce what it claimed was a binding agreement.

The court agreed with the US and issued an order granting the motion to enforce. In doing so, the court reviewed settlement principles and held that the parties had entered into a binding contract.  In response to the motion the Bauers argued that they were coerced into entering into the agreement and the agreement was predicated on the government’s misrepresentations about the loan (namely that the Bauers could secure the financing). As to the US attorney’s views about the viability of the loan, the court stated that under contract principles a recipient of another party’s opinion  “is not justified in relying on the other party’s assertion of opinion because the recipient has as good a basis for forming his own opinion”). Further, the court noted that the Bauers should have independently investigated the possibility of getting financing before signing the letter:

Rather than taking Mr. Stevko’s advice as a guarantee that they would be able to secure adequate financing on the home, Defendants could have used their own knowledge about the market value of their home and looked into that question for themselves. They did not inquire about loans with banks until after making the offer to the United States and did not seek to withdraw from the agreement once they discovered they could not secure more than $126,000 from such a loan.

As to the claim that they were coerced, the opinion notes that the US attorney’s statement that if the Bauers did not enter into the agreement the government would pursue summary judgment did not in itself amount to coercion. Contract principles are clear that a party’s threat of civil process does not amount to duress unless that is done in bad faith. There was nothing to suggest bad faith in this case.


Taxpayers when interacting with the IRS or the government may be uncertain of the impact of what they are doing. Unilateral actions such as a notation on a check and cover letter may be sufficient to designate a payment for some purposes but are not enough to settle a case.  A signed letter reflecting an agreement that the taxpayer and the government attorney negotiated is quite different and the government can seek a court order that will require the taxpayers to abide by the terms of a settled case.



Podiatrist Has to Foot The Tax Bill: No Settlement and No Basis

A case earlier this week in Tax Court, Namen v Commissioner, presents two issues worthy of highlighting: one concerns when a settlement becomes binding, and the other concerns the taxpayer/podiatrist’s efforts to prove up his basis relating to his interest in an LLC that ran a surgery center.


First on the settlement issue. The taxpayer’s lawyer argued on brief that he had accepted an IRS offer to settle the case that IRS counsel made after trial.

Counsel for the government disagreed:

[IRS counsel] states in her answering brief that she “made an oral offer of settlement to…[taxpayer’s counsel] based on the parties not writing briefs in this case, as well as on petitioner’s spouse’s consent to the assessment of tax and additions to tax against her.”

According to IRS counsel, taxpayer’s counsel “did not call to accept the offer until the day that briefs were due and after she had already filed her opening brief.” As a result, she claimed that by filing the brief she revoked her offer.

The opinion agreed with the IRS. It did so by first noting that a settlement is a contract subject to general principles of contract law. Citing Dorchester Industries v Commissioner the opinion notes that “contract requires ‘an objective manifestation of mutual assent to its essential terms’, and mutual assent is typically established through an offer and an acceptance.” Keith wrote a three part series on this issue last year, which you can read here, here and here.

A main issue in the case was there was no evidence in the record that would allow the court to find objective manifestation of mutual assent. The taxpayer’s counsel made his argument that the case was settled only on brief, and there was no evidence in the record “apart from the unsworn statements of counsel.” Unfortunately, counsel for the taxpayer did not move to reopen the record, though the opinion notes that counsel for the government failed to move to strike. Even without evidence in the record (and I guess accepting at face value the unsworn allegations), the opinion notes that the parties’ briefs failed to spell out the terms of the alleged settlement. As such, there was not enough for the court to find that the evidence before it proved that the parties’ counsel agreed on a settlement.

The merits issue essentially turned on the podiatrist’s inability to establish his basis in the LLC. The LLC was taxed as a partnership, and the podiatrist attempted to establish that he had a basis in the interest in the LLC to allow him to deduct the distributive share of the LLC’s losses. Losses are allowed to the extent of a member’s basis in the LLC; losses in excess of the basis can be carried forward. Basis can be established by contributions and are increased by the partner’s distributive share of partnership income, and decreased by all cash distributions and the partner’s distributive share of partnership losses. The taxpayer argued as well that he was personally liable for a share of loans that were made to the LLC; that is another way to juice basis in an LLC treated as a partnership.

As with the first issue, the taxpayer lost in part because the record did not support his allegations:

However, no corroborating documents supporting his testimony were admitted into the record. Petitioner also failed to provide any credible testimony or other evidence regarding the amount of his distributive share of partnership losses and the extent of any prior adjustments to his basis. Under these circumstances, we find petitioner’s generally uncorroborated testimony inadequate to establish his basis in RMSC; we also find his testimony inadequate to establish the extent to which he is entitled to a distributive share of any losses.

Parting Thoughts

Facts at trial are key. The record that counsel makes is crucial. If the facts exist outside the record the court will generally not be able to consider those facts in resolving the dispute. Counsel must carefully consider when it wishes to bring facts to the attention of the court and pay attention carefully to evidence beyond testimony, especially when one would expect there to exist corroborating documentation that could have perhaps surfaced. Testimonial evidence can win an issue. For certain issues the court knows that limited, or no, written evidence may exist. The residence test for dependency exemption provides a common example of a situation in which little or no direct evidence often exists. With an issue where the absence of written evidence is common, the court readily accepts testimonial evidence after weighing the credibility of the testimony. By contrast, with issues in which one would expect documentary evidence, testimonial evidence often carries little weight because the absence of the documents itself undercuts the credibility of the testimony. There is an old case the Tax Court sometimes cites in these situations (Wichita Terminal Elevator Co. v Commissioner) which holds that where a party has the ability to bring forward evidence and it does not the failure to bring forward the evidence creates a presumption that the evidence would be unfavorable.

When dealing with settlements, it is important to put offers and acceptances in writing. As Keith discussed in the prior posts dealing with settlements, holding the government to a settlement that did not involve a statement in open court is very difficult. The failure here to accept the settlement prior to the preparation of the briefs may itself prove fatal to the settlement because of the argument that timing was a condition of the settlement but even without that fact the proof here lacked the kind of proof that has formed the basis of binding settlements in earlier cases with this issue. If you want to bind the government, get the offer in writing and, if possible, get the terms before the Court in a manner that implicates the Court’s schedule. Remember that in addition to other considerations you face an argument that the attorney in the case did not have authority to settle the case without the permission of a manager. Here there was no proof of managerial consent to the settlement offer and that might have proved fatal had the issue moved further. The case also lacked the element of reliance. Petitioner showed little or no harm in reliance on the alleged settlement and no action taken in reliance.