Tax Court Announces It Will Start Receiving Hand Delivered Documents

In an announcement on Friday, June 19 the Tax Court stated that it will start receiving mail from the postal service and private delivery services on July 10.  It also stated “The building remains closed to the public, and until further notice, documents may not be hand-delivered.” We wrote a short post about it here.

Today, the Tax Court issued another announcement.   In today’s announcement the Tax Court stated that beginning on July 10, the same day the avalanche of mail rolls in, the Clerk’s office will also accept hand-delivered documents.  Today’s announcement does not specifically say that the Tax Court building is open but unless the Clerk’s office is accepting curbside service of the hand-delivered mail, it seems that the building will at least be open for people to walk through the ground level corridor from the security check point to the Clerk’s docket room about 150 down the hall to the left.

In yesterday’s post I wondered whether opening the Clerk’s office for receipt of mail from the postal service and private delivery services coupled with the Clerk’s office answering the phone and providing copies of court document to non-parties was enough to stop the suspension of time under the Court’s decision in Guralnik.  To the extent that was an open question yesterday because of the sentence quoted above regarding the building being closed and documents not available for hand delivery, today’s announcement seems to answer that question.  I would not want to rely on Guralnik when the Clerk’s office is accepting mail from the postal service, accepting mail from people making hand deliveries and responding to phone calls.

When the Tax Court building is fully open, it is possible to go to Clerk’s office and use the two computers available to the public to look up information about cases in which you are not a party.  I do not get the sense that today’s announcement opens access to those machines; however, using those machines has nothing to do with filing a petition.  It seems the Court has removed any potential argument someone might have that a barrier exists to filing a petition.  Barring a snow storm in July in Washington, DC or some other cataclysmic event that keeps people and delivery services from accessing the Clerk’s office, starting July 10 taxpayers should consider that the application of FRCP 6 adopted in Guralnik to extend the time to file is no longer at play as a result of the pandemic.

As a short aside regarding access to documents, I have not tried the new system the Tax Court announced on May 29, 2020 which I discussed in an earlier post here.  For the reasons discussed in the prior post, the new system creates a vast improvement over the old in boththe delivery mechanism and the cost.  I received a message today from Patrick Thomas that he tried the new system and it was taking a long time to receive call backs.  I think it’s hard to gauge the effectiveness of the system under the current circumstances which must be quite trying for those working in the Clerk’s office, but we welcome comments from individuals using the new system about your experience in obtaining documents from the Court.

Electronic Trial Sessions in the Tax Court: New Procedures for Expert Witness Reports and Unagreed Exhibits

One of the Designated Orders from the week of March 30 included a short order from Judge Gale. The order raises a specific issue under Rule 143(g), along with some broader issues regarding compliance with Tax Court filing requirements while the Court’s mailroom remains closed due to the COVID-19 pandemic.

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It’s common knowledge, among practitioners at least, that merely because you file something with the Tax Court doesn’t mean the Tax Court will consider it as evidence in the case. Pro se petitioners often run afoul of this rule when they attach various substantive proof to their Tax Court petition. The Court will lightly chide them for doing so, and remind them not to do it again. The substantive rationale is that this evidence must first be presented to the opposing party for objection, and then either stipulated to or moved into evidence

Much like anything else, expert witness reports are subject to this rule. But Rule 143(g)(2) provides that the expert witness reports must be “submitted” to the Court “not later than 30 days before the call of the trial calendar on which the case shall appear . . . .” Ordinarily, this means that a party will mail the expert report to the assigned judge and to opposing counsel.

However, as we all know, the Tax Court’s mailroom has been closed since March. Petitioner’s counsel in this case saw their expert report filing deadline coming up. And while the Guralnik and 7508A extensions apply to Tax Court petitions, they don’t necessarily apply to submission deadlines like this. Ultimately, the judge needs to review the report prior to the trial session (albeit this particular one was cancelled). Harsh consequences follow under Rule 143(g)(2) if a party doesn’t comply: “An expert witness’s testimony will be excluded altogether for failure to comply with the provisions of this paragraph . . . .” There’s an exception for reasonable cause combined with lack of prejudice, but best not to risk it. So, what to do?

Petitioner adopts a somewhat innovative solution: rather than mailing the report to the Court, knowing that no one will review it, he decided to submit the expert’s report electronically by filing it as an attachment to Petitioner’s status report.  Ordinarily, this would run afoul of the same prohibition mentioned above—and indeed, as the Court acknowledges, it does. However, Judge Gale understands the parties’ predicament due to the mailroom’s closure. So he directs the Clerk to re-characterize the filing as the “Report of Brent M. Longnecker, Petitioners’ Proffered Expert” and to serve a copy of the report on Respondent. And, like those ordinary orders directed to pro se petitioners, he notes that that the report is not received into evidence. Finally, he prospectively permits Respondent to file their own expert report in a similar manner.

What should practitioners do in a similar situation? The course of action in Smith seems to be a model that works in the face of ambiguity. I think it’s important for practitioners to fully disclose (1) the requirements that the Tax Court rules impose and (2) the limitations that the Tax Court’s closure and technological limitations impose upon the normal manner of proceeding. Ordinarily though, there are few other situations where a party must disclose substantive proffered evidence to the Court before trial.

The Court, however, in its recently enacted electronic trial session procedures, has indicated that parties planning to call an expert should file “a Motion for Leave to File an Expert Report, with the expert report attached (lodged)”. Rule 143 doesn’t contemplate this motion, so I suspect it’s a new one.  Indeed, this language is different than the ordinary language in the Standing Pretrial Order, which centers on the language of Rule 143 and requires submission of the proffered expert report directly to the assigned judge.

Moreover, as the Tax Court moves its trial sessions online in response to the COVID-19 pandemic, this situation does raise broader concerns for how the Court will handle proffered evidence moving forward. How will the Court allow for Petitioners, especially pro se Petitioners, to present evidence to the Court? How will Chief Counsel allow for the electronic transmission of proposed evidence? (Potentially Chief Counsel will have less of an issue with mailroom closures, thereby mooting this problem to some extent).

Certain initiatives may help. The Court already relies heavily on stipulations, and electronic hearings will likely only give it stronger reasons to do so. Indeed, the electronic trial session procedures reinforce this idea.  Additionally, while the Court ordinarily suspends e-filing during the trial session (a lesson I first learned the hard way!), the Court indicates in the procedures that it will not do so for remote trial sessions. So, perhaps the Court can provide a mechanism to lodge evidence electronically.

Indeed, the electronic trial session procedures indicate that unagreed trial exhibits not in the stipulation of facts should be “marked and filed as Proposed Trial Exhibits.” This is again in contrast to the Court’s previous standing pretrial order that requires only an exchange of such documents with opposing counsel. So how do we lodge the documents with the Court? Helpfully, on the Court’s electronic filing system, a new option now exists called “Proposed Trial Exhibits.”

It seems like the Court has done quite a bit of work to implement technology and policy changes to accommodate taxpayers and the IRS alike. It should be commended for its relatively nimble planning in response to a fast-moving global pandemic. It will be interesting to see how these changes play out in practice, as well as contemplate how the Court might improve access to justice through implementing some of these procedures after this crisis abates.

Tax Court Announces It Will Start Receiving Mail

In an announcement on Friday, June 19 the Tax Court stated that it will start receiving mail on July 10.  The announcement indicates that approximately four months of mail will be delivered to the Court that day.  I wonder how the members of the clerk’s office will feel when facing a mountain of mail.  Maybe not as bad as the people coming back to work at the IRS Service Centers but still bad.

So, what does this mean regarding the postponement of the time to file a Tax Court petition.  The announcement says that the Tax Court building will still be closed.  It does not say that the clerk’s office is open but one assumes that it will be members of the clerk’s office and not the judiciary who will be processing the avalanche of mail.  FRCP 6 (which the Tax Court adopted in Guralnik) extends the last date to file when the Clerk’s Office is “inaccessible”.  Query whether the Clerk’s Office is still inaccessible, even though employees within it are opening mail? Does the announcement mean that the period of time to file a petition remains open under the precedent created by Guralnik or does this signal the end of the suspension at least under Guralnik. 

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The IRC 7508A suspension will last a few days longer until July 15 but if the clerk’s office is inaccessable maybe the Guralnik precedent is still in play.  The Notice also indicates you can contact the records department, which always seemed to be the same people as the clerk’s office, remotely to obtain records.  Does opening mail in a closed building and responding to requests for records made remotely equate to something other than inaccessible?

Remember that when the Tax Court shut down in March it sent out two notices in quick succession.  First, it closed the building with this announcement.  Then, it made the closure more permanent with this announcement a few days later.  Both stressed the need to timely file petitions and neither notice, like the one on June 19 mentioned Guralnik.

I imagine that prudent taxpayers will not test the waters to find out what the announcement means but will file their petitions by July 15 or within 90 days of the notice of deficiency if the 90-day period is later.  Still, there will undoubtedly be some taxpayers who need extra time and who will test the meaning of this announcement arguing that it does not signal the extension to file provided in Guralnik. 

All three notices mentioned above contain a helpful phone number to call for those who want to ask the Tax Court about the meaning of the notice.  I did not try the number and am not sure that when the notice offers that you can call this number if you have questions it means that you can call the number if you have this question.

For anyone not up to speed on this issue, please refer to our earlier posts here and here discussing the extensions of time caused by the pandemic.

Taxpayer Wins Merits Challenge in CDP Case

There are several CLE programs happening if you are looking for training.  The ABA Tax Section has started the online programing based on the sessions that would have been held at its May meeting.  You can see the upcoming programming and sign up for that training here

The Annual NYU Tax Controversy Forum starts this afternoon and features basically everyone in the top brass at the IRS whose work involves tax controversy, aka procedure.  You can sign up for it here

On Monday, June 22 at 1:00 ET the Pro Bono and Tax Clinics committee of the ABA is putting on another one of its COVID-19 seminars.  This one is entitled EIPs, Tax Returns, and Judicial Orders in the context of Domestic Violence during the COVID-19 Era.  It is cosponsored with the ABA’s Commission on Domestic & Sexual Violence.  It’s free for members and you can register for it here.  If you read the outstanding post by Nancy Rossner, here, you know it’s a hot topic.  Nancy is on the panel along with several other experts.

We have blogged on several occasions about the Tax Court’s narrow view of the circumstances in which it can engage in merits litigation in the Collection Due Process context.  In Amanda Iris Gluck Irrevocable Trust v. Commissioner, 154 T.C. No. 11 (2020) the Tax Court allows merits litigation in a situation in which it would not allow the litigation of the item in a deficiency case.  The taxpayer does not win everything sought in the litigation but does break new ground.

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The IRS made computation adjustments to the Trust’s returns for 2012 through 2015 based on IRC 6231(a)(6) eliminating the NOL the Trust claimed for 2012 and disallowing the claimed carryforwards for 2013-2015, resulting in balance due amounts for those years.  Pursuant to the statute, the IRS immediately assessed the resulting tax without issuing a statutory notice of deficiency.  After the assessment, the IRS sent out collection notices including the notice of intent to levy.  The trust requested a Collection Due Process (CDP) hearing for 2012 through 2016 which led to the Tax Court case.  

The Tax Court found that it lacked jurisdiction for the 2012 year because no collection action existed for that year.  Although that year marked the root of the adjustments, the adjustments did not result in any liability on which the CDP request could be based.  For the 2013 year the payment of the liability mooted the CDP hearing.  This left 2014-15 where outstanding liabilities remained.  The IRS moved for summary judgment on those years, but the Court denies the motion, finding that for those years the taxpayers can challenge the merits of the underlying liability and the computational adjustment that resulted in the change to the 2012 net operating loss.

A partnership called Promote had some allocated gain it failed to report and it also, along with its partners, failed to file Form 8082, Notice of Inconsistent Treatment or Administrative Adjustment Request, with respect to the gain.  On its 2012 return the Trust did not report its distributive share of the gain from the partnership and did not notify the IRS of the apparent inconsistency, which allowed the IRS to make a computation adjustment without giving the Trust a pre-assessment challenge.

The Settlement Officer in Appeals determined that the Trust, although it did not receive a statutory notice of deficiency, had a prior opportunity because it could have paid the tax and filed a claim for refund.  In the Tax Court case the IRS wisely conceded the incorrectness of the SO’s determination on this point.

The Court holds that since the Trust did not have a prior opportunity to contest the liability without full payment and a claim for refund, it did not have a prior opportunity within the meaning of the statute.  The Court does not state that the failure to receive a statutory notice of deficiency, by itself, is a basis for CDP merits litigation.

The Court states:

In CDP cases involving assessable penalties (viz., penalties not subject to deficiency procedures), we have jurisdiction to review a taxpayer’s underlying liability for the penalty provided that he raised during the CDP hearing a proper challenge thereto. See Yari v. Commissioner, 143 T.C. 157, 162 (2014) (ruling that section 6330(d)(1) “expanded the Court’s review of collection actions * * * where the underlying tax liability consists of penalties not reviewable in a deficiency action”), aff’d, 669 F. App’x 489 (9th Cir. 2016); Callahan v. Commissioner, 130 T.C. 44, 49 (2008). Applying the same reasoning we have held that we may, in a CDP case, review underlying liabilities arising from adjustments to partnership items of TEFRA partnerships, even though such items would not have been subject to our review in a deficiency setting. See McNeill v. Commissioner, 148 T.C. 481, 489 (2017).

It does not always work that assessable penalty cases result in the ability to challenge the merits, even if the taxpayer raises the issue during the CDP process. Lavar Taylor made three failed attempts in the circuit courts to challenge the merits of assessable penalties in CDP cases discussed here, here and here. Because of the Court’s view on prior opportunity, no simple explanation seems to work.

In addition to seeking to the SO’s determination on the prior opportunity issue, the IRS also argued before the court the failure of the Trust to properly raise 2014 and 2015 before the SO. In CDP cases the failure to raise an issue at the administrative stage can preclude the taxpayer from raising it once in the Tax Court. The IRS argued that the Trust focused its attention on 2012; however, the Tax Court rejects this argument stating:

Although petitioner might have articulated its position a bit more clearly, its basic contention was not that it had a credit from 2012 sufficient to eliminate its liabilities for subsequent years. Rather, it was contending that the IRS erred in disallowing the NOL carryforward deductions that it had claimed for 2014 and 2015. The situation is no different in principle from one in which the IRS has disallowed (say) business expense deductions for the CDP year. In both scenarios the taxpayer is challenging his underlying tax liability for the CDP year by disputing the disallowance of deductions he had claimed for that year.

Because the source of the problem was the disallowance of NOLs in 2012, it made sense for the Trust to argue about what happened in 2012. The Trust could not have effectively argued about 2014 and 2015 without addressing the year in which the NOLs were disallowed. Even though the Trust could have more clearly laid out its argument, it did enough to preserve the argument for the years impacted by the disallowance of the NOL.

The ruling here does not mean the Trust wins but merely that it will get its chance to show that the computational adjustment made in 2012 did not correctly adjust that return. Because the Code allows a no pre-assessment contest of this type of adjustment, the Tax Court would not routinely have the opportunity to review an adjustment of this type. Here, it has the opportunity to exercise its jurisdiction over something it would not otherwise see because of the CDP merits process.

What Information Should the Tax Court Make Available Electronically to Non-Parties

We have had a few prior posts, here and here, commenting on the Tax Court’s very limited electronic access to information.  Since the closing of the Tax Court clerk’s office in March, the ability to access documents at the Tax Court was zero until June 1.  On Friday, May 29, the Tax Court issued a press release alerting interested individuals that obtaining copies was once again possible.  It not only reopened the ability to obtain copies but it put a cap on the cost per document at $3.00.  This is a significant and welcome change in the price structure of documents order from the Court.  Additionally, the Court will send the document via email, making receipt of the document much quicker.  Both are excellent changes but the most important part of the announcement was the ability of the public once again to see what’s happening in cases.  We posted on May 27 that the clerk’s office seemed to be moving cases again.  I hope that requests for documents will not overwhelm that office as it digs out from the lengthy closure. 

Last fall one of my clinic students, Maggie Goff, asked if I would supervise a writing project for her for her January term project.  I agreed and she asked if I had any ideas.  I did.  There is litigation occurring regarding PACER (Public Access to Court’s Electronic Records) and I was curious how that litigation might impact the Tax Court system of making documents electronically available though I knew that the Tax Court was not part of the PACER system.  If you are interested, there are a couple of articles you can read, here and  here, about the PACER litigation which is pending in the Federal Circuit.

Maggie finished her research and did a great job.  I suggested that she turn it into a paper and worked with her to build out her research.  She and I published an article in Tax Notes on May 4 entitled “Nonparty Remote Electronic Access to Tax Court Records.”  The article suggests that the Tax Court make its records more electronically accessible while still protecting the privacy of individuals in an appropriate manner.  We were very fortunate that Judge Buch gave an excellent presentation on compliance with the Tax Court rule regarding redaction of personal information at the ABA Tax Section 2020 mid-year meeting, shared with us the slides he produced and allowed us to publish them.  So, in addition to the research Maggie performed, the article also contains Judge Buch’s research showing the current state of compliance (or non-compliance) with the Court’s redaction rules.

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You can read the article to come to a better understanding of what’s happening in the PACER litigation and how that impacts the Tax Court – not much at all.  You can also read the article to learn about the reasons the Tax Court justifies its extremely limited availability of electronic documents, including not publishing documents of the entities litigating before the Tax Court who would not seem to need protection of personal information (to the extent not protected by sealing orders.)   As mentioned above, you can read the article to see Judge Buch’s findings regarding compliance with Tax Court Rule 27(a) regarding redaction.  He created easy to follow charts.

The suggestions we had regarding what the Court might do to make itself more like the other courts that handle federal tax matters — the district courts, the bankruptcy courts and the Court of Federal Claims — centered on leaving off attachments and making electronically available the documents filed by the parties.  While the failure to comply with Rule 27(a) occurs on documents filed with the Court as well as in attachments, the most harmful personal information generally exists in the attachments and not in the pleadings, motions, briefs, etc. filed by the parties. 

In trying to strike a balance between protecting the privacy interest of the parties, including the almost 70% pro se litigants in the Tax Court, with the public’s ability to know what happens in Tax Court cases, we suggested that making public a group of documents that generally do not contain taxpayers identifying numbers or account information strikes the right balance.  We also discussed policy reasons for making the information public and for having electronic access across the tax litigation judicial forums that, if not identical, is at least not so starkly different.  Why should someone’s information in the federal system be so different depending on the federal court in which they litigate?  The points we made regarding policy mirrored to some extent the points made by federal judges who filed an amicus brief in the PACER litigation.

Similar to the situation that existed before the IRS made public letter rulings public or before the Tax Court made summary opinions and orders public, Rule 27(b) appears to give the IRS Office of Chief Counsel an informational advantage over private citizens.  While the specific attorney working in Chief Counsel’s office only has access to the full electronic docket in cases in which they have entered an appearance, as a whole, Chief Counsel’s office can see everything produced by the Tax Court, yet the bar and the citizens cannot.  As an institutional litigant, the IRS collectively benefits from its position as a repeat player. While it may

be difficult to quantify, there is an advantage to having more information about all the decisions being made by the IRS or the Tax Court. Making more documents electronically available has parallels with making private letter rulings and summary opinions publicly available: it evens out the system for everyone.  Very few people would argue that the system of hiding public letter ruling worked better than the current system of making them public, even though some public letter rulings contain information that makes the applicant transparent.

Wealth should not control access to justice.  Pro se litigants and low income taxpayer clinics lack the resources to go to DC and sit in the Tax Court’s clerk’s office to look at documents and generally lack the ability to pay $.50 per page to obtain briefs and other documents that might assist in their cases.  Big firms do not face the financial barriers and the IRS has access to everything as an institutional player.  The new cost structure announced in the press release discussed above will go a long way toward breaking down the barrier created by wealth and, because of email delivery, helps to break down a timing barrier as well.

In the PACER litigation, the federal judges argued that allowing nonparties to access court documents remotely actually helps pro se litigants.  Lawyers and judges know that the most effective way to write a brief is to work from an example. The judges wrote that “access to someone else’s successful petition is more valuable than the order or opinion granting it.” If the Tax Court allowed pro se petitioners to view filings remotely in cases in which they are not parties, these petitioners who are doing their best to produce a petition in the dark would be better equipped to follow Tax Court rules and make relevant arguments.  Of course, not every pro se petitioner would take time to avail themselves of the wealth of resources available through an electronic system, but enough might to so to make a difference both for themselves and for the system.

It does not do so as a routine matter but it does happen that the government takes inconsistent positions.  Without the ability to easily see the briefs the government files in other similar cases, it is essentially impossible for litigants to spot such inconsistencies and bring them to the Court’s attention.  We have written before about inconsistent arguments the government has taken in the innocent spouse area regarding jurisdiction here and here.  Other examples of inconsistent positions exist, such as the Flora rule, where the government argues one position to the Supreme Court in an attempt to benefit itself before shifting 180 degrees to argue against taxpayers’ ability to get into court.  Allowing all parties to see the publicly filed briefs in other cases would cause parties to benefit by finding situations of inconsistency as well as situations where a similarly situated taxpayer makes good arguments.

With respect to specific documents, here is a chart of our recommendations:

  ProtectMake Electronically Available
imperfect petitions;all court orders and opinions;
new petition signature page;petition (minus phone/ address information and attachments);
fee waiver requests;entry of appearance;
statement of TIN;answer (minus attachments);
attachments to the petition;motions (minus attachments);
new signature page of notice of intervention;notice of trial (all court- generated notices);
attachments to the answer;standing pretrial order;
substitution of counsel;pretrial memorandum;
documents attached to motions and briefs;briefs; and
trial exhibits and stipulations; andnotice of appeal.
ownership declaration statement. 

Details about the reasoning of many of the decisions exist in the article. 

The article also discusses the Tax Court’s fee structure for making copies and fees it might charge for electronic access.  Currently, the Court makes available for free the documents it does allow the public to see.  Whether it would need to go to a PACER like system of charging per page for electronic access or find another way to pay for the suggestions we made regarding access was beyond the scope of our article.  We do explain the history behind the current $.50 per page charge which has been in place for decades.  As mentioned above, the changes announced in the May 29 press release provide a significant improvement to the prior fee structure.

The Congressional directive to the Tax Court regarding how and what the Tax Court makes public have not been changed in decades.  The Tax Court operates outside the PACER system and the Administrative Office of the Courts.  In selecting its current policy within the relatively unrestrictive language of the controlling legislation, it looked prominently to Social Security cases and administrative law proceedings rather than to an Article I court like the Veteran’s Court or other courts litigating federal tax matters.  With so many pro se litigants, the Tax Court is right to want to protect their privacy to the extent it can while still making documents reasonable available to the public.  We suggest making more documents publicly available but keeping off of the electronically accessible list documents with a high probability of containing sensitive personal information of individual petitioners.  We find inexplicable the decision to withhold electronic access to the information regarding petitioners who are entities.

Significant Changes For Tax Litigation

We welcome back frequent guest blogger Bob Probasco who writes about an announcement on Friday by the Tax Court setting forth the way forward in Tax Court cases.  The announcement does not tell us when the court will start holding trials again but now we have a process.  There is still much to unpack but Bob does a good job getting us started.  My first reaction is that the Court has produced a thoughtful way forward.  My one small disappointment in the path concerns the checklist “Getting Ready for Trial Checklist.”  I would have preferred the checklist include a line that pro se litigants should reach out to Low Income Taxpayer Clinics (LITCs) early to obtain assistance, but I suspect there may be more pre-trial conferences moving forward and that in those pre-trial conferences judges may make reference to the assistance taxpayers might receive from LITCs.  Keith

On Sunday, I was reviewing the Tax Court’s website and happened to notice a new press release that came out on Friday.  We’ve all seen previous changes to Tax Court operations as a result of COVID-19.  The court cancelled trial sessions, the clerk’s office closed, and the judges were working remotely, while encouraging the parties to continue trying to resolve cases.  Now the court is moving on to the next stage of adapting to the pandemic, as have other courts: remote trial sessions.

The press release itself was brief, just announcing the change and the issuance of orders with details:

The COVID-19 pandemic continues to present public health risks and challenges, particularly where multiple individuals come together in a courtroom. In response, and until further notice, Court proceedings will be conducted remotely. See Administrative Order 2020-02 regarding remote proceedings and Administrative Order 2020-03 regarding Limited Entries of Appearance. If you have any questions, contact the Public Affairs Office at (202) 521-3355.

Another press release the same day informed us that on June 1st the court will resume accepting requests for copies of documents from non-parties.  But the process will be more flexible than before; requests can be made by phone and received by email.  You won’t have to – because you can’t – visit the court building in person.

So, what all is changing and what is still unclear?  This is a preliminary, incomplete assessment – what stood out to me, based on a quick review.

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What we know so far

The decision to go to remote trial sessions is not surprising.  Most other courts are pursuing this as well, if they haven’t implemented yet.  The basic structure of remote trial sessions also will probably not be tremendously surprising if you’ve devoted much thought to it.  The court operated the way it did pre-COVID for (mostly) good reasons and those reasons would drive the design of remote sessions in a (mostly) foreseeable fashion.

Administrative Order 2020-02 moves the trial sessions to Zoom.  Parties scheduled for a particular trial session will receive, in the notice setting the case for trial, a meeting id and password.  Litigants will be able to access the trial session by computer without having a Zoom account; if they don’t have access to a computer, they apparently will be able to dial in by phone.  Just as non-parties are free to attend an in-person trial session, public access will be offered in the new regime.  That will be available by real-time audio; the court website will post dial-in information for each session.  (Presumably, the public access dial-in will only allow non-parties to listen, not to speak and participate.)

Some of the changes may have been harder to anticipate but will have significant effect on litigants.  The standing pretrial order (SPO) addresses these items, among others, specifically:

  1. Motions for summary judgment – no later than 60 days before the first day of the trial session.  This was not specified in the previous SPO, but is consistent with Rule 121.
  2. Motions related to discovery or stipulations – no later than 45 days before the first day of the trial session.  This was not specified in the previous SPO, but is consistent with Rule 70.
  3. Motions for Leave to File an Expert Report – no later than 30 days before the first day of the trial session.  This was not specified in the previous SPO, but is consistent with Rule 143(g).
  4. Motions for continuance – no later than 31 days before the first day of the trial session.  This was not specified in the previous SPO.  This seems stricter than Rule 133, which establishes only a presumption that a later motion would be deemed dilatory and denied.  Now parties would have to request an extension.
  5. Preparation for trial – the parties shall file either a Proposed Stipulated Decision, a Pretrial Memorandum, a Motion to Dismiss for Lack of Prosecution, or a Status Report, no later than 21 days before the first day of the trial session.  The Status Report appears designed only to report that the parties have settled but a Proposed Stipulated Decision could not be filed timely.  The previous SPO mentioned only a Pretrial Memorandum, if a basis for settlement had not been reached, no later than 14 days before the first day of the trial session.
  6. Stipulation of Facts – the parties shall file such no later than 14 days before the first day of the trial session.
  7. Proposed Trial Exhibits (not encompassed in the Stipulation of Facts) – may not be allowed into evidence unless filed not later than 14 days before the first day of the trial session.  This is consistent with the language in pre-trial orders for many years; however, the enforcement of this provision of the pre-trial order may become much more vigorous.

These requirements fall into three broad categories, all of which seemed designed to facilitate a quick, efficient calendar call.  There is only so much time you can spend in a Zoom meeting before your attention starts to flag.  First, simply making explicit in the SPO what was already in the Rules (items 1-3).  That seems to be the court trying to communicate those requirements to those who aren’t already familiar with the deadlines, hopefully only unrepresented taxpayers and not members of the tax bar.  Second, accelerating communications with the court from current timelines – the change from 14 days to 21 days before the trial session in item 5, and the stricter deadline in item 4. 

The third category establishes new deadlines for documents that sometimes were presented only at the calendar call itself: Motion to Dismiss for Lack of Prosecution (item 5), Stipulation of Facts (item 6), and unagreed trial exhibits (item 7).  Effectively, all documents will need to be filed in advance; handing the document to the trial clerk is no longer a simple process.  Along the same lines, Administrative Order 2020-03 requires representatives entering a limited appearance to file it electronically, unless exempt from e-filing requirements.  (There are also several other changes involving limited appearances from Administrative Order 2019-01, but that’s a topic for another day.)

The accelerated or new deadlines will take some getting used to for tax practitioners.  It may be significantly more difficult for petitioners, especially since the new Standing Pretrial Order for Small Tax Cases has similar requirements and deadlines.  The old Standing Pretrial Notice didn’t specify a deadline for the stipulation of facts and specified a Pretrial Memorandum only had to be submitted 7 days before the trial session.  And as we all know, very few unrepresented taxpayers filed a Pretrial Memorandum.

What don’t we know yet?

Probably a lot of things.  There are always a lot of problems that are not identified until after implementation of a new program and these changes certainly will encounter that.  The Tax Court judges put a lot of thought into these changes but it’s impossible to anticipate everything.  All you can do is prepare as best you can, implement, and then adapt when problems crop up.

But one “known unknown” did stand out to me on first reading Administrative Order 2020-02.  What do these changes mean for pro bono volunteers who attended in-person trial sessions to assist unrepresented taxpayers?

Pro bono volunteers don’t receive copies of the notice setting cases for trial unless they happen to already have a client scheduled for that trial session.  Will there be some process to disseminate the meeting id and password to them ahead of time?  Will they instead have to merely listen in through public access?  If so, how will they communicate to the judge or petitioners that they are present and available to assist?

Will separate Zoom meetings be set up, on the fly, to allow pro bono volunteers and petitioners to meet privately?  If so, who will match up this petitioner to that volunteer?  How will the meeting ids and passwords be communicated to them without allowing those listening in through public access to here and join the meeting?  How would the pro bono volunteer and petitioner invite Counsel into that private meeting in order to discuss possible settlement?

I assume the pro bono volunteers could, at the beginning of a private meeting, quickly e-file a limited entry of appearance and then gain access to documents filed in that case.  That would alleviate some of the problems associated with transferring documents between petitioner and volunteer.  Presumably that is one reason Administrative Order 2020-02 was issued concurrently with Administrative Order 2020-03.  Will someone e-filing a limited entry of appearance have immediate access to all documents on the docket?

This seems to have the potential to be a complicated, difficult process.  The court may have worked out these details already and we may hear more soon.  I’m currently part of groups working with IRS Counsel for two different Virtual Settlement Days, one for Dallas cases and the other for San Antonio and El Paso cases.  (Here is the Virtual Settlement Days Best Practices Guide, for those interested.)  Perhaps the process for those events can be adapted to the remote trial sessions. 

Or will the Virtual Settlement Days ultimately replace pro bono assistance at the trial sessions?  Particularly with the requirements in the new Standing Pretrial Orders, there will be an increasing need for assistance well in advance of the trial session.  That will be difficult to achieve; not all petitioners will independently contact a clinic based on the “stuffer notice” or request an appointment at a Virtual Settlement Day, even with the scarier Standing Pretrial Order.  But without early assistance, the Tax Court’s remote trial sessions will not work as effectively and low income, unrepresented taxpayers will be worse off.

Those are my observations and questions about the new regime.  What are yours?

Welcome To Tax Court, Now Go Home (Unless a Lawyer Volunteers)

We welcome back commenter in chief and occasional blogger Bob Kamman for another post with insights on matters otherwise missed.  Today, Bob’s post discusses interesting case outcomes but also the people who made it possible – the amazing volunteers at the calendar calls in New York City.  Frank Agostino has organized the local tax bar at calendar calls in NYC for many years and helped many taxpayers who had no expectation of such assistance when they showed up in court.  For his efforts at the NYC calendar calls and other pro bono work he does, the ABA recognized Frank with the Janet Spragens award in 2012.  Keith

If you’re looking for trouble, consider showing up at Tax Court trial sessions in Manhattan once they resume.  Just ask New Jersey tax attorney Frank Agostino, who keeps going back for more – and that’s a good thing.  His recent examples are cases decided the week of May 18, 2020: Peacock and Pope.  In Peacock, Judge Vasquez notes:

When this case was called from the calendar, Mr. Agostino and Mr. Colasanto were present in the courtroom as volunteer lawyers. They entered appearances on behalf of petitioner husband for purposes of arguing the motion before us, and we are thankful for their pro bono service.

(Phillip Colasanto is an associate in Mr. Agostino’s firm.  Brooklyn lawyer Alec B. Schwartz also appeared, later.)

What is most remarkable about these two cases, aside from the question of what would have happened without last-minute volunteer legal help, is that both involve an IRS notice of deficiency followed by a delayed IRS defense that the Tax Court lacks jurisdiction to review it.  If the notice is the ticket to Tax Court, Chief Counsel is the bouncer who shows up much later to deny petitioner’s entry.

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Peacock Case: Timeline and Result

March 11, 2016:  IRS revenue agent issues a 30-day letter proposing full disallowance of $52,376 in expenses.

April 7, 2016: Taxpayer meets with revenue agent, who issues a “corrected report” disallowing all expenses but removing the accuracy-related penalty. Bottom line is $6,761 tax and $431 interest.

April 8, 2016: Taxpayer hands revenue agent a check for $7,192 with a four-page cover letter.  The last page states,

Because our meeting yesterday was cut short due to time constraints, I request a follow-up meeting to discuss how I may amend my 2013 US Tax Return to better and more accurately reflect the . . . expenses that I claimed on Schedule C.  In the meantime, please find enclosed check no. 5324 dated today, April 8, 2016, in the amount reflected in your revised Form 4549-A. . . .I do, however, respectfully disagree completely with your determination.   I am working on completing IRS Form 12203 – Request for Appeals Review, and will submit it to you under separate cover.

April 8, 2016:  An IRS transcript shows that this payment is recorded with a transaction code 640 as an “advance payment of tax owed.”  With no corresponding assessment, the account will continue to show a credit balance in the same amount. 

October 16, 2016:  Taxpayer, having submitted the form six months earlier, writes to the Appeals office:

I have yet to hear from the IRS regarding my request for Appeals Review.  On April 8, 2016, I hand delivered . . .check number 5324 in the amount of $7,192 along with my letter dated April 8, 2016.  In that letter, I made it crystal clear that this payment was made in protest, and that I completely disagreed with the IRS determination.

March 27, 2017:  Appeals issues a notice of deficiency for $6,544, slightly less than the $6,761 proposed in the revenue agent report.

May 24, 2017:  Petition is filed with Tax Court. IRS answers June 23, 2017.

November 16, 2017:  Trial is set for April 9, 2018.

March 15, 2018: Less than four weeks before trial, IRS files a motion to dismiss for lack of jurisdiction.  It contends that the April 2016 payment extinguished the deficiency before the notice was issued.

March 28, 2018:  Taxpayer responds that the remittance was not a payment but a deposit, preserving his right to petition.

April 9, 2018, continued to April 13, 2018:  At Tax Court hearing, Frank Agostino enters his appearance for taxpayer.  Simultaneous opening briefs ordered for June 27, 2018.  These are filed, and simultaneous answering briefs are filed August 13, 2018.

Twenty-one months later, the 17-page Tax Court opinion by Judge Vasquez walks the parties through:

  • Code Section 6211 and cases decided under it, holding that if a deficiency is paid before a notice of deficiency is issued, then there is no deficiency and the Tax Court has no jurisdiction.
  • Code Section 6603, which nevertheless allows a taxpayer to make a cash deposit to pay any tax not yet assessed.  IRS guidance on how to do this is provided in Rev. Proc. 2005-18. Such a payment stops interest from accruing but preserves the right to petition Tax Court.

According to a footnote, IRS does not contend that the taxpayer’s letter with his April 2016 check fails to satisfy the Rev. Proc. 2005-18 requirements.

The Court then cites in detail various provisions of the Internal Revenue Manual regarding such deposits.  The opinion reminds us (citations omitted),

To be sure, the IRM does not have the force of law . . . Nevertheless, the IRM can be persuasive authority . . . and a review of relevant IRM provisions is instructive in ascertaining the procedures the IRS expects its employees to follow . . .

The April 2016 check, on its memo line, contained the taxpayer’s SSN and the words “payment 2013 Federal Income Tax.” IRS contends that the word “payment” was enough to remove it from the category of “deposit.”  Also, it claims he loses because he used the word “payment” in his October 2016 letter to Appeals.

Five pages later, after further references to the Internal Revenue Manual, the Regulations under Section 6213, and Rev. Proc. 2005-18, the Court finds “Petitioner husband properly designated the remittance as a deposit, respondent treated it as such, and the deficiency was never extinguished by a payment.”

The taxpayer may eventually lose his case, but he has won the right to keep it in Tax Court.  Inoculated against attempts by IRS to deny him a trial less than a month before its first scheduled date, he may have a decision by 2021, regarding how much tax he owes for 2013.

 Pope Case:  Timeline and Result

2018:  Petitioner files a timely Form 1040 return reporting $42,163 in wages and $8,929 in federal income tax withheld. After child tax credit and child care credit, his tax is zero.

October 10, 2018:  IRS sends petitioner a “Letter 4800C, Questionable Credit 30 Day Contact Letter,” informing him that $7,856 of his withholding had been disallowed.  IRS has records of only $2,448 in wages received, and $1,073 in tax withheld. 

November 20, 2018:  After no response, IRS sends a notice of deficiency, which the Court describes:

 …explaining that it had been unable to verify his reported wages and withholding.  The first page of the notice stated that his deficiency for 2017 was “$.00,” . . .The “tax deficiency computation” at the end of the letter shows the “change in tax shown on return” as zero, the “decrease to refundable credits” as zero, and the “tax deficiency” as zero.  The only adjustments appearing in this computation are a $26,407 downward adjustment to petitioner’s AGI and a $7,856 reduction in withholding credits.

February 13, 2019:  Tax Court petition filed.  IRS answers on April 29 (more than 60 days, but the government had been closed for 35 days, ending January 25). 

March 15, 2019:  IRS issues a refund for $1,273: Tax withholding of $1,073; $142 refundable child tax credit; and $58 interest.

August 27, 2019:  Trial set for January 13, 2020.

January 3, 2020:  IRS files a motion to dismiss for failure to properly prosecute.

January 13, 2020:  Petitioner appears for trial.  IRS withdraws its motion to dismiss for failure to prosecute, then moves to dismiss for lack of jurisdiction.  Frank Agostino and Phillip Colasanto enter appearances.  Petitioner is ordered to respond to IRS motion by February 12, 2020.

February 12, 2020:  Petitioner’s response is filed.  A footnote to the decision tells us he attached “a pay stub and a pair of Forms W-2, Wage and Tax Statement, that purport to show tax withholding in excess of the amounts that the IRS verified through third-party reporting.”

Unfortunately, those exhibits don’t matter.  Judge Lauber explains why Sections 6201 and 6211 do not grant Tax Court jurisdiction in cases where the only dispute concerns the credit for income tax withheld.  “Because we lack jurisdiction to redetermine the adjustments to petitioners’ 2017 liability, we do not consider these documents or his assertion that he did not actually overstate his withholding credits.”

What may have happened here is that the taxpayer’s withholding seemed to IRS algorithms far higher than needed for a single parent.  The withholding he claimed was 21% of wages.  Nevertheless, what IRS verified as withholding was 44% of wages.  Employers can make mistakes, and it may take years for them to file corrected W-2 forms.  IRS assumes the employer is correct, and expects the employee to promptly prove otherwise.  The taxpayer may have been using tax withholding as a savings account.  Or, he might have expected his annual income to be four times as great, but then was not employed for nine months. 

The Tax Court might at least have suggested that IRS allow an audit reconsideration.  That could avoid a District Court refund suit.  Pro bono can do only so much.  If Congress intended to remove withholding disputes from Tax Court jurisdiction, it could at least allow them when the issue is not raised by IRS until the day of trial. 

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While cases that result in Tax Court opinions contribute to a practitioner’s highlight reel, those that are settled with no fanfare deserve some attention also.  So we should note the case of Marie Lucien, whose trial in a small-tax case before Judge Guy was set for December 9, 2019.  Mr. Agostino entered a limited appearance and made an oral motion for continuance.  IRS Counsel agreed. Less than three months later and just weeks before the Court closed its doors, a stipulated decision was entered for petitioner, agreeing that she owed no tax for 2016.  Two other lawyers were also there to help out: Jonathan A. Zandi of New York, and Bimal K. Gupta of Parsipanny, N.J. 

Stalled Settlement in Innocent Spouse Case – Why Jurisdiction Matters

We have written many posts on jurisdictional issues in Tax Court and other courts.  I will not link to them here but wanted to write a short post demonstrating one of the ways jurisdiction matters.  Thanks to Carl Smith for bringing this case to my attention.

In the case of Carandang v. Commissioner, Dk. No. 19224-19S the petitioner filed a petition seeking innocent spouse relief.  She reached an agreement with the IRS in the Tax Court case conceding the case and the parties filed a joint proposed stipulated decision.  Having reached an agreement in the case, the parties filed with the Tax Court a Joint Proposed Stipulated Decision on May 18, 2020.  You might expect that where the parties have reached an agreement in a case the Tax Court would sign and file the agreement.

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Instead of accepting the agreement, the Tax Court issued a show cause order on May 19, 2020 asking the parties to explain why the Court has jurisdiction.  The lawyers reviewing the case for the Chief Judge, who would sign the stipulated decision of a case not on an active calendar, found that the petition appears to have been filed a day late.  On May 20, 2020, the IRS responded and provided an explanation of the Court’s basis for jurisdiction.  On May 21, 2020, the Tax Court dismissed its order to show cause since the IRS now admits that it failed to send the notice of determination by certified mail. On May 22, the Tax Court entered the Stipulated Decision in the case it had first decline to enter.  Very interesting to see docket entries five days in a row and the resolution of an issue so quickly.  I don’t know if this efficiency results from the pandemic or just happenstance.

The Tax Court takes the position, upheld by at least three circuit courts the tax clinic at Harvard has visited, that it has jurisdiction of innocent spouse cases only when the petitioner timely files a Tax Court petition.  On the face of this case, it appears that the petitioner may have filed the petition late.  The Tax Court correctly seeks to make itself certain that it has jurisdiction over the case prior to signing off on the document that will resolve the case.  While correct, the raising of the jurisdictional issue by the Court at this stage has the likely effect of dismissing the Tax Court case and moving the parties back into an administrative posture. If the outcome were favorable to the taxpayer in a situation like this, the IRS will almost certainly give the taxpayer the benefit of whatever agreement was reached in the case.  Ultimately, the taxpayer and the IRS will end up in the same place although the taxpayer will not have the benefit of a court order approving the agreement.  Both the IRS and the Court will spend time and effort finding evidence of the date of mailing of the notice and reviewing the notice before the Court finds the answer to the question of jurisdiction.

Based on reviewing court orders for several years and watching the dismissal of cases, Carl Smith estimates that once or twice each month it happens that a case reaches the stage of settlement and the court raises a jurisdictional issue not previously seen by Chief Counsel’s office or the court.  Because the IRS will almost always honor these settlements administratively, the taxpayer receives the benefit of having an attorney for the government work on their case in order to reach a settlement.  Perhaps, I should accept that as a good thing and move on; however, it seems like a waste of resources to stop the judicial process and restart the administrative one in cases where the outcome is not a full concession.  If the timing of the petition were not considered jurisdictional, Ms. Carandang and the IRS would have the stipulated decision signed by the court and would move on to other affairs of life without having to do a two-step to get there.  This provides another policy reason for Congress not to treat the time period as jurisdictional and a reason the Supreme Court has made the determination that time periods for filing in court are only jurisdictional when Congress makes a clear expression it intends the time period to be jurisdictional.

For a case stopped by this process, look at the 2018 order to show cause and the dismissal order in Williams, Docket No.  24954-17.  In that case, of course, we can’t see a copy of the proposed decision because the court never entered it.  The parties simply had to return to the administrative process to work out the details of the case they had settled through the Tax Court process without knowing the court lacked jurisdiction over the case until they had resolved it.

Special Note about Clerk’s Office at the Tax Court

On May 21, 2020 the Tax Clinic at Harvard received notice that the Tax Court had processed a petition dated March 16, 2020.  Earlier indications were that the Court had stopped processing cases about March 9.  The receipt of this notice indicates that someone is again working in the clerk’s office.  Because of the date of the petition, it would have arrived at the Tax Court before the Court closed the clerk’s office.  Unclear if the action on this case just means that a small group is working in the clerk’s office to clean up the 10 days or so of cases received but not processed before the closure of the clerk’s office or if this signals the clerk’s office is about to reopen and the suspension of time to file a petition under Guralnik is about to come to an end.

Additional Resource Regarding the Jurisdictional Issue

If you want more background on the general issue of jurisdiction and the Tax Court just type jurisdiction into the search box on the blog or read the excellent law review article by Bryan Camp “New Thinking About Jurisdictional Time Periods in the Tax Code,” 77 Tax Lawyer 1 (2019).